<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 1-13498
ASSISTED LIVING CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 93-1148702
(State or other jurisdiction (IRS EmployerIdentification No.)
ofincorporation or organization)
11835 N.E. Glenn Widing Drive, Building E
Portland, OR 97220-9057
(503) 252-6233
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ------------------- -----------------------
<S> <C>
Common Stock, par value $.01 American Stock Exchange
6% Convertible Subordinated Debentures Due November
2002 American Stock Exchange
5.625% Convertible Subordinated Debentures Due May
2003 American Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
None.
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 at least the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [_]
The Registrant had 17,171,077 shares of common stock, $.01 par value,
outstanding at May 31, 1999. The aggregate market value of the voting stock
held by non-affiliates of the registrant on such date was approximately $49.4
million.
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PART I
References in this report to "ALC," the "Company," "us" or "we" refer to
Assisted Living Concepts, Inc. and its subsidiaries.
ITEM 1. Business
Overview
We operate, own, lease and develop free-standing assisted living residences.
These residences are primarily located in small middle-market rural and
suburban communities with a population typically ranging from 10,000 to
40,000. As of June 30, 1999 we had operations or development activities in
five regions in 16 states.
We also provide personal care and support services and make available
routine nursing services (as permitted by applicable regulations) designed to
meet the health care needs of our residents. We believe that this combination
of residential, personal care, support and health care services provides a
cost-efficient alternative and affords an independent lifestyle for
individuals who do not require the broader array of medical services that
nursing facilities are required by law to provide.
We have experienced significant and rapid growth, primarily through the
development of assisted living residences and, to a much lesser extent,
through acquisitions of residences. When we completed our initial public
offering in November 1994 we had a base of five residences (137 units). As of
June 30, 1999, we had 175 assisted living residences in operation representing
an aggregate of 6,741 units. Of these residences, we owned 105 residences
(4,123 units) and leased 70 residences (2,620 units). For the three months
ended June 30, 1999, our 127 Stabilized Residences (those residences that had
been operating for twelve months prior to the beginning of the period or had
achieved 95.0% occupancy within the first twelve months of operations) had an
average occupancy rate of approximately 83.9% and an average monthly rental
rate of approximately $1,860 per unit. Our 175 residences in operation during
the three months ended June 30, 1999 had an average occupancy rate of
approximately 74.3% and an average monthly rental rate of approximately $1,881
per unit.
We are currently developing and, to a lesser extent, seeking to acquire
additional assisted living residences in Indiana, Michigan, New Jersey, Iowa,
Arizona, Georgia, and South Carolina. As of June 30, 1999, we had six
residences with 245 units that had received certificates of occupancy but were
not yet operating. In addition, we had four residences with 156 units that
were under construction as of the same date. We also owned land for
development of 10 sites, including three for expansion projects, where
construction had not yet commenced. We have significantly reduced our
development activity in 1999 in order to focus on stabilizing our current base
of operating residences. We wrote-off approximately $2.4 million in fiscal
year 1998 and $4.8 million through June 30, 1999 primarily associated with
sites which we will no longer seek to develop. For the twelve months ended
December 31, 1998, we commenced operations with respect to 57 residences
(2,297 units). We intend to commence operation on an additional 20 residences
(800 units) for the comparable period in 1999, 10 of which commenced operation
through June 30, 1999. In addition to the development and construction costs
incurred during 1998 with respect to these residences, we expect to incur up
to an additional $30.0 million in capital expenditures and related start-up
costs for the twelve months ended December 31, 1999, approximately $25.0
million of which had been incurred as of June 30, 1999.
We have significantly reduced development activity in order to focus on our
core business of operating our existing residences. The principal elements of
our business strategy are to:
. increase occupancy and improve operating efficiencies at our existing
base of residences;
. expand market penetration in existing markets;
. serve higher-acuity residents; and
. pursue strategic business alliances.
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We anticipate that revenues at a majority of our residences will continue to
come from private pay sources. However, we believe that locating residences in
states with favorable regulatory and reimbursement climates should provide a
stable source of residents eligible for Medicaid reimbursement to the extent
that private pay residents are not available and, in addition, provide our
private pay residents with alternative sources of income when their private
funds are depleted and they become Medicaid eligible.
Assisted Living Concepts, Inc. is a Nevada corporation. Our principal
executive offices are located at 11835 N.E. Glenn Widing Drive, Building E,
Portland, Oregon 97220-9057, and our telephone number is (503) 252-6233.
Recent Developments
Restatement of Historical Financial Statements
On February 1, 1999, we announced that after consultation with our
independent auditors we would restate our financial statements for the fiscal
quarter ended June 30, 1997, the fiscal quarter ended September 30, 1997, the
fiscal year ended December 31, 1997, the fiscal quarter ended March 31, 1998,
the fiscal quarter ended June 30, 1998 and the fiscal quarter ended September
30, 1998. On March 31, 1999, we announced that the restatement would be more
extensive than we had previously believed, and might include periods prior to
the second quarter of 1997, including the fiscal year ended December 31, 1996.
After further consultation with our independent auditors, we determined to
restate our financial statements for the fiscal year ended December 31, 1996,
the fiscal year ended December 31, 1997 and each of the first three fiscal
quarters of the fiscal year ended December 31, 1998.
The restatement resulted primarily from:
. the earlier recognition of certain expenses that we previously
capitalized in connection with our development and financing activities;
. a modification in how we accounted for certain of our lease
arrangements;
. a modification in how we accounted for certain of our acquisitions and
joint venture agreements;
. the capitalization of fees we received during 1997 and 1998 that we
previously recorded as a reduction of expenses or other income;
. the elimination of an impairment write-down that we had previously
recorded on three of our residences;
. the elimination of certain accrued expenses previously recorded pursuant
to a change in accounting principle; and
. an increase in the amount of goodwill that we wrote-off in the second
quarter of 1998 relating to exiting our home health operations.
The overall effect of the restatement on net income and net income per share
in each of the periods subject to the restatement is illustrated in the
following table:
<TABLE>
<CAPTION>
As previously reported As restated
--------------------------------- -----------------------
Net Income
(Loss) Per
Share Net Loss
--------------- Per Basic and
Period Net Income (Loss) Basic Diluted Net Loss Diluted Share
------ ----------------- ------ ------- -------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Year ended 12/31/96..... $ 149 $ 0.02 $ 0.01 $ (1,915) $(0.23)
Year ended 12/31/97..... $ 4,209 $ 0.35 $ 0.34 $ (2,479) $(0.21)
Quarter ended
3/31/98(1)............. $ 1,906 $ 0.12 $ 0.12 $ (784) $(0.05)
Quarter ended 6/30/98... $(4,378) $(0.28) $(0.28) $(11,831) $(0.75)
Quarter ended 9/30/98... $ 2,722 $ 0.16 $ 0.16 $ (720) $(0.04)
</TABLE>
(1) Net income and net income per share, as previously reported for the
quarter ended March 31, 1998, do not reflect the cumulative effect of
the change in accounting principle which was adopted during the quarter
ended June 30, 1998, effective January 1, 1998.
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Termination of Merger Agreement
On February 1, 1999, we agreed with American Retirement Corporation ("ARC")
to terminate our previously announced merger agreement, which had been entered
into during November 1998. We recorded a charge of approximately $1.1 million
in the fourth quarter of 1998, and $200,000 the first quarter of 1999 for
expenses incurred related to the terminated merger.
Securityholder Litigation
Since February 1, 1999 12 separate complaints, which have been consolidated
into one action, have been filed against us and certain of our officers and
directors on behalf of purchasers of our common stock, 6.0% Convertible
Subordinated Debentures (the "6.0% Debentures") and 5.625% Convertible
Subordinated Debentures (the "5.625% Debentures" and, together with the 6.0%
Debentures, the "Debentures") in the United States District Court for the
District of Oregon. On July 23, 1999, a consolidated complaint was filed in
connection with this litigation naming as additional defendants certain of our
directors that were not named previously, as well as our independent auditors
(solely in connection with our 1998 offering of 5.625% Debentures) and the
underwriters in connection with our October 1997 offering of 6.0% Debentures.
See Item 3 (Legal Proceedings) for information regarding this litigation.
Termination of Joint Venture Agreements
During fiscal years 1997 and 1998, we entered into joint venture agreements
with respect to the operation of certain start-up residences pursuant to which
90% of the operating risks and rewards related to such residences were
allocated to the joint venture partner, in which we had an interest. We
consolidated the operations of the joint venture agreements in our financial
statements. The joint venture partner reimbursed us for 90% of the start-up
losses of the joint venture residences incurred in the second quarter of 1997
and through the third quarter of 1998, and we recognized such reimbursements
as other income in our financial statements during such quarters. We have
determined to restate such loss reimbursements as loans, rather than other
income. We also have reflected amounts paid to repurchase the joint venture
partner's interest in the operations of the joint venture residences in excess
of reimbursed losses as interest and other expense.
During the first quarter of 1999, we negotiated with the joint venture
partner to acquire, for $3.8 million, all of such partner's remaining
interests in the operations of the remaining 17 residences subject to joint
venture agreements through the third quarter of 1998. The joint venture
partner did not reimburse us for any start-up losses, nor have we entered into
any new joint venture agreements with respect to the operation of start-up
residences, subsequent to the third quarter of 1998.
Management Changes
On March 16, 1999, our board of directors announced the appointment of Dr.
Keren Brown Wilson, our co-founder, as our President and Chief Executive
Officer. The board also announced the appointment of Leslie J. Mahon as Vice
President and Chief Operating Officer and James W. Cruckshank as Vice
President and Chief Financial Officer. As of March 16, 1999, we also entered
into a consulting agreement with William McBride, pursuant to which Mr.
McBride agreed to provide us with consulting services and to resign from his
position as our Chief Executive Officer, and amended Dr. Wilson's existing
employment agreement. The terms of these agreements are summarized in Item 11.
On March 31, 1999, we announced the resignation of Mr. McBride as Chairman
of the Board of Directors and the election by the board of Richard C. Ladd as
Interim Chairman. We also announced that Mr. McBride had decided not to seek
reelection to the board of directors at the next annual meeting.
In April 1999, we announced the increase in the number of board members from
five to six and the election by the board of Jill Krueger to serve as a
director and as chairman of our Audit Committee.
4
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Amendments to Certain Leases
In March 1999, we amended 16 leases with a single lessor. Prior to the
amendment the leases were accounted for as financings due to our continuing
involvement in the residences in the form of a fair market value purchase
option. The amendments resulted in the reclassification of such leases from
financings to operating leases.
In June 1999, we amended all of our 37 leases with another lessor. These
amendments restructured provisions related to future minimum annual rent
increases, or "rent escalators," which prior to the amendments required us to
account for rent expense related to such leases on a straight-line basis. From
the date of the amendment forward, we will account for the amended leases on a
contractual cash payment basis and amortize the deferred rent balance as of
the date of the amendment over the remaining initial terms of the lease. Those
amendments also redefined the lease renewal option with respect to certain
leases and provided the lessor with the option to declare an event of default
in the event of a change of control under certain circumstances. In addition,
the amendments also provide us with the ability, subject to certain
conditions, to sublease or assign our leases with respect to two Washington
residences.
Write-off Related to Reduced Development Activity
As a result of a continued reduction in our new residence development
activities, we will incur write-offs of $1.3 million relating to previously
capitalized development costs during the first quarter of 1999 and an
additional $3.5 million in the second quarter of 1999. In the event that in
the future we do not complete and open residences planned for development, we
may incur similar write-offs. However, we have no present intention of
commencing further development activity beyond the 10 residences currently
included in construction in process as of June 30, 1999.
Amendment of Loan Agreements
During the third quarter of 1999, we amended certain loan agreements with
one of our creditors. Pursuant to the amendment, we agreed to provide $8.3
million of additional cash collateral in exchange for the forbearance or
waiver of certain possible defaults, including an amendment to certain
financial covenants. The amendment provides for the release of the additional
collateral upon the achievement of specified performance targets, provided
that we are in compliance with the other terms of the loan agreements.
Services
Our residences offer residents a supportive, "home-like" setting and
assistance with activities of daily living. Residents are individuals who, for
a variety of reasons, cannot live alone but do not typically need the 24-hour
skilled medical care provided in nursing facilities. We design services
provided to these residents to respond to their individual needs and to
improve their quality of life. This individualized assistance is available 24
hours a day, to meet both anticipated and unanticipated needs, including
routine health-related services, which are made available and are provided
according to the resident's individual needs and state regulatory
requirements. Available services include:
. General services, such as meals, laundry and housekeeping;
. Support services, such as assistance with medication, monitoring health
status and transportation; and
. Personal care, such as dressing, grooming and bathing.
We also provide or arrange access to additional services beyond basic
housing and related services, including physical therapy and pharmacy
services.
Although a typical package of basic services provided to a resident includes
meals, housekeeping, laundry and personal care, we do not have a standard
service package for all residents. Instead, we are able to accommodate the
changing needs of our residents through the use of individual service plans
and flexible staffing
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patterns. Our multi-tiered rate structure for services is based upon the
acuity of, or level of services needed by, each resident. Supplemental and
specialized health-related services for those residents requiring 24-hour
supervision or more extensive assistance with activities of daily living are
provided by third-party providers who are reimbursed directly by the resident
or a third-party payor (such as Medicaid or long-term care insurance). We
assess the level of need of each resident regularly.
Operations
Each residence has an on-site program director who is responsible for the
overall day-to-day operation of the residence, including quality of care,
marketing, social services and financial performance. The program director is
assisted by professional and non-professional personnel, some of whom may be
independent providers or part-time personnel, including nurses, personal
service assistants, maintenance and kitchen personnel. The nursing hours vary
depending on the residents' needs. We consult with outside providers, such as
registered nurses, pharmacists, and dietitians, for purposes of medication
review, menu planning and responding to any special dietary needs of
residents. Personal service assistants who primarily are full-time employees
are responsible for personal care, dietary services, housekeeping and laundry
services. Maintenance services are performed by full and part-time employees.
We have established an infrastructure that includes five regional
operational managers who oversee the overall performance and finances of each
region, operations managers who oversee the day-to-day operations of up to 10
to 12 residences, and team leaders who provide peer support for up to three to
four residences. Presently, residence personnel also are supported by
corporate staff based at our headquarters. Corporate and regional personnel
work with the program directors to establish residence goals and strategies,
quality assurance oversight, development of Company policies and procedures,
government relations, marketing and sales, community relations, development
and implementation of new programs, cash management and treasury functions,
and human resource management.
Competition
The long-term care industry generally is highly competitive. We compete with
other assisted living providers, including an increasing number of hospitals
offering assisted living, and with numerous other companies providing similar
long-term care alternatives, such as home health agencies, life care at home,
community-based service programs, retirement communities and convalescent
centers. We expect that, as assisted living receives increased attention and
the number of states which include assisted living in their Medicaid programs
increases, competition will grow from new market entrants, including publicly
and privately held companies focusing primarily on assisted living. Nursing
facilities that provide long-term care services are also a potential source of
competition for us. Providers of assisted living residences compete for
residents primarily on the basis of quality of care, price, reputation,
physical appearance of the facilities, services offered, family preferences,
physician referrals and location. Some of our competitors operate on a not-
for-profit basis or as charitable organizations. Some of our competitors are
significantly larger than us and have, or may obtain, greater resources than
ours. While we generally believe that there is moderate competition for less
expensive segments of the private market and for Medicaid residents in small
communities, we have seen an increase in competition in certain of our
markets. Our major competitors are other long-term care facilities, including
assisted living facilities within the same geographic area as our residences
because our experience indicates that senior citizens who move into long-term
care communities frequently choose communities near their homes.
We believe that the rapid growth of the assisted living industry has
resulted in an oversupply of assisted living residences in certain of our
markets. Recently, we have experienced slower fill-up of Start-Up Residences
in these markets than expected, as well as declining occupancy in our
Stabilized Residences due to the increase in options available to potential
new residents when units are vacated. There can be no assurance that we will
be able to compete effectively in those markets where overbuilding exists, or
that future overbuilding in other markets where we have opened or plan to open
residences will not adversely affect our operations.
6
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Funding
Assisted living residents or their families generally pay the cost of care
from their own financial resources. Depending on the nature of an individual's
health insurance program or long-term care insurance policy, the individual
may receive reimbursement for costs of care under an "assisted living,"
"custodial" or "alternative care benefit." Government payments for assisted
living have been limited. Some state and local governments offer subsidies for
rent or services for low-income elders. Others may provide subsidies in the
form of additional payments for those who receive Supplemental Security Income
(SSI). Medicaid provides coverage for certain financially or medically needy
persons, regardless of age, and is funded jointly by federal, state and local
governments. Medicaid contracts for assisted living vary from state to state.
Although a majority of our revenues come from private payors, the cost
structure of the residences has historically been, and is expected to continue
to be, sufficiently low so that the residences are able to operate profitably
if all of their revenues are derived through Medicaid contracts.
In 1981, the federal government approved a Medicaid waiver program called
Home and Community Based Care which was designed to permit states to develop
programs specific to the healthcare and housing needs of the low-income
elderly eligible for nursing home placement (a "Medicaid Waiver Program"). In
1986, Oregon became the first state to use federal funding for licensed
assisted living services through a Medicaid Waiver Program authorized by the
Health Care Financing Administration ("HCFA"). Under a Medicaid Waiver
Program, states apply to HCFA for a waiver to use Medicaid funds to support
community-based options for the low-income elderly who need long-term care.
These waivers permit states to reallocate a portion of Medicaid funding for
nursing facility care to other forms of care such as assisted living. In 1994,
the federal government implemented new regulations which empowered states to
further expand their Medicaid Waiver Programs and eliminated restrictions on
the amount of Medicaid funding states could allocate to community-based care,
such as assisted living. A limited number of states including Oregon, New
Jersey, Texas, Arizona, Nebraska, Florida and Washington currently have
operating Medicaid Waiver Programs that allow them to pay for assisted living
care. Without a Medicaid Waiver Program, states can only use federal Medicaid
funds for long-term care in nursing facilities.
During the years ended December 31, 1996, 1997 and 1998, direct payments
received from state Medicaid agencies accounted for approximately 12.4%, 11.1%
and 10.7%, respectively, of our revenue while the tenant-paid portion received
from Medicaid residents accounted for approximately 6.9%, 5.9% and 5.8%,
respectively, of our revenue during these periods. We expect in the future
that state Medicaid reimbursement programs will continue to constitute a
significant source of our revenue.
Government Regulation
Our assisted living residences are subject to certain state statutes, rules
and regulations, including those which provide for licensing requirements. In
order to qualify as a state licensed facility, our residences must comply with
regulations which address, among other things, staffing, physical design,
required services and resident characteristics. As of May 31, 1999, we had
obtained licenses in Oregon, Washington, Idaho, Nebraska, Texas, Arizona,
Iowa, Louisiana, Ohio, New Jersey, Pennsylvania, Florida, Michigan and South
Carolina. We are not subject to state licensure requirements in Indiana and we
expect that we will obtain licenses in other states as required. Our
residences are also subject to various local building codes and other
ordinances, including fire safety codes. These requirements vary from state to
state and are monitored to varying degrees by state agencies.
As a provider of services under the Medicaid program in the United States,
we are subject to Medicaid fraud and abuse laws, which prohibit any bribe,
kickback, rebate or remuneration of any kind in return for the referral of
Medicaid patients, or to induce the purchasing, leasing, ordering or arranging
of any goods or services to be paid for by Medicaid. Violations of these laws
may result in civil and criminal penalties and exclusions from participation
in the Medicaid program. The Inspector General of the Department of Health and
Human Services issued "safe harbor" regulations specifying certain business
practices, which are exempt from sanctions under
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the fraud and abuse law. Several states in which we operate or intend to
operate have laws that prohibit certain direct or indirect payments or fee-
splitting arrangements between health care providers if such arrangements are
designed to induce or encourage the referral of patients to a particular
provider. We at all times attempt to comply with all applicable fraud and
abuse laws. There can be no assurance that administrative or judicial
interpretation of existing laws or regulations or enactments of new laws or
regulations will not have a material adverse effect on our results of
operations or financial condition.
Currently, the federal government does not regulate assisted living
residences as such. State standards required of assisted living providers are
less in comparison with those required of other licensed health care
operators. For instance, the states we initially targeted for
development/expansion typically do not set staffing ratios. Current Medicaid
regulations provide for comparatively flexible state control over the
licensure and regulation of assisted living residences. There can be no
assurance that federal regulations governing the operation of assisted living
residences will not be implemented in the future or that existing state
regulations will not be expanded.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist that also may require modifications to planned facilities to
create access to the properties by disabled persons. Although we believe that
our facilities currently under development are substantially in compliance
with, or are exempt from, present requirements, we will incur additional costs
if required changes involve a greater expenditure than anticipated or must be
made on a more accelerated basis than anticipated. Further legislation may
impose additional burdens or restrictions with respect to access by disabled
persons, the costs of compliance with which could be substantial.
Employees
As of May 31, 1999 we had 3,576 employees, of whom 1,506 were full-time
employees and 2,070 were part-time employees. None of our employees are
represented by any labor union. We believe that our labor relations are
generally good.
ITEM 2. Properties
The following chart sets forth, as of June 30, 1999 the location, number of
units, date of licensure, and ownership status of our residences. In addition,
the chart sets forth occupancy rates as of May 31, 1999.
<TABLE>
<CAPTION>
Opening Occupancy (%)
Residence Units Date(1) Ownership(2) at 5/31/99
--------- ----- ------- ------------ -------------
<S> <C> <C> <C> <C>
Western Region
Idaho
Burley.............................. 35 08/97 Leased 68.6
Caldwell............................ 35 08/97 Leased 37.1
Garden City......................... 48 04/97 Owned 72.9
Hayden.............................. 39 11/96 Leased 94.9
Idaho Falls......................... 39 01/97 Owned 100.0
Moscow.............................. 35 04/97 Owned 65.7
Nampa............................... 39 02/97 Leased 66.7
Rexburg............................. 35 08/97 Owned 45.7
Twin Falls.......................... 39 09/97 Owned 51.3
---
Sub Total......................... 344
Oregon
Astoria............................. 28 08/96 Owned 89.3
Bend................................ 46 11/95 Owned 97.8
Brookings........................... 36 07/96 Owned 88.9
Canby............................... 25 12/90 Leased 100.0
</TABLE>
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<TABLE>
<CAPTION>
Opening Occupancy (%)
Residence Units Date(1) Ownership(2) at 5/31/99
--------- ----- ------- ------------ -------------
<S> <C> <C> <C> <C>
Estacada............................ 30 01/97 Owned 96.7
Eugene.............................. 47 08/97 Leased 93.6
Hood River.......................... 30 10/95 Owned 96.7
Klamath Falls....................... 36 10/96 Leased 75.0
Lincoln City........................ 33 10/94 Owned 63.6
Madras.............................. 27 03/91 Owned 100.0
Myrtle Creek........................ 34 03/96 Leased 97.1
Newberg............................. 26 10/92 Leased 100.0
Newport............................. 36 06/96 Leased 88.9
Pendleton........................... 39 04/91 Leased 56.4
Prineville.......................... 30 10/95 Owned 100.0
Redmond............................. 37 03/95 Leased 89.2
Silverton........................... 30 07/95 Owned 100.0
Sutherlin........................... 30 01/97 Leased 100.0
Talent.............................. 36 10/97 Owned 100.0
---
Sub Total......................... 636
Washington
Battle Ground....................... 40 11/96 Leased 90.0
Bremerton........................... 39 05/97 Owned 64.1
Camas............................... 36 03/96 Leased 94.4
Enumclaw............................ 40 04/97 Owned 80.0
Ferndale............................ 39 10/98 Owned 46.2
Grandview........................... 36 02/96 Leased 80.6
Hoquiam............................. 40 07/97 Leased 97.5
Kelso............................... 40 08/96 Leased 95.0
Kennewick........................... 36 12/95 Leased 38.9
Port Orchard........................ 39 06/97 Owned 97.4
Port Townsend....................... 39 01/98 Owned 100.0
Spokane............................. 39 09/97 Owned 56.4
Sumner.............................. 48 03/98 Owned 87.5
Vancouver........................... 44 06/96 Leased 45.5
Walla Walla......................... 36 02/96 Leased 100.0
Yakima.............................. 48 07/98 Owned 79.2
---
Sub Total......................... 639
Midwest Region
Indiana
Bedford............................. 39 03/98 Owned 48.7
Bloomington......................... 39 01/98 Owned 71.8
Camby............................... 39 12/98 Owned 23.1
Elkheart............................ 39 09/97 Leased 89.7
Fort Wayne.......................... 39 06/98 Owned 25.6
Franklin............................ 39 05/98 Owned 59.0
Huntington.......................... 39 02/98 Owned 56.4
Jeffersonville...................... 39 03/99 Owned 20.5
Kendalville......................... 39 05/98 Owned 38.5
LaPorte............................. 39 10/98 Owned 46.2
Logansport.......................... 39 02/98 Owned 87.2
Madison............................. 39 10/97 Leased 89.7
Marion.............................. 39 03/98 Owned 25.6
Muncie.............................. 39 02/98 Owned 100.0
New Albany.......................... 39 05/98 Owned 56.4
New Castle.......................... 39 02/98 Owned 53.9
Seymour............................. 39 05/98 Owned 59.0
</TABLE>
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<TABLE>
<CAPTION>
Opening Occupancy (%)
Residence Units Date(1) Ownership(2) at 5/31/99
--------- ----- ------- ------------ -------------
<S> <C> <C> <C> <C>
Shelbyville......................... 39 05/98 Owned 84.6
Warsaw.............................. 39 10/97 Owned 43.6
---
Sub Total......................... 741
Iowa
Atlantic............................ 30 09/98 Owned 60.0
Carroll............................. 35 01/99 Owned 34.3
Clarinda............................ 35 09/98 Owned 48.6
Council Bluff....................... 50 03/99 Owned 32.0
Denison............................. 35 05/98 Leased 48.6
---
Sub Total......................... 185
Michigan
Three Rivers........................ 39 04/99 Owned 12.8
Nebraska
Beatrice............................ 39 07/97 Leased 69.2
Blair............................... 30 07/98 Owned 60.0
Columbus............................ 39 06/98 Owned 100.0
Fremont............................. 39 05/98 Owned 97.4
Nebraska City....................... 30 06/98 Owned 96.7
Norfolk............................. 39 04/97 Leased 71.8
Seward.............................. 30 10/98 Owned 43.3
Wahoo............................... 39 06/97 Leased 64.1
York................................ 39 05/97 Leased 94.9
---
Sub Total......................... 324
Southeast Region
Florida
Quincy.............................. 39 04/99 Owned 20.5
Milton.............................. 39 06/99 Owned --
---
Sub Total......................... 78
Louisiana
Alexandria.......................... 47 07/98 Owned 57.5
Bunkie.............................. 39 01/99 Owned 25.6
Houma............................... 48 08/98 Owned 70.8
Ruston.............................. 39 01/99 Owned 25.6
---
Sub Total......................... 173
South Carolina
Aiken............................... 39 02/98 Owned 76.9
Clinton............................. 39 11/97 Leased 43.6
Goose Creek......................... 39 08/98 Owned 48.7
Greenwood........................... 39 05/98 Leased 18.0
James Island........................ 39 08/98 Owned 56.4
North Augusta....................... 39 10/98 Owned 23.1
Port Royal.......................... 39 09/98 Owned 51.3
Summerville......................... 39 02/98 Owned 82.1
---
Sub Total......................... 312
Texas
Athens.............................. 38 11/95 Leased 97.4
Carthage............................ 30 10/95 Leased 93.3
Gun Barrel City..................... 40 10/95 Leased 92.5
Henderson........................... 30 09/96 Leased 96.7
Jacksonville........................ 39 12/95 Leased 100.0
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Opening Occupancy (%)
Residence Units Date(1) Ownership(2) at 5/31/99
--------- ----- ------- ------------ -------------
<S> <C> <C> <C> <C>
Longview............................ 30 09/95 Leased 96.7
Lufkin.............................. 39 05/96 Leased 97.4
Marshall............................ 40 07/95 Leased 100.0
Nacogdoches......................... 30 06/96 Leased 100.0
Paris Oaks.......................... 50 12/98 Owned 100.0
-----
Sub Total......................... 366
Southwest Region
Texas
Abilene............................. 38 10/96 Leased 86.8
Amarillo............................ 50 03/96 Leased 96.0
Beaumont............................ 50 04/96 Leased 92.0
Big Springs......................... 38 05/96 Leased 100.0
Bryan............................... 30 06/96 Leased 100.0
Canyon.............................. 30 06/96 Leased 93.3
Cleburne............................ 44 01/96 Owned 97.7
College Station..................... 39 10/96 Leased 100.0
Conroe.............................. 38 07/96 Leased 100.0
Denison............................. 30 01/96 Owned 86.7
Gainesville......................... 40 01/96 Leased 97.5
Greenville.......................... 40 11/95 Leased 75.0
Levelland........................... 30 01/96 Leased 100.0
Lubbock............................. 50 07/96 Leased 96.0
McKinney............................ 39 01/97 Owned 94.9
McKinney............................ 50 05/98 Owned 100.0
Mesquite............................ 50 07/96 Leased 90.0
Midland............................. 50 12/96 Owned 98.0
Mineral Wells....................... 30 07/96 Leased 96.7
Orange.............................. 36 03/96 Leased 100.0
Pampa............................... 36 08/96 Leased 100.0
Plainview........................... 36 07/96 Leased 100.0
Plano............................... 60 05/98 Owned 95.0
Port Arthur......................... 50 05/96 Owned 96.0
Rowlett............................. 36 10/96 Owned 100.0
Sherman............................. 39 10/95 Leased 97.4
Sulphur Springs..................... 30 01/96 Owned 100.0
Sweetwater.......................... 30 03/96 Leased 100.0
Temple.............................. 40 01/97 Leased 67.5
Wichita Falls....................... 50 10/96 Leased 64.0
-----
Sub Total......................... 1,209
Arizona
Apache Junction..................... 48 03/98 Owned 81.3
Bullhead City....................... 40 08/97 Leased 80.0
Lake Havasu......................... 36 04/97 Leased 58.3
Mesa................................ 50 01/98 Owned 72.00
Payson.............................. 39 10/98 Owned 84.6
Prescott Valley..................... 39 10/98 Owned 30.8
Surprise............................ 50 10/98 Owned 12.0
Yuma................................ 48 03/98 Owned 62.5
-----
Sub Total......................... 350
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Opening Occupancy (%)
Residence Units Date(1) Ownership(2) at 5/31/99
--------- ----- ------- ------------ -------------
<S> <C> <C> <C> <C>
Northeast Region
New Jersey
Bridgeton........................... 39 03/98 Owned 87.2
Burlington.......................... 39 11/97 Owned 100.0
Egg Harbor.......................... 39 04/99 Owned 48.7
Glassboro........................... 39 03/97 Leased 100.0
Millville........................... 39 05/97 Leased 100.0
Pennsville.......................... 39 11/97 Owned 97.4
Rio Grande.......................... 39 11/97 Owned 94.9
Vineland............................ 39 01/97 Leased 97.4
-----
Sub Total......................... 312
Ohio
Bellefountaine...................... 35 03/97 Owned 80.0
Bucyrus............................. 35 01/97 Owned 94.3
Cambridge........................... 39 10/97 Owned 43.6
Celina.............................. 39 04/97 Owned 79.5
Defiance............................ 35 02/96 Owned 91.4
Findlay............................. 39 03/97 Owned 20.5
Fremont............................. 39 07/97 Leased 51.3
Greenville.......................... 39 02/97 Owned 79.5
Hillsboro........................... 39 03/98 Owned 53.9
Kenton.............................. 35 03/97 Owned 100.0
Lima................................ 39 06/97 Owned 56.4
Marion.............................. 39 04/97 Owned 48.7
Newark.............................. 39 10/97 Leased 92.3
Sandusky............................ 39 09/98 Owned 23.1
Tiffin.............................. 35 06/97 Leased 62.9
Troy................................ 39 03/97 Leased 94.9
Wheelersburg........................ 39 09/97 Leased 30.8
Zanesville.......................... 39 12/97 Owned 66.7
-----
Sub Total......................... 682
Pennsylvania
Butler.............................. 39 12/97 Owned 61.5
Hermitage........................... 39 03/98 Owned 100.0
Indiana............................. 39 03/98 Owned 43.6
Johnstown........................... 39 06/98 Owned 46.2
Latrobe............................. 39 12/97 Owned 89.7
Lower Burrell....................... 39 01/97 Owned 100.0
New Castle.......................... 39 04/98 Owned 71.8
Penn Hills.......................... 39 05/98 Owned 53.9
Uniontown........................... 39 06/98 Owned 56.4
-----
Sub Total......................... 351
-----
Grand Total....................... 6,741
=====
</TABLE>
- --------
(1) Reflects the date operations commenced, typically the licensure date for
developed residences and the date of purchase for acquired residences.
(2) As of June 30, 1999, we owned 105 residences, 37 of which were subject to
permanent mortgage financing and 68 of which were unencumbered, and we
leased 70 residences pursuant to long-term operating leases. See Notes 5
and 8 to the consolidated financial statements included elsewhere herein.
12
<PAGE>
We also lease in total approximately 28,000 square feet of office space for
the Corporate and Regional offices in Portland, Oregon; Glendale, Arizona;
Dallas, Texas; Omaha, Nebraska; and Dublin, Ohio.
Construction and Development Activities
We are developing additional residences or expanding existing residences in
Indiana, Florida, Michigan, Iowa, New Jersey and South Carolina. As of June
30, 1999, we had six residences with 245 units that had received certificates
of occupancy but were not yet operating. In addition, we had four residences
with 156 units that were under construction as of the same date. We also owned
land for development of nine sites, including three for expansion projects,
where construction had not yet commenced. We have significantly reduced our
development activity in 1999 in order to focus on stabilizing our current base
of operating residences.
We generally locate our residences in well-established residential
neighborhoods in smaller rural and suburban communities, where the population
typically ranges from 10,000 to 40,000 with a higher than average percentage
of middle aged or elderly individuals. To provide the appropriate level of
personal care efficiently and economically, and to ensure that residents are
not intimidated by residence size, we develop residences ranging in size from
30 to 50 residential units and containing approximately 16,000 to 32,000 total
square feet, with studio and one-bedroom units comprising an average of 320
square feet and 450 square feet, respectively, of private living space.
Historically, we have either retained outside developers to construct
residences or acquired newly constructed residences from developers under
"turn-key" agreements. Since the end of 1997 we have expanded almost entirely
through outside development. Because of the planned reduction of development
activities in 1999, we intend to conduct an increasing portion of such
development activities internally. Where we use outside developers, we approve
all aspects of development including, among other things, market feasibility,
site selection, plans and specifications, the proposed construction budget and
selection of the architect and general contractor. We estimate the average
construction time for a typical residence to be approximately five to nine
months, depending upon the number of units.
ITEM 3. Legal Proceedings
Securityholder Litigation
Since February 1, 1999, 12 separate complaints, which have since been
consolidated into one action, have been filed against us and certain of our
officers and directors in the United States District Court for the District of
Oregon. On July 23, 1999, a consolidated complaint was filed in connection
with this litigation. The consolidated complaint purports to be brought on
behalf of a class of purchasers of our common stock from July 28, 1997 through
March 31, 1999 and on behalf of a class of purchasers of our Debentures from
the date of issuance through March 31, 1999. The consolidated complaint
alleges violations of the federal securities laws and seeks unspecified
damages. It also names as additional defendants certain of our directors that
were not named previously, as well as our independent auditors (solely in
connection with our 1998 offering of 5.625% Debentures) and the underwriters
in connection with our 1997 offering of 6.0% Debentures. We cannot predict the
outcome of the foregoing litigation and currently are unable to evaluate the
likelihood of success or the range of possible loss. However, if the foregoing
consolidated action were determined adversely to us, such a determination
could have a material adverse effect on our financial condition, results of
operations, cash flow or liquidity.
Other Litigation
In addition to the matter referred to in the immediately preceding
paragraph, we are involved in various lawsuits and claims arising in the
normal course of business. In the opinion of our management, although the
outcomes of these other suits and claims are uncertain, in the aggregate such
other suits and claims should not have a material adverse effect on our
financial condition, results of operations, cash flow or liquidity.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
<PAGE>
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Our Common Stock, par value $0.01 (the "Common Stock"), is listed on the
American Stock Exchange ("AMEX") under the symbol "ALF." The following table
sets forth the high and low closing sales prices of the Common Stock, as
reported by the AMEX, for the periods indicated.
<TABLE>
<CAPTION>
1997 1998
------------- -------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
Years ended December 31:
1st Quarter.................................. $10.68 $ 7.13 $21.63 $17.50
2nd Quarter.................................. 14.50 9.88 21.38 14.13
3rd Quarter.................................. 19.75 13.25 18.00 12.44
4th Quarter.................................. 22.38 15.75 14.50 9.88
</TABLE>
For the period from January 1, 1999 to April 15, 1999, the high and low
closing sales prices of the Common Stock, as reported by the AMEX was $14.50
and $2.88, respectively. On April 15, 1999, the AMEX halted trading in the
Common Stock.
As of May 31, 1999, we had approximately 80 holders of record of Common
Stock. We are unable to estimate the number of additional stockholders whose
shares are held for them in street name or nominee accounts.
Our current policy is to retain any earnings to finance the operations and
expansion of our business. In addition, certain outstanding indebtedness and
certain lease agreements restrict the payment of cash dividends. It is
anticipated that the terms of future debt financing may do so as well.
Therefore, the payment of any cash dividends on the Common Stock is unlikely
in the foreseeable future.
ITEM 6. Selected Financial Data
The following table presents selected historical condensed consolidated
financial data for us and our Predecessor. Our "Predecessor" consisted of:
Assisted Living Facilities, Inc., an S-Corporation; Madras Elder Care, a
partnership; and Lincoln City Partners, a partnership, which, prior to
December 31, 1994, owned the five residences operated by us in December 1994.
The consolidated statement of operations data of the Predecessor for the
eleven months ended November 30, 1994 and the consolidated statement of
operations data of the Company for the one month ended December 31, 1994 and
the year ended December 31, 1995, as well as the consolidated balance sheet
data at December 31, 1994, 1995 and 1996, are derived from our audited
consolidated financial statements and those of the Predecessor. The
consolidated statement of operations data for the years ended December 31,
1996, 1997 and 1998, as well as the consolidated balance sheet data at
December 31, 1997 and 1998, are derived from our consolidated financial
statements included elsewhere in this report which have been audited by KPMG
LLP, independent auditors. You should read the selected financial data below
in conjunction with our consolidated financial statements, including the
related notes, and the information in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
14
<PAGE>
<TABLE>
<CAPTION>
Predecessor The Company
------------ ------------------------------------------------
Eleven One Month
Months Ended Ended Years Ended December 31,
November 30, December 31, -----------------------------------
1994 1994 1995 1996 1997 1998
------------ ------------ ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue................. $1,841 $ 212 $ 4,067 $21,022 $49,605 $ 89,384
Operating expenses:
Residence operating
expenses............. 1,127 125 2,779 14,055 31,591 57,443
Management Fees....... 93 -- -- -- -- --
Corporate general and
administrative....... -- 152 1,252 1,864 4,050 11,099
Building rentals...... -- 42 798 3,949 7,969 12,764
Depreciation and
amortization......... 105 13 296 1,094 3,683 6,339
Terminated merger
expense.............. -- -- -- -- -- 1,068
Site abandonment
costs................ -- -- -- -- -- 2,377
Write-off of impaired
assets............... -- -- -- -- -- 8,521
------ ------ ------- ------- ------- --------
Total operating
expenses........... 1,325 332 5,125 20,962 47,293 99,611
------ ------ ------- ------- ------- --------
Operating income
(loss)................. 516 (120) (1,058) 60 2,312 (10,227)
------ ------ ------- ------- ------- --------
Other income (expense):
Interest expense...... 297 8 96 1,146 4,946 11,039
Interest income....... (12) (64) (579) (455) (1,526) (3,869)
Loss on sale of
assets............... -- -- -- 854 1,250 651
Debenture conversion
costs................ -- -- -- 426 -- --
Other expenses........ -- -- -- 4 121 1,174
------ ------ ------- ------- ------- --------
Total other (income)
expenses........... 285 (56) (483) 1,975 4,791 8,995
------ ------ ------- ------- ------- --------
Income (loss) before
taxes and
cumulative effect of
change in
accounting principle... 231 (64) (575) (1,915) (2,479) (19,222)
Provision for income
taxes.................. 85 -- -- -- -- --
Cumulative effect of
change in
accounting principle... -- -- -- -- -- (1,523)
------ ------ ------- ------- ------- --------
Net income (loss)....... $ 146 $ (64) $ (575) $(1,915) $(2,479) $(20,745)
====== ====== ======= ======= ======= ========
Basic and diluted net
loss per common share:
Loss before cumulative
effect of change in
accounting
principle............ -- $(0.01) $ (0.10) $ (0.23) $ (0.21) $ (1.18)
Cumulative effect of
change in accounting
principle............ -- -- -- -- -- $ (0.09)
------ ------ ------- ------- ------- --------
Basic and diluted net
loss per common share.. -- $(0.01) $ (0.10) $ (0.23) $ (0.21) $ (1.27)
====== ====== ======= ======= ======= ========
Basic and diluted
weighted average common
shares outstanding..... -- 6,000 6,000 8,404 11,871 16,273
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital.................. $13,122 $(5,320) $(27,141) $ 40,062 $ 43,856
Total assets..................... 17,903 53,546 147,223 324,367 414,669
Long-term debt, excluding current
portion......................... 1,101 24,553 49,663 157,700 266,286
Shareholders' equity............. 16,219 15,644 56,995 132,244 119,197
</TABLE>
15
<PAGE>
Quarterly Financial Data (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
1997 Quarterly Financial Data 1998 Quarterly Financial Data
----------------------------------------- ---------------------------------------------
1st 2nd 3rd 4th Year to 1st 2nd 3rd 4th Year to
Qtr Qtr Qtr Qtr Date Qtr Qtr Qtr Qtr Date
------ ------- ------- ------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Revenue................. $9,479 $11,108 $12,765 $16,253 $49,605 $18,773 $ 21,353 $24,012 $25,246 $ 89,384
Operating income
(loss)................. 805 1,010 303 194 2,312 1,408 (8,609) 1,657 (4,684) (10,227)
Net income (loss) before
cumulative effect of
change in accounting
principle.............. 31 (74) (1,475) (961) (2,479) 739 (11,831) (720) (7,410) (19,222)
Change in accounting
principle.............. -- -- -- -- -- (1,523) -- -- -- (1,523)
Net income (loss)....... 31 (74) (1,475) (961) (2,479) (784) (11,831) (720) (7,410) (20,745)
Basic and diluted income
(loss) per share(1)
Income (loss) per common
share before cumulative
effect of change in
accounting principle... 0.00 (0.01) (0.13) (0.07) (0.21) 0.05 (0.75) (0.04) (0.43) (1.18)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- -- (0.10) -- -- -- (0.09)
Loss per share.......... $ 0.00 $ (0.01) $ (0.13) $ (0.07) $ (0.21) $ (0.05) $ (0.75) $ (0.04) $ (0.43) $ (1.27)
Basic and diluted
weighted average common
shares outstanding..... 11,004 11,044 11,084 14,429 11,871 15,688 15,679 16,604 17,094 16,273
</TABLE>
- --------
(1) Quarter net income (loss) per share amounts may not add to the full year
total due to rounding.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Restatement
On February 1, 1999, we announced that after consultation with our
independent auditors, we would restate our financial statements for the fiscal
quarter ended June 30, 1997, the fiscal quarter ended September 30, 1997, the
fiscal year ended December 31, 1997, the fiscal quarter ended March 31, 1998,
the fiscal quarter ended June 30, 1998 and the fiscal quarter ended September
30, 1998. On March 31, 1999, we announced that the restatement would be more
extensive than we had previously believed, and might include periods prior to
the second quarter of 1997, including the fiscal year ended December 31, 1996.
After further consultation with our independent auditors, we determined to
restate our financial statements for the fiscal year ended December 31, 1996,
the fiscal year ended December 31, 1997 and each of the first three fiscal
quarters of the fiscal year ended December 31, 1998.
The restatement reduced the net income for the fiscal years ended December
31, 1996 and 1997 and for the nine months ended September 30, 1998 by $2.1
million, $6.7 million and $11.0 million, respectively. The cumulative effect
of the restatement reduced shareholders' equity by $19.7 million through
September 30, 1998. As a result of the restatement, we reported net losses of
$1.9 million, $2.5 million and $13.3 million for the fiscal years 1996 and
1997 and the nine months ended September 30, 1998, respectively, compared to
previously reported net income of $149,000, $4.2 million and a net loss of
$2.4 million, respectively. As a result of the restatement, the Company
reported net loss per diluted share of $0.23, $0.21 and $0.84 for the fiscal
years ended December 31, 1996 and 1997 and the nine months ended September 30,
1998, respectively, compared to previously reported net income of $0.03 and
$0.34, and net loss of $0.14, per diluted share, respectively. After the
restatement, the Company's cash position as of December 31, 1996 and 1997 and
as of September 30, 1998 was $2.1 million, $63.3 million and $79.6 million,
respectively, as compared to $2.1 million, $63.4 million and $79.8 million,
respectively, as previously reported. In addition, our working capital
position as of December 31, 1996 and 1997 and as of September 30, 1998 was
negative $27.1 million, positive $40.1 million and positive
16
<PAGE>
$63.0 million, respectively, as compared to previously reported working
capital of negative $26.4 million, positive $41.0 million and positive $64.1
million, respectively.
The restatement resulted primarily from: (i) the earlier recognition of
certain expenses that we previously capitalized in association with our
development and financing activities; (ii) a modification in how we accounted
for certain of our lease arrangements; (iii) a modification in how we
accounted for certain of our acquisitions and our joint venture arrangements;
(iv) the capitalization of fees we received during 1997 and 1998 that we
previously recorded as a reduction of expenses or other income; (v) the
elimination of an impairment write-down that we had previously recorded on
three of our residences; (vi) the elimination of certain accrued expenses
previously recorded pursuant to a change in accounting principle and (vii) an
increase in the amount of goodwill that we wrote off in the second quarter of
1998 related to exiting our home health operations.
Overview
We operate free-standing assisted living residences, primarily in small
middle-market rural and suburban communities with a population typically
ranging from 10,000 to 40,000. We provide personal care and support services,
and make available routine nursing services (as permitted by applicable
regulations) designed to meet the personal and health care needs of our
residents. As of June 30, 1999, we had operations or development activities in
five regions (as defined by ALC) in 16 states.
We have experienced significant and rapid growth, primarily through the
development of assisted living residences and, to a lesser extent, through the
acquisition of assisted living residences. At the closing of our initial
public offering in November 1994, we began operating five residences (137
units) located in Oregon. As of June 30, 1999, we had received certificates of
occupancy on 181 residences (6,986 units), of which 175 residences (6,741
units) were included in operating results. Residences typically receive a
certificate of occupancy upon completion of construction. Residences are
included in operating results when they receive a license or its equivalent
from the state in which they are located. It may take several months to
receive a license after receiving a certificate of occupancy. Of the
residences included in our operating results, we owned 105 residences (4,121
units) and leased 70 residences (2,620 units).
We derive our revenues primarily from resident fees for the delivery of
assisted living services. Resident fees typically are paid monthly by
residents, their families, state Medicaid agencies or other responsible
parties. Resident fees include revenue derived from a multi-tiered rate
structure, which varies based on the level of care provided. Resident fees are
recognized as revenues when services are provided. Our operating expenses
include:
. residence operating expenses, such as staff payroll, food, property
taxes, utilities, insurance and other direct residence operating
expenses;
. general and administrative expenses consisting of corporate and regional
support functions such as legal, accounting and other administrative
expenses;
. building rentals; and
. depreciation and amortization.
Our operating results for the year ended December 31, 1998 were adversely
affected by several factors, including:
. write-offs in the second quarter and fourth quarter relating to our
decisions not to proceed with the development of certain sites which we
had acquired for development;
. a write-off in the second quarter relating to our decision to
discontinue the home health care business which we acquired in October
1997; and
. merger related expenses incurred during the fourth quarter related to
our proposed merger with ARC.
17
<PAGE>
In addition, our results of operations were negatively impacted, commencing
in the fourth quarter of 1998, as a result of the diversion of management's
time and attention resulting from the proposed merger with ARC and its
subsequent termination, as well as from certain regulatory issues in
Washington and Oregon. These distractions continued into 1999 and, as such,
our operating results for the year ended December 31, 1998 are not necessarily
indicative of our future operating performance. With respect to our Stabilized
Residences (as defined below), we expect our operating margins to be
substantially lower in 1999 because our occupancy rates have declined and our
operating expenses have increased in those residences. This is partly due to
increased competition in certain markets for labor and residents and partly
due to the diversion of management's time and attention relating to the
matters described above, and also to a restatement of our financial statements
for certain prior periods and the securityholder litigation, both of which
commenced in February 1999. These factors have also resulted in slower fill-up
and increased operating expenses in our Start-Up Residences (as defined
below).
For the year ended December 31, 1998, we commenced operations in 57
additional residences, 53 of which were developed and four of which were
acquired. We intend to commence operation on an additional 20 residences
during the year ended December 31, 1999 (the "1999 Period"), 10 of which had
commenced operation through June 30, 1999. In addition to the development and
construction costs incurred during 1998 with respect to these residences, we
expect to incur up to an additional $30.0 million in capital expenditures and
related start-up costs for the twelve months ended December 31, 1999,
approximately $25.0 million of which had been incurred as of June 30, 1999. We
expect that Start-Up Residences will incur significant operating losses during
the fill-up period. As a result, our operating results will be adversely
affected by operating losses at certain residences, primarily Start-Up
Residences, which we expect will range from $3.5 million to $5.0 million
during 1999.
We believe that our current cash on hand and our working capital resources
will be sufficient to meet our capital needs for the next 12 to 18 months.
However, to provide us with additional capital, we may explore various
financing alternatives and/or commitments to engage in sale and leaseback
transactions. We currently do not have in place any of such loan or lease
commitments. As a result of the securityholder litigation, the restatement and
other factors, there can be no assurances that financing from any source will
be available in the future, or, if available, that such financing will be on
terms acceptable to us. See "Liquidity and Capital Resources" and "Risk
Factors--We may require additional financing."
Results of Operations
The following table sets forth, for periods presented, the number of total
residences and units operated, average occupancy rates and the sources of our
revenue. The portion of revenues received from state Medicaid agencies are
labeled as "Medicaid state portion" while the portion of our revenues that a
Medicaid-eligible resident must pay out of his or her own resources is labeled
"Medicaid resident portion."
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
Total Residences 1996 1997 1998
---------------- ----- ----- -----
<S> <C> <C> <C>
Residences operated (end of period)..................... 60 109 165
Units operated (end of period).......................... 2,139 4,024 6,329
Average occupancy rate.................................. 76.7% 71.7% 72.3%
Sources of revenue:
Medicaid state portion................................ 12.4% 11.1% 10.7%
Medicaid resident portion............................. 6.9% 5.9% 5.8%
Private............................................... 80.7% 83.0% 83.5%
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
18
<PAGE>
The following table sets forth, for the periods presented for Stabilized
Residences, the total number of residences and units operated, average
occupancy rates and the sources of our revenue. Stabilized Residences are
defined as those residences, which were operating for more than twelve months
prior to the beginning of the period or had achieved a 95% occupancy rate as
of the beginning of the reporting period.
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
Stabilized Residences 1996 1997 1998
--------------------- ----- ----- -----
<S> <C> <C> <C>
Residences operated (end of period)..................... 7 32 65
Units operated (end of period).......................... 204 1,063 2,434
Average occupancy rate.................................. 96.5% 95.1% 93.9%
Sources of revenue:
Medicaid state portion................................ 19.9% 11.4% 14.5%
Medicaid resident portion............................. 11.5% 6.5% 8.2%
Private............................................... 68.6% 82.1% 77.3%
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table sets forth, for the periods presented for Start-up
Residences, the total number of residences and units operated, average
occupancy rates and the sources of our revenue. Start-up Residences are
defined as those residences, which were operating for less than twelve months
prior to the beginning of the period or had not achieved a 95% occupancy rate
as of the beginning of the reporting period.
<TABLE>
<CAPTION>
Years ended
December 31,
-------------------
Start-up Residences 1996 1997 1998
------------------- ----- ----- -----
<S> <C> <C> <C>
Residences operated (end of period)..................... 53 77 100
Units operated (end of period).......................... 1,935 2,961 3,895
Average occupancy rate.................................. 73.0% 59.8% 55.7%
Sources of revenue:
Medicaid state portion................................ 9.8% 11.3% 7.1%
Medicaid resident portion............................. 5.3% 5.7% 3.4%
Private............................................... 84.9% 83.0% 89.5%
----- ----- -----
Total............................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table sets forth, for the periods presented for Same Store
Residences, the total number of residences and units operated, average
occupancy rates and the sources of our revenue. Same Store Residences are
defined as those residences, which were operating throughout comparable
periods.
<TABLE>
<CAPTION>
Years ended Years ended
December 31, December 31,
------------ ------------
Same Store Residences 1996 1997 1997 1998
--------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Residences operated (end of period).............. 19 19 59 59
Units operated (end of period)................... 595 605 2,104 2,157
Average occupancy rate........................... 90.0% 95.6% 86.9% 93.5%
Sources of revenue:
Medicaid state portion......................... 16.1% 13.8% 11.9% 15.1%
Medicaid resident portion...................... 9.1% 7.6% 6.5% 8.7%
Private........................................ 74.8% 78.6% 81.6% 76.2%
----- ----- ----- -----
Total........................................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
19
<PAGE>
The following tables relating to Stabilized Residences, Start-up Residences
and Same Store Residences exclude the effects of corporate level expenses,
including general and administrative expenses and corporate level interest
expense. In addition, the following tables exclude the effect of the
capitalization of corporate and property level interest expense.
The following table sets forth, for the periods presented, the results of
operations for Stabilized Residences (in thousands).
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
Stabilized Residences 1996 1997 1998
--------------------- ------- ------- --------
<S> <C> <C> <C>
Revenue..,,,,,,..................................... $4,084 $21,245 $46,260
Residence operating expenses........................ 2,422 12,255 27,456
------- ------ -------
Residence operating income.......................... 1,662 8,990 18,804
Building rentals.................................... 935 3,323 7,193
Depreciation and amortization....................... 138 945 1,777
------ ------- -------
Total other operating expenses...................... 1,073 4,268 8,970
------ ------- -------
Operating income.................................... $ 589 $ 4,722 $ 9,834
====== ======= =======
</TABLE>
The following tables sets forth, for the periods presented, the results of
operations for Start-up Residences (in thousands).
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
Start-up Residences 1996 1997 1998
------------------- -------- ------- -------
<S> <C> <C> <C>
Revenue............................................. $16,938 $27,164 $40,013
Residence operating expenses........................ 11,633 18,519 27,591
------- ------- -------
Residence operating income........................ 5,305 8,645 12,422
Building rentals.................................... 3,014 4,612 5,535
Depreciation and amortization....................... 956 2,010 4,063
------- ------- -------
Total other operating expenses.................... 3,970 6,622 9,598
------- ------- -------
Operating income................................ $ 1,335 $ 2,023 $ 2,824
======= ======= =======
</TABLE>
The following table sets forth, for the periods presented, the results of
operations for the 19 Same Store Residences included in operating results for
all of fiscal years 1996 and 1997, and the 59 Same Store Residences included
in operating results for all of fiscal years 1997 and 1998 (in thousands).
<TABLE>
<CAPTION>
Years ended Years ended
December 31, December 31,
--------------- ---------------
Same Store Residences 1996 1997 1997 1998
--------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue..................................... $10,877 $12,397 $38,274 $42,002
Residence operating expenses................ 6,682 7,070 22,908 24,801
------- ------- ------- -------
Residence operating income................ 4,195 5,327 15,366 17,201
Building rentals............................ 2,374 2,440 5,635 6,375
Depreciation and amortization............... 543 461 2,280 1,647
------- ------- ------- -------
Total other operating expenses............ 2,917 2,901 7,915 8,022
------- ------- ------- -------
Operating income........................ $ 1,278 $ 2,426 $ 7,451 $ 9,179
======= ======= ======= =======
</TABLE>
20
<PAGE>
Year ended December 31, 1998 compared to year ended December 31, 1997
We incurred a net loss (after the cumulative effect of change in accounting
principle and other charges as described below) of $20.7 million, or $1.27 per
basic and diluted share, on revenue of $89.4 million for the year ended
December 31, 1998 (the "1998 Period") as compared to a net loss of $2.5
million, or $0.21 per basic and diluted share, on revenue of $49.6 million for
the year ended December 31, 1997 (the "1997 Period").
We had certificates of occupancy for 173 residences, 165 of which were
included in the operating results as of the end of the 1998 Period as compared
to 130 residences with certificates of occupancy, 109 of which were included
in the operating results as of the end of the 1997 Period. Of the residences
included in operating results as of the end of the 1998 Period, we owned 95
residences and leased 70 residences (54 of which were operating leases and 16
of which were accounted for as financings) as compared to 42 owned residences
and 67 leased residences (51 of which were operating leases and 16 of which
were accounted for as financings) as of the end of the 1997 Period.
Revenue. Revenue was $89.4 million for the 1998 Period as compared to $49.6
million for the 1997 Period, an increase of $39.8 million. Of this increase:
. $18.5 million or 46.5% related to the full year impact of the 49
residences (1,875 units) which opened during the 1997 Period;
. $15.7 million or 39.4% related to the opening of an additional 57
residences (2,297 units) during the 1998 Period;
. $3.7 million or 9.3% was attributable to the 59 Same Store Residences
(2,157 units); and
. the remaining $1.9 million or 4.8% related to our ancillary service
operation.
Revenue from the Same Store Residences was $42.0 million for the 1998 Period
as compared to $38.3 million for the 1997 Period, an increase of $3.7 million
or 9.7%. The increase in revenue for Same Store Residences was attributable to
a combination of an increase in average occupancy to 93.5% and average monthly
rental rate to $1,753 for the 1998 Period as compared to 86.9% and $1,720,
respectively, for the 1997 Period.
Of the $89.4 million in revenues reported for the 1998 Period:
. $46.3 million or 51.8% was attributable to Stabilized Residences;
. $40.0 million or 44.7% was attributable to Start-Up Residences; and
. $3.1 million or 3.5% was attributable to our ancillary service
operation.
As of the end of the 1998 Period, we had 65 Stabilized Residences (2,434
units) with an average occupancy of 93.9% and an average monthly rental rate
of $1,762 and we had 100 Start-Up Residences (3,895 units) with an average
occupancy of 55.7% and an average monthly rental rate of $1,934.
Residence Operating Expenses. Residence operating expenses were $57.4
million for the 1998 Period as compared to $31.6 million for the 1997 Period,
an increase of $25.8 million. Of this increase:
. $10.5 million or 40.7% related to the full year impact of the 49
residences (1,885 units) which opened during the 1997 Period;
. $11.8 million or 45.7% related to the opening of an additional 57
residences (2,297 units) during the 1998 Period;
. $1.9 million or 7.4% was attributable to the 59 Same Store Residences
(2,157 units); and
. the remaining $1.6 million or 6.2% related to expenses associated with
our ancillary service operation.
Residence operating expenses for the Same Store Residences were $24.8
million for the 1998 Period as compared to $22.9 million for the 1997 Period,
an increase of $1.9 million or 8.3%. This increase results from
21
<PAGE>
the additional expenses incurred in connection with the increase in occupancy
at the Same Store Residences during the period.
Of the $57.4 million in residence operating expenses reported for the 1998
Period, $27.5 million or 47.9% was attributable to Stabilized Residences,
$27.6 million or 48.1% was attributable to Start-Up Residences and $2.3
million or 4.0% was attributable to our ancillary service operation.
Corporate General and Administrative. Corporate general and administrative
expenses as reported were $11.1 million for the 1998 Period as compared to
$4.1 million for the 1997 Period. Our corporate general and administrative
expenses before capitalized payroll costs were $12.9 million for the 1998
Period as compared to $5.9 million for the 1997 Period, an increase of $7.0
million. This increase results from additional investments in our corporate
and regional infrastructure to support the opening of new residences and the
on-going operation of our existing base of residences. Of the increase:
. $3.9 million or 56.0% related to increased payroll costs;
. $525,000 or 7.5% related to increased marketing expenses;
. $450,000 or 6.5% related to the increased corporate office rental
expense; and
. the remaining $2.1 million or 30.0% related to increased general
corporate expenses such as legal and travel related expenses.
We capitalized $1.8 million of payroll costs associated with the development
of new residences for each of the 1998 Period and the 1997 Period.
We expect to incur increased corporate general and administrative expenses
for the 1999 Period primarily as a result of:
. the increase in the number of regional offices from three to five;
. increased marketing and advertising expenses associated with residence
fill-up activities;
. an increase in professional fees associated with the restatement and
security-holder litigation;
. an increase in severance expense associated with management changes; and
. an increase in expenses associated with final operations of our home
health operations.
In addition, corporate general and administrative expenses as reported in
the 1999 Period are expected to increase as a result of the reduction in the
amount of capitalized payroll costs associated with development activities.
Building Rentals. Building rentals were $12.8 million for the 1998 Period as
compared to $8.0 million for the 1997 Period, an increase of $4.8 million. Of
the increase:
. $4.2 million was the result of the full year impact of the 26 operating
leases entered into during the 1997 Period;
. $400,000 related to the four leases entered into during the 1998 Period;
and
. the remainder of the increase was primarily driven by an increase in
expense on leases entered into prior to the 1997 Period offset by one
operating lease which was terminated during the 1998 Period.
As of the end of the 1998 Period we had 54 operating leases as compared to
51 operating leases as of the end of the 1997 Period.
Depreciation and Amortization. Depreciation and amortization was $6.3
million for the 1998 Period as compared to $3.7 million for the 1997 Period,
an increase of $2.6 million. Depreciation expense was $5.9 million
22
<PAGE>
and amortization expense was $398,000 for the 1998 Period as compared to $2.9
million and $800,000, respectively, for the 1997 Period. The increase in
depreciation is the result of:
. the full year effect of depreciation on the 16 owned residences which
commenced operations during the 1997 Period;
. depreciation associated with the 53 owned residences that commenced
operations during the 1998 Period; and
. depreciation associated with the full year impact of seven residences
which were sold and leased back during the 1997 Period which were
accounted for as financings.
Amortization expense decreased as a result of the change in accounting for
certain costs incurred prior to opening new residences. Effective January 1,
1998, we adopted Statement of Position 98-5, Reporting on the Costs of Start-
Up Activities ("SOP 98-5"). See the discussion of cumulative effect of change
in accounting principle below.
Terminated Merger Expense. During the fourth quarter of the 1998 Period, we
recorded a $1.1 million charge relating to our terminated merger with ARC. On
February 1, 1999 we agreed with ARC to terminate our previously announced
merger agreement, which had been entered into during November 1998. We
incurred approximately $200,000 of additional merger related expenses during
the first quarter of 1999.
Site Abandonment Costs. As a result of our decision to reduce the number of
new residence openings during the 1999 Period and beyond, we wrote-off $2.4
million of capitalized costs during the 1998 Period relating to the
abandonment of 36 development sites. Of such costs, $1.0 million were written-
off during the second quarter and the remaining $1.4 million were written-off
during the fourth quarter 1998. We had not written-off any such costs prior to
1998.
As a result of a continued reduction in our new residence development
activities, we will incur write-offs of $1.3 million relating to previously
capitalized development costs during the first quarter of 1999 and an
additional $3.5 million in the second quarter of 1999. In the event that in
the future we do not complete and open residences planned for development, we
may incur similar write-offs. However, we have no present intention of
commencing further development activity beyond the 10 residences currently
included in construction in process as of June 30, 1999.
Write-Off of Impaired Assets and Related Expenses. In the 1998 Period, we
recorded an $8.5 million charge consisting of:
. $7.5 million write-off of unamortized goodwill resulting from the exit
from our home health operations;
. a $1.0 million provision for exit costs associated with closing such
home health care operation. During the fourth quarter of 1998, we
reduced the provision by $400,000 from $1.4 million as a result of a
change in the estimate for such exit costs.
Interest Expense. Interest expense was $11.0 million for the 1998 Period as
compared to $4.9 million for the 1997 Period. Gross interest expense for the
1998 Period was $17.0 million compared to $11.5 million for the 1997 Period, a
net increase of $5.5 million.
Interest expense increased by:
. $4.8 million due to the full year impact of interest expense related to
the October 1997 issuance of 6.0% Debentures;
. $3.6 million due to interest expense related to the April 1998 issuance
of 5.625% Debentures;
. $1.8 million related to the new mortgage financing entered into during
the 1998 Period;
23
<PAGE>
. $750,000 related to the full year impact of seven residences which were
sold and leased back during the 1997 Period which were accounted for as
financings; and
. $475,000 related to interest expense associated with losses which were
reimbursed by the partner to our joint venture agreement (accounted for
as loans) incurred in connection with the operation of joint venture
residences (interest was calculated based on the average loan balance
using an imputed 20% interest rate, and other expense was calculated
based on a $10,000 administrative fee per residence).
This increase was offset by:
. a $5.5 million reduction associated with construction financing used to
fund development activity during the 1997 Period which was either repaid
or converted to leases prior to the 1998 Period; and
. a $400,000 reduction as a result of the redemption in August 1998 of the
7.0% Convertible Subordinated Debentures due 2005 (the "7.0%
Debentures").
We capitalized $6.0 million of interest expense for the 1998 Period compared
to $6.6 million for the 1997 Period. We expect a further reduction in the
amount of capitalized interest in the 1999 Period as a result of the reduction
in our development activities. As such, we expect reported interest expense in
the 1999 Period to increase.
Interest Income. Interest income was $3.9 million for the 1998 Period as
compared to $1.5 million for the 1997 Period, an increase of $2.4 million. The
increase is related to interest income earned on higher average cash balances
during the 1998 Period primarily resulting from the April 1998 offering of the
5.625% Debentures from which we received net proceeds of approximately $72.2
million.
Loss on Sale of Assets. Loss on sale of assets was $651,000 for the 1998
Period as compared to $1.3 million for the 1997 Period. Of the loss on sale of
assets recorded during the 1998 Period, $547,000 resulted from losses
pertaining primarily to additional capital costs incurred during the 1998
Period on sale and leaseback transactions completed in the 1997 Period and
$75,000 related to losses incurred in connection with terminating one
operating lease during the 1998 Period. The remainder of the loss on sale of
assets was attributable to losses incurred in connection with one sale and
leaseback transaction completed during the 1998 Period. We entered into four
sale and leaseback transactions during the 1998 Period as compared to 24 sale
and leaseback transactions during the 1997 Period.
Other Expenses. Other expense was $1.2 million for the 1998 Period as
compared to $121,000 for the 1997 Period. Other expenses during the 1998
Period included $907,000 of financing costs which were expensed during the
period. Of such amount, $614,000 related to financing costs which had been
previously capitalized and deferred in association with a future financing
commitment terminated during the fourth quarter 1998 and the remaining
$293,000 was associated with the termination of a swap agreement at the end of
the third quarter of the 1998 Period. In addition, other expenses during the
1998 Period included $210,000 of administrative fees incurred in connection
with our repurchase of the joint venture partner's interest in the operations
of 21 residences during the period.
Cumulative Effect of Change in Accounting Principle. We adopted AICPA
Statement of Position 98-5, Reporting on the Costs of Start-up Activities
("SOP 98-5") effective January 1, 1998. Under SOP 98-5, start-up costs
associated with the opening of new residences are expensed as incurred. We
recognized a charge of $1.5 million during the 1998 Period associated with
adopting such provision. Prior to the adoption of SOP 98-5, we capitalized
pre-opening costs on our balance sheet and amortized such costs over a 12-
month period.
Net Loss. As a result of the above, net loss (after the cumulative effect of
change in accounting principle and other charges as described above) was $20.7
million or $1.27 per basic and diluted share for the 1998 Period, compared to
$2.5 million, or $0.21 per basic and diluted share for the 1997 Period.
24
<PAGE>
Year ended December 31, 1997 compared to year ended December 31, 1996
We incurred a net loss of $2.5 million, or $0.21 per basic and diluted
share, on revenue of $49.6 million for the year ended December 31, 1997 (the
"1997 Period") as compared to a net loss of $1.9 million, or $0.23 per basic
and diluted share, on revenues of $21.0 million for the year ended December
31, 1996 (the "1996 Period").
We had certificates of occupancy for 130 residences, 109 of which were
included in the operating results as of the end of the 1997 Period as compared
to 67 residences with certificates of occupancy, 60 of which were included in
the operating results as of the end of the 1996 Period. Of the residences
included in the operating results as of the end of the 1997 Period, we owned
42 residences and leased 67 residences (51 of which were operating leases and
16 of which were accounted for as financings) as compared to 26 owned
residences and 34 leased residences (25 of which were operating leases and
nine of which were accounted for as financings) as of the end of the 1996
Period.
Revenue. Revenue was $49.6 million for the 1997 Period as compared to $21.0
million for the 1996 Period, an increase of $28.6 million. Of this increase:
. $13.2 million or 46.2% related to the full year impact of the 41
residences (1,544 units) which opened during the 1996 Period;
. $12.7 million or 44.4% related to the opening of an additional 49
residences (1,875 units) during the 1997 Period;
. $1.5 million or 5.2% was attributable to the 19 Same Store Residences
(605 units); and
. the remaining $1.2 million or 4.2% related to ancillary revenues earned
in connection with the acquisition of Home and Community Care, Inc.
("HCI").
Revenue from the Same Store Residences was $12.4 million for the 1997 Period
as compared to $10.9 million for the 1996 Period, an increase of $1.5 million
or 13.8%. All of the increase in revenue for Same Store Residences was
attributable to an increase in average occupancy to 95.6% for the 1997 period
as compared to 90.0% for the 1996 period. The average monthly rental rate for
the Same Store Residences increased to $1,772 for the 1997 Period as compared
to $1,670 per month for the 1996 Period.
Of the $49.6 million in revenues reported for the 1997 Period:
. $21.2 million or 42.8% was attributable to Stabilized Residences;
. $27.2 million or 54.8% was attributable to Start-Up Residences; and
. $1.2 million or 2.4% was attributable to ancillary service operations.
As of the end of the 1997 Period, we had 32 Stabilized Residences (1,063
units) with an average occupancy of 95.1% and an average monthly rental rate
of $1,735 and we had 77 Start-Up Residences (2,961 units) with an average
occupancy of 59.8% and an average monthly rental rate of $1,782.
Residence Operating Expenses. Residence operating expenses were $31.6
million for the 1997 Period as compared to $14.1 million for the 1996 Period,
an increase of $17.5 million. Of this increase:
. $6.1 million or 34.9% related to the full year impact of the 41
residences (1,544 units) which opened during the 1996 Period;
. $10.2 million or 58.3% related to the opening of an additional 49
residences (1,885 units) during the 1997 Period;
. $388,000 or 2.2% was attributable to the 19 Same Store Residences (605
units); and
. the remaining $800,000 or 4.6% related to expenses associated with our
ancillary service operation.
Residence operating expenses for the Same Store Residences were $7.1 million
for the 1997 Period as compared to $6.7 million for the 1996 Period, an
increase of $388,000 or 5.8%. This increase results from the
25
<PAGE>
additional expenses incurred in connection with the increase in occupancy at
the Same Store Residences during the period.
Of the $31.6 million in residence operating expenses reported for the 1997
Period, $12.3 million or 38.9% was attributable to Stabilized Residences,
$18.5 million or 58.6% was attributable to Start-Up Residences and $800,000 or
2.5% was attributable to our ancillary service operation.
Corporate General and Administrative. Corporate general and administrative
expenses were $4.1 million for the 1997 Period as compared to $1.9 million for
the 1996 Period. Our corporate general and administrative expenses before
capitalized payroll costs were $5.9 million for the 1997 Period as compared to
$3.0 million for the 1996 Period, an increase of $2.9 million. This increase
results from an additional investment in our corporate and regional
infrastructure to support the development and operation of new residences
including the expansion into new states.
We capitalized $1.8 million of payroll costs for the 1997 Period as compared
to $1.1 million for the 1996 Period resulting from an increase in development
activities.
Building Rentals. Building rentals were $8.0 million for the 1997 Period as
compared to $4.0 million for the 1996 Period, an increase of $4.0 million. Of
this increase, $1.3 million or 32.5% related to the full year impact of the 20
leases (four of which were repurchased) entered into during the 1996 Period
and the remaining $2.7 million or 67.5% related to the 26 leases entered into
during the 1997 Period. The nine leases entered into prior to the 1996 Period
remained relatively unchanged. As of the end of the 1997 Period we had 51
operating leases as compared to 25 operating leases as of the end of the 1996
Period.
Depreciation and Amortization. Depreciation and amortization was $3.7
million for the 1997 Period as compared to $1.1 million for the 1996 Period,
an increase of $2.6 million. Depreciation expense was $2.9 million and
amortization expense was $800,000 for the 1997 Period as compared to $805,000
and $289,000, respectively, for the 1996 Period. The increase in depreciation
is the result of:
. the full year effect of depreciation on the 26 owned residences which
commenced operations during the 1996 Period;
. depreciation associated with the 16 owned residences that commenced
operations during the 1997 Period; and
. depreciation associated with the sale and leaseback of seven residences
during the 1997 Period and nine residences during the 1996 Period which
were accounted for as financings.
Amortization expense increased as a result of the amortization of additional
pre-opening costs and goodwill.
Interest Expense. Interest expense was $4.9 million for the 1997 Period as
compared to $1.2 million for the 1996 Period. Gross interest expense for the
1997 Period was $11.5 million compared to $3.5 million for the 1996 Period, an
increase of $8.0 million. Of the increase:
. $5.3 million or 66.2% was due to construction financing used to fund
development activity during the 1997 Period;
. $1.5 million or 18.7% was related to the sale and leaseback of an
additional seven residences during the 1997 Period which were accounted
for as financings;
. $1.1 million or 13.8% was due to interest expense related to the October
1997 issuance of the 6.0% Debentures; and
. the remaining $100,000 or 1.3% was related to new mortgage financing
incurred during the 1997 Period.
26
<PAGE>
We capitalized $6.6 million of interest expense for the 1997 Period compared
to $2.3 million for the 1996 Period. We completed the sale and leaseback of
seven residences during the 1997 Period and nine residences during the 1996
Period, which were accounted for as financings, and recorded building rental
payments as interest expense.
Interest Income. Interest income was $1.5 million for the 1997 Period as
compared to $455,000 for the 1996 Period, an increase of $1.1 million. The
increase is related to interest income earned on higher average cash balances
during the 1997 Period primarily resulting from the October 1997 offerings of
common stock and the 6.0% Debentures from which we received net proceeds of
approximately $155.0 million.
Loss on Sale of Assets. Loss on sale of assets was $1.3 million for the 1997
Period as compared to $854,000 (net of an $82,000 gain on the sale of land)
for the 1996 Period. Of the loss on sale of assets recorded during the 1997
Period, $650,000 or 52.0% resulted from losses incurred in connection with 10
sale and leaseback transactions entered into during the 1997 Period and the
remaining $600,000 or 48.0% resulted from losses resulting primarily from
additional capital costs incurred during the 1997 Period on sale and leaseback
transactions completed in the 1996 Period. We entered into 24 sale and
leaseback transactions during the 1997 Period as compared to 19 sale and
leaseback transactions (four of which were repurchased) during the 1996
Period.
Debenture Conversion Cost. In the third quarter of 1996, $6.1 million of the
$20.0 million of 7% Debentures were converted into 811,333 shares of our
common stock. We incurred a charge of $426,000 during the third quarter of the
1996 Period in connection with the conversion.
Net Loss. As a result of the above, net loss was $2.5 million or $0.21 per
basic and diluted share for the 1997 Period, compared to a net loss of $1.9
million, or $0.23 per basic and diluted share for the 1996 Period.
Liquidity and Capital Resources
We have historically financed our activities with the net proceeds from the
offerings of debt and equity securities, sale and leaseback financing, long-
term mortgage financing and cash flows from operations. At December 31, 1998,
we had $267.7 million of indebtedness outstanding, including $161.3 million of
convertible subordinated debentures. As of December 31, 1998, approximately
89% of our indebtedness bore interest at fixed rates, with a weighted average
interest rate of 6.9%. Our variable rate indebtedness carried an average rate
of 3.6% as of December 31, 1998. As of December 31, 1998, we had working
capital of $43.9 million as compared to $40.1 million as of December 31, 1997.
As of December 31, 1998, our unrestricted cash balance was $55.0 million as
compared to $63.4 million as of December 31, 1997.
Net cash provided by operating activities was $3.0 million for the year
ended December 31, 1998, as compared with $4.5 million provided by operating
activities for the year ended December 31, 1997 and $3.1 million used in
operating activities for the year ended December 31, 1996, respectively.
Net cash used in investing activities was $123.3 million for the year ended
December 31, 1998, as compared with $94.0 million and $82.3 million,
respectively, for the years ended December 31, 1997 and 1996. During the year
ended December 31, 1998, the primary uses of cash were:
. $118.0 million related to the development of new assisted living
residences in Arizona, Iowa, Indiana, Nebraska, New Jersey, Ohio,
Pennsylvania, South Carolina, Florida, Michigan and Washington;
. $11.4 million related to the acquisition of three residences in Texas
and one residence in Louisiana; and
. $4.0 million invested in marketable securities.
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During the year ended December 31, 1998, we received proceeds of $8.1
million relating to the sale and leaseback of three residences and
restrictions on $2.0 million of funds held in trust were released. In
addition, we converted construction financing on one residence of
approximately $2.2 million into an operating lease through the completion of a
sale and leaseback transaction.
Net cash provided by financing activities was $112.0 million for the year
ended December 31, 1998, as compared with $150.6 million and $87.2 million,
respectively, for the years ended December 31, 1997 and 1996. In April 1998,
we completed the offering of $75.0 million of 5.625% Debentures due May 2003
realizing net proceeds of $72.2 million after discounts, commissions and other
expenses. The 5.625% Debentures are convertible at any time at or prior to
maturity, unless previously redeemed, at a conversion price of $26.184 per
common share, which equates to an aggregate of 2,864,345 shares of common
stock. In addition, for the year ended December 31, 1998, we received $49.0
million of proceeds from long-term mortgage financing, including,
. $35.8 million of fixed rate first mortgages secured by 15 assisted
living residences, with an average rate of 8.0% and
. $13.2 million of variable rate financing with Ohio Housing Finance
Agency secured seven residences.
Several of our leases and loan agreements contain restrictive covenants that
generally relate to the use, operation and disposition of the residences that
are leased or, in the case of loan agreements, serve as collateral for the
subject indebtedness. In addition, certain of our leases and loan agreements
contain cross-default provisions such that a default on one of those
instruments could cause us to be in default on one or more other instruments.
During the third quarter of 1999, we amended certain loan agreements with
one of our creditors. Pursuant to the amendment, we agreed to provide $8.3
million of additional cash collateral in exchange for the waiver of certain
possible defaults, including an amendment to certain financial covenants. In
August 1999, we restricted $8.3 million of cash balances as a result of such
amendment. The amendment also provides for the release of the additional
collateral upon the achievement of specified performance targets, provided
that we are in compliance with the other terms of the loan agreements.
For the twelve months ended December 31, 1998, we commenced operations with
respect to 57 residences (2,297 units), 53 of which were developed and four of
which were acquired. We intend to commence operation on an additional 20
residences (approximately 800 units) during the 1999 Period, 10 of which
commenced operation through June 30, 1999. In addition to the development and
construction costs incurred during 1998 with respect to these residences, we
expect to incur up to an additional $30.0 million in capital expenditures and
related start-up costs for the twelve months ended December 31, 1999,
approximately $25.0 million of which had been incurred as of June 30, 1999. We
expect that Start-Up Residences will incur significant operating losses during
the fill-up period. As a result, our operating income will be adversely
affected by operating losses at certain residences, primarily Start-Up
Residences, which we expect will range from $3.5 million to $5.0 million
during 1999.
During the first quarter of 1999, we made cash payments of approximately
$1.2 million related to severance arrangements and repurchases of restricted
stock.
We believe that our current cash on hand and working capital resources are
sufficient to meet our capital needs for the next 12 to 18 months. However, to
provide us with additional capital, we may explore various financing
alternatives and/or commitments to engage in sale and leaseback transactions.
We currently do not have in place any of such loan or lease commitments. As a
result of the securityholder litigation, the restatement and other factors,
there can be no assurances that financing from any source will be available in
the future, or, if available, that such financing will be available on terms
acceptable to us.
As of December 31, 1998, we had invested excess cash balances in short-term
certificates of deposit and highly liquid marketable debt securities.
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Inflation
We do not believe that inflation has materially adversely affected our
operations. We expect salary and wage increases for our skilled staff will
continue to be higher than average salary and wage increases, as is common in
the health care industry. We expect that we will be able to offset the effects
of inflation on salaries and other operating expenses by increases in rental
and service rates, subject to applicable restrictions with respect to services
that are provided to residents eligible for Medicaid reimbursement.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 137, issued in June 1999, deferred the effective
date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after
June 15, 2000. We do not expect the adoption of this statement to have a
material impact on our results of operations.
Year 2000
See discussion regarding year 2000 issues in Risk Factors.
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RISK FACTORS
Set forth below are the risks that we believe are material. This report on
Form 10-K, including the risks discussed below, contains forward-looking
statements made pursuant to the safe harbor provisions of the Private
Securities Reform Act of 1995. Forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause our actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements. Forward-looking statements
depend on assumptions, data or methods which may be incorrect or imprecise.
We face difficulties in stabilizing our operations following our rapid growth.
We have experienced rapid growth since 1994, which has placed significant
demands on our management resources. Our ability to stabilize operations and
manage our business following this growth requires us to continue to expand
our operational, financial and management information systems and to continue
to attract, train, motivate, manage and retain key employees. If we are unable
to manage this growth effectively, our business, financial condition and
results of operations could be adversely affected. Our ability to stabilize
operations and manage our business efficiently has been, and for the
foreseeable future will continue to be, adversely affected by the diversion of
management's time and attention to the pending securityholder litigation and
matters relating to the restatement of our financial statements for prior
reporting periods. See, "--We may incur significant costs and liability as a
result of our securityholder litigation," and "--We may be in technical
default under our loan and lease obligations."
We are highly leveraged; our loan and lease agreements contain financial
covenants
We are highly leveraged. We had total indebtedness, including short term
portion, of $267.7 million as of December 31, 1998 ($235.9 million as of June
30, 1999). In addition, we had shareholders' equity of $119.2 million as of
December 31, 1998 ($101.8 million as of June 30, 1999). The degree to which we
are leveraged could have important consequences, including:
. making it more difficult to satisfy our debt or lease obligations;
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional financing;
. requiring dedication of a substantial portion of our cash flow from
operations to the payment of principal of, and interest on, our debt or
leases, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures or other general corporate
purposes;
. limiting our flexibility in planning for, or reacting to, changes in our
business or industry; and
. placing us at a competitive disadvantage to less leveraged competitors.
Several of our debt instruments and leases contain financial covenants,
including debt to cash flow and net worth tests. There can be no assurance
that we will be in compliance with these financial covenants in the future,
particularly if we are unable to stabilize our operations and efficiently
manage our business. If we fail to comply with one or more of these covenants
(after giving effect to any applicable cure period), the lender or lessor may
declare us in default of the underlying obligation and exercise any available
remedies, which may include:
. in the case of debt, declaring the entire amount of the debt immediately
due and payable;
. foreclosing on any residences or other collateral securing the
obligation;
. in the case of a lease, terminating the lease and suing for damages.
In addition, many of our debt instruments and leases contain "cross-default"
provisions pursuant to which a default under one obligation can cause a
default under one or more other obligations. Accordingly, it could
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have a material adverse effect on our financial condition if any lender or
lessor notifies us that we are in default under any debt instrument or lease.
We may require additional financing.
Our ability to satisfy our obligations, including payments with respect to
our outstanding indebtedness and lease obligations, will depend on future
performance, which is subject to our ability to stabilize our operations and
to a certain extent, to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Although we believe
that our current cash on hand and cash available from operations are
sufficient to meet our capital needs through the end of 1999, there can be no
assurance that cash available from operations will be sufficient to fund our
operations beyond such time. We are reviewing our future capital requirements
to identify financing options. As a result of the securityholder litigation,
the restatement and other factors, there can be no assurance that financing
from any source will be available in the future, or, if available, that such
financing will be available on terms acceptable to us.
Certain of our indebtedness is secured by letters of credit which in some
cases have termination dates prior to the maturity of the underlying debt. As
such letters of credit expire, we will need to obtain replacement letters of
credit, post cash collateral or refinance the underlying debt. There can be no
assurance that we will be able to procure replacement letters of credit from
the same or other lending institutions on terms that are acceptable to us. In
the event that we are unable to obtain a replacement letter of credit or
provide alternate collateral prior to the expiration of any of these letters
of credit, we would be in default on the underlying debt.
We may incur significant costs and liability as a result of our securityholder
litigation.
Since February 1, 1999, twelve separate complaints, which have since been
consolidated into one action, have been filed against us and certain of our
officers and directors in the United States District Court for the District of
Oregon. On July 23, 1999, a consolidated complaint was filed in connection
with this litigation. The consolidated complaint purports to be brought on
behalf of a class of purchasers of our common stock from July 28, 1997 through
March 31, 1999 and on behalf of a class of purchasers of our Debentures from
the date of issuance through March 31, 1999. The consolidated complaint
alleges violations of the federal securities laws and seeks unspecified
damages. It also names as additional defendants certain of our directors that
were not named previously, as well as our independent auditors (solely in
connection with our 1998 offering of 5.625% Debentures) and the underwriters
in connection with our 1997 offering of 6.0% Debentures.
Pursuant to our by-laws, we are obligated to indemnify our officers and
directors to the maximum extent allowed by law for any liability incurred by
them as a result of the litigation. In addition, we previously entered into
indemnity agreements with certain of these defendants. We cannot predict the
outcome of the foregoing litigation and currently are unable to evaluate the
likelihood of success or the range of possible loss. However, if the foregoing
litigation were determined adversely to us, such a determination could have a
material adverse effect on our financial condition, results of operations,
cash flow or liquidity. See Item 3 (Legal Proceedings).
We face significant competition.
We believe that the rapid growth of the assisted living industry has
resulted in an oversupply of assisted living residences in certain of our
markets. Recently, we have experienced slower fill-up of Start-Up Residences
in these markets than expected, as well as declining occupancy in our
Stabilized Residences due to the increase in options available to potential
new residents when units are vacated. There can be no assurance that we will
be able to compete effectively in those markets where overbuilding exists, or
that future overbuilding in other markets where we have opened or plan to open
residences will not adversely affect our operations.
The long-term care industry is a highly competitive industry. We expect that
the assisted living business, in particular, will become even more competitive
in the future. We compete with numerous other companies providing similar
long-term care alternatives.
