<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, 1998.
( ) 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, 1998
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
(Address of principal executive offices)
(206) 298-2909
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(X) Yes ( ) No
As of August 12, 1998, there were 10,484,050 shares of the
Registrant's Common Stock, par value $.0001, outstanding.
<PAGE>
EMERITUS CORPORATION
Index
Part I. Financial Information
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Financial Statements: Page No.
Condensed Consolidated Balance Sheets as
of December 31, 1997 and June 30, 1998.. 1
Condensed Consolidated Statements of
Operation for the Three Months and Six 2
Months Ended June 30, 1997 and 1998.....
Condensed Consolidated Statements of
Comprehensive Operations for the Three 3
Months and Six Months ended June 30,
1997 and 1998...........................
Condensed Consolidated Statements of
Cash Flows for the Six Months ended June 4
30, 1997 and 1998.......................
Notes to Condensed Consolidated 5
Financial Statements ...................
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 7
Operations..............................
</TABLE>
Part II. Other Information
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. Legal Proceedings....................... 14
Item 4. Submission of Matters to a Vote of 14
Security Holders.........................
Item 6. Exhibits and Reports on Form 8-K......... 15
Signatures............................... 19
Note: Items 2, 3 and 5 of Part II are omitted
because they are not applicable
</TABLE>
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1997 and June 30, 1998
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
June 30,
December 31, 1998
1997 (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................... $ 17,537 $ 21,661
Short-term investments........................ 17,235 8,700
Trade accounts receivable, net................ 2,338 2,652
Prepaid expenses and other current assets..... 5,481 7,498
Property held for sale........................ 8,202 10,550
Total current assets.................. 50,793 51,061
Property and equipment, net..................... 145,831 123,123
Property held for Development................... 2,754 3,709
Notes receivable from and investments in
affiliates...................................... 6,422 11,251
Restricted deposits, less current portion....... 10,273 10,111
Other assets, net............................... 12,500 12,737
Total assets.......................... $228,573 $211,992
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities:
Short-term $ - $ 5,000
borrowings....................................
Current portion of long-term debt............. 12,815 16,322
Margin loan on short-term investments......... 9,165 4,248
Trade accounts payable........................ 2,541 5,510
Construction Advances - Leases................ - 512
Accrued employee compensation and benefits.... 3,713 4,923
Other current liabilities..................... 10,485 10,371
Total current liabilities............. 38,719 46,886
Deferred rent................................... 8,474 9,298
Deferred gain on sale of communities............ 12,314 12,739
Deferred income................................. 114 183
Convertible debentures.......................... 32,000 32,000
Long-term debt, less current portion... ........ 108,117 111,891
Security deposits and other long-term
liabilities..................................... 1,452 553
Total liabilities..................... 201,190 213,550
Minority interests.............................. 1,176 388
Redeemable preferred stock...................... 25,000 25,000
Shareholders' equity (deficit):
Common stock, $.0001 par value. Authorized
40,000,000 shares; issued and outstanding
10,974,650 and 10,483,050 shares at December 31,
1997 and June 30, 1998, respectively............ 1 1
Additional paid-in capital..................... 44,449 38,984
Accumulated other comprehensive income......... 4,011 151
Accumulated deficit............................ (47,254) (66,082)
Total shareholders' equity (deficit).. 1,207 (26,946)
Total liabilities and shareholders'
equity (deficit)...................... $228,573 $211,992
</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, 1997 and 1998
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Revenues:
Community revenue............ $28,543 $35,883 $52,746 $70,026
Other service fees........... 381 882 669 1,480
Management fees.............. 16 249 28 310
Total operating revenues... 28,940 37,014 53,443 71,816
Expenses:
Community operations......... 19,258 27,339 36,142 53,048
General and Administrative... 2,748 3,277 4,955 6,478
Depreciation and Amortization 1,482 1,331 2,567 2,898
Rent......................... 8,123 10,434 14,986 20,734
Total operating expenses... 31,611 42,381 58,650 83,158
Loss from operations....... (2,671) (5,367) (5,207) (11,342)
Other income (expense):
Interest expense, net........ (1,613) (3,721) (2,455) (6,499)
Other, net................... 436 1,888 242 2,216
Net other expense.......... (1,177) (1,833) (2,213) (4,283)
Loss before extraordinary item
and cumulative effect of change
in accounting principle........ (3,848) (7,200) (7,420) (15,625)
Extraordinary item-loss on
early extinguishment of debt...
- (767) (767)
- (1,319)
Cumulative effect of change in
accounting principle........... - - - (1,320)
Net loss................... $(3,848) $(7,967) $(7,420) $(17,712)
Preferred stock dividends...... (561) (1,116)
Net loss to common
shareholders............... $(3,848) $(8,528) $(7,420) $(18,828)
Loss per common share - basic
and diluted:
Loss before extraordinary item
and cumulative effect of change
in accounting principle........ $ (0.35) $ (0.74) $ (0.67) $ (1.58)
Extraordinary item............. (0.07) (0.07)
Cumulative effect of change in
accounting principle........... - - - (0.13)
Loss per common share...... $ (0.35) $ (0.81) $ (0.67) $ (1.78)
Weighted average number of
common shares outstanding -
basic and diluted.............. 11,000 10,483 11,000 10,558
</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 COMPREHENSIVE OPERATIONS
Three Months and Six Months Ended June 30, 1997 and 1998
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net loss............................ $(3,848) $(7,967) $(7,420) $(17,712)
Other Comprehensive income
(loss):
Foreign currency
translation adjustments.......... 1 (8) 1 (6)
Unrealized gains (losses)
on investment securities:
Unrealized holding gains(losses)
arising during the period........ 792 (1,042) 876 (3,395)
Reclassification adjustment for
gains included in net loss....... - (9) - (459)
Total other comprehensive
income (loss) ................. 793 (1,059) 877 (3,860)
Comprehensive Income................ $(3,055) $(9,026) $(6,543) $(21,572)
</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
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1997 and 1998
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Net cash used in operating activities (including
changes in all operating assets and liabilities)... $(1,898) $ (13,123)
Cash flows from investing activities:
Acquisition of property and equipment.............. (14,565) (9,013)
Acquisition of property held for development....... (8,119) (1,674)
Acquisition of property held for sale.............. (1,495) -
Proceeds from disposition of assets................ 20,910 10,427
Purchase of investment securities.................. (1,839) (208)
Sale of investment securities...................... 3,207 5,421
Construction advances - leased communities......... 14,785 7,697
Construction expenditures - leased communities..... (23,399) (5,832)
Advances to affiliates................ ............ (1,275) (2,244)
Acquisition of interest in affiliates.............. (1,252) (3,520)
Net cash provided by (used in) investing
activities................................. (13,042) 1,054
Cash flows from financing activities:
Restricted deposits................................ (1,815) (450)
Proceeds from short-term borrowings, net........... 2,000 5,221
Repayment of short-term borrowings................. - (5,138)
Debt issue and other financing costs............... (543) (2,135)
Proceeds from long-term borrowings................. 21,025 84,741
Repayment of long-term borrowings.................. (15,682) (60,634)
Repurchase of common stock......................... - (5,406)
Net cash provided by financing
activities................................. 4,985 16,199
Effect of exchange rate changes on cash............ - (6)
Net increase (decrease) in cash............ (9,955) 4,124
Cash and cash equivalents at the beginning of the 23,039 17,537
period...............................................
Cash and cash equivalents at the end of the $13,084 $ 21,661
period...............................................
</TABLE>
See accompanying Notes to Condensed Consolidated Financial
Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
4
<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") for the periods presented.
The Company presumes that users of the interim financial
information herein have read or have access to the Company's
1997 audited consolidated financial statements and
Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the 1997 Form 10-K
filed March 30, 1998 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, footnotes and other disclosures which would
substantially duplicate the disclosures in Form 10-K have been
omitted. The financial information herein is not necessarily
representative of a full year's operations.
During the quarter ended June 30, 1998, the Company sold its
interest in a controlled subsidiary and effected a partial
sale of its interest in a partnership. As a result, the
Company has consolidated the financial statements of these
entities to the date its ownership became less than 50%, and
has carried its remaining investment in the partnership on the
equity basis subsequent to that date.
Certain reclassifications of the 1997 amounts have been made
to conform to the 1998 presentation.
2. Acquisitions
During the six months ended June 30, 1997, the Company
completed four acquisitions of assisted-living and independent-
living communities. These acquisitions have been accounted
for as purchases and, accordingly, the assets and liabilities
of the acquired communities were recorded at their estimated
fair values at the dates of acquisition. No goodwill or
identifiable intangibles were recorded with respect to any of
the acquisitions. The results of operations of the
communities acquired have been included in the Company's
consolidated financial statements from the dates of the
acquisitions. Summary information concerning the acquisitions
is as follows:
<TABLE>
<CAPTION>
<C> <S> <S> <S>
Total
Communities Acquired Acquisition Purchase price Units
Date
Villa Del Rey........ March 1997 $ 4,252 84
La Casa Communities May 1997 33,062 473
(1)..................
Total................ $ 37,314 557
</TABLE>
(1) Consists of three long-term care communities located in
Florida.
The foregoing purchases have generally been financed through
borrowings.
During the six months ended June 30, 1997, the Company
completed the acquisition of three communities through lease
financing transactions with a Real Estate Investment Trust
(REIT), pursuant to which the REIT 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Lease Initial Renewal Annual
Communities Acquisition Lease Oprions Rent Units
Leased Date Term
Texas April 1997 15 Three five- $2,174,328 411
Communities... years year
</TABLE>
Consists of three long-term care communities in Texas.
5
<PAGE>
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
The Company has a letter of intent with a REIT relating to
sale/leaseback financing of $100 million for newly purchased
facilities and a similar arrangement with the REIT for an
additional $100 million financing for the newly purchased
facilities. At June 30, 1998 approximately $54.3 million of
such financing remains available to the Company.
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, 1997, after including the
impact of certain adjustments such as depreciation on assets
and interest expense on acquisition financing.
<TABLE>
<CAPTION>
<S> <C> <C>
Three months ended Six months ended
June 30, 1997 June 30, 1997
(in thousands, except per share data)
Revenue....... $29,791 $58,374
Net loss...... (3,912) (6,359)
Pro forma net
loss.......... $(0.36) $(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.
3. Dispositions
In June, the Company completed the disposition of three
assisted-living communities to a related party. The Company
has a management interest in each community through a long-
term management contract.
4. Property Held For Sale
As of June 30, 1998, the Company has commitments to sell six
assisted-living communities and an office park to an
independent third party, and is offering another in the
marketplace.
5. New Accounting Standards
In April 1997, the Accounting Standards Executive Committee
issued Statement of Position 98-5 (SOP 98-5), Reporting on the
Costs of Start-Up Activities. This statement provides
guidance on financial reporting for start-up costs and
organization costs and requires such costs to be expensed as
incurred. The Company elected early adoption of this
statement effective January 1, 1998 and has reported a charge
of $1,320,000 for the cumulative effect of this change in
accounting principle through the first quarter of 1998. In
addition, the adoption of SOP 98-5 resulted in the Company
expensing approximately $554,000 in start-up costs in the
second quarter of 1998.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 130 (SFAS 130),
Reporting Comprehensive Income. This statement establishes
standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial
statements. The purpose of reporting comprehensive income is
to report a measure of all changes in equity of an enterprise
that result from recognized transactions and other economic
events of the period other than transactions with owners in
their capacity as owners. The Company adopted SFAS 130
effective January 1, 1998.
6. Loss Per Share
Loss per common share on a dilutive basis has been calculated
without consideration of 1,962,945 and 3,869,322 common shares on
June 30, 1997 and 1998, respectively, related to outstanding
options, warrants, convertible debentures and convertible
preferred stock because the inclusion of such common stock
equivalents would be anti-dilutive.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis contains certain forward-
looking statements within the meaning of the Private Litigation
Reform Act of 1995, including without limitation, statements
containing the words "believes," "anticipates," "intends" and
similar expressions. Such statements involve known and unknown
risks and uncertainties and other factors which may cause actual
results, performance or achievements expressed or implied to
differ materially from those projected. Factors that could cause
actual results to differ from expectations include, but are not
limited to 1) significant changes in senior management and
skilled personnel, 2) significant changes in occupancy levels
at the communities, 3) the Company's ability to meet debt and
lease obligations, 4) significant liability claims, and 5)
competition. 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.
OVERVIEW
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, 1997
and 1998, the Company generated total operating revenues of $53.4
million and $71.8 million, respectively. For the six months ended
June 30, 1997 and 1998, the Company generated losses of $7.4
million and $15.6 million (excluding an extraordinary loss and a
charge related to the cumulative effect of a change in accounting
principle in 1998), respectively. As of June 30, 1998, the
Company's accumulated deficit was $66.1 million and its total
shareholders' deficit was $26.9 million. The Company's losses
result from a number of factors. These factors include, but are
not limited to 1) the acquisition and development in 1996 and
subsequent periods of a number of communities that have incurred
operating losses during the initial 12 to 24 month rent-up phase,
2) lower than expected occupancy percentages at the Company's
stabilized communities, 3) financing costs arising from
sale/leaseback transactions and mortgage financing and
refinancing transactions at proportionately higher levels of
debt, and 4) increased administrative and corporate expenses
resulting from a restructuring of the Company's operations and
marketing required by rapid growth.
The Company's operating strategy is to increase operating margins
at each acquired or newly developed community. This is
accomplished primarily by increasing occupancy levels, retaining
residents longer by offering 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 12, 1998, the Company held ownership, leasehold or
management interests in 109 residential communities (the
"Operating Communities") consisting of approximately 9,600 units
with the capacity of over 11,000 residents, located in 27 states.
Additionally, the Company holds a minority interest in Alert Care
Corporation ("Alert Care"), an Ontario, Canada based owner and
operator of 26 assisted-living communities consisting of
approximately 1,400 units with a capacity of approximately 1,600
residents. As of August 12, 1998, the Company's ownership of
Alert Care was 31.3%. Including Alert Care, the Company holds an
interest in 135 Operating Communities consisting of approximately
11,000 units with a capacity of over 12,600 residents. Of the
109 Operating Communities, 17 newly developed communities were
opened during 1997 and six have been opened thus far in 1998.
The Company leases 74 of the Operating Communities, typically
from a financial institution such as a Real Estate Investment
Trust ("REIT"), owns 17 communities, manages or provides
administrative services for 12 communities and has a partnership
interest or joint venture in six communities.
The Company has begun efforts to explore international
development and acquisition possibilities in Japan and Canada.
The Company's investment in Alert Care in Ontario, Canada
represents a significant initial investment in the assisted-
living industry in Canada. The Company has also entered into a
joint venture with Sayno Electric Company, Ltd. of Osaka, Japan
to provide assisted living services in Japan. The Company
anticipates completion of the first assisted-living community in
Japan by 2000.
The Company currently has commitments to dispose of six
communities and an office park to an independent third party.
This sale is anticipated to close in the third quarter of 1998.
The six communities represent approximately 750 units and have a
capacity of approximately 900 residents. The combined net loss
attributable to the six communities for the six months ended June
30, 1998 was approximately $1.9 million.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
During the second quarter, the Company disposed of interests in
three communities to a related party, but will retain long-term
management agreements with respect to each community. The
combined net loss attributable for these communities for the six
months ended June 30, 1998 was approximately $1.5 million. The
Company retains a 20% interest in one community and holds notes
that are convertible into a 20% interest in one other community.
The Company owns, has a leasehold interest in, management
interest in or has acquired an option to purchase development
sites for 20 new assisted-living communities (the "Development
Communities"). The Company has opened five newly developed
communities in the six months ended June 30, 1998. Ten
Development Communities are currently under construction, seven
of which are scheduled to open during the remainder of 1998.
Assuming completion of the Development Communities scheduled to
open throughout 1998, excluding the communities held for sale and
including the minority interest in Alert Care, the Company will
own, lease, have an ownership interest in or manage 135
properties in 28 states and Canada, containing an aggregate of
approximately 10,900 units with capacity of over 12,400
residents. There can be no assurance, however, that the
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 following table sets forth a summary of the Company's
property interests.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
As of December 31, As of December 31, As of June 30,
1996 1997 1998
Buildings Units Buildings Units Buildings Units
Owned 15 1,485 19 2,099 17 1,727
Leased 53 4,165 76 6,124 78 6,278
Managed 1 83 4 327 10 1,204
Joint 2 162 1 140 1 100
Venture/Partnership
Sub Total 71 5,895 100 8,690 106 9,309
Annual Growth 196% 170% 41% 47% 12% 14%
Rate*
Pending 8 1,028 - - 1 96
Acquisitions
New Developments 27 2,296 26 2,483 21 2,010
Minority Interest 17 959 22 1,248 26 1,383
Total 123 10,178 148 12,421 154 12,798
Annual Growth 95% 96% 20% 22% 8% 6%
Rate*
* Annual growth rates at June 30, 1998 represent annualized
rates based on the six month period then ended.
8
<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.
Period to Period
Percentage Increase (Decrease)
Percentage of Revenues Three Months Six Months
Three Months Six Months Ended Ended Ended
Ended
June 30, June 30, June 30,
June 30,
1997 1998 1997 1998 1997-1998 1997-1998
Revenues............
100.0% 100.0% 100.0% 100.0% 27.9% 34.4%
Expenses:
Community 42.0
operations......... 66.5 73.9 67.6 73.9 46.8
General and 19.3
administrative..... 9.5 8.8 9.3 9.0 30.7
Depreciation and
amortization....... 5.1 3.6 4.8 4.0 (10.2) 12.9
Rent............... 28.1 28.2 28.0 28.9 28.5 38.4
Total operating
expenses......... 109.2 114.5 109.7 115.8 34.1 41.8
Loss from
operations....... (9.2) (14.5) (9.7) (15.8) 100.9 117.8
Other income
(expense):
Interest 130.6 164.7
expense, net...... (5.6) (10.0) (4.6) (9.1)
Other, net........ 333.0 816.1
1.5 5.1 0.5 3.1
Net other expense 55.7 93.5
(4.1) (4.9) (4.1) (6.0)
Loss before 87.1 110.6
Extraordinary (13.3) (19.4) (13.8) (21.8)
item.............
Extraordinary 100.0 100.0
item................ (2.1) (1.1)
Cumulative effect of 100.0
change.............. (1.8)
Net loss........
(13.3)% (21.5)% (13.8)% (24.7)% (107.0)% (138.7)%
Six months ended June 30, 1998 Compared to six months ended June
30, 1997
Revenues: Total operating revenues for the six months ended June
30, 1998 increased 34% or $18.4 million from the comparable
period in 1997. The increase is primarily a result of 1) the
opening of additional communities during and subsequent to the
second quarter of 1997 and 2) increases in average occupancy net
occupied units at communities operated for more than one year.
For the first six months of 1998, however, the Company
experienced a decline in average occupancy to 70% from 73% for
the first six months of 1997 primarily as a result of newly
developed communities opened since June 30, 1997. Occupancy at
the end of the second quarter, as distinguished from average
occupancy during the period, had risen to 74% as of June 30, 1998
compared with 71% as of June 30, 1997.
Community Operations: Expenses for community operations for the
six months ended June 30, 1998 increased by 47% or $16.9 million
from the comparable period in 1997primarily due to the Company's
opening of 16 operating communities subsequent to June 30, 1997.
As a percentage of total revenues, expenses for community
operations was 74% for the six months ended June 30, 1998,
compared to 68% for the six months ended June 30, 1997. This
increase reflects of 1) higher marketing expenses, 2) the
expensing of start-up and organization costs in accordance with
SOP 98-5 which had previously been deferred and amortized, 3)
real estate taxes related to newly opened communities in the
start-up phase of operations, 4) increased labor and health
insurancecosts, as well as increased operating expense levels
generally.
General and Administrative: As a percentage of total operating
revenues, G&A expenses remained relatively unchanged at
approximately 9% for the six months ended June 30, 1998 and 1997.
The increase of $1.5 million is primarily attributable to greater
personnel and travel costs related to the growth in the Company
from the comparable period in 1997. G&A costs are expected to
continue to increase proportionally with revenues and community
operations at least through 1998 as the Company continues to
develop 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 six months ended June 30, 1998 were 4% or $2.9 million of
total operating revenues, compared to 5% or $2.6 million of total
operating revenues, for the comparable period in 1997. The
increase was primarily due to the Company's opening of new
developments and the acquisition of communities owned by the
Company, net of communities sold subsequent to the second quarter
of 1997. The Company owned 17 of its 106 communities at June 30,
1998, compared to 16 of 90 owned at June 30, 1997.
Rent: Rent expense as a percentage of revenue was 29% as of June
30, 1998 compared with 28% for the comparable period in 1997.
Rent expense for the six months ended June 30, 1998 was $20.7
million, representing an increase of $5.7 million, or 38% from
the comparable period in 1997. The increase is attributable to
the opening of newly developed leased communities in the fill-up
stage. The Company expects an occupancy fill-up period of 12 to
24 months for a newly developed community. As the fill-up of
newly developed communities continues, rent expense as a
percentage of revenue is expected to decrease. The Company
leased 78 communities as of June 30, 1998, compared with 67 at
June 30, 1997.
Interest Expense, Net: Interest expense, net as a percent of
revenues was 9% for the six months ended June 30, 1998 compared
with 5% from the six months ended June 30, 1997. Interest
expense, net, for the six months ended June 30, 1998 increased
$4.0 million from the comparable period in 1997. The increase
was primarily due to four additional mortgage-financed
communities subsequent to the second quarter of 1997.
Other, Net: Other, net, for the six months ended June 30, 1998
increased $2.0 million from the comparable period in 1997. The
increase is primarily attributable to a gain on the sale of
securities and a gain on the disposition of three communities.
Extraordinary Item: The Company recognized an extraordinary loss
of approximately $767,000 for the period ended June 30, 1998.
This loss is a result of the write-off of loan fees and other
related costs that are a result of the Company's early
extinguishment of debt due to refinancing 10 communities.
Cumulative Effect of Change in Accounting Principle: The Company
incurred a cumulative effect of a change in accounting principle
of $1.3 million relating to the early adoption of SOP 98-5 which
requires that costs of start-up activities and organization costs
be expensed as incurred. The Company does not expect this
statement to materially impact total operating expenses. However,
future capitalized and amortized start-up costs will be expensed
to community operations as incurred.
Three months ended June 30, 1998 Compared to three months ended
June 30, 1997
Revenues: Total operating revenues for the three months ended
June 30, 1998 increased 28% or $8.1 million from the comparable
period in 1997. The increase is primarily a result of 1) the
opening of additional newly developed communities during and
subsequent to the second quarter of 1997 and 2) increases in
average occupancy at communities operated for more than one year.
Community Operations: Community operating expenses for the three
months ended June 30, 1998 increased 42% from the comparable
period in 1997 to $27.3 million primarily due to the Company's
addition of 15 operating communities. As a percentage of total
operating revenues, community operating expenses increased to 74%
for the three months ended June 30, 1998 compared to 67% for the
three months ended June 30, 1997. This increase reflects 1)
higher marketing expenses 2) the expensing of start-up and
organization costs in accordance with SOP 98-5, which had
previously been deferred and amortized, 3) real estate taxes
related to newly-opened communities in the start-up phase of
operations, 4) increased labor and health insurance costs, as
well as increased operating expense levels generally.
General and Administrative: As a percentage of total operating
revenues G&A expenses remained relatively unchanged at
approximately 9% for the three months ended June 30, 1998 and
1997. The increase of $500,000 is primarily due to greater
personnel and travel costs related to the growth in the Company
from the comparable period in 1997.
10
<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, 1998 were $1.3 million, or 4% of
total operating revenues, compared to $1.5 million or 5% of total
operating revenues for the comparable period in 1997.
Rent: Rent expense as a percentage of revenue for the three
months ended June 30, 1998 was 28% or $10.4 million, compared
with 28% or $8.1 million for the comparable period in 1997.. The
increase in rent expense is due to the opening of newly developed
leased communities in the fill-up stage. The Company expects an
occupancy fill-up period of 12 to 24 months for a newly developed
community. As occupancy at newly developed communities
increases, rent expense as a percentage of total operating
revenue is expected to decrease. The Company leased 78
communities as of June 30, 1998, compared with 67 at June 30,
1997.
Interest Expense, Net: Interest expense, net as a percentage of
total operating revenue was 10% for the three months ended June
30, 1998 compared with 6% for the comparable period in
1997Interest expense, net for the three months ended June 30,
1998 increased $2.1 million from the comparable period in 1997.
The increase is primarily due to four additional mortgage-
financed communities subsequent to the second quarter of 1997.
Other, Net: Other, net, for the three months ended June 30, 1998
increased $1.5 million from the comparable period in 1997. The
increase is primarily attributable to a gain on disposition of
three communities.
Extraordinary Item: The Company recognized an extraordinary loss
of $767,000 for the period ended June 30, 1998. This loss is a
result of the write-off of loan fees and other related costs that
are a result of the Company's early extinguishment of debt due to
refinancing 10 communities.
Same Community Comparison
The Company operated 69 communities ("Same Community") on a
comparable basis during both the six months ended June 30, 1997
and 1998. The Same Communities represented $26.2 million or 71%
of the Company's total revenue for the second quarter of 1998.
Same Community revenues increased by $2.1 million from the
comparable quarter ended June 30, 1997. The increase in revenue
is attributable to increased occupancy, monthly rate increases,
and greater services offered at the communities. Net pre-tax
losses, before corporate overhead, decreased from approximately
$193,000 to $95,000 from the quarter ended June 30, 1997 to the
quarter ended June 30, 1998. Net operating margins decreased to
32% compared to 36% for the quarter ended June 30, 1997. The
decline in net operating margins is primarily attributed to a
general increase in on-going community level expenses, which were
primarily labor costs.
Same Community revenue per unit increased
4% from approximately $1,949 per month for the quarter ended June
30, 1997 to $2,028 per month for the quarter ended June 30, 1998.
In addition, the average occupancy increased to 82% during the
six months ended June 30, 1998 compared to 78% for the comparable
period last year.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table sets forth a comparison of Same Community
results of operations before corporate overhead for the three
months ended June 30, 1997 and 1998.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Three months Ended June 30,
(In thousands)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Dollar Percentage
1997 1998 Change Change
Revenue................. $24,145 $26,249 $2,104 9 %
Community operating
expense................. 15,522 17,815 2,293 15
Community operating
income............... 8,623 8,434 (189) (2)
Depreciation and
amortization............ 975 598 (377) (39)
Rent.................... 7,061 7,304 243 3
Operating
income............. 587 532 (55) (9)
Interest expense, net...
785 730 (55) (7)
Other income
5 103 98 1,960
Pre-tax income
(loss).............. $ (193) $ (95) $ 98 (51)%
</TABLE>
For the quarter ended March 31, 1998, the company operated 59
Same Communities. Revenues for these 59 communities were $23.2
million and $23.4 million for the quarter ending March 31, 1998
and June 30, 1998, respectively. Community operating expenses
increased by 2% to $15.7 million in the quarter ended June 30,
1998 from the quarter ended March 31, 1998. Pre-tax income,
before corporate overhead, for the quarter ended March 31, 1998
was $497,000, compared with income of $416,000 for the quarter
ended June 30, 1998. Average occupancy for the 59 Same
Communities was 82% and 83% for the first and second quarters of
1998, respectively.
Liquidity and Capital Resources
For the six months ended June 30, 1998, net cash used in
operating activities was $13.1 million compared with $1.9 million
for the comparable period in the prior year. For the six months
ended June 30, 1998, the primary component of cash used in
operating activities was the net loss of $17.7 million. For the
six months ended June 30, 1997, the net cash used in operating
activities was primarily due to the net loss for the period.
Net cash provided by investing activities was $1.1 million for
the six months ended June 30, 1998 reflecting $10.4 million in
proceeds from the disposition of three communities and $10.7
million used in acquisitions of property held for development and
property and equipment. Net cash used in investing activities
for the six months ended June 30, 1997 was $5.5 million,
primarily as a result of construction expenditures for future
communities and refurbishments completed on existing communities.
For the six months ended June 30, 1998, net cash provided by
financing activities was $16.2 million, reflecting the refinancing
of ten existing assisted-living communities with Deutsche Bank
North America in the second quarter of 1998 for $73.2 million.
The new loans paid off existing debt of $60.3 million.
For the six months ended June 30, 1997, net cash provided by
financing activities was $4.3 million. primarily the result of
refinancing of existing assisted-living communities.
In December 1997, the Company purchased 25,600 shares of its
common stock at an aggregate cost of $341,000. In January 1998,
the Company's Board of Directors authorized a stock purchase
program to acquire up to 500,000 shares of the Company's common
stock in the open market. In April 1998, the Company's Board of
Directors authorized 500,000 additional shares of the Company's
common stock to be purchased in the open market. As of August
12, 1998, the Company has purchased and retired 517,200 shares of
its common stock at an aggregate cost of $5.7 million. In July
and August of 1998, the Company purchased 2,450,000 shares of
Alert Care for $1.7 million.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
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 refinancing existing loans and
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.
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. The monthly
charges for the resident's unit and assisted living services are
influenced by the location of the community and local
competition. Based on this, 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.
Impact of Year 2000
Concerns surrounding the Year 2000 are the result of computer
programs being written using two digits rather than four to
define the applicable year. Programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather
than the year 2000, resulting in major system failure or
miscalculations. The Company has completed a review of its
financial systems to identify those systems that could be
affected by the "Year 2000" and has obtained representation from
applicable vendors that such systems are Year 2000 compliant.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk is not applicable.
13
<PAGE>
PART II OTHER INFORMATION
Item 1: Legal Proceedings
On April 24, 1998, the Company commenced a lawsuit against ARV
Assisted Living Inc. ("ARV") in Superior Court of the State of
California for the County of Orange alleging that share purchases
on January 16, 1998 by Prometheus Assisted Living LLC
("Prometheus") triggered the so-called flip-in feature of ARV's
poison pill.
The effect of the flip-in feature having been triggered by
Prometheus is to require ARV to distribute to all shareholders
(other than Prometheus) certificates for one Right per share
owned on January 16, 1998. The Company believes that each Right
would be exercisable for approximately 9.56 shares at a purchase
price of $7.32 per share. The Rights are exercisable until
August 8, 2007 and are transferable separate from the ARV common
stock.
In connection with Prometheus' initial investment in ARV in July
1997, ARV adopted a Rights Agreement (commonly referred to as a
poison pill) which provides that the flip-in feature is triggered
if Prometheus acquires "beneficial ownership" of 50% or more of
ARV's outstanding common stock. The flip-in is a defensive
feature intended to discourage accumulation of control of stock
in excess of a specified level by allowing all shareholders other
than the acquiror to purchase additional common stock at a 50%
discount to the average closing market price of ARV's stock for
the 30 trading days prior to the flip-in being triggered.
In a Schedule 13D filing on January 20, 1998, Prometheus
disclosed that on January 16th it had acquired additional shares
of ARV common stock, increasing Prometheus' direct share
ownership to 45% of the outstanding ARV common stock. Previous
Schedule 13D filings by Prometheus disclose that Prometheus also
then beneficially owned another 9% of ARV's common stock as a
result of the Stockholders' Voting Agreement dated October 29,
1997, between Prometheus and certain management stockholders of
ARV (collectively, the "Management Stockholders"). Under the
Stockholders' Voting Agreement, each Management Stockholder
agreed with Prometheus to vote its shares of ARV common stock in
support of Prometheus' nominees to ARV's Board of Directors.
The Company' complaint alleges that the Stockholders' Voting
Agreement increases Prometheus' beneficial ownership from its 45%
direct ownership to 54%, thereby triggering the flip-in feature
of the poison pill. For purposes of determining Prometheus'
beneficial ownership, the Rights Agreement treats Prometheus as
beneficially owning shares held by "any other person with which
Prometheus has any agreement, arrangement or understanding
whether or not in writing, for the purpose of acquiring, holding,
voting or disposing of any securities of ARV."
The Company' complaint seeks the following injunctive and
declaratory relief: (i) an order directing ARV to distribute
Right Certificates to all holders of common stock of ARV (other
than Prometheus) as of January 16, 1998; and (ii) an order
declaring that a "Trigger Event" (as defined in the Rights
Agreement) occurred on January 16, 1998 when Prometheus acquired
beneficial ownership of more than 50% of ARV's common stock.
Prometheus is an investment vehicle controlled by Lazard Freres
Real Estate Investors L.L.C. ("Lazard"). Lazard's activities
consist principally of acting as general partner of several real
estate investment partnerships affiliated with Lazard Freres &
Co. LLC.
Items 2-3 are not applicable.
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 20,
1998. The following summarizes all matters voted on at the
meeting:
(a) To elect three directors into Class II of the Company's
Board of Directors for a three year term.
Votes Cast
Nominee For Against Withheld
Tom A. Alberg 9,942,365 - 224,495
Raymond R. Brandstrom 9,956,990 - 209,870
David T. Hamamoto 9,932,950 - 233,910
14
<PAGE>
(b) To approve the 1998 Employee Stock Purchase Plan.
For Against Abstain Non-Votes
10,069,291 64,213 33,356 316,190
(c) To amend the 1995 Stock Incentive Compensation Plan.
For Against Abstain Non-Votes
9,145,475 969,222 52,163 316,190
(d) To ratify the appointment of KPMG Peat Marwick as the
Company's independent public accountant's for the fiscal year
1998.
For Against Abstain Non-Votes
10,133,953 15,483 17,424 316,190
In accordance with the Company's Bylaws, a shareholder proposing
to transact business at the Company's annual meeting must provide
written notice of such proposal, in the manner provided by the
Company's Bylaws, no later than 60 days prior to the date of such
annual meeting (or, if the Company provides less than 60 days
notice of such meeting, no later than 10 days after the date of
the Company's notice). In addition, if the Company receives
notice of a shareholder proposal after February 27, 1999, the
persons named as proxies in such proxy statement and proxy will
have discretionary authority to vote on such shareholder proposal
Item 5 is not applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
10.1 Development Properties in Flagstaff, Arizona, North Phoenix,
Arizona and Washington County, Maryland. The following agreement
is representative of those executed in connection with these
properties.
10.1.1 Leasehold Improvement Agreement dated
May 12, 1998 between Emeritus Properties
I, Inc. ("Lessee") and Meditrust Company
LLC ("Lessor").
10.2 River Oaks in Englewood, California, Stanford Center in
Alamonte Springs, La Casa Grande in New Port Richey, Florida,
Silver Pines in Cedar Rapids, Iowa, Villa Del Rey in Escondido,
California, Spring Meadows in Bozeman, Montana, Juniper Meadows
in Lewiston, Idaho and Fulton Villa in Stockton, California.
10.2.1 Credit Agreement dated April 29, 1998
between Emeritus Properties II, Inc.,
Emeritus Properties V, Inc., and
Emeritus Properties VII, Inc.
("Borrowers") and Deutsche Bank AG, New
York Branch ("Lender").
10.2.2 Amended and Restated Guaranty and
Limited Indemnity Agreement dated June
30, 1998 between Emeritus Corporation
("Guarantor") and Deutsche Bank AG
("Lender").
10.2.3 Amendment to Credit Agreement and
Restatement of Article IX dated June 30,
1998 between Emeritus Properties II,
Inc., Emeritus Properties III, Inc.,
Emeritus Properties V and Emeritus
Properties VII, Inc. (together
"Borrowers") and Deutsche Bank AG
("Lender").
15
<PAGE>
10.2.4 Guaranty and Limited Indemnity Agreement
dated April 29, 1998 between Emeritus
Corporation ("Grantor") and Deutsche
Bank AG, New York Branch ("Lender").
10.2.5 Promissory Note dated June 30, 1998
between Emeritus Properties III, Inc.
("Borrower") and Deutsche Bank AG, New
York Branch ("Lender").
10.2.6 Future Advance Promissory Note dated
April 29, 1998 between Emeritus
Properties V, Inc. ("Borrower") and
Deutsche Bank AG, New York Branch
("Lender").
10.3 Cooper George in Spokane, Washington.
10.3.1 Deed of Trust, Trust Indenture,
Assignment, Assignment of Rents,
Security Agreement, Including Fixture
Filing and Financing Statement dated
June 30, 1998 between Cooper George
Partners Limited Partnership
(`Grantor"), Chicago Title Insurance
Company ("Trustee") and Deutsche Bank
AG, New York Branch ("Beneficiary").
10.3.2 Partnership Interest Purchase Agreement
dated June 4, 1998 between Emeritus Real
Estate LLC IV ("Seller") and Columbia
Pacific Master Fund 98 General
Partnership ("Buyer").
10.3.3 Credit Agreement dated June 30, 1998
between Cooper George Partners Limited
Partnership ("Borrower") and Deutsche
Bank AG, New York Branch ("Lender").
10.3.4 Amended and Restated Agreement of
Limited Partnership of Cooper George
Partners Limited Partnership dated June
29, 1998 between Columbia Pacific Master
Fund '98 General Partnership, Emeritus
Real Estate IV, L.L.C. and Bella Torre
De Pisa Limited Partnership.
10.3.5 Agreement to Provide Management Services
To An Independent and Assisted Living
Facility dated June 30, 1998 between
Cooper George Limited Partnership
("Owner") and Emeritus Corporation
("Manager").
10.3.6 Guaranty and Limited Indemnity Agreement
dated June 30, 1998 between Daniel R.
Baty ("Guarantor") and Deutsche Bank AG,
New York Branch ("Lender").
10.3.7 Promissory Note dated June 30, 1998
between Cooper George Limited
Partnership ("Borrower") and Deutsche
Bank, AG, New York Branch ("Lender").
10.4 Vickery Towers in Dallas, Texas.
10.4.1 Partnership Interest Purchase and Sale
Agreement dated June 4, 1998 between ESC
GP II, Inc. and Emeritus Properties IV,
Inc. (together "Seller") and Columbia
Pacific Master Fund 98 General
Partnership and Daniel R. Baty (together
"Purchaser").
10.4.2 Amended and Restated Agreement of
Limited Partnership of ESC II, LP dated
June 30, 1998 between Columbia Pacific
Master Fund '98 General Partnership and
Daniel R. Baty.
10.4.3 Agreement to Provide Management Services
To An Independent and Assisted Living
Facility dated June 30, 1998 between ESC
II, LP ("Owner") and ESC III, LP
("Manager").
16
<PAGE>
10.5 Development properties in Flagstaff, Arizona and
Washington County, Maryland. The following
agreement is representative of that executed in
connection with these properties.
10.5.1 Facility Lease Agreement dated May 12,
1998 between Meditrust Company LLC
("Lessor") and Emeritus Properties I,
Inc. ("Lessee").
10.6 Laurel Place in San Bernadino, California and
development property in Phoenix, Arizona. The
following agreement is representative of that
executed in connection with these properties.
10.6.1 Facility Lease Agreement dated February
27, 1998 between Meditrust Acquisition
Corporation I ("Lessor") and Emeritus
Properties I, Inc. ("Lessee").
10.7 Courtyard at the Willows in Puyallup, Washington
10.7.1 Deed of Trust, Trust Indenture,
Assignment, Assignment of Renta,
Security Agreement, Including Fixture
Filing and Financing Statement dated
June 30, 1998 between Emeritus
Properties III, Inc. ("Grantor") and
Chicago Title Insurance Company
("Trustee") and Deutsche Bank AG, New
York Branch ("Beneficiary").
10.7.2 Mortgage, Open-End Mortgage, Advance
Money Mortgage, Trust Deed, Deed Of
Trust, Trust Indenture, Assignment,
Assignment of Rents, Security Agreement,
Including Fixture Filing and Financing
Statement dated June 30, 1998 between
Emeritus Properties III, Inc ("Grantor,
Mortgagor") and Deutsche Bank, AG, New
York Branch.
10.8 Silver Pines in Cedar Rapids, Iowa, Spring Meadows in
Bozeman, Montana and Juniper Meadows in Lewiston, Idaho.
10.8.1 Promissory Note dated April 29, 1998
between Emeritus Properties II
("Borrower") and Deutsche Bank AG, New
York Branch.
10.9 Richland Gardens in Richland, Washington, Woodway
Inn in Tacoma Washington, The Pines of Goldsboro
in Goldsboro, North Carolina, Silverleaf Manor in
Meridian, Mississippi and Wilburn Gardens in
Fredericksburg, Virginia. The following agreement
is representative of those executed in connection
with these properties.
10.9.1 Agreement To Provide Management Services
To An Assisted Living Facility dated
February 2, 1998 between Richland
Assisted, L.L.C. ("Owner") and Acorn
Service Corporation ("Manager").
10.10 Richland Gardens in Richland, Washington, The
Pines of Goldsboro in Goldsboro, North Carolina,
Silverleaf Manor in Meridian, Mississippii,
Wilburn Gardens in Fredericksburg, Virginia and
Park Lane in Toledo, Ohio. The following
agreement is representative of those executed in
connection with these properties.
10.10.1 Marketing Agreement dated February 2,
1998 between Acorn Service Corporation
("Acorn") and Richland Assisted, L.L.C.
("RALLC").
17
<PAGE>
10.11 Amendments to Senior Management Agreements
entered into between the registrant and each of
the following individuals:
10.11.1 Ray Brandstrom
10.11.2 Gary Witte
10.11.3 Frank Ruffo
10.11.4 Sarah Curtis
10.11.5 Kelly Price
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the six
months ended June 30, 1998.
18
<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, 1998
EMERITUS CORPORATION
(Registrant)
Kelly J. Price, Vice President, Finance, Chief
Financial Officer and Principal Accounting Officer
19
<PAGE>
FLAGSTAFF, ARIZONA
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST COMPANY LLC
AND
EMERITUS PROPERTIES I, INC.
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made as of May 12,1998 by
and among EMERITUS PROPERTIES I, INC., a Washington corporation
(the "Lessee"), and MEDITRUST COMPANY LLC, a Delaware limited
liability company (the "Lessor").
1. BACKGROUND
l.l Lessee.
Lessee is a corporation which is a wholly-owned Subsidiary of the
Guarantor (as hereinafter defined). The Guarantor is a corporation
the stock of which is publicly traded on the American Stock
Exchange.
1.2 The Land and Existing Improvements.
Lessor is the owner of a certain parcel of land located in the
City of Flagstaff, Coconino County, Arizona 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 Coconino County, Arizona real estate records.
1.4 Project.
Lessee proposes to construct a 61-unit assisted living facility
and other improvements, including, without limitation, accessory
parking and landscaping on the Land (collectively, the
"Improvements"). The Land and the Improvements are collectively
referred to herein as the
"Project."
1.5 Lessor's Agreement to Fund the Project and Lessee's Agreement
to Supervise the Project.
Lessee and Lessor have agreed that the Project will be a benefit
to the premises demised under the Facility Lease and to Lessee's
and Lessor's respective interests therein. Lessor and Lessee have
further agreed that, pursuant to, and in accordance with, the
terms and conditions of this Agreement, Lessor shall fund an
amount not to exceed Four Million Eight Hundred Sixty Two Thousand
One Hundred Seventy Six Dollars ($4,862,176) of the cost o fthe
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
<PAGE>
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
Todd & Associates, Inc. (the "Architect") pursuant to the contract
dated February 14, 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 ADA
Construction Company, dated April 1,1998 (the "General
Contractor").
1.8 Schedule of Work and Completion Date; Schedule of Draws.
The work necessary to complete and fully equip the Project is to
be (a) undertaken and completed in accordance with the schedule of
work and schedule of values ("Schedules") to be delivered as
provided herein; and (b) substantially completed by the first
anniversary of the date hereof (the "Completion Date") in
accordance with the terms hereof.
1.9 Project Budget.
Lessee has submitted, or shall submit in accordance with the terms
hereof prior to the making of the first advance which includes
amounts to be expended on the construction or equipping of the
Improvements), to Lessor a line item budget (the "Project
Budget"), for the design and construction of the Project,
including (a) a breakdown of construction costs (itemized as to
trade category, subdivision of the work to be performed and the
names of each contractor), (b) a breakdown of all soft costs in
connection with the construction of the Project, including,
without limitation, costs for such items as real estate taxes,
legal and accounting fees, survey costs, permits and inspection
fees, insurance premiums, architect's and engineer's fees,
marketing, management, leasing and advertising expenses, and all
amounts due in connection with the Advance of Project Funds
pursuant to this Agreement, (c) a projected draw schedule and (d)
a projected progress schedule for the construction of the Project.
1.10 Use of Project Funds.
The Project Funds are to be used, to the extent sufficient
therefor, solely for the payment of Project costs set forth in the
Project Budget.
2
<PAGE>
l.ll Project Funds.
Subject to all of the terms, conditions and provisions of this
Agreement, and of the
agreements and instruments referred to herein, Lessor agrees to
advance the Project Funds and Lessee agrees to supervise and
manage the construction of the Project and to pay the Rent (as
hereinafter defined) due under the Facility Lease (as the same may
from time to time be adjusted pursuant to the terms and conditions
set forth therein); it being understood that Lessee shall be
liable for the payment of Rent regarding such sums as shall have
been advanced from time to time under this Agreement to Lessee.
1.12 Guaranties and Indemnities.
As an inducement to Lessor to enter into this Agreement, advance
the Project Funds and enter into the Facility Lease, the Guarantor
has agreed to furnish certain guaranties as hereinafter described.
2. DEFINITIONS
In this Agreement, except as otherwise expressly provided in the
text of this Agreement or unless the context otherwise requires,
all capitalized terms shall have the meaning ascribed to them in
EXHIBIT E.
3. 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
ofthe following:
A. an Eighth Amended and Restated Agreement Regarding Related
Transactions (Development) of even date by and among Lessee,
Lessor, ESC I, L.P., and ESC G.P. I, Inc., as the same may be
amended from time to time;
B. this Agreement;
C. the Facility Lease;
D. a Collateral Assignment of Permits, Approvals, Licenses, and
Contracts of even date granted by Lessee to Lessor (the "Permits
Assignment");
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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");
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 I 5, I 996 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").
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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 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;
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5.2 Project Plans.
The two (2) copies of the Project Plans delivered to Lessor by
Lessee (a) are true and correct and satisfactory to Lessee and (b)
have been filed with and approved by all appropriate Governmental
Authorities. All necessary Permits relating to the Project Plans
to be issued or granted by any applicable Governmental Authority
having or claiming jurisdiction over the Leased Property which can
be obtained in the ordinary course as of the date hereof have been
obtained and all such Permits are in full force and effect, are
not subject to any unexpired appeal periods or any appeals or
challenges which have not been fully resolved in favor of Lessee,
and do not contain any conditions or terms relating to the Leased
Property which have not been fully satisfied or which will not be
fully satisfied by the completion of the construction of the
Project (in accordance with the Project Plans and the terms and
provisions of this Agreement). Furthermore, the Project Plans are
the plans and specifications which have been approved in writing
by Lessor, any construction heretofore performed on the Project
has been performed in accordance with the Project Plans and all
future construction on the Project shall be performed in
accordance with the Project Plans, as the same may be amended or
modified from time in accordance with Section 6.3.2 hereof, and
the terms and conditions of this Agreement. There are no
structural defects in the Project of which Lessee has been advised
or of which Lessee has notice or knowledge except as otherwise
described in writing to Lessor or actually known by Lessor. Lessee
has not received any notice claiming that, and Lessee has no
knowledge that, the Project Plans violate any Legal Requirement;
5.3 Prior Construction Work.
No Person has performed any construction work or furnished any
services in connection with any construction carried on or to be
carried on at the Leased Property who or which remains unpaid at
the time of execution of this Agreement, except as indicated in
the requisition submitted simultaneously herewith or otherwise
expressly approved by Lessor and, if applicable, the Other
Permitted Uses;
5.4 Suitability of Project Plans.
The Project Plans provide for the construction and renovation of
all buildings and related improvements necessary, both legally and
practically, for the construction of the Project in accordance
with the terms of this Agreement and, after the completion of 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
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applicable by-laws, codes, rules, regulations and restrictions of
the Board of Fire Underwriters or other insurance underwriters or
similar bodies.
5.6 Permits and Contracts.
All Permits and Contracts required by or entered into with any
Governmental Authority or quasi-governmental authority or agency
for, or in connection with, the construction of the Project which
can be obtained in the ordinary course as of the date hereof have
been obtained or executed, as the case may be. All such Permits
and Contracts are in full force and effect, are not subject to any
unexpired appeal periods or any appeals or challenges which have
not been conclusively resolved in favor of any member of the
Leasing Group, and do not contain any conditions or terms which
have not been fully satisfied or which will not be fully satisfied
by the completion of the construction of the Project (if
constructed in accordance with the Project Plans and the terms and
provisions of this Agreement). There is no action pending, or, to
the best knowledge and belief of Lessee, recommended by the
applicable Governmental Authority having jurisdiction thereof,
either to revoke, repeal, cancel, modify, withdraw or suspend any
such Permit or Contract relating to the construction of the
Project, or any other action of any other type which would have a
material adverse effect on the Project. All other Permits and
Contracts required for the completion of the construction of the
Proj ect 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 any member of the
Leasing Group under any of the Permits or Contracts or any other
contract,
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mortgage, lien, lease, agreement, instrument, franchise,
arbitration award, judgment, decree, bank loan or credit
agreement, trust indenture or other instrument to which any member
of the Leasing Group is a party or by which any member of the
Leasing Group may be bound or affected and do not violate or
contravene any Legal Requirement.
5.10 Consents and Approvals.
Except as already obtained or filed or as reasonably expected to
be obtained in the ordinary course of business prior to or upon
the Completion of the Project, as the case may be, no consent or
approval or other authorization of, or exemption by, or
declaration or filing with, any Person and no waiver of any right
by any Person is required to authorize or permit, or is otherwise
required as a condition of the execution, delivery and performance
of its obligations under the Lease Documents, the Construction
Contract or the Architect's Agreement by any member of the Leasing
Group or as a condition to the validity (assuming the due
authorization, execution and delivery by Lessor of the Lease
Documents to which it is a party) and the priority of any Liens
granted to Lessor under the Lease Documents, except the filing of
the Financing Statements.
5.11 Pending Actions, Notices and Reports.
(a) There is no action or investigation pending or, to the best
knowledge and belief of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of Lessee, is there any
reasonable basis therefor) against or affecting the Leased
Property or any member of the Leasing Group (or any Affiliate
thereof before any Governmental Authority, which could prevent or
hinder the consummation of the transactions contemplated hereby or
call into question the validity of any of the Lease Documents or
any action taken or to be taken in connection with the
transactions contemplated thereunder or which in any single case
or in the aggregate might result in any material adverse change in
the business, prospects, condition, affairs or operations of any
member of the Leasing Group or the Leased Property (including,
without limitation, any action to revoke, withdraw or suspend any
Permit necessary or desirable for the construction of the Project
for its Primary Intended Use.
(b) No member of the Leasing Group has received any notice of any
claim, requirement or demand of any Governmental Authority, to
take action so as to make the Project or the Leased Property
conform to or comply with any applicable Legal Requirement.
6. COVENANTS
6.1 Collection and Enforcement Costs.
Upon demand, Lessee shall reimburse Lessor for all costs and
expenses, including, without limitation, attorneys' fees and
expenses and court costs, paid or reasonably incurred by Lessor in
connection with the collection of any sum due hereunder, or in
connection with the
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enforcement of any of Lessor's rights or any member of the Leasing
Group's obligations under this Agreement or any of the other Lease
Documents. Any amount due and payable to Lessor pursuant to the
provisions of this Section shall be a demand obligation and, to
the extent permitted by law, shall be added to the Lease
Obligations and shall be secured by the Liens created by the Lease
Documents as fully and effectively and with the same priority as
every other obligation of Lessee secured thereby and, if not paid
within ten (10) days after demand, shall thereafter, to the extent
permitted by applicable law, bear interest at the Overdue Rate
until the date of payment. The obligation of Lessee to pay all
costs, charges and sums due hereunder or under any of the other
Lease Documents shall continue in full force and effect and in no
way shall be impaired, until the actual payment thereof to Lessor.
In the event of (a) a sale, conveyance, transfer or other
disposition of the Leased Property, (b) any further agreement
given to secure the payment of the obligations set forth herein or
(c) any agreement or stipulation extending the time or modifying
the terms of payment set forth herein, Lessee shall nevertheless
remain obligated to pay the indebtedness evidenced by this
Agreement, as extended or modified by any such agreement or
stipulation, unless Lessee is released and discharged from such
obligation by a written agreement executed by Lessor.
6.2 Continuing Effect of Representations and Warranties.
All representations and warranties contained in this Leasehold
Improvement Agreement shall constitute continuing representations
and warranties which shall remain true, correct and complete
throughout the Term.
6.3 Construction Covenants.
6.3.1 Commencement of Construction.
If construction of the Project has not already begun, Lessee shall
commence construction of the Project within thirty (30) days from
the later of the date hereof or of issuance of a building permit
for the Project. Lessee shall diligently and continuously cause
the Project to be constructed and completed and made ready for
occupancy and use in accordance with the Project Plans all in a
manner satisfactory to Lessor on or before the Completion Date.
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.
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6.3.2 Quality of Materials and Workmanship.
The materials used in the Project shall be of the quality called
for by the Project Plans, and the workmanship shall be in
conformity with the Construction Contract and this Agreement, and
both the quality of such materials and such workmanship shall be
satisfactory to Lessor. Lessee shall not make any changes in, and
shall not permit the General Contractor or the Architect to make
any changes in, the quality of such materials, the Project Plans
or the Project Budget, whether by change order or otherwise,
without the prior written consent of Lessor, in each instance
(which consent may be withheld in Lessor's reasonable discretion);
provided, however, that such consent shall not be required for any
individual change which has been approved by the Architect, which
does not materially affect the structure or exterior of the
Project, and the cost of which does not exceed TEN THOUSAND
DOLLARS ($10,000) or which changes, in the aggregate, do not
exceed ONE HUNDRED THOUSAND DOLLARS ($100,000) in cost.
Notwithstanding the foregoing, prior to making any change in
Project Plans, copies of all change orders shall be submitted by
Lessee to Lessor and Lessee shall also deliver to Lessor evidence
satisfactory to Lessor, in its reasonable discretion, that all
necessary Permits and/or Contracts required by any Governmental
Authority in connection therewith have been obtained or entered
into, as the case may be.
6.3.3 Project Budget.
Upon the request of Lessor, Lessee shall furnish Lessor with
revisions for the Project Budget to reflect (a) any changes
approved by Lessor to the Project Budget, (b) the total cost of
the construction of the Project completed through any specific
date and (c) the remaining cost to complete the construction of
the Project in accordance with the Project Plans and the terms and
provisions of this Agreement.
6.3.4 Architect Certificates.
Lessee agrees to cause the Architect to furnish such statements as
to progress and certificates of completion as Lessor may
reasonably require from time to time during such period as this
Agreement may be in effect, all without expense to Lessor;
provided, however, that to the extent the delivery of such
certificates will require a visit to the Project, Lessee shall
have no obligation to deliver the same more frequently than with
every other advance request hereunder. Lessee agrees to cause the
Architect to make the Project Plans available to Lessor without
expense to Lessor, and to agree that, in the event that Lessor
shall take over the Project by reason of an occurrence of a Lease
Default, Lessor shall be entitled to use said Project Plans
without any additional compensation to the Architect above what is
required (and was not previously paid) under the Architect's
Contract.
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6.3.5 Intentionally Deleted.
6.3.6 Lessor's Consultant.
Lessee agrees to pay the costs and expenses reasonably incurred by
Lessor to retain the Consultants to perform various services to
Lessor in connection with the construction of the Project and the
advances of Project Funds contemplated hereunder, including,
without limitation, the following:
A. to review and analyze the Project Plans and advise Lessor
whether the same are satisfactory for the intended purposes
thereof;
B. to make periodic inspections of the Leased Property for the
purpose of assuring that construction performed in connection with
the Project prior to the date of such inspection has been
completed in accordance with the Project Plans and this Agreement;
C. to review Lessee's then current requisition to determine
whether it is consistent with the obligations of Lessee under this
Agreement, and to advise Lessor of the anticipated costs of, and
the time for, the completion of the Project in accordance with the
Project Plans, and the adequacy of reserves and contingencies
related thereto;
D. to review and analyze any proposed changes to the Project
Plans and advise Lessor regarding the same;
E. to review and analyze the Project Budget and advise Lessor as
to the sufficiency thereof; and
F. to review and analyze the Architect's Contract and the
Construction Contract entered into by Lessee in connection with
the construction of the Project and advise Lessor regarding the
same.
Except as otherwise expressly provided herein, Lessee agrees
promptly to make such changes or corrections in the construction
of the Project as may be required by Lessor, based on the
recommendation of any of the Consultants, unless Lessee
demonstrates to Lessor's satisfaction that such corrective work is
inconsistent with the Project Plans.
6.3.7 Title To Materials and Security Interest Granted to Lessor.
Except as otherwise expressly provided herein, Lessee shall not
suffer the use in connection with any construction relating to the
Project of any materials, fixtures or
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equipment intended to become part of the Project which are
purchased upon lease or conditional bill of sale or to which
Lessee does not have absolute and unencumbered title. Lessee
covenants to cause to be paid punctually all sums becoming due for
labor, materials, fixtures or equipment used or purchased in
connection with any such construction and, in recognition of the
fact that it is intended that the Project Funds be used to pay for
the costs of the construction of the Project on behalf of the
Lessor, Lessee agrees that title to all materials, fixtures and
equipment that are incorporated into the Project shall
automatically pass to Lessor upon such incorporation without the
need for the execution or delivery of any further instrument of
conveyance.
Notwithstanding the foregoing, in order to more fully secure
Lessor with reference to all advances of Project Funds made
hereunder, Lessee hereby conveys to Lessor a security interest in
all of Lessee's right, title and interest in materials on the
Leased Property which are not at any relevant time incorporated
into the Project and materials, wherever located, intended for
incorporation into the Project. Lessee agrees:
A. that Lessor shall have all the rights, with reference to such
security, as a secured party is entitled to hold with reference to
any security interest under the UCC;
B. that such security interest shall cover cash and non-cash
proceeds of such materials;
C. that such materials will not be held for sale to others or
disposed of by Lessee without the prior written consent of Lessor
and, if at any time located on the Leased Property shall be
suitably stored, secured and insured and furthermore, shall not be
removed from the Leased Property; and
D. that such security interest shall be prior to the rights of
any other Person other than the Permitted Prior Security
Interests.
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.
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6.3.8 Compliance With Legal Requirements And Applicable
Agreements.
Lessee, the Project Plans and the Leased Property and all uses
thereof (including, without limitation, the construction of the
Project) shall comply with (a) all Legal Requirements, (b) all
Permits and Contracts, (c) all applicable by-laws, codes, rules,
regulations and restrictions of the Board of Fire Underwriters or
other insurance underwriters or similar body and (d) the Lease
Documents, except to the extent any of the matters represented in
clause (a) or (c) are being duly contested in accordance with the
terms of the Facility Lease.
6.3.9 Liens.
The Leased Property shall at all times be free from any
attachment, encumbrance, lis pendens, mechanic's or materialmen's
lien or notice arising from the furnishing of materials or labor
and, with the exception of the Permitted Encumbrances, all other
Liens of any kind except to the extent the same is being duly
contested in accordance with the terms of the Facility Lease or
the terms hereof. Lessee shall not permit the recording of any
notice of contract or mechanic's or materialmen's lien relating to
construction of the Project or otherwise affecting the Leased
Property except to the extent the same is being duly contested in
accordance with the terms of the Facility Lease or the terms
hereof. Notwithstanding the foregoing provisions of this Section
6.3.09, the existence of an attachment or lis pendens for a period
not in excess of thirty (30) days shall not be deemed to be a
default hereunder provided that (a) there shall be no cessation of
construction of the Project, (b) a Lease Default has not occurred
and (c) Lessee shall proceed promptly to cause such attachment or
lis pendens to be removed, but Lessor shall not be obliged to make
any further advance under this Agreement while such attachment or
lis pendens remains outstanding, unless a bond, satisfactory to
Lessor, has been posted as security for such attachment or lis
pendens.
6.3.10 Books And Records.
Lessee shall cause to be kept and maintained, and shall permit
Lessor and its representatives to inspect at all reasonable times,
accurate books of accounts in which complete entries will be made
in accordance with GAAP, if applicable, reflecting all financial
transactions of Lessee relating to the Project (showing, without
limitation, all materials ordered and received and all
disbursements, accounts payable and accounts receivable in
connection with the construction of the Project and the operation
of the Leased Property). Such books and records must accurately
reflect that all funds advanced 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 cf God or interruption of the construction
ofthe Project which is reasonably anticipated to interfere with
the ability of Lessee to complete the Project by the Completion
Date.
6.3.13 Bonds.
Performance, payment and lien bonds, in form and substance and
guaranteed by sureties satisfactory to Lessor (in its sole and
absolute discretion), shall be furnished to Lessor in connection
with the Construction Contract in amounts at least equivalent to
the amount of such contract, naming Lessor as a dual obligee and
shall be furnished to Lessor prior to the commencement of any work
pursuant to such contract.
6.3.14 Use of Project Funds.
Lessee shall utilize all advances by Lessor pursuant to the terms
of this Agreement only for those items for which requisitions are
permitted under this Agreement or for reimbursement of
expenditures already made for items for which requisitions are so
permitted. Lessee agrees to hold all advances by Lessor hereunder
as a trust fund for the purpose of payment of the costs and
expenses permitted under this Agreement.
6.3.15 Occupancy of the Project.
Lessee shall not permit any occupancy of the Project (other than
such occupancy as is required in connection with the construction
thereto) prior to (a) the substantial completion of that portion
of the Project being occupied and (b) the issuance by the
appropriate Governmental Authorities of a Certificate of Occupancy
(or its equivalent) permitting the occupancy of the Project for
its Primary Intended Use and, if applicable, the Other Permitted
Uses. The Project shall not be deemed to have been completed
unless and until constructed in accordance with this Agreement and
a Certificate of Occupancy
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(or its equivalent) permitting the occupancy of the Project for
its Primary Intended Use has been issued by the applicable
Governmental Authorities.
7. CONSTRUCTION ADVANCES
7.1 Conditions Precedent to First Advance of Project Funds.
Prior to the first advance of Project Funds contemplated by this
Agreement, and as a condition of Lessee's right to receive any of
the proceeds of the Project Funds, there shall have been furnished
to Lessor:
A. An owner's title insurance policy in form and substance
satisfactory to Lessor, in its sole and absolute discretion,
issued by a title insurance company or companies satisfactory to
Lessor (the "Title Company") with such endorsements, reinsurance
and/or co-insurance as Lessor may require, insuring Lessor's fee
title to the Leased Property free from all Liens and without
exception for (i) filed or unfiled mechanics' liens, (ii) survey
matters, (iii) rights of parties in possession, (iv) environmental
liens and (v) any other matters of any kind for 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;
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G. Such evidence as Lessor may require that all outstanding
Impositions which are due and payable as of the date of the First
Advance pertaining to the Leased Property have been paid in full
in accordance with the terms of the Facility Lease;
H. A current instrument survey, satisfactory in form and content
to Lessor, prepared in accordance with the requirements set forth
in EXHIBIT G (the "Survey") and a certificate substantially in the
form of EXHIBIT H (the "Surveyor's Certificate"), prepared and
signed by a surveyor licensed to do business in the state where
the Leased Property is located with his or her seal affixed
thereto;
I. True and correct copies of the Construction Contract and the
Architect's Contract in effect with respect to the Project, as
well as all receipted bills paid by Lessee to the General
Contractor and the Architect for goods and/or services rendered
with respect to the Project prior to the date hereof;
J. A certificate from an engineer and/or architect, registered
as such in the state where the Leased Property is located,
substantially in the form attached hereto as EXHIBIT H, certifying
as to the (i) compliance of the Leased Property with all
applicable Legal Requirements, (ii) the availability and adequacy
of access/egress to and from the Leased Property and (iii) the
availability and adequacy of sewer, drainage, water, electric and
other utility services to the lot line of the Leased Property;
together with such other assurances concerning the design of the
Project as Lessor may require;
K. Lessor's receipt of opinions, in forms satisfactory to Lessor
(in its sole and absolute discretion), from Lessee's counsel and
the Guarantor's counsel, regarding (i) the due execution,
authority and enforceability of the Lease Documents; (ii) the
compliance of the Leased Property and the Project, in all material
respects, with applicable zoning and other land-use Legal
Requirements (except in such instances in which a satisfactory
title insurance zoning endorsement has been issued); (iii) the
valid issuance of the Certificate of Need, if applicable, and all
other Permits required for the construction of the Project, the
continuing effectiveness of said Certificate of Need, if
applicable, and other Permits and Lessee's and Project's
compliance therewith and (iv) such other matters as Lessor may
reasonably request (collectively, the "Opinions");
L. Payment ofthe 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
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<PAGE>
will be fully satisfied by the completion of the construction of
the Project in accordance with the Project Plans and this
Agreement);
N. Such evidence as Lessor may require that there has been no
material adverse change in the financial condition and strength of
Lessee and the Guarantor, and that the Leased Property shall have
sustained no impairment, reduction, loss or damage which has not
been fully restored and repaired, and that no Condemnation
proceedings or other governmental action is or shall be pending
against or with respect thereto;
O. Such evidence as Lessor may require that the General
Contractor and the Architect maintain adequate insurance, as
determined in Lessor's reasonable discretion.
P. True and correct copies of all payment, performance and
completion bonds required pursuant to 6.3.13 hereof;
Q. A fully executed Construction Assignment, in form and
substance satisfactory to Lessor; and
R. A fully executed and authorized Architect's Assignment, in
form and substance satisfactory to Lessor.
7.2 Lessor's Right to Advance the Project Funds.
Without at any time waiving any of Lessor's rights hereunder,
Lessor shall have the right to make the first advance of a portion
of the Project Funds hereunder without the satisfaction of each
and every condition precedent to Lessor's obligation to make such
advance, and Lessee agrees to accept such advance as Lessor may
elect to make. The making of any advance hereunder shall not
constitute an approval or acceptance by Lessor of any work on the
Project theretofore completed.
7.3 Submission of Requests for Advances of the Project Funds.
Advances under this Agreement shall be made not more than once
each month and at least ten (10) days before the date upon which
an advance is requested, Lessee shall give notice to Lessor,
specifying the total advance which will be desired, accompanied
by:
A. Itemized requisitions for advances or, at Lessee's option,
for reimbursements to Lessee for prepaid items, signed by Lessee,
the Architect and the General Contractor on A.I.A. Forms G702,
G702A or G703 or such other form(s) as Lessor may reasonably
require (together with copies of invoices or receipted bills
relating to items covered by such requisitions when so requested
by Lessor). All such requisitions shall include an indemnification
of Lessor by the Architect, the
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<PAGE>
General Contractor and Lessee, jointly and severally, to the
extent such indemnification is available from the General
Contractor and the Architect upon Lessee's best efforts to obtain
such indemnification, against any and all claims of any
subcontractors, laborers and suppliers;
B. A certificate executed by Lessee substantially in the form
attached hereto as EXHIBIT I;
C. A certificate executed by the General Contractor
substantially in the form attached hereto as EXHIBIT J;
D. With respect to every other Advance requested, a certificate
executed by the Architect substantially in the form attached
hereto as EXHIBIT K.
E. At Lessor's request, certificates executed by the Consultants
in such form as Lessor may reasonably require;
F. To the event the Advance is not clearly subject to effective
coverage, an endorsement of the Title Policy issued by the Title
Company, satisfactory in form and substance to Lessor, redating
the Title Policy to the date that the then current advance will be
made, increasing the coverage afforded by the Title Policy so that
the same shall constitute insurance in an amount at least equal to
the sum of the amount of the insurance then existing under the
Title Policy plus the amount of the then current advance of
Project Funds to be disbursed to Lessee under this Agreement and
subject to no additional exceptions other than the Permitted
Encumbrances;
G. If and when reasonably requested by Lessor, satisfactory
assurance that the construction of the Project has been performed
in accordance with the requirements of the Construction Contract,
the Project Plans, this Agreement and all of the other Lease
Documents and has been inspected and found satisfactory by the
parties hereto;
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);
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<PAGE>
J. If and when requested by Lessor, satisfactory evidence that the
funds remaining unadvanced under this Agreement are sufficient for
the payment of all related direct and indirect costs for the
completion of the Project in accordance with the terms and
provisions hereof. If the evidence furnished shall not be
satisfactory to Lessor, in its sole and absolute discretion, it
shall be a condition to the making of any further advance
hereunder that Lessee will provide Lessor with such financial
guaranties (whether in the form of a bond, cash deposit, letter of
credit or otherwise) as are acceptable to Lessor, in its sole and
absolute discretion, to assure the completion of the construction
of the Project in accordance with the Project Plans and the terms
and conditions of this Agreement. In the event that Lessor
requires a cash deposit from Lessee, Lessee shall deposit with
Lessor such funds, to be held in an interest bearing account with
the interest accruing thereon to the benefit of Lessee, which,
together with such unadvanced funds of the Loan, shall be
sufficient to pay all of the aforesaid costs. All funds so
deposited with Lessor along with the proceeds thereof, shall be
disbursed prior to any further advance hereunder and upon
completion of the Project any remaining funds so deposited or any
unadvanced portion of the Project Funds, shall be remitted to
Lessee;
K. A certification of work completed by the General Contractor,
together with a statement of the payment due therefor;
L. Partial lien waivers from the General Contractor for all work
theretofore performed, and from all other contractors and all
subcontractors and suppliers for all work, the cost of which in
each instance exceeds ONE THOUSAND DOLLARS ($ 1,000.00), which was
the subject of a requisition in the immediately preceding month;
M. If and when reasonably requested, Lessee shall deliver to
Lessor an updated Survey of the Leased Property, acceptable to
Lessor (in its reasonable discretion);
N. Evidence satisfactory to Lessor (in its reasonable
discretion) that all materials and other property furnished by any
contractors, subcontractors, materialmen or other Persons, the
cost of which will be paid with the proceeds of the advance to be
made by Lessor, are free and clear of all Liens, except (a)
encumbrances, if any, (securing indebtedness due to Persons whose
names, addresses and amounts due to them are identified to Lessor)
that shall be discharged upon the disbursement of the funds then
being requested, (b) the Liens created by the Lease Documents and
(c) the Permitted Encumbrances;
O. Such evidence as Lessor may require that there has been no
material adverse change in the financial condition and strength of
Lessee and the Guarantor, and that the Leased Property shall have
sustained no impairment, reduction, loss or
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<PAGE>
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 Tom Mullins as Lessee's construction
representative with authority to approve requisitions and to
execute certificates to be delivered pursuant to Section 13.3B on
behalf of Lessee.
7.4 Advances by Wire Transfer.
All advances hereunder shall be made by wire transfer of funds
into a bank account maintained by either Lessee or an authorized
agent of Lessee.
7.5 Conditions Precedent to All Advances.
A. Advances hereunder shall be made solely for the payment of
the costs and expenses incurred by Lessee directly in connection
with the construction of the Project, consistent with the Project
Budget, which are required to be paid out-of pocket to all other
Persons or to reimburse Lessee for out-of pocket costs incurred by
it pursuant to the Project Budget. No funds advanced by Lessor
shall be utilized for any purpose other than as specified herein
and none of the Project Funds shall be paid over to any officer,
stockholder or employee of any member of the Leasing Group or to
any of the Persons collectively constituting any member of the
Leasing Group or those holding a beneficial interest in any member
ofthe 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
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<PAGE>
unencumbered title thereto and (iii) approved soft costs, which
have not been paid for under prior requisitions.
C. All requisitions for the first fifty percent (50"%) of the
Project Funds shall be subject to a ten percent (10"%) retainage
for the completion of the Project, and no retainage shall be
required with respect to all requisitions thereafter. It is
understood that such retainage is intended to provide a
contingency fund to assure that the construction of the Project
shall be fully completed in accordance with the Project Plans and
the terms and provisions of this Agreement. All amounts so
withheld shall be disbursed after (i) construction of the Project
has been fully completed in accordance with the Project Plans and
the terms and provisions of this Agreement, (ii) all of the items
set forth in Section 7.6 hereof have been delivered to Lessor and
(iii) the expiration of the period during which liens may be
perfected with respect to any work performed or labor or materials
supplied in connection with the construction of the Project or the
receipt of such evidence as may be required to assure Lessor that
no claim may thereafter arise with respect to any work performed
or labor or materials supplied in connection with the construction
of the Project.
D. At the time of each advance, no event which constitutes, or
which, with notice or lapse of time, or both, would constitute, a
Lease Default shall have occurred and be continuing.
E. Without at any time waiving any of Lessor's rights under this
Agreement, Lessor shall always have the right to make an advance
hereunder without satisfaction of each and every condition upon
Lessor's obligation to make an advance under this Agreement, and
Lessee agrees to accept any advance which Lessor may elect to make
under this Agreement. Notwithstanding the foregoing, Lessor shall
have the right, notwithstanding a waiver relative to the first
advance or any subsequent advance hereunder, to refuse to make any
and all subsequent advances under this Agreement until each and
every condition set forth in this Section has been satisfied. The
making of any advance hereunder shall not constitute an approval
or acceptance by Lessor of any work on the Project theretofore
completed.
F. If, while this Agreement is in effect, a claim is made that
the Project does not comply with any Legal Requirement or an
action is instituted before any Governmental Authority with
jurisdiction over the Leased Property or Lessee in which a claim
is made as to whether the Project does so comply, Lessor shall
have the right to defer any advance of Project Funds which Lessor
would otherwise be obligated to make until such time as any such
claim is finally disposed of favorably to the position of Lessee,
without any obligation on the part of Lessor to make a
determination of, or judgment on, the merits of any such claim.
For the purposes of the foregoing sentence, the term "claim" shall
mean an assertion by
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<PAGE>
any Governmental Authority or Person as to which, in each case,
Lessor has made a good faith determination that the assertion may
properly be made by the party asserting the same, that the
assertion, on its face, is not without foundation and that the
interests of Lessor require that the assertion be treated as
presenting a bona fide risk of liability or adverse effect on the
Project.
If any such proceeding is not favorably resolved within thirty
(30) days after the commencement thereof, Lessor shall also have
the right, at its option, to treat the commencement of such action
as a Lease Default, for which Lessor shall have all rights herein
specified for a Lease Default. As aforesaid, Lessor shall have no
obligation to make a determination with reference to the merits of
any such claim. No waiver of the foregoing right shall be implied
from any forbearance by Lessor in making such election or any
continuation by Lessor in making advances under this Agreement.
In all events, Lessee agrees to notify Lessor forthwith upon
learning of the assertion of any such claim or the commencement of
any such proceedings.
G. It is contemplated that all advances of the Project Funds
made by Lessor to Lessee will be pursuant to this Agreement.
H. No inspections or any approvals of the Project during or
after construction shall constitute a warranty or representation
by Lessor or any of the Consultants as to the technical
sufficiency, adequacy or safety of any structure or any of its
component parts, including, without limitation, any fixtures,
equipment or furnishings, or as to the subsoil conditions or any
other physical condition or feature pertaining to the Leased
Property. All acts, including any failure to act, relating to the
Leased Property by any agent, representative or designee of Lessor
(including, without limitation, the Consultants) are performed
solely for the benefit of Lessor to assure the payment and
performance of the Obligations and are not for the benefit of
Lessee or the benefit of any other Person.
7.6 Completion of the Project.
Upon the completion of the construction of the Project in
accordance with the Project Plans and the terms and provisions of
this Agreement, Lessee shall provide Lessor with (A) true, correct
and complete copies of (i) a final unconditional Certificate of
Occupancy (or its equivalent) issued by the appropriate
governmental authorities, permitting the occupancy and use of the
Project for its Primary Intended Use and (ii) all Permits issued
by the appropriate Governmental Authorities which are necessary in
order to operate the Project as a fully-licensed assisted living
facility, (B) a certification from the Architect or the
Consultants stating that the Project was completed in accordance
with the Project Plans, (C) an updated Survey of the Leased
Property, acceptable to Lessor (in its sole and absolute
discretion), (D) updated Opinions and (E)
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<PAGE>
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 o pinion 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 therefore in the Project Budget. Any amount which is not so
charged against advances due hereunder and all costs and expenses
reasonably incurred by Lessor in connection therewith (including,
without limitation, attorneys' fees and expenses and court costs)
shall be a demand obligation of Lessee and, to the extent
permitted by applicable law, shall be added to the Lease
Obligations and secured by the Liens created by the Lease
Documents, as fully and effectively and with the same priority as
every other obligation of Lessee thereunder and, if not paid
within ten ( 10) days after demand, shall thereafter, to the
extent permitted under applicable law, bear interest at the
Overdue Rate until the date of payment.
If Lessee fails to observe or cause to be observed any of the
provisions of this Agreement and such failure continues beyond any
applicable notice or cure period provided for under this
Agreement, Lessor or a lawfully appointed receiver of the Leased
Property, at their respective options, from time to time may
perform, or cause to be performed, any and all repairs and such
other work as they deem necessary to bring the Leased Property
into compliance with the provisions of this Agreement may enter
upon the Leased Property for any of the foregoing purposes, and
Lessee hereby waives any claim against Lessor or such receiver
arising out of such entry or out of any other act carried out
pursuant to this Section. All amounts so expended or incurred by
Lessor and by such receiver and all costs and expenses reasonably
incurred in connection therewith (including, without limitation,
attorneys' fees and expenses and court costs), shall be a demand
obligation of Lessee to Lessor or such receiver, and, to the
extent permitted by law, shall be added to the Obligations and
shall be secured by the Liens created by the Lease Documents as
fully and effectively and with the same priority as every other
obligation of Lessee secured thereunder and, if not paid within
ten ( I 0) days after demand, shall thereafter,
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to the extent permitted by applicable law, bear interest at the
Overdue Rate until the date of payment.
9. INSURANCE; CASUALTY; TAHING
9.1 General Insurance Requirements.
Lessee shall at its sole cost and expense keep the Leased Property
and the business operations conducted thereon insured as required
under the Facility Lease.
9.2 Fire or Other Casualty or Condemnation.
In the event of any damage or destruction to the Leased Property
by reason of fire or other hazard or casualty (a "Casualty") or a
taking by power of eminent domain or conveyance in lieu thereof of
all or any portion of the Leased Property (a "Condemnation"),
Lessee shall give immediate written notice thereof to Lessor and
comply with the provisions of the Facility Lease governing
Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute an "Event of Default"
hereunder and shall entitle Lessor to exercise its remedies
hereunder and under any of the other Lease Documents:
A. any failure of Lessee to pay any amount due hereunder or
under any of the other Lease Documents within ten (10) days
following the date when such payment was due;
B. any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this Agreement
or any of the other Lease Documents, other than the payment of any
monetary obligation and other than as specified in subsections (C)
through (F) below (referred to herein as a "Failure to Perform"),
continuing for thirty (30) days after the giving of notice by
Lessor to Lessee specifying the nature of the Failure to Perform;
except as to matters not susceptible to cure within thirty (30)
days, provided that with respect to such matters, (i) Lessee
commences the cure thereof within thirty (30) days after the
giving of such notice by Lessor to Lessee, (ii) Lessee
continuously prosecutes such cure to completion, (iii) such cure
is completed within one hundred twenty ( 120) days after the
giving of such notice by Lessor to Lessee and (iv) such Failure to
Perform does not impair Lessor's rights with respect to the Leased
Property or otherwise impair the Collateral or Lessor's security
interest therein;
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C. the occurrence of any default or breach of condition
continuing beyond the expiration of the applicable notice and
grace periods, if any, under any of the other Lease Documents;
D. if any representation, warranty or statement contained herein
or in any of the other Lease Documents proves to be untrue in any
material respect as of the date when made or at any time during
the Term if such representation or warranty is a continuing
representation or warranty pursuant to Section 6.2;
E. except as a result of any Casualty or a partial or complete
Condemnation, if a suspension of any work in connection with the
construction of the Project occurs for a period in excess of ten
(10) Business Days, irrespective of the cause thereof, provided
that Lessee shall not be deemed to be in default under this
Subsection if such suspension is for circumstances not reasonably
within its control, but only if Lessor, in its sole and absolute
discretion, shall determine that such suspension shall not create
any risk that the construction of the Project will not be
completed (in accordance with the Project Plans and the terms and
conditions of this Agreement) on or before the Completion Date;
and
F. if construction of the Project shall not be completed in
accordance with the Project Plans and this Agreement (including,
without limitation, satisfaction of the conditions set forth in
Section 7.6) on or before the Completion Date.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, at the option of
Lessor, which may be exercised at any time after an Event of
Default shall have occurred, Lessor shall have all rights and
remedies available to it, at law or in equity, including, without
limitation, all of the rights and remedies under the Facility
Lease and the other Lease Documents. Subject to the requirements
of applicable law, all materials at that time on or near the
Leased Property which are the property of Lessee and which are to
be used in connection with the completion of the Project shall be
subject to the Liens created by the Lease Documents.
In addition to, and without limitation of, the foregoing, Lessor
is authorized to charge all money expended for completion 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.
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Lessor is authorized, but not obligated in any event, to do all
such things in connection with the construction of the Project as
Lessor, in its sole and absolute discretion, may deem advisable,
including, without limitation, the right to make any payments with
respect to any obligation of Lessee to Lessor or to any other
Person in connection with the completion of construction of the
Project and to make additions and changes in the Project Plans, to
employ contractors, subcontractors and agents and to take any and
all such action, either in Lessor's own name or in the name of
Lessee, and Lessee hereby grants Lessor an irrevocable power of
attorney to act in its name in connection with the foregoing. This
power of attorney, being coupled with an interest, shall be
irrevocable until all of the Obligations are fully paid and
performed and shall not be affected by any disability or
incapacity which Lessee may suffer and shall survive the same. The
power of attorney conferred on Lessor by the provisions of this
Section 11 is provided solely to protect the interests of Lessor
and shall not impose any duty on Lessor to exercise any such power
and neither Lessor nor such attorney-in-fact shall be liable for
any act, omission, error in judgment or mistake of law, except as
the same may result from its gross negligence or willful
misconduct. In the event that Lessor takes possession of the
Leased Property and assumes control of the Project as aforesaid,
it shall not be obligated to continue the construction of the
Project and/or the operation of the Project for any period of time
longer than Lessor shall see fit (in its sole and absolute
discretion), and Lessor may thereafter, at any time, abandon its
efforts and refuse to make further payments for the account of
Lessee, whether or not the Project has been completed.
In addition, at Lessor's option and without demand, notice or
protest, the occurrence of any Event of Default shall also
constitute a default under any one or more of the Related Party
Agreements.
12. GENERAL
The provisions set forth in Articles 22, 23 and Sections 2.2,16.8
through 16.10, 24.2 through 24.6, and 24.8 through 24.12 of the
Facility Lease are hereby incorporated by reference, mutatis,
mutandis, and shall be applicable to this Agreement as if set
forth in full herein.
This Agreement and the other Lease Documents set forth the entire
agreement of the parties with respect to the subject matter and
shall supersede (a) the Letter of Intent with respect to the
Project, and (b) the letter dated April 1 I,1997, as amended, from
Hutchins, Wheeler & Dittmar to Randi S. Nathanson relating to the
Land; provided, however, that this Agreement shall not supersede
the indemnities set forth in the letter of April 1 Ith with
respect to matters arising prior to the date of this Agreement.
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.
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[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
27
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
ATTEST:
By: /s/: Susan Griffin
Name: Susan Griffin
ATTEST:
By: /s/: Amelia C. Gentry
Name: Amelia C. Gentry
LESSEE:
EMERITUS PROPERTIES I, INC.,
a Washington corporation
By: /s/: Kelly J. Price
Name: Kelly J. Price
Title: Vice President of Finance
LESSOR:
MEDITRUST COMPANY LLC, a Delaware
limited liability company
By: /s/: Michael S. Benjamin
Name: Michael S. Benjamin, ESQ.
Tille: Senior Vice President
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<PAGE>
$56,286,000
CREDIT AGREEMENT
Dated as of April 29, 1998
Between
EMERITUS PROPERTIES II, INC.,
EMERITUS PROPERTIES V, INC., and
EMERITUS PROPERTIES VII, INC.,
as the Borrowers,
and
DEUTSCHE BANK AG, NEW YORK BRANCH,
as the Lender
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT (this "Agreement") dated as of April 29,1998 by
and among EMERITUS PROPERTIES II, INC., EMERITUS PROPERTIES V,
INC., and EMERITUS PROPERTIES VII, INC., each a Washington
corporation (each a "Borrower" and collectively, the "Borrowers"),
each having an address c/o Emeritus Corporation, 313 I Elliott
Avenue, Suite 500, Seattle, Washington 98121 and DEUTSCHE BANK AG,
a bank chartered under the laws of the Federal Republic of
Germany, acting by and through its New York Branch (together with
its successors and assigns, the "Lender"), having an address at 31
West 52nd Street, New York, New York 10019.
WITNESSETH:
WHEREAS, the Borrowers are the respective owners of eight (8)
assisted living facilities listed on Schedule A attached hereto
(each a "Property" and collectively, the "Properties");
WHEREAS, the Borrowers have requested and the Lender has agreed to
make loans to the Borrowers in an aggregate principal amount of
Fifty-Six Million Two-Hundred Eighty-Six Thousand and 00/100
Dollars ($56,286,000.00) (the "Loan"), which will be secured,
inter alia, by a first mortgage lien on the Properties, all on the
terms and conditions of this Agreement;
WHEREAS, the Borrowers are wholly owned Subsidiaries of Emeritus
Corporation, a Washington corporation;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION I.01. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under
common control with such Person or is a director or officer of
such Person. For purposes of this definition, the term "control"
(including the
1
<PAGE>
terms "controlling," "controlled by" and "under common control
with") of a Person means the possession, direct or indirect, of
the power to vote ten percent ( 1 O%) or more of the Voting Stock
of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the
ownership of Voting Stock, by contract or otherwise.
"Allocated Loan Amount" means, with respect to each Property, the
portion of the outstanding principal amount of the Loan as of the
relevant date of determination allocated to such Property as set
forth on Schedule A attached hereto.
"Applicable Lending Office" means Lender's Eurodollar Lending
Office during any period in which the Loan is maintained as a
Eurodollar Rate Loan and Lender's Domestic Lending Office during
any period in which the Loan is maintained as a Base Rate Loan.
"Appraisal" means an appraisal of one or more of the Properties
prepared by an Appraiser in accordance with the Uniform Standards
of Appraisal Practice of the Appraisal Foundation and complying
with the requirements of Title 1 I of the Federal Financial
Institutions Reform, Recovery and Enforcement Act of 1989 and
otherwise in form and substance acceptable to the Lender, as may
be updated by recertification from time to time.
"Appraiser" means an Independent appraiser as shall be approved by
the Lender.
"Asbestos" means any hydrated mineral silicate separable into
commercially usable fibers, including, but not limited to,
chrysotile (serpentine), amosite (cummingtonite-grunerite),
crocidolite (riebecktite), tremolite, anthophylite and actinolite,
which is or could become friable.
"Asbestos-Containing Material" means any material which contains
one percent (l%) or more Asbestos by weight.
"Assignee" means any assignee of the Lender pursuant to Section
7.01.
"Assignment and Acceptance" means an assignment and acceptance
entered into by the Lender and an Assignee, and accepted by the
Lender, in accordance with Section 7.01 and in substantially the
form of Exhibit B hereto.
"Base Rate" means a iluctuating interest per annum in effect from
time to time, which rate per annum shall be equal to the lesser of
(i) the maximum nonusurious rate permitted by Law or (ii) the
greater of (A) the rate of interest announced publicly by
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"Deutsche Bank AG, New York Branch, in New York, from time to
time, as its Prime Rate" and (B) one percent (l%) above the
Federal Funds Rate.
"Base Rate Loan" means the Loan during any period in which
interest is determined in accordance with Section 2.05(a)(i).
"Borrowers" has the meaning specified in the recitals to this
Agreement.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City or the
city in which the principal office of the Loan Servicer is
located.
"Capitalized Leases" means, with respect to any Person, any leases
of any property by such Person, as lessee, which, in accordance
with GAAP, is required to be accounted for as a capital lease on
the balance sheet of such Person.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of I 980, as amended from time to
time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the
U.S. Environmental Protection Agency.
"Change of Control" means with respect to any Person (i) the sale
or transfer by Persons who are the direct beneficial owners of
such Person as of the Closing Date of more than forty-nine and
nine-tenths percent (49.9"%) of the direct or indirect right to
distributions from such Person in the aggregate to Persons who
were not direct beneficial owners as of such date or (ii) the sale
or transfer by such direct beneficial owners of such Person as of
the Closing Date of more than forty-nine and nine-tenths percent
(49.9"%) of the direct or indirect voting rights in such Person to
Persons who were not direct beneficial owners as of such date.
"Closing Date" means the date on which the proceeds of the Loan
are disbursed to the Borrowers.
"Collateral" means all "Collateral" referred to in the Collateral
Documents and all other property that is or is intended to be
subject to any Lien in favor of the Lender.
"Collateral Documents" means the Security Agreement, the
Mortgages, and any other agreement that creates or purports to
create a Lien in favor of the Lender.
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"Cross-Guarantors" means each of the Borrowers as guarantors in
accordance with Article IX.
"Cross-Guaranty" has the meaning set forth in Section 9.01.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all
Obligations of such Person for the deferred purchase price of
properly or services (other than trade payables not overdue by
more than ninety (90) days incurred in the ordinary course of such
Person's business), (c) all Obligations of such Person evidenced
by notes, bonds, debentures or other similar instruments, (d) all
Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property),
(e) all Obligations of such Person as lessee under Capitalized
Leases, (all Obligations, contingent or otherwise, of such
Person under acceptance, letter of credit or similar facilities,
(g) all Obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any capital
stock of or other ownership or profit interest in such Person or
any other Person, valued, in the case of redeemable preferred
stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Debt of
others referred to in clauses (a) through (g) above or clause (i)
below guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (i) to pay or purchase such Debt or to
advance or supply funds for the payment or purchase of such Debt,
(ii) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the
holder of such Debt against loss, (iii) to supply funds to or in
any other manner invest in the debtor (including any agreement to
pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to
assure a creditor against loss, and (i) all Debt referred to in
clauses (a) through (h) above of another Person secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice
be given or time elapse or both.
"Default Rate" has the meaning specified in Section 2.05(b).
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<PAGE>
"Determination Date" means, with respect to each Interest Period,
the second Business Day prior to the Interest Reset Date.
"Disclosed Litigation" has the meaning specified in Section
3.01(b).
"Disclosure Schedule" means Schedule B attached hereto.
"DOH" has the meaning specified in Section 4.01(n).
"Domestic Lending Office" means the office of the Lender specified
as its
"Domestic Lending Office" in any notice to the Borrowers or in the
Assignment and Acceptance pursuant to which it became a Lender
Party, as the case may be, or such other office of such Lender
Party as such Lender Party may specify to the Borrower and the
Lender.
"Effective Capacity" means, with respect to any Property, the
number of licensed beds from time to time at the Property actually
available for utilization (which may be less than the numbers of
beds licensed due to utilization of single patient rooms or other
reasonable and prudent operation decisions).
"Emeritus" means Emeritus Corporation, a Washington corporation.
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding,
consent order or consent agreement relating in any way to any
Environmental Law, any Environmental Permit or Hazardous Material
or arising from alleged injury or threat to health, safety or the
environment, including, without limitation,(a) by any governmental
or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or third party for damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, writ,
judgment, injunction, decree or judicial or agency interpretation,
policy or guidance relating to pollution or protection of the
environment, health, safety or natural resources, including,
without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge
of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number , license or other authorization required under any
Environmental Law.
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<PAGE>
"Equipment" means all equipment referred to in Section 1 (a) of
the Security Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Eurocurrency Liabilities" has the meaning specified in Regulation
D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Of3fice" means the office of the Lender
specified as its
"Eurodollar Lending Office" in any notice to the Borrowers or in
the Assignment and Acceptance pursuant to which it became a Lender
Party, as the case may be, or such other office of Lender Party as
such Lender Party may from time to time specify to the Borrower
and the Lender.
"Eurodollar Margin" means, with respect to the outstanding
principal of the Loan, 295 basis points (2.95"%) per annum.
"Eurodollar Rate" means, for any Interest Period, (a) either (i)
the quotation (expressed as percentage per annum) appearing on
Telerate Page 3750 as of 11:00 a.m., New York time, on the
relevant Determination Date for such Interest Period for one month
U.S. Dollar deposits in the London interbank market (rounded
upward, if necessary, to the nearest one hundred-thousandth of a
percentage point) or, if no such rate appears on Telerate Page
3750, or (ii) the arithmetic mean (rounded upward, if necessary,
to the nearest one hundred-thousandth of a percentage point) of
the rates quoted at approximately 11:00 a.m., London time, on such
Determination Date, by four (4) major banks in the London
interbank market, selected by Lender, to prime banks in the London
interbank market for one-month U.S. Dollar deposits commencing on
the first day of the applicable Interest Period and in a principal
amount equal to an amount of not less than One Million and No/100
Dollars ($ I,000,000.00) that is representative for a single
transaction in such market at such time, provided that, if fewer
than four (4) such quotations are provided as requested, the rate
of interest that is in effect on such Determination Date will be
the Eurodollar Rate for the immediately preceding Interest Period
divided by (b) one (1) minus the Eurodollar Rate Reserve
Percentage.
"Eurodollar Rate Loan" means any Loan which bears interest in
accordance with Section 2.05(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for
all Eurodollar Rate Loans means the reserve percentage applicable
two (2) Business Days before the
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<PAGE>
first day of such Interest Period under regulations issued from
time to time by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve
requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member
bank of the Federal Reserve System in New York City with respect
to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities
that includes deposits by reference to which the interest rate on
Eurodollar Rate Loans is determined) having a term equal to such
Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excluded Taxes" has the meaning specified in Section 2.08.
"Exit Fee" has the meaning specified in Section 2.07(b).
"Fiscal Year" means a fiscal year of the Borrower and its
Subsidiaries ending on December 31 in any calendar year or such
other fiscal year as the Borrower may select from time to time in
accordance with the terms of this Agreement.
"GAAP" means generally accepted accounting principles consistently
applied and consistent with those applied in the preparation of
the financial statements referred to in Section 5.03.
"Governmental Authority" shall mean (i) any nation or government,
(ii) any state or other political subdivision thereof, (iii) any
entity or officer exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, (iv) any court or arbitrator having jurisdiction over
the Loan Parties or any of their Subsidiaries, any of their
respective Subsidiaries or any of their respective Properties, and
(v) any corporation or other entity which is an Affiliate of any
of the foregoing.
"Guaranteed Obligations" shall mean:
(i) the payment, as and when due, or by stated maturity,
acceleration, or otherwise, of the Notes and all other amounts due
and payable under the other Loan Documents to the Lender at such
times and in the manner provided for in the Loan Documents, and
(ii) the payment of all other obligations of the Borrowers that
can be performed by the payment of monies, to the Lender directly
or by reimbursement of advances by it, including, without
limitation, the payment of income and other taxes by the
Borrowers.
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<PAGE>
"Guaranty and Limited Indemnity" has the meaning specified in
Section 3.01(d)(ix).
"Hazardous Materials" means (a) refined petroleum products, by-
products or breakdown products, radioactive materials, Asbestos-
Containing Materials, polychlorinated biphenyls and radon gas and
(b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Health Care Facility" means a facility which provides any health
care services, whether licensed as a skilled nursing facility,
intermediate care facility, personal care facility, assisted
living facility or a hospital or otherwise.
"Health Care Permit" means every accreditation, authorization,
certificate of need, license or permit that is required pursuant
to applicable federal or state law to own, lease, operate or
manage a Health Care Facility.
"Impositions" has the meaning specified in the Mortgages.
"Indemnified Party" has the meaning specified in Section 10.04(b).
"Indemnitor" means Emeritus, together with any successors thereto
in accordance with the terms of the Guaranty and Limited
Indemnity.
"Independent" means, with respect to any specified Person, such a
Person who (a) does not have any direct financial interest or any
material indirect financial interest in Emeritus, the Borrowers or
in any of their respective Affiliates, (b) is not connected with
Emeritus or the Borrowers as an officer, employee, promoter,
underwriter, trustee, partner or director and (c) is not
controlled by or under common control with Emeritus, or the
Borrowers.
"Interest Payment Date" means the first (1st) day of each calendar
month while any portion of the Loan remains unpaid; provided,
however, that if such Interest Payment Date is not a Business Day,
such Interest Payment Date shall be the immediately succeeding
Business Day.
"Interest Period" means (a) the period beginning on (and
including) the Closing Date and ending on (but excluding) the
first Interest Payment Date and (b) each successive period
beginning on (and including) an Interest Payment Date and ending
on (but excluding) the next succeeding Interest Payment Date.
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<PAGE>
"Interest Reset Date" means, with respect to any Eurodollar Rate
Loan, the first day of the applicable Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock or
other ownership or profit interest, warrants, rights, options,
obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such
Person, including, without limitation, any arrangement pursuant to
which the investor incurs Debt of the types referred to in clause
(h) or (i) of the definition of "Debt" in respect of such Person.
"Laws" means all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, determinations, awards and court orders of any
federal, state, municipal or local government, governmental
authority, regulatory agency or authority.
"Lender Party" means, collectively Lender and any assignee of all
or a portion of Lender's interests in this Agreement or the Loan
and any subsequent assignee of any Lender Party.
"Lender's Account" means an account of the Lender or Loan Servicer
designated in writing by the Lender or Loan Servicer to the
Borrower.
"LIBOR Breakage Costs" means the amount of all losses, costs,
charges and damages which are actually incurred by the Lender
through the end of an Interest Period as a result of any early
termination of any arrangement, or the entering into a new
arrangement, with any member of the London interbank market for
the funding of the aggregate outstanding principal amount of the
Loan (determined as though Lender had funded I OO% of such
outstanding principal amount in the London interbank market and
calculated as of the date of any applicable early termination, in
the same manner as the Eurodollar Rate).
"Licenses" has the meaning specified in Section 4.01(o).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential
arrangement, including, without limitation, the lien or retained
security title of a conditional vendor and any easement, right of
way or other encumbrance on title to real property.
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<PAGE>
"Loan" has the meaning specified in the Recitals.
"Loan Documents" means (i) this Agreement, (ii) the Notes, (iii)
the Guaranty and Limited Indemnity, (iv) the Collateral Documents
and any other written agreement, document or instrument
evidencing, securing or otherwise related to the Loan, in each
case as amended or otherwise modified from time to time.
"Loan Parties" means, collectively, the Borrowers (individually
and as Cross Guarantors) and Emeritus in its capacity as
Indemnitor under the Guaranty and Limited Indemnity.
"Loan Servicer" has the meaning specified in Section 7.03.
"Loan-to-Value Ratio" means the ratio, as of the applicable date
of determination, of (a) the outstanding principal amount of the
Loan to (b) the aggregate fair market value of the Properties, as
established by Appraisals (or as determined by the Lender with
respect to Section 8.01(a)(ii), made no earlier than three (3)
months prior to the date of determination.
"Management Agreement" means any management agreement between the
Borrowers and a Manager with respect to the management and
operation of the Properties.
"Manager" means any property manager approved by the Lender for
any of the Properties.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Effect" means a material adverse effect on (a)
the business, condition (financial or otherwise), operations,
performance or properties of any the Borrowers or Emeritus, (b)
the rights and remedies of the Lender under any Loan Document or
(c) the ability of any of the Borrowers or Emeritus to perform its
Obligations under any Loan Document to which it is or is to be a
party.
"Maturity Date" means April 29, 2001.
"Mortgages" has the meaning specified in Section 3.01(d)(viii).
"Mortgage Policy" has the meaning specified in Section
3.01(d)(viii)(B).
"Net Proceeds" has the meaning specified in the Mortgage.
10
<PAGE>
"Notes" means, collectively, a promissory note of each Borrower
payable to the order of the Lender, in form and substance
satisfactory to the Lender, evidencing the indebtedness of such
Borrower to the Lender resulting from the Loan made by the Lender.
The principal amount of each Note shall be equal to the aggregate
of the Allocated Loan Values of the Properties owned by the
applicable Borrower.
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind,
including, without limitation, any liability of such Person on any
claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such
claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01(f). Without limiting the
generality of the foregoing, the Obligations of the Borrowers
under the Loan Documents include (a) the obligation to pay
principal, interest, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by the
Borrowers under any Loan Document and (b) the obligation of the
Borrowers to reimburse any amount in respect of any of the
foregoing that the Lender, in its sole discretion, may elect to
pay or advance on behalf of any Borrower.
"Organizational Documents" means, (i) with respect to any Person
that is a corporation, the certificate of incorporation or charter
and by-laws of such Person, (ii) with respect to any Person that
is a partnership, the partnership agreement and, if a limited
partnership, certificate of limited partnership of such person,
and (iii) with respect to any Person that is a limited liability
company, the articles of organization and the operating agreement
of such Person.
"Origination Fee" has the meaning specified in Section 2.07(a).
"Other Taxes" has the meaning specified in Section 2.08.
"Partial Release" has the meaning specified in Section 8.01.
"Permitted Encumbrances" has the meaning specified in the
Mortgages.
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies not yet due and payable; (b) Liens
imposed by law, such as materialmen's, mechanics', carriers',
workmen's and repairmen's Liens and other similar Liens arising in
the ordinary course of
11
<PAGE>
business securing obligations that are not overdue for a period of
more than thirty (30) days; (c) pledges or deposits to secure
obligations under workers' compensation laws or similar
legislation or to secure public or statutory obligations; (d)
Permitted Encumbrances; (e) Liens arising in connection with
installment sales agreements permitted under Section 5.02(b)(ii);
and (Liens arising in connection with leases permitted under
Section 5.02(c).
"Person" means an individual, partnership, corporation (including
a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity,
or a government or any political subdivision or agency thereof.
"Phase I Reports" means Phase I environmental assessment reports
with respect to each of the Properties, in form and substance
satisfactory to the Lender, prepared by ATC Associates or such
other environmental consulting firm reasonably acceptable to the
Lender, which have been provided to Lender.
"Physical Plant Standards" has the meaning specified in Section
4.01(s).
"Premises" has the meaning specified in the Mortgages.
"Properties" has the meaning specified in the Recitals as listed
on Schedule A attached hereto, as more particularly described in
the Mortgages.
"Receivables" has the meaning specified in the Security Agreement.
"Register" has the meaning specified in Section 7.01(d).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Contracts" means all contracts and rights pursuant
to reimbursement or third party payor programs and contracts for
the Properties which are now or hereafter in effect with respect
to residents or patients qualifying for coverage under the same,
including, but not limited to, Medicare, Medicaid, any successor
program or other similar reimbursement program (whether operated
by a governmental or quasi government agency or by a private
Person) and private insurance agreements.
"Release Price" means, with respect to any Property, an amount
equal to one hundred twenty-five percent (125"%) of the Allocated
Loan Amount for such Property.
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<PAGE>
"Responsible Officer" means any officer of any Loan Party or any
of its Subsidiaries.
"Secured Obligations" has the meaning specified in the Security
Agreement.
"Security Agreement" has the meaning specified in Section
3.01(d)(vii).
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the
property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent
liabilities, of such Person, (b) such Person does not intend to,
and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay such debts and liabilities as
they mature and (c) such Person is not engaged in business or a
transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an
unreasonably small capital. The amount of contingent liabilities
at any time shall be computed as the amount that, in the light of
all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or
matured liability.
"Specified Repairs" means those repairs with respect to the
Properties set forth on Schedule D attached hereto.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which
(or in which) more than fifty percent (5O%) of (a) the issued and
outstanding capital stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in
the capital or profits of such partnership, joint venture or
limited liability company or (c) the beneficial interest in such
trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its
other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Taxes" has the meaning specified in Section 2.08.
"Third-Party Payors Programs" has the meaning specified in Section
4.01(q).
"Title Company" means Chicago Title Insurance Company.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of
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<PAGE>
contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the
right so to vote has been suspended by the happening of such a
contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"
and the words "to" and "until" each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP.
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. The Loan. Subject to the terms and conditions set
forth in this Agreement, the Lender shall lend to the Borrowers,
and the Borrowers shall borrow from the Lender, a principal amount
equal to FIFTY-SIX MILLION TWO HUNDRED EIGHTY-SIX THOUSAND AND
00/100 DOLLARS ($56,286,000.00). Amounts of the Loan borrowed,
repaid or prepaid by the Borrower may not be reborrowed.
SECTION 2.02. Making the Loan. Upon satisfaction of the conditions
precedent set forth in Article III to Lender's obligation pursuant
to this Agreement, the Loan shall be made before 11:00 A.M. (New
York City time) on the Closing Date. The Lender shall disburse a
portion of the aggregate principal amount of the Loan to each of
the Borrowers equal to the aggregate Allocated Loan Value of the
Properties owned by the respective Borrowers.
SECTION 2.03. Repayment of the Loan. Subject to the provisions of
Section 2.04 and Section 2.07(b), the Borrowers shall repay the
aggregate outstanding principal amount of the Loan on the Maturity
Date.
SECTION 2.04. Prepayments. (a) Voluntary. The Loan may be prepaid,
in whole or in part, upon at least fifteen (15) days' prior
written notice by the applicable Borrower to Lender specifying the
date on which the Loan is to be repaid. If such notice is given,
the applicable Borrowers shall, consistent with such notice,
prepay the applicable portion of the outstanding aggregate
principal amount of the Loan in whole, together with (A) accrued
interest to the date of such prepayment on the aggregate principal
amount prepaid, (B) an amount equal to the Exit Fee (if required
pursuant to Section 2.07(b)) and (C)LIBOR Breakage Costs, if any.
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<PAGE>
(b) Mandatory. If an Event of Default occurs, and the Loan is
declared to be immediately due and payable, then there shall be
added to the principal amount of the Loan then due an amount equal
to the Exit Fee plus all LIBOR Breakage Costs, if any.
(c) Prepayment on Casualty or Condemnation. The Loan shall be
prepayable, in whole or in part, together with the Exit Fee but
without premium, upon any application by Lender of any net
insurance proceeds or net condemnation proceeds or awards in
accordance with Article I of the Mortgages.
SECTION 2.05. Interest. (a) Scheduled Interest. The Borrowers
shall pay interest on the unpaid principal amount of the Loan
owing to the Lender from the date of disbursement of the Loan
until such principal amount shall be paid in full, at the
following rates per annum:
(i) Base Rate. During the periods, if any, during which Section
2.10 provides that the Loan shall accrue interest based on the
Base Rate, a rate per annum equal to the Base Rate in effect from
time to time, payable in arrears on each applicable Interest
Payment Date.
(ii) Eurodollar Rate. Except as otherwise provided in clause (i)
above, a rate per annum equal at all times during each Interest
Period to the sum of (A) the Eurodollar Rate for such Interest
Period plus (B) the Eurodollar Margin, payable in arrears on each
applicable Interest Payment Date.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default, the Borrowers shall pay
interest (the "Default Rate") on (i) the unpaid principal amount
of the Loan, payable in arrears on each Interest Payment Date and
on demand, at a rate per annum equal at all times to the lesser of
(x) the maximum non-usurious rate permitted by Law or (y) five
percent (5"%) per annum above the rate per annum required to be
paid on the Loan pursuant to clause (a)(i) or (a)(ii) above, as
the case may be, and (ii) to the fullest extent permitted by Law,
the amount of any interest, fee or other amount payable hereunder
that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate
per annum equal at all times to the lesser of (x) the maximum
nonusurious rate permitted by Law or (y) five percent (5%) per
annum above the rate per annum required to be paid, in the case of
interest, on the Loan pursuant to clause (a)(i) or (a)(ii), as the
case may be.
(c) Notice of Interest Rate. The Lender (or a Loan Servicer on
behalf of Lender) shall, on each Determination Date, determine and
provide and provide Emeritus with a statement of the Eurodollar
Rate applicable for the next succeeding related Interest Period
and the applicable interest rate for such Interest Period. After
determining the applicable interest
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<PAGE>
rate, the Lender (or a Loan Servicer on behalf of the Lender)
shall calculate the aggregate interest payment payable on the Loan
on the next succeeding Interest Payment Date and shall, as soon as
practicable, notify Emeritus of such rates and the amount of the
applicable interest installments. The determination of the
interest rate payable on the Loan and the calculation of each
interest installment by the Lender (or a Loan Servicer on behalf
of the Lender) shall, in the absence of manifest error, be final
and binding; provided, however, that any error in the
determination of such interest rates and the calculation of each
interest installment made by the Lender (or a Loan Servicer on
behalf of the Lender) shall not relieve the Borrowers from their
obligations hereunder, but, the Borrowers shall not be required to
pay any erroneous amounts.
SECTION 2.06. Payments and Computations. (a) The Borrowers shall
make each payment hereunder and under the Notes, irrespective of
any right of counterclaim or set-off, not later than 1:00 P.M.
(New York City time) on each Interest Payment Date, and the
Maturity Date in U.S. dollars to the Lender at the Lender's
Account (or as the Lender may otherwise designate) in same day
funds.
(b) [Reserved].
(c) All computations of interest and fees shall be made by the
Lender (or any Loan Servicer on behalf of the Lender) on the basis
of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in
the period for which such interest, fees or commissions are
payable. Each determination by Lender (or any Loan Servicer on
behalf of the Lender) of an interest rate or fee hereunder shall
be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the
computation of payment of interest; provided, however, that, if
such extension would cause payment of interest on or principal of
the Loan (at any time during which the Loan is a Eurodollar Rate
Loan) to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
SECTION 2.07. Fees. (a) Origination Fee. In consideration of the
Lender's commitment to make the Loan pursuant to the terms of this
Agreement, the Borrowers shall pay to the Lender on the Closing
Date an origination fee (the "Origination Fee") in the aggregate
amount of TWO HLJNDRED EIGHTY-ONE THOUSAND FOUR HUNDRED THIRTY AND
00/100 ($281,430.00). The Lender, at its option, may collect the
Origination Fee through reduction of the Loan proceeds by an
amount equal to the Origination Fee.
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(b) Exit Fee. Upon any repayment or prepayment of the Loan
(including a prepayment pursuant to Section 2.04(c)), the
applicable Borrower(s) shall pay to the Lender a fee (the "Exit
Fee") in an amount equal to one percent ( 1 "%) of the principal
amount of the Loan being repaid or prepaid. The foregoing
notwithstanding, to the extent that (i) the Lender or one of its
Affliates provides any mortgage refinancing proceeds which are
used to prepay the Loan, (ii) the Lender has assigned all of its
interest in the Loan to a party that is not an Affiliate of the
Lender (and other than in connection with a securitization) prior
to the time the Exit Fee would be payable for such Loan or (iii)
the Lender is no longer in the business of making permanent
mortgage loans with respect to properties similar to the
Properties, then the Exit Fee shall be waived by the Lender in its
entirety and the Borrower shall have no further obligations with
respect thereto.
SECTION 2.08. Taxes. (a) Any and all payments by each of the
Borrowers hereunder or under the Notes shall be made, in
accordance with Section 2.06, free and clear of and without
deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding taxes that are imposed on the
Lender's overall net income by the United States, taxes that are
imposed on the Lender's overall net income (and franchise taxes
imposed in lieu thereof by the state or foreign jurisdiction
under the laws of which the Lender is organized or any political
subdivision thereof, taxes that are imposed on the Lender's
overall net income (and franchise taxes imposed in lieu thereof by
the state or foreign jurisdiction of the Lender's Applicable
Lending Office or any political subdivision thereof and taxes that
are imposed on Lender's overall net income in any jurisdiction
where any of the Properties are located (all such excluded taxes
being hereafter referred to as
"Excluded Taxes" and all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of
payments hereunder or under the Note being hereinafter referred to
as "Taxes"). If any of the Borrowers shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder
or under the Notes to the Lender (i) the sum payable shall be
increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums
payable under this Section 2.08) the Lender receives an amount
equal to the sum it would have received had no such deductions
been made, (ii) the Borrowers shall make such deductions and (iii)
the Borrowers shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with
applicable law.
(b) In addition, the Borrowers shall pay any present or future
stamp, documentary, excise, property or similar taxes, charges or
levies that arise from any payment made hereunder or under the
Notes or from the execution, delivery or registration of,
performing under, or otherwise with respect to, this Agreement or
the Notes other than Excluded Taxes (hereinafter referred to as
"Other Taxes").
(c) The Borrowers shall indemnify the Lender for and hold it
harmless against the full amount of Taxes and Other Taxes, and for
the full amount of taxes of any kind imposed
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<PAGE>
by any jurisdiction on amounts payable under this Section 2.08,
imposed on or paid by the Lender and any liability (including
penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be
made within (30) thirty days from the date the Lender makes
written demand therefor.
(d) Within (30) thirty days after the date of any payment of
Taxes, the Borrowers shall furnish to the Lender, at its address
referred to in Section 10.02, the original or a certified copy of
a receipt evidencing such payment. In the case of any payment
hereunder or under the Notes by or on behalf of the Borrowers
through an account or branch outside the United States or by or on
behalf of the Borrowers by a payor that is not a United States
person, if the Borrowers determine that no Taxes are payable in
respect thereof, the Borrowers shall furnish, or shall cause such
payor to furnish, to the Lender, at such address, an opinion of
counsel acceptable to the Lender stating that such payment is
exempt from Taxes. For purposes of this subsection (d) and
subsection (e), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the
Internal Revenue Code.
(e) The Lender shall, on or prior to the date of its execution and
delivery of this Agreement, and from time to time thereafter as
requested in writing by the Borrowers (but only so long thereafter
as the Lender remains lawfully able to do so), provide the
Borrowers with two original Internal Revenue Service forms 1001 or
4224, as appropriate, or any successor or other form prescribed by
the Internal Revenue Service, certifying that the Lender is exempt
from or entitled to a reduced rate of United States withholding
tax on payments pursuant to this Agreement or the Notes. If any
form or document referred to in this subsection (e) requires the
disclosure of information, other than information necessary to
compute the tax payable and information required on the date
hereof by Internal Revenue Service form 1001 or 4224 that the
Lender reasonably considers to be confidential, the Lender shall
give notice thereof to the Borrower and shall not be obligated to
include in such form or document such confidential information.
(f) For any period with respect to which the Lender has failed to
provide the Borrowers with the appropriate form described in
subsection (e) above (other than if such failure is due to a
change in law occurring after the date on which a form originally
was required to be provided or if such form otherwise is not
required under subsection (e) above), the Lender shall not be
entitled to indemnification under subsection (a) or (c) with
respect to Taxes imposed by the United States by reason of such
failure; provided, however, that should the Lender become subject
to Taxes because of its failure to deliver a form required
hereunder, the Borrowers shall take such steps as the Lender shall
reasonably request to assist the Lender to recover such Taxes.
SECTION 2.09. Late Charge. Subject to Section 10.11, in the event
that any installment of interest or principal shall become overdue
for a period in excess of five (5) days, a "late charge" in an
amount equal to five percent (5"%) of the amount so overdue may be
charged
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<PAGE>
to the Borrowers by the Lender for the purpose of defraying the
expenses incident to handling such delinquent payments. Subject to
Section 10.11, such late charge shall be in addition to, and not
in lieu of, any other remedy the Lender may have and is in
addition to the Lender's right to collect reasonable fees and
charges of any agents or attorneys which the Lender may employ in
connection with any Default.
SECTION 2.10. Increased Costs. Etc. If, due to either (i) the
introduction of or any change in or in the interpretation by any
applicable Governmental Authority of any law or regulation of (ii)
the compliance with any guideline or request from any central bank
or other Governmental Authority (whether or not having the force
of law), there shall be any increase in the cost to the Lender of
agreeing to make or of making, funding or maintaining the Loan as
a Eurodollar Rate Loan (excluding for purposes of this Section
2.10 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.08 shall govern) and (ii) changes in
the basis of taxation of overall net income or overall gross
income by the United States or by the foreign jurisdiction or
state under the laws of which the Lender is organized or has its
Applicable Lending Office or any political subdivision thereof,
the Borrowers shall from time to time, upon notice thereof and
demand by the Lender therefor, pay to the Lender additional
amounts sufficient to compensate the Lender for such increased
cost. A certificate as to the amount of such increased cost,
submitted to the Borrowers by the Lender, shall be conclusive and
binding for all purposes, absent manifest error. To the extent the
Lender delivers such a certificate to any of the Borrowers, such
Borrower shall have the right to prepay its Note in whole, not in
part, without any Exit Fee.
(b) If, due to either (i) the introduction of or any change in or
in the interpretation by any applicable Government Authority of
any law or regulation or (ii) the compliance with any guideline or
requirement from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any
increase in the amount of capital required or expected to be
maintained by the Lender or any corporation controlling the Lender
as a result of or based upon the existence of the Lender's
commitment to lend hereunder and other commitments of such type,
then, five (5) days after written demand by the Lender, the
Borrowers shall pay to the Lender, from time to time as specified
by the Lender, additional amounts sufficient to compensate the
Lender in the light of such circumstances, to the extent that the
Lender reasonably determines such increase in capital to be
allocable to the existence of the Lender's commitment to lend
hereunder. A certificate as to such amounts submitted to the
Borrowers by the Lender shall be conclusive and binding for all
purposes, absent manifest error. To the extent the Lender delivers
such a certificate to any of the Borrowers, such borrower shall
have the right to prepay its Note in whole, not in part, without
any Exit Fee.
(c) [Reserved].
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<PAGE>
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any
law or regulation by any Governmental Authority shall make it
unlawful, or any central bank or other Governmental Authority
shall assert that it is unlawful, for the Lender or its Eurodollar
Lending Office to perform its obligations hereunder to fund or
maintain the Loan as a Eurodollar Rate Loan hereunder, then, on
written notice thereof and written demand therefor by the Lender
to the Borrowers (i) the Loan will automatically, upon such
demand, covert into a Base Rate Loan and (ii) the obligation of
the Lender to make or maintain the Loan as a Eurodollar Rate Loan
shall be suspended until the Lender shall notify the Borrowers
that it has determined that the circumstances causing such
suspension no longer exist. To the extent the Lender delivers such
a certificate to any of the Borrowers, such Borrower shall have
the right to prepay its Note in whole, not in part, without any
Exit Fee.
SECTION 2.11. Security for the Loan. Each of the Notes shall
constitute general obligations of the applicable Borrower to the
Lender and the Borrowers' obligations hereunder and under the
other Loan Documents shall be secured by (a) the Mortgages, (b)
the Security Agreement, (c) the other Collateral Documents and (d)
the security interests and Liens granted in this Agreement and in
the other Loan Documents.
SECTION 2.12. The Notes. Each Borrower's obligation to pay the
principal of and interest on its applicable portion of the Loan
shall be evidenced by the related Note, which shall be duly
executed and delivered by such Borrower on the Closing Date. The
Notes shall be payable as to principal, interest and all other
amounts due under the Loan Documents, as specified in this
Agreement, the Notes, and the other Loan Documents.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Disbursement of tbe Loan.
The obligation of the Lender to make the Loan hereunder is subject
to the satisfaction of the following conditions precedent before
or concurrently with the Closing Date:
(a) The following statements shall be true on the Closing Date and
each Borrower shall have delivered to the Lender a certificate
executed by a Responsible Officer to such effect:
(i) the representations and warranties contained in each Loan
Document are correct on and as of the Closing Date, before and
after giving effect
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<PAGE>
to the making of the Loan by the Lender and to the application of
the proceeds therefrom, as though made on and as of such date; and
(ii) no material event has occurred and is continuing, or would
result from the making of the Loan by the Lender or from the
application of the proceeds therefrom, that constitutes a Default.
(b) There shall exist no action, suit, investigation, litigation
or proceeding affecting the Borrowers or the Properties pending or
threatened before any court, governmental agency or arbitrator
that (i) would be reasonably likely to have a Material Adverse
Effect other than the matters described on the Disclosure Schedule
(the
"Disclosed Litigation") or (ii) purports to affect the legality,
validity or enforceability of, this Agreement, the Notes, any
other Loan Document or the consummation of the transactions
contemplated hereby.
(c) The Borrowers shall have paid or caused to be paid all
reasonable and documented accrued fees and expenses of the Lender
which the Borrowers are required to pay under the Loan Documents
(including the accrued fees and expenses of counsel to the
Lender).
(d) The Lender shall have received on or before the Closing Date
the following, each dated such day (unless otherwise specified),
in form and substance satisfactory to the Lender (unless otherwise
specified):
(i) The Notes payable to the order of the Lender.
(ii) Board of Directors Resolutions for each Borrower approving
this Agreement, the related Note and each other Loan Document to
which such Borrower is or is to be a party, and of all documents
evidencing other necessary action and governmental and other third
party approvals and consents, if any, with respect to such
Bonower, the Loan, this Agreement, the related Note and each other
Loan Document.
(iii) A copy of the Organizational Documents of each Borrower, in
each case together with each amendment thereto, and, in the case
of the by-laws of each Borrower, certified (as of the Closing
Date) by the Secretary of State of the jurisdiction of its
formation or incorporation as being a true and correct copy
thereof.
(iv) For each Borrower, a copy of a certificate of the Washington
Secretary of State, dated reasonably near the Closing Date,
certifying that
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<PAGE>
(A) such Borrower has paid all applicable franchise taxes to the
date of such certificate and (B) such Borrower is duly formed and
in good standing under the laws of the State of Washington.
(v) A copy of a certificate of the Secretary of State of each
state in which any of the Properties is located, dated reasonably
near the Closing Date, stating that the related Borrower is duly
qualified and in good standing in such State and has filed all
annual reports required to be filed to the date of such
certificate.
(vi) A certificate of an authorized member of each Borrower
certifying the names and true signatures of the of officers of
such authorized member, authorized to sign this Agreement, the
related Note and each other Loan Document to which it is or is to
be a party and the other documents to be delivered hereunder and
thereunder.
(vii) A security agreement in the form and substance satisfactory
to the Lender pledging to the Lender and granting the Lender a
security interest in all of each Borrower's right, title and
interest in the Collateral (such agreement, as amended,
supplemented or otherwise modified from time to time in accordance
with its terms, the "Security Agreement"), duly executed by each
Borrower, together with:
(A) financing statements in proper form for filing under the
Uniform Commercial Code of the State of Washington and each
jurisdiction in which any of the Properties is located, as well as
any other jurisdictions deemed necessary or desirable by the
Lender, covering the personal property Collateral and fixtures
described in the Mortgages,
(B) completed requests for information, dated on or a reasonable
time before the Closing Date, listing all effective financing
statements filed in the jurisdictions referred to in clause (A)
above that names any of the Borrowers as debtor, together with
copies of such other financing statements,
(C) copies of the Assigned Agreements referred to in the
Mortgages, together with a consent to such assignment, in a form
acceptable to the Lender, From each party to any Material
Agreement (as defined in the Mortgages) other than the Borrowers,
and
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<PAGE>
(D) evidence that all other action that the Lender may deem
reasonably necessary or desirable in order to perfect and protect
the first and security interests and fixtures in personal property
Collateral created under the Mortgages has been taken.
(viii) Deeds of trust, trust deeds, mortgages, deeds to secure
debt, leasehold mortgages and leasehold deeds of trust in form and
substance satisfactory to the Lender and covering the Properties
(as amended, supplemented or otherwise modified from time to time
in accordance with their terms, the "Mortgages"), duly executed by
related Borrower, together with:
(A) evidence that counterparts of the Mortgages have been duly
executed and delivered for recording to the Title Company on or
before the Closing Date in such form as Lender may deem necessary
or desirable in order to create a valid first and subsisting Lien
on the property described therein in favor of the Lender and that
provision has been made for the payment of all filing and
recording taxes and fees,
(B) fully paid mortgagee title insurance policies (the
"Mortgage Policies") in form and substance, with endorsements and
in amounts acceptable to, the Lender, issued by the Title Company,
insuring the Mortgages to be valid first and subsisting Liens on
the Property described therein, free and clear of all defects
(including, but not limited to, mechanics' and materialmen's
Liens) and encumbrances, excepting only Permitted Encumbrances,
and providing for such other affirmative insurance (including
endorsements for mechanics' and materialmen's Liens) and such
coinsurance and direct access reinsurance as the Lender may deem
necessary or desirable,
(C) American Land Title Association form surveys, certified to the
Lender and the issuer of the Mortgage Policies in a manner
satisfactory to the Lender by a land surveyor duly registered and
licensed in the States in which the Property described in such
surveys is located and acceptable to the Lender, showing all
buildings and other improvements, any off site improvements, the
location of any easements, parking spaces, rights of way, building
set-back lines and other dimensional regulations and the absence
of encroachments, either by such improvements onto other property
or by improvements of others onto such property, and other
defects, other than encroachments and other defects acceptable to
the Lender,
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<PAGE>
(D) Appraisals of each of the Properties indicating an aggregate
Loan-to-Value Ratio for the Properties not in excess of eighty-
five percent (85%) and otherwise in form and substance
satisfactory to the Lender,
(E) engineering reports as to the Properties, in form and
substance and from professional firms acceptable to the Lender,
(F) such consents and agreements of lessors and other third
parties, and such estoppel letters and other confirmations, as the
Lender may deem reasonably necessary or desirable,
(G) evidence of the insurance required by the terms of the
Mortgages, and
(Ievidence that all other action that the Lender may deem
reasonably necessary or desirable in order to create valid first
and subsisting Liens on the Properties has been taken.
(ix) A Guaranty and Indemnity Agreement in the form attached
hereto as Exhibit A (as amended, supplemented or otherwise
modified from time to time in accordance with its terms, the
"Guaranty and Limited Indemnity"), duly executed by Emeritus.
(x) Such financial, business and other information regarding the
Properties, the Borrowers and Emeritus as the Lender shall have
requested, including, without limitation, information as to
possible contingent liabilities, environmental matters, collective
bargaining agreements, interim financial statements dated the end
of the most recent fiscal quarter for which financial statements
are available (or, in the event the Lender's due diligence review
reveals material changes since such financial statements, as of a
later date within forty five (45) days of the Closing Date).
(xi) The Phase I Reports for each of the Properties.
(xii) A favorable opinion of Foster, Pepper & Shefelman counsel
for each ofthe Borrowers, in form satisfactory to the Lender, as
to:
(a) the organization, existence, formation and good standing of
the Borrowers; and
(b) the authorization by the Borrowers of the Loan Documents.
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<PAGE>
(xiii) A favorable opinion of New York counsel to the Borrowers,
in form satisfactory to the Lender, as to:
(a) the enforceability of the Credit Agreement, the Notes and the
Guaranty and Limited Indemnity.
(xiv) A favorable opinion of local counsel to each of the
Borrowers in each jurisdiction in which any of the Properties are
located, in form satisfactory to the Lender, as to:
(a) the good standing and qualification to do business of the
related Borrower in such jurisdiction; and
(b) the enforceability of the Loan Documents that, by their
terms, are governed by the law of such jurisdiction.
(xv) A favorable opinion of Foster, Pepper & Shefelman, as to the
likelihood of the assets of each of the Borrowers being
substantively consolidated with those of Emeritus or any owner of
greater than forty-nine percent (49%) interest in any shareholder
of the related Borrower in an insolvency proceeding, with respect
to such owner.
(xvi) On the Closing Date, the Lender shall disburse a portion of
the Loan proceeds equal to the amount needed to complete the
Specified Repairs into a separate escrow account of the Lender.
Such escrow account shall be an interest bearing account and the
applicable Borrower shall have the right to have an amount
released from such escrow account equal to the amount allocated
for a Specified Repair upon a written request to the Lender
accompanied by reasonable evidence of completion of such Specified
Repair. Until the funds in such escrow account are released, they
shall constitute additional security for the Loan. When reasonable
evidence has been provided that the Specified Repairs are complete
with respect to a particular Borrower, the remaining funds in
escrow with respect to such Borrower shall be released to such
Borrower.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as to itself and the
Properties owned by it as follows:
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<PAGE>
(a) Each of the Borrowers and Emeritus (i) is duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) is duly qualified and in
good standing in each other jurisdiction in which it owns or
leases properly or in which the conduct of its business requires
it to so qualify or be licensed except where the failure to so
qualify or be licensed would not have a Material Adverse Effect
and (iii) has all requisite power and authority (including,
without limitation, all governmental licenses, permits and other
approvals) to own or lease and operate its properties and to carry
on its business as now conducted and as proposed to be conducted.
(b) The execution, delivery and performance by each Loan Party of
this Agreement, the Notes and each other Loan Document to which it
is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's or corporate
powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene such Loan Party's by-laws, (ii)
violate any law (including, without limitation, the Securities
Exchange Act of 1934 and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970),
rule, regulation (including, without limitation, Regulation X of
the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award, (iii)
conflict with or result in the breach of, or constitute a default
under, any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument binding on or affecting any Loan
Party, any of its Subsidiaries or any of their properties or (iv)
except for the Liens created under the Loan Documents, result in
or require the creation or imposition of any Lien upon or with
respect to any of the properties of any Loan Party or any of its
Subsidiaries. No Loan Party or any of its Subsidiaries is in
violation of any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or in breach
of any such contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument, the violation or breach of which
would have a Material Adverse Effect.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body
or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of
this Agreement, the Notes or any other Loan Document to which it
is or is to be a party, or for the consummation of the
transactions contemplated hereby, (ii) the grant by any Loan Party
of the Liens granted by it pursuant to the Collateral Documents,
(iii) the perfection or maintenance of the Liens created by the
Collateral Documents (including the first priority nature thereof
or (iv) the exercise by the Lender of its rights under the Loan
Documents or the remedies in respect of the Collateral pursuant to
the Collateral Documents, except for any license, authorization,
approval or other action that may be required in order for the
Lender or any purchaser at foreclosure to operate the Properties
as assisted living facilities and except to the extent consents
may be required but not
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<PAGE>
obtained under certain service contracts and agreements applicable
to a Property, so long as the failure to obtain same will not have
a Material Adverse Effect.
(d) This Agreement has been, and the Notes and each other Loan
Document when delivered hereunder will have been, duly executed
and delivered by each Loan Party thereto. This Agreement is, and
the Notes and each other Loan Document when delivered hereunder
will be, the legal, valid and binding obligation of each Loan
Party thereto, enforceable against such Loan Party in accordance
with its terms.
(e) The consolidated balance sheet of Emeritus as at December 3 I,
I 997, and the related consolidated statement[s] of income and
consolidated statement of cash flows of Emeritus and its
Subsidiaries for the fiscal year then ended, accompanied by an
opinion of a nationally recognized, independent public
accountants, copies of which have been furnished to the Lender,
fairly present the consolidated financial condition of Emeritus
and its Subsidiaries as at such date and the consolidated results
of the operations of Emeritus and its Subsidiaries for the period
ended on such date, all in accordance with generally accepted
accounting principles applied on a consistent basis, and since
December 3 I,1997, there has been no Material Adverse Effect.
The forecasted balance sheets, income statements and cash flows
statements of the Borrowers delivered to the Lender pursuant to
Section 5.03 were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were fair in the
light of conditions existing at the time of delivery of such
forecasts, and represented, at the time of delivery, each
Borrower's best estimate of its future financial performance.
(g) No information, exhibit or report furnished by any Loan Party
to the Lender in connection with the negotiation of the Loan
Documents or pursuant to the terms of the Loan Documents contained
any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements made therein not
misleading.
(h) Except for Disclosed Litigation, there is no action, suit,
investigation, litigation or proceeding affecting any Loan Party
or any of its Subsidiaries, including any Environmental Action,
pending or threatened before any court, governmental agency or
arbitrator that (i) would have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of
this Agreement, the Note or any other Loan Document or the
consummation of the transactions contemplated hereby.
(i) No proceeds of the Loan will be used to acquire any equity
security of a class that is registered pursuant to Section 12 of
the Securities Exchange Act of 1934.
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(j) It is not engaged in the business of extending credit for the
purpose of purchasing or carrying Margin Stock, and no proceeds of
the Loan will be used to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying
any Margin Stock.
(k) It is not and will not be an "employee benefit plan" as
defined in Section 3(3) of ERISA, which is subject to Title I of
ERISA, and the assets of such Borrower do not and will not
constitute "plan assets" of one or more such plans for purposes of
Title I of ERISA.
(1) It is not and will not be a "governmental plan" within the
meaning of Section 3(32) of ERISA and transactions by or with such
Borrower are not and will not be subject to state statutes
applicable to such Borrower regulating investments of and
fiduciary obligations with respect to governmental plans.
(m) It is not (i) an "investment company" or a company
"controlled" by an
"investment company", within the meaning of the Investment Company
Act of 1940, as amended, (ii) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended, or
(iii) subject to any other Law that purports to restrict or
regulate its ability to borrow money.
(n) Except as set forth on the Disclosure Schedule, each of the
Borrowers, and, to the best of each Borrower's knowledge, each
Property which such Borrower owns complies with all federal, state
and local Laws, regulations, quality and safety standards,
accreditation standards and requirements of the applicable state
Department of Health (each, a "DOH") and all other federal, state
or local governmental authorities, including, without limitation,
those relating to the quality and adequacy of medical care,
distribution of pharmaceutical, rate setting, equipment,
personnel, operating policies, additions to facilities and
services and fee splitting.
(o) All Health Care Permits and other governmental licenses,
permits,
regulatory agreements or other approvals or agreements necessary
or desirable for the use and operation of each Property as
intended have been applied for in the name of the related Borrower
in accordance with applicable laws, including, without limitation,
any certificate, license or approval issued by the DOH for the
requisite number of beds at each Property, and approved provider
status in any approved provider payment program (collectively, the
"Licenses"), and to the best of the related Borrower's knowledge,
there exists no condition or state of facts that would prevent
such Borrower from being able to obtain such Licenses in due
course. None of the Borrowers have granted any third party the
right to reduce the number of licensed beds at any Property or to
apply for approval to
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move the right to any or all of he licensed beds at any Property
to any location (other than another Property). Under current Laws,
in the event that the Lender acquires any Property through
foreclosure or otherwise, neither the Borrowers, the Lender or any
subsequent lessee, nor a subsequent purchaser must obtain a
certificate of need from any applicable state health care
regulator authority or agency prior to applying for, or receiving,
a license to operate such Property and certification to receive
payments pursuant to Reimbursement Contracts for patients or
residents qualified for coverage thereunder, provided that no
service or the bed compliment is changed.
(p) Except as set forth in the Disclosure Schedule, each Property
is in compliance with all requirements for participation in
Medicare and Medicaid, including, without limitation, the Medicare
and Medicaid Patient Protection Act of 1987, except where failure
to comply would not have a Material Adverse Effect. Each Property
is in conformance in all material respects with all insurance,
reimbursement and cost reporting requirements, and has a current
provider agreement which is in full force and effect under
Medicare and Medicaid, except where failure to comply would not
have a Material Adverse Effect.
(q) Each of the Borrowers has received no written notice that
there is any threatened or pending revocation, suspension,
termination, prohibition, restriction, limitation or nonrenewal
affecting the Borrowers, to the best of each of the Borrower's
knowledge, any related Property or any participation or provider
agreement with any third-party payor, including Medicare,
Medicaid, Blue Cross and/or Blue Shield, and any other private
commercial insurance managed care and employee assistance program
(such program, the "Third-Party Payors' Programs") to which such
Borrower presently is subject. All Medicaid, Medicare and private
insurance cost reports and financial reports submitted by the
Borrowers are and will be materially accurate and complete and
have not been and will not be misleading in any material respects.
(r) Except as set forth in Disclosure Schedule, neither the
Borrowers or, to the best of the Borrower's knowledge, any
Property is currently the subject of any proceeding by any
governmental agency, and no notice of any violation has been
received from a governmental agency that would, directly or
indirectly, or with the passage of time:
(i) have a material adverse impact on any of the Borrowers'
ability to accept and/or retain patients or result in the
imposition of a fine, a sanction, a lower rate certification or a
lower reimbursement rate for services rendered to eligible
patients;
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(ii) modify, limit or annul or result in the transfer, suspension,
renovation or imposition of probationary use of any of the
Borrowers' Licenses; or
(iii) affect any of the Borrowers' continued participation in the
Medicaid or Medicare programs or any other of the Third-Party
Payors' Programs, or any successor programs thereto, at current
rate certifications.
(s) Except as set forth in the Disclosure Schedule or in the
engineering reports previously obtained by Lender, and to the best
of each Borrower's knowledge, each Property and the use thereof
complies in all material respects with all applicable local, state
and federal building codes, fire codes, health care, nursing
facility and other similar regulatory requirements (the "Physical
Plant Standards") and no waivers of Physical Plant Standards exist
at any of the Properties. Each Property is free of structural
defects and all material building systems contained therein are in
good working order.
(t) Except as set forth in the Disclosure Schedule, no Property
has received a material violation, and no statement of charges or
deficiencies has been made or penalty enforcement action has been
undertaken against any Property, the Borrowers, or against any
partner, officer, director or stockholder of the Borrowers by any
governmental agency during the last three calendar years, and
there have been no violations over the past three years or such
shorter period as the applicable Borrower or its Affiliates have
owned the Property which have threatened any Property's or the
Borrowers' certification for participation in Medicare or Medicaid
or the other Third-party Payors' Programs, which have not been
remedied within applicable cure periods and appeal periods before
the agency asserting the violation.
(u) Except as set forth in the Disclosure Schedule, there are no
current, pending or outstanding Medicaid, Medicare or Third-party
Payors' Programs reimbursement audits or appeals pending at any of
the Properties, and there are no years that are subject to audits.
(v) There are no current or pending Medicaid or Medicare or Third-
party Payors' Programs recoupment efforts at any of the
Properties. The Borrowers are not a participant in any federal
program whereby any governmental agency may have the right to
recover funds by reason of the advance of federal funds,
including, without limitation, those authorized under the Hill-
Burton Act (42 U.S.C. 291 et seq.).
(w) The Borrower has not pledged its Receivables as collateral
security for any other loan or indebtedness.
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(x) There are no patient or resident care agreements with patients
or residents or with any other persons which deviate in any
material adverse respect from the standard form customarily used
at the Properties.
(y) To the actual knowledge of each of the Borrowers, all patient
or resident records at each Property, including patient or
resident trust fund accounts, are true and correct in all material
respects.
(z) [Reserved]
(aa) Except as set forth on the Disclosure Schedule, none of the
Properties have been affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that would be
reasonably likely to have a Material Adverse Effect.
(bb) Except as set forth on the Disclosure Schedule, the
Properties comply in all material respects with all applicable
Environmental Laws and Environmental Permits, all past non
compliance with such Environmental Laws and Environmental Permits
has been resolved without ongoing obligations or costs, and no
circumstances exist that would be reasonably likely to (i) form
the basis of an Environmental Action against any Loan Party or any
of the Properties that would have a Material Adverse Effect or
(ii) cause any such Property to be subject to any restrictions on
ownership, occupancy, use or transferability under any
Environmental Law.
(cc) Except as set forth on the Disclosure Schedule or as set
forth in the environmental reports delivered to the Lender prior
to the date hereof, none of the Properties are listed or proposed
for listing on the NPL or on the CERCLIS or any analogous foreign,
state or local list or is adjacent to any such property; there are
no and never have been any underground or aboveground storage
tanks or any surface impoundments, septic tanks, pits, swamps or
lagoons in which Hazardous Materials are being or have been
treated, stored or disposed on any Property; there is no Asbestos
or Asbestos-Containing Material on any Property; and Hazardous
Materials have not been released, discharged or disposed of on any
Property.
(dd) No Loan Party or any of its Subsidiaries is undertaking, and
has not completed, either individually or together with other
potentially responsible parties, any investigation or assessment
or remedial or response action relating to any actual or
threatened release, discharge or disposal of Hazardous Materials
at any Property, either voluntarily or pursuant to the order of
any governmental or regulatory authority or the requirements of
any Environmental Law; and all Hazardous Materials generated,
used,
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treated, handled or stored at, or transported to or from, any
Property have been disposed of in a manner not reasonably expected
to result in material liability to any Loan Party or any of its
Subsidiaries.
(ee) [Reserved)
(ff Except for Permitted Liens, when recorded or filed with the
appropriate governmental offices, the Collateral Documents create
a valid and perfected first priority lien on and security interest
in the Collateral, securing the payment of the Secured
Obligations. The Borrowers are the legal and beneficial owners of
the Collateral free and clear of any Lien, except for the liens
and security interests created or permitted under the Loan
Documents.
(gg) Each Loan Party and each of its Subsidiaries and Affiliates
has filed, has caused to be filed or has been included in all tax
returns (Federal, state, local and foreign) required to be filed
and has paid all taxes shown thereon to be due, together with
applicable interest and penalties.
(hh) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(ii) The location of each of the Borrower' s principal place of
business and chief executive office is at the respective addresses
set forth on the first page hereof.
(jj) Each Borrower is not a "foreign person" within the meaning of
1445((3) of the Code.
(kk) Except as set forth on the Disclosure Schedule, none of the
Borrowers are a party to any collective bargaining agreements.
(11) None of the Borrowers have conducted any business or other
activity on or prior to the Closing Date, other than in connection
with the acquisition, management and ownership of the Properties.
(mm) The licensed bed capacity and current Effective Capacity of
each Property is set forth on Schedule C attached hereto. Except
for those licenses for which application has been made by the
Borrowers, no waivers of any laws, rules, regulations or
requirements are required for each Property to operate at the
foregoing licensed bed capacity.
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(nn) Each of the Borrowers has received or is legally entitled to
receive a permanent certificate of occupancy from the applicable
Governmental Authority for each of its Properties.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01. Affirmative Covenants. So long as any portion of the
Loan shall remain unpaid, each of the Borrowers, with respect to
itself and each of the Properties owned by it, will:
(a) Operations. Maintain or cause to be maintained the standard of
care for the patients or residents of each Property at all times
at a level necessary to insure quality care for such patients and
comply, in all material respects, with all applicable laws, rules,
regulations and orders including, without limitation, any Health
Care Permits or other Licenses and with the terms of all
Reimbursement Contracts and obtain and renew all Health Care
Permits and Licenses necessary for the operation of the
Properties.
