UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QA/NO.1
(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, 1998
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, 1998, there were 8,554,938 shares of the registrant's Common
Stock outstanding.
Reference is made to the listing beginning on page 15 of all exhibits filed
as a part of this report.
<PAGE>
NEXTHEALTH, INC.
FORM 10-QA/NO.1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited Consolidated Statements of Operations for the three and
six-month periods ended June 30, 1998 and 1997. . . . . . . . . 4
Unaudited Consolidated Statements of Cash Flows for the six-month
periods ended June 30, 1998 and 1997. . . . . . . . . . . . . . 5
Unaudited Consolidated Statements of Changes in Stockholders'
Equity for the six-month period ended June 30, 1998 . . . . . . 6
Unaudited Notes to the Consolidated Financial Statements. . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 10
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of Security Holders . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
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,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents . . . . . . . . . . . . $ 747 $ 829
Accounts receivable, less allowance for doubtful
accounts of $398 and $390, respectively . . 725 954
Prepaid expenses . . . . . . . . . . . . . . 294 232
Other current assets . . . . . . . . . . . . 455 567
--------- ----------
Total current assets . . . . . . . . . . . 2,221 2,582
Property and equipment, net . . . . . . . . . 35,153 35,918
Long-term receivables, less allowance for doubtful
accounts of $52 and $50, respectively. . . . 156 151
Intangible assets, less amortization of $223 and
$158, respectively . . . . . . . . . . . . . 334 322
Other assets. . . . . . . . . . . . . . . . . 38 38
--------- ----------
Total assets . . . . . . . . . . . . . . . $ 37,902 $ 39,011
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade . . . . . . . . . . $ 620 $ 838
Accrued expenses and other liabilities. . . 5,947 6,638
--------- ----------
Total current liabilities. . . . . . . . . 6,567 7,476
Long-term debt and financing obligation . . . 9,039 9,730
--------- ----------
Total liabilities. . . . . . . . . . . . . 15,606 17,206
Stockholders' Equity:
Preferred stock-undesignated, $.01 par value,
3,924,979 shares authorized, no shares
outstanding . . . . . . . . . . . . . . . -- --
Preferred stock, Series A, $.01 par value,
46,065 shares authorized; 46,065 shares
outstanding at June 30, 1998 and
December 31, 1997, respectively. . . . . . -- --
Common stock, $.01 par value, 16,000,000
shares authorized; 8,554,938 shares
outstanding at June 30, 1998 and
December 31, 1997, respectively . . . . . 86 86
Additional paid-in capital. . . . . . . . . 47,997 47,997
Accumulated deficit . . . . . . . . . . . . (25,787) (26,278)
---------- ---------
Total stockholders' equity . . . . . . . . 22,296 21,805
---------- ---------
Total liabilities and stockholders'equity $ 37,902 $ 39,011
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000s, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Net operating revenue . . . . . . $ 7,122 $ 5,359 $13,884 $ 11,089
Other revenue . . . . . . . . . . 201 126 286 195
-------- -------- ------- --------
Total net revenue . . . . . . . 7,323 5,485 14,170 11,284
Operating expenses:
Salaries and related benefits . . 3,385 3,080 6,459 6,171
General and administrative. . . . 2,719 2,755 5,230 5,187
Depreciation and amortization . . 636 651 1,272 1,308
Interest expense . . . . . . . . 365 264 718 518
-------- -------- ------- ---------
Total operating expenses . . . 7,105 6,750 13,679 13,184
-------- -------- ------- ---------
Income (loss) before income taxes . 218 (1,265) 491 (1,900)
Income tax provision (benefit). . . -- -- -- --
-------- -------- ------- ---------
Net income (loss) . . . . . . . . . $ 218 $(1,265) $ 491 $ (1,900)
========= ======== ======= =========
Shares used in diluted per share
calculation . . . . . . . . . . . 13,346,559 8,554,938 13,253,883 8,554,938
========== ========= ========== =========
Shares used in basic per share
calculation . . . . . . . . . . . 8,554,938 8,554,938 8,554,938 8,554,938
========== ========= ========== =========
Diluted income (loss) per common
share . . . . . . . . . . . . . . $ .02 $ (0.15) $ 0.04 $ (0.22)
========== ========= ========== ==========
Basic income (loss) per common
share . . . . . . . . . . . . . . $ .03 $ (0.15) $ 0.06 $ (0.22)
========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000s)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . $ 491 $ (1,900)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . 1,321 1,357
Provision for bad debts . . . . . . . . . . . . 102 217
Minority Interest . . . . . . . . . . . . . . . 39 30
Changes in operating assets and liabilities:
Decrease (increase) in assets:
Accounts receivable . . . . . . . . . .. . . . . 123 161
Other assets . . . . . . . . . . . . . .. . . . . ( 28) 375
Increase (decrease) in liabilities:
Accounts payable, accrued expenses
and other liabilities . . . . . . . . .. . . . . (948) (1,499)
--------- ---------
Net cash provided by (used in) operating activities. . 1,100 (1,259)
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . (442) ( 245)
--------- ---------
Net cash used in investing activities . . . . . . . . (442) ( 245)
Cash flows from financing activities:
Proceeds from long-term borrowings . . . . . . . . . -- 600
Reduction of long-term borrowings and
financing obligation . . . . . . . . . . . . . . . (740) ( 54)
--------- ---------
Net cash (used in) provided by financing activities. . (740) 546
--------- ---------
Net decrease in cash and equivalents. . . . . . . . . ( 82) ( 958)
Cash and equivalents at beginning of period. . . . . . 829 1,373
--------- ---------
Cash and equivalents at end of period. . . . . . . . . $ 747 $ 415
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NEXTHEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(000s, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Stockholder's
Cost Shares Capital Deficit Equity
---- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 $ 86 8,554,938 $ 47,997 $ (26,278) $ 21,805
Net income for the
six months ended
June 30, 1998 -- -- -- 491 491
---- --------- --------- ----------- -----------
Balance at
June 30, 1998 $ 86 8,554,938 $ 47,997 $ (25,787) $ 22,296
==== ========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
NEXTHEALTH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(000s)
(Unaudited)
NOTE 1 - ORGANIZATION
NextHealth, Inc. is a leading provider of addiction treatment and
therapeutic services, as well as programs and activities for a life-changing
vacation alternative in a luxury resort setting. 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, Sierra Tucson, LLC, owns Sierra TucsonTM, ("Sierra Tucson") an
inpatient, state licensed psychiatric hospital and behavioral health
care center for the treatment of substance abuse and a broad range of
mental health and behavioral health disorders. The Health and Leisure
segment, Sierra Health-Styles, Inc., owns Miraval ("Miraval"), a
unique vacation experience blending stress management and self-discovery
programs in a luxury resort environment.
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, 1997. The accompanying interim consolidated
financial statements as of June 30, 1998 and for the three and six-month
periods ended June 30, 1998 and 1997 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, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. The
operations of Miraval appear to be seasonal, and although seasonally
adjusted rates were offered in 1997 and 1998, occupancy levels fell off
during the summer months. Miraval was closed for two weeks in July
1997 and for three weeks in July 1998 in response to the seasonal
fluctuation in consumer demand as well as to permit certain renovations
and improvements to the facilities.
NOTE 3 - NET INCOME (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
128, Earnings per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to
the previously computed fully diluted earnings per share. The net
income (loss) per share amounts previously reported by the Company are
now reported as basic income (loss) per share, as such amounts were
historically calculated excluding the dilutive (or anti-dilutive) effect
of options, warrants and convertible securities. Diluted earnings per
share are equal to basic earnings per share for the three and six-month
periods ending June 30, 1997, as the effect of all applicable securities
is anti-dilutive (decrease the loss per share amount). Shares used in
the diluted per share calculation for the three and six-month periods
ending June 30, 1998 are as stated below:
<TABLE>
<CAPTION>
Three-month period Six-month period
ended June 30, 1998 ended June 30, 1998
------------------- -------------------
<S> <C> <C>
Common shares 8,554,938 8,554,938
Convertible preferred shares 4,606,500 4,606,500
Dilutive options 42,206 32,337
Dilutive warrants 142,915 60,108
----------- ------------
Diluted shares 13,346,559 13,253,883
=========== ============
</TABLE>
<PAGE>
NOTE 4 - SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information, which is effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. The Company has elected to
voluntarily provide segment disclosures in its interim financial
statements in the initial year of application.
The Company operates in two principal business segments; Treatment, and
Health and Leisure through which it provides both health care and
wellness and preventive health services. The Treatment segment, Sierra
Tucson, is 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.
Substantially all revenues are derived from inpatient charges, therapy,
professional fees and pharmacy charges. The Health and Leisure segment,
Miraval, offers a unique vacation experience blending stress management
and self-discovery programs in a luxury resort environment.
Substantially all revenues result from guest bookings, group bookings
and retail charges. No single customer accounted for more than 10% of
either of the principal business segment's revenue in the period ending
June 30, 1998 or 1997.
Information about the Company's operations in different business
segments for the three and six-month periods ending June 30, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
Corporate
Health & and
Treatment Leisure Other Items Consolidated
--------- -------- ----------- ------------
Three-month period ended June 30, 1998
-----------------------------------------------
<S> <C> <C> <C> <C>
Total Revenue $ 3,616 $ 3,564 $ 143 $ 7,323
Income (loss) before 1,170 ( 358) ( 594) 218
income tax benefit
Identifiable assets 4,174 29,504 4,224 37,902
Capital expenditures 246 109 1 356
Depreciation & amortization 73 499 64 636
expense
Interest expense 1 0 364 365
Six-month period ended June 30, 1998
----------------------------------------------
Total Revenue $ 6,558 $ 7,442 $ 170 $ 14,170
Income (loss) before 1,926 ( 130) (1,305) 491
income tax benefit
Identifiable assets 4,174 29,504 4,224 37,902
Capital expenditures 275 166 1 442
Depreciation & amortization 149 994 129 1,272
expense
Interest expense 1 0 717 718
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Corporate
Health & and
Treatment Leisure Other Items Consolidated
--------- -------- ----------- ------------
Three-month period ended June 30, 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
Total Revenue $ 3,012 $ 2,408 $ 65 $ 5,485
Income (loss) before 800 ( 1,251) ( 814) (1,265)
income tax benefit
Identifiable assets 4,422 30,697 3,772 38,891
Capital expenditures 11 102 38 151
Depreciation & amortization 94 490 67 651
expense
Interest expense 1 0 263 264
Six-month period ended June 30, 1997
-------------------------------------------------
Total Revenue $ 5,903 $ 5,290 $ 91 $ 11,284
Income (loss) before 1,512 (1,799) (1,613) (1,900)
income tax benefit
Identifiable assets 4,422 30,697 3,772 38,891
Capital expenditures and 64 169 12 245
intersegment transfers, net
Depreciation & amortization 193 978 137 1,308
expense
Interest expense 1 0 517 518
</TABLE>
NOTE 5- INCOME TAXES
No provision for income taxes was recorded in the three or six-month
periods ended June 30, 1998 due to the existence of deferred tax assets
(net operating loss carryforwards) not previously benefited.
NOTE 6 - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, Reporting Comprehensive Income, on
January 1, 1998. At present, the Company does not have any account
balances which cause comprehensive income (loss) to differ from net
income (loss).
NOTE 7 - RECLASSIFICATIONS
Certain prior period amounts in the unaudited consolidated financial
statements have been reclassified to conform to the presentation used in
second quarter 1998.
<PAGE>
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, 1998.
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 addiction treatment and
therapeutic services, as well as programs and activities for a life-changing
vacation alternative in a luxury resort setting. 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, Sierra Tucson, is a state licensed, special psychiatric
hospital and behavioral health care center for the treatment of
substance abuse and a broad range of mental health and behavioral health
disorders. The Health and Leisure segment, Miraval, is a unique
vacation experience blending stress management and self-discovery
programs in a luxury resort environment.
The Company, as part of its long range plan, believes that it has
positioned itself to capitalize on the emerging health and leisure
segment of the health care services industry by developing Miraval, a
luxury health and leisure 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,
1998, the Treatment segment accounted for approximately 46% of the
Company's operating revenues and approximately 34% of operating expenses
while the Health and Leisure segment accounted for approximately 53% of
the Company's operating revenue and approximately 55% of operating
expenses.
RESULTS OF OPERATIONS
Three-month period ended June 30, 1998 compared to three-month period
ended June 30, 1997
The significant changes in results of operations and net cash provided
by (used in) operating activities for the three-month period ended June
30, 1998, compared to the same period in 1997 are discussed below.
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------
1998 1997 % Change
---- ---- ---------
<S> <C> <C> <C>
Financial results:
(000s, except per share amounts)
Total net revenue . . . . . . . . . . . $ 7,323 $ 5,485 33.5 %
Total operating expenses . . . . . . . . 7,105 6,750 5.3 %
Net income (loss) . . . . . . . . . . . 218 (1,265) --
Basic income (loss) per common share . . .03 ( 0.15) --
Net cash provided by (used in) . . . . . 502 ( 576) --
operating activities
Operating data:
Patient days - Sierra Tucson . . . . . . 5,379 4,486 20.0 %
Average daily census - Sierra Tucson . . 59 49 20.4 %
Guest days - Miraval . . . . . . . . . . 9,624 6,938 38.7 %
Average daily guest count - Miraval. . . 106 76 39.5 %
Room occupancy - Miraval . . . . . . . . 65.9% 50.4% 30.8 %
</TABLE>
<PAGE>
For the three-month period ended June 30, 1998, net income increased to
$218,000 compared to a net loss of $1.3 million for the same period of
1997; an improvement of $1.5 million. Net cash provided by operating
activities increased to $502,000 compared to net cash used in operating
activities of $576,000 in second quarter 1997; a $1.1 million
improvement.
Total net revenue increased $1.8 million to $7.3 million, an increase of
33.5% when compared to the same period in 1997. Results reflect
increased revenues from the operations of both Miraval and Sierra
Tucson.
Salaries and related benefits increased $305,000 to $3.4 million, when
compared to the same period in 1997. The increase was attributable to
staffing adjustments related to higher occupancy at Miraval and
increased census at Sierra Tucson.
General and administrative expense decreased $36,000 to $2.7 million, a
decrease of 1.3% when compared to the same period in 1997. The decrease
reflects continued Company-wide cost control efforts.
Interest expense increased $101,000 to $365,000 due to additional draws
under the stand-by loan commitment and an increase in interest rate in
November 1997 to 11% from 10%.
The Company recognized a pre-tax income of $218,000 for the three month
period ended June 30, 1998. No provision or benefit for income taxes
was recorded during this period due to the existence of deferred tax
assets not yet previously benefited.
Six-month period ended June 30, 1998 compared to six-month period ended
June 30, 1997
The significant changes in results of operations and net cash provided
by (used in) operating activities for the six-month period ended June
30, 1998, compared to the same period in 1997 are discussed below.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1998 1997 % Change
---- ---- --------
<S> <C> <C> <C>
Financial results:
(000's except per share amounts)
Total net revenue . . . . . . . . . . . $ 14,170 $ 11,284 25.6%
Total operating expenses. . . . . . . . 13,679 13,184 3.8%
Net income (loss) . . . . . . . . . . . 491 ( 1,900) --
Basic income (loss) per common share. . .06 ( 0.22) --
Net cash provided by (used in). . . . . 1,100 ( 1,259) --
operating activities
Operating data:
Patient days - Sierra Tucson. . . . . . 9,704 8,865 9.5%
Average daily census - Sierra Tucson. . 54 49 10.2%
Guest days - Miraval. . . . . . . . . . 18,000 14,380 25.2%
Average daily guest count - Miraval . . 99 79 25.3%
Room occupancy - Miraval. . . . . . . . 63.6% 52.3% 21.6%
</TABLE>
For the six-month period ended June 30, 1998, net income increased $2.4
million to $491,000 compared to a net loss of $1.9 million for the same
period of 1997. Net cash provided by operating activities increased to
$1.1 compared to net cash used in operating activities of $1.3 million;
a $2.4 million improvement over the same period of 1997.
Total net revenue for the six-month period ended June 30, 1998 increased
$2.9 million, or 25.6% to $14.2 million when compared to the same period
of 1997. The increase is attributable to a 41% increase in net revenue
at Miraval and an 11.0% net revenue increase at Sierra Tucson.
<PAGE>
Salaries and related benefits increased $288,000 to $6.5 million or 4.7%
when compared to 1997. The increase is due primarily to staffing
adjustments related to increased utilization at both Miraval and Sierra
Tucson.
General and administrative expense increased $42,000 or 0.8% to $5.2
million when compared to the same period in 1997.
Interest expense increased $200,000 to $718,000 when compared to the
same period in 1997, due to additional draws under the stand-by loan
commitment and an increase in interest rate in November 1997 to 11% from
10%.
The Company recognized a pre-tax income of $491,000 for the six-month
period ended June 30, 1998. No provision or benefit for income taxes
was recorded during this period due to the existence of deferred tax
assets not yet previously benefitted.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources have
typically been net cash provided by the operating activities of the
Treatment segment and the Health and Leisure segment, funds generated
from the sale of investments, proceeds from public and private equity
offerings and short-term borrowings. 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 is
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, 1998. Net cash
provided by the Health and Leisure segment's operating activities is
primarily affected by room occupancy, average daily rate, and
seasonality. Although the Health and Leisure segment operated at a
negative cash flow during the three-month period ended June 30, 1998, it
provided positive cash flow to the Company's operations during the six-month
period ended June 30, 1998.
Sierra Tucson continues to experience pressure from third party payors
and managed care review organizations to restrict patient access to and
payment for treatment services. Consequently, the Treatment segment's
operational focus will be to continue to attempt to attract a high
percentage of retail patients. Sierra Tucson has implemented a case
management system to increase the potential for third party
reimbursement of services. During this period, 48% of patient revenue
was derived from retail payments and the remaining 52% from third party
payors. Based on current census levels and operating expenses, Sierra
Tucson believes that it will generate adequate cash flows to sustain the
Treatment segment's ongoing operational requirements.
Building market awareness and acceptance of a new unique vacation
concept requires time. Vacation travel is a conservative purchase due
to cost and the allocation of the traveler's most precious resource -
leisure time. Marketing initiatives for creating marketplace awareness
and demand for Miraval's services resulted in a room occupancy rate of
approximately 65.9% for the three-month period ended June 30, 1998.
Customer acceptance plays a key role in determining these results.
Management believes that as marketplace demand for the Miraval product
increases, the Health and Leisure segment will ultimately make a
significant contribution to the Company's financial condition.
For the three-month period ended June 30, 1998, the Company had capital
expenditures of approximately $442,000. The expenditures were primarily
related to the relocation of Sierra Tucson to the facilities previously
used by the Company's adolescent care unit (which ceased operations in
1993). At June 30, 1998, the Company's cash and equivalents were
$747,000.
<PAGE>
On August 11, 1998, the Company (through its principal subsidiaries)
completed a debt refinancing loan agreement with Lehman Brothers
Holdings, Inc. The amount of the three-year loan is $14 million, of
which $2.0 million is reserved for working capital ($1.0 million) and
for capital improvements ($1.0 million). $700,000 of the working
capital portion will be available in 1998 and $300,000 in 1999.
Proceeds from the transaction will also be used to extinguish existing
mortgage debt with AP LOM, LLC, an affiliate of AP NH, LLC, the holder
of the Company's outstanding Series A Preferred Stock. (See Part II,
Item 5 - Other Information) Management believes that funds from
operations combined with the funds available from the Lehman transaction
will provide the cash necessary to meet its short-term capital needs.
However, it is necessary for the Company to increase occupancy levels in
its lines of business, and to implement additional cost controls to
ensure 1998 operating losses do not exceed an amount sustainable by
these funds. Insufficient occupancy levels at Miraval or any
significant decrease in Sierra Tucson's patient levels would adversely
affect the Company's financial position, results of operations and cash
flows.
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is
developing a plan to resolve the issue. The Year 2000 problem is the
result of computer programs being written using two digits (rather than
four) to define the applicable year. Any of the Company's programs that
have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The Company presently estimates the cost
(including both software and hardware) to correct the Year 2000 problem
to be immaterial to the financial position, results of operations or
cash flows of the Company.
BUSINESS OUTLOOK
Performance in the Treatment segment (Sierra Tucson) will be driven by
continued cost control efforts as well as new marketing initiatives.
Emphasis will be placed on increasing patient census through a
combination of innovative treatment programs and focused advertising,
direct mail, field sales and outbound telemarketing campaigns.
Clinically, Sierra Tucson's programs have been strengthened
considerably, including a restructuring of the Eating Disorders Program,
the reformatting of the Sexual Recovery/Trauma Program, and the
expansion of Fitness services to provide more individual and group
attention to patients. The range of treatment modalities has increased
so as to offer acupuncture, EMDR (Eye Movement Desensitization
Reprocessing) and cognitive behavioral approaches. With the
establishment of a consulting relationship with a specialist in the area
of comprehensive neuropsychological testing, Sierra Tucson's assessment
and diagnostic capabilities have been expanded to meet the demand of
professional review organizations such as state medical boards, state
bar associations, clergy, etc. Sierra Tucson will continue its
traditional marketing efforts to the referent therapist community, and
look for continued growth in the number of prospective patients.
In July 1998, the Company relocated the Sierra Tucson operations to the
facilities previously used by the Company's adolescent care unit (which
ceased operations in 1993). The relocation will initially provide 63
beds which is less than the previous availability of 70 beds. The
relocation will facilitate future expansion of both Sierra Tucson and
Miraval should market conditions justify and capital be available for
such expansions. Zoning for the property currently occupied by Miraval
and the property previously occupied by Sierra Tucson was recently
amended to permit a total of 356 resort hotel rooms and up to 226
residential units.
Miraval, the Company's health and leisure resort, has been in operation
since December, 1995. The resort continues to receive favorable press
coverage and was named in the Top Ten Spas of the World in the September
1997 issue of Conde Nast Traveler. Other exposure includes such
prestigious names as the New York Times, the Wall Street Journal, USA
Today, and Good Morning America.
The operations of Miraval appear to be seasonal, and although seasonally
adjusted rates were offered in 1997 and 1998, occupancy levels fell off
during the summer months. Miraval was closed for two weeks in July 1997
and for three weeks in July 1998 in response to the seasonal
fluctuation in consumer demand as well as to permit certain renovations
and improvements to the facilities.
<PAGE>
With the improvement of meeting facilities at Miraval, marketing
initiatives, aimed at high level corporate and incentive groups, have
been enhanced. The Miraval message will be delivered through a blend of
direct sales and advertising -- including print, data base-driven mail,
and public relations activities.
Management's strategy for Miraval is to continuously improve its unique
program structure based on guest feedback. Increased focus on the
return guest will play a key role in assuring that this highly desirable
market segment continues to grow. Operational quality and attention to
detail will be critical factors in ensuring continued word-of-mouth
advertising -- the single largest source for attracting new business.
Cost containment measures will continue to be a critical management
objective. Management believes that variable staffing relative to
seasonal occupancy fluctuations, a more structured program format, and
focusing on all aspects of operational quality should allow the Company
to further improve efficiencies and cash flow.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations 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.