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We expect to face increased competition from new market entrants as assisted
living receives increased attention and the number of states which include
assisted living in their Medicaid waiver programs increases. These new market
entrants will include publicly and privately held companies, including not for
profit corporations, focusing primarily on assisted living, as well as
hospitals and nursing homes that offer assisted living as a segment of their
overall businesses. We also compete with nursing facilities that provide long-
term care services. We also face competition for development and acquisitions
of assisted living residences. Some of our present and potential competitors
are significantly larger and have, or may obtain, greater financial resources
than we do. Consequently, we cannot guarantee that we will not encounter
increased competition in the future which could limit our ability to attract
residents or expand our business and could have a material adverse effect on
our financial condition and results of operations and prospects.
We may be in technical default under our debt and lease agreements.
Almost all of our loan agreements and leases contain customary covenants
requiring that we deliver periodic financial statements and certify that they
are materially accurate. As a result of the restatement initially announced in
February 1999, it is possible that a lender or lessor may assert a default
under the terms of these instruments with regard to the financial statements
for reporting periods in 1996, 1997, 1998 and 1999. We have received waivers
from certain of our creditors and lessors with respect to possible defaults
under certain of these covenants. There can be no assurance that one or more
other creditors or lessors will not attempt to declare a default and exercise
any remedies they may deem available, which could include attempting to
terminate the applicable lease or foreclose on one or more residences securing
the applicable indebtedness. As of September 23, 1999, we had not received
notice of a declaration of default from any such other creditor or lessor. We
continue to make all required payments under each of these instruments.
We may not be able to attract and retain qualified employees and control labor
costs.
We compete with other providers of long-term care with respect to attracting
and retaining qualified personnel. We also depend upon the available labor
pool of low-wage employees. A shortage of qualified personnel may require us
to enhance our wage and benefits packages in order to compete. Most of the
states in which we operate impose licensing requirements on individuals
serving as program directors at assisted living residences. In many states in
which we operate, particularly South Carolina, the growth in demand for
licensed assisted living program directors has exceeded the rate at which
candidates can be licensed. Until a program director at a particular residence
can be licensed, we are required to retain the services of outside licensed
managers at a significant additional cost. We cannot guarantee that our labor
costs will not increase, or that, if they do increase, they can be matched by
corresponding increases in revenues.
We will suffer operating losses for each of our new residences.
We currently plan to open 20 residences in 1999. We expect that Start-Up
Residences will incur significant operating losses during the fill-up period.
As a result, our operating income will be adversely affected by operating
losses at certain residences, primarily Start-Up Residences, which we expect
will range from $3.5 million to $5.0 million. We cannot guarantee that we will
not experience unforeseen expenses, difficulties, complications and delays in
connection with the expansion of our operational base which could have a
material adverse effect on our financial condition and results of operations.
Our properties are geographically concentrated and we depend on the economies
and Medicaid waiver programs of the specific areas in which we operate our
properties.
We depend on the economies of Texas, Oregon, Ohio, Indiana and Washington
and, to some extent, on the continued funding of state Medicaid waiver program
in those states. As of December 31, 1998, 23.1% of our properties were in
Texas, 11.0% in Oregon, 10.4% in Ohio, 11.0% in Indiana and 9.2% in
Washington. Adverse changes in general economic factors affecting the
respective health care industries or laws and regulatory environment in each
of these states, including Medicaid reimbursement rates, could have a material
adverse effect on our financial condition and results of operations.
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We depend on reimbursements by third-party payors.
A portion of our revenues depends upon reimbursement from third-party
payors, including state Medicaid waiver programs and private insurers. For the
years ended December 31, 1996, 1997 and 1998, direct payments received from
Medicaid funded programs accounted for approximately 12.4%, 11.1%, and 10.7%,
respectively, of our revenue. Also, our tenant-paid portion of Medicaid
residents accounted for approximately 6.9%, 5.9%, and 5.8%, respectively, of
our revenue during the years ended December 31, 1996, 1997 and 1998. We expect
that state Medicaid waiver programs will constitute a significant source of
our revenue in the future. Furthermore, we cannot guarantee that our
proportionate percentage of revenue received from Medicaid waiver programs
will not increase. There are continuing efforts by governmental and private
third-party payors to contain or reduce the costs of health care by lowering
reimbursement rates, increasing case management review of services and
negotiating reduced contract pricing. Our revenues and profitability will be
affected if these efforts are successful. Also, there has been, and our
management expects that there will continue to be, a number of proposals
attempting to reduce the federal and some state budget deficits by limiting
Medicaid reimbursement in general. Adoption of any of these proposals at
either the federal or the state level could have a material adverse effect on
our business, financial condition, results of operations and prospects.
We are subject to significant government regulation.
We are subject to federal and state regulations which govern various aspects
of our business. The development and operation of assisted living facilities
and the provision of health care services are subject to federal laws, and
state and local licensure, certification and inspection laws that regulate,
among other matters:
. the number of licensed residences;
. the provision of services;
. equipment;
. staffing, including professional licensing and criminal background
checks;
. operating policies and procedures;
. fire prevention measures;
. environmental matters;
. resident characteristics; and
. physical design and compliance with building and safety codes.
In the ordinary course of our business, we receive and have received notices
of deficiencies for failure to comply with various regulatory requirements. We
review such notices and, in most cases, we will agree with the regulator upon
the steps to be taken to bring the facility into compliance with regulatory
requirements. From time to time we may dispute the matter and sometimes will
seek a hearing if we do not agree with the regulator. In some cases or upon
repeat violations, the regulator may take one or more adverse actions against
a facility. These adverse actions can include:
. the imposition of fines;
. temporary stop placement of admission of new residents, or imposition of
other conditions to admission of new residents to the facility;
. termination of a facility's Medicaid contract; and
. suspension or revocation of a facility's license.
During 1998, these adverse actions resulted in our paying aggregate fines of
$9,800 on eight residences and temporary suspension of admissions at certain
residences. During 1998, a license revocation action was
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commenced with respect to one of our residences in the State of Washington. In
July 1999 following discussions with the licensing agency we settled this
action without the revocation becoming effective. Because regulations vary
from one jurisdiction to another and because determinations regarding whether
to seek a suspension or revocation, or to impose a fine, are subject to
administrative discretion, it is difficult for us to predict whether a
particular remedy will be sought or obtained in any given case. These types of
regulatory enforcement actions may adversely affect facility occupancy levels,
revenues and costs of operation. We cannot guarantee that federal, state, or
local governments will not impose additional restrictions on our activities
that could materially adversely affect us.
State and local laws regulating our operations vary significantly from one
jurisdiction to another. In some states in which we are currently developing
assisted living facilities, a certificate of need or other similar approval
may be required for the acquisition or construction of new facilities or the
expansion of the number of licensed units or beds or services. We could be
adversely affected by our failure or inability to obtain these approvals,
changes in the standards applicable for these approvals and possible delays
and expenses associated with obtaining these approvals.
We are also subject to various laws and regulations, both federal and state,
due to the size and nature of our business, including laws and regulations
relating to:
. safe working conditions;
. family leave; and
. disposal of medical waste.
Our cost to comply with these regulations is significant. In addition, it
could adversely affect our financial condition or results of operations if a
court or regulatory tribunal were to determine that we had failed to comply
with any of these laws or regulations. Because these laws and regulations are
amended from time to time, we cannot predict when and to what extent liability
may arise. In addition, because these laws vary from state to state, expansion
of our operations to states where we do not currently operate may subject us
to additional restrictions on the manner in which we operate our facilities.
See "Restrictions imposed by laws benefiting disabled persons" and "Medical
waste."
Federal and state fraud and abuse laws, such as "anti-kickback" laws and
"self-referral" laws, govern some financial arrangements among health care
providers and others who may be in a position to refer or recommend patients
to these providers. We have established policies and procedures that we
believe are sufficient to ensure that our facilities will operate in
substantial compliance with applicable regulatory requirements. However, we
cannot guarantee that these fraud and abuse laws will be interpreted in a
manner consistent with our practices.
Restrictions imposed by laws benefiting disabled persons.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist that also may require us to modify existing and planned
residences to allow disabled persons to access the residences. We believe that
our residences are either substantially in compliance with present
requirements or are exempt from them, and we attempt to check for compliance
in all facilities we consider acquiring. However, if required changes cost
more than anticipated, or must be made sooner than anticipated, we would incur
additional costs. Further legislation may impose additional burdens or
restrictions related to access by disabled persons, and the costs of
compliance could be substantial.
Medical waste
Some of our facilities generate potentially infectious waste due to the
illness or physical condition of the residents, including, for example, blood-
soaked bandages, swabs and other medical waste products and incontinence
products of those residents diagnosed with infectious diseases. The management
of potentially
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infectious medical waste, including handling, storage, transportation,
treatment and disposal, is subject to regulation under various laws, both
federal and state. These laws and regulations set forth the management
requirements, as well as permit, record keeping, notice and reporting
obligations. Any finding that we are not in compliance with these laws and
regulations could adversely affect our business operations and financial
condition. Because these laws and regulations are amended from time to time,
we cannot predict when and to what extent liability may arise. In addition,
because these environmental laws vary from state to state, expansion of our
operations to states where we do not currently operate may subject us to
additional restrictions on the manner in which we operate our facilities.
We may be adversely affected by health care reform efforts.
Health care and related services is an area of extensive and dynamic
regulatory change. Changes in the law, new interpretations of existing laws,
or changes in payment methodology, which may be applied retroactively, may
have a dramatic effect on:
. the definition of permissible or impermissible activities;
. the relative costs associated with doing business; and
. the amount of reimbursement by both government and other third-party
payors.
Congress and state legislatures, from time to time, consider and enact
various health care reform proposals. Congress and state legislatures can be
expected to continue to review and assess alternative health care delivery
systems and payment methodologies. Also, public debate of these issues can be
expected to continue in the future. We cannot predict the ultimate timing or
effect of legislative efforts or their impact on us. We cannot guarantee that
either the various states or the federal government will not impose additional
regulations upon our activities which might adversely affect our business,
financial condition, results of operations or prospects.
We face significant pressure to reduce our prices.
The health care services industry is currently experiencing market-driven
reforms from forces within and outside the industry pressuring health care and
related companies to reduce health care costs. These market-driven reforms are
resulting in industry-wide consolidation that is expected to increase the
downward pressure on health care service providers' margins, as larger buyer
and supplier groups exert pricing pressure on health care providers. We cannot
predict the ultimate timing or effect of these market-driven reforms. We
cannot guarantee that any of these reforms will not have a material adverse
effect on our financial condition, results of operations.
We may not be able to develop or acquire additional assisted living
residences.
Our ability to develop or acquire additional residences depends upon, among
other factors:
. our ability to obtain certificates of need, government licenses and
approvals;
. our ability to obtain financing; and
. the competitive environment for development and acquisitions.
The nature of such certificates of need, licenses and approvals and the
timing and likelihood of obtaining them vary widely from state to state,
depending upon the location of the residence, or its operation, and the type
of services to be provided. We depend upon these permits and authorizations to
construct and operate our residences. Any delay or inability to obtain such
permits could adversely affect our results of operations. We may also incur
construction costs that exceed our original estimates. We rely on third-party
general contractors to construct our new assisted living facilities. We cannot
guarantee that we will not experience difficulties in working with general
contractors and subcontractors, which could result in increased construction
costs and delays.
If we are unable to achieve our development plans, our business, financial
condition and results of operations could be adversely affected.
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We may be liable for losses not covered by or in excess of our insurance.
The provision of health care services entails an inherent risk of liability.
In recent years, participants in the long-term care industry have been subject
to an increasing number of lawsuits alleging malpractice or related legal
theories. Many of these lawsuits involve large claims and significant defense
costs. In addition, we may be subject to claims alleging violations of federal
or state laws relating to safe working conditions, environmental matters and
the use and disposal of hazardous or potentially hazardous substances such as
medical waste. We currently maintain liability insurance intended to cover
such claims. We believe our insurance is in keeping with industry standards.
We cannot guarantee, however, that claims in excess of our insurance coverage
or claims not covered by our insurance coverage will not arise. A successful
claim against us not covered by, or in excess of, our insurance coverage could
have a material adverse effect upon our financial condition or results of
operations. Claims against us, regardless of their merit or eventual outcome,
may also have a material adverse effect upon our ability to attract residents
or expand our business and would require management to devote time to matters
unrelated to the operation of our business. In addition, we must renew our
insurance policies annually. We cannot guarantee that we will be able to
obtain liability insurance coverage in the future or that, if such coverage is
available, it will be available on acceptable terms.
We could incur significant costs related to environmental remediation or
compliance.
We are subject to various federal, state and local environmental laws,
ordinances and regulations. Some of these laws, ordinances and regulations
hold a current or previous owner, lessee or operator of real property liable
for the cost of removal or remediation of some hazardous or toxic substances,
including, without limitation, asbestos-containing materials, that could be
located on, in or under such property. These laws and regulations often impose
liability whether or not we knew of, or were responsible for, the presence of
the hazardous or toxic substances. The costs of any required remediation or
removal of these substances could be substantial. Furthermore, there is no
limit to our liability under such laws and regulations. As a result, our
liability could exceed our property's value and aggregate assets. The presence
of these substances or failure to remediate these substances properly may also
adversely affect our ability to sell or lease the property, or to borrow using
our property as collateral.
We may be liable under some laws and regulations as an owner, operator or an
entity that arranges for the disposal of hazardous or toxic substances, such
as asbestos-containing materials, at a disposal site. In that event, we may be
liable for the costs of any required remediation or removal of the hazardous
or toxic substances at the disposal site. In connection with the ownership or
operation of our properties, we could be liable for these costs, as well as
some other costs, including governmental fines and injuries to persons or
properties. As a result, any hazardous or toxic substances which are present,
with or without our knowledge, at any property we hold or operate, or which we
acquire or operate in the future, could have an adverse effect on our
business, financial condition or results of operations.
Market conditions may decrease the value of our common stock.
The market price of our common stock may fluctuate significantly in response
to various factors and events, including:
. the liquidity of the market for our common stock;
. variations in our operating results; and
. new statutes or regulations or changes in the interpretation of existing
statutes or regulations affecting the health care industry generally or
assisted living residence businesses in particular.
In addition, the stock market in recent years has experienced broad price
and volume fluctuations that often have been unrelated to the operating
performance of particular companies. These market fluctuations also may
adversely affect the market price of our common stock.
On April 15, 1999, AMEX halted trading in our common stock. We are unable to
predict when trading in the common stock will resume.
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We depend on senior management and skilled personnel.
We depend, and will continue to depend, upon the services of Dr. Wilson,
President, Chief Executive Officer and Vice Chairman of the Board of
Directors; Ms. Campbell, Senior Vice President, General Counsel and Secretary;
Ms. Gorshe, Senior Vice President of Community Relations; Mr. Mahon, Vice
President and Chief Operating Officer; Mr. Cruckshank, Vice President and
Chief Financial Officer; Ms. Maloney, Vice President, Controller and Chief
Accounting Officer; Mrs. Baldwin, Vice President of Operational Planning and
Strategy; and Mr. Parker, Vice President of Development.
We have entered into employment agreements with these officers as well as
other key personnel. We also depend upon our ability to attract and retain
management personnel who will be responsible for the day-to-day operations of
each residence. If we lose the services of any or all of our officers or we
are unable to attract additional management personnel in the future, our
business, financial condition or results of operations could be adversely
affected.
We could be adversely affected if our year 2000 problems are significant.
The year 2000 issue refers to a computer system's potential failure to
recognize dates on or beyond January 1, 2000 due to reading two digits, rather
than four, to define the applicable year. As a result, computer programs and
systems may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations. Our year 2000 readiness plan consists of:
. identify and assess year 2000 issues in our information and non-
information technology systems, including inquiring of third parties
with whom we do significant business, such as vendors and suppliers, as
to the state of their year 2000 readiness;
. repair or replace noncompliant information and non-information
technology systems;
. test and verify year 2000 readiness for previously non-compliant
systems; and
. compliance with state requirements related to disaster plan amendments.
We have identified year 2000 risks in the following areas:
. Our information technology systems might not be year 2000 compliant. We
have assessed our readiness in regard to year 2000 issues and believe
that all material hardware and software utilized in our operations and,
specifically, in our accounting systems, is year 2000 compliant. Despite
our efforts to identify and resolve year 2000 issues, we cannot
guarantee that all of our systems will be year 2000 compliant.
. Our non-information technology systems might not be year 2000
compliant. Our non-information technology systems are our building
management and life/safety systems, which include our emergency call
systems, electrical locking systems, fire alarm systems and fire alarm
monitoring systems. We have assessed our readiness of these systems in
regard to year 2000 issues. We are using four salaried employees, as
part of their normal course of business, to contact all manufacturers
and vendors and request that they verify in writing that each of their
systems is year 2000 compliant. Any systems identified as not in
compliance will be upgraded or replaced.
. We may have year 2000 issues with significant third parties. We are in
the process of obtaining year 2000 compliance letters and reports from
suppliers, banks, and other third party payors, including the federal
government. To date, no such payor has indicated an inability to
continue remittances in the normal course of business. However, most
such payors, including the federal government, are in the process of
evaluating and updating their internal systems and cannot yet assure us
that their systems are year 2000 compliant. We also face the risk that
vendors from which we purchase goods and services, such as utility
providers and our payroll provider, may have systems that are not year
2000 compliant. We plan to monitor the progress of our major vendors in
achieving year 2000 compliance.
37
<PAGE>
We do not anticipate any major interruption in our business as a result of
year 2000 issues. Accordingly, we do not expect that Year 2000 issues will
have a material adverse effect upon our operations or prospects or that we
will incur any material expense associated with year 2000 compliance. However,
despite our efforts to identify and resolve year 2000 compliance problems, we
cannot guarantee that all of our systems or that of third parties on which we
rely will be year 2000 compliant. As a result our operations could be
interrupted or adversely affected.
In the worst case scenario, if our non-information technology systems
suffered year 2000 issues, we would implement our standard emergency operation
plan. This plan primarily includes incurring additional staffing. If we needed
to sustain this additional staffing for an extended period of time, it could
have a material adverse effect on our business and operations.
We have not established a contingency plan to address potential year 2000
noncompliance with respect to our information systems or those of our major
vendors. We are currently considering the extent to which such a plan is
necessary. Because we depend on systems outside our control, such as
telecommunications and power supplies, and because third party payors,
including the federal government, with whom we have relationships may not have
adequately addressed year 2000 issues, we cannot guarantee that we will not
face unexpected problems associated with year 2000 issues that may affect our
operations, business, and financial condition.
We anticipate that our future Year 2000 compliance expenditures will be less
than $25,000.
ITEM 7A. Quantitative and Qualitative Disclosure Regarding Market Risk and
Risk Sensitive Instruments
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates and equity prices. Changes in these factors
could cause fluctuations in our earnings and cash flows.
For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows. We do
not have an obligation to prepay any of our fixed rate debt prior to maturity,
and therefore, interest rate risk and changes in the fair market value of our
fixed rate debt should not have a significant impact on our earnings or cash
flows until we decide, or are required, to refinance such debt.
For variable rate debt, changes in interest rates generally do not impact
the fair market value of the debt instrument, but do affect our future
earnings and cash flows. We had variable rate debt of $29.1 million
outstanding at December 31, 1998 with a weighted average interest rate of
3.7%. Assuming that our balance of variable rate debt remains constant at
$29.1 million, each one-percent increase in interest rates would result in an
annual increase in interest expense, and a corresponding decrease in cash
flows, of $290,000. Conversely, each one-percent decrease in interest rates
would result in an annual decrease in interest expense, and a corresponding
increase in cash flows, of $290,000.
We are also exposed to market risks from fluctuations in interest rates and
the effects of those fluctuations on market values of our cash equivalent
short-term investments. These investments generally consist of overnight
investments that are not significantly exposed to interest rate risk, except
to the extent that changes in interest rates will ultimately affect the amount
of interest income earned and cash flow from these investments.
During 1998, we used an interest rate swap to fix the rate of interest on a
commitment for variable rate debt. Upon placement of debt subject to the
variable rate commitment, we terminated the interest rate swap on October 1,
1998. We do not currently have any derivative financial instruments in place
to manage interest costs, but that does not mean that we will not use them as
a means to manage interest rate risk in the future.
The Company does not use foreign currency exchange forward contracts or
commodity contracts and does not have foreign currency exposure.
38
<PAGE>
ITEM 8. Financial Statements and Supplementary Data
Financial statements and supplementary data required by this Item 8 are set
forth as indicated in Item 14.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable
39
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Company
General
We have provided below certain information regarding our directors and
executive officers:
<TABLE>
<CAPTION>
Name Age(1) Position
---- ------ --------
<C> <C> <S>
Dr. Keren Brown Wilson(5)(6).. 51 President, Chief Executive Officer and
Vice Chairman of the Board of
Directors
Richard C. Ladd(2)(4)(6)...... 60 Chairman of the Board of Directors
Jill M. Krueger(2)(3)......... 39 Director
Bradley G. Razook(3)(5)....... 43 Director
Gloria J. Cavanaugh(2)(4)..... 56 Director
William McBride III(3)(5)..... 39 Director
Sandra Campbell............... 52 Senior Vice President, General Counsel
and Secretary
Nancy Gorshe.................. 48 Senior Vice President of Community
Relations
Leslie W. Mahon............... 51 Vice President and Chief Operating
Officer
James W. Cruckshank........... 44 Vice President and Chief Financial
Officer
Connie J. Baldwin............. 54 Vice President of Operational Strategy
and Planning
Paul B. Parker................ 33 Vice President of Development
M. Catherine Maloney.......... 36 Vice President, Controller and Chief
Accounting Officer
</TABLE>
- --------
(1) As of May 31, 1999
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Education, Training and Operations Committee.
(5) Member of the Legal Committee.
(6) Member of the Quality Assurance Committee.
Dr. Keren Brown Wilson is a co-founder of the Company and served as the
President/Chief Executive Officer of the Company from its formation in July
1994 until September 1997, and as President/Chief Operating Officer from
September 1997 until March 1999. She has served as Vice Chairman of our Board
of Directors since September 1997, and as President and Chief Executive
Officer since March 1999. From September 1997 until March 1999 Dr. Wilson
served as our Chief Operating Officer. Dr. Wilson has over twenty years of
experience in aging service delivery systems and has, for the past 17 years,
focused primarily on assisted living. From 1988 to September 1994, Dr. Wilson
was the President and sole director of Concepts in Community Living, Inc. a
corporation which specializes in the development and management of assisted
living residences. From 1992 to August 1994, Dr. Wilson was also President of
Sterling Management Company, a company which provided management services to
private (non-Medicaid) assisted living facilities in the state of Kansas. From
1986 to 1988, Dr. Wilson was a Senior Vice President at Milestone, Inc., an
assisted living development and management company. Prior to 1986, Dr. Wilson
was an owner and management agent for Park Place Living Center in Portland,
Oregon, and the Director of Research and Education for the Oregon Association
of Homes for the Aging in Portland, Oregon. Since 1983, Dr. Wilson has also
been an Associate Professor at the Institute for Aging at Portland State
University. In these capacities, Dr. Wilson was responsible for designing,
developing and managing the state of Oregon's first assisted living residence
along with the state's first Medicaid-eligible assisted living residence. She
currently serves as Vice Chair of the Assisted Living Federation of America
and is on the Board of Directors of the American Society on Aging and the IOM
Quality of LTC Committee.
Richard C. Ladd has served as Chairman of our Board of Directors since March
1999 and has been a director of the Company since September 1994. Since
September 1994, Mr. Ladd has been the President of Ladd
40
<PAGE>
and Associates, a health and social services consulting firm. He is also co-
director of the National Long-Term Care Balancing Project and was an adjunct
assistant professor at the School of Internal Medicine, University of Texas
Medical Branch at Galveston, Texas. From June 1992 to September 1994, Mr. Ladd
served as the Texas Commissioner of Health and Human Services where he oversaw
the development and implementation of a 22,000-bed Medicaid Waiver Program to
be used for assisted living and other community-based service programs. From
November 1981 to June 1992, Mr. Ladd served as Administrator of the Oregon
Senior and Disabled Services Division. He is also a member of numerous
professional and honorary organizations.
Jill M. Krueger was elected to the Board of Directors in April 1999, and
presently serves as Chairman of our Audit Committee. Since 1996, Ms. Krueger
has served as President and Chief Executive Officer of Health Resources
Alliance, an organization designed to optimize market position and achieve
synergies which enable its 20 member organizations to prosper in a managed
care environment. From 1988 to 1996 Ms. Krueger was a partner at KPMG LLP
where she served as its Partner in charge of the firm's National Long Term
Care and Retirement Housing Practice.
Bradley G. Razook has been a director of the Company since August 1994. Mr.
Razook is currently President and Managing Director at Cohen & Steers Capital
Advisors, LLC. From July 1997 until February 1999, Mr. Razook served as
Managing Director and Head of Health Care Industry Group of Schroder & Co.,
Inc. From 1990 to July 1997, Mr. Razook was Executive Vice President of
National Westminster Bank PLC, New York Branch. Prior to being appointed
Executive Vice President, Mr. Razook held the position of Managing Director.
From 1985 to 1990, Mr. Razook was a First Vice President and counsel at Drexel
Burnham Lambert, Inc., an investment banking firm.
Gloria J. Cavanaugh was appointed as a director of the Company on September
7, 1997. Ms. Cavanaugh has been the executive director of the American Society
on Aging since 1975. From 1968 to 1975, she was Director of Continuing
Education at the Andrus Gerontology Center, University of Southern California.
Ms. Cavanaugh has almost thirty years experience developing and offering
educational programming on aging issues, including such areas as aging in
place/housing and assisted living. Ms. Cavanaugh serves on the Board of
Directors of Generations United, The National Alliance for Caregiving, The
National Policy and Resource Center on Women and Aging and the Center for
Assistive Technology, State University of New York at Buffalo.
William McBride III is a co-founder of the Company and has been a director
since its formation, and currently serves as a consultant to the Company. From
September 1997 until March 1999, Mr. McBride served as our Chief Executive
Officer and Chairman of our Board of Directors. From August 1992 to September
1997, Mr. McBride served as President and Chief Operating Officer of LTC
Properties, Inc. ("LTC"), a health care real estate investment trust
specializing in the long-term care industry, which was co-founded by Mr.
McBride in 1992. Prior to founding LTC, Mr. McBride was employed from April
1988 to July 1992 by Beverly Enterprises, Inc., an owner/operator of long-term
care facilities, retirement living facilities and pharmacies where he served
as Vice President, Controller and Chief Accounting Officer. From 1982 to 1988,
Mr. McBride was employed by the public accounting firm of Ernst & Young. Mr.
McBride served as a member of the board of directors of LTC from August 1992
to September 1997 and currently serves on the board of directors of Malan
Realty Investors, Inc.
Sandra Campbell joined the Company as Senior Vice President, General Counsel
and Secretary in January of 1998. Ms. Campbell has almost 20 years of
experience in practicing law in real property, secured transactions and
general business law. Prior to joining the Company she was a partner in the
law firm of Bullivant Houser Bailey where she was employed from April 1995 to
December 1998. From January 1992 to April 1995, Ms. Campbell served as Chief
Legal Counsel for First Fidelity Thrift & Loan Association.
James W. Cruckshank joined the Company as Vice President and Chief Financial
Officer in March of 1999 and brings with him over 20 years experience in
accounting and treasury. He served as the Corporate Controller and Assistant
Treasurer of Schnitzer Steel Industries, Inc., a public company in the
Portland area, from 1987 until March 1999. Prior to this assignment, Mr.
Cruckshank was an audit manager for Price Waterhouse.
41
<PAGE>
Nancy Gorshe joined the Company as Vice President of Community Relations in
January of 1998 and has over twenty years of experience in the field of
geriatric health, community and long-term care and housing. Prior to joining
the Company, she was President of Franciscan ElderCare Corporation which is
comprised of nursing homes, assisted living facilities, and subacute units in
nursing homes and hospitals from 1993 to 1997. In addition, Ms. Gorshe has
served as Executive Director of Providence Elderplace, a long-term care HMO.
Leslie W. Mahon joined the Company as Vice President and Chief Operating
Officer in March of 1999 and his background includes 10 years experience in
the health care industry as the Chief Executive Officer of Lantis Enterprises,
Inc., a private company that operates 37 assisted living facilities in five
states.
Connie J. Baldwin has over twenty years of experience in designing and
implementing services to the elderly. Ms. Baldwin joined the Company in
February 1995 as Director of Operations and has served as the Vice President
of Operational Strategy and Planning since March 1999. From December 1993 to
January 1995, Ms. Baldwin was Executive Director for the Center for Developing
Older Adult Resources, a non-profit entity in Phoenix, Arizona. From September
1990 to December 1993, she was the Health Care Administrator for Managed Care
Systems, a division of the State of Arizona's Long-Term Care Medicaid Program.
In addition, Ms. Baldwin has held the position of Manager of Home and
Community Based Care in the State of Oregon with the Senior and Disabled
Services Department and was instrumental in the development of the State's
assisted living rules.
Paul B. Parker joined the Company in July 1998, and currently serves as Vice
President of Development. Mr. Parker has eight years experience in the
development and acquisition of assisted living facilities, health policy and
regulation as well as reimbursement. Prior to joining ALC, he served as Chief
Executive Officer of Supportive Housing Services, Inc. and President of LTC
Development Company. Both firms specialize in the development of assisted
living facilities.
M. Catherine Maloney joined the Company as Controller in June 1998, and
currently serves as Vice President, Controller, and Chief Accounting Officer.
Prior to joining the Company, Ms. Maloney was an Audit Manager with KPMG LLP.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors and
greater than ten-percent stockholders to file with the Commission and the
American Stock Exchange initial reports of ownership and reports of changes in
ownership of our Common Stock and other equity securities. Such persons or
entities are required by Commission regulations to furnish us with copies of
all Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were
required, during the fiscal year ended December 31, 1998, each of our
officers, directors and 10% stockholders complied with all Section 16(a)
filing requirements applicable to them, except that:
. Sandra Campbell, Nancy Gorshe and Rhonda Marsh each filed a Form 3 more
than ten days after becoming an officer
. M. Catherine Maloney and Paul B. Parker each did not file a Form 3 after
becoming an officer
. Keren Brown Wilson filed a Form 4 more than ten days after the end of the
month in which she acquired 25,000 shares of common stock
. Form 4s have not been filed for
. any option grants during 1998 included in the table under the heading
"Option Grants in Last Fiscal Year" (except that 20,000 options granted
to Nancy Gorshe in January 1998 were included in the Form 3 filed by Ms.
Gorshe in March 1998)
. the option exercise included in the table under the heading "Aggregate
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values"
42
<PAGE>
. option grants of 7,500 shares to each director described under the
heading "Compensation of Directors"
. option grants of 30,000 shares and 40,000 shares, respectively, to M.
Catherine Maloney and Paul B. Parker
We have instituted procedures to ensure timely compliance in the future.
ITEM 11. Executive Compensation
We have set forth in the following table information concerning the
compensation paid during the fiscal year ended December 31, 1998 to our Chief
Executive Officer and each of our four other most highly compensated executive
officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1) Long-Term Compensation Awards
------------------------------- ----------------------------------
Restricted Securities
Name and Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus(2) Compensation Awards(3) Options Compensation
------------------ ---- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William McBride III(4).. 1998 $246,987 $100,000 -- -- -- --
Chief Executive 1997 -- -- -- $3,400,000 -- --
Officer and Chairman
Dr. Keren Brown Wilson.. 1998 $203,061 $100,000 -- -- -- --
Chief Operating 1997 200,000 -- -- $ 850,000 -- --
Officer, President, 1996 130,000 -- -- -- 15,000 --
Vice Chairman
Sandra Campbell(5)...... 1998 $141,644 $ 25,000 -- -- 15,000 --
Senior Vice President,
General Counsel and
Secretary
Nancy Gorshe(6)......... 1998 $101,263 -- -- -- 55,000 --
Vice President of
Community Relations
Rhonda S. Marsh(7)...... 1998 $105,513 -- -- -- 15,000 --
Vice President/ 1997 75,000 $ 14,569 -- -- 25,000 --
Treasurer, Chief 1996 62,382 -- -- -- 20,000 --
Accounting Officer
</TABLE>
- --------
(1) Excludes certain perquisites and other personal benefit amounts, such as
car allowance, which, for any executive officer did not exceed, in the
aggregate, the lesser of $50,000 or 10% of the total annual salary and
bonus for such executive.
(2) Each of Mr. McBride and Dr. Wilson was paid a bonus of $100,000 related
to the execution of the ARC merger agreement. Payments made to each of
them subsequent to December 31, 1998 were reduced by $100,000 to reflect
repayment of these bonus payments.
(3) Restricted stock awards are valued in the table above at their fair market
value based on $17.00, the per share closing price of our Common Stock on
the American Stock Exchange on the date of the award. At December 31,
1998, Mr. McBride and Dr. Wilson held 200,000 and 50,000 shares,
respectively, of restricted stock valued at $2.6 million and $656,000,
respectively (calculated by multiplying the amount of restricted stock by
the closing market price of $13.125 on the last trading day of 1998). As
of March 15, 1999 Mr. McBride and Dr. Wilson agreed to forfeit the shares
of restricted stock held by each of them. See "Employment Agreements" and
"Consulting Agreement."
(4) Mr. McBride became Chief Executive Officer on October 3, 1997, but did
not begin receiving compensation until January 1, 1998. Subsequent to
December 31, 1998, Mr. McBride resigned as Chief Executive Officer.
(5) Ms. Campbell began her employment with us on December 31, 1997 and began
receiving compensation in January 1998.
43
<PAGE>
(6) Ms. Gorshe began her employment with us in February 1998.
(7) Ms. Marsh resigned as an executive officer in February 1999.
We have provided in the following table information on stock options granted
during 1998 to the Named Executive Officers.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
Potential
Realizable Value
at Assumed Annual
% of Total Rate of Stock
Number of Options Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term(1)
Options in Fiscal Price Expiration -----------------
Name Granted Year ($/Sh) Date 5% 10%
---- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William McBride III..... -- -- -- -- -- --
Dr. Keren Brown Wilson.. -- -- -- -- -- --
Sandra Campbell......... 15,000 2.2% $14.50 11/08/08 $136,785 $346,639
Nancy Gorshe............ 20,000 3.0% $19.31 01/05/08 $242,879 $615,503
20,000 3.0% $16.75 07/27/08 $210,680 $533,904
15,000 2.2% $14.50 11/08/08 $136,785 $346,639
Rhonda S. Marsh......... 15,000 2.2% $14.50 11/08/08 $136,785 $346,639
</TABLE>
- --------
(1) In accordance with rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent our estimate or projection of future Common
Stock prices.
We have provided in the following table information with respect to the Named
Executive Officers concerning unexercised stock options held as of December 31,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised In-
Underlying The-Money Options
Unexercised Options at Fiscal Year-
at Fiscal Year-End End(1)
Shares -------------------- ------------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
---- ----------- -------- -------------------- ------------------
<S> <C> <C> <C> <C>
William McBride III..... -- -- 145,000/ 5,000 $1,176,225/$28,775
Keren Brown Wilson...... -- -- 210,000/ 5,000 $1,606,850/$28,725
Sandra Campbell......... -- -- 16,667/48,333 $ 0/$ 0
Nancy Gorshe............ -- -- 0/55,000 $ 0/$ 0
Rhonda S. Marsh......... 12,500 $102,188 29,167/38,333 $ 126,286/$38,302
</TABLE>
- --------
(1) The closing trading price on the American Stock Exchange for the Common
Stock on December 31, 1998 was $13.125. As of April 15, 1999, the most
recent date on which the Common Stock was traded on the American Stock
Exchange, the closing trading price for the Common Stock was $2.875, and
the value of all of the exercisable and unexercisable options held by each
of the Named Executive Officers was $0.
Compensation of Directors
During 1998 each non-employee director received a fee of $12,000 per year for
services as a director, plus $500 for attendance in person at each meeting of
the Board of Directors or any committee meeting held on a day on which the
Board of Directors does not meet. For 1999, we increased the amount of
attendance fees to $1,000
44
<PAGE>
for attendance in person, or $500 for attendance by telephone, at each meeting
of the Board of Directors or any committee meeting held on a day on which the
Board of Directors does not meet. In addition, we reimburse the directors for
travel expenses incurred in connection with their duties as our directors.
During 1998, we granted the non-employee directors non-qualified stock options
to purchase a total of 22,500 shares of Common Stock at $14.50 per share. Each
of the non-employee directors received options to purchase 7,500 shares. These
options vest ratably on each of November 5, 1999, 2000 and 2001.
Employment Agreements
William McBride and Keren Brown Wilson
We entered into employment agreements with Mr. McBride and Dr. Wilson in
October 1997, providing for Mr. McBride's services as Chief Executive Officer
and Dr. Wilson's services as President and Chief Operating Officer. Each
agreement provides for a four-year term with automatic extensions until the
date (if any) which is the fourth anniversary of our notice, or six months
after the employee's notice, of a desire to terminate the agreement.
Notwithstanding such "evergreen" provisions of each agreement, either
agreement may be terminated by us for cause or by the employee for "Good
Reason." The latter is defined in the agreements as
(1) material diminution of title, duties, or salary;
(2) reduction in benefit not generally applicable to senior executive
personnel; or
(3) a direction by the Board of Directors to report to any person or group
other than the Board of Directors.
Under the agreements, in the event of a termination of employment for any
reason other than cause, the employee will be entitled to the payment of an
amount equal to four times his or her annual salary. In the event of a
termination within one year of a change in control (as defined in the
agreement) for any reason other than the death or disability of the employee
or a termination by us for cause, Mr. McBride would be entitled to a
$4.0 million termination payment and Dr. Wilson would be entitled to a $3.0
million termination payment. The agreements also contain "gross-up" provisions
to compensate the employees in the event that any payment under such contracts
is subject to an excise tax imposed under Section 4999 of the Internal Revenue
Code. The employment agreements provide that Mr. McBride and Dr. Wilson are
entitled to compensation at an annual rate of $265,000 and $200,000,
respectively. Pursuant to the employment agreements, Mr. McBride and Dr.
Wilson were awarded, without cost to them, 200,000 and 50,000 shares of
"restricted stock," respectively, under our 1994 Amended and Restated Stock
Option Plan. The restricted stock agreements relating to the restricted stock
provide that the restrictions applicable to such shares lapse, and such shares
will no longer be subject to forfeiture in the event of termination of
employment, at the rate of 25% per year commencing on October 3, 2001, the
fourth anniversary of the date of award, subject to acceleration in the event
of a change in control. Dividends are payable on the restricted stock to the
extent paid on all other shares of Common Stock. The restricted stock does not
have voting rights.
In connection with their employment agreements, we agreed to indemnify Mr.
McBride and Dr. Wilson to the extent permitted under Nevada law against
liability and expenses incurred by them in any proceeding in which they are
involved due to their roles as officers or directors. The indemnity agreements
exclude certain claims from indemnification by us.
As discussed below, we have entered into a consulting agreement with Mr.
McBride, dated as of March 15, 1999, which provides for the termination of Mr.
McBride's employment agreement, the forfeiture of his $4.0 million termination
payment and the forfeiture of his restricted stock.
Effective as of March 15, 1999, we entered into an amendment with Dr. Wilson
to her employment agreement to provide that we will employ Dr. Wilson as
President and Chief Executive Officer. In addition, we paid Dr. Wilson a lump
sum cash payment of $187,500 (which was reduced to $87,000 to reflect
repayment of a $100,000 bonus paid in 1998 related to the execution of our
merger agreement with ARC) in consideration for Dr. Wilson's agreement to
forfeit her interest in 50,000 shares of restricted stock held by her and to
terminate the restricted stock agreement related to those shares.
45
<PAGE>
Sandra Campbell
On December 31, 1997, we entered into an employment agreement with Sandra
Campbell providing for Ms. Campbell's services as Senior Vice President,
General Counsel and Secretary. The agreement provides for an initial two and
one-half-year term. If the agreement has not been terminated prior to the
expiration of the initial term, then the agreement is automatically extended
on a continuous basis. We may terminate the agreement by providing Ms.
Campbell with two and one-half years' prior notice of our intention to
terminate her employment, and Ms. Campbell may terminate the agreement by
providing us with four months prior notice of her intention to resign. In
addition, we may terminate the agreement at any time for "Cause" and Ms.
Campbell may terminate the agreement for "Good Reason" (each as defined in the
agreement), and the agreement automatically terminates upon Ms. Campbell's
death or permanent disability. If we terminate Ms. Campbell's employment other
than for Cause and without providing the notice referred to above, or if Ms.
Campbell terminates the agreement for Good Reason, then we must make a lump-
sum payment to Ms. Campbell equal to her then-annual salary plus $100,000. In
addition, if there is a Change in Control (as defined in the Agreement),
regardless of whether she remains in our employ, Ms. Campbell is entitled to
receive an additional amount equal to two times her then-annual salary plus
$100,000, and all options exercisable for common stock automatically vest and
become exercisable. The agreement provides that our President or Chief
Executive Officer will determine Ms. Campbell's annual compensation subject to
adjustment from time to time at the discretion of the Board of Directors. Ms.
Campbell's current salary is $150,000. In addition, Ms. Campbell received
options to purchase 50,000 shares of Common Stock, to become exercisable in
annual installments of 16,666 shares commencing December 31, 1998, at an
exercise price of $16.50, equal to the fair market value of the Common Stock
on the date of grant. The agreement includes an agreement to indemnify Ms.
Campbell to the extent permitted under Nevada law against liability and
expenses incurred by her in any proceeding in which she is involved due to her
role as an officer. The indemnity agreement excludes certain claims from
indemnification by us.
James W. Cruckshank
On March 15, 1999, we entered into an employment agreement with James W.
Cruckshank providing for Mr. Cruckshank's services as Vice President and Chief
Financial Officer. The agreement provides for an initial two-year term,
subject to automatic one-year extensions unless we notify Mr. Cruckshank
during the 90-day period ending on March 15 of each year that we wish to
terminate the agreement on March 15 of the following year. Notwithstanding
this "evergreen" provision, we may terminate the agreement at any time for
"Cause" (as defined in the agreement) and Mr. Cruckshank may resign at any
time upon 90 days' prior written notice to us. If we terminate Mr.
Cruckshank's employment without "Cause" and without offering Mr. Cruckshank
comparable employment (employment with us or an affiliated company that is not
materially different in level of responsibility, at the same or higher salary
level, with same or similar title or rank and within a 20-mile radius of the
location of his immediately prior position with us), then we must make a lump-
sum payment to Mr. Cruckshank in an amount equal to twice his then annual
salary. The agreement provides that our Chief Executive Officer will determine
Mr. Cruckshank's annual compensation subject to adjustment from time to time
at the discretion of the Board of Directors. Mr. Cruckshank's current salary
is $150,000. The agreement further provides that Mr. Cruckshank is subject to
confidential information restrictions for as long as Mr. Cruckshank possesses
any confidential information, and non-competition provisions until one year
after the termination of Mr. Cruckshank's employment. In addition, Mr.
Cruckshank received options to purchase 30,000 shares of Common Stock, to
become exercisable in annual installments of 10,000 shares commencing March
15, 2000, at an exercise price of $3.81, equal to the fair market value of
Common Stock on the date of grant.
Leslie Mahon
On March 15, 1999, we entered into an employment agreement with Leslie Mahon
providing for Mr. Mahon's services as Vice President and Chief Operating
Officer. The agreement provides for an initial two-year term, subject to
automatic one-year extensions unless we notify Mr. Mahon during the 90-day
period ending on March 15 of each year that we wish to terminate the agreement
on March 15 of the following year.
46
<PAGE>
Notwithstanding this "evergreen" provision, we may terminate the agreement at
any time for "Cause" (as defined in the agreement) and Mr. Mahon may resign at
any time upon 90 days' prior written notice to us. If we terminate Mr. Mahon's
employment without "Cause" and without offering Mr. Mahon comparable
employment (employment with us or an affiliated company that is not materially
different in level of responsibility, at the same or higher salary level, with
same or similar title or rank and within a 20-mile radius of his immediately
prior position with us), then we must make a lump-sum payment to Mr. Mahon in
an amount equal to twice his then annual salary. The agreement provides that
our Chief Executive Officer will determine Mr. Mahon's annual compensation
subject to adjustment from time to time at the discretion of the Board of
Directors. Mr. Mahon's current salary is $175,000. The agreement further
provides that Mr. Mahon is subject to confidential information restrictions
for as long as Mr. Mahon possesses any confidential information, and non-
competition provisions until one year after the termination of Mr. Mahon's
employment. In addition, Mr. Mahon received options to purchase 30,000 shares
of Common Stock, to become exercisable in annual installments of 10,000 shares
commencing March 15, 2000, at an exercise price of $5.00, equal to the fair
market value of the Common Stock on the date of the grant.
Nancy Gorshe
On February 3, 1998, we entered into an employment agreement with Nancy
Gorshe providing for Ms. Gorshe's services as Vice President/Community
Relations. The agreement provides for a two-year term. We may terminate the
agreement at any time for "Cause" (as defined in the agreement). If we
terminate Ms. Gorshe's employment without "Cause" and without offering Ms.
Gorshe comparable employment or if within one year following a Change of
Control (as defined in the agreement) we either terminate Ms. Gorshe without
cause or she voluntarily resigns (and we have not offered her comparable
employment in either case), then we must make a lump-sum payment to Ms. Gorshe
in an amount equal to twice her then annual salary. In addition, if we
terminate Ms. Gorshe within one year following a Change in Control, all Common
Stock options held by Ms. Gorshe will automatically become immediately
exercisable. The agreement provides that our President or Chief Executive
Officer will determine Ms. Gorshe's annual compensation subject to adjustment
from time to time at the discretion of the Board of Directors. Ms. Gorshe's
current salary is $125,000. The agreement further provides that Ms. Gorshe is
subject to confidential information, and non-competition provisions until one
year after the termination of Ms. Gorshe's employment. In addition, Ms. Gorshe
received options to purchase 20,000 shares of Common Stock, to become
exercisable in annual installments of 6,667 shares commencing on July 27,
1999, at an exercise price of $16.50, equal to the fair market value of the
Common Stock on the date of grant.
Consulting Agreement
As discussed above, we have previously entered into an employment agreement
with Mr. McBride pursuant to which Mr. McBride is entitled to certain payments
and benefits in the event of a termination of his employment with us under
certain circumstances. Effective as of March 15, 1999, we entered into a
consulting agreement with Mr. McBride which provides for the termination of
Mr. McBride's employment agreement and the extinguishment of our and Mr.
McBride's rights and obligations under that agreement. Pursuant to the
consulting
agreement, Mr. McBride agreed to provide consulting services to us and to
resign from his position as our Chief Executive Officer. The termination of
Mr. McBride's employment pursuant to the consulting agreement is by mutual
agreement and such termination will not be deemed either a resignation for
good reason or a termination of Mr. McBride for cause for purposes of his
employment agreement or otherwise, and the Board is not aware of any grounds
for terminating Mr. McBride for cause. Pursuant to the consulting agreement
Mr. McBride received a lump-sum cash termination payment of $490,000 (which
was reduced to $390,000 to reflect repayment of a $100,000 bonus paid in 1998
related to the execution of our merger agreement with ARC). In addition, we
paid Mr. McBride a lump sum cash payment of $750,000 in consideration for Mr.
McBride's agreement to forfeit his interest in 200,000 shares of restricted
stock held by him and to terminate the related restricted stock agreement.
47
<PAGE>
Pursuant to the consulting agreement, Mr. McBride will provide consulting
services to us for a period of two years, on a basis of not more than forty
hours per month at a rate of $15,000 per month. During the consulting term,
Mr. McBride will also be entitled to participate in our medical insurance
plans at a cost equal to our cost of providing coverage. If we terminate the
consulting relationship without "Cause" (as defined in the consulting
agreement), Mr. McBride will be entitled to the balance of the cash amounts
which he would have received had the consulting relationship continued for the
remainder of the two year term. In addition, upon the occurrence of a "Change
in Control" of the Company (as defined in the consulting agreement), the
consulting relationship will automatically terminate and Mr. McBride will be
entitled to a lump-sum cash payment in an amount equal to the balance of the
cash amounts which he would have received had the consulting relationship
continued for the remainder of the two year term.
In addition, Mr. McBride has agreed that he will not disclose confidential
information belonging to us, and, for a period of two years following the
effectiveness of the consulting agreement, he will not compete with us or
solicit our employees. However, if the consulting relationship is terminated
as a result of a Change in Control of the Company, Mr. McBride's covenant not
to compete will automatically terminate. Pursuant to the consulting agreement,
we also reimbursed Mr. McBride for his attorneys fees incurred in the
negotiation and preparation of the consulting agreement in the amount of
approximately $8,000.
Mr. McBride's stock option agreements and indemnity agreement with us
survive the termination of his employment agreement.
Compensation Committee Interlocks and Insider Participation
As of May 31, 1999 the Compensation Committee was comprised of Mr. Razook,
Mr. McBride and Ms. Krueger.
During 1998 Mr. Razook, one of our directors, was Managing Director and Head
of the Health Care Industry Group of Schroder & Co. Inc. ("Schroders"), an
investment banking firm. During 1998 Schroders served as the initial purchaser
of our $75.0 million offering of 5.625% Debentures for which Schroders
received a customary commission. Also during 1998, Schroders provided
financial advisory services and delivered a fairness opinion in connection
with a proposed merger for which we paid Schroders a fee of $200,000. In March
1999, Mr. Razook became President and Managing Director at Cohen & Steers
Capital Advisors LLC ("C&S Advisors"). Pursuant to an agreement with C&S
Advisors, we anticipate that we will pay C&S Advisors up to $1.2 million in
1999 for financial advisory services plus customary fees and commissions in
the event that we are advised by C&S Advisors in connection with certain types
of transactions.
48
<PAGE>
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
We have set forth in the following table information as of May 31, 1999 with
respect to the beneficial ownership of our Common Stock by:
(1) each person who is known by us to own beneficially more than 5% of its
Shares;
(2) each of our directors;
(3) each of the Named Executive Officers for the fiscal year ended December
31, 1998; and
(4) our directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Address of Beneficial Owner(1) Owned(2) Percent of Class
--------------------------------------- ------------ ----------------
<S> <C> <C>
William McBride III......................... 504,000 2.9%
Dr. Keren Brown Wilson...................... 1,085,412 6.2%
Richard C. Ladd............................. 45,000 *
Bradley G. Razook........................... 34,000 *
170 Water Street, 20th Floor
New York, NY 10038
Gloria Cavanaugh............................ 10,000 *
Sandra Campbell(2).......................... 17,461 *
Nancy Gorshe(2)............................. 6,667 *
Rhonda Marsh................................ -- *
Dresdner Bank AG(4)......................... 1,786,300 10.3%
Jurgen-Ponto-Platz 1
60301 Frankfurt, Germany
Palisade Capital Management, L.L.C.(5)...... 1,368,955 7.9%
One Bridge Plaza, Suite 695
Fort Lee, NJ 07024
Wellington Management Company, LLP(6)....... 1,163,582 6.7%
75 State Street
Boston, MA 02109
The TCW Group, Inc.(8)...................... 1,076,675 6.2%
865 South Figueroa Street
Los Angeles, CA 90017
RH Capital Associates, LLC(7)............... 1,067,800 6.1%
55 Harristown Road
Glen Rock, NJ 07452
All directors and executive officers as a
group (13 persons)......................... 1,850,923 10.2%
</TABLE>
- --------
* Less than 1%
(1) Except as otherwise noted below, the address of our directors and officers
is c/o Assisted Living Concepts, Inc., 11835 NE Glenn Widing Drive,
Portland, Oregon, 97220.
(2) Includes options to purchase 145,000 shares of Common Stock held by Mr.
McBride, 210,000 by Dr. Wilson, 45,000 by Mr. Ladd, 30,000 by Mr. Razook,
10,000 by Ms. Cavanaugh, 16,667 by Ms. Campbell, and 6,667 by Ms. Gorshe,
which are exercisable within 60 days of May 31, 1999.
(3) Includes 4,000 shares owned by Mr. Razook's children.
49
<PAGE>
(4) Based on the Form 13G as filed on February 16, 1999.
(5) Based on the Form 13G as filed on February 9, 1999.
(6) Based on the Form 13G as filed on February 8, 1999.
(7) Based on the Form 13G as filed on February 10, 1999.
(8) Based on the Form 13G as filed on February 12, 1999. Such Form 13G
identifies Robert Day, 200 Park Avenue, Suite 2200, New York, NY 10166 as
a control person with respect to The TCW Group, Inc.
ITEM 13. Certain Relationships and Related Transactions
During 1998, Supportive Housing Services, Inc. ("SHS") provided services to
us for market feasibility analysis, site pre-acquisition services,
construction management oversight and building setup in conjunction with our
development activities. SHS was owned 80% by Dr. Wilson's spouse and 20% by
Paul Parker through June 30, 1998, and, as of July 1, 1998, owned 75% by Dr.
Wilson's spouse. SHS billed us approximately $3.9 million for such services in
1998, approximately $3.8 million (including $566,000 reflecting payment to CCL
(as defined below)) of which was paid as of December 31, 1998. As of May 31,
1999, we had incurred additional fees totaling $248,000 to SHS. In July 1999
we delivered 180 days' written notice terminating our agreement with SHS. We
expect to incur additional fees of approximately $240,000 for all remaining
services to be provided by SHS under the agreement.
In December 1997 we entered into a consulting services agreement with SHS
pursuant to which we provided SHS with consulting services in the assisted
living industry, including providing data on our facility prototypes,
facilitating the introduction of SHS to other potential customers and
providing market analysis on the assisted living industry. This consulting
agreement expired in September 1998. We received approximately $1.1 million in
fees and reimbursable expenses from SHS for such consulting services.
During 1998, Concepts in Community Living, Inc. ("CCL"), a company owned by
Dr. Wilson's spouse, provided feasibility studies and pre-development
consulting services to SHS and certain developers with respect to certain
assisted living residence sites we were developing and constructing. Both
directly and through these developers, we paid CCL approximately $566,000
indirectly through SHS for rendering such services in 1998. In June 1999 we
entered into a new agreement with CCL pursuant to which CCL will provide
market research, demographic review and competitor analysis in many of our
current and potential markets. We will pay CCL a retainer of $10,000 per
month, plus fees in excess of the retainer, if any, in connection with
specific projects that we authorize under the agreement.
We lease six residences from Assisted Living Facilities, Inc. Dr. Wilson's
spouse owns a 25% interest. During 1998, we paid Assisted Living Facilities,
Inc. rent of approximately $1.2 million. In addition, we leased one residence
from Oregon Heights Partners in 1998, in which Dr. Wilson's spouse owns
through CCL a 34% interest. Through September 30, 1998, we paid Oregon Heights
Partners approximately $195,000 in rent. The Oregon Heights Partners lease was
terminated in September 1998, effective October 1, 1998.
During 1998, Mr. McBride owned a $400,000 or 16.6% interest, and Dr.
Wilson's spouse owned a $200,000 or 8.3% interest, in Health Equity Investors
("HEI"). In the second quarter of 1997, we entered into joint venture
agreements with HEI to operate certain new assisted living residences that we
owned or leased. The joint venture concurrently entered into a non-cancelable
management agreement with us pursuant to which we managed the properties
operated by the joint venture for an amount equal to the greater of 8% of
gross revenues or $2,000 per month per residence. Through February 10, 1999,
we consolidated 100% of the revenues and expenses attributable to these
residences with our revenues and expenses, and HEI reimbursed us for 90.0% of
the start-up losses of the joint venture. We received loss reimbursements from
HEI of $4.7 million for the year ended December 31, 1998, and no loss
reimbursements in 1999. As of December 31, 1998, 17 residences owned or leased
by us were being operated by the joint venture.
50
<PAGE>
On February 10, 1999, we purchased HEI's joint venture interest with respect
to the 17 properties then being operated by the joint venture for an aggregate
purchase price of approximately $3.8 million. HEI's investment with respect to
such properties was $3.2 million. As a result of such purchases, Mr. McBride
and Dr. Wilson's spouse received distributions of approximately $537,000 and
$269,000, respectively, in 1999.
In October 1997, we acquired Home and Community Care, Inc. ("HCI"). Certain
of our officers and directors were officers, directors or stockholders of HCI.
Mr. McBride and Dr. Wilson's spouse owned 13.9% and 4.7%, respectively, of
HCI's outstanding common stock at the time of acquisition, substantially all
of which was acquired in March 1997. The terms of the acquisition were
approved by a committee of independent directors. Pursuant to the HCI
acquisition agreement, during 1998, Mr. McBride and Dr. Wilson's spouse
received "earnout" payments from us of $174,000 and $70,000, respectively,
related to HCI sites we elected to develop. Additional "earnout" payments are
expected to be made under the HCI agreement in 1999.
In October 1997, we acquired Carriage House Assisted Living, Inc. ("Carriage
House"). Certain of our employees and directors collectively owned 23% of
Carriage House's stock at the time of acquisition. The terms of the
acquisition were approved by a committee of independent directors.
For information regarding certain other relationships and related
transactions, see Item 11 "Compensation Committee Interlocks and Insider
Participation."
51
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 and 2. Consolidated Financial Statements and Financial Statement
Schedules
The financial statements and financial statement schedules listed in the
accompanying index to financial statements and financial statement schedules
are filed as part of this Annual Report.
3. Exhibits
Those Exhibits required to be filed by Item 601 of Regulation S-K are listed
on the accompanying index immediately following the signature page and are
filed as part of this Report.
(b) Reports on Form 8-K
On November 18, 1998, we filed a report on Form 8-K announcing our entrance
into a definitive merger agreement and cross option agreement with American
Retirement Corporation. Subsequent to the year ended December 31, 1998, the
two companies mutually terminated such agreements, effective January 31, 1999.
52
<PAGE>
ASSISTED LIVING CONCEPTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Financial Statements:
Independent Auditors' Report............................................ 54
Consolidated Balance Sheets, December 31, 1997 and 1998................. 55
Consolidated Statements of Operations, Years Ended December 31, 1996,
1997 and 1998.......................................................... 56
Consolidated Statements of Shareholders' Equity, Years Ended December
31, 1996, 1997 and 1998................................................ 57
Consolidated Statements of Cash Flows, Years Ended December 31, 1996,
1997 and 1998.......................................................... 58
Notes to Consolidated Financial Statements.............................. 59
2. Financial Statement Schedule:
Schedule II--Valuation and Qualifying Accounts.......................... 86
</TABLE>
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Assisted Living Concepts, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Assisted
Living Concepts, Inc. and subsidiaries as of December 31, 1997 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Assisted
Living Concepts Inc. and subsidiaries as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
As discussed in note 13 to the consolidated financial statements, in 1998
the Company changed its method of accounting for pre-opening costs associated
with newly developed residences.
As discussed in note 20 to the consolidated financial statements, the
Company restated its financial statements as of and for the years ended
December 31, 1996 and 1997.
KPMG LLP
Portland, Oregon
September 10, 1999
54
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 63,269 $ 55,036
Funds held in trust (Note 3)............................. 1,956 --
Marketable securities, available for sale (Note 4)....... -- 4,000
Accounts receivable, net of allowance for doubtful
accounts of $79 at 1997 and $179 at 1998................ 2,185 5,127
Prepaid expenses......................................... 904 992
Other current assets (Note 7)............................ 3,579 4,472
-------- --------
Total current assets................................... 71,893 69,627
-------- --------
Property and equipment (Notes 2, 5, 6 and 8)............... 131,623 284,754
Construction in process (Note 6)........................... 102,025 51,304
-------- --------
Total property and equipment........................... 233,648 336,058
Less accumulated depreciation.......................... 3,370 9,133
-------- --------
Property and equipment--net............................ 230,278 326,925
-------- --------
Goodwill (Note 2).......................................... 12,447 5,371
Other assets (Notes 2, 5 and 8)............................ 9,749 12,746
-------- --------
Total assets........................................... $324,367 $414,669
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 1,859 $ 1,622
Construction payable..................................... 18,883 6,942
Accrued real estate taxes................................ 2,354 4,837
Other accrued expenses................................... 4,045 6,127
Other current liabilities (Note 7)....................... 2,368 4,857
Construction financing................................... 2,150 --
Current portion of long-term debt (Note 8)............... 172 1,386
-------- --------
Total current liabilities.............................. 31,831 25,771
-------- --------
Other liabilities (Notes 2 and 5).......................... 2,592 3,415
Long-term debt (Note 8).................................... 57,535 105,036
Convertible subordinated debentures (Note 9)............... 100,165 161,250
-------- --------
Total liabilities...................................... 192,123 295,472
-------- --------
Commitments and contingencies (Notes 5 and 19)
Shareholders' equity (Notes 8 and 17):
Preferred Stock, $.01 par value; 1,000,000 shares
authorized; None issued or outstanding.................. -- --
Common Stock, $.01 par value; 80,000,000 shares
authorized; issued and Outstanding 15,646,478 shares in
1997 and 17,344,143 shares in 1998...................... 156 173
Additional paid-in capital............................... 141,460 148,533
Unearned compensation expense............................ (4,100) (3,492)
Fair market value in excess of historical cost of
acquired net assets attributable to related party
transactions............................................ (239) (239)
Accumulated deficit...................................... (5,033) (25,778)
-------- --------
Total shareholders' equity............................. 132,244 119,197
-------- --------
Total liabilities and shareholders' equity............. $324,367 $414,669
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Revenue........................................... $21,022 $49,605 $ 89,384
Operating expenses:
Residence operating expenses.................... 14,055 31,591 57,443
Corporate general and administrative............ 1,864 4,050 11,099
Building rentals................................ 1,137 2,691 11,308
Building rentals to related party (Notes 15 and
16)............................................ 2,812 5,278 1,456
Depreciation and amortization (Note 6).......... 1,094 3,683 6,339
Terminated merger expense (Note 12)............. -- -- 1,068
Site abandonment costs (Note 6)................. -- -- 2,377
Write-off of impaired assets and related
expenses (Note 11)............................. -- -- 8,521
------- ------- --------
Total operating expenses...................... 20,962 47,293 99,611
------- ------- --------
Operating income (loss)........................... 60 2,312 (10,227)
------- ------- --------
Other (income) expense:
Interest expense (Notes 8 and 9)................ 1,146 4,946 11,039
Interest income................................. (455) (1,526) (3,869)
Loss on sale of assets (Notes 5 and 16)......... 854 1,250 651
Debenture conversion costs (Note 9)............. 426 -- --
Other expenses (Notes 2, 8 and 16).............. 4 121 1,174
------- ------- --------
Total other (income) expense.................. 1,975 4,791 8,995
------- ------- --------
Net loss before cumulative effect of change in
accounting principle............................. (1,915) (2,479) (19,222)
Cumulative effect of change in accounting
principle (Note 13).............................. -- -- (1,523)
------- ------- --------
Net loss.......................................... $(1,915) $(2,479) $(20,745)
======= ======= ========
Basic and diluted net loss per common share:
Loss before cumulative effect of change in
accounting principle........................... $ (0.23) $ (0.21) $ (1.18)
Cumulative effect of change in accounting
principle...................................... -- -- (0.09)
------- ------- --------
Basic and diluted net loss per common share....... $ (0.23) $ (0.21) $ (1.27)
======= ======= ========
Basic and diluted weighted average common shares
outstanding...................................... 8,404 11,871 16,273
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Fair
Market
Value in
Common Stock Additional Unearned Excess of Total
-------------- Paid-In Compensation Historical Accumulated Shareholders'
Shares Amount Capital Expense Cost Deficit Equity
------ ------ ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 6,000 $ 60 $ 16,462 $ -- $(239) $ (639) $ 15,644
Net proceeds from public
offering............... 4,192 42 37,299 -- -- -- 37,341
Exercise of employee
stock options.......... 28 -- 132 -- -- -- 132
Conversion of
subordinated
debentures............. 810 8 5,785 -- -- -- 5,793
Net loss................ -- -- -- -- -- (1,915) (1,915)
------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1996................... 11,030 110 59,678 -- (239) (2,554) 56,995
Net proceeds from public
offering............... 4,140 42 72,086 -- -- -- 72,128
Shares issued for
acquisition............ 337 3 5,073 -- -- -- 5,076
Exercise of employee
stock options.......... 139 1 373 -- -- -- 374
Grant of restricted
stock (Note 17)........ -- -- 4,250 (4,250) -- -- --
Compensation expense
earned on restricted
stock (Note 17)........ -- -- -- 150 -- -- 150
Net loss................ -- -- -- -- -- (2,479) (2,479)
------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1997................... 15,646 $156 $141,460 (4,100) $(239) $ (5,033) $132,244
Common stock
repurchased............ (529) (5) (7,057) -- -- -- (7,062)
Conversion of
subordinated
debentures............. 1,855 19 13,387 -- -- -- 13,406
Exercise of employee
stock options.......... 122 1 745 -- -- -- 746
Issuance of restricted
stock (Note 17)........ 250 2 (2) -- -- -- --
Compensation earned on
restricted stock
(Note 17).............. -- -- -- 608 -- -- 608
Net loss................ -- -- -- -- -- (20,745) (20,745)
------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1998................... 17,344 $173 $148,533 $(3,492) $(239) $(25,778) $119,197
====== ==== ======== ======= ===== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss..................................... $ (1,915) $ (2,479) $ (20,745)
Adjustment to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization.............. 1,094 3,683 6,339
Provision for doubtful accounts............ 33 23 359
Loss on sale of assets..................... 854 1,250 651
Compensation expense earned on restricted
stock..................................... -- 150 608
Write-off of impaired assets and related
expenses.................................. -- -- 8,521
Site abandonment costs..................... -- -- 2,377
Cumulative effect of change in accounting
principle................................. -- -- 1,523
Changes in assets and liabilities, excluding
effects of acquisitions:
Accounts receivable, net................... (627) (808) (3,302)
Prepaid expenses........................... (138) (530) (88)
Other current assets....................... (392) (3,039) (909)
Other assets............................... (1,554) (633) 1,314
Accounts payable........................... 866 (155) (237)
Accrued expenses........................... (2,508) 3,616 2,840
Other current liabilities.................. 196 1,824 2,922
Other liabilities.......................... 997 1,595 823
--------- --------- ---------
Net cash (used in) provided by operating
activities.................................. (3,094) 4,497 2,996
--------- --------- ---------
Investing activities:
Funds held in trust.......................... (8,515) 6,559 1,956
Investment in marketable securities.......... -- -- (4,000)
Proceeds from sale and leaseback
transactions................................ 41,385 51,671 8,113
Purchases of property and equipment.......... (122,169) (148,139) (117,972)
Acquisitions, net of cash, debt acquired and
issuance of common stock.................... -- (4,064) (11,366)
--------- --------- ---------
Net cash used in investing activities........ (89,299) (93,973) (123,269)
--------- --------- ---------
Financing activities:
Proceeds from construction financing......... 18,850 43,210 --
Repayments of construction financing......... -- (63,497) --
Proceeds from long-term debt................. 31,346 21,854 49,004
Payments on long-term debt................... (88) (5,516) (289)
Proceeds from issuance of common stock, net.. 37,473 72,502 746
Repurchase of common stock................... -- -- (7,062)
Debt issuance costs of offerings and long-
term debt................................... (418) (4,163) (5,359)
Proceeds from issuance of convertible
subordinated debentures..................... -- 86,250 75,000
--------- --------- ---------
Net cash provided by financing activities.... 87,163 150,640 112,040
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. (5,230) 61,164 (8,233)
Cash and cash equivalents, beginning of
year........................................ 7,335 2,105 63,269
--------- --------- ---------
Cash and cash equivalents, end of year....... $ 2,105 $ 63,269 $ 55,036
========= ========= =========
Supplemental disclosure of cash flow
information (Note 18):
Cash payments for interest................. $ 3,218 $ 9,741 $ 16,480
Cash payments for income taxes............. -- 1,547 $ --
Non-cash transactions:
Increase (decrease) in construction payable
and property and equipment................ $ 8,752 $ 2,881 $ (11,941)
Conversion of subordinated debentures (net
of $509 of unamortized financing costs in
1998)..................................... 6,085 -- 13,406
Conversion of construction financing to
sale leaseback............................ -- -- 2,150
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE>
ASSISTED LIVING CONCEPTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
The Company
Assisted Living Concepts, Inc. ("the Company") owns, operates and develops
assisted living residences which provide housing to older persons who need
help with the activities of daily living such as bathing and dressing. The
Company provides personal care and support services and makes available
routine health care services designed to meet the needs of its residents. The
accompanying financial statements reflect the operating results of 60, 109 and
165 residences for the years ended 1996, 1997 and 1998, respectively.
Residences are included in operating results as of the first day of the month
following licensure.
On November 22, 1994, the Company sold 4,000,000 shares of common stock at
$4.625 per share in an initial public offering realizing net proceeds of
approximately $16.4 million after underwriter discounts, commissions and other
expenses.
In August 1995, the Company completed the offering of $20.0 million 7%
Convertible Subordinated Debentures ("7% Debentures") due August, 2005
realizing net proceeds of approximately $19.2 million after discounts,
commissions and other expenses. In September 1996, $6.1 million of the 7%
Debentures were converted into 811,333 shares of the Company's common stock
which resulted in $13.9 million of 7% Debentures outstanding. In August 1998,
the Company called for redemption all of the remaining $13.9 million of the 7%
Debentures. All of the 7% Debentures were converted into shares of the
Company's common stock, resulting in the issuance of 1,855,334 additional
shares of common stock.
In July 1996, the Company sold 4,192,500 shares of common stock at $9.50 per
share in a public offering realizing net proceeds of $37.3 million, after
underwriter discounts, commissions and other expenses.
In June 1997, the Company's Board of Directors declared a two for one stock
split on the Company's common stock. The record date for the stock split was
June 30, 1997 and the stock split occurred on July 10, 1997.
In addition, in June 1997 the Company's Board of Directors declared a
dividend distribution of one preferred share purchase right ("Preferred Share
Purchase Right") on each outstanding share of the Company's common stock. In
the event that a person or group of persons acquires or announces a tender
offer to acquire 15% or more of the common stock (the "Acquiring Person"), the
Preferred Stock Purchase Rights, subject to certain limited exceptions, will
entitle each shareholder (other than the Acquiring Person) to buy one
one-hundredth of a share of newly created Series A Junior Participating
Preferred Stock of the Company at an exercise price of $54 (after giving
effect to the stock split). The Company may redeem the rights at one cent per
right at any time before a person or group has acquired 15% or more of the
outstanding common stock. The record date for Preferred Share Purchase Right
distribution was June 30, 1997. The stock split occurred immediately prior to
the Preferred Share Purchase Right distribution.
In October 1997 the Company sold 4,140,000 shares of common stock at $18.50
per share in a public offering realizing net proceeds of $72.1 million, after
underwriter discounts, commissions and other expenses.
In October 1997, the Company completed the public offering of $86.3 million
of 6% Convertible Subordinated Debentures ("6% Debentures") due November 2002
realizing net proceeds of $82.9 million after underwriter discounts,
commissions and other expenses. The 6% Debentures are convertible at any time
at or prior to maturity, unless previously redeemed, at a conversion price of
$22.57 per common share, which equates to an aggregate of 3,821,444 shares of
the Company's common stock.
59
<PAGE>
In April 1998, the Company completed the offering of $75.0 million of 5.625%
Convertible Subordinated Debentures ("5.625% Debentures") due May 2003
realizing net proceeds of $72.2 million after discounts, commissions and other
expenses. The 5.625% Debentures are convertible at any time at or prior to
maturity, unless previously redeemed, at a conversion price of $26.184 per
common share, which equates to an aggregate of 2,864,345 shares of the
Company's common stock.
Principles of Consolidation
The consolidated financial statements include the accounts of Assisted
Living Concepts Inc. and its wholly owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents include cash on deposit and highly liquid
investments with maturities of three months or less at the date of purchase.
The Company's investments in cash equivalents are classified as held to
maturity and are stated at cost. The Company's investments in marketable
securities are classified as available for sale. These investments are stated
at fair value with any unrealized gains or losses included as a component of
shareholders' equity. Interest income is recognized when earned.
Leases
The Company determines the classification of its leases as either operating
or capital at their inception. The Company reevaluates such classification
whenever circumstances or events occur that require the reevaluation of the
leases.
The Company accounts for arrangements entered into under sale and leaseback
agreements pursuant to Statement of Financial Accounting Standards (SFAS) No.
98, "Accounting for Leases." For transactions that qualify as sales and
operating leases, a sale is recognized and the asset is removed from the
books. For transactions that qualify as sales and capital leases, the sale is
recognized, but the asset remains on the books and a capital lease obligation
is recorded. Transactions that do not qualify for sales treatment are treated
as financing transactions. In the case of financing transactions, the asset
remains on the books and a finance obligation is recorded as part of long-term
debt. Losses on sale and leaseback agreements are recognized at the time of
the transaction absent indication that the sales price is not representative
of fair value. Gains are deferred and recognized on a straight-line basis over
the initial term of the lease.
All of the Company's leases contain various provisions for annual increases
in rent, or rent escalators. Certain of these leases contain rent escalators
with future minimum annual rent increases that are not considered contingent
rents. The total amount of the rent payments under such leases with non-
contingent rent escalators is being charged to expense on the straight-line
method over the term of the leases. The Company records a deferred credit,
included in other liabilities, to reflect the excess of rent expense over cash
payments. This deferred credit is reduced in the later years of the lease term
as the cash payments exceed the rent expense.
Property and Equipment
Property and equipment are recorded at cost and depreciation is computed
over the assets' estimated useful lives on the straight-line basis as follows:
<TABLE>
<S> <C>
Buildings..................................................... 40 years
Furniture and equipment....................................... 3 to 7 years
</TABLE>
Asset impairment is analyzed on assets to be held and used by the rental
demand by market to determine if future cash flows (undiscounted and without
interest charges) are less than the carrying amount of the asset. If an
impairment is determined to have occurred, an impairment loss is recognized to
the extent the assets carrying amount exceeds its fair value. Assets the
Company intends to dispose of are reported at the lower of (i) fair carrying
amount or (ii) fair value less the cost to sell. The Company has not
recognized any impairment losses through the year ended December 31, 1998.
60
<PAGE>
Interest and certain payroll costs incurred during construction periods are
capitalized as part of the building costs. Maintenance and repairs are charged
to expense as incurred, and significant betterments and improvements are
capitalized. Construction in process includes pre-acquisition costs and other
direct costs related to acquisition, development and construction of
residences. If a project is abandoned, any costs previously capitalized are
expensed.
Goodwill
Costs in excess of the fair value of the net assets acquired in purchase
transactions as of the date of acquisition have been recorded as goodwill and
are being amortized over periods ranging between 15 and 20 years on a
straight-line basis. Amortization of goodwill was $30,000, $128,000 and
$398,000, respectively, for the years ended December 31, 1996, 1997 and 1998.
Accumulated amortization of goodwill at December 31, 1997 and 1998 was
$188,000 and $278,000, respectively. Management maintains an impairment review
policy whereby the future economic benefit of the recorded balance is
substantiated at the end of each reporting period.
During the year ended December 31, 1998, the Company wrote-off all the
unamortized goodwill (approximately $7.5 million) associated with Pacesetter
Home Health Care, Inc. ("Pacesetter"), a wholly owned subsidiary of Home and
Community Care, Inc. The shut-down of Pacesetter operations was a result of a
change in the regulatory reimbursement environment during the quarter ended
June 30, 1998 (See Note 11).
Pre-Opening Costs
Prior to the adoption of AICPA Statement of Position 98-5, Reporting on the
Costs of Start-up Activities (SOP 98-5), pre-opening costs associated with
newly developed residences, prior to the commencement of their operations were
capitalized and amortized over 12 months. As a result of the Company's
adoption of SOP 98-5 (effective as of January 1, 1998), pre-opening costs are
expensed as incurred (See Note 13).
Deferred Financing Costs
Financing costs related to the issuance of debt are capitalized in other
assets and amortized to interest expense over the term of the related debt
using the straight-line method, which approximates the effective interest
method.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to the differences between the
financial statement carrying amounts of the existing assets and liabilities
and their respective tax bases (temporary differences). Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized.
Revenue Recognition
Revenue is recognized when services are rendered and consists of residents'
fees for basic housing and support services and fees associated with
additional services such as routine health care and personalized assistance on
a fee for service basis. Management of the Company assesses the collectibility
of the accounts receivable periodically and records a provision for doubtful
accounts as considered necessary.
Classification of Expenses
All expenses (except interest, depreciation, amortization, residence
operating expenses) associated with corporate or support functions have been
classified as corporate general and administrative expense. All other expenses
incurred by the Company have been classified as residence operating expenses.
61
<PAGE>
Comprehensive Income (Loss)
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income (loss) and
several other items that current accounting standards require to be recognized
outside of net income (loss) and is presented in the consolidated statements
of shareholders' equity and comprehensive income. The Statement requires only
additional disclosures in the consolidated financial statements; it does not
affect the Company's financial position or net income (loss). There were no
unrealized gains (losses) on marketable securities for the years ended
December 31, 1997 or 1998. The Company had no items to be recognized in
comprehensive income (loss) outside net loss for the periods presented.
Net Income (Loss) Per Common Share
Basic earnings per share (EPS) is calculated using income (loss)
attributable to common shares (after deducting preferred dividends) divided by
the weighted average number of common shares outstanding for the period.
Diluted EPS is calculated in periods with net income using income attributable
to common shares (after deducting preferred dividends and considering the
effects of dilutive potential common shares) divided by the weighted average
number of common shares and dilutive potential common shares outstanding for
the period.
Vested options to purchase 382,000, 568,000 and 833,000 shares of common
stock were outstanding during the years ended December 31, 1996, 1997 and
1998, respectively. These options were excluded from the respective
computations of diluted loss per share, as their inclusion would be
antidilutive.
Also excluded from the computations of diluted loss per share, for the years
ended December 31, 1996, 1997 and 1998 were 1,855,333, 5,676,777 and 6,685,789
shares of common stock, respectively, issuable upon conversion of the
Company's convertible subordinated debentures (see Note 9) and 250,000 shares
of restricted stock for the year ended December 31, 1998 (see Note 20) as
their inclusion would be antidilutive.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." This
SFAS requires public enterprises to report certain information about their
operating segments in a complete set of financial statements to shareholders.
It also requires reporting of certain enterprise-wide information about the
Company's products and services, its activities in different geographic areas,
and its reliance on major customers. The basis for determining the Company's
operating segments is the manner in which management operates the business.
This SFAS is effective for financial statements for periods beginning after
December 15, 1997 and, as such, was adopted by the Company in 1998. The
Company has no foreign operations, no customers which provide over 10 percent
of gross revenue, and has determined that it has only one operating segment.
Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities, and the disclosure of
contingent assets and liabilities, and the reported amounts of revenue and
expenses during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements to conform to the current year's presentation. Such
reclassifications had no effect on previously reported net loss or
shareholders' equity.
62
<PAGE>
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value because of the short-term nature of
the accounts and/or because they are invested in accounts earning market rates
of interest. The carrying value of marketable debt securities and funds held
in trust approximates fair value because they bear interest at market rates.
The carrying amount of the Company's long-term debt and construction financing
approximate fair value as the interest rates approximate the current rates
available to the Company. The following table sets forth the carrying amount
and approximate fair value (based on quoted market values) of the Company's
subordinated debentures as of December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
7% Debentures............................ $13,915 $36,596 -- --
6% Debentures............................ 86,250 93,581 $86,250 $71,156
5.625% Debentures........................ -- -- 75,000 58,500
</TABLE>
Stock-based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-
Based Compensation," which provides an alternative to APB Opinion No. 25,
"Accounting for Stock Issued to Employee," in accounting for stock-based
compensation issued to employees. The Statement encourages, but does not
require financial reporting to reflect compensation expense for grants of
stock, stock options and other equity instruments to employees based on
changes in the fair value of the underlying stock. The Company continues to
apply the existing accounting rules contained in APB Option No. 25,
"Accounting for Stock Issued to Employees." While recognition of employee
stock-based compensation is not mandatory, SFAS 123 requires companies that
choose to continue applying the provisions of APB No. 25 to disclose pro forma
net income (loss) and earnings (loss) per share data (See Note 17).
The Non-Officer Stock Option Plan (the "Non-Officer Plan") is a non-
qualified stock option plan intended as a long-term incentive compensation
plan designed to provide a competitive and balanced incentive and reward
program for participants.
Concentration of Credit Risk
State Medicaid reimbursement programs constitute a significant source of
revenue for the Company. Adverse changes in general economic factors affecting
the health care industry or laws and regulatory environment, including
Medicaid reimbursement rates, could have a material adverse effect on the
Company's financial condition and results of operations. As of December 31,
1998, 23.1% of the Company's residences are in Texas, 11.0% are in Oregon,
10.4% in Ohio, 11.0% in Indiana and 9.2% in Washington. During the years ended
December 31, 1996, 1997 and 1998, direct payments received from state Medicaid
agencies accounted for approximately 12.4%, 11.1% and 10.7%, respectively, of
the Company's revenue while the tenant paid portion received from Medicaid
residents accounted for approximately 6.9%, 5.9% and 5.8%, respectively, of
the Company's revenue during these periods. The Company expects in the future
that State Medicaid reimbursement programs will constitute a significant
source of revenue for the Company.
2. Acquisitions and Joint Venture
Acquisitions
Effective October 23, 1997, the Company acquired 98.8% of the outstanding
capital stock of Home and Community Care, Inc. ("HCI"). The Company had
acquired an initial 1.2% interest in HCI as a result of HCI's acquisition of
Pacesetter, a home health care agency in which the Company had made an
investment in November 1996. Several employees of the Company, including
members of the Board of Directors, owned
63
<PAGE>
collectively approximately 40.0% of the outstanding common stock in HCI (See
Notes 15 and 16). In the second quarter of 1997 the Company signed a licensing
agreement with HCI, pursuant to which the Company agreed to allow HCI to use
certain of the Company's proprietary information and materials in connection
with the development of HCI's assisted living residences. During the second
quarter of 1997, the Company received $178,000 in fees from HCI and recorded
such fees as other income included in other income/expenses. The HCI purchase
was completed at a purchase price of approximately $4.0 million in cash (which
reflects approximately $5.3 million of cash paid net of (i) approximately
$250,000 in cash acquired, (ii) approximately $850,000 in fees from HCI for
services rendered during 1997, and (iii) $150,000 in dividends received from
HCI during 1997), and the assumption of approximately $6.6 million in
liabilities. HCI stockholders are entitled to receive certain "earnout"
payments over a two-year period based on the number of HCI's assisted living
residence sites, which the Company elects to complete. At the time of the
acquisition, HCI had 20 sites under development. For each completed residence,
HCI stockholders will receive an additional $7,500 per unit (approximately
$300,000 per residence) in cash. During the years ended December 31, 1997 and
1998, respectively, the Company paid earnout payments of $0 and $1.7 million,
respectively, and capitalized such payments in property and equipment.
The acquisition was accounted for as a purchase, and the operating results
of HCI have been included in the Company's consolidated financial statements
since the date of acquisition. The cost of the acquisition has been allocated
based on the estimated fair value of the net assets acquired of approximately
$3.4 million. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $7.5 million was recorded as
goodwill and amortized on a straight-line basis over 20 years.
During second quarter 1998 the Company announced a plan to exit all home
health business operations being conducted by Pacesetter. During the year
ended December 31, 1998, the Company incurred a $8.5 million charge to
earnings associated with exiting the Pacesetter operations. Such charge
consisted of (i) a $7.5 million write-off of all unamortized goodwill
associated with Pacesetter and (ii) a $1.0 million provision for exit costs
expected to be incurred during the phase out of the Pacesetter business.
During the fourth quarter 1998, the $1.0 million provision for exit costs was
reduced by $400,000 from $1.4 million as a result of a change in the estimate
for such exit costs. In addition, the Company incurred a $1.0 million charge
recorded as site abandonment expense during second quarter 1998 for previously
capitalized development costs relating to 11 sites acquired in the HCI
acquisition that it had determined not to develop (See Note 6 and Note 11).
Effective October 23, 1997, the Company acquired 90.1% of the outstanding
capital stock of Carriage House Assisted Living Inc. ("Carriage House").
Several employees of the Company, including members of the Board of Directors,
owned collectively approximately 23.0% of the outstanding common stock of
Carriage House (See Notes 15 and 16). The Company had acquired its initial
9.9% in Carriage House's outstanding capital stock during 1996. The purchase
was completed at a purchase price of $5.2 million with the exchange of
337,460 shares of Common Stock (based on a stock price of $15.41 per share)
for all of the outstanding common stock of Carriage House and the assumption
of approximately $3.2 million in liabilities.
The acquisition was accounted for as a purchase and the operating results of
Carriage House have been included in the Company's consolidated financial
statements since the acquisition date. The cost of the acquisition has been
allocated based on the estimated fair value of the net assets acquired of
approximately $3.4 million. The excess of the aggregate purchase price over
the fair market value of net assets acquired of approximately $4.7 million has
been recorded as goodwill and is being amortized on a straight-line basis over
20 years.
The following unaudited pro forma consolidated results of operations for the
Company for the year ended December 31, 1997 assume that HCI and Carriage
House acquisitions had occurred as of January 1, 1997 (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
(Unaudited) Total
----------- -------
<S> <C>
Net revenue...................................................... $55,241
Net loss......................................................... (2,680)
Basic and diluted net loss per common share...................... $ (0.23)
</TABLE>
64
<PAGE>
The unaudited pro forma consolidated results of operations do not purport to
be indicative of the results that would have been reported if the acquisitions
had been completed as of the beginning of the periods presented, nor are they
indicative of future results of operations. The Company cannot predict whether
the consummation of the acquisitions described above will conform to the
assumptions used to prepare the unaudited pro forma consolidated results of
operations.
On April 30, 1998, the Company completed the acquisitions of two assisted
living residences in Plano and McKinney, Texas, having units of 66 and 50,
respectively. The residences were acquired for a total purchase price of
approximately $5.2 million. The acquisitions were accounted for as purchases
and the operating results of the facilities have been included in the
Company's consolidated financial statements since the acquisition date. The
cost of the acquisitions has been allocated based on the estimated fair value
of the net assets acquired of approximately $5.2 million. No goodwill was
recorded.
On July 1, 1998, the Company completed the acquisition of an assisted living
residence in Alexandria, Louisiana having 47 units. The residence was acquired
for a purchase price of approximately $2.8 million. The acquisition was
accounted for as a purchase and the operating results of the facility have
been included in the Company's consolidated financial statements since the
acquisition date. The cost of the acquisition has been allocated based on the
estimated fair value of the net assets acquired of approximately $2.8 million.
No goodwill was recorded.
On December 1, 1998, the Company completed the acquisition of an assisted
living residence in Paris, Texas, having 50 units. The residence was acquired
for a purchase price of approximately $3.4 million. The acquisition was
accounted for as a purchase and the operating results of the facility have
been included in the Company's consolidated financial statements since the
acquisition date. The cost of the acquisition has been allocated based on the
estimated fair value of the net assets acquired of approximately $3.0 million.
The excess of the aggregate purchase price over the fair market value of net
assets acquired is approximately $432,000 and has been recorded as goodwill
and is being amortized on a straight-line basis over 20 years.
The pro forma consolidated results of operations for the four facilities
acquired during 1998 are excluded, as they are not considered significant to
the Company's operations.
Joint Venture
During 1997, the Company entered into joint venture agreements with a joint
venture partner to operate certain new assisted living residences which
commenced operations during the second, third and fourth quarters of 1997. Of
the $2.3 million of total capital raised by the joint venture partner to
invest in such arrangements, the Company contributed $300,000 and recorded
such investment in other non-current assets. In addition, certain members of
management held interests in the joint venture partner (See Note 15). Pursuant
to the joint venture agreements, the Company entered into non-cancelable
management agreements under which the Company managed the residences operated
by the joint venture for an amount equal to the greater of 8% of gross
revenues or $2,000 per month per residence. The Company consolidated the
operations of the joint venture agreements in its consolidated financial
statements. The joint venture partner reimbursed the Company for 90.0% of the
start-up losses of the joint venture, and the Company recognized such
reimbursements as loans included in other liabilities. The Company also
reflected amounts paid to repurchase the joint venture partner's interest in
excess of reimbursed losses as interest and other expense. Interest was
calculated based on the average loan balance using an imputed 20.0% interest
rate and other expense was calculated based on a $10,000 administrative fee
per residence. The Company received loss reimbursements of $2.3 million and
$4.7 million for the years ended December 31, 1997 and 1998, respectively. The
Company did not repay any of these loans, and incurred interest expense of
$52,000 in connection with these loans, during the year ended December 31,
1997. The Company repaid $4.0 million of these loans in 1998, and incurred
interest and other expense of $687,000 in connection with these loans, for the
year ended December 31, 1998. As of December 31, 1998, 17 residences owned or
leased by the Company were being operated by the joint venture. During the
first quarter of 1999 the Company announced that it had negotiated with the
joint venture partner to purchase, for approximately $3.8 million, all of the
joint venture partner's interest in the remaining 17 residences subject to the
joint venture agreements (See Note 20).
65
<PAGE>
3. Funds Held In Trust
During 1996, the Company issued $8.5 million in tax-exempt bonds to provide
permanent financing on five Washington residences. As of December 31, 1997,
four of the five properties had been completed and the Company had received
proceeds of $6.5 million. The remaining $2.0 million of proceeds was released
during the first quarter of 1998 once the remaining residence had been
completed and licensed.
4. Marketable Securities
At December 31, 1998 marketable securities, classified as available-for-
sale, are comprised of $3.4 million of U.S. government and agency debt
securities with a maturity of 2030 and $600,000 of state and municipal debt
securities with a maturity of 2025. These marketable securities have right to
call or prepayment provisions, which may affect the maturity. At December 31,
1998 the cost of these securities which was determined on a specific
identification basis, was equal to their estimated fair value, as such, there
were no realized or unrealized gains or losses.
5. Leases
A summary of leases that the Company has entered into since its inception is
as follows:
<TABLE>
<CAPTION>
Number of
Sale and
Number of Leaseback Number of Sale Units under
Leased Residences Total and Leaseback Leases
Residences Accounted for Number of Residences Units under Accounted
("Oregon as Operating Operating Accounted for Operating for as
Leases") Leases Leases as Financings Leases Financings
---------- ------------- --------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leases at December 31,
1994................... 4 -- 4 -- 114 --
Leases entered into
during 1995............ -- 5 5 -- 150 --
----- ----- ----- ----- ------ -----
Leases at December 31,
1995................... 4 5 9 -- 264 --
Leases entered into
during 1996............ 1 19 20 9 763 316
Residences repurchased
during 1996............ -- (4) (4) -- (146) --
----- ----- ----- ----- ------ -----
Leases at December 31,
1996................... 5 20 25 9 881 316
Leases entered into
during 1997............ 2 24 26 7 1,025 247
----- ----- ----- ----- ------ -----
Leases at December 31,
1997................... 7 44 51 16 1,906 563
Leases entered into
during 1998............ -- 4 4 -- 139 --
Lease expansions during
1998................... -- -- -- -- 47 10
Leases terminated during
1998................... (1) -- (1) -- (45) --
----- ----- ----- ----- ------ -----
Leases at December 31,
1998................... 6 48 54 16 2,047 573
===== ===== ===== ===== ====== =====
</TABLE>
The Company has entered into agreements to lease six assisted living
residences in Oregon from Assisted Living Facilities, Inc., a related party
(the "Oregon Leases"). During 1998 the Company terminated a lease with Oregon
Heights Partners ("OHP"). The lessor in each case obtained funding through the
sale of bonds issued by the state of Oregon, Housing and Community Services
Department ("OHCS"). In connection with the Oregon Leases, the Company entered
into "Lease Approval Agreements" with OHCS and Assisted Living Facilities,
Inc., pursuant to which the Company is obligated to comply with the terms and
conditions of certain regulatory agreements to which the lessor is a party
(See Note 8). The leases, which have fixed terms of 10 years, have been
accounted for as operating leases. Aggregate deposits on these residences as
of December 31, 1997 and 1998 were $176,000 and $126,000 respectively, which
are reflected in other assets.
During the years ended December 31, 1996, 1997 and 1998, the Company
completed the sale of 19, 24 and four residences under sale and leaseback
arrangements, respectively. The Company sold the residences for approximately
$41.4 million in 1996, $51.7 million in 1997 and $10.3 million in 1998, and
leased them back
66
<PAGE>
over initial terms ranging from 12 to 20 years. During 1996, four of the 19
properties were repurchased for $7.8 million, in connection with a $50.2
million sale and leaseback commitment with LTC Properties, Inc. ("LTC") (See
Note 16). The properties were repurchased at a cost of $7.6 million plus a
$214,000 administrative fee. In addition, the Company assumed four leases
under sale and leaseback agreements that were acquired with the Carriage House
purchase that was completed in October of 1997.
The Company recognized losses of $936,000, $1.3 million and $651,000 on the
above sale and leaseback transactions for the years ended December 31, 1996,
1997 and 1998, respectively. The losses, net of a 1996 unrelated land sale
gain of $82,000, are presented in the Consolidated Statements of Operations as
net loss on sale of assets. Gains on sale and leaseback transactions of
$399,000, $1.1 million and $508,000 for the years ended December 31, 1996,
1997 and 1998 respectively, have been recorded as deferred income included in
other liabilities and are being amortized over the initial terms of the
corresponding leases. For the years ended December 31, 1996 and 1997, a
substantial portion of such gains and losses resulted from sale and leaseback
transactions with LTC (See Note 16).
Certain of the Company's leases and loan agreements contain covenants and
cross-default provisions such that a default on one of those instruments could
cause the Company to be in default on one or more other instruments. The
Company was not in compliance with certain lease and loan covenants and has
obtained necessary waivers as a result of such non-compliance.
As of December 31, 1998, future minimum annual lease payments under
operating leases are as follows (in thousands):
<TABLE>
<S> <C>
1999................................ $ 16,139
2000................................ 16,103
2001................................ 16,099
2002................................ 16,102
2003................................ 16,123
Thereafter.......................... 108,990
--------
$189,556
========
</TABLE>
During the years ended December 31, 1996 and 1997, respectively, the Company
entered into nine and seven sale and leaseback agreements, which are accounted
for as financings due to the Company's continuing involvement in the
properties in the form of a fair value purchase option which provides the
Company with the option to purchase the residence at fair market value at the
end of the initial lease term, ranging from 14 to 15 years. These financings
are included in long term debt and the related assets remain on the
consolidated balance sheets in property, plant and equipment (See Notes 6, 8
and 20).
6. Property and Equipment
As of December 31, 1997 and 1998, property and equipment, stated at cost,
consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land...................................................... $ 7,924 $ 18,217
Buildings................................................. 119,649 256,904
Equipment................................................. 1,419 2,865
Furniture................................................. 2,631 6,768
-------- --------
Property and equipment.................................... 131,623 284,754
Construction in process................................... 102,025 51,304
-------- --------
Total property and equipment............................ 233,648 336,058
Less accumulated depreciation............................. 3,370 9,133
-------- --------
Property and equipment--net............................. $230,278 $326,925
======== ========
</TABLE>
67
<PAGE>
Land, buildings and certain furniture and equipment relating to 37
residences serve as collateral for long-term debt (See Note 8). Depreciation
expense was $805,000, $2.9 million, and $5.9 million, for the years ended
December 31, 1996, 1997 and 1998, respectively.
As of December 31, 1997 and 1998 construction in process consists of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Land purchased and earnest deposits........................ $ 8,791 $ 4,217
Construction costs......................................... 80,325 37,883
Other costs................................................ 12,909 9,204
-------- -------
$102,025 $51,304
======== =======
</TABLE>
During the years ended December 31, 1996, 1997 and 1998, the Company
capitalized interest costs of $2.3 million, $6.6 million and $6.0 million,
respectively, relating to financing of construction in process. In addition,
the Company capitalized payroll costs that are directly related to the
construction and development of the residences of $1.1 million, $1.8 million
and $1.8 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
As a result of the Company's decision to reduce the number of new residence
openings during the year ending December 31, 1999 and beyond, the Company
wrote-off $2.4 million of capitalized costs during 1998 relating to the
abandonment of 36 development sites. Of such costs, $1.0 million were written-
off during the second quarter and the remaining $1.4 million were written-off
during the fourth quarter 1998. The Company had not written-off any of such
costs prior to 1998 (See Note 20).
The Company had certificates of occupancy for 173 residences, 165 of which
were included in the operating results as of December 31, 1998, as compared to
130 residences with certificates of occupancy, 109 of which were included in
the operating results as of December 31, 1997. Of the residences with
certificates of occupancy, the Company owned 103 residences and leased 70
residences (54 of which were operating leases and 16 of which were accounted
for as financings) as compared to 63 owned residences and 67 leased residences
(51 of which were operating leases and 16 of which were accounted for as
financings) as of December 31, 1997. At each of December 31, 1997 and 1998,
property and equipment included $31.4 million in land and buildings related to
sale and leaseback transactions accounted for as financings (See Note 16).
As of December 31, 1998, construction in process reflects: (i) 12 residences
(479 units) under construction ($21.9 million); (ii) eight residences (319
units) that have received a certificate of occupancy, but are pending
licensure ($23.5 million); (iii) one residence expansion (13 units)
($811,000); and (iv) other development costs ($5.1 million); (See Note 20).
The Company's 10 outstanding construction commitments were approximately
$15.0 million at December 31, 1998.
7. Resident Deposits
Pursuant to lease agreements, residents are required to provide security
deposits, and in certain cases, the last month's rent. As of December 31, 1997
and 1998, such deposits of $958,000 and $1.6 million, respectively have been
recorded as other current assets with a corresponding liability recorded in
other current liabilities. These funds are restricted as to use by the
Company.
68
<PAGE>
8. Long-Term Debt
As of December 31, 1997 and 1998, long-term debt consists of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Trust Deed Notes, payable to the State of Oregon Housing
and Community Services Department (OHCS) through 2028..... $10,256 $ 10,155
Variable Rate Multifamily Revenue Bonds, payable to the
Washington State Housing Finance Commission Department
through 2028.............................................. 8,500 8,500
Variable Rate Demand Revenue Bonds, Series 1997 payable to
the Idaho Housing and Finance Association through 2017.... 7,350 7,350
Variable Rate Demand Revenue Bonds, Series A-1 and A-2
payable to the State of Ohio Housing Finance Agency
through 2018.............................................. -- 13,220
Finance lease obligations.................................. 31,488 31,488
Mortgages payable.......................................... -- 35,627
Capital lease obligations payable through 2002 with a
weighted average interest rate of 10.1%................... 113 82
------- --------
Total long-term debt....................................... $57,707 $106,422
Less current portion....................................... 172 1,386
------- --------
Long-term debt............................................. $57,535 $105,036
======= ========
</TABLE>
The Trust Deed Notes payable to OHCS are secured by buildings, land,
furniture and fixtures of six Oregon residences. The notes are payable in
monthly installments including interest at effective rates ranging from 7.375%
to 11.80%.
The Variable Rate Multifamily Revenue Bonds are payable to the Washington
State Housing Finance Commission Department and at December 31, 1998 were
secured by an $8.7 million letter of credit and by buildings, land, furniture
and fixtures of the five Washington residences. The letter of credit expires
in 2001. The bonds had a weighted average interest rate of 3.69% during 1998.
The Variable Rate Demand Housing Revenue Bonds, Series 1997 are payable to
the State of Idaho Housing and Finance Association and at December 31, 1998
were secured by a $7.5 million letter of credit and by buildings, land,
furniture and fixtures of four Idaho residences. The letter of credit expires
in 2002. The bonds had a weighted average interest rate of 3.56% during 1998.
In April 1998, the Company obtained $14.6 million in mortgage financing at a
fixed interest rate of 7.73% and secured by a mortgage encumbering each of
seven Texas residences. The mortgage is amortized with monthly payments of
$110,000 over 25 years with a balloon payment of $11.8 million due at maturity
in May 2008.
In July 1998, the Company obtained $12.7 million in Variable Rate Demand
Housing Revenue Bonds with the State of Ohio Housing Finance Agency ("OHFA")
and $530,000 in Taxable Variable Rate Demand Housing Revenue Bonds with OHFA.
The bonds are due July 2018 and are secured by a $13.5 million letter of
credit and by buildings, land, furniture and fixtures of seven Ohio
residences. The letter of credit expires in 2003. The bonds had a weighted
average interest rate of 3.57% during 1998.
In July 1998, the Company obtained $6.6 million in mortgage financing at an
initial interest rate of 7.58% and secured by a mortgage encumbering each of
three Oregon residences. The interest rate increases 15 basis points per year
through maturity. The mortgage is amortized with monthly payments of $49,000
over 25 years with a balloon payment of $5.3 million due at maturity in August
2008.
In September 1998, the Company obtained $5.9 million in mortgage financing
at an interest rate of 8.79% and secured by one Pennsylvania residence and one
South Carolina residence. The mortgage is amortized with monthly payments of
$43,000 over 25 years with a balloon payment of $5.9 million due at maturity
in September 2008.
69
<PAGE>
In November 1998, the Company obtained $8.7 million in mortgage financing at
a fixed interest rate of 8.65% and secured by a mortgage encumbering each of
three New Jersey residences. The mortgage is amortized with monthly payments
of $71,000 over 25 years with a balloon payment of $7.2 million due at
maturity in December 2008.
As of December 31, 1998, the following annual principal payments are
required (in thousands):
<TABLE>
<S> <C>
1999................................ $ 1,386
2000................................ 1,494
2001................................ 1,600
2002................................ 1,695
2003................................ 1,804
Thereafter.......................... 98,443
--------
Total............................. $106,422
========
</TABLE>
Certain of the Company's leases and loan agreements contain covenants and
cross-default provisions such that a default on one of those instruments could
cause the Company to be in default on one or more other instruments. The
Company was not in compliance with certain lease and loan covenants and has
obtained necessary waivers as a result of such non-compliance.
In addition to the debt agreements with OHCS related to the six owned
residences in Oregon, the Company has entered into Lease Approval Agreements
with OHCS and the lessor of the Oregon Leases, which obligates the Company to
comply with the terms and conditions of the underlying trust deed relating to
the leased buildings. Under the terms of the OHCS debt agreements, the Company
is required to maintain a capital replacement escrow account to cover expected
capital expenditure requirements for the Oregon Leases, which as of December
31, 1997 and 1998 was $136,000 and $286,000, respectively, and is reflected in
other assets in the accompanying financial statements. In addition, for the
six OHCS loans in the Company's name, a contingency escrow account in the
amount of 3% of the original loan balance is required. This account had a
balance of $373,000, $351,000 and $240,000 as of December 31, 1996, 1997 and
1998, respectively, and is reflected in other current assets. Distribution of
any assets or income of any kind by the Company is limited to once per year
after all reserve and loan payments have been made, and only after receipt of
written authorization from OHCS.
As of December 31, 1996, 1997 and 1998, the Company was restricted from
paying dividends on $394,000, $860,000 and $1,659,000, respectively, of income
and retained earnings, in accordance with the terms of the loan agreements and
Lease Approval Agreements with OHCS.
As a further condition of the debt agreements, the Company is required to
comply with the terms of certain regulatory agreements which provide, among
other things, that in order to preserve the federal income tax exempt status
of the bonds, the Company is required to lease at least 20% of the units of
the projects to low or moderate income persons as defined in Section 142(d) of
the Internal Revenue Code. There are additional requirements as to the age and
physical condition of the residents with which the Company must also comply.
Non-compliance with these restrictions may result in an event of default and
cause acceleration of the scheduled repayment.
During the years ended December 31, 1996 and 1997, the Company entered into
nine and seven sale and leaseback agreements, respectively, which are
accounted for as financings due to the Company's continued involvement in the
properties in the form of a fair value purchase option. As such, these
financings are included in long term debt and the related assets remain in the
consolidated balance sheet in property and equipment (See Notes 6 and 20).
During the fourth quarter of 1997, the Company entered into a $50.0 million
floating rate mortgage loan commitment with a commercial lender. During the
first quarter of 1998, the Company entered into a $25.0 million interest rate
swap in order to reduce its exposure with respect to such floating rate loan
commitment. The swap could be settled in cash on or before its effective date
of September 30, 1998. During the period the swap was outstanding, the Company
completed $21.2 million of financing under the mortgage
70
<PAGE>
commitment. The Company elected to terminate the swap before its effective
date and paid $1.9 million in connection with settling the swap, recording
$1.6 million of such payment as deferred financing costs relating to the $21.2
million of financing completed during the term of the swap, and the remaining
$293,000 as other expense during the third quarter of 1998.
9. Convertible Subordinated Debentures
In August 1995, the Company completed the offering of $20.0 million of 7%
Debentures. The 7% Debentures were convertible at any time at or prior to
maturity, unless previously redeemed, at a conversion price of $7.50 per
common share.
In September 1996, $6.1 million of the 7% Debentures were converted into
811,333 shares of the Company's common stock which resulted in $13.9 million
of 7% Debentures remaining outstanding. The Company incurred a charge of
$426,000 in 1996 in connection with the conversion, which was included in
other expense. In August 1998, the Company called for redemption of all of the
remaining $13.9 million of the 7% Debentures. All of the 7% Debentures were
converted into shares of the Company's Common Stock, resulting in the issuance
of 1,855,334 additional shares of common stock.
In October 1997, the Company completed the offering of $86.3 million of 6%
Debentures. The 6% Debentures are convertible at any time at or prior to
maturity, unless previously redeemed, at a conversion price of $22.57 per
common share, which equates to an aggregate of 3,821,444 shares of the
Company's common stock and bear interest payable semi-annually on May 1 and
November 1 of each year, commencing May 1, 1998. The 6% Debentures are
unsecured and subordinated to all senior indebtedness of the Company. The 6%
Debentures are subject to redemption, as a whole or in part, at any time from
time to time commencing on or after November 15, 2000 at the Company's option
at a redemption price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the redemption date.
In April 1998, the Company completed the private placement of $75.0 million
of 5.625% Debentures. The 5.625% Debentures are convertible at any time at or
prior to maturity, unless previously redeemed, at a conversion price of
$26.184 per common share, which equates to an aggregate of approximately
2,864,345 shares of the Company's common stock and bear interest payable
semiannually on May 1 and November 1 of each year, commencing November 1,
1998. The 5.625% Debentures are unsecured and subordinated to all senior
indebtedness of the Company. The 5.625% Debentures are subject to redemption,
as a whole or in part, at any time from time to time on or after May 15, 2001
at the Company's option at a redemption price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest to the redemption date.
10. Stock Repurchase
During the year ended December 31, 1998, the Company purchased approximately
529,000 shares of its common stock for a total purchase price of approximately
$7.1 million in accordance with a stock repurchase plan initiated in May 1998.
The Board of Directors terminated the stock repurchase plan in November 1998.
11. Write-off of Impaired Assets and Related Expenses
In June 1998, the Company announced a plan to exit all home health business
operations being conducted by Pacesetter. The decision to exit Pacesetter's
operations was a result of certain laws becoming effective that adversely
affect the prospective payment system for home health care services. Based on
this decision, the Company recorded a $8.9 million charge to earnings during
the second quarter 1998. Such charge consisted of (i) a $7.5 million write-off
of all unamortized goodwill associated with Pacesetter and (ii) a $1.4 million
provision for estimated exit costs expected to be incurred during the phase
out period. Of this $1.4 million provision, $560,000 related to severance,
salaries and benefits incremental to the shut down effort; $720,000 related to
leases, equipment and related costs of closing offices; and $150,000 related
to travel and moving costs. During the fourth quarter 1998, the $1.4 million
provision for exit costs was reduced by $400,000 to $1.0 million as a result
of a change in the estimate for such exit costs. As of December 31, 1998,
approximately $760,000 of
71
<PAGE>
this reserve had been utilized. The remaining reserve of approximately
$200,000 consists primarily of lease termination costs and severance costs for
one employee. Expenses related to Pacesetter's final operations of $430,000
for the six month period of June 1998 through December 1998 have been expensed
as incurred. The Company expects the phase out period to conclude during 1999.
12. Termination of Merger Agreement
On February 1, 1999, the Company agreed with American Retirement Corporation
("ARC") to terminate its previously announced merger agreement, which had been
entered into during November 1998. The Company recorded a charge of
approximately $1.1 million in the fourth quarter of 1998 for costs relating to
the terminated merger agreement (See Note 20).
13. Cumulative Effect of Change in Accounting Principle
Effective January 1, 1998, the Company adopted SOP 98-5, which requires that
pre-opening costs be expensed as incurred. In connection with such adoption,
$1.5 million of previously capitalized, unamortized pre-opening costs were
written off as of January 1, 1998 and presented in the accompanying 1998
statement of operations for fiscal year 1998 as the cumulative effect of a
change in accounting principle.
14. Income Taxes
The provision for income taxes differs from the amount of loss determined by
applying the applicable U.S. statutory federal rate to pretax loss as a result
of the following items at December 31:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statutory federal tax
rate................... (34.0)% (34.0)% (34.0)%
Non deductible stock
issuance costs......... 8.4 % -- % -- %
Non deductible
goodwill............... -- % -- % 12.4 %
Losses for which no
benefit is provided.... 25.5 % 34.6 % 21.5 %
Other................... 0.1 % (0.6)% 0.1 %
----- ----- -----
Effective tax rate...... -- % -- % -- %
===== ===== =====
</TABLE>
An analysis of the significant components of deferred tax assets and
liabilities, consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward...................... $ 4,408 $ 6,635
Deferred gain on sale and leaseback transactions..... 636 631
Debt financing recorded for books.................... 11,890 12,174
Other................................................ 1,332 6,837
Valuation allowance.................................... (2,848) (8,937)
Deferred tax liabilities:
Property and equipment, primarily due to
depreciation........................................ (3,014) (5,722)
Debt financing capitalized asset basis............... (11,363) (11,364)
Deferred operating costs............................. (702) --
Prepaid expenses..................................... (339) (254)
-------- --------
Net deferred tax asset (liability)................... $ -- $ --
======== ========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997 and
1998 was $2.9 million and $8.9 million, respectively. The increase in the
total valuation allowance for the years ended December 31, 1996, 1997 and 1998
was $617,000, $2.0 million and $6.1 million, respectively.
72
<PAGE>
As a result of the acquisitions discussed in Note 2, the Company acquired
net operating loss carryforwards for federal and state tax purposes
approximating $950,000 which are available to offset future taxable income, if
any, through 2011. The future use of these net operating loss carryforwards is
subject to certain limitations under the Internal Revenue Code and therefore,
the Company has established a valuation allowance of $358,000 to offset the
deferred tax asset related to the loss carryforwards. Additionally, any tax
benefit realized from the use of approximately $300,000 of the acquired
operating loss carryforwards will be applied to reduce goodwill.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $17.6 million available to reduce future taxable income. The
carryforwards expire at various dates beginning in the year 2009 through the
year 2019. Utilization of the carryforwards is subject to certain limitations
due to the change in ownership of the Company that occurred in connection with
the public stock offering during October 1997. As a result of the public stock
offering, utilization of approximately $9.5 million of the approximately $17.6
million of available net operating loss carryforwards is limited to
approximately $8.1 million per year.
The portion of the valuation allowance for deferred tax assets for which
subsequently recognized tax benefits will be applied directly to contributed
capital is $1.3 million as of December 31, 1998. This amount is attributable
to differences between financial and tax reporting of employee stock option
transactions.
15. Related Party Transactions
The Company leases six residences from Assisted Living Facilities, Inc. The
spouse of the Company's president owns a 25% interest in Assisted Living
Facilities, Inc. During the years ended December 31, 1996, 1997 and 1998, the
Company paid such entity aggregate lease deposits of $35,700, $31,500 and $0,
respectively, and aggregate rental payments of $912,000, $1.1 million and $1.2
million, respectively. In addition, in 1997 the Company leased one residence
from OHP in which the president's spouse owns an interest. The Company paid
OHP $50,000 in lease deposits in 1997 and $278,000 and $195,000 in rent
payments in 1997 and 1998, respectively. The lease with OHP was terminated in
September 1998, effective October 1, 1998.
In 1997, the Company contracted with Supportive Housing Services, Inc.
("SHS") to provide services to the Company for market feasibility analysis,
site pre-acquisition services and construction management oversight in
conjunction with the Company's development activities. SHS is owned 75% by the
president's spouse. The Company paid $480,000 and $3.8 million during the
years ended December 31, 1997 and 1998, respectively, for such development
services. The Company capitalized such payments as construction in process.
In addition, the Company and SHS entered into a consulting agreement whereby
the Company agreed to provide SHS with consulting services in the assisted
living industry, including providing data on the Company's facility
prototypes, facilitating the introduction to other potential customers and
providing market analysis on the assisted living industry. The Company
received fees for such services from SHS of $195,000 and $906,000 during the
years ended December 31, 1997 and 1998, respectively, and has recorded such
fees as a reduction of construction in process.
Commencing in 1995, the Company contracted with Concepts in Community
Living, Inc. ("CCL"), directly and through its developers, to perform
feasibility studies and pre-development consulting services for the developers
on the Company's behalf. CCL is owned 100% by the President's spouse. For the
years ended December 31, 1996, 1997 and 1998, the Company paid CCL for these
services fees of $623,000, $568,000 and $566,000, respectively, which were
capitalized in construction in process on the consolidated balance sheets.
The Company acquired HCI and Carriage House in October of 1997 (See Note 2).
Several employees of the Company, including members of the Board of Directors,
owned collectively 40.0% of the outstanding common stock in HCI and
approximately 23.0% of the outstanding common stock of Carriage House. In
addition, LTC held substantial interests in HCI and Carriage House prior to
their acquisition by the Company (See Note 16). Pursuant to the HCI
acquisition agreement, during 1998, Mr. McBride and Dr. Wilson's spouse
received "earnout" payments from the Company of $174,000 and $70,000,
respectively, related to HCI sites the Company elected to develop.
73
<PAGE>
During 1997, the Company entered into joint venture agreements with a joint
venture partner to operate certain new assisted living residences which
commenced operations during the second, third and fourth quarters of 1997 (See
Notes 2 and 20). The Company, Mr. McBride, the Company's Chairman and Chief
Executive Officer, Dr. Wilson, the Company's President and Chief Operating
Officer, and Dr. Wilson's spouse each acquired interests in the joint venture
partner. During 1998, Mr. McBride owned a $400,000 or 16.6% interest, and
Dr. Wilson's spouse owned a $200,000 or 8.3% interest, in the joint venture.
During 1998 Mr. Razook, one of the Company's directors, was Managing
Director and Head of the Health Care Industry Group of Schroder & Co. Inc.
("Schroders") an investment banking firm. During 1998 Schroders served as the
initial purchaser of the Company's $75.0 million offering of 5.625% Debentures
for which Schroders received a customary commission. Also during 1998,
Schroders provided financial advisory services and delivered a fairness
opinion in connection with a proposed merger for which the Company paid
Schroders a fee of $200,000.
16. Transactions with LTC Properties, Inc.
During the period November 1994 to September 1997, two members of the
Company's Board of Directors served as executive officers and directors of
LTC. In September 1997, Mr. Dimitriadis resigned from the Company's Board of
Directors and Mr. McBride resigned as an executive officer and director of
LTC. The Company engaged in the following transactions with LTC since January
1, 1995.
<TABLE>
<CAPTION>
Number of Sale
and Leaseback
Residences
Accounted for as Sales price
Operating Leases Number of units (in millions)
---------------- --------------- -------------
<S> <C> <C> <C>
Leases at December 31,
1994....................... -- -- $ --
Leases entered into during
1995....................... 2 60 3.2
---- ------- -------
Leases at December 31,
1995....................... 2 60 3.2
Leases entered into during
1996....................... 16 591 34.1
Residences purchased during
1996....................... (4) (146) (7.6)
---- ------- -------
Leases at December 31,
1996....................... 14 505 29.7
Leases entered into during
1997....................... 21 832 52.7
---- ------- -------
Leases at December 31,
1997....................... 35 1,337 82.4
Leases entered into during
1998....................... 2 89 5.0
---- ------- -------
Leases at December 31,
1998....................... 37 1,426 $ 87.4
==== ======= =======
</TABLE>
The Company incurred annual lease expense of $2.1 million, $4.3 million and
$9.1 million for the years ended December 31, 1996, 1997 and 1998,
respectively, pursuant to leases with LTC (See Notes 5 and 20). The Company
recognized losses of $656,000, $1.1 million and $504,000 on these sale and
leaseback transactions for the years ended December 31, 1996, 1997 and 1998,
respectively. For the same periods, the Company deferred gains of $384,000,
$951,000 and $55,000, respectively.
During 1995 the Company sold and leased back from LTC two residences for
$3.2 million with annual lease payments of $380,000. During 1996 the Company
sold and leased back 16 residences for $34.1 million with annual lease
payments of $3.3 million. Subsequently, the Company repurchased four of the 16
residences at a cost of $7.6 million plus a $214,000 administrative fee.
During 1997, the Company sold and leased back 21 residences for $52.7 million
with annual rent payments of $5.3 million. During 1998, the Company sold and
leased back two residences for $5.0 million with annual rent payments of
$447,000. As of December 31, 1998 the Company had sold and leased back 37
residences for $87.4 million with annual lease payments of $8.8 million.
74
<PAGE>
During 1996 and 1997, the Company received from LTC $18.9 million and $43.2
million, respectively, of mortgage financing on eight and 19 residences,
respectively. As of December 31, 1997, the Company had repaid all of such
mortgage financing, except for one mortgage ($2.2 million) which was converted
to a sale and leaseback financing during the year ended December 31, 1998.
Interest was paid on a monthly basis ranging from 9.9% to 10.4% per annum. The
Company incurred $158,000, $5.4 million and $180,000 in interest expense
related to these mortgage financings during the years ended 1996, 1997 and
1998, respectively.
The Company acquired Carriage House in October 1997. LTC owned 9.9% of the
outstanding common stock of Carriage House (Notes 2 and 15). As a result, the
Company became the tenant on four assisted living residences leased by
Carriage House from LTC. These four leases are included in the table above and
the lease table in Note 5.
The Company acquired HCI in October of 1997. LTC owned 41.2% of the
outstanding common stock in HCI (See Notes 2 and 15).
During 1997, the Company contracted with LTC Development Services, Inc. to
provide services to the Company for market feasibility analysis, pre-
acquisition services and construction management oversight on several of the
residences under development. LTC Development Services, Inc. is owned 100% by
LTC. The Company paid approximately $415,000 for these services during 1997
and capitalized such fees and recorded them on the consolidated balance sheet
as construction in process. During 1998 LTC Development Services, Inc. did not
provide such services, and did not receive any such fees.
During the year ended December 31, 1996 the Company entered into a $50.2
million sale and leaseback financing commitment with LTC. This commitment was
renegotiated in November 1997 committing the Company to complete sale and
leaseback transactions with LTC with respect to nine residences during 1998.
In November 1997 the Company paid LTC $614,000 in connection with such
commitment and recorded such costs as deferred financing costs. In addition,
the Company entered into a commitment with LTC in October 1997 to complete
$50.0 million of sale and leaseback transactions by December 2000. Pursuant to
this commitment, the Company was obligated to pay a 2.0% fee on any unused
portion of the commitment as of the expiration date (or up to a maximum of
$1.0 million if none of the commitment were utilized). As a result of the
Carriage House acquisition in October 1997 the Company also became obligated
to enter into sale and leaseback arrangements with LTC by September 1998 with
respect to six Carriage House residences which were under development or
construction. In addition, HCI entered into a commitment with LTC in September
1997, which was assumed by the Company as part of the HCI acquisition, to
complete $50.0 million of sale and leaseback transactions by December 1999.
Pursuant to this commitment, the Company was obligated to pay a 2.0% fee on
any unused portion of the commitment as of the expiration date (or up to a
maximum of $1.0 million if none of the commitment were utilized).
During the second quarter of 1998, the Company determined that it would not
enter into sale and leaseback arrangements with LTC to the full extent of
certain of the sale and leaseback commitments, and recorded a $1.2 million
liability for expenses expected to be incurred in connection with this
determination. In December 1998, the Company and LTC terminated the
commitments referred to above at no cost to the Company, other than
approximately $200,000 of professional fees. As such, the Company reversed
$1.0 million of the previously recorded liability during the fourth quarter of
1998.
In December 1998, the Company determined that it would not utilize an
additional commitment to complete sale and leaseback transactions with LTC
with respect to nine residences which it had entered into during November
1997. As such, the Company wrote-off $614,000 of previously capitalized
deferred financing costs relating to such commitment.
17. Stock Option Plan and Restricted Stock
The Company has two Stock Option Plans (the "Plans") which provide for the
issuance of incentive and non-qualified stock options and restricted stock.
The Plans are administered by the Compensation Committee of the Board of
Directors which set the terms and provisions of options granted under the
Plans. Incentive options
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<PAGE>
may be granted only to officers or other full-time employees of the Company,
while non-qualified options may be granted to directors, officers or other
employees of the Company, or consultants who provide services to the Company.
The Amended and Restated 1994 Employee Stock Option Plan combines an
incentive and nonqualified stock option plan, a stock appreciation rights
("SAR") plan and a stock award plan (including restricted stock). The 1994
Plan is a long-term incentive compensation plan and is designed to provide a
competitive and balanced incentive and reward program for participants.
Under the Amended and Restated 1994 Stock Option Plan (the "1994 Plan"), the
Company may grant options or award restricted stock to its employees,
consultants and other key persons for up to 2,208,000 shares of common stock.
The exercise price of each option equals the market price of the Company's
stock on the date of grant. Each option shall expire on the date specified in
the option agreement, but not later than the tenth anniversary of the date on
which the option was granted. Options typically vest three years from the date
of issuance and typically are exercisable within seven to nine years from the
date of vesting. Each option is exercisable in equal installments as
designated by the Compensation Committee or the Board at the option price
designated by the Compensation Committee; however, incentive options cannot be
less than the fair market value of the common stock on the date of grant. All
options are nontransferable and subject to adjustment by the Compensation
Committee upon changes in the Company's capitalization. The Board of
Directors, at its option, may discontinue or amend the 1994 Plan at any time.
During the year ended December 31, 1998, the Company's board of directors
adopted The Non-Executive Employee Equity Participation Plan of Assisted
Living Concepts, Inc. (the "Non-Officer Plan") pursuant to which up to 500,000
shares of Common Stock are issuable pursuant to non-qualified options granted
under the Non-Officer Plan. Officers, directors and significant employees of
the Company are not eligible to participate in the Non-Officer Plan; however,
consultants and non-executives are eligible.
In June 1998 the Company repriced 43,750 of options for eligible
participants to $16.75 per share. The Company recorded no compensation expense
as a result of the repricing.
The per share weighted-average fair value of each option grant is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996, 1997 and 1998,
respectively: dividend yield of zero percent, expected volatility of 36.67%,
39.81% and 45.12%, respectively, risk-free interest rate has been fixed at
6.69%, 5.66% and 5.56%, respectively based on the 10-year treasury rate and
expected life of 10 years.
The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS 123, the
Company's net income would have been reduced to the pro forma amounts
indicated below: (in thousands except per share data)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net loss as reported........................... $(1,915) $(2,479) $(20,745)
Net loss pro forma............................. (2,507) (3,928) (23,990)
Net loss per basic and diluted common share as
reported...................................... $ (0.23) $ (0.21) $ (1.27)
Pro forma net loss per basic and diluted common
share as reported............................. $ (0.30) $ (0.33) $ (1.47)
</TABLE>
Pro forma net loss reflects only options granted in 1995 through 1998.
Therefore, the full impact of calculating compensation costs for stock options
under SFAS 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the option's vesting period
of three years and compensation cost for options granted prior to January 1,
1995 is not considered. The resulting pro forma compensation costs may not be
representative of that expected in the future years.
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<PAGE>
A summary of the status of the Company's stock options as of December 31,
1996, 1997 and 1998 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options at beginning of
the year............... 806,068 $5.43 1,105,202 $ 6.15 1,629,967 $10.82
Granted................. 563,400 8.22 940,350 15.08 674,132 15.76
Exercised............... (28,170) 4.69 (139,770) 6.05 (121,606) 6.00
Canceled................ (236,096) 8.79 (275,815) 9.53 (315,324) 15.82
--------- ----- --------- ------ --------- ------
Options at end of the
year................... 1,105,202 $6.15 1,629,967 $10.82 1,867,169 $12.07
========= ===== ========= ====== ========= ======
Options exercisable at
end of year............ 381,988 567,756 833,465
Weighted-average fair
value of options
granted during the
year................... $ 4.99 $ 9.24 $ 10.22
</TABLE>
The following table summarized information about fixed stock options
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable at Exercise Price
---------------- ----------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 4.63 to 5.75 268,701 5.03 $ 4.63 268,701 $4.63
$ 5.81 to 7.19 262,436 6.66 6.34 257,769 6.33
$ 8.12 to 9.00 157,376 7.51 7.44 97,295 7.42
$ 9.19 to 11.00 60,752 8.53 10.40 16,329 10.37
$11.31 to 14.13 92,416 9.58 13.03 5,167 12.97
$14.16 to 15.50 285,284 9.69 14.52 8,669 14.84
$15.68 to 17.07 631,369 9.00 16.55 173,190 16.50
$17.12 to 18.63 60,334 9.14 17.74 4,842 18.02
$18.87 to 20.50 38,751 9.04 19.50 1,503 19.89
$20.75 to 22.38 9,750 9.24 21.12 -- --
---------------- --------- ---- ------ ------- -----
$ 4.63 to $22.38 1,867,169 8.10 $12.07 833,465 $8.32
================ ========= ==== ====== ======= =====
</TABLE>
In October 1997, the Company awarded 250,000 shares of non-voting restricted
stock to two key executive officers. At the time of the grant the Company's
common stock had a fair market value of $17.00 per share. No cash
consideration was paid for such shares by the recipients. Such shares vest in
three equal annual installments, commencing on the fourth anniversary of
grant. The Company has recorded the restricted stock as of the date of the
grant as unearned compensation expense of $4.3 million. This unearned
compensation expense has been reflected as a separate component of
shareholders' equity to be amortized as compensation expense over the seven
year vesting period. The Company recorded $150,000 and $608,000 of
compensation expense with respect to such award for the years ended December
31, 1997 and 1998, respectively. The Company recorded the issuance of the
restricted stock in 1998 upon issuance (See Note 20).
18. Non-cash Investing and Financing Activities
The following is a summary of non-cash investing and financing activities
related to acquisitions for the year ended December 31, 1997 (in thousands):
In October of 1997, the Company acquired all of the outstanding capital
stock of Carriage House as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........................................ $8,279
Issuance of 337,460 shares of the Company's common stock............. 5,076
------
Liabilities assumed.................................................. $3,203
======
</TABLE>
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<PAGE>
In October of 1997, the Company acquired all of the outstanding capital
stock of HCI as follows:
<TABLE>
<S> <C>
Fair value of assets acquired....................................... $11,877
Cash paid........................................................... 5,262
-------
Liabilities assumed................................................. $ 6,615
=======
</TABLE>
19. Legal Proceedings
Shareholders Litigation
Since February 1, 1999, 12 separate complaints, which have since been
consolidated into one action, have been filed against the Company and certain
of its officers and directors in the United States District Court for the
District of Oregon. On July 23, 1999, a consolidated complaint was filed in
connection with this litigation. The consolidated complaint purports to be
brought on behalf of a class of purchasers of the Company's common stock from
July 28, 1997 through March 31, 1999 and on behalf of a class of purchasers of
the Company's 6.0% Debentures and 5.625% Debentures from the date of issuance
through March 31, 1999. The consolidated complaint alleges violations of the
federal securities laws and seeks unspecified damages. It also names as
additional defendants certain of the Company's directors that were not named
previously, as well as the Company's independent auditors (solely in
connection with the Company's 1998 offering of 5.625% Debentures) and the
underwriters in connection with the Company's 1997 offering of 6.0%
Debentures. The Company cannot predict the outcome of the any of the foregoing
lawsuits and currently is unable to evaluate the likelihood of its success or
the range of possible loss.
Other Litigation
In addition to the matter referred to in the immediately preceding
paragraph, the Company is involved in various lawsuits and claims arising in
the normal course of business. In the opinion of Management, although the
outcomes of these other suits and claims are uncertain, in the aggregate such
other suits and claims should not have a material adverse effect on the
Company's financial condition, results of operations, cash flow or liquidity.
20. Subsequent Events
Restatement of Historical Financial Statements
On February 1, 1999, the Company announced that after consultation with its
independent auditors the Company would restate its financial statements for
the fiscal quarter ended June 30, 1997, the fiscal quarter ended September 30,
1997, the fiscal year ended December 31, 1997, the fiscal quarter ended March
31, 1998, the fiscal quarter ended June 30, 1998 and the fiscal quarter ended
September 30, 1998. On March 31, 1999, the Company announced that the
restatement would be more extensive than the Company had previously believed,
and might include periods prior to the second quarter of 1997, including the
fiscal year ended December 31, 1996. After further consultation with its
independent auditors, the Company determined to restate its consolidated
financial statements for the fiscal year ended December 31, 1996, the fiscal
year ended December 31, 1997, and the first three fiscal quarters of the
fiscal year ended December 31, 1998.
The restatement reduced the net income for the fiscal years ended December
31, 1996 and 1997 and for the nine months ended September 30, 1998 by $2.1
million, $6.7 million and $11.0 million, respectively. The cumulative effect
of the restatement reduced shareholders' equity by $19.7 million through
September 30, 1998. As a result of the restatement, the Company reported net
losses of $1.9 million, $2.5 million and $13.3 million for the fiscal years
1996 and 1997 and the nine months ended September 30, 1998 respectively,
compared to previously reported net income of $149,000 and $4.2 million, and
net loss of $2.4 million, respectively. The
78
<PAGE>
Company reported net loss per diluted share of $0.23, $0.21 and $0.84 for the
fiscal years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998, respectively, compared to previously reported net income
per diluted share of $0.03 and $0.34 and net loss per diluted share of $0.14,
respectively. After the restatement, the Company's cash position as of
December 31, 1996 and 1997 and as of September 30, 1998 was $2.1 million,
$63.3 million and $79.6 million, respectively, as compared to $2.1 million,
$63.4 million and $79.8 million respectively, as previously reported. As a
result of the restatement, the Company's working capital position as of
December 31, 1996 and 1997 and as of September 30, 1998 was negative $27.1
million, positive $40.1 million and positive $63.0 million, respectively,
compared to previously reported working capital of negative $26.4 million,
positive $41.0 million and positive $64.1 million, respectively.
The restatement resulted primarily from: (i) the earlier recognition of
certain expenses which were previously capitalized in association with the
Company's development and financing activities; (ii) a modification in how the
Company accounted for certain lease arrangements; (iii) a modification in how
the Company accounted for certain of its acquisitions and its joint venture
arrangements; (iv) the capitalization of fees received by the Company
previously recognized as either a reduction of expenses or as other income;
(v) the elimination of an impairment write-down that the Company had
previously recorded on three of its residences; (vi) elimination of certain
accrued expenses previously recorded pursuant to a change in accounting
principle; and (vii) the increase in goodwill written off in the second
quarter of 1998 relating to exiting the Company's home health operation.
Termination of Merger Agreement
On February 1, 1999, the Company and ARC mutually agreed to terminate their
previously announced merger agreement, which had been entered into during
November 1998. The Company recorded a charge of approximately $1.1 million in
the fourth quarter 1998, and $200,000 in the first quarter of 1999, for
expenses relating to the terminated merger agreement.
Securityholder Litigation
Since February 1, 1999 12 separate complaints, which have since been
consolidated into one action, have been filed against the Company and certain
of its officers and directors in the United States District Court for the
District of Oregon. On July 23, 1999, a consolidated complaint was filed in
connection with this litigation. The consolidated complaint purports to be
brought on behalf of a class of purchasers of the Company's common stock from
July 28, 1997 through March 31, 1999 and on behalf of a class of purchasers of
the Company's 6.0% Debentures and 5.625% Debentures from the date of issuance
through March 31, 1999. The consolidated complaint alleges violations of the
federal securities laws and seeks unspecified damages. It also names as
additional defendants certain of the Company's directors that were not named
previously, as well as the Company's independent auditors (solely in
connection with the Company's 1998 offering of 5.625% Debentures) and the
underwriters in connection with the Company's 1997 offering of 6.0%
Debentures.
Termination of Joint Venture Agreements
On February 10, 1999, the Company announced with respect to certain joint
venture agreements that it had negotiated with the joint venture partner to
purchase, for approximately $3.8 million, all of the joint venture partner's
interests in the operation of the remaining 17 residences subject to the joint
venture agreements (See Note 2). As a result of such purchases, Mr. McBride
and Dr. Wilson's spouse received distributions of approximately $537,000 and
$269,000, respectively in 1999. The Company has no current intention of
entering into similar arrangements in the future.
Management Changes
On March 16, 1999, the Company's Board of Directors announced the
appointment of Dr. Keren Brown Wilson, a co-founder of the Company, as
President and Chief Executive Officer. The board also announced the
79
<PAGE>
appointment of Leslie J. Mahon as Vice President and Chief Operating Officer
and James W. Cruckshank as Vice President and Chief Financial Officer.
Pursuant to an agreement (the "Consulting Agreement") between Mr. McBride and
the Company, Mr. McBride agreed to provide consulting services to the Company
and to resign from his position as the Company's Chief Executive Officer.
The Consulting Agreement provided for the payment to Mr. McBride a lump sum
cash termination payment of $490,000, which was reduced to $390,000 to reflect
repayment of a $100,000 bonus paid to Mr. McBride in 1998. In addition, the
Company agreed to pay Mr. McBride a lump sum cash payment of $750,000 in
consideration for Mr. McBride's agreement to forfeit his interest in 200,000
shares of restricted stock held by him and to terminate the agreement related
thereto. In addition, pursuant to the Consulting Agreement, Mr. McBride agreed
to forfeit a $4.0 million termination payment he would be entitled to receive
under certain circumstances, including upon a change of control. The Company
will record a charge of approximately $525,000 to corporate, general and
administrative expense in the first quarter of 1999 in connection with such
payments.
In March 1999, the Company entered into an amendment with Dr. Wilson to her
employment agreement to provide that the Company will employ Dr. Wilson as
President and Chief Executive Officer. In addition, the Company agreed to pay
Dr. Wilson a lump sum cash payment of $187,500 (which was reduced to $87,000
to reflect repayment of a $100,000 bonus paid in 1998) in consideration for
Dr. Wilson's agreement to forfeit her interest in 50,000 shares of restricted
stock held by her and to terminate the restricted stock agreement related to
those shares. The Company made the cash payment and cancelled the restricted
stock in June 1999.
Write-off Related to Development Activity
As a result of a continued reduction in the Company's new residence
development activities, the Company will incur write-offs of $1.3 million and
$3.5 million relating to previously capitalized development costs during the
first quarter and second quarter of 1999 respectively.
Agreement with CCL
In June 1999 the Company entered into a new agreement with CCL pursuant to
which CCL will provide market research, demographic review and competitor
analysis in many of the Company's current and potential markets. The Company
will pay CCL a retainer of $10,000 per month, plus fees in excess of the
retainer, if any, in connection with specific projects that the Company
authorizes under the agreement.
Amendment to Certain Loan and Lease Agreements
During the third quarter of 1999, the Company amended certain loan
agreements with one of its creditors. Pursuant to the amendment, the Company
agreed to provide $8.3 million of additional cash collateral in exchange for
the forbearance or waiver of certain possible defaults, including an amendment
to certain financial covenants. The amendment also provides for the release of
the additional collateral upon the achievement of specified performance
targets, provided that the Company is in compliance with the other terms of
the loan agreements.
During 1996 and 1997 the Company entered into 16 sale and leaseback
transactions which contained purchase options entitling the Company to
purchase the properties at fair market value at the end of initial lease terms
ranging from 14 to 15 years. As a result of the purchase options the Company
accounted for these sale and leaseback transactions using the financing method
in SFAS No. 98, Accounting for Leases. In March 1999, the Company amended
these leases. The amendments eliminated the Company's purchase option;
therefore, the leases were reclassified as operating leases at that date. As a
result of the amendments, the Company recorded (i) the disposal of net
property and equipment in the amount of $30.0 million, (ii) the extinguishment
of long-term debt in the amount of $31.5 million and (iii) a deferred gain of
$1.5 million. The deferred gain will be included in other liabilities and
amortized over the remaining initial lease term as an offset to future rent
expense.
80
<PAGE>
In June 1999, the Company amended all of its 37 leases with LTC. These
amendments included provisions to restructure future minimum annual rent
increases, or "rent escalators," that were not deemed to be contingent rents.
Because of the rent escalators, prior to the amendments, the Company accounted
for rent expense related to such leases on a straight-line basis. From the
date of the amendment forward, the Company will account for the amended leases
on a contractual cash payment basis and amortize the deferred rent balance at
the date of the amendment over the remaining initial term of the lease. Those
amendments also redefined the lease renewal option with respect to certain
leases and provided the lessor with the option to declare an event of default
in the event of a change of control under certain circumstances. In addition,
the amendments also provide the Company with the ability, subject to certain
conditions, to sublease or assign its leases with respect to two Washington
residences.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) the Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ASSISTED LIVING CONCEPTS INC.
Registrant
September 23, 1999 /s/ James W. Cruckshank
By: _________________________________
Name: James W. Cruckshank
Title: Vice President and Chief
Financial Officer
September 23, 1999 /s/ M. Catherine Maloney
By: _________________________________
Name: M. Catherine Maloney
Title: Vice President, Controller
and Chief Accounting Officer
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<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned officers and directors of Assisted Living Concepts,
Inc. do hereby constitute and appoint Keren Brown Wilson or James W.
Cruckshank, and each of them, the lawful attorney and agent or attorneys and
agents with power and authority to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, or either of
them, determine may be necessary or advisable or required to enable to comply
with the Securities and Exchange Act of 1934, as amended, and any rules or
regulations or requirements of the Securities and Exchange Commission in
connection with this Annual Report on Form 10-K. Without limiting the
generality of the foregoing power and authority, the powers granted include
the power and authority to sign the names of the undersigned officers and
directors in the capacities indicated below to this Annual Report on Form 10-K
or amendment or supplements thereto, and each of the undersigned hereby
ratifies and confirms all that said attorneys and agent, or either of them,
shall do or cause to be done by virtue hereof. This Power of Attorney may be
signed in several counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the dated indicated opposite his or her name.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Keren Brown Wilson Vice Chairman, President and Chief September 23, 1999
------------------------
Keren Brown Wilson Executive Officer
/s/ James W. Cruckshank Vice President & Chief September 23, 1999
------------------------
James W. Cruckshank Financial Officer
/s/ M. Catherine Maloney Vice President/Controller & September 23, 1999
------------------------
M. Catherine Maloney Chief Accounting Officer
/s/ William McBride III Director September 23, 1999
------------------------
William McBride III
/s/ Gloria J. Cavanaugh Director September 23, 1999
------------------------
Gloria J. Cavanaugh
/s/ Richard C. Ladd Chairman of the Board & September 23, 1999
------------------------
Richard C. Ladd Director
/s/ Bradley G. Razook Director September 23, 1999
------------------------
Bradley G. Razook
/s/ Jill M. Krueger Director September 23, 1999
------------------------
Jill M. Krueger
</TABLE>
83
<PAGE>
ASSISTED LIVING CONCEPTS, INC. AND SUBSIDIARIES
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.1 Articles of Incorporation of the Company (Incorporated by reference to
the same titled exhibit to the Company's Registration Statement on
Form S-1, File No. 33-83938).
3.2 By laws of the Company (Incorporated by reference to the same titled
exhibit to the Company's Registration Statement on Form S-1, File No.
33-83938).
4.1 Indenture, dated as of October 2, 1997 by and between the Company and
Harris Trust and Savings Bank, as Trustee providing for Issuance of
Securities in Series. (Incorporated by reference to Exhibit 4.1 to
the Company's Report on Form 8-K, dated October 20, 1997, File No. 1-
13498).
4.2 Rights Agreement dated as of June 12, 1997, between Assisted Living
Concepts, Inc. and American Stock Transfer & Trust Company, as Rights
Agent, which includes the form of Certificate of Resolution
Establishing Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock of Assisted Living Concepts Inc. as
Exhibit A, the form of Right Certificate as Exhibit B and the Summary
of Rights to Purchase Preferred Shares as Exhibit C (Incorporated by
reference to the same titled exhibit to the Company's Report on Form
8-K, dated July 24, 1997, File No. 1-83938).
4.3 Registration Rights Agreement, dated as of October 31, 1997, by and
between the Company and Carriage House Assisted Living, Inc.
(Incorporated by reference to the same titled exhibit to the
Company's Registration Statement on Form S-3, dated December 31,
1997, Registration No. 333-43521).
4.4 Indenture, dated as of April 13, 1998, by and between the Company and
Harris Trust and Savings Bank, as Trustee (Incorporated by reference
to the same titled exhibit to the Company's Registration Statement on
Form S-3, dated May 11, 1998, Registration No. 333-52297).
4.5 Registration Rights Agreement, dated as of April 7, 1998, by and
between the Company and Schroder & Co., Inc. (Incorporated by
reference to the same titled exhibit to the Company's Registration
Statement on Form S-3, dated May 11, 1998, Registration No. 333-
52297).
4.6 Form of Debenture (Incorporated by reference to the same titled
exhibit to the Company's Registration Statement on Form S-3, dated
May 11, 1998, Registration No. 333-52297).
10.1 Indemnification Agreement dated October 3, 1997 by and between the
Company and William McBride III. (Incorporated by reference to the
same titled exhibit to the Company's Report on Form 8-K, dated
October 20, 1997, File No. 1-13498).
10.2 Indemnification Agreement dated October 3, 1997 by and between the
Company and Keren Brown Wilson. (Incorporated by reference to the
same titled exhibit to the Company's Report on Form 8-K, dated
October 20, 1997, File No. 1-13498).
10.3 Amended and Restated 1994 Stock Option Plan of the Company
(Incorporated by reference to the same titled exhibit to the
Company's Report on Form 8-K, dated October 20, 1997, File
No. 1-13498).
10.4 Non-Executive Employee Equity Participation Plan of the Company
(Incorporated by reference to the same titled exhibit to the
Company's Registration Statement on Form S-8, dated July 13, 1998,
Registration No. 333-58953).
10.5 Deferred Compensation Plan of the Company.
10.6 Consulting Agreement, dated as of March 15, 1999, by and between the
Company and William McBride III.
10.7 Amended and Restated Employment Agreement, dated October 1999, as
amended as of March 15, 1999, by and between the Company and Keren
Brown Wilson.
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.8 Employment Agreement, dated as of December 31, 1997, by and between
the Company and Sandra Campbell.
10.9 Employment Agreement, dated as of February 3, 1998, by and between the
Company and Nancy Gorshe.
10.10 Employment Agreement, dated as of March 15, 1999, by and between the
Company and James Cruckshank.
10.11 Employment Agreement, dated as of March 15, 1999, by and between the
Company and Leslie Mahon.
10.12 Merger Agreement dated as of October 4, 1997 by and between the
Company and Home and Community Care, Inc. (Incorporated by reference
to the same titled exhibit to the Company's Report on Form 8-K, dated
October 20, 1997, File No. 1-13498).
10.13 Joint Venture Agreement dated as of April 1, 1997 by and between the
Company and Health Equity Investors, LLC. (Incorporated by reference
to the same titled exhibit to the Company's Report on Form 8-K, dated
October 20, 1997, File No. 1-13498).
10.14 Reimbursement Agreement, dated as of November 1, 1996, between the
Company and U.S. Bank of Washington, National Association.
10.15 Reimbursement Agreement, dated as of July 1, 1997, between the Company
and United States National Bank of Oregon.
10.16 Reimbursement Agreement, dated as of July 1, 1998, between the Company
and U.S. Bank National Association.
10.17 Deed of Trust and Security Agreement, dated March 31, 1998, among DMG
Texas ALC, Partners, L.P., American Title Company of Houston and
Transatlantic Capital Company.
10.18 Mortgage and Security Agreement, dated November 12, 1998, between DMG
New Jersey ALC, Inc. and Transatlantic Capital Company.
10.19 Deed of Trust and Security Agreement, dated July 10, 1998, among DMG
Oregon ALC, Inc., Chicago Title Company and Transatlantic Capital
Company.
10.20 Loan Agreement, dated as of September 3, 1998, by and between MLD
Delaware Trust and the Company.
10.21 Loan Agreement, dated as of September 3, 1998, by and between MLD
Delaware Trust and the Company.
10.22 Amendment and Modification of Reimbursement Agreements, dated as of
August 18, 1999, by and between the Company and U.S. Bank National
Association.
12.1 Computation of Ratio of Earnings to Fixed Charges
23 Report on Schedule and Consent of KPMG LLP
27 Financial Data Schedule Article 5 of Regulation S-X
</TABLE>
85
<PAGE>
SCHEDULE II
ASSISTED LIVING CONCEPTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ---------- --------- ------------- ----------
Balance at Balance at
Beginning End of
Description of Year Additions Deductions(1) Year
----------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables................... $-- $ 33(2) $-- $ 33
---- ---- ---- ----
Year ended December 31, 1997:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables................... $ 33 $ 83(3) $ 37 $ 79
---- ---- ---- ----
Year ended December 31, 1998:
Valuation accounts deducted
from assets:
Allowance for doubtful
receivables................... $ 79 $359(2) $259 $179
---- ---- ---- ----
</TABLE>
- --------
(1) Represents amounts written off.
(2) Charged to residence operating expenses.
(3) $23,000 of additions were charged to operating expenses, $60,000 of
additions were a result of an acquisition.
86
<PAGE>
EXHIBIT 10.5
ASSISTED LIVING CONCEPTS,INC.
DEFERRED COMPENSATION PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ASSISTED LIVING CONCEPTS, INC. DEFERRED COMPENSATION PLAN
ARTICLE I
---------
<S> <C>
NAME AND PURPOSE............................................................. 1
- ----------------
ARTICLE II
----------
ELIGIBILITY.................................................................. 1
- -----------
ARTICLE III
-----------
ELECTION..................................................................... 1
- --------
3.1 Election of Deferral........................................... 1
3.2 Manner of Electing Deferral.................................... 1
ARTICLE IV
----------
VESTING...................................................................... 2
- -------
4.1 Salary......................................................... 2
4.2 Bonus.......................................................... 2
ARTICLE V
---------
PARTICIPANT ACCOUNTS......................................................... 2
- --------------------
ARTICLE VI
----------
DISTRIBUTIONS................................................................ 2
- -------------
6.1 Termination Distributions...................................... 2
6.2 Death Distributions............................................ 3
6.3 Unforeseen Emergency........................................... 3
6.4 Form of Distribution........................................... 3
</TABLE>
<PAGE>
ARTICLE VII
-----------
ADMINISTRATION............................................................... 3
- --------------
7.1 Plan Administrator........................................... 3
7.2 Amendment and Termination.................................... 4
7.3 Indemnification.............................................. 4
7.4 Claims Procedure............................................. 4
ARTICLE VIII
------------
MISCELLANEOUS................................................................ 4
- -------------
8.1 Participant's Rights......................................... 4
8.2 Nonalienation................................................ 5
8.3 Limitation of Rights......................................... 5
8.4 Governing Law................................................ 5
8.5 Benefit Plans................................................ 5
Appendix A: Employees and Amount of Deferred Bonus Amounts Subject to Vesting
Provisions
Appendix B: Merrill Lynch Non-Qualified Deferred Compensation Plan Trust
Agreement
Schedule C: Sample Election Form
ii
<PAGE>
ARTICLE I
NAME AND PURPOSE
----------------
Effective as of October 29, 1996, Assisted Living Concepts, Inc. ("ALC,
Inc." or the "Company") hereby establishes the ALC, Inc. Deferred Compensation
Plan (the "Plan"). The Company intends to maintain this Plan primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees. The provisions of this Plan, including any
appendices that may be attached, shall be interpreted in a manner consistent
with this purpose.
ARTICLE II
ELIGIBILITY
-----------
An employee of the Company shall be eligible under the Plan if (i) the
employee is listed in Appendix A and (ii) is a member of a select group of
management of highly compensated employees as described under Sections 201(2),
301(a)(3) and 401(a)(1) of ERISA. An eligible employee is hereinafter referred
to in this Plan as "Participant".
ARTICLE III
ELECTION
--------
3.1 Election of Deferral. Each Participant shall be entitled to make
an irrevocable election, as specified in Section 3.2, to defer receipt of all
or any portion of the base salary and/or any bonus otherwise payable by the
company to the Participant.
3.2 Manner of Electing Deferral. A Participant may elect to defer
the base salary and/or bonus otherwise payable to him for the initial Plan
period beginning November 1, 1996 and ending December 31, 1996, or for any
subsequent Plan year ("Election Period") by giving notice to ALC, Inc. and the
Plan Administrator prior to the beginning of the Election Period. The notice
shall set forth the Participant's irrevocable election as to the percentage of
the Participant's base salary and/or bonus for the Election Period. For
purposes of delivering notice of such election, an election may be in the form
of Exhibit A attached. An employee who becomes eligible to participate in the
Plan during a year may file an election to participate within 30 days after
becoming eligible, and such election shall be effective with respect to
earnings during the remainder of the calendar year and in subsequent calendar
years until the election is amended or terminated.
<PAGE>
ARTICLE IV
VESTING
-------
4.1 Salary. A Participant shall be fully vested in any portion of the
Participant's salary deferral.
4.2 Bonus. A Participant shall be vested in any deferred bonus set by the
Board of Directors of the Company in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentages
---------------- ------------------
<S> <C>
Less than 1 year -0-
1 year or more, but less than 2 33.33%
2 years or more, but less than 3 66.67%
3 years or more 100.00%
</TABLE>
ARTICLE V
PARTICIPANT ACCOUNTS
--------------------
The Plan Administrator shall establish a trust account for each Participant
pursuant to the terms of the Merrill Lynch Non-Qualified Deferred Compensation
Plan Trust Agreement, a copy of which is attached hereto as Appendix B and
incorporated hereby this reference. Each such trust account is intended to be
maintained as a grantor trust under (S)(S)677-679 of the Internal Revenue Code
of 1986, as amended, and conform to the terms of a model "rabbi trust," under
Internal Revenue Procedure 92-64. The assets of the trust are to be held
invested and disposed of by the trustee, in accordance with the terms of the
trust. Notwithstanding any provision of the plan or the trust to the contrary,
the assets of the trust shall at all times be subject to the claims of the
Company's general creditors in the event of insolvency or bankruptcy.
ARTICLE VI
DISTRIBUTIONS
-------------
6.1 Termination Distributions. The payment of a Participant's Account
shall commence within 60 days after the date on which the earlier of the
following events occurs:
6.1.1 The Participant terminates service with the Company for any
reason; or
<PAGE>
6.1.2 The Participant's service is terminated by the Company for any
reason; provided, however the Participant was not terminated for gross
negligence or fraud.
6.2 Death Distributions. The Account of a deceased Participant shall be
distributed to the Participant's Beneficiary in a single sum as soon as
practicable after the Participant's death, but no earlier than 30 days after the
Participant's death. For this purpose, a beneficiary designation must be signed
by the Participant and delivered to the Plan Administrator on such form as
specified by the Plan Administrator. In the absence of a valid or effective
beneficiary designation, the beneficiary will be the Participant's surviving
spouse, or if there is no surviving spouse, the Participant's estate.
6.3 Unforeseeable Emergency. A distribution of the account of a
Participant may be made to the Participant in the event of an unforeseeable
emergency. For purposes of this Plan, an unforeseeable emergency is a severe
financial hardship to the Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as defined in Internal
Revenue Code section 152(a)) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the Partipant.
In any case, payment shall not be made to the extent that such financial
hardship is or may be relived (i) through reimbursement of compensation by
insurance or otherwise; (ii) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not itself cause severe financial
hardship, or (iii) by cessation of deferrals under this Plan. An unforeseeable
emergency shall not include the need to send a Participant's child to college or
the purchase of a home. Early withdrawals of amounts because of an unforeseeable
emergency shall be limited to the amount reasonably needed to meet the
emergency.
6.4 Form of Distribution. A distribution, at the election of the
Participant or the Participant's beneficiary, may be in a lump sum or in annual
payments not to exceed ten installments.
ARTICLE VII
ADMINISTRATION
--------------
7.1 Plan Administrator. The Board shall appoint a committee of one or more
individuals to be the "plan administrator" within the meaning of ERISA Section
3(16)(A). The Plan Administrator shall have sole authority to control and manage
the operation and administration of the Plan and gave all powers, authority
and discretion necessary or appropriate to carry out the plan provisions, and to
interpret and apply the terms of the Plan to particular cases or circumstances.
All decisions, determination and interpretations of the Plan Administrator will
be binding on all interested parties, subject to the claims and appeal
procedures necessary to satisfy the minimum standard of
3
<PAGE>
fails to appoint a plan administrator, the Chief Financial Officer of ALC, Inc.
shall serve as Plan Administrator.
7.2 Amendment and Termination. The Board, by resolution or written
consent, may amend all or any provision of the Plan, and may terminate the Plan
in its entirety, at any time and for any reason. No amendment or termination of
the Plan will reduce any Participant's Account as of the effective date of such
amendment or termination.
7.3 Indemnification. The Company will indemnify and hold harmless the
Plan Administrator from all losses, claims, damages, expenses, and liabilities
(including reasonable attorneys' fees and amounts paid, with the approval of the
Board, in settlement of any claim) arising out of or resulting from the
implementation of a duty, act or decision with respect to the Plan, so long as
such duty, act or decision does not involve gross negligence or willful
misconduct on the part of any such individual.
7.4 Claims Procedure. A Participant or his Beneficiary designated pursuant
to Section 6.2 (the "Claimant") may file a written claim for benefits under the
Plan with the Plan Administrator. Within 60 days of the filing of the claim, the
Plan Administrator shall notify the Claimant of the Plan Administrator's
decisions whether to approve the claim. Such notice shall include specific
reasons for any denial of the claim. Within 60 days of the date the Claimant was
notified of the denial of a claim, the Claimant may appeal the Plan
Administrator's decision by making a written submission containing any pertinent
information. Any decision not appealed within such 60-day period shall be final,
binding and conclusive. The Plan Administrator shall receive information
submitted with an appeal and render a decision within 60 days of the submission
of the appeal. If it is not feasible for the Plan Administrator to render a
decision on an appeal within the prescribed 60-day period, the period may be
extended to a 120-day period.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 Participant's Rights. Establishment of the Plan shall not be construed
as giving any Participant the right to receive any benefits not specifically
provided by the Plan. A Participant shall not have any interest in the base
salary and/or bonus deferred or income credited to his account until such
account is distributed in accordance with the Plan. All base salary and/or bonus
deferred or other property otherwise held for the account of a Participant under
the Plan shall remain the sole property of the Company, subject to the claims of
its general creditors and available for its use for whatever purposes are
desired. With respect to amounts deferred or otherwise held for the account of a
Participant, the Participant is merely a general creditor of the company; and
the obligation of the company hereunder is purely contractual and shall not be
funded or secured in any way.
4
<PAGE>
8.2 Nonalienation.
8.2.1 General Rules. No benefit or interest of any Participant
(including the Participant's spouse and Beneficiary) under the Plan will be
subject to assignment, alienation, anticipation, sale, transfer, pledge, or
encumbrance, whether voluntary or involuntary. Before distribution of a
Participant's Account, no Account balance will be subject to the debts,
contracts, liabilities, engagements or torts of the Participant. (See
Section 8.2.2 below for distributions pursuant to a domestic relations
order, and Section 6.2 for distributions upon the Participant's death.)
8.2.2 Domestic Relations Orders. The Plan Administrator shall honor a
court order affecting a Participant's Account, provided the order would
satisfy the requirements of a qualified domestic relations order under
ERISA Section 206(d) if the Plan were subject to Part II of Title I of
ERISA.
8.3 Limitation of Rights. Nothing in this Plan will be construed to give a
Participant the right to continue in the employ of the Company at any particular
position or to interfere with the right of the Company to discharge, lay off or
discipline a Participant at any time and for any reason, or to give the Company
the right to require any Participant to remain in it employ or to interfere with
the Participant's right to terminate his employment.
8.4 Governing Law. The Provisions of the Plan will be construed, enforced
and administered in accordance with the law of Oregon except to the extent
preempted by ERISA.
8.5 Benefit Plans. The amount of each Participant's base salary and/or
bonus which he elects to defer under the Plan shall not be deemed to be
compensation for the purpose of calculating the amount of a Participant's
benefits or contributions under a pension plan or retirement plan (qualified
under Section 401(a) of the Internal Revenue Code), the amount of life insurance
payable under any life insurance plan established or maintained by the Company,
or the amount of any disability benefit payments payable under any disability
plan established or maintained by the Company, except to the extent specifically
provided in any such plan.
IN WITNESS WHEREOF, the Company by its duly authorized officer has executed
this Deferred Compensation Plan ALC, Inc., on , 1997.
--------------------------
ASSISTED LIVING CONCEPTS, INC.
By:
----------------------------------
Title:
-------------------------------
5
<PAGE>
EXHIBIT 10.6
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
this 15th day of March, 1999, by and between William McBride III (the
"Executive") and Assisted Living Concepts, Inc., a Nevada corporation (the
"Company").
RECITALS
--------
A. The Executive and the Company have previously entered into an
Employment Agreement, dated as of October 3, 1997 (the "Employment Agreement"),
pursuant to which the Executive is currently employed by the Company as its
Chief Executive Officer.
B. The Executive and the Company desire to specify the terms of the
Executive's resignation from his office as Chief Executive Officer of the
Company and as an employee of the Company, and to provide for the termination of
the Employment Agreement and the Restricted Stock Agreement (as defined below).
C. The Executive is a person whose skills, experience and training
have proved of considerable use to the Company, and the Company wishes to secure
the services of the Executive as a consultant to the Company as provided herein.
D. The Executive is willing to act as a consultant for the benefit of
the Company and to perform the services and to subject himself to the
obligations provided herein, upon the terms and subject to the conditions
hereinafter set forth.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. RESIGNATION; PRIOR AGREEMENTS
-----------------------------
1.1. Resignation. The Executive hereby tenders, and the Company
-----------
hereby accepts, the Executive's resignations from (a) his positions as the Chief
Executive Officer and an employee of the Company, and (b) his position as an
officer and/or employee of any and all subsidiaries and affiliates of the
Company, effective as of the close of business on March 15, 1999.
Notwithstanding anything contained herein or in the Employment Agreement, the
Executive's resignation hereunder shall not be deemed either a resignation for
"Good Reason" or a termination for "Cause" for purposes of, and each as defined
in, the Employment Agreement.
1.2. Termination of Employment and Restricted Stock Agreements. Upon
---------------------------------------------------------
the effectiveness of the Executive's resignation pursuant to Section 1.1 above,
the Employment Agreement shall automatically terminate and be of no further
force and effect, and neither the Company nor the Executive shall have any
further obligations thereunder. Upon the payment by
<PAGE>
the Company of the Forfeiture Payment (as defined below), the Restricted Stock
Agreement (as defined below) shall automatically terminate and be of no further
force and effect, and neither the Company nor the Executive shall have any
further obligations thereunder. The Executive acknowledges and agrees that,
notwithstanding anything contained in the Employment Agreement or the Restricted
Stock Agreement, the termination of the Employment Agreement and the Restricted
Stock Agreement pursuant to this Agreement does not give rise to any rights or
entitlements (to payment or otherwise) of the Executive thereunder.
1.3. Restricted Stock; Payment and Forfeiture. The Company and the
-----------------------------------------
Executive acknowledge that, pursuant to that certain Restricted Stock Agreement,
dated as of October 3, 1997, between the Company and the Executive (the
"Restricted Stock Agreement"), the Company has issued to the Executive 200,000
shares of restricted stock (the "Restricted Stock") under the Assisted Living
Concepts, Inc. Amended and Restated 1994 Stock Option Plan (the "Plan"). In
consideration of the Executive's agreement to forfeit his right and interest in
the Restricted Stock as set forth in the following sentence, the Company shall
pay the Executive a lump sum cash payment in the amount of $750,000 (less
amounts required to be withheld under applicable law) (the "Forfeiture
Payment"). Notwithstanding anything contained in the Restricted Stock Agreement
or the Plan, immediately upon payment by the Company of the Forfeiture Payment,
(i) the Executive shall automatically forfeit all of his right and interest in
the 200,000 shares of Restricted Stock issued pursuant to the Restricted Stock
Agreement and (ii) the Restricted Stock Agreement shall automatically terminate
and be of no further force and effect. The Forfeiture Payment shall be made
upon the effectiveness of the Executive's resignation pursuant to Section 1.1
hereof.
2. CONSULTING ARRANGEMENT
----------------------
2.1. Consulting Services. From and after the effectiveness of the
-------------------
Executive's resignation pursuant to Section 1.1 hereof, the Company hereby
engages the Executive to provide services as a consultant to the Company as
contemplated by this Agreement, and the Executive hereby agrees to provide such
consulting services and to comply with the other provisions of this Agreement,
upon the terms and subject to the conditions hereinafter set forth.
2.2. Nature of Consulting and Other Services. In his rendering of
---------------------------------------
consulting services for the benefit of the Company hereunder, the Executive
shall from time to time provide the Company, its Board of Directors, and its
Chief Executive Officer with such advice as any of them may reasonably request
in connection with the business and operations of the Company and its
subsidiaries and affiliates. The Executive shall provide such advice only at
the request of the Company's Board of Directors or its Chief Executive Officer.
The Executive shall hold himself available at reasonable times and on reasonable
notice to render such consulting and advisory services as may be so assigned to
him by the Company, its Board of Directors, or its Chief Executive Officer
during the Consulting Term (as defined below); provided, however, that, unless
the parties otherwise agree, the consulting and advisory services rendered by
the Executive during the Consulting Term shall not exceed forty (40) hours each
calendar month. Without limiting the foregoing, the Executive shall, upon the
reasonable request of the persons
2
<PAGE>
specified above, (a) consult with the Company with respect to all matters
concerning the Company in which the Executive had personal involvement during
his period of employment and/or directorship with the Company, (b) assist the
Company in the negotiation and consummation of business matters and prospects
pending at the time of his resignation and thereafter, and (c) cooperate with
and assist the Company in undertaking and preparing for legal and other
proceedings relating to the affairs of the Company and its subsidiaries. In
connection with the consulting services rendered by him hereunder, the Executive
shall (i) undertake such travel on the Company's behalf (and at its expense) as
the Company may reasonably request, and (ii) negotiate as the Company's
representative when and as reasonably requested to do so by the Company's Board
of Directors or its Chief Executive Officer. The Company agrees to use its best
efforts during the Consulting Term to secure the benefit of the Executive's
services hereunder so as to minimize the interference with his other activities.
2.3. Nature of Consulting and Other Services. It is understood that
---------------------------------------
the Executive is to act as a consultant and advisor to the Company, and is not
an employee or agent of, or co-venturer with, the Company in any respect. The
Executive shall have no right, authority, or power to act for or on the
Company's behalf. The relationship between the Company and the Executive
hereunder shall be that of independent contractor.
3. TERM
----
3.1. Term. The Executive hereby agrees to provide the consulting
----
services contemplated by this Agreement, and the Company hereby agrees to retain
the Executive to provide such services, for a term of two (2) years, commencing
as of the effectiveness of the Executive's resignation pursuant to Section 1.1
hereof and terminating on the second anniversary of such effectiveness, unless
sooner terminated as herein provided (such term, ending on the earlier of (i)
the expiration of such 2 year period, or (ii) the sooner termination of the
consulting relationship hereunder, is referred to herein as the "Consulting
Term.")
3.2. Termination for Cause. The Company may terminate the consulting
---------------------
relationship hereunder at any time for Cause. If the Company terminates the
consulting relationship hereunder for Cause, the Executive shall be entitled
only to the cash compensation provided pursuant to Section 4.1 hereof earned
through the date of termination. For the purposes of this Agreement, a
termination of the Executive's consulting relationship shall be deemed for
"Cause" if, and only if, seventy-five percent (75%) of the Company's Board of
Directors entitled to vote, at a meeting in which a quorum is present at the
time of the vote, vote for such termination and the termination is based upon
one or more of the following: (i) conviction of a felony; (ii) material
disloyalty to the Company such as embezzlement, misappropriation of corporate
assets, or breach of the obligations undertaken by the Executive under Section
5.1, 6.1 or 6.2 hereof; (iii) the engaging in immoral, unethical or illegal
behavior which is of public nature, brings the Company into disrepute, and
results in material damage to the Company; or (iv) a Material Breach (as defined
below) by the Executive of any of the terms of this Agreement (including,
without limitation, Sections 2.1, 5.1, 6.1 and 6.2 hereof). For purposes of
this Agreement, the Executive shall be deemed to have engaged in a "Material
Breach" of a term
3
<PAGE>
hereof if (a) he materially breaches such provision after (b) he has received
written notice from the Company specifying the breach and (c) he does not
promptly (and, in any event, within five business days) remedy such breach
following receipt of such notice; provided, however, that if such breach
involves Section 5.1, 6.1, or 6.2 hereof, the Company shall not be required to
provide such notice, and the Executive shall not be given the opportunity to
remedy such breach, if such breach has resulted in irreparable harm to the
Company, its shareholders or affiliates.
3.3. Termination Without Cause. The Company may terminate the
-------------------------
consulting relationship hereunder at any time without Cause upon no less than 30
days written notice to the Executive. In the event that the Company terminates
the consulting relationship hereunder without Cause, then, in partial
consideration of the Executive's covenant not to compete under Section 6.1
hereof, the Executive shall be entitled to the balance of the cash amounts which
he would have received had the consulting relationship continued (on a basis of
not more than 40 hours per month) for the remainder of the two (2) year
Consulting Term. All such amounts shall be payable as set forth in Section 4.1
hereof.
3.4. Termination Upon Change in Control. Notwithstanding anything
----------------------------------
contained herein, the consulting relationship hereunder shall automatically
terminate upon the occurrence of a Change in Control (as defined below) of the
Company. In the event that the consulting relationship hereunder is terminated
pursuant to this Section 3.4 upon a Change in Control, the Executive shall be
entitled to a lump-sum cash payment in an amount equal to the aggregate balance
of the cash amounts which the Executive would have received had the consulting
relationship continued for the remainder of the two (2) year Consulting Term.
Such cash payment shall be made by the Company as soon as practicable (but in no
event more than 15 days) following the date of the termination of the consulting
relationship. In addition, in the event that the consulting relationship
hereunder is terminated pursuant to this Section 3.4 upon a Change in Control,
the Executive's covenant not to compete under Section 6.1 hereof shall
automatically terminate and be of no further force and effect.
For purposes of this Agreement, a "Change in Control" of the Company
shall be deemed to have occurred if: (i) any Person (as defined below) (other
than Executive) or that Person's Affiliate (as defined below) is or becomes the
Beneficial Owner (as defined below), directly or indirectly, of securities of
the Company representing 30% of more of the combined voting power of the
Company's then outstanding securities; or (ii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation (or
other entity), other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; provided, however,
that a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires more than 30% of
the combined voting power of the Company's then outstanding securities shall not
constitute a Change in Control; or (iii) the stockholders of the Company approve
a plan of complete liquidation or an agreement for the sale or disposition of
all
4
<PAGE>
or substantially all of the Company's assets; or (iv) a majority of the members
of the Board of Directors of the Company cease to be Continuing Directors (as
defined below).
For purposes of this Section 3.4, the following terms shall have the
following meanings: (a) "Person" is given the meaning as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company;
(b) "Affiliate" means any corporation affiliated with any Person whose actions
result in a Change in Control (or which, as a result of the completion of the
transactions causing a Change in Control shall become affiliated) within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as amended; (c)
"Beneficial Owner" shall have the meaning given to such term in Rule 13d-3 under
Exchange Act; and (d) "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was a
member of such Board of Directors on the date of this Agreement or (ii) was
nominated for election or elected to such Board of Directors by at least a
majority of those persons who were Continuing Directors at the time of such
nomination or election.
4. COMPENSATION
------------
4.1. Cash Compensation. During the Consulting Term, the Company
-----------------
shall pay to the Executive compensation in the amount of $15,000 per month (less
amounts required to be withheld under applicable law). All such cash
compensation shall be payable in accordance with the Company's normal payroll
practices. The cash compensation payable for the consulting services to be
provided by the Executive hereunder shall, subject to the other terms and
provisions of this Agreement, continue for the full period of the Consulting
Term even if the Executive obtains income from any other source, including other
full-time employment, but shall terminate upon the Company's termination of the
consulting relationship for Cause. Except as set forth herein, the Executive
shall not be entitled to any other cash compensation from the Company following
the date of his resignation pursuant to Section 1.1 hereof.
4.2. Business Expenses. During the Consulting Term, the Executive
-----------------
shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by the Executive in accordance with the policies and practices
of the Company as in effect from time to time with respect to employees of the
Company.
4.3. Termination Payment. Upon the effectiveness of the Executive's
-------------------
resignation pursuant to Section 1.1 hereof, the Company shall pay the Executive
a lump sum cash termination payment in the amount of $490,000 (less amounts
required to be withheld under applicable law) (less $100,000 paid last year).
4.4. Medical Benefits. During the Consulting Term, the Executive
----------------
shall be
5
<PAGE>
entitled to participate in the Company's medical insurance plans and/or programs
at a level, and on such terms and conditions, as are made available by the
Company to its senior executives.
4.5. Director Compensation. For so long as the Executive remains a
---------------------
member of the Company's Board of Directors, the Executive shall continue to be
entitled to receive all compensation and fees as are payable by the Company to
its directors from time to time. Notwithstanding anything contained herein,
time spent by the Executive in the performance of his services as a member of
the Company's Board of Directors shall not be deemed to be the performance of
consulting services hereunder.
5. CONFIDENTIALITY
---------------
5.1. Confidentiality. The Executive acknowledges that, during the
---------------
course of his employment with the Company, the Executive has had, and during the
course of his engagement under this Agreement the Executive will have, access to
Confidential Information (as defined below) owned by the Company or used or
involved in or incidental to its operations, business and affairs. All such
Confidential Information has been and will be disclosed to the Executive in
confidence. The Executive covenants that from and after the date hereof, he
will keep confidential all Confidential Information of the Company and its
subsidiaries and affiliates which is known to him and, except with the specific
prior written consent of the Company or as required to be disclosed by law or
the order of any agency, court or other governmental authority, will not
disclose any Confidential Information to any person other than the Company, its
subsidiaries and affiliates, or their respective employees accountants, counsel
and other designated representatives as is appropriate in the course of his
consulting relationship. For purposes of this Agreement, "Confidential
Information" shall mean all know-how, trade secrets and other confidential
nonpublic information prepared for, by or on behalf of, or in the possession of,
the Company or any of its subsidiaries or affiliates, including without
limitation (i) nonpublic proprietary information; (ii) other information derived
from reports, investigations, research, studies, work in progress, codes,
marketing, sales or service programs, capital expenditure projects, cost
summaries, equipment, product or system designs or drawings, pricing or other
formulae, contract analyses, financial information, projections, agreements with
vendors, joint venture agreements, confidential filings with any agency, court
or other governmental authority; and (iii) all other concepts, methods,
techniques and processes of doing business, developing, building or constructing
facilities, ideas or information that can be used in the operation of a business
or other enterprise and is sufficiently valuable, or potentially valuable, and
secret to afford an actual or potential economic advantage over others;
provided, however, that Confidential Information shall not include any
information that is currently generally available to and generally known by the
public or, through no fault of the Executive, hereafter becomes generally
available to and generally known by the public.
5.2. Company Property. All records, files, drawings, documents and
----------------
the like relating to the Company's business which the Executive shall prepare,
use or come into contact with, shall be and remain the Company's sole property
and shall not be removed from the Company's premises without its written consent
except as required in the course of the
6
<PAGE>
Executive's consulting engagement. Upon the termination of the Consulting Term,
all such records, files, drawings, documents and the like that are in the
Executive's custody or control shall immediately be delivered by the Executive
to the Company or its designee. The Executive acknowledges that his obligations
in this Section are of a unique character that gives them a special value to the
Company, the loss of which cannot reasonably or adequately be compensated in
damages in an action at law, that a breach thereof will result in irreparable
and continuing harm to the Company and that therefore, in addition to any other
remedy that the Company may have at law or in equity, the Company shall be
entitled to injunctive relief for a breach thereof by the Executive.
6. NONCOMPETITION AND NONSOLICITATION
----------------------------------
6.1. Noncompetition. Subject to Section 3.4 hereof, the Executive
--------------
covenants that he will not, during the period commencing on the effectiveness of
the Executive's resignation pursuant to Section 1.1 hereof and terminating on
the second anniversary of such effectiveness (the "Restricted Period"), (a)
accept employment with or render service to any person, firm or corporation that
is engaged in the Assisted Living Business (as defined below) in any region in
which the Company is then operating or has firm plans to operate; or (b) own,
manage, operate, construct, develop, lease or control, or participate in the
ownership, management, operation, construction, development, lease or control
of, or be connected as a principal, agent, representative, consultant, advisor,
investor, owner, partner, financier, developer, contractor, manager or joint
venturer with, or permit his name to be used by or in connection or association
with, any facility, business or enterprise that is engaged in the Assisted
Living Business in any region in which the Company is then operating or has firm
plans to operate; provided, however, that the Executive may invest as an
investor in the voting securities of any person that is a reporting company
under the Exchange Act, so long as (1) the aggregate amount of the securities
the Executive owns directly or indirectly is less than five percent (5%) of the
total outstanding voting securities of that person and (2) the Executive has no
other affiliation with that person. For purposes of this Agreement, the term
"Assisted Living Business" shall mean any business or activity that, directly or
indirectly, provides (i) any of the following services, programs or facilities
to frail, elderly residents (whether by itself or through a joint effort with
another party or parties): long-term living, nursing home, retirement home, or
assisted living, (ii) assisted living, supportive care living or personal care
services, programs, or facilities, as described or defined by any state
licensing authority, and (iii) businesses or activities substantially similar to
any of those described in the foregoing items. Notwithstanding anything herein
to the contrary, the Executive shall not be prohibited from owning or
participating in the ownership or control of, or engaging in any capacity with,
any of the following: (a) any business or enterprise that derives no more than,
and is not anticipated to derive more than, forty-five (45%) of its gross
revenues, directly or indirectly, from the Assisted Living Business, (b) age
restricted apartment units where no services are provided to residents, (c)
skilled nursing facilities, (d) dedicated Alzheimer units and facilities, or (e)
any business or enterprise which owns the real estate of or provides financing
for, but which is not involved in the operation of, an Assisted Living Business
facility more than ten (10) miles from an Assisted Living Business facility
which is then being operated, developed and/or constructed by the Company.
