<PAGE> 1
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 OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from ___________ to ___________
Commission File Number: 0-17969
NEXTHEALTH, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 86-0589712
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
16600 N. Lago Del Oro Parkway, Tucson, Arizona 85739
- ---------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(520) 792-5800
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
N/A
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
On August 1, 1996, there were 8,554,938 shares of the registrant's Common Stock
outstanding.
Reference is made to the listing beginning on page 16 of all exhibits filed as a
part of this report.
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NEXTHEALTH, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (unaudited)
and December 31, 1995........................................ 3
Unaudited Consolidated Statements of Operations for the three
and six month periods ended June 30, 1996 and 1995 .......... 4
Unaudited Consolidated Statements of Cash Flows for the six
month period ended June 30, 1996 and 1995 ................... 5
Unaudited Consolidated Statements of Changes in Stockholder's
Equity for the six month period ended June 30, 1996 ........ 6
Unaudited Notes to the Consolidated Financial Statements ........ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............... 16
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Signatures ................................................................ 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents ............................. $ 1,942 $ 2,864
Short-term investments ........................... -- 1,635
Accounts receivable, less allowance for doubtful
accounts of $338 and $431, respectively ........ 986 1,340
Prepaid expenses ................................. 896 476
Other current assets ............................. 704 478
-------- --------
Total current assets .......................... 4,528 6,793
Property and equipment, net .......................... 40,788 40,158
Long-term receivables, less allowance for doubtful
accounts of $68 and $70, respectively .............. 203 211
Intangible assets, less amortization of $84
and $33, respectively .............................. 723 704
Other assets ......................................... 518 76
-------- --------
Total assets .................................. $ 46,760 $ 47,942
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade .......................... $ 3,147 $ 2,410
Accounts payable, construction ................... -- 4,517
Current portion of long-term debt ................ 2,602 --
Accrued expenses and other liabilities ........... 3,736 3,452
-------- --------
Total current liabilities ..................... 9,485 10,379
Long-term debt and financing obligation,
less current portion.............................. 5,945 985
-------- --------
Total liabilities ............................. 15,430 11,364
-------- --------
Stockholders' Equity:
Preferred stock, $.01 par value, 4,000,000 shares
authorized; no shares issued and outstanding ... -- --
Common stock, $.01 par value, 16,000,000 shares
authorized; 8,554,938 shares outstanding at
June 30, 1996 and December 31, 1995 ............ 86 86
Additional paid-in capital ....................... 43,453 43,453
Accumulated deficit .............................. (12,209) (6,961)
-------- --------
Total stockholders' equity .................... 31,330 36,578
-------- --------
Total liabilities and stockholders' equity .... $ 46,760 $ 47,942
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
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NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000s, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
Net operating revenue .......... $ 4,746 $ 3,095 $ 9,247 $ 6,363
Investment income .............. 6 592 30 931
Other revenue .................. 85 119 187 447
------- ------- -------- -------
Total net revenue ........ 4,837 3,806 9,464 7,741
Operating expenses:
Salaries and related benefits .. 3,741 1,878 7,530 3,831
General and administrative ..... 2,784 1,931 5,741 3,906
Business expansion ............. -- 828 -- 828
Interest ....................... 43 22 108 50
Depreciation and amortization .. 681 396 1,333 783
------- ------- -------- -------
Total operating expenses.. 7,249 5,055 14,712 9,398
------- ------- -------- -------
Loss before income tax benefit ... (2,412) (1,249) (5,248) (1,657)
Income tax benefit ............... -- -- -- --
------- ------- -------- -------
Net loss ......................... $(2,412) $(1,249) $ (5,248) $(1,657)
======= ======= ======== =======
Weighted average shares of common
stock outstanding ................ 8,554 8,547 8,554 8,543
======= ======= ======== =======
Net loss per share of common stock $ (0.28) $ (0.15) $ (0.61) $ (0.19)
======= ======= ======== =======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
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NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1996 1995
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $(5,248) $ (1,657)
Adjustments to reconcile net loss to cash
(used in) provided by operating activities:
Depreciation and amortization .................. 1,333 783
Provision (benefit) for bad debts .............. (178) 122
Changes in operating assets and liabilities
net of effects from acquisitions:
Decrease (increase) in assets:
Accounts receivable ......................... 555 1,746
Prepaid and other assets .................... (739) 3
Increase in liabilities:
Accounts payable and accrued liabilities .... 839 1,471
Income taxes receivable ..................... -- 4,507
------- --------
Net cash (used in) provided by
operating activities ........................... (3,438) 6,975
------- --------
Cash flows for investing activities:
Purchase of property and equipment, net ........ (1,597) (764)
Business acquisitions, net of cash acquired .... (88) (130)
Purchase of long-term investments .............. -- (12,237)
Sale of long-term investments .................. -- 6,053
------ --------
Net cash used in investing activities ............. (1,685) (7,078)
------- --------
Cash flows from financing activities:
Proceeds from long-term debt ................... 3,929 --
Reduction of long-term debt .................... (1,363) (95)
------- --------
Net cash used in financing activities ............. 2,566 (95)
------- --------
Net decrease in cash and cash equivalents ......... (2,557) (198)
Cash and equivalents at beginning of period ....... 4,499 11,741
------- --------
Cash and equivalents at end of period ............. $ 1,942 $ 11,543
======= ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
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NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000s, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------- Paid-in Accumulated Stockholders'
Cost Shares Capital Deficit Equity
---- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995.. $86 8,554,938 $43,453 $ (6,961) $ 36,578
Net loss for the six months
ended June 30,1996 ...... -- -- -- (5,248) (5,248)
--- --------- ------- -------- --------
Balance at June 30, 1996 ..... $86 8,554,938 $43,453 $(12,209) $ 31,330
=== ========= ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
6
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NEXTHEALTH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(000s)
(Unaudited)
NOTE 1 - ORGANIZATION
NextHealth, Inc. is a leading provider of wellness and preventive health care
services in diverse retail markets. For over ten years, the Company has
developed effective treatment models which address individual wellness and
quality of life issues through a whole person, mind-body approach.
The Company operates in two distinct business segments. The Treatment segment
includes Sierra Tucson, Inc. ("STI"), a state licensed, special psychiatric
hospital and behavioral health care center for the treatment of substance abuse
and mental health disorders, including eating disorders and dual diagnosis and
Onsite Workshops, Inc. ("Onsite"), which offers short-term therapeutic
experiences and workshops. The Health and Leisure segment includes Miraval(TM),
a unique vacation experience blending stress management and self-discovery
programs in a luxury health resort environment, which opened in late 1995 and
Hilton Head Health Institute, Inc. ("HHHI"), a provider of weight management
programs for the development and maintenance of healthy lifestyles as well as
fitness, nutrition, stress management and other lifestyle change programs,
acquired in March 1996.
NOTE 2 - BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995. The accompanying interim consolidated financial statements as of June
30, 1996 and for the three and six-month periods ended June 30, 1996 and 1995
included herein are unaudited, but reflect, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary to
fairly present the results for such periods. Operating results for the three and
six-month periods ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
NOTE 3 - ACQUISITIONS
Effective March 1, 1996, the Company acquired the operating assets and
liabilities of HHHI located at The Cottages in Shipyard Plantation, Hilton Head,
South Carolina. HHHI is a provider of clinically-proven weight management
programs as well as fitness, nutrition, stress management and other lifestyle
change programs. The cost of the acquisition, which was accounted for as a
purchase, was not material to the Company's financial position, results of
operations and cash flows at June 30, 1996 or for the six-month period then
ended. In addition, the Company agreed to purchase certain real property from
the former owner of HHHI at a price equal to fair market value which is
estimated to be approximately $1,500 to $2,000. The Company will lease this real
property until such purchase occurs.
NOTE 4 - FINANCING TRANSACTIONS
On April 10, 1996, the Company obtained a $2,000 line of credit (the "LOC") from
the National Bank of Arizona for a term of six months. The LOC had a variable
interest rate based upon the prime rate as published in the Western Edition of
the Wall Street Journal plus 1 percent. The initial interest rate was 9.25%,
payable in monthly installments. The LOC was secured by certain real estate
owned by the Company. The LOC was paid off in full with the proceeds from the
$4,000 financing mentioned below.
7
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NEXTHEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(000s)
(Unaudited)
On April 3, 1996, the Company negotiated an agreement with Sundt Corporation
("Sundt"), the general contractor of the Miraval project, for the payment of
approximately $3,700, which represented the remaining balance due Sundt at that
date for the construction of Miraval. This agreement has a term of eighteen
months and bears interest at an annual rate equal to the prime rate as
established by Bank One, N.A. plus 4 percent. Sundt received a $300 payment at
the closing of the LOC and will receive payments of $125 per month for a period
of eleven months commencing in May 1996. The balance remaining after the
aforementioned payments will be paid evenly in six monthly installments. Sundt
has agreed to subordinate the master Mechanics' Lien recorded against Miraval's
real property on March 28, 1996 to the LOC and additional borrowings up to
$5,000. Additionally, as part of this agreement, if the Company were to obtain
secured borrowings in excess of $5,000 or unsecured borrowings in excess of
$3,000, the unpaid balance due Sundt would immediately become due. At December
31, 1995, the amount due Sundt was classified as accounts payable, construction.
At June 30, 1996, as a result of the agreement negotiated with Sundt, the
long-term portion of this obligation has been classified as long-term debt.
On June 28, 1996, the Company amended its agreement with Sundt to facilitate the
closing of the $4,000 financing noted below. Sundt received an additional $100
payment in connection with this amendment.
On June 28, 1996, the Company secured financing in the amount of $4,000.
Principal and interest at 13.75% is payable in monthly installments of $53
through March, 1998 at which time all unpaid principal is due and payable. The
financing is collateralized by certain real estate and property, plant and
equipment owned by the Company. Proceeds were used to repay the existing balance
on the LOC and to assist with meeting short-term working capital requirements.
NOTE 5 - RECLASSIFICATIONS
Certain prior period amounts in the unaudited consolidated financial statements
have been reclassified to conform to the presentation used in 1996.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis relates to factors which have affected the
consolidated financial condition and results of operations of the Company for
the three and six-month periods ended June 30, 1996 and 1995. Certain prior year
amounts have been reclassified to conform to the presentation used in 1996.
Reference should also be made to the Company's unaudited consolidated financial
statements and related notes thereto included elsewhere in this document.
GENERAL
NextHealth, Inc. is a leading provider of wellness and preventive health care
services in diverse retail markets. For over ten years, the Company has
developed effective treatment models which address individual wellness and
quality of life issues through a whole person, mind-body approach.
The Company operates in two distinct business segments. The Treatment segment
includes STI, a state licensed, special psychiatric hospital and behavioral
health care center for the treatment of substance abuse and mental health
disorders, including eating disorders and dual diagnosis and Onsite, which
offers short-term therapeutic experiences and workshops. The Health and Leisure
segment includes Miraval, a unique vacation experience blending stress
management and self-discovery programs in a 106 room luxury health resort
environment, which opened in late 1995 and HHHI, a provider of weight management
programs for the development and maintenance of healthy lifestyles as well as
fitness, nutrition, stress management and other lifestyle change programs which
was acquired in March 1996.
The Company, as part of its long range plan, believes that it has positioned
itself to capitalize on the newly emerging health and leisure segment of the
health care services industry by developing Miraval, a luxury health resort
providing a full range of self-discovery, stress management and recreational
activities. The Company is also seeking additional opportunities to increase
market share for its existing Treatment segment. For the six-month period ended
June 30, 1996, the Treatment segment accounted for approximately 66% of all the
Company's operating revenues and approximately 36% of operating expenses while
the Health and Leisure segment accounted for approximately 34% of the Company's
operating revenue and approximately 50% of operating expenses. However, the
Company believes that the Health and Leisure segment will make significant
contributions to the Company's operating results in the future.
9
<PAGE> 10
RESULTS OF OPERATIONS
THREE-MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO THREE-MONTH PERIOD ENDED JUNE
30, 1995
The significant changes in results of operations and net cash provided by (used
in) operating activities for the six-month period ended June 30, 1996, compared
to the same period in 1995 are discussed below.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------
1996 1995 % Change
------- ------- --------
<S> <C> <C> <C>
FINANCIAL RESULTS: (000s, except per share amounts)
Total net revenue ...............................$ 4,837 $ 3,806 27.1 %
Total operating expenses, less business
expansion costs ................................ 7,249 4,227 71.5 %
Business expansion costs ........................ -- 828 --
Net loss ........................................ (2,412) (1,249) 93.1 %
Net loss per share of common stock .............. (.28) (.15) 86.7 %
Net cash provided by (used in) operating
activities .................................... (804) 5,683 (114.1)%
OPERATING DATA:
Patient days - STI .............................. 4,066 4,307 (5.6)%
Average daily census - STI ...................... 45 47 (4.3)%
Participant days - Onsite ....................... 1,981 1,843 7.5 %
Average daily census - Onsite ................... 22 20 10.0 %
Participant days - HHHI (1) ..................... 3,381 -- --
Average daily census - HHHI (1) ................. 37 -- --
Guest days - Miraval (2) ........................ 3,702 -- --
Average daily guest count - Miraval (2) ......... 41 -- --
</TABLE>
(1) HHHI was acquired effective March 1, 1996.
(2) Miraval commenced operations in December 1995. Complimentary guest days
of 581 are included in the stated figures.
For the three-month period ended June 30, 1996, the loss before income tax
benefit and net loss increased from $1.2 million in 1995 to $2.4 million in
1996. Net cash provided by operating activities was $5.7 million in 1995
compared to net cash used in operating activities of $804,000 in 1996.
Total net revenue increased $1.03 million to $4.8 million, an increase of 27%
when compared to the same period in 1995. Results reflect commencement of
operations at Miraval and the acquisition of HHHI. This increase was offset by a
decrease in investment income attributable to the use of cash and investments
for the development of Miraval.
Salaries and related benefits increased $1.9 million to $3.7 million, an
increase of 99% when compared to the same period in 1995. The increase was
primarily due to staffing requirements related to the operations at Miraval.
General and administrative expense increased $853,000 to $2.8 million, an
increase of 44% when compared to the same period in 1995. The increase was due
primarily to operational costs related to Miraval.
The Company recognized a pre-tax loss of $2.4 million for the three-month period
ended June 30, 1996. No provision or benefit for income taxes was recorded
during this period. The Company will be able to carry forward the current period
loss to offset future tax liabilities.
SIX-MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30,
1995
The significant changes in results of operations and net cash provided by (used
in) operating activities for the six-month period ended June 30, 1996, compared
to the same period in 1995 are discussed below.
10
<PAGE> 11
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1996 1995 % Change
-------- ------- --------
<S> <C> <C> <C>
FINANCIAL RESULTS: (000s, except per share amounts)
Total net revenue ..............................$ 9,464 $ 7,741 22.3 %
Total operating expenses, less business
expansion costs .............................. 14,712 8,570 71.7 %
Business expansion cost ........................ -- 828 (100.0)%
Net loss ....................................... (5,248) (1,657) (216.7)%
Net loss per share of common stock ............. (0.61) (0.19) (221.1)%
Net cash provided by (used in) operating
activities ..................................... (3,438) 6,975 (149.3)%
OPERATING DATA:
Patient days - STI ............................. 8,212 8,916 (7.9)%
Average daily census - STI ..................... 45 49 (8.2)%
Participant days - Onsite ...................... 3,873 3,725 4.0 %
Average daily census - Onsite .................. 21 21 --
Participant days - HHHI (1) .................... 4,508 -- --
Average daily census - HHHI (1) ................ 37 -- --
Guest days - Miraval (2) ....................... 7,724 -- --
Average daily guest count - Miraval (2) ........ 42 -- --
</TABLE>
(1) HHHI was acquired effective March 1, 1996.
(2) Miraval commenced operations in December 1995. Complimentary guest days
of 1,561 are included in the stated figures.
For the six-month period ended June 30, 1996, net loss increased $3.6 million to
$5.2 million and net cash provided by operating activities decreased $10.4
million resulting in net cash used in operating activities of $3.4 million
compared to the same period in 1995.
Total net revenue increased $1.7 million to $9.5 million, an increase of 22%
when compared to the same period in 1995. Results reflect commencement of
operations at Miraval and the acquisition of HHHI. This increase was offset by a
decrease in investment income attributable to the use of cash and investments
for the development of Miraval.
Salaries and related benefits increased $3.7 million to $7.5 million, an
increase of 97% when compared to the same period in 1995. The increase was
primarily due to staffing requirements related to the operations at Miraval.
General and administrative expense increased $1.8 million to $5.7 million, an
increase of 47% when compared to the same period in 1995. The increase was
primarily due to operational costs related to Miraval.
The Company recognized a pre-tax loss of $5.2 million for the six-month period
ended June 30, 1996. No provision or benefit for income taxes was recorded
during this period. The Company will be able to carry forward the current
period loss to offset future tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources have typically
been cash provided by the Treatment segment's operating activities and funds
generated from the sale of investments and proceeds from public equity
offerings. Historically, these sources have been sufficient to meet the needs
and finance the operations and growth of the Company's business. Net cash
provided by the Treatment segment's operating activities has been primarily
affected by census levels and net revenue per patient day. This segment
contributed positive cash flow to the Company's operations during the three and
six-month periods ended June 30, 1996.
11
<PAGE> 12
For the three-month period ended June 30, 1996 the Company had capital
expenditures of approximately $114,000. Primarily as a result of operating
expenditures required to support the Health and Leisure segment until it is self
sufficient, the Company's cash from operations has decreased significantly. For
the three-month period ended June 30, 1996, the Company's net cash used in
operating activities was $804,000.
For the six-month period ended June 30, 1996 the Company had capital
expenditures of approximately $1.6 million. Primarily as a result of operating
expenditures required to support the Health and Leisure segment until it is
self-sufficient and the aforementioned capital expenditures, the Company's cash
reserves have decreased significantly. For the six-month period ended June 30,
1996 the Company's net cash used in operating activities was $3.4 million.
The Treatment segment's operational results for the three-month period ended
June 30, 1996 reflect the segment's focus on attracting a high percentage of
retail patients. During this period, 63% of patient revenue was derived from
retail payments and the remaining 37% from third party payors. STI continues to
experience pressure from third party payors and managed care organizations to
restrict patient access to and payment for treatment services. Onsite derives
its revenues almost entirely from retail payments by participants. Based on
current census levels and operating expenses, STI believes that it will generate
adequate cash flows to sustain the Treatment segment's ongoing operational
requirements.
Miraval, the Company's Health and Leisure segment's primary line of business,
commenced operations in December 1995. This segment's results are primarily
affected by occupancy, average annual room rates and the segment's ability to
manage costs. Miraval believes that it operates in a unique niche in an emerging
health and leisure market. Marketing and advertising initiatives for creating
marketplace awareness and demand for Miraval's services resulted in a room
occupancy rate of approximately 29% through June 30, 1996 of which 76% were
paying guests and 24% non-paying guests. As part of the segment's marketing
strategy, media, travel and trade representatives as well as other key
influencers have been invited to experience Miraval with the anticipation that
Miraval will be promoted in the marketplace. Management believes the Health and
Leisure segment will, in time, make a significant contribution to the Company's
financial condition. However, until such time that it generates positive cash
flow, short and long-term financing and the implementation of cost containment
measures will be necessary to sustain its operations.
To meet its current liquidity requirements, the Company secured financing in the
amount of $4.0 million on June 28, 1996. Interest and principal at 13.75% is
payable in monthly installments of $52,599 through March, 1998 at which time all
unpaid principal is due and payable. The financing is collateralized by certain
real estate and property, plant and equipment owned by the Company. Proceeds
were used to repay the existing balance on the $2.0 million LOC agreement
obtained April 10, 1996 and assist with meeting short-term working capital
requirements.
On April 3, 1996, the Company negotiated an agreement with Sundt Corporation
("Sundt"), the general contractor of the Miraval project, for the payment of
approximately $3.7 million, which represented the remaining balance due Sundt at
that date for the construction of Miraval. This agreement has a term of eighteen
months and bears interest at an annual rate equal to the prime rate as
established by Bank One, N.A. plus 4 percent. Sundt received a $300,000 payment
at closing of the LOC and an additional $100,000 at the closing of the Company's
$4 million financing. As part of this agreement, Sundt will receive $125,000 per
month for a period of eleven months commencing in May 1996. The balance
remaining after the aforementioned payments will be paid evenly in six monthly
installments. Sundt has agreed to subordinate the master Mechanics' Lien
recorded against Miraval's real property on March 28, 1996 to borrowings up to
$5.0 million. Additionally, if the Company were to obtain secured borrowings in
excess of $5.0 million or unsecured borrowings in excess of $3.0 million, the
unpaid balance due Sundt would immediately become due. The Company is actively
exploring additional financing alternatives which it believes will be adequate
to maintain operations through 1996.
12
<PAGE> 13
Effective March 1, 1996, the Company acquired certain operating assets and
liabilities from HHHI. The acquisition price was not material to the Company's
financial position, results of operations and cash flows at June 30, 1996 or for
the six-month period then ended. In addition, the Company has agreed to purchase
certain real property from the former owner of HHHI at a price equal to fair
market value which is estimated to be approximately $1.5 million to $2.0
million. The Company will continue to lease this real property until the
purchase closes. The Company does not expect HHHI to require significant capital
resources in 1996. However, approximately $150,000 in capital has been funded
for the retirement of certain outstanding obligations which were assumed by the
Company as part of the acquisition.
To satisfy the Company's operational liquidity requirements, it will be
necessary for the Company to secure additional financing. The Company cannot
predict the terms or availability of such financing. Also, in order to alleviate
current liquidity requirements, it is necessary for the Company to increase
occupancy levels and to implement additional cost controls. Insufficient
occupancy levels at Miraval or any significant decrease in STI's patient levels
would adversely affect the Company's financial position, results of operations
and cash flows. Management does not anticipate any significant impact upon
operations as a result of inflation, nor has the Company historically
experienced any such impact.
BUSINESS OUTLOOK
In 1996, the Treatment segment is projected to contribute significantly to the
net income and cash flows of the Company. In order to meet this goal, management
has implemented marketing initiatives focusing on increasing the average daily
census (ADC) for STI's and Onsite's programs. Additionally, a 5% rate increase
was implemented by STI on March 1, 1996. To ensure that cash receipts continue
to follow historical trends, STI will focus on both referent and retail sectors,
and will enhance existing utilization review procedures to improve reimbursement
through third party payors.
In 1995, cost containment efforts were an important factor in the Treatment
segment's results of operations, and these efforts will continue in 1996. In
order to reduce the cost per patient and participant day, the segment will focus
on managing labor and labor-related costs. This will be effected through the
increased use of variable staffing which expands or contracts as determined by
the ADC, the consolidation of certain positions and functions and the reduction
or elimination of the use of consultants and contract labor. In addition, STI
and Onsite are developing long-range plans for assessing the feasibility of
changing certain components of their fixed cost structures.
Miraval commenced operations in December, 1995. As an early entrant in an
emerging market niche, there are no industry-specific financial benchmarks from
which the Company can draw conclusions for projecting future performance.
Management's primary objective is to increase short- and long-term occupancy
levels. In order to achieve this objective, Miraval will continue to implement
marketing initiatives aimed primarily at upscale consumers predisposed to
similar types of vacation experiences through travel/trade sources, news media,
direct mail initiatives and with other entities and individuals in positions to
influence consumers' vacation decisions. An aggressive direct sales operation
will likewise be implemented. In addition, the implementation of cost
containment measures in 1996 will be a critical factor in the Company's efforts
to establish positive operating results. This will be effected through the
increased use of variable staffing relative to any seasonal fluctuations in
occupancy and the evaluation of all other operating expenditures in an effort to
identify areas where efficiencies can be realized.
The April 1996 addition of Sigi Brauer as Managing Director of Miraval and
President of Miraval Resort Group brings a significant new dimension to the
Company's senior management. Among his many credentials, Mr. Brauer was a
founding member of the management team that launched The Ritz-Carlton Hotel
Company. Since joining the Company, Mr. Brauer has added a number of highly
experienced sales professionals to Miraval's marketing staff, including Peter
Faraone, former Vice President of Sales and Marketing for The Ritz-Carlton Hotel
Company.
The Company continually monitors the economic performance of each operating
entity to see that it meets desired cash flow objectives. If an operating entity
13
<PAGE> 14
is not generating the expected cash flows or does not fit with the Company's
long-term strategic plans, the Company will explore various options such as
consolidation of operations, closing the operating entity or outright sale.
Periodically, the Company will reevaluate its position and take the appropriate
corrective action.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management's Discussion and Analysis of Results of Operations and Financial
Condition contains forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve a number of risks and
uncertainties. While management believes that such forward looking statements
are accurate as of the date hereof, the actual results and conditions could
differ materially from the statements contained herein. The information below
should be read in conjunction with the Company's unaudited consolidated
financial statements and related notes thereto included elsewhere and in other
portions of this document.
In addition, the following other factors could cause actual results and
conditions relating to liquidity and capital resources to differ materially.
Miraval represents a new and significant line of business for the Company.
Miraval is the Company's initial entry into a unique niche in the emerging
health and leisure market for which there is little, if any, industry market
data available. Its products and services are different than those of
traditional destination resorts or destination "spa" facilities. The Company has
little experience in the marketing, management or operation of a facility of
this nature, although it has hired qualified and experienced personnel from
related operations.
The Company is unable to project with any degree of accuracy the future
occupancy levels or revenues of Miraval because the facility is in its first
year of operation. The Company has no historical operating data for projecting
occupancy levels during peak and non-peak periods, marketing, operating or
maintenance costs and expenses. Although the Company believes that there is
strong consumer demand for Miraval's products and services because it represents
a unique vacation alternative, the Company cannot be certain that its current
marketing strategy will successfully attract the targeted clientele.
The Company cannot be certain that Miraval will generate sufficient revenues to
cover its operating expenses. Management believes that the existing capital
resources of the Company are insufficient to meet its short-term capital needs.
Additional capital may be available through short and long-term financing;
however, the Company cannot predict the terms or availability of such financing.
Miraval competes in the competitive resort hotel/spa industry. In many
instances, its competitors have greater name recognition and financial resources
as well as long-standing relationships with travel agents and tour and trip
planners. Management cannot anticipate what impact this will have on future
occupancy levels.
Miraval offers a variety of indoor and outdoor athletic and other physical
activities for its guests. Because of its lack of operating history, the Company
cannot predict what impact the summer climate in Tucson, Arizona, will have on
its occupancy levels and pricing structures. The summer season is typically the
low season of the year in terms of occupancy and rates for Arizona's resort
industry.
The entities comprising the Company's Treatment segment participate in the
highly competitive mental and behavioral health industry characterized by
intense competition for market share resulting from aggressive pricing practices
and increasing competition from companies with greater resources, including tax
exempt, non-profit status, government subsidized or endowment-related financial
support which may provide lower costs of capital.
While the Company anticipates continued growth in revenues and is committed to a
return to profitability, operating results could be adversely impacted if the
businesses are unable to anticipate customer demand accurately, are unable to
differentiate their products from those of their competitors, are unable to
offer services expeditiously in response to customer demand, or are negatively
impacted by managed care restrictions on payor reimbursement.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various litigation and administrative proceedings
arising in the normal course of business. In the opinion of management, any
liabilities that may result from these claims will not, individually or in the
aggregate, have a material adverse effect on the Company's financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of Shareholders was held on May 31, 1996. The
Company's shareholders elected George L. Ruff as a director and selected Ernst &
Young LLP as the Company's independent auditors for the fiscal year ended
December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.62 Amendment 1 to Note Payable between NextHealth, Inc. and Sundt
Corporation dated June 28, 1996.
10.63 Loan Agreement between NextHealth, Inc. and Mortgages Ltd. dated
June 25, 1996 (without exhibits).
10.64 Secured Promissory Note between NextHealth, Inc. and Mortgages,
Ltd. dated June 25, 1996.
10.65 Deed of Trust, Assignment of Rents and Security Agreement between
NextHealth, Inc. and Mortgages Ltd. dated June 25, 1996.
10.66 Security Agreement between Sierra Tucson, Inc. and Mortgages Ltd.
dated June 25, 1996 (without exhibits).
10.67 Security Agreement between Sierra HealthStyles, Inc. and
Mortgages Ltd. dated June 25, 1996 (without exhibits).
10.68 Guaranty between Sierra Tucson, Inc. and Mortgages Ltd. dated
June 25, 1996.
10.69 Guaranty between Sierra HealthStyles, Inc. and Mortgages Ltd.
dated June 25, 1996.
27 Financial Data Schedule.
(b) Reports on Form 8-K
NONE
15
<PAGE> 16
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.
NextHealth, Inc.
-----------------------------------------
Registrant
DATE: August 9, 1996 BY: /s/ John H. Schmitz
--------------------------------------
JOHN H. SCHMITZ
President and Chief Executive Officer
DATE: August 9, 1996 BY: /s/ Loree Thompson
--------------------------------------
LOREE THOMPSON
Principal Financial and Accounting Officer
16
<PAGE> 1
EXHIBIT 10.62
FIRST AMENDMENT
TO
AGREEMENT
This First Amendment to Agreement is made and entered into this 28 day
of June, 1996 by and between Sundt Corp., an Arizona corporation ("Sundt"),
4101 E. Irvington Road, Tucson, Arizona 85714, and NextHealth, Inc., a Delaware
corporation, formerly known as Sierra Tucson Companies, Inc., located at 16600
N. Lago Del Oro Parkway, Tucson, Arizona 85739 and its subsidiaries Sierra
Healthstyles, Inc., an Arizona corporation doing business as Miraval, and
Sierra Tucson, Inc., an Arizona corporation, all such other corporations
located at 16500 N. Lago Del Oro Parkway, Tucson, Arizona 85739, (collectively
"NextHealth/Sierra").
RECITALS
A. Sundt and NextHealth/Sierra entered into an April 3, 1996
Agreement ("Agreement") providing for payment to Sundt of a final unpaid
balance then of Three Million Seven Hundred Twenty Four Thousand One Hundred
Sixty Eight Dollars ($3,724,168.00) plus interest and subordinating the
priority of Sundt's Mechanics Lien solely to the new first lien of the
original interim/bridge lender upon terms and conditions set forth in the
Agreement.
B. Pursuant to paragraph 13 of the Agreement, NextHealth/Sierra
must simultaneously pay off to Sundt the then balance of the final unpaid
balance if NextHealth/Sierra pays off the original existing interim/bridge
loan.
C. NextHealth/Sierra wishes to pay off the original existing
interim/bridge loan and substitute in its place and stead a new
interim/bridge loan of Four Million Dollars ($4,000,000.00) from a new
interim/bridge lender, MORTGAGES LTD., without having to pay off to Sundt
the present balance of the final unpaid balance.
D. Sundt is willing to allow NextHealth/Sierra to substitute a new
interim/bridge loan from MORTGAGES LTD. in the sum of FOUR MILLION DOLLARS
($4,000,000.00) in the place and stead of the original interim/bridge loan
and lender without paying off to Sundt the current balance of the final
unpaid balance, but only upon terms and conditions set forth in this First
Amendment to Agreement.
<PAGE> 2
In view of the foregoing Recitals, and in consideration of the
covenants hereinafter set forth, the parties agree as follows:
1. Paragraph 13 of the Agreement is amended by deleting in its
entirety the last sentence of said paragraph 13 on page 9 of 11 pages and
substituting in its place the following new last sentence of said paragraph
13:
"notwithstanding the immediate preceding sentence of this paragraph 13,
should NextHealth/Sierra wish to pay off in full its original
interim/bridge loan and lender once with the proceeds of a substitute
interim/bridge loan not to exceed FOUR MILLION DOLLARS ($4,000,000.00)
from MORTGAGES, LTD., an Arizona corporation ("new interim/bridge loan
or lender") the terms of which will not exceed the principal, interest
percent and maturity from date of closing of the original interim/bridge
loan, as set forth in above paragraph 4, and NextHealth/Sierra advises
Sundt of its desire to have Sundt subordinate its Mechanics Lien to the
substitute interim/bridge loan only to the same extent and upon the same
terms and conditions Sundt subordinated its Mechanics Lien to the
original interim/bridge loan, then upon the payment to Sundt at time of
closing of the new interim/bridge loan of the sum of One Hundred
Thousand Dollars ($100,000.00), Sundt shall execute a subordination
agreement in favor of the new interim/bridge lender only upon the same
terms and conditions set forth in above paragraph 6, applying such terms
to the new interim/bridge loan. Upon receipt of the $100,000.00 from
the new interim/bridge loan closing, Sundt shall credit such sum to the
last payment owed Sundt pursuant to this Agreement. Sundt shall also
receive a bring down endorsement to its Litigation Guarantee applicable
to the new interim/bridge loan pursuant to above paragraph 6 to the same
extent as it had received the initial Litigation Guarantee applicable to
the original interim/bridge loan."
2. Except as specifically amended in above paragraph 1, the
Agreement remains unchanged and all other terms and conditions thereof are
hereby ratified and confirmed.
3. The invalidity of any one or more covenants, phrases, clauses,
sentences or paragraphs of this Agreement shall not affect the remaining
portions of this Agreement, or any part thereof, and in case of any such
invalidity this Agreement shall be construed as if such invalid covenants,
phrases, clauses, sentences or paragraphs had not been inserted. Neither
Sundt nor NextHealth/Sierra may assign this Agreement to any other person or
entity without the prior written consent of the non-assigning party hereto.
<PAGE> 3
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the day and year first above written.
SUNDT
Sundt Corp.
By: Raymond C. Bargull
---------------------------
Its: Ex VP/CFO
---------------------------
NEXTHEALTH/SIERRA
NextHealth, Inc., formerly known as
Sierra Tucson Companies, Inc.
By: Wayne M. Morrison
----------------------------
Its: VP & CFO
----------------------------
Sierra Healthstyles, Inc., doing business
as Miraval
By: John H. Schmitz
-----------------------------
Its: President
-----------------------------
Sierra Tucson, Inc.
By: John H. Schmitz
-----------------------------
Its: President
-----------------------------
<PAGE> 1
EXHIBIT 10.63
Loan #6869S4
LOAN AGREEMENT
BY THIS AGREEMENT made and entered into as of the 25th day of June, 1996,
NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA TUCSON COMPANIES,
INC., a Delaware corporation, whose address is 16600 North Lago del Oro Parkway,
Tucson, Arizona 85739, (hereinafter called "Borrower"), and MORTGAGES LTD., an
Arizona corporation and its successors and assigns, whose address is 2833 North
Third Street, Phoenix, Arizona 85004 (hereinafter called "Lender"), for and in
consideration of the recitals and mutual promises contained herein, confirm and
agree as follows:
SECTION 1. RECITALS
1.1 Borrower has applied to Lender for a loan in the aggregate
principal amount of FOUR MILLION DOLLARS ($4,000,000.00) for, among other
things, refinancing of the real property located in Pima County, Arizona
described in Exhibit "A" (the "Property"), which Property is occupied by
Borrower's wholly owned subsidiaries SIERRA TUCSON INC., an Arizona corporation
("SIERRA") and SIERRA HEALTHSTYLES, INC., an Arizona corporation
("HEALTHSTYLES").
1.2 Borrower may later obtain a commitment (the "Permanent Commitment")
from another lender (the "Permanent Lender") to provide permanent financing for
the Property.
SECTION 2. LOAN COMMITMENT
2.1 Subject to the conditions herein set forth, Lender agrees to loan
to or for the benefit of Borrower, in the manner and upon the terms and
conditions herein expressed, the sum of $4,000,000.00 (the "Loan").
2.2 The Loan shall be evidenced by a Promissory Note (the "Note") of
Borrower, in form satisfactory to Lender, executed and delivered simultaneously
with the execution of this Agreement, payable to Lender upon the terms and
conditions contained therein.
2.3 Borrower shall pay to Lender together with the regular monthly
payment, an amount equal to one-twelfth (1/12) of the annual real property taxes
and assessments and such amount shall be deposited by Lender (the "Imposition
Impound Account") in the name of Mortgages Ltd. Lender shall pay from the
Imposition Impound Account the aforesaid real estate taxes and assessments as
the same shall become due and payable. In the event there are insufficient funds
in the Imposition Impound Account to pay said real estate taxes and assessments
as the same shall become due and payable, Borrower shall pay the difference in
cash or cashier's check to Lender immediately upon Lender's demand. At such time
as the Loan is paid in full, any amounts remaining in any and all of the
Imposition Impound Accounts shall be promptly remitted by Lender to Borrower.
All such Imposition Impound Accounts and any other impound accounts described
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<PAGE> 2
herein shall be established by Lender with depository institutions acceptable to
Lender in the exercise of its sole and absolute discretion.
2.4 Six (6) months after the interest accrual date, Borrower may prepay
the Note in full or in part at any time without a prepayment penalty. If
Borrower pays the Note in full or in part during the six (6) month period next
following the interest accrual date, Borrower shall pay in addition to the
principal repaid, a prepayment penalty equal to four percent (4%) of the unpaid
principal loan amount to Lender.
2.5 On the date the "Deed of Trust" (defined below) records (the "Loan
Closing"), the following amounts will be deposited with Lender:
(i) Four (4) months of real estate taxes on the Property in
the Imposition Impound Account;
(ii) Six (6) months of payments and collection fees ("Payment
Impound Account"). Lender shall pay the first six (6) monthly
payments from the Payment Impound Account.
The Imposition Impound Account and Payment Impound Account shall be in
segregated accounts with interest accruing to Borrower.
2.6 On or before the day the Deed of Trust records, the remaining net
Loan proceeds shall be forwarded to:
Fidelity National Title Tucson, Arizona
Escrow No. 159062-04
Attention: Kathy Hansen/Peggy Aguirre
to be disbursed pursuant to Lender's written instructions.
SECTION 3. FEES
3.1 Lender has earned and Borrower has paid or shall pay to Lender
contemporaneously with the recording of the Deed of Trust
(i) a non-refundable loan fee in the amount of $140,000.00
("Mortgage Bankers Discount").
(ii) legal/processing fees of Lender in the sum of $10,000.00,
and
(iii) all closing costs incident to the Loan.
If Lender is prepared to fund the Loan and closing does not occur as a result of
Borrower's acts, Borrower shall be obligated to pay to Mortgages Ltd. the
balance of the above fees. Provided that
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<PAGE> 3
the Loan closes, Borrower acknowledges and agrees that Lender will pay to
Mortgage Network Inc., an Arizona corporation, a sum equal to one and one-half
percent (1.50%) of the Loan amount from the Mortgage Banker's Discount.
3.2 Prior to or after an "Event of Default" (defined below),
circumstances may arise making it necessary for Lender or its agent, to perform
loan administration services (as determined in the sole and exclusive discretion
of Lender or the authorized agent of Lender), relating to the orderly
administration of the Loan or the Property. Borrower shall reimburse Lender
and/or its agent for any and all costs and expenses, including a reasonable loan
administration fee incurred in connection therewith.
SECTION 4. SECURITY AND LOAN DOCUMENTS: RELEASES
4.1 Borrower shall cause the Loan and Borrower's obligations under this
Agreement to be secured by the following:
(a) A Deed of Trust, Security Agreement and Assignment of Rents (the
"Deed of Trust") constituting a first and prior lien on the Property
and Improvements, subject only to such matters as specifically approved
by Lender, executed by Borrower.
(b) Two UCC-1 Financing Statements. (1 for filing and 1 for recording.)
(c) An Environmental Certification and Indemnity Agreement to be signed
by Borrower and the Guarantors, if any.
(d) Borrower, SIERRA and HEALTHSTYLES shall sign a separate Security
Agreement ("Security Agreement") and SIERRA and HEALTHSTYLES shall
execute two UCC-1 Financing Statements (recording-filing).
(e) Separate Guarantees from SIERRA and HEALTHSTYLES guaranteeing all
obligations of Borrower.
(f) Assignment of Imposition Impound Account and Payment Impound
Account.
(g) Such other documents as are reasonably requested by Lender.
4.2 All of the documents required by Lender to grant and perfect the
liens and security interests required by this Section 4 shall be in form
satisfactory to Lender and may be referred to herein as the "Security Documents"
or "Loan Documents."
4.3 All funds held by Lender in any Imposition Impound Account or
Payment Impound Account for the benefit of the Borrower are hereby assigned to
Lender as additional security for the Loan and all other indebtedness of
Borrower arising hereunder.
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<PAGE> 4
SECTION 5. CONDITIONS PRECEDENT FOR CLOSING
The obligation of Lender to make the Loan is subject to the following
express conditions precedent, all of which shall have been satisfied prior to or
contemporaneously with the recording of the Deed of Trust:
5.1 Borrower shall have executed (or obtained the execution or issuing
of) and delivered to Lender the following documents, all in form satisfactory to
Lender:
(a) The Note;
(b) The Security Documents:
(c) Any and all other Loan documents requested by Lender in connection
with the Loan.
(d) All requirements of any commitment, if any, are satisfied.
5.2 Lender shall have received the monetary amounts required in
Sections 2, 3 and 5 hereof, if any, and if paid or deposited by Borrower, by
cashier's check or certified funds.
5.3 Lender shall have received all other items required of Borrower
herein and not included above or as required by Lender.
5.4 Borrower, at its expense, shall have obtained and delivered to
Lender the following items, all of which shall be in form and content
satisfactory to Lender and shall be subject to approval in writing by Lender:
(a) An ALTA extended coverage mortgagee's title insurance
policy, with such endorsements as Lender may reasonably
require, issued by a title insurance company satisfactory to
Lender in the amount of the Loan insuring the lien of the Deed
of Trust to be a first and prior lien upon the Real Property
and Improvements.
(b) Evidence that the Real Property is properly zoned for the
Improvements and their intended use and that such zoning is
final and not subject to change.
(c) Insurance protecting the Borrower and Lender against loss
or losses from liability imposed by law or assumed in any
written contract and arising from personal injury, including
bodily injury or death, or a limit of liability of not less
than $1,000,000 (combined single limit for personal injury,
including bodily injury or death and property damage) and a
blanket excess liability policy in an amount of not less than
$5,000,000 protecting the Borrower and Lender against any loss
or liability or damage for personal
-4-
<PAGE> 5
injury, including bodily injury or death, or property damage
(including, but not limited to, construction operations
coverage if any construction of new improvements occurs
following the recordation of the Deed of Trust). Lender shall
be an additional insured under the public liability insurance
and such policy may not be canceled without a thirty (30) day
notice to Lender.
(d) Original policies of fire and extended coverage insurance
on the Improvements issued by insurance companies approved by
Lender in an amount not less than the full insurable value on
a replacement-cost basis of the insured Improvements and
furniture, fixtures and equipment with standard, without
contribution, mortgagee's loss payable endorsements in favor
of Lender, if applicable. Lender shall be an additional
insured under the casualty insurance and such policy may not
be canceled without a thirty (30) day notice to Lender.
(e) Evidence whether the Real Property, or any part thereof,
lies within a "special flood hazard area" as designated on
maps prepared by the Department of Housing and Urban
Development and, if so designated, a National Flood Insurance
Association standard flood insurance policy, plus insurance
from a private insurance carrier if necessary, for the
duration of the Loan in the amount of the full insurable value
of the Improvements, naming Lender as an additional loss
payee.
(f) Copies of all lease agreements affecting the Real Property
and Improvements, if any.
(g) Evidence that the real property taxes and assessments
levied against or affecting the Real Property have been paid
current through 1995 together with a Type C tax service
contract for the Real Property for the term of the Loan.
5.5 All representations and warranties by Borrower shall remain true
and correct and all agreements that Borrower is to have performed or complied
with by the date hereof shall have been performed or complied with.
5.6 No Event of Default exists and no event or condition exists that
after notice or lapse of time, or both, would constitute an Event of Default.
SECTION 6. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
6.1 The recitals and statements of intent appearing in this Agreement
are true and correct.
-5-
<PAGE> 6
6.2 Borrower has full power and authority to own its properties and
assets and to carry on its business as now being conducted.
6.3 Borrower is fully authorized and permitted to enter into this
Agreement, to execute any and all documentation required herein, to borrow the
amounts contemplated herein upon the terms set forth herein and to perform the
terms of this Agreement, none of which conflicts with any provision of law or
regulation applicable to Borrower. This Agreement, the Note and each Security
Document are valid and binding legal obligations of Borrower and each is
enforceable in accordance with its terms.
6.4 The liens, security interests and assignments created by the
Security Documents will, when granted, be valid, effective, properly perfected
and enforceable liens, security interests and assignments.
6.5 The execution, delivery and performance by Borrower of this
Agreement, the Note, the Security Documents and all other documents and
instruments relating to the Loan will not result in any breach of the terms or
conditions of, or constitute a default under, any agreement or instrument under
which Borrower is a party or is obligated. Borrower is not in default in the
performance or observance of any obligations, covenants or conditions of any
such agreement or instrument.
6.6 Borrower has obtained and there remain in full force and effect all
licenses, permits, consents, approvals and authorizations necessary or
appropriate for the construction of the Improvements and all licenses, permits,
consents, approvals and authorizations necessary or appropriate for the
management and operation of the Improvements for their intended purpose that are
obtainable as of the date hereof.
6.7 No actions, suits or proceedings are pending or threatened against
Borrower that might materially and adversely affect the repayment of the Loan,
the performance by Borrower under this Agreement or the financial condition,
business or operations of Borrower provided however, Sundt, Corp. which has a
recorded Mechanics Lien may commence an action.
6.8 To the best of Borrower's knowledge and belief, all financial
statements, profit and loss statements, statements as to ownership and other
statements or reports previously or hereafter given to Lender by or on behalf of
Borrower are and shall be true, complete and correct as of the date thereof.
There has been no material adverse change in the financial condition or the
results of the operation of Borrower since the latest financial statements of
Borrower given to Lender.
6.9 Borrower has filed all federal, state and local tax returns and has
paid all or will pay with the Loan proceeds its current obligations, including
all federal, state and local taxes and all other payments required under
federal, state or local law.
6.10 All information furnished to Lender by Borrower or Borrower's
agents is true, complete and correct and no information was withheld or omitted
by Borrower or Borrower's agents which, if made known to Lender would have
caused Lender to not make the Loan.
-6-
<PAGE> 7
6.11 That the improvements on the Property, if any, are completed with
all plumbing, electrical, mechanical, appliances and HVAC in good repair and
operating condition and are ready for immediate rental and occupancy under
applicable law.
All representations and warranties made herein shall survive the execution of
this Agreement and the execution and delivery of all other documents and
instruments in connection with the Loan, so long as Lender has any commitment to
lend to Borrower hereunder and until the Loan and all indebtedness hereunder
have been paid in full and all of Borrower's obligations hereunder have been
fully discharged.
SECTION 7. AFFIRMATIVE COVENANTS
So long as Lender has any commitment to lend to Borrower hereunder and
until the Loan and all other indebtedness hereunder have been paid in full and
all of Borrower's obligations hereunder have been fully discharged:
7.1 Borrower shall promptly pay for all labor, materials, equipment and
fixtures used in connection with the construction of any Improvements and all
other costs relating to any Improvements except that Borrower may contest in
good faith the validity or amount thereof provided that Borrower shall have
furnished to Lender a cash deposit or other appropriate security in an amount
and form satisfactory to Lender to protect Lender against the creation of any
lien on, or any sale or forfeiture of, any property encumbered by the Security
Documents. Upon the final determination of Borrower's contest, Borrower shall
promptly pay all sums, if any, determined to be due. Any deposit or security
provided by Borrower shall be returned to Borrower upon the final determination
of Borrower's contest and the payment by Borrower of the sums, if any,
determined to be due.
7.2 Borrower warrants that no labor or material has been or will be
furnished for construction of any Improvements until the Deed of Trust has been
recorded and the title company has committed to issue the title insurance policy
required by Section 5 hereof.
7.3 Borrower agrees that no materials, equipment, fixtures or any other
part of the Improvements, or articles of personal property placed in the
Improvements, shall be purchased or installed under any security agreement or
other arrangements wherein the seller reserves or purports to reserve the right
to remove or to repossess any such items or to consider them personal property
after their incorporation into the Improvements, except for any purchase money
lien or security interest or any lessor's interest in any of the personal
property.
7.4 Borrower shall maintain in full force and effect all rights and
licenses necessary to carry on its business, and all permits, licenses, consents
and approvals necessary for the maintenance and operation of the Improvements.
Borrower shall maintain its present existence and shall maintain executive
personnel and management at a level of experience and ability equivalent to
present personnel and management.
-7-
<PAGE> 8
7.5 Borrower shall maintain in full force and effect at all times all
insurance coverages required to be provided as a condition of any Advance.
7.6 Borrower shall pay all bills in a timely manner, keep books and
records in accordance with generally accepted accounting principles,
consistently applied, and shall deliver to Lender such financial and profit and
loss statements (in form satisfactory to Lender) as Lender may request from time
to time and will permit a representative on behalf of Lender to examine and
audit the books of its business at a mutually agreeable time. Borrower shall
immediately inform Lender of any litigation involving Borrower, the adverse
determination of which might prejudice repayment of the Loan.
7.7 Borrower shall make all payments of interest and principal on the
Loan and shall keep and comply with all covenants, terms and provisions of the
Security Documents.
7.8 Borrower shall execute and deliver to Lender such other instruments
and documents and do such other acts as Lender may reasonably require in
connection with this Loan.
SECTION 8. NEGATIVE COVENANTS
So long as Lender has any commitment to lend to Borrower hereunder and
until the Loan and all other indebtedness hereunder have been paid in full and
all of Borrower's obligations hereunder have been fully discharged, Borrower
shall not, without receiving the prior written consent of Lender:
8.1 Dissolve or liquidate, or merge or consolidate with or into any
other entity, or turn over the management or operation of its property, assets
or business to any other person, firm or corporation.
8.2 Except for judgment liens subordinate to the lien of the Deed of
Trust, assign, transfer or convey any of its right, title and interest in any
property whether real or personal encumbered by the Security Documents; create
or suffer to be created any mortgage, pledge, security interest, encumbrance or
other lien on any property encumbered by the Security Documents; or create or
suffer to be created any mortgage, pledge, security interest, encumbrance or
other lien on any other property or assets which it now owns or hereafter
acquires except in consideration of the contemporaneous receipt by it of
benefits equal or greater in value to the lien created.
8.3 Change the times of commencement or termination of its fiscal year
or other accounting periods; or change its methods of accounting other than to
conform to generally accepted accounting principles applied on a consistent
basis.
SECTION 9. INSPECTION BY LENDER.
9.1 Lender shall have the right, but not the obligation, to enter at
any reasonable times upon reasonable notice upon the Real Property and
Improvements to determine if Borrower is maintaining and operating the Real
Property in conformity with the Security Documents and all
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<PAGE> 9
other requirements hereof and to examine and make copies and extracts of any
books, records, accounting data and other documents, including without
limitation all permits, licenses, consents and approvals of governmental
authorities having jurisdiction over Borrower.
9.2 Lender shall have no duty to inspect any improvements or to inspect
any books and records; any inspection by Lender shall be for the sole purpose of
protecting Lender's security and preserving Lender's rights hereunder.
SECTION 10. WAIVER
10.1 Borrower waives presentment, demand, protest and notices of
protest, nonpayment, partial payment and all other notices and formalities
except as expressly called for in this Agreement. Borrower consents to and
waives notice of: (i) the granting of indulgences or extensions of time of
payment, (ii) the taking or releasing of security, and (iii) the addition or
release of persons who may be or become primarily or secondarily liable for the
Loan or any other indebtedness arising in connection with the Loan, or any part
thereof, and all in such manner and at such time as Lender may deem advisable.
10.2 No delay or omission by Lender in exercising any right, power or
remedy hereunder, and no indulgence given to Borrower, with respect to any
condition set forth herein, shall impair any right, power or remedy of Lender
under this Agreement, or be construed as a waiver by Lender of, or acquiescence
in, any Event of Default. Likewise, no such delay, omission or indulgence by
Lender shall be construed as a variation or waiver of any of the terms or
provisions of this Agreement. Any actual waiver by Lender of any Event of
Default shall not be a waiver of any other prior or subsequent Event of Default
or of the same Event of Default after notice to Borrower demanding strict
performance.
SECTION 11. DEFAULT
11.1 The occurrence of any of the following events or conditions shall
constitute an "Event of Default" under this Agreement:
(a) Any failure to pay any principal or interest under the Note as and
when the same shall become due and payable or the failure to pay any
other sum due under the Note, this Agreement or any Security Document
as and when the same shall become due and payable and any applicable
cure period has expired;
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Agreement, the Note, any Security
Document or any other document or instrument executed or delivered in
connection with the Loan other than monetary amounts and such failure
or neglect either cannot be remedied or, if it can be remedied, it
continues unremedied for a period of thirty (30) days after written
notice thereof to Borrower.
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<PAGE> 10
(c) Any warranty, representation or statement contained in this
Agreement, in the Note or in any Security Document or any other
document or instrument executed or delivered in connection with the
Loan, or made or furnished to Lender by or on behalf of Borrower, that
shall be or shall prove to have been materially false when made or
furnished;
(d) The filing by Borrower, any endorser of the Note, or any guarantor
of the Loan (or against Borrower or such endorser or guarantor to which
Borrower or such endorser or guarantor acquiesces or which is not
dismissed within sixty (60) days after the filing thereof) of any
proceeding under the federal bankruptcy laws now or hereafter existing
or any other similar statute now or hereafter in effect; the entry of
an order for relief under such laws with respect to Borrower or such
endorser or guarantor; or the appointment of a receiver, trustee,
custodian or conservator of all or any part of the assets of Borrower
or such endorser or guarantor;
(e) The insolvency of Borrower, any endorser of the Note or of any
guarantor of the Loan; or the execution by Borrower or such guarantor
or endorser of an assignment for the benefit of creditors; or the
convening by Borrower or any guarantor or endorser of a meeting of its
creditors, or any class thereof, for purposes of effecting a moratorium
upon or extension or composition of its debts; or the failure of
Borrower or of any such guarantor or endorser to pay its debts as they
mature; or if Borrower or such guarantor or endorser is generally not
paying its debts as they mature;
(f) The admission in writing by Borrower, any endorser of the Note or
any guarantor of the Loan that it is unable to pay its debts as they
mature or that it is generally not paying its debts in a timely manner;
(g) The liquidation, termination or dissolution of Borrower or any such
endorser or guarantor of the Loan, if a corporation, partnership or
joint venture if Lender is not reasonably reassured of timely payment
and performance hereunder and under the Note and all Loan Documents;
(h) Any attachment, garnishment, levy or execution upon, or judicial
seizure of, any portion of any collateral or security for the Loan
which may impair the first lien position of Lender;
(i) The occurrence of any event of default under the Note, any of the
Security Documents or any other document or instrument executed or
delivered in connection with the Loan; and
(j) The occurrence of any event of default under any document or
instrument given by Borrower in connection with any other indebtedness
of Borrower to Lender.
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11.2 Upon the occurrence of any Event of Default and at any time
thereafter while such Event of Default is continuing, Lender may do one or more
of the following:
(a) Declare the entire Loan and all other indebtedness of Borrower
hereunder immediately due and payable, without notice or demand;
(b) Proceed to protect and enforce its rights and remedies under this
Agreement, the Note, and all Security Documents;
(c) Apply any funds remaining in any Imposition Impound Account or
Payment Impound Account to the Loan in any manner determined by Lender;
and
(d) Avail itself of any other relief to which Lender may be legally or
equitably entitled.
11.3 Borrower shall pay all costs and expenses, including without
limitation costs of title searches and title policy commitments, court costs and
reasonable attorneys' fees, incurred in enforcing payment and performance of the
Loan and the other indebtedness and obligation of Borrower hereunder or in
exercising the rights and remedies of Lender hereunder. Such court costs and
attorneys' fees shall be set by the court and not by jury, shall be included in
any judgment obtained by Lender and shall be secured by the Security Documents.
SECTION 12. ACTION UPON AGREEMENT
12.1 This Agreement is made for the sole protection and benefit of the
parties hereto and no other person or organization shall have any right of
action hereon.
12.2 This Agreement embodies the entire Agreement of the parties with
regard to the subject matter hereof. There are no representations, promises,
warranties, understandings or agreements expressed or implied, oral or
otherwise, in relation thereto, except those expressly referred to or set forth
herein. Borrower acknowledges that the execution and delivery of this Agreement
is its free and voluntary act and deed, and that said execution and delivery
have not been induced by, nor done in reliance upon, any representations,
promises, warranties, understandings or agreements made by Lender, its agents,
officers, employees or representatives.
12.3 No promise, representation, warranty or agreement made subsequent
to the execution and delivery of this Agreement by either party hereto, and no
revocation, partial or otherwise, or change, amendment or addition to, or
alteration or modification of, this Agreement shall be valid unless the same
shall be in writing signed by all parties hereto.
12.4 Lender and Borrower each have separate and independent rights and
obligations under this Agreement. Nothing contained herein shall be construed as
creating, forming or constituting any partnership, joint venture, merger or
consolidation of Borrower and Lender for any purpose or in any respect.
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SECTION 13. GENERAL
13.1 This Agreement shall survive the making of the Loan and shall
continue so long as any part of the Loan, or any extension or renewal thereof,
remains outstanding.
13.2 All rights, powers and remedies granted Lender herein, or
otherwise available to Lender, are for the sole benefit and protection of
Lender, and Lender may exercise any such right, power or remedy at its option
and in its sole and absolute discretion without any obligation to do so. In
addition, if, under the terms hereof, Lender is given two or more alternative
courses of action, Lender may elect any alternative or combination of
alternatives, at its option and in its sole and absolute discretion. All monies
advanced by Lender under the terms hereof and all amounts paid, suffered or
incurred by Lender in exercising any authority granted herein, including
reasonable attorneys' fees, shall be secured by the Security Documents, shall
bear interest at the highest rate payable on the Loan until paid, and shall be
due and payable by Borrower to Lender immediately without demand.
13.3 Borrower shall indemnify and hold Lender harmless from and against
all claims, costs, expenses, actions, suits, proceedings, losses, damages and
liabilities of any kind whatsoever, including but not limited to attorneys' fees
and expenses, arising out of any matter relating, directly or indirectly, to the
Loan, to the ownership, development, construction, or sale of the improvements,
whether resulting from internal disputes of the Borrower, disputes between the
Borrower and any guarantor, or whether involving other third persons or
entities, or out of any other matter whatsoever related to this Agreement, the
Security Documents, or any property encumbered thereby, but excluding any claim
or liability which arises as the direct result of the gross negligence or
willful misconduct of Lender. This indemnity provision shall continue in full
force and effect and shall survive not only the making of the Loan and all
Advances but shall also survive the repayment of the Loan and the performance of
all the Borrower's other obligations hereunder.
13.4 If Borrower consists of more than one person or entity their
liability shall be joint and several. This Agreement shall apply to the parties
hereto according to the context hereof and without regard to the number or
gender of words or expressions used herein.
13.5 Time is expressly made of the essence of this Agreement.
13.6 All notices required or permitted to be given hereunder shall be
in writing, and shall be delivered and become effective as provided in the Deed
of Trust.
13.7 Borrower shall pay all costs and expenses arising from the
preparation of this Agreement and the closing of the Loan, including but not
limited to title insurance premiums, other title company charges, recording
fees, Lender's attorneys' fees, any intangible or recording taxes and any other
charges that may be imposed on Lender as a result of this transaction.
13.8 Lender acknowledges that as to all undeveloped Property described
in Exhibit "A", Borrower may propose a development or business plan consistent
with current uses on the developed Property described in Exhibit "A". Any such
development or business plan requires the
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prior written approval of Lender which consent shall not be unreasonably
withheld. If Lender consents to a development or business plan, Lender will give
all consents required of any regulatory body having jurisdiction over such
development or business plan, provided such consents will not subordinate the
lien of Lender to any development or business plan.
13.9 This Agreement shall be governed by and construed according to the
laws of the State of Arizona.
13.10 This Agreement shall, except as herein otherwise provided, be
binding upon and inure to the benefit of the successors and assigns of the
parties hereto.
13.11 The headings or captions of sections in this Agreement are for
convenience and reference only and in no way define, limit or describe the scope
or intent of this Agreement or the provisions of such sections.
13.12 Lender, at any time, shall have the right to sell participation
interests in the Loan and in any documents and instruments executed in
connection herewith. Lender is authorized to furnish to any participant or
prospective participant any information or document that Lender may have or
obtain regarding the Loan, Borrower or any guarantor of the Loan.
IN WITNESS WHEREOF, these presents have been executed as of the day and
year set forth above.
"BORROWER" "LENDER"
NEXTHEALTH, INC., MORTGAGES LTD., an Arizona
a Delaware corporation, formerly corporation
SIERRA TUCSON COMPANIES, INC.,
a Delaware corporation
By: _________________________ By:_________________________
WAYNE M. MORRISON JAMES J. CORDELLO
Its: Vice President/Chief Financial Officer Its: Vice President
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<PAGE> 1
EXHIBIT 10.64
Loan No. 6869S4
SECURED PROMISSORY NOTE
$4,000,000.00 Phoenix, Arizona
June 25, 1996
1. FUNDAMENTAL PROVISIONS.
The following terms will be used as defined terms in this Note:
Payee and Holder: Mortgages Ltd., an Arizona corporation
Maker: Nexthealth, Inc., a Delaware corporation, formerly
SIERRA TUCSON COMPANIES, INC., a Delaware corporation
Principal Amount: Four Million Dollars ($4,000,000.00)
Interest Accrual Date: June 28, 1996
Interest Rate: Thirteen and three-quarters percent (13.75%) per
annum
Default Interest Rate: Twenty-four percent (24%) per annum
Maturity Date: March 28, 1998
Business Day: Any day of the year other than Saturdays, Sundays, or
legal holidays.
Deed of Trust: That certain Deed of Trust (with Assignment of Rents
and Security Agreement) of even date herewith
between Maker, as Trustor, and Payee, as Beneficiary.
Loan Documents: The Note, the Deed of Trust, Uniform Commercial Code
Financing Statements and any other documents executed
in connection with the Loan.
Loan: The loan from Payee to Maker in the Principal Amount
and evidenced by this Note.
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<PAGE> 2
2. PROMISE TO PAY.
For value received, Maker promises to pay to the order of Holder, at
the office of Mortgages Ltd., Collection Agent, 2833 North Third
Street, Phoenix, Arizona 85004, or at such other place as the Holder
hereof may from time to time designate in writing, the Principal
Amount, together with accrued interest from the date of disbursement on
the unpaid principal balance at the Interest Rate.
3. INTEREST; PAYMENTS.
(a) Absent an Event of Default hereunder or under any of the Loan
Documents, the principal balance hereof shall bear interest at
the Interest Rate stated. Throughout the term of this Note,
interest shall be calculated on a 360-day year with respect to
the unpaid balance of the Principal Amount and, in all cases,
shall be computed for the actual number of days in the period
for which interest is charged, which period shall consist of
360-days on an annual basis.
(b) All payments due hereunder shall be made (i) without deduction
of any present and future taxes, levies, imposts, deductions,
charges or withholdings, which amounts shall be paid by Maker,
and (ii) without any other set off. Maker will pay the amounts
necessary such that the gross amount of the principal and
interest received by the Holder hereof is not less than that
required by this Note.
(c) Commencing on July 28, 1996, and continuing on the same day of
each month thereafter until the Maturity Date, Maker shall
make monthly installments of principal and interest in the sum
of $52,599.50. If the payment is due on a date which is after
the last date of any month, the payment for such month shall
be made on the last day of that month.
(d) One (1) final "balloon" payment of all unpaid principal,
interest, and any other amounts due hereunder shall be due and
payable on the Maturity Date.
(e) If any payment to be made by Maker hereunder shall become due
on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day.
4. PREPAYMENT.
Six (6) months after the interest accrual date, Maker may prepay the
Note in full or in part at any time without a prepayment penalty. If
Maker pays the Note in full or in part during the six (6) month period
next following the interest accrual date, Maker shall pay in addition
to the principal repaid, a prepayment penalty equal to four percent
(4%) of the unpaid principal loan amount to Holder.
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5. LAWFUL MONEY.
Principal and interest are payable in lawful money of the United States
of America.
6. APPLICATION OF PAYMENTS/LATE CHARGE.
(a) Absent the occurrence of an Event of Default hereunder or
under any of the other Loan Documents, any payments received
by the Holder hereof pursuant to the terms hereof shall be
applied first to sums, other than principal and interest, due
the Holder hereof pursuant to the Loan Documents, next to the
payment of all interest accrued to the date of such payment,
and the balance, if any, to the payment of principal. Any
payments received by the Holder hereof after the occurrence of
an Event of Default hereunder or under any of the Loan
Documents, shall be applied to the amounts specified in this
Paragraph 6(a) in such order as the Holder hereof may, in its
sole discretion, elect.
(b) If any payment of interest and/or principal is not received by
the Holder hereof when such payment is due, then in addition
to the remedies conferred upon the Holder hereof pursuant to
Paragraph 10 hereof and the other Loan Documents, (i) a late
charge of ten percent (10%) of the amount of the installment
due and unpaid will be added to the delinquent amount to
compensate the Holder hereof for the expense of handling the
delinquency for any payment past due in excess of five (5)
days, regardless of any notice and cure periods, and (ii) the
amount due and unpaid (including, without limitation, the late
charge) shall bear interest at the Default Interest Rate,
computed from the date on which the amount was due and payable
until paid unless Section 10 is applicable.
(c) If the Note is not paid in full at its Maturity Date, a late
charge equal to one-half of one percent (1/2%) of the unpaid
principal balance will be assessed each month until the Loan
is fully paid.
7. SECURITY.
This Note is secured by the Deed of Trust, which Deed of Trust creates
a lien on that certain real and personal property described therein,
which secures the principal payment obligation set forth in paragraph
3(c) above.
8. ACCELERATION BY REASON OF TRANSFER.
Section 1.12 of the Deed of Trust contains a limitation on the right of
Maker to transfer the Trust Estate (as defined in the Deed of Trust).
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9. EVENT OF DEFAULT.
The occurrence of any of the following shall be deemed to be an event
of default ("Event of Default") hereunder:
(a) default in the payment of principal or interest when due
provided Holder has given notice to Maker of such default at
16600 North Lago del Oro Parkway, Tucson, Arizona 85739, Fax
No. (520) 792-2916 or such other address or Fax Number as
Maker designates in a written notice received by Holder and
such default remains unremedied for a period of ten (10) days
after such notice. Notices shall be in writing and shall be
given by telecopier, personal or air courier service delivery
to a responsible person, or by deposit in the United States
mail, certified mail, return receipt requested, postage
prepaid. The date notice is deemed to have been given,
received and become effective shall be the date on which the
notice is delivered, if notice is given by telecopier,
personal or air courier service delivery or two (2) days
following the date of deposit in the mail, if the notice is
sent through the United States mail; or
(b) the occurrence of an Event of Default under any of the other
Loan Documents.
10. REMEDIES.
Upon the occurrence of an Event of Default, then at the option of the
Holder hereof, the entire balance of principal together with all
accrued interest thereon, and all other amounts payable by Maker under
the Loan Documents shall, without demand or notice, immediately become
due and payable. Upon the occurrence of an Event of Default (and so
long as such Event of Default shall continue), the entire balance of
principal hereof, together with all accrued interest thereon, all other
amounts due under the Loan Documents, and any judgment for such
principal, interest, and other amounts shall bear interest at the
Default Interest Rate from the date of the last interest payment,
subject to the limitations contained in Paragraph 15 hereof. No delay
or omission on the part of the Holder hereof in exercising any right
under this Note or under any of the other Loan Documents hereof shall
operate as a waiver of such right.
11. WAIVER.
Maker, endorsers, guarantors, and sureties of this Note hereby waive
diligence, demand for payment, presentment for payment, protest, notice
of nonpayment, notice of protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor, and notice of nonpayment,
and all other notices or demands of any kind (except notices
specifically provided for in the Loan Documents) and expressly agree
that, without in any way affecting the liability of Maker, endorsers,
guarantors, or sureties, the Holder hereof may extend any maturity date
or the time for payment of any installment due hereunder, otherwise
modify the Loan Documents, accept additional security, release any
person liable, and release any security or
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<PAGE> 5
guaranty. Maker, endorsers, guarantors, and sureties waive, to the full
extent permitted by law, the right to plead any and all statutes of
limitations as a defense.
12. CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
No provision of this Note may be changed, discharged, terminated, or
waived except in a writing signed by the party against whom enforcement
of the change, discharge, termination, or waiver is sought. No failure
on the part of the Holder hereof to exercise and no delay by the Holder
hereof in exercising any right or remedy under this Note or under the
law shall operate as a waiver thereof.
13. ATTORNEYS' FEES.
If this Note is not paid when due or if any Event of Default occurs,
Maker promises to pay all costs of enforcement and collection and
preparation therefor, including but not limited to, reasonable
attorneys' fees, whether or not any action or proceeding is brought to
enforce the provisions hereof (including, without limitation, all such
costs incurred in connection with any bankruptcy, receivership, or
other court proceedings (whether at the trial or appellate level).
14. SEVERABILITY.
If any provision of this Note is unenforceable, the enforceability of
the other provision shall not be affected and they shall remain in full
force and effect.
15. INTEREST RATE LIMITATION.
Maker hereby agrees to pay an effective rate of interest that is the
sum of the interest rate provided for herein, together with any
additional rate of interest resulting from any other charges of
interest or in the nature of interest paid or to be paid in connection
with the Loan, including, without limitation, any fees to be paid by
Maker pursuant to the provisions of the Loan Documents. Holder and
Maker agree that none of the terms and provisions contained herein or
in any of the Loan Documents shall be construed to create a contract
for the use, forbearance or detention of money requiring payment of
interest at a rate in excess of the maximum interest rate permitted to
be charged by the laws of the State of Arizona. In such event, if any
Holder of this Note shall collect monies which are deemed to constitute
interest which would otherwise increase the effective interest rate on
this Note to a rate in excess of the maximum rate permitted to be
charged by the laws of the State of Arizona, all such sums deemed to
constitute interest in excess of such maximum rate shall, at the option
of the Holder, be credited to the payment of other amounts payable
under the Loan Documents or returned to Maker.
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16. NUMBER AND GENDER.
In this Note the singular shall include the plural and the masculine
shall include the feminine and neuter gender, and vice versa.
17. HEADINGS.
Headings at the beginning of each numbered section of this Note are
intended solely for convenience and are not part of this Note.
18. CHOICE OF LAW.
This Note shall be governed by and construed in accordance with the
laws of the State of Arizona without giving effect to conflict of laws
principles.
19. INTEGRATION.
The Loan Documents contain the complete understanding and agreement of
the Holder hereof and Maker and supersede all prior representations,
warranties, agreements, arrangements, understandings, and negotiations.
20. BINDING EFFECT.
The Loan Documents will be binding upon, and inure to the benefit of,
the Holder hereof, Maker, and their respective successors and assigns.
Maker may not delegate its obligations under the Loan Documents.
21. TIME OF THE ESSENCE.
Time is of the essence with regard to each provision of the Loan
Documents as to which time is a factor.
22. SURVIVAL.
The representations, warranties, and covenants of the Maker in the Loan
Documents shall survive the execution and delivery of the Loan
Documents and the making of the Loan.
23. WAIVER OF JURY TRIAL.
MAKER HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS NOTE OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED (OR
WHICH MAY IN THE FUTURE BE DELIVERED)
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IN CONNECTION HEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS NOTE. MAKER AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE THE COURT AND NOT BEFORE A
JURY.
NEXTHEALTH, INC., a Delaware corporation,
formerly SIERRA TUCSON COMPANIES, INC.,
a Delaware corporation
By: __________________________________
WAYNE M. MORRISON
Its: Vice President/Chief Financial Officer
"MAKER"
State of Arizona )
) ss.
County of __________)
The foregoing instrument was acknowledged before me this ______ day of
June, 1996, by WAYNE M. MORRISON, the Vice President/Chief Financial Officer of
NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA TUCSON COMPANIES,
INC., a Delaware corporation, on behalf of the corporation.
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Notary Public My Commission Expires
7
<PAGE> 1
EXHIBIT 10.65
When Recorded Return To:
Mortgages Ltd.
2833 North Third Street
Phoenix, Arizona 85004
Attention: James J. Cordello
Loan No. 6869S4
DEED OF TRUST, ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (as it
may be amended and modified from time to time, the "Deed of Trust") is made as
of June 25, 1996, by and among NEXTHEALTH, INC., a Delaware corporation,
formerly SIERRA TUCSON COMPANIES, INC., a Delaware corporation ("Trustor"),
whose mailing address is 16600 North Lago del Oro Parkway, Tucson, Arizona
85739, SCOTT M. COLES, a Real Estate Broker ("Trustee"), whose mailing address
is 2833 North Third Street, Phoenix, Arizona 85004 and MORTGAGES LTD., an
Arizona corporation, ("Beneficiary"), whose mailing address is 2833 North Third
Street, Phoenix, Arizona 85004.
FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein
recited and the trust herein created, the receipt of which is hereby
acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns
to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of
Beneficiary, under and subject to the terms and conditions hereinafter set
forth, that certain real property located in the County of Pima, State of
Arizona, more particularly described in Exhibit "A" attached hereto and
incorporated herein by this reference ("Premises");
TOGETHER WITH any and all buildings and other improvements now or
hereafter erected on the Premises including, without limitation, fixtures,
attachments, appliances, equipment, machinery, and other personal property
attached to such buildings and other improvements ("Improvements"), all of which
shall be deemed and construed to be a part of the real property;
TOGETHER WITH all rents, issues, profits, damages, royalties, income
and other benefits now or hereafter derived from the Premises and the
Improvements (collectively "Rents"), subject to the terms and provisions of
Article II of this Deed of Trust with respect to all leases and subleases of the
Premises or Improvements now or hereafter existing or entered into, or portions
thereof, granted by Trustor, and further subject to the right, power and
authority hereinafter given to Trustor to collect and apply such Rents;
TOGETHER WITH all interests, estates or other claims, both in law and
in equity, which Trustor now has or may hereafter acquire in the Premises or the
Improvements;
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TOGETHER WITH all easements, rights-of-way and other rights now owned
or hereafter acquired by Trustor used in connection with the Premises or the
Improvements or as a means of access thereto (including, without limitation, all
rights pursuant to any trackage agreement and all rights to the nonexclusive use
of common drive entries, and all tenements, hereditaments and appurtenances
thereof and thereto) and all water and water rights and shares of stock
evidencing the same.
TOGETHER WITH all leasehold estate, right, title and interest of
Trustor in and to all leases or subleases covering the Premises or the
Improvements or any portion thereof now or hereafter existing or entered into,
and all right, title and interest of Trustor thereunder including, without
limitation, all rights of Trustor against guarantors thereof, all cash or
security deposits, advance rentals, and deposits or payments of similar nature
(collectively, "Leases");
TOGETHER WITH all right, title and interest now owned or hereafter
acquired by Trustor in and to any greater estate in the Premises or the
Improvements;
TOGETHER WITH all right, title, and interest of Trustor in (i) the
property and interests in property described on Exhibit "B" attached hereto and
incorporated herein by reference, (ii) all other personal property now or
hereafter owned by Trustor, (iii) all other rights and interests of Trustor now
or hereafter held in personal property that is now or hereafter located on or
used in connection with the Premises or the Improvements, (iv) all personal
property and rights and interests in personal property of similar type or kind
hereafter acquired by Trustor, and (v) all proceeds thereof (such personal
property and proceeds are referred to herein collectively as "Personal
Property");
TOGETHER WITH all right, title and interest of Trustor, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street, open or proposed, adjoining the Premises, and any and all sidewalks,
alleys and strips and gores of land adjacent to or used in connection with the
Premises;
TOGETHER WITH all the estate, interest, right, title, other claim or
demand, both in law and in equity (including, without limitation, claims or
demands with respect to the proceeds of insurance in effect with respect
thereto) that Trustor now has or may hereafter acquire in the Premises, the
Improvements, the Personal Property, or any other part of the Trust Estate (as
defined below) and any and all awards made for the taking by eminent domain, or
by any proceeding of purchase in lieu thereof, of the whole or any part of the
Trust Estate (including, without limitation, any awards resulting from a change
of grade of streets and awards for severance damages);
TOGETHER WITH all proceeds of, and all unearned premiums due from all
insurance policies covering the Trust Estate, 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 Trust Estate;
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TOGETHER WITH all architectural and engineering drawings, plans and
specifications; contractor, subcontractor, laborers, material and all other
similar agreements; governmental applications, registrations, petitions,
approval, permits, certificates, payments, tax credits and deposits and all
other similar items, instruments and documents relating to the Trust Estate
and/or the development thereof;
TOGETHER WITH all other types and items of personal property and
fixtures of every kind and nature whatsoever, including all goods, equipment,
inventory, contract rights, documents, instruments, general intangibles, claims,
chooses in action, chattel paper, mortgages, deposit accounts, and other
accounts now and hereafter owned by Trustor and/or in which Trustor has, and
hereafter has acquired, all rights, interests and title therein and thereto, all
additions, enhancements, improvements and replacements thereof and all proceeds
therefrom, relating to the Trust Estate; and
TOGETHER WITH all proceeds of the foregoing (the entire estate,
property, right, title and interest hereby conveyed to Trustee collectively and
each of them "Trust Estate").
Anything to the contrary notwithstanding the following shall be
excluded from the Trust Estate:
(a) Motor vehicles.
(b) Telephones and telephone equipment.
(c) Computers and computer equipment.
FOR THE PURPOSE OF SECURING (in such order of priority as Beneficiary
may elect) the following (collectively "Obligations"):
(a) payment of indebtedness in the total principal amount of Four
Million Dollars ($4,000,000.00) ("Loan"), with interest
thereon, evidenced by that certain Secured Promissory Note of
even date herewith (as it may be amended, modified, extended,
and renewed from time to time, the "Note") executed by Trustor
or a third party Borrower ("Borrower");
(b) payment of all sums advanced by Beneficiary to protect the
Trust Estate, with interest thereon equal to twenty-four
percent (24%) (which rate of interest is hereinafter referred
to as the "Default Rate" or "Agreed Rate");
(c) payment of all other sums, with interest thereon, that may
hereafter be loaned to Trustor or Borrower, or its successors
or assigns, by Beneficiary, or its successors or assigns when
evidenced by a promissory note or notes reciting that they are
secured by this Deed of Trust;
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(d) performance of every obligation of Trustor or Borrower
contained in the Loan Documents (as defined below);
(e) performance of every obligation of Trustor or Borrower
contained in any agreement, documents, or instrument now or
hereafter executed by Trustor or Borrower reciting that the
Obligations thereunder are secured by this Deed of Trust; and
(f) for the benefit of Beneficiary, compliance with and
performance of each and every provision of any declaration of
covenants, conditions and restrictions, any maintenance,
easement, and party wall agreement, or any other agreement,
document, or instrument by which the Trust Estate is bound or
may be affected.
(g) all advances made and expenses incurred, including but not
limited to all attorneys' fees to cure any senior or junior
loans, trust deeds, mortgages, or other security instruments;
(h) all advances made and expenses incurred, including but not
limited to all attorneys' fees, to preserve, repair or
maintain the Trust Estate or any interest therein; and
(i) all late charges, prepayment penalties and all other similar
items due under this Trust Deed, the Note and all other
related agreements and instruments.
This Deed of Trust, the Note, and any other deeds of trust, mortgages,
agreements, guaranties or other instruments given to evidence or further secure
the payment and performance of any or all of the Obligations, as the foregoing
may be amended, modified, extended, or renewed are herein collectively and each
of them called ("Loan Documents").
TRUSTOR HEREBY COVENANTS AND AGREES AS FOLLOWS:
ARTICLE I
COVENANTS AND AGREEMENTS OF TRUSTOR
1.01 Payment of Secured Obligations. Trustor shall pay when due each of
the Obligations.
1.02 Maintenance, Repair, Alterations. Trustor shall keep the Trust
Estate in good condition and repair. Trustor shall not remove, demolish, or
substantially alter any of the Improvements, except with the prior written
consent of Beneficiary. Trustor shall complete promptly and in a good and
workmanlike manner any Improvement that may be now or hereafter constructed on
the Premises and promptly restore in like manner any Improvements that may be
damaged or destroyed from any cause whatsoever and pay when due all claims for
labor performed and materials furnished therefor. Trustor shall comply with all
Requirements (as defined below) and shall not suffer to occur or exist any
violation of any Requirement. Trustor shall not commit or
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permit any waste or deterioration of the Trust Estate, and, to the extent
allowed by law, shall keep and maintain abutting grounds, sidewalks, roads,
parking and landscape areas in good and neat order and repair. Trustor shall
perform its Obligations under each Lease. "Requirement" and "Requirements" mean,
respectively, each and all Obligations and Requirements now or hereafter in
effect by which Trustor or the Trust Estate are bound or which are otherwise
applicable to the Trust Estate, construction of any Improvements on the Trust
Estate, or operation, occupancy or use of the Trust Estate (including, without
limitation (i) such Obligations and Requirements imposed by common law or any
law, statute, ordinance, regulation, or rule (federal, state, or local, and (ii)
such Obligations and Requirements of, in, or in respect of (A) any consent,
authorization, license, permit, or approval relating to the Trust Estate, (B)
any condition, covenant, restriction, easement, or right-of-way reservation
applicable to the Trust Estate, (C) any Lien or Encumbrance, (D) any other
agreement, document, or instrument to which Trustor is a party or by which
Trustor or the Trust Estate is bound or affected, and (E) any order, writ,
judgment, injunction, decree, determination, or award of any arbitrator, other
private adjudicator, court, government, or governmental authority (federal,
state, or local) to which Trustor is a party or by which Trustor or the Trust
Estate is bound or affected.
1.03 Required Insurance. Trustor shall at all times provide, maintain
and keep in force or cause to be provided, maintained and kept in force with
respect to the Trust Estate, at no expense to Trustee or Beneficiary, policies
of insurance in forms and amounts and issued by companies, associations or
organizations reasonably satisfactory to Beneficiary covering such casualties,
risks, perils, liabilities and other hazards as set forth below:
(a) Insurance against loss or damage by fire, lightning and other
casualties, with a uniform standard extended coverage endorsement, such
insurance to be in an amount required to replace the largest single
improvement on the property but not less than the sum of $6,000,000.00
if any, exclusive of footings, foundations, streets, sidewalks and
underground installation as determined by a recognized appraiser or
insurer selected by the Trustor and approved by Beneficiary.
(b) During the course of any construction or repair of the
Improvements, builder's risk completed value insurance against all
risks of physical loss, including collapse and transit coverage,
covering the total value of the work performed, plus equipment,
supplies and materials.
(c) Insurance, protecting the Trustor and Beneficiary against loss or
losses from liability imposed by law or assumed in any written contract
and arising from personal injury, including bodily injury or death, or
a limit of liability of not less than $1,000,000 (combined single limit
for personal injury, including bodily injury or death and property
damage) and a blanket excess liability policy in an amount of not less
than $5,000,000 protecting the Trustor and Beneficiary against any loss
or liability or damage for personal injury, including bodily injury or
death, or property damage (including, but not limited to, construction
operations coverage if any construction of new improvements occurs
following the recordation of this Deed of Trust).
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(d) A policy or policies of flood insurance in the maximum amount of
flood insurance available with respect to the Project under the Flood
Disaster Protection Act of 1973, as amended. This requirement will be
waived upon presentation of evidence satisfactory to Beneficiary that
no improved portion of the site is located within an area identified by
the U.S. Department of Housing and Urban Development as having special
flood hazards.
(e) If requested by Beneficiary, business interruption insurance in an
amount sufficient to cover any loss of income from the Trust Estate in
such amounts as are reasonably required by Beneficiary.
(f) Such other policies of insurance as may from time to time be
reasonably required by Beneficiary.
All insurance required shall be procured and maintained in financially
sound and generally recognized responsible insurance companies selected by
Trustor required to procure the same and authorized to write such insurance in
the State of Arizona. The company issuing the policies shall be rated "A" or
better by A.M. Best Co., in Bests' Key Guide. All policies evidencing the
insurance required shall contain a standard non-contributory mortgagee clause
showing Beneficiary's interest as first mortgagee, shall provide for payment to
Beneficiary of the net proceeds of insurance resulting from any claim for loss
or damage thereunder, shall contain an inflation adjustment rider with respect
to property insurance, and shall provide for at least thirty (30) days prior
written notice of the cancellation or modification thereof to Beneficiary. All
such policies of insurance, or certificates of insurance evidencing that such
insurance is in full force and effect, shall be delivered to Beneficiary on or
before the recordation of this Deed of Trust (together with proof of the payment
of the premiums thereof). Trustor shall deliver to Beneficiary on or before the
first business day of each calendar year thereafter a certificate dated not
earlier than the immediately preceding month reciting that there is in full
force and effect, with a term covering at least the next succeeding calendar
year, insurance hereof of the types and in the amounts required. Prior to the
expiration of each such policy, Trustor shall furnish Beneficiary with evidence
that such policy has been renewed or replaced.
1.04 Delivery of Policies, Payment of Premiums.
(a) At Beneficiary's option all policies of insurance shall have
attached thereto a lender's loss payable endorsement for the benefit of
Beneficiary in form satisfactory to Beneficiary and shall name
Beneficiary as an additional insured. Trustor shall furnish Beneficiary
with certificates of insurance for each required policy setting forth
the coverage, the limits of liability, the name of the carrier, the
policy number and the period of coverage. If Beneficiary consents,
Trustor may provide any of the required insurance through blanket
policies carried by Trustor and covering more than one location, or by
policies procured by a tenant or other party holding under Trustor;
provided, however, all such policies shall meet the Requirements
referred
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to in Section 1.03. At least thirty (30) days prior to the expiration
of each required policy, Trustor shall deliver the Beneficiary evidence
reasonably satisfactory to Beneficiary of the payment of premium and
the renewal or replacement of such policy continuing insurance in form
as required by this Deed of Trust. All such policies shall contain a
provision that, notwithstanding any contrary agreement between Trustor
and insurance company, such policies will not be canceled, allowed to
lapse without renewal, surrendered or materially amended, which term
shall include any reduction in the scope or limits of coverage, without
at least thirty (30) days' prior written notice to Beneficiary.
(b) In the event Trustor fails to obtain, maintain, or deliver to
Beneficiary the policies of insurance with respect to the Trust Estate
required by this Deed of Trust, Beneficiary may, at Beneficiary's
election, but without any obligation so to do, procure such insurance
or single-interest insurance for such risks covering Beneficiary's
interest, and Trustor will pay all premiums thereon promptly upon
demand by Beneficiary, and until such payment is made by Trustor, the
amount of all such premiums shall bear interest at the Agreed Rate.
Upon the occurrence and during the continuation of an Event of Default
and request by Beneficiary, Trustor shall deposit with Beneficiary in
monthly installments, an amount equal to one-twelfth (1/12) of the
estimated aggregate annual insurance premiums on all policies of
insurance required by this Deed of Trust (funds deposited for this
purpose are referred to as "Insurance Impounds"). In such event Trustor
further agrees to cause all bills, statements, or other documents
relating to the foregoing insurance premiums to be sent or mailed
directly to Beneficiary. Upon receipt of such bills, statements, or
other documents evidencing that a premium for a required policy is then
payable, and provided there are sufficient Insurance Impounds,
Beneficiary shall timely pay such amounts as may be due thereunder out
of the Insurance Impounds. If at any time and for any reason the
Insurance Impounds are or will be insufficient to pay such amounts as
may be then or subsequently due, Beneficiary shall notify Trustor and
Trustor shall immediately deposit an amount equal to such deficiency
with Beneficiary. Notwithstanding the foregoing, nothing contained
herein shall cause Beneficiary to be deemed a trustee of Insurance
Impounds or to be obligated to pay any amounts in excess of the amount
of the Insurance Impounds, nor shall anything contained herein modify
the Obligation of Trustor set forth in Section 1.03 to obtain and
maintain insurance. Beneficiary shall segregate Insurance Impounds and
Trustor shall be entitled to interest thereon. Beneficiary may reserve
for future payments of premiums such portion of Insurance Impounds as
Beneficiary in its absolute and sole discretion deems proper. If
Trustor fails to deposit with Beneficiary sums sufficient to pay fully
such premiums at least thirty (30) days before delinquency thereof,
Beneficiary may, at Beneficiary's election, but without any obligation
so to do, advance any amounts required to make up the deficiency, which
advances, if any, shall be secured hereby and shall be repayable to
Beneficiary upon demand with interest from the date advanced at the
Agreed Rate.
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1.05 Casualties; Insurance Proceeds.
(a) Trustor shall give prompt written notice thereof to Beneficiary
after the happening of any casualty to or in connection with the Trust
Estate or any part thereof, whether or not covered by insurance. All
proceeds of insurance shall be payable to Beneficiary, and Trustor
hereby authorizes and directs any affected insurance company to make
payment of such proceeds directly to Beneficiary. If Trustor receives
any proceeds of insurance resulting from such casualty, Trustor shall
promptly pay over such proceeds to Beneficiary.
(b) (i) For purposes of this Section 1.05(b) the following term
shall have the following meaning:
"Total Destruction" shall mean damage or destruction to fifty
percent (50%), in the aggregate or more of the net usable area
of the Improvements, which, in Beneficiary's reasonable
judgment, is so extensive that any Improvements which were
damaged or destroyed cannot be restored.
(ii) In the event of Total Destruction of the Improvements,
Beneficiary shall have the absolute right, at its option,
without prior demand or notice, to declare all sums secured
hereby immediately due and payable. Beneficiary shall be
entitled to apply all insurance proceeds to the payment
required under this Section 1.05(b)(ii). Any proceeds
remaining after such application shall be delivered to Trustor
or the person or persons then legally entitled thereto.
(c) In the event of damage or destruction to the Improvements which is
not Total Destruction, Beneficiary shall have the right to apply all
insurance proceeds to the indebtedness evidenced by the Note unless the
following conditions are met:
(i) Trustor shall have delivered notice to Beneficiary of its
intention to commence repairs and restoration within ten (10)
business days (as defined in the Note) following (a) the
settlement of any claim or claims under any insurance policies
where the proceeds thereof are to be applied to the
restoration or repair of the damaged Improvements and (b)
expiration of the time periods in (iv) and (v) below;
(ii) No Event of Default hereunder or under any of the Loan
Documents shall have occurred and be continuing and no event
shall have occurred and be continuing which, with the giving
of notice or the passage of time, or both, would give rise to
an Event of Default hereunder or thereunder;
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(iii) All insurance proceeds shall have been deposited with
Beneficiary;
(iv) Within thirty (30) days after the deposit of such
insurance proceeds with Beneficiary, Trustor shall have
remitted to Beneficiary an amount necessary (as Beneficiary
shall determine in its sole discretion), if any, to pay the
difference between (A) the sum of (1) the cost of restoration
and repair of and completion of the Improvements plus (2) all
operating expenses of the Trust Estate until such time as the
Trust Estate can generate sufficient income to pay such
expenses, as determined by Beneficiary in its sole discretion,
minus (B) the amount of insurance proceeds deposited with
Beneficiary in respect of such damage and destruction;
(v) Within sixty (60) days following the settlement of any
claim or claims under any insurance policies, Trustor shall
have delivered to Beneficiary (A) a budget of all costs of
reconstruction of the Improvements, (B) a construction
schedule for the reconstruction of the Improvements and (C) a
construction contract for such reconstruction work in form and
content and with a contractor, reasonably acceptable to
Beneficiary; and
(vi) Beneficiary and all applicable governmental authorities
shall have approved the final plans and specifications for
reconstruction of the Improvements.
In the event all of the foregoing conditions have been
fulfilled, all proceeds so applied to the reconstruction of the
Improvements shall be disbursed only as repairs or replacements are
effected and as continuing expenses become due and payable. Should
Beneficiary elect to restore and repair the Improvements although
Trustor has failed to comply with the conditions set forth above, and
the insurance proceeds are insufficient to restore and repair such
damage to or destruction of the Improvements, Trustor shall pay to
Beneficiary, within sixty (60) days of a demand by Beneficiary, an
amount equal to the difference between (A) the sum of (1) the cost of
restoration and repair of the Improvements, plus (2) all operating
expenses of the Trust Estate until such time as the Trust Estate can
generate sufficient income to pay such expenses, as determined by
Beneficiary in its sole discretion, minus (B) the sum of the amount of
the insurance proceeds available to Beneficiary for repair and
restoration. All funds deposited with Beneficiary which are to be used
for the restoration and repair of the Improvements shall be disbursed
only as repairs or replacements are effected and as continuing expenses
become due and payable.
(d) All disbursements shall be subject to and comply with customary
institutional construction draw procedures, including but not limited
to certified and itemized draw requests executed by Trustor and the
contractor; independent verification that the work for which payment is
required has been completed in good workman-like manner and in
accordance with the Law, and the approved plans, budget and time
schedule and the other contract documents; and to the extent
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obtainable, proof that governmental approval of such work, and mechanic
liens releases and waivers have been obtained.
(e) In the event Beneficiary elects to apply the insurance proceeds to
the Obligations arising under the Loan Documents because Trustor has
failed to comply with the conditions set forth above, Beneficiary shall
not be obligated to make any further disbursements pursuant to the
other Loan Documents and Beneficiary shall apply all insurance proceeds
to the repayment of the outstanding balance of the Note, together with
accrued interest, notwithstanding that the outstanding balance may not
be due and payable. If such proceeds are not sufficient to repay the
Note in full, Trustor shall immediately pay to Beneficiary an amount
equal to such insufficiency. If there are insurance proceeds remaining
after payment of the Note in full, such remaining proceeds shall be
paid over the Persons legally entitled thereto.
(f) After completion of restoration in accordance with the plans and
specifications approved by Beneficiary and payment in full of all of
the costs of restoration, as evidenced by a certificate to such effect
signed by Trustor and verified by Trustor's architect, and after
payment to Beneficiary of all reasonable costs and expenses incurred in
connection with the collection of such proceeds (including reasonable
adjusters' and attorneys' fees and disbursements and costs incurred by
Beneficiary or its agents in inspecting any restoration and the plans
and specification therefor), any remaining insurance proceeds shall be
paid over to Trustor.
(g) Except as expressly provided in Section 1.05(e), Trustor shall not
be excused from repairing or maintaining the Trust Estate as provided
in Section 1.02 hereof or restoring all damage or destruction to the
Trust Estate, regardless of whether or not there are insurance proceeds
available to Trustor or whether any such proceeds are sufficient in
amount, and the application or release by Beneficiary of any insurance
proceeds shall not cure or waive any default or notice of default under
this Deed of Trust or invalidate any act done pursuant to such notice.
1.06 Assignment of Policies Upon Foreclosure. In the event of
foreclosure of this Deed of Trust as a mortgage, a sale under the power of sale,
or any other transfer of title or assignment of the Trust Estate in
extinguishment, in whole or in part, of the Obligations, all right, title and
interest of Trustor in and to all policies of insurance required by Section 1.03
shall inure to the benefit of and pass to the successor in interest to Trustor
or the purchaser or grantee of the Trust Estate, to the extent such policies are
assignable pursuant to the terms thereof.
1.07 Indemnification; Subrogation; Waiver of Offset.
(a) If Beneficiary is made a party to any litigation concerning the
Note, this Deed of Trust, any of the Loan Documents, the Trust Estate
or any part thereof or interest therein, or the occupancy of the Trust
Estate by Trustor, then Trustor shall
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indemnify, defend and hold Beneficiary harmless for, from and against
all liability by reason of said litigation, including reasonable
attorneys' fees and expenses incurred by Beneficiary as a result of any
such litigation, whether or not any such litigation is prosecuted to
judgment. Beneficiary may employ an attorney or attorneys to protect
its rights hereunder, and in the event of such employment following any
breach by Trustor, Trustor shall pay Beneficiary reasonable attorneys'
fees and expenses incurred by Beneficiary, whether or not an action is
actually commenced against Trustor by reason of its breach.
(b) Trustor waives any and all right to claim or recover against
Beneficiary, its successors and assigns, their directors, officers,
employees, agents and representatives, for loss of or damage to
Trustor, the Trust Estate, Trustor's property or the property of others
under Trustor's control from any cause insured against or required to
be insured against by this Deed of Trust.
(c) All sums payable by Trustor pursuant to this Deed of Trust shall be
paid without notice (except for such notice as may be expressly
required hereunder or under the other Loan Documents), demand,
counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction, and the Obligations and
liabilities of Trustor hereunder shall in no way be released,
discharged or otherwise affected (except as expressly provided herein)
by reason of: (i) any damage to or destruction of or any condemnation
or similar taking of the Trust Estate or any part thereof; (ii) any
restriction or prevention of or interference by any Person (as defined
below) with any use of the Trust Estate or any part thereof; (iii) any
title defect or encumbrance or any eviction from the Premises or the
Improvements or any part thereof by title paramount or otherwise; (iv)
any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to
Beneficiary, or any action taken with respect to this Deed of Trust by
any trustee or receiver of Beneficiary, or by any court, in any such
proceeding; (v) any claim that Trustor has or might have against
Beneficiary; (vi) any default or failure on the part of Beneficiary to
perform or comply with any of the terms of the Loan Documents or of any
other agreement with Trustor; or (vii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing; whether or not Trustor
shall have notice or knowledge of any of the foregoing. Except as
expressly provided herein, Trustor waives all rights now or hereafter
conferred by statute or otherwise to any abatement, suspension,
deferment, diminution or reduction of any sum secured hereby and
payable by Trustor. "Person" means any natural person, any
unincorporated association, any corporation, any partnership, any joint
venture, any trust, any other legal entity, or any governmental
authority (federal, state, local or foreign).
1.08 Impositions.
(a) Trustor shall pay, or cause to be paid, prior to delinquency, all
real property taxes and assessments, general and special, and all other
taxes and assessments of
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any kind or nature whatsoever, (including, without limitation,
non-governmental levies or assessments such as maintenance charges,
levies, or charges resulting from covenants, conditions and
restrictions affecting the Trust Estate) that are assessed or imposed
upon the Trust Estate or become due and payable and that create, may
create, or appear to create a lien upon the Trust Estate (the above are
sometimes referred to herein individually as an "Imposition" and
collectively as "Impositions"), provided, however, that if by law any
Imposition is payable, or may at the option of the taxpayer be paid, in
installments, Trustor may pay the same or cause it to be paid, together
with any accrued interest on the unpaid balance of such Imposition, in
installments as the same becomes due and before any fine, penalty,
interest, or cost may be added thereto for the nonpayment of any such
installment and interest.
(b) If at any time after the date hereof there shall be assessed or
imposed a fee, tax, or assessment on Beneficiary and measured by or
based in whole or in part upon this Deed of Trust or the outstanding
amount of the Obligations, then all such taxes, assessments or fees
shall be deemed to be included within the term "Impositions" as defined
in Section 1.08(a) and Trustor shall pay and discharge the same as
herein provided with respect to the payment of Impositions. If Trustor
fails to pay such Impositions prior to delinquency, Beneficiary may, at
its option, declare all or part of the Obligations, immediately due and
payable. If Trustor is prohibited by law from paying such Impositions,
Beneficiary may, at its option, declare all or part of the Obligations
due and payable on a date which is not less than six (6) months from
the date such prohibition is imposed on Trustor.
(c) Subject to the provisions of Section 1.08(d) and upon request by
Beneficiary, Trustor shall deliver to Beneficiary within thirty (30)
days after the date upon which any Imposition is due and payable by
Trustor official receipts of the appropriate taxing authority, or other
proof satisfactory to Beneficiary, evidencing the payment thereof.
(d) Trustor shall have the right before any delinquency occurs to
contest or object to the amount or validity of any Imposition by
appropriate proceedings, but this shall not be deemed or construed in
any way as relieving, modifying, or extending Trustor's covenant to pay
any such Imposition at the time and in the manner provided in this
Section 1.08, unless Trustor has given prior written notice to
Beneficiary of Trustor's intent to so contest or object to an
Imposition, and unless, in Beneficiary's absolute and sole discretion,
(i) Trustor shall demonstrate to Beneficiary's satisfaction that the
proceedings to be initiated by Trustor shall conclusively operate to
prevent the sale of the Trust Estate or any part thereof or interest
therein to satisfy such Imposition prior to final determination of such
proceedings, (ii) Trustor shall furnish a good and sufficient bond or
surety as requested by and satisfactory to Beneficiary, or (iii)
Trustor shall demonstrate to Beneficiary's satisfaction that Trustor
has provided a good and sufficient undertaking as may be required or
permitted by law to accomplish a stay of any such sale.
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(e) Trustor shall pay to Beneficiary an initial cash deposit equal to
the amount of four-twelfths (4/12ths) of the tax Impositions for the
tax fiscal year 1996 and shall thereafter commencing July 28, 1996
continue to deposit with Beneficiary, in monthly installments, an
amount equal to one-twelfth (1/12) of the sum of the annual Impositions
reasonably estimated by Beneficiary, for the purpose of paying the
installment of Impositions next due (funds deposited for this purpose
are referred to as "Impositions Impounds"). In such event, Trustor
further agrees to cause all bills, statements, or other documents
relating to Impositions to be sent or mailed directly to Beneficiary.
Upon receipt of such bills, statements, or other documents, and
providing there are sufficient Impositions Impounds, Beneficiary shall
timely pay such amounts as may be due thereunder out of the Impositions
Impounds. If at any time and for any reason the Impositions Impounds
are or will be insufficient to pay such amounts as may then or
subsequently be due, Beneficiary may notify Trustor and upon such
notice Trustor shall deposit immediately an amount equal to such
deficiency with Beneficiary. Notwithstanding the foregoing, nothing
contained herein shall cause Beneficiary to be deemed a trustee of
Impositions Impounds or to be obligated to pay any amounts in excess of
the amount of funds deposited with Beneficiary pursuant to this Section
1.08(e). Beneficiary may reserve for future payment of Impositions such
portion of Impositions Impounds as Beneficiary may in its absolute and
sole discretion deem proper. If Trustor fails to deposit with
Beneficiary sums sufficient to fully pay such Impositions at least
thirty (30) days before delinquency thereof, Beneficiary may, at
Beneficiary's election, but without any Obligation so to do, advance
any amounts required to make up the deficiency, which advances, if any,
shall be secured hereby and shall be repayable to Beneficiary upon
demand together with interest thereon at the Agreed Rate from the date
of such advance, or at the option of Beneficiary the latter may,
without making any advance whatever, apply any Impositions Impounds
held by it upon any of the Obligations in such order as Beneficiary may
determine, notwithstanding that such Obligations may not yet be due.
(f) Trustor shall not initiate or suffer to occur or exist the joint
assessment of any real and personal property included in the Trust
Estate or any other procedure whereby the lien of real property taxes
and the lien of personal property taxes shall be assessed, levied, or
charged to the Trust Estate as a single lien.
(g) Trustor shall provide Beneficiary, at Trustor's expense, a tax
service contract for the life of the indebtedness secured hereby of a
type and issued by a tax agency selected by Beneficiary.
1.09 Utilities. Trustor shall pay when due all charges that are
incurred by Trustor for the benefit of the Trust Estate or that may become a
charge or lien against the Trust Estate for gas, electricity, water, sewer, or
other services furnished to the Trust Estate.
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1.10 Actions Affecting Trust Estate. Trustor shall appear in and
contest any action or proceeding purporting to affect the security hereof or the
rights or powers of Beneficiary or Trustee; and shall pay all costs and expenses
(including, without limitation, costs of evidence of title, litigation, and
attorneys' fees) in any such action or proceeding in which Beneficiary or
Trustee may appear.
1.11 Actions By Trustee or Beneficiary. If Trustor fails to make any
payment or to do any act as and in the manner provided in any of the Security
Documents, Beneficiary and/or Trustee, each in its absolute and sole discretion,
without Obligation so to do, without releasing Trustor from any Obligation, upon
ten (10) days prior written notice, may make or do the same in such manner and
to such extent as either may deem necessary or appropriate. In connection,
therewith (without limiting their general powers, whether conferred herein, in
another Loan Document or by law), Beneficiary and Trustee shall have and are
hereby given the right, but not the Obligation, (a) to enter upon and take
possession of the Trust Estate; (b) to make additions, alterations, repairs and
improvements to the Trust Estate that they or either of them may consider
necessary or appropriate to keep the Trust Estate in good condition and repair;
(c) to appear and participate in any action or proceeding affecting or which may
affect the security hereof or the rights or powers of Beneficiary or Trustee;
(d) to pay, purchase, contest or compromise any Lien or Encumbrance (as defined
below) or alleged Lien or Encumbrance whether superior or junior to this Deed of
Trust; and (e) in exercising such powers, to pay necessary expenses (including,
without limitation, expenses of employment of counsel or other necessary or
desirable consultants). Trustor shall, immediately upon demand therefor by
Beneficiary and Trustee or either of them, pay to Beneficiary and Trustee an
amount equal to all respective costs and expenses incurred by them in connection
with the exercise by either Beneficiary or Trustee or both of the foregoing
rights (including, without limitation, costs of evidence of title, court costs,
appraisals, surveys and receiver's, trustee's and attorneys' fees) together with
interest thereon from the date of such expenditures at the Agreed Rate.
1.12 Transfer of Trust Estate by Trustor. In order to induce
Beneficiary to make the Loan, Trustor agrees that, in the event of any Transfer
(as hereinafter defined), without the prior written consent of Beneficiary,
Beneficiary shall have the absolute right, at its option, without prior demand
or notice, to declare all sums secured hereby immediately due and payable.
Consent to one such transaction shall not be deemed to be a waiver of the right
to require consent to future or successive transactions. Beneficiary may grant
or deny such consent in its sole discretion and, if consent should be given, any
such Transfer shall be subject to this Deed of Trust, and such transferee shall
assume all Obligations hereunder and agree to be bound by all provisions
contained herein. Such assumption shall not, however, release Trustor or any
maker or guarantor (if any) of the Note from any liability thereunder without
the prior written consent of Beneficiary. As used herein, "Transfer" shall mean:
(i) any sale, transfer, conveyance, hypothecation, encumbrance, lease
or vesting of the Trust Estate or any part thereof or interest therein
to or in any Person, whether voluntary, involuntary, by operation of
law, or otherwise;
(ii) Intentionally Omitted.
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(iii) Intentionally Omitted
(iv) the execution of any agreements to do any of the foregoing.
except as may be permitted in Exhibit "C" (the "Permitted Exceptions"), if any
be attached hereto or pursuant to a release right, if any, to be set forth in
Section 5.04.
1.13 Eminent Domain.
(a) In the event that any proceeding or action be commenced for the
taking of the Trust Estate, or any part thereof or interest therein,
for public or quasi-public use under the power of eminent domain,
condemnation or otherwise (hereinafter collectively referred to as a
"Taking"), or if the same be taken or damaged by reason of any public
improvement or Taking, or should Trustor receive any notice or other
information regarding such Taking or damage, Trustor shall give prompt
written notice thereof to Beneficiary. All compensation, awards,
damages, rights of action and proceeds awarded to Trustor by reason of
any such Taking or damage (the "Condemnation Proceeds") are hereby
assigned to Beneficiary, and Trustor agrees to execute such further
assignments of the Condemnation Proceeds as Beneficiary or Trustee may
require. If Trustor receives any Condemnation Proceeds Trustor shall
promptly pay over such proceeds to Beneficiary. Beneficiary is hereby
authorized and empowered by Trustor, at Beneficiary's option and in
Beneficiary's sole discretion, as attorney-in-fact for Trustor, to
settle, adjust, or compromise any claim for loss or damage in
connection with any Taking or proposed Taking and, without regard to
the adequacy of its security, to commence, appear in and prosecute in
its own name and/or on behalf of Trustor any such action or proceeding
arising out of or relating to a Taking or proposed Taking.
(b) (i) For purposes of this Section 1.13 the following term shall
have the following meaning:
"Total Taking" shall mean a Taking of fifty percent (50%), in
the aggregate, or more of the net usable area in the
Improvements.
(ii) In the event of a Total Taking of the Improvements,
Beneficiary shall have the absolute right, at its option,
without prior demand or notice, to declare all sums secured
hereby immediately due and payable. Beneficiary shall be
entitled to apply all or any portion of the Condemnation
Proceeds to the payment required under this Section
1.13(b)(ii).
(c) In the event of a Taking which is not a Total Taking, prior to or
within ten (10) days following expiration of the time periods in (iv)
and (v) below, Beneficiary
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shall apply all Condemnation Proceeds to the indebtedness evidenced by
the Note unless the following conditions are met:
(i) Trustor shall have delivered notice to Beneficiary of its
intention to commence repairs and restoration within ten (10)
Business Days following the settlement of any claim or claims
in connection with any Taking where the Condemnation Proceeds
thereof are to be applied to the restoration or repair of the
damaged Improvements;
(ii) No Event of Default hereunder or under any of the Loan
Documents shall have occurred and be continuing and no event
shall have occurred and be continuing which, with the giving
of notice or the passage of time, or both, would give rise to
an Event of Default hereunder or thereunder;
(iii) All Condemnation Proceeds shall have been deposited with
Beneficiary;
(iv) Within thirty (30) days after the deposit of such
Condemnation Proceeds with Beneficiary, Trustor shall have
remitted to Beneficiary an amount necessary (as Beneficiary
shall determine in its sole discretion), if any, to pay the
difference between (A) the sum of (1) the cost of restoration
and repair of any affected Improvements and reconstruction of
the Project plus (2) all operating expenses of the Trust
Estate until such time as the Trust Estate can generate
sufficient income to pay such expenses, as determined by
Beneficiary in its sole discretion, minus (B) the sum of any
undisbursed Loan Proceeds and the amount of such Condemnation
Proceeds deposited with Beneficiary in respect of such Taking;
(v) Trustor shall have delivered to Beneficiary, (A) a budget
of all costs of restoration and repair of the Project and any
affected Improvements, (B) a construction schedule for the
restoration and repair of the Improvements, and (C) a
construction contract for such restoration and repair work in
form and content, and with a contractor, reasonably acceptable
to Beneficiary; and
(vi) Beneficiary and all applicable governmental authorities
shall have approved the final plans and specifications for
restoration and repair of the Improvements.
In the event all of the foregoing conditions have been fulfilled, all
Condemnation Proceeds so applied to the restoration and repair of the
Improvements shall be disbursed only as repairs or replacements are
effected and as continuing expenses
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become due and payable. Should Beneficiary elect to restore and repair
the Improvements although Trustor has failed to comply with the
conditions set forth above, and the Condemnation Proceeds are
insufficient to restore and repair such damage to or destruction of the
Improvements, Trustor shall pay to Beneficiary, within fifteen (15)
days of a demand by Beneficiary, an amount equal to the difference
between (A) the sum of (1) the cost of restoration and repair of the
Improvements, plus (2) all operating expenses of the Trust Estate until
such time as the Trust Estate can generate sufficient income to pay
such expenses, as determined by Beneficiary in its sole discretion,
minus (B) the amount of the Condemnation Proceeds available to
Beneficiary for repair and restoration. All funds deposited with
Beneficiary which are to be used for the restoration and repair of the
Improvements shall be disbursed for such purposes only as repairs or
replacements are effected and as continuing expenses become due and
payable.
(d) All disbursements shall be subject to and comply with customary
institutional construction draw procedures, including but not limited
to: certified and itemized draw requests executed by Trustor and the
contractor; independent verification that the work for which payment is
required has been completed in good workman-like manner and in
accordance with the Law; and the approved plans, budget and time
schedule and the other contract documents; to the extent obtainable,
proof that governmental approval of such work, and mechanic liens
releases and waivers have been obtained.
(e) In the event Beneficiary elects to apply the Condemnation Proceeds
to the Obligations arising under the Loan Documents because Trustor has
failed to comply with the conditions set forth above, Beneficiary shall
not be obligated to make any further disbursements pursuant to the
other Loan Documents and Beneficiary shall apply all Condemnation
Proceeds to the repayment of the outstanding balance of the Note,
together with accrued interest, notwithstanding that the outstanding
balance may not be due and payable. If such proceeds are not sufficient
to repay the Note in full, Trustor shall immediately pay to Beneficiary
an amount equal to such insufficiency. If there are Condemnation
Proceeds remaining after repayment of the Note in full, such remaining
Condemnation Proceeds shall be paid over to the Persons legally
entitled thereto.
(f) Except as expressly provided in this Section 1.13, Trustor shall
not be excused from repairing or maintaining the Trust Estate as
provided in Section 1.02 hereof or restoring all damage or destruction
to the Trust Estate, regardless of whether or not there are
Condemnation Proceeds available to Trustor or whether any such
Condemnation Proceeds are sufficient in amount. Application or release
of the Condemnation Proceeds as provided herein shall not cure or waive
any default or notice of default hereunder or under any other Loan
Document or invalidate any act done pursuant to such notice.
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(g) After completion of restoration, rebuilding and repair of the
Improvements in accordance with the plans and specifications approved
by Beneficiary and payment in full of all cost of such restoration,
rebuilding and repair as evidenced by a certificate to such effect
signed by Trustor and verified by Trustor's architect, and after
payment to Beneficiary of all reasonable costs and expenses incurred in
connection with the collection of the Condemnation Proceeds (including
reasonable consultants' and attorneys' fees and disbursements and costs
incurred by Beneficiary or its agents in inspecting any such
restoration and the plans and specifications therefor), any remaining
Condemnation Proceeds shall be paid over to Trustor.
1.14 Additional Security. No other security now existing, or hereafter
taken, to secure the Obligations secured hereby shall be impaired or affected by
the execution of this Deed of Trust. All security for the Obligations from time
to time shall be taken, considered and held as cumulative. Any Taking of
additional security, execution of partial releases of the security, or any
extension of the time of payment of, or modification of other terms of any of
the Obligations shall not diminish the force, effect or lien of this Deed of
Trust and shall not affect or impair the liability of any maker, guarantor,
surety or endorser for the payment or performance of any of the Obligations. In
the event Beneficiary at any time holds additional security for any of the
Obligations, it may enforce the sale thereof or otherwise realize upon the same,
at its option, either before, concurrently with, or after a sale or realization
is made hereunder.
1.15 Appointment of Successor Trustee. Beneficiary may, from time to
time, by a written instrument executed and acknowledged by Beneficiary, mailed
to Trustor and recorded in the county in which the Trust Estate is located and
by otherwise complying with the provisions of applicable law, substitute a
successor or successors to any Trustee named herein or acting hereunder, and
such successor(s) shall, without conveyance from the Trustee predecessor,
succeed to all title, estate, rights, powers and duties of such predecessor.
1.16 Inspections. Beneficiary, and its agents, representatives
officers, and employees, are authorized to enter at any reasonable time upon or
in any part of the Trust Estate for the purpose of inspecting the same and for
the purpose of performing any of the acts Beneficiary is authorized to perform
hereunder or under the terms of any of the Loan Documents.
1.17 Ownership and Liens and Encumbrances. Except as reflected in
Exhibit "C", Trustor is, and as to any portion of the Trust Estate acquired
hereafter will upon such acquisitions be, and shall remain the owner of the
Trust Estate free and clear of any Liens and Encumbrances. Trustor shall not
grant, shall not suffer to exist, and shall pay and promptly discharge, at
Trustor's cost and expense, all Liens and Encumbrances and any claims thereof
upon the Trust Estate, or any part thereof or interest therein. Trustor shall
notify Beneficiary immediately in writing of any Lien or Encumbrance or claim
thereof. Trustor shall have the right to contest in good faith the validity of
any involuntary Lien or Encumbrance, provided Trustor shall first deposit with
Beneficiary a bond or other security satisfactory to Beneficiary in such amount
as Beneficiary shall reasonably require, but not more than one hundred fifty
percent (150%) of the amount of the claim, and provided further that if Trustor
loses such contest, Trustor shall thereafter diligently proceed to cause such
Lien or Encumbrance to be removed and discharged. If Trustor shall fail to
remove and discharge
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any Lien or Encumbrance or claim thereof, then, in addition to any other right
or remedy of Beneficiary, Beneficiary may, after ten (10) days written notice,
but shall not be obligated to, discharge the same, either by paying the amount
claimed to be due, or by procuring the discharge of such Lien or Encumbrance by
depositing in a court a bond for the amount claimed or otherwise giving security
for such claim, or by procuring such discharge in such manner as is or may be
prescribed by law. Trustor shall, immediately upon demand therefor by
Beneficiary, pay to Beneficiary an amount equal to all costs and expenses
incurred by Beneficiary in connection with the exercise by Beneficiary of the
foregoing right to discharge any Lien or Encumbrance or claim thereof, together
with interest thereon from the date of each such expenditure at the Agreed Rate.
Such costs and expenses shall be secured by this Deed of Trust. "Lien or
Encumbrance" and "Liens and Encumbrances" mean, respectively, each and all of
the following in respect of the Trust Estate: leases, other rights to occupy or
use, mortgages, deeds of trust, pledges, security agreements, assignments,
assignments as security, conditional sales, title retention arrangements or
agreements, conditions, covenants, and restrictions, and other charges, liens,
encumbrances, or adverse interests, whether voluntarily or involuntarily created
and regardless of whether prior or subordinate to any estate, right, title, or
interest granted to Trustee or Beneficiary in this Deed of Trust, excluding from
the foregoing the Permitted Exceptions.
1.18 Trustee's Powers. At any time, or from time to time, without
liability therefor and without notice, upon written request of Beneficiary and
presentation of this Deed of Trust and without affecting the personal liability
of any Person for payment of the Obligations or the effect of this Deed of Trust
upon the remainder of said Trust Estate, Trustee may (a) reconvey any part of
said Trust Estate, (b) consent in writing to the making of any map or plat
thereof, (c) join in granting any easement thereon, or (d) join in any extension
agreement or any agreement subordinating the lien or charge hereof.
1.19 Beneficiary's Powers. Without affecting the liability of any
Person liable for the payment of the Obligations herein mentioned, and without
affecting the lien or charge of this Deed of Trust upon any portion of the Trust
Estate not then or theretofore released as security for the Obligations,
Beneficiary may, from time to time and without notice (a) release any person so
liable, (b) extend the Obligations, (c) grant other indulgences, (d) release or
reconvey, or cause to be released or reconveyed, at any time at Beneficiary's
option any parcel, portion or all of the Trust Estate, (e) take or release any
other or additional security or any guaranty for any Obligation herein
mentioned, or (f) make compositions or other arrangements with debtors in
relation thereto.
1.20 Financial Statements. Trustor shall furnish in form and substance
satisfactory to Beneficiary (a) within ninety (90) days after the end of each
calendar year, a statement of income and expenses, relating to the Trust Estate
for such calendar year; (b) within ninety (90) days after the end of each
calendar year, financial statements for such year from Trustor; (c) within
thirty (30) days after the end of each calendar year, a rent roll for the Trust
Estate as of January 1 of the current year; and (d) such other financial
information concerning the Trust Estate or Trustor as Beneficiary may reasonably
require from time to time. Beneficiary or its designated agent shall have the
right to inspect the books and records with respect to the Trust Estate at any
time, upon reasonable notice to Trustor.
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1.21 Trade Names. At the request of Beneficiary from time to time,
Trustor shall execute a certificate in form satisfactory to Beneficiary listing
the trade names or fictitious business names under which Trustor intends to
operate the Trust Estate or any business located thereon and representing and
warranting that Trustor does business under no other trade names or fictitious
business names with respect to the Trust Estate. Trustor shall immediately
notify Beneficiary in writing of any change in said trade names or fictitious
business names, and will, upon request of Beneficiary, execute any additional
financing statements and other certificates necessary to reflect the change in
trade names or fictitious business names.
1.22 Leasehold. If a leasehold estate constitutes a portion of the
Trust Estate, Trustor agrees not to amend, modify, extend, renew or terminate
such leasehold estate, any interest therein, or the lease granting such
leasehold estate, except for standard leasehold estates pursuant to Trustor's
standard form of lease agreement. Consent to one amendment, modification,
extension or renewal shall not be deemed to be a waiver of the right to require
consent to other, future or successive amendments, modifications, extensions or
renewals. Trustor agrees to perform all Obligations and agreements under said
leasehold and shall not take any action or omit to take any action which would
effect or permit the termination of said leasehold. Trustor agrees to promptly
notify Beneficiary in writing with respect to any default or alleged default by
any party thereto and to deliver to Beneficiary copies of all notices, demands,
complaints or other communications received or given by Trustor with respect to
any such default or alleged default. Beneficiary shall have the option to cure
any such default and to perform any or all of Trustor's Obligations thereunder.
All sums expended by Beneficiary in curing any such default shall be secured
hereby and shall be immediately due and payable without demand or notice and
shall bear interest from date of expenditure at the Agreed Rate.
1.23 Management Agreement. The Trust Estate may be operated under a
Management Agreement, provided such Management Agreement shall provide that it
may be terminated on thirty (30) days prior written notice.
1.24 Environmental Matters.
(a) Except as may be reflected in a Phase 1 Environmental Site
Assessment prepared for National Bank of Arizona, 3101 N. Central
Avenue, Phoenix, Arizona 85021 on May 10, 1996 under EEC Project 1754
by Environmental Consultants, Inc., 4625 E. Fort Lowell Road, Suite
200, Tucson, Arizona 85712-1126. Trustor represents and warrants that,
to the best of its knowledge after due inquiry and investigation, the
Trust Estate has not been used to generate, manufacture, refine,
transport, treat, store, handle, dispose, release, transfer, produce,
process or in any manner deal with (collectively and each of them
"Release") any Hazardous Materials, and that no owner or prior owner of
the Trust Estate or any tenant, subtenant, occupant, prior tenant,
prior subtenant, prior occupant or person (collectively, "Occupant")
has received any notice or advice from any governmental agency or any
Occupant with regard to any Hazardous Materials on, from or affecting
the Trust Estate. No owner or prior owner of the Trust Estate or any
other Occupant has received any notice or advice from any
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governmental agency or any Occupant or any other Person with regard to
any Hazardous Materials Released on, from or affecting the Trust
Estate.
(b) Each Trustor covenants that (i) each Trustor shall keep
the Trust Estate free and clear of all Hazardous Materials as required
by Law; (ii) each Trustor shall not use the Trust Estate to Release any
Hazardous Materials, and shall use its best efforts to prevent the
Trust Estate from being used for any Release of any Hazardous Materials
and (iii) each Trustor shall not use or cause, and shall use its best
efforts not to permit or allow to be caused, the installation or
placement of Hazardous Materials in or on the Trust Estate or a Release
of any Hazardous Materials onto or about the Trust Estate or onto any
other property, or suffer the presence of Hazardous Materials on or
about the Trust Estate; (iv) each Trustor shall comply with, and use
its best efforts to ensure compliance by all Occupants with, all
applicable Laws with respect to all Hazardous Materials, and shall keep
the Trust Estate free and clear of any liens imposed pursuant to such
Laws; (v) in the event that any Trustor or any of its Representatives
receives any notice or advice from any governmental agency or any
Occupant or has any knowledge with regard to any Hazardous Materials
on, from or affecting the Trust Estate, each Trustor shall immediately
notify each Beneficiary and Trustee; and (vi) each Trustor shall
promptly conduct, conclude and complete all investigations, studies,
sampling, and testing, and all remedial, removal, and other actions
necessary to clean up and remove all Hazardous Materials, on, from or
affecting the Trust Estate in accordance with all applicable Laws.
(c) The term "Hazardous Materials" as used in this Deed of
Trust shall include, without limitation, gasoline; petroleum products;
explosives; radioactive materials; radon gas; hazardous materials;
hazardous wastes; hazardous or toxic substances, polychlorinated
biphenyls; asbestos or any material containing asbestos; or any other
substance or material as may be defined as a hazardous, toxic or unsafe
substance by any applicable Law, including but not limited to the
Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1901, et seq., the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 7401 et seq.) and the Arizona Revised Statutes Section 49-201
(16), and in the regulations adopted and publications promulgated
pursuant thereto and which, when situated on or about the Trust Estate,
could result in a violation of any such Laws.
(d) Trustor shall be solely responsible for, and shall
indemnify, defend (with an attorney acceptable to each respective
indemnitee), protect, reimburse, and hold harmless Beneficiary, its
trustees; beneficiaries, directors, officers, employees, agents, other
representatives, and each of their representatives, successors and
assigns from and against, any loss, damage, cost, expense, liability
and Release directly or indirectly arising out of or attributable to
Hazardous Materials on, under
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or about the Trust Estate, including without limitation: (A) all
foreseeable consequential damage; (B) the costs of any required or
necessary repairs, cleanup or detoxification of the Trust Estate, and
the preparation and implementation of any closure, remedial or other
required plans; and (C) all reasonable costs and expenses incurred by
Beneficiary in connection with clauses (A) and (B), including but not
limited to reasonable attorneys' fees; provided, however, that the
foregoing indemnity shall not apply to any loss, damage, cost, expense,
or liability related to Hazardous Materials existing on, under, or
about the Trust Estate prior to the date of Trustor ownership or use of
the respective Trust Estate. Such indemnity obligations shall be due
upon demand and not contingent upon any loss or damage.
(e) Without waiver of any rights or remedies or the assumption
of any liability, including but not limited to disclosure and
remediation, Beneficiary, or its Representatives, shall have the right
to enter onto the Trust Estate to inspect the Premises and to perform
any testing of the Trust Estate for the existence of Hazardous
Materials and to determine compliance with all environmental Law. Any
such inspection by Beneficiary shall not relieve Trustor of its
Obligations to comply with any applicable environmental Laws
(f) If a separate Environmental Certification and Indemnity
Agreement is given to Beneficiary in connection with the Loan, the
separate Environmental Certification and Indemnity Agreement shall
govern.
ARTICLE II
ASSIGNMENT OF RENTS
2.01 Assignment of Rents. Trustor hereby absolutely and irrevocably
assigns and transfers to Beneficiary all the Rents of the Trust Estate, and
hereby gives to and confers upon Beneficiary the right, power and authority to
collect the Rents. Trustor irrevocably appoints Beneficiary its true and lawful
attorney-in-fact, at the option of Beneficiary at any time and from time to
time, to demand, receive and enforce payment, to give receipts, releases and
satisfactions, and to sue, in the name of Trustor or Beneficiary, for all Rents
and apply the same to the payment of the Obligations in such order as
Beneficiary shall determine. Trustor hereby authorizes and directs the lessees,
tenants and occupants to make all payments under the Leases directly to
Beneficiary upon written demand by Beneficiary, without further consent of
Trustor; provided, however, that Trustor shall have the right to collect such
Rents (but not more than one (1) month in advance unless the written approval of
Beneficiary is first obtained), and to retain and enjoy same, so long as an
Event of Default shall not have occurred hereunder or under the other Loan
Documents. The Assignment of the Rents of the Trust Estate in this Article II is
intended to be an absolute assignment from Trustor to Beneficiary and not merely
the passing of a security interest.
2.02 Collection Upon an Event of Default. Upon the occurrence of an
Event of Default, Beneficiary may, at any time without notice, either in person,
by agent or by a receiver appointed by a court, and without regard to the
adequacy of any security for the Obligations, enter upon and take possession of
the Trust Estate, or any part thereof, and, with or without such entry or taking
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possession, in its own name sue for or otherwise collect the Rents (including,
without limitation, those past due and unpaid) and apply the same, less costs
and expenses of operation and collection (including, without limitation,
attorneys' fees) upon payment of the Obligations in such order as Beneficiary
may determine. The collection of such Rents, or the entering upon and taking
possession of the Trust Estate, or the application of the Rents as aforesaid,
shall not cure or waive any default or notice of default hereunder or invalidate
any act done in response to such default or pursuant to such notice of default.
Trustor also hereby authorizes Beneficiary upon such entry, at its option, to
take over and assume the management, operation and maintenance of the Trust
Estate and to perform all acts Beneficiary in its sole discretion deems
necessary and proper and to expend such sums out of Rents as may be needed in
connection therewith, in the same manner and to the same extent as Trustor
theretofore could do (including, without limitation, the right to enter into new
leases, to cancel, surrender, alter or amend the terms of, and/or renew existing
leases and/or to make concessions to tenants). Trustor hereby releases all
claims of any kind or nature against Beneficiary arising out of such management,
operation and maintenance, excepting the liability of Beneficiary to account as
hereinafter set forth.
2.03 Application of Rents. Upon such entry, Beneficiary shall, after
payment of all property charges and expenses (including, without limitation,
reasonable compensation to such managing agent as it may select and employ) and
after the accumulation of a reserve to meet requisite amounts, credit the net
amount of the Rents received by it to the Obligations, but the manner of the
application of such net income and which items shall be credited shall be
determined in the sole discretion of Beneficiary. Beneficiary shall not be
accountable for more monies than it actually receives from the Trust Estate; nor
shall it be liable for failure to collect Rents. Beneficiary shall make
reasonable efforts to collect Rents, reserving, however, within its own absolute
and sole discretion, the right to determine the method of collection and the
extent to which enforcement of collection of Rents shall be prosecuted and
Beneficiary's judgment shall be deemed conclusive and reasonable.
2.04 Mortgagee in Possession. It is not the intention of the parties
hereto that an entry by Beneficiary upon the Premises under the terms of this
instrument shall make Beneficiary a party in possession in contemplation of the
law, except at the option of Beneficiary.
2.05 No Obligation to Perform. Nothing contained herein shall operate
or be construed to obligate Beneficiary to perform any Obligations of Trustor
under any Lease (including, without limitation, any Obligation arising out of
any covenant of quiet enjoyment therein contained in the event the lessee under
any such Lease shall have been joined as a party defendant in any action to
foreclose and the estate of such lessee shall have been thereby terminated).
Prior to actual entry into and taking possession of the Premises by Beneficiary,
this assignment shall not operate to place upon Beneficiary any responsibility
for the operation, control, care, management or repair of the Trust Estate or
any portion thereof, and the execution of this assignment by Trustor shall
constitute conclusive evidence that all responsibility for the operation,
control, care, management and repair of the Trust Estate is and shall be that of
Trustor, prior to such actual entry and taking of possession.
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2.06 Permitted Leases. Notwithstanding the provisions of Section
1.12(i), Trustor may effect, modify and renew leases as may be necessary from
time to time.
2.07 Indemnity. Trustor hereby agrees to indemnify and hold harmless
Beneficiary for, from and against any and all losses, liabilities, obligations,
claims, demands, damages, penalties, judgments, costs, and expenses, including
legal fees and expenses, howsoever and by whomsoever asserted, arising out of or
in any way connected with this assignment; and all such losses, liabilities,
obligations, claims, demands, damages, penalties, judgments, costs and expenses
shall be deemed added to the indebtedness secured hereby and shall be secured by
any and all other instruments securing said indebtedness.
2.08 Separate Assignment. In the event a separate assignment of rents
and leases is given to Beneficiary in connection with the Loan, then the
separate assignment shall govern.
ARTICLE III
SECURITY AGREEMENT
3.01 Creation of Security Interest. Trustor hereby grants to
Beneficiary, a security interest in and to all the Personal Property.
3.02 Representations, Warranties and Covenants of Trustor.
Trustor hereby represents, warrants and covenants (which representations,
warranties and covenants shall survive creation of any indebtedness of Trustor
to Beneficiary and any extension of credit thereunder) as follows:
(a) The Personal Property is not used or bought for personal, family or
household purposes.
(b) The tangible portion of the Personal Property will be kept on or at
the Premises or Improvements and Trustor will not, without the prior
written consent of Beneficiary, remove the Personal Property or any
portion thereof therefrom except such portions or items of Personal
Property which are consumed or worn out in ordinary usage, all of which
shall be promptly replaced by Trustor with similar items of greater
value.
(c) At the request of Beneficiary, Trustor will join Beneficiary in
executing one or more financing statements and fixture filings pursuant
to the Uniform Commercial Code of Arizona as in effect in the State of
Arizona (Arizona Revised Statutes ("A.R.S.") Sections 47-1101 through
47-1107, as amended from time to time ("Uniform Commercial Code of
Arizona")), in form satisfactory to Beneficiary and will pay the cost
of recording and filing the same in all public offices wherever
recording or filing is deemed by Beneficiary to be necessary or
desirable.
(d) Trustor does not do business under any trade name except as
previously disclosed in writing to Beneficiary or included in the UCC
documents given
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pursuant hereto. Trustor will immediately notify Beneficiary in writing
of any change in its place of business or the adoption or change of any
trade name or fictitious business name, and will upon request of
Beneficiary, execute any additional financing statements or other
certificates necessary to reflect the adoption or change in trade name
or fictitious business name.
(e) Trustor shall immediately notify Beneficiary of any claim against
the Personal Property adverse to the interest of Beneficiary therein.
3.03 Use of Personal Property by Trustor. Until the occurrence of an
Event of Default hereunder or under any other Loan Document, Trustor may have
possession of the Personal Property and use it in any lawful manner not
inconsistent with this Deed of Trust and not inconsistent with any policy of
insurance thereon.
3.04 Remedies Upon an Event of Default.
(a) In addition to the remedies provided in Section 4.02 hereof, upon
the occurrence of an Event of Default hereunder, Beneficiary may, at
its option, do any one or more of the following:
(i) Either personally, or by means of a court appointed
receiver, take possession of all or any of the Personal
Property and exclude therefrom Trustor and all others claiming
under Trustor, and thereafter hold, store, use, operate,
manage, maintain and control, make repairs, replacements,
alterations, additions and improvements to and exercise all
rights and powers of Trustor with respect to the Personal
Property or any part thereof. In the event Beneficiary
demands, or attempts to take possession of the Personal
Property in the exercise of any rights under this Deed of
Trust, Trustor agrees to promptly turn over and deliver
possession thereof to Beneficiary;
(ii) Without notice to or demand upon Trustor, make such
payments and do such acts as Beneficiary may deem necessary to
protect its security interest in the Personal Property
(including, without limitation, paying, purchasing, contesting
or compromising any Lien or Encumbrance, whether superior or
inferior to such security interest) and in exercising any such
powers or authority to pay all expenses (including, without
limitation, litigations costs and reasonably attorney's fees)
incurred in connection therewith;
(iii) Require Trustor from time to time to assemble the
Personal Property, or any portion thereof, at a place
designated by Beneficiary and reasonably convenient to both
parties, and deliver promptly such Personal Property to
Beneficiary, or an agent or representative designated by
Beneficiary. Beneficiary, and its agents and
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representatives, shall have the right to enter upon any or all
of Trustor's premises and property to exercise Beneficiary's
rights hereunder;
(iv) Realize upon the Personal Property or any part thereof as
herein provided or in any manner permitted by law and exercise
any and all of the other rights and remedies conferred upon
Beneficiary by this Deed of Trust, any other Loan Document, or
by law, either concurrently or in such order as Beneficiary
may determine;
(v) Sell or cause to be sold in such order as Beneficiary may
determine, as a whole or in such parcels as Beneficiary may
determine, the Personal Property and the remainder of the
Trust Estate;
(vi) Sell, lease, or otherwise dispose of the Personal
Property at public sale, upon terms and in such manner as
Beneficiary may determine. Beneficiary may be a purchaser at
any sale; and
(vii) Exercise any remedies of a secured party under the
Uniform Commercial Code of Arizona or any other applicable
law.
(b) Unless the Personal Property is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized
market, Beneficiary shall give Trustor at least ten (10) days' prior
written notice of the time and place of any public sale of the Personal
Property or other intended disposition thereof to be made. Such notice
may be mailed to Trustor at the address set forth in Section 5.05.
(c) The proceeds of any sale under Section 3.04(a)(vi) shall be applied
as follows:
(i) To the repayment of the reasonable costs and expenses of
taking, holding, and preparing for the sale and the selling of
the Personal Property (including, without limitation, costs of
litigation and attorneys' fees) and the discharge of all
Impositions, Liens and Encumbrances, and claims thereof, if
any, on the Personal Property prior to the security interest
granted herein (except any Impositions or Liens and
Encumbrances subject to which such sale shall have been made);
(ii) To the payment of the Obligations in such order as
Beneficiary shall determine; and
(iii) The surplus, if any, shall be paid to the Trustor or to
whomsoever may be lawfully entitled to receive the same, or as
a court of competent jurisdiction may direct.
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Beneficiary shall have the right to enforce one or more remedies
hereunder, successively or concurrently, and such action shall not
operate to estop or prevent Beneficiary from pursuing any further
remedy that it may have. Any repossession or retaking or sale of the
Personal Property pursuant to the terms hereof shall not operate to
release Trustor until full payment of any deficiency has been made in
cash.
3.05 Security Agreement. This Deed of Trust constitutes and shall be
deemed to be a "security agreement" for all purposes of the Uniform Commercial
Code of Arizona and Beneficiary shall be entitled to all the rights and remedies
of a "secured party" under such Uniform Commercial Code of Arizona.
ARTICLE IV
REMEDIES UPON DEFAULT
4.01 Events of Default Each of the following shall constitute an event
of default ("Event of Default"):
(a) Failure by Trustor to pay any monetary amount when due under any
Loan Document and the expiration of any applicable cure period.
(b) Failure by Trustor to perform any Obligation not involving the
payment of money, or to comply with any other term or condition
applicable to Trustor, under any Loan Document, and the expiration of
thirty (30) days after written notice of such failure from Beneficiary
to Trustor.
(c) Any representation or warranty by Trustor in any Loan Document is
materially false, incorrect, or misleading as of the date made.
(d) The occurrence of any event (including, without limitation, a
change in the financial condition, business, or operations of Trustor
for any reason whatsoever) that materially and adversely affects the
ability of Trustor to perform any of its Obligations under the Loan
Documents.
(e) Trustor (i) is unable or admits in writing Trustor's inability to
pay Trustor's monetary Obligations as they become due, (ii) fails to
pay in a timely manner any monetary Obligation, whether such Obligation
be direct or contingent, to any Person in excess of Ten Thousand
Dollars ($10,000.00), (iii) makes a general assignment for the benefit
of creditors, or (iv) applies for, consents to, or acquiesces in, the
appointment of a trustee, receiver, or other custodian for Trustor or
the property of Trustor or any part thereof, or, in the absence of such
application, consent, or acquiescence, a trustee, receiver, or other
custodian is appointed for Trustor or the property of Trustor or any
part thereof, and such appointment is not discharged within thirty (30)
days.
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(f) Commencement of any case under the Bankruptcy Code, Title 11 of the
United State Code, or commencement of any other bankruptcy arrangement,
reorganization, receivership, custodianship, or similar proceeding
under any federal, state, or foreign law by or against Trustor and with
respect to any such case or proceeding that is involuntary, such case
or proceeding is not dismissed with prejudice within sixty (60) days of
the filing thereof.
(g) Any litigation or proceeding is commenced before any arbitrator,
other private adjudicator, court, government, or governmental authority
(federal, state, local, or foreign) against or affecting Trustor or the
property of Trustor or any part thereof and such litigation or
proceeding is not defended diligently and in good faith by Trustor.
(h) A final judgment or decree for monetary damages or a monetary fine
or penalty (not subject to appeal or as to which the time for appeal
has expired) is entered against Trustor by any arbitrator, other
private adjudicator, court, government, or governmental authority
(federal, state, local, or foreign), which together with the aggregate
amount of all other such judgments and decrees against Trustor that
remain unpaid or that have not been discharged or stayed, exceeds
Twenty-Five Thousand Dollars ($25,000.00), is not paid and discharged
or stayed within thirty (30) days after the entry thereof.
(i) Commencement of any action or proceeding which seeks as one of its
remedies the dissolution of Trustor.
(j) All or any part of the property of Trustor is attached, levied
upon, or otherwise seized by legal process, and such attachment, levy,
or seizure is not quashed, stayed, or released within thirty (30) days
of the date thereof.
(k) The occurrence of any Transfer, unless prior to such Transfer the
holder of the Note has delivered to Trustor the written consent of such
holder to such Transfer.
(l) The occurrence of any Event of Default, as such term is defined in
any other Loan Document.
4.02 Acceleration Upon Default; Additional Remedies. Upon the
occurrence of an Event of Default, Beneficiary may, at its option, declare all
or any part of the Obligations immediately due and payable without any
presentment, demand, protest or notice of any kind. Thereafter Beneficiary may,
in addition to the exercise of any or all of the remedies specified in Section
3.04:
(a) Either in person or by agent, with or without bringing any action
or proceeding, or by a receiver appointed by a court and without regard
to the adequacy of its security, enter upon and take possession of the
Trust Estate, or any part
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thereof, in its own name or in the name of trustee, and do any acts
that it deems necessary or desirable to preserve the value,
marketability or rentability of the Trust Estate, or any part thereof
or interest therein, increase the income therefrom or protect the
security hereof and, with or without taking possession of the Trust
Estate, sue for or otherwise collect the Rents, or any part thereof,
including, without limitation, those past due and unpaid, and apply the
same, less costs and expenses of operation and collection (including,
without limitation, attorneys' fees) upon the Obligations, all in such
order as Beneficiary may determine. The entering upon and taking
possession of the Trust Estate, the collection of such Rents and the
application thereof as aforesaid, shall not cure or waive any default
or notice of default hereunder or invalidate any act done in response
to such default or pursuant to such notice of default and,
notwithstanding the continuance in possession of all or any portion of
the Trust Estate or the collection, receipt and application of Rents,
Trustee or Beneficiary shall be entitled to exercise every right
provided for in any of the Loan Documents or by law upon occurrence of
any Event of Default, including, without limitation, the right to
exercise the power of sale;
(b) Commence an action to foreclose the lien of this Deed of Trust as a
mortgage, appoint a receiver, or specifically enforce any of the
covenants hereof;
(c) Exercise of the power of sale herein contained and deliver to
Trustee a written statement of breach, notice of default and election
to cause Trustor's interest in the Trust Estate to be sold; or
(d) Exercise all other rights and remedies provided herein, in any Loan
Document or other document or agreement now or hereafter securing or
guarantying all or any portion of the Obligations, or by law,
including, without limitation, the rights and remedies provided in
A.R.S. Section 33-702.B.
4.03 Exercise of Power of Sale. If Beneficiary elects to exercise the
power of sale herein contained, Beneficiary shall notify Trustee and shall
deposit with Trustee this Deed of Trust and the Note and such receipts and
evidence of expenditures made and secured hereby as Trustee may require.
(a) Upon receipt of such statement and notice from Beneficiary, Trustee
shall cause to be recorded, published and delivered to Trustor such
Notice of Sale as then required by law. Trustee shall, without demand
on Trustor, after lapse of such time as may then be required by law and
after recordation of such Notice of Sale and Notice of Sale having been
given as required by law, sell the Trust Estate at the time and place
of sale fixed by it in said Notice of Sale, either as a whole, or in
separate lots or parcels or items as Trustee shall deem expedient, and
in such order as it may determine, at public auction to the highest
bidder for cash in lawful money of the United States payable at the
time of sale. Trustee shall deliver to such purchaser or purchasers
thereof its good and sufficient deed or deeds conveying the property so
sold, but without any covenant or warranty, express or implied. The
recitals in such
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deed of any matters or facts shall be conclusive proof of the
truthfulness thereof. Any Person, including, without limitation,
Trustor, Trustee or Beneficiary, may purchase at such sale and Trustor
hereby covenants to warrant and defend the title of such purchaser or
purchasers.
(b) After deducting all costs, fees and expenses of Trustee and of this
Trust, including, without limitation, Trustee's fees and reasonable
attorneys' fees, and costs of evidence of title in connection with
sale, Trustee shall apply the proceeds of sale in the following
priority, to payment of: (i) first, all sums expended under the terms
of the Loan Documents, not then repaid, with accrued interest at the
Agreed Rate; (ii) second, all sums due under the Note; (iii) all other
sums, then secured hereby; and (iv) the remainder, if any, to the
Person or Persons legally entitled thereto or as provided in A.R.S.
Section 33-812 or any similar or successor statute.
(c) Subject to A.R.S. Section 33-810.B, Trustee may postpone sale of
all or any portion of the Trust Estate by public announcement at such
time and place of sale, and from time to time thereafter may postpone
such sale by public announcement or subsequently noticed sale, and
without further notice make such sale at the time fixed by the last
postponement, or may, in its discretion, give a new notice of sale.
4.04 Personal Property. It is the express understanding and intent of
the parties that as to any Personal Property interests subject to Chapter 9 of
the Uniform Commercial Code of Arizona, Beneficiary, upon an Event of Default,
may proceed under such Uniform Commercial Code of Arizona or may proceed as to
both real and personal property interests in accordance with the provisions of
this Deed of Trust and its rights and remedies in respect to real property, as
specifically permitted under A.R.S. Section 47-9501.D, and treat both real and
personal property interests as one parcel or package of security.
4.05 Appointment of Receiver. Upon the occurrence of an Event of
Default, Beneficiary, as a matter of right and without notice to Trustor or any
one claiming under Trustor, and without regard to the then value of the Trust
Estate or the interest of Trustor therein, shall have the right to apply to any
court having jurisdiction to appoint a receiver or receivers of the Trust
Estate, and Trustor hereby irrevocably consents to such appointment and waives
notice of any application therefor. Any such receiver or receivers shall have
all the usual powers and duties of receivers in like or similar cases and all
the powers and duties of Beneficiary in case of entry as provided herein and
shall continue as such and exercise all such powers until the later of the date
of confirmation of sale of the Trust Estate or the date of expiration of any
redemption period unless such receivership is sooner terminated.
4.06 Remedies Not Exclusive. Trustee and Beneficiary, and each of them,
shall be entitled to enforce payment and performance of any and all of the
Obligations and to exercise all rights and powers under the Loan Documents and
under the law now or hereafter in effect, notwithstanding some or all of the
Obligations may now or hereafter be otherwise secured or guaranteed. Neither the
acceptance of this Deed of Trust nor its enforcement, whether by court action or
pursuant to the power of sale or other rights herein contained, shall prejudice
or in any
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manner affect Trustee's or Beneficiary's right to realize upon or enforce any
other security or guaranty now or hereafter held by Trustee or Beneficiary, it
being agreed that Trustee and Beneficiary, and each of them shall be entitled to
enforce this Deed of Trust and any other security or any guaranty now or
hereafter held by Beneficiary or Trustee in such order and manner as they or
either or them may in their absolute discretion determine. No remedy herein
conferred upon or reserved to Trustee or Beneficiary is intended to be exclusive
of any other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing under the law. Every power or remedy given by any of the
Loan Documents or by law to Trustee or Beneficiary or to which either of them
may be otherwise entitled, may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by Trustee or Beneficiary
and, to the extent permitted by law, either of them may pursue inconsistent
remedies.
4.07 Request for Notice. Trustor hereby requests a copy of any notice
of default and that any notice of sale hereunder be mailed to it at the address
set forth in Section 5.05.
ARTICLE V
MISCELLANEOUS
5.01 Change, Discharge, Termination, or Waiver. No provision of this
Deed of Trust may be changed, discharged, terminated, or waived except in a
writing signed by the party against whom enforcement of the change, discharge,
termination, or waiver is sought. No failure on the part of Beneficiary to
exercise and no delay by Beneficiary in exercising any right or remedy under the
Loan Documents or under the law shall operate as a waiver thereof.
5.02 Trustor Waiver of Rights. Trustor waives, to the extent permitted
by law, (a) the benefit of all laws now existing or that may hereafter be
enacted providing for any appraisement before sale of any portion of the Trust
Estate, and (b) all rights of redemption, valuation, appraisement, stay of
execution, notice of election to mature or declare due the Obligations and
marshaling in the event of foreclosure of the liens hereby created, and (c) all
rights and remedies that Trustor may have or be able to assert by reason of the
laws of the State of Arizona pertaining to the rights and remedies of sureties
including, without limitation, A.R.S. Sections 12-1641 through 12-1646, and
Arizona Rules of Civil Procedure 17(f).
5.03 Statements by Trustor. Trustor shall, within ten (10) days after
written notice thereof from Beneficiary, deliver to Beneficiary a written
statement stating the unpaid principal of and interest on the Note and any other
amounts secured by this Deed of Trust and stating whether any offset or defense
exists against such principal and interest or such other amounts.
5.04 Reconveyance by Trustee. Upon written request of Beneficiary
stating that all Obligations have been satisfied in full, and upon surrender of
this Deed of Trust and the Note to Trustee for cancellation and retention and
upon payment by Trustor of Trustee's fees, Trustee shall reconvey to Trustor, or
to the person or persons legally entitled thereto, without warranty, any portion
of the Trust Estate then held hereunder. The recitals in such reconveyance of
any
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matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto."
5.05 Notices. Except as otherwise required by law and to the extent any
are required, all notices and demands shall be written, dated and served on all
Parties at the addresses set forth herein or as may otherwise be directed in
writing. Service shall be deemed made, if personally at the time of such
service; if by certified mail, within seventy-two (72) hours after the deposit
in the United States mail, if within the States of Arizona or California or
within one hundred twenty (120) hours after deposited in the United States mail
outside of the States of Arizona and California, provided postage is prepaid and
is properly addressed; and if by telegraph, telefacsimile or other reputable
nationally recognized common carrier service (such as Federal Express, DHL, UPS,
etc.) at the time the machine or agency confirms delivery, provided that within
two (2) days thereafter the original thereof shall have been sent by mail (as
herein provided) to the party to whom such Notice was directed. Refusal of
acceptance of any Notice served in accordance herewith shall not affect the
service thereof as otherwise provided herein. Each Party hereto shall promptly
give notice to each other Party of any change in address or number. If such
notice is not served, the notifying party(s) shall be entitled to reply upon the
address and numbers herein provided as last noticed.
To Beneficiary: 2833 North Third Street
Phoenix, Arizona 85004
To Trustor: 16600 Lago del Oro Parkway
Tucson, Arizona 85739
5.06 Acceptance by Trustee. Trustee accepts this Trust when this Deed
of Trust, duly executed and acknowledged, is made a public record as provided by
law.
5.07 Captions and References. The headings at the beginning of each
section of this Deed of Trust are solely for convenience and are not part of
this Deed of Trust. Unless otherwise indicated, each reference in this Deed of
Trust to a section or an exhibit is a reference to the respective section herein
or exhibit hereto.
5.08 Invalidity of Certain Provisions. If any provision of this Deed of
Trust is unenforceable, the enforceability of the other provisions shall not be
affected and they shall remain in full force and effect. If the lien of this
Deed of Trust is invalid or unenforceable as to any part of the debt, or if the
lien is invalid or unenforceable as to any part of the Trust Estate, the
unsecured or partially secured portion of the debt shall be completely paid
prior to the payment of the remaining and secured or partially secured portion
of the debt, and all payments made on the debt, whether voluntary or under
foreclosure or other enforcement action or procedure, shall be considered to
have been first paid on and applied to the full payment of that portion of the
debt which is not secured or fully secured by the lien of this Deed of Trust.
5.09 Subrogation. To the extent that proceeds of the Note are used to
pay any outstanding lien, charge or prior encumbrance against the Trust Estate,
such proceeds have been or
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will be advanced by Beneficiary at Trustor's request and Beneficiary shall be
subrogated to any and all rights and liens held by any owner or holder of such
outstanding liens, charges and prior encumbrances, irrespective of whether said
liens, charges or encumbrances are released.
5.10 Attorneys' Fees. If any or all of the Obligations are not paid
when due or if an Event of Default occurs, Trustor agrees to pay all costs of
enforcement and collection and preparation therefor (including, without
limitation, reasonable attorney's fees) whether or not any action or proceeding
is brought (including, without limitation, all such costs incurred in connection
with any bankruptcy, receivership, or other court proceedings (whether at the
trial or appellate level)), together with interest thereon from the date of
demand at the Agreed Rate.
5.11 Governing Law. This Trust Deed shall be governed by and construed
in accordance with the laws of the State of Arizona, without giving effect to
conflict of laws principles, and shall wherever possible be given a reasonable,
practical and workable interpretation so as to effect the general intentions of
the Parties. Neither Party shall be entitled to any advantage due to another
Party's preparation of this Trust Deed or any other related document or the
other Party's representation. In the event this Trust Deed contains any clerical
or similar errors, such as misspelled words, miscalculations, or proofreading,
computer or printing errors, and upon knowledge thereof, each party agrees to
give the other notice thereof and agrees to execute a correction therefor or, in
lieu thereof, shall be deemed amended to correct such errors.
5.12 Joint and Several Obligations. If this Deed of Trust is signed by
more than one party as Trustor, all obligations of Trustor herein shall be the
joint and several obligations of each party executing this Deed of Trust as
Trustor.
5.13 Number and Gender. In this Deed of Trust the singular shall
include the plural and the masculine shall include the feminine and neuter
gender and vice versa, if the context so requires.
5.14 Counterparts. This document may be executed and acknowledged in
counterparts, all of which executed and acknowledged counterparts shall together
constitute a single document. Signature and acknowledgment pages may be detached
from the counterparts and attached to a single copy of this document to form
physically one document, which may be recorded.
5.15 No Merger of Lease. If both the lessor's and lessee's estate under
any lease or any portion thereof which constitutes a part of the Trust Estate
shall at any time become vested in one owner, this Deed of Trust and the lien
created hereby shall not be destroyed or terminated by application of the
doctrine of merger unless Beneficiary so elects as evidenced by recording a
written declaration executed by Beneficiary so stating, and, unless and until
Beneficiary so elects, Beneficiary shall continue to have and enjoy all of the
rights and privileges of Beneficiary as to the separate estates. In addition,
upon the foreclosure of the lien created by this Deed of Trust on the Trust
Estate pursuant to the provisions hereof, any leases or subleases then existing
and affecting all or any portion of the Trust Estate shall not be destroyed or
terminated by application of the law of merger or as a matter of law or as a
result of such foreclosure unless Beneficiary or any purchaser at such
foreclosure sale shall so elect. No act by or on behalf of Beneficiary or any
such purchaser
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shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall give written notice thereof to such tenant or subtenant.
5.16 Status of Title. Trustor represents and warrants that it is the
lawful owner of the Trust Estate free and clear of all Liens and Encumbrances
and holds a fee simple estate in the Premises and Improvements, subject only to
the Permitted Exceptions and that Trustor has full right, power and authority to
convey and mortgage the same and to execute this Deed of Trust.
5.17 Integration. The Loan Documents contain the complete understanding
and agreement of Trustor and Beneficiary and supersede all prior
representations, warranties, agreements, arrangements, understandings, and
negotiations.
5.18 Binding Effect. The Loan Documents will be binding upon, and inure
to the benefit of, Trustor, Trustee and Beneficiary and their respective
successors and assigns. Trustor may not delegate its obligations under the Loan
Documents.
5.19 Time of the Essence. Time is of the essence with regard to each
provision of the Loan Documents as to which time is a factor.
5.20 Survival. The representations, warranties, and covenants of the
Trustor and the Loan Documents shall survive the execution and delivery of the
Loan Documents and the making of the Loan.
5.21 Participations. Beneficiary shall have the right at any time to
sell, assign, transfer, negotiate or grant participations in all or any part of
the Loan or the Note to one or more participants. Trustor hereby acknowledges
and agrees that any such disposition will give rise to a direct obligation of
Trustor to each such participant.
5.22 No Partnership, Fiduciary or Other Relationship. Nothing contained
in this Trust Deed is meant to establish or shall be interpreted to mean that
any relationship other than that of Beneficiary as the secured party and Trustor
as the debtor, or that any Beneficiary has or owes any Trustor or any of its
Representatives any fiduciary or other relationship or duty of trust or
disclosure. Each Trustor hereby explicitly acknowledges and warrants to
Beneficiary and each of their Representatives, that no partnership, joint
venture, fiduciary, or any of similar relationship exists or is contemplated
between the Parties.
5.23 Waiver of Trial by Jury. Each Trustor hereby expressly waives any
right to a trial by jury in any action or proceeding to enforce or defend any
rights under this Trust Deed or under any amendment, instrument, document or
agreement delivered (or which may in the future be delivered) in connection
herewith or arising from this Trust Deed. Each Trustor agrees that any such
action or proceeding shall be tried before the court and not before a jury.
5.24 Authority. Each person executing this Trust Deed on behalf of a
Party hereby represents and warrants to the other Parties that he/she has been
duly authorized by and is entitled to execute this Trust Deed on behalf of such
Party (and if requested to do so, the person executing this
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Trust Deed shall provide a certified written authorization in support thereof)
and that its respective Party has read, understood, and approved of all the
provisions of this Trust Deed and the consequences thereof.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
day and year first above written.
NEXTHEALTH, INC., a Delaware corporation
formerly SIERRA TUCSON COMPANIES, INC.,
a Delaware corporation
By: ____________________________________
WAYNE M. MORRISON
Its: Vice President/Chief Financial Officer
"Trustor"
STATE OF ARIZONA )
) ss.
County of ______________________)
The foregoing instrument was acknowledged before me this _____ day of
June, 1996, by WAYNE M. MORRISON, the Vice President/Chief Financial Officer of
NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA TUCSON COMPANIES,
INC., a Delaware corporation, on behalf of the Corporation.
----------------------
Notary Public
My Commission Expires:
- --------------------------
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<PAGE> 1
EXHIBIT 10.66
Loan No. 6869S4
SECURITY AGREEMENT
(Personal Property)
THIS SECURITY AGREEMENT is made and entered into this 25th day of June,
1996, by SIERRA TUCSON, INC., an Arizona corporation, whose offices are located
at 16500 North Lago del Oro Parkway, Tucson, Arizona 85737 (hereinafter called
"Debtor"), in favor of Mortgages Ltd., successors and assigns (hereinafter
called "Secured Party"), whose address is 2833 North Third Street, Phoenix,
Arizona 85004.
1. RECITALS
1.1 Secured Party has contemporaneously herewith made a loan to
NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA TUCSON COMPANIES,
INC., a Delaware corporation ("NEXTHEALTH") in the principal amount of Four
Million Dollars ($4,000,000.00) (the "Loan").
1.2 The Loan is evidenced by a loan agreement ("Loan Agreement") and a
promissory note ("Note").
1.3 The Loan is secured by a Deed of Trust, Assignment of Rents and
Security Agreement ("Deed of Trust") which encumbers real property more
particularly described in Exhibit "A" attached hereto and incorporated herein by
reference ("Real Property").
1.4 The Loan is guaranteed by Debtor herein and SIERRA HEALTHSTYLES,
INC., an Arizona corporation ("HEALTHSTYLES") (the "Guaranties").
1.5 NEXTHEALTH, Debtor and HEALTHSTYLES executed an Environmental
Certification and Indemnity Agreement.
1.6 The Loan Agreement requires NEXTHEALTH, Debtor and HEALTHSTYLES to
execute separate security agreements (the "Security Agreement").
1.7 The documents referenced in 1.2 through 1.6 are collectively
referred to as the ("Loan Documents").
1.8 Debtor is a wholly owned subsidiary corporation of NEXTHEALTH which
occupies a portion of the Real Property and holds title to certain assets.
1.9 The making of the Loan by Secured Party is conditioned upon
Debtor's securing the Note by giving to Secured Party a security interest in the
property described on Exhibit "B" attached hereto and incorporated herein by
reference (hereinafter called the "Collateral").
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<PAGE> 2
2. SECURITY INTEREST
2.1 In consideration of the loan described above, Debtor hereby grants
to Secured Party a security interest (hereinafter called the "Security
Interest") in the personal property described on Schedule "A" attached hereto,
and by this reference made a part hereof (hereinafter called the "Collateral").
2.2 This Security Agreement is given for the purpose of securing, in
such order of priority as Secured Party may elect:
(a) Payment of the principal sum of $4,000,000.00 together with
interest thereon according to the terms of the Note dated of
even date herewith, made by NEXTHEALTH payable to the order of
Secured Party, and all extensions, modifications, renewals or
replacements thereof.
(b) Payment, performance and observance by Debtor of each
agreement, term, provision and condition contained herein and
of all moneys expended or advanced by Secured Party pursuant
to the terms hereof, or to preserve any right of Secured Party
hereunder, or to protect or preserve the Collateral or any
part thereof;
(c) Payment and performance of any and all other indebtedness,
obligations and liabilities of Debtor, NEXTHEALTH or
HEALTHSTYLES under the Loan Documents to Secured Party of
every kind and character, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter
incurred, whether such indebtedness is from time to time
reduced and thereafter increased or entirely extinguished and
thereafter reincurred.
All of the indebtedness and obligations secured by this Security Agreement are
hereinafter collectively called the "Obligation."
3. WARRANTIES, COVENANTS AND AGREEMENTS OF DEBTOR
Debtor hereby warrants, covenants and agrees that:
3.1 Debtor shall not sell, transfer, assign or otherwise dispose of any
Collateral or any interest therein, except in the ordinary course of business,
without obtaining the prior written consent of Secured Party and shall keep the
Collateral free of all security interests or other encumbrances except the
Security Interest. Although proceeds of Collateral are covered by this Security
Agreement, this shall not be construed to mean that Secured Party consents to
any sale of such property.
3.2 Debtor shall immediately give Secured Party written notice of any
change in location of Debtor's chief executive office.
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<PAGE> 3
3.3 Debtor shall keep records concerning the Collateral in accordance
with generally accepted accounting principles and, if required by Secured Party,
shall mark its records to indicate the Security Interest.
3.4 Debtor, at its cost and expense, shall protect and defend this
Agreement, all of the rights of Secured Party hereunder and the Collateral
against all claims and demands of other parties. Debtor shall pay all claims and
charges that in the opinion of Secured Party might prejudice, imperil or
otherwise affect the Collateral or the Security Interest. Debtor shall promptly
notify Secured Party of any levy, distraint or other seizure by legal process or
otherwise of any part of the Collateral and of any threatened or filed claims or
proceedings that might in any way affect or impair the terms of this Agreement.
3.5 The Security Interest, at all times, shall be perfected and shall
be prior to any other interests in the Collateral. Debtor shall act and perform
as necessary and shall execute and file all security agreements, financing
statements, continuation statements and other documents deemed necessary by
Secured Party to establish, maintain and continue the perfected Security
Interest. Debtor, on demand, shall promptly pay all costs and expenses of filing
and recording, including the costs of any searches, deemed necessary by Secured
Party from time to time to establish and determine the validity and the
continuing priority of the Security Interest.
3.6 All rights, powers and remedies granted Secured Party herein, or
otherwise available to Secured Party, are for the sole benefit and protection of
Secured Party, and Secured Party may exercise any such right, power or remedy at
its option and in its sole and absolute discretion without any obligation to do
so. In addition, if under the terms hereof, Secured Party is given two or more
alternative courses of action, Secured Party may elect any alternative or
combination of alternatives at its option and in its sole and absolute
discretion. All monies advanced by Secured Party under the terms hereof and all
amounts paid, suffered or incurred by Secured Party in exercising any authority
granted herein, including reasonable attorneys' fees, shall be added to the
Obligation, shall be secured by the Security Interest, shall bear interest at
the highest rate payable on any of the Obligation until paid, and shall be due
and payable by Debtor to Secured Party immediately without demand.
3.7 Debtor shall furnish to Secured Party, or to any proposed assignee
of the Note and any other security for the Note, within fifteen (15) days after
request therefor, a written statement in form satisfactory to Secured Party,
duly acknowledged, certifying whether any claims, offsets or defenses exist
against this Security Agreement or any of the terms and provisions of any other
agreement securing the Obligation.
4. EVENTS OF DEFAULT; REMEDIES
4.1 The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other part
of the Obligation pursuant to the provisions contained in the
Note or Loan Documents when due.
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<PAGE> 4
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Security Agreement, the Note
or any other document or instrument executed or delivered in
connection with the Obligation and such failure or neglect
either cannot be remedied or, if it can be remedied, it
continues unremedied for a period of twenty (20) days after
written notice thereof to Debtor.
(c) Any warranty, representation or statement contained in this
Security Agreement, the Note or any other document or
instrument executed or delivered in connection with the
Obligation, or made or furnished to Secured Party by or on
behalf of Debtor, that shall be or shall prove to have been
materially false when made or furnished.
(d) The filing by Debtor, (or against Debtor) in which Debtor
acquiesces or which is not dismissed within sixty (60) days
after the filing thereof) of any proceeding under the federal
bankruptcy laws now or hereafter existing or any other similar
statute now or hereafter in effect; the entry of an order for
relief under such laws with respect to Debtor or the
appointment of a receiver, trustee, custodian or conservator
of all or any part of the assets of Debtor.
(e) The insolvency of Debtor, or the execution by Debtor, of an
assignment for the benefit of creditors; or the convening by
Debtor of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or extension or
composition of its debts; or the failure of Debtor to pay its
debts as they mature; or if Debtor is generally not paying its
debts as they mature.
(f) The admission in writing by Debtor that it is unable to pay
its debts as they mature or that it is generally not paying
its debts in a timely manner.
(g) The liquidation, termination or dissolution of Debtor, if a
corporation, partnership or joint venture, if Secured Party is
not reasonably reassured of timely payment and performance
hereunder and under the Note and all other loan documents.
(h) Any attachment, garnishment, levy or execution upon, or
judicial seizure of, any portion of the Collateral.
(i) The existence or the filing of any lien or encumbrance against
any portion of the Collateral which may impair the first lien
position of secured party.
(j) The institution of any legal action or proceedings which are
not diligently and actively contested by Debtor to enforce a
lien or security interest in any portion of the Collateral
provided however, Sundt Corp. may commence an action relating
to its Mechanics Lien.
(k) The abandonment by Debtor of all or any part of the
Collateral.
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<PAGE> 5
(l) The occurrence of any event of default under any of the Note,
the Loan Agreement, the Deed of Trust or any other document or
instrument executed or delivered in connection with the
Obligation.
(m) The occurrence of any event of default under any document or
instrument given by Debtor in connection with any other
indebtedness of Debtor to Secured Party.
4.2 Upon the occurrence of any Event of Default and at any time
thereafter while such Event of Default is continuing, Secured Party shall have
the following rights and remedies and may do one or more of the following:
(a) Declare all or any part of the Obligation including any or all
of the Note immediately due and payable, and the same, with
all costs and charges, shall be collectible thereupon by
action at law.
(b) Without further notice or demand and without legal process,
take possession of the Collateral.
(c) Pursue any legal remedy available to collect the Obligation,
to enforce its title in and right to possession of the
Collateral and to enforce any and all other rights or remedies
available to it.
(d) Upon obtaining possession of the Collateral or any part
thereof, after notice to Debtor as provided in paragraph 4.4
herein, sell such Collateral at public or private sale either
with or without having such Collateral at the place of sale.
The proceeds of such sale, after deducting therefrom all
expenses of Secured Party in taking and selling the Collateral
(including reasonable attorneys' fees) shall be applied to the
payment of the Obligation, and any surplus thereafter
remaining shall be paid to Debtor or any other person that may
be legally entitled thereto. In the event of a deficiency
between such net proceeds from the sale of the Collateral and
the total amount of the Obligation, Debtor, upon demand, shall
promptly pay the amount of such deficiency to Secured Party.
4.3 Secured Party, so far as may be lawful, may purchase all or any
part of the Collateral offered at any public or private sale made in the
enforcement of Secured Party's rights and remedies hereunder.
4.4 Secured Party shall give Debtor reasonable notice of any sale or
other disposition of all or any part of the Collateral. Debtor agrees that
notice and demand shall be deemed to be commercially reasonable and effective if
such notice is given to Debtor at least five (5) days prior to such sale or
other disposition in the manner provided herein for the giving of notices.
4.5 Debtor shall pay all costs and expenses, including without
limitation costs of Uniform Commercial Code searches, court costs and reasonable
attorneys' fees, incurred in enforcing payment and performance of the Obligation
or in exercising the right and remedies of
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<PAGE> 6
Secured Party hereunder. Such court costs and attorneys' fees shall be set by
the court and not by jury, shall be included in any judgment obtained by Secured
Party, shall be added to the Obligation and shall be secured by this Security
Agreement.
4.6 In addition to the remedies provided herein for an Event of
Default, Secured Party shall have all the rights and remedies afforded a secured
party under the Uniform Commercial Code and all other legal and equitable
remedies allowed under applicable law. No failure on the part of Secured Party
to exercise any of its rights hereunder arising upon any Event of Default shall
be construed to prejudice its rights upon the occurrence of any other or
subsequent Event of Default. No delay on the part of Secured Party in exercising
any such rights shall be construed to preclude it from the exercise thereof any
time during the continuance of that Event of Default. Secured Party may enforce
any one or more remedies or rights hereunder successively or concurrently. By
accepting payment or performance of any of the Obligation after its due date,
Secured Party shall not thereby waive the agreement contained herein that time
is of the essence, nor shall Secured party waive either its right to require
prompt payment or performance when due of the remainder of the Obligation or its
right to consider the failure to so pay or perform an Event of Default.
5. MISCELLANEOUS PROVISIONS
5.1 The acceptance of this Security Agreement by Secured Party shall
not be considered a waiver of or in any way to affect or impair any other
security that Secured Party may have, acquire simultaneously herewith, or
hereafter acquire for the payment or performance of the Obligation, nor shall
the taking by Secured Party at any time of any such additional security be
construed as a waiver of, or in any way to affect or impair, the Security
interest; Secured Party may resort, for the payment or performance of the
Obligation, to its several securities therefor in such order and manner as it
may determine.
5.2 Without notice or demand, without affecting the obligations of
Debtor hereunder or the personal liability of any person for payment or
performance of the Obligation, and without affecting the Security Interest or
the priority thereof, Secured Party, from time to time, may: (i) extend the time
for payment of all or any part of the Obligation, accept a renewal note
therefor, reduce the payments thereon, release any person liable for all or any
part thereof, or otherwise change the terms of all or any part of the
Obligation; (ii) take and hold other security for the payment or performance of
the Obligation and enforce, exchange, substitute, subordinate, waive or release
any such security; (iii) join in any extension or subordination agreement; or
(iv) release any part of the Collateral from the Security Interest.
5.3 Debtor waives and agrees not to assert: (i) any right to require
Secured Party to proceed against any guarantor, to proceed against or exhaust
any other security for the Obligation, to pursue any other remedy available to
Secured Party, or to pursue any remedy in any particular order or manner; (ii)
the benefits of any statute of limitations affecting the enforcement hereof;
(iii) demand, diligence, presentment for payment, protest and demand, and notice
of extension, dishonor, protest, demand and nonpayment, relating to the
Obligation; and (iv) any benefit of, and any right to participate in, any other
security now or hereafter held by Secured Party.
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<PAGE> 7
5.4 Until an Event of Default, Debtor may retain possession of the
Collateral and may use it in any lawful manner not inconsistent with this
Security Agreement.
5.5 The terms herein shall have the meanings in and be construed under
the Uniform Commercial Code. This Agreement shall be governed by and construed
in accordance with the laws of the State of Arizona. Each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be void or
invalid, the same shall not affect the remainder hereof which shall be effective
as though the void or invalid provision had not been contained herein.
5.6 No modification, rescission, waiver, release or amendment of any
provision of this Security Agreement shall be made except by a written agreement
subscribed by Debtor and a duly authorized officer of Secured Party.
5.7 This Security Agreement shall remain in full force and effect until
all of the Obligation shall have been paid and performed in full.
5.8 No offset or claim that Debtor now has or may in the future have
against Secured Party shall relieve Debtor from paying or performing the
Obligation.
5.9 Time is of the essence hereof. This Security Agreement applies to,
inures to the benefit of, and binds all parties hereto, their heirs, personal
representatives, successors and assigns. The term "Secured Party" shall include
not only the original Secured Party hereunder but also any future owner and
holder, including pledgees, of the Note. The provisions hereof shall apply to
the parties according to the context thereof and without regard to the number or
gender of words or expressions used.
5.10 All notices required or permitted to be given hereunder shall be
in writing, and shall become effective five (5) days after such are deposited
with the United States Postal Service, certified or registered, postage prepaid,
addressed as shown above, or to such other address as such party may, from time
to time, designate in writing.
5.11 A carbon, photographic or other reproduced copy of this Security
Agreement and/or any financing statement relating hereto shall be sufficient for
filing and/or recording as a financing statement.
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
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IN WITNESS WHEREOF, this Security Agreement has been executed and
delivered on behalf of and in the name of Debtor on the date indicated above.
SIERRA TUCSON, INC., an Arizona
corporation
By: ________________________
JOHN H. SCHMITZ
Its: President
DEBTOR
STATE OF ARIZONA )
) ss
County of ______________________)
The foregoing instrument was acknowledged before me this ______ day of
June, 1996, by JOHN H. SCHMITZ, the President of SIERRA TUCSON, INC., an Arizona
corporation, who acknowledged that (s)he executed the foregoing instrument for
the purposes herein contained on behalf of such corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ------------------------------ ------------------------------
My Commission Expires Notary Public
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<PAGE> 1
EXHIBIT 10.67
Loan No. 6869S4
SECURITY AGREEMENT
(Personal Property)
THIS SECURITY AGREEMENT is made and entered into this 25th day of June,
1996, by SIERRA HEALTHSTYLES, INC., an Arizona corporation, whose offices are
located at 5000 Via Estancia Mirabal, Catalina, Arizona 85739 (hereinafter
called "Debtor"), in favor of Mortgages Ltd., successors and assigns
(hereinafter called "Secured Party"), whose address is 2833 North Third Street,
Phoenix, Arizona 85004.
1. RECITALS
1.1 Secured Party has contemporaneously herewith made a loan to
NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA TUCSON COMPANIES,
INC., a Delaware corporation ("NEXTHEALTH") in the principal amount of Four
Million Dollars ($4,000,000.00) (the "Loan").
1.2 The Loan is evidenced by a loan agreement ("Loan Agreement") and a
promissory note ("Note").
1.3 The Loan is secured by a Deed of Trust, Assignment of Rents and
Security Agreement ("Deed of Trust") which encumbers real property more
particularly described in Exhibit "A" attached hereto and incorporated herein by
reference ("Real Property").
1.4 The Loan is guaranteed by Debtor herein and SIERRA TUCSON, INC., an
Arizona corporation ("SIERRA") (the "Guaranties").
1.5 NEXTHEALTH, Debtor and SIERRA executed an Environmental
Certification and Indemnity Agreement.
1.6 The Loan Agreement requires NEXTHEALTH, Debtor and SIERRA to
execute separate security agreements (the "Security Agreement").
1.7 The documents referenced in 1.2 through 1.6 are collectively
referred to as the ("Loan Documents").
1.8 Debtor is a wholly owned subsidiary corporation of NEXTHEALTH which
occupies a portion of the Real Property and holds title to certain assets.
1.9 The making of the Loan by Secured Party is conditioned upon
Debtor's securing the Note by giving to Secured Party a security interest in the
property described on Exhibit "B" attached hereto and incorporated herein by
reference (hereinafter called the "Collateral").
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2. SECURITY INTEREST
2.1 In consideration of the loan described above, Debtor hereby grants
to Secured Party a security interest (hereinafter called the "Security
Interest") in the personal property described on Schedule "A" attached hereto,
and by this reference made a part hereof (hereinafter called the "Collateral").
2.2 This Security Agreement is given for the purpose of securing, in
such order of priority as Secured Party may elect:
(a) Payment of the principal sum of $4,000,000.00 together with
interest thereon according to the terms of the Note dated of
even date herewith, made by NEXTHEALTH payable to the order of
Secured Party, and all extensions, modifications, renewals or
replacements thereof.
(b) Payment, performance and observance by Debtor of each
agreement, term, provision and condition contained herein and
of all moneys expended or advanced by Secured Party pursuant
to the terms hereof, or to preserve any right of Secured Party
hereunder, or to protect or preserve the Collateral or any
part thereof;
(c) Payment and performance of any and all other indebtedness,
obligations and liabilities of Debtor, NEXTHEALTH or SIERRA
under the Loan Documents to Secured Party of every kind and
character, direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter incurred, whether
such indebtedness is from time to time reduced and thereafter
increased or entirely extinguished and thereafter reincurred.
All of the indebtedness and obligations secured by this Security Agreement are
hereinafter collectively called the "Obligation."
3. WARRANTIES, COVENANTS AND AGREEMENTS OF DEBTOR
Debtor hereby warrants, covenants and agrees that:
3.1 Debtor shall not sell, transfer, assign or otherwise dispose of any
Collateral or any interest therein, except in the ordinary course of business,
without obtaining the prior written consent of Secured Party and shall keep the
Collateral free of all security interests or other encumbrances except the
Security Interest. Although proceeds of Collateral are covered by this Security
Agreement, this shall not be construed to mean that Secured Party consents to
any sale of such property.
3.2 Debtor shall immediately give Secured Party written notice of any
change in location of Debtor's chief executive office.
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<PAGE> 3
3.3 Debtor shall keep records concerning the Collateral in accordance
with generally accepted accounting principles and, if required by Secured Party,
shall mark its records to indicate the Security Interest.
3.4 Debtor, at its cost and expense, shall protect and defend this
Agreement, all of the rights of Secured Party hereunder and the Collateral
against all claims and demands of other parties. Debtor shall pay all claims and
charges that in the opinion of Secured Party might prejudice, imperil or
otherwise affect the Collateral or the Security Interest. Debtor shall promptly
notify Secured Party of any levy, distraint or other seizure by legal process or
otherwise of any part of the Collateral and of any threatened or filed claims or
proceedings that might in any way affect or impair the terms of this Agreement.
3.5 The Security Interest, at all times, shall be perfected and shall
be prior to any other interests in the Collateral. Debtor shall act and perform
as necessary and shall execute and file all security agreements, financing
statements, continuation statements and other documents deemed necessary by
Secured Party to establish, maintain and continue the perfected Security
Interest. Debtor, on demand, shall promptly pay all costs and expenses of filing
and recording, including the costs of any searches, deemed necessary by Secured
Party from time to time to establish and determine the validity and the
continuing priority of the Security Interest.
3.6 All rights, powers and remedies granted Secured Party herein, or
otherwise available to Secured Party, are for the sole benefit and protection of
Secured Party, and Secured Party may exercise any such right, power or remedy at
its option and in its sole and absolute discretion without any obligation to do
so. In addition, if under the terms hereof, Secured Party is given two or more
alternative courses of action, Secured Party may elect any alternative or
combination of alternatives at its option and in its sole and absolute
discretion. All monies advanced by Secured Party under the terms hereof and all
amounts paid, suffered or incurred by Secured Party in exercising any authority
granted herein, including reasonable attorneys' fees, shall be added to the
Obligation, shall be secured by the Security Interest, shall bear interest at
the highest rate payable on any of the Obligation until paid, and shall be due
and payable by Debtor to Secured Party immediately without demand.
3.7 Debtor shall furnish to Secured Party, or to any proposed assignee
of the Note and any other security for the Note, within fifteen (15) days after
request therefor, a written statement in form satisfactory to Secured Party,
duly acknowledged, certifying whether any claims, offsets or defenses exist
against or against this Security Agreement or any of the terms and provisions of
any other agreement securing the Obligation.
4. EVENTS OF DEFAULT; REMEDIES
4.1 The occurrence of any of the following events or conditions shall
constitute and is hereby defined to be an "Event of Default":
(a) Any failure to pay any principal or interest or any other part
of the Obligation pursuant to the provisions contained in the
Note or Loan Documents when due.
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<PAGE> 4
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Security Agreement, the Note
or any other document or instrument executed or delivered in
connection with the Obligation and such failure or neglect
either cannot be remedied or, if it can be remedied, it
continues unremedied for a period of twenty (20) days after
written notice thereof to Debtor.
(c) Any warranty, representation or statement contained in this
Security Agreement, the Note or any other document or
instrument executed or delivered in connection with the
Obligation, or made or furnished to Secured Party by or on
behalf of Debtor, that shall be or shall prove to have been
materially false when made or furnished.
(d) The filing by Debtor, (or against Debtor) in which Debtor
acquiesces or which is not dismissed within sixty (60) days
after the filing thereof) of any proceeding under the federal
bankruptcy laws now or hereafter existing or any other similar
statute now or hereafter in effect; the entry of an order for
relief under such laws with respect to Debtor or the
appointment of a receiver, trustee, custodian or conservator
of all or any part of the assets of Debtor.
(e) The insolvency of Debtor, or the execution by Debtor, of an
assignment for the benefit of creditors; or the convening by
Debtor of a meeting of its creditors, or any class thereof,
for purposes of effecting a moratorium upon or extension or
composition of its debts; or the failure of Debtor to pay its
debts as they mature; or if Debtor is generally not paying its
debts as they mature.
(f) The admission in writing by Debtor that it is unable to pay
its debts as they mature or that it is generally not paying
its debts in a timely manner.
(g) The liquidation, termination or dissolution of Debtor, if a
corporation, partnership or joint venture, if Secured Party is
not reasonably reassured of timely payment and performance
hereunder and under the Note and all other loan documents.
(h) Any attachment, garnishment, levy or execution upon, or
judicial seizure of, any portion of the Collateral.
(i) The existence or the filing of any lien or encumbrance against
any portion of the Collateral which may impair the first lien
position of secured party.
(j) The institution of any legal action or proceedings which are
not diligently and actively contested by Debtor to enforce a
lien or security interest in any portion of the Collateral
provided however, Sundt Corp. may commence an action relating
to its Mechanics Lien.
(k) The abandonment by Debtor of all or any part of the
Collateral.
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<PAGE> 5
(l) The occurrence of any event of default under any of the Note,
the Loan Agreement, the Deed of Trust or any other document or
instrument executed or delivered in connection with the
Obligation.
(m) The occurrence of any event of default under any document or
instrument given by Debtor in connection with any other
indebtedness of Debtor to Secured Party.
4.2 Upon the occurrence of any Event of Default and at any time
thereafter while such Event of Default is continuing, Secured Party shall have
the following rights and remedies and may do one or more of the following:
(a) Declare all or any part of the Obligation including any or all
of the Note immediately due and payable, and the same, with
all costs and charges, shall be collectible thereupon by
action at law.
(b) Without further notice or demand and without legal process,
take possession of the Collateral.
(c) Pursue any legal remedy available to collect the Obligation,
to enforce its title in and right to possession of the
Collateral and to enforce any and all other rights or remedies
available to it.
(d) Upon obtaining possession of the Collateral or any part
thereof, after notice to Debtor as provided in paragraph 4.4
herein, sell such Collateral at public or private sale either
with or without having such Collateral at the place of sale.
The proceeds of such sale, after deducting therefrom all
expenses of Secured Party in taking and selling the Collateral
(including reasonable attorneys' fees) shall be applied to the
payment of the Obligation, and any surplus thereafter
remaining shall be paid to Debtor or any other person that may
be legally entitled thereto. In the event of a deficiency
between such net proceeds from the sale of the Collateral and
the total amount of the Obligation, Debtor, upon demand, shall
promptly pay the amount of such deficiency to Secured Party.
4.3 Secured Party, so far as may be lawful, may purchase all or any
part of the Collateral offered at any public or private sale made in the
enforcement of Secured Party's rights and remedies hereunder.
4.4 Secured Party shall give Debtor reasonable notice of any sale or
other disposition of all or any part of the Collateral. Debtor agrees that
notice and demand shall be deemed to be commercially reasonable and effective if
such notice is given to Debtor at least five (5) days prior to such sale or
other disposition in the manner provided herein for the giving of notices.
4.5 Debtor shall pay all costs and expenses, including without
limitation costs of Uniform Commercial Code searches, court costs and reasonable
attorneys' fees, incurred in enforcing payment and performance of the Obligation
or in exercising the right and remedies of
-5-
<PAGE> 6
Secured Party hereunder. Such court costs and attorneys' fees shall be set by
the court and not by jury, shall be included in any judgment obtained by Secured
Party, shall be added to the Obligation and shall be secured by this Security
Agreement.
4.6 In addition to the remedies provided herein for an Event of
Default, Secured Party shall have all the rights and remedies afforded a secured
party under the Uniform Commercial Code and all other legal and equitable
remedies allowed under applicable law. No failure on the part of Secured Party
to exercise any of its rights hereunder arising upon any Event of Default shall
be construed to prejudice its rights upon the occurrence of any other or
subsequent Event of Default. No delay on the part of Secured Party in exercising
any such rights shall be construed to preclude it from the exercise thereof any
time during the continuance of that Event of Default. Secured Party may enforce
any one or more remedies or rights hereunder successively or concurrently. By
accepting payment or performance of any of the Obligation after its due date,
Secured Party shall not thereby waive the agreement contained herein that time
is of the essence, nor shall Secured party waive either its right to require
prompt payment or performance when due of the remainder of the Obligation or its
right to consider the failure to so pay or perform an Event of Default.
5. MISCELLANEOUS PROVISIONS
5.1 The acceptance of this Security Agreement by Secured Party shall
not be considered a waiver of or in any way to affect or impair any other
security that Secured Party may have, acquire simultaneously herewith, or
hereafter acquire for the payment or performance of the Obligation, nor shall
the taking by Secured Party at any time of any such additional security be
construed as a waiver of, or in any way to affect or impair, the Security
interest; Secured Party may resort, for the payment or performance of the
Obligation, to its several securities therefor in such order and manner as it
may determine.
5.2 Without notice or demand, without affecting the obligations of
Debtor hereunder or the personal liability of any person for payment or
performance of the Obligation, and without affecting the Security Interest or
the priority thereof, Secured Party, from time to time, may: (i) extend the time
for payment of all or any part of the Obligation, accept a renewal note
therefor, reduce the payments thereon, release any person liable for all or any
part thereof, or otherwise change the terms of all or any part of the
Obligation; (ii) take and hold other security for the payment or performance of
the Obligation and enforce, exchange, substitute, subordinate, waive or release
any such security; (iii) join in any extension or subordination agreement; or
(iv) release any part of the Collateral from the Security Interest.
5.3 Debtor waives and agrees not to assert: (i) any right to require
Secured Party to proceed against any guarantor, to proceed against or exhaust
any other security for the Obligation, to pursue any other remedy available to
Secured Party, or to pursue any remedy in any particular order or manner; (ii)
the benefits of any statute of limitations affecting the enforcement hereof;
(iii) demand, diligence, presentment for payment, protest and demand, and notice
of extension, dishonor, protest, demand and nonpayment, relating to the
Obligation; and (iv) any benefit of, and any right to participate in, any other
security now or hereafter held by Secured Party.
-6-
<PAGE> 7
5.4 Until an Event of Default, Debtor may retain possession of the
Collateral and may use it in any lawful manner not inconsistent with this
Security Agreement.
5.5 The terms herein shall have the meanings in and be construed under
the Uniform Commercial Code. This Agreement shall be governed by and construed
in accordance with the laws of the State of Arizona. Each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be void or
invalid, the same shall not affect the remainder hereof which shall be effective
as though the void or invalid provision had not been contained herein.
5.6 No modification, rescission, waiver, release or amendment of any
provision of this Security Agreement shall be made except by a written agreement
subscribed by Debtor and a duly authorized officer of Secured Party.
5.7 This Security Agreement shall remain in full force and effect until
all of the Obligation shall have been paid and performed in full.
5.8 No offset or claim that Debtor now has or may in the future have
against Secured Party shall relieve Debtor from paying or performing the
Obligation.
5.9 Time is of the essence hereof. Debtor's liability for the payment
of the indebtedness or the performance of the obligations evidenced by or
created or arising under the Loan or Note shall be limited to its interest in
the Real Property and the collateral. Any judgment or any action brought to
enforce the obligations of Debtor shall be enforceable against Debtor only to
the extent of its interest in the Real Property and the collateral and any such
judgment shall not be subject to execution on nor be a lien on the assets of
Debtor other than its interest in the Real Property and the collateral. This
Security Agreement applies to, inures to the benefit of, and binds all parties
hereto, their heirs, personal representatives, successors and assigns. The term
"Secured Party" shall include not only the original Secured Party hereunder but
also any future owner and holder, including pledgees, of the Note. The
provisions hereof shall apply to the parties according to the context thereof
and without regard to the number or gender of words or expressions used.
5.10 All notices required or permitted to be given hereunder shall be
in writing, and shall become effective five (5) days after such are deposited
with the United States Postal Service, certified or registered, postage prepaid,
addressed as shown above, or to such other address as such party may, from time
to time, designate in writing.
5.11 A carbon, photographic or other reproduced copy of this Security
Agreement and/or any financing statement relating hereto shall be sufficient for
filing and/or recording as a financing statement.
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Security Agreement has been executed and
delivered on behalf of and in the name of Debtor on the date indicated above.
SIERRA HEALTHSTYLES, INC.,
an Arizona corporation
By: _____________________________
Its: _____________________________
DEBTOR
STATE OF ARIZONA )
) ss
County of ______________________)
The foregoing instrument was acknowledged before me this ______ day of
June, 1996, by ____________________, the ______________________ of SIERRA
HEALTHSTYLES, INC., an Arizona corporation, who acknowledged that (s)he executed
the foregoing instrument for the purposes herein contained on behalf of such
corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ------------------------------ ------------------------------
My Commission Expires Notary Public
-8-
<PAGE> 1
EXHIBIT 10.68
Loan No. 6869S4
G U A R A N T Y
DATED: June 25, 1996
PARTIES:
Guarantor:
Name: SIERRA TUCSON, INC., an Arizona corporation
Address: 16500 North Lago del Oro Parkway
Tucson, Arizona 85739
called "Guarantor", guaranteeing payment and performance by
Principal Debtor:
Name: NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA
TUCSON COMPANIES, INC., a Delaware corporation
Address: 16600 North Lago del Oro Parkway
Tucson, Arizona 85739
called "Debtor" to
Creditor:
Name: MORTGAGES LTD., an Arizona corporation
Address: 2833 North Third Street
Phoenix, Arizona 85004
called "Creditor";
GUARANTY: 1. The Guarantor unconditionally guarantees and promises to pay and to
perform to the Creditor, or order, on demand, the debt and other related
obligations owed the Creditor by the Debtor described as follows:
The payment of all sums to be paid and the performance of all acts to be
performed by Principal Debtor under that Promissory Note dated of even date
herewith, secured by a certain Deed of Trust in the principal sum aggregating
Four Million Dollars ($4,000,000.00), and executed in favor of Creditor, and its
successors and assigns, together with all obligations and performances of Debtor
due pursuant to the terms of the "Loan Agreement" and all other documents and
instruments executed in connection with the Promissory Note and Loan Agreement
(all said obligations and performances are collectively referred to as the "The
Debt").
-1-
<PAGE> 2
GUARANTY
IRREVOCABLE: 2. This Guaranty is irrevocable. Guarantor guarantees the full
payment and performance of the Debt without limitation of any kind.
CONSIDERATION: 3. Guarantor acknowledges that this Guaranty is given for
valuable consideration to the Guarantor, whether or not given directly to the
Guarantor. This Guaranty is given as an inducement to the Creditor to continue
to extend credit to Debtor which, but for this Guaranty, the Credit would not
have been extended.
GUARANTY
COMPREHENSIVE: 4. This Guaranty applies to the Debt in the most comprehensive
sense including continuations or extensions of the Debt, increases or decreases
in the amount of the Debt, renewals of the Debt and changes in any of the terms
and conditions of the Debt.
GUARANTY
INDEPENDENT: 5. This Guaranty is the absolute and unconditional obligation of
the Guarantor and is in addition to and independent of the obligations of the
Debtor to the Creditor.
WAIVERS: 6. Guarantor waives each of the following:
a) Any right to require the Creditor to make presentments or demands or
to give notices of any kind, including, without limitation, demand for
performance, notice of non-performance, protest, notice of protest, notice of
dishonor, notice of acceptance of this Guaranty, notice of the existence,
creation or incurrence of existing or of new debt, notice of modification,
payment, default or change or action of any kind relating to the Debt
guaranteed.
b) Any defense to liability on this Guaranty based on any disability or
other defense of the Debtor or based upon any cessation of the liability of the
Debtor to the Creditor for any reason other than the payment of the Debt in
full.
c) Any right to require the Creditor to proceed against the Debtor.
d) Any right to require the Creditor to proceed against any security
held from the Debtor or from the Guarantor.
e) The benefit of any statute of limitations pertaining to the Debt or
to the Guaranty or affecting Guarantor's liability on this Guaranty or its
enforcement.
f) The benefits of any statutory provision limiting the liability of a
surety, including without limitation, the provisions of Sections 12-1641 et.
seq., of the Arizona Revised Statutes.
CONSENTS: 7. Guarantor consents that the Creditor, without affecting Guarantor's
liability, may take any one or more of the following actions, at any one or more
times:
a) Renew, compromise, extend, accelerate or otherwise change the time
for payment of, or the terms of, all or any part of the Debt.
-2-
<PAGE> 3
b) Take security for the payment of this Guaranty or for payment of the
Debt, or both, and exchange, enforce, alter or release all or any part of any
security.
c) Add, release or substitute any one or more Guarantors.
d) Assign the Debt in whole or part. This Guaranty shall automatically
and proportionately follow any assignment of the Debt.
REMEDIES OF
CREDITOR: 8. Upon i) failure of Debtor to pay any part of the Debt when due, or
ii) failure of the Debtor to meet any obligation to the Creditor relating to the
Debt, or iii) the initiation of any bankruptcy or insolvency proceedings by
Debtor or by the Guarantor, or iv) the institution of any bankruptcy or
insolvency proceedings against the Debtor or the Guarantor, or the seizure or
retention of any of the property of the Debtor or of the Guarantor under claim
of lien or by legal action, unless such proceeding, seizure or retention is
dismissed, released, stayed or bonded against within ten (10) days or is being
diligently and in good faith contested by appropriate proceedings, or v) any
stated intention by the Debtor or by the Guarantor to default in payment or in
performance of the Debt or upon this Guaranty, or any other circumstance
reasonably indicating to the Creditor the inability or unwillingness of the
Debtor or of the Guarantor to pay the Debt or to perform on this Guaranty; the
Creditor, at its option, may do any one or more of the following, separately or
concurrently and at any one or more times:
a) Declare the entire amount of the Debt immediately due and payable.
b) Reinstate the Debt in good standing upon payment of all delinquent
payments, including accrued interest on delinquent payments, and performance of
any other obligations of the Debtor in default.
c) Proceed against the Debtor.
d) Proceed against any security held from the Debtor or from Guarantor.
e) Have from Guarantor the payment of all or any part of Debt, or the
performance of any other obligation of the Debt or both.
f) Maintain a lien upon, and right of setoff against, all money or
other property of Guarantor which may be in or come into the possession or
control of the Creditor, however held. The Creditor may exercise this lien or
setoff without demand upon or notice to Guarantor. No act by the Creditor, or
neglect or delay in acting, will waive the Creditor's rights of lien and setoff,
except a specific written waiver by the Creditor.
g) Take any other action permitted by law.
The Creditor may exercise any of its remedies either or both by suit or
without. The Creditor may proceed against the Debtor, or one or more Guarantors,
or both the Debtor and one or more Guarantors, in any combination, at one or
more times, and in one or more ways or suits. In all cases, and in addition to
the Debt guaranteed, the Guarantor is liable to the Creditor for the
-3-
<PAGE> 4
Creditor's costs of enforcement of this Guaranty, including reasonable
attorney's fees, whether or not suit is brought.
DEATH: 9. This Guaranty is binding upon the Guarantor, its successors and
assigns, until payment is made in full of the Debt.
SUBORDINATION: 10. The Guarantor subordinates to the Debt owed by the Debtor to
the Creditor any and all present or future debt of the Debtor owed to the
Guarantor. Any payment of debt by the Debtor to the Guarantor, on demand by the
Creditor to the Guarantor, shall be held by the Guarantor as trustee for the
Creditor and paid over to the Creditor on account of the Debt of the Debtor to
the Creditor, but without reducing the liability of the Guarantor to the
Creditor under this Guaranty except to the extent of such payment over.
RIGHT TO PURCHASE: 11. The Creditor agrees that Guarantors may at any time
purchase the Notes and have assigned the Deeds of Trust upon the payment to
Creditor of all sums due under the Notes or secured by the Mortgage, including
reasonable attorney's fees.
MISCELLANEOUS: 12. a) The Creditor need not inquire into the power of Debtor or
of its officers, directors, or agents purporting to act on behalf of Debtor; and
the Debt created in reliance upon the professed exercise of such powers is
guaranteed by the Guarantor.
b) Notices and demands to the Guarantor may be given to the
Guarantor at the address of the Guarantor shown on the first page. Payments,
notices and demands are to be made or given to the Creditor at the address of
the Creditor shown on the first page. Either may change its address for these
purposes by giving prior written notice to the other party. Notices and demands
given by registered or certified mail are effective when mailed; but if given
otherwise are effective when received.
. . . . . . . . . . . .
. . . . . . . . . . . .
c) The word "Guarantor" refers to the above-named Guarantor
and to any additional persons who may hereafter be added as Guarantors of the
Debt, in which case this Guaranty will bind all Guarantors jointly and
severally.
SIERRA TUCSON, INC., an Arizona
corporation
By: _____________________________
JOHN H. SCHMITZ
Its: President
"Guarantor"
-4-
<PAGE> 5
STATE OF ARIZONA )
) ss
County of _________________)
The foregoing instrument was acknowledged before me this ______ day of
June, 1996, by JOHN H. SCHMITZ, the President of SIERRA TUCSON, INC., an Arizona
corporation, who acknowledged that he executed the foregoing instrument for the
purposes herein contained on behalf of such corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ------------------------------ ------------------------------
My Commission Expires Notary Public
-5-
<PAGE> 1
EXHIBIT 10.69
Loan No. 6869S4
G U A R A N T Y
DATED: June 25, 1996
PARTIES:
Guarantor:
Name: SIERRA HEALTHSTYLES, INC., an Arizona corporation
Address: 5000 Via Estancia Miraval
Catalina, Arizona 85737
called "Guarantor", guaranteeing payment and performance by
Principal Debtor:
Name: NEXTHEALTH, INC., a Delaware corporation, formerly SIERRA
TUCSON COMPANIES, INC., a Delaware corporation
Address: 16600 North Lago del Oro Parkway
Tucson, Arizona 85739
called "Debtor" to
Creditor:
Name: MORTGAGES LTD., an Arizona corporation
Address: 2833 North Third Street
Phoenix, Arizona 85004
called "Creditor";
GUARANTY: 1. The Guarantor unconditionally guarantees and promises to pay and to
perform to the Creditor, or order, on demand, the debt and other related
obligations owed the Creditor by the Debtor described as follows:
The payment of all sums to be paid and the performance of all acts to be
performed by Principal Debtor under that Promissory Note dated of even date
herewith, secured by a certain Deed of Trust in the principal sum aggregating
Four Million Dollars ($4,000,000.00), and executed in favor of Creditor, and its
successors and assigns, together with all obligations and performances of Debtor
due pursuant to the terms of the "Loan Agreement" and all other documents and
instruments executed in connection with the Promissory Note and Loan Agreement
(all said obligations and performances are collectively referred to as the "The
Debt").
-1-
<PAGE> 2
GUARANTY
IRREVOCABLE: 2. This Guaranty is irrevocable. Guarantor guarantees the full
payment and performance of the Debt without limitation of any kind.
CONSIDERATION: 3. Guarantor acknowledges that this Guaranty is given for
valuable consideration to the Guarantor, whether or not given directly to the
Guarantor. This Guaranty is given as an inducement to the Creditor to continue
to extend credit to Debtor which, but for this Guaranty, the Credit would not
have been extended.
GUARANTY
COMPREHENSIVE: 4. This Guaranty applies to the Debt in the most comprehensive
sense including continuations or extensions of the Debt, increases or decreases
in the amount of the Debt, renewals of the Debt and changes in any of the terms
and conditions of the Debt.
GUARANTY
INDEPENDENT: 5. This Guaranty is the absolute and unconditional obligation of
the Guarantor and is in addition to and independent of the obligations of the
Debtor to the Creditor.
WAIVERS: 6. Guarantor waives each of the following:
a) Any right to require the Creditor to make presentments or demands or
to give notices of any kind, including, without limitation, demand for
performance, notice of non-performance, protest, notice of protest, notice of
dishonor, notice of acceptance of this Guaranty, notice of the existence,
creation or incurrence of existing or of new debt, notice of modification,
payment, default or change or action of any kind relating to the Debt
guaranteed.
b) Any defense to liability on this Guaranty based on any disability or
other defense of the Debtor or based upon any cessation of the liability of the
Debtor to the Creditor for any reason other than the payment of the Debt in
full.
c) Any right to require the Creditor to proceed against the Debtor.
d) Any right to require the Creditor to proceed against any security
held from the Debtor or from the Guarantor.
e) The benefit of any statute of limitations pertaining to the Debt or
to the Guaranty or affecting Guarantor's liability on this Guaranty or its
enforcement.
f) The benefits of any statutory provision limiting the liability of a
surety, including without limitation, the provisions of Sections 12-1641 et.
seq., of the Arizona Revised Statutes.
CONSENTS: 7. Guarantor consents that the Creditor, without affecting Guarantor's
liability, may take any one or more of the following actions, at any one or more
times:
a) Renew, compromise, extend, accelerate or otherwise change the time
for payment of, or the terms of, all or any part of the Debt.
-2-
<PAGE> 3
b) Take security for the payment of this Guaranty or for payment of the
Debt, or both, and exchange, enforce, alter or release all or any part of any
security.
c) Add, release or substitute any one or more Guarantors.
d) Assign the Debt in whole or part. This Guaranty shall automatically
and proportionately follow any assignment of the Debt.
REMEDIES OF
CREDITOR: 8. Upon i) failure of Debtor to pay any part of the Debt when due, or
ii) failure of the Debtor to meet any obligation to the Creditor relating to the
Debt, or iii) the initiation of any bankruptcy or insolvency proceedings by
Debtor or by the Guarantor, or iv) the institution of any bankruptcy or
insolvency proceedings against the Debtor or the Guarantor, or the seizure or
retention of any of the property of the Debtor or of the Guarantor under claim
of lien or by legal action, unless such proceeding, seizure or retention is
dismissed, released, stayed or bonded against within ten (10) days or is being
diligently and in good faith contested by appropriate proceedings, or v) any
stated intention by the Debtor or by the Guarantor to default in payment or in
performance of the Debt or upon this Guaranty, or any other circumstance
reasonably indicating to the Creditor the inability or unwillingness of the
Debtor or of the Guarantor to pay the Debt or to perform on this Guaranty; the
Creditor, at its option, may do any one or more of the following, separately or
concurrently and at any one or more times:
a) Declare the entire amount of the Debt immediately due and payable.
b) Reinstate the Debt in good standing upon payment of all delinquent
payments, including accrued interest on delinquent payments, and performance of
any other obligations of the Debtor in default.
c) Proceed against the Debtor.
d) Proceed against any security held from the Debtor or from Guarantor.
e) Have from Guarantor the payment of all or any part of Debt, or the
performance of any other obligation of the Debt or both.
f) Maintain a lien upon, and right of setoff against, all money or
other property of Guarantor which may be in or come into the possession or
control of the Creditor, however held. The Creditor may exercise this lien or
setoff without demand upon or notice to Guarantor. No act by the Creditor, or
neglect or delay in acting, will waive the Creditor's rights of lien and setoff,
except a specific written waiver by the Creditor.
g) Take any other action permitted by law.
The Creditor may exercise any of its remedies either or both by suit or
without. The Creditor may proceed against the Debtor, or one or more Guarantors,
or both the Debtor and one or more Guarantors, in any combination, at one or
more times, and in one or more ways or suits. In all cases, and in addition to
the Debt guaranteed, the Guarantor is liable to the Creditor for the
-3-
<PAGE> 4
Creditor's costs of enforcement of this Guaranty, including reasonable
attorney's fees, whether or not suit is brought.
DEATH: 9. This Guaranty is binding upon the Guarantor, its successors and
assigns, until payment is made in full of the Debt.
SUBORDINATION: 10. The Guarantor subordinates to the Debt owed by the Debtor to
the Creditor any and all present or future debt of the Debtor owed to the
Guarantor. Any payment of debt by the Debtor to the Guarantor, on demand by the
Creditor to the Guarantor, shall be held by the Guarantor as trustee for the
Creditor and paid over to the Creditor on account of the Debt of the Debtor to
the Creditor, but without reducing the liability of the Guarantor to the
Creditor under this Guaranty except to the extent of such payment over.
RIGHT TO PURCHASE: 11. The Creditor agrees that Guarantors may at any time
purchase the Notes and have assigned the Deeds of Trust upon the payment to
Creditor of all sums due under the Notes or secured by the Mortgage, including
reasonable attorney's fees.
MISCELLANEOUS: 12. a) The Creditor need not inquire into the power of Debtor or
of its officers, directors, or agents purporting to act on behalf of Debtor; and
the Debt created in reliance upon the professed exercise of such powers is
guaranteed by the Guarantor.
b) Notices and demands to the Guarantor may be given to the
Guarantor at the address of the Guarantor shown on the first page. Payments,
notices and demands are to be made or given to the Creditor at the address of
the Creditor shown on the first page. Either may change its address for these
purposes by giving prior written notice to the other party. Notices and demands
given by registered or certified mail are effective when mailed; but if given
otherwise are effective when received.
. . . . . . . . . . . .
. . . . . . . . . . . .
c) The word "Guarantor" refers to the above-named Guarantor
and to any additional persons who may hereafter be added as Guarantors of the
Debt, in which case this Guaranty will bind all Guarantors jointly and
severally.
SIERRA HEALTHSTYLES, INC., an
Arizona corporation
By: _____________________________
JOHN H. SCHMITZ
Its: President
"Guarantor"
-4-
<PAGE> 5
STATE OF ARIZONA )
) ss
County of ______________________)
The foregoing instrument was acknowledged before me this ______ day of
June, 1996, by JOHN H. SCHMITZ, the President of SIERRA HEALTHSTYLES, INC., an
Arizona corporation, who acknowledged that he executed the foregoing instrument
for the purposes herein contained on behalf of such corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
- ------------------------------ ------------------------------
My Commission Expires Notary Public
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND THE UNAUDITED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,942
<SECURITIES> 0
<RECEIVABLES> 1,566
<ALLOWANCES> (338)
<INVENTORY> 462
<CURRENT-ASSETS> 4,528
<PP&E> 49,733
<DEPRECIATION> (8,945)
<TOTAL-ASSETS> 46,760
<CURRENT-LIABILITIES> 9,485
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 31,244
<TOTAL-LIABILITY-AND-EQUITY> 46,760
<SALES> 9,247
<TOTAL-REVENUES> 9,464
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,781
<LOSS-PROVISION> (177)
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> (5,248)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,248)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,248)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
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