The Company's Treatment segment participates in the highly competitive
mental and behavioral health industry, and faces competition for market
share resulting from aggressive pricing practices and increasing
competition from companies with greater resources. Some of these
competitors have tax exempt, non-profit status, are government
subsidized or have endowment-related financial support which may provide
lower costs of capital.
Miraval represents a benchmark for the new and growing trend in
hospitality for lifestyle enhancing products. Although competitive
market data is available for the "spa" category, Miraval's unique
blending of luxury resort recreational activities with stress management
and self-discovery programs clearly differentiates it from a spa.
Because of Miraval's relatively short history, the Company cannot
project with a high degree of accuracy the future levels of occupancy or
revenue. While the Company believes that there is strong consumer
demand for Miraval's products and services, the historical data does not
exist to be certain the current trends will continue. Management
believes that the existing capital resources of the Company combined
with the funds provided by the Lehman transaction, are sufficient to
meet its short-term capital needs.
While management believes that Miraval occupies a unique market niche,
it nevertheless competes in the resort hotel/spa industry. Currently,
its competitors have greater name recognition as well as long-standing
relationships with travel agents and meeting planners. Market share
must be obtained from competitors and from introducing new customers to
the benefits of the Miraval product. Longevity in the marketplace plays
a key role in attaining credibility in this highly competitive field.
Management cannot anticipate what impact this will have on future
occupancy levels.
While the Company anticipates continued growth in revenues and is
committed to a return to profitability, operating results could be
adversely impacted if the business is unable to accurately anticipate
customer demand, is unable to differentiate its products from those of
its competitors, is unable to offer services expeditiously in response
to customer demand, or is negatively impacted by managed care
restrictions on payor reimbursement.
<PAGE>
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 Stockholders was held on May 21, 1998.
The Company's stockholders elected Mr. William T. O'Donnell, Jr. and Mr.
Stephen L. Berger as directors, selected Ernst & Young LLP as the
Company's independent auditors for the fiscal year ended December 31,
1998, and approved an amendment to the Non-Employee Directors Stock
Option Plan to increase the number of shares available in the Plan by an
additional 300,000 shares.
ITEM 5. OTHER INFORMATION
On August 11, 1998, the Company's principal subsidiaries, Sierra
HealthStyles, Inc., a Delaware corporation ("HealthStyles"), and Sierra
Tucson, LLC, a Delaware limited liability company ("Sierra"), borrowed
the aggregate amount of $14,000,000 (the "Loan") from Lehman Brothers
Holdings Inc. ("Lender"). $12,000,000 of the Loan was funded at
closing, of which $11,100,000 was used to satisfy the Company's
indebtedness to AP LOM, LLC. HealthStyles owns the real property and
other assets comprising Miraval, and Sierra owns the assets comprising
Sierra Tucson. Approximately $1,000,000 of the Loan will be available
for working capital in 1998 and 1999, and $1,000,000 will be available
for capital improvements to Sierra Tucson and Miraval.
The Loan matures in three (3) years, bears interest at the rate of 4%
over the 30-day London Interbank Offered Rate (LIBOR), adjusted monthly,
and is payable interest-only through maturity. The LIBOR rate at date
of closing was 5.65%.
The Loan is secured by a first lien against all real and personal
property of HealthStyles and will be guaranteed by the assets of Sierra.
It is also partially guaranteed (to the extent of liability arising by
reason of certain exclusions to the non-recourse provisions of the loan)
by the Company and to a more limited extent by Apollo Real Estate
Investment Fund II, L.P. ("Apollo"). Apollo, an affiliate of AP NH,
LLC, the holder of the outstanding Series A Preferred Stock of the
Company, received a fee in the amount of $140,000 in consideration of
its guarantee.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.86 Loan Agreement made by Sierra Health-Styles, Inc., and
Sierra Tucson, L.L.C. in favor of Lehman Brothers Holdings Inc.
10.87 Mortgage Note made by Sierra Health-Styles, Inc., and Sierra
Tucson, L.L.C. in favor of Lehman Brothers Holdings Inc.
b) Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NextHealth, Inc.
--------------------------------
Registrant
DATE: September 17, 1998 BY: /s/ William T. O'Donnell, Jr.
----------------------------------
WILLIAM T. O'DONNELL, JR.
President and Chief Executive Officer
DATE: September 17, 1998 BY: /s/ Loree Thompson
----------------------------------
LOREE THOMPSON
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements for the six-month period ended June
30, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 747
<SECURITIES> 0
<RECEIVABLES> 1,123
<ALLOWANCES> 398
<INVENTORY> 0
<CURRENT-ASSETS> 2,221
<PP&E> 47,705
<DEPRECIATION> 12,552
<TOTAL-ASSETS> 37,902
<CURRENT-LIABILITIES> 6,567
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,296
<TOTAL-LIABILITY-AND-EQUITY> 37,902
<SALES> 0
<TOTAL-REVENUES> 14,170
<CGS> 0
<TOTAL-COSTS> 11,587
<OTHER-EXPENSES> 1,272
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 718
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<EPS-PRIMARY> .06
<EPS-DILUTED> .04
</TABLE>
LOAN AGREEMENT
between
LEHMAN BROTHERS HOLDINGS INC.
Lender
and
SIERRA HEALTH-STYLES, INC. and SIERRA TUCSON, L.L.C.
Borrower
Dated: as of August 11, 1998
Property Locations:
5000 East Via Estancia Miraval, Tucson, Arizona;
and
real property on which is located a psychiatric
hospital and behavioral health center
(as more particularly described herein)
Shapiro, Shapses, Block LLP
315 Park Avenue South
19th Floor
New York, New York 10010
Attn.: Marc S. Shapiro, Esq.
<PAGE>
TABLE OF CONTENTS
Section Page
1. DEFINED TERMS 1
2. PAYMENT OF DEBT; INCORPORATION OF COVENANTS,
CONDITIONS AND AGREEMENTS 7
3. WARRANTY OF TITLE 7
4. INSURANCE 7
5. PAYMENT OF TAXES 12
6. TAX AND INSURANCE ESCROW FUND 12
7. REPLACEMENT RESERVE; REPAIR ESCROW 13
8. CONDEMNATION 13
9. LEASES AND RENTS 15
10. REPRESENTATIONS CONCERNING LOAN 17
11. SINGLE PURPOSE ENTITY; AUTHORIZATION 18
12. MAINTENANCE OF MORTGAGED PROPERTY 20
13. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY 20
14. ESTOPPEL CERTIFICATES; AFFIDAVITS 21
15. CHANGES IN THE LAWS REGARDING TAXATION 22
16. NO CREDITS ON ACCOUNT OF THE DEBT 22
17. DOCUMENTARY STAMPS 22
18. CONTROLLING AGREEMENT 22
19. BOOKS AND RECORDS 23
20. PERFORMANCE OF OTHER AGREEMENTS 24
21. FURTHER ASSURANCES 24
22. RECORDING OF MORTGAGES 25
23. REPORTING REQUIREMENTS 25
24. EVENTS OF DEFAULT 25
25. LATE PAYMENT CHARGE 27
<PAGE>
26. RIGHT TO CURE DEFAULTS 27
27. REMEDIES 27
28. RIGHT OF ENTRY 30
29. SECURITY AGREEMENT 30
30. ACTIONS AND PROCEEDINGS 31
31. WAIVER OF SETOFF AND COUNTERCLAIM 31
32. CONTEST OF CERTAIN CLAIMS 32
33. RECOVERY OF SUMS REQUIRED TO BE PAID 32
34. MARSHALLING AND OTHER MATTERS 32
35. HAZARDOUS SUBSTANCES 32
36. ASBESTOS 33
37. ENVIRONMENTAL MONITORING 34
38. MANAGEMENT OF THE MORTGAGED PROPERTY 34
39. HANDICAPPED ACCESS 36
40. ERISA 36
41. INDEMNIFICATION 37
42. NOTICE 38
43. AUTHORITY 38
44. WAIVER OF NOTICE 38
45. REMEDIES OF BORROWER 38
46. SOLE DISCRETION OF LENDER 38
47. NON-WAIVER 39
48. NO ORAL CHANGE 39
49. LIABILITY 39
50. INAPPLICABLE PROVISIONS 39
51. SECTION HEADINGS 39
52. COUNTERPARTS 40
<PAGE>
53. CERTAIN DEFINITIONS 40
54. HOMESTEAD 40
55. ASSIGNMENTS 40
56. SUBMISSION TO JURISDICTION 40
57. AGENT FOR RECEIPT OF PROCESS 41
58. SERVICE OF PROCESS 41
59. WAIVER OF JURY TRIAL 41
60. CHOICE OF LAW 41
61. RELEASE OF PORTIONS OF THE MORTGAGED PROPERTY 41
62. JOINT AND SEVERAL OBLIGATIONS 42
63. MORTGAGE OF THE MORTGAGED PROPERTY RELATING TO
THE FACILITY 42
64. SURETY 43
65. SUBORDINATE LOANS 44
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT dated as of August 11,
1998, between SIERRA HEALTH-STYLES, INC., a Delaware
corporation ("Health-Styles"), and SIERRA TUCSON,
L.L.C., a Delaware limited liability company
("Sierra"), each with an address at 16500 North Lago
Del Oro Parkway, Tucson, Arizona 85737 (Health-
Styles and Sierra, collectively, "Borrower"), and
LEHMAN BROTHERS HOLDINGS INC., a Delaware
corporation, having an address at 3 World Financial
Center, New York, New York 10285 ("Lender").
W I T N E S S E T H:
WHEREAS, Lender is concurrently herewith
making a loan to Borrower in the original principal
amount of $14,000,000.00 (the "Loan"), which Loan is
evidenced by a certain Mortgage Note
dated the date hereof made by Borrower in favor of
Lender (the "Note") and is or will be secured by
mortgage liens on, and security interests in, Health-
Styles's interest in and to the real and personal
property comprising the hotel located at 5000 East
Via Estancia Miraval, Tucson, Arizona (also known as
16600 North Lago del Oro Parkway, Tucson, Arizona
and/or 16500 North Lago del Oro Parkway, Tucson,
Arizona) ("Hotel"), and Sierra's interest in and to
the real and personal property comprising the
psychiatric hospital and behavioral health center
operated by or on behalf of Sierra, Borrower or
their respective affiliates, as the case may be (the
"Facility"; the mortgage instruments affecting the
real property comprising the Hotel and Facility,
collectively, the "Mortgages", and individually, a
"Mortgage"; the Note, the Mortgages, this Agreement
and all other documents executed or delivered in
connection with the Loan, collectively, the "Loan
Documents"); and
WHEREAS, Lender and Borrower have agreed
to enter into this Loan Agreement to memorialize
their understanding regarding their respective
rights and obligations in respect of the Loan.
NOW, THEREFORE, in consideration of the
making of the Loan and the covenants, agreements,
representations and warranties set forth in this
Agreement, the parties hereby covenant, agree,
represent and warrant as follows:
1. DEFINED TERMS
The following terms shall have the
following meanings:
(a) "Access Laws" has the meaning set
forth in Section 39 hereof.
(b) "Accounts" has the meaning set
forth in Section 7 hereof.
(c) "Allocated Loan Amount" means,
with respect to the Mortgaged Property relating to
the Hotel, the sum of $6,000,000.00, and with respect
to the Mortgaged Property relating to the Facility,
the sum of $8,000,000.00.
(d) "Asbestos" has the meaning set
forth in Section 36 hereof.
(e) "Assignment" has the meaning set
forth in Section 2 hereof.
(f) "Borrower" has the meaning set
forth in the preamble to this Agreement.
<PAGE>
(g) "Capital Expenses" means all
payments for any fixed assets or improvements, or for
replacements, substitutions or additions thereto,
that have a useful life of more than one year and
that are required to be capitalized consistent with
accounting methods employed by Borrower for the
Mortgaged Property.
(h) "Collateral" has the meaning set
forth in Section 29 hereof.
(i) "Condemnation" has the meaning
set forth in Section 8 hereof.
(j) "Debt" means the outstanding
principal balance of the Note from time to time, with
all accrued and unpaid interest thereon, and all
other sums now or hereafter due under the Loan
Documents.
(k) "Debt Service Coverage Ratio"
shall mean the ratio of: (i) the NOI produced by the
operation of the Mortgaged Property during the 12
calendar month period immediately preceding the
calculation to (ii) the payments of principal and
interest due under this Loan Agreement and the Note
for the 12 calendar month period immediately
following the calculation (or imputed for such period
if such payments have actually accrued for less than
12 calendar months).
(l) "Default Rate" means the rate of
interest payable from and after the occurrence of an
Event of Default, as more particularly described in
the Note; provided, however, that with respect to an
Event of Default of the type described in Section
24(a), such rate of interest shall apply from and
after the date on which any such payment is due,
without any period of grace or cure, as more
particularly described in the Note.
(m) "Environmental Agreement" has the
meaning set forth in Section 2 hereof.
(n) "Environmental Laws" has the
meaning set forth in Section 35 hereof.
(o) "Equipment" means all machinery, furnishings,
equipment, fixtures (including, without limitation,
all heating, air conditioning, plumbing, lighting,
communications and elevator fixtures), inventory and
articles of personal property and accessions thereof
and renewals, replacements thereof and substitutions
therefor (including, without limitation, beds,
bureaus, chiffonniers, chests, chairs, desks, lamps,
mirrors, bookcases, tables, rugs, carpeting, drapes,
draperies, curtains, shades, venetian blinds,
screens, paintings, hangings, pictures, divans,
couches, luggage carts, luggage racks, stools, sofas,
chinaware, linens, pillows, blankets, glassware,
foodcarts, cookware, dry cleaning facilities, dining
room wagons, keys or other entry systems, bars, bar
fixtures, liquor and other drink dispensers,
icemakers, radios, clock radios, television sets,
intercom and paging equipment, electric and
electronic equipment, dictating equipment, private
telephone systems, medical equipment, potted plants,
heating, lighting and plumbing fixtures, fire
prevention and extinguishing apparatus, cooling and
air-conditioning systems, elevators, escalators,
fittings, plants, apparatus, stoves, ranges,
refrigerators, laundry machines, tools, machinery,
engines, dynamos, motors, boilers, incinerators,
switchboards, conduits, compressors, vacuum cleaning
systems, floor cleaning, waxing and polishing
equipment, call systems, brackets, electrical signs,
bulbs, bells, fuel, conveyors, cabinets, lockers,
shelving, spotlighting equipment, dishwashers,
garbage disposals, washer and dryers), other
customary hotel and hospital equipment and other
property of every kind and nature, whether tangible
or intangible, whatsoever owned by Borrower, or in
which Borrower has or shall have an interest, now or
hereafter located upon the Premises and the
Improvements, or appurtenant thereto, and usable in
connection with the present or future operation and
occupancy of the Premises and the Improvements and
all building equipment, materials and supplies of any
nature whatsoever owned by Borrower, or in which
Borrower has or shall have an interest, now or
<PAGE>
hereafter located upon the Premises and the
Improvements, or appurtenant thereto, or usable in
connection with the present or future operation,
enjoyment and occupancy of the Premises and the
Improvements.
(p) "ERISA" has the meaning set forth
in Section 40 hereof.
(q) "Event of Default" has the
meaning set forth in Section 24 hereof.
(r) "Expenses" means the aggregate of
the following items actually incurred by Borrower,
whether or not paid, during the 12 month period
ending one month prior to the date on which the NOI
is to be calculated (except that Capital Expenses and
reserves set forth in subsection (viii) below shall
be adjusted by Lender to reflect projected
adjustments for the subsequent 12 month period
beginning on the date on which the NOI is to be
calculated):
(i) Taxes and Other Charges;
(ii) sales, use and personal property taxes;
(iii) management fees of not less than
four (4%) percent of the gross income derived from
the operation of the Mortgaged Property and disbursements;
(iv) wages, salaries, pension costs and all
fringe and other employee-related benefits and expenses;
(v) franchise fees and other fees due
under the Franchise Agreement;
(vi) Insurance Premiums;
(vii) the cost of utilities, and all
other administrative, management, ownership,
operating, leasing and maintenance expenses incurred
in connection with the operation of the Mortgaged
Property;
(viii) the cost of necessary repair or
replacement of existing improvements on the Mortgaged
Property with repairs or replacements of like kind
and quality or such kind or quality that is necessary
to maintain the Mortgaged Property to the same
standards as competitive properties of similar size
and location to the Mortgaged Property or that are
required under the Franchise Agreement together with
adequate reserves for the repair and replacement of
capital improvements on the Mortgaged Property;
(ix) the cost of replacement of Equipment
with Equipment of like kind and quality or of such
kind or quality that is necessary to maintain the
Mortgaged Property to the same standards as
competitive properties of similar size and location
to the Mortgaged Property or that are required under
the Franchise Agreement; and
(x) the cost of any other maintenance
materials, HVAC repairs, parts and supplies, and
equipment.
(s) "Facility" has the meaning set
forth in the recitals to this Agreement.
<PAGE>
(t) "Franchise Agreement" means any
future franchising arrangements into which Health-
Styles may enter, in all events with Lender's prior
written approval, pursuant to which HealthStyles shall
have the right to operate the hotel located on the
Mortgaged Property under a name and/or hotel system
controlled by such franchisor.
(u) "Franchisor" means the franchisor
under the Franchise Agreement, if any.
(v) "Guarantor" means any guarantor of
all or any part of the Debt.
(w) "Hazardous Substances" has the
meaning set forth in Section 35 hereof.
(x) "Hotel" has the meaning set forth
in the recitals to this Agreement.
(y) "Improvements" means the
buildings, structures, fixtures, additions,
enlargements, extensions, modifications, repairs,
replacements and improvements now or hereafter located
on the Premises.
(z) "Insurance Premiums" has the
meaning set forth in Section 4(d) hereof.
(aa) "Insured Casualty" has the meaning
set forth in Section 4(e)(ii) hereof.
(bb) "Intangibles" means, without
limitation, all accounts, escrows, documents,
instruments, chattel paper, claims, deposits and
general intangibles, as such terms are defined in the
Uniform Commercial Code, and all contract rights,
franchises, books, records, appraisals, architects and
engineering plans, specifications, environmental and
other reports relating to the Premises, trademarks,
trade names, symbols, permits, licenses (to the extent
assignable), approvals, actions, tenant or guest
lists, correspondence with present and prospective
purchasers, tenants, guests and suppliers, advertising
materials and telephone exchange numbers as identified
in such materials, refunds of real estate taxes and
assessments and causes of action which now or
hereafter relate to, are derived from or are used in
connection with the Premises, or the use, operation,
maintenance, occupancy or enjoyment thereof or the
conduct of any business or activities thereon.
(cc) "Leases" means all leases and
other agreements affecting the use, enjoyment or
occupancy of the Premises or the Improvements
heretofore or hereafter entered into (including,
without limitation, subleases, licenses, concessions,
tenancies and other occupancy agreements covering or
encumbering all or any portion of the Premises),
together with any guarantees, supplements, amendments,
modifications, extensions and renewals
of any thereof, and all additional remainders, reversions, and
other rights and estates appurtenant thereto.
(dd) "Lender" has the meaning set forth in the
preamble to this Agreement.
(ee) "Loan" has the meaning set forth in the
recitals of this Agreement.
(ff) "Loan Documents" has the meaning set forth
in the recitals of this Agreement.
(gg) "Loan-to-Value Ratio" means the ratio of:
(i) the Debt, plus all other debt (or other liquidated economic
obligations) which are then outstanding and secured by the
<PAGE>
Mortgaged Property, to (ii) the appraised value of the
Mortgaged Property as estimated by an appraiser acceptable to
Lender. Any appraisal for purposes of calculating the Loan-to-
Value Ratio shall be performed in accordance with the then-
approved standards under the Financial Institutions Reform,
Recovery and Enforcement Act
of 1989, as amended (FIRREA).
(hh) "Management Agreement" means any existing
or future management arrangements into which Health-Styles
and/or Sierra may enter, in all events with Lender's prior
written approval, pursuant to which Health-Styles and/or Sierra
operates all or any portion of the Mortgaged Property.
(ii) "Maturity Date" means the Applicable
Maturity Date (as such term is defined in the Note).
(jj) "Mortgages" has the meaning set forth in
the recitals of this Agreement.
(kk) "Mortgaged Property" shall mean all of
Health-Styles's and/or Sierra's right, title and interest, fee
or leasehold, direct or indirect, in and to the Premises, all
real and personal property located on or related to any portion
of the Premises, including without limitation, the Collateral,
Equipment, Improvements, Intangibles, Rents, Condemnation
awards, insurance proceeds, tradenames, trademarks,
servicemarks, logos, copyrights, goodwill, books and records,
all refunds, rebates or credits in connection with a reduction
in real estate taxes and assessments charged against the
Premises as a result of tax certiorari or any applications or
proceedings for reduction, all agreements, contracts,
certificates, instruments, franchises, permits, licenses,
plans, specifications and other documents, now or hereafter
entered into, and all proceeds, substitutions and replacements
thereof.
(ll) "NOI" means the gross income derived from
the operation of the Mortgaged Property less Expenses, adjusted
as Lender deems reasonably necessary to reflect the actual net
operating income of the Mortgaged Property. NOI shall include
only Rents and such other income, including any rent loss,
business interruption or business income insurance proceeds,
vending or concession income, late fees, forfeited security
deposits and other miscellaneous tenant charges, which are
actually received and Expenses actually incurred and paid
during the period for which the NOI is being calculated, as set
forth on operating statements satisfactory to Lender. NOI
shall be calculated in accordance with generally accepted
accounting principles consistently applied.
(mm) "Note" has the meaning set forth in the
recitals of this Agreement.
(nn) "Operating Expense Account" has the meaning
set forth in Section 7 hereof.
(oo) "Other Charges" has the meaning set forth
in Section 5 hereof.
(pp) "Policies" has the meaning set forth in
Section 4(d) hereof.
(qq) "Premises" means those certain parcels of
real property comprising the Mortgaged Property, as more
particularly described on Exhibits A to the Mortgages, and with
respect to the Premises related to the Facility, the Premises
shall also include, without limitation, any and all property
comprising the psychiatric hospital and behavioral health
center operated by or on behalf of Sierra, Borrower or their
respective affiliates, as the case may be.
(rr) "Remedial Work" has the meaning set forth
in Section 37 hereof.
<PAGE>
(ss) "Rents" means all income, rents, room
rates, issues, profits, revenues (including oil and gas or
other mineral royalties and bonuses), deposits and other
benefits from the Mortgaged Property including, without
limitation, all revenues and credit card receipts collected
from guest rooms, restaurants, bars, mini-bars, meeting rooms,
banquet rooms and recreational facilities and otherwise, all
receivables, customer obligations, installment payment
obligations and other obligations now existing or hereafter
arising or created out of the sale, lease, sublease, license,
concession or other grant of the right of the possession, use
or occupancy of all or any portion of the Mortgaged Property or
personalty located thereon, or rendering of services by
Borrower or any operator or manager of the Mortgaged Property
or acquired from others including, without limitation, from the
rental of any office space, retail space, commercial space,
guest room or other space, halls, stores or offices, including
any deposits securing reservations of such space, exhibit or
sales space of every kind, license, lease, sublease and
concession fees and rentals, health club membership fees, food
and beverage wholesale and retail sales, service charges,
vending machine sales and proceeds, if any, from business
interruption or other loss of income insurance relating to the
use, enjoyment or occupancy of the Mortgaged Property.