7
<PAGE>
6.2. Nonsolicitation. The Executive covenants that he will not,
---------------
during the Restricted Period, otherwise than on behalf of the Company or any
subsidiary or affiliate of the Company, solicit the employment of any person, or
induce or advise any person to leave the employ of the Company or any subsidiary
or affiliate of the Company, if such person is, as of the date of such
solicitation, inducement or advisement, employed on a full- or part-time basis
by the Company or any subsidiary or affiliate of the Company.
6.3. Modification. If the noncompetition and/or nonsolicitation
------------
covenants contained in the foregoing Sections 6.1 and 6.2 are, in the view of
any court or arbitrator asked to rule upon the issue, deemed unenforceable by
reason of covering too large an area, too long a period of time, too large a
number of entities or too many business activities, then the same shall be
deemed to cover only the largest area, the longest period, the largest number of
entities or the most business activities, as the case may be, that will not
render it unenforceable.
6.4. Specific Performance. The Executive acknowledges and agrees
--------------------
that the Company cannot be fully or adequately compensated in damages for a
violation of Section 6.1 or 6.2 hereof, and that, in addition to any other
relief to which the Company may be entitled, it shall be entitled to injunctive
and equitable relief.
7. DISPUTE RESOLUTION
------------------
7.1. Mediation. If a dispute arises out of or relates to this
---------
Agreement or the breach of it (the "Dispute"), and if the Dispute cannot be
settled through negotiation, the parties agree first to attempt in good faith to
settle the Dispute by nonbinding mediation under the then effective rules of the
Arbitration Service of Portland, Inc. (the "Service") or, if the Service is no
longer doing business, then under the Mediation Rules of the American
Arbitration Association (the "AAA") before resorting to arbitration.
7.2. Arbitration. In the event the parties fail to resolve the
-----------
Dispute through mediation, then either party or both of them shall have the
right to submit the Dispute to final and binding arbitration by the Service or,
if the Service is no longer doing business, then by the AAA. The parties agree
to arbitration as an alternative to court proceedings in order (i) to obtain a
prompt evidentiary hearing and an arbitrator's final award resolving any
dispute, (ii) to do so expeditiously, and (iii) to do so economically. During
the arbitration proceeding, the arbitrator, in the arbitrator's sole discretion,
shall have the right to grant requests for discovery of documents, the taking of
depositions, and the issuance of subpoenas in accordance with rules of the
Service or AAA, whichever is applicable. Each party hereby promises to
cooperate in the arbitration process to effectuate these purposes. The
arbitration shall be conducted in accordance with the rules of the Service or,
if the Service is no longer doing business, then in accordance with the rules of
the AAA which are in effect at the time of the arbitration. Judgment rendered
by the arbitrator may be entered in any court having competent jurisdiction in
accordance with Oregon law.
8
<PAGE>
7.3. Waiver of Jury Trial. By submitting a Dispute to mediation and
--------------------
arbitration, the parties hereto understand that they will not enjoy the benefits
of a jury trial. Accordingly, the parties hereto expressly waive the right to a
jury trial.
7.4. Nonexclusive Remedy. Notwithstanding the above provisions
-------------------
regarding mediation and arbitration, the parties each retain their respective
rights to seek injunctive relief or other provisional remedies provided under
the law in any court having competent jurisdiction.
8. ATTORNEYS' FEES
---------------
8.1. Mediation Fees and Costs. In the event of mediation, the
------------------------
parties shall bear their own attorneys fees and costs, except that the cost of
mediation shall be shared equally.
8.2. Arbitration Fees and Costs. In the event of arbitration, the
--------------------------
arbitrator shall award reasonable attorneys fees and costs of the mediation and
arbitration to the prevailing party, including the fees of the arbitrator,
unless such award of fees and costs would be manifestly unjust for reasons set
forth by the arbitrator in his written decision. In determining the amount of
reasonable attorneys fees to a party, the arbitrator may take into account (i)
each party's respective efforts to achieve an economical and expeditious
resolution of the dispute in accordance with this Section; and (ii) the final
settlement offers, if any, of the parties at least ten (10) calendar days prior
to the commencement of the hearing. In accordance with the rules of evidence,
however, settlement offers shall not be considered in relation to the merits of
any Dispute that is subject to this Section other than the award of attorneys
fees and costs.
8.3. Suits, Actions or Other Proceedings. Notwithstanding Section
-----------------------------------
8.2 above, if a suit, action or other proceeding of any nature whatsoever
(including any contested matter or adversary proceeding under the U.S.
Bankruptcy Code) is instituted in connection with any controversy arising out of
this Agreement or to interpret or enforce any rights hereunder, the prevailing
party shall be entitled to recover its reasonable attorneys, paralegals,
accountants and other experts fees, and all other fees, costs and expenses
actually incurred in connection therewith, as determined by the judge at trial
or on appeal or review, in addition to all other amounts provided by law.
8.4. Certain Attorneys' Fees. The Company agrees to reimburse
-----------------------
Executive in an amount not to exceed $10,000 for Executive's attorneys fees
incurred in the negotiations for, and preparation of, this Agreement.
9. MISCELLANEOUS
-------------
9.1. Severability and Construction. In construing this Agreement, if
-----------------------------
any portion of this Agreement shall be found to be invalid or unenforceable, the
remaining terms and provisions of this Agreement shall be given effect to the
maximum extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the plural,
the masculine shall include the feminine and neuter genders as
9
<PAGE>
appropriate, and no meaning or effect shall be given to the captions of the
sections in this Agreement, which are inserted for convenience of reference
only.
9.2. Successors. The Company shall require any successor (whether by
----------
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company (herein, a "Successor") expressly to
assume and agree to perform all of the terms of this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had occurred; provided, however, that if the obligations of
the Company hereunder are assumed by any Successor by operation of law, no such
express assumption and agreement shall be required. Other than through the
succession described in this paragraph, neither party may assign this Agreement
to anyone without the express prior written consent of the other party hereto.
This Agreement shall inure to the benefit of the Executive's heirs and to the
benefit of any Successor.
9.3. Final and Entire Agreement. This Agreement represents the final
--------------------------
and entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements (including, without limitation, the
Employment Agreement and the Restricted Stock Agreement), negotiations and
discussions between the parties hereto and/or their respective counsel with
respect to the subject matter hereof; provided, however, that notwithstanding
the foregoing, this Agreement shall not supersede or otherwise affect (i) that
certain Indemnification Agreement (the "Indemnification Agreement"), dated as of
October 3, 1997, between the Company and the Executive, or (ii) any stock option
agreement between the Company and the Executive (each, a "Stock Option
Agreement"), and each of the Indemnification Agreement and the Stock Option
Agreements shall remain in full force and effect. Any amendment to this
Agreement must be in writing, signed by duly authorized representatives of the
parties, and stating the intent of the parties to amend this Agreement.
9.4. Consultation With Counsel. The Executive represents and
-------------------------
acknowledges that he has discussed all aspects of this Agreement with his
attorney and that he has carefully read and fully understands all of its
provisions.
9.5. Expenses. Except as set forth in Section 8.4 hereof, each of
--------
the Company, on one hand, and the Executive, on the other, shall be liable for
their own respective costs and expenses incident to the execution of this
Agreement and the consummation of the transactions contemplated thereby.
9.6. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the internal laws of the State of
Oregon as at the time in effect.
9.7. Survival. Subject to Section 3.4 hereof, the provisions of
--------
Sections 5.1, 5.2, 6.1, 6.2, 6.3, 6.4, 7.1, 7.2, 7.3, 7.4, 8.1, 8.2, 8.3, 9.8
and of this 9.7 shall survive any termination of this Agreement in accordance
with their respective terms.
9.8. Cooperation in Legal Proceedings. Without limitation of Section
--------------------------------
2.2(c)
10
<PAGE>
hereof, the Executive agrees, after the expiration of the Consulting Term, upon
the request of the Company, to cooperate with and assist the Company in
undertaking and preparing for legal and other proceedings relating to the
affairs of the Company and its subsidiaries. The Executive shall be reimbursed
for the reasonable expenses he incurs in connection with any such cooperation
and/or assistance, and shall receive from the Company reasonable per diem
compensation in connection therewith.
9.9. Notices. All notices and other communications provided to any
-------
party under this Agreement shall be in writing and delivered by overnight
courier or other personal delivery to such party at its address set forth below
its signature hereto, or at such other address as may be designated by such
party in a notice to the other party. Any notice, if so delivered and properly
addressed with postage prepaid, shall be deemed given when received.
9.10. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which taken
together shall constitute one instrument.
[SIGNATURE PAGE TO FOLLOW]
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each executed this
Agreement as of the date first above written.
"EXECUTIVE"
___________________________________________
William McBride III, as an individual
Home Address:
------------
1647 Logan Creek Drive
P.O. Box 206
Glenbrook, NV 89413
"COMPANY"
Assisted Living Concepts, Inc.
By: _______________________________________
Name: Keren Brown Wilson
Title: Chief Executive Officer
Address:
-------
11835 NE Glenn Widing Drive, Building E
Portland, OR 97220-9057
S-1
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "AGREEMENT") is made as
of October 3, 1997 (the "EFFECTIVE DATE"), by and between Assisted Living
Concepts, Inc., a corporation organized under the laws of the state of Nevada
("ALC" or the "COMPANY") and Keren Brown Wilson ("EXECUTIVE"), amends and
restates the Employment Agreement, dated October 24, 1994, by and between ALC
and Executive (the "PRIOR EMPLOYMENT AGREEMENT").
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment, Title and Duties.
-----------------------------
(a) ALC hereby employs Executive to serve as its President and
Chief Executive Officer; provided, however, in the event William McBride accepts
ALC's offer to become Chief Executive Officer of ALC, then Executive shall serve
as ALC's President and Chief Operating Officer. In such capacity, Executive
shall report to the Board of Directors of the Company, and shall have such
duties, powers and responsibilities as are customarily assigned to persons
serving in such capacities for a publicly held corporation in a business such as
that conducted by the Company. Executive shall serve as Vice Chairman of the
Board of Directors of ALC.
(b) The parties understand and agree that Executive also shall
serve as the President and Chief Executive Officer of the wholly-owned
development and operations subsidiary, Assisted Living Concepts Services, Inc.,
a Nevada corporation, and shall serve as Chairman of its Board of Directors.
2. Term of Agreement.
-----------------
(a) The initial term of this Agreement shall be for a four (4)
year period from and after the Effective Date, unless terminated earlier by (i)
termination for Cause; (ii) the voluntary resignation of Executive for Good
Reason; or (iii) the expiration of six (6) months from and after the date
Executive provides written notice of termination to Company; or (iv) Executive's
death or Permanent Disability (defined in SECTION 5(A) below).
(b) If this Agreement has not terminated as of the date of the
expiration of the initial term, this Agreement shall be automatically extended
on a continuous basis daily from and after that date, until the occurrence of
one of the following events of termination: (i) termination for Cause; (ii)
voluntary resignation of Executive for Good Reason; (iii) Executive's death or
Permanent Disability; (iv) the expiration of six (6) months from and after the
date Executive provides written notice of intent not to renew this Agreement to
Company; or (v) the expiration of four (4) years from and after the date Company
provides written notice of intent not to renew this Agreement to Executive.
<PAGE>
(c) A termination hereunder shall constitute a termination of
employment with any wholly owned subsidiary or other affiliate of Company.
3. Acceptance of Position. Executive accepts the position set forth
----------------------
in SECTION 1 above and agrees that during the term of this Agreement, Executive
will faithfully perform Executive's duties and, except as expressly approved by
the Board of Directors of ALC and except as set forth herein, will devote
substantially all of Executive's business time to the business and affairs of
ALC, and will not engage, for Executive's own account or for the account of any
other person or entity, in a business which competes with ALC. During the term
of this Agreement, Executive shall not directly own, or own as part of a
consortium, more than five percent (5%) of a publicly held corporation which
conducts the same business as does ALC or its affiliates. It is acknowledged
and agreed that Executive may, from time to time during the term of this
Agreement, serve as a member of the Board of Directors of other companies, in
which event the Board of Directors of ALC must expressly approve such service.
4. Salary and Benefits. During the term of this Agreement:
-------------------
(a) ALC shall pay to Executive a base salary in an annual amount
of not less than Two Hundred Thousand Dollars ($200,000) per annum, paid in
approximately equal installments at intervals in accordance with the then
prevailing policy of the Company with respect to its senior executives
generally, but in no event, less frequently than monthly. ALC agrees to consider
from time to time increases in such base salary in the discretion of the Board
of Directors. Any increase, once granted by the Board of Directors, shall be
deemed to automatically amend this Agreement to provide that thereafter
Executive's base salary shall not be less than the annual amount to which the
base salary has been increased.
(b) Concurrently herewith ALC and Executive shall execute and
deliver a Restricted Stock Agreement for Employees in substantially the same
form as that attached hereto as EXHIBIT "A," pursuant to which Executive shall
be issued 50,000 shares of restricted common stock of ALC pursuant to ALC's
Amended and Restated 1994 Stock Option Plan (the "PLAN"). The Restricted Stock
Agreement provides that the restrictions on the stock shall be lifted to the
extent of 25% of the stock per year commencing on the fourth anniversary date
from the Effective Date hereof, subject to earlier acceleration as provided in
the Restricted Stock Agreement.
(c) Executive shall participate in all health, retirement,
Company-paid insurance, sick leave, disability, expense reimbursement and other
benefit programs which ALC makes available to any of its senior executives, and
shall be eligible for bonuses in the discretion (as to bonuses) of the Board of
Directors.
(d) Executive shall be entitled to vacation time of not less than
four (4) weeks per year, provided that not more than two (2) weeks of such
vacation time may be taken consecutively without prior notice to, and non-
objection by, the Compensation Committee of the Board of Directors or, if there
is no Compensation Committee, the Board of Directors.
2
<PAGE>
5. Certain Terms Defined. For purposes of this Agreement:
---------------------
(a) Executive shall be deemed to be "PERMANENTLY DISABLED" if a
physical or mental condition occurs and persists which, in the written opinion
of a licensed physician selected by the Board of Directors in good faith, has
rendered Executive unable to perform Executive's duties hereunder for a period
of ninety (90) days or more and, in the written opinion of such physician, the
condition will continue for an indefinite period of not less than an additional
ninety (90) day period, rendering the Executive unable to return to Executive's
duties.
(b) A termination of Executive's employment by ALC shall be
deemed for "CAUSE" if, and only if, seventy-five percent (75%) of the Board of
Directors entitled to vote, at a meeting in which a quorum is present at the
time of the vote, vote for such termination and the termination is based upon
one or more of the following: (i) conviction of a felony; (ii) material
disloyalty to the Company such as embezzlement, misappropriation of corporate
assets or, except as provided in SECTION 3 of this Agreement, breach of
Executive's agreement not to engage in business for another enterprise of the
type engaged in by the Company or not to purchase more than five percent (5%) of
stock in a publicly held corporation which conducts the same business as does
ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal
behavior which is of public nature, brings ALC into disrepute, and results in
material damage to the Company. The Company shall have the right to suspend
Executive, with pay, for a reasonable period to investigate allegations of
conduct which, if proven, would establish a right to terminate this Agreement
for Cause, or to permit a felony charge to be tried. Immediately upon the
conclusion of such temporary period, unless Cause to terminate this Agreement
has been established, Executive shall be restored to all duties and
responsibilities as if such suspension had never occurred.
(c) A resignation by Executive shall not be deemed to be
voluntary and shall be deemed to be a resignation with "GOOD REASON" if it is
based upon one or more of the following: (i) a material diminution in
Executive's title, duties or salary; (ii) a reduction in benefits which is not
part of an across-the-board reduction in benefits of all senior executive
personnel; or (iii) a direction by the Board of Directors that Executive report
to any person or group other than the Board of Directors. It shall also
constitute Good Reason for Executive to resign Executive's employment if the
shareholders of ALC shall fail to elect or re-elect Executive to the Board of
Directors of ALC, unless Executive declines to be elected to such Board of
Directors, or if the directors fail to elect Executive Vice Chairman of the
Board, unless Executive declines to be elected such. Executive's statement that
a resignation was based upon one of the events stated in this SECTION 5(C) shall
be conclusive and binding for purposes of this Agreement, if the resignation
occurs within three (3) months following the event.
(d) "AFFILIATE" means any corporation affiliated with any Person
whose actions result in a Change in Control (or which, as a result of the
completion of the transactions causing a Change in Control shall become
affiliated) within the meaning of Section 1504 of the Internal Revenue Code of
1986, as amended (the "CODE").
(e) "BASE SALARY" means, as of any date of termination of
employment,
3
<PAGE>
the highest annual base salary of Executive in any of the last five fiscal years
preceding such date of termination of employment.
(f) "BENEFICIAL OWNER" shall have the meaning given to such term
in Rule 13d-3 under Exchange Act (defined in Subsection (i) below);
(g) A "CHANGE IN CONTROL" occurs if:
(i) any Person (other than Executive) or that Person's
Affiliate is or becomes the Beneficial Owner, directly or indirectly, of
securities of ALC representing 30% of more of the combined voting power of ALC's
then outstanding securities; or
(ii) the stockholders of ALC approve a merger or
consolidation of ALC with any other corporation (or other entity), other than a
merger or consolidation which would result in the voting securities of ALC
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of ALC or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of ALC (or similar transaction) in
which no Person acquires more than 30% of the combined voting power of ALC's
then outstanding securities shall not constitute a Change in Control; or
(iii) the stockholders of ALC approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of ALC's assets; or
(iv) a majority of the members of the Board of Directors of
ALC cease to be Continuing Directors.
(h) "CONTINUING DIRECTORS" means, as of any date of
determination, any member of the Board of Directors of ALC who (i) was a member
of such Board of Directors on the date of the Agreement or (ii) was nominated
for election or elected to such Board of Directors who were members of such
Board at the time of such nomination or election.
(i) "PERSON" is given the meaning as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include ALC, any trustee or other fiduciary holding
securities under an employee benefit plan of ALC, or any corporation owned,
directly or indirectly, by the stockholders of ALC in substantially the same
proportions as their ownership of stock of ALC.
6. Certain Benefits Upon Termination.
---------------------------------
(a) If Executive's employment by ALC terminates for any reason
(including by reason of death or Permanent Disability), except for a termination
for Cause or
4
<PAGE>
a voluntary resignation by Executive without a Good Reason or pursuant to
SECTION 2(A)(III) or 2(B)(IV), and SECTION 6(B) is inapplicable to such
termination, then ALC shall pay Executive a lump sum severance payment (the
"SEVERANCE PAYMENT") equal to four times Executive's Base Salary.
(b) If within one (1) year after a Change in Control of the
Company, Executive gives notice of termination of employment for any reason,
gives notice of non-renewal, or Executive otherwise terminates employment (other
than due to Executive's death or Permanent Disability) or is terminated by the
Company without Cause, ALC shall pay Executive a Severance Payment in cash equal
to $3 million. In the event of a Change in Control and Executive dies or becomes
Permanently Disabled within one year after such Change in Control, then the
Severance Payment shall be equal to four times Executive's Base Salary.
(c) Company shall offer to Executive the opportunity to
participate in whatever Company-provided medical and dental plans exist as of
the date of termination from that date for a period of three (3) years
commencing Executive's date of termination, if such plans permit such
participation; provided, however, in the event there is a Change in Control of
the Company and Executive's employment terminates, then Executive shall not be
given the opportunity to participate in any such medical and dental plans except
as may otherwise be provided by law.
(d) In the event either (a) or (b) above occurs, (i) ALC shall
pay all accrued but unpaid or unused vacation, sick pay and expense
reimbursement benefit, (ii) all restrictions on Executive's restricted stock
shall lapse, (iii) the exercisability of all stock options held by Executive
shall accelerate and (iv) all other benefits shall vest (unless a plan governs
vesting, such as the deferred compensation plan, in which event the plan's terms
and conditions shall govern vesting).
(e) In the event that Executive's employment terminates by reason
of Executive's death, all benefits provided in this SECTION 6 shall be paid to
Executive's estate or as Executive's executor shall direct, but payment may be
deferred until Executive's executor or personal representative has been
appointed and qualified pursuant to the laws in effect in Executive's
jurisdiction of residence at the time of Executive's death.
(f) Company shall make all cash payments to which Executive is
entitled hereunder within thirty (30) days following the date of termination of
Executive's employment or earlier, if required by applicable law.
(g) In the event Executive has provided notice to the Company of
his intent to terminate or not renew this Agreement pursuant to SECTION
2(A)(III) OR 2(B)(IV) or Company has provided written notice to the Executive of
its intent not to renew this Agreement pursuant to SECTION 2(B)(V):
(i) Salary and Benefits. The salary and other benefits to
-------------------
which Executive would have otherwise been entitled shall continue
through the remainder of the period of notice specified by SECTION
2(A)(III), 2(B)(IV) OR 2(B)(V), provided that Executive is otherwise in
compliance with the terms of this
5
<PAGE>
Agreement, unless (I) Executive subsequently terminates his employment
without Good Reason or the Company terminates Executive's employment
with Cause, (II) Executive is entitled to the extraordinary payment
provided in SECTION 6(A) pursuant to the provisions of SECTION
6(G)(II), or (III) Executive is entitled to the extraordinary payment
provided in SECTION 6(B).
(ii) Section 6(a) Benefit. Executive shall be entitled to
--------------------
the extraordinary payment provided in SECTION 6(A) (unless Executive is
otherwise entitled to the extraordinary payment provided by SECTION
6(B)) in the event that, subsequent to such notice, (I) Executive is
terminated without Cause by the Company, (II) Executive's employment
terminates due to death or Permanent Disability, or (III) Executive
terminates his employment with Good Cause.
(iii) Section 6(b) Benefit. Executive shall have no rights
--------------------
under SECTION 6(B); provided, however, that if Company and a third
party have executed a commitment letter or agreement under which a
Change in Control is to occur and such agreement was entered into prior
to the Company having provided notice to Executive of its intent not to
renew pursuant to SECTION 2, then Executive shall be entitled to the
extraordinary payment provided in SECTION 6(B), if that Change in
Control in fact occurs and Executive otherwise is entitled to those
benefits as set forth in SECTION 6(B).
(h) In the event Executive is entitled hereunder to any payments
or benefits set forth in SECTION 6(A) OR (B), Executive shall have no obligation
to notify Company of employment subsequent to Executive's termination or to
offset Company's obligation by payments due to such employment and shall have no
duty to mitigate.
(i) The provisions for Severance Payments contained in this
SECTION 6 may be triggered only once during the term of this Agreement, so that,
for instance, should Executive terminate owing to a Permanent Disability and
should there thereafter be a Change in Control, then Executive would be entitled
to be paid only under 6(a) and not under 6(b) as well. In addition, Executive
shall not be entitled to receive severance benefits of any kind from any wholly
owned subsidiary or other affiliated entity of ALC if in connection with the
same event of series of events the Severance Payments provided for in this
SECTION 6 have been triggered.
(j) Gross-Up.
--------
(i) If it is determined that any payment, distribution
or benefit received or to be received by Executive from the Company (whether
payable pursuant to the terms of this Agreement or any other plan, arrangements
or agreement with the Company or an affiliate of Company ("PAYMENTS") would be
subject to the excise tax imposed by Section 4999 of the Code (the "EXCISE
TAX"), then Executive shall be entitled to receive an additional payment (the
"EXCISE TAX GROSS-UP PAYMENT") in an amount such that the aggregate amount of
the Payment and Excise Tax Gross-Up Payment to be retained by Executive, after
the deduction of any Excise Tax on the Payments and any federal, state and local
income taxes and excise tax on the Excise Tax Gross-Up Payment provided for in
this SECTION 6(J)(I), shall be equal to the
6
<PAGE>
Payments. In determining this amount, the amount of the Excise tax Gross-Up
Payment attributable to federal income taxes shall be reduced by the maximum
reduction in federal income taxes that could be obtained by the deduction of the
portion of the Excise Tax Gross-Up Payment attributable to state and local
income taxes. Finally, the Excise Tax Gross-Up Payment shall be reduced by
income or excise tax withholding payments made by the Company or any affiliate
of either to any federal, state or local taxing authority with respect to the
Excise Tax Gross-Up Payment that was not deducted from compensation payable to
Executive.
(ii) All determinations required to be made under this
SECTION 6 (J), including whether and when an Excise Tax Gross-Up Payment is
required and the amount of such Excise Tax Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, except as specified in SECTION
6(J)(I) above, shall be made by the Company's independent auditors (the
"ACCOUNTING FIRM"), which shall provide detailed supporting calculations both to
the Company and Executive within fifteen (15) business days after the Company
makes any Payments to Executive. Such determination of tax liability made by the
Accounting Firm shall be subject to review by Executive's tax advisor and, if
Executive's tax advisor does not agree with such determination reached by the
Accounting Firm, then the Accounting Firm and Executive's tax advisor shall
jointly designate a nationally recognized public accounting firm, which shall
make such determination. All reasonable fees and expenses of the accountants and
tax advisors retained by either Executive or the Company shall be borne by the
Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this SECTION
6(J), shall be paid by the Company to Executive within five (5) days after the
receipt of such determination. Any determination by a jointly designated public
accounting firm shall be binding upon the Company and Executive.
(iii) As a result of the uncertainty in the application
of Subsection 4999 of the Code at the time of the initial determination
hereunder, it is possible that Excise Tax Gross-up Payment will not have been
made by the Company that should have been made consistent with the calculations
required to be made hereunder ("UNDERPAYMENT"). In the event that Executive
thereafter is required to make a payment of any Excise Tax, any such
Underpayment calculated in accordance with and in the same manner as the Excise
Tax Gross-up Payment exceeds the amount subsequently determined to be due, such
excess shall constitute a loan from the Company to Executive payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274 (b)(2)(B) of the Code).
(k) Company agrees to take reasonable steps to ensure that in the
event Company has an obligation to perform under SECTION 6(B), Company shall
have the financial ability to do so.
7. Indemnification.
---------------
(a) ALC and Executive shall enter into an indemnification
agreement in substantially the same form as that which is attached hereto as
EXHIBIT "B" and incorporated herein by this reference.
(b) ALC shall include Executive as an insured in its directors
and officers
7
<PAGE>
insurance policy and shall provide evidence of such coverage to Executive upon
Executive's written request.
8. Dispute Resolution.
------------------
(a) Mediation. If a dispute arises out of or relates to this
---------
Agreement or the breach of it (the "DISPUTE"), and if the Dispute cannot be
settled through negotiation, the parties agree first to attempt in good faith to
settle the Dispute by nonbinding mediation under the then effective rules of the
Arbitration Service of Portland, Inc. (the "SERVICE") or, if the Service is no
longer doing business, then under the Mediation Rules of the American
Arbitration Association (the "AAA") before resorting to arbitration.
(b) Arbitration. In the event the parties fail to resolve the
-----------
Dispute through mediation, then either party or both of them shall have the
right to submit the Dispute to final and binding arbitration by the Service or,
if the Service is no longer doing business, then by the American Arbitration
Association. The parties agree to arbitration as an alternative to court
proceedings in order (i) to obtain a prompt evidentiary hearing and an
arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and
(iii) to do so economically. During the arbitration proceeding, the arbitrator,
in the arbitrator's sole discretion, shall have the right to grant requests for
discovery of documents, the taking of depositions, and the issuance of subpoenas
in accordance with Rules of the Service or AAA, whichever is applicable. Each
party hereby promises to cooperate in the arbitration process to effectuate
these purposes. The arbitration shall be conducted in accordance with the Rules
of the Service or, if the Service is no longer doing business, then in
accordance with the Rules of the AAA which are in effect at the time of the
arbitration. Judgment rendered by the arbitrator may be entered in any court
having competent jurisdiction in accordance with Oregon law.
(c) Waiver of Jury Trial. By submitting a Dispute to mediation
--------------------
and arbitration, the parties hereto understand that they will not enjoy the
benefits of a jury trial. Accordingly, the parties hereto expressly waive the
right to a jury trial.
(d) Nonexclusive Remedy. Notwithstanding the above provisions
--------------------
regarding mediation and arbitration, the parties each retain their respective
rights to seek injunctive relief or other provisional remedies provided under
the law in any court having competent jurisdiction.
9. Attorneys Fees.
--------------
(a) In the event of mediation, the parties shall bear their own
attorneys fees and costs, except that the cost of mediation shall be shared
equally.
(b) In the event of arbitration, the arbitrator shall award
reasonable attorneys fees and costs of the mediation and arbitration to the
prevailing party, including the fees of the arbitrator, unless such award of
fees and costs would be manifestly unjust for reasons set forth by the
arbitrator in his written decision. In determining the amount of reasonable
attorneys fees to a party, the arbitrator may take into account (i) each party's
respective efforts
8
<PAGE>
to achieve an economical and expeditious resolution of the dispute in
accordance with this SECTION; and (ii) the final settlement offers, if any, of
the parties at least ten (10) calendar days prior to the commencement of the
hearing. In accordance with the rules of evidence, however, settlement offers
shall not be considered in relation to the merits of any Dispute that is subject
to this SECTION other than the award of attorneys fees and costs.
(c) Notwithstanding (b) above, if a suit, action or other
proceeding of any nature whatsoever (including any contested matter or adversary
proceeding under the U.S. Bankruptcy Code) is instituted in connection with any
controversy arising out of this Agreement or to interpret or enforce any rights
hereunder, the prevailing party shall be entitled to recover its reasonable
attorneys, paralegals, accountants and other experts fees, and all other fees,
costs and expenses actually incurred in connection therewith, as determined by
the judge at trial or on appeal or review, in addition to all other amounts
provided by law.
(d) ALC agrees to reimburse Executive in an amount not to exceed
$2500 for Executive's attorneys fees incurred in the negotiations for, and
preparation of, this Agreement.
10. Notices. All notices and other communications provided to either
-------
party under this Agreement shall be in writing and delivered by overnight
courier or other personal delivery to such party at its address set forth below
its signature hereto, or at such other address as may be designated by such
party in a notice to the other party. Any notice, if so delivered and properly
addressed with postage prepaid, shall be deemed given when received.
11. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of Executive's heirs, representatives and executors and ALC's
successors and assigns, respectively.
12. Construction. In construing this Agreement, if any portion of
------------
this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the plural,
the masculine shall include the feminine and neuter genders as appropriate, and
no meaning or effect shall be given to the captions of the sections in this
Agreement, which are inserted for convenience of reference only.
13. Headings. The section headings hereof have been inserted for
--------
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
14. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the internal laws of the State of
Oregon as at the time in effect.
15. Entire Agreement. This Agreement constitutes the final and
----------------
entire agreement and supersedes all other prior agreements and undertakings,
both written and oral,
9
<PAGE>
including without limitation the Prior Employment Agreement, among Executive and
the Company, with respect to the subject matter hereof.
16. Counterpart. This Agreement may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which taken
together shall constitute one instrument.
IN WITNESS WHEREOF, this Agreement has been executed on the dates set
forth below, to be effective as of the date specified in the first paragraph of
this Agreement.
"EXECUTIVE"
/s/ Keren Brown Wilson
Date: 10/3 1997 _______________________________________
Keren Brown Wilson, as an individual
Home Address:
__________________________
Portland, OR
"ALC OR COMPANY"
/s/ Stephen Gordon
Date: 10/3 1997 _______________________________________
Stephen Gordon, Chief Financial Officer
Address:
9955 S.E. Washington St., Third Floor
Portland, OR 97216
10
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"First Amendment"), is made as of March 15, 1999, by and between Assisted Living
Concepts, Inc., a Nevada corporation (the "Company"), and Keren Brown Wilson
("Executive"). Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to such terms in the Employment Agreement (as defined
below).
WHEREAS, the Company and Executive have entered into that certain Amended
and Restated Employment Agreement (the "Employment Agreement"), dated as of
October 3, 1997; and
WHEREAS, the Company and Executive desire to amend the Employment Agreement
as set forth herein.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby amend the
Employment Agreement as follows:
1. Section 1(a) of the Employment Agreement is hereby amended and restated
in its entirety as follows:
"(a) ALC hereby employs Executive to serve as its President and Chief
Executive Officer. In such capacity, Executive shall report to the Board
of Directors of the Company, and shall have such duties powers and
responsibilities as are customarily assigned to persons serving in such
capacities for a publicly held corporation in a business such as that
conducted by the Company. Executive shall serve as Vice Chairman of the
Board of Directors of ALC."
2. Section 4(b) of the Employment Agreement is hereby amended and restated
in its entirety as follows:
"(b) The Company and Executive acknowledge that, pursuant to that
certain Restricted Stock Agreement, dated as of October 3, 1997, between
the Company and Executive (the "Restricted Stock Agreement"), the Company
has issued to Executive 50,000 shares of restricted common stock of ALC
(the "Restricted Stock") pursuant to ALC's Amended and Restated 1994 Stock
Option Plan (the "Plan"). In consideration of Executive's agreement to
forfeit her right and interest in the Restricted Stock as set forth in the
following sentence, the Company shall pay Executive a lump sum cash payment
in the amount of $187,500 (less amounts required to be withheld under
applicable law) (the
<PAGE>
"Forfeiture Payment"). Notwithstanding anything contained in the Restricted
Stock Agreement or the Plan, immediately upon payment by the Company of the
Forfeiture Payment, (i) Executive shall automatically forfeit all of her
right and interest in the 50,000 shares of Restricted Stock issued pursuant
to the Restricted Stock Agreement and (ii) the Restricted Stock Agreement
shall automatically terminate and be of no further force and effect."
3. Section 5(h) of the Employment Agreement is hereby amended and restated
in its entirety as follows:
"(h) "Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of ALC who (i) was a member of such
Board of Directors on the date of the Agreement or (ii) was nominated for
election or elected to such Board of Directors by at least a majority of
those persons who were Continuing Directors at the time of such nomination
or election."
4. Section 6(d) of the Employment Agreement is hereby amended and restated
in its entirety as follows:
"(d) In the event either (a) or (b) above occurs, (i) ALC shall pay
all accrued but unpaid or unused vacation, sick pay and expense
reimbursement benefit, (ii) all restrictions on Executive's then
outstanding restricted stock shall lapse, (iii) the exercisability of all
then outstanding stock options held by Executive shall accelerate, and (iv)
all other benefits shall vest (unless a plan governs vesting, such as the
deferred compensation plan, in which event the plan's terms and conditions
shall govern vesting)."
5. This First Amendment shall be and is hereby incorporated in and forms a
part of the Employment Agreement.
6. This First Amendment shall be effective as of March 15, 1999.
7. Except as set forth herein, the Employment Agreement shall remain in
full force and effect.
[SIGNATURE PAGE TO FOLLOW]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Amended and Restated Employment Agreement as of the date first above written.
"EXECUTIVE"
------------------------------------
Keren Brown Wilson, as an individual
"ALC" OR "COMPANY"
By:
--------------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of December 31, 1997
(the "Commencement Date"), by and between Assisted Living Concepts, Inc., a
corporation organized under the laws of the state of Nevada ("ALC" or the
"Company") and Sandra Campbell ("Executive").
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Appointment, Title and Duties.
-----------------------------
(a) ALC hereby employs Executive to serve as its Senior Vice
President, General Counsel and Chief Legal Officer. In such capacity, Executive
shall report to the Board of Directors of the Company and also be subject to
supervision on a daily basis by the Chief Executive Officer of the Company, and,
in such person's absence, the President of the Company, and shall have such
duties, powers and responsibilities as are customarily assigned to the General
Counsel and Chief Legal Officer of a publicly held corporation in a business
such as that conducted by Company.
(b) Executive's duties may require her to travel. When Executive
is not travelling on behalf of ALC, or as otherwise provided under this
Agreement, Executive shall perform her duties in an office provided her by
Company at its corporate headquarters in Portland, Oregon.
2. Term of Agreement.
-----------------
(a) The initial term of this Agreement shall be for a two and
one-half (2-1/2) year period from and after the Commencement Date, unless
terminated earlier by (i) termination for Cause; (ii) the voluntary resignation
of Executive for Good Reason; (iii) the expiration of four (4) months from and
after the date Executive provides written notice of termination to Company; or
(iv) Executive's death or Permanent Disability (defined in Section 5(a) below).
Notwithstanding the foregoing, Executive need not first report for work until
any date of her choosing which is on or before January, 19, 1998, and she shall
be considered to be on an unpaid leave of absence until the date on which she
chooses to report.
(b) If this Agreement has not terminated as of the date of the
expiration of the initial term, this Agreement shall be automatically extended
on a continuous basis daily from and after that date, until the occurrence of
one of the following events of termination: (i) termination for Cause; (ii)
voluntary resignation of Executive for Good Reason; (iii) Executive's death or
Permanent Disability; (iv) the expiration of four months from and after the date
Executive provides written notice of intent not to renew this Agreement to
Company; or (v) the expiration of two and one-half (2-1/2) years from and after
the date Company provides written notice of intent not to renew this Agreement
to Executive.
(c) A termination hereunder shall constitute a termination of employment with
any wholly owned subsidiary or other affiliate of Company.
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
3. Acceptance of Position. Executive accepts the position set
----------------------
forth in Section 1 above and agrees that during the term of this Agreement,
Executive will faithfully perform Executive's duties and, except as expressly
approved by the Board of Directors or Chief Executive Officer or President of
ALC and except as set forth herein, will devote substantially all of Executive's
business time to the business and affairs of ALC, and will not engage, for
Executive's own account or for the account of any other person or entity, in a
business which competes with ALC. During the term of this Agreement, Executive
shall not directly own, or own as part of a consortium, more than five percent
(5%) of a publicly held corporation which conducts the same business as does ALC
or its affiliates. It is acknowledged and agreed that Executive may, from time
to time during the term of this Agreement, serve as a member of the Board of
Directors of other companies, in which event the Board of Directors of ALC must
expressly approve such service.
4. Salary and Benefits. During the term of this Agreement:
-------------------
(a) ALC shall pay to Executive a base salary in an annual amount
of not less than One Hundred and Fifty Thousand Dollars ($150,000) per annum,
paid in approximately equal installments at intervals in accordance with the
then prevailing policy of the Company with respect to its senior executives
generally, but in no event, less frequently than monthly. ALC agrees to consider
from time to time increases in such base salary in the discretion of the Board
of Directors. Any increase, once granted by the Board of Directors, shall be
deemed to automatically amend this Agreement to provide that thereafter
Executive's base salary shall not be less than the annual amount to which the
base salary has been increased.
(b) Concurrently herewith ALC and Executive shall execute and
deliver a Stock Option Agreement for Employees in substantially the same form as
that attached hereto as Exhibit "A," pursuant to which Executive shall be
granted options covering 50,000 shares of Common Stock of ALC pursuant to the
Amended and Restated 1994 Stock Option Plan (the "Plan"). The Stock Option
Agreement provides that the options shall be nonqualified stock options and not
"incentive stock options" under Section 422A of the Internal Revenue Code and
shall become exercisable to the extent of 33-1/3% of the stock covered by the
options on each of December 31, 1998, 1999 and 2000, subject to earlier
acceleration as provided in Section 6(d) hereof.
(c) Executive shall participate in all health, retirement,
Company-paid insurance, sick leave, disability, expense reimbursement and other
benefit programs which ALC makes available to any of its senior executives, and
shall be eligible for bonuses in the discretion (as to bonuses) of the Board of
Directors; provided, however, that Executive shall receive a bonus of no less
than Twenty-Five Thousand Dollars ($25,000) on the day before the first
anniversary of the Commencement Date and a bonus of no less than Forty-Five
Thousand Dollars ($45,000) on the day before each such anniversary thereafter
(the "Mandatory Bonuses"). During the term, the Company shall also pay (i) all
of Executive's California and Oregon bar dues and costs and expenses of meeting
continuing legal education requirements in those states, and (ii) the cost of
Executive's COBRA coverage for the first three (3) months of the term.
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
(d) Executive shall be entitled to vacation time of not less
than four (4) weeks per year, provided that not more than two (2) weeks of such
vacation time may be taken consecutively without prior notice to, and non-
objection by, the Chief Executive Officer or the President of the Company.
Unused vacation time shall not be cumulative from year to year and Executive
shall not be entitled to any compensation for unused vacation time which expires
by reason of this sentence.
5. Certain Terms Defined. For purposes of this Agreement:
---------------------
(a) Executive shall be deemed to be "Permanently Disabled" if a
physical or mental condition occurs and persists which, in the written opinion
of a licensed physician selected by the Board of Directors in good faith, has
rendered Executive unable to perform Executive's duties hereunder for a period
of ninety (90) days or more and, in the written opinion of such physician, the
condition will continue for an indefinite period of not less than an additional
ninety (90) day period, rendering the Executive unable to return to Executive's
duties.
(b) A termination of Executive's employment by ALC shall be
deemed for "Cause" if, and only if, seventy-five percent (75%) of the Board of
Directors entitled to vote, at a meeting in which a quorum is present at the
time of the vote, vote for such termination and the termination is based upon
one or more of the following: (i) conviction of a felony, (ii) material
disloyalty to the Company such as embezzlement, misappropriation of corporate
assets or, except as provided in Section 3 of this Agreement, breach of
Executive's agreement not to engage in business for another enterprise of the
type engaged in by the Company or not to purchase more than five percent (5%) of
stock in a publicly held corporation which conducts the same business as does
ALC or its affiliates; or (iii) the engaging in immoral, unethical or illegal
behavior which is of public nature, brings ALC into disrepute, and results in
material damage to the Company. The Company shall have the right to suspend
Executive, with pay, for a reasonable period to investigate allegations of
conduct which, if proven, would establish a right to terminate this Agreement
for Cause, or to permit a felony charge to be tried. Immediately upon the
conclusion of such temporary period, unless Cause to terminate this Agreement
has been established, Executive shall be restored to all duties and
responsibilities as if such suspension had never occurred.
(c) A resignation by Executive shall not be deemed to be
voluntary and shall be deemed to be a resignation with "Good Reason" if it is
based upon one or more of the following: (i) a material diminution in
Executive's title, duties or salary; (ii) a reduction in benefits which is not
part of an across-the-board reduction in benefits of all senior executive
personnel; or (iii) a direction by the Board of Directors that Executive report
to any person other than as set forth in Section 1(a) hereof. It shall also
constitute Good Reason for Executive to resign Executive's employment if the
Board of Directors of ALC shall fail to elect or re-elect Executive to serve as
Senior Vice President, General Counsel and Chief Legal Officer of ALC, unless
Executive declines to be elected such. Executive's statement that a resignation
was based upon one of the events stared in this Section 5(c) shall be conclusive
and binding for purposes of this Agreement, if the resignation occurs within
three (3) months following the event.
(d) "Affiliate" means any corporation affiliated with any Person
whose actions result in a Change in Control (or which, as a result of the
completion of the
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
transactions causing a Change in Control shall become affiliated) within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the
"Code").
(e) "Base Salary" means, as of any date of termination of
employment, the highest annual base salary of Executive in any of the last five
fiscal years preceding such date of termination of employment.
(f) "Beneficial Owner" shall have the meaning given to such term
in Rule 13d-3 under Exchange Act (defined in Subsection (i) below);
(g) A "Change in Control" occurs if:
(i) any Person (other than Executive) or that Person's
Affiliate is or becomes the Beneficial Owner, directly or indirectly, of
securities of ALC representing 30% or more of the combined voting power of ALC's
then outstanding securities; or
(ii) the stockholders of ALC approve a merger or
consolidation of ALC with any other corporation (or other entity), other than a
merger or consolidation which would result in the voting securities of ALC
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of ALC or such surviving entity outstanding immediately after such
merger or consolidation; provided, however, that a merger or consolidation
effected to implement a recapitalization of ALC (or similar transaction) in
which no Person acquires more than 30% of the combined voting power of ALC's
then outstanding securities shall not constitute a Change in Control; or
(iii) the stockholders of ALC approve a plan of complete
liquidation or an agreement for the sale or disposition of all or substantially
all of ALC's assets; or
(iv) a majority of the members of the Board of Directors
of ALC cease to be Continuing Directors.
(h) "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of ALC who (i) was a member
of such Board of Directors on the date of the Agreement or (ii) was nominated
for election or elected to such Board of Directors who were members of such
Board at the time of such nomination or election.
(i) "Person" is given the meaning as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); provided, however, that unless this Agreement provides to the
contrary, the term shall not include ALC, any trustee or other fiduciary holding
securities under an employee benefit plan of ALC, or any corporation owned,
directly or indirectly, by the stockholders of ALC in substantially the same
proportions as their ownership of stock of ALC.
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
6. Certain Benefits Upon Termination.
---------------------------------
(a) If Executive's employment by ALC terminates for any reason
(including by reason of death or Permanent Disability), except for a termination
for Cause or a voluntary resignation by Executive without a Good Reason or
pursuant to Section 2(a) (iii) or 2(b)(iv), and Section 6(b) is inapplicable to
such termination, then ALC shall pay Executive a lump sum severance payment (the
"Severance Payment") equal to the sum of (i) two times Executive's Base Salary,
plus (ii) One Hundred Thousand Dollars ($100,000).
(b) Upon any Change in Control of the Company (and regardless of
whether Executive thereafter remains in the employ of the Company), ALC shall
pay Executive a Severance Payment in cash equal to the sum of (i) two times
Executive's Base Salary, plus (ii) One Hundred Thousand Dollars ($100,000).
(c) Company shall offer to Executive the opportunity to
participate in whatever Company-provided medical and dental plans exist as of
the date of termination from that date for a period of three (3) years
commencing Executive's date of termination, if such plans permit such
participation; provided, however, in the event there is a Change in Control of
the Company and Executive's employment terminates in connection therewith, then
Executive shall not be given the opportunity to participate in any such medical
and dental plans except as may otherwise be provided by law.
(d) In the event either (a) or (b) above occurs, (i) ALC shall
pay all accrued but unpaid or unused vacation, sick pay and expense
reimbursement benefit, (ii) the exercisability of all stock options held by
Executive shall accelerate and (iii) all other benefits shall vest (unless a
plan governs vesting, such as the deferred compensation plan, in which event the
plan's terms and conditions shall govern vesting). In the event that Executive
holds stock options covered by agreements that are affected by the provisions of
Section 6(d)(iii), Company shall promptly take such steps as are necessary to
effect the amendment of such agreements to reflect such provisions. Executive
acknowledges that she has been advised by his own legal counsel as to the effect
of such amendments on the status of any such options as "qualified" options
under the Code, the tax effect on Executive of such amendment, and the
ramifications for Executive of such amendments under Section 16 of the
Securities Exchange Act of 1934 and the reporting and short-swing profit
provisions thereof.
(e) In the event that Executive's employment terminates by
reason of Executive's death, all benefits provided in this Section 6 shall be
paid to Executive's estate or as Executive's executor shall direct, but payment
may be deferred until Executive's executor or personal representative has been
appointed and qualified pursuant to the laws in effect in Executive's
jurisdiction of residence at the time of Executive's death.
(f) Company shall make all cash payments to which Executive is
entitled hereunder within thirty (30) days following the date of termination of
Executive's employment or the date of Change in Control (as the case may be), or
earlier, if required by applicable law.
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
(g) In the event Executive has provided notice to the Company of
her intent to terminate or not renew this Agreement pursuant to Section
2(a)(iii) or 2(b)(iv) or Company has provided written notice to the Executive of
its intent not to renew this Agreement pursuant to Section 2(b)(v):
(i) Salary and Benefits. The salary and other benefits
-------------------
to which Executive would have otherwise been entitled shall continue
through the remainder of the period of notice specified by Section
2(a)(iii), 2(b)(iv) or 2(b)(v), provided that Executive is otherwise in
compliance with the terms of this Agreement, unless (I) Executive
subsequently terminates her employment without Good Reason or the Company
terminates Executive's employment with Cause, (II) Executive is entitled to
the extraordinary payment provided in Section 6(a) pursuant to the
provisions of Section 6(g)(ii), or (III) Executive is entitled to the
extraordinary payment provided in Section 6(b).
(ii) Section 6(a) Benefit. Executive shall be entitled to t
--------------------
he extraordinary payment provided in Section 6(a) (unless Executive is
otherwise entitled to the extraordinary payment provided by Section 6(b))
in the event that, subsequent to such notice, (I) Executive is terminated
without Cause by the Company, (II) Executive's employment terminates due to
death or Permanent Disability, or (III) Executive terminates her employment
with Good Cause.
(iii) Section 6(b) Benefit. Executive shall have no rights
--------------------
under Section 6(b); provided, however, that if Company and a third party
have executed a commitment letter or agreement under which a Change in
Control is to occur and such agreement was entered into prior to the
Company having provided notice to Executive of its intent not to renew
pursuant to Section 2, then Executive shall be entitled to the
extraordinary payment provided in Section 6(b), if that Change in Control
in fact occurs and Executive otherwise is entitled to those benefits as set
forth in Section 6(b).
(h) In the event Executive is entitled hereunder to any payments
or benefits set forth in Section 6(a) or (b), Executive shall have no obligation
to notify Company of employment subsequent to Executive's termination or to
offset Company's obligation by payments due to such employment and shall have no
duty to mitigate.
(i) The provisions for Severance Payments contained in this
Section 6 may be triggered only once during the term of this Agreement, so that,
for instance, should Executive terminate owing to a Permanent Disability and
there should thereafter be a Change in Control, then Executive would be entitled
to be paid only under 6(a) and not under 6(b) as well; provided, however, that
the provisions of Section 6(a) hereof may be triggered notwithstanding that the
provisions of Section 6(b) hereof may already have been triggered, so that
Executive may become entitled to Section 6(a) payments if she has remained in
the employ of the Company following a Change in Control (notwithstanding her
receipt of 6(b) payments. In addition, Executive shall not be entitled to
receive severance benefits of any kind from any wholly owned subsidiary or other
affiliated entity of ALC if in connection with the same event of series of
events the Severance Payments provided for in this Section 6 have been
triggered.
Page 6 - EMPLOYMENT AGREEMENT
<PAGE>
(j) Company agrees to take reasonable steps to ensure that in
the event Company has an obligation to perform under Section 6(b), Company shall
have the financial ability to do so.
7. Indemnification.
---------------
(a) ALC and Executive shall enter into an indemnification
agreement in substantially the same form as that which is attached hereto as
Exhibit "B" and incorporated herein by this reference.
(b) ALC shall include Executive as an insured in its directors
and officers insurance policy and shall provide evidence of such coverage to
Executive upon Executive's written request.
8. Dispute Resolution.
------------------
(a) Mediation. If a dispute arises out of or relates to this
---------
Agreement or the breach of it (the "Dispute"), and if the Dispute cannot be
settled through negotiation, the parties agree first to attempt in good faith to
settle the Dispute by nonbinding mediation under the then effective rules of the
Arbitration Service of Portland, Inc. (the "Service") or, if the Service is no
longer doing business, then under the Mediation Rules of the American
Arbitration Association (the "AAA") before resorting to arbitration.
(b) Arbitration. In the event the parties fail to resolve the
-----------
Dispute through mediation, then either party or both of them shall have the
right to submit the Dispute to final and binding arbitration by the Service or,
if the Service is no longer doing business, then by the American Arbitration
Association. The parties agree to arbitration as an alternative to court
proceedings in order (i) to obtain a prompt evidentiary hearing and an
arbitrator's final award resolving any dispute, (ii) to do so expeditiously, and
(iii) to do so economically. During the arbitration proceeding, the arbitrator,
in the arbitrator's sole discretion, shall have the right to grant requests for
discovery of documents, the taking of depositions, and the issuance of subpoenas
in accordance with Rules of the Service or AAA, whichever is applicable. Each
party hereby promises to cooperate in the arbitration process to effectuate
these purposes. The arbitration shall be conducted in accordance with the Rules
of the Service or, if the Service is no longer doing business, then in
accordance with the Rules of the AAA which are in effect at the time of the
arbitration. Judgment rendered by the arbitrator may be entered in any court
having competent jurisdiction in accordance with Oregon law.
(c) Waiver of Jury Trial. By submitting a Dispute to mediation
--------------------
and arbitration, the parties hereto understand that they will not enjoy the
benefits of a jury trial. Accordingly, the parties hereto expressly waive the
right to a jury trial.
(d) Nonexclusive Remedy. Notwithstanding the above provisions
-------------------
regarding mediation and arbitration, the parties each retain their respective
rights to seek injunctive relief or other provisional remedies provided under
the law in any court having competent jurisdiction.
Page 7 - EMPLOYMENT AGREEMENT
<PAGE>
9. Attorneys Fees.
--------------
(a) In the event of mediation, the parties shall bear their own
attorneys fees and costs, except that the cost of mediation shall be shared
equally.
(b) In the event of arbitration, the arbitrator shall award
reasonable attorneys fees and costs of the mediation and arbitration to the
prevailing party, including the fees of the arbitrator, unless such award of
fees and costs would be manifestly unjust for reasons set forth by the
arbitrator in his written decision. In determining the amount of reasonable
attorneys fees to a party, the arbitrator may take into account (i) each party's
respective efforts to achieve an economical and expeditious resolution of the
dispute in accordance with this Section; and (ii) the final settlement offers,
if any, of the parties at least ten (10) calendar days prior to the commencement
of the hearing. In accordance with the rules of evidence, however, settlement
offers shall not be considered in relation to the merits of any Dispute that is
subject to this Section other than the award of attorneys fees and costs.
(c) Notwithstanding (b) above, if a suit, action or other
proceeding of any nature whatsoever (including any contested matter or adversary
proceeding under the U.S. Bankruptcy Code) is instituted in connection with any
controversy arising out of this Agreement or to interpret or enforce any rights
hereunder, the prevailing party shall be entitled to recover its reasonable
attorneys, paralegals, accountants and other experts fees, and all other fees,
costs and expenses actually incurred in connection therewith, as determined by
the judge at trial or on appeal or review, in addition to all other amounts
provided by law.
(d) ALC agrees to reimburse Executive in an amount not to exceed
$2000 for Executive's attorneys' fees incurred in the negotiations for, and
preparation of, this Agreement, plus such attorneys' costs.
10. Notices. All notices and other communications provided to
-------
either party under this Agreement shall be in writing and delivered by overnight
courier or other personal delivery to such party at its address set forth below
its signature hereto, or at such other address as may be designated by such
party in a notice to the other party. Any notice, if so delivered and properly
addressed with postage prepaid, shall be deemed given when received.
11. Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of Executive's heirs, representatives and executors and
ALC's successors and assigns, respectively.
12. Construction. In construing this Agreement, if any portion of
------------
this Agreement shall be found to be invalid or unenforceable, the remaining
terms and provisions of this Agreement shall be given effect to the maximum
extent permitted without considering the void, invalid or unenforceable
provision. In construing this Agreement, the singular shall include the plural,
the masculine shall include the feminine and neuter genders as appropriate, and
no meaning or effect shall be given to the captions of the sections in this
Agreement, which are inserted for convenience of reference only.
Page 8 - EMPLOYMENT AGREEMENT
<PAGE>
13. Headings. The section headings hereof have been inserted for
--------
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
14. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the internal laws of the State of
Oregon as at the time in effect.
15. Entire Agreement. This Agreement constitutes the final and
----------------
entire agreement and supersedes all other prior agreements and undertakings,
both written and oral, and all contemporaneous oral agreements, with respect to
the subject matter hereof.
16. Counterpart. This Agreement may be executed in one or more
-----------
counterparts, each of which shall be an original, but all of which taken
together shall constitute one instrument.
Page 9 - EMPLOYMENT AGREEMENT
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on the dates set
forth below, to be effective as of the date specified in the first paragraph of
this Agreement.
"EXECUTIVE"
Date: , 1997
------ ------------------------------------
Sandra Campbell
Home Address:
------------------------------------
------------------------------------
"ALC or COMPANY"
Date: , 1997 Assisted Living Concepts, Inc.
------
------------------------------------
William McBride III, Chief Executive
Officer
Address:
9955 S.E. Washington St., Third Floor
Portland, OR 97216
<PAGE>
EXHIBIT "A"
STOCK OPTION AGREEMENT FOR EMPLOYEES
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of the 1st day
of January, 1998, by and between Sandra Campbell ("Indemnitee") and Assisted
Living Concepts, Inc. a Nevada corporation (the "Company").
RECITALS
A. The Company has recognized the difficulty that publicly held
corporations are having in attracting and retaining qualified directors,
officers and key employees as a result of the increasing risk of claims and
actions against them arising out of their association with the Company.
B. Indemnitee is an officer, director and/or key employee of the Company.
C. Indemnitee is wining to serve, to continue to serve and to take on
additional service for or on behalf of the Company.
D. In view of the mutual desire of the parties that Indemnitee render
valuable services to the Company, the parties have agreed to enter into this
Indemnification Agreement.
THEREFORE IT IS AGREED:
1. Definitions. The following definitions shall apply to this Agreement:
-----------
1.1 "Act" shall be the Nevada Corporation Act, NRS (S)(S) 78.010.795,
and all amendments thereto hereinafter enacted.
1.2 "Expenses" shall include, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals and attorneys'
fees and disbursements and any expenses of establishing a right to
indemnification under this Agreement.
1.3 "Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an employee
benefit plan, or reasonable Expenses incurred with respect to a Proceeding.
1.4 "Party" includes an individual who was, is or is threatened to be
made a named defendant or respondent in a proceeding.
1.5 "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
2. Indemnification. The Company shall indemnity Indemnitee against
---------------
Liability and Expenses actually and necessarily incurred by her or her in any
Proceeding in which he or she is made a Party by reason of being or having been
a director, officer or key employee of the Company, except in relation to
matters as to which indemnification is prohibited by the Act; but
-1-
<PAGE>
such indemnification shall not be deemed exclusive of any other rights to
which Indemnitee may be entitled under any bylaw or agreement of the Company,
general or specific action of the Company's board of directors, vote of the
Company's shareholders or otherwise.
3. Procedure for Indemnification. After the final disposition of any
-----------------------------
Proceeding in which Indemnitee may be entitled to indemnification pursuant to
this Agreement, Indemnitee may send to the Company a written request for
indemnification. The Company shall, in accordance with the provisions of the
Act regarding determination and authorization of indemnification, make a finding
whether the indemnification requested is permitted by the laws of the state of
Nevada no later than 60 days following receipt by the Company of such request.
The Company shall cause the indemnification requested to be authorized and paid
unless the Company finds that the indemnification requested is not so permitted.
Indemnitee shall be given an opportunity to be heard and to present evidence in
connection with the consideration of the party or parties determining
Indemnitee's right to indemnification under the Act. If the Company does not
authorize indemnification hereunder, Indemnitee shall have the right to seek
court-ordered indemnification in accordance with the provisions of the Act. In
any such action, neither the making of, nor the failure to make, any finding by
the Company that indemnification of the Indemnitee is proper or not proper in
the circumstances shall be a defense to such action or create a presumption that
the Indemnitee has not met the standard of conduct required by the Act. In
making its determination and in any court proceeding, the Company shall have the
burden of proving that Indemnitee has not met the standard of conduct required
by the Act to entitle Indemnitee to indemnification.
4. Procedure for Advancement of Expenses. The Company shall pay for or
-------------------------------------
reimburse the reasonable Expenses incurred by Indemnitee as a result of being
Party to a Proceeding in advance of final disposition of the Proceeding promptly
upon receipt of a written request for payment of such Expenses that is in
accordance with the requirements of the Act for such written statements. Such
written statement shall also include or be accompanied by documentation of the
Expenses incurred certified true and correct by Indemnitee. When available,
such documentation of expenses shall include copies of bills or statements
evidencing the Expenses incurred. If the requirements of this Section 4 are
met, the Company shall pay the amount requested promptly notwithstanding the
absence of a final disposition of the Proceeding.
5. Partial Indemnity. If Indemnitee is entitled under any provision of
-----------------
this Agreement to indemnification by the Company for some or a portion of the
Expenses or Liability incurred by Indemnitee in the preparation, investigation,
defense, appeal or settlement of any Proceeding but not, however, for the total
amount thereof, the Company shall indemnify Indemnitee for the portion of such
Expenses or Liability to which Indemnitee is entitled in accordance with this
Agreement.
6. Insurance. The Company may, but shall not be required to, purchase
---------
and keep in force during the term of this Agreement a policy or policies of
liability insurance on behalf of Indemnitee against Liability and Expenses
incurred in any Proceeding. Nothing herein shall be construed to prohibit
Indemnitee from maintaining his or her own policy of liability insurance.
-2-
<PAGE>
7. Exclusions. The Company shall not be liable to make any payment
----------
hereunder:
7.1 If it shall be finally adjudicated that such payment is
prohibited by law:
7.2 On account of any Proceeding brought under Section 16(b) of the
Securities Exchange Act of 1934, as such law is amended from time to time, or
under any similar law that replaces Section 16(b), in which judgment is rendered
against Indemnitee for an accounting for profits made from the purchase or sale
by Indemnitee of the securities of the Company;
7.3 For Liability or Expenses in any Proceeding brought by Indemnitee
against the Company unless (i) the Proceeding is brought as a Proceeding for
indemnity under this Agreement, (ii) Indemnitee is successful in whole or in
part in a Proceeding or (iii) the indemnification is included in a settlement of
the Proceeding or is awarded by a court;
7.4 To the extent payment is actually made to Indemnitee under a
valid, enforceable and collectible insurance policy, whether provided by the
Company or by Indemnitee (the "Insurance Policy"), by or out of a fund created
by the Company and under the control of a trustee or otherwise (the "Fund") or
from other sources provided by the Company ("Other Sources"); or
7.5 For amounts paid in settlement of a claim effected without the
Company's prior written consent, which consent shall not be unreasonably
withheld.
If Indemnitee shall become obligated or required to pay any amount that the
Company would be obligated to pay hereunder except for the exclusion in Section
7.4, the Company shall advance such amount to Indemnitee if payment is not
reasonably expected to be made under the Insurance Policy, by the Fund or from
Other Sources prior to the time that Indemnitee must make such payment,
provided, however, that Indemnitee shall immediately pay over to the Company,
from the funds Indemnitee later receives under the Insurance Policy, from the
Fund or from Other Sources, an amount equal to the amount advanced.
8. Defense of Claim. If any Proceeding asserted or commenced against
----------------
Indemnitee is also asserted or commenced against the Company, the Company shall
be entitled to participate in the Proceeding at its own expense and, except as
otherwise provided herein below, to the extent that it may wish the Company
shall be entitled to assume the defense thereof. After notice from the Company
to Indemnitee of its election to assume the defense of any such Proceeding,
Indemnitee shall have the right to employ Indemnitee's own counsel in such
Proceeding, but the Expenses of such counsel incurred after notice from the
Company to Indemnitee of its assumption of the defense thereof shall be the
Expenses of Indemnitee, and the Company may not be obligated to Indemnitee under
this Agreement for any Expenses subsequently incurred by Indemnitee in
connection therewith other than the reasonable costs of investigation, travel
and lodging Expenses arising out of Indemnitee's participation in the defense of
such Proceeding unless (i) otherwise authorized by the Company, (ii)
Indemnitee's counsel shall have reasonably concluded, and so notified the
Company in writing, that there may be a conflict of interest between the Company
and Indemnitee in the conduct of the defense of such Proceeding or (iii) the
Company shall not in fact have employed counsel to assume the defense of such
Proceeding.
-3-
<PAGE>
If the Company may be obligated for some or all of the Expenses of Indemnitee
under this Section 8, the determination of Indemnitee's entitlement to
indemnification shall be made in accordance with Section 3.
9. Change in Control.
-----------------
9.1 The Company agrees that, if there is a Change in Control (as
hereinafter defined) of the Company, then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnification and Expense
advances under this Agreement, the Company shall seek legal advice only from
special, independent counsel selected by the Company with the consent of
Indemnitee, which consent shall not be unreasonably withheld, with respect to
matters arising out of this Agreement, including but not limited to the right of
Indemnitee to indemnification hereunder. Such counsel shall, among other
things, render its written opinion to the Company and Indemnitee as to whether
and to what extent Indemnitee would be permitted to be indemnified under the Act
and as to the amount of reasonable indemnification. Such written opinion shall
be binding upon the Company and Indemnitee. The Company shall agree to pay the
reasonable fees of such special counsel and to indemnify fully such counsel
against any and all expenses, including attorney fees, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
9.2 For the purpose of this Section 9, a "Change in Control" shall be
deemed to have occurred if:
9.2.1 Any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportion as their ownership of the
Company, becomes the "Beneficial Owner," as defined in Rule 13d-3 under the 1934
Act, directly or indirectly, of securities of the Company representing twenty-
five percent (25%) or more of the combined voting power of the Company's then
outstanding voting securities ("Voting Stock"):
9.2.2 During any period of twenty-four (24) consecutive months,
not including any period prior to the execution of this Agreement, individuals
who at the beginning of such period constitute the board of directors of the
Company and any new director, other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in Section 9.2.1 or 9.2.3, whose election was approved by a vote of at least
two-thirds (2/3rds) of the shares entitled to vote, cease for any reason to
constitute a majority of the board; or
9.2.3 The stockholders of the Company (i) approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation that would result in the Voting Stock outstanding immediately
prior thereto continuing to represent, either by remaining outstanding or by
being converted into Voting Stock of the surviving entity, at least seventy
percent (70%) of the combined voting power of the Voting Stock of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, (ii) approve a plan of complete liquidation of the Company or
(iii) approve an
-4-
<PAGE>
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
10. Potential Change in Control.
---------------------------
10.1 In the event of a Potential Change in Control (as hereinafter
defined), the Company shall, upon written request by Indemnitee, create a trust
(the "Trust") for the benefit of Indemnitee and from time to time upon written
request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for and defending any
Proceeding for which Indemnitee may be entitled to indemnification under this
Agreement, and any and all Liability for which Indemnitee is entitled to
indemnification hereunder from time to time actually paid, reasonably
anticipated or proposed to be paid. The amount or amounts to be deposited in
the Trust pursuant to the foregoing funding obligations shall be determined in
accordance with the provisions of the Act with regard to determination and
authorization of indemnification.
10.2 The terms of the Trust shall provide that upon a Change in
Control:
10.2.1 The Trust shall not be revoked or the principal thereof
invaded without the prior written consent of Indemnitee;
10.2.2 The trustee of the Trust (the "Trustee") shall advance,
within two (2) business days of a written request by Indemnitee in accordance
with the requirements of Section 4, any and all Expenses to Indemnitee, and
Indemnitee hereby agrees to reimburse the Trust under the circumstances under
which Indemnitee would be required to reimburse the Company pursuant to the Act
and Section 4;
10.2.3 The Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above;
10.2.4 The Trustee shall promptly pay to Indemnitee all amounts
for which Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise; and
10.2.5 All unexpended funds in the Trust shall revert to the
Company upon a final determination by the special counsel established in
accordance with Section 9 or a court of competent jurisdiction, as the case may
be, that Indemnitee has been fully indemnified under the terms of this
Agreement.
10.3 The Trustee shall be selected by Indemnitee with the consent of
the Company, which consent shall not be unreasonably withheld, and all
reasonable expenses, fees and other disbursements of the Trustee in connection
with the establishment and administration of the Trust shall be paid by the
Company.
10.4 Nothing in this Section 10 shall relieve the Company of any of
its obligations under this Agreement.
-5-
<PAGE>
10.5 A "Potential Change in Control" shall be deemed to have occurred
if: (i) the Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control; (ii) any person, including the
Company, publicly announces an intention to take or to consider taking actions
that, if consummated, would constitute a Change in Control; (iii) any person,
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, who is or becomes the beneficial owner,
directly or indirectly, of stock of the Company representing nine and one-half
percent (9.5%) or more of the combined voting power of the Company's then
outstanding Voting Stock, increases his or her beneficial ownership of such
stock by five (5) percentage points or more over the percentage so owned by such
person; or (iv) the board of directors adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has occurred.
11. Nonexclusivity and Continuation of Rights. The indemnification
-----------------------------------------
provided by this Agreement shall not be deemed exclusive of any other rights
consistent with the laws of the state of Nevada to which Indemnitee may be
entitled under the Company's articles of incorporation, bylaws or any other
agreement, vote of shareholders or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding office or
while employed by or acting as agent for the Company, and shall
[MISSING PAGE]
-6-
<PAGE>
17. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the state of Nevada.
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first hereinabove written.
INDEMNITEE Assisted Living Concepts, Inc.
a Nevada corporation
By
- ----------------------------- -----------------------------
Sandra Campbell Chief Executive Officer
William McBride III
-7-
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
DATE: February 3, 1998 ("Commencement Date")
PARTIES: NANCY INEZ GORSHE ("Employee")
9955 SE Washington Street, Third Floor
Portland, Oregon 97216
ASSISTED LIVING CONCEPTS, INC., on
behalf of itself and its Affiliated Companies
9955 SE Washington Street, Third Floor
Portland, Oregon 97216
1. Services.
--------
1.1 Employment. Assisted Living Concepts, Inc. ("ALC") or one of its
----------
Affiliated Companies agrees to employ Employee as Vice President/Community
Relations of ALC for a term commencing on the Commencement Date and terminating
on the second anniversary thereof, or until termination in accordance with
Section 6, and Employee hereby accepts such employment in accordance with the
terms and conditions of this Agreement. For purposes of this Agreement,
"Affiliated Companies" shall mean a company controlling, controlled by, or under
common control with ALC. Employee agrees that employment under this Agreement
shall be with ALC or such Affiliated Company as the Employee may be requested to
perform services for during the term of this Agreement, and that such employing
company, whether ALC or an Affiliated Company, shall be considered the "Company"
under this Agreement and shall thereupon be solely responsible for the
obligations of Company hereunder.
1.2 Duties. Employee shall have the position named in Section 1.1
------
with such powers and duties appropriate to that office (a) as may be provided by
the bylaws of the Company, (b) as otherwise set forth on Schedule 1.2 attached
------------
to this Agreement (the absence of which shall indicate that no additional
specific duties are so provided for), and/or (c) as determined by the President
or Chief Executive Officer of the Company from time to time. Employee's
position and duties may be changed from time to time during the term of this
Agreement, including that Employee's place of work may be relocated at the party
to whom Employee reports.
1.3 Outside Activities. Employee shall obtain the consent of the
------------------
Board of Directors before she engages, either directly or indirectly, in any
other professional or business activities that may require an appreciable
portion of Employee's time or effort to the detriment of the Company's business.
Such consent will not be unreasonably withheld.
1.4 Direction of Services. Employee shall at all times discharge her
---------------------
duties in consultation with and under the supervision and direction of the
Company's President or Chief
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
Executive Officer, or any duly designated representative of either of them.
2. Compensation and Expenses.
-------------------------
2.1 Salary. As compensation for services under this Agreement, the
------
Company shall pay to Employee a regular salary to be established each year by
the President or Chief Executive Officer of the Company. Such salary may be
adjusted from time to time unless the Board of Directors in its discretion
determines not to do so. Payment shall be made on a bi-weekly basis, less all
amounts required by law to be withheld or deducted, at such times as shall be
determined by the Board of Directors.
2.2 Additional Employee Benefits. Employee shall also have the right
----------------------------
to receive or participate in (a) any additional benefits, including, but not
limited to, insurance programs, profit sharing or pension plans, and medical
reimbursement plans, which may from time to time be made available by the
Company to comparable employee positions as a group, and (b) any additional
benefits set forth in Schedule 2.2 attached to this Agreement (the absence of
------------
which shall indicate that no additional specific benefits are so provided for).
2.3 Expenses. The Company shall reimburse Employee for all
--------
reasonable and necessary expenses incurred in carrying out her duties under this
Agreement. Employee shall present to the Company from time to time an itemized
account of such expenses in such form required by the Company.
3. Confidential Information.
------------------------
3.1 Access to Information. Employee acknowledges that in the course
---------------------
of her employment she will have access to proprietary information, trade
secrets, and other confidential information, that such information is a valuable
asset of ALC and/or one or more of the Affiliated Companies (the "Source
Company"), and that its disclosure or unauthorized use will cause the Source
Company substantial harm. As used in this Agreement, the term "Confidential
Information" means: (a) proprietary information and trade secrets of the Source
Company and (b) information designated by the Source Company as confidential or
which Employee knows or should know is confidential.
3.2 Ownership. Employee acknowledges that all Confidential
---------
Information shall continue to be the exclusive property of the Source Company,
whether or not prepared in whole or in part by Employee and whether or not
disclosed to Employee or entrusted to her custody in connection with her
employment by the Source Company.
3.3 Nondisclosure and Nonuse. Unless authorized or instructed in
------------------------
writing by the Source Company, or required by legally constituted authority,
Employee will not, except as required in the course of the Source Company's
business, during or after her employment, disclose to others or use any
Confidential Information, unless and until, and then only to the extent that,
such items become available to the public, other than by her act or failure to
prevent accidental or negligent loss or release to any unauthorized person of
the Confidential Information.
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
3.4 Return of Confidential Information. Upon request by the Source
----------------------------------
Company during or after her employment, and without request upon termination of
employment pursuant to this Agreement, Employee will deliver immediately to the
Source Company all Confidential Information of the Source Company; Employee will
thereafter retain no excerpts, notes, photographs, reproductions, or copies
thereof.
3.5 Duration. The obligations set forth in this Section 3 will
--------
continue beyond the term of employment of Employee by the Source Company and for
so long as Employee possesses Confidential Information.
4. Work Made for Hire. Employee agrees that all creative work, including
------------------
without limitation designs, drawings, specifications, techniques, models, and
processes, prepared or originated by Employee for the Company, or during or
within the scope of employment by the Company, whether or not subject to
protection under federal copyright or other law, constitutes work made for hire,
all rights to which are owned by the Company; and, in any event, Employee
assigns to the Company all rights, title, and interest, whether by way of
copyright, trade secret, or otherwise, in all such work, whether or not subject
to protection by copyright or other law. EMPLOYEE ACKNOWLEDGES AND AGREES THAT
"COMPANY" FOR THE PURPOSES OF THIS SECTION 4 COULD INCLUDE ONE OR MORE OF ALC
AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT AND THAT EACH
SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFIT OF THE PROVISIONS OF
THIS SECTION 4.
5. Noncompetition.
--------------
5.1 Covenant. Employee covenants that Employee will not, throughout
--------
the United States, either individually or as a director, officer, partner,
employee, agent, representative, or consultant with any business, directly or
indirectly during the term of employment and for one year thereafter:
(a) Induce or attempt to induce any person who is an employee of the
Company during the term of this covenant to leave the employ of the Company; or
(b) Solicit, divert, or accept orders for products or services that
are substantially competitive with the products or services sold by the Company
from any customer of the Company or resident of a facility of the Company.
5.2 Enforcement.
-----------
(a) Employee acknowledges and agrees that the time, scope, and
other provisions of this Section 5 have been specifically negotiated by
sophisticated parties with the advice and consultation of counsel and
specifically hereby agrees that such time, scope, and other provisions are
reasonable under the circumstances. Employee further agrees that if, at
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
any time, despite the express agreement of the parties hereto, a court of
competent jurisdiction holds that any portion of this Section 5 is
unenforceable for any reason, the maximum restrictions reasonable under the
circumstances, as determined by such court, will be substituted for any
such restrictions held unenforceable.
(b) EMPLOYEE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR THE
PURPOSES OF THIS SECTION 5 COULD INCLUDE ONE OR MORE OF ALC AND THE
AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT AND THAT EACH SUCH
ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFIT OF THE PROVISIONS OF
THIS SECTION 5.
6. Termination.
-----------
6.1 Voluntary Resignation. Employee may terminate her employment
---------------------
under this Agreement by 90 days' written notice to the Company.
6.2 Termination by the Company.
--------------------------
(a) With Cause. The Company may terminate Employee's
----------
employment under this Agreement immediately with cause by written notice to
Employee. In the event Employee is terminated for cause prior to the
expiration of this Agreement, the Company shall have no further financial
responsibility under this Agreement, except as required by applicable law
or otherwise provided herein. Specific examples of events that warrant
termination for cause include, but are not limited to, Employee's (i)
failure to perform her duties in a material way, (ii) failure to act in a
professional manner if such failure causes material damage to the Company,
and (iii) breach of this Agreement, or engaging in fraud, dishonesty,
breach of fiduciary duty, or any other act of similar wilful misconduct or
gross neglect in the performance of Employee's duties on behalf of the
Company. If Employee is terminated for cause, the Company shall have no
further obligation to pay Employee her salary following the date of
termination.
(b) Without Cause. The Company may terminate Employee's
-------------
employment under this Agreement without cause by 90 days' written notice to
Employee. In the event of the termination of the employment of Employee by
the Company without cause, Employee shall be paid an amount equal to two
(2) times the annual salary provided in Section 2.1, ("Severance Amount")
and such Severance Amount shall be paid in a lump sum within 60 days after
the effective date of the termination of employment, provided, however that
Employee has not been offered comparable employment with ALC or an
Affiliated Company, in which
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
event Employee shall have no rights to the Severance Amount and shall be
instead entitled to her salary through the effective date of termination of
employment.
6.3 Death. This Agreement shall terminate immediately upon
-----
employee's death.
6.4 Termination After Change in Control. In the event of the
-----------------------------------
termination of the employment of Employee by the Company without cause (provided
that Employee has not been offered comparable employment with ALC or an
Affiliated Company), or by the Employee by voluntary resignation as provided in
Section 6.1 (unless Employee has been offered comparable employment with ALC or
an Affiliated Company), in either case within one year after a Change in
Control, then in lieu of the compensation payable pursuant to Section 6.2(b):
(a) Compensation. Employee shall be paid an amount equal to
------------
two (2) times the annual salary provided in Section 2.1, and such amount
shall be paid in a lump sum within 60 days after the effective date of the
termination of employment, but in no event before the expiration of the
seven-day revocation period set forth in Section 9.8 of the Separation
Agreement and Release (defined in Section 6.5(a) below).
(b) Other Benefits. As of the effective date of the
--------------
termination of employment, (i) Company shall pay all accrued but unpaid or
unused vacation, sick pay and expense reimbursement benefits, (ii) the
exercisability of all stock options held by Employee shall accelerate and
(iii) all other benefits shall vest (unless a plan governs vesting, such as
the deferred compensation plan, in which event the plan's terms and
conditions shall govern vesting).
6.5 Condition to Severance Payments.
-------------------------------
(a) It shall be a condition to the payment of the amounts set
forth in Sections 6.2(b) or 6.4 that Employee shall sign, deliver, and
abide by a Separation Agreement and Release, substantially in the form
attached as Exhibit A to this Agreement. The Company's obligation to pay
---------
the amounts stated in this section shall terminate if Employee is in
violation of the provisions of Section 5 of this Agreement.
(b) EMPLOYEE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR THE
PURPOSES OF THE RELEASE CONTEMPLATED BY SECTION 6.5 COULD INCLUDE ONE OR
MORE OF ALC AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT
AND THAT EACH SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFIT OF
THE RELEASE CONTEMPLATED THIS SECTION 6.5.
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
7. Change in Control. "Change in Control" for purposes of this
-----------------
Agreement shall mean:
7.1 Ownership of Securities. A change in control of the Company
-----------------------
due to the acquisition of Voting Securities amounting to at least 30 percent of
the outstanding Voting Securities of the Company within any six month period by
one person or entity or an Affiliate (within the meaning of the Securities
Exchange Act of 1934) thereof; or
7.2 Board of Directors. During any period of 12 consecutive
------------------
calendar months, individuals who at the beginning of such period constitute the
Board of Directors cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election, by the Company's
shareholders of each new director was approved by a vote of at least a majority
of the directors then still in office who were directors at the beginning of the
period; or
7.3 Consolidation or Merger. There shall be consummated any
-----------------------
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which Voting Securities would
be converted into cash, securities, or other property, other than a merger of
the Company in which the holders of Voting Securities immediately prior to the
merger have the same, or substantially the same, proportionate ownership of
common stock of the surviving corporation immediately after the merger, or any
sale, lease, exchange, or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company; or
7.4 Liquidation or Dissolution. Approval by the shareholders of the
--------------------------
Company of any plan or proposal for the liquidation or dissolution of the
Company.
For purposes of the foregoing, "Voting Securities" shall mean the Company's
issued and outstanding securities ordinarily having the right to vote at
elections for the Company's Board of Directors.
8. Remedies. The respective rights and duties of the parties under this
--------
Agreement are in addition to, and not in lieu of, those rights and duties
afforded to and imposed upon them by law or at equity. Employee acknowledges
that breach of Sections 3, 5.1, or 5.2 of this Agreement will cause irreparable
harm to the company benefitting from the terms thereof and agrees to the entry
of a temporary restraining order and permanent injunction by any court of
competent jurisdiction to prevent breach or further breach of this Agreement.
Such remedy shall be in addition to any other remedy available at law or in
equity.
9. Severability of Provisions. The provisions of this Agreement are
--------------------------
severable, and if any provision hereof is held invalid or unenforceable, it
shall be enforced to the maximum extent permissible, and the remaining
provisions of the Agreement shall continue in full force and effect.
10. Attorney Fees. In the event a suit or action is filed to enforce
-------------
Sections 3, 5.1, or 5.2 of this Agreement, the prevailing party shall be
reimbursed by the other party for all costs
Page 6 - EMPLOYMENT AGREEMENT
<PAGE>
and expenses incurred in connection with the suit or action, including without
limitation reasonable attorney fees at trial or on appeal.
11. Nonwaiver. Failure of the Company at any time to require performance
---------
of any provision of this Agreement shall not limit the right of the Company to
enforce the provision. No provision of this Agreement or breach thereof may be
waived by either party except by a writing signed by that party. A waiver of
any breach of a provision of this Agreement shall be construed narrowly and
shall not be deemed to be a waiver of any succeeding breach of that provision or
a waiver of that provision itself or of any other provision.
12. Arbitration.
-----------
12.1 Claims Covered. All claims or controversies, except for those
--------------
excluded by Section 12.2 ("claims"), whether or not arising out of Employee's
employment (or its termination), that Company may have against the Employee or
that Employee may have against the Company or against its officers, directors,
employees or agents, in their capacity as such or otherwise, shall be resolved
as provided in this Section 12. Claims covered by this Agreement include, but
are not limited to, claims for wages or other compensation due; claims for
breach of any contract or covenant (express or implied); tort claims; claims for
discrimination (including, but not limited to, race, sex, sexual orientation,
religion, national origin, age, marital status, or medical condition, handicap
or disability); claims for benefits (except where an employee benefit or pension
plan specifies that its claims procedure shall culminate in an arbitration
procedure different from this one), and claims for violation of any federal,
state, or other governmental law, statute, regulation, or ordinance, except as
provided in Section 12.2.
12.2 Non-covered Claims. Claims arising out of Sections 3, 5.1, or
------------------
5.2 of this Agreement and workers' compensation or unemployment compensation
benefits are not covered by this Agreement. Non-covered claims include but are
not limited to claims by the Company for injunctive and/or other equitable
relief for unfair competition and/or the use and/or unauthorized disclosure of
trade secrets or confidential information, as to which Employee understands and
agrees that the Company may seek and obtain relief from a court of competent
jurisdiction.
12.3 Required Notice of All Claims and Statute of Limitations.
--------------------------------------------------------
Company and Employee agree that the aggrieved party must give written notice of
any claim to the other party within one year of the date the aggrieved party
first has knowledge of the event giving rise to the claim; otherwise the claim
shall be void and deemed waived even if there is a federal or state statute of
limitations which would have given more time to pursue the claim. The written
notice shall identify and describe the nature of all claims asserted and the
facts upon which such claims are based.
12.4 Hearing or Mediation. Prior to any arbitration proceeding taking
--------------------
place pursuant to this Section, Company or Employee may, at its respective
option, elect to submit the claim to non-binding mediation before a mutually
agreeable mediation tribunal or mediator, in which event both parties shall
execute a suitable confidentiality agreement and abide by the procedures
specified by the mediation tribunal or mediator.
Page 7 - EMPLOYMENT AGREEMENT
<PAGE>
12.5 Arbitration Procedures. Any arbitration shall be conducted in
----------------------
accordance with the then-current Model Employment Arbitration Procedures of the
American Arbitration Association ("AAA"), modified to substitute for AAA
actions, the United States Arbitration and Mediation Service ("USA&MS"), before
an arbitrator who is licensed to practice law in the State of Oregon ("the
Arbitrator"). The arbitration shall take place in or near Portland, Oregon.
(a) Selection of Arbitrator. The USA&MS shall give each party a list
-----------------------
of 11 arbitrators drawn from its panel of labor-management dispute arbitrators.
Each party may strike all names on the list it deems unacceptable. If only one
common name remains on the lists of all parties, that individual shall be
designated as the Arbitrator. If more than one common name remains on the lists
of all parties, the parties shall strike names alternately until only one
remains. The party who did not initiate the claim shall strike first. If no
common name remains on the lists of all parties, the USA&MS shall furnish an
additional list or lists until an Arbitrator is selected.
(b) Applicable Law. The Arbitrator shall apply the substantive law
--------------
(and the law of remedies, if applicable) specified in this Agreement or federal
law, or both, as applicable to the claim(s) asserted. The Oregon Rules of
Evidence shall apply. The Arbitrator, and not any federal, state, or local
court or agency, shall have exclusive authority to resolve any dispute relating
to the interpretation, applicability, enforceability or formation of this
Agreement, including but not limited to any claim that all or any part of this
Agreement is void or voidable. The arbitration shall be final and binding upon
the parties, except as provided in this Agreement.
(c) Authority. The Arbitrator shall have jurisdiction to hear and
---------
rule on pre-hearing disputes and is authorized to hold pre-hearing conferences
by telephone or in person as the Arbitrator deems necessary. The Arbitrator
shall have the authority to entertain a motion to dismiss and/or a motion for
summary judgment by any party and shall apply the standards governing such
motions under the Federal Rules of Civil Procedure. The Arbitrator shall render
an award and opinion in the form typically rendered in labor arbitrations.
(d) Representation. Any party may be represented by an attorney
--------------
or other representative selected by the party.
(e) Discovery. Each party shall have the right to take the deposition
---------
of one individual and any expert witness designated by another party. Each
party also shall have the right to make requests for production of documents to
any party. The subpoena right specified below shall be applicable to discovery
pursuant to this paragraph. Additional discovery may be had only where the
Arbitrator selected pursuant to this Agreement so orders, upon a showing of
substantial need. At least 30 days before the arbitration, the parties must
exchange lists of witnesses, including any experts, and copies of all exhibits
Page 8 - EMPLOYMENT AGREEMENT
<PAGE>
intended to be used at the arbitration. Each party shall have the right to
subpoena witnesses and documents for the arbitration.