(b) Payment of Taxes, tr. Pay and discharge before the same shall
become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii)
all lawful claims that, if unpaid, might by law become a Lien upon
any of the Properties; provided, However, that the Borrowers shall
not be required to pay or discharge any such tax, assessment,
charge or claim that is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained, unless and until any Lien resulting therefrom attaches
to its property and becomes enforceable against its other
creditors.
(c) Compliance with Environmental Laws. Comply, and cause all
lessees and other Persons operating or occupying the Properties to
comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew all
Environmental Permits necessary for its operations and the
Properties; and conduct any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other
action necessary to remove and clean up all Hazardous Materials
from any of the Properties, the existence, condition, handling,
storage or treatment of which violates applicable Environmental
Laws, in accordance with the requirements of all Environmental
Laws; provided, however, that none of the Borrowers shall be
required to undertake any such cleanup, removal, remedial or other
action to the extent that its obligation to do so is being
contested in good faith and by proper proceedings and appropriate
reserves are being maintained with respect to such circumstances.
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(d) Preservation of Existence. Etc. Preserve and maintain its
existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and
franchises; provided, however, that none of the Borrowers shall be
required to preserve any right, permit, license, approval,
privilege or franchise if the Board of Directors of such Borrower
shall determine that the preservation thereof is no longer
desirable in the conduct of the business of such Borrower, as the
case may be, and that the loss thereof is not disadvantageous in
any material respect to such Borrower or the Lender.
(e) Visitation Rights. At any reasonable time and from time to
time, permit the Lender or any agents or representatives thereof,
to examine and make copies of and abstracts from the records and
books of account of, and visit the Properties and to discuss the
affairs, finances and accounts of the Borrowers with any of their
officers or directors and with their independent certified public
accountants; provided, however, that prior to the occurrence of an
Event of Default, the Lender shall exercise such rights only upon
reasonable prior written notice to the related Borrower and during
regular business hours.
(f) Preparation of Environmental Reports. If the Lender
reasonably suspects that any Property has been contaminated or
that Hazardous Materials are being used on any such Properly in
violation of the terms of this Agreement or applicable Law and the
Lender has requested an environmental site assessment repoit,
provide to the Lender within sixty (60) days after such request,
at the expense of the related Borrower, an environmental site
assessment report for any such Property, prepared by an
environmental consulting firm acceptable to the Lender, indicating
the presence or absence of Hazardous Materials and the estimated
cost of any compliance, removal or remedial action in connection
with any Hazardous Materials on such properties; without limiting
the generality of the foregoing, if such report is not provided
within the time referred to above, the Lender may retain an
environmental consulting firm to prepare such report at the
expense of the related Borrower, and such Borrower hereby grants
to the Lender, such firm and any agents or representatives thereof
an irrevocable non-exclusive license, subject to the rights of
tenants, to enter onto the Properties to undertake such an
assessment; provided that any such environmental assessment report
shall be a Phase I Report unless such Phase I Report discloses the
need for further investigation.
(g) Keeping of Books. Keep proper books of record and account, in
which full and correct entries shall be made of all financial
transactions and the assets and business of such Borrower in
accordance with GAAP.
(h) Management of the Property. Operate the Properties at all
times as Health Care Facilities in accordance with all applicable
Laws. Upon the occurrence and
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continuance of an Event of Default, the Lender may require the
Borrowers to enter into a Management Agreement, on terms and
conditions reasonably acceptable to Lender, with a Manager who
shall be a nationally recognized first-class manager of assisted
living facilities. As a condition to retaining any Manager,
Borrower shall cause such Manager to enter into an agreement to
subordinate its management fees in such form acceptable to the
Lender in its sole discretion.
(i) ERISA. Deliver to the Lender such certifications or other
evidence from time to time throughout the term of the Loan, as
reasonably requested by the Lender, that (i) each Borrower is not
an "employee benefit plan" as defined in Section 3(3) of ERISA,
which is subject to Title I of ERISA, or a "governmental plan"
within the meaning of Section 3(32) of ERISA; (ii) each Borrower
is not subject to state statutes regulating investments and
fiduciary obligations with respect to governmental plans; and
(iii) one or more of the following circumstances is hue:
(A) equity interests in such Borrower are publicly offered
securities, within the meaning of29 C.F.R. 2510.3-101(b)(2);
(B) less than twenty-five percent (25%) of each outstanding class
of equity interests in such Borrower are held by "benefit plan
investors" within the meaning of29 C.F.R. 2510.3-101((2); or
(C) such Borrower qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R. 25 I
0.3- I 01 (c) or (e) or an investment company registered under The
Investment Company Act of 1940.
(j) Appraisals. Each Borrower shall furnish to the Lender at the
related Borrower's expense upon request of the Lender after the
Closing Date and prior to the Maturity Date an Appraisal from an
Appraiser upon the occurrence of a refinancing of the Loan by the
Lender or any Affiliate of the Lender. The Lender, at its own
expense, shall have the right to obtain one or more Appraisals of
any of the Properties and the Borrowers shall cooperate with
Lender and any Appraiser to the extent necessary to obtain such
Appraisals.
(k) Reimbursement Contracts. Maintain in full force and effect
all Reimbursement Contracts except where the failure to do so
would not have a Material Adverse Effect.
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(1) Specified Repairs. Promptly commence and diligently pursue to
completion the Specified Repairs such that all such Specified
Repairs shall be completed within one (1) year after the Closing
Date.
(m) Operation and Maintenance Program. Establish and maintain an
operations and maintenance program within thirty (30) days from
the date hereof with respect to Asbestos and Asbestos-Containing
Materials located at (1) Fulton Villa in Stockton, California and
(2) Villa Del Rey in Escondido, California, which operations and
maintenance program shall comply with all applicable Laws, conform
to applicable guidelines established by federal, state or local
governmental agency or otherwise be designed to incorporate all
prudent and reasonable safeguards in order to minimize any health
risk to the patients, residents, employees and guests at the
aforementioned sites from the presence of Asbestos or Asbestos-
Containing Materials.
(n) Repairs. Maintain or cause to be maintained the Properties in
good order, repair and operating condition, ordinary wear and tear
excepted, make or cause to be made promptly, when necessary, all
necessary repairs, restorations, renewals, replacements, additions
and improvements thereto, interior and exterior, structural and
nonstructural, foreseen and unforeseen, or otherwise necessary to
insure that the same as part of the security under the Mortgages
shall not in any way be diminished or impaired in any material
respect, and not cause or allow the Premises to be misused, wasted
or to deteriorate.
(o) Replacement of Equipment. Keep the Properties fully equipped
and will replace in the ordinary course of business all worn out
or obsolete equipment in accordance with applicable standards of
Laws to operate as a Health Care Facility.
SECTION 5.02. Negative Covenants. So long as any portion of the
Loan shall remain unpaid, no Borrower will, at any time:
(a) Liens. Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer
to exist, any Lien on or with respect to any of the Properties of
any character (including, without limitation, accounts) whether
now owned or hereafter acquired, or sign or file or suffer to
exist, under the Uniform Commercial Code of any jurisdiction, a
financing statement that names any of the Borrowers as debtor, or
sign or suffer to exist, any security agreement authorizing any
secured party thereunder to file such financing statement, or
assign any accounts or other right to receive income, excluding,
however, from the operation of the foregoing restrictions the
following:
(i) Liens created under the Loan Documents;
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(ii) Permitted Liens; and
(iii) the replacement, extension or renewal of any Lien permitted
by clause (ii) above upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
(b) Debt. Create, incur, assume or suffer to exist, any Debt other
than:
(i) Debt under the Loan Documents;
(ii) unsecured Debt not evidenced by promissory notes incurred in
the ordinary course of business for the deferred purchase price of
property or services, maturing within one year from the date
created, and aggregating not more than $500,000 at any one time
outstanding;
(iii) trade payables that are more than ninety (90) days past due;
provided, that such trade payables (i) are no more than one
hundred twenty ( 120) days past due and (ii) represent no more
than ten percent ( 10"%) of the Borrower' s aggregate trade
payables; and
(iv) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
(c) Lease Obligations. Create, incur, assume or suffer to exist,
any obligations as lessee (i) for the rental or hire of real or
personal property in connection with any sale and leaseback
transaction, or (ii) for the rental or hire of other real or
personal property of any kind under leases or agreements to lease,
including Capitalized Leases having an original term of one year
or more, other than leases of equipment entered into in the
ordinary course of business provided that the total annual
monetary obligations under any such equipment lease or leases
shall not exceed $500,000 in aggregate.
(d) Sales. Etc., of Assets. Sell, lease, transfer or otherwise
dispose of any Collateral (except to the extent Equipment (i) is
being replaced by Equipment of equal or better quality or (ii)
that has become obsolete or worn-out is disposed of in the
ordinary course of any of the Borrowers' business), or grant any
option or other right to purchase, lease or otherwise acquire any
Collateral, except sales of Properties for cash and for a price
not less than the Release Price for such Property, provided that
the related Borrower shall, on the date of receipt by such
Borrower of the proceeds from such sale, prepay the Loan pursuant
to, and in the amount set forth in, Section 8.01.
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(e) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its
business as carried on at the date hereof, except as permitted
pursuant to Section 5.04.
(f) Amendments of its Organizational Documents. Amend its
Organizational Documents, unless such amendment would not cause a
Material Adverse Effect to occur.
(g) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies
or reporting practices, except as required by GAAP, unless such
change would not cause a Material Adverse Effect to occur.
(h) Management Agreement. Enter into any management agreement
other than a Management Agreement.
(i) Negative Pledge. Enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien
upon any of its property or assets other than in favor of the
Lender.
(j) ERISA. Engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the
exercise by the Lender of any of its rights under the Note, this
Agreement and the Loan Documents) to be a non-exempt (under a
statutory or administrative class exemption) prohibited
transaction under ERISA.
(k) Licenses. (i) Assign, transfer, rescind, withdraw, revoke,
amend, modify, supplement, or otherwise alter the nature, tenor or
scope of the Licenses for any Property except to the extent
necessary to operate the Properties in accordance with prudent
business standards for assisted living facilities and provided
that no such action would result in a Material Adverse Effect;
(ii) amend or otherwise change any Property's authorized bed
capacity and/or the number of beds approved by the DOH; or (iii)
replace or transfer all or any part of any Property's beds to
another site or location.
(1) Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of the Borrowers, except in the
ordinary course of business and on terms which are fully disclosed
to Lender in advance and are no less favorable to the Borrower or
such Affiliate than would be obtained in a comparable arm's length
transaction with an unrelated third party.
(m) Fiscal Year. Change its Fiscal Year unless such change would
not adversely affect the ability of such Borrower to obtain
Medicare and Medicaid cost reimbursements.
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(n) Repairs/Maintenance. No part of the Properties shall be
removed, demolished or structurally or materially altered nor
shall any new building, structure, facility or other improvement
be constructed on the properties without Lender's prior written
consent in the case of each such removal, demolition, alternation
or construction.
SECTION 5.03. Reporting Requirements. So long as any portion of
the Loan shall remain unpaid, each Borrower will furnish to the
Lender:
(a) Default Notice. As soon as possible and in any event within
five (5) days after the occurrence of each Default or any event,
development or occurrence reasonably likely to have a Material
Adverse Effect continuing on the date of such statement, a
statement of such Borrower setting forth details of such Default
and the action that such Borrower has taken and proposes to take
with respect thereto.
(b) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, a balance
sheet of such Borrower as of the end of such month and a statement
of income and a statement of cash flows of such Borrower and of
each of the related Properties for the period commencing at the
end of the previous month and ending with the end of such month
and a statement of income and a statement of cash flows of such
Borrower and of each of the related Properties for the period
commencing at the end of the previous Fiscal Year and ending with
the end of such month, setting forth in each case in comparative
form the corresponding figures (i) set forth in the applicable
budget for such Fiscal Year and (ii) for the corresponding month
of the preceding Fiscal Year, all in reasonable detail and duly
certified by such Borrower and the Manager.
(c) Quarterly Financials. As soon as available and in any event
within forty five (45) days after the end of each quarter; a
balance sheet of such Borrower as of the end of such quarter and a
statement of income and a statement of cash flows of such Borrower
and of each of the related Properties for the period commencing at
the end of the previous quarter and ending with the end of such
quarter and a statement of income and a statement of cash flows of
the Borrower and of each of the related Properties for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, setting forth in each case in comparative
form the corresponding figures (i) set forth in the applicable
budget for such Fiscal Year and (ii) for the corresponding quaiter
of the preceding Fiscal Year, all in reasonable detail and duly
certified by such Borrower;
(d) Annual Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, a
balance sheet of such Borrower and of Emeritus as of the end of
such Fiscal Year and a statement of income and a statement of cash
flows of such Borrower for such Fiscal Year, which in the case of
Emeritus shall be
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accompanied by an opinion acceptable to the Lender of a nationally
recognized public accountant firm acceptable to the Lender, and a
certificate of the chief financial officer of each Borrower in the
form of Exhibit D attached hereto stating that no Default has
occurred and is continuing or, if a Default has occurred and is
continuing, a statement as to the nature thereof and the action
that such Borrower has taken and proposes to take with respect
thereto. In addition, as soon as available and in any event within
ninety (90) days after the end of each Fiscal Year, a complete set
of the Federal tax returns of the Borrower.
(e) Annual Budgets. As soon as available and in any event no later
than thirty (30) days before the end of each Fiscal Year,
forecasts prepared by management of such Borrower, in form
reasonably satisfactory to the Lender, of balance sheets, income
statements and cash flow statements on a monthly basis for the
Fiscal Year following such Fiscal Year then ended and on an annual
basis for each Fiscal Year thereafter.
(f) Litigation. Promptly after the commencement thereof, notice
of all actions, suits, investigations, litigation and proceedings
before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting
any Loan Party or any of its Subsidiaries of the type described in
Section 4.01(h), and promptly after the occurrence thereof, notice
of any adverse change in the status or the financial effect on any
Loan Party or any of its Subsidiaries of the Disclosed Litigation
from that described on the Disclosure Schedule.
(g) Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or
of any noncompliance by any of the Properties with any
Environmental Law or Environmental Permit.
(h) Cost Reports. To the extent applicable during the term of this
Agreement, within ten ( 10) days of the date of the required
filing of cost reports of the Properties with the Medicaid or
Medicare agency or the date of actual filing of such cost report
of the Properties with such agency, whichever is earlier, each
Borrower shall furnish to the Lender a complete and accurate copy
of the annual Medicaid and Medicare cost reports for the
Properties it owns, which will be prepared by an independent
certified public accountant or by an experienced cost report
preparer acceptable to the Lender, and promptly furnish the Lender
any amendments filed with respect to such reports and all
responses, audit reports or inquiries with respect to such
reports.
(i) Licensing Agency Report. Within fifteen (I5) days of receipt,
each
Borrower shall furnish to the Lender a copy of any Medicare,
Medicaid or licensing agency survey or report and any statement of
deficiencies, and within the time period required by the
particular agency for furnishing a plan of correction. The
Borrowers shall
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also furnish or cause to be furnished to the Lender a copy of the
plan of correction generated from such survey or report for the
Properties, and correct or cause to be corrected any deficiency,
the curing of which is a condition of continued licensure or for
full participation in Medicare and Medicaid for existing patients
or for new patients to be admitted with Medicare or Medicaid
coverage, by the date required for cure by such agency (plus
extensions granted by such agency).
(j) Notices. Within five (5) days after receipt, the Borrowers
shall furnish to the Lender any and all written notices from any
licensing and/or certifying agency that a Property's license or
the Medicare or Medicaid certification of a Property 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 a Property's license or
certification.
(k) (Reserved].
(1) Property Data. Within forty-five (45) days of the end of each
fiscal quarter, a statement of the number of bed days available
and the actual patient days incurred for the quarter, together
with quarterly census information of the Properties as of the end
of such quarter by patient-mix (i.e., private, Medicare, Medicaid,
and V.A.) the average quarterly census of the Properties,
certified by a financial officer of the Borrower to be true and
correct in all material respects.
(m) Medicare/Medicaid Downgrades Etc. As soon as possible, but no
later than ten (10) days after any Borrower' s receipt, any and
all written notices from any and all licensing and/or certifying
agencies that any Property's license, and/or the Medicare and/or
Medicaid certification is being downgraded to a substandard
category, revoked, or suspended.
(n) Bed Taxes. If requested by Lender, evidence of payment by the
Borrower of any applicable provider bed taxes or similar taxes.
(o) Accounts Aging Report. If requested by Lender, an accounts
aging report of each Property.
(p) Reimbursement Rates. Within twenty (20) days of receipt, the
States of California, Florida, Idaho, Iowa, Montana, Nevada and
Washington Medicaid Reimbursement Rates for the applicable
Properties.
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(q) Other Information. Such other information respecting the
business,
condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party as the Lender may From
time to time reasonably request.
SECTION 5.04. Single Purpose Entity. Each Borrower covenants and
agrees that it has not and shall not:
(a) engage in any business or activity other than the ownership,
operation and maintenance of the Properties as assisted living
facilities (including the providing of health care services), and
activities incidental thereto;
(b) acquire or own any material assets other than (i) the
Properties, and (B) such incidental personal property as may be
necessary for the operation of the Properties;
(c) merge into or consolidate with any person or entity or
dissolve, terminate or liquidate in whole or in part, transfer or
otherwise dispose of all or substantially all of its assets or
change its legal structure, without, in each case, the Lender's
consent;
(d) fail to preserve its existence as an entity duly organized,
validly existing and in good standing (if applicable) under the
Laws of the jurisdiction of its organization or formation, or
without the prior written consent of the Lender, amend, modify,
terminate or fail to comply with the provisions of the Borrower's
limited liability company agreement, articles or certificate of
incorporation, certificate of organization, operating agreement or
similar organizational documents, as the case may be, whichever is
applicable, as the same may be further amended or supplemented, if
such amendment, modification, termination or failure to comply
would (i) create an amendment to the limitations on the amendment
of such documents as contained therein, (ii) affect the provisions
of such documents pertaining to the matters set forth in this
Section 5.04, or (iii) materially adversely affect the ability of
the Borrower to perform the Obligations or its obligations under
the Note or the Loan Documents;
(e) own any subsidiary or make any Investment in, any person or
entity without the consent of the Lender;
commingle its assets with the assets of any of its Affiliates,
principals or of any other person or entity;
(g) except as provided in Section 5.02, incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any
obligation), other than the Obligations of the Borrowers under the
Loan Documents;
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(h) fail to maintain its Solvency status or fail to pay its debts
and liabilities from its assets as the same shall become due;
(i) fail to maintain its records, books of account and bank
accounts separate and apart from those of the principals and
Affiliates of the Borrowers and any other person or entity;
(j) enter into any contract or agreement with any principal or
Affiliate of Borrower or any principal or Affiliate thereof,
except upon terms and conditions that are intrinsically fair and
substantially similar to those that would be available on an arms
length basis with third parties other than any principal or
Affiliate of the Borrower, or any principal or Affiliate thereof;
(k) seek the dissolution or winding up in whole, or in part, of
such Borrower;
(1) fail to correct any known misunderstandings regarding the
separate identity of such Borrower, which understanding if uncured
would result in a Material Adverse Effect;
(m) hold itself out to be responsible for the debts of another
person except for the other Borrowers hereunder;
(n) make any loans or advances to any third party, including any
principal or Affiliate of such Borrower;
(o) pledge its assets for the benefit of any third party,
principal or Affiliate of the Borrower;
(p) fail to file tax returns;
(q) agree to, enter into or consummate any transaction which would
render the representation set forth in Section 4.01(k) or 4.01(1)
untrue at any time;
(r) fail either to hold itself out to the public as a legal entity
separate and distinct from any other entity or person or to
conduct its business solely in its own name in order not (i) to
mislead others as to the identity with which such other party is
transacting business, or (ii) to suggest that such Borrower is
responsible for the debts of any third party (including any
principal or Affiliate of such Borrower or any principal or
Affiliate thereof;
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(s) fail to maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations;
(t) fail to pay the salaries of its own employees and maintain a
sufficient number of employees in light of its contemplated
business operations;
(u) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or
make an assignment for the benefit of creditors;
(v) except as in existence on the date hereof, share any common
logo with or hold itself out as or be considered as a department
or division of any principal or Affiliate of any of the Borrowers
or any other person or entity;
(w) fail to allocate any overhead for shared office space in a
fair and reasonable manner;
(x) fail to use separate stationary, invoices and checks; or
(y) fail at any time to have at least one independent director
that is not and has not been for at least three (3) years a
director, officer, employee or significant shareholder (or spouse,
parent, sibling or child of the foregoing) of (i) the Borrower,
(ii) Emeritus or (iii) any principal or Affiliate of the Borrower
or Emeritus.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) (i) if the payment of any principal is not paid under the
Notes when the same shall be due and payable or (ii) if the
payment of any interest payable under the Notes is not made, or if
any other payment under any Loan Document is not made, in each
case under this clause (ii) within five (5) days after the same
becomes due and payable; or
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(b) any representation or warranty made by any Loan Party (or any
of its officers) under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when
made; or
(c) if any provision of the Organizational Documents affecting the
purpose for which any of the Borrowers is formed is amended or
modified in any manner which is reasonably likely to result in a
Material Adverse Effect, or if any of the Borrowers fail to
perform or enforce the provisions of the Organizational Documents
in a manner that is reasonably likely to result in a Material
Adverse Effect or attempt to dissolve any of the Borrowers; or
(d) if a Change of Control has occurred with respect to any of
Borrowers other than a Change of Control resulting from the death
or incapacity of any natural person; or
(e) if Emeritus merges with, consolidates with or sells
substantially all of its assets to, another entity without the
consent of the Lender; provided, however, that in connection with
any such merger, consolidation or sale of all or substantially all
of the assets of Emeritus, the Lender will not withhold its
consent, provided that the Lender reasonably determines that such
surviving entity's financial condition is not materially less than
that of Emeritus; or
if any Property eligible at any time to participate in the
Medicare and Medicaid program, becomes decertified and the related
Borrower does not, within thirty (30) days after obtaining actual
knowledge or receiving written notice of such decertification,
effect a release of the affected Properties pursuant to Section
8.01; or
(g) except as expressly permitted in this Agreement, any of the
Licenses shall be terminated, cancelled or revoked such that any
of the Properties is no longer licensed to operate as a Health
Care Facility and the related Borrower does not, within thirty
(30) days after obtaining actual knowledge or receiving written
notice of such termination, cancellation or revocation either (i)
cause the restoration of reissuance of such License or (ii) effect
a release of the affected Properties pursuant to Section 8.01; or
(h) if any of the Borrowers shall fail to correct, within the time
deadlines set by any Medicare, Medicaid or licensing agency, any
material deficiency that justifies either (i) a termination of the
related Borrower's Medicare contract, Medicaid contract, or
assisted living facility or nursing facility license; or (ii) a
ban on new admissions generally or on admission of patients
otherwise qualifying for Medicaid or Medicare coverage; or
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(i) if any of the Borrowers shall violate or fail to comply with
any of the provisions of Section 5.02 or 5.04(f); or
(j) if any of the Borrowers shall fail to keep in full force and
effect the policies of insurance required pursuant to the
Mortgages, or if such policies are not delivered to the Lender
upon request or the applicable Borrower has not delivered evidence
of the renewal of such policies thirty (30) days prior to their
expiration as required by the Mortgages; or
(k) any Loan Party shall fail to perform any other term, covenant
or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for
thirty (30) days after the earlier of the date on which (A) a
Responsible Officer becomes aware of such failure or (B) written
notice thereof shall have been given to the applicable Borrower by
the Lender; or
(1) any Loan Party shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or
against any Loan Party seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted
against it (but not instituted by it) that is being diligently
contested by it in good faith, either such proceeding shall remain
undismissed or unstayed for a period of sixty (60) days or any of
the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or any substantial part of its property) shall
occur; or any Loan Party shall take any corporate action to
authorize any of the actions set forth above in this subsection
(1); or
(m) any judgment or order for the payment of money in excess of $
1,000,000 shall be rendered against any of the Borrowers and
either (i) enforcement proceedings shall have been commenced by
any creditor upon such judgment or order or (ii) there shall be
any period of ten (10) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(n) any non-monetary judgment or order shall be rendered against
any Loan Party that is reasonably likely to have a Material
Adverse Effect, and there shall be any
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period of ten (10) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(o) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01 shall for any reason cease to be valid
and binding on or enforceable against any Loan Party to it and the
Lender's ability to collect any amounts due or enforce the Loan
Documents would be materially impaired, or any such Loan Party
shall so state in writing; or
(p) any Collateral Document after delivery thereof pursuant to
Section 3.01 shall for any reason (other than pursuant to the
terms thereof cease to create a valid and perfected first priority
lien on and security interest in the Collateral purported to be
covered thereby; or
(q) except as permitted under Section 5.02(d), any of the
Borrowers shall sell, transfer or encumber any of the Properties
or any interest therein; then, and in any such event, the Lender
(i) may by notice to the Borrowers, declare the Notes, all
interest thereon and all other amounts payable under this
Agreement and the other Loan Documents to be forthwith due and
payable, including, without limitation, the Exit Fee, whereupon
the Notes, all such interest and all such amounts shall become and
be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly
waived by the Borrowers; provided, however, that in the event of
an actual or deemed entry of an order for relief with respect to
any Loan Party under the Federal Bankruptcy Code, the Notes, all
such interest and all such amounts shall automatically become and
be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by
the Borrowers.
ARTICLE VII
SECONDARY NZARKET SERVICING
SECTION 7.01. Assignments and Participations. (a) The Lender may
assign to one or more Persons all or a portion of its rights and
obligations under this Agreement (including, without limitation,
all or a portion of the Note) (each, an "Assignee"); provided that
the parties to each such assignment shall execute and deliver to
the Lender, for its acceptance and recording in the Register, an
Assignment and Acceptance.
(b) Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in such Assignment and
Acceptance, (x) the Assignee thereunder
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shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a
Lender, as the case may be, hereunder and (y) the Lender assignor
thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of
an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the Assignee thereunder confirm to
and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such
assigning Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or
any other Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or
purported to be created under or in connection with, this
Agreement or any other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; (ii) such assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the
Borrowers or any other Loan Party or the performance or observance
by any Loan Party of any of its obligations under any Loan
Documents or any other instrument or document furnished pursuant
thereto; (iii) such assignee confirms that it has received a copy
of this Agreement, together with copies of the financial
statements referred to in Section 4.01 and Section 5.03 and such
other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently
and without reliance upon the Lender, such assigning Lender or any
other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes the Lender to
take such action as agent on its behalf and to exercise such
powers and discretion under the Loan Documents as are delegated to
the Lender by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement
are required to be performed by it as a Lender, as the case may
be.
(d) The Lender shall maintain at its address referred to in
Section 10.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the
names and addresses of the Lender Parties and the principal amount
of the Loan owing to each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and the
Borrowers, the Lender and the Lender Parties shall treat each
Person whose name is recorded in the Register as a Lender
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Party hereunder for all purposes of this Agreement. The Register
shall be available for inspection by the Borrowers or any Lender
Party at any reasonable time and from time to time upon reasonable
prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender Party and an assignee, together with any Note
or Notes subject to such assignment, the Lender shall, if such
Assignment and Acceptance has been completed and is in
substantially the form of Exhibit B hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to
the Borrowers. In the case of any assignment by a Lender, within
five (5) Business Days after its receipt of such notice, the
Borrowers, at their own cost and expense shall execute and deliver
to the Lender in exchange for the surrendered Note or Notes a new
Note to the order of such Assignee in an amount equal to the
outstanding and unpaid portion of the Loan assigned to it and a
new Note to the order of the assigning Lender in an amount equal
to the outstanding and unpaid portion of the Loan retained by it
hereunder. Such new Note or Notes shall be in an aggregate
outstanding and unpaid principal amount equal to the aggregate
outstanding and unpaid principal amount of such surrendered Note
or Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in the form of the Note.
Each Lender Party may sell participations to one or more Persons
(other than any Loan Party or any of its Affiliates) in or to all
or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of the Note held
by it); provided, However, that (i) such Lender Party's
obligations under this Agreement shall remain unchanged, (ii) such
Lender Party shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Lender
Party shall remain the holder of any such Note for all purposes of
this Agreement, and (iv) the Borrowers, the Lender and the other
Lender Parties shall continue to deal solely and directly with
such Lender Party in connection with such Lender Party's rights
and obligations under this Agreement.
(g) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to
this Section 7.01, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the
related Borrower furnished to such Lender Party by or on behalf of
the related Borrower; provided, however, that, prior to any such
disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any
Confidential Information received by it from such Lender Party.
(h) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time create a security
interest in all or any portion of its rights under this Agreement
(including, without limitation, the Advances owing to it and the
Note or Notes held
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by it) in favor of any Federal Reserve Bank in accordance with
Regulation A of the Board of Governors of the Federal Reserve
System.
SECTION 7.02. Securitization. Lender, at its option, may elect to
effect a securitization of the Loan by means of the issuance of
certificates of interest therein or notes secured thereby (the
"Securities") rated by one or more rating Agencies (the
"Securitization"). In such event and upon request by Lender, the
Borrowers and Emeritus shall cooperate (in each case, at the
Lender's sole cost and expense) in all reasonably respects with
Lender in the Securitization, including, but not limited to, (i)
amending this Agreement and the other Loan Documents in order to
bifurcate the Loan into two or more constituent loans on the same
terms as set forth herein and therein, (ii) providing information
in connection with obtaining preliminary ratings from two or more
Ratings Agencies in preparation of a private placement memorandum
or registration statement required to privately place or publicly
distribute the Securities in a manner which does not conflict with
federal or state securities laws, (iii) delivery of interim
audited financials and updated information; or (iv) delivery of
updated information with respect to the Borrowers or Emeritus;
provided, however, that no such cooperation shall have any adverse
effect on the Borrowers or Emeritus.
SECTION 7.03. Servicing. At any time after the Closing Date, the
Lender shall have the right to transfer the servicing of the Loan
and the administration of the Loan Documents to such party as
shall be designated by the Lender in its reasonable discretion
(together with any successor service appointed by the Lender, the
"Loan Servicer"). The Loan Servicer shall have such right to
exercise all rights of the Lender and enforce all obligations of
the Borrowers pursuant to the provisions of this Agreement, the
Notes and the other Loan Documents, and the Borrowers shall
deliver to Loan Servicer duplicate originals of all notices and
other instruments which the Borrowers may deliver pursuant to this
Agreement, the Notes and the other Loan Documents (and no delivery
of such notices or other instruments by the Borrowers shall be of
any force or effect unless delivered to Lender and Loan Servicer
as provided above).
ARTICLE VIII
PARTIAL RELEASE OF COLLATERAL
SECTION 8.01. Partial Release of Collateral. (a) The Borrowers
shall be entitled to a partial release of the applicable Property
and release of the Lender's security interests and liens thereon
(a "Partial Release") subject to the following terms and
conditions:
(i) The related Borrower shall have delivered to the Lender a
written request for a Partial Release in the form of Exhibit E
which request shall include (A) the time
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and place of closing of the sale and (B) documents effecting the
Partial Release in form and substance satisfactory to the Lender;
(ii) Provided that (A) no Default or Event of Default has occurred
and is continuing and (B) the Loan-to-Value Ratio as reasonably
determined by the Lender immediately following such Partial
Release shall not exceed eighty-five percent (85"%), provided
further that if the applicable Borrower does not accept the
Lender's determination of the Loan-to-Value Ratio, then the
applicable Borrower shall have the right to have Appraisals
conducted to determine the Loan-to-Value Ratio, the Lender shall,
within five (5) Business Days after receipt by the Lender of such
Borrower's request, deliver to the trustee under the applicable
Mortgage, a written request for Partial Release of the applicable
Property and all documents required by the trustee to effect the
Partial Release;
(iii) The trustee shall be authorized to effect the Partial
Release upon the trustee's receipt of confirmation by the Lender,
that the Lender has received same day funds in the amount of the
Release Price payable by the related Borrower under this Section
8.01 with respect to such Partial Release;
(iv) The Lender shall have received, simultaneously with the
Partial Release, payment of all costs and expenses, including,
without limitation, legal fees and disbursements, incurred by the
Lender in effecting the Partial Release; and (v) The Lender shall
have received, simultaneously with the Partial Release, a
certificate signed by a duly authorized officer of a general
partner or managing member, as the case may be, of the related
Borrower, dated the date of the Partial Release, stating that (A)
all of the conditions set forth in this Section 8.01 have been
satisfied and (B) the Partial Release of the applicable Property
complies with all of the terms and provisions of this Agreement.
SECTION 8.02. Application of the Release Payment. Upon receipt by
the Lender of the amounts payable with respect to any Partial
Release pursuant to Section 8.01, such amounts shall be applied as
a reduction in the outstanding principal amount of the Loan.
ARTICLE IX
CROSS-GUARANTY
SECTION 9.01. Cross-Guaranty of Payment. Subject to Section 9.07
below, each Cross-Guarantor hereby, jointly and severally,
unconditionally guarantees to the Lender the
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prompt payment of all Guaranteed Obligations of the other
Borrowers in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise) (the
"Cross-Guaranty"). The Cross-Guarantors additionally, jointly and
severally, unconditionally guarantee to the Lender the timely
performance of all other obligations of the other Borrowers under
the Loan Documents. This Cross-Guaranty is a guaranty of payment
and not of collection and is a continuing guaranty and shall apply
to Guaranteed Obligations whenever arising.
SECTION 9.02. Obligations Unconditional. The obligations of the
Cross-Guarantors hereunder are absolute and unconditional,
irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Loan Documents, or any other
agreement or instrument referred to therein, to the fullest extent
permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal
or equitable discharge or defense of a surety or guarantor. Each
Cross-Guarantor agrees that this Cross-Guaranty may be enforced by
the Lender without necessity at any time of resorting to or
exhausting any other security or collateral and without the
necessity at any time of having recourse to the Notes, any other
of the Loan Documents or any collateral, if any, hereafter
securing the Guaranteed Obligations or otherwise, and each Cross-
Guarantor hereby waives the right to require the Lender to proceed
against the other Cross-Guarantors, Indemnitor or any other Person
(including a co-guarantor) or to require the Lender to pursue any
other remedy or enforce any other right. Each Cross-Guarantor
further agrees that it shall have no right of subrogation,
indemnity, reimbursement or contribution against the other Cross-
Guarantors of the Guaranteed Obligations for amounts paid under
this Cross-Guaranty until such time as the Lender has been paid in
full, and no Person or Governmental Authority shall have any right
to request any return or reimbursement of funds from the Lender in
connection with monies received under the Loan Documents. Each
Cross-Guarantor further agrees that nothing contained herein shall
prevent the Lender from suing on the Notes or any of the other
Loan Documents or foreclosing its security interest in or Lien on
any collateral, if any, securing Guaranteed Obligations or from
exercising any other rights available to them under this
Agreement, the Notes, any other of the Loan Documents, or other
instrument of security, if any, and the exercise of any of the
aforesaid rights and the completion of any foreclosure proceedings
shall not constitute a discharge of any of any Cross-Guarantor's
obligations hereunder; it being the purpose and intent of each
Cross-Guarantor that its obligations hereunder shall be absolute,
independent and unconditional under any and all circumstances.
Neither any of the Cross-Guarantors' obligations under this Cross-
Guaranty nor any remedy for the enforcement thereof shall be
impaired, modified, changed or released in any manner whatsoever
by an impairment, modification, change, release or limitation of
the liability of the Borrowers or by reason of the bankruptcy or
insolvency of any of the Borrowers. Each Cross-Guarantor waives
any and all notice of the creation, renewal, extension or accrual
of any of the Guaranteed Obligations and notice of or proof of
reliance by the Lender upon this Cross-Guaranty or acceptance of
this Cross-Guaranty. The Guaranteed Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance
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upon this Cross-Guaranty. All dealings between the Borrowers and
the Lender shall be conclusively presumed to have been had or
consummated in reliance upon this Cross-Guaranty. Notwithstanding
anything to the contrary herein, the Cross-Guarantors shall have
the right to assert any valid defenses of the Borrowers to any
claim by the Lender for payment under the Cross-Guaranty.
SECTION 9.03. Modifications. Each Cross-Guarantor agrees that: (a)
all or any part of the security now or hereafter held for the
Guaranteed Obligations, if any, may be exchanged, compromised or
surrendered from time to time; (b) the Lender shall not have any
obligation to protect, perfect, secure or insure any such security
interests, Liens or encumbrances now or hereafter held, if any,
for the Guaranteed Obligations or the properties subject thereto;
(c) the time or place of payment of the Guaranteed Obligations may
be changed or extended, in whole or in part, to a time certain or
otherwise, and may be renewed or accelerated, in whole or in part;
(d) the Borrowers and any other party liable for payment under the
Loan Documents may be granted indulgences generally; (e) any of
the provisions of the Notes or any of the other Loan Documents may
be modified, amended or waived; (f) any party (including any co-
guarantor) liable for the payment thereof may be granted
indulgences or be released; and (g) any deposit balance for the
credit of the Borrowers or any other party liable for the payment
of the Guaranteed Obligations or liable upon any security therefor
may be released, in whole or in part, at, before or after the
stated, extended or accelerated maturity of the Guaranteed
Obligations, all without notice to or further assent by such Cross-
Guarantor, which shall remain bound thereon, notwithstanding any
such exchange, compromise, surrender, extension, renewal,
acceleration, modification, indulgence or release.
SECTION 9.04. Waiver of Rights. Each Cross-Guarantor expressly
waives, to the fullest extent permitted by applicable law: (a)
notice of acceptance of this Cross-Guaranty by the Lender and of
all extensions of credit to the Borrowers by the Lender; (b)
presentment and demand for payment or performance of any of the
Guaranteed Obligations; (c) protest and notice of dishonor or of
default (except as specifically required in this Agreement) with
respect to the Guaranteed Obligations or with respect to any
security therefor; (d) notice of the Lender obtaining, amending,
substituting for, releasing, waiving or modifying any security
interest, Lien or encumbrance, if any, hereafter securing the
Guaranteed Obligations, or the Lender subordinating, compromising,
discharging or releasing such security interests, Liens or
encumbrances, if any; (e) all other notices to which such Cross-
Guarantor might otherwise be entitled; and (demand for payment
under this Cross-Guaranty. In addition, each Cross-Guarantor
agrees to the waivers set forth in Addendum A hereto, which is
incorporated herein by reference, mutadis mutandis, with the same
force and effect as if herein fully set forth.
SECTION 9.05. Reinstatement. The obligations of the Cross-
Guarantors under this Article IX shall be automatically reinstated
if and to the extent that, for any reason, any payment by or on
behalf of any Person in respect of the Guaranteed Obligations is
rescinded or
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must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise, and each Cross-Guarantor agrees
that it will indemnify the Lender on demand for all reasonable
costs and expenses (including, without limitation, reasonable fees
of counsel) incurred by the Lender in connection with such
rescission or restoration, including any such costs and expenses
incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
SECTION 9.06. Remedies. The Cross-Guarantors agree that, as
between the Cross-Guarantors, on the one hand, and the Lender, on
the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Article VI (and shall be
deemed to have become automatically due and payable in the
circumstances provided in Article VI) notwithstanding any stay,
injunction or other prohibition preventing such declaration (or
preventing such Guaranteed Obligations from becoming automatically
due and payable) as against any other Person and that, in the
event of such declaration (or such Guaranteed Obligations being
deemed to have become automatically due and payable), such
Guaranteed Obligations (whether or not due and payable by any
other Person) shall forthwith become due and payable by the Cross-
Guarantors.
SECTION 9.07. Limitation of Cross-Guarantor. Notwithstanding any
provision to the contrary contained herein or in any of the other
Loan Documents, to the extent the obligations of any Cross-
Guarantor shall be adjudicated to be invalid or unenforceable for
any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances
or transfers), then the obligations of such Cross-Guarantor
hereunder shall be limited to the maximum amount that is
permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment or waiver ofany
provision of this Agreement or the Notes or any other Loan
Document, nor consent to any departure by the Borrowers therefrom,
shall in any event be effective unless the same shall be in
writing and signed (or, in the case of the Collateral Documents,
consented to) by the Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific
purpose for which given.
SECTION 10.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic,
telecopy or telex communication) and
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mailed, telegraphed, telecopied, telexed or delivered, if to the
Borrowers, at its address at c/o Emeritus Corporation, 313 I
Elliott Avenue, Suite 500, Seattle, Washington 98121 Attention:
Chief Financial Officer, with a copy to Emeritus Corporation, 313
I Elliott Avenue, Suite 500, Seattle, Washington 98121 Attention:
General Counsel; and if to the Lender, at its address at 31 West
52nd Street, New York, New York I 0019, Attention: general Counsel
with a copy to the Loan Servicer at an address specified by the
Loan Servicer; or as to each other party, at such other address as
shall be designated by such party in a written notice to the
Borrowers and the Lender. All such notices and communications
shall, when mailed, telecopied or sent via overnight courier, be
effective when deposited in the mails, confirmed by telex answer
back or delivered to an overnight courier, respectively, except
that notices and communications to the Lender pursuant to Article
II, III or VII shall not be effective until received by the
Lender. Delivery by telecopier of an executed counterpart of any
amendment or waiver of any provision of this Agreement or the
Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed
counterpart thereof.
SECTION 10.03. No Waiver; Remedies. No failure on the part of any
Lender Party or the Lender to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as
a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 10.04. Costs, Expenses. (a) Except as expressly provided
to the contrary herein, the Borrowers agree to pay on demand (i)
all reasonable costs and expenses of the Lender or Loan Servicer
in connection with the preparation, execution, delivery,
administration, and when requested by the Borrowers, the
modification and amendment of the Loan Documents (including,
without limitation, (A) all due diligence, collateral review,
appraisal as expressly provided for herein, audit, insurance,
consultant, search, filing and recording fees and expenses and (B)
the reasonable fees and expenses of counsel for the Lender or Loan
Servicer with respect thereto, with respect to advising the Lender
or Loan Servicer as to its rights and responsibilities, or the
perfection, protection or preservation of rights or interests,
under the Loan Documents, with respect to negotiations with any
Loan Party or with other creditors of any Loan Party or any of its
Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to
presenting claims in or otherwise participating in or monitoring
any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto)
and (ii) all costs and expenses of the Lender or Loan Servicer in
connection with the enforcement of the Loan Documents, whether in
any action, suit or litigation, any bankruptcy, insolvency or
other similar proceeding affecting creditors' rights generally
(including, without limitation, the reasonable fees and expenses
of counsel for the Lender and with respect thereto).
55
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(b) The Borrowers jointly and severally agree to indemnify and
hold harmless the Lender, the Loan Servicer and each of their
respective Affiliates and their officers, directors, employees,
agents and advisors (each, an "Indemnified Party") from and
against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of
or in connection with or by reason of (including, without
limitation, in connection with any investigation, litigation or
proceeding or preparation of a defense in connection therewith)
(i) the Loan, the actual or proposed use of the proceeds of the
Loan, the Loan Documents or any of the transactions contemplated
thereby, including, without limitation, any acquisition or
proposed acquisition (including, without limitation, the
acquisition and any of the other transactions contemplated hereby)
or (ii) the actual or alleged presence of Hazardous Materials on
any Property or any Environmental Action relating in any way to
any Property, except to the extent such claim, damage, loss,
liability or expense is found in a final, non-appealable judgment
by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which
the indemnity in this Section 10.04(b) applies, such indemnity
shall be effective whether or not such investigation, litigation
or proceeding is brought by any Loan Party, its directors,
shareholders or creditors or an Indemnified Party or any
Indemnified Party is otherwise a party thereto and whether or not
the transactions contemplated hereby are consummated. Each
Borrower also agrees not to assert any claim against the Lender or
any of its Affiliates, or any of their respective officers,
directors, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to the Loan, the
actual or proposed use of the proceeds of the Loan, the Loan
Documents or any of the transactions contemplated thereby. THE
FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS EXPRESSLY
APPLIES, WITHOUT LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.
(c) If any Loan Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities,
such amount may be paid on behalf of such Loan Party by the
Lender, in its sole discretion.
(d) Without prejudice to the survival of any other agreement of
any Loan Party hereunder or under any other Loan Document, the
agreements and obligations of the Borrowers contained in Sections
2.08 and 2.09 and this Section 10.04 shall survive the payment in
full of principal, interest and all other amounts payable
hereunder and under any of the other Loan Documents.
SECTION 10.05. [Reserved).
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SECTION 10.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Borrowers and
the Lender and thereafter shall be binding upon and inure to the
benefit of the Borrowers and the Lender and their respective
successors and assigns, except that the Borrowers shall not have
the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lender.
SECTION 10.07. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 10.08. Jurisdiction, Etc. (a) Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State
court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement
or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be
heard and determined in any such New York State court or, to the
extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right
that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to
which it is a party in any New York State or federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
SECTION 10.09. Governing Law. This Agreement and the Notes shall
be governed by, and construed in accordance with, the laws of the
State of New York.
SECTION 10.10. Waiver of Jury Trial. To the maximum extent
permitted by law, each of the Borrowers, the Lender and the Lender
Parties irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract,
tort or otherwise)
57
<PAGE>
arising out of or relating to any of the Loan Documents, the
Advances or the actions of the Lender or any Lender Party in the
negotiation, administration, performance or enforcement thereof.
SECTION 10.11. Compliance with Usury Laws. It is expressly
stipulated and agreed to be the intent of the Borrowers and the
Lender that the Loan made hereunder comply with the usury and
other laws relating to the Loan Documents now or hereafter in
effect in the state in which the applicable Property is located,
to the extent any of the same are applicable thereto. If any such
applicable laws render usurious any amount called for under any of
the Loan Documents, or contracted for, charged or received with
respect to the Loan, or if the acceleration of the maturity of the
Loan or if any prepayment by any of the Borrowers results in such
Borrower having paid any interest in excess of that permitted by
law, then it is the express intent of the parties that all excess
amounts theretofore collected the Lender be credited on the
principal balance of the related Note (or, if such Note has been
paid in full, refunded to the related Borrower), and the
provisions of the Loan Documents immediately be deemed reformed
and the amounts thereafter collected under the Loan Documents
reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as
to permit the recovery of the fullest amount otherwise called for
under the Loan Documents.
* * *
[SIGNATURES ON NEXT PAGE]
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
PLEASE BE ADVISED THAT ORAL
AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY
EXTEND CREDIT OR FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT
ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
BORROWERS:
EMERITUS PROPERTIES II, INC.,
a Washington corporation
By: /s/ Jean T. Fukuda
Name: Jean T. Fukuda
Title: Assistant Secretary
EMERITUS PROPERTIES V, INC.,
a Washington corporation
By: /s/ Jean T. Fukuda
Name: Jean T. Fukuda
Title: Assistant Secretary
EMERITUS PROPERTIES VII, INC.,
a Washington corporation
By: /s/ Jean T. Fukuda
Name: Jean T. Fukuda
Title: Assistant Secretary
LENDER:
DEUTSCHE BANK AG,
NEW YORK BRANCH
By: /s/ Allisson Michaels
Name: Allisson Michaels
Title: Authorized Signatory
By: /s/ Steve Stuart
Name: Steve Stuart
Title: Vice President
59
"
Susan BalzerSusan Balzer<PAGE>
AMENDED AND RESTATED
GUARANTY AND LIMITED INDEMNITY AGREEMENT
THIS AMENDED AND RESTATED GUARANTY AND LIMITED
INDEMNITY AGREEMENT (this "Guaranty") is made as of this
30th day of June,1998, by EMERITUS CORPORATION, a Washington
corporation, having an address at 3131 Elliott Avenue, Suite
500, Seattle, Washington 98121 (the "Guarantor") to DEUTSCHE
BANK AG, a bank chartered under the laws of the Federal
Republic of Germany, acting by and through its New York
Branch, having an address at 31 West 52"d Street, 23rd Floor,
New York, New York 10019 ("Lender").
WITNESSETH:
WHEREAS, Emeritus Properties II, Inc., Emeritus Properties
V, Inc. and Emeritus Properties VII, Inc. (collectively, the
"Original Borrowers") entered into that certain Credit
Agreement with Lender, dated as of April 29,1998 (the
"Original Credit Agreement");
WHEREAS, pursuant to the Original Credit Agreement, Lender
made a loan to the Original Borrowers in the aggregate
principal amount of Fifty-Six Million Two Hundred Eighty-Six
Thousand and No/100 Dollars (the "Original Loan");
WHEREAS, the Original Loan was evidenced by those certain
promissory notes (collectively, the "Original Notes"), dated
as of April 29,1998 by the Original Borrowers and payable to
the order of Lender in the stated aggregate principal amount
of the original amount of the Original Loan are secured,
inter alia, by (1) those certain Mortgages, Open-End
Mortgages, Advance Money Mortgages, Trust Deeds, Deeds of
Trust, Trust Indentures; Assignments, Assignments of Rents,
Security Agreements, including Fixture Filings and Financing
Statements made by the Original Borrowers in favor of Lender
(collectively, the "Original Mortgages") and (2) those
certain Security Agreements from the Original Borrowers in
favor of Lender (collectively, the "Original Security
Agreements"); and
WHEREAS, as a condition of entering into the Original Credit
Agreement and making the Original Loan to the Original
Borrowers, Lender required the Guarantor to make that
certain Guaranty and Limited Indemnity, dated as of April
29,1998, in favor of Lender (the "Original Guaranty");
WHEREAS, the Original Borrowers and Emeritus Properties III,
Inc. (the "Additional Borrower") have requested that Lender
make a loan to the Additional Borrower in the amount of
SIXTEEN MILLION NINE HUNDRED FORTY-NINE THOUSAND AND NO/100
DOLLARS ($16,949,000.00)(the "Additional Loan");
WHEREAS, Lender is entering into that certain Amendment to
Credit Agreement and Restatement of Article IX with the
Original Borrowers and the Additional Borrower (the
<PAGE>
Original Borrowers and the Additional Borrower are
collectively referred to herein as the "Borrowers") dated as
of the date hereof(the "Amendment"; the Original Credit
Agreement as amended by the Amendment is referred to herein
as the "Credit Agreement") pursuant to the terms and
conditions of which Lender is making the Additional Loan to
the Additional Borrower;
WHEREAS, the Additional Loan is evidenced by that certain
promissory note (the "Additional Note"), dated as of the
date hereof by the Additional Borrower and payable to the
order of Lender in the stated principal amount of the
original amount of the Additional Loan and shall be secured,
inter alia, by (1) those certain Mortgages, Open-End
Mortgages, Advance Money Mortgages, Trust Deeds, Deeds of
Trust, Trust Indentures, Assignments, Assignments of Rents,
Security Agreements, including Fixture Filings and Financing
Statements made by the Additional Borrower in favor of
Lender (collectively, the "Additional Mortgages") and (2)
that certain Security Agreement by the Additional Borrower
in favor of Lender (the "Additional Security Agreement");
WHEREAS, the Original Notes and the Additional Note are
collectively referred to herein as the "Note"; the Original
Loan and the Additional Loan are collectively referred to
herein as the "Loan"; the Original Mortgages and the
Additional Mortgages are collectively referred to herein as
the "Mortgage"; and the Original Security Agreements and the
Additional Security Agreement are collectively referred to
herein as the "Security Agreement". The Credit Agreement,
the Note, the Mortgage, the Security Agreement and the other
documents and instruments evidencing, securing or otherwise
related to the Loan, as the same may be from time to time
amended, consolidated, renewed or replaced, are collectively
referred to herein as the
"Loan Documents";
WHEREAS, as a condition to entering into the Amendment with
the Borrowers, Lender has required that the Guarantor
indemnify Lender from and against, and guarantee payment to
Lender of, certain Costs (as hereinafter defined) and the
Guaranteed Obligations (as hereinafter defined) relating to
the Loan as set forth herein;
WHEREAS, each of the Borrowers is a wholly-owned, either
directly or indirectly, subsidiary of the Guarantor, and the
Guarantor will derive substantial economic benefit from
Lender making the Loan to the Borrowers, and, therefore, the
Guarantor has agreed to indemnify Lender from and against
and guaranty payment to Lender of the Costs and the
Guaranteed Obligations relating to the Loan as set forth
herein.
NOW, THEREFORE, in consideration of the premises and of the
covenants and agreements contained herein, the Guarantor and
Lender hereby agree that the Original Guaranty shall be and
hereby is amended and restated in its entirety as follows:
2
<PAGE>
1. Guaranteed Obligations.
(a) The Guarantor absolutely and unconditionally guarantees
to Lender the punctual and complete payment and performance
when due (whether at the stated maturity, by acceleration or
otherwise), of the principal of, and accrued and unpaid
interest on, each Loan made pursuant to the Credit
Agreement. (The obligations described in this clause (a) are
referred to herein as the "Guaranteed Obligations").
(b) Anything to the contrary provided in this Guaranty
notwithstanding, the liability of the Guarantor under clause
(a) above, shall not be reduced by any prepayment or
repayment of principal or any payment of interest, as the
case may be, due under any Note by or on behalf of the
Borrowers other than a payment pursuant to this Guaranty
following a written demand by Lender pursuant to subsection
1(c) hereof.
(c) If any Borrower shall fail to pay when due any required
payment of principal or interest on any Note, as the case
may be, Lender may, subject only to the express limitations
set forth in this Guaranty, call upon the Guarantor to pay
the unpaid amount. The Guarantor shall, upon demand,
immediately pay such unpaid amount to Lender.
2. Indemnification by the Guarantor. The Guarantor hereby
assumes liability for, guarantees payment to Lender of,
agrees to pay, protect, defend and save Lender harmless and
indemnify Lender from and against, any and all liabilities,
obligations, losses, damages, costs and expenses (including,
without limitation, reasonable attorneys' fees, costs and
disbursements, causes of action, suits, claims, losses
(including, without limitation, any diminution in the value
of the security afforded by the property mortgaged by each
of the Mortgages by reason of any of the following
occurrences), demands and judgments of any nature or
description whatsoever (collectively, "Costs")), which may
at any time be imposed upon
,incurred by or awarded against Lender resulting from:
a) any fraud or misrepresentation committed by the Borrowers
or any of their Affiliates; b) any intentional and
material breach of the Borrowers' covenants set forth in the
related Mortgage;
c) any action or inaction taken or omitted in bad faith by
the Borrowers or any of their Affiliates;
d) any interference by the Borrowers or any of their
Affiliates with Lender's exercise of its remedies under the
Loan Documents following an occurrence of an Event of
Default;
3
<PAGE>
e) any impairment by the Borrowers or any of their
Affiliates of the value of any material portion of the
Collateral for each Loan;
any failure of any Guaranteed Obligations to be the legal,
valid and binding obligations of the Borrowers enforceable
against the Borrowers in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency or
other similar Laws affecting the rights of creditors
generally; or
(g) any failure of any Borrower to pay and perform any
Guaranteed Obligations in accordance with the terms of such
Guaranteed Obligations.
3. Indemnification Procedures.
(a) If any action shall be brought against Lender based upon
any of the matters for which Lender is indemnified
hereunder, Lender shall notify the Guarantor in writing
thereof and the Guarantor shall promptly assume the defense
thereof, including, without limitation, the employment of
counsel reasonably acceptable to Lender and the negotiation
of any settlement; provided, however, that any failure of
Lender to notify the Guarantor of such matter shall not
impair or reduce the obligations of the Guarantor hereunder.
Lender shall have the right, at the expense of the Guarantor
(which expense shall be included in Costs), to employ
separate counsel in any such action and to participate in
the defense thereof. In the event the Guarantor shall fail
to discharge or undertake to defend Lender against any
claim, loss or liability for which Lender is indemnified
hereunder, such failure shall constitute an Event of Default
and Lender may, at its sole option and election, defend or
settle such claim, loss or liability. The liability of the
Guarantor to Lender hereunder shall be conclusively
established by such settlement, provided such settlement is
made in good faith, the amount of such liability to include
both the settlement consideration and the costs and
expenses, including, without limitation, attorneys' fees and
disbursements, incurred by Lender in effecting such
settlement. In such event, such settlement consideration,
costs and expenses shall be included in Costs and the
Guarantor shall pay the same as hereinafter provided.
Lender's good faith in any such settlement shall be
conclusively established if the settlement is made on the
advice of independent legal counsel for Lender.
(b) The Guarantor shall not, without the prior written
consent of Lender, (i) settle or compromise any action,
suit, proceeding or claim or consent to the entry of any
judgment that does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to Lender
of a full and complete written release of Lender (in form,
scope and substance satisfactory to Lender in its sole
discretion) from all liability in respect of such action,
suit, proceeding or claim and a dismissal with prejudice of
such action, suit, proceeding or claim; or (ii) settle or
compromise any action, suit, proceeding or claim in any
manner that may adversely
4
<PAGE>
affect Lender or obligate Lender to pay any sum or perform
any obligation as determined by Lender in its sole
discretion.
(c) All Costs shall be immediately reimbursable to Lender
when and as incurred and, in the event of any litigation,
claim or other proceeding, without any requirement of
waiting for the ultimate outcome of such litigation, claim
or other proceeding, and the Guarantor shall pay to Lender
any and all Costs within ten (10) days after written notice
from Lender itemizing the amounts thereof incurred to the
date of such notice. In addition to any other remedy
available for the failure of the. Guarantor to periodically
pay such Costs, if not paid within said ten-day period,
shall bear interest at the Default Rate from the date
incurred until the date they are paid in full.
4. Reinstatement of Obligations. If at any time all or any
part of any payment made by the Guarantor or received by
Lender from the Guarantor under or with respect to this
Guaranty is or must be rescinded or returned for any reason
whatsoever (including but not limited to, the insolvency,
bankruptcy or reorganization of the Guarantor or the
Borrowers), then the obligations of the Guarantor hereunder
shall, to the extent of the payment rescinded or returned,
be deemed to have continued in existence notwithstanding
such previous payment made by the Guarantor, or receipt of
payment by Lender, and the obligations of the Guarantor
hereunder shall continue to be effective or be reinstated,
as the case may be, as to such payment, all as though such
previous payment by the Guarantor had never been made.
5. Guaranty Absolute. The Credit Agreement shall
conclusively be deemed to have been entered into by Lender
and the Loan funded in reliance upon this Guaranty and all
dealings and Loan Documents executed hereafter between the
Borrowers and Lender shall likewise be conclusively presumed
to have been undertaken or consummated in reliance upon this
Guaranty. This Guaranty shall, subject to the terms hereof,
be construed as a continuing, absolute and unconditional
guaranty of payment. The liability of the Guarantor under
this Guaranty shall be absolute and unconditional
irrespective of.. (a) any lack of genuineness, regularity,
legality, validity or enforceability of any of the Loan
Documents, (b) any change in the time, manner or place of
payment of any amount payable under any of the Loan
Documents, or in any other term of any of the Loan
Documents, including, but not limited to, any increase or
decrease in the rate of interest thereon, or any other
amendment or waiver or consent to departure from any of the
Loan Documents including, without limiting the generality of
the foregoing, the waiver of any default thereunder or the
making of any arrangement with, or the accepting of any
compromise or settlement from, the Borrowers or any other
person or entity liable in respect of any amount payable
under any of the Loan Documents, (c) any exchange, release
or non-perfection of any collateral, or any release or
amendment or waiver of or consent to departure from any
other guaranty securing any part of the indebtedness of the
Loans, (d) any act, omission, circumstance or occurrence
that might otherwise vary the risk of the Guarantor or any
of them or be deemed a legal or equitable discharge of the
Guarantor or which might otherwise constitute a defense
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<PAGE>
available to Borrowers or the Guarantor or (e) any dealings
or transactions between Lender or the Borrowers or any other
person or entity liable in respect of the indebtedness of
the Loan.
Without limiting the generality of the foregoing and subject
to the terms hereof, the Guarantor's liability under this
Guaranty shall, subject to the terms hereof, be absolute and
unconditional irrespective of any right of set-off or
counterclaim which the Borrowers or the Guarantor may from
time to time have in respect of any moneys or liabilities
owing by, or any claims against, Lender and the Guarantor
irrevocably waive any defense or claim based upon any such
right of set-off or counterclaim. This Guaranty shall
continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the indebtedness of
any of the Loans is rescinded or must otherwise be returned
by Lender upon the insolvency, bankruptcy or reorganization
of the Borrowers or otherwise, all as though such payment
had not been made.
6. Waiver. The Guarantor hereby waives protest, promptness,
diligence, notice of acceptance, demand for payment and
notice of default or non-payment in respect of the Credit
Agreement and any of the Loan Documents and waives all other
notices of every kind and description with respect to any of
the Loans now or hereafter provided by any statute or rule
of law. The Guarantor hereby waives any requirement that
Lender protect, secure, perfect or insure any security
interest or lien or any property subject thereto or exhaust
any right or take any action against Borrowers, against the
Guarantor hereunder or the against Guarantor or any other
person, entity or any collateral. The Guarantor hereby
waives, to the fullest extent permitted by applicable law,
the benefit of any statute of limitations which may affect
its liability hereunder or the enforcement hereof. Any
payment by the Borrowers or other circumstance that operates
to toll any statute of limitations as to the Borrowers shall
operate to toll the statute of limitations as to the
Guarantor. In addition, the Guarantor agrees to the waivers
set forth in Addendum A hereto, which is incorporated herein
by reference, mutadis mutandis, with the same force and
effect as if herein fully set forth.
7. Nature of Guaranty. This Guaranty is a guaranty of
payment and performance and not of collection, is continuing
in nature and applies to all Guaranteed Obligations, whether
existing now or in the future, including (a) interest and
other Guaranteed Obligations arising or accruing after
bankruptcy of any Loan Party or any sale or other
disposition of any Collateral, and (b) any Guaranteed
Obligations that survive repayment of the Loan. This
Guaranty and any Security for this Guaranty shall continue
to be effective or be reinstated, as the case may be, if at
any time any payment or performance of any Guaranteed
Obligations is rescinded or must otherwise be returned by
Lender or any other person upon the bankruptcy, insolvency
or reorganization of any Loan Party or otherwise, all as
though such payment or performance had not occurred. The
Guarantor shall have no authority to revoke this Guaranty,
but if any such revocation shall be deemed to have occurred
by operation of law or otherwise, the provisions of this
Guaranty shall continue to apply notwithstanding such
revocation.
6
<PAGE>
8. Obligations Independent. The obligations of the Guarantor
under this Guaranty are independent of the obligations of
any other Loan Party under the Loan Documents (such
obligations of any other Loan Party, including the
Borrowers' obligations in respect of the Guaranteed
Obligations, being referred to in this Guaranty as the
"Other Obligations") and any security, and the
enforceability of any security for this Guaranty is likewise
independent of any such Other Obligations and any other
security. Lender may bring action against the Guarantor and
otherwise enforce this Guaranty without bringing action
against any other Loan Party or joining any other Loan Party
in any action against the Guarantor, and otherwise
independently of any other remedy at law or in equity that
may be available to Lender at any time with respect to any
Other Obligations or security. The Guarantor waives any
right to require Lender at any time to proceed against any
other Loan Party, or otherwise enforce, proceed against or
exhaust any Other Obligations or pursue any other remedy in
Lender's power.
9. Full Recourse. Notwithstanding any provisions of any
other Loan Document to the contrary, all of the terms and
provisions of this Guaranty are recourse obligations of the
Guarantor and not restricted by any limitation on personal
liability.
10. Survival. To the fullest extent permitted by law, this
Guaranty shall be deemed to be continuing in nature and
shall remain in full force and effect and shall survive the
exercise of any remedy by Lender under the Credit Agreement
or any ofthe other Loan Documents, including, without
limitation, any foreclosure or deed in lieu thereof, even
if, as a part of such remedy, the Loan is paid or satisfied
in full.
11. Waiver of Subrogation. Until such time as the Loan is
paid in full, the Guarantor hereby irrevocably waives all
rights of subrogation and any other claims that they may now
or hereafter acquire against the Borrowers or any insider
that arise from the existence, payment, performance or
enforcement of the Guarantor's obligations under this
Guaranty, including, without limitation, any right of
reimbursement, exoneration, contribution or indemnification
and any right to participate in any claim or remedy of
Lender against the Borrowers or any insider, whether or not
such claim, remedy or right arises in equity or under
contract, statute or common law, including, without
limitation, the right to take or receive from the Borrowers
or any insider, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or
security on account of such claim, remedy or right. If any
amount shall be paid to the Guarantor in violation of the
foregoing at any time prior to the indefeasible cash payment
of the Loan, such amount shall be held in trust for the
benefit of Lender and shall forthwith be paid to Lender to
be credited and applied to all amounts payable under this
Guaranty or to be held as collateral for any amounts payable
under this Guaranty thereafter arising. The Guarantor
acknowledges that they have and will receive direct and
indirect benefits from the financing arrangements
contemplated by the Loan Documents and that the waiver set
forth in this Section 11 is knowingly made in contemplation
of such benefits.
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<PAGE>
12. Reservation of Rights. Nothing contained in this
Guaranty shall prevent or in any way diminish or interfere
with any rights or remedies, including, without limitation,
the right to contribution, which Lender may have against the
Borrowers, the Guarantor or any other party under the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (codified at Title 42 U.S.C. 9601 et
sea.), as it may be amended from time to time, or any other
applicable federal, state or local laws, all such rights
being hereby expressly reserved.
13. Rights Cumulative; Payments. Lender's rights under this
Guaranty shall be in addition to all rights of Lender under
the Credit Agreement and the other Loan Documents. TO THE
EXTENT THAT PAYMENTS ARE MADE HEREUNDER BY THE GUARANTOR
WITH RESPECT TO OBLIGATIONS AND LIABILITIES FOR WHICH THE
BORROWERS ARE NOT LIABLE UNDER THE NOTE, THE MORTGAGE, THE
CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS, SUCH PAYMENTS
MADE BY THE GUARANTOR UNDER THIS GUARANTY SHALL NOT REDUCE
IN ANY RESPECT SUCH BORROWER'S OBLIGATIONS AND LIABILITIES
UNDER THE NOTE, THE MORTGAGE, THE CREDIT AGREEMENT OR THE
OTHER LOAN DOCUMENTS, AND TO THE EXTENT THAT PAYMENTS ARE
MADE HEREUNDER BY THE GUARANTOR WITH RESPECT TO OBLIGATIONS
AND LIABILITIES FOR WHICH SUCH BORROWER IS LIABLE UNDER THE
NOTE, THE MORTGAGE, THE CREDIT AGREEMENT OR THE OTHER LOAN
DOCUMENTS, SUCH PAYMENTS SHALL BE APPLIED FIRST TO THOSE
OBLIGATIONS AND LIABILITIES ARISl NG UNDER THE NOTE, THE
MORTGAGE AND THE OTHER LOAN DOCUMENTS WITH RESPECT TO WHICH
SUCH BORROWER IS NOT PERSONALLY LIABLE.
14. No Limitation on Liability. The Guarantor hereby
consents and agrees that
Lender may at any time and from time to time without further
consent from the Guarantor do any of the following events,
and the liability of the Guarantor under this Guaranty shall
be unconditional and absolute and shall in no way be
impaired or limited by any of the following events, whether
occurring with or without notice to the Guarantor or with or
without consideration: (i) any extensions of time for
performance required by any of the Loan Documents or
otherwise granted by Lender or extension or renewal of the
Note; (ii) any sale, assignment or foreclosure of the Note,
Mortgage or any of the other Loan Documents or any sale or
transfer of the property referenced in such Loan Documents;
(iii) any change in the composition of any Borrower,
including, without limitation, the withdrawal or removal of
the Guarantor from any current or future position of
ownership, management or control of such Borrower; (iv) the
accuracy or inaccuracy of the representations and warranties
made by the Guarantor herein or by the Borrowers in any of
the Loan Documents; (v) the release of any Borrower or of
any other person or entity from performance or observance of
any of the agreements, covenants, terms or conditions
contained in any of the Loan Documents by operation of law,
Lender's voluntary act or otherwise; (vi) the release or
substitution in whole or in part of any security for any of
the Loan; (vii) Lender's failure to record any of the
Mortgages or to file any financing statement (or
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<PAGE>
Lender's improper recording or filing thereof or to
otherwise perfect, protect, secure or insure any lien or
security interest given as security for the Loan; (viii) the
modification of the terms of any one or more of the Loan
Documents; or (ix) the taking or failure to take any action
of any type whatsoever. No such action which Lender shall
take or fail to take in connection with any of the Loan
Documents or any collateral for the Loan, nor any course or
dealing with the Borrowers or any other person, shall limit,
impair or release the Guarantor's obligations hereunder,
affect this Guaranty in any way or afford the Guarantor any
recourse against Lender. Nothing contained in this Section
shall be construed to require Lender to take or refrain from
taking any action referred to herein.
15. Enforcement. This Guaranty is subject to enforcement at
law or in equity, including actions for damages or specific
performance.
16. Attorneys' Fees. In the event it is necessary for Lender
to retain the services of an attorney or any other
consultants in order to enforce this Guaranty, or any
portion thereof, the Guarantor agrees to pay to Lender any
and all costs and expenses, including, without limitation,
reasonable attorneys' fees, costs and disbursements,
incurred by Lender as a result thereof and such costs, fees
and expenses shall be included in Costs.
17. Successive Actions. A separate right of action hereunder
shall arise each time Lender acquires knowledge of any
matter indemnified or guaranteed by the Guarantor under this
Guaranty. Separate and successive actions may be brought
hereunder to enforce any of the provisions hereof at any
time and from time to time. No action hereunder shall
preclude any subsequent action, and the Guarantor hereby
waives and covenants not to assert any defense in the nature
of splitting of causes of action or merger of judgments.
18. Reliance. Lender would not enter into the Credit
Agreement without the Guarantor entering into this Guaranty.
Accordingly, the Guarantor intentionally and unconditionally
enters into the covenants and agreements as set forth above
and understands that, in reliance upon and in consideration
of such covenants and agreements, the Credit Agreement shall
be executed and, as part and parcel thereof, specific
monetary and other obligations have been, are being and
shall be entered into which would not be made or entered
into but for such reliance.
19. Waiver by the Guarantor. The Guarantor covenants and
agrees that, upon the commencement of a voluntary or
involuntary bankruptcy proceeding by or against the
Borrowers, the Guarantor shall not seek or cause the
Borrowers or any other person or entity to seek a
supplemental stay or other relief, whether injunctive or
otherwise, pursuant to 11 U.S.C. Section 105 or any other
provision of the Bankruptcy Reform Act of 1978, as amended,
or any other debtor relief law, (whether statutory, common
law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, which may be or become
applicable, to stay, interdict,
9
<PAGE>
condition, reduce or inhibit the ability of Lender to
enforce any rights of Lender against the Guarantor or the
collateral for the Loan by virtue of this Guaranty or
otherwise.
20. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New
York.
21. Remedies. The obligations of the Guarantor under this
Guaranty are independent of the respective Borrowers'
obligations under the Loan Documents, and a separate action
or actions may be brought and prosecuted against the
Guarantor to enforce this Guaranty, irrespective of whether
any action is brought against the Borrowers or whether the
Borrowers are joined in any such action or actions. Any one
or more successive and/or concurrent actions may be brought
hereon against the Guarantor either in the same action, if
any, brought against the Borrowers or in separate actions,
as often as Lender, in its sole discretion, may deem
advisable.
22. Certified Statement. The Guarantor and the Lender each
agree that they will, at any time and from time to time,
within ten (10) days following the reasonable request of the
other, execute and deliver to the other a statement
certifying that this Guaranty is unmodified and in full
force and effect (or if modified, that the same is in full
force and effect as modified and stating such
modifications).
23. Separate Guaranty. The Guarantor agrees that they shall,
at the request of Lender, promptly execute, acknowledge and
deliver a specific guaranty for the Loan, which guaranty
shall be in the same form and nature as this Guaranty.
24. Notices. All notices and other communications which may
be or are desired to be given hereunder shall be in writing
and, if to the Guarantor, sent by recognized overnight
courier or by certified or registered mail, postage prepaid,
return receipt requested, or delivered to it, addressed to
it at the address first set forth above and if to Lender,
mailed or delivered as provided in Section 10.02 of the
Credit Agreement, or as to each party at such other address
as shall be designated by such party in a written notice to
each other party complying as to delivery with the terms of
this Section. All such communications shall be deemed to be
given (i) if hand delivered or sent by overnight courier, on
the day received, or (ii) if mailed, on the third (3rd)
Business Day following deposit thereof in the U.S. Mail.
25. Continuing Agreement; Successors and Assigns. This
Guaranty is a continuing obligation of the Guarantor and
shall (i) remain in full force and effect until the payment
in full of the Loan and all amounts payable under this
Guaranty, (ii) be binding upon the Guarantor and their
respective successors and assigns and (iii) inure to the
benefit of and be enforceable by Lender and its successors,
transferees and assigns or by any person to whom Lender's
interest in the Loan Documents may be assigned.
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<PAGE>
26. Certain Notices. Lender shall endeavor to give notice to
the Guarantor of any amendment or modification of the Loan
Documents; provided, however, that failure to provide any
such notice shall in no manner adversely affect the rights
and remedies of Lender hereunder and under the Loan
Documents or in any manner limit the waivers made by the
Guarantor under Section 6.
27. Waivers and Amendments. No supplement to, modification
or amendment of, or waiver, consent or approval under, any
provision of this Guaranty shall be effective unless in
writing and signed by Lender, and any waiver, consent or
approval shall be effective only in the specific instance
and for the specific purpose for which given.
28. Waiver of Jury Trial. Lender and the Guarantor waive
trial by jury in any action or other proceeding (including
counterclaims), whether at law or equity, brought by Lender
or the Guarantor against the other on matters arising out of
or in any way related to or connected with this Guaranty,
the other Loan Documents, the Loan or any transaction
contemplated by, or the relationship between Lender and the
Guarantor or any other Loan Party or any action or inaction
by any party under, any of the Loan Documents.
29. Restatement. It is the intent of the parties hereto that
for the purposes of Chapter 295, Section 12, Washington Laws
of 1998, this Guaranty shall be deemed to have been executed
on the date first set forth herein, and the deficiency
rights in Chapter 295, Section 12, Washington Laws of 1998
shall apply to this Guaranty.
(SIGNATURES ON NEXT PAGE]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers
thereunto duly authorized, as of the date first above
written.
PLEASE BE ADVISED THAT ORAL
AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT OR FORBEAR FROM ENFORCING
REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
GUARANTOR:
EMERITUS CORPORATION, a Washington corporation
By: /s/: Kelly J. Price
Name: Kelly J. Price
Title: Vice President
<PAGE>
LENDER: DEUTSCHE BANK AG,
NEW YORK BRANCH
By: /s/: Lotte J. Potter
Name: Lotte J. Potter
Title: Attorney-In-Fact
By: /s/: Allisson J. Michaels
Name: Allisson J. Michaels
Title : Attorney-In-Fact
<PAGE>
ADDENDUM A
CALIFORMA GUARANTY ADDENDUM
(a) The Guarantor hereby waives (i) any right to require
Lender to (A) proceed against the principal debtor, or (B)
proceed against or exhaust any security held from the
principal debtor; (ii) to the fullest extent permitted by
law, all rights and benefits under Section 2809 of the
California Civil Code purporting to reduce a guarantor's
obligations in proportion to the principal obligation; (iii)
to the fullest extent permitted by law, all rights and
benefits under (A) Section 580a of the California Code of
Civil Procedure purporting to limit the amount of any
deficiency judgment which might be recoverable following the
occurrence of a trustee's sale under a deed of trust and any
right to a fair value hearing or any fair value limitation
or other limitation on liability or a deficiency based upon
the fair value of any collateral after a non-judicial
foreclosure of the applicable security instrument, (B)
Section 580b of the California Code of Civil Procedure
stating that no deficiency may be recovered on a real
property purchase money obligation, (C) Section 580d of the
California Code of Civil Procedure stating that no
deficiency may be recovered on a note secured by a deed of
trust on real property in case such real property is sold
under the power of sale contained in such deed of trust, and
(D) Section 726 of the California Code of Civil Procedure
stating that there may be but one form of action on an
indebtedness secured by real property, if such sections, or
any of them, have any application hereto or any application
to the Guarantor; (iv) all rights and benefits which might
otherwise be available to the undersigned under California
Civil Code Sections 2810, 2819, 2839, 2845, 2849, 2850,
2899, and 3433; and (v) any rights arising under Section
359.5 of the California Code of Civil Procedure.
(b) In addition, the Guarantor hereby waives all rights and
defenses that the Guarantor may have because the principal
debtor's obligations are secured by real property. This
means, among other things: (i) Lender may collect from the
Guarantor without first foreclosing on all real or personal
property collateral pledged by principal debtor; (ii) if
Lender forecloses on any real property collateral pledged by
the principal debtor: (a) the amount of the debt may be
reduced only by the price for which that collateral is sold
at the foreclosure sale, even if the collateral is worth
more than the sale price, and/or (b) Lender may collect from
the Guarantor even if Lender, by foreclosing on the real
property collateral, has destroyed any right the Guarantor
may have to collect from the principal debtor. This is an
unconditional and irrevocable waiver of any rights and
defenses the Guarantor may have because the principal
debtor's debt is secured by real property. These rights and
defenses include, but are not limited to, any rights or
defenses based upon Section 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure. The Guarantor hereby
waives all rights and defenses arising out of an election of
remedies by Lender, even though that election of remedies,
such as a non-judicial foreclosure with respect to security
for a guaranteed obligation, has destroyed the Guarantor's
rights of subrogation and reimbursement against the
principal by the operation of Section 580d of the California
Code of Civil Procedure or otherwise.
<PAGE>
AMENDMENT TO
CREDIT AGREEMENT
AND RESTATEMENT OF
ARTICLE IX
THIS AMENDMENT (the "Amendment") is made as of this 30th day of
June, 1998, by and among EMERITUS PROPERTIES II, INC. ("EII"),
EMERITUS PROPERTIES III, INC. ("EIII"), EMERITUS PROPERTIES V,
INC. ("EV") and EMERITUS PROPERTIES VII, INC. ("EVII"), each a
Washington corporation (each a "Borrower" and collectively, the
"Borrowers"), each having an address c/o Emeritus Corporation,
3131 Elliott Avenue, Suite 500, Seattle, Washington 98121, and
DEUTSCHE BANK AG, a bank chartered under the laws of the Federal
Republic of Germany, acting by and through its New York Branch
(together with its successors and assigns, the "Lender") having an
address at 31 West 52nd Street, New York, New York 10019.
WITNESSETH:
WHEREAS, EII, EV and EVll (the " Original Borrowers " ) and the
Lender entered into that certain Credit Agreement, dated as of
April 29,1998 (the "Original Credit Agreement"; terms not
otherwise defined herein shall have the meaning ascribed therein),
pursuant to which the Lender made a loan (the "Original Loan") to
the Original Borrowers in the aggregate principal amount of Fifty-
Six Million Two Hundred Eighty-Six Thousand and No/100 Dollars
($56,286,000.00), which was secured, inter alia, by a first
mortgage lien on eight (8) assisted living facilities (the
"Original Properties"), all on the terms and conditions set forth
in the Original Credit Agreement;
WHEREAS, the Loan to each of the Original Borrowers was guaranteed
by each other Original Borrower pursuant to a cross-guaranty (the
"Cross-Guaranty") made by each of the other Original Borrowers in
favor of the Lender;
WHEREAS, each of the Original Borrowers and EIII is a wholly-owned
Subsidiary of Emeritus Corporation, a Washington corporation
("EC");
WHEREAS, EC made that certain Guaranty and Limited Indemnity in
favor of the Lender, dated as of April 29,1998 (the "Guaranty")
pursuant to which EC guaranteed certain obligations of each of the
Original Borrowers as set forth therein;
WHEREAS, EIII is the owner of the two (2) assisted living
facilities listed on Schedule A attached hereto (each ari
"Additional Property", and collectively the "Additional
Properties") ;
<PAGE>
WHEREAS, EIII has requested and the Lender has agreed to make a
loan to EIII in the principal amount of SIXTEEN MILLION NINE
HUNDRED FORTY-NINE THOUSAND AND NO/100 DOLLARS ($16,949,000.00)
(the "Additional Loan"), which will be secured, inter alia, by a
first mortgage lien on the Additional Properties, all on the terms
and conditions of this Amendment and the Credit Agreement; and
WHEREAS, EIII, the Original Borrowers and the Lender desire to
amend (a) the Original Credit Agreement to provide for (i) the
inclusion of EIII as a Borrower under the Original Credit
Agreement and (ii) the making of the Additional Loan to EIII; and
(b) restate in its entirety Article IX of the Original Credit
Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual.
covenants and agreements contained herein, the parties hereto
hereby agree that, effective as of the date hereof, the Original
Credit Agreement shall be and hereby is amended as follows:
1. Conditions Precedent to Disbursement of the Effective Date. The
obligation of the Lender to make the Additional Loan hereunder is
subject to the satisfaction of the following conditions precedent
before or concurrently with the date hereof (the "Effective Date")
(a) The following statements shall be true on the Effective Date
and EIII shall have delivered to the Lender a certificate executed
by a Responsible Officer to such effect:
(i) the representations and warranties contained in each Loan
Document are correct on and as of the Effective Date, before and
after giving effect to the making of the Additional Loan by the
Lender and to the application of the proceeds therefrom, as though
made on and as of such date; and
(ii) no material event has occurred and is continuing, or would
result from the making of the Additional Loan by the Lender or
from the application of the proceeds therefrom, that constitutes a
Default.
(b) There shall exist no action, suit, investigation, litigation
or proceeding affecting EIII or the Additional Properties pending
or threatened before any court, governmental agency or arbitrator
that (i) would be reasonably likely to have a Material Adverse
Effect other than the matters described on the disclosure schedule
attached hereto as Schedule B or (ii) purports to affect the
legality, validity or enforceability of, this Amendment, the
Credit Agreement, the Note, any other Loan Document or the
consummation of the transactions contemplated hereby.
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<PAGE>
(c) EIII shall have paid or caused to be paid all reasonable and
documented accrued fees and expenses of the Lender which EIII is
required to pay under the Loan Documents (including the accrued
fees and expenses of counsel to the Lender).
(d) The Lender shall have received on or before the Effective Date
the following, each dated such day (unless otherwise specified),
in form and substance satisfactory to the Lender (unless otherwise
specified):
(i) The Note payable to the order of the Lender.
(ii) Board of Directors Resolutions for EIU approving this
Amendment, the Credit Agreement, the Note and each other Loan
Document to which EUI is or is to be a party, and of all documents
evidencing other necessary action and governmental and other third
party approvals and consents, if any, with respect to EUI, the
Additional Loan, this Amendment, the Credit Agreement, the Note
and each other Loan Document.
(iii) A copy of the Organizational Documents of EIII, in each case
together with each amendment thereto, and, in the case of the by-
laws of EIII, certified (as of the Effective Date) by the
Secretary of State of the jurisdiction of its formation or
incorporation as being a true and correct copy thereof.
(iv) For EIII, a copy of a certificate of the Washington Secretary
of State, dated reasonably near the Effective Date, certifying
that (A) EIII has paid all applicable franchise taxes to the date
of such certificate and (B) EIII is duly formed and in good
standing under the laws of the State of Washington.
(v) A copy of a certificate of the Secretary of State of each
state in which any of the Additional Properties is located, dated
reasonably near the Effective Date, stating that EIII is duly
qualified and in good standing in such State and has filed all
annual reports required to be filed to the date of such
certificate.
(vi) A certificate of an authorized member of EIII certifying the
names and true signatures of the officers of such authorized
member, authorized to sign this Amendment, the Note and each other
Loan Document to which it is or is to be a party and the other
documents to be delivered hereunder and thereunder.
(vii) A Security Agreement in the form and substance satisfactory
to the Lender pledging to the Lender and granting the Lender a
security interest in all of EIII's right, title and interest in
the Collateral, duly executed by EIII, together with:
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<PAGE>
(A) financing statements in proper form for filing under the
Uniform Commercial Code of the State of Washington and each
jurisdiction in which any of the Additional Properties is located,
as well as any other jurisdictions deemed necessary or desirable
by the Lender, covering the personal property Collateral and
fixtures described in the Mortgages,
(B) completed requests for information, dated on or a
reasonable time before the Effective Date, listing all effective
financing statements filed in the jurisdictions referred to in
clause (A) above that names EllI as debtor, together with copies
of such other financing
statements,
(C) copies of the Assigned Agreements referred to in the
Mortgages, together with a consent to such assignment, in a form
acceptable to the Lender, from each party to any Material
Agreement (as defined in the Mortgages) other than EIII, and
(D) evidence that all other action that the Lender may deem
reasonably necessary or desirable in order to perfect and protect
the first and security interests and fixtures in personal property
Collateral created under the Mortgages has been taken.
(viii) Mortgages, in form and substance satisfactory to the Lender
and covering the Additional Properties duly executed by EIII,
together with:
(A) evidence that counterparts of the Mortgages have been duly
executed and delivered for recording to the Title Company on or
before the Effective Date in such form as Lender may deem
necessary or desirable in order to create a valid first and
subsisting Lien on the property described therein in favor of the
Lender and that provision has been made for the payment of all
filing and recording taxes and fees,
(B) fully paid Mortgage Policies in form and substance, with
endorsements and in amounts acceptable to, the Lender, issued by
the Title Company, insuring the Mortgages to be valid first and
subsisting Liens on the Additional Property described therein,
free and clear of all defects (including, but not limited to,
mechanics' and materialmen's Liens) and encumbrances, excepting
only Permitted Encumbrances, and providing for such other
affirmative insurance (including endorsements for mechanics' and
materialmen's Liens) and such coinsurance and direct access
reinsurance as the Lender may deem necessary or desirable,
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<PAGE>
(C) American Land Title Association form surveys, certified to the
Lender and the issuer of the Mortgage Policies in a manner
satisfactory to the Lender by a land surveyor duly registered and
licensed in the States in which the Additional Property described
in such surveys is located and acceptable to the Lender, showing
all buildings and other improvements, any off site improvements,
the location of any easements, parking spaces, rights of way,
building set-back lines and other dimensional regulations and the
absence of encroachments, either by such improvements onto other
property or by improvements of others onto such properly, and
other defects, other than encroachments and other defects
acceptable to the Lender,
(D) Appraisals of each of the Additional Properties indicating an
aggregate Loan-to-Value Ratio for the Additional Properties
(determined with reference to the Additional Loan) not in excess
of eighty-five percent (85 % ) and otherwise in form and substance
satisfactory to the Lender,
(E) engineering reports as to the Additional Properties, in form
and substance and from professional firms acceptable to the
Lender,
(F) such consents and agreements of lessors and other third
parties, and such estoppel letters and other confirmations, as the
Lender may deem reasonably necessary or desirable,
(G) evidence of the insurance required by the terms of the
Mortgages, and
(H) evidence that all other action that the Lender may deem
reasonably necessary or desirable in order to create valid first
and subsisting Liens on the Additional Properties has been taken.
(ix) An amendment to the Guaranty, duly executed by Emeritus in
form satisfactory to the Lender, including the Additional Loan and
EIII.
(x) Such financial, business and other information regarding the
Additional Properties, EIII and Emeritus as the Lender shall have
requested, including, without limitation, information as to
possible contingent liabilities, environmental matters, collective
bargaining agreements, interim financial statements dated the end
of the most recent fiscal quarter for which financial statements
are available (or, in the event the Lender's due diligence review
5
<PAGE>
reveals material changes since such financial statements, as of a
later date within forty-five (45) days of the Effective Date).
(xi) The Phase I Reports for each of the Additional Properties.
(xii) A favorable opinion of Foster, Pepper & Shefelman counsel
for EIII, in form satisfactory to the Lender, as to:
(a) the organization, existence, formation and good standing of
EIII; and
(b) the authorization by the Original Borrowers and EIII of
the Amendment and any of the Loan Documents.
(xiii) A favorable opinion of New York counsel to the Original
Borrowers and EIII, in form satisfactory to the Lender, as to:
(a) the enforceability of this Amendment, the Credit Agreement,
the Note and the Amendment to the Guaranty.
(xiv) A favorable opinion of local counsel to EIII in each
jurisdiction in which any of the Additional Properties are
located, in form satisfactory to the Lender, as to:
(a) the good standing and qualification to do business of EIII in
such jurisdiction; and
(b) the enforceability of the Loan Documents that, by their
terms, are governed by the law of such jurisdiction.
(xv) A favorable opinion of Foster, Pepper & Shefelman, as to the
likelihood of the assets of EIII being substantively consolidated
with those of Emeritus or any owner of greater than forty-nine
percent (49 % ) interest in any shareholder of EIII in an
insolvency proceeding, with respect to such owner.
(xvi) On the Effective Date, the Lender shall disburse a portion
of the Loan proceeds equal to the amount needed to complete the
Specified Repairs into a separate escrow account of the Lender.
Such escrow account shall be an interest bearing account and EIII
shall have the right to have an amount released from such escrow
account equal to the amount allocated for a Specified Repair upon
a written request to the Lender accompanied by reasonable evidence
of completion of such Specified Repair. Until the funds in such
escrow account
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<PAGE>
are released, they shall constitute additional security for the
Additional Loan. When reasonable evidence has been provided that
the Specified Repairs are complete with respect to EIII, the
remaining funds in escrow with respect to EIII shall be released
to EIII.
2. Definitions, Etc. From and after the Effective Date, the
following definitions in the Original Credit Agreement shall be
amended as follows:
(a) Allocated Loan Amount. The definition of Allocated Loan Amount
shall be amended to include the outstanding principal amount of
the Additional Loan as of the relevant date of determination
allocated to each Additional Property as set forth on Schedule E
hereto;
(b) Borrowers. The definition of Borrower shall be amended to
include EIII as a Borrower;
(c) Cross-Guarantor. The definition of Cross-Guarantor shall be
amended to include Elll as a Cross-Guarantor;
(d) Disclosure Schedule. The definition of Disclosure Schedule
shall be amended to include those items listed on Schedule B
hereto with respect to the Additional Properties ;
(e) Loan. The definition of Loan shall be increased by and include
a principal amount equal to principal amount of the Additional
Loan;
Loan Documents. The definition of Loan Documents shall be amended
to include this Amendment and that certain Amendment to the
Guaranty and Limited Indemnity by Indemnitor in favor of the
Lender;
(g) Properties. The definition of Properties shall be amended to
include the Additional Properties ; and
(h) Specified Repairs. The definition of Specified Repairs shall
be amended to include those repairs listed on Schedule C hereto
with respect to the Additional Properties.
3. Schedules. From and after the Effective Date, the following
Schedules that are part of the Original Credit Agreement shall be
amended as follows:
(a) Schedule A. Schedule A shall be amended to include the
Additional Properties and the applicable Allocated Loan Amount as
set forth on Schedule E hereto;
NYDOCSO3/322559.3
(b) Schedule B. Schedule B shall be amended to include those
disclosure items listed on Schedule B hereto with respect to the
Additional Properties;
(c) Schedule C. Schedule C shall be amended to include the
Effective Capacity of the Additional Properties as set forth on
Schedule D hereto; and
(d) Schedule D. Schedule D shall be amended to include the repairs
listed on Schedule C hereto with respect to the Additional
Properties.
4. Cross-Guaranty. From and after the Effective Date Article IX of
the Original Credit Agreement shall be amended and restated in its
entirety as follows:
ARTICLE IX
CROSS-GUARANTY
SECTION 9.01. Cross-Guaranty of Payment. Subject to Section 9.07
below, each Cross-Guarantor hereby, jointly and severally,
unconditionally guarantees to the Lender the prompt payment of all
Guaranteed Obligations of the other Borrowers in fall when due
(whether at stated maturity, as a mandatory prepayment, by
acceleration or otherwise) (the "Cross-Guaranty"). The Cross-
Guarantors additionally, jointly and severally, unconditionally
guarantee to the Lender the timely performance of all other
obligations of the other Borrowers under the Loan Documents. This
Cross-Guaranty is a guaranty of payment and not of collection and
is a continuing guaranty and shall apply to Guaranteed Obligations
whenever arising.
SECTION 9.02. Obligations Unconditional. The obligations of the
Cross-Guarantors hereunder are absolute and unconditional,
irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Loan Documents, or any other
agreement or instrument referred to therein, to the fullest extent
permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal
or equitable discharge or defense of a surety or guarantor. Each
Cross-Guarantor agrees that this Cross-Guaranty may be enforced by
the Lender without necessity at any time of resorting to or
exhausting any other security or collateral and without the
necessity at any time of having recourse to the Notes, any other
of the Loan Documents or any collateral, if any, hereafter
securing the Guaranteed Obligations or otherwise, and each Cross-
Guarantor hereby waives the right to require the Lender to proceed
against the other Cross-Guarantors, Indemnitor or any other Person
(including a co-guarantor) or to require the Lender to pursue any
other remedy or enforce any other right. Each Cross-Guarantor
further agrees that it
8
<PAGE>
shall have no right of subrogation, indemnity, reimbursement or
contribution against the other Cross-Guarantors of the Guaranteed
Obligations for amounts paid under this Cross-Guaranty until such
time as the Lender has been paid in full, and no Person or
Governmental Authority shall have any right to request any return
or reimbursement of funds from the Lender in connection with
monies received under the Loan Documents. Each Cross-Guarantor
further agrees that nothing contained herein shall prevent the
Lender from suing on the Notes or any of the other Loan Documents
or foreclosing its security interest in or Lien on any collateral,
if any, securing Guaranteed Obligations or from exercising any
other rights available to them under this Agreement, the Notes,
any other of the Loan Documents, or other instrument of security,
if any, and the exercise of any of the aforesaid rights and the
completion of any foreclosure proceedings shall not constitute a
discharge of any of any Cross-Guarantor's obligations hereunder;
it being the purpose and intent of each Cross-Guarantor that its
obligations hereunder shall be absolute, independent and
unconditional under any and all circumstances. Neither any of the
Cross-Guarantors' obligations under this Cross-Guaranty nor any
remedy for the enforcement thereof shall be impaired, modified,
changed or released in any manner whatsoever by an impairment,
modification, change, release or limitation of the liability of
the Borrowers or by reason of the bankruptcy or insolvency of any
of the Borrowers. Each Cross-Guarantor waives any and all notice
of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the
Lender upon this Cross-Guaranty or acceptance of this Cross-
Guaranty. The Guaranteed Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance
upon this Cross-Guaranty. All dealings between the Borrowers and
the Lender shall be conclusively presumed to have been had or
consummated in reliance upon this Cross-Guaranty. Notwithstanding
anything to the contrary herein, the Cross-Guarantors shall have
the right to assert any valid defenses of the Borrowers to any
claim by the Lender for payment under the Cross-Guaranty.
SECTION 9.03. Modifications. Each Cross-Guarantor agrees that: (a)
all or any part of the security now or hereafter held for the
Guaranteed Obligations, if any, may be exchanged, compromised or
surrendered from time to time ; (b) the Lender shall not have any
obligation to protect, perfect, secure or insure any such security
interests, Liens or encumbrances now or hereafter held, if any,
for the Guaranteed Obligations or the properties subject thereto;
(c) the time or place of payment of the Guaranteed Obligations may
be changed or extended, in whole or in part, to a time certain or
otherwise, and may be renewed or accelerated, in whole or in part;
(d) the Borrowers and any other party liable for payment under the
Loan Documents may be granted indulgences generally; (e) any of
the provisions of the Notes or any of the other Loan Documents may
be modified, amended or waived; (any party (including any co-
guarantor) liable for the payment thereof may be granted
indulgences or be released; and (g) any deposit balance for the
credit of the
9
<PAGE>
Borrowers or any other party liable for the payment of the
Guaranteed Obligations or liable upon any security therefor may be
released, in whole or in part, at, before or after the stated,
extended or accelerated maturity of the Guaranteed Obligations,
all without notice to or further assent by such Cross-Guarantor,
which shall remain bound thereon, notwithstanding any such
exchange, compromise, surrender, extension, renewal, acceleration,
modification, indulgence or release.
SECTION 9.04. Waiver of Rights. Each Cross-Guarantor expressly
waives, to the fullest extent permitted by applicable law: (a)
notice of acceptance of this Cross-Guaranty by the Lender and of
all extensions of credit to the Borrowers by the Lender; (b)
presentment and demand for payment or performance of any of the
Guaranteed Obligations; (c) protest and notice of dishonor or of
default (except as specifically required in this Agreement) with
respect to the Guaranteed Obligations or with respect to any
security therefor; (d) notice of the Lender obtaining, amending,
substituting for, releasing, waiving or modifying any security
interest, Lien or encumbrance, if any, hereafter securing the
Guaranteed Obligations, or the Lender subordinating, compromising,
discharging or releasing such security interests, Liens or
encumbrances, if any; (e) all other notices to which such Cross-
Guarantor might otherwise be entitled; and (demand for payment
under this Cross-Guaranty. In addition, each Cross-Guarantor
agrees to the waivers set forth in Addendum A hereto, which is
incorporated herein by reference, mutadis mutandis, with the same
force and effect as if herein fully set forth.
SECTION 9.05. Reinstatement. The obligations of the Cross
Guarantors under this Article IX shall be automatically reinstated
if and to the extent that, for any reason, any payment by or on
behalf of any Person in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings
in bankruptcy or reorganization or otherwise, and each Cross-
Guarantor agrees that it will indemnify the Lender on demand for
all reasonable costs and expenses (including, without limitation,
reasonable fees of counsel) incurred by the Lender in connection
with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
SECTION 9.06. Remedies. The Cross-Guarantors agree that, as
between the Cross-Guarantors, on the one hand, and the Lender, on
the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Article VI (and shall be
deemed to have become automatically due and payable in the
circumstances provided in Article VI) notwithstanding any stay,
injunction or other prohibition preventing such declaration (or
preventing such Guaranteed Obligations from becoming automatically
due and payable) as against any other Person and that, in the
event of such declaration (or such Guaranteed Obligations being
deemed to have
10
<PAGE>
become automatically due and payable), such Guaranteed Obligations
(whether or not due and payable by any other Person) shall
forthwith become due and payable by the Cross-Guarantors.
SECTION 9.07. Limitation of Cross-Guaranty. Notwithstanding any
provision to the contrary contained herein or in any of the other
Loan Documents, to the extent the obligations of any Cross-
Guarantor shall be adjudicated to be invalid or unenforceable for
any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances
or transfers), then the obligations of such Cross-Guarantor
hereunder shall be limited to the maximum amount that is
permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code)."
5. Specified Repairs. From and after the Effective Date Section
3.01(d)(xvi) of the Original Credit Agreement shall be amended and
restated in its entirety as follows :
"(xvi) On the Closing Date, the Lender shall disburse a portion of
the Loan proceeds equal to the amount needed to complete the
Specified Repairs into a separate escrow account of the Lender.
Such escrow account shall be an interest bearing account and
Borrower shall have the right to have an amount released from such
escrow account equal to the amount allocated for a Specified
Repair upon a written request to the Lender accompanied by
reasonable evidence of completion of such Specified Repair. Until
the funds in such escrow account are released, they shall
constitute additional security for the Loan. So long as no Event
of Default has occurred that has not been waived and is
continuing, Lender shall, to the extent funds are available for
such purpose in the escrow account, disburse to Grantor any
amounts requested by Grantor for such Specified Repairs provided,
that (i) such expenditures for such Specified Repairs are
consistent with the use of the Property as a Health Care Facility,
and (ii) Grantor delivers to Lender all invoices, receipts or
other evidence satisfactory to Lender, verifying the cost of
performing such Specified Repairs. Upon the reasonable request of
Lender, Grantor shall deliver to Lender a certification from an
inspecting architect or other third party acceptable to Lender
describing the completed portion of the Specified Repairs with
respect to which the disbursement request has been made and
verifying the completion of the Specified Repairs and that the
cost of the such Specified Repairs does not substantially vary
from the budgeted amount. "
6. Origination Fee. In consideration of the Lender's commitment to
make the Additional Loan pursuant to the terms of this Amendment
and the Credit Agreement, EIII shall pay to the Lender on the date
hereof an origination fee (the "Additional Origination Fee") in
the aggregate amount of FORTY-TWO THOUSAND FIVE HUNDRED AND
11
<PAGE>
NO/100 DOLLARS ($42,500.00). The Lender, at its option, may
collect the Origination Fee through reduction of the Additional
Loan proceeds by an amount equal to the Additional Origination
Fee. The amount of the Additional Origination Fee represents an
amount equal to one-half of one percent (0.50%) of the principal
amount of the Additional Loan made in connection with the
Puyallup, Washington facility. The Lender agrees and acknowledges
that with respect to the Concorde, Nevada facility, it received
the Origination Fee in connection with such property at the time
of entering into the Original Credit Agreement.
7. Representations and Warranties. EIII, as a Borrower, hereby
makes each of the representations and warranties set forth in
Section 4.01 of the Original Credit Agreement, therein as if fully
set forth herein. With respect to Section 4.01(mm), the Effective
Capacity of the Additional Properties is a set forth in Schedule D
hereto.
8. Intent of Parties. It is the intent of the parties hereto that
for purposes of Chapter 295, Section 12, Washington Laws of 1998,
the Cross-Guaranty shall be deemed to have been entered into as of
the Effective Date, and the deficiency rights in Chapter 295,
Section 12, Washington Laws of 1998 shall apply to the Cross-
Guaranty."
9. Amendments, Etc. No amendment or waiver of any provision of
this Amendment, nor consent to any departure by any Borrower
therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given.
10. Binding Effect. This Amendment shall become effective when it
shall have been executed by the Borrowers and the Lender and
thereafter shall be binding upon and inure to the benefit of the
Borrowers and the Lender and their respective successors and
assigns, except that none of the Borrowers shall have the right to
assign their respective rights hereunder or any interest herein
without the prior written consent of the Lender.
11. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Amendment by telecopier
shall be effective as delivery of a manually executed counterpart
of this Amendment.
12. Jurisdiction, Etc. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York state
court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Amendment
or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any
12
<PAGE>
such action or proceeding may be heard and determined in any such
New York state court or, to the extent permitted by law, in such
federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Amendment
shall affect any right that any party may otherwise have to bring
any action or proceeding relating to this Amendment.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or
relating to this Amendment to which it is a party in any New York
state or federal court. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
13. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
14. Waiver of Jury Trial. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AMENDMENT OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
15. Severability. If any provision of this Amendment or
application to any party or circumstance shall be determined by
any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Amendment or
the application of such provision to such person or circumstances,
other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision
hereof shall be valid and shall be enforced to the fullest extent
permitted by law.
16. Full Force and Effect. Except as modified herein, all terms
and conditions of the Original Credit Agreement shall remain in
full force and effect, which terms and conditions the Lender and
the Borrowers hereby ratify and affirm.
***
[SIGNATURES ON NEXT PAGE]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly
authorized, as of the date first above
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT OR FORBER FROM ENFORCING REPAYMENT OF A DEBT
ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
BORROWERS :
EMERITUS PROPERTIES II, INC. , a Washington corporation
By: /s/: Kelly J. Price
Name: Kelly J. Price
Title: Vice President
EMERITUS PROPERTIES III, INC., a Washington corporation
By: /s/: Kelly J. Price
Name : Kelly J. Price
Title : Vice President
EMERITUS PROPERTIES V, INC., a Washington corporation
By: /s/: Kelly J. Price
Name: Kelly J. Price
Title : Vice President
EMERITUS PROPERTIES VII, INC., a Washington corporation
By: /s/: Kelly J. Price
Name: Kelly J. Price
Title: Vice President
[CONTINUED]
<PAGE>
LENDER:
DEUTSCHE BANK AG, NEW YORK BRANCH
By: /s/: Lotte J. Potter
Name: LOTTE J. POTTER
Title: ATTORNEY-IN-FACT
By: /s/: Allisson J. Michaels
Name: Allisson J. Michaels
Title: ATTORNEY-IN-FACT
<PAGE>
ADDENDUM A
CALIFORMA GUARANTY ADDENDUM
(a) Each Cross-Guarantor hereby waives (i) any right to require
the Lender to (A) proceed against the principal debtor, or (B)
proceed against or exhaust any security held from the principal
debtor; (ii) to the fullest extent permitted by law, all rights
and benefits under Section 2809 of the California Civil Code
purporting to reduce a guarantor's obligations in proportion to
the principal obligation; (iii) to the fullest extent permitted by
law, all rights and benefits under (A) Section 580a of the
California Code of Civil Procedure purporting to limit the amount
of any deficiency judgment which might be recoverable following
the occurrence of a trustee's sale under a deed of trust and any
right to a fair value hearing or any fair value limitation or
other limitation on liability or a deficiency based upon the fair
value of any collateral after a non-judicial foreclosure of the
applicable security instrument, (B) Section 580b of the California
Code of Civil Procedure stating that no deficiency may be
recovered on a real property purchase money obligation, (C)
Section 580d of the California Code of Civil Procedure stating
that no deficiency may be recovered on a note secured by a deed of
trust on real property in case such real property is sold under
the power of sale contained in such deed of trust, and (D) Section
726 of the California Code of Civil Procedure stating that there
may be but one form of action on an indebtedness secured by real
property, if such sections, or any of them, have any application
hereto or any application to the Cross-Guarantors; (iv) all rights
and benefits which might otherwise be available to the undersigned
under California Civil Code Sections 2810, 2819, 2839, 2845, 2849,
2850, 2899, and 3433; and (v) any rights arising under Section
359.5 of the California Code of Civil Procedure.
(b) In addition, each Cross-Guarantor hereby waives all rights and
defenses that the Cross-Guarantors may have because the principal
debtor's obligations are secured by real property. This means,
among other things: (i) the Lender may collect from the Cross
Guarantors without first foreclosing on all real or personal
property collateral pledged by principal debtor; (ii) if the
Lender forecloses on any real property collateral pledged by the
principal debtor: (a) the amount of the debt may be reduced only
by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price,
and/or (b) the Lender may collect from the Cross-Guarantors even
if the Lender, by foreclosing on the real property collateral, has
destroyed any right the Cross-Guarantors may have to collect from
the principal debtor. This is an unconditional and irrevocable
waiver of any rights and defenses the Cross-Guarantors may have
because the principal debtor's debt is secured by real property.
These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 of
the California Code of Civil Procedure. The Cross-Guarantors each
hereby waive all rights and defenses arising out of an election of
remedies by the Lender, even though that election of remedies,
such as a non-judicial foreclosure with respect to security for a
guaranteed obligation, has destroyed the Cross-Guarantors' rights
of subrogation and reimbursement against the principal by the
operation of Section 580d of the California Code of Civil
Procedure or otherwise.
<PAGE>
SCHEDULE A
THE CONCORDE
GOVERNMENT LOT THIRTY SEVEN (37) IN SECTION 13, TOWNSHIP 21 SOUTH,
RANGE 61 EAST, M.D.B. & M., COUNTY OF CLARK, STATE OF NEVADA.
EXCEPT THAT PORTION CONVEYED TO THE COUNTY OF CLARK FOR ROAD
PURPOSES BY DEED RECORDED JANUARY 17,1996 IN BOOK 960117 AS
DOCUMENT ; NO. 01463 OF OFFICIAL RECORDS.
PUYALLUP
LOT 1 OF COLUMBIA PACIFIC MANAGEMENT BINDING SITE PLAN RECORDED
JU7,Y 19, 1995 UNDER AUDITOR'S NO. 9507190625, IN PWALLUP, PIERCE
COUNTY WASHINGTON;
EXCEPT THE 30 FEET THEREOF DEEDED TO THE CITY OF PWALLUP, A
WASHINGTON MUNICIPAL CORPORATION, BY DEED RECORDED UNDER AUDITOR'S
NO. 9701090196.
SITUATE IN THE CITY OF PUYALLUP, PIERCE COUNTY, WASHINGTON.
<PAGE>
GUARANTY AND LIMITED INDEMNITY AGREEMENT
from
EMERITUS CORPORATION as Guarantor,
and
DEUTSCHE BANK AG,
NEW YORK BRANCH
as Lender
Dated as of April 29,1998
<PAGE>
GUARANTY AND LIMITED INDEMNITY AGREEMENT
THIS GUARANTY AND LIMITED INDEMNITY AGREEMENT (this "Guaranty"),
made as of the 29th day of April,1998, by EMERITUS CORPORATION, a
Washington corporation, having an address at 3131 Elliott Avenue,
Suite 500, Seattle, Washington 9812 I (the "Guarantor"), in favor
of DEUTSCHE BANK AG, a bank chartered under the laws of the
Federal Republic of Germany, acting by and through its New York
Branch, having an address at 31 East 52nd Street, 23rd Floor, New
York, New York 10019 ("Lender").
WITNESSETH:
WHEREAS, EMERITUS PROPERTIES II, INC., EMERITUS PROPERTIES V,
INC., and EMERITUS PROPERTIES VII, INC. (collectively, the
"Borrowers") concurrently herewith are obtaining a loan in the
aggregate principal amount of Fifty-Six Million Two Hundred Eighty
Six Thousand and 00/100 Dollars ($56,286,000.00) (the "Loan") from
Lender pursuant to the terms and conditions of that certain Credit
Agreement, dated of even date hereof, between the Borrowers and
Lender (the "Credit Agreement"; capitalized terms not otherwise
defined herein shall have the meaning ascribed to such term in the
Credit Agreement);
WHEREAS, the Loan is evidenced by those certain promissory notes
(collectively, the "Note"), dated of even date hereof by the
Borrowers and payable to the order of Lender in the stated
aggregate principal amount of the original amount of the Loan and
shall be secured, inter alia, by (1) those certain Mortgages, Open-
End Mortgages, Advance Money Mortgages, Trust Deeds, Deeds of
Trust" Trust Indentures, Assignments, Assignments of Rents,
Security Agreements, including Fixture Filings and Financing
Statements made by the Borrowers in favor of Lender (collectively,
the "Mortgage") and (2) those certain Security Agreements from the
Borrowers in favor Lender (collectively, the "Security
Agreement"). The Credit Agreement, the Note, the Mortgage, the
Security Agreement and the other documents and instruments
evidencing, securing or otherwise related to each Loan, as the
same may from time to time be amended, extended, consolidated,
renewed or replaced are collectively referred to herein as the
"Loan Documents"; and
WHEREAS, as a condition to entering into the Credit Agreement with
the Borrowers, Lender has required that the Guarantor indemnify
Lender from and against, and guarantee payment to Lender of,
certain Costs (as hereinafter defined) and the Guaranteed
Obligations (as hereinafter defined) relating to the Loan as set
forth herein; and
WHEREAS, each of the Borrowers is a wholly-owned, either directly
or indirectly, subsidiary of the Guarantor, and the Guarantor will
derive substantial economic benefit from Lender making the Loan to
the Borrowers, and, therefore, the Guarantor has agreed to
indemnify Lender from and against and guaranty payment to Lender
of the Costs and the Guaranteed Obligations relating to the Loan
as set forth herein.
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NOW, THEREFORE, to induce Lender to extend the Loan to the
Borrowers and in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Guarantor hereby covenants
and agrees for the benefit of Lender, as follows:
1. GUARANTEED OBLIGATIONS.
(a) The Guarantor absolutely and unconditionally guarantees to
Lender the punctual and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise), of
the principal of, and accrued and unpaid interest on, each Loan
made pursuant to the Credit Agreement. (The obligations described
in this clause (a) are referred to herein as the "Guaranteed
Obligations").
(b) Anything to the contrary provided in this Guaranty
notwithstanding, the liability of the Guarantor under clause (a)
above, shall not be reduced by any prepayment or repayment of
principal or any payment of interest, as the case may be, due
under any Note by or on behalf of the Borrowers other than a
payment pursuant to this Guaranty following a written demand by
Lender pursuant to subsection 1(c) hereof.
(c) If any Borrower shall fail to pay when due any required
payment of principal or interest on any Note, as the case may be,
Lender may, subject only to the express limitations set forth in
this Guaranty, call upon the Guarantor to pay the unpaid amount.
The Guarantor shall, upon demand, immediately pay such unpaid
amount to Lender.
2. INDEMNIFICATION BY THE GUARANTOR. The Guarantor hereby assumes
liability for, guarantees payment to Lender of, agrees to pay,
protect, defend and save Lender harmless and indemnify Lender from
and against, any and all liabilities, obligations, losses,
damages, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and disbursements, causes of
action, suits, claims, losses (including, without limitation, any
diminution in the value of the security afforded by the property
mortgaged by each of the Mortgages by reason of any of the
following occurrences), demands and judgments of any nature or
description whatsoever (collectively, "Costs")), which may at any
time be imposed upon, incurred by or awarded against Lender
resulting from:
a) any fraud or misrepresentation committed by the Borrowers or
any of their Affiliates;
b) any intentional and material breach of the Borrowers'
covenants set forth in the related Mortgage;
c) any action or inaction taken or omitted in bad faith by the
borrowers or any of their Affiliates;
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d) any interference by the Borrowers or any of their Affiliates
with Lender's exercise of its remedies under the Loan
Documents following an occurrence of an Event of Default;
e) any impairment by the Borrowers or any of their Affiliates of
the value of any material portion of the Collateral for each
Loan;
f) any failure of any Guaranteed Obligations to be the legal,
valid and binding obligations of the Borrowers enforceable
against the Borrowers in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or other
similar Laws affecting the rights of creditors generally; or
(g) any failure of any Borrower to pay and perform any Guaranteed
Obligations in accordance with the terms of such Guaranteed
Obligations.
3. INDEMNIFICATION PROCEDURES.
(a) If any action shall be brought against Lender based upon any
of the matters for which Lender is indemnified hereunder, Lender
shall notify the Guarantor in writing thereof and the Guarantor
shall promptly assume the defense thereof, including, without
limitation, the employment of counsel reasonably acceptable to
Lender and the negotiation of any settlement; provided, however,
that any failure of Lender to notify the Guarantor of such matter
shall not impair or reduce the obligations of the Guarantor
hereunder. Lender shall have the right, at the expense of the
Guarantor (which expense shall be included in Costs), to employ
separate counsel in any such action and to participate in the
defense thereof. In the event the Guarantor shall fail to
discharge or undertake to defend Lender against any claim, loss or
liability for which Lender is indemnified hereunder, such failure
shall constitute an Event of Default and Lender may, at its sole
option and election, defend or settle such claim, loss or
liability. The liability of the Guarantor to Lender hereunder
shall be conclusively established by such settlement, provided
such settlement is made in good faith, the amount of such
liability to include both the settlement consideration and the
costs and expenses, including, without limitation, attorneys' fees
and disbursements, incurred by Lender in effecting such
settlement. In such event, such settlement consideration, costs
and expenses shall be included in Costs and the Guarantor shall
pay the same as hereinafter provided. Lender's good faith in any
such settlement shall be conclusively established if the
settlement is made on the advice of independent legal counsel for
Lender.
(b) The Guarantor shall not, without the prior written consent of
Lender, (i) settle or compromise any action, suit, proceeding or
claim or consent to the entry of any judgment that does not
include as an unconditional term thereof the delivery by the
claimant or plaintiff to Lender of a full and complete written
release of Lender (in form, scope and substance satisfactory to
Lender in its sole discretion) from all liability in respect of
such action, suit,
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proceeding or claim and a dismissal with prejudice of such action,
suit, proceeding or claim; or (ii) settle or compromise any
action, suit, proceeding or claim in any manner that may adversely
affect Lender or obligate Lender to pay any sum or perform any
obligation as determined by Lender in its sole discretion.
(c) All Costs shall be immediately reimbursable to Lender when and
as incurred and, in the event of any litigation, claim or other
proceeding, without any requirement of waiting for the ultimate
outcome of such litigation, claim or other proceeding, and the
Guarantor shall pay to Lender any and all Costs within ten (10)
days after written notice from Lender itemizing the amounts
thereof incurred to the date of such notice. In addition to any
other remedy available for the failure of the Guarantor to
periodically pay such Costs, if not paid within said ten-day
period, shall bear interest at the Default Rate from the date
incurred until the date they are paid in full.
4. REINSTATEMENT OF OBLIGATIONS. If at any time all or any part of
any payment made by the Guarantor or received by Lender from the
Guarantor under or with respect to this Guaranty is or must be
rescinded or returned for any reason whatsoever (including but not
limited to, the insolvency, bankruptcy or reorganization of the
Guarantor or the Borrowers), then the obligations of the Guarantor
hereunder shall, to the extent of the payment rescinded or
returned, be deemed to have continued in existence notwithstanding
such previous payment made by the Guarantor, or receipt of payment
by Lender, and the obligations of the Guarantor hereunder shall
continue to be effective or be reinstated, as the case may be, as
to such payment, all as though such previous payment by the
Guarantor had never been made.
5. GUARANTV ABSOLUTE. The Credit Agreement shall conclusively be
deemed to have been entered into by Lender and the Loan funded in
reliance upon this Guaranty and all dealings and Loan Documents
executed hereafter between the Borrowers and Lender shall likewise
be conclusively presumed to have been undertaken or consummated in
reliance upon this Guaranty. This Guaranty shall, subject to the
terms hereof, be construed as a continuing, absolute and
unconditional guaranty of payment. The liability of the Guarantor
under this Guaranty shall be absolute and unconditional
irrespective of: (a) any lack of genuineness, regularity,
legality, validity or enforceability of any of the Loan Documents,
(b) any change in the time, manner or place of payment of any
amount payable under any of the Loan Documents, or in any other
term of any of the Loan Documents, including, but not limited to,
any increase or decrease in the rate of interest thereon, or any
other amendment or waiver or consent to departure from any of the
Loan Documents including, without limiting the generality of the
foregoing, the waiver of any default thereunder or the making of
any arrangement with, or the accepting of any compromise or
settlement from, the Borrowers or any other person or entity
liable in respect of any amount payable under any of the Loan
Documents, (c) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any other guaranty securing any part of the
indebtedness of the Loans, (d) any act, omission, circumstance or
occurrence that might otherwise vary the risk of the Guarantor or
any of them or be deemed a
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legal or equitable discharge of the Guarantor or which might
otherwise constitute a defense available to Borrowers or the
Guarantor or (e) any dealings or transactions between Lender or
the Borrowers or any other person or entity liable in respect of
the indebtedness of the Loan.
Without limiting the generality of the foregoing and subject to
the terms hereof, the Guarantor's liability under this Guaranty
shall, subject to the terms hereof, be absolute and unconditional
irrespective of any right of set-off or counterclaim which the
Borrowers or the Guarantor may from time to time have in respect
of any moneys or liabilities owing by, or any claims against,
Lender and the Guarantor irrevocably waive any defense or claim
based upon any such right of set-off or counterclaim. This
Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the indebtedness
of any of the Loans is rescinded or must otherwise be returned by
Lender upon the insolvency, bankruptcy or reorganization of the
Borrowers or otherwise, all as though such payment had not been
made.
6. WAIVER. The Guarantor hereby waives protest, promptness,
diligence, notice of acceptance, demand for payment and notice of
default or non-payment in respect of the Credit Agreement and any
of the Loan Documents and waives all other notices of every kind
and description with respect to any of the Loans now or hereafter
provided by any statute or rule of law. The Guarantor hereby
waives any requirement that Lender protect, secure, perfect or
insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against Borrowers,
against the Guarantor hereunder or the against Guarantor or any
other person, entity or any collateral. The Guarantor hereby
waives, to the fullest extent permitted by applicable law, the
benefit of any statute of limitations which may affect its
liability hereunder or the enforcement hereof. Any payment by the
Borrowers or other circumstance that operates to toll any statute
of limitations as to the Borrowers shall operate to toll the
statute of limitations as to the Guarantor. In addition, the
Guarantor agrees to the waivers set forth in Addendum A hereto,
which is incorporated herein by reference, MUTADIS MUTANDIS, with
the same force and effect as if herein fully set forth.
7. NATURE OF GUARANTY. This Guaranty is a guaranty of payment and
performance and not of collection, is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in
the future, including (a) interest and other Guaranteed
Obligations arising or accruing after bankruptcy of any Loan Party
or any sale or other disposition of any Collateral, and (b) any
Guaranteed Obligations that survive repayment of the Loan. This
Guaranty and any Security for this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any
payment or performance of any Guaranteed Obligations is rescinded
or must otherwise be returned by Lender or any other person upon
the bankruptcy, insolvency or reorganization of any Loan Party or
otherwise, all as though such payment or performance had not
occurred. The Guarantor shall have no authority to revoke this
Guaranty, but if any such revocation shall be deemed to have
occurred by operation of law or otherwise, the provisions of this
Guaranty shall continue to apply notwithstanding such revocation.
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8. OBLIGATIONS INDEPENDENT. The obligations of the Guarantor under
this Guaranty are independent of the obligations of any other Loan
Party under the Loan Documents (such obligations of any other Loan
Party, including the Borrowers' obligations in respect of the
Guaranteed Obligations, being referred to in this Guaranty as the
"Other Obligations") and any security, and the enforceability of
any security for this Guaranty is likewise independent of any such
Other Obligations and any other security. Lender may bring action
against the Guarantor and otherwise enforce this Guaranty without
bringing action against any other Loan Party or joining any other
Loan Party in any action against the Guarantor, and otherwise
independently of any other remedy at law or in equity that may be
available to Lender at any time with respect to any Other
Obligations or security. The Guarantor waives any right to require
Lender at any time to proceed against any other Loan Party, or
otherwise enforce, proceed against or exhaust any Other
Obligations or pursue any other remedy in Lender's power.
9. FULL RECOURSE. Notwithstanding any provisions of any other Loan
Document to the contrary, all of the terms and provisions of this
Guaranty are recourse obligations of the Guarantor and not
restricted by any limitation on personal liability.
10. SURVIVAL. To the fullest extent permitted by law, this
Guaranty shall be deemed to be continuing in nature and shall
remain in full force and effect and shall survive the exercise of
any remedy by Lender under the Credit Agreement or any of the
other Loan Documents, including, without limitation, any
foreclosure or deed in lieu thereof, even if, as a part of such
remedy, the Loan is paid or satisfied in full.
11. WAIVER OF SUBROGATION. Until such time as the Loan is paid in
full, the Guarantor hereby irrevocably waives all rights of
subrogation and any other claims that they may now or hereafter
acquire against the Borrowers or any insider that arise from the
existence, payment, performance or enforcement of the Guarantor's
obligations under this Guaranty, including, without limitation,
any right of reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or
remedy of Lerider against the Borrowers or any insider, whether or
not such claim, remedy or right arises in equity or under
contract, statute or common law, including, without limitation,
the right to take or receive from the Borrowers or any insider,
directly or indirectly, in cash or other property or by set-off or
in any other manner, payment or security on account of such claim,
remedy or right. If any amount shall be paid to the Guarantor in
violation of the foregoing at any time prior to the indefeasible
cash payment of the Loan, such amount shall be held in trust for
the benefit of Lender and shall forthwith be paid to Lender to be
credited and applied to all amounts payable under this Guaranty or
to be held as collateral for any amounts payable under this
Guaranty thereafter arising. The Guarantor acknowledges that they
have and will receive direct and indirect benefits from the
financing arrangements contemplated by the Loan Documents and that
the waiver set forth in this Section 11 is knowingly made in
contemplation of such benefits.
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12. RESERVATION OF RIGHTS. Nothing contained in this Guaranty
shall prevent or in any way diminish or interfere with any rights
or remedies, including, without limitation, the right to
contribution, which Lender may have against the Borrowers, the
Guarantor or any other party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. 9601 et sea.), as it may be amended from time to
time, or any other applicable federal, state or local laws, aIl
such rights being hereby expressly reserved.
13. RIGHTS CUMULATIVE: PAVMENTS. Lender's rights under this
Guaranty shall be in addition to all rights of Lender under the
Credit Agreement and the other Loan Documents. TO THE EXTENT THAT
PAYMENTS ARE MADE HEREUNDER BY THE GUARANTOR WITH RESPECT TO
OBLIGATIONS AND LIABILITIES FOR WHICH THE BORROWERS ARE NOT LIABLE
UNDER THE NOTE, THE MORTGAGE, THE CREDIT AGREEMENT OR THE OTHER
LOAN DOCUMENTS, SUCH PAYMENTS MADE BY THE GUARANTOR UNDER THIS
GUARANTY SHALL NOT REDUCE IN ANY RESPECT SUCH BORROWER'S
OBLIGATIONS AND LIABILITIES UNDER THE NOTE, THE MORTGAGE, THE
CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS, AND TO THE EXTENT
THAT PAYMENTS ARE MADE HEREUNDER BY THE GUARANTOR WITH RESPECT TO
OBLIGATIONS AND LIABILITIES FOR WHICH SUCH BORROWER IS LIABLE
UNDER THE NOTE, THE MORTGAGE, THE CREDIT AGREEMENT OR THE OTHER
LOAN DOCUMENTS, SUCH PAYMENTS SHALL BE APPLIED FIRST TO THOSE
OBLIGATIONS AND LIABILITIES ARISING UNDER THE NOTE, THE MORTGAGE
AND THE OTHER LOAN DOCUMENTS WITH RESPECT TO WHICH SUCH BORROWER
IS NOT PERSONALLY LIABLE.
14. NO LIMITATION ON LIABILITY. The Guarantor hereby consents and
agrees that Lender may at any time and from time to time without
further consent from the Guarantor do any of the following events,
and the liability of the Guarantor under this Guaranty shall be
unconditional and absolute and shall in no way be impaired or
limited by any of the following events, whether occurring with or
without notice to the Guarantor or with or without consideration:
(i) any extensions of time for performance required by any of the
Loan Documents or otherwise granted by Lender or extension or
renewal of the Note; (ii) any sale, assignment or foreclosure of
the Note, Mortgage or any of the other Loan Documents or any sale
or transfer of the property referenced in such Loan Documents;
(iii) any change in the composition of any Borrower, including,
without limitation, the withdrawal or removal of the Guarantor
from any current or future position of ownership, management or
control of such Borrower; (iv) the accuracy or inaccuracy of the
representations and warranties made by the Guarantor herein or by
the Borrowers in any of the Loan Documents; (v) the release of any
Borrower or of any other person or entity from performance or
obseivance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of
law, Lender's voluntary act or otherwise; (vi) the release or
substitution in whole or in part of any security for any of the
Loan; (vii) Lender's failure to record any of the Mortgages or to
file any financing statement (or Lender's improper recording or
filing thereof or to otherwise perfect, protect, secure or insure
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any lien or security interest given as security for the Loan;
(viii) the modification of the terms of any one or more of the
Loan Documents; or (ix) the taking or failure to take any action
of any type whatsoever. No such action which Lender shall take or
fail to take in connection with any of the Loan Documents or any
collateral for the Loan, nor any course or dealing with the
Borrowers or any other person, shall limit, impair or release the
Guarantor's obligations hereunder, affect this Guaranty in any way
or afford the Guarantor any recourse against Lender. Nothing
contained in this Section shall be construed to require Lender to
take or refrain from taking any action referred to herein.
15. ENFORCEMENT. This Guaranty is subject to enforcement at law or
in equity, including actions for damages or specific performance.
16. ATTORNEYS' FEES. In the event it is necessary for Lender to
retain the services of an attorney or any other consultants in
order to enforce this Guaranty, or any portion thereof, the
Guarantor agrees to pay to Lender any and all costs and expenses,
including, without limitation, reasonable attorneys' fees, costs
and disbursements, incurred by Lender as a result thereof and such
costs, fees and expenses shall be included in Costs.
17. SUCCESSIVE ACTIONS. A separate right of action hereunder shall
arise each time Lender acquires knowledge of any matter
indemnified or guaranteed by the Guarantor under this Guaranty.
Separate and successive actions may be brought hereunder to
enforce any of the provisions hereof any time and from time to
time. No action hereunder shall preclude any subsequent action,
and the Guarantor hereby waives and covenants not to assert any
defense in the nature of splitting of causes of action or merger
of judgments.
18. RELIANCE. Lender would not enter into the Credit Agreement
without the Guarantor entering into this Guaranty. Accordingly,
the Guarantor intentionally and unconditionally enters into the
covenants and agreements as set forth above and understands that,
in reliance upon and in consideration of such covenants and
agreements, the Credit Agreement shall be executed and, as part
and parcel thereof, specific monetary and other obligations have
been, are being and shall be entered into which would not be made
or entered into but for such reliance.
19. WAIVER BY THE GUARANTOR. The Guarantor covenants and agrees
that, upon the commencement of a voluntary or involuntary
bankruptcy proceeding by or against the Borrowers, the Guarantor
shall not seek or cause the Borrowers or any other person or
entity to seek a supplemental stay or other relief, whether
injunctive or otherwise, pursuant to I 1 U.S.C. 1 OS or any
other provision of the Bankruptcy Reform Act of 1978, as amended,
or any other debtor relief law, (whether statutory, common law,
case law or otherwise) of any jurisdiction whatsoever, now or
hereafter in effect, which may be or become applicable, to stay,
interdict, condition, reduce or inhibit the ability of Lender to
enforce any rights of Lender against the Guarantor or the
collateral for the Loan by virtue of this Guaranty or otherwise.
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20. GOVERNING LAW. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of New York.
2I. REMEDIES. The obligations of the Guarantor under this Guaranty
are independent of the respective Borrowers' obligations under the
Loan Documents, and a separate action or actions may be brought
and prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against the
Borrowers or whether the Borrowers are joined in any such action
or actions. Any one or more successive and/or concurrent actions
may be brought hereon against the Guarantor either in the same
action, if any, brought against the Borrowers or in separate
actions, as often as Lender, in its sole discretion, may deem
advisable.
22. CERTIFIED STATEMENT. The Guarantor and the Lender each agree
that they will, at any time and from time to time, within ten (10)
days following the reasonable request of the other, execute and
deliver to the other a statement certifying that this Guaranty is
unmodified and in full force and effect (or if modified, that the
same is in full force and effect as modified and stating such
modifications).
23. SEPARATE GUARANTY. The Guarantor agrees that they shall, at
the request of Lender, promptly execute, acknowledge and deliver a
specific guaranty for the Loan, which guaranty shall be in the
same form and nature as this Guaranty.
24. NOTICES. All notices and other communications which may be or
are desired to be given hereunder shall be in writing and, if to
the Guarantor, sent by recognized overnight courier or by
certified or registered mail, postage prepaid, return receipt
requested, or delivered to it, addressed to it at the address
first set forth above and if to Lender, mailed or delivered as
provided in Section 10.02 of the Credit Agreement, or as to each
party at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery
with the terms of this Section. All such communications shall be
deemed to be given (i) if hand delivered or sent by overnight
courier, on the day received, or (ii) if mailed, on the third
(3rd) Business Day following deposit thereof in the U.S. Mail.
25. CONTINUING AGREEMENT: SUCCESSORS AND ASSIGNS. This Guaranty is
a continuing obligation of the Guarantor and shall (i) remain in
full force and effect until the payment in full of the Loan and
all amounts payable under this Guaranty, (ii) be binding upon the
Guarantor and their respective successors and assigns and (iii)
inure to the benefit of and be enforceable by Lender and its
successors, transferees and assigns or by any person to whom
Lender's interest in the Loan Documents may be assigned.
26. CERTAIN NOTICES. Lender shall endeavor to give notice to the
Guarantor of any amendment or modification of the Loan Documents;
provided, however, that failure to provide any such notice shall
in no manner adversely affect the rights and remedies of Lender
hereunder
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and under the Loan Documents or in any manner limit the waivers
made by the Guarantor under Section 6.
27. WAIVERS AND AMENDMENTS. No supplement to, modification or
amendment of, or waiver, consent or approval under, any provision
of this Guaranty shall be effective unless in writing and signed
by Lender, and any waiver, consent or approval shall be effective
only in the specific instance and for the specific purpose for
which given.
28. WAIVER OF JURY TRIAL. Lender and the Guarantor waive trial by
jury in any action or other proceeding (including counterclaims),
whether at law or equity, brought by Lender or the Guarantor
against the other on matters arising out of or in any way related
to or connected with this Guaranty, the other Loan Documents, the
Loan or any transaction contemplated by, or the relationship
between Lender and the Guarantor or any other Loan Party or any
action or inaction by any party under, any of the Loan Documents.
* * *
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IT WITNESS WHEREOF, the Guarantor has executed this Guaranty as a
sealed instrument as of the day and year first above written.
PLEASE BE ADVISED THAT ORAL
AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT OR
FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
EMERITUS CORPORATION,
a Washington corporation
By : /s/ Jean T. Fukuda
Name: Jean T. Fukuda
Title: Assistant Secretary
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PROMISSORY NOTE
$ 16,949,000.00 Dated: June 30,1998
FOR VALUE RECEIVED, the undersigned, EMERITUS PROPERTIES III,
INC., a Washington corporation ("Borrower"), HEREBY PROMISES TO
PAY to the order of DEUTSCHE BANK AG, NEW YORK BRANCH or its
registered assigns (the "Lender") for the account of its
Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of SIXTEEN
MILLION NINE HUNDRED FORTYNINE THOUSAND AND NO/100 DOLLARS
($16,949,000.00) owing to the Lender by Borrower pursuant to that
certain Credit Agreement by and among EMERITUS PROPERTIES II, INC.
("EII"), EMERITUS PROPERTIES V, INC. ("EV"), EMERITUS PROPERTIES
VII, INC. ("EVII") and the Lender, dated as of April 29,1998 (the
"Original Credit Agreement"), as amended that certain Amendment of
Credit Agreement (the "Amendment") by and among EII, EV, EVII,
Borrower and the Lender, dated as of the date hereof (the Original
Credit Agreement as amended by the Amendment is referred to herein
as the "Credit Agreement"; terms defined therein being used herein
as therein defined) on the dates and in the amounts specified in
the Credit Agreement.
Borrower promises to pay to Lender or its registered assigns
interest on the unpaid principal amount of the Loan (as defined
below) from the date of the Loan until such principal amount is
paid in full, at such interest rates, and payable at such times,
as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Deutsche Bank AG, New York Branch, as
Lender, at Lender s Account, in same day funds.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of a
single advance (the "Loan") by the Lender to Borrower in an
aggregate amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of Borrower resulting from such Loan
being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of
Borrower under this Promissory Note, and the obligations of the
other Loan Parties under the Loan Documents, are secured by the
Collateral as provided in the Loan Documents.
All parties now and hereafter liable with respect to this
Promissory Note hereby waive presentment, demand, protest and all
other notices of any kind.
[SIGNATURE PAGE TO FOLLOW)
<PAGE>
This Promissory Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY,EXTEND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
EMERITUS PROPERTIES III, INC.
a Washington corporation
By : /s/: Kelly J. Price
Name: Kelly J. Price
Title: Vice President
<PAGE>
FUTURE ADVANCE
PROMISSORY NOTE
$5,365,000.00
Dated: April 29,1998
FOR VALUE RECEIVED, the undersigned, EMERITUS PROPERTIES V, INC.,
a Washington corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of DEUTSCHE BANK AG, NEW YORK BRANCH or its
registered assigns (the "Lender") for the account of its
Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of FIVE MILLION
THREE HUNDRED SIXTY FIVE THOUSAND 00/100 DOLLARS ($5,365,000.00)
owing to the Lender by the Borrower pursuant to the Credit
Agreement dated as of the date hereof (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement";
terms defined therein being used herein as therein defined) among
the Borrower and the Lender on the dates and in the amounts
specified in the Credit Agreement.
The Borrower promises to pay to Lender or its registered assigns
interest on the unpaid principal amount of the Loan from the date
of the Loan until such principal amount is paid in full, at such
interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Deutsche Bank AG, New York Branch, as
Lender, at Lender's Account, in same day funds.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of a
single advance (the "Loan") by the Lender to the Borrower in an
aggregate amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from such
Loan being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of the
Borrower under this Promissory Note, and the obligations of the
other Loan Parties under the Loan Documents, are secured by the
Collateral as provided in the Loan Documents.
This Promissory Note also constitutes the Future Advance Note as
referred to in the Mortgage Modification and Future Advance
Agreement between the Borrower and the Lender of even date
herewith.
All parties now and hereafter liable with respect to this Note
hereby waive presentment, demand, protest and all other notices of
any kind.
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<PAGE>
This Promissory Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
PLEASE BE ADVISED THAT ORAL
AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT OR
FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
EMERITUS PROPERTIES V, INC.
a Washington corporation
By: /s/ Jean T. Fukuda
Name: Jean T. Fukuda
Title: Secretary
2
DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT,
ASSIGNMENT OF RENTS, SECURITY AGREEMENT,
INCLUDING FIXTURE FILING AND FINANCING STATEMENT
Dated June 30, 1998
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP,
Grantor
to
CHICAGO TITLE INSURANCE COMPANY
as Trustee
and
DEUTSCHE BANK AG, NEW YORK BRANCH,
Beneficiary
<PAGE>
DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT, INCLUDING FIXTURES, FIXTURE FILING AND
FINANCING STATEMENT (as the same may from time to time be
extended, spread, split, consolidated, modified, restated and
renewed, this "Deed of Trust") made as of June 30,1998 by COOPER
GEORGE PARTNERS LIMITED PARTNERSHIP, a Washington limited
partnership having an address c/o Emeritus Corporation, 3131
Elliot Avenue, Suite 500, Seattle, Washington 98121 ("Grantor"),
to CHICAGO TITLE INSLTRANCE COMPANY, a Missouri corporation having
an address at 701 Fifth Avenue, Suite 1800, Seattle, Washington
98109, the trustee, (the "Trustee") for the benefit of, DEUTSCHE
BANK AG, a bank chartered under the laws of the Federal Republic
of Germany, acting by and through its New York Branch having an
address at 31 West 52"d Street, New York, New York 10019 being the
beneficiary hereunder (the "Beneficiary")
WITNESSETH:
WHEREAS, Grantor has entered into that certain Credit Agreement
(said credit agreement, as it may be amended, modified or
supplemented from time to time, being the
"Credit Agreement", a copy of which may be examined at reasonable
times at the office of Beneficiary by persons who do or will hold
an interest in the Land (as hereinafter defined) or the
Improvements (as hereinafter defined)), dated as of June 19, 2001;
and
WHEREAS, pursuant to the Credit Agreement and subject to the terms
and conditions therein set forth, the Beneficiary has agreed to
make a loan to Grantor in a principal amount of NINE MILLION SEVEN
HUNDRED SIXTY-FIVE THOUSAND AND 00/100 DOLLARS ($9,765,000.00)
(the "Loan") with a maturity date of June 30, 2001; and
WHEREAS, to evidence such indebtedness Grantor has executed and
delivered the Credit Agreement and will execute and deliver a
promissory note (the "Note") to the order of Beneficiary in the
principal amount equal to the Loan and issued pursuant to, and
dated the same date as, the Credit Agreement and having a Maturity
Date of June 30, 2001; and
WHEREAS, the total indebtedness and liabilities to be secured by
this Deed of Trust are as follows (all such indebtedness and
liabilities or the instruments evidencing same, as applicable,
being herein collectively called the "Obligations"):
(i) the aggregate principal amount of NINE MILLION SEVEN HUNDRED
SIXTY-FIVE THOUSAND AND 00/100 DOLLA.RS ($9,765,000.00) pursuant
to the Note; plus
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(ii) interest on such principal amount, as provided in the Credit
Agreement;
plus
(iii) all other amounts payable and all other obligations of
Grantor under the Credit Agreement, the Note, this Deed of Trust,
and any other document which relates to any of the Credit
Agreement or the Note or any of the security therefor (as the same
may be amended, modified, extended, renewed, or supplemented from
time to time, all of the foregoing being herein collectively
called the "Loan Documents"); and
WHEREAS, it has been agreed that the payment and performance of
the Obligations shall be secured by a deed of trust, trust
indenture, assignment, assignment of rents, security agreement,
including fixtures, fixture filing and financing statement, as
applicable, of certain property as hereinafter identified; and
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, to secure the punctual payment by Grantor
when due, whether at stated maturity, by acceleration or
otherwise, of the Obligations and the performance and observance
of all other covenants, obligations and liabilities of Grantor
under this Deed of Trust, as the same may be extended, modified or
renewed or repledged, Grantor does hereby grant, bargain, sell,
mortgage, warrant, convey, alien, remise, release, assign,
transfer, set over, deliver, confirm and convey unto Beneficiary
(where this instrument constitutes a mortgage) or Trustee (where
this instrument constitute a deed of trust or trust indenture),
upon the terms and conditions of this Deed of Trust, in trust with
power of sale and right of entry as provided hereinbelow, each and
all of the real properties described in the Granting Clauses
herein (which, together with all other property located therein or
described in the Granting Clauses herein, is hereinafter
collectively called the
"Mortgaged Property").