(tt) "Repair Agreement" means that certain
Repair Escrow Agreement dated as of the date hereof between
Borrower and Lender.
(uu) "Repair Escrow Account" has the meaning set
forth in Section 7 hereof.
(vv) "Replacement Agreement" means that certain
Replacement Reserve Agreement dated as of the date hereof
between Borrower and Lender.
(ww) "Replacement Reserve Account" has the
meaning set forth in Section 7 hereof.
(xx) "Securities" has the meaning set forth in
Section 21 hereof.
(yy) "Servicer" means the servicer of the Loan
designated by Lender, in its sole and absolute discretion, from
time to time.
(zz) "Subordinate Loan" has the meaning set
forth in Section 65 hereof.
(aaa) "Tax and Insurance Escrow Account" has
the meaning set forth in Section 7 hereof.
(bbb) "Tax and Insurance Escrow Fund" has
the meaning set forth in Section 6 hereof.
(ccc) "Taxes" has the meaning set forth in
Section 5 hereof.
(ddd) "Uniform Commercial Code" means the
Uniform Commercial Code, as adopted and enacted by the State or
States where any of the Mortgaged Property is located.
Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Note.
<PAGE>
2. PAYMENT OF DEBT; INCORPORATION OF COVENANTS,
CONDITIONS AND AGREEMENTS
(a) Borrower will pay the Debt at the time
and in the manner provided in the Note, the Mortgages
and in this Agreement. Payments made by Borrower to
Lender shall be applied by Lender in the following
order of priority: (i) first, to required deposits
to the escrows established in accordance herewith for
the payment of Taxes and Other Charges and Insurance
Premiums; (ii) next, to reimburse Lender for any
unpaid costs and expenses incurred by Lender on
Borrower's behalf; (iii) next, to accrued and unpaid
interest on the Loan; (iv) next, to required deposits
to the Replacement Reserve as provided in the
Replacement Agreement; and (v) last, to the reduction
of the principal balance of the Loan. Upon and during
the continuation of an Event of Default, all payments
made by Borrower shall be applied in such other order
and priority as Lender shall determine in its sole
discretion.
(b) All the covenants, conditions and
agreements contained in the Note, the Mortgages, the
Assignment of Leases and Rents dated as of the date
hereof from Borrower to Lender (the "Assignment"),
the Environmental Indemnity Agreement dated as of the
date hereof among Lender, Borrower and NextHealth,
Inc. (the "Environmental Agreement") and the other
Loan Documents are hereby made a part of this
Agreement to the same extent and with the same force
as if fully set forth herein.
3. WARRANTY OF TITLE
(a) Borrower represents and warrants that
HealthStyles has good, marketable and insurable fee
simple title to the Mortgaged Property relating to
the Hotel and has the full power, authority and right
to execute, deliver and perform its obligations under
this Agreement and to encumber, mortgage, give,
grant, bargain, sell, alienate, enfeoff, convey,
confirm, pledge, assign, hypothecate and grant a
security interest in the Mortgaged Property relating
to the Hotel and that Health-Styles possesses an
unencumbered fee estate in the Premises and the
Improvements relating to the Hotel, and that it owns
the Mortgaged Property relating to the Hotel free and
clear of all liens, encumbrances and charges
whatsoever except for those exceptions approved by
Lender and shown in the title insurance policy
insuring the lien of the Mortgage with respect
thereto, and that the Mortgage with respect thereto
is and will remain a valid and enforceable first lien
on and security interest in the Mortgaged Property
relating to the Hotel, subject only to such
exceptions. Borrower shall forever warrant, defend
and preserve such title and the validity and priority
of the lien of the Mortgage with respect thereto and
shall forever warrant and defend such title, validity
and priority to Lender against the claims of all
persons whomsoever.
(b) Borrower represents and warrants that
Sierra has good, marketable and insurable leasehold
title to the Improvements relating to the Facility
and has the full power, authority and right to
encumber, mortgage, give, grant, bargain, sell,
alienate, enfeoff, convey, confirm, pledge, assign,
hypothecate and grant a security interest in the
Improvements relating to the Facility and that Sierra
possesses an unencumbered leasehold estate therein,
and that it holds its interest therein free and clear
of all liens, encumbrances and charges whatsoever
except for those exceptions approved by Lender.
Without limiting the foregoing, Borrower represents
and warrants that Sierra has the full power,
authority and right to execute, deliver and perform
its obligations under this Agreement.
4. INSURANCE
(a) Borrower, at its sole cost and
expense, will keep the Mortgaged Property insured
during the entire term of this Agreement for the
mutual benefit of Borrower and Lender against loss or
damage by fire and against loss or damage by other
risks and hazards covered by a standard extended
coverage insurance policy including, without
limitation, riot and civil commotion, vandalism,
malicious mischief, burglary and theft. The
<PAGE>
insurance policy shall contain option perils and
income loss endorsements and if any of the
Improvements or the use of the Mortgaged Property
shall at any time constitute legal non-conforming
structures or uses, a law and ordinance endorsement.
Such insurance shall be in an amount: (i) equal to
the lesser of: (A) the original principal amount of
the Loan (in no event less than the minimum amount
required to compensate for damage or loss on a
replacement cost basis), and (B) the then full
replacement cost of the Improvements and the
Equipment, without deduction for physical
depreciation; provided, however, that such insurance
shall be in an amount such that the insurer would not
deem Borrower a co-insurer under such policies. The
deductible in respect of such insurance shall not
exceed the lesser of: (1) $25,000.00; and (2) one
(1%) percent of the face value of such policy, unless
a higher deductible is required by law. Unless such
premiums are deposited in escrow pursuant to Section
6 of this Agreement, the premiums for the insurance
carried in accordance with this Section shall be paid
annually in advance and each policy shall contain the
"Replacement Cost Endorsement" with a waiver of
depreciation.
(b) Borrower shall also obtain and
maintain during the entire term of this Agreement, at
its sole cost and expense, for the mutual benefit of
Borrower and Lender, the following policies of
insurance:
(i) Flood insurance if any part of the
Mortgaged Property is currently or at any time in the
future located in an area identified by the Federal
Emergency Management Agency as an area having special
flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act
of 1968 (and any amendment or successor act thereto)
in an amount at least equal to the lesser of: (A) the
outstanding principal amount of the Note; and (B) the
maximum limit of coverage available with respect to
the Improvements and the Equipment under such Act.
(ii) Comprehensive public liability
insurance, including broad form property damage,
blanket contractual and personal injuries (including
death resulting therefrom) coverages and "Dram shop"
or other liquor liability coverage if alcoholic
beverages are sold from or may be consumed at the
Mortgaged Property, and containing minimum limits per
occurrence of $10,000,000.00 for the Premises and the
Improvements, or such greater amount as may be
required under the Franchise Agreement.
(iii) Rental loss insurance in an
amount equal to the aggregate annual amount of all
rents and additional rents payable by all of the
tenants under the Leases (whether or not such Leases
are terminable in the event of a fire or casualty),
such rental loss insurance to cover rental losses for
a period of at least one year after the date of the
fire or casualty in question. The amount of such
rental loss insurance shall be increased from time to
time during the term of this Agreement as and when
new Leases and renewal Leases are entered into in
accordance with the terms of this Agreement, to
reflect all increased rent and increased additional rent payable
by all of the tenants under such renewal Leases and all rent and
additional rent payable by all of the tenants under such new Leases.
(iv) Business income insurance: (A) with loss
payable to Lender; (B) covering all risks required to be
covered by the insurance provided for in Section 4(a); (C)
containing an extended period of indemnity endorsement which
provides that after the physical loss to the Improvements and
all personal property has been repaired, the continued loss
of income will be insured until such income either returns to
the same level it was at prior to the loss, or the expiration
of 12 months from the date of the loss, whichever first
occurs, and notwithstanding that the policy may expire prior
to the end of such period; and (D) in an amount equal to the
sum of Expenses and NOI, in each case for the preceding full
<PAGE>
calendar year. The amount of such business income insurance
shall be determined prior to the date hereof and at least
once each year thereafter based on clause (D) of this
subsection. All insurance proceeds payable to Lender
pursuant to this Section shall be held by Lender and shall be
applied to the obligations secured hereunder from time to
time due and payable hereunder and under the Note; provided,
however, that nothing herein contained shall be deemed to
relieve Borrower of its obligations to pay the obligations
secured hereunder on the respective dates of payment provided
for in the Note except to the extent such amounts are
actually and timely paid out of the proceeds of such business
income insurance;
(v) Insurance, in an amount equal to the lesser of
$2,000,000.00, or the insurable value of the Improvements,
against loss or damage from: (A) leakage of sprinkler
systems; and (B) explosion of steam boilers, air conditioning
equipment, high pressure piping, machinery and equipment,
pressure vessels or similar apparatus now or hereafter
installed in the Improvements.
(vi) Worker's compensation insurance with respect
to any employees of Borrower, as required by any governmental
authority or legal requirement.
(vii) Motor vehicle liability coverage for all
owned and non-owned vehicles, including rented and leased
vehicles containing minimum limits per occurrence of
$5,000,000.00 or such greater amount as may be required under
the Franchise Agreement.
(viii) A blanket fidelity bond and errors and
omissions insurance coverage insuring against losses
resulting from dishonest or fraudulent acts committed by: (A)
Borrower's personnel; (B) any employees of outside firms that
provided appraisal, legal, data processing, or other services
for Borrower; and (C) temporary contract employees or student
interns.
(ix) Earthquake insurance (including subsidence),
if the Mortgaged Property is located in an earthquake prone
region and if required by Lender.
(x) Such other insurance as may from time to time
be reasonably required by Lender in order to protect its
interests in the Mortgaged Property or as may be required by
the Franchise Agreement.
(c) Borrower shall increase the amount of insurance
required to be provided hereunder at the time that each such
policy is renewed (but, in any event not less frequently than once
during each 12-month period) by using the F.W. Dodge Building
Index to determine whether there has been an increase in the
replacement cost of the improvement since the most recent
adjustment of any such policy and, if there has been any such
increase, the amount of insurance required to be provided
hereunder shall be adjusted accordingly.
(d) All policies of insurance required pursuant to this
Section (collectively, the "Policies") shall: (i) be issued by an
insurer with an investment grade rating for claims paying ability
by Moody's Investors Service, Inc., Standard & Poor's Rating
Group, Fitch Investor Service and Duff & Phelps, Inc., if rated;
(ii) contain a standard noncontributory mortgagee clause naming
Lender as the person to which all payments made by such insurance
company shall be paid; (iii) be maintained throughout the term of
this Agreement without cost to Lender; (iv) be assigned and
delivered to Lender; (v) contain such provisions as Lender deems
reasonably necessary or appropriate to protect its interest
including, without limitation, endorsements providing that neither
Borrower, Lender nor any other party shall be a co-insurer
<PAGE>
thereunder, and that Lender shall receive at least 30 days prior
written notice of any modification, reduction or cancellation; and
(vi) be satisfactory in form and substance to Lender, and be
approved by Lender as to amounts, form, risk coverage, deductible,
loss payees and insureds. Borrower shall pay the premiums for the
Policies (the "Insurance Premiums") as they become due and
payable. Not later than 60 days prior to the expiration date of
each of the Policies, Borrower will deliver to Lender satisfactory
evidence of the renewal of each Policy.
(e) If the Mortgaged Property shall be damaged or
destroyed, in whole or in part, by fire or other casualty,
Borrower shall give prompt notice thereof to Lender.
(i) In the case of a loss covered by Policies, Lender
may: (A) settle and adjust any claim without the consent of
Borrower, or (B) allow Borrower to agree with the insurance
company or companies on the amount to be paid upon the loss;
provided, however, that Borrower may adjust losses aggregating not
in excess of $50,000.00 if such adjustment is carried out in a
competent and timely manner, and provided in any case that Lender
shall be, and is hereby, authorized to collect and receipt for any
such insurance proceeds. The expenses incurred by Lender in the
adjustment and collection of insurance proceeds shall become part
of the Debt, shall be secured by the Mortgages (or either of them)
and shall be reimbursed by Borrower to Lender on demand.
(ii) In the event of any insured damage to or
destruction of the Mortgaged Property or any part thereof (an
"Insured Casualty") where: (A) the proceeds of insurance are
sufficient to enable Borrower to fully restore the Mortgaged
Property; (B) the term of, and proceeds derived from, Borrower's
business interruption insurance (or other similar insurance) shall
be sufficient to fully cover the period that the Mortgaged
Property is undergoing restoration; (C) Lender determines that the
restoration is reasonably capable of being completed, and is
actually completed at least 12 months prior to the Maturity Date;
(D) the Loan-to-Value Ratio upon completion of restoration is
estimated, by an appraiser acceptable to Lender, to be no greater
than .7:1.0; (E) the Franchise Agreement has not
been, and cannot be, terminated as a result of the Insured
Casualty; (F) the restoration can be completed within 12
months from the date that the Insured Casualty occurred, or
within such shorter time period as may be required by the
Franchise Agreement; (G) the restoration is permitted or
required under the Franchise Agreement; and (H) the Debt
Service Coverage Ratio upon completion is reasonably
anticipated to be at least 1.50, then, if no Event of Default
shall have occurred and be continuing, the proceeds of
insurance shall be applied to reimburse Borrower for the cost
of restoring, repairing, replacing or rebuilding the
Mortgaged Property or the part thereof subject to the Insured
Casualty, as provided for below; and Borrower hereby
covenants and agrees forthwith to commence and diligently to
prosecute such restoring, repairing, replacing or rebuilding.
NOI for purposes of this calculation shall be NOI for the 12
calendar month period immediately preceding the casualty,
unless the appraiser referenced in clause (D) above estimates
that NOI after the restoration will be more than ten (10%)
percent less than NOI for such 12 calendar month period, in
which case the Debt Service Coverage Ratio shall be
calculated using the appraiser's estimate of NOI.
(iii) Except as provided above, the proceeds of
insurance collected upon any Insured Casualty shall, at the
option of Lender in its sole discretion, be applied to the
payment of the Debt or applied to reimburse Borrower for the
cost of restoring, repairing, replacing or rebuilding the
Mortgaged Property or the part thereof subject to the Insured
Casualty, in the manner set forth below. In no case shall
<PAGE>
any such application reduce or postpone any payments
otherwise required pursuant to the Note, other than the final
payment on the Note.
(iv) In the event that proceeds of insurance, if
any, shall be made available to Borrower for the restoring,
repairing, replacing or rebuilding of the Mortgaged Property,
Borrower hereby covenants to restore, repair, replace or
rebuild the Mortgaged Property to be of at least equal value
and of substantially the same character as prior to such
damage or destruction, all to be effected in accordance with
applicable law and plans and specifications approved in
advance by Lender and otherwise in accordance with the
requirements of the Franchise Agreement, if any; provided,
however, that Borrower shall pay all costs (and if required
by Lender, shall deposit the total thereof with Lender in
advance) of such restoring, repairing, replacing or
rebuilding in excess of the net proceeds of insurance made
available pursuant to the terms hereof.
(v) In the event Borrower is entitled to
reimbursement out of insurance proceeds held by Lender, such
proceeds shall be disbursed from time to time upon Lender
being furnished with: (A) evidence satisfactory to it of the
estimated cost of completion of the restoration, repair,
replacement and rebuilding; (B) funds, or, at Lender's
option, assurances satisfactory to Lender that such funds are
available, sufficient in addition to the proceeds of
insurance to complete the proposed restoration, repair,
replacement and rebuilding; and (C) such architect's
certificates, waivers of lien for work previously performed
or contemporaneously funded, contractor's sworn statements,
title insurance endorsements, bonds, plats of survey and such
other evidences of cost, payment and performance as Lender
may reasonably require and approve. Lender may, in any
event, require that all plans and specifications for
such restoration, repair, replacement and rebuilding be submitted
to and approved by Lender prior to commencement of work (which
approval shall not be unreasonably withheld).
No payment made prior to the final completion of the
restoration, repair, replacement and rebuilding shall exceed
ninety (90%) percent of the value of the work performed from time
to time. Funds other than proceeds of insurance shall be
disbursed prior to disbursement of such proceeds, and at all times
the undisbursed balance of such proceeds remaining in Lender's
possession, together with funds deposited for that purpose or
irrevocably committed to the satisfaction of Lender by or on
behalf of Borrower for that purpose, shall be at least sufficient
in the reasonable judgment of Lender to pay for the cost of
completion of the restoration, repair, replacement or rebuilding,
free and clear of all liens and claims of lien. Any surplus which
may remain out of insurance proceeds held by Lender after payment
of such costs of restoration, repair, replacement or rebuilding
shall be delivered to Borrower, provided such restoration was
performed in accordance with the provisions of this Section and
Borrower is not then in default of its obligations under the Loan
Documents.
(f) Borrower shall not carry separate insurance,
concurrent in kind or form or contributing in the event of loss,
with any insurance required under this Section. Notwithstanding
the foregoing, Borrower may carry insurance not required under
this Agreement, provided any such insurance affecting the
Mortgaged Property shall be for the mutual benefit of Borrower and
Lender, as their respective interests may appear, and shall be
subject to all other provisions of this Section.
(g) Borrower shall furnish evidence of payment of
insurance premiums from time to time as follows: (i) if the
premiums in respect of the insurance required to be maintained
hereunder are paid annually, evidence of payment of the premium
for the next year's coverage shall be furnished to Lender not less
than 30 days prior to the expiration of the then current policy;
and (ii) if such premiums are paid in installments, evidence of
each installment payment shall be furnished within five days of
being made.
<PAGE>
5. PAYMENT OF TAXES
Borrower shall pay all taxes, assessments, water rates
and sewer rents, now or hereafter levied, assessed or imposed
against the Mortgaged Property or any part thereof (collectively,
the "Taxes") and all ground rents, maintenance charges, other
governmental impositions, and other charges including, without
limitation, vault charges and license fees for the use of vaults,
chutes and similar areas adjoining the Premises, now or hereafter
levied, assessed or imposed against the Mortgaged Property or any
part thereof (collectively, the "Other Charges") as they become
due and payable. Borrower will deliver to Lender evidence
satisfactory to Lender that the Taxes and Other Charges have been
so paid, or are not then delinquent, no later than 30 days
following the date on which the Taxes and/or Other Charges would
otherwise be delinquent if not paid. Borrower shall not suffer,
and shall promptly cause to be paid and discharged, any lien or
charge whatsoever which may be or become a lien or charge against
the Mortgaged Property, and shall promptly pay for all utility
services provided to the Mortgaged Property. Borrower shall
furnish to Lender or its designee receipts for the payment of the
Taxes and Other Charges, and charges for utility services at
Lender's request, in each case prior to the date that such
obligation shall become delinquent. Borrower shall be entitled
to contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount of any
Taxes or Other Charges. Notwithstanding the preceding sentence,
during the pendency of any such contest Borrower shall pay or
cause to be paid all Taxes and Other Charges as and when due and
payable, or otherwise in accordance with Section 32 hereof.
6. TAX AND INSURANCE ESCROW FUND
Borrower shall pay to Lender on the first day of each
calendar month: (a) one-twelfth of an amount which would be
sufficient to pay the Taxes payable, or estimated by Lender to be
payable, during the next ensuing 12 months; and (b) one-twelfth of
an amount which would be sufficient to pay the Insurance Premiums
due for the renewal of the coverage afforded by the Policies upon
the expiration thereof (the amounts described in clauses (a) and
(b) above, collectively, the "Tax and Insurance Escrow Fund").
The Tax and Insurance Escrow Fund and the monthly installments of
principal and interest payable under the Note shall be added
together and shall be paid as an aggregate sum by Borrower to
Lender. Borrower hereby pledges to Lender any and all monies now
or hereafter deposited in the Tax and Insurance Escrow Fund as
additional security for the payment of the Debt. Lender will apply
the Tax and Insurance Escrow Fund to payments of Taxes and
Insurance Premiums required to be made by Borrower pursuant to
Sections 4 and 5 hereof. If the amount of the Tax and Insurance
Escrow Fund shall exceed the amounts due for Taxes and Insurance
Premiums pursuant to Sections 4 and 5 hereof, Lender shall, in its
discretion, return any excess to Borrower or credit such excess
against future payments to be made to the Tax and Insurance Escrow
Fund. If the Tax and Insurance Escrow Fund is not sufficient to
pay the items set forth in clauses (a) and (b) above, Borrower
shall promptly pay to Lender, upon demand, an amount which Lender
shall estimate as sufficient to make up the deficiency. Upon the
occurrence of an Event of Default, Lender may apply any sums then
comprising the Tax and Insurance Escrow Fund to the payment of the
Debt in any order in its sole discretion. Until expended or
applied as above provided, any amounts in the Tax and Insurance
Escrow Fund shall constitute additional security for the Debt. To
the extent permitted by applicable law, the Tax and Insurance
Escrow Fund shall not constitute a trust fund and may be
commingled with other monies held by Lender. No earnings or
interest on the Tax and Insurance Escrow Fund shall be payable to
Borrower; provided, however, any such earnings and interest shall
remain in the Tax and Insurance Escrow Fund, added to the balance
thereof and used in accordance with the terms of such escrow and
this Agreement. Anything to the contrary contained herein
notwithstanding, Borrower shall be required to make the payments
described in clause (b) above only upon a failure by Borrower to
<PAGE>
maintain the insurance required pursuant to Section 4 hereof or to
furnish evidence of payment as provided in Section 4 hereof.
7. REPLACEMENT RESERVE; REPAIR ESCROW
(a) Lender has this day established an interest bearing
reserve account at a federally insured institution (the
"Replacement Reserve"), the balance of which shall be maintained
and disbursed in accordance with the Replacement Reserve Agreement
dated as of the date hereof between Borrower and Lender (the
"Replacement Agreement"). Commencing on August 1, 1999, Borrower
shall deposit $15,000.00 monthly into the Replacement Reserve.
Borrower hereby pledges to Lender any and all monies now or
hereafter deposited in the Replacement Reserve as additional
security for the payment of the Debt. All earnings or
interest on the Replacement Reserve shall be and become part of
such Replacement Reserve and shall be disbursed as provided in the
Replacement Agreement and in this Section.
(b) Borrower has this day deposited with Lender, and
Lender has this day established, an interest bearing escrow
account at a federally insured institution the sum of $4,000.00
(the "Repair Escrow"), to be maintained and disbursed in
accordance with the Repair Escrow Agreement dated as of the date
hereof between Borrower and Lender (the "Repair Agreement").
Borrower hereby pledges to Lender any and all monies now or
hereafter deposited in the Repair Escrow as additional security
for the payment of the Debt. All earnings or interest on the
Repair Escrow shall be and become part of such Repair Escrow and
shall be disbursed as provided in the Repair Agreement and in this
Section.