(f) Reporter. Either party, at its expense, may arrange for and pay
--------
the cost of a court reporter to provide a stenographic record of proceedings.
(g) Post-Hearing Briefs. Either party, upon request at the close of
-------------------
hearing, shall be given leave to file a post-hearing brief. The time for filing
such a brief shall be set by the Arbitrator.
12.6 Enforcement. Either party may bring an action in any court of
-----------
competent jurisdiction to compel arbitration under this Agreement and to enforce
an arbitration award. Except as otherwise provided in this Agreement, both the
Company and Employee agree that neither shall initiate or prosecute any lawsuit
or administrative action (other than for a non-covered claim) in any way related
to any claim covered by this Agreement. A party opposing enforcement of an
award may not do so in an enforcement proceeding, but must bring a separate
action in any court of competent jurisdiction to set aside the award, where the
standard of review will be the same as that applied by an appellate court
reviewing a decision of a trial court sitting without a jury.
12.7 Arbitration Fees and Costs. Company and Employee shall equally
--------------------------
share the fees and costs of the Arbitrator. Each party will deposit funds or
post other appropriate security for its share of the Arbitrator's fee, in an
amount and manner determined by the Arbitrator, 10 days before the first day of
hearing. Each party shall pay for its own costs and attorneys' fees, if any,
provided that the Arbitrator, in its sole discretion, may award reasonable fees
to the prevailing party in a proceeding.
12.8 Waiver of Jury Trial. BY AGREEING TO SUBMIT A DISPUTE TO
--------------------
ARBITRATION, THE PARTIES HERETO UNDERSTAND THAT THEY WILL NOT ENJOY THE BENEFITS
OF A JURY TRIAL. ACCORDINGLY, THE PARTIES HERETO EXPRESSLY AGREE TO WAIVE THE
RIGHT TO A JURY TRIAL.
12.9 Benefit. EMPLOYEE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR THE
-------
PURPOSES OF THE PROVISIONS OF THIS SECTION 12 COULD INCLUDE ONE OR MORE OF ALC
AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT AND THAT EACH
SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFITS OF THIS SECTION.
13. General Terms and Conditions. The parties acknowledge that the ALC
----------------------------
and the Affiliated Companies are engaged in transactions involving interstate
commerce and that Employee's employment involves such commerce. This Agreement
constitutes the entire understanding of the parties relating to the employment
of Employee, and supersedes and replaces all written and oral agreements
heretofore made or existing by and between the parties relating thereto. This
agreement shall be governed by and construed in accordance with the laws of the
state of Oregon, without regard to the conflicts of laws rules thereof, and all
disputes relating to this agreement shall be tried before a state or federal
court sitting in Multnomah
Page 9 - EMPLOYMENT AGREEMENT
<PAGE>
County to the exclusion of all courts which might have jurisdiction apart from
this provision. This Agreement shall inure to the benefit of any successors or
assigns of the Company. All captions used herein are intended solely for
convenience of reference and shall in no way limit any of the provisions of this
Agreement.
IN WITNESS HEREOF, the parties have executed this Employment Agreement as
of the date first hereinabove written.
ASSISTED LIVING CONCEPTS, INC., on
behalf of itself and its Affiliated
Companies
_________________________ By:________________________________
Nancy Inez Gorshe Its:________________________________
Page 10 - EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
FORM OF SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release ("Agreement") is made and entered
into as of this _____ day of ______________,______, by and between Assisted
Living Concepts, Inc. and one or more of its Affiliated Companies (collectively,
"Company"), and ______________________ ("Employee") in order to provide the
terms and conditions of Employee's termination of employment, to fully and
completely resolve any and all issues that Employee may have in connection with
[HIS/HER] employment with Company or the termination of that employment, and to
promote an amicable long-term relationship between Company and Employee.
In consideration of the mutual promises and conditions contained herein,
the parties agree as follows:
1. Separation. Employee has been [is currently] employed at Company as
----------
Employee. Employee shall have no further job responsibilities at Company after
- --------------, and [his/her] employment shall be terminated effective as of
such date.
2. Payment to Employee. Pursuant to the Employment Agreement entered
-------------------
into between the parties, Company agrees to provide additional compensation to
Employee in the amounts set forth in the Employment Agreement provided Employee
executes and does not revoke this Agreement.
3. Release of Claims. In return for the benefits conferred by this
-----------------
Agreement (and described in the Employment Agreement), which Employee
acknowledges Company has no legal obligation to provide if Employee does not
enter into this Agreement, Employee, on behalf of [HERSELF/HIMSELF] and
[HER/HIS] heirs, executors, administrators, successors and assigns, hereby
releases and forever discharges Company and its past, present and future
affiliates, subsidiaries, predecessors, successors and assigns, and each of
their past, present and future shareholders, officers, directors, employees,
agents and insurers, from any and all claims, actions, causes of action,
disputes, liabilities or damages, of any kind, which may now exist or hereafter
may be discovered, specifically including, but not limited to, any and all
claims, disputes, actions, causes of action, liabilities or damages, arising
from or relating to Employee's employment with Company, or the termination of
such employment, except for any claim for payment or performance pursuant to the
terms of this Agreement. This release includes, but is not limited to, any
claims that Employee might have for reemployment or reinstatement or for
additional compensation or benefits and applies to claims that [HE/SHE] might
have under either federal, state or local law dealing with employment, contract,
tort, wage and hour, or civil rights matters, including, but not limited to,
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act, the Americans with Disabilities Act, the Family and Medical
- A-1 -
<PAGE>
Leave Act, similar state laws, and any regulations under such laws. This release
shall not affect any accrued rights Employee may have under any medical
insurance, workers' compensation or retirement plan because of [HIS/HER] prior
employment with Company. EMPLOYEE ACKNOWLEDGES AND AGREES THAT THROUGH THIS
RELEASE [HE/SHE] IS GIVING UP ALL RIGHTS AND CLAIMS OF EVERY KIND AND NATURE
WHATSOEVER, KNOWN OR UNKNOWN, CONTINGENT OR LIQUIDATED, THAT [HE/SHE] MAY HAVE
AGAINST COMPANY AND THE OTHER PERSONS NAMED ABOVE, EXCEPT FOR THE RIGHTS
SPECIFICALLY EXCLUDED ABOVE.
4. Confidentiality. Employee agrees to keep this Agreement and each of
---------------
its terms, specifically including without limitation the amount of the payment
described in this Agreement, and the fact that [HE/SHE] has received payment,
strictly confidential. Employee may disclose the terms of this Agreement only
to [HIS/HER] attorney or accountant, or as required by law. Employee
understands that Company may be required to publicly disclose the terms of this
Agreement.
5. Non-Disparagement. Employee shall not make any disparaging or
-----------------
derogatory remarks of any nature whatsoever about Company, its officers,
directors or employees, or its services and/or products (if any), either
publicly or privately, unless required by law.
6. Non-Admission of Liability. This Agreement shall not be construed as
--------------------------
an admission of liability or wrongdoing by Company. Neither this Agreement nor
any of its terms, provisions, or conditions constitute an admission of liability
or wrongdoing or may be offered or received in evidence in any action or
proceeding as evidence of an admission of liability or wrongdoing.
7. Employment Agreement. Employee acknowledges and reaffirms [HIS/HER]
--------------------
obligations under Sections 3 and 5 of the Employment Agreement executed by
[HIM/HER] in conjunction with [HIS/HER] employment at Company. The terms of
such Employment Agreement are hereby incorporated herein and made a part of this
Agreement. Employee agrees to strictly comply with such terms of the Employment
Agreement.
8. Return of Property. Employee agrees to and hereby represents that
------------------
[HE/SHE] has returned to Company all of Company's property and all materials
containing confidential information of Company, that were in [HIS/HER]
possession or under [HIS/HER] control.
9. Miscellaneous.
-------------
9.1 Entire Agreement. This document constitutes the entire, final,
----------------
and complete agreement and understanding of the parties with respect to the
subject matter hereof and supersedes and replaces all written and oral
agreements and understandings heretofore made or existing by and between the
parties or their representatives with respect thereto, other than the Employment
Agreement executed between the parties. There have been no representations or
commitments by Company to make any payment or perform any act other than those
expressly stated herein.
- A-2 -
<PAGE>
9.2 Waiver. No waiver of any provision of this Agreement shall be
------
deemed, or shall constitute a wavier of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the parties making the waiver.
9.3 Binding Effect. All rights, remedies, and liabilities herein
--------------
given to or imposed upon the parties shall extend to, inure to the benefit of
and bind, as the circumstances may require, the parties and their representative
heirs, personal representatives, administrators, successors and assigns.
9.4 Amendment. No supplement, modification or amendment of this
---------
Agreement shall be valid, unless the same is in writing and signed by both
parties.
9.5 Fees. If it becomes necessary to enforce this Agreement, or any
----
part hereof, the prevailing party shall be entitled to recover its reasonable
attorney fees and costs incurred therein, including all attorneys fees and costs
on appeal.
9.6 Governing Law. This Agreement and the rights of the parties
-------------
hereunder shall be governed, construed and enforced in accordance with the laws
of the state of Oregon, without regard to its conflict of law principles. Any
suit or action arising out of or in connection with this Agreement, or any
breach hereof, shall be brought and maintained in the Circuit Court of the State
of Oregon for the County of Multnomah. The parties hereby irrevocably submit to
the jurisdiction of such court for the purpose of such suit or action and hereby
expressly and irrevocably waive, to the fullest extent permitted by law, any
claim that any such suit or action has been brought in an inconvenient forum.
9.7 Employee Given 21 Days to Consider Agreement. Employee
--------------------------------------------
acknowledges that Company advised [HIM/HER] in writing to consult with an
attorney before signing this Agreement and that [HE/SHE] has had at least 21
days to consider whether to execute this Agreement.
9.8 Revocation. Employee may revoke this Agreement by written notice
----------
delivered to the President or Chief Executive Officer of the Company within
seven days following the date [HE/SHE] signed the Agreement. If not revoked
under the preceding sentence, this Agreement becomes effective and enforceable
after the seven-day period has expired.
- A-3 -
<PAGE>
EMPLOYEE ACKNOWLEDGES THAT [HE/SHE] HAS FREELY AND VOLUNTARILY EXECUTED
THIS AGREEMENT, WITH A COMPLETE UNDERSTANDING OF ITS TERMS AND PRESENT AND
FUTURE EFFECTS.
"EMPLOYEE" ASSISTED LIVING CONCEPTS, INC. on behalf of
itself, and the Affiliated Companies
___________________________ By: ______________________________
Title: ___________________________
Date:__________________ Date:_____________________________
- A-4 -
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
(Location Specific)
DATE: March 1, 1999 ("Commencement Date")
PARTIES: JAMES W. CRUCKSHANK ("Executive")
ASSISTED LIVING CONCEPTS, INC., on ("Company")
behalf of itself and its Affiliated Companies
11835 NE Glenn Widing Drive, Building E
Portland, Oregon 97220
1. Services.
--------
1.1 Employment. Effective on the Commencement Date, Assisted Living
----------
Concepts, Inc. ("ALC") or one of its Affiliated Companies (defined below) hereby
agrees to employ Executive, and Executive hereby agrees to serve the Company, on
the terms and conditions of this Agreement. Such employment shall be for the
initial term of two (2) years, with an automatic rollover at the end of each
year from and after the Commencement Date for an additional year unless
terminated by the Company by its providing written notice of such termination to
Executive within ninety (90) days prior to the anniversary of the Commencement
Date (in which event Executive shall have one year remaining until the
termination of this Agreement, unless terminated earlier pursuant to Section 6
hereunder). For example, in the event that Executive were an employee of the
Company on March 15, 2000 and the Company were not to have provided written
notice to Executive between December 15, 1999 and March 15, 2000 that
Executive's employment would terminate on March 15, 2001, then the term of this
Agreement would automatically rollover an additional year to March 15, 2002 from
March 15, 2001. On the other hand, if the Company were to provide written
notice to Executive of the termination of this Agreement within 90 days prior to
the anniversary date of March 15, 2000, then this Agreement would terminate on
March 15, 2001 (unless terminated earlier pursuant to Section 6 hereunder), and
there would be no automatic rollover.
For purposes of this Agreement, "Affiliated Companies" shall mean an entity
controlling, controlled by, or under common control with ALC, and shall include
a corporation which acquires the stock of ALC, should a merger occur.
1.2 Position and Duties. Executive shall serve as the Vice President and
-------------------
Chief Financial Officer with such powers and duties appropriate to that position
as may be provided by the Bylaws of the Company and as may be determined by the
Chief Executive Officer (or, if none, the President) of the Company from time to
time. Executive's position and duties may change during the term of this
Agreement; provided, however, that the position and duties shall not diminish in
scope.
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
1.3 Outside Activities. Executive shall obtain the prior written consent
------------------
of the Board of Directors prior to Executive engaging in any other professional
or business activities, directly or indirectly, that may require a material
amount of Executive's time or effort to the detriment of the Company's business.
Such consent will not be unreasonably withheld.
1.4 Direction of Services. Executive shall at all times discharge
---------------------
Executive's duties in consultation with and under the supervision and direction
of the Company's Chief Executive Officer and President, or any duly designated
representative of either of them if such offices are held by different
individuals.
2. Compensation and Expenses.
-------------------------
2.1 Salary. As compensation for services under this Agreement, the Company
------
shall pay to Executive an annual salary to be established each calendar year by
the Chief Executive Officer (or, if there is no Chief Executive Officer, the
President) in consultation with the Board of Directors of the Company. Such
salary may be adjusted from time to time unless the Board of Directors in its
discretion determines not to do so, but in no event will an adjustment result in
a salary less than the initial annual salary in the amount of One Hundred Fifty
Thousand Dollars ($150,000). Payment shall be made on a bi-weekly basis or other
basis as may be implemented for general payroll purposes, less all amounts
required by law to be withheld or deducted.
2.2 Stock Options. The Company shall grant Executive the option to
-------------
purchase 30,000 shares of Company common stock to vest as follows:
10,000 on March 15, 2000
10,000 on March 15, 2001
10,000 on March 15, 2002
2.3 Company Incentive Bonus Plan. After six (6) full months of employment
----------------------------
with the Company, Executive shall be eligible to participate in the Company's
Incentive Bonus Plan for 1999 and in any future bonus plan, the criteria of
which shall be determined in the sole discretion of the Board of Directors. For
the calendar year 1999, the Incentive Bonus Plan is based upon: (i) the Company
meeting its performance goals; and (ii) Executive meeting the goals established
for Executive. The maximum amount of such bonuses for any employee employed the
full calendar year of 1999 is 20% of an employee's annual salary or, up to 10%
based upon employee's performance and up to 10% based on the Company's
performance. In the event an employee is eligible to participate in the Plan
during only the last three months of 1999, then the maximum amount of an
employee's bonus would be 20% of the amount of employee's salary for 3 months.
2.4. Expenses. Executive shall be reimbursed for Executive's travel
--------
expenses incurred in connection with Executive's employment according to the
policies and procedures in effect when incurred.
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
2.5 Benefits. Executive and Executive's immediate family (if benefit is
--------
generally available to Executive's family members) shall have the right to
receive or participate in any of the Company's benefit programs, including
without limitation, group medical (with Executive and Executive's spouse's cost
of the Company's medical benefit program paid in full), dental, life, AD&D and
LTD on the first of the next month following ninety (90) days of employment with
the Company.
2.6 Paid Time Off. Executive shall be entitled to four (4) weeks of Paid
-------------
Time Off per year of employment with the Company. Executive shall have the right
to carry over one quarter of Paid Time Off which accrued but was unused during
the prior calendar year.but was unused during the prior calendar year. No
compensation will be paid for accrued Paid Time Off which was not taken. For the
year 1999, Paid Time Off shall be prorated according to time actually employed.
2.7 Other. Executive's car allowance shall be in the amount of $500 per
-----
month.
3. Confidential Information.
------------------------
3.1 Access to Information. Executive acknowledges that in the course of
---------------------
Executive's employment, Executive will have access to proprietary information,
trade secrets, and other confidential information, that such information is a
valuable asset of the Company, and that its disclosure or unauthorized use will
cause the Company substantial harm. As used in this Agreement, the term
"Confidential Information" shall mean: (a) proprietary information and trade
secrets of the Company and (b) information designated by the Company as
confidential or which Executive knows or should know is confidential.
3.2 Ownership. Executive acknowledges that all Confidential Information
---------
shall continue to be the exclusive property of the Company, whether or not
prepared in whole or in part by Executive and whether or not disclosed to
Executive or entrusted to Executive's custody in connection with Executive's
employment by the Company.
3.3 Nondisclosure and Nonuse. Unless authorized or instructed in writing
------------------------
by the Company, or required by legally constituted authority, Executive will
not, except as required in the course of the Company's business, during or after
Executive's employment, disclose to others or use any Confidential Information,
unless and until, and then only to the extent that, such items become available
to the public other than by Executive's act or failure to prevent accidental or
negligent loss or release to any unauthorized person of the Confidential
Information.
3.4 Return of Confidential Information. Upon request by the Company during
----------------------------------
or after Executive's employment, and without request upon termination of
employment pursuant to this Agreement, Executive will deliver immediately to the
Company all Confidential Information of the Company; Executive will retain no
excerpts, notes, or copies thereof, whether on disk for computer use or in any
other form.
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
3.5 Duration. The obligations set forth in this Section 3 shall survive
--------
the expiration or earlier termination of this Agreement and shall terminate at
such time as Executive no longer possesses Confidential Information.
4. Work Made for Hire. Executive agrees that all creative work, including
------------------
without limitation, techniques, models, and processes, prepared or originated by
Executive for the Company, or during or within the scope of employment by the
Company, whether or not subject to protection under applicable law, constitutes
work made for hire, all rights to which are owned by the Company, Executive
assigns to the Company all rights, title, and interest, whether by way of
copyright, trade secret, or otherwise, in all such work, whether or not subject
to protection by copyright or other law. EXECUTIVE ACKNOWLEDGES AND AGREES THAT
ANY ONE OR MORE ENTITIES CONSTITUTING "COMPANY" UNDER THIS AGREEMENT SHALL BE
ENTITLED TO THE BENEFIT OF THE PROVISIONS OF THIS SECTION 4.
5. Noncompetition.
--------------
5.1 Covenant. Executive covenants that in the states in which Affilated
--------
Companies are doing business, Executive will not, either individually or as a
director, officer, partner, employee, agent, representative, or consultant with
any business, directly or indirectly during the term of employment with the
Company and for one year thereafter:
(a) Induce or attempt to induce any person who is an employee of the
Company during the term of this covenant to leave the employ of the
Company; or
(b) Induce or attempt to induce any person who is a tenant or
potential tenant (whether on a waiting list or simply a person who was
contacted by Executive or another agent of the Company in a marketing
effort or who contacted the Company regarding tenancy or whose family
member or agent contacted the Company) to leave the tenancy of a facility
or to select different residency, not under Company management; or,
(b) Solicit, divert, or accept orders from any customer of the Company
for products or services that are substantially competitive with the
products or services, if any, sold by the Company.
5.2 Enforcement.
-----------
(a) Executive acknowledges and agrees that the time, scope, and other
provisions of this Section 5 have been specifically negotiated by
sophisticated parties having been advised to seek legal counsel and
Executive agrees that such time, scope, and other provisions are
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
reasonable under the circumstances. Executive further agrees that if, at
any time, despite the express agreement of the parties hereto, a court of
competent jurisdiction holds that any portion of this Section 5 is
unenforceable for any reason, the maximum restrictions reasonable under
the circumstances, as determined by such court, will be substituted for
any such restrictions held unenforceable.
(b) EXECUTIVE ACKNOWLEDGES AND AGREES THAT ANY ONE OR MORE ENTITIES
CONSTITUTING "COMPANY" UNDER THIS AGREEMENT SHALL BE ENTITLED TO THE
BENEFIT OF THE PROVISIONS OF THIS SECTION 5.
6. Termination.
-----------
6.1 Voluntary Resignation. Executive may terminate Executive's employment
---------------------
under this Agreement by 90 days written notice to the Company. In the event of
such voluntary resignation, this Agreement shall terminate as of the effective
date of resignation, and the Company shall have no obligation whatsoever to pay
any Severance Amount or any other amounts except as required by applicable law.
6.2 Termination by the Company.
--------------------------
(a) With Cause. The Company may terminate Executive's employment under
----------
this Agreement immediately with cause by notice to Executive. In the event
Executive is terminated pursuant to the provisions of this Section 6.2(a),
the Company shall have no obligation whatsoever to pay any Severance
Amount or any other amounts except as required by applicable law. Specific
examples of events that warrant termination for cause include, but are not
limited to: (i) Executive's material failure to perform Executive's
duties; (ii) Executive's failure to act in a professional manner if such
failure causes material damage to the Company; (iii) Executive's breach of
this Agreement; or (iv) Executive's engaging in fraud, breach of fiduciary
duty, or any other act of similar willful misconduct or gross negligence
in the performance of Executive's duties on behalf of the Company.
(b) Without Cause. In the event of the termination of the employment
-------------
of Executive by the Company without cause and without the Company offering
Comparable Employment (defined below) prior to the expiration hereof,
Executive shall be paid an amount equal to that set forth in Schedule
6.2(b), which is attached hereto and incorporated herein by this reference
(the "Severance Amount"), subject to the condition set forth in Section
6.4 below. Such Severance Amount shall be paid in a lump sum within 60
days after the effective date of the termination of employment. In the
event Executive is offered Comparable Employment, whether or not Executive
accepts such offer, then the Company shall have
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
no obligation whatsoever to pay the Severance Amount. In the event,
Executive is offered and accepts a position with the Company which is
Comparable Employment, this Agreement shall remain in full force and
effect until its expiration or earlier termination after such change to
Comparable Employment. "Comparable Employment" shall mean employment with
ALC or an Affiliated Company in a position that is with one or more
entities constituting "Company" under this Agreement and is: (i) not
materially different in level of responsibility or duties; (ii) at the
same or higher salary level and benefits; (iii) with the same or similar
title or rank; and (iv) which is to be based within a 20-mile radius of
the location of Executive's immediately prior position with the Company.
6.3 Death. This Agreement shall terminate immediately upon Executive's
-----
death, and the Company shall have no obligation to pay the Severance Amount in
such event.
6.4 Condition to Severance Payments.
-------------------------------
(a) As a condition precedent to the Company's obligation to pay the
Severance Amount, Executive shall sign, deliver, and abide by a Separation
Agreement and Release, substantially in the form attached hereto as
Exhibit A to this Agreement. The Company's obligation to pay the Severance
Amount shall terminate if Executive is in violation of the provisions of
Section 5 of this Agreement.
(b) EXECUTIVE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR THE PURPOSES
OF THE RELEASE CONTEMPLATED BY SECTION 6.4(a) COULD INCLUDE ONE OR MORE OF
ALC AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT AND
THAT EACH SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFIT OF THE
RELEASE CONTEMPLATED IN SECTION 6.4(a).
7. Remedies. The respective rights and duties of the parties under this
--------
Agreement are in addition to, and not in lieu of, those rights and duties
afforded to and imposed upon them by law or at equity. Executive acknowledges
that breach of Sections 3 and 5 of this Agreement will cause irreparable harm to
the Company and agrees to the entry of a temporary restraining order and
permanent injunction by any court of competent jurisdiction to prevent breach or
further breach of this Agreement. Such remedy shall be in addition to any other
remedy available to Company at law or in equity.
8. Severability of Provisions. The provisions of this Agreement are
--------------------------
severable, and if any provision hereof is held invalid or unenforceable, it
shall be enforced to the maximum extent permissible, and the remaining
provisions of the Agreement shall continue in full force and effect.
Page 6 - EMPLOYMENT AGREEMENT
<PAGE>
9. Attorney Fees. In the event a suit or action is filed to enforce Sections
-------------
3 and 5 of this Agreement, the prevailing party shall be reimbursed by the other
party for all costs and expenses incurred in connection with the suit or action
including, without limitation, reasonable attorneys fees at trial, on appeal and
otherwise.
10. Nonwaiver. Failure of the Company at any time to require performance of
---------
any provision of this Agreement shall not limit the right of the Company to
enforce the provision. No provision of this Agreement or breach thereof may be
waived by either party except by a writing signed by that party. A waiver of
any breach of a provision of this Agreement shall be construed narrowly and
shall not be deemed to be a waiver of any succeeding breach of that provision or
a waiver of that provision itself or of any other provision.
11. Arbitration.
-----------
11.1 Claims Covered. All claims or controversies ("Claim" or "Claims"),
--------------
(except for those expressly excluded by Section 11.2, whether or not arising out
of Executive's employment or its termination) that Company may have against the
Executive or that Executive may have against the Company or against its
officers, directors, employees or agent, in their capacity as such or otherwise,
shall be resolved by arbitration, as provided in this Section 11. Claims
covered by this agreement to arbitration shall include, without limitation,
claims for wages or other compensation due; claims for breach of any contract or
covenant (express or implied); tort claims; claims for discrimination
(including, but not limited to, race, sex, sexual orientation, religion,
national origin, age, marital status, or medical condition, handicap or
disability); claims for benefits (except where an employee benefit or pension
plan specifies that its claims procedure shall culminate in an arbitration
procedure different from this one); and, claims for violation of any federal,
state, or other governmental law, statute, regulation, or ordinance, except as
otherwise provided in Section 11.2.
11.2 Non-covered Claims. Claims arising out of Sections 3 and 5 of this
------------------
Agreement and workers compensation or unemployment compensation benefits are not
covered by the parties' agreement to arbitrate. Non-covered claims include,
without limitation, claims by the Company for injunctive and/or other equitable
relief for unfair competition and/or the use and/or unauthorized disclosure of
trade secrets or confidential information, about which Executive understands and
agrees that the Company may seek and obtain relief from a court of competent
jurisdiction.
11.3 Required Notice of All Claims and Statute of Limitations. Company and
--------------------------------------------------------
Executive agree that the aggrieved party must give written notice of any Claim
to the other party within one year of the date the aggrieved party first has
knowledge of the event giving rise to the Claim. Failure to provide such notice
shall result in the Claim being void and deemed waived, even if there is a
federal or state statute of limitations which would have given more time to
pursue the Claim. The written notice shall identify and describe the nature of
all Claims asserted and the facts upon which such Claims are based.
11.4 Hearing or Mediation. Prior to any arbitration proceeding taking
--------------------
place
Page 7 - EMPLOYMENT AGREEMENT
<PAGE>
pursuant to this Section, Company or Executive may elect to submit the
Claim to non-binding mediation before a mutually agreeable mediation tribunal or
mediator, in which event both parties and the mediator shall execute a
reasonable confidentiality agreement and abide by the procedures specified by
the mediation tribunal or mediator.
11.5 Arbitration Procedures. Any arbitration shall be conducted in
----------------------
accordance with the then-current Model Employment Arbitration Procedures of the
American Arbitration Association ("Model Rules"), through the United States
Arbitration and Mediation Service ("USA&MS"), before an arbitrator who is
licensed to practice law in the State of Oregon (the "Arbitrator"). Because
USA&MS shall be the arbitration service, where the Model Rules reference the
"American Arbitration Association," "USA&MS" shall be inserted instead. The
arbitration shall take place in or near Portland, Oregon.
(a) Selection of Arbitrator. The USA&MS shall give each party a
-----------------------
list of 11 arbitrators drawn from its panel of labor-management dispute
arbitrators. Each party may strike all names on the list it deems
unacceptable. If only one common name remains on the lists of all parties,
that individual shall be designated as the Arbitrator. If more than one
common name remains on the lists of all parties, the parties shall strike
names alternately until only one remains. The party who did not initiate
the claim shall strike first. If no common name remains on the lists of
all parties, the USA&MS shall furnish an additional list or lists until an
Arbitrator is selected.
(b) Applicable Law. The Arbitrator shall apply the substantive
--------------
law (and the law of remedies, if applicable) specified in this Agreement
or federal law, or both, as applicable to the Claim(s) asserted. The
Oregon Rules of Evidence shall apply. The Arbitrator, and not any federal,
state, or local court or agency, shall have exclusive authority to resolve
any dispute relating to the interpretation, applicability, enforceability
or formation of this Agreement, including but not limited to any assertion
that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as
provided in this Agreement.
(c) Authority. The Arbitrator shall have jurisdiction to hear
---------
and rule on pre-hearing disputes and is authorized to hold pre-hearing
conferences by telephone or in person as the Arbitrator deems necessary.
The Arbitrator shall have the authority to entertain a motion to dismiss
and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil
Procedure. The Arbitrator shall render an award and opinion in the form
typically rendered in labor arbitrations.
(d) Representation. Each party may be represented by an attorney
--------------
or other representative selected by that party.
(e) Discovery. Each party shall have the right to take the
---------
deposition of one individual and any expert witness designated by the
other party.
Page 8 - EMPLOYMENT AGREEMENT
<PAGE>
Each party also shall have the right to make requests for production of
documents to the other party. The subpoena right specified below shall be
applicable to discovery pursuant to this subsection (e). Additional
discovery may be had only where the Arbitrator selected pursuant to this
Agreement so orders, upon a showing of substantial needs. At least 30 days
before the arbitration proceeding, the parties shall exchange lists of
witnesses, including naming experts, and provide copies of all exhibits
intended to be used at the arbitration proceeding. Each party shall have
the right to subpoena witnesses and documents for such proceeding.
(f) Reporter. Either party, at its expense, may arrange for and
--------
pay the cost of a court reporter to provide a stenographic record of the
proceeding.
(g) Post-Proceeding Briefs. Either party, upon request at the
----------------------
close of hearing, shall be given leave to file a post-hearing brief. The
time for filing such a brief shall be set by the Arbitrator.
11.6 Enforcement. Either party may bring an action in any court of
-----------
competent jurisdiction to compel arbitration under this Agreement and to enforce
an arbitration award. Except as otherwise provided in this Agreement, both the
Company and Executive agree that neither shall initiate or prosecute any lawsuit
or administrative action (other than for a non-covered claim) in any way related
to any Claim covered by the parties' agreement to arbitrate. A party opposing
enforcement of an award may not do so in an enforcement proceeding, but must
bring a separate action in any court of competent jurisdiction to set aside the
award, where the standard of review will be the same as that applied by an
appellate court reviewing a decision of a trial court sitting without a jury.
11.7 Arbitration Fees and Costs. Company and Executive shall equally
--------------------------
share the fees and costs of the Arbitrator. Each party will deposit funds or
post other appropriate security for its share of the Arbitrator's fee, in an
amount and manner determined by the Arbitrator, at least ten (10) days prior to
the first day of the proceeding. Each party shall pay for its own costs and
attorneys fees, if any; provided, however, that the Arbitrator, in that person's
sole discretion, may award reasonable fees to the prevailing party in the
proceeding.
11.8 Waiver of Jury Trial. BY AGREEING TO SUBMIT A DISPUTE TO
--------------------
ARBITRATION, THE PARTIES HERETO UNDERSTAND THAT THEY WILL NOT ENJOY THE BENEFITS
OF A JURY TRIAL. ACCORDINGLY, THE PARTIES HERETO EXPRESSLY AGREE TO WAIVE THE
RIGHT TO A JURY TRIAL.
11.9 Benefit. EXECUTIVE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR
-------
THE PURPOSES OF THE PROVISIONS OF THIS SECTION 12 COULD INCLUDE ONE OR MORE OF
ALC AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT AND THAT EACH
SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFITS OF THIS SECTION.
Page 9 - EMPLOYMENT AGREEMENT
<PAGE>
12. General Terms and Conditions. The parties acknowledge that the
----------------------------
Company is engaged in transactions involving interstate commerce and that
Executive's employment involves such commerce. This Agreement and that certain
offer letter from ALC, dated February 3, 1999, (which is attached hereto and
incorporated herein by this reference) as accepted by Executive on February 4,
1999, shall constitute the final and entire understanding of the parties
relating to the employment of Executive, and supersedes and replaces all written
and oral agreements heretofore made or existing by and between the parties
relating thereto. In the event of any inconsistency between the terms of this
Agreement and the offer letter, this Agreement shall prevail. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Oregon, without regard to the conflicts of laws rules thereof, and all disputes
relating to this Agreement (which are not subject to arbitration under Section
11) shall be tried before a state or federal court sitting in Multnomah County,
to the exclusion of all courts which might have jurisdiction apart from this
provision. This Agreement shall inure to the benefit of any successors or
assigns of the Company.
[signatures on the following page]
Page 10 - EMPLOYMENT AGREEMENT
<PAGE>
IN WITNESS HEREOF, the parties have executed this Employment Agreement as
of the date below written to be effective on the Commencement Date hereof.
EXECUTIVE ASSISTED LIVING CONCEPTS, INC., on
behalf of itself and its Affiliated
Companies
__________________________________ ____________________________________
James W. Cruckshank Keren Brown Wilson
Vice President and Chief Financial Chief Executive Officer and President
Officer
Date: ___________________________ Date: ______________________________
Work Location - Present Address:
11835 N.E. Glenn Widing Drive, Building E
Portland, OR 97220-9057
Page 11 - EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
FORM OF SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release ("Agreement") is made and entered into
as of this _____ day of ______________,______, by and between Assisted Living
Concepts, Inc. and one or more of its Affiliated Companies (collectively,
"Company"), and ______________________ ("Executive") in order to provide the
terms and conditions of Executive's termination of employment, to fully and
completely resolve any and all issues that Executive may have in connection with
[HIS/HER] employment with Company or the termination of that employment, and to
promote an amicable long-term relationship between Company and Executive.
In consideration of the mutual promises and conditions contained herein, the
parties agree as follows:
1. Separation. Executive has been [is currently] employed at Company
----------
as Executive. Executive shall have no further job responsibilities at Company
after --------------, and [his/her] employment shall be terminated effective as
of such date.
2. Payment to Executive. Pursuant to the Employment Agreement entered into
--------------------
between the parties, Company agrees to provide additional compensation to
Executive in the amounts set forth in the Employment Agreement provided
Executive executes and does not revoke this Agreement.
3. Release of Claims. In return for the benefits conferred by this
-----------------
Agreement (and described in the Employment Agreement), which Executive
acknowledges Company has no legal obligation to provide if Executive does not
enter into this Agreement, Executive, on behalf of [HERSELF/HIMSELF] and
[HER/HIS] heirs, executors, administrators, successors and assigns, hereby
releases and forever discharges Company and its past, present and future
affiliates, subsidiaries, predecessors, successors and assigns, and each of
their past, present and future shareholders, officers, directors, Executives,
agents and insurers, from any and all claims, actions, causes of action,
disputes, liabilities or damages, of any kind, which may now exist or hereafter
may be discovered, specifically including, but not limited to, any and all
claims, disputes, actions, causes of action, liabilities or damages, arising
from or relating to Executive's employment with Company, or the termination of
such employment, except for any claim for payment or performance pursuant to the
terms of this Agreement. This release includes, but is not limited to, any
claims that Executive might have for reemployment or reinstatement or for
additional compensation or benefits and applies to claims that [HE/SHE] might
have under either federal, state or local law dealing with employment, contract,
tort, wage and hour, or civil rights matters, including, but not limited to,
Title VII of the Civil Rights Act of 1964, the Age
- A-1 -
<PAGE>
Discrimination in Employment Act, the Americans with Disabilities Act, the
Family and Medical Leave Act, similar state laws, and any regulations under such
laws. This release shall not affect any accrued rights Executive may have under
any medical insurance, workers' compensation or retirement plan because of
[HIS/HER] prior employment with Company. EXECUTIVE ACKNOWLEDGES AND AGREES THAT
THROUGH THIS RELEASE [HE/SHE] IS GIVING UP ALL RIGHTS AND CLAIMS OF EVERY KIND
AND NATURE WHATSOEVER, KNOWN OR UNKNOWN, CONTINGENT OR LIQUIDATED, THAT [HE/SHE]
MAY HAVE AGAINST COMPANY AND THE OTHER PERSONS NAMED ABOVE, EXCEPT FOR THE
RIGHTS SPECIFICALLY EXCLUDED ABOVE.
4. Confidentiality. Executive agrees to keep this Agreement and
---------------
each of its terms, specifically including without limitation the amount of the
payment described in this Agreement, and the fact that [HE/SHE] has received
payment, strictly confidential. Executive may disclose the terms of this
Agreement only to [HIS/HER] attorney or accountant, or as required by law.
Executive understands that Company may be required to publicly disclose the
terms of this Agreement.
5. Non-Disparagement. Executive shall not make any disparaging or
-----------------
derogatory remarks of any nature whatsoever about Company, its officers,
directors or Executives, or its services and/or products (if any), either
publicly or privately, unless required by law.
6. Non-Admission of Liability. This Agreement shall not be construed
--------------------------
as an admission of liability or wrongdoing by Company. Neither this Agreement
nor any of its terms, provisions, or conditions constitute an admission of
liability or wrongdoing or may be offered or received in evidence in any action
or proceeding as evidence of an admission of liability or wrongdoing.
7. Employment Agreement. Executive acknowledges and reaffirms
--------------------
[HIS/HER] obligations under Sections 3 and 5 of the Employment Agreement
executed by [HIM/HER] in conjunction with [HIS/HER] employment at Company. The
terms of such Employment Agreement are hereby incorporated herein and made a
part of this Agreement. Executive agrees to strictly comply with such terms of
the Employment Agreement.
8. Return of Property. Executive agrees to and hereby represents
------------------
that [HE/SHE] has returned to Company all of Company's property and all
materials containing confidential information of Company, that were in [HIS/HER]
possession or under [HIS/HER] control.
9. Miscellaneous.
-------------
9.1 Entire Agreement. This document constitutes the entire,
----------------
final, and complete agreement and understanding of the parties with respect to
the subject matter hereof and supersedes and replaces all written and oral
agreements and understandings heretofore made or existing by and between the
parties or their representatives with respect thereto, other than the Employment
Agreement executed between the parties. There have been no representations or
commitments by Company to make any payment or perform any act other than
- A-2 -
<PAGE>
those expressly stated herein.
9.2 Waiver. No waiver of any provision of this Agreement
------
shall be deemed, or shall constitute a wavier of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the parties making the waiver.
9.3 Binding Effect. All rights, remedies, and liabilities
--------------
herein given to or imposed upon the parties shall extend to, inure to the
benefit of and bind, as the circumstances may require, the parties and their
representative heirs, personal representatives, administrators, successors and
assigns.
9.4 Amendment. No supplement, modification or amendment of
---------
this Agreement shall be valid, unless the same is in writing and signed by
both parties.
9.5 Fees. If it becomes necessary to enforce this Agreement,
----
or any part hereof, the prevailing party shall be entitled to recover its
reasonable attorney fees and costs incurred therein, including all
attorneys fees and costs on appeal.
9.6 Governing Law. This Agreement and the rights of the
-------------
parties hereunder shall be governed, construed and enforced in accordance with
the laws of the state of Oregon, without regard to its conflict of law
principles. Any suit or action arising out of or in connection with this
Agreement, or any breach hereof, shall be brought and maintained in the Circuit
Court of the State of Oregon for the County of Multnomah. The parties hereby
irrevocably submit to the jurisdiction of such court for the purpose of such
suit or action and hereby expressly and irrevocably waive, to the fullest extent
permitted by law, any claim that any such suit or action has been brought in an
inconvenient forum.
9.7 Executive Given 21 Days to Consider Agreement. Executive
---------------------------------------------
acknowledges that Company advised [HIM/HER] in writing to consult with an
attorney before signing this Agreement and that [HE/SHE] has had at least
21 days to consider whether to execute this Agreement.
9.8 Revocation. Executive may revoke this Agreement by
----------
written notice delivered to the President or Chief Executive Officer of the
Company within seven days following the date [HE/SHE] signed the Agreement.
If not revoked under the preceding sentence, this Agreement becomes
effective and enforceable after the seven-day period has expired.
- A-3 -
<PAGE>
EXECUTIVE ACKNOWLEDGES THAT [HE/SHE] HAS FREELY AND VOLUNTARILY EXECUTED THIS
AGREEMENT, WITH A COMPLETE UNDERSTANDING OF ITS TERMS AND PRESENT AND
FUTURE EFFECTS.
"EXECUTIVE" ASSISTED LIVING CONCEPTS, INC. on behalf of
itself, and the Affiliated Companies
______________________________ By: _______________________________
Title: ____________________________
Date:_________________________ Date:______________________________
- A-4 -
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
(Location Specific)
DATE: March 1, 1999 ("Commencement Date")
PARTIES: LESLIE MAHON ("Executive")
ASSISTED LIVING CONCEPTS, INC., on ("Company")
behalf of itself and its Affiliated Companies
11835 NE Glenn Widing Drive, Building E
Portland, Oregon 97220
1. Services.
--------
1.1 Employment. Effective on the Commencement Date, Assisted Living
----------
Concepts, Inc. ("ALC") or one of its Affiliated Companies (defined below) hereby
agrees to employ Executive, and Executive hereby agrees to serve the Company, on
the terms and conditions of this Agreement. Such employment shall be for the
initial term of two (2) years, with an automatic rollover at the end of each
year from and after the Commencement Date for an additional year unless
terminated by the Company by its providing written notice of such termination to
Executive within ninety (90) days prior to the anniversary of the Commencement
Date (in which event Executive shall have one year remaining until the
termination of this Agreement, unless terminated earlier pursuant to Section 6
hereunder). For example, in the event that Executive were an employee of the
Company on March 15, 2000 and the Company were not to have provided written
notice to Executive between December 15, 1999 and March 15, 2000 that
Executive's employment would terminate on March 15, 2001, then the term of this
Agreement would automatically rollover an additional year to March 15, 2002 from
March 15, 2001. On the other hand, if the Company were to provide written
notice to Executive of the termination of this Agreement within 90 days prior to
the anniversary date of March 15, 2000, then this Agreement would terminate on
March 15, 2001 (unless terminated earlier pursuant to Section 6 hereunder), and
there would be no automatic rollover.
For purposes of this Agreement, "Affiliated Companies" shall mean an entity
controlling, controlled by, or under common control with ALC, and shall include
a corporation which acquires the stock of ALC, should a merger occur.
1.2 Position and Duties. Executive shall serve as the Vice President of
-------------------
Operations with such powers and duties appropriate to that position as may be
provided by the Bylaws of the Company and as may be determined by the Chief
Executive Officer (or, if none, the President) of the Company from time to time.
Executive's position and duties may change during the term of this Agreement;
provided, however, that the position and duties shall not diminish in scope.
Page 1 - EMPLOYMENT AGREEMENT
<PAGE>
1.3 Outside Activities. Executive shall obtain the prior written consent
------------------
of the Board of Directors prior to Executive engaging in any other professional
or business activities, directly or indirectly, that may require a material
amount of Executive's time or effort to the detriment of the Company's business.
Such consent will not be unreasonably withheld.
1.4 Direction of Services. Executive shall at all times discharge
---------------------
Executive's duties in consultation with and under the supervision and direction
of the Company's Chief Executive Officer and President, or any duly designated
representative of either of them if such offices are held by different
individuals.
2. Compensation and Expenses.
-------------------------
2.1 Salary. As compensation for services under this Agreement, the
------
Company shall pay to Executive an annual salary to be established each calendar
year by the Chief Executive Officer (or, if there is no Chief Executive Officer,
the President) in consultation with the Board of Directors of the Company. Such
salary may be adjusted from time to time unless the Board of Directors in its
discretion determines not to do so, but in no event will an adjustment result in
a salary less than the initial annual salary in the amount of One Hundred
Seventy-five Thousand Dollars ($175,000). Payment shall be made on a bi-weekly
basis or other basis as may be implemented for general payroll purposes, less
all amounts required by law to be withheld or deducted.
2.2 Stock Options. The Company shall grant Executive the option to
-------------
purchase 30,000 shares of Company common stock to vest as follows:
10,000 on March 1, 2000
10,000 on March 1, 2001
10,000 on March 1, 2002
2.3 Company Incentive Bonus Plan. After six (6) full months of
----------------------------
employment with the Company, Executive shall be eligible to participate in the
Company's Incentive Bonus Plan for 1999 and in any future bonus plan, the
criteria of which shall be determined in the sole discretion of the Board of
Directors. For the calendar year 1999, the Incentive Bonus Plan is based upon:
(i) the Company meeting its performance goals; and (ii) Executive meeting the
goals established for Executive. The maximum amount of such bonuses for any
employee employed the full calendar year of 1999 is 20% of an employee's annual
salary or, up to 10% based upon employee's performance and up to 10% based on
the Company's performance. In the event an employee is eligible to participate
in the Plan during only the last three months of 1999, then the maximum amount
of an employee's bonus would be 20% of the amount of employee's salary for 3
months.
2.4. Expenses. Executive shall be reimbursed for Executive's travel
--------
expenses incurred in connection with Executive's employment according to the
policies and procedures in effect when incurred.
Page 2 - EMPLOYMENT AGREEMENT
<PAGE>
2.5 Benefits. Executive and Executive's immediate family (if benefit is
--------
generally available to Executive's family members) shall have the right to
receive or participate in any of the Company's benefit programs, including
without limitation, group medical (with Executive and Executive's spouse's cost
of the Company's medical benefit program paid in full), dental, life, AD&D and
LTD on the first of the next month following ninety (90) days of employment with
the Company.
2.6 Paid Time Off. Executive shall be entitled to four (4) weeks of Paid
-------------
Time Off per year of employment with the Company. Executive shall
have the right to carry over one quarter of Paid Time Off which
accrued but was unused during the prior calendar year.but was unused
during the prior calendar year. No compensation will be paid for
accrued Paid Time Off which was not taken. For the year 1999, Paid
Time Off shall be prorated according to time actually employed.
2.7 Other. Executive's car allowance shall be in the amount of $500 per
-----
month.
3. Confidential Information.
------------------------
3.1 Access to Information. Executive acknowledges that in the course of
---------------------
Executive's employment, Executive will have access to proprietary information,
trade secrets, and other confidential information, that such information is a
valuable asset of the Company, and that its disclosure or unauthorized use will
cause the Company substantial harm. As used in this Agreement, the term
"Confidential Information" shall mean: (a) proprietary information and trade
secrets of the Company and (b) information designated by the Company as
confidential or which Executive knows or should know is confidential.
3.2 Ownership. Executive acknowledges that all Confidential Information
---------
shall continue to be the exclusive property of the Company, whether or not
prepared in whole or in part by Executive and whether or not disclosed to
Executive or entrusted to Executive's custody in connection with Executive's
employment by the Company.
3.3 Nondisclosure and Nonuse. Unless authorized or instructed in writing
------------------------
by the Company, or required by legally constituted authority, Executive will
not, except as required in the course of the Company's business, during or after
Executive's employment, disclose to others or use any Confidential Information,
unless and until, and then only to the extent that, such items become available
to the public other than by Executive's act or failure to prevent accidental or
negligent loss or release to any unauthorized person of the Confidential
Information.
3.4 Return of Confidential Information. Upon request by the Company
----------------------------------
during or after Executive's employment, and without request upon termination of
employment pursuant to this Agreement, Executive will deliver immediately to the
Company all Confidential Information of the Company; Executive will retain no
excerpts, notes, or copies thereof, whether on disk for computer use or in any
other form.
Page 3 - EMPLOYMENT AGREEMENT
<PAGE>
3.5 Duration. The obligations set forth in this Section 3 shall survive
--------
the expiration or earlier termination of this Agreement and shall terminate at
such time as Executive no longer possesses Confidential Information.
4. Work Made for Hire. Executive agrees that all creative work, including
------------------
without limitation, techniques, models, and processes, prepared or originated by
Executive for the Company, or during or within the scope of employment by the
Company, whether or not subject to protection under applicable law, constitutes
work made for hire, all rights to which are owned by the Company, Executive
assigns to the Company all rights, title, and interest, whether by way of
copyright, trade secret, or otherwise, in all such work, whether or not subject
to protection by copyright or other law. EXECUTIVE ACKNOWLEDGES AND AGREES THAT
ANY ONE OR MORE ENTITIES CONSTITUTING "COMPANY" UNDER THIS AGREEMENT SHALL BE
ENTITLED TO THE BENEFIT OF THE PROVISIONS OF THIS SECTION 4.
5. Noncompetition.
--------------
5.1 Covenant. Executive covenants that in the states in which Affilated
--------
Companies are doing business, Executive will not, either individually or as a
director, officer, partner, employee, agent, representative, or consultant with
any business, directly or indirectly during the term of employment with the
Company and for one year thereafter:
(a) Induce or attempt to induce any person who is an employee of the
Company during the term of this covenant to leave the employ of the
Company; or
(b) Induce or attempt to induce any person who is a tenant or
potential tenant (whether on a waiting list or simply a person who was
contacted by Executive or another agent of the Company in a marketing
effort or who contacted the Company regarding tenancy or whose family
member or agent contacted the Company) to leave the tenancy of a facility
or to select different residency, not under Company management; or,
(b) Solicit, divert, or accept orders from any customer of the
Company for products or services that are substantially competitive with
the products or services, if any, sold by the Company.
5.2 Enforcement.
-----------
(a) Executive acknowledges and agrees that the time, scope, and
other provisions of this Section 5 have been specifically negotiated by
sophisticated parties having been advised to seek legal counsel and
Executive agrees that such time, scope, and other provisions are
Page 4 - EMPLOYMENT AGREEMENT
<PAGE>
reasonable under the circumstances. Executive further agrees that if, at
any time, despite the express agreement of the parties hereto, a court of
competent jurisdiction holds that any portion of this Section 5 is
unenforceable for any reason, the maximum restrictions reasonable under
the circumstances, as determined by such court, will be substituted for
any such restrictions held unenforceable.
(b) EXECUTIVE ACKNOWLEDGES AND AGREES THAT ANY ONE OR MORE ENTITIES
CONSTITUTING "COMPANY" UNDER THIS AGREEMENT SHALL BE ENTITLED TO THE
BENEFIT OF THE PROVISIONS OF THIS SECTION 5.
6. Termination.
-----------
6.1 Voluntary Resignation. Executive may terminate Executive's
---------------------
employment under this Agreement by 90 days written notice to the Company. In the
event of such voluntary resignation, this Agreement shall terminate as of the
effective date of resignation, and the Company shall have no obligation
whatsoever to pay any Severance Amount or any other amounts except as required
by applicable law.
6.2 Termination by the Company.
--------------------------
(a) With Cause. The Company may terminate Executive's employment
----------
under this Agreement immediately with cause by notice to Executive. In the
event Executive is terminated pursuant to the provisions of this Section
6.2(a), the Company shall have no obligation whatsoever to pay any
Severance Amount or any other amounts except as required by applicable
law. Specific examples of events that warrant termination for cause
include, but are not limited to: (i) Executive's material failure to
perform Executive's duties; (ii) Executive's failure to act in a
professional manner if such failure causes material damage to the Company;
(iii) Executive's breach of this Agreement; or (iv) Executive's engaging
in fraud, breach of fiduciary duty, or any other act of similar willful
misconduct or gross negligence in the performance of Executive's duties on
behalf of the Company.
(b) Without Cause. In the event of the termination of the employment
-------------
of Executive by the Company without cause and without the Company offering
Comparable Employment (defined below) prior to the expiration hereof,
Executive shall be paid an amount equal to that set forth in Schedule
6.2(b), which is attached hereto and incorporated herein by this reference
(the "Severance Amount"), subject to the condition set forth in Section
6.4 below. Such Severance Amount shall be paid in a lump sum within 60
days after the effective date of the termination of employment. In the
event Executive is offered Comparable Employment, whether or not Executive
accepts such offer, then the Company shall have
Page 5 - EMPLOYMENT AGREEMENT
<PAGE>
no obligation whatsoever to pay the Severance Amount. In the event,
Executive is offered and accepts a position with the Company which is
Comparable Employment, this Agreement shall remain in full force and
effect until its expiration or earlier termination after such change to
Comparable Employment. "Comparable Employment" shall mean employment with
ALC or an Affiliated Company in a position that is with one or more
entities constituting "Company" under this Agreement and is: (i) not
materially different in level of responsibility or duties; (ii) at the
same or higher salary level and benefits; (iii) with the same or similar
title or rank; and (iv) which is to be based within a 20-mile radius of
the location of Executive's immediately prior position with the Company.
6.3 Death. This Agreement shall terminate immediately upon Executive's
-----
death, and the Company shall have no obligation to pay the Severance Amount in
such event.
6.4 Condition to Severance Payments.
-------------------------------
(a) As a condition precedent to the Company's obligation to pay the
Severance Amount, Executive shall sign, deliver, and abide by a Separation
Agreement and Release, substantially in the form attached hereto as
Exhibit A to this Agreement. The Company's obligation to pay the Severance
Amount shall terminate if Executive is in violation of the provisions of
Section 5 of this Agreement.
(b) EXECUTIVE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR THE
PURPOSES OF THE RELEASE CONTEMPLATED BY SECTION 6.4(a) COULD INCLUDE ONE
OR MORE OF ALC AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS
AGREEMENT AND THAT EACH SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE
BENEFIT OF THE RELEASE CONTEMPLATED IN SECTION 6.4(a).
7. Remedies. The respective rights and duties of the parties under this
--------
Agreement are in addition to, and not in lieu of, those rights and duties
afforded to and imposed upon them by law or at equity. Executive acknowledges
that breach of Sections 3 and 5 of this Agreement will cause irreparable harm to
the Company and agrees to the entry of a temporary restraining order and
permanent injunction by any court of competent jurisdiction to prevent breach or
further breach of this Agreement. Such remedy shall be in addition to any other
remedy available to Company at law or in equity.
8. Severability of Provisions. The provisions of this Agreement are
--------------------------
severable, and if any provision hereof is held invalid or unenforceable, it
shall be enforced to the maximum extent permissible, and the remaining
provisions of the Agreement shall continue in full force and effect.
Page 6 - EMPLOYMENT AGREEMENT
<PAGE>
9. Attorney Fees. In the event a suit or action is filed to enforce Sections
-------------
3 and 5 of this Agreement, the prevailing party shall be reimbursed by the other
party for all costs and expenses incurred in connection with the suit or action
including, without limitation, reasonable attorneys fees at trial, on appeal and
otherwise.
10. Nonwaiver. Failure of the Company at any time to require performance of
---------
any provision of this Agreement shall not limit the right of the Company to
enforce the provision. No provision of this Agreement or breach thereof may be
waived by either party except by a writing signed by that party. A waiver of
any breach of a provision of this Agreement shall be construed narrowly and
shall not be deemed to be a waiver of any succeeding breach of that provision or
a waiver of that provision itself or of any other provision.
11. Arbitration.
-----------
11.1 Claims Covered. All claims or controversies ("Claim" or "Claims"),
--------------
(except for those expressly excluded by Section 11.2, whether or not arising out
of Executive's employment or its termination) that Company may have against the
Executive or that Executive may have against the Company or against its
officers, directors, employees or agent, in their capacity as such or otherwise,
shall be resolved by arbitration, as provided in this Section 11. Claims
covered by this agreement to arbitration shall include, without limitation,
claims for wages or other compensation due; claims for breach of any contract or
covenant (express or implied); tort claims; claims for discrimination
(including, but not limited to, race, sex, sexual orientation, religion,
national origin, age, marital status, or medical condition, handicap or
disability); claims for benefits (except where an employee benefit or pension
plan specifies that its claims procedure shall culminate in an arbitration
procedure different from this one); and, claims for violation of any federal,
state, or other governmental law, statute, regulation, or ordinance, except as
otherwise provided in Section 11.2.
11.2 Non-covered Claims. Claims arising out of Sections 3 and 5 of this
------------------
Agreement and workers compensation or unemployment compensation benefits are not
covered by the parties' agreement to arbitrate. Non-covered claims include,
without limitation, claims by the Company for injunctive and/or other equitable
relief for unfair competition and/or the use and/or unauthorized disclosure of
trade secrets or confidential information, about which Executive understands and
agrees that the Company may seek and obtain relief from a court of competent
jurisdiction.
11.3 Required Notice of All Claims and Statute of Limitations. Company
--------------------------------------------------------
and Executive agree that the aggrieved party must give written notice of any
Claim to the other party within one year of the date the aggrieved party first
has knowledge of the event giving rise to the Claim. Failure to provide such
notice shall result in the Claim being void and deemed waived, even if there is
a federal or state statute of limitations which would have given more time to
pursue the Claim. The written notice shall identify and describe the nature of
all Claims asserted and the facts upon which such Claims are based.
11.4 Hearing or Mediation. Prior to any arbitration proceeding taking
--------------------
place
Page 7 - EMPLOYMENT AGREEMENT
<PAGE>
pursuant to this Section, Company or Executive may elect to submit the Claim to
non-binding mediation before a mutually agreeable mediation tribunal or
mediator, in which event both parties and the mediator shall execute a
reasonable confidentiality agreement and abide by the procedures specified by
the mediation tribunal or mediator.
11.5 Arbitration Procedures. Any arbitration shall be conducted in
----------------------
accordance with the then-current Model Employment Arbitration Procedures of the
American Arbitration Association ("Model Rules"), through the United States
Arbitration and Mediation Service ("USA&MS"), before an arbitrator who is
licensed to practice law in the State of Oregon (the "Arbitrator"). Because
USA&MS shall be the arbitration service, where the Model Rules reference the
"American Arbitration Association," "USA&MS" shall be inserted instead. The
arbitration shall take place in or near Portland, Oregon.
(a) Selection of Arbitrator. The USA&MS shall give each party a
-----------------------
list of 11 arbitrators drawn from its panel of labor-management dispute
arbitrators. Each party may strike all names on the list it deems
unacceptable. If only one common name remains on the lists of all parties,
that individual shall be designated as the Arbitrator. If more than one
common name remains on the lists of all parties, the parties shall strike
names alternately until only one remains. The party who did not initiate
the claim shall strike first. If no common name remains on the lists of
all parties, the USA&MS shall furnish an additional list or lists until an
Arbitrator is selected.
(b) Applicable Law. The Arbitrator shall apply the substantive
--------------
law (and the law of remedies, if applicable) specified in this Agreement or
federal law, or both, as applicable to the Claim(s) asserted. The Oregon
Rules of Evidence shall apply. The Arbitrator, and not any federal, state,
or local court or agency, shall have exclusive authority to resolve any
dispute relating to the interpretation, applicability, enforceability or
formation of this Agreement, including but not limited to any assertion
that all or any part of this Agreement is void or voidable. The
arbitration shall be final and binding upon the parties, except as provided
in this Agreement.
(c) Authority. The Arbitrator shall have jurisdiction to hear
---------
and rule on pre-hearing disputes and is authorized to hold pre-hearing
conferences by telephone or in person as the Arbitrator deems necessary.
The Arbitrator shall have the authority to entertain a motion to dismiss
and/or a motion for summary judgment by any party and shall apply the
standards governing such motions under the Federal Rules of Civil
Procedure. The Arbitrator shall render an award and opinion in the form
typically rendered in labor arbitrations.
(d) Representation. Each party may be represented by an attorney
--------------
or other representative selected by that party.
(e) Discovery. Each party shall have the right to take the
---------
deposition of one individual and any expert witness designated by the other
party.
Page 8 - EMPLOYMENT AGREEMENT
<PAGE>
Each party also shall have the right to make requests for production of
documents to the other party. The subpoena right specified below shall be
applicable to discovery pursuant to this subsection (e). Additional
discovery may be had only where the Arbitrator selected pursuant to this
Agreement so orders, upon a showing of substantial needs. At least 30 days
before the arbitration proceeding, the parties shall exchange lists of
witnesses, including naming experts, and provide copies of all exhibits
intended to be used at the arbitration proceeding. Each party shall have
the right to subpoena witnesses and documents for such proceeding.
(f) Reporter. Either party, at its expense, may arrange for and
--------
pay the cost of a court reporter to provide a stenographic record of the
proceeding.
(g) Post-Proceeding Briefs. Either party, upon request at the
----------------------
close of hearing, shall be given leave to file a post-hearing brief. The
time for filing such a brief shall be set by the Arbitrator.
11.6 Enforcement. Either party may bring an action in any court of
-----------
competent jurisdiction to compel arbitration under this Agreement and to enforce
an arbitration award. Except as otherwise provided in this Agreement, both the
Company and Executive agree that neither shall initiate or prosecute any lawsuit
or administrative action (other than for a non-covered claim) in any way related
to any Claim covered by the parties' agreement to arbitrate. A party opposing
enforcement of an award may not do so in an enforcement proceeding, but must
bring a separate action in any court of competent jurisdiction to set aside the
award, where the standard of review will be the same as that applied by an
appellate court reviewing a decision of a trial court sitting without a jury.
11.7 Arbitration Fees and Costs. Company and Executive shall equally
--------------------------
share the fees and costs of the Arbitrator. Each party will deposit funds or
post other appropriate security for its share of the Arbitrator's fee, in an
amount and manner determined by the Arbitrator, at least ten (10) days prior to
the first day of the proceeding. Each party shall pay for its own costs and
attorneys fees, if any; provided, however, that the Arbitrator, in that person's
sole discretion, may award reasonable fees to the prevailing party in the
proceeding.
11.8 Waiver of Jury Trial. BY AGREEING TO SUBMIT A DISPUTE TO
--------------------
ARBITRATION, THE PARTIES HERETO UNDERSTAND THAT THEY WILL NOT ENJOY THE BENEFITS
OF A JURY TRIAL. ACCORDINGLY, THE PARTIES HERETO EXPRESSLY AGREE TO WAIVE THE
RIGHT TO A JURY TRIAL.
11.9 Benefit. EXECUTIVE ACKNOWLEDGES AND AGREES THAT "COMPANY" FOR
-------
THE PURPOSES OF THE PROVISIONS OF THIS SECTION 12 COULD INCLUDE ONE OR MORE OF
ALC AND THE AFFILIATED COMPANIES DURING THE TERM OF THIS AGREEMENT AND THAT EACH
SUCH ENTITY SHALL SEPARATELY BE ENTITLED TO THE BENEFITS OF THIS SECTION.
Page 9 - EMPLOYMENT AGREEMENT
<PAGE>
12. General Terms and Conditions. The parties acknowledge that the
----------------------------
Company is engaged in transactions involving interstate commerce and that
Executive's employment involves such commerce. This Agreement and that certain
offer letter from ALC, dated February 3, 1999, (which is attached hereto and
incorporated herein by this reference) as accepted by Executive on February 4,
1999, shall constitute the final and entire understanding of the parties
relating to the employment of Executive, and supersedes and replaces all written
and oral agreements heretofore made or existing by and between the parties
relating thereto. In the event of any inconsistency between the terms of this
Agreement and the offer letter, this Agreement shall prevail. This Agreement
shall be governed by and construed in accordance with the laws of the State of
Oregon, without regard to the conflicts of laws rules thereof, and all disputes
relating to this Agreement (which are not subject to arbitration under Section
11) shall be tried before a state or federal court sitting in Multnomah County,
to the exclusion of all courts which might have jurisdiction apart from this
provision. This Agreement shall inure to the benefit of any successors or
assigns of the Company.
[signatures on the following page]
Page 10 - EMPLOYMENT AGREEMENT
<PAGE>
IN WITNESS HEREOF, the parties have executed this Employment Agreement as
of the date below written to be effective on the Commencement Date hereof.
EXECUTIVE ASSISTED LIVING CONCEPTS, INC., on
behalf of itself and its Affiliated
Companies
_____________________________________ ___________________________
Leslie Mahon, Chief Operating Officer Keren Brown Wilson
Date: ____________ Chief Executive Officer and President
Work Location -- Present Address: Date: ___________
11835 N.E. Glenn Widing Drive, Building E
Portland, OR 97220-9057
Page 11 - EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT A
TO
EMPLOYMENT AGREEMENT
FORM OF SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release ("Agreement") is made and entered into
as of this _____ day of ______________,______, by and between Assisted Living
Concepts, Inc. and one or more of its Affiliated Companies (collectively,
"Company"), and ______________________ ("Executive") in order to provide the
terms and conditions of Executive's termination of employment, to fully and
completely resolve any and all issues that Executive may have in connection with
[HIS/HER] employment with Company or the termination of that employment, and to
promote an amicable long-term relationship between Company and Executive.
In consideration of the mutual promises and conditions contained herein, the
parties agree as follows:
1. Separation. Executive has been [is currently] employed at Company as
----------
Executive. Executive shall have no further job responsibilities at Company
after --------------, and [his/her] employment shall be terminated effective as
of such date.
2. Payment to Executive. Pursuant to the Employment Agreement entered into
--------------------
between the parties, Company agrees to provide additional compensation to
Executive in the amounts set forth in the Employment Agreement provided
Executive executes and does not revoke this Agreement.
3. Release of Claims. In return for the benefits conferred by this Agreement
-----------------
(and described in the Employment Agreement), which Executive acknowledges
Company has no legal obligation to provide if Executive does not enter into this
Agreement, Executive, on behalf of [HERSELF/HIMSELF] and [HER/HIS] heirs,
executors, administrators, successors and assigns, hereby releases and forever
discharges Company and its past, present and future affiliates, subsidiaries,
predecessors, successors and assigns, and each of their past, present and future
shareholders, officers, directors, Executives, agents and insurers, from any and
all claims, actions, causes of action, disputes, liabilities or damages, of any
kind, which may now exist or hereafter may be discovered, specifically
including, but not limited to, any and all claims, disputes, actions, causes of
action, liabilities or damages, arising from or relating to Executive's
employment with Company, or the termination of such employment, except for any
claim for payment or performance pursuant to the terms of this Agreement. This
release includes, but is not limited to, any claims that Executive might have
for reemployment or reinstatement or for additional compensation or benefits and
applies to claims that [HE/SHE] might have under either federal, state or local
law dealing with employment, contract, tort, wage and hour, or civil rights
matters, including, but not limited to, Title VII of the Civil Rights Act of
1964, the Age
- A-1 -
<PAGE>
Discrimination in Employment Act, the Americans with Disabilities Act, the
Family and Medical Leave Act, similar state laws, and any regulations under such
laws. This release shall not affect any accrued rights Executive may have under
any medical insurance, workers' compensation or retirement plan because of
[HIS/HER] prior employment with Company. EXECUTIVE ACKNOWLEDGES AND AGREES THAT
THROUGH THIS RELEASE [HE/SHE] IS GIVING UP ALL RIGHTS AND CLAIMS OF EVERY KIND
AND NATURE WHATSOEVER, KNOWN OR UNKNOWN, CONTINGENT OR LIQUIDATED, THAT [HE/SHE]
MAY HAVE AGAINST COMPANY AND THE OTHER PERSONS NAMED ABOVE, EXCEPT FOR THE
RIGHTS SPECIFICALLY EXCLUDED ABOVE.
4. Confidentiality. Executive agrees to keep this Agreement and each of its
---------------
terms, specifically including without limitation the amount of the payment
described in this Agreement, and the fact that [HE/SHE] has received payment,
strictly confidential. Executive may disclose the terms of this Agreement only
to [HIS/HER] attorney or accountant, or as required by law. Executive
understands that Company may be required to publicly disclose the terms of this
Agreement.
5. Non-Disparagement. Executive shall not make any disparaging or derogatory
-----------------
remarks of any nature whatsoever about Company, its officers, directors or
Executives, or its services and/or products (if any), either publicly or
privately, unless required by law.
6. Non-Admission of Liability. This Agreement shall not be construed as an
--------------------------
admission of liability or wrongdoing by Company. Neither this Agreement nor any
of its terms, provisions, or conditions constitute an admission of liability or
wrongdoing or may be offered or received in evidence in any action or proceeding
as evidence of an admission of liability or wrongdoing.
7. Employment Agreement. Executive acknowledges and reaffirms [HIS/HER]
--------------------
obligations under Sections 3 and 5 of the Employment Agreement executed by
[HIM/HER] in conjunction with [HIS/HER] employment at Company. The terms of such
Employment Agreement are hereby incorporated herein and made a part of this
Agreement. Executive agrees to strictly comply with such terms of the Employment
Agreement.
8. Return of Property. Executive agrees to and hereby represents that
------------------
[HE/SHE] has returned to Company all of Company's property and all materials
containing confidential information of Company, that were in [HIS/HER]
possession or under [HIS/HER] control.
9. Miscellaneous.
-------------
9.1 Entire Agreement. This document constitutes the entire, final, and
----------------
complete agreement and understanding of the parties with respect to the
subject matter hereof and supersedes and replaces all written and oral
agreements and understandings heretofore made or existing by and between the
parties or their representatives with respect thereto, other than the
Employment Agreement executed between the parties. There have been no
representations or commitments by Company to make any payment or perform any
act other than
- A-2 -
<PAGE>
9.2 Waiver. No waiver of any provision of this Agreement shall be
------
deemed, or shall constitute a wavier of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless executed in writing by the parties making the waiver.
9.3 Binding Effect. All rights, remedies, and liabilities herein given
--------------
to or imposed upon the parties shall extend to, inure to the benefit of and
bind, as the circumstances may require, the parties and their representative
heirs, personal representatives, administrators, successors and assigns.
9.4 Amendment. No supplement, modification or amendment of this
---------
Agreement shall be valid, unless the same is in writing and signed by both
parties.
9.5 Fees. If it becomes necessary to enforce this Agreement, or any
----
part hereof, the prevailing party shall be entitled to recover its reasonable
attorney fees and costs incurred therein, including all attorneys fees and
costs on appeal.
9.6 Governing Law. This Agreement and the rights of the parties
-------------
hereunder shall be governed, construed and enforced in accordance with the
laws of the state of Oregon, without regard to its conflict of law principles.
Any suit or action arising out of or in connection with this Agreement, or any
breach hereof, shall be brought and maintained in the Circuit Court of the
State of Oregon for the County of Multnomah. The parties hereby irrevocably
submit to the jurisdiction of such court for the purpose of such suit or
action and hereby expressly and irrevocably waive, to the fullest extent
permitted by law, any claim that any such suit or action has been brought in
an inconvenient forum.
9.7 Executive Given 21 Days to Consider Agreement. Executive acknowledges
---------------------------------------------
that Company advised [HIM/HER] in writing to consult with an attorney before
signing this Agreement and that [HE/SHE] has had at least 21 days to consider
whether to execute this Agreement.
9.8 Revocation. Executive may revoke this Agreement by written notice
----------
delivered to the President or Chief Executive Officer of the Company within
seven days following the date [HE/SHE] signed the Agreement. If not revoked
under the preceding sentence, this Agreement becomes effective and enforceable
after the seven-day period has expired.
- A-3 -
<PAGE>
EXECUTIVE ACKNOWLEDGES THAT [HE/SHE] HAS FREELY AND VOLUNTARILY EXECUTED
THIS AGREEMENT, WITH A COMPLETE UNDERSTANDING OF ITS TERMS AND PRESENT AND
FUTURE EFFECTS.
"EXECUTIVE" ASSISTED LIVING CONCEPTS, INC. on behalf
of itself, and the Affiliated Companies
______________________________ By: ____________________________________
Title: _________________________________
Date:_________________________ Date:___________________________________
- A-4 -
<PAGE>
EXHIBIT 10.14
===============================================================================
REIMBURSEMENT AGREEMENT
between
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
and
U.S. BANK OF WASHINGTON, NATIONAL ASSOCIATION
dated as of November 1, 1996
================================================================================
WASHINGTON STATE HOUSING FINANCE COMMISSION
VARIABLE RATE DEMAND MULTIFAMILY REVENUE BONDS
(ASSISTED LIVING CONCEPTS, INC. PROJECT), SERIES 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions............................................... 1
ARTICLE II
ISSUANCE OF LETTER OF CREDIT
SECTION 2.01. Issuance of the Letter of Credit.......................... 9
SECTION 2.02. Termination of Letter of Credit; Alternate Credit;
Extension................................................. 10
SECTION 2.03. Increase or Reduction of Stated Amount and Reinstatement.. 11
ARTICLE III
REIMBURSEMENT OBLIGATION AND INTEREST
SECTION 3.01. Reimbursement Obligations................................. 11
SECTION 3.02. Reimbursement and Loans................................... 11
SECTION 3.03. Manner, Method, Place and Time of Payment................. 13
SECTION 3.04. Obligation to Pay Unconditional........................... 13
SECTION 3.05. Evidence of Debt.......................................... 14
ARTICLE IV
OTHER PAYMENTS
SECTION 4.01. Letter of Credit Issuance Fee............................. 14
SECTION 4.02. Letter of Credit Annual Fee............................... 15
SECTION 4.03. Other Fees................................................ 15
SECTION 4.04. Increased Costs........................................... 16
SECTION 4.05. Payment of Expenses and Fees; Applicability............... 16
SECTION 4.06. Calculations; Default Interest; Compounded Interest....... 17
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions Precedent to Issuance of Letter of Credit...... 17
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.01. Representations, Warranties and Covenants of the
Borrower.................................................. 19
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
FURTHER COVENANTS
SECTION 7.01. Covenants................................................. 25
SECTION 7.02. Conditions Precedent to Disbursements of Bond Proceeds.... 34
SECTION 7.03. Assignment/Miscellaneous.................................. 36
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default; Acceleration and Remedies.............. 37
ARTICLE IX
SECURITY
SECTION 9.01. Funds, Accounts and Security Agreement.................... 40
SECTION 9.02. Funding and Maintaining the Funds......................... 40
SECTION 9.03. Interest of Bank and Owners of Bonds...................... 40
SECTION 9.04. Transfers and Other Liens................................. 41
SECTION 9.05. Priority Of Payment; Application of Sums Upon Notice of
Default................................................... 41
SECTION 9.06. Acknowledgment Regarding Funds and Accounts............... 41
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc........................................... 41
SECTION 10.02. Notices, Etc.............................................. 42
SECTION 10.03. No Waiver; Remedies....................................... 42
SECTION 10.04. Accounting Terms.......................................... 43
SECTION 10.05. Partial Reconveyance...................................... 43
SECTION 10.06. Security Costs, Expenses and Taxes........................ 44
SECTION 10.07. Binding Effect; Assignment................................ 44
SECTION 10.08. Governing Law............................................. 44
SECTION 10.09. Entire Agreement.......................................... 45
SECTION 10.10. JURY WAIVER............................................... 45
SECTION 10.11. Securities Law............................................ 45
SECTION 10.12. Subrogation............................................... 46
SECTION 10.13. Survival of Representations and Warranties................ 46
SECTION 10.14. Washington State Notice................................... 46
</TABLE>
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<PAGE>
Exhibits
--------
Exhibit A Letter of Credit
Exhibits B-1 Legal Descriptions
through B-5
Exhibit C Permitted Liens
Exhibit D-1 Mandatory Debt Service Payment Schedule
Exhibit D-2 Notice to Trustee Re Optional Redemption of Bonds
Exhibit E Pending Litigation
Exhibit F Project Budget
-iii-
<PAGE>
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT, dated as of November 1, 1996, between Assisted
Living Concepts, Inc., a Nevada corporation (the "Borrower") and U.S. Bank of
Washington, National Association (the "Bank").
WHEREAS, the Washington State Housing Finance Commission ("Commission")
intends to issue and sell its Variable Rate Demand Multifamily Revenue Bonds
(Assisted Living Concepts, Inc. Project), Series 1996 in the aggregate principal
amount of $8,500,000 (the "Bonds") issued pursuant to that certain Indenture of
Trust ("Indenture") dated as of November 1, 1996 between the Commission and
Norwest Bank Minnesota, National Association, as Trustee; and
WHEREAS, in order to secure payment when due of the principal of and
interest on the Bonds, the Borrower has requested the Bank to issue an
unconditional irrevocable letter of credit substantially in the form of Exhibit
A, which exhibit (with Annexes A through G) is attached and incorporated herein
by this reference (the "Letter of Credit"), in the principal amount of EIGHT
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($8,500,000) plus ONE HUNDRED
SIXTY SEVEN THOUSAND SIX HUNDRED SEVENTY ONE AND 20/100 DOLLARS ($167,671.20).
The sum of the principal and interest components of the Letter of Credit, as
reduced and reinstated pursuant to the terms thereof, is hereafter referenced as
the "Stated Amount".
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, and in order to induce the Bank to issue the Letter of Credit, the
Borrower and the Bank hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Terms defined above shall have the meanings
-----------
set forth above and the following terms shall have the following meanings. Any
term capitalized but not defined herein shall have the same meaning as ascribed
to it in the Indenture.
"Affiliate" means any person or entity related to, owned by, in common
ownership with, or affiliated with, a person or entity that is a parent company
or constituting a shareholder or member of Borrower or in which Borrower has or
holds an equity or other interest.
"Agency Agreement" means the agreement entitled "Agency Agreement" dated as
of November 1, 1996, among the Bank and its Collateral Agents (as defined
therein).
"Agreement" means this Reimbursement Agreement, as the same may from time
to time be amended, supplemented or modified.
<PAGE>
"Alternate Letter of Credit" means any substitute letter of credit meeting
the requirements of Section 310 of the Indenture.
"Assignment of Leases" means individually and collectively the Assignments
of Leases and Cash Collateral dated as of November 1, 1996 whereunder the
Borrower is the assignor and the Bank is assignee with respect to each Project.
"Bank" means U.S. Bank of Washington, National Association and each
Participant, whether now or hereafter existing.
"Bond" or "Bonds" means any one or more of the Bonds authorized,
authenticated and delivered pursuant to the Indenture.
"Borrower" means Assisted Living Concepts, Inc., a Nevada corporation.
"Business Day" means any day other than (i) a Saturday, Sunday or legal
holiday, (ii) a day on which commercial banks in New York, New York, are
authorized or obligated by law or executive order to close (but only prior to
the Fixed Rate Conversion Date); (iii) a day on which commercial banks in the
city or cities in which are located the principal corporate trust office of the
Trustee and the office of the Bank at which demands for payment under the Letter
of Credit are to be presented are authorized or required by law or executive
order to close; (iv) a day on which the New York Stock Exchange is closed; or
(v) a day on which the commercial banks in Seattle, Washington are closed.
"Capital Lease Obligations" means, for any Person, all obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board), and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount of
such obligation, determined in accordance with GAAP (including such Statement
No. 13).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax statute or code. Any reference to a provision of
the Code shall include the applicable Department of Treasury regulations.
"Contingent Obligation" means, with respect to any Person, any guarantee of
Indebtedness or any other obligation of any other Person or any assurance with
respect to the financial condition of any other Person, whether direct, indirect
or contingent, including, without limitation, any purchase or repurchase
agreement or keep-well, take-or-pay, through-put or other arrangement of
whatever nature having the effect of assuring or holding harmless any Person
against loss with respect to any obligation of such other Person; provided,
---------
however, that the term "Contingent Obligation" shall not include endorsements of
- -------
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of
-2-
<PAGE>
which such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined in
good faith by the Person subject to such obligation.
"Contractual Obligation" means, with respect to any Person, any provision
of any security interest of any nature issued, granted or transferred by such
Person or of any agreement, instrument or undertaking to which such Person is a
party or by which it or any of its property is or purports to be bound.
"Convertible Subordinated Debentures" means $20,000,000 aggregate principal
amount of the Borrower's 7% Convertible Subordinated Debentures dated August 15,
1995 and due August 15, 2005, which debentures are convertible at or prior to
maturity, unless previously redeemed, at a conversion price of $15.00 per share,
subject to adjustments therein set forth.
"Date of Issuance" means November 21, 1996, the date the Letter of Credit
is issued by the Bank.
"Deed of Trust" means individually and collectively, the Variable Rate Deed
of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing
dated as of November 1, 1996 whereunder the Borrower is grantor and Bank and
Trustee are co-beneficiaries, as amended from time to time encumbering each
Project.
"Default" or "Event of Default" has the meaning set forth in Section 8.01
hereof.
"Drawings" include:
"A Drawing (Interest)" or "A Drawing" means a drawing under the Letter of
Credit to make an interest payment on Bonds (except Pledged Bonds) due on an
Interest Payment Date, other than on Bonds being paid or purchased on such date.
"B Drawing (Redemption)" or "B Drawing" means a drawing on the Letter of
Credit to pay the principal amount of any Bonds being redeemed pursuant to
Section 602 of the Indenture together with accrued but unpaid interest thereon.
"C Drawing (Purchase)" or "C Drawing" means a drawing on the Letter of
Credit to pay all or any portion of the purchase price of the Bonds (except
Pledged Bonds) purchased pursuant to Section 404 of the Indenture or upon the
Fixed Rate Conversion Date corresponding to the principal amount of Bonds being
purchased and accrued and unpaid interest thereon.
"Environmental Law" means any federal, state or local law, statute,
ordinance or regulations pertaining to health, Medical Products, Hazardous
Substances, industrial hygiene or the environmental conditions on, under or
about any of the real properties constituting the Project, including, without
limitation, the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901 et seq., Comprehensive Environmental Response, Compensation, and
-- ---
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended by the
------
Superfund
-3-
<PAGE>
Amendments and Reauthorization Act of 1986, Hazardous Materials Transportation
Control Act, 49 U.S.C. Section 1801 et seq., Federal Water Pollution Control
------
Act, Federal Water Act of 1977, 93 U.S.C. Section 1251 et seq., Federal
-- ---
Insecticide, Fungicide and Rodenticide Act, Federal Pesticide Act of 1978, 7
U.S.C. Section 2601 et seq., Federal Safe Drinking Water Act, 42 U.S.C. Section
-- ---
300f et seq., Washington Water Pollution Control Act, RCW Chapter 90.48,
-- ---
Washington Clean Air Act, RCW Chapter 70.94, Washington Solid Waste Management
Recovery and Recycling Act, RCW Chapter 70.95, Washington Hazardous Waste
Management Act, RCW Chapter 70.105, Washington Hazardous Waste Fees Act, RCW
Chapter 70.95E, Washington Model Toxics Control Act, RCW Chapter 70.105D,
Washington Nuclear Energy and Radiation Act, RCW Chapter 70.98, Washington
Radioactive Waste Storage and Transportation Act of 1980, RCW Chapter 70.99,
Washington Underground Petroleum Storage Tanks Act, RCW Chapter 70.148.
"Environmental Indemnity Agreement" means individually and collectively
those certain agreements dated as of November 1, 1996 executed by the Borrower
in favor of the Bank with respect to each Project.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fixed Rate" means the interest rate per annum borne by the Bonds from and
after the Fixed Rate Conversion Date, determined by the Remarketing Agent in
accordance with Section 202(g) of the Indenture.
"Fixed Rate Conversion Date" means the effective date of a change in the
interest rate borne by the Bonds to the Fixed Rate from a Daily Rate or a Weekly
Rate as defined in the Indenture.
"FLSA" means the Fair Labor Standards Act of 1938, as amended from time to
time, and the regulations promulgated pursuant thereto.
"Funds" means any one or more of the separate special trust funds created
under Article III of the Indenture and any other fund or account created
thereunder, any supplemental indenture or any Related Document which is or
hereafter becomes available for the payment of principal or interest on Bonds or
to pay any sum due or to become due from the Borrower to the Bank.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles as in effect from time to time in the United
States and as consistently applied by the Borrower.
"Governmental Body" means any foreign or domestic government, any court or
any foreign, federal, state, municipal or other department, commission, board,
bureau, agency, public authority or instrumentality or any arbitrator or
government regulator with jurisdiction over the Borrower and/or any Project.
-4-
<PAGE>
"Guarantee" means a guarantee, an endorsement, a contingent agreement to
purchase or to furnish funds for the payment or maintenance of, or otherwise to
be or to become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interest of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, including causing
a bank or other financial institution to issue a letter of credit or other
similar instrument for the benefit of another Person, but excluding endorsements
for collection of deposit in the ordinary course of business. The terms
"Guarantee" and "Guaranteed" used as verbs shall have correlative meanings.
"Hazardous Substances" has the meaning set forth in the Deed of Trust which
definition is by this reference incorporated herein.
"Indebtedness" means, for any Person (without duplication) (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person.
"Interest Payment Date" shall have the meaning set forth in Article I of
the Indenture, which definition is by this reference incorporated herein.
"Issuer" means Washington State Housing Finance Commission, a public body
corporate and politic and an instrumentality of the State of Washington created
by Chapter 161, Laws of 1983 and codified at RCW 43.180, as amended.
"Lien" means, with respect to any Person, any security interest, pledge,
mortgage, charge, option, assignment, hypothecation, encumbrance, attachment,
garnishment, sequestration, forfeiture, execution or other voluntary or
involuntary lien upon or affecting the revenues of such Person or any real or
personal property in which such Person has or hereafter acquires any interest,
except (i) Liens for Taxes which are not delinquent or which remain payable
- ------
without penalty or the validity or amount of which is being contested in good
faith by appropriate proceedings and with reserves satisfactory to Bank; (ii)
liens imposed by law (such as construction liens) incurred in good faith in the
ordinary course of business which are not
-5-
<PAGE>
delinquent or which remain payable without penalty or the validity or amount of
which is being contested in good faith by appropriate proceedings and reserves
consented to by Bank; and (iii) deposits or pledges under workmen's
compensation, unemployment insurance, social security, bids, tenders, contracts
(except for repayment of borrowed money), or leases, or to secure statutory
obligations or surety or appeal bonds or to secure indemnity, performance or
other similar bonds given in the ordinary course of business.
"Loan Agreement" means that certain Mortgage Loan Origination and Financing
Agreement dated as of November 1, 1996 by and among the Issuer, the Trustee, the
Borrower and the Bank.
"Material Adverse Effect" means a material adverse effect on (a) the
Projects, business, operations, financial condition, liabilities or
capitalization of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower to perform its obligations under this Agreement or any
of the Related Documents, (c) the validity or enforceability of this Agreement
or any of the Related Documents, (d) the rights, remedies, powers and privileges
of the Bank under this Agreement or any of the Related Documents or (e) the
timely payment of the Reimbursement Obligations.
"Medical Products" means all chemicals, drugs, blood, tissue, serums, waste
and other materials and equipment and supplies related thereto in connection
with the treatment, research and laboratory analysis of human medical
phenomenon, which Medical Products may include, without limitation regulated
substances and Hazardous Substances (as defined in the Deed of Trust).
"Mortgage Loan" means the mortgage loan made to the Borrower pursuant to
the Loan Agreement in the principal amount of $8,500,000 plus interest thereon,
in order to provide permanent financing for part of the Project Costs and
Issuance Costs.
"Mortgage Loan Documents" means the Loan Agreement, the Regulatory
Agreement, the Tax Agreement and the Mortgage Note.
"Mortgage Loan Fund" means such Fund created by Section 302 of the
Indenture.
"Mortgage Note" means the promissory note executed by the Borrower to
evidence the Mortgage Loan.
"Participant" means any entity to whom the Bank transfers an interest in
this Agreement or any Related Document. The Bank and not any Participant shall
be the sole party authorized or obligated to provide any consent or approval
required, contemplated or authorized by this Agreement or any Related Document
to be given by the Bank.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a state, government or political subdivision or an agency or
instrumentality thereof.
-6-
<PAGE>
"Plan" means (i) any "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA); (ii) any employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA) or a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA); (iii) any employee benefit
plan maintained in connection with any trust described in Section 501(c)(9) of
the Code; or (iv) a combination of such plans; if such plan or plans is
maintained or contributed to, or at any time during the five calendar years
preceding the date of this Agreement was maintained or contributed to, by the
Borrower or under which the Borrower has or, during the term of this Agreement,
will have any liability. For purposes of this paragraph, the term "Borrower"
shall include the Borrower and any corporation, partnership, sole proprietorship
or other entity if the Borrower and such other entity or entities are (i)
corporations which are members of a controlled group of corporations as defined
in Section 414(b) of the Code, (ii) trades or businesses (whether or not
incorporated) which are under common control as defined in Section 414(c) of the
Code, (iii) members of an affiliated service group as defined in Section 414(m)
or 414(o) of the Code, or (iv) any combination of the foregoing.
"Pledge and Security Agreement" means the agreement entitled "Pledge and
Security Agreement" dated as of November 1, 1996, between Bank and the Borrower,
as amended from time to time.
"Pledge and Security Agreement (Bond Proceeds") means the agreement
entitled "Pledge and Security Agreement (Bond Proceeds)" dated as of November 1,
1996 between Bank and Borrower, as amended from time to time.
"Pledged Bonds" means those Bonds or portions of Bonds on which a principal
payment is made or deemed made or the purchase price is paid or deemed paid with
proceeds of a drawing under the Letter of Credit, which Bonds are pledged to the
Bank pursuant to the Pledge and Security Agreement.
"Prime Rate" means the rate of per annum interest which the Bank announces
publicly or otherwise makes available to the public from time to time as its
"prime rate" (currently calculated on the basis of the actual number of days
elapsed over a year of 360 days) with any change in the "prime rate" to be
effective on and as of the date of any change in said "prime rate." The Prime
Rate and the calculation thereof may be established by the Bank in its sole
discretion. The Prime Rate is not necessarily the lowest rate of interest
offered by the Bank to its most creditworthy customers. The Prime Rate is a
variable or fluctuating rate which increases or decreases from time to time.
"Project" or "Projects" means individually or collectively the acquisition
and permanent financing of five assisted living unit projects located on real
property in Port Townsend, Enumclaw, Bremerton, Port Orchard and Spokane,
Washington and more particularly described in Exhibits B-1 through B-5 attached
hereto and by this reference incorporated herein.
"Property" means any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
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<PAGE>
"Regulatory Agreement" means individually and collectively the Regulatory
Agreements dated as of November 1, 1996, by and among the Commission, the
Borrower and the Tenant with respect to each Project.
"Related Documents" means (individually and collectively) any promissory
note executed to further evidence the obligations of the Borrower hereunder
("Bank Note"), the Letter of Credit, the Deed of Trust, the Assignment of
Leases, the Pledge and Security Agreement, Pledge and Security Agreement (Bond
Proceeds), the Agency Agreement, the Indenture, the Mortgage Loan Documents, the
Remarketing Agreement, the preliminary and final official statements regarding
the Bonds, the Environmental Indemnity Agreement, and all other certificates,
documents or agreements arising from or related to the Bonds or executed in
connection herewith or therewith.
"Remarketing Agent" means initially, U.S. Bank of Washington, National
Association, and its successors under the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement dated as of
November 1, 1996 among the Borrower, the Trustee and the Remarketing Agent
providing for the remarketing of the Bonds as supplemented or amended from time
to time.
"Requirement of Law" means, with respect to any Person, the articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule, guideline, standard
(including but not limited to accounting standards and GAAP), order,
restriction, directive, judgment, decree, injunction, writ, or regulation, or a
final and binding determination of an arbitrator or a determination of an
arbitrator, mediator, or a determination of any Governmental Body, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject. With respect to Bank, Requirement
of Law shall include a Requirement of Law now or hereafter existing, a request
of a central bank or financial, monetary or other supervisory authority (whether
or not having the force of law).
"Subsidiary" or "Subsidiaries" means any corporation of which at least 50%
of the outstanding stock having ordinary voting powers to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Borrower and/or one or more of
its Subsidiaries.
"Supplemental Indenture" means indentures now or hereafter supplementing
the Indenture.
"Tangible Net Worth" means the difference between total assets and total
liabilities (including in liabilities accrued and deferred income Taxes, and
subordinated Indebtedness), excluding, however, from the determination of total
---------
assets (a) all assets which should be classified as intangible assets (such as
goodwill, patents, trademarks, copyrights, franchises, and
-8-
<PAGE>
deferred charges, including unamortized debt discount and research and
development costs, deferred charges and other like intangibles), (b) treasury
stock, (c) cash held in a sinking or other similar fund established for the
purpose of redemption or other retirement of capital stock, (d) to the extent
not already deducted from total assets, reserves for depreciation, depletion,
obsolescence, or amortization of properties and other reserves or appropriations
of retained earnings which have been or should be established in connection with
the Borrower's business, and (e) any revaluation or other write-up in book value
of assets subsequent to the fiscal year of Borrower last ended at the date
Tangible Net Worth is being measured.
"Taxes" means for any Person any federal or state tax, assessment, duty,
levy, withholding liability, impost and other charges of every nature whatsoever
imposed by any Governmental Body on such Person or on any of its property or
because of any revenue, income, sales, use, product, employee or franchise, and
any interest or penalty with respect to any of the foregoing.
"Termination Date" means the date on which the Letter of Credit expires
according to its terms.
"Total Funded Debt" means all obligations created, issued or incurred by
Borrower for borrowed money (whether by loan, the issuance and sale of debt
securities or the sale of Property to another Person subject to an understanding
or agreement, contingent or otherwise, to repurchase such Property from such
Person) excluding any amounts or obligations which are non-recourse debt.
"Trustee" means Norwest Bank Minnesota, National Association or any duly
authorized successor thereto appointed pursuant to the Indenture.
ARTICLE II
ISSUANCE OF LETTER OF CREDIT
SECTION 2.01. Issuance of the Letter of Credit. The Bank agrees, on
--------------------------------
the terms and subject to the conditions set forth in this Agreement, to issue to
Trustee on the Date of Issuance and upon the request of the Borrower, a Letter
of Credit in substantially the form of Exhibit A to this Agreement, which
exhibit and Annexes A through G thereto are incorporated herein by this
reference. The Stated Amount of the Letter of Credit shall never exceed
$8,667,671.20, a portion of which Stated Amount shall be available to support
the payment of principal due on Bonds ("Principal Component") and a portion of
which shall be available to support the payment of not more than sixty (60) days
of interest on the Bonds, which calculation shall utilize an interest rate of
twelve percent (12%) per annum all as calculated on the basis of a year of
365/366 days on the Bonds ("Interest Component"). Upon the Date of Issuance, the
Principal Component shall be, and shall thereafter never exceed, $8,500,000.
Upon the Date of Issuance, the Interest Component shall be, and shall thereafter
never exceed $167,671.20.
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<PAGE>
The Borrower hereby agrees to all terms and conditions set forth in the
Letter of Credit, including Annexes A through G thereto, all of which terms and
conditions are incorporated herein by this reference.
The Borrower acknowledges:
(a) that upon any drawing under the Letter of Credit for payment of all or
a portion of Bonds outstanding under the Indenture at maturity or earlier
redemption, the Trustee is required to deliver to the Bank Annex B to the Letter
of Credit and, upon a drawing for all remaining Bonds, must also deliver Annex B
and surrender the Letter of Credit therewith; and
(b) that upon any replacement of the Letter of Credit with an Alternate
Letter of Credit, the Trustee must promptly deliver Annex G to the Letter of
Credit to the Bank and surrender the Letter of Credit therewith.
If the Trustee does not take these actions when required, the Borrower
agrees to direct and to use its best efforts to cause the Trustee to take said
actions.
SECTION 2.02. Termination of Letter of Credit; Alternate Credit; Extension.
------------------------------------------------------------
Notwithstanding the fact that the Bonds will not mature until a later date, the
Letter of Credit shall terminate on November 21, 2003, unless earlier terminated
or unless it is extended. The Borrower shall not have the right to replace or
otherwise terminate the Letter of Credit unless (i) there are no Pledged Bonds
outstanding or (ii) the Alternate Letter of Credit provides to the satisfaction
of the Bank that, on the issuance thereof, all Pledged Bonds may be put for
purchase from moneys drawn under the Alternate Letter of Credit at a price equal
to the then aggregate principal amount of such Pledged Bonds plus accrued but
unpaid interest thereon.
Upon the written request of the Borrower after the fifth anniversary of the
Date of Issuance, and provided Borrower is not in default under this Agreement
or any of the Related Documents, the Bank shall extend the Termination Date of
the Letter of Credit for a period of three (3) additional years, either by
amendment of the Letter of Credit or replacement of the Letter of Credit. The
Bank will notify the Trustee and the Borrower within thirty (30) days following
receipt of such notice whether the conditions set forth in this Reimbursement
Agreement have been met for renewal of the Letter of Credit for an additional
three (3) year period. The Bank shall, within 15 days of payment by the Borrower
to the Bank of all fees payable pursuant to Article IV hereof (if such payment
be made no later than 30 days before the Termination Date), deliver to the
Trustee an amendment to the Letter of Credit, which amendment shall extend the
Termination Date for the three (3) year period or deliver a replacement Letter
of Credit, which replacement shall be for a term equal to the three (3) year
period. The amended or replacement Letter of Credit shall not be effective until
the Termination Date of the Letter of Credit being amended or replaced.
The Borrower agrees and acknowledges that this agreement of the Bank to
consider extending or renewing the term of the Letter of Credit (as set forth in
this Section 2.02), does not and shall not constitute an express or implied
commitment or other promise of any nature
-10-
<PAGE>
whatsoever by the Bank to extend credit at any future date, even if, for
example, the then financial condition of the Borrower equals or exceeds its
current financial condition or even though the Letter of Credit will expire
before the Bonds mature if the Bank determines not to renew or extend the Letter
of Credit.
If the Letter of Credit is extended for an additional three (3) year period
pursuant to this Section 2.02, this Agreement and each Related Document (or such
substitute documents to which the Bank may in its sole discretion, accept in
writing) shall continue and be effective for said extension or renewal period(s)
until all sums of every nature whatsoever due or to become due the Bank have
been paid in full.
SECTION 2.03. Increase or Reduction of Stated Amount and Reinstatement.
--------------------------------------------------------
The Stated Amount of the Letter of Credit shall be decreased and reinstated
according to the terms of the Letter of Credit.
ARTICLE III
REIMBURSEMENT OBLIGATION AND INTEREST
SECTION 3.01. Reimbursement Obligations. Any sums drawn under the
-------------------------
Letter of Credit and paid by the Bank shall constitute value requested by and
given to or for the benefit of the Borrower and shall be an unconditional,
absolute and irrevocable obligation hereunder of the Borrower to the Bank. The
Borrower hereby promises to pay the principal and interest on the Bonds by
reimbursing the Bank for the full amount of any drawings under the Letter of
Credit notwithstanding any cancellation or payment of Bonds. The Borrower
further promises to repay to Bank the full amount of any drawing under the
Letter of Credit, and to pay all sums due or to become due hereunder, in the
manner and at the times provided in this Agreement (collectively, "Reimbursement
Obligations").
SECTION 3.02. Reimbursement and Loans.
-----------------------
(a) Reimbursement of A and B Drawings. The Borrower agrees to
---------------------------------
reimburse the Bank in immediately available funds for the amount of any A or B
Drawing made under the Letter of Credit by 2:00 p.m. Pacific Daylight Time on or
before the date any such drawing is honored by the Bank. The Borrower's
reimbursement obligation with respect to such A or B drawing shall be
immediately due and payable without notice, presentment, demand, protest, or
other notice of any kind, all of which are hereby waived by the Borrower.
(b) Reimbursement of C Drawings. The Borrower agrees to reimburse
---------------------------
the Bank in immediately available funds, an amount equal to all C Drawings under
the Letter of Credit as follows: On the first day of the first month following
each C Drawing, interest shall be payable on the outstanding unreimbursed amount
of such C Drawing from the date such drawing was honored by Bank until the end
of the first month following such C Drawing at the Prime Rate, together with the
amount of any Debt Service payments required under Section 7.01(Y) of this
Agreement, if any. Commencing with the first day of the second month following
each such C Drawing and on the first day of each and every month thereafter,
interest shall be payable on
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<PAGE>
the outstanding unreimbursed amount of such C Drawing from the first day of the
second month following such C Drawing until payment (including prepayment) in
full thereof, at the Prime Rate plus one percent (1%) per annum, together with
the amount of the Debt Service payments required under Section 7.01(Y) of this
Agreement, if any; provided, however, that the full amount of all C Drawings
shall be paid upon the earlier of (i) the first day of the 13th month following
the date of such C Drawing or (ii) the Termination Date. The Borrower may prepay
any Reimbursement Obligations under this Section 3.02 in full or in part at any
time without premium or penalty.
(c) Acceleration. If at any time that a loan is outstanding under
------------
Section 3.02(b), a drawing on the Letter of Credit is made because of or in
connection with: a default under the Indenture; notice is received by the
Trustee from the Bank in the form of Annex D to the Letter of Credit as a result
of the occurrence of an Event of Default under the Reimbursement Agreement and
the period stated therein regarding expiration of the Letter of Credit has
expired; the Letter of Credit expires for any other reason; or there is an Event
of Default hereunder, then the full amount of principal due or to become due
under Section 3.02(b), the full amount of all interest accrued thereon, and any
other sum due or to become due under this Agreement shall be immediately due and
payable without notice to the Borrower, presentment, protest or other notice of
any kind, all of which are hereby waived by the Borrower, and the Borrower shall
repay all of the aforesaid amounts in full on the date of such acceleration. If
at any time a loan is outstanding under Section 3.02(b), any Bonds which were
the subject of the drawing creating the loan are redeemed or otherwise paid or
defeased, then the full amount of principal, interest and premium due or to
become due under Sections 3.02(a) and (b) with respect to the portion of the
loan which corresponds to such Bonds, shall be immediately due and payable
without notice to the Borrower, presentment, protest or other notice of any
kind, all of which are hereby waived by the Borrower, and the Borrower shall
repay such amounts in full on the date of such redemption, payment or
defeasance.
(d) Prepayment. The obligation to pay any amount due under Section
----------
3.02(b) may be prepaid in full or in part at any time without premium or
penalty. Any partial prepayment, or any interest paid to the Bank on the
Pledged Bonds, shall be applied to the Borrower's obligations to the Bank in the
inverse order of maturity and shall first be applied to fees or other charges,
then to interest and then to principal, in the sole discretion of the Bank.
(e) Prior Deposit for Optional or Extraordinary Redemption or
---------------------------------------------------------
Purchase. If the Borrower determines to exercise its option to cause the
- --------
redemption of any or all of the Bonds pursuant to Section 6.02(b)(i) of the
Indenture, the Borrower shall deposit with the Bank all sums necessary to effect
any such redemption or purchase and to pay any premium in connection therewith,
at least 125 days before the date of any drawing for the proposed redemption or
purchase; provided,however, that no such deposit shall be required with respect
to optional redemption of Bonds made from Mandatory Sinking Fund payments
required under Section 7.01(Y) of this Agreement. No drawing shall be allowed
under the Letter of Credit for such redemption unless such deposit is timely
made. Such sums shall include the principal amount of all Bonds to be redeemed
(including, but not limited to all amounts necessary to purchase any Pledged
Bonds), the full amount of any premium due or to be come due thereon, and all
interest
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<PAGE>
accrued thereon at the assumed rate of twelve percent (12%) per annum based on a
year of 365/366 days.
The Borrower agrees that so long as no Event of Default has occurred and is
continuing, it will redeem or purchase all Pledged Bonds before any other Bonds
and before defeasance of any Bonds pursuant to Article XII of the Indenture, and
that such redemption or purchase, together with the full amount of any premium
due upon optional or extraordinary redemption or purchase of Pledged Bonds shall
be made from funds of the Borrower and not from drawings on the Letter of
Credit.
So long as no Event of Default has occurred and is continuing under this
Agreement or any Related Document, any monies held by the Bank pursuant to the
first paragraph of this Section 3.02(e) shall be invested by the Bank in such
interest bearing investment obligations which qualify as Permitted Investments
under the Indenture as may be directed by the Borrower from time to time;
failing such direction, the Bank shall have sole discretion to determine all
investments, if any; provided, however, that all such investments shall be
Permitted Investments as defined in the Indenture. The Borrower agrees to
indemnify and hold the Bank harmless from and against any responsibility or
liability for any loss incurred in the making of any investment at the express
direction of the Borrower as provided herein or upon written directions received
from the Borrower, other than as a result of the Bank's negligence or willful
misconduct. All interest received on said investments shall be credited by the
Bank to any sums due or to become due Bank by Borrower.
SECTION 3.03. Manner, Method, Place and Time of Payment. All payments
-----------------------------------------
made or caused to be made by the Borrower to the Bank shall be made in lawful
currency of the United States and in immediately available funds to Bank at
Seattle, Washington. Any payment received after 2:00 p.m. (Pacific time) shall
be deemed to have been received on the next Business Day, and the date for
payment thereof shall be extended to the next succeeding Business Day. However,
the Borrower shall pay to Bank, on demand, default interest on said payment for
such extended time at the interest rate set forth in Section 4.06 hereof, and
the extended time shall be included in the computation of fees and other
charges. All payments under this Agreement shall be made without counterclaim,
set-off, condition or qualification and free and clear of and without deduction
for any Taxes, levies, imposts, deductions or charges of any nature whatsoever.
SECTION 3.04. Obligation to Pay Unconditional. The Borrower's obligation
-------------------------------
to reimburse or pay the Bank hereunder is absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including without limitation the
following circumstances:
(i) any lack of validity or enforceability of this Agreement, the Bonds
or any of the Related Documents;
(ii) any amendment, waiver, release or termination of or any consent to
or departure from the terms of the Bonds or any of the Related Documents which
is not consented to by Bank;
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<PAGE>
(iii) the existence of any claim, set-off, defense or other right which
the Borrower may have at any time against any Person, whether in connection with
said documents or any related or unrelated transaction;
(iv) any demand, statement or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or not in compliance with the terms of the Letter of Credit or any
Related Document or any statement therein being untrue or inaccurate in any
respect whatsoever;
(v) any determination of invalidity or unenforceability of the Letter
of Credit after payment by the Bank thereunder;
(vi) any failure to reduce or reinstate the Stated Amount; or
(vii) any other circumstance, happening or omission, whether or not
similar to any of the foregoing.
The liability of the Borrower hereunder and under any Related Document shall be
reinstated and revived and the rights of Bank shall continue, with respect to
any amount at any time paid by or on behalf of the Borrower which amount shall
thereafter be required to be restored, returned or forfeited by the Bank
pursuant to any law, and the Borrower's liability therefor shall continue as if
such amount had not been paid.
SECTION 3.05. Evidence of Debt. The books and records of the Bank shall
----------------
be conclusive evidence, absent manifest error, of all amounts of principal,
interest, fees and other charges advanced, outstanding or repaid pursuant to
this Agreement or any Related Document to which the Bank is a party. The Bank
agrees to provide Borrower periodic statements of amounts advanced, outstanding
or repaid under this Agreement or any Related Documents and shall also provide
statements to the Borrower upon its written request.
ARTICLE IV
OTHER PAYMENTS
SECTION 4.01. Letter of Credit Issuance Fee. The Borrower shall pay
-----------------------------
to the Bank on or prior to the Date of Issuance, an issuance fee equal to one
and one-half percent (1.50%) of EIGHT MILLION SIX HUNDRED SIXTY SEVEN THOUSAND
SIX HUNDRED SEVENTY ONE AND 20/100 DOLLARS ($8,667,671.20) or $130,015.07. The
issuance fee and all other fees of any letter of credit amended, extended,
replaced or renewed pursuant to Section 2.02 hereof shall be established by the
Bank in its sole discretion at the time of such amendment, extension,
replacement or renewal. In the event Borrower requests an extension of the
Letter of Credit pursuant to Section 2.02 which the Bank is willing to grant,
but Borrower objects to such fees, Borrower shall have the right to withdraw,
without cost or penalty the request for such amendment, extension, replacement
or renewal. Such fees shall at least include the category of fees referenced in
this Article IV (in amounts which may be less than, equal to or exceed the
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<PAGE>
amounts referenced herein) and such additional fees as the Bank then deems
appropriate in its sole discretion. The foregoing fee and all other fees in this
Article IV are or are deemed to be fully earned and nonrefundable.
SECTION 4.02. Letter of Credit Annual Fee. The Borrower hereby agrees
---------------------------
to pay the Bank an annual fee which shall equal one and one-fifth percent
(1.20%) of the Stated Amount as of each anniversary date following the Date of
Issuance times 365/360 or 1.0139% (which amount shall be calculated by the Bank)
until the Termination Date. The annual fee for the first year shall be payable
in advance commencing on the Date of Issuance. Thereafter the annual fee shall
be payable in advance on the first day of each December commencing December 1,
1997 and each December 1st thereafter until the Termination Date.
SECTION 4.03. Other Fees.
----------
(a) Transfer Fee and Amendments. The Bank agrees to issue a substitute
---------------------------
Letter of Credit to any successor Trustee duly appointed pursuant to the
Indenture and applicable law upon surrender to the Bank of the original Letter
of Credit together with payment to the Bank of the fee then established by the
Bank's Letter of Credit Department together with any attorneys' fees or other
expenses incurred by the Bank in connection therewith. The Bank's current
transfer fee is $500.00. The Borrower agrees to pay the fees and expenses to
the Bank on the day of any amendment or replacement to the Letter of Credit if
to effectuate said amendment, a written change is made to the Letter of Credit
or an amended, substitute, replacement or additional Letter of Credit is issued.
As used herein, "amendment" shall not include any documents the Bank determines
to issue to reflect a reduction of the Stated Amount but shall include each
reinstatement (other than an automatic reinstatement) of any portion of the
Stated Amount. In the event the Bank elects to extend the Letter of Credit
pursuant to the provisions of Section 2.02 hereof the Borrower shall pay Bank an
extension fee in an amount determined by Bank.
(b) Draw Fee. Upon each draw under the Letter of Credit, the Borrower
--------
agrees to pay the Bank on demand, a draw fee in the amount then established by
the Bank's Letter of Credit Department. The initial draw fee for draws made
under the Letter of Credit during 1996 is $100.
(c) Cancellation Fee. If the Letter of Credit is canceled, or if the
----------------
Letter of Credit is substituted with an Alternate Letter of Credit prior to the
Expiration Date, the Borrower agrees to pay the Bank a cancellation fee of one-
tenth of one percent (.10%) of the then Stated Amount of the Letter of Credit,
and shall cause the Trustee to tender to the Bank the fee with the original
Letter of Credit then outstanding; provided, however, that no such cancellation
fee is payable from and after the fourth anniversary of the Date of Issuance or
if the Letter of Credit is cancelled or is substituted with an Alternate Letter
of Credit because the Bank has defaulted under the Letter of Credit, the Letter
of Credit is unenforceable or the short-term deposit rating of the Bank is
reduced below A-2 by Standard & Poor's. No cancellation shall be effective to
discharge or reduce the liability of the Borrower to pay the annual fee payable
pursuant to Section 4.02 hereof for the year in which such cancellation occurs
or to pay all other sums due the Bank under this Agreement or any Related
Document. Until such sums are fully paid to the Bank, no such
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<PAGE>
cancellation shall diminish or affect any security or other interest granted to
or for the benefit of the Bank.
SECTION 4.04. Increased Costs. If any law or regulation or if the
---------------
adoption of or any change in any law, regulation, guideline or request from any
central bank or financial, monetary or other supervisory or governmental
authority (whether or not having the force of law), or in the interpretation
thereof by any court or administrative or governmental body charged with the
administration thereof, shall impose on the Bank any condition affecting or
relating to this Agreement, to any Related Document evidencing an obligation of
the Borrower to the Bank, or to the Letter of Credit, the result of which shall
be to reduce the rate of return on the Letter of Credit or this Agreement to a
level below which the Bank could have achieved but for such law or regulation or
shall increase the cost to the Bank of issuing or maintaining the Letter of
Credit (or any substitute, additional, renewed or amended Letter of Credit) or
of funding amounts drawn thereunder, including but not limited to any law,
regulation or change which shall (a) impose, modify or deem applicable any
capital adequacy requirement, reserve, special deposit or similar requirement or
impose any insurance premium or assessment against letters of credit issued by,
or assets held by the Bank, or (b) require or make advisable (in the opinion of
legal counsel to the Bank), qualification, registration, filing or any other act
by the Bank to avoid violation of or to effect compliance with any law or
regulation (or judicial, administrative or regulatory decision, interpretation,
opinion, order, agreement, directive or request regarding same) relating to
underwriting, selling, distribution of, marketing or dealing in securities; or
(c) subject the Bank to any Tax, charge, fee, deduction or withholding of any
kind whatsoever, then, upon demand therefor, the Borrower shall pay to the Bank
additional amounts which shall be sufficient to compensate the Bank for such
reduction in the rate of return or increased cost, together with interest on
each such amount from the date said amount is due until payment in full thereof
at the Prime Rate. The amount of any reduction in the rate of return or
increase in cost shall be the result of the Bank's good faith discretionary
allocation of the aggregate of such reduction or cost increases resulting from
such events; the Bank shall in connection with its demand for such additional
amounts furnish to the Borrower a certificate setting forth with reasonable
explanation such increased cost incurred by the Bank; absent manifest error,
said certificate shall be conclusive as to the amount thereof. The Bank shall
use its best efforts to promptly demand payment pursuant to this Section 4.04.
Notwithstanding anything in this Section 4.04 to the contrary, the Borrower is
not obligated to pay the Bank any additional amounts resulting from an increase
in federal income tax rates or state business and occupation tax rates of
general application to all taxpayers.
SECTION 4.05. Payment of Expenses and Fees; Applicability.
-------------------------------------------
(a) Upon demand therefor, the Borrower agrees to pay to the Bank all
of its out-of-pocket or incurred costs, reasonable attorneys' fees, fees of
collection or other agents, and other fees and expenses of every nature
whatsoever (hereinafter, collectively "Costs and Fees") directly or indirectly
incurred in connection with the development, review, execution, amendment,
renewal, extension, forbearance (if any), refinance, renegotiation or
restructure of this Agreement or any Related Document and any other document
prepared or service performed in connection herewith or therewith; the Borrower
shall also pay the fees charged from time to
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<PAGE>
time by rating agencies for any rating or "preference opinion," if any,
regarding the Bonds (but not regarding any general rating of the Bank not
related to the Bonds). Upon demand therefor, the Borrower further agrees to pay
to the Bank all Costs and Fees (whether or not a lawsuit is brought) incurred in
collecting any sums due the Bank by the Borrower or incurred by Bank in
protecting, enforcing or preserving its rights under this Agreement or any of
the Related Documents, all whether or not suit is brought and including but not
limited to all Costs and Fees incurred in any court action, arbitration,
mediation, on appeal, in any bankruptcy or state receivership or other
insolvency or similar proceedings or circumstances, in any forfeiture or other
proceeding that could affect the Bank's rights under this Agreement or in any
security therefor.
(b) The obligations of the Borrower under Section 4.04 and Section
4.05 of this Agreement shall (i) survive until all sums due Bank under this
Agreement or any Related Document have been paid in full, notwithstanding any
termination of the Letter of Credit or payment of the Bonds; and (ii) include
any reduction in the rate of return, increased costs, and Costs and Fees
incurred by any Participant.
SECTION 4.06. Calculations; Default Interest; Compounded Interest.
---------------------------------------------------
Except as otherwise expressly set forth in this Agreement, all computations of
interest and fees under this Agreement shall be made on the basis of a 360 day
year and actual days elapsed. Interest shall accrue during each period from but
excluding the first day thereof to and including the last day thereof. In the
event that any payment due hereunder shall not be made within fifteen (15) days
of the date when due, a late charge of five cents ($.05) for each dollar ($1.00)
so overdue (the "Late Charge Fee") may be charged by Bank for the purpose of
defraying the expense incident to handling such delinquent payments. Such Late
Charge Fee represents the reasonable estimate of Bank and Borrower of a fair
average compensation for the loss that will be sustained by Bank due to the
failure of Borrower to make timely payments. Such Late Charge Fee shall be paid
without prejudice to the right of Bank to collect any other amounts provided to
be paid or to declare an Event of Default hereunder or under the Deed of Trust.
If an Event of Default occurs, then the interest rate applicable in calculating
any defaulted payments from the due date of the defaulted payment shall be the
Default Rate and the Late Charge Fee shall apply to any such payments. All
amounts that are not paid when due under this Agreement shall bear interest at
the Prime Rate plus two percent (2%) per annum (the "Default Rate"), from the
time due until paid. All interest not paid when due shall be added to principal
and interest shall thereafter accrue on said increased principal amount. All
amounts due hereunder shall be paid in United States dollars.
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions Precedent to Issuance of Letter of Credit.
----------------------------------------------------
(a) The Bank will issue the Letter of Credit upon the request of the
Borrower in accordance with Section 2.01 and subject to fulfillment of the
conditions set forth in subsections (b), (c) and (d) below.
-17-
<PAGE>
(b) The Bank shall have received on or before the Date of Issuance
the following, each addressed to the Bank and dated on or as of such date, in
form and substance satisfactory to the Bank:
(i) copies of (a) the current Articles of Incorporation of the
Borrower certified by the Secretary of State of the state of Nevada, (b) bylaws
of the Borrower certified by the Borrower as true and correct; and (c)
Certificate of Registration of Borrower as a foreign corporation authorized to
transact business in the state of Washington, certified by the Secretary of
State of Washington, copies of each document as amended to the date of
certification, which copies shall have been delivered to Bank's counsel at least
one week prior to Closing;
(ii) evidence satisfactory to the Bank of the adoption by the
Borrower and the Issuer of each Related Document to which either is a party and
of this Agreement;
(iii) an opinion of bond counsel in form and substance
satisfactory to the Bank and covering such matters relating to the transactions
contemplated by this Agreement and the Related Documents as the Bank may
reasonably request;
(iv) an opinion of independent counsel selected by the Borrower
(subject to Bank's reasonable approval) in form and substance satisfactory to
the Bank and covering such matters relating to the transactions contemplated by
this Agreement and the Related Documents as the Bank may reasonably request.
The Borrower hereby requests and instructs its independent counsel to issue such
an opinion;
(v) a certificate of the Secretary of the Borrower, certifying
(a) the name and true signature of the officers of the Borrower authorized to
enter into and execute this Agreement and the Related Documents on behalf of the
Borrower; (b) that the documents delivered pursuant to Section 5.01(b)(i) have
not been amended or canceled since the date of certification thereunder; and (c)
the certificate described in paragraph (c) below;
(vi) the amounts specified to be paid on the Date of Issuance
pursuant to Section 4.01, establishment of the account contemplated by Section
7.01(Y) and proof of insurance required hereunder or under any Related
Documents;
(vii) application for the Letter of Credit;
(viii) copies of all agreements (including but not limited to
each Related Document) and documents, including records of corporate
proceedings, governmental approvals and incumbency certificates executed in
connection with the transactions contemplated by this Agreement and the Related
Documents, all certified to the extent requested by the Bank;
(ix) Environmental Questionnaire and environmental reports for
each of the real properties constituting the Project satisfactory to Bank;
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(x) ADA Questionnaire and Disclosure Statement and ADA
Certificate of Compliance for each of the real properties constituting the
Project satisfactory to Bank;
(xi) A copy of Borrower's most recent Form 10-K and 10-Q as
filed with the Securities and Exchange Commission;
(xii) Budgets for each Project (including certified final cost
breakdown) satisfactory to Bank;
(xiii) each of the documents required to be delivered to the
underwriters pursuant to the Bond Purchase Agreement between the Commission and
the underwriters regarding the Bonds;
(xiv) such other documents, interpretations, instruments,
approvals or opinions as the Bank or its counsel may reasonably request.
(c) The representations and warranties of Borrower contained in
Section 6.01 hereof and in each Related Document shall be correct, accurate and
complete on and as of the Date of Issuance as though made on and as of such date
and no Event of Default and no condition or event which, with the giving of
notice or lapse of time or both, would become such an Event of Default, shall
have occurred and be continuing on the Date of Issuance and the Bank shall have
received a certificate signed by an authorized official of the Borrower, dated
the Date of Issuance, to that effect. As used in this paragraph, "Date of
Issuance" shall include any date the Letter of Credit is amended, extended or a
Substitute Letter of Credit is issued.
(d) On or before the Date of Issuance:
(i) all conditions precedent to the issuance of the Bonds
shall have occurred; and
(ii) the Borrower (and all other parties, as appropriate) shall
have duly executed, issued and delivered the Bonds, this Agreement, the Related
Documents and all other documents or instruments referred to, required by or
related to the aforesaid.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.01. Representations, Warranties and Covenants of Borrower.
-----------------------------------------------------
The warranties, representations, and covenants of Borrower contained in this
Agreement or in any Related Document shall be deemed to have been relied upon by
Bank regardless of any investigation made by Bank or on its behalf and shall be
true and correct on the Date of Issuance and on the date of each disbursement of
Bond proceeds out of the Mortgage Loan Fund held by the Trustee. The Borrower
hereby represents, warrants, covenants and agrees with the Bank that:
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6.01(A) Organization and Standing. Borrower is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the state of
Nevada and has the power to own and operate each of the real properties
constituting the Project and carry on its business as now being conducted; is
authorized to do business in every state, county, city or other jurisdiction in
which the nature of the Project, its business or property makes such
qualification necessary including, but not limited to, the state of Washington;
the name "Assisted Living Concepts, Inc." is the exact, true and correct name of
Borrower as set forth in its Articles of Incorporation, as amended from time to
time; Borrower has filed with the Washington Department of Licensing a
Certificate of Trade Name for all business or assumed trade names under which
Borrower has done, does or may do business, except to the extent no such filing
is required by law. The Borrower is the successor by merger to CCL Sub, Inc., a
wholly owned subsidiary of Concepts in Community Living, Inc. Certain of the
facilities presently owned by the Borrower were purchased by the Borrower from
Madras Elder Care, Lincoln Community Partners and Assisted Living Concepts
Group, entities which are or were Affiliates of the Borrower or its president
and chief executive officer, Keren Brown Wilson. The Borrower's chief executive
office and principal place of business is Portland, Oregon. Except as set forth
above, the Borrower has not changed its name or changed its principal place of
business and chief executive officer within five years and one month prior to
the date hereof.
6.01(B) Corporate Authorization. All corporate action on the part of
-----------------------
Borrower, its officers, directors or shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and each
Related Document to which it is a party has been duly taken. Borrower has full
power and authority (corporate or otherwise) to execute, deliver and perform
this Agreement and each Related Document to which Borrower is a party, and to
perform and observe the terms and conditions hereof and thereof.
6.01(C) Enforceability. This Agreement and the Related Documents,
--------------
when executed and delivered by the Borrower, will be the legal, valid and
binding agreements of the Borrower, enforceable in accordance with their
respective terms, except to the extent that the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the rights of creditors generally.
6.01(D) Consents or Approvals. No consent, approval, permission,
---------------------
authorization, or license of any Person with a ownership interest in Borrower or
with a Lien on any asset of Borrower, or of any trustee, issuer or holder of any
Indebtedness or Contractual Obligation of Borrower, and no consent, approval,
permission, authorization, order or license of any Governmental Body is
necessary in connection with the execution, delivery and performance of any
Related Documents to which Borrower is a party or any transaction contemplated
hereby or thereby to be performed by Borrower, except as may have already been
obtained by Borrower and copies certified as to accuracy by Borrower which have
been delivered to Bank on or prior to the Date of Issuance.
6.01(E) Restrictions. There is no provision in the articles of
------------
incorporation or bylaws of Borrower or any Requirement of Law binding on
Borrower which would be contravened by the execution and delivery of this
Agreement or any Related Documents to which
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Borrower is a party or by the performance of any provision, condition, covenant,
or other terms hereof or thereof.
6.01(F) Litigation. Other than as disclosed in Exhibit E hereto or
----------
in the financial statements referenced in Section 6.02(H), there is no pending
or threatened litigation, Tax claim, action or other proceeding or dispute of
any nature whatsoever affecting the Borrower before any Governmental Body, which
could have a Material Adverse Effect on the legal existence or powers of the
Borrower or its financial condition or operations or have a Material Adverse
Effect on the ability of Borrower to perform its obligations under the
Reimbursement Agreement and any Related Documents, and Borrower is not in
default with respect to any Requirement of Law that might result in any such
effect.
6.01(G) No Violation. To the best of Borrower's knowledge, the
------------
Borrower is in compliance with all Requirements of Law with respect to which any
failure to comply could have a Material Adverse Effect. The execution, delivery
or performance of this Agreement and each Related Document, the consummation of
the transactions contemplated herein and therein and compliance with the terms
and provisions hereof or thereof to be performed by the Borrower does not and
will not conflict with or result in a breach of any of the terms, conditions or
provisions of the articles of incorporation or bylaws of the Borrower or, to the
best of Borrower's knowledge, of any Requirement of Law or of any Contractual
Obligation or constitute a default thereunder or result in the creation or
imposition of any Lien (except in favor of Bank) upon any of the property of the
Borrower pursuant to the terms of any such Contractual Obligation or Requirement
of Law. Borrower is not in default under any existing Indebtedness.
6.01(H) Financial Information. All financial statements and other
---------------------
information and data furnished by the Borrower to Bank are complete and correct;
have been prepared in accordance with GAAP, except as noted therein; and
accurately and fairly represent the financial condition of Borrower and the
results of operations of the Borrower as of such dates. There has been no change
in the financial condition of Borrower or results of operation of any of the
real properties constituting the Project since the date of the audited financial
statements of Borrower dated December 31, 1995 and Form 10-Q of Borrower dated
June 30, 1996, of such a character as to materially impair the ability of the
Borrower to reimburse the Bank for any drawing made under the Letter of Credit
in accordance with the terms hereof or thereof; and the Borrower has no
Contingent Obligations except as may be disclosed from time to time in
Borrower's most recent Form 10-K and Form 10-Q filed by the Borrower with the
Securities and Exchange Commission, except for the obligations hereunder and
under any Related Document of the Borrower.
6.01(I) Liens and Encumbrances. Borrower represents and warrants that
----------------------
at the time of the delivery of each Deed of Trust or amendment thereto (i)
Borrower is lawfully possessed and is the lawful owner of fee simple title to
the applicable Project; (ii) such Project is free and clear of any deed of
trust, mortgage, lien, charge or encumbrance thereon or affecting the title
thereto, except (i) Liens regarding such Project which are shown on Schedule B
to the policy of title insurance Bank agrees in writing to accept, and (ii)
property tax liens for Taxes not yet delinquent by nonpayment.
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6.01(J) Business Authorizations. To the best of Borrower's
-----------------------
knowledge, the Borrower possess all patents, patent rights or licenses,
trademarks, trademark rights, trade names or trade name rights and copyrights
required to conduct its business as now conducted without conflict with the
rights or privileges of others.
6.01(K) Taxes. The Borrower has filed or caused to be filed and will
-----
continue to file or timely cause to be filed, all Tax returns that are required
to be filed (except for extensions applied for and disclosed to the Bank), has
paid (or will cause to be paid) all Taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other Taxes, fees or other charges imposed on it or any of its property by any
Governmental Body (other than those the amount of which is currently being
contested in good faith and by appropriate proceedings and with respect to which
reserves in conformity with GAAP to which Bank has consented have been provided
on the books of the Borrower), and has fully satisfied or provided for all of
its sales and use tax, withholding tax and unemployment tax liabilities; and no
Tax liens have been filed and, to the knowledge of the Borrower, no claims are
being asserted with respect to any such taxes, fees or other charges.
6.01(L) Investment Company Act. The Borrower is not an "investment
----------------------
company" or a partnership "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
6.01(M) Federal Reserve Board ("FRB") Regulations. The Borrower is
-----------------------------------------
not engaged and will not engage, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of such terms
under FRB Regulation U. No part of the proceeds of the Bonds will be used for
"purchasing" or "carrying" "margin stock" as so defined or for any purpose that
violates, or would be inconsistent with, the provisions of the regulations of
the Federal Reserve Board. If requested by Bank, Borrower will furnish to the
Bank a statement in conformity with the requirements of Federal Reserve Form U-1
referred to in Regulation U to the foregoing effect. Further, the Borrower is
and shall remain in compliance with FRB Regulation B (12 C.F.R. Part 202) in
connection with any credit extended now or hereafter by the Borrower.
6.01(N) Incorporated Representations, Warranties and Covenants. The
------------------------------------------------------
Borrower hereby specifically makes to the Bank each and every representation,
warranty, and covenant made by the Borrower in the Mortgage Loan Documents, and
the Regulatory Agreement each of which representations, warranties and covenants
are incorporated herein by this reference (except to the extent any of the
aforesaid would contradict adversely to the Bank any representation, warranty or
covenant contained herein other than by incorporation). All warranties,
representations, and covenants made by the Borrower herein or in any certificate
or other document delivered by it or on its behalf pursuant to this Agreement
and each Related Document shall be deemed to have been relied upon by the Bank
and shall be true and correct on the Date of Issuance and on the date of each
disbursement of Bond proceeds out of the Mortgage Loan Fund held by Trustee.
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<PAGE>
6.01(O) Information Correct. No information, exhibit, or report
-------------------
furnished by Borrower to the Bank or any other Person in connection with this
Agreement or any of the Related Documents contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make the
statements contained therein not misleading. The Borrower has disclosed to the
Bank all information about the Borrower which would be of material interest to a
reasonably prudent lender. There is, to the best of the Borrower's knowledge, no
fact which would have a Material Adverse Effect on its business, prospects,
condition, affairs or operations of Borrower or any of its properties or assets
which has not been disclosed to the Bank in writing.
6.01(P) Compliance with ERISA. Borrower is in substantial compliance
---------------------
with ERISA and the Code as to each "Plan" as defined in Section 1.01 of this
Agreement.
As to each Plan maintained by Borrower:
(i) Such Plan has been maintained in substantial compliance
with all statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, applicable to such Plan.
(ii) No "reportable event," as such term is used in Section
4043 of ERISA, or "prohibited transaction," as such term is used in Section 406
of ERISA or Section 4975 of the Code, or "accumulated funding deficiency," as
such term is used in Section 412 or Section 4971 of the Code (whether or not
such accumulated funding deficiency has been waived), has heretofore occurred
with respect thereto.
(iii) Each such Plan designed to be a qualified plan since
its adoption and to date qualifies and has qualified under Section 401(a) of the
Code, and each trust, if any, established under each such Plan is exempt from
taxation pursuant to Section 501(a) of the Code.
(iv) Each such Plan has been administered and enforced
substantially in accordance with its terms, no dispute is pending or threatened
with respect thereto, and substantially all contributions due from employees
thereunder, if any, have been made.
(v) No condition exists that could constitute grounds for
termination of any such Plan.
Borrower has not incurred any material liability under Title IV of ERISA
(which remains unsatisfied as of the date hereof) arising in connection with the
complete or partial termination of, or complete or partial withdrawal from, any
Plan covered or previously covered by Title IV of ERISA; and no condition exists
or event has occurred which would be reasonably likely to result in the
imposition of any such liability upon Borrower nor has Borrower been notified
that any such Plan is in reorganization or is insolvent within the meaning of
sections 4241 and 4245 of ERISA, respectively.
For purposes of this Section 6.01(P) and as referenced in Sections 7.01(E)
and (I) and 8.01(h), the term "Borrower" shall include Borrower and any
corporation, partnership, sole
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proprietorship or other entity if Borrower and such other entity or entities are
(i) corporations which are members of a controlled group of corporations as
defined in Section 414(b) of the Code, (ii) trades or businesses (whether or not
incorporated) which are under common control as defined in Section 414(c) of the
Code, (iii) members of an affiliated service group as defined in Section 414(m)
or 414(o) of the Code, or (iv) any combination of the foregoing.
6.01(Q) Americans with Disabilities Act. Each of the real properties
-------------------------------
constituting the Project is and shall at all times be in compliance with all
applicable requirements of the Fair Housing Act of 1968 (as amended) and the
Americans with Disabilities Act of 1990, (as amended) (collectively, "Acts") and
the Borrower shall cause the Project to be continuously in compliance with such
Acts (as the same may be amended from time to time). Borrower agrees to protect,
defend, indemnify and hold Bank harmless from and against any and all liability
threatened against or suffered by Bank by reason of a breach by Borrower of the
foregoing representations and warranties. The foregoing indemnity shall include
the cost of all alterations to the Project (including architectural,
engineering, legal and accounting costs), all fines, fees and penalties, and all
legal and other expenses (including attorneys' fees), incurred in connection
with the Project being in violation of such Acts and for the cost of collection
of the sums due under the indemnity. The obligations of Borrower under this
Section 6.01(Q) shall survive payment in full of Borrower's obligations under
this Agreement, all Related Documents and termination of the Letter of Credit,
and in the event that the Bank shall become the owner of the Project by
foreclosure or deed in lieu of the foreclosure of any deed of trust the
obligations of the Borrower under this Section 6.01(Q) shall survive such
foreclosure or deed in lieu of foreclosure.
6.01(R) No Commissions. Borrower has not made any agreement or taken
--------------
any action that may have caused any Person to become entitled to a commission or
finder's fee as a result of or in connection with the issuance of the Letter of
Credit or any extension of credit by Bank, and in connection therewith, Borrower
agrees to indemnify the Bank and hold the Bank harmless from any and all fees,
costs (including attorney fees), and expenses arising out of any claims by
Persons relating to any such commission or fee.
6.01(S) Land Use and Zoning Compliance. Each of the real properties
------------------------------
constituting the Project is a legal use permitted outright under applicable
provisions of the applicable city or county zoning code. To the best of
Borrower's knowledge, each Project complies with all applicable subdivision and
platting requirements and constitutes one or more legal lots. To the best of
Borrower's knowledge, each of the real properties constituting the Project and
their intended uses comply fully with all environmental, air quality, zoning,
planning, building, health, safety, labor, discrimination, fire, traffic safety
or other governmental rules, laws, ordinances, statutes, codes and regulations
applicable to the ownership, use, occupancy and operation of the Project.
6.01(T) Permits. Any and all permits, licenses, certificates and
-------
approvals necessary to construct, own and operate each of the real properties
constituting the Project as an assisted living facility in compliance with all
Requirements of Law will be obtained prior to any disbursement of Bond proceeds
with respect to such Project. Each of the real properties constituting the
Project has been or will be constructed in compliance with the Plans and
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<PAGE>
Specifications, and complies in full with all Requirements of Law. To the extent
such approvals, licenses, permits, certifications and filings are not available
as of the date hereof Borrower will promptly take or cause all actions necessary
to obtain them. All streets, easements, utilities and related services necessary
for the construction of the Project and the operation thereof for its intended
purpose are available to the Project.
6.01(U) Value of Collateral. If a reappraisal is required by any
-------------------
regulatory authority Bank shall have the right to cause said collateral to be
reappraised and the appraisal reviewed both at Borrower's expense.
ARTICLE VII
FURTHER COVENANTS
SECTION 7.01. Covenants. Until the Letter of Credit is no longer
---------
outstanding and until all sums of every nature whatsoever due or to become due
from Borrower hereunder or under the Related Documents are paid in full, the
Borrower hereby covenants and agrees that unless the Bank shall otherwise
consent in writing, the Borrower shall:
7.01(A) Use of Proceeds. To the extent within Borrower's control,
---------------
take all steps necessary to cause the proceeds of every drawing on the Letter of
Credit to be used solely for the purpose of the payment of principal of or
interest on the Bonds (as appropriate under the Indenture and in accordance with
the terms of the Letter of Credit). To the extent within Borrower's control,
take all steps necessary to cause the Bond proceeds to be used solely for the
purpose of payment of Issuance Costs of the Bonds and/or the costs of
acquisition of the Project which have been approved by Bond Counsel as eligible
for financing with tax-exempt Bonds.
7.01(B) Additional Acts. Upon demand by Bank, the Borrower will
---------------
execute and deliver all such instruments (including but not limited to Uniform
Commercial Code continuation statements) and perform all such other acts as the
Bank may reasonably request to carry out the transactions and establish or
preserve the first lien status and priority contemplated by this Agreement or
any Related Document. Borrower shall also furnish to Bank upon demand all
approvals of Governmental Bodies or other Persons as may be required from time
to time to perform its obligations under this Agreement and any Related
Documents or, to the extent such approvals have not yet been issued, use its
best efforts to obtain all necessary approvals.
7.01(C) Financial Statements and Reports. Deliver to Bank in form
--------------------------------
and detail reasonably satisfactory to Bank and, if Borrower now or hereafter has
Subsidiaries, prepared on a consolidated basis:
(i) Quarterly. As soon as reasonably possible and in any event
---------
within forty-five (45) days after the close of each quarter, the Form 10-Qs as
filed with the Securities and Exchange Commission for such period and for the
portion of the fiscal year ended with such period, for Borrower all in
reasonable detail and certified by the chief financial officer of the Borrower,
subject to year-end audit adjustments;
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(ii) Annual. As soon as reasonably possible and in any event within
------
one hundred twenty (120) days after the close of each fiscal year of the
Borrower, the (1) Form 10-Ks for Borrower as filed with the Securities and
Exchange Commission, and (2) proposed operating budget for the upcoming fiscal
year including proposed Capital Expenditures and such other information as may
be reasonably requested by Bank;
Such balance sheet and income statements shall be accompanied by an report and
opinion of any one of Ernst & Young LLP, Deloitte & Touche LLP, KPMG Peat
Marwick, Arthur Andersen, Price Waterhouse or Coopers & Lybrand or other
independent public accountants of recognized standing selected by Borrower and
approved by Bank, which approval shall not be unreasonably withheld, which
report and opinion shall be in accordance with generally accepted auditing
standards relating to reporting or, if qualified, the opinion shall not be
qualified due to any limitation in scope of the examination or due to any
departure from any Generally Accepted Accounting Principles, and shall be
accompanied by a statement of such accountants that, in making the audit
necessary for the certification of such financial statements and such report,
such accountants have obtained no knowledge of any Event of Default under
Article VIII or under any other evidence of Indebtedness or of any event which,
with notice or lapse of time, or both, would constitute an Event of Default
under Article VIII or under any other evidence of Indebtedness or, if in the
opinion of such accountants any such Event of Default or other event shall
exist, shall include a statement as to the nature and status thereof;
(iii) Certificates. As soon as reasonably possible, and in any event
------------
within forty-five (45) days after the close of each quarter, submit (1) a
certificate executed by the chief financial officer of the Borrower certifying
compliance by the Borrower with the requirements of Section 7.01(G) and stating
whether any noncompliance occurred during the period in question, and containing
the calculations used to document compliance therewith; (2) a certificate
executed by the chief financial officer of the Borrower certifying that all
payments of principal and interest on the Bonds have been made and that all
payments required under the provisions of Section 7.01(Y) have been made; (3) a
certificate executed by the chief financial officer of the Borrower certifying
that there is no event of default, and no event that with the giving of notice,
the passage of time or both would constitute an event of default by Borrower
under this Agreement; and (4) a statement of the chief financial officer of the
Borrower that he has no knowledge of any Event of Default under Article VIII of
this Agreement or of any event which, with notice or lapse of time, or both,
would constitute an Event of Default under Article VIII of this Agreement, or if
in the opinion of the chief financial officer of the Borrower any such Event of
Default or other event shall exist, shall include a statement as to the nature
and status thereof.
(iv) Filings. Copies of all filings made by or concerning the
-------
Borrower with the Securities and Exchange Commission, or any Governmental Body
in the states of Nevada, Oregon or Washington delivered to Bank within ten days
of such filing (other than tax returns filed with the taxing authorities for the
states of Nevada, Oregon and Washington) and such other statements, lists of
property and accounts, budgets, Capital Expenditure plans, forecasts, and such
other information and reports regarding Borrower or the Project as Bank may
reasonably request.
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<PAGE>
7.01(D) Notices. Promptly give written notice to the Bank of the
-------
occurrence of any Event of Default or any event which, upon a lapse of time or
notice or both, would become an Event of Default. The Borrower shall promptly
give notice to the Bank of any pending or threatened litigation or other
circumstance or matter of any nature whatsoever, which, in the opinion of a
reasonably prudent lender reasonably exercised, would have a Material Adverse
Effect on the ability of the Borrower to repay any amount due or to become due
hereunder or any other Indebtedness due or to become due, including but not
limited to, Indebtedness due Persons other than the Bank. The Borrower
represents and warrants that no such circumstance or matter exists as of the
date hereof.
7.01(E) Compliance with Laws. Conduct its operations and cause those
--------------------
of any Subsidiary to be conducted in material compliance with all Requirements
of Law including but not limited to ERISA (for purposes of ERISA compliance,
"its operations" shall include all operations of the "Borrower" as defined in
Section 6.01(P) of this Agreement), FLSA, Environmental Laws, the Fair Housing
Act of 1968 (as amended) and the Americans with Disabilities Act of 1990 (as
amended) land use and zoning, or occupational health and safety.
7.01(F) Compliance with Agreement and Related Documents. Perform and
-----------------------------------------------
comply with the terms and conditions of this Agreement and each Related
Document.
7.01(G) Financial Covenants. Maintain at all times until all
-------------------
Reimbursement Obligations are paid in full the following on a consolidated
basis:
(i) The ratio of Current Assets to Current Liabilities shall be
greater than or equal to $1,000,000, measured quarterly. For purposes of this
calculation, Current Liabilities will exclude payments due under construction
draw requests that have committed takeout financing.
(ii) The sum of Tangible Net Worth plus Convertible Subordinated
Debentures shall be greater than or equal to $20,000,000.
(iii) The Cash Flow Coverage ratio will be a two tiered test, both
of which would need to be in default to cause an Event of Default under this
Agreement:
(a) The Borrower's ratio of Net Income + Interest Expense +
Depreciation & Amortization divided by Interest Expense + pro-rata (for the
quarter) scheduled principal payments on all debt + pro rata (for the quarter)
annual fees relating to the Bonds and Letter of Credit shall be greater than or
equal to 1.25:1.00, measured quarterly; and
---
(b) After nine months of operation, the five Projects being
financed by the Bonds shall maintain a financial performance level such that the
sum of their quarterly Net Income + Interest Expense + Depreciation &
Amortization shall exceed the sum of Interest Expense + pro-rata (for the
------------
quarter) scheduled Bond principal payments + pro rata (for
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the quarter) annual fees relating to the Bonds and this Letter of Credit by
$50,000, measured quarterly.
In the event Borrower is not in compliance with both of the financial
covenants set forth in 7.01(G)(iii)(a) and (b) above, Borrower shall not be in
default under this Agreement if Borrower deposits $200,000 in cash collateral
with Bank within 30 days and cures such non-compliance within 180 days
thereafter. Bank will release the cash collateral to Borrower once Borrower has
satisfied the financial covenants set forth in Section 7.01(G)(iii)(a) and (b)
for two consecutive quarters.
7.01(H) Maintenance and Inspection of Records. The Borrower shall
-------------------------------------
maintain adequate and complete records and books of account in accordance with
Generally Accepted Accounting Principles, which books shall reflect all
financial transactions of the Borrower, in accordance with Generally Accepted
Accounting Principles. The Borrower shall permit any of the Bank's
representatives to visit and inspect any of the properties of the Borrower, to
examine all its books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss its affairs, finances and accounts
with its respective officers, employees and independent public accountants (and
by this provision the Borrower authorizes said accountants to discuss the
finances and affairs of the Borrower with the Bank or its accountants or other
agents) all at such reasonable times and as often as may be reasonably
requested.
7.01(I) Employee Benefit Programs. Conduct its operations so that the
-------------------------
representations, warranties and covenants in Section 6.01(P) with respect to any
Plan continue to be true during the term of this Agreement. For purposes of this
Section 7.01(I), "its operations" shall include all operations of the "Borrower"
as defined in Section 6.01(P) of this Agreement.
7.01(J) Indemnification. Indemnify and hold harmless the Bank from
---------------
and against any and all claims, actions, suits and other legal proceedings and
from and against any and all claims, damages, losses, liabilities, costs or
expenses whatsoever (including, without limitation, interest, penalties, and
reasonable attorneys' fees and expenses) which the Bank may incur (or which may
be claimed against the Bank by any other Person or entity whatsoever (other than
the Borrower) by reason of or in connection with (i) the execution and delivery
or transfer of, or payment or failure to pay under, the Letter of Credit (except
to the extent directly and actually resulting from the gross negligence or
willful misconduct of the Bank); (ii) the execution, delivery, performance,
breach (including but not limited to the inaccuracy when made of any
representation or warranty), enforcement (including affirmative suits and the
defense of any claim or liability whatsoever), collection, administration, and
any amendment of this Agreement or any Related Document (requested by the
Borrower); (iii) the offering, issuance, sale or distribution of the Bonds or
the issuance of the Letter of Credit, including, but not limited to, any
violation or alleged violation of any federal or state securities law or
regulation or restriction of any nature; (iv) any suit, proceeding or
governmental action brought or taken in connection with the execution and
delivery of the Bonds or the use of (or proposed or potential use of) the
proceeds of the Bonds or any drawing under the Letter of Credit; (v) any failure
of the Bank to honor a drawing under the Letter of Credit as a result of a
Government Act (as
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hereinafter defined); (vi) any loss or liability incurred by the Bank as a
result of or in connection with the use, release or existence of hazardous
wastes, toxic substances or the like on any property upon which any part of the
Project is located, including but not limited to, the property subject to the
Deed of Trust; or (vii) the Letter of Credit (except to the extent directly and
actually resulting from the gross negligence or willful misconduct of the Bank),
including but not limited to any violations or alleged violations of securities
laws or regulations; it being the intention of the parties that this Agreement
shall be construed and applied to protect and indemnify the Bank against any and
all risks set forth in (i) through (vii) above or otherwise involved in the
issuance and maintenance of the Letter of Credit, all of which risks are hereby
assumed by the Borrower, including, without limitation, any and all risks of the
acts or omissions, whether rightful or wrongful, of any present or future de
--
jure or de facto Governmental Body ("Government Acts"). The Bank shall not, in
- ---- --------
any way, be liable for any failure by the Bank to pay any draft under the Letter
of Credit as a result of any Government Acts or any other cause beyond the
control of the Bank. Notwithstanding the foregoing, the Borrower shall not be
required to indemnify the Bank for any claims, damages, losses, liabilities,
costs or expenses to the direct and actual extent, caused by (i) the gross
negligence or willful misconduct of the Bank in determining whether a draft or
certificate timely and properly presented under the Letter of Credit complies
with the terms of the Letter of Credit, or (ii) the Bank's wrongful failure to
pay under the Letter of Credit after the timely and proper presentation to it by
the Trustee of a draft and certificate strictly complying with the terms and
conditions of the Letter of Credit and applicable law. Nothing in this Section
7.01(J) is intended to limit or shall limit any obligation of the Borrower to
the Bank, including but not limited to the Reimbursement Obligations of the
Borrower contained in Article III.
As between the Borrower and the Bank, the Borrower shall assume all
risks of the acts, omissions or misuse of the Letter of Credit by the Trustee or
any transferee of the Letter of Credit ("transferee"). The Bank shall not be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted to the Bank by any party in connection
with the application for and issuance of the Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign the Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) for the
use made of the Letter of Credit or any acts or omissions of the Trustee or any
transferee or for failure of the Trustee or any transferee to comply fully with
conditions required in order to draw upon the Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, wire, telegraph, telex or otherwise, whether or not they be in
cipher; (v) for errors in interpretation of terms (except to the extent actually
and directly resulting from the Bank's gross negligence or willful misconduct);
(vi) for reliance upon an oral statement or telecopy purportedly made or sent by
the Trustee or any transferee in lieu of submission of any draft, annex,
certificate or other document required under the Letter of Credit, or for any
loss or delay in the transmission or otherwise of any draft, certificate or
document required in order to make a drawing under the Letter of Credit or of
the proceeds thereof; (vii) for the misapplication of the proceeds of any
drawing under the Letter of Credit by the Trustee, any transferee or any Person
to whom payment was made pursuant to order of the Trustee or any transferee;
(viii) for
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payment by the Bank under the Letter of Credit against presentation of documents
which do not strictly comply with the terms of the Letter of Credit, including
failure of any document to bear any or adequate reference to the Letter of
Credit (except to the extent directly and actually resulting from the gross
negligence or willful misconduct of the Bank); (ix) any delay in giving or
failing to give any notice, demand or protest; and (x) for any consequence
arising from causes beyond the control of the Bank, including, without
limitation, any Government Acts. None of the above shall affect, impair, or
prevent the vesting of any of the Bank's rights or powers hereunder.
The Bank shall not be responsible for calculating the amount of,
determining the authority for, or notifying the Borrower with respect to any
draw on the Letter of Credit. In supplementation and not in limitation of the
above provisions, any action taken or omitted by the Bank under or in connection
with the Letter of Credit or the annexes, if taken or omitted in good faith,
shall not put the Bank under any resulting liability to the Borrower.
Upon demand by Bank, the Borrower shall reimburse Bank for any reasonable
legal or other expenses (including attorneys' fees) incurred in connection with
investigating or defending against any of the foregoing. If any action, suit or
proceeding arising from any of the foregoing is brought against the Bank, the
Borrower, to the extent determined by Bank as necessary or advisable in order to
protect the Bank's rights hereunder, will resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
by Borrower (which counsel shall be reasonably satisfactory to the Bank).
Borrower hereby expressly acknowledges that each reference to the Bank in
this Section 7.01(J) is and shall be deemed to be a reference to all officers,
agents, directors and counsel for or of Bank, which Persons shall be indemnified
to the same extent and shall have the same rights and obligations of the Bank as
if specifically named under this Section 7.01(J). The obligations of Borrower
under this Section 7.01(J) shall survive payment in full of Borrower's
obligations under this Agreement, all Related Documents and termination of the
Letter of Credit.
7.01(K) Disclosure. Make all written disclosure necessary to ensure
----------
that this Agreement, the Official Statement and the Related Documents do not
contain any untrue statement of a material fact as to the Borrower and, to the
best of Borrower's knowledge, the Project and do state all material facts
necessary in order to make such statements contained herein or therein not
misleading in light of the circumstances under which they were made.
7.01(L) Legal Existence. Preserve and maintain its legal existence,
---------------
rights, franchises and privileges in the jurisdiction of its organization and
qualify and remain qualified as a corporation in each jurisdiction where the
failure to so qualify would have a Material Adverse Effect on the business of
the Borrower or its operations. The Borrower shall take all reasonable action to
maintain all rights, privileges and franchises necessary or desirable to the
normal conduct of its business, and will comply with all Contractual Obligations
and Requirements of Law except to the extent that the failure to comply
therewith would not, in the aggregate, have a Material Adverse Effect on the
business, operations, property or financial or other condition of the Borrower.
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7.01(M) Maintenance of Business; No Mergers, Etc. Cause its
----------------------------------------
business to be carried on and conducted only in the ordinary course and not
merge, consolidate, reorganize, liquidate, dissolve or otherwise dispose of,
terminate or change the corporate structure of Borrower without the prior
written approval of Bank which approval shall not be unreasonably withheld;
provided, however, that Borrower may, without the prior written consent of Bank,
merge with another corporation organized under the laws of one of the states of
the United States so long as (a) there is no default and no event that with the
passage of time, the giving of notice, or both, would constitute an Event of
Default under this Agreement or any Related Document either prior to or after
giving effect to such merger; (b) the surviving corporation has a Tangible Net
Worth in excess of $46,000,000; (c) the surviving corporation has a Debt-to-
Worth ratio of no greater than 2.00:1.00 (Debt-to-Worth is defined as Total
Funded Debt divided by Tangible Net Worth); (d) Bank receives an opinion of
nationally recognized bond counsel that any such merger does not affect the tax-
exempt status of interest on the Bonds; and (e) the surviving corporation
expressly assumes all obligations of Borrower under this Agreement and each
Related Document. Borrower shall notify Bank immediately if Dr. Keren Brown
Wilson ceases to be the President and Chief Executive Officer of Borrower for
any reason whatsoever and shall provide Bank with the names and qualifications
of any successors appointed to such positions. Borrower shall cause its
properties to be maintained, preserved and kept in accordance with Requirements
of Applicable Law and in good repair, working order and condition and cause all
needful and proper repairs, renewals and replacements thereof to be made.
Borrower shall not change in any material way the design, ownership, concept or
management of the Project without the prior written consent of the Bank. Upon
demand of the Bank, Borrower shall correct any structural defect in any of the
real properties constituting the Project or any material departure from the
plans and specifications therefor approved by any Governmental Body or any
encroachment by any part of any of the real properties constituting the Project
or any other structures on or over any building lines, easements, property
lines, or other restricted areas which any survey or inspection reflects.
Borrower shall not sell, lease or otherwise dispose of a significant portion (in
the opinion of Bank) of its properties and assets until payment in full of all
Indebtedness under this Agreement, provided, however, that nothing in this
-------
Section shall prevent Borrower from selling, leasing, abandoning or otherwise
disposing of worn out or obsolete property so long as the proceeds of such sale
are used to purchase replacement property of at least comparable quality, value
and utility. Borrower shall not sell, lease or otherwise dispose of more than
ten percent (10%) of its properties and assets (except in the ordinary course of
its business) and distribute such sale proceeds to its shareholders until
payment in full of all Indebtedness under this Agreement without the prior
written approval of Bank which approval shall not be unreasonably withheld.
7.01(N) Claims. Promptly pay or otherwise satisfy, and discharge
------
all of its Indebtedness, Contractual Obligations and all demands and claims
against it as and when the same become due and payable, other than any thereof
whose validity, amount or collectability is being contested in good faith and
for which reserves to which Bank has consented have been set aside.
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7.01(O) Liens. Not cause or permit any Liens to be filed against
-----
any of the real properties constituting the Project or any part thereof except
those Liens to which Bank has consented pursuant to the provisions of Section
6.01(I) or which are permitted pursuant to the provisions of Section 7.01(U).
7.01(P) Insurance. Maintain for itself such insurance against loss
---------
or damage to any of the real properties constituting the Project of the kinds
customarily insured against by Persons similarly situated, with reputable
companies or with the United States government or any agency or instrumentality
thereof, in such amounts and by such methods as shall be adequate or by a
reasonably prudent amount of self-insurance, and will at all times maintain or
cause to be maintained in full force and effect, with reputable companies and in
such amounts and by such methods as shall be adequate, together with
professional liability (malpractice) insurance and public liability insurance
against loss or damage to it for bodily injury or death in or about any premises
occupied by it, and liability insurance against loss or damage to it for bodily
injury or death or injury to property occurring by reason of the operation by it
of any motor vehicle or other equipment. The requirements of this Section
7.01(P) shall be in addition to insurance provisions contained in the Deed of
Trust or any other Related Document. Upon demand by the Bank, Borrower shall
furnish to Bank certificates of insurance or duplicate policies evidencing such
insurance together with evidence to the satisfaction of Bank that Bank is shown
as a loss payee to the extent of its insurable interest.
7.01(Q) Third Party Beneficiary. The Borrower acknowledges that in
-----------------------
addition to all rights and benefits of Bank herein, the Bank is a beneficiary of
all representations, warranties, and covenants made by the Borrower to or for
the benefit of owners of Bonds or made in any Related Document to or for the
benefit of any Person.
7.01(R) Special Statutes. To the best of Borrower's knowledge,
----------------
issuance of the Bonds, the proposed use of Bond proceeds, and execution,
delivery and performance of the Reimbursement Agreement and the Related
Documents does not violate any Requirement of Law, including, but not limited to
the Washington Health Services Act of 1993, Medicaid, nursing home and
certificate of need requirements, if any.
7.01(S) Operation of the Project. So long as the Reimbursement
------------------------
Obligations under this Agreement remain outstanding, the Borrower shall operate
all the Projects and shall not appoint a third party to manage and operate any
Project without Bank's prior written consent which consent shall not be
unreasonably withheld.
7.01(T) Amendments. Not modify, supplement, amend or consent to the
----------
modification, supplementation or amendment of the Indenture, or any Supplemental
Indenture or any other Related Document in any respect whatsoever, and not
accept the benefit of any waiver of any provision or condition of the foregoing,
without the prior written consent of the Bank.
7.01(U) Liens. Not create, assume or suffer to exist (excluding
-----
Liens listed on Exhibit C hereto) any Lien (including the lien of an attachment,
judgment or execution) or
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security interest, securing a charge or obligation, on or of any of its
property, real or personal, whether now owned or hereafter acquired, which
secures the Reimbursement Obligations except:
(i) Liens or charges for current taxes, assessments, or other
governmental charges which are not delinquent or remain payable without any
penalty, or the validity of which is contested in good faith by appropriate
proceedings diligently prosecuted upon stay of execution of the enforcement
thereof;
(ii) Deposits or pledges securing (1) statutory obligations; (2)
surety or appeal bonds; (3) bonds for release of attachment, stay of execution
or injunction; or (4) performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, for purposes of like general nature
in the ordinary course of the Borrower's business;
(iii) Easements, rights of way, covenants, restrictions and other
encumbrances affecting the Borrower's property, whether or not currently
existing, which are accepted in writing by Bank and (1) do not directly or
indirectly constitute a lien securing an obligation for the payment of money and
(2) have no Material Adverse Effect on the use of such property for its
purposes; and
(iv) Minor irregularities in the title to any such property which
have no Material Adverse Effect on the use of such property for its purposes and
which are accepted in writing by Bank.
7.01(V) [Reserved].
7.01(W) Optional Redemption. The Borrower agrees to cause the
-------------------
Trustee to select all Pledged Bonds before any other Bonds for optional
redemption by the Borrower pursuant to the Indenture.
7.01(X) Conditions Precedent. Each condition precedent to the
--------------------
issuance of the Bonds has been satisfied in full; and Borrower intends to use
the proceeds of the Mortgage Note solely for a purpose or purposes set forth in
and as authorized by the Mortgage Loan Documents and the Indenture.
7.01(Y) Required Debt Service Payments. Commencing on the first day
------------------------------
of November 1, 1996, and on the first day of each and every month thereafter,
the Borrower shall pay Bank the monthly interest payments on the Bonds and the
monthly Letter of Credit draw fee in the amounts set forth in the Schedule
annexed hereto as Exhibit D-1 and by this reference incorporated herein.
Principal payments for annual optional redemption of Bonds in the amount set
forth on Exhibit D-1 shall be paid by Borrower to Bank no later than twenty-four
(24) hours prior to the date of optional redemption for such Bonds. Borrower
shall deliver a direction letter to Trustee on the Date of Issuance requesting
optional redemption of Bonds in accordance with said schedule in the form of
Exhibit D-2 attached hereto.
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7.01(Z) Ongoing Representations and Warranties. The provisions of
--------------------------------------
Section 6.01(A), 6.01(F), 6.01 (G), 6.01(J), 6.01(K), 6.01(L), Section 6.01(M),
Section 6.01(O), Section 6.01(P), Section 6.01(R), the last sentence of Section
6.01(S) (except to the extent Borrower obtains waivers from the appropriate
Governmental Bodies) and Section 6.01(T) (except to the extent Borrower obtains
waivers from the appropriate Governmental Bodies) shall survive the Date of
Issuance and shall continue until all Reimbursement Obligations under this
Agreement have been paid in full.
SECTION 7.02. Conditions Precedent to Disbursements of Bond Proceeds.
------------------------------------------------------
A. Conditions of Disbursements. Prior to any disbursement of Bond
---------------------------
proceeds to acquire a Project, the following conditions must be satisfied:
1. MAI appraisal for the applicable Project in form,
substance and amount satisfactory to Bank;
2. ADA Questionnaire and Disclosure Statement and ADA
Certificate of Compliance for the applicable Project satisfactory to Bank;
3. Evidence acceptable to Bank that all utility services
necessary for the uninterrupted and orderly operation of the applicable Project
are available to such Project at the boundaries thereof. All connections have
been made to abutting public water, sewer, storm drains, gas and electrical
facilities;
4. Evidence acceptable to Bank that the applicable Project is
accessible via completed, dedicated streets which have been accepted for public
maintenance and use by the appropriate City and/or County depending on location,
or that an easement creating a perpetual right of public access to a publicly
dedicated street, road or highway is in effect;
5. If requested by Bank, an ALTA survey for the applicable
Project certified to and satisfactory to Bank and the title insurance company
that will be insuring the Deed of Trust;
6. Budget for the applicable Project (including certified
final cost breakdown) satisfactory to Bank;
7. Final unconditional certificate of occupancy for the
applicable Project;
8. All licenses, permits and approvals necessary to own and
operate the applicable Project;
9. Recordation with the Auditor of the county in which the
Project is located of a duly executed original Variable Rate Deed of Trust,
Assignment of Leases and filing with the Department of Licensing of appropriate
UCC financing statements; receipt by the Bank
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of an ALTA extended coverage mortgagee's policy of title insurance (Form B-
1970), issued by a title insurance company satisfactory to Bank and in favor of
Bank as the insured with liability in the Stated Amount showing title to such
Project legally described in Exhibit A to the Deed of Trust vested in fee in the
Borrower and insuring the first lien priority of the Deed of Trust subject only
to the Liens authorized in writing by Bank, and containing such endorsements as
are requested by Bank;
10. Evidence of "all-risk" property, rental loss and
comprehensive general liability insurance for such Project in form, substance
and amount satisfactory to Bank naming the Bank as loss payee or additional
insured as appropriate;
11. A certificate by an architect or other person or entity
acceptable to Bank confirming that such Project has been constructed and
completed substantially in accordance with the plans and specifications approved
by the Government Body with jurisdiction over such Project, and complies with
all applicable building codes and zoning ordinances and all other applicable
federal and state laws, rules, regulations, codes and orders;
12. The receipt by the Bank of copies of all final unconditional
certificates of occupancy and other permits, if any, evidencing that such
Project complies with all applicable zoning ordinances, building and use
restrictions and codes and any requirements with respect to licenses, permits,
and agreements necessary for the lawful use and operation of the Project and
that necessary utilities and municipal services required for the Project are in
place.
13. The representations and warranties of Article VI are true
and correct.
14. Receipt by the Bank of a certified copy of a policy of
property insurance with extended coverage on the basis of 100% of full
replacement cost of all improvements on the Project with a mortgagee clause
attached in favor of U.S. Bank of Washington, National Association, 1420 Fifth
Avenue, 11th Floor, Mail Code WWC 395, Post Office Box 720 (98111-0720),
Seattle, Washington 98101, Attention: Northwest Washington Corporate Banking,
subject to Bank's acceptance of the insuring company and evidence satisfactory
to Bank that professional liability, public liability, property damage, worker's
compensation insurance, and all other insurance required pursuant to the Deed of
Trust are being covered in amounts satisfactory to Bank.
15. The amount to be disbursed by Bank with respect to any of
the real properties constituting the Project shall not exceed the lesser of 70%
of (a) the Appraised Value of such property or (b) 75% of actual construction
costs approved by bond counsel as eligible for reimbursement from Bond proceeds.
Appraised Value shall mean the value of such property determined by the Bank
after internal review of an MAI appraiser prepared in accordance with FIRREA
requirements.
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<PAGE>
16. Receipt by the Bank of a certificate of the Architect with
respect to compliance by the Project with the American with Disabilities Act and
the Fair Housing Act Amendments of 1988 (collectively the "Access Laws").
17. Receipt by the Bank of an executed certificate of compliance
and indemnification with respect to Access Laws.
18. There is no default by Borrower under this Agreement or any
of the Related Documents.
19. The Borrower has accepted the specific Project for which
disbursement is sought as complete.
20. The Borrower shall have provided evidence reasonably
satisfactory to the Bank that all construction costs associated with such
Project have been paid in full.
21. The period for filing workmen's and materialmen's liens has
expired or releases of liens in form and substance satisfactory to Bank have
been obtained.
22. Receipt of evidence of full payment for personal property
in which Bank has a security interest.
23. There has been no condemnation, casualty, or catastrophe
which has a Material Adverse Effect on the value of the security for the
Project.
24. Appropriate amendments duly executed by Borrower in
recordable form are recorded in the applicable real property records of the
counties in which all other Projects are located amending each previously
recorded Deed of Trust, Assignment of Leases and UCC financing statements;
25. Bank receives 110.5 and other applicable endorsements to
each of the title insurance policies with respect to all other Projects in form
and substance satisfactory to Bank insuring the continued first lien priority of
the Deeds of Trust with no additional liens, encumbrances or other exceptions
except those approved by Bank in its sole and absolute discretion.
B. Disbursements Generally. There shall be no disbursement out of
-----------------------
the Mortgage Loan Fund held by the Trustee without the written approval of Bank,
which approval shall be given in accordance with the provisions of this
Agreement and the Mortgage Loan Documents. Bank is hereby authorized without any
request or direction by Borrower, to approve disbursements out of the Mortgage
Loan Fund held by the Trustee and other deposits, if any, of the Borrower with
the Trustee, from time to time to pay interest on the Bonds, to reimburse Bank
for drawings made on the Letter of Credit or to pay directly Bank's expenses and
advances, whether or not there are adequate reserves therefor in accordance with
the provisions of this
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Agreement. Bank shall provide Borrower with invoices prior to each disbursement
of funds out of the Mortgage Loan Fund held by the Trustee.
SECTION 7.03. Assignment/Miscellaneous.
------------------------
A. Borrower Assignment. Borrower may not convey, assign, mortgage,
-------------------
pledge, transfer, hypothecate, encumber or otherwise dispose of its rights or
obligations under this Agreement, the Related Documents, or the Project (except
as provided in the Deed of Trust) without the prior written consent of Bank. A
breach of this provision, directly or indirectly, shall be an Event of Default
under this Agreement and shall not vest any rights in the purported transferee.
B. Bank Assignment. Bank may assign its rights and obligations in
---------------
and to this Agreement and the Related Documents to another lender having the
financial ability to perform Bank's obligations. Any such assignment by Bank
shall be deemed to have been made pursuant to this Agreement and not to be a
modification hereof, and the disbursements made by any such assignee hereunder
shall be evidenced and secured by the Deed of Trust.
C. Advertising. Bank reserves the right to publicize the financing
-----------
of the Project and may include in publicity releases, if applicable, the names
of the principals and a general description of the Project, its occupancy and
use. Borrower shall have the right to review and comment on such publicity
releases prior to their publication.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default; Acceleration and Remedies. The
--------------------------------------------
following shall be defaults under this Agreement and the terms "Event of
Default", "default" or "Default" shall mean any one or more of the following
events:
(a) The Borrower shall fail to pay or cause to be paid any amount of
money required under this Agreement or any of the Related Documents when due; or
(b) Any Lien(s) of Bank in any portion of the collateral which
secures Borrower's Reimbursement Obligations under this Agreement shall, for any
reason, be impaired or cease to exist as valid and binding first priority Liens
(other than for Liens expressly permitted under Sections 7.01(O) and/or 7.01(U)
of this Agreement) which is not remedied to the satisfaction of Bank within
thirty (30) days following written notice to Borrower or a Material Adverse
Effect shall have occurred with respect to any material portion of the
collateral which secures Borrower's Obligations under this Agreement as result
of any uninsured loss or theft or any material portion of such collateral
becomes the subject of or affected by any forfeiture, seizure or similar claim
which is not remedied to the satisfaction of Bank within thirty (30) days
following written notice to Borrower; or
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(c) The Borrower shall fail to perform, keep or observe any term,
covenant, agreement, warranty, or condition (not involving a payment obligation)
of Borrower contained in this Agreement and any such failure shall remain
unremedied for thirty (30) days after written notification thereof shall have
been given to the Borrower by the Bank; notwithstanding the preceding clause, if
------------------------------------
the Default is of a nature that is not susceptible to cure within 30 days and if
the Borrower commences to cure the Default within said period, the Borrower
shall not be deemed to be in Default if it diligently prosecutes said cure
thereafter to completion and, notwithstanding such diligence, cures said Default
by the sixtieth (60th) day after the date of said written notification; or
(d) Any representation or warranty made by the Borrower (or any of
its officers) under or in connection with this Agreement any Related Document
shall prove to have been untrue when made; or
(e) There is an event of default under any recourse Indebtedness of
the Borrower with a principal balance in excess of ten percent (10%) of
Borrower's Tangible Net Worth which has not been either (i) waived in writing by
the lender with respect thereto or (ii) cured to the satisfaction of the
affected lender prior to the expiration of applicable cure periods, if any; or
(f) Final judgment which is no longer the subject of any good faith
appeal is entered against the Borrower for an amount in excess of ten percent
(10%) of Borrower's Tangible Net Worth unless such judgment is paid, discharged
or settled within thirty (30) days following entry of such final judgment; or
(g) There is any default in the payment of principal or interest on
the Washington State Housing Finance Commission's Variable Rate Demand
Multifamily Revenue Bonds (LTC Properties, Inc. Project), Series 1995 or any
default under that certain Reimbursement Agreement dated as of December 1, 1995
by and between LTC Properties, Inc. and Bank which has not been either (i)
waived in writing by Bank or (ii) cured to the satisfaction of Bank prior to the
expiration of applicable cure periods, if any; or
(h) A Plan shall fail to maintain the minimum funding standard
required by Section 412 of the Code for any Plan Year or a waiver of such
standard is sought or granted under Section 412(d) of the Code; a Plan is, shall
have been or is likely to be terminated or the subject of termination
proceedings under Title IV of ERISA; or the Borrower (for purposes of this
paragraph, "Borrower" shall have the meaning set forth in Section 6.01(P) of
this Agreement) has incurred or is likely to incur a liability to or on account
of a Plan in connection with the complete or partial termination of, or complete
or partial withdrawal from, any Plan covered or previously covered by Title IV
of ERISA, which liability or material risk of liability, in the opinion of the
Bank, will have a Material Adverse Effect upon the business, operations or the
financial condition of the Borrower or such subsidiary; or
(i) The Borrower shall dissolve or liquidate or take an equivalent
action or an involuntary petition shall have been filed under any federal or
state bankruptcy, reorganization,
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insolvency, moratorium or similar statute against the Borrower, or a custodian,
receiver, trustee, assignee for the benefit of creditors or other similar
official shall be appointed to take possession, custody, or control of the
property of the Borrower, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within sixty (60) days from the date of said
filing or appointment; or the Borrower shall become insolvent or admit in
writing its inability to pay its debts as they mature, or shall file any
petition or action for relief relating to any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors unless such petition is withdrawn or ceases to be in effect
within sixty (60) days from the date of such filing; or the Borrower shall make
an assignment for the benefit of creditors or enter into an agreement of
composition with its creditors; or the Borrower shall fail generally to pay its
debts as they become due; fail to promptly have discharged any judgment,
execution, garnishment or attachment of such consequence as could have a
Material Adverse Effect on the ability of the Borrower to carry on its
operations as presently conducted or to fulfill its obligations under the Leases
or any of the Related Documents; or
(j) The Borrower has failed to deliver to the Trustee (with a copy to
the Bank and the Issuer) within five (5) days following written notice from Bank
of the occurrence of an "event of default" under any Related Document which was
not cured within the applicable cure period, its notice to optionally redeem in
whole the principal amount of all Bonds then outstanding together with interest
accrued thereon to the date of redemption, or having timely given such notice,
Borrower thereafter fails to deposit with Bank on or prior to the date fixed for
such redemption, the redemption price for all Bonds including the amount of
accrued interest payable on the redemption date and premium if any.
With respect to any Event of Default, (i) in any such event described in
Section 8.01(i), all amounts due or to become due under this Agreement shall
automatically be due and payable without notice or demand or any action
whatsoever by the Bank; and (ii) in all other Events of Default the Bank may,
upon notice (of any nature allowed by law) to the Borrower, declare all amounts
of any nature whatsoever payable under this Agreement or the Related Documents,
to be forthwith due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
and may, without notice to the Borrower, deliver Annex D to the Letter of Credit
to the Trustee.
In addition, upon any Event of Default, the Bank may at its election,
without prior notice or demand, (1) require the Borrower to deposit immediately
with the Bank in cash, out of legally available funds, as security for the
obligations of the Borrower to Bank hereunder, under any Related Document and
under the Letter of Credit, a sum equal to the then Stated Amount of the Letter
of Credit (as defined therein) and to institute legal proceedings against the
Borrower to collect that sum if it is not deposited on demand; and (2) without
further notice or demand, exercise any or all rights available to it under this
Agreement, in equity or by applicable law, including but not limited to (at the
sole option of the Bank), all actions that could be taken by a secured party
under the Washington Uniform Commercial Code. If the deposit required by clause
(1) of this paragraph is not timely made, Borrower hereby agrees that Bank may
from time to time withdraw all or part of the required amount from any funds of
Borrower then held by Bank without demand, notice or liability for such
withdrawal(s), except that all amounts
-39-
<PAGE>
withdrawn shall be held by the Bank for the purposes specified in clause (1).
The Borrower specifically grants Bank a security interest in such moneys and
deposit and all income thereon. Borrower further agrees that the Bank may
provide notice to the Trustee upon any Default hereunder for the purpose of
causing acceleration and payment of all Bonds pursuant to Article VIII of the
Indenture. No action taken by Bank shall be deemed to be an election of remedies
by Bank, it being the intention of the parties that Bank shall be entitled to
exercise all remedies separately or concurrently and in any manner allowed by
law.
ARTICLE IX
SECURITY
SECTION 9.01. Funds, Accounts and Security Agreement. The
--------------------------------------
Borrower represents, certifies, warrants and covenants to the Bank that all
monies from time to time on deposit in the Funds and Accounts established under
the Indenture shall be held by Trustee in trust for the owners of the Bonds and
the Bank until full payment of the principal of and interest on the Bonds and of
all obligations of the Borrower to the Bank under this Agreement or the Related
Documents.
The Borrower hereby makes to the Bank or Trustee (as the case may be) for
the equal benefit of the Bank and owners of the Bonds, all pledges, assignments,
grants, covenants and agreements set forth in the Indenture and the Loan
Agreement and all pledges, grants of liens and security interests and covenants
contained therein are incorporated herein by this reference as if fully set
forth herein. The Borrower hereby consents to the Bank's status as a beneficiary
under the Indenture and acknowledges that the trust estate of the Indenture as
supplemented from time to time secures not only the payment of the Bonds but
also secures the payment of all sums due or to become due the Bank pursuant to
this Agreement or any Related Document.
SECTION 9.02. Funding and Maintaining the Funds. Until the
---------------------------------
principal of and interest on the Bonds shall have been fully paid and until all
other sums of every nature whatsoever due or to become due the Bank pursuant to
this Agreement or any Related Document are paid in full, the Borrower shall
maintain the Funds and cause moneys to be deposited in each fund or subaccount
thereof in accordance with the terms of the Indenture and this Agreement in
amounts sufficient to pay all principal of and interest on the Bonds as well as
all other sums due or to become due to the Bank pursuant to this Agreement or
any Related Document.
The Borrower agrees that whenever any sum is required to be placed in any
of said Funds by the terms of any agreement and whenever any other sum is due
and owing the Bank under this Agreement or the Related Documents, the Borrower
shall place sufficient moneys in said Funds to pay such sums. The Borrower
further agrees that the Trustee is authorized and hereby directed to forward
such sums to the Bank in accordance with the Indenture or this Agreement.
Nothing contained herein shall impair the right of the Bank to demand and
receive payment directly from the Borrower in lieu of or notwithstanding funding
of said Funds, which demand shall be at the sole option of the Bank. The
Borrower hereby represents, certifies and warrants to the Bank that payment of
all debt due or to become due Bank by virtue of this Agreement is payable from
(in
-40-
<PAGE>
addition to said Funds and the trust estate of the Indenture) all other
available sources of moneys to the Borrower whether now or hereafter existing.
SECTION 9.03. Interest of Bank and Owners of Bonds. Any moneys
------------------------------------
transferred by the Trustee from any of the Funds for payment on the Bonds or
sums due the Bank shall continue to be held in trust for the owners of the Bonds
and the Bank until disbursement or deemed disbursement of such moneys by the
Trustee to owners of the Bonds or, to the extent not inconsistent with the
rights of the Owners of the Bonds, to the Bank.
The Borrower agrees to deliver copies of this Agreement and the Indenture
to the Trustee on the date of execution or adoption of the aforesaid to provide
specific notice of the trust for the Bank and the owners of the Bonds in the
moneys in the Funds and to provide notice for all other purposes, including but
not limited to notice to all persons of the security interests, pledges and
liens granted to or for the benefit of the owners of Bonds and the Bank in said
Funds.
SECTION 9.04. Transfers and Other Liens. The Borrower agrees that it will
-------------------------
not (i) sell or otherwise dispose of any interest in the monies in the Funds or
Accounts except as provided herein or in the Indenture, or (ii) create or permit
to exist any pledge, Lien, security interest, or other charge or encumbrance of
any nature whatsoever upon or with respect to the Gross Revenues or moneys in
the Funds (except the interest of the Bank or of the owners of the Bonds and as
otherwise allowed in the Indenture).
SECTION 9.05. Priority Of Payment; Application of Sums Upon Notice of
------------------------------------------------------
Default. Upon any drawing under the Letter of Credit honored by the Bank, the
- -------
Bank shall have priority over the owners of the Bonds to all sums then or
thereafter in any of the Funds to the extent of any such drawing (but only to
such extent). Upon an Event of Default and delivery to the Trustee of notice in
the form of Annex D to the Letter of Credit, the Trustee shall apply all sums in
the Funds available for payments on the Bonds to payment of obligations of the
Borrower in the following priority: first, to the reimbursement of the Bank for
any amount honored by the Bank pursuant to the Letter of Credit; second, payment
then due the owners of the Bonds; and third, payment of any sums then due the
Bank pursuant to this Agreement or the Related Documents.
SECTION 9.06. Acknowledgment Regarding Funds and Accounts. The Borrower
-------------------------------------------
hereby represents, warrants and certifies to the Bank that:
(a) The Trustee, on behalf of the owners of the Bonds and the Bank,
has been granted a valid first priority security or other interest in or lien
upon and assignment of the monies from time to time on deposit in the Funds and
Accounts which is not and will not be subject to attachment, judgment lien or
any interest of any nature whatsoever of any other creditor of the Borrower or
the Borrower, whether now or hereafter existing; and
(b) no other lien or pledge or other encumbrance of any nature
whatsoever is prior to the interest of the Bondholders and Bank.
-41-
<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment or waiver of any provision
----------------
of this Agreement or any Related Document, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 10.02. Notices, Etc. Except as otherwise provided in this
------------
Agreement or as otherwise allowed to Bank by law, all notices, requests, demands
or other communications shall be in a writing addressed to the respective party
at the address given below or to such other address as the parties may from time
to time specify in writing. Notice shall be deemed to have been given when (a)
personally delivered, (b) given by a telex or machine-confirmed facsimile, or
(c) after placement in the U.S. mails as certified or registered, return receipt
requested, first-class postage prepaid, the receipt indicates delivery or
refusal or failure to accept delivery:
If to the Assisted Living Concepts, Inc.
Borrower: 9955 SE Washington, Suite 201
Portland, Oregon 97216
Attention: Stephen Gordon,
Chief Financial Officer
Telecopy: (503) 252-6597
with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman
300 Pioneer Tower
888 Fifth Avenue
Portland, Oregon 97204
Attention: Sandra Campbell
Telecopy: (503) 295-0915
If to the Bank: U.S. Bank of Washington, National Association
Northwest Washington Corporate Banking
1420 Fifth Avenue, 11th Floor
Mail Code WWC 395
P.O. Box 720 (98111-0720)
Seattle, Washington 98101
Attention: Deborah S. Watson
Vice President
Telecopy: (206) 344-2887
-42-
<PAGE>
If to the Trustee: Norwest Bank Minnesota, National Association
6th Street and Marquette Avenue
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust
Department
Telecopy: (612) 667-9825
or as to each party, at such other address as shall be designated by such party
in a written notice to the other parties.
SECTION 10.03. No Waiver; Remedies. No failure on the part of the Bank to
-------------------
exercise, and any delay in exercising, any right under this Agreement or any
Related Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the aforesaid preclude any other or
further exercise thereof or the exercise of any other right from time to time
and as often as the Bank may deem expedient and without notice (except any
notice which is specifically required by written agreement). The remedies
provided in this Agreement or the Related Documents are cumulative and not
exclusive of any remedies provided by law or in equity, now or hereafter
existing.
SECTION 10.04. Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with Generally Accepted
Accounting Principles consistently applied, except as otherwise stated herein.
SECTION 10.05. Partial Reconveyance. Provided Borrower is not in default
--------------------
under any of the covenants, conditions, warranties or representations hereunder
or under any other document evidenced or securing this Agreement or under any of
the Related Documents, Bank agrees to release from the lien of the Deed of Trust
from time to time, one or more of the properties constituting the Project and
legally described in Exhibit B attached hereto (each, a "Release Parcel") upon
satisfaction of the following terms and conditions and only upon satisfaction of
the following terms and conditions:
(a) Borrower shall notify Bank and Bond Trustee in writing on or
before the dates specified in the Reimbursement Agreement and the Indenture,
respectively, for providing notice of optional redemptions of Bonds;
(b) Borrower shall have otherwise complied with all requirements set
forth in the Reimbursement Agreement, the Indenture, the Regulatory Agreements,
the Loan Agreement and any other of the Related Documents and shall have secured
the consent of all parties required under those agreements;
(c) Payment by Borrower to Bank with respect to the Release Parcel of
a partial reconveyance fee equal to 100% of the Net Proceeds of Sale (as
hereinafter defined) from the sale of the Release Parcel (to be applied to
optional redemption of Bonds pursuant to the Indenture) provided, however, that
in no event shall the partial reconveyance fee be less than the original
principal amount of Bond proceeds disbursed with respect to such Release Parcel
less
-43-
<PAGE>
any principal payments made and allocated by Beneficiary to such Release Parcel
prior to the date of optional redemption of Bonds;
(d) Bank shall have received an opinion from nationally recognized
bond counsel that such sale of the Release Parcel and optional redemption of
Bonds as a result thereof does not adversely affect the tax-exempt status of
interest on the Bonds; and
(e) Borrower shall, at its sole cost and expense, deliver an
endorsement to each of Bank's policies of title insurance insuring that the
reconveyance of the Deed of Trust from the Release Parcel will not affect the
first lien priority of the Deed of Trust on the remaining Projects and without
any additional exceptions to its policies which would have priority over Bank
except those approved by Bank in its sole and absolute discretion. Borrower
shall pay all costs and expenses incurred in connection with any such
reconveyance, including but not limited to recording fees, premiums for title
insurance endorsements and escrow fees, if any charges by the title insurance
company or other closing agent.
Net Proceeds of Sale shall be defined as the gross proceeds of sale of any
Release Parcel less broker's commission, title insurance, escrow fees and
recording fees, real estate excise taxes and normal prorations of real estate
taxes, water and other utilities constituting liens against the Release Parcel,
if any.
Any reconveyance of a Deed of Trust as to any Release Parcel shall in no
way release, modify, discharge, impair or otherwise affect the validity of
enforceability of the Reimbursement Agreement, the Deed of Trust, the Regulatory
Agreement or any of the Related Documents or any of the obligations of
Borrower's obligations hereunder or thereunder.
SECTION 10.06. Security Costs, Expenses and Taxes. In addition to the
----------------------------------
fees and expenses the Borrower has agreed to pay pursuant to Section 4.05
hereof, the Borrower also agrees to pay on demand all reasonable costs and
expenses in connection with the preparation, execution, delivery, filing,
recording, continuation, maintenance, administration and termination of the
liens, or security interests or other interests granted by the Borrower in any
Related Document or any other documents to be delivered under the Related
Documents. The Borrower further agrees to pay all title insurance and recording
fees and costs of every nature whatsoever incurred by Bank (if any).
SECTION 10.07. Binding Effect; Assignment. This Agreement shall become
--------------------------
effective when it shall have been executed by the Borrower and the Bank and
thereafter shall be a continuing obligation binding upon and inuring to the
benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign any of its
rights or obligations hereunder or under any Related Document (including but not
limited to any rights in Bond proceeds) or any interest herein or therein
without the prior written consent of the Bank. The Bank without the consent of
the Borrower, may sell, transfer, assign, negotiate, pledge or otherwise
hypothecate or participate all or any portion of this Agreement, or grant
participations herein, in the Letter of Credit or in any of its rights or
security hereunder or under the Related Documents, including without limitation,
the instruments securing the
-44-
<PAGE>
Borrower's obligations hereunder. No such disposition by the Bank, however, will
relieve the Bank of its obligation under the Letter of Credit. In connection
with any such disposition or in connection with any examination of the Bank, the
Bank may disclose to the proposed transferee or regulatory authority any
information that the Borrower is required to deliver to the Bank or to which the
Bank is otherwise entitled pursuant to this Agreement or any Related Document
from time to time. Bank may also disclose such information to its affiliates.
SECTION 10.08. Governing Law. This Agreement and each Related Document in
-------------
favor or to which the Bank is a party shall be governed, construed and enforced
in accordance with the laws of the State of Washington. The Borrower agrees to
submit to the jurisdiction of the state or federal court selected by Bank, and
venue of any action concerning this Agreement or any Related Document shall be
held in any county in Washington in which any of the real properties
constituting the Project are located or such other county within the State of
Washington as the Bank may request.
SECTION 10.09. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties regarding the terms hereof and supersedes any and
all other agreements relating to the subject matter of this Agreement, oral or
written, among any or all of the parties (except for the Related Documents). The
headings of the various sections and subsections of this Agreement and of any
Related Documents are for convenience of reference only and do not constitute a
part of the respective document and shall not affect the meaning or construction
of any provision. No amendment, waiver or forbearance of any provision of this
Agreement or of any Related Document shall be effective unless the same shall be
in a writing signed by the party intended to be bound. Any such waiver or
forbearance shall only be effective for the specific purpose and in the specific
instance given and not for other or subsequent purposes or instances and no
forbearance or waiver shall affect Bank's right to refuse further forbearances
or waivers. If any portion of this Agreement or any Related Document is held to
be invalid or unenforceable, the remaining portions and provisions and
conditions thereof regarding Borrower's obligations shall remain in full force
and effect. Time is of the essence of this Agreement and each Related Document.
This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same Agreement.
SECTION 10.10. JURY WAIVER. BORROWER AND BANK EACH HEREBY WAIVE ANY RIGHT
-----------
TO TRIAL BY JURY OF ANY CLAIM ARISING OUT OF THIS AGREEMENT, THE LETTER OF
CREDIT AND ANY RELATED DOCUMENT, WHETHER NOW OR HEREAFTER ARISING AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND HEREBY CONSENT AND AGREE THAT ANY
SUCH CLAIM MAY BE DECIDED BY TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE
AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER AND AGREEMENT CONTAINED HEREIN.
SECTION 10.11. Securities Law. The Borrower acknowledges and agrees that
--------------
except for the information describing the Bank supplied by the Bank and except
for matters
-45-
<PAGE>
stated in the opinion of Bank's counsel, neither the Bank in its capacity as
issuer of the Letter of Credit (nor its counsel) (a) has and shall not be deemed
to have made any representation regarding sale of the Bonds or the financial
strength, integrity or revenues of the Borrower; (b) has any responsibility or
liability for the issuance, offer or sale of the Bonds; (c) has participated in
the preparation of the Official Statement (except with respect to supplying
information about the Bank) or is responsible or liable for any statements
contained therein or omissions therefrom, or for the accuracy or completeness
thereof; and that (d) nothing contained in this Agreement, the Official
Statement or any of the Related Documents is intended to impose any liability or
responsibility related to the aforesaid on the Bank or its counsel.
For use in the Official Statement, the Bank agrees to supply the aforesaid
descriptive information and, within thirty (30) days of the Borrower's written
demand therefor, an updated version of said information for use in any
subsequent or amended Official Statement regarding the Bonds. Upon written
request therefor, the Bank shall, as soon as practical, also supply copies of
the Bank's annual report. To the extent other information is requested of the
Bank, the Borrower agrees to pay all expenses and fees of every nature
whatsoever (including reasonable attorneys' fees) incurred by the Bank in
connection therewith.
SECTION 10.12. Subrogation. Notwithstanding the fact that the Bank's
-----------
obligation under the Letter of Credit is primary, as opposed to the secondary
obligation of a guarantor, Borrower expressly agrees that Bank shall be
subrogated to all rights of every nature whatsoever of the owners of Bonds or
the Trustee in or to the entire trust estate of the Indenture and that upon
payment by Bank under the Letter of Credit, Bank shall be entitled to exercise
all rights and remedies of any person with subrogation rights and all rights and
remedies accorded a guarantor by law or in equity. Nothing in this Section 10.12
shall impair any right of Bank under the Indenture.
SECTION 10.13. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by the
Borrower in connection herewith or any Related Document shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by the Bank or on its behalf, and shall continue until payment in full of all
sums due or to become due from Borrower to Bank hereunder or under any Related
Documents.
SECTION 10.14. Washington State Notice. Bank hereby notifies Borrower as
-----------------------
follows: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY/EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
-46-
<PAGE>
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By _________________________________________
Stephen Gordon
Secretary/Chief Administrative Officer/
Chief Financial Officer
"BANK"
U.S. BANK OF WASHINGTON, NATIONAL
ASSOCIATION
By _________________________________________
Deborah S. Watson
Vice President
-47-
<PAGE>
EXHIBIT A
FORM OF LETTER OF CREDIT
------------------------
A-1
<PAGE>
EXHIBIT B-1
Legal Description - Victoria House
-----------------
Port Townsend, Washington
Real property located in the County of Jefferson, Washington as more
particularly described as follows:
B-1-1
<PAGE>
EXHIBIT B-2
Legal Description - Cascade House
-----------------
Enumclaw, Washington
Real property located in the County of King, Washington as more
particularly described as follows:
B-2-1
<PAGE>
EXHIBIT B-3
Legal Description - Albright House
-----------------
Bremerton, Washington
Real property located in the County of Kitsap, Washington more particularly
described as follows:
B-3-1
<PAGE>
EXHIBIT B-4
Legal Description - Sydney House
-----------------
Port Orchard, Washington
Real property located in the County of Kitsap, Washington more particularly
described as follows:
B-4-1
<PAGE>
EXHIBIT B-5
Legal Description - Windriver House
-----------------
Spokane, Washington
Real property located in the County of Spokane, Washington more
particularly described as follows:
B-5-1
<PAGE>
EXHIBIT C
PERMITTED LIENS
---------------
None.
C-1
<PAGE>
EXHIBIT D-1
MANDATORY DEBT SERVICE
----------------------
PAYMENT SCHEDULE
----------------
D-1-1
<PAGE>
EXHIBIT D-2
NOTICE TO TRUSTEE RE
--------------------
OPTIONAL REDEMPTION OF BONDS
----------------------------
D-2-1
<PAGE>
EXHIBIT E
PENDING LITIGATION
------------------
None.
E-1
<PAGE>
EXHIBIT F
PROJECT BUDGET
--------------
<TABLE>
<CAPTION>
Property
--------
Maximum Bond Proceeds
City/Town County Allocable*
------------------------------ ---------------------
<S> <C> <C>
Port Townsend (Jefferson) $1,651,200
Enumclaw (King) $1,625,900
Bremerton (Kitsap) $1,741,100
Port Orchard (Kitsap) $1,754,300
Spokane (Spokane) $1,727,500
$8,500,000
</TABLE>
*Note in the event the Borrower elects to use two percent (2%) of Bond proceeds
to reimburse itself for Issuance Costs (as defined in the Indenture) the maximum
Bond proceeds allocable to purchase of a property shall be adjusted accordingly.
F-1
<PAGE>
EXHIBIT 10.15
- --------------------------------------------------------------------------------
REIMBURSEMENT AGREEMENT
between
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
and
UNITED STATES NATIONAL BANK OF OREGON, A NATIONAL BANKING
ASSOCIATION
dated as of July 1, 1997
- --------------------------------------------------------------------------------
IDAHO HOUSING AND FINANCE ASSOCIATION VARIABLE RATE DEMAND
HOUSING REVENUE BONDS
(ASSISTED LIVING CONCEPTS, INC. PROJECT), SERIES 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions................................................... 1
ARTICLE II
ISSUANCE OF LETTER OF CREDIT
SECTION 2.01. Issuance of the Letter of Credit.............................. 9
SECTION 2.02. Termination of Letter of Credit; Alternate Credit; Extension.. 10
SECTION 2.03. Increase or Reduction of Stated Amount and Reinstatement...... 11
ARTICLE III
REIMBURSEMENT OBLIGATION AND INTEREST
SECTION 3.01. Reimbursement Obligations..................................... 11
SECTION 3.02. Reimbursement and Loans....................................... 11
SECTION 3.03. Manner, Method, Place and Time of Payment..................... 13
SECTION 3.04. Obligation to Pay Unconditional............................... 13
SECTION 3.05. Evidence of Debt.............................................. 14
ARTICLE IV
OTHER PAYMENTS
SECTION 4.01. Letter of Credit Issuance Fee................................. 14
SECTION 4.02. Letter of Credit Annual Fee................................... 14
SECTION 4.03. Other Fees.................................................... 15
SECTION 4.04. Increased Costs............................................... 15
SECTION 4.05. Payment of Expenses and Fees; Applicability................... 16
SECTION 4.06. Calculations; Default Interest; Compounded Interest........... 17
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions Precedent to Issuance of Letter of Credit.......... 17
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.01. Representations, Warranties and Covenants of the Borrower..... 20
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
FURTHER COVENANTS
SECTION 7.01. Covenants....................................................... 25
SECTION 7.02. Conditions Precedent to Disbursements of Bond Proceeds.......... 34
SECTION 7.03. Assignment/Miscellaneous........................................ 37
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default; Acceleration and Remedies.................... 38
ARTICLE IX
SECURITY
SECTION 9.01. Funds, Accounts and Security Agreement.......................... 41
SECTION 9.02. Funding and Maintaining the Funds............................... 41
SECTION 9.03. Interest of Bank and Owners of Bonds............................ 41
SECTION 9.04. Transfers and Other Liens....................................... 42
SECTION 9.05. Priority Of Payment; Application of Sums Upon Notice of Default. 42
SECTION 9.06. Acknowledgment Regarding Funds and Accounts..................... 42
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc................................................ 42
SECTION 10.02. Notices, Etc................................................... 43
SECTION 10.03. No Waiver; Remedies............................................ 43
SECTION 10.04. Accounting Terms............................................... 44
SECTION 10.05. Partial Reconveyance........................................... 44
SECTION 10.06. Security Costs, Expenses and Taxes............................. 45
SECTION 10.07. Binding Effect; Assignment..................................... 45
SECTION 10.08. Governing Law.................................................. 45
SECTION 10.09. Entire Agreement............................................... 46
SECTION 10.10. JURY WAIVER.................................................... 46
SECTION 10.11. Securities Law................................................. 46
SECTION 10.12. Subrogation.................................................... 47
SECTION 10.13. Survival of Representations and Warranties..................... 47
SECTION 10.14. Washington State Notice........................................ 47
SECTION 10.15. Idaho State Notice............................................. 47
</TABLE>
-ii-
<PAGE>
Exhibits
--------
Exhibit A Letter of Credit
Exhibits B-1 Legal Descriptions
through B-4
Exhibit C Permitted Liens
Exhibit D-1 Mandatory Debt Service Payment Schedule
Exhibit D-2 Notice to Trustee Re Optional Redemption of Bonds
Exhibit E Pending Litigation
Exhibit F Project Budget
Exhibit G Form of Admission Agreement and Negotiated Service Agreement
-iii-
<PAGE>
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT, dated as of July 1, 1997, between Assisted Living
Concepts, Inc., a Nevada corporation (the "Borrower") and United States National
Bank of Oregon, a national banking association (the "Bank").
WHEREAS, the Idaho Housing and Finance Association (Issuer") intends to
issue and sell its Variable Rate Demand Housing Revenue Bonds (Assisted Living
Concepts, Inc. Project), Series 1997 in the aggregate principal amount of
$7,350,000 (the "Bonds") issued pursuant to that certain Indenture of Trust
("Indenture") dated as of July 1, 1997 between the Issuer and First Security
Bank, N.A., as Trustee; and
WHEREAS, in order to secure payment when due of the principal of and
interest on the Bonds, the Borrower has requested the Bank to issue an
unconditional irrevocable letter of credit substantially in the form of Exhibit
A, which exhibit (with Annexes A through G) is attached and incorporated herein
by this reference (the "Letter of Credit"), in the principal amount of SEVEN
MILLION THREE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($7,350,000.00) plus ONE
HUNDRED FORTY FOUR THOUSAND NINE HUNDRED EIGHTY SEVEN AND NO/100 DOLLARS
($144,987.00). The sum of the principal and interest components of the Letter
of Credit, as reduced and reinstated pursuant to the terms thereof, is hereafter
referenced as the "Stated Amount".
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, and in order to induce the Bank to issue the Letter of Credit, the
Borrower and the Bank hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Terms defined above shall have the meanings
-----------
set forth above and the following terms shall have the following meanings. Any
term capitalized but not defined herein shall have the same meaning as ascribed
to it in the Indenture.
"Affiliate" means any person or entity related to, owned by, in common
ownership with, or affiliated with, a person or entity that is a parent company
or constituting a shareholder or member of Borrower or in which Borrower has or
holds an equity or other interest.
"Agency Agreement" means the agreement entitled "Agency Agreement" dated as
of July 1, 1997, among the Bank and its Collateral Agents (as defined therein).
"Agreement" means this Reimbursement Agreement, as the same may from time
to time be amended, supplemented or modified.
"Alternate Letter of Credit" means any substitute letter of credit meeting
the requirements of Section 310 of the Indenture.
<PAGE>
"Assignment of Leases" means individually and collectively the Assignments
of Leases and Cash Collateral dated as of July 1, 1997 whereunder the Borrower
is the assignor and the Bank is assignee with respect to a portion of the
Project.
"Bank" means United States National Bank of Oregon, a national banking
association and each Participant, whether now or hereafter existing.
"Bond" or "Bonds" means any one or more of the Bonds authorized,
authenticated and delivered pursuant to the Indenture.
"Borrower" means Assisted Living Concepts, Inc., a Nevada corporation.
"Business Day" means any day other than (i) a Saturday, Sunday or legal
holiday, (ii) a day on which commercial banks in New York, New York, are
authorized or obligated by law or executive order to close (but only prior to
the Fixed Rate Conversion Date); (iii) a day on which commercial banks in the
city or cities in which are located the corporate trust office of the Trustee
and the office of the Bank at which demands for payment under the Letter of
Credit are to be presented are authorized or required by law or executive order
to close; (iv) a day on which the New York Stock Exchange is closed; or (v) a
day on which the commercial banks in Seattle, Washington are closed.
"Capital Lease Obligations" means, for any Person, all obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board), and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount of
such obligation, determined in accordance with GAAP (including such Statement
No. 13).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax statute or code. Any reference to a provision of
the Code shall include the applicable Department of Treasury regulations.
"Contingent Obligation" means, with respect to any Person, any guarantee of
Indebtedness or any other obligation of any other Person or any assurance with
respect to the financial condition of any other Person, whether direct, indirect
or contingent, including, without limitation, any purchase or repurchase
agreement or keep-well, take-or-pay, through-put or other arrangement of
whatever nature having the effect of assuring or holding harmless any Person
against loss with respect to any obligation of such other Person; provided,
---------
however, that the term "Contingent Obligation" shall not include endorsements of
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instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
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<PAGE>
reasonably anticipated liability in respect thereof as determined in good faith
by the Person subject to such obligation.
"Contractual Obligation" means, with respect to any Person, any provision
of any security interest of any nature issued, granted or transferred by such
Person or of any agreement, instrument or undertaking to which such Person is a
party or by which it or any of its property is or purports to be bound.
"Convertible Subordinated Debentures" means $20,000,000 aggregate principal
amount of the Borrower's 7% Convertible Subordinated Debentures dated August 15,
1995 and due August 15, 2005, which debentures are convertible at or prior to
maturity, unless previously redeemed, at a conversion price of $15.00 per share,
subject to adjustments therein set forth.
"Date of Issuance" means July 31, 1997, the date the Letter of Credit is
issued by the Bank.
"Deed of Trust" means individually and collectively, the Variable Rate Deed
of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing
dated as of July 1, 1997 whereunder the Borrower is grantor and Bank and Trustee
are co-beneficiaries, as amended from time to time encumbering a portion of the
Project.
"Default" or "Event of Default" has the meaning set forth in Section 8.01
hereof.
"Drawings" include:
"A Drawing (Interest)" or "A Drawing" means a drawing under the Letter of
Credit to make an interest payment on Bonds (except Pledged Bonds) due on an
Interest Payment Date, other than on Bonds being paid or purchased on such date.
"B Drawing (Redemption)" or "B Drawing" means a drawing on the Letter of
Credit to pay the principal amount of any Bonds being redeemed pursuant to
Section 602 of the Indenture together with accrued but unpaid interest thereon.
"C Drawing (Purchase)" or "C Drawing" means a drawing on the Letter of
Credit to pay all or any portion of the purchase price of the Bonds (except
Pledged Bonds) purchased pursuant to Section 404 of the Indenture or upon the
Fixed Rate Conversion Date corresponding to the principal amount of Bonds being
purchased and accrued and unpaid interest thereon.
"Environmental Law" means any federal, state or local law, statute,
ordinance or regulations pertaining to health, Medical Products, Hazardous
Substances, industrial hygiene or the environmental conditions on, under or
about any of the real properties constituting the Project, including, without
limitation, the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901 et seq., as amended, Comprehensive Environmental Response,
-- ---
Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as
------
amended by the Superfund Amendments and Reauthorization Act of 1986, Hazardous
Materials Transportation
-3-
<PAGE>
Control Act, 49 U.S.C. Section 1801 et seq., the Toxic Substance Control Act, 15
-- ---
U.S.C. Section 2601 et seq., Federal Water Pollution Control Act, Federal Water
-- ---
Act of 1977, 93 U.S.C. Section 1251 et seq., Federal Insecticide, Fungicide and
-- ---
Rodenticide Act, Federal Pesticide Act of 1978, 7 U.S.C. Section 2601 et seq.,
-- ---
Federal Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the Hazardous
-- ---
Waste Management Act of 1983, I.C. (S) 39-4401 et seq., the Idaho Hazardous
-- ---
Substance Response Act, I.C. (S) 39-7101 et seq. and in the regulations
-- ---
promulgated pursuant to said laws.
"Environmental Indemnity Agreement" means that certain agreements dated as
of July 1, 1997 executed by the Borrower in favor of the Bank with respect to
each Project.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fixed Rate" means the interest rate per annum borne by the Bonds from and
after the Fixed Rate Conversion Date, determined by the Remarketing Agent in
accordance with Section 202(g) of the Indenture.
"Fixed Rate Conversion Date" means the effective date of a change in the
interest rate borne by the Bonds to the Fixed Rate from a Daily Rate or a Weekly
Rate as defined in the Indenture.
"FLSA" means the Fair Labor Standards Act of 1938, as amended from time to
time, and the regulations promulgated pursuant thereto.
"Funds" means any one or more of the separate special trust funds created
under Article III of the Indenture and any other fund or account created
thereunder, any supplemental indenture or any Related Document which is or
hereafter becomes available for the payment of principal or interest on Bonds or
to pay any sum due or to become due from the Borrower to the Bank.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles as in effect from time to time in the United
States and as consistently applied by the Borrower.
"Governmental Body" means any foreign or domestic government, any court or
any foreign, federal, state, municipal or other department, commission, board,
bureau, agency, public authority or instrumentality or any arbitrator or
government regulator with jurisdiction over the Borrower and/or any Project.
"Guarantee" means a guarantee, an endorsement, a contingent agreement to
purchase or to furnish funds for the payment or maintenance of, or otherwise to
be or to become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interest of any Person, or an agreement to purchase, sell or lease (as
lessee or
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<PAGE>
lessor) property, products, materials, supplies or services primarily for the
purpose of enabling a debtor to make payment of such debtor's obligations or an
agreement to assure a creditor against loss, including causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection of
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as verbs shall have correlative meanings.
"Hazardous Substances" has the meaning set forth in the Deed of Trust which
definition is by this reference incorporated herein.
"Indebtedness" means, for any Person (without duplication) (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person.
"Interest Payment Date" has the meaning set forth in Article I of the
Indenture, which definition is by this reference incorporated herein.
"Issuer" means Idaho Housing and Finance Association, an independent public
body corporate and politic and an instrumentality of the State of Idaho.
"Lien" means, with respect to any Person, any security interest, pledge,
mortgage, charge, option, assignment, hypothecation, encumbrance, attachment,
garnishment, sequestration, forfeiture, execution or other voluntary or
involuntary lien upon or affecting the revenues of such Person or any real or
personal property in which such Person has or hereafter acquires any interest,
except (i) Liens for Taxes which are not delinquent or which remain payable
- ------
without penalty or the validity or amount of which is being contested in good
faith by appropriate proceedings and with reserves satisfactory to Bank; (ii)
liens imposed by law (such as construction liens) incurred in good faith in the
ordinary course of business which are not delinquent or which remain payable
without penalty or the validity or amount of which is being contested in good
faith by appropriate proceedings and reserves consented to by Bank; and (iii)
deposits or pledges under workmen's compensation, unemployment insurance, social
security, bids, tenders, contracts (except for repayment of borrowed money), or
leases, or to secure statutory obligations or surety or appeal bonds or to
secure indemnity, performance or other similar bonds given in the ordinary
course of business.
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<PAGE>
"Loan Agreement" means that certain Mortgage Loan Origination and Financing
Agreement dated as of July 1, 1997 by and among the Issuer, the Trustee, the
Borrower and the Bank.
"Material Adverse Effect" means a material adverse effect on (a) the
Project's business, operations, financial condition, liabilities or
capitalization of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower to perform its obligations under this Agreement or any
of the Related Documents, (c) the validity or enforceability of this Agreement
or any of the Related Documents, (d) the rights, remedies, powers and privileges
of the Bank under this Agreement or any of the Related Documents or (e) the
timely payment of the Reimbursement Obligations.
"Medical Products" means all chemicals, drugs, blood, tissue, serums, waste
and other materials and equipment and supplies related thereto in connection
with the treatment, research and laboratory analysis of human medical
phenomenon, which Medical Products may include, without limitation regulated
substances and Hazardous Substances (as defined in the Deed of Trust).
"Mortgage Loan" means the mortgage loan made to the Borrower pursuant to
the Loan Agreement in the principal amount of $7,350,000 plus interest thereon,
in order to provide permanent financing for part of the Project Costs and
Issuance Costs.
"Mortgage Loan Documents" means the Loan Agreement, the Regulatory
Agreement, the Tax Agreement and the Mortgage Note.
"Mortgage Loan Fund" means such Fund created by Section 302 of the
Indenture.
"Mortgage Note" means the promissory note executed by the Borrower to
evidence the Mortgage Loan.
"Participant" means any entity to whom the Bank transfers an interest in
this Agreement or any Related Document. The Bank and not any Participant shall
be the sole party authorized or obligated to provide any consent or approval
required, contemplated or authorized by this Agreement or any Related Document
to be given by the Bank.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a state, government or political subdivision or an agency or
instrumentality thereof.
"Plan" means (i) any "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA); (ii) any employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA) or a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA); (iii) any employee benefit
plan maintained in connection with any trust described in Section 501(c)(9) of
the Code; or (iv) a combination of such plans; if such plan or plans is
maintained or contributed to, or at any time during the five calendar years
preceding the date of
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<PAGE>
this Agreement was maintained or contributed to, by the Borrower or under which
the Borrower has or, during the term of this Agreement, will have any liability.
For purposes of this paragraph, the term "Borrower" shall include the Borrower
and any corporation, partnership, sole proprietorship or other entity if the
Borrower and such other entity or entities are (i) corporations which are
members of a controlled group of corporations as defined in Section 414(b) of
the Code, (ii) trades or businesses (whether or not incorporated) which are
under common control as defined in Section 414(c) of the Code, (iii) members of
an affiliated service group as defined in Section 414(m) or 414(o) of the Code,
or (iv) any combination of the foregoing.
"Pledge and Security Agreement" means the agreement entitled "Pledge and
Security Agreement" dated as of July 1, 1997, between Bank and the Borrower, as
amended from time to time.
"Pledged Bonds" means those Bonds or portions of Bonds on which a principal
payment is made or deemed made or the purchase price is paid or deemed paid with
proceeds of a drawing under the Letter of Credit, which Bonds are pledged to the
Bank pursuant to the Pledge and Security Agreement.
"Prime Rate" means the rate of per annum interest which the Bank announces
publicly or otherwise makes available to the public from time to time as its
"prime rate" (currently calculated on the basis of the actual number of days
elapsed over a year of 360 days) with any change in the "prime rate" to be
effective on and as of the date of any change in said "prime rate." The Prime
Rate and the calculation thereof may be established by the Bank in its sole
discretion. The Prime Rate is not necessarily the lowest rate of interest
offered by the Bank to its most creditworthy customers. The Prime Rate is a
variable or fluctuating rate which increases or decreases from time to time.
"Project" or "Projects" means individually or collectively the acquisition
and permanent financing of four assisted living unit projects located on real
property in Garden City, Idaho Falls, Moscow and Rexburg, Idaho and more
particularly described in Exhibits B-1 through B-4 attached hereto and by this
reference incorporated herein.
"Property" means any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Regulatory Agreement" means individually and collectively the Regulatory
Agreements dated as of July 1, 1997, by and between the Issuer and the Borrower
with respect to each Project.
"Related Documents" means (individually and collectively) any promissory
note executed to further evidence the obligations of the Borrower hereunder
("Bank Note"), the Letter of Credit, the Deed of Trust, the Assignment of
Leases, the Pledge and Security Agreement, Pledge and Security Agreement (Bond
Proceeds), the Agency Agreement, the Indenture, the Mortgage Loan Documents, the
Remarketing Agreement, the preliminary and final official statements regarding
-7-
<PAGE>
the Bonds, the Environmental Indemnity Agreement, and all other certificates,
documents or agreements arising from or related to the Bonds or executed in
connection herewith or therewith.
"Remarketing Agent" means initially, U.S. Bank of Washington, National
Association, and its successors under the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement dated as of July 1,
1997 among the Borrower, the Trustee and the Remarketing Agent providing for the
remarketing of the Bonds as supplemented or amended from time to time.
"Requirement of Law" means, with respect to any Person, the articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule, guideline, standard
(including but not limited to accounting standards and GAAP), order,
restriction, directive, judgment, decree, injunction, writ, or regulation, or a
final and binding determination of an arbitrator or a determination of an
arbitrator, mediator, or a determination of any Governmental Body, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject. With respect to Bank,
Requirement of Law shall include a Requirement of Law now or hereafter existing,
and a request of a central bank or financial, monetary or other supervisory
authority (whether or not having the force of law).
"Subsidiary" or "Subsidiaries" means any corporation of which at least 50%
of the outstanding stock having ordinary voting powers to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Borrower and/or one or more of
its Subsidiaries.
"Supplemental Indenture" means indentures now or hereafter supplementing
the Indenture.
"Tangible Net Worth" means the difference between total assets and total
liabilities (including in liabilities accrued and deferred income Taxes, and
subordinated Indebtedness), excluding, however, from the determination of total
---------
assets (a) all assets which should be classified as intangible assets (such as
goodwill, patents, trademarks, copyrights, franchises, and deferred charges,
including unamortized debt discount and research and development costs, deferred
charges and other like intangibles), (b) treasury stock, (c) cash held in a
sinking or other similar fund established for the purpose of redemption or other
retirement of capital stock, (d) to the extent not already deducted from total
assets, reserves for depreciation, depletion, obsolescence, or amortization of
properties and other reserves or appropriations of retained earnings which have
been or should be established in connection with the Borrower's business, and
(e) any revaluation or other write-up in book value of assets subsequent to the
fiscal year of Borrower last ended at the date Tangible Net Worth is being
measured.
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<PAGE>
"Taxes" means for any Person any federal or state tax, assessment, duty,
levy, withholding liability, impost and other charges of every nature whatsoever
imposed by any Governmental Body on such Person or on any of its property or
because of any revenue, income, sales, use, product, employee or franchise, and
any interest or penalty with respect to any of the foregoing.
"Termination Date" means the date on which the Letter of Credit expires
according to its terms.
"Total Funded Debt" means all obligations created, issued or incurred by
Borrower for borrowed money (whether by loan, the issuance and sale of debt
securities or the sale of Property to another Person subject to an understanding
or agreement, contingent or otherwise, to repurchase such Property from such
Person) excluding any amounts or obligations which are non-recourse debt.
"Trustee" means First Security Bank, N.A. or any duly authorized successor
thereto appointed pursuant to the Indenture.
ARTICLE II
ISSUANCE OF LETTER OF CREDIT
SECTION 2.01. Issuance of the Letter of Credit. The Bank agrees, on
--------------------------------
the terms and subject to the conditions set forth in this Agreement, to issue to
Trustee on the Date of Issuance and upon the request of the Borrower, a Letter
of Credit in substantially the form of Exhibit A to this Agreement, which
exhibit and Annexes A through G thereto are incorporated herein by this
reference. The Stated Amount of the Letter of Credit shall never exceed
$7,494,987.00, a portion of which Stated Amount shall be available to support
the payment of principal due on Bonds ("Principal Component") and a portion of
which shall be available to support the payment of not more than sixty (60) days
of interest on the Bonds, which calculation shall utilize an interest rate of
twelve percent (12%) per annum all as calculated on the basis of a year of
365/366 days on the Bonds ("Interest Component"). Upon the Date of Issuance,
the Principal Component shall be, and shall thereafter never exceed, $7,350,000.
Upon the Date of Issuance, the Interest Component shall be, and shall thereafter
never exceed $144,987.00.
The Borrower hereby agrees to all terms and conditions set forth in the
Letter of Credit, including Annexes A through G thereto, all of which terms and
conditions are incorporated herein by this reference.
The Borrower acknowledges:
(a) that upon any drawing under the Letter of Credit for payment of all or
a portion of Bonds outstanding under the Indenture at maturity or earlier
redemption, the Trustee is required to deliver to the Bank Annex B to the Letter
of Credit and, upon a drawing for all remaining Bonds, must also deliver Annex B
and surrender the Letter of Credit therewith; and
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<PAGE>
(b) that upon any replacement of the Letter of Credit with an Alternate
Letter of Credit, the Trustee must promptly deliver Annex G to the Letter of
Credit to the Bank and surrender the Letter of Credit therewith.
If the Trustee does not take these actions when required, the Borrower
agrees to direct and to use its best efforts to cause the Trustee to take said
actions.
SECTION 2.02. Termination of Letter of Credit; Alternate Credit; Extension.
------------------------------------------------------------
Notwithstanding the fact that the Bonds will not mature until a later date,
the Letter of Credit shall terminate on July 31, 2004 unless earlier terminated
or unless it is extended. The Borrower shall not have the right to replace or
otherwise terminate the Letter of Credit unless (i) there are no Pledged Bonds
outstanding or (ii) the Alternate Letter of Credit provides to the satisfaction
of the Bank that, on the issuance thereof, all Pledged Bonds may be put for
purchase from moneys drawn under the Alternate Letter of Credit at a price equal
to the then aggregate principal amount of such Pledged Bonds plus accrued but
unpaid interest thereon.
Upon the written request of the Borrower after the fifth anniversary of the
Date of Issuance, and provided Borrower is not in default under this Agreement
or any of the Related Documents, the Bank shall extend the Termination Date of
the Letter of Credit for a period of three (3) additional years, either by
amendment of the Letter of Credit or replacement of the Letter of Credit. The
Bank will notify the Trustee and the Borrower within thirty (30) days following
receipt of such notice whether the conditions set forth in this Reimbursement
Agreement have been met for renewal of the Letter of Credit for an additional
three (3) year period. The Bank shall, within 15 days of payment by the
Borrower to the Bank of all fees payable pursuant to Article IV hereof (if such
payment be made no later than 30 days before the Termination Date), deliver to
the Trustee an amendment to the Letter of Credit, which amendment shall extend
the Termination Date for the three (3) year period or deliver a replacement
Letter of Credit, which replacement shall be for a term equal to the three (3)
year period. The amended or replacement Letter of Credit shall not be effective
until the Termination Date of the Letter of Credit being amended or replaced.
The Borrower agrees and acknowledges that this agreement of the Bank to
extend or renew the term of the Letter of Credit (as set forth in this Section
2.02), does not and shall not constitute an express or implied commitment or
other promise of any nature whatsoever by the Bank to extend credit at any
future date, even if, for example, the then financial condition of the Borrower
equals or exceeds its current financial condition or even though the Letter of
Credit will expire before the Bonds mature if the Bank determines not to renew
or extend the Letter of Credit.
If the Letter of Credit is extended for an additional three (3) year period
pursuant to this Section 2.02, this Agreement and each Related Document (or such
substitute documents to which the Bank may in its sole discretion, accept in
writing) shall continue and be effective for said extension or renewal period(s)
until all sums of every nature whatsoever due or to become due the Bank have
been paid in full.
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<PAGE>
SECTION 2.03. Increase or Reduction of Stated Amount and Reinstatement.
--------------------------------------------------------
The Stated Amount of the Letter of Credit shall be decreased and reinstated
according to the terms of the Letter of Credit.
ARTICLE III
REIMBURSEMENT OBLIGATION AND INTEREST
SECTION 3.01. Reimbursement Obligations. Any sums drawn under the Letter
-------------------------
of Credit and paid by the Bank shall constitute value requested by and given to
or for the benefit of the Borrower and shall be an unconditional, absolute and
irrevocable obligation hereunder of the Borrower to the Bank. The Borrower
hereby promises to pay the principal and interest on the Bonds by reimbursing
the Bank for the full amount of any drawings under the Letter of Credit
notwithstanding any cancellation or payment of Bonds. The Borrower further
promises to repay to Bank the full amount of any drawing under the Letter of
Credit, and to pay all sums due or to become due hereunder, in the manner and at
the times provided in this Agreement (collectively, "Reimbursement
Obligations").
SECTION 3.02. Reimbursement and Loans.
-----------------------
(a) Reimbursement of A and B Drawings. The Borrower agrees to
---------------------------------
reimburse the Bank in immediately available funds for the amount of any A or B
Drawing made under the Letter of Credit by 2:00 p.m. local time in Seattle,
Washington on or before the date any such drawing is honored by the Bank. The
Borrower's reimbursement obligation with respect to such A or B drawing shall be
immediately due and payable without notice, presentment, demand, protest, or
other notice of any kind, all of which are hereby waived by the Borrower.
(b) Reimbursement of C Drawings. The Borrower agrees to reimburse the
---------------------------
Bank in immediately available funds, an amount equal to all C Drawings under the
Letter of Credit as follows: On the first day of the first month following each
C Drawing, interest shall be payable on the outstanding unreimbursed amount of
such C Drawing from the date such drawing was honored by Bank until the end of
the first month following such C Drawing at the Prime Rate, together with the
amount of any Debt Service payments required under Section 7.01(Y) of this
Agreement, if any. Commencing with the first day of the second month following
each such C Drawing and on the first day of each and every month thereafter,
interest shall be payable on the outstanding unreimbursed amount of such C
Drawing from the first day of the second month following such C Drawing until
payment (including prepayment) in full thereof, at the Prime Rate plus one
percent (1%) per annum, together with the amount of the Debt Service payments
required under Section 7.01(Y) of this Agreement, if any; provided, however,
that the full amount of all C Drawings shall be paid upon the earlier of (i) the
first day of the 13th month following the date of such C Drawing or (ii) the
Termination Date. The Borrower may prepay any Reimbursement Obligations under
this Section 3.02 in full or in part at any time without premium or penalty.
(c) Acceleration. If at any time that a loan is outstanding under
------------
Section 3.02(b), a drawing on the Letter of Credit is made because of or in
connection with: a
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<PAGE>
default under the Indenture; notice is received by the Trustee from the Bank in
the form of Annex D to the Letter of Credit as a result of the occurrence of an
Event of Default under the Reimbursement Agreement and the period stated therein
regarding expiration of the Letter of Credit has expired; the Letter of Credit
expires for any other reason; or there is an Event of Default hereunder, then
the full amount of principal due or to become due under Section 3.02(b), the
full amount of all interest accrued thereon, and any other sum due or to become
due under this Agreement shall be immediately due and payable without notice to
the Borrower, presentment, protest or other notice of any kind, all of which are
hereby waived by the Borrower, and the Borrower shall repay all of the aforesaid
amounts in full on the date of such acceleration. If at any time a loan is
outstanding under Section 3.02(b), any Bonds which were the subject of the
drawing creating the loan are redeemed or otherwise paid or defeased, then the
full amount of principal, interest and premium due or to become due under
Sections 3.02(a) and (b) with respect to the portion of the loan which
corresponds to such Bonds, shall be immediately due and payable without notice
to the Borrower, presentment, protest or other notice of any kind, all of which
are hereby waived by the Borrower, and the Borrower shall repay such amounts in
full on the date of such redemption, payment or defeasance.
(d) Prepayment. The obligation to pay any amount due under Section
----------
3.02(b) may be prepaid in full or in part at any time without premium or
penalty. Any partial prepayment, or any interest paid to the Bank on the Pledged
Bonds, shall be applied to the Borrower's obligations to the Bank in the inverse
order of maturity and shall first be applied to fees or other charges, then to
interest and then to principal, in the sole discretion of the Bank.
(e) Prior Deposit for Optional or Extraordinary Redemption or
---------------------------------------------------------
Purchase. If the Borrower determines to exercise its option to cause the
- --------
redemption of any or all of the Bonds pursuant to Section 6.02(b)(i) of the
Indenture, the Borrower shall deposit with the Bank all sums necessary to effect
any such redemption or purchase and to pay any premium in connection therewith,
at least 125 days before the date of any drawing for the proposed redemption or
purchase; provided, however, that no such deposit shall be required with respect
to optional redemption of Bonds made from Mandatory Sinking Fund payments
required under Section 7.01(Y) of this Agreement. No drawing shall be allowed
under the Letter of Credit for such redemption unless such deposit is timely
made. Such sums shall include the principal amount of all Bonds to be redeemed
(including, but not limited to all amounts necessary to purchase any Pledged
Bonds), the full amount of any premium due or to be come due thereon, and all
interest accrued thereon at the assumed rate of twelve percent (12%) per annum
based on a year of 365/366 days.
The Borrower agrees that so long as no Event of Default has occurred and is
continuing, it will redeem or purchase all Pledged Bonds before any other Bonds
and before defeasance of any Bonds pursuant to Article XII of the Indenture, and
that such redemption or purchase, together with the full amount of any premium
due upon optional or extraordinary redemption or purchase of Pledged Bonds shall
be made from funds of the Borrower and not from drawings on the Letter of
Credit.
-12-
<PAGE>
So long as no Event of Default has occurred and is continuing under this
Agreement or any Related Document, any monies held by the Bank pursuant to the
first paragraph of this Section 3.02(e) shall be invested by the Bank in such
interest bearing investment obligations which qualify as Permitted Investments
under the Indenture as may be directed by the Borrower from time to time;
failing such direction, the Bank shall have sole discretion to determine all
investments, if any; provided, however, that all such investments shall be
Permitted Investments as defined in the Indenture. The Borrower agrees to
indemnify and hold the Bank harmless from and against any responsibility or
liability for any loss incurred in the making of any investment at the express
direction of the Borrower as provided herein or upon written directions received
from the Borrower, other than as a result of the Bank's negligence or willful
misconduct. All interest received on said investments shall be credited by the
Bank to any sums due or to become due Bank by Borrower.
SECTION 3.03. Manner, Method, Place and Time of Payment. All payments
-----------------------------------------
made or caused to be made by the Borrower to the Bank shall be made in lawful
currency of the United States and in immediately available funds to Bank at
Seattle, Washington. Any payment received after 2:00 p.m. local time in Seattle,
Washington, shall be deemed to have been received on the next Business Day, and
the date for payment thereof shall be extended to the next succeeding Business
Day. However, the Borrower shall pay to Bank, on demand, default interest on
said payment for such extended time at the interest rate set forth in Section
4.06 hereof, and the extended time shall be included in the computation of fees
and other charges. All payments under this Agreement shall be made without
counterclaim, set-off, condition or qualification and free and clear of and
without deduction for any Taxes, levies, imposts, deductions or charges of any
nature whatsoever.
SECTION 3.04. Obligation to Pay Unconditional. The Borrower's obligation
-------------------------------
to reimburse or pay the Bank hereunder is absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including without limitation the
following circumstances:
(i) any lack of validity or enforceability of this Agreement, the Bonds
or any of the Related Documents;
(ii) any amendment, waiver, release or termination of or any consent to
or departure from the terms of the Bonds or any of the Related Documents which
is not consented to by Bank;
(iii) the existence of any claim, set-off, defense or other right which
the Borrower may have at any time against any Person, whether in connection with
said documents or any related or unrelated transaction;
(iv) any demand, statement or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or not in compliance with the terms of the Letter of Credit or any
Related Document or any statement therein being untrue or inaccurate in any
respect whatsoever;
-13-
<PAGE>
(v) any determination of invalidity or unenforceability of the Letter
of Credit after payment by the Bank thereunder;
(vi) any failure to reduce or reinstate the Stated Amount; or
(vii) any other circumstance, happening or omission, whether or not
similar to any of the foregoing.
The liability of the Borrower hereunder and under any Related Document shall be
reinstated and revived and the rights of Bank shall continue, with respect to
any amount at any time paid by or on behalf of the Borrower which amount shall
thereafter be required to be restored, returned or forfeited by the Bank
pursuant to any law, and the Borrower's liability therefor shall continue as if
such amount had not been paid.
SECTION 3.05. Evidence of Debt. The books and records of the Bank shall
----------------
be conclusive evidence, absent manifest error, of all amounts of principal,
interest, fees and other charges advanced, outstanding or repaid pursuant to
this Agreement or any Related Document to which the Bank is a party. The Bank
agrees to provide Borrower periodic statements of amounts advanced, outstanding
or repaid under this Agreement or any Related Documents and shall also provide
statements to the Borrower upon its written request.
ARTICLE IV
OTHER PAYMENTS
SECTION 4.01. Letter of Credit Issuance Fee. The Borrower shall pay to
-----------------------------
the Bank on or prior to the Date of Issuance, an issuance fee equal to one and
one-half percent (1.50%) of SEVEN MILLION FOUR HUNDRED NINETY FOUR THOUSAND NINE
HUNDRED EIGHTY SEVEN AND NO/100 DOLLARS ($7,494,987.00) or $112,425.00. The
issuance fee and all other fees of any letter of credit amended, extended,
replaced or renewed pursuant to Section 2.02 hereof shall be established by the
Bank in its sole discretion at the time of such amendment, extension,
replacement or renewal. In the event Borrower requests an extension of the
Letter of Credit pursuant to Section 2.02 which the Bank is willing to grant,
but Borrower objects to such fees, Borrower shall have the right to withdraw,
without cost or penalty the request for such amendment, extension, replacement
or renewal. Such fees shall at least include the category of fees referenced in
this Article IV (in amounts which may be less than, equal to or exceed the
amounts referenced herein) and such additional fees as the Bank then deems
appropriate in its sole discretion. The foregoing fee and all other fees in this
Article IV are or are deemed to be fully earned and nonrefundable.
SECTION 4.02. Letter of Credit Annual Fee. The Borrower hereby agrees to
---------------------------
pay the Bank an annual fee which shall equal one and one-fifth percent (1.20%)
of the Stated Amount as of each anniversary date following the Date of Issuance
times 365/360 or 1.0139% (which amount shall be calculated by the Bank) until
the Termination Date. The annual fee for the first year shall be payable in
advance commencing on the Date of Issuance. Thereafter the annual fee
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<PAGE>
shall be payable in advance on the first day of each July commencing July 1,
1998 and each July 1st thereafter until the Termination Date.
SECTION 4.03. Other Fees.
----------
(a) Transfer Fee and Amendments. The Bank agrees to issue a substitute
---------------------------
Letter of Credit to any successor Trustee duly appointed pursuant to the
Indenture and applicable law upon surrender to the Bank of the original Letter
of Credit together with payment to the Bank of the fee then established by the
Bank's Letter of Credit Department together with any attorneys' fees or other
expenses incurred by the Bank in connection therewith. The Bank's current
transfer fee is $500.00. The Borrower agrees to pay the fees and expenses to the
Bank on the day of any amendment or replacement to the Letter of Credit if to
effectuate said amendment, a written change is made to the Letter of Credit or
an amended, substitute, replacement or additional Letter of Credit is issued. As
used herein, "amendment" shall not include any documents the Bank determines to
issue to reflect a reduction of the Stated Amount but shall include each
reinstatement (other than an automatic reinstatement) of any portion of the
Stated Amount. In the event the Bank elects to extend the Letter of Credit
pursuant to the provisions of Section 2.02 hereof the Borrower shall pay Bank an
extension fee in an amount determined by Bank.
(b) Draw Fee. Upon each draw under the Letter of Credit, the Borrower
--------
agrees to pay the Bank on demand, a draw fee in the amount then established by
the Bank's Letter of Credit Department. The initial draw fee for draws made
under the Letter of Credit during 1997 is $100.
(c) Cancellation Fee. If the Letter of Credit is canceled, or if the
----------------
Letter of Credit is substituted with an Alternate Letter of Credit prior to the
Expiration Date, the Borrower agrees to pay the Bank a cancellation fee of one-
tenth of one percent (.10%) of the then Stated Amount of the Letter of Credit,
and shall cause the Trustee to tender to the Bank the fee with the original
Letter of Credit then outstanding; provided, however, that no such cancellation
fee is payable from and after the fourth anniversary of the Date of Issuance or
if the Letter of Credit is cancelled or is substituted with an Alternate Letter
of Credit because the Bank has defaulted under the Letter of Credit, the Letter
of Credit is unenforceable or the short-term deposit rating of the Bank is
reduced below A-2 by Standard & Poor's. No cancellation shall be effective to
discharge or reduce the liability of the Borrower to pay the annual fee payable
pursuant to Section 4.02 hereof for the year in which such cancellation occurs
or to pay all other sums due the Bank under this Agreement or any Related
Document. Until such sums are fully paid to the Bank, no such cancellation shall
diminish or affect any security or other interest granted to or for the benefit
of the Bank.
SECTION 4.04. Increased Costs. If any law or regulation or if the
---------------
adoption of or any change in any law, regulation, guideline or request from any
central bank or financial, monetary or other supervisory or governmental
authority (whether or not having the force of law), or in the interpretation
thereof by any court or administrative or governmental body charged with the
administration thereof, shall impose on the Bank any condition affecting or
relating to this Agreement, to any Related Document evidencing an obligation of
the Borrower to the Bank, or to the Letter of Credit, the result of which shall
be to reduce the rate of return on the Letter of Credit
-15-
<PAGE>
or this Agreement to a level below which the Bank could have achieved but for
such law or regulation or shall increase the cost to the Bank of issuing or
maintaining the Letter of Credit (or any substitute, additional, renewed or
amended Letter of Credit) or of funding amounts drawn thereunder, including but
not limited to any law, regulation or change which shall (a) impose, modify or
deem applicable any capital adequacy requirement, reserve, special deposit or
similar requirement or impose any insurance premium or assessment against
letters of credit issued by, or assets held by the Bank, or (b) require or make
advisable (in the opinion of legal counsel to the Bank), qualification,
registration, filing or any other act by the Bank to avoid violation of or to
effect compliance with any law or regulation (or judicial, administrative or
regulatory decision, interpretation, opinion, order, agreement, directive or
request regarding same) relating to underwriting, selling, distribution of,
marketing or dealing in securities; or (c) subject the Bank to any Tax, charge,
fee, deduction or withholding of any kind whatsoever, then, upon demand
therefor, the Borrower shall pay to the Bank additional amounts which shall be
sufficient to compensate the Bank for such reduction in the rate of return or
increased cost, together with interest on each such amount from the date said
amount is due until payment in full thereof at the Prime Rate. The amount of any
reduction in the rate of return or increase in cost shall be the result of the
Bank's good faith discretionary allocation of the aggregate of such reduction or
cost increases resulting from such events; the Bank shall in connection with its
demand for such additional amounts furnish to the Borrower a certificate setting
forth with reasonable explanation such increased cost incurred by the Bank;
absent manifest error, said certificate shall be conclusive as to the amount
thereof. The Bank shall use its best efforts to promptly demand payment pursuant
to this Section 4.04. Notwithstanding anything in this Section 4.04 to the
contrary, the Borrower is not obligated to pay the Bank any additional amounts
resulting from an increase in federal income tax rates or state business and
occupation tax rates of general application to all taxpayers.
SECTION 4.05. Payment of Expenses and Fees; Applicability.
-------------------------------------------
(a) Upon demand therefor, the Borrower agrees to pay to the Bank all
of its out-of-pocket or incurred costs, reasonable attorneys' fees, fees of
collection or other agents, and other fees and expenses of every nature
whatsoever (hereinafter, collectively "Costs and Fees") directly or indirectly
incurred in connection with the development, review, execution, amendment,
renewal, extension, forbearance (if any), refinance, renegotiation or
restructure of this Agreement or any Related Document and any other document
prepared or service performed in connection herewith or therewith; the Borrower
shall also pay the fees charged from time to time by rating agencies for any
rating or "preference opinion," if any, regarding the Bonds (but not regarding
any general rating of the Bank not related to the Bonds). Upon demand therefor,
the Borrower further agrees to pay to the Bank all Costs and Fees (whether or
not a lawsuit is brought) incurred in collecting any sums due the Bank by the
Borrower or incurred by Bank in protecting, enforcing or preserving its rights
under this Agreement or any of the Related Documents, all whether or not suit is
brought and including but not limited to all Costs and Fees incurred in any
court action, arbitration, mediation, on appeal, in any bankruptcy or state
receivership or other insolvency or similar proceedings or circumstances, in any
forfeiture or other proceeding that could affect the Bank's rights under this
Agreement or in any security therefor.
-16-
<PAGE>
(b) The obligations of the Borrower under Section 4.04 and Section
4.05 of this Agreement shall (i) survive until all sums due Bank under this
Agreement or any Related Document have been paid in full, notwithstanding any
termination of the Letter of Credit or payment of the Bonds; and (ii) include
any reduction in the rate of return, increased costs, and Costs and Fees
incurred by any Participant.
SECTION 4.06. Calculations; Default Interest; Compounded Interest.
---------------------------------------------------
Except as otherwise expressly set forth in this Agreement, all computations of
interest and fees under this Agreement shall be made on the basis of a 360 day
year and actual days elapsed. Interest shall accrue during each period from but
excluding the first day thereof to and including the last day thereof. In the
event that any payment due hereunder shall not be made within fifteen (15) days
of the date when due, a late charge of five cents ($.05) for each dollar ($1.00)
so overdue (the "Late Charge Fee") may be charged by Bank for the purpose of
defraying the expense incident to handling such delinquent payments. Such Late
Charge Fee represents the reasonable estimate of Bank and Borrower of a fair
average compensation for the loss that will be sustained by Bank due to the
failure of Borrower to make timely payments. Such Late Charge Fee shall be paid
without prejudice to the right of Bank to collect any other amounts provided to
be paid or to declare an Event of Default hereunder or under the Deed of Trust.
If an Event of Default occurs, then the interest rate applicable in calculating
any defaulted payments from the due date of the defaulted payment shall be the
Default Rate and the Late Charge Fee shall apply to any such payments. All
amounts that are not paid when due under this Agreement shall bear interest at
the Prime Rate plus two percent (2%) per annum (the "Default Rate"), from the
time due until paid. All interest not paid when due shall be added to principal
and interest shall thereafter accrue on said increased principal amount. All
amounts due hereunder shall be paid in United States dollars.
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions Precedent to Issuance of Letter of Credit.
----------------------------------------------------
(a) The Bank will issue the Letter of Credit upon the request of the
Borrower in accordance with Section 2.01 and subject to fulfillment of the
conditions set forth in subsections (b), (c) and (d) below.
(b) The Bank shall have received on or before the Date of Issuance
the following, each addressed to the Bank and dated on or as of such date, in
form and substance satisfactory to the Bank:
(i) copies of (a) the current Articles of Incorporation of the
Borrower certified by the Secretary of State of the state of Nevada, (b) bylaws
of the Borrower certified by the Borrower as true and correct; and (c)
Certificate of Registration of Borrower as a foreign corporation authorized to
transact business in the State of Idaho, certified by the Secretary of
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<PAGE>
State of Idaho, copies of each document as amended to the date of certification,
which copies shall have been delivered to Bank's counsel at least one week prior
to Closing;
(ii) evidence satisfactory to the Bank of the adoption by
the Borrower and the Issuer of each Related Document to which either is a party
and of this Agreement;
(iii) an opinion of bond counsel in form and substance
satisfactory to the Bank and covering such matters relating to the transactions
contemplated by this Agreement and the Related Documents as the Bank may
reasonably request;
(iv) an opinion of independent counsel selected by the
Borrower (subject to Bank's reasonable approval) in form and substance
satisfactory to the Bank and covering such matters relating to the transactions
contemplated by this Agreement and the Related Documents as the Bank may
reasonably request. The Borrower hereby requests and instructs its independent
counsel to issue such an opinion;
(v) a certificate of the Secretary of the Borrower,
certifying (a) the name and true signature of the officers of the Borrower
authorized to enter into and execute this Agreement and the Related Documents on
behalf of the Borrower; (b) that the documents delivered pursuant to Section
5.01(b)(i) have not been amended or canceled since the date of certification
thereunder; and (c) the certificate described in paragraph (c) below;
(vi) the amounts specified to be paid on the Date of
Issuance pursuant to Sections 4.01 and 4.02, establishment of the account
contemplated by Section 7.01(Y) and proof of insurance required hereunder or
under any Related Documents;
(vii) application for the Letter of Credit;
(viii) copies of all agreements (including but not limited to
each Related Document) and documents, including records of corporate
proceedings, governmental approvals and incumbency certificates executed in
connection with the transactions contemplated by this Agreement and the Related
Documents, all certified to the extent requested by the Bank;
(ix) Environmental Questionnaire and environmental reports
for each of the real properties constituting the Project satisfactory to Bank;
(x) ADA Questionnaire and Disclosure Statement and ADA
Certificate of Compliance for each of the real properties constituting the
Project satisfactory to Bank;
(xi) A copy of Borrower's most recent Form 10-K and 10-Q as
filed with the Securities and Exchange Commission;
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<PAGE>
(xii) A soils investigation report for each of the real
properties constituting the Project from a soils engineer in form and substance
satisfactory to Bank if requested by Bank;
(xiii) Evidence acceptable to Bank that all utility services
necessary for the uninterrupted and orderly operation of each of the real
properties constituting the Project (other than Garden City) is available to the
boundaries thereof. All connections have been made to abutting public water,
sewer, storm drains, gas and electrical facilities;
(xiv) Evidence acceptable to Bank that each of the real
properties constituting the Project (other than Garden City) is accessible via
completed, dedicated streets which have been accepted for public maintenance and
use by the appropriate City and/or County, depending on each location, or that
an easement creating a perpetual right of public access to a publicly dedicated
street, road or highway is in effect;
(xv) If requested by Bank, an ALTA survey for each of the
real properties constituting the Project (other than Garden City) certified to
and satisfactory to Bank and the title insurance company that will be insuring
the Deed of Trust for each of the real properties constituting the Project;
(xvi) Budgets for each of the real properties constituting
the Project (other than Garden City) (including certified final cost breakdown)
satisfactory to Bank;
(xvii) Final unconditional certificates of occupancy for each
of the real properties constituting the Project (other than Garden City);
(xviii) All licenses, permits and approvals necessary to own
and operate each of the real properties constituting the Project (other than
Garden City) from all governmental authorities with jurisdiction over the
Project;
(xix) each of the documents required to be delivered to the
underwriters pursuant to the Bond Purchase Agreement between the Issuer and the
underwriters regarding the Bonds;
(xx) such other documents, interpretations, instruments,
approvals or opinions as the Bank or its counsel may reasonably request.
(c) The representations and warranties of Borrower contained in
Section 6.01 hereof and in each Related Document shall be correct, accurate and
complete on and as of the Date of Issuance as though made on and as of such date
and no Event of Default and no condition or event which, with the giving of
notice or lapse of time or both, would become such an Event of Default, shall
have occurred and be continuing on the Date of Issuance and the Bank shall have
received a certificate signed by an authorized official of the Borrower, dated
the Date of Issuance, to that effect. As used in this paragraph, "Date of
Issuance" shall include any date the Letter of Credit is amended, extended or a
Substitute Letter of Credit is issued.
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<PAGE>
(d) On or before the Date of Issuance:
(i) all conditions precedent to the issuance of the Bonds shall
have occurred; and
(ii) the Borrower (and all other parties, as appropriate) shall
have duly executed, issued and delivered the Bonds, this Agreement, the Related
Documents and all other documents or instruments referred to, required by or
related to the aforesaid.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.01. Representations, Warranties and Covenants of Borrower.
-----------------------------------------------------
The warranties, representations, and covenants of Borrower contained in this
Agreement or in any Related Document shall be deemed to have been relied upon by
Bank regardless of any investigation made by Bank or on its behalf and shall be
true and correct on the Date of Issuance and on the date of each disbursement of
Bond proceeds out of the Mortgage Loan Fund held by the Trustee. The Borrower
hereby represents, warrants, covenants and agrees with the Bank that:
6.01(A) Organization and Standing. Borrower is a corporation
-------------------------
duly organized, validly existing and in good standing under the laws of the
state of Nevada and has the power to own and operate each of the real properties
constituting the Project and carry on its business as now being conducted; is
authorized to do business in every state, county, city or other jurisdiction in
which the nature of the Project, its business or property makes such
qualification necessary including, but not limited to, the State of Idaho; the
name "Assisted Living Concepts, Inc." is the exact, true and correct name of
Borrower as set forth in its Articles of Incorporation, as amended from time to
time; Borrower has filed with the Idaho Secretary of State a Certificate of
Trade Name for all business or assumed trade names under which Borrower has
done, does or may do business, except to the extent no such filing is required
by law. The Borrower is the successor by merger to CCL Sub, Inc., a wholly owned
subsidiary of Concepts in Community Living, Inc. Certain of the facilities
presently owned by the Borrower were purchased by the Borrower from Madras Elder
Care, Lincoln Community Partners and Assisted Living Concepts Group, entities
which are or were Affiliates of the Borrower or its president and chief
executive officer, Keren Brown Wilson. The Borrower's chief executive office and
principal place of business is Portland, Oregon. Except as set forth above, the
Borrower has not changed its name or changed its principal place of business and
chief executive officer within five years and one month prior to the date
hereof.
6.01(B) Corporate Authorization. All corporate action on the
-----------------------
part of Borrower, its officers, directors or shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and each
Related Document to which it is a party has been duly taken. Borrower has full
power and authority (corporate or otherwise) to execute, deliver and perform
this Agreement and each Related Document to which Borrower is a party, and to
perform and observe the terms and conditions hereof and thereof.
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<PAGE>
6.01(C) Enforceability. This Agreement and the Related Documents,
--------------
when executed and delivered by the Borrower, will be the legal, valid and
binding agreements of the Borrower, enforceable in accordance with their
respective terms, except to the extent that the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the rights of creditors generally.
6.01(D) Consents or Approvals. No consent, approval, permission,
---------------------
authorization, or license of any Person with a ownership interest in Borrower or
with a Lien on any asset of Borrower, or of any trustee, issuer or holder of any
Indebtedness or Contractual Obligation of Borrower, and no consent, approval,
permission, authorization, order or license of any Governmental Body is
necessary in connection with the execution, delivery and performance of any
Related Documents to which Borrower is a party or any transaction contemplated
hereby or thereby to be performed by Borrower, except as may have already been
obtained by Borrower and copies certified as to accuracy by Borrower which have
been delivered to Bank on or prior to the Date of Issuance.
6.01(E) Restrictions. There is no provision in the articles of
------------
incorporation or bylaws of Borrower or any Requirement of Law binding on
Borrower which would be contravened by the execution and delivery of this
Agreement or any Related Documents to which Borrower is a party or by the
performance of any provision, condition, covenant, or other terms hereof or
thereof.
6.01(F) Litigation. Other than as disclosed in Exhibit E hereto or
----------
in the financial statements referenced in Section 6.02(H), there is no pending
or threatened litigation, Tax claim, action or other proceeding or dispute of
any nature whatsoever affecting the Borrower before any Governmental Body, which
could have a Material Adverse Effect on the legal existence or powers of the
Borrower or its financial condition or operations or have a Material Adverse
Effect on the ability of Borrower to perform its obligations under the
Reimbursement Agreement and any Related Documents, and Borrower is not in
default with respect to any Requirement of Law that might result in any such
effect.
6.01(G) No Violation. To the best of Borrower's knowledge, the
------------
Borrower is in compliance with all Requirements of Law with respect to which any
failure to comply could have a Material Adverse Effect. The execution, delivery
or performance of this Agreement and each Related Document, the consummation of
the transactions contemplated herein and therein and compliance with the terms
and provisions hereof or thereof to be performed by the Borrower does not and
will not conflict with or result in a breach of any of the terms, conditions or
provisions of the articles of incorporation or bylaws of the Borrower or, to the
best of Borrower's knowledge, of any Requirement of Law or of any Contractual
Obligation or constitute a default thereunder or result in the creation or
imposition of any Lien (except in favor of Bank) upon any of the property of the
Borrower pursuant to the terms of any such Contractual Obligation or Requirement
of Law. Borrower is not in default under any existing Indebtedness.
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<PAGE>
6.01(H) Financial Information. All financial statements and other
---------------------
information and data furnished by the Borrower to Bank are complete and correct;
have been prepared in accordance with GAAP, except as noted therein; and
accurately and fairly represent the financial condition of Borrower and the
results of operations of the Borrower as of such dates. There has been no change
in the financial condition of Borrower or results of operation of any of the
real properties constituting the Project since the date of the audited financial
statements of Borrower dated December 31, 1996 and Form 10-Q of Borrower dated
March 31, 1997, of such a character as to materially impair the ability of the
Borrower to reimburse the Bank for any drawing made under the Letter of Credit
in accordance with the terms hereof or thereof; and the Borrower has no
Contingent Obligations except as may be disclosed from time to time in
Borrower's most recent Form 10-K and Form 10-Q filed by the Borrower with the
Securities and Exchange Commission, except for the obligations hereunder and
under any Related Document of the Borrower.
6.01(I) Liens and Encumbrances. Borrower represents and warrants
----------------------
that at the time of the delivery of each Deed of Trust or amendment thereto (i)
Borrower is lawfully possessed and is the lawful owner of fee simple title to
the applicable Project; (ii) such Project is free and clear of any deed of
trust, mortgage, lien, charge or encumbrance thereon or affecting the title
thereto, except (i) Liens regarding such Project which are shown on Schedule B
to the policy of title insurance Bank agrees in writing to accept, and (ii)
property tax liens for Taxes not yet delinquent by nonpayment.
6.01(J) Business Authorizations. To the best of Borrower's
-----------------------
knowledge, the Borrower possess all patents, patent rights or licenses,
trademarks, trademark rights, trade names or trade name rights and copyrights
required to conduct its business as now conducted without conflict with the
rights or privileges of others.
6.01(K) Taxes. The Borrower has filed or caused to be filed and will
-----
continue to file or timely cause to be filed, all Tax returns that are required
to be filed (except for extensions applied for and disclosed to the Bank), has
paid (or will cause to be paid) all Taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other Taxes, fees or other charges imposed on it or any of its property by any
Governmental Body (other than those the amount of which is currently being
contested in good faith and by appropriate proceedings and with respect to which
reserves in conformity with GAAP to which Bank has consented have been provided
on the books of the Borrower), and has fully satisfied or provided for all of
its sales and use tax, withholding tax and unemployment tax liabilities; and no
Tax liens have been filed and, to the knowledge of the Borrower, no claims are
being asserted with respect to any such taxes, fees or other charges.
6.01(L) Investment Company Act. The Borrower is not an "investment
----------------------
company" or a partnership "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
6.01(M) Federal Reserve Board ("FRB") Regulations. The Borrower is
-----------------------------------------
not engaged and will not engage, principally or as one of its important
activities, in the business of
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extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" within the respective meanings of such terms under FRB Regulation U. No
part of the proceeds of the Bonds will be used for "purchasing" or "carrying"
"margin stock" as so defined or for any purpose that violates, or would be
inconsistent with, the provisions of the regulations of the Federal Reserve
Board. If requested by Bank, Borrower will furnish to the Bank a statement in
conformity with the requirements of Federal Reserve Form U-1 referred to in
Regulation U to the foregoing effect. Further, the Borrower is and shall remain
in compliance with FRB Regulation B (12 C.F.R. Part 202) in connection with any
credit extended now or hereafter by the Borrower.
6.01(N) Incorporated Representations, Warranties and Covenants. The
------------------------------------------------------
Borrower hereby specifically makes to the Bank each and every representation,
warranty, and covenant made by the Borrower in the Mortgage Loan Documents, and
the Regulatory Agreement each of which representations, warranties and covenants
are incorporated herein by this reference (except to the extent any of the
aforesaid would contradict adversely to the Bank any representation, warranty or
covenant contained herein other than by incorporation). All warranties,
representations, and covenants made by the Borrower herein or in any certificate
or other document delivered by it or on its behalf pursuant to this Agreement
and each Related Document shall be deemed to have been relied upon by the Bank
and shall be true and correct on the Date of Issuance and on the date of each
disbursement of Bond proceeds out of the Mortgage Loan Fund held by Trustee.
6.01(O) Information Correct. No information, exhibit, or report
-------------------
furnished by Borrower to the Bank or any other Person in connection with this
Agreement or any of the Related Documents contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make the
statements contained therein not misleading. The Borrower has disclosed to the
Bank all information about the Borrower which would be of material interest to a
reasonably prudent lender. There is, to the best of the Borrower's knowledge,
no fact which would have a Material Adverse Effect on its business, prospects,
condition, affairs or operations of Borrower or any of its properties or assets
which has not been disclosed to the Bank in writing.
6.01(P) Compliance with ERISA. Borrower is in substantial compliance
---------------------
with ERISA and the Code as to each "Plan" as defined in Section 1.01 of this
Agreement.
As to each Plan maintained by Borrower:
(i) Such Plan has been maintained in substantial
compliance with all statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, applicable to such Plan.
(ii) No "reportable event," as such term is used in Section
4043 of ERISA, or "prohibited transaction," as such term is used in Section 406
of ERISA or Section 4975 of the Code, or "accumulated funding deficiency," as
such term is used in Section 412 or Section 4971 of the Code (whether or not
such accumulated funding deficiency has been waived), has heretofore occurred
with respect thereto.
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<PAGE>
(iii) Each such Plan designed to be a qualified plan since
its adoption and to date qualifies and has qualified under Section 401(a) of the
Code, and each trust, if any, established under each such Plan is exempt from
taxation pursuant to Section 501(a) of the Code.
(iv) Each such Plan has been administered and enforced
substantially in accordance with its terms, no dispute is pending or threatened
with respect thereto, and substantially all contributions due from employees
thereunder, if any, have been made.
(v) No condition exists that could constitute grounds for
termination of any such Plan.
Borrower has not incurred any material liability under Title IV of
ERISA (which remains unsatisfied as of the date hereof) arising in connection
with the complete or partial termination of, or complete or partial withdrawal
from, any Plan covered or previously covered by Title IV of ERISA; and no
condition exists or event has occurred which would be reasonably likely to
result in the imposition of any such liability upon Borrower nor has Borrower
been notified that any such Plan is in reorganization or is insolvent within the
meaning of sections 4241 and 4245 of ERISA, respectively.
For purposes of this Section 6.01(P) and as referenced in Sections
7.01(E) and (I) and 8.01(h), the term "Borrower" shall include Borrower and any
corporation, partnership, sole proprietorship or other entity if Borrower and
such other entity or entities are (i) corporations which are members of a
controlled group of corporations as defined in Section 414(b) of the Code, (ii)
trades or businesses (whether or not incorporated) which are under common
control as defined in Section 414(c) of the Code, (iii) members of an affiliated
service group as defined in Section 414(m) or 414(o) of the Code, or (iv) any
combination of the foregoing.
6.01(Q) Americans with Disabilities Act. Each of the real
-------------------------------
properties constituting the Project is and shall at all times be in compliance
with all applicable requirements of the Fair Housing Act of 1968 (as amended)
and the Americans with Disabilities Act of 1990, (as amended) (collectively,
"Acts") and the Borrower shall cause the Project to be continuously in
compliance with such Acts (as the same may be amended from time to time).
Borrower agrees to protect, defend, indemnify and hold Bank harmless from and
against any and all liability threatened against or suffered by Bank by reason
of a breach by Borrower of the foregoing representations and warranties. The
foregoing indemnity shall include the cost of all alterations to the Project
(including architectural, engineering, legal and accounting costs), all fines,
fees and penalties, and all legal and other expenses (including attorneys'
fees), incurred in connection with the Project being in violation of such Acts
and for the cost of collection of the sums due under the indemnity. The
obligations of Borrower under this Section 6.01(Q) shall survive payment in full
of Borrower's obligations under this Agreement, all Related Documents and
termination of the Letter of Credit, and in the event that the Bank shall become
the owner of the Project by foreclosure or deed in lieu of the foreclosure of
any deed of trust the obligations of the Borrower under this Section 6.01(Q)
shall survive such foreclosure or deed in lieu of foreclosure.
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<PAGE>
6.01(R) No Commissions. Borrower has not made any agreement or taken
--------------
any action that may have caused any Person to become entitled to a commission or
finder's fee as a result of or in connection with the issuance of the Letter of
Credit or any extension of credit by Bank, and in connection therewith, Borrower
agrees to indemnify the Bank and hold the Bank harmless from any and all fees,
costs (including attorney fees), and expenses arising out of any claims by
Persons relating to any such commission or fee.
6.01(S) Land Use and Zoning Compliance. Each of the real properties
------------------------------
constituting the Project is a legal use permitted outright under applicable
provisions of the applicable city or county zoning code. To the best of
Borrower's knowledge, each of the real properties constituting the Project
complies with all applicable subdivision and platting requirements and
constitutes one or more legal lots. To the best of Borrower's knowledge, each
of the real properties constituting the Project and their intended uses comply
fully with all environmental, air quality, zoning, planning, building, health,
safety, labor, discrimination, fire, traffic safety or other governmental rules,
laws, ordinances, statutes, codes and regulations applicable to the ownership,
use, occupancy and operation of the Project.
6.01(T) Permits. Any and all permits, licenses, certificates and
-------
approvals necessary to construct, own and operate each of the real properties
constituting the Project as an assisted living facility in compliance with all
Requirements of Law will be obtained prior to any disbursement of Bond proceeds
with respect to such Project. (except for the issuance of the Residential Care
Facility License by the State of Idaho Department of Health and Welfare for the
facility in Rexburg, Idaho which will occur after the Date of Issuance). Each
of the real properties constituting the Project has been constructed in
compliance with the Plans and Specifications, and complies in full with all
Requirements of Law. All streets, easements, utilities and related services
necessary for the use and operation of each of the real properties constituting
the Project for its intended purpose are available to each parcel of real
property constituting the Project.
6.01(U) Value of Collateral. If a reappraisal is required by any
-------------------
regulatory authority Bank shall have the right to cause said collateral to be
reappraised and the appraisal reviewed both at Borrower's expense.
6.01(V) Special Statutes. Borrower is eligible for reimbursement as
----------------
a health care provider under Idaho state law and the medical and private
insurance programs available in the counties in which any of the real property
constituting the Project are located.
ARTICLE VII
FURTHER COVENANTS
SECTION 7.01. Covenants. Until the Letter of Credit is no longer
---------
outstanding and until all sums of every nature whatsoever due or to become due
from Borrower hereunder or under the Related Documents are paid in full, the
Borrower hereby covenants and agrees that unless the Bank shall otherwise
consent in writing, the Borrower shall:
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<PAGE>
7.01(A) Use of Proceeds. To the extent within Borrower's control,
---------------
take all steps necessary to cause the proceeds of every drawing on the Letter of
Credit to be used solely for the purpose of the payment of principal of or
interest on the Bonds (as appropriate under the Indenture and in accordance with
the terms of the Letter of Credit). To the extent within Borrower's control,
take all steps necessary to cause the Bond proceeds to be used solely for the
purpose of payment of Issuance Costs of the Bonds and/or the costs of
acquisition of the Project which have been approved by Bond Counsel as eligible
for financing with tax-exempt Bonds.
7.01(B) Additional Acts. Upon demand by Bank, the Borrower will
---------------
execute and deliver all such instruments (including but not limited to Uniform
Commercial Code continuation statements) and perform all such other acts as the
Bank may reasonably request to carry out the transactions and establish or
preserve the first lien status and priority contemplated by this Agreement or
any Related Document. Borrower shall also furnish to Bank upon demand all
approvals of Governmental Bodies or other Persons as may be required from time
to time to perform its obligations under this Agreement and any Related
Documents or, to the extent such approvals have not yet been issued, use its
best efforts to obtain all necessary approvals.
7.01(C) Financial Statements and Reports. Deliver to Bank in form
--------------------------------
and detail reasonably satisfactory to Bank and, if Borrower now or hereafter has
Subsidiaries, prepared on a consolidated basis:
(i) Quarterly. As soon as reasonably possible and in any event
---------
within forty-five (45) days after the close of each quarter, the Form 10-Qs as
filed with the Securities and Exchange Commission for such period and for the
portion of the fiscal year ended with such period, for Borrower all in
reasonable detail and certified by the chief financial officer of the Borrower,
subject to year-end audit adjustments;
(ii) Annual. As soon as reasonably possible and in any event
------
within one hundred twenty (120) days after the close of each fiscal year of the
Borrower, the (1) Form 10-Ks for Borrower as filed with the Securities and
Exchange Commission, and (2) proposed operating budget for the upcoming fiscal
year including proposed Capital Expenditures and such other information as may
be reasonably requested by Bank;
Such balance sheet and income statements shall be accompanied by an unqualified
report and opinion of any one of Ernst & Young LLP, Deloitte & Touche LLP, KPMG
Peat Marwick, Arthur Andersen, Price Waterhouse or Coopers & Lybrand or other
independent public accountants of recognized standing selected by Borrower and
approved by Bank, which approval shall not be unreasonably withheld, which
report and opinion shall be in accordance with generally accepted auditing
standards relating to reporting or, if qualified, the opinion shall not be
qualified due to any limitation in scope of the examination or due to any
departure from any Generally Accepted Accounting Principles, and shall be
accompanied by a statement of such accountants that, in making the audit
necessary for the certification of such financial statements and such report,
such accountants have obtained no knowledge of any Event of Default under
Article VIII or under any other
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<PAGE>
evidence of Indebtedness or of any event which, with notice or lapse of time, or
both, would constitute an Event of Default under Article VIII or under any other
evidence of Indebtedness or, if in the opinion of such accountants any such
Event of Default or other event shall exist, shall include a statement as to the
nature and status thereof;
(iii) Certificates. As soon as reasonably possible, and in any
------------
event within forty-five (45) days after the close of each quarter, submit (1) a
certificate executed by the chief financial officer of the Borrower certifying
compliance by the Borrower with the requirements of Section 7.01(G) and stating
whether any noncompliance occurred during the period in question, and containing
the calculations used to document compliance therewith; (2) a certificate
executed by the chief financial officer of the Borrower certifying that all
payments of principal and interest on the Bonds have been made and that all
payments required under the provisions of Section 7.01(Y) have been made; (3) a
certificate executed by the chief financial officer of the Borrower certifying
that there is no event of default, and no event that with the giving of notice,
the passage of time or both would constitute an event of default by Borrower
under this Agreement; and (4) a statement of the chief financial officer of the
Borrower that he has no knowledge of any Event of Default under Article VIII of
this Agreement or of any event which, with notice or lapse of time, or both,
would constitute an Event of Default under Article VIII of this Agreement, or if
in the opinion of the chief financial officer of the Borrower any such Event of
Default or other event shall exist, shall include a statement as to the nature
and status thereof.
(iv) Filings. Copies of all filings made by or concerning the
-------
Borrower with the Securities and Exchange Commission, or any Governmental Body
in the states of Nevada, Oregon or Washington delivered to Bank within ten days
of such filing (other than tax returns filed with the taxing authorities for the
states of Nevada, Oregon, Idaho and Washington) and such other statements, lists
of property and accounts, budgets, Capital Expenditure plans, forecasts, and
such other information and reports regarding Borrower or the Project as Bank may
reasonably request.
7.01(D) Notices. Promptly give written notice to the Bank of the
-------
occurrence of any Event of Default or any event which, upon a lapse of time or
notice or both, would become an Event of Default. The Borrower shall promptly
give notice to the Bank of any pending or threatened litigation or other
circumstance or matter of any nature whatsoever, which, in the opinion of a
reasonably prudent lender reasonably exercised, would have a Material Adverse
Effect on the ability of the Borrower to repay any amount due or to become due
hereunder or any other Indebtedness due or to become due, including but not
limited to, Indebtedness due Persons other than the Bank. The Borrower
represents and warrants that no such circumstance or matter exists as of the
date hereof.
7.01(E) Compliance with Laws. Conduct its operations and cause those
--------------------
of any Subsidiary to be conducted in material compliance with all Requirements
of Law including but not limited to ERISA (for purposes of ERISA compliance,
"its operations" shall include all operations of the "Borrower" as defined in
Section 6.01(P) of this Agreement), FLSA, Environmental Laws, the Fair Housing
Act of 1968 (as amended) and the Americans with Disabilities Act of 1990 (as
amended) land use and zoning, or occupational health and safety.
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<PAGE>
7.01(F) Compliance with Agreement and Related Documents. Perform and
-----------------------------------------------
comply with the terms and conditions of this Agreement and each Related
Document.
7.01(G) Financial Covenants. Maintain at all times until all
-------------------
Reimbursement Obligations are paid in full the following on a consolidated
basis:
(i) The difference between Current Assets less Current
Liabilities shall be greater than or equal to $1,000,000, measured quarterly.
For purposes of this calculation, Current Liabilities will exclude payments due
under construction draw requests that have committed takeout financing.
(ii) The sum of Tangible Net Worth plus Convertible Subordinated
Debentures shall be greater than or equal to $30,000,000.