GRANTING CLAUSES
(a) All plots, pieces and parcels of land more particularly
described in Exhibit A attached hereto (the "Land"), together with
all of the easements, rights and appurtenances now or hereafter in
any way appertaining thereto, either at law or in equity, whether
now owned or hereafter acquired by Grantor;
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Land (the
"Improvements"), together with all the estate, right, title and
interest of Grantor in all fixtures and all appurtenances and
additions thereto and substitutions or replacements thereof owned
by Grantor and now or hereafter attached to the Premises (as
hereafter defined);
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(c) All right, title and interest of Grantor in and to (i) the
streets, roads, sidewalks and alleys abutting the Land, (ii)
strips and gores within or adjoining the Land, (iii) the air space
and right to use said air space above the Land and any
transferable development or similar rights appurtenant thereto,
(iv) all rights of ingress and egress by motor vehicles to parking
facilities on or within the Land, (v) all easements now or
hereafter affecting the Land, (vi) all royalties and all rights
appurtenant thereto to the use and enjoyment of the Land,
including alley, drainage, mineral, water, oil and gas rights,
(vii) all sewer rights, and (viii) all other emblements now or
hereafter located on the Land or under or above the same or any
part thereof, and all estates, rights, interests and
appurtenances, reversions and remainders whatsoever, in any way
belonging or appertaining to the Premises or any part thereof,
whether now owned or hereafter acquired by Grantor;
(d) All right, title and interest of Grantor in and to all water,
ditches, wells, reservoirs and drains and all water, ditch, well,
reservoir and drainage rights which are appurtenant to, located
on, under or above or used in connection with the Land or the
Improvements, or any part thereof, whether now existing or
hereafter created or acquired by Grantor;
(e) All right, title and interest of Grantor in and to all
minerals, crops, timber, trees, shrubs, flowers and landscaping
features now or hereafter located on, under or above the Land;
All right, title and interest of Grantor in and to all building
materials, supplies and equipment now or hereafter placed on the
Land or in the Improvements and all architectural renderings,
models, drawings, plans, specifications, studies and data now or
hereafter relating to the Land or the Improvements;
(g) All "Equipment" (as defined in the Uniform Commercial Code),
now or hereafter located on, attached to or contained in or used
or usable in connection with the Mortgaged Property, and shall
also mean and include all of Grantor's right, title and interest
in and to, all building materials, construction materials, movable
(personal) property constituting furniture, fittings, appliances,
apparatus, leasehold improvements, machinery, devices, interior
improvements, appurtenances, equipment, plant, furnishings,
fixtures, computers, electronic data processing equipment,
telecommunications equipment, elevator, kitchen, medical, dental
or rehabilitation fixtures, cleaning apparatus, beds, linens,
televisions, carpeting, telephones, cash registers, computers,
lamps, glassware, rehabilitation equipment, medical, dental,
therapeutic and paramedical equipment and other fixed assets now
owned or hereafter acquired by Grantor and now or hereafter used
in the operation of the business conducted at the Premises, and
all proceeds thereof as well as all additions to, substitutions
for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare
parts) and
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<PAGE>
accessories, whether installed thereon or affixed thereto, and
wherever located, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of,
the Premises or the buildings, structures, or other improvements
now or hereafter located at such Premises, or in connection with
any construction being conducted or which may be conducted
thereon, all regardless of whether the same are located on such
Premises or are located elsewhere (including, without limitation,
in warehouses or other storage facilities or in the possession of
or on the premises of a bailee, vendor or manufacturer) for
purposes of manufacture, storage, fabrication or transportation
and all extensions and replacements to, and proceeds of, any of
the foregoing. For purposes of the preceding sentence, "other
fixed assets" shall also be deemed to include any and all
"furniture, furnishings and equipment" of the Premises as such
term is commonly understood in the assisted living care industry
(including, without limitation, any and all fixtures, furnishings,
equipment, furniture, and other items of corporeal (tangible)
movable (personal) property now or hereafter located at the
Premises or used in connection with the use, occupancy, operation
and maintenance of all or any part. of the Premises, other than
stocks of food and other supplies held for consumption in normal
operation, but including, without limitation, appliances,
machinery, equipment, signs, artwork (including paintings, prints,
sculpture and other fine art), office furnishings and equipment,
guest room furnishings, and specialized equipment for kitchens,
laundries, bars, restaurant, public rooms, health and recreational
facilities, linens, dishwashers, two-way radios, all partitions,
screens, awnings, shades, blinds, floor coverings, hall and lobby
equipment, heating, lighting, plumbing, ventilating,
refrigerating, incinerating, elevators, escalators, air
conditioning and communication plants or systems with appurtenant
fixtures, vacuum cleaning systems, call or beeper systems,
security systems, sprinkler systems and other fire prevention and
extinguishing apparatus and materials, reservation system computer
and related equipment, all equipment, manual, mechanical or
motorized, for the construction, maintenance, repair and cleaning
of parking areas, walks, underground ways, truck ways, driveways,
common areas, roadways, highways and streets, and motor vehicles)
(the items described in Granting Clauses (a) through (g) are
herein collectively referred to as the "Premises");
(h) All right, title and interest of Grantor in and to all leases,
subleases, lettings and, to the extent permitted by Law, licenses
affecting the Premises, including, without limitation, any
assignments thereof (including, without limitation, all guarantees
of any such leases, assignment of leases and subleases) and, to
the extent assignable, other agreements affecting the use,
enjoyment or occupancy of the Mortgaged Property heretofore or
hereafter entered into, and all amendments, modifications,
supplements, additions, extensions and renewals thereof(the
"Leases"), and all right, title and interest of Grantor in the
Occupancy Agreements (as hereafter defined), and all right, title
and interest of Grantor under the Leases and the Occupancy
Agreements, including cash and securities deposited thereunder (as
down payments, security deposits or otherwise), the right to
receive and collect the rents, security deposits, income,
proceeds, earnings, royalties, revenues, issues and profits
payable thereunder (including any claims (i) based on holdover by
any lessee, (ii) for damages sustained by Grantor
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<PAGE>
or (iii) arising under any federal, state or other law as a result
of or in connection with the bankruptcy or insolvency, of any
lessee) and the rights to enforce, whether at law or in equity or
by any other means, all provisions and options thereof or
thereunder (all of the foregoing hereinafter collectively referred
to as the "Rents") and the right to apply the same to the payment
and performance of the Obligations;
(i) All rights, dividends and/or claims of any kind whatsoever
relating to the Premises (including damage, secured, unsecured,
lien, priority and administration claims); together with the right
to take any action or file any papers or process in any court of
competent jurisdiction, which may in the opinion of Beneficiary be
necessary to preserve, protect, or enforce such rights or claims,
including the filing of any proof of claim in any insolvency
proceeding under any state, federal or other laws and any rights,
claims or awards accruing to or to be paid to Grantor in its
capacity as landlord under the Leases;
(j) All right, title and interest of Grantor in and to any
insurance policies covering the Mortgaged Property, including,
without limitation, all proceeds thereof and any unearned premiums
on any insurance policies covering the Mortgaged Property,
including, without limitation, the right to receive and apply the
proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Mortgaged Property or any part thereof,
subject to and in accordance with the terms and conditions of the
Leases;
(k) Subject to the terms and provisions of this Deed of Trust, the
right, in the name and on behalf of Grantor, to appear in and
defend any action or proceeding brought with respect to the
Mortgaged Property and to commence any action or proceeding to
protect the interest of Beneficiary in the Mortgaged Property or
any part thereof;
(1) All of the right, title and interest of Grantor in and to all
franchises, trade names, trademarks, symbols, service marks,
books, records, plans and specifications, contracts, licenses,
approvals, consents, subcontracts, service contracts, management
contracts, permits and other agreements of any nature whatsoever
now or hereafter obtained or entered into by Grantor, or any
manager of the Mortgaged Property on behalf of Grantor, with
respect to the use, occupation, development, construction and/or
operation of the Mortgaged Property or any part thereof or the
activities conducted thereon or therein, or otherwise pertaining
to the Mortgaged Property or any part thereof;
(m) All accounts receivable, contract rights, interests, estate or
other claims, both in law and in equity, which Grantor now has or
may hereafter acquire in the Mortgaged Property or any part
thereof, and all reserve accounts, accounts for the deposit,
collection and/or disbursement of Rents and other accounts now or
hereafter in existence with respect to the Loan;
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<PAGE>
(n) All rights which Grantor now has or may hereafter acquire, to
be indemnified and/or held harmless from any liability, loss,
damage, costs or expense (including, without limitation,
attorneys' fees and disbursements) relating to the Mortgaged
Property or any part thereof;
(o) All appurtenances in respect of or otherwise relating to the
Leases, including, but not limited to, all the estate and rights
of the Grantor of, in and to (i) all modifications, extensions and
renewals of the Leases and all rights to renew or extend the term
thereof, (ii) all of Grantor's rights, if any, pertaining to
deposits of the lessee under the Leases (including lessee security
deposits, if any), (iii) all the right or privilege of the Grantor
to terminate, cancel, abridge, surrender, merge, modify or amend
the Leases and (iv) any and all possessory rights of the Grantor
and other rights and/or privileges of possession, including,
without limitation, the Grantor's right to elect to take
possession of the Mortgaged Properly;
(p) All of the Grantor's claims and rights to damages and any
other remedies in connection with or arising from the rejection of
the Leases by the lessee or any trustee, custodian or receiver
pursuant to the U.S. Bankruptcy Code, as amended (the "Bankruptcy
Code") in the event that there shall be filed by or against the
Lessee any petition, action or proceeding under the Bankruptcy
Code or under any other similar federal or state law now or
hereafter in effect;
(q) All present and future monetary deposits given by Grantor to
any public or private utility with respect to utility services
furnished to any part of the Premises or the Improvements;
(r) All right, title and interest of Grantor in and to all refunds
and rebates of taxes and assessments relating to the Premises and
Improvements (except to the extent such refunds and rebates relate
to taxes or assessments paid by the lessee under the Leases);
(s) All right, title and interest of Grantor in and to all
proceeds, products, substitutions and accessions (including claims
and demands therefor) of the conversion, voluntary or involuntary,
of any of the foregoing into cash or liquidated claims, including,
without limitation, the proceeds of insurance and condemnation
awards; and
(t) All other or greater rights and interests of every nature in
the Premises and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Grantor.
TOGETHER with all right, title and interest of Grantor in and to
all extensions, improvements, betterments, renewals, substitutes
and replacements of, and all additions and appurtenances to, any
of the foregoing hereafter acquired by, or released to, Grantor or
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<PAGE>
constructed, assembled or placed by Grantor on the Premises and
all conversions of the security constituted thereby, immediately
upon such acquisition, release, construction, assemblage,
placement or conversion, as the case may be, and in each such
case, without any further mortgage, conveyance, assignment or
other act by Grantor, shall become subject to the lien of this
Deed of Trust as fully and completely, and with the same effect,
as though now owned by Grantor and specifically described herein.
Notwithstanding anything to the contrary herein contained, this
Deed of Trust shall be deemed to be and shall be enforceable as a
deed of trust, assignment, assignment of
rents, fixture filing and financing statement.
Wherever herein contained, the phrase "Trustee and/or Beneficiary"
or any similar phrase shall be deemed to refer to Trustee for the
benefit of Beneficiary.
To the extent any of the foregoing Mortgaged Property is not
considered "real property" under the Uniform Commercial Code of
the state in which the Premises are located ("UCC"), Grantor
hereby grants to Beneficiary a security interest (the "Security
Interest") as security for the Obligations in all such items of
Mortgaged Property, and Beneficiary shall have, in addition to all
rights and remedies provided herein, and in any other agreements,
commitments and undertakings made by Grantor to Beneficiary, all
of the rights and remedies of a "secured party" under the UCC. To
the extent permitted under applicable law, this Deed of Trust
shall be deemed to be a "security agreement" for purposes of the
UCC.
TO HAVE AND TO HOLD the Mortgaged Property unto Trustee,
Beneficiary, and their respective successors and assigns, forever.
ARTICLE I
Representations, Warranties and Covenants of Grantor
SECTION 1.01. Payment of Obligations. Grantor shall punctually pay
when due, and timely perform, the Obligations.
SECTION 1.02. Legal Status, Authority and Other Matters. (a) Legal
Status. Grantor represents and warrants that it is a corporation
duly organized and existing in good standing under the laws of
Washington and has the full power and authority to own the
Mortgaged Property and carry out its business in the state in
which the Mortgaged Property is located.
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(b) No Actions Pending. Except as set forth on the Disclosure
Schedule (as defined in the Credit Agreement) there is no action,
suit or proceeding, judicial, administrative or otherwise, pending
or, to the best of Grantor's knowledge, overtly threatened or
contemplated against or affecting Grantor or the Mortgaged
Property which would cause a Material Adverse Effect.
SECTION 1.03. Warranty of Title. Grantor warrants that it has good
and marketable title to the Premises, in each case free and clear
of all liens, charges and encumbrances of every kind and
character, subject only to the encumbrances set forth on Exhibit B
hereto ("Permitted Encumbrances"); has and will continue to have
full power and lawful authority to encumber and convey the
Premises as provided herein; owns all other Mortgaged Property
free and clear of all liens, charges and encumbrances of every
kind and character, subject only to Permitted Encumbrances; and
this Deed of Trust is and will continue to remain a valid and
enforceable first mortgage lien on and security interest in the
Mortgaged Property, subject only to Permitted Encumbrances.
Grantor further covenants that it will preserve such title and
will forever warrant and defend the title to the Mortgaged
Property unto Trustee and Beneficiary against all lawful claims
whatsoever and will forever warrant and defend the validity,
enforceability and priority of the lien of this Deed of Trust
against the claims of all persons and parties whomsoever.
Grantor covenants that it will, at Grantor's sole cost and expense
and at the request of Trustee or Beneficiary, (i) promptly correct
any defect or error which may be discovered in the Loan Documents,
(ii) promptly do, execute, acknowledge and deliver, and record and
re-record, file and re-file and register and re-register, any and
all such instruments as Trustee or Beneficiary may require from
time to time in order to carry out more effectively the purposes
of this Deed of Trust and (iii) will promptly furnish Trustee and
Beneficiary with evidence satisfactory to Trustee and Beneficiary
of every such recording, filing or registration.
SECTION 1.04. Operation and Maintenance. (a) Repair and
Maintenance. Grantor will operate and maintain the Premises in
good order, repair and operating condition, will promptly make all
necessary repairs, restorations, renewals, replacements, additions
and improvements thereto, interior and exterior, structural and
nonstructural, foreseen and unforeseen, or otherwise necessary to
insure that the same as part of the security under this Deed of
Trust shall not in any way be diminished or impaired, and will not
cause or allow the Premises to be misused, wasted or to
deteriorate. No part of the Improvements shall be removed,
demolished or structurally or materially altered nor shall any new
building, structure, facility or other improvement be constructed
on the Land or the Leased Land without Beneficiary's prior written
consent in the case of each such removal, demolition, alteration
or construction.
(b) Replacement of Equipment. Grantor will keep the Premises fully
equipped and will replace all worn out or obsolete Equipment with
fixtures or personal property
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comparable thereto when new to the extent necessary to operate the
Deed of Trust, Property in accordance with prudent business
standards for assisted living facilities and will not, without
Beneficiary's consent, remove any Equipment or other personal
property from the Land, the Leased Land or the Improvements
unless, to the extent necessary to operate the Mortgaged Property
in accordance with prudent business standards for assisted living
facilities Grantor replaces the same with an article of equal
suitability and value when new, owned by Grantor free and clear of
any lien or security interest (other than Permitted Encumbrances).
(c) Zoning; Title Matters. Grantor will not, without the prior
written consent of Beneficiary, (i) initiate or support any zoning
reclassification of the Premises, seek any variance under existing
zoning ordinances applicable to the Premises or use or permit the
use of the Premises in a manner which would result in such use
becoming a non-conforming use under applicable zoning ordinances,
(ii) modify or amend any of the Permitted Encumbrances, (iii)
impose any restrictive covenants or encumbrances upon the
Premises, execute or file any subdivision plat affecting the
Premises or consent to the annexation of the Premises to any
municipality or (iv) permit or suffer the Premises to be used by
the public or any person in such manner as might make possible a
claim of adverse usage or possession or of any implied dedication
or easement.
(d) Status of the Premises. (i) The Premises is not located in an
area identified by the Secretary of Housing and Urban Development
or a successor thereto as an area having special flood hazards
pursuant to the terms of the National Flood Insurance Act of 1968,
or the Flood Disaster Protection Act of 1973, as amended, or any
successor law; or if the Premises is located in such an area,
Grantor will obtain and maintain insurance against damage or loss
by flood on such basis and in such amounts as shall be required by
Beneficiary; (ii) the Premises is served by all utilities required
for the current use thereof; (iii) all streets necessary to serve
the Land, the Leased Land and the Improvements for the current use
thereof have been completed and are serviceable and have been
dedicated or accepted by the appropriate governmental entities and
Grantor has access from public roads to the Land, the Leased Land
and the Improvements; and (iv) there is no condemnation or similar
proceeding pending or threatened affecting any part of the
Premises that might materially adversely affect the Premises.
(e) Use. Grantor will use the Premises for substantially the same
use as in effect as of the date hereof and for no other use unless
consented to in writing by Beneficiary.
SECTION 1.05. Insurance. (a) Coverage. Grantor shall obtain and
maintain, or cause to be maintained, insurance for Grantor and the
Mortgaged Property providing at least the following coverages:
(i) comprehensive all risk insurance on the Improvements and the
Personal Property, including, but not limited to, coverage for
steam, pressure exploding,
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earthquakes, riot and civil commotion, vandalism, malicious
mischief, burglary and theft and contingent liability from
Operation of Building Laws, Demolition Costs and Increased Cost of
Construction Endorsements, in each case (A) in an amount equal to
l00% of the "Full Replacement Cost", which for purposes of this
Deed of Trust shall mean actual replacement value (exclusive of
costs of excavations, foundations, underground utilities and
footings); (B) containing an agreed amount endorsement with
respect to the Improvements and Personal Property waiving all co-
insurance provisions; and (C) containing an "Ordinance or Law
Coverage" or "Enforcement" endorsement if any of the Improvements
or the use of the Premises shall at any time constitute legal non
conforming structures or uses. In addition, Trustor shall obtain
flood hazard insurance if any portion of the Premises is currently
or at any time in the future located in a federally designated
"special flood hazard area", in an amount equal to the lessor of
(y) the outstanding principal balance of the Loan or (z) the
maximum amount of such insurance available under the National
Flood Insurance Act of 1968, the Flood Disaster Protection Act of
1973 or the National Flood Insurance Reform Act of 1994, as each
case may be amended; provided that any such flood hazard insurance
shall be on terms consistent with the comprehensive all risk
insurance policy required under this Section 1.05 except that the
deductible on such insurance shall be commercially reasonable and
if not available from a private carrier then from the government
to the extent available;
(ii) comprehensive general liability insurance, including bodily
injury, death and property damage liability, and umbrella
liability insurance against any and all claims, including all
legal liability to the extent insurable, imposed upon Beneficiary
and all court costs and attorneys' fees and expenses, arising out
of or connected with the possession
,use, leasing, operation, maintenance or condition of the
Premises, in such amounts as are generally available at reasonable
premiums and are generally required by institutional lenders for
properties comparable to the Premises;
(iii) business interruption insurance, with loss payable to
Beneficiary, in an amount sufficient to avoid any co-insurance
penalty and to provide proceeds for a period not less than one (I)
year of loss of business income, the term "business income" to
mean the total anticipated gross income to be received by Grantor
from the use and occupancy of the Premises and the sale of goods
and rendering of services at the Premises, reduced to the extent
such amounts would not be received because of expenses not
incurred during a period of non-operation of that portion of the
Premises then not being operated. Beneficiary shall be entitled to
the insurance proceeds to the extent necessary to satisfy all
amounts due and payable to Beneficiary under the Note, which
insurance proceeds shall be held by Beneficiary and shall be
applied to the Obligations secured hereunder from time to time due
and payable hereunder and under the Note; provided, however, that
nothing herein contained shall be deemed to relieve Grantor of its
Obligations secured
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hereunder except to the extent such amounts are actually paid out
of the proceeds of such business income insurance;
(iv) workers' compensation, subject to the statutory limits ofthe
state in which the Premises are located, and employer's liability
insurance.
(v) comprehensive boiler and machinery insurance, if applicable,
in amounts as shall be reasonably required by Beneficiary on terms
consistent with the comprehensive all risk insurance policy
required under Subsection 1.05(a)(i);
(vi) umbrella liability insurance in an amount not less than
$30,000,000 on terms consistent with the commercial general
liability insurance policy required under Subsection 1.05(a)(ii);
and
(vii) such other insurance and in such amount as (a) Beneficiary
from time to time may reasonably request, or (b) Grantor, as a
prudent owner of the Premises, deems appropriate, against such
other insurable hazards which at the time are commonly insured
against for property similar to the Premises and used as an
assisted living facility.
(b) Ratings. All policies of insurance (the "Policies") required
pursuant to this Section 1.05 shall be issued by an insurer
authorized to do business in the state in which the Premises are
located and having an A.M. Best rating of A:V or better and a
Standard & Poor's claims-paying ability rating of not less than
the greater of(A) for so long as any Securities shall have been
issued and be outstanding, one rating category below the higher
rating assigned to any such outstanding Securities, and (B) "BBB."
(c) Blanket Policies. The insurance coverage required under
Subsection 1.05(a) may be effected under a blanket policy or
policies covering the Premises and other property assets not
constituting a part of the Premises provided that (i) each such
blanket policy, except in the case of liability insurance, shall
specify thereon the total insurance allocated to the Premises,
which amount shall be not less than that required hereunder, (ii)
each such blanket policy shall otherwise comply in all respects
with this Deed of Trust, and (iii) Beneficiary shall be named as
an additional insured under each such blanket policy to the extent
required hereunder.
(d) Additional Insured. All Policies of insurance provided for or
contemplated by Subsection 1.05(a), except for the Policy
referenced in Subsection 1.05(a)(iv), shall name Beneficiary and
Trustee as the insured or additional insured, as their respective
interests may appear, and in the case of property damage, boiler
and machinery, flood and earthquake insurance, shall contain a so-
called New York standard non-contributing mortgagee
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clause in favor of Beneficiary providing that the loss thereunder
shall be payable to Beneficiary notwithstanding the negligent or
willful acts of omissions of Grantor.
(e) Form and Endorsements. All Policies shall be in such form and
with such endorsements as are comparable to the forms of and
endorsements to the Policies in effect, on the date hereof or
otherwise in accordance with commercially reasonable standards
applied by prudent owners of assisted care facilities in the
general vicinity of the Mortgaged Property. A certificate of
insurance with respect to all such Policies has been delivered to
Beneficiary and originals or certified copies of all such Policies
shall be delivered to Beneficiary when the same are available and
shall be held by Beneficiary. All Policies shall contain: (i) to
the extent available at commercially reasonable rates, a waiver of
subrogation endorsement as to Beneficiary; (ii) a provision that
no Policy shall be impaired or invalidated by virtue of any act,
failure to act, negligence of, or violation of declarations,
warranties or conditions contained in such Policy by Grantor,
Beneficiary or Trustee or any other named insured, additional
insured or loss payee, except for the willful misconduct of
Beneficiary or Trustee knowingly in violation of the conditions of
such Policy; (iii) an endorsement providing for a deductible per
loss of an amount not more than that which is customarily
maintained by prudent owners of assisted care facilities in the
general vicinity of the Premises (but in no event greater than
$100,000); (iv) a provision that such Policies shall not be
canceled, terminated or expire without at lest thirty (30) days
prior written notice to Beneficiary in each instance; and (v) to
the extent Grantor determines such a waiver is available at
commercially reasonable rates, effective waivers by the insurer of
all claims for insurance premiums against all loss payees,
additional insureds and named insureds (other than Grantor).
Grantor shall deliver or cause to be delivered to Beneficiary (y)
not less than thirty (30) days prior to the expiration date of any
of the Policies required to be maintained hereunder, evidence
reasonably satisfactory to Beneficiary that such Policies will be
renewed or replaced and (z) prior to the expiration date of such
Policies, among other things, an original of the certificate of
insurance and evidence of payment of the applicable premium for
such renewal or replacement. Certified copies of such replacement
insurance policies shall be delivered to Beneficiary promptly
after Grantor's receipt thereof but in any case within thirty (30)
days after receipt thereof by Grantor. If Grantor fails to
maintain and deliver to Beneficiary the certificates of insurance
required by this Deed of Trust, Beneficiary may, in accordance
with the provisions hereof, procure such insurance at the expense
of Grantor, to be promptly reimbursed by Grantor.
Delivery of Statements. Grantor shall furnish to Beneficiary
annually a statement certified by Grantor or a duly authorized
officer of Grantor of the amounts of insurance maintained in
compliance herewith, of the risks covered by such insurance and of
the insurance company or companies which carry such insurance and,
if requested by Beneficiary, verification of the adequacy of such
insurance by an independent insurance broker or appraiser to
Beneficiary.
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(g) Protection of Beneficiary. If at any time Grantor fails to
maintain the insurance policies required hereunder, Beneficiary
shall have the right, without notice to Grantor, to take such
action as Beneficiary deems necessary to protect its interest in
the Premises, including, without limitation, the obtaining of such
insurance coverage as Beneficiary in its sole discretion deems
appropriate, and all reasonable expenses incurred by Beneficiary
in connection with such action or in obtaining such insurance and
keeping it in effect shall be paid by Grantor to Beneficiary upon
demand and until paid shall be secured by this Deed of Trust and
shall bear interest in accordance with Section 2.05(b) of the
Credit Agreement.
(h) Proceeds. All Insurance Proceeds shall be paid to Beneficiary
for application pursuant to Section 1.09. If the Mortgaged
Property shall be damaged or destroyed, in whole or in part, by
fire or other casualty, Grantor shall give prompt notice of such
damage to Beneficiary. Grantor shall promptly commence and
diligently prosecute the completion of the repair and restoration
of the Premises as nearly as possible to the condition the
Premises were in immediately prior to such fire or other casualty,
with such alterations as may be approved by Beneficiary (the
"Restoration") and otherwise in accordance with Section 1.09.
Grantor shall pay all costs of such Restoration whether or not
such costs are covered by insurance. Beneficiary may, but shall
not be obligated to make proof of loss if not made promptly by
Grantor. To the extent that the Insurance Proceeds received in
connection with such damage or destruction of the Mortgaged
Property are less than $15,000, then Grantor shall have the right
to use such Insurance Proceeds without Beneficiary's consent.
(i) Event of Foreclosure. In the event of foreclosure of this Deed
of Trust, or other transfer of title to the Premises in
extinguishment in whole or in part of the Obligations, all right,
title and interest of Grantor in and to such policies then in
force concerning the Premises and all proceeds payable thereunder
shall thereupon vest in the purchaser at such foreclosure or
Beneficiary or other transferee in the event of such other
transfer of title.
(j) No Separate Insurance. Grantor shall not carry separate or
additional insurance concurrent in form or contributing, in the
event of loss, with that required under the Credit Agreement
unless endorsed in favor of Beneficiary and Trustee as loss payee
or additional insured, as applicable, and otherwise applicable to
Beneficiary in all respects. Nothing contained herein shall
prohibit Grantor from holding or obtaining an owner's policy of
title insurance covering the Premises.
SECTION 1.06. Liens and Liabilities. (a) Discharge of Liens.
Grantor will pay, bond or otherwise discharge, from time to time
when the same shall become due, all claims and demands of
mechanics, materialmen, laborers and others which; if unpaid,
might result in, or permit the creation of, a lien on the
Mortgaged Property.
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(b) Creation of Liens. Grantor will not, without Beneficiary's
consent, create, place or permit to be created or placed or allow
to remain, and shall discharge and release within ten (10) days of
the placing thereof, any deed of trust, mortgage, trust deed,
voluntary or involuntary lien, security interest or other
encumbrance against or covering the Mortgaged Property, other than
Permitted Encumbrances, whether or not subordinate hereto.
(c) No Consent. Nothing in this Deed of Trust shall be deemed or
construed in any way as constituting the consent or request by
Trustee or Beneficiary, express or implied, to any contractor,
subcontractor, laborer, mechanic or materialman for the
performance of any labor or the furnishing of any material for any
improvement, construction, alteration or repair of the Premises.
Grantor further agrees that neither Trustee nor Beneficiary stands
in any fiduciary relationship to Grantor.
SECTION 1.07. Taxes and Other Charges. (a) Taxes on the Premises.
Grantor will promptly pay prior to delinquency and before any
penalty or interest may be added thereto, all taxes, assessments,
vault, water and sewer rents, rates, charges and assessments,
levies, permits, inspection and license fees and other
governmental and quasi-governmental charges and any penalties or
interest for non-payment thereof, heretofore or hereafter imposed,
or which may become a lien, upon the Mortgaged Property or arising
with respect to the occupancy, use or possession
thereof(collectively, "Impositions"). Grantor will also pay any
penalty, interest or cost for non-payment of Impositions which may
become due and payable.
(b) Receipts. Unless Grantor is making monthly deposits pursuant
to Section 1.08, Grantor will furnish to Beneficiary upon
Beneficiary's request, proof of payment at the time same is made,
and thereafter, upon receipt, validated receipts showing payment
in full of all Impositions.
(c) Increased Costs. In the event of the enactment after the date
hereof of any law in the state in which the Mortgaged Property is
located or any other governmental entity deducting from the value
of the Mortgaged Property for the purpose of taxation any lien or
security interest thereon, or changing in any way the laws for the
taxation of mortgages, deeds of trust or other liens or debts
secured thereby, or the manner of collection of such taxes, so as
to affect this Deed of Trust, the Obligations, Beneficiary or the
holders of the Obligations, then, and in such event; Grantor
shall, on demand, pay to Beneficiary or such holder, or reimburse
Beneficiary or such holder for payment of, all taxes, assessments,
charges or liens for which Beneficiary or such holder is or may be
liable as a result thereof, provided that if any such payment or
reimbursement shall be unlawful or would constitute usury or
render the Obligations wholly or partially usurious under
applicable law, then Beneficiary may, at its option, declare the
Obligations immediately due and payable or require Grantor to pay
or reimburse Beneficiary for payment of the lawful and non-
usurious portion thereof.
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SECTION 1.08. Tax and Insurance Deposits. (a) Amount of Deposits.
Beneficiary may require that each month Grantor deposit with
Trustee, Beneficiary or any service or financial institution
designated for such purposes by Beneficiary (whichever of the
foregoing is applicable being the "Depository"), one-twelfth
(1/12) of the annual Impositions and premiums for insurance
required under Section 1.05, and Grantor shall accordingly make
such deposits. In addition, if required by Beneficiary, Grantor
shall also deposit with the Depository a sum of money which,
together with the aforesaid monthly installments, will be
sufficient to make payments of Impositions and premiums at least
thirty (30) days before such payments are delinquent. If the
amount of any such payment is not ascertainable at the time any
such deposit is required to be made, the deposit shall be made on
the basis of Beneficiary's estimate thereof, and when such amount
is fixed for the then-current year, Grantor shall promptly deposit
any deficiency with the Depository.
(b) Use of Deposits. All funds so deposited, until so applied,
shall constitute additional security for the Obligations, shall be
held by the Depository with interest payable to Grantor (except to
the extent required under applicable law), may be commingled with
other funds of the Depository and, provided that no Event of
Default (as defined in Section 5.01) shall have occurred and be
continuing hereunder, shall be applied in payment of the aforesaid
amounts prior to their becoming delinquent. If an Event of Default
shall have occurred and be continuing hereunder, or if the
Obligations shall be accelerated as herein provided, all funds so
deposited may, at Beneficiary's option, be applied to the
Obligations in the order determined by Beneficiary. If such
deposits are being made with the Depository, at least fifteen (15)
days before the date on which such charges first become payable,
Grantor shall furnish the Depository with bills for the charges
for which such deposits are required to be made hereunder and/or
such other documents necessary for the payment of the same.
SECTION 1.09. Damage and Destruction. (a) Grantor's Obligations.
In the event of any damage to or loss or destruction of the
Premises, Grantor shall (i) promptly notify Beneficiary of such
event and take such steps as shall be necessary to preserve any
undamaged portion of the Premises and (ii) unless otherwise
instructed by Beneficiary, regardless whether the insurance
proceeds, if any, shall be sufficient for the purpose or shall be
otherwise applied by Beneficiary as provided herein, promptly
commence and diligently pursue to completion the restoration,
replacement and rebuilding of the Premises to the condition of the
Premises affected thereby immediately prior to such damage, loss
or destruction in accordance with plans and specifications
approved, and with other provisions for the preservation of the
security hereunder established, by Beneficiary.
(b) Trustee's and Beneficiary's Rights; Application of Proceeds.
In the event that any portion of the Premises is so damaged,
destroyed or lost, and such damage, destruction or loss is
covered, in whole or in part, by insurance required by Section
1.05, then, (i) Beneficiary or Trustee may, but shall not be
obligated to, make proof of loss if not made
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promptly by Grantor and is hereby authorized and empowered by
Grantor to settle, adjust or compromise any claims for damage,
destruction or loss thereunder, (ii) each insurance company
concerned is hereby authorized and directed to make payment
therefor directly to Beneficiary or Trustee; provided, however,
that if all of the conditions set forth in Section 1.09(c) are met
and Grantor delivers a written undertaking to expeditiously
commence and to satisfactorily complete with due diligence any
such damage or destruction in accordance with the terms hereof,
the insurance proceeds will be made available to Grantor in
accordance with Section 1.09(c).
(c) Proceeds for Restoration. Notwithstanding anything provided
herein to the contrary, if:
(i) less than (A) thirty percent (30%) of the Improvements and (B)
forty percent (40%) of the Land have been taken or destroyed;
(ii) no monetary Default or Event of Default has occurred and is
continuing hereunder or under any of the other Loan Documents and
has not been waived;
(iii) the Restoration can, in Beneficiary's judgment, with
diligent work, be completed prior to the expiration of business
interruption insurance required hereunder;
(iv) the taking, fire or casualty did not occur during the six (6)
months prior to the maturity of the Note;
(v) all necessary governmental approvals can be obtained for the
Restoration;
(vi) there are sufficient sums available (through insurance
proceeds or condemnation awards and contributions by Grantor, the
full amount of which shall have been deposited into an account
pledged to Beneficiary) for the Restoration (including, without
limitation, for any reasonable costs and expenses of Beneficiary
to be incurred in administering said restoration or repair) and
for payment of principal and interest to become due and payable
under the Note during the period necessary to complete the
Restoration;
(vii) Grantor so elects by written notice delivered to Beneficiary
within thirty (30) days after settlement of the aforesaid
insurance or condemnation claim; and
(viii) the Restoration is done and diligently completed by Grantor
in compliance with all applicable Laws,
then, Beneficiary shall, solely for the purposes of the
Restoration, release so much of the remainder of such sums as may
be required for the Restoration, and any funds deposited by
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Mortgagor therefor, to Mortgagor in the manner and upon such terms
and conditions as would be required by a prudent interim
construction lender, including, but not limited to, the prior
approval by Beneficiary of plans and specifications, contractors
and form of construction contracts and the furnishing to
Beneficiary of permits, bonds, lien waivers, invoices, receipts
and affidavits from contractors and subcontractors, in form and
substance reasonably satisfactory to Beneficiary in its reasonable
discretion, with any remainder being applied by Beneficiary, in
its sole discretion, for payment of the Obligations in whatever
order Beneficiary directs in its absolute discretion, with any
remainder being paid to Grantor.
(d) Effect on the Obligations. Notwithstanding any loss, damage or
destruction referred to in this Section, Grantor shall continue to
pay and perform the Obligations as provided herein. Any reduction
in the Obligations resulting from such application shall be deemed
to take effect only on the date of receipt by Beneficiary or
Trustee of such insurance proceeds and application against the
Obligations, provided that if prior to the receipt by Trustee or
Beneficiary of such insurance proceeds the Mortgaged Property
shall have been sold on foreclosure of this Deed of Trust, or
shall have been transferred by deed in lieu of foreclosure of this
Deed of Trust, Beneficiary shall have the right to receive the
same to the extent of any deficiency found to be due upon such
sale, with legal interest thereon together with attorneys' fees
and disbursements incurred by Trustee or Beneficiary in connection
with the collection thereof.
SECTION 1.10. Condemnation. (a) Grantor's Obligations;
Proceedings. Grantor, promptly upon obtaining knowledge of any
pending or overtly threatened institution of any proceedings for
the condemnation of the Premises, or of any right of eminent
domain, or of any other proceedings arising out of injury or
damage to or decrease in the value of the Premises, including a
change in grade of any street, will notify Beneficiary of the
threat or pendency thereof. Beneficiary may participate in any
such proceedings, and Grantor from time to time will execute and
deliver to Beneficiary all instruments requested by Beneficiary or
as may be required to permit such participation. Grantor shall, at
its expense, diligently prosecute any such proceedings, shall
deliver to Beneficiary copies of all papers served in connection
therewith and shall consult and cooperate with Beneficiary, its
attorneys and agents, in the carrying on and defense of any such
proceedings; provided that no settlement of any such proceeding
shall be made by Grantor without Beneficiary's consent.
(b) Trustee's and Beneficiary's Rights to Proceeds. All proceeds
of condemnation awards or proceeds of sale in lieu of
condemnation, and all judgments, decrees and awards for injury or
damage to the Premises (collectively, "Awards") are hereby
assigned and shall be paid to Beneficiary or Trustee. Grantor
authorizes Beneficiary and Trustee to collect and receive the
same, to give receipts and acquittances therefor, and to appeal
from any Awards.
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(c) Application of Proceeds. Beneficiary shall have the right to
apply any Awards, first, to reimburse Trustee and Beneficiary for
all costs and expenses, and, second, the remainder thereof in the
manner provided in Section 1.09. In the event that Grantor shall
have received all or any portion of such Awards, Grantor, upon
demand from Beneficiary, shall pay to Beneficiary or Trustee an
amount equal to the amount so received by Grantor, to be applied
as Beneficiary shall have the right pursuant to this subsection.
Notwithstanding anything herein or at law or in equity to the
contrary, none of the Awards paid to Beneficiary or Trustee under
this Section 1.10 shall be deemed trust funds and Beneficiary or
Trustee shall be entitled to apply the same as provided in this
Section 1.10.
(d) Effect on the Obligations. Notwithstanding any condemnation,
taking or other proceeding referred to in this Section 1.10,
Grantor shall continue to pay and perform the Obligations as
provided herein. Any reduction in the Obligations resulting from
such application shall be deemed to take effect only on the date
of receipt by Beneficiary or Trustee of such Awards and
application against the Obligations, provided that if prior to the
receipt by Trustee or Beneficiary of such Awards the Mortgaged
Property shall have been sold on foreclosure of this Deed of
Trust, or shall have been transferred by deed in lieu of
foreclosure of this Deed of Trust, Beneficiary shall have the
right to receive the same to the extent of any deficiency found to
be due upon such sale, with legal interest thereon together with
attorneys' fees and disbursements incurred by Trustee or
Beneficiary in connection with the collection thereof.
SECTION 1.11. Contest. Notwithstanding anything to the contrary
contained in Section 1.04(c),1.06 or 1.07, Grantor shall have the
right to contest in good faith and at its own expense the validity
or applicability of any duty or obligation described in Section
1.04(c), the validity of any lien, encumbrance, charge or security
referred to in Section 1.06 and any Imposition imposed upon the
Premises (a "Contest") by an appropriate legal proceeding which
proceeding must operate to prevent the collection of such
Impositions or other realization thereon and the sale or
forfeiture of the Mortgaged Property or any part thereof to
satisfy the same; provided that during the pendency of such
Contest, Grantor shall provide security satisfactory to
Beneficiary, assuring the discharge of Grantor's obligations that
are the subject of such Contest ("Contested Impositions") and of
any additional interest charge, penalty or expense arising fiom or
incurred as a result of such Contest; and provided, further, that
if at any time payment of such Contested Impositions shall become
necessary to prevent (i) the delivery of a tax deed conveying the
Mortgaged Property because of non-payment or (ii) the imposition
of any civil or criminal penalty or liability on Beneficiary,
Trustee or the holders of the Obligations, Grantor shall pay the
same in sufficient time to avoid the delivery of such tax deed or
the imposition of any such penalty or liability.
SECTION 1.12. Notice Limiting Amount. Grantor covenants that it
will not, without the prior written consent of Beneficiary, file
of record any notice limiting the maximum principal amount secured
by this Deed of Trust.
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ARTICLE II
Assignment of Leases, Rents and Other Sums
SECTION 2.01. Assignment. (a) Grantor hereby absolutely and
presently bargains, sells, transfers, assigns and sets over to
Beneficiary, as further security for the payment of the
Obligations, all of its right, title and interest in and to all
current and future Leases and Rents payable thereunder and all
rights of Grantor thereunder and any and all deposits held as
security under the Leases, whether before or after foreclosure or
during the full period of redemption, if any, and shall, upon
demand, deliver to Beneficiary an executed counterpart of each
Lease. The assignment of the Leases and Rents, and of the
aforesaid rights with respect thereto, is intended to be and is an
absolute present assignment from Grantor to Beneficiary and not
merely the passing of a security interest. Such assignment and
grant shall continue in effect until the Obligations are paid, the
execution of this Deed of Trust constituting and evidencing the
irrevocable consent of Grantor to the entry upon and taking
possession of the Premises by Beneficiary pursuant to such grant,
whether foreclosure has been instituted or not and without
applying for a receiver. Until the occurrence of an Event of
Default hereunder, Grantor shall be entitled to collect and
receive the Rents. Such right of Grantor to collect and receive
said Rents shall be automatically revoked upon the occurrence of
an Event of Default and thereafter Trustee or Beneficiary shall
have the right and authority to exercise any of the rights or
remedies referred to or set forth in Article V. In addition, upon
such an Event of Default, Grantor shall promptly pay to Trustee or
Beneficiary (i) all rent prepayments and security or other
deposits paid to Grantor pursuant to any lease assigned hereunder
and (ii) all charges for services or facilities or for escalation
which were paid pursuant to any such lease to the extent allocable
to any period from and after such Event of Default. Nothing
contained in this Section 2.01(a) shall be construed to bind
Beneficiary to the performance of any of the covenants, conditions
or provisions contained in any Lease or otherwise to impose any
obligation on Beneficiary (including any liability under the
covenant of quiet enjoyment contained in any Lease or under any
applicable law in the event that any tenant shall have been joined
as a party defendant in any action to foreclose this Deed of Trust
and shall have been barred and foreclosed thereby of all right,
title and interest and equity of redemption in the Premises),
except that Beneficiary shall be accountable for any money
actually received pursuant to such assignment. Grantor hereby
further grants to Beneficiary the right to notify the tenant under
any Lease of the assignment thereof and, after the occurrence of
an Event of Default hereunder (i) to demand that the tenant under
any Lease pay all amounts due thereunder directly to Beneficiary,
(ii) to enter upon and take possession of the Premises for the
purpose of collecting the Rents, (iii) to dispossess by the usual
summary proceedings any tenant defaulting in the payment thereof,
(iv) to let the Premises, or any part thereof, and (v) to apply
the Rents, after payment of all necessary charges and expenses, on
account of the Obligations.
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(b) If Grantor is not required to surrender possession of the
Premises hereunder in the event of any Event of Default, Grantor
will pay monthly in advance to Beneficiary, on its entry into
possession pursuant to Article V, or to any receiver appointed to
collect said Rents, the fair and reasonable rental value for the
use and occupation of the Premises or such part thereof as may be
in the possession of Grantor. Upon a default in any such payment,
Grantor will vacate and surrender such possession to Beneficiary,
Trustee or such receiver, and, in default thereof, may be evicted
by summary or any other available proceedings or actions.
(c) Grantor will, as and when requested from time to time by
Beneficiary, execute, acknowledge and deliver to Beneficiary, in
form approved by Beneficiary, one or more general or specific
assignments of the lessor's interest under any Lease. Grantor
will, on demand, pay to Beneficiary, or reimburse Beneficiary for
the payment of any costs or expenses incurred in connection with
the preparation or recording of any such assignment.
SECTION 2.02. Leases and Rents. (a) Grantor will (i) perform or
cause to be performed all the lessor's obligations under any
Lease, (ii) enforce (including the termination and cancellation of
any Lease, so long as the same is a bona fide enforcement of
Grantor's right as lessor under any such Lease and such
termination or cancellation, either by itself or in the aggregate
with other terminations and cancellations, will not diminish or
impair the security of this Deed of Trust) the performance by the
lessee under its respective Lease of all of said lessee's
obligations thereunder and (iii) give Beneficiary prompt notice
and a copy of any notice of default, event of default, termination
or cancellation sent or received by Grantor.
(b)(i) Grantor will not, without Beneficiary's consent, (1)
assign, mortgage, pledge or otherwise transfer, dispose of or
encumber, whether by operation of law or otherwise, any Lease or
the Rents, (2) accept or permit the acceptance of a prepayment of
any amounts payable under such Lease for more than one month in
advance of the due date therefor, (3) enter into, amend or modify
any Lease, (4) cancel, terminate or accept a surrender of any
Lease (5) enter into any Lease (A) with Grantor or any affiliate
of Grantor or its constituent partners or (B) which would be a
"disqualified lease", as defined in Section 168(h)(1)(B)(ii) of
the Internal Revenue Code of 1986, as amended. Grantor will not
enter into or amend, without Beneficiary's consent, any Occupancy
Agreement other than in the ordinary course of business for
prudent assisted living facilities. "Occupancy Agreement" means
any agreement by and between Grantor and any resident of the
Premises.
(ii) Supplementing the provisions of clause (i) of this Section
2.02(b), if the lessee under any Lease (or any receiver, trustee,
custodian or other party who succeeds to the rights of any lessee)
rejects or disaffirms such Lease pursuant to any Bankruptcy Law,
Grantor hereby assigns to Beneficiary the proceeds of any claims
(including the right to retain or apply any security deposits)
that Grantor may have against the lessee (or receiver, trustee,
custodian or other party who succeeds to the rights of any lessee)
and any guarantor of any of the Leases, under any one or more of
the Leases or any guaranty thereof based upon (1) any breach by
such
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lessee of the terms and provisions of the applicable Lease
(including any claim that Grantor may have by reason of a
termination, rejection or disaffirmance of such Lease pursuant to
any Bankruptcy Law), and (2) the use and occupancy of the premises
demised thereby, whether or not pursuant to the applicable Lease
(including any claim for use and occupancy arising under any
Bankruptcy Law). Grantor, immediately upon obtaining knowledge of
any such breach or use by any such lessee, will notify Beneficiary
of any such breach or use. Upon the occurrence of an Event of
Default, Beneficiary shall have the sole right to elect, either:
(A) to proceed against such lessee or guarantor as if it were the
named lessor thereunder, in Grantor's name or in Beneficiary's
name as agent for Grantor and Grantor agrees to cooperate with
Beneficiary in such action and shall execute any and all documents
required in furtherance of such action; or
(B) to have Grantor proceed in Grantor's and Beneficiary's behalf
in which event Beneficiary may participate in any such
proceedings, and Grantor from time to time will deliver to
Beneficiary all instruments requested by Beneficiary or as may be
required to permit such participation. Grantor shall, at its
expense, diligently prosecute any such proceedings, shall deliver
to Beneficiary copies of all papers served in connection therewith
and shall consult and cooperate with Beneficiary, its attorneys
and agents, in the carrying on and defense of any such
proceedings; provided that no settlement of any such proceeding
shall be made by Grantor without Beneficiary's consent.
ARTICLE III
Additional Advances; Expenses; Indemnity
SECTION 3.01. Additional Advances and Disbursements. (a) Grantor
agrees that, upon the occurrence of an Event of Default, Trustee
or Beneficiary shall have the right without notice to Grantor to
advance all or any part of amounts owing or to perform any or all
required actions. No such advance or performance shall be deemed
to have cured such Default by Grantor or any Event of Default with
respect thereto. All sums advanced and all expenses incurred by
Trustee or Beneficiary in connection with such advances or
actions, and all other sums advanced or expenses incurred by
Trustee or Beneficiary hereunder or under applicable law (whether
required or optional and whether indemnified hereunder or not)
shall be part of the Obligations, shall bear interest at the
Default Rate and as provided in the Credit Agreement and shall be
secured by this Deed of Trust.
(b) This Deed of Trust secures not only existing indebtedness, but
also future or additional advances made pursuant hereto or to the
Credit Agreement, whether such advances are obligatory or
optional.
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SECTION 3.02. Other Expenses. Grantor will pay or, on demand,
reimburse Trustee, Beneficiary or any holder of the Obligations
for the payment of any and all costs or expenses (including
attorneys' fees and disbursements) incurred in connection with (i)
any default or Event of Default by Grantor hereunder, (ii) the
exercise or enforcement by or on behalf of Trustee, Beneficiary or
any holder of the Obligations of any of its rights or of Grantor's
obligations under the Loan Documents or (iii) the granting,
administration, enforcement and closing of the transactions
contemplated hereunder.
SECTION 3.03. Indemnity. Grantor agrees to indemnify and hold
harmless Trustee, Beneficiary, the holders of the Obligations and
their respective officers, directors, employees, agents and
shareholders (the "Indemnified Parties") from and against any and
all losses, damages, claims, costs and expenses (including
attorneys' fees and disbursements) which may be imposed on,
incurred by or asserted against any of the Indemnified Parties in
connection with any transaction in any way connected with the
Mortgaged Property or the Loan Documents, except to the extent any
such loss, damage, claim, cost or expense is the result of the
willful misconduct or gross negligence of the Indemnified Party.
Any amount payable under this Section 3.03 shall be deemed a
demand obligation, shall be added to and become a part of the
Obligations, shall bear interest at the rate and as provided in
the Credit Agreement, and shall be secured by this Deed of Trust.
Notwithstanding anything contained herein to the contrary, any
amount payable under Section 10.04(lb)(ii) of the Credit Agreement
shall be deemed a demand obligation, shall bear interest at the
rate provided in the Credit Agreement but shall not be secured a
obligation.
SECTION 3.04. Interest After Default. If any payment due hereunder
or under the other Loan Documents is not paid in full when due,
whether by acceleration or otherwise, then the same shall bear
interest hereunder at the Default Rate and as provided in the
Credit Agreement, and such interest shall be added to and become a
part of the Obligations and shall be secured hereby.
ARTICLE IV
Sale or Transfer of the Premises
SECTION 4.01. Continuous Ownership. Grantor acknowledges that the
continuous ownership of the Mortgaged Property by Grantor, except
as otherwise permitted in the other Loan Documents, is of a
material nature to the transaction hereinabove described and
Beneficiary's agreement to create the Obligations. Without
Beneficiary's prior written consent, Grantor will not, whether
voluntarily or involuntarily, (a) sell, grant, convey, assign or
otherwise transfer, by operation of law or otherwise, (b) permit
to be the subject of any transaction
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described in clause (a) above, (c) enter into an agreement for any
transaction described in clause (a) above, or (d) grant an option
which or take any action which pursuant to the terms of any
agreement to which Grantor is a party may result in any
transaction described in clause (a) above of, the Mortgaged
Property, or any legal, beneficial or equitable interest therein,
other than any specific transfers permitted by the Credit
Agreement (the foregoing, collectively or severally,
"Transfer"). For purposes of this Deed of Trust, but without
limiting the foregoing, (i) the issuance of any equity interest in
Grantor (whether stock, partnership interest or otherwise) not in
accordance with and pursuant to the Credit Agreement, shall be
deemed a Transfer of the Mortgaged Property, (ii) a Transfer of
all or substantially all of the assets of Grantor shall be deemed
a Transfer of the Mortgaged Property, (iii) the execution and
delivery of any documentation relating to a proposed zoning lot
merger or the execution and delivery of any other documentation
effecting or purporting to effect, or the taking or suffering of
any other action effecting or purporting to effect, a transfer of,
or the granting of a right to utilize, any development rights
appurtenant to the Mortgaged Property shall be deemed a Transfer
of the Mortgaged Property, and (iv) any person or legal
representative of Grantor to whom Grantor's interest in the
Mortgaged Property passes by operation of law, or otherwise, shall
be bound by the provisions of this Deed of Trust. The provisions
of this Section shall apply to each and every such Transfer of all
or any portion of the Mortgaged Property or any legal or equitable
interest therein, regardless whether or not Beneficiary has
consented to, or waived by its action or inaction its rights
hereunder with respect to any previous Transfer of all or any
portion of the Mortgaged Property or any legal or equitable
interest therein.
SECTION 4.02. Intentionally Omitted.
ARTICLE V
Defaults and Remedies
SECTION 5.01. Events of Default. The term "Event of Default", as
used in this Deed of Trust, shall mean the occurrence of any of
the following events:
(a) if default shall be made in the payment, when and as the same
shall become due and payable, of any amounts required to be paid
under the Note, hereunder or under any other Loan Document,
whether of principal, interest within five (5) days after the same
becomes due, premium fee or otherwise, and whether on any stated
due date, upon demand, at maturity or upon acceleration;
(b) if default shall be made in the performance or observance of
any other term, covenant or agreement contained in this Deed of
Trust or in any other Loan Document; or
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(c) if any Event of Default (as defined in the Credit Agreement)
occurs; or
(d) if Grantor abandons the Premises or ceases to do business or
terminates its business for any reason whatsoever; or
(e) if the Mortgaged Property shall be taken, attached or
sequestered on execution or other process of law in any action
against Grantor; or
if Grantor shall fail at any time to obtain, provide, maintain,
keep in force or, within ten (10) days after request therefor,
deliver to Beneficiary the insurance policies required by Section
1.05; or
(g) if any claim of priority (except a claim based upon a
Permitted Encumbrance) to this Deed of Trust or any other document
or instrument securing the Obligations by title, lien or otherwise
shall be upheld by any court of competent jurisdiction or shall be
consented to by Grantor; or
(h) if Grantor fails to cure any material default under any Lease
within the shorter of thirty (30) days following the giving of
notice of default by the lessor thereunder or the applicable grace
period set forth therein.
SECTION 5.02. Remedies. Upon the occurrence of any one or more
Events of Default, or any Transfer without the consent of
Beneficiary, Trustee or Beneficiary may, in addition to any rights
or remedies available to it hereunder or under the other Loan
Documents and to the extent permitted by applicable law, take such
action personally or by its agents or attorneys, with or without
entry, and without notice, demand, presentment or protest (each
and all of which are hereby waived), as it deems necessary or
advisable to protect and enforce its rights and remedies against
Grantor and in and to the Mortgaged Property, including the
following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Trustee or
Beneficiary may determine, in its sole discretion, without
impairing or otherwise affecting its other rights or remedies:
(a) declare the entire balance of the Obligations to be
immediately due and payable, and upon any such declaration, the
entire unpaid balance of the Obligations shall become and be
immediately due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly
waived by Grantor, anything in any other Loan Documents to the
contrary notwithstanding; or
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(b) institute a proceeding or proceedings, judicial or otherwise,
for the complete or partial foreclosure of this Deed of Trust in
any manner provided hereunder or under any applicable provision of
law; or
(c) sell the. Mortgaged Property, and all estate, right, title,
interest, claim and demand of Grantor therein, and all rights of
redemption thereof, at one or more sales, as an entirety or in
parcels, with such elements of real and/or personal property, and
at such time and place and upon such terms as it may deem
expedient, or as may be required by applicable law, and in the
event of a sale, by foreclosure or otherwise, of less than all of
the Mortgaged Property, this Deed of Trust shall continue as a
lien and security interest on the remaining portion of the
Mortgaged Property; or
(d) institute an action, suit or proceeding in equity for the
specific performance of any of the provisions contained in the
Loan Documents; or
(e) cause the Trustee to sell the Mortgaged Property in accordance
with the Trustee's power of sale contained herein and in
accordance with the Washington Deed of Trust Act, RCW Ch. 61.24,
as amended by Chapter 295, Laws of 1998. Following sale of the
Mortgaged Property pursuant to the Trustee's power of sale,
Grantor and any guarantor of the Loan secured hereby shall
continue to be liable for a deficiency to the extent permitted by
Chapter 295, Laws of 1998 or other applicable law. The power of
sale contained herein is not an exclusive remedy and Beneficiary
may foreclose this Deed of Trust judicially, in the same manner as
a mortgages, or sue directly on the Note or any guaranty in
accordance with applicable law.
enter upon the Premises, and exclude Grantor and its agents and
servants wholly therefrom, without liability for trespass, damages
or otherwise, and take possession of all books, records and
accounts relating thereto and all other Mortgaged Property, and
Grantor agrees to surrender possession of the Mortgaged Property
and of such books, records and accounts to Trustee or Beneficiary
on demand after the happening of any Event of Default; and having
and holding the same may use, operate, manage, preserve, control
and otherwise deal therewith and conduct the business thereof,
either personally or by its superintendents, managers, agents,
servants, attorneys or receivers, without interference from
Grantor; and upon each such entry and from time to time thereafter
may, at the expense of Grantor and the Mortgaged Properly, without
interference by Grantor and as Beneficiary may deem advisable, (i)
insure or reinsure the Premises, (ii) make all necessary or proper
repairs, renewals, replacements, alterations, additions,
betterments and improvements thereto and thereon and (iii) in
every such case in connection with the foregoing have the right to
exercise all rights and powers of Grantor with respect to the
Mortgaged Property, either in Grantor's name or otherwise; or
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(g) with or without the entrance upon the Premises, collect,
receive, sue for and recover in its own name all Rents and cash
collateral derived from the Mortgaged Property, and after
deducting there from all costs, expenses and liabilities of every
character incurred by Trustee or Beneficiary in collecting the
same and in using, operating, managing, preserving and controlling
the Mortgaged Property, and otherwise in exercising Trustee's or
Beneficiary's rights under Subsection (of this Section, including
all amounts necessary to pay Impositions, insurance premiums and
other charges in connection with the Premises, as well as
compensation for the services of Trustee or Beneficiary and their
respective attorneys, agents and employees, to apply the remainder
as provided in Section 5.05; or
(h) release any portion of the Mortgaged Property for such
consideration as Beneficiary may require without, as to the
remainder of the Mortgaged Property, in any way impairing or
affecting the lien or priority of this Deed of Trust, or improving
the position of any subordinate lienholder with respect thereto,
except to the extent that the Obligations shall have been reduced
by the actual monetary consideration, if any, received by Trustee
or Beneficiary for such release and applied to the Obligations,
and may accept by assignment, pledge or otherwise any other
property in place thereof as Beneficiary may require without being
accountable for so doing to any other lienholder; or
(i) take all actions permitted under the UCC; or
(j) take any other action, or pursue any other right or remedy, as
Trustee or Beneficiary may have under applicable law, and Grantor
does hereby grant the same to Trustee or Beneficiary; or
In the event that Trustee or Beneficiary shall exercise any of the
rights or remedies set forth in subsections (f) and (g) of this
Section, Trustee or Beneficiary shall not be deemed to have
entered upon or taken possession of the Mortgaged Property except
upon the exercise of its option to do so, evidenced by its demand
and overt act for such purpose, nor shall it be deemed a
beneficiary or mortgagee in possession by reason of such entry or
taking possession. Neither Trustee nor Beneficiary shall be liable
to account for any action taken pursuant to any such exercise
other than for Rents actually received by Beneficiary, nor liable
for any loss sustained by Grantor resulting from any failure to
let the Premises, or from any other act or omission of Trustee or
Beneficiary except to the extent such loss is caused by the
willful misconduct or bad faith of Trustee or Beneficiary.
SECTION 5.03. Rights Pertaining to Sales. Subject to the
provisions or other requirements of law and except as otherwise
provided herein, the following provisions shall apply to any sale
or sales of all or any portion of the Mortgaged Property under or
by virtue of
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this Article V, whether made under the power of sale herein
granted or by virtue of judicial proceedings or of a judgment or
decree of foreclosure and sale:
(a) Trustee or Beneficiary may conduct any number of sales from
time to time. The power of sale set forth in Section 5.02(c)
hereof shall not be exhausted by any one or more such sales as to
any part of the Mortgaged Property which shall not have been sold,
nor by any sale which is not completed or is defective in
Beneficiary's opinion, until the Obligations shall have been paid
in full.
(b) Any sale may be postponed or adjourned by public announcement
at the time and place appointed for such sale or for such
postponed or adjourned sale without further notice.
(c) After each sale, Beneficiary, Trustee or an officer of any
court empowered to do so shall execute and deliver to the
purchaser or purchasers at such sale a good and sufficient
instrument or instruments granting, conveying, assigning and
transferring all right, title and interest of Grantor in and to
the property and rights sold and shall receive the proceeds of
said sale or sales and apply the same as herein provided. Each of
Trustee and Beneficiary is hereby appointed the true and lawful
attorney-in-fact of Grantor, which appointment is irrevocable and
shall be deemed to be coupled with an interest, in Grantor's name
and stead, to make all necessary conveyances, assignments,
transfers and deliveries of the property and rights so sold, and
for that purpose Trustee and Beneficiary may execute all necessary
instruments of conveyance, assignment, transfer and delivery, and
may substitute one or more persons with like power, Grantor hereby
ratifying and confirming all that said attorney or such substitute
or substitutes shall lawfully do by virtue thereof. Nevertheless,
Grantor, if requested by Trustee or Beneficiary, shall ratify and
confirm any such sale or sales by executing and delivering to
Trustee, Beneficiary or such purchaser or purchasers all such
instruments as may be advisable, in Trustee's or Beneficiary's
judgment, for the purposes as may be designated in such request.
(d) Any and all statements of fact or other recitals made in any
of the instruments referred to in subsection (c) of this Section
5.03 given by Trustee or Beneficiary as to nonpayment of the
Obligations, or as to the occurrence of any Event of Default, or
as to Beneficiary having declared all or any of the Obligations to
be due and payable, or as to the request to sell, or as to notice
of time, place and terms of sale and of the property or rights to
be sold having been duly given, or as to the refusal, failure or
inability to act of Trustee, or as to the appointment of any
substitute or successor trustee, or as to any other act or thing
having been duly done by Grantor, Beneficiary, or by Trustee,
shall be taken as conclusive and binding against all persons as to
evidence of the truth of the facts so stated and recited. Trustee
or Beneficiary may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any
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sale so held, including the posting of notices and the conduct of
sale, but in the name and on behalf of Trustee.
(e) The receipt of Trustee or Beneficiary for the purchase money
paid at any such sale, or the receipt of any other person
authorized to receive the same, shall be sufficient discharge
therefor to any purchaser of any property or rights sold as
aforesaid, and no such purchaser, or its representatives, grantees
or assigns, after paying such purchase price and receiving such
receipt, shall be bound to see to the application of such purchase
price or any part thereof upon or for any trust or purpose of this
Deed of Trust or, in any manner whatsoever, be answerable for any
loss, misapplication or nonapplication of any such purchase money,
or part thereof, or be bound to inquire as to the authorization,
necessity, expediency or regularity of any such sale.
Any such sale or sales shall operate to divest all of the estate,
right, title, interest, claim and demand whatsoever, whether at
law or in equity, of Grantor in and to the properties and rights
so sold, and shall be a perpetual bar both at law and in equity
against Grantor and any and all persons claiming or who may claim
the same, or any part thereof or any interest therein, by, through
or under Grantor to the fullest extent permitted by applicable
law.
(g) Upon any such sale or sales, Beneficiary may bid for and
acquire the Mortgaged Property and, in lieu of paying cash
therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made therefor, after
deducting therefrom the expenses of the sale, the cost of any
enforcement proceeding hereunder, and any other sums which Trustee
or Beneficiary is authorized to deduct under the terms hereof, to
the extent necessary to satisfy such bid.
(h) In the event that Grantor, or any person claiming by, through
or under Grantor, shall transfer or refuse or fail to surrender
possession of the Mortgaged Property after any sale thereof, then
Grantor, or such person, shall be deemed a tenant at sufferance of
the purchaser at such sale, subject to eviction by means of
forcible entry and unlawful detainer proceedings, or subject to
any other right or remedy available hereunder or under applicable
law.
(i) Upon any such sale, it shall not be necessary for Trustee,
Beneficiary or any public officer acting under execution or order
of court to have present or constructively in its possession any
of the Mortgaged Property.
(j) In the event a foreclosure hereunder shall be commenced by
Trustee or Beneficiary, Trustee or Beneficiary may at any time
before the sale of the Mortgaged Property abandon the sale, and
may institute suit for the collection of the Obligations and
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for the foreclosure of this Deed of Trust, or in the event that
Trustee or Beneficiary should institute a suit for collection of
the Obligations, and for the foreclosure of this Deed of Trust,
Beneficiary may at any time before the entry of final judgment in
said suit dismiss the same and require Trustee or Beneficiary to
sell the Mortgaged Property in accordance with the provisions of
this Deed of Trust.
SECTION 5.04. Expenses. In any proceeding, judicial or otherwise,
to foreclose this Deed of Trust or enforce any other remedy of
Trustee or Beneficiary under the Loan Documents, there shall be
allowed and included as an addition to and a part of the
Obligations in the decree for sale or other judgment or decree all
expenditures and expenses (including, without, reasonable
attorney's fees) which may be paid or incurred in connection with
the exercise by Trustee or Beneficiary of any of its rights and
remedies provided or referred to in Section 5.02, or any
comparable provision of any other Loan Document, together with
interest thereon at the rate and as provided in the Credit
Agreement, and the same shall be part of the Obligations and shall
be secured by this Deed of Trust.
SECTION 5.05. Application of Proceeds. The purchase money,
proceeds or avails of any sale referred to in Section 5.02,
together with any other sums which may be held by Trustee or
Beneficiary hereunder, whether under the provisions of this
Article V or otherwise, shall, except as herein expressly provided
to the contrary, be applied as follows:
First: To the payment of the costs and expenses of any such sale,
including compensation to Trustee, Beneficiary, their agents and
counsel, and of any judicial proceeding wherein the same may be
made, and of all expenses, liabilities and advances made or
incurred by Trustee or Beneficiary hereunder, together with
interest thereon as provided herein, and all Impositions and other
charges, except any Impositions or other charges subject to which
the Mortgaged Property shall have been sold.
Second: To the payment in full of the monetary Obligations
(including principal, interest, premium and fees) in such order as
Beneficiary may elect.
Third: To the payment of any other sums secured hereunder or
required to be paid by Grantor pursuant to any provision of the
Loan Documents.
Fourth: To the extent permitted by applicable law, to be set aside
by Trustee or Beneficiary as adequate security in its judgment for
the payment of sums which would have been paid by application
under clauses First through Third above to Trustee or Beneficiary,
arising out of an obligation or liability with respect to which
Grantor has agreed to indemnify Beneficiary, but which sums are
not yet due and payable or liquidated.
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Fifth: To the payment of any withholding tax requirements of the
Foreign Investment in Real Property Tax Act of 1980, as
amended.Sixth: To the payment of the surplus, if any, to
whomsoever may be lawfully entitled to receive the same.
SECTION 5.06. Additional Provisions as to Remedies. (a) No delay
or omission by Trustee or Beneficiary to exercise any right or
remedy hereunder upon any default or Event of Default shall impair
such exercise, or be construed to be a waiver of any such default
or Event of Default.
(b) The failure, refusal or waiver (by consent, waiver or
otherwise) of Trustee or Beneficiary to assert any right or remedy
hereunder upon any default or Event of Default or other occurrence
shall not be construed as waiving such right or remedy upon any
other or subsequent default or Event of Default or other
occurrence.
(c) Neither Trustee nor Beneficiary shall have any obligation to
pursue any rights or remedies it may have under any other
agreement prior to pursuing its rights or remedies hereunder or
under the other Loan Documents.
(d) Acceptance of any payment after the occurrence of any default
or Event of Default shall not be deemed a waiver or a cure of such
default or Event of Default, and acceptance of any payment less
than any amount then due shall be deemed an acceptance on account
only.
(e) In the event that Trustee or Beneficiary shall have proceeded
to enforce any right or remedy hereunder by foreclosure, sale,
entry or otherwise, and such proceeding shall be discontinued,
abandoned or determined adversely for any reason, then Grantor and
Beneficiary shall be restored to their former positions and rights
hereunder with respect to the Mortgaged Property, subject to the
lien hereof.
Each right of Trustee or Beneficiary provided for in this Deed of
Trust shall be cumulative and shall be in addition to every other
right provided for in this Deed of Trust or now or hereafter
existing at law or in equity, by statute or otherwise, and the
exercise by Trustee or Beneficiary of any one or more of such
rights shall not preclude the simultaneous or later exercise by
Trustee or Beneficiary of any other such right.
SECTION 5.07. Waiver of Rights and Defenses. To the full extent
Grantor may lawfully do so, Grantor agrees with Beneficiary as
follows:
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(a) Grantor will not claim or take the benefit of any statute or
rule of law now or hereafter in force providing for any
appraisement, valuation, stay, extension, moratorium or
redemption, or of any statute of limitations, and Grantor, for
itself and its heirs, devisees, representatives, successors and
assigns, and for any and all persons ever claiming an interest in
the Mortgaged Property (other than Beneficiary and Trustee),
hereby waives and releases all rights of redemption, valuation,
appraisement, notice of intention to mature or declare due the
whole of the Obligations, and all rights to a marshaling of the
assets of Grantor, including the Mortgaged Property, or to a sale
in inverse order of alienation, in the event of foreclosure of the
liens and security interests created hereunder.
(b) Grantor shall not have or assert and hereby waives any right
under any statute or rule of law pertaining to any of the matters
set forth in subsection (a) of this Section 5.07, to the
administration of estates of decedents or to any other matters
whatsoever to defeat, reduce or affect any of the rights or
remedies of Trustee or Beneficiary hereunder.
SECTION 5.08. Exercise by Trustee. Notwithstanding anything herein
to the contrary, Trustee (a) shall not exercise, or waive the
exercise of, any of its rights or remedies hereunder (other than
its right to reimbursement) except upon the request of
Beneficiary, and (b) shall exercise, or waive the exercise of, any
or all of such rights or remedies upon the request of Beneficiary
and at the direction of Beneficiary as to the manner of such
exercise or waiver, provided that Trustee shall have the right to
decline to follow any of such request or direction if Trustee
shall be advised by counsel that the action or proceeding, or
manner thereof, so directed may not lawfully be taken or waived.
ARTICLE VI
Release of Lien
SECTION 6.01. Release of Lien. If(i) all of the Obligations have
been paid in full or (ii) Grantor shall have satisfied all of the
terms and conditions set forth in Section 8.01 of the Credit
Agreement with respect to the Mortgaged Property, then, and only
in such events, all rights and obligations hereunder (except for
the rights and obligations set forth in Section 3.03 and the
indemnities provided in the Loan Documents) shall terminate and
the Mortgaged Property shall become wholly released and cleared of
the liens, security interests, conveyances and assignments
evidenced hereby. In such event Beneficiary shall, at the request
of Grantor, execute and deliver to Grantor, in recordable form,
all such documents as shall be necessary to release the Mortgaged
Property, or a portion thereof, from the liens, security
interests, conveyances and assignments created or evidenced
hereby. Notwithstanding anything in the
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preceding sentence to the contrary, Trustee shall so release the
Mortgaged Property only upon the direction of Beneficiary.ARTICLE
VIIAdditional Provisions
SECTION 7.01. Provisions as to Payments, Advances. To the extent
that any part of the Obligations is used to pay indebtedness
secured by any Permitted Encumbrance or other outstanding lien,
security interest, charge or prior encumbrance against the
Mortgaged Property or to pay in whole or in part the purchase
price therefor, Trustee or Beneficiary shall be subrogated to any
and all rights, security interests and liens held by any owner or
holder of the same, whether or not the same are released. Grantor
agrees that, in consideration of such payment by Trustee or
Beneficiary, effective upon such payment Grantor shall and hereby
does waive and release all demands, defenses and causes of action
for offsets and payments with respect to the same.
SECTION 7.02. Separability. If all or any portion of any provision
of this Deed of Trust or any other Loan Documents shall be held to
be invalid, illegal or unenforceable in any respect or in any
jurisdiction, then such invalidity, illegality or unenforceability
shall not affect any other provision hereof or thereof, and such
provision shall be limited and construed in such jurisdiction as
if such invalid, illegal or unenforceable provision or portion
thereof were not contained herein or therein.
SECTION 7.03. Notices. (a) Any notice, demand, consent, approval,
direction, agreement or other communication (any "Notice")
required or permitted hereunder or under any other documents
evidencing or securing the Note shall be in writing and shall be
validly given if mailed by United States mail, certified mail,
return receipt requested, postage prepaid, addressed as follows to
the person entitled to receive the same:
( 1 ) If to Grantor:
Cooper George Partners Limited Partnership
c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
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and a copy to:
Daniel R. Baty
clo Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: General Counsel
(2) If to Beneficiary:
Deutsche Bank AG, New York Branch
31 West 52nd Street
New York, New York 10019
Attention: General Counsel
(3) If to Trustee:
Chicago Title Insurance Company
701 Fifth Avenue
Suite 1800
Seattle, Washington 98109
Attention: Legal Department
Any Notice shall be deemed to have been validly given hereunder
when so mailed. Any person shall have the right to specify, from
time to time, as its address or addresses for purposes of this
Deed of Trust, any other address or addresses upon giving three
(3) days' notice thereof to each other person then entitled to
receive notices or other instruments hereunder.
SECTION 7.04. Right to Deal. In the event that ownership of the
Mortgaged Property becomes vested in a person other than Grantor,
Trustee and Beneficiary may, without notice to Grantor, deal with
such successor or successors in interest with reference to this
Deed of Trust or the Obligations in the same manner as with
Grantor, without in any way vitiating or discharging Grantor's
liability hereunder or for the payment of the Obligations or being
deemed a consent to such vesting.
SECTION 7.05. Continuation of Lease. (a) Upon the foreclosure of
the lien created hereby on the Mortgaged Property, as herein
provided, any leases then existing shall not be destroyed or
terminated as a result of such foreclosure unless Beneficiary or
any purchaser at a foreclosure sale shall so elect by notice to
the lessee in question.
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(b) If both the lessor's and the lessee's interest under any lease
which constitutes a part of the Premises shall at any time become
vested in any one person, this Deed of Trust and the lien and
security interest created hereby shall not be destroyed or
terminated by the application of the doctrine of merger and, in
such event, Trustee and Beneficiary shall continue to have and
enjoy all of the rights and privileges of Trustee and Beneficiary
hereunder as to each separate estate.
(c) In the event that Grantor acquires the fee or any other
interest in any portion of the Land that is presently leased to
Grantor, such interest shall, immediately upon such acquisition,
become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect, as though now owned by
Grantor and specifically described herein, without need for the
delivery and/or recording of a supplement to this Deed of Trust or
any other instrument.
SECTION 7.06. Applicable Law. This Deed of Trust shall be governed
by, and construed in accordance with, the laws of the State of
Washington.
SECTION 7.07. Sole Discretion of Trustee and Beneficiary. (a)
Whenever Trustee's or Beneficiary's judgment; consent or approval
is required hereunder for any matter, or either shall have an
option or election hereunder, such judgment, the decision whether
or not to consent to or approve the same or the exercise of such
option or election shall be in the sole discretion of Trustee or
Beneficiary, as the case may be.
(b) Notwithstanding anything contained herein to the contrary, in
the event that Trustee or Beneficiary fails or refuses to grant
consent or approval when required hereunder or under any other
Loan Document for any matter, the parties agree that the remedy of
specific performance shall be the sole remedy of Grantor with
respect to such actions and Trustor hereby waives all claims for
damages with respect thereto, unless a final nonappealable
judgment has been rendered against Beneficiary finding that
Beneficiary had acted in bad faith.
SECTION 7.08. Provisions as to Covenants and Agreements. All of
Grantor's covenants and agreements hereunder shall run with the
land and time is of the essence with respect thereto.
SECTION 7.09. Matters to be in Writing. This Deed of Trust cannot
be altered, amended, modified, terminated, waived, released or
discharged except in a writing signed by the party against whom
enforcement is sought.
SECTION 7.10. Submission to Jurisdiction. Without limiting the
right of Beneficiary to bring any action or proceeding against the
undersigned or its property arising out of or relating to the
Obligations (an "Action") in the courts of other jurisdictions,
Grantor hereby irrevocably submits to the jurisdiction of the
state court or Federal court in each jurisdiction in
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<PAGE>
which the Mortgaged Property is located, and Grantor hereby
irrevocably agrees that any Action may be heard and determined in
such state or federal court. Grantor hereby irrevocably waives, to
the fullest extent that it may effectively do so, the defense of
an inconvenient forum to the maintenance of any Action in the
jurisdiction. Grantor hereby irrevocably agrees that the summons
and complaint or any other process in any Action in any
jurisdiction may be served by mailing to any of the addresses set
forth herein or by hand delivery to a person of suitable age and
discretion at any such address. Such service will be complete on
the date such process is so mailed or delivered.
SECTION 7.11. Construction of Provisions. The following rules of
construction shall be applicable for all purposes of this Deed of
Trust and all documents or instruments supplemental hereto, unless
the context otherwise requires:
(a) All references herein to numbered Articles or Sections or to
lettered Exhibits are references to the Articles and Sections
hereof and the Exhibits annexed to this Deed of Trust, unless
expressly otherwise designated in context. All Article, Section
and Exhibit captions herein are used for reference only and in no
way limit or describe the scope or intent of, or in any way
affect, this Deed of Trust.
(b) The terms "include", "including" and similar terms shall be
construed as if followed by the phrase "without being limited to".
(c) The terms "Land", "Leased Land", "Leasehold Estate",
"Improvements",
"Equipment", "Mortgaged Property" and "Premises" shall be
construed as if followed by the phrase "or any part thereof'.
(d) The term "Obligations" shall be construed as if followed by
the phrase "or any other sums secured hereby, or any part
thereof'.
(e) Words of masculine, feminine or neuter gender shall mean and
include the correlative words of the other genders, and words
importing the singular number shall mean and include the plural
number, and vice versa.
The term "person" shall include natural persons, firms,
partnerships,
corporations and any other public and private legal entities.
(g) The term "provisions", when used with respect hereto or to any
other document or instrument, shall be construed as if preceded by
the phrase "terms, covenants, agreements, requirements, conditions
and/or".
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(h) The cover page of and all recitals set forth in, and all
Exhibits to, this Deed of Trust are hereby incorporated in this
Deed of Trust.
(i) All obligations of Grantor hereunder shall be performed and
satisfied by or on behalf of Grantor at Grantor's sole cost and
expense.
(j) The term "lease" shall mean "tenancy, subtenancy, lease or
sublease", the term "lessor" shall mean "landlord, sublandlord,
lessor and sublessor" and the term
"lessee" shall mean "tenant, subtenant, lessee and sublessee".
(k) No inference in favor of or against any party shall be drawn
from the fact that such party has drafted any portion hereof.
(I) The term "Beneficiary and/or Trustee" shall be construed as if
followed by the phrase "as applicable".
SECTION 7.12. Successors and Assigns. The provisions hereof shall
be binding upon Grantor and the heirs, devisees, representatives,
successors and permitted assigns of Grantor, including successors
in interest of Grantor in and to all or any part of the Mortgaged
Property, and shall inure to the benefit of Trustee, Beneficiary,
the holders of the Obligations and their respective heirs,
successors, legal representatives, substitutes and assigns. Where
two or more persons have executed this Deed of Trust, the
obligations of such persons shall bejoint and several.
SECTION 7.13. Counterparts. This Deed of Trust may be executed in
counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
SECTION 7.14. Agency. Beneficiary may deal with the Mortgaged
Property and may issue, or instruct Trustee to issue, as
applicable, any release to be given hereunder pursuant to Section
4.02 or 6.01 or grant any consent or approval or take any other
action, or instruct Trustee to take any other action, as
applicable, required or permitted hereunder, without reference to
or the approval of the holders of the Obligations and any third
party (including any title insurance company issuing a title
insurance policy, or a commitment to issue a title insurance
policy, in connection with the Mortgaged Property) may
conclusively rely on the due authority of Beneficiary (or Trustee,
if so instructed by Beneficiary) to do any or all of the
foregoing.
SECTION 7.15. The Security Agreement. In the event that a valid
and enforceable security interest has been created in any of the
Mortgaged Property under the terms of the Security Agreement (as
defined in the Credit Agreement) and the terms of the Security
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<PAGE>
Agreement are inconsistent with the terms of this Deed of Trust,
then with respect to such Mortgaged Property, the terms of the
Security Agreement shall be controlling in the case of Equipment
and proceeds of insurance policies and the terms of this Deed of
Trust shall be controlling in all other cases.
ARTICLE VIII
Provisions as to Trustee
SECTION 8.01. Trustee's Appointment. Trustee may resign by an
instrument in writing addressed to Beneficiary, or Trustee may be
removed at any time with or without cause by an instrument in
writing executed by Beneficiary. In case of the death,
resignation, removal or disqualification of Trustee or if for any
reason Beneficiary shall deem it desirable to appoint a substitute
or successor Trustee to act instead of Trustee herein named or any
substitute or successor Trustee, then Beneficiary shall have the
right and is hereby authorized and empowered to appoint a
successor Trustee, or a substitute Trustee, without other
formality than appointment and designation in writing executed by
Beneficiary, and the authority hereby conferred shall extend to
the appointment of other successor and substitute Trustees
successively until the Obligations have been paid in full or until
the Mortgaged Property is sold hereunder. Such appointment and
designation by Beneficiary shall be full evidence of the right and
authority to make the same and of all facts therein recited. If
Beneficiary is a corporation or a national banking association and
such appointment is executed in its behalf by an officer of such
corporation or national banking association, such appointment
shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the
board of directors or any superior officer of the corporation or
national banking association. Upon the making of such appointment
and designation, all of the estate and title of Trustee in the
Mortgaged Property shall vest in the named successor or substitute
Trustee and it shall thereupon succeed to and shall hold, possess
and execute all the rights, powers, privileges, immunities and
duties herein conferred upon Trustee; but, nevertheless, upon the
written request of Beneficiary or of the successor or substitute
Trustee, Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute Trustee
all of the estate and title in the Mortgaged Property of Trustee
so ceasing to act, together with all the rights, powers,
privileges, immunities and duties herein conferred upon Trustee,
and shall duly assign, transfer and deliver any of the properties
and moneys held by said Trustee hereunder to said successor or
substitute Trustee. All references herein to Trustee shall be
deemed to refer to Trustee (including any successor or substitute
appointed and designated as herein provided) from time to time
acting hereunder. Except as otherwise required by applicable law,
Trustee shall not perform any act or omit to act hereunder unless,
prior to such act or omission, Beneficiary delivers to Trustee
direction to so act or omit to act. Grantor hereby ratifies and
confirms any and all acts which
37
<PAGE>
Tiustee herein named or its successor or successors, substitute or
substitutes, in this trust, shall do lawfully by virtue hereof.
SECTION 8.02. Exculpation. Trustee shall not be liable for any
error of judgment or act done by Trustee in good faith, or be
otherwise responsible or accountable under any circumstances
whatsoever, except for Trustee's gross negligence or willful
misconduct. Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by it hereunder, believed by
it in good faith to be genuine. All moneys received by Trustee
shall, until used or applied as herein provided, be held in trust
for the purposes for which they were received, but need not be
segregated in any manner from any other moneys (except to the
extent required by law), and Trustee shall be under no liability
for interest on any moneys received by it hereunder.
ARTICLE IX
Notices of Default
SECTION 9.01. Notices of Default. To the extent that the Mortgaged
Property is located in the State of California, Grantor hereby
requests that a copy of any Notice of Default and/or Notice of
Sale be sent to Grantor at Grantor's address set forth in Section
7.03 hereof.
ARTICLE X
Fixture Filing
SECTION 10.01. Fixture Filing. A portion of the Mortgaged Property
is or is to become fixtures upon the Premises. To the extent
permitted by applicable law, Grantor covenants and agrees that the
filing of this Deed of Trust in the real estate records of the
county in which the Mortgaged Property is located shall also
operate from the time of filing as a fixture filing with respect
to all goods constituting part of the Mortgaged Property which are
or are to become fixtures related to the real estate described
herein. For such purpose, the following information is set forth:
(a) Name and Address of Debtor:
Cooper George Partners Limited Partnership
c/o Emeritus Corporation,
3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121
(b) Name and Address of Secured Party:
Deutsche Bank AG, New York Branch
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<PAGE>
31 West 52nd Street
New York, New York 10019
(c) This document covers goods which are or are to become
fixtures.
(d) The real property on which the fixtures are or may be located
is described on Exhibit A.
(e) Grantor is the record owner of the real property.
(f) The fixture filing is to be recorded in the records of the
county where the real property is located.
ARTICLE XI
State Specific Clauses
SECTION 11.01. Washington. Grantor hereby represents and warrants
that, to the extent the Mortgaged Property is located in the State
of Washington, no part or portion of the Mortgaged Property is
used principally for agricultural or farming purposes.
[SIGNATURES ON NEXT PAGE]
***
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IN WITNESS WHEREOF, the undersigned has executed this Deed of
Trust the day first set forth above.
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY EXTEND CREDIT OR FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
Signed, sealed and delivered in the presence of the
limited following witnesses:
/s/: Susan Griffin
Name : Susan Griffin
/s/: Barbara Penton
Name: Barbara Penton
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP
By: Columbia Pacific Master Fund 98 General Partnership, a
Washington general partnership, its general partner
By: Columbia Pacific Growth Fund 98 Limited
Partnership, a Washington limited partnership, its partner
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
By: Columbia Pacific Group, Inc., a Washington corporation. its
general partner
/s/: Daniel R. Baty
By: Daniel R. Baty
Name: Daniel R. Baty
Title: President
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<PAGE>
STATE OF WASHINGTON
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 said person signed this instrument, on oath
stated that said person was authorized to execute the instrument
and acknowledged it as the President of Columbia Pacific Group,
Inc., the general partner of B.F. Limited Partnership, a
Washington limited partnership, the general partner of Columbia
Pacific Growth Fund 98 Limited Partnership, a Washington limited
partnership, the general partner of Columbia Pacific Master Fund
98 General Partnership, a Washington general partnership, the
general partner of Cooper George Partners Limited Partnership, a
Washington limited partnership, to be the free and voluntary act
of such limited partnership for the uses and purposes mentioned in
the instrument.
Dated this 30th day of June, 1998
/s/: Amanda Ray
Name: Amanda Ray
(Signature of Notary)
Notary public in and for the state of Washington, residing at
Seattle
My appointment expires 01-05-02
<PAGE>
PARTNERSHIP INTEREST PURCHASE AGREEMENT
(EMERITUS)
This Partnership Interest Purchase Agreement (the "Agreement") is
dated June 4th, 1998 and is entered into between EMERITUS REAL
ESTATE LLC IV, a Washington limited liability company ("Seller")
and COLUMBIA PACIFIC MASTER FUND 98 GENERAL PARTNERSHIP, a
Washington general partnership, or assigns ("Buyer"). Seller
wishes to sell, and Buyer wishes to purchase, the Interest, as
defined below, upon the following terms and conditions.
1. THE INTEREST. The interest to be purchased by Buyer shall
consist of a thirty percent (30%) general partnership interest,
including the interest in profits, losses, cash distributions and
capital represented thereby (the "Interest"), in COOPER GEORGE
PARTNERS LIMITED PARTNERSHIP, a Washington limited partnership
(the "Partnership"), the terms and conditions of which are set
forth in that certain Agreement of Cooper George Partners Limited
Partnership dated August 7, I995 (the "Partnership Agreement").
2. CLOSING. "Closing" shall mean the date on which the parties
fully execute and deliver to one another counterparts of the
Assignment and Assumption of Partnership Interest attached hereto
as Exhibit A, but in no event later than June 30,1998.
3. PURCHASE PRICE. The purchase price to be paid to Seller by
Buyer for purchase of the Interest (the "Purchase Price") shall be
a total of One Million Ten Thousand Dollars ($1,010,000) and shall
be paid all cash at Closing.:
4. SELLER'S WARRANTIES AND REPRESENTATIONS.
(a) TITLE TO THE INTEREST. Buyer shall order, at Seller's expense,
a UCC search with respect to Seller's ownership of the Interest.
Seller warrants and represents to Buyer that Seller is the sole
owner of the Interest, free of all liens, encumbrances or claims,
and that Seller has full authority to sell the Interest to Buyer
hereunder without having to obtain the consent of any other party.
(b) PARTNERSHIP AGREEMENT. To Seller's knowledge, the Partnership
Agreement has not been modified or amended in any respect.
5. COSTS TO BUYER AND SELLER.
(a) Seller shall pay (i) costs of obtaining the UCC search
described in Section 4 above; (ii) one-half (1/2) of any escrow
fees; (iii) one-half (1/2) of any real or personal transfer taxes
arising as a result of this transaction; and (iv) costs of
Seller's counsel.
(b) Buyer shall pay (i) one-half (1/2) of any escrow fees; (ii)
one-half (1/2) of any real or personal transfer taxes arising as a
result of this transaction; and (iii) the costs of Buyer's
counsel.
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<PAGE>
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. Buyer's obligation
to perform under this Agreement is subject to and contingent upon
Buyer's confirmation that Seller holds the Interest free of liens,
encumbrances or claims and that Seller has full authority to sell
the Interest.
7. PRORATIONS. No prorations will be made at Closing.
8. DEFAULT. In the event Buyer defaults hereunder, Seller's sole
remedy shall be to recover as damages its actual out of pocket
expenses incurred in connection with this transaction. In the
event of Seller's breach, Buyer shall be entitled to any remedies
at law or in equity, including without limitation the ability to
specifically enforce this Agreement, or in the alternative may
elect to collect from Seller a breakup fee on One Hundred Thousand
Dollars ($100,000) in cash.
9. WAIVER AND RELEASE. Seller and Buyer acknowledge that each of
them is familiar with the Partnership, its operations and the
property owned and operated by the Partnership, and that neither
is relying on any representation or warranty of the other, except
as expressly set forth in this Agreement, as to the value of the
Interest or the ongoing value or prospects of the Partnership or
its operations. Accordingly, each of Seller and Buyer hereby
waives and releases each other from all claims or actions related
to the Interest, the Partnership, or the ongoing operations ofthe
Partnership.
10. MISCELLANEOUS.
(a) All notices, consents and approvals required by this Agreement
shall be either: (i) personally delivered; (ii) placed in the
United States mail, properly addressed and with full first-class
postage prepaid, certified mail with a return receipt; (iii) sent
via nationally recognized overnight courier; or (iv) sent via
telecopy with a hard copy sent via overnight courier. Said
notices, consents and approvals shall be deemed received on the
earlier of the date actually received or forty-eight (48) hours
after being sent as aforesaid.
Said notices, consents and approvals shall be sent to the parties
hereto at the following address, unless otherwise notified in
writing:
To: Seller: Emeritus Real Estate LLC IV.
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Jean Fukuda
Fax No.: (206) 301-4545
With Copy to: Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attention: Michael D. Kuntz
Fax No.: (206) 447-9700
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<PAGE>
To Buyer: Columbia-Pacific Group, Inc.
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Keith James
Fax No.: (206) 301-4545
With Copy to: Whalen, Firestone, Landsman, Fleming & Dixon LLP
1191 Second Avenue, Suite 215 0
Seattle, Washington 98101
Attention: Thomas E. Dixon
Fax No.: (206) 624-7903
(b) ATTORNEY FEES. In the event that either party hereto brings an
action or proceeding for a declaration of the rights of the
parties under this Agreement, for injunctive relief, or for an
alleged breach or default of, or any other action arising out of
this Agreement or the transactions contemplated hereby, the
prevailing party in any such action shall be entitled to an award
of reasonable attorneys' fees and any court costs incurred in such
action or proceeding, in addition to any other damages or relief
awarded, regardless of whether such action proceeds to final
judgment.
(c) ENTIRE AGREEMENT AND AMENDMENTS. This Agreement, together with
any Exhibits referred to herein, constitute the final and complete
expression between the parties hereto and supersedes any and all
prior arrangements or understandings between the Parties. This
Agreement can be amended only by a writing signed by Buyer and
Seller.
(d) EXHIBITS. All exhibits attached hereto are hereby incorporated
by reference and made a part hereof.
(e) TIME IS OF THE ESSENCE. Time is of the essence in connection
with each and every provision of this Agreement.
(f) CHOICE OF LAW. This Agreement and each and every related
document is to be governed by, and construed in accordance with,
the laws of the state of Washington.
(g) SUCCESSORS. Except as otherwise provided herein, the
provisions and covenants contained herein shall inure to and be
binding upon the heirs, successors and assigns of the parties
hereto. However, Seller shall have no right to assign any of its
rights, privileges, duties or obligations under this Agreement or
to convey or transfer the Interest prior to Closing, without the
prior written consent of Buyer. Buyer shall be entitled to assign
Buyer's interest under this Agreement.
(h) SECTION HEADINGS. The headings of the Sections of this
Agreement are inserted solely for convenience of reference and are
not intended to govern, limit or aid in the construction of any
term or provision hereof.
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<PAGE>
(i) WAIVER. No claim of waiver, consent or acquiescence with
respect to any provision of this Agreement shall be made against
either party except on the basis of a written instrument executed
by or on behalf of such party. A receipt by Seller of any payment
due hereunder, with knowledge of any breach of this Agreement,
shall not be deemed a waiver of such breach. The party for whose
benefit a condition is herein inserted shall have the unilateral
right to waive such condition.
(k) FURTHER ACTIONS. Buyer and Seller agree to execute such
further documents, and take such further actions, as may be
reasonably required to carry out the provisions of this Agreement,
or any agreement or document relating hereto or entered into in
connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this document as
of the day and year first hereinabove written.
SELLER: EMERITUS REAL ESTATE LLC IV,
a Washington limited liability company
By:
Its
BUYER: Columbia Pacific Master Fund 98 General
Partnership, a Washington general partnership
By: Columbia Pacific Growth Fund 98 Limited
Partnership, a Washington limited partnership, its
partner
By: B.F. Limited Partnership, a Washington limited
partnership, its general partner
By: Columbia Pacific Group, Inc., a Washington
corporation, its general partner
By: /s/: Daniel R. Baty
Daniel R. Baty, President
4
<PAGE>
EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP
This Assignment and Assumption Agreement is by and between
EMERITUS REAL ESTATE LLC IV, a Washington limited liability
company ("Assignor") and COLUMBIA-PACIFIC GROUP, INC., a
Washington corporation. ("Assignee"). Assignor wishes to assign to
Assignee a thirty percent (30%) general partnership interest,
including the interest in profits, losses, cash distributions, and
capital represented thereby (the "Interest") in COOPER GEORGE
PARTNERS LIMITED PARTNERSHIP, a Washington limited partnership
(the "Partnership"), the terms and conditions of which are set
forth in that certain Agreement of Cooper George Partners Limited
Partnership dated August 7,1995 (the "Partnership Agreement").
Accordingly, Assignor hereby sets over, assigns, and transfers
unto Assignee the Interest, upon all the terms and conditions of
the Partnership Agreement, and Assignee hereby accepts and agrees
to assume the Interest, upon the terms and conditions of the
Partnership Agreement.
Assignor represents that: (a) it is sole the owner and holder of
the Interest, (b) the Interest is free and clear of all liens and
encumbrances, and (c) all consents and approvals, if any,
necessary to permit this Assignment have been obtained by
Assignor.
Dated as of the ___ day of June, 1998.
ASSIGNOR: EMERITUS REAL ESTATE LLC IV,
a Washington limited liability company
By: /s/: Kelly J. Price
Its: Chief Financial Officer
ASSIGNEE: Columbia Pacific Master Fund 98 General
Partnership, a Washington general partnership
By: Columbia Pacific Growth Fund 98 Limited
Partnership, a Washington limited partnership, its
partner
By: B.F. Limited Partnership, a Washington limited
partnership, its general partner
By: Columbia Pacific Group, Inc., a Washington
corporation, its general partner
By: /s/: Daniel R. Baty
Daniel R. Baty, President
5
$9,765,000.00
CREDIT AGREEMENT
Dated as of June 30, 1998
Between
COOPER GEORGE PARTNERS LIMITED PARTNERSHEIP
as Borrower,
and
DEUTSCHE BANK AG, NEW YORK BRANCH,
as the Lender
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT (this "Agreement") dated as of June 30,1998 by
and among COOPER GEORGE PARTNERS LIMITED PARTNERSHIP, a Washington
limited partnership ("Borrower"), having an address c/o Columbia
Pacific, 3131 Elliott Avenue, Suite 500, Seattle, Washington 98121
and DEUTSCHE BANK AG, a bank chartered under the laws of the
Federal Republic of Germany, acting by and through its New York
Branch (together with its successors and assigns, the "Lender"),
having an address at 31 West 52nd Street, New York, New York
10019.
WITNESSETH:
WHEREAS, Borrower is the owner ofthe assisted living facility
listed on Schedule A attached hereto (the "Property");
WHEREAS, Borrower has requested and the Lender has agreed to make
a loan to Borrower in the principal amount of NINE MILLION SEVEN
HUNDRED SIXTY-FIVE THOUSAND AND NO/100 DOLLARS ($9,765,000.00)
(the "Loan"), which will be secured, inter alia, by a first
mortgage lien on the Property, all on the terms and conditions
ofthis Agreement; and
WHEREAS, Daniel R. Baty owns an indirect beneficial interest in
Borrower;
NOW, THEREFORE, in consideration ofthe premises and ofthe mutual
covenants and agreements contained herein, the paities hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural
forms ofthe terms defined):
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under
common control with such Person or is a director or officer ofsuch
Person. For purposes ofthis definition, the term "control"
(including the terms "controlling," "conholled by" and "under
common control with") of a Person means the possession, direct or
indirect, ofthe power to vote ten percent (1O%) or more ofthe
Voting Stock ofsuch Person or to direct or cause the direction
ofthe management
2
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and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Applicable Lending Office" means Lender's Eurodollar Lending
Office during any period in which the Loan is maintained as a
Eurodollar Rate Loan and Lender's Domestic Lending Office during
any period in which the Loan is maintained as a Base Rate Loan.
"Appraisal" means an appraisal ofthe Property prepared by an
Appraiser in accordance with the Uniform Standards of Appraisal
Practice ofthe Appraisal Foundation and complying with the
requirements of Title 11 of the Federal Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and otherwise in form
and substance acceptable to the Lender, as may be updated by
recertification from time to time.
"Appraiser" means an Independent appraiser as shall be approved by
the Lender.
"Asbestos" means any hydrated mineral silicate separable into
commercially usable fibers, including, but not limited to,
chrysotile (serpentine), amosite (cummingtonite-grunerite),
crocidolite (riebecktite), tremolite, anthophylite and actinolite,
which is or could become friable.
"Asbestos-Containing Material" means any material which contains
one percent (1%) or more Asbestos by weight.
"Assignee" means any assignee of the Lender pursuant to Section
7.01.
"Assignment and Acceptance" means an assignment and acceptance
entered into by the Lender and an Assignee, and accepted by the
Lender, in accordance with Section 7.01 and in substantially the
form of Exhibit B hereto.
"Base Rate" means a fluctuating interest per annum in effect from
time to time, which rate per annum shall be equal to the lesser of
(i) the maximum nonusurious rate permitted by Law or (ii) the
greater of (A) the rate of interest announced publicly by Deutsche
Bank AG, New York Branch, in New York, from time to time, as its
Prime Rate" and (B) one percent (l%) above the Federal Funds Rate.
"Base Rate Loan" means the Loan during any period in which
interest is determined in accordance with Section 2.05(a)(i).
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"Baty" means Daniel R. Baty, an individual having an address c/o
Columbia Pacific, 3131 Elliott Avenue, Suite 5 00, Seattle,
Washington 98 I 21.
"Borrower" has the meaning specified in the recitals to this
Agreement.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City or the
city in which the principal office of the Loan Servicer is
located.
"Capitalized Leases" means, with respect to any Person, any leases
of any
property by such Person, as lessee, which, in accordance with
GAAP, is required to be accounted for as a capital lease on the
balance sheet of such Person.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to
time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the
U.S. Environznental Protection Agency.
"Change of Control" means with respect to any Person (i) the sale
or transfer by Persons who are the direct beneficial owners ofsuch
Person as of the Closing Date of more than forty-nine and nine-
tenths percent (49.9"%) of the direct or indirect right to
distributions from such Person in the aggregate to Persons who
were not direct beneficial owners as of such date or (ii) the sale
or transfer by such direct beneficial owners of such Person as of
the Closing Date of more than forty-nine and nine-tenths percent
(49.9"%) of the direct or indirect voting rights in such Person to
Persons who were not direct beneficial owners as of such date.
"Closing Date" means the date on which the proceeds of the Loan
are disbursed to Borrower.
"Collateral" means all "Collateral" referred to in the Collateral
Documents and all other property that is or is intended to be
subject to any Lien in favor of the Lender.
"Collateral Documents" means the Security Agreement, the Mortgage,
and any other agreement that creates or purports to create a Lien
in favor of the Lender.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all
Obligations of such Person for the deferred purchase price of
property or services (other than trade payables not overdue by
more than ninety
4
<PAGE>
(90) days incurred in the ordinary course of such Person's
business), (c) all Obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all
Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event
of default are limited to repossession or sale of such property),
(e) all Obligations of such Person as lessee under Capitalized
Leases, (all Obligations, contingent or otherwise, of such
Person under acceptance, letter of credit or similar facilities,
(g) all Obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any capital
stock of or other ownership or profit interest in such Person or
any other Person, valued, in the case of redeemable preferred
stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Debt of
others referred to in clauses (a) through (g) above or clause (i)
below guaranteed directly or indirectly in any manner by such
Person, or in effect guaranteed directly or indirectly by such
Person through an agreement (1) to pay or purchase such Debt or to
advance or supply funds for the payment or purchase of such Debt,
(2) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the
holder of such Debt against loss, (3) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay
for property or services irrespective of whether such property is
received or such services are rendered) for (4) otherwise to
assure a creditor against loss, and (i) all Debt referred to in
clauses (a) through (h) above of another Person secured by (or for
which the holder of such Debt has an existing right, contingent or
otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice
be given or time elapse or both.
"Default Rate" has the meaning specified in Section 2.05(b).
"Determination Date" means, with respect to each Interest Period,
the second Business Day prior to the Interest Reset Date.
"Disclosed Litigation" has the meaning specified in Section
3.01(lb).
"Disclosure Schedule" means Schedule B attached hereto.
"DOH" has the meaning specified in Section 4.01(n).
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<PAGE>
"Domestic Lending Office" means the office of the Lender specified
as its
"Domestic Lending Office" in any notice to Borrower or in the
Assignment and Acceptance pursuant to which it became a Lender
Party, as the case may be, or such other office of such Lender
Party as such Lender Party may specify to Borrower and the Lender.
"Effective Capacity" means, with respect to the Property, the
number of licensed beds from time to time at the Property actually
available for utilization (which may be less than the numbers of
beds licensed due to utilization of single patient rooms or other
reasonable and prudent operation decisions).
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding,
consent order or consent agreement relating in any way to any
Environmental Law, any Environmental Permit or Hazardous Material
or arising from alleged injury or threat to health, safety or the
environment, including, without limitation, (a) by any
governmental or regulatory authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by
any governmental or regulatory authority or third party for
damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, writ,
judgment, injunction, decree or judicial or agency interpretation,
policy or guidance relating to pollution or protection of the
environment, health, safety or natural resources, including,
without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge
of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any
Environmental Law.
"Equipment" means all equipment referred to in Section 1(a) ofthe
Security Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Eurocurrency Liabilities" has the meaning specified in Regulation
D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
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"Eurodollar Lending Office" means the office of the Lender
specified as its
"Eurodollar Lending Office" in any notice to Borrower or in the
Assignment and Acceptance pursuant to which it became a Lender
Party, as the case may be, or such other office of Lender Party as
such Lender Party may from time to time specify to Borrower and
the Lender.
"Eurodollar Margin" means, with respect to the outstanding
principal of the Loan, 295 basis points (2.95%) per annum.
"Eurodollar Rate" means, for any Interest Period, (a) either (i)
the quotation (expressed as percentage per annum) appearing on
Telerate Page 3750 as of 11:00 a.m., New York time, on the
relevant Determination Date for such Interest Period for one month
U.S. Dollar deposits in the London interbank market (rounded
upward, if necessary, to the nearest one hundred-thousandth of a
percentage point) or, if no such rate appears on Telerate Page
3750, or (ii) the arithmetic mean (rounded upward, if necessary,
to the nearest one hundred-thousandth of a percentage point) of
the rates quoted at approximately 11:00 a.m., London time, on such
Determination Date, by four (4) major banks in the London
interbank market, selected by Lender, to prime banks in the London
interbank market for one-month U.S. Dollar deposits commencing on
the first day of the applicable Interest Period and in a principal
amount equal to an amount of not less than One Million and No/100
Dollars ($1,000,000.00) that is representative for a single
transaction in such market at such time, provided that, if fewer
than four (4) such quotations are provided as requested, the rate
of interest that is in effect on such Determination Date will be
the Eurodollar Rate for the immediately preceding Interest Period
divided by (b) one (1) minus the Eurodollar Rate Reserve
Percentage.
"Eurodollar Rate Loan" means any Loan which bears interest in
accordance
with Section 2.05(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for
any Eurodollar Rate Loan means the reserve percentage applicable
two (2) Business Days before the first day of such Interest Period
under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in
New York City with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities (or with respect to any
other category of liabilities that includes deposits by reference
to which the interest rate on Eurodollar Rate Loans is determined)
having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
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<PAGE>
"Excluded Taxes" has the meaning specified in Section 2.08.
"Exit Fee" has the meaning specified in Section 2.07(b).
"Fiscal Year" means a fiscal year of Borrower ending on December
31 in any calendar year or such other fiscal year as Borrower may
select from time to time in accordance with the terms of this
Agreement.
"GAAP" means generally accepted accounting principles consistently
applied and consistent with those applied in the preparation of
the financial statements referred to in Section 5.03.
"General Partner" means Columbia Pacific Master Fund 98 Limited
Partnership, a Washington partnership, the general partner of
Borrower or any successor thereto in accordance with the terms
ofthis Agreement.
"Governmental Authority" shall mean (i) any nation or government,
(ii) any state or other political subdivision thereof, (iii) any
entity or officer exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government, (iv) any court or arbitrator having jurisdiction over
the Loan Parties or any of their Subsidiaries, any of their
respective Subsidiaries or the Property, and (v) any corporation
or other entity which is an Affiliate of any of the foregoing.
"Guaranteed Obligations" shall mean:
(i) the payment, as and when due, or by stated maturity,
acceleration, or otherwise, of the Note and all other amounts due
and payable under the other Loan Documents to the Lender at such
times and in the manner provided for in the Loan Documents, and
(ii) the payment of all other obligations of Borrower that can be
performed by the payment of monies, to the Lender directly or by
reimbursement of advances by it, including, without limitation,
the payment of income and other taxes by Borrower.
"Guaranty and Limited Indemnity" has the meaning specified in
Section 3.01(d)(ix).
"Hazardous Materials" means (a) refined petroleum products, by-
products or breakdown products, radioactive materials, Asbestos-
Containing Materials, polychlorinated biphenyls and radon gas and
(b) any other chemicals, materials or
8
<PAGE>
substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental
Law.
"Health Care Facility" means a facility which provides any health
care services, whether licensed as a skilled nursing facility,
intermediate care facility, personal care facility, assisted
living facility or a hospital or otherwise.
"Health Care Permit" means every accreditation, authorization,
certificate of need, license or permit that is required pursuant
to applicable federal or state law to own, lease, operate or
manage a Health Care Facility.
"Impositions" has the meaning specified in the Mortgage.
"Indemnified Party" has the meaning specified in Section
10.04(lb).
"Indemnitor" means Baty, together with any successors thereto in
accordance with the terms of the Guaranty and Limited Indemnity.
"Independent" means, with respect to any specified Person, such a
Person who (a) does not have any direct financial interest or any
material indirect financial interest in Borrower or the General
Partner or in any of their respective Affiliates, (b) is not
connected with Borrower or the General Partner as an officer,
employee, promoter, underwriter, trustee, partner or director and
(c) is not controlled by or under common control with Borrower or
the General Partner or any of their respective Affiliates.
"Interest Payment Date" means the first (1st) day of each calendar
month while any portion of the Loan remains unpaid; provided,
however, that if such Interest Payment Date is not a Business Day,
such Interest Payment Date shall be the immediately succeeding
Business Day.
"Interest Period" means (a) the period beginning on (and
including) the Closing Date and ending on (but excluding) the
first Interest Payment Date and (b) each successive period
beginning on (and including) an Interest Payment Date and ending
on (but excluding) the next succeeding Interest Payment Date.
"Interest Reset Date" means, with respect to any Eurodollar Rate
Loan, the first day of the applicable Interest Period.
"Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
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<PAGE>
"Investment" in any Person means any loan or advance to such
Person, any purchase or other acquisition of any capital stock or
other ownership or profit interest, warrants, rights, options,
obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such
Person, including, without limitation, any arrangement pursuant to
which the investor incurs Debt of the types referred to in clause
(h) or (i) of the definition of "Debt" in respect of such Person.
"Laws" means all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, determinations, awards and court orders of any
federal, state, municipal or local government, governmental
authority, regulatory agency or authority.
"Lender Party" means, collectively Lender and any assignee of all
or a portion of Lender's interests in this Agreement or the Loan
and any subsequent assignee of any Lender Party.
"Lender's Account" means an account of the Lender or Loan Servicer
designated in writing by the Lender or Loan Servicer to Borrower.
"LIBOR Breakage Costs" means the amount of all losses, costs,
charges and damages which are actually incurred by the Lender
through the end of an Interest Period as a result of any early
termination of any arrangement, or the entering into a new
arrangement, with any member of the London interbank market for
the funding of the aggregate outstanding principal amount of the
Loan (determined as though Lender had funded one hundred percent
(l00%) of such outstanding principal amount in the London
interbank market and calculated as of the date of any applicable
early termination, in the same manner as the Eurodollar Rate).
"Licenses" has the meaning specified in Section 4.01(o).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential
arrangement, including, without limitation, the lien or retained
security title of a conditional vendor and any easement, right of
way or other encumbrance on title to real property.
"Loan" has the meaning specified in the Recitals.
"Loan Amount" means the outstanding principal amount of the Loan
as of the
relevant date of determination.
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"Loan Documents" means (i) this Agreement, (ii) the Note, (iii)
the Guaranty and Limited Indemnity, (iv) the Collateral Documents
and any other written agreement, document or instrument
evidencing, securing or otherwise related to the Loan, in each
case as amended or otherwise modified from time to time.
"Loan Parties" means, collectively, Borrower and Baty, in his
capacity as Indemnitor under the Guaranty and Limited Indemnity.
"Loan Servicer" has the meaning specified in Section 7.03.
"Loan-to-Value Ratio" means the ratio, as of the applicable date
of determination, of(a) the outstanding principal amount of the
Loan to (b) the aggregate fair market value of the Property, as
established by on Appraisal (or as determined by the Lender with
respect to Section 8.01(a)(ii)), made no earlier than three (3)
months prior to the date of determination.
"Management Agreement" means any management agreement between
Borrower and a Manager with respect to the management and
operation of the Properties.
"Manager" means Emeritus Corporation, a Washington corporation,
and any successor property manager approved by the Lender for the
Property.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Effect" means a material adverse effect on (a)
the business , condition (financial or otherwise), operations,
performance or the properties of Borrower or Baty, (b) the rights
and remedies of the Lender under any Loan Document or (c) the
ability of Borrower or Baty to perform its Obligations under any
Loan Document to which it is or is to be a party.
"Maturity Date" means June 30, 2001.
"Mortgage" has the meaning specified in Section 3.01(d)(viii).
"Mortgage Policy" has the meaning specified in Section
3.01(d)(viii)(B).
"Net Proceeds" has the meaning specified in the Mortgage.
"Note" means the promissory note of Borrower payable to the order
of the
Lender, in form and substance satisfactory to the Lender,
evidencing the indebtedness of Borrower to the Lender resulting
from the Loan made by the Lender.
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<PAGE>
"NPL" means the National Priorities List under CERCLA.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind,
including, without limitation, any liability of such Person on any
claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such
claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01( Without limiting the
generality of the foregoing, the Obligations of Borrower under the
Loan Documents include (a) the obligation to pay principal,
interest, charges, expenses, fees, attorneys' fees and
disbursements, iiidemnities and other amounts payable by Borrower
under any Loan Document and (b) the obligation of Borrower to
reimburse any amount in respect of any of the foregoing that the
Lender, in its sole discretion, may elect to pay or advance on
behalf of Borrower.
"Organizational Documents" means, (i) with respect to any Person
that is a corporation, the certificate of incorporation or charter
and by-laws of such Person, (ii) with respect to any Person that
is a partnership, the partnership agreement and, if a limited
partnership, certificate of limited partnership of such person,
and (iii) with respect to any Person that is a limited liability
company, the articles of organization and the operating agreement
of such Person.
"Origination Fee" has the meaning specified in Section 2.07(a).
"Other Taxes" has the meaning specified in Section 2.08.
"Permitted Encumbrances" has the meaning specified in the
Mortgage.
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies not yet due and payable; (b) Liens
imposed by law, such as materialmen's, mechanics', carners',
workmen's and repairmen's Liens and other similar Liens arising in
the ordinary course of business securing obligations that are not
overdue for a period of more than thirty (30) days; (c) pledges or
deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations;
(d) Permitted Encumbrances; (e) Liens arising in connection with
installment sales agreements permitted under Section 5.02(b)(ii);
and (Liens arising in connection with leases permitted under
Section 5.02(c).
"Person" means an individual, partnership, corporation (including
a business trust), limited liability company, joint stock company,
trust, unincorporated association,
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<PAGE>
joint venture or other entity, or a government or any
political subdivision or agency thereof.
"Phase I Reports" means a Phase I environmental assessment report
of the Property, in form and substance satisfactory to the Lender,
prepared by ATC Associates or such other environmental consulting
firm reasonably acceptable to the Lender, which have been provided
to Lender.
"Physical Plant Standards" has the meaning specified in Section
4.01(s).
"Premises" has the meaning specified in the Mortgage.
"Property" has the meaning specified in the Recitals and as listed
on Schedule A attached hereto, as more particularly described in
the Mortgage.
"Receivables" has the meaning specified in the Security Agreement.
"Register" has the meaning specified in Section 7.01(d).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Contracts" means all contracts and rights pursuant
to reimbursement or third party payor programs and contracts for
the Property which are now or hereafter in effect with respect to
residents or patients qualifying for coverage under the same,
including, but not limited to, Medicare, Medicaid, any successor
program or other similar reimbursement program (whether operated
by a governmental or quasi government agency or by a private
Person) and private insurance agreements.
"Responsible Officer" means any officer of any Loan Party or any
of its Subsidiaries.
"Secured Obligations" has the meaning specified in the Security
Agreement.
"Security Agreement" has the meaning specified in Section
3.01(d)(vii).
"Solvent" and "Solvency" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the
property of such Person is greater than the total amount of
liabilities, including, without limitation, contingent
liabilities, of such Person, (b) such Person does not intend to,
and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay such debts and liabilities as
they mature
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<PAGE>
and (c) such Person is not engaged in business or a transaction,
and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small
capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured
liability.
"Specified Repairs" means those repairs with respect to the
Properties set forth on Schedule D attached hereto.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which
(or in which) more than fifty percent (50%) of(a) the issued and
outstanding capital stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in
the capital or profits of such partnership, joint venture or
limited liability company or (c) the beneficial interest in such
trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its
other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Taxes" has the meaning specified in Section 2.08.
"Third-Party Payors Programs" has the meaning specified in Section
4.01(q).
"Title Company" means Chicago Title Insurance Company.
"Voting Stock" means capital stock issued by a corporation, or
equivalent
interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for
the election of directors (or persons performing similar
functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
SECTION 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"
and the words "to" and "until" each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP.
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<PAGE>
ARTICLE II
AMOUNT AND TERMS OF THE LOAN
SECTION 2.01. The Loan. Subject to the terms and conditions set
forth in this Agreement, the Lender shall lend to Borrower, and
Borrower shall borrow from the Lender, a principal amount equal to
NINE MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND AND NO/100 DOLLARS
($9,765,000.00). Amounts of the Loan borrowed, repaid or prepaid
by Borrower may not be reborrowed.
SECTION 2.02. Making the Loan. Upon satisfaction of the conditions
precedent set forth in Article III to Lender's obligation pursuant
to this Agreement, the Loan shall be made before 11:00 A.M. (New
York City time) on the Closing Date.
SECTION 2.03. Repayment of the Loan. Subject to the provisions of
Section 2.04 and Section 2.07(b), Borrower shall repay the
aggregate outstanding principal amount of the Loan on the Maturity
Date.
SECTION 2.04. Prepayments. (a) Voluntary. The Loan may be prepaid,
in whole or in part, upon at least fifteen (15) days' prior
written notice by Borrower to Lender specifying the date on which
the Loan is to be repaid. If such notice is given, Borrower shall,
consistent with such notice, prepay the applicable portion of the
outstanding principal amount of the Loan in whole, together with
(A) accrued interest to the date of such prepayment on the
aggregate principal amount prepaid, (B) an amount equal to the
Exit Fee (if required pursuant to Section 2.07(b)) and (C) LIBOR
Breakage Costs, if any.
(b) Mandatory. If an Event of Default occurs, and the Loan is
declared to be immediately due and payable, then there shall be
added to the principal amount of the Loan then due an amount equal
to the Exit Fee plus all LIBOR Breakage Costs, if any.
(c) Prepayment on Casualty or Condemnation. The Loan shall be
prepayable, in whole or in part, together with the Exit Fee but
without premium, upon any application by Lender of any net
insurance proceeds or net condemnation proceeds or awards in
accordance with Article I of the Mortgage.
SECTION 2.05. Interest. (a) Scheduled Interest. Borrower shall pay
interest on the unpaid principal amount of the Loan owing to the
Lender from the date of disbursement of the Loan until such
principal amount shall be paid in full, at the following rates per
annum:
(i) Base Rate. During the periods, if any, during which Section
2.10 provides that the Loan shall accrue interest based on the
Base Rate, a rate per annum
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<PAGE>
equal to the Base Rate in effect from time to time, payable in
arrears on each applicable Interest Payment Date.
(ii) Eurodollar Rate. Except as otherwise provided in clause (i)
above, a rate per annum equal at all times during each Interest
Period to the sum of (A) the Eurodollar Rate for such Interest
Period plus (B) the Eurodollar Margin, payable in arrears on each
applicable Interest Payment Date.
(b) Default Interest. Upon the occurrence and during the
continuance of an Event of Default, Borrower shall pay interest
(the "Default Rate") on (i) the unpaid principal amount of the
Loan, payable in arrears on each Interest Payment Date and on
demand, at a rate per annum equal at all times to the lesser of
(x) the maximum non-usurious rate permitted by Law or (y) five
percent (5%) per annum above the rate per annum required to be
paid on the Loan pursuant to clause (a)(i) or (a)(ii) above, as
the case may be, and (ii) to the fullest extent permitted by Law,
the amount of any interest, fee or other amount payable hereunder
that is not paid when due, from the date such amount shall be due
until such amount shall be paid in full, payable in arrears on the
date such amount shall be paid in full and on demand, at a rate
per annum equal at all times to the lesser of (x) the maximum
nonusurious rate permitted by Law or (y) five percent (5"%) per
annum above the rate per annum required to be paid, in the case of
interest, on the Loan pursuant to clause (a)(i) or (a)(ii), as the
case may be.
(c) Notice of Interest Rate. The Lender (or a Loan Servicer on
behalf of Lender) shall, on each Determination Date, determine and
provide and provide Borrower with a statement of the Eurodollar
Rate applicable for the next succeeding related Interest Period
and the applicable interest rate for such Interest Period. After
determining the applicable interest rate, the Lender (or a Loan
Servicer on behalf of the Lender) shall calculate the aggregate
interest payment payable on the Loan on the next succeeding
Interest Payment Date and shall, as soon as practicable, notify
Borrower of such rates and the amount of the applicable interest
installments. The determination of the interest rate payable on
the Loan and the calculation of each interest installment by the
Lender (or a Loan Servicer on behalf of the Lender) shall, in the
absence of manifest error, be final and binding; provided,
however, that any error in the determination of such interest
rates and the calculation of each interest installment made by the
Lender (or a Loan Servicer on behalf of the Lender) shall not
relieve Borrower from their obligations hereunder, but, Borrower
shall not be required to pay any erroneous amounts.
SECTION 2.06. Payments and Computations. (a) Borrower shall make
each payment hereunder and under the Notes, irrespective of any
right of counterclaim or set-off, not later than 1:00 P.M. (New
York City time) on each Interest Payment Date, and the Maturity
Date in U.S. dollars to the Lender at the Lender's Account (or as
the Lender may otherwise designate) in same day funds.
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(b) [Reserved].
(c) All computations of interest and fees shall be made by the
Lender (or any Loan Servicer on behalf of the Lender) on the basis
of a year of360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in
the period for which such interest, fees or commissions are
payable. Each determination by Lender (or any Loan Servicer on
behalf of the Lender) of an interest rate or fee hereunder shall
be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Note shall be
stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the
computation of payment of interest; provided, however, that, if
such extension would cause payment of interest on or principal of
the Loan (at any time during which the Loan is a Eurodollar Rate
Loan) to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
SECTION 2.07. Fees. (a) Origination Fee. Lender agrees and
acknowledges that on April 29,1998 it received an origination fee
(the "Origination Fee") in the amount of THREE HUNDRED SEVENTY TWO
THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($372,500.00), which
included an amount equal to FORTY-EIGHT THOUSAND EIGHT HUNDRED
TWENTY-FIVE AND NO/100 DOLLARS ($48,825.00) with respect to the
Property.
(b) Exit Fee. Upon any repayment or prepayment of the Loan
(including a prepayment pursuant to Section 2.04(c)), Borrower
shall pay to the Lender a fee (the "Exit Fee") in an amount equal
to one percent (l%) of the principal amount of the Loan being
repaid or prepaid. The foregoing notwithstanding, to the extent
that (i) the Lender or one of its Affiliates provides any mortgage
refinancing proceeds which are used to prepay the Loan, (ii) the
Lender has assigned all of its interest in the Loan to a party
that is not an Affiliate of the Lender (and other than in
connection with a securitization) prior to the time the Exit Fee
would be payable for such Loan or (iii) the Lender is no longer in
the business of making permanent mortgage loans with respect to
properties similar to the Properties, then the Exit Fee shall be
waived by the Lender in its entirety and Borrower shall have no
further obligations with respect thereto.
SECTION 2.08. Taxes. (a) Any and all payments by Borrower
hereunder or under the Note shall be made, in accordance with
Section 2.06, free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto,
excluding taxes that are imposed on the Lender's overall net
income by the United States, taxes that are imposed on the
Lender's overall net income (and franchise taxes imposed in lieu
thereof by the state or foreign jurisdiction under
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the laws of which the Lender is organized or any political
subdivision thereof, taxes that are imposed on the Lender's
overall net income (and franchise taxes imposed in lieu thereof by
the state or foreign jurisdiction of the Lender's Applicable
Lending Office or any political subdivision thereof and taxes that
are imposed on Lender's overall net income in any jurisdiction
where any of the Properties are located (all such excluded taxes
being hereafter referred to as "Excluded Taxes" and all such non-
excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities in respect of payments hereunder or under the Note
being hereinafter referred to as "Taxes"). If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under the Note to the Lender (i) the sum
payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 2.08) the Lender
receives an amount equal to the sum it would have received had no
such deductions been made, (ii) Borrower shall make such
deductions and (iii) Borrower shall pay the full amount deducted
to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies
that arise from any payment made hereunder or under the Notes or
from the execution, delivery or registration of, performing under,
or otherwise with respect to, this Agreement or the Note other
than Excluded Taxes (hereinafter referred to as "Other Taxes").
(c) Borrower shall indemnify the Lender for and hold it harmless
against the full amount of Taxes and Other Taxes, and for the full
amount of taxes of any kind imposed by any jurisdiction on amounts
payable under this Section 2.08, imposed on or paid by the Lender
and any liability (including penalties, additions to tax, interest
and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within (30) thirty days from the
date the Lender makes written demand therefor.
(d) Within (30) thirty days after the date of any payment of
Taxes, Borrower shall furnish to the Lender, at its address
referred to in Section 10.02, the original or a certified copy of
a receipt evidencing such payment. In the case of any payment
hereunder or under the Note by or on behalf of Borrower through an
account or branch outside the United States or by or on behalf of
Borrower by a payor that is not a United States person, if
Borrower determine that no Taxes are payable in respect thereof,
Borrower shall furnish, or shall cause such payor to furnish, to
the Lender, at such address, an opinion of counsel acceptable to
the Lender stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms
"United States" and "United States person" shall have the meanings
specified in Section 7701 of the Internal Revenue Code.
(e) The Lender shall, on or prior to the date of its execution and
delivery of this Agreement, and from time to time thereafter as
requested in writing by Borrower (but only
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so long thereafter as the Lender remains lawfully able to do so),
provide Borrower with two original Internal Revenue Service forms
1001 or 4224, as appropriate, or any successor or other form
prescribed by the Internal Revenue Service, certifying that the
Lender is exempt from or entitled to a reduced rate of United
States withholding tax on payments pursuant to this Agreement or
the Note. If any form or document referred to in this subsection
(e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on
the date hereof by Internal Revenue Service form 1001 or 4224 that
the Lender reasonably considers to be confidential, the Lender
shall give notice thereof to Borrower and shall not be obligated
to include in such form or document such confidential information.
For any. period with respect to which the Lender has failed to
provide Borrower with the appropriate form described in subsection
(e) above other than if such failure is due to a change in law
occurring after the date on which a form originally was required
to be provided or if such form otherwise is not required under
subsection (e) above), the Lender shall not be entitled to
indemnification under subsection (a) or (c) with respect to Taxes
imposed by the United States by reason of such failure; provided,
however, that should the Lender become subject to Taxes because of
its failure to deliver a form required hereunder, Borrower shall
take such steps as the Lender shall reasonably request to assist
the Lender to recover such Taxes.
SECTION 2.09. Late Charge. Subject to Section 10.11, in the event
that any installment of interest or principal shall become overdue
for a period in excess of five (5) days, a "late charge" in an
amount equal to five percent (5%) of the amount so overdue may be
charged to Borrower by the Lender for the purpose of defraying the
expenses incident to handling such delinquent payments. Subject to
Section 10.11, such late charge shall be in addition to, and not
in lieu of, any other remedy the Lender may have and is in
addition to the Lender's right to collect reasonable fees and
charges of any agents or attorneys which the Lender may employ in
connection with any Default.
SECTION 2.10. Increased Costs, Etc. If, due to either (i) the
introduction of or any change in or in the interpretation by any
applicable Governmental Authority of any law or regulation of (ii)
the compliance with any guideline or request from any central bank
or other Governmental Authority (whether or not having the force
of law), there shall be any increase in the cost to the Lender of
agreeing to make or of making, funding or maintaining the Loan as
a Eurodollar Rate Loan (excluding for purposes of this Section
2.10 any such increased costs resulting from (i) Taxes or Other
Taxes (as to which Section 2.08 shall govern) and (ii) changes in
the basis of taxation of overall net income or overall gross
income by the United States or by the foreign jurisdiction or
state under the laws of which the Lender is organized or has its
Applicable Lending Office or any political subdivision thereof,
Borrower shall from time to time, upon notice thereof and demand
by the Lender therefor, pay to the Lender additional amounts
sufficient to compensate the Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to
Borrower by the Lender, shall be conclusive and
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binding for all purposes, absent manifest error. To the extent the
Lender delivers such a certificate to any of Borrower, such
Borrower shall have the right to prepay the Note in whole, not in
part, without any Exit Fee.
(b) If, due to either (i) the introduction of or any change in or
in the interpretation by any applicable Government Authority of
any law or regulation or (ii) the compliance with any guideline or
requirement from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any
increase in the amount of capital required or expected to be
maintained by the Lender or any corporation controlling the Lender
as a result of or based upon the existence of the Lender's
commitment to lend hereunder and other commitments of such type,
then, five (5) days after written demand by the Lender, Borrower
shall pay to the Lender, from time to time as specified by the
Lender, additional amounts sufficient to compensate the Lender in
the light of such circumstances, to the extent that the Lender
reasonably determines such increase in capital to be allocable to
the existence of the Lender's commitment to lend hereunder. A
certificate as to such amounts submitted to Borrower by the Lender
shall be conclusive and binding for all purposes, absent manifest
error. To the extent the Lender delivers such a certificate to any
of Borrower, such Borrower shall have the right to prepay the Note
in whole, not in part, without any Exit Fee.
(c) [Reserved).
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any
law or regulation by any Governmental Authority shall make it
unlawful, or any central bank or other Governmental Authority
shall assert that it is unlawful, for the Lender or its Eurodollar
Lending Office to perform its obligations hereunder to fund or
maintain the Loan as a Eurodollar Rate Loan hereunder, then, on
written notice thereof and written demand therefor by the Lender
to Borrower (i) the Loan will automatically, upon such demand,
covert into a Base Rate Loan and (ii) the obligation of the Lender
to make or maintain the Loan as a Eurodollar Rate Loan shall be
suspended until the Lender shall notify Borrower that it has
determined that the circumstances causing such suspension no
longer exist. To the extent the Lender delivers such a certificate
to any of Borrower, and Borrower shall have the right to prepay
Note in whole, not in part, without any Exit Fee.
SECTION 2.11. Security for the Loan. The Note shall constitute
general obligations of Borrower to the Lender and Borrower's
obligations hereunder and under the other Loan Documents shall be
secured by (a) the Mortgage, (b) the Security Agreement, (c) the
other Collateral Documents and (d) the security interests and
Liens granted in this Agreement and in the other Loan Documents.
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SECTION 2.12. The Note. Borrower obligation to pay the principal
of and interest on its applicable portion of the Loan shall be
evidenced by the Note, which shall be duly executed and delivered
by Borrower on the Closing Date. The Note shall be payable as to
principal, interest and all other amounts due under the Loan
Documents, as specified in this Agreement, the Note, and the other
Loan Documents.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Disbursement of the Loan.
The obligation of the Lender to make the Loan hereunder is subject
to the satisfaction of the following conditions precedent before
or concurrently with the Closing Date:
(a) The following statements shall be true on the Closing Date and
Borrower shall have delivered to the Lender a certificate executed
by a Responsible Officer to such effect:
(i) the representations and warranties contained in each Loan
Document are correct on and as of the Closing Date, before and
after giving effect to the making of the Loan by the Lender and to
the application of the proceeds therefrom, as though made on and
as of such date; and
(ii) no material event has occurred and is continuing, or would
result from the making of the Loan by the Lender or from the
application of the proceeds thereof, that constitutes a Default.
(b) There shall exist no action, suit, investigation, litigation
or proceeding affecting Borrower or the Property pending or
threatened before any court, governmental agency or arbitrator
that (i) would be reasonably likely to have a Material Adverse
Effect other than the matters described on the Disclosure Schedule
(the "Disclosed Litigation") or (ii) purports to affect the
legality, validity or enforceability of, this Agreement, the Note,
any other Loan Document or the consummation of the transactions
contemplated hereby.
(c) Borrower shall have paid or caused to be paid all reasonable
and documented accrued fees and expenses of the Lender which
Borrower is required to pay under the Loan Documents (including
the accrued fees and expenses of counsel to the Lender).
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(d) The Lender shall have received on or before the Closing Date
the following, each dated such day (unless otherwise specified),
in form and substance satisfactory to the Lender (unless otherwise
specified):
(i) The Note payable to the order of the Lender.
(ii) Partner Resolutions for Borrower approving this Agreement,
the Note and each other Loan Document to which Borrower is or is
to be a party, and of all documents evidencing other necessary
action and governmental and other third party approvals and
consents, if any, with respect to such Borrower, the Loan, this
Agreement, the Note and each other Loan Document.
(iii) A copy of the Organizational Documents of Borrower, in each
case together with any amendments thereto, and a copy of
Borrower's partnership agreement certified by Borrower as of the
Closing Date as being a true, correct and complete copy thereof.
(iv) A copy of a certificate of the Washington Secretary of State,
dated reasonably near the Closing Date, certifying that (A) such
Borrower has paid all applicable franchise taxes to the date of
such certificate and (B) such Borrower is duly formed and in good
standing under the laws of the State of Washington.
(v) A copy of a certificate of the Secretary of State of each
state in which the Property is located, dated reasonably near the
Closing Date, stating that Borrower is duly qualified and in good
standing in such State and has filed all annual reports required
to be filed to the date of such certificate.
(vi) A certificate of the General Partner certifying the names and
true signatures of the officers of such General Partner,
authorized to sign this Agreement, the Note and each other Loan
Document to which it is or is to be a party and the other
documents to be delivered hereunder and thereunder.
(vii) A security agreement in the form and substance satisfactory
to the Lender pledging to the Lender and granting the Lender a
security interest in all of Borrower's right, title and interest
in the Collateral (such agreement, as amended, supplemented or
otherwise modified from time to time in accordance with its terms,
the "Security Agreement"), duly executed by Borrower, together
with:
(A) financing statements in proper form for filing under the
Uniform Commercial Code of the State of Washington and the
jurisdiction in which the Property is located, as well as any
other jurisdictions deemed
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necessary or desirable by the Lender, covering the personal
property Collateral and fixtures described in the Mortgage,
(B) completed requests for information, dated on or a
reasonable time before the Closing Date, listing all effective
financing statements filed in the jurisdictions referred to in
clause (A) above that names Borrower as debtor, together with
copies of such other financing statements,
(C) copies ofthe Assigned Agreements referred to in the Mortgage,
together with a consent to such assignment, in a form acceptable
to the Lender, from each party to any Material Agreement (as
defined in the Mortgage) other Borrower, and
(D) evidence that all other action that the Lender may deem
reasonably necessary or desirable in order to perfect and protect
the first and security interests and fixtures in personal property
Collateral created under the Mortgage has been taken.
(viii) Deed of trust, trust deed, mortgage, deed to secure debt,
leasehold mortgage and leasehold deed of trust in form and
substance satisfactory to the Lender and covering the Property (as
amended, supplemented or otherwise modified from time to time in
accordance with their terms, the "Mortgage"), duly executed by
Borrower, together with:
(A) evidence that counterparts of the Mortgage have been duly
executed and delivered for recording to the Title Company on or
before the Closing Date in such form as Lender may deem necessary
or desirable in order to create a valid first and subsisting Lien
on the property described therein in favor of the Lender and that
provision has been made for the payment of all filing and
recording taxes and fees,
(B) fully paid mortgagee title insurance policy (the "Mortgage
Policy") in form and substance, with endorsements and in amounts
acceptable to, the Lender, issued by the Title Company, insuring
the Mortgage to be a valid first and subsisting Lien on the
Property, free and clear of all defects (including, but not
limited to, mechanics' and materialmen's Liens) and encumbrances,
excepting only Permitted Encumbrances, and providing for such
other affirmative insurance (including endorsements for mechanics'
and materialmen's Liens) and
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such coinsurance and direct access reinsurance as the Lender may
deem necessary or desirable,
(C) American Land Title Association form surveys, certified to the
Lender and the issuer of the Mortgage Policy in a manner
satisfactory to the Lender by a land surveyor duly registered and
licensed in the States in which the Property described in such
surveys is located and acceptable to the Lender, showing all
buildings and other improvements, any off site improvements, the
location of any easements, parking spaces, rights of way, building
set-back lines and other dimensional regulations and the absence
of encroachments, either by such improvements onto other property
or by improvements of others onto such property, and other
defects, other than encroachments and other defects acceptable to
the Lender,
(D) An Appraisal of the Property indicating an aggregate Loan to-
Value Ratio for the Property not in excess of eighty-five percent
(85%) and otherwise in form and substance satisfactory to the
Lender,
(E) engineering reports of the Property, in form and substance and
from professional firms acceptable to the Lender,
(F) such consents and agreements of lessors and other third
parties, and such estoppel letters and other confirmations, as the
Lender may deem reasonably necessary or desirable,
(G) evidence of the insurance required by the terms of the
Mortgage, and
(H) evidence that all other action that the Lender may deem
reasonably necessary or desirable in order to create valid first
and subsisting Lien on the Property has been taken.
(ix) A Guaranty and Indemnity Agreement in the form attached
hereto as Exhibit A (as amended, supplemented or otherwise
modified from time to time in accordance with its terms, the
"Guaranty and Limited Indemnity"), duly
executed by Baty.
(x) Such financial, business and other information regarding the
Property, Borrower and Baty as the Lender shall have requested,
including, without limitation, information as to possible
contingent liabilities, environmental
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matters, collective bargaining agreements, interim financial
statements dated the end of the most recent fiscal quarter for
which financial statements are available (or, in the event the
Lender's due diligence review reveals material changes since such
financial statements, as of a later date within forty-five (45)
days of the Closing Date).
(xi) The Phase I Report for the Property.
(xii) A favorable opinion of Foster, Pepper & Shefelman, counsel
for Borrower, in form satisfactory to the Lender, as to:
(a) the organization, existence, formation and good standing of
Borrower; and
(b) the authorization by Borrower of the Loan Documents;
(c) the enforceability of this Agreement, the Note, the Guaranty
and Limited Indemnity and the other Loan Documents.
(xiii) On the Closing Date, the Lender shall disburse a portion of
the Loan amount released from such escrow account equal to the
amount allocated for a Specified Repair upon a written request to
the Lender accompanied by reasonable evidence of completion of
such Specified Repair. Until the funds in such escrow account are
released, they shall constitute additional security for the Loan.
So long as no Event of Default has occurred that has not been
waived and is continuing, Lender shall, to the extent funds are
available for such purpose in the escrow account, disburse to
Grantor any amounts requested by Grantor for such Specified
Repairs provided, that (i) such expenditures for such Specified
Repairs are consistent with the use of the Property as a Health
Care Facility, and (ii) Grantor delivers to Lender all invoices,
receipts or other evidence satisfactory to Lender, verifying the
cost of performing such Specified Repairs. Upon the reasonable
request of Lender, Grantor shall deliver to Lender a certification
from an inspecting architect or other third party acceptable to
Lender describing the completed portion of the Specified Repairs
with respect to which the disbursement request has been made and
verifying the completion of the Specified Repairs and that the
cost of the such Specified Repairs does not substantially vary
from the budgeted amount:
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of Borrower. Borrower
represents and warrants as to itself and the Property as follows:
(a) Borrower and the General Partner each (i) are duly organized,
validly existing and in good standing under the laws of the
jurisdiction of their respective incorporation or formation, (ii)
are duly qualified and in good standing in each other jurisdiction
in which either one owns or leases property or in which the
conduct of their respective business requires either one to so
qualify or be licensed except where the failure to so qualify or
be licensed would not have a Material Adverse Effect and (iii) has
all requisite power and authority (including, without limitation,
all governmental licenses, permits and other approvals) to own or
lease and operate its properties and to carry on its business as
now conducted and as proposed to be conducted.
(b) The execution, delivery and performance by each Loan Party of
this
Agreement, the Note and each other Loan Document to which it is or
is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's partnership
powers, have been duly authorized by all necessary partnership
action, and do not (i) contravene such Loan Party's partnership
agreement, (ii) violate any law (including, without limitation,
the Securities Exchange Act of 1934 and the Racketeer Influenced
and Corrupt Organizations Chapter of the Organized Crime Control
Act of 1970), rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve
System), order, writ, judgment, injunction, decree, determination
or award, (iii) conflict with or result in the breach of, or
constitute a default under, any contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting any Loan Party, any of its Subsidiaries or
any of their properties or (iv) except for the Liens created under
the Loan Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the
properties of any Loan Party or any of its Subsidiaries. No Loan
Party or any of its Subsidiaries is in violation of any such law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan
agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which would have a Material
Adverse Effect.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body
or any other third party is required for (i) the due execution;
delivery, recordation, filing or performance by any Loan Party of
this Agreement, the Note or any other Loan Document to which it is
or is to be a party, or for the consummation of the transactions
contemplated hereby, (ii) the grant by any Loan Party of the Liens
granted by it pursuant to the Collateral Documents, (iii) the
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perfection or maintenance of the Liens created by the Collateral
Documents (including the first priority nature thereof or (iv) the
exercise by the Lender of its rights under the Loan Documents or
the remedies in respect of the Collateral pursuant to the
Collateral Documents, except for any license, authorization,
approval or other action that may be required in order for the
Lender or any purchaser at foreclosure to operate the Property as
an assisted living facility and except to the extent consents may
be required but not obtained under certain service contracts and
agreements applicable to a Property, so long as the failure to
obtain same will not have a Material Adverse Effect.
(d) This Agreement has been, and the Note and each other Loan
Document when delivered hereunder will have been, duly executed
and delivered by each Loan Party thereto. This Agreement is, and
the Note and each other Loan Document when delivered hereunder
will be, the legal, valid and binding obligation of each Loan
Party thereto, enforceable against such Loan Party in accordance
with its terms.
(e) The consolidated balance sheet of the General Partner as at
December 31, 1997, and the related consolidated statement[s] of
income and consolidated statement of cash flows of the General
Partner and its Subsidiaries for the fiscal year then ended,
accompanied by an opinion of a nationally recognized, independent
public accountants, copies of which have been furnished to the
Lender, fairly present the consolidated financial condition of the
General Partner and its Subsidiaries as at such date and the
consolidated results of the operations of the General Partner and
its Subsidiaries for the period ended on such date, all in
accordance with generally accepted accounting principles applied
on a consistent basis, and since December 31, 1997, there has been
no Material Adverse Effect.
(f) The forecasted balance sheets, income statements and cash
flows statements of Borrower delivered to the Lender pursuant to
Section 5.03 were prepared in good faith on the basis of the
assumptions stated therein, which assumptions were fair in the
light of conditions existing at the time of delivery of such
forecasts, and represented, at the time of delivery, Borrower's
best estimate of its future financial performance.
(g) No information, exhibit or report furnished by any Loan Party
to the Lender in connection with the negotiation of the Loan
Documents or pursuant to the terms of the Loan Documents contained
any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements made therein not
misleading.
(h) Except for Disclosed Litigation, there is no action, suit,
investigation, litigation or proceeding affecting any Loan Party
or any of its Subsidiaries, including any Environmental Action,
pending or threatened before any court, governmental agency or
arbitrator that (i) would have a Material Adverse Effect or (ii)
purports to affect the
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approved provider status in any approved provider payment program
(collectively, the
"Licenses"), and to the best of Borrower's knowledge, there exists
no condition or state of facts that would prevent Borrower from
being able to obtain such Licenses in due course. Borrower has not
granted any third party the right to reduce the number of licensed
beds at the Property or to apply for approval to move the right to
any or all of the licensed beds at the Property to any location.
Under current Laws, in the event that the Lender acquires the
Property through foreclosure or otherwise, neither Borrower, the
Lender or any subsequent lessee, nor a subsequent purchaser must
obtain a certificate of need from any applicable state health care
regulator authority or agency prior to applying for, or receiving,
a license to operate the Property and certification to receive
payments pursuant to Reimbursement Contracts for patients or
residents qualified for coverage thereunder, provided that no
service or the bed compliment is changed.
(p) Except as set forth in the Disclosure Schedule, the Property
is in compliance with all requirements for participation in
Medicare and Medicaid, including, without limitation, the Medicare
and Medicaid Patient Protection Act of 1987, except where failure
to comply would not have a Material Adverse Effect. The Property
is in conformance in all material respects with all insurance,
reimbursement and cost reporting requirements, and has a current
provider agreement which is in full force and effect under
Medicare and Medicaid, except where failure to comply would not
have a Material Adverse Effect.
(q) Borrower has received no written notice that there is any
threatened or pending revocation, suspension, termination,
prohibition, restriction, limitation or nonrenewal affecting
Borrower, to the best of Borrower's knowledge, any related the
Property or any participation or provider agreement with any third-
party payor, including Medicare, Medicaid, Blue Cross and/or Blue
Shield, and any other private commercial insurance managed care
and employee assistance program (such program, the "ThirdParty
Payors' Programs") to which Borrower presently is subject. All
Medicaid, Medicare and private insurance cost reports and
financial reports submitted by Borrower are and will be materially
accurate and complete and have not been and will not be misleading
in any material respects.
(r) Except as set forth in Disclosure Schedule, neither Borrower
or, to the best of Borrower's knowledge, the Property is currently
the subject of any proceeding by any governmental agency, and no
notice of any violation has been received fiom a governmental
agency that would, directly or indirectly, or with the passage of
time:
(i) have a material adverse impact on Borrower's ability to accept
and/or retain patients or result in the imposition of a fine, a
sanction, a lower rate
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certification or a lower reimbursement rate for services rendered
to eligible patients;
(ii) modify, limit or annul or result in the transfer, suspension,
renovation or imposition of probationary use of any of Borrower's
Licenses; or
(iii) affect Borrower's continued participation in the Medicaid or
Medicare programs or any other of the Third-Party Payors'
Programs, or any successor programs thereto, at current rate
certifications.
(s) Except as set forth in the Disclosure Schedule or in the
engineering reports previously obtained by Lender, and to the best
of Borrower's knowledge, the Property and the use thereof complies
in all material respects with all applicable local, state and
federal building codes, fire codes, health care, nursing facility
and other similar regulatory requirements (the "Physical Plant
Standards") and no waivers of Physical Plant Standards exist at
the Property. The Property is free of structural defects and all
material building systems contained therein are in good working
order.
(t) Except as set forth in the Disclosure Schedule, the Property
has not received a material violation, and no statement of charges
or deficiencies has been made or penalty enforcement action has
been undertaken against the Property, Borrower, or against any
partner, officer, director or stockholder of Borrower by any
governmental agency during the last three calendar years, and
there have been no violations over the past three years or such
shorter period as Borrower or its Affiliates have owned the
Property which have threatened the Property's or Borrower's
certification for participation in Medicare or Medicaid or the
other Third-party Payors' Programs, which have not been remedied
within applicable cure periods and appeal periods before the
agency asserting the violation.
(u) Except as set forth in the Disclosure Schedule, there are no
current, pending or outstanding Medicaid, Medicare or Third-party
Payors' Programs reimbursement audits or appeals pending at the
Property, and there are no years that are subject to audits.
(v) There are no current or pending Medicaid or Medicare or Third-
party Payors' Programs recoupment efforts at the Property.
Borrower is not a participant in any federal program whereby any
governmental agency may have the right to recover funds by reason
of the advance of federal funds, including, without limitation,
those authorized under the Hill-Burton Act (42 U.S.C. 291 et
seq.).
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(w) Borrower has not pledged its Receivables as collateral
security for any other loan or indebtedness.
(x) There are no patient or resident care agreements with patients
or residents or with any other persons which deviate in any
material adverse respect from the standard form customarily used
at the Properly.
(y) To the actual knowledge of Borrower, all patient or resident
records at the Property, including patient or resident trust fund
accounts, are true and correct in all material respects.
(z) [Reserved]
(aa) Except as set forth on the Disclosure Schedule, the Property
has not been affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that would be reasonably
likely to have a Material Adverse Effect.
(bb) Except as set forth on the Disclosure Schedule, the Property
complies in all material respects with all applicable
Environmental Laws and Environmental Permits, all past non
compliance with such Environmental Laws and Environmental Permits
has been resolved without ongoing obligations or costs, and no
circumstances exist that would be reasonably likely to (i) form
the basis of an Environmental Action against any Loan Party or any
ofthe Property that would have a Material Adverse Effect or (ii)
cause any the Property to be subject to any restrictions on
ownership, occupancy, use or transferability under any
Environmental Law.
(cc) Except as set forth on the Disclosure Schedule or as set
forth in the
environmental reports delivered to the Lender prior to the date
hereof, the Property is not listed or proposed for listing on the
NPL or on the CERCLIS or any analogous foreign, state or local
list or is adjacent to any such property; there are no and never
have been any underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, swamps or lagoons in
which Hazardous Materials are being or have been treated, stored
or disposed on the Property; there is no Asbestos or Asbestos-
Containing Material on the Property; and Hazardous Materials have
not been released, discharged or disposed of on the Property.
(dd) No Loan Party or any of its Subsidiaries is undertaking, and
has not completed, either individually or together with other
potentially responsible parties, any investigation or assessment
or remedial or response action relating to any actual or
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threatened release, discharge or disposal of Hazardous Materials
at the Property, either voluntarily or pursuant to the order of
any governmental or regulatory authority or the requirements of
any Environmental Law; and all Hazardous Materials generated,
used, treated, handled or stored at, or transported to or from,
the Property have been disposed of in a manner not reasonably
expected to result in material liability to any Loan Party or any
of its Subsidiaries.
(ee) [Reserved]
(f) Except for Permitted Liens, when recorded or filed with the
appropriate governmental offices, the Collateral Documents create
a valid and perfected first priority lien on and security interest
in the Collateral, securing the payment of the Secured
Obligations. Borrower is the legal and beneficial owner of the
Collateral free and clear of any Lien, except for the liens and
security interests created or permitted under the Loan Documents.
(gg) Each Loan Party and each of its Subsidiaries and Affiliates
has filed, has caused to be filed or has been included in all tax
returns (Federal, state, local and foreign) required to be filed
and has paid all taxes shown thereon to be due, together with
applicable interest and penalties.
(hh) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(ii) The location of Borrower's principal place of business and
chief executive officer is at the respective addresses set forth
on the first page hereof.
(jj) Borrower is not a "foreign person" within the meaning of
Section 1445(3) of the Code.
(kk) Except as set forth on the Disclosure Schedule, Borrower is
not a party to any collective bargaining agreements.
(11) Borrower has not conducted any business or other activity on
or prior to the Closing Date, other than in connection with the
acquisition, management and ownership of the Property.
(mm) The licensed bed capacity and current Effective Capacity of
the Property is set forth on Schedule C attached hereto. Except
for those licenses for which application has been made by
Borrower, no waivers of any laws, rules, regulations or
requirements are required for the Property to operate at the
foregoing licensed bed capacity.
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(nn) Borrower has received or is legally entitled to receive a
permanent certificate of occupancy from the applicable
Governmental Authority for each of its Property.
ARTICLE V
COVENANTS OF BORROWER
SECTION 5.01. Affirmative Covenants. So long as any portion of the
Loan shall remain unpaid, Borrower, with respect to itself and the
Property, will:
(a) Operations. Maintain or cause to be maintained the standard of
care for the patients or residents of the Property at all times at
a level necessary to insure quality care for such patients and
comply, in all material respects, with all applicable laws, rules,
regulations and orders including, without limitation, any Health
Care Permits or other Licenses and with the terms of all
Reimbursement Contracts and obtain and renew all
Health Care Permits and Licenses necessary for the operation of
the Property.
(b) Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii)
all lawful claims that, if unpaid, might by law become a Lien upon
the Property; provided, however, that Borrower shall not be
required to pay or discharge any such tax, assessment, charge or
claim that is being contested in good faith and by proper
proceedings and as to which appropriate reserves are being
maintained, unless and until any Lien resulting therefrom attaches
to the Property and becomes enforceable against its other
creditors.
(c) Compliance with Environmental Laws. Comply, and cause all
lessees and other Persons operating or occupying the Property to
comply, in all material respects, with all applicable
Environmental Laws and Environmental Permits; obtain and renew all
Environmental Permits necessary for its operations and the
Property; and conduct any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other
action necessary to remove and clean up all Hazardous Materials
from the Property, the existence, condition, handling, storage or
treatment of which violates applicable Environmental Laws, in
accordance with the requirements of all Environmental Laws;
provided, however, that Borrower shall not be required to
undertake any such cleanup, removal, remedial or other action to
the extent that its obligation to do so is being contested in good
faith and by proper proceedings and appropriate reserves are being
maintained with respect to such circumstances.
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(d) Preservation of Existence, Etc. Preserve and maintain its
existence, legal structure, legal name, rights (charter and
statutory), permits, licenses, approvals, privileges and
franchises; provided, however, that Borrower shall not be required
to preserve any right, permit, license, approval, privilege or
franchise if the General Partner shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of Borrower, as the case may be, and that the loss
thereof is not disadvantageous in any material respect to Borrower
or the Lender.
(e) Visitation Rights. At any reasonable time and from time to
time, permit the Lender or any agents or representatives thereof,
to examine and make copies of and abstracts from the records and
books of account of, and visit the Property and to discuss the
affairs, finances and accounts of Borrower with any of their
officers or employees and with their independent certified public
accountants; provided, however, that prior to the occurrence of an
Event of Default, the Lender shall exercise such rights only upon
reasonable prior written notice to Borrower and during regular
business hours.
Preparation of Environmental Reports. If the Lender reasonably
suspects that the Property has been contaminated or that Hazardous
Materials are being used on the Property in violation of the terms
of this Agreement or applicable Law and the Lender has requested
an environmental site assessment report, provide to the Lender
within sixty (60) days after such request, at the expense of
Borrower, an environmental site assessment report for Property,
prepared by an environmental consulting firm acceptable to the
Lender, indicating the presence or absence of Hazardous Materials
and the estimated cost of any compliance, removal or remedial
action in connection with any Hazardous Materials on such
properties; without limiting the generality of the foregoing, if
such report is not provided within the time referred to above, the
Lender may retain an environmental consulting firm to prepare such
report at the expense of Borrower, and Borrower hereby grants to
the Lender, such firm and any agents or representatives thereof an
irrevocable non-exclusive license, subject to the rights of
tenants, to enter onto the Property to undertake such an
assessment; provided that any such environmental assessment report
shall be a Phase I Report unless such Phase I Report discloses the
need for further investigation.
(g) Keeping of Books. Keep proper books of record and account, in
which full and correct entries shall be made of all financial
transactions and the assets and business of Borrower in accordance
with GAAP.
(h) Management of the Property. Operate the Property at all times
as Health Care Facilities in accordance with all applicable Laws.
Upon the occurrence and continuance of an Event of Default, the
Lender may require Borrower to enter into a Management Agreement,
on terms and conditions reasonably acceptable to Lender, with
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a Manager who shall be a nationally recognized first-class manager
of assisted living facilities. As a condition to retaining any
Manager, Borrower shall cause such Manager to enter into an
agreement to subordinate its management fees in such form
acceptable to the Lender in its sole discretion.
(i) ERISA. Deliver to the Lender such certifications or other
evidence from time to time throughout the term of the Loan, as
reasonably requested by the Lender, that (i) each Borrower is not
an "employee benefit plan" as defined in Section 3(3) of ERISA,
which is subject to Title I of ERISA, or a "governmental plan"
within the meaning of Section 3(32) of ERISA; (ii) Borrower is not
subject to state statutes regulating investments and fiduciary
obligations with respect to governmental plans; and (iii) one or
more of the following circumstances is true:
(A) equity interests in Borrower are publicly offered securities,
within the meaning of29 C.F.R. 2510.3-101(b)(2);
(B) less than twenty-five percent (25%) of each outstanding class
of equity interests in Borrower are held by "benefit plan
investors" within the meaning of29 C.F.R. Section 2510.3-101((2);
or
(C) Borrower qualifies as an "operating company" or a "real estate
operating company" within the meaning of29 C.F.R. 2510.3-101(c)
or (e) or an investment company registered under The Investment
Company Act of 1940.
(j) Appraisals. Borrower shall furnish to the Lender at Borrower's
expense
upon request of the Lender after the Closing Date and prior to the
Maturity Date an Appraisal from an Appraiser upon the occurrence
of a refinancing of the Loan by the Lender or any Affiliate of the
Lender. The Lender, at its own expense, shall have the right to
obtain one or more Appraisals of the Property and Borrower shall
cooperate with Lender and any Appraiser to the extent necessary to
obtain such Appraisal.
(k) Reimbursement Contracts. Maintain in full force and effect all
Reimbursement Contracts except where the failure to do so would
not have a Material Adverse Effect.
(1) Specified Repairs. Promptly commence and diligently pursue to
completion the Specified Repairs such that all such Specified
Repairs shall be completed within one (1) year after the Closing
Date.
(m) Operation and Maintenance Program. Establish and maintain an
operations and maintenance program within thirty (30) days from
the date hereof with respect to Asbestos and Asbestos-Containing
Materials located at the Property, which
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operations and maintenance program shall comply with all
applicable Laws, conform to applicable guidelines established by
federal, state or local governmental agency or otherwise be
designed to incorporate all prudent and reasonable safeguards in
order to minimize any health risk to the patients, residents,
employees and guests at the aforementioned sites from the presence
of Asbestos or Asbestos-Containing Materials.
(n) Repairs. Maintain or cause to be maintained the Property in
good order, repair and operating condition, ordinary wear and tear
excepted, make or cause to be made promptly, when necessary, all
necessary repairs, restorations, renewals, replacements, additions
and improvements thereto, interior and exterior, structural and
nonstructural; foreseen and unforeseen, or otherwise necessary to
insure that the same as part of the security under the Mortgage
shall not in any way be diminished or impaired in any material
respect, and not cause or allow the Property to be misused, wasted
or to deteriorate.
(o) Replacement of Equipment. Keep the Property fully equipped and
will replace in the ordinary course of business all worn out or
obsolete equipment in accordance with applicable standards of Laws
to operate as a Health Care Facility.
SECTION 5.02. Negative Covenants. So long as any portion of the
Loan shall remain unpaid, Borrower will not, at any time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer
to exist, any Lien on or with respect to the Property of any
character (including, without limitation, accounts) whether now
owned or hereafter acquired, or sign or file or suffer to exist,
under the Uniform Commercial Code of any jurisdiction, a financing
statement that names Borrower as debtor, or sign or suffer to
exist, any security agreement authorizing any secured party
thereunder to file such financing statement, or assign any
accounts or other right to receive income, excluding, however,
from the operation of the foregoing restrictions the following:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens; and
(iii) the replacement, extension or renewal of any Lien permitted
by clause (ii) above upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without
increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
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<PAGE>
(b) Debt. Create, incur, assume or suffer to exist, any Debt other
than:
(i) Debt under the Loan Documents;
(ii) unsecured Debt not evidenced by promissory notes incurred in
the ordinary course of business for the deferred purchase price of
property or services, maturing within one year from the date
created, and aggregating not more than $500,000 at any one time
outstanding;
(iii) trade payables that are more than ninety (90) days past due;
provided, that such trade payables (i) are no more than one
hundred twenty (120) days past due and (ii) represent no more than
ten percent (10"%) of Borrower's aggregate trade payables; and
(iv) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business.
(c) Lease Obligations. Create, incur, assume or suffer to exist,
any obligations as lessee (i) for the rental or hire of real or
personal property in connection with any sale and leaseback
transaction, or (ii) for the rental or hire of other real or
personal property of any kind under leases or agreements to lease,
including Capitalized Leases having an original term of one year
or more, other than leases of equipment entered into in the
ordinary course of business provided that the total annual
monetary obligations under any such equipment lease or leases
shall not exceed $500,000 in aggregate.
(d) Sales, Etc., of Assets. Sell, lease, transfer or otherwise
dispose of any Collateral (except to the extent Equipment (i) is
being replaced by Equipment of equal or better quality or (ii)
that has become obsolete or worn-out is disposed of in the
ordinary course of any of Borrower's business), or grant any
option or other right to purchase, lease or otherwise acquire any
Collateral, except sales of the Property for cash and for a price
not less than the Release Price for the Property, provided that
Borrower shall, on the date of receipt by Borrower of the proceeds
from such sale, prepay the Loan pursuant to, and in the amount set
forth in, Section 8.01.
(e) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its-
business as carried on at the date hereof, except as permitted
pursuant to Section 5.04.
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Amendments of its Organizational Documents. Amend its
Organizational Documents, unless such amendment would not cause a
Material Adverse Effect to occur.
(g) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies
or reporting practices, except as required by GAAP, unless such
change would not cause a Material Adverse Effect to occur.
(h) Management Agreement. Enter into any management agreement
other than a Management Agreement.
(i) Negative Pledge. Enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien
upon any of its property or assets other than in favor of the
Lender.
(j) ERISA. Engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the
exercise by the Lender of any of its rights under the Note, this
Agreement and the Loan Documents) to be a non-exempt (under a
statutory or administrative class exemption) prohibited
transaction under ERISA.
(k) Licenses. (i) Assign, transfer, rescind, withdraw, revoke,
amend, modify, supplement, or otherwise alter the nature, tenor or
scope of the Licenses for the Property except to the extent
necessary to operate the Property in accordance with prudent
business standards for assisted living facilities and provided
that no such action would result in a Material Adverse Effect; or
(ii) amend or otherwise change the Property's authorized bed
.capacity and/or the number of beds approved by the DOH.
(1) Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of Borrower, except in the ordinary
course of business and on terms which are fully disclosed to
Lender in advance and are no less favorable to Borrower or such
Affiliate than would be obtained in a comparable arm's length
transaction with an
unrelated third party.
(m) Fiscal Year. Change its Fiscal Year unless such change would
not adversely affect the ability of such Borrower to obtain
Medicare and Medicaid cost reimbursements.
(n) Repairs/Maintenance. No part of the Property shall be removed,
demolished or structurally or materially altered nor shall any new
building, structure, facility or other improvement be constructed
on the properties without Lender's prior written consent in the
case of each such removal, demolition, alternation or
construction.
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SECTION 5.03. Reporting Requirements. So long as any portion of
the Loan shall remain unpaid, Borrower will furnish to the Lender:
(a) Default Notice. As soon as possible and in any event within
five (5) days after the occurrence of each Default or any event,
development or occurrence reasonably likely to have a Material
Adverse Effect continuing on the date of such statement, a
statement of Borrower setting forth details of such Default and
the action that Borrower has taken and proposes to take with
respect thereto.
(b) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, a balance
sheet of Borrower as of the end of such month and a statement of
income and a statement of cash flows of Borrower and the Property
for the period commencing at the end of the previous month and
ending with the end of such month and a statement of income and a
statement of cash flows of Borrower and the Property for the
period commencing at the end of the previous Fiscal Year and
ending with the end of such month, setting forth in each case in
comparative form the corresponding figures (i) set forth in the
applicable budget for such Fiscal Year and (ii) for the
corresponding month of the preceding Fiscal Year, all in
reasonable detail and duly certified by Borrower and the Manager.
(c) Quarterly Financials. As soon as available and in any event
within forty five (45) days after the end of each quarter, a
balance sheet of Borrower as of the end of such quarter and a
statement of income and a statement of cash flows of Borrower and
of the Properly for the period commencing at the end of the
previous quarter and ending with the end of such quarter and a
statement of income and a statement of cash flows of Borrower and
the Property for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, setting forth
in each case in comparative form the corresponding figures (i) set
forth in the applicable budget for such Fiscal Year and (ii) for
the corresponding quarter of the preceding Fiscal Year, all in
reasonable detail and duly certified by Borrower;
(d) Annual Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, a
balance sheet of Borrower and of the General Partner as of the end
of such Fiscal Year and a statement of income and a statement of
cash flows of such Borrower for such Fiscal Year, [which in the
case of the General Partner shall be accompanied by an opinion
acceptable to the Lender of a nationally recognized public
accountant firm acceptable to the Lender, and a certificate of the
chief financial officer of Borrower in the form of Exhibit D
attached hereto stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a
statement as to the nature thereof and the action that Borrower
has taken
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and proposes to take with respect thereto.) In addition, as soon
as available and in any event within ninety (90) days after the
end of each Fiscal Year, a complete set of the Federal tax returns
of Borrower.
(e) Annual Budgets. As soon as available and in any event no later
than thirty (30) days before the end of each Fiscal Year,
forecasts prepared by management of Borrower, in form reasonably
satisfactory to the Lender, of balance sheets, income statements
and cash flow statements on a monthly basis for the Fiscal Year
following such Fiscal Year then ended and on an annual basis for
each Fiscal Year thereafter.
Litigation. Promptly after the commencement thereof, notice of all
actions, suits, investigations, litigation and proceedings before
any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, affecting any Loan
Party or any of its Subsidiaries of the type described in Section
4.01(h), and promptly after the occurrence thereof, notice ofany
adverse change in the status or the financial effect on any Loan
Party or any of its Subsidiaries of the Disclosed Litigation from
that described on the Disclosure Schedule.
(g) Environmental Conditions. Promptly after the assertion or
occurrence thereof, notice of any Environmental Action against or
of any noncompliance by the Property with any Environmental Law or
Environmental Permit.
(h) Cost Reports. To the extent applicable during the term of this
Agreement, within ten ( 10) days of the date of the required
filing of cost reports of the Properly with the Medicaid or
Medicare agency or the date of actual filing of such cost report
of the Properly with such agency, whichever is earlier, Borrower
shall furnish to the Lender a complete and accurate copy of the
annual Medicaid and Medicare cost reports for the Property, which
will be prepared by an independent certified public accountant or
by an experienced cost report preparer acceptable to the Lender,
and promptly furnish the Lender any amendments filed with respect
to such reports and all responses, audit reports or inquiries with
respect to such reports.
(i) Licensing Agency Report. Within fifteen (IS) days of receipt,
Borrower shall furnish to the Lender a copy of any Medicare,
Medicaid or licensing agency survey or report and any statement of
deficiencies, and within the time period required by the
particular agency for furnishing a plan of correction. Borrower
shall also furnish or cause to be furnished to the Lender a copy
of the plan of correction generated from such survey or report for
the Property, and correct or cause to be corrected any deficiency,
the curing of which is a condition of continued licensure or for
full participation in Medicare and Medicaid for existing patients
or for new patients to be admitted with Medicare or
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Medicaid coverage, by the date required for cure by such agency
(plus extensions granted by such agency).
(j) Notices. Within five (5) days after receipt, Borrower shall
furnish to the Lender any and all written notices from any
licensing and/or certifying agency that a Property's license or
the Medicare or Medicaid certification of the Property 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 Property's license or
certification.
(k) [Reserved].
(1) Property Data. Within forty-five (45) days of the end of each
fiscal
quarter, a statement o fthe number of bed days available and the
actual patient days incurred for the quarter, together with
quarterly census information of the Property as of the end of such
quarter by patient-mix (i.e., private, Medicare, Medicaid, and
V.A.) the average quarterly census of the Property, certified by a
financial officer of Borrower to be true and correct in all
material respects.
(m) Medicare/Medicaid Downgrades, Etc. As soon as possible, but no
later than ten (10) days after Borrower's receipt, any and all
written notices from any and all licensing and/or certifying
agencies that the Property's license, and/or the Medicare and/or
Medicaid certification is being downgraded to a substandard
category, revoked, or suspended.
(n) Bed Taxes. If requested by Lender, evidence of payment by
Borrower of any applicable provider bed taxes or similar taxes.
(o) Accounts Aging Report. If requested by Lender, an accounts
aging report of the Property.
(p) Reimbursement Rates. Within twenty (20) days of receipt, the
State of Washington Medicaid Reimbursement Rates for the Property.
(q) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations,
performance, property or prospects of any Loan Party as the Lender
may from time to time reasonably request.
SECTION 5.04. Single Purpose Entity. Borrower covenants and agrees
that it has not and shall not:
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(a) engage in any business or activity other than the ownership,
operation and maintenance of the Property as assisted living
facilities (including the providing of health care services), and
activities incidental thereto;
(b) acquire or own any material assets other than (i) the
Property, and (B) such incidental personal property as may be
necessary for the operation of the Property;
(c) merge into or consolidate with any person or entity or
dissolve, terminate or liquidate in whole or in part, transfer or
otherwise dispose of all or substantially all of, its assets or
change its legal structure, without, in each case, the Lender s
consent;
(d) fail to preserve its existence as an entity duly organized,
validly existing and in good standing (if applicable) under the
Laws of the jurisdiction of its organization or formation, or
without the prior written consent of the Lender, amend, modify,
terminate or fail to comply with the provisions of Borrower's
partnership agreement limited liability company agreement,
articles or certificate of incorporation, certificate of
organization, operating agreement or similar organizational
documents, as the case may be, whichever is applicable, as the
same may be further amended or supplemented, if such amendment,
modification, termination or failure to comply would (i) create an
amendment to the limitations on the amendment of such documents as
contained therein, (ii) affect the provisions of such documents
pertaining to the matters set forth in this Section 5.04, or (iii)
materially adversely affect the ability of Borrower to perform the
Obligations or its obligations under the Note or the Loan
Documents;
(e) own any subsidiary or make any Investment in, any person or
entity without the consent of the Lender;
(f) commingle its assets with the assets of any of its Affiliates,
principals or of any other person or entity;
(g) except as provided in Section 5.02, incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any
obligation), other than the Obligations of Borrower under the Loan
Documents;
(h) fail to maintain its Solvency status or fail to pay its debts
and liabilities from its assets as the same shall become due;
(i) fail to maintain its records, books of account and bank
accounts separate and apart from those of the principals and
Affiliates of Borrower and any other person or entity;
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(j) enter into any contract or agreement with any principal or
Affiliate of Borrower or any principal or Affiliate thereof,
except upon terms and conditions that are intrinsically fair and
substantially similar to those that would be available on an arms-
length basis with third parties other than any principal or
Affiliate of Borrower, or any principal or Affiliate thereof;
(k) seek the dissolution or winding up in whole, or in part, of
Borrower;
(1) fail to correct any known misunderstandings regarding the
separate identity of Borrower, which understanding if uncured
would result in a Material Adverse Effect;
(m) hold itself out to be responsible for the debts of another
person except for Borrower hereunder;
(n) make any loans or advances to any third party, including any
principal or Affiliate of Borrower;
(o) pledge its assets for the benefit of any third party,
principal or Affiliate of Borrower;
(p) fail to file tax returns;
(q) agree to, enter into or consummate any transaction which would
render the representation set forth in Section 4.01(k) or 4.01(1)
untrue at any time;
(r) fail either to hold itself out to the public as a legal entity
separate and distinct from any other entity or person or to
conduct its business solely in its own name in order not (i) to
mislead others as to the identity with which such other party is
transacting business, or (ii) to suggest that Borrower is
responsible for the debts of any third party (including any
principal or Affiliate of Borrower or any principal or Affiliate
thereof;
(s) fail to maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and
in light of its contemplated business
operations;
(t) fail to pay the salaries of its own employees and maintain a
sufficient number of employees in light of its contemplated
business operations;
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(u) file or consent to the filing of any petition, either
voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or
make an assignment for the benefit of creditors;
(v) except as in existence on the date hereof, share any common
logo with or hold itself out as or be considered as a department
or division of any principal or Affiliate of Borrower or any other
person or entity;
(w) fail to allocate any overhead for shared office space in a
fair and reasonable manner; or
(x) fail to use separate stationary, invoices and checks;
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) (i) if the payment of any principal is not paid under the Note
when the same shall be due and payable or (ii) if the payment of
any interest payable under the Note is not made, or if any other
payment under any Loan Document is not made, in each case under
this clause. (ii) within five (5) days after the same becomes due
and payable; or
(b) any representation or warranty made by any Loan Party (or any
of its officers) under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when
made; or
(c) if any provision of the Organizational Documents affecting the
purpose for which Borrower is formed is amended or modified in any
manner which is reasonably likely to result in a Material Adverse
Effect, or if Borrower fails to perform or enforce the provisions
of the Organizational Documents in a manner that is reasonably
likely to result in a Material Adverse Effect or attempt to
dissolve Borrower; or
(d) if a Change of Control has occurred with respect to Borrower
other than a Change of Control resulting from the death or
incapacity of any natural person; or
(e) if the General Partner merges with, consolidates with or sells
substantially all of its assets to, another entity without the
consent of the Lender; provided, however, that in connection with
any such merger, consolidation or sale of all or substantially all
of
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the assets of the General Partner, the Lender will not withhold
its consent, provided that the Lender reasonably determines that
such surviving entity's financial condition is not materially less
than that of the General Partner; or
(f) if the Property eligible at any time to participate in the
Medicare and Medicaid program, becomes decertified and Borrower
does not, within thirty (30) days after obtaining actual knowledge
or receiving written notice of such decertification, effect a
release of the Property pursuant to Section 8.01; or
(g) except as expressly permitted in this Agreement, any of the
Licenses shall be terminated, canceled or revoked such that the
Property is no longer licensed to operate as a Health Care
Facility and Borrower does not, within thirty (30) days after
obtaining actual knowledge or receiving written notice of such
termination, cancellation or revocation either (i) cause the
restoration of reissuance of such License or (ii) effect a release
of the Property pursuant to Section 8.01; or
(h) if Borrower shall fail to correct, within the time deadlines
set by any Medicare, Medicaid or licensing agency, any material
deficiency that justifies either (i) a termination of Borrower's
Medicare contract, Medicaid contract, or assisted living facility
or nursing facility license; or (ii) a ban on new admissions
generally or on admission of patients otherwise qualifying for
Medicaid or Medicare coverage; or
(i) if Borrower shall violate or fail to comply with any of the
provisions of Section 5.02 or 5.04( or
(j) if Borrower shall fail to keep in full force and effect the
policies of insurance required pursuant to the Mortgage, or if
such policies are not delivered to the Lender upon request or
Borrower has not delivered evidence of the renewal of such
policies thirty (30) days prior to their expiration as required by
the Mortgage; or
(k) any Loan Party shall fail to perform any other term, covenant
or agreement contained in any Loan Document on its part to be
performed or observed if such failure shall remain unremedied for
thirty (30) days after the earlier of the date on which (A) a
Responsible Officer becomes aware of such failure or (B) written
notice thereof shall have been given to Borrower by the Lender; or
(1) any Loan Party shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or
against any Loan Party seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of
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it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted
against it (but not instituted by it) that is being diligently
contested by it in good faith, either such proceeding shall remain
undismissed or unstayed for a period of sixty (60) days or any of
the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or any substantial part of its property) shall
occur; or any Loan Party shall take any corporate action to
authorize any of the actions set forth above in this subsection
(I); or
(m) any judgment or order for the payment of money in excess
of$1,000,000 shall be rendered against Borrower and either (i)
enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of
ten ( 10) consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(n) any non-monetary judgment or order shall be rendered against
any Loan Party that is reasonably likely to have a Material
Adverse Effect, and there shall be any period of ten ( 10)
consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(o) any provision of any Loan Document after delivery thereof
pursuant to Section 3.01 shall for any reason cease to be valid
and binding on or enforceable against any Loan Party to it and the
Lender's ability to collect any amounts due or enforce the Loan
Documents would be materially impaired, or any such Loan Party
shall so state in writing; or
(p) any Collateral Document after delivery thereof pursuant to
Section 3.01 shall for any reason (other than pursuant to the
terms thereof cease to create a valid and perfected first priority
lien on and security interest in the Collateral purported to be
covered thereby; or
(q) except as permitted under Section 5.02(d), Borrower shall
sell, transfer or encumber any of the Property or any interest
therein;
then, and in any such event, the Lender (i) may by notice to
Borrower, declare the Note, all interest thereon and all other
amounts payable under this Agreement and the other Loan Documents
to be forthwith due and payable, including, without limitation,
the Exit Fee, whereupon the Note, all such interest and all such
amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of
which are
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hereby expressly waived by Borrower; provided, however, that in
the event of an actual or deemed entry of an order for relief with
respect to any Loan Party under the Federal Bankruptcy Code, the
Note, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand,
protest or. any notice of any kind, all of which are hereby
expressly waived by Borrower.
ARTICLE VII
SECONDARY MARKET SERVICING
SECTION 7.01. Assignments and Participations. (a) The Lender may
assign to one or more Persons all or a portion of its rights and
obligations under this Agreement (including, without limitation,
all or a portion of the Note) (each, an "Assignee"); provided that
the parties to each such assignment shall execute and deliver to
the Lender, for its acceptance and recording in the Register, an
Assignment and Acceptance.
(b) Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have
the rights and obligations of a Lender, as the case may be,
hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a
party hereto).
(c) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the Assignee thereunder confirm to
and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such
assigning Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or
any other Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or
purported to be created under or in connection with, this
Agreement or any other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; (ii) such assigning
Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower
or any other Loan Party or the performance or observance by any
Loan Party of any of its obligations under any Loan Documents or
any other instrument or document furnished pursuant thereto; (iii)
such assignee confirms that it has received a copy
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of this Agreement, together with copies of the financial
statements referred to in Section 4.01 and Section 5.03 and such
other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently
and without reliance upon the Lender, such assigning Lender or any
other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes the Lender to
take such action as agent on its behalf and to exercise such
powers and discretion under the Loan Documents as are delegated to
the Lender by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement
are required to be performed by it as a Lender, as the case may
be.
(d) The Lender shall maintain at its address referred to in
Section 10.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the
names and addresses of the Lender Parties and the principal amount
of the Loan owing to each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and Borrower, the
Lender and the Lender Parties shall treat each Person whose name
is recorded in the Register as a Lender Party hereunder for all
purposes of this Agreement. The Register shall be available for
inspection by Borrower or any Lender Party at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by
an assigning Lender Party and an assignee, together with Note
subject to such assignment, the Lender shall, if such Assignment
and Acceptance has been completed and is in substantially the form
of Exhibit B hereto, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to Borrower. In the case of any
assignment by a Lender, within five (5) Business Days after its
receipt of such notice, Borrower, at its sole cost and expense
shall execute and deliver to the Lender in exchange for the
surrendered Note a new Note to the order of such Assignee in an
amount equal to the outstanding and unpaid portion of the Loan
assigned to it and a new Note to the order of the assigning Lender
in an amount equal to the outstanding and unpaid portion of the
Loan retained by it hereunder. Such new Note shall be in an
aggregate outstanding and unpaid principal amount equal to the
aggregate outstanding and unpaid principal amount of such
surrendered Note, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in the form of
the Note.
(f) Each Lender Party may sell participations to one or more
Persons (other than any Loan Party or any of its Affiliates) in or
to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of the
Note held by it); provided, however, that (i) such Lender Party's
obligations under this Agreement shall remain
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unchanged, (ii) such Lender Party shall remain solely responsible
to the other parties hereto for the performance of such
obligations, (iii) such Lender Party shall remain the holder of
any such Note for all purposes of this Agreement, and (iv)
Borrower, the Lender and the other Lender Parties shall continue
to deal solely and directly with such Lender Party in connection
with such Lender Party's rights and obligations under this
Agreement.
(g) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to
this Section 7.01, disclose to the assignee or participant or
proposed assignee or participant, any information relating to the
related Borrower furnished to such Lender Party by or on behalf of
the related Borrower; provided, however, that, prior to any such
disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any
Confidential Information received by it from such Lender Party.
(h) Notwithstanding any other provision set forth in this
Agreement, any Lender Party may at any time create a security
interest in all or any portion of its rights under this Agreement
(including, without limitation, the Advances owing to it and the
Note held by it) in favor of any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the
Federal Reserve System.
SECTION 7.02. Securitization. (a) Lender, at its option, may elect
to effect a securitization of the Loan by means of the issuance of
certificates of interest therein or notes secured thereby (the
"Securities") rated by one or more rating Agencies (the
"Securitization"). In such event and upon request by Lender,
Borrower and the General Partner shall cooperate (in each case, at
the Lender's sole cost and expense) in all reasonable respects
with Lender in the Securitization, including, but not limited to,
(i) amending this Agreement and the other Loan Documents in order
to bifurcate the Loan into two or more constituent loans on the
same terms as set forth herein and therein, (ii) providing
information in connection with obtaining preliminary ratings from
two or more Ratings Agencies in preparation of a private placement
memorandum or registration statement required to privately place
or publicly distribute the Securities in a manner which does not
conflict with federal or state securities laws, (iii) delivery of
interim audited financials and updated information; or (iv)
delivery ofu pdated information with respect to Borrower or the
General Partner; provided, however, that no such cooperation shall
have any adverse effect on Borrower or the General Partner.
(b) Borrower hereby covenants and agrees that in the event of a
Securitization, Borrower shall (i) provide a favorable opinion
acceptable to Lender of Foster, Pepper & Shefelman, as to the
likelihood of the assets of Borrower being substantively
consolidated with those of Baty or any owner of greater than forty-
nine percent (49"%) interest in Borrower in an insolvency
proceeding, with respect to such owner, and (ii) the General
Partner shall have at least one independent director that is not
and has not been for at least three (3) years a director, officer,
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employee or significant shareholder (or spouse, parent, sibling or
child of the foregoing) of (1 ) the Borrower, (2) the General
Partner, or (3) any principal or Affiliate of the Borrower or
Emeritus.
SECTION 7.03. Servicing. At any time after the Closing Date, the
Lender shall have the right to transfer the servicing of the Loan
and the administration of the Loan Documents to such party as
shall be designated by the Lender in its reasonable discretion
(together with any successor service appointed by the Lender, the
"Loan Servicer"). The Loan Servicer shall have such right to
exercise all rights of the Lender and enforce all obligations of
Borrower pursuant to the provisions of this Agreement, the Note
and the other Loan Documents, and Borrower shall deliver to Loan
Servicer duplicate originals of all notices and other instruments
which Borrower may deliver pursuant to this Agreement, the Note
and the other Loan Documents (and no delivery of such notices or
other instruments by Borrower shall be of any force or effect
unless delivered to Lender and Loan Servicer as provided above).
ARTICLE VIII
[RESERVED)
ARTICLE IX
[RESERVED)
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the Note or any other Loan
Document, nor consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in
writing and signed (or, in the case of the Collateral Documents,
consented to) by the Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific
purpose for which given.
SECTION 10.02. Notices, Etc. All notices and other communications
provided for hereunder shall be in writing (including telegraphic,
telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to Borrower, at its address
at c/o Columbia Pacific, 3131 Elliott Avenue, Suite 500, Seattle,.
Washington 98121 Attention: Chief
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Financial Officer, with a copy to Emeritus Corporation, 3131
Elliott Avenue, Suite 500, Seattle, Washington 98121 Attention:
General Counsel; and if to the Lender, at its address at 31 West
52nd Street, New York, New York 10019, Attention: General Counsel
with a copy to the Loan Servicer at an address specified by the
Loan Servicer; or as to each other party, at such other address as
shall be designated by such party in a written notice to Borrower
and the Lender. All such notices and communications shall, when
mailed, telecopied or sent via overnight courier, be effective
when deposited in the mails, confirmed by telex answerback or
delivered to an overnight courier, respectively, except that
notices and communications to the Lender pursuant to Article II,
III or VII shall not be effective until received by the Lender.
Delivery by telecopier of an executed counterpart of any amendment
or waiver of any provision of this Agreement or the Note or of any
Exhibit hereto to be executed and delivered hereunder shall be
effective as delivery of a manually executed counterpart thereof.
SECTION 10.03. No Waiver; Remedies. No failure on the part of any
Lender Party or the Lender to exercise, and no delay in
exercising, any right hereunder or under the Note shall operate as
a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 10.04. Costs, Expenses. (a) Except as expressly provided
to the contrary herein, Borrower agrees to pay on demand (i) all
reasonable costs and expenses of the Lender or Loan Servicer in
connection with the preparation, execution, delivery,
administration, and when requested by Borrower, the modification
and amendment of the Loan Documents (including, without
limitation, (A) all due diligence, collateral review, appraisal as
expressly provided for herein, audit, insurance, consultant,
search, filing and recording fees and expenses and (B) the
reasonable fees and expenses of counsel for the Lender or Loan
Servicer with respect thereto, with respect to advising the Lender
or Loan Servicer as to its rights and responsibilities, or the
perfection, protection or preservation of rights or interests,
under the Loan Documents, with respect to negotiations with any
Loan Party or with other creditors of any Loan Party or any of its
Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to
presenting claims in or otherwise participating in or monitoring
any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto)
and (ii) all costs and expenses of the Lender or Loan Servicer in
connection with the enforcement of the Loan Documents, whether in
any action, suit or litigation, any bankruptcy, insolvency or
other similar proceeding affecting creditors' rights generally
(including, without limitation, the reasonable fees and expenses
of counsel for the Lender and with respect thereto).
(b) Borrower agrees to indemnify and hold harmless the Lender, the
Loan Servicer and each of their respective Affiliates and their
officers, directors, employees, agents and advisors (each, an
"Indemnified Party") from and against any and all claims, damages,
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losses, liabilities and expenses (including, without limitation,
reasonable fees and expenses of counsel) that may be incurred by
or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of (including,
without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection
therewith) (i) the Loan, the actual or proposed use of the
proceeds ofthe Loan, the Loan Documents or any of the transactions
contemplated thereby, including, without limitation, any
acquisition or proposed acquisition (including, without
limitation, the acquisition and any of the other transactions
contemplated hereby) or (ii) the actual or alleged presence of
Hazardous Materials on the Property or any Environmental Action
relating in any way to the Property, except to the extent such
claim, damage, loss, liability or expense is found in a final, non-
appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party' s gross negligence or
willful misconduct. In the case of an investigation, litigation or
other proceeding to which the indemnity in this Section 10.04(lb)
applies, such indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by any Loan
Party, its directors, shareholders or creditors or an Indemnified
Party or any Indemnified Party is otherwise a party thereto and
whether or not the transactions contemplated hereby are
consummated. Borrower also agrees not to assert any claim against
the Lender or any of its Affiliates, or any of their respective
officers, directors, employees, attorneys and agents, on any
theory of liability, for special, indirect, consequential or
punitive damages arising out of or otherwise relating to the Loan,
the actual or proposed use of the proceeds of the Loan, the Loan
Documents or any of the transactions contemplated thereby. THE
FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS EXPRESSLY
APPLIES, WITHOUT LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.
(c) If any Loan Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including,
without limitation, fees and expenses of counsel and indemnities,
such amount may be paid on behalf of such Loan Party by the
Lender, in its sole discretion.
(d) Without prejudice to the survival of any other agreement of
any Loan Party hereunder or under any other Loan Document, the
agreements and obligations of Borrower contained in Sections 2.08
and 2.09 and this Section 10.04 shall survive the payment in full
of principal, interest and all other amounts payable hereunder and
under any of the other Loan Documents.
SECTION 10.05. [Reserved].
SECTION 10.06. Binding Effect. This Agreement shall become
effective when it shall have been executed by Borrower and the
Lender and thereafter shall be binding upon and inure to the
benefit of Borrower and the Lender and their respective successors
and assigns, except that Borrower shall not have the right to
assign its rights hereunder or any interest herein without the
prior written consent of the Lender.
SECTION 10.07. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 10.08. Jurisdiction, Etc. (a) Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State
court or federal court of the United States of America sitting in
New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement
or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be
heard and determined in any such New York State court or, to the
extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right
that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection that it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to
which it is a party in any New York State or federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
SECTION 10.09. Governing Law. This Agreement and the Note shall be
governed by, and construed in accordance with, the laws of the
State of Washington.
SECTION 10.10. Waiver of Jury Trial. To the maximum extent
permitted by law, Borrower, the Lender and the Lender Parties
irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan
Documents, the Advances or the actions of the Lender or any Lender
Party in the negotiation, administration, performance or
enforcement thereof.
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SECTION 10.11. Compliance with Usury Laws. It is expressly
stipulated and agreed to be the intent of Borrower and the Lender
that the Loan made hereunder comply with the usury and other laws
relating to the Loan Documents now or hereafter in ef3Eect in the
state in which the Property is located, to the extent any of the
same are applicable thereto. If any such applicable laws render
usurious any amount called for under any of the Loan Documents, or
contracted for, charged or received with respect to the Loan, or
if the acceleration of the maturity of the Loan or if any
prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is the
express intent of the parties that all excess amounts theretofore
collected the Lender be credited on the principal balance of the
Note (or, if the Note has been paid in full, refunded to
Borrower), and the provisions of the Loan Documents immediately be
deemed reformed and the amounts thereafter collected under the
Loan Documents reduced, without the necessity of the execution of
any new document, so as to comply with the then applicable law,
but so as to permit the recovery of the fullest amount otherwise
called for under the Loan Documents.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT OR FORBEAR FROM ENFORCING REPAYMENT OF A DEBT
ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
BORROWER:
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP,
a Washington limited partnership
By: Columbia Pacific Master Fund 98 General Partnership,
a Washington general partnership
By: Columbia Pacific Growth Fund 98 Limited Partnership,
a Washington limited partnership, its partner
By: B.F. Limited Partnership,
a Washington limited partnership, its general partner
By: Columbia Pacific Group, Inc.. a Washington corporation, its
general partnership
By: /s/: Daniel R. Baty
Name: Daniel R. Baty
Title: President
[CONTINUED]
<PAGE>
LENDER:
DEUTSCHE BANK AG,NEW YORK BRANCH
By: /s/: Lottie Potter
Name: LOTTIE J.POTTER
Title : ATTORNEY-I N -FACT
By: /s/: Allisson J. Michaels
Name: ALLISSON J. MICHAELS
Title: Attorney-In-Fault"
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP
The Agreement of Limited Partnership is made and entered into as
of the 29th day of June, 1998 by and among, Columbia Pacific
Master Fund '98 General Partnership, a Washington general
partnership ("CP"), Emeritus Real Estate IV, L.L.C., a Delaware
limited liability company ("Emeritus IV"), and Bella Torre De Pisa
Limited Partnership, a California limited partnership ("Bella
Torre").
The undersigned desire to amend the prior partnership agreement of
the Partnership, dated as of August 7, 1995, to reflect the fact
that CP has purchased a portion of the partnership interest held
by Emeritus IV and a portion held by Bella Torre, to convert the
remaining interest held by Emeritus IV into a limited partner
interest, and to make certain other revisions and amendments, as
set forth below. The undersigned agree to continue to operate as a
limited partnership under the laws of the state of Washington as
follows.
The parties hereto agree as follows:
1. Definitions. The following terms used in the Agreement shall
have the meanings specified below:
1.1 "Act" means the Washington Limited Partnership Act, as amended
from time to time.
1.2 "Agreement" means this Agreement of the Cooper George Partners
Limited Partnership as it may be amended from time to time.
1.3 "Assignee" means a person who has acquired a Limited Partner's
Interest in whole or part and has not become a Substitute Limited
Partner.
1.4 "Capital Account" means the account maintained for each
Partner in accordance with Section 7.5. In the case of a transfer
of an interest, the transferee shall succeed to the Capital
Account of the transferor, or, in the case of a partial transfer,
a proportionate share thereof.
1.5 "Capital Contribution" means the total amount of money and the
fair market value of all property contributed to the Partnership
by each Partner pursuant to the terms of the Agreement. Capital
Contribution shall also include any amounts paid directly by a
Partner to any creditor of the Partnership in respect of
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any guaranty or similar obligation undertaken by such Partner in
connection with the Partnership's operations. Any reference to the
Capital Contribution of a Partner shall include the Capital
Contribution made by a predecessor holder of the interest of such
Partner.
1.6 "Cash Available for Distribution" means all cash receipts of
the Partnership, excluding cash available upon liquidation of the
Partnership, in excess of amounts reasonably required for payment
of operating expenses, repayment of current liabilities, repayment
of such amounts of Partnership indebtedness as the General Partner
shall determine necessary or advisable, and the establishment of
and additions to such cash reserves as the General Partner in its
sole discretion shall deem necessary or advisable, including, but
not limited to, reserves for capital expenditures, replacements,
contingent or unforeseen liabilities or other obligations of the
Partnership.
1.7 "Code" means the United States Internal Revenue Code of 1986,
as amended. References to specific Code Sections or Treasury
Regulations shall be deemed to refer to such Code Sections or
Treasury Regulations as they may be amended from time to time or
to any successor Code Sections or Treasury Regulations if the Code
Section or Treasury Regulation referred to is repealed.
1.8 "Deemed Capital Account" means a Partner's Capital Account, as
calculated from time to time, adjusted by (i) adding thereto the
sum of (A) the amount of such Partner's Mandatory Obligation, if
any, and (B) each Partner's share of Minimum Gain (determined
after any decreases therein for such year/ and (ii) subtracting
therefrom (A) allocations of losses and deductions which are
reasonably expected to be made as of the end of the taxable year
to the Partners pursuant to Code Section 704(e)(2), Code Section
706(d) and Treasury Regulation Section 1.751-1 (b)(2)(ii), and (B)
distributions which at the end of the taxable year are reasonably
expected to be made to the Partner to the extent that said
distributions exceed offsetting increases to the Partner's Capital
Account (including allocations of the Qualified Income Offset
pursuant to Section 8.5 but excluding allocations of Minimum Gain
Chargeback pursuant to Section8.4) that are reasonably expected to
occur during (or prior to) the taxable years in which such
distributions are reasonably expected to be made.
1.9 "General Partner" means CP and those persons who are admitted
as General Partners under Section 15.3 hereof.
1.10 "Interest" or "Partnership Interest" means the ownership
interest of a Partner in the Partnership at any particular time,
including the right of such Partner to any and all benefits to
which such Partner may be entitled as
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provided in the Agreement and in the Act, together with the
obligations of such Partner to comply with all the terms and
provisions of the Agreement and the Act.
1.11 "Limited Partners" means CP, Emeritus IV and Bella Torre and
those persons who are admitted as Limited Partners under Section
14.5 hereof.
1.12 "Mandatory Obligation" means the sum of (i) the amount of a
Partner's remaining contribution obligation (including the amount
of any Capital Account deficit such Partner is obligated to
restore upon liquidation) provided that such contribution must be
made in all events within ninety (90) days of liquidation of the
Partner's interest as determined under Treasury Regulation Section
1.704- 1 (b)(2)(ii)(g) and (ii) the additional amount, if any,
such Partner would be obligated to contribute as of year end to
retire recourse indebtedness of the Partnership if the Partnership
were to liquidate as of such date and dispose of all of its assets
at book value.
1.13 "Minimum Gain" means the amount determined by computing, with
respect to each nonrecourse liability of the Partnership, the
amount of gain, if any, that would be realized by the Partnership
if it disposed of the Partnership Property subject to such
nonrecourse liability in full satisfaction thereof in a taxable
transaction, and then by aggregating the amounts so determined.
Such gain shall be determined in accordance with Treasury
Regulation Section 1.704-2(d). Each Partner's share of Minimum
Gain at the end of any taxable year of the Partnership shall be
determined in accordance with Treasury Regulation Section 1.704-
2(g)(1).
1.14 "Net Income" or "Net Loss" means taxable income or loss
(including items requiring separate computation under Section 702
of the Code) ot the Partnership as determined using the method of
accounting chosen by the General Partner and used by the
Partnership for federal income tax purposes, adjusted in
accordance with Treasury Regulation Section 1.704-1 (b)(2)(iv)(g),
for any property with differing tax and book values, to take into
account depreciation, depletion, amortization and gain or loss as
computed for book purposes.
1.15 "Partners" means the persons or entities admitted to the
Partnership as General Partners and Limited Partners.
1.16 "Partnership" means the Limited Partnership created and
governed by the Agreement.
1.17 "Partnership Property" means any real or personal property
owned by the Partnership.
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1.18 "Percentage Interest" means the percentage interest of each
Partner as set forth on Appendix A.
1.19 "Project" means the assisted living facility located in
Spokane, Washington, commonly known as the Cooper George
Retirement Center, together with any and all improvements as shall
be made to such property by the Partnership from time to time.
1.20 "Substitute Limited Partner" means an Assignee who has been
admitted to all rights of Partnership pursuant to Section 14.5
hereof.
2. Formation. The Partners hereby agree to continue as a limited
partnership and operate the Partnership under the terms and
conditions set forth herein. Except as otherwise provided herein,
the rights and liabilities of the Partners shall be governed by
the Act.
3. Name. The name of the Partnership shall be COOPER GEORGE
PARTNERS LIMITED PARTNERSHIP. The General Partner may from time to
time change the name of the Partnership or adopt such trade or
fictitious names as it may determine to be appropriate.
4. Office: A ent for Service of Process. The principal office of
the Partnership shall be at 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121. Brynn E. McGuire shall be the agent for
the Partnership, or such successor as the General Partner may
designate.
5. Purposes and Limitations.
5.1 Purposes of the Partnership. The sole purpose and the business
of the Partnership is to acquire, construct, develop, own,
maintain, operate and sell the Project, and to provide such
necessary or complementary services as would customarily be
available in the operation of a full service assisted living care
residence. Notwithstanding anything contain herein to the
contrary, the Partnership shall not engage in any business, and
shall have no purpose, unrelated to the Project, and shall not
acquire real property or own assets other than those related to
the furtherance of the purposes of the Partnership.
5.2 Partnership Limitations. The Company shall not, without the
written consent of the holder of the Project Loan or refinancing
thereof:
(a) engage in any business or activity other than those set forth
in Section 5.1;
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(b) merge into or consolidate with any person or entity;
(c) hold itself out to be responsible for the debts of another
person or entity;
(d) make any loans or advances to any third party, including any
General Partner, Limited Partner or affiliate of the Partnership;
and
(e) fail to maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and
in light of its contemplated -business operations.
6. Term. The term of the Partnership commenced on the date of the
filing of the Certificate of Limited Partnership for the
Partnership in the office of the Washington Secretary of State,
and shall continue until December 31, 2025, unless sooner
dissolved, wound up and terminated in accordance with the
provisions of this Agreement and the Act.
7. Percentage Interests and Capital Contributions.
7.1 Capital Contributions. Percentage Interests. The Partners
shall have the Partnership for the Percentage Interests in the
Partnership as shown on Appendix A.
7.2 No Interest on Capital. No Partner shall be entitled to
receive interest on such Partner's Capital Contributions or such
Partner's Capital Account.
7.3 No Withdrawal of Capital. Except as otherwise provided in this
Agreement, no Partner shall have the right to withdraw or demand a
return of any or all of such Partner's Capital Contribution. It is
the intent of the Partners that no distribution (or any part of
any distribution) made to any Partner pursuant to Section 10
hereof shall be deemed a return or withdrawal of Capital
Contributions, even if such distribution represents (in full or in
part) a distribution of revenue offset by depreciation or any
other non-cash item accounted for as an expense, loss or deduction
from, or offset to, the Partnership's income, and that no Partner
shall be obligated to pay any such amount to or for the account of
the Partnership or any creditor of the Partnership. However, if
any court of competent jurisdiction holds that, notwithstanding
the provisions of this Agreement, any Partner is obligated to make
any such payment, such obligation shall be the obligation of such
Partner and not of any other Partner, including the General
Partner.
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7.4 Additional Capital.
(a) Except as otherwise provided for herein or mutually agreed
upon by the Partners, no Partner shall be obligated to make an
additional Capital Contribution to the Partnership.
(b) In the event additional capital is needed for the operation of
the Project, Emeritus IV agrees to contribute 20% of such amounts,
and CP agrees to contribute 80% of such amounts to the Partnership
for preferred partnership interest interests (the "Preferred
Interests"). The Preferred Interests shall accrue a preferred
return at nine percent per annum, compounded monthly. All capital
contributions and preferred returns with respect to Preferred
Interests shall be repaid in full prior to any Percentage Interest
distributions to the Partners.
7.5 Capital Accounts. The Partnership shall maintain a Capital
Account for each Partner in accordance with Treasury Regulations
issued under Code Section 704. The initial Capital Account balance
for each Partner shall be the amount of initial Capital
Contributions made by each Partner under Section 7.1 above
7.6 Default. In the event any Partner shall fail to contribute any
cash or property when due hereunder, such Partner shall remain
liable therefor to the Partnership, which may institute
proceedings in any court of competent jurisdiction in connection
with which such Partner shall pay the costs of such collection,
including reasonable attorneys' fees.
7.7 Financing. The General authority to enter into a refinancing
of the execute and grant such mortgages, deeds instruments and
other documents that necessary or convenient for purposes of
proceeds from such refinancing shall be Emeritus IV.
Partner is hereby granted the specific Project with Deutsche Bank,
and to of trust, assignments, pledges, notes, the General Partner
determines are obtaining such refinancing. All net distributed
80"% to CP and 20% to
8. Allocations.
8.1 Allocation of Net Loss from Operations. Except as otherwise
provided in this Section 8 and in Section 16.3, from and after the
effective date of this Agreement, the Partnership shall allocate
any Net Loss 80% to CP and 20% to Emeritus IV.
8.2 Allocation of Net Income from Operations. Except as otherwise
provided in this Section 8 and Section 16.3, from and after the
effective date of this Agreement, the Partnership shall allocate
all Net Income as follows:
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(a) First, to the Partners in proportion to, and up to the amount
of, aggregate distributions of Cash Available for Distribution
made to the Partners from the date of this Agreement through the
end of the calendar year with respect to which such allocations
are being made;
(b) Second, in proportion to, and up to the amount of, Net Losses
allocated to the Partners in accordance with Section 8.1; and
(c) Thereafter, all remaining Net Income shall be allocated in
proportion to each Partner's Percentage Interest.
8.3 Limitation on Net Loss Allocations. Notwithstanding anything
contained in this Section 8, no Limited Partner shall be allocated
Net Loss to the extent such allocation would cause a negative
balance in such Partner's Deemed Capital Account as of the end of
the taxable year to which such allocation relates.
8.4 Minimum Gain Chargeback. If there is a net decrease in Minimum
Gain during a taxable year of the Partnership, then
notwithstanding any other provision of this Section 8 or Section
16.3, each Partner must be allocated items of income and gain for
such year, and succeeding taxable years to the extent necessary
(the "Minimum Gain Chargeback"), in proportion to, and to the
extent of, an amount required under Treasury Regulation Section
1.704-2(f).
8.5 Qualified Income Offset. If at the end of any taxable year and
after operation of Section 8.4, any Limited Partner shall have a
negative balance in its Deemed Capital Account, then
notwithstanding anything contained in this Section 8, there shall
be reallocated to each Limited Partner with a negative balance in
its Deemed Capital Account (determined after the allocation of
income, gain or loss under this Section 8 for such year) each item
of Partnership gross income (unreduced by any deductions) and gain
in proportion to such negative balances until the Deemed Capital
Account for each such Limited Partner is increased to zero.
8.6 Curative Allocations. The allocations set forth in Sections
8.3, 8.4 and 8.5 (the "Regulatory Allocations") are intended to
comply with certain requirements of the Treasury Regulations
issued pursuant to Code Section 704(b). It is the intent of the
Partners that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with
special allocations of other items of Partnership income, gain,
loss, or deduction pursuant to this Section 8.6. Therefore,
notwithstanding any other provision of this Section 8 (other than
the Regulatory Allocations/, the General Partner shall make such
offsetting special allocations of Partnership income, gain, loss,
or deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Partner's Capital
Account balance is, to the extent possible, equal
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to the Capital Account balance such Partner would have had if the
Regulatory Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to Sections 8.1 and 8.2.
8.7 Modification of Partnership Allocations. It is the intent of
the Partners that each Partner's distributive share of income,
gain, loss, deduction, or credit (or items thereof) shall be
determined and allocated in accordance with this Section 8 to the
fullest extent permitted by Section 704(b) of the Code. In order
to preserve and protect the determinations and allocations
provided for in this Section 8, the General Partner shall be, and
hereby is, authorized and directed to allocate income, gain, loss,
deduction or credit (or items thereof) arising in any year
differently from the manner otherwise provided for in this Section
8 if, and to the extent that, allocation of income, gain, loss,
deduction or credit (or items thereof) in the manner provided for
in this Section 8 would cause the determination and allocation of
each Partner's distributive share of income, gain, loss, deduction
or credit (or items thereof), not to be permitted by Section
704(b) of the Code and Treasury Regulations promulgated
thereunder. Any allocation made pursuant to this Section 8.7 shall
be made only after the General Partner has secured an opinion of
counsel that such modification is the minimum modification
required to comply with Code Section 704(b) and shall be deemed to
be a complete substitute for any allocation otherwise provided for
in this Section 8 and no amendment of this Agreement or approval
of any Partner shall be required. The Limited Partners shall be
given notice of the modification within thirty (30) days of the
effective date thereof, such notice to include the text of the
modification and a statement of the circumstances requiring the
modification to be made.
8.8 Deficit Capital Accounts at Liquidation. It is understood and
agreed that one purpose of the provisions of this Section 8 is to
insure that none of the Partners has a deficit Capital Account
balance after liquidation and to insure that all allocations under
this Section 8 will be respected by the Internal Revenue Service.
The Partners and the Partnership neither intend nor expect that
any Partner will have a deficit Capital Account balance after
liquidation and, notwithstanding anything to the contrary in this
Agreement, the provisions of this Agreement shall be construed and
interpreted to give effect to such intention. However, if
following a liquidation of a Partner's interest as determined
under Treasury Regulation Section 1.704-1 (b(2)(ii)(g), a Partner
has a deficit balance in its Capital Account after the allocation
of Net Income pursuant to this Section 8 and Section 16.3 and all
other adjustments have been made to such Partner's Capital Account
for Partnership operations and liquidation, such Partner shall
have an obligation to restore such deficit balance only if such
Partner is a General Partner.
9. Partnership Expenses. The Partnership shall pay, and the
General Partner shall be reimbursed for, all costs and expenses of
the Partnership, which may include, but are not limited to:
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(a) All organizational expenses incurred in the formation of the
Partnership and the selling of interests in the Partnership;
(b) All costs of personnel employed by the Partnership;
(c) All costs reasonably related to the conduct of the
Partnership's day to day business affairs, including, but without
limitation, the cost of supplies, utilities, taxes, license fees,
and services contracted from third parties;
(d) All costs of borrowed money, taxes and assessments on
Partnership property, and other taxes applicable to the
Partnership;
(e) Legal, audit, accounting, brokerage and other fees;
(f) Printing and other expenses and taxes incurred in connection
with the issuance, distribution, transfer, registration and
recording of documents evidencing ownership of an interest in the
Partnership or in connection with the business of the Partnership;
(g) Fees and expenses paid to contractors, mortgage bankers,
brokers and services, leasing agents, consultants, on-site
managers, real estate brokers, insurance brokers and other agents,
including affiliates of the General Partner;
(h) Expenses in connection with the acquisition, preparation,
design, planning, construction, development, disposition,
replacement, alteration, repair, remodeling, refurbishment,
leasing, financing and refinancing and operation of Partnership
property (including the costs and expenses of legal and accounting
fees, insurance premiums, real estate brokerage and leasing
commissions and of maintenance of such property);
(i) The cost of insurance obtained in connection with the business
of the Partnership;
(j) Expenses of revising, amending, converting, modifying or
terminating the Partnership;
(k) Expenses in connection with distributions made by the
Partnership to, and communications and bookkeeping and clerical
work necessary in maintaining relations with Limited Partners;
(l) Expenses in connection with preparing and mailing reports
required to be furnished to the Limited Partners for investment,
tax reporting or other purposes which the General Partner deems
appropriate;
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(m) Costs incurred in connection with any litigation, including
any examinations or audits by regulatory agencies; and
(n) Costs of preparation and dissemination of informational
material and documentation relating to potential sale, refinancing
or other disposition of Partnership properties.
10. Distributions of Cash Available for Distribution. At such
times and in such amounts as the General Partner in its discretion
determines appropriate, Cash Available for Distribution shall be
distributed among the Partners in accordance with their Percentage
Interests, except as otherwise provided in Sections 7.4(b), 7.7
and 16.4.
11. Powers, Rights and Obligations of the General Partner.
11.1 General Authority and Powers of General Partner. Except as
provided in Section 11.7 and in certain parts of this Section
11.1, the General Partner shall have the exclusive right and power
to manage, operate and control the Partnership and to do all
things and make all decisions necessary or appropriate to carry on
the business and affairs of the Partnership. The General Partner
may designate a person to be responsible for the day to day
management of the Partnership. The authority of the General
Partner shall include, but shall not be limited to the following:
(a) To spend the capital and revenues of the Partnership;
(b/ To manage, sell, develop, improve, operate and dispose of any
Partnership properties, provided, however, that a sale or disposal
of the property must be approved by the Partners in accordance
with Section 11.7 below, and further provided, that capital
improvements in excess of 550,000 must be approved by the Partners
in accordance with Section 11.7 below;
(c) To employ persons, firms and/or corporations for the operation
and management of the Partnership's business and for the operation
and development of the property of the Partnership, including but
not limited to sales agents, management agents, architects,
engineers, contractors, attorneys and accountants;
(d) To acquire, lease and sell personal and/or real property, hire
and fire employees, and to do all other acts necessary,
appropriate, or helpful for the operation of the Partnership
business;
(e) To execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing powers and any other powers
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granted the General Partner under the laws of the state of
Washington or other provisions of this Agreement;
(f) To enter into and to execute agreements for employment or
services, as well as any other agreements and all other
instruments the General Partner deems necessary or appropriate to
operate the Partnership's business and to operate and dispose of
Partnership properties or to effectively and properly perform its
duties or exercise its powers hereunder;
(g) To borrow money on a secured or unsecured basis from
individuals, banks and other lending institutions to finance
construction of the project or refinance Partnership assets, to
meet other Partnership obligations, provide Partnership working
capital and for any other Partnership purpose, and to execute
promissory notes, mortgages, deeds of trust and assignments of
Partnership property, and such other security instruments as a
lender of funds may require to secure repayment of such
borrowings; provided, however, that such financing activity is
approved by the Partners of the Partnership in accordance with
Section 11.7 below; provided, that no individual, bank or other
lending institution to which the General Partner applies for a
loan shall be required to inquire as to the purpose for which such
loan is sought, and as between the Partnership and such
individual, bank or other lending institution it shall be
conclusively presumed that the proceeds of such loan are to be,
and will be, used for purposes authorized under the terms of this
Agreement;
(h) To enter into such agreements and contracts with parties and
to give such receipts, releases and discharges, with respect to
the business of the Partnership as the General Partner deems
advisable or appropriate;
(i) To purchase, at the expense of the Partnership, such liability
and other insurance as the General Partner, in its sole
discretion, deems advisable to protect the Partnership's assets
and business; however, the General Partner shall not be liable to
the Partnership or the other Partners for failure to purchase any
insurance; and
(j) To sue and be sued, complain, defend, settle and/or
compromise, with respect to any claim in favor of or against the
Partnership, in the name and on behalf of the Partnership.
11.2 Time Devoted to Partnership; Other Ventures. The General
Partner shall devote so much of its time to the business of the
Partnership as in its judgment the conduct of the Partnership's
business reasonably requires. The General Partner may engage in
business ventures and activities of any nature and description
independently or with others, whether or not in competition with
the business of the Partnership, and shall have no obligation to
disclose business opportunities available to it, and neither the
Partnership nor any of the other
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Partners shall have any rights in and to such independent ventures
and activities or the income or profits derived therefrom by
reason of its acquisition of interests in the Partnership. This
Section 11.2 is intended to modify any provisions or obligations
of the Act to the contrary and each of the Partners and the
Partnership hereby waives and releases any claims they may have
under the Act with respect to any such activities or ventures of
the Partners.
11.3 Liability of General Partner to Limited Partners and
Partnership. In carrying out their duties and exercising the
powers hereunder, the General Partner shall exercise reasonable
skill, care and business judgment. A General Partner shall not be
liable to the Partnership or a Limited Partner for any act or
omission performed or omitted by it in good faith pursuant to the
authority granted to it by this Agreement as a General Partner or
Tax Matters Partner unless such act or omission constitutes gross
negligence or willful misconduct by such General Partner.
11.4 Indemnification. The Partnership shall indemnify and hold
harmless the General Partner from any loss or damage, including
attorneys' fees actually and reasonably incurred by it, by reason
of any act or omission performed or omitted by it on behalf of the
Partnership or in furtherance of the Partnership's interests or as
Tax Matters Partner; however, such indemnification or agreement to
hold harmless shall be recoverable only out of the assets of the
Partnership and not from the Limited Partners. The foregoing
indemnity shall not extend to acts or omissions performed or
omitted by a General Partner which constitutes gross negligence or
willful misconduct by such General Partner.
11.5 Fiduciary Responsibility. The General Partner shall have a
fiduciary responsibility for the safekeeping and use of all funds
and assets of the Partnership, and all such funds and assets shall
be used in accordance with the terms of this Agreement.
11.6 Contracts with the General Partner.
(a) The Partners specifically consent to and acknowledge that the
Partnership shall contract with Emeritus Corporation, an affiliate
of CP and Emeritus IV, for the management of the Project.
(b) The Partner specifically consent to and acknowledge that
General Partner will lend funds to the Partnership from time to
time to cover operating deficits.
11.7 Restrictions on Authority of General Partner.
(a) Except as provided in Sections 11.7(b) below, the following
Partnership decisions shall require the written consent of the
Partners in
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the Partnership, which consent shall not be unreasonably withheld.
In the event any of the following actions are proposed, the
General Partner shall provide written notice of the proposed
action to all Partners, which notice period shall not be less than
twenty (20) days, during which time the Partners shall be entitled
to consult with the General Partner regarding the proposed action.
(i) The dissolution and winding up of the Partnership;
(ii) The sale, exchange or other transfer of all or substantially
all the assets of the Partnership;
(iii) A change in the nature of the business of the
Partnership;
(iv) The admission of a new or substitute General Partner, or the
transfer of an interest of a General Partner;
(v) The expenditure of funds for capital improvements in excess
of 550,000; or
(vi) The event of any of the financing activities as described in
the preceding Section 11.1 (g)
(b) Notwithstanding the provisions of Section 11.7(a), no consent
or approval of the Partners shall be required prior to a transfer
of the Project or other Partnership property for no consideration
other than full or partial satisfaction of Partnership
indebtedness such as by deed in lieu of foreclosure or similar
procedure.
(c) Notwithstanding the provisions of Section 11.7(a)(i), the
dissolution and winding up or insolvency filing of the Partnership
shall require the consent of the General Partner.
12. Status of Limited and Partners.
12.1 No Participation in Management. Except as specifically
provided in Section 11.7 herein, no Limited Partner shall take
part in the conduct or control of the Partnership's business or
the management of the Partnership, or have any right or authority
to act for or on the behalf of, or otherwise bind, the Partnership
(except a Limited Partner who may also be a General Partner and
then only in its capacity as a General Partner within the scope of
his or her authority hereunder).
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12.2 Limitation of Liability. No Limited Partner shall have,
solely by virtue of his or her status as a Limited Partner in the
Partnership, any personal liability whatever, whether to the
Partnership, to any Partners or to the creditors of the
Partnership, for the debts or obligations of the Partnership or
any of its losses beyond the amount committed by him or her to the
capital of the Partnership, except as otherwise required by the
Act.
12.3 Death or Incapacity of Limited Partner. The death, legal
incapacity, dissolution, termination, merger, consolidation or
bankruptcy of a Limited Partner shall not cause a dissolution of
the Partnership, but the rights of such Limited Partner to share
in the Net Income and Net Loss of the Partnership, to receive
distributions from the Partnership and to assign an interest in
the Partnership pursuant to Section 14.3 hereof shall, on the
happening of such an event, devolve upon such Limited Partner's
executor, administrator, guardian, conservator, or other legal
representative or successor, as the case may be, subject to the
terms and conditions of this Agreement, and the Partnership shall
continue as a limited partnership. However, in any such event such
legal representative or successor, or any assignee of such legal
representative or successor shall be admitted to the Partnership
as a Limited Partner only in accordance with and pursuant to all
of the terms and conditions of Section 14.5 hereof.
12.4 Recourse of Limited Partner. The Limited and Partners shall
look solely to the assets of the Partnership for all distributions
with respect to the Partnership and their Capital Contributions
thereto and share of Net Income and Net Loss thereof and shall
have no recourse therefor, upon dissolution or otherwise
,against any General Partner or any other Limited Partner.
12.5 No Ri ht to Pro ert. No Limited Partner, regardless of the
nature of his or her contributions to the capital of the
Partnership, shall have an right to demand or receive any
distribution from the Partnership in any form other than cash,
upon dissolution or otherwise.
13. Books and Records Accounting Reports and Statements and Tax
Matters.
13.1 Books and Records. The General Partner shall, at the expense
of the Partnership, keep and maintain, or cause to be kept and
maintained, the books and records of the Partnership on the same
method of accounting as utilized for federal income tax purposes,
which shall be kept separate and apart from the books and records
of the General Partner.
13.2 Annual Accounting Period. All books and records of the
Partnership shall be kept on the basis of an annual accounting
period ending December 31 of each year, except for the final
accounting period which shall end on the date of termination of
the Partnership. All references herein to the "fiscal
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<PAGE>
year of the Partnership" are to the annual accounting period
described in the preceding sentence, whether the same shall
consist of twelve months or less.
13.3 General Partner's Reports to Limited and Partners. The
General Partner shall send at Partnership expense to each Limited
Partner the following:
(a) Within seventy-five (75) days after the end of each fiscal
year of the Partnership, such information as shall be necessary
for the preparation by such Limited Partner of such Partner's
federal income tax return which shall include a computation of the
distributions to such Limited Partner and the allocation to such
Limited Partner of profits or losses, as the case may be; and
(b) Within one hundred twenty (120) days after the end of each
fiscal year of the Partnership, an annual report, which shall
include:
(i) A balance sheet;
(ii) A statement of income and expenses;
(iii) A statement of changes in Partners' capital; and
(iv) A statement of the balances in the Capital Accounts of the
Partners.
13.4 Right to Examine Records. The Limited and General Partners
shall be entitled at their own expense, upon written request
directed to the Partnership, to review the records of the
Partnership at all reasonable times and at the location where such
records are kept by the Partnership.
13.5 Tax Matters Partner. Should there be any controversy with the
Internal Revenue Service or any other taxing authority involving
the Partnership, the General Partner may expend such funds as it
deems necessary and advisable in the interest of the Partnership
to resolve such controversy satisfactorily, including, without
being limited thereto, attorneys' and accounting fees. CP is
hereby designated as the "Tax Matters Partner" as referred to in
Section 6231 (a) (7) (A) of the Code, and is specially authorized
to exercise all of the rights and powers now or hereafter granted
to the Tax Matters Partner under the Code.
Any cost incurred in the audit by any governmental authority of
the income tax returns of a Partner (as opposed to the
Partnership) shall not be a Partnership expense. The General
Partner agrees to consult with and keep the Partners advised with
respect to (i) any income tax audit of a Partnership income tax
return, and (ii) any elections made by the Partnership for
federal, state or local income tax purposes.
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<PAGE>
13.6 Tax Returns. The General Partner shall, at Partnership
expense, cause the Partnership to prepare and file a United States
Partnership Return of Income and all other tax returns required to
be filed by the Partnership for each fiscal year of the
Partnership.
13.7 Tax Elections. The Partnership shall make an election
pursuant to Section 754 of the Code to adjust the basis of the
assets of the Partnership. Each of the Limited and General
Partners will, upon request, supply any information necessary to
properly give effect to any such election. In addition, the
General Partner, in its sole discretion, shall be authorized to
cause the Partnership to make and revoke any other elections for
federal income tax purposes as it deems appropriate, necessary, or
advisable.
14. Transfers of Limited and Partnership Interests; Withdrawal
and Admission of Limited Partners.
14.1 General Prohibition. No Limited Partner may voluntarily or
involuntarily, directly or indirectly, sell, transfer, assign,
pledge or otherwise dispose of, or mortgage, pledge, hypothecate
or otherwise encumber, or permit or suffer any encumbrance of, all
or any part of his or her interest in the Partnership, except as
provided in this Section 14. Any other purported sale, transfer,
assignment, pledge or encumbrance shall be null and void and of no
force or effect whatsoever.
14.2 No Withdrawal of Limited Partner. No Limited Partner shall
have the right to withdraw from the Partnership except as
otherwise provided in this Agreement.
14.3 Transfers br Limited Partner.
(a) Subject to any restrictions on transferability required by law
or contained elsewhere in this Agreement, a Limited Partner may
transfer such Limited Partner's entire interest in the Partnership
upon satisfaction of the following conditions: -
(i) The transfer shall be by bequest, or by operation of the laws
of intestate succession, or shall be made to an existing Partner
in the Partnership, or
(ii) Be approved in writing by the General Partner, which approval
shall be withheld only if the proposed transfer does not comply
with the requirements of this Section 14.3.
(b) No sale, exchange, transfer, assignment, gift, pledge,
encumbrance, hypothecation or other disposition of a Limited
Partner's interest in
16
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the Partnership, whether voluntary or involuntary, shall be valid
or effective if, in the opinion of counsel to the Partnership, it
would be likely to:
(i) Violate the registration provision of the Securities Act of
1933, as amended;
(ii) Violate the laws of any state, or the regulations of any
government agency, applicable to such transfer;
(iii) Cause all or a portion of the Partnership's property to be
treated as tax-exempt use property, as defined in Section 168(h)(1
) of the Code (unless such transfer has been previously approved
by the General Partner); or
(iv) Cause the Partnership to be regarded as an unincorporated
association taxable as a corporation.
(c) Prior to recognizing any assignment of a Limited Partner's
interest that has been transferred in accordance with this Section
14.3, the General Partner may require the transferor and
transferee to execute and acknowledge such reasonable and
customary instruments as the General Partner may deem necessary or
desirable to effect such transfer.
(d) A transferee of a Limited Partner shall be entitled to the
allocations and distributions attributable to the interest sold or
assigned to it and the return of capital to which the transferor
otherwise would have been entitled; provided, however, such
transferee shall not be entitled to the other rights of a Limited
Partner unless and until such transferee becomes a Limited Partner
in accordance with Section 14.5.
(e) A transfer of an interest complying with all the requirements
of this Section 14.3 shall be effective as of the first day of the
calendar month succeeding the month in which all such requirements
have been satisfied. All distributions made after such effective
date on account of a transferred interest shall be paid to the
transferee. In the absence of notice to the General Partner of the
transfer of a Partnership interest, whether by operation of law or
otherwise, and the General Partner's consent in the case of
voluntary transfers, any distribution or other payment to a
transferor or to his executors, administrators or legal
representatives shall acquit the Partnership and the General
Partner of liability, to the extent of such distribution or
payment to any other person and/or entity which may have an
interest in such payment.
14.4 Assignment as Security Permitted. Notwithstanding any other
provision of this Section 14, a Limited Partner may assign, as
security for a loan or other indebtedness incurred by such
Partner, such Partner's right to receive distributions from the
Partnership, and the General Partner, upon receipt of
17
<PAGE>
notification of any such assignment, shall acknowledge such
assignment and shall agree to pay or distribute proceeds in
accordance with instructions from such Partner subject to such
conditions, including indemnification, as the General Partner may
reasonably require; provided, however, that such lender shall
acknowledge in writing to the General Partner that such assignment
of proceeds shall not entitle such lender to foreclose or
otherwise acquire or sell the Partnership Interest and that the
only right acquired by such lender shall be the right to receive
distributions of cash and property, if any, made by the
Partnership to the Partners in accordance with this Agreement.
14.5 Admission of Transferees as Limited Partners.
(a) No transferee of a Limited Partner shall be admitted as a
Limited Partner unless all of the following conditions have been
satisfied:
(i) The transfer complies with Section 14.3; and
(ii) The prospective transferee has executed an instrument, in
form and substance satisfactory to the General Partner, accepting
and agreeing to be bound by all the terms and conditions of this
Agreement, including the power of attorney set forth in Section 17
hereof, and has paid all expenses of the Partnership in effecting
the transfer;
(iii) All requirements of the Act regarding the admission of a
transferee Limited Partner have been complied with by the
transferee, the transferring Limited Partner, and the Partnership;
and
(iv) Such transfer is effected in compliance with all applicable
state and federal securities laws.
(b) In the event of a transfer complying with all the requirements
of Section 14.3 hereof and the transferee being admitted as a
Limited Partner pursuant to this Section 14.5, the General Partner
for themselves and for each Limited and Partner pursuant to the
Power of Attorney granted by each Limited and Partner, shall
execute an amendment to this Agreement and, if required by the
Act, file an amended certificate for the Partnership. Unless named
in this Agreement, as amended from time to time, no person shall
be considered a Partner; and the Partnership, each Partner, and
any other person having business with the Partnership need deal
only with Partners so named and shall not be required to deal with
any other person by reason of a transfer by, or by reason of the
death of, a Partner, except as otherwise expressly provided
herein.
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15. Transfers of General Partnership Interests; Withdrawal and
Admission of General Partners.
15.1 No Withdrawal of a General Partner. The General Partner shall
have no right to withdraw from the Partnership except as otherwise
provided in this Agreement.
15.2 Death or Incometence of a General Partner. A General Partner
shall cease to be a General Partner upon the death, bankruptcy,
withdrawal, dissolution, or adjudication of incompetency of such
General Partner.
15.3 Transfer by a General Partner; Admission of Additional or
Successor General Partners. A General Partner may not transfer its
interest as a general partner, or any part thereof, to a third
party and no additional or successor general partner(s) shall be
admitted to the Partnership, except with the approval of the other
Partners.
16. Dissolution, Winding Up and Termination.
16.1 Events Causing Dissolution. The Partnership shall be
dissolved and its affairs shall be wound up upon the happening of
the first to occur of any of the following events:
(a) Expiration of the term of the Partnership stated in
Section 6 hereof;
(b) Entry of a decree of judicial dissolution pursuant to the
Act;
(c) The sale or other disposition of all or substantially all of
the assets of the Partnership;
(d) The vote of Partners holding a majority of the Percentage
Interests of the Partnership to dissolve; or
(e) The death, bankruptcy, withdrawal, dissolution or adjudication
of incompetency of the General Partner, unless at the time of the
occurrence of any of such events there is at least one other
General Partner, in which case the business of the Partnership
shall be carried on by the remaining General Partner(s). In the
event the business of the Partnership is carried on pursuant to
the previous sentence, the interest of the deceased, bankrupt,
dissolved or incompetent General Partner in Net Income and Net
Loss and its Capital Account shall be converted to a Limited
Partner interest but shall otherwise be maintained and continued.
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<PAGE>
16.2 Winding Up. Upon dissolution of the Partnership for any
reason, the General Partner shall commence to wind up the affairs
of the Partnership and to liquidate its assets. In the event the
Partnership has terminated because the Partnership lacks a General
Partner, then the Limited Partners shall appoint a new General
Partner solely for the purpose of winding up the affairs of the
Partnership. The General Partner shall have the full right and
unlimited discretion to determine the time, manner and terms of
any sale or sales of Partnership property pursuant to such
liquidation. Pending such sales, the General Partner shall have
the right to continue to operate or otherwise deal with the assets
of the Partnership. A reasonable time shall be allowed for the
orderly winding up of the business of the Partnership and the
liquidation of its assets and the discharge of its liabilities to
creditors so as to enable the General Partner to minimize the
normal losses attendant upon a liquidation, having due regard to
the activity and condition of the relevant markets for tMe
Partnership properties and general financial and economic
conditions. Any Partner may be a purchaser of any properties of
the Partnership upon liquidation of the Partnership's assets,
including, without limitation, any liquidation conducted pursuant
to a judicial dissolution or otherwise under judicial supervision;
provided, however, that the purchase price and terms of sale are
fair and reasonable to the Partnership.
16.3 Allocation of Net Income and Net Loss Upon Termination or
Sale. All Net Income and Net Loss upon dissolution of the
Partnership or from sale, conversion, disposition or taking of all
or substantially all of the Partnership's property, including, but
not limited to the proceeds of any eminent domain proceeding or
insurance award (respectively, "Gain on Sale" or "Loss on Sale")
shall be allocated as follows:
follows:
(a) Loss on Sale shall be allocated among the Partners as
(i/ First, proportionately to those Partners having positive
Capital Account balances until all positive Capital Accounts have
been reduced to zero; and
(ii) Thereafter, 20% to Emeritus IV and 80% to CP.
(b) Gain on Sale to the extent available shall be allocated among
the Partners as follows:
(i) First, to those Partners having negative Capital Account
balances in proportion to such negative balances until they are
increased to zero;
(ii) Second, to each of the Partners in the amount and manner
necessary to cause the Partners' Capital Accounts to be in the
ratio of their respective Percentage Interests; and
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<PAGE>
(iii) Thereafter, any remaining Gain on Sale shall be allocated to
the Partners in proportion to their Percentage Interests.
16.4 Distributions. Prior to making distributions in dissolution
to the Partners, the General Partner shall first pay or make
provision for all debts and liabilities of the Partnership, and
all expenses of liquidation, and then repay any unreturned capital
contributions and unpaid preferred return with respect to any
Preferred Interests. Subject to the right of the General Partner
to set up such cash reserves as it may deem reasonably necessary
for any contingent or unforeseen liabilities or obligations of the
Partnership, the proceeds of liquidation and any other funds of
the Partnership shall first be distributed to Partners in
proportion to their Capital Account balances as adjusted by the
allocations provided for in Section 16.3; and thereafter, the
balance, if any, to the Partners in proportion to their Percentage
Interests.
16.5 Certificate of Cancellation Report. Termination. Upon the
dissolution and commencement of winding up of the Partnership, the
General Partner shall execute and file certificate of cancellation
of the Partnership. Within a reasonable time following the
completion of the liquidation of the Partnership's assets, the
General Partner shall prepare and furnish to each Partner, at the
expense of the Partnership, a statement which shall set forth the
assets and liabilities of the Partnership as of the date of
complete liquidation and the amount of each Partner's distribution
pursuant to Section 16.4 hereof. Upon completion of the
liquidation and distribution of all Partnership funds, the
Partnership shall terminate and the General Partner shall have the
authority to execute and file all documents required to effectuate
the termination of the Partnership.
17. Special and Limited Power of Attorney.
(a) CP, as General Partner, with full powers of substitution,
shall at all times during the existence of the Partnership have a
special and limited power of attorney as the authority to act in
the name and on the behalf of the Limited Partners to make,
execute, swear to, verify, acknowledge and file the following
documents and any other documents deemed to be necessary for the
business of the Partnership:
(i) This Agreement, any separate certificates of limited
partnership, fictitious business name statements, as well as any
amendments to the foregoing which, under the laws of any state,
are required to be filed or which the General Partner deems it
advisable to file; and
(ii) Any other instrument or document which may be required to be
filed by the Partnership under the laws of any state or by an
governmental agency, or which the General Partner deems it
advisable to file.
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<PAGE>
(b) The special and limited power of attorney granted to the
General Partner hereby:
(i) Is a special and limited power of attorney coupled with an
interest, is irrevocable, shall survive the death or incompetency
of the granting Limited Partner, and is limited to those matters
herein set forth;
(ii) May be exercised by the General Partner for the Limited
Partners by referencing the list of the Limited Partners on
Appendix A and executing any instrument with a single signature
acting as attorney-in-fact for them;
(iii) Shall survive a transfer by a Limited Partner of such
Limited Partner's interest in the Partnership pursuant to Section
14.3 hereof for the sole purpose of enabling the General Partner
to execute, acknowledge and file any instrument or document
necessary or appropriate to admit a transferee as a Limited
Partner; and
(iv) Notwithstanding the foregoing, in the event that CP ceases to
be a General Partner in the Partnership, the power of attorney
granted by this Section 17 shall terminate immediately, but any
such termination shall not affect the validity of any documents
executed prior to such termination, or any other actions
previously taken pursuant to this power of attorney or in reliance
upon its validity, all of which shall continue to be valid and
binding upon the Limited Partners in accordance with their terms.
18. Amendments. This Agreement may not be amended without the
written agreement of all parties hereto.
19. Miscellaneous.
19.1 Notices. Any notice, offer, consent or other communication
required or permitted to be given or made hereunder shall be in
writing and shall be deemed to have been sufficiently given or
made when delivered personally to the party (or an officer of the
party) to whom the same is directed, or (except in the event of a
mail strike) five (5) days after being mailed by first class mail,
postage prepaid, if to the Partnership or to the General Partner,
to the office described in Section 4 hereof, or if to a Limited
Partner, to his or her last known address or when received by
facsimile if to the Partnership or to the General Partner, to the
facsimile number for the office described in Section 4 hereof, or
if to a Limited Partner, to his or her facsimile number. Any
Partner may change his or her address for the purpose of this
Section 19.1 by giving notice of such change to the Partnership,
such change to become effective on the tenth day after such notice
is given.
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<PAGE>
19.2 Entire Agreement. This Agreement constitutes the entire
agreement among the parties and supersedes any prior agreement or
understandings among them, oral or written, all of which are
hereby canceled. This Agreement may not be modified or amended
other than pursuant to Section 18 hereof.
19.3 Captions; Pronouns. The paragraph titles or captions
contained in this Agreement are inserted only as a matter of
convenience of reference. Such titles and captions in no way
define, limit, extend or describe the scope of this Agreement nor
the intent of any provision hereof. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or
persons may require.
19.4 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute
one and the same agreement. Delivery of any executed counterpart
of a signature page to this Agreement by facsimile shall be
effective as delivery of an executed original of this Agreement.
19.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the state of
Washington.
IN WITNESS WHEREOF the parties have executed this Agreement as of
the date first above written.
EMERITUS REAL ESTATE IV, L.L.C., a Delaware limited liability
company
By: EMERITUS CORPORATION, a Washington corporation
By: /s/ Kelly J. Price
Its : Vice President of Finance
COLUMBIA PACIFIC MASTER FUND '98 GENERAL PARTNERSHIP, a Washington
general partnership
By Columbia Pacific Growth Fund '98 Limited Partnership, a
Washington limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
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<PAGE>
By: Columbia Pacific Group, Inc., a Washington corporation, its
general partner
By : /s/ Daniel R. Baty
Daniel R. Baty, President
By Columbia Pacific DA '98 Limited Partnership, a Washington
limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
By: Columbia Pacific Group, Inc., a Washington corporation, its
general partner
By: /s/ Daniel R. Baty
Daniel R. Baty, President
By Columbia Pacific RD '98 Limited Partnership, a Washington
limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
By: Columbia Pacific Group, Inc., a Washington corporation, its
general partner
By : /s/ Daniel R. Baty
Daniel R. Baty, President
BELLA TORRE DE PISA LIMITED PARTNERSHIP, a California limited
partnership
By Villelli Enterprises, Inc., a California corporation, its
general partner
BY: Richard A. Villelli, President
24
<PAGE>
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP
APPENDIX A
PERCENTAGE
INTEREST
GENERAL PARTNER
Columbia Pacific Master Fund '98 General Partnership 30"%
LIMITED PARTNERS
Bella Torre De Pisa Limited Partnership 31%
Columbia Pacific Master Fund '98 General Partnership 19%
Emeritus Real Estate IV, L.L.C. 20%
Susan BalzerSusan Balzer<PAGE>
AGREEMENT TO PROVIDE MANAGEMENT SERVICES
TO
AN INDEPENDENT AND ASSISTED LIVING FACILITY
(Cooper George Spokane, Washington)
This Agreement to Provide Management Services to an
Independent and Assisted Living Facility ("Agreement") dated
as of June 30, 1998, is made and entered into by and between
Cooper George Partners Limited Partnership, a Washington
Limited Partnership ("Owner") and EMERITUS CORPORATION, a
Washington corporation ("Manager").
RECITALS
A. Owner is the owner of that certain real property located
at West 707 Fifth Avenue in Spokane, Washington (the "Real
Property") including the improvements on the Real Property
that constitute the 141 unit independent and assisted living
facility commonly known as "The Cooper George" and located
in Spokane, Washington (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
independent and assisted living 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:
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
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<PAGE>
also retains such other authority as shall not have been
expressly delegated to Manager pursuant to this Agreement.
Subject to the foregoing, and commencing on the effective
date of the Certificate of Occupancy (the "Commencement
Date") 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.
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 (such
term as used in this Agreement shall have the meaning
specified in Paragraph 8.2 below), 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. 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
2
<PAGE>
but excluding Owner's income tax returns, which Manager
shall prepare only if Owner and Manager agree upon separate
compensation to be paid to Manager for preparing such 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. Such taxes shall be
deemed to be Facility Expenses 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 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 all 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 incurred in the operation
of the Facility in accordance with the terms of the budgets
submitted to Owner under Paragraph I.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 9.2, below), and, thereafter, to pay
Facility Expenses in such order of priority as Manager deems
appropriate to the operation of the Facility. In the event
the revenues 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 of this
Agreement to ensure the efficient operation of all
departments within and services
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offered by the Facility. All Facility personnel shall be
employees of Manager, not Owner, and all salaries, benefits,
payroll taxes and other costs related to Facility personnel
(including, without limitation, computer training and other
employee training and education, including tuition, travel
and other expenses relating thereto if such expenses are
incurred with Owner's approval) shall not be included in the
Base Management Fee, but shall be separately reimbursed by
Owner as a Facility Expense. In addition, the costs and
expenses (including, without limitation, travel expenses) of
consultants, independent contractors or other providers of
services engaged by Manager with Owner's approval shall be
separately reimbursed as Facility Expenses.
1.10 Supplies and Equipment. Manager shall purchase, as a
Facility Expense, supplies and non-capital equipment
(including, without limitation, computer hardware and
software) 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. If approved by Owner, Manager shall,
as a Facility Expense and through its legal counsel,
coordinate all legal matters and proceedings with Owner's
counsel, if Owner does not approve the same, Owner shall
indemnify, protect, defend and hold Manager harmless with
respect to such legal matters and proceedings.
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 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 1998, 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 1 O% 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,
but shall be separately reimbursed by Owner
4
<PAGE>
as a Facility Expense. 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 1), in which event Manager will supervise, oversee
and administer each and 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.
1.15 Extraordinary Costs. Except as otherwise specifically
provided herein, all extraordinary costs incurred by Manager
with respect to the Facility shall be separately reimbursed
as Facility Expenses (and not included in the Base
Management Fee) after first having been approved by Owner.
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, but shall be
separately reimbursed by Owner as a Facility Expense.
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 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.
5
<PAGE>
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 the Commencement Date and expire on the fifth (5th)
anniversary of the Commencement Date; provided, however,
that the Term shall be extended automatically for successive
two (2) year periods unless terminated prior to expiration
of the Term (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 cause, by giving notice of
termination not less than thirty (30) days prior to the
effective date of such termination;
(b) if fifty percent (5 O%) 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;
(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 liut 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
6
<PAGE>
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
(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) 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 fails 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;
(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
7
<PAGE>
the default; provided, however, that in the case of Owner' s
failure to provide, pursuant to Paragraph 1.8, 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,
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
8
<PAGE>
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 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 (each a "Facility Expense" and any
two or more or all the
"Facility Expenses"), 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 (but excluding all
federal, state, and local income taxes assessed against
Owner), and the Base Management Fee, all of which Facility
Expenses are unpaid but will become due and payable within
the ensuing forty-five (45) days; plus
9
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(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 Construction Supervision Fee. For any services performed
by Manager pursuant to Paragraph I.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.
9.2 Base Management Fee. Throughout the term of this
Agreement, Manager shall receive a monthly fee ("Base
Management Fee") equal to the greater of: i) six percent
(6"%) of the gross revenues generated for the prior month by
the Facility; or ii) $ I 0,000, payable on or before the
lOth day of each month. For purposes hereof, "gross
revenues" shall mean all revenues generated by the Facility,
but shall specifically exclude the proceeds from the sale of
any Facility equipment and any insurance and condemnation
proceeds.
9.3 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 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.
9.4 Payment of Fees. Notwithstanding any other provision of
this Agreement to the contrary, 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).
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 fiom 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
10
<PAGE>
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 sell, convey or lease
("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 acquire the
Facility or interest therein upon the same terms and
conditions as are contained in the Transfer Offer, which
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 acquire the Facility or interest therein 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 I I, 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.
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To Manager: Emeritus Corporation 3131 Elliott Avenue,
Suite 500 Seattle, WA 98121
Phone: 206-301-4495 Fax: 206-301-4500 Attn: Jean Fukuda
To Owner: ESC II, LP
3131 Elliott Avenue, Suite 500 Seattle, WA 98121
Phone: 206-301-4095 Fax: 206-301-4545 Attn: Keith James
12.2 Assignment. Except as otherwise provided in Paragraph
1.6, above, this Agreement shall not be assigned by either
party without the prior written consent of the nonassigning
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 Owner and independent contractor
and all acts performed by Manager during the term hereof as
Manager of the Facility shall be deemed to be performed by
Manager in Manager's capacity as an independent contractor.
Nothing contained in this Agreement is intended to, or shall
be construed to, give rise to or create a partnership or
joint venture or lease between Owner, and Owner's successors
and assigns on the one hand, and Manager, and Manager's
successors and assigns on the other hand.
12.4 Entire Agreement. This Agreement contains the entire
agreement between the parties and shall be binding upon and
inure to the benefit of their successors and, to the extent
permitted 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 signed by both of the parties hereto.
12.5 Headings/Captions. The headings and captions used in
this Agreement are for convenience of reference only and
shall not be construed in any manner to limit or modify any
of the provisions hereof.
12.6 Attorneys' Fees. In the event either party brings an
action to enforce or interpret this Agreement, the
prevailing party in such action shall be entitled to recover
from the other party all costs incurred in connection
therewith, including reasonable attorneys' fees incurred in
the preparation, conduct, and/or settlement thereof.
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<PAGE>
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, the validity, legality, and enforceability
of the remaining provisions hereof shall not in any way be
impaired thereby.
12.8 Cumulative; No Waiver. No right or remedy herein
conferred upon or reserved to either party is intended to be
exclusive of any other right or remedy, and each and every
right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder, or now or hereafter
legally existing upon the occurrence of an Event of Default.
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 ofthis 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.
IN WITNESS WHEREOF, the parties have hereto caused this
Agreement to be duly executed, as of the day and year first
above written.
Owner: Cooper George Partners Limited Partnership a
Washington limited partnership
By: Columbia Pacific Growth Fund '98 Limited Partnership, a
Washington limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited
partnership, its general partner
By : Daniel R. Baty, President
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By: Columbia Pacific Group, Inc., a Washington
Manager:
EMERITUS CORPORATION, a Washington corporation
<PAGE>
GUARANTY AND LIMITED INDEMNITY AGREEMENT
from
DANIEL R. BATY
as Guarantor,
and
DEUTSCHE BANK AG, NEW YORK BRANCH
as Lender
Dated as of June 30, 1998
<PAGE>
GUARANTY AND LIMITED INDEMNITY AGREEMENT
THIS GUARANTY AND LIMITED INDEMNITY AGREEMENT (this "Guaranty"),
made as of the 30th day of June,1998, by DANIEL R. BATY, an
individual, having an address c/o Columbia Pacific, 3131 Elliott
Avenue, Suite 500, Seattle, Washington 98121 (the
"Guarantor"), in favor of DEUTSCHE BANK AG, a bank chartered under
the laws of the Federal Republic of Germany, acting by and through
its New York Branch, having an address at 31 East 52nd Street,
23rd Floor, New York, New York 10019 ("Lender").
WITNES SETH:
WHEREAS, COOPER GEORGE PARTNERS LIMITED PARTNERSHIP ("Borrower")
concurrently herewith is obtaining a loan in the principal amount
of NINE MILLION SEVEN HUNDRED SIXTY-FIVE THOUSAND AND NO/100
DOLLARS ($9,765,000.00) (the "Loan") from Lender pursuant to the
terms and conditions of that certain Credit Agreement, dated of
even date hereof, between Borrower and Lender (the "Credit
Agreement"; capitalized terms not otherwise defined herein shall
have the meaning ascribed to such term in the Credit Agreement);
WHEREAS, the Loan is evidenced by that certain Promissory Note
(the "Note"), dated of even date hereof by Borrower and payable to
the order of Lender in the stated principal amount of the original
amount of the Loan and shall be secured, inter alia, by (1) that
certain Mortgage, Open-End Mortgage, Advance Money Mortgage, Trust
Deed, Deed of Trust, Trust Indenture, Assignment, Assignment of
Rent, Security Agreement, including Fixture Filing and Financing
Statement made by Borrower in favor of Lender (the "Mortgage") and
(2) that certain Security Agreement from Borrower in favor Lender
(the "Security Agreement"). The Credit Agreement, the Note, the
Mortgage, the Security Agreement and the other documents and
instruments evidencing, securing or otherwise related to the Loan,
as the same may from time to time be amended, extended,
consolidated, renewed or replaced are collectively referred to
herein as the "Loan Documents"; and
WHEREAS, as a condition to entering into the Credit Agreement with
Borrower, Lender has required that the Guarantor indemnify Lender
from and against, and guarantee payment to Lender of, certain
Costs (as hereinafter defined) and the Guaranteed Obligations (as
hereinafter defined) relating to the Loan as set forth herein; and
WHEREAS, the Guarantor owns an indirect beneficial interest in
Borrower, and the Guarantor will derive substantial economic
benefit from Lender making the Loan to Borrower, and, therefore,
the Guarantor has agreed to indemnify Lender from and against and
guaranty payment to Lender of the Costs and the Guaranteed
Obligations relating to the Loan as set forth herein.
1
<PAGE>
NOW, THEREFORE, to induce Lender to extend the Loan to Borrower
and in consideration of the foregoing premises and for other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Guarantor hereby covenants and
agrees for the benefit of Lender, as follows:
1. Guaranteed Obligations.
(a) The Guarantor absolutely and unconditionally guarantees to
Lender the punctual and complete payment and performance when due
(whether at the stated maturity, by acceleration or otherwise), of
the principal of, and accrued and unpaid interest on, each Loan
made pursuant to the Credit Agreement. (The obligations described
in this clause (a) are referred to herein as the "Guaranteed
Obligations").
(b) Anything to the contrary provided in this Guaranty
notwithstanding, the liability of the Guarantor under clause (a)
above, shall not be reduced by any prepayment or repayment of
principal or any payment of interest, as the case may be, due
under the Note by or on behalf of Borrower other than a payment
pursuant to this Guaranty following a written demand by Lender
pursuant to subsection 1(c) hereof.
(c) If Borrower shall fail to pay when due any required payment of
principal or interest on the Note, as the case may be, Lender may,
subject only to the express limitations set forth in this
Guaranty, call upon the Guarantor to pay the unpaid amount. The
Guarantor shall, upon demand, immediately pay such unpaid amount
to Lender.
2. Indemnification by the Guarantor. The Guarantor hereby
assumes liability for, guarantees payment to Lender of, agrees to
pay, protect, defend and save Lender harmless and indemnify Lender
from and against, any and all liabilities, obligations, losses,
damages, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and disbursements, causes of
action, suits, claims, losses (including, without limitation, any
diminution in the value of the security afforded by the property
mortgaged by the Mortgage by reason of any of the following
occurrences), demands and judgments of any nature or description
whatsoever (collectively, "Costs")), which may at any time be
imposed upon, incurred by or awarded against Lender resulting
from:
a) any fraud or misrepresentation committed by Borrower or any
of its Affiliates;
b) any intentional and material breach of Borrower's covenants set
forth in the Mortgage;
c) any action or inaction taken or omitted in bad faith by
Borrower or any of its Affiliates;
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d) any interference by Borrower or any of its Affiliates with
Lender's exercise of its remedies under the Loan Documents
following an occurrence of an Event of Default;
e) any impairment by Borrower or any of its Affiliates of the
value of any material portion of the Collateral for each Loan;
any failure of any Guaranteed Obligations to be the legal, valid
and binding obligations of Borrower enforceable against Borrower
in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency or other similar Laws affecting the
rights of creditors generally; or
(g) any failure of Borrower to pay and perform any Guaranteed
Obligations in accordance with the terms of such Guaranteed
Obligations.
3. Indemnification Procedures.
(a) If any action shall be brought against Lender based upon any
of the matters for which Lender is indemnified hereunder, Lender
shall notify the Guarantor in writing thereof and the Guarantor
shall promptly assume the defense thereof, including, without
limitation, the employment of counsel reasonably acceptable to
Lender and the negotiation of any settlement; provided, however,
that any failure of Lender to notify the Guarantor of such matter
shall not impair or reduce the obligations of the Guarantor
hereunder. Lender shall have the right, at the expense of the
Guarantor (which expense shall be included in Costs), to employ
separate counsel in any such action and to participate in the
defense thereof. In the event the Guarantor shall fail to
discharge or undertake to defend Lender against any claim, loss or
liability for which Lender is indemnified hereunder, such failure
shall constitute an Event of Default and Lender may, at its sole
option and election, defend or settle such claim, loss or
liability. The liability of the Guarantor to Lender hereunder
shall be conclusively established by such settlement, provided
such settlement is made in good faith, the amount of such
liability to include both the settlement consideration and the
costs and expenses, including, without limitation, attorneys' fees
and disbursements, incurred by Lender in effecting such
settlement. In such event, such settlement consideration, costs
and expenses shall be included in Costs and the Guarantor shall
pay the same as hereinafter provided. Lender's good faith in any
such settlement shall be conclusively established if the
settlement is made on the advice of independent legal counsel for
Lender.
(b) The Guarantor shall not, without the prior written consent of
Lender, (i) settle or compromise any action, suit, proceeding or
claim or consent to the entry of any judgment that does not
include as an unconditional term thereof the delivery by the
claimant or plaintiff to Lender of a full and complete written
release of Lender (in form, scope and substance
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<PAGE>
satisfactory to Lender in its sole discretion) from all liability
in respect of such action, suit, proceeding or claim and a
dismissal with prejudice of such action, suit, proceeding or
claim; or (ii) settle or compromise any action, suit, proceeding
or claim in any manner that may adversely affect Lender or
obligate Lender to pay any sum or perform any obligation as
determined by Lender in its sole discretion.
(c) All Costs shall be immediately reimbursable to Lender when and
as incurred and, in the event of any litigation, claim or other
proceeding, without any requirement of waiting for the ultimate
outcome of such litigation, claim or other proceeding, and the
Guarantor shall pay to Lender any and all Costs within ten (10)
days after written notice from Lender itemizing the amounts
thereof incurred to the date of such notice. In addition to any
other remedy available for the failure of the Guarantor to
periodically pay such Costs, if not paid within said ten-day
period, shall bear interest at the Default Rate from the date
incurred until the date they are paid in full.
4. Reinstatement of Obligations. If at any time all or any part of
any payment made by the Guarantor or received by Lender from the
Guarantor under or with respect to this Guaranty is or must be
rescinded or returned for any reason whatsoever (including but not
limited to, the insolvency, bankruptcy or reorganization of the
Guarantor or Borrower), then the obligations of the Guarantor
hereunder shall, to the extent of the payment rescinded or
returned, be deemed to have continued in existence notwithstanding
such previous payment made by the Guarantor, or receipt of payment
by Lender, and the obligations of the Guarantor hereunder shall
continue to be effective or be reinstated, as the case may be, as
to such payment, all as though such previous payment by the
Guarantor had never been made.
5. Guaranty Absolute. The Credit Agreement shall conclusively be
deemed to have been entered into by Lender and the Loan funded in
reliance upon this Guaranty and all dealings and Loan Documents
executed hereafter between Borrower and Lender shall likewise be
conclusively presumed to have been undertaken or consummated in
reliance upon this Guaranty. This Guaranty shall, subject to the
terms hereof, be construed as a continuing, absolute and
unconditional guaranty of payment. The liability of the Guarantor
under this Guaranty shall be absolute and unconditional
irrespective of.. (a) any lack of genuineness, regularity,
legality, validity or enforceability of any of the Loan Documents,
(b) any change in the time, manner or place of payment of any
amount payable under any of the Loan Documents, or in any other
term of any of the Loan Documents, including, but not limited to,
any increase or decrease in the rate of interest thereon, or any
other amendment or waiver or consent to departure from any of the
Loan Documents including, without limiting the generality of the
foregoing, the waiver of any default thereunder or the making of
any arrangement with, or the accepting of any compromise or
settlement from, Borrower or any other person or entity liable in
respect of any amount payable under any of the Loan Documents, (c)
any exchange, release or non-perfection of any collateral, or any
release or amendment or waiver of or consent to departure from any
other
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guaranty securing any part of the indebtedness of the Loans, (d)
any act, omission, circumstance or occurrence that might otherwise
vary the risk of the Guarantor or any of them or be deemed a legal
or equitable discharge of the Guarantor or which might otherwise
constitute a defense available to Borrowers or the Guarantor or
(e) any dealings or transactions between Lender or Borrower or any
other person or entity liable in respect of the indebtedness of
the Loan.
Without limiting the generality of the foregoing and subject to
the terms hereof, the Guarantor's liability under this Guaranty
shall, subject to the terms hereof, be absolute and unconditional
irrespective of any right of set-off or counterclaim which
Borrower or the Guarantor may from time to time have in respect of
any moneys or liabilities owing by, or any claims against, Lender
and the Guarantor irrevocably waive any defense or claim based
upon any such right of set-off or counterclaim. This Guaranty
shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the indebtedness of any
of the Loans is rescinded or must otherwise be returned by Lender
upon the insolvency, bankruptcy or reorganization of Borrower or
otherwise, all as though such payment had not been made.
6. Waiver. The Guarantor hereby waives protest, promptness,
diligence, notice of acceptance, demand for payment and notice of
default or non-payment in respect of the Credit Agreement and any
of the Loan Documents and waives all other notices of every kind
and description with respect to any of the Loans now or hereafter
provided by any statute or rule of law. The Guarantor hereby
waives any requirement that Lender protect, secure, perfect or
insure any security interest or lien or any property subject
thereto or exhaust any right or take any action against Borrower,
against the Guarantor hereunder or the against Guarantor or any
other person, entity or any collateral. The Guarantor hereby
waives, to the fullest extent permitted by applicable law, the
benefit of any statute of limitations which may affect its
liability hereunder or the enforcement hereof. Any payment by
Borrower or other circumstance that operates to toll any statute
of limitations as to Borrower shall operate to toll the statute of
limitations as to the Guarantor.
7. Nature of Guaranty. This Guaranty is a guaranty of payment
and performance and not of collection, is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in
the future, including (a) interest and other Guaranteed
Obligations arising or accruing after bankruptcy of any Loan Party
or any sale or other disposition of any Collateral, and (b) any
Guaranteed Obligations that survive repayment of the Loan. This
Guaranty and any Security for this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any
payment or performance of any Guaranteed Obligations is rescinded
or must otherwise be returned by Lender or any other person upon
the bankruptcy, insolvency or reorganization of any Loan Party or
otherwise, all as though such payment or performance had not
occurred. The Guarantor shall have no authority to revoke this
Guaranty, but if any such revocation shall be deemed to have
occurred by operation of law or otherwise, the provisions of this
Guaranty shall continue to apply notwithstanding such revocation.
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<PAGE>
8. Obligations Independent. The obligations of the Guarantor
under this Guaranty are independent of the obligations of any
other Loan Party under the Loan Documents (such obligations of any
other Loan Party, including Borrower's obligations in respect of
the Guaranteed Obligations, being referred to in this Guaranty as
the "Other Obligations") and any security, and the enforceability
of any security for this Guaranty is likewise independent of any
such Other Obligations and any other security. Lender may bring
action against the Guarantor and otherwise enforce this Guaranty
without bringing action against any other Loan Party or joining
any other Loan Party in any action against the Guarantor, and
otherwise independently of any other remedy at law or in equity
that may be available to Lender at any time with respect to any
Other Obligations or security. The Guarantor waives any right to
require Lender at any time to proceed against any other Loan
Party, or otherwise enforce, proceed against or exhaust any Other
Obligations or pursue any other remedy in Lender's power.
9. Full Recourse. Notwithstanding any provisions of any other Loan
Document to the contrary, all of the terms and provisions of this
Guaranty are recourse obligations of the Guarantor and not
restricted by any limitation on personal liability.
10. Survival. To the fullest extent permitted by law, this
Guaranty shall be deemed to be continuing in nature and shall
remain in full force and effect and shall survive the exercise of
any remedy by Lender under the Credit Agreement or any of the
other Loan Documents, including, without limitation, any
foreclosure or deed in lieu thereof, even if, as a part of such
remedy, the Loan is paid or satisfied in full.
11. Waiver of Subrogation. Until such time as the Loan is paid in
full, the Guarantor hereby irrevocably waives all rights of
subrogation and any other claims that they may now or hereafter
acquire against Borrower or any insider that arise from the
existence, payment, performance or enforcement of the Guarantor's
obligations under this Guaranty, including, without limitation,
any right of reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or
remedy of Lender against Borrower or any insider, whether or not
such claim, remedy or right arises in equity or under contract,
statute or common law, including, without limitation, the right to
take or receive from Borrower or any insider, directly or
indirectly, in cash or other property or by set-off or in any
other manner, payment or security on account of such claim, remedy
or right. If any amount shall be paid to the Guarantor in
violation of the foregoing at any time prior to the indefeasible
cash payment of the Loan, such amount shall be held in trust for
the benefit of Lender and shall forthwith be paid to Lender to be
credited and applied to all amounts payable under this Guaranty or
to be held as collateral for any amounts payable under this
Guaranty thereafter arising. The Guarantor acknowledges that they
have and will receive direct and indirect benefits from the
financing arrangements contemplated by the Loan Documents and that
the waiver set forth in this Section 11 is knowingly made in
contemplation of such benefits.
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12. Reservation of Rights. Nothing contained in this Guaranty
shall prevent or in any way diminish or interfere with any rights
or remedies, including, without limitation, the right to
contribution, which Lender may have against Borrower, the
Guarantor or any other party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. 9601 et sea.), as it may be amended from time to
time, or any other applicable federal, state or local laws, all
such rights being hereby expressly reserved.
13. Rights Cumulative; Payments. Lender's rights under this
Guaranty shall be in addition to all rights of Lender under the
Credit Agreement and the other Loan Documents. TO THE EXTENT THAT
PAYMENTS ARE MADE HEREUNDER BY THE GUARANTOR WITH RESPECT TO
OBLIGATIONS AND LIABILITIES FOR WHICH BORROWER IS NOT LIABLE UNDER
THE NOTE, THE MORTGAGE, THE CREDIT AGREEMENT OR THE OTHER LOAN
DOCUMENTS, SUCH PAYMENTS MADE BY THE GUARANTOR UNDER THIS GUARANTY
SHALL NOT REDUCE IN ANY RESPECT SUCH BORROWER'S OBLIGATIONS AND
LIABILITIES UNDER THE NOTE, THE MORTGAGE, THE CREDIT AGREEMENT OR
THE OTHER LOAN DOCUMENTS, AND TO THE EXTENT THAT PAYMENTS ARE MADE
HEREUNDER BY THE GUARANTOR WITH RESPECT TO OBLIGATIONS AND
LIABILITIES FOR WHICH BORROWER IS LIABLE UNDER THE NOTE, THE
MORTGAGE, THE CREDIT AGREEMENT OR THE OTHER LOAN DOCUMENTS, SUCH
PAYMENTS SHALL BE APPLIED FIRST TO THOSE OBLIGATIONS AND
LIABILITIES ARISING UNDER THE NOTE, THE MORTGAGE AND THE OTHER
LOAN DOCUMENTS WITH RESPECT TO WHICH
BORROWER IS NOT PERSONALLY LIABLE.
14. No Limitation on Liability. The Guarantor hereby consents and
agrees that
Lender may at any time and from time to time without further
consent from the Guarantor do any of the following events, and the
liability of the Guarantor under this Guaranty shall be
unconditional and absolute and shall in no way be impaired or
limited by any of the following events, whether occurring with or
without notice to the Guarantor or with or without consideration:
(i) any extensions of time for performance required by any of the
Loan Documents or otherwise granted by Lender or extension or
renewal of the Note; (ii) any sale, assignment or foreclosure of
the Note, Mortgage or any of the other Loan Documents or any sale
or transfer of the property referenced in such Loan Documents;
(iii) any change in the composition of Borrower, including,
without limitation, the withdrawal or removal of the Guarantor
from any current or future position of ownership, management or
control of Borrower; (iv) the accuracy or inaccuracy of the
representations and warranties made by the Guarantor herein or by
Borrower in any of the Loan Documents; (v) the release of any
Borrower or of other person or entity from performance or
observance of any of the agreements, covenants, terms or
conditions contained in any of the Loan Documents by operation of
law, Lender's voluntary act or otherwise; (vi) the release or
substitution in whole or in part of any security for any of the
Loan; (vii) Lender's
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failure to record the Mortgage or to file any financing statement
(or Lender's improper recording or filing thereof or to otherwise
perfect, protect, secure or insure any lien or security interest
given as security for the Loan; (viii) the modification of the
terms of any one or more of the Loan Documents; or (ix) the taking
or failure to take any action of any type whatsoever. No such
action which Lender shall take or fail to take in connection with
any of the Loan Documents or any collateral for the Loan, nor any
course or dealing with Borrower or any other person, shall limit,
impair or release the Guarantor's obligations hereunder, affect
this Guaranty in any way or afford the Guarantor any recourse
against Lender. Nothing contained in this Section shall be
construed to require Lender to take or refrain from taking any
action referred to herein.
15. Enforcement. This Guaranty is subject to enforcement at law or
in equity, including actions for damages or specific performance.
16. Attorneys' Fees. In the event it is necessary for Lender to
retain the services of an attorney or any other consultants in
order to enforce this Guaranty, or any portion thereof, the
Guarantor agrees to pay to Lender any and all costs and expenses,
including, without limitation, reasonable attorneys' fees, costs
and disbursements, incurred by Lender as a result thereof and such
costs, fees and expenses shall be included in Costs.
17. Successive Actions. A separate right of action hereunder shall
arise each time Lender acquires knowledge of any matter
indemnified or guaranteed by the Guarantor under this Guaranty.
Separate and successive actions may be brought hereunder to
enforce any of the provisions hereof at any time and from time to
time. No action hereunder shall preclude any subsequent action,
and the Guarantor hereby waives and covenants not to assert any
defense in the nature of splitting of causes of action or merger
of judgments.
18. Reliance. Lender would not enter into the Credit Agreement
without the Guarantor entering into this Guaranty. Accordingly,
the Guarantor intentionally and unconditionally enters into the
covenants and agreements as set forth above and understands that,
in reliance upon and in consideration of such covenants and
agreements, the Credit Agreement shall be executed and, as part
and parcel thereof, specific monetary and other obligations have
been, are being and shall be entered into which would not be made
or entered into but for such reliance.
19. Waiver by the Guarantor. The Guarantor covenants and agrees
that, upon the commencement of a voluntary or involuntary
bankruptcy proceeding by or against Borrower, the Guarantor shall
not seek or cause Borrower or any other person or entity to seek a
supplemental stay or other relief, whether injunctive or
otherwise, pursuant to I 1 U.S.C. Section 105 or any other
provision of the Bankruptcy Reform Act of 1978, as amended, or any
other debtor relief law, (whether statutory, common law, case law
or otherwise) of any jurisdiction whatsoever, now or hereafter in
effect, which may be or become applicable, to stay, interdict,
condition, reduce or
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inhibit the ability of Lender to enforce any rights of Lender
against the Guarantor or the collateral for the Loan by virtue of
this Guaranty or otherwise.
20. Governing Law. This Guaranty shall be governed by, and
construed in accordance with, the laws of the State of Washington,
and is a "commercial law" as defined in RCW chapter 61.24, as
amended by chapter 295, Laws of 1998.
Remedies. The obligations of the Guarantor under this Guaranty are
independent of Borrower's obligations under the Loan Documents,
and a separate action or actions may be brought and prosecuted
against the Guarantor to enforce this Guaranty, irrespective of
whether any action is brought against Borrower or whether Borrower
is joined in any such action or actions. Any one or more
successive and/or concurrent actions may be brought hereon against
the Guarantor either in the same action, if any, brought against
Borrower or in separate actions, as often as Lender, in its sole
discretion, may deem advisable.
22. Certified Statement. The Guarantor and the Lender each agree
that they will, at any time and from time to time, within ten (10)
days following the reasonable request of the other, execute and
deliver to the other a statement certifying that this Guaranty is
unmodified and in full force and effect (or if modified, that the
same is in full force and effect as modified and stating such
modifications).
23. Separate Guaranty. The Guarantor agrees that they shall, at
the request of Lender, promptly execute, acknowledge and deliver a
specific guaranty for the Loan, which guaranty shall be in the
same form and nature as this Guaranty.
24. Notices. All notices and other communications which may be or
are desired to be given hereunder shall be in writing and, if to
the Guarantor, sent by recognized overnight courier or by
certified or registered mail, postage prepaid, return receipt
requested, or delivered to it, addressed to it at the address
first set forth above and if to Lender, mailed or delivered as
provided in Section 10.02 of the Credit Agreement, or as to each
party at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery
with the terms of this Section. All such communications shall be
deemed to be given (i) if hand delivered or sent by overnight
courier, on the day received, or (ii) if mailed, on the third
(3rd) Business Day following deposit thereof in the U.S. Mail.
25. Continuing Agreement; Successors and Assigns. This Guaranty is
a continuing obligation of the Guarantor and shall (i) remain in
full force and effect until the payment in full of the Loan and
all amounts payable under this Guaranty, (ii) be binding upon the
Guarantor and their respective successors and assigns and (iii)
inure to the benefit of and be enforceable by Lender and its
successors, transferees and assigns or by any person to whom
Lender's interest in the Loan Documents may be assigned.
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<PAGE>
26. Certain Notices. Lender shall endeavor to give notice to the
Guarantor of any amendment or modification of the Loan Documents;
provided, however, that failure to provide any such notice shall
in no manner adversely affect the rights and remedies of Lender
hereunder and under the Loan Documents or in any manner limit the
waivers made by the Guarantor under Section 6.
27. Waivers and Amendments. No supplement to, modification or
amendment of, or waiver, consent or approval under, any provision
of this Guaranty shall be effective unless in writing and signed
by Lender, and any waiver, consent or approval shall be effective
only in the specific instance and for the specific purpose for
which given.
28. Waiver of Jury Trial. Lender and the Guarantor waive trial by
jury in any action or other proceeding (including counterclaims),
whether at law or equity, brought by Lender or the Guarantor
against the other on matters arising out of or in any way related
to or connected with this Guaranty, the other Loan Documents, the
Loan or any transaction contemplated by, or the relationship
between Lender and the Guarantor or any other Loan Party or any
action or inaction by any party under, any of the Loan Documents.
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as a
sealed instrument as of the day and year first above written.
PLEASE BE ADVISED THAT ORAL
AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONE,. EXTEND CREDIT OR
FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
/s/: Daniel R. Baty
Name: Daniel R. Baty
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<PAGE>
PROMISSORY NOTE
$9,765,000.00 Dated: June 30,1998
FOR VALUE RECEIVED, the undersigned, COOPER GEORGE PARTNERS
LIMITED PARTNERSHIP, a Washington limited partnership
("Borrower"), HEREBY PROMISES TO PAY to the order of
DEUTSCHE BANK AG, NEW YORK BRANCH or its registered assigns
(the "Lender") for the account of its Applicable Lending
Office (as defined in the Credit Agreement referred to
below) the aggregate principal amount of NINE MILLION SEVEN
HUNDRED SIXTY-FIVE THOUSAND AND NO/100 DOLLARS
($9,765,000.00) owing to the Lender by Borrower pursuant to
the Credit Agreement dated as of the date hereof (as
amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"; terms defined therein being
used herein as therein defined) among Borrower and the
Lender on the dates and in the amounts specified in the
Credit Agreement.
Borrower promises to pay to Lender or its registered assigns
interest on the unpaid principal amount of the Loan from the
date of the Loan until such principal amount is paid in
full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of
the United States of America to Deutsche Bank AG, New York
Branch, as Lender, at Lender s Account, in same day funds.
This Promissory Note is the Note referred to in, and is
entitled to the benefits of, the Credit Agreement. The
Credit Agreement, among other things, (i) provides for the
making of a single advance (the "Loan") by the Lender to
Borrower in an aggregate amount not to exceed the U.S.
dollar amount first above mentioned, the indebtedness of
Borrower resulting from such Loan being evidenced by this
Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of
certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms
and conditions therein specified. The obligations of
Borrower under this Promissory Note, and the obligations of
the other Loan Parties under the Loan Documents, are secured
by the Collateral as provided in the Loan Documents.
All parties now and hereafter liable with respect to this
Promissory Note hereby waive presentment, demand, protest
and all other notices of any kind.
[SIGNATURE PAGE TO FOLLOW)
<PAGE>
This Promissory Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of
Washington.
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR
ORAL COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
COOPER GEORGE PARTNERS LIMITED PARTNERSHIP,
a Washington limited partnership
By: Columbia Pacific Master Fund 98 General Partnership, a
Washington general partnership
By: Columbia Pacific Growth Fund 98 Limited Partnership, a
Washington limited partnership, its partner
By: B.F. Limited Partnership, a Washington limited
partnership, its general partner
By: Columbia Pacific Group, Inc., a Washington corporation,
its general partner
By: /s/: Daniel R. Baty
Name: Daniel R. Baty
Title: President
<PAGE>
Recording Requested By And When Recorded Mail To:
Timothy G. Little, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
DEED OF TRUST, TRURT INDENTURE, ASSIGNMENT, ASSIGNMENT OF
RENTS, SECURITY AGREEMENT, INCLUDING FIXTURES, FIXTURE
FILING AND FINANCING STATEMENT
Grantor (Borrower): Cooper George Partners Limited
Partnership
Grantee (Lender): Deutsche Bank AG
Grantee (Trustee): Chicago Title Insurance Company
Legal Description (abbreviated):Part of Block B, Amended
Plat of Blocks A and B of Second Addition to the Railroad
Addition to Spokane Falls (now Spokane), according to Plat
Recorded in Volume A of Plats, Page 10, in the City of
Spokane, Spokane County, Washington, more particularly
described in Exhibit A attached hereto.
Assessor's Tax Parcel ID# 35192.522l
PARTNERSHIP INTEREST
PURCHASE AND SALE AGREEMENT VICKERY TOWERS
This Partnership Interest Purchase and Sale Agreement (the
"Agreement") is dated, for reference purposes only, as of the 4th
day of June,1998, and is by and between ESC GP II, INC., a
Washington corporation ("GP"), and EMERITUS PROPERTIES IV, INC., a
Washington corporation ("LP"), (together "Seller"), and COLUMBIA
PACIFIC MASTER FUND 98 GENERAL PARTNERSHIP, a Washington general
partnership ("CPMF") and DANIEL R. BATY, an individual ("Baty").
CPMF and Baty are hereinafter together referred to as "Purchaser".
GP owns a one percent (l%) general partnership interest, and LP
owns a ninety-nine percent (99%) limited partnership interest, in
that certain Washington limited partnership known as ESC II LP
("the Partnership").
1. PURCHASE AND SALE. GP agrees to sell to CPMF, and CPMF
agrees to acquire, GP's one percent (l%) general partnership
interest in the Partnership. LP agrees to sell to CPMF, and CPMF
agrees to acquire, a ninety-eight percent (98%) limited
partnership interest in the Partnership. LP agrees to sell to
Baty, and Baty agrees to acquire, a one percent (l%) limited
partnership interest in the Partnership.
Following Closing of this transaction, it is the intention of the
parties that CPMF will own a one percent (l%) general partnership
interest and a ninety-eight percent (98%) limited partnership
interest in the Partnership, and that Baty will own a one percent
(l%) limited partnership interest in the Partnership. All of the
foregoing partnership interests are hereinafter collectively
referred to as the Interest. The Partnership owns:
a. The real property situated in the City of Dallas, State of
Texas, which is more particularly described in Exhibit A attached
hereto (the "Real Property"), together with all of the
improvements on the Real Property, including that certain
congregate and assisted living facility consisting of295 units and
commonly known as the "Vickery Towers" (the "Facility").
b. All equipment, furniture, fixtures, inventory, vehicles,
supplies (including linens, dietary supplies and housekeeping
supplies but specifically excluding food and other consumable
inventories) and other tangible and intangible personal property
owned by Seller and located on the Real Property or used in
connection with the operation of the Facility, including but not
limited to, all licenses, permits and approvals for the operation
of the Facility, all entitlements, telephone numbers, any right,
title or interest which Seller may have in and to any service
marks, trademarks or trade names owned, used or employed by Seller
in conjunction with the operation of the Facility, but
specifically excluding cash, cash equivalents and accounts
receivable for the period prior to the Closing Date (as defined
below) (collectively, the "Personal Property"). The Personal
Property is more particularly described in Exhibit B.
c. The food and other consumable inventories located at, and
usable in the operation of, the Facility on the Closing Date
(collectively, the "Consumables").
The Real Property, Facility, Consumables and Personal Property are
sometimes hereinafter collectively referred to as the "Partnership
Assets."
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2. PURCHASE PRICE. The purchase price payable by Purchaser for
the Partnership Assets shall be FIVE MILLION EIGHT HUNDRED TEN
THOUSAND DOLLARS ($5,810,000) (the "Purchase Price"), payable as
follows:
a. One Million Dollars ($1,000,000) by Purchaser's execution and
delivery of a Promissory Note at Closing (the "Convertible Note")
payable to Seller or Seller's designee. The Convertible Note shall
be substantially in the form of Exhibit C attached hereto and
shall include the following provisions, all as more particularly
set forth on Exhibit C:
(i) interest shall accrue at the rate of nine percent (9"%) per
annum;
(ii) due and payable in full after ten (10) years;
(iii) convertible at the noteholder's option for a fifteen percent
(15%) limited partner ownership interest in Purchaser; and
(iv) provide for Purchaser's ability to draw up to an additional
$500,000 in principal to cover cash operating losses from
Purchaser's operation of the Facility.
The Convertible Note is in the original principal amount of
$1,500,000 to reflect the $1,000,000 purchase price portion plus
the additional $500,000 that may be drawn thereunder to cover
operating losses.
b. Four Hundred Fifty Thousand Dollars ($450,000) by CPMF's
execution and delivery to Seller of the Repair Note described in
Section 10(d) below; and
c. The balance of Four Million Three Hundred Sixty Thousand
Dollars ($4,360,000) in cash at Closing
Except as specifically provided in this Agreement, Purchaser does
not hereby or in connection herewith assume any liability of
Seller whatsoever in relation to Partnership Assets which relates
to the period prior to Closing.
Purchaser is aware that the Real Property is subject to a lien in
favor of GMAC Commercial Mortgage Corporation with a current
principal balance of approximately $15,600,000 (the "First Lien
Debt"). The First Lien Debt is evidenced by a Promissory Note
dated November 26,1998 in the original principal amount of
$15,600,000, and secured by, among other things, that certain Deed
of Trust dated November 26,1998 and recorded in the real property
records of Dallas County, Texas under Recorder's No. Volume 96237,
Page 06912. The First Lien Debt shall be personally guaranteed by
Baty. Seller shall obtain any consents required as a result of
this transaction from the holder of the First Lien Debt and shall
obtain a release of the guaranty of the First Lien Debt by
Emeritus Corporation.
3. CLOSING. The closing for the purchase and sale of the
Interest under this Agreement (the "Closing") shall occur on or
before July 31,1998 (provided all of the conditions to closing set
forth in Paragraphs 13 and 14 have been satisfied or waived) (the
"Closing Date").
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4. TRANSFER. The Interest shall be assigned to Purchaser by an
Assignment and Assumption of Partnership Interest in a form
acceptable to Seller and Purchaser (the "Assignment"). As of the
Closing Dated, fee simple insurable title to the Real Property and
marketable title to the Personal Property shall be free and clear
of all liens, charges, easements and encumbrances of any kind,
other than the following:
a. Liens for real estate taxes not yet due and payable;
b. The First Lien Debt; and
c. Such items of record as described in the Title Commitment (as
defined below) reviewed and approved by Purchaser as provided in
Paragraph 13.e. below, excluding, however, any monetary liens and
encumbrances referenced therein.
5. COSTS, PRORATIONS AND ADJUSTMENTS. The costs of the
transaction and the expenses related to the ownership and
operation of the Partnership Assets shall be allocated among
Seller and Purchaser as follows:
a. Seller and Purchaser shall share equally any State and County
transfer, documentary and /or excise taxes due on the transfer of
the Interest.
b. Seller and Purchaser shall share equally the premium for a
standard policy of owner's title insurance with an insured value
of not less than the total amount of the Purchase Price and
Purchaser shall pay the amount of any additional premium
associated with the issuance of extended coverage for said owner's
policy of title insurance.
c. All revenues (including but not limited to rent due from the
tenants of the Facility) and expenses (including but not limited
to payroll and employee benefits) related to the ownership or
operation of the Partnership Assets shall be prorated as of the
Closing Date, with Seller responsible for amounts attributable to
the period prior to the Closing Date and with Purchaser
responsible for amounts attributable to the period from and after
the Closing Date.
d. Real and Personal Properly taxes and assessments shall be
prorated as of the Closing Date, with Seller responsible for taxes
and assessments attributable to the period prior to the Closing
Date and with Purchaser responsible for taxes and assessments
attributable to the period from and after the Closing Date.
e. Seller shall arrange for a final statement with respect to
all utilities serving the Real Property and the Facility as of the
Closing Date and shall pay all fees identified thereon and
Purchaser shall arrange for all such utilities to be billed in its
name from and after the Closing Date and shall pay all fees due
therefor from and after the Closing Date.
f. Purchaser and Seller shall each pay their own attorney's
fees.
g. Purchaser shall pay all costs, expenses and fees which may be
assessed by any governmental authority in connection with
obtaining any governmental approval or consent which may be
required in order to consummate this transaction.
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6. POSSESSION. At Closing, Purchaser shall be entitled to
possession of the Partnership Assets, subject only to the rights
of the tenants of the Facility under the Facility Leases (as
defined below).
7. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby
warrants and represents to Purchaser that:
a. SELLER'S AUTHORITY. Seller has full power and authority to
execute and deliver this Agreement and all related documents, and
to carry out the transactions contemplated herein. This Agreement
is valid, binding and enforceable against Seller in accordance
with its terms, except as such enforceability may be limited by
creditors' rights, laws and applicable principles of equity. The
execution of this Agreement and the consummation of the
transaction contemplated herein do not result in a breach of the
terms and conditions of nor constitute a default under or
violation of the Partnership Agreement, or any law, regulation,
court order, mortgage, note, bond, indenture, agreement license or
other instrument or obligation to which Seller is now a party or
by which Seller or any of the assets of Seller may be bound or
affected.
b. TITLE. Seller has, good title to the Interest, free of all
liens and encumbrances. To Seller's knowledge, the Partnership has
good and insurable fee simple title to the Real Property and the
Facility, subject only to the easements, reservations and
encumbrances, if any, permitted under Paragraph 4, and good and
marketable title to the Personal Property free and clear of all
leases, liens and encumbrances. The Personal Property includes all
of the furniture, fixtures and equipment which is currently owned
by Seller and is used in connection with the operation of the
Facility.
c. THE FACILITY. The roof of the Facility and all major
mechanical systems at the Facility, including, but not limited to,
the air conditioning, electrical and heating and ventilating
systems shall be maintained through the Closing Date in good and
workable condition and repair consistent with condition existing
as of the expiration of the Feasibility Period.
d. NECESSARY ACTION. Seller will proceed with all due diligence
to take all action and obtain all consents prior to Closing
necessary for it to lawfully enter into and carry out the terms of
this Agreement.
e. TAXES AND TAX RETURNS. All tax returns, reports and filings
of any kind or nature required to be filed by Seller and the
Partnership prior to Closing with respect to its ownership and
operation of the Facility and its ownership of the Real Property
and the Personal Property have been properly completed and timely
fled in material compliance with all applicable requirements and
all taxes or other obligations which are due and payable by Seller
have been timely paid.
f. LITIGATION. Except as provided in Exhibit C, there is no
litigation, investigation, or other proceeding pending or, to the
best of Seller's knowledge, threatened against or relating to
Seller or the Partnership, its properties or business, which is
material to any of the Partnership Assets or to this Agreement, or
which would prevent Seller from performing its obligations
hereunder, and the transaction contemplated herein has not been
challenged by any governmental agency or any other person, nor
does Seller know or have reasonable grounds to know, of any basis
for any such litigation, investigation or other proceeding.
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g. BOOKS AND RECORDS. To the best of Seller's knowledge, all of
the books and records maintained by Seller and the Partnership
with respect to its ownership and/or operation of the Partnership
Assets are true, accurate and correct in all material respects.
h. THE FACILITY LEASES. Attached hereto as Exhibit D is a true
and correct copy of the form of lease utilized by the Partnership
for the leasing of units at the Facility. Each of the leases in
the Facility ("the Facility Leases") is in full force and effect
and none of the Facility Leases have been modified or amended
except as set forth in any amendment provided to Purchaser. The
Partnership is not in default of any of its obligations under the
Facility Leases nor is Seller aware of any default or any action
which, with the passage of time or the giving of notice or both,
would constitute a default under the Facility Leases by any of the
tenants who are parties thereto.
i. RENT ROLL. Attached hereto as Exhibit E is a true and correct
rent roll as of June 1,1998, which identifies each of the tenants
of the Facility, the monthly rent currently being paid by each
such tenant and the date to which said rent has been paid and, in
the event of any rent delinquencies, an explanation of the reason
therefor and the efforts being undertaken by Seller to collect
said rent. Seller shall update the rent roll on a monthly basis
between the date hereof and the Closing Date.
j. LIENS. There are no mechanics', materialmen's or similar
claims or liens presently claimed or, to the best of Seller's
knowledge, which will be claimed against the Partnership Assets
for work performed or commenced prior to the date hereof at the
request of Seller or of which Seller has knowledge, Seller having
made or caused to be made arrangements for payment of all those
improvements now under construction or development.
k. ENVIRONMENTAL MATTERS. Except in accordance with and in full
compliance with, any and all applicable governmental laws,
regulations and requirements (collectively, the "Environmental
Laws") relating to environmental and occupational health and
safety matters and hazardous materials, substances or wastes (as
defined from time to time under any applicable federal, state or
local laws, regulations or ordinances), neither Seller nor the
Partnership has released into the environment or discharged,
placed or disposed of any such hazardous materials, substances or
wastes or caused the same to be so released into the environment
or discharged, placed or disposed of at, on or under the
Partnership Assets. Except as set forth in any environmental
report(s) which Seller shall have provided to Purchaser hereunder,
Seller is unaware that any hazardous materials, substances or
wastes have been located on the Real Property or the Facility or
have been released into the environment or discharged, placed or
disposed of in, on or under the Real Property or the Facility; to
Seller's knowledge, no underground storage tanks other that those
disclosed in the Phase I environmental report provided to
Purchaser by Seller are or have been located on the Real Property;
to Seller's knowledge, the Real Properly has never been used as a
dump for waste material; and, to Seller's knowledge, the Real
Properly and the Facility and their prior uses comply with and at
all times have complied with, all Environmental Laws.
1. EMPLOYEES; UNIONS. None of Seller's or the Partnership's
employees are member of a labor union or subject to collective
bargaining agreement with respect to their employment with Seller
or the Partnership. Neither Seller nor the Partnership is a party
to any labor dispute or grievance.
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m. Compliance with Law.(i) To Seller's knowledge, the
Partnership Assets are in compliance with all currently applicable
municipal, county, state and federal laws, regulations,
ordinances, standards and orders and with all municipal, health,
building and zoning by-laws and regulations (including, without
limitation, the building and zoning codes) where the failure to
comply therewith or to obtain a waiver therefrom could have a
material adverse effect on the business, property, condition
(financial or otherwise) or operation of the Partnership Assets;
(ii) There are no outstanding deficiencies or work orders of any
authority having jurisdiction over the Partnership Assets
requiring conformity to any applicable statute, regulation,
ordinance or by-law pertaining thereto; and
(iii) Seller is not aware of any claim, requirement or demand of
any agency supervising or having authority over the Facility to
rework or redesign it or to provide additional furniture, fixtures
or equipment so as to conform to or comply with any existing law,
code or standard which has not been fully satisfied prior to the
date hereof or which will not be satisfied prior to the Closing
Date.
n. OPERATING CONTRACTS. Prior to or concurrently with the
execution of this Agreement, Seller shall have made available to
Purchaser, for its review all operating contracts to which Seller
is a party in connection with its operation of the Facility (the
"Operating Contracts"). Each of the Operating Contracts is in full
force and effect and none of the Operating Contracts have been
modified or amended except as set forth in any amendment provided
to Purchaser. The Partnership is not in default of any of its
obligations under the Operating Contracts nor is Seller aware of
any default or any action which, with the passage of time or the
giving of notice or both would constitute a default, under the
Operating Contracts by any other party thereto.
o. THE FACILITY. The Facility contains one hundred fifty-two
(152) congregate units and one hundred forty-three (143) assisted
living units. The Facility is, or at Closing will be, duly and
properly licensed to operate as an assisted living facility as to
the above assisted living units. There is no action pending or, to
the best knowledge of Seller, recommended by any state or federal
agency having jurisdiction thereof, or any action of any other
type, which would have a material adverse effect on the Facility,
its operations or business.
p. INVENTORY. All inventories of non-perishable food, central
supplies, linen, housekeeping and other supplies located at the
Facility are, and shall be at the time of Closing, in sufficient
condition and quantity as is normal and customary for the
operation of the Facility.
q. DISCLOSURE. (i) No representation or warranty by Seller
contained in this Agreement, (ii) no statement contained in any
certificate, list, exhibit or other instrument prepared by Seller
and furnished or to be furnished to Purchaser pursuant hereto, or
in connection with the transaction contemplated hereby and (ii) to
Seller's knowledge, no statement contained in any certificate,
list, exhibit or other instrument prepared by any person or entity
other than Seller and furnished or to be furnished to Purchaser
pursuant hereto, or in connection with the transaction
contemplated hereby, contains or will contain any untrue statement
of a
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material fact, or omits oc will omit to state any material facts
which are necessary in order to make the statements contained
herein or therein not misleading.
r. PARTNERSHIP AGREEMENT. The Partnership was duly organized and
is in good standing under the laws of the State of Washington.