8. CONDEMNATION
(a) Borrower shall promptly give Lender written notice
of the actual or threatened commencement of any condemnation or
eminent domain proceeding (a "Condemnation") and shall deliver to
Lender copies of any and all papers served in connection with such
proceedings. Lender is hereby irrevocably appointed as Borrower's
attorney-in-fact, coupled with an interest, with exclusive power
to collect, receive and retain any award or payment for such
Condemnation and to make any compromise or settlement in
connection with such proceeding, subject to the provisions of this
Agreement. Notwithstanding any taking by any public or quasi-
public authority through eminent domain or otherwise (including,
without limitation, any transfer made in lieu of or in
anticipation of the exercise of such taking), Borrower shall
continue to pay the Debt at the time and in the manner provided
for in the Note, the Mortgages, this Agreement, the Assignment,
the Environmental Agreement and the other Loan Documents, and the
Debt shall not be reduced until any award or payment therefor
shall have been actually received after expenses of collection and
applied by Lender to the discharge of the Debt. Lender shall not
be limited to the interest paid on the award by the condemning
authority but shall be entitled to receive out of the award
interest at the rate or rates provided in the Note.
(b) If the Mortgaged Property shall be the subject of a
Condemnation, in whole or in part, Borrower shall give prompt
notice thereof to Lender.
(i) In the case of a Condemnation, Lender may: (A)
settle and adjust any claim without the consent of Borrower, or
(B) allow Borrower to agree with the condemning authority on the
amount to be paid upon the Condemnation; provided, however, that
Borrower may adjust losses aggregating not in excess of $50,000.00
if such adjustment is carried out in a competent and timely
manner, and provided in any case that Lender shall be, and is
hereby, authorized to collect and receipt for any such
Condemnation award or proceeds. The expenses incurred by Lender
<PAGE>
in the adjustment and collection of a Condemnation award or
proceeds shall become part of the Debt, shall be secured by the
Mortgages and shall be reimbursed by Borrower to Lender on demand.
(ii) In the event of any Condemnation affecting all or
any portion of the Mortgaged Property where: (A) the Condemnation
award or proceeds are sufficient to enable Borrower to fully
restore the Mortgaged Property; (B) the term of, and proceeds
derived from, Borrower's business interruption insurance (or other
similar insurance) shall be sufficient to fully cover the period that
the Mortgaged Property is undergoing restoration; (C) Lender determines
that the restoration is reasonably capable of being
completed, and is actually completed at least 12 months prior
to the Maturity Date; (D) the Loan-to-Value Ratio upon
completion of restoration is estimated, by an appraiser
acceptable to Lender, to be no greater than .7:1.0; (E) the
Franchise Agreement has not been, and cannot be, terminated
as a result of the Condemnation; (F) the restoration can be
completed within 12 months from the date that the
Condemnation occurred, or within such shorter time period as
may be required by the Franchise Agreement; (G) the
restoration is permitted or required under the Franchise
Agreement; and (H) the Debt Service Coverage Ratio upon
completion is reasonably anticipated to be at least 1.50,
then, if no Event of Default shall have occurred and be
continuing, the Condemnation award or proceeds shall be
applied to reimburse Borrower for the cost of restoring,
repairing, replacing or rebuilding the Mortgaged Property or
the part thereof subject to the Condemnation, as provided for
below; and Borrower hereby covenants and agrees forthwith to
commence and diligently to prosecute such restoring,
repairing, replacing or rebuilding. NOI for purposes of this
calculation shall be NOI for the 12 calendar month period
immediately preceding the Condemnation, unless the appraiser
referenced in clause (D) above estimates that NOI after the
restoration will be more than ten (10%) percent less than NOI
for such 12 calendar month period, in which case the Debt
Service Coverage Ratio shall be calculated using the
appraiser's estimate of NOI.
(iii) Except as provided above, the award or
proceeds collected upon any Condemnation shall, at the option
of Lender in its sole discretion, be applied to the payment
of the Debt or applied to reimburse Borrower for the cost of
restoring, repairing, replacing or rebuilding the Mortgaged
Property or the part thereof subject to the Condemnation in
the manner set forth below. In no case shall any such
application reduce or postpone any payments otherwise
required pursuant to the Note, other than the final payment
on the Note.
(iv) In the event that a Condemnation award or
proceeds, if any, shall be made available to Borrower for the
restoring, repairing, replacing or rebuilding of the
Mortgaged Property, Borrower hereby covenants to restore,
repair, replace or rebuild the Mortgaged Property to be of at
least equal value and of substantially the same character as
prior to such Condemnation, all to be effected in accordance
with applicable law and plans and specifications approved in
advance by Lender; provided, however, that Borrower shall pay
all costs (and if required by Lender, shall deposit the total
thereof with Lender in advance) of such restoring, repairing,
replacing or rebuilding in excess of the net award or
proceeds made available pursuant to the terms hereof.
(v) In the event Borrower is entitled to
reimbursement out of proceeds held by Lender, such proceeds
shall be disbursed from time to time upon Lender being
furnished with: (A) evidence satisfactory to it of the
estimated cost of completion of the restoration, repair,
replacement and rebuilding; (B) funds, or, at Lender's
option, assurances satisfactory to Lender that such funds are
available, sufficient in addition to the Condemnation
award or proceeds to complete the proposed restoration, repair,
replacement and rebuilding; and (C) such architect's certificates,
<PAGE>
waivers of lien for work previously performed or contemporaneously
funded, contractor's sworn statements, title insurance
endorsements, bonds, plats of survey and such other evidences of
cost, payment and performance as Lender may reasonably require and
approve. Lender may, in any event, require that all plans and
specifications for such restoration, repair, replacement and
rebuilding be submitted to and approved by Lender prior to
commencement of work (which approval shall not be unreasonably
withheld). No payment made prior to the final completion of the
restoration, repair, replacement and rebuilding shall exceed
ninety (90%) percent of the value of the work performed from time
to time. Funds other than the Condemnation award or proceeds
shall be disbursed prior to disbursement of such proceeds, and at
all times the undisbursed balance of such proceeds remaining in
Lender's possession, together with funds deposited for that
purpose or irrevocably committed to the satisfaction of Lender by
or on behalf of Borrower for that purpose, shall be at least
sufficient in the reasonable judgment of Lender to pay for the
cost of completion of the restoration, repair, replacement or
rebuilding, free and clear of all liens and claims of lien. Any
surplus which may remain out of a Condemnation award or proceeds
held by Lender after payment of such costs of restoration, repair,
replacement or rebuilding shall be delivered to Borrower, provided
such restoration was performed in accordance with the provisions
of this Section, and Borrower is not then in default of its
obligations under the Loan Documents.
9. LEASES AND RENTS
(a) In connection with the Loan, Borrower has
absolutely and unconditionally assigned to Lender all of
Borrower's right, title and interest in all current and future
Leases and Rents, it being intended by Borrower that such
assignment constitutes a present, absolute assignment and not an
assignment for additional security only. Such assignment to
Lender shall not be construed to bind Lender to the performance of
any of the covenants, conditions or provisions contained in any
such Lease or otherwise to impose any obligation upon Lender.
Borrower shall execute and deliver to Lender such additional
instruments, in form and substance reasonably satisfactory to
Lender, as may hereafter be requested by Lender to further
evidence and confirm such assignment. Nevertheless, subject to
the terms of this Section, Lender has granted to Borrower a
revocable license to operate and manage the Mortgaged Property and
to collect the Rents. Borrower shall hold the Rents, or a portion
thereof sufficient to discharge all current sums due on the Debt,
in trust for the benefit of Lender for use in the payment of such
sums. Upon the occurrence of an Event of Default, the license
granted to Borrower shall automatically be revoked, and Lender
shall immediately be entitled to possession of all Rents, whether
or not Lender enters upon or takes control of the Mortgaged
Property. Lender is hereby granted and assigned by Borrower the
right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person, by agent
or by court-appointed receiver to collect the Rents. Any Rents
collected after revocation of the license may be applied toward
payment of the Debt in such priority and proportions as Lender in
its discretion shall deem appropriate.
(b) Borrower shall furnish Lender with executed copies
of all Leases. All renewals of Leases and all proposed Leases
shall provide for rental rates comparable to existing local
market rates and shall be arms-length transactions. All proposed
Leases shall be subject to the prior approval of Lender except
that with respect to proposed Leases which:
(i) do not individually or in the aggregate alter
the ratios of hotel to non-hotel space (with respect to the
portion of the Mortgaged Property owned by Health-Styles) and
Facility to non-Facility space (with respect to the portion
of the Mortgaged Property leased by Sierra);
<PAGE>
(ii) are for less than 1,000 rentable square feet;
(iii) provide for minimum terms of not less
than three years;
(iv) provide for work letters and other tenant
improvement allowances not in excess of that set forth in the
budget for the operation of the Mortgaged Property approved
by Lender;
(v) do not contain any provision for free rent or
rent abatement;
(vi) except as may be required by applicable law,
do not contain any cancellation or termination rights
exercisable by the tenant thereunder;
(vii) are the result of an arms-length
transaction with a bona fide, independent third-party;
(viii) provide for rental rates comparable to
existing market rates; and
(ix) do not contain any terms which would
materially affect Lender's rights under the Note, the
Mortgages, this Agreement, the Assignment, the Environmental
Agreement or the other Loan Documents,
Lender's approval shall not be unreasonably withheld or delayed.
All Leases shall provide that they are subordinate to the
applicable Mortgages and that the lessee agrees to attorn to
Lender. Borrower shall: (A) observe and perform all the
obligations imposed upon the lessor under the Leases and shall not
do or permit to be done anything to impair the value of the Leases
as security for the Debt; (B) promptly send to Lender copies of
all notices of default which Borrower shall send or receive
thereunder; (C) enforce all of the terms, covenants and conditions
contained in the Lease on the part of the lessee thereunder to be
observed or performed, short of termination thereof; (D) not
collect any Rents more than one month in advance; (E) not execute
any other assignment of the lessor's interest in the Leases or
Rents; (F) other than de minimis nonfinancial amendments, not
alter, modify or change the terms of the Leases without the prior
written consent of Lender (which consent shall not be unreasonably
withheld), or, except if a lessee is in default, cancel or
terminate the Leases or accept a surrender thereof or convey or
transfer or suffer or permit a conveyance or transfer of the
Mortgaged Property or of any interest therein so as to effect a
merger of the estates and rights of, or a termination or
diminution of the obligations of, lessees thereunder; provided,
however, that any Lease may be cancelled if at the time of the
cancellation thereof a new Lease is entered into with a bona fide,
independent third-party on substantially the same terms or more
favorable terms as the cancelled Lease; (G) not alter, modify or
change the terms of any guaranty of a Lease or cancel or terminate
such guaranty without the prior written consent of Lender; (H) not consent
to any assignment of or subletting under the Leases not in accordance
with their terms, without the prior written consent of Lender; and
(I) execute and deliver at the request of Lender all such further
assurances, confirmations and assignments in connection with the
Mortgaged Property as Lender shall from time to time request.
(c) All security deposits of lessees, whether held in
cash or any other form, shall not be commingled with any other
funds of Borrower and, if cash, shall be deposited by Borrower
into the Security Deposits Account. Any bond or other instrument
which Borrower is permitted to hold in lieu of cash security
deposits under any applicable legal requirements shall be
maintained in full force and effect unless replaced by cash
deposits as hereinabove described, shall be issued by an
institution reasonably satisfactory to Lender, shall, if permitted
<PAGE>
pursuant to any legal requirements, name Lender as payee or
mortgagee thereunder (or at Lender's option, be fully assignable
to Lender) and shall, in all respects, comply with any applicable
legal requirements and otherwise be reasonably satisfactory to
Lender. Borrower shall, upon request, provide Lender with
evidence reasonably satisfactory to Lender of Borrower's
compliance with the foregoing. Following the occurrence and
during the continuance of any Event of Default, Borrower shall,
upon Lender's request, if permitted by any applicable legal
requirements, turn over to Lender the security deposits (and any
interest theretofore earned thereon) with respect to all or any
portion of the Mortgaged Property, to be held by Lender subject to
the terms of the Leases.
10. REPRESENTATIONS CONCERNING LOAN
Borrower represents, warrants and covenants as follows:
(a) The Note, the Mortgages, this Agreement, the
Assignment, the Environmental Agreement and the other Loan
Documents are the legal, valid and binding obligations of
Borrower, and are not subject to any right of rescission, setoff,
counterclaim or defense, including the defense of usury, nor would
the operation of any of the terms of the Note, the Mortgages (or
either of them), this Agreement, the Assignment, the Environmental
Agreement and the other Loan Documents, or the exercise of any
right thereunder, render the Mortgage unenforceable, in whole or
in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury.
(b) All certifications, permits, licenses and approvals
required for the legal use, occupancy and operation of the
Mortgaged Property as currently operated, including, without
limitation, any applicable liquor license, certificate of
completion and occupancy permit, have been obtained and are in
full force and effect. The Mortgaged Property is free of material
damage and is in good repair, and there is no proceeding pending
or, to the best of Borrower's knowledge, threatened for the total
or partial condemnation of, or affecting, the Mortgaged Property.
(c) All of the Improvements which were considered in
determining the appraised value of the Mortgaged Property lie
wholly within the boundaries and building restriction lines of the
Mortgaged Property, no improvements on adjoining properties
encroach upon the Mortgaged Property, and no easements or other
encumbrances upon the Premises encroach upon any of the
Improvements, so as to affect the value or marketability of the
Mortgaged Property. To the best of its knowledge (after due
inquiry and investigation), the Mortgaged Property is contiguous
to and has access to a physically and legally open all-weather
public street, has all necessary permits and approvals for ingress
and egress, is adequately serviced by public water, septic systems
and utilities and is on one or more separate tax parcels, all of
which are separate and apart from any other property owned by
Borrower or any other person. The Mortgaged Property has all
necessary access by public roads or easements which in each case
are not terminable and are not subordinate to any mortgage other
than the applicable Mortgage. To the best of its knowledge (after
due inquiry and investigation), all of the Improvements comply
with all requirements of applicable building codes, zoning and
subdivision laws and ordinances.
(d) The Mortgaged Property is not subject to any
leases, licenses or other use or occupancy agreements other than
the Leases described in the rent roll delivered to Lender in
connection with this Agreement. No person has any possessory
interest in the Mortgaged Property or right to occupy any portion
thereof except under and pursuant to the provisions of the Leases
(or transient hotel guests or hospital patients) in the ordinary
course of Borrower's business.
<PAGE>
(e) The survey of the Mortgaged Property delivered to
Lender in connection with this Agreement has been performed by a
duly licensed surveyor or registered professional engineer in the
jurisdiction in which the Mortgaged Property is situated, and does
not fail to reflect any material matter affecting the Mortgaged
Property or the title thereto.
(f) The financial statements heretofore furnished to
Lender are, as of the date specified therein, complete and correct
in all material respects and fairly present the financial
condition of Borrower, and are prepared in accordance with
generally accepted accounting principles applied on a consistent
basis. Borrower does not have on the date hereof any contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any
unfavorable commitments which in each case are known to Borrower
and which, in Borrower's opinion, are reasonably likely to result
in a material adverse effect on the Mortgaged Property or the
operation thereof as currently utilized, except as referred to or
reflected or provided for in the financial statements heretofore
furnished to Lender or as otherwise disclosed to Lender herein.
Since the last date of such financial statements, there has been
no material adverse change in the financial condition, operations
or business of Borrower from that set forth in such financial
statements as of the dates thereof.
(g) There exists no written Management Agreement with
respect to the management and operation of any portion of the
Mortgaged Property. There exists no franchising arrangements
entered into by either or both of Borrower with respect any
portion of the Mortgaged Property.
(h) Neither the execution and delivery of the Loan
Documents, Borrower's performance thereunder, the recordation of
the Mortgages (or either of them), nor the exercise of any
remedies by Lender, will adversely affect: (A) Borrower's rights
under either the Franchise Agreement or the Management Agreement;
or (B) the licenses, registrations, permits, certificates,
authorizations and approvals necessary for the operation of the
Mortgaged Property as currently operated.
(i) The current Leases are in full force and effect
and there are no defaults thereunder by either party and there are
no conditions which with the passage of time and/or notice would
constitute defaults thereunder.
11. SINGLE PURPOSE ENTITY; AUTHORIZATION
Borrower represents and warrants, and covenants for so
long as any obligations secured by the Mortgages (or either of
them) remain outstanding, as follows:
(a) Borrower does not and will not own any asset or
property other than: (i) the Mortgaged Property; and (ii)
incidental personal property necessary for the ownership or
operation of the Mortgaged Property.
(b) Borrower does not and will not engage in any
business other than the ownership, management and operation of the
Mortgaged Property, and Borrower will conduct and operate its
business in all material respects as presently conducted and
operated.
(c) Except with respect to the Management Agreement
which, in its present form, is acceptable to Lender, Borrower will
not enter into any contract or agreement with any Guarantor or an
affiliate, except upon terms and conditions that are intrinsically
fair and substantially similar to those that would be available on
an arms-length third-party basis.
<PAGE>
(d) Borrower has not incurred and will not incur any
indebtedness, secured or unsecured, direct or indirect, absolute
or contingent (including guaranteeing any obligation), other than:
(i) the Debt; (ii) trade and operational debt incurred in the
ordinary course of business with trade creditors and in amounts as
are customary and reasonable under the circumstances; and (iii)
Subordinate Loans as provided for in Section 65 hereof. Except
with Lender's prior written approval in each instance, no
indebtedness other than the Debt is or shall be secured by the
Mortgaged Property. Lender's approval shall be granted or
withheld at Lender's sole discretion. In connection with any such
financing approved by Lender, Borrower shall be required to obtain
and deliver to Lender a subordination and standstill agreement
from such lender which shall be in form and substance satisfactory
to Lender in its sole discretion.
(e) Borrower has not made and will not make any loans
or advances to any third party (including any constituent party,
any Guarantor or any affiliate of Borrower, of any constituent
party or of any Guarantor), except in de minimis amounts in the
ordinary course of business and of the character of trade or
operational expenses.
(f) Borrower has done or caused to be done, and will do
or cause to be done, all things necessary to preserve its
existence, and Borrower will not, nor will Borrower permit any
constituent party or Guarantor, to amend, modify or otherwise
change the partnership certificate, partnership agreement,
articles of incorporation and bylaws, trust or other
organizational documents, as the case may be, of Borrower or such
constituent party or Guarantor in a manner which would adversely
affect Borrower's existence as a single purpose entity.
(g) Borrower will maintain books and records and bank
accounts separate from those of its affiliates and any constituent
party. Borrower shall not change the principal place of its
business without providing Lender with at least 30 days prior
written notice of such change to Lender.
(h) Borrower is and will be, and at all times will hold
itself out to the public as, a legal entity separate and distinct
from any other entity (including any affiliate of Borrower, any
constituent party, any Guarantor or any affiliate of any
constituent party or Guarantor).
(i) Neither Borrower nor any constituent party will
cause or seek the dissolution or winding up, in whole or in part,
of Borrower.
(j) Borrower will not commingle its funds and other
assets with those of any constituent party, any Guarantor, any
affiliate of Borrower, of any constituent party or of any
Guarantor, or any other person.
(k) Borrower will not file or consent to the filing of
any petition to take advantage of any applicable insolvency,
bankruptcy, liquidation or reorganization statute, or make an
assignment for the benefit of creditors.
(l) Borrower does not and will not hold itself out to
be responsible for the debts or obligations of any other person.
(m) Each of Health-Styles and the managing member of
Sierra shall at all times maintain at least one duly appointed
independent member of its Board of Directors, which member has not
been at the time of such individual's appointment and may not have
been at any time during the preceding two years: (i) a stockholder
<PAGE>
of, or an officer or an employee of Borrower; (ii) a customer of
or supplier to Borrower; (iii) a person or other entity
controlling any such stockholder, officer, employee, customer or
supplier; or (iv) a member of the immediate family of any such
stockholder, officer, employee, customer or supplier or any other
director of Borrower. As used in this subsection (m), the term
"control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such person or entity, whether through ownership of
voting securities by contract or otherwise.
12. MAINTENANCE OF MORTGAGED PROPERTY
Borrower shall cause the Mortgaged Property to be
maintained in a good and safe condition and repair. The
Improvements and the Equipment shall not be removed, demolished or
materially altered (except for normal replacement of the
Equipment) without the consent of Lender. Borrower shall promptly
comply with all laws, orders and ordinances affecting the
Mortgaged Property, or the use thereof. Borrower shall promptly
repair, replace or rebuild any part of the Mortgaged Property
which may be destroyed by any casualty, or become damaged, worn or
dilapidated, or which may be affected by any proceeding of the
character referred to in Section 8 hereof, and shall complete and
pay for any structure at any time in the process of construction
or repair on the Premises. Except as expressly permitted in
writing by Lender, Borrower shall not initiate, join in, acquiesce
in, or consent to any change in any private restrictive covenant,
zoning law or other public or private restriction limiting or
defining the uses which may be made of the Mortgaged Property or
any part thereof. If under applicable zoning provisions the use
of all or any portion of the Mortgaged Property is or shall become
a nonconforming use, Borrower will not cause or permit such
nonconforming use to be discontinued or abandoned without the
prior written consent of Lender. Borrower shall not: (a) change
the use of the Mortgaged Property as currently configured and
utilized; (b) permit or suffer to occur any waste on or to the Mortgaged
Property or to any portion thereof; or (c) take any steps whatsoever to
convert the Mortgaged Property, or any portion thereof, to a condominium
or cooperative form of ownership.
13. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY
(a) Borrower acknowledges that Lender has examined and
relied on the creditworthiness and experience of Borrower and its
general partners, principals and (if Borrower is a trust)
beneficial owners in owning and operating properties such as the
Mortgaged Property in agreeing to make the Loan, and that Lender
will continue to rely on Borrower's ownership of the Mortgaged
Property as a means of maintaining the value of the Mortgaged
Property as security for repayment of the Debt. Borrower
acknowledges that Lender has a valid interest in maintaining the
value of the Mortgaged Property so as to ensure that, should
Borrower default in the repayment of the Debt, Lender can recover
the Debt by a sale of the Mortgaged Property. Borrower shall not,
without the prior written consent of Lender, sell, convey,
alienate, mortgage, encumber, pledge or otherwise transfer the
Mortgaged Property or any part thereof, or permit the Mortgaged
Property or any part thereof to be sold, conveyed, alienated,
mortgaged, encumbered, pledged or otherwise transferred.
(b) A sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer within the meaning of this Section
shall be deemed to include: (i) an installment sales agreement
wherein Borrower agrees to sell the Mortgaged Property or any part
thereof for a price to be paid in installments; (ii) an agreement
by Borrower leasing all or a substantial part of the Mortgaged
Property for other than actual occupancy by a space tenant
thereunder or a sale, assignment or other transfer of, or the
grant of a security interest in, Borrower's right, title and
interest in and to any Leases or any Rents; (iii) if Borrower, any
Guarantor, or any general partner of Borrower or any Guarantor is
a corporation, the voluntary or involuntary sale, conveyance or
transfer of such corporation's stock (or the stock of any
<PAGE>
corporation directly or indirectly controlling such corporation by
operation of law or otherwise) or the creation or issuance of new
stock in one or a series of transactions by which an aggregate of
more than forty-nine (49%) percent of such corporation's stock
shall be vested in a party or parties who are not now
stockholders; and (iv) if Borrower, any Guarantor or any general
partner of Borrower or any Guarantor is a limited or general
partnership or joint venture, the change, removal or resignation
of a general partner, managing partner or joint venturer or the
transfer of the partnership interest of any general partner,
managing partner or joint venturer; provided, however, that
notwithstanding anything to the contrary provided herein, the
principals of Borrower as of the date hereof must at all times
maintain controlling and voting ownership of no less than 51% of
the beneficial controlling and voting interests of Borrower.
Notwithstanding anything to the contrary provided herein, the
principals of Borrower existing on the date hereof shall have the
right to transfer, voluntarily or involuntarily, their ownership
interests in Borrower to any person or single purpose entity
created by such person who is an immediate family member of such
principal; provided, however, that NextHealth, Inc. shall at all
times have supervisory management obligations with respect to the
Mortgaged Property.
(c) No sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Mortgaged Property, or of
any interest therein, shall be permitted during the term of the
Loan without Lender's prior written approval. Lender shall not
be required to demonstrate any actual impairment of its security
or any increased risk of default hereunder in order to declare the
Debt immediately due and payable upon Borrower's sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property without Lender's consent. This provision shall
apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Mortgaged Property
regardless of whether voluntary or not, or whether or not Lender
has consented to any previous sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Mortgaged
Property.
(d) Lender's consent to one sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property shall not be deemed to be a waiver of Lender's
right to require such consent in the future. Any sale,
conveyance, alienation, mortgage, encumbrance, pledge or transfer
of the Mortgaged Property made in contravention of this Section
shall be null and void and of no force or effect.
(e) Borrower agrees to bear and shall pay or reimburse
Lender on demand for all expenses (including, without limitation,
Lender's out-of-pocket attorney's fees and disbursements, title
search costs and title insurance endorsement premiums) incurred by
Lender in connection with the review, approval or disapproval, and
documentation of any such sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer.
14. ESTOPPEL CERTIFICATES; AFFIDAVITS
(a) Within ten (10) days after request by Lender,
Borrower shall furnish Lender with a statement, duly acknowledged
and certified, setting forth: (i) the amount of the original
principal amount of the Note; (ii) the then outstanding principal
balance of the Note; (iii) the rate of interest of the Note; (iv)
the date on which installments of interest and/or principal were
last paid; (v) any offsets or defenses to the payment of the Debt;
and (vi) that the Note, the Mortgages, this Agreement, the
Assignment, the Environmental Agreement and the other Loan
Documents are valid, legal and binding obligations, which have not
been modified or if modified, giving particulars of such
modification.
<PAGE>
(b) Within ten (10) days after request by Lender,
Borrower shall furnish Lender with a certificate reaffirming all
representations and warranties of Borrower set forth herein and in
the other Loan Documents as of the date requested by Lender or, to
the extent of any changes to any such representations and
warranties, so stating such changes.
(c) Borrower shall deliver to Lender upon request,
tenant estoppel certificates from each tenant under a Lease in
form and substance reasonably satisfactory to Lender; provided,
however, that Borrower shall not be required to deliver such
certificates more frequently than two times in any calendar year.
15. CHANGES IN THE LAWS REGARDING TAXATION
If any law is enacted, adopted or amended after the date
of this Agreement which deducts the Debt from the value of the
Mortgaged Property for the purpose of taxation, or which imposes a
tax, either directly or indirectly, on the Debt or Lender's
interest in the Mortgaged Property, Borrower will pay such tax,
with interest and penalties thereon, if any. In the event Lender
or its counsel determines that the payment of such tax or interest
and penalties by Borrower would be unlawful or
taxable to Lender or unenforceable or provide the basis for a
defense of usury, then in any such event, Lender shall have the
option, by written notice of not less than 90 days, to declare the
Debt immediately due and payable.
16. NO CREDITS ON ACCOUNT OF THE DEBT
Borrower will not claim, demand or be entitled to any
credit or credits on account of the Debt for any part of the Taxes
or Other Charges assessed against the Mortgaged Property, or any
part thereof, and no deduction shall otherwise be made or claimed
from the assessed value of the Mortgaged Property, or any part
thereof, for real estate tax purposes by reason of the Mortgages
(or either of them) or the Debt. In the event such claim, credit
or deduction shall be required by law, Lender shall have the
option, by written notice of not less than 90 days, to declare the
Debt immediately due and payable.
17. DOCUMENTARY STAMPS
If at any time the United States of America, any State
thereof or any subdivision of any such State shall require revenue
or other stamps to be affixed to the Note or the Mortgages (or
either of them), or shall impose any other tax or charge on the
same, Borrower will pay for the same, with interest and penalties
thereon, if any.
18. CONTROLLING AGREEMENT
Borrower agrees to an effective rate of interest that is
the rate stated in the Note plus any additional rate of interest
resulting from any other charges in the nature of interest paid or
to be paid by or on behalf of Borrower, or any benefit received or
to be received by Lender, in connection with the Note or any of
the other Loan Documents. It is expressly stipulated and agreed
to be the intent of Borrower and Lender at all times to comply
with applicable state law or applicable United States federal law
(to the extent that it permits Lender to contract for, charge,
take, reserve, or receive a greater amount of interest than under
state law) and that this Section shall control every other
covenant and agreement in this Agreement and the other Loan
Documents. If the applicable law (state or federal) is ever
judicially interpreted so as to render usurious any amount called
for under the Note or under any of the other Loan Documents, or
contracted for, charged, taken, reserved, or received with respect
to the Debt, or if Lender's exercise of the option to accelerate
the maturity of the Note, or if any prepayment by Borrower results
<PAGE>
in Borrower having paid any interest in excess of that permitted
by applicable law, then it is Borrower's and Lender's express
intent that all excess amounts theretofore collected by Lender
shall be credited on the principal balance of the Note and all
other Debt (or, if the Note and all other Debt have been or would
thereby be paid in full, refunded to Borrower), and the provisions
of the Note and the other Loan Documents immediately be deemed
reformed and the amounts thereafter collectible hereunder and
thereunder reduced, without the necessity of the execution of any
new documents, so as to comply with the applicable law, but so as
to permit the recovery of the fullest amount otherwise called for
hereunder or thereunder. All sums paid or agreed to be paid to
Lender for the use, forbearance or detention of the Debt shall, to
the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Debt
until payment in full so that the rate or amount of interest on
account of the Debt does not exceed the maximum lawful rate from
time to time in effect and applicable to the Debt for so long as
the Debt is outstanding. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, it is not
the intention of Lender to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to
collect unearned interest at the time of such acceleration.
19. BOOKS AND RECORDS
Borrower will maintain full and accurate books of
accounts and other records reflecting the operations of the
Mortgaged Property. Borrower will furnish, or cause to be
furnished to Lender, within 30 days of the end of each calendar
month, the following items, each certified by a senior financial
officer of Borrower as true, correct and complete as of the end of
and for such period (subject to normal year-end adjustments), and
as having been prepared in accordance with generally accepted
accounting principles, consistently applied: (a) a written
occupancy statement dated as of the last day of the most recently
ended calendar quarter identifying each of the Leases by the term,
space occupied, rental required to be paid, security deposit paid,
any rental concessions, and identifying any defaults or payment
delinquencies thereunder; (b) monthly and year to date operating
statements detailing the total revenues received and total
expenses incurred in connection with the ownership and operation
of the Mortgaged Property, including a comparison of the budgeted
income and expenses and the actual income and expenses for such
month and the year to date (which operating information shall
include the Improvements); and (c) a written statement dated as of
the last day of the most recently ended month showing the
percentage of hotel rooms and hospital beds rented and/or occupied
during such month and the average daily room rate charged during
such month. Upon request by Lender, Borrower will provide a
detailed explanation of any variances of ten (10%) percent or more
between budgeted and actual amounts for such periods. Borrower
shall furnish, within 90 days following the end of each calendar
year, a statement of the financial affairs and condition of the
Mortgaged Property, including a statement of profit and loss and a
balance sheet for the Mortgaged Property (and Borrower) for the
immediately preceding fiscal year, prepared by an independent
certified public accountant acceptable to Lender. Borrower shall
deliver to Lender on or before December 31 of each calendar year
an itemized operating budget and capital expenditure budget for
the Mortgaged Property and a management plan for the Mortgaged
Property for the next succeeding calendar year in such detail as
Lender may reasonably request. Borrower shall promptly after
receipt deliver to Lender copies of all quality inspection reports
or similar reports or inspection results that are delivered to it
by the Franchisor. At any time and from time to time Borrower
shall deliver to Lender or its agents such other financial data as
Lender or its agents shall reasonably request with respect to
Borrower and the ownership, maintenance, use and operation of the
Mortgaged Property. All information required to be furnished to
Lender pursuant to this Section shall be on the form provided by
Lender (which form shall accompany Lender's request).
<PAGE>
20. PERFORMANCE OF OTHER AGREEMENTS
Borrower shall observe and perform each and every term
to be observed or performed by Borrower pursuant to the terms of
any agreement or recorded instrument affecting or pertaining to
the Mortgaged Property.
21. FURTHER ASSURANCES
(a) Borrower will, at the cost of Borrower, and without
expense to Lender, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages,
assignments, notices of assignment, Uniform Commercial Code
financing statements or continuation statements, transfers and
assurances as Lender shall, from time to time, require, for the
better assuring, conveying, assigning, transferring, and
confirming unto Lender the property and rights hereby mortgaged,
given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, pledged, assigned and hypothecated or intended now or
hereafter so to be, or which Borrower may be or may hereafter
become bound to convey or assign to Lender, or for carrying out
the intention or facilitating the performance of the terms of this
Agreement or for filing, registering or recording the Mortgages
(or either of them). Borrower, on demand, will execute and
deliver and hereby authorizes Lender to execute in the name of
Borrower or without the signature of Borrower to the extent Lender
may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the
security interest of Lender in the Mortgaged Property. Borrower
grants to Lender an irrevocable power of attorney coupled with an
interest for the purpose of exercising and perfecting any and all
rights and remedies available to Lender at law and in equity,
including without limitation such rights and remedies available to
Lender pursuant to this Section; provided, however, that so long
as Borrower is in compliance with the terms and conditions of this
Agreement, Lender will first seek Borrower's assistance in
exercising and perfecting such rights and remedies.
(b) Borrower acknowledges that Lender intends to sell
the Loan to a party who may pool the Loan with a number of other
loans and to have the holder of such loans grant participations
therein or issue one or more classes of Mortgage Backed, Pass
Through Certificates or other securities evidencing a beneficial
interest in a rated or unrated public offering or private
placement (the "Securities"). The Securities may be rated by one
or more national rating agencies. In connection therewith,
Borrower agrees to make available to Lender all information
concerning its business and operations which Lender reasonably
requests; provided, however, that NextHealth, Inc., the managing
member of Sierra, shall not be required to make available to
Lender for disclosure in connection with the sale of Securities,
information concerning NextHealth, Inc. that is unrelated to its
interests and obligations with respect to Sierra or its
obligations under the Loan Documents, to the extent such
disclosure would violate federal securities laws applicable to
NextHealth, Inc. Lender may share such information with the
investment banking firms, rating agencies, accounting firms, law
firms and other third-party advisory firms involved with the Loan
or the Securities. The information provided by Borrower to Lender
may ultimately be incorporated into the offering documents for the
Securities and thus such information may be disclosed to various
investors. Lender and all of the aforesaid third-party advisors
and professional firms shall be entitled to rely on the
information supplied by, or on behalf of, Borrower. Lender, at
its sole option, may also elect to split the Loan into two or more
loans, each secured by liens on the Mortgaged Property, and sell,
assign, pledge or otherwise hypothecate one or more of such loans
to third parties. Borrower shall cooperate in all such efforts by
executing and delivering all such documents, certificates,
instruments and other things to evidence or confirm Borrower's
obligations hereunder, and in no such event shall the Debt or
Borrower's obligations hereunder be increased as a result thereof.
<PAGE>
22. RECORDING OF MORTGAGES
Borrower forthwith upon the execution and delivery of
this Agreement and thereafter, from time to time, will cause the
Mortgages, and any security instrument creating a lien or security
interest or evidencing the lien thereof upon the Mortgaged
Property and each instrument of further assurance to be filed,
registered or recorded in such manner and in such places as may be
required by any present or future law in order to publish notice
of and fully to protect the lien or security interest thereof
upon, and the interest of Lender in, the Mortgaged Property.
Borrower will pay all filing, registration or recording fees, and
all expenses incident to the preparation, execution and
acknowledgment of the Mortgages, any mortgage supplemental
thereto, any security instrument with respect to the Mortgaged
Property and any instrument of further assurance, and all federal,
state, county and municipal taxes, duties, imposts, assessments
and charges arising out of or in connection with the execution and
delivery of the Mortgages (or either of them), any mortgage
supplemental thereto, any security instrument with respect to the
Mortgaged Property or any instrument of further assurance, except
where prohibited by law so to do. Borrower shall hold harmless
and indemnify Lender, its successors and assigns, against any
liability incurred by reason of the imposition of any tax on the
making and recording of the Mortgages (or either of them).
23. REPORTING REQUIREMENTS
Borrower agrees to give prompt notice to Lender of the
insolvency or bankruptcy filing of Borrower or any constituent
thereof, or the death, insolvency or bankruptcy filing of any
Guarantor.
24. EVENTS OF DEFAULT
The term "Event of Default" as used herein shall mean
the occurrence or happening, at any time and from time to time, of
any one or more of the following:
(a) if any portion of the Debt is not paid prior to the
tenth (10th) day after the date such payment is due or if the
entire Debt is not paid on or before the Maturity Date;
(b) subject to Borrower's right to contest as provided
herein, if any of the Taxes or Other Charges are not paid when due
and payable;
(c) if the Policies are not kept in full force and
effect, or if the Policies are not delivered to Lender upon
request;
(d) if Borrower transfers or encumbers any portion of
the Mortgaged Property in a manner inconsistent with the terms of
this Agreement;
(e) if any representation or warranty of Borrower, or
of any Guarantor, made herein, in any Loan Document, any guaranty,
or in any certificate, report, financial statement or other
instrument or document furnished to Lender shall have been false
or misleading in any material respect when made;
(f) if Borrower or any Guarantor shall make an
assignment for the benefit of creditors, or if Borrower shall
generally not be paying its debts as they become due;
(g) if a receiver, liquidator or trustee of Borrower or
of any Guarantor shall be appointed, or if Borrower or any
Guarantor shall be adjudicated a bankrupt or insolvent, or if any
petition for bankruptcy, reorganization or arrangement pursuant to
federal bankruptcy law, or any similar federal or state law, shall
<PAGE>
be filed by or against, consented to, or acquiesced in by,
Borrower or any Guarantor or if any proceeding for the dissolution
or liquidation of Borrower or of any Guarantor shall be
instituted; provided, however, that such appointment,
adjudication, petition or proceeding, if involuntary and not
consented to by Borrower or such Guarantor, shall constitute an
Event of Default only if not being discharged, stayed or dismissed
within 90 days;
(h) if Borrower shall be in default under any other
mortgage or security agreement covering any part of the Mortgaged
Property, whether it be superior or junior in lien to the
Mortgages (or either of them);
(i) subject to Borrower's right to contest as provided
herein, if the Mortgaged Property becomes subject to any
mechanic's, materialman's or other lien except a lien for local
real estate taxes and assessments not then due and payable;
(j) if Borrower fails to cure promptly any violations
of laws or ordinances affecting the Mortgaged Property;
(k) except as permitted in this Agreement, the actual
or threatened alteration, improvement, demolition or removal of
any of the Improvements without the prior written consent of
Lender;
(l) if there shall occur any damage to the Mortgaged
Property in any manner which is not covered by insurance solely as
a result of Borrower's failure to maintain insurance required in
accordance with this Agreement;
(m) if without Lender's prior written consent: (i) the
manager under the Management Agreement (or any succeeding
management agreement) resigns or is removed; (ii) the ownership,
management or control of such manager is transferred to a person
or entity other than the general partner or managing partner of
Borrower; or (iii) there is any material change in or termination
of the Management Agreement (or any succeeding management
agreement);
(n) if without Lender's prior written consent, there is
any material change in the Franchise Agreement (or any succeeding
franchise agreement);
(o) if for more than 30 days after receipt of notice
from Lender, Borrower shall continue to be in default under any
term, covenant or condition of this Agreement, the Assignment, the
Environmental Agreement or any of the other Loan Documents other
than as specified in any of subsections (a) through (n) of this
Section; provided, however, that if the cure of any such default
cannot reasonably be effected within such 30 day period and
Borrower shall have promptly and diligently commenced to cure such
default within such 30 day period, then the period to cure shall
be deemed extended for up to an additional 90 days from Lender's
default notice so long as Borrower diligently and continuously
proceeds to cure such default to Lender's satisfaction; provided
further, however, that notwithstanding anything herein to the
contrary, if Sierra and/or Borrower shall fail to perform any
term, covenant or condition of Section 63 hereof or if any
representation or warranty of Sierra and/or
Borrower made, or deemed to have been made, pursuant to Section 63
hereof shall have been false or misleading in any material respect
when made or deemed to have been made, an Event of Default shall
have occurred, and the Default Rate shall be immediately
applicable to the then outstanding principal balance of the Loan,
without any requirement of notice or any periods of grace or cure
whatsoever;
<PAGE>
(p) if a default has occurred and continues beyond any
applicable cure period under the Management Agreement if such
default permits a party to terminate or cancel the Management
Agreement;
(q) if a default has occurred and continues beyond any
applicable cure period under the Franchise Agreement if such
default permits a party to terminate or cancel the Franchise
Agreement;
(r) if Borrower ceases to operate a hotel and the
Facility on the Mortgaged Property or terminates such business for
any reason whatsoever (other than temporary cessation in
connection with any renovations to the Mortgaged Property or
restoration of the Mortgaged Property after casualty or
condemnation); or
(s) if Borrower terminates or cancels the Franchise
Agreement or operates the Mortgaged Property under the name of any
hotel chain or system without Lender's prior written consent.
25. LATE PAYMENT CHARGE
If any portion of the Debt is not paid prior to the
tenth (10th) day after the date such payment is due or if the
entire Debt is not paid on or before the Maturity Date, Borrower
shall pay to Lender upon demand an amount equal to five (5%)
percent of such overdue portion of the Debt, to defray the expense
incurred by Lender in handling and processing such delinquent
payment and to compensate Lender for the loss of the use of such
delinquent payment, and such amount shall be secured by the
Mortgages, the Assignment, the Environmental Agreement and the
other Loan Documents.
26. RIGHT TO CURE DEFAULTS
Upon the occurrence of any Event of Default or if
Borrower fails to make any payment or to do any act as herein
provided, Lender may, but without any obligation to do so and
without notice to or demand on Borrower and without releasing
Borrower from any obligation hereunder, take such action as Lender
may deem necessary to protect its security for the Loan. Lender is
authorized to enter upon the Mortgaged Property for such purposes
or to appear in, defend, or bring any action or proceeding to
protect its interest in the Mortgaged Property or to foreclose the
Mortgages (or either of them) or collect the Debt, and the cost
and expense thereof (including Lender's attorneys' fees to the
extent permitted by law), with interest at the Default Rate for
the period after notice from Lender that such cost or expense was
incurred to the date of payment to Lender, shall constitute a
portion of the Debt, shall be secured by the Mortgages (or either
of them), the Assignment, the Environmental Agreement and the
other Loan Documents and shall be due and payable to Lender upon
demand. In the event of legal proceedings, court costs and
attorneys' fees shall be set by the court and not the jury and
shall be included in any judgment obtained by Lender.
27. REMEDIES
(a) Upon the occurrence of any Event of Default, Lender
may take such action, without notice or demand, as it deems
advisable to protect and enforce its rights against Borrower and
in and to the Mortgaged Property by Lender itself or otherwise
including, without limitation, the following actions, each of
which may be pursued concurrently or otherwise, at such time and
in such order as Lender may determine, in its sole discretion,
without impairing or otherwise affecting the other rights and
remedies of Lender:
(i) declare the entire Debt to be immediately due
and payable;
<PAGE>
(ii) institute a proceeding or proceedings,
judicial or nonjudicial, by advertisement or otherwise, for
the complete foreclosure of the Mortgages (or either of them)
in which case the Mortgaged Property or any interest therein
may be sold for cash or otherwise in one or more parcels or
in several interests or portions and in any order or manner;
(iii) with or without entry, to the extent
permitted and pursuant to the procedures provided by
applicable law, institute proceedings for the partial
foreclosure of the Mortgages (or either of them) for the
portion of the Debt then due and payable, subject to the
continuing lien of the Mortgages (or either of them) for the
balance of the Debt not then due;
(iv) sell for cash or otherwise the Mortgaged
Property or any part thereof and all estate, claim, demand,
right, title and interest of Borrower therein and rights of
redemption thereof, pursuant to the power of sale contained
herein, in the Mortgages (or either of them) or otherwise, at
one or more sales, as an entity or in parcels, at such time
and place, upon such terms and after such notice thereof as
may be required or permitted by law;
(v) institute an action, suit or proceeding in
equity for the specific performance of any covenant,
condition or agreement contained herein, in the Assignment,
the Environmental Agreement, the Note or in the other Loan
Documents;
(vi) recover judgment on the Note either before,
during or after any proceedings for the enforcement of the
Mortgages (or either of them);
(vii) apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged
Property, without notice and without regard for the adequacy
of the security for the Debt and without regard for the
solvency of Borrower, any Guarantor or of any person, firm or
other entity liable for the payment of the Debt;
(viii) revoke the license granted to Borrower to
collect the Rents and other sums due under the Leases and
enforce Lender's interest in the Leases and Rents and enter
into or upon the Mortgaged Property, either personally or by
its agents, nominees or attorneys and dispossess Borrower and
its agents and servants therefrom, and thereupon Lender may
to the maximum extent permitted, or not restricted, under
applicable law: (A) use, operate, manage, control,
insure, maintain, repair, restore and otherwise deal with all
and every part of the Mortgaged Property and conduct the
business thereat; (B) complete any construction on the
Mortgaged Property in such manner and form as Lender deems
advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Mortgaged
Property; (D) exercise all rights and powers of Borrower with
respect to the Mortgaged Property, whether in the name of
Borrower or otherwise including, without limitation, the
right to make, cancel, enforce or modify Leases, obtain and
evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income
of the Mortgaged Property and every part thereof; and (E)
apply the receipts from the Mortgaged Property to the payment
of the Debt, after deducting therefrom all expenses
(including Lender's attorneys' fees) incurred in connection
with the aforesaid operations and all amounts necessary to
pay the taxes, assessments, insurance and other charges in
connection with the Mortgaged Property, as well as just and
reasonable compensation for the services of Lender, its
counsel, agents and employees;
<PAGE>
(ix) require Borrower to pay monthly in advance to
Lender, or any receiver appointed to collect the Rents, the
fair and reasonable rental value for the use and occupancy of
any portion of the Mortgaged Property occupied by Borrower
and require Borrower to vacate and surrender possession of
the Mortgaged Property to Lender or to such receiver and, in
default thereof, evict Borrower by summary proceedings or
otherwise; and
(x) pursue such other rights and remedies as may
be available at law or in equity or under the Uniform
Commercial Code, including the right to establish a lock box
for all Rents and other receivables of Borrower relating to
the Mortgaged Property.
In the event of a sale, by foreclosure or otherwise, of less than
all of the Mortgaged Property, the Mortgages (or either of them)
shall continue as a lien on the remaining portion of the Mortgaged
Property.
(b) The proceeds of any sale made under or by virtue of
this Section, together with any other sums which then may be held
by Lender under this Agreement, whether under the provisions of
this Section or otherwise, shall be applied by Lender to the
payment of the Debt in such priority and proportion as Lender in
its sole discretion shall deem proper, subject to the requirements
of applicable law.
(c) Lender may adjourn from time to time any sale by it
to be made under or by virtue of the Mortgages (or either of them)
by announcement at the time and place appointed for such sale or
for such adjourned sale or sales; and, except as otherwise
provided by any applicable provision of law, Lender, without
further notice or publication, may make such sale at the time and
place to which such sale shall be so adjourned.
(d) Upon the completion of any sale or sales pursuant
hereto, Lender, trustee(s) under the Mortgages (or either of
them), or an officer of any court empowered to do so, as
applicable, shall execute and deliver to the accepted purchaser or
purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning and transferring all
estate, right, title and interest in and to the property and
rights sold. Lender is hereby irrevocably appointed the true and
lawful attorney-in-fact of Borrower, to act in its name and stead
(such power of attorney being coupled with an interest, and
irrevocable), to make all necessary conveyances, assignments,
transfers and deliveries of the Mortgaged Property and rights so
sold and for that purpose Lender may execute all necessary
instruments of conveyance, assignment and transfer, and may
substitute one or more persons with like power, Borrower hereby
ratifying and confirming all that its attorney or such substitute
or substitutes shall lawfully do by virtue hereof. Any sale or
sales made under or by virtue of this Section, whether made under
the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale,
shall operate to divest all the estate, right, title, interest,
claim and demand whatsoever, whether at law or in equity, of
Borrower in and to the properties and rights so sold, and shall be
a perpetual bar both at law and in equity against Borrower and
against any and all persons claiming or who may claim the same, or
any part thereof from, through or under Borrower.
(e) Upon any sale made under or by virtue of this
Section, whether made under the power of sale herein granted or
under or by virtue of judicial proceedings or of a judgment or
decree of foreclosure and sale, Lender may bid for and acquire the
Mortgaged Property or any part thereof and in lieu of paying cash
therefor may make settlement for the purchase price by crediting
upon the Debt the net sales price after deducting therefrom the
expenses of the sale and costs of the action and any other sums
which Lender is authorized to deduct under the Mortgages (or
either of them).
<PAGE>
(f) No recovery of any judgment by Lender and no levy
of an execution under any judgment upon the Mortgaged Property or
upon any other property of Borrower shall affect in any manner or
to any extent the lien of the Mortgages (or either of them) upon
the Mortgaged Property or any part thereof, or any liens, rights,
powers or remedies of Lender hereunder, but such liens, rights,
powers and remedies of Lender shall continue unimpaired as before.
(g) Lender may terminate or rescind any proceeding or
other action brought in connection with its exercise of the
remedies provided in this Section at any time before the
conclusion thereof, as determined in Lender's sole discretion and
without prejudice to Lender.
(h) Lender may resort to any remedies and the security
given by the Note, the Mortgages, this Agreement, the Assignment,
the Environmental Agreement or the other Loan Documents in whole
or in part, and in such portions and in such order as determined
by Lender's sole discretion. No such action shall in any way be
considered a waiver of any rights, benefits or remedies evidenced
or provided by the Note, the Mortgages (or either of them), this
Agreement, the Assignment, the Environmental Agreement or the
other Loan Documents. The failure of Lender to exercise any
right, remedy or option provided in the Note, the Mortgages (or
either of them), this Agreement, the Assignment, the Environmental
Agreement or the other Loan Documents shall not be deemed a waiver
of such right, remedy or option or of any covenant or obligation
secured by the Note, the Mortgages (or either of them), this
Agreement, the Assignment, the Environmental Agreement or the
other Loan Documents. No acceptance by Lender of any payment
after the occurrence of any Event of Default and no payment by
Lender of any obligation for which Borrower is liable hereunder
shall be deemed to waive or cure any Event of Default with respect
to Borrower, or Borrower's liability to pay such obligation. No sale
of all or any portion of the Mortgaged Property, no forbearance on the
part of Lender, and no extension of time for the payment of the whole or any
portion of the Debt or any other indulgence given by Lender to
Borrower, shall operate to release or in any manner affect the
interest of Lender in the remaining Mortgaged Property or the
liability of Borrower to pay the Debt. No waiver by Lender shall
be effective unless it is in writing and then only to the extent
specifically stated.
(i) The interests and rights of Lender under the Note,
the Mortgages (or either of them), this Agreement, the Assignment,
the Environmental Agreement or the other Loan Documents shall not
be impaired by any indulgence, including: (i) any renewal,
extension or modification which Lender may grant with respect to
any of the Debt; (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Lender may grant with
respect to the Mortgaged Property or any portion thereof; or (iii)
any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Debt.
28. RIGHT OF ENTRY
Lender and its agents shall have the right to enter and
inspect the Mortgaged Property during normal business hours upon
reasonable notice.
29. SECURITY AGREEMENT
This Agreement is a "security agreement" within the
meaning of the Uniform Commercial Code. The Mortgaged Property
includes both real and personal property and all other rights and
interests, whether tangible or intangible in nature, of Borrower
in the Mortgaged Property. By executing and delivering this
Agreement, Borrower has granted and hereby grants to Lender, as
security for the Debt, a security interest in the Mortgaged
Property to the full extent that the Mortgaged Property may be
subject to the Uniform Commercial Code (such portion of the
<PAGE>
Mortgaged Property so subject to the Uniform Commercial Code being
called in this Section the "Collateral"). Borrower hereby agrees
with Lender to execute and deliver to Lender, in form and
substance satisfactory to Lender, such financing statements and
such further assurances as Lender may from time to time,
reasonably consider necessary to create, perfect or preserve
Lender's security interest therein granted. Each of the Mortgages
shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code. All or part of the Mortgaged Property
are or are to become fixtures. If an Event of Default shall
occur, Lender, in addition to any other rights and remedies which
it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code including, without
limitation, the right to take possession of the Collateral or any
part thereof, and to take such other measures as Lender may deem
necessary for the care, protection and preservation of the
Collateral. Upon request or demand of Lender, Borrower shall at
its expense assemble the Collateral and make it available to
Lender at a convenient place acceptable to Lender. Borrower shall
pay to Lender on demand any and all expenses, including Lender's
attorneys' fees, incurred or paid by Lender in protecting the
interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or
other intended action by Lender with respect to the Collateral
sent to Borrower in accordance with the provisions hereof at least
10 days prior to such action, shall constitute commercially
reasonable notice to Borrower. The proceeds of any disposition of
the Collateral, or any part thereof, may be applied by Lender to the
payment of the Debt in such priority and proportions as Lender in its
discretion shall deem proper. In the event of any change in name, identity
or structure of any Borrower, such Borrower shall notify Lender
thereof and promptly after request shall execute, file and record
such Uniform Commercial Code forms as are necessary to maintain
the priority of Lender's lien upon and security interest in the
Collateral, and shall pay all expenses and fees in connection with
the filing and recording thereof. If Lender shall require the
filing or recording of additional Uniform Commercial Code forms or
continuation statements, Borrower shall, promptly after request,
execute, file and record such Uniform Commercial Code forms or
continuation statements as Lender shall deem necessary, and shall
pay all expenses and fees in connection with the filing and
recording thereof, it being understood and agreed, however, that
no such additional documents shall increase Borrower's obligations
under the Note, the Mortgages (or either of them), this Agreement,
the Assignment, the Environmental Agreement and the other Loan
Documents. Borrower hereby irrevocably appoints Lender as its
attorney-in-fact, coupled with an interest, to file with the
appropriate public office on its behalf any financing or other
statements signed only by Lender, as secured party, in connection
with the Collateral covered by the Mortgages (or either of them).
30. ACTIONS AND PROCEEDINGS
Lender has the right to appear in and defend any action
or proceeding brought with respect to the Mortgaged Property and
to bring any action or proceeding, in the name and on behalf of
Borrower, which Lender, in its discretion, decides should be
brought to protect its interest in the Mortgaged Property.
Lender shall, at its option, be subrogated to the lien of any
mortgage or other security instrument discharged in whole or in
part by the Debt, and any such subrogation rights shall constitute
additional security for the payment of the Debt.
31. WAIVER OF SETOFF AND COUNTERCLAIM
All amounts due under the Mortgages (or either of them),
the Note and the other Loan Documents shall be payable without
setoff, counterclaim or any deduction whatsoever. Borrower hereby
waives the right to assert a counterclaim (other than compulsory
counterclaims) in any action or proceeding brought against it by
Lender, or arising out of or in any way connected with this
Agreement, the Mortgages (or either of them), the Note, any of the
other Loan Documents, or the Debt.
<PAGE>
32. CONTEST OF CERTAIN CLAIMS
Notwithstanding the provisions of Sections 5 and 24(i)
hereof, Borrower shall not be in default for failure to pay or
discharge Taxes, Other Charges or a mechanic's or materialman's
lien asserted against the Mortgaged Property if, and so long as:
(a) Borrower shall have notified Lender of such nonpayment and the
reasons therefor within five days of obtaining knowledge thereof;
(b) Borrower shall diligently and in good faith contest such
Taxes, Other Charges or lien by appropriate legal proceedings
which shall operate to prevent the enforcement or collection
thereof and the sale of the Mortgaged Property or any part
thereof, in satisfaction thereof; (c) Borrower shall have
furnished to Lender a cash deposit, or an indemnity bond
satisfactory to Lender with a surety satisfactory to Lender, in
the amount of the Taxes, Other Charges or mechanic's or
materialman's lien claim, plus a reasonable additional sum to pay
all costs, interest and penalties that may be imposed or incurred
in connection therewith, to assure payment of the matters under
contest and to prevent any sale or forfeiture of the Mortgaged
Property or any part thereof; (d) Borrower shall promptly upon
final determination thereof pay the amount of any such Taxes,
Other Charges or claim so determined, together with all costs,
interest and penalties which may be payable in connection
therewith; and (e) the failure to pay the Taxes, Other Charges or
mechanic's or materialman's lien claim does not constitute a
default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Mortgaged Property.
Notwithstanding the foregoing, Borrower shall immediately upon
request of Lender pay (and if Borrower shall fail so to do, Lender
may, but shall not be required to, pay or cause to be discharged
or bonded against) any such Taxes, Other Charges or claim
notwithstanding such contest, if in the opinion of Lender, the
Mortgaged Property or any part thereof or interest therein may be
in danger of being sold, forfeited, foreclosed, terminated,
cancelled or lost. Lender may pay over any such cash deposit or
part thereof to the claimant entitled thereto at any time when, in
the judgment of Lender, the entitlement of such claimant is
established.
33. RECOVERY OF SUMS REQUIRED TO BE PAID
Lender shall have the right from time to time to take
action to recover any sum or sums which constitute a part of the
Debt as they become due, without regard to whether or not the
balance of the Debt shall be due, and without prejudice to the
right of Lender thereafter to bring an action of foreclosure, or
any other action, for a default or defaults by Borrower existing
at the time such earlier action was commenced.
34. MARSHALLING AND OTHER MATTERS
Borrower hereby waives, to the extent permitted by law,
the benefit of all appraisement, valuation, stay, extension,
reinstatement and redemption laws now or hereafter in force, and
all rights of marshalling in the event of any sale hereunder of
the Mortgaged Property or any part thereof or any interest
therein. Further, Borrower hereby expressly waives any and all
rights of redemption from sale under any order or decree of
foreclosure of the Mortgages (or either of them) on behalf of
Borrower, and on behalf of each and every person acquiring any
interest in or title to the Mortgaged Property subsequent to the
date of this Agreement and on behalf of all persons to the extent
permitted by applicable law.
35. HAZARDOUS SUBSTANCES
Borrower hereby represents and warrants to Lender that,
to the best of Borrower's knowledge, after due inquiry and
investigation: (a) the Mortgaged Property is not in direct or
indirect violation of any local, state, federal or other
governmental authority, statute, ordinance, code, order, decree,
<PAGE>
law, rule or regulation pertaining to or imposing liability or
standards of conduct concerning environmental regulation,
contamination or clean-up including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended, the Resource Conservation and Recovery Act, as
amended, and any state super-lien and environmental clean-up
statutes (collectively, "Environmental Laws"); (b) the Mortgaged
Property is not subject to any private or governmental lien or
judicial or administrative notice or action relating to hazardous
and/or toxic, dangerous and/or regulated, substances, solvents,
wastes, materials, pollutants or contaminants, petroleum,
tremolite, anthlophylie or actinolite or polychlorinated biphenyls
(including, without limitation, any raw materials which include
hazardous constituents) and any other substances, materials or
solvents which are included under or regulated by Environmental
Laws (collectively, "Hazardous Substances"); (c) no Hazardous
Substances are or have been, prior to Borrower's acquisition of
the Mortgaged Property, discharged, generated, treated, disposed
of or stored on, incorporated in or removed or transported from
the Mortgaged Property other than in compliance with all
Environmental Laws; and (d) no underground storage tanks exist on
any of the Mortgaged Property. So long as Borrower owns or is in
possession of the Mortgaged Property, Borrower shall keep or cause
the Mortgaged Property to be kept free from Hazardous Substances
(other than de minimis quantities of Hazardous Substances that are
necessary and lawfully used in the operation of the Mortgaged
Property as currently operated, and which are stored and disposed
of in compliance with all Environmental Laws) and in compliance
with all Environmental Laws, shall promptly notify Lender if
Borrower shall become aware of any Hazardous Substances on the
Mortgaged Property and/or if Borrower shall become aware that the
Mortgaged Property is in direct or indirect violation of any
Environmental Laws and Borrower shall remove such Hazardous
Substances and/or cure such violations, as applicable, as required
by law, promptly after Borrower becomes aware of such Hazardous
Substances or such violations, at Borrower's sole expense.
Nothing herein shall prevent Borrower from recovering such
expenses from any other party that may be liable for such removal
or cure. Upon Lender's request, at any time and from time to time
while this Agreement is in effect (but in no event more frequently
than once in any three-year period or more frequently if specific
facts and circumstances reasonably dictate, or otherwise at
Lender's election but at Lender's expense), Borrower shall provide
at Borrower's sole expense, an inspection or audit of the
Mortgaged Property prepared by a licensed hydrogeologist or
licensed environmental engineer approved by Lender indicating the
presence or absence of Hazardous Substances on the Mortgaged
Property. If Borrower fails to provide such inspection or audit
within 30 days after such request, Lender may order such
inspection or audit, and Borrower hereby grants to Lender and its
employees and agents access to the Mortgaged Property and a
license to undertake such inspection or audit. The cost of such
inspection or audit shall be paid by Borrower and, if not so paid,
shall be added to the principal balance of the sums due under the
Note and the Mortgages (or either of them) and shall bear interest
thereafter until paid at the Default Rate. The obligations and
liabilities of Borrower under this Section shall survive any
termination, satisfaction, or assignment of the Mortgages (or
either of them) and the exercise by Lender of any of its rights or
remedies thereunder including, without limitation, the acquisition
of the Mortgaged Property by foreclosure or a conveyance in lieu
of foreclosure.
36. ASBESTOS
(a) Borrower represents and warrants that, to the best
of Borrower's knowledge, after due inquiry and investigation, no
asbestos or any substance containing asbestos (collectively,
"Asbestos") is located on the Mortgaged Property. Borrower shall
not install in the Mortgaged Property, nor permit to be installed
in the Mortgaged Property, Asbestos and shall remove any Asbestos
promptly upon discovery to the satisfaction of Lender, at
Borrower's sole expense. Upon Lender's request, at any time and
from time to time (but in no event more frequently than once in
any three-year period or more frequently if specific facts and
circumstances reasonably dictate, or otherwise at Lender's
election but at Lender's expense), Borrower shall provide, at
<PAGE>
Borrower's sole expense, an inspection or audit of the Mortgaged
Property prepared by an engineering or consulting firm approved by
Lender, indicating the presence or absence of Asbestos on the
Mortgaged Property. If Borrower fails to provide such inspection
or audit within 30 days after such request, Lender may order such
inspection or audit. The cost of such inspection or audit shall
be paid by Borrower and, if not so paid, shall be added to the
principal balance of the sums due under the Note and the Mortgages
(or either of them) and shall bear interest thereafter until paid
at the Default Rate. The obligations and liabilities of Borrower
under this Section shall survive any termination, satisfaction, or
assignment of the Mortgages (or either of them) and the exercise
by Lender of any of its rights or remedies thereunder, including
but not limited to, the acquisition of the Mortgaged Property by
foreclosure or a conveyance in lieu of foreclosure.
(b) If the presence of Asbestos is identified at the
Mortgaged Property, Borrower shall, subject to Lender's reasonable
approval, develop an operations and maintenance plan for the
Mortgaged Property with respect to the presence of Asbestos in the
Improvements (the "O&M Plan"). Borrower shall comply in all
respects with the terms and conditions of the O&M Plan. Unless
required by Environmental Laws, Borrower shall not modify or amend
the O&M Plan without Lender's prior written consent.
(c) Borrower shall not remove, disturb, encapsulate or
otherwise remediate the Asbestos in the Improvements except in
compliance with the O&M Plan and all Environmental Laws. If
Borrower makes any alterations or modifications to the
Improvements that would disturb or expose any Asbestos in the
Improvements or cause any of such Asbestos to become friable,
Borrower shall remove or encapsulate such Asbestos in compliance
with all applicable Environmental Laws before allowing occupancy
of such space or opening such space to the public.
37. ENVIRONMENTAL MONITORING
Borrower shall give prompt written notice to Lender of:
(a) any proceeding or inquiry by any party with respect to the
presence of any Hazardous Substance on, under, from or about the
Mortgaged Property; (b) all claims made or threatened by any third
party against Borrower or the Mortgaged Property relating to any
loss or injury resulting from any Hazardous Substance; and (c)
Borrower's discovery of any occurrence or condition on any real
property adjoining or in the vicinity of the Mortgaged Property
that could cause the Mortgaged Property to be subject to any
investigation or cleanup pursuant to any Environmental Law.
Borrower shall permit Lender to join and participate, as a party
if it so elects, in any legal proceedings or actions initiated
with respect to the Mortgaged Property in connection with any
Environmental Law or Hazardous Substance, and Borrower shall pay
all attorneys' fees incurred by Lender in connection therewith. In
the event that any environmental site assessment report prepared
for the Mortgaged Property recommends that an operations and
maintenance plan be implemented for Asbestos or any Hazardous
Substance, Borrower shall cause such operations and maintenance
plan to be prepared and implemented at Borrower's expense upon
request of Lender and in accordance with the recommendation. In
the event that any investigation, site monitoring, containment,
cleanup, removal, restoration, or other work of any kind is
reasonably necessary or desirable under an applicable
Environmental Law ("Remedial Work"), Borrower shall, at its sole
cost and expense, commence and thereafter diligently prosecute to
completion all such Remedial Work within 30 days after written
demand by Lender for performance thereof (or such shorter period
of time as may be required under applicable law).
38. MANAGEMENT OF THE MORTGAGED PROPERTY
Borrower further covenants and agrees with Lender as
follows:
<PAGE>
(a) Borrower shall cause the Hotel and the Facility
located on the Mortgaged Property to be operated consistent with
past practices and, in any event, pursuant to the Franchise
Agreement and the Management Agreement.
(b) Borrower shall:
(i) pay all sums required to be paid by Borrower under
the Franchise Agreement and the Management Agreement and promptly
perform and/or observe all of the covenants and agreements
required to be performed and observed by it under the Franchise
Agreement and the Management Agreement and do all things necessary
to preserve and to keep unimpaired its material rights thereunder;
(ii) promptly notify Lender of any default under the
Franchise Agreement or the Management Agreement of which it is
aware and provide Lender with copies of any notices delivered in
connection therewith;
(iii) promptly deliver to Lender a copy of each
financial statement, business plan, capital expenditures plan,
notice, report and estimate received by it under the Franchise
Agreement or the Management Agreement;
(iv) promptly enforce the performance and observance of
all of the covenants and agreements required to be performed
and/or observed by the franchisor under the Franchise Agreement
and the manager under the Management Agreement; and
(v) assign to Lender any right it may have to modify
the Franchise Agreement or the Management Agreement;
(vi) grant Lender the right, but Lender shall be under
no obligation, to pay any sums and to perform any act or take any
action as may be appropriate to cause all the terms, covenants and
conditions of the Franchise Agreement on the part of Borrower to
be performed or observed to be promptly performed or observed on
behalf of Borrower, to the end that the rights of Borrower in, to
and under the Franchise Agreement shall be kept unimpaired and
free from default;
(vii) use its reasonable efforts to obtain, from
time to time, from the franchisor under the Franchise Agreement
such certificates of estoppel with respect to compliance by
Borrower with the terms of the Franchise Agreement as may be
requested by Lender; and
(viii) exercise each individual option, if any, to
extend or renew the term of the Franchise Agreement upon demand by
Lender made at any time within one year of the last day upon which
any such option may be exercised, and Borrower hereby expressly
authorizes and appoints Lender its attorney-in-fact to exercise
any such option in the name of and upon behalf of Borrower, which
power of attorney shall be irrevocable and shall be deemed to be
coupled with an interest.
(c) Borrower shall not, without Lender's prior written
consent: (i) surrender, terminate or cancel the Franchise
Agreement or the Management Agreement; (ii) reduce or consent to
the reduction of the term of the Franchise Agreement or the
Management Agreement; (iii) increase or consent to the increase of
the amount of any charges under the Franchise Agreement or the
Management Agreement; or (iv) otherwise modify, change,
supplement, alter or amend, or waive or release any of its rights
and remedies under the Franchise Agreement or the Management
<PAGE>
Agreement in any material respect; or (v) operate the Mortgaged
Property under the name of any hotel chain or system.
(d) Borrower shall not, without Lender's prior written
consent, enter into transactions with any affiliate including,
without limitation, any arrangement providing for the management
of any portion of the Mortgaged Property, the rendering or receipt
of services or the purchase or sale of inventory, except any such
transaction in the ordinary course of business of Borrower if the
monetary or business consideration arising therefrom would be
substantially as advantageous to Borrower as the monetary or
business consideration which would obtain in a comparable
transaction with a person not an affiliate of Borrower.
(e) Borrower irrevocably authorizes and directs
Franchisor to deliver to Lender: (i) all operating information
concerning the Property submitted by Borrower to Franchisor; (ii)
the written results of all quality assurance inspections of the
Property performed by Franchisor's Quality Assurance Directors;
and (iii) such other information that Lender or Lender's agents
may reasonably request, from time to time, including any
information in the possession of Franchisor relating to Borrower
not included in the reports referred to above.
39. HANDICAPPED ACCESS
(a) Borrower agrees that the Mortgaged Property shall
at all times strictly comply to the extent applicable with the
requirements of the Americans with Disabilities Act of 1990, all
state and local laws and ordinances related to handicapped access
and all rules, regulations, and orders issued pursuant thereto
including, without limitation, the Americans with Disabilities Act
Accessibility Guidelines for Buildings and Facilities
(collectively, "Access Laws").
(b) Notwithstanding any provisions set forth herein or
in any other document regarding Lender's approval of alterations
of the Mortgaged Property, Borrower shall not alter the Mortgaged
Property in any manner which would increase Borrower's
responsibilities for compliance with the applicable Access Laws
without the prior written approval of Lender. The foregoing shall
apply to tenant improvements constructed by Borrower or by any of
its tenants. Lender may condition any such approval upon receipt
of a certificate of Access Law compliance from an architect,
engineer or other person acceptable to Lender.
(c) Borrower agrees to give prompt notice to Lender of
the receipt by Borrower of any complaints related to violation of
any Access Laws and of the commencement of any proceedings or
investigations which relate to compliance with applicable Access
Laws.
40. ERISA
(a) Borrower covenants and agrees that it shall not
engage in any transaction which would cause any obligation, or
action taken or to be taken, hereunder (or the exercise by Lender
of any of its rights under the Note, the Mortgages (or either of
them), this Agreement and the other Loan Documents) to be a non
exempt (under a statutory or administrative class exemption)
prohibited transaction under the Employee Retirement Income
Security Act of 1974 (or any successor legislation thereto), as
amended ("ERISA").
(b) Borrower further covenants and agrees to deliver to
Lender such certifications or other evidence from time to time
throughout the term of this Agreement, as requested by Lender in
its sole discretion, that: (i) Borrower is not an "employee
benefit plan" as defined in Section 3(3) of ERISA, which is
<PAGE>
subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to
state statutes regulating investments and fiduciary obligations
with respect to governmental plans; and (iii) one or more of the
following circumstances is true:
(A) Equity interests in Borrower are publicly offered
securities, within the meaning of 29 C.F.R. 2510.3101(b)(2);
(B) Less than 25 percent of each outstanding class of equity
interests in Borrower are held by "benefit plan investors" within
the meaning of 29 C.F.R. 2510.3101(f)(2); or
(C) Borrower qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R. 2510.3-
101(c) or (e) or an investment company registered under The
Investment Company Act of 1940.
41. INDEMNIFICATION
In addition to any other indemnifications provided
herein, in the Assignment, the Environmental Agreement or in the
other Loan Documents, Borrower shall protect, defend, indemnify
and save harmless Lender from and against all liabilities,
obligations, claims, demands, damages, penalties, causes of
action, losses, fines, costs and expenses (including, without
limitation, out-of-pocket attorneys' fees and expenses), imposed
upon or incurred by or asserted against Lender by reason of: (a)
ownership of the Mortgages (or either of them), the Mortgaged
Property or any interest therein or receipt of any Rents; (b) any
accident, injury to or death of persons or loss of or damage to
property occurring in, on or about the Mortgaged Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways; (c) any use,
nonuse or condition in, on or about the Mortgaged Property or any
part thereof or on adjoining sidewalks, curbs, adjacent property
or adjacent parking areas, streets or ways; (d) any failure on the
part of Borrower to perform or comply with any of the terms of
this Agreement; (e) performance of any labor or services or the
furnishing of any materials or other property in respect of the
Mortgaged Property or any part thereof; (f) the presence,
disposal, escape, seepage, leakage, spillage, discharge, emission,
release, or threatened release of any Hazardous Substance or
Asbestos on, from, or affecting the Mortgaged Property or any
other property; (g) any personal injury (including wrongful death)
or property damage (real or personal) arising out of or related to
such Hazardous Substance or Asbestos; (h) any lawsuit brought or threatened,
settlement reached, or government order relating to such Hazardous Substance
or Asbestos; (i) any violation of the Environmental Laws, which
are based upon or in any way related to such Hazardous Substance
or Asbestos including, without limitation, the costs and expenses
of any remedial action, out-of-pocket attorney's and consultant's
fees, investigation and laboratory fees, court costs, and
litigation expenses; (j) any failure of the Mortgaged Property to
comply with any Access Laws; (k) any representation or warranty
made in the Note, the Mortgages (or either of them), this
Agreement, the Environmental Agreement or the other Loan Documents
being false or misleading in any respect as of the date such
representation or warranty was made; (l) any claim by brokers,
finders or similar persons claiming to be entitled to a commission
in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement
or any liability asserted against Lender with respect thereto; and
(m) the claims of any lessee of all or any portion of the
Mortgaged Property or any person acting through or under any
lessee or otherwise arising under or as a consequence of any
Lease. Any amounts payable to Lender by reason of the application
of this Section shall be immediately due and payable, shall be
secured by the Mortgages and shall bear interest at the Default
Rate from the date loss or damage is sustained by Lender until
paid. The obligations and liabilities of Borrower under this
Section shall survive any termination, satisfaction or assignment
of this Agreement or the entry of a judgment of foreclosure, sale
<PAGE>
of the Mortgaged Property by nonjudicial foreclosure sale, or
delivery of a deed in lieu of foreclosure.
42. NOTICE
Any notice, demand, statement, request or consent made
hereunder shall be in writing and shall be deemed given on the
next business day if sent by Federal Express or other reputable
overnight courier and designated for next business day delivery,
or on the third day following the day such notice is deposited
with the United States postal service first class certified mail,
return receipt requested, addressed to the address, as set forth
above, of the party to whom such notice is to be given, or to such
other address or additional party as Borrower or Lender, as the
case may be, shall in like manner designate in writing.
43. AUTHORITY
Borrower represents and warrants that: (a) it has full
power, authority and right to execute, deliver and perform its
obligations pursuant to this Agreement, and to mortgage, give,
grant, bargain, sell, alien, enfeoff, convey, confirm, warrant,
pledge, hypothecate and assign the Mortgaged Property pursuant to
the terms hereof and to keep and observe all of the terms of this
Agreement on Borrower's part to be performed; and (b) Borrower is
not a "foreign person" within the meaning of Section 1445(f)(3) of
the Internal Revenue Code of 1986, as amended, and the related
Treasury Department regulations, including temporary regulations.
Lender represents and warrants that it has full power, authority
and right to execute, deliver and perform its obligations pursuant
to this Agreement.
44. WAIVER OF NOTICE
Borrower shall not be entitled to any notices of any
nature whatsoever from Lender except with respect to matters for
which this Agreement specifically and expressly provides for the
giving of notice by Lender to Borrower and except with respect to
matters for which Lender is required by applicable law to give
notice, and Borrower hereby expressly waives the right to receive
any notice from Lender with respect to any matter for which this
Agreement does not specifically and expressly provide for the
giving of notice by Lender to Borrower.
45. REMEDIES OF BORROWER
In the event that a claim or adjudication is made that
Lender has acted unreasonably or has unreasonably delayed acting
in any case where by law or under the Note, the Mortgages (or
either of them), this Agreement, the Assignment, the Environmental
Agreement or the other Loan Documents, it has an obligation to act
reasonably or promptly, Lender shall not be liable for any
monetary damages, and Borrower's remedies shall be limited to
injunctive relief or declaratory judgment.
46. SOLE DISCRETION OF LENDER
Wherever pursuant to this Agreement Lender exercises any
right given to it to approve or disapprove, or any arrangement or
term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion
of Lender and shall be final and conclusive, except as may be
otherwise expressly and specifically provided herein.
<PAGE>
47. NON-WAIVER
The failure of Lender to insist upon strict performance
of any term hereof shall not be deemed to be a waiver of any term
of this Agreement. Borrower shall not be relieved of Borrower's
obligations hereunder by reason of: (a) the failure of Lender to
comply with any request of Borrower or any Guarantor to take any
action to foreclose the Mortgages (or either of them) or otherwise
to enforce any of the provisions hereof or of the Note, the
Assignment, the Environmental Agreement or the other Loan
Documents; (b) the release, regardless of consideration, of the
whole or any part of the Mortgaged Property, or of any person
liable for the Debt or any portion thereof; or (c) any agreement
or stipulation by Lender extending the time of payment or
otherwise modifying or supplementing the terms of the Note, the
Mortgages (or either of them), this Agreement, the Assignment, the
Environmental Agreement or the other Loan Documents. Lender may
resort for the payment of the Debt to any other security held by
Lender in such order and manner as Lender, in its discretion, may
elect. Lender may take action to recover the Debt, or any portion
thereof, or to enforce any covenant hereof without prejudice to
the right of Lender thereafter to foreclose the Mortgages (or
either of them). The rights and remedies of Lender under this
Agreement shall be separate, distinct and cumulative and none
shall be given effect to the exclusion of the others.
No act of Lender shall be construed as an election to proceed
under any one provision herein to the exclusion of any other
provision. Lender shall not be limited exclusively to the rights
and remedies herein stated but shall be entitled to every right
and remedy now or hereafter afforded at law or in equity.
48. NO ORAL CHANGE
This Agreement, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by
the party against whom enforcement of any modification, amendment,
waiver, extension, change, discharge or termination is
sought.
49. LIABILITY
If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be
joint and several. Subject to the provisions hereof requiring
Lender's consent to any transfer of the Mortgaged Property, this
Agreement shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns
forever.
50. INAPPLICABLE PROVISIONS
If any term, covenant or condition of the Note, the
Mortgages (or either of them) or this Agreement is held to be
invalid, illegal or unenforceable in any respect, the Note, the
Mortgage and this Agreement shall be construed without such
provision.
51. SECTION HEADINGS
The headings and captions of the various Sections of
this Agreement are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or
intent of the provisions hereof.
<PAGE>
52. COUNTERPARTS
This Agreement may be executed in any number of
counterparts and each such duplicate original shall be deemed to
be an original.
53. CERTAIN DEFINITIONS
Unless the context clearly indicates a contrary intent
or unless otherwise specifically provided herein, words used in
this Agreement may be used interchangeably in singular or plural
form and the word "Borrower" shall mean "each Borrower and any
subsequent owner or owners of the Mortgaged Property or any part
thereof or any interest therein", the word "Lender" shall mean
"Lender and any subsequent holder of the Note", the word "Debt"
shall mean "the Note and any other evidence of indebtedness
secured by the Mortgages (or either of them)", the word "person"
shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority and
any other entity, and the words "Mortgaged Property" shall include
any portion of the Mortgaged Property and any interest therein and
the words "attorneys' fees" shall include any and all attorneys'
fees, paralegal and law clerk fees including, without limitation,
fees at the pretrial, trial and appellate levels incurred or paid
by Lender in protecting its interest in the Mortgaged Property and
Collateral and enforcing its rights hereunder. Whenever the
context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the
singular form of nouns and pronouns shall include the plural and
vice versa.
54. HOMESTEAD
Borrower hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the
United States and of any state, in and to the Premises as against
the collection of the Debt, or any part thereof.
55. ASSIGNMENTS
Lender shall have the right to assign or transfer its
rights under this Agreement without limitation. Any assignee or
transferee shall be entitled to all the benefits afforded Lender
under this Agreement.
56. SUBMISSION TO JURISDICTION
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY ARIZONA STATE OR FEDERAL COURT SITTING IN PIMA OR PINAL
COUNTY, STATE OF ARIZONA, OVER ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT. LENDER MAY, AT ITS
SOLE DISCRETION, ELECT THE STATE OF ARIZONA, PIMA OR PINAL COUNTY,
OR THE UNITED STATES OF AMERICA, FEDERAL DISTRICT COURT HAVING
JURISDICTION OVER PIMA OR PINAL COUNTY, AS THE VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW
OR HEREAFTER HAVE TO SUCH VENUE AS BEING AN INCONVENIENT FORUM.
<PAGE>
57. AGENT FOR RECEIPT OF PROCESS
Borrower hereby irrevocably appoints Neal, Gerber &
Eisenberg, 2 North LaSalle, Chicago, Illinois 60602, as its
authorized agent to accept and acknowledge, on behalf of Borrower,
service of any and all process which may be served in any suit,
action or proceeding of the nature referred to in Section 56
hereof in any State or Federal court within Pima or Pinal County,
State of Arizona. If such agent shall cease so to act, Borrower
shall irrevocably designate and appoint without delay another such
agent satisfactory to Lender, and shall promptly deliver to Lender
written evidence of such other agent's acceptance of such
appointment.
58. SERVICE OF PROCESS
To the extent permitted by applicable law, process in
any suit, action or proceeding of the nature referred to in
Section 56 hereof may be served: (a) by registered or certified
mail, postage prepaid, to Borrower at the address set forth above
or to such other address of which Borrower shall have given Lender
written notice; or (b) if Borrower shall not have made an
appearance within 21 days after service in accordance with clause
(a) of this Section, by hand delivery to the agent identified in
Section 57 hereof, or such successor agent as shall have been
identified in accordance with Section 57 hereof. Nothing in this
Section shall affect the Lender's right to serve process in any
manner permitted by law, or limit Lender's right to bring
proceedings against Borrower in the courts of any other
jurisdiction.
59. WAIVER OF JURY TRIAL
BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL
BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST WITH REGARD TO THE NOTE, THE MORTGAGES (OR EITHER
OF THEM), THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR ANY
CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN
KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH
THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS
HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING
AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.
60. CHOICE OF LAW
THIS LOAN AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
ENTERED INTO PURSUANT TO THE LAWS OF THE STATE IN WHICH THE
MORTGAGED PROPERTY IS LOCATED AND SHALL IN ALL RESPECTS BE
GOVERNED, CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF SUCH JURISDICTION.
61. RELEASE OF PORTIONS OF THE MORTGAGED PROPERTY
Either the Hotel or the Facility comprising the
Mortgaged Property may be released from the lien of the applicable
Mortgage provided that, in each instance: (i) no Event of Default
shall have occurred and be continuing; (ii) Borrower pays to
Lender for application in reduction of the outstanding principal
balance of the Loan 125% of the applicable Allocated Loan Amount
(provided, however, that if the Debt Service Coverage Ratio after
such proposed release and reduction of the Loan balance is less
than 1.50:1.0, then Borrower shall be required to pay to Lender
<PAGE>
for application in reduction of the outstanding principal balance
of the Loan 150% of such Allocated Loan Amount); (iii) Borrower
pays to Lender all other sums then due and payable in respect of
the Loan (including, without limitation, interest, late fees,
costs and expenses payable in accordance herewith); and (iv)
Borrower delivers to Lender a current title search with respect to
the remaining Mortgaged Property showing no liens or other
encumbrances other than as permitted hereunder or to which Lender
shall have consented. In order to confirm or effect such release,
Lender shall execute one or more instruments, in recordable form,
evidencing such release and the release of the constituent
Borrower party from liability in respect of the Loan.
62. JOINT AND SEVERAL OBLIGATIONS
If Borrower consists of more than one person or party,
the obligations and liabilities of each such person or party shall
be joint and several.
63. MORTGAGE OF THE MORTGAGED PROPERTY RELATING TO THE
FACILITY
(a) Sierra is currently negotiating an amendment to,
and extension of, that certain Commercial Lease No.03-98637 dated
April 18, 1991 by and between the State of Arizona, as lessor (by
and through the Arizona State Land Department) and Sierra Tucson
AC, Inc., as lessee, covering that portion of the Mortgaged
Property relating to the Facility (the "Ground Lease"), which
Ground Lease was assigned to Sierra pursuant to that certain
Assignment of Lease dated as of November 13, 1996, but which
Assignment of Lease requires the consent of the State of Arizona
thereto. The terms and conditions of: (i) proposed modification
and extension of the Ground Lease (the "Amendment"); and (ii) any
required consents from the State of Arizona, as lessor or
otherwise (collectively, the "Consent"), shall be subject to
approval by Lender, and each shall be fully executed, effective
and recorded on or before the date that is 150 days after the date
hereof. Upon the execution of the Amendment and the Consent and
in no event later than 150 days after the date hereof, Borrower
shall deliver to Lender with respect to the Mortgaged Property
relating to the Facility, in form and substance required by
Lender: (A) such certificates of Sierra and its managing member
with respect to their respective organizational documents,
respective authorizations to take all necessary actions and
execute all necessary documents and instruments required by this
Section and incumbencies of their respective signatories; (B)
certificates of the Secretary of State of each of the States of
Delaware and Arizona dated within thirty days of the execution of
the Amendment and Consent, certifying to the good standing of
Sierra and its managing member in such respective jurisdictions;
(C) a Deed of Trust, Assignment of Leases and Rents and Security
Agreement securing the amount of the Loan and an Assignment of
Leases and Rents, in each case from Sierra for the benefit of
Lender, and such other documents or instruments, including,
without limitation, UCC-1 Financing Statements, reasonably
necessary for Lender to hold a first priority lien on, and
security interest in, the Mortgaged Property relating to the
Facility; (D) such assurances and subordination of interests from
each holder of an interest in the Mortgaged Property relating to
the Facility, and each holder of any mortgage encumbering any such
interest; (E) certified copies of all non-residential leases with
tenants, including all guaranties of such leases and all
amendments and side letters affecting them; and, without limiting
clause (D) hereof, estoppel certificates from all non-residential
tenants; (F) certified rent roll and occupancy report; (G)
ALTA/ACSM Survey & surveyor's certificate to Lender's
specifications; (H) UCC, judgment and tax lien searches against
the Mortgaged Property relating to the Facility and Sierra; (I)
municipality letters (or other evidence of compliance with zoning,
subdivision, building, environmental and land use laws) and copies
or other evidence of permanent Certificates of Occupancy, or other
documentation acceptable to Lender; (J) copies of all service
contracts; (K) copies of all permits and licenses required for
operation; (L) original fire and casualty insurance policies; (M)
opinion of Sierra's counsel relating to due organization, valid
existence and good standing of Sierra and its managing member,
authorization, due execution and delivery of the documents
<PAGE>
required under this Section 63, substantive nonconsolidation in a
bankruptcy, and such other matters required by Lender; and (N)
such other reasonable requirements of Lender.
(b) Borrower hereby covenants that, upon execution of
the Amendment and the Consent, Sierra shall have good, marketable
and insurable leasehold title to the Mortgaged Property relating
to the Facility and Sierra shall, at such time, possess an
unencumbered leasehold estate in Premises and Improvements
relating to the Facility, and that it shall hold the Premises and
Improvements relating to the Facility free and clear of all liens,
encumbrances and charges whatsoever except for those exceptions
approved by Lender and shown in the title insurance policy issued
upon the execution of the Amendment and the Consent insuring the
lien of the Mortgage with respect to the Mortgaged Property
relating to the Facility, and that such Mortgage shall continue to
be a valid and enforceable first lien on and security interest in
such Mortgaged Property, subject only to such exceptions.
Borrower shall forever warrant, defend and preserve such title and
the validity and priority of the lien of the Mortgage with respect
to the Mortgaged Property relating to the Facility and shall
forever warrant and defend such title, validity and priority to
Lender against the claims of all persons whomsoever.
(c) Without limiting the foregoing or affecting the
validity of representations and warranties made, or covenants
undertaken, as of the date hereof, upon and as of the date of the
execution of the Amendment and the Consent, Borrower shall be
deemed to have made such representations and warranties, and
undertaken such covenants, with respect the Mortgaged Property
relating to the Facility as are set forth in this Loan Agreement
and the other Loan Documents, and shall make such other
representations and warranties, and undertake such other
covenants, with respect to Mortgaged Property relating to the
Facility is located as reasonably required by Lender. Anything to
the contrary herein notwithstanding, on or before that date that
is 150 days after the date hereof, Sierra shall fully perform, or
cause to be fully performed, all of the covenants set forth in
this Section.
64. SURETY
Each of Sierra and Health-Styles hereby waives the
benefits of any statutory or other provision limiting the
liability of a surety, including without limitation, the
provisions of A.R.S. 12-1641, et seq. and Rule 17(f) of the
Arizona Rules of Civil Procedure. Each of Sierra and HealthStyles
hereby represents and warrants that it is and will continue to be
fully informed about all aspects of the financial condition and
business affairs of such other entity relevant to the obligations
of Borrower hereunder and hereby waives and fully discharges
Lender from any and all obligations to communicate to it any
information whatsoever regarding such other entity or such other
entity's financial condition or business affairs.
<PAGE>
65. SUBORDINATE LOANS; INTERCOMPANY LOANS.
(a) Health-Styles may incur one or more unsecured
loans, on commercially reasonable terms, from Sierra to cover and
pay for operating deficits of Health-Styles (each, a "Subordinate
Loan"), provided, that: (i) no Event of Default exists, (ii)
Lender gives its prior written approval with respect to any such
loan, which approval shall not be unreasonably withheld; and (iii)
Borrower complies, and the terms of proposed Subordinate Loan
comport, with the provisions of this Section 65(a) and other
reasonable requirements of Lender, including, without limitation,
subordination and standstill agreements executed by parties to the
Subordinate Loan in favor of Lender. Each such Subordinate Loan
shall: (i) be at all times unsecured and fully subordinate to the
Loan; (ii) be repaid only out of available cash flow after payment
of all debt service then due, funding of reserve accounts, payment
of all operating expenses of the Mortgaged Property and
satisfaction of all then current obligations under the Loan
Documents; (iii) not be repaid or repayable so long as any Event
of Default exists with respect to the Loan; and (iv) provide that
no enforcement action may be taken with respect to such loan so
long as the Loan, or any portion of it, is outstanding.
(b) Sierra may make one or more loans, on commercially
reasonable terms, to NextHealth, Inc. to cover and pay for its
operating deficits, provided, that: (i) no Event of Default
exists, (ii) Lender gives its prior written approval with respect
to any such loan, which approval may withheld in its sole
discretion; and (iii) Borrower complies with any reasonable
requirements of Lender in connection therewith.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed
this instrument as of the day and year first above written.
BORROWER:
SIERRA HEALTH-STYLES, INC.
WITNESS (other than notary):
By: /s/ William T. O'Donnell, Jr.
---------------------------------
/s/ Stephen L. Berger Name: WILLIAM T. O'DONNELL, JR.
- ------------------------ Title: President
Name: STEPHEN L. BERGER
SIERRA TUCSON, L.L.C.
WITNESS (other than notary): By: NextHealth, Inc.
Managing Member
/s/ Stephen L. Berger By: /s/William T. O'Donnell, Jr.
- ------------------------ --------------------------------
Name: STEPHEN L. BERGER Name: WILLIAM T. O'DONNELL, JR.
Title: President
LENDER:
LEHMAN BROTHERS HOLDINGS INC.
By: /s/Yon Cho
--------------------------
Authorized Signatory
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
The foregoing instrument was acknowledged before me this
5th day of August, 1998, by William T. O'Donnell, Jr., the
President of Sierra Health-Styles, Inc., a Delaware corporation,
on behalf of that corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
/s/ Theresa M. Bauer
-----------------------------
Notary Public
My commission expires:
6/5/99
- -------------------------
[Seal]
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
The foregoing instrument was acknowledged before me this
5th day of August, 1998, by William T. O'Donnell, Jr., the
President of NextHealth, Inc. a Delaware corporation, the Managing
Member of Sierra Tucson, L.L.C., a Delaware limited liability
company, on behalf of that limited liability company.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
/s/ Theresa M. Bauer
---------------------------
Notary Public
My commission expires:
6/5/99
- -----------------------
[Seal]
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this
13th day of August, 1998, by Yon Cho, an Authorized Signatory of
Lehman Brothers Holdings Inc., a Delaware corporation, on behalf
of that corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official
seal.
/s/ Maryann Vene
--------------------------
Notary Public
My commission expires:
12/8/99
- ----------------------
[Seal]
MORTGAGE NOTE
$14,000,000.00 August 11, 1998
New York, New York
FOR VALUE RECEIVED SIERRA HEALTH-STYLES,INC.,an Arizona corporation
("HealthStyles"), and SIERRA TUCSON, L.L.C., a Delaware limited liability
company ("Sierra"), each with an address at 16500 North Lago Del Oro Parkway,
Tucson, Arizona 85737(Health-Styles and Sierra, collectively, ("Maker"),
promise to pay to the order of LEHMAN BROTHERS HOLDINGS INC., a
Delaware corporation ("Payee"), at its principal place of
business at 3 World Financial Center, New York, New York 10285,
or at such place as the holder hereof may from time to time
designate in writing, the principal sum of Fourteen Million and
00/100 Dollars (the "Loan"), in lawful money of the United States
of America, with interest thereon to be computed on the unpaid
principal balance from time to time outstanding at the Applicable
Interest Rate (as such term is defined in Section 2 hereof), and
to be paid in installments as follows:
(a) A payment of interest only on the first day of
the first full calendar month after the date hereof; and
(b) Monthly payments of interest only calculated from
time to time in accordance with Section 3 hereof, on the first
day of each calendar month beginning with the second full
calendar month after the date hereof.
The entire outstanding principal balance, together
with accrued and unpaid interest and any other amounts due
under this Note, shall be due and payable on the maturity date
of the Loan, as determined in accordance with Section 1 hereof.
1. LOAN TERM.
(a) The Loan shall be for a term of three years, and shall
mature on the third anniversary of the first day of the first
full calendar month following the date hereof (the "Initial
Maturity Date").
(b) A portion of the Loan, in the amount of $12,000,000.00, is
being advanced as of the date hereof. A portion of the Loan, in
the amount of $2,000,000.00, will be advanced as necessary to pay
capital improvement costs, tenant improvements costs, moving
costs and working capital needs relating to the Mortgaged
Property (as such term is defined in Section 5 hereof), as more
particularly set forth in that certain Repair Escrow Agreement
between Maker and Payee dated as of the date hereof.
(c) Maker shall have the option to extend the term of
the Loan for an additional 12-month period beginning on the first
day following the Initial Maturity Date (the "Extension Period")
and, if so extended, the Loan shall mature on the fourth
anniversary of the first day of the first full calendar month
following the date hereof (the "Extended Maturity Date"; the
Initial Maturity Date or the Extended Maturity Date, as
applicable, the "Applicable Maturity Date"),subject to
satisfaction of the following conditions:
<PAGE>
(i) Not less than 45 days prior to the
Initial Maturity Date, Maker shall give Payee written notice
of its election to extend the term of the Loan (the "Election
Notice");
(ii) The Election Notice shall be accompanied by the
payment of an extension fee in the amount of two (2.0%)
percent of the then outstanding principal balance of the Loan;
and
(iii) At the time the Election Notice is
given, no Event of Default (as such term is defined in Section 7
hereof) shall have occurred, and no event which, with the passage
of time or the giving of notice, or both, would constitute an
Event of Default, shall have occurred and be continuing.
2. APPLICABLE INTEREST RATE.
(a) Interest on the Loan shall accrue and be payable
at LIBOR (as such term is defined in subsection (b) of this
Section) plus the applicable Spread (as such term is defined in
subsection (c) of this Section) as calculated from time to time
(the "LIBOR Rate").
(b) As used herein, the term "LIBOR", with
respect to the relevant Interest Period (as such term is
defined in this subsection), shall mean the rate per annum
(rounded upwards, if necessary, to the nearest onesixteenth
(1/16) of one (1%) percent) reported on the date two "Eurodollar
Business Days" (as such term is defined in this subsection) prior
to the first day of such Interest Period, as reported in The Wall Street
Journal as the London Interbank Offered Rate for U.S. dollar
deposits having a term comparable to such Interest Period
and in an amount of $1,000,000.00 or more (or if The Wall
Street Journal shall cease to be publicly available or if the
information contained in The Wall Street Journal, in Payee's
judgment, shall cease to accurately reflect such London Interbank
Offered Rate, then LIBOR shall be as reported by any publicly
available source of similar market data selected by Payee that,
in Payee's sole judgment, accurately reflects such London
Interbank Offered Rate). The term "Interest Period" shall mean
the respective 30-day term of a particular LIBOR contract. The
term "Eurodollar Business Day" shall mean any day that is not a
Saturday, a Sunday or a day on which banks in the City of London
are required or permitted to be closed for interbank or foreign
exchange transactions. LIBOR shall be adjusted for reserves.
(c) As used in this Note, the term "Spread" shall
mean the number of basis points added to LIBOR to determine the
LIBOR Rate from time to time. During the term of the Loan, the
Spread shall be 400 basis points (4.0%).
(d) As used in this Note the term "Applicable
Interest Rate" shall mean the greater of: (i) the LIBOR Rate as
applicable from time to time; and (ii) seven (7.0%) percent.
3. CALCULATION OF INTEREST; APPLICATION OF PAYMENTS.
(a) Interest on the outstanding principal
balance of this Note shall be calculated by
multiplying the actual number of days elapsed in any given
payment period by a daily rate based on a 360-day year.
(b) The LIBOR Rate, and the amount of interest
payable monthly, shall be recalculated at each LIBOR reset
date.
<PAGE>
(c) Payments under this Note shall be applied in accordance
with that certain Loan Agreement dated as of the date hereof
between Maker and Payee (the "Loan Agreement"). All amounts due under
this Note shall be payable without setoff, counterclaim or any other
deduction whatsoever.
4. DEFERRED FINANCING FEE.
Maker shall pay to Payee, in addition to any other
amounts due hereunder, a deferred financing fee of $140,000.00
(the "Deferred Financing Fee"). The Deferred Financing Fee
shall accrue and be fully earned on the date of closing and
funding of the Loan, and shall be payable on the Applicable
Maturity Date, or upon the earlier repayment of the Loan, at
maturity, by acceleration or otherwise.
5. SECURITY FOR THE LOAN.
(a) This Note is secured by: (i) mortgage instruments
(collectively, the "Mortgages") affecting the real property and
improvements located at 5000 East Via Estancia Miraval, Tucson,
Arizona (also known as 16600 North Lago del Oro Parkway, Tucson,
Arizona and/or 16500 North Lago del Oro Parkway, Tucson,
Arizona), and real property on which is or will be located the
psychiatric hospital and behavioral health center operated by or
on behalf of Sierra, Borrower or their respective affiliates, as
the case may be, and the improvements on such real property
(collectively, the "Mortgaged Property"); (ii) an Assignment of
Leases and Rents dated as of the date hereof from Maker to Payee
(the "Assignment"); (iii) an Environmental Indemnity Agreement
dated as of the date hereof among Payee, Maker and NextHealth,
Inc. (the "Environmental Agreement"); and (iv) such other
documents now or hereafter executed by Maker and/or others and by
or in favor of Payee, which wholly or partially secure or
guarantee payment of this Note including, without limitation, any
collateral assignments and reserve and/or escrow accounts (such
other documents, collectively, the "Other Security Documents").
(b) As used herein, the term "Loan Documents" means,
collectively, this Note, the Mortgages, the Loan Agreement, the
Assignment, the Environmental Agreement, the Other Security
Documents and any and all other documents executed in
connection with the Loan.
6. LATE CHARGE. If any sum payable under this Note
is not paid prior to the tenth (10th) day after the date such
payment is due or if the entire Debt (as such term is defined
in Section 7 hereof) is not paid on or before the Applicable
Maturity Date, Maker shall pay to Payee on demand an additional
amount equal to five (5%) percent of such unpaid sum to defray
the expenses incurred by Payee in handling and processing such
delinquent payment and to compensate Payee for the loss of the
use of such delinquent payment, and such additional amount
shall be secured by the Mortgages, the Assignment and the Other
Security Documents.
7. EVENTS OF DEFAULT. The entire outstanding principal balance
of this Note, together with all accrued and unpaid interest thereon and
all other sums due under the Loan Documents including, without limitation,
the Deferred Financing Fee (all such sums, collectively, the
"Debt"), or any portion thereof, shall without notice become
immediately due and payable at the option of Payee: (a) if any
payment required in this Note is not paid prior to the tenth
(10th) day after the date when due or on the Applicable Maturity
Date; (b) upon the occurrence of any other default under this
Note; or (c) upon the happening of any other Event of
<PAGE>
Default under and as defined in the Loan Agreement (each of
the foregoing, an "Event of Default"). In the event that Payee
retains counsel to collect the Debt or to protect or
foreclose the security provided in connection herewith, Maker
also agrees to pay on demand all costs of collection
incurred by Payee, including reasonable attorneys' fees for the
services of counsel whether or not suit be brought.
8. DEFAULT RATE INTEREST. Maker does hereby agree
that upon the occurrence of an Event of Default, including
Maker's failure to pay the Debt in full on the Applicable
Maturity Date, Payee shall be entitled to receive, and Maker
shall pay, interest on the entire outstanding principal balance
and any other amounts due at the rate equal to the lesser of
(a) the maximum rate permitted by applicable law; and (b) the
greater of (i) the Applicable Interest Rate plus three (3%)
percent or (ii) the Prime Rate (as hereinafter defined) plus
four (4%) percent (the lesser of such rates in (a) or (b), the
"Default Rate"); provided, however, that with
respect to an Event of Default of the type described in Section
24(a) of the Loan Agreement, such rate of interest shall apply
from and after the date on which any such payment is due,
without any period of grace or cure. The "Prime Rate" shall
mean the annual rate of interest publicly announced by Citibank,
N.A. in New York, New York, as its base rate, as such rate shall
change from time to time. If Citibank, N.A. ceases to announce a
base rate, Prime Rate shall mean the rate of interest published
in The Wall Street Journal from time to time as the Prime
Rate. If more than one Prime Rate is published in The Wall
Street Journal for a day, the average of the Prime Rates shall
be used, and such average shall be rounded up to the nearest one-quarter
of one (3%) percent. Interest shall accrue and be payable at the
Default Rate from the occurrence of the Event of Default until
all such Events of Default have been fully cured. Interest at
the Default Rate shall be added to the Debt, and shall be
deemed secured by the Mortgages, the Assignment and the Other Security
Documents. This provision, however, shall not be construed as an agreement
or privilege to extend the date of the payment of the Debt, nor as a
waiver of any other right or remedy accruing to Payee by reason of the
occurrence of any Event of Default.
9. PREPAYMENT. The principal balance of this Note
may be prepaid, in whole or, in connection with a release of
collateral under Section 61 of the Loan Agreement, in part,
upon: (a) not less than 60 days prior written notice to Payee
specifying the date on which prepayment is to be made, which
date shall in all events be the first business day
of a calendar month (the "Prepayment Date"); (b) payment of
accrued interest to and including the Prepayment Date; and (c)
payment of all other sums then due under this Note, the Loan
Agreement, the Mortgages, the Assignment and the Other Security
Documents including, without limitation, the Deferred Financing
Fee. If any such notice of prepayment is given, the principal
amount set forth in such notice and the other sums required under
this Section shall be due and payable on the Prepayment Date.
10. LIMITATIONS ON RECOURSE. (a) Subject to the
qualifications set forth in this Section, Payee shall not
enforce the liability and obligation of Maker to perform and
observe the obligations contained in this Note, the Loan
Agreement, the Mortgages, the Assignment or the Other Security
Documents by an action or proceeding wherein a money judgment
shall be sought against Maker, except that Payee may bring a
foreclosure action, an action for specific performance or any
other appropriate action or proceeding to enable Payee to
enforce and realize upon this Note, the Mortgages, the
Assignment, the Other Security Documents, and the interests in
the Mortgaged Property and any other collateral given to Payee
pursuant to the Mortgages, the Assignment and the Other
Security Documents; provided, however, that, except as
specifically provided in this Section, any judgment in any such
action or proceeding shall be enforceable against Maker only to
the extent of Maker's interest in the Mortgaged Property and in
any other collateral given to Payee. Payee, by accepting this
Note, the Loan Agreement, the Assignment, the Mortgages and the
Other Security Documents, agrees that it shall not sue for,
seek or demand any deficiency judgment against Maker in any
<PAGE>
such action or proceeding, under, by reason of or in connection
with the Mortgages, the Loan Agreement, the Assignment, the
Other Security Documents or this Note. The provisions of this
Section shall not, however: (i) constitute a waiver, release or
impairment of any obligation evidenced or secured by the
Mortgages, the Loan Agreement, the Assignment, the
Environmental Agreement or the Other Security Documents or this
Note; (ii) impair the right of Payee to name Maker as a party
defendant in any action or suit for foreclosure and sale under
the Mortgages; (iii) affect the validity or enforceability of
any guaranty or indemnity made in connection with the Mortgages, the Loan
Agreement, this Note, the Assignment or the Other Security
Documents; (iv) impair the right of Payee to obtain the
appointment of a receiver; (v) impair the enforcement of
the Assignment; (vi) impair the right of Payee to bring suit with
respect to fraud or intentional misrepresentation by Maker or
any other person or entity in connection with the Mortgages,
the Loan Agreement, this Note, the Assignment, the
Environmental Agreement or the Other Security Documents; or
(vii)affect the validity or enforceability of the
Environmental Agreement or limit the liability of Maker or any
other party thereunder.
(b) Nothing herein shall be deemed to be a waiver of
any right which Payee may have under Section 506(a), 506(b),
1111(b) or any other provisions of the U.S. Bankruptcy Code to
file a claim for the full amount of the Debt secured by
the Mortgages or to require that all collateral shall continue
to secure all of the debt owing to Payee in accordance with
this Note, the Loan Agreement, the Mortgages, the Assignment,
the Environmental Agreement and the Other Security Documents.
(c) Notwithstanding the foregoing provisions of this
Section or any other provision in the Loan Documents, Maker
shall be fully liable for and shall indemnify Payee for any and
all loss, cost, liability, judgment, claim, damage or expense
sustained, suffered or incurred by Payee (including, without
limitation, Payee's attorneys' fees) arising out of or
attributable or relating to:
(i) fraud or misrepresentation by Maker in
connection with the Loan;
(ii) the gross negligence or willful misconduct of Maker, its
agents or employees, or physical waste of the Mortgaged Property;
(iii) the breach of provisions in the Loan Agreement
concerning environmental laws, hazardous substances and
asbestos, and any indemnification of Payee therein with respect
to such environmental laws, hazardous substances and asbestos;
(iv) the removal or disposal of any portion of the
Mortgaged Property after default under this Note, the
Mortgages, the Loan Agreement, the Assignment, the
Environmental Agreement or any Other Security Document;
(v) the misapplication or conversion by Maker of:
(A) any insurance proceeds paid by reason of any loss, damage
or destruction to the Mortgaged Property; (B) any awards or
other amounts received in connection with the condemnation of
all or a portion of the Mortgaged Property; or (C) rents,
issues, profits, proceeds, accounts, or other amounts received
by Maker (in the case of clause (C) following an Event of
Default);
(vi) Maker's failure to pay taxes, assessments, charges
for labor or materials or other charges that can result in liens on
any portion of the Mortgaged Property;
<PAGE>
(vii) the deductible amount in respect of any earthquake
hazard insurance maintained in respect of the Mortgaged Property;
(viii) the costs incurred by Payee (including attorneys'
fees) in connection with the collection or enforcement of the
Debt; and
(ix) any security deposits or advance deposits
collected with respect to the Mortgaged Property which are not
delivered to Payee upon a foreclosure of the Mortgaged Property
or action in lieu thereof.
(d) Notwithstanding the foregoing, the agreement of
Payee not to pursue recourse liability as set forth in
subsection (a) above SHALL BECOME NULL AND VOID and shall be of no
further force or effect in the event of: (i) Maker's failure
to permit on-site inspections of the Mortgaged Property or to
provide financial reports and information pertaining to the
Mortgaged Property as required by the Loan Agreement; (ii) any
financial information concerning Maker or any guarantor of the
Loan proving to be fraudulent in any respect, containing any
fraudulent information or misrepresenting in any material
respect the financial condition of Maker or any guarantor of
the Loan; (iii) Maker's failure to obtain Payee's written
consent to any subordinate financing; (iv) Maker's failure to
obtain Payee's prior written consent to any transfer of the
Mortgaged Property or of any ownership interest in Maker, where
such consent is required; (v) the Mortgaged Property or any
part thereof becoming an asset in (A) a voluntary bankruptcy or
insolvency proceeding in which Maker or NextHealth, Inc. is the
debtor, or (B) an involuntary bankruptcy or insolvency proceeding
in which Maker is the debtor and which is not dismissed
within 90 days of filing (except if such involuntary proceeding
is brought by Payee); (vi) the failure of Maker to comply with
the provisions of Section 11 (SINGLE PURPOSE ENTITY) of the
Loan Agreement; or (vii) Maker's contest of the validity or
enforceability of the Loan Documents or asserts defenses for
the sole purpose of delaying, hindering or impairing Payee's
rights under the Loan Documents.
11. NO USURY. Maker agrees to an effective rate of
interest that is the rate stated above plus any additional rate
of interest resulting from any other charges in the nature of
interest paid by or on behalf of Maker, or any benefit received
or to be received by Payee, in connection with this Note. It is
expressly stipulated and agreed to be the intent of Maker and
Payee at all times to comply with applicable state law or
applicable United States federal law (to the extent that it
permits Payee to contract for, charge, take, reserve, or
receive a greater amount of interest than under state law) and
that this Section shall control every other covenant and
agreement in this Note and the other Loan Documents. If the
applicable law (state or federal)is ever judicially interpreted
so as to render usurious any amount called for under
this Note or under any of the other Loan Documents, or
contracted for, charged, taken, reserved, or received with
respect to the Debt, or if Payee's exercise of the option to
accelerate the maturity of this Note, or if any prepayment by
Maker results in Maker having paid any interest in excess of
that permitted by applicable law, then it is Maker's and
Payee's express intent that all excess amounts theretofore collected
by Payee shall be credited on the principal balance of this Note and all
other Debt (or, if this Note and all other Debt have been or would thereby
be paid in full, refunded to Maker), and the provisions of this Note and
the other Loan Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new documents, so as to
comply with the applicable law and so as to permit the recovery
of the fullest amount otherwise called for hereunder or
thereunder. All sums paid or agreed to be paid to Payee for the
use, forbearance, or detention of the Debt shall, to the extent
permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the
<PAGE>
Debt until payment in full so that the rate or amount of
interest on account of the Debt does not exceed
the maximum lawful rate from time to time in effect and
applicable to the Debt for so long as the Debt is outstanding.
Notwithstanding anything to the contrary contained herein or in
any of the other Loan Documents, it is not the intention of
Payee to accelerate the maturity of any interest that has not
accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
12. TRANSFERS NOT PERMITTED. Without the
prior written consent of Payee, Maker shall not sell,
convey, alienate, mortgage, encumber, pledge or otherwise
transfer, or permit the transfer of, directly or indirectly,
the Mortgaged Property or ownership interests of Maker, except
as permitted in the Loan Agreement.
13. AUTHORITY. Maker represents that Maker has full power,
authority and legal right to
execute, deliver and perform its obligations pursuant to this
Note, the Mortgages and the other Loan Documents and that this
Note, the Mortgages and the other Loan Documents constitute
valid and binding obligations of Maker.
14. NOTICES. All notices or other communications required or permitted
to be given pursuant hereto shall be given in the manner specified in
the Loan Agreement directed to the parties at their respective addresses
as provided therein.
15. WAIVER OF JURY TRIAL. MAKER HEREBY AGREES NOT TO ELECT A TRIAL
BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO
TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THIS NOTE, THE LOAN AGREEMENT, THE MORTGAGES, OR THE
OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO
TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY MAKER, AND IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT
TO TRIAL BY JURY WOULD OTHERWISE ACCRUE. PAYEE IS HEREBY AUTHORIZED TO
FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY MAKER.
16. GOVERNING LAW. This Note shall be governed by
and construed in accordance with the laws of the State in which
the real property encumbered by the Mortgages is located and
the applicable laws of the United States of America.
17. MISCELLANEOUS.
(a) No release of any security for the Debt or any
person liable for payment of the Debt, no extension of time for
payment of this Note or any installment hereof, and no
alteration, amendment or waiver of any provision of the Loan
Documents made by agreement between Payee and any other person
or party shall release, modify, amend, waive, extend, change,
discharge, terminate or affect the liability of Maker, and any
other person or party who might be or become liable for the
payment of all or any part of the Debt, under the Loan
Documents.
(b) Maker and all others who may become liable for
the payment of all or any part of the Debt do hereby severally
waive presentment and demand for payment, notice of dishonor,
<PAGE>
protest, notice of protest, notice of non-payment, notice of
intent to accelerate the maturity hereof and of acceleration.
(c) This Note may not be modified,
amended, waived, extended, changed, discharged or terminated
orally or by any act or failure to act on the part of Maker or
Payee, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
(d) Whenever used, the singular number shall include the
plural, the plural the singular, and the words "Payee" and
"Maker" shall include their respective successors, assigns,
heirs, executors and administrators.
(e) If Maker consists of more than one person or
party, the obligations and liabilities of each such person or
party shall be joint and several.
IN WITNESS WHEREOF, Maker has duly executed this Note on the
day and year first above written.
MAKER:
SIERRA HEALTH-STYLES, INC.
By: /s/ William T. O'Donnell, Jr.
-----------------------------------
Name: William T. O'Donnell, Jr.
Title: President
SIERRA TUCSON, L.L.C.
By: NextHealth, Inc.
Managing Member
By:/s/William T. O'Donnell,Jr.
------------------------------
Name: William T. O'Donnell,Jr.
Title: President
<PAGE>
ACKNOWLEDGMENTS
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
The foregoing instrument was acknowledged before me
this 5th day of August, 1998, by WILLIAM T. O'DONNELL, JR., the
PRESIDENT of Sierra Health-Styles, Inc., a Delaware
corporation, on behalf of that corporation.
IN WITNESS WHEREOF, I hereunto set my hand and
official seal.
/s/ Theresa M. Bauer
---------------------
Notary Public
My commission expires:
6/5/99
- ----------------------
[Seal]
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
The foregoing instrument was acknowledged before me
the 5th day of August, 1998, by WILLIAM T. O'DONNELL, JR., the
PRESIDENT of NextHealth, Inc. a Delaware corporation, the
Managing Member of Sierra Tucson, L.L.C., a Delaware limited
liability company, on behalf of that limited liability company.
IN WITNESS WHEREOF, I hereunto set my hand and
official seal.
/s/ Theresa M. Bauer
--------------------
Notary Public
My commission expires:
6/5/99
- ----------------------
[Seal]