(iii) The Cash Flow Coverage ratio will be a two tiered test, both
of which would need to be in default to cause an Event of Default under this
Agreement:
(a) The Borrower's ratio of Net Income + Interest Expense +
Depreciation & Amortization divided by Interest Expense + pro-rata (for the
quarter) scheduled principal payments on all indebtedness + pro rata (for the
quarter) annual fees relating to the Bonds and Letter of Credit shall be greater
than or equal to 1.25:1.00, measured quarterly; and
---
(b) After nine months of operation, the four real
properties constituting the Project being financed by the Bonds shall maintain a
financial performance level such that the sum of their quarterly Net Income +
Interest Expense + Depreciation & Amortization shall exceed the sum of Interest
------------
Expense + pro-rata (for the quarter) scheduled Bond principal payments + pro
rata (for the quarter) annual fees relating to the Bonds and this Letter of
Credit by $70,000, measured quarterly.
In the event Borrower is not in compliance with both of the financial
covenants set forth in 7.01(G)(iii)(a) and (b) above, Borrower shall not be in
default under this Agreement if Borrower deposits $280,000 in cash collateral
with Bank within 30 days and cures such non-compliance within 180 days
thereafter. Bank will release the cash collateral to Borrower once Borrower has
satisfied the financial covenants set forth in Section 7.01(G)(iii)(a) and (b)
for two consecutive quarters.
7.01(H) Maintenance and Inspection of Records. The Borrower shall
-------------------------------------
maintain adequate and complete records and books of account in accordance with
Generally Accepted Accounting Principles, which books shall reflect all
financial transactions of the Borrower, in accordance with Generally Accepted
Accounting Principles. The Borrower shall permit any of the Bank's
representatives to visit and inspect any of the properties of the Borrower, to
examine all its books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss its affairs, finances and accounts
with its respective officers, employees and independent public accountants (and
by this provision the Borrower authorizes said accountants to discuss the
finances and affairs of the Borrower with the Bank or
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<PAGE>
its accountants or other agents) all at such reasonable times and as often as
may be reasonably requested.
7.01(I) Employee Benefit Programs. Conduct its operations so that
-------------------------
the representations, warranties and covenants in Section 6.01(P) with respect to
any Plan continue to be true during the term of this Agreement. For purposes of
this Section 7.01(I), "its operations" shall include all operations of the
"Borrower" as defined in Section 6.01(P) of this Agreement.
7.01(J) Indemnification. Indemnify and hold harmless the Bank from
---------------
and against any and all claims, actions, suits and other legal proceedings and
from and against any and all claims, damages, losses, liabilities, costs or
expenses whatsoever (including, without limitation, interest, penalties, and
reasonable attorneys' fees and expenses) which the Bank may incur (or which may
be claimed against the Bank by any other Person or entity whatsoever (other than
the Borrower) by reason of or in connection with (i) the execution and delivery
or transfer of, or payment or failure to pay under, the Letter of Credit (except
to the extent directly and actually resulting from the gross negligence or
willful misconduct of the Bank); (ii) the execution, delivery, performance,
breach (including but not limited to the inaccuracy when made of any
representation or warranty), enforcement (including affirmative suits and the
defense of any claim or liability whatsoever), collection, administration, and
any amendment of this Agreement or any Related Document (requested by the
Borrower); (iii) the offering, issuance, sale or distribution of the Bonds or
the issuance of the Letter of Credit, including, but not limited to, any
violation or alleged violation of any federal or state securities law or
regulation or restriction of any nature; (iv) any suit, proceeding or
governmental action brought or taken in connection with the execution and
delivery of the Bonds or the use of (or proposed or potential use of) the
proceeds of the Bonds or any drawing under the Letter of Credit; (v) any failure
of the Bank to honor a drawing under the Letter of Credit as a result of a
Government Act (as hereinafter defined); (vi) any loss or liability incurred by
the Bank as a result of or in connection with the use, release or existence of
hazardous wastes, toxic substances or the like on any property upon which any
part of the Project is located, including but not limited to, the property
subject to the Deed of Trust; or (vii) the Letter of Credit (except to the
extent directly and actually resulting from the gross negligence or willful
misconduct of the Bank), including but not limited to any violations or alleged
violations of securities laws or regulations; it being the intention of the
parties that this Agreement shall be construed and applied to protect and
indemnify the Bank against any and all risks set forth in (i) through (vii)
above or otherwise involved in the issuance and maintenance of the Letter of
Credit, all of which risks are hereby assumed by the Borrower, including,
without limitation, any and all risks of the acts or omissions, whether rightful
or wrongful, of any present or future de jure or de facto Governmental Body
("Government Acts"). The Bank shall not, in any way, be liable for any failure
by the Bank to pay any draft under the Letter of Credit as a result of any
Government Acts or any other cause beyond the control of the Bank.
Notwithstanding the foregoing, the Borrower shall not be required to indemnify
the Bank for any claims, damages, losses, liabilities, costs or expenses to the
direct and actual extent, caused by (i) the gross negligence or willful
misconduct of the Bank in determining whether a draft or certificate timely and
properly presented under the Letter of Credit complies with the terms of the
Letter of Credit, or (ii) the Bank's wrongful failure to pay under the Letter of
Credit after the timely and proper presentation to it by the Trustee of a
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<PAGE>
draft and certificate strictly complying with the terms and conditions of the
Letter of Credit and applicable law. Nothing in this Section 7.01(J) is intended
to limit or shall limit any obligation of the Borrower to the Bank, including
but not limited to the Reimbursement Obligations of the Borrower contained in
Article III.
As between the Borrower and the Bank, the Borrower shall assume all
risks of the acts, omissions or misuse of the Letter of Credit by the Trustee or
any transferee of the Letter of Credit ("transferee"). The Bank shall not be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted to the Bank by any party in connection
with the application for and issuance of the Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign the Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) for the
use made of the Letter of Credit or any acts or omissions of the Trustee or any
transferee or for failure of the Trustee or any transferee to comply fully with
conditions required in order to draw upon the Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, wire, telegraph, telex or otherwise, whether or not they be in
cipher; (v) for errors in interpretation of terms (except to the extent actually
and directly resulting from the Bank's gross negligence or willful misconduct);
(vi) for reliance upon an oral statement or telecopy purportedly made or sent by
the Trustee or any transferee in lieu of submission of any draft, annex,
certificate or other document required under the Letter of Credit, or for any
loss or delay in the transmission or otherwise of any draft, certificate or
document required in order to make a drawing under the Letter of Credit or of
the proceeds thereof; (vii) for the misapplication of the proceeds of any
drawing under the Letter of Credit by the Trustee, any transferee or any Person
to whom payment was made pursuant to order of the Trustee or any transferee;
(viii) for payment by the Bank under the Letter of Credit against presentation
of documents which do not strictly comply with the terms of the Letter of
Credit, including failure of any document to bear any or adequate reference to
the Letter of Credit (except to the extent directly and actually resulting from
the gross negligence or willful misconduct of the Bank); (ix) any delay in
giving or failing to give any notice, demand or protest; and (x) for any
consequence arising from causes beyond the control of the Bank, including,
without limitation, any Government Acts. None of the above shall affect,
impair, or prevent the vesting of any of the Bank's rights or powers hereunder.
The Bank shall not be responsible for calculating the amount of,
determining the authority for, or notifying the Borrower with respect to any
draw on the Letter of Credit. In supplementation and not in limitation of the
above provisions, any action taken or omitted by the Bank under or in connection
with the Letter of Credit or the annexes, if taken or omitted in good faith,
shall not put the Bank under any resulting liability to the Borrower.
Upon demand by Bank, the Borrower shall reimburse Bank for any
reasonable legal or other expenses (including attorneys' fees) incurred in
connection with investigating or defending against any of the foregoing. If any
action, suit or proceeding arising from any of the foregoing is brought against
the Bank, the Borrower, to the extent determined by Bank as necessary or
<PAGE>
advisable in order to protect the Bank's rights hereunder, will resist and
defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel designated by Borrower (which counsel shall be reasonably
satisfactory to the Bank).
Borrower hereby expressly acknowledges that each reference to the Bank in
this Section 7.01(J) is and shall be deemed to be a reference to all officers,
agents, directors and counsel for or of Bank, which Persons shall be indemnified
to the same extent and shall have the same rights and obligations of the Bank as
if specifically named under this Section 7.01(J). The obligations of Borrower
under this Section 7.01(J) shall survive payment in full of Borrower's
obligations under this Agreement, all Related Documents and termination of the
Letter of Credit.
7.01(K) Disclosure. Make all written disclosure necessary to ensure
----------
that this Agreement, the Official Statement and the Related Documents do not
contain any untrue statement of a material fact as to the Borrower and, to the
best of Borrower's knowledge, the Project and do state all material facts
necessary in order to make such statements contained herein or therein not
misleading in light of the circumstances under which they were made.
7.01(L) Legal Existence. Preserve and maintain its legal existence,
---------------
rights, franchises and privileges in the jurisdiction of its organization and
qualify and remain qualified as a corporation in each jurisdiction where the
failure to so qualify would have a Material Adverse Effect on the business of
the Borrower or its operations. The Borrower shall take all reasonable action to
maintain all rights, privileges and franchises necessary or desirable to the
normal conduct of its business, and will comply with all Contractual Obligations
and Requirements of Law except to the extent that the failure to comply
therewith would not, in the aggregate, have a Material Adverse Effect on the
business, operations, property or financial or other condition of the Borrower.
7.01(M) Maintenance of Business; No Mergers, Etc. Cause its business
----------------------------------------
to be carried on and conducted only in the ordinary course and not merge,
consolidate, reorganize, liquidate, dissolve or otherwise dispose of, terminate
or change the corporate structure of Borrower without the prior written approval
of Bank which approval shall not be unreasonably withheld; provided, however,
that Borrower may, without the prior written consent of Bank, merge with another
corporation organized under the laws of one of the states of the United States
so long as (a) there is no default and no event that with the passage of time,
the giving of notice, or both, would constitute an Event of Default under this
Agreement or any Related Document either prior to or after giving effect to such
merger; (b) the surviving corporation has a Tangible Net Worth in excess of
$46,000,000; (c) the surviving corporation has a Debt-to-Worth ratio of no
greater than 2.00:1.00 (Debt-to-Worth is defined as Total Funded Debt divided by
Tangible Net Worth); (d) Bank receives an opinion of nationally recognized bond
counsel that any such merger does not affect the tax-exempt status of interest
on the Bonds; and (e) the surviving corporation expressly assumes all
obligations of Borrower under this Agreement and each Related Document. Borrower
shall notify Bank immediately if Dr. Keren Brown Wilson ceases to be the
President and Chief Executive Officer of Borrower for any reason whatsoever and
shall provide Bank with the names and qualifications of any successors appointed
to such positions. Borrower shall cause its properties to be maintained,
preserved and kept in accordance with
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<PAGE>
Requirements of Applicable Law and in good repair, working order and condition
and cause all needful and proper repairs, renewals and replacements thereof to
be made. Borrower shall not change in any material way the design, ownership,
concept or management of the Project without the prior written consent of the
Bank. Upon demand of the Bank, Borrower shall correct any structural defect in
any of the real properties constituting the Project or any material departure
from the plans and specifications therefor approved by any Governmental Body or
any encroachment by any part of any of the real properties constituting the
Project or any other structures on or over any building lines, easements,
property lines, or other restricted areas which any survey or inspection
reflects. Borrower shall not sell, lease or otherwise dispose of a significant
portion (in the opinion of Bank) of its properties and assets (except as
provided in Section 10.05 of this Agreement) until payment in full of all
Indebtedness under this Agreement, provided, however, that nothing in this
Section shall prevent Borrower from selling, leasing, abandoning or otherwise
disposing of worn out or obsolete property so long as the proceeds of such sale
are used to purchase replacement property of at least comparable quality, value
and utility. Borrower shall not sell, lease or otherwise dispose of more than
ten percent (10%) of its properties and assets (except in the ordinary course of
its business) and distribute such sale proceeds to its shareholders until
payment in full of all Indebtedness under this Agreement without the prior
written approval of Bank which approval shall not be unreasonably withheld.
7.01(N) Claims. Promptly pay or otherwise satisfy, and discharge all
------
of its Indebtedness, Contractual Obligations and all demands and claims against
it as and when the same become due and payable, other than any thereof whose
validity, amount or collectability is being contested in good faith and for
which reserves to which Bank has consented have been set aside.
7.01(O) Liens. Not cause or permit any Liens to be filed against any
-----
of the real properties constituting the Project or any part thereof except those
Liens to which Bank has consented pursuant to the provisions of Section 6.01(I)
or which are permitted pursuant to the provisions of Section 7.01(U).
7.01(P) Insurance. Maintain for itself such insurance against loss
---------
or damage to any of the real properties constituting the Project of the kinds
customarily insured against by Persons similarly situated, with reputable
companies or with the United States government or any agency or instrumentality
thereof, in such amounts and by such methods as shall be adequate or by a
reasonably prudent amount of self-insurance, and will at all times maintain or
cause to be maintained in full force and effect, with reputable companies and in
such amounts and by such methods as shall be adequate, together with
professional liability (malpractice) insurance and public liability insurance
against loss or damage to it for bodily injury or death in or about any premises
occupied by it, and liability insurance against loss or damage to it for bodily
injury or death or injury to property occurring by reason of the operation by it
of any motor vehicle or other equipment. The requirements of this Section
7.01(P) shall be in addition to insurance provisions contained in the Deed of
Trust or any other Related Document. Upon demand by the Bank, Borrower shall
furnish to Bank certificates of insurance or duplicate policies evidencing such
insurance together with evidence to the satisfaction of Bank that Bank is shown
as a loss payee to the extent of its insurable interest.
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7.01(Q) Third Party Beneficiary. The Borrower acknowledges that in
-----------------------
addition to all rights and benefits of Bank herein, the Bank is a beneficiary of
all representations, warranties, and covenants made by the Borrower to or for
the benefit of owners of Bonds or made in any Related Document to or for the
benefit of any Person.
7.01(R) Special Statutes. To the best of Borrower's knowledge,
----------------
issuance of the Bonds, the proposed use of Bond proceeds, and execution,
delivery and performance of the Reimbursement Agreement and the Related
Documents does not violate any Requirement of Law, including, but not limited to
the Medicaid, nursing home and certificate of need requirements, if any. Each of
the real properties constituting the Project is duly licensed as a residential
care facility for the elderly by the Idaho Department of Health and Welfare.
Borrower is eligible for reimbursement as a health care provider under Idaho
state law and the Medicare, Medicaid and private insurance programs.
7.01(S) Operation of the Project. So long as the Reimbursement
------------------------
Obligations under this Agreement remain outstanding, the Borrower shall operate
all of the real properties constituting the Project with a full-time residential
care administrator licensed by the State of Idaho and in accordance with the
requirements of Idaho Code Section 39, Chapter 35, Residential Care for the
Elderly. Borrower shall not appoint a third party to manage and operate any
Project without Bank's prior written consent which consent shall not be
unreasonably withheld.
7.01(T) Amendments. Not modify, supplement, amend or consent to the
----------
modification, supplementation or amendment of the Indenture, or any Supplemental
Indenture or any other Related Document in any respect whatsoever, and not
accept the benefit of any waiver of any provision or condition of the foregoing,
without the prior written consent of the Bank.
7.01(U) Liens. Not create, assume or suffer to exist (excluding
-----
Liens listed on Exhibit C hereto) any Lien (including the lien of an attachment,
judgment or execution) or security interest, securing a charge or obligation, on
or of any of its property, real or personal, whether now owned or hereafter
acquired, which secures the Reimbursement Obligations except:
(i) Liens or charges for current taxes, assessments, or other
governmental charges which are not delinquent or remain payable without any
penalty, or the validity of which is contested in good faith by appropriate
proceedings diligently prosecuted upon stay of execution of the enforcement
thereof;
(ii) Deposits or pledges securing (1) statutory obligations; (2)
surety or appeal bonds; (3) bonds for release of attachment, stay of execution
or injunction; or (4) performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, for purposes of like general nature
in the ordinary course of the Borrower's business;
(iii) Easements, rights of way, covenants, restrictions and other
encumbrances affecting the Borrower's property, whether or not currently
existing, which are accepted in writing by Bank and (1) do not directly or
indirectly constitute a lien securing an
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obligation for the payment of money and (2) have no Material Adverse Effect on
the use of such property for its purposes; and
(iv) Minor irregularities in the title to any such property which
have no Material Adverse Effect on the use of such property for its purposes and
which are accepted in writing by Bank.
7.01(V) Admission Agreements and Negotiated Service Agreements.
------------------------------------------------------
Borrower shall maintain the admission agreements and negotiated service
agreements in substantially the form attached hereto as Exhibit G with only such
changes as may be approved by the Bank or such changes as may be required by
Idaho law.
7.01(W) Optional Redemption. The Borrower agrees to cause the
-------------------
Trustee to select all Pledged Bonds before any other Bonds for optional
redemption by the Borrower pursuant to the Indenture.
7.01(X) Conditions Precedent. Each condition precedent to the
--------------------
issuance of the Bonds has been satisfied in full; and Borrower intends to use
the proceeds of the Mortgage Note solely for a purpose or purposes set forth in
and as authorized by the Mortgage Loan Documents and the Indenture.
7.01(Y) Required Debt Service Payments. Commencing on the first day
------------------------------
of August 1, 1997, and on the first day of each and every month thereafter, the
Borrower shall pay Bank the monthly interest payments on the Bonds and the
monthly Letter of Credit draw fee in the amounts set forth in the Schedule
annexed hereto as Exhibit D-1 and by this reference incorporated herein.
Principal payments for annual optional redemption of Bonds in the amount set
forth on Exhibit D-1 shall be paid by Borrower to Bank no later than twenty-four
(24) hours prior to the date of optional redemption for such Bonds. Borrower
shall deliver a direction letter to Trustee on the Date of Issuance requesting
optional redemption of Bonds in accordance with said schedule in the form of
Exhibit D-2 attached hereto.
7.01(Z) Ongoing Representations and Warranties. The provisions of
--------------------------------------
Section 6.01(A), 6.01(F), 6.01 (G), 6.01(J), 6.01(K), 6.01(L), Section 6.01(M),
Section 6.01(O), Section 6.01(P), Section 6.01(R), the last sentence of Section
6.01(S) (except to the extent Borrower obtains waivers from the appropriate
Governmental Bodies) and Section 6.01(T) (except to the extent Borrower obtains
waivers from the appropriate Governmental Bodies) shall survive the Date of
Issuance and shall continue until all Reimbursement Obligations under this
Agreement have been paid in full.
SECTION 7.02. Conditions Precedent to Disbursements of Bond Proceeds.
------------------------------------------------------
A. Conditions of Disbursements. Prior to any disbursement of Bond
---------------------------
proceeds to acquire a Project, the following conditions must be satisfied:
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1. Bank's receipt of an MAI appraisal for the applicable
Project in form, substance and amount satisfactory to Bank;
2. Bank's receipt of an ADA Questionnaire and Disclosure
Statement and ADA Certificate of Compliance for the applicable Project
satisfactory to Bank;
3. Evidence acceptable to Bank that all utility services
necessary for the uninterrupted and orderly operation of the applicable Project
are available to such Project at the boundaries thereof. All connections have
been made to abutting public water, sewer, storm drains, gas and electrical
facilities;
4. Evidence acceptable to Bank that the applicable Project
is accessible via completed, dedicated streets which have been accepted for
public maintenance and use by the appropriate City and/or County depending on
location, or that an easement creating a perpetual right of public access to a
publicly dedicated street, road or highway is in effect;
5. If requested by Bank, an ALTA survey for the applicable
Project certified to and satisfactory to Bank and the title insurance company
that will be insuring the Deed of Trust; 6. Bud get for the applicable Project
(including certified final cost breakdown) satisfactory to Bank;
7. Final unconditional certificate of occupancy for the
applicable Project;
8. All licenses, permits and approvals necessary to own
and operate the applicable Project;
9. Recordation with the Recorder of the county in which
the Project is located of a duly executed original Variable Rate Deed of Trust,
Assignment of Leases and filing with the Secretary of State's office of
appropriate UCC financing statements; receipt by the Bank of an ALTA extended
coverage mortgagee's policy of title insurance (Form B-1970), issued by a title
insurance company satisfactory to Bank and in favor of Bank as the insured with
liability in the Stated Amount showing title to such Project legally described
in Exhibit A to the Deed of Trust vested in fee in the Borrower and insuring the
first lien priority of the Deed of Trust subject only to the Liens authorized in
writing by Bank, and containing such endorsements as are requested by Bank;
10. Evidence of "all-risk" property, rental loss and
comprehensive general liability insurance for such Project in form, substance
and amount satisfactory to Bank naming the Bank as loss payee or additional
insured as appropriate;
11. A certificate by an architect or other person or entity
acceptable to Bank confirming that such Project has been constructed and
completed substantially in
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accordance with the plans and specifications approved by the Government Body
with jurisdiction over such Project, and complies with all applicable building
codes and zoning ordinances and all other applicable federal and state laws,
rules, regulations, codes and orders;
12. The receipt by the Bank of copies of all final
unconditional certificates of occupancy and other permits, if any, evidencing
that such Project complies with all applicable zoning ordinances, building and
use restrictions and codes and any requirements with respect to licenses,
permits, and agreements necessary for the lawful use and operation of the
Project and that necessary utilities and municipal services required for the
Project are in place.
13. The representations and warranties of Article VI are
true and correct.
14. Receipt by the Bank of a certified copy of a policy of
property insurance with extended coverage on the basis of 100% of full
replacement cost of all improvements on the Project with a mortgagee clause
attached in favor of United States National Bank of Oregon, a national banking
association, 1420 Fifth Avenue, 11th Floor, Mail Code WWC 395, Post Office Box
720 (98111-0720), Seattle, Washington 98101, Attention: Northwest Washington
Corporate Banking, subject to Bank's acceptance of the insuring company and
evidence satisfactory to Bank that professional liability, public liability,
property damage, worker's compensation insurance, and all other insurance
required pursuant to the Deed of Trust are being covered in amounts satisfactory
to Bank.
15. The amount to be disbursed by Bank with respect to any
of the real properties constituting the Project shall not exceed the lesser of
75% of (a) the Appraised Value of such property or (b) 75% of actual
construction costs approved by bond counsel as eligible for reimbursement from
Bond proceeds. Appraised Value shall mean the value of such property determined
by the Bank after internal review of an MAI appraiser prepared in accordance
with FIRREA requirements.
16. Receipt by the Bank of a certificate of the Architect
with respect to compliance by the Project with the American with Disabilities
Act and the Fair Housing Act Amendments of 1988 (collectively the "Access
Laws").
17. Receipt by the Bank of an executed certificate of
compliance and indemnification with respect to Access Laws.
18. There is no default by Borrower under this Agreement or
any of the Related Documents.
19. The Borrower has accepted the specific real property
for which disbursement is sought as complete.
20. The Borrower shall have provided evidence reasonably
satisfactory to the Bank that all construction costs associated with such real
property have been paid in full.
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<PAGE>
21. The Borrower shall, if required by the title insurance
company have signed an indemnity agreement to permit the title policy to be
issued showing the Deed of Trust as a first lien without exception for
mechanics' or materialmen's liens.
22. The period for filing workmen's and materialmen's liens
has expired or releases of liens in form and substance satisfactory to Bank have
been obtained.
23. Receipt of evidence of full payment for personal
property in which Bank has a security interest.
24. There has been no condemnation, casualty, or
catastrophe which has a Material Adverse Effect on the value of the security for
the Project.
25. Appropriate amendments duly executed by Borrower in
recordable form are recorded in the applicable real property records of the
counties in which all other Projects are located amending each previously
recorded Deed of Trust, Assignment of Leases, and UCC financing statements, if
applicable.
26. Bank receives 110.5 and other applicable endorsements
to each of the title insurance policies with respect to all other Projects in
form and substance satisfactory to Bank insuring the continued first lien
priority of the Deeds of Trust with no additional liens, encumbrances or other
exceptions except those approved by Bank in its sole and absolute discretion.
B. Disbursements Generally. There shall be no
-----------------------
disbursement out of the Mortgage Loan Fund held by the Trustee without the
written approval of Bank, which approval shall be given in accordance with the
provisions of this Agreement and the Mortgage Loan Documents. Bank is hereby
authorized without any request or direction by Borrower, to approve
disbursements out of the Mortgage Loan Fund held by the Trustee and other
deposits, if any, of the Borrower with the Trustee, from time to time to pay
interest on the Bonds, to reimburse Bank for drawings made on the Letter of
Credit or to pay directly Bank's expenses and advances, whether or not there are
adequate reserves therefor in accordance with the provisions of this Agreement.
Bank shall provide Borrower with invoices prior to each disbursement of funds
out of the Mortgage Loan Fund held by the Trustee.
SECTION 7.03. Assignment/Miscellaneous.
------------------------
A. Borrower Assignment. Borrower may not convey, assign, mortgage,
-------------------
pledge, transfer, hypothecate, encumber or otherwise dispose of its rights or
obligations under this Agreement, the Related Documents, or the Project (except
as provided in the Deed of Trust) without the prior written consent of Bank. A
breach of this provision, directly or indirectly, shall be an Event of Default
under this Agreement and shall not vest any rights in the purported transferee.
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<PAGE>
B. Bank Assignment. Bank may assign its rights and obligations in
---------------
and to this Agreement and the Related Documents to another lender having the
financial ability to perform Bank's obligations. Any such assignment by Bank
shall be deemed to have been made pursuant to this Agreement and not to be a
modification hereof, and the disbursements made by any such assignee hereunder
shall be evidenced and secured by the Deed of Trust.
C. Advertising. Bank reserves the right to publicize the financing
-----------
of the Project and may include in publicity releases, if applicable, the names
of the principals and a general description of the Project, its occupancy and
use. Borrower shall have the right to review and comment on such publicity
releases prior to their publication.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default; Acceleration and Remedies. The
--------------------------------------------
following shall be defaults under this Agreement and the terms "Event of
Default", "default" or "Default" shall mean any one or more of the following
events:
(a) The Borrower shall fail to pay or cause to be paid any amount
of money required under this Agreement or any of the Related Documents when due;
or
(b) Any Lien(s) of Bank in any portion of the collateral which
secures Borrower's Reimbursement Obligations under this Agreement shall, for any
reason, be impaired or cease to exist as valid and binding first priority Liens
(other than for Liens expressly permitted under Sections 7.01(O) and/or 7.01(U)
of this Agreement) which is not remedied to the satisfaction of Bank within
thirty (30) days following written notice to Borrower or a Material Adverse
Effect shall have occurred with respect to any material portion of the
collateral which secures Borrower's Obligations under this Agreement as result
of any uninsured loss or theft or any material portion of such collateral
becomes the subject of or affected by any forfeiture, seizure or similar claim
which is not remedied to the satisfaction of Bank within thirty (30) days
following written notice to Borrower; or
(c) The Borrower shall fail to perform, keep or observe any term,
covenant, agreement, warranty, or condition (not involving a payment obligation)
of Borrower contained in this Agreement and any such failure shall remain
unremedied for thirty (30) days after written notification thereof shall have
been given to the Borrower by the Bank; notwithstanding the preceding clause, if
------------------------------------
the Default is of a nature that is not susceptible to cure within 30 days and if
the Borrower commences to cure the Default within said period, the Borrower
shall not be deemed to be in Default if it diligently prosecutes said cure
thereafter to completion and, notwithstanding such diligence, cures said Default
by the sixtieth (60th) day after the date of said written notification; or
(d) Any representation or warranty made by the Borrower (or any of
its officers) under or in connection with this Agreement any Related Document
shall prove to have been untrue when made; or
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<PAGE>
(e) There is an event of default under any recourse Indebtedness of
the Borrower with a principal balance in excess of ten percent (10%) of
Borrower's Tangible Net Worth which has not been either (i) waived in writing by
the lender with respect thereto or (ii) cured to the satisfaction of the
affected lender prior to the expiration of applicable cure periods, if any; or
(f) Final judgment which is no longer the subject of any good faith
appeal is entered against the Borrower for an amount in excess of ten percent
(10%) of Borrower's Tangible Net Worth unless such judgment is paid, discharged
or settled within thirty (30) days following entry of such final judgment; or
(g) There is any default in the payment of principal or interest on
the Washington State Housing Finance Commission's Variable Rate Demand
Multifamily Revenue Bonds (LTC Properties, Inc. Project), Series 1995 or any
default under that certain Reimbursement Agreement dated as of December 1, 1995
by and between LTC Properties, Inc. and Bank or default in the payment of
principal or interest on the Washington State Housing Finance Commission's
Variable Rate Demand Multifamily Revenue Bonds (Assisted Living Concepts, Inc.
Project), Series 1996 or any default under that certain Reimbursement Agreement
dated as of November 1, 1996 by and between Borrower and Bank which has not been
either (i) waived in writing by Bank or (ii) cured to the satisfaction of Bank
prior to the expiration of applicable cure periods, if any; or
(h) A Plan shall fail to maintain the minimum funding standard
required by Section 412 of the Code for any Plan Year or a waiver of such
standard is sought or granted under Section 412(d) of the Code; a Plan is, shall
have been or is likely to be terminated or the subject of termination
proceedings under Title IV of ERISA; or the Borrower (for purposes of this
paragraph, "Borrower" shall have the meaning set forth in Section 6.01(P) of
this Agreement) has incurred or is likely to incur a liability to or on account
of a Plan in connection with the complete or partial termination of, or complete
or partial withdrawal from, any Plan covered or previously covered by Title IV
of ERISA, which liability or material risk of liability, in the opinion of the
Bank, will have a Material Adverse Effect upon the business, operations or the
financial condition of the Borrower or such subsidiary; or
(i) The Borrower shall dissolve or liquidate or take an equivalent
action or an involuntary petition shall have been filed under any federal or
state bankruptcy, reorganization, insolvency, moratorium or similar statute
against the Borrower, or a custodian, receiver, trustee, assignee for the
benefit of creditors or other similar official shall be appointed to take
possession, custody, or control of the property of the Borrower, unless such
petition or appointment is set aside or withdrawn or ceases to be in effect
within sixty (60) days from the date of said filing or appointment; or the
Borrower shall become insolvent or admit in writing its inability to pay its
debts as they mature, or shall file any petition or action for relief relating
to any bankruptcy, reorganization, insolvency or moratorium law, or any other
law or laws for the relief of, or relating to, debtors unless such petition is
withdrawn or ceases to be in effect within sixty (60) days from the date of such
filing; or the Borrower shall make an assignment for the benefit of
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<PAGE>
creditors or enter into an agreement of composition with its creditors; or the
Borrower shall fail generally to pay its debts as they become due; fail to
promptly have discharged any judgment, execution, garnishment or attachment of
such consequence as could have a Material Adverse Effect on the ability of the
Borrower to carry on its operations as presently conducted or to fulfill its
obligations under the Leases or any of the Related Documents; or
(j) The Borrower has failed to deliver to the Trustee (with a copy to
the Bank and the Issuer) within five (5) days following written notice from Bank
of the occurrence of an "event of default" under any Related Document which was
not cured within the applicable cure period, its notice to optionally redeem in
whole the principal amount of all Bonds then outstanding together with interest
accrued thereon to the date of redemption, or having timely given such notice,
Borrower thereafter fails to deposit with Bank on or prior to the date fixed for
such redemption, the redemption price for all Bonds including the amount of
accrued interest payable on the redemption date and premium if any.
With respect to any Event of Default, (i) in any such event described in
Section 8.01(i), all amounts due or to become due under this Agreement shall
automatically be due and payable without notice or demand or any action
whatsoever by the Bank; and (ii) in all other Events of Default the Bank may,
upon notice (of any nature allowed by law) to the Borrower, declare all amounts
of any nature whatsoever payable under this Agreement or the Related Documents,
to be forthwith due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
and may, without notice to the Borrower, deliver Annex D to the Letter of Credit
to the Trustee.
In addition, upon any Event of Default, the Bank may at its election,
without prior notice or demand, (1) require the Borrower to deposit immediately
with the Bank in cash, out of legally available funds, as security for the
obligations of the Borrower to Bank hereunder, under any Related Document and
under the Letter of Credit, a sum equal to the then Stated Amount of the Letter
of Credit (as defined therein) and to institute legal proceedings against the
Borrower to collect that sum if it is not deposited on demand; and (2) without
further notice or demand, exercise any or all rights available to it under this
Agreement, in equity or by applicable law, including but not limited to (at the
sole option of the Bank), all actions that could be taken by a secured party
under the Idaho Uniform Commercial Code. If the deposit required by clause (1)
of this paragraph is not timely made, Borrower hereby agrees that Bank may from
time to time withdraw all or part of the required amount from any funds of
Borrower then held by Bank without demand, notice or liability for such
withdrawal(s), except that all amounts withdrawn shall be held by the Bank for
the purposes specified in clause (1). The Borrower specifically grants Bank a
security interest in such moneys and deposit and all income thereon. Borrower
further agrees that the Bank may provide notice to the Trustee upon any Default
hereunder for the purpose of causing acceleration and payment of all Bonds
pursuant to Article VIII of the Indenture. No action taken by Bank shall be
deemed to be an election of remedies by Bank, it being the intention of the
parties that Bank shall be entitled to exercise all remedies separately or
concurrently and in any manner allowed by law.
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ARTICLE IX
SECURITY
SECTION 9.01. Funds, Accounts and Security Agreement. The Borrower
--------------------------------------
represents, certifies, warrants and covenants to the Bank that all monies from
time to time on deposit in the Funds and Accounts established under the
Indenture shall be held by Trustee in trust for the owners of the Bonds and the
Bank until full payment of the principal of and interest on the Bonds and of all
obligations of the Borrower to the Bank under this Agreement or the Related
Documents.
The Borrower hereby makes to the Bank or Trustee (as the case may be)
for the equal benefit of the Bank and owners of the Bonds, all pledges,
assignments, grants, covenants and agreements set forth in the Indenture and the
Loan Agreement and all pledges, grants of liens and security interests and
covenants contained therein are incorporated herein by this reference as if
fully set forth herein. The Borrower hereby consents to the Bank's status as a
beneficiary under the Indenture and acknowledges that the trust estate of the
Indenture as supplemented from time to time secures not only the payment of the
Bonds but also secures the payment of all sums due or to become due the Bank
pursuant to this Agreement or any Related Document.
SECTION 9.02. Funding and Maintaining the Funds. Until the
---------------------------------
principal of and interest on the Bonds shall have been fully paid and until all
other sums of every nature whatsoever due or to become due the Bank pursuant to
this Agreement or any Related Document are paid in full, the Borrower shall
maintain the Funds and cause moneys to be deposited in each fund or subaccount
thereof in accordance with the terms of the Indenture and this Agreement in
amounts sufficient to pay all principal of and interest on the Bonds as well as
all other sums due or to become due to the Bank pursuant to this Agreement or
any Related Document.
The Borrower agrees that whenever any sum is required to be placed in
any of said Funds by the terms of any agreement and whenever any other sum is
due and owing the Bank under this Agreement or the Related Documents, the
Borrower shall place sufficient moneys in said Funds to pay such sums. The
Borrower further agrees that the Trustee is authorized and hereby directed to
forward such sums to the Bank in accordance with the Indenture or this
Agreement. Nothing contained herein shall impair the right of the Bank to demand
and receive payment directly from the Borrower in lieu of or notwithstanding
funding of said Funds, which demand shall be at the sole option of the Bank. The
Borrower hereby represents, certifies and warrants to the Bank that payment of
all debt due or to become due Bank by virtue of this Agreement is payable from
(in addition to said Funds and the trust estate of the Indenture) all other
available sources of moneys to the Borrower whether now or hereafter existing.
SECTION 9.03. Interest of Bank and Owners of Bonds. Any moneys
------------------------------------
transferred by the Trustee from any of the Funds for payment on the Bonds or
sums due the Bank shall continue to be held in trust for the owners of the Bonds
and the Bank until disbursement or deemed disbursement of such moneys by the
Trustee to owners of the Bonds or, to the extent not inconsistent with the
rights of the Owners of the Bonds, to the Bank.
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<PAGE>
The Borrower agrees to deliver copies of this Agreement and the
Indenture to the Trustee on the date of execution or adoption of the aforesaid
to provide specific notice of the trust for the Bank and the owners of the Bonds
in the moneys in the Funds and to provide notice for all other purposes,
including but not limited to notice to all persons of the security interests,
pledges and liens granted to or for the benefit of the owners of Bonds and the
Bank in said Funds.
SECTION 9.04. Transfers and Other Liens. The Borrower agrees that
-------------------------
it will not (i) sell or otherwise dispose of any interest in the monies in the
Funds or Accounts except as provided herein or in the Indenture, or (ii) create
or permit to exist any pledge, Lien, security interest, or other charge or
encumbrance of any nature whatsoever upon or with respect to the Gross Revenues
or moneys in the Funds (except the interest of the Bank or of the owners of the
Bonds and as otherwise allowed in the Indenture).
SECTION 9.05. Priority Of Payment; Application of Sums Upon Notice of
---------------------------------------------- --------
Default. Upon any drawing under the Letter of Credit honored by the Bank, the
- -------
Bank shall have priority over the owners of the Bonds to all sums then or
thereafter in any of the Funds to the extent of any such drawing (but only to
such extent). Upon an Event of Default and delivery to the Trustee of notice in
the form of Annex D to the Letter of Credit, the Trustee shall apply all sums in
the Funds available for payments on the Bonds to payment of obligations of the
Borrower in the following priority: first, to the reimbursement of the Bank for
any amount honored by the Bank pursuant to the Letter of Credit; second, payment
then due the owners of the Bonds; and third, payment of any sums then due the
Bank pursuant to this Agreement or the Related Documents.
SECTION 9.06. Acknowledgment Regarding Funds and Accounts. The
-------------------------------------------
Borrower hereby represents, warrants and certifies to the Bank that:
(a) The Trustee, on behalf of the owners of the Bonds and the
Bank, has been granted a valid first priority security or other interest in or
lien upon and assignment of the monies from time to time on deposit in the Funds
and Accounts which is not and will not be subject to attachment, judgment lien
or any interest of any nature whatsoever of any other creditor of the Borrower
or the Borrower, whether now or hereafter existing; and
(b) no other lien or pledge or other encumbrance of any nature
whatsoever is prior to the interest of the Bondholders and Bank.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc.. No amendment or waiver of any
----------------
provision of this Agreement or any Related Document, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in a writing signed by the Bank, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
-42-
<PAGE>
SECTION 10.02. Notices, Etc. Except as otherwise provided in this
------------
Agreement or as otherwise allowed to Bank by law, all notices, requests, demands
or other communications shall be in a writing addressed to the respective party
at the address given below or to such other address as the parties may from time
to time specify in writing. Notice shall be deemed to have been given when (a)
personally delivered, (b) given by a telex or machine-confirmed facsimile, or
(c) after placement in the U.S. mails as certified or registered, return receipt
requested, first-class postage prepaid, the receipt indicates delivery or
refusal or failure to accept delivery:
If to the Assisted Living Concepts, Inc.
Borrower: 9955 SE Washington, Suite 201
Portland, Oregon 97216
Attention: Stephen Gordon
Chief Financial Officer
Telecopy: (503) 252-6597
with a copy to: Bullivant Houser Bailey Pendergrass & Hoffman
300 Pioneer Tower
888 Fifth Avenue
Portland, Oregon 97204
Attention: Sandra Campbell
Telecopy: (503) 295-0915
If to the Bank: United States National Bank of Oregon,
a national banking association
Northwest Washington Corporate Banking
1420 Fifth Avenue, 11th Floor
Mail Code WWC 395
P.O. Box 720 (98111-0720)
Seattle, Washington 98101
Attention: Deborah S. Watson
Vice President
Telecopy: (206) 344-2887
If to the Trustee: First Security Bank, N.A.
923 West Idaho
Boise, Idaho 83702
Attention: Corporate Trust Services
Telecopy: (208) 393-2004
or as to each party, at such other address as shall be designated by such party
in a written notice to the other parties.
SECTION 10.03. No Waiver; Remedies. No failure on the part of the
-------------------
Bank to exercise, and any delay in exercising, any right under this Agreement or
any Related Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of
-43-
<PAGE>
the aforesaid preclude any other or further exercise thereof or the exercise of
any other right from time to time and as often as the Bank may deem expedient
and without notice (except any notice which is specifically required by written
agreement). The remedies provided in this Agreement or the Related Documents are
cumulative and not exclusive of any remedies provided by law or in equity, now
or hereafter existing.
SECTION 10.04. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with Generally
Accepted Accounting Principles consistently applied, except as otherwise stated
herein.
SECTION 10.05. Partial Reconveyance. Provided Borrower is not in
--------------------
default under any of the covenants, conditions, warranties or representations
hereunder or under any other document evidenced or securing this Agreement or
under any of the Related Documents, Bank agrees to release from the lien of the
Deed of Trust from time to time, one or more of the properties constituting the
Project and legally described in Exhibit B attached hereto (each, a "Release
Parcel") upon satisfaction of the following terms and conditions and only upon
satisfaction of the following terms and conditions:
(a) Borrower shall notify Bank and Bond Trustee in writing on
or before the dates specified in the Reimbursement Agreement and the Indenture,
respectively, for providing notice of optional redemptions of Bonds;
(b) Borrower shall have otherwise complied with all
requirements set forth in the Reimbursement Agreement, the Indenture, the
Regulatory Agreements, the Loan Agreement and any other of the Related Documents
and shall have secured the consent of all parties required under those
agreements;
(c) Payment by Borrower to Bank with respect to the Release
Parcel of a partial reconveyance fee equal to 100% of the Net Proceeds of Sale
(as hereinafter defined) from the sale of the Release Parcel (to be applied to
optional redemption of Bonds pursuant to the Indenture) provided, however, that
in no event shall the partial reconveyance fee be less than the original
principal amount of Bond proceeds disbursed with respect to such Release Parcel
less any principal payments made and allocated by Beneficiary to such Release
Parcel prior to the date of optional redemption of Bonds;
(d) Bank shall have received an opinion from nationally
recognized bond counsel that such sale of the Release Parcel and optional
redemption of Bonds as a result thereof does not adversely affect the tax-exempt
status of interest on the Bonds; and
(e) Borrower shall, at its sole cost and expense, deliver an
endorsement to each of Bank's policies of title insurance insuring that the
reconveyance of the Deed of Trust from the Release Parcel will not affect the
first lien priority of the Deed of Trust on the remaining Projects and without
any additional exceptions to its policies which would have priority over Bank
except those approved by Bank in its sole and absolute discretion. Borrower
shall pay all costs and expenses incurred in connection with any such
reconveyance, including but not limited
-44-
<PAGE>
to recording fees, premiums for title insurance endorsements and escrow fees, if
any charges by the title insurance company or other closing agent.
Net Proceeds of Sale shall be defined as the gross proceeds of sale of
any Release Parcel less broker's commission, title insurance, escrow fees and
recording fees, real estate excise taxes and normal prorations of real estate
taxes, water and other utilities constituting liens against the Release Parcel,
if any.
Any reconveyance of a Deed of Trust as to any Release Parcel shall in
no way release, modify, discharge, impair or otherwise affect the validity of
enforceability of the Reimbursement Agreement, the Deed of Trust, the Regulatory
Agreement or any of the Related Documents or any of the obligations of
Borrower's obligations hereunder or thereunder.
SECTION 10.06. Security Costs, Expenses and Taxes. In addition to
----------------------------------
the fees and expenses the Borrower has agreed to pay pursuant to Section 4.05
hereof, the Borrower also agrees to pay on demand all reasonable costs and
expenses in connection with the preparation, execution, delivery, filing,
recording, continuation, maintenance, administration and termination of the
liens, or security interests or other interests granted by the Borrower in any
Related Document or any other documents to be delivered under the Related
Documents. The Borrower further agrees to pay all title insurance and recording
fees and costs of every nature whatsoever incurred by Bank (if any).
SECTION 10.07. Binding Effect; Assignment. This Agreement shall
--------------------------
become effective when it shall have been executed by the Borrower and the Bank
and thereafter shall be a continuing obligation binding upon and inuring to the
benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign any of its
rights or obligations hereunder or under any Related Document (including but not
limited to any rights in Bond proceeds) or any interest herein or therein
without the prior written consent of the Bank. The Bank without the consent of
the Borrower, may sell, transfer, assign, negotiate, pledge or otherwise
hypothecate or participate all or any portion of this Agreement, or grant
participations herein, in the Letter of Credit or in any of its rights or
security hereunder or under the Related Documents, including without limitation,
the instruments securing the Borrower's obligations hereunder. No such
disposition by the Bank, however, will relieve the Bank of its obligation under
the Letter of Credit. In connection with any such disposition or in connection
with any examination of the Bank, the Bank may disclose to the proposed
transferee or regulatory authority any information that the Borrower is required
to deliver to the Bank or to which the Bank is otherwise entitled pursuant to
this Agreement or any Related Document from time to time. Bank may also
disclose such information to its affiliates.
SECTION 10.08. Governing Law. This Agreement and each Related
-------------
Document in favor or to which the Bank is a party shall be governed, construed
and enforced in accordance with the laws of the State of Idaho. The Borrower
agrees to submit to the jurisdiction of the state or federal court selected by
Bank, and venue of any action concerning this Agreement or any Related Document
shall be held in any county in Idaho in which any of the real properties
-45-
<PAGE>
constituting the Project are located or such other county within the State of
Idaho as the Bank may request.
SECTION 10.09. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties regarding the terms hereof and supersedes any and
all other agreements relating to the subject matter of this Agreement, oral or
written, among any or all of the parties (except for the Related Documents).
The headings of the various sections and subsections of this Agreement and of
any Related Documents are for convenience of reference only and do not
constitute a part of the respective document and shall not affect the meaning or
construction of any provision. No amendment, waiver or forbearance of any
provision of this Agreement or of any Related Document shall be effective unless
the same shall be in a writing signed by the party intended to be bound. Any
such waiver or forbearance shall only be effective for the specific purpose and
in the specific instance given and not for other or subsequent purposes or
instances and no forbearance or waiver shall affect Bank's right to refuse
further forbearances or waivers. If any portion of this Agreement or any
Related Document is held to be invalid or unenforceable, the remaining portions
and provisions and conditions thereof regarding Borrower's obligations shall
remain in full force and effect. Time is of the essence of this Agreement and
each Related Document. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
SECTION 10.10. JURY WAIVER. BORROWER AND BANK EACH HEREBY WAIVE ANY RIGHT
-----------
TO TRIAL BY JURY OF ANY CLAIM ARISING OUT OF THIS AGREEMENT, THE LETTER OF
CREDIT AND ANY RELATED DOCUMENT, WHETHER NOW OR HEREAFTER ARISING AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND HEREBY CONSENT AND AGREE THAT ANY
SUCH CLAIM MAY BE DECIDED BY TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE
AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER AND AGREEMENT CONTAINED HEREIN.
SECTION 10.11. Securities Law. The Borrower acknowledges and agrees that
--------------
except for the information describing the Bank supplied by the Bank and except
for matters stated in the opinion of Bank's counsel, neither the Bank in its
capacity as issuer of the Letter of Credit (nor its counsel) (a) has and shall
not be deemed to have made any representation regarding sale of the Bonds or the
financial strength, integrity or revenues of the Borrower; (b) has any
responsibility or liability for the issuance, offer or sale of the Bonds; (c)
has participated in the preparation of the Official Statement (except with
respect to supplying information about the Bank) or is responsible or liable for
any statements contained therein or omissions therefrom, or for the accuracy or
completeness thereof; and that (d) nothing contained in this Agreement, the
Official Statement or any of the Related Documents is intended to impose any
liability or responsibility related to the aforesaid on the Bank or its counsel.
For use in the Official Statement, the Bank agrees to supply the aforesaid
descriptive information and, within thirty (30) days of the Borrower's written
demand therefor, an updated
-46-
<PAGE>
version of said information for use in any subsequent or amended Official
Statement regarding the Bonds. Upon written request therefor, the Bank shall, as
soon as practical, also supply copies of the Bank's annual report. To the extent
other information is requested of the Bank, the Borrower agrees to pay all
expenses and fees of every nature whatsoever (including reasonable attorneys'
fees) incurred by the Bank in connection therewith.
SECTION 10.12. Subrogation. Notwithstanding the fact that the Bank's
-----------
obligation under the Letter of Credit is primary, as opposed to the secondary
obligation of a guarantor, Borrower expressly agrees that Bank shall be
subrogated to all rights of every nature whatsoever of the owners of Bonds or
the Trustee in or to the entire trust estate of the Indenture and that upon
payment by Bank under the Letter of Credit, Bank shall be entitled to exercise
all rights and remedies of any person with subrogation rights and all rights and
remedies accorded a guarantor by law or in equity. Nothing in this Section
10.12 shall impair any right of Bank under the Indenture.
SECTION 10.13. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained herein or made in writing by the
Borrower in connection herewith or any Related Document shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by the Bank or on its behalf, and shall continue until payment in full of all
sums due or to become due from Borrower to Bank hereunder or under any Related
Documents.
SECTION 10.14. Washington State Notice. Bank hereby notifies Borrower as
-----------------------
follows: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY/EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
SECTION 10.15. Idaho State Notice. Under Idaho Law ((S) 9-505 (5) I.C.)
------------------
(if and to the extent applicable hereto), a promise or commitment to lend money
or to grant credit in an original principal amount of $50,000 or more, made by a
person or entity engaged in the business of lending money or extending credit,
must be in writing or such a promise or commitment is not valid.
-47-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By ____________________________________
Stephen Gordon
Secretary/Chief Administrative Officer/
Chief Financial Officer
"BANK"
UNITED STATES NATIONAL BANK OF
OREGON, a national banking association
By ____________________________________
Deborah S. Watson
Vice President
-48-
<PAGE>
EXHIBIT A
FORM OF LETTER OF CREDIT
------------------------
A-1
<PAGE>
EXHIBIT B-1
Legal Description - Rosewind House
----------------------------------
5815 North Coffey Street
Garden City, Idaho 83714
Real property located in the County of Ada, Idaho as more particularly
described as follows:
A PARCEL OF LAND BEING A PORTION OF LOT 15 OF STRAWBERRY GLENN, A SUBDIVISION,
AS FILED FOR RECORD IN THE OFFICE OF THE ADA COUNTY RECORDER, BOISE, IDAHO, IN
BOOK 6 OF PLATS AT PAGE 255 LYING IN THE NORTHWEST QUARTER OF SECTION 25,
TOWNSHIP 4 NORTH, RANGE 1 EAST, BOISE-MERIDIAN, GARDEN CITY, ADA COUNTY, IDAHO,
AND MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID LOT 15 OF STRAWBERRY GLENN; THENCE
SOUTH 00 degrees 16'46" WEST, 123.83 FEET ALONG THE EAST BOUNDARY OF SAID LOT 15
TO THE REAL POINT OF BEGINNING; THENCE
SOUTH 00 degrees 16'46" WEST, 383.18 FEET ALONG THE EAST BOUNDARY OF SAID LOT
15; THENCE
NORTH 89 degrees 04'34" WEST, 311.37 FEET TO A POINT ON THE WEST BOUNDARY OF
SAID LOT15;THENCE
NORTH 00 degrees 17'35" EAST, 388.01 FEET ALONG THE WEST BOUNDARY OF SAID LOT
15; THENCE
SOUTH 85 degrees 19'24" EAST, 109.00 FEET; THENCE
SOUTH 89 degrees 43'41" EAST, 202.58 FEET TO THE REAL POINT OF BEGINNING.
EXCEPTING THEREFROM THE FOLLOWING DESCRIBED PARCEL OF LAND:
A PARCEL OF LAND FOR PUBLIC RIGHT-OF-WAY BEING A PORTION OF LOT 15, STRAWBERRY
GLENN SUBDIVISION, AS FILED FOR RECORD IN THE OFFICE OF THE ADA COUNTY RECORDER,
BOISE, IDAHO, IN BOOK 6 OF PLATS AT PAGE 255, LYING IN THE NORTHWEST QUARTER OF
SECTION 25, TOWNSHIP 4 NORTH, RANGE 1 EAST, BOISE MERIDIAN, GARDEN CITY, ADA
COUNTY, IDAHO, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHEAST CORNER OF SAID LOT 15, STRAWBERRY GLENN SUBDIVISION;
THENCE SOUTH 00 degrees 16'46" WEST, 383.18 FEET ALONG THE EAST BOUNDARY OF
SAID LOT 15 TO THE REAL POINT OF BEGINNING; THENCE CONTINUING
SOUTH 00 degrees 16'46" WEST, 383.18 FEET ALONG THE EAST BOUNDARY OF SAID LOT
15 TO A POINT; THENCE
NORTH 89 degrees 04'34" WEST, 5.00 FEET; THENCE
NORTH 00 degrees 16'46" EAST, 383.18 FEET TO A POINT; THENCE
SOUTH 89 degrees 04'34" EAST, 5.00 FEET TO THE REAL POINT OF BEGINNING.
B-1-1
<PAGE>
EXHIBIT B-2
Legal Description - Mallory House
---------------------------------
3400 Rollandet Avenue
Idaho Falls, Idaho 83401
(also referred to as: 3400 South 5th West,
Idaho Falls, Idaho 83402)
Real property located in the County of Bonneville, Idaho more particularly
described as follows:
LOT 2, BLOCK 1, RIDGEWOOD PARK, DIVISION NO. 1, TO THE CITY OF IDAHO FALLS,
COUNTY OF BONNEVILLE, STATE OF IDAHO, ACCORDING TO THE RECORDED PLAT THEREOF.
AND ALSO: BEGINNING AT THE SOUTHWEST CORNER OF LOT 1, BLOCK 1, RIDGEWOOD PARK,
DIVISION NO. 1, TO THE CITY OF IDAHO FALLS, COUNTY OF BONNEVILLE, STATE OF
IDAHO, ACCORDING TO THE RECORDED PLAT THEREOF; RUNNING THENCE S89 degrees 40'08"
E 308.97 FEET ALONG THE SOUTH LINE OF SAID LOT 1; THENCE N0 degrees 19'52" E
22.38 FEET; THENCE S87 degrees 49'23" W 305.65 FEET; THENCE S22 degrees 12'52" W
9.70 FEET TO THE POINT OF BEGINNING.
B-2-1
<PAGE>
EXHIBIT B-3
Legal Description - Clark House
-------------------------------
1401 North Polk Street
Moscow, Idaho 83843
Real property located in the County of Latah, Idaho as more particularly
described as follows:
LOT 11, PLEASANT PLACE ADDITION, TO THE CITY OF MOSCOW, AS SHOWN BY THE
RECORDED PLAT THEREOF, RECORDED DECEMBER 3, 1996, AS INSTRUMENT NO. 424221.
B-3-1
<PAGE>
EXHIBIT B-4
Legal Description - Teton House
-------------------------------
555 South 3rd West
Rexburg, Idaho 83440
Real property located in the County of Madison, Idaho more particularly
described as follows:
COMMENCING AT THE SOUTHWEST CORNER OF SECTION 30, TOWNSHIP 6 NORTH, RANGE
40 EAST, BOISE MERIDIAN, MADISON COUNTY, IDAHO, THENCE SOUTH 89 degrees
58'26" EAST 1318.10 FEET; THENCE NORTH 00 degrees 00'56" WEST 1319.18 FEET
TO THE NORTHWEST CORNER OF THE SOUTHEAST QUARTER OF SECTION 30; THENCE
SOUTH 89 degrees 58'50" EAST 138.00 FEET TO THE NORTHEAST CORNER OF
SIEPERT-PUPPOS PROPERTY; THENCE SOUTH 00 degrees 00'56" EAST 2.65 FEET TO
THE TRUE POINT OF BEGINNING; AND RUNNING THENCE EAST 517.70 FEET TO THE
NORTHWEST CORNER OF THE GRANDVIEW TOWNHOUSE SUBDIVISION; THENCE SOUTH
420.70 FEET; THENCE WEST 517.59 FEET TO THE SIEPERT-PUPPOS EAST PROPERTY
LINE; THENCE NORTH 00 degrees00'56" WEST 420.70 FEET ALONG SAID PROPERTY
LINE TO THE TRUE POINT OF BEGINNING.
EXCEPTING THEREFROM: THE WEST 75 FEET OF SUBJECT PROPERTY FOR DEDICATED
PUBLIC STREET AS SHOWN ON BOWEN AND THOMASON SUBDIVISION PLAT RECORDED JULY
22, 1996, AS INSTRUMENT NO. 262256.
B-4-1
<PAGE>
EXHIBIT C
PERMITTED LIENS
---------------
None.
C-1
<PAGE>
EXHIBIT D-1
MANDATORY DEBT SERVICE
----------------------
PAYMENT SCHEDULE
----------------
D-1-1
<PAGE>
EXHIBIT E
PENDING LITIGATION
------------------
None.
E-1
<PAGE>
EXHIBIT F
PROJECT BUDGET
--------------
<TABLE>
<CAPTION>
Property
--------
Maximum Bond Proceeds
City/Town County Allocable
--------------------------------- ----------------------
<S> <C> <C>
Garden City (Ada) $2,300,000
Idaho Falls (Bonneville) $1,740,000
Moscow (Latah) $1,680,000
Rexburg (Madison) $1,630,000
----------------------
$7,350,000
</TABLE>
*Note in the event the Borrower elects to use two percent (2%) of Bond proceeds
to reimburse itself for Issuance Costs (as defined in the Indenture) the maximum
Bond proceeds allocable to purchase of a property shall be adjusted accordingly.
F-1
<PAGE>
EXHIBIT G
FORM OF ADMISSION AGREEMENT AND
--------------------------------
NEGOTIATED SERVICE AGREEMENT
----------------------------
G-1
<PAGE>
EXHIBIT D-2
NOTICE TO TRUSTEE RE
--------------------
OPTIONAL REDEMPTION OF BONDS
----------------------------
July 31, 1997
First Security Bank, N.A.
923 West Idaho
Post Office Box 2618 (83701)
Boise, Idaho 83702
Attn: Corporate Trust Services
Re: Idaho Housing and Finance Association Housing Variable Rate Demand
Housing Revenue Bonds (Assisted Living Concepts, Inc. Project), Series
1997 (the "Bonds")
Ladies and Gentlemen:
Pursuant to the provisions of Section 602(b) of that certain Indenture of
Trust dated as of July 1, 1997 (the "Indenture") between First Security Bank,
N.A., as bond trustee ("Trustee") and Idaho Housing and Finance Association, the
undersigned does hereby notify you of its intent to optionally redeem Bonds in
accordance with the schedule annexed hereto as Exhibit A. This letter shall
constitute the notice required under the provisions of Section 602(b) of the
Indenture of the undersigned's irrevocable direction to the Trustee to
optionally redeem Bonds, which direction shall remain in full force and effect
until such time as you receive further written instructions from the undersigned
approved by United States National Bank of Oregon, a national banking
association, of a change in the undersigned's direction to cause optional
redemption of Bonds.
Very truly yours,
ASSISTED LIVING CONCEPTS, INC.,
CONSENTED AND AGREED: Nevada corporation
UNITED STATES NATIONAL BANK OF
OREGON, a national banking association By _____________________________________
Stephen Gordon
Secretary/Chief Administrative Officer/
By _______________________________ Chief Financial Officer
Deborah S. Watson
Vice President
D-2-1
<PAGE>
EXHIBIT 10.16
===============================================================================
REIMBURSEMENT AGREEMENT
between
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
and
U.S. BANK NATIONAL ASSOCIATION
dated as of July 1, 1998
============================================================================
$12,690,000 OHIO HOUSING FINANCE AGENCY VARIABLE RATE DEMAND HOUSING REVENUE
BONDS,
(ASSISTED LIVING CONCEPTS, INC. PROJECT), 1998 SERIES A-1
AND
$530,000 OHIO HOUSING FINANCE AGENCY
TAXABLE VARIABLE RATE DEMAND HOUSING REVENUE
BONDS, (ASSISTED LIVING CONCEPTS, INC. PROJECT), 1998 SERIES A-2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions................................................ 1
ARTICLE II
ISSUANCE OF LETTER OF CREDIT
SECTION 2.01. Issuance of the Letter of Credit........................... 10
SECTION 2.02. Termination of Letter of Credit; Alternate Letter of
Credit; Extension.......................................... 10
SECTION 2.03. Increase or Reduction of Stated Amount and Reinstatement... 11
ARTICLE III
REIMBURSEMENT OBLIGATION AND INTEREST
SECTION 3.01. Reimbursement Obligations.................................. 11
SECTION 3.02. Reimbursement and Loans.................................... 12
SECTION 3.03. Manner, Method, Place and Time of Payment.................. 14
SECTION 3.04. Obligation to Pay Unconditional............................ 14
SECTION 3.05. Evidence of Debt........................................... 15
ARTICLE IV
OTHER PAYMENTS
SECTION 4.01. Letter of Credit Issuance, Annual and Agency Fees.......... 15
SECTION 4.02. Intentionally deleted...................................... 15
SECTION 4.03. Other Fees................................................. 15
SECTION 4.04. Increased Costs............................................ 16
SECTION 4.05. Payment of Expenses and Fees; Applicability................ 17
SECTION 4.06. Calculations; Default Interest; Compounded Interest........ 17
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions Precedent to Issuance of Letter of Credit....... 18
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.01. Representations, Warranties and Covenants of the Borrower.. 21
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
FURTHER COVENANTS
SECTION 7.01. Covenants................................................ 27
SECTION 7.02. Conditions Precedent to Disbursements of Bond Proceeds... 36
SECTION 7.03. Assignment/Miscellaneous................................. 39
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default; Acceleration and Remedies............. 39
ARTICLE IX
SECURITY
SECTION 9.01. Funds, Accounts and Security Agreement................... 42
SECTION 9.02. Funding and Maintaining the Funds........................ 43
SECTION 9.03. Interest of Bank and Owners of Bonds..................... 43
SECTION 9.04. Transfers and Other Liens................................ 43
SECTION 9.05. Priority Of Payment; Application of Sums Upon Notice of
Default.................................................. 43
SECTION 9.06. Acknowledgment Regarding Funds and Accounts.............. 44
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc.......................................... 44
SECTION 10.02. Notices, Etc............................................. 44
SECTION 10.03. No Waiver; Remedies...................................... 45
SECTION 10.04. Accounting Terms......................................... 45
SECTION 10.05. Partial Release.......................................... 45
SECTION 10.06. Security Costs, Expenses and Taxes....................... 47
SECTION 10.07. Binding Effect; Assignment............................... 47
SECTION 10.08. Governing Law............................................ 47
SECTION 10.09. Entire Agreement......................................... 47
SECTION 10.10. Jury Waiver.............................................. 48
SECTION 10.11. Securities Law........................................... 48
SECTION 10.12. Subrogation.............................................. 48
SECTION 10.13. Survival of Representations and Warranties............... 49
SECTION 10.14. Washington State Notice.................................. 49
</TABLE>
-ii-
<PAGE>
Exhibits
--------
Exhibit A Letter of Credit
Exhibits B-1 Legal Descriptions
through B-7
Exhibit C Permitted Liens
Exhibit D-1 Mandatory Debt Service Payment Schedule
Exhibit D-2 Notice to Trustee Re Optional Redemption of Bonds
Exhibit E Pending Litigation
Exhibit F Project Budget
-iii-
<PAGE>
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT, dated as of July 1, 1998, between Assisted Living
Concepts, Inc., a Nevada corporation (the "Borrower") and U.S. Bank National
Association, as agent for the banks (the "Bank").
WHEREAS, the Ohio Housing Finance Agency ("Issuer") intends to issue and
sell $12,690,000 aggregate principal amount of its Variable Rate Demand Housing
Revenue Bonds (Assisted Living Concepts, Inc. Project) 1998 Series A-1 (the
"Tax-Exempt Bonds") and $530,000 aggregate principal amount of its Taxable
Variable Rate Demand Housing Revenue Bonds, (Assisted Living Concepts, Inc.
Project) 1998 Series A-2 (the "Taxable Bonds") (collectively, the "Bonds")
issued pursuant to that certain Indenture of Trust ("Indenture") dated as of
July 1, 1998 between the Issuer and PNC Bank, National Association, as Trustee;
and
WHEREAS, in order to secure payment when due of the principal of and
interest on the Bonds, the Borrower has requested the Bank to issue an
unconditional irrevocable letter of credit substantially in the form of Exhibit
A, which exhibit (with Annexes A through G) is attached and incorporated herein
by this reference (the "Letter of Credit"), in the principal amount of THIRTEEN
MILLION TWO HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($13,220,000) plus an
interest component of TWO HUNDRED SIXTY THOUSAND SEVEN HUNDRED SEVENTY NINE AND
NO/100 DOLLARS ($260,779). The sum of the principal and interest components of
the Letter of Credit, as reduced and reinstated pursuant to the terms thereof,
is hereafter referred to as the "Stated Amount".
NOW, THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, and in order to induce the Bank to issue the Letter of Credit, the
Borrower and the Bank hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Terms defined above shall have the meanings
-----------
set forth above and the following terms shall have the following meanings. Any
term capitalized but not defined herein shall have the same meaning as ascribed
to it in the Indenture.
"Affiliate" means any person or entity related to, owned by, in common
ownership with, or affiliated with, a person or entity that is a parent company
or constituting a shareholder or member of Borrower or in which Borrower has or
holds an equity or other interest.
"Agency Agreement" means the agreement entitled "Agency Agreement" dated as
of July 1, 1998, among the Bank and its Collateral Agents (as defined therein).
"Agent" means U.S. Bank National Association in its capacity as agent for
itself and the Participants under this Agreement, and any successor agent
thereafter appointed.
<PAGE>
"Agreement" means this Reimbursement Agreement, as the same may from time
to time be amended, supplemented or modified.
"Alternate Letter of Credit" means any substitute letter of credit meeting
the requirements of Section 310 of the Indenture.
"Assignment of Leases" means, individually and collectively, the
Assignments of Leases and Cash Collateral dated as of July 1, 1998 whereunder
the Borrower is the assignor and the Bank is assignee with respect to each
Project, as amended or modified from time to time.
"Bank" means U.S. Bank National Association and each Participant, whether
now or hereafter existing.
"Bond" or "Bonds" means any one or more of the Bonds authorized,
authenticated and delivered pursuant to the Indenture.
"Borrower" means Assisted Living Concepts, Inc., a Nevada corporation.
"Business Day" means any day other than (i) a Saturday, Sunday or legal
holiday, (ii) a day on which commercial banks in New York, New York, are
authorized or obligated by law or executive order to close (but only prior to
the Fixed Rate Conversion Date); (iii) a day on which commercial banks in the
city or cities in which are located the corporate trust office of the Trustee
and the office of the Bank in the United States at which demands for payment
under the Letter of Credit are to be presented are authorized or required by law
or executive order to close; (iv) a day on which the New York Stock Exchange is
closed; or (v) a day on which the commercial banks in Seattle, Washington are
closed.
"Capital Lease Obligations" means, for any Person, all obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP (including Statement of Financial Accounting Standards No. 13
of the Financial Accounting Standards Board), and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount of
such obligation, determined in accordance with GAAP (including such Statement
No. 13).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor federal income tax statute or code. Any reference to a provision of
the Code shall include the applicable Department of Treasury regulations.
"Contingent Obligation" means, with respect to any Person, any guarantee of
Indebtedness or any other obligation of any other Person or any assurance with
respect to the financial condition of any other Person, whether direct, indirect
or contingent, including, without limitation, any purchase or repurchase
agreement or keep-well, take-or-pay, through-put or other arrangement of
whatever nature having the effect of assuring or holding harmless any Person
against loss with respect to any obligation of such other Person; provided,
---------
however, that the term
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<PAGE>
"Contingent Obligation" shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined in good faith
by the Person subject to such obligation.
"Contractual Obligation" means, with respect to any Person, any provision
of any security interest of any nature issued, granted or transferred by such
Person or of any agreement, instrument or undertaking to which such Person is a
party or by which it or any of its property is or purports to be bound.
"Convertible Subordinated Debentures" means (a) $20,000,000 aggregate
principal amount of the Borrower's 7% Convertible Subordinated Debentures dated
August 15, 1995 and due August 15, 2005 (the "7% Debentures"), which 7%
Debentures are convertible at or prior to maturity, unless previously redeemed,
at a conversion price of $7.50 per share, subject to adjustments therein set
forth, and which are subject to redemption, as a whole or in part, at any time
or from time to time commencing July 31, 1998 at the Borrower's election, of
which $6,100,000 of the 7% Debentures were converted to 811,332 shares of the
Borrower's common stock in September, 1996, and (b) $86,300,000 aggregate
principal amount of the Borrower's 6% Convertible Subordinated Debentures dated
October, 1997 and due November, 2002 (the "6% Debentures") which 6% Debentures
are convertible at or prior to maturity, unless previously redeemed, at a
conversion price of $22.57 per share, subject to adjustments therein set forth,
and which are subject to redemption, at a whole or in part, at any time or from
time to time commencing November 15, 2000.
"Date of Issuance" means July 17, 1998, the date the Letter of Credit is
issued by the Bank.
"Default" or "Event of Default" has the meaning set forth in Section 8.01
hereof.
"Drawings" include:
"A Drawing (Interest)" or "A Drawing" means a drawing under the Letter of
Credit to make an interest payment on Bonds (except Pledged Bonds) due on an
Interest Payment Date, other than on Bonds being paid or purchased on such date.
"B Drawing (Redemption)" or "B Drawing" means a drawing on the Letter of
Credit to pay the principal amount of any Bonds being redeemed pursuant to
Section 602 of the Indenture together with accrued but unpaid interest thereon.
"C Drawing (Purchase)" or "C Drawing" means a drawing on the Letter of
Credit to pay all or any portion of the purchase price of the Bonds (except
Pledged Bonds) purchased pursuant to Section 404 of the Indenture or upon the
Fixed Rate Conversion Date corresponding to the principal amount of Bonds being
purchased and accrued and unpaid interest thereon.
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<PAGE>
"Environmental Law" means any federal, state or local law, statute,
ordinance or regulations pertaining to health, Medical Products, Hazardous
Substances, industrial hygiene or the environmental conditions on, under or
about any of the real properties constituting the Project, including, without
limitation, the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901 et seq., as amended, Comprehensive Environmental Response,
-- ---
Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as
------
amended by the Superfund Amendments and Reauthorization Act of 1986, Hazardous
Materials Transportation Control Act, 49 U.S.C. Section 1801 et seq., the Toxic
------
Substance Control Act, 15 U.S.C. Section 2601 et seq., Federal Water Pollution
-- ---
Control Act, Federal Water Act of 1977, 93 U.S.C. Section 1251 et seq., Federal
-- ---
Insecticide, Fungicide and Rodenticide Act, Federal Pesticide Act of 1978, 7
U.S.C. Section 2601 et seq., Federal Safe Drinking Water Act, 42 U.S.C. Section
-- ---
300f et seq. and in the regulations promulgated pursuant to said laws.
------
"Environmental Indemnity Agreement" means that certain agreement dated as
of July 1, 1998 executed by the Borrower in favor of the Bank with respect to
each Project, as amended from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fixed Rate" means the interest rate per annum borne by the Bonds from and
after the Fixed Rate Conversion Date, determined by the Remarketing Agent in
accordance with Section 202(g) of the Indenture.
"Fixed Rate Conversion Date" means the effective date of a change in the
interest rate borne by the Bonds to the Fixed Rate from a Daily Rate or a Weekly
Rate as defined in the Indenture.
"FLSA" means the Fair Labor Standards Act of 1938, as amended from time to
time, and the regulations promulgated pursuant thereto.
"Funds" means any one or more of the separate special trust funds created
under Article III of the Indenture and any other fund or account created
thereunder, any supplemental indenture (excluding the Costs of Issuance Fund,
the Rebate Fund or the Administration Fund held under the Indenture, together
with any monies collected pursuant to indemnification of the Issuer or Trustee)
or any Related Document which is or hereafter becomes available for the payment
of principal or interest on Bonds or to pay any sum due or to become due from
the Borrower to the Bank.
"GAAP" or "Generally Accepted Accounting Principles" means generally
accepted accounting principles as in effect from time to time in the United
States and as consistently applied by the Borrower.
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<PAGE>
"Governmental Body" means any foreign or domestic government, any court or
any foreign, federal, state, municipal or other department, commission, board,
bureau, agency, public authority or instrumentality or any arbitrator or
government regulator with jurisdiction over the Borrower and/or any Project.
"Guarantee" means a guarantee, an endorsement, a contingent agreement to
purchase or to furnish funds for the payment or maintenance of, or otherwise to
be or to become contingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interest of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services primarily
for the purpose of enabling a debtor to make payment of such debtor's
obligations or an agreement to assure a creditor against loss, including causing
a bank or other financial institution to issue a letter of credit or other
similar instrument for the benefit of another Person, but excluding endorsements
for collection of deposit in the ordinary course of business. The terms
"Guarantee" and "Guaranteed" used as verbs shall have correlative meanings.
"Hazardous Substances" has the meaning set forth in the Mortgage which
definition is by this reference incorporated herein.
"Indebtedness" means, for any Person (without duplication): (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for the account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person.
"Interest Payment Date" has the meaning set forth in Article I of the
Indenture, which definition is by this reference incorporated herein.
"Issuer" means Ohio Housing Finance Agency, an agency of the State of Ohio.
"Land Use Restriction Agreement" means, the Land Use Restriction Agreement
dated as of July 1, 1998, by and between the Issuer and the Borrower with
respect to the Projects, except for the Project located in Lima, Ohio.
"Lien" means, with respect to any Person, any security interest, pledge,
mortgage, charge, option, assignment, hypothecation, encumbrance, attachment,
garnishment, sequestration,
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<PAGE>
forfeiture, execution or other voluntary or involuntary lien upon or affecting
the revenues of such Person or any real or personal property in which such
Person has or hereafter acquires any interest, except (i) liens for Taxes which
------
are not delinquent or which remain payable without penalty or the validity or
amount of which is being contested in good faith by appropriate proceedings and
with reserves satisfactory to Bank; (ii) liens imposed by law (such as
construction liens) incurred in good faith in the ordinary course of business
which are not delinquent or which remain payable without penalty or the validity
or amount of which is being contested in good faith by appropriate proceedings
and reserves consented to by Bank; and (iii) deposits or pledges under workmen's
compensation, unemployment insurance, social security, bids, tenders, contracts
(except for repayment of borrowed money), or leases, or to secure statutory
obligations or surety or appeal bonds or to secure indemnity, performance or
other similar bonds given in the ordinary course of business.
"Loan" means the loan made to the Borrower pursuant to the Loan Agreement
in the principal amount of $13,220,000 plus interest thereon, in order to
provide permanent financing for part of the Project Costs and Issuance Costs.
"Loan Agreement" means that certain Financing Agreement dated as of July 1,
1998 by and among the Issuer, the Trustee and, the Borrower.
"Loan Documents" means the Loan Agreement, the Land Use Restriction
Agreement and the Tax Regulatory Agreement.
"Loan Fund" means the Loan Fund created by Section 302 of the Indenture.
"Material Adverse Effect" means a material adverse effect on (a) the
Project's business, operations, financial condition, liabilities or
capitalization of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower to perform its obligations under this Agreement or any
of the Related Documents, (c) the validity or enforceability of this Agreement
or any of the Related Documents, (d) the rights, remedies, powers and privileges
of the Bank under this Agreement or any of the Related Documents or (e) the
timely payment of the Reimbursement Obligations.
"Medical Products" means all regulated substances, chemicals, drugs, blood,
tissue, serums, waste and other materials and equipment and supplies related
thereto in connection with the treatment, research and laboratory analysis of
human medical phenomenon, which Medical Products may include, without limitation
Hazardous Substances (as defined in the Deed of Trust).
"Mortgage" means, individually and collectively, the Open-End Variable Rate
Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing
dated as of July 1, 1998 whereunder the Borrower is mortgagor and Bank is
mortgagee, as amended or modified from time to time, encumbering a Project.
-6-
<PAGE>
"Participant" means any entity to whom the Bank transfers an interest in
this Agreement or any Related Document. The Bank in its capacity as Agent and
not any Participant shall be the sole party authorized or obligated to provide
any consent or approval required, contemplated or authorized by this Agreement
or any Related Document to be given by the Bank.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a state, government or political subdivision or an agency or
instrumentality thereof.
"Plan" means (i) any "employee welfare benefit plan" (as such term is
defined in Section 3(1) of ERISA); (ii) any employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA) or a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA); (iii) any employee benefit
plan maintained in connection with any trust described in Section 501(c)(9) of
the Code; or (iv) a combination of such plans; if such plan or plans is
maintained or contributed to, or at any time during the five calendar years
preceding the date of this Agreement was maintained or contributed to, by the
Borrower or under which the Borrower has or, during the term of this Agreement,
will have any liability. For purposes of this paragraph, the term "Borrower"
shall include the Borrower and any corporation, partnership, sole proprietorship
or other entity if the Borrower and such other entity or entities are (i)
corporations which are members of a controlled group of corporations as defined
in Section 414(b) of the Code, (ii) trades or businesses (whether or not
incorporated) which are under common control as defined in Section 414(c) of the
Code, (iii) members of an affiliated service group as defined in Section 414(m)
or 414(o) of the Code, or (iv) any combination of the foregoing.
"Pledge and Security Agreement" means the agreement entitled "Pledge and
Security Agreement" dated as of July 1, 1998, between Bank and the Borrower, as
amended from time to time.
"Pledged Bonds" means those Bonds or portions of Bonds on which a principal
payment is made or deemed made or the purchase price is paid or deemed paid with
proceeds of a drawing under the Letter of Credit, which Bonds are pledged to the
Bank pursuant to the Pledge and Security Agreement.
"Prime Rate" means the rate of per annum interest which the Bank announces
publicly or otherwise makes available to the public from time to time as its
"prime rate" (currently calculated on the basis of the actual number of days
elapsed over a year of 360 days) with any change in the "prime rate" to be
effective on and as of the date of any change in said "prime rate." The Prime
Rate and the calculation thereof may be established by the Bank in its sole
discretion. The Prime Rate is not necessarily the lowest rate of interest
offered by the Bank to its most creditworthy customers. The Prime Rate is a
variable or fluctuating rate which increases or decreases from time to time.
"Project" or "Projects" means, individually or collectively, the permanent
financing of seven residential care facilities located on real property in
Bellefontaine, Defiance, Findlay,
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<PAGE>
Greenville, Kenton, Lima and Marion, Ohio and more particularly described in
Exhibits B-1 through B-7 attached hereto and by this reference incorporated
herein.
"Property" means any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Related Documents" means (individually and collectively) any promissory
note executed to further evidence the obligations of the Borrower hereunder
("Bank Note"), the Letter of Credit, the Mortgage, the Assignment of Leases, the
Commercial Security Agreement, the Pledge and Security Agreement, the Agency
Agreement, the Indenture, the Mortgage Loan Documents, the Remarketing
Agreement, the preliminary and final official statements regarding the Bonds,
the Environmental Indemnity Agreement, and all other certificates, documents or
agreements arising from or related to the Bonds or executed in connection
herewith or therewith.
"Remarketing Agent" means initially, Newman and Associates, Inc., and its
successors under the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement dated as of July 1,
1998 among the Borrower, the Trustee and the Remarketing Agent providing for the
remarketing of the Bonds as supplemented or amended from time to time.
"Requirement of Law" means, with respect to any Person, the articles or
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule, guideline, standard
(including but not limited to accounting standards and GAAP), order,
restriction, directive, judgment, decree, injunction, writ, or regulation, or a
final and binding determination of an arbitrator or mediator, or a determination
of any Governmental Body, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject. With respect to Bank, Requirement of Law shall include a Requirement of
Law now or hereafter existing, and a request of a central bank or financial,
monetary or other supervisory authority (whether or not having the force of
law).
"Subsidiary" or "Subsidiaries" means any corporation of which at least 50%
of the outstanding stock having ordinary voting powers to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Borrower and/or one or more of
its Subsidiaries.
"Supplemental Indenture" means indentures now or hereafter supplementing
the Indenture.
"Tangible Net Worth" means the difference between total assets and total
liabilities (including in liabilities accrued and deferred income Taxes, and
subordinated Indebtedness), excluding, however, from the determination of total
---------
assets (a) all assets which should be classified as intangible assets (such as
goodwill, patents, trademarks, copyrights, franchises, and
-8-
<PAGE>
deferred charges, including unamortized debt discount and research and
development costs, deferred charges and other like intangibles), (b) treasury
stock, (c) cash held in a sinking or other similar fund established for the
purpose of redemption or other retirement of capital stock, (d) to the extent
not already deducted from total assets, reserves for depreciation, depletion,
obsolescence, or amortization of properties and other reserves or appropriations
of retained earnings which have been or should be established in connection with
the Borrower's business, and (e) any revaluation or other write-up in book value
of assets subsequent to the fiscal year of Borrower last ended at the date
Tangible Net Worth is being measured.
"Taxes" means for any Person any federal or state tax, assessment, duty,
levy, withholding liability, impost and other charges of every nature whatsoever
imposed by any Governmental Body on such Person or on any of its property or
because of any revenue, income, sales, use, product, employee or franchise, and
any interest or penalty with respect to any of the foregoing.
"Tax Regulatory Agreement" means that certain Tax Regulatory Agreement
dated as of July 1, 1998 by and among Issuer, Trustee and Borrower, as amended
from time to time.
"Termination Date" means the date on which the Letter of Credit expires
according to its terms.
"Total Funded Debt" means all obligations created, issued or incurred by
Borrower for borrowed money (whether by loan, the issuance and sale of debt
securities or the sale of Property to another Person subject to an understanding
or agreement, contingent or otherwise, to repurchase such Property from such
Person) excluding any amounts or obligations which are non-recourse debt.
"Trustee" means PNC Bank National Association or any duly authorized
successor thereto appointed pursuant to the Indenture.
"U.S. Bank Bonds" means individually and collectively, any bonds now or
hereafter issued by a political subdivision of any state or other entity
authorized to issue revenue bonds, the Borrower or the proceeds of which are
loaned to the Borrower or to any Person who leases assisted living facilities
to, or which are operated by, Borrower, the principal and interest of which is
to be paid with the proceeds of drawings on a letter of credit now or hereafter
issued by U.S. Bank National Association, including, but not limited to the
following bond issues: (a) Washington State Housing Finance Commission's
Variable Rate Demand Multifamily Revenue Bonds (LTC Project), Series 1995; (b)
Washington State Housing Finance Commission's Variable Rate Demand Multifamily
Revenue Bonds (Assisted Living Concepts, Inc. Project), Series 1996; (c) Idaho
Housing and Finance Association's Variable Rate Demand Housing Revenue Bonds
(Assisted Living Concepts, Inc. Project), Series 1997 or (d) the Bonds.
"U.S. Bank Letters of Credit" means individually and collectively, any
letter of credit now or hereafter issued by Bank at the request of, on behalf
of, or for the direct or indirect benefit of the Borrower including, but not
limited to, the following letters of credit: (a) U.S. Bank of
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<PAGE>
Washington, National Association Letter of Credit No. S102742 issued December
13, 1995; (b) U.S. Bank of Washington, National Association Letter of Credit No.
S000230 issued November 21, 1996; (c) United States National Bank of Oregon
Letter of Credit No. S001062 issued July 31, 1997; and (d) the Letter of Credit.
ARTICLE II
ISSUANCE OF LETTER OF CREDIT
SECTION 2.01. Issuance of the Letter of Credit. The Bank agrees, on
--------------------------------
the terms and subject to the conditions set forth in this Agreement, to issue to
Trustee on the Date of Issuance and upon the request of the Borrower, a Letter
of Credit in substantially the form of Exhibit A to this Agreement, which
exhibit and Annexes A through G thereto are incorporated herein by this
reference. The Stated Amount of the Letter of Credit shall never exceed
$13,480,779, a portion of which Stated Amount shall be available to support the
payment of principal due on Bonds ("Principal Component") and a portion of which
shall be available to support the payment of not more than sixty (60) days of
interest on the Bonds, which calculation shall utilize an interest rate of
twelve percent (12%) per annum all as calculated on the basis of a year of
365/366 days on the Bonds ("Interest Component"). Upon the Date of Issuance, the
Principal Component shall be, and shall thereafter never exceed, $13,220,000.
Upon the Date of Issuance, the Interest Component shall be, and shall thereafter
never exceed $260,779.
The Borrower hereby agrees to all terms and conditions set forth in the
Letter of Credit, including Annexes A through G thereto, all of which terms and
conditions are incorporated herein by this reference.
The Borrower acknowledges:
(a) that upon any drawing under the Letter of Credit for payment of all or
a portion of Bonds outstanding under the Indenture at maturity or earlier
redemption, the Trustee is required to deliver to the Bank Annex B to the Letter
of Credit and, upon a drawing for all remaining Bonds, must also deliver Annex B
and surrender the Letter of Credit therewith; and
(b) that upon any replacement of the Letter of Credit with an Alternate
Letter of Credit, the Trustee must promptly deliver Annex G to the Letter of
Credit to the Bank and surrender the Letter of Credit therewith.
If the Trustee does not take these actions when required, the Borrower
agrees to direct and to use its best efforts to cause the Trustee to take said
actions.
SECTION 2.02. Termination of Letter of Credit; Alternate Letter of Credit;
------------------------------------------------------------
Extension.
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(a) Term of Letter of Credit. Notwithstanding the fact that the Bonds will
------------------------
not mature until a later date, the Letter of Credit shall terminate on July 17,
2005, unless earlier terminated or unless it is extended. The Borrower shall not
have the right to replace or otherwise terminate
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<PAGE>
the Letter of Credit unless (i) there are no Pledged Bonds outstanding or (ii)
the Alternate Letter of Credit provides to the satisfaction of the Bank that, on
the issuance thereof, all Pledged Bonds may be put for purchase from moneys
drawn under the Alternate Letter of Credit at a price equal to the then
aggregate principal amount of such Pledged Bonds plus accrued but unpaid
interest thereon.
(b) Extension of Term of Letter of Credit. Upon the written request of the
-------------------------------------
Borrower after the fifth anniversary of the Date of Issuance, and provided
Borrower is not in default under this Agreement or any of the Related Documents,
the Bank shall extend the Termination Date of the Letter of Credit for a period
of three (3) additional years, either by amendment of the Letter of Credit or
replacement of the Letter of Credit. The Bank will notify the Trustee and the
Borrower in writing within thirty (30) days following receipt of such notice
whether the conditions set forth in this Reimbursement Agreement have been met
for renewal of the Letter of Credit for an additional three (3) year period. The
Bank shall, within 15 days of payment by the Borrower to the Bank of all fees
payable pursuant to Article IV hereof (if such payment be made no later than 30
days before the Termination Date), deliver to the Trustee an amendment to the
Letter of Credit, which amendment shall extend the Termination Date for the
three (3) year period or deliver a replacement Letter of Credit, which
replacement shall be for a term equal to the three (3) year period. The amended
or replacement Letter of Credit shall not be effective until the Termination
Date of the Letter of Credit being amended or replaced.
The Borