<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
- --------------------------------------------------------------------------------
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14012
EMERITUS CORPORATION
(Exact name of registrant as specified in its charter)
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
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 November 8, 1999, there were 10,412,250 shares of the Registrant's Common
Stock, par value $.0001, outstanding.
<PAGE>
<TABLE>
<CAPTION>
EMERITUS CORPORATION
Index
Part I. Financial Information
Item 1. Financial Statements: Page No.
--------
<S> <C> <C>
Condensed Consolidated Balance Sheets as of December 31, 1998 and September 30,
1999 (unaudited).................................................................. 1
Condensed Consolidated Statements of Operations for the Three Months and Nine
Months Ended September 30, 1998 and 1999 (unaudited).............................. 2
Condensed Consolidated Statements of Comprehensive Operations for the Three
Months and Nine Months ended September 30, 1998 and 1999 (unaudited).............. 3
Condensed Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1998 and 1999 (unaudited)........................................... 4
Notes to Condensed Consolidated Financial Statements.............................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................ 14
Part II. Other Information
Item 1. Legal Proceedings................................................................. 14
Item 6. Exhibits.......................................................................... 15
Signatures........................................................................ 16
Note: Items 2-5 of Part II are omitted because they are not applicable
</TABLE>
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1999
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
September 30,
December 31, 1999
1998 (unaudited)
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................. $ 11,442 $ 11,073
Short-term investments .................................................... 4,491 1,913
Trade accounts receivable, net ............................................ 2,235 1,756
Other receivables ......................................................... 5,944 10,116
Prepaid expenses and other current assets ................................. 7,879 6,467
Property held for sale .................................................... 3,661 7,179
------------ ------------
Total current assets .............................................. 35,652 38,504
------------ ------------
Property and equipment, net ................................................. 128,659 129,158
Property held for development ............................................... 1,855 2,301
Notes receivable from and investments in affiliates ......................... 10,247 9,672
Restricted deposits, less current portion ................................... 6,271 2,729
Other assets, net ........................................................... 10,186 9,300
------------ ------------
Total assets ...................................................... $ 192,870 $ 191,664
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Short-term borrowings ..................................................... $ 5,000 $ 13,945
Current portion of long-term debt ......................................... 7,591 7,194
Margin loan on short-term investments ..................................... 2,324 1,356
Trade accounts payable .................................................... 7,115 5,123
Accrued employee compensation and benefits ................................ 3,386 2,484
Other current liabilities ................................................. 11,213 11,030
------------ ------------
Total current liabilities ......................................... 36,629 41,132
------------ ------------
Deferred rent ............................................................... 4,352 1,063
Deferred gain on sale of communities ........................................ 19,483 18,904
Convertible debentures ...................................................... 32,000 32,000
Long-term debt, less current portion ........................................ 119,674 129,525
Other long-term liabilities ................................................. 786 322
------------ ------------
Total liabilities ................................................. 212,924 222,946
------------ ------------
Minority interests .......................................................... 910 637
Redeemable preferred stock .................................................. 25,000 25,000
Shareholders' Deficit:
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and
outstanding 10,484,050 and 10,469,250 shares at December 31, 1998 and
September 30, 1999, respectively ........................................ 1 1
Additional paid-in capital .................................................. 38,995 38,899
Accumulated other comprehensive loss ........................................ (4,420) (7,029)
Accumulated deficit ......................................................... (80,540) (88,790)
------------ ------------
Total shareholders' deficit ....................................... (45,964) (56,919)
------------ ------------
Total liabilities and shareholders' deficit ....................... $ 192,870 $ 191,664
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months and Nine Months Ended September 30, 1998 and 1999
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
1998 1999 1998 1999
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Community revenues ............................. $ 38,124 $ 28,022 $ 108,150 $ 87,775
Other service fees ............................. 621 329 2,101 1,246
Management fees ................................ 236 1,503 546 3,895
-------------- --------------- -------------- ---------------
Total operating revenues ............... 38,981 29,854 110,797 92,916
-------------- --------------- -------------- ---------------
Expenses:
Community operations ........................... 28,475 19,101 81,523 58,441
General and administrative ..................... 3,408 3,760 9,886 10,799
Depreciation and amortization .................. 1,437 1,520 4,335 4,388
Rent ........................................... 10,560 5,942 31,294 19,260
-------------- --------------- -------------- ---------------
Total operating expenses ............... 43,880 30,323 127,038 92,888
-------------- --------------- -------------- ---------------
Income (loss) from operations .......... (4,899) (469) (16,241) 28
-------------- --------------- -------------- ---------------
Other income (expense):
Interest expense, net .......................... (3,171) (3,255) (9,670) (9,643)
Other, net ..................................... 939 2,457 3,155 3,381
-------------- --------------- -------------- ---------------
Net other expense ...................... (2,232) (798) (6,515) (6,262)
-------------- --------------- -------------- ---------------
Loss before extraordinary item and cumulative
effect of change in accounting principle ...... (7,131) (1,267) (22,756) (6,234)
Extraordinary item-loss on early extinguishment of
debt ........................................... - (333) (767) (333)
Cumulative effect of change in accounting
principle ...................................... - - (1,320) -
-------------- --------------- -------------- ---------------
Net loss ............................... $ (7,131) $ (1,600) $ (24,843) $ (6,567)
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
Preferred stock dividends ........................ (567) (567) (1,683) (1,683)
-------------- --------------- -------------- ---------------
Net loss to common shareholders ........ $ (7,698) $ (2,167) $ (26,526) $ (8,250)
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
Loss per common share - basic and diluted:
Loss before extraordinary item and cumulative
effect of change in accounting principle ...... $ (0.73) $ (0.17) $ (2.32) $ (0.75)
Extraordinary item ............................... - (0.03) (0.07) (0.03)
Cumulative effect of change in accounting
principle ..................................... - - (0.13) -
-------------- --------------- -------------- ---------------
Loss per common share ............................ $ (0.73) $ (0.20) $ (2.52) $ (0.78)
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
Weighted average number of common shares
outstanding - basic and diluted ............... 10,484 10,488 10,533 10,487
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
</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 Nine Months Ended September 30, 1998 and 1999
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
1998 1999 1998 1999
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net loss ................................................ $ (7,131) $ (1,600) $ (24,843) $ (6,567)
Other comprehensive loss:
Foreign currency translation adjustments ........... (8) - (14) 19
Unrealized losses on investment securities:
Unrealized holding losses arising during
the period ................................... (3,827) (980) (7,222) (2,628)
Reclassification adjustment for gains included in
net loss ..................................... - - (459) -
-------------- --------------- -------------- ---------------
Total other comprehensive loss ............ (3,835) (980) (7,695) (2,609)
-------------- --------------- -------------- ---------------
Comprehensive loss ...................................... $ (10,966) $ (2,580) $ (32,538) $ (9,176)
-------------- --------------- -------------- ---------------
-------------- --------------- -------------- ---------------
</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
Nine Months Ended September 30, 1998 and 1999
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Net cash used in operating activities (including changes in all operating
assets and liabilities) .............................................. $ (22,309) $ (8,091)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment ................................. (11,519) (11,360)
Acquisition of property held for development .......................... (1,645) (447)
Proceeds from sale of property and equipment .......................... 10,427 3,767
Purchase of investment securities ..................................... (558) (50)
Sale of investment securities ......................................... 5,421 -
Construction advances - leased communities ............................ 18,403 17,295
Construction expenditures - leased communities ........................ (16,631) (17,792)
Advances to affiliates ................................................ (2,244) (266)
Acquisition of interest in affiliates ................................. (6,481) -
Proceeds from sale of interest in affiliate ........................... 4,092 -
--------- ---------
Net cash used in investing activities ......................... (735) (8,853)
--------- ---------
Cash flows from financing activities:
Increase in restricted deposits ....................................... (747) (152)
Proceeds from short-term borrowings ................................... 5,291 8,945
Repayment of short-term borrowings, including margin loan ............. (6,459) (968)
Debt issue and other financing costs .................................. (2,243) (627)
Proceeds from long-term borrowings .................................... 91,232 25,915
Repayment of long-term borrowings ..................................... (66,609) (16,461)
Repurchase of common stock ............................................ (5,406) (136)
Other ................................................................. 12 40
--------- ---------
Net cash provided by financing activities ..................... 15,071 16,556
--------- ---------
Effect of exchange rate changes on cash ............................... (14) 19
Net decrease in cash and cash equivalents ..................... (7,987) (369)
Cash and cash equivalents at the beginning of the period ................ 17,537 11,442
--------- ---------
Cash and cash equivalents at the end of the period ...................... $ 9,550 $ 11,073
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information -- cash paid during the
period for interest...................................................... $ 10,202 $ 9,863
--------- ---------
--------- ---------
Noncash investing and financing activities:
Transfer of property and equipment to property held for sale .......... $ - $ 5,955
</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
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, comprehensive
operations, and cash flows of Emeritus Corporation, (the "Company") as of
September 30, 1999 and for the three and nine months ended September 30, 1998
and 1999. The Company presumes that users of the interim financial information
herein have read or have access to the Company's 1998 audited consolidated
financial statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the 1998 Form 10-K filed March
31, 1999 by the Company under the Securities Act of 1934. 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.
PROPERTY HELD FOR SALE
The Company currently has four communities being held for sale.
MANAGEMENT FEES
Management fee revenues are derived from the management by the Company of 65
communities as of September 30, 1999 under management contracts, which typically
provide for management fees ranging from 5% to 7% of gross revenues. These
agreements have terms ranging from two to five years, but may be renewed at the
expiration of the term. The Company has options and rights of first refusal to
acquire 43 and three of these managed communities, respectively.
LOSS PER SHARE
Loss per common share on a dilutive basis has been calculated without
consideration of 4,246,138 and 4,230,772 common shares at September 30, 1998 and
1999, respectively, related to outstanding options, warrants, convertible
debentures and convertible preferred stock because the inclusion of such common
stock equivalents would be anti-dilutive.
SALES OF COMMUNITIES
In March 1999, the Company completed the disposition of its leasehold interests
in 17 communities, consisting of 16 currently operational communities previously
leased by the Company from Meditrust Corporation, a health care REIT,
("Meditrust") as well as one development community to a related entity.
Additionally, the Company disposed of its leasehold interests in four
development communities (together with the 17 communities above known as the
"Emeritrust II communities") to the related entity, upon completion of their
development during the third quarter 1999. The combined purchase price for the
Emeritrust II communities approximated $123 million. As of September 30, 1999,
Emeritus has received net proceeds of approximately $4.5 million in conjunction
with this transaction. The Company will continue to operate the Emeritrust II
communities pursuant to a three year management contract and will receive
management fees of 5% of revenues currently payable as well as 2% of revenues
which is contingent upon the communities achieving positive cash flows. The
management agreement provides the Company an option to purchase the 21
Emeritrust II communities at a formula price. The management agreement further
stipulates a cash shortfall funding requirement by the Company to the extent
that the five development communities generate cash deficiencies in excess of
individually specified amounts per community, ranging from $400,000 to $500,000.
Previously deferred gains on communities which are the subject of this
transaction collectively totaling approximately $5.7 million are continuing to
be deferred given the continuing financial involvement of the Company stipulated
in the management agreement.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
We are one of the largest and most experienced national providers of assisted
living residential communities. Assisted living communities provide a
residential housing alternative for senior citizens who need help with the
activities of daily living, with an emphasis on personal care services.
Until 1999, our revenues were derived primarily from rents and service fees
charged to residents of our communities. With the consummation of Emeritrust II
and with the previous transfer of 25 leased communities to management
agreements, which closed on December 31, 1998, some of our revenues are shifting
to management fees earned on operating assisted living communities, which should
approximate $5.9 million during 1999. For the nine months ended September 30,
1998 and 1999, we generated total operating revenues of $110.8 million and $92.9
million, respectively, including $3.9 million in management fees for the nine
months ended September 30, 1999. For the nine months ended September 30, 1998
and 1999, we incurred losses of $22.8 million and $6.2 million (excluding
preferred dividends, and a charge related to the cumulative effect of a change
in accounting principle in 1998, as well as an extraordinary item related to the
early extinguishment of debt in both 1998 and 1999), respectively. For the three
months ended September 30, 1998 and 1999, we generated total operating revenues
of $38.9 million and $29.9 million, respectively, including $1.5 million in
management fees for the three months ended September 30, 1999. For the three
months ended September 30, 1998 and 1999, we incurred losses of $7.1 million and
$1.3 million (excluding preferred stock dividends and an extraordinary item
related to the early extinguishment of debt in 1999), respectively. Our loss
before extraordinary item, cumulative effect of change in accounting principle
and preferred stock dividends decreased $700,000 from $2.0 million for the
quarter ended June 30, 1999 to $1.3 million for the quarter ended September
30, 1999.
During 1998, we adopted an operating strategy focused on increasing occupancy
throughout our communities, reducing acquisition and development activities and
disposing of select communities that had been operating at a loss. Occupancy
across our total portfolio at September 30, 1999 increased by 1.4 percentage
points to 80.2% compared to 78.8% at September 30, 1998. In addition, average
third quarter occupancy increased by 3.4 percentage points to 79.5% for 1999
compared to 76.1% for 1998. We have significantly reduced our acquisition
activities as well as leveling off our development activities, acquiring 35 and
seven communities in 1996 and 1997, respectively, none in 1998 and one during
the third quarter 1999, which had previously been leased by us. In addition, we
opened 10, 20 and 11 development communities in 1996, 1997 and 1998,
respectively, as well 12 additional ones during the nine months ended September
30, 1999. We believe that slowing our acquisition and development activities has
enabled us to use our resources more efficiently and increase our focus on
community operations. During the nine months ended September 30, 1998, we
disposed of three communities operating at a loss. During the nine months ended
September 30, 1999 we disposed of our leasehold interests in 21 communities,
consisting of 16 operating communities and five development communities. We
currently retain a management interest in these facilities through three year
management contracts as well options to purchase.
For the remaining part of 1999, we will stay primarily focused on increasing
occupancy throughout our communities, consistent with 1998. In addition, we will
be devoting attention to the generation of alternative sources of resident fee
revenue as well the containment of operating costs to continue improving our
margins.
Our losses to date result from a number of factors. These factors include, but
are not limited to: the development of 56 and acquisition of 69 assisted living
communities since inception that incurred operating losses during the initial 12
to 24 month rent-up phase; initially lower levels of occupancy at the Company's
communities than originally anticipated; financing costs arising from
sale/leaseback transactions and mortgage financing; refinancing transactions at
proportionately higher levels of debt; and increased administrative and
corporate expenses to facilitate the Company's growth.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The following table sets forth a summary of our community interests.
<TABLE>
<CAPTION>
As of December 31, As of December 31, As of September 30,
1997 1998 1999
------------------ ------------------ ------------------
Buildings Units Buildings Units Buildings Units
------------------ ------------------ ------------------
<S> <C> <C> <C>
Owned 19 2,099 15 1,492 16 1,572
Leased 76 6,124 52 3,937 37 2,954
Managed/Admin Services 4 327 38 3,734 65 5,823
Joint Venture/Partnership 1 140 8 809 7 729
------------------ ------------------ ------------------
Sub Total 100 8,690 113 9,972 125 11,078
Percentage Increase (2) 41% 47% 13% 15% 11% 11%
Development Communities (1) 26 2,483 21 2,029 9 940
Minority Interest (Alert Care) 22 1,248 21 1,203 21 1,203
------------------ ------------------ ------------------
Total 148 12,421 155 13,204 155 13,221
------------------ ------------------ ------------------
Percentage Increase (2) 20% 22% 5% 6% - % - %
</TABLE>
(1) Of these nine developments communities, we are developing three in
joint ventures with third parties, and the remaining six are being
developed by third parties but will be managed by us upon
completion.
(2) The percentage increase indicates the change from the preceding
December 31.
At November 8, 1999, we held ownership, leasehold or management interests in 125
residential communities consisting of approximately 11,100 units with the
capacity of approximately 12,700 residents, located in 29 states. Of the 125
residential communities, 20 and 11 are development communities that we opened
during 1997 and 1998, respectively. Additionally, we opened 12 development
communities in the nine months ended September 30, 1999. We jointly own, have a
management interest in or have acquired an option to purchase development
sites for nine new assisted living communities. Of these development
communities, we are scheduled to open five during the remainder of 1999 and
the remaining four in 2000. As of November 8, 1999, we lease 37 of our
residential communities, typically from a financial institution such as a Real
Estate Investment Trust ("REIT"), own 16 communities, manage or provide
administrative services for 65 communities and have a partnership or joint
venture interest in seven communities. Assuming the completion of the current
development communities, we will own, lease, have an ownership or partnership
or joint interest in or manage 134 residential communities in 29 states and
Japan, consisting of an aggregate of 12,000 units with a capacity of
approximately 13,700 residents. We cannot guarantee, however, that the
communities under development will be completed on schedule and will not be
affected by construction delays, the effects of government regulations or
other factors beyond our control.
Additionally, we hold a minority interest of 31.3% in Alert Care, an Ontario,
Canada-based owner and operator of 21 assisted living communities consisting of
approximately 1,200 units with a capacity of approximately 1,300 residents. We
have agreed to sell our interest in Alert and expect this transaction to
generate gross proceeds of approximately $11.9 million (Cdn.) or $8.0 million
(US) in the fourth quarter.
We are exploring international development and acquisition possibilities in
Japan. To that end, we have entered into a joint venture with Sanyo Electric
Company, Ltd. of Osaka, Japan to provide assisted living services in Japan. Our
first assisted living community in Japan is under construction and is
anticipated to open by the end of 1999. This community will be among the first
assisted living communities in Japan to offer private apartments on a
month-to-month rental.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS
The following table presents certain items of our consolidated statements of
operations as a percentage of total revenues and the percentage change of the
underlying dollar amounts from period to period.
<TABLE>
<CAPTION>
Period to Period
Percentage Increase (Decrease)
Percentage of Revenues Three Months Nine Months
Three Months Ended Nine Months Ended Ended Ended
September 30, September 30, September 30, September 30,
--------------------- --------------------- --------------- --------------
1998 1999 1998 1999 1998-1999 1998-1999
------- ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues ........... 100.0% 100.0% 100.0% 100.0% (23.4)% (16.1)%
Expenses:
Community operations .......... 73.0 64.0 73.6 62.9 (32.9) (28.3)
General and administrative .... 8.7 12.6 8.9 11.6 10.3 9.2
Depreciation and amortization 3.7 5.1 3.9 4.7 5.8 1.2
Rent .......................... 27.1 19.9 28.2 20.7 (43.7) (38.5)
------- ------- ------- ------- ---------- ----------
Total operating expenses... 112.5 101.6 114.6 99.9 (30.9) (26.9)
------- ------- ------- ------- ---------- ----------
Income (loss) from
operations ................ (12.5) (1.6) (14.6) 0.1 (90.4) (100.2)
------- ------- ------- ------- ---------- ----------
Other income (expense):
Interest expense, net ......... (8.1) (10.9) (8.7) (10.4) 2.6 (0.3)
Other, net .................... 2.4 8.2 2.8 3.6 161.7 7.2
------- ------- ------- ------- ---------- ----------
Net other expense ......... (5.7) (2.7) (5.9) (6.8) (64.2) (3.9)
Loss before extraordinary
item and cumulative effect
of change in accounting
principle................. (18.2) (4.3) (20.5) (6.7) (82.2) (72.6)
Extraordinary item-loss on early
extinguishment of debt .......... - (1.1) (0.7) (0.4) 100.0 (56.6)
Cumulative effect of change in
accounting principle ............ - - (1.2) - - (100.0)
------- ------- ------- ------- ---------- ----------
Net loss ................. (18.2)% (5.4)% (22.4)% (7.1)% (77.6)% (73.6)%
------- ------- ------- ------- ---------- ----------
------- ------- ------- ------- ---------- ----------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
TOTAL OPERATING REVENUES: Total operating revenues for the nine months ended
September 30, 1999 decreased 16.1% or $17.9 million from the comparable period
in 1998. At December 31, 1998 and at March 31, 1999, we transferred our
interests in a total of 41 owned and leased communities to others but continued
to manage them under three year management agreements with rights of first
refusal or options to acquire them in the future. As a result, we now receive
management fees from these communities rather than the revenues arising from
their operations. For the first nine months of 1998, these communities were
responsible for $36.9 million in revenue while generating $2.3 million in
management fees for the same period in 1999. This decrease in revenue was
partially offset, however, by generally increasing levels of occupancy
throughout our consolidated communities. Average occupancy of the 59 communities
we own and lease in the first nine months of 1999 rose to 86.7% compared to
74.3% for the 96 owned and leased communities in the equivalent 1998 period,
an increase of 12.4 percentage points.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
COMMUNITY OPERATIONS: Community operating expenses for the nine months ended
September 30, 1999 decreased 28.3% or $23.1 million from the comparable period
in 1998 to $58.4 million. This reduction is primarily the result of the transfer
of 41 of our previously leased and owned communities to management agreements,
as discussed in "Total operating revenues" above. These communities were
responsible for $29.0 million of community operating expenses as owned and
leased communities in the first nine months of 1998; because 25 and 16 were
managed communities during the first nine months of 1999 and the six months
ended September 30, 1999, respectively, we were no longer responsible for their
operating expenses. This decrease was partially offset, however, by increased
variable costs resulting from the significant occupancy gains in our communities
and by increased sales and marketing costs. Our community operating margin,
which we compute as community revenues less community operating expenses, has
increased to 33.4% for the nine months ended September 30, 1999 compared to
24.6% for the nine months ended September 30, 1998. This improvement is, in
part, because the 41 communities that we transferred to management agreements
generally experienced lower margins than our communities as a whole and, in
part, because of cost control measures that we instituted in 1998 that affected
our remaining owned and leased communities.
GENERAL AND ADMINISTRATIVE: As a percentage of total operating revenues, general
and administrative (G&A) expenses increased to 11.6% for the nine months ended
September 30, 1999 as compared to 8.9% for the nine months ended September 30,
1998. The increase of G&A costs as a percentage of revenues is due, in part, to
the shift from community revenues to management fees in the transfer of the 41
communities referred to above. Overall, G&A costs increased approximately
$913,000 primarily due to greater personnel and related costs to support the
increasing number of communities.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization for the nine months
ended September 30, 1999 were $4.4 million, or 4.7% of total operating revenues,
compared to $4.3 million, or 3.9% of total operating revenues for the comparable
period in 1998.
RENT: Rent expense for the nine months ended September 30, 1999 was $19.3
million, representing a decrease of $12.0 million, or 38.5% from the comparable
period in 1998. The decrease is primarily attributable to the transfer of 36 of
our previously leased operating communities to management agreements as
discussed above. These communities accounted for $12.1 million in rent expense
for the nine months ended September 30, 1998. We leased an average of 40
communities for the nine months ended September 30, 1999, compared to an average
of 76 for the nine months ended September 30, 1998. Rent as a percentage of
revenues was 28.2% and 20.7% for the nine months ended September 30, 1998 and
1999, respectively.
INTEREST EXPENSE, NET: Net interest expense for the nine months ended September
30, 1999 was $9.6 million, or 10.4% of total operating revenues, compared to
$9.7 million, or 8.7% of total operating revenues for the comparable period in
1998. The change in percentage of revenue is primarily the result of our
decrease in revenues from the transfer of 41 of our communities as discussed
above.
OTHER, NET: Other, net, for the nine months ended September 30, 1999 was $3.4
million, or 3.6% of total operating revenues, compared to $3.2 million, or 2.8%
of total operating revenues for the comparable period in 1998.
EXTRAORDINARY ITEM: We recognized extraordinary losses of approximately $767,000
and $333,000 for the periods ended September 30, 1998 and 1999, resulting from
the write-off of loan fees and other related costs in conjunction with the
refinancing of several of our mortgage-financed communities.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: During the nine month
period ended September 30, 1998, we recorded 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. We did not incur such a charge for the nine months ended
September 30, 1999.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
TOTAL OPERATING REVENUES: Total operating revenues for the three months ended
September 30, 1999 decreased 23.4% or $9.1 million from the comparable period in
1998. At December 31, 1998 and at March 31, 1999, we transferred our interests
in a total of 41 owned and leased communities to others but continued to manage
them under three year management agreements with rights of first refusal or
options to reacquire them in the future. As a result, we now receive management
fees from these communities rather than the revenues arising from their
operations. For the three months ended September 30, 1998, these communities
were responsible for $13.4 million in revenue while generating $969,000 in
management fees for the same period in 1999. This decrease in revenue was
partially offset by generally increasing levels of occupancy throughout our
consolidated communities. Average occupancy of the 59 communities we own and
lease in the three months ended September 30, 1999 rose to 88.5% compared to
79.8% for the 96 owned and leased communities in the equivalent 1998 period, an
increase of 8.7 percentage points.
COMMUNITY OPERATIONS: Community operating expenses for the three months ended
September 30, 1999 decreased 32.9% or $9.4 million from the comparable period in
1998 to $19.1 million. This reduction is the result of the transfer of 41 of our
previously leased and owned communities to management agreements, as discussed
in "Total Operating Revenues" above. These communities were responsible for
$10.6 million of community operating expenses as owned and leased communities in
the three months ended September 30, 1998; because they were managed communities
during the third quarter of 1999, we were no longer responsible for their
operating expenses. Our community operating margin, which we compute as
community revenues less community operating expenses, has increased to 31.8% for
the three months ended September 30, 1999 compared to 25.3% for the three months
ended September 30, 1998. This improvement is, in part, because the 41
communities that we transferred to management agreements generally experienced
lower margins than our communities as a whole and, in part, because of cost
control measures that we instituted in 1998 that affected our remaining owned
and leased communities.
GENERAL AND ADMINISTRATIVE: As a percentage of total operating revenues, general
and administrative (G&A) expenses increased to 12.6% for the three months ended
September 30, 1999 as compared to 8.7% recorded for the three months ended
September 30, 1998. The increase of G&A costs as a percentage of revenues is
due, in part, to the shift from community revenues to management fees in the
transfer of the 41 communities referred to above. Overall, G&A costs increased
approximately $352,000 primarily due to greater personnel and related costs to
support the increasing number of communities.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization for the three
months ended September 30, 1999 were $1.5 million, or 5.1% of total operating
revenues, compared to $1.4 million, or 3.7% of total operating revenues for the
comparable period in 1998. The increase of depreciation and amortization as a
percentage of revenues is due, in part, to the shift from community revenues to
management fees in the transfer of the 41 communities referred to above.
RENT: Rent expense for the three months ended September 30, 1999 was $5.9
million, representing a decrease of $4.6 million, or 43.7% from the comparable
period in 1998. The decrease is primarily attributable to the transfer of 36 of
our previously leased operating communities to management agreements as
discussed above. These communities accounted for $4.0 million in rent expense
for the three months ended September 30, 1998. We leased an average of 36
communities for the three months ended September 30, 1999, compared to an
average of 76 for the three months ended September 30, 1998. Rent as a
percentage of revenues was 27.1% and 19.9% for the three months ended September
30, 1998 and 1999, respectively.
INTEREST EXPENSE, NET: Net interest expense for the three months ended September
30, 1999 was $3.3 million, or 10.9% of total operating revenues, compared to
$3.2 million, or 8.1% of total operating revenues for the comparable period in
1998. The change in percentage of revenue is primarily the result of our
decrease in revenues from the transfer of 41 of our communities as discussed
above.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
OTHER, NET: Other, net, for the three months ended September 30, 1999 increased
$1.5 million from the comparable period in 1998. The increase is primarily
attributable to a judgment in our favor of $5.0 million in the ARV litigation of
which we have recognized $2.1 million through September 30, 1999. Of this $2.1
million, we have received $1.5 million in cash as of September 30, 1999.
SAME COMMUNITY COMPARISON
We operated 54 of our communities during both three month periods ended
September 30, 1998 and 1999. These communities do not include the 41 owned or
leased communities that we transferred to managed communities during 1998 and
the first quarter of 1999. The following table sets forth a comparison of these
same communities' results of operations, excluding corporate overhead, for the
three months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
Three months Ended September 30,
(In thousands)
Dollar Percentage
1998 1999 Change Change
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Total operating revenues ............... $ 22,985 $ 25,906 $ 2,921 12.7 %
--------- --------- --------- --------
Expenses:
Community operating expense ......... 15,524 16,728 1,204 7.2
Depreciation and amortization ....... 927 1,092 165 17.8
Rent ................................ 5,724 5,637 (87) (1.5)
--------- --------- --------- --------
Total operating expenses .......... 22,175 23,457 1,282 5.8
--------- --------- --------- --------
Income from operations ............ 810 2,449 1,639 202.3
--------- --------- --------- --------
Other income (expense):
Interest expense, net ............... (2,264) (2,189) 75 3.3
Other income (expense) .............. 25 (43) (68) (272.0)
--------- --------- --------- --------
Net other expense ................ (2,239) (2,232) 7 0.3
--------- --------- --------- --------
Income (loss) .......................... $ (1,429) $ 217 $ 1,646 (115.2)%
--------- --------- --------- --------
--------- --------- --------- --------
</TABLE>
The same communities represented $25.9 million or 86.8% of our total operating
revenue for the three months ended September 30, 1999. Same community revenues
increased by $2.9 million or 12.7% for the three months ended September 30, 1999
from the comparable period in 1998. The increase in revenue is attributable
primarily to monthly rate increases, as measured by revenue per occupied unit,
due to an expanded range of services offered at the communities. Same community
average revenue per unit increased from $2,014 per month for the three months
ended September 30, 1998 to $2,108 per month for the three months ended
September 30, 1999. During the three months ended September 30, 1999, average
occupancy also experienced a significant increase to 88.9% compared to average
occupancy of 82.5% in the three months ended September 30, 1998. During the
three months ended September 30, 1999, we recorded income of $217,000 compared
to a loss of $1.4 million for the three months ended September 30, 1998.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, net cash used in operating
activities was $8.1 million compared to $22.3 million for the comparable period
in the prior year. The primary component of this use of cash was the net loss of
$6.6 million and $24.8 million recorded in the nine months ended September 30,
1999 and 1998, respectively.
Net cash used in investing activities amounted to $8.9 million for the nine
months ended September 30, 1999, stemming primarily from the purchase of one of
our previously leased facilities during the third quarter and acquisitions of
property and equipment of $3.1 million, as well as an excess of $500,000 of
construction expenditures on leased communities over construction advances for
the same nine month period. This inflow of cash was offset from our March 31,
1999 transfer of 17 leased communities of $3.2 million as well as proceeds on
the sale of our office park of $500,000. Net cash used in investing activities
for the nine months ended September 30, 1998 was $735,000, primarily resulting
from the proceeds from the disposition of three communities offset by the
acquisitions of property held for development and property and equipment.
For the nine months ended September 30, 1999, net cash provided by financing
activities was $16.6 million which is primarily the result of proceeds from
a short-term note from a related party as well the purchase of a previously
leased facility and the refinancing of three existing assisted living
communities for $25.9 million offset by the repayment of existing debt of
$15.9 million. For the nine months ended September 30, 1998, net cash provided
by financing activities was $15.1 million, reflecting the refinancing of 10
existing assisted living communities for $73.2 million and the repayment of
existing debt of $60.3 million.
At September 30, 1999, we had $5.0 million outstanding on our unsecured
revolving account with our primary banking institution. This account, which
bears interest at the prime rate and expires in November 1999, is guaranteed by
our principal shareholder.
We have been, and expect to continue to be, dependent on third-party financing
for our cash needs in connection with operating losses as well as with our
acquisition and development of communities. There can be no assurance that
financing for these requirements will be available to the Company on acceptable
terms. Moreover, to the extent the Company acquires communities that do not
generate positive cash flow, the Company may have to seek additional capital or
borrowings for working capital and liquidity purposes.
IMPACT OF INFLATION
To date, we have not been significantly impacted by inflation. Inflation could,
however, affect our future revenues and operating income due to our dependence
on our senior resident population, most of whom rely on relatively fixed incomes
to pay for our services. The monthly charges for the resident's unit and
assisted living services are influenced by the location of the community and
local competition. Our ability to increase revenues in proportion to increased
operating expenses may be limited. We typically do not rely to a significant
extent on governmental reimbursement programs. In pricing our services, we
attempt to anticipate inflation levels, but there can be no assurance that we
will be able to respond to inflationary pressures in the future.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
IMPACT OF YEAR 2000
GENERAL
We developed a plan to modify our information technology to address "Year 2000"
problems. The 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 employ time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could cause
system errors or failures.
PLAN
Our plan is comprised of three components including assessment of: a) the IT
infrastructure (hardware and systems software other than application software);
b) application software; and c) third party suppliers/vendors. We began our work
on the Plan in the fourth quarter of 1998 by taking inventory of Year 2000
problems in the areas of IT infrastructure as well as application software. In
addition, we prioritized the items based on their materiality to our operations.
No material items have been noted to date. We have also contacted the majority
of our third party suppliers/vendors through September 1999 to determine the
status of their Year 2000 compliance and have noted no material items. For each
component, we are addressing Year 2000 problems in six phases: 1) taking
inventory of Year 2000 problems; 2) assigning priorities to identified items; 3)
assessing materiality of items to the Company's operations; 4)
replacing/repairing material non-compliant items; 5) testing material items; and
6) designing and implementing business continuation plans. Material items are
those we believe to have a risk that may affect revenue or may cause a
discontinuation of operations. We estimate a completion date of November 30,
1999.
COSTS
We do not expect the project and its cost to be material to our operations or
financial position. We do not expect our total internal remediation costs to
exceed $50,000, of which we have spent approximately $35,000.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, normal business activities or operations. Such
failures could materially affect our results of operations, liquidity, and
financial condition. We are unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on our results of
operations, liquidity or financial condition due, in part, to uncertainty
regarding compliance by third parties. We expect our plan to significantly
reduce the Company's level of uncertainty regarding the Year 2000 problem,
however, particularly compliance and readiness of our third-party
suppliers/vendors. We believe that, with the completion of our plan as
scheduled, the possibility of significant interruptions of normal operations
will be reduced and, therefore, we have not deemed a contingency plan necessary
to date.
FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: A number of the matters and subject areas discussed in this report that
are not historical or current facts deal with potential future circumstances,
operations, and prospects. The discussion of such matters and subject areas is
qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from the Company's actual
future experience involving any one or more of such matters and subject areas
relating to demand, pricing, competition, construction, licensing, permitting,
construction delays on new developments contractual and licensure, and other
delays on the disposition of assisted living communities in the Company's
portfolio, and the ability of the Company to continue managing its costs while
maintaining high occupancy rates and market rate assisted living charges in its
assisted living communities. The Company has attempted to identify, in context,
certain of the factors that they currently believe may cause actual future
experience and results to differ from the Company's current expectations
regarding the relevant matter or subject area. These and other risks and
uncertainties are detailed in the Company's reports filed with the Securities
and Exchange Commission, including the Company's Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our results of operations are affected by changes in interest rates as a result
of its short- and long-term borrowings. We manage this risk by obtaining fixed
rate borrowings when possible. At September 30, 1999, our variable rate
borrowings totaled $78.5 million. If market interest rates average 2% more in
1999 than they did in 1998, our interest expense and the corresponding loss
would increase by $1.6 million. These amounts are determined by considering
the impact of hypothetical interest rates on our outstanding variable rate
borrowings as of September 30, 1999 and does not consider changes in the
actual level of borrowings which may occur subsequent to September 30, 1999.
This analysis also does not consider the effects of the reduced level of
overall economic activity that could exist in such an environment nor does it
consider likely actions that management could take with respect to our
financial structure to mitigate the exposure to such a change.
We are also exposed to equity price risk on our investments, including a margin
account having a loan balance of $1.4 million as of September 30, 1999. This
margin account is secured by marketable securities we hold with a market
value of $1.9 million at September 30, 1999. In October 1999, we paid this
account off in full. These investments are generally in companies in the
health care sector. We typically do not attempt to reduce or eliminate our
market exposure on these securities. The decrease in the fair value of our
short-term available-for-sale securities compared to the December 31, 1998
value reflects the decrease in the dollar value of our securities holdings,
the majority of which represents unrealized market depreciation.
PART II OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
On April 24, 1998, we commenced a lawsuit against ARV Assisted Living Inc. 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 triggered
the so-called flip-in feature of ARV's poison pill. Prometheus is an investment
vehicle controlled by Lazard Freres Real Estate Investors L.L.C. We brought the
suit in April 1998 as a result of ARV's failure to issue freely tradeable rights
under its poison pill to us and ARV's other shareholders, other than Prometheus.
On July 1, 1999, the Superior Court issued a decision upholding our claim that
the investment vehicle controlled by Lazard triggered ARV's poison pill. The
Court agreed with us that share purchases by Prometheus in January 1998 caused
Prometheus to exceed the permitted ownership level under ARV's poison pill,
thereby triggering our right to purchase additional shares in ARV at a 50%
discount to the then-market price of ARV's stock. The Court ordered ARV to pay
us $5.4 million in damages, plus our legal costs. The Court awarded us damages
based upon the in-the-money value of the rights at the time they should have
been issued to us and the other public shareholders of ARV.
ARV appealed the courts ruling and in September 1999, ARV and we announced the
resolution of all claims and dismissal of action. Without waiving, admitting, or
conceding any liability for the claims asserted in the action, we reached a
settlement, which ARV and we believe is fair and equitable.
Items 2 - 5 are not applicable.
14
<PAGE>
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
10.1 MEADOW LODGE AT DRUM HILL IN CHELMSFORD, MASSACHUSSETTS
10.1.1 Purchase and Sale Agreement dated April 23, 1999
between LM Chelmsford Assisted Living , LLC
("Seller") and the registrant ("Purchaser")
10.2 MEADOW LODGE AT DRUM HILL IN CHELMSFORD, MASSACHUSSETTS,
COBBLESTONES AT FAIRMONT IN MANASSAS, VIRGINIA, KIRKLAND LODGE
IN KIRKLAND, WASHINGTON AND RIDGELAND POINTE IN RIDGELAND,
MISSISSIPPI. THE FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF
THOSE EXECUTED IN CONJUNCTION WITH THESE PROPERTIES.
10.2.1 Fixed Rate Note dated September 29, 1999 between
Amresco Capital, L.P. ("Payee") and the registrant
("Maker")
10.2.2 Mortgage and Security Agreement dated
September 29, 1999 between Amresco Capital, L.P.
("Mortgagee") and the registrant ("Mortgagor")
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the nine
months ended September 30, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 15, 1999
EMERITUS CORPORATION
(Registrant)
/s/ Kelly J. Price
--------------------------------------------------
Kelly J. Price, Vice President, Finance, Chief
Financial Officer and Principal Accounting Officer
16
<PAGE>
PURCHASE AND SALE AGREEMENT
(Chelmsford, Massachusetts)
THIS PURCHASE AND SALE AGREEMENT ("Agreement"), dated as of the Execution Date
(as defined in the final paragraph of this Agreement), is made and entered into
by and between EMERITUS CORPORATION, a Washington corporation,or its permitted
assignees ("Purchaser") and LM CHELMSFORD ASSISTED LIVING, LLC, a Massachusetts
limited liability company ("Seller').
RECITALS
A. Seller is the owner of certain real property located in Chelmsford,
Massachusetts upon which Meadow Lodge at Drum Hill, an 80-unit assisted living
facility (the "Facility"), is located, as well as certain personal property
associated with the Facility.
B. Purchaser currently operates the Facility pursuant to that certain Lease
Agreement, dated as of July,1996, between Seller as Landlord and Purchaser as
Tenant (the "Lease").
C. Purchaser is interested in purchasing the real property and personal property
owned by Seller on the terms and conditions specified herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants of the parties set forth herein, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. PURCHASE AND SALE.
On the terms and conditions set forth herein, Seller shall sell to Purchaser and
Purchaser shall purchase from Seller, the following:
(a) Real Property and Facility. The real property situated in the State of
Massachusetts and consisting of approximately eight and one half (8.5 +/-)
acres, which is more particularly described in Exhibit A attached hereto and all
of the improvements; buildings, structures, fixtures, additions, enlargements,
extensions, and modifications thereon, including, without limitation, the
Facility (the "Real Property"), together, with all tenements, hereditaments,
rights, privileges, interests, easements and appurtenances now or hereafter
belonging or in any way pertaining to the Real Property or the Facility.
(b) Personal Property. All equipment, furniture, fxtures, inventory, appliances,
tools, instruments, and other tangible personal property owned by Seller as of
the date of this Agreement or acquired by Seller prior to the Closing Date and
located on the Real Property and/or used in connection with the operation of the
Facility (the "Personal Property").
1
<PAGE>
(c) Inventory. All inventories of every kind and nature whatsoever owned by
Seller as of the date of this Agreement or hereafter acquired, and relating to
the Facility, except inventory sold or consumed in the ordinary course of
business from and after the Execution Date (collectively, the "Inventory").
(d) Intangible Personal Property. All rights to the telephone numbers of the
Facility, medical records, administrative records, manuals and other books and
records relating to the operation of the Facility and located thereon (other
than Seller's corporate or financial books and records), lien waivers, surety
agreements, bonds, warranties, guaranties, utility use agreements, covenants,
commitments, permits, approvals, and other intangible personal property of every
kind and nature whatsoever owned by Seller as of the date of this Agreement or
hereafter acquired, which can be legally transferred and which relate directly
to the Facility, other than cash (on hand or in banks) and accounts, notes,
interest, and other receivables arising from the operation of the Facility prior
to the Closing Date (the "Intangible Personal Property").
Collectively, the Real Property, the Personal Property, the Inventory, and the
Intangible Personal Property are sometimes referred to herein as the "Property."
2. PURCHASE PRICE.
The purchase price ("Purchase Price") for the Property shall be an amount equal
to the sum of (i) Seven Million Four Hundred Eighty-Six Thousand Nine Hundred
Sixty and No/100 Dollars($7,486,960.00), plus (ii) an amount equal to the
interest charged to Seller on Six Million Eight Hundred Sixty-One Thousand Nine
Hundred Sixty and No/100 Dollars ($6,861,960.00) pursuant to that certain
Promissory Note, dated as of November 19,1996, made by Seller in favor of MSCPF
Assisted Living, Inc., for the period commencing on November 19,1998 and ending
on the Closing Date (as that term is defined below), plus (iii) the amount due
pursuant to that certain Promissory Note, dated as of January 15,1997, made by
Seller in favor of Purchaser in the original principal amount of Three Hundred
Thousand and No/100 Dollars ($300,000.00) (the "LM/Emeritus Note"). The Purchase
Price shall be payable as follows:
(a) Earnest Money Deposit.
(i) Within three (3) business days after the Execution Date, Purchaser shall
deposit Seventy-Five Thousand and No/100 Dollars ($75,000) (the "Initial Earnest
Money"), in the form of a corporate check, with Chicago Title Insurance Company,
75- 101 Federal Street, Boston, Massachusetts 02110, Attn: Ms. Paula Hardy
("Escrow Agent"). The Initial Earnest Money shall be held in an interest bearing
account for the benefit of Purchaser, and shall be applied, together with any
interest accruing thereon, against the Purchase Price at Closing (as that term
is defined below) or remitted to Purchaser or Seller in accordance with the
provisions of Paragraphs 12 or 16, below.
(ii) Within one (1) business day after Purchaser approves or is deemed to
approve the results of its Due Diligence Review (as that term is defined below),
Purchaser shall deposit an additional Seventy-five Thousand and No/100 Dollars
2
<PAGE>
($75,000) with the Escrow Agent (the "Additional Earnest Money"). Upon such
deposit with Escrow Agent, the Additional Earnest Money shall be held in the
same interest bearing account for the benefit of Purchaser, and shall be
applied, together with any interest accruing thereon, against the Purchase Price
at Closing or remitted to Purchaser or Seller in accordance with the provisions
of Paragraphs 12 or 16, below.
(b) Balance of Purchase Price. If Closing occurs, the balance of the Purchase
Price to be paid in cash shall be paid at the time of Closing in immediately
available funds (including, without limitation, electronic wire transfer)
delivered to Escrow Agent.
3. CLOSING.
For the purposes of this Agreement, "Closing" shall mean the consummation of the
purchase and sale transaction contemplated by this Agreement. Provided that the
conditions to Closing set forth in Paragraphs 12 and 13 have been satisfied or
waived in writing by the party for whom the condition exists, Closing shall
occur on the date that is sixty (60) days following the date Purchaser approves
or is deemed to approve the results of its Due Diligence Review (as that term is
defined below) (the "Closing Date") at 10:00 a.m. (ET) at the offices of Escrow
Agent or at such other time and place as may be mutually agreed upon by Seller
and Purchaser; provided, however, Purchaser may extend the Closing Date by up to
two (2) consecutive periods of thirty (30) days each (each an "Extension
Period") by delivering notice of its election to extend the Closing Date by one
or more Extension Periods to Seller, on or before the then-scheduled Closing
Date, together with immediately available funds in the amount of Twenty-Five
Thousand and No/100 Dollars ($25,000) for each exercised Extension Period (each
an "Extension Fee"). Each Extension Fee shall be nonrefundable (except if
Closing does not occur due to Seller's failure, refusal, or inability to perform
its obligations on the Closing Date in accordance with the terms of this
Agreement, in which case any such Extension Fees paid by Purchaser shall be
promptly refunded to Purchaser) and shall not be credited against the Purchase
Price.
4. CONVEYANCES.
At Closing, Seller shall convey fee simple title to the Real Property to
Purchaser by quitclaim deed, and Seller shall convey all of Seller's right,
title, and interest in and to the Personal Property, the Inventory, and the
Intangible Personal Property by bill of sale and/or assignment of rights, all in
form and substance acceptable to Purchaser. Title to the Property so conveyed
shall be good, marketable, and free and clear of all liens or encumbrances other
than those approved or deemed approved by Purchaser pursuant to Paragraph 12,
below.
5. CLOSING COSTS AND PRORATIONS.
(a) At Closing, Seller and Purchaser shall be responsible for the following
costs and prorations:
3
<PAGE>
(i) Recording and Transfer Taxes. Seller and Purchaser shall eachpay an amount
equal to fifty percent (50%) of any state or county recording and transfer taxes
due and payable as a result of the sale of the Property, provided that Seller
alone shall pay any applicable transfer tax associated with that portion of the
Purchase Price equal to the amount due under the LM/Emeritus Note.
(ii) Attorney's Fees. Seller and Purchaser shall each pay their own attorneys
fees and costs, if any, associated with the preparation, negotiation, execution,
and closing of this Agreement.
(iii) Escrow Fees. Seller and Purchaser shall each pay an amount
equal to fifty percent (50%) of any escrow fees and other closing costs
associated with the Closing.
(iv) Real Property Taxes. Real property taxes and assessments with respect to
the Real Property shall be prorated as of the Closing Date, with Seller
responsible for any such taxes and assessments which relate to the period prior
to the Closing Date, regardless of when payment therefor is due and with
Purchaser responsible for any such taxes and assessments which relate to the
period from and after the Closing Date.
(v) Title Insurance and Survey. Purchaser shall pay the cost of the premium
for the Title Policy (as that term is defined below), and the cost of obtaining
the Updated Survey (as that term is defined below).
(b) In the event any prorations between the parties at the time of Closing are
made on the basis of incomplete, incorrect, estimated or preliminary information
then, as a matter which shall survive the Closing for a period of one hundred
eighty (180) days after the Closing Date, the parties agree to re-adjust and
re-apportion such costs following the Closing promptly upon receipt of complete,
correct or final information, which is verified by both parties.
6. POSSESSION.
At Closing, Purchaser shall be entitled to possession of the Real Property free
and clear of all tenancies, liens and encumbrances other than: (i) residential
lease or other occupancy agreements between Purchaser and the residents of the
Facility, (ii) the Lease (provided, that as of Closing, Seller and Purchaser
hereby acknowledge and agree that the Lease shall automatically be terminated);
and (iii) those approved by Purchaser pursuant to Paragraph 12, below.
7. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller does hereby represent and warrant to Purchaser as follows:
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(a) Status. Seller is a limited liability company duly organized and validly
existing under the laws of the State of Massachusetts and is in good standing
thereunder.
(b) Authority. Seller has full power and authority to enter into this Agreement
and to carry out the terms hereof and the consummation of the transaction
provided for herein does not violate Seller's limited liability agreement or
operating agreement nor any law, regulation, court order, mortgage, deed of
trust, note, bond, indenture, agreement, license or other instrument or
obligation to which Seller is a party or by which its assets may be bound or
affected. This Agreement is valid, binding and enforceable against Seller in
accordance with its terms, except as such enforceability may be affected by
bankruptcy, receivership or creditors rights laws generally.
(c) Title. Seller has good fee simple and marketable title to the Real Property,
which title as of the Closing Date, will be free and clear of all liens and
encumbrances other than: (i) residential lease or other occupancy agreements
between Purchaser and the residents of the Facility, (ii) the Lease (provided,
that as of Closing, Seller and Purchaser hereby acknowledge and agree that the
Lease shall automatically be terminated); and (iii) those approved by Purchaser
pursuant to Paragraph 12, below.
(d) Taxes and Tax Returns. All tax returns and related filings of any kind
required to be filed by Seller prior to the Closing Date with respect to its
ownership of the Real Property have been properly completed and timely filed in
material compliance with all applicable requirements and all taxes or other
obligations which are due and payable by Seller have been, or as of the Closing
Date, will be timely paid.
(e) Litigation. To the best of Seller's knowledge, and except as threatened by
MSCPF Assisted Living, Inc., there is no litigation, investigation or other
proceeding pending or threatened against or relating to Seller, its properties
or business which is material to this Agreement, or which would prevent Seller
from performing its obligations hereunder.
(f) Environmental Matters. Seller has not released into the environment, or
discharged, placed or disposed of any such hazardous materials, substances or
wastes or caused the same to be so released into the environment or discharged,
placed or disposed of at, on or under the Real Property.
(g) Special Assessments. Seller has received no notice and has no
knowledge of any pending special assessments to be made against the Real
Property by any governmental authority.
(h) Tenancies. As of the date of this Agreement, none of the Real Property is
under lease to any person, firm, or entity other than Purchaser and residents of
the Facility pursuant to agreements with Purchaser, and no oral or written
agreements have been entered into by Seller which commit to lease all or any
portion of the Real Property subsequent to the date of this Agreement. To the
best of Seller's knowledge, there is no adverse possession of all or any part of
the Real Property.
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(i) Mechanic's Liens. There are no unpaid bills or claims in connection with any
construction or other work performed on the Real Property by or on behalf of
Seller nor shall there be any on the Closing Date. Seller shall satisfy any and
all mechanic's or materialmen's liens filed against the Real Property, or any
part thereof, on or prior to Closing with respect to any work performed or
contracted for by or on behalf of Seller, and shall indemnify and hold harmless
and protect Purchaser from any and all loss from any such liens.
(j) Zoning. The Real Property is located in an industrial district within the
town limits of the Town of Chelmsford, Massachusetts ("Chelmsford"). While
"assisted living facility" is neither a use permitted as of right nor a
prohibited uses under the applicable Chelmsford zoning bylaw, the applicable
Chelmsford zoning bylaw provides that a "use not listed" may be permitted by
special permit from the Chelmsford Zoning Board of Appeals (the "ZBA"). The ZBA
issued such a special permit on September 30, 1995. The Chelmsford Planning
Board also issued a Certificate of Decision, dated January 12,1996, granting a
Special Permit under each of Section 1420, Site Plan Review, Section 3113,
Parking Lot Requirements, Section 4500, Major Business Complex, and Section
4800, Aquifer Protection District. The Certificate of Decision was modified on
February 14,1996, to correct clerical errors. The Site Plan Approval was further
modified by the Chelmsford Planning Board in a decision dated March 13,1997,
which decision was amended to correct clerical errors on April 11,1997. Seller
has not received any notice of, nor become aware of, any proposed change or
modification regarding such zoning designation.
(k) Disclosure. No representation or warranty by Seller contained in this
Agreement and no statement contained in any certificate, list, exhibit, or other
instrument furnished or to be furnished by Seller to Purchaser pursuant hereto
contains or will contain any untrue statement of a material fact, or
intentionally omits or will omit to state any material fact which is necessary
in order to make the statements contained herein or therein not misleading.
(l) Condition of Property. The parties acknowledge and agree that based upon
Purchaser's current occupancy of and familiarity with the Property, Purchaser's
due diligence relating to the Property, and Purchaser's experience and knowledge
as to the market in which the Facility is located and as to investment in and
operation of real estate in the nature of the Facility and commercial real
estate in general, Purchaser shall purchase the Property on the Closing Date, if
at all, in its AS IS, WHERE IS, AND WITH ALL FAULTS" condition, without any
representation or warranty whatsoever, except as expressly set forth in this
Agreement or in any other documents provided by Seller to Purchaser pursuant to
this Agreement (e.g., the notice of delivery described in Exhibit B, hereto).
The parties further agree that references to Seller's "knowledge" in this
Agreement shall be deemed to mean the actual knowledge of Eric B. Sheffels and
Thomas Real after review by either of them of Seller's existing files relating
to the Property.
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8. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser does hereby represent and warrant to Seller as follows:
(a) Status. Purchaser is a corporation duly organized and validly existing under
the laws of the State of Washington and is in good standing thereunder.
(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 and the same 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 its
assets may be bound or affected. This Agreement is valid, binding and
enforceable as against Purchaser in accordance with its terms, except as such
enforceability may be affected by bankruptcy, receivership or creditors' rights
laws generally.
(c) Litigation. 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.
(d) 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 by Purchaser to Seller pursuant hereto
contains or will contain any untrue statement of a material fact, or
intentionally omits or will omit to state any material fact which is necessary
in order to make the statements contained herein or therein not misleading.
(e) Environmental Matters. Purchaser has not released into the environment, or
discharged, placed or disposed of any such hazardous materials, substances or
wastes or caused the same to be so released into the environment or discharged,
placed or disposed of at, on or under the Real Property.
(f) Mechanic's Liens. There are no unpaid bills or claims in connection with any
construction or other work performed on the Real Property by or on behalf of
Purchaser nor shall there be any on the Closing Date. Purchaser shall satisfy
any and all mechanic's or materialmen's liens filed against the Real Property,
or any part thereof, on or prior to Closing with respect to any work performed
or contracted for by or on - behalf of Purchaser, and shall indemnify and hold
harmless and protect Seller from any and all loss from any such liens.
9. COVENANTS OF SELLER.
Seller does hereby covenant and agree as follows:
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(a) Pre-Closing. Seller shall, at Seller's sole cost and expense:
(i) as soon as practicable, but in no event later than five (5) days
following the Execution Date, provide to Purchaser: (a) legible copies, to the
extent the same are in Seller's possession or reasonable control of (1) all
permits, licenses, and other governmental approvals and entitlements relating to
the use and/or development of the Real Property (other than those obtained by
Purchaser as "tenant" under the Lease) and (2) all reports, studies and
investigations performed at, or relating to, the Real Property, including,
without limitation, all architectural drawings, plans and specifications,
environmental reports, structural reports and geological reports, existing
surveys of the Real Property, title reports and title policies, wetland reports,
soils reports, engineering tests and reports prepared for the Real Property
(collectively, the "Property Documents"); and (b) notice, in substantially the
form and substance of Exhibit B attached hereto, that the Property Documents so
provided, if any, constitute all of the Property Documents in Seller's
possession or reasonable control.
(ii) as soon as practicable, but in no event later than five (5) days
following the Execution Date, provide to Purchaser, with a copy to Purchaser's
counsel, a full and complete accounting of all cash, bank accounts, and other
cash equivalents associated with Seller's ownership and operation of the
Property (the "Accounting").
(iii) as soon as practicable, but in no event later than the Closing Date,
satisfy and discharge all liens against the Property, other than those approved
by Purchaser pursuant to Paragraph 12, below.
(iv) as soon as practicable, but in no event later than the Closing Date,
complete, or otherwise resolve to Purchaser's satisfaction, and pay for, each
and every outstanding construction issue or matter described on the attached
Exhibit C, and deliver to Purchaser and Title Company appropriate lien waivers
and releases with respect thereto.
(v) file all tax returns, reports and flings required to be filed by Seller
and timely pay all taxes or other obligations which are due and payable with
respect to the Property.
(vi) not take any action inconsistent with its obligations hereunder.
(b) Closing. On the Closing Date, Seller agrees to:
(i) Execute and deliver to Purchaser the quitclaim deed and bill of sale
and/or assignment of rights described in Paragraph 4 and such other instruments
as shall be necessary to transfer the Property to Purchaser, including but not
limited to an affdavit of Non-Foreign Status pursuant to Section 1445 of the
Internal Revenue Code of 1986, as amended;
(ii) Pay any Closing costs for which it is responsible under Paragraph 5;
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(iii) Designate an individual, who is employed by an affliate of Seller, to
be available to Purchaser to attempt to respond to Purchaser's questions about
the Property arising after the Closing, or to review existing files regarding
the Property to provide Purchaser with additional information about the
Property.
(c) Post-Closing. After the Closing Date, Seller agrees that:
(i) Seller will take such actions and properly execute and deliver to
Purchaser such further instruments as may be reasonably necessary to evidence
the transfer of the Property; and
(ii) Seller will, at no expense to Seller, cooperate with Purchaser in any
efforts which Purchaser may undertake to audit Seller's financial statements
with respect to the Facility for the periods prior to the Closing if and to the
extent such an audit is required for Purchaser's compliance with applicable
security laws.
10. COVENANTS OF PURCHASER.
Purchaser does hereby covenant and agree as follows:
(a) Pre-Closing. Between the date hereof and the Closing Date, Purchaser will
not take any action inconsistent with its obligations hereunder.
(b) Closing. On the Closing Date, Purchaser agrees to:
(i) deliver the balance of the Purchase Price due in cash at Closing together
with its share of the Closing costs as herein provided; and
(ii) deliver to Escrow Agent the LM/Emeritus Note, with instructions to Escrow
Agent to mark the LM/Emeritus Note "cancelled and paid-in-full" and deliver such
cancelled and LM/Emeritus Note to Seller if Closing otherwise occurs as required
by this Agreement. The amount of the indebtedness paid by Purchaser on behalf of
Seller pursuant to this Paragraph 10(b)(ii) shall be part of, and shall be
credited against, the Purchase Price. Any income or other taxes associated with
such payment and cancellation shall be the sole obligation of Seller.
11. MUTUAL COVENANTS.
Seller and Purchaser mutually covenant and agree as follows:
(a) Fulfillment of Conditions. If any event should occur, either within or
without the knowledge or control of either party, which would prevent
fulfillment of the conditions to Closing provided for herein, to use his, its or
their reasonable efforts to cure the same as expeditiously as possible;
(b) Third-Party Consents. To cooperate fully with each other in taking any
actions which are or may be necessary to obtain the consent of any government
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instrumentality or any third party, including without limitation, the issuance
of all necessary "Governmental Approvals" (as that term is defined below), and
to otherwise accomplish the transaction contemplated by this Agreement; and
(c) Escrow Instructions. To execute and deliver written instructions to Escrow
Agent if necessary or desirable to complete the purchase and sale of the
Property.
12. PURCHASER'S CONDITIONS TO CLOSING.
The obligation of Purchaser to acquire the Property shall be subject to the
satisfaction by Seller or to the waiver by Purchaser of the following
conditions:
(a) Seller's Representations and Warranties. Seller's representations and
warranties set forth herein shall be true in all material respects at and as of
the Closing Date as are those made as of the date thereof.
(b) Seller's Performance. Seller shall have performed all of its obligations
hereunder which are required to be performed as of the Closing Date.
(c) Updated Title Commitment. As soon as possible after Purchaser's receipt of
all of the Property Documents from Seller, as provided in Paragraph 9(a)(i),
above, Purchaser, at Purchaser's sole cost and expense, shall cause Chicago
Title Insurance Company, or such other title insurance company acceptable to
Purchaser (the "Title Company") to issue a commitment for title insurance
(including copies of all exception documents referenced in said commitment) in
an amount equal to the Purchase Price, which commitment shall provide for the
issuance of a final title policy as of the Closing Date, subject to no liens or
encumbrances, other than those which may be approved by Purchaser (the "Title
Commitment") as part of its Due Diligence Review (as that term is defined
below); provided, however, that Purchaser shall not be entitled to object to any
title encumbrance noted on Purchaser's current leasehold title policy with
respect to the Real Property.
(d) Updated Survey. As soon as possible after Purchaser's receipt of all of the
Property Documents from Seller, as provided in Paragraph 9(a)(i), above,
Purchaser, at Purchaser's sole cost and-expense, shall cause a surveyor
acceptable to Purchaser to provide an as-built survey of the Real Property
(provided, however, Purchaser may, in Purchaser's sole discretion, cause any
surveyor who had prepared any survey delivered to Purchaser to update any such
survey) and Purchaser shall review such survey as part of its Due Diligence
Review.
(e) Title Policy. The Title Company shall be irrevocably committed to issue to
Purchaser, at Purchaser's sole cost and expense, an ALTA Extended Owner's Policy
of Title Insurance for the Real Property (the "Title Policy"), effective as of
the Closing Date, which Title Policy shall have a policy amount of not less than
the amount of the Purchase Price and be in a form acceptable to, and include
such endorsements, affirmative coverages, and other modifications required by,
Purchaser and Purchaser's lender (including any REIT, as defined in Paragraph
20, below). Without limiting the
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generality of the foregoing, such Title Policy shall be subject to no exceptions
other than those of the usual printed exceptions which are acceptable to
Purchaser (the survey exception, parties in possession and mechanics lien
exceptions being specifically unacceptable to Purchaser) and those exceptions to
which Purchaser has approved as part of its Due Diligence Review.
(f) Due Diligence Review. Purchaser shall conduct, at its sole cost and expense
an intensive due diligence review of the Property (the "Due Diligence Review"),
which review shall include, but not be limited to: (i) reviewing and approving
all Property Documents required to be provided to Purchaser by Seller; (ii)
reviewing and approving the Accounting; (iii) reviewing and approving the Title
Commitment; (iv) reviewing and approving the Updated Survey; and (v) conducting
such engineering and soils studies, environmental assessments, utilities
investigations, wetlands investigations, if applicable, and regulatory reviews,
as Purchaser deems appropriate with respect to the Facility. With respect to any
physical testing on the Real Property, Purchaser, to the extent practicable,
shall restore the Real Property to its condition immediately prior to such
physical testing, and shall indemnify Seller for any damage to persons or
property caused by any such physical testing.
(i) Within thirty (30) days following the date Purchaser receives the
Property Documents, the notice described in Paragraph 9(a)(i), and the
Accounting described in Paragraph 9(a)(ii) (the "Due Diligence Period"),
Purchaser shall approve or disapprove the results of said Due Diligence Review.
If Purchaser notifies Seller that it disapproves the results of its Due
Diligence Review, this Agreement shall terminate and Escrow Agent shall
immediately remit the Initial Earnest Money to Purchaser upon Purchaser's
unilateral demand therefor, and upon such remission by Escrow Agent, the parties
shall have no further rights or obligations under this Agreement (other than the
indemnity obligations set forth in this Section 12(f)).
(ii) If Purchaser notifies Seller that it approves the results of its Due
Diligence Review or if Purchaser fails to notify Seller of Purchaser's approval
or disapproval regarding the Due Diligence Review prior to the expiration of the
Due Diligence Period (in which case Purchaser shall be conclusively deemed to
have approved the results of such Due Diligence Review), Purchaser shall, within
one (1) business day after the date of its approval notice to Seller or the date
of its deemed approval, deliver the Additional Earnest Money to Escrow Agent,
and after so deposited with Escrow Agent, such Initial Earnest Money and
Supplemental Earnest Money (collectively, the "Earnest Money") shall become
nonrefundable to Purchaser such that if Closing does not occur for any reason
other than Seller's failure, refusal, or inability to perform its obligations on
the Closing Date in accordance with the terms of this Agreement (in which event
the Earnest Money shall be promptly remitted to Purchaser), the Earnest Money
shall be remitted to Seller.
(iii) If Purchaser notifies Seller that it disapproves the results of its Due
Diligence Review, but such notice indicates such disapproval is based upon
specific matters that Purchaser believes are correctable by Seller and the form
of correction that
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would be acceptable to Purchaser, Seller may, at Seller's sole option and within
ten (10) days after receipt of Purchaser's disapproval notice, elect to correct
such specific matters in the manner requested by Purchaser at Seller's sole cost
and expense, or to refuse to correct such matters. If Seller elects, in writing,
to correct all such matters in the form acceptable to Purchaser, Purchaser shall
be deemed to have approved the results of its Due Diligence Review as of the
date of Purchaser's receipt of Seller's written election, and then Purchaser
shall proceed in accordance with Paragraph 12(f)(ii), above.
(iv) Seller agrees to cooperate, at no cost to Seller, with Purchaser and/or
its agents, consultants, and contractors in performing such tests, studies,
assessments, and investigations as Purchaser determines necessary in connection
with its Due Diligence Review of the Property and grants, to the extent
necessary, rights to Purchaser and/or its agents, consultants, and contractors
to enter onto the Real Property in connection therewith, provided that such
agents, consultants and contractors shall each maintain commercial general
liability insurance in an amount equal to or greater than $1,000,000 per
occurrence and in the aggregate.
13. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to convey the Property to Purchaser shall be subject to
the satisfaction by Purchaser or the waiver by Seller of the following
conditions:
(a) Purchaser's Representations and Warranties. Purchaser's representations
and warranties set forth herein shall be true at and as of the- Closing Date.
(b) Purchaser's Performance. Purchaser shall have performed all of its
obligations hereunder which are required to be performed as of the Closing Date
(including, without limitation, delivery of the LM/Emeritus Note to Escrow Agent
with the instructions described in this Agreement).
14. INDEMNIFICATION BY SELLER.
Subject to the limitations set forth in Paragraph 16, Seller shall indemnify,
defend and hold Purchaser harmless from and against:
(a) Obligations Existing as of Closing Date. Any and all obligations relating to
Seller's ownership of the Property which exist as of the Closing Date, except to
the extent that such obligations relate to a breach by Seller of a
representation, warranty or covenant set forth in this Agreement, in which case
Seller's obligation to indemnity, defend and hold harmless Purchaser shall be as
set forth in Paragraph 14(b). For purposes of this Paragraph 14(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.
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(b) Breach of Representations and Warranties. Any and all damage, loss, or
liability resulting from any material breach of any representation, warranty or
covenant made by Seller in this Agreement or nonfulfillment of any agreement on
the part of Seller under this Agreement or from any misrepresentation in or
omission from any certificate furnished or to be furnished to Purchaser
hereunder;
(c) Fees and Expenses. Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and legal and other expenses, including, but not
limited to, reasonable attorneys' fees, incident to any of the foregoing.
15. INDEMNIFICATION BY PURCHASER.
Subject to the limitations set forth in Paragraph 16, Purchaser shall indemnify,
defend and hold Seller harmless from and against:
(a) Obligations Accruing After the Closing Date. Any and all obligations
relating to the ownership of the Property accruing on or after the Closing
Date;
(b) Breach of Representations and Warranties. Any and all damage, loss or
liability resulting from a material breach of any representation, warranty or
covenant of Purchaser in this Agreement or nonfulfillment of any agreement on
the part of Purchaser under this Agreement (including any failure to repair or
restore the Real Property after any physical testing undertaken pursuant to
Paragraph 12(in accordance therewith) damage or any or from any
misrepresentation in or omission from any certificate furnished or to be
furnished to Seller hereunder; and
(c) Fees and Expenses. Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and legal and other expenses, including, but not
limited to, reasonable attorneys' fees, incident to any of the foregoing.
16. TERMINATION.
(a) Termination by Parties. 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 13 shall have
become incapable of fulfillment prior to the Closing Date or such earlier date
as may be specifically provided for the performance thereof (as the same may be
extended) through no fault of Seller and the same shall not have been waived by
Seller;
(iii) By Purchaser, if any of the conditions set forth in Paragraph 12 shall
have become incapable of fulfillment prior to the Closing Date or such earlier
date as may be specifically provided for the performance thereof (as the same
may be extended) through no fault of Purchaser and the same shall not have been
waived by Purchaser;
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(iv) By either Seller or Purchaser in the event of a material breach by the
other party of its obligations hereunder; or
(v) If the Closing has not occurred on or before August 15,1999.
(b) Material Damage or Destruction. In the event that prior to the Closing Date,
a material portion of the Real Property shall have been damaged or destroyed 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 which notice must be delivered within ten
(10) days after Purchaser receives notice of such damage, destruction or
condemnation. In the event Purchaser fails to exercise its termination rights
hereunder, then it shall be conclusively deemed to have waived said right and
Seller shall assign to Purchaser all of its rights to any insurance proceeds or
condemnation award and all claims in the connection therewith. In the event
Purchaser exercises its termination rights hereunder, the parties shall have no
further rights or obligations hereunder other than Purchaser's right to the
return of its Earnest Money.
(c) Notice. Neither party to this Agreement may claim termination or pursue any
other remedy referred to in Paragraph 16(a) above, on account of a breach of a
condition, covenant or warranty by the other, without first giving such other
party 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.
(d) Seller's Liquidated Damages. In the event of the termination of this
Agreement by Seller as a result of a material breach by Purchaser of its
obligations hereunder, Seller's sole remedy shall be to terminate this Agreement
and to retain the Initial Earnest Money, and if deposited with Escrow Agent, the
Additional Earnest Money as full and complete liquidated damages, the parties
acknowledging and agreeing that the amount of damages which Seller may incur as
a result of such termination may be difficult to ascertain and that the amount
of such Earnest Money is a reasonable and fair estimate thereof, after which the
parties shall have no further rights or obligations hereunder.
(e) Purchaser's Remedies. In the event of the termination of this Agreement by
Purchaser as a result of a material breach by Seller of its obligations
hereunder, Purchaser shall have the right either to (i) terminate this Agreement
and receive a full refund of its Earnest Money, after which neither party shall
have any further rights or obligations hereunder (other than the indemnification
obligations pursuant to Paragraph 12(f), above) or (ii) seek specific
performance of Seller's obligations hereunder or and/or direct (but not
incidental or consequential) damages for Seller's breach of its obligations
hereunder. In the event of the termination of this Agreement by Purchaser as a
result of a failure of any of the Purchaser's conditions as set forth in
Paragraph 12, above, Purchaser shall be entitled to a full refund of its any
Earnest Money deposited with Escrow Agent.
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17. BROKER.
Neither party has been represented by a broker or finder in connection with the
purchase and sale contemplated by this Agreement and each party agrees to
indemnify the other party against any claim for any commission made by any
broker or finder allegedly employed by it.
18. NOTICES.
Any notice, approval, consent, waiver, request, or other communication to be
given by any party hereunder shall be in writing and shall be sent by: (a)
United States Postal Service, registered or certified mail, return receipt
requested, with postage prepaid; (b) nationally recognized overnight courier
service guaranteeing overnight delivery; or (c) facsimile transmission (if
confirmed orally or in writing by mail as aforesaid), to the following address:
To Seller: LM Chelmsford Assisted Living, LLC
c/o LMP Retirement Properties, Inc.
10 Post Offce Square
Boston, MA 02109
Attn: Eric Sheffels
Telephone No.: (617) 422-7032
Facsimile No.: (617) 422-7001
With copies to: Goodwin Proctor & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Elizabeth McDermott, Esq.
Telephone No.: (617) 570-1611
Facsimile No.: (617) 227-8591
and Lerner & Holmes LLP
265 Franklin Street
Boston, MA 02110
Attn: Daniel Holmes, Esq.
Telephone No.: (617) 443-9470
Facsimile No.: (617) 443-9471
To Purchaser: Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121
Attention: President
Telephone No.: (206) 298-2909
Facsimile No.: (206) 301-4500
With a copy to: Graham & James LLP/Riddell WilliamsP.S.
1001 Fourth Avenue Plaza, Suite 4500
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Seattle, Washington 98154-1065
Attention: Suzanne M. Larsen. Esq.
Telephone No.: (206) 389-1659
Facsimile No.: (206) 389-1708
Notice shall be deemed given: (a) three (3) business days after deposit with the
United States Postal Service; (b) on the next business day if sent by nationally
recognized overnight courier; and (c) on receipt if sent by facsimile and
received at or before 4:30 p.m. local time (and confirmed orally or by mail as
aforesaid).
19. ENTIRE AGREEMENT/AMENDMENT AND MODIFICATION.
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 including
without limitation, all prior letters of intent, but specifically excluding the
LM/Emeritus Note and the Lease.
20. ASSIGNMENT.
Purchaser shall have the right to assign its rights and delegate its obligations
hereunder, without the prior written consent of Seller, to an affiliate of
Purchaser. In the event of any such assignment, all of the references to
Purchaser herein shall be deemed to be references to Purchaser's assignee, the
representations set forth in Paragraph 8 shall be revised accordingly and the
terms of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by and against said assignee. Purchaser shall also have the right,
on notice to Seller, to assign its rights hereunder to a financing institution
or 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 to a
financing institution or REIT, the only right which the financing institution or
REIT will assume is Purchaser's right to take title to the Property and the only
obligation which the REIT will assume is Purchaser's obligation to pay the
Purchase Price in accordance with the terms hereof and that, in any event,
Purchaser shall not be relieved of any of its obligations hereunder in the event
of such an assignment to a REIT. Purchaser shall not otherwise assign its rights
under this Agreement without the prior written consent of Seller, which consent
shall not be unreasonably withheld, conditioned, or delayed.
21. WAIVER.
The waiver by any party of any breach of any of the provisions of this Agreement
shall not constitute a continuing waiver or a waiver of any subsequent breach of
any provision of this Agreement.
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<PAGE>
22. INCORPORATION BY REFERENCE.
Each recital set forth and exhibit referenced in this Agreement is incorporated
and becomes an integral part of this Agreement.
23. 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.
24. SURVIVAL.
The provisions of this Agreement shall survive the Closing for a period of
twelve (12) months from the Execution Date. Purchaser agrees that other than
providing notice to Seller (which notice shall toll such twelve month period,
but such tolling shall only apply to the claim which is the subject of such
notice), Purchaser shall not proceed against Seller with respect to any claim
unless Purchaser shall have first made such claim against any applicable and
outstanding warranty or guaranty or against any title insurance (to the extent
appropriate) and Purchaser has proceeded in good faith to maximize such claim
but coverage for such claim has been denied or is inadequate to fully cover such
claim. In no event shall the aggregate liability of Seller to Purchaser with
respect to any representation or warranty indemnification obligation under this
Agreement exceed Two Hundred Thousand and No/100 Dollars ($200,000.00).
25. ATTORNEYS' FEES.
If any litigation or other proceedings are commenced between parties to this
Agreement regarding the rights and duties of any party pursuant to, related to
or arising from this Agreement, then the prevailing party with respect to the
litigation or other proceedings, shall be entitled, in addition to the relief
granted, a reasonable sum for attorneys' fees and costs of the litigation or
other proceedings.
26. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Massachusetts.
27. SEVERABILITY.
Should any one or more of the provisions of this Agreement be determined to be
invalid, unlawful or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
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<PAGE>
28. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same instrument.
29. TIME OF THE ESSENCE, DATES.
Time is of the essence. If this Agreement calls for, or establishes, a day or
date on which an event occurs, or by which an action must be taken, and such day
or date falls on a Saturday, Sunday or legal holiday (defined to be any day on
which the United States Postal Service does not deliver regular mail), such day
or date shall be, for the purposes of this Agreement, the next day thereafter
that is not a Saturday, Sunday or legal holiday.
30. AUTOMATIC TERMINATION OF LEASE
If Closing occurs, the Lease shall be, and shall be deemed to be, automatically
terminated as of the Closing Date, with no further action required by any party
thereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth opposite each party's signature below and the last date of execution shall
be deemed the Execution Date as such term is used in this Agreement.
Purchaser: EMERITUS CORPORATION,
a Washington Corporation
Dated : 4/23/99 By: /s/ Kelly J. Price
Its: Chief Financial Officer
Seller: LM CHELMSFORD ASSISTED
LIVING, LLC
a Massachusetts limited
liability company
Dated: 2/18/99 By: /s/ Eric Sheffels
Chicago Title Insurance Company, Escrow Agent under the foregoing Purchase and
Sale Agreement, hereby consents to its designation as Escrow Agent, and hereby
covenants and agrees to fulfill the obligations of Escrow Agent contained
therein.
Escrow Agent: Chicago Title Insurance
Company
Dated: 2/28/99 By: /s/ Shawn Sharda
Its: Escrow Officer
18
<PAGE>
EXHIBIT A
DESCRIPTION OF REAL PROPERTY
<PAGE>
291 /70131.04
021299/1219/49449.00002
<PAGE>
Loan No. 400029618
FIXED RATE NOTE
$10,395,000.00 September 29, 1999
FOR VALUE RECEIVED EMERITUS PROPERTIES IX, LLC, a Washington limited liability
company (hereinafter referred to as "Maker"), promises to pay to the order of
AMRESCO CAPITAL, L.P., a Delaware limited partnership, its successors and
assigns (hereinafter referred to as "Payee"), at the office of Payee or its
agent, designee, or assignee at 700 North Pearl Street, Suite 2400, LB#342,
Dallas, Texas 75201-7424, Attention: Loan Servicing, or at such place as Payee
or its agent, designee, or assignee may from time to time designate in writing,
the principal sum of Ten Million Three Hundred Ninety-Five Thousand and No/100
Dollars ($10,095,000.00), in lawful money of the United States of America, with
interest thereon to be computed on the unpaid principal balance from time to
time outstanding at the Applicable Interest Rate (hereinafter defined) at all
times prior to the occurrence of an Event of Default (as defined in the Mortgage
(hereinafter defined)), and to be paid in installments as follows:
1. A payment of interest only on the date hereof for the period from the date
hereof through the ninth day of the next calendar month, both inclusive;
2. A constant payment (the "Monthlv Pavment"), in arrears and without notice or
grace, of $76,345.45, on the tenth day of November, 1999 and on the tenth day of
each calendar month thereafter up to and including the month immediately
preceding the Scheduled Maturity Date stated below, which Monthly Payment is
calculated using an amortization period of twenty-five (25) years (the
"Amortization Period"); and the balance of said principal sum, together with
accrued and unpaid interest and any other amounts due under this Note shall be
due and payable on the tenth day of October, 2009 (the "Scheduled Maturity
Date") or upon earlier maturity hereof whether by acceleration or otherwise
(together with the Scheduled Maturity Date, collectively, the "Maturity Date").
Interest on the principal sum of this Note shall be calculated on the basis of a
three hundred sixty (360) day year composed of twelve (12) months of thirty (30)
days each, except that (i) interest due and payable for a period less than a
full month shall be calculated by multiplying the actual number of days elapsed
in such period by a daily rate based on said 360 day year, and (ii) in any event
interest calculated with reference to the maximum rate permitted by applicable
law shall be calculated by multiplying the actual number of days elapsed in such
period by a daily rate based on a year of 365/366 days (as applicable). Monthly
Payments under this Note shall be applied first, to the payment of interest and
other costs and charges due in connection with this Note or the Debt
(hereinafter defined), as Payee may determine in its sole discretion, and the
balance shall be applied toward the reduction of the principal sum or as
otherwise provided below with respect to funds received after the
<PAGE>
Scheduled Maturity Date. All amounts due under this Note shall be payable
without setoff, counterclaim or any other deduction whatsoever.
The term "Applicable Interest Rate" means (a) from the date of this Note
through but not including the Scheduled Maturity Date, a rate of seven and
forty-three hundredths percent (7.43%) per annum (the "Initial Interest
Rate"), or (b) from and after the Scheduled Maturity Date through and
including the earlier of the Final Demand Date (hereinafter defined) or the
date this Note is paid in full, a rate (the "Revised Interest Rate") equal to
the lesser of(x) the maximum rate permitted by applicable law, or (y) the
greater of (i) two percent (2%) above the Initial Interest Rate or (ii) two
percent (2%) above the Extended Treasury Rate (hereinafter defined). The term
"Extended Treasury Rate" means the yield calculated by the linear
interpolation of the yields, as reported in Federal Reserve Statistical
Release H.15-Selected Interest Rates under the heading "U.S. Government
Securities Treasury Constant Maturities" for the week ending prior to the
Scheduled Maturity Date of U.S. Treasury constant maturities with maturity
dates (one longer and one shorter) most nearly approximating the date which
is the end of the Amortization Period. (In the event Release H.15 is no
longer published, Payee shall select a comparable publication to determine
the Extended Treasury Rate.) In the event that (A) Maker does not pay the
full amount of the Debt on or before the Scheduled Maturity Date, and no
other Event of Default shall have occurred which has not been cured to
Payee's satisfaction within any applicable notice and cure period, and (B)
Maker has taken all actions required by Payee for the institution of the
lockbox arrangement described in the Disbursement Agreement (hereinafter
defined), and (C) Payee has not made final demand for the payment of the
Debt, then in such event, and until the date on which Payee makes final
demand for the payment of the Debt or two (2) years after the Scheduled
Maturity Date, whichever is earlier (the "Final Demand Date"), or until the
occurrence of an Event of Default, interest shall accrue on the unpaid
principal balance of this Note from and after the Scheduled Maturity Date at
the Revised Interest Rate although the Monthly Payment will continue to be
payable at the Initial Interest Rate, and the difference between the interest
accrued at the Revised Interest Rate and the interest payable at the Initial
Interest Rate (which difference is referred to as "Accrued Interest") shall
not be due and payable until the remainder of the Debt is due and payable,
that is on the Final Demand Date, unless sooner paid as hereinafter provided.
To the extent permitted under applicable law, any accrued and unpaid Accrued
Interest shall be capitalized monthly and shall accrue interest at the
Revised Interest Rate.
This Note is secured by, and Payee is entitled to the benefits of, the Mortgage,
the Assignment, the Environmental Agreement, and the other Loan Documents
(hereinafter defined). The term "Mortgage" means the Mortgage and Security
Agreement dated as of the date hereofgiven by Maker for the use and benefit of
Payee covering the estate of Maker in certain premises as more particularly
described therein (the "Mortgaged Property"). The term "Assignment" means the
Assignment of Leases and Rents of even date herewith executed by Maker in favor
of Payee. The term "Environmental Agreement" means the Environmental Liabilities
Agreement of even date herewith executed by Maker in favor of Payee. The
"Payment and Performance Guaranty" means that certain Payment and Performance
Guaranty of even date herewith executed by Maker in favor of Payee with respect
to the payment and performance of certain indebtedness and other obligations
described therein. The "Disbursement Agreement" means that certain Cash
Management Agreement and Security Agreement of even date herewith executed by
Maker in favor
2
<PAGE>
of Payee. The "Other Guaranty Agreement" means that Guaranty of even date
herewith executed by Emeritus Corporation, a Washington corporation, for the
benefit of Payee. Hereafter, the Payment andPerformance Guaranty and the Other
Guaranty Agreements shall be referred to (collectively and singularly) as the
"Guaranty." The term "Loan" means the loan evidenced by this Note. The term
"Loan Documents" refers collectively to this Note, the Mortgage, the Assignment,
the Environmental Agreement, the Guaranty, the Disbursement Agreement, and any
and all other documents executed in connection with this Note or now or
hereafter executed by Maker and/or others and by or in favor of Payee, which
wholly or partially secure or guarantee payment of this Note or pertains to
indebtedness evidenced by this Note.
The term "Debt" means, collectively, (i) the unpaid principal balance of and the
accrued but unpaid interest on this Note, (ii) all other sums due, payable or
reimbursable to Payee under the Loan Documents (including, without limitation,
sums due or payable by Maker for deposit into the Tax and Insurance Escrow Fund
[as defined in the Mortgage], the Replacement Escrow Fund [as defined in the
Mortgage], and any other escrows established or required under the Loan
Documents), (iii) any and all other liabilities and obligations of Maker under
this Note or the other Loan Documents, and (iv) after the Scheduled Maturity
Date, any Accrued Interest and interest legally permitted to accrue thereon.
If any installment payable under this Note (including the final installment due
on the Maturity Date or the Final Demand Date) is not received by Payee on or
before the date on which it is due (without regard to any applicable cure and/or
notice period), Maker shall pay to Payee upon demand an amount equal to the
lesser of(a) five percent (5%) of such unpaid sum or (b) the maximum amount
permitted by applicable law to defray the expenses incurred by Payee in handling
and processing such delinquent payment and to compensate Payee for the loss of
the use of such delinquent payment, and such amount shall be secured by the Loan
Documents.
So long as an Event of Default exists, as well as at any time on or after the
Scheduled Maturity Date, Payee may, at its option, without notice or demand to
Maker, declare the Debt immediately due and payable. All remedies hereunder,
under the Loan Documents and at law or in equity shall be cumulative. In the
event that it should become necessary to employ counsel to collect the Debt or
to protect or foreclose the security for the Debt or to defend against any
claims asserted by Maker arising from or related to the Loan Documents, Maker
also agrees to pay to Payee on demand all costs of collection or defense
incurred by Payee, including reasonable attorneys' fees for the services of
counsel whether or not suit be brought.
Upon the occurrence of an Event of Default, and beginning in any event no later
than the Final Demand Date, Maker shall pay interest on the entire unpaid
principal sum and any other amounts due under the Loan Documents at the rate
equal to the lesser of (a) the maximum rate permitted by applicable law, or (b)
five percent (5%) above the Applicable Interest Rate in effect at the time of
the occurrence of the Event of Default (the "Default Rate"). The Default Rate
shall be computed from the occurrence of the Event of Default until the actual
receipt and collection of a sum of money determined by Payee to be sufficient to
cure the Event of Default. Amounts of interest accrued at the Default Rate shall
constitute a portion of the Debt, and shall be deemed secured by the Loan
Documents. This clause, however, shall not
3
<PAGE>
be construed as an agreement or privilege to extend the date of the payment of
the Debt, nor as a waiver of any other right or remedy accruing to Payee by
reason of the occurrence of any Event of Default.
The principal balance of this Note may not be prepaid in whole or in part
(except with respect to the application of casualty or condemnation proceeds)
until after the Permitted Prepayment Date (hereinafter defined). At any time
after the date occurring three (3) years after the first scheduled payment date
under this Note (but in no event prior to two (2) years after the date that the
Loan has been sold in a securitization) (the "Permitted Prepayment Date") and
provided no Event of Default exists, Maker may voluntarily defease all or any
portion of the Debt (hereinafter, a "Defeasance Event") by providing Payee with
the Defeasance Collateral (hereinafter defined) that produce payments which
replicate the Scheduled Defeasance Payments (hereinafter defined). Each
Defeasance Event by Maker shall be subject to the satisfaction of the following
conditions precedent:
(1) Maker shall provide not less than thirty (30) days prior written notice to
Payee specifying a regularly scheduled payment date (the "Defeasance Date") on
which the Defeasance Event is to occur. Such notice shall indicate the principal
amount to be defeased:
(2) Maker shall pay to Payee all accrued and unpaid interest on the principal
balance of the Note to but not including the Defeasance Date. If for any reason
the Defeasance Date is not a regularly scheduled payment date. Maker shall also
pay interest that would have accrued on the Note through the next regularly
scheduled payment date;
(3) Maker shall pay to Payee all other sums, not including scheduled interest or
principal payments, due under the Note, the Mortgage, and the other Loan
Documents;
(4) Maker shall pay to Payee the principal amount of the Note to be defeased
together with an additional amount (the "Yield Maintenance Premium") such that
the aggregate amount (the "Defeasance Deposit") is sufficient to purchase
direct, non-callable obligations of the United States of America (the
"Defeasance Collateral") that provide payments on or prior, but as close as
possible, to all successive scheduled payment dates after the Defeasance Date
upon which interest and/or principal payments are due under the Note (including
the amounts due on the Maturity Date), in the case of a Defeasance Event for the
entire outstanding principal balance of the Note, or the Defeased Note
(hereinafter defined), in the case of a Defeasance Event for only a portion of
the outstanding principal balance of the Note, as applicable, and in amounts
equal to the scheduled payments due on such dates and on the Maturity Date under
the Note or the Defeased Note, as applicable (the "Scheduled Defeasance
Pavments"), for the Defeasance Event;
(5) In the event only a portion of the principal balance of the Note is the
subject of the Defeasance Event, Maker shall prepare all necessary documents to
amend and restate the Note and issue two substitute notes, one note having a
principal balance equal to the defeased portion of the original Note (the
"Defeased Note") and the other note having a principal balance equal to the
undefeased portion of the Note (the "Undefeased Note"). The Defeased Note and
Undefeased
4
<PAGE>
Note shall have identical terms as the Note except for the principal balances. A
Defeased Note cannot be the subject of any further Defeasance Event;
(6) Maker shall deliver to Payee on or prior to the Defeasance Date:
(A) an executed security agreement, in form and substance satisfactory to
Payee, creating a first priority lien on the Defeasance Deposit and the
Defeasance Collateral (the "Defeasance Securitv Agreement");
(B) an opinion of counsel for Maker in form and substance satisfactory to
Payee in its sole discretion stating, among other things, that Maker has legally
and validly transferred and assigned the Defeasance Collateral and all
obligations, rights and duties under and to the Note or Defeased Note (as
applicable) to the Successor Borrower (hereinafter defined), that Payee has a
perfected first priority security interest in the Defeasance Deposit and the
Defeasance Collateral delivered by Maker, and that any REMIC Trust formed
pursuant to Section 860D of the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute (the "Code") that holds the Note will not
fail to maintain its status as a "real estate mortgage investment conduit" (a
"REMIC") within the meaning of Section 860D of the Code as a result of such
Defeasance Event;
(C) a certificate of Maker certifying that all requirements relating to
defeasance set forth in this Note and any other Loan Documents have been
satisfied; and
(D) such other certificates, documents or instruments as Payee may
reasonably request; and
(7) Maker shall pay all costs and expenses of Payee incurred in connection with
the Defeasance Event, including any costs and expenses associated with a release
of the lien of the Mortgage as provided below as well as reasonable accountants'
and attorneys' fees and expenses.
In connection with each Defeasance Event, Maker hereby appoints Payee as its
agent and attorney-in-fact for the purpose of using the Defeasance Deposit to
purchase the Defeasance Collateral. Payee shall receive written confirmation
from independent accountants as to the sufficiency of such Defeasance Collateral
to provide the payments as described above. Maker, pursuant to the Defeasance
Security Agreement or other appropriate document, shall authorize and direct
that the payments received from the Defeasance Collateral may be made directly
to the account maintained by, or for the benefit of, Payee (unless otherwise
directed by Payee) and applied to satisfy the obligations of Maker or Successor
Borrower under the Note or the Defeased Note, as applicable. Any portion of the
Defeasance Deposit in excess of the amount necessary to purchase the Defeasance
Collateral and satisfy Maker's obligations shall be remitted to Maker.
5
<PAGE>
Except as set forth in this Note, no repayment, prepayment or defeasance of
all or any portion of the Note shall cause, give rise to a right to require,
or otherwise result in. the release of the lien of the Mortgage on the
Mortgaged Property.
If Maker has elected to defease the entire Note and the conditions precedent
listed above and all other terms and conditions set forth herein have been
satisfied, the Mortgaged Property shall be released from the lien of the
Mortgage and the Defeasance Collateral, pledged pursuant to the Defeasance
Security Agreement, shall be the sole source of collateral securing the Note.
In connection with the release of the lien, Maker shall submit to Payee, not
less than thirty (30) days prior to the Defeasance Date, a release of lien for
the Mortgage and related Loan Documents (including any guaranty) for execution
by Payee. Such release shall be in form appropriate for the jurisdiction in
which the Mortgaged Property is located and satisfactory to Payee in reasonable
commercial judgment. In addition, Maker shall pay all recording costs, fees and
expenses associated with recording the release of lien. Maker shall provide all
other documentation Payee reasonably requires to be delivered by Maker in
connection with such release, together with a certificate certifying that such
documentation (i) is in compliance with all applicable laws, and (ii) will
effect such release in accordance with the terms of this Note.
Payee, at Maker's expense, may form or, at Payee's request, Maker shall form a
single purpose bankruptcy remote entity (a "Successor Borrower") to be the
obligor under the Note or the Defeased Note, as applicable. Maker shall, at
Payee's request, assign all of its obligations and rights under the Note to a
Successor Borrower. In connection therewith, a Successor Borrower shall execute
an assumption agreement in form and substance satisfactory to Payee in its sole
discretion pursuant to which it shall assume Maker's obligations under the Note
or the Defeased Note, as applicable, and the Defeasance Security Agreement and
Maker and any guarantors shall be released from their obligations with respect
to such assumed documents. The sole assets of the Successor Borrower shall be
the Defeasance Collateral. In connection with such assignment and assumption,
Maker shall:
(1) deliver to Payee an opinion of counsel in form and substance and delivered
by counsel satisfactory to Payee in its sole discretion stating, among other
things, that such assumption agreement is enforceable against Maker and
Successor Borrower in accordance with its terms, that the Note, the Defeasance
Security Agreement and any other documents executed in connection with such
defeasance are enforceable against Successor Borrower in accordance with their
respective terms and that the delivery of the Defeasance Deposit and transfer of
the Defeasance Collateral to Successor Borrower does not constitute a fraudulent
conveyance or a preference payment under applicable bankruptcy law;
(2) pay all costs and expenses incurred by Payee or its agents in connection
with such assignment and assumption (including, without limitation, any fees
and disbursements of legal counsel);
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<PAGE>
(3) pay $ 1,000 to Successor Borrower as consideration for assuming the
obligations under the Note and the Defeasance Security Agreement; and
(4) pay to the servicer of the Note a defeasance processing fee in an amount
equal to $20,000, provided, notwithstanding anything to the contrary herein or
in the other Loan Documents, no other assumption fee shall be payable by Maker
in connection with such assumption.
If, prior to the Scheduled Maturity Date and following the occurrence of any
Event of Default, Maker shall tender payment of an amount sufficient to satisfy
all or any portion of the Debt, such tender by Maker shall be deemed to be a
voluntary prepayment under this Note in the amount tendered and Maker shall pay,
in addition to the Debt, an amount equal to the Yield Maintenance Premium that
would be required if a Defeasance Event had occurred, together with all other
amounts Maker is obligated to pay if a Defeasance Event had occurred. If a
complete or partial prepayment results from the application to the Debt of the
casualty or condemnation proceeds from the Mortgaged Property prior to the
occurrence of an Event of Default, no prepayment consideration will be imposed.
Partial prepayments of principal resulting from the application of casualty or
insurance proceeds to the Debt shall not change the amounts of subsequent
monthly installments nor change the dates on which such installments are due,
unless Payee shall otherwise agree in writing. Notwithstanding any provision
herein to the contrary, Maker shall have the additional privilege to prepay the
entire principal balance of this Note (together with any other sums constituting
the Debt) on any scheduled payment date during the six (6) months preceding the
Scheduled Maturity Date and on any scheduled payment date thereafter (the "Open
Prepayment Period") without any fee or consideration for such privilege. If any
such notice of prepayment is given, the principal balance of this Note and the
other sums required under this paragraph shall be due and payable on the
selected prepayment date.
It is expressly stipulated and agreed to be the intent of Maker and Payee at all
times to comply with applicable state law or applicable United States federal
law (to the extent that it permits Payee to contract for, charge, take, reserve
or receive a greater amount of interest than under state law) and that this
paragraph shall control every other covenant and agreement in this Note and the
other Loan Documents. If the applicable law (state or federal) is ever
judicially interpreted so as to render usurious any amount called for under this
Note or under any of the other Loan Documents, or contracted for, charged,
taken, reserved or received with respect to the indebtedness evidenced by this
Note and the other Loan Documents, or if Payee's exercise of the option to
accelerate the maturity of this Note, or if any prepavment by Maker results in
Maker having paid any interest in excess of that permitted by applicable law,
then it is Maker's and Payee's express intent that all excess amounts
theretofore collected by Payee be credited on the principal balance of this Note
(or, if this Note has been or would thereby be paid in full, refunded to Maker),
and the provisions of this Note and the other Loan Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and thereunder. All sums paid or agreed to
be paid to Payee for the use, forbearance and detention of the indebtedness
evidenced hereby and by the
7
<PAGE>
other Loan Documents shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the maximum rate permitted under
applicable law from time to time in effect and applicable to the indebtedness
evidenced hereby for so long as such indebtedness remains outstanding.
Notwithstanding anything to the contrary contained herein or in any of the other
Loan Documents, it is not the intention of Payee to accelerate the maturity of
any interest that has not accrued at the time of such acceleration or to collect
unearned interest at the time of such acceleration.
Except as specifically provided in the Loan Documents, Maker and any endorsers,
sureties or guarantors hereof jointly and severally waive presentment and demand
for payment, notice of intent to accelerate maturity, notice of acceleration of
maturity , protest and notice of protest and non-payment, all applicable
exemption rights, valuation and appraisement, notice of demand, and all other
notices in connection with the delivery, acceptance, performance, default or
enforcement of the payment of this Note and the bringing of suit and diligence
in taking any action to collect any sums owing hereunder or in proceeding
against any of the rights and collateral securing payment hereof. Maker and any
surety, endorser or guarantor hereof agree (i) that the time for any payments
hereunder may be extended from time to time without notice and consent, (ii) to
the acceptance of further collateral, (iii) to the release of any existing
collateral for the payment of this Note, (iv) to any and all renewals, waivers
or modifications that may be granted by Payee with respect to the payment or
other provisions of this Note, and/or (v) that additional makers, endorsers,
guarantors or sureties may become parties hereto all without notice to them and
without in any manner affecting their liability under or with respect to this
Note. No extension of time for the payment of this Note or any installment
hereof shall affect the liability of Maker under this Note or any endorser or
guarantor hereof even though Maker or such endorser or guarantor is not a party
to such agreement.
Failure of Payee to exercise any of the options granted herein to Payee upon the
happening of one or more of the events giving rise to such options shall not
constitute a waiver of the right to exercise the same or any other option at any
subsequent time in respect to the same or any other event. The acceptance by
Payee of any payment hereunder that is less than payment in full of all amounts
due and payable at the time of such payment shall not constitute a waiver of the
right to exercise any of the options granted herein to Payee at that time or at
any subsequent time or nullify any prior exercise of any such option without the
express written acknowledgment of Payee.
Notwithstanding anything in the Loan Documents to the contrary, but subject to
the qualifications below, Payee and Maker agree that:
(A) Maker shall be liable upon the Debt and for the other obligations arising
under the Loan Documents to the full extent (but only to the extent) of the
security therefor, the same being all properties (whether real or personal),
rights, estates and interests now or at any time hereafter securing the payment
of the Debt and/or the other obligations of Maker under the Loan Documents
(collectively with the Mortgaged Property, the "Security Property"), provided,
however, in the event (i) of fraud or material misrepresentation by Maker or
guarantors in connection with the Loan
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<PAGE>
evidenced by this Note, or (ii) the first full monthly payment on the Note is
not paid when due, the limitation on recourse set forth in this subparagraph (A)
will be null and void and completely inapplicable, and this Note shall be with
full recourse to Maker:
(B) if an Event of Default occurs in the timely and proper payment of all or any
part of the Debt, any judicial proceedings brought by Payee against Maker shall
be limited to the preservation, enforcement and foreclosure, or any thereof, of
the liens. security titles, estates, assignments, rights and security interests
now or at any time hereafter securing the payment of the Debt and/or the other
obligations of Maker under the Loan Documents, and no attachment, execution or
other writ of process shall be sought, issued or levied upon any assets,
properties or funds of Maker other than the Security Property, except with
respect to the liability described in subparagraph (A) above and in subparagraph
(C) below; and
(C) in the event of a foreclosure of such liens, security titles, estates,
assignments, rights or security interests securing the payment of the Debt, no
judgment for any deficiency upon the Debt shall be sought or obtained by Payee
against Maker or, except as may be otherwise permitted against any principal,
director, officer, employee, beneficiary, shareholder, partner. member, trustee,
agent or affiliate of Maker as provided in the Guaranty, except with respect to
the liability described in subparagraph (A) above and below in this subparagraph
(C); provided that, notwithstanding the foregoing provisions of this
subparagraph, nothing contained herein shall in any manner or way release,
affect or impair the right of Payee to recover, and Maker shall be fully and
personally liable and subject to legal action for any loss, cost, expense,
damage, claim or other obligation (including without limitation reasonable
attorneys' fees and court costs) incurred or suffered by Payee arising out of or
in connection with the following:
1. any breach of the Environmental Agreement, including the
indemnification provisions contained therein;
2. Maker's failure to obtain Payee's prior written consent to (a) any
subordinate financing or any other encumbrance on the Mortgaged Property, or (b)
any transfer of the Mortgaged Property or majority ownership in Maker in
violation of the Mortgage, except as permitted in the Mortgage;
3. any litigation or other legal proceeding related to the Debt that delays
or impairs Payee's ability to preserve, enforce or foreclose its lien on the
Security Property, including, but not limited to, the filing of a voluntary
petition concerning Maker under 11 U.S.C. Section 101 et seq. (the "Bankruptcy
Code") or the filing of an involuntary petition against Maker under the
Bankruptcy Code (unless such proceeding is dismissed within ninety (90) days
without the entry of an order for relief having been entered and no other Event
of Default having occurred at the time of such dismissal), in which action a
claim, counterclaim, or defense is asserted against Payee, other than any
litigation or other legal
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<PAGE>
proceeding in which a final, non-appealable judgment for money damages or
injunctive relief is entered against Payee;
4. Maker's failure to pay required taxes, assessments, and/or insurance
premiums payable with respect to the Mortgaged Property or to maintain the
required escrows therefor, to the extent that monies are not paid by Maker in
escrow for the payment of such amounts, except for any amounts applicable to the
period after foreclosure of Payee s lien on the Mortgaged Property, or the
delivery by Maker of a deed to the Mortgaged Property in lieu of foreclosure
(which deed has been accepted by Payee in writing), or the appointment of a
receiver for the Mortgaged Property:
5 . the gross negligence or willful misconduct of Maker, its agents,
affiliates, officers or employees which causes or results in a diminution, or
loss of value, of the Security Property that is not reimbursed by insurance or
which gross negligence or willful misconduct exposes Payee to claims, liability
or costs of defense in any litigation or other legal proceeding;
6. the seizure or forfeiture of the Security Property, or any portion
thereof, or Payee's interest therein, resulting from criminal wrongdoing by any
person or entity other than Payee under any federal. state or local law;
7. (a) any physical waste of the Mortgaged Property caused by the intentional
or grossly negligent act(s) or omission(s) of Maker, its agents, affiliates,
officers and employees, (b) the failure by Maker to maintain, repair or restore
any part of the Mortgaged Property as may be required by the Mortgage or any of
the other Loan Documents to the extent of all gross revenues that have been
generated by the Mortgaged Property following the date which is eighteen (18)
months prior to notice to Maker from Payee of such failure to maintain, repair
or restore any part of the Mortgaged Property and that have not been applied to
pay any portion of the Debt, reasonable and customary operating expenses and
capital expenditures for the Mortgaged Property paid to third parties not
affiliated (directly or indirectly) with Maker, taxes and insurance premiums for
the Mortgaged Property and escrows deposited with Payee, or (c) the removal or
disposal of any portion of the Mortgaged Property after an Event of Default
under the Loan Documents to the extent such Mortgaged Property is not replaced
by Maker with like property of equivalent value, function and design;
8. Maker's misapplication or conversion of any insurance proceeds paid by
reason of any loss, damage or destruction to the Mortgaged Property and any
awards or amounts received in connection with the condemnation of all or a
portion of the Mortgaged Property and not used by Maker for restoration or
repair of the Mortgaged Property;
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9. Maker's failure to pay in accordance with the terms of the Mortgage
(subject to Maker s rights as set forth in Section 30 thereof any charges for
labor or materials or other charges for work performed or materials furnished
prior to foreclosure that can create liens on any portion of the Mortgaged
Property, to the extent of the amount rightfully claimed by the lien claimant,
or found in any legal proceeding to be owed to the lien claimant, and not so
paid;
10. Maker's failure to deliver any security deposits collected with respect
to the Mortgaged Property to Payee or any other party entitled to receive such
security deposits under the Loan Documents, following an Event of Default; and
11. any rents (including advanced or prepaid rents), issues, profits,
accounts or other amounts generated by or related to the Mortgaged Property
attributable to, or accruing after an Event of Default, which amounts were
collected by Maker or its property manager and not turned over to Payee or used
to pay unaffiliated third parties for reasonable and customary operating
expenses and capital expenditures for the Mortgaged Property, taxes and
insurance premiums with respect to the Mortgaged Property and any other amounts
required to be paid under the Loan Documents with respect to the Mortgaged
Property (provided, however, such operating expenses shall include property
management fees of no more than 5% of gross effective income paid to Emeritus
Corporation, a Washington corporation [an affiliate of Maker] [or any successor
entity owned by substantially the same owners thereof] in accordance with a
management agreement approved by Payee).
Nothing contained in the foregoing subparagraphs (A), (B) or (C) shall (1) be
deemed to be a release or impairment of the Debt or the lien of the Loan
Documents upon the Security Property, or (2) preclude Payee from foreclosing
under the Loan Documents in case of any default or from enforcing any of the
other rights of Payee, including naming Maker as a party defendant in any action
or suit for foreclosure and sale under the Mortgage, or obtaining the
appointment of a receiver, except as stated in this paragraph, or (3) limit or
impair in any way whatsoever the Guaranty, or release, relieve, reduce, waive or
impair in any way whatsoever, any obligation of any party to the Guaranty, or
(4) impair the right of Payee to obtain a deficiency judgment or other judgment
on the Note against Maker if necessary to obtain any insurance proceeds or
condemnation awards to which Payee would otherwise be entitled; provided,
however, Payee shall only enforce such judgment to the extent of the insurance
proceeds or condemnation award.
Nothing herein shall be deemed to be a waiver of any right which Payee may have
under Sections 506(a), 506(b),1111 (b) or any other provisions of the Bankruptcy
Code to file a claim for the full amount of the Debt secured by the Loan
Documents or to require that all collateral shall continue to secure all of the
Debt owing to Payee in accordance with this Note and the other Loan Documents.
Maker (and the undersigned representative of Maker, if any) represents that
Maker has full power, authority and legal right to execute, deliver and perform
its obligations pursuant to this Note and the other
11
<PAGE>
Loan Documents and that this Note and the other Loan Documents constitute legal,
valid and binding obligations of Maker. Maker further represents that the Loan
was made for business or commercial purposes and not for personal, family or
household use.
All notices or other communications required or permitted to be given pursuant
hereto shall be given in the manner and be effective as specified in the
Mortgage, directed to the parties at their respective addresses as provided
therein.
References to particular sections of the Loan Documents shall be deemed
references to such sections as affected by other provisions of the Loan
Documents relating thereto.
Payee shall have the unrestricted right at any time or from time to time to sell
this Note and the Loan or participation interests therein. Maker shall execute,
acknowledge and deliver any and all instruments requested by Payee to satisfy
such purchasers or participants that the unpaid indebtedness evidenced by this
Note is outstanding upon the terms and provisions set out in this Note and the
other Loan Documents. To the extent, if any specified in such assignment or
participation, such assignee(s) or participant(s) shall have the rights and
benefits with respect to this Note and the other Loan Documents as such
assignee(s) or participant(s) would have if they were the Payee hereunder.
MAKER AND PAYEE HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THIS NOTE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH INCLUDING, BUT NOT LIMITED TO THOSE
RELATING TO (A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN PAYEE AND MAKER;
(B) USURY OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE
ACTS, DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF
COMMERCIAL REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR
CONFIDENTIAL RELATIONSHIPS); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO,
INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION,
UNDUE INFLUENCE, INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS
INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST;
OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY MAKER AND PAYEE, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE ANID EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. PAYEE IS HEREBY AUTHORIZED TO FILE A COPY
OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
MAKER AND PAYEE.
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<PAGE>
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT
LIMITATION, ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH,
FROM TIME TO TIME, IS APPLICABLE AND WHICH PREEMPTS THE STATE USURY LAWS), THE
LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAW (AS OPPOSED TO THE LAWS OF CONFLICTS) OF THE STATE OF TEXAS, EXCEPT
TO THE EXTENT THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS LOCATED
GOVERNS THE CREATION, PERFECTION AND DETERMINATION OF LIEN RIGHTS AND PRIORITY
UNDER THE LOAN DOCUMENTS, THE ENFORCENIENT OF REMEDIES AND THE DISPOSITION OF
SUCH PROPERTY.
THE PROVISIONS OF THIS NOTE AND THE OTHER LOAN DOCUMENTS MAY BE AMENDED OR
REVISED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY MAKER AND PAYEE. THIS NOTE
AND ALL THE OTHER LOAN DOCUMENTS EMBODY THE FINAL, ENTIRE AGREEMENT OF MAKER AND
PAYEE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS
AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT NIATTER
HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF MAKER AND PAYEE.
THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND PAYEE.
[The balance of this page is intentionally left blank.]
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<PAGE>
Executed under seal as of the day and year first above written.
MAKER:
EMERITUS PROPERTIES IX, LLC,
a Washington limited liability
company
By: /S/ Daniel R. Baty
Daniel R. Baty, its Managing
Manager
STATE OF WA
COUNTY OF KING
This instrument was ACKNOWLEDGED before me on September 17, 1999, by DANIEL R.
BATY, to me personally known and who, being duly sworn y me, did say that he is
the Managing Manager of EMERITUS PROPERTIES IX, LLC, a Washington limited
liability company, on Behalf of said limited liability company, and he did
further acknowledge such instrument to be the free act and deed of said limited
liability company, on behalf of said limited liability company.
[SEAL] /s/ Amanda Ray
Notary Public - State of WA
My commission Expires
01-05-02 Printed Name of Notary Public
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RETURN TO: Loan No. 400029618
Republic Title of Texas, Inc.
2626 Howell Street,10th Floor
Dallas, Texas 75204
Attention: Janell Davidson
MORTGAGE AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT (as the same may from time to time be
extended, renewed or modified, this "Mortgage") is made as of September 29,
1999, by EMERITUS PROPERTIES IX, LLC, a Washington limited liability company
("Mortgagor"), having its principal place of business at c/o Emeritus
Corporation, 3131 Elliott Avenue, Suite 500, Seattle, Washington 98121 , Attn:
William Shorten; and to AMRESCO CAPITAL, L.P., a Delaware limited partnership
("Mortgagee"), having its principal place of business at 700 North Pearl Street,
Suite 2400, LB 342, Dallas, Texas 75201-7424, Attention: Art Mauch.
To secure the following:
(i) the payment of an indebtedness (the "Loan") in the original principal sum of
TEN MILLION THREE HUNDRED NINETY-FIVE THOUSAND AND NO/100 DOLLARS
($10,395,000.00), lawful money of the United States of America, to be paid with
interest according to a certain note dated the date hereof made by Mortgagor to
Mortgagee with a Scheduled Maturity Date of October 10, 2009 (the note together
with all extensions, renewals or modifications thereof, being hereinafter
collectively called the "Note"), and all other sums, liabilities and obligations
constituting the Debt (as defined in the Note),
(ii) the payment of all sums advanced or incurred by Mortgagee contemplated
hereby,
(iii) the performance of the obligations and covenants herein contained, and
<PAGE>
(iv) the payment and performance of all obligations of Mortgagor under that
certain Payment and Performance Guaranty (the "Payment and Performance
Guaranty") executed by Mortgagor for the benefit of Mortgagee with respect to
the payment and performance of the following indebtedness and other obligations
to Mortgagee (singularly and collectively referred to as the "Affiliate Debt")
on the part of the following entities (singularly and collectively referred to
as "Affiliate Borrower" or "Affiliate Borrowers") (each such entity having the
same sole member as Mortgagor):
(A) indebtedness and other obligations of EMERITUS PROPERTIES X, LLC, a
Washington limited liability company, evidenced by that Fixed Rate Note dated of
even date herewith in the original principal sum of FIVE MILLION SIX HUNDRED
NINETY THOUSAND AND NO/100 DOLLARS ($5,690,000.00) and any and all documents
securing or governing such note (together with any amendments, modifications,
increases, financings, renewals and extensions thereof;
(B) indebtedness and other obligations of EMERITUS PROPERTIES XII, LLC, a
Washington limited liability company, evidenced by that Fixed Rate Note dated of
even date herewith in the original principal sum of FOUR MILLION THREE HUNDRED
THIRTY THOUSAND AND NO/100 DOLLARS ($4,330,000.00) and any and all documents
securing or governing such note (together with any amendments, modifications,
increases, financings, renewals and extensions thereof; and
(C) indebtedness and other obligations of RIDGELAND ASSISTED LIVING, LLC, a
Washington limited liability company, evidenced by that Fixed Rate Note dated of
even date herewith in the original principal sum of FIVE MILLION FIVE HUNDRED
THOUSAND AND NO/I00 DOLLARS ($5,500,000.00) and any and all documents securing
or governing such note (together with any amendments, modifications, increases,
financings, renewals and extensions thereof.
Mortgagor has mortgaged, given, granted, bargained, sold, alienated, enfeoffed,
conveyed, confirmed, warranted, pledged, assigned, and hypothecated and by these
presents does hereby mortgage, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, warrant, pledge, assign and hypothecate unto Mortgagee with
mortgage covenants, the real property described in Exhibit A attached hereto
(the "Premises") and the buildings, structures, fixtures, additions,
enlargements, extensions, modifications, repairs, replacements and improvements
now or hereafter located thereon (the "Improvements");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now owned; or
hereafter acquired, in and to the following property, rights, interests and
estates (the Premises and the Improvements together with the following property,
rights, interests and estates being hereinafter described are collectively
referred to herein as the "Mortgaged Property"):
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<PAGE>
(a) all easements, rights-of way, strips and gores of land, streets, ways,
alleys, passages, sewer rights, water, water courses, water rights and powers,
air rights and development rights, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments and appurtenances of any nature
whatsoever, in any way belonging, relating or pertaining to the Premises and the
Improvements and the reversion and reversions, remainder and remainders, and all
land lying in the bed of any street, road or avenue, opened or proposed, in
front of or adjoining the Premises, to the center line thereof and all the
estates, rights, titles, interests, dower and rights of dower, curtesy and
rights of curtesy, property, possession, claim and demand whatsoever, both at
law and in equity, of Mortgagor of, in and to the Premises and the Improvements
and every part and parcel thereof, with the appurtenances thereto;
(b) all machinery, furnishings, equipment, fixtures (including but not limited
to all heating, air conditioning, plumbing, lighting, communications, elevator
fixtures, kitchen, medical, dental or rehabilitation fixtures), cleaning
apparatus, beds, linens, televisions; carpeting, telephones, cash registers,
computers, lamps, glassware, restaurant and kitchen equipment and medical,
dental, therapeutic, paramedical or rehabilitation equipment, supplies, and
other property of every kind and nature, whether tangible or intangible,
whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an
interest, now or hereafter located upon the Premises and the Improvements, or
appurtenant thereto, and usable in connection with the present or future
operation and occupancy of the Premises and the Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Mortgagor,
or in which Mortgagor has or shall have an interest, now or hereafter located
upon the. Premises and the Improvements, or appurtenant thereto, or usable in
connection with the present or future operation, enjoyment and occupancy of the
Premises and the Improvements (hereinafter collectively called the "Equipment"),
including the proceeds of any sale or transfer of the foregoing, and the right,
title and interest of Mortgagor in and to any of the Equipment which may be
subject to any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the State or States where any of the Mortgaged Property
is located (the "Uniform Commercial Code") superior in lien to the lien of this
Mortgage;
(c) all awards or payments, including interest thereon, which may heretofore and
hereafter be made with respect to the Premises and the Improvements, whether
from the exercise of the right of eminent domain or condemnation (including but
not limited to any transfer made in lieu of or in anticipation of the exercise
of said rights), or for a change of grade, or for any other injury to or
decrease in the value of the Premises and Improvements;
(d) all leases, subleases and other agreements (including, without limitation,
any and all security interests, contractual liens and security deposits
thereunder) affecting the use, enjoyment or occupancy of the Premises and the
Improvements heretofore or hereafter entered into (the "Leases") and all income,
rents, issues, profits and revenues (including all oil and gas or other mineral
royalties and bonuses) from the Premises and the Improvements and every part and
parcel thereof, with the appurtenances thereto, including, without limitation,
rights to payments earned under leases for space in the Improvements for the
operation of ongoing retail businesses such as newsstands, barbershops, beauty
shops, physicians' offices, pharmacies and specialty shops (the
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<PAGE>
"Rents") and all proceeds from the sale or other disposition of the Leases
and the right to receive and apply the Rents to the payment of the Debt;
(e) all proceeds of 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;
(f) the right, in the name and on behalf of Mortgagor, 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;
(g) all accounts (including, without limitation, any rights of Mortgagor arising
from the operation of a 80 unit nursing home or other specialized or
assisted-living care facility located on the Premises (collectively, the
"Assisted Living Facility"), including rights to payment for goods sold or
leased or to be sold or leased or for services rendered or to be rendered),
escrows, documents, instruments, chattel paper, claims, deposits and general
intangibles, as the foregoing terms are defined in the Uniform Commercial Code,
and all franchises, trade names, trademarks, symbols, service marks, books,
records, plans, specifications, designs, drawings, permits, licenses (to the
extent assignable, including, without limitation, business licenses, state
health department licenses, food service licenses, licenses to conduct business,
certificates of need and all other permits, licenses, approvals, authorizations
and rights obtained from any governmental, quasi-governmental or private person
or entity whatsoever concerning ownership, operation, use or occupancy of the
Assisted Living Facility [collectively, the "Licenses"]), contract rights
(including, without limitation, any contract with any architect or engineer or
with any other provider of goods or services for or in connection with any
construction, repair or other work upon the Mortgaged Property, and any contract
for management or any other provision for services in connection with the
Assisted Living Facility), approvals, actions and causes of action that now or
hereafter relate to, are derived from or are used in connection with the
Premises, or the use, operation, maintenance, occupancy or enjoyment thereof or
the conduct of any business or activities thereon (hereinafter collectively
called, the "Intangibles");
(h) all rights to payment from the Medicare and Medicaid programs or similar
state or federal programs, boards, bureaus or agencies and rights to payment
from patients or private insurers, arising from the operation of the Assisted
Living Facility; and
(i) all proceeds, products, offspring, rents and profits from any of the
foregoing including, without limitation, those from sale, exchange, transfer,
collection, loss, damage, disposition, substitution or replacement of any of the
foregoing, and all other security and collateral of any nature whatsoever, now
or hereafter given for the repayment of the Debt and the performance of
Mortgagor's obligations under the Loan Documents (as defined in the Note),
including (without limitation) the Tax and Insurance Escrow Fund (hereafter
defined) and the Replacement Escrow Fund (hereafter defined).
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<PAGE>
(j) any and all proceeds and products of any of the foregoing and any and all
other security and collateral of any nature whatsoever, now or hereafter given
for the repayment of the Debt and the performance of Mortgagor's obligations
under the Loan Documents (as defined in the Note), including (without
limitation) the Tax and Insurance Escrow Fund (hereafter defined), and the
Replacement Escrow Fund (hereafter defined) and all other escrows established
with Mortgagee by Mortgagor.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property unto and
to the use and benefit of Mortgagee, and its successors and assigns, forever;
PROVIDED, HOWEVER, these presents are upon the express condition that, if
Mortgagor shall well and truly pay to Mortgagee the Debt at the time and in the
manner provided in the Note and this Mortgage and shall well and truly abide by
and comply with each and every covenant and condition set forth herein, in the
Note and in the other Loan Documents in a timely manner, these presents and the
estate hereby granted shall cease, terminate and be void;
AND Mortgagor represents and warrants to and covenants and agrees with Mortgagee
as follows:
1. Payment of Debt and Incorporation of Covenants, Conditions and Agreements.
Mortgagor will pay the Debt at the time and in the manner provided in the Note
and in this Mortgage. Mortgagor will duly and punctually perform all of the
covenants, conditions and agreements contained in the Note, this Mortgage and
the other Loan Documents all of which covenants, conditions and agreements are
hereby made a part of this Mortgage to the same extent and with the same force
as if fully set forth herein.
2. Warranty of Title. Mortgagor warrants that Mortgagor is the sole owner of and
has good, legal, marketable and insurable fee simple title to the Mortgaged
Property and has the full power, authority and right to execute, deliver and
perform its obligations under this Mortgage and to encumber, mortgage, give,
grant, bargain, sell, alienate, enfeoff, convey, confirm, pledge, assign and
hypothecate the same and that Mortgagor possesses an unencumbered fee estate in
the Premises and the Improvements and that it owns the Mortgaged Property free
and clear of all liens, encumbrances and charges whatsoever except for those
exceptions shown in the title insurance policy insuring the lien of this
Mortgage and that this Mortgage is and will remain a valid and enforceable first
lien on and security interest in the Mortgaged Property, subject only to said
exceptions. Mortgagor shall forever warrant, defend and preserve such title and
the validity and priority of the lien of this Mortgage and shall forever warrant
and defend the same to Mortgagee against the claims of all persons whomsoever.
3. Insurance. (a) Mortgagor, at its sole cost and expense, for the mutual
benefit of Mortgagor and Mortgagee, shall obtain and maintain during the entire
term of this Mortgage the following policies of insurance:
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(i) Insurance against loss or damage by fire and against loss or damage by
other risks and hazards covered by a standard extended coverage insurance policy
and included within the classification "All Risks of Physical Loss" including,
but not limited to, riot and civil commotion, vandalism, malicious mischief,
burglary and theft. Such insurance shall be in an amount (a) equal to the
greater of(I) the lesser of the then full replacement cost of the Improvements
and Equipment, without deduction for physical depreciation, or the outstanding
amount of the Debt, or (2) the amount specified in the agreed value clause of
the policy, which must be in an amount required by the insurer to suspend any
co-insurance clause, and (b) with extended coverage in amounts sufficient such
that the insurer would not deem Mortgagor a co-insurer under said policies. The
policies of insurance carried in accordance with this paragraph shall be paid
annually in advance and shall contain the "Replacement Cost Endorsement" with a
waiver of depreciation. In addition, if any of the Improvements or the use of
the Property shall at any time constitute a legal non-conforming structure or
use, Mortgagor shall obtain an "Ordinance or Law Coverage" or "Enforcement"
endorsement, which shall include sufficient coverage for (x) codes to comply
with building and zoning costs and ordinances, (y) demolition costs, and (z)
increased costs of construction.
(ii) Flood insurance if any part of the Mortgaged Property now is (or is
subsequently determined to be) located in an area identified by the Federal
Emergency Management Agency as an area having special flood hazards and in which
flood insurance has been made 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 (and any amendment or successor act thereto) in an
amount at least equal to the lesser of (A) the full replacement cost of the
Improvements and the Equipment, (B) the outstanding principal amount of the
Note, or (C) the maximum limit of coverage available with respect to the
Improvements and Equipment under said Act. Mortgagor hereby agrees to pay
Mortgagee such fees as may be permitted under applicable law for the costs
incurred by Mortgagee in determining, from time to time, whether the Mortgaged
Property is then located within such area.
(iii) Commercial General Liability Insurance, including broad form property
damage, blanket contractual and personal injuries (including death resulting
therefrom) coverages and containing minimum limits per occurrence of
$1,000,000.00 for the Improvements and the Premises with excess umbrella
coverage in an amount of at least $ 10,000,000.00 arising out of any one
occurrence.
(iv) Business interruption and/or rental loss insurance payable to
Mortgagee, covering all risks required to be covered by the "all risk"
insurance described above in this Section 3 and in an amount sufficient to
cover any co-insurance penalty in an amount equal to one hundred percent
(100%) of the projected gross income from the Mortgaged Property (including
Rents payable under Leases whether or not such Leases are terminable in the
event of fire or casualty) for a period of twelve (12) months and, if
Mortgagor is required to obtain an "Ordinance or Loss Coverage" or
"Enforcement" endorsement to the all risk
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<PAGE>
insurance as set forth above in this Section 3, coverage for the increased
period of restoration. The amount of such rental loss insurance shall be
reviewed annually and shall be increased from time to time during the term of
this Mortgage as and when rent increases occur under Leases previously in place
and as a result of new Leases, and as renewal Leases are entered into in
accordance with the terms of this Mortgage, to reflect all increased rent and
increased additional rent payable by all of the tenants under all such Leases.
(v) Insurance against loss or damage from (A) leakage of sprinkler
systems, and (B) explosion of steam boilers, air conditioning equipment, high
pressure piping, machinery and equipment, pressure vessels or similar apparatus
now or hereafter installed in the Improvements and including broad form boiler
and machinery insurance (without exclusion for explosion) covering all boilers
or other pressure vessels, machinery and equipment located in, on, or about the
Premises and the Improvements. Insurance coverage is required in an amount at
least equal to the full replacement cost of such equipment and the building or
buildings housing same. Insurance coverage must extend to electrical equipment,
sprinkler systems, heating and air conditioning equipment, refrigeration
equipment and piping.
(vi) If the Mortgaged Property includes commercial property, worker's
compensation insurance with respect to any employees of Mortgagor, as required
by any governmental authority or legal requirement.
(vii) At all times when structural construction, material repairs or
alterations are being made with respect to the Improvements, (A) owner's
contingent or protective liability insurance covering claims not covered by or
under the terms or provisions of the above-mentioned comprehensive general
liability insurance policy, and (B) the hazard insurance provided for in the
first sentence of this Section 3 written in a so-called builder's risk completed
value form ( 1 ) on a non-reporting basis, (2) against all risks insured against
pursuant to such sentence, (3) including permission to occupy the Property, and
(4) with an agreed amount endorsement waiving co-insurance provisions.
(viii) [Intentionally deleted.)
(ix) Such other insurance as may from time to time be reasonably
required by Mortgagee in order to protect its interests.
(b) All policies of insurance (the "Policies") required pursuant to this
Section 3 shall:(i) contain a standard noncontributory mortgagee clause naming
Mortgagee as the person to which all payments made by such insurance company
shall be paid, (ii) be maintained throughout the term of this Mortgage without
cost to Mortgagee, (iii) certificates evidencing such policies (in form
reasonably acceptable to Mortgagee) shall be delivered to Mortgagee by
Mortgagor, (iv) contain such provisions as Mortgagee deems reasonably necessary
or desirable to protect its interest including, without limitation, endorsements
providing that neither Mortgagor, Mortgagee nor any other party shall be a
co-insurer under said Policies and that Mortgagee shall receive at least thirty
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(30) days prior written notice of any modification, reduction or cancellation,
including, without limitation, cancellation due to nonpayment of premiums), (v)
be for a term of not less than one (1) year, (vi) be issued by an insurer
licensed in the state in which the Mortgaged Property is located, (vii) provide
that Mortgagee may, but shall not be obligated to, make premium payments to
prevent any cancellation, endorsement, alteration or reissuance, and such
payments shall be accepted by the insurer to prevent same, (viii) be
satisfactory in form and substance to Mortgagee and shall be approved by
Mortgagee as to amounts, form, risk coverage, deductibles, loss payees and
insureds, and (ix) provide that all claims shall be allowable on events as they
occur. Upon demand therefor, Mortgagor shall reimburse Mortgagee for all of
Mortgagee's (or its servicer's) reasonable costs and expenses incurred in
obtaining any or all of the Policies or otherwise causing the compliance with
the terms and provisions of this Section 3, including (without limitation)
obtaining updated flood hazard certificates and replacement of any so-called
"forced placed" insurance coverages. All Policies shall be issued by an insurer
with a claims paying ability rating of "A" or better by Standard & Poor's
Corporation or A/A-VIII or better by A.M. Best as published in Best's Key Rating
Guide. Mortgagor shall pay the premiums for such Policies (the "Insurance
Premiums") as the same become due and payable (unless such Insurance Premiums
have been paid by Mortgagee pursuant to Section 5 hereof. Not later than thirty
(30) days prior to the expiration date of each of the Policies, Mortgagor will
deliver to Mortgagee satisfactory evidence of the renewal of each Policy. If
Mortgagor receives from any insurer any written notification or threat of any
actions or proceedings regarding the non-compliance or non-conformity of the
Mortgaged Property with any insurance requirements, Mortgagor shall give prompt
notice thereof to Mortgagee.
Mortgagor may provide any required insurance through a blanket liability or
casualty policy provided such Policy affords the coverages required in this
Section 3, specifically identifies the Mortgaged Property and allocates to the
Mortgaged Property the amount of coverage from time to time required hereunder
and specifically names Mortgagee under a standard noncontributory mortgagee
clause.
(c) In the event of the entry of a judgment of foreclosure, sale of the
Mortgaged Property by non judicial foreclosure sale, or delivery of a
deed-in-lieu of foreclosure, Mortgagee is hereby authorized (without the consent
of Mortgagor) to assign any and all Policies to the purchaser or transferee
thereunder, or to take such other steps as Mortgagee may deem advisable to cause
the interest of such transferee or purchaser to- be protected by any of the
Policies without credit or allowance to Mortgagor for prepaid premiums thereon.
(d) If the Mortgaged Property shall be damaged or destroyed, in whole or in
part, by fire or other casualty, Mortgagor shall give prompt written notice
thereof to Mortgagee.
(i) In case of loss covered by Policies, Mortgagee may either ( 1 )
settle and adjust any claim without the consent of Mortgagor, or (2) allow
Mortgagor to agree with the insurance company or companies on the amount to be
paid upon the loss; provided, that Mortgagor may adjust losses aggregating not
in excess of $ 100,000.00 if such adjustment is carried out in a competent and
timely manner, and provided that in any case Mortgagee shall and is hereby
authorized to collect and receipt for any such insurance proceeds (subject
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to the terms and provisions of this Mortgage); and the expenses incurred by
Mortgagee in the adjustment and collection of insurance proceeds shall become
part of the Debt and be secured hereby and shall be reimbursed by Mortgagor to
Mortgagee upon demand (unless deducted by and reimbursed to Mortgagee from such
proceeds).
(ii) In the event of any insured damage to or destruction of the Mortgaged
Property or any part thereof (herein called an "Insured Casualty"), if the
Restoration Conditions (hereafter defined) are met, then the proceeds of
insurance with respect to the Insured Casualty shall be disbursed by Mortgagee
to Mortgagor (during the course of construction) for the cost of restoring,
repairing, replacing or rebuilding the Mortgaged Property or part thereof
subject to Insured Casualty, as provided for below; and Mortgagor hereby
covenants and agrees forthwith to commence and diligently to prosecute such
restoring, repairing, replacing or rebuilding; provided, however, in any event
Mortgagor shall pay all costs (and if required by Mortgagee, Mortgagor shall
deposit the total thereof with Mortgagee in advance) of such restoring,
repairing, replacing or rebuilding in excess of the net proceeds of insurance
made available pursuant to the terms hereof. With respect to an Insured Casualty
(as defined in this Section 3(d)) or a Condemnation Loss (as defined in Section
7 below), the phrase "Restoration Conditions" shall mean the satisfaction of the
following conditions precedent: (A) the restoration cost is in an aggregate
amount of less than twenty-five percent (25%) of the original principal balance
of the Note, (B) in the reasonable judgment of Mortgagee, the Mortgaged Property
can be restored within six (6) months after insurance or condemnation proceeds
(as applicable) are made available to an economic unit not less valuable
(including an assessment of the impact of the termination of any Leases due to
such Insured Casualty or Condemnation Loss) and not less useful than the same
was prior to the Insured Casualty or Condemnation Loss (as applicable), and
after such restoration will adequately secure the outstanding balance of the
Debt, and (C) no Event of Default (hereinafter defined) shall have occurred and
be then continuing, and (D) with respect to an Insured Casualty, such
restoration can occur at least ninety (90) days prior to the cessation of
payments under the foregoing rental loss insurance.
(iii) Except as provided above, the proceeds of insurance collected upon
any Insured Casualty shall, at the option of Mortgagee in its sole discretion,
be applied to the payment of the Debt or applied to reimburse Mortgagor for the
cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or
part thereof subject to the Insured Casualty, in the manner set forth below. Any
such application to the Debt shall not be considered a voluntary prepayment
requiring payment of the prepayment consideration provided in the Note, except
that if an Event of Default, or an event which with the giving of notice and/or
the passage of time, or both, would constitute an Event of Default has occurred,
then such application shall be subject to the full prepayment consideration
computed in accordance with the terms of the Note. Any such application shall
not postpone or, except as provided below, reduce any payments otherwise
required pursuant to the Note, other than the final payment on the Note.
Notwithstanding anything herein to the contrary, in the event that Mortgagee
applies proceeds of insurance in an aggregate amount greater than twenty-five
percent (25%) of the original principal balance of the Note, so long as the
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Reamortization Conditions (as defined below) are met, upon Mortgagor's written
request, the Note shall be amended, at the cost and expense of Mortgagor, to
reduce (but not postpone) the scheduled monthly payments due on the Note to an
amount that will amortize the remaining principal balance of the Note
immediately after such application to an amount equal, on the Maturity Date (as
defined in the Note) to the percentage of the balance of the Note on the
Maturity Date based on the original principal amount of the Note and the
original amortization of the Note, such percentage being determined by dividing
the aggregate amount of all such applications to the date of any such
application by the original principal amount of the Note. Mortgagor shall pay
all costs and expenses in connection with such adjustment and amendment,
including all legal, appraisal, title, recording and other out-of pocket
expenses incurred by Mortgagee or its servicer in substantiating and documenting
such adjustment. For purposes hereof the "Reamortization Conditions" shall mean
(A) no Event of Default (hereinafter defined) shall have occurred and be
continuing; (B) the Loan to Value Ratio (as defined below) after such Insured
Casualty or condemnation, as the case may be, and after such application shall
be no more than seventy-five percent (75%); and (C) the Mortgaged Property shall
continue to be a viable Assisted Living Facility supporting a debt service
coverage ratio of at least 1.45 to 1.00 (calculated by Mortgagee or its servicer
at such time based upon the same criteria used by Mortgagee when it underwrote
the Loan and the quarterly reports described in Section 18 below). For purposes
hereof, "Loan to Value Ratio" shall mean the ratio of the stated principal
amount of the Note to the appraised value of the Mortgaged Property following
the Insured Casualty or the condemnation, as the case may be, as determined by a
then-current appraisal in form and content satisfactory to Mortgagee and
prepared (at Mortgagor's expense) by an MAI appraiser satisfactory to Mortgagee.
(iv) In the event that proceeds of insurance, if any, shall be made
available to Mortgagor for the restoring, repairing, replacing or rebuilding of
the Mortgaged Property, Mortgagor hereby covenants to restore, repair, replace
or rebuild the same to be of at least equal value and of substantially the same
character as prior to such damage or destruction, all to be effected in
accordance with applicable law and plans and specifications approved in advance
by Mortgagee.
(v) In the event Mortgagor is entitled to reimbursement out of sums held by
Mortgagee with respect to an Insured Casualty or a Condemnation Loss
("Restoration Proceeds"), such Restoration Proceeds shall be disbursed from time
to time (during the course of construction) upon Mortgagee being furnished with
(A) evidence satisfactory to it (which evidence may include inspection[s] of the
work performed) that the restoration, repair, replacement and rebuilding covered
by the disbursement has been completed in accordance with plans and
specifications approved by Mortgagee, (B) evidence satisfactory to it of the
estimated cost of completion of the restoration, repair, replacement and
rebuilding, (C) funds, or, at Mortgagee's option, assurances satisfactory to
Mortgagee that such funds are available, sufficient in addition to the proceeds
of insurance to complete the proposed restoration, repair, replacement and
rebuilding, and (D) such waivers of lien, contractor's sworn statements, title
insurance endorsements, bonds, plats of survey and such
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other evidences of cost, payment and performance as Mortgagee may reasonably
require and approve; and in addition to the foregoing, but only with respect to
matters involving the structure, HVAC, plumbing or mechanical systems, or having
a completion cost in excess of $100,000.00, Mortgagee (in its sole discretion)
also may require (i) that all plans and specifications for such restoration,
repair, replacement and rebuilding be submitted to and approved by Mortgagee
prior to commencement of work; and (ii) that Mortgagee receive architect's
certificates satisfactory to Mortgagee. With respect to disbursements to be made
by Mortgagee of Restoration Proceeds: (A) no payment made prior to the final
completion of the restoration, repair, replacement and rebuilding shall exceed
ninety percent (90%) of the value of the work performed from time to time; (B)
funds other than Restoration Proceeds shall be disbursed prior to disbursement
of such proceeds; and (C) at all times, the undisbursed balance of such
Restoration Proceeds remaining in the hands of Mortgagee, together with funds
deposited for that purpose or irrevocably committed to the satisfaction of
Mortgagee by or on behalf of Mortgagor for that purpose, shall be at least
sufficient in the reasonable judgment of Mortgagee to pay for the cost of
completion of the restoration, repair, replacement or rebuilding, free and clear
of all liens or claims for lien and the costs described in subsection 3(d)(vi)
below. Any surplus which may remain out of Restoration Proceeds held by
Mortgagee after payment of such costs of restoration, repair, replacement or
rebuilding shall be paid to any party entitled thereto. In no event shall
Mortgagee assume any duty or obligation for the adequacy, form or content of any
such plans and specifications, nor for the performance, quality or workmanship
of any restoration, repair, replacement and rebuilding.
(vi) Notwithstanding anything to the contrary contained herein, the
Restoration Proceeds shall be reduced by the reasonable costs (if any) incurred
by Mortgagee in the adjustment and collection thereof and in the reasonable
costs incurred by Mortgagee of paying out such proceeds (including, without
limitation, reasonable attorneys' fees and costs paid to third parties for
inspecting the restoration, repair, replacement and rebuilding and reviewing the
plans and specifications therefor).
4. Payment of Taxes and Other Charges. Mortgagor shall pay all taxes,
assessments, and other governmental impositions (the "Taxes") and all
assessments, water rates and sewer rents, ground rents, maintenance charges, and
other charges, including without limitation, vault charges and license fees for
the use of vaults, chutes and similar areas adjoining the Premises (the "Other
Charges"), now or hereafter levied or assessed or imposed against the Mortgaged
Property or any part thereof as the same become due and payable. Mortgagor will
deliver to Mortgagee evidence satisfactory to Mortgagee that the Taxes and the
Other Charges have been so paid or are not then delinquent no later than thirty
(30) days following the date on which the Taxes and/or the Other Charges would
otherwise be delinquent if not paid. Mortgagor shall not suffer and shall
promptly cause to be paid and discharged any lien or charge whatsoever which may
be or become a lien or charge against the Mortgaged Property, and shall promptly
pay for all utility services provided to the Mortgaged Property.
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5. Tax and Insurance Escrow Fund. On the date hereof. Mortgagor shall make
an initial deposit to the Tax and Insurance Escrow Fund (hereinafter defined) of
an amount which, when added to the monthly amounts to be deposited as specified
below, will be sufficient in the estimation of Mortgagee to satisfy the next due
Taxes and Insurance Premiums and other similar charges. Mortgagor shall pay to
Mortgagee on the tenth first day of each calendar month (a) one-twelfth of an
amount which would be sufficient to pay all Taxes payable, or estimated by
Mortgagee to be payable, during the next ensuing twelve (12) months, and (b)
one-twelfth of an amount which would be sufficient to pay the Insurance Premiums
due for the renewal of the coverage afforded by the Policies upon the expiration
thereof (said amounts in subsections [a] and [b] above hereinafter called the
"Tax and Insurance Escrow Fund"). Mortgagee may, in its sole discretion, retain
a third-party tax consultant to obtain tax certificates or other evidence or
estimates of Taxes due or to become due or to verify the payment of taxes and
Mortgagor will promptly- reimburse Mortgagee for the reasonable cost of
retaining any such third-parties or obtaining such certificates. Any unpaid
reimbursements for the costs of such third parties shall be added to the Debt.
The Tax and Insurance Escrow Fund and the payments of interest or principal or
both, payable pursuant to the Note, shall be added together and shall be paid as
an aggregate sum by Mortgagor to Mortgagee. Mortgagor hereby pledges to
Mortgagee (and grants to Mortgagee a lien on and security interest in) any and
all monies now or hereafter deposited in the Tax and Insurance Escrow Fund as
additional security for the payment of the Debt. Mortgagee will apply the Tax
and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required
to be made by Mortgagor pursuant to Sections 3 and 4 hereof. If the amount of
the Tax and Insurance Escrow Fund shall exceed the amounts due for Taxes and
Insurance Premiums pursuant to Sections 3 and 4 hereof, Mortgagee shall, in its
discretion, return any excess to Mortgagor or credit such excess against future
payments to be made to the Tax and Insurance Escrow Fund. In allocating such
excess, Mortgagee may deal with the person shown on the records of Mortgagee to
be the owner of the Mortgaged Property. If the Tax and Insurance Escrow Fund is
not sufficient to pay the Taxes and Insurance Premiums, Mortgagor shall promptly
pay to Mortgagee, upon demand, an amount which Mortgagee shall estimate as
sufficient to make up the deficiency. Upon the occurrence of an Event of
Default, Mortgagee shall be entitled to exercise both the rights of setoff and
banker's lien, if applicable, against the interest of Mortgagor in the Tax and
Insurance Escrow Fund to the full extent of the outstanding balance of the Debt,
application of any such sums to the Debt to be in any order in its sole
discretion. Until expended or applied as above provided, any amounts in the Tax
and Insurance Escrow Fund shall constitute additional security for the Debt. The
Tax and Insurance Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by Mortgagee. Unless otherwise required by
applicable law, no earnings or interest on the Tax and Insurance Escrow Fund
shall be payable to Mortgagor even if Mortgagee or its servicer is paid a fee
and/or receives interest or other income in connection with the deposit or
placement of such fund (in which event such income shall be reported under
Mortgagee's or its servicer's tax identification number, as applicable). Upon
payment of the Debt and performance by Mortgagor of all its obligations under
this Mortgage and the other Loan Documents, any amounts remaining in the Tax and
Insurance Escrow Fund shall be refunded to Mortgagor.
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Notwithstanding the foregoing, Mortgagee (by its acceptance of this Mortgage)
agrees to defer its right to require deposits into escrow for Insurance Premiums
as long as the following conditions are satisfied:
(a) Mortgagor is the sole fee simple owner of the Mortgaged Property;
(b) Mortgagor has established a mechanism acceptable to Mortgagee for
insuring that all Insurance Premiums on the Mortgaged Property are paid at a
time and in a manner acceptable to Mortgagee;
(c) Mortgagee is satisfied in its discretion from written evidence provided
promptly and consistently to it by Mortgagor that all such Insurance Premiums
are actually being timely paid in full and that an escrow for such purpose is
not necessary in Mortgagee's sole discretion;
(d) No Event of Default exists hereunder or under any other of the Loan
Documents and no condition or event exists which with notice, the passage of
time, or both, would constitute an Event of Default;
(e) All insurance companies must have agreed that such insurance shall not
be subject to termination or cancellation without thirty (30) days prior written
notice to Mortgagee or its servicer; and
(f) The Mortgaged Property shall continue to be a viable Assisted Living
Facility supporting a debt service coverage ratio of at least 1.45 to 1.00
(calculated by Mortgagee or its servicer at such time based upon the same
criteria used by Mortgagee when it underwrote the Loan and the quarterly reports
described in Section 18 below).
In the event any one or more of the foregoing conditions precedent shall be (or
become) unsatisfied, Mortgagee may require that such escrow be established and
fully funded as provided herein.
6. Replacement Escrow Fund. Mortgagor shall pay to Mortgagee during each
calendar year the aggregate amount of $325.00 per residential unit per calendar
year for replacements and capital repairs required to be made to the Mortgaged
Property, payable in twelve equal installments each on the tenth day of each
calendar month (the "Replacement Escrow Fund"); provided, however, collection of
monthly escrow deposits for such purpose shall be limited to $250.00 per unit
per calendar year so long as Mortgagee is satisfied as to all of the following:
(a) There must be no pending or uncured event of default; and
(b) the Mortgaged Property is maintained as required hereunder and as
confirmed by Mortgagee's regular inspections (at Mortgagor's expense if a third
party is required).
The amount of such annual and monthly payments for the Replacement Escrow Fund
for any calendar year or portion thereof shall not be increased during the term
of the Loan unless there is a
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material, adverse change in the condition of the Mortgaged Property or in the
costs needed to maintain the Mortgaged Property, as determined in the sole
reasonable discretion of Mortgagee. Mortgagor hereby pledges to Mortgagee (and
grants to Mortgagee a lien on and security interest in) any and all monies now
or hereafter deposited in the Replacement Escrow Fund as additional security for
the payment of the Debt. As required in Section 18 below, Mortgagor shall
deliver to Mortgagee for Mortgagee's review and approval, a capital expenditure
budget (the "Budget") itemizing the replacements and capital repairs which are
anticipated to be made to the Mortgaged Property during the next immediately
succeeding calendar year (provided, however, such proposed budget may contain a
reasonable contingency reserve for the same). Mortgagee may, upon notice to
Mortgagor and subject to the terms and conditions of this Section 6, adjust the
monthly amounts required to be deposited into the Replacement Escrow Fund to a
monthly amount equal to one-twelfth of the total amount specified in each
approved Budget. So long as no-Event of Default exists and is continuing,
Mortgagee shall make disbursements from the Replacement Escrow Fund for items
specified in each approved Budget on a quarterly basis in increments of no less
than $5,000.00 upon delivery to Mortgagee by Mortgagor of Mortgagee's standard
form of draw request accompanied by copies of paid or unpaid invoices for the
amounts requested and, if required by Mortgagee and customarily obtained in the
location where the Mortgaged Property is located, lien waivers and releases from
all parties furnishing materials and/or services in connection with the
requested payment, delivery of such certificates and certifications as Mortgagee
may require (including but not limited to a new certificate of occupancy for the
portion of the Improvements covered by such repairs, if a new certificate of
occupancy is required by applicable law, or a certification by Mortgagor that no
new certificate of occupancy is required) and for disbursement requests in
excess of $20,000.00, a certification from an inspecting architect or engineer
or other third-party acceptable to Mortgagee describing the completed repairs or
capital improvements, verifying the completion of the completed work and the
compliance with applicable law and reimbursement of all out-of pocket inspection
fees incurred by Mortgagee. Mortgagee may require an inspection of the Mortgaged
Property prior to making a quarterly disbursement in order to verify completion
of replacements and repairs. Following an Event of Default, Mortgagee reserves
the right to make any disbursement from the Replacement Escrow Fund directly to
the party furnishing materials and/or services. The Replacement Escrow Fund is
solely for the protection of Mortgagee and entails no responsibility or
obligation on Mortgagee's part beyond the payment of the costs and expenses
described in this Section in accordance with the terms hereof and beyond the
allowing of a due credit for the sums actually received. In the event that the
amounts on deposit or available in the Replacement Escrow Fund are inadequate to
pay the costs of such repairs or capital expenditures, Mortgagor shall pay the
amount of such deficiency. Until expended or applied as above provided, any
amounts in the Replacement Escrow Fund shall constitute additional security for
the Debt. Upon the occurrence of an Event of Default, Mortgagee may apply any
sums then present in the Replacement Escrow Fund to the payment of the Debt in
any order in its sole discretion. Upon payment of the Debt and performance by
Mortgagor of all its obligations under this Mortgage and the other Loan
Documents, any amounts remaining in the Replacement Escrow Fund shall be
refunded to Mortgagor. The Replacement Escrow Fund shall not constitute a trust
fund and may be commingled with other monies held by Mortgagee. The Funds shall
be held in an account in Mortgagee's name (or such other account name style as
Mortgagee may elect) at a financial institution or other depository selected by
Mortgagee (or its servicer) in its sole discretion (the
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"Depositorv Institution"). Mortgagor shall be entitled to, and shall report
under its Federal tax identification number, the amount allocated to Mortgagor
by Mortgagee, if any, on the Funds. Mortgagee shall allocate to Mortgagor an
amount on the Funds equal to an amount determined by applying to the average
monthly balance in the Funds the quoted interest rate for the Depository
Institution's business money market savings account, as such rate changes from
time to time (such allocated amount being referred to as "Mortgagor's
Interest"). If such Depository Institution quotes more than one interest rate
for a business money market savings account, then the lowest of such rates will
be used. If the Depository Institution does not have an established business
money market savings account (or if an interest rate for such account cannot
otherwise be determined in connection with the deposit of such Replacement
Escrow Fund), a comparable interest rate as quoted by Bank of America, N.A.
shall be used. Mortgagor's Interest, less applicable administrative fees (if
any), shall be and become part of such Funds and shall be disbursed as provided
in this Section. Mortgagee shall not be responsible for obtaining a specific
return or yield on such deposit. Mortgagee will cause to be furnished to
Mortgagor on an annual basis such income tax reporting forms as are required by
applicable Federal law.
Upon the request of Mortgagee, Mortgagor agrees to pay to Mortgagee a fee of
fifty dollars ($50.00) per month (not to exceed the Mortgagor's Interest) on the
Replacement Escrow Fund maintained by Mortgagee to compensate Mortgagee (or its
servicer) for administrative costs associated with Mortgagee's deposit into an
interest-bearing account the Replacement Escrow Funds escrowed under this
Section 6. Mortgagor agrees that Mortgagee (or its servicer) shall have the
right to debit any interest earned for the benefit of Mortgagor on such escrow
account maintained by Mortgagee (or its servicer) for the account of Mortgagor
hereunder to pay such administrative fee.
7. Condemnation. Mortgagor shall promptly give Mortgagee written notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Mortgagee copies of any and all papers served in
connection with such proceedings. Mortgagee is hereby irrevocably appointed as
Mortgagor's attorney-in-fact, coupled with an interest, with exclusive power to
collect, receive and retain any award or payment for said condemnation or
eminent domain and to make any compromise or settlement in connection with such
proceeding, subject to the provisions of this Mortgage. Notwithstanding any
taking by any public or quasi-public authority through eminent domain or
otherwise (including but not limited to any transfer made in lieu of or in
anticipation of the exercise of such taking), Mortgagor shall continue to pay
the Debt at the time and in the manner provided for its payment in the Note, in
this Mortgage and the other Loan Documents and the Debt shall not be reduced
until any award or payment therefor shall have been actually received after
expenses of collection and applied by Mortgagee to the discharge of the Debt.
Mortgagee shall not be limited to the interest paid on the award by the
condemning authority but shall be entitled to receive out of the award interest
at the rate or rates provided in the Note. Mortgagor shall cause the award or
payment made in any condemnation or eminent domain proceeding, which is payable
to Mortgagor, to be paid directly to Mortgagee. In the event any such
condemnation or eminent domain proceeding results in the need for restoration or
repairs to the Mortgaged Property or any part thereof("Condemnation Loss"), if
the Restoration Conditions (as defined in Section 3ld) above) are met (and in
all events if required under applicable law), then the Restoration Proceeds with
respect to such Condemnation Loss shall be disbursed by Mortgagee to
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Mortgagor (during the course of construction) for the cost of restoring,
repairing, replacing or rebuilding the Mortgaged Property or part thereof
subject to Condemnation Loss, as provided for in Section 3(d)(v) above; and
Mortgagor hereby covenants and agrees forthwith to commence and diligently to
prosecute such restoring, repairing, replacing or rebuilding; provided, however,
in any event Mortgagor shall pay all costs (and if required by Mortgagee,
Mortgagor shall deposit the total thereof with Mortgagee in advance) of such
restoring, repairing, replacing or rebuilding in excess of the Restoration
Proceeds made available pursuant to the terms hereof. Except as provided in this
Section 7 or otherwise required under applicable law, the Restoration Proceeds
with respect to a Condemnation Loss shall, at the option of Mortgagee, be
applied to the reduction or discharge of the Debt whether or not then due and
payable. Any such application to the Debt shall not be considered a voluntary
prepayment requiring payment of the prepayment consideration provided in the
Note, except that if an Event of Default, or an event which with notice and/or
the passage of time, or both, would constitute an Event of Default, has
occurred, then such application shall be subject to the full prepayment
consideration computed in accordance with the Note. Any such application to the
Debt shall not postpone or, except as provided below, reduce any payments
otherwise required pursuant to the Note, other than the final payment on the
Note. Notwithstanding anything herein to the contrary, in the event that
Mortgagee applies condemnation proceeds in an aggregate amount greater than
twenty-five percent (25%) of the original principal balance of the Note, so long
as the Reamortization Conditions are met, upon Mortgagor's written request, the
Note shall be amended, at the cost and expense of Mortgagor, to reduce (but not
postpone) the scheduled monthly payments due on the Note to an amount that will
amortize the remaining principal balance of the Note immediately after such
application to an amount equal, on the Maturity Date (as defined in the Note) to
the percentage of the balance of the Note on the Maturity Date based on the
original principal amount of the Note and the original amortization of the Note,
such percentage being determined by dividing the aggregate amount of all such
applications to the date of any such application by the original principal
amount of the Note. Mortgagor shall pay all costs and expenses in connection
with such adjustment and amendment, including all legal, appraisal, title,
recording and other out-of pocket expenses incurred by Mortgagee or its servicer
in substantiating and documenting such adjustment. If the Mortgaged Property is
sold, through foreclosure or otherwise, prior to the receipt by Mortgagee of
such award or payment, Mortgagee shall have the right, whether or not a
deficiency judgment on the Note shall have been sought, recovered or denied, to
receive said award or payment, or a portion thereof sufficient to pay the Debt.
8. Representations and Warranties. Mortgagor represents and warrants to
Mortgagee as follows:
(a) Neither Mortgagor nor any guarantor of the Debt or any part thereof(a
"Guarantor") has any defense to the payment in full of the Debt that arises from
applicable local, state or federal laws, regulations or other requirements. None
of the Loan Documents are subject to any right of rescission, set-off,
abatement, diminution, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of any such Loan Documents, or the
exercise of any right thereunder, render any Loan Documents unenforceable, in
whole or in part, or subject to any right of rescission, set-off, abatement,
diminution, counterclaim or defense, including the defense of usury.
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(b) There is no action, suit or proceeding, judicial administrative or
otherwise pending or, to the best of Mortgagor's knowledge threatened or
contemplated against Mortgagor or Guarantor or against or affecting the
Mortgaged Property that (i) has not been disclosed to Mortgagee and has a
material, adverse effect on the Mortgaged Property or Mortgagor's and/or
Guarantor's ability to perform their respective obligations under any Loan
Document or (ii) is not adequately covered by insurance, each as determined by
Mortgagee in its sole and absolute discretion.
(c) All certifications, permits and approvals, including, without
limitation, certificates of completion and occupancy, licenses, permits,
registrations, certificates (including, without limitation, all Licenses), have
been obtained and are in full force and effect (except that any and all Licenses
may be held in the name of the Manager [hereafter defined]). The Mortgaged
Property is in good repair, good order and good condition and free and clear of
any damage that would affect materially and adversely the value of the Mortgaged
Property as security for the Debt and the Mortgaged Property has not been
materially damaged by fire, wind or other casualty or physical condition
(including, without limitation, any soil or geological condition), which damage
has not been fully repaired. There are no proceedings pending or threatened for
the partial or total condemnation of the Mortgaged Property.
(d) All of the Improvements which were included in determining the
appraised value of the Mortgaged Property lie wholly within the boundaries and
building restriction lines of the Mortgaged Property, and no improvements on
adjoining properties encroach upon the Mortgaged Property, and no easements or
other encumbrances upon the Premises encroach upon any of the Improvements, so
as to affect the value or marketability of the Mortgaged Property except for
immaterial encroachments which do not adversely affect the security intended to
be provided by this Mortgage or the use, enjoyment, value or marketability of
the Mortgaged Property. All of the Improvements comply with all requirements of
any applicable zoning and subdivision laws and ordinances.
(e) The Mortgaged Property is not subject to any leases or operating
agreements other than the leases and the operating agreements, if any, described
in the rent roll delivered to Mortgagee in connection with this Mortgage, and
all such Leases and agreements are in full force and effect. No person has any
possessory interest in the Mortgaged Property or right to occupy the same except
under and pursuant to the provisions of the Leases and any such operating
agreements.
All financial data, including, without limitation, statements of cash flow and
income and operating expenses, delivered to Mortgagee by or on behalf of
Mortgagor are (i) true and correct in all material respects, (ii) accurately
represent the financial condition of Mortgagor or the Mortgaged Property as of
the date thereof in all material respects, and (iii) to the extent reviewed by
an independent certified public accounting firm, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered.
(g) The survey of the Mortgaged Property delivered to Mortgagee in
connection with this Mortgage has been performed by a duly licensed surveyor or
registered professional engineer in the
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jurisdiction in which the Mortgaged Property is situated and, to the best of
Mortgagor's knowledge, does not fail to reflect any material matter affecting
the Mortgaged Property or the title thereto.
(h) The Loan evidenced by the Loan Documents complies with, or is exempt
from, applicable state or federal laws, regulations and other requirements
pertaining to usury and any and all other requirements of any federal, state or
local law.
(i) The Mortgaged Property is located on a dedicated, all-weather road, or
has access to an irrevocable easement permitting ingress and egress which are
adequate in relation to the premises and location on which the Mortgaged
Property is located.
(j) The Mortgaged Property is served by public utilities and services in
the surrounding community, including police and fire protection, public
transportation, refuse removal, public education, and enforcement of safety
codes which are adequate in relation to the premises and location on which the
Mortgaged Property is located.
(k) The Mortgaged Property is serviced by public water and sewer systems
which are adequate in relation to the premises and location on which the
Mortgaged Property is located. All liquid and solid waste disposal, septic and
sewer systems located on the Mortgaged Property are in good and safe condition
and repair and in compliance with all applicable laws.
(l) The Mortgaged Property has parking and other amenities necessary for
the operation of the Facility which are adequate in relation to the premises and
location on which the Mortgaged Property is located.
(m) The Mortgaged Property is a contiguous parcel and a separate tax
parcel, and there are no delinquent Taxes or other outstanding charges adversely
affecting the Mortgaged Property.
(n) The Mortgaged Property is not relied upon by, and does not rely upon,
any building or improvement not part of the Mortgaged Property to fulfill any
zoning, building code or other governmental or municipal requirement for
structural support or the furnishing of any essential building systems or
utilities, except to the extent of any valid and existing reciprocal easement
agreements shown in the title insurance policy insuring the lien of this
Mortgage.
(o) No action, omission, misrepresentation, negligence, fraud or similar
occurrence has taken place on the part of any person that would reasonably be
expected to result in the failure or impairment of full and timely coverage
under any insurance policies providing coverage for the Mortgaged Property.
(p) There are no defaults by Mortgagor beyond any applicable grace period
under any contract or agreement (other than this Mortgage and the other Loan
Documents) that binds Mortgagor and/or the Mortgaged Property, including any
management, service, supply, security, maintenance or similar contracts; and
Mortgagor has no knowledge of any such default for which notice has not yet been
given; and no such agreement is in effect with respect to the Mortgaged
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Property that is not capable of being terminated by Mortgagor on less than
thirty (30) days notice except as previously disclosed to Mortgagee by a
delivery of a copy of all such agreements.
(q) Mortgagor's principal place of business is as set forth in the first
paragraph of this Mortgage. Mortgagor's mailing address, as set forth in the
first paragraph of the Mortgage, is true and correct.
(r) As to the Assisted Living Facility:
(i) The Assisted Living Facility is duly licensed as an assisted
living facility under the applicable laws of the state where the Assisted Living
Facility is located. The licensed bed capacity of the Assisted Living Facility
is eighty (80). Neither Mortgagor nor any manager of the Assisted Living
Facility has granted to any third party the right to reduce the number of
licensed beds in the Assisted Living Facility or the right to apply for approval
to move any and all of the licensed beds in the Assisted Living Facility to any
other location and there are no proceedings or contemplated to reduce the number
of licensed beds in the Assisted Living Facility.
(ii) Mortgagor and the Assisted Living Facility (and the operation
thereof are in compliance in all material respects with the applicable
provisions of every law, ordinance, statute, regulation, order, standard,
restriction or rule of any federal, state or local government or
quasi-governmental body, agency, board or authority having jurisdiction over the
operation of the Assisted Living Facility, including, without limitation, (A)
health care and fire safety codes, and (B) the applicable provisions of
assisted-living care facility laws, rules, regulations and published
interpretations to which the Assisted Living Facility is subject. The Assisted
Living Facility presently is operated by Manager, who is the holder of the
License. Mortgagor covenants and agrees that it will in good faith and using
best efforts obtain Licenses in its own name and account.
(iii) The Assisted Living Facility is in compliance in all material
respects with the requirements for participation in the Medicare and Medicaid
programs (if applicable). The Assisted Living Facility is in conformance in all
material respects with all insurance, reimbursement and cost reporting
requirements, and has a current provider agreement under Title XVII and/or XIX
of the Social Security Act or any other applicable laws for reimbursement for an
assisted-living or other type of care provided at such facility. There is no
action pending or threatened to terminate the participation of the Assisted
Living Facility in the Medicare or Medicaid program (if applicable), nor is
there any decision not to renew any provider agreement related to the Assisted
Living Facility, nor is there any action pending or threatened to impose
material intermediate or alternative sanctions with respect to the Assisted
Living Facility.
(iv) Neither Mortgagor nor the Assisted Living Facility are subject to
any proceeding, suit or investigation by any federal, state or local government
or quasi-governmental body, agency, board or authority or any other
administrative or
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investigative body which may result in the imposition of a fine, alternative,
interim or final sanction, a lower reimbursement rate for services rendered to
eligible patients which has not been provided for on their respective financial
statements, or which would have a material adverse effect on Mortgagor or the
operation of the Assisted Living Facility, or which would result in the
revocation, transfer, surrender, suspension or other impairment of the operating
certificate or provider agreement of the Assisted Living Facility, nor any
License.
(v) There are no patient or resident care agreements with patients or
residents of the Assisted Living Facility or with any other persons or
organizations which deviate in any material adverse respect from the standard
form customarily used at a first-class assisted-living facility or which
conflict with any statutory or regulatory requirements. All patient or resident
records at the Assisted Living Facility, including patient or resident trust
fund accounts, are true and correct in all material respects.
(vi) Neither the execution nor the delivery of the Note, this Mortgage
or the other Loan Documents, Mortgagor's performance thereunder, the recordation
of this Mortgage, nor the exercise of any remedies by Mortgagee, will adversely
affect (A) Mortgagor or Assisted Living Facility's right to receive Medicare
and/or Medicaid payments and reimbursements (if applicable) with respect to the
Assisted Living Facility, nor materially reduce the Medicare and/or Medicaid
payments and reimbursements (if applicable) which Mortgagor is receiving as of
the date hereof, or (B) any of the Licenses.
(vii) Mortgagor is not a participant in any federal program whereby
any federal, state or local government or quasi-governmental body, agency, board
or other authority 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.). Mortgagor has received no notice, and
is not aware of any violation of applicable anti-trust laws of any federal,
state or local government or quasi-governmental body, agency, board or other
authority.
(viii) [Intentionally deleted.]
(ix) The Assisted Living Facility management agreement dated on or
about the date hereof(the "Management Agreement") between Mortgagor and Emeritus
Corporation, a Washington corporation, as manager (the "Manager"), pursuant to
which Manager operates the Assisted Living Facility, is in full force and effect
and there is no default, breach or violation existing under the Management
Agreement by any party thereto and no event (other than payments due but not yet
delinquent) which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach or violation by any
party under the Management Agreement.
(s) Each of the representations and warranties made by Guarantor in the
Guaranty is true and correct in all material respects.
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(t) No portion of the Mortgaged Property has been purchased, improved,
equipped or furnished with proceeds of any illegal activity and to the best of
Mortgagor's knowledge, there are no illegal activities or activities related to
controlled substances at the Mortgaged Property.
(u) The representations and warranties contained in the Closing Certificate
executed by Mortgagor in connection with the Note (which certificate constitutes
one of the Loan Documents) are true and correct and Mortgagor shall observe the
covenants contained therein.
(v) [Intentionally deleted.]
9. Single Purpose Entity/Separateness. Mortgagor represents, warrants,
covenants and agrees as follows:
(a) Mortgagor does not own and will not own any asset or property other
than (i) the Mortgaged Property, and (ii) incidental personal property necessary
for the ownership or operation of the Mortgaged Property.
(b) Mortgagor will not engage in any business other than the ownership,
management and operation of the Mortgaged Property and Mortgagor will conduct
and operate its business as presently conducted and operated.
(c) Mortgagor will not enter into any contract or agreement with any
Guarantor or any party which is directly or indirectly controlling, controlled
by or under common control with Mortgagor or Guarantor (an "Affiliate"), 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 Guarantor or Affiliate.
(d) Mortgagor has not incurred and will not incur any indebtedness, secured
or unsecured, direct or indirect, absolute or contingent (including guaranteeing
any obligation), other than (i) the Debt, and (ii) trade and operational debt
incurred which is in the ordinary course of business with trade creditors and in
amounts as are normal and reasonable under the circumstances and which in any
event shall be payable within sixty (60) days and shall not exceed five percent
(5%) of the original principal amount of the Note, and (iii) the Vehicle Debt
(hereafter defined). No indebtedness other than Debt may be secured solely by
such vehicle. The term "Vehicle Debt" shall mean long term financing
arrangements for a single vehicle utilized solely to transport residents of the
Mortgaged Property and secured solely by such vehicle.
(e) Mortgagor has not made and will not make any loans or advances to any
third party, nor to Guarantor, any Affiliate or any constituent party of
Mortgagor.
Mortgagor is solvent and covenants to remain solvent and pay its debts from its
assets as the same shall become due.
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(g) Mortgagor has done or caused to be done and will do all things
necessary, to preserve its existence, and Mortgagor will not, nor will Mortgagor
permit Guarantor to amend, modify or otherwise change the partnership
certificate, partnership agreement, articles of incorporation and bylaws, trust,
certificate of organization, operating agreement or other organizational
documents of Mortgagor or Guarantor in a manner which would adversely affect
Mortgagor's existence as a single-purpose entity.
(h) Mortgagor will maintain books and records and bank accounts separate
from those of its Affiliates and any constituent party of Mortgagor, and
Mortgagor will file its own tax returns.
(i) Mortgagor will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other entity (including any
Affiliate, any constituent party of Mortgagor or any Guarantor).
(j) Mortgagor will preserve and keep in full force and effect its
existence, good standing and qualification to do business in the state in which
the Mortgaged Property is located.
(k) Mortgagor will 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.
(1) Neither Mortgagor nor any constituent party of Mortgagor will seek the
dissolution or winding up, in whole or in part, of Mortgagor, nor will Mortgagor
merge with or be consolidated into any other entity.
(m) Mortgagor will not commingle the funds and other assets of Mortgagor
with those of any Affiliate, any Guarantor, any constituent party of Mortgagor
or any other person.
(n) Mortgagor has and will maintain its assets in such a manner that it
will not be costly or difficult to segregate, ascertain or identify its
individual assets from those of any constituent party of Mortgagor, Affiliate,
Guarantor or any other person.
(o) Mortgagor does not and will not hold itself out to be responsible for
the debts or obligations of any other person (provided, that the foregoing shall
not prevent Mortgagor from being and holding itself responsible for expenses
incurred or obligations undertaken by the property manager of the Mortgaged
Property in respect of its duties regarding the Mortgaged Property nor shall the
foregoing include the Payment and Performance Guaranty).
(p) Mortgagor shall obtain and maintain in full force and effect, and abide
by and satisfy the material terms and conditions of, all material permits,
licenses, registrations and other authorizations with or granted by any
governmental authorities that may be required from time to time with respect to
the performance of its obligations under this Mortgage.
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(q) Mortgagor shall conduct business in its own name, and use separate
stationery, invoices and checks.
(r) Since its inception, Mortgagor has not owned any asset, conducted any
business or operation or engaged in any business or activity other than
ownership and operation of the Mortgaged Property. Mortgagor has no debts or
obligations other than normal accounts payable in the ordinary course of
business (as limited by subsection 9[d] above, this Mortgage, and the Loan it
secures. Any other indebtedness or other obligation of Mortgagor has been paid
in full prior to or through application of proceeds from the funding of the
Loan.
10. Maintenance of Mortgaged Property. Mortgagor shall cause the Mortgaged
Property to be operated and maintained in good and safe condition and repair and
in keeping with the condition and repair of properties of a similar use, value,
age, nature and construction. Mortgagor shall not use, maintain or operate the
Mortgaged Property in any manner which constitutes a public or private nuisance
or which makes void, voidable, or cancelable, or increases the premium of, any
insurance then in force with respect thereto. The Improvements and the Equipment
shall not be removed, demolished or materially altered (except for normal
replacement of the Equipment) without the consent of Mortgagee. Mortgagor shall
promptly comply with all laws, orders and ordinances affecting the Mortgaged
Property, or the use thereof. Mortgagor shall promptly repair, replace or
rebuild any part of the Mortgaged Property which may be destroyed by any
casualty, or become damaged, worn or dilapidated or which may be affected by any
proceeding of the character referred to in Section 7 hereof and shall complete
and pay for any structure at any time in the process of construction or repair
on the Premises. No portion of the Mortgaged Property will be purchased,
improved, equipped or furnished with proceeds of any illegal activity.
11. Use of Mortgaged Property. Mortgagor shall not initiate, join in,
acquiesce in, or consent to any change in any private restrictive covenant,
zoning law or other public or private restriction, limiting or defining the uses
which may be made of the Mortgaged Property or any part thereof, nor shall
Mortgagor initiate, join in, acquiesce in, or consent to any zoning change or
zoning matter affecting the Mortgaged Property. If under applicable zoning
provisions the use of all or any portion of the Mortgaged Property is or shall
become a nonconforming use, Mortgagor will not cause or permit such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee. Mortgagor shall not permit or suffer to occur any waste on
or to the Mortgaged Property or to any portion thereof and shall not take any
steps whatsoever to convert the Mortgaged Property, or any portion thereof, to a
condominium or cooperative form of management. Mortgagor will not install or
permit to be installed on the Premises any underground storage tank or
above-ground storage tank without the written consent of Mortgagee.
12. Transfer or Encumbrance of the Mortgaged Property. (a) Mortgagor
acknowledges that Mortgagee has examined and relied on the creditworthiness and
experience of Mortgagor in owning and operating properties such as the Mortgaged
Property in agreeing to make the Loan secured hereby, and that Mortgagee will
continue to rely on Mortgagor's ownership of the Mortgaged Property as a means
of maintaining the value of the Mortgaged Property as security for repayment of
the Debt. Mortgagor acknowledges that Mortgagee has a valid interest in
maintaining the value
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of the Mortgaged Property so as to ensure that, should Mortgagor default in the
repayment of the Debt, Mortgagee can recover the Debt by a sale of the Mortgaged
Property. Mortgagor shall not, without the prior written consent of Mortgagee,
sell, convey, alienate, mortgage, encumber, pledge or otherwise transfer the
Mortgaged Property or any part thereof, or permit the Mortgaged Property or any
part thereof to be sold, conveyed, alienated, mortgaged, encumbered, pledged or
otherwise transferred; provided, however, Mortgagee may, in its sole discretion,
give such written consent (but shall have no obligation to do so) to any such
sale, conveyance, alienation, mortgage, encumbrance, pledge or other transfer,
and any such consent may be conditioned upon the satisfaction of such conditions
precedent as Mortgagee may require (including, without limitation, the
conditions precedent set forth in subsection 12[d] below). Notwithstanding any
other provision of this Section 12, Mortgagee will consent, subject to the
conditions of subsection 12(c) hereof and provided that no Event of Default has
occurred and is continuing, to a sale, conveyance, alienation, mortgage,
encumbrance, pledge or other transfer of the Mortgaged Property by the original
Mortgagor as set forth in this Mortgage.
(b) (i) A sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer within the meaning of this Section 12 shall be deemed to include, but
shall not be limited to,
(A) an installment sales agreement wherein Mortgagor agrees to
sell the Mortgaged Property or any part thereof for a price to be paid in
installments;
(B) an agreement by Mortgagor leasing all or a substantial part
of the Mortgaged Property for other than actual occupancy by a space tenant
thereunder or a sale, assignment or other transfer of, or the grant of a
security interest in, Mortgagor's right, title and interest in and to any Leases
or any Rents;
(C) if Mortgagor, Guarantor, or any general partner of
Mortgagor or Guarantor is a corporation, any merger or consolidation or the
voluntary or involuntary sale, conveyance, transfer or pledge of such
corporation's stock (or the stock of any corporation directly or indirectly
controlling such corporation by operation of law or otherwise) or the creation
or issuance of new stock in one or a series of transactions by which an
aggregate of more than ten percent (10%) of such corporation's stock shall be
vested in a party or parties who are not now stockholders (provided, however, in
no event shall this subpart [C] apply to any Guarantor whose stock is traded on
a nationally recognized stock exchange);
(D) if Mortgagor, Guarantor, or any general partner or managing
partner of Mortgagor or any Guarantor is a limited or general partnership or
joint venture, the change, removal or resignation of a general partner or
managing partner or the transfer or pledge of all or any portion of the
partnership interest(s) of any general partner, managing partner or joint
venturer or any profits or proceeds related to such partnership interest(s) or
the voluntary or involuntary sale, conveyance, transfer or pledge by which an
aggregate of more than fifty percent (50%) of the limited partnership interests
in such partnership or any profits or proceeds related to such
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interests whether in one transfer or pledge or a series of transfers or pledges
shall be vested in parties not having an ownership interest on the date of this
Mortgage;
(E) if Mortgagor, Guarantor or any general partner or managing member
of Mortgagor or Guarantor is a limited liability company, the change, removal or
resignation of the managing member of such company, the voluntary or involuntary
sale, conveyance, transfer or pledge of the membership interest of the managing
member of such company or any profits or proceeds relating to such membership
interest or the voluntary or involuntary sale, conveyance, transfer or pledge by
which an aggregate of more than fifty percent (50%) of the ownership interests
in such limited liability company or any profits or proceeds related to such
interests shall be vested in parties not having an ownership interest as of the
date of this Mortgage; and
(F) without limitation to the foregoing, any voluntary or involuntary
sale, transfer, conveyance or pledge by any person or entity which directly
controls Borrower (by operation of law or otherwise) (an "Original Principal")
of its direct or indirect controlling interest in Borrower.
(ii) Notwithstanding the foregoing, the following transfers shall not be
deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge
or assignment within the meaning of subsection 12(b)(i) hereof:
(A) transfers made by devise, descent or operation of law upon the
death of a joint tenant, partner or shareholder, subject, however, to all of the
following requirements: (1) written notice of any transfer under this subsection
12(b)(ii)(A), whether by will, trust or other written instrument, operation of
law or otherwise, is provided to Mortgagee or its servicer, together with copies
of such documents relating to the transfer as Mortgagee or its servicer may
reasonably request,(2) control over the management and operation of the
Mortgaged Property is retained by one or more of Original Principals at all
times prior to the death or legal incapacity of all Original Principals and is
thereafter assumed by persons who are acceptable in all respects to Mortgagee in
its sole and absolute discretion, (3) no such transfer by any of Original
Principals will release their respective estates from any liability as a
Guarantor, as more particularly provided in subsection 12(c) below, and (4) no
such transfer, death or other event has any adverse effect either on the status
of Mortgagor as a continuing legal entity liable for the payment of the Debt or
on the bankruptcy-remote status of Mortgagor under the requirements o fany
national rating agency for the Certificates (hereinafter defined), which
requirements may include the furnishing at Mortgagor's expense a new bankruptcy
non-consolidation opinion of counsel acceptable to Mortgagee if the Note
constitutes a sufficiently large portion of the assets of the holder thereof and
if any such transfer results in any person or entity (other than one covered by
such opinion delivered in connection with this Mortgage) directly or indirectly
owning or controlling more than a forty-nine percent (49%) interest in
Mortgagor, or
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(B) transfers otherwise by operation of law in the event of
a bankruptcy,
(C) subject to all of the requirements of subsection
12(b)(ii)(A) above, a sale, transfer or hypothecation of a partnership,
shareholder or membership interest in Mortgagor whichever the case may be by the
current partner(s), shareholder(s) or member(s), as applicable, to an immediate
family member (i.e., parents, spouses, siblings, children or grandchildren) of
such partner, shareholder or member or to an Original Principal (or a trust for
the benefit of such person), or
(D) a Lease approved or deemed approved by Mortgagee in
accordance with the Assignment of Leases and Rents dated the date hereof from
Mortgagor to Mortgagee (the "Lease Assignment").
(c) Notwithstanding the provisions of subsections 12(a) and (b) above,
Mortgagee will give its consent to a one-time sale or transfer of Mortgaged
Property, provided that no Event of Default has occurred and is continuing and
(i) the grantee's or transferee's integrity, reputation, character,
creditworthiness and management ability are satisfactory to Mortgagee in its
sole discretion, (ii) the grantee's or transferee's (and its sole general
partner's) single purpose and bankruptcy remote character are satisfactory to
Mortgagee in its sole discretion, (iii) any conditions relating to the sale or
transfer imposed by any national rating agency for the Certificates (as defined
in Section 20) are satisfied (which conditions may include the furnishing of a
new bankruptcy non-consolidation opinion of counsel acceptable to Mortgagee,
(iv) Mortgagee has obtained such estoppels from any guarantors of the Note or
replacement Guarantors and such other legal opinions, certificates and similar
matters as Mortgagee may require, (v) all of Mortgagee's costs and expenses
associated with the sale or transfer (including reasonable attorneys fees) are
paid by Mortgagor or the grantee or transferee, (vi) the payment of a transfer
and assumption fee not to exceed one percent (1%) of the then-outstanding
principal balance of the Loan evidenced by the Note and secured hereby, (vii)
the grantee's execution of a written assumption agreement and such modification
to the Loan Documents containing such terms as Mortgagee may require and
delivery of such agreement to Mortgagee prior to such sale or transfer (provided
that in the event the Loan is included in a REMIC and is a performing loan, no
modification to the terms and conditions shall be made or permitted that would
cause (A) any adverse tax consequences to the REMIC or any holders of any
Certificates, (B) the Mortgage to fail to be a "Qualifying Mortgage" under
applicable federal law relating to REMICs, or (C) result in a taxation of the
income from the Loan to the REMIC or cause a loss of REMIC status), and (viii)
the delivery to Mortgagee of an endorsement (at Mortgagor's sole cost and
expense) to the mortgagee policy of title insurance then insuring the lien
created by this Mortgage in form and substance acceptable to Mortgagee in its
sole judgment, and (ix) with respect to any such sale or transfer resulting in
any person or entity (other than one covered by such opinion delivered in
connection with this Mortgage) directly or indirectly owning or controlling more
than forty-nine percent (49%) interest in Mortgagor, the delivery to Mortgagee
of a new bankruptcy non-consolidation opinion of counsel acceptable to Mortgagee
if Mortgagee could normally have required such opinion at the time of the
execution and delivery of this Mortgage. Without limiting the foregoing, if
Mortgagee shall consent to any such transfer, the written assumption agreement
described in subsection 12(c)(vii) above shall provide for the release of
Mortgagor of personal
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liability under the Note and other Loan Documents solely as to acts or events
occurring, or obligations arising, after the closing of such sale; provided,
however, in no event shall such sale operate to: (x) relieve Mortgagor of any
personal liability under the Note or any of the other Loan Documents for any
acts or events occurring, or obligations arising, prior to or simultaneously
with the closing of such sale, and Mortgagor shall execute, without any cost or
expense to Mortgagee, such documents and agreements as Mortgagee shall
reasonably require to evidence and effectuate the ratification of such personal
liability; or (y) relieve any current guarantor or indemnitor, including
Mortgagor, of its obligations under any guaranty or indemnity agreement executed
in connection with -the Loan secured hereby (including, without limitation, the
Environmental Liabilities Agreement of even date herewith [the "Environmental
Agreement")), and each such current guarantor and indemnitor shall execute,
without any cost or expense to Mortgagee, such documents and agreements as
Mortgagee shall reasonably require to evidence and effectuate the ratification
of each such guaranty and indemnity agreement. Notwithstanding clause (y)
preceding, if the proposed transferee and a party associated with the proposed
transferee (the "Substitute Guarantor") (1) is approved by Mortgagee in its sole
discretion (including a determination that the proposed transferee and
Substitute Guarantor have adequate financial resources), (2) assumes the
obligations of the current guarantor or indemnitor under its guaranty or
indemnity agreement, and (3) executes, without any cost or expense to Mortgagee,
a new guaranty and/or indemnity agreement, as applicable, in form and substance
satisfactory to Mortgagee, then Mortgagee shall release the current Guarantor or
indemnitor from all obligations arising under its guaranty or indemnity
agreement after the closing of such sale.
(d) Mortgagee agrees not to unreasonably withhold its consent to a sale or
transfer of the Mortgaged Property upon the satisfaction (in the sole
determination of Mortgagee) of the conditions to its consent as set forth
herein; provided, however, in any event Mortgagee shall be deemed to be
reasonable in withholding its consent if a sale to the proposed transferee
receives unfavorable comment from a national rating agency for Certificates.
Mortgagee shall not be required to demonstrate any actual impairment of its
security or any increased risk of default hereunder in order to declare the Debt
immediately due and payable upon any sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer by Mortgagor of the Mortgaged Property without
Mortgagee's consent.
(e) Mortgagee's consent to any sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Mortgaged Property shall not be deemed to
be a waiver of Mortgagee's right to require such consent to any future
occurrence of same. Any sale, conveyance, alienation, mortgage, encumbrance,
pledge or transfer of the Mortgaged Property made in contravention of this
Section 12 shall be null and void and of no force and effect.
(f) Mortgagor agrees to bear and shall pay or reimburse Mortgagee on demand
for all reasonable expenses (including, without limitation, all recording costs,
taxes, reasonable attorney's fees and disbursements and title search costs)
incurred by Mortgagee in connection with the review, approval and documentation
of any such sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer.
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(g) In no event shall any of the terms and provisions of this Section 12
amend or modify the terms and provisions contained in Section 9 herein.
13. Estoppel Certificates and No Default Affidavits. (a) After request by
Mortgagee, Mortgagor shall within ten (10) days furnish Mortgagee with a
statement, duly acknowledged and certified, setting forth (i) the amount of the
original principal amount of the Note, (ii) the unpaid principal amount of the
Note, (iii) the rate of interest of the Note, (iv) the date installments of
interest and/or principal were last paid, (v) any offsets or defenses to the
payment of the Debt, if any, and (vi) that the Note, this Mortgage and the other
Loan Documents are valid, legal and binding obligations and have not been
modified or if modified, giving particulars of such modification.
(b) After request by Mortgagee, Mortgagor shall within ten (10) days
furnish Mortgagee with a certificate reaffirming all representations and
warranties of Mortgagor set forth herein and in the other Loan Documents as of
the date requested by Mortgagee or, to the extent of any changes to any such
representations and warranties, so stating such changes.
(c) If the Mortgaged Property includes commercial property, Mortgagor shall
deliver to Mortgagee upon request, tenant estoppel certificates from each
commercial tenant at the Mortgaged Property in form and substance reasonably
satisfactory to Mortgagee provided that Mortgagor shall not be required to
deliver such certificates more frequently than two (2) times in any calendar
year.
14. Changes in the Laws Regarding Taxation. If any law is amended, enacted
or adopted after the date of this Mortgage which deducts the Debt from the value
of the Mortgaged Property for the purpose of taxation or which imposes a tax,
either directly or indirectly, on the Debt or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any. In the event Mortgagee is advised by counsel chosen by it that
the payment of such tax or interest and penalties by Mortgagor would be unlawful
or taxable to Mortgagee or unenforceable or provide the basis for a defense of
usury, then in any such event, Mortgagee shall have the option, by written
notice of not less than forty-five (45) days, to declare the Debt immediately
due and payable.
15. No Credits on Account of the Debt. Mortgagor will not claim or demand
or be entitled to any credit or credits on account of the Debt for any part of
the Taxes or Other Charges assessed against the Mortgaged Property, or any part
thereof, and no deduction shall otherwise be made or claimed from the assessed
value of the Mortgaged Property, or any part thereof, for real estate tax
purposes by reason of this Mortgage or the Debt. In the event such claim, credit
or deduction shall be required by law, Mortgagee shall have the option, by
written notice of not less than ninety (90) days, to declare the Debt
immediately due and payable.
16. Documentary Stamps. If at any time the United States of America, any
State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Note or this Mortgage, or impose any other tax
or charge on the same, Mortgagor will pay for the same, with interest and
penalties thereon, if any.
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17. Controlling Agreement. It is expressly stipulated and agreed to be the
intent of Mortgagor and Mortgagee at all times to comply with applicable state
law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Loan Documents. If the
applicable law (state or federal) is ever judicially interpreted so as to render
usurious any amount called for under the Note or under any of the other Loan
Documents, or contracted for, charged, taken, reserved, or received with respect
to the Debt, or if Mortgagee's exercise of the option to accelerate the maturity
of the Note, or if any prepayment by Mortgagor results in Mortgagor having paid
any interest in excess of that permitted by applicable law, then it is
Mortgagor's and Mortgagee's express intent that all excess amounts theretofore
collected by Mortgagee shall be credited on the principal balance of the Note
and all other Debt (or, if the Note and all other Debt have been or would
thereby be paid in full, refunded to Mortgagor), and the provisions of the Note
and the other Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new documents, so as to comply with the applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid or agreed to be paid to Mortgagee for the
use, forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Debt until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum rate permitted under
applicable law from time to time in effect and applicable to the Debt for so
long as the Debt is outstanding. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, it is not the intention
of Mortgagee to accelerate the maturity of any interest that has not accrued at
the time of such acceleration or to collect unearned interest at the time of
such acceleration.
18. Books and Records.
(a) Mortgagor will keep accurate books and records in accordance with
sound accounting principles in which full, true and correct entries shall be
promptly made with respect to the Mortgaged Property and the operation thereof
(including, without limitation, the Assisted Living Facility), and will permit
all such books and records (including without limitation all contracts,
statements, invoices, bills and claims for labor, materials and services
supplied for the construction, repair or operation of the Improvements) to be
inspected or audited and copies made by Mortgagee and its representatives during
normal business hours and at any other reasonable times. Mortgagor represents
that its chief executive office is as set forth in the introductory paragraph of
this Mortgage and that all books and records pertaining to the Mortgaged
Property (including, without limitation, the Assisted Living Facility) are
maintained at such location.
(b) Mortgagor will furnish, or cause to be furnished, to Mortgagee on or
before forty-five (45) days after March 31, June 30, September 30 and December
31 of each calendar year the following items, each certified by Mortgagor as
being true and correct:
(i) a written statement (rent roll) dated as of the last day of each
such calendar quarter identifying each of the Leases by the terms, space
occupied, rental required to be
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paid, security deposit paid, any rental concessions, and identifying any
defaults or payments delinquencies thereunder, a report of occupancy for the
subject quarter including an average daily rate, and any and all franchise
inspection reports received by Mortgagor during the subject quarter;
(ii) monthly and year to date operating statements prepared for each
calendar month during each such reporting period;
(iii) a property balance sheet for each such reporting period;
(iv) a comparison of the budgeted income and expenses and the actual
income and expenses for each reporting period and year to date, together with a
detailed explanation of any variances between budgeted and actual amounts that
are greater than (A) $2,000.00, and (B) five percent (5%) or more for each line
item therein;
(v) quarterly census information of the Assisted Living Facility as
of the end of such quarter in sufficient detail to show by patient-mix (i.e.,
private, Medicare, Medicaid [if applicable], and V.A.), the average monthly
census of the Assisted Living Facility and statements of occupancy rates,
certified by the chief financial officer of Mortgagor;
(vi) within forty-five (45) days of the end of each fiscal year
quarter, an aged accounts receivable report from the Assisted Living Facility in
sufficient detail to show amounts due from each class of patient-mix by the
account age classifications of thirty (30)days, sixty (60) days, ninety (90)
days, one hundred twenty ( 120) days, and over one hundred twenty (120) days,
certified by the chief financial officer of Mortgagor (or of its sole member) to
be true and correct;
(c) Within ninety (90) days following the end of each calendar year,
Mortgagor shall furnish a statement of the financial affairs and condition of
the Mortgaged Property (including, without limitation, the Assisted Living
Facility), including a statement of profit and loss for the same in such detail
as Mortgagee may request, and setting forth the financial condition and the
income and expenses for the Mortgaged Property (including, without limitation,
the Assisted Living Facility), for the immediately preceding calendar year
certified by the chief financial officer of Mortgagor (or of its sole member) to
be true and correct. Mortgagor shall deliver to Mortgagee copies of all income
tax returns, requests for extension and other similar items contemporaneously
with its delivery of same to the Internal Revenue Service (or if Mortgagor has
elected to be a "disregarded entity" for purposes of federal income tax, then
Mortgagor shall furnish evidence of such election together with copies of the
foregoing returns, requests and other items submitted by the party responsible
for reporting or filing same with respect to Mortgagor). In addition, on or
before November 30 of each calendar year, Mortgagor shall deliver to Mortgagee
an itemized operating budget and capital expenditure budget of the Mortgaged
Property (including, without limitation, the Assisted Living Facility), and a
management plan for the Mortgaged Property (including, without limitation, the
Assisted Living Facility), for the next succeeding calendar year in such detail
as Mortgagee may request.
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(d) In addition, Mortgagor shall furnish, or cause to be furnished, to
Mortgagee the following items:
(i) within three (3) days of the receipt by Mortgagor or the Assisted
Living Facility, any and all notices (regardless of form) from any licensing
and/or certifying agency that the Assisted Living Facility's license or the
Medicare or Medicaid certification of the Assisted Living Facility is being
downgraded to a substandard category, revoked, or suspended, or that action is
pending or being considered to downgrade to a substandard category, revoke, or
suspend the Assisted Living Facility's license or certification;
(ii) within ten (10) days of the date of the required filing of cost
reports of the Assisted Living Facility with the Medicaid agency or the date of
actual filing of such cost report of the Assisted Living Facility with such
agency, whichever is earlier, furnish to Mortgagee a complete and accurate copy
of the annual Medicaid cost report of the Assisted Living Facility, which will
be prepared by an independent certified public accountant or by an experienced
cost report preparer acceptable to Mortgagee, and promptly furnish Mortgagee any
amendments filed with respect to such reports and all responses, audit reports
or inquiries with respect to such reports; and
(iii) within five (5) days of receipt, a copy of any Medicare,
Medicaid or other 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 also furnish or cause to be furnished to
Mortgagee a copy of the plan of correction generated from such survey or report
for the Assisted Living Facility, 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).
(e) At any time and from time to time Mortgagor shall deliver to Mortgagee
or its agents such other financial data as Mortgagor prepares for its own use
and which Mortgagee or its agents shall request with respect to the ownership,
maintenance, use and operation of the Mortgaged Property (including, without
limitation, the Assisted Living Facility). Furthermore, in order to satisfy the
guidelines, requirements or directives of any national rating agency for
Certificates, Mortgagee may require that all balance sheets and operating
statements be audited, at Mortgagor's expense, by independent certified public
accountants of recognized standing, selected by Mortgagor and approved by
Mortgagee (which balance sheets and operating statements shall be without
qualification or exception other than those approved by Mortgagee).
(f) Mortgagor will permit representatives appointed by Mortgagee,
including independent accountants, agents, attorneys, appraisers and any other
persons, to visit and inspect during its normal business hours and at any other
reasonable times any of the Mortgaged Property and to make photographs thereof,
and to write down and record any information such representatives obtain, and
shall permit Mortgagee or its representatives to investigate and verify the
accuracy of
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the information furnished to Mortgagee under or in connection with this Mortgage
or any of the other Loan Documents and to discuss all such matters with its
officers, employees and representatives. Mortgagor will furnish to Mortgagee at
Mortgagor's expense all evidence which Mortgagee may from time to time
reasonably request as to the accuracy and validity of or compliance with all
representations and warranties made by Mortgagor in the Loan Documents and
satisfaction of all conditions contained therein. Any inspection or audit of the
Mortgaged Property or the books and records of Mortgagor, or the procuring of
documents and financial and other information, by or on behalf of Mortgagee,
shall be for Mortgagee's protection only, and shall not constitute any
assumption of responsibility or liability by Mortgagee to Mortgagor or anyone
else with regard to the condition, construction, maintenance or operation of the
Mortgaged Property, nor Mortgagee's approval of any certification given to
Mortgagee nor relieve Mortgagor of any of Mortgagor's obligations.
19. Performance of Other Agreements. Mortgagor shall observe and perform
each and every term to be observed or performed by Mortgagor pursuant to the
terms of any agreement or recorded instrument affecting or pertaining to the
Mortgaged Property.
20. Further Acts, etc. (a) Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
require, for the better assuring, conveying, assigning, transferring, and
confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, pledged,
assigned and hypothecated or intended now or hereafter so to be, or which
Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee,
or for carrying out the intention or facilitating the performance of the terms
of this Mortgage or for filing, registering or recording this Mortgage.
Mortgagor, on demand, will execute and deliver and hereby authorizes Mortgagee
to execute in the name of Mortgagor or without the signature of Mortgagor to the
extent Mortgagee may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Mortgagee in the Mortgaged Property. Mortgagor grants to Mortgagee
an irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Mortgagee
at law and in equity, including without limitation such rights and remedies
available to Mortgagee pursuant to this subsection.
(b) Mortgagee (and its mortgage servicer and their respective assigns) shall
have the right to disclose in confidence such financial information regarding
Mortgagor, Guarantor or the Mortgaged Property as may be necessary to (i)
complete any sale or attempted sale of the Note or participations in the Loan
(or any transfer of the mortgage servicing thereof), (ii) to service the Note,
or (iii) to furnish information concerning the payment status of the Note to the
holder or beneficial owner thereof, including, without limitation, all Loan
Documents, financial statements, projections, internal memoranda, audits,
reports, payment history, appraisals and any and all other information and
documentation in the Mortgagee's files (and such servicer's files) relating to
Mortgagor, any Guarantor and the Mortgaged Property. This authorization shall be
irrevocable in favor of
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Mortgagee (and its mortgage servicer and their respective assigns), and
Mortgagor and Guarantor waive any claims that they may have against Mortgagee,
its mortgage servicer and their respective assigns or the party receiving
information from Mortgagee pursuant hereto regarding disclosure of information
in such files and further waive any alleged damages which they may suffer as a
result of such disclosure.
(c) Mortgagor acknowledges that Mortgagee intends -to sell the Loan (or a
participation interest therein) to a party who may pool the Loan with a number
of other loans and to have the holder of such loans (most likely a special
purpose REMIC) issue one or more classes of Mortgage Backed Pass-Through
Certificates (the "Certificates"), which may be rated by one or more national
rating agencies. Mortgagee (and its mortgage servicer and their respective
assigns) shall be permitted to share any of the information referred to in
subsection (b) above, whether obtained before or after the date of the Note,
with the holders or potential holders of the Certificates, investment banking
firms, rating agencies, accounting firms, custodians, successor mortgage
services, law firms and other third-party advisory firms involved with the Loan
evidenced by the Note and the Loan Documents or the Certificates. It is
understood that the information provided by Mortgagor to Mortgagee (or its
mortgage servicer and their respective assigns) or otherwise received by
Mortgagee (or its mortgage servicer and their respective assigns) in connection
with the Loan may ultimately be incorporated into the offering documents for the
Certificates and thus various prospective investors may also see some or all of
the information. Mortgagee (and its mortgage servicer and their respective
assigns) and all of the aforesaid third-party advisors and professional firms
shall be entitled to rely on the information supplied by, or on behalf of,
Mortgagor.
21. Recording of Mortgage, etc. Upon the execution and delivery of this
Mortgage and thereafter, from time to time, Mortgagor will cause this Mortgage,
and any security instrument creating a lien or security interest or evidencing
the lien hereof upon the Mortgaged Property and each instrument of further
assurance to be filed, registered or recorded in such manner and in such places
as may be required by any present or future law in order to publish notice of
and fully to protect the lien or security interest hereof upon, and the interest
of Mortgagee in, the Mortgaged Property. Mortgagor will pay all filing,
registration or recording fees, and all expenses incident to the preparation,
execution and acknowledgment of this Mortgage, any mortgage supplemental hereto,
any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property or any
instrument of further assurance, except where prohibited by law so to do.
Mortgagor shall hold harmless and indemnify Mortgagee, its successors and
assigns, against any liability incurred by reason of the imposition of any tax
on the making and recording of this Mortgage.
22. Reporting Requirements. Mortgagor agrees to give prompt notice to
Mortgagee of the insolvency or bankruptcy filing of Mortgagor or the death,
insolvency or bankruptcy of any Guarantor.
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23. Events of Default. The term "Event of Default" as used herein shall
mean the occurrence or happening, at any time and from time to time, of any one
or more of the following:
(a) if any portion of the Debt is not paid when the same is due;
(b) if the Policies are not kept in full force and effect, or if the
Policies are not delivered to Mortgagee upon request;
(c) if Mortgagor fails to timely provide any monthly, quarterly or
annual financial or accounting report required hereunder;
(d) if Mortgagor sells, conveys, alienates, mortgages, encumbers,
pledges or otherwise transfers any portion of the Mortgaged Property or permits
the Mortgaged Property or any part thereof to be sold, conveyed, alienated,
mortgaged, encumbered, levied, pledged or otherwise transferred without
Mortgagee's prior written consent in violation hereof;
(e) if any representation or warranty of Mortgagor, or of any
Guarantor, made herein, in any Loan Document, any guaranty, or in any
certificate, report, financial statement or other instrument or document
furnished to Mortgagee shall have been false or misleading in any material
respect when made;
(f) if Mortgagor or any Guarantor shall make an assignment for the
benefit of creditors or if Mortgagor or any Guarantor shall admit in writing its
inability to pay, or Mortgagor's or any Guarantor's failure to pay, debts
generally as the debts become due;
(g) if a receiver, liquidator or trustee of Mortgagor or of any
Guarantor shall be appointed or if Mortgagor or any Guarantor shall be
adjudicated a bankrupt or insolvent, or if any petition for bankruptcy,
reorganization or arrangement pursuant to federal bankruptcy law, or any similar
federal or state law, shall be filed by or against, consented to, or acquiesced
in by, Mortgagor or any Guarantor or if Mortgagor or any Guarantor shall admit
in writing its insolvency or bankruptcy or if any proceeding for the dissolution
or liquidation of Mortgagor or of any Guarantor shall be instituted; however, if
such appointment, adjudication, petition or proceeding was involuntary and not
consented to by Mortgagor or such Guarantor, upon the same not being discharged,
stayed or dismissed within ninety (90) days;
(h) subject to Mortgagor's right to contest as provided herein, if
the Mortgaged Property becomes subject to any mechanic's, materialman's,
mortgage or other lien except a lien for local real estate taxes and assessments
not then due and payable;
(i) if Mortgagor fails to cure promptly and properly any violations of
laws or ordinances affecting or which may be interpreted to affect the Mortgaged
Property;
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(j) except as permitted in this Mortgage, the actual or threatened
alteration, improvement, demolition or removal of any of the Improvements
without the prior written consent of Mortgagee;
(k) damage to the Mortgaged Property in any manner which is not covered
by insurance solely as a result of Mortgagor's failure to maintain insurance
required in accordance with this Mortgage;
(l) if Mortgagor shall default under any term, covenant, or condition of
this Mortgage or any of the other Loan Documents other than as specified in any
of the above subsections in this Section 23;
(m) [intentionally deleted];
(n) if all or a substantial part of Mortgagor's assets (other than the
Mortgaged Property) is attached, seized, subjected to a writ or distress warrant
or is levied upon (unless such attachment, seizure, writ, distress warrant or
levy is vacated within ninety [90] days following the date of the same);
(o) entry of a judgment in excess of $100,000.00 and the failure of such
judgment to be discharged or stay of execution thereon shall not be procured
within ninety (90) days from the date of the entry thereof;
(p) the Mortgage shall cease to constitute a first-priority lien on the
Mortgaged Property (other than in accordance with its terms);
(q) seizure or forfeiture of the Mortgaged Property, or any portion
thereof, or Mortgagor's interest therein, resulting from criminal wrongdoing or
other unlawful action of Mortgagor, its affliates or any tenant in the Mortgaged
Property under any federal, state or local law; and
(r) if without Mortgagee's prior written consent, (i) the Manager under
the Management Agreement (or any successor management agreement) resigns or is
removed, or (ii) there is any material change in the Management Agreement (or
any successor management agreement) for the operation of the Assisted Living
Facility;
(s) if a default has occurred and continues beyond any applicable cure
period under the Management Agreement (or any successor management agreement) if
such default permits Manager to terminate or cancel the Management Agreement (or
any successor management agreement);
(t) if Mortgagor shall fail to correct, within the time deadlines set by
any licensing agency, any deficiency that justifies a termination of any License
with respect to the Facility;
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(u) if Mortgagor ceases to do business as a Assisted Living Facility or
terminates such business for any reason whatsoever (other than temporary
cessation in connection with any renovations to the Mortgaged Property);
(v) if Mortgagor shall fail to correct, within the time deadlines set by
any Medicare, Medicaid or licensing agency (if applicable), any deficiency that
justifies either of the following actions by such agency with respect to the
Assisted Living Facility:
(i) a termination of any License, Mortgagor's Medicare contract
(if applicable) or the Medicaid contract (if applicable); or
(ii) a ban on new admissions generally or on admission of patients
otherwise qualifying for Medicare or Medicaid coverage (if applicable);
(w) if Mortgagor shall fail to maintain in full force and effect each and
every License with respect to the Assisted Living Facility or if Mortgagor the
Assisted Living Facility should be assessed fines or penalties in excess
of $50,000.00 in the aggregate in any calendar year by any state or any Medicare
or Medicaid, health, reimbursement or licensing agency having jurisdiction over
Mortgagor or the Assisted Living Facility; and
(x) if Mortgagor shall fail to perform the terms and provisions of the
Payment and Performance Guaranty.
24. Notice and Cure. Notwithstanding the foregoing, Mortgagee agrees to
give to Mortgagor written notice as described below of(a) Mortgagor's failure to
pay any part of the Debt when due (a "Monetary Default"), (b) a default referred
to in subsection 23(p) above (a "First Lien Default"), and (c) a default
referred to in subsections 23(c), (I) or (l) above (a "Nonmonetary Default").
Mortgagor shall have a period often (10) days from the giving of notice in which
to cure a Monetary Default, shall have a period of twenty (20) days from the
giving of notice to cure a First Lien Default and shall have a period of twenty
(20) days from the giving of notice in which to cure a Nonmonetary Default
unless such Nonmonetary Default is not susceptible to cure within such twenty
(20) day period, in which case Mortgagor shall commence to cure such Nonmonetary
Default within twenty (20) days following notice and diligently prosecute such
cure to completion; provided, however, that Mortgagor will provide Mortgagee
with such information as Mortgagee may reasonably request concerning the status
of any attempted cure of any such Nonmonetary Default and the cure of any such
Nonmonetary Default must be completed to the satisfaction of Mortgagee within
sixty (60) days of notice in any case. Notwithstanding the foregoing, Mortgagee
may, but shall not be required, to give notice of a Monetary Default or a
recurrence of the same Nonmonetary Default more frequently than two (2) times in
any calendar year. A Monetary Default and/or a First Lien Default and/or a
Nonmonetary Default shall nevertheless be an Event of Default for all purposes
under the Loan Documents (including, without limitation, Mortgagee's right to
collect Default Interest and any other administrative charge set forth in the
Note) except that the acceleration of the Debt or other exercise of remedies
shall not be prior to the expiration of the applicable cure and/or grace periods
provided in Section 23 or in this Section.
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25. Remedies. Upon the occurrence of an Event of Default and subject to any
applicable cure period, Mortgagee may, at Mortgagee's option, do any one or more
of the following:
(a) Right to Perform Mortgagor's Covenants. If Mortgagor has failed to keep
or perform any covenant whatsoever contained in this Mortgage or the other Loan
Documents, Mortgagee may, but shall not be obligated to any person to do so,
perform or attempt to perform said covenant; and any payment made or expense
incurred in the performance or attempted performance of any such covenant,
together with any sum expended by Mortgagee that is chargeable to Mortgagor or
subject to reimbursement by Mortgagor under the Loan Documents, shall be and
become a part of the Debt, and Mortgagor promises, upon demand, to pay to
Mortgagee, at the place where the Note is payable, all sums so incurred, paid or
expended by Mortgagee, with interest from the date when paid, incurred or
expended by Mortgagee at the Default Rate as specified in the Note.
(b) Right of Entry. Mortgagee may, prior or subsequent to the institution
of any foreclosure proceedings, enter upon the Mortgaged Property, or any part
thereof, and take exclusive possession of the Mortgaged Property and of all
books, records, and accounts relating thereto and to exercise without
interference from Mortgagor any and all rights which Mortgagor has with respect
to the management, possession, operation, protection, or reservation of the
Mortgaged Property, including without limitation the right to rent the same for
the account of Mortgagor and to deduct from such Rents all costs, expenses, and
liabilities of every character incurred by Mortgagee in collecting such Rents
and in managing, operating, maintaining, protecting, or preserving the Mortgaged
Property and to apply the remainder of such Rents to the Debt in such manner as
Mortgagee may elect. All such costs, expenses, and liabilities incurred by
Mortgagee in collecting such Rents and in managing, operating, maintaining,
protecting, and/or preserving the Mortgaged Property, if not paid out of Rents
as hereinabove provided, shall constitute a demand obligation owing by Mortgagor
and shall bear interest from the date of expenditure until paid at the Default
Rate as specified in the Note, all of which shall constitute a portion of the
Debt. If necessary to obtain the possession provided for above, Mortgagee may
invoke any and all legal remedies to dispossess Mortgagor, including
specifically one or more actions for forcible entry and detainer, trespass to
try title, and restitution. In connection with any action taken by Mortgagee
pursuant to this subsection, Mortgagee shall not be liable for any loss
sustained by Mortgagor resulting from any failure to let the Mortgaged Property,
or any part thereof, or from any other act or omission of Mortgagee in managing
the Mortgaged Property unless such loss is caused by the willful misconduct of
Mortgagee, nor shall Mortgagee be obligated to perform or discharge any
obligation, duty, or liability under any Lease or under or by reason hereof or
the exercise of rights or remedies hereunder. Mortgagor shall and does hereby
agree to indemnify Mortgagee for, and to hold Mortgagee harmless from, any and
all liability, loss, or damage, which may or might be incurred by Mortgagee
under any such Lease or under or by reason hereof or the exercise of rights or
remedies hereunder, and from any and all claims and demands whatsoever which may
be asserted against Mortgagee by reason of any alleged obligations or
undertakings on its part to perform or discharge any of the terms, covenants, or
agreements contained in any such Lease (provided, however, such indemnification
and hold harmless shall exclude matters that arise solely due to the gross
negligence or willful miscooduct of Mortgagee). Should Mortgagee incur any such
liability, the amount thereof, including without limitation costs, expenses,
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and reasonable attorneys' fees, together with interest thereon from the date
of expenditure until paid at the Default Rate as specified in the Note, shall
be secured hereby, and Mortgagor shall reimburse Mortgagee therefor
immediately upon demand. Nothing in this subsection shall impose any duty,
obligation, or responsibility upon Mortgagee for the control, care,
management, leasing, or repair of the Mortgaged Property, nor for the
carrying out of any of the terms and conditions of any such Lease; nor shall
it operate to make Mortgagee responsible or liable for any waste committed on
the Mortgaged Property by the tenants or by any other parties, or for any
hazardous substances or environmental conditions on or under the Mortgaged
Property, or for any dangerous or defective condition of the Mortgaged
Property or for any negligence in the management, leasing, upkeep, repair, or
control of the Mortgaged Property resulting in loss or injury or death to any
tenant, licensee, employee, or stranger. Mortgagor hereby assents to,
ratifies, and confirms any and all actions of Mortgagee with respect to the
Mortgaged Property taken under this subsection.
(c) Right to Accelerate. Mortgagee may, without notice (except as provided
in Section 24 above), demand, presentment, notice of nonpayment or
nonperformance, protest, notice of protest, notice of intent to accelerate,
notice of acceleration, or any other notice or any other action, all of which
are hereby waived by Mortgagor and all other parties obligated in any manner
whatsoever on the Debt, declare the entire unpaid balance of the Debt
immediately due and payable; and upon such declaration, the entire unpaid
balance of the Debt shall be immediately due and payable.
(d) Foreclosure-Power of Sale. This Mortgage is upon the STATUTORY
CONDITION, for breach of which, or following any other Event of Default,
Mortgagee shall have the STATUTORY POWER OF SALE. Without limiting the
generality of the foregoing, Mortgagee may institute a proceeding or
proceedings, judicial, or nonjudicial, by advertisement or otherwise, for the
complete or partial foreclosure of this Mortgage or the complete or partial sale
of the Mortgaged Property under the power of sale contained herein or under any
applicable provision of law. Mortgagee may sell the Mortgaged Property, and all
estate, right, title, interest, claim and demand of Mortgagor 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.
(e) Rights Pertaining to Sales. Subject to the requirements of applicable
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 subsection (d) above, 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:
(i) Mortgagee may conduct any number of sales of all or any portion of
the Mortgaged Property from time to time. The power of sale set forth above
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 (and such power of sale may be
exercised from time to time and as
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many times as Mortgagee may deem necessary until all of the Mortgaged Property
has been duly sold and all obligations secured hereby have been fully paid), nor
by any sale which is not completed or is defective in Mortgagee's opinion, until
the Debt shall have been paid in full.
(ii) 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.
(iii) After each sale, upon receipt of the proceeds of said sale or sales,
Mortgagee 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 Mortgagor in and to the property and rights sold,
Mortgagee shall apply the proceeds of said sale or sales as specified in the
Note. Mortgagee is hereby appointed the true and lawful attorney-in-fact of
Mortgagor, which appointment is irrevocable and shall be deemed to be coupled
with an interest, in Mortgagor's name and stead, to make all necessary
conveyances, assignments, transfers and deliveries of the property and rights so
sold, Mortgagor hereby ratifying and confirming all that said attorney or such
substitute or substitutes shall lawfully do by virtue thereof. Nevertheless,
Mortgagor, if requested by Mortgagee, shall ratify and confirm any such sale or
sales by executing and delivering to Mortgagee or such purchaser or purchasers
all such instruments as may be advisable, in Mortgagee's judgment, for the
purposes as may be designated in such request.
(iv) Any and all statements of fact or other recitals made in any of the
instruments referred to in subparagraph (iii) of this subsection (e) given by
Mortgagee shall be taken as conclusive and binding against all persons as to
evidence of the truth of the facts so stated and recited.
(v) 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 Mortgagor in and to the properties and rights so sold, and shall be a
perpetual bar both at law and in equity against Mortgagor and any and all
persons claiming or who may claim the same, or any part thereof or any interest
therein, by, through or under Mortgagor to the fullest extent permitted by
applicable law.
(vi) 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 Debt the amount of the bid made
therefor, after deducting therefrom the expenses of the sale, the cost of any
enforcement proceedings hereunder, and any other sums which Mortgagee is
authorized to deduct under the terms hereof and applicable law, to the extent
necessary to satisfy such bid.
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(vii) Upon any such sale, it shall not be necessary for 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.
(f) Mortgagee's Judicial Remedies. Mortgagee may proceed by suit or suits,
at law or in equity, to enforce the payment of the Debt to foreclose the liens
and security interests of this Mortgage as against all or any part of the
Mortgaged Property, and to have all or any part of the Mortgaged Property sold
under the judgment or decree of a court of competent jurisdiction. This remedy
shall be cumulative of any other nonjudicial remedies available to Mortgagee
under this Mortgage or the other Loan Documents. Proceeding with a request or
receiving a judgment for legal relief shall not be or be deemed to be an
election ofremedies or bar any available nonjudicial remedy of Mortgagee.
(g) Mortgagee's Right to Appointment of Receiver. Mortgagee, as a matter
of right and (i) without regard to the sufficiency of the security for repayment
of the Debt, (ii) without notice to Mortgagor, (iii) without any showing of
insolvency, fraud, or mismanagement on the part of Mortgagor, (iv) without the
necessity of filing any judicial or other proceeding other than the proceeding
for appointment of a receiver, and (v) without regard to the then value of the
Mortgaged Property, shall be entitled to the immediate appointment of a receiver
or receivers for the protection, possession, control, management and operation
of the Mortgaged Property without notice and upon ex parte motion of Mortgagee
(and Mortgagor hereby consents to such appointment and waives notice of any
application therefor), including (without limitation), the power to collect the
Rents, enforce this Mortgage and, in case of a sale and deficiency, during the
full statutory period of redemption (if any), whether there be a redemption or
not, as well as during any further times when Mortgagor, except for the
intervention of such receiver, would be entitled to collection of such Rents.
Mortgagor hereby irrevocably consents to the appointment of a receiver or
receivers. Any receiver appointed pursuant to the provisions of this subsection
shall have the usual powers and duties of receivers in such matters.
(h) Mortgagee's Uniform Commercial Code Remedies. Mortgagee may exercise
its rights of enforcement under the Uniform Commercial Code in effect in the
state in which the Mortgaged Property is located.
(i) Other Rights. Mortgagee (i) may surrender the Policies maintained
pursuant to this Mortgage or any part thereof, and upon receipt shall apply the
unearned premiums as a credit on the Debt, and, in connection therewith,
Mortgagor hereby appoints Mortgagee as agent and attorney-in-fact (which is
coupled with an interest and is therefore irrevocable) for Mortgagor to collect
such premiums; and (ii) may apply the Tax and Insurance Escrow Fund and/or the
Replacement Escrow Fund and any other funds held by Mortgagee toward payment of
the Debt; and (iii) shall have and may exercise any and all other rights and
remedies which Mortgagee may have at law or in equity, or by virtue of any of
the Loan Documents, or otherwise.
(j) Discontinuance of Remedies. In case Mortgagee shall have proceeded to
invoke any right, remedy, or recourse permitted under the Loan Documents and
shall thereafter elect to
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discontinue or abandon the same for any reason, Mortgagee shall have the
unqualified right so to do and, in such event, Mortgagor and Mortgagee shall be
restored to their former positions with respect to the Debt, the Loan Documents,
the Mortgaged Property or otherwise, and the rights, remedies, recourses and
powers of Mortgagee shall continue as if same had never been invoked.
(k) Remedies Cumulative. All rights, remedies, and recourses of Mortgagee
granted in the Note, this Mortgage and the other Loan Documents, any other
pledge of collateral, or otherwise available at law or equity: (i) shall be
cumulative and concurrent; (ii) may be pursued separately, successively, or
concurrently against Mortgagor, the Mortgaged Property, or any one or more of
them, at the sole discretion of Mortgagee; (iii) may be exercised as often as
occasion therefor shall arise, it being agreed by Mortgagor that the exercise or
failure to exercise any of the same shall in no event be construed as a waiver
or release thereof or of any other right, remedy, or recourse; (iv) shall be
nonexclusive; (v) shall not be conditioned upon Mortgagee exercising or pursuing
any remedy in relation to the Mortgaged Property prior to Mortgagee bringing
suit to recover the Debt; and (vi) in the event Mortgagee elects to bring suit
on the Debt and obtains a judgment against Mortgagor prior to exercising any
remedies in relation to the Mortgaged Property, all liens and security
interests, including the lien of this Mortgage, shall remain in full force and
effect and may be exercised thereafter at Mortgagee's option.
(l) Election of Remedies. Mortgagee may release, regardless of
consideration, any part of the Mortgaged Property without, as to the remainder,
in any way impairing, affecting, subordinating, or releasing the lien or
security interests evidenced by this Mortgage or the other Loan Documents or
affecting the obligations of Mortgagor or any other party to pay the Debt. For
payment of the Debt, Mortgagee may resort to any collateral securing the payment
of the Debt in such order and manner as Mortgagee may elect. No collateral taken
by Mortgagee shall in any manner impair or affect the lien or security interests
given pursuant to the Loan Documents, and all collateral shall be taken,
considered, and held as cumulative.
(m) Waivers. Mortgagor hereby irrevocably and unconditionally waives and
releases: (i) all benefits that might accrue to Mortgagor by virtue of any
present or future law exempting the Mortgaged Property from attachment, levy or
sale on execution or providing for any appraisement, valuation, stay of
execution, exemption from civil process, redemption, or extension of time for
payment; (ii) all notices of any Event of Default except as expressly provided
herein; and (iii) any right to a marshalling of assets, a sale in inverse order
of alienation or any other right to direct in any manner, the order of sale of
any of the Mortgaged Property.
(n) Statute of Limitations. To the extent permitted by applicable law,
Mortgagee's rights hereunder shall continue even to the extent that a suit for
collection of the Debt, or part thereof, is barred by a statute of limitations.
Mortgagor hereby expressly waives and releases to the fullest extent permitted
by law, the pleading of any statute of limitations as a defense to payment of
the Debt.
(o) Waiver of Automatic or Supplemental Stay. In the event of the filing of
any voluntary or involuntary petition under the Bankruptcy Code by or against
Mortgagor (other than
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an involuntary petition filed by or joined in by Mortgagee), Mortgagor shall not
assert, or request any other party to assert, that the automatic stay under Sec.
362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict,
condition, reduce or inhibit the ability of Mortgagee to enforce any rights it
has by virtue of this Mortgage, or any other rights that Mortgagee has, whether
now or hereafter acquired, against any guarantor of the Debt. Further, Mortgagor
shall not seek a supplemental stay or any other relief, whether injunctive or
otherwise, pursuant to Sec. 105 of the Bankruptcy Code or any other provision
therein to stay, interdict, condition, reduce or inhibit the ability of
Mortgagee to enforce any rights it has by virtue of this Mortgage against any
guarantor of the Debt. The waivers contained in this subsection shall be
effective only to the extent such waivers are permitted under the Bankruptcy
Code and are a material inducement to Mortgagee's willingness to enter into this
Mortgage and Mortgagor acknowledges and agrees that no grounds exist for
equitable relief which would bar, delay or impede the exercise by Mortgagee of
Mortgagee's rights and remedies against Mortgagor or any guarantor of the Debt.
(p) Bankruptcy Acknowledgment. In the event the Mortgaged Property or any
portion thereof or any interest therein becomes property of any bankruptcy
estate or subject to any state or federal insolvency proceeding, then to the
extent permitted under the Bankruptcy Code, Mortgagee shall immediately become
entitled, in addition to all other relief to which Mortgagee may be entitled
under this Mortgage, to obtain (i) an order from the Bankruptcy Court or other
appropriate court granting immediate relief from the automatic stay pursuant to
Sec. 362 of the Bankruptcy Code so as to permit Mortgagee to pursue its rights
and remedies against Mortgagor as provided under this Mortgage and all other
rights and remedies of Mortgagee at law and in equity under applicable state
law, and (ii) an order from the Bankruptcy Court prohibiting Mortgagor's use of
all "cash collateral" as defined under Sec. 363 of the Bankruptcy Code. In
connection with such Bankruptcy Court orders, Mortgagor shall not contend or
allege in any pleading or petition filed in any court proceeding that Mortgagee
does not have sufficient grounds for relief from the automatic stay. Any
bankruptcy petition or other action taken by Mortgagor to stay, condition, or
inhibit Mortgagee from exercising its remedies are hereby admitted by Mortgagor
to be in bad faith and Mortgagor further admits that Mortgagee would have just
cause for relief from the automatic stay in order to take such actions
authorized under state law. The terms and provisions of this subsection shall be
effective only to the extent permitted under the Bankruptcy Code.
(q) Application of Proceeds. The proceeds from any sale, lease, or other
disposition made pursuant to this Mortgage, or the proceeds from the surrender
of any insurance policies pursuant hereto, or any Rents collected by Mortgagee
from the Mortgaged Property, or the Tax and Insurance Escrow Fund or the
Replacement Escrow Fund or sums received pursuant to Section 7 hereof, or
proceeds from insurance which Mortgagee elects to apply to the Debt pursuant to
Section 3 hereof, shall be applied by Trustee, or by Mortgagee, as the case may
be, to the Debt in the following order and priority: (1) to the payment of all
expenses of advertising, selling, and conveying the Mortgaged Property or part
thereof, and/or prosecuting or otherwise collecting Rents, proceeds, premiums or
other sums including reasonable attorneys' fees and a reasonable fee or
commission to Trustee, not to exceed five percent (5%) of the proceeds thereof
or sums so received; (2) to that portion, if any, of the Debt with respect to
which no person or entity has personal or entity liability for payment (the
"Exculpated Portion"), and with respect to the Exculpated Portion as
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follows: first, to accrued but unpaid interest, second, to matured principal,
and third, to unmatured principal in inverse order of maturity; (3) to the
remainder of the Debt as follows: first, to the remaining accrued but unpaid
interest, second, to the matured portion of principal of the Debt, and third, to
prepayment of the unmatured portion, if any, of principal of the Debt applied to
installments of principal in inverse order of maturity; (4) the balance, if any
or to the extent applicable, remaining after the full and final payment of the
Debt to the holder or beneficiary of any inferior liens covering the Mortgaged
Property, if any, in order of the priority of such inferior liens (Trustee and
Mortgagee shall hereby be entitled to rely exclusively on a commitment for title
insurance issued to determine such priority); and (5) the cash balance, if any,
to Mortgagor. The application of proceeds of sale or other proceeds as otherwise
provided herein shall be deemed to be a payment of the Debt like any other
payment. The balance of the Debt remaining unpaid, if any, shall remain fully
due and owing in accordance with the terms of the Note and the other Loan
Documents.
26. Right of Inspection. Mortgagee and its agents shall have the right to
enter and inspect the Mortgaged Property during normal business hours upon
reasonable notice.
27. Security Agreement. This Mortgage is both a real property mortgage or
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Mortgaged Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this
Mortgage has granted and hereby grants to Mortgagee, as security for the Debt, a
security interest in the Mortgaged Property to the full extent that the
Mortgaged Property may be subject to the Uniform Commercial Code (said portion
of the Mortgaged Property so subject to the Uniform Commercial Code being called
in this section the "Collateral"). Mortgagor hereby agrees with Mortgagee to
execute and deliver to Mortgagee, in form and substance satisfactory to
Mortgagee, such financing statements and such further assurances as Mortgagee
may from time to time, reasonably consider necessary to create, perfect, and
preserve Mortgagee's security interest herein granted. This Mortgage shall also
constitute a "fixture filing" for the purposes of the Uniform Commercial Code.
All or part of the Mortgaged Property are or are to become fixtures on the
Premises. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. If an Event of Default shall occur, Mortgagee, in
addition to any other rights and remedies which it may have, shall have and may
exercise immediately and without demand, any and all rights and remedies granted
to a secured party upon default under the Uniform Commercial Code, including,
without limitation, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral. Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand any and all expenses, including legal expenses
and attorneys' fees, incurred or paid by Mortgagee in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Mortgagee with respect to the Collateral sent to Mortgagor in accordance with
the provisions hereof at least ten (10) days prior to such action, shall
constitute commercially reasonable notice to Mortgagor. The proceeds of any
disposition of the Collateral, or any part
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thereof, may be applied by Mortgagee to the payment of the Debt in such priority
and proportions as Mortgagee in its discretion shall deem proper. Mortgagor's
principal place of business shall at all times that the Debt is outstanding be
as set forth in the first paragraph of this Mortgage. In the event of any change
in name, identity or structure of any Mortgagor, such Mortgagor shall notify
Mortgagee thereof and promptly after request shall execute, file and record such
Uniform Commercial Code forms as are necessary to maintain the priority of
Mortgagee's lien upon and security interest in the Collateral, and shall pay all
expenses and fees in connection with the filing and recording thereof. If
Mortgagee shall require the filing or recording of additional Uniform Commercial
Code forms or continuation statements, Mortgagor shall, promptly after request,
execute, file and record such Uniform Commercial Code forms or continuation
statements as Mortgagee shall deem necessary, and shall pay all expenses and
fees in connection with the filing and recording thereof, it being understood
and agreed, however, that no such additional documents shall increase
Mortgagor's obligations under the Note, this Mortgage and the other Loan
Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any financing or other statements signed only by Mortgagee,
as Mortgagor's attorney-in-fact, in connection with the Collateral covered by
this Mortgage. Notwithstanding the foregoing, Mortgagor shall appear and defend
in any action or proceeding which affects or purports to affect the Mortgaged
Property and any interest or right therein, whether such proceeding affects
title or any other rights in the Mortgaged Property (and in conjunction
therewith, Mortgagor shall fully cooperate with Mortgagee in the event Mortgagee
is a party to such action or proceeding).
28. Actions and Proceedings. Mortgagee has the right to appear in and
defend any action or proceeding brought with respect to the Mortgaged Property
and to bring any action or proceeding, in the name and on behalf of Mortgagor,
which Mortgagee, in its discretion, decides should be brought to protect their
respective interests in the Mortgaged Property. Mortgagee shall, at its option,
be subrogated to the lien of any mortgage or other security instrument
discharged in whole or in part by the Debt, and any such subrogation rights
shall constitute additional security for the payment of the Debt.
29. Waiver of Set off and Counterclaim. All amounts due under this
Mortgage, the Note and the other Loan Documents shall be payable without setoff,
counterclaim or any deduction whatsoever. Mortgagor hereby waives the right to
assert a setoff, counterclaim or deduction in any action or proceeding in which
Mortgagee is a participant, or arising out of or in any way connected with this
Mortgage, the Note, any of the other Loan Documents, or the Debt. No right of
rescission, setoff, abatement, diminution, counterclaim, or defense has been or
will be asserted with respect to the Loan Documents.
30. Contest of Certain Claims. Notwithstanding the provisions of Section 4
and subsection 23(h) hereof, Mortgagor shall not be in default for failure to
pay or discharge Taxes, Other Charges or mechanic's or materialman's lien
asserted against the Mortgaged Property if, and so long as, (a) Mortgagor shall
have notified Mortgagee of same within five (5) days of obtaining knowledge
thereof; (b) Mortgagor shall diligently and in good faith contest the same by
appropriate legal proceedings which shall operate to prevent the enforcement or
collection of the same and the
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sale of the Mortgaged Property or any part thereof, to satisfy the same; (c)
Mortgagor shall have furnished to Mortgagee a cash deposit, or an indemnity bond
satisfactory to Mortgagee with a surety satisfactory to Mortgagee, in the amount
of the Taxes, Other Charges or mechanic's or materialman's lien claim, plus a
reasonable additional sum to pay all costs, interest and penalties that may be
imposed or incurred in connection therewith, to assure payment of the matters
under contest and to prevent any sale or forfeiture of the Mortgaged Property or
any part thereof; (d) Mortgagor shall promptly upon final determination thereof
pay the amount of any such Taxes, Other Charges or claims so determined,
together with all costs, interest and penalties which may be payable in
connection therewith; (e) the failure to pay the Taxes, Other Charges, or
mechanic's or materialman's lien claim does not constitute a default under any
other deed of trust, mortgage or security interest covering or affecting any
part of the Mortgaged Property; and (f) notwithstanding the foregoing, Mortgagor
shall immediately upon request of Mortgagee pay (and if Mortgagor shall fail so
to do, Mortgagee may, but shall not be required to, pay or cause to be
discharged or bonded against) any such Taxes, Other Charges or claim
notwithstanding such contest, if in the opinion of Mortgagee, the Mortgaged
Property or any part thereof or interest therein may be in danger of being sold,
forfeited, foreclosed, terminated, canceled or lost. Mortgagee may pay over any
such cash deposit or part thereof to the claimant entitled thereto at any time
when, in the judgment of Mortgagee, the entitlement of such claimant is
established. In addition, notwithstanding the provisions of subsections 23(i),
(v) or (w) hereof, Mortgagor shall not be in default for contesting any alleged
violation of applicable laws, ordinances, rules or regulations if, and so long
as, (a) Mortgagor shall have notified Mortgagee of same within five (5) days of
obtaining knowledge thereof; (b) Mortgagor shall diligently and in good faith
contest the same by appropriate legal proceedings which shall operate to prevent
the enforcement of the same or the termination of any License or the ban on new
admissions; and (c) notwithstanding the foregoing, Mortgagor shall immediately
upon request of Mortgagee comply with (and if Mortgagor shall fail so to do,
Mortgagee may, but shall not be required to, cause the compliance therewith) any
such law, ordinance, rule or regulation notwithstanding such contest, if in the
opinion of Mortgagee, such violation shall materially effect the operation of
the Mortgaged Property (or the value of same).
31. Recovery of Sums Required to Be Paid. Mortgagee shall have the right
from time to time to take action to recover any sum or sums which constitute a
part of the Debt as the same become due, without regard to whether or not the
balance of the Debt shall be due, and without prejudice to the right of
Mortgagee thereafter to bring an action of foreclosure, or any other action, for
a default or defaults by Mortgagor existing at the time such earlier action was
commenced.
32. Handicapped Access. (a) Mortgagor agrees that the Mortgaged Property
shall at all times strictly comply to the extent applicable with the
requirements of the Americans with Disabilities Act of 1990; the Fair Housing
Amendments Act of 1988, all state and local laws and ordinances related to
handicapped access and all rules, regulations, and orders issued pursuant
thereto including, without limitation, the Americans with Disabilities Act
Accessibility Guidelines for Buildings and Facilities (collectively "Access
Laws").
(b) Notwithstanding any provisions set forth herein or in any other
document regarding Mortgagee's approval of alterations of the Mortgaged
Property, Mortgagor shall not alter the
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Mortgaged Property in any manner which would increase Mortgagor's
responsibilities for compliance with the applicable Access and Senior Housing
Laws without the prior written approval of Mortgagee. The foregoing shall also
apply to tenant improvements constructed by Mortgagor or by any of its tenants.
Mortgagee may condition any such approval upon receipt of a certificate from an
architect, engineer, or other person acceptable to Mortgagee of compliance with
Access and Senior Housing Laws.
(c) Mortgagor agrees to give prompt notice to Mortgagee of the receipt by
Mortgagor of any complaints related to violation of any Access and Senior
Housing Laws and of the commencement of any proceedings or investigations which
relate to compliance with applicable Access and Senior Housing Laws.
33. Indemnification. In addition to any other indemnifications provided
in any of the Loan Documents, Mortgagor shall protect, defend, indemnify and
save harmless Mortgagee, its subsidiaries, affiliates, persons controlling or
under common control with Mortgagee, their agents, officers, directors,
shareholders, employees, servants, consultants, representatives and their
respective successors and assigns (collectively, the "Indemnifed Parties"),
from and against all liabilities, obligations, claims, demands, damages,
penalties, causes of action, losses, fines; costs and expenses (including
without limitation reasonable attorneys' fees and expenses), imposed upon or
incurred by or asserted against any of the Indemnified Parties by reason of
(a) ownership of this Mortgage, the Mortgaged Property or any interest
therein or receipt of any Rents; (b) any accident, injury to or death of
persons or loss of or damage to property occurring in, on or about the
Mortgaged Property or any part thereof or on the adjoining sidewalks, curbs,
adjacent property or adjacent parking areas, streets or ways; (c) any use,
nonuse or condition in, on or about the Mortgaged Property or any part
thereof or on adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (d) any failure on the part of Mortgagor to
perform or comply with any of the terms of Sections 2 through 50 of this
Mortgage; (e) performance of any labor or services or the furnishing of any
materials or other property in respect of the Mortgaged Property or any part
thereof; (f) any violation of any law, regulation, order or industry standard
based upon or in any way related to the licensing or conduct of the Assisted
Living Facility, including, without limitation, the violation of any Medicare
or Medicaid regulation; (g) any failure of the Mortgaged Property to comply
with any Access Laws; (h) any representation or warranty made in the Note,
this Mortgage or the other Loan Documents being false or misleading in any
respect as of the date such representation or warranty was made; (i) any
claim by brokers, finders or similar persons claiming to be entitled to a
commission in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement or any
liability asserted against Mortgagee with respect thereto; and (j) the claims
of any lessee to any portion of the Mortgaged Property or any person acting
through or under any lessee or otherwise arising under or as a consequence of
any Lease (provided, however, such indemnification and hold harmless shall
exclude matters that arise solely due to the gross negligence or willful
misconduct of Mortgagee). Any amounts payable to any of the Indemnified
Parties by reason of the application of this paragraph shall be secured by
this Mortgage and shall become immediately due and payable and shall bear
interest at the Default
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Rate specified in the Note from the date loss or damage is sustained by any of
the Indemnified Parties until paid. The obligations and liabilities of Mortgagor
under this Section 33 (A) shall survive for a period of one (1) year following
any release of this Mortgage executed by Mortgagee and satisfaction of the loan
evidenced by the Loan Documents, and (B) shall survive the transfer or
assignment of this Mortgage, the entry of a judgment of foreclosure, sale of the
Mortgaged Property by nonjudicial foreclosure sale, or delivery of a deed in
lieu of foreclosure (including, without limitation, any transfer by Mortgagor of
any of its rights, title and interest in and to the Mortgaged Property to any
party, whether or not affiliated with Mortgagor). Notwithstanding the preceding,
Mortgagor shall have no obligation to indemnify the Indemnified Parties for
liabilities, claims, damages, penalties, causes of action or costs and expenses
relating to events or occurrences arising or accruing wholly after the entry of
a judgment of foreclosure, sale of the Mortgaged Property by nonjudicial
foreclosure, sale, or delivery of a deed in lieu of foreclosure.
34. [Intentionally deleted.)
35. Notices. Unless oral notice is expressly permitted hereunder any
notice, demand, statement, request or consent made hereunder shall be in writing
and shall be deemed to be received by the addressee on the first (1st) business
day after such notice is tendered to a nationally-recognized overnight delivery
service or on the third (3rd) day following the day such notice is deposited
with the United States postal service first class certified mail, return receipt
requested, in either instance, addressed to the address, as set forth above, of
the party to whom such notice is to be given, or to such other address as
Mortgagor or Mortgagee, as the case may be, shall in like manner designate in
writing.
36. Authority. (a) Mortgagor (and the undersigned representative of
Mortgagor, if any)has full power, authority and right to execute, deliver and
perform its obligations pursuant to this Mortgage, and to mortgage, give, grant,
bargain, sell, alien, enfeoff, convey, confirm, warrant, pledge, hypothecate and
assign the Mortgaged Property pursuant to the terms hereof and to keep and
observe all of the terms of this Mortgage on Mortgagor's part to be performed;
(b) Mortgagor is duly organized, validly existing and in good standing under the
laws of the state of its organization or incorporation; (c) Mortgagor is duly
qualified to transact business and is in good standing in the state where the
Mortgaged Property is located and has all necessary approvals, governmental and
otherwise, and full power and authority to own the Mortgaged Property and carry
out its business as now conducted and proposed to be conducted; and (d)
Mortgagor represents and warrants that Mortgagor is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended and the related Treasury Department regulations.
37. Waiver of Notice. Mortgagor shall not be entitled to any notices of any
nature whatsoever from Mortgagee except with respect to matters for which this
Mortgage specifically and expressly provides for the giving of notice by
Mortgagee to Mortgagor and except with respect to matters for which Mortgagee is
required by applicable law to give notice, and Mortgagor hereby expressly waives
the right to receive any notice from Mortgagee with respect to any matter for
which this Mortgage does not specifically and expressly provide for the giving
of notice by Mortgagee to Mortgagor.
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38. Remedies of Mortgagor. In the event that a claim or adjudication is
made that Mortgagee has acted unreasonably or unreasonably delayed acting in any
case where by law or under the Note, this Mortgage or the other Loan Documents,
it has an obligation to act reasonably or promptly, Mortgagee shall not be
liable for any monetary damages, and Mortgagor's remedies shall be limited to
injunctive relief or declaratory judgment.
39. Sole Discretion of Mortgagee. Wherever pursuant to this Mortgage,
Mortgagee exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
40. Non-Waiver. The failure of Mortgagee to insist upon strict performance
of any term hereof shall not be deemed to be a waiver of any term of this
Mortgage. Mortgagor shall not be relieved of Mortgagor's obligations hereunder
by reason of (a) the failure of Mortgagee to comply with any request of
Mortgagor or Guarantor to take any action to foreclose this Mortgage or
otherwise enforce any of the provisions hereof or of the Note or other Loan
Documents, (b) the release, regardless of consideration, of the whole or any
part of the Mortgaged Property, or of any person liable for the Debt or any
portion thereof, or (c) any agreement or stipulation by Mortgagee extending the
time of payment or otherwise modifying or supplementing the terms of the Note,
this Mortgage, or the other Loan Documents. Mortgagee may resort for the payment
of the Debt to any other security held by Mortgagee in such order and manner as
Mortgagee, in its discretion, may elect. Mortgagee may take action to recover
the Debt, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Mortgagee thereafter to foreclose this Mortgage. The
rights and remedies of Mortgagee under this Mortgage shall be separate, distinct
and cumulative and none shall be given effect to the exclusion of the others. No
act of Mortgagee shall be construed as an election to proceed under any one
provision herein to the exclusion of any other provision. Mortgagee shall not be
limited exclusively to the rights and remedies herein stated but shall be
entitled to every right and remedy now or hereafter afforded at law or in
equity. It is agreed that the risk of loss or damage to the Mortgaged Property
is on Mortgagor and Mortgagee shall have no liability whatsoever for decline in
the value of the Mortgaged Property, for failure to maintain the Policies, or
for failure to determine whether insurance in force is adequate as to the amount
of risks insured.
41. No Oral Change. This Mortgage may not be modified, amended, waived,
extended, changed, discharged or terminated orally or by any act or failure to
act on the part of Mortgagor or Mortgagee, but only by an agreement in writing
signed by the party against whom enforcement of any modification, amendment,
waiver, extension, change, discharge or termination is sought.
42. Liability. If Mortgagor consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several. Subject to the provisions hereof requiring Mortgagee's consent to any
transfer of the Mortgaged Property, this Mortgage shall be
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binding upon and inure to the benefit of Mortgagor and Mortgagee and their
respective successors and assigns forever.
43. Inapplicable Provisions. If any term, covenant or condition of this
Mortgage is held to be invalid, illegal or unenforceable in any respect, this
Mortgage shall be construed without such provision.
44. Headings, etc. The headings and captions of various sections of this
Mortgage are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions hereof.
45. Counterparts. This Mortgage may be executed in any number of
counterparts each of which shall be deemed to be an original but all of which
when taken together shall constitute one agreement.
46. Definitions. Unless the context clearly indicates a contrary intent
or unless otherwise specifically provided herein, words used in this Mortgage
may be used interchangeably in singular or plural form and the word "Mortgagor"
shall mean "each Mortgagor and any subsequent owner or owners of the Mortgaged
Property or any part thereof or any interest therein," the word "Mortgagee"
shall mean "Mortgagee and any subsequent holder of the Note," the word "Debt"
shall mean "the Note and any other evidence of indebtedness secured by this
Mortgage," the word "person" shall include an individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, and any other entity, and the words "Mortgaged Property" shall
include any portion of the Mortgaged Property and any interest therein and the
words "attorneys' fees" shall include any and all attorneys' fees, paralegal and
law clerk fees, including, but not limited to, fees at the pre-trial, trial and
appellate levels incurred or paid by Mortgagee in protecting its interest in the
Mortgaged Property and Collateral and enforcing its rights hereunder. Whenever
the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa.
47. Homestead. Mortgagor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Premises as against the collection of the Debt,
or any part hereof.
48. Assignments. Mortgagee shall have the right to assign or transfer its
rights under this Mortgage and the other Loan Documents without limitation,
including, without limitation, the right to assign or transfer its rights to a
servicing agent. Any assignee or transferee shall be entitled to all the
benefits afforded Mortgagee under this Mortgage and the other Loan Documents.
49. Survival of Obligations; Survival of Warranties and
Representations. Each and all of the covenants and obligations of Mortgagor
(other than warranties and representations contained herein) shall survive
the execution and delivery of the Loan Documents and shall continue in full
force and effect until the Debt shall have been paid in full; provided,
however, that nothing contained in this Section shall limit the obligations
of Mortgagor except as otherwise set forth herein. In
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addition, any and all warranties and representations of Mortgagor contained
herein shall survive the execution and delivery of the Loan Documents and (i)
shall continue for a period of one ( 1 ) year following any release of this
Mortgage executed by Mortgagee and satisfaction of the Loan evidenced by the
Loan Documents, and (ii) shall survive the transfer or assignment of this
Mortgage, the entry of a judgment of foreclosure, sale of the Mortgaged Property
by non judicial foreclosure or deed in lieu of foreclosure (including, without
limitation, any transfer of the Mortgage by Mortgagee of any of its rights,
title and interest in and to the Mortgaged Property to any party, whether or not
affiliated with Mortgagee).
50. Covenants Running with the Land. All covenants, conditions, warranties,
representations and other obligations contained in this Mortgage and the other
Loan Documents are intended by Mortgagor and Mortgagee to be, and shall be
construed as, covenants running with the Mortgaged Property until the lien of
this Mortgage has been fully released by Mortgagee.
51. GOVERNING LAW; JURISDICTION. THIS MORTGAGE, DEED OF TRUST AND SECURITY
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE LAWS OF CONFLICT) OF THE STATE OF TEXAS AND THE
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT TO THE EXTENT THE LAW OF
THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED GOVERNS THE CREATION,
PERFECTION AND DETERMINATION OF LIEN RIGHTS AND PRIORITY UNDER SUCH LOAN
DOCUMENTS, AND ENFORCEMENT OF REMEDIES AND THE DISPOSITION OF THE MORTGAGED
PROPERTY. GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY COURT
OF COMPETENT JURISDICTION LOCATED IN THE STATE OF TEXAS IN CONNECTION WITH ANY
PROCEEDING OUT OF OR RELATING TO THIS MORTGAGE, DEED OF TRUST AND SECURITY
AGREEMENT.
52. Time. Time is of the essence with respect to the obligations of
Mortgagor in this Mortgage and the other Loan Documents.
53. No Third Party Beneficiaries. The provisions of this Mortgage and the
other Loan Documents are for the benefit of Mortgagor and Mortgagee and shall
not inure to the benefit of any third party (other than any successor or
assignee of Mortgagee). This Mortgage and the other Loan Documents shall not be
construed as creating any rights, claims or causes of action against Mortgagee
or any of its officers, directors, agents or employees in favor of any party
other than Mortgagor including but not limited to any claims to any sums held in
the Tax and Insurance Escrow Fund or the Replacement Escrow Fund.
54. Relationship of Parties. The relationship of Mortgagee and Mortgagor is
solely that of debtor and creditor, and Mortgagee has no fiduciary or other
special relationship with Mortgagor, and no term or condition of any of the Loan
Documents shall be construed to be other than that of debtor and creditor.
Mortgagor represents and acknowledges that the Loan Documents do not provide for
any shared appreciation rights or other equity participation interest.
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55. [Intentionally deleted.]
56. [Intentionally deleted.)
57. Certain Assisted Living Facility Covenants. Mortgagor further covenants
and agrees with Mortgagee as follows:
(a) Mortgagor shall cause the operation of the Assisted Living Facility to
be conducted at all times in a manner consistent with the level of operation of
the Assisted Living Facility as of the date hereof, and, in connection
therewith, Mortgagor shall:
(i) maintain or cause to be maintained the standard of care for the
patients of the Assisted Living Facility at all times at a level necessary to
insure a level of quality care for the patients of the Assisted Living Facility
comparable to that existing on the date of this Mortgage;
(ii) maintain or cause to be maintained a standard of care in the
storage, use, transportation and disposal of all medical equipment, medical
supplies, medical products and medical waste, of any kind and in any form, that
is in accordance at least, that of the highest prudent industry standard and in
conformity with all applicable regulations and laws;
(iii) operate or cause to be operated the Assisted Living Facility in a
prudent manner in compliance with applicable laws and regulations relating
thereto and cause all Licenses and any other agreements necessary for the use
and operation of the Assisted Living Facility or as may be necessary for
participation in the Medicare, Medicaid or other applicable reimbursement
programs (if applicable) to remain in effect without reduction in the number of
licensed beds or beds authorized for use in Medicare, Medicaid or other
applicable reimbursement programs (if applicable);
(iv) maintain or cause to be maintained sufficient inventory and
Equipment of types and quantities at the Assisted Living Facility to enable
Mortgagor or Manager adequately to perform operation of the Assisted Living
Facility; and
(v) maintain or cause to be maintained all deposits, including, without
limitation, deposits relating to patients or patient care agreements if such
deposits are in cash such deposits are to be deposited and held by Mortgagor, or
Manager of the Assisted Living Facility, as the case may be, at such commercial
or savings bank or banks as may be reasonably satisfactory to Mortgagee, if such
deposits are in any other form, such deposits are to be maintained as Mortgagee
may expressly permit. Any bond or other instrument which Mortgagor, or Manager
of the Assisted Living Facility, as the case may be, is permitted to hold in
lieu of cash deposits under any applicable legal requirements shall be
maintained in full force and effect unless replaced by cash deposits as herein
above described, shall be issued by an institution reasonably satisfactory to
Mortgagee, shall, if permitted pursuant to any legal requirements, name
Mortgagee as payee or mortgagee thereunder (or
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at Mortgagee's option, be fully assignable to Mortgagee) and shall, in all
respects, comply with any applicable in legal requirements and otherwise be
reasonably satisfactory to Mortgagee. Mortgagor shall, upon request, provide
Mortgagee with evidence reasonably satisfactory to Mortgagee of Mortgagor's
compliance with the foregoing. Following the occurrence and during the
continuance of any Event of Default, Mortgagor or Manager of the Assisted Living
Facility as the case may be shall, upon Mortgagee's request, if permitted by any
applicable legal requirements, turn over to Mortgagee the deposits (and any
interest theretofore earned thereon) with respect to the Assisted Living
Facility, to be held by Mortgagee subject to the terms of their related
agreements.
(b) Mortgagor shall not assign or transfer any of its interest in any
Licenses or reimbursement contracts (including rights to payment thereunder),
including, without limitation, any Medicare and Medicaid agreements, pertaining
to the Assisted Living Facility, or assign, transfer, or remove or permit any
other person to assign, transfer, or remove or permit any other person to
assign, transfer, or remove any records pertaining to the Assisted Living
Facility including, without limitation, patient records, medical and clinical
records (except for removal of such patient records as directed by the patients
owning such records), without Mortgagee's prior written consent, which consent
may be granted or refused in Mortgagee's sole discretion.
(c) Mortgagor shall not enter into any transaction with any person or
entity affiliated with Mortgagor other than in the ordinary course of its
business and on fair and reasonable terms no less favorable to Mortgagor, than
those they would obtain in a comparable arms-length transaction with a person or
entity not an affiliate.
(d) Mortgagor shall maintain the Management Agreement for the operation of
the Assisted Living Facility in full force and effect and timely perform all of
Mortgagor's obligations thereunder and enforce performance of all obligations of
Manager thereunder, and not permit the termination or amendment of such
Management Agreement unless the prior written consent of Mortgagee is first
obtained. Mortgagor will enter into and cause Manager to enter into an
assignment and subordination of such Management Agreement in form satisfactory
to Mortgagee assigning and subordinating Manager's interest in the Mortgaged
Property and Assisted Living Facility and, to the extent set forth in such
assignment and subordination, in all fees and other rights of Manager pursuant
to such Management Agreement to the rights of Mortgagee. Upon an Event of
Default Mortgagor at Mortgagee's request made at any time while such Event of
Default continues, shall terminate the Management Agreement and replace Manager
with a manager selected by Mortgagee.
58. Duty to Defend. Upon written request by an Indemnified Party,
Mortgagor shall defend such Indemnified Party (if requested by an Indemnified
Party, in the name of the Indemnified Party) by attorneys and other
professionals approved by the Indemnified Parties. Notwithstanding the
foregoing, any Indemnified Parties may, in their sole and absolute discretion,
engage their own attorneys and other professionals to defend or assist them,
and, at the option of the Indemnified Parties, their attorneys shall control the
resolution of claim or proceeding. Upon demand, Mortgagor shall pay or, in the
sole and absolute discretion of the Indemnified Parties, reimburse, the
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Indemnified Parties for the payment of reasonable fees and disbursements of
attorneys, engineers, and other professionals in connection therewith. Any
amounts payable to any of the Indemnified Parties by reason of the application
of Section 33 hereof or this Section shall be secured by this Mortgage and shall
become immediately due and payable and shall bear interest at the Default Rate
specified in the Note from the date loss or damage is sustained by any of the
Indemnified Parties until paid.
59. Mortgagor's Expense. Mortgagor acknowledges and confirms that
Mortgagee shall impose certain administrative processing and/or commitment fees
in connection with (a) the extension, renewal, modification, amendment and
termination of its loans, (b) the release or substitution of collateral
therefor, (c) obtaining certain consents, waivers and approvals with respect to
the Mortgaged Property, or (d) the review of any Lease or proposed Lease or the
preparation or review of any subordination, non-disturbance and attornment
agreement. Mortgagor further acknowledges and confirms that it shall be
responsible for the payment of all costs of reappraisal of the Mortgaged
Property or any part thereof, whether required by law, regulation, Mortgagee or
any governmental or quasi-governmental authority. Mortgagor hereby acknowledges
and agrees to pay, immediately, with or without demand, all such fees (as the
same may be increased or decreased from time to time), and any additional fees
of a similar type or nature which may be imposed by Mortgagee from time to time,
upon the occurrence of an event set forth in this Section or otherwise. Wherever
it is provided for herein that Mortgagor pay any costs and expenses, such costs
and expenses shall include, but not be limited to, all legal fees and
disbursements of Mortgagee, whether of retained firms, the reimbursement for the
expenses of in-house staff or otherwise.
60. Attorneys' Fees. (a) Mortgagor shall pay all legal fees incurred by
Mortgagee in connection with (i) the preparation of the Note, this Mortgage and
the other Loan Documents; and (ii) the items set forth in Section 59 above, and
(b) Mortgagor shall pay to Mortgagee on demand any and all expenses, including
legal expenses and attorneys' fees, incurred or paid by Mortgagee in protecting
its interest in the Mortgaged Property or in collecting any amount payable under
the Note, Mortgage or other Loan Documents or enforcing its rights hereunder
with respect to the Mortgaged Property, whether or not any legal proceeding is
commenced hereunder or thereunder and whether or not any default or Event of
Default shall have occurred and is continuing, together with interest thereon at
the Default Rate from the date paid or incurred by Mortgagee until such expenses
are paid by Mortgagor.
61. Year 2000 Compliance. Mortgagor has taken and is taking all necessary
and appropriate steps to ascertain the extent of, quantify and successfully
address: (a) the business and financial risks facing Mortgagor as a result of
what is commonly referred to as the "Year 2000 problem" (i. e. , the inability
of certain computer applications to recognize correctly and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), including risks resulting from the failure of Lessees (as
such term is defined in the Lease Assignment) of the Mortgaged Property to
address successfully the Year 2000 problem, and (b) that Mortgagor's computer
applications will, on a timely basis, adequately address the Year 2000 problem
in all material respects.
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62. ERISA. (a) Mortgagor shall not engage in any transaction which would
cause any obligation, or action taken or to be taken, hereunder (or the exercise
by Mortgagee of any of its rights under the Note, this Mortgage and the other
Loan Documents) to be a non-exempt (under a statutory or administrative class
exemption) prohibited transaction under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
(b) As of the date hereof and throughout the term of this Mortgage, (i)
Mortgagor 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 (ii) the assets
of Mortgagor do not and will not constitute "plan assets" of one or more such
plans for purposes of Title I of ERISA.
(c) As of the date hereof and throughout the term of this Mortgage, (i)
Mortgagor is not and will not be a "governmental plan" within the meaning of
Section 3(3) of ERISA, and (ii) transactions by or with Mortgagor are not and
will not be subject to state statutes applicable to Mortgagor regulating
investments of and fiduciary obligations with respect to governmental plans.
(d) Mortgagor further covenants and agrees to deliver to Mortgagee such
certifications or other evidence from time to time throughout the term of the
Mortgage, as requested by Mortgagee in its sole discretion, that (i) Mortgagor
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(3) of ERISA; (ii) Mortgagor 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 Mortgagor are publicly offered securities, within the meaning of 29
C.F.R. Sec. 2510.3-l0l(b)(2); (B) less than 25 percent of each outstanding class
of equity interests in Mortgagor are held by "benefit plan investors" within the
meaning of 29 C.F.R. Sec. 2510.3-101(f)(2); or (C) Mortgagor qualifies as an
"operating company" or a "real estate operating company" within the meaning
of 29 C.F.R. Sec. 2510.3-101(c) or (e) or an investment company registered
under The Investment Company Act of 1940.
63 . [Intentionally deleted.]
64. Payment and Performance Guaranty. As used in this Mortgage, the Note
and the other Loan Documents, the term "Loan Documents" also shall include and
refer to the Payment and Performance Guaranty. With respect to the execution and
delivery of the Payment and Performance Guaranty, this Mortgage and the other
Loan Documents, Mortgagor further agrees as follows:
(a) Mortgagor has executed and delivered this Mortgage, in part, as an
accommodation instrument so as to subject and encumber its interests in the
Mortgaged Property as additional security for its obligations set forth in the
Payment and Performance Guaranty. Mortgagor hereby acknowledges that its
obligations under the Payment and Performance Guaranty are unconditional and
that Mortgagor will receive material economic benefit from granting this
Mortgage. Accordingly, Mortgagor hereby agrees, to the fullest extent permitted
by applicable law, not to assert or take advantage of:
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(i) Any right to require Mortgagee to proceed against any Affiliate
Borrower or by any other person or by any entity or against any other collateral
assigned to Mortgagee by Mortgagor, any other Affiliate Borrower or other
person, or to proceed against or exhaust any other remedy in Mortgagee's power
before exercising any right or remedy under this Mortgage.
(ii) Any defense that may arise by reason of:
(A) Mortgagee's failure to proceed against any Affiliate Borrower or
any of Affiliate Borrowers' property, or any other party against whom Mortgagee
might assert a claim, before proceeding against Mortgagor under this Mortgage;
or
(B) The release, suspension, discharge or impairment of any of
Mortgagee's rights against any Affiliate Borrower or any other party against
whom Mortgagee might assert a claim, whether such release, suspension, discharge
or impairment is explicit, tacit or inadvertent; or
(C) Mortgagee's failure to pursue any other remedies available to
Mortgagee that would reduce the burden of the Payment and Performance Guaranty
and the Affiliate Debt on Mortgagor's interests in the Mortgaged Property; or
(D) Any extension of the time for the payment or performance of any of
Borrower's obligations under the Affiliate Debt; or
(E) Any amendment of this Mortgage, the Note or any of the other Loan
Documents or of any document evidencing, governing or securing any of the
Affiliate Debt (collectively referred to as the "Affiliate Debt Documents"),
whether or not such amendment materially affects the risk that Mortgagor has
assumed by executing this Mortgage; or
(F) The incapacity, lack of authority, death or disability or other
defense of any Affiliate Borrower or any other person; or
(G) The failure of Mortgagee to file or enforce a claim against the
estate (in either administration, bankruptcy or any other proceedings) of any
Affiliate Borrower or any other person.
(iii) Any right to require demand, protest and notice of any kind,
including without limitation, the following notices:
(A) Notice of the evidence, creation or incurrence of any new or
additional indebtedness or obligation on the part of Affiliate Borrower
(provided that such indebtedness or obligation is not secured by this Mortgage);
or
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(B) Notice of any action or non-action on the part of any Affiliate
Borrower or Mortgagee in connection with any obligation or evidence of
indebtedness held by Mortgagee as collateral for the Affiliate Debt; or
(C) Notice of payment or non-payment by any Affiliate Borrower of the
Affiliate Debt;
(iv) Any duty on the part of Mortgagee to disclose to Mortgagor any
default by any Affiliate Borrower under any Affiliate Debt Document.
(v) Any duty on the part of Mortgagee to disclose to Mortgagor any
facts Mortgagee may now know or may hereafter know about any Affiliate Borrower
or Affiliate Borrowers' successors in interest (if any) regardless of whether
Mortgagee (A) has reason to believe that any such facts materially increase the
risk beyond the risk which Mortgagor intends to assume by executing this
Mortgage, (B) has reason to believe that these facts are unknown to Mortgagor or
(C) has a reasonable opportunity to communicate such facts to Mortgagor, it
being understood and agreed that Mortgagor is fully responsible for being and
keeping informed of the financial condition of Affiliate Borrowers or any
successors in interest of Affiliate Borrowers and of all circumstances bearing
on the risk of non-payment of the Affiliate Debt.
(vi) Any right to object to the release of any portions of the
collateral (if any) securing the Affiliate Debt notwithstanding the fact that
such releases may be made without Mortgagee's having received any or adequate
consideration therefor.
(b) Mortgagor waives all rights and defenses that Mortgagor may have
because the Affiliate Borrower's obligations are secured by real property. This
means, among other things:
(i) Mortgagee may collect from Mortgagor without first foreclosing on
any real property collateral upon which a lien has been granted or any personal
property collateral pledged by the Affiliate Borrowers; and
(ii) If Mortgagee forecloses on any real property collateral upon
which a lien has been granted by the Affiliate Borrowers:
(A) The amount of the Affiliate Debt may be reduced only by the
price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price; and
(B) Mortgagee may collect from Mortgagor even if Mortgagee, by
foreclosing on the real property collateral, has destroyed any right Mortgagor
may have to collect from any Affiliate Borrower.
-56-
<PAGE>
This is an unconditional and irrevocable waiver of any rights and defenses
Mortgagor may have because the Borrowers' obligations are secured by real
property.
(c) Without limiting the generality of the foregoing or any other provision
hereof, Mortgagor expressly waives any and all rights of subrogation,
reimbursement, indemnification, and contribution and any other rights and
defenses which are or might become available to Mortgagor.
(d) Before executing this Mortgage, Mortgagor has made such independent
legal and factual inquiries and investigations as Mortgagor deemed necessary or
desirable with respect to the value of the Mortgaged Property, and the ability
of Affiliate Borrowers to honor all of Borrowers' covenants and agreements with
respect to the Affiliate Debt and the Affiliate Debt Documents, and Mortgagor
has relied solely on said independent inquiries and investigations preparatory
to entering into this Mortgage.
65. Limited Liability. The provisions of the Note limiting the liability of
Mortgagor to certain matters are hereby incorporated by reference.
(The balance of this page is intentionally left blank.)
-57-
<PAGE>
Mortgagor has executed this instrument as an instrument under seal the day and
year first above written.
MORTGAGOR:
EMERITUS PROPERTIES IX, LLC,
a Washington limited liability
company
By: /s/ Daniel R. Baty
Daniel R. Baty, its Managing
Manager
STATE OF WA
COUNTY OF King
This instrument was ACKNOWLEDGED before me on September 17 , 1999, by DANIEL R.
BATY, to me personally known and who, being duly sworn by me, did say that he is
the Managing Manager of EMERITUS PROPERTIES IX, LLC, a Washington limited
liability company, on behalf of said limited liability company, and he did
further acknowledge such instrument to be the free act and deed of said limited
liability company, on behalf of said limited liability company.
[SEAL] /s/ Amanda Ray
Notary Public - State of WA
My Commission Expires:
01-05-02
-58-
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF 9/30/99 AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
NINE MONTHS ENDED 9/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,073
<SECURITIES> 1,913
<RECEIVABLES> 2,331
<ALLOWANCES> (575)
<INVENTORY> 219
<CURRENT-ASSETS> 38,504
<PP&E> 142,967
<DEPRECIATION> (13,804)
<TOTAL-ASSETS> 191,664
<CURRENT-LIABILITIES> 41,132
<BONDS> 129,525
25,000
0
<COMMON> 1
<OTHER-SE> (56,920)
<TOTAL-LIABILITY-AND-EQUITY> 191,664
<SALES> 0
<TOTAL-REVENUES> 92,916
<CGS> 0
<TOTAL-COSTS> 92,888
<OTHER-EXPENSES> (3,381)
<LOSS-PROVISION> 288
<INTEREST-EXPENSE> 9,643
<INCOME-PRETAX> (6,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 333
<CHANGES> 0
<NET-INCOME> (6,567)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