There are no defaults under the Partnership Agreement or matters
which with the passage of time or the giving of notice would
constitute a default thereunder. The Partnership is duly qualified
to transact business in the State of Texas. All Partnership
consents required for this transaction have been obtained.
8. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Each of the
parties constituting Purchaser hereby warrants and represents to
Seller that:
a. STATUS OF CPMF. CPMF is a general partnership validly
existing under the laws of the State of Washington and is duly
qualified to do business in the State of Texas.
b. AUTHORITY. Purchaser has full power and authority to execute
and to deliver this Agreement and all related documents, and to
carry out the transactions contemplated herein. Baty, by signing
this Agreement, binds the assets of his full marital community and
has full authority to do so. This Agreement is valid, binding and
enforceable as against Purchaser in accordance with its terms,
except as such enforceability may be limited by creditors' rights
laws and applicable principles of equity. The execution of this
Agreement and the consummation of the transaction contemplated
herein do not result in a breach of the terms and conditions of
nor constitute a default under or violation of Purchaser's
Articles of Incorporation or By-laws or any law, regulations,
court order, mortgage, note, bond, indenture, agreement, license
or other instrument or obligation to which Purchaser is a party or
by which Purchaser or any of the assets or Purchaser may be bound
or affected.
c. LITIGATION. To the best of Purchaser's knowledge, there is no
litigation, investigation or other proceeding pending or
threatened against or relating to Purchaser, its properties or
business which is material to this Agreement, or which would
prevent Purchaser from performing its obligations hereunder, nor
does Purchaser know or have reasonable grounds to known of any
basis for any such action.
d. NECESSARY ACTION. CPMF will proceed with all due diligence to
take all action and obtain all consents prior to Closing necessary
for it to lawfully enter into and carry out the terms of this
Agreement, including, but not limited to, obtaining the consent of
its Board of Directors.
e. DISCLOSURE. No representation or warranty by Purchaser
contained in this Agreement and no statement contained in any
certificate, list, exhibit, or other instrument furnished or to be
furnished to Seller pursuant hereto, or in connection with the
transaction contemplated hereby, contains or will contain any
untrue statement of a material fact, or omits or will omit to
state any material facts which are necessary in order to make the
statements contained herein or therein not misleading.
9. BROKER. Seller and Purchaser represent and warrant to each
other that they have employed no broker and/or finder in
connection with this transaction. In the event any claim, damage
or cause of action for brokerage and/or finder's fees is asserted
against a party to this Agreement who did not request such
services, the party through whom the broker and/or
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finder is making the claim shall indemnify, defend (with an
attorney of indemnitee's choice) and hold harmless the other party
from and against any and all such claims, demands and causes of
action.10. SELLER' S COVENANTS.a. PRE-CLOSING. Between the date
hereof and the Closing Date, except as contemplated by this
Agreement or with the consent of Purchaser:
(i) Other than as set forth in Paragraph 4, Seller will satisfy
and discharge all claims, liens, security interests, tenancies
(other than any Operating Contracts which Purchaser elects to
assume at Closing pursuant to the terms hereof and the Facility
Leases), and encumbrances on the Partnership Assets;
(ii) Seller will file all tax returns, reports and filings of any
kind or nature required to be filed by Seller and the Partnership
and will timely pay all taxes or other obligations which are due
and payable with respect to the Partnership Assets;
(iii) Seller will not take any action inconsistent with its
obligations under this Agreement or which could hinder or delay
the consummation of the transactions contemplated by this
Agreement, and Seller will continue until the Closing to fulfill
any obligations which it may have under the Facility Leases;
(iv) Seller will operate the Facility only in the ordinary course
and with due regard to the proper maintenance and repair of the
Facility and the Personal Properly;
(v) Seller will take all reasonable action to preserve the
goodwill of the tenants of the Facility;
(vi) Seller will make no material change in the operation of the
Facility nor sell or agree to sell any of the items which comprise
the Personal Property nor otherwise enter into an agreement
materially affecting any of the Partnership Assets;
(vii) Seller will use its reasonable efforts to retain the
services and goodwill of the employees of Seller and of the
Partnership located at or connected with the operation ofthe
Facility;
(viii) Seller will maintain in force the existing hazard and
liability insurance policies, or comparable coverage, for the
Partnership Assets as now in effect;
(ix) Seller will not increase the compensation or other benefits
or bonuses payable or to become payable to any of the Seller's
employees connected with the operation of the Facility, except for
increases substantially in accordance with existing employment
practices disclosed to and approved by Purchaser, if any;
(xiii) Seller will take all reasonable action to achieve
substantial compliance with any laws, regulations, ordinances,
standards and orders applicable to the Partnership Assets which
are enacted after execution of this Agreement and prior to
Closing;
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(xiv) Seller will proceed with all due diligence to secure any
consents which may be necessary for the assignment of the Facility
Leases;
(xv) Seller will make available to Purchaser, within five (5) days
following the mutual execution of this Agreement, for its review
all of the following documents relating the Real Property and the
Facility to the extent the same are in Seller's possession or
reasonably available (collectively, the "Property Documents"): all
environmental reports, structural reports and geological reports,
governmental licenses, permits, approvals, and certifications,
evidence of appropriate zoning for the Real Property, service and
maintenance contracts not previously delivered as pact of the
Operating Contracts, existing surveys of the Real Property
including any as-built surveys for the improvements, wetland
reports, soils reports, architect's drawings, plans and
specifications, engineering tests and reports, and all appraisals
prepared for the Real Property and the Facility. Upon the request
of Purchaser, Seller shall promptly deliver to Purchaser copies of
any Property Documents which Purchaser determines it shall require
in connection with its Feasibility Review; and
(xvi) During normal business hours, Seller will provide Purchaser
and its agents with access on 24 hours notice to the Real Property
and the Facility, provided Purchaser does not unreasonably
interfere with the operations of the Facility and at such times
Seller shall permit Purchaser to inspect the books and records
related to the Facility (which may be unaudited) covering a period
of not less than two (2) years prior to the date hereof and
conduct an audit, at Purchaser's sole cost and expense, of said
books and records (which may be conducted by Purchaser or
Purchaser's representative) and inspect the physical and
structural condition of the Facility, the Real Property and the
Personal Property. Said books and records shall include, but not
be limited to, leases, accounts payable records, rent rolls,
operating statements, inventory of personal property and all other
contracts and agreements which relate to the Partnership Assets.
b. CLOSING. On the Closing Date, Seller agrees that it will:
(i) Execute and deliver to Purchaser the Assignment;
(ii) Deliver to Purchaser a certificate dated as of the Closing
Date, certifying in such detail as Purchaser may reasonably
specify the fulfillment of the conditions set forth in
Paragraph(s) 13.a. and b.;
(iii) Pay its share of the Closing costs; and
(iv) Deliver to Purchaser the Benefits Schedule (as defined in
Paragraph 18) in accordance with the provisions of Paragraph I 8.
c. POST-CLOSING. After the Closing of this Agreement, Seller
agrees that, at Purchaser's sole cost and expense, it will take
such actions and properly execute and deliver to Purchaser such
further instruments of assignment, conveyance and transfer as, in
the reasonable opinion of counsel for Purchaser and Seller, may be
reasonably necessary to assure, complete and evidence the full and
effective transfer and conveyance of the Interest and cooperate
with Purchaser in any efforts which it may undertake to audit
Seller's financial statements with respect to the Facility for the
periods prior to the Closing if and to the extent such an audit is
required for
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Purchaser's compliance with applicable securities laws. The
obligations of Seller hereunder shall survive the Closing ofthe
transaction provided for herein.
d. REPAIRS. Seller shall complete, prior to the Closing Date,
the repairs specified on Exhibit F attached hereto. The cost of
such repairs shall be initially funded by Seller and treated as
draws by Seller under the Promissory Note to be made by CPMF to
Seller in the form of Exhibit G attached hereto (the "Repair
Note"). The terms of the Repair Note shall include:
(i) Interest accrual at nine percent (9%) per annum, with no
monthly payments required;
(ii) Due and payable in full after ten (10) years; and
(iii) Convertible at Seller's election to a five percent (5%)
limited partnership interest in the Partnership. Such conversion
shall be in exchange for all principal and interest then
outstanding under the Note.
11. PURCHASER' S COVENANTS.
a. PRE-CLOSING. Between the date hereof and the Closing Date,
except as contemplated by this Agreement or with the consent of
Seller, Purchaser agrees that:
(i) Purchaser will not take any action inconsistent with its
obligations under this Agreement or which could hinder or delay
the consummation of the transaction contemplated by this
Agreement;
(ii) Purchaser will proceed with all due diligence to obtain all
consents and approvals necessary to permit the consummation ofthe
transaction contemplated by this Agreement and/or necessary to
permit Purchaser to own and to operate the Facility.
(iii) Purchaser will proceed with all due diligence to conduct
such investigations with respect to the Partnership Assets as it
deems to be reasonably necessary in connection with its purchase
thereof, including, but not limited to, zoning investigations,
soil studies, environmental assessments, seismic assessments,
wetlands reports, review of all Property Documents made available
by Seller, investigations of Seller's and the Facility's operating
books and records and structural inspections; provided, however,
no studies or investigations conducted at the Real Property will
be physically intrusive on the Real Property or the Facility
unless Seller consents thereto, which consent shall not be
unreasonably withheld (the
"Feasibility Review"); provided, however, nothing herein shall be
construed as amending or modifying in any manner the
representations or warranties of Seller set forth in this
Agreement, which representations and wamanties shall be separate
from and unaffected by Purchaser's Feasibility Review; and
provided, further, that Purchaser shall maintain the
confidentiality of any documents or information obtained by it
during the course of its Feasibility Review and shall return the
same to Seller in the event the transaction provided for herein
fails close for any reason whatsoever;
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(iv) At least five (5) business days prior to the Closing Date,
Purchaser will advise Seller in writing which, if any, of the
Operating Contracts it elects to keep in effect as of the Closing
Date; and
(v) Promptly following the mutual execution of this Agreement,
Purchaser will arrange with Chicago Title Insurance Company,
Seattle Office (the "Title Company"), for the issuance and
delivery to Purchaser of a title commitment covering the Real
Property, together with copies of all exception documents
referenced therein (the "Title Commitment").
b. CLOSING. On the Closing Date, Purchaser agrees that it will:
Purchase Price;
(i) Deposit with the Escrow Agent the Convertible Note and the
(ii) Deposit with the Escrow Agent Purchaser's share of the
Closing costs as herein provided;
(iii) Execute and deliver to Seller or to Escrow Agent a counter-
part copy of the Assignment; and
(iv) Execute and deliver to Seller or to Escrow Agent such other
documents as may be necessary to consummate this transaction.
c. POST-CLOSING. After the Closing of this Agreement, Purchaser
agrees that it will:
(i) Upon prior reasonable notice, provide Seller with access
during normal business hours to any books or records which Seller
may need to file or to defend tax returns or other filings filed
prior or subsequent to the Closing Date which relate to periods
prior to the Closing Date; and
(ii) Take such actions and properly execute and deliver such
further instruments as Seller may reasonably request to assure,
complete and evidence the transaction provided for in this
Agreement.
12. MUTUAL. Following the execution of this Agreement, Purchaser
and Seller
agree:
a. If any event should occur, either within or without the
knowledge or control of Purchaser or Seller, which would prevent
fulfillment of the conditions to the obligations of any party
hereto to consummate the transaction contemplated by this
Agreement, to use its or their reasonable efforts to cure the same
as expeditiously as possible; and
b. To cooperate fully with each other in preparing, filing,
prosecuting, and taking any other actions which are or may be
reasonable and necessary to obtain the consent of any governmental
instrumentality or any third party or to accomplish the
transaction contemplated by this Agreement.
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<PAGE>13. PURCHASER'S CONDITIONS. All obligations of Purchaser
under this Agreement are subject to fulfillment of each of the
following conditions, any one or all or which may be waived in
writing by Purchaser:
a. SELLER'S REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING.
Seller's representations and warranties contained in this
Agreement or in any certificate or document delivered in
connection with this Agreement or the transactions contemplated
herein shall be true in all material respects at and as of the
date of Closing as though such representations and warranties were
then again made.
b. SELLER'S PERFORMANCE. Seller shall have performed all of its
obligations under this Agreement that are to be performed prior to
or at Closing to the extent the same have not been waived by
Purchaser in accordance with the terms hereof.
c. APPROVALS. On or before the Closing Date, Purchaser shall
have received all governmental consents, approvals and licenses as
may be necessary for it to own the Partnership and to operate the
Facility and any required approval from the holder of the First
Lien Debt. Purchaser covenants to use due diligence in applying
for and obtaining, all such necessary consents, approvals and
licenses.
d. NO DEFAULTS. Seller shall not be in default, where said
default cannot be cured by Closing, under any mortgage, contract,
lease or other agreement to which Seller is a party or by which
Seller is bound and which affects or relates to the Real Property,
the Personal Property or the Facility, including, but not limited
to, the Facility Leases.
e. TITLE REVIEW. Not later than seven (7) days prior to the
Closing Date (excluding any extension thereof, Purchaser shall
have reviewed and approved or disapproved those matters reflected
on the Title Commitment. In the event Purchaser objects to any
such matters, Purchaser shall advise Seller in writing of its
objections within said period; provided, however that such
objections shall not include those items specifically excluded in
Paragraph 4. Prior to the Closing, Seller shall advise Purchaser
in writing as to whether it intends to correct the defects to
which Purchaser has objected. If Seller fails to notify Purchaser
prior to the Closing or timely notifes Purchaser of its refusal to
correct some or all of such defects, Purchaser may nevertheless
elect to acquire the Partnership Assets, notwithstanding the
defects, or terminate this Agreement, which election shall be made
on or before the Closing Date. In the event of any such
termination, neither party shall have any further rights or
obligations hereunder.
f. UCC SEARCH. Purchaser may elect to obtain a UCC search
covering the name of Seller and/or the Facility, which search may
be done at the county and state level. On or before the end of the
Feasibility Period, Purchaser shall be satisfied with the results
of any such UCC search conducted by Purchaser.
g. TITLE POLICY. Upon the Closing, the Title Company shall
irrevocably agree to issue to Purchaser, effective as of the date
of Closing, an ALTA Owner's extended coverage policy of title
insurance for the Real Property and the Facility (the 'Title
Policy") with a value of not less than the total amount of the
Purchase Price insuring Purchaser' s interest in the Real Property
and the Facility, and subject to no exceptions other than those of
the usual printed exceptions (except that the survey, parties in
possession and mechanics lien exceptions and any
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<PAGE>
other general exception which is inconsistent with the issuance of
extended coverage, shall be unacceptable to Purchaser), and those
exceptions to title which are have been approved by Purchaser
pursuant to Paragraph 13.f. above.
h. SEWER AND ELEVATOR. Purchaser's obligations hereunder are
expressly conditioned upon Purchaser's satisfaction, in its sole
and absolute discretion, with the condition of the sewer system
and elevators serving the Facility.
In the event any of the foregoing conditions are not satisfied or
are not otherwise waived by Purchaser prior to the applicable
period for satisfaction or waiver, Purchaser shall have the right
to terminate this Agreement in accordance with the provisions of
Paragraph 17.
14. SELLER'S CONDITIONS. All obligations of Seller under this
Agreement are subject to the fulfillment, prior to or at Closing,
of each of the following conditions, any one or all of which may
be waived by Seller in writing:
a. PURCHASER'S REPRESENTATIONS AND WARRANTIES TRUE AT CLOSINGS.
Purchaser's representations and warranties contained in this
Agreement or in any certificate or document delivered in
connection with this Agreement or the transactions contemplated
herein shall be true in all material respects at and as of the
date of Closing as though such representations and warranties were
then again made.
b. PURCHASER'S PERFORMANCE. Purchaser shall have performed its
obligations under this Agreement that are to be performed prior to
or at Closing to the extent the same have not been waived by
Seller in accordance with the terms hereof.
c. MANAGEMENT AGREEMENT. Purchaser shall have entered into a
Management Agreement with Emeritus Corporation, an affiliate of
Seller, for the management of the Facility.
d. RELEASE OF GUARANTY. The holder of the First Lien Debt agrees
to release Emeritus Corporation from its guaranty of that debt as
of Closing.
15. SELLER'S INDEMNIFICATTON. Seller shall indemnify, defend and
hold Purchaser harmless from and against:
a. Except as otherwise provided in this Agreement, any and all
obligations relating to the Partnership's ownership of the
Partnership Assets and the operation of the Facility which exist
at the Closing Date, including, but not limited to any obligations
under the Facility Lease or the Operating Contracts which
Purchaser elects to keep in effect at Closing, and any obligations
with respect to the Resident Deposits;
b. Any and all damage, loss or liability arising from and after
the Closing Date under any of the Operating Contracts which
Purchaser does not elect to keep in effect at Closing;
c. Any and all damage, loss, or liability resulting from any
misrepresentation of a material fact, breach of warranty or
nonfulfillment of any agreement on
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<PAGE>
the part of Seller under this Agreement or from any
misrepresentation in any certificate furnished or to be furnished
to Purchaser hereunder;d. Any and all liability or loss arising
out of or relating to any failure in connection with the
transaction contemplated herein to comply with the requirements of
any laws or regulations relating to bulk sales or transfers; and
e. Any and all actions, suits, proceedings, demands,
assessments, judgments, reasonable costs, and other reasonable
expenses, including, but not limited to, reasonable attorney's
fees, incident to any of the foregoing.
For purposes of Paragraph 15.a., an obligation shall be deemed to
"exist" as of the Closing Date if it relates to events which
occurred prior to the Closing Date even if it is not asserted
until after the Closing Date. Excluded from Paragraph 15, are any
matters which occurred prior to the date the Partnership acquired
the Partnership Assets.
16. PURCHASER'S INDEMMTY. Purchaser shall indemnify, defend and
hold Seller harmless from and against:
a. Except as otherwise provided in this Agreement, any and all
obligations relating to the Partnership's ownership of the
Partnership Assets and the operation of the Facility from and
after the Closing Date, including, but not limited to, any
obligations under any of the Facility Leases or Operating
Contracts which Purchaser elects to keep in effect at Closing and
any obligations with respect to the Resident Deposits;
b. Any and all damage, loss or liability resulting from any
misrepresentation of a material fact, breach of warranty or
nonfulfillment of any agreement on the part of Purchaser under
this Agreement or from any misrepresentation in any certificate
furnished or to be furnished to Seller hereunder;
c. Any and all actions, suits, proceedings, demands,
assessments, judgments, reasonable costs and other reasonable
expenses, including, but not limited to, reasonable attorney's
fees, incident to any of the foregoing.
17. TERMINATION.
a. This Agreement may be terminated and the transaction
contemplated herein abandoned at any time prior to Closing:
(i) By mutual agreement of the parties;
(ii) By Seller, if any of the conditions set forth in Paragraph 14
shall have become incapable of fulfillment prior to the Closing
Date or such earlier date as may be specifically provided for the
performance thereof (as the same may be extended) through no fault
of Seller and the same shall not have been waived by Seller;
(iii) By Purchaser, if any of the conditions set forth in
Paragraph 13 shall have become incapable of fulfillment prior to
the Closing Date or such earlier date as may
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<PAGE>
be specifically provided for the performance thereof (as the same
may be extended) through no fault of Purchaser and the same shall
not have been waived by Purchaser;
(iv) By either Seller or Purchaser in the event of a material
breach by the other party of its obligations hereunder; or
(v) If the Closing has not occurred by the Closing Date, as
extended by mutual agreement of the parties.
b. In the event that prior to the Closing Date, a material
portion of the Real Property, the Facility or the Personal
Property shall have been damaged or destroyed by fire or other
casualty, or shall have been taken or condemned by any public or
quasi-public authority under the power of eminent domain,
Purchaser shall have the right to terminate this Agreement on
written notice to Seller. In the event Purchaser elects not to
terminate its rights hereunder, then Seller shall assign to
Purchaser all of its rights to any insurance proceeds or
condemnation award and all claims in the connection therewith. In
the event Purchaser exercises its termination rights hereunder,
the parties shall have no further rights or obligations hereunder.
c. Neither party to this Agreement may claim termination or
pursue any other remedy referred to in Paragraph I 7.a. on account
of a breach of a condition, covenant or warranty by the other,
without first giving such other party written notice of such
breach and not less than ten ( 10) days within which to cure such
breach. The Closing Date shall be postponed, if necessary, to
afford such opportunity to cure; provided, however, in no event
shall the Closing Date be postponed beyond January l,1999.
d. In the event of the termination of this Agreement by Seller
under Paragraphs 17.a.(ii) or (iv) or under Paragraph 17(a)(v) in
the event the Closing has failed to occur as a result of a
material breach by Purchaser of its obligations hereunder,
Seller's sole remedy shall be to terminate this Agreement and
recover as damages its actual out of pocket costs incurred in
connection with this transaction.
e. In the event of the termination of this Agreement by
Purchaser under Paragraphs 17.a.(iii), (iv) or (v) as a result of
the Closing failing to occur due to a material breach by Seller of
its obligations hereunder, Purchaser shall have the right to seek
specific performance of Seller's obligations hereunder or damages
for Seller's breach of its obligations hereunder. In lieu of the
foregoing, Purchaser may elect to require Seller to pay to
Purchaser a breakup fee of Four Hundred Thousand Dollars
($400,000) in cash to compensate Purchaser for its costs incurred
in this transaction.
18. INTENTIONALLY DELETED.
19. RESIDENT SECURITY DEPOSITS. At Closing, Seller shall provide
Purchaser with an accounting of all resident security deposits
being held by Seller as of the Closing Date (the "Resident
Deposits"). Such accounting shall set forth the names of the
residents or prospective residents for whom such funds are held,
the amounts held on behalf of each resident or prospective
resident and the Seller's warranty that the accounting is true,
correct and complete.
15
<PAGE>
20. TRANSFER OF RESIDENT SECURITY DEPOSITS. On the Closing Date,
Seller shall transfer the Resident Deposits to the bank account
designated by the Purchaser. Purchaser shall in writing
acknowledge receipt of and expressly assume all Seller's financial
and custodial obligations with respect thereto, it being the
intent and purpose of this provision that, at Closing, Seller will
be relieved of all fiduciary and custodial obligations with
respect to said Resident Deposits, and that Purchaser will assume
all such obligations and be directly accountable to the residents
and prospective residents of the Facility, with respect thereto.
21. INDEMNITY FOR RESIDENT SECURITY DEPOSITS. Notwithstanding the
foregoing, Seller will indemnify and hold Purchaser harmless from
all liabilities, claims and demands in the event the amount of the
Resident Deposits transferred to the Purchaser's bank account or
the credit for said Resident Deposits which has been applied
against the Purchase Price, as provided in Paragraph 20, did not
represent the full amount of such Resident Deposits then or
thereafter shown to have been delivered to Seller by the current
residents or prospective residents of the Facility.
22. NOTICES. Any notice, request or other communication to be
given by any party hereunder shall be in writing and shall be sent
by registered or certified mail, postage prepaid, by overnight
courier guaranteeing overnight delivery or by facsimile
transmission (if confirmed verbally or in writing by mail as
aforesaid), to the following address:
To Seller: c/o Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attention: Jean Fukuda
Telephone No.: (206) 298-2909
Facsimile No.: (206) 301-4300
With a copy to: Foster Pepper & Shefelman PLLC
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attention: Michael D. Kuntz
Telephone No.: (206) 447-4400
Facsimile No.: (206) 447-9700
To Purchaser: c/o Columbia - Pacific, Inc.
3131 Elliott Avenue, Suite 500
Seattle, WA 98121Attention: Ruth Verhoff
Telephone No.: (206) 301-4546
Facsimile No.: (206) 301-4545
With a copy to: Whalen, Firestone, Landsman,
Fleming & Dixon
Suite 2150 1191 Second Avenue
Seattle, Washington 98101Attn: Thomas E.
Dixon, Esq.Telephone No.: (206) 624-7900
Facsimile No.: (206) 624-70903
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<PAGE>
Notice shall be deemed given three (3) business days after deposit
in the mail, on the next day if sent by overnight courier and on
receipt if sent by facsimile (and confirmed verbally or by mail as
aforesaid).
23. SOLE AGREEMENT. This Agreement may not be amended or modified
in any respect whatsoever except by instrument in writing signed
by the parties hereto. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior
negotiations, discussions, writings and agreements between them.
24. SUCCESSORS. The terms of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by and against the
heirs and successors of the parties hereto, it being specifically
understood and agreed that Purchaser shall have the right to
assign in whole or in part its rights and obligations hereunder to
any affiliated entity or any entity which is sponsored by
Purchaser; provided no such assignment shall relieve Purchaser of
its obligations hereunder. Notwithstanding the foregoing,
Purchaser shall have the right, on written notice to Seller, to
assign its rights hereunder to a real estate investment trust (the
"REIT") in connection with its financing of the transaction
provided for herein, it being understood and agreed that in the
event of such an assignment, the only right which the REIT will
assume is Purchaser's right to take title to the Partnership
Assets and the only obligation which the REIT will assume is
Purchaser's obligation to pay the purchase price in accordance
with the terms hereof and that in any event Purchaser shall not be
relieved of any of its obligations hereunder in the event of such
an assignment.
25. CAPTIONS. The captions of this Agreement are for convenience
of reference only and shall not define or limit any of the terms
or provisions hereof.
26. SURVIVAL. All covenants, warranties and representations of
Purchaser and Seller herein shall survive for two years after
Closing other than Seller's representation and warranty in
Paragraph 7.k., which shall survive for the applicable statute of
limitations period.
27. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
28. SEVERABILITY. Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or unenforceable
in any respect, the validity, legality and enforceability of the
remaining provisions hereofshall not in any way be affected or
impaired thereby.
29. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same
instrument.
30. THIRD PARTY BENEFICIARY. The provisions of this Agreement are
not intended to confer any benefits upon any person or entity not
a party to this Agreement.
31. ACCOUNTS RECEIVABLE. Within ten days prior to the Closing
Date, Seller shall provide Purchaser with a detailed listing of
Seller's accounts receivable which are anticipated to be
outstanding on the Closing Date.
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<PAGE>
32. RESPONSIBILITY FOR COLLECTIONS. From and after the Closing
Date, Purchaser shall assume responsibility for the billing for
and collection of payments on account of services rendered or
goods sold by it on and after the Closing Date and Seller shall
retain all right, title and interest in and to and all
responsibility for the collection of its accounts receivable for
services rendered or goods sold prior to the Closing Date.
33. APPLICATION OF PAYMENTS. Any unspecified payments received by
Purchaser after the Closing Date from residents with balances due
for the period prior to and after the Closing Date, shall be
applied by Purchaser first to reduce any pre-Closing Date
balances, with the excess, if any, remitted to Seller to reduce
any post-Closing Date balances due.
34. ATTORNEY'S FEES. Should either party institute any action or
proceeding to enforce or interpret this Agreement or any provision
hereof, for damages by reason of any alleged breach of this
Agreement or of any provision hereof, or for a declaration of
rights hereunder, the prevailing party in any such action or
proceeding shall be entitled to receive from the other party all
costs and expenses, including reasonable attorneys' and other
fees, incurred by the prevailing party in connection with such
action or proceeding. The term "attorneys' and other fees" shall
mean and include attorneys' fees, accountants' fees, and any and
all other similar fees incurred in connection with the action or
proceeding and the preparations therefor. The term "action or
proceeding" shall mean and include actions, proceedings, suits,
arbitrations, appeals and other similar proceedings.
35. TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement.
36. AS IS. Purchaser is a sophisticated commercial real estate
owner and shall rely solely upon its own evaluation and
investigation of the condition and all aspects of the Partnership
Assets. Purchaser acknowledges that Seller has granted to
Purchaser every opportunity which Purchaser may need to fully
evaluate the condition and all aspects of the Partnership Assets.
Purchaser has asked for, and has obtained in this Agreement,
representations from Seller, and Purchaser acknowledges that this
is to give Purchaser disclosure of information regarding the
Partnership Assets which is in Seller's knowledge, not for the
purposes of reducing any need by Purchaser to conduct its own
evaluation of the Partnership Assets. Accordingly, except as to
those representations and warranties of Seller expressly provided
for herein, Purchaser acknowledges that it is not relying upon any
representations of Seller as to the condition of the Partnership
Assets or their suitability for Purchaser's intended use. In the
event Purchaser approves the results of the feasibility
evaluation, Purchaser shall be deemed to accept the Partnership
Assets "as is" in all respects.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereby execute this Agreement as
of the day and year set forth opposite each party's signature
below with the last date constituting the date of mutual execution
of this Agreement.
Dated: PURCHASER:
Columbia Pacific Master Fund 98 General
Partnership, a Washington general partnership
By: Columbia Pacific Growth Fund 98
Limited Partnership, a Washington limited
partnership, its partner
By: B.F. Limited Partnership, a
Washington limited partnership, its
general partner
By: Columbia Pacific Group, Inc., a
Washington corporation, its general
partner
Dated: SELLER:
ESC GP II, INC., a Washington corporation
By: /s/: Kelly J. Price
Its: Chief Financial Officer
EMERITUS PROPERTIES IV, INC.,
A Washington corporationBy: /s/: Kelly J.
Price Its: Chief Financial Officer
EXHIBIT INDEXEXHIBIT A-Real Property Description
EXHIBIT B-Personal Property List
EXHIBIT C-Convertible NoteEXHIBIT D-Facility Lease Form
EXHIBIT E-Rent RollEXHIBIT F-Unit Repairs
EXHIBIT G-Repair Note
19
<PAGE>
EXHIBIT C
CONVERTIBLE NOTE
PROMISSORY NOTE
$1,500,000 (U.S.)
Seattle, Washington, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower"), jointly and
severally, promise to pay to the order of ESC GP II, INC., a
Washington corporation, and EMERITUS PROPERTTES IV, INC., a
Washington corporation, at their office at Suite 500, 3131 Elliott
Avenue, Seattle, Washington 98121, or at such other place as the
holder of this Note (hereinafter, "holder") may from time to time
designate in writing, the sum of ONE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($1,500,000), or so much thereof as has been
advanced hereunder, in lawful money of the United States, with
interest thereon from the date of this Note until paid at the rate
set forth below, computed on monthly balances. Interest for any
partial calendar month at the beginning or end of the term of this
Note shall be calculated on the basis of a 365 or 366-day year and
the actual number of days in that month.
SECTION l. INTEREST RATE.
The per annum interest rate hereunder (the "Note Rate") shall be
nine percent (9%).
SECTION 2. MONTHLY PAYMENTS.
Borrower shall make periodic payments hereunder in accordance with
the terms of the Articles of Limited Partnership of ESC II LP, a
Washington limited partnership in which Borrower is a partner.
SECTION 3. MATURITY.
Unless sooner repaid by Borrower, the entire unpaid principal
balance of this Note, plus all accrued but unpaid interest, and
all other amounts owing hereunder shall be due and payable in full
on , 2008 (the "Maturity Date").
SECTION 4. FURTHER ADVANCES.
Borrower and holder acknowledge that the original principal
balance under this Note will be One Million Dollars ($ 1,000,000).
However, Borrower shall be entitled to, and holder shall make,
additional advances of principal hereunder, as necessary to fund
twenty percent (20%) of the operating cash shortfalls incurred by
Borrower in operating that certain assisted living facility owned
by Borrower, located in Dallas, Texas and commonly known as
Vickery Towers (the Facility). Borrower may request such
additional advances by providing holder, not more frequently than
monthly, with evidence of the operating shortfalls incurred from
operating the Facility along with such other supporting
information as holder may reasonably request. In no event shall
such additional advances exceed Five Hundred Thousand Dollars
($500,000).
<PAGE>
SECTION 5. CONVERSION OPTION.
Holder may, at any time during the term of this Note, convert its
rights hereunder to a fifteen percent (15%) limited partnership
ownership interest in Borrower. Such conversion right may be
exercised at any time prior to Borrower's payment in full of all
amounts owing hereunder. Holder may exercise this right by
delivering written notice to Borrower of holder's election to so
convert, in which event the entire principal amount then owing
hereunder (but excluding interest and other amounts owing
hereunder), shall be applied as the entire consideration for the
partnership interest so purchased. The further terms of this
conversion right are set out in that certain Conversion Agreement
of even date herewith between Borrower and holder.
SECTION 6. APPLICATION OF PAYMENTS.
Payments shall be applied: (i) first, to the payment of accrued
interest; (ii) second, at the option of holder, to the payment of
any other amounts owing under this Note, other than accrued
interest and principal, including, but not limited to advances
holder may have made for attorneys' fees or for taxes,
assessments, insurance premiums, or other charges on any property
given as security for this Note and any late charges due
hereunder; and (iii) third, to the reduction of principal of this
Note.
SECTION 7. PREPAYMENT.
Borrower may not prepay this Note, in whole or in part.
SECTION 8. LATE CHARGE.
If any amount payable hereunder is paid more than ten (10) days
after the due date thereof, Borrower promises to pay a late charge
of five percent (5%) of the delinquent amount as liquidated
damages for the extra expense in handling past due payments.
SECTION 9. DEFAULT; REMEDIES.
If default is made in the payment of any amount payable hereunder
when due or in the keeping of any covenant hereunder, then, at the
option of holder, the entire indebtedness evidenced hereby shall
become immediately due and payable. Upon default, and without
notice or demand, all amounts owed under this Note, including all
accrued but unpaid interest, shall thereafter bear interest at a
variable rate, adjusted at the time at which the Note Rate would
otherwise have been adjusted pursuant to Section 2, five percent
(5%) per annum above the Note Rate that would have been applicable
from time to time had there been no default (the "Default Rate")
until such default is cured. Failure to exercise any option
granted to holder hereunder shall not waive the right to exercise
the same in the event of any subsequent default. Interest at the
Default Rate shall commence to accrue upon default under this
Note, including the failure to pay this Note at maturity.
SECTION 10. ATTORNEYS' FEES
In the event of any default under this Note, or in the event that
any dispute arises relating to the interpretation, enforcement or
performance of this Note, holder shall be entitled to collect from
Borrower on demand all fees and expenses incurred in connection
therewith, including but not limited to fees of attorneys,
accountants, appraisers, environmental inspectors, consultants,
expert
<PAGE>
witnesses, arbitrators, mediators and court reporters. Without
limiting the generality of the foregoing, Borrower shall pay all
such costs and expenses incurred in connection with: (a)
arbitration or other alternative dispute resolution proceedings,
trial court actions and appeals; (b) bankruptcy or other
insolvency proceedings of Borrower, any guarantor or other party
liable for any of the obligations of this Note or any party having
any interest in any security for any of those obligations;
(c)judicial or non-judicial foreclosure on, or appointment of a
receiver for, any property securing this Note; (d) post judgment
collection proceedings; (e) all claims, counterclaims, crossclaims
and defenses asserted in any of the foregoing whether or not they
arise out of or are related to this Note or any security for this
Note; (all preparation for any of the foregoing; and (g) all
settlement negotiations with respect to any of the foregoing.
SECTION ll. MISCELLANEOUS.
(a) Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives presentment for payment,
demand and notice of nonpayment of this Note. Every such person or
entity further hereby consents to any extension of the time of
payment hereof or other modification of the terms of payment of
this Note, the release of all or any part of the security herefor
or the release of any party liable for the payment of the
indebtedness evidenced hereby at any time and from time to time at
the request of anyone now or hereafter liable therefor. Any such
extension or release may be made without notice to any of such
persons or entities and without discharging their liability.
(b) Each person or entity who signs this Note is jointly and
severally liable for the full repayment of the entire indebtedness
evidenced hereby.
(c) The headings to the various sections have been inserted for
convenience of reference only and do not define, limit, modify, or
expand the express provisions of this Note.
(d) Time is of the essence under this Note and in the performance
of every term, covenant and obligation contained herein.
(e) This Note is made with reference to and is to be construed in
accordance with the laws of the state of Washington.
Each married person who executes this Note as a Borrower agrees
that recourse hereunder can be had to his or her separate property
as well as the assets of his or her marital community.
DATED as of the day and year first above written.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY EXTEND CREDIT OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
Columbia Pacific Master Fund 98 General Partnership, its general
partner
By:
Its:
<PAGE>
EXHIBIT G
REPAIR NOTE
PROMISSORY NOTE
$450,000 (U.S.)
Seattle, Washington, 1998
FOR VALUE RECEIVED, the undersigned ("Borrower"), promises to pay
to the order of ESC GP II, INC., a Washington corporation, and
EMERITUS PROPERTIES IV, INC., a Washington corporation, at their
oiFce at Suite 500, 3131 Elliott Avenue, Seattle, Washington
98121, or at such other place as the holder of this Note
(hereinafter, "holder") may from time to time designate in
writing, the sum of FOUR HUNDRED FIFTY THOUSAND DOLLARS
($450,000), or so much thereof as has been advanced hereunder, in
lawful money of the United States, with interest thereon from the
date of this Note until paid at the rate set forth below, computed
on monthly balances. Interest for any partial calendar month at
the beginning or end of the term of this Note shall be calculated
on the basis of a 365 or 366-day year and the actual number of
days in that month.
SECTION 1. INTEREST RATE.
The per annum interest rate hereunder (the "Note Rate") shall be
NINE PERCENT (9.0%).
SECTION 2. MONTHLY PAYMENTS.
No monthly or other periodic payments shall be required hereunder.
SECTION 3. MATURITY.
Unless sooner repaid by Borrower, the entire unpaid principal
balance of this Note, plus all accrued but unpaid interest, and
all other amounts owing hereunder shall be due and payable in full
on , 2008 (the "Maturity Date").
SECTION 4. ADVANCES.
Holder has agreed to make certain repairs to the real property
located in Dallas, Texas commonly known as the Vickery Towers
pursuant to that certain Partnership Interest Purchase and Sale
Agreement between holder, Borrower and others. All amounts so
expended by holder shall be deemed draws by Borrower under this
Note, provided holder shall provide Borrower with written evidence
of all amounts so spent when those costs are incurred. In no event
will the outstanding principal amount hereunder for such costs
incurred exceed $450,000.
SECTION 5. CONVERSION OPTION.
Holder may, at any time during the term of this Note, convert its
rights hereunder to a five percent (5"%) limited partnership
ownership interest in Borrower. Such conversion right may be
exercised at any time prior to Borrower's payment in full of all
amounts owing hereunder. Holder
<PAGE>
may exercise this right by delivering written notice to Borrower
of holder's election to so convert, in which event the entire
amount then owing hereunder, including principal, interest and
costs, shall be applied as the entire consideration for the
partnership interest so purchased. The further terms of this
conversion right are set out in that certain Conversion Agreement
of even date herewith between Borrower and holder.
SECTION 6. APPLICATION OF PAYMENTS.
Payments shall be applied: (i) first, to the payment of accrued
interest; (ii) second, at the option of holder, to the payment of
any other amounts owing under this Note, other than accrued
interest and principal, including, but not limited to advances
holder may have made for attorneys' fees or for taxes,
assessments, insurance premiums, or other charges on any property
given as security for this Note and any late charges due
hereunder; and (iii) third, to the reduction of principal of this
Note.
SECTION 7. PREPAYMENT.
Borrower may not prepay this Note, in whole or in part.
SECTION 8. LATE CHARGE.
If any amount payable hereunder is paid more than ten (10) days
after the due date thereof, Borrower promises to pay a late charge
of five percent (5"%) of the delinquent amount as liquidated
damages for the extra expense in handling past due payments.
SECTION 9. DEFAULT; REMEDIES.
If default is made in the payment of any amount payable hereunder
when due or in the keeping of any covenant hereunder, then, at the
option of holder, the entire indebtedness evidenced hereby shall
become immediately due and payable. Upon default, and without
notice or demand, all amounts owed under this Note, including all
accrued but unpaid interest, shall thereafter bear interest at a
variable rate, adjusted at the time at which the Note Rate would
otherwise have been adjusted pursuant to Section 2, five percent
(5"%) per annum above the Note Rate that would have been
applicable from time to time had there been no default (the
"Default Rate") until such default is cured. Failure to exercise
any option granted to holder hereunder shall not waive the right
to exercise the same in the event of any subsequent default.
Interest at the Default Rate shall commence to accrue upon default
under this Note, including the failure to pay this Note at
maturity.
SECTION 10. ATTORNEYS' FEES
In the event of any default under this Note, or in the event that
any dispute arises relating to the interpretation, enforcement or
performance of this Note, holder shall be entitled to collect from
Borrower on demand all fees and expenses incurred in connection
therewith, including but not limited to fees of attorneys,
accountants, appraisers, environmental inspectors, consultants,
expert witnesses, arbitrators, mediators and court reporters.
Without limiting the generality of the foregoing, Borrower shall
pay all such costs and expenses incurred in connection with: (a)
arbitration or other alternative dispute resolution proceedings,
trial court actions and appeals; (b) bankruptcy or other
insolvency proceedings of Borrower, any guarantor or other party
liable for any of the obligations of this Note or any party having
any interest in any security for any of those
<PAGE>
obligations; (c)judicial or non-judicial foreclosure on, or
appointment of a receiver for, any property securing this Note;
(d) post judgment collection proceedings; (e) all claims,
counterclaims, cross- claims and defenses asserted in any of the
foregoing whether or not they arise out of or are related to this
Note or any security for this Note; (all preparation for any of
the foregoing; and (g) all settlement negotiations with respect to
any of the foregoing.
SECTION 11. MISCELLANEOUS.
(a) Every person or entity at any time liable for the payment of
the indebtedness evidenced hereby waives presentment for payment,
demand and notice of nonpayment of this Note. Every such person or
entity further hereby consents to any extension of the time of
payment hereof or other modification of the terms of payment of
this Note, the release of all or any part of the security herefor
or the release of any party liable for the payment of the
indebtedness evidenced hereby at any time and from time to time at
the request of anyone now or hereafter liable therefor. Any such
extension or release may be made without notice to any of such
persons or entities and without discharging their liability.
(b) Each person or entity who signs this Note is jointly and
severally liable for the full repayment of the entire indebtedness
evidenced hereby.
(c) The headings to the various sections have been inserted for
convenience of reference only and do not define, limit, modify, or
expand the express provisions of this Note.
(d) Time is of the essence under this Note and in the performance
of every term, covenant and obligation contained herein.
(e) This Note is made with reference to and is to be construed in
accordance with the laws of the state of Washington.
(f) Each married person who executes this Note as a Borrower
agrees that recourse hereunder can be had to his or her separate
property as well as the assets of his or her marital community.
DATED as of the day and year first above written.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LEND MONEY EXTEND CREDIT OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
Columbia Pacific Master Fund 98 General
Partnership, its general partner
By:
Its:
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF ESC II, LP (Vickery Towers,
Dallas, Texas)
The Agreement of Limited Partnership is made and entered into as
of the 30th day of June, 1998 by and among, Columbia Pacific Master
Fund '98 General Partnership, a Washington general partnership
("CP")and Daniel R Baty, an Individual (Baty).
The undersigned desire to amend the prior partnership agreement of
the Partnership, dated as of March 1, 1996, to reflect the fact
that CP and Baty have purchased all of the partnership interest
held by ESC GP II, Inc and all of the interest held by Emeritus
Properties IV, Inc., and to make certain other revisions and
amendments, as set forth below. The undersigned agree to continue
to operate as a limited partnership under the laws of the state of
Washington as follows.
The parties hereto agree as follows:
1. Definitions. The following terms used in the Agreement shall
have the meanings specified below:
1.1 "Act" means the Washington Limited Partnership Act, as amended
from time to time.
1.2 "Agreement" means this Agreement of the ESC II, LP as it may
be amended from time to time.
1.3 "Assignee" means a person who has acquired a Limited Partner's
Interest in whole or part and has not become a Substitute Limited
Partner.
1.4 "Capital Account" means the account maintained for each
Partner in accordance with Section 7.5. In the case of a transfer
of an interest, the transferee shall succeed to the Capital
Account of the transferor, or, in the case of a partial transfer,
a proportionate share thereof.
1.5 "Capital Contribution" means the total amount of money and the
fair market value of all property contributed to the Partnership
by each Partner pursuant to the terms of the Agreement. Capital
Contribution shall also include any amounts paid directly by a
Partner to any creditor of the Partnership in respect of any
guaranty or similar obligation undertaken by such Partner in
connection with
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the Partnership's operations. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution
made by a predecessor holder of the interest of such Partner.
1.6 "Cash Available for Distribution" means all cash receipts of
the Partnership, excluding cash available upon liquidation of the
Partnership, in excess of amounts reasonably required for payment
of operating expenses, repayment of current liabilities, repayment
of such amounts of Partnership indebtedness as the General Partner
shall determine necessary or advisable, and the establishment of
and additions to such cash reserves as the General Partner in its
sole discretion shall deem necessary or advisable, including, but
not limited to, reserves for capital expenditures, replacements,
contingent or unforeseen liabilities or other obligations of the
Partnership.
1.7 "Code" means the United States Internal Revenue Code of 1986,
as amended. References to specific Code Sections or Treasury
Regulations shall be deemed to refer to such Code Sections or
Treasury Regulations as they may be amended from time to time or
to any successor Code Sections or Treasury Regulations if the Code
Section or Treasury Regulation referred to is repealed.
1.8 "Convertible Notes" means a S 1,500,000 note and a $450,000
note payable by the Partnership to the Convertible Note Holder.
The notes shall be convertible into amount to a 20% limited
partnership interest.
1.9 "Convertible Note Holder" means ESC GP II, Inc. and Emeritus
Properties IV, Inc.
1.10 "Deemed Capital Account" means a Partner's Capital Account
,as calculated from time to time, adjusted by (i) adding thereto
the sum of (A) the amount of such Partner's Mandatory Obligation,
if any, and (B) each Partner's share of Minimum Gain (determined
after any decreases therein for such year) and (ii) subtracting
therefrom (A) allocations of losses and deductions which are
reasonably expected to be made as of the end of the taxable year
to the Partners pursuant to Code Section 704(e)(2), Code Section
706(d) and Treasury Regulation Section 1.751-1 (b)(2)(ii), and (B)
distributions which at the end of the taxable year are reasonably
expected to be made to the Partner to the extent that said
distributions exceed offsetting increases to the Partner's Capital
Account (including allocations of the Qualified Income Offset
pursuant to Section 8.5 but excluding allocations of Minimum Gain
Chargeback pursuant to Section8.4) that are reasonably expected to
occur during (or prior to) the taxable years in which such
distributions are reasonably expected to be made.
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<PAGE>
1.11 "General Partner" means CP and those persons who are admitted
as General Partners under Section 15.3 hereof.
1.12 "Interest" or "Partnership Interest" means the ownership
interest of a Partner in the Partnership at any particular time,
including the right of such Partner to any and all benefits to
which such Partner may be entitled as provided in the Agreement
and in the Act, together with the obligations of such Partner to
comply with all the terms and provisions of the Agreement and the
Act.
1.13 "Limited Partners" means Baty and those persons who are
admitted as Limited Partners under Section 14.5 hereof.
1.14 "Mandatory Obligation" means the sum of (i) the amount of a
Partner's remaining contribution obligation (including the amount
of any Capital Account deficit such Partner is obligated to
restore upon liquidation) provided that such contribution must be
made in all events within ninety (90) days of liquidation of the
Partner's interest as determined under Treasury Regulation Section
1.704- 1 (b)(2)(ii)(g) and (ii) the additional amount, if any,
such Partner would be obligated to contribute as of year end to
retire recourse indebtedness of the Partnership if the Partnership
were to liquidate as of such date and dispose of all of its assets
at book value.
1.15 "Minimum Gain" means the amount determined by computing, with
respect to each nonrecourse liability of the Partnership, the
amount of gain, if any, that would be realized by the Partnership
if it disposed of the Partnership Property subject to such
nonrecourse liability in full satisfaction thereof in a taxable
transaction, and then by aggregating the amounts so determined.
Such gain shall be determined in accordance with Treasury
Regulation Section 1.704-2(d). Each Partner's share of Minimum
Gain at the end of any taxable year of the Partnership shall be
determined in accordance with Treasury Regulation Section 1.704-
2(g)(1).
1.16 "Net Income" or "Net Loss" means taxable income or loss
(including items requiring separate computation under Section 702
ot the Code) of the Partnership as determined using the method of
accounting chosen by the General Partner and used by the
Partnership for federal income tax purposes, adjusted in
accordance with Treasury Regulation Section 1.704-1 (b)(2)(iv)(g),
for any property with differing tax and book values, to take into
account depreciation, depletion, amortization and gain or loss as
computed for book purposes.
3
<PAGE>
1.17 "Partners" means the persons or entities admitted to the
Partnership as General Partners and Limited Partners.
1.18 "Partnership" means the Limited Partnership created and
governed by the Agreement.
1.19 "Partnership Property" means any real or personal property
owned by the Partnership.
1.20 "Percentage Interest" means the percentage interest of each
Partner as set forth on Appendix A.
1.21 "Project" means the independent and assisted living facility
located in Dallas, Texas, commonly known as Vickery Towers,
together with any and all improvements as shall be made to such
property by the Partnership from time to time.
1.22 "Substitute Limited Partner" means an Assignee who has been
admitted to all rights of Partnership pursuant to Section 14.5
hereof.
2. Formation. The Partners hereby agree to continue as a limited
partnership and operate the Partnership under the terms and
conditions set forth herein. Except as otherwise provided herein,
the rights and liabilities of the Partners shall be governed by
the Act.
3. Name. The name of the Partnership shall be ESC II, LP. The
General Partner may from time to time change the name of the
Partnership or adopt such trade or fictitious names as it may
determine to be appropriate.
4. Office: Agent for Service of Process. The principal office of
the Partnership shall be at 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121. Brynn E. McGuire shall be the agent for
the Partnership, or such successor as the General Partner may
designate.
5. Puraoses and Limitations.
5.1 Puraoses of the Partnershin. The sole purpose and the business
of the Partnership is to acquire, construct, develop, own,
maintain, operate and sell the Project, and to provide such
necessary or complementary services as would customarily be
available in the operation of a full service assisted living care
residence. Notwithstanding anything contain herein to the
contrary, the Partnership shall not engage in any business, and
shall have no purpose, unrelated
4
<PAGE>
to the Project, and shall not acquire real property or own assets
other than those related to the furtherance of the purposes of the
Partnership.
5.2. Partnership Limitations. The Company shall not, without the
written consent of the holder of the Project Loan or refinancing
thereof:
(a) engage in any business or activity other than those set forth
in Section 5.1;
(b) merge into or consolidate with any person or entity;
(c) hold itself out to be responsible for the debts of another
person or entity;
(d) make any loans or advances to any third party, including any
General Partner, Limited Partner or affiliate of the Partnership;
and
(e) fail to maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations.
6. Term. The term of the Partnership commenced on the date of the
filing of the Certificate of Limited Partnership for the
Partnership in the office of the Washington Secretary of State,
and shall continue until December 31, 2025, unless sooner
dissolved, wound up and terminated in accordance with the
provisions of this Agreement and the Act.
7. Percenta e Interests and Ca ital Contributions.
rs shall
7.1 Capital Contributions, Percentaae Interests. The Partne have
the Partnership for the Percentage Interests in the Partnership as
shown on Appendix A.
7.2 No Interest on Capital Account. No Partner shall be entitled
to receive interest on such Partner's Capital Contributions or
such Partner's Capital Account.
5
<PAGE>
7.3 No Withdrawal of Capital. Except as otherwise provided in this
Agreement, no Partner shall have the right to withdraw or demand a
return of any or all of such Partner's Capital Contribution. It is
the intent of the Partners that no distribution (or any part of
any distribution) made to any Partner pursuant to Section 10
hereof shall be deemed a return or withdrawal of Capital
Contributions, even if such distribution represents (in full or in
part) a distribution of revenue offset by depreciation or any
other non-cash item accounted for as an expense, loss or deduction
from, or offset to, the Partnership's income, and that no Partner
shall be obligated to pay any such amount to or for the account of
the Partnership or any creditor of the Partnership. However, if
any court of competent jurisdiction holds that, notwithstanding
the provisions of this Agreement, any Partner is obligated to make
any such payment, such obligation shall be the obligation of such
Partner and not of any other Partner, including the General
Partner.
7.4 Additional Capital.
(a) Except as otherwise provided for herein or mutually agreed
upon by the Partners, no Partner shall be obligated to make an
additional Capital Contribution to the Partnership.
(b) In the event additional capital is needed for the operation of
the Project, CP agrees to lend 80% of such amounts, to the
Partnership (the
"Capital Loans"). The Capital Loans shall bear interest at nine
percent per annum, Capital Loans shall be repaid prior to any
distributions to the Partners. The balance of 20% shall be drawn
from the proceeds evidenced by the Convertible Notes.
7.5 Capital Accounts. The Partnership shall maintain a Capital
Account for each Partner in accordance with Treasury Regulations
issued under Code Section 704. The initial Capital Account balance
for each Partner shall be the amount of initial Capital
Contributions made by each Partner under Section 7.1 above
7.6 Default. In the event any Partner shall fail to contribute any
cash or property when due hereunder, such Partner shall remain
liable therefor to the Partnership, which may institute
proceedings in any court of competent jurisdiction in connection
with which such Partner shall pay the costs of such collection,
including reasonable attorneys' fees.
8. Allocations.
8.1 Allocation of Net Loss from Onerations. Except as otherwise
provided in this Section 8 and in Section 16.3, from and after the
effective date of this Agreement, the Partnership shall allocate
any Net Loss 1 OO% to CP.
coopergeorge2
8.2 Allocation of Net Income from Operations. Except as otherwise
provided in this Section 8 and Section 16.3, from and after the
effective date of this Agreement, the Partnership shall allocate
all Net Income as follows:
/a) First, to the Partners in proportion to, and up to the amount
of, aggregate distributions ot Cash Available for Distribution
made to the Partners from the date of this Agreement through the
end of the calendar year with respect to which such allocations
are being made;
(b) Second, in proportion to, and up to the amount of, Net Losses
allocated to the Partners in accordance with Section 8.1; and
(c) Thereafter, all remaining Net Income shall be allocated in
proportion to each Partner's Percentage Interest.
8.3 Limitation on Net Loss Allocations. Notwithstanding anything
contained in this Section 8, no Limited Partner shall be allocated
Net Loss to the extent such allocation would cause a negative
balance in such Partner's Deemed Capital Account as of the end of
the taxable year to which such allocation relates.
8.4 Minimum Gain Charaeback. If there is a net decrease in Minimum
Gain during a taxable year of the Partnership, then
notwithstanding any other provision of this Section 8 or Section
16.3, each Partner must be allocated items of income and gain for
such year, and succeeding taxable years to the extent necessary
(the "Minimum Gain Chargeback"), in proportion to, and to the
extent of
,an amount required under Treasury Regulation Section 1.704-2(f).
8.5 aualified Income Offset. If at the end of any taxable year and
after operation of Section 8.4, any Limited Partner shall have a
negative balance in its Deemed Capital Account, then
notwithstanding anything contained in this Section 8, there shall
be reallocated to each Limited Partner with a negative balance in
its Deemed Capital Account (determined after the allocation of
income, gain or loss under this Section 8 for such year) each item
of Partnership gross income (unreduced by any deductions) and gain
in proportion to such negative balances until the Deemed Capital
Account for each such Limited Partner is increased to zero.
8.6 Curative Allocations. The allocations set forth in Sections
8.3, 8.4 and 8.5 (the "Regulatory Allocations") are intended to
comply with certain requirements of the Treasury Regulations
issued pursuant to Code Section 704(b). It is the intent of the
Partners that, to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with
special allocations of other items of Partnership income, gain,
loss, or deduction pursuant
6
<PAGE>
to this Section 8.6. Therefore, notwithstanding any other
provision of this Section 8 (other than the Regulatory
Allocations), the General Partner shall make such offsetting
special allocations of Partnership income, gain, loss, or
deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Partner's Capital
Account balance is, to the extent possible, equal to the Capital
Account balance such Partner would have had if the Regulatory
Allocations were not part of the Agreement and all Partnership
items were allocated pursuant to Sections 8.1 and 8.2.
8.7 Modification of Partnershin Allocations. It is the intent of
the
,g
Partners that each Partner s distributive share of income ain,
loss, deduction, or credit /or items thereof) shall be determined
and allocated in accordance with this Section 8 to the fullest
extent permitted by Section 704(b) of the Code. In order to
preserve and protect the determinations and allocations provided
for in this Section 8, the General Partner shall be, and hereby
is, authorized and directed to allocate income, gain, loss,
deduction or credit (or items thereof) arising in any year
differently from the manner otherwise provided for in this Section
8 if, and to the extent that, allocation of income, gain, loss,
deduction or credit (or items thereof) in the manner provided for
in this Section 8 would cause the determination and
,g
allocation of each Partner s distributive share of income ain,
loss, deduction or credit (or items thereof), not to be permitted
by Section 704(b) of the Code and Treasury Regulations promulgated
thereunder. Any allocation made pursuant to this Section 8.7 shall
be made only after the General Partner has secured an opinion of
counsel that such modification is the minimum modification
required to comply with Code Section 704(b) and shall be deemed to
be a complete substitute for any allocation otherwise provided for
in this Section 8 and no amendment of this Agreement or approval
of any Partner shall be required. The Limited Partners shall be
given notice of the modification within thirty (30) days of the
effective date thereof, such notice to include the text of the
modification and a statement of the circumstances requiring the
modification to be made.
8.8 Deficit Capital Accounts at Liauidation. It is understood and
agreed that one purpose of the provisions of this Section 8 is to
insure that none of the Partners has a deficit Capital Account
balance after liquidation and to insure that all allocations under
this Section 8 will be respected by the Internal Revenue Service.
The Partners and the Partnership neither intend nor expect that
any Partner will have a deficit Capital Account balance after
liquidation and, notwithstanding anything to the contrary in this
Agreement, the provisions of this Agreement shall be construed and
interpreted to give effect to such intention. However, if
following a liquidation of a Partner's interest as determined
under Treasury Regulation Section 1.704-1 (b)(2)(ii)(g), a Partner
has a deficit balance in its Capital Account after the allocation
of Net Income pursuant to this Section 8 and Section 16.3 and all
other adjustments have been made to such Partner's Capital Account
for Partnership operations and liquidation, such Partner shall
have
7
<PAGE>
an obligation to restore such deficit balance only if such Partner
is a General Partner.
9. Partnership Expenses. The Partner shall be reimbursed for, all
costs may include, but are not limited to:
Partnership shall pay, and the General and expenses of the
Partnership, which
(a) All organizational expenses incurred in the formation of the
Partnership and the selling of interests in the Partnership;
(b) All costs of personnel employed by the Partnership;
(c) All costs reasonably related to the conduct of the
Partnership's day to day business affairs, including, but without
limitation, the cost of supplies, utilities, taxes, license fees,
and services contracted from third parties;
(d) All costs of borrowed money, taxes and assessments on
Partnership property, and other taxes applicable to the
Partnership;
(e) Legal, audit, accounting, brokerage and other fees;
(f) Printing and other expenses and taxes incurred in connection
with the issuance, distribution, transfer, registration and
recording of documents evidencing ownership of an interest in the
Partnership or in connection with the business of the Partnership;
(g) Fees and expenses paid to contractors, mortgage bankers,
brokers and services, leasing agents, consultants, on-site
managers, real estate brokers, insurance brokers and other agents,
including affiliates of the General Partner;
/h) Expenses in connection with the acquisition, preparation,
design, planning, construction, development, disposition,
replacement, alteration, repair, remodeling, refurbishment,
leasing, financing and refinancing and operation of Partnership
property (including the costs and expenses of legal and accounting
fees, insurance premiums, real estate brokerage and leasing
commissions and of maintenance of such property);
(i) The cost of insurance obtained in connection with the business
of the Partnership;
/j) Expenses of revising, amending, conveying, modifying or
terminating the Partnership;
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<PAGE>
Ik) Expenses in connection with distributions made by the
Partnership to, and communications and bookkeeping and clerical
work necessary in maintaining relations with Limited Partners;
(I) Expenses in connection with preparing and mailing reports
required to be furnished to the Limited Partners for investment,
tax reporting or other purposes which the General Partner deems
appropriate;
(m) Costs incurred in connection with any litigation, including
any examinations or audits by regulatory agencies; and
(n) Costs of preparation and dissemination of informational
material and documentation relating to potential sale, refinancing
or other disposition of Partnership properties.
10. Distributions of Cash Available for Distribution. At such
times and in such amounts as the General Partner in its discretion
determines appropriate, Cash Available for Distribution shall be
distributed among the Partners in accordance with their Percentage
Interests, except as otherwise provided in Sections 16.4.
11. Powers Rights and Obligations of the General Partner.
11.1 General Authoritv and Powers of General Partner. Except as
provided in Section 11.7 and in certain parts of this Section
11.1, the General Partner shall have the exclusive right and power
to manage, operate and control the Partnership and to do all
things and make all decisions necessary or appropriate to carry on
the business and affairs of the Partnership. The General Partner
may designate a person to be responsible for the day to day
management of the Partnership. The authority of the General
Partner shall include, but shall not be limited to the following:
(a) To spend the capital and revenues of the Partnership;
(b) To manage, sell, develop, improve, operate and dispose of any
Partnership properties, provided, however, that a sale or disposal
of the property must be approved by the Partners in accordance
with Section 11.7 below, and further provided that capital
improvements in excess of 550,000 must be approved by the Partners
and the Convertible Note Holders in accordance with Section 11.7
below;
(c) To employ persons, firms and/or corporations for the operation
and management of the Partnership's business and for the operation
and development of the property of the Partnership, including but
not limited to sales agents, management agents, architects,
engineers, contractors, attorneys and accountants;
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(d) To acquire, lease and sell personal and/or real property, hire
and fire employees, and to do all other acts necessary,
appropriate, or helpful for the operation of the Partnership
business;
(e) To execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing powers and any other powers
granted the General Partner under the laws of the state of
Washington or other provisions of this Agreement;
(f) To enter into and to execute agreements for employment or
services, as well as any other agreements and all other
instruments the General Partner deems necessary or appropriate to
operate the Partnership's business and to operate and dispose of
Partnership properties or to effectively and properly perform its
duties or exercise its powers hereunder;
(g) To borrow money on a secured or unsecured basis from
individuals, banks and other lending institutions to finance
construction of the project or refinance Partnership assets, to
meet other Partnership obligations, provide Partnership working
capital and for any other Partnership purpose, and to execute
promissory notes, mortgages, deeds of trust and assignments of
Partnership property, and such other security instruments as a
lender of funds may require to secure repayment of such
borrowings; provided, however, that such financing activity is
approved by the Partners of the Partnership and the Convertible
Note Holders in accordance with Section 11.7 below; provided, that
no individual, bank or other lending institution to which the
General Partner applies for a loan shall be required to inquire as
to the purpose for which such loan is sought, and as between the
Partnership and such individual, bank or other lending institution
it shall be conclusively presumed that the proceeds of such loan
are to be, and will be, used for purposes authorized under the
terms of this Agreement;
/h) To enter into such agreements and contracts with parties and
to give such receipts, releases and discharges, with respect to
the business of the Partnership as the General Partner deems
advisable or appropriate;
(i) To purchase, at the expense of the Partnership, such liability
and other insurance as the General Partner, in its sole
discretion, deems advisable to protect the Partnership's assets
and business; however, the General Partner shall not be liable to
the Partnership or the other Partners for failure to purchase any
insurance; and
(j) To sue and be sued, complain, defend, settle and/or
compromise, with respect to any claim in favor of or against the
Partnership, in the name and on behalf of the Partnership.
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<PAGE>
11.2 Time Devoted to Partnership; Other Ventures. The General
Partner shall devote so much of its time to the business of the
Partnership as in its judgment the conduct of the Partnership's
business reasonably requires. The General Partner may engage in
business ventures and activities of any nature and description
independently or with others, whether or not in competition with
the business of the Partnership, and shall have no obligation to
disclose business opportunities available to it, and neither the
Partnership nor any of the other Partners shall have any rights in
and to such independent ventures and activities or the income or
profits derived therefrom by reason of its acquisition of
interests in the Partnership. This Section 11.2 is intended to
modify any provisions or obligations of the Act to the contrary
and each of the Partners and the Partnership hereby waives and
releases any claims they may have under the Act with respect to
any such activities or ventures of the Partners.
11.3 Liability of General Partner to Limited Partners and
Partnership. In carrying out their duties and exercising the
powers hereunder, the General Partner shall exercise reasonable
skill, care and business judgment. A General Partner shall not be
liable to the Partnership or a Limited Partner for any act or
omission performed or omitted by it in good faith pursuant to the
authority granted to it by this Agreement as a General Partner or
Tax Matters Partner unless such act or omission constitutes gross
negligence or willful misconduct by such General Partner.
11.4 Indemnification. The Partnership shall indemnify and hold
harmless the General Partner from any loss or damage, including
attorneys' fees actually and reasonably incurred by it, by reason
of any act or omission performed or omitted by it on behalf of the
Partnership or in furtherance of the Partnership's interests or as
Tax Matters Partner; however, such indemnification or agreement to
hold harmless shall be recoverable only out of the assets ot the
Partnership and not from the Limited Partners. The foregoing
indemnity shall not extend to acts or omissions performed or
omitted by a General Partner which constitutes gross negligence or
willful misconduct by such General Partner.
11.5 Fiduciary Resnonsibilitv. The General Partner shall have a
fiduciary responsibility for the safekeeping and use of all funds
and assets of the Partnership, and all such funds and assets shall
be used in accordance with the terms of this Agreement.
11.6 Contracts with the General Partner.
(a) The Partners specifically consent to and acknowledge that the
Partnership shall contract with ESC III, LP. an affiliate of CP,
Dan Batyr and controlled by the Convertible Note Holders for the
management of the Project.
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Ib) The Partner specifically consent to and acknowledge that
General Partner will lend funds to the Partnership from time to
time to cover operating deficits.
11.7 Restrictions on Authority of General Partner.
(a) Except as provided in Sections 11.7b/ below, the following
Partnership decisions shall require the written consent of the
Partners in the Partnership and the Convertible Note Holders,
which consent shall not be unreasonably withheld. In the event any
of the following actions are proposed, the General Partner shall
provide written notice of the proposed action to all Partners,
which notice period shall not be less than twenty (20) days,
during which time the Partners and Convertible Note Holders shall
be entitled to consult with the General Partner regarding the
proposed action.
(i) The dissolution and winding up of the Partnership;
(ii) The sale, exchange or other transfer of all or substantially
all the assets of the Partnership;
(iii) A change in the nature of the business of the
Partnership;
(iv) The admission of a new or substitute General Partner, or the
transfer of an interest of a General Partner;
(v) The expenditure of funds for capital improvements
in excess of 550,000;
(vi) The event of any of the financing activities as described in
the preceding Section 11.1 Ig); or
(vii) The change of any or all of the provisions of the
partnership agreement
(b) Notwithstanding the provisions of Section 11.7(a), no consent
or approval of the Partners shall be required prior to a transfer
of the Project or other Partnership property for no consideration
other than full or partial satisfaction of Partnership
indebtedness such as by deed in lieu of foreclosure or similar
procedure.
(c) Notwithstanding the provisions of Section 11.7(a)(i), the
dissolution and winding up or insolvency filing of the Partnership
shall require the consent of the General Partner.
coopergeorge2
12. Status of Limited and Partners.
12.1 No Participation in Managiement. Except as specifically
provided in Section 11.7 herein, no Limited Partner shall take
part in the conduct or control of the Partnership's business or
the management of the Partnership, or have any right or authority
to act for or on the behalf of, or otherwise bind, the Partnership
(except a Limited Partner who may also be a General Partner and
then only in its capacity as a General Partner within the scope of
his or her authority hereunder).
12.2 Limitation of Liability. No Limited Partner shall have,
solely by virtue of his or her status as a Limited Partner in the
Partnership, any personal liability whatever, whether to the
Partnership, to any Partners or to the creditors of the
Partnership, for the debts or obligations of the Partnership or
any of its losses beyond the amount committed by him or her to the
capital of the Partnership, except as otherwise required by the
Act.
12.3 Death or Incapacity of Limited Partner_. The death, legal
incapacity, dissolution, termination, merger, consolidation or
bankruptcy of a Limited Partner shall not cause a dissolution of
the Partnership, but the rights of such Limited Partner to share
in the Net Income and Net Loss of the Partnership, to receive
distributions from the Partnership and to assign an interest in
the Partnership pursuant to Section 14.3 hereof shall, on the
happening of such an event, devolve upon such Limited Partner's
executor, administrator, guardian, conservator, or other legal
representative or successor, as the case may be, subject to the
terms and conditions of this Agreement, and the Partnership shall
continue as a limited partnership. However, in any such event such
legal representative or successor, or any assignee of such legal
representative or successor shall be admitted to the Partnership
as a Limited Partner only in accordance with and pursuant to all
of the terms and conditions of Section 14.5 hereof.
12.4 Recourse of Limited Partner. The Limited and Partners shall
look solely to the assets of the Partnership for all distributions
with respect to the Partnership and their Capital Contributions
thereto and share of Net Income and Net Loss thereof and shall
have no recourse therefor, upon dissolution or otherwise, against
any General Partner or any other Limited Partner.
12.5 No Right to Property. No Limited Partner, regardless of the
nature of his or her contributions to the capital of the
Partnership, shall have any right to demand or receive any
distribution from the Partnership in any form other than cash,
upon dissolution or otherwise.
13. Books and Records Accounting Reports and Statements and Tax
Matters.
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13.1 Books and Records. The General Partner shall, at the expense
of the Partnership, keep and maintain, or cause to be kept and
maintained, the books and records of the Partnership on the same
method of accounting as utilized for federal income tax purposes,
which shall be kept separate and apart from the books and records
of the General Partner.
13.2 Annual Accounting Period. All books and records of the
Partnership shall be kept on the basis of an annual accounting
period ending December 31 of each year, except for the final
accounting period which shall end on the date of termination of
the Partnership. All references herein to the "fiscal year of the
Partnership" are to the annual accounting period described in the
preceding sentence, whether the same shall consist of twelve
months or less.
13.3 General Partner's Re orts to Limited and Partners. The
General Partner shall send at Partnership expense to each Limited
Partner the following:
(a) Within seventy-five (75) days after the end of each fiscal
year of the Partnership, such information as shall be necessary
for the preparation by such Limited Partner of such Partner's
federal income tax return which shall include a computation of the
distributions to such Limited Partner and the allocation to such
Limited Partner of profits or losses, as the case may be; and
(b) Within one hundred twenty (120) days after the end of each
fiscal year of the Partnership, an annual report, which shall
include:
/i) A balance sheet;
(ii) A statement of income and expenses;
(iii) A statement of changes in Partners' capital; and
(iv) A statement of the balances in the Capital Accounts of the
Partners.
13.4 Ri ht to Examine Records. The Limited and General Partners
shall be entitled at their own expense, upon written request
directed to the Partnership, to review the records of the
Partnership at all reasonable times and at the location where such
records are kept by the Partnership.
13.5 Tax Matters Partner. Should there be any controversy with the
Internal Revenue Service or any other taxing authority involving
the Partnership, the General Partner may expend such funds as it
deems necessary and advisable in the interest of the Partnership
to resolve such controversy satisfactorily, including, without
being limited thereto, attorneys' and accounting fees. CP is
hereby
cooper george2 -1 j-
designated as the "Tax Matters Partner" as referred to in Section
6231 (a)(7)(A) of the Code, and is specially authorized to
exercise all of the rights and powers now or hereafter granted to
the Tax Matters Partner under the Code.
Any cost incurred in the audit by any governmental authority of
the income tax returns of a Partner (as opposed to the
Partnership) shall not be a Partnership expense. The General
Partner agrees to consult with and keep the Partners advised with
respect to (i) any income tax audit of a Partnership income tax
return, and (ii) any elections made by the Partnership for
federal, state or local income tax purposes.
13.6 Tax Returns. The General Partner shall, at Partnership
expense, cause the Partnership to prepare and file a United States
Partnership Return of Income and all other tax returns required to
be filed by the Partnership for each fiscal year of the
Partnership.
13.7 Tax Elections. The Partnership shall make an election
pursuant to Section 754 of the Code to adjust the basis of the
assets of the Partnership. Each of the Limited and General
Partners will, upon request, supply any information necessary to
properly give effect to any such election. In addition, the
General Partner, in its sole discretion, shall be authorized to
cause the Partnership to make and revoke any other elections for
federal income tax purposes as it deems appropriate, necessary, or
advisable.
14. Transfers of Limited and Partnership Interests; Withdrawal
and Admission of Limited Partners.
14.1 General Prohibition. No Limited Partner may voluntarily or
involuntarily, directly or indirectly, sell, transfer, assign,
pledge or otherwise dispose of, or mortgage, pledge, hypothecate
or otherwise encumber, or permit or suffer any encumbrance of, all
or any part of his or her interest in the Partnership, except as
provided in this Section 14. Any other purported sale, transfer,
assignment, pledge or encumbrance shall be null and void and of no
force or effect whatsoever.
14.2 No Withdrawal of Limited Partner. No Limited Partner shall
have the right to withdraw from the Partnership except as
otherwise provided in this Agreement.
14.3 Transfers by Limited Partner.
(a) Subject to any restrictions on transferability required by law
or contained elsewhere in this Agreement, a Limited Partner may
transfer such Limited Partner's entire interest in the Partnership
upon satisfaction of the following conditions:
coopergeorge2
(i) The transfer shall be by bequest, or by operation of the laws
of intestate succession, or shall be made to an existing Partner
in the Partnership, or
/ii) Be approved in writing by the General Partner, which approval
shall be withheld only if the proposed transfer does not comply
with the requirements of this Section 14.3.
(b) No sale, exchange, transfer, assignment, gift, pledge,
encumbrance, hypothecation or other disposition of a Limited
Partner's interest in the Partnership, whether voluntary or
involuntary, shall be valid or effective if, in the opinion of
counsel to the Partnership, it would be likely to:
(i) Violate the registration provision of the Securities Act of
1933, as amended;
(ii) Violate the laws of any state, or the regulations of any
government agency, applicable to such transfer;
(iii) Cause all or a portion of the Partnership's property to be
treated as tax-exempt use property, as defined in Section 168(h)/1
) of the Code (unless such transfer has been previously approved
by the General Partner); or
(iv) Cause the Partnership to be regarded as an unincorporated
association taxable as a corporation.
(c) Prior to recognizing any assignment of a Limited Partner's
interest that has been transferred in accordance with this Section
14.3, the General Partner may require the transferor and
transferee to execute and acknowledge such reasonable and
customary instruments as the General Partner may deem necessary or
desirable to effect such transfer.
(d) A transferee of a Limited Partner shall be entitled to the
allocations and distributions attributable to the interest sold or
assigned to it and the return of capital to which the transferor
otherwise would have been entitled; provided, however, such
transferee shall not be entitled to the other rights of a Limited
Partner unless and until such transferee becomes a Limited Partner
in accordance with Section 14.5.
(e) A transfer of an interest complying with all the requirements
of this Section 14.3 shall be effective as of the first day of the
calendar month succeeding the month in which all such requirements
have been satisfied. All distributions made after such effective
date on account of a
cooper george2 -17-
transferred interest shall be paid to the transferee. In the
absence of notice to the General Partner of the transfer of a
Partnership interest, whether by operation of law or otherwise,
and the General Partner's consent in the case of voluntary
transfers, any distribution or other payment to a transferor or to
his executors, administrators or legal representatives shall
acquit the Partnership and the General Partner of liability, to
the extent of such distribution or payment to any other person
and/or entity which may have an interest in such payment.
14.4 Assignment as Security Permitted. Notwithstanding any other
provision of this Section 14, a Limited Partner may assign, as
security for a loan or other indebtedness incurred by such
Partner, such Partner's right to receive distributions from the
Partnership, and the General Partner, upon receipt of notification
of any such assignment, shall acknowledge such assignment and
shall agree to pay or distribute proceeds in accordance with
instructions from such Partner subject to such conditions,
including indemnification, as the General Partner may reasonably
require; provided, however, that such lender shall acknowledge in
writing to the General Partner that such assignment of proceeds
shall not entitle such lender to foreclose or otherwise acquire or
sell the Partnership Interest and that the only right acquired by
such lender shall be the right to receive distributions of cash
and property, if any, made by the Partnership to the Partners in
accordance with this Agreement.
14.5 Admission of Transferees as Limited Partners.
(a) No transferee of a Limited Partner shall be admitted as a
Limited Partner unless all of the following conditions have been
satisfied:
(i) The transfer complies with Section 14.3; and
(ii) The prospective transferee has executed an instrument, in
form and substance satisfactory to the General Partner, accepting
and agreeing to be bound by all the terms and conditions of this
Agreement, including the power of attorney set forth in Section 17
hereof, and has paid all expenses of the Partnership in effecting
the transfer;
(iii) All requirements of the Act regarding the admission of a
transferee Limited Partner have been complied with by the
transferee, the transferring Limited Partner, and the Partnership;
and
/iv) Such transfer is effected in compliance with all applicable
state and federal securities laws.
(b) In the event of a transfer complying with all the requirements
of Section 14.3 hereof and the transferee being admitted as a
Limited Partner pursuant to this Section 14.5, the General Partner
for themselves and for
cooper george2
each Limited and Partner pursuant to the Power of Attorney granted
by each Limited and Partner, shall execute an amendment to this
Agreement and, if required by the Act, file an amended certificate
for the Partnership. Unless named in this Agreement, as amended
from time to time, no person shall be considered a Partner; and
the Partnership, each Partner, and any other person having
business with the Partnership need deal only with Partners so
named and shall not be required to deal with any other person by
reason of a transfer by, or by reason of the death of, a Partner,
except as otherwise expressly provided herein.
15. Transfers of General Partnershi Interests. Withdrawal and
Admission ot General Partners.
15.1 No Withdrawal of a General Partner. The General Partner shall
have no right to withdraw from the Partnership except as otherwise
provided in this Agreement.
15.2 Death or Incompetencv of a General Pa_ rtner. A General
Partner shall cease to be a General Partner upon the death,
bankruptcy, withdrawal, dissolution, or adjudication of
incompetency of such General Partner.
15.3 Transfer b a General Partner. Admission of Additional or
Successor General Partners. A General Partner may not transfer its
interest as a general partner, or any part thereof, to a third
party and no additional or successor general partner(s) shall be
admitted to the Partnership, except with the approval of the other
Partners.
16. Dissolution Winding Up and Termination.
16.1 Events Causina Dissolution. The Partnership shall be
dissolved and its affairs shall be wound up upon the happening of
the first to occur of any of the following events:
/a) Expiration of the term of the Partnership stated in
Section 6 hereof;
(b) Entry of a decree of judicial dissolution pursuant to the
Act;
(c) The sale or other disposition of all or substantially all of
the assets of the Partnership;
(d) The vote of Partners holding a majority of the Percentage
Interests of the Partnership to dissolve; or
cooper george2
Ie) The death, bankruptcy, withdrawal, dissolution or adjudication
of incompetency of the General Partner, unless at the time of the
occurrence of any of such events there is at least one other
General Partner, in which case the business of the Partnership
shall be carried on by the remaining General Partner(s). In the
event the business of the Partnership is carried on pursuant to
the previous sentence, the interest of the deceased, bankrupt,
dissolved or incompetent General Partner in Net Income and Net
Loss and its Capital Account shall be converted to a Limited
Partner interest but shall otherwise be maintained and continued.
16.2 Winding Up. Upon dissolution of the Partnership for any
reason, the General Partner shall commence to wind up the affairs
of the Partnership and to liquidate its assets. In the event the
Partnership has terminated because the Partnership lacks a General
Partner, then the Limited Partners shall appoint a new General
Partner solely for the purpose of winding up the affairs of the
Partnership. The General Partner shall have the full right and
unlimited discretion to determine the time, manner and terms of
any sale or sales of Partnership property pursuant to such
liquidation. Pending such sales, the General Partner shall have
the right to continue to operate or otherwise deal with the assets
of the Partnership. A reasonable time shall be allowed for the
orderly winding up of the business of the Partnership and the
liquidation of its assets and the discharge of its liabilities to
creditors so as to enable the General Partner to minimize the
normal losses attendant upon a liquidation, having due regard to
the activity and condition of the relevant markets for the
Partnership properties and general financial and economic
conditions. Any Partner may be a purchaser of any properties of
the Partnership upon liquidation of the Partnership's assets,
including
,without limitation, any liquidation conducted pursuant to a
judicial dissolution or otherwise under judicial supervision;
provided, however, that the purchase price and terms of sale are
fair and reasonable to the Partnership.
16.3 Allocation of Net Income and Net Loss U on Termination or
Sale. All Net Income and Net Loss upon dissolution of the
Partnership or from sale, conversion, disposition or taking of all
or substantially all of the Partnership's property, including, but
not limited to the proceeds of any eminent domain proceeding or
insurance award (respectively, "Gain on Sale" or "Loss on Sale")
shall be allocated as follows:
(a) Loss on Sale shall be allocated among the Partners as
follows:
(i) First, proportionately to those Partners having positive
Capital Account balances until all positive Capital Accounts have
been reduced to zero; and
cooper george2 -20-
(ii) Thereafter, in proportion to the Partners'
Percentage Interest.
(b) Gain on Sale to the extent available shall be allocated among
the Partners as tollows:
(i) First, to those Partners having negative Capital Account
balances in proportion to such negative balances until they are
increased to zero;
(ii) Second, to each of the Partners in the amount and manner
necessary to cause the Partners' Capital Accounts to be in the
ratio of their respective Percentage Interests; and
(iii) Thereafter, any remaining Gain on Sale shall be allocated to
the Partners in proportion to their Percentage Interests.
16.4 Distributions. Prior to making distributions in dissolution
to the Partners, the General Partner shall first pay or make
provision for all debts and liabilities of the Partnership,
including payment of any Capital Loans, and all expenses of
liquidation. Subject to the right of the General Partner to set up
such cash reserves as it may deem reasonably necessary for any
contingent or unforeseen liabilities or obligations of the
Partnership, the proceeds of liquidation and any other funds of
the Partnership shall first be distributed to Partners in
proportion to their Capital Account balances as adjusted by the
allocations provided for in Section 16.3; and thereafter, the
balance, if any, to the Partners in proportion to their Percentage
Interests.
16.5 Certificate of Cancellation; Renort; Termination. Upon the
dissolution and commencement of winding up of the Partnership, the
General Partner shall execute and file certificate of cancellation
of the Partnership. Within a reasonable time following the
completion of the liquidation of the Partnership's assets, the
General Partner shall prepare and furnish to each Partner, at the
expense of the Partnership, a statement which shall set forth the
assets and liabilities ot the Partnership as of the date of
complete liquidation and the amount of each Partner's distribution
pursuant to Section 16.4 hereof. Upon completion of the
liquidation and distribution of all Partnership funds, the
Partnership shall terminate and the General Partner shall have the
authority to execute and file all documents required to effectuate
the termination of the Partnership.
17. Special and Limited Power of Attorney.
(a) CP, as General Partner, with full powers of substitution,
shall at all times during the existence of the Partnership have a
special and limited power of attorney as the authority to act in
the name and on the behalf of the Limited Partners to make,
execute, swear to, verify, acknowledge and file the
coopergeorge2
following documents and any other documents deemed to be necessary
for the business of the Partnership:
(i) This Agreement, any separate certificates of limited
partnership, fictitious business name statements, as well as any
amendments to the foregoing which, under the laws of any state,
are required to be filed or which the General Partner deems it
advisable to file; and
(ii) Any other instrument or document which may be required to be
filed by the Partnership under the laws of any state or by an
governmental agency, or which the General Partner deems it
advisable to tile.
(b) The special and limited power of attorney granted to the
General Partner hereby:
(i) Is a special and limited power of attorney coupled with an
interest, is irrevocable, shall survive the death or incompetency
of the granting Limited Partner, and is limited to those matters
herein set forth;
(ii) May be exercised by the General Partner for the Limited
Partners by reterencing the list of the Limited Partners on
Appendix A and executing any instrument with a single signature
acting as attorney-in-fact for them;
(iii) Shall survive a transfer by a Limited Partner of such
Limited Partner's interest in the Partnership pursuant to Section
14.3 hereof for the sole purpose of enabling the General Partner
to execute, acknowledge and file any instrument or document
necessary or appropriate to admit a transferee as a Limited
Partner; and
(iv) Notwithstanding the foregoing, in the event that CP ceases to
be a General Partner in the Partnership, the power of attorney
granted by this Section 17 shall terminate immediately, but any
such termination shall not affect the validity of any documents
executed prior to such termination, or any other actions
previously taken pursuant to this power of attorney or in reliance
upon its validity, all of which shall continue to be valid and
binding upon the Limited Partners in accordance with their terms.
18. Amendments. This Agreement may not be amended without the
written agreement of all parties hereto.
19. Miscellaneous.
19.1 Notices. Any notice, offer, consent or other communication
required or permitted to be given or made hereunder shall be in
writing and shall be
cooper george2 -22-
deemed to have been sufficiently given or made when delivered
personally to the party (or an officer of the party) to whom the
same is directed, or (except in the event of a mail strike) five
(5) days after being mailed by first class mail, postage prepaid,
if to the Partnership or to the General Partner, to the office
described in Section 4 hereof, or if to a Limited Partner, to his
or her last known address or when received by facsimile if to the
Partnership or to the General Partner, to the facsimile number for
the office described in Section 4 hereof, or if to a Limited
Partner, to his or her facsimile number. Any Partner may change
his or her address for the purpose of this Section 19.1 by giving
notice of such change to the Partnership, such change to become
effective on the tenth day after such notice is given.
19.2 Entire Agreement. This Agreement constitutes the entire
agreement among the parties and supersedes any prior agreement or
understandings among them, oral or written, all of which are
hereby canceled. This Agreement may not be modified or amended
other than pursuant to Section 18 hereof.
19.3 Captions; Pronouns. The paragraph titles or captions
contained in this Agreement are inserted only as a matter of
convenience of reference. Such titles and captions in no way
define, limit, extend or describe the scope of this Agreement nor
the intent of any provision hereof. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person or
persons may require.
19.4 Counteraarts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute
one and the same agreement. Delivery of any executed counterpart
of a signature page to this Agreement by facsimile shall be
effective as delivery of an executed original of this Agreement.
19.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the state of
Washington.
IN WITNESS WHEREOF the parties have executed this Agreement as of
the date first above written.
By :
Daniel R. Baty
COLUMBIA PACIFIC MASTER FUND '98 GENERALJ PARTNERSHIP, a
Washington general partnership
cooper george2 -23-
By Columbia Pacific Growth Fund '98 Limited Partnership, a
Washington limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
By: Columbia Pacific Group, Inc., a Washington corporation, its
general partner
By : _
Daniel R. Baty, President
By Columbia Pacific DA '98 Limited Partnership, a Washington
limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
By: Columbia Pacific Group, Inc., a Washington corporation, its
general partner
By:
By Columbia Pacific RD '98 Limited Partnership
r
limited partnership, its general partner
Washington
By: B.F. Limited Partnership, a Washington limited partnership,
its general partner
By: Columbia Pacific Group, Inc., a Washington corporation, its
general partner
\
By:
Daniel R. Baty, President
cooper george2 -24-
ESC II, LP
APPENDIX A
PERCENTAGE
INTEREST
GENERAL PARTNER
Columbia Pacific Master Fund '98 General Partnership 99%
LIMITED PARTNERS
Daniel R. Baty
<PAGE>
AGREEMENT TO PROVIDE MANAGEMENT SERVICES
TO
AN INDEPENDENT AND ASSISTED LIVING FACILITY (VICKERY TOWERS
DALLAS, TX)
This Agreement to Provide Management Services to an
Independent and Assisted Living
"dated June 30, 1998 is made and entered into by and
Facility ( Agreement ) between ESC II, LP., a Washington
Limited Partnership ( Owner ) and ESC III, LP, a Washington
Limited Partnership ("Manager").
RECITALS
A. Owner is the owner of that certain real property located
at 5619 Belmont Ave in Dallas, Texas (the "Real Property")
including the improvements on the Real Property that
constitute the 295 unit independent and assisted living
facility commonly known as "Vickery Towers" and located in
Dallas, Texas (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
independent and assisted living 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:
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
1
<PAGE>
also retains such other authority as shall not have been
expressly delegated to Manager pursuant to this Agreement.
Subject to the foregoing, and commencing on the effective
date of the Certificate of Occupancy (the "Commencement
Date") Manager shall provide the following services to, or
on behalf of Owner:
l.l 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.
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 (such
term as used in this Agreement shall have the meaning
specified in Paragraph 8.2 below), 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. 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
2
<PAGE>
(but excluding Owner's income tax returns, which Manager
shall prepare only if Owner and Manager agree upon separate
compensation to be paid to Manager for preparing such 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. Such taxes shall be
deemed to be Facility Expenses 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 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 all 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 ma e 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 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 9.2, below), and, thereafter, to pay
Facility Expenses in such order of priority as Manager deems
appropriate to the operation of the Facility. In the event
the revenues 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
ofthe 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 of this
Agreement to ensure the efficient operation of all
departments within and services
3
<PAGE>
offered by the Facility. All Facility personnel shall be
employees of Manager, not Owner, and all salaries, benefits,
payroll taxes and other costs related to Facility personnel
(including, without limitation, computer training and other
employee training and education, including tuition, travel
and other expenses relating thereto if such expenses are
incurred with Owner's approval) shall not be included in the
Base Management Fee, but shall be separately reimbursed by
Owner as a Facility Expense. In addition, the costs and
expenses (including, without limitation, travel expenses) of
consultants, independent contractors or other providers of
services engaged by Manager with Owner's approval shall be
separately reimbursed as Facility Expenses.
1.10 Supplies and Equipment. Manager shall purchase, as a
Facility Expense, supplies and non-capital equipment
(including, without limitation, computer hardware and
software) 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.
l.ll Legal Proceedings. If approved by Owner, Manager shall,
as a Facility Expense and through its legal counsel,
coordinate all legal matters and proceedings with Owner's
counsel.
,if Owner does not approve the same, Owner shall indemnify,
protect, defend and hold Manager harinless with respect to
such legal matters and proceedings.
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 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 1998, 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
fizrnished 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,
but shall be separately reimbursed by Owner
\\ORION\SHARE\FINANCE\SALE\MANAGMENT AGMT - VICKERY TOWERS
FINAL.DOC June 25,1998 Page 4
as a Facility Expense. 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 I), in which event Manager will supervise, oversee
and administer each and 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.
1.15 Extraordinary Costs. Except as otherwise specifically
provided herein, all extraordinary costs incurred by Manager
with respect to the Facility shall be separately reimbursed
as Facility Expenses (and not included in the Base
Management Fee) after first having been approved by Owner.
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, but shall be separately
reimbursed by Owner as a Facility Expense. 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 pursuant
to this Paragraph2 shall comply with such requirements
provided that Owner shall have provided Manager with a copy
of such mortgage or deed of trust.
4
<PAGE>
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 the Commencement Date and expire on the fifth (Sth)
anniversary of the Commencement Date; provided, however,
that the Term shall be extended automatically for successive
two (2) year periods unless terminated prior to expiration
of the Term (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 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;
(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
5
<PAGE>
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 fiom
Owner, which notice shall specify the event or events
constituting the default; or
(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) 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 ofa 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 ofthirty (30) days;
(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 (3 0)
days after Owner' s receipt of notice of such default from
Manager, which notice shall specify an event or events
constituting
6
<PAGE>
the default; provided, however, that in the case of Owner' s
failure to provide, pursuant to Paragraph 1.8, 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,
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
7
<PAGE>
construed to have guaranteed, to Owner or any third party
(including any mortgagee) that operation ofthe 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 ofthe Facility, all in accordance with accepted
and prevailing standards of health care 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 ofthis 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 thenaccumulated 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 accorda.iice 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 (each a "Facility Expense" and any two or more or
all the
"Facility Expenses"), including, without limitation, any
principal and interest payments due in connection with any
loan secured by a mortgage on the Facility, payroll,
insurance, supplies, seivices, taxes (but excluding all
federal, state, and local income taxes assessed against
Owner), and the Base Management Fee, all of which Facility
Expenses are unpaid but will become due and payable within
the ensuing forty-five (45) days; plus
8
<PAGE>
(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 Construction Supervision Fee. For any services performed
by Manager pursuant to Paragraph 1. I 4, above, Manager
shall receive a construction supervision fee equal to ive
percent (5"%)ofthe total amount ofconstruction costs
approved by Owner, due payable concurrently with the
applicable payments to the construction contractor(s) and
materialmen.
9.2 Base Management Fee. Throughout the term ofthis
Agreement, Manager shall receive a monthly fee ("Base
Management Fee") equal to the greater of: i) six percent
(6"%) of the gross revenues generated for the prior month by
the Facility; or ii) $ 10,000, payable on or before the l
Oth day ofeach month. For purposes hereof, "gross revenues"
shall mean all revenues generated by the Facility, but shall
specifically exclude the proceeds from the sale of any
Facility equipment and any insurance and condemnation
proceeds.
9.3 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 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.
9.4 Payment of Fees. Notwithstanding any other provision of
this Agreement to the contrary,, 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 ofany 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).
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
\\ORION\SHARE\FINpNCE\SALE\MANAGMENT AGMT - VICKERY TOWERS
FINAL.DOC June 25,1998 Page 10
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 ofthis 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 sell, convey or lease
("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
ofthirty (30) days after Manager's receipt ofsuch notice,
Manager shall have the right to elect to acquire the
Facility or interest therein upon the same terms and
conditions as are contained in the Transfer Offer, which
election shall be made by giving written notice thereof to
Owner within such thirty (3 0) day period. If Owner does not
timely receive Manager's written notice of Manager's
election to acquire the Facility or interest therein 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 I I, in no event shall Owner be entitled
to Transfer the Facility to any third party on terms or
conditions materially different fiom 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 confrmed telephonically by the
recipient). Notice shall be delivered or mailed to the
parties at the following addresses or at such other places
as either parly shall designate by giving notice in
accordance with this Paragraph 12. I.
10
<PAGE>
To Manager: ESC III, LP
3131 Elliott Avenue, Suite 500 Seattle, WA 9812 I
Phone: 206-30 I -4495 Fax: 206-301-4500 Attn: Jean Fukuda
To Owner: ESC II, LP
3131 Elliott Avenue, Suite 500 Seattle, WA 98121
Phone: 206-301-4095 Fax: 206-301-4545 Attn: Keith James
12.2 Assignment. Except as otherwise provided in Paragraph
1.6, above, this Agreement shall not be assigned by either
party without the prior written consent of the nonassigning
party, which consent shall not be unreasonably withheld,
conditioned, delayed.
12.3 Relationship ofthe Parties. The relationship ofthe
parties shall be that of Owner and independent contractor
and all acts performed by Manager during the term hereof as
Manager ofthe Facility shall be deemed to be performed by
Manager in Manager's capacity as an independent contractor.
Nothing contained in this Agreement is intended to, or shall
be construed to, give rise to or create a partnership
orjoint venture or lease between Owner, and Owner's
successors and assigns on the one hand, and Manager, and
Manager's successors and assigns on the other hand.
12.4 Entire Agreement. This Agreement contains the entire
agreement between the parties and shall be binding upon and
inure to the benefit oftheir successors and, to the extent
permitted 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 signed by both ofthe parties hereto.
12.5 Headings/Captions. The headings and captions used in
this Agreement are for convenience of reference only and
shall not be construed in any manner to limit or modify any
of the provisions hereof.
12.6 Attorneys' Fees. In the event either party brings an
action to enforce or interpret this Agreement, the
prevailing party in such action shall be entitled to recover
fiom the other party all costs incurred in connection
therewith, including reasonable attorneys' fees incurred in
the preparation, conduct, and/or settlement thereof.
11
<PAGE>
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, the validity, legality, and enforceability
of the remaining provisions hereof shall not in any way be
impaired thereby.
12.8 Cumulative; No Waiver. No right or remedy herein
conferred upon or reserved to either party is intended to be
exclusive of any other right or remedy, and each and every
right and remedy shall be cumulative and in addition to any
other right or remedy given hereunder, or now or hereafter
legally existing upon the occurrence of an Event of Default.
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 ofthis 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 ofcounterparts, each of which shall be an original
but collectively shall constitute but one and the same
Agreement.
IN WITNESS WHEREOF, the parties have hereto caused this
Agreement to be duly executed, as ofthe day and year first
above written.
Owner: ESC II, LP
a Washington limited partnership
By: Columbia Pacific Growth Fund '98 Limited Partnership, a
Washington limited partnership, its general partner
By: B.F. Limited Partnership, a Washington limited
partnership, its general partner
Daniel R. Baty;
12
<PAGE>
By: Columbia Pacific Group, Inc., a Washington
Manager:
ESC III, LP,
a Washington limited partnership
By:
13
<PAGE>
FACILITY LEASE AGREEMENT
MEDITRUST COMPANY LLC
(A Delaware limited liability company)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
May 12,1998
For Premises Located In
City of Flagstaff, Coconino County, Arizona
FACILITY LEASE AGREEMENT
<PAGE>
This FACILITY LEASE AGREEMENT ("Lease") is dated as of the l2th
day of May, 1998 and is between MEDITRUST COMPANY LLC ("Lessor"),
a Delaware limited liability company having its principal office
at 197 First Avenue, Needham Heights, Massachusetts 02 I 94, 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 properly described in EXHIBIT A attached hereto (the
"Land");
(b) all buildings, structures, Fixtures (as hereinafter defined)
and other improvements of every kind including, but not limited
to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines, and parking areas and roadways appurtenant to
such buildings and structures presently or hereafter situated upon
the Land (collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances of every nature and
description now or hereafter relating to or benefiting any or all
of the Land and the Leased Improvements;
(d) all equipment, machinery, building fixtures, and other items
of property (whether realty, personalty or mixed), including all
components thereof, now or hereafter located in, on or used in
connection with, and permanently affixed to or incorporated into
the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air
and water pollution control, waste disposal, air-cooling and air-
conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and built-in oxygen and vacuum
systems, all of which, to the greatest extent permitted by law,
are hereby deemed by the parties hereto to constitute real estate,
together with all replacements, 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
<PAGE>
1
(e) Lessor's Personal Property.
The Leased Property is leased in its present condition, AS IS,
without representation or warranty of any kind, express or
implied, by Lessor and subject to: (i) the rights of parties in
possession; (ii) the existing state of title including all
covenants, conditions, Liens (as hereinafter defined) and other
matters of record (including, without limitation, the matters set
forth in EXHIBIT B); (iii) all applicable laws and (iv) all
matters, whether or not of a similar nature, which would be
disclosed by an inspection of the Leased Property or by an
accurate survey thereof.
1.2 TERM. The term of this Lease shall consist of: the "Initial
Term", which shall commence on Mayl2,1998 (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.
2
<PAGE>
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRUCTION
2.1 DEFINITIONS. For all purposes of this Lease and the other
Lease Documents (as hereinafter defined), except as otherwise
expressly provided or unless the context otherwise requires, (i)
the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the
singular and (ii) all references in this Lease or any of the other
Lease Documents to designated "Articles", "Sections" and other
subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease or the other applicable Lease Document.
ACCOUNTS: As defined in the UCC.
ACCREDITATION BODY: Any person, including any Person having or
claiming jurisdiction over the accreditation, certification,
evaluation or operation of the Facility.
ADDED VALUE PERCENTAGE: The proportion of the Fair Market Added
Value of Capital Additions paid for or financed by Lessee to the
Fair Market Value of the entire Leased Property, expressed as a
percentage.
ADDITIONAL CHARGES: As defined in Article 3.
ADDITIONAL LAND: As defined in Section 9.3.
ADDITIONAL RENT: As defined in Article 3.
ADDITIONAL RENT COMMENCEMENT DATE: As defined in Article 3.
AFFILIATE: With respect to any Person (i) any other Person which,
directly or indirectly, controls or is controlled by or is under
common control with such Person, (ii) any other Person that owns,
beneficially, directly or indirectly, five percent (5"%) or more
of the outstanding capital stock, shares or equity interests of
such Person or (iii) any officer, director, employee, general
partner or trustee of such Person, or any other Person
controlling, controlled by, or under common control with, such
Person (excluding trustees and Persons serving in a fiduciary or
similar capacity who are not otherwise an Affiliate of such
Person). For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of
such Person, through the ownership of voting securities,
partnership interests or other equity interests provided, however,
that, (a) 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
3
<PAGE>
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 Eighth Amended and
Restated Agreement Regarding Related Transactions (Development)
dated of even date herewith, as may be amended from time to time,
between Lessee, Lessor and any Related Party that is party to any
Related Lease or Related Party Agreement. Lessor and Lessee
anticipate that the Agreement Regarding Related Transactions will
be amended from time to time to include Affiliates of Lessor and
Lessee as parties thereto in connection with future transactions
and acknowledge and agree that for all purposes under this Lease
Agreement such amendments shall be deemed to be included in this
definition.
ANNUAL FACILITY UPGRADE EXPENDITURE: An aggregate annual amount
equal to the product of TWO HUNDRED DOLLARS ($200) (as increased
as of the first day of each Lease Year in which the Annual
Facility Upgrade Expenditure is to be made by an amount equal to
the product of the CPI Increase multiplied by TWO HUNDRED DOLLARS
($200)) times the number of units in the Facility, such amount to
be spent on Upgrade Renovations. The term "CPI Increase" means a
fraction, the numerator of which is the Price Index in effect as
of the first day of the Lease Year in which the Annual Facility
Upgrade Expenditure is to be made and the denominator of which is
the Price Index in effect as of the date hereof. The term "Price
Index" means the Consumer Price Index for Urban Wage Earners and
Clerical Workers, All Items-Series A (1982-84=100), published by
the Bureau of Labor Statistics, U.S. Department of Labor. If the
Bureau of Labor Statistics 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.
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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.
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 I 3.1.
CHATTEL PAPER: As defined in the UCC.
CLOSING: As defined in Section 18.3.6.
CODE: The Internal Revenue Code of 1986, as amended.
5
<PAGE>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.
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
6
<PAGE>
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 PLEDGE AGREEMENT: The pledge and security agreement so
captioned and dated as of even date herewith between Lessee and
Lessor.
DOCUMENTS: As defined in the UCC.
ENCUMBRANCE: As defined in Section 20.3.
ENVIRONMENTAL INDEMNITY AGREEMENT: The Environmental Indemnity
Agreement of even date herewith by and among Lessee the Guarantor
and Lessor.
ENVIRONMENTAL LAWS: As defined in the Environmental Indemnity
Agreement.
ERISA: The Employment Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: As defined in Article I 6.
EXCESS GROSS REVENUES: Gross Revenues less Base Gross Revenues.
EXPIRATION DATE: As defined in Section 12.
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<PAGE>
EXTENDED TERMS: As defined in Section 1.4.
FACILITY: The 61 unit, fully licensed assisted living facility to
be constructed on the Land and to be known 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.
FINANCING STATEMENTS: Uniform Commercial Code financing statements
evidencing the security interests granted to Lessor in connection
with the Lease Documents.
8
<PAGE>
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 I st 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 of ices 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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<PAGE>
(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.
GUARANTOR 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
10
<PAGE>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 (I) 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 often (10) years as calculated by
the Federal Reserve Board.
INITIAL TERM: As defined in Section 1.2.
INSTRUMENTS: As defined in the UCC.
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INSURANCE REQUIREMENTS: All terms of any insurance policy required
by this Lease, all requirements of the issuer of any such policy
with respect to the Leased Property and the activities conducted
thereon and the requirements of any insurance board, association
or organization or underwriters' regulations pertaining to the
Leased Property.
LAND: As defined in Article 1.
LEASE: As defined in the preamble of this Lease.
LEASE DEFAULT: The occurrence of any default or breach of
condition continuing beyond any applicable notice and/or grace
periods under this Lease and/or any of the other Lease Documents.
LEASE DOCUMENTS: Collectively, this Lease, the Guaranty of Lease
Obligations, the Agreement Regarding Related Transactions, the
Leasehold Improvement Agreement, the Security Agreement, the
Deposit Pledge Agreement, the Negative Pledge Agreement, the
Permits Assignment, the Financing Statements, the Affiliated Party
Subordination Agreement, the Environmental Indemnity Agreement,
and any and all other instruments, documents, certificates or
agreements executed or furnished by any member ofthe 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 aiid undertakings (other than
Lessor's obligations) under this Lease and the other Lease
Documents.
LEASE YEAR: A twelve month period ending on July 31 st of each
year; provided, that the first Lease Year shall begin on the
Commencement Date and shall end on July 31, I 998.
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.
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<PAGE>
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 ofthe
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 ofthe 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.
Withqut 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 ofthis 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 ofthis 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 propeity, any mortgage,
easement, restriction, lien, pledge, collateral assignment,
hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or
other encumbrance ofany 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 which may be executed in the future between Lessee and
Lessor.
MANAGER: Any Person who has entered into a Management Agreement
with Lessee or any Sublessee.
MATERIAL STRUCTURAL WORK: Any (i) structural alteration, (ii)
structural repair or (iii) structural renovation to the Leased
Property, which would customarily require or which require the
design and/or involvement of a structural engineer or architect or
which would require the issuance of a Permit. .
MEDICAID: The medical assistance program established by Title XIX
ofthe Social Security Act and any statute
succeeding thereto.
MEDICARE: The health insurance program for the aged and disabled
established by Title XVIII ofthe Social Security Act (42 USC
1395 et seq.) and any statute succeeding thereto.
MEDITRUST/EMERITUS TRANSACTION AFFILIATE: An Affiliate of Lessee,
the business and activities ofwhich are limited to those subject
to Meditrust/Emeritus Transaction Documents (other than the
Affliated 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" 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 lus (iii) so much of the Project Funds as Lessor has
expended from time to time less the sum of any Net Award Amounts
and/or Net Proceeds Amounts.
MONTHLY DEPOSIT DATE: As defined in Section 4.6.
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<PAGE>
NEGATIVE PLEDGE AGREEMENT: The Group Two Negative Pledge Agreement
(Development) dated April 30,1997 by and between Guarantor,
Lessee, Lessor and any Related Party that is party to any Related
Lease or Related Party Agreement.
NET AWARD AMOUNT: As defined in Section 3.7.
NET INCOME (OR NET LOSS): The net income (or net loss, expressed
as a negative number) of a Person for any period, after all taxes
actually paid or accrued and all expenses and other charges
determined in accordance with GAAP.
NET PROCEEDS AMOUNT: As defined in Section 3.7.
NET WORTH: An amount determined in accordance with GAAP equal to
the total assets of any Person, minus the total liabilities of
such Person, provided, however, that for purposes of calculating
the Net Worth ofthe Guarantor, those certain Thirty-Two Million
Dollars ($32,000,000.00) of6.25"% ofconvertible, unsecured,
subordinated debentures due in 2006, which were issued by the
Guarantor on February 15,1996, shall not be included in total
liabilities.
OBLIGATIONS: Collectively, the Lease Obligations and the Related
Party Obligations.
OFFICER'S CERTIFICATE: A certificate of Lessee signed on behalf of
Lessee by the Chairman of the Board of Directors, the President,
any Vice President or the Treasurer of Lessee, or another officer
authorized to so sign by the Board of Directors or By-Laws of
Lessee, or any other Person whose power and authority to act has
been authorized by delegation in writing by any ofthe Persons
holding the foregoing offices.
ORIGINAL MEDITRUST INVESTMENT: The sum of Dollars and /00 ($
Other Permitted Uses: To the extent permitted under applicable
Legal Requirements and under Insurance Requirements, and so long
as the same do not detract in any material manner from the Primary
Intended Use and do not occupy more than ten percent (10"%) of the
useable floor area of the building comprising the Facility, such
uses as Lessee reasonably determines are appropriate and
incidental to the Primary Permitted Use.
OVERDUE RATE: On any date, a rate of interest per annum equal to
the greater of: (i) a variable rate of interest per annum equal to
one hundred twenty percent ( 120"%) of the Prime Rate, or (ii)
eighteen percent (18"%) per annum; provided, however, in no event
shall the Overdue Rate be greater than the maximum rate then
permitted under applicable law to be charged by Lessor.
PBGC: Pension Benefit Guaranty Corporation.
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PERMITS: Collectively, all permits, licenses, approvals,
qualifcations, 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 ofany
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 ofthe Leasing
Group, or entered into by any member ofthe 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 I 0.1. I 8.
Permitted Prior Securitv 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: I 75 basis points over the
Prime Rate.
POST-CONVERSION BASE RENT: As defined in Section 3.1.
Primary Intended Use: The use ofthe Facility as an assisted living
facility with sixty-one (61 ) 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 fnancial institution reasonably
selected by Lessor.
Principal Place of Business: As defined in Section I 0. I 28.
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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 ofthe Facility relating to any right ofpayment 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 identifled from time to time in the
Agreement Regarding Related Transactions.
Related Parties: Collectively, each Person that may now or
hereafter be a party to any Related Party Agreement other than the
Meditrust Entities.
Related Party Agreement: Any agreement, document or instrument now
or hereafter evidencing or securing any Related Party Obligation,
including, without limitation, the Related Leases.
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Related Party Default: The occurrence of a default or breach of
condition continuing beyond the expiration of any applicable
notice and grace periods, if any, under the terms of any Related
Party Agreement.
Related Parhr Obligations: Collectively, all indebtedness,
covenants, liabilities, obligations, agreements and undertakings
due to, or made for the benefit of, Lessor or any of the other
Meditiust Entities by Lessee or any other member ofthe Leasing
Group or any oftheir respective Affiliates in connection with any
ofthe 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 orjoint 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 ofany ofthe Extended Terms.
Rent Adjustment Rate: 325 basis points over the Index.
Rent Insurance Proceeds: As defined in Section 13.8.
Residence Agreement: All contracts, agreements and consents
executed by or on behalf of any resident or other Person seeking
services at the Facility, including, without limitation,
assignments of benefits and guarantees.
Retainage: As defined in Section 13.1.3.
Security Agreement: The Security Agreement as ofeven date
herewith between Lessee and Lessor.
State: The state or commonwealth in which the Leased Property is
located.
Sublease: Collectively, all subleases, licenses, use agreements,
concession agreements, tenancy at will agreements and other
occupancy agreements of every kind and nature (but excluding any
Residency Agreement), whether oral or in writing, now in existence
or subsequently entered into by Lessee, encumbering or affecting
the Leased Property.
Sublessee: Any sublessee, licensee, concessionaire, tenant or
other occupant under any of the Subleases.
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Subsequent Investments: The aggregate amount ofall sums expended
and liabilities incurred by Lessor in connection with Capital
Additions.
Subsidianr 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 ofthe outstanding capital stock or other ownership interest
having general voting power (under ordinary circumstances).
Taking: A taking or voluntary conveyance during the Term ofthe
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 Pavor 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 Treasunr 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,
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among other relevant factors, the number of usable units or beds
affected by such Casualty or partial or temporary Taking.
Unavoidable Delays: Delays due to strikes, lockouts, inability to
procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable
casualty or other causes beyond the control of the party
responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of
either party hereto.
Upgrade Renovations: Repair and refurbishing other than normal
janitorial, cleaning and maintenance activities.
Work: As defined in Section 13.1.1.
Work Certificates: As defned in Section 13.1.3.
Working Capital Loan: As defned 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 ofthe 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 attomeys 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
attomeys 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; (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 deeriied to include references to all ofthe
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 nonlimiting 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 ofthe 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
specifcally defined in the Lease Documents shall be construed in
accordance with GAAP and (k) all exhibits annexed to any ofthe
Lease Documents as
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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 Im rovements Related Rights and Fixtures.
Lessee will pay to Lessor, in lawful money of the United States of
America, at Lessor's address set forth herein or at such other
place or to such other Person as Lessor from time to time may
designate in writing, rent for the Leased Property, as follows.
3.1.1 Base Rent: (a) Pre-Conversion Base Rent: From and after the
Commencement Date and until the Conversion Date, Lessee shall pay,
commencing on June 1,1998, 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 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 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 ofthe 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 ofthe 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 ofthe first fscal quarter occurring following the
Additional Rent Accrual Date and there shall be an annual
reconciliation as provided in Section 3.2 below.
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3.2 Calculation and Payment of Additional Rent. Annual
Reconciliation.
3.2.1 Officer's Certificate and Proration. Each quarterly payment
of Additional Rent shall be delivered to Lessor, together with an
Officer's Certificate setting forth the calculation thereof,
within thirty (30) days after the end ofthe corresponding quarter.
Additional Rent due for any portion of any calendar year shall be
prorated accordingly.
3.2.2 Annual Statement. In addition, on or before the first day of
April ofeach year following any calendar year for which Additional
Rent is payable hereunder, Lessee shall deliver to Lessor an
Officer's Certificate, reasonably acceptable to Lessor and
certified by the chief financial officer of Lessee, setting forth
the Gross Revenues for the immediately preceding calendar year.
3.2.3 Deficits. If the Additional Rent, as finally determined for
any calendar year (or portion thereof, exceeds the sum of the
quarterly payments of Additional Rent previously paid by Lessee
with respect to said calendar year, within thirty (30) days after
such determination is required to be made hereunder, Lessee shall
pay such defcit to Lessor and, ifthe deficit exceeds five percent
(5"%) ofthe Additional Rent which was previously paid to Lessor
with respect to said calendar year, then Lessee shall also pay
Lessor interest on such deficit at the Overdue Rate from the date
that such payment should have been made by Lessee to the date that
Lessor receives such payment.
3.2.4 Overpayments. Ifthe Additional Rent, as finally determined
for any calendar year (or poition thereof, is less than the amount
previously paid with respect thereto by Lessee, Lessee shall
notify Lessor either (a) to pay to Lessee an amount equal to such
difference or (b) to grant Lessee a credit against Additional Rent
next coming due in the amount of such difference.
3.2.5 Final Determination. The obligation to pay Additional Rent
shall
survive the expiration or earlier termination of the Term (as to
Additional Rent payments that are due and payable prior to the
expiration or earlier termination of the Term and during any
periods that Lessee remains in possession ofthe Leased Propeity),
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 teimination 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.
22
3.2.6 Best Efforts To Maximize. Lessee further covenants that the
operation of the Facility shall be conducted in a manner
consistent with the prevailing standards and practices recognized
in the assisted living industry as those customarily utilized by
reputable business operations. Subject to any applicable Legal
Requirements, the. members ofthe Leasing Group shall use their
best efforts to maximize the Facility's Gross Revenues.
3.3 Confirmation and Audit of Additional Rent.
3.3.1 Maintain Accounting Svstems. Lessee shall utilize, or cause
to be utilized, an accounting system for the Leased Property in
accordance with usual and customary practices in the assisted
living industry and in accordance with GAAP which will accurately
record all Gross Revenues. Lessee shall retain, for at least three
(3) years after the expiration of each calendar year (and in any
event until the final reconciliation described in Section 3 2
above has been made), adequate records conforming to such
accounting system showing all Gross Revenues for such calendar
year.
3.3.2 Audit By Lessor. Lessor, at its own expense except as
provided
hereinbelow, shall have the right from time to time to have its
accountants or representatives audit the information set forth in
the Officer's Certi icate referred to in Section 3.2 and in
connection with such audits, to examine Lessee's records with
respect thereto (including supporting data, income tax and sales
tax returns), subject to any prohibitions or limitations on
disclosure of any such data under applicable law or regulations.
3.3.3 Deficiencies and Overpayments. Ifany such audit discloses a
defciency 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
23
Lessee and Lessee shall direct Lessor either (i) to refund the
overpayment to Lessee or (ii) grant a credit against Additional
Rent next coming due in the amount of such difference.
3.3.4 Survival. The obligations of Lessor and Lessee contained in
this Section shall survive the expiration or earlier termination
ofthis Lease.
3.4 Additional Charges. Subject to the rights to contest as set
foith in Airticle 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 ofthe
Additional Charges, as well as the Base Rent and Additional Rent.
To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional Charges to any
other Person to which such Additional Charges would otherwise be
due.
3.5 Net Lease. The Rent shall be paid absolutely net to Lessor, so
that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, and the payments of Additional Rent
and, if and to the extent payable to Lessor, Additional Charges
throughout the Term.
3.6 No Lessee Termination or Offset.
3.6.1 No Termination. Except as may be otherwise specifically and
expressly provided in this Lease, Lessee, to the extent not
prohibited by applicable law, shall remain bound by this Lease in
accordance with its terms and shall neither take any action
without the consent of Lessor to modify, surrender or terminate
the same, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent, nor
shall the respective obligations of Lessor and Lessee be otherwise
affected by reason of (a) any Casualty or any Taking ofthe Leased
Property, (b) the lawful or unlawful prohibition of, or
restriction upon, Lessee's use ofthe 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 wairanty 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
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the foregoing, other than a discharge of Lessee from any of the
Lease Obligations as a matter of law.
3.6.2 Waiver. Lessee to the fullest extent not prohibited by
applicable law, hereby specifically waives all rights, arising
from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (a) modify, surrender or terminate
this Lease or quit or surrender the Leased Property or (b) entitle
Lessee to any abatement, reduction, suspension or deferznent of
the Rent or other sums payable by Lessee. hereunder, except as
otherwise specifically and expressly provided in this Lease.
3.6.3 Independent Covenants. The obligations of Lessor and Lessee
hereunder shall be separate and independent covenants and
agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the
express provisions of this Lease or (except in those instances
where the obligation to pay expressly survives the termination of
this Lease) by termination of this Lease other than by reason of
an Event of Default.
3.7 Abatement of Rent Limited. There shall be no abatement of Rent
on account of any Casualty, Taking or other event, except that (a)
in the event of a partial Taking or a temporary Taking as
described in Section 14.3, the Base Rent shall be abated as
follows: (i) in the case of such a partial Taking, the Meditrust
Investment shall be reduced for the purposes of calculating Base
Rent pursuant to Section 3.1 by subtracting therefrom, as
applicable, the net amount of the Award received by Lessor, and
(ii) in the case of such a temporary Taking, by reducing the Base
Rent for the period ofsuch a temporary Taking, by the net amount
ofthe 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 ofcalculating Base Rent pursuant
to Section 3.1 by subtracting therefrom, as applicable, the net
amount ofthe insurance proceeds.
For the purposes ofthis Section 3.7, the "net amount ofthe 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
ofthe 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").
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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 o tion, 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 Parrment of Impositions.
4.1.1 Lessee To Payor. Subject to the provisions of Article 15,
Lessee will pay or cause to be paid all Impositions before any
fine, penalty, interest or cost may be added for non-payment, such
payments to be made directly to the taxing authority where
feasible, and Lessee will promptly furnish Lessor copies of
official receipts or other satisfactory proof evidencing payment
not later than the last day on which the same may be paid without
penalty or interest. Subject to the provisions of Article 15 and
Section 4.1.2, Lessee's obligation to pay such Impositions shall
be deemed absolutely fixed upon the date such Impositions become a
lien upon the Leased Property or any part thereof.
4.1.2 Installment Elections. Ifany such Imposition may, at the
option ofthe 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. I.5 below) as the same
respectively become due and before any fine, penalty, premium,
further interest or cost may be added thereto.
4.1.3 Returns and Reports. Lessor, at its expense, shall, to the
extent permitted by applicable law, prepare and file all tax
returns and reports as may be required by Goveznmental 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
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extent permitted by applicable laws and regulations, prepare and
fle 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 propezty 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 ofthe 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 fle a protest.
4.1.4 Refunds. Ifno Lease Default shall have occurred and be
continuing, any refund due from any taxing authority in respect of
any Imposition paid by Lessee shall be paid over to or retained by
Lessee. If a Lease Default shall have occurred and be continuing,
at Lessor's option, such funds shall be paid over to Lessor and/or
retained by Lessor and applied toward Lease Obligations which
relate to the Leased Property in accordance with the Lease
Documents.
4.1.5 Protest. Upon giving notice to Lessor, at Lessee's option
and sole cost and expense, and subject to compliance with the
provisions of Article 15, Lessee may contest, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to
effect a reduction of any Imposition and Lessor, at Lessee's cost
and expense as aforesaid, shall fully cooperate in a reasonable
manner with Lessee in connection with such protest, appeal or
other action.
4.2 Notice of Impositions. Lessor shall give prompt notice to
Lessee ofall 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 oflmpositions. Impositions imposed in respect ofthe
period during which the expiration or earlier termination ofthe
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
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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 ofeach 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 ofnon-payment and so long as no
Lease Default has occurred and is continuing. In the event ofthe
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 thereofto Lessor at
the times required hereunder, Lessor shall be entitled, but shall
have no obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be a demand obligation of Lessee to
Lessor.
4.6 Deposits.
4.6.1 Lessor's Option. At the option of Lessor upon the occurrence
ofan event or circumstance which, with the giving ofnotice 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 frst day of each
calendar month thereafter during the Term (each ofwhich dates is
referred to as a "Monthly Deposit Date"), pay to and deposit with
Lessor a sum equal to one-twelfth (1/l2th) ofthe 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/l2th) ofthe 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 ofcomputing 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/l2th) ofthe
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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4.6.2 Use of Deposits. The sums deposited by Lessee under this
Section 4.6 shall be held by Lessor and shall be applied in
payment ofthe 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
ofinvestment vehicles, (b) for any consequent loss ofprincipal or
interest or (c) for any unavailability of funds based on such
choice of investment. Furthermore, Lessor shall bear no
responsibility for the fnancial 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 ofnotice and/or the passage oftime, 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 ofthis 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
ofthe failure of Lessor to pay such Imposition or such insurance
premium and Lessor shall pay any interest or fine assessed by
virtue of Lessor's failure to pay such Imposition or insurance
premium.
4.6.3 Deficits. Iffor any reason any deposit held by Lessor under
this Section 4.6 shall not be suffcient 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 amortization in excess of the sums previously
deposited with Lessor for the applicable period which would
theretofore have been payable under the revised estimate.
4.6.4 Other Properties. Ifany 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 ofthe 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
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entire amount of such Imposition and Lessee shall not have the
right to apportion any deposit with respect to such Imposition.
4.6.5 Transfers. In connection with any assignment of Lessor's
interest under this Lease, the original Lessor named herein and
each successor in interest shall transfer all amounts deposited
pursuant to the provisions ofthis Section 4.6 and still in its
possession to such assignee (as the subsequent holder of Lessor's
interest in this Lease) and upon such transfer, the original
Lessor named herein or the applicable successor in interest
transferring the deposits shall thereupon be completely released
from all liability with respect to such deposits so transferred
and Lessee shall look solely to said assignee, as the subsequent
holder of Lessor's interest under this Lease, in reference
thereto.
4.6.6 Security. All amounts deposited with Lessor pursuant to the
provisions of this Section 4.6 shall be held by Lessor as
additional security for the payment and performance ofthe
Obligations and, upon the occurrence ofany Lease Default, Lessor
may, in its sole and absolute discretion, apply said amounts
towards payment or performance ofsuch Obligations.
4.6.7 Return. Upon the expiration or earlier termination ofthis
Lease, provided that all of the Lease Obligations relating to the
Leased Property have been fully paid and performed, any sums then
held by Lessor under this Section 4.6 shall be refunded to Lessee.
4.6.8 Receipts. Lessee shall deliver to Lessor copies ofall
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 ofthe Leased
Property upon the terms and conditions ofthis Lease.
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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 Securitv for Lessee's Obligations; Permitted Prior Security
Interests.
6.1.1 Security. In order to secure the payment and performance
ofall ofthe 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 ofthe
operation ofthe 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 Securitv 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
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5.2 Personal Pro er. Removal and Replacement of Personal Pro e
5.2.1 Lessee To Equip Facility. If and to the extent not included
in the Leased Property, Lessee, at its sole cost and expense,
shall install, affix or assemble or place on the Leased Property,
sufficient items of Tangible Personal Property, to enable the
operation ofthe Facility in accordance with the requirements
ofthis Lease for the Primary Intended Use, and such Tangible
Personal Property and replacements thereof, shall be at all times
the property of Lessee.
5.2Z Sufficient Personal Property. Lessee shall maintain, during
the entire Term, the Tangible Personal Property and Lessor's
Personal Property in good order and repair and shall provide at
its expense all necessary replacements thereof, as may be
necessary in order to operate the Facility in compliance with all
applicable Legal Requirements and Insurance Requirements and
otherwise in accordance with customary practice in the industry
for the Primary Intended Use and, if applicable, Other Permitted
Uses. In addition, Lessee shall furnish all necessary replacements
ofsuch obsolete items of the Tangible Personal Property and
Lessor's Personal Property during the Term as are necessary to
enable the operation ofthe Facility in accordance with the
requirements of this Lease for the Primary Intended Use.
5.2.3 Removal and Replacement; Lessor's Option to Purchase. Lessee
shall not remove from the Leased Property any one or more items of
Tangible Personal Property or Lessor's Personal Property (whether
now owned or hereafter acquired) the fair market value of which
exceeds TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually or
ONE HUNDRED THOUSAND DOLLARS ($100,000.00) collectively, if such
Tangible Personal Property or Lessor's Personal Property is
necessary to enable the operation ofthe 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 ofthe
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 ofthe Tangible Personal
Property, then all ofthe 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
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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 crosscollateralized 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 ajunior 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 Affliates 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 ofno 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 ofthe 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
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7.1 Condition of the Leased Properht. 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 ofpossession ofthe Leased Property and that Lessee
has examined and otherwise has acquired knowledge ofthe condition
ofthe 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. I 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 ofthe 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
ofnotice from Lessor, Lessee shali commence such appropriate
remedial actions as may be reasonably requested by Lessor to
correct such unsatisfactory conditions and, thereafter, shall
diligently and continuously prosecute such remedial actions to
completion within the time limits prescribed in this Lease or the
other Lease Documents.
7.2 Use of the Leased Property; Compliance: Management.
7.2.1 Obligation to Operate. Following completion ofthe Facility,
Lessee shall continuously operate the Leased Property in
accordance with the Primary Intended
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Use and the Other Permitted Uses and maintain its qualifications
for licensure and accreditation as required by all applicable
Legal Requirements.
7.2.2 Permitted Uses. During the entire Term, Lessee shall use the
Leased Property, or permit the Leased Property to be used, only
for the Primary Intended Use and, ifapplicable, the Other
Permitted Uses. Lessee shall not use the Leased Property or permit
the Leased Property to be used for any other use without the prior
written consent of Lessor, which consent may be withheld in
Lessor's sole and absolute discretion.
7.2.3 Compliance With Insurance Requirements. No use shall be made
or permitted to be made ofthe Leased Property and no acts shall be
done which will cause the cancellation ofany 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 ofthe Insurance Requirements. Furthermore,
Lessee shall, at its sole cost and expense, take whatever other
actions that may be necessary to comply with and to insure that
the Leased Property complies with all Insurance Requirements.
7.2.4 No Waste. Lessee shall not commit or suffer to be committed
any waste on, in or under the Leased Property, nor shall Lessee
cause or permit any nuisance thereon.
7.2.5 No Impairment. Lessee shall neither permit nor knowingly
suffer the Leased Property to be used in such a manner as (a)
might reasonably tend to impair Lessor's title thereto or (b) may
reasonably make possible a claim or claims of adverse usage or
adverse possession by the public or of implied dedication of the
Leased Property.
7.2.6 No Liens. Except as permitted pursuant to Section 6.1.2,
Lessee shall not permit or suffer any Lien to exist on the
Tangible Personal Property and shall in no event cause, permit or
suffer any Lien to exist with respect to the Leased Property other
than as set forth in Section 11.5.2.
7.3 Compliance with Legal Requirements. Lessee covenants and
agrees that the Leased Property shall not be used for any unlawful
purpose and that Lessee, at its sole cost and expense, will
promptly (a) comply with, and shall cause every other member ofthe
Leasing Group to comply with, all applicable Legal Requirements
relating to the use, operation, maintenance, repair and
restoration ofthe Leased Property, whether or not compliance
therewith shall require structural change in any of the Leased
Property or interfere with the use and enjoyment ofthe Leased
Property and (b) procure, maintain and comply with (in all
material respects), and shall cause every other member ofthe
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
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Uses, and for compliance with all ofthe terms and conditions
ofthis Lease. Unless a Lease Default has occurred or any event has
occurred which, with the passage oftime 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 ofthe 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 ofthe 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 ofthe licensed operator of the
Leased Property under and pursuant to any Management Agreement,
Lessor, or a lawfully appointed receiver ofthe 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.
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7.5 Participation in Third Party Payor Programs. No provision
ofthis Lease shall be deemed to require Lessee to commence
participation in any Third Party Payor Program or any Managed Care
Plan.
ARTICLE 8
REPAIRS; RESTRICTIONS
8.1 Maintenance and Repair.
8.1.1 Lessee's Responsibility. Lessee, at its sole cost and
expense, shall keep the Leased Property and all private roadways,
sidewalks and curbs appurtenant thereto which are under Lessee's
control in good order and repair to the extent consistent with the
stage ofconstruction ofthe 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 ofthe 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 ofthis Section 8. I 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, ifapplicable, the Other Permitted Uses.
To the extent that any ofthe repairs, replacements, renovations,
alterations or modifcations 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) ofthe 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
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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 ofthe Material Structural Work commenced and
shall obtain Lessor's approval ofthe remaining Material Structural
Work to be. completed.
8.1.2 No Lessor Obligation. Lessor shall not, under any
circumstances, be required to build or rebuild any improvements on
the Leased Property (or any private roadways, sidewalks or curbs
appurtenant thereto), or to make any repairs, replacements,
renovations, alterations, restorations, modifications, or renewals
of any nature or description to the Leased Property (or any
private roadways, sidewalks or curbs appurtenant thereto), whether
ordinary or extraordinary, structural or non-structural, foreseen
or unforeseen, or to make any expenditure whatsoever with respect
thereto in connection with this Lease, or to maintain the Leased
Property (or any private roadways, sidewalks or curbs appurtenant
thereto) in any way.
8.1.3 Lessee May Not Obligate Lessor. Nothing contained herein nor
any action or inaction by Lessor shall be construed as (a)
constituting the consent or request of Lessor, express or implied,
to any contractor, subcontractor, laborer, materialman or vendor
to or for the performance of any labor or services for any
construction, alteration, addition, repair or demolition of or to
the Leased Property or (b) except as otherwise provided in this
Lease, giving Lessee any right, power or permission to contract
for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as
would permit the making of any claim against Lessor for the
payment thereof or to make any agreement that may create, or in
uny 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 ofthe 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 ofany 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 ofthis provision.
8.2 Encroachments; Title Restrictions. Ifany ofthe 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
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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 ofthis 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 satisfed 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 ofthe
Facility), except as may be otherwise expressly required pursuant
to Article 8.
9.2 General Provisions as to Capital Additions and Certain
Material Structural Work. As to any Capital Addition or Material
Structural Work (other than such Material Structural Work that is
required to be performed pursuant to the terms of Section 8.1 )
for which Lessor has granted its prior written approval, the
following terms and conditions shall apply unless otherwise
expressly set forth in Lessor's written approval.
9.2.1 No Liens. Lessee shall not be permitted to create any Lien
on the Leased Property in connection with any Capital Addition or
Material Structural Work (including,
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without limitation, Liens relating to the provision of financing
for a Capital Addition) other than Liens expressly permitted by
the terms and provisions ofthis Lease Agreement.
9.2.2 Lessee's Proposal Regarding Capital Additions and Material
Structural Work. If Lessee desires to undertake any Capital
Addition or Material Structural Work, Lessee shall submit to
Lessor in writing a proposal setting forth in reasonable detail
any proposed Capital Addition or Material Structural Work and
shall provide to Lessor copies of, or information regarding, the
applicable plans and specifcations, 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 ofthe change, ifany, in the Gross Revenues
that Lessee anticipates will result from the construction of such
Capital Addition.
9.2.3 Lessor's Options Regarding Capital Additions and Material
Structural Work. Lessor shall have the options of: (a) denying
permission for the construction of the applicable Capital Addition
or Material Structural Work, (lb) offering to finance the
construction ofthe Capital Addition pursuant to Section 9.3 on
such terms as may be specifed by Lessor, including the terms of
any amendnzent 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. I,
Section 9.4, Section 13.1.3, all applicable Legal Requirements,
all other requirements ofthis Lease and to such other terms and
conditions as Lessor may in its discretion reasonably impose or
(d) any combination ofthe foregoing. Unless Lessor notifes 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 ofthe 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
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unreasonably withhold its permission for the construction of
Material Structural Work which is necessary to protect the safety
or welfare of residents of the Facility.
9.2.4 Lessor Mav 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 bJr Lessor.
9.3.1 Advances. All advances of funds for any such financing shall
be made in accordance with Lessor's then standard construction
loan requirements and procedures, which may include, without
limitation, the requirements and procedures applicable to Work
under Sections 13.1.3 and 13.1.4.
9.3.2 Lessor's General Requirements. If Lessor agrees to finance
the proposed Capital Addition and Lessee accepts Lessor's proposal
therefor, in addition to all other items which Lessor or any
applicable Financing Party may reasonably require, Lessee shall
provide to Lessor the following: .
(a) prior to any advance of funds, (i) any information, opinions,
certificates, Permits or documents reasonably requested by Lessor
or any applicable Financing Party which are necessary to confirm
that Lessee is reasonably expected to be able to use the Capital
Addition upon completion thereof in accordance with the Primary
Intended Use and/or, if applicable, the Other Permitted Uses and
(ii) evidence satisfactory to Lessor and any applicable Financing
Party that all Permits required for the construction and use ofthe
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 ofthe 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 ofbusiness 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 ofsale, 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
ofthis 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
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required by Lessor including, without limitation, changes in the
Base Rent and the legal description ofthe 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 ofany Liens except those
approved by Lessor;
(e) upon completion ofthe Capital Addition, a final as-built
survey thereof reasonably satisfactory to Lessor, if required by
Lessor;
(f) during and following the advance offunds and the completion of
the Capital Addition, endorsements to any outstanding policy
oftitle 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 thereofby an amount equal
to the Fair Market Value ofthe 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
oftitle insurance reasonably satisfactory in form and substance to
any applicable Financing Party;
(h) following the completion ofthe Capital Addition, if reasonably
deemed necessary by Lessor, an appraisal ofthe Leased Property by
an M.A.I. appraiser acceptable to Lessor, which states that the
Fair Market Value ofthe 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 oftitle insurance
contemplated by subsection (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.
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9.3.3 Payment of Costs. By virtue of making a request to finance a
Capital Addition, whether or not such financing is actually
consummated, Lessee shall be deemed to have agreed to pay, upon
demand, all costs and expenses reasonably incurred by Lessor and
any Person participating with Lessor in any way in the financing
ofthe Capital. Addition Cost, including, but not limited to (a)
fees and expenses oftheir 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 effciency ofthe 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 adj acent to the Leased Property (and not part ofthe Land
covered by this Lease) including, without limitation, tie-ins
ofbuildings 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 ofthis 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 ofany such
repair, replacement, alteration, addition, modification or
improvement shall be paid by Lessee and the results thereofshall
be included under the terms ofthis Lease and become a part ofthe
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 ofthe Leased
Improvements, or which involve the expenditure ofmore 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, modifcations and
improvements performed and obtains Lessor's approval ofthe
remaining work
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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
ofthis Lease, except by reason ofthe 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) ofall 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 (1 l0%) ofthe 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, ifno such rate exists, or such rate
is in excess ofthat 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 ofthe expiration of earlier
termination of this Lease) from all rent and other consideration
receivable by Lessor under any re-letting or other disposition
ofthe Leased Property, after deducting all costs and expenses
incurred by Lessor in connection with such re-letting or other
disposition ofthe leased Property and all costs and expenses
ofoperating and maintaining the Leased Property during any such
new lease which are not borne by the tenant thereunder. The
provisions ofthis Subparagraph (c) shall remain in effect until
the sale or other final disposition ofthe 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) ofthis 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
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10.1 Representations and Warranties. Lessee hereby represents and
warrants to, and covenants and agrees with, Lessor that:
10.1.1 Existence; Power; Qualification.
Lessee is a corporation duly organized, validly existing and in
good standing under the laws ofthe 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 ofthe
date ofthis Agreement, Lessee does not have any Subsidiaries and
Lessee is not a member ofany paitnership orjoint 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 ofthe
Lease Documents by the members ofthe 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 ofnotice 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
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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 ofthe 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 ofthe 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 ofthe
Leasing Group in existence as ofthe date hereofis 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 ofthe Leasing Group, would
materially adversely affect the ability ofany ofthe foregoing to
perform their respective obligations under the Lease Documents;
(b) against or affecting the Leased Property or the ownership,
constnzction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof; or
(c) which may involve or affect the validity, priority or
enforceability ofany ofthe Lease Documents, at law or in equity,
or before or by any arbitrator or Governmental Authority.
10.1.7 Intentionallv deleted.
10.1.8 Commercial Acts. Lessee's performance ofand 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 Capitah 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 ofthe Lease Documents); and
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(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 ofthe Leasing Group which
exists as ofthe date hereofhas 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 ofthe Leasing Group. No
tax liability has been asserted by the Internal Revenue Service
against any member ofthe 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 ofthose already paid.
10.1.13 Financials Complete and Accurate. The financial statements
ofeach member ofthe Leasing Group given to Lessor in connection
with the execution and delivery ofthe Lease Documents were true,
complete and accurate, in all material respects, and fairly
presented the financial condition ofeach such member ofthe 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 fnancial 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 ofthe 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.
(a) There is no action or investigation pending or, to the best
knowledge and beliefof 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 ofthe 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 ofthe 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 ofthe Leasing Group for services rendered to
beneficiaries of Third Party Payor Programs.
(b) Neither the Facility nor any member ofthe Leasing Group has
received any notice of any claim, requirement or demand of any
Govemmental Authority, Accreditation Body, Third Party Payor or
any insurance body having or claiming any licensing, certifying,
supervising, evaluating or accrediting authority over the Leased
Property to rework or redesign the Leased Property, its
professional staff or its professional services, procedures or
practices in any material respect or to provide additional
furniture, fixtures, equipment or inventory or to otherwise take
action so as to make the Leased Property conform to or comply with
any Legal Requirement;
(c) The most recent utilization reviews, if any, relating to the
Leased Property by all applicable Third Party Payors,
Accreditation Bodies and Governmental Authorities and all
applicable reviews or scrutiny by any managed care or utilization
review companies, if any, have not had a material adverse impact
on the utilization of units or programs at any of the Leased
Property. No claims or assertions have been made in any
utilization review that any ofthe 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
48
<PAGE>
Leased Property, issued by any Governmental Authority or
Accreditation Body during the most recent licensing period,
together with all plans ofcorrection relating thereto.
10.1.15 Compliance with Legal and Other Requirements.
(a) To the extent consistent with the stage of construction of
the Proj ect, 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 ofany
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 ofthe Project.
(b) Except as previously delivered to Lessor pursuant to Section
10.1.14(d) hereof, there are no outstanding notices
ofdeficiencies, 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 ofthe
accreditation of the Facility by any applicable Accreditation Body
after any next regularly scheduled inspections.
10.1.16 No Action By Governmental Authority or Accreditation Body.
There is no action pending or, to the best knowledge and belief of
Lessee, recommended, by any Governmental Authority, Accreditation
Body to revoke, repeal, cancel, modify, withdraw or suspend any
Permit or Contract or to take any other action of any other type
which could have a material adverse effect on the Leased Property.
10.1.17 Property Matters.
(a) The Leased Property is free and clear of agreements,
covenants and Liens, except those agreements, covenants and Liens
to which this Lease is expressly subject, whether presently
existing, as are listed on EXHIBIT B or were listed on the UCC
lien search results delivered to Lessor at or prior to the
execution and delivery of this Lease (and were not required to be
terminated as a condition ofthe 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
49
<PAGE>
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 ofthe 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 ofthe Leased Property or the Collateral;
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 ofthe same tax parcel as any part ofthe Leased
Property;
(h) All utilities necessary for the use and operation ofthe
Facility are available to the lot lines ofthe Leased Propezty:
(i) in sufficient supply and capacity;
(ii) through validly created and existing easements ofrecord
appurtenant to or encumbering the Leased Property (which easements
shall not impede or restrict the operation ofthe 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.
50
10.1.18 Third Parhr 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
ofwelfare, free or charity care or discounted or government
assisted resident care.
10.1.21 No Proposed Changes. Lessee has no actual knowledge ofany
applicable Legal Requirements which have been enacted, promulgated
or issiied within the eighteen (18) months preceding the date
ofthis 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
ofthe 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 ofneed, 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 ofthe Leasing Group has any accumulated funding deficiency
within the meaning ofthe ERISA, nor does any member ofthe 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 ofthe Internal Revenue Code of 1986, as now or
hereafter amended, respectively.
10.1.23 No Broker. No member ofthe Leasing Group nor any oftheir
respective Affiliates has dealt with any broker or agent in
connection with the transactions contemplated by the Lease
Documents.
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<PAGE>
10.1.24 No Improper Payments. No member ofthe Leasing Group nor
any oftheir respective Affiliates has:
(a) made any contributions, payments or gifts of its funds or
property to or for the private use of any govemment official,
employee, agent or other Person where either the payment or the
purpose of such contribution, payment or gifts is illegal under
the laws ofthe United States, any state thereofor 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 ofthe 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, fumished to or to be furnished to Lessor or its
attorneys in connection with the transactioiis 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, ofany member ofthe 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 ofpurchasing or carrying
margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), and no part ofthe
proceeds ofthe Meditrust Investment will be used to purchase or
carry any margin security or to extend credit to others for the
purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation ofany ofthe
regulations o the Board of Governors of the Federal Reserve
System. Lessee is not an
52
<PAGE>
"investment company" within the meaning ofthe Investment Company
Act of 1940, as amended.
10.1.27 No Default. No event or state offacts 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
ofbusiness 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 ofthe 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 ofthis 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, I
0.1.8,10. I.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 ofthis Lease but without derogation ofany
other obligation Lessee has under this Lease to provide
information to Lessor.
53
ARTICLE 11
FINANCIAL AND OTHER COVENANTS
<PAGE>
11.1 Status Certifcates. 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 Offcer'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
modifcations) 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
moitgagee ofthe 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 oftheir respective fiscal years, (i) a copy ofthe
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 ofthe last day of such fiscal year and a
statement of earnings from the Leased Property for such fscal year
showing, among other things, all rents and other income therefrom
and all expenses paid or incurred in connection with the operation
ofthe 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 repoitable conditions or
material weaknesses; (iv) a statement certified as true and
correct by Lessee setting forth all Subleases as ofthe last day of
such fiscal year, the respective areas demised thereunder, the
names of the
54
<PAGE>
Sublessees thereunder, the respective expiration dates ofthe
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 ofeach calendar month
during the pendency of this Lease, (i) a statement certified as
true and correct by Lessee setting forth the Gross Revenues ofthe
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 ofcare required and source ofpayment) 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 ofeach 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 ofthe
Additional Rent payable for such quarter.
(d) QuarterlJr 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.
55
PAGE>
(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 ofbusiness.
(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 ofany 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
ofbusiness) 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 ofthe 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 fve (5) days after the occurrence ofany 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
56
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 (1D)
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.
(1) 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 ofthe books of Lessee and,
ifrequested by Lessor, any letter ofcomments 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 ofthe
Manager which has, or is reasonably likely to have, a materially
adverse effect on the financial condition and/or operations ofthe
Facility;
(iv) any controversy that calls into question the eligibility
ofthe 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
57
<PAGE>
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
ofany member ofthe 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 ofall 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 ofthe 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 certifcate,
instrument, notice or other document shall be signed by the chief
financial officer of such member.
58
<PAGE>
11.2.3 No Material Omission. No certificate, instrument, notice or
other document, including without limitation, any fnancial
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
ofthe Leased Property or any ofthe Lease Documents or any interest
therein and (b) use such information in any litigation or
arbitration proceeding between Lessor and any member ofthe 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 IS 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 ofany such information ofthe 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 ofthe
Leased Property:
11.3.1 Debt Coverage Ratio of Lessee. From and after the second
anniversary ofthe Conversion Date until the fourth anniversary
thereof, the Facility and all other Group Two Development
Facilities shall maintain for each Fiscal Quarter an aggregate
Debt Coverage Ratio equal to or greater than 1.1 to 1 and from and
after the fourth anniversary thereof and for the remainder of the
Term, the Facility and all other Group Two Development Facilities
shall maintain for each Fiscal Quarter an aggregate Debt Coverage
Ratio equal to or greater than 1.2 to 1.
11.3.2 Intentionallv Deleted.
11.3.3 Intentionally Deleted.
11.3.4 Intentionallv Deleted.
59
<PAGE>
11.3.5 Current Ratio - Guarantor. From and after December 31,1999
and for the remainder ofthe Term, the Guarantor shall maintain a
ratio of Consolidated Current Assets to Consolidated Current
Liabilities equal to or greater than 1 to I as of the end of each
fscal year.
11.3.6 Intentionallv Deleted.
11.3.7 Net Worth - Guarantor. The Guarantor shall maintain, at all
times, a Net Worth ofnot less than FORTY MILLION DOLLARS
($40,000,000).
11.3.8 No Indebtedness. Lessee shall not create, incur, assume or
suffer to exist any liability for borrowed money except (i)
Indebtedness to Lessor under the Lease Documents and, (ii)
Impositions allowed pursuant to the provisions of the Lease, (iii)
unsecured normal trade debt incurred upon customary terms in the
ordinary course of business, (iv) Indebtedness created in
connection with any fnancing 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
Affliate, 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 ofthe Leased Property, on account
ofpurchase money indebtedness or fnance lease arrangements, each
ofwhich shall not exceed the fair market value ofthe 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 ofany other Person, except by the
endorsement ofnegotiable 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 Ternz 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
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shall keep in effect its existence and rights as a corporation,
trust or partnership under the laws ofthe state ofits
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 ofthe
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 an_d (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 ofaccounts 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 ofthe 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 ofthe
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
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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 ceitificate 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 ofthe 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 ofthe 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 ofnotice or the passage oftime, 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 ofsuch
testing or inspection shall be the responsibility of Lessor.
11.4.10 Annual Facilihr 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
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cause to be furnished to Lessor evidence satisfactory to Lessor
that Lessee has fulfilled its obligation to rriake the Annual
Facility Upgrade Expenditure within ninety (90) days after the end
of Lessee's fscal year, provided, however, that no such evidence
shall be required to be submitted and no such expenditure shall be
required to be made until the fourth Lease Year.
11.5 Additional Negative Covenants. Lessee covenants and agrees
that, throughout the Term and such time as Lessee remains in
possession ofthe Leased Property:
11.5.1 Restrictions Relating to Lessee. Except as may otherwise be
expressly provided in Section 19.4 or in any ofthe 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 6.12 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
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(c) liquidate, dissolve or merge or consolidate with any other
Person except, subject to Lessor's prior written consent, which
consent shall not be unreasonably withheld, a Meditrust/Emeritus
Transaction Affiliate.
11.5.2 No Liens. Lessee will not directly or indirectly create or
allow to remain and will promptly discharge at its expense any
Lien, title retention agreement or claim upon or against the
Leased Property (including Lessee's interest therein) or Lessee's
interest in this Lease or any of the other Lease Documents, or in
respect of the Rent, excluding (a) this Lease and any permitted
Subleases, (b) the Permitted Encumbrances, (c) Liens which are
consented to in writing by Lessor, (d) Liens for those taxes of
Lessor which Lessee is not required to pay hereunder, (e) Liens of
mechanics, laborers, materialmen, suppliers or vendors for sums
either not yet due or being contested in strict compliance with
the terms and conditions of Article 15, (f) any Liens which are
the responsibility of Lessor pursuant to the provisions of Article
20, (g) Liens for Impositions which are either not yet due and
payable or which are in the process of being contested in strict
compliance with the terms and conditions of Article I 5 (h) the
Liens incurred pursuant to the provisions of Section 6. I.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 inseparable
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 1 I.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
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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 h as 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 venture,
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 herein
above 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 I 1.5.4. The existence
ofany 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
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having jurisdiction over this Lease, by reason of being vague or
unreasonable as to duration, or geographic scope or scope of
activities restricted, or for any other reason, such covenants
shall be considered divisible as to such portion and such
covenants shall be immediately amended and reformed to include
only such covenants as are deemed reasonable and enforceable by
the court having jurisdiction over this Lease to the full
duration, geographic scope and scope of restrictive activities
deemed reasonable and thus enforceable by said court; and the
parties agree that such covenants as so amended and reformed,
shall be valid and binding as through the invalid or unenforceable
portion has not been included therein.
The provisions of this Section 11.5.4 shall survive the
termination of the Lease and any satisfaction of the Lease
Obligations in connection therewith or subsequent thereto. The
parties hereto acknowledge and agree that any Purchaser may
enforce the provisions of this Section I 1.5.4 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
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calculation of Additional Rent and the financial covenants
contained herein as Lessor shall reasonably require to make the
same consistent in result with the calculation thereof immediately
prior to such change, modification or alteration.
ARTICLE 12
INSURANCE AND INDEMNITY
12.1 General Insurance Requirements. During the Term of this Lease
and thereafter until Lessee surrenders the Leased Property in the
manner required by this Lease, Lessee shall at its sole cost and
expense keep the Leased Property, the Tangible Personal Property
located thereon and the business operations conducted on the
Leased Property insured as set forth below.
12.1.1 Types and Amounts of Insurance. Lessee's insurance shall
include the following:
(a) property loss and physical damage insurance on an all-risk
basis (with only such exceptions as Lessor may in its reasonable
discretion approve) covering the Leased Property (exclusive of
Land) for its full replacement cost, which cost shall be reset
once a year at Lessor's option, with an agreed-amount endorsement
and a deductible not in excess of TWENTY FIVE THOUSAND DOLLARS
($25,000). Such insurance shall include, without limitation, the
following coverages: (i) increased cost of construction, (ii) cost
of demolition, (iii) the value of the undamaged portion of the
Facility and (iv) contingent liability from the operation of
building laws, less exclusions provided in the normal "All Risk"
insurance policy. During any period of construction, such
insurance shall be on a builder's-risk, completed value, non-
reporting form (including all risk and extended coverage,
collapse, cost of demolition, increased cost of construction and
value of undamaged portion of the improvements protection) with
permission to occupy;
(b) flood insurance (if the Leased Property or any portion thereof
is situated in an area which is considered a flood risk area by
the U.S. Department of Housing and Urban Development or any future
governmental authority charged with such flood risk analysis in
the future) in limits reasonably acceptable to Lessor and subject
to the availability of such flood insurance;
(c) boiler and machinery insurance (including related electrical
apparatus and components) under a standard comprehensive form,
providing coverage against loss or damage caused by explosion of
steam boilers, pressure vessels or similar vessels, now or
hereafter installed on the Leased Property, in limits acceptable
to Lessor;
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(d) earthquake insurance (if reasonably deemed necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(e) environmental impairment liability insurance (ifavailable 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
coverage commonly found in the Broad Form Commercial Liability
Endorsements with amounts not less than FIVE MILLION DOLLARS
($5,000,000) per occurrence with respect to bodily injury and
death and THREE MILLION DOLLARS ($3,000,000) for property damage
and with all limits based solely upon occurrences at the Leased
Property without any other impairment;
(h) From and after the Conversion Date: professional liability
insurance in an amount not less than TEN MILLION DOLLARS
($10,000,000) for each medical incident;
(i) physical damage insurance on an all-risk basis (with only such
exceptions as Lessor in its reasonable discretion shall approve)
covering the Tangible Personal Property for the full replacement
cost thereof and with a deductible not in excess of one percent
(1"%) of the full replacement cost thereof;
(j) From and after the Conversion Date and prior thereto with
respect to Persons employed on the Leased Property or any portion
thereof prior to the Conversion Date, "Workers' Compensation and
Employers' Liability Insurance providing protection against all
claims arising out of injuries to all employees of Lessee or of
any Sublessee (employed on the Leased Property or any portion
thereof in amounts equal for Workers' Compensation, to the
statutory benefits payable to employees in the State and for
Employers' Liability, to limits of not less than ONE HUNDRED
THOUSAND DOLLARS ($100,000) for injury by accident, ONE HUNDRED
THOUSAND DOLLARS ($100,000) per employee for disease and FIVE
HUNDRED THOUSAND DOLLARS ($500,000) disease policy limit;
(k) subsidence insurance (if deemed necessary by Lessor) in limits
acceptable to Lessor; and
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(1) such other insurance as Lessor from time to time may
reasonably require and also, as may from time to time be required
by applicable Legal Requirements and/or by any Fee Mortgagee.
12.1.2 Insurance Company Requirements. All such insurance
required by this Lease or the other Lease Documents shall be
issued and underwritten by insurance companies licensed to do
insurance business by, and in good standing under the laws of, the
State and which companies have and maintain a rating of A:X or
better by A.M. Best Co.
12.1.3 Policy Requirements. Every policy of insurance from time to
time required under this Lease or any of the other Lease Documents
(other than worker's compensation) shall name Lessor as owner,
loss payee, secured party (to the extent applicable) and
additional named insured as its interests may appear. I fan
insurance policy covers properties other than the Leased Property,
then Lessor shall be so named with respect only to the Leased
Property. Each such policy, where applicable or appropriate,
shall:
(a) include an agreed amount endorsement and loss payee,
additional named insured and secured party endorsements, in forms
acceptable to Lessor in its reasonable discretion;
(b) include mortgagee, secured party, loss payable and additional
named insured endorsements reasonably acceptable to each Fee
Mortgagee;
(c) provide that the coverage may not be canceled or materially
modified except upon thirty (30) days' prior written notice to
Lessor and any Fee Mortgagee;
(d) be payable to Lessor and any Fee Mortgagee notwithstanding any
defense or claim that the insurer may have to the payment of the
same against any other Person holding any other interest in the
Leased Property;
(e) be endorsed with standard noncontributory clauses in favor of
and in form reasonably acceptable to Lessor and any Fee Mortgagee;
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.
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12.1.4 Notices. Certificates and Policies. Lessee shall promptly
provide to Lessor copies of any and all notices (including notice
of non-renewal), claims and demands which Lessee receives from
insurers of the Leased Property. At least ten ( 10) days prior to
the expiration of any insurance policy required hereunder, Lessee
shall deliver to Lessor certificates and evidence of insurance
relating to all renewals and replacements thereof, together with
evidence, satisfactory to Lessor, of payment of the premiums
thereon. Lessee shall deliver to Lessor original counterparts or
copies certified by the insurance company to be true and complete
copies, of all insurance policies required hereunder not later
than ten ( 10) days after receipt thereof by Lessee. Lessee shall
use its best efforts to obtain such counterparts or copies within
ninety (90) days after the effective date of each such policy.
12.1.5 Lessor's Right to Place Insurance. If Lessee shall fail to
obtain any insurance policy required hereunder by Lessor, or shall
fail to deliver the certificate and evidence of insurance relating
to any such policy to Lessor, or if any insurance policy required
hereunder (or any part thereof shall expire or be canceled or
become void or voidable by reason of any breach of any condition
thereof, or if Lessor reasonably determines that such insurance
coverage is unsatisfactory by reason of the failure or impairment
of the capital of any insurance company which wrote any such
policy, upon demand by Lessor, Lessee shall promptly but in any
event in not more than ten (10) days thereafter obtain new or
additional insurance coverage on the Leased Property, or for those
risks required to be insured by the provisions hereof,
satisfactory to Lessor, and, in the event Lessee fails to perform
its obligations under this Section and at its option, Lessor may
obtain such insurance and pay the premium or premiums therefor; in
which event, any amount so paid or advanced by Lessor and all
costs and expenses incurred in connection therewith (including,
without limitation, reasonable attorneys' fees and expenses and
court costs), shall be a demand obligation of Lessee to Lessor,
payable as an Additional Charge.
12.1.6 Payment of Proceeds. All insurance policies required
hereunder (except for general public liability, professional
liability and workers' compensation and employers liability
insurance) shall provide that in the event of loss, injury or
damage, subject to the rights of any Fee Mortgagee, all proceeds
shall be paid to Lessor alone (rather than jointly to Lessee and
Lessor). Lessor is hereby authorized to adjust and compromise any
such loss with the consent of Lessee or, following any Lease
Default, whether or not cured, without the consent of Lessee, and
to collect and receive such proceeds in the name of Lessor and
Lessee, and Lessee appoints Lessor (or any agent designated by
Lessor) as Lessee's attorney-in-fact with full power of
substitution, to endorse Lessee's name upon any check in payment
thereof. Subject to the provisions of Article 13, such insurance
proceeds shall be applied first toward reimbursement of all costs
and expenses reasonably incurred by Lessor in collecting said
insurance proceeds, then toward payment of the Lease Obligations
or any portion thereof, which have not been paid when due and
payable or within any applicable cure period, in such order as
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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. I,
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 willful
misconduct.
12.1.8 Blanket Policies. Notwithstanding anything to the
contrary contained herein, Lessee's obligations to carry the
insurance provided for herein may be brought within the coverage
of a so-called blanket policy or policies of insurance carried and
maintained by Lessee and its Affiliates; provided, however, that
the coverage. afforded to Lessor shall not be reduced or
diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this
Lease by reason of the use of such blanket policy of insurance,
and provided, further that the requirements of Section 12.1 are
otherwise satisfied.
12.1.9 No Separate Insurance. Lessee shall not, on Lessee's own
initiative or pursuant to the request or requirement of any other
Person, take out separate insurance concurrent in form or
contributing in the event of loss with the insurance required
hereunder to be furnished by Lessee, or increase the amounts of
any then existing insurance by securing an additional policy or
additional policies, unless (a) all parties having an insurable
interest in the subject matter of the insurance, including Lessor,
are included therein as additional insureds and (b) losses are
payable under said insurance in the same manner as losses are
required to be payable under this Lease. Lessee shall immediately
notify Lessor of the taking out of any such separate insurance or
of the increasing of any of the amounts of the then existing
insurance by securing an additional insurance policy or policies.
12.1.10 Assignment of Unearned Premiums. Lessee hereby assigns to
Lessor all rights of Lessee in and to any unearned premiums on any
insurance policy required hereunder to be furnished by Lessee
which may become payable or are refundable after the occurrence of
an Event of Default hereunder, which premium, upon receipt
thereof, Lessor shall at Lessor's option apply toward the Lease
Obligations or hold as security therefor. In the event that this
Lease is terminated for any reason (other than the purchase of the
Leased Property by Lessee), the insurance policies required to be
maintained hereunder, including all right, title and interest of
Lessee thereunder, shall
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become the absolute property of Lessor subject to any limitation
on assignment provided for therein.
12.2 Indemnity.
12.2.1 Indemnification. Except with respect to the gross
negligence or willful misconduct of Lessor or any of the other
Indemnifed 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
ofthe 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
ofthe 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, ( any
attempt by any member of the Leasing Group or any Affiliate of
Lessee to transfer or relocate any of the Permits to any location
other than the Leased Property, and/or (g) the enforcement of this
indemnity. Any amounts which become payable by Lessee under this
Section 12.2.1 shall be a demand obligation of Lessee to Lessor,
payable as an Additional Charge. The indemnity provided for in
this Section 12.2.1 shall survive any termination of this Lease.
12.2.2 Indemnified Parties. As used in this Lease the term
"Indemnified Parties" shall mean the Meditrust Entities, any Fee
Mortgagee and their respective successors, assigns, employees,
servants, agents, attorneys, officers, directors, shareholders,
partners and owners.
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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,
(the actions, omissions or misconduct of any other Person, (g)
damage to any property, or (h) any damage from the flow or leaking
of water, rain or snow. All Tangible Personal Property and the
personal property of any other Person on the Leased Property shall
be at the sole risk of Lessee and Lessor shall not in any manner
be held responsible therefor (except in the event of loss caused
by the gross negligence or willful misconduct of Lessor).
Notwithstanding the foregoing, Lessor shall not be released from
liability for any injury, loss, damage or liability suffered by
Lessee to the extent caused directly by the gross negligence or
willful misconduct of Lessor, its servants, employees or agents
acting within the scope of their authority on or about the Leased
Property or in regards to the Lease; provided, however, that in no
event shall Lessor, its servants, employees or agents have any
liability based on any loss for any indirect or consequential
damages.
12.2.4 Risk of Loss. During the Term of this Lease, the risk of
loss or of decrease in the enjoyment and beneficial use of the
Leased Property in consequence of any damage or destruction
thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, levies or executions
of Liens (other than those created by Lessor in accordance with
the provisions of Article 20) is assumed by Lessee and, in the
absence of the gross negligence or willful misconduct as set forth
in Section 12.2.3, Lessor shall in no event be answerable or
accountable therefor (except for the obligation to account for
insurance proceeds and Awards to the extent provided for in
Articles 13 and 14) nor shall any of the events mentioned in this
Section entitle Lessee to any abatement of Rent (except for an
abatement, if any, as specifically provided for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 Restoration Following Fire or Other Casualty.
13.1.1 Following Fire or Casualty. In the event of any damage or
destruction to the Leased Property by reason of fire or other
hazard or casualty (a
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"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 ofthe
Casualty.
13.1.2 Procedures. In the event that any Casualty results in
non-structural damage to the Leased Property in excess of FIFTY
THOUSAND DOLLARS ($50,000) or in any structural damage to the
Leased Property, regardless of the extent of such structural
damage, prior to commencing the Work, Lessee shall comply with the
following requirements :
(a) Lessee shall furnish to Lessor complete plans and
specifications for the Work (collectively and as the same may be
modified and amended from time to time pursuant to the terms
hereof, the "Plans and Specifications"), for Lessor's approval, in
each instance, which approval shall not be unreasonably withheld.
The Plans and Specifications shall bear the signed approval
thereof by an architect, licensed to do business in the State,
reasonably satisfactory to Lessor (in the event Lessor reasonably
determines that the Work is of a nature for which the .
involvement of an architect is appropriate) and shall be
accompanied by a written estimate from the architect, bearing the
architect's seal, of the entire cost of completing the Work, and
to the extent feasible, the Plans and Specifications shall provide
for Work of such nature, quality and extent, that, upon the
completion thereof, the Leased Property shall be at least equal in
value and general utility to its value and general utility prior
to the Casualty and shall be adequate to operate the Leased
Property for the Primary Intended Use and, if applicable, the
Other Permitted Uses;
(b) Lessee shall furnish to Lessor certified or photostatic copies
of all Permits and Contracts required by all applicable Legal
Requirements in connection with the commencement and conduct of
the Work to the extent the same can be secured in the ordinary
course prior to the commencement of construction;
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(c) Lessee shall furnish to Lessor a cash deposit or a payment and
performance bond sufficient to pay for completion of and payment
for the Work in an amount not less than the architect's estimate
of the entire cost of completing the Work, less the amount of
property insurance proceeds (net of costs and expenses incurred by
Lessor in collecting the same), if any, then held by Lessor and
which Lessor shall be required to apply toward restoration ofthe
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 I 2.
I 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 ofthis 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:
(a) Prior to the commencement of any Work, Lessee shall have
received Lessor's written approval ofthe 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
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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 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;
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(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 (I 0) days prior to the making of the first and
final advances (or revised to a date within ten (10) days prior to
each such advance) showing no encroachments other than such
encroachments, if any, by the 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
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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
often percent (l0%) as to all hard costs of the Work (the
"Retainage"). It is understood that the Retainage is intended to
provide a contingency fund to assure Lessor that the Work shall be
fully completed in accordance with the Plans and Specifications
and the requirements of Lessor. Upon the full and final completion
of all of the Work in accordance with the provisions hereof, the
Retainage shall be made available for payment to those Persons
entitled thereto.
Upon completion of the Work, and as a condition precedent to
making any further advance, in addition to the requirements set
forth above, Lessee shall promptly deliver to Lessor:
(i) if applicable, written certificates of the architect or
engineer, bearing the architect's or engineer's seal, and the
general contractor, certifying that the Work has been fully
completed in a good and workmanlike manner in material compliance
with the Plans and Specifications and all applicable Legal
Requirements;
(ii) an endorsement of its title insurance policy (relating to the
Leased Property) in form reasonably acceptable to Lessor insuring
the Leased
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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. I, Lessor shall pay
the Retainage to Lessee or to those Persons entitled thereto and
if there shall be insurance proceeds or cash deposits, other than
the Retainage, held by Lessor in excess of the amounts disbursed
pursuant to the foregoing provisions, then provided that no Lease
Default has occurred and is continuing, nor any state of facts or
circumstances which, with the giving of notice and/or the passage
of time would constitute a Lease Default, Lessor shall pay over
such proceeds or cash
deposits to Lessee.
No inspections or any approvals of the Work during or after
construction shall constitute a warranty or representation by
Lessor, or any of its agents or Consultants, as to the technical
sufficiency, adequacy or safety of any structure or any of its
component parts, including, without limitation, any fixtures,
equipment or furnishings, or as to the subsoil conditions or any
other physical condition or feature pertaining to the Leased
Property. All acts, including any failure to act, relating to
Lessor are performed solely for the benefit of Lessor to assure
the payment and performance of the Lease Obligations and are not
for the benefit of Lessee or the benefit of any other Person.
13.2 Disposition of Insurance Proceeds.
13.2.1 Proceeds To Be Released to Pay For Work. In the event of
any Casualty, except as provided for in Section 13.2.2, Lessor
shall release proceeds of property insurance held by it to pay for
the Work in accordance with the provisions and procedures set
forth in this Article 13, only if:
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(a) all of the terms, conditions and provisions of Sections 13. I
and 13.2.1 are satisfied;
(b) Lessee demonstrates to Lessor's satisfaction that Lessee has
the financial ability to satisfy the Lease Obligations during such
repair or restoration; and
(c) no Sublease material to the operation of the Facility
immediately prior to such damage or taking shall have been
canceled or terminated, nor contain any still exercisable right to
cancel or terminate, due to such Casualty if and to the extent
that the income from such Sublease is necessary in order to avoid
the violation of any of the financial covenants set forth in this
Lease or otherwise to avoid the creation of an Event of Default.
If a Fee Mortgagee prevents Lessor from releasing proceeds of
property insurance notwithstanding the satisfaction of the
foregoing requirements, Lessee shall have no obligation to restore
the Casualty to which such proceeds pertain.
13.2.2 Proceeds Not To Be Released. If, as the result of any
Casualty, the Leased Property is damaged to the extent it is
rendered Unsuitable For Its Primary Intended Use and if either:
(a) Lessee, after exercise of diligent efforts, cannot within a
reasonable time (not in excess of ninety (90) days) obtain all
necessary Permits in order to be able to perform all required Work
and to again operate the Facility for its Primary Intended Use
and, if applicable, the Other Permitted Uses within two hundred
and seventy (?70) days from the occurrence of the damage or
destruction in substantially the manner as immediately prior to
such damage or destruction or (b) such Casualty occurs during the
last twenty-four (24) months of the Term and would reasonably
require more than nine (9) months to obtain all Permits and
complete the Work, then Lessee may either (i) acquire the Leased
Property from Lessor for a purchase price equal to the greater of
(x) the Meditrust Investment or (y) the Fair Market Value of the
Leased Property minus the Fair Market Added Value, with the Fair
Market Value and the Fair Market Added Value to be determined as
of the day immediately prior to such Casualty and prior to any
other Casualty which has not been fully repaired, restored or
replaced, in which event, Lessee shall be entitled upon payment of
the full purchase price to receive all property insurance proceeds
(less any costs and expenses incurred by Lessor in collecting the
same), or (ii) terminate this Lease, in which event (subject to
the provisions of the last sentence of this Section 13.2.2) Lessor
shall be entitled to receive and retain the insurance proceeds;
provided, however, that Lessee shall only have such right of
termination effective upon payment to Lessor of all Rent and 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
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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 (I
15"%) of the Fair Market Value of the Leased Premises at the time
of such termination, Lessor shall pay to Lessee fifty percent
(50%) of the amount of such excess.
13.3 Tangible Personal Property. All insurance proceeds payable by
reason of any loss of or damage to any of the Tangible Personal
Property shall be paid to Lessor as secured party, subject to the
rights of the holders of any Permitted Prior Security Interests,
and, thereafter, provided that no Lease Default, nor any fact or
circumstance which with the giving of notice and/or the passage of
time could constitute a Lease Default, has occurred and is
continuing, Lessor shall pay such insurance proceeds to Lessee to
reimburse Lessee for the cost of repairing or replacing the
damaged Tangible Personal Property, subject to the terms and
conditions set forth in the other provisions of this Article 13,
mutatis mutandis.
13.4 Restoration of Certain Improvements and the Tangible Personal
Property. If Lessee is required or elects to restore the Facility,
Lessee shall either (a) restore (i) all alterations and
improvements to the Leased Property made by Lessee and (ii) the
Tangible Personal Property or (b) replace such alterations and
improvements and the Tangible Personal Property with improvements
or items of the same or better quality and utility in the
operation of the Leased Property provided, however, that Lessee
shall be obligated to so restore or replace the Tangible Personal
Property only to the extent desirable for the prudent operation of
the Facility in the good faith exercise of commercially reasonable
business judgment.
13.5 No Abatement of Rent. In no event shall any Rent abate as a
result of any Casualty except as expressly provided in Section
3.7.
13.6 Termination of Certain Rights. Any termination of this Lease
pursuant to this Article I 3 shall cause any right of Lessee to
extend the Term of this Lease granted to Lessee herein and any
right of Lessee to purchase the Leased Property contained in this
Lease to be terminated and to be without further force or effect.
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13.7 Waiver. Lessee hereby waives any statutory rights of
termination which may arise by reason of any damage or destruction
to the Leased Property due to any Casualty which Lessee is
obligated to restore or may restore under any of the provisions of
this Lease.
13.8 Application of Rent Loss and/or Business Interruption
Insurance. Lessor shall direct all proceeds of rent loss and/or
business interruption insurance (collectively, "Rent Insurance
Proceeds") to be paid to Lessee, provided no fact or circumstance
exists which constitutes, or with notice, or passage of time, or
both, would constitute, a Lease Default pertaining to the Facility
or the Leased Property. If a Lease Default or such fact or
circumstance exists, Lessor may rescind such direction and apply
all such insurance proceeds towards the Lease Obligations
pertaining to the Facility or the Leased Property or hold such
proceeds as security therefor.
13.9 Obligation To Account. Upon Lessee's written request, which
may not be made not more than once in any three (3) month period,
Lessor shall provide Lessee with a written accounting ofthe
application of all insurance proceeds received by Lessor.
ARTICLE 14
CONDEMNATION
14.1 Parties' Rights and Obligations. If during the Term there is
any Taking of all or any part of the Leased Property or any
interest in this Lease, the rights and obligations of the parties
shall be determined by this Article 14.
14.2 Total Taking. If there is a permanent Taking of all or
substantially all of the Leased Property, this Lease shall
terminate on the Date of Taking. In the event this Lease is
terminated pursuant to the provisions of this Section 14.2 and the
Award received by Lessor in connection therewith (net of costs and
expenses incurred in obtaining such Award) exceeds one hundred
fifteen percent ( I 15"%) of the Fair Market Value of the Leased
Premises at the time of such termination, Lessor shall pay to
Lessee fifty percent (SO%) of the amount of such excess.
14.3 Partial or Temporary Taking. If there is a Permanent Taking
of a portion of the Leased Property, or if there is a temporary
Taking of all or a portion of the Leased Property, this Lease
shall remain in effect so long as the Leased Property is not
thereby rendered permanently Unsuitable For Its Primary Intended
Use or temporarily Unsuitable For Its Primary Intended Use for a
period not likely to, or which does not, exceed two hundred and
seventy (270) days. If, however, the Leased Property is thereby so
rendered permanently or temporarily Unsuitable For Its Primary
Intended Use: (a) if only rendered temporarily Unsuitable For Its
Primary Intended Use, Lessee shall have the right to restore the
Leased Property, at its our 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
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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 I 8; in which event, this
Lease shall terminate upon payment of such purchase price and the
consummation of such acquisition. Notwithstanding the foregoing,
Lessor may overrule Lessee's election under clause (a) or (b) and
instead either (1) terminate this Lease (with no obligation on the
part of Lessee to acquire the Leased Property as a result thereof
as of the date when Lessee is required to surrender possession of
the portion of the Leased Property so taken if (X) such portion
comprises more than thirty percent (30"%) of the Leased Property
or of the residential building(s) located thereon or (in
possession thereof is to be surrendered within two years of the
expiration of the Term or (2) compel Lessee to keep the Lease in
full force and effect and to restore the Leased Property as
provided in clause (a) above, but only if the Leased Property may
be operated for at least eighty percent (80%) of the licensed unit
capacity of the Facility in effect prior to the Taking. Lessee
shall exercise its election under this Section I 4.3 by giving
Lessor notice thereof ("Lessee's Election Notice") within. sixty
(60) days after Lessee receives notice of the Taking. Lessor shall
exercise its option to overrule Lessee's election under this
Section 14.3 by giving Lessee notice of Lessor's exercise of its
rights under Section 14.3 within thirty (30) days after Lessor
receives Lessee's Election Notice. If, as the result of any such
partial or temporary Taking, this Lease is not terminated as
provided above, Lessee shall be entitled to an abatement of Rent,
but only to the extent, if any, provided for in Section 3.7,
effective as of the date upon which the Leased Property is
rendered Unsuitable For Its Primary Intended Use.
14.4 Restoration. If there is a partial or temporary Taking of the
Leased Property and this Lease remains in full force and effect
pursuant to Section 14.3, Lessee shall accomplish all necessary
restoration and Lessor shall release the net proceeds of such
Award to reimburse Lessee for the actual reasonable costs and
expenses thereof, subject to all of the conditions and provisions
set forth in Article 13 as though the Taking was a Casualty and
the Award was insurance proceeds. If the cost of the restoration
exceeds the amount of the Award (net of costs and expenses
incurred in obtaining the Award), Lessee shall be obligated to
contribute any excess amount needed to restore the Facility or pay
for such costs and expenses. To the extent that the cost of
restoration is less than the amount of the Award (net of cost and
expenses incurred in obtaining the Award), the remainder of the
Award shall be retained by Lessor and Rent shall be abated as set
forth in Section 3.7.
14.5 Award Distribution. In the event Lessee completes the
purchase of the Leased Property, as described in Section 14.3, the
entire Award shall, upon payment of the purchase price and all
Rent and other sums due under this Lease and the other Lease
Documents, belong to Lessee and Lessor agrees to assign to Lessee
all of Lessor's rights thereto or, to the extent Lessor has
received payment of the Award, the amount of such payment shall be
credited against the
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purchase price. In any other event, the entire Award (except for
such portion thereof which the Condemnor designates as allocable
to Lessee's loss of business or Tangible Personal Property) shall
belong to and be paid to Lessor.
14.6 Control of Proceedings. Subject to the rights of any Fee
Mortgagee, unless and until Lessee completes the purchase of the
Leased Property as provided in Section 14.3, all proceedings
involving any Taking and the prosecution of claims arising out of
any Taking against the Condemnor shall be conducted, prosecuted
and settled by Lessor; provided, however, that Lessor shall keep
Lessee apprised of the progress of all such proceedings and shall
solicit Lessee's advice with respect thereto and shall give due
consideration to any such advice. In addition, Lessee shall
reimburse Lessor (as an Additional Charge) for all costs and
expenses, including reasonable attorneys' fees, appraisal fees,
fees of expert witnesses and costs of litigation or dispute
resolution, in relation to any Taking, whether or not this Lease
is terminated; provided, however, if this Lease is terminated as a
result of a Taking, Lessee's obligation to so reimburse Lessor
shall be diminished by the amount of the Award, if any, received
by Lessor which is in excess of the Meditrust Investment.
ARTICLE 15
PERMITTED CONTESTS
15.1 Lessee's Right to Contest. To the extent of the express
references made to this Article IS 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
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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, (Lessee shall give such cash security as
may be demanded in good faith by Lessor to insure ultimate payment
of any fine, penalty, interest or cost and to prevent any sale or
forfeiture of the affected portion of the Leased Property by
reason of such non-payment or non-compliance, (g) if such contest
is finally resolved against Lessor or any member of the Leasing
Group, Lessee shall promptly pay, as Additional Charges due
hereunder, the amount required to be paid, together with all
interest and penalties accrued thereon and/or comply (and cause
any Sublessee and any Manager to comply) with the applicable Legal
Requirement, and (h) no state of facts or circumstance exists
which constitutes, or with the passage of time and/or the giving
of notice, could constitute a Lease Default; provided, however,
but without limiting any other right Lessee may have under the
Lease Documents to contest the payment of Rent, the provisions of
this Article 15 shall not be construed to permit Lessee to contest
the payment of Rent or any other sums payable by Lessee to Lessor
under any of the Lease Documents. If such contest is finally
resolved in favor of Lessee, Lessee shall be entitled to any
refund resulting therefrom.
15.2 Lessor's Cooperation. Lessor, at Lessee's sole cost and
expense, shall execute and deliver to Lessee such authorizations
and other documents as may reasonably be_ required in any such
contest, so long as the same does not expose Lessor to any civil
or criminal liability, and, if reasonably requested by Lessee or
if Lessor so desires, Lessor shall join as a party therein.
15.3 Lessee's Indemnity. Lessee, as more particularly provided for
in Section 12.2, shall indemnify, defend (with counsel acceptable
to Lessor) and save Lessor harmless against any liability, cost or
expense of any kind, including, without limitation, attorneys'
fees and expenses that may be imposed upon Lessor in connection
with any such contest and any loss resulting therefrom and in the
enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 Events of Default. Each of the following shall constitute an
"Event of Default" hereunder and shall entitle Lessor to exercise
its remedies hereunder and under any of the other Lease Documents:
(a) any failure of Lessee to pay any amount due hereunder or
under any of the other Lease Documents within ten (10) days
following the date when such payment was due;
(b) any failure in the observance or performance of any other
covenant, term, condition or warranty provided in this Lease or
any of the other Lease Documents, other than the payment of any
monetary obligation and other than as specified in
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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;
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,
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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").
(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,
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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); .
(1) the occurrence of a Related Party Default;
(m) the occurrence of any default or breach of condition which is
not cured within any applicable cure period under a Working
Capital Loan secured by a Working Capital Stock Pledge (or any
documents executed in connection therewith) or the exercise of any
ownership rights by the lender of a Working Capital Loan secured
by a Working Capital Stock Pledge;
(n) except as a result of Casualty or a partial or complete
Condemnation (including a temporary taking), if Lessee or any
Sublessee ceases operation of the Facility for a period in excess
of thirty (30) days (a "Failure to Operate");
(o) if one or more judgments against Lessee or any Sublessee
which is an Affiliate of Lessee or attachments against Lessee's
interest or any such Sublessee's interest in the Leased Property,
which in the aggregate exceed TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000) or which may materially and adversely interfere with
the operation of the Facility, remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of thirty (30)
days;
(p) if any malpractice award or judgment exceeding any applicable
professional liability insurance coverage by more than FIVE
HUNDRED THOUSAND DOLLARS ($500,000) shall be rendered against any
member of the Leasing Group and either (i) enforcement proceedings
shall have been commenced by any creditor upon such award or
judgment or (ii) such award or judgment shall continue unsatisfed
and in effect
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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 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;
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(w) the occurrence of any default or breach of condition
continuing for more than thirty (30) days under any credit
agreement, loan agreement or other agreement establishing a major
line of credit (including, without limitation, a major line of
credit or a Working Capital Loan which is not secured by a Working
Capital Stock Pledge)(or any documents executed in connection with
such lines of credit) on behalf of Guarantor without regard to
whether the applicable creditor has elected to declare the
indebtedness due and payable under such line of credit or to
exercise any other right or remedy available to it or the
occurrence of any such default or breach of condition if the
applicable creditor has elected to declare the indebtedness due
and payable under such line of credit or to exercise any other
right or remedy available to it. For the purpose of this
provision, a major line of credit shall mean and include any line
of credit established in an amount equal to or greater than ONE
MILLION DOLLARS ($1,000,000) with respect to a line of credit for
which Guarantor is an obligor, endorser, surety or guarantor; or
16.2 Remedies.
(a) If any Lease Default shall have occurred, Lessor may at its
option terminate this Lease by giving Lessee not less than ten (
10) days' notice of such termination, or exercise any one or more
of its rights and remedies under this Lease or any of the other
Lease Documents, or as available at law or in equity and upon the
expiration of the time fixed in such notice, the Term shall
terminate (but only if Lessor shall have specifically elected by a
written notice to so terminate the Lease) and all rights of Lessee
under this Lease shall cease. Notwithstanding the foregoing, in
the event of Lessee's failure to pay Rent, if such Rent remains
unpaid beyond ten (10) days from the due date thereof, Lessor
shall not be obligated to give ten (10) days notice of such
termination or exercise of any of its other rights and remedies
under this Lease, or the other Lease Documents, or otherwise
available at law or in equity, and Lessor shall be at liberty to
pursue any one or more of such rights or remedies without further
notice. No taking of possession of the Leased Property by or on
behalf of Lessor, and no other act done by or on behalf of Lessor,
shall constitute an acceptance of surrender of the Leased Property
by Lessee or reduce Lessee's obligations under this Lease or the
other Lease Documents, unless otherwise expressly agreed to in a
written document signed by an authorized officer or agent of
Lessor.
(b) To the extent permitted under applicable law, Lessee shall pay
as Additional Charges all costs and expenses (including, without
limitation, attorneys' fee and expenses) reasonably incurred by or
on behalf of Lessor as a result of any Lease Default.
(c) If any Lease Default shall have occurred, whether or not this
Lease has been terminated pursuant to Paragraph (a) of this
Section, Lessee shall, to the extent permitted under applicable
law, if required by Lessor so to do, upon not less than ten ( 10)
days' prior notice from Lessor, immediately surrender to Lessor
the Leased Property pursuant to the provisions of Paragraph (a) of
this Section and quit the same, and Lessor may enter upon and
repossess the Leased Property by reasonable force, summary
proceedings, ejectment or otherwise, and may remove Lessee and all
other Persons and any and all of the Tangible Personal Property
from the
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Leased Property, subject to the rights of any residents of the
Facility and any Sublessees who are not Affiliates of any member
of the Leasing Group and to any requirements of applicable law, or
Lessor may claim ownership of the Tangible Personal Property as
set forth in Section 5.2.3 hereof or Lessor may exercise its
rights as secured party under the Security Agreement. Lessor shall
use reasonable, good faith efforts to relet the Leased Property or
otherwise mitigate damages suffered by Lessor as a result of
Lessee's breach of this Lease.
(d) In addition to all of the rights and remedies of Lessor set
forth in this Lease and the other Lease Documents, if Lessee shall
fail to pay any rental or other charge due hereunder (whether
denominated as Base Rent, Additional Rent, Additional Charges or
otherwise) within ten (10) days after same shall have become due
and payable, then and in such event Lessee shall also pay to
Lessor (i) a late payment service charge (in order to partially
defray Lessor's administrative and other overhead expenses) equal
to TWO HUNDRED FIFTY DOLLARS ($250) and (ii) to the extent
permitted by applicable law, interest on such unpaid sum at the
Overdue Rate; it being understood, however, that nothing herein
shall be deemed to extend the due date for payment of any sums
required to be paid by Lessee hereunder or to relieve Lessee of
its obligation to pay such sums at the time or times required by
this Lease.
16.3 Damages. None of(a) the termination of this Lease pursuant to
Section 16.2, (b) the eviction of Lessee or the repossession of
the Leased Property, (c) the inability after reasonable diligence
of Lessor, notwithstanding reasonable good faith efforts, to relet
the Leased Property, (d) the reletting of the Leased Property or
(e) the failure of Lessor to collect or receive any rentals due
upon any such reletting, shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such
termination, repossession or reletting. In any such event, Lessee
shall forthwith pay to Lessor all Rent due and payable with
respect to the Leased Property to and including the date of such
termination, repossession or eviction. Thereafter, Lessee shall
forthwith pay to Lessor, at Lessor's option, either:
(i) the sum of: (x) all Rent that is due and unpaid at later to
occur of termination, repossession or eviction, together with
interest thereon at the Overdue Rate to the date of payment, (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, (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
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(ii) each payment of Rent as the same would have become due and
payable if Lessee's right of possession or other rights under this
Lease had not been terminated, or if Lessee had not been evicted,
or if the Leased Property had not been repossessed which Rent, to
the extent permitted by law, shall bear interest at the Overdue
Rate from the date when due until the date paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of
this Lease. There shall be credited against Lessee's obligation
under this Clause (ii) amounts actually collected by Lessor from
another tenant to whom the Leased Property may have actually been
leased or, if Lessor is operating the Leased Property for its own
account, the actual Cash Flow of the Leased Property.
In making the determinations described in subparagraph (i) above,
the "worth" of unpaid Rent shall be determined by a court having
jurisdiction thereof using the lowest rate of capitalization
(highest present worth) reasonably applicable at the time of such
determination and allowed by applicable law and the Additional
Rent shall be deemed to be the same as the average Additional Rent
of the preceding five (5) full calendar years, or if shorter, the
average Additional Rent for the calendar years or portions thereof
since the date that Additional Rent commenced to accrue or such
other amount as either party shall prove reasonably could have
been earned during the remainder of the Term or any portion
thereof.
16.4 Lessee Waivers. If this Lease is terminated pursuant to
Section 16.2, Lessee waives, to the extent not prohibited by
applicable law, (a) any right of redemption, re-entry or
repossession, (b) any right to a trial by jury in the event of
summary proceedings to enforce the remedies set forth in this
Article 16, and (c) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt.
16.5 Application of Funds. Any payments otherwise payable to
Lessee which are received by Lessor under any of the provisions of
this Lease during the existence or continuance of any Lease
Default shall be applied to the Lease Obligations in the order
which Lessor may reasonably determine or as may be required by the
laws of the State.
16.6 Failure to Conduct Business. For the purpose of determining
rental loss damages or Additional Rent, in the event Lessee fails
to conduct business upon the Leased Property, exact damages or the
amount of Additional Rent being unascertainable, it shall be
deemed that the Additional Rent for such period would be equal to
the average annual Additional Rent during the five (5) preceding
calendar years or such shorter period oftime as may have existed
between the date Additional Rent commenced to accrue and the date
of computation.
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16.7 Lessor's Right to Cure. If Lessee shall fail to make any
payment, or to perform any act required to be made or performed
under this Lease and to cure the same within the relevant time
periods provided in Section 16.1, Lessor, after five (5) Business
Days' prior notice to Lessee (except in an emergency when such
shorter notice shall be given as is reasonable under the
circumstances), and without waiving or releasing any obligation or
Event of Default, may (but shall be under no obligation to) at any
time thereafter make such payment or perform such act for the
account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose
and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. No such entry shall be deemed
an eviction of Lessee. All sums so paid by Lessor and all costs
and expenses (including, without limitation, reasonable attorneys'
fees and expenses, in each case, to the extent permitted by law)
so incurred shall be paid by Lessee to Lessor on demand as an
Additional Charge. The obligations of Lessee and rights of Lessor
contained in this Article shall survive the expiration or earlier
termination of this Lease.
16.8 No Waiver By Lessor. Lessor shall not by any act, delay,
omission or otherwise (including, without limitation, the exercise
of any right or remedy hereunder) be deemed to have waived any of
its rights or remedies hereunder or under any of the other Lease
Documents unless such waiver is in writing and signed by Lessor,
and then, only to the extent specifically set forth therein. No
waiver at any time of any of the terms, conditions, covenants,
representations or warranties set forth in any of the Lease
Documents (including, without limitation, any of the time periods
set forth therein for the performance of the Lease Obligations)
shall be construed as a waiver of any other term, condition,
covenant, representation or warranty of any of the Lease
Documents, nor shall such a waiver in any one instance or
circumstances be construed as a waiver of the same term,
condition, covenant, representation or warranty in any subsequent
instance or circumstance. No such failure, delay or waiver shall
be construed as creating a requirement that Lessor must
thereafter, as a result of such failure, delay or waiver, give
notice to Lessee or any Guarantor, or any other Person that Lessor
does not intend to, or may not, give a further waiver or to
refrain from insisting upon the strict performance of the terms,
conditions, covenants, representations and warranties set forth in
the Lease Documents before Lessor can exercise any of its rights
or remedies under any of the Lease Documents or before any Lease
Default can occur, or as establishing a course of 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
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this Lease or any of the other Lease Documents, or (d) prevent the
exercise of such right of acceleration or any other right granted
hereunder or under applicable law for purposes of obtaining the
damages set forth in Section 16.3, specific performance or
equitable remedies; and to the maximum extent not prohibited by
applicable law, Lessee hereby expressly waives the benefit of any
statute or rule of law or equity now provided, or which may
hereafter be provided, which would produce a result contrary to or
in conflict with the foregoing.
16.9 Right of Forbearance. Whether or not for consideration paid
or payable to Lessor and, except as may be otherwise specifically
agreed to by Lessor in writing, no forbearance on the part of
Lessor, no extension of the time for the payment of the whole or
any part of the Obligations, and no other indulgence given by
Lessor to Lessee or any other Person, shall operate to release or
in any manner affect the original liability of Lessee or such
other Persons, or to limit, prejudice or impair any right of
Lessor, including, without limitation, the right to realize upon
any collateral, or any part thereof, for any of the Obligations
evidenced or secured by the Lease Documents; notice of any such
extension, forbearance or indulgence being hereby waived by Lessee
and all those claiming by, through or under Lessee.
16.10 Cumulative Remedies. The rights and remedies set forth under
this Lease are in addition to all other rights and remedies
afforded to Lessor under any of the other Lease Documents or at
law or in equity, all of which are hereby reserved by Lessor, and
this Lease is made and accepted without prejudice to any such
rights and remedies. All of the rights and remedies of Lessor
under each of the Lease Documents shall be separate and cumulative
and may be exercised concurrently or successively in Lessor's sole
and absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASED HOLDING OVER
17.1 Surrender. Lessee shall, upon the expiration or prior
termination of the Term (unless occasioned by Lessee's purchase of
the Leased Property pursuant to the terms of this Lease
Agreement), vacate and surrender the Leased Property to Lessor in
good repair and condition, in compliance with all applicable Legal
Requirements, all Insurance Requirements, and in compliance with
the provisions of Article 8, except for: (a) ordinary wear and
tear (subject to the obligation of Lessee to maintain the Leased
Property in good order and repair during the entire Term of the
Lease), (b) damage caused by the gross negligence or willful acts
of Lessor, and (c) any damage or destruction resulting from a
Casualty or Taking that Lessee is not required by the terms of
this Lease to repair or restore.
17.2 Transfer of Contracts and Permits. In connection with the
expiration or any earlier termination of this Lease (unless
occasioned by Lessee's purchase of the Leased Property pursuant to
the terms of this Lease Agreement), upon any request made from
time to time by Lessor, Lessee shall (a) promptly and diligently
use its best efforts to (i) transfer and assign all
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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.
17.3 No Acceptance of Surrender. Except at the expiration of the
Term in the ordinary course, no surrender to Lessor of this Lease
or of the Leased Property or any interest therein shall be valid
or effective unless agreed to and accepted in writing by Lessor
and no act by Lessor or any representative or agent of Lessor,
other than such a written acceptance by Lessor, shall constitute
an acceptance of any such surrender.
17.4 Holding Over. If, for any reason, Lessee shall remain in
possession of the Leased Property after the expiration or any
earlier termination of the Term, such possession shall be as a
tenant at sufferance during which time Lessee shall pay as rental
each month, one and one-half times the aggregate of (i) one-
twelfth of the aggregate Base Rent, and Additional Rent payable at
the time of such expiration or earlier termination of the Term;
(ii) all Additional Charges accruing during the month and (iii)
all other sums, if any, payable by Lessee pursuant to the
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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
18.1 Purchase of the Leased Property. In the event Lessee
purchases the Leased Property from Lessor pursuant to any of the
terms of this Lease, Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full payment of any
unpaid Rent due and payable with respect to any period ending on
or before the date of the purchase, deliver to Lessee a deed with
covenants only against acts of Lessor conveying the entire
interest of Lessor in and to the Leased Property to Lessee subject
to all applicable Legal Requirements, all of the matters described
in clauses (a), (b), (e) and (g) of Section 1 I.5.2, Impositions,
any Liens created by Lessee, any Liens created in accordance with
the terms of this Lease (except to the extent specifically
excluded by the terms hereof or consented to by Lessee, the claims
of all Persons claiming by, through or under Lessee, any other
matters assented to by Lessee and all matters for which Lessee has
responsibility under any of the Lease Documents, but otherwise not
subject to any other Lien created by Lessor from and after the
Commencement Date (other than an Encumbrance permitted under
Article 20 which Lessee elects to assume). The applicable purchase
price shall be paid in cash to Lessor, or as Lessor may direct, in
federal or other immediately available funds except as otherwise
mutually agreed by Lessor and Lessee. All expenses of such
conveyance, including, without limitation, the cost of title
examination or standard or extended coverage title insurance,
attorneys' fees incurred by Lessor in connection with such
conveyance, recording and transfer taxes and recording fees and
similar charges and specifically excluding any prepayment
penalties, if any, due Lessor's mortgagee, shall be paid by
Lessee.
18.2 Appraisal.
18.2.1 Designation of Appraisers. In the event that it becomes
necessary to determine the Fair Market Value of the Leased
Property for any purpose of this Lease, the party required or
permitted to give notice of such required determination shall
include in the notice the name of a Person selected to act as
appraiser on its behalf. Within ten (10) days after receipt of any
such notice, Lessor (or Lessee, as the case may be) shall by
notice to Lessee (or Lessor, as the case may be) either accept
such Person to be the sole appraiser to determine the Fair Market
Value of the Leased Property or appoint a second Person as
appraiser on its behalf.
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18.2.2 Appraisal Process. The appraisers thus appointed, each of
whom must be a member of the American Institute of Real Estate
Appraisers (or any successor organization thereto), shall, within
forty-five (45) days after the date of the notice appointing the
first appraiser, proceed to appraise the Leased Property to
determine the Fair Market Value of the Leased Property as of the
relevant date (giving effect to the impact, if any, of inflation
from the date of their decision to the relevant date); provided,
however, that if only one appraiser shall have been so appointed,
or if two appraisers shall have been so appointed but only one
such appraiser shall have made such determination within fifty
(50) days after the making of Lessee's or Lessor's request, then
the determination of such appraiser shall be final and binding
upon the parties. If two appraisers shall have been appointed and
shall have made their determinations within the respective
requisite periods set forth above and if the difference between
the amounts so determined shall not exceed ten percent (1O%) 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
ofthe Leased Property, whichever is earlier, either Lessor or
Lessee may apply to any court having jurisdiction to have such
appointment made by such court. Any appraiser appointed by the
original appraisers, by the American Arbitration Association or by
such court shall be instructed to determine the Fair Market Value
of the Leased Property within thirty (30) days after appointment
of such Appraiser. The determination of the appraiser which
differs most in terms of dollar amount from the determinations of
the other two appraisers shall be excluded, and fifty percent
(50"%) of the sum of the remaining two determinations shall be
final and binding upon Lessor and Lessee as the Fair Market Value
of the Leased Property.
18.2.3 Specific Enforcement and Costs. This provision for
determination by appraisal shall be specifically enforceable to
the extent such remedy is available under applicable law, and any
determination hereunder shall be final and binding upon the
parties except as otherwise provided by applicable law. Lessor and
Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and
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.
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]18.3.1 Conditions to Option. On the conditions (which conditions
Lessor may waive, at its sole option, by notice to Lessee at any
time) that (a) at the time of exercise of the Purchase Option and
on the applicable Purchase Option Date, there then exists no Lease
Default, nor any state of facts or circumstance which constitutes,
or with the. passage of time and/or the giving of notice, would
constitute a Lease Default and (b) Lessee strictly complies with
the provisions of this Section 18.3, then Lessee shall have the
option to purchase the Leased Property, at the price and upon the
terms hereinafter set forth (the "Purchase Option").
18.3.2 Exercise of Option: Deposit. Such Purchase Option shall
permit Lessee to purchase the Leased Property (a) on the last day
of the Initial Term or (b) on the last day of any Extended Term
effectively exercised by Lessee (each of such dates are referred
to herein as a "Purchase Option Date") and shall be exercised by
notice given by Lessee to Lessor (the "Lessee's Purchase Option
Notice") at least one hundred eighty (180) days (but not more than
three hundred sixty (360) days) prior to the relevant Purchase
Option Date. Notwithstanding anything to the contrary set forth in
this Lease, Lessee's right to purchase the Leased Property is
subject to the further conditions that (i) concurrently with the
exercise of the option set forth under this Section 18.3, the
Lessee shall have exercised its right to purchase the premises
demised under each of the Related Leases in accordance with the
provisions of Section 18.3 of each of the Related Leases, (ii) the
conveyance of the Leased Property pursuant to the provisions of
this Section 18.3 shall occur simultaneously with the conveyance
of the premises demised under each of the Related Leases pursuant
to Section 18.3 of each of the Related Leases and (iii) all
conditions contained in the Agreement Regarding Related
Transactions pertaining to the Purchase Option are satisfied.
Lessee shall have no right to rescind Lessee's Purchase Option
Notice once given unless (a) a notice of such rescission is given
(i) within ten (10) days following receipt of the final
determination of the Fair Market Value of the Leased Property or
(ii) within thirty (30) days following an event of Casualty or
Condemnation as to which Lessee has waived any right of
termination set forth in Section 13.2.2 hereof and (b)
simultaneously with such notice of rescission, Lessee, by notice
given pursuant to Section 1.3 hereof extends the Term.
18.3.3 Convevance. If the Purchase Option is exercised by Lessee
in accordance with the terms hereof, the Leased Property shall be
conveyed by a good and sufficient deed with covenants only against
acts of Lessor (the "Deed") running to Lessee or to such grantee
as Lessee may designate by notice to Lessor at least seven (7)
days before the Time of Closing.
18.3.4 Calculation of Purchase Price. The price to be paid by
Lessee for the acquisition of the Leased Property pursuant to this
Purchase Option (the "Purchase Price") shall be equal to the
greater of (a) the Meditrust Investment or (b) an amount equal to
the then Fair Market Value of the Leased Property minus the Fair
Market Added Value, subject to the terms of the Agreement
Regarding Related Transactions.
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18.3.5 Payment of Purchase Price. The Purchase Price shall be paid
by Lessee at the Time of Closing by certified, cashier's,
treasurer's or bank check(s) or wire transfer pursuant to
instructions received from Lessor in accordance with the terms of
the Agreement Regarding Related Transactions as reduced by the
principal balance of any Fee Mortgage which Lessee has elected to,
and has the right to, assume in accordance with the terms hereof.
18.3.6 Place and Time of Closing. If this Purchase Option is
exercised, the closing shall occur and the Deed shall be delivered
(the "Closing") at the office of Lessor at 12:00 o'clock noon
(E.S.T.) on the applicable Purchase Option Date (such time, as the
same may be extended by mutual written agreement of Lessor and
Lessee, being hereinafter referred to as the "Time of Closing") in
accordance with the terms of the Agreement Regarding Related
Transactions. It is agreed that time is of the essence of this
Purchase Option.
18.3.7 Condition of Leased Property. The Leased Property is to be
purchased "AS IS" and "WHERE IS" as of the Time of Closing.
18.3.8 Quality of Title. If Lessor shall be unable to give title
or to make conveyance, as stipulated in this Section 18.3, then,
at Lessor's option, Lessor shall use reasonable efforts to remove
all defects in title and the applicable Purchase Option Date and
Time of Closing shall be extended for period of thirty (30) days
other than with respect to any Encumbrances which Lessor has
caused to exist. Lessor shall not be required to expend more than
FIFTY THOUSAND DOLLARS ($50,000) (inclusive of attorney's fees) in
order to have used "reasonable efforts."
18.3.9 Lessor's Inability to Perform. If at the expiration of the
extended time Lessor shall have failed so to remove any such
defects in title, then all other obligations of all parties hereto
under Section 18.3 shall cease and Section 18.3 shall be void and
without recourse to the parties hereto. Notwithstanding the
foregoing, Lessee shall have the election, at either the original
or extended Purchase Option Date and Time of Closing, to accept
such title as Lessor can deliver to the Leased Property in its
then condition and to pay therefor the Purchase Price without
reduction, in which case Lessor shall convey such title; provided,
that, in the event of such conveyance, if any portion of the
Leased Property shall have been taken by Condemnation prior to the
applicable Purchase Option Date and Time of Closing, Lessor shall
pay over or assign to Lessee at the Time of Closing, all Awards
recovered on account of such Taking, less any amounts reasonably
expended by Lessor in obtaining such Award and less any amounts
expended for restoration pursuant to the provisions of Article 14
hereof, or, to the extent such Awards have not been recovered as
of the applicable Purchase Option Date and Time of Closing, Lessor
shall assign to Lessee all its rights with respect to any claim
therefor and further provided, that, in the event of such
conveyance, if any portion of the Leased Property shall have
suffered a Casualty prior to the applicable Purchase Option Date
and Time of
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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 I 3 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 (I) year after the
applicable Purchase Option Date on which such sale was supposed to
occur.
ARTICLE 19
SUBLETTING AND ASSIGNMENT
19.1 Subletting and Assignment. Lessee may not, without the prior
written consent of Lessor, which consent may be withheld in
Lessor's sole and absolute discretion, assign or pledge all or any
portion of its interest in this Lease or any of the other Lease
Documents (whether by operation of law or otherwise) or sublet all
or any part of the Leased Property. For purposes of this Section
19.1, the term "assign" shall be deemed to include, but not be
limited to, any one or more sales, pledges, hypothecations or
other transfers (including, without limitation, any transfer by
operation of law) of any of the capital stock of or partnership
interest in Lessee or sales, pledges, hypothecations or other
transfers (including, without limitation, any transfer by
operation of law) of the capital or the assets of Lessee. Any such
assignment, pledge, sale,
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hypothecation or other transfer made without Lessor's consent
shall be void and ofno force and effect. Notwithstanding the
foregoing, Lessor's consent shall not be unreasonably withheld
with respect to an assignment or pledge of an interest of Lessee
in this Lease or a sublet of all or a part of the Leased Property
to a. Meditrust/Emeritus Transaction Affiliate.
19.2 Attornment. Lessee shall insert in each Sublease approved by
Lessor, provisions to the effect that (a) such Sublease is subject
and subordinate to all of the terms and provisions of this Lease
and to the rights of Lessor hereunder, (b) in the event this Lease
shall terminate before the expiration of such Sublease, the
Sublessee thereunder will, at Lessor's option, attorn to Lessor
and waive any right the Sublessee may have to terminate the
Sublease or to surrender possession thereunder, as a result of the
termination of this Lease and (c) in the event the Sublessee
receives a written notice from Lessor stating that Lessee is in
default under this Lease, the Sublessee shall thereafter be
obligated to pay all rentals accruing under said Sublease directly
to Lessor or as Lessor may direct. All rentals received from the
Sublessee by Lessor shall be credited against the amounts owing by
Lessee under this Lease.
ARTICLE 20
TITLE TRANSFERS AND LIENS GRANTED BY LESSOR
20.1 No Merger of Title. Except as otherwise provided in Section
18.3.10, there shall be no merger of this Lease or of the
leasehold estate created hereby with the fee estate in the Leased
Property by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or
such leasehold estate and (b) the fee estate in the Leased
Property.
20.2 Transfers By Lessor. If the original Lessor named herein or
any successor in interest shall convey the Leased Property in
accordance with the terms hereof, other than as security for a
debt, and the grantee or transferee of the Leased Property shall
expressly assume all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer,
the original Lessor named herein or the applicable successor in
interest so conveying the Leased Property shall thereupon be
released from all future liabilities and obligations of Lessor
under this Lease arising or accruing from and after the date of
such conveyance or other transfer as to the Leased Property and
all such future liabilities and obligations shall thereupon be
binding upon the new owner.
20.3 Lessor May Grant Liens. Without the consent of Lessee, but
subject to the terms and conditions set forth below in this
Section 20.3, Lessor may, from time to time, directly or
indirectly, create or otherwise cause to exist any lien,
encumbrance or title retention agreement upon the Leased Property
or any interest therein ("Encumbrance"), whether to secure any
borrowing or other means of financing or refinancing, provided
that Lessee shall have no obligation to make payments under such
Encumbrances. Lessee shall subordinate this Lease to
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the lien of any such Encumbrance, on the condition that the
beneficiary or holder of such Encumbrance executes a non-
disturbance agreement in conformity with the provisions of Section
20.4. To the extent that any such Encumbrance consists of a
mortgage or deed of trust on Lessor's interest in the Leased
Property the same shall be referred to herein as a "Fee Mortgage"
and the holder thereof shall be referred to herein as a "Fee
Mortgagee".
20.4 Subordination and Non-Disturbance. Concurrently with the
execution and delivery of any Fee Mortgage entered into after the
date hereof, provided that the Lessee executes and delivers an
agreement of the type described in the following paragraph, Lessor
shall obtain and deliver to Lessee an agreement by the holder of
such Fee Mortgage, pursuant to which, (a) the applicable Fee
Mortgagee consents to this Lease and (b) agrees that,
notwithstanding the terms of the applicable Fee Mortgage held by
such Fee Mortgagee, or any default, expiration, termination,
foreclosure, sale, entry or other act or omission under or
pursuant to such Fee Mortgage or a transfer in lieu of
foreclosure, (i) Lessee shall not be disturbed in peaceful
enjoyment of the Leased Property nor shall this Lease be
terminated or canceled 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
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21.1 Quiet Enjoyment. As long as Lessee shall pay all Rent and all
other sums due under any of the Lease Documents as the same become
due and shall fully comply with all of the terms of this Lease and
the other Lease Documents and fully perform its obligations
thereunder, Lessee shall peaceably and quietly have, hold and
enjoy the Leased Property throughout the Term, free of any claim
or other action by Lessor or anyone claiming by, through or under
Lessor, but subject to all the Permitted Encumbrances and such
Liens as may hereafter be consented to by Lessee. No failure by
Lessor to comply with the foregoing covenant shall give Lessee any
right to cancel or terminate this Lease, or to fail to perform any
other sum payable under this Lease, or to fail to perform any
other obligation of Lessee hereunder. Notwithstanding the
foregoing, Lessee shall have the right by separate and independent
action to pursue any claim it may have against Lessor as a result
of a breach by Lessor of the covenant of quiet enjoyment contained
in this Article 21.
21.2 Memorandum of Lease. Lessor and Lessee shall, promptly upon
the request of either, enter into a short form memorandum of this
Lease, in form suitable for recording under the laws of the State,
in which reference to this Lease and all options contained herein
shall be made. Lessee shall pay all recording costs and taxes
associated therewith.
21.3 Default bv 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
103
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 the Emeritus Corporation
Guarantor: 3131 Elliot Avenue, Suite 500
Seattle, WA 98121-2162
Attention: Raymond R. Brandstrom, President
With a copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to Lessor: Meditrust Company LLC
197 First Avenue
Needham Heights, Massachusetts 02194
Attn: President
With copies to: Meditrust Company LLC
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.
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ARTICLE 23
LIMITATION OF THE LESSOR'S LIABILITY
All Persons dealing with the Lessor, in any way, shall look only
to the assets of the Lessor, for the payment of any sum or the
performance of any obligation. Furthermore, in no event shall the
Lessor ever be liable to the Lessee or any other Person for any
indirect or consequential damages incurred by the Lessee or such
other Person resulting from any cause whatsoever.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 Broker's Fee Indemnification. Lessee and Lessor each shall
and hereby agrees to indemnify, defend (with counsel acceptable to
the other) and hold the other harmless from and against any and
all claims for premiums or other charges, finder's fees, taxes,
brokerage fees or commissions and other similar compensation due
to a broker or finder allegedly employed or retained by it in
connection with any of the transactions contemplated by the Lease
Documents. Notwithstanding the foregoing, the indemnified party
shall have the option of conducting its own defense against any
such claims with counsel of such party's choice, but at the
expense of the indemnifying party, as aforesaid. This
indemnification shall include all reasonable attorneys' fees and
expenses and court costs reasonably incurred by the indemnified
party in connection with the defense against any such claims and
the enforcement of this indemnification agreement and shall
survive the termination of this Lease.
24.2 No Joint Venture or Partnership. Neither anything contained
in any of the Lease Documents, nor the acts of the parties hereto,
shall create, or be construed to create, a partnership or joint
venture between Lessor and Lessee. Lessee is not the agent or
representative of Lessor and nothing contained herein or in any of
the other Lease Documents shall make, or be construed to make,
Lessor liable to any Person for goods delivered to Lessee,
services performed with respect to the Leased Property at the
direction of Lessee or for debts or claims accruing against
Lessee.
24.3 Amendments Waivers and Modifications. None of the terms,
covenants,
conditions, warranties or representations contained in this Lease
or in any of the other Lease Documents may be renewed, replaced,
amended, modified, extended, substituted, revised, waived,
consolidated or terminated except by an agreement in writing
signed by all parties to this Lease or the other Lease Documents,
as the case may be, in the case of any renewal, replacement,
amendment, modification, extension, substitution, revisions,
consolidation or termination and by the Person against whom
enforcement is sought in the case of a waiver or except as
otherwise expressly provided for herein or in any other Lease
Document. The provisions of this Lease and the other Lease
Documents shall extend and be applicable to all renewals,
replacements,
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amendments, extensions, substitutions, revisions, consolidations
and modifications of any of the Lease Documents, the Management
Agreements, the Related Party Agreements, the Permits and/or the
Contracts. References herein and in the other Lease Documents to
any of the Lease Documents, the Management Agreements, the Related
Party Agreements, the Permits and/or the Contracts shall be deemed
to include any renewals, replacements, amendments, extensions,
substitutions, revisions, consolidations or modifications thereof.
Notwithstanding the foregoing, any reference contained in any of
the Lease Documents, whether express or implied, to any renewal,
replacement, amendment, extension, substitution, revisions,
consolidation or modification of any of the Lease Documents or any
Management Agreement, Related Party Agreement, Permit and/or the
Contract is not intended to constitute an agreement or consent by
Lessor to any such renewal, replacement, amendment, substitution,
revision, consolidation or modification; but, rather as a
reference only to those instances where Lessor may give, agree or
consent to any such renewal, replacement, amendment, extension,
substitution, revision, consolidation or modification as the same
may be required pursuant to the terms, covenants and conditions of
any of the Lease Documents.
24.4 Captions and Headings. The captions and headings set forth in
this Lease and each of the other Lease Documents are included for
convenience and reference only, and the words contained therein
shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation,
construction or meaning of, or the scope or intent of, this Lease,
any of the other Lease Documents or any parts hereof or thereof.
24.5 Time is of the Essence. Time is of essence of each and every
term, condition, covenant and warranty set forth herein and in the
other Lease Documents.
24.6 Counterparts. This Lease and the other Lease Documents may be
executed in one or more counterparts, each of which taken together
shall constitute an original and all of which shall constitute one
in the same instrument.
24.7 Entire Agreement. This Lease and the other Lease Documents
set forth the entire agreement of the parties with respect to the
subject matter, as it relates to the Leased Property, and shall
supersede in all respect the letter of intent, dated January
31,1996 (and all prior iterations thereof, from Meditrust to
Lessee.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, LESSOR AND LESSEE HEREBY MUTUALLY, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT WHICH ANY PARTY
HERETO MAY NOW OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
LEASE OR ANY OF THE LEASE DOCUMENTS. Lessee hereby certifies that
neither Lessor nor any of Lessor's representatives, agents or
counsel has represented expressly or otherwise that Lessor would
not, in the event of any such suit, action or
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<PAGE>
proceeding seek to enforce this waiver to the right of trial by
jury and acknowledges that Lessor has been induced by this waiver
(among other things) to enter into the transactions evidenced by
this Lease and the other Lease Documents and further acknowledges
that Lessee (a) has read the provisions of this Lease, and in
particular, the paragraph containing this waiver, (b) has
consulted legal counsel, (c) understands the rights that it is
granting in this Lease and the rights that it waiving in this
paragraph in particular and (d) makes the waivers set forth herein
knowingly, voluntarily and intentionally.
24.9 Successors and Assigns. This Lease and the other Lease
Documents shall be binding upon and inure to the benefit of (a)
Lessee and Lessee's legal representatives and permitted successors
and assigns and (b) Lessor and any other Person who may now or
hereafter hold the interest of Lessor under this Lease and their
respective successors and assigns.
24.10 No Third Party Beneficiaries. This Lease and the other Lease
Documents are solely for the benefit of Lessor, its successors,
assigns and participants (if any), the Meditrust Entities, Lessee,
the Guarantor, the other members of the Leasing Group and their
respective permitted successors and assigns, and, except as
otherwise expressly set forth in any of the Lease Documents,
nothing contained therein shall confer upon any Person other than
such parties any right to insist upon or to enforce the
performance or observance of any of the obligations contained
therein. All conditions to the obligations of Lessor to advance or
make available proceeds of insurance or Awards, or to release any
deposits held for Impositions or insurance premiums are imposed
solely and exclusively for the benefit of Lessor, its successors
and assigns. No other Person shall have standing to require
satisfaction of such conditions in accordance with their terms,
and no other Person shall, under any circumstances, be a
beneficiary of such conditions, any or all of which may be freely
waived in whole or in part by Lessor at any time, if, in Lessor's
sole and absolute discretion, Lessor deems it advisable or
desirable to do so.
24.11 Governing Law. This Lease shall be construed and the rights
and obligations of Lessor and Lessee shall be determined in
accordance with the laws of the State.
Lessee hereby consents to personal jurisdiction in the courts of
the State and the United States District Court for the District in
which the Leased Property is situated as well as to the
jurisdiction of all courts from which an appeal may be taken from
the aforesaid courts, for the purpose of any suit, action or other
proceeding arising out of or with respect to any of the Lease
Documents, the negotiation and/or consummation of the transactions
evidenced by the Lease Documents, the Lessor's relationship of any
member of the Leasing Group in connection with the transactions
evidenced by the Lease Documents and/or the performance of any
obligation or the exercise of any remedy under any of the Lease
Documents and expressly waives any and all objections Lessee may
have as to venue in any of such courts.
24.12 General. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or
Lessor arising prior to any date of termination of this Lease or
any of the other Lease Documents shall survive such termination.
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If any provision of this Lease or any of the other Lease Documents
or any application thereof shall be invalid or unenforceable, the
remainder of this Lease or the other applicable Lease Document, as
the case may be, and any other application of such term or
provision shall not be affected thereby. Notwithstanding the
foregoing, it is the intention of the parties hereto that if any
provision of any of this Lease is capable of two (2)
constructions, one of which would render the provision void and
the other of which would render the provision valid, then such
provision shall be construed in accordance with the construction
which renders such provision valid.
If any late charges provided for in any provision of this Lease or
any of the other Lease Documents are based upon a rate in excess
of the maximum rate permitted by applicable law, the parties agree
that such charges shall be fixed at the maximum permissible rate.
Lessee waives all presentments, demands for performance, notices
of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance and waives all notices of the
existence, creation, or incurring of new or additional
obligations, except as to all of the foregoing as expressly
provided for herein.
ARTICLE 25
SUBSTITUTION OF PROPERTY
25.1 Substitution of Property for the Leased Property. Provided
that no Event of Default has occurred under this Lease (excluding
any Event of Default which has been waived, in writing, by the
Lessor), nor any event which, with the giving of notice or the
passage of time or both, would constitute such an Event of
Default, Lessee shall have the right from time to time (referred
to herein as the "Substitution Right"), exercisable upon not less
than ninety (90) days' prior written notice to Lessor (referred to
herein as a "Substitution Notice") to substitute, on a date
specified in such Substitution Notice (such date, as the same may
be extended by express written agreement of lessor, shall be
referred to herein as a "Substitution Date"), the Leased Property
with a Comparable Facility. As used herein, the term "Comparable
Facility" shall be defined as a health care facility or facilities
which Lessor determines (a) has an appraised Fair Market Value
greater than or equal to the greater of (i) the appraised Fair
Market Value of the Leased Property as of the Conversion Date or
(ii) the appraised Fair Market Value of the Leased Property at the
time that the applicable Substitution Notice is furnished to
Lessor (based on appraisal criteria then in effect), (b) has a
Facility Debt Coverage Ratio greater than or equal to the greater
of (i) the Facility Debt Coverage Ratio of the Leased Property as
of the 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.
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25.2 Conditions to Substitution. Without limiting the foregoing,
as conditions precedent to the consummation of any proposed
substitution:
(a) as of the applicable Substitution Date, no Event of Default
shall have occurred under the Lease (excluding any Event of
Default which has been waived, in writing, by Lessor), nor any
event which with the giving of notice or the passage of time or
both would constitute such an Event of Default;
(b) Lessor shall have received engineering and inspection reports
relating to the assisted living facility identified by Lessee in
the applicable Substitution Notice (referred to herein as a
"Proposed Facility"), reasonably satisfactory in all respects to
Lessor;
(c) Lessee shall have delivered to Lessor (i) an MAI appraisal of
the Proposed Facility (prepared by an appraiser selected by Lessee
and approved by Lessor), in form and substance reasonably
satisfactory to Lessor and (ii) an instrument survey of the
premises upon which the Proposed Facility is located acceptable to
Lessor and the title insurance company providing insurance with
respect to the Proposed Facility;
(d) Lessor shall be satisfied as to compliance of Lessee, the
Proposed Facility, the owner of the Proposed Facility (to the
extent such owner is not Lessee as provided in subsection (I)
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; .
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
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<PAGE>
equalize exchange values or. discharge indebtedness, no gain or
loss is recognized to Lessor, (ii) the substitution or sale will
not result in ordinary recapture income to Lessor pursuant to Code
Section 1250(d)(4) or any other Code provision, (iii) the
substitution or sale will result in income, if any, to Lessor of a
type described in Code Section 856(c)(2) or (3) and will not
result in income of the types described in Code Section 856(c)(4)
or result in the tax imposed under Code Section 857(b)(6) and (iv)
the substitution or sale, together with all other substitutions
and sales made or requested by Lessee or any Affiliate of Lessee
or of any Guarantor pursuant to any other leases with Lessor (or
any of its Affiliates) or any other transfers of the Leased
Property or the properties leased under other such leases, during
the relevant time period, will not jeopardize the qualification of
Lessor as a real estate investment trust under Code Sections 856-
860;
(h) Lessor shall have received opinions of Lessee's counsel as to
(i) the compliance of the Proposed Facility with land use, zoning,
subdivision and environmental laws and regulations, (ii) the
compliance of Lessee, the owner of the Proposed Facility (to the
extent such owner is not Lessee as provided in subsection (1)
below), the proposed substitution and the Proposed Facility with
applicable assisted living laws and regulations, (iii) the due
authorization, execution and enforceability of the Substitution
Documents and (iv) such other matters as are reasonably requested;
in form and substance reasonably acceptable to Lessor;
(i) Lessee and each Guarantor shall have executed and delivered,
or caused to be executed and delivered, such documents as are
reasonably required by Lessor to effectuate the substitution
(collectively, the "Substitution Documents"), including, without
limitation, (i) a deed with full warranties or assignment of a
leasehold estate with full warranties (as applicable) conveying to
Lessor title to the Proposed Facility 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
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<PAGE>
forth in Lease Documents in effect prior to the substitution,
except that such changes shall be made as may be necessary or
reasonably appropriate under the circumstances to effectuate the
substitution and secure the protection and priority of the
property and security interests conveyed and/or granted to Lessor;
(j) without limiting any other provision contained herein, Lessee
shall have delivered to Lessor such other information and
materials relating to Lessee, the owner of the Proposed Facility
(to the extent that such owner is not Lessee as provided in
subsection (I) below) and the Proposed Facility as Lessor may
reasonably request, including, without limitation, leases,
receipted bills, management agreements and other Contracts,
Provider Agreements, cost reports, Permits, evidence of legal and
actual access to the Proposed Facility, evidence of the
availability and sufficiency of utilities servicing the Proposed
Facility, historical and current operating statements, detailed
budgets and financial statements and Lessor shall have found the
same to be satisfactory in all respects;
(k) Lessee or an Affiliate of Lessee shall be the licensed
operator of the Proposed Facility as of the date of the
consummation of the substitution;
(1) the Proposed Facility shall be owned or leased by Lessee or an
Affiliate of Lessee; provided, however that in the event that the
Proposed Facility is owned by any such Affiliate, (i) said
Affiliate shall execute and deliver to Lessor such Substitution
Documents as may be reasonably required by Lessor and (ii) Lessor
shall be provided with such evidence as it may require to
determine that the conveyance of the Proposed Facility (or a
leasehold interest therein) to Lessor does not constitute a
fraudulent conveyance (under applicable federal or state law);
(m) Lessee shall have delivered to Lessor an insurance certificate
evidencing compliance with all of the insurance requirements set
forth in the Substitution Documents;
(n) Lessee shall have delivered to Lessor an Officer's Certificate
certifying as of the Substitution Date that (i) the Proposed
Facility has been accepted by Lessee for all purposes of the
Substitution Lease and there has been no material damage to the
improvements located on the Proposed Facility, nor is any
condemnation or eminent domain proceeding pending with respect
thereto; (ii) all Permits (including, but not limited to, a
permanent, unconditional certificate of occupancy and all
certificates of need, licenses and Provider Agreements) which are
necessary to permit the use of the Proposed Facility in accordance
with the provisions of the Substitution Lease have been obtained
and are in full force and effect; (iii) under applicable zoning
and use laws, ordinances, rules and regulations, the Proposed
Facility may be used for the purposes contemplated by Substitution
Documents and all necessary subdivision approvals have been
obtained; (iv) to the best knowledge of Lessee, there exists no
Event of Default under this Lease, and no defense, offset or claim
exists with respect to any sums to be paid by Lessee hereunder,
and (v) any exceptions to Lessor's title to the Proposed Facility
do not materially interfere with the intended use of the Proposed
Facility by Lessee;
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(o) Lessor shall have determined that the Proposed Facility
constitutes a Comparable Facility, and
(p) Lessor shall have received all Rent due and payable hereunder
through the Substitution Date.
In the event that the equity value of the Proposed Facility (i.e.,
the Fair Market Value of the Proposed Facility minus the Liens to
which Lessor will take the Proposed Facility subject) as of the
Substitution Date is greater than the equity value of the Leased
Property (i.e., the Fair Market Value of the Leased Property minus
the Liens to which Lessee will take the Leased Property subject
other than those Liens which Lessee is obligated to pay or
discharge pursuant to the terms of this Lease) as of the
Substitution Date, subject to the limitation set forth below,
Lessor shall pay an amount equal to the difference to Lessee;
provided, however, that Lessor shall not be obligated to
consummate such substitution if Lessor would be required to make a
payment to Lessee of an amount equal to or in excess of fifteen
percent ( 15"%) of said Fair Market Value of the Leased Property
(the amount of cash paid by Lessor to Lessee being referred to
herein as the "Cash Adjustment"). Without limiting the generality
or effect of the preceding sentence, in the event that, on the
Substitution Date, Lessor is obligated to pay a Cash Adjustment to
Lessee and Lessor does not have sufficient funds available, or
elects not to make such payment in cash, Lessor shall provide
Lessee with (and Lessee shall accept) a purchase money note and
mortgage for a term not to exceed eighteen (18) months from the
Substitution Date and bearing interest, payable monthly, at the
rate described in Section 10.2.
25.3 Conveyance to Lessee. If the Lessor shall have determined
that the Proposed Facility constitutes a Comparable Facility, on
the Substitution Date, after the consummation of a substitution in
accordance with the terms hereof, Lessor will convey the Leased
Property to Lessee in accordance with the provisions of Article I
8 (except as to payment of any expenses in connection therewith
which shall be governed by Section 22.4 below) and this Lease
shall thereupon terminate as to the Leased Property. Upon
completion of the purchase of the Leased Property, no Rent shall
thereafter accrue with respect thereto.
25.4 Expenses. Whether or not any proposed substitution is
consummated, Lessee shall pay all of the out-of pocket expenses
and other costs incurred or expended by Lessor in connection with
any proposed substitution (collectively referred to herein as
"Substitution Closing Costs"), including, without limitation,
reasonable attorneys' fees and expenses, engineering costs,
consultants' fees, appraisal costs, audit and tax review costs,
out-of pocket travel expenses, inspection fees, title insurance
premiums and other title fees, survey expenses, mortgage taxes,
transfer, documentary stamp and other taxes, search charges of any
nature, recording, registration and filing costs, broker's fees
and commissions, if any, escrow fees, fees and expenses, if any,
incurred in qualifying Lessor and maintaining its right to do
business in the state where the Proposed Facility is located, the
cost of obtaining, preparing and recording a release of the Leased
Property from the lien of any Fee Mortgage on the Facility (other
than the amount necessary to payoff such Fee Mortgage) and any
other costs expended or incurred by
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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.
[Remainder of Page Intentionally Left Blank)
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IN WITNESS WHEREOF, the parties have caused this Lease to be
executed and attested by their respective officers thereunto duly
authorized.
ATTEST: LESSEE: EMERITUS PROPERTIES I
INC., a Washington corporation
/s/: Susan Griffin /s/: Kelly J. Price
Susan Griffin Kelly J. Price
Vice President of Finance
ATTEST: LESSOR: MEDITRUST COMPANY LLC, a
Delaware limited liability company
/s/: Amelia C. Gentry /s/: Michael S. Benjamin, ESQ.
Michael S. Benjamin, ESQ.
Senior Vice President
114
Susan BalzerSusan Balzer<PAGE>
Laurel Place
FACILITY LEASE AGREEMENT
MEDITRUST ACQUISITION CORPORATION I
(A Massachusetts corporation)
as
Lessor
AND
EMERITUS PROPERTIES I, INC.
(A Washington corporation)
as
Lessee
Dated as of February 27,1998
For Premises Located At
363 East Gilbert Street
San Bernardino, California
<PAGE>
FACILITY LEASE AGREEMENT
This FACILITY LEASE AGREEMENT ("Lease") is dated as of the
27th day of" Februazy,1998 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 benefiting
any or all of the Land and the Leased Improvements;
(d) all equipment, machinery, building fixtures, and other
items of property (whether realty, personalty or mixed),
including all components thereof, now or hereafter located
in, on or used in connection with, and permanently affixed
to or incorporated into the Leased Improvements, including,
without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water
pollution control, waste disposal, air-cooling and air-
conditioning systems and apparatus, sprinkler systems and
fire and theft protection equipment, and built-in oxygen and
vacuum systems, all of which, to the greatest extent
permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements,
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
1
<PAGE>
(e) Lessor's Personal Property.
The Leased Property is leased in its present condition, AS
IS, without representation or warranty of any kind, express
or implied, by Lessor and subject to: (i) the rights of
parties in possession; (ii) the existing state of title
including all covenants, conditions, Liens (as hereinafter
defined) and other matters of record (including, without
limitation, the matters set forth in EXHIBIT B); (iii) all
applicable laws and (iv) all matters, whether or not of a
similar nature, which would be disclosed by an inspection of
the Leased Property or by an accurate survey thereof.
1.2 Term. The term of this Lease shall consist of: the
"Initial Term", which shall commence on February 27,1998
("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.
2
<PAGE>
ARTICLE 2
DEFINITIONS AND RULES OF CONSTRITCTION 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 Bodv: Any person, including any Person having
or claiming jurisdiction over the accreditation,
certification, evaluation or operation of the Facility.
Added Value Percentage: The proportion of the Fair Market
Added Value of Capital Additions paid for or financed by
Lessee to the Fair Market Value of the entire Leased
Property, expressed as a percentage.
Additional Charges: As defined in Article i.
Additional Land: As defined in Section 9. i.
Additional Rent: As defined in Article 3.
Additional Rent Commencement Date: As defined in Article.
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
mana5ement 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
(5O%) and (b) any Person who is an Affiliate by virtue of
the ownership thereofby
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[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 Partner 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 Third Amended
and Restated Agreement Regarding Related Transactions
(Acquisition) dated of even date, as amended from time to
time, between Lessee, Lessor and any Related Party that is
party to any Related Lease or Related Party Agreement.
Lessor and Lessee anticipate that the Agreement Regarding
Related Transactions will be amended from time to time to
include Affiliates of Lessor and Lessee as parties thereto
in connection with future transactions and acknowledge and
agree that for all purposes under this Lease Agreement such
amendments shall be deemed to be included in this
definition.
Annual Facility Upgrade Expenditure: An aggregate annual
amount equal to the product of [TWO HUNDRED DOLLARS ($200)]
(as increased as of the first day of each Lease Year in
which the Annual Facility Upgrade Expenditure is to be made
by an amount equal to the product of the CPI Increase
multiplied by TWO HUNDRED DOLLARS ($200)) times the number
of units in the Facility, such amount to be spent on Upgrade
Renovations. The term "CPI Increase" means a fraction, the
numerator of which is the Price Index in effect as of the
first day of the Lease Year in which the Annual Facility
Upgrade Expenditure is to be made and the denominator of
which is the Price Index in effect as of the date hereof.
The term "Price Index" means the Consumer Price Index for
Urban Wage Earners and Clerical Workers, All Items Series A
(1982-84=100), published by the Bureau of Labor Statistics,
U.S. Department of Labor. If the Bureau of Labor Statistics
should cease to publish such Price Index in its present form
and calculated on the present basis; then the most similar
index published by the same Bureau shall be used for the
same purpose. If 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 March l,1999
through and including February 29, 2000 initially as shown
by Lessee's certified Consolidated Financial Statements and
as later verified by Lessee's. Consolidated Financial
Statements.
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<PAGE>
Base Rent: As defined in Section i.1.
Business Day: Any day which is not a Saturday or Sunday or a
public holiday under the laws of the United States of
America, the Commonwealth of Massachusetts, the State or the
state in which Lessor s depository bank is located.
Capital Additions: Collectively, all new buildings and
additional structures annexed to any portion of any of the
Leased Improvements and material expansions of any of the
Leased Improvements which are constructed on any portion of
the Land during the Term, including, without limitation, the
construction of a new wing or new story, the renovation of
any of the Leased Improvements on the Leased Property and
any expansion, construction, renovation or conversion in
connection therewith (a) in order to provide a functionally
new facility that is needed or used to provide services not
previously offered or (b) in order to (i) increase the bed
capacity of a Facility, (ii) change the purpose for which
such beds are utilized and/or (iii) change the utilization
of any material portion of any of the Leased Improvements.
Capital Addition Cost: The cost of any Capital Addition made
by Lessee whether paid for by Lessee or Lessor. Such cost
shall include all costs and expenses of every nature
whatsoever incurred directly or indirectly in connection
with the development, permitting, construction and financing
of a Capital Addition as reasonably determined by, or to the
reasonable satisfaction of, Lessor.
Cash Collateral: As defined in the Deposit Pledge Agreement.
Cash Flow: The Consolidated Net Income (or Consolidated Net
Loss) before federal and state income taxes for any period
plus (i) the amount of the provision for depreciation and
amortization actually deducted on the books of the
applicable Person for the purposes of computing such
Consolidated Net Income (or Consolidated Net Loss) for the
period involved, plus (ii) Rent and interest on all other
Indebtedness which is fully subordinated to the Lease
Obligations, plus (iii) any indebtedness which is fully
subordinated to the Lease Obligations pursuant to the
Affiliated Party Subordination Agreement or the Management
Subordination Agreement.
Casualty: As defined in Section l3.l.
Chattel Paper: As defined in the UCC.
Closing Date: As defined in Section 18.1.
Code: The Internal Revenue Code of 1986. as amended.
5
<PAGE>
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 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.
6
<PAGE>
Current Assets: All assets of any Person which would, in
accordance with GAAP, be
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 71 unit fully licensed mixed assisted and
independent living facility known as Laurel Place on the
Land (together with related parking and other amenities).
7
<PAGE>
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 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 ?0. i.
Fee Mortgagee: As defined in Section ?0.3.
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 1 st
to December 31st.
Fixtures: As defined in Article I.
8
<PAGE>
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,
(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),
9
<PAGE>
(vii) deposits refundable to residents of the Facility, and
(viii) payments received on behalf of, and paid to, Persons
who are not Affiliates of Lessee.
To the extent that the Leased Property is subleased or
occupied by an Affiliate of Lessee, Gross Revenues
calculated for all purposes of this Lease (including,
without limitation, the determination of the Additional Rent
payable under this Lease) shall include the Gross Revenues
of such Sublessee with respect to the premises demised under
the applicable Sublease (i.e., the Gross Revenues generated
from the operations conducted on such subleased portion of
the Leased Property) and the rent received or receivable
from such Sublessee pursuant to such Subleases shall be
excluded from Gross Revenues for all such purposes. As to
any Sublease between Lessee and a non-Affiliate of Lessee,
only the rental actually received by Lessee from such non-
Affiliate shall be included in Gross Revenues.
Group Four Acquisition Facilities: As defined in the
Agreement Regarding Related Transactions.
Guarantor: Emeritus Corporation, a Washington corporation,
and its successors and
assigns.
Guarantv of Lease Obligations: The Guaranty of Lease
Obligations of even date eY2CUI2d 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.
10
<PAGE>
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) a11 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.?.
Index: The rate of interest of actively traded marketable
United States Treasury Securities bearing a fixed rate of
interest adjusted for a constant maturity often (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.
11
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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 February 28 of
each year (except Leap Year's in which event the ending date
shall be February 29); provided, that the first Lease Year
shall begin on the Commencement Date and shall end on
February 28,1999 and the final Lease Year shall end at the
end of the Term.
Leased Improvements: As defined in Article 1.
Leased Property: As defined in Article 1.
Leasing Commitment Fee: None.
Leasing Group: Collectively, Lessee, the 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, zonin5,
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,
12
<PAGE>
Substances on, under or from the Leased Property. Without
limiting the foregoing, the term Legal Requirements includes
all Environmental Laws and shall also include ali Permits
and Contracts issued or entered into by any Governmental
Authority, ariy Accreditatinn Body and/or
Lessee: As defined in the preamble ofthis Lease and its
successors and assigns.
Lessee's Election Nntice: As defined in Section 14.3.
Lessnr: As defined in the preamble ofthis Lease and its
successors and assigns.
Lessnr's Personal Prnpertv: 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 ofthe 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 11.4; 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.
Manaaed Care Plans: All health maintenance organizations,
preferred provider oraanizations, individual practice
associations, competitive medical plans, and similar
arrangements.
Manaaement Aareement: Any agreement, whether written or
oral, between Lessee or anv 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.
Nlinaaement Subordinatinn Agareement: The Management
Subordination Agreement between Lessee and Lessor.
IVlanager: Any Person who has entered into a Management
Agreement with Lessee or anv Sublessee.
vlaterial Structural Vnrk: Any (i) structural alteration,
(ii) stnzctural repair or (iii) structural renovation to the
Leased Property, which would customarily require or which
require the design and/or involvement ofa structural
engineer or architect or which would require the issuance of
a Permit.
l3
II
vledicaid: The medical assistance program established by
Title XIX ofthe Social Security Act
and any statute succeeding thereto.
Medicare: The health insurance program for the aged and
disabled established by title XVIII of the Social Security
Act 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.
Monthlv Deposit Date: As defined in Section 4.6.
Neaative Pledae Aareement: The Group Four Negative Pledge
Agreement (Acquisition) dated May 1,1997 by and between
Guarantor, Lessee and Lessor, as amended from tirrie 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 ta;ces actually paid or accrued and all e:cpenses
and other charges determined in accordance with GAAP.
net Proceeds Amount: As defined in Section 3.7.
Net Worth: An amount determined in accordance with GAAP
equal to.the total assets of any Person, minus the total
liabilities of such Person. Provided, however, that for
purposes of
14
calculating the Net Worth ofthe Guarantor, those certain
Thirty-Two Million Dollars ($32,000,000) of 6.25"%
convertible, unsecured, subordinated debentures due in 2006,
which were issued by the Guarantor on February 15,1996,
shall not be included in total liabilities,
Obligations: Collectively, the Lease Obligations and the
Related Party Obligations.
Offer: As defined in Section 18.3.1.
Offered Propertv: 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.
OriginaI Meditrust Investment: The sum of Four Million Ten
Thousand and 00/100 ($4,010,000.00).
Other Permitted Uses: To the e;ctent 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 ( 1 O%) of the useable floor
area of the building comprising the Facility, such uses as
Lessee reasonably detennines 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 therefo 'r, now or hereafter
required or issued by any Governmental Authority,
Accreditation Body or Third Party Payor to any member of the
Leasing Group, or rnaintained or used by any member of the
Leasing Group, or entered into by.any member ofthe Leasing
Group with any third Person with respect to the Leased
Property.
l5
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.
I. I 8.
Permitted Prior Securitv Interests: As defned 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.
Primanr Intended Use: The use of the Facility as a mixed
assisted and independent living facility with a total of71
units (ofwhich at all times at least 32 units will be
assisted living units) and having 142 fully licensed beds or
such additional number ofunits or beds as may hereafter be
permitted under this Lease, and such ancillary uses as are
permitted by law and may be necessary in connection
therewith or incidental thereto.
Prime Rate: The variable rate of interest per annum from
time to time announced by the Reference Bank as its prime
rate of interest and in the event that the Reference Bank no
Ionger 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 ofthe Facility
relating to any right ofpayment 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
l6
Instruments, Documents, Accounts, Proceeds, General
Intangibles and Chattel Paper as are reasonably required for
purposes ofexercising the rights set forth in (i) above.
Reference Bank: Fleet Bank of Connecticut, N.A.
Related Leases: The Group Four Acquisition Facility Leases
(as defined in the Agreement Regarding Related
Transactions), together with such other new leases
identified from time to time in the Agreement Regarding
Related Transactions.
Related Parties: Collectively, each Person that may now or
hereafter be a party to any Related Party Agreement other
than the Meditrust Entities.
. Related Partv Aareement: Any agreement, document or
instrument now or hereafter evidencing or securing any
Related Party Obligation, including, without limitation, the
Related Leases.
Related Partv Default: The occurrence ofa default or breach
ofcondition continuing beyond the expiration of any
applicable notice and grace periods, if any, under the terms
of any Related Party Agreement.
Related Partv Obliaations: Collectively, all iizdebtedness,
covenants, liabilities,
obliaations, aareements and undertakings due to, or made for
the benefit of, Lessor or any of the other Meditrust
Entities by Lessee or any other member ofthe Leasing Group
or any oftheir respective Affiliates in connection with any
ofthe properties described in Exhibit F to the Aareement
Regarding Related Transactions, as the same may be modified
and amended from time to time; whether such indebtedness,
covenants, liabilities, obligations, agreements and/or
undertakinas are direct or indirect, absolute or continaent,
liquidated or unliquidated, due or to become due, joint,
several orjoint 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 ofany ofthe Extended
Terms.
Rent Adjustment Rate: 320 basis points over the Index.
Rent Insurance Proceeds: As defined in Section I3.8.
Residenee Aareement: All contracts, agreements and consents
etecuted by or on behalf of any resident or other Person
seeking services at the Facility, including, without
limitation, assionments ofbenefits and guarantees.
l7
Third Partv Pavnrs: 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 Primarv 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 faithjudgment 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 Delavs: Delays due to strikes, lockouts,
inability to procure materials, power failure, acts of God,
govemmental 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 ofeither party hereto.
Larade Rennvatinns: Repair and refurbishina other than
normal janitorial, cleaning and maintenance activities.
Work: As defined in Section I 3.1.1.
Work Certifieates: As defmed in Section 1 i.l.4.
Working Capital Loan: As defined in Section 6.1.?.
Working Capital Stock Pledge: As defined in Section 16.1
(h).
2.2 Rules of Constructinn. The following rules
ofconstruction shall apply to the Lease and each ofthe 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) true 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 arid
e:cpenses of attorneys who are employees of an Affiliate of
Lessor; (e) references to Leased Property shall be deemed to
include references to all
19
r
ofthe Leased Property and references to any portion thereof;
(references to the Lease Obligations shall be deemed to
include references to all ofthe Lease Obligations arid
references to any poition thereof; (g) references to the
Obligations shall be deemed to include,reference to all
ofthe Obligations and references to any portion thereof; (h)
the terni "including", wheii 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 nonlimiting
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 foim shall apply only to such
financial statements as relate to a period during any
poition 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
ofthe 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 ofthe
United States of America, at Lessor's address set foith
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 Propeity, as follows.
3.1.1 Base Rent: From and after the Commencement Date,
Lessee shall pay to Lessor a base rent (the "Base Rent") per
annum which is equal to THREE HUNDRED FIFTY THREE THOUSAND
SIX HUNDRED EIGHTY TWO DOLLARS ($353,682) and that is
payable in advance in equal, consecutive monthly
installments due on the first day of each calendar month,
commencing on March 1,1998 ; 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 Meditiust 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
propoitionate 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 Commencenient 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
March 1, 2000 (the "Additional Rent Accrual Date") and shall
be payable during the Term, quarterly in arrears, commencing
on the first day of the first Fiscal Quaiter occurring
following the
20
Additional Rent Accrual Date ("Additional Rent Commencement
Date") and there shall be an annual reconciliation as
provided in Sectioii 3.Z- tielow.3.2 Calculation and Pavment
of Additional Rent: Annual Reconciliation.3.2.1 Officer's
Certificate and Proration. Each quarterly payment of
Additional Rent shall be delivered to Lessor, together with
an Officer's Certificate setting forth the calculation
thereof, within thirty (30) days after the end ofthe
corresponding quarter. Additional Rent due for any portion
of any calendar year shall be prorated accordingly.
3.2.2 Annual Statement. In addition, on or before the first
day of April ofeach year following any calendar year for
which Additional Rent is payable hereunder, Lessee shall
deliver to Lessor an Officer's Certificate, reasonably
acceptable to Lessor and certified by the chief financial
officer of Lessee, setting forth the Gross Revenues for the
immediately preceding calendar year.
- -3.2.3 Defcits. Ifthe Additional Rent, as finally determined
for any calendar year (or portion thereof, exceeds the sum
ofthe 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 (Sa%) of the Additional
Rent- which was previously paid to Lessor with respect to
said calendar year, then Lessee shall also pay Lessor
interest on such deficit at the Overdue Rate from the date
that such payment should have been made by Lessee to the
date that Lessor receives such payment.
3.2.4 Overpayments. Ifthe Additional Rent, as fnally
determined for any calendar year (or portion thereof, is
less than the amount previously paid with respect thereto by
Lessee, Lessee shall notify Lessor either (a) to pay to
Lessee an amount equal to such difference or (b) to grant
Lessee a credit against Additional Rent next coming due in
the amount of such difference.
3.2.5 Final Determination. The obligation to pay Additional
Rent shall
survive the expiration or earlier termination of the Term
(as to Additional Rent payments that are due and payable
prior to the expiration or earlier termination of the Term
and during any periods that Lessee remains in possession of
the Leased Property), and a final reconciliation, taking
into account, among other relevant adjustments, any
contractual allowances which related to Gross Revenues that
accrued prior to the date of such expiration or earlier
termination, but which have been determined to be not
payable and. Lessee's good faith best estimate of the amount
of any unresolved contractual allowances
,shall be made not later than two (2) years after said
expiration or termination date. Within sixty (60) days after
the expiration or earlier termination of the Term, Lessee
shall
2l
advise Lessor of Lessee's best estimate of the approximate
amount of such adjustments, which estimate shall not be
binding on Lessee or have any legal effect whatsoever.3.2.6
Best Efforts To Maximize. Lessee further covenants that the
operation of the Facility shall be conducted in a manner
consistent with the prevailing standards arid practices
recognized in the assisted living industry as those
customarily utilized by reputable business operations.
Subject to any applicable Legal Requirements, the members of
the Leasing Group shall use their best efforts to maximize
the Facility's Gross Revenues.
3.3 Confirmation and Audit of Additional Rent.
3.3.1 Maintain Accounting Systems. Lessee shall utilize, or
cause to be utilized, an accounting system for the Leased
Property in accordance with usual and customary practices in
the assisted living industiy 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 32 above has been
made), adequate records conforming to such accounting system
showing all Gross Revenues for such calendar year.
3.3.? Audit Bv 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.? and in connection with such audits, to
examine Lessee's records wzth 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 re5ulations.
3.3.3 Deficiencies and Overpavments. If anv such audit
discloses a deficiency in the reporting of Gross Revenues,
and either Lessee aarees with the result of such audit or
the matter is compromised, Lessee shall forthwith pay to
Lessor the amount ofthe 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 contraiy herein,
with respect to any audit that is commenced more than two
(2) years after the date Gross Revenues for any calendar
year are repoirted 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 Affliate thereof. Ifany audit conducted for Lessor
pursuant to the provisions hereof discloses that (a) the
Gross Revenues actually received by Lessee for and calendar
vear exceed those reported by
22
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 ofsuch
difference.
3.3.4 Survival. The obligations of Lessor and Lessee
contained in this Section shall survive the expiration or
earlier termination ofthis Lease.
3.4 Additional Charaes. Subject to the rights to contest as
set forth in Article 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 everv 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 ofthe 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
ofthis Lease, Lessee shall be relieved of its obligation to
pay such Additional Charges to any other Person to whieh
such Additional CharQes 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 ofthe installments of Base Rent, and the payments of
Additional Rent and, if and to the extent payable to Lessor,
Additional Charges throughout the Term.
3.6 No Lessee Termination or Offset.
3.6.1 No Termination. Except as may be otherwise
specifically and expressly provided in this Lease, Lessee,
to the extent not prohibited by applicable law, shall remain
bound by this Lease in accordance with its terms and shall
neither take any action without the consent of Lessor to
modifv, surreizder or terminate the same, nor seek nor be
entitled to any abatement, deduction, deferment or reduction
of Rent, or set-off aaainst the Rent. nor shall the
respective obliQations of Lessor and Lessee be otherwise
affected by reason of (a) any Casualty or any Takina of the
Leased Property, (b) the lawful or unlawful prohibition of,
or restriction upon, Lessee's use ofthe 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
Doc.ument or any Related Party Aoreement, (e) any
bankruptcy, insolvency, reoraanization, composition,
readjustment,
23
the foregoing, other than a. discharge of Lessee from any of
this Lease Obligations as a matter of law.
3.6.2 Waiver. Lessee to the fullest extent not prohibited by
applicable law, hereby specifically waives all rights,
arising from any occurrence whatsoever, which may now or
hereafter be conferred upon it by law to (a) modify,
surrender or terminate this Lease or quit or surrender the
Leased Property or (b) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent or other sums
payable by Lessee hereunder, except as otherwise
specifically and expressly provided in this Lease.
3.6.3 Independent Covenants. The obligations of Lessor and
Lessee hereunder shall be separate and independent covenants
and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events
unless the obligations to pay the same shall be terminated
pursuant to the express provisions ofthis Lease or (except
in those instances where the obligation to pay expressly
survives the termination ofthis Lease) by termination ofthis
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 ofthe Award received by Lessor, and (ii) in the case
ofsuch 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 ofthis Section 3.7, the "net amount ofthe
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").
24
NORMAL.STYIBMGRAPH 3.8 Leasino 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- estatilish_ ed with a Person designated by the
Lessor pursuant to an escrow arrangerrient 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 ofthe Lessor) and in no
event shall the Leasing Commitment Fee be disbursed
therefrom, in whole or in part, unless and until so
requested by the Lessor and (b) the Lessor shall bear the
risk of loss of or misappropriation of the Leasing
Commitment Fee by such escrow agent.
ARTICLE 4
IMPOSITIONS: TAXES; UTILITIES:
INSURANCE PAYMENTS
4.1 Payment of Impositions.
4.1.1 Lessee To Pav. Subject to the provisions of Article
15, Lessee will pay or cause to be paid all Impositions
before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing
authority where feasible, and Lessee will promptly furnish
Lessor copies of official receipts or other satisfactory
proof evidencing payment not later than the last day on
which the same may be paid without penalty or interest.
Subject to the provisions of Article 15 and Section 4.1.2,
Lessee's obligation to pay such Impositions shall be deemed
absolutely fixed upon the date such Impositions become a
lien upon the Leased Property or any part thereof.
4.1.2 Installment Elections. Ifany such Imposition may, at
the option ofthe taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the unpaid balance
of such Imposition), Lessee may exercise the option to pay
the same (and any accrued interest on the unpaid balance of
such Imposition) in installments and, in such event, shall
pay such installments during the Term hereof (subject to
Lessee's right to contest pursuant to the provisions of
Section 4.1.5 below) as the same respectively become due and
before any fine, penalty, premium, further interest or cost
may be added thereto.
4.1.3 Returns and Reports. Lessor; at its expense, shall, to
the extent
permitted by applicable law, prepare and file all tax
returns and reports as may be required by Govemmental
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 law.s and regulations, prepare and file all
other tax returns
25
and reports in respect ofany Imposition as may be required
by Governmental Authorities. Lessor and Lessee shall, upon
request ofthe 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 Govermentalized
Authoizty classifies any property covered by this Lease as
personal property, Lessee shall file all personal property
tax returns in suchjurisdictions where it may legally so
fle. 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 ofthe obligation to do so
in each year at least thirty (30) days prior to the date any
protest must be fled, Lessee will be provided with copies
ofassessment notices so as to enable Lessee to file a
protest.
4.1.4 Refunds. Ifno Lease Default shall have occurred and be
continuing, any refund due from any taxing authority in
respect ofany 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. Protest. Upon eiving 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.
42 Notice of Impositions. Lessor shall give prompt notice to
Lessee of all Impositions payable by Lessee hereunder of
which I.essor 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 ofthe period during which the expiration or earlier
termination ofthe 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 Utilitv Charaes. 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
suirenders the Leased Property in the manner required by
this Lease.
26
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 ( i0) 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 ofthe failure of Lessee either to
comply with the insurance requirements in Article 12, or to
pay the premiums for such insurance, or to deliver such
policies or certificates thereof to Lessor at the times
required hereunder, Lessor shall be entitled, but shall have
no obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be a demand obligation of
Lessee to Lessor.
4.6 Deposits.
4.6.1 Lessor's Option. At the option of Lessor upon the
occurrence ofan 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 (1/1?th) ofthe 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/l2th)
ofthe premiums for the insurance policies required pursuant
to Article 12 which are payable within one ( 1 ) year after
said Monthly Deposit Date. Ifthe amount ofthe 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 wiih 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 (I/l2th) ofthe estimated
amount payable within one ( 1 ) year after said Monthly
Deposit Date, if such additional deposit is required in
order to provide to Lessor a sufficient fund from which to
make payment of all Impositions on or before the next due
date of any installment thereof, or to make payment of any
required insurance premiums not later than the due date
thereof.
4:6.2 Use of Deposits. The sums deposited by Lessee under
this Section 4.6 shall be held by Lessor and shall be
applied in payment of the Impositions or insurance
27
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.fi.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 ofinvestment vehicles, (b) for any consequent
loss ofprincipal or interest or (c) for any unavailability
of funds based on such choice of investment. Furthermore,
Lessor shall bear no responsibilitv for the financial
condition of, nor any act or omission by, Lessor's
depositorv 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 etists
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 ofpayment, 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 prerriium when due, for which a sufficient deposit
exists, Lessee shall not be in default hereunder by virtue
ofthe failure of Lessor to pay such Imposition or such
insurarice premium and Lessor shall pay any interest or fine
assessed by virtue of Lessor's failure to pay such
Imposition or insurance premium.
4.6.3 Deficits. If for any reason anv 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), toaether 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 taY 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 llave been payable under the revised
estimate.
4.6.4 Other Properties. Ifany Imposition shall be levied,
charged, filed,
assessed, or imposed upon or against the Leased Property,
and if such lmposition 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 Propertv but for which a lie-n exists
P P
or can exist on the Leased Pro ertv, then, at Lessor s
reasonable discretion, the computation ofthe 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
lmposition.
28
Intended Use, and such Tangible Personal Property and
replacements thereof, shall be at all times the property of
Lessee. 5.2.2 S.ufficient Personal Propertv. Lessee shall
maintain, during the erttire 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 ofthe Tangible Personal
Property and Lessor's Personal Property during the Term as
are necessary to enable the operation ofthe Facility in
accordance with the requirements of this Lease for the
Primary Intended Use.
52.3 Removal and Replacement; Lessor's Option to Purchase.
Lessee shall not remove from the Leased Property any one or
more items of Tangible Personal Property or Lessor's
Personal Propezty (whether now owned or hereafter acquired),
the fair riiarket value of which exceeds [TWENTY-FIVE
THOUSAND DOLLARS (25,000), individually or ONE HUNDRED
THOUSAND DOLLARS ($100,000.00)) collectively, ifsuch
Tangible Personal Property or Lessor's Personal Property is
necessary to enable the operation ofthe 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 ofthe 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 thereofwithin twenty (?0) days
prior to such expiration or termination, of (a) acquiring
the Tangible Personal Property (pursuant to a bill of sale
and assign.tnents of any equipment leases, all in such forms
as- are reasonably satisfactory to Lessor) upon payrnent 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 otlzer 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 Tanaible 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 othenvise disposed of by
Lessor without first giving notice thereof to Lessee,
without any payment to Lessee and without any obligation to
account therefor.
30
ARTICLE fi
SECURITY FOR LEASE OBLIGATIONS
6.1 Securitv for Lessee's Obligations; Permitted Prior
Securitv Interests.
6.1.1 Secnritv. In order to secure the payment and
performance ofall ofthe 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
inteoral part ofthe operation ofthe 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 foregoina, it is acknowledged
and a5reed that all revenues generated from the operation of
such additional real property shall be irlcluded 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.
In addition to the foregoing, Guarantor shall provide the
following to secure the Obliaations and the obliaations
under the Guaranty of Lease Obligations:
(a) a first lien on and security interest in substantially
all of its assets related to the Leased Property; and
31
(b) a first lien and exclusive pledge and assignment of, and
security interest in, all Permits and Contracts, as mbre
particularly provided- for iri.aCollateral Assignment of
Permits and Contracts froizi Guarantor to- Lessor.-.
6.1.2 Purchase-Monev Securitv 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 ofsuch 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, ofeach 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
crosscollateralized with any other obligation. Security
interests granted by Lessee in full compliance with the
provisions ofthis Section 6.1.? are referred to as
"Permitted Prior Security Interests".
6.1.3 Receivables Financina. Notwithstanding any other
provision hereofregarding 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 ofcredit (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 Airticle I 6 or Lessor notifies in writina such
lender of Lessor's intention to invoke its right to
reinstate its first
b
priority security interest in the Receivables.
32
6.2 Guaranrr. All ofthe 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 Propertv. Lessee acknowledges
that Lessee has caused the Leased Property to be sold to
Lessor and has concunently entered into this Lease. Lessee
acknowledges receipt and delivery ofpossession ofthe 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 ofthe
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%O.R 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-COvIPLIANCE OF THE
LEASED PROPERTY WITH ALL APPLICABLE REQUIREMENT ITS OF LAW,
INCLUDING BUT NOTIS LIMITED TO ENVIRONMENTAL LAWS AND
ZONING OR LAND USE LAl VS.
Upon the request of Lessor, at any time and from time to
time during the Term, Lessee shall engage orie (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 ofthe
Leased Property and the Facility as Lessor may reasonablv
request in order to detect (a) any structural deficiencies
in the Leased Improvements or the utilities servicina 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 ofany ofthe Lease
Documents. In the event that Lessor reasonably determines
that the results of such testing or inspections are
unsatisfactory, within thirty ( i0) 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.
33
7.2 Use ofthe Leased Propertv; Compliance; Management.
7.2.1 Obligation to Operate. Lessee shall continuously
operate-the Leased Property in accordance with the Primary
Intended Use and the Other Permitted Uses and maintain its
qualifications for licensure and accreditation as required
by all applicable Legal Requirements.
7.2.2 Permitted Uses. During the entire Term, Lessee shall
use the Leased Property, or permit the Leased Property to be
used, only for the Primary Intended Use and, if applicable,
the Other Permitted Uses. Lessee shall not use the Leased
Property or permit the Leased Property to be used for any
other use without the prior written consent of Lessor, which
consent may be withheld in Lessor's sole and absolute
discretion.
7.2.3 Compliance With Insurance Requirements. No use shall
be made or permitted to be made of the Leased Property and
no acts shall be done which will cause the cancellation of
any insurance policy coverilzg 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
ofthe Insurance Requirements. Furthermore, Lessee shall, at
its sole cost and expense, take whatever other actions that
may be necessarv to comply with and to insure that the
Leased Property complies with all Insurance Requirements.
7.2.4 No Waste. Lessee shall not commit or suffer to be
committed any waste on, in or under the Leased Property, nor
shall Lessee cause or permit any nuisance thereon.
7.2. No Impairment. Lessee shall neither permit nor
knowingly suffer the Leased Property to be used in such a
manner as (a) might reasonably tend to impair Lessor's title
thereto or (b) may reasonably make possible a claim or
claims of adverse usage or adverse possession by the public
or of implied dedication ofthe Leased Property.
7.?.6 l\To Liens. Except as permitted pursuant to Section
6.1.?, 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 I,eased 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 ofthe Leasing Group to comply with, all
applicable Leaal Requirements relating.to the use,
operation, maintenance, repair and restoration of the Leased
Propertv, whether or not compliance therewith shall require
structural change in any ofthe Leased Propertv or interfere
with the use and
34
enjoyment ofthe Leased Property and (b) procure, maintain
and comply with (in all material respects), and shall cause
every other member of the Leasirlg Crroup to procure
maintain arl 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 Peririzted Uses, and for
compliance with all of the terms and conditions of this
Lease. Unless a Lease DeEault has occurred or any event has
occurred which, with the passage oftime 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 I below.
7.4 Management Agreements. Throughout the Term, Lessee shall
not enter into any Ivlanagement 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 Aareement 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
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 aive to, or
receive from any Person, based upon the occurrence, or
alleged occurrence, of any default in the performance ofany
covenant, condition, promise or obligation under any
Manaaement 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 ofthe
licensed operator of the Leased Property under and pursuant
to any Management Aareement, Lessor, or a lawfully
appoin.ted receiver ofthe Leased Property, may, at their
respective options (and without any obliaation to do so),
after five (5) days' prior notice to Lessee (except in the
case of an emeraency) enter upon the Leased Property and
perform, or cause to be performed, such work, labor,
sen.ices, 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 obliaation,
and.any amount so paid or advanced by Lessor or such
receiver and all costs and etpenses reasonably incurred in
connection therewith (including, without limitation,
attorneys' fees and expenses and court costs), shall be a
demand obliaation of Lessee to Lessor or such receiver, and
Lessor shall have
35.
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 Partv Pavor Proarams. No
provision ofthis Lease shall be deemed to require Lessee to
commence participation in any Third Party Payor Program or
any vlanaged 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, I 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 modifcations
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. I
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 ofwhich 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 ofthis Section 8.I constitute Material Structural
Work, Lessee shall obtain Lessor's prior written approval
(which approval shall not be unreasonably withheld) ofthe
specific repairs, replacements, renovations, alterations and
modifications to be performed bv or on behalf of Lessee in
36
connection with such Nlaterial Structural Work.
Notwithstanding the foregoing, in the event of a bona fide
emergency during which Lessee is unable to contact 2he
appropriate representatives of Lessor, Lessee may commence
such Material Structural Work as :rnay be necessary in order
to address such emergency without Lessor's prior approval,
provided, however, that Lessee shall immediately thereafter
advise Lessor ofsuch emergency and the nature and scope
ofthe Material Structural Work commenced and shall obtain
Lessor's approval ofthe remaining Material Structural Work
to be completed.
8.12 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 ofany nature or
description to the Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto), whether ordinary or
extraordinarv, 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 NIav Not Obliaate Lessor. Nothing contained
herein nor arly 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 ofor 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 fumishina 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 fumishing of any materials or
other property fumished to the Leased Property at or bv the
request of Lessee or any other Person other than Lessor.
Lessee shall notifv any contractor, subcontractor, laborer,
materialman or vendor providing any labor, services or
materials to the Leased Property ofthis provision.
8.? Encroachments; Title Restrictions. Ifany ofthe Leased
Improvements shall, at any time, encroach upon any property,
street or rioht-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
ofothers under any easement, right-of way or other Lien to
which the Leased Propertv is now or hereafter subject. then
promptlv upon the request of Lessor, Lessee shall, at its
sole cost and eYpense, subject to Lessee's riaht to contest
the etistence ofany encroachment, violation or impairment as
set forth
37
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
(li.) iziake such, alterations to the Leased Improvements,
and take such other actions, as Lessee in-the good faith
e:cercise of its judgment deems reasonably practicable, to
remove sucli encroachment, or to such violation or
impairment, including, ifnecessary, the alteration ofany
ofthe 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 ofthe 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 ofthis
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 ofan insurer
under any policy oftitle 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 ofsuch 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 Facilitv), 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.
38
9.2.1. No Liens. Lessee shall not be permitted to create any
Lien on the Leased Property in connection with any Capital
Addition or Material Structural Work (including, without
limitation, Liens relating to the provision of financirig
for a Capital- Addition) other than Liens expressly
permitted by the terms and provisions ofthis Lease
Agreement.
9.2.2 Lessee's Pro osal Re ardin Ca ital 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 ofthe
foregoing, each such proposal pertaining to any Capital
Addition shall indicate the approximate projected cost of
constructing such Capital Addition, the use or uses to which
it will be put and a good faith estimate of the change, if
any, in the Gross Revenues that Lessee anticipates will
result from the construction of such Capital Addition.
9.2.3 Lessor's O tions Regarding Capital Additions and
Material Structural Work. Lessor shall have the options of:
(a) denying permission for the coizstruction 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
fnance the construction of the Capital Addition, subject to
compliance with the terms and conditions of Section 9.?.l,
Section 9.4, Section 13.1.3, all applicable Legal
Requirements, all other requirements ofthis 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, 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 (r) Lessor
has not offered to finance the construction ofthe 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.?.1, or pay for such construction itself. In the event
Lessee declines to accept the financinc offered by Lessor or
if Lessor has not offered such financing to Lessee and
proposes to obtainina financing from another Person, Lessee
shall inform Lessor- in writina of the terms and conditions
of such financina and shall provide Lessor with a copy of a
commitment letter evidencina the same and Lessor may, by
givina notice
39
thereofto 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 shal-1
noI 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.
92.4 Lessor Nlav Elect to Finance Capital Additions. If
Lessor elects to offer financing for the proposed Capital
Addition and Lessee accepts Lessor's financing proposal, the
prpvisions of Section 9.3 shall apply.
9.3 Capital Additions Financed bv Lessor.
9.3.1 Advances. All advances offunds for any such financing
shall be made in accordance with Lessor's then standard
construction loan requirements and procedures, which may
include, without limitation, the requirements and procedures
applicable to Work under Sections 13.1.3 and 13.1.4.
9.3.2 Lessor's General Requirements. If Lessor agrees to
fnance 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
followinD:
(a) prior to any advance of fiznds, (i) any information;
opinions, . certifcates, Permits or documents reasonably
requested by Lessor or any applicable Financina Party which
are necessarv to confirm that Lessee is reasonably eYpected
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 Paity
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, e;ccept only for
those Permits which cannot in the normal course be obtained
prior to commencement or completion of the construction;
nrovided, that Lessor and any applicable Financing Party are
furnished with reasonable evidence that the same is
reasonably e;cpected to be available in the normal course
ofbusiness without unusual condition;
(b) prior to any advance of funds, an Officer's Certificate
and, if
' a
requested, a certifcate from Lessee s architect, settin5
forth in reasonable detail the projected (or actual,
ifavailable) 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
40
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, chariges iri the Bas:e 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 e;ccept those approved,by Lessor;
(e) upon completion ofthe 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 ofthe 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 oftitle insurance
insurina fee simple title to any Additional Land conveyed to
Lessor pursuant to subparagraph (d) free and clear of all
Liens e;ccept those approved by Lessor and (ii) an owner's
policy oftitle insurance reasonably satisfactory in folm and
substance to Lessor and a lender's policy oftitle 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 ofthe
Leased Property by an M.A.I. appraiser acceptable to Lessor,
which states that the Fair Market Value ofthe Leased
Propertv upon completion ofthe 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 twentv-five percent (125%) ofthe Capital
Addition Cost; and
(i) during or following the advancement of funds, prints of
architectural and enaineering drawinQs relating to the
Capital Addition and such other materials, including,
without limitation. the modifications to outstandine
policies of title insurance contemplated by subsection
above, opinions of counsel, appraisals, surveys, certi ied
copies of duly adopted resolutions of the board of directors
of Lessee authorizing the execution and delivery of the
lease
41
amendment and any other documents and instruments as may be
reasona_bly required by Lessor and any applicable Financing
Party.
9.3.3 Payment of Costs. By virtue ofmaking a request to
fnance 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 ofthe 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, signifcantly alter the character or purpose or
detract from the value or operating efficiency ofthe Leased
Property, or significantly impair the revenue-producing
capability ofthe 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 Propeirty 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 buildinas or other structures
or utilities, unless Lessee shall have obtained the prior
writteii approval of Lessor, which approval may be withheld
in Lessor's sole and absolute discretion and (c) alI
proposed Capital Additions and Material Structural Work
shall be architecturallv intearated and consistent with the
Leased Property.
9.Non-Capital Additions. Lessee shall have the obligation
and right to make repairs, replaceme.nts 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 satisfv the
a
conditions of Section 9.4. Lessee shall have the right, from
time to time, to make additions, modifications or
improvements to the Leased Property of 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 ofany such repair, replacement,
alteration, addition, modification or improvement shall be
paid by Lessee and the results thereofshall be included
under the terms ofthis 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 1 i. I. i, all applicable Legal
Requirements and all other applicable requirements of this
Lease; provided, however, that in the event of a bona fide
emergency durina w.hich 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
42
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 ofany ofthe Leased
Improvements which is not a Capital Addition or Material
Structural Work shall be etempt from the requirements of
Section 9.? hereof.
. 9.6 Com ensation to Lessee for Ca ital Additions Paid For
or Financed bv
Lessce. Upon the expiration or earlier termination ofthis
Lease, except by reason ofthe 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 (I8) months after the date
ofexpiration or other termination ofthis Lease, bearing
interest at a rate equal to one hundred ten percent ( 1 I
O%) of the applicable federal rate (determined at the time
of execution of such note pursuant to Section 1 ?74 of the
Code or any successor section thereto), compounded
semiannually, or, if no such rate eYists, or sucti rate is
in e:tcess of that permitted under applicable law, at the
Prime Rate, which interest shall be payable monthly, and
which note shall be secured by a mortaaQe on the Leased
Property, subject to all Liens on the Leased Property at the
time of such purchase; or
(c) By Lessor assianing to Lessee under appropriate written
instruments the right to receive an amount equal to the
Added Value Percentage (determined as ofthe expiration of
earlier tennination ofthis Lease) from all rent and other
consideration receivable by Lessor under anv re-lettina or
other disposition ofthe 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 ofoperating 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 Propeirty in which
event Lessor shall pay to Lessee the outstanding balance
ofthe Fair Market Added Value in accordance with
Subparagraph (a), (b), or (d) ofthis Section 9.6, after
deducting any amounts received bv Lessee under this
Subparagraph (c); or
(d) Such other arrangement regarding such compensation as
shall be mutually acceptable to Lessor and Lessee.
43
ARTICLE 10
WARRANTIES AND REPRESENTATIONS
10.1 Representations
and Warranties. Lessee hereby represents and warrants to,
and covenants and agrees with, Lessor that:
10.1.1 Existence; Power; Qualification.
Lessee is a corporation duly organized, validly eYisting and
in good standing under the laws ofthe State of Washington.
The Lessee has requisite power to own and operate its
properties and to carry on its businesses as presently
conducted and as proposed to be 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 and as proposed to be conducted. As of the date of
this Agreement, the Lessee has no Subsidiaries and is not a
member of any partnership orjoint venture. Attached hereto
as EXHIBIT C is a true and correct list of all of the
Persons owning any interest in the Lessee and their
respective ownership interests in the Lessee.
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 dulv eYecuted and delivered by Lessee, and
each is a legal, valid and binding obliaation of Lessee,
enforceable in accordance with its terms.
10.1.3 Sin;le 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 fscal year of
Lessee, and the Guarantor is the Fiscal Year.
10.1.4 No Violation. The execution, delivery and performance
ofthe Lease Documents by the members ofthe Leasing Group and
the consummation by the members of the Leasing Group of the
transactions thereby contemplated shall not result in any
breactz 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 ofany obliaation ofany
such member ofthe Leasing Group under any of the Permits or
Contracts or any other contract, mortgage, lien, lease,
aareement, instrument, franchise, arbitration award,
judament, decree, bank loan or credit agreement, trust
indenture or.other instrument to which any rriember of the
Leasina Group is a partv
44
or by which any member ofthe Leasing Group may be bound or
affected and do not violate or contravene any Legal
Requirement.
10.1. Consents and ApProvals. Except as already obtained or
filed, as the case may be, no consent or approval or other
authorization of, or eYemption by, or declaration or filing
with, any Person and no waiver ofany 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 ofthe Lease Documents to which it is a party) and the
frst priority of any Liens granted under the Lease
Documents, except the filing of the Financing Statements.
10.1.6 No Liens or Insolvencv Proceedings. Each member ofthe
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, 5amishments 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 Propertv or the
ownership, construction, development, maintenance,
manaQement, 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
equitv, or before or by any arbitrator or Governmental
Authority.
10.1.7 Intentionallv deleted.
10.1.8 Commercial Acts. Lessee's performance ofand
compliance with the obliaations and conditions set forth
herein and in the other Lease Documents will constitute
commercial acts done and performed for commercial purposes.
45
10.1.9 Adequate Capital, Not Insolvent. After giving effect
to the consummation ofthe transactions contemplated by the
Lease_ Documerits, each. memb_er 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 ofthe 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. i.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. The 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 I.essee which has not been fully subordinated
to the Lease Obligations.
10.1.12 Taxes Current. Each member ofthe 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 oftax claim or deficiency
received by each such member ofthe Leasing Group. No tax
liability has been asserted by the Internal Revenue Service
against any member of the Leasina Group or any other
federal, state or local taxing authority for taxes,
assessments, impositions, fees or other govemmental charges
(including interest or penalties thereon) in excess ofthose
already paid. -
10.1.13 Financials Complete and Accurate. The financial
statements ofeach member ofthe Leasing Group given to Lessor
in connection with the execution and deliverv ofthe Lease
Documents were true, complete and accurate, in all material
respects, and fairly presented the fmancial condition ofeach
such member ofthe Leasing Group as of the date thereof and
for the periods covered thereby, having been prepared in
accordance with GAAP and such fnancial statements disclosed
all liabilities, including, without limitation, continaent
liabilities, ofeach such memlier ofthe Leasing Group as of
the date thereof. There has been no material adverse chanae
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 rziaterial liabilities, includina, without
limitation, contingent liabilities, ofany such member ofthe
46
Leasing Group arisen or been incurred or asserted since such
date except as otherwise disclosed to Lessor. The
projections heretofore delivered to Lessor coritiriue to be
reasonable (with respect to the material assumptions upon
which sizch projections_aze 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
a
material adverse change in the business, assets or
condition, financial or otherwise of any such member of the
I.easing Group or the Leased Property and (b) no material
depletion of the cash or decrease in working capital of any
such member of the Leasing Group.
10.1.14 Pending Actions, Notices and Reports.
There is no action or investigation pending or, to the best
knowledge and belief of Lessee, threatened, anticipated or
contemplated (nor, to the knowledge of Lessee, is there any
reasonable basis therefor) against or affecting the Leased
Property or any member of the Leasing Group (or any
Affiliate thereof before any Govemmental 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
azv action to trar.sf2r or relocate anv 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 obliaations under the
Lease Documents.
10.1.1 Compliance with Legal and Other Requirements.
(a) Lessee and the Leased Propertv and the ownership,
construction, development, maintenance, manaaement, repair,
use, occupancy, possession and operation thereof comply with
all applicable Legal Requirements and there is no claim of
any violation thereofknown 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, ifany, issued by any Governmental Authority
requiring conformity to any of the applicable Legal
Requirements.
47
10.1.16 No Action By Governmental Authoritv or
Accreditation Bndv. There is no action pending or, to the
best knowledge and belief of Lessee, recommended, by any
Governmental Authority to revoke, repeal, cancel, rriodify,
withdraw or suspend any Perznit 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 Propertv Matters.
(a) The Leased Property is free and clear ofagreements,
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 ofthe
execution and deliverv 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 ofevery 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 aood 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 ofthe Leased
Property in accordance with the Primarv 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 ofthe Leased Property or the Collateral;
(t) The Leased Property abiits 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 tat purposes separate from any real property that
does not constitute a portion of the Leased Propertv and no
portion ofany real property that does not constitute a
portion ofthe Leased Property is part of the same ta;c
parcel as anv part of the Leased Property;
48
(h) All utilities necessary for the use and operation ofthe
Facility are available to the lot lines ofthe Leased
Property:
(i) in sufficient supply and capacity;
(ii) through validly created and etisting easements of
record appurtenant to or encumbering the Leased Property
(which easements shall not impede or restrict the operation
ofthe 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 ofthe Leased Improvements that changed
the foot-print ofany ofthe Leased Improvements, added an
additional story to any ofthe Leased Improvements, decreased
the amount of parking available on the Leased Property or
otherwise involved any alteration which would be reaulated
by applicable zoning requirements, in each case without the
express w-ritten consent of Lessor. EYcept for matters
which have been disclosed to Lessor or concernina which
Lessor has independent actual knowledge, Lessee has no
actual knowlede 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.
l0.1.15 Third Partv Pavor Aareements.
iIeither Lessee with respect to the Facility nor the
Facilitv is qualified as a provider of services under or
participates in any Third Party Payor Proarams and neither
Lessee w'ith respect to the Facility nor the Facility is
accredited by any Accreditation Bodv.
10.1.19 Rate Limitations. The State currently imposes no
restrictions or limitations on rates which may be charged to
private pay residents receivina services at the Facilitv.
10.1.20 Free Care. There are no Contracts, Permits or
applicable Legal Requirements which require that, a
percentaae ofunits in any proaram 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.
49
10.1.21 No Proposed Chang,es. Lessee has no actual knowledge
ofany applicable Legal Requirements which have been enacted,
promulgated or issued -within the eighteen ( I 8) months
preceding the date of this Lease or arly 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 ofincreased 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 ofneed, 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 ofthe ERISA, nor does any
member ofthe 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 ofbenefit 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 404 i of ERISA and
Section 4975 ofthe Internal Revenue Code of 1986, as now or
hereafter amended, respectively.
10.1.23 No Broker. No member ofthe Leasing Group nor any
oftheir 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 ofthe Leasing Group
nor any oftheir respective Affliates has:
(a) made any contributions, payments or gifts of its funds
or property to or for the private use of anv oovemment
official, employee, aaent or other Person where either the
payment or the purpose of such contribution, payment or
gifts is illegal under the laws ofthe United States, any
state thereofor any other jurisdiction (foreian 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
understandina that any part of such pavment was to be used
for any other purpose other than that described in the
documents supportina the payment; or
50
(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.
10.1.2 Nothing Omitted. Neither this Lease, nor any ofthe
other Lease Documents, nor any certificate, agreement,
statement or other document, including, without limitation,
any financial statements concezning the financial condition
ofany 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 beina 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 cunently available to it after due
inquiry, may materially adversely affect the business,
properties, assets or condition, financial or otherwise,
ofany member ofthe Leasing Group or the Leased Property.
10.1.26 No Vlarain Securitv. Lessee is not engaged in the
business of
extending credit for the purpose ofpurchasing or carrying
margin stock (within the meanin5 of Regulation U of the
Board of Governors of the Federal Reserve System), and no
part of the proceeds of the Meditrust Investment will be
used to purchase or carry any margin security or to extend
credit to others for the purpose of purchasing or carrying
anv_ marDin security or in any other manner which would
involve a violation ofany ofthe regulations of the Board of
Governors of the Federal Reserve System. Lessee is not an
"investment company" within the meaning ofthe Investment
Company Act of 1940, as amended.
10.1.27 No Default. No event or state offacts which
constitutes, or which. with notice or lapse of time, or
both, could constitute, a Lease Default has occurred and is
continuing.
10.128 Principal Place of Business. The principal place
ofbusiness and chief executive office of Lessee is located
at 3131 Elliott Avenue, Suite 500, Seattle, Washington
98121- 162 (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 riahts.with respect to hiring;
tenure and conditions of employment, and no member of the
Leasing Gcoup has
51
experienced any material controversy with any Facility
administrator or other e_mployee ofsimilar stature or with
any labor organization which has, or is likely, to have a -
materially adverse effect upon the financial condition
and/ot= 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, desians, 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 Nlanagement Agreemcnts. There is no Management
Agreement in force and effect as ofthe 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 continizing
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.
I.6,10. I.8,10.1.10, I 0.1.14,
10.1.1,10.1.17(b),10.1.17(c),10.1.17(i),10.1.18,10.1.19,10.
1.20,10.1.21, IO.I.22,10.1.?7, I 0.1.?9, in the second
sentelice of Section 10. I. I 2, in the second and third
sentences of Section 10.1.1 i and in the second sentence of
Section 10. I.2 shall not constitute continuina
b
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
FI
I1.1 Status Certificates. At any time, and from tirne 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
52
pursuant to this Section at the request of Lessor shall be
addressed to any prospective purchaser or mortgagee ofthe
Leased Property as Lessor may request and may be relied
upon by Lesspr and any such prospective purchaser or
mortgagee ofthe Leased Property.
- -
11.2 Financial Statements; Renorts: 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
ofeach of their respective fiscal years, (i) a copy of the
Consolidated Financials for each of (c) 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 ofthe 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
separate statements, certified as true and correct by
Lessee, the. Gua:aiitor, any IVlanager 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 inquiiy, 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 enaaged 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
Sub!eases as ofthe last day of such fiscal year, the
respective areas demised thereunder, the names of the
Sublessees thereunder, the respective etpiration dates ofthe
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 E;cpenditure.
(b) Monthlv Statements of Lessee. Within thiirty (30) days
after the end of each calendar month durina the pendencv of
this Lease, (i) a statement certified as true and correct by
Lessee setting forth the Gross Revenues of the
53
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 ofpayment) 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) Quarterlv Statements ofthe Guarantor. Within forty-five
(45) days after the end of each fiscal quarter, unaudited
Consolidated Financials for the Guarantor certified as tiue
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 A uthority having jurisdiction over assisted
living matters and (ii) Contracts (involving payments in the
agaregate in excess of $ 100,000 per annum), includina,
without limitation, all Provider Agreements.
Contract Notices. Promptly but in no event more than ten
(10) days after the receipt thereof, true and complete
copies ofany 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
HLTNDRED THOUSAND DOLLARS (100,000) per annum) other than
those issued in the ordinary course ofbusiness.
(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 th.at are issued in the
ordinarv course of business), if any, terminations and
notices of any kind (other than those notices that are
furnished in the ordinary course of
54
business) issued or provided to Lessee, the Manager or any
Sublessee by_ any Govemmental Authority, Accreditation Body
or any Third Party I'ayor, including, without limitation,
any notices pertaining to any delirlquency in; or proposed:
revision of, Lessee's, the NIanager's or any Sublessee's
obligations under the t'-erms 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 ofthe Leased Property;.
including, without limitation, financial statements,
certificates and consents from accountants and all other
financial and licensina/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, avoid
constitute a Lease Default, a written statement of Lessee
settina forth the details ofsuch 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 ofall
actions, suits and proceedings before any Governmental
Authority or Accreditation Body which could have a material
adverse effect on any member of the LeasinQ Group or the
Leased Property.
(1) 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
55
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
thari:ten (10) days after Lessee acquires knowledge thereof,
written notice of:
(i) the potential termination ofany Permit or Provider
Agreement necessary for the operation of the Leased
Property;
(ii) any loss, damage or destruction to or ofthe Leased
Property in etcess 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 (t) Facility
administrator or Facility employee of similar stature or (y)
any labor organization or (z) the Manager or any employee
ofthe Manager which has, or is reasonably likely to have, a
materially adverse effect on the financial condition and/or
operations ofthe Facility;
(iv) any controversy that calls into question the
eligibility ofthe 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 e:cpected 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 ofany member ofthe Leasing Group, which could
reasonably be eYpected 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.
56
(n) Responses To Inspection Reports. Within thirty (30) days
after receipt of an inspection report relating to the Leased
Property frorn Lessor, a, written response describing in
detail prepared plans to address corscems 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 ofall
reports, ifany, 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 repoirt detailing the capital expenditures made
in the then current Fiscal Year and on or before the end of
the first month ofeach Fiscal Year, Lessee. any such
Sub?essee and/or any such Manaaer shall submit to Lessor
revised finalized versions of such budgets and report.
(q) Working Capital Loan. Promptly after receipt thereof,
copies of any notices Lvith respect to default from a lender
ofa Working Capital Loan.
11.2.2 Responsible Officer. Any certificate, instrument,
notice, or other
document to be provided to Lessor hereunder by any member
ofthe Leasing Group shall be signed by an executive officer
ofsuch member (in the event that any ofthe foregoing is not
an individual), having a position of Vice President or
hiaher and with respect to financial matters, any such
ceitificate, instrument, notice or other document shall be
sianed by the chief financial officer of such member.
11.?.3 No 1\Iaterial Omission. No ceirtificate, 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 ofa 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 Confidentialitv. Lessor shall afford any informat.ion
i'eceived pursuant to the prov isions 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 anv such information as Lessor deems necessary
or appropriate in connection with anv sale, transfer,
conveyance, participation
57
or assignment of the Leased Property or any of the Lease
Documents or any interest therein and (b) use such
information in any litigatiort or arbitration proceeding
between Lessor and any member of the Leasing Group. Without
liriliting the foregomg, Lessor may also utilize any
information fumished to it hereunder as and to the extent
(i) counsel to Lessor determines that such utilization is
necessary pursuant to I 5 U.S.C. 77a-77aa or I Ll.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
ofthe 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
ofany such information under applicable confidentiality law
or regulations, to the eYtent 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
ofthe Leased Property:
11.3.1 Debt Coverage Ratio of Lessee. From and after the
second
anniversary ofthe date hereofuntil the fourth anniversary
thereof, the Facility and all other Group Four Acquisition
Facilities shall maintain for each Fiscal Quarter an
aggregate Debt Coverage Ratio equal to or greater than 1. I
to 1 and from and after the fourth anniversary thereofand
for the remainder ofthe Term, the Facility and all other
Group Four Acquisition Facilities shall maintain for each
Fiscal Quarter an aggregate Debt Coverage Ratio equal to or
greater than 1.2 to I.
11.3.2 Intentionallv Deleted.
11.3.3 Intentionallv Deleted.
11.3.4 Intentionallv Deleted.
11.3. Current Ratio - Guarantor. From and after December i
1,1999 and for the remainder of the Terzn, 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 Intentionallv Deleted.
11.3.7 Net Worth - Guarantor. The Guarantor shall maintain,
at all times, a Net Worth ofnot less than FORTY VIILLION
DOLLARS (540,000,000).
58
11.3.8 No Indebtedness. The 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 incuzred upon
customary terms in the ordinary course of business, (iv)
Indebtedness created in connection with any financing ofany
Capital Addition, provided, that each such financing has
been approved by Lessor in accordance with the tezrns of
Azrticle 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
(5200,000) incurred, for the eYclusive use ofthe Leased
Property, on account ofpurchase 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 propezrty 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 pezmitted by the Meditrust/Emeritus Transaction
Documents.
11.3.9 No Guaranties. The Lessee shall not assume,
auarantee, 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 debtor or
othezwise to assure any creditor against loss) in connection
with any Indebtedness of any other Person, except by the
ezidorsement 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 aarees that
throughout the Term and any periods thereafter that Lessee
remains in possession ofthe Leased Property:
11.4.1 vlaintenance of Etistence. If Lessee is a
cozporation, 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, tzust or partnership under the laws ofthe state
of its incorporation or formation and its rioht to own
property and transact business in the State.
11.4.2 Nlaterials. Except as provided in Section 6.1.?,
Lessee shall not suffer the use in connection with any
renovations or other constzuction 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
59
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
thereofshall 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, wi.thout
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. Participation in Third Partv 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 (includina, without limitation, all applicable
Provider Agreements), if and to the extent remaining
eli5ible shall be necessary for the prudent operation ofthe
Facility in the good faith exercise of commercially
reasonable business judament. .
11.4.6 Conduct ofits Business. Lessee will maintain, and
cause any Sublessee and any Manaaer 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
veriture during the Term or such time as Lessee or any such
Sublessee is in possession ofthe Leased Property other than
activities in which Lessee or such Sublessee are permitted
to engage by the provisions ofthe MeditrustlEmeritus
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 relatina 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 relatinQ to Lessee's business from either the Leased
Propertv or Lessee's Principal Place of Business or (b)
relocate its Priricipal.Place of Business until after
receipt ofa certificate from Lessor, signed by an officer
thereof,
6C
stating that Lessor has, to its satisfaction, obtained all
d_ ocumentation that it dee_ ms 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 ofany other Section ofthis 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 ofany 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 ofthe 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 beeri
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
riotice, 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 Facilihr Upgrade Etpenditure. Lessee shall
spend an amount equal to the Annual Facility Upgrade
Expenditure on Upgrade Renovations to the Facility each
Lease Year commencing with the second Lease Year. Lessee
will fumish and shall cause to be furnished to Lessor
evidence satisfactory to Lessor that Lessee has fulfilled
its obligation to make the Annual Facility LTpgrade
Expenditure within ninety (90) days after the end of
Lessee's fiscal year.
11. Additional Negative Covenants. Lessee covenants and
agrees that, throughout the Term and such time as Lessee
remains in possession ofthe 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 instanee, which consent may be
withheld in the sole and absolute discretion of Lessor:
61
(a) convey, assign, hypothecate, transfer, dispose of or
encum_ ber, 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
hereofpursuant to the Lease Documents; (ii) Liens created in
accordance with Section 6. I.? against Tangible Personal
Property securing Indebtedness peimitted under Section 11.
i.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 ofthe Leased Property provided that the same are
replaced with fxtures, fuinishings 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 ofthe Leased
Property; (v) without limitation as to amount, any sale of
inventory by Lessee in the ordinary course ofbusiness; and
(vi) subject to the terms ofthe Negative Pledge Agreement
and the Affiliated Party Subordination Agreerrient,
distributions to the Parners of Lessee;
(b) perznit 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.
11.2 No Liens. Lessee will not directly or indirectly
create or allow to remain and will promptly discharae at
its eYpense any Lien, title retention agreement or claim
upon o~ against the Leased Propery (including Lessee's
interest therein) or Lessee's interest in this Lease or any
ofthe other Lease Documents, or in respect ofthe Rent,
excludina (a) this Lease and any permitted Subleases, (b)
the Permitted Encumbrances, (c) Liens which are consented to
in w-riting by Lessor, (d) Liens for those tates of Lessor
which Lessee is not required to pay hereunder, (e) Liens
ofmechanics, laborers, materialmen, suppliers or vendors for
sums either not yet due or being contested in strict
compliance with the terms and conditions of Article 1 ,
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 pavable or which are in
the process ofbeing contested in strict compliance with the
terms and conditions of Article 1 (h) the Liens incurred
62
pursuant to the provisions of Section 6.1.2 and (i) invol_
untary Liens caused by t_he actions or omissions of Lessor.
11.5.3 Limits on Affiliate Transactions. The Lessee shall
not enter into ari 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 ofthe 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 hereofand thereafter until (a) in the
case ofthe expiration ofthe Initial Term or a termination
ofthis Lease, the ffth (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 (?nd) anniversary ofthe
expiration ofthe applicable Extended Term, no member ofthe
Leasin5 Group nor any Person holding or controlling,
directly or indirectly, any interest in ai-iy member ofthe
Leasing Group (collectively, the "Limited Parties")shall be
involved in any capacity in or lend any oftheir 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
there with) other than (a) those set forth on Schedule I
1..4 anneYed hereto, (b) those activities in which a
Meditrust/Emeritus Transaction Affiliate is permitted to
engage by the provisions ofthe 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 ofthis clause (c) only ifat the time such
acquisition occurs Lessee has already (x) exercised in that
twelve month period its right under Section 1. i 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 ofthe Leased Property), whether such competitive
activity shall be as an offcer, director, owner, employee,
agent, advisor, independent contractor, developer, lend.er,
sponsor, venture capitalist, administrator: manaaer,
investor, partner, joint venturer, consultant or other
participant in anv capacity whatsoever with respect to an
assisted living facility, center, unit or program loeated
within a five (5) mile radius of the Leased Property.
63
Lessee hereby aclaiowledges and agrees that none ofthe time
span, scope or area covered by the foregoing restrictive
covenants is or are unreasonable arid 2hat it is th.e
specific intent of Lessee that each and all ofthe
restrictive covenants set forth. hereinabove shall be
valid and enforceable as specifically set forth herein.
Lessee fizrther agrees that these restrictions are special,
unique, extraordinary and reasonably necessarv for the
protection of Lessor and any Purchaser and that the
violation ofany 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 ofthis Section 11.5.4 (without the necessity
ofposting 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 Leasirig 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 ofthe foregoing restrictive
covenants and the Limited Pairties shall not defend on the
basis that there is an adequate remedy at law.
Without limiting any other provision ofthis Lease, the
parties hereto acknowledae that the foregoing restrictive
covenants are severable and separate. Ifat any time any of
the foreaoing restrictive covenants shall be deemed invalid
or unenforceable by a court lavina jurisdiction over this
Lease, by reason of beina 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 immediatel5 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 pairties agree that such covenar.ts as so
amended and reformed, shall be valid and b?nding as throuah
the invalid or unenforceable portion has not been included
therein.
The provisions of this Section I 1.5.4 shall survive the
termination of the Lease and any satisfaction ofthe Lease
Obliaations in connection therewith or subsequent thereto.
The parties hereto acl;nowledae and aaree that any Purchaser
may enforce the provisions of this Section 11..4 as a third
party beneficiary.
11. Intentionallv deleted.
6.4
11.5.6 Intentionallv deleted.
11.5.7 Intentionallv 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 ofthe
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 ofthe 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..11 Changes in Fiscal Year and Accountina 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
accouiiting procedures related to the method of revenue
recoanition, billing procedures or determinations of
doubtful accounts or bad debt expenses or permit any of its
Subsidiaries to so chanae its fiscal year, provided that, in
the event of such change, moditication 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
1?.l General Insurance Requirements. Durina the Term ofthis
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 Propertv, the
Tangible Personal Property located theceon and the business
operations conducted on the Leased Property insured as set
forth below.
12.1.1 Tvpes and Amounts of Insurance. Lessee's insurance
shall include the following: .
65
(a) property loss and physical damage insurance on an all-
risk basis (with only such exceptions as Lessor may in its
reasonable discretiori 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
aareed-amount
5
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 ofbuilding 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 goveznmental authority charged
with such flood risk analysis in the future) in limits
reasonably acceptable Lo Lessor and subject to the
availabilitv of such flood insLlrance;
(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 (ifreasonably deemed necessary by
Lessor) in limits and with deductibles acceptable to Lessor;
(e) environmental impairment liability insurance
(ifavailable on commercially reasonable terms and deemed
reasonably necessary by Lessor) in limits and with
deductibles acceptable to Lessor;
business interruption insurance in an amount equal to the
annual Base Rent due hereunder plus the agregate sum of the
Impositions relating to the Leased Propertv 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 NIILLION DOLLARS (5,000,000) per occurrence with
respect to bodily injury and death and THREE NIILLION
DOLLARS (53,000,000) for property damage and with all limits
66
(a) include an agreed amount endorsement and loss payee,
additional named insured and secured party endorsements, in
forms accepLable 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 ofand in form reasonably acceptable to Lessor and any
Fee Mortgagee;
expressly waive any right ofsubrogation on the part ofthe
insurer against Lessor, any Fee Mortgaaee 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, toaether with
evidence, satisfactory to Lessor, of payment of the premiums
thereon. Lessee shall deliver to Lessor original
counterparts or copies certi ied 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 ofeach such policv.
12.1. Lessor's Riaht 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
thereo 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
coveraoe is unsatisfactory by reason ofthe failure or
impairment ofthe capital ofany insurance company which
rote any such policy, upon
58
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 thereofand vith a deductible not
in excess ofone percent (l%) ofthe 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
thereo 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
limirts acceptable to Lessor; and
(1) such other insurance as Lessor from time to time may
reasonably require and also, as may from time to time be
required by applicable Legal Requirements and/or by any Fee
Mortgaaee.
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
ratina of A:X or better by A.l. Best Co.
12.1.3 Policv Requirements. Everv policy of insurance from
time to time required under this Lease or any ofthe other
Lease Documents (other than worker's compensation) shall
name Lessor as ovner, loss payee, secured party (to the
extent applicable) and additional named insured as its
interests may appear. Ifan insurance policy covers
properties other than the Leased Property, then Lessor shall
be so named vith respect only to the Leased Property-. Each
such policy, where applicable or appropriate, shall:
67
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 foX
those risks required to be insured by the provisions hereof,
satisfactory to Lessor, an_d, 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
lirnitation, 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 Pavment of Proceeds. All insurance policies
required hereunder (except for eneral 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 ofany
Fee Mortgagee, all proceeds shall be paid to Lessor alone
(rather thanjointly 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 1 ,
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 ofthe Leased Property for which such
insurance proceeds shall have been paid.
12.1.7 Irrevocable Power of Attorney. .The power
ofattorney conferred on Lessor pursuant to the provisions of
Section I 2.1, being coupled with an interest, shall be
irrevocable for as long as this Lease is in effect or any
Lease Obligations are outstandin, shall not be affected by
any disability or incapacity which Lessee may suffer and
shall survive the same. Such pover of attorney, is provided
solely to protect the interests of Lessor and shall not
impose any duty on Lessor to e:cercise any such pover, and
neither Lessor nor such attorney-in-fact shall be liable for
anv act, omission, error in judgment or mistake of law,
except as the same may result from its gross negligence or
wilful misconduct.
1?.1.8 Blanket Policies. NotvithstandinQ anything to the
contrary contained herein, Lessee's obligations to carry the
insurance provided for herein may be brought within the
coveraae of a so-called blanket policy or policies of
insurance carried and maintained by Lessee and its
Affiliates; provided, hovever, that the coverage afforded
to Lessor shall not be reduced or diminished or otherwise be
different from that which
69
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, furthe_ r that
the requirerents of Section 12.1 are otherwise satisfed.
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 forzn 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 ofthe insurance, including
Lessor, are included therein as additional insureds and (b)
losses are payable under said insurance in the same manner
as losses are required to be payable under this Lease.
Lessee shall immediately notify Lessor of the taking out of
any such separate insurance or of the increasing of any of
the amounts of the then existing insurance by securing an
additional insurance policy or policies.
12.1.10 Assianment of Unearned Premiums. Lessee hereby
assigns to L.essor 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 ofthe
Leased Property by Lessee), the insurance policies required
to be maintained hereunder, including all right, title and
interest of Lessee thereunder, shall become the absolute
property of Lessor subject to any limitation on assignment
provided for therein.
12.2 Indemnity.
12.2.1 Indemnifieation. Except vith 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 ofaction and to indemnifv and hold harmless Lessor
and each of the other Indemnified Parties from and against
all damages, losses, liabilities, obliations, penalties,
costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and expenses, whether
incurred in litigation or not and whether before or
afierjudgement, including those incurred on appeal, 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,
70
business invitee, guest, customer, contractor or sublessee
ofany ofthe foreaoing parties, relating to, directly or
indirectly, the Leased Property, (c) any accident, injury
or.darrtage whatsoever caused to any Person, including,
without limitation, any clairri ofmalpractice, 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 Affliate of Lessee or any employee,
agent, licensee, contractor or sublessee ofany ofthe
foregoing parties, (d) any Lease Default, (e) any claim
brought or threatened aQainst 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 ofits right and
remedies under any ofthe Lease Documents, ( any attempt by
any member ofthe Leasing Group or any Affliate of Lessee to
transfer or relocate any of the Permits to any location
other than the Leased Property and/or (g) the enforcement
ofthis indemnity. Any amounts which become payable by Lessee
under this Section 1 ?.2.1 shall be a demand obligation of
Lessee to Lessor, payable as an Additional Charge. The
indemnity provided for in this Section 12.?.1 shall survive
any termination ofthis Lease and meraer into anyjudgement.
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.
1?.2.3 Limitation on Lessor Liabilitv. I Teither Lessor
nor any Affiliate of Lessor shall be liable to any member of
the Leasing Group or any Affiliate of any m.ember ofthe
Leasin5 Group, or to any other Person whatsoever for any
damaae, injury, loss, compensation, or claim (including, but
not lirnited 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 ofthe Leased
Property; (c) any accident or damaoe resulting from the use
or operation of the Leased Property or any business
conducted thereon; (d) the termination of this Lease by
reason of Casualtv 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 leakina 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 tlie event of
loss caused by the aross nealiaence or willful misconduct of
Lessor). Notwithstandina the foreaoing, Lessor shall not be
released from liability for any injury, loss, damage or
liabilitv suffered by Lessee to the extent caused directlv
by the gross nealigence or willful misconduct of Lessor, its
servants, employees or aents acting within the scope of
their
.7I
authority on or about the Leased Property or in regards,to
the Lease; prov_ ided, however, that in no event shall
Lessor, its servants, employeesor agents have any
liability.basd on any loss for any indirect or
consequential damages. or
12.2.4 Risk of Loss. During the Term ofthis Lease, the
risk ofloss or of decrease in the enjoyment and beneficial
use ofthe 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
Airticle 20) is assumed by Lessee and, in the absence ofthe
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 Airticles 13 and 14) nor shall any ofthe events mentioned
in this Section entitle Lessee to any abatement of Rent
(except for an abatement, if any, as specifically provided
for in Section 3.7).
ARTICLE 13
FIRE AND CASUALTY
13.1 Restoration Followina Fire or Other Casualtv.
13.1.1 Follovina Fire or Casualtv. In the event ofany
damage or destruction to the Leased Property by reason of
fire or other hazard or casualty (a
"Casualty"), Lessee shall give immediate written notice
thereofto Lessor and, subject to the terms ofthis Article I
i 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 Propertv to the condition it
was in immediately prior to such dainage or destiuction and
to a condition adequate to operate the Facility for the
Primary Intended Use and, ifapplicable, the Other Permitted
Uses and in compliance with applicable Legal Requirements.
All Work shall be performed and completed in accordance
vvith ali applicable Legal Requirements and the other
requirements of this L ease within one hundred and twentv (
I ?0) days following the occurrence of the damae or
destruction plus a reasonable time to compensate for
Unavoidable Delays (including for the purposes ofthis
Section, delays in obtaining Permits and in adjusting
insurance lossesj, but in no event beyond two-hundred and
seventy (270) days following the occurrence ofthe Casualty.
13.1.2 Procedures. In the event that any Casualty results in
non-structural damaQe to the Ieased Property in excess of
FIFTY THOUSAND DOLLARS.(50,000) or in any structural damage
to the Leased Propertv, reaardless of the extent of such
72
structural damage, prior to commencing the Work, Lessee
shall comply with the following requirements:
(a) Lessee shall fumish to Lessor complete plans and
specificatioils for the Work (collectively and as the same
may be modifed 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, ofthe 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 fumish to Lessor certified or photostatic
copies of all Permits and Contracts required by all
applicable Legal Requirements in connection with the
cominencement and conduct ofthe Work to the ettent tlie same
can be secured in the ordinary course prior to the
commencement of construction;
(c) Lessee shall fumish to Lessor a cash deposit or a
payment and performance bond sufficient to pay for
completion ofand payment for the Vork in an amount not
less than the architect's estimate of the entire cost of
completina the Vork, less the amount ofproperty insurance
proceeds (net ofcosts and expenses incurred by Lessor in
collecting the same), ifany, then held by Lessor and which
Lessor shall be required to apply toward restoration ofthe
Leased Propertv as provided in Section I.2;
(d) Lessee shall fumish to Lessor such insurance with
respect to the Work (in addition to the insurance required
under Section 1 ?. I hereo 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) throuah (d) immediately above, as applicable,
and, thereafter, Lessee shall perform the Vork diligently,
in a good and vorkmanlike fashion and in good faith in
accordance vith (i) the Plans and Specifications referred
to irz clause (a) immediately above, . (ii) the Permits and
Contracts referred to in clause (b) immediately above and
(iii)
73
all applicable Legal Requirements and other requirements of
this Lease; provided, however, that in the event ofa bona
fide emergency during whicti 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 Lessos prior approval, as long as
Lessee immediately thereafter advises Lessor of such
emergency and the nature and scope ofthe Work performed and
obtains Lessor's approval ofthe remaining Work to be
completed.
13.1.3 Disbursement oflnsurance Proceeds. If, as provided
in Section 1.2, Lessor is required to apply any property
insurance proceeds toward repair or restoration ofthe Leased
Property, then as long as the Z Vork is being diligently
performed by Lessee in accordance with the terms and
conditions ofthis Lease, Lessor shall disburse such
insurance proceeds from time to time during the course of
the Nork in accordance with and subject to satisfaction
ofthe following provisions and conditions. Lessor shall not
be required to make disbursements more often than at thirty
(0) day intervals. Lessee shall submit a written request
for each disbursement at least ten (10) Business Days in
advance and shall comply w_ ith the following requirements
in connection with each disbursement:
(a) Prior to the commencement ofany Work, Lessee shall have
received Lessor's written approval ofthe Plans and
Specifications (which approval shall not be unreasonably
withheld) and the Work shall be supervised by an
e:cperienced construction manaer with the consultation of
an architect or enaineer qualizied 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 enaineer is appropriate).
Lessee shall not make any changes in, and shall not permit
any changes in, the quality ofthe materials to be used in
the Work, the Plans and Specifications or the Work, whether
by change order or otherwise, without the prior ritten
consent of Lessor, in each instance (vhich consent may be
withheld in Lessor s sole and absolute discretion);
provided, however, that such consent sh.all not be required
for any individual change which has been approved by the
architect, which does not materially affect the structure or
eYterior of the Facilitv, and the cost of which does not
eYceed TEN THOUSAND DOLLARS (10,000) or hich chanes, in
the agaregate, do not exceed ONE HUNDRED THOUSAND DOLLARS
(100,000) in cost. Notwithstanding the foregoina, prior to
making any change in Plans and Specifications, copies ofall
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 necessarv
Permits and/or Contracts required by any Govemmental
Authority in connection therewith have been obtained or
entered into, as the case may be.
74
(b) Each request for payment shall be accompanied by (r) a
certificate of the architect or engineer, bearing the
architect's or engineer's seal, and (y) a certificate ofthe
general contractor, qualified and licerised to do bzzsiness
n tlie State, that is performing the Work (collectively,
the "Work Certificates"), eaci 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 certiflcate 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; then requested to be withdrawn,
plus all suzns 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 withdraval 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,
ifunpaid, might become the basi.s of a vendor's, mechanic's,
laborer s or materialman's statutorv or other similar Lien
upon the Leased Property.
75
(e) Lessee shall deliver to Lessor satisfactory evidence
that the Leased Property and all materials and all property
described in the Work Certificates.a_ re 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 ofthe funds then being requested or duly
contested in accordance with the terms ofthis Lease
Agreement, (ii) any Fee Mortgage and (iii) the Permitted
Encumbrances. Lessor shall accept as satisfactory evidence
of the foregoing lien waivers in customary form from the
general contractor and all subcontractors performing the
Work, together with an endorsement of its title insurance
policy (relating to the Leased Property) in form acceptable
to Lessor, dated as of the date of the making of the then
current disbursement, confirming the foregoing.
(d) If the Work involves alteration or restoration of the
exterior of any Leased Improvement that changes the
footprint of any Leased Improvement, Lessee shall deliver to
Lessor, upon the request of Lessor, an "as-built" survey of
the Leased Property dated as of a date within ten (10) days
prior to the making of the first and final advances (or
revised to a date within ten (10) days prior to each such
advance) showing no encroachments other than such
encroachments, if any, by the Leased Improvements upon or
over the Permitted Encumbrances as are in existence as ofthe
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 ofthe 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 ofthe 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).
( There shall be no Lease Default or any state of facts
or circumstance eYistina vhich, with the giving ofnotice
and/or the passage oftime, would constitute any Lease
Default.
76
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 requiremenCs
(except frr such requirements, if any, as Lessor may have
expressly elected to waive;.and to -th extent of (r) the
insurance proceeds, if any, which Lessor may be required to
apply ti restoration of the Leased Property pursuant to the
provisions of this Lease and (y) all other cash deposits
made by Lessee, Lessor shall make available for payment to
the Persons named in the Work Certificate the respective
amounts stated in said certificate(s) to be due, subject to
a. retention of ten percent ( 10) as to all hard costs of
the Work (the
"Retainage"). It is understood that the Retainage is
intended to provide a contingency fund to assure Lessor that
the Work shall be fully completed in accordance with the
Plans and Specifications and the requirements of Lessor.
Upon the full and final completion of all of the Work in
accordance with the provisions hereof, the Retainage shall
be made available for payment to those Persons entitled
thereto.
Upon completion of the Work, and as a condition precedent to
making any further advance, in addition to the requirements
set forth above, Lessee shall promptly deliver to Lessor:
(i) if applicable, written certificates of the architect or
engineer, bearing the architect's or engineer's seal, and
the general contractor, certifying that the Work has been
fully completed in a good and workmanlike manner in material
compliance with the Plans and Specifications and all
applicable Legal Requirements;
(ii) an endorsement of its title insurance policy (relating
to the Leased Property) in form reasonably acceptable to
Lessor insuring the Leased Property against all mechanic's
and materialman's liens accompanied by the final lien
waivers from the general contractor and all subcontractors;
(iii) a certificate by Lessee in form and substance
reasonably satisfactory to Lessor, listing all costs and
expenses in connection with the completion of the Work and
the amount paid by Lessee with respect to the Work; and
(iv) a temporarv certificate oi occupancy (if obtainable)
and all other applicable Permits and Contracts issued by or
entered into with any Goveznmental 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 ( i0) days afier completion of
the Work, Lessee shall obtain and deliver to Lessor a
permanent certificate of occupancy for the Leased Property,
subject to seasonal delays.
77
Upon completion ofthe Work and delivery ofthe 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 ifthere shall be insurance proceeds or
cash deposits, other than the Retainage, held by Lessor in
excess of the amounts disbursed pursuant to th 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 ofthe 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 ofthe Lease Obligations and are not
for the benefit of Lessee or the benefit of any other
Person.
13.2 Dis osition of Insurance Proceeds.
13.2.1 Proceeds To Be Released to Pav For Work. In the event
ofany Casualtv, eYcept as provided for in Section 1 i.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 1.2. I are satisfied
,
(b) Lessee demonstrates to Lessor's satisfactior that
Lesse has the fmancial ability to satisfy the Lease
Obligations during such repair or restoration; and
(c) no Sublease material to the operation o.fthe Faciiitv
immediately prior to such damage or taking shall have been
cancelled or terminated, nor contain any still ecercisable
right to cancel or terminate, due to such Casualty if and to
the etent 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 ofthe
foregoing requirements, Lessee shall have no obligation to
restore the Casualty to which such.proceeds pertain.
78
13.2.? 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 fts Primary Intended Use and if
either: (a) Lessee, after exercise of diligent efforts;
cannot.wi2hin 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 ofthe 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 ofthe last
sentence ofthis Section 1.2.2) 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 oftermination plus an amount,
which when added to th 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) tlze amount ofinsurance proceeds actually
received by Lessor (net of costs and expenses incurred by
Lessor in collecting the same) equals (3) the areater ofthe
Nleditrust Investment or the Fair Market Value ofthe 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 dav immediately prior to such Casualty
and prior to any other Casualty which has notbeen fully
repaired. Any acquisition of the Leased Property pursuant to
the terms ofthis Section 13.2.2 shall be consummated in
accordance with the provisions of Article 18, mutatis,
mutandis. Ifsuch termination becomes effective, Lessor shall
assian 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 ofthis Section 1.2.2 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 (15)
of the Fair Market Value of the Leased Premises at the time
of such termination; Lessor shall pay to Lessee fifty
percent (50) ofthe amount ofsuch excess.
13.2.3 .Secial Right to Rebuild. Anythina contained in
Section 1 i.?.2(A) (a) above notwithstanding, iffollowing
any Casualty, Lessee vill be unable, as a result of
79
any applicable Legal Requirements, to rebuild and operate
the Facility for the Primary Intended Use and, ifapplicable,
the Other PermittedUses, but will be able to rebuild and
operate an assisted living facility (the "New Use Facility")
providing substantially_ siinilar services as the Facility
immediately prior to such Casualty and having units equal
irr number to at least seventy-five per cent (75%) ofthe
number ofunits 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 I 3 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 Primarv Intended
Use shall be deemed to be the New Prizriary 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 vith calculations, based
tlzereon, showing the Minimum Coverage Ratio, prior to the
commencement ofany Work.
13.3 Tangible Personal Propertv. All insurance proceeds
payable by reason ofany loss ofor damage to any ofthe
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 Tanaible Personal Property, subject to
the terms and conditions set forth in the other provisions
ofthis Article 13, mutatis mutandis.
13.4 Restoration of Certain Improvements and the Tangible
Personal Propertv. 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 Leasee a.d (ii) the Tangible Personal Property or (b)
replace such alterations and improvements and the Tanaible
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 eYtent desirable for the prudent operation ofthe
Facility in the o.od faith. etercise of commercially
reasonable business judgment.
13. No Abatement of Rent. In no event shall any Rent abate
as a result of any Casualty except as expressly.provided in
Section 3.7.
80
13.6 Termination of Certain Rihts. Any termination ofthis
Lease pursuant to this Article 1 i shall cause any right of
Lessee to extend the Termofthis Lease_ granted to Lessee_
herein and any right of Lessee to purchase the Leased
Property contained in this Lease to be terminated and to be
without further force or effect.
13.7 Waiver. Lessee hereby waives any statutory rights
oftermination which may arise by reason of any damage or
destruction to the Leased Property due to any Casualty which
Lessee is obligated to restore or may restore under any of
the provisions of this Lease.
13.8 Application of Rent Loss and/or Business Interruption
Insurance. Lessor shall direct all proceeds ofrent loss
and/or business interruption insurance (collectively, "Rent
Insurance Proceeds") to be paid to Lessee, provided no fact
or circumstance eists 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 Propertv or hold such proceeds as security
therefor.
13.9 Obliation To Account. Upon Lessee's written request,
which may not be made not more than once in any three ()
month period, Lessor shall provide Lessee with a written
accounting of the application of all insurance proceeds
received by Lessor.
ARTICLE 14
CONDEMNATION
l4.l Parties' Riahts and Obliaations. Ifdliring the Term
there is- any Taking ofall or :.v part ofthe Leased
Property or any interest in this Lease, the rights and
obligations ofthe parties shall be determined by this
Article 14.
I:l.? Total Takina. Ifthere is a permanent Taking ofall or
substantially all ofthe I.eased Property, this Lease shall
terminate on the Date of Takina. 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)
ofthe amount ofsuch etcess.
1.3 Partial or Temporarv Taking. Ifthere is a Permanent
Taking ofa portion ofthe Leased Property, or if there is a
temporary Takina of all or a portion of the Leased Property,
this Lease shall remain in effect so lon as the Leased
Property is not thereby rendered permanently Unsuitable For
Its Primary Intended Use or temporarilv Unsuitable For Its
Primary Intended Use for a period not likely to, or which
does not, exceed two hundred and seventv (?70) days. If,
8l
however, the Leased Property
is thereby so rendered permanently or temporarily Unsuitable
For Its Primary Intended Use: (a) ifonly rendered
temporarily Unsuitable For Its primary Intended Use, Lessee
shall have the right to restore the Leased Property, at its
own expense (subjeet to the right under certain
circumstances as provided for in Section 14.5 to receive the
net procee-ofan 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 ofall 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 I 8; 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 thereo 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 ifthe Leased Property may be operated for at least
eighty percent (80%) ofthe licensed unit capacity ofthe
Facility in effect prior to the Taking. Lessee shall
exercise its election under this Section 14. bv givino
Lessor notice thereof("Lessee's Election Notice") within
sixty (60) days after Lessee receives notice ofthe Taking.
Lessor shall exercise its option to overrule Lessee's
election under this Section 14. by givina Lessee notice of
Lessor's exercise ofits riahts under Section 14. i 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 terzninated as provided above,
Lessee shall be entitled to an abatement of Rent, but only
to the extent, if any, provided for in Section i.7,
effective as ofthe date upon which the Leased Property is
rendered Unsuitable For Its Primary Intended Use.
14.4 Restoration. Ifthere is a partial or temporary Taking
ofthe Leased Property and this Lease remains in full force
and effect pursuant to Section 14., Lessee shall accomplish
all necessarv restoration ar?d Lessor shall release the net
proceeds of such Award to reimburse Lessee for the actual
reasonable costs and expenses thereof, subject to all ofthe
conditions and provisions set forth in Article 1 i as though
the Taking was a Casualty and the Award was insurance
proceeds. If the cost of the restoration eceeds the amount
of the Award (net of costs and e:cpenses incurred in
obtainina the Award), Lessee shall be obligated to
contribute any ecess amount needed to restore the Facility
or pay for such costs and expenses. To the extent that the
cost ofrestoration is less than the amount ofthe Award (net
ofcost and expenses incurred in obtainina the Award), the
remainder of the Avard shall be retained by Lessor and Rent
shall be abated as set forth in Section i.7
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14.2 Avard Distribution. In the event Lessee comletes the
purchase of the, Leased Property, as described in Section
14.3, the entire Award shall, upon payment ofthe purchase
price and all Rent and other sums due under this Lease and
the other hease Documents, belorlg 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 thereofvhich the Condemner designates as
allocable to Lessee's loss of business or Tangible Personal
Property) shall belong to and be paid to Lessor. .
14.6, Control of Proceedings. Subject to the rights ofany
Fee Mortgagee, unless and until Lessee completes the
purchase ofthe 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 ofthe
progress ofall 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, ifthis Lease is
terminated as a result ofa Taking, Lessee's obligationto so
reimburse Lessor shall be diminished by the amount of the
Award, if any, received by Lessor hich is in eccess
ofthe Meditrust Investment.
ARTICLE 15
PERlVIITTED CONTESTS
- - 15.1 Lessee's Riht to Contest. To the extent ofthe
express references made to this
Article l5 in other Sections ofthis 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 leaal proceedings conducted in
good faith and with due diligence (until the resolution
thereo, 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 thereoffrom Lessor and/or compliance
by any applicable member ofthe 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 anv rent
therefrom would be in any immediate danaer of beina sold,
forfeited, attached or lost as a result ofsuch proceeding,
(d) in the case ofa Legal Requirement, neither Lessor nor
any
83
member ofthe Leasing Group would be in any immediate danger
ofcivil 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 ofmoney
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 ofthe 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 offacts or circumstance exists which constitutes, or
with the passage oftime and/or the giving ofnotice, could
constitute a Lease Default; rovided, 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 ofthe Lease Documents. Ifsuch
contest is finally resolved in favor of Lessee, Lessee shall
be entitled to any refund resulting therefrom.
1.2 Lessor's Cooperation. Lessor, at Lessee's sole cost and
expense, shall execute a: d deliver to Lessee such
authorizations and other documents as may reasonably be
required in any such contest, so long as the same does not
expose Lessor to any civil or criminal liability, and, if
reasonably requested by Lessee or if Lessor so desires,
Lessor shall join as a party therein.
15.3 Lessee's Indemnitv. Lessee, as more particularly
provided for in Section I?.?, shall indemnify, defend (with
counsel acceptable to Lessor) and save Lessor harmless
aaainst any liability, cost or ecpense ofany kind,
includina, without limitation, attorneys' fees and etpenses
that may be imposed upon Lessor in connection with any such
contest and any loss resulting therefrom and in the
enforcement of this indemnification.
ARTICLE 16
DEFAULT
16.1 Events of Default. Each ofthe following shall
constitute an "Event of Default" hereunder and shall entitle
Lessor to eercise its remedies hereunder and under any of
the other
Lease Documents:
ga
(a) any failure of Lessee to pay any amount due hereunder
or under any of the other Lease Documents within ten (10)
days folloving the date wheri such paymgnt 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, warrantv 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
ofthe United States, any state or anyjurisdiction, (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;
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 aaainst any member of the
Leasing Group which seeks relief under the bankruptcy or
other similar laws of the United States, any state or any
otherjurisdiction, and such petition is not dismissed within
ninety (90) day-s after it is filed;
85
(h) in the event that:
i: all or any portion ofthe interest ofany partrter,
shareholder, member in any member ofthe Leasing Group (other
than Guarantor) shallbe=; 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 MeditrustlEmeritus
Transaction Affiliate and in all other cases, in its sole
and absolute discretion;
ii. the shares ofthe issued and outstanding capital stock
ofany 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 Affliate 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 Leasina Group (other than Guarantor) shall be,
directly or indirectly, sold or otherwise transfened
(whether by operation of law or otherwise), if such member
of the Leasina 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. I.
shall be required (a "Working Capital Stock PledQe").
(i) the death, incapacity, liquidation, dissolution or
termination of
ecistence of any member of the Leasino Group or the meraer
or consolidation of any member of the Leasina Group with anv
other Person except as eYpressly permitted bv_ the terms
ofthis Lease Agreement.
,
86
(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 ei.ther (i)
enforcement proceedings shall have been commenced by any
creditor uporr'-such award orjudgment or (ii) such award
orjudgment 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 orjudgment 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 fiznding, a final unappealable
determination is made by the appli cable Govemmental
Authority that Lessee or any Sublessee shall have failed to
comply with applicable Medicare and/or Medicaid regulations
in the operation ofthe 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 ofthe Leased Property;
(s) ifany member ofthe Leasing Group receives notice ofa
fnal unappealable determination by applicable Governmental
Authorities of the revocation of any Permit required for the
lavful construction or operation ofthe Facility in
accordance w-ith 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
ofthe Leasing Group is required to permanently cease the
construction or operation of the Facility in accordance w-
ith the Primary Intended Use and the Other Permitted Uses;
and
(t) any failure to maintain the insurance required pursuant
to Section I i of this Lease in force and effect at all
times until the Lease Obligations are fully paid and
perforzned;
(u) the appointment of a temporary manaaer (or operator)
for the Leased Property by any Govemmental Authority;
(v) the entry of an order by a court with jurisdiction over
the LeasedPropezty to close the Facility, to transfer one or
more residents the Facility as a result of
88
an allegation of abuse or neglect or to take any acti,on to
eliminate an emergency situation then existing at the
Facility, if such order has not been stayed pending appeal
vithin Ien (10) following such entry; or
(w) the occurrence of any default or breach of condition
continuing for more than thirty (0) days under any credit
agreement, loan agreement or other agreement establishing a
major line ofcredit (including, without Iimitation, a major
line ofcredit or a Working Capital Loan which is not secured
by a Working Capital Stock Pledge)(or any documents executed
in connection with such lines of credit) on behalf of
Guarantor without regard to whether the applicable creditor
has elected to declare the indebtedness due and payable
under such line of credit or to exercise any other right or
remedy available to it or the occurrence of any such default
or breach of condition if the applicable creditor has
elected to declare the indebtedness due and payable under
such line of credit or to exercise any other right or remedy
available to it. For the purpose of this provision, a major
line of credit shall mean and include any line of credit
established in an amount equal to or greater than ONE
MILLION DOLLARS (1,000,000) with respect to a line of
credit for which Guarantor is an obligor, endorser, surety
or guarantor.
16.2 Remedies.
(a) If any Lease Default shall have occurred, Lessor may at
its option terminate this Lease by giving Lessee not less
than ten ( 10) days' notice of such termination, or exercise
arly one or more ofits rights and remedies under this Lease
or any ofthe other Lease Documents, or as available at law
or in equity and upon the expiration ofthe 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. Notvithstanding 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 ( I 0) 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 Documenta, unless otherwise expresslv agreed to in a
written document sianed by an authorized officer or agent of
Lessor.
(b) To the extent permitted under applicable law, Lessee
shall pay as Additional Charoes all costs and expenses
(includina, without limitation, attorneys' fee and expenses)
reasoriablv incurred by or on behalf of Lessor as a result
of any Lease Default.
89
(j) except as provided in Section 19.1 hereof, if, without
the prior written consent of Lessor, in each instance, which
consent rriay be withheld by Lessor in its sole and
absolute discretion, Lessee's interest, or any interest ofa
Sublessee whieh 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
oflaw 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 Affliate of Lessee, ifthe
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, ifexercised, 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);
(I) the occurrence of a Relaed 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
Plede (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 ecess of thirty (0) days (a "Failure to
Operaie");
(o) if one or more j udgments against Lessee or any
Sublessee which is an Af iliate of Lessee or attachments
aaainst Lessee's interest or any such Sublessee's interest
in the Leased Property, which in the aagregate exceed TWO
HUNDRED FIFTY THOUSAND DOLLARS (250;000) or which may
materially and adversely interfere vvith the operation of
the Facility, remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of thirty
(30) days;
87
(c) If any Lease Default shall have occurred, whether or not
this Lease has been terminated pursuant to Paragraph (a)
ofthis Section, Lesseeshall, to the extent.permitted
unsier applicable law, if required by Lessor so to do, upon
not less than teri (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 ofthe Tangible Personal Property
from the Leased Property, subject to the rights of any
residents of the Facility and any Sublessees who are not
Affiliates ofany member ofthe Leasing Group and to any
requirements ofapplicable law, or Lessor may claim ownership
ofthe Tangible Personal Property as set forth in Section
5.2.3 hereofor 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 damaes 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 iis obligation to pay such sums at the
time or times required by this Lease.
16.3 Damages. None of(a) the termination ofthis 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
relettina, 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: (r) 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 neeessary to
compensate Lessor for all damage proximately caused by
Lessee's failure to perform the Lease Oblioations or which
in the ordinary course
90
vould be likely to result therefrom and less the amount of
rent that has actually been received by Lessor following the
termirlation ofthis Leasefrom a PersQn 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 operatiori ci 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 ofpossession 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 ofthis 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" ofunpaid Rent shall be determined by a
court havingjurisdiction thereofusing the lowest rate of
capitalization (hihest present worth) reasonably applicable
at the time ofsuch determination and allowed by applicable
lav and the Additional Rent shall be deemed to be the same
as the average dditional Rent ofthe precedin; five (5) full
calendar years, or ifshorter, the averaae Additional Rnt
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 eamed during the remainder of the Term or any portion
thereof.
16.=t Lessee Waivers. Ifthis Lease is terminated pursuant to
Section 16.?, Lessee vaives, to the ettent not prohibited
by applicable lav, (a) any right ofredemption, re-entrv or
repossession, (b) any riaht to a trial by jury in the event
of summary proceedinas to enforce the remedies set forth in
this Article 16, and (c) the benefit of any laws now or
hereafter in force eemptina property from liability for
rent or for debt.
16. :pplication f Funds. Any payments othenvise 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 vhich Lessor may reasonablv
dtrmine or as may be required by the laws ofthe State.
16.6 Failure to Conduct Business. For the purpose
ofdetermining rental loss damages or Additional Rent, in the
event Lessee fails to conduct business upon the Leased
Property, eact damaaes or the amount of Additional Rent
being unascertainable, it shall be deemed that the
Additional.Rent for such period vould be equal to the
average annual Additional
9l
Rent during the five (5) preceding calendar years or such
shorter period oftime as may. have existed between the date
Additional Rent commenced to accrue and the date of
computatio.
16.7 Lessor's Riaht to Cure. If Lessee shall fail to make
any payment, or to per drm 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 obligatiqn or Event of Default, may (but
shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the
expense of Lessee, and may, to the extent permitted by law,
enter upon the Leased Property for such purpose and take all
such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. No such entry shall be
deemed an eviction of Lessee. All sums so paid by Lessor and
all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses, in each case, to
the extent permitted by law) so incurred shall be paid by
Lessee to Lessor on demand as an Additional Charge. The
obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination
of this Lease.
16.8 No Waiver Bv Lessor. Lessor shall not by any act,
delay, omission or otlierwise (including, without
limitation, the exercise of any right or remedy hereunder)
be deemed to have vaived any ofits rights or remedies
hereunder or under any ofthe other Lease Documents unless
such waiver is in writing and signed by Lessor, and then,
only to the extent specifically set orth therein. No waiver
at any time of any of the terms, conditions, covenants,
representations or warranties set forth in any ofthe Lease
Documents (including, without limitation, any ofthe 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 e:iereise arv oi its rihts or
remedies under any of the Lease Documents or before any
Lease Default can occur, or as establishing a course of
dealing for interpretin5 the conduct of and aoreements
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 uhder any of the
Lease Documents at the time of the making of such payment
shall not: (a) constitute a waiver ofthe riaht 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 ofany remedy, without the epress
written consent of Lessor. Any failure by Lessor to take any
action under this Lease or any of the other Lease Documents
bv reason of a default hereunder or
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thereunder, acceptance ofa 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
Documerits or as a waiver of such right or of the right of
Lessor thereafter to insist upon strict compliance with the
ternzs 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., specific performance or equitable remedies; and to the
maximum extent not prohibited by applicable law, Lessee
hereby expressly waives the benefit of any statute or rule
of law or equity now provided, or which may hereafter be
provided, which would produce a result contrary to or in
conflict with the foregoing.
16.9 Right of Forbearance. Whether or not for consideration
paid or payable to Lessor and, except as may be otherwise
specifically agreed to by Lessor in writing, no forbearance
on the part of Lessor, no extension of the time for the
payment of the whole or any part of the Obligations, and no
other indulgence given by Lessor to Lessee or any other
Person, shall operate to release or in any manner affect the
original liability of Lessee or such other Persons, or to
limit, prejudice or impair any right of Lessor, including,
without limitation, the right to realize upon any
collateral, or any part thereof, for any ofthe Obligations
evidenced or secured by the Lease Documents; notice ofany
such extension, forbearance or indulgence being hereby
waived by Lessee and all those claiming by, through or under
Lessee.
The rights and
remedies set forth under this Lease are in addition to all
other rights and remedies afforded to Lessor under any ofthe
othei- 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 ofthe rights and remedies of Lessor under each ofthe
Lease Documents shall be separate and cumulative and may be
exercised concurrently or successively in Lessor's sole and
absolute discretion.
ARTICLE 17
SURRENDER OF LEASED PROPERTY OR LEASE HOLDING OVER
17.1 Surrender. Lessee shall, upon the expiration or prior
termination ofthe Terzn (unless oceasioned by Lessee's
purchase ofthe Leased Property pursuant to the terms ofthis
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) ordinarv wear and tear (subject
to the obliaation of Lessee to maintain the Leased Property
in aood order and repair during the entire Term of the
Lease), (b) dairiage caused bv the gross nealigence or
willful acts of Lessor, and (c) any damaae or destruction
resultina from a Casualty or Taking that Lessee is not
required by the terms of this Lease to repair or restore.
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17.2 Transfer of Contracts and Permits. In connection with
the expiration,or any earlier termination of this Lease
(unless occasioned by Lessee's purchase of the L,eased
Property pursuant to the terms of this Lease Agreement),
upon any request rriade from time to time by Lessor, Lessee
shall (a) promptly and diligently use its best efforts to
(i) transfer and assigriall Permits and Contracts necessary
or desirable for the operation ofthe 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 anv location other than the Leased
Property. The provisions of this Section I 7.2 shall survive
theexpiration or e3rlier termination ofthis 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.?,
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 ofattorney is
provided solely to protect the interests of Lessor and shall
not impose any duty on the Lender to exercise any such power
and neither Lessor nor such attorney-in-fact shall be liable
for any act, omission, error in judgment or mistake of law,
except as the same may result from its gross negligence or
willful misconduct.
17.3 No Acceptance of Surrender. Except at the expiration
ofthe 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 ofany such surrender.
17.4 Holding Over. If; for any reason, Lessee shail remain
in possessiori ofthe Leasecl Property after the expiration
or any earlier termination of the Term, such possession
shall be as a
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tenant at sufferance during which time Lessee shall pay as
rental each month, one and one-half times the aggregate
of(i) one-twelfth ofthe aggregate BaseRerit, and
AdditiorialRentpayable at the time of such expiration or
earlier termination of the Term; (ii) aIl Additional Charges
accruing during the month and (iii) all other sums, if any,
payable by I.essee pursuant to th provisions of this Lease
with respect to the Leased Property. During such period of
tenancy, Lessee shall be obligated to perform and observe
all ofthe 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 ofthe 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 ofthis Lease.
ARTI.CLE 18
PURCHASE OF THE LEASED PROPERTY/RIGHT OF FIRST REFUSAL
18.1 Purchase of the Leased Propert. 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, aIl ofthe 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 hereo 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 ofthe 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
ofsuch conveyance, including, without limitation, the cost
oftitle examination or standard or extended coverage title
insurance, attomeys' fees incurred by Lessor in connection
with such conveyance, recording and transfer taxes and
recording fees and similar charges and specifically
excludin any prepayment penalties, ifany, due Lessor's
mortgagee, shall be paid by Lessee.
18.2 Appraisal.
18.2.1 Designation of Appraisers. In the event that it
becomes necessarv to determine the Fair Market Value ofthe
Leased Property for any purpose ofthis Lease, the party
required or permitted to ive 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)
95
days after receipt of any such notice, Lessor (or Lessee, as
the case mav 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 Nlarket Value of the Leased
Property or appoint a scond Person as appraiser on its
behalf. -
18.2.2 Appraisal Process. The appraisers thus appointed,
each ofwhom 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 ofthe Leased Property as ofthe relevant date (aiving
effect to the impact, if any, of inflation from the date of
their decision to the relevant date); provided, however,
that ifonly one appraiser shall have been so appointed, or
iftwo 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
ifthe difference between the amounts so determined shall not
e;cceed ten per cent (10) of the lesser of such amounts,
then the Fair Market Value ofthe 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
(?0) days to appoint a third appraiser, but if such
appraisers fail to do so, then either party may request the
American Arbitration Association or anv successor
organization thereto to appoint an appraiser within twenty
(?0) days ofsuch 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 tvventy (20) days or within ninety (90) days
ofthe oriainal 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 bv such court. Anv appraiser
appointed by the orinal appraisers, by the American
Arbitration Association or by such court shall be instructed
to determine the Fair Market Value ofthe Leased Property
within thirty (30) days after appointment of such Appraiser.
The determination ofthe appraiser vhich differs most in
terms ofdollar amount from the determinations of tize other
tvo appraisers shali be eciuded, and fifty percent (50)
ofthe sum ofthe remainin two determinations shall be final
and binding upon Lesscr and Lessee as the Fair Market Value
ofthe Leased Property.
18.?.3 Specific Enforcement and Cn5t5. This provision for
dctermination bv appraisal shall be specificallv enforceable
to the etent such remedv is available under applicable
lav, and any determination hereunder slzall be final and
bindina upon the parties ecept as otherwise provided bv
applicable lav. Lessor and Lessee shall each pay the fees
and etpenses of the appraiser appointed bv it and each shall
pa one-half of the
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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 Riht of First Refusal.
18.3.1 Right of First Refusal. At any time during the Term,
as long as there etists 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 ofthe 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 ofthe notice ofthe Offer to
Lessee to elect to purchase the Leased Property on the same
terms and conditions as specified in the Offer; (b) unless
the Lessor receives notice from Lessee within such thirty
(30) day period setting forth the Lessee's election
("Election Notice") to so purchase the Leased Property and
unless thereafter the Lessee completes the acquisition of
the Leased Property exactly as provided for, and by the date
specified in the Offer (the "Closing Date"), the Lessor
shall be at liberty, and shall have the absolute and
unconditional right to sell the Leased Property to any
person within the next twelve (12) months substantially on
the terms and conditions set forth in the Offer or on any
other terrns 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
desianated by Lessee, as the case may be, shall be deemed to
be a full performance and dischare ofevery agreement and
obliaation to be performed by Lessor contained or expressed
in this Lease.
18.32 Condition of Leased Propertv. The Leased Property is
to be purchased
"AS IS" and "WHERE IS" as ofthe Closina Date.
18.3.3 Qualitv of Title. If Lessor shall be unable to give
title or to make conveyance, as stipulated in this Section
18. i, then, at Lessor's option, Lessor shall use reasonable
efforts to remove all defe.cts in title and. the applicable
Closing Date shall be extended for period of thirty (30)
days other than with respect to any Encumbrances
97
which Lessor has caused to exist. Lessor shall not be
required to expend more than FIFTY THOUSAND DOLLARS
(50,000) (inclusive ofattorney's fees) in or_der ta have
used "reasonable efforts." - -.
18.3.4 Lessor's Inabilitv to Perform. Ifat the expiration
ofthe 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 assigrl 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 I 3 hereof, or, to the
extent such proceeds have not been recovered as of the
applicable Closing Date, Lessor shall assign to Lessee all
its rights with respect to any claim therefor.
18.3. Use of Purchase Price to Clear Title. To enable
Lessor to make
conveyance as provided in this Section, Lessor may, at the
Closing Date, use the Purchase Price or any portion thereof
to clear the title of any Lien, provided that all
instruments so procured are recorded contemporaneously on
the Closing Date or reasonable arrangements are made for a
recording subsequent to the Closing Date in accordance with
customary conveyancing practices.
18.3.6 Lessee's Default. If Lessee delivers Lessee's
Election Notice and fails to consummate the purchase ofthe
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 fulI 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.
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ARTICLE 19
SUBLETTING AND ASSIGNMENT - -19.1 Subletting and
Assignment. Lessee may not, without the prior written
consent of Lessor, which consent may be withheld in Lessor's
sole and absolute discretion, assign or pledge all or any
portion of its interest in this Lease or any of the other
Lease Documents (whether by operation oflaw or otherwise) or
sublet all or any part ofthe Leased Property. For purposes
of this Section 19. I, 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 oflaw) ofany
ofthe capital stock ofor partnership interest in Lessee or
sales, pledges, hypothecations or other transfers
(including, without limitation, any transfer by operation of
law) of the capital or the assets of Lessee. Any such
assignment, pledge, sale, hypothecation or other transfer
made without Lessor's consent shall be void and of no force
and effect. Notwithstanding the foregoing, Lessor's consent
shall not be unreasonably withheld with respect to an
assignment or pledge of an interest of Lessee in this Lease
or a sublet of all or a part of the Leased Property to a
Meditrust/Emeritus Transaction Affiliate.
19.2 Attornment. Lessee shall insert in each Sublease
approved by Lessor, provisions to the effect that (a) such
Sublease is subject and subordinate to all ofthe 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 optiori, attorn to Lessor and
waive any right the Sublessee may have to terminate the
Sublease or to surrender possession trereunder, 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 LIIS GRANTED BY LESSOR
20.1 No Merger of Titte. Except as otherwise provided in
Section 18. i.10, there shall be no merger ofthis Lease or
ofthe leasehold estate created hereby with the fee estate in
the Leased Propertv by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly (a)
this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate and (b) the
fee estate in the Leased Property.
20.2 Transfers Bv Lessor. Ifthe original Lessor named herein
or any successor in interest shall convey the Leased
Propertv in accordance with the terms hereof, other than as
security for a debt, and the grantee or transferee ofthe
Leased Property shall eYpresslv assume all
99
obligations of Lessor hereunder arising or accruing from and
after the date of such conveyance or transfer, the original
Lessor named herein or the applicablesuccessor 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 trarisfer as to the Leased
Property and all such future liabilities and obligations
shall thereupon be binding upon the new owner.
.20.3 Lessor Mav 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 obliga.tion
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 ofa mortgage or
deed oftrust on Lessor s interest in the Leased Property the
same shall be referred to herein as a "Fee Mortage" and the
holder thereofshall be referred to herein as a "Fee
Mortgagee".
20.4 Subordination and Non-Disturbance. Concurrently with
the execution and delivery of any Fee Mortgage entered into
after the date hereof, provided that the Lessee eYeutes and
delivers an aareement ofthe type described in the folloving
paragraph, Lessor shall obtain and deliver to Lessee an
aareement by the holder of such Fee Mortoage, pursuant to
which, (a) the applicable Fee Nlortagee consents to this
Lease and (b) agrees that, notwithstanding the terms of the
applicable Fee MortQage held by such Fee Mortgagee, or any
default, expiration, termination, foreclosure, sale, entiy
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 ofthe Leased
Property nor shall this Lease be terminated or cancelled at
any time, except in the event that Lessor shall have the
right to terr:inate 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 obliations hereunder in
connection vith any such election, the holder ofthe Fee
Mortgage shall release its Fee Mortgage upon payment by
Lessee ofthe purchase price required hereunder, provided,
that (1) such purchase price is paid to the holder ofthe Fee
Mortgage, in the event that the Indebtedness secured by the
applicable Fee Ivlortgage is equal to or greater than the
purchase price or (2) in the event that the purchase price
is reater than the Indebtedness secured by the Fee
Mortaaae, a portion ofthe purchase price equal to the
Indebtedness secured by the Fee Mortaage is paid to the Fee
MortaaQee and the remainder of the purchase price is paid to
Lessor.
At the request from time to time by any Fee Mortgaaee,
Lessee shall (a) subordinate this Lease and all of I.essee's
riahts and estate hereunder to the Fee Nlortae held by
such Fee Vlortgagee and (b) aaree that Lessee will attorn to
and recoanize such Fee Nlortgagee or the
I00
purchaser at any foreclosure sale or any sale under a,power
ofsale contained in any such Fee Mortgage as Lessor under
this Lease for the balance of the Terrri then remaining. To
effect the intent and purpose of the immediately preceding
sentence, Lessee agrees to execute and deli-ver such
instruments in recordable from as are reasonably requested
by Lessor or the applicableee Mortgagee; provided, however,
that such Fee Mortgagee simultaneously executes, delivers
and records a written agreement of the type described in the
preceding paragraph.
ARTICLE 21
LESSOR OBLIGATIONS
21.1 Quiet Enjovment. 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 foreaoing covenant shall give
Lessee any right to cancel or terminate this Lease, or to
fail to perform any other sum payable under this Lease, or
to fail to perform any other obligation of Lessee hereunder.
Notwithstanding the foregoing, Lessee shall have the right
by separate and independent action to pursue any Claim it
may have against Lessor as a result of a breach by Lessor of
the covenant of quiet enjoyment contained in this Article
21.
21.2 Memorandum of Lease. Lessor and Lessee shall, promptly
upon the request of either, enter into a short form
memorandum of this Lease, in form suitable for recording
under the laws ofthe State, in which reference to this Lease
and all options contained herein shall be made. Lessee shall
pay all recording costs and taxes associated therewith.
21.3 Default by Lessor. Lessor shall be in default of its
obligations under this Lease onlv if Lessor shall fail to
observe or perform any term, covenant or condition ofthis
Lease on its part to be performed and such failure shall
continue for a period ofthirty (30) days after notice
thereof from Lessee (or such shorter time as may be
necessary in order to protect the health or velfare ofany
residents ofthe Facility or to ensure the continuing
compliance ofthe Facility with applicable Legal
Requirements), unless such failure cannot with due diligence
be cured vithin a period ofthirty (30) days, in which case
such failure shall not be deemed to continue if Lessor,
within said thirty (0) day period, proceeds promptly and
with due diligence to cure the failure and diliaeritly
completes the curing thereofwithin one hundred twenty (120)
days after notice thereof.
l01
ARTICLE 22
NOTICES Any notice, request, demand, statement or
consent made hereunder or under any ofthe 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:
Ifto Lessee: c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500 Seattle, WA 9 8121-2162
Attention: Raymond R. Brandstrom, President
With a copy to: The Nathanson Group 1411 Fouzth Avenue,
Suite 905 Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
Ifto the Guarantor: Emeritus Corporation
3131 Elliott Avenue, Suite 500 Seattle, WA 98121-2162
Attention: Raymond R. Brandstrorn, President
With a copy to: The Nathanson Group 141 I Fourth Avenue,
Suite 905 Seattle, WA 98101
Attn: Randi S. Nathanson, Esquire
If to Lessor: Meditrust Acquisit:on Corporation I 197 First
Avenue
Needham Heights, Massachusetts 0? 194 Attn: President
With copies to: Meditrust Acquisition Corporation I 197
First Avenue
Needham Heights, Massachusetts 02194 Attn: General Counsel
l02
and Hutchins, Wheeler & Dittmar __ 10 I Federal Street
- - Boston, MA 021 I 0 - - - Attn: Jack H. Fainberg,
Esquire
or such other address as Lessor, Lessee or the Guarantor
shall hereinafter from time to time designate by a written
notice to the others given in such manner. Any notice given
to Lessee or the Guarantor by Lessor at any time shall not
imply that such notice or any fizrther or similar notice was
or is required.
ARTICLE 23
LIMITATION OF MEDITRUST LIABILITY
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 only to the assets of Lessor for the
payment of any sum or performance of any obligation due by
or from Lessor pursuant to the terms and provisions of the
Lease Documents.
ARTICLE 24
MISCELLANEOUS PROVISIONS
24.1 Broker's Fee Indemnification. Lessee and Lessor each
shall and hereby agrees to indemnify, defend (with counsel
acceptable to the other) and hold the other harmless from
and against any and all claims for premiums or other
charges, finder's fees, taxes, brokerage fees or commissions
and other similar compensation due to a broker or finder
allegedly employed or retained by it in connection with any
of the transactions contemplated by the Lease Documents.
Notwithstanding the foregoing, the indemnified party shall
have the option of conducting its own defense against any
such claims with counsel of such party's choice, but at the
expense of the indemnifying party, as aforesaid. This
indemnification shall include all reasonable attorneys' fees
and expenses and court costs reasonably incurred by the
indemnified party in connection with the defense against any
such claims and the enforcement ofthis indemnification
agreement and shall survive the termination ofthis Lease.
l03
2=1.2 No Joint Venture or Partnership. Neither anything
contained in any of the Lease Documents, nor the acts of the
parties hereto, shall create, or be construed to create, a,
partnership orjoint 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, r be construed to make, Lessor liable
to any Person for goods delivered to Lessee, services
performed with respect to the Leased Property at the
direction of Lessee or for debts or claims accruing against
Lessee.
24.3 Amendments, Waivers and Modifications. None ofthe
terms, covenants,
conditions, warranties or representations contained in this
Lease or in any ofthe 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 ofany
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, amendnzents,
extensions, substitutions, revisions, consolidations and
modifications of any of the Lease Documents, the Management
Agreements, the Related Party Agreements, the Pemiits 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, . subst:tutions,
revisions, consolidations or modifications thereof.
Notwithstanding the foregoing. any reference contained in
any ofthe Lease Documents, whether express or implied, to
any renewal, replacement, amendment, extension,
substitution, revisions, consolidation or modification ofany
ofthe Lease Documents or any Management Agreement, Related
Party Agreement, Permit and/or the Contract is not intended
to constitute an agreement or consent bv Lessor to any such
reneal, 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 ofany ofthe Lease Documents.
2.4 Captions and Headings. The captions and headings set
forth in this Lease and each of the other Lease Documents
are included for convenience and reference only, and the
words contained therein shall in no way be held or deemed to
define, limit, describe, explain, modify, amplify or add to
the interpretation, construction or meanina of, or the scope
or intent of, this Lease, any ofthe other Lease Documents or
any parts hereofor thereof.
2 Time is of the Essence. Time is of essence of each and
every term, condition, covenant and warranty set forth
herein and in the other Lease Documents.
104
24.6 Counterparts. This Lease and the other Lease Documents
may be executed in one or more counterparts, each ofwhich
taken together shall constitute an original and all of
which shall constitute one in the same instrument. -
- - - -24.7 ENTIRE AGREEMENT. THIS LEASE AND THE OTHER
LEASE DOCUMENTS SET FORTH THE ENTIRE AGREEMENT OF THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER AND SHALL
SUPERSEDE IN ALL RESPECTS THE LETTERS OF INTENT, DATED
JANUARY 31,1996 AND AUGUST 13,1996 (AND ALL PRIOR ITERATIONS
THEREOF), FROM MEDITRUST TO LESSEE.
24.8 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED
BY APPLICABLE LAW, LESSOR AND LESSEE HEREBY MUTUALLY,
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT
WHICH ANY PARTY HERETO MAY NOW OR HEREAFTER HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THE LEASE OR ANY OF THE LEASE
DOCUMENTS. Lessee hereby certifies that neither Lessor nor
any of Lessor's representatives, agents or counsel has
represented expressly or otherwise that Lessor would not, in
the event ofany such suit, action or proceeding seek to
enforce this waiver to the right of trial by jury and
acknowledges that Lessor has been induced by this waiver
(among other things) to enter into the transactions
evidenced by this Lease and the other Lease Documents and
further acknowledges that Lessee (a) has read the provisions
of this Lease, and in particular, the paragraph containing
this waiver, (b) has consulted legal counsel, (c)
understands the rights that it is granting in this Lease and
the rights that it waiving in this paragraph in particular
and (d) makes the waivers set forth herein knowingly,
voluntarily and intentionally.
24.9 Successors and Assigns. This Lease and the other Lease
Documents shall be bindin upon and inure to the benefit of
(a) Lessee and Lessee's legal representatives and permitted
successors and asigns 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 Partv 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 ofthe
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 riaht 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 assians. 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
l05
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 dQ so.
24.11 GOVERNING LAW. THIS LEASE SHALL BE CONSTRUED AND 7flHE
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 colitained in this Lease to the
contrary notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising prior to any date
oftermination ofthis Lease or any ofthe 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
ofthe 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 ofwhich 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 ma. Yimum 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 ofnonperformance, 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.
106
24.13 Notice of Indemnification. THE PARTIES '1'O THIS
LEASE iiEREBY, ACKNOWLEDGE AND AGREE THAT THIS LEASE
CONTAINS
INDEMNIFICATION OBLIGATION$ PURSUANT TO SECTIONS 122,1.3
AND.l HEREOF.
[INTENTIONALLY LEFT BLANK)
l07
IN WITNESS WHEREOF, the parties have caused this Lease to be
executed and attested by their respective officers thereunto
duly authorized
WITNES S : N
WITNESS:
/
Name: A,melia C. Gerlt
23033 I-2
192285-1 (compareto Iaal9s)
LESSEE: EMERITUS PROPERTIES I, INC.
LESSOR:
Name: KELLY J. PRICE Title:
MEDITRUST ACQUISITION CORPORATIO I, a Massachusetts
corporation
By:
l08
<PAGE>
Recording Requested By And When Recorded Mail To:
Timothy G. Little, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT, ASSIGNMENT OF
RENTS,
SECURITY AGREEMENT, INCLUDING FIXTURES, FIXTURE FILING AND
FINANCING STATEMENT
Grantor (Borrower): Emeritus Properties III, Inc.
Grantee (Lender): Deutsche Bank AG
Grantee (Trustee): Chicago Title Insurance Company
Legal Description (ablbreviated): Lot 1 of Columbia Pacific
Management Binding Site Plan in Puyallup, Pierce County,
Washington, Additional legal(s) on Exhibit A.
Assessor's Tax Parcel ID# 60165-001-0
<PAGE>
DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT,
ASSIGIGNMENT OF RENTS, SECURITY AGREEMENT,
INCLUDING FIXTURE FILING AND FINANCING STATEMENT
Dated June 30,1998
EMERITUS PROPERTIES III, INC.
Grantor
to
CHICAGO TITLE INSURANCE COMPANY
as Trustee
and
DEUTSCHE BANK AG, NEW YORK BRANCH,
Beneficiary
<PAGE>
DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT, ASSIGNMENT OF
RENTS, SECURITY AGREEMENT, INCLUDING FIXTURES, FIXTURE
FILING AND FINANCING STATEMENT (as the same may from time to
time be extended, spread, split, consolidated, modified,
restated and renewed, this "Deed of Trust") made as of June
30,1998 by EMERITUS PROPERTIES III, INC., a Washington
corporation having an address c/o Emeritus Corporation, 3131
Elliot Avenue, Suite 500, Seattle, Washington 98121
("Grantor"), to CHICAGO TITLE l NSURANCE COMPANY, a Missouri
corporation having an address at 701 Fifth Avenue, Suite
1800, Seattle, Washington 98109, the trustee, (the
"Trustee") for the benefit of, DEUTSCHE BANK AG, a bank
chartered under the laws of the Federal Republic of Germany,
acting by and through its New York Branch having an address
at 31 West 52nd Street, New York, New York 10019 being the
beneficiary hereunder (the "Beneficiary").
WITNESSETH:
WHEREAS, pursuant to that certain Credit Agreement by and
among Emeritus Properties II, Inc. ("EII"), Emeritus
Properties V, Inc. ("EV"), Emeritus Properties VII, Inc.
("EVII") and the Mortgagee, dated as of April 29,1998 (the
"Original Credit Agreement") as amended by that certain
Amendment to Credit Agreement by and among EII, EV, EVII,
Grantor and the Mortgagee, dated as of the date hereof(the
"Amendment"; the Original Credit Agreement as amended by the
Amendment is referred to herein as the "Credit Agreement"),
a copy of each of which may be examined at reasonable times
at the office of Mortgagee by persons who do or will hold an
interest in the Land (as hereinafter defined) or the
Improvements (as hereinafter defined)), and subject to the
terms and conditions therein set forth, the Mortgagee has
agreed to make a loan to Grantor in a principal amount of
SIXTEEN MILLION NINE HCTNDRED FORTY-NINE THOUSAND AND
NO/100 DOLLARS (16,949,000.00) (the
"Loan") with a maturity date of April 29, 2001; and
WHEREAS, to evidence such indebtedness Grantor has executed
and delivered the Credit Agreement and will execute and
deliver a promissory note (the "Note") to the order of
Mortgagee in an aggregate principal amount of equal to the
Loan and issued pursuant to, and dated the same date as, the
Credit Agreement and having a Maturity Date of April 29,
2001; and
WHEREAS, pursuant to the terms of the Credit Agreement, on
April 29,1998, the Mortgagee made a separate loan to (a) EII
in the amount of SIXTEEN MILLION THREE HUNDRED TWENTY-EIGHT
THOUSAND AND NO/100 DOLLARS (16,328,000.00), (b) EV, in the
amount of THIRTY ONE MILLION THREE HUNDRED SIXTY FIVE
THOUSAND AND NO/100 DOLLARS (31,365,000.00) and (c) EVII
(collectively, the "Other Borrowers") in the amount of EIGHT
MILLION FIVE HIINDRED NINETY THREE THOUSAND AND NO/100
DOLLARS (8,593,000.00) (collectively, the "Other Loans");
and
1
<PAGE>
WHEREAS, each of the Other Loans is evidenced by a note by
EII, EV or EVII, as applicable, in an aggregate principal
amount equal to the Other Loans (collectively, the "Other
Notes"); and
WHEREAS, in accordance with the terms of the Credit
Agreement, Grantor has guaranteed the obligations of the
Other Borrowers under the Other Notes (the "CrossGuaranty");
and
WHEREAS, the total indebtedness and liabilities to be
secured by this Mortgage are as follows (all such
indebtedness and liabilities or the instruments evidencing
same, as applicable, being herein collectively called the
"Obligations"):
(i) the aggregate principal amount of SIXTEEN MILLION NINE
HUNDRED FORTY-NINE THOUSAND AND NO/100 DOLLARS
(16,949,000.00) pursuant to the Note; plus
(ii) interest on such principal amount, as provided in the
Credit Agreement; plus
(iii) the obligation of the Grantor with respect to the
Cross-Guaranty; plus
(iv) all other amounts payable and all other obligations of
Grantor under the Credit Agreement, the Note, this Mortgage,
and any other document which relates to any of the Credit
Agreement or the Note or any of the security therefor (as
the same may be amended, modified, extended, renewed, or
supplemented from time to time, all of the foregoing being
herein collectively called the "Loan Documents"); and
WHEREAS, it has been agreed that the payment and performance
of the Obligations shall be secured by a mortgage, open-end
mortgage, advance money mortgage, trust deed, deed of trust,
trust indenture, assignment, assignment of rents, security
agreement, including fixtures, fixture fling and financing
statement, as applicable, of certain property as hereinafter
identified; and
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, to secure the punctual
payment by Grantor when due, whether at stated maturity, by
acceleration or otherwise, of the Obligations and the
performance and observance of all other covenants,
obligations and liabilities of Grantor under this Deed of
Trust, as the same may be extended, modified or renewed or
repledged, Grantor does hereby grant, bargain, sell,
mortgage, warrant, convey, alien, remise, release, assign,
transfer, set over, deliver, confirm and convey unto
Beneficiary (where this instrument constitutes a mortgage)
or Trustee (where this instrument constitute a deed of trust
or trust indenture), upon the terms and conditions of this
Deed of Trust,
2
<PAGE>
in trust with power of sale and right of entry as provided
hereinbelow, each and all of the real properties described
in the Granting Clauses herein (which, together with all
other property located therein or described in the Granting
Clauses herein, is hereinafter collectively called the
"Mortgaged Property").
GRANTING CLAUSES
(a) All plots, pieces and parcels of land more particularly
described in Exhibit A attached hereto (the "Land"),
together with all of the easements, rights and appurtenances
now or hereafter in any way appertaining thereto, either at
law or in equity, whether now owned or hereafter acquired by
Grantor;
(b) All structures, buildings and improvements of every kind
and description now or at any time hereafter located on the
Land (the "Improvements"), together with all the estate,
right, title and interest of Grantor in all fixtures and all
appurtenances and additions thereto and substitutions or
replacements thereof owned by Grantor and now or hereafter
attached to the Premises (as hereafter defined);
(c) All right, title and interest of Grantor in and to (i)
the streets, roads, sidewalks and alleys abutting the Land,
(ii) strips and gores within or adjoining the Land, (iii)
the air space and right to use said air space above the Land
and any transferable development or similar rights
appurtenant thereto, (iv) all rights of ingress and egress
by motor vehicles to parking facilities on or within the
Land, (v) all easements now or hereafter affecting the Land,
(vi) all royalties and all rights appertaining to the use
and enjoyment of the Land, including alley, drainage,
mineral, water, oil and gas rights, (vii) all sewer rights,
and (viii) all other emblements now or hereafter located on
the Land or under or above the same or any part thereof, and
all estates, rights, interests and appurtenances; reversions
and remainders whatsoever, in any way belonging or
appertaining to the Premises or any part thereof, whether
now owned or hereafter acquired by Grantor;
(d) All right, title and interest of Grantor in and to all
water, ditches, wells, reservoirs and drains and all water,
ditch, well, reservoir and drainage rights which are
appurtenant to, located on, under or above or used in
connection with the Land or the Improvements, or any part
thereof, whether now existing or hereafter created or
acquired by Grantor;
(e) All right, title and interest of Grantor in and to all
minerals, crops, timber, trees, shrubs, flowers and
landscaping features now or hereafter located on, under or
above the Land;
3
<PAGE>
(f) All right, title and interest of Grantor in and to all
building materials, supplies and equipment now or hereafter
placed on the Land or in the Improvements and all
architectural renderings, models, drawings, plans,
specifications, studies and data now or hereafter relating
to the Land or the Improvements;
(g) All "Equipment" (as defined in the Uniform Commercial
Code), now or hereafter located on, attached to or contained
in or used or usable in connection with the Mortgaged
Property, and shall also mean and include all of Grantor's
right, title and interest in and to, all building materials,
construction materials, movable (personal) property
constituting furniture, fittings, appliances, apparatus,
leasehold improvements, machinery, devices, interior
improvements, appurtenances, equipment, plant, furnishings,
fixtures, computers, electronic data processing equipment,
telecommunications equipment, elevator, kitchen, medical,
dental or rehabilitation fixtures, cleaning apparatus, beds,
linens, televisions, carpeting, telephones, cash registers,
computers, lamps, glassware, rehabilitation equipment,
medical, dental, therapeutic and paramedical equipment and
other fixed assets now owned or hereafter acquired by
Grantor and now or hereafter used in the operation of the
business conducted at the Premises, and all proceeds thereof
as well as all additions to, substitutions for, replacements
of or accessions to any of the items recited as aforesaid
and all attachments, components, parts (including spare
parts) and accessories, whether installed thereon or affixed
thereto, and wherever located, now or hereafter owned by
Grantor and used or intended to be used in connection with,
or with the operation of, the Premises or the buildings,
structures, or other improvements now or hereafter located
at such Premises, or in connection with any construction
being conducted or which may be conducted thereon, all
regardless of whether the same are located on such Premises
or are located elsewhere (including, without limitation, in
warehouses or other storage facilities or in the possession
of or on the premises of a bailee, vendor or manufacturer)
for purposes of manufacture, storage, fabrication or
transportation and all extensions and replacements to, and
proceeds of, any of the foregoing. For purposes of the
preceding sentence, "other fixed assets" shall also be
deemed to include any and all "furniture, furnishings and
equipment" of the Premises as such term is commonly
understood in the assisted living care industry (including,
without limitation, any and all fixtures, furnishings,
equipment, furniture, and other items of corporeal
(tangible) movable (personal) property now or hereafter
located at the Premises or used in connection with the use,
occupancy, operation and maintenance of all or any part of
the Premises, other than stocks of food and other supplies
held for consumption in normal operation, but including,
without limitation, appliances, machinery, equipment, signs,
artwork (including paintings, prints, sculpture and other
fine art), office furnishings and equipment, guest room
furnishings, and specialized equipment for kitchens,
laundries, bars, restaurant, public rooms, health and
recreational facilities, linens, dishwashers, two-way
radios, all partitions, screens, awnings, shades, blinds,
floor coverings, hall and lobby equipment, heating;
lighting, plumbing, ventilating, refrigerating,
incinerating, elevators, escalators, air conditioning and
communication plants or systems with appurtenant fixtures,
vacuum cleaning systems, call or beeper systems, security
systems, sprinkler systems and other fire prevention and
extinguishing apparatus and
4
<PAGE>
materials, reservation system computer and related
equipment, all equipment, manual, mechanical or motorized,
for the construction, maintenance, repair and cleaning of
parking areas, walks, underground ways, truck ways,
driveways, common areas, roadways, highways and streets, and
motor vehicles) (the items described in Granting Clauses (a)
through (g) are herein collectively referred to as the
"Premises");
(h) All right, title and interest of Grantor in and to all
leases, subleases, lettings and, to the extent permitted by
Law, licenses affecting the Premises, including, without
limitation, any assignments thereof (including, without
limitation, all guarantees of any such leases, assignment of
leases and subleases) and, to the extent assignable, other
agreements affecting the use, enjoyment or occupancy of the
Mortgaged Property heretofore or hereafter entered into, and
all amendments, modifications, supplements, additions,
extensions and renewals thereof(the "Leases"), and all
right, title and interest of Grantor in the Occupancy
Agreements (as hereafter defined), and all right, title and
interest of Grantor under the Leases and the Occupancy
Agreements, including cash and securities deposited
thereunder (as down payments, security deposits or
otherwise), the right to receive and collect the rents,
security deposits, income, proceeds, earnings, royalties,
revenues, issues and profits payable thereunder (including
any claims (i) based on holdover by any lessee, (ii) for
damages sustained by Grantor or (iii) arising under any
federal, state or other law as a result of or in connection
with the bankruptcy or insolvency, of any lessee) and the
rights to enforce, whether at law or in equity or by any
other means, all provisions and options thereof or
thereunder (all of the foregoing hereinafter collectively
referred to as the "Rents") and the right to apply the same
to the payment and performance of the Obligations;
(i) All rights, dividends and/or claims of any kind
whatsoever relating to the Premises (including damage,
secured, unsecured, lien, priority and administration
claims); together with the right to take any action or file
any papers or process in any court of competent
jurisdiction, which may in the opinion of Beneficiary be
necessary to preserve, protect, or enforce such rights or
claims, including the fling of any proof of claim in any
insolvency proceeding under any state, federal or other laws
and any rights, claims or awards accruing to or to be paid
to Grantor in its capacity as landlord under the Leases;
(j) All right, title and interest of Grantor in and to any
insurance policies covering the Mortgaged Property,
including, without limitation, all proceeds thereof and any
unearned premiums on any insurance policies covering the
Mortgaged Property, including, without limitation, the right
to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage
to the Mortgaged Property or any part thereof, subject to
and in accordance with the terms and conditions of the
Leases;
(k) Subject to the terms and provisions of this Deed of
Trust, the right, in the name and on behalf of Grantor, to
appear in and defend any action or proceeding brought with
5
<PAGE>
respect to the Mortgaged Property and to commence any action
or proceeding to protect the interest of Beneficiary in the
Mortgaged Property or any part thereof;
(1) All of the right, title and interest of Grantor in and
to all franchises, trade names, trademarks, symbols, service
marks, books, records, plans and specifications, contracts,
licenses, approvals, consents, subcontracts, service
contracts, management contracts, permits and other
agreements of any nature whatsoever now or hereafter
obtained or entered into by Grantor, or any manager of the
Mortgaged Property on behalf of Grantor, with respect to the
use, occupation, development, construction and/or operation
of the Mortgaged Property or any part thereof or the
activities conducted thereon or therein, or otherwise
pertaining to the Mortgaged Property or any part thereof;
(m) All accounts receivable, contract rights, interests,
estate or other claims, both in law and in equity, which
Grantor now has or may hereafter acquire in the Mortgaged
Property or any part thereof, and all reserve accounts,
accounts for the deposit, collection and/or disbursement of
Rents and other accounts now or hereafter in existence with
respect to the Loan;
(n) All rights which Grantor now has or may hereafter
acquire, to be indemnified and/or held harmless from any
liability, loss, damage, costs or expense (including,
without limitation, attorneys' fees and disbursements)
relating to the Mortgaged Property or any part thereof;
(o) All appurtenances in respect of or otherwise relating to
the Leases, including, but not limited to, all the estate
and rights of the Grantor of, in and to (i) all
modifications, extensions and renewals of the Leases and all
rights to renew or extend the term thereof, (ii) all of
Grantor's rights, if any, pertaining to deposits of the
lessee under the Leases (including lessee security deposits,
if any), (iii) all the right or privilege of the Grantor to
terminate, cancel, abridge, surrender, merge, modify or
amend the Leases and (iv) any and all possessory rights of
the Grantor and other rights and/or privileges of
possession, including, without limitation, the Grantor's
right to elect to take possession of the Mortgaged Property;
(p) All of the Grantor's claims and rights to damages and
any other remedies in connection with or arising from the
rejection of the Leases by the lessee or any trustee,
custodian or receiver pursuant to the U.S. Bankruptcy Code,
as amended (the "Bankruptcy Code") in the event that there
shall be filed by or against the Lessee any petition, action
or proceeding under the Bankruptcy Code or under any other
similar federal or state law now or hereafter in effect;
(q) All present and future monetary deposits given by
Grantor to any public or private utility with respect to
utility services furnished to any part of the Premises or
the Improvements;
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(r) All right, title and interest of Grantor in and to all
refunds and rebates of taxes and assessments relating to the
Premises and Improvements (except to the extent such refunds
and rebates relate to taxes or assessments paid by the
lessee under the Leases);
(s) All right, title and interest of Grantor in and to all
proceeds, products, substitutions and accessions (including
claims and demands therefor) of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated
claims, including, without limitation, the proceeds of
insurance and condemnation awards; and
(t) All other or greater rights and interests of every
nature in the Premises and in the possession or use thereof
and income therefrom, whether now owned or hereafter
acquired by Grantor.
TOGETHER with all right, title and interest of Grantor in
and to all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and
appurtenances to, any of foregoing hereafter acquired by, or
released to, Grantor or constructed, assembled or placed by
Grantor on the Premises and all conversions of the security
constituted thereby, immediately upon such acquisition,
release, construction, assemblage, placement or conversion,
as the case may be, and in each such case, without any
further mortgage, conveyance, assignment or other act by
Grantor, shall become subject to the lien of this Deed of
Trust as fully and completely, and with the same effect, as
though now owned by Grantor and specifically described
herein.
Notwithstanding anything to the contrary herein contained,
this Deed of Trust shall be deemed to be and shall be
enforceable as a deed of trust, assignment, assignment of
rents, fixture filing and financing statement.
Wherever herein contained, the phrase "Trustee and/or
Beneficiary" or any similar phrase shall be deemed to refer
to Trustee for the benefit of Beneficiary.
To the extent any of the foregoing Mortgaged Property is not
considered "real property" under the Uniform Commercial Code
of the state in which the Premises are located ("UCC"),
Grantor hereby grants to Beneficiary a security interest
(the "Security Interest") as security for the Obligations in
all such items of Mortgaged Property, and Beneficiary shall
have, in addition to all rights and remedies provided
herein, and in any other agreements, commitments and
undertakings made by Grantor to Beneficiary, all of the
rights and remedies of a "secured party" under the UCC. To
the extent permitted under applicable law, this Deed of
Trust shall be deemed to be a "security agreement" for
purposes of the UCC.
TO HAVE AND TO HOLD the Mortgaged Property unto Trustee,
Beneficiary, and their respective successors and assigns,
forever.
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ARTICLE I
Representations, Warranties and Covenants of Grantor
SECTION 1.01. Payment of Obligations. Grantor shall
punctually pay when due, and timely perform, the
Obligations.
SECTION 1.02. Legal Status, Authority and Other Matters. (a)
Legal Status. Grantor represents and warrants that it is a
corporation duly organized and existing in good standing
under the laws of Washington and has the full power and
authority to own the Mortgaged Property and carry out its
business in the state in which the Mortgaged Property is
located.
(b) No Actions Pending. Except as set forth on the
Disclosure Schedule (as defined in the Credit Agreement)
there is no action, suit or proceeding, judicial,
administrative or otherwise, pending or, to the best of
Grantor's knowledge, overtly threatened or contemplated
against ox affecting Grantor or the Mortgaged Property which
would cause a Material Adverse Effect.
SECTION 1.03. Warranty of Title. Grantor warrants that it
has good and marketable title to the Premises, in each case
free and clear of all liens, charges and encumbrances of
every kind and character, subject only to the encumbrances
set forth on Exhibit B hereto ("Permitted Encumbrances");
has and will continue to have full power and lawful
authority to encumber and convey the Premises as provided
herein; owns all other Mortgaged Property free and clear of
all liens, charges and encumbrances of every kind and
character, subject only to Permitted Encumbrances; and this
Deed of Trust is and will continue to remain a valid and
enforceable first mortgage lien on and security interest in
the Mortgaged Property, subject only to Permitted
Encumbrances. Grantor further covenants that it will
preserve such title and will forever warrant and defend the
title to the Mortgaged Property unto Trustee and Beneficiary
against all lawful claims whatsoever and will forever
warrant and defend the validity, enforceability and priority
of the lien of this Deed of Trust against the claims of all
persons and parties whomsoever.
Grantor covenants that it will, at Grantor's sole cost and
expense and at the request of Trustee or Beneficiary, (i)
promptly correct any defect or error which may be discovered
in the Loan Documents, (ii) promptly do, execute,
acknowledge and deliver, and record and re-record, file and
re-file and register and re-register, any and all such
instruments as Trustee or Beneficiary may require from time
to time in order to carry out more effectively the purposes
of this Deed of
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Trust and (iii) will promptly furnish Trustee and
Beneficiary with evidence satisfactory to Trustee and
Beneficiary of every such recording, filing or registration.
SECTION 1.04. Operation and Maintenance. (a) Repair and
Maintenance. Grantor will operate and maintain the Premises
in good order, repair and operating condition, will promptly
make all necessary repairs, restorations, renewals,
replacements, additions and improvements thereto, interior
and exterior, structural and nonstructural, foreseen and
unforeseen, or otherwise necessary to insure that the same
as part of the security under this Deed of Trust shall not
in any way be diminished or impaired, and will not cause or
allow the Premises to be misused, wasted or to deteriorate.
No part of the Improvements shall be removed, demolished or
structurally or materially altered nor shall any new
building, structure, facility or other improvement be
constructed on the Land or the Leased Land without
Beneficiary's prior written consent in the case of each such
removal, demolition, alteration or construction.
(b) Replacement of Equipment. Grantor will keep the Premises
fully equipped and will replace all worn out or obsolete
Equipment with fixtures or personal property comparable
thereto when new to the extent necessary to operate the Deed
of Trust, Property in accordance with prudent business
standards for assisted living facilities and will not,
without Beneficiary's consent, remove any Equipment or other
personal property from the Land, the Leased Land or the
Improvements unless, to the extent necessary to operate the
Mortgaged Property in accordance with prudent business
standards for assisted living facilities Grantor replaces
the same with an article of equal suitability and value when
new, owned by Grantor free and clear of any lien or security
interest (other than Permitted Encumbrances).
(c) Zoning; Title Matters. Grantor will not, without the
prior written consent of Beneficiary, (i) initiate or
support any zoning reclassification of the Premises, seek
any variance under existing zoning ordinances applicable to
the Premises or use or permit the use of the Premises in a
manner which would result in such use becoming a non-
conforming use under applicable zoning ordinances, (ii)
modify or amend any of the Permitted Encumbrances, (iii)
impose any restrictive covenants or encumbrances upon the
Premises, execute or file any subdivision plat affecting the
Premises or consent to the annexation of the Premises to any
municipality or (iv) permit or suffer the Premises to be
used by the public or any person in such manner as might
make possible a claim of adverse usage or possession or of
any implied dedication or easement.
(d) Status of the Premises. (i) The Premises is not located
in an area identified by the Secretary of Housing and Urban
Development or a successor thereto as an area having special
flood hazards pursuant to the terms of the National Flood
Insurance Act of 1968, or the Flood Disaster Protection Act
of 1973, as amended, or any successor law; or if the
Premises is located in such an area, Grantor will obtain and
maintain insurance against damage or loss by flood on such
basis and in such amounts as shall be required by
Beneficiary; (ii) the
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Premises is served by all utilities required for the current
use thereof; (iii) all streets necessary to serve the Land,
the Leased Land and the Improvements for the current use
thereof have been completed and are serviceable and have
been dedicated or accepted by the appropriate governmental
entities and Grantor has access from public roads to the
Land, the Leased Land and the Improvements; and (iv) there
is no condemnation or similar proceeding pending or
threatened affecting any part of the Premises that might
materially adversely affect the Premises.
(e) Use. Grantor will use the Premises for substantially the
same use as in effect as of the date hereof and for no other
use unless consented to in writing by Beneficiary.
SECTION 1.05. Insurance. (a) Coverage. Grantor shall obtain
and maintain, or cause to be maintained, insurance for
Grantor and the Mortgaged Property providing at least the
following coverages:
(i) comprehensive all risk insurance on the Improvements and
the Personal Property, including, but not limited to,
coverage for steam, pressure exploding, earthquakes, riot
and civil commotion, vandalism, malicious mischief, burglary
and theft and contingent liability from Operation of
Building Laws, Demolition Costs and Increased Cost of
Construction Endorsements, in each case (A) in an amount
equal to 100"% of the "Full Replacement Cost", which for
purposes of this Deed of Trust shall mean actual replacement
value (exclusive of costs of excavations, foundations,
underground utilities and footings); (B) containing an
agreed amount endorsement with respect to the Improvements
and Personal Property waiving all co-insurance revisions.
and (C) containing an "Ordinance or Law Coverage" or
"Enforcement" endorsement if, any of the Improvements or the
use of the Premises shall at any time constitute legal non
conforming structures or uses. In addition, Trustor shall
obtain flood hazard insurance if any portion of the Premises
is currently or at any time in the future located in a
federally designated "special flood hazard area", in an
amount equal to the lessor of (y) the outstanding principal
balance of the Loan or (z) the maximum amount of such
insurance available under the National Flood Insurance Act
of 1968, the Flood Disaster Protection Act of 1973 or the
National Flood Insurance Reform Act of 1994, as each case
may be amended; provided that any such flood hazard
insurance shall be on terms consistent with the
comprehensive all risk insurance policy required under this
Section 1.05 except that the deductible on such insurance
shall be commercially reasonable and if not available from a
private carrier then from the government to the extent
available
(ii) comprehensive general liability insurance, including
bodily injury, death and property damage liability, and
umbrella liability insurance against any and all claims,
including all legal liability to the extent insurable,
imposed upon Beneficiary and all court costs and attorneys
fees and expenses, arising out of or connected with the
possession, use, leasing, operation, maintenance or
condition of the Premises, in such amounts as are
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generally available at reasonable premiums and are generally
required by institutional lenders for properties comparable
to the Premises;
(iii) business interruption insurance, with loss payable to
Beneficiary, in an amount sufficient to avoid any co-
insurance penalty and to provide proceeds for a period not
less than one (1) year of loss of business income, the term
"business income" to mean the total anticipated gross income
to be received by Grantor from the use and occupancy of the
Premises and the sale of goods and rendering of services at
the Premises, reduced to the extent such amounts would not
be received because of expenses not incurred during a period
of non-operation of that portion of the Premises then not
being operated. Beneficiary shall be entitled to the
insurance proceeds to the extent necessary to satisfy all
amounts due and payable to Beneficiary under the Note, which
insurance proceeds shall be held by Beneficiary and shall be
applied to the Obligations secured hereunder from time to
time due and payable hereunder and under the Note; provided,
however, that nothing herein contained shall be deemed to
relieve Grantor of its Obligations secured hereunder except
to the extent such amounts are actually paid out of the
proceeds of such business income insurance;
(iv) workers' compensation, subject to the statutory limits
of the state in which the Premises are located, and
employer's liability insurance;
(v) comprehensive boiler and machinery insurance, if
applicable, in amounts as shall be reasonably required by
Beneficiary on terms consistent with the comprehensive all
risk insurance policy required under Subsection 1.05(a)(i);
(vi) umbrella liability insurance in an amount not less than
$30,000,000 on terms consistent with the commercial general
liability insurance policy required under Subsection
1.05(a)(ii); and
(vii) such other insurance and in such amount as (a)
Beneficiary from time to time may reasonably request, or (b)
Grantor, as a prudent owner of the Premises, deems
appropriate, against such other insurable hazards which at
the time are commonly insured against for property similar
to the Premises and used as an assisted living facility.
(b) Ratings. All policies of insurance (the "Policies")
required pursuant to this Section 1.05 shall be issued by an
insurer authorized to do business in the state in which the
Premises are located and having an A.M. Best rating of A:V
or better and a Standard & Poor's claims-paying ability
rating of not less than the greater of(A) for so long as any
Securities shall have been issued and be outstanding, one
rating category below the higher rating assigned to any such
outstanding Securities, and (B) "BBB."
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(c) Blanket Policies. The insurance coverage required under
Subsection 1.05(a) may be effected under a blanket policy or
policies covering the Premises and other property assets not
constituting a part of the Premises provided that (i) each
such blanket policy, except in the case of liability
insurance, shall specify thereon the total insurance
allocated to the Premises, which amount shall be not less
than that required hereunder, (ii) each such blanket policy
shall otherwise comply in all respects with this Deed of
Trust, and (iii) Beneficiary shall be named as an additional
insured under each such blanket policy to the extent
required hereunder.
(d) Additional Insured. All Policies of insurance provided
for or contemplated by Subsection 1.05(a), except for the
Policy referenced in Subsection 1.05(a)(iv), shall name
Beneficiary and Trustee as the insured or additional
insured, as their respective interests may appear, and in
the case of property damage, boiler and machinery, flood and
earthquake insurance, shall contain a so-called New York
standard non-contributing mortgagee clause in favor of
Beneficiary providing that the loss thereunder shall be
payable to Beneficiary notwithstanding the negligent or
wilful acts of omissions of Grantor.
(e) Form and Endorsements. All Policies shall be in such
form and with such endorsements as are comparable to the
forms of and endorsements to the Policies in effect, on the
date hereof or otherwise in accordance with commercially
reasonable standards applied by prudent owners of assisted
care facilities in the general vicinity of the Mortgaged
Property. A certificate of insurance with respect to all
such Policies has been delivered to Beneficiary and
originals or certified copies of all such Policies shall be
delivered to Beneficiary when the same are available and
shall be held by Beneficiary. All Policies shall contain:
(i) to the extent available at commercially reasonable
rates, a waiver of subrogation endorsement as to
Beneficiary; (ii) a provision that no Policy shall be
impaired or invalidated by virtue of any act, failure to
act, negligence of, or violation ofd eclarations, warranties
or conditions contained in such Policy by Grantor,
Beneficiary or Trustee or any other named insured,
additional insured or loss payee, except for the wilful
misconduct of Beneficiary or Trustee knowingly in violation
of the conditions of such Policy; (iii) an endorsement
providing for a deductible per loss of an amount not more
than that which is customarily maintained by prudent owners
of assisted care facilities in the general vicinity of the
Premises (but in no event greater than $ 100,000); (iv) a
provision that such Policies shall not be canceled,
terminated or expire without at lest thirty (30) days prior
written notice to Beneficiary in each instance; and (v) to
the extent Grantor determines such a waiver is available at
commercially reasonable rates, effective waivers by the
insurer of all claims for insurance premiums against all
loss payees, additional insureds and named insureds (other
than Grantor). Grantor shall deliver or cause to be
delivered to Beneficiary (y) not less than thirty (30) days
prior to the expiration date of any of the Policies required
to be maintained hereunder, evidence reasonably satisfactory
to Beneficiary that such Policies will be renewed or
replaced and (z) prior to the expiration date of such
Policies, among other things, an original of the certificate
of insurance and evidence of payment of the applicable
premium for such renewal
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or replacement. Certified copies of such replacement
insurance policies shall be delivered to Beneficiary
promptly after Grantor's receipt thereof but in any case
within thirty (30) days after receipt thereof by Grantor. If
Grantor fails to maintain and deliver to Beneficiary the
certificates of insurance required by this Deed of Trust,
Beneficiary may, in accordance with the provisions hereof,
procure such insurance at the expense of Grantor, to be
promptly reimbursed by Grantor.
Delivery of Statements. Grantor shall furnish to Beneficiary
annually a statement certified by Grantor or a duly
authorized officer of Grantor of the amounts of insurance
maintained in compliance herewith, of the risks covered by
such insurance and of the insurance company or companies
which carry such insurance and, if requested by Beneficiary,
verification of the adequacy of such insurance by an
independent insurance broker or appraiser to Beneficiary.
(g) Protection of Beneficiary. If at any time Grantor fails
to maintain the insurance policies required hereunder,
Beneficiary shall have the right, without notice to Grantor,
to take such action as Beneficiary deems necessary to
protect its interest in the Premises, including, without
limitation, the obtaining of such insurance coverage as
Beneficiary in its sole discretion deems appropriate, and
all reasonable expenses incurred by Beneficiary in
connection with such action or in obtaining such insurance
and keeping it in effect shall be paid by Grantor to
Beneficiary upon demand and until paid shall be secured by
this Deed of Trust and shall bear interest in accordance
with Section 2.05(b) of the Credit Agreement.
(h) Proceeds. All Insurance Proceeds shall be paid to
Beneficiary for application pursuant to Section 1.09. If the
Mortgaged Properly shall be damaged or destroyed, in whole
or in part, by fire or other casualty, Grantor shall give
prompt notice of such damage to Beneficiary. Grantor shall
promptly commence and diligently prosecute the completion of
the repair and restoration of the Premises as nearly as
possible to the condition the Premises were in immediately
prior to such fire or other casualty, with such alterations
as may be approved by Beneficiary (the "Restoration") and
otherwise in accordance with Section 1.09. Grantor shall pay
all costs of such Restoration whether or not such costs are
covered by insurance. Beneficiary may, but shall not be
obligated to make proof of loss if not made promptly by
Grantor. To the extent that the Insurance Proceeds received
in connection with such damage or destruction of the
Mortgaged Property are less than $15,000, then Grantor shall
have the right to use such Insurance Proceeds without
Beneficiary's consent.
(i) Event of Foreclosure. In the event of foreclosure of
this Deed of Trust, or other transfer of title to the
Premises in extinguishment in whole or in part of the
Obligations, all right, title and interest of Grantor in and
to such policies then in force concerning the Premises and
all proceeds payable thereunder shall thereupon vest in the
purchaser at such foreclosure or Beneficiary or other
transferee in the event of such other transfer of title.
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(j) No Separate Insurance. Grantor shall not carry separate
or additional insurance concurrent in form or contributing,
in the event of loss, with that required under the Credit
Agreement unless endorsed in favor of Beneficiary and
Trustee as loss payee or additional insured, as applicable,
and otherwise applicable to Beneficiary in all respects.
Nothing contained herein shall prohibit Grantor from holding
or obtaining an owner's policy of title insurance covering
the Premises.
SECTION 1.06. Liens and Liabilities. (a) Discharge of Liens.
Grantor will pay, bond or otherwise discharge, from time to
time when the same shall become due, all claims and demands
of mechanics, materialmen, laborers and others which, if
unpaid, might result in, or permit the creation of, a lien
on the Mortgaged Property.
(b) Creation of Liens. Grantor will not, without
Beneficiary's consent, create, place or permit to be created
or placed or allow to remain, and shall discharge and
release within ten (10) days of the placing thereof, any
deed of trust, mortgage, trust deed, voluntary or
involuntary lien, security interest or other encumbrance
against or covering the Mortgaged Property, other than
Permitted Encumbrances, whether or not subordinate hereto.
(c) No Consent. Nothing in this Deed of Trust shall be
deemed or construed in any way as constituting the consent
or request by Trustee or Beneficiary, express or implied, to
any contractor, subcontractor, laborer, mechanic or
materialman for the performance of any labor or the
furnishing of any material for any improvement,
construction, alteration or repair of the Premises. Grantor
further agrees that neither Trustee nor Beneficiary stands
in any fiduciary relationship to Grantor.
SECTION 1.07. Taxes and Other Charges. (a) Taxes on the
Premises. Grantor will promptly pay prior to delinquency and
before any penalty or interest may be added thereto, all
taxes, assessments, vault, water and sewer rents, rates,
charges and assessments, levies, permits, inspection and
license fees and other governmental and quasi-governmental
charges and any penalties or interest for non-payment
thereof, heretofore or hereafter imposed, or which may
become a lien, upon the Mortgaged Property or arising with
respect to the occupancy, use or possession thereof
(collectively, "Impositions"). Grantor will also pay any
penalty, interest or cost for non-payment of Impositions
which may become due and payable.
(b) Receipts. Unless Grantor is making monthly deposits
pursuant to Section 1.08, Grantor will furnish to
Beneficiary upon Beneficiary's request, proof of payment at
the time same is made, and thereafter, upon receipt,
validated receipts showing payment in full of all
Impositions.
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(c) Increased Costs. In the event of the enactment after the
date hereof of any law in the state in which the Mortgaged
Property is located or any other governmental entity
deducting from the value of the Mortgaged Property for the
purpose of taxation any lien or security interest thereon,
or changing in any way the laws for the taxation of
mortgages, deeds of trust or other liens or debts secured
thereby, or the manner of collection of such taxes, so as to
affect this Deed of Trust, the Obligations, Beneficiary or
the holders of the Obligations, then, and in such event,
Grantor shall, on demand, pay to Beneficiary or such holder,
or reimburse Beneficiary or such holder for payment of, all
taxes, assessments, charges or liens for which Beneficiary
or such holder is or may be liable as a result thereof,
provided that if any such payment or reimbursement shall be
unlawful or would constitute usury or render the Obligations
wholly or partially usurious under applicable law, then
Beneficiary may, at its option, declare the Obligations
immediately due and payable or require Grantor to pay or
reimburse Beneficiary for payment of the lawful and non-
usurious portion thereof.
SECTION 1.08. Tax and Insurance Deposits. (a) Amount of
Deposits. Beneficiary may require that each month Grantor
deposit with Trustee, Beneficiary or any service or
financial institution designated for such purposes by
Beneficiary (whichever of the foregoing is applicable being
the "Depository"), one-twelfth (1/12) of the annual
Impositions and premiums for insurance required under
Section 1.05, and Grantor shall accordingly make such
deposits. In addition, if required by Beneficiary, Grantor
shall also deposit with the Depository a sum of money which,
together with the aforesaid monthly installments, will be
sufficient to make payments of Impositions and premiums at
least thirty (30) days before such payments are delinquent.
If the amount of any such payment is not ascertainable at
the time any such deposit is required to be made, the
deposit shall be made on the basis of Beneficiary s estimate
thereof, and when such amount is fixed for the then-current
year, Grantor shall promptly deposit any deficiency with the
Depository.
(b) Use of Deposits. All funds so deposited, until so
applied, shall constitute additional security for the
Obligations, shall be held by the Depository with interest
payable to Grantor (except to the extent required under
applicable law), may be commingled with other funds of the
Depository and, provided that no Event of Default (as
defined in Section 5.01) shall have occurred and be
continuing hereunder, shall be applied in payment of the
aforesaid amounts prior to their becoming delinquent. If an
Event of Default shall have occurred and be continuing
hereunder, or if the Obligations shall be accelerated as
herein provided, all funds so deposited may, at
Beneficiary's option, be applied to the Obligations in the
order determined by Beneficiary. If such deposits are being
made with the Depository, at least fifteen (15) days before
the date on which such charges first become payable, Grantor
shall furnish the Depository with bills for the charges for
which such deposits are required to be made hereunder and/or
such other documents necessary for the payment of the same.
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SECTION 1.09. Damage and Destruction. (a) Grantor's
Obligations. In the event of any damage to or loss or
destruction of the Premises, Grantor shall (i) promptly
notify Beneficiary of such event and take such steps as
shall be necessary to preserve any undamaged portion of the
Premises and (ii) unless otherwise instructed by
Beneficiary, regardless whether the insurance proceeds, if
any, shall be sufficient for the purpose or shall be
otherwise applied by Beneficiary as provided herein,
promptly commence and diligently pursue to completion the
restoration, replacement and rebuilding of the Premises to
the condition of the Premises affected thereby immediately
prior to such damage, loss or destruction in accordance with
plans and specifications approved, and with other provisions
for the preservation of the security hereunder established,
by Beneficiary.
(b) Trustee's and Beneficiary's Rights; Application of
Proceeds. In the event that any portion of the Premises is
so damaged, destroyed or lost, and such damage, destruction
or loss is covered, in whole or in part, by insurance
required by Section 1.05, then, (i) Beneficiary or Trustee
may, but shall not be obligated to, make proof of loss if
not made promptly by Grantor and is hereby authorized and
empowered by Grantor to settle, adjust or compromise any
claims for damage, destruction or loss thereunder, (ii) each
insurance company concerned is hereby authorized and
directed to make payment therefor directly to Beneficiary or
Trustee; provided, however, that if all of the conditions
set forth in Section 1.09(c) are met and Grantor delivers a
written undertaking to expeditiously commence and to
satisfactorily complete with due diligence any such damage
or destruction in accordance with the terms hereof, the
insurance proceeds will be made available to Grantor in
accordance with Section 1.09(c).
(c) Proceeds for Restoration. Notwithstanding anything
provided herein to the contrary, if:
(i) less than (A) thirty percent (30%) of the Improvements
and (B) forty percent (40%) of the Land have been taken or
destroyed;
(ii) no monetary Default or Event of Default has occurred
and is continuing hereunder or under any of the other Loan
Documents and has not been waived;
(iii) the Restoration can, in Beneficiary's judgment, with
diligent work, be completed prior to the expiration of
business interruption insurance required hereunder;
(iv) the taking, fire or casualty did not occur during the
six (6) months prior to the maturity of the Note;
(v) all necessary governmental approvals can be obtained for
the Restoration;
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(vi) there are sufficient sums available (through insurance
proceeds or condemnation awards and contributions by
Grantor, the full amount of which shall have been deposited
into an account pledged to Beneficiary) for the Restoration
(including, without limitation, for any reasonable costs and
expenses of Beneficiary to be incurred in administering said
restoration or repair) and for payment of principal and
interest to become due and payable under the Note during the
period necessary to complete the Restoration;
(vii) Grantor so elects by written notice delivered to
Beneficiary within thirty (30) days after settlement of the
aforesaid insurance or condemnation claim; and
(viii) the Restoration is done and diligently completed by
Grantor in compliance with all applicable Laws,
then, Beneficiary shall, solely for the purposes of the
Restoration, release so much of the remainder of such sums
as may be required for the Restoration, and any funds
deposited by Mortgagor therefor, to Mortgagor in the manner
and upon such terms and conditions as would be required by a
prudent interim construction lender, including, but not
limited to, the prior approval by Beneficiary of plans and
specifications, contractors and form of construction
contracts and the furnishing to Beneficiary of permits,
bonds, lien waivers, invoices, receipts and affidavits from
contractors and subcontractors, in form and substance
reasonably satisfactory to Beneficiary in its reasonable
discretion, with any remainder being applied by Beneficiary,
in its sole discretion, for payment of the Obligations in
whatever order Beneficiary directs in its absolute
discretion, with any remainder being paid to Grantor.
(d) Effect on the Obligations. Notwithstanding any loss,
damage or destruction referred to in this Section, Grantor
shall continue to pay and perform the Obligations as
provided herein. Any reduction in the Obligations resulting
from such application shall be deemed to take effect only on
the date of receipt by Beneficiary or Trustee of such
insurance proceeds and application against the Obligations,
provided that if prior to the receipt by Trustee or
Beneficiary of such insurance proceeds the Mortgaged
Property shall have been sold on foreclosure of this Deed of
Trust, or shall have been transferred by deed in lieu of
foreclosure of this Deed of Trust, Beneficiary shall have
the right to receive the same to the extent of any
deficiency found to be due upon such sale, with legal
interest thereon together with attorneys' fees and
disbursements incurred by Trustee or Beneficiary in
connection with the collection thereof.
SECTION 1.10. Condemnation. (a) Grantor's Obligations;
Proceedings. Grantor, promptly upon obtaining knowledge of
any pending or overtly threatened institution of any
proceedings for the condemnation of the Premises, or of any
right of eminent domain, or of any other proceedings arising
out of injury or damage to or decrease in the value of the
Premises, including a change in grade of any street, will
notify Beneficiary of the threat or pendency
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thereof. Beneficiary may participate in any such
proceedings, and Grantor from time to time will execute and
deliver to Beneficiary all instruments requested by
Beneficiary or as may be required to permit such
participation. Grantor shall, at its expense, diligently
prosecute any such proceedings, shall deliver to Beneficiary
copies of all papers served in connection therewith and
shall consult and cooperate with Beneficiary, its attorneys
and agents, in the carrying on and defense of any such
proceedings; provided that no settlement of any such
proceeding shall be made by Grantor without Beneficiary's
consent.
(b) Trustee's and Beneficiary's Rights to Proceeds. All
proceeds of condemnation awards or proceeds of sale in lieu
of condemnation, and all judgments, decrees and awards for
injury or damage to the Premises (collectively, "Awards")
are hereby assigned and shall be paid to Beneficiary or
Trustee. Grantor authorizes Beneficiary and Trustee to
collect and receive the same, to give receipts and
acquittances therefor, and to appeal from any Awards.
(c) Application of Proceeds. Beneficiary shall have the
right to apply any Awards, first, to reimburse Trustee and
Beneficiary for all costs and expenses, and, sec4nd, the
remainder thereof in the manner provided in Section 1.09. In
the event that Grantor shall have received all or any
portion of such Awards, Grantor, upon demand from
Beneficiary, shall pay to Beneficiary or Trustee an amount
equal to the amount so received by Grantor, to be applied as
Beneficiary shall have the right pursuant to this
subsection. Notwithstanding anything herein or at law or in
equity to the contrary, none of the Awards paid to
Beneficiary or Trustee under this Section 1.10 shall be
deemed trust funds and Beneficiary or Trustee shall be
entitled to apply the same as provided in this Section 1.10.
(d) Effect on the Obligations. Notwithstanding any
condemnation, taking or other proceeding referred to in this
Section 1.10, Grantor shall continue to pay and perform the
Obligations as provided herein. Any reduction in the
Obligations resulting from such application shall be deemed
to take effect only on the date of receipt by Beneficiary or
Trustee of such Awards and application against the
Obligations, provided that if prior to the receipt by
Trustee or Beneficiary of such Awards the Mortgaged Property
shall have been sold on foreclosure of this Deed of Trust,
or shall have been transferred by deed in lieu of
foreclosure of this Deed of Trust, Beneficiary shall have
the right to receive the same to the extent of any
deficiency found to be due upon such sale, with legal
interest thereon together with attorneys' fees and
disbursements incurred by Trustee or Beneficiary in
connection with the collection thereof.
SECTION l.1l. Contest. Notwithstanding anything to the
contrary contained in Section 1.04(c),1.06 or 1.07, Grantor
shall have the right to contest in good faith and at its own
expense the validity or applicability of any duty or
obligation described in Section 1.04(c), the validity of any
lien, encumbrance, charge or security referred to in Section
1.06 and any Imposition imposed upon the Premises (a
"Contest") by an appropriate legal proceeding which
proceeding must operate to prevent the collection of such
Impositions or other realization thereon
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and the sale or forfeiture of the Mortgaged Property or any
part thereof to satisfy the same; provided that during the
pendency of such Contest, Grantor shall provide security
satisfactory to Beneficiary, assuring the discharge of
Grantor's obligations that are the subject of such Contest
("Contested Impositions") and of any additional interest
charge, penalty or expense arising from or incurred as a
result of such Contest; and provided, further, that if at
any time payment of such Contested Impositions shall become
necessary to prevent (i) the delivery of a tax deed
conveying the Mortgaged Property because of non-payment or
(ii) the imposition of any civil or criminal penalty or
liability on Beneficiary, Trustee or the holders of the
Obligations, Grantor shall pay the same in sufficient time
to avoid the delivery of such tax deed or the imposition of
any such penalty or liability.
SECTION 1.12. Notice Limiting Amount. Grantor covenants that
it will not, without the prior written consent of
Beneficiary, file of record any notice limiting the maximum
principal amount secured by this Deed of Trust.
ARTICLE II
Assignment of Leases, Rents and Other Sums
SECTION 2.01. Assignment. (a) Grantor hereby absolutely and
presently bargains, sells, transfers, assigns and sets over
to Beneficiary, as further security for the payment of the
Obligations, all of its right, title and interest in and to
all current and future Leases and Rents payable thereunder
and all rights of Grantor thereunder and any and all
deposits held as security under the Leases, whether before
or after foreclosure or during the full period of
redemption, if any, and shall, upon demand, deliver to
Beneficiary an executed counterpart of each Lease. The
assignment of the Leases and Rents, and of the aforesaid
rights with respect thereto, is intended to be and is an
absolute present assignment from Grantor to Beneficiary and
not merely the passing of a security interest. Such
assignment and grant shall continue in effect until the
Obligations are paid, the execution of this Deed of Trust
constituting and evidencing the irrevocable consent of
Grantor to the entry upon and taking possession of the
Premises by Beneficiary pursuant to such grant, whether
foreclosure has been instituted or not and without applying
for a receiver. Until the occurrence of an Event of Default
hereunder, Grantor shall be entitled to collect and receive
the Rents. Such right of Grantor to collect and receive said
Rents shall be automatically revoked upon the occurrence of
an Event of Default and thereafter Trustee or Beneficiary
shall have the right and authority to exercise any of the
rights or remedies referred to or set forth in Article V. In
addition, upon such an Event of Default, Grantor shall
promptly pay to Trustee or Beneficiary (i) all rent
prepayments and security or other deposits paid to Grantor
pursuant to any lease assigned hereunder and (ii) all
charges for services or facilities or for escalation which
were paid pursuant to any such lease to the extent allocable
to any period from and after such Event of Default. Nothing
contained in this Section 2.01(a) shall be construed to bind
Beneficiary to the performance of any of the covenants,
conditions or
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provisions contained in any Lease or otherwise to impose any
obligation on Beneficiary (including any liability under the
covenant of quiet enjoyment contained in any Lease or under
any applicable law in the event that any tenant shall have
been joined as a party defendant in any action to foreclose
this Deed of Trust and shall have been barred and foreclosed
thereby of all right, title and interest and equity of
redemption in the Premises), except that Beneficiary shall
be accountable for any money actually received pursuant to
such assignment. Grantor hereby further grants to
Beneficiary the right to notify the tenant under any Lease
of the assignment thereof and, after the occurrence of an
Event of Default hereunder (i) to demand that the tenant
under any Lease pay all amounts due thereunder directly to
Beneficiary, (ii) to enter upon and take possession of the
Premises for the purpose of collecting the Rents, (iii) to
dispossess by the usual summary proceedings any tenant
defaulting in the payment thereof, (iv) to let the Premises,
or any part thereof, and (v) to apply the Rents, after
payment of all necessary charges and expenses, on account of
the Obligations.
(b) If Grantor is not required to surrender possession of
the Premises hereunder in the event of any Event of Default,
Grantor will pay monthly in advance to Beneficiary, on its
entry into possession pursuant to Article V, or to any
receiver appointed to collect said Rents, the fair and
reasonable rental value for the use and occupation of the
Premises or such part thereof as may be in the possession of
Grantor. Upon a default in any such payment, Grantor will
vacate and surrender such possession to Beneficiary, Trustee
or such receiver, and, in default thereof, may be evicted by
summary or any other available proceedings or actions.
(c) Grantor will, as and when requested from time to time by
Beneficiary, execute, acknowledge and deliver to
Beneficiary, in form approved by Beneficiary, one or more
general or specific assignments of the lessor's interest
under any Lease. Grantor will, on demand, pay to
Beneficiary, or reimburse Beneficiary for the payment of any
costs or expenses incurred in connection with the
preparation or recording of any such assignment.
SECTION 2.02. Leases and Rents. (a) Grantor will (i) perform
or cause to be performed all the lessor's obligations under
any Lease, (ii) enforce (including the termination and
cancellation of any Lease, so long as the same is a bona
fide enforcement of Grantor's right as lessor under any such
Lease and such termination or cancellation, either by itself
or in the aggregate with other terminations and
cancellations, will not diminish or impair the security of
this Deed of Trust) the performance by the lessee under its
respective Lease of all of said lessee's obligations
thereunder and (iii) give Beneficiary prompt notice and a
copy of any notice of default, event of default, termination
or cancellation sent or received by Grantor.
(b)(i) Grantor will not, without Beneficiary's consent, (I)
assign, mortgage, pledge or otherwise transfer, dispose of
or encumber, whether by operation of law or otherwise, any
Lease or the Rents, (2) accept or permit the acceptance of a
prepayment of any amounts payable under such Lease for more
than one month in advance of the due date therefor, (3)
enter
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into, amend or modify any Lease, (4) cancel, terminate or
accept a surrender of any Lease (5) enter into any Lease (A)
with Grantor or any affiliate of Grantor or its constituent
partners or (B) which would be a "disqualified lease", as
defined in Section 168(h)(1)(B)(ii) of the Internal
Revenue Code of 1986, as amended. Grantor will not enter
into or amend, without Beneficiary's consent, any Occupancy
Agreement other than in the ordinary course of business for
prudent assisted living facilities. "Occupancy Agreement"
means any agreement by and between Grantor and any resident
of the Premises.
(ii) Supplementing the provisions of clause (i) of this
Section 2.02(b), if the lessee under any Lease (or any
receiver, trustee, custodian or other party who succeeds to
the rights of any lessee) rejects or disaffirms such Lease
pursuant to any Bankruptcy Law, Grantor hereby assigns to
Beneficiary the proceeds of any claims (including the right
to retain or apply any security deposits) that Grantor may
have against the lessee (or receiver, trustee, custodian or
other party who succeeds to the rights of any lessee) and
any guarantor of any of the Leases, under any one or more of
the Leases or any guaranty thereof based upon (1) any breach
by such lessee of the terms and provisions of the applicable
Lease (including any claim that Grantor may have by reason
of a termination, rejection or disaffirmance of such Lease
pursuant to any Bankruptcy Law), and (2) the use and
occupancy of the premises demised thereby, whether or not
pursuant to the applicable Lease (including any claim for
use and occupancy arising under any Bankruptcy Law).
Grantor, immediately upon obtaining knowledge of any such
breach or use by any such lessee, will notify Beneficiary of
any such breach or use. Upon the occurrence of an Event of
Default, Beneficiary shall have the sole right to elect,
either:
(A) to proceed against such lessee or guarantor as if it
were the named lessor thereunder, in Grantor's name or in
Beneficiary's name as agent for Grantor and Grantor agrees
to cooperate with Beneficiary in such action and shall
execute any and all documents required in furtherance of
such action; or
(B) to have Grantor proceed in Grantor's and Beneficiary's
behalf in which event Beneficiary may participate in any
such proceedings, and Grantor from time to time will deliver
to Beneficiary all instruments requested by Beneficiary or
as may be required to permit such participation. Grantor
shall, at its expense, diligently prosecute any such
proceedings, shall deliver to Beneficiary copies of all
papers served in connection therewith and shall consult and
cooperate with Beneficiary, its attorneys and agents, in the
carrying on and defense of any such proceedings; provided
that no settlement of any such proceeding shall be made by
Grantor without Beneficiary's consent.
ARTICLE III
Additional Advances; Expenses; Indemnity
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SECTION 3.01. Additional Advances and Disbursements. (a)
Grantor agrees that, upon the occurrence of an Event of
Default, Trustee or Beneficiary shall have the right without
notice to Grantor to advance all or any part of amounts
owing or to perform any or all required actions. No such
advance or performance shall be deemed to have cured such
Default by Grantor or any Event of Default with respect
thereto. All sums advanced and all expenses incurred by
Trustee or Beneficiary in connection with such advances or
actions, and all other sums advanced or expenses incurred by
Trustee or Beneficiary hereunder or under applicable law
(whether required or optional and whether indemnified
hereunder or not) shall be part of the Obligations, shall
bear interest at the Default Rate and as provided in the
Credit Agreement and shall be secured by this Deed of Trust.
(b) This Deed of Trust secures not only existing
indebtedness, but also future or additional advances made
pursuant hereto or to the Credit Agreement, whether such
advances are obligatory or optional.
SECTION 3.02. Other Expenses. Grantor will pay or, on
demand, reimburse Trustee, Beneficiary or any holder of the
Obligations for the payment of any and all costs or expenses
(including attorneys' fees and disbursements) incurred in
connection with (i) any default or Event of Default by
Grantor hereunder, (ii) the exercise or enforcement by or on
behalf of Trustee, Beneficiary or any holder of the
Obligations of any of its rights or of Grantor's obligations
under the Loan Documents or (iii) the granting,
administration, enforcement and closing of the transactions
contemplated hereunder.
SECTION 3.03. Indemnity. Grantor agrees to indemnify and
hold harmless Trustee, Beneficiary, the holders of the
Obligations and their respective officers, directors,
employees, agents and shareholders (the "Indemnified
Parties") from and against any and all losses, damages,
claims, costs and expenses (including attorneys' fees and
disbursements) which may be imposed on, incurred by or
asserted against any of the Indemnified Parties in
connection with any transaction in any way connected with
the Mortgaged Property or the Loan Documents, except to the
extent any such loss, damage, claim, cost or expense is the
result of the willful misconduct or gross negligence of the
Indemnified Party. Any amount payable under this Section
3.03 shall be deemed a demand obligation, shall be added to
and become a part of. the Obligations, shall bear interest
at the rate and as provided in the Credit Agreement, and
shall be secured by this Deed of Trust. Notwithstanding
anything contained herein to the contrary, any amount
payable under Section 10.04(b)(ii) of the Credit Agreement
shall be deemed a demand obligation, shall bear interest at
the rate provided in the Credit Agreement but shall not be
secured a obligation.
SECTION 3.04. Interest After Default. If any payment due
hereunder or under the other Loan Documents is not paid in
full when due, whether by acceleration or otherwise,
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then the same shall bear interest hereunder at the Default
Rate and as provided in the Credit Agreement, and such
interest shall be added to and become a part of the
Obligations and shall be secured hereby.
ARTICLE IV
Sale or Transfer of the Premises
SECTION 4.01. Continuous Ownership. Grantor acknowledges
that the continuous ownership of the Mortgaged Properly by
Grantor, except as otherwise permitted in the other Loan
Documents, is of a material nature to the transaction
hereinabove described and Beneficiary's agreement to create
the Obligations. Without Beneficiary's prior written
consent, Grantor will not, whether voluntarily or
involuntarily, (a) sell, grant, convey, assign or otherwise
transfer, by operation of law or otherwise, (b) permit to be
the subject of any transaction described in clause (a)
above, (c) enter into an agreement for any transaction
described in clause (a) above, or (d) grant an option which
or take any action which pursuant to the terms of any
agreement to which Grantor is a party may result in any
transaction described in clause (a) above of, the Mortgaged
Property, or any legal, beneficial or equitable interest
therein, other than any specific transfers permitted by the
Credit Agreement (the foregoing, collectively or severally,
"Transfer"). For purposes of this Deed of Trust, but without
limiting the foregoing, (i) the issuance of any equity
interest in Grantor (whether stock, partnership interest or
otherwise) not in accordance with and pursuant to the Credit
Agreement, shall be deemed a Transfer of the Mortgaged
Property, (ii) a Transfer of all or substantially all of the
assets of Grantor shall be deemed a Transfer of the
Mortgaged Property, (iii) the execution and delivery of any
documentation relating to a proposed zoning lot merger or
the execution and delivery of any other documentation
effecting or purporting to effect, or the taking or
suffering of any other action effecting or purporting to
effect, a transfer of, or the granting of a right to
utilize, any development rights appurtenant to the Mortgaged
Property shall be deemed a Transfer of the Mortgaged
Property, and (iv) any person or legal representative of
Grantor to whom Grantor's interest in the Mortgaged Property
passes by operation of law, or otherwise, shall be bound by
the provisions of this Deed of Trust. The provisions of this
Section shall apply to each and every such Transfer of all
or any portion of the Mortgaged Property or any legal or
equitable interest therein, regardless whether or not
Beneficiary has consented to, or waived by its action or
inaction its rights hereunder with respect to any previous
Transfer of all or any portion of the Mortgaged Property or
any legal or equitable interest therein.
SECTION 4.02. Intentionally Omitted.
ARTICLE V
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Defaults and Remedies
SECTION 5.01. Events of Default. The term "Event of
Default", as used in this Deed of Trust, shall mean the
occurrence of any of the following events:
(a) if default shall be made in the payment, when and as the
same shall
become due and payable, of any amounts required to be paid
under the Note, hereunder or under any other Loan Document,
whether of principal, interest within five (5) days after
the same becomes due, premium, fee or otherwise, and whether
on any stated due date, upon demand, at maturity or upon
acceleration;
(b) if default shall be made in the performance or
observance of any other term, covenant or agreement
contained in this Deed of Trust or in any other Loan
Document; or
(c) if any Event of Default (as defined in the Credit
Agreement) occurs; or
(d) if Grantor abandons the Premises or ceases to do
business or terminates its business for any reason
whatsoever; or
(e) if the Mortgaged Property shall be taken, attached or
sequestered on execution or other process of law in any
action against Grantor; or
if Grantor shall fail at any time to obtain, provide,
maintain, keep in force or, within ten (10) days after
request therefor, deliver to Beneficiary the insurance
policies required by Section 1.05; or
(g) if any claim of priority (except a claim based upon a
Permitted
Encumbrance) to this Deed of Trust or any other document or
instrument securing the Obligations by title, lien or
otherwise shall be upheld by any court of competent
jurisdiction or shall be consented to by Grantor; or
(h) if Grantor fails to cure any material default under any
Lease within the shorter of thirty (30) days following the
giving of notice of default by the lessor thereunder or the
applicable grace period set forth therein.
SECTION 5.02. Remedies. Upon the occurrence of any one or
more Events of Default, or any Transfer without the consent
of Beneficiary, Trustee or Beneficiary may, in addition to
any rights or remedies available to it hereunder or under
the other Loan Documents and to the extent permitted by
applicable law, take such action personally or by its agents
or attorneys, with or without entry, and without notice,
demand, presentment or protest (each and all
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of which are hereby waived), as it deems necessary or
advisable to protect and enforce its rights and remedies
against Grantor and in and to the Mortgaged Property,
including the following actions, each of which may be
pursued concurrently or otherwise, at such time and in such
order as Trustee or Beneficiary may determine, in its sole
discretion, without impairing or otherwise affecting its
other rights or remedies:
(a) declare the entire balance of the Obligations to be
immediately due and payable, and upon any such declaration,
the entire unpaid balance of the Obligations shall become
and be immediately due and payable, without presentment,
demand, protest or further notice of any kind, all of which
are hereby expressly waived by Grantor, anything in any
other Loan Documents to the contrary notwithstanding; or
(b) institute a proceeding or proceedings, judicial or
otherwise, for the complete or partial foreclosure of this
Deed of Trust in any manner provided hereunder or under any
applicable provision of law; or
(c) sell the Mortgaged Property, and all estate, right,
title, interest, claim and demand of Grantor therein, and
all rights of redemption thereof, at one or more sales, as
an entirety or in parcels, with such elements of real and/or
personal property, and at such time and place and upon such
terms as it may deem expedient, or as may be required by
applicable law, and in the event of a sale, by foreclosure
or otherwise, of less than all of the Mortgaged Property,
this Deed of Trust shall continue as a lien and security
interest on the remaining portion of the Mortgaged Property;
or
(d) institute an action, suit or proceeding in equity for
the specific performance of any of the provisions contained
in the Loan Documents; or
(e) cause the Trustee to sell the Mortgaged Property in
accordance with the Trustee's power of sale contained herein
and in accordance with the Washington Deed of Trust Act, RCW
Ch. 61.24, as amended by Chapter 295, Laws of 1998.
Following sale of the Mortgaged Property pursuant to the
Trustee's power of sale, Grantor and any guarantor of the
Loan secured hereby shall continue to be liable for a
deficiency to the extent permitted by Chapter 295, Laws of
1998 or other applicable law. The power of sale contained
herein is not an exclusive remedy and Beneficiary may
foreclose this Deed of Trust judicially, in the same manner
as a mortgages, or sue directly on the Note or any guaranty
in accordance with applicable law.
enter upon the Premises, and exclude Grantor and its agents
and servants wholly therefrom, without liability for
trespass, damages or otherwise, and take possession of all
books, records and accounts relating thereto and all other
Mortgaged Property, and Grantor agrees to surrender
possession of the Mortgaged Property and of
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such books, records and accounts to Trustee or Beneficiary
on demand after the happening of any Event of Default; and
having and holding the same may use, operate, manage,
preserve, control and otherwise deal therewith and conduct
the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or
receivers, without interference from Grantor; and upon each
such entry and from time to time thereafter may, at the
expense of Grantor and the Mortgaged Property, without
interference by Grantor and as Beneficiary may deem
advisable, (i) insure or reinsure the Premises, (ii) make
all necessary or proper repairs, renewals, replacements,
alterations, additions, betterments and improvements thereto
and thereon and (iii) in every such case in connection with
the foregoing have the right to exercise all rights and
powers of Grantor with respect to the Mortgaged Property,
either in Grantor's name or otherwise; or
(g) with or without the entrance upon the Premises, collect,
receive, sue for and recover in its own name all Rents and
cash collateral derived from the Mortgaged Property, and
after deducting therefrom all costs, expenses and
liabilities of every character incurred by Trustee or
Beneficiary in collecting the same and in using, operating,
managing, preserving and controlling the Mortgaged Property,
and otherwise in exercising Trustee's or Beneficiary's
rights under Subsection (of this Section including all
amounts necessary to pay Impositions, insurance premiums and
other charges in connection with the Premises, as well as
compensation for the services of Trustee or Beneficiary and
their respective attorneys, agents and employees, to apply
the remainder as provided in Section 5.05; or
(h) release any portion of the Mortgaged Property for such
consideration as Beneficiary may require without, as to the
remainder of the Mortgaged Property, in any way impairing or
affecting the lien or priority of this Deed of Trust, or
improving the position of any subordinate lienholder with
respect thereto, except to the extent that the Obligations
shall have been reduced by the actual monetary
consideration, if any, received by Trustee or Beneficiary
for such release and applied to the Obligations, and may
accept by assignment, pledge or otherwise any other property
in place thereof as Beneficiary may require without being
accountable for so doing to any other lienholder; or
(i) take all actions permitted under the UCC; or
(j) take any other action, or pursue any other right or
remedy, as Trustee or Beneficiary may have under applicable
law, and Grantor does hereby grant the same to Trustee or
Beneficiary; or
In the event that Trustee or Beneficiary shall exercise any
of the rights or remedies set forth in subsections (f) and
(g) of this Section, Trustee or Beneficiary shall not be
deemed to have entered upon or taken possession of the
Mortgaged Property except upon the
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exercise of its option to do so, evidenced by its demand and
overt act for such purpose, nor shall it be deemed a
beneficiary or mortgagee in possession by reason of such
entry or taking possession. Neither Trustee nor Beneficiary
shall be liable to account for any action taken pursuant to
any such exercise other than for Rents actually received by
Beneficiary, nor liable for any loss sustained by Grantor
resulting from any failure to let the Premises, or from any
other act or omission of Trustee or Beneficiary except to
the extent such loss is caused by the willful misconduct or
bad faith of Trustee or Beneficiary.
SECTION 5.03. Rights Pertaining to Sales. Subject to the
provisions or other requirements of law and except as
otherwise provided herein, the following provisions shall
apply to any sale or sales of all or any portion of the
Mortgaged Property under or by virtue of this Article V,
whether made under the power of sale herein granted or by
virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale:
(a) Trustee or Beneficiary may conduct any number of sales
from time to time. The power of sale set forth in Section
5.02(c) hereof shall not be exhausted by any one or more
such sales as to any part of the Mortgaged Properly which
shall not have been sold, nor by any sale which is not
completed or is defective in Beneficiary's opinion, until
the Obligations shall have been paid in full.
(b) Any sale may be postponed or adjourned by public
announcement at the time and place appointed for such sale
or for such postponed or adjourned sale without further
notice.
(c) After each sale, Beneficiary, Trustee or an officer of
any court empowered to do so shall execute and deliver to
the purchaser or purchasers at such sale a good and
sufficient instrument or instruments granting, conveying,
assigning and transferring all right, title and interest of
Grantor in and to the property and rights sold and shall
receive the proceeds of said sale or sales and apply the
same as herein provided. Each of Trustee and Beneficiary is
hereby appointed the true and lawful attorney-in-fact of
Grantor, which appointment is irrevocable and shall be
deemed to be coupled with an interest, in Grantor's name and
stead, to make all necessary conveyances, assignments,
transfers and deliveries of the property and rights so sold,
and for that purpose Trustee and Beneficiary may execute all
necessary instruments of conveyance, assignment, transfer
and delivery, and may substitute one or more persons with
like power, Grantor hereby ratifying and confirming all that
said attorney or such substitute or substitutes shall
lawfully do by virtue thereof. Nevertheless, Grantor, if
requested by Trustee or Beneficiary, shall ratify and
confirm any such sale or sales by executing and delivering
to Trustee, Beneficiary or such purchaser or purchasers all
such instruments as may be advisable, in Trustee's or
Beneficiary's judgment, for the purposes as may be
designated in such request.
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(d) Any and all statements of fact or other recitals made in
any of the instruments referred to in subsection (c) of this
Section 5.03 given by Trustee or Beneficiary as to
nonpayment of the Obligations, or as to the occurrence of
any Event of Default, or as to Beneficiary having declared
all or any of the Obligations to be due and payable, or as
to the request to sell, or as to notice of time, place and
terms of sale and of the property or rights to be sold
having been duly given, or as to the refusal, failure or
inability to act of Trustee, or as to the appointment of any
substitute or successor trustee, or as to any other act or
thing having been duly done by Grantor, Beneficiary, or by
Trustee, shall be taken as conclusive and binding against
all persons as to evidence of the truth of the facts so
stated and recited. Trustee or Beneficiary may appoint or
delegate any one or more persons as agent to perform any act
or acts necessary or incident to any sale so held, including
the posting of notices and the conduct of sale, but in the
name and on behalf of Trustee.
(e) The receipt of Trustee or Beneficiary for the purchase
money paid at any such sale, or the receipt of any other
person authorized to receive the same, shall be sufficient
discharge therefor to any purchaser of any property or
rights sold as aforesaid, and no such purchaser, or its
representatives, grantees or assigns, after paying such
purchase price and receiving such receipt, shall be bound to
see to the application of such purchase price or any part
thereof upon or for any trust or purpose of this Deed of
Trust or, in any manner whatsoever, be answerable for any
loss, misapplication or non-application of any such purchase
money, or part thereof, or be bound to inquire as to the
authorization, necessity, expediency or regularity of any
such sale.
(f) Any such sale or sales shall operate to divest all of
the estate, right, title, interest, claim and demand
whatsoever, whether at law or in equity, of Grantor in and
to the properties and rights so sold, and shall be a
perpetual bar both at law and in equity against Grantor and
any and all persons claiming or who may claim the same, or
any part thereof or any interest therein, by, through or
under Grantor to the fullest extent permitted by applicable
law.
(g) Upon any such sale or sales, Beneficiary may bid for and
acquire the Mortgaged Property and, in lieu of paying cash
therefor, may make settlement for the purchase price by
crediting against the Obligations the amount of the bid made
therefor, after deducting therefrom the expenses of the
sale, the cost of any enforcement proceeding hereunder, and
any other sums which Trustee or Beneficiary is authorized to
deduct under the terms hereof, to the extent necessary to
satisfy such bid.
(h) In the event that Grantor, or any person claiming by,
through or under Grantor, shall transfer or refuse or fail
to surrender possession of the Mortgaged Property after any
sale thereof, then Grantor, or such person, shall be deemed
a tenant at sufferance
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of the purchaser at such sale, subject to eviction by means
of forcible entry and unlawful detainer proceedings, or
subject to any other right or remedy available hereunder or
under applicable law.
(i) Upon any such sale, it shall not be necessary for
Trustee, Beneficiary or any public officer acting under
execution or order of court to have present or
constructively in its possession any of the Mortgaged
Property.
(j) In the event a foreclosure hereunder shall be commenced
by Trustee or Beneficiary, Trustee or Beneficiary may at any
time before the sale of the Mortgaged Property abandon the
sale, and may institute suit for the collection of the
Obligations and for the foreclosure of this Deed of Trust,
or in the event that Trustee or Beneficiary should institute
a suit for collection of the Obligations, and for the
foreclosure of this Deed of Trust, Beneficiary may at any
time before the entry of final judgment in said suit dismiss
the same and require Trustee or Beneficiary to sell the
Mortgaged Property in accordance with the provisions of this
Deed of Trust.
SECTION 5.04. Expenses. In any proceeding, judicial or
otherwise, to foreclose this Deed of Trust or enforce any
other remedy of Trustee or Beneficiary under the Loan
Documents, there shall be allowed and included as an
addition to and a part of the Obligations in the decree for
sale or other judgment or decree all expenditures and
expenses (including, without limitation, reasonable
attorney's fees) which may be paid or incurred in connection
with the exercise by Trustee or Beneficiary of any of its
rights and remedies provided or referred to in Section 5.02,
or any comparable provision of any other Loan Document,
together with interest thereon at the rate and as provided
in the Credit Agreement, and the same shall be part of the
Obligations and shall be secured by this Deed of Trust.
SECTION 5.05. Application of Proceeds. The purchase money,
proceeds or avails of any sale referred to in Section 5.02,
together with any other sums which may be held by Trustee or
Beneficiary hereunder, whether under the provisions of this
Article V or otherwise, shall, except as herein expressly
provided to the contrary, be applied as follows:
First: To the payment of the costs and expenses of any such
sale, including compensation to Trustee, Beneficiary, their
agents and counsel, and of any judicial proceeding wherein
the same may be made, and of all expenses, liabilities and
advances made or incurred by Trustee or Beneficiary
hereunder, together with interest thereon as provided
herein, and all Impositions and other charges, except any
Impositions or other charges subject to which the Mortgaged
Property shall have been sold.
Second: To the payment in full of the monetary Obligations
(including principal, interest, premium and fees) in such
order as Beneficiary may elect.
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Third: To the payment of any other sums secured hereunder or
required to be paid by Grantor pursuant to any provision of
the Loan Documents.
Fourth: To the extent permitted by applicable law, to be set
aside by Trustee or Beneficiary as adequate security in its
judgment for the payment of sums which would have been paid
by application under clauses First through Third above to
Trustee or Beneficiary, arising out of an obligation or
liability with respect to which Grantor has agreed to
indemnify Beneficiary, but which sums are not yet due and
payable or liquidated.
Fifth: To the payment of any withholding tax requirements of
the Foreign Investment in Real Property Tax Act of 1980, as
amended.
Sixth: To the payment of the surplus, if any, to whomsoever
may be lawfully entitled to receive the same.
SECTION 5.06. Additional Provisions as to Remedies. (a) No
delay or omission by Trustee or Beneficiary to exercise any
right or remedy hereunder upon any default or Event of
Default shall impair such exercise, or be construed to be a
waiver of any such default or Event of Default.
(b) The failure, refusal or waiver (by consent, waiver or
otherwise) of Trustee or Beneficiary to assert any right or
remedy hereunder upon any default or Event of Default or
other occurrence shall not be construed as waiving such
right or remedy upon any other or subsequent default or
Event of Default or other occurrence.
(c) Neither Trustee nor Beneficiary shall have any
obligation to pursue any rights or remedies it may have
under any other agreement prior to pursuing its rights or
remedies hereunder or under the other Loan Documents.
(d) Acceptance of any payment after the occurrence of any
default or Event of Default shall not be deemed a waiver or
a cure of such default or Event of Default, and acceptance
of any payment less than any amount then due shall be deemed
an acceptance on account only.
(e) In the event that Trustee or Beneficiary shall have
proceeded to enforce any right or remedy hereunder by
foreclosure, sale, entry or otherwise, and such proceeding
shall be discontinued, abandoned or determined adversely for
any reason, then Grantor and Beneficiary shall be restored
to their former positions and rights hereunder with respect
to the Mortgaged Property, subject to the lien hereof.
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Each right of Trustee or Beneficiary provided for in this
Deed of Trust shall be cumulative and shall be in addition
to every other right provided for in this Deed of Trust or
now or hereafter existing at law or in equity, by statute or
otherwise, and the exercise by Trustee or Beneficiary of any
one or more of such rights shall not preclude the
simultaneous or later exercise by Trustee or Beneficiary of
any other such right.
SECTION 5.07. Waiver of Rights and Defenses. To the full
extent Grantor may lawfully do so, Grantor agrees with
Beneficiary as follows:
(a) Grantor will not claim or take the benefit of any
statute or rule of law now or hereafter in force providing
for any appraisement, valuation, stay, extension, moratorium
or redemption, or of any statute of limitations, and
Grantor, for itself and its heirs, devisees,
representatives, successors and assigns, and for any and all
persons ever claiming an interest in the Mortgaged Property
(other than Beneficiary and Trustee), hereby waives and
releases all rights of redemption, valuation, appraisement,
notice of intention to mature or declare due the whole of
the Obligations, and all rights to a marshaling of the
assets of Grantor, including the Mortgaged Property, or to a
sale in inverse order of alienation, in the event of
foreclosure of the liens and security interests created
hereunder.
(b) Grantor shall not have or assert and hereby waives any
right under any statute or rule of law pertaining to any of
the matters set forth in subsection (a) of this Section
5.07, to the administration of estates of decedents or to
any other matters whatsoever to defeat, reduce or affect any
of the rights or remedies of Trustee or Beneficiary
hereunder.
SECTION 5.08. Exercise by Trustee. Notwithstanding anything
herein to the contrary, Trustee (a) shall not exercise, or
waive the exercise of, any of its rights or remedies
hereunder (other than its right to reimbursement) except
upon the request of Beneficiary, and (b) shall exercise, or
waive the exercise of, any or all of such rights or remedies
upon the request of Beneficiary and at the direction of
Beneficiary as to the manner ofsuch exercise or waiver,
provided that Trustee shall have the right to decline to
follow any of such request or direction if Trustee shall be
advised by counsel that the action or proceeding, or manner
thereof, so directed may not lawfully be taken or waived.
ARTICLE VI
RELEASE OF LIEN
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SECTION 6.01. Release of Lien. If(i) all of the Obligations
have been paid in full or (ii) Grantor shall have satisfied
all of the terms and conditions set forth in Section 8.01 of
the Credit Agreement with respect to the Mortgaged Property,
then, and only in such events, all rights and obligations
hereunder (except for the rights and obligations set forth
in Section 3.03 and the indemnities provided in the Loan
Documents) shall terminate and the Mortgaged Property shall
become wholly released and cleared of the liens, security
interests, conveyances and assignments evidenced hereby. In
such event Beneficiary shall, at the request of Grantor,
execute and deliver to Grantor, in recordable form, all such
documents as shall be necessary to release the Mortgaged
Property, or a portion thereof, from the liens, security
interests, conveyances and assignments created or evidenced
hereby. Notwithstanding anything in the preceding sentence
to the contrary, Trustee shall so release the Mortgaged
Property only upon the direction of Beneficiary.
ARTICLE VII
ADDITIONAL PROVISIONS
SECTION 7.01. Provisions as to Payments, Advances. To the
extent that any part ofthe Obligations is used to pay
indebtedness secured by any Permitted Encumbrance or other
outstanding lien, security interest, charge or prior
encumbrance against the Mortgaged Property or to pay in
whole or in part the purchase price therefor, Trustee or
Beneficiary shall be subrogated to any and all rights,
security interests and liens held by any owner or holder of
the same, whether or not the same are released. Grantor
agrees that, in consideration of such payment by Trustee or
Beneficiary, effective upon such payment Grantor shall and
hereby does waive and release all demands, defenses and
causes of action for offsets and payments with respect to
the same.
SECTION 7.02. Separability. If all or any portion of any
provision of this Deed of Trust or any other Loan Documents
shall be held to be invalid, illegal or unenforceable in any
respect or in any jurisdiction, then such invalidity,
illegality or unenforceability shall not affect any other
provision hereof or thereof, and such provision shall be
limited and construed in such jurisdiction as if such
invalid, illegal or unenforceable provision or portion
thereof were not contained herein or therein.
SECTION 7.03. Notices. (a) Any notice, demand, consent,
approval, direction, agreement or other communication (any
"Notice") required or permitted hereunder or under any other
documents evidencing or securing the-Note shall be in
writing and shall be validly given if mailed by United
States mail, certified mail, return receipt requested,
postage prepaid, addressed as follows to the person entitled
to receive the same:
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(1) If to Grantor:
Emeritus Properties III, Inc.
c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and a copy to:
Emeritus Corporation
3131 Elliott Avenue,
Suite 500 Seattle, Washington 98121
Attention: General Counsel
(2) If to Beneficiary:
Deutsche Bank AG, New York Branch
31 West 52"d Street
New York, New York 10019
Attention: General Counsel
(3) If to Trustee:
Chicago Title Insurance Company
701 Fifth Avenue
Suite 1800
Seattle, Washington 98109
Attention: Legal Department
Any Notice shall be deemed to have been validly given
hereunder when so mailed. Any person shall have the right to
specify, from time to time, as its address or addresses for
purposes of this Deed of Trust, any other address or
addresses upon giving three (3) days' notice thereof to each
other person then entitled to receive notices or other
instruments hereunder.
SECTION 7.04. Right to Deal. In the event that ownership of
the Mortgaged Property becomes vested in a person other than
Grantor, Trustee and Beneficiary may, without notice to
Grantor, deal with such successor or successors in interest
with reference to this Deed of Trust or the Obligations in
the same manner as with Grantor, without in any way
vitiating or discharging Grantor's liability hereunder or
for the payment of the Obligations or being deemed a consent
to such vesting.
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SECTION 7.05. Continuation of Lease. (a) Upon the
foreclosure of the lien created hereby on the Mortgaged
Property, as herein provided, any leases then existing shall
not be destroyed or terminated as a result of such
foreclosure unless Beneficiary or any purchaser at a
foreclosure sale shall so elect by notice to the lessee in
question.
(b) If both the lessor's and the lessee's interest under any
lease which constitutes a part of the Premises shall at any
time become vested in any one person, this Deed of Trust and
the lien and security interest created hereby shall not be
destroyed or terminated by the application of the doctrine
of merger and, in such event, Trustee and Beneficiary shall
continue to have and enjoy all of the rights and privileges
of Trustee and Beneficiary hereunder as to each separate
estate.
(c) In the event that Grantor acquires the fee or any other
interest in any portion of the Land that is presently leased
to Grantor, such interest shall, immediately upon such
acquisition, become subject to the lien of this Deed of
Trust as fully and completely, and with the same effect, as
though now owned by Grantor and specifically described
herein, without need for the delivery and/or recording of a
supplement to this Deed of Trust or any other instrument.
SECTION 7.06. Applicable Law. This Deed of Trust shall be
governed by, and construed in accordance with, the laws of
the State of Washington.
SECTION 7.07. Sole Discretion of Trustee and Beneficiary.
(a) Whenever Trustee's or Beneficiary's judgment, consent or
approval is required hereunder for any matter, or either
shall have an option or election hereunder, such judgment,
the decision whether or not to consent to or approve the
same or the exercise of such option or election shall be in
the sole discretion of Trustee or Beneficiary, as the case
may be.
(b) Notwithstanding anything contained herein to the
contrary, in the event that Trustee or Beneficiary fails or
refuses to grant consent or approval when required hereunder
or under any other Loan Document for any matter, the parties
agree that the remedy of specific performance shall be the
sole remedy of Grantor with respect to such actions and
Trustor hereby waives all claims for damages with respect
thereto, unless a final nonappealable judgment has been
rendered against Beneficiary finding that Beneficiary had
acted in bad faith.
SECTION 7.08. Provisions as to Covenants and Agreements. All
of Grantor's covenants and agreements hereunder shall run
with the land and time is of the essence with respect
thereto.
SECTION 7.09. Matters to be in Writing. This Deed of Trust
cannot be altered, amended, modified, terminated, waived,
released or discharged except in a writing signed by the
party against whom enforcement is sought.
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<PAGE>
SECTION 7.10. Submission to Jurisdiction. Without limiting
the right of Beneficiary to bring any action or proceeding
against the undersigned or its property arising out of or
relating to the Obligations (an "Action") in the courts of
other jurisdictions, Grantor hereby irrevocably submits to
the jurisdiction of the state court or Federal court in each
jurisdiction in which the Mortgaged Property is located, and
Grantor hereby irrevocably agrees that any Action may be
heard and determined in such state or federal court. Grantor
hereby irrevocably waives, to the fullest extent that it may
effectively do so, the defense of an inconvenient forum to
the maintenance of any Action in the jurisdiction. Grantor
hereby irrevocably agrees that the summons and complaint or
any other process in any Action in any jurisdiction may be
served by mailing to any of the addresses set forth herein
or by hand delivery to a person of suitable age and
discretion at any such address. Such service will be
complete on the date such process is so mailed or delivered.
SECTION 7.11. Construction of Provisions. The following
rules of construction shall be applicable for all purposes
of this Deed of Trust and all documents or instruments
supplemental hereto, unless the context otherwise requires:
(a) All references herein to numbered Articles or Sections
or to lettered
Exhibits are references to the Articles and Sections hereof
and the Exhibits annexed to this Deed of Trust, unless
expressly otherwise designated in context. All Article,
Section and Exhibit captions herein are used for reference
only and in no way limit or describe the scope or intent of,
or in any way affect, this Deed of Trust.
(b) The terms "include", "including" and similar terms shall
be construed as if followed by the phrase "without being
limited to".
(c) The terms "Land", "Leased Land", "Leasehold Estate",
"Improvements", "Equipment", "Mortgaged Property" and
"Premises" shall be construed as if followed by the phrase
"or any part thereof'.
(d) The term "Obligations" shall be construed as if followed
by the phrase "or any other sums secured hereby, or any part
thereof'.
(e) Words of masculine, feminine or neuter gender shall mean
and include the correlative words of the other genders, and
words importing the singular number shall mean and include
the plural number, and vice versa.
(f) The term "person" shall include natural persons, firms,
partnerships, corporations and any other public and private
legal entities.
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(g) The term "provisions", when used with respect hereto or
to any other document or instrument, shall be construed as
if preceded by the phrase "terms, covenants, agreements,
requirements, conditions and/or".
(h) The cover page of and all recitals set forth in, and all
Exhibits to, this Deed of Trust are hereby incorporated in
this Deed of Trust.
(i) All obligations of Grantor hereunder shall be performed
and satisfied by or on behalf of Grantor at Grantor's sole
cost and expense.
(j) The term "lease" shall mean "tenancy, subtenancy, lease
or sublease", the term "Lessor" shall mean "landlord,
sublandlord, lessor and sublessor" and the term
"lessee" shall mean "tenant, subtenant, lessee and
sublessee".
(k) No inference in favor of or against any party shall be
drawn from the fact that such party has drafted any portion
hereof.
(1) The term "Beneficiary and/or Trustee" shall be construed
as if followed by the phrase "as applicable".
SECTION 7.12. Successors and Assigns. The provisions hereof
shall be binding upon Grantor and the heirs, devisees,
representatives, successors and permitted assigns of
Grantor, including successors in interest of Grantor in and
to all or any part of the Mortgaged Property, and shall
inure to the benefit of Trustee, Beneficiary, the holders of
the Obligations and their respective heirs, successors,
legal representatives, substitutes and assigns. Where two or
more persons have executed this Deed of Trust, the
obligations of such persons shall be joint and several.
SECTION 7.13. Counterparts. This Deed of Trust may be
executed in counterparts, each of which shall be deemed to
be an original, but all of which shall constitute one and
the same agreement.
SECTION 7.14. Agency. Beneficiary may deal with the
Mortgaged Property and may issue, or instruct Trustee to
issue, as applicable, any release to be given hereunder
pursuant to Section 4.02 or 6.01 or grant any consent or
approval or take any other action, or instruct Trustee to
take any other action, as applicable, required or permitted
hereunder, without reference to or the approval of the
holders of the Obligations and any third party (including
any title insurance company issuing a title insurance
policy, or a commitment to issue a title insurance policy,
in connection with the Mortgaged Property) may conclusively
rely on the due authority of Beneficiary (or Trustee, if so
instructed by Beneficiary) to do any or all of the
foregoing.
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SECTION 7.15. The Security Agreement. In the event that a
valid and enforceable security interest has been created in
any of the Mortgaged Property under the terms of the
Security Agreement (as defined in the Credit Agreement) and
the terms of the Security Agreement are inconsistent with
the terms of this Deed of Trust, then with respect to such
Mortgaged Property, the terms of the Security Agreement
shall be controlling in the case of Equipment and proceeds
of insurance policies and the terms of this Deed of Trust
shall be controlling in all other cases.
SECTION 7.16. Inapplicable Provisions. If any term, covenant
or condition of this Deed of Trust is held to be invalid,
illegal or unenforceable in any respect, this Deed of Trust
shall be construed without such provision.
ARTICLE VIII
PROVISIONS AS TO TRUSTEE
SECTION 8.01. Trustee's Appointment. Trustee may resign by
an instrument in writing addressed to Beneficiary, or
Trustee may be removed at any time with or without cause by
an instrument in writing executed by Beneficiary. In case of
the death, resignation, removal or disqualification of
Trustee or if for any reason Beneficiary shall deem it
desirable to appoint a substitute or successor Trustee to
act instead of Trustee herein named or any substitute or
successor Trustee, then Beneficiary shall have the right and
is hereby authorized and empowered to appoint a successor
Trustee, or a substitute Trustee, without other formality
than appointment and designation in writing executed by
Beneficiary, and the authority hereby conferred shall extend
to the appointment of other successor and substitute
Trustees successively until the Obligations have been paid
in full or until the Mortgaged Property is sold hereunder.
Such appointment and designation by Beneficiary shall be
full evidence of the right and authority to make the same
and of all facts therein recited. If Beneficiary is a
corporation or a national banking association and such
appointment is executed in its behalf by an officer of such
corporation or national banking association, such
appointment shall be conclusively presumed to be executed
with authority and shall be valid and sufficient without
proof of any action by the board of directors or any
superior officer of the corporation or national banking
association. Upon the making of such appointment and
designation, all of the estate and title of Trustee in the
Mortgaged Property shall vest in the named successor or
substitute Trustee and it shall thereupon succeed to and
shall hold, possess and execute all the rights, powers,
privileges, immunities and duties herein conferred upon
Trustee; but, nevertheless, upon the written request of
Beneficiary or of the successor or substitute Trustee,
Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute
Trustee all of the estate and title in the Mortgaged
Property of Trustee so ceasing to act, together with all the
rights, powers, privileges, immunities and duties herein
conferred upon Trustee, and shall duly assign, transfer and
deliver
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any of the properties and moneys held by said Trustee
hereunder to said successor or substitute Trustee. All
references herein to Trustee shall be deemed to refer to
Trustee (including any successor or substitute appointed and
designated as herein provided) from time to time acting
hereunder. Except as otherwise required by applicable law,
Trustee shall not perform any act or omit to act hereunder
unless, prior to such act or omission, Beneficiary delivers
to Trustee direction to so act or omit to act. Grantor
hereby ratifies and confirms any and all acts which Trustee
herein named or its successor or successors, substitute or
substitutes, in this trust, shall do lawfully by virtue
hereof.
SECTION 8.02. Exculpation. Trustee shall not be liable for
any error of judgment or act done by Trustee in good faith,
or be otherwise responsible or accountable under any
circumstances whatsoever, except for Trustee's gross
negligence or willful misconduct. Trustee shall have the
right to rely on any instrument, document or signature
authorizing or supporting any action taken or proposed to be
taken by it hereunder, believed by it in good faith to be
genuine. All moneys received by Trustee shall, until used or
applied as herein provided, be held in trust for the
purposes for which they were received, but need not be
segregated in any manner from any other moneys (except to
the extent required by law), and Trustee shall be under no
liability for interest on any moneys received by it
hereunder.
ARTICLE IX
NOTICES OF DEFAULT
SECTION 9.01. Notices of Default. To the extent that the
Mortgaged Property is located in the State of California,
Grantor hereby requests that a copy of any Notice of Default
and/or Notice of Sale be sent to Grantor at Grantor's
address set forth in Section 7.03 hereof.
ARTICLE X
FIXTURE FILING
SECTION 10.01. Fixture Filing. A portion of the Mortgaged
Property is or is to become fixtures upon the Premises. To
the extent permitted by applicable law, Grantor covenants
and agrees that the filing of this Deed of Trust in the real
estate records of the county in which the Mortgaged Property
is located shall also operate from the time of filing as a
fixture filing with respect to all goods constituting part
of the Mortgaged Property which are or are to become
fixtures related to the real estate described herein. For
such purpose, the following information is set forth:
(a) Name and Address of Debtor:
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Emeritus Properties III, Inc.
c/o Emeritus Corporation,
3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121
(b) Name and Address of Secured Party:
Deutsche Bank AG, New York Branch
31 West 52"" Street
New York, New York 10019
(c) This document covers goods which are or are to become
fixtures.
(d) The real property on which the fixtures are or may be
located is described on Exhibit A.
(e) Grantor is the record owner of the real property.
The fixture filing is to be recorded in the records of the
county where the real property is located.
ARTICLE XI
State Specific Clauses
SECTION 11.01. Washington. Grantor hereby represents and
warrants that, to the extent the Mortgaged Property is
located in the State of Washington, no part or portion of
the Mortgaged Property is used principally for agricultural
or farming purposes.
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IN WITNESS WHEREOF, the undersigned has executed this Deed
of Trust the day first set forth above.
Signed, sealed and delivered in the presence of the
following witnesses:
Name: /s/ Barbara Penton
Address:
Name: /s/ Susan Griffin
Address:
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FORBEAR FROM
ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
EMERITUS PROPERTIES III. INC. a Washington corporation
By : /s/ Kelly J. Price
Name: Kelly J. Price
Title: Vice President
<PAGE>
STATE OF WASHINGTON
COUNTY OF KING
ss.
I certify that I know or have satisfactory evidence that
Kelly Price is the person who appeared before me, and said
person acknowledged that said person signed this instrument,
on oath stated that said person was authorized to execute
the instrument and acknowledged it as the Vice President of
Emeritus III, Inc., a Washington corporation, to be the free
and voluntary act of such corporation for the uses and
purposes mentioned in the instrument.
Dated this 30th day of June,1 998.
/s/ Amanda Ray
(Signature of Notary)
Notary public in and for the state of Washington, residing
at Seattle
My appointment expires 01-05-02"
<PAGE>
This instrument was prepared by the attorney referenced below in
consultation with counsel admitted to practice in the state in
which the property is located, and when recorded, counterparts
should be returned to:
Timothy G. Little, Esq.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
This instrument is a Mortgage, Open-End Mortgage, Advance Money
Mortgage, Trust Deed, Deed of Trust, Trust Indenture, Assignment,
Assignment of Rents, Security Agreement, including Fixtures,
Fixture Filing and Financing Statement. This instrument encumbers
property located in California, Florida, Idaho, Iowa, Montana,
Nevada and Washington. Notwithstanding anything to the contrary
herein contained, (a) as to any property located in the States of
California, Idaho, Nevada or Washington, this instrument is, inter
alia, a deed of trust; (b) as to any property located in the
States of Florida or Iowa, this instrument is, inter alia, a
mortgage; and (c) as to any property located in the State of
Montana, this instrument is, inter alia, a trust indenture. The
total outstanding principal amount of indebtedness secured by this
instrument shall not exceed SIXTEEN MILLION NINE HUNDRED FORTY-
NINE THOUSAND AND NO/100 DOLLARS ($ 16,949,000.00). This
instrument contains after-acquired property provisions and secures
obligations containing provisions for changes in interest rates,
extensions of time for payment and other modifications in the
terms of the obligations. The maturity date for the indebtedness
secured by this instrument is April 29, 2001. To the extent this
instrument is to be recorded in the State of Idaho and Nevada, it
secures future advances which are obligatory subject to the
provisions of the Loan Documents (as hereinafter defined). To the
extent this instrument is to be recorded in the State of Idaho,
this instrument is intended also to serve as a fixture, minerals
and timber filing and is to be indexed as such in the real
property records.
The mailing address of Mortgagee (as hereinafter defined) is
DEUTSCHE BANK AG, NEW YORK BRANCH
31 West 52nd Street
New York, New York 10022
<PAGE>
MORTGAGE, OPEN-END MORTGAGE, ADVANCE MONEY MORTGAGE ,
TRUST DEED, DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT ,
ASSIGNMENT OF RENTS, SECURITY AGREEMENT,
INCLUDING FIXTURE FILING AND FINANCING STATEMENT
Dated June 3o,1998
EMERITUS PROPERTIES III, INC.
Grantor, Mortgagor
to
the parties designated as trustees herein with respect to
Mortgaged Property located in
particular states, as Trustee
and
DEUTSCHE BANK AG, NEW YORK BRANCH,
Mortgagee, Grantee, Beneficiary
<PAGE>
THIS MORTGAGE, OPEN-END MORTGAGE, ADVANCE MONEY MORTGAGE, TRUST
DEED, DEED OF TRUST, TRUST INDENTURE, ASSIGNMENT, ASSIGNMENT OF
RENTS, SECURITY AGREEMENT, INCLUDING FIXTURES, FIXTURE FILING AND
FINANCING STATEMENT (as the same may from time to time be
extended, spread, split, consolidated, modified, restated and
renewed, this "Mortgage") made as of June 30,1998 by EMERITUS
PROPERTIES III, INC., a Washington corporation having an address
c/o Emeritus Corporation, 3131 Elliot Avenue, Suite 500, Seattle,
Washington 98121 ("Grantor"), to the extent the Mortgaged Property
(as hereinafter defined) is located in the State of Idaho, to
Chicago Title Insurance Company, a Missouri corporation having an
office at 1114 N. Cole Road, Boise, Idaho 83704, and, to the
extent that the Mortgaged Property is located in the State of
Montana, to Chicago Title Insurance Company, a Missouri, having an
address at 300 Fourth Street North, Great Falls, Montana 59403
and, to the extent that the Mortgaged Property is located in the
State of California, to Chicago Title Insurance Company, a
Missouri, having an address at 700 South Flower Street, Los
Angeles, California 90017 and, to the extent that the Mortgaged
Property is located in the State of Nevada, to United Title of
Nevada, 3980 Haward Hughes Pkwy, -Las Vegas, NV 177, the
trustees hereunder to the extent that this Mortgage operates as a
deed of trust (collectively, "Trustee") and to or for the benefit
of, as applicable, DEUTSCHE BANK AG, a bank chartered under the
laws of the Federal Republic of Germany, acting by and through its
New York Branch having an address at 31 West 52"d Sheet, New York,
New York 10019 being the mortgagee hereunder to the extent this
Mortgage operates as a mortgage, open-end mortgage, advance money
mortgage, and the beneficiary hereunder to the extent that this
Mortgage operates as a deed of trust (the "Mortgagee").
WITNES SETH:
WHEREAS, pursuant to that certain Credit Agreement by and among
Emeritus Properties II, Inc. ("EII"), Emeritus Properties V, Inc.
("EV"), Emeritus Properties VII, Inc. ("EVII") and the Mortgagee,
dated as of April 29,1998 (the "Original Credit Agreement") as
amended by that certain Amendment to Credit Agreement by and among
EII, EV, EVII, Grantor and the Mortgagee, dated as of the date
hereof(the "Amendment"; the Original Credit Agreement as amended
by the Amendment is referred to herein as the "Credit Agreement"),
a copy of each of which may be examined at reasonable times at the
office of Mortgagee by persons who do or will hold an interest in
the Land (as hereinafter defined) or the Improvements (as
hereinafter defined)), and subject to the terms and conditions
therein set forth, the Mortgagee has agreed to make a loan to
Grantor in a principal amount of SIXTEEN MILLION NINE HUNDRED
FORTY-NINE THOUSAND AND NO/100 DOLLARS (16,949,000.00) (the
"Loan") with a maturity date of April 29, 2001; and
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WHEREAS, to evidence such indebtedness Grantor has executed and
delivered the Credit Agreement and will execute and deliver a
promissory note (the "Note") to the order of Mortgagee in an
aggregate principal amount of equal to the Loan and issued
pursuant to, and dated the same date as, the Credit Agreement and
having a Maturity Date of April 29, 2001; and
WHEREAS, pursuant to the terms of the Credit Agreement, on April
29,1998, the Mortgagee made a separate loan to (a) EII in the
amount of SIXTEEN MILLION THIZEE HUNDRED TWENTY-EIGHT THOUSAND
AND NO/100 DOLLARS (16,328,000.00), (b) EV, in the amount of
THIRTY ONE MILLION THREE HUNDRED SIXTY FIVE THOUSAND AND NO/100
DOLLARS (31,365,000.00) and (c) EVII (collectively, the "Other
Borrowers ) in the amount of EIGHT MILLION FIVE HUNDRED THREE
THOUSAND AND NO/100 DOLLARS (8,593,000.00) (collectively, the
"Other Loans"); and
WHEREAS, each of the Other Loans is evidenced by a note by EII, EV
or EVII, as applicable, in an aggregate principal amount equal to
the Other Loans (collectively, the "Other Notes"); and
WHEREAS, in accordance with the terms of the Credit Agreement,
Grantor has guaranteed the obligations of the Other Borrowers
under the Other Notes (the "CrossGuaranty"); and .
WHEREAS, the total indebtedness and liabilities to be secured by
this Mortgage are as follows (all such indebtedness and
liabilities or the instruments evidencing same, as applicable,
being herein collectively called the "Obligations"):
(i) the aggregate principal amount of SIXTEEN MILLION NINE
HUNDRED FORTY-NINE THOUSAND AND NO/100 DOLLARS (16,949,000.00)
pursuant to the Note; plus
(ii) interest on such principal amount, as provided in the Credit
Agreement; plus
(iii) the obligation of the Grantor with respect to the Cross-
Guaranty; plus
(iv) all other amounts payable and all other obligations of
Grantor under the Credit Agreement, the Note, this Mortgage, and
any other document which relates to any of the Credit Agreement or
the Note or any of the security therefor (as the same may be
amended, modified, extended, renewed, or supplemented from time to
time, all of the foregoing being herein collectively called the
"Loan Documents"); and
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<PAGE>
WHEREAS, it has been agreed that the payment and performance of
the Obligations shall be secured by a mortgage, open-end mortgage,
advance money mortgage, trust deed, deed of trust, trust
indenture, assignment, assignment of rents, security agreement,
including fixtures, fixture filing and financing statement, as
applicable, of certain property as hereinafter identified; and
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, to secure the punctual payment by Grantor
when due, whether at stated maturity, by acceleration or
otherwise, of the Obligations and the performance and observance
of all other covenants, obligations and liabilities of Grantor
under this Mortgage, as the same may be extended, modified or
renewed or repledged, Grantor does hereby grant, bargain, sell,
mortgage, warrant, convey, alien, remise, release, assign,
transfer, set over, deliver, confirm and convey unto Mortgagee
(where this instrument constitutes a mortgage) or Trustee (where
this instrument constitute a deed of trust or trust indenture),
upon the terms and conditions of this Mortgage, in trust with
power of sale and right of entry as provided hereinbelow, each and
all of the real properties described in the Granting Clauses
herein (which, together with all other property located therein or
described in the Granting Clauses herein, is hereinafter
collectively called the
"Mortgaged Property").
GRANTING CLAUSES
(a) All plots, pieces and parcels of land more particularly
described in Exhibit A attached hereto (the "Land"), together with
all of the easements, rights and appurtenances now or hereafter in
any way appertaining thereto, either at law or in equity, whether
now owned or hereafter acquired by Grantor;
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Land (the
"Improvements"), together with all the estate, right, title and
interest of Grantor in all fixtures and all appurtenances and
additions thereto and substitutions or replacements thereof owned
by Grantor and now or hereafter attached to the Premises (as
hereafter defined);
(c) All right, title and interest of Grantor in and to (i) the
streets, roads, sidewalks and alleys abutting the Land, (ii)
strips and gores within or adjoining the Land, (iii) the air space
and right to use said air space above the Land and any
transferable development or similar rights appurtenant thereto,
(iv) all rights of ingress and egress by motor vehicles to parking
facilities on or within the Land, (v) all easements now or
hereafter affecting the Land, (vi) all royalties and all rights
appertaining to the use and enjoyment of the Land, including
alley, drainage, mineral, water, oil and gas rights, (vii) all
sewer rights, and (viii) all other emblements
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<PAGE>
now or hereafter located on the Land or under or above the same or
any part thereof, and all estates, rights, interests and
appurtenances, reversions and remainders whatsoever, in any way
belonging or appertaining to the Premises or any part thereof,
whether now owned or hereafter acquired by Grantor;
(d) All right, title and interest of Grantor in and to all water,
ditches, wells, reservoirs and drains and all water, ditch, well,
reservoir and drainage rights which are appurtenant to, located
on, under or above or used in connection with the Land or the
Improvements, or any part thereof, whether now existing or
hereafter created or acquired by Grantor;
(e) All right, title and interest of Grantor in and to all
minerals, crops, timber, trees, shrubs, flowers and landscaping
features now or hereafter located on, under or above the Land;
All right, title and interest of Grantor in and to all building
materials, supplies and equipment now or hereafter placed on the
Land or in the Improvements and all architectural renderings,
models, drawings, plans, specifications, studies and data now or
hereafter relating to the Land or the Improvements;
(g) All "Equipment" (as defined in the Uniform Commercial Code),
now or hereafter located on, attached to or contained in or used
or usable in connection with the Mortgaged Property, and shall
also mean and include all of Grantor's right, title and interest
in and to, all building materials, construction materials, movable
(personal) property constituting furniture, fittings, appliances,
apparatus, leasehold improvements, machinery, devices, interior
improvements, appurtenances, equipment, plant, furnishings,
fixtures, computers, electronic data processing equipment,
telecommunications equipment, elevator, kitchen, medical, dental
or rehabilitation fixtures, cleaning apparatus, beds, linens,
televisions, carpeting, telephones, cash registers, computers,
lamps, glassware, rehabilitation equipment, medical, dental,
therapeutic and paramedical equipment and other fixed assets now
owned or hereafter acquired by Grantor and now or hereafter used
in the operation of the business conducted at the Premises, and
all proceeds thereof as well as all additions to, substitutions
for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare
parts) and accessories, whether installed thereon or affixed
thereto, and wherever located, now or hereafter owned by Grantor
and used or intended to be used in connection with, or with the
operation of, the Premises or the buildings, structures, or other
improvements now or hereafter located at such Premises, or in
connection with any construction being conducted or which may be
conducted thereon, all regardless of whether the same are located
on such Premises or are located elsewhere (including, without
limitation, in warehouses or other storage facilities or in the
possession of or on the premises of a bailee, vendor or
manufacturer) for purposes of manufacture, storage, fabrication or
transportation and all extensions and replacements to, and
proceeds of, any of the foregoing. For purposes of the preceding
sentence, "other fixed assets" shall also be deemed to
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<PAGE>
include any and all "furniture, furnishings and equipment" of the
Premises as such term is commonly understood in the assisted
living care industry (including, without limitation, any and all
fixtures, furnishings, equipment, furniture, and other items of
corporeal (tangible) movable (personal) property now or hereafter
located at the Premises or used in connection with the use,
occupancy, operation and maintenance of all or any part of the
Premises, other than stocks of food and other supplies held for
consumption in normal operation, but including, without
limitation, appliances, machinery, equipment, signs, artwork
(including paintings, prints, sculpture and other fine art),
office furnishings and equipment, guest room furnishings, and
specialized equipment for kitchens, laundries, bars, restaurant,
public rooms, health and recreational facilities, linens,
dishwashers, two-way radios, all partitions, screens, awnings,
shades, blinds, floor coverings, hall and lobby equipment,
heating, lighting, plumbing, ventilating, refrigerating,
incinerating, elevators, escalators, air conditioning and
communication plants or systems with appurtenant fixtures, vacuum
cleaning systems, call or beeper systems, security systems,
sprinkler systems and other fire prevention and extinguishing
apparatus and materials, reservation system computer and related
equipment, all equipment, manual, mechanical or motorized, for the
construction, maintenance, repair and cleaning of parking areas,
walks, underground ways, truck ways, driveways, common areas,
roadways, highways and streets, and motor vehicles) (the items
described in Granting Clauses (a) through (g) are herein
collectively referred to as the "Premises");
(h) All right, title and interest of Grantor in and to all leases,
subleases, lettings and, to the extent permitted by Law, licenses
affecting the Premises, including, without limitation, any
assignments thereof (including, without limitation, all guarantees
of any such leases, assignment of leases and subleases) and, to
the extent assignable, other agreements affecting the use,
enjoyment or occupancy of the Mortgaged Property heretofore or
hereafter entered into, and all amendments, modifications,
supplements, additions, extensions and renewals thereof (the
"Leases"), and all right, title and interest of Grantor in the
Occupancy Agreements (as hereafter defined), and all right, title
and interest of Grantor under the Leases and the Occupancy
Agreements, including cash and securities deposited thereunder (as
down payments, security deposits or otherwise), the right to
receive and collect the rents, security deposits, income,
proceeds, earnings, royalties, revenues, issues and profits
payable thereunder (including any claims (i) based on holdover by
any lessee, (ii) for damages sustained by Grantor or (iii) arising
under any federal, state or other law as a result ofor in
connection with the bankruptcy or insolvency, of any lessee) and
the rights to enforce, whether at law or in equity or by any other
means, all provisions and options thereof or thereunder (all of
the foregoing hereinafter collectively referred to as the "Rents")
and the right to apply the same to the payment and performance of
the Obligations;
(i) All rights, dividends and/or claims of any kind whatsoever
relating to the Premises (including damage, secured, unsecured,
lien, priority and administration claims); together with the right
to take any action or file any papers or process in any court of
competent
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<PAGE>
jurisdiction, which may in the opinion of Mortgagee be necessary
to preserve, protect, or enforce such rights or claims, including
the filing of any proof of claim in any insolvency proceeding
under any state, federal or other laws and any rights, claims or
awards accruing to or to be paid to Grantor in its capacity as
landlord under the Leases;
(j) All right, title and interest of Grantor in and to any
insurance policies covering the Mortgaged Property, including,
without limitation, all proceeds thereof and any unearned premiums
on any insurance policies covering the Mortgaged Property,
including, without limitation, the right to receive and apply the
proceeds of any insurance judgments, or settlements made in lieu
thereof, for damage to the Mortgaged Property or any part thereof,
subject to and in accordance with the terms and conditions of the
Leases;
(k) Subject to the terms and provisions of this Mortgage, the
right, in the name and on behalf of Grantor, to appear in and
defend any action or proceeding brought with respect to the
Mortgaged Property and to commence any action or proceeding to
protect the interest of Mortgagee in the Mortgaged Property or any
part thereof;
(I) All of the right, title and interest of Grantor in and to all
franchises, trade names, trademarks, symbols, service marks,
books, records, plans and specifications, contracts, licenses,
approvals, consents, subcontracts, service contracts, management
contracts, permits and other agreements of any nature whatsoever
now or hereafter obtained or entered into by Grantor, or any
manager of the Mortgaged Property on behalf of Grantor, with
respect to the use, occupation, development, construction and/or
operation of the Mortgaged Property or any part thereof or the
activities conducted thereon or therein, or otherwise pertaining
to the Mortgaged Property or any part thereof;
(m) All accounts receivable, contract rights, interests, estate or
other claims, both in law and in equity, which Grantor now has or
may hereafter acquire in the Mortgaged Property or any part
thereof, and all reserve accounts, accounts for the deposit,
collection and/or disbursement of Rents and other accounts now or
hereafter in existence with respect to the Loan;
(n) All rights which Grantor now has or may hereafter acquire, to
be indemnified and/or held harmless from any liability, loss,
damage, costs or expense (including, without limitation,
attorneys' fees and disbursements) relating to the Mortgaged
Property or any part thereof;
(o) All appurtenances in respect of or otherwise relating to the
Leases, including, but not limited to, all the estate and rights
of the Grantor of, in and to (i) all modifications, extensions and
renewals of the Leases and all rights to renew or extend the term
thereof, (ii) all of Grantor's rights, if any, pertaining to
deposits of the lessee under the Leases (including lessee security
deposits, if any), (iii) all the right or privilege of the Grantor
to
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<PAGE>
terminate, cancel, abridge, surrender, merge, modify or amend the
Leases and (iv) any and all possessory rights of the Grantor and
other rights and/or privileges of possession, including, without
limitation, the Grantor's right to elect to take possession of the
Mortgaged Property;
(p) All of the Grantor's claims and rights to damages and any
other remedies in connection with or arising from the rejection
ofthe Leases by the lessee or any trustee, custodian or receiver
pursuant to the U.S. Bankruptcy Code, as amended (the "Bankruptcy
Code") in the event that there shall be filed by or against the
Lessee any petition, action or proceeding under the Bankruptcy
Code or under any other similar federal or state law now or
hereafter in effect;
All present and future monetary deposits given by Grantor to any
public or private utility with respect to utility services
furnished to any part of the Premises or the Improvements;
(r) All right, title and interest of Grantor in and to all refunds
and rebates of taxes and assessments relating to the Premises and
Improvements (except to the extent such refunds and rebates relate
to taxes or assessments paid by the lessee under the Leases);
(s) All right, title and interest of Grantor in and to all
proceeds, products, substitutions and accessions (including claims
and demands therefor) of the conversion, voluntary or involuntary,
of any of the foregoing into cash or liquidated claims, including,
without limitation, the proceeds of insurance and condemnation
awards; and
(t) All other or greater rights and interests of every nature in
the Premises and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Grantor.
TOGETHER with all right, title and interest of Grantor in and to
all extensions, improvements, betterments, renewals, substitutes
and replacements of, and all additions and appurtenances to, any
of the foregoing hereafter acquired by, or released to, Grantor or
constructed, assembled or placed by Grantor on the Premises and
all conversions of the security constituted thereby, immediately
upon such acquisition, release, construction, assemblage,
placement or conversion, as the case may be, and in each such
case, without any further mortgage, conveyance, assignment or
other act by Grantor, shall become subject to the lien of this
Mortgage as fully and completely, and with the same effect, as
though now owned by Grantor and specifically described herein.
Notwithstanding anything to the contrary herein contained,
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(i) to the extent the Mortgaged Property is located in any of the
following states, this Mortgage shall be deemed to be and shall be
enforceable as a mortgage, assignment, assignment of rents,
fixture filing and financing statement: the states of Florida or
Iowa;
(ii) to the extent that the Mortgaged Property is located in any
of the following states, this Mortgage shall be deemed to be and
shall be enforceable as a deed of trust, assignment, assignment of
rents, fixture filing and financing statement: the states of
California, Idaho, Nevada or Washington; or
(iii) to the extent that the Mortgaged Property is located in the
State of Montana, this Mortgage shall be deemed to be and shall be
enforceable as a trust indenture pursuant to Part 3 of Chapter 1,
Title 71 of the Montana Code Annotated (the Small Tract Financing
Act of Montana), and Grantor represents and warrants that the Land
located in the State of Montana does not exceed thirty (30) acres.
Wherever herein contained, the phrase "Trustee and/or Mortgagee"
or any similar phrase (1) shall be deemed to refer to Trustee for
the benefit of Mortgagee, as beneficiary, to the extent the
Mortgaged Property is located in any of the states listed in
subsection (ii) above and (2) shall be deemed to refer to
Mortgagee to the extent the Mortgaged Property is located in any
of the states listed in subsection (i) above and Trustee shall
have no rights, powers or obligations in those states. To the
extent the Mortgaged Property is located in any of the states
listed in subsection (ii) above, references to Mortgagee shall, if
the context so requires, be deemed to be references to Mortgagee,
as beneficiary.
To the extent any of the foregoing Mortgaged Property is not
considered "real property" under the Uniform Commercial Code of
the state in which the Premises are located ("UCC"), Grantor
hereby grants to Mortgagee a security interest (the "Security
Interest") as security for the Obligations in all such items of
Mortgaged Properly, and Mortgagee shall have, in addition to all
rights and remedies provided herein, and in any other agreements,
commitments and undertakings made by Grantor to Mortgagee, all of
the rights and remedies of a "secured party" under the UCC. To the
extent permitted under applicable law, this Mortgage shall be
deemed to be a "security agreement" for purposes of the UCC.
TO HAVE AND TO HOLD the Mortgaged Property unto Trustee,
Mortgagee, and their respective successors and assigns, forever.
ARTICLE I
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Representations, Warranties and Covenants of Grantor
SECTION 1.01. Payment of Obligations. Grantor shall punctually pay
when due, and timely perform, the Obligations.
SECTION 1.02. Legal Status, Authority and Other Matters. (a) Legal
Status. Grantor represents and warrants that it is a corporation
duly organized and existing in good standing under the laws of
Washington and has the full power and authority to own the
Mortgaged Property and carry out its business in the state in
which the Mortgaged Property is located.
(b) No Actions Pending. Except as set forth on the Disclosure
Schedule (as defined in the Credit Agreement) there is no action,
suit or proceeding, judicial, administrative or otherwise, pending
or, to the best of Grantor's knowledge, overtly threatened or
contemplated against or affecting Grantor or the Mortgaged
Property which would cause a Material Adverse Effect.
SECTION 1.03. Warranty of Title. Grantor warrants that it has good
and marketable title to the Premises, in each case free and clear
of all liens, charges and encumbrances of every kind and
character, subject only to the encumbrances set forth on Exhibit B
hereto ("Permitted Encumbrances"); has and will continue to have
full power and lawful authority to encumber and convey the
Premises as provided herein; owns all other Mortgaged Property
free and clear of all liens, charges and encumbrances of every
kind and character, subject only to Permitted Encumbrances; and
this Mortgage is and will continue to remain a valid and
enforceable first mortgage lien on and security interest in the
Mortgaged Property, subject only to Permitted Encumbrances.
Grantor further covenants that it will preserve such title and
will forever warrant and defend the title to the Mortgaged
Property unto Trustee and Mortgagee against all lawful claims
whatsoever and will forever warrant and defend the validity,
enforceability and priority of the lien of this Mortgage against
the claims of all persons and parties whomsoever.
Grantor covenants that it will, at Grantor's sole cost and expense
and at the request of Trustee or Mortgagee, (i) promptly correct
any defect or error which may be discovered in the Loan Documents,
(ii) promptly do, execute, acknowledge and deliver, and record and
re-record, file and re-file and register and re-register, any and
all such instruments as Trustee or Mortgagee may require from time
to time in order to carry out more effectively the purposes of
this Mortgage and (iii) will promptly furnish Trustee and
Mortgagee with evidence satisfactory to Trustee and Mortgagee of
every such recording, filing or registration.
SECTION 1.04. Operation and Maintenance. (a) Repair and
Maintenance. Grantor will operate and maintain the Premises in
good order, repair and operating condition,
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will promptly make all necessary repairs, restorations, renewals,
replacements, additions and improvements thereto, interior and
exterior, structural and nonstructural, foreseen and unforeseen,
or otherwise necessary to insure that the same as part of the
security under this Mortgage shall not in any way be diminished or
impaired, and will not cause or allow the Premises to be misused,
wasted or to deteriorate. No part of the Improvements shall be
removed, demolished or structurally or materially altered nor
shall any new building, structure, facility or other improvement
be constructed on the Land or the Leased Land without Mortgagee's
prior written consent in the case of each such removal,
demolition, alteration or construction.
(b) Replacement of Equipment. Grantor will keep the Premises fully
equipped and will replace all worn out or obsolete Equipment with
fixtures or personal property comparable thereto when new to the
extent necessary to operate the Mortgage, Property in accordance
with prudent business standards for assisted living facilities and
will not, without Mortgagee's consent, remove any Equipment or
other personal property from the Land, the Leased Land or the
Improvements unless, to the extent necessary to operate the
Mortgaged Property in accordance with prudent business standards
for assisted living facilities Grantor replaces the same with an
article of equal suitability and value when new, owned by Grantor
free and clear of any lien or security interest (other than
Permitted Encumbrances).
(c) Zoning; Title Matters. Grantor will not, without the prior
written consent of Mortgagee, (i) initiate or support any zoning
reclassification of the Premises, seek any variance under existing
zoning ordinances applicable to the Premises or use or permit the
use of the Premises in a manner which would result in such use
becoming a non-conforming use under applicable zoning ordinances,
(ii) modify or amend any of the Permitted Encumbrances, (iii)
impose any restrictive covenants or encumbrances upon the
Premises, execute or file any subdivision plat affecting the
Premises or consent to the annexation of the Premises to any
municipality or (iv) permit or suffer the Premises to be used by
the public or any person in such manner as might make possible a
claim of adverse usage or possession or of any implied dedication
or easement.
(d) Status of the Premises. (i) The Premises is not located in an
area identified by the Secretary of Housing and Urban Development
or a successor thereto as an area having special flood hazards
pursuant to the terms of the National Flood Insurance Act of 1968,
or the Flood Disaster Protection Act of 1973, as amended, or any
successor law; or if the Premises is located in such an area,
Grantor will obtain and maintain insurance against damage or loss
by flood on such basis and in such amounts as shall be required by
Mortgagee; (ii) the Premises is served by all utilities required
for the current use thereof; (iii) all streets necessary to serve
the Land; the Leased Land and the Improvements for the current use
thereof have been completed and are serviceable and have been
dedicated or accepted by the appropriate governmental entities and
Grantor has access from public roads to the Land, the Leased Land
and
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the Improvements; and (iv) there is no condemnation or similar
proceeding pending or threatened affecting any part of the
Premises that might materially adversely affect the Premises.
(e) Use. Grantor will use the Premises for substantially the same
use as in effect as of the date hereof and for no other use unless
consented to in writing by Mortgagee.
SECTION 1.05. Insurance. (a) Coverage. Grantor shall obtain and
maintain, or cause to be maintained, insurance for Grantor and the
Mortgaged Property providing at least the following coverages:
(i) comprehensive all risk insurance on the Improvements and the
Personal Property, including, but not limited to, coverage for
steam, pressure exploding, earthquakes, riot and civil commotion,
vandalism, malicious mischief, burglary and theft and contingent
liability from Operation of Building Laws, Demolition Costs and
Increased Cost of Construction Endorsements, in each case (A) in
an amount equal to 100"% of the "Full Replacement Cost", which for
purposes of this Mortgage shall mean actual replacement value
(exclusive of costs of excavations, foundations, underground
utilities and footings); (B) containing an agreed amount
endorsement with respect to the Improvements and Personal Property
waiving all co-insurance provisions; and (C) containing an
"Ordinance or Law Coverage" or "Enforcement" endorsement if any of
the Improvements or the use of the Premises shall at any time
constitute legal nonconforming structures or uses. In addition,
Trustor shall obtain flood hazard insurance if any portion of the
Premises is currently or at any time in the future located in a
federally designated "special flood hazard area", in an amount
equal to the lessor of (y) the outstanding principal balance of
the Loan or (z) the maximum amount of such insurance available
under the National Flood Insurance Act of 1968, the Flood Disaster
Protection Act of 1973 or the National Flood Insurance Reform Act
of 1994, as each case may be amended; provided that any such flood
hazard insurance shall be on terms consistent with the
comprehensive all risk insurance policy required under this
Section 1.05 except that the deductible on such insurance shall be
commercially reasonable and if not available from a private
carrier then from the government to the extent available;
(ii) comprehensive general liability insurance, including bodily
injury, death and property damage liability, and umbrella
liability insurance against any and all claims, including all
legal liability to the extent insurable, imposed upon Mortgagee
and all court costs and attorneys' fees and expenses, arising out
of or connected with the possession use, leasing, operation,
maintenance or condition of the Premises, in such amounts as are
generally available at reasonable premiums and are generally
required by institutional lenders for properties comparable to the
Premises;
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(iii) business interruption insurance, with loss payable to
Mortgagee, in an amount sufficient to avoid any co-insurance
penalty and to provide proceeds for a period not less than one (1)
year of loss of business income, the term "business income" to
mean the total anticipated loss income to be received by Grantor
from the use and occupancy of the Premises and the sale of goods
and rendering of services at the Premises, reduced to the extent
such amounts would not be received because of expenses not
incurred during a period of non-operation of that portion of the
Premises then not being operated. Mortgagee shall be entitled to
the insurance proceeds to the extent necessary to satisfy all
amounts due and payable to Mortgagee under the Note, which
insurance proceeds shall be held by Mortgagee and shall be applied
to the Obligations secured hereunder from time to time due and
payable hereunder and under the Note; provided, however, that
nothing herein contained shall be deemed to relieve Grantor of its
Obligations secured hereunder except to the extent such amounts
are actually paid out of the proceeds of such business income
insurance;
(iv) workers' compensation, subject to the statutory limits of the
state in which the Premises are located, and employer's liability
insurance;
(v) comprehensive boiler and machinery insurance, if applicable,
in amounts as shall be reasonably required by Mortgagee on terms
consistent with the comprehensive all risk insurance policy
required under Subsection 1.05(a)(i);
(vi) umbrella liability insurance in an amount not less than
$30,000,000 on terms consistent with the commercial general
liability insurance policy required under Subsection 1.05(a)(ii);
and
(vii) such other insurance and in such amount as (a) Mortgagee
from time to time may reasonably request, or (b) Grantor, as a
prudent owner of the Premises, deems appropriate, against such
other insurable hazards which at the time are commonly insured
against for property similar to the Premises and used as an
assisted living facility.
(b) Ratings. All policies of insurance (the "Policies") required
pursuant to this Section 1.05 shall be issued by an insurer
authorized to do business in the state in which the Premises are
located and having an A.M. Best rating of A:V or better and a
Standard & Poor's claims-paying ability rating of not less than
the greater of(A) for so long as any Securities shall have been
issued and be outstanding, one rating category below the higher
rating assigned to any such outstanding Securities, and (B) "BBB."
To the extent the Mortgaged Property is located in the State of
Nevada, the provisions of this Subsection 1.05(b) shall not apply
to worker's compensation insurance which is provided in accordance
with the laws of the State of Nevada.
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(c) Blanket Policies. The insurance coverage required under
Subsection 1.05(a) may be effected under a blanket policy or
policies covering the Premises and other property assets not
constituting a part of the Premises provided that (i) each such
blanket policy, except in the case of liability insurance, shall
specify thereon the total insurance allocated to the Premises,
which amount shall be not less than that required hereunder, (ii)
each such blanket policy shall otherwise comply in all respects
with this Mortgage, and (iii) Mortgagee shall be named as an
additional insured under each such blanket policy to the extent
required hereunder.
(d) Additional Insured. All Policies of insurance provided for or
contemplated by Subsection 1.05(a), except for the Policy
referenced in Subsection 1.05(a)(iv), shall name Mortgagee and
Trustee as the insured or additional insured, as their respective
interests may appear, and in the case of property damage, boiler
and machinery, flood and earthquake insurance, shall contain a so-
called New York standard non-contributing mortgagee clause in
favor of Mortgagee providing that the loss thereunder shall be
payable to Mortgagee notwithstanding the negligent or wilful acts
of omissions of Grantor.
(e) Form and Endorsements. All Policies shall be in such form and
with such endorsements as are comparable to the forms of and
endorsements to the Policies in effect, on the date hereof or
otherwise in accordance with commercially reasonable standards
applied by prudent owners of assisted care facilities in the
general vicinity of the Mortgaged Property. A certificate of
insurance with respect to all such Policies has been delivered to
Mortgagee and originals or certified copies of all such Policies
shall be delivered to Mortgagee when the same are available and
shall be held by Mortgagee. All Policies shall contain: (i) to the
extent available at commercially reasonable rates, a waiver of
subrogation endorsement as to Mortgagee; (ii) a provision that no
Policy shall be impaired or invalidated by virtue of any act,
failure to act, negligence of, or violation of declarations,
warranties or conditions contained in such Policy by Grantor,
Mortgagee or Trustee or any other named insured, additional
insured or loss payee, except for the wilful misconduct of
Mortgagee or Trustee knowingly in violation of the conditions of
such Policy; (iii) an endorsement providing for a deductible per
loss of an amount not more than that which is customarily
maintained by prudent owners of assisted care facilities in the
general vicinity of the Premises (but in no event greater than
$100,000); (iv) a provision that such Policies shall not be
canceled, terminated or expire without at lest thirty (30) days
prior written notice to Mortgagee in each instance; and (v) to the
extent Grantor determines such a waiver is available at
commercially reasonable rates, effective waivers by the insurer of
all claims for insurance premiums against all loss payees,
additional insureds and named insureds (other than Grantor).
Grantor shall deliver or cause to be delivered to Mortgagee (y)
not less than thirty (30) days prior to the expiration date of any
of the Policies required to be maintained hereunder, evidence
reasonably satisfactory to Mortgagee that such Policies will be
renewed or replaced and (z) prior to the expiration date of such
Policies, among other things, an original of the certificate of
insurance and evidence of payment of the applicable premium for
such renewal or replacement. Certified copies of such replacement
insurance policies shall be delivered to
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Mortgagee promptly after Grantor's receipt thereof but in any case
within thirty (30) days after receipt thereof by Grantor. If
Grantor fails to maintain and deliver to Mortgagee the
certificates of insurance required by this Mortgage, Mortgagee
may, in accordance with the provisions hereof, procure such
insurance at the expense of Grantor, to be promptly reimbursed by
Grantor. To the extent the Mortgaged Property is located in the
State of Nevada, the provisions of this Subsection 1.05(e) shall
not apply to worker's compensation insurance which is provided in
accordance with the laws of the State of Nevada.
Delivery of Statements. Grantor shall furnish to Mortgagee
annually a statement certified by Grantor or a duly authorized
officer of Grantor of the amounts of insurance maintained in
compliance herewith, of the risks covered by such insurance and of
the insurance company or companies which carry such insurance and,
if requested by Mortgagee, verification of the adequacy of such
insurance by an independent insurance broker or appraiser to
Mortgagee.
(g) Protection of Beneficiary. If at any time Grantor fails to
maintain the insurance policies required hereunder, Mortgagee
shall have the right, without notice to Grantor, to take such
action as Mortgagee deems necessary to protect its interest in the
Premises, including, without limitation, the obtaining of such
insurance coverage as Mortgagee in its sole discretion deems
appropriate, and all reasonable expenses incurred by Mortgagee in
connection with such action or in obtaining such insurance and
keeping it in effect shall be paid by Grantor to Mortgagee upon
demand and until paid shall be secured by this Mortgage and shall
bear interest in accordance with Section 2.05(b) of the Credit
Agreement.
(h) Proceeds. All Insurance Proceeds shall be paid to Mortgagee
for application pursuant to Section 1.09. If the Mortgaged
Property shall be damaged or destroyed, in whole or in part, by
fire or other casualty, Grantor shall give prompt notice of such
damage to Mortgagee. Grantor shall promptly commence and
diligently prosecute the completion of the repair and restoration
of the Premises as nearly as possible to the condition the
Premises were in immediately prior to such fire or other casualty,
with such alterations as may be approved by Mortgagee (the
"Restoration") and otherwise in accordance with Section 1.09.
Grantor shall pay all costs of such Restoration whether or not
such costs are covered by insurance. Mortgagee may, but shall not
be obligated to make proof of loss if not made promptly by
Grantor. To the extent that the Insurance Proceeds received in
connection with such damage or destruction of the Mortgaged
Property are less than $15,000, then Grantor shall have the right
to use such Insurance Proceeds without Mortgagee's consent.
(i) Event of Foreclosure. In the event of foreclosure of this
Mortgage, or other transfer of title to the Premises in
extinguishment in whole or in part of the Obligations, all right,
title and interest of Grantor in and to such policies then in
force concerning the Premises and all proceeds payable thereunder
shall thereupon vest in the purchaser at such foreclosure or
Mortgagee or other transferee in the event of such other transfer
of title.
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(j) No Separate Insurance. Grantor shall not carry separate or
additional insurance concurrent in form or contributing, in the
event of loss, with that required under the Credit Agreement
unless endorsed in favor of Mortgagee and Trustee as loss payee or
additional insured, as applicable, and otherwise applicable to
Mortgagee in all respects. Nothing contained herein shall prohibit
Grantor from holding or obtaining an owner's policy of title
insurance covering the Premises.
SECTION 1.06. Liens and Liabilities. (a) Discharge of Liens.
Grantor will pay, bond or otherwise discharge, from time to time
when the same shall become due, all claims and demands of
mechanics, materialmen, laborers and others which, if unpaid,
might result in, or permit the creation of, a lien on the
Mortgaged Property.
(b) Creation of Liens. Grantor will not, without Mortgagee's
consent, create, place or permit to be created or placed or allow
to remain, and shall discharge and release within ten (10) days of
the placing thereof, any deed of trust, mortgage, trust deed,
voluntary or involuntary lien, security interest or other
encumbrance against or covering the Mortgaged Property, other than
Permitted Encumbrances, whether or not subordinate hereto.
(c) No Consent. Nothing in this Mortgage shall be deemed or
construed in any way as constituting the consent or request by
Trustee or Mortgagee, express or implied, to any contractor,
subcontractor, laborer, mechanic or materialman for the
performance of any labor or the furnishing of any material for any
improvement, construction, alteration or repair of the Premises.
Grantor further agrees that neither Trustee nor Mortgagee stands
in any fiduciary relationship to Grantor.
SECTION 1.07. Taxes and Other Charges. (a) Taxes on the Premises.
Grantor will promptly pay prior to delinquency and before any
penalty or interest may be added thereto, all taxes, assessments,
vault, water and sewer rents, rates, charges and assessments,
levies, permits, inspection and license fees and other
governmental and quasi-governmental charges and any penalties or
interest for non-payment thereof, heretofore or hereafter imposed,
or which may become a lien, upon the Mortgaged Property or arising
with respect to the occupancy, use or possession thereof
(collectively, "Impositions"). Grantor will also pay any penalty,
interest or cost for non-payment of Impositions which may become
due and payable.
(b) Receipts. Unless Grantor is making monthly deposits pursuant
to Section 1.08, Grantor will furnish to Mortgagee upon
Mortgagee's request, proof of payment at the time same is made,
and thereafter, upon receipt, validated receipts showing payment
in full of all Impositions.
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(c) Increased Costs. In the event of the enactment after the date
hereof of any law in the state in which the Mortgaged Property is
located or any other governmental entity deducting from the value
of the Mortgaged Property for the purpose of taxation any lien or
security interest thereon, or changing in any way the laws for the
taxation of mortgages, deeds of trust or other liens or debts
secured thereby, or the manner of collection of such taxes, so as
to affect this Mortgage, the Obligations, Mortgagee or the holders
of the Obligations, then, and in such event, Grantor shall, on
demand, pay to Mortgagee or such holder, or reimburse Mortgagee or
such holder for payment of, all taxes, assessments, charges or
liens for which Mortgagee or such holder is or may be liable as a
result thereof, provided that if any such payment or reimbursement
shall be unlawful or would constitute usury or render the
Obligations wholly or partially usurious under applicable law,
then Mortgagee may, at its option, declare the Obligations
immediately due and payable or require Grantor to pay or reimburse
Mortgagee for payment of the lawful and non-usurious portion
thereof.
SECTION 1.08. Tax and Insurance Deposits. (a) Amount of Deposits.
Mortgagee may require that each month Grantor deposit with
Trustee, Mortgagee or any service or financial institution
designated for such purposes by Mortgagee (whichever of the
foregoing is applicable being the "Depository"), one-twelfth
(1/12) of the annual Impositions and premiums for insurance
required under Section 1.05, and Grantor shall accordingly make
such deposits. In addition, if required by Mortgagee, Grantor
shall also deposit with the Depository a sum of money which,
together with the aforesaid monthly installments, will be
sufficient to make payments of Impositions and premiums at least
thirty (30) days before such payments are delinquent. If the
amount of any such payment is not ascertainable at the time any
such deposit is required to be made, the deposit shall be made on
the basis of Mortgagee's estimate thereof, and when such amount is
fixed for the then-current year, Grantor shall promptly deposit
any deficiency with the Depository.
(b) Use of Deposits. All funds so deposited, until so applied,
shall constitute additional security for the Obligations, shall be
held by the Depository with interest payable to Grantor (except to
the extent required under applicable law), may be commingled with
other funds of the Depository and, provided that no Event of
Default (as defined in Section 5.01) shall have occurred and be
continuing hereunder, shall be applied in payment of the aforesaid
amounts prior to their becoming delinquent. If an Event of Default
shall have occurred and be continuing hereunder, or if the
Obligations shall be accelerated as herein provided, all funds so
deposited may, at Mortgagee's option, be applied to the
Obligations in the order determined by Mortgagee. If such deposits
are being made with the Depository, at least fifteen (15) days
before the date on which such charges first become payable,
Grantor shall furnish the Depository with bills for the charges
for which such deposits are required to be made hereunder and/or
such other documents necessary for the payment of the same.
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SECTION 1.09. Damage and Destruction. (a) Grantor's Obligations.
In the event of any damage to or loss or destruction of the
Premises, Grantor shall (i) promptly notify Mortgagee of such
event and take such steps as shall be necessary to preserve any
undamaged portion of the Premises and (ii) unless otherwise
instructed by Mortgagee, regardless whether the insurance
proceeds, if any, shall be sufficient for the purpose or shall be
otherwise applied by Mortgagee as provided herein, promptly
commence and diligently pursue to completion the restoration,
replacement and rebuilding of the Premises to the condition of the
Premises affected thereby immediately prior to such damage, loss
or destruction in accordance with plans and specifications
approved, and with other provisions for the preservation of the
security hereunder established, by Mortgagee.
(b) Trustee's and Mortgagee's Rights; Application of Proceeds. In
the event that any portion of the Premises is so damaged,
destroyed or lost, and such damage, destruction or loss is
covered, in whole or in part, by insurance required by Section
1.05, then, (i) Mortgagee or Trustee may, but shall not be
obligated to, make proof of loss if not made promptly by Grantor
and is hereby authorized and empowered by Grantor to settle,
adjust or compromise any claims for damage, destruction or loss
thereunder, (ii) each insurance company concerned is hereby
authorized and directed to make payment therefor directly to
Mortgagee or Trustee; provided, however, that if all of the
conditions set forth in Section 1.09(c) are met and Grantor
delivers a written undertaking to expeditiously commence and to
satisfactorily complete with due diligence any such damage or
destruction in accordance with the terms hereof, the insurance
proceeds will be made available to Grantor in accordance with
Section 1.09(c).
(c) Proceeds for Restoration. Notwithstanding anything provided
herein to the contrary, if..
(i) less than (A) thirty percent (30%) of the Improvements and (B)
forty percent (40"%) of the Land have been taken or destroyed;
(ii) no monetary Default or Event of Default has occurred and is
continuing hereunder or under any of the other Loan Documents and
has not been waived;
(iii) the Restoration can, in Mortgagee's judgment, with diligent
work, be completed prior to the expiration of business
interruption insurance required hereunder;
(iv) the taking, fire or casualty did not occur during the six (6)
months prior to the maturity of the Note;
(v) all necessary governmental approvals can be obtained for the
Restoration;
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(vi) there are sufficient sums available (through insurance
proceeds or
condemnation awards and contributions by Grantor, the full amount
of which shall have been deposited into an account pledged to
Mortgagee) for the Restoration (including, without limitation, for
any reasonable costs and expenses of Mortgagee to be incurred in
administering said restoration or repair) and for payment of
principal and interest to become due and payable under the Note
during the period necessary to complete the Restoration;
(vii) Grantor so elects by written notice delivered to Mortgagee
within thirty (30) days after settlement of the aforesaid
insurance or condemnation claim; and
(viii) the Restoration is done and diligently completed by Grantor
in compliance with all applicable Laws,
then, Mortgagee shall, solely for the purposes of the Restoration,
release so much of the remainder of such sums as may be required
for the Restoration, and any funds deposited by Mortgagor
therefor, to Mortgagor in the manner and upon such terms and
conditions as would be required by a prudent interim construction
lender, including, but not limited to, the prior approval by
Mortgagee of plans and specifications, contractors and form of
construction contracts and the furnishing to Mortgagee of permits,
bonds, lien waivers, invoices, receipts and affidavits from
contractors and subcontractors, in form and substance reasonably
satisfactory to Mortgagee in its reasonable discretion, with any
remainder being applied by Mortgagee, in its sole discretion, for
payment of the Obligations in whatever order Mortgagee directs in
its absolute discretion, with any remainder being paid to Grantor.
(d) Effect on the Obligations. Notwithstanding any loss, damage or
destruction referred to in this Section, Grantor shall continue to
pay and perform the Obligations as provided herein. Any reduction
in the Obligations resulting from such application shall be deemed
to take effect only on the date of receipt by Mortgagee or Trustee
of such insurance proceeds and application against the
Obligations, provided that if prior to the receipt by Trustee or
Mortgagee of such insurance proceeds the Mortgaged Property shall
have been sold on foreclosure of this Mortgage, or shall have been
transferred by deed in lieu of foreclosure of this Mortgage,
Mortgagee shall have the right to receive the same to the extent
of any deficiency found to be due upon such sale, with legal
interest thereon together with attorneys' fees and disbursements
incurred by Trustee or Mortgagee in connection with the collection
thereof.
SECTION 1.10. Condemnation. (a) Grantor's Obligations;
Proceedings. Grantor, promptly upon obtaining knowledge of any
pending or overtly threatened institution of any proceedings for
the condemnation of the Premises, or of any right of eminent
domain, or of any other proceedings arising out of injury or
damage to or decrease in the value of the Premises, including a
change in grade of any street, will notify Mortgagee of the threat
or pendency
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thereof. Mortgagee may participate in any such proceedings, and
Grantor from time to time will execute and deliver to Mortgagee
all instruments requested by Mortgagee or as may be required to
permit such participation. Grantor shall, at its expense,
diligently prosecute any such proceedings, shall deliver to
Mortgagee copies of all papers served in connection therewith and
shall consult and cooperate with Mortgagee, its attorneys and
agents, in the carrying on and defense of any such proceedings;
provided that no settlement of any such proceeding shall be made
by Grantor without Mortgagee's consent.
(b) Trustee's and Mortgagee's Rights to Proceeds. All proceeds of
condemnation awards or proceeds of sale in lieu of condemnation,
and all judgments, decrees and awards for injury or damage to the
Premises (collectively, "Awards") are hereby assigned and shall be
paid to Mortgagee or Trustee. Grantor authorizes Mortgagee and
Trustee to collect and receive the same, to give receipts and
acquittances therefor, and to appeal from any Awards.
(c) Application of Proceeds. Mortgagee shall have the right to
apply any Awards, first, to reimburse Trustee and Mortgagee for
all costs and expenses, and, second, the remainder thereof in the
manner provided in Section 1.09. In the event that Grantor shall
have received all or any portion of such Awards, Grantor, upon
demand from Mortgagee, shall pay to Mortgagee or Trustee an amount
equal to the amount so received by Grantor, to be applied as
Mortgagee shall have the right pursuant to this subsection.
Notwithstanding anything herein or at law or in equity to the
contrary, none of the Awards paid to Mortgagee or Trustee under
this Section 1.10 shall be deemed trust funds and Mortgagee or
Trustee shall be entitled to apply the same as provided in this
Section 1.10.
(d) Effect on the Obligations. Notwithstanding any condemnation,
taking or other proceeding referred to in this Section 1.10,
Grantor shall continue to pay and perform the Obligations as
provided herein. Any reduction in the Obligations resulting from
such application shall be deemed to take effect only on the date
of receipt by Mortgagee or Trustee of such Awards and application
against the Obligations, provided that if prior to the receipt by
Trustee or Mortgagee of such Awards the Mortgaged Property shall
have been sold on foreclosure of this Mortgage, or shall have been
transferred by deed in lieu of foreclosure of this Mortgage,
Mortgagee shall have the right to receive the same to the extent
of any deficiency found to be due upon such sale, with legal
interest thereon together with attorneys' fees and disbursements
incurred by Trustee or Mortgagee in connection with the collection
thereof.
SECTION l.ll. Contest. Notwithstanding anything to the contrary
contained in Section 1.04(c),1.06 or 1.07, Grantor shall have the
right to contest in good faith and at its own expense the validity
or applicability of any duty or obligation described in Section
1.04(c), the validity of any lien, encumbrance, charge or security
referred to in Section 1.06 and any Imposition imposed upon the
Premises (a "Contest") by an appropriate legal proceeding which
proceeding must operate to prevent the collection of such
Impositions or other realization thereon
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and the sale or forfeiture of the Mortgaged Property or any part
thereof to satisfy the same; provided that during the pendency of
such Contest, Grantor shall provide security satisfactory to
Mortgagee, assuring the discharge of Grantor's obligations that
are the subject of such Contest ("Contested Impositions") and of
any additional interest charge, penalty or expense arising from or
incurred as a result of such Contest; and provided, further, that
if at any time payment of such Contested Impositions shall become
necessary to prevent (i) the delivery of a tax deed conveying the
Mortgaged Property because of non-payment or (ii) the imposition
of any civil or criminal penalty or liability on Mortgagee,
Trustee or the holders of the Obligations, Grantor shall pay the
same in sufficient time to avoid the delivery of such tax deed or
the imposition of any such penalty or liability.
SECTION 1.12. Notice Limiting Amount. Grantor covenants that it
will not, without the prior written consent of Mortgagee, file of
record any notice limiting the maximum principal amount secured by
this Mortgage.
ARTICLE II
Assignment of Leases, Rents and Other Sums
SECTION 2.01. Assignment. (a) Grantor hereby absolutely and
presently bargains, sells, transfers, assigns and sets over to
Mortgagee, as further security for the payment of the Obligations,
all of its right, title and interest in and to all current and
future Leases and Rents payable thereunder and all rights of
Grantor thereunder and any and all deposits held as security under
the Leases, whether before or after foreclosure or during the full
period of redemption, if any, and shall, upon demand, deliver to
Mortgagee an executed counterpart of each Lease. The assignment of
the Leases and Rents, and of the aforesaid rights with respect
thereto, is intended to be and is an absolute present assignment
from Grantor to Mortgagee and not merely the passing of a security
interest. Such assignment and grant shall continue in effect until
the Obligations are paid, the execution of this Mortgage
constituting and evidencing the irrevocable consent of Grantor to
the entry upon and taking possession of the Premises by Mortgagee
pursuant to such grant, whether foreclosure has been instituted or
not and without applying for a receiver. Until the occurrence of
an Event of Default hereunder, Grantor shall be entitled to
collect and receive the Rents. Such right of Grantor to collect
and receive said Rents shall be automatically revoked upon the
occurrence of an Event of Default and thereafter Trustee or
Mortgagee shall have the right and authority to exercise any of
the rights or remedies referred to or set forth in Article V. In
addition, upon such an Event of Default, Grantor shall promptly
pay to Trustee or Mortgagee (i) all rent prepayments and security
or other deposits paid to Grantor pursuant to any lease assigned
hereunder and (ii) all charges for services or facilities or for
escalation which were paid pursuant to any such lease to the
extent allocable to any period from and after such Event of
Default. Nothing contained in this Section 2.01(a) shall be
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construed to bind Mortgagee to the performance of any of the
covenants, conditions or provisions contained in any Lease or
otherwise to impose any obligation on Mortgagee (including any
liability under the covenant of quiet enjoyment contained in any
Lease or under any applicable law in the event that any tenant
shall have been joined as a party defendant in any action to
foreclose this Mortgage and shall have been barred and foreclosed
thereby of all right, title and interest and equity of redemption
in the Premises), except that Mortgagee shall be accountable for
any money actually received pursuant to such assignment. Grantor
hereby further grants to Mortgagee the right to notify the tenant
under any Lease of the assignment thereof and, after the
occurrence of an Event of Default hereunder (i) to demand that the
tenant under any Lease pay all amounts due thereunder directly to
Mortgagee, (ii) to enter upon and take possession of the Premises
for the purpose of collecting the Rents, (iii) to dispossess by
the usual summary proceedings any tenant defaulting in the payment
thereof, (iv) to let the Premises, or any part thereof, and (v) to
apply the Rents, after payment of all necessary charges and
expenses, on account of the Obligations.
(b) If Grantor is not required to surrender possession of the
Premises hereunder in the event of any Event of Default, Grantor
will pay monthly in advance to Mortgagee, on its entry into
possession pursuant to Article V, or to any receiver appointed to
collect said Rents, the fair and reasonable rental value for the
use and occupation of the Premises or such part thereof as may be
in the possession of Grantor. Upon a default in any such payment,
Grantor will vacate and surrender such possession to Mortgagee,
Trustee or such receiver, and, in default thereof, may be evicted
by summary or any other available proceedings or actions.
(c) Grantor will, as and when requested from time to time by
Mortgagee, execute, acknowledge and deliver to Mortgagee, in form
approved by Mortgagee, one or more general or specific assignments
of the lessor's interest under any Lease. Grantor will, on demand,
pay to Mortgagee, or reimburse Mortgagee for the payment of any
costs or expenses incurred in connection with the preparation or
recording of any such assignment.
SECTION 2.02. Leases and Rents. (a) Grantor will (i) perform or
cause to be performed all the lessor's obligations under any
Lease, (ii) enforce (including the termination and cancellation of
any Lease, so long as the same is a bona fide enforcement of
Grantor's right as lessor under any such Lease and such
termination or cancellation, either by itself or in the aggregate
with other terminations and cancellations, will not diminish or
impair the security of this Mortgage) the performance by the
lessee under its respective Lease of all of said lessee's
obligations thereunder and (iii) give Mortgagee prompt notice and
a copy of any notice of default, event of default, termination or
cancellation sent or received by Grantor.
(b)(i) Grantor will not, without Mortgagee's consent, (1) assign,
mortgage, pledge or otherwise transfer, dispose of or encumber,
whether by operation of law or otherwise, any Lease or the Rents,
(2) accept or permit the acceptance of a prepayment of any amounts
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payable under such Lease for more than one month in advance of the
due date therefor, (3) enter into, amend or modify any Lease, (4)
cancel, terminate or accept a surrender of any Lease (5) enter
into any Lease (A) with Grantor or any affiliate of Grantor or its
constituent partners or (B) which would be a "disqualified lease",
as defined in Section 168(h)(1)(B)(ii) of the Internal Revenue
Code of 1986, as amended. Grantor will not enter into or amend,
without Mortgagee's consent, any Occupancy Agreement other than in
the ordinary course of business for prudent assisted living
facilities. "Occupancy Agreement" means any agreement by and
between Grantor and any resident of the Premises.
(ii) Supplementing the provisions of clause (i) of this Section
2.02(b), if the lessee under any Lease (or any receiver, trustee,
custodian or other party who succeeds to the rights of any lessee)
rejects or disaffirms such Lease pursuant to any Bankruptcy Law,
Grantor hereby assigns to Mortgagee the proceeds of any claims
(including the right to retain or apply any security deposits)
that Grantor may have against the lessee (or receiver, trustee,
custodian or other party who succeeds to the rights of any lessee)
and any guarantor of any of the Leases, under any one or more of
the Leases or any guaranty thereof based upon (1) any breach by
such lessee of the terms and provisions of the applicable Lease
(including any claim that Grantor may have by reason of a
termination, rejection or disaffirmance of such Lease pursuant to
any Bankruptcy Law), and (2) the use and occupancy of the premises
demised thereby, whether or not pursuant to the applicable Lease
(including any claim for use and occupancy arising under any
Bankruptcy Law). Grantor, immediately upon obtaining knowledge of
any such breach or use by any such lessee, will notify Mortgagee
of any such breach or use. Upon the occurrence of an Event of
Default, Mortgagee shall have the sole right to elect, either:
(A) to proceed against such lessee or guarantor as if it were the
named lessor thereunder, in Grantor's name or in Mortgagee's name
as agent for Grantor and Grantor agrees to cooperate with
Mortgagee in such action and shall execute any and all documents
required in furtherance of such action; or
(B) to have Grantor proceed in Grantor's and Mortgagee's behalf in
which event Mortgagee may participate in any such proceedings, and
Grantor from time to time will deliver to Mortgagee all
instruments requested by Mortgagee or as may be required to permit
such participation. Grantor shall, at its expense, diligently
prosecute any such proceedings, shall deliver to Mortgagee copies
of all papers served in connection therewith and shall consult and
cooperate with Mortgagee, its attorneys and agents, in the
carrying on and defense of any such proceedings; provided that no
settlement of any such proceeding shall be made by Grantor without
Mortgagee's consent.
ARTICLE III
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Additional Advances; Expenses; Indemnity
SECTION 3.01. Additional Advances and Disbursements. (a) Grantor
agrees that, upon the occurrence of an Event of Default, Trustee
or Mortgagee shall have the right without notice to Grantor to
advance all or any part of amounts owing or to perform any or all
required actions. No such advance or performance shall be deemed
to have cured such Default by Grantor or any Event of Default with
respect thereto. All sums advanced and all expenses incurred by
Trustee or Mortgagee in connection with such advances or actions,
and all other sums advanced or expenses incurred by Trustee or
Mortgagee hereunder or under applicable law (whether required or
optional and whether indemnified hereunder or not) shall be part
of the Obligations, shall bear interest at the Default Rate and as
provided in the Credit Agreement and shall be secured by this
Mortgage.
(b) This Mortgage secures not only existing indebtedness, but also
future or additional advances made pursuant hereto or to the
Credit Agreement, whether such advances are obligatory or
optional.
SECTION 3.02. Other Expenses. Grantor will pay or, on demand,
reimburse Trustee, Mortgagee or any holder of the Obligations for
the payment of any and all costs or expenses (including attorneys'
fees and disbursements) incurred in connection with (i) any
default or Event of Default by Grantor hereunder, (ii) the
exercise or enforcement by or on behalf of Trustee, Mortgagee or
any holder of the Obligations of any of its rights or of Grantor's
obligations under the Loan Documents or (iii) the granting,
administration, enforcement and closing of the transactions
contemplated hereunder.
SECTION 3.03. Indemnity. Grantor agrees to indemnify and hold
harmless Trustee, Mortgagee, the holders of the Obligations and
their respective officers, directors, employees, agents and
shareholders (the "Indemnified Parties") from and against any and
all losses, damages, claims, costs and expenses (including
attorneys' fees and disbursements) which may be imposed on,
incurred by or asserted against any of the Indemnified Parties in
connection with any transaction in any way connected with the
Mortgaged Property or the Loan Documents, except to the extent any
such loss, damage, claim, cost or expense is the result of the
willful misconduct or gross negligence of the Indemnified Party.
Any amount payable under this Section 3.03 shall be deemed a
demand obligation, shall be added to and become a part of the
Obligations, shall bear interest at the rate and as provided in
the Credit Agreement, and shall be secured by this Mortgage.
SECTION 3.04. Interest After Default. If any payment due hereunder
or under the other Loan Documents is not paid in full when due,
whether by acceleration or otherwise, then the same shall bear
interest hereunder at the Default Rate and as provided in the
Credit
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Agreement, and such interest shall be added to and become a part
of the Obligations and shall be secured hereby.
ARTICLE IV
Sale or Transfer of the Premises
SECTION 4.01. Continuous Ownership. Grantor acknowledges that the
continuous ownership of the Mortgaged Property by Grantor, except
as otherwise permitted in the other Loan Documents, is of a
material nature to the transaction hereinabove described and
Mortgagee's agreement to create the Obligations. Without
Mortgagee's prior written consent, Grantor will not, whether
voluntarily or involuntarily, (a) sell, grant, convey, assign or
otherwise transfer, by operation of law or otherwise, (b) permit
to be the subject of any transaction described in clause (a)
above, (c) enter into an agreement for any transaction described
in clause (a) above, or (d) grant an option which or take any
action which pursuant to the terms of any agreement to which
Grantor is a party may result in any transaction described in
clause (a) above of, the Mortgaged Property, or any legal,
beneficial or equitable interest therein, other than any specific
transfers permitted by the Credit Agreement (the foregoing,
collectively or severally,
"Transfer"). For purposes of this Mortgage, but without limiting
the foregoing, (i) the issuance of any equity interest in Grantor
(whether stock, partnership interest or otherwise) not in
accordance with and pursuant to the Credit Agreement, shall be
deemed a Transfer of the Mortgaged Property, (ii) a Transfer of
all or substantially all of the assets of Grantor shall be deemed
a Transfer of the Mortgaged Property, (iii) the execution and
delivery of any documentation relating to a proposed zoning lot
merger or the execution and delivery of any other documentation
effecting or purporting to effect, or the taking or suffering of
any other action effecting or purporting to effect, a transfer of,
or the granting of a right to utilize, any development rights
appurtenant to the Mortgaged Property shall be deemed a Transfer
of the Mortgaged Property, and (iv) any person or legal
representative of Grantor to whom Grantor's interest in the
Mortgaged Property passes by operation of law, or otherwise, shall
be bound by the provisions of this Mortgage. The provisions of
this Section shall apply to each and every such Transfer of all or
any portion of the Mortgaged Property or any legal or equitable
interest therein, regardless whether or not Mortgagee has
consented to, or waived by its action or inaction its rights
hereunder with respect to any previous Transfer of all or any
portion of the Mortgaged Property or any legal or equitable
interest therein.
SECTION 4.02. Release of Lien. This Mortgage is subject to the
provisions of Section 8.01 of the Credit Agreement, which grants
to Grantor the right, upon certain terms and conditions, to obtain
Mortgagee's consent to release, or cause to be released, from the
liens, security interests, conveyances and assignments evidenced
by this Mortgage, from time to time, all or any portion of the
Mortgaged Property.
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ARTICLE V
Defaults and Remedies
SECTION 5.01. Events of Default. The term "Event of Default", as
used in this Mortgage, shall mean the occurrence of any of the
following events:
(a) if default shall be made in the payment, when and as the same
shall
become due and payable, of any amounts required to be paid under
the Note, hereunder or under any other Loan Document, whether of
principal, interest within five (5) days after the same becomes
due, premium, fee or otherwise, and whether on any stated due
date, upon demand, at maturity or upon acceleration;
(b) if default shall be made in the performance or observance of
any other term, covenant or agreement contained in this Mortgage
or in any other Loan Document; or
(c) if any Event of Default (as defined in the Credit Agreement)
occurs; or
(d) if Grantor abandons the Premises or ceases to do business or
terminates its business for any reason whatsoever; or
(e) if the Mortgaged Property shall be taken, attached or
sequestered on execution or other process of law in any action
against Grantor; or
if Grantor shall fail at any time to obtain, provide, maintain,
keep in force or, within ten (10) days after request therefor,
deliver to Mortgagee the insurance policies required by Section
1.05; or
(g) if any claim of priority (except a claim based upon a
Permitted Encumbrance) to this Mortgage or any other document or
instrument securing the Obligations by title, lien or otherwise
shall be upheld by any court of competent jurisdiction or shall be
consented to by Grantor; or
(h) if Grantor fails to cure any material default under any Lease
within the shorter of thirty (30) days following the giving of
notice of default by the lessor thereunder or the applicable grace
period set forth therein.
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SECTION 5.02. Remedies. Upon the occurrence of any one or more
Events of Default, or any Transfer without the consent of
Mortgagee, Trustee or Mortgagee may, in addition to any rights or
remedies available to it hereunder or under the other Loan
Documents and to the extent permitted by applicable law, take such
action personally or by its agents or attorneys, with or without
entry, and without notice, demand, presentment or protest (each
and all of which are hereby waived), as it deems necessary or
advisable to protect and enforce its rights and remedies against
Grantor and in and to the Mortgaged Property, including the
following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Trustee or Mortgagee
may determine, in its sole discretion, without impairing or
otherwise affecting its other rights or remedies:
(a) declare the entire balance of the Obligations to be
immediately due and payable, and upon any such declaration, the
entire unpaid balance of the Obligations shall become and be
immediately due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly
waived by Grantor, anything in any other Loan Documents to the
contrary notwithstanding; or
(b) institute a proceeding or proceedings, judicial or otherwise,
for the complete or partial foreclosure of this Mortgage in any
manner provided hereunder or under any applicable provision of
law; or
(c) sell the Mortgaged Property, and all estate, right, title,
interest, claim and demand of Grantor therein, and all rights of
redemption thereof, at one or more sales, as an entirety or in
parcels, with such elements of real and/or personal property, and
at such time and place and upon such terms as it may deem
expedient, or as may be required by applicable law, and in the
event of a sale, by foreclosure or otherwise, of less than all of
the Mortgaged Property, this Mortgage shall continue as a lien and
security interest on the remaining portion of the Mortgaged
Property; or
(d) institute an action, suit or proceeding in equity for the
specific performance of any of the provisions contained in the
Loan Documents; or
(e) apply for the appointment of a receiver, custodian, trustee,
liquidator or conservator of the Mortgaged Property, to be vested
with the fullest powers permitted under applicable law, as a
matter of right and without regard to, or the necessity to
disprove, the adequacy of the security for the Obligations or the
solvency of Grantor or any other person liable for the payment of
the Obligations, and Grantor and each other person so liable
waives or shall be deemed to have waived such necessity and
consents or shall be deemed to have consented to such appointment;
or
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enter upon the Premises, and exclude Grantor and its agents and
servants wholly therefrom, without liability for trespass, damages
or otherwise, and take possession of all books, records and
accounts relating thereto and all other Mortgaged Property, and
Grantor agrees to surrender possession of the Mortgaged Property
and of such books, records and accounts to Trustee or Mortgagee on
demand after the happening of any Event of Default; and having and
holding the same may use, operate, manage, preserve, control and
otherwise deal therewith and conduct the business thereof, either
personally or by its superintendents, managers, agents, servants,
attorneys or receivers, without interference from Grantor; and
upon each such entry and from time to time thereafter may, at the
expense of Grantor and the Mortgaged Property, without
interference by Grantor and as Mortgagee may deem advisable, (i)
insure or reinsure the Premises, (ii) make all necessary or proper
repairs, renewals, replacements, alterations, additions,
betterments and improvements thereto and thereon and (iii) in
every such case in connection with the foregoing have the right to
exercise all rights and powers of Grantor with respect to the
Mortgaged Property, either in Grantor's name or otherwise; or
(g) with or without the entrance upon the Premises, collect,
receive, sue for and recover in its own name all Rents and cash
collateral derived from the Mortgaged Property, and after
deducting therefrom all costs, expenses and liabilities of every
character incurred by Trustee or Mortgagee in collecting the same
and in using, operating, managing, preserving and controlling the
Mortgaged Property, and otherwise in exercising Trustee's or
Mortgagee's rights under Subsection (f) of this Section, including
all amounts necessary to pay Impositions, insurance premiums and
other charges in connection with the Premises, as well as
compensation for the services of Trustee or Mortgagee and their
respective attorneys, agents and employees, to apply the remainder
as provided in Section 5.05; or
(h) release any portion of the Mortgaged Property for such
consideration as Mortgagee may require without, as to the
remainder of the Mortgaged Property, in any way impairing or
affecting the lien or priority of this Mortgage, or improving the
position of any subordinate lienholder with respect thereto,
except to the extent that the Obligations shall have been reduced
by the actual monetary consideration, if any, received by Trustee
or Mortgagee for such release and applied to the Obligations, and
may accept by assignment, pledge or otherwise any other property
in place thereof as Mortgagee may require without being
accountable for so doing to any other lienholder; or
(i) take all actions permitted under the UCC; or
(j) take any other action, or pursue any other right or remedy, as
Trustee or Mortgagee may have under applicable law, and Grantor
does hereby grant the same to Trustee or Mortgagee; or
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(k) to the extent the Mortgaged Property is located in the State
of California, the following language shall apply:
(1) the provisions of clause (h) shall be replaced with the
following language: "deliver to Mortgagee a written declaration of
default and demand for sale, and a written notice of default and
election to cause the Mortgaged Property to be sold, which notice
Trustee or Mortgagee shall cause to be duly filed for record,
(2) the provisions of clause (b) above shall be replaced with the
following language: "institute a judicial proceeding for the
complete foreclosure of the Mortgage under any applicable
provision of law or a non-judicial foreclosure for the complete or
partial foreclosure of this Mortgage under any applicable
provision of law",
(3) the clause "and all rights of redemption thereof shall be
deleted from clause (c) above.
(1) to the extent the Mortgaged Property is located in the State
of Iowa, Grantor hereby agrees that in the event of judicial
foreclosure of this Mortgage, the Mortgagee may, at its sole
option, elect:
(1) pursuant to Iowa Code Section 628.26 as now enacted or
hereafter modified, amended or replaced to reduce the period of
redemption after sale on foreclosure to six (6) months, or
(2) pursuant to Iowa Code Section 628.27 as now enacted or
hereafter modified, amended or replaced to reduce the period of
redemption after sale on foreclosure to sixty (60) days, or
(3) pursuant to Iowa Code Section 628.28 as now enacted or
hereafter modified, amended or replaced or any other Iowa Code
Section to reduce the period of redemption after sale on
foreclosure to such time as may be then applicable and provided by
law, or
(4) pursuant to Iowa Code Section 654.20 as now enacted or
hereafter modified, amended or replaced to foreclose without
redemption.
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In addition, to the extent the Mortgaged Property is located in
the State of Iowa, in the event of foreclosure of this Mortgage,
Grantor hereby agrees that the court may, and requests the court
to, enter a special order directing the clerk of court to enter
and record the judgment contained in the foreclosure decree on the
Note secured by this Mortgage without requiring that the Note be
first filed with the clerk of court for cancellation. Grantor
further agrees, because the Note secured by this Mortgage is also
secured by other mortgages and will be necessary to a foreclosure
of those mortgages, that notwithstanding Iowa Rule of Civil
Procedure 228, as presently enacted or as hereinafter amended or
replaced, the clerk of court may, in the event of foreclosure of
this Mortgage, enter and record the judgment contained in the
foreclosure decree on the Note secured by this Mortgage without
requiring that the Note be first filed with the clerk of court for
cancellation.
In the event that Trustee or Mortgagee shall exercise any of the
rights or remedies set forth in subsections (and (g) of this
Section, Trustee or Mortgagee shall not be deemed to have entered
upon or taken possession of the Mortgaged Property except upon the
exercise of its option to do so, evidenced by its demand and overt
act for such purpose, nor shall it be deemed a beneficiary or
mortgagee in possession by reason of such entry or taking
possession. Neither Trustee nor Mortgagee shall be liable to
account for any action taken pursuant to any such exercise other
than for Rents actually received by Mortgagee, nor liable for any
loss sustained by Grantor resulting from any failure to let the
Premises, or from any other act or omission of Trustee or
Mortgagee except to the extent such loss is caused by the willful
misconduct or bad faith of Trustee or Mortgagee.
SECTION 5.03. Rights Pertaining to Sales. Subject to the
provisions or other requirements of law and except as otherwise
provided herein, the following provisions shall apply to any sale
or sales of all or any portion of the Mortgaged Property under or
by virtue of this Article V, whether made under the power of sale
herein wanted or by virtue of judicial proceedings or of a
judgment or decree of foreclosure and sale:
(a) Trustee or Mortgagee may conduct any number of sales from time
to time. The power of sale set forth in Section 5.02(c) hereof
shall not be exhausted by any one or more such sales as to any
part of the Mortgaged Property which shall not have been sold, nor
by any sale which is not completed or is defective in Mortgagee's
opinion, until the Obligations shall have been paid in full. To
the extent the Mortgaged Property is located in the State of
California, said sale may be as a whole or in part or parcels and
Grantor hereby waives its right to direct the order in which the
Mortgaged Property or any parcel that is part thereof is sold.
(b) Any sale may be postponed or adjourned by public announcement
at the time and place appointed for such sale or for such
postponed or adjourned sale without further notice.
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(c) After each sale, Mortgagee, Trustee or an officer of any court
empowered to do so shall execute and deliver to the purchaser or
purchasers at such sale a good and sufficient instrument or
instruments granting, conveying, assigning and transferring all
right, title and interest of Grantor in and to the property and
rights sold and shall receive the proceeds of said sale or sales
and apply the same as herein provided. Each of Trustee and
Mortgagee is hereby appointed the true and lawful attorney-in-fact
of Grantor, which appointment is irrevocable and shall be deemed
to be coupled with an interest, in Grantor's name and stead, to
make all necessary conveyances, assignments, transfers and
deliveries of the property and rights so sold, and for that
purpose Trustee and Mortgagee may execute all necessary
instruments of conveyance, assignment, transfer and delivery, and
may substitute one or more persons with like power, Grantor hereby
ratifying and confirming all that said attorney or such substitute
or substitutes shall lawfully do by virtue thereof. Nevertheless,
Grantor, if requested by Trustee or Mortgagee, shall ratify and
confirm any such sale or sales by executing and delivering to
Trustee, Mortgagee or such purchaser or purchasers all such
instruments as may be advisable, in Trustee's or Mortgagee's
judgment, for the purposes as may be designated in such request.
(d) Any and all statements of fact or other recitals made in any
of the instruments referred to in subsection (c) of this Section
5.03 given by Trustee or Mortgagee as to nonpayment of the
Obligations, or as to the occurrence of any Event of Default, or
as to Mortgagee having declared all or any of the Obligations to
be due and payable, or as to the request to sell, or as to notice
of time, place and terms of sale and of the property or rights to
be sold having been duly given, or as to the refusal, failure or
inability to act of Trustee, or as to the appointment of any
substitute or successor trustee, or as to any other act or thing
having been duly done by Grantor, Mortgagee, or by Trustee, shall
be taken as conclusive and binding against all persons as to
evidence of the truth of the facts so stated and recited. Trustee
or Mortgagee may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any sale
so held, including the posting of notices and the conduct of sale,
but in the name and on behalf of Trustee.
(e) The receipt of Trustee or Mortgagee for the purchase money
paid at any such sale, or the receipt of any other person
authorized to receive the same, shall be sufficient discharge
therefor to any purchaser of any property or rights sold as
aforesaid, and no such purchaser, or its representatives, grantees
or assigns, after paying such purchase price and receiving such
receipt, shall be bound to see to the application of such purchase
price or any part thereof upon or for any trust or purpose of this
Mortgage or, in any manner whatsoever, be answerable for any loss,
misapplication or nonapplication of any such purchase money, or
part thereof, or be bound to inquire as to the authorization,
necessity, expediency or regularity of any such sale.
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Any such sale or sales shall operate to divest all of the estate,
right, title, interest, claim and demand whatsoever, whether at
law or in equity, of Grantor in and to the properties and rights
so sold, and shall be a perpetual bar both at law and in equity
against Grantor and any and all persons claiming or who may claim
the same, or any part thereof or any interest therein, by, through
or under Grantor to the fullest extent permitted by applicable
law.
(g) Upon any such sale or sales, Mortgagee may bid for and acquire
the Mortgaged Property and, in lieu of paying cash therefor, may
make settlement for the purchase price by crediting against the
Obligations the amount of the bid made therefor, after deducting
therefrom the expenses of the sale, the cost of any enforcement
proceeding hereunder, and any other sums which Trustee or
Mortgagee is authorized to deduct under the terms hereof, to the
extent necessary to satisfy such bid.
(h) In the event that Grantor, or any person claiming by, through
or under Grantor, shall transfer or refuse or fail to surrender
possession of the Mortgaged Property after any sale thereof, then
Grantor, or such person, shall be deemed a tenant at sufferance of
the purchaser at such sale, subject to eviction by means of
forcible entry and unlawful detainer proceedings, or subject to
any other right or remedy available hereunder or under applicable
law.
(i) Upon any such sale, it shall not be necessary for Trustee,
Mortgagee or any public officer acting under execution or order of
court to have present or constructively in its possession any of
the Mortgaged Property.
(j) In the event a foreclosure hereunder shall be commenced by
Trustee or Mortgagee, Trustee or Mortgagee may at any time before
the sale of the Mortgaged Property abandon the sale, and may
institute suit for the collection of the Obligations and for the
foreclosure of this Mortgage, or in the event that Trustee or
Mortgagee should institute a suit for collection of the
Obligations, and for the foreclosure of this Mortgage, Mortgagee
may at any time before the entry of final judgment in said suit
dismiss the same and require Trustee or Mortgagee to sell the
Mortgaged Property in accordance with the provisions of this
Mortgage.
(k) To the extent the Mortgaged Property is located in the State
of California the following provisions shall apply:
(i) Mortgagee shall notify Trustee and shall deposit with Trustee
this Mortgage and the Note and such receipts and evidence of
expenditures made and secured hereby as Trustee may require. Upon
receipt of such notice from
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Mortgagee, Trustee shall cause to be recorded, published and
delivered to Grantor such notice of default and notice of sale as
then required by law and by this Mortgage. Trustee shall, without
demand on Grantor, after lapse of such time as may then be
required by law and after recordation of such notice of default
and after notice of sale having been given as required by law,
sell the Mortgaged Property at the time and place of sale fixed by
it in said notice of sale, either as a whole, or in separate lots
or parcels or items as Mortgagee shall determine, and in such
order as Mortgagee may determine, at public auction to the highest
bidder for cash in lawful money of the United States payable at
the time of sale.
(ii) Any Person, including, without limitation, Grantor, Trustee
or Mortgagee, may purchase the Mortgaged Property at a sale
provided for in Section 5.03
(iii) Mortgagee may rescind any notice of default provided for in
Section 5.03(b) at any time before Trustee's sale by executing a
notice of rescission and recording the same. The recordation of
such notice shall constitute a cancellation of any prior
declaration of default and demand for sale and of any acceleration
of maturity of Indebtedness affected by any prior declaration or
notice of default. The exercise by Mortgagee of the right of
rescission shall not constitute a waiver of any default then
existing or subsequently occurring, or impair the right of
Mortgagee to execute other declarations of default and demand for
sale, or notices of default and of election to cause the Mortgaged
Property to be sold, nor otherwise affect the Note or this
Mortgage, or any of the rights, obligations or remedies of
Mortgagee or Trustee hereunder.
SECTION 5.04. Expenses. In any proceeding, judicial or otherwise,
to foreclose this Mortgage or enforce any other remedy of Trustee
or Mortgagee under the Loan Documents, there shall be allowed and
included as an addition to and a part of the Obligations in the
decree for sale or other judgment or decree all expenditures and
expenses which may be paid or incurred in connection with the
exercise by Trustee or Mortgagee of any of its rights and remedies
provided or referred to in Section 5.02, or any comparable
provision of any other Loan Document, together with interest
thereon at the rate and as provided in the Credit Agreement, and
the same shall be part of the Obligations and shall be secured by
this Mortgage.
SECTION 5.05. Application of Proceeds. The purchase money,
proceeds or avails of any sale referred to in Section 5.02,
together with any other sums which may be held by Trustee or
Mortgagee hereunder, whether under the provisions of this Article
V or otherwise, shall, except as herein expressly provided to the
contrary, be applied as follows:
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First: To the payment of the costs and expenses of any such sale,
including compensation to Trustee, Mortgagee, their agents and
counsel, and of any judicial proceeding wherein the same may be
made, and of all expenses, liabilities and advances made or
incurred by Trustee or Mortgagee hereunder, together with interest
thereon as provided herein, and all Impositions and other charges,
except any Impositions or other charges subject to which the
Mortgaged Property shall have been sold.
Second: To the payment in full of the monetary Obligations
(including principal, interest, premium and fees) in such order as
Mortgagee may elect.
Third: To the payment of any other sums secured hereunder or
required to be paid by Grantor pursuant to any provision of the
Loan Documents.
Fourth: To the extent permitted by applicable law, to be set aside
by Trustee or Mortgagee as adequate security in its judgment for
the payment of sums which would have been paid by application
under clauses First through Third above to Trustee or Mortgagee,
arising out of an obligation or liability with respect to which
Grantor has agreed to indemnify Mortgagee, but which sums are not
yet due and payable or liquidated.
Fifth: To the payment of any withholding tax requirements of the
Foreign Investment in Real Property Tax Act of 1980, as amended.
Sixth: To the payment of the surplus, if any, to whomsoever may be
lawfully entitled to receive the same.
To the extent the Mortgaged Property is located in the State of
California, clause Fourth above shall not apply.
SECTION 5.06. Additional Provisions as to Remedies. (a) No delay
or omission by Trustee or Mortgagee to exercise any right or
remedy hereunder upon any default or Event of Default shall impair
such exercise, or be construed to be a waiver of any such default
or Event of Default.
(b) The failure, refusal or waiver (by consent, waiver or
otherwise) of Trustee or Mortgagee to assert any right or remedy
hereunder upon any default or Event of Default or other occurrence
shall not be construed as waiving such right or remedy upon any
other or subsequent default or Event of Default or other
occurrence.
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(c) Neither Trustee nor Mortgagee shall have any obligation to
pursue any rights or remedies it may have under any other
agreement prior to pursuing its rights or remedies hereunder or
under the other Loan Documents.
(d) Acceptance of any payment after the occurrence of any default
or Event of Default shall not be deemed a waiver or a cure of such
default or Event of Default, and acceptance of any payment less
than any amount then due shall be deemed an acceptance on account
only.
(e) In the event that Trustee or Mortgagee shall have proceeded to
enforce any right or remedy hereunder by foreclosure, sale, entry
or otherwise, and such proceeding shall be discontinued, abandoned
or determined adversely for any reason, then Grantor and Mortgagee
shall be restored to their former positions and rights hereunder
with respect to the Mortgaged Property, subject to the lien
hereof.
Each right of Trustee or Mortgagee provided for in this Mortgage
shall be cumulative and shall be in addition to every other right
provided for in this Mortgage or now or hereafter existing at law
or in equity, by statute or otherwise, and the exercise by Trustee
or Mortgagee of any one or more of such rights shall not preclude
the simultaneous or later exercise by Trustee or Mortgagee of any
other such right.
SECTION 5.07. Waiver of Rights and Defenses. To the full extent
Grantor may lawfully do so, Grantor agrees with Mortgagee as
follows:
(a) Grantor will not claim or take the benefit of any statute or
rule of law now or hereafter in force providing for any
appraisement, valuation, stay, extension, moratorium or
redemption, or of any statute of limitations, and Grantor, for
itself and its heirs, devisees, representatives, successors and
assigns, and for any and all persons ever claiming an interest in
the Mortgaged Property (other than Mortgagee and Trustee), hereby
waives and releases all rights of redemption, valuation,
appraisement, notice of intention to mature or declare due the
whole of the Obligations, and all rights to a marshaling of the
assets of Grantor, including the Mortgaged Property, or to a sale
in inverse order of alienation, in the event of foreclosure of the
liens and security interests
created hereunder.
(b) Grantor shall not have or assert and hereby waives any right
under any statute or rule of law pertaining to any of the matters
set forth in subsection (a) of this Section 5.07, to the
administration of estates of decedents or to any other matters
whatsoever to defeat, reduce or affect any of the rights or
remedies of Trustee or
Mortgagee hereunder.
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SECTION 5.08. Exercise by Trustee. Notwithstanding anything herein
to the contrary, Trustee (a) shall not exercise, or waive the
exercise of, any of its rights or remedies hereunder (other than
its right to reimbursement) except upon the request of Mortgagee,
and (b) shall exercise, or waive the exercise of, any or all of
such rights or remedies upon the request of Mortgagee and at the
direction of Mortgagee as to the manner of such exercise or
waiver, provided that Trustee shall have the right to decline to
follow any of such request or direction if Trustee shall be
advised by counsel that the action or proceeding, or manner
thereof, so directed may not lawfully be taken or waived.
ARTICLE VI
Release of Lien
SECTION 6.01. Release of Lien. If(i) all of the Obligations have
been paid in full or (ii) Grantor shall have satisfied all of the
terms and conditions set forth in Section 8.01 of the Credit
Agreement with respect to the Mortgaged Property, then, and only
in such events, all rights and obligations hereunder (except for
the rights and obligations set forth in Section 3.03 and the
indemnities provided in the Loan Documents) shall terminate and
the Mortgaged Property shall become wholly released and cleared of
the liens, security interests, conveyances and assignments
evidenced hereby. In such event Beneficiary shall, at the request
of Grantor, execute and deliver to Grantor, in recordable form,
all such documents as shall be necessary to release the Mortgaged
Property, or a portion thereof, from the liens, security
interests, conveyances and assignments created or evidenced
hereby. Notwithstanding anything in the preceding sentence to the
contrary, Trustee shall so release the Mortgaged Property only
upon the direction of Beneficiary. Any release of the Mortgaged
Property pursuant to Section 8.01 of the Credit Agreement shall be
effective only with respect to the applicable Property.
ARTICLE VII
Additional Provisions
SECTION 7.01. Provisions as to Payments, Advances. To the extent
that any part of the Obligations is used to pay indebtedness
secured by any Permitted Encumbrance or other outstanding lien,
security interest, charge or prior encumbrance against the
Mortgaged Property or to pay in whole or in part the purchase
price therefor, Trustee or Mortgagee shall be subrogated to any
and all rights, security interests and liens held by any owner or
holder of the same, whether or not the same are released. Grantor
agrees that, in consideration of such payment by Trustee or
Mortgagee, effective upon such payment Grantor shall and hereby
does
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waive and release all demands, defenses and causes of action for
offsets and payments with respect to the same.
SECTION 7.02. Separability. If all or any portion of any provision
of this Mortgage or any other Loan Documents shall be held to be
invalid, illegal or unenforceable in any respect or in any
jurisdiction, then such invalidity, illegality or unenforceability
shall not affect any other provision hereof or thereof, and such
provision shall be limited and construed in such jurisdiction as
if such invalid, illegal or unenforceable provision or portion
thereof were not contained herein or therein.
SECTION 7.03. Notices. (a) Any notice, demand, consent, approval,
direction, agreement or other communication (any "Notice")
required or permitted hereunder or under any other documents
evidencing or securing the Note shall be in writing and shall be
validly given if mailed by United States mail, certified mail,
return receipt requested, postage prepaid, addressed as follows to
the person entitled to receive the same:
(1) If to Grantor:
Emeritus Properties III, Inc.
c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Chief Financial Officer
and a copy to:
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121 Attention: General Counsel
(2) If to Mortgagee:
Deutsche Bank AG, New York Branch
31 West 52nd Street
New York, New York 10019 A
Attention: General Counsel
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(3) If to Trustee, to the extent that the Mortgaged Property is
located in the States of California, Idaho, Montana or Nevada at
the address first above written for each Trustee.
Any Notice shall be deemed to have been validly given hereunder
when so mailed. Any person shall have the right to specify, from
time to time, as its address or addresses for purposes of this
Mortgage, any other address or addresses upon giving three (3)
days' notice thereof to each other person then entitled to receive
notices or other instruments hereunder.
(b) For the purposes of California Civil Code Section 3097:
(i) The name and address of the Lender is Deutsche Bank AG, New
York Branch, 31 West 52"d Street, New York, New York 10019.
(ii) The name and address of the owner of the Real Property is the
name and address of Grantor in Section 7.03(a).
(iii) The legal description of the Real Property and the street
address, if known, are set forth in Exhibit A attached hereto and
made a part hereof.
SECTION 7.04. Right to Deal. In the event that ownership of the
Mortgaged Property becomes vested in a person other than Grantor,
Trustee and Mortgagee may, without notice to Grantor, deal with
such successor or successors in interest with reference to this
Mortgage or the Obligations in the same manner as with Grantor,
without in any way vitiating or discharging Grantor's liability
hereunder or for the payment of the Obligations or being deemed a
consent to such vesting.
SECTION 7.05. Continuation of Lease. (a) Upon the foreclosure of
the lien created hereby on the Mortgaged Property, as herein
provided, any leases then existing shall not be destroyed or
terminated as a result of such foreclosure unless Mortgagee or any
purchaser at a foreclosure sale shall so elect by notice to the
lessee in question.
(b) If both the lessor's and the lessee's interest under any lease
which constitutes a part of the Premises shall at any time become
vested in any one person, this Mortgage and the lien and security
interest created hereby shall not be destroyed or terminated by
the application of the doctrine of merger and, in such event,
Trustee and Mortgagee shall continue to have and enjoy all of the
rights and privileges of Trustee and Mortgagee hereunder as
to each separate estate.
(c) In the event that Grantor acquires the fee or any other
interest in any portion of the Land that is presently leased to
Grantor, such interest shall, immediately upon such
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acquisition, become subject to the lien of this Mortgage as fully
and completely, and with the same effect, as though now owned by
Grantor and specifically described herein, without need for the
delivery and/or recording of a supplement to this Mortgage or any
other instrument.
SECTION 7.06. Applicable Law. This Mortgage shall be governed by,
and construed in accordance with, the internal law of the State in
which the Mortgaged Property is located without regard to
principles of conflicts of laws, except that the internal laws of
the State of New York (without regard to principles of conflicts
of laws) shall govern (i) those terms and conditions contained in
the Note and the Credit Agreement which are incorporated by
reference herein and (ii) the resolution of issues arising under
the Note and the Credit Agreement to the extent that such
resolution is necessary to the interpretation of this Mortgage.
SECTION 7.07. Sole Discretion of Trustee and Mortgagee. (a)
Whenever Trustee's or Mortgagee's judgment, consent or approval is
required hereunder for any matter, or either shall have an option
or election hereunder, such judgment, the decision whether or not
to consent to or approve the same or the exercise of such option
or election shall be in the sole discretion of Trustee or
Mortgagee, as the case may be.
(b) Notwithstanding anything contained herein to the contrary, in
the event that Trustee or Mortgagee fails or refuses to grant
consent or approval when required hereunder or under any other
Loan Document for any matter, the parties agree that the remedy of
specific performance shall be the sole remedy of Grantor with
respect to such actions and Trustor hereby waives all claims for
damages with respect thereto, unless a final nonappealable
judgment has been rendered against Mortgagee finding that
Mortgagee had acted in bad faith.
SECTION 7.08. Provisions as to Covenants and Agreements. All of
Grantor's covenants and agreements hereunder shall run with the
land and time is of the essence with respect thereto.
SECTION 7.09. Matters to be in Writing. This Mortgage cannot be
altered, amended, modified, terminated, waived, released or
discharged except in a writing signed by the party against whom
enforcement is sought.
SECTION 7.10. Submission to Jurisdiction. Without limiting the
right of Mortgagee to bring any action or proceeding against the
undersigned or its property arising out of or relating to the
Obligations (an "Action") in the courts of other jurisdictions,
Grantor hereby irrevocably submits to the jurisdiction of the
state court or Federal court in each jurisdiction in which the
Mortgaged Property is located, and Grantor hereby irrevocably
agrees that any Action may be heard and determined in such state
or federal court. Grantor hereby irrevocably waives, to the
fullest extent that it may effectively do so, the defense of an
inconvenient forum to the maintenance of any Action in the
jurisdiction. Grantor hereby irrevocably agrees that the summons
and complaint or any other process in any Action in any
jurisdiction may be served by
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mailing to any of the addresses set forth herein or by hand
delivery to a person of suitable age and discretion at any such
address. Such service will be complete on the date such process is
so mailed or delivered.
SECTION 7.11. Construction of Provisions. The following rules of
construction shall be applicable for all purposes of this Mortgage
and all documents or instruments supplemental hereto, unless the
context otherwise requires:
(a) All references herein to numbered Articles or Sections or to
lettered Exhibits are references to the Articles and Sections
hereof and the Exhibits annexed to this Mortgage, unless expressly
otherwise designated in context. All Article, Section and Exhibit
captions herein are used for reference only and in no way limit or
describe the scope or intent of, or in any way affect, this
Mortgage.
(b) The terms "include", "including" and similar terms shall be
construed as if followed by the phrase "without being limited to".
(c) The terms "Land", "Leased Land", "Leasehold Estate",
"Improvements" ,
"Equipment", "Mortgaged Property" and "Premises" shall be
construed as if followed by the phrase "or any part thereof'.
(d) The term "Obligations" shall be construed as if followed by
the phrase "or any other sums secured hereby, or any part
thereof'.
(e) Words of masculine, feminine or neuter gender shall mean and
include the correlative words of the other genders, and words
importing the singular number shall mean and include the plural
number, and vice versa.
The term "person" shall include natural persons, firms,
partnerships ,
corporations and any other public and private legal entities.
(g) The term "provisions", when used with respect hereto or to any
other document or instrument, shall be construed as if preceded by
the phrase "terms, covenants, agreements, requirements, conditions
and/or".
(h) The cover page of and all recitals set forth in, and all
Exhibits to, this Mortgage are hereby incorporated in this
Mortgage.
(i) All obligations of Grantor hereunder shall be performed and
satisfied by or on behalf of Grantor at Grantor's sole cost and
expense.
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(j) The term "lease" shall mean "tenancy, subtenancy, lease or
sublease", the term "lessor" shall mean "landlord, sublandlord,
lessor and sublessor" and the term
"lessee" shall mean "tenant, subtenant, lessee and sublessee".
(k) No inference in favor of or against any party shall be drawn
from the fact that such party has drafted any portion hereof.
(1) The term "Mortgagee and/or Trustee" shall be construed as if
followed by the phrase "as applicable".
SECTION 7.12. Successors and Assigns. The provisions hereof shall
be binding upon Grantor and the heirs, devisees, representatives,
successors and permitted assigns of Grantor, including successors
in interest of Grantor in and to all or any part of the Mortgaged
Property, and shall inure to the benefit of Trustee, Mortgagee,
the holders of the Obligations and their respective heirs,
successors, legal representatives, substitutes and assigns. Where
two or more persons have executed this Mortgage, the obligations
of. such persons shall be joint and several.
SECTION 7.13. Counterparts. This Mortgage may be executed in
counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
SECTION 7.14. Agency. Mortgagee may deal with the Mortgaged
Property and may issue, or instruct Trustee to issue, as
applicable, any release to be given hereunder pursuant to Section
4.02 or 6.01 or grant any consent or approval or take any other
action, or instruct Trustee to take any other action, as
applicable, required or permitted hereunder, without reference to
or the approval of the holders of the Obligations and any third
party (including any title insurance company issuing a title
insurance policy, or a commitment to issue a title insurance
policy, in connection with the Mortgaged Property) may
conclusively rely on the due authority of Mortgagee (or Trustee,
if so instructed by Mortgagee) to do any or all of the foregoing.
SECTION 7.15. The Security Agreement. In the event that a valid
and enforceable security interest has been created in any of the
Mortgaged Property under the terms of the Security Agreement (as
defined in the Credit Agreement) and the terms of the Security
Agreement are inconsistent with the terms of this Mortgage, then
with respect to such Mortgaged Property, the terms of the Security
Agreement shall be controlling in the case of Equipment and
proceeds of insurance policies and the terms of this Mortgage
shall be controlling in all other cases.
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SECTION 7.16. Inapplicable Provisions. If any term, covenant or
condition of this Deed of Trust is held to be invalid, illegal or
unenforceable in any respect, this Deed of Trust shall be
construed without such provision.
ARTICLE VIII
Provisions as to Trustee
SECTION 8.01. Trustee's Appointment. Trustee may resign by an
instrument in writing addressed to Mortgagee, or Trustee may be
removed at any time with or without cause by an instrument in
writing executed by Mortgagee. In case of the death, resignation,
removal or disqualification of Trustee or if for any reason
Mortgagee shall deem it desirable to appoint a substitute or
successor Trustee to act instead of Trustee herein named or any
substitute or successor Trustee, then Mortgagee shall have the
right and is hereby authorized and empowered to appoint a
successor Trustee, or a substitute Trustee, without other
formality than appointment and designation in writing executed by
Mortgagee, and the authority hereby conferred shall extend to the
appointment of other successor and substitute Trustees
successively until the Obligations have been paid in full or until
the Mortgaged Property is sold hereunder. Such appointment and
designation by Mortgagee shall be full evidence of the right and
authority to make the same and of all facts therein recited. If
Mortgagee is a corporation or a national banking association and
such appointment is executed in its behalf by an officer of such
corporation or national banking association, such appointment
shall be conclusively presumed to be executed with authority and
shall be valid and sufficient without proof of any action by the
board of directors or any superior officer of the corporation or
national banking association. Upon the making of such appointment
and designation, all of the estate and title of Trustee in the
Mortgaged Property shall vest in the named successor or substitute
Trustee and it shall thereupon succeed to and shall hold, possess
and execute all the rights, powers, privileges, immunities and
duties herein conferred upon Trustee; but, nevertheless, upon the
written request of Mortgagee or of the successor or substitute
Trustee, Trustee ceasing to act shall execute and deliver an
instrument transferring to such successor or substitute Trustee
all of the estate and title in the Mortgaged Property of Trustee
so ceasing to act, together with all the rights, powers,
privileges, immunities and duties herein conferred upon Trustee,
and shall duly assign, transfer and deliver any of the properties
and moneys held by said Trustee hereunder to said successor or
substitute Trustee. All references herein to Trustee shall be
deemed to refer to Trustee (including any successor or substitute
appointed and designated as herein provided) from time to time
acting hereunder. Except as otherwise required by applicable law,
Trustee shall not perform any act or omit to act hereunder unless,
prior to such act or omission, Mortgagee delivers to Trustee
direction to so act or omit to act. Grantor hereby ratifies and
confirms any and all acts which Trustee herein named or its
successor or successors, substitute or substitutes, in this trust,
shall do lawfully by virtue hereof.
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SECTION 8.02. Exculpation. Trustee shall not be liable for any
error of judgment or act done by Trustee in good faith, or be
otherwise responsible or accountable under any circumstances
whatsoever, except for Trustee's gross negligence or willful
misconduct. Trustee shall have the right to rely on any
instrument, document or signature authorizing or supporting any
action taken or proposed to be taken by it hereunder, believed by
it in good faith to be genuine. All moneys received by Trustee
shall, until used or applied as herein provided, be held in trust
for the purposes for which they were received, but need not be
segregated in any manner from any other moneys (except to the
extent required by law), and Trustee shall be under no liability
for interest on any moneys received by it hereunder.
ARTICLE IX
Notices of Default
SECTION 9.01. Notices of Default. To the extent that the Mortgaged
Property is located in the State of California, Grantor hereby
requests that a copy of any Notice of Default and/or Notice of
Sale be sent to Grantor at Grantor's address set forth in Section
7.03 hereof.
ARTICLE X
Fixture Filing
SECTION 10.01. Fixture Filing. A portion of the Mortgaged Property
is or is to become fixtures upon the Premises. To the extent
permitted by applicable law, Grantor covenants and agrees that the
filing of this Mortgage in the real estate records of the county
in which the Mortgaged Property is located shall also operate from
the time of filing as a fixture filing with respect to all goods
constituting part of the Mortgaged Property which are or are to
become fixtures related to the real estate described herein. For
such purpose, the following information is set forth:
(a) Name and Address of Debtor:
Emeritus Properties In, Inc.
c/o Emeritus Corporation,
3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121
(b) Name and Address of Secured Party:
Deutsche Bank AG, New York Branch,
31 West 52nd Street,
New York, New York 10019
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(c) This document covers goods which are or are to become
fixtures.
(d) The real property on which the fixtures are or may be located
is described on Exhibit A.
(e) Grantor is the record owner of the real property.
(f) The fixture filing is to be recorded in the records of the
county where the real property is located.
ARTICLE XI
State Specific Clauses
SECTION 11.01. Washington. Grantor hereby represents and
warrants that, to the extent the Mortgaged Property is located in
the State of Washington, no part or portion of the Mortgaged
Property is used principally for agricultural or farming purposes.
SECTION I 1.02. Iowa. Grantor hereby represents and warrants that,
to the extent the Mortgaged Property is located in the State of
Iowa, none of the collateral for the Loan constitutes and none of
the Loan proceeds will be used to purchase:
(a) real property which is a single-family or a two-family
dwelling occupied or to be occupied by the Grantor; or
(b) agricultural products or property used for an agricultural
purpose as defined in Iowa Code Section 535.13; or
(c) agricultural land as defined in Iowa Code Section 9H.1; or
(d) property used for an agricultural purpose as defined in Iowa
Code Section 570.A.1(2).
SECTION 11.03. Idaho. Grantor hereby represents and warrants that,
to the extent the Mortgaged Property is located in the State of
Idaho, the Mortgaged Property consists of forty (40) acres or less
or is situated within an incorporated city.
SECTION 11.04. California. (a) Grantor hereby represents and
warrants that, to the extent the Mortgaged Property is located in
the State of California, no position of the proceeds of the Loan
shall be used by Grantor to finance the purchase or construction
of real
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property containing four (4) or fewer residential units on which
four (4) or fewer residential units are to be constructed.
This Mortgage covers certain goods which are to become fixtures
related to the Land and constitutes a fixture filing in accordance
with Section 9313 of the California Uniform Commercial Code, with
respect to such goods, executed by Grantor as debtor in favor of
Mortgagee as secured party.
[SIGNATURES ON NEXT PAGE]
***
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IN WITNESS WHEREOF, the undersigned has executed this Mortgage the
day first set forth above.
Signed, sealed and delivered in the presence of the following
witnesses:
/s/ Barbara Penton
Name:
Address:
/s/ Susan Griffin
Name:
Address:
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY. EXTEND CREDIT OR FORBEAR FROM ENFORCING
REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
EMERITUS PROPERTIES III, Inc.,
a Washington c rporation
By: /s/ Kelly J. Price
Name: Kelly J. Price
Title: Vice President
Address: 3131 Elliott Avenue
Suite 500
Seattle, WA 98121
<PAGE>
STATE OF WASHINGTON
COUNTY OF KING
ss.
I certify that I know or have satisfactory evidence that Kelly
Price is the person who appeared before me, and said person
acknowledged that said person signed this instrument, on oath
stated that said person was authorized to execute the instrument
and acknowledged it as the Vice President of Emeritus III, Inc., a
Washington corporation, to be the free and voluntary act of such
corporation for the uses and purposes mentioned in the instrument.
Dated this 30th day of June, 1998.
/s/ Amanda Ray
(Signature of Notary)
Notary public in and for the state of Washington, residing at
Seattle.
My appointment expires 01-05-02
<PAGE>
PROMISSORY NOTE
$16,328,000.00
Dated: April 29, 1998
FOR VALUE RECEIVED, the undersigned, EMERITUS PROPERTIES II, INC.,
a Washington corporation (the "Borrower"), HEREBY PROMISES TO PAY
to the order of DEUTSCHE BANK AG, NEW YORK BRANCH or its
registered assigns (the "Lender") for the account of its
Applicable Lending Office (as defined in the Credit Agreement
referred to below) the aggregate principal amount of SIXTEEN
MILLION THREE HUNDRED TWENTY EIGHT THOUSAND AND 00/100 DOLLARS
($16,328,000.00) owing to the Lender by the Borrower pursuant to
the Credit Agreement dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the "Credit
Agreement"; terms defined therein being used herein as therein
defined) among the Borrower and the Lender on the dates and in the
amounts specified in the Credit Agreement.
The Borrower promises to pay to Lender or its registered assigns
interest on the unpaid principal amount of the Loan from the date
of the Loan until such principal amount is paid in full, at such
interest rates, and payable at such times, as are specified in the
Credit Agreement.
Both principal and interest are payable in lawful money of the
United States of America to Deutsche Bank AG, New York Branch, as
Lender, at Lender's Account, in same day funds.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit
Agreement, among other things, (i) provides for the making of a
single advance (the "Loan") by the Lender to the Borrower in an
aggregate amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from such
Loan being evidenced by this Promissory Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of the
Borrower under this Promissory Note, and the obligations of the
other Loan Parties under the Loan Documents, are secured by the
Collateral as provided in the Loan Documents.
All parties now and hereafter liable with respect to this Note
hereby waive presentment, demand, protest and all other notices of
any kind.
[SIGNATURE PAGE TO FOLLOW]
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<PAGE>
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York.
PLEASE BE ADVISED THAT ORAL
AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT OR
FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW.
EMERITUS PROPERTIES II, INC.
a Washington corporation
By: /s/ Jean T. Fukuda
Name: Jean T. Fukuda
Title: Assistant Secretary
2
<PAGE>
AGREEMENT TO PROVIDE
MANAGEMENT SERVICES
TO
AN ASSISTED LIVING FACILITY
(RICHLAND, WASHINGTON)
This Agreement to Provide Management Services to an Assisted
Living Facility ("Agreement") dated as of February 2, 1998, is
made and entered into by and between RICHLAND ASSISTED, L.L.C., a
Washington limited liability company ("Owner") and ACORN SERVICE
CORPORATION, a Washington corporation ("Manager").
RECITALS
A. Owner is the owner of that certain real property
located at 170 West Gage Boulevard in Richland, Washington (the
"Real Property") including the improvements on the Real Property
that constitute the 100 unit assisted living facility commonly
known as "Richland Gardens" and located in Richland, Washington
(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 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:
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<PAGE>
1. 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, and commencing on
the effective date of the Certificate of Occupancy (the
"Commencement Date") 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.
1.5 EQUIPMENT AND IMPROVEMENTS. Manager shall advise Owner
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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 (such term
as used in this Agreement shall have the meaning specified in
Paragraph 8.2 below), 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. 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, which Manager
shall prepare only if Owner and Manager agree upon separate
compensation to be paid to Manager for preparing such 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. Such taxes shall be deemed to be
Facility Expenses 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 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
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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 all 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 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 9.2, below), and, thereafter, to pay
Facility Expenses in such order of priority as Manager deems
appropriate to the operation of the Facility. In the event the
revenues 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 of this Agreement to
ensure the efficient operation of all departments within and
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services offered by the Facility. All Facility personnel shall
be employees of Manager, not Owner, and all salaries, benefits,
payroll taxes and other costs related to Facility personnel
(including, without limitation, computer training and other
employee training and education, including tuition, travel and
other expenses relating thereto if such expenses are incurred
with Owner's approval) shall not be included in the Base
Management Fee, but shall be separately reimbursed by Owner as a
Facility Expense. In addition, the costs and expenses
(including, without limitation, travel expenses) of consultants,
independent contractors or other providers of services engaged by
Manager with Owner's approval shall be separately reimbursed as
Facility Expenses.
1.10 SUPPLIES AND EQUIPMENT. Manager shall purchase, as a
Facility Expense, supplies and non-capital equipment (including,
without limitation, computer hardware and software) 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. If approved by Owner, Manager
shall, as a Facility Expense and through its legal counsel,
coordinate all legal matters and proceedings with Owner's
counsel; if Owner does not approve the same, Owner shall
indemnify, protect, defend and hold Manager harmless with respect
to such legal matters and proceedings.
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 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 1998, 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
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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, but shall be separately
reimbursed by Owner as a Facility Expense. 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 1), in which
event Manager will supervise, oversee and administer each and
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.
1.15 EXTRAORDINARY COSTS. Except as otherwise specifically
provided herein, all extraordinary costs incurred by Manager with
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respect to the Facility shall be separately reimbursed as
Facility Expenses (and not included in the Base Management Fee)
after first having been approved by Owner.
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, but shall be separately reimbursed by
Owner as a Facility Expense. 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 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
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commence on the Commencement Date and expire on the fifth (5th)
anniversary of the Commencement Date; provided, however, that the
Term shall be extended automatically for successive two (2) year
periods unless terminated prior to expiration of the Term (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 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;
(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
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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
(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) 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
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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;
(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 1.8, 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, judgment or decree shall be
entered by a court of competent jurisdiction, on
the application of a creditor (A) adjudicating
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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. 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 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
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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 (each a
"Facility Expense" and any two or more or all the
"Facility Expenses"), 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 (but excluding all
federal, state, and local income taxes assessed
against Owner), and the Base Management Fee, 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
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shall be adjusted as reasonably determined by
Manager.
9. MANAGEMENT FEES.
9.1 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.
9.2 BASE MANAGEMENT FEE. Throughout the term of this
Agreement, Manager shall receive a monthly fee ("Base Management
Fee") equal to the greater of: i) six percent (6%) of the gross
revenues generated for the prior month by the Facility; or ii)
$5,000, payable on or before the 10th day of each month. For
purposes hereof, "gross revenues" shall mean all revenues
generated by the Facility, but shall specifically exclude the
proceeds from the sale of any Facility equipment and any
insurance and condemnation proceeds.
9.3 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 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.
9.4 PAYMENT OF FEES. Notwithstanding any other provision
of this Agreement to the contrary, 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).
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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 sell, convey or lease
("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 acquire the
Facility or interest therein upon the same terms and conditions
as are contained in the Transfer Offer, which 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 acquire the Facility or
interest therein on the terms and conditions of the Transfer
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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: Acorn Service Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Phone: 206-301-4495
Fax: 206-301-4500
Attn: Jeff Mikus
To Owner: Richland Assisted, L.L.C.
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Phone: 206-301-4095
Fax: 206-301-4545
Attn: Keith James
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12.2 ASSIGNMENT. Except as otherwise provided in Paragraph
1.6, above, this Agreement shall not be assigned by either party
without the prior written consent of the non-assigning 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 Owner and independent contractor and all
acts performed by Manager during the term hereof as Manager of
the Facility shall be deemed to be performed by Manager in
Manager's capacity as an independent contractor. Nothing
contained in this Agreement is intended to, or shall be construed
to, give rise to or create a partnership or joint venture or
lease between Owner, and Owner's successors and assigns on the
one hand, and Manager, and Manager's successors and assigns on
the other hand.
12.4 ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties and shall be binding upon and inure
to the benefit of their successors and, to the extent permitted
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 signed by both
of the parties hereto.
12.5 HEADINGS/CAPTIONS. The headings and captions used in
this Agreement are for convenience of reference only and shall
not be construed in any manner to limit or modify any of the
provisions hereof.
12.6 ATTORNEYS' FEES. In the event either party brings an
action to enforce or interpret this Agreement, the prevailing
party in such action shall be entitled to recover from the other
party all costs incurred in connection therewith, including
reasonable attorneys' fees incurred in the preparation, 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,
the validity, legality, and enforceability of the remaining
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provisions hereof shall not in any way be impaired thereby.
12.8 CUMULATIVE; NO WAIVER. No right or remedy herein
conferred upon or reserved to either party is intended to be
exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right
or remedy given hereunder, or now or hereafter legally existing
upon the occurrence of an Event of Default. 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.
IN WITNESS WHEREOF, the parties have hereto caused this
Agreement to be duly executed, as of the day and year first above
written.
OWNER: RICHLAND ASSISTED, L.L.C.,
a Washington limited liability
company
By: /s/: Daniel R. Baty
Its: Manager
MANAGER: ACORN SERVICE CORPORATION,
a Washington corporation
By: /s/: Kelly J. Price
Its: Vice President of Finance
17
\\ORION\SHARE\Amanda\AcqAmin\Marketing Agmt-Richland WA.doc - 6 -
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MARKETING AGREEMENT
THIS AGREEMENT is made and entered into as of the 2nd day of
February, 1998 by and between Acorn Service Corporation, a
Washington corporation ("Acorn") and Richland Assisted,
L.L.C. ("RALLC"), a Washington limited liability company.
RECITALS
A. RALLC is the owner of a 100 unit assisted living
facility commonly known as Richland Gardens and located at
170 West Gage Boulevard, Richland, Washington (the
"Facility").
B. At the time of this Agreement, the facility was under
construction and had no census.
C. In order to market and open the Facility, RALLC is
interested in engaging a qualified marketing agent.
D. Acorn is qualified in the marketing of facilities such
as the Facility.
E. RALLC and Acorn are interested in documenting the terms
and conditions under which Acorn will provide marketing
services to RALLC with respect to the Facility.
NOW, THEREFORE, in consideration of the foregoing premises
and the mutual covenants of the parties set forth herein, IT
IS HEREBY AGREED TO AS FOLLOWS:
AGREEMENT
1. ENGAGEMENT OF ACORN. RALLC does hereby retain Acorn to
provide the Marketing Services (as hereinafter defined) to
the Facility and Acorn does hereby agree to provide the
Marketing Services to the Facility.
2. MARKETING SERVICES. For purposes of this Agreement,
the "Marketing Services" to be provided by Acorn shall
include the following:
1
<PAGE>
a. ON SITE MARKETING MANAGERS. Acorn shall provide onsite
marketing director(s) for the Facility as set forth in the
marketing plan. Acorn and RALLC acknowledge and agree that
the initial onsite marketing director(s) will be hired by
Acorn but that RALLC shall have the right to request that
Acorn replace the onsite marketing director(s) in the event
RALLC is not reasonably satisfied with the performance of
said director(s). The onsite marketing director(s) will be
and remain the employee(s) of Acorn and his or her
compensation shall be reimbursed to Acorn by RALLC.
Compensation shall include the monthly salary (plus
applicable federal, state and local withholding taxes),
payable within ten (10) days of receipt of the Monthly
Invoice. In addition, RALLC shall reimburse Acorn within
ten (10) days after receipt of the Monthly Invoice therefor
for the cost of employee benefits (i.e., health insurance,
dental insurance, and such other benefits as may be approved
by RALLC) provided by Acorn to the onsite marketing
director(s) as an employee of Acorn. The onsite marketing
director(s) will be responsible for the day to day marketing
of the Facility in accordance with the terms of this
Agreement.
b. MARKETING PLAN AND BUDGET. Within fifteen (15) days
after the execution of this Agreement, Acorn shall provide
to RALLC a marketing plan and budget (the "Marketing Plan
and Budget") which shall set forth in detail the activities
which Acorn proposes to undertake to market the facility
during the first twelve months of this Agreement and the
anticipated cost of such activities. RALLC shall have the
right to review and approve the Marketing Plan and Budget.
RALLC agrees that it shall not unreasonably withhold its
approval of the Marketing Plan and Budget provided that same
does not provide for start up expenditures more than
approved for in the budget, or monthly expenditures of more
than approved in the budget. Acorn shall provide RALLC with
an updated Marketing Plan and Budget prior to the expiration
of the initial Marketing Plan and Budget or the then
effective updated Marketing Plan and Budget. Each updated
Marketing Plan and Budget shall cover a twelve month
2
<PAGE>
period (or such shorter period as may then be remaining
under the terms of this Agreement) immediately
subsequent to the end of the period covered by the then
effective Marketing Plan and Budget; provided, however,
that no provision shall be permitted to be made in any
updated Marketing Plan and Budget for start up
expenditures. Once approved, Acorn shall market the
Facility in accordance with the terms of the Marketing
Plan and Budget. In the event Acorn intends to expend
any amounts in excess of the amounts reflected in the
initial or in any updated Marketing Plan and Budget,
Acorn shall be required to secure the prior written
approval of RALLC, which approval shall not be
unreasonably withheld provided the anticipated cost
thereof will not exceed $1,000 individually or $10,000
in the aggregate when taken in conjunction with prior
unbudgeted expenditures for which approval was not
required (the "Approved Unbudgeted Expenditures").
c. WEEKLY MARKETING UPDATE; MONTHLY MARKETING REPORTS. As
and when requested by RALLC, Acorn shall provide to the
Divisional or Regional Director for RALLC such information
which he or she shall require in order to prepare a weekly
Facility census report. In addition, on or before the 15th
day of each month, Acorn shall provide RALLC with a monthly
marketing report which summarizes the marketing activities
undertaken during the immediately preceding month, the
amount expended by Acorn in connection therewith and the
impact which the same had on the Facility's census. The
onsite marketing director(s) shall be available to review
the monthly marketing report with RALLC and to respond to
any comments or questions concerning the same which RALLC
may have.
3. COMPENSATION. In addition to reimbursing Acorn for the
salary and benefit of the onsite marketing director(s) as
provided in Section 2(a), RALLC shall pay Acorn the
following amounts in connection with the provision of the
Marketing Services (all such reimbursement and payment
obligations shall be reflected in a "Monthly Invoice"):
3
<PAGE>
a. REIMBURSEMENT OF MARKETING EXPENSES. RALLC shall
reimburse Acorn for all amounts reflected in the Monthly
Invoice which were expended by Acorn in accordance with the
Marketing Plan and all Approved Unbudgeted Expenditures.
Reimbursement shall be made within ten (10) days of receipt
of the Monthly Invoice.
b. ACCOUNTING SERVICE FEE. From the date the first
employee is hired by Acorn until the commencement of a
management agreement, RALLC shall pay a service fee to Acorn
in the amount of $5,000 per month, which fee shall be
prorated for any partial month.
c. FILL-UP FEE. Due to the fact that the Facility has
only recently opened, has no current residents and,
therefore, no gross revenues, and as Acorn will expend
unusual effort and expense to attract and retain new
residents while the Facility is in its fill-up stage, RALLC
shall pay to Acorn, upon achievement of three consecutive
months of Positive Cash Flow, a one-time lump-sum cash fee
of $50,000. Positive Cash Flow shall mean an excess of
funds after deducting from gross monthly facility revenues,
all facility operating expenses (on an accrual basis), the
management fee and debt service. In addition, RALLC will be
responsible for any fill-up bonuses paid to employees under
the incentive plan outlined in the attached Marketing Plan
and Budget.
4. TERM. The term of this Agreement shall commence upon
the date of this Agreement and shall continue for a period
of 24 months from when the Facility opens or until
terminated by either party with or without cause on thirty
(30) days written notice to the other party. In the event
of the termination of this Agreement, all fees and other
compensation due and owing Acorn for services rendered prior
to the date of termination shall be immediately due and
payable on the effective date of such termination, subject
to RALLCs' right to offset against such payment any damage
which it has suffered in the event the Agreement has been
terminated as a result of a breach by Acorn of its
obligations under this Agreement.
4
<PAGE>
5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Washington.
6. ENTIRETY. This Agreement represents the entire and
final agreement of the parties hereto with respect to the
subject matter hereof and may not be amended or modified by
written instrument signed by the parties hereto.
7. CONSTRUCTION. Both parties acknowledge and agree that
they have participated in the drafting and negotiation of
this Agreement and accordingly that no provision hereof
shall be construed so as to favor or disfavor either party
hereto.
8. ATTORNEYS FEES. In the event of a dispute between the
parties with respect to the interpretation or enforcement of
the terms hereof, the prevailing party shall be entitled to
collect from the other its reasonable costs and attorneys
fees, including its costs and fees on appeal.
9. SEVERABILITY. In the event any provision of this
Agreement is deemed to be invalid or unenforceable, said
determination shall not affect the validity or
enforceability of the remaining provisions hereof.
10. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an
original, but all of which taken together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereby execute this
Agreement as of the day and year first set forth above.
Richland Assisted, L.L.C.
By: Daniel R. Baty
Its: Manager
Acorn Service Corporation
By: Kelly J. Price
Its: Vice President of Finance
5
<PAGE>
AMENDMENT 1
TO
SEMOR MANAGEMENT EMPLOYMENT AGREEMENT
AMENDMENT 1 TO SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of
April 14,1998, between EMERITUS CORPORATION, a Washington
corporation (the "Company") and Frank Ruffo ("Executive").
RECITALS
A. The Company and Executive are parties to Senior Management
Employment Agreement dated as of May 29, 1997 (the "Agreement").
B. The Company and Executive desire to amend the Agreement as set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the continued employment of
Executive and of the covenants and agreements hereinafter set
forth, the Company and Executive agree that Section 3(a) of the
Agreement shall be amended in its entirety to read as follows:
"(a) Salary and Benefits. Executive shall (i) receive an annual
base salary no less than $200,000 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, but in no event less
than 50"% of the Executives average bonus potential (50"% of
salary as defined herein) over the two year period, 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."
<PAGE>
As amended, the terms and conditions of the Agreement is hereby
confirmed by the Company and Executive.
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment as of the day and year first above written.
EMERITUS CORPORATION
/s/ Raymond R. Brandstrom
By: Raymond R. Brandstrom
Title: President
EXECUTIVE
/s/ Frank Ruffo
By: Frank Ruffo
<PAGE>
AMENDMENT 1
TO
SEMOR MANAGEMENT EMPLOYMENT AGREEMENT
AMENDMENT 1 TO SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of
April 14,1998, between EMERITUS CORPORATION, a Washington
corporation (the "Company") and Frank Ruffo ("Executive").
RECITALS
A. The Company and Executive are parties to Senior Management
Employment Agreement dated as of May 29, 1997 (the "Agreement").
B. The Company and Executive desire to amend the Agreement as set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the continued employment of
Executive and of the covenants and agreements hereinafter set
forth, the Company and Executive agree that Section 3(a) of the
Agreement shall be amended in its entirety to read as follows:
"(a) Salary and Benefits. Executive shall (i) receive an annual
base salary no less than $200,000 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, but in no event less
than 50"% of the Executives average bonus potential (50"% of
salary as defined herein) over the two year period, 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."
<PAGE>
As amended, the terms and conditions of the Agreement is hereby
confirmed by the Company and Executive.
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment as of the day and year first above written.
EMERITUS CORPORATION
/s/ Raymond R. Brandstrom
By: Raymond R. Brandstrom
Title: President
EXECUTIVE
/s/ Frank Ruffo
By: Frank Ruffo
<PAGE>
AMENDMENT 1
TO
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
AMENDMENT 1 TO SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of
April 14, 1998, between EMERITUS CORPORATION, a Washington
corporation (the "Company") and Gary Witte ("Executive").
RECITALS
A. The Company and Executive are parties to Senior Management
Employment Agreement dated as of May 29,1997 (the "Agreement").
B. The Company and Executive desire to amend the Agreement as set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the continued employment of
Executive and of the covenants and agreements hereinafter set
forth, the Company and Executive agree that Section 3(a) of the
Agreement shall be amended in its entirety to read as follows:
"(a) Salary and Benefits. Executive shall (i) receive an annual
base salary no less than $250,000 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, but in no event less
than 50% of the Executives average bonus potential (50% of salary
as defined herein) over the two year period, 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."
<PAGE>
As amended, the terms and conditions of the Agreement is hereby
confirmed by the Company and Executive.
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment as of the day and year first above written.
EMERITUS CORPORATION
/s/ Raymond R. Brandstrom
By: Raymond R. Brandstrom
Title: President
EXECUTIVE
/s/ Gary Witte
By: Gary Witte
<PAGE>
AMENDMENT 1
TO
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
AMENDMENT 1 TO SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of
April 14, 1998, between EMERITUS CORPORATION, a Washington
corporation (the "Company") and Kelly Price ("Executive").
RECITALS
A. The Company and Executive are parties to Senior Management
Employment Agreement dated as of May 29,1997 (the "Agreement").
B. The Company and Executive desire to amend the Agreement as set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the continued employment of
Executive and of the covenants and agreements hereinafter set
forth, the Company and Executive agree that Section 3(a) of the
Agreement shall be amended in its entirety to read as follows:
"(a) Salary and Benefits. Executive shall (i) receive an annual
base salary no less than $200,000 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, but in no event less
than 50% of the Executives average bonus potential (50% of salary
as defined herein) over the two year period, 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."
<PAGE>
As amended, the terms and conditions of the Agreement is hereby
confirmed by the Company and Executive.
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment as of the day and year first above written.
EMERITUS CORPORATION
/s/ Raymond R. Brandstrom
By: Raymond R. Brandstrom
Title: President
EXECUTIVE
/s/ Kelly J. Price
By: Kelly J. Price
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET, STATEMENT OF OPERATIONS, STATEMENT OF COMPREHENSIVE INCOME,
AND STATEMENT OF CASH FLOWS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 21661
<SECURITIES> 0
<RECEIVABLES> 2652
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51060
<PP&E> 123123
<DEPRECIATION> 0
<TOTAL-ASSETS> 211991
<CURRENT-LIABILITIES> 46886
<BONDS> 144444
0
25000
<COMMON> 1
<OTHER-SE> (25947)
<TOTAL-LIABILITY-AND-EQUITY> 211991
<SALES> 0
<TOTAL-REVENUES> 71816
<CGS> 0
<TOTAL-COSTS> 83158
<OTHER-EXPENSES> (4283)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (15625)
<DISCONTINUED> 0
<EXTRAORDINARY> (767)
<CHANGES> (1320)
<NET-INCOME> (17712)
<EPS-PRIMARY> 0
<EPS-DILUTED> (1.78)
</TABLE>
<PAGE>
AMENDMENT 1
TO
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
AMENDMENT 1 TO SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of
April 14, 1998, between EMERITUS CORPORATION, a Washington
corporation (the "Company") and Raymond Brandstrom ("Executive").
RECITALS
A. The Company and Executive are parties to Senior Management
Employment Agreement dated as of May 29,1997 (the "Agreement").
B. The Company and Executive desire to amend the Agreement as set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the continued employment of
Executive and of the covenants and agreements hereinafter set
forth, the Company and Executive agree that Section 3(a) of the
Agreement shall be amended in its entirety to read as follows:
(a) Salary and Benefits. Executive shall (i) receive an annual
base salary no less than $300,000 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, but in no event less
than 50"% of the Executives average bonus potential (50"% of
salary as defined herein) over the two year period, 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."
<PAGE>
As amended, the terms and conditions of the Agreement is hereby
confirmed by the Company and Executive.
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment as of the day and year first above written.
EMERITUS CORPORATION
/s/ Daniel R. Baty
Title: Chairman
EXECUTIVE
/s/: Raymond R. Brandstrom
By: Raymond R. Brandstrom
<PAGE>
AMENDMENT 1
TO
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
AMENDMENT 1 TO SENIOR MANAGEMENT EMPLOYMENT
AGREEMENT, dated as of April 14, 1998, between EMERITUS
CORPORATION, a Washington corporation (the "Company") and Sarah
Curtis ("Executive").
RECITALS
A. The Company and Executive are parties to Senior Management
Employment Agreement dated as of May 29,1997 (the "Agreement").
B. The Company and Executive desire to amend the Agreement as set
forth herein.
AGREEMENTS
NOW, THEREFORE, in consideration of the continued employment of
Executive and of the covenants and agreements hereinafter set
forth, the Company and Executive agree that Section 3(a) of the
Agreement shall be amended in its entirety to read as follows:
"(a) Salary and Benefits. Executive shall (i) receive an annual
base salary no less than $ 150,000 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, but in no event less
than 50% of the Executives average bonus potential (50% of salary
as defined herein) over the two year period, 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."
<PAGE>
As amended, the terms and conditions of the Agreement is hereby
confirmed by the Company and Executive.
IN WITNESS WHEREOF, the Company and Executive have executed this
Amendment as of the day and year first above written.
EMERITUS CORPORATION
/s/ Raymond R. Brandstrom
By: Raymond R. Brandstrom
Title: President
EXECUTIVE
/s/ Sarah Curtis
By: Sarah Curtis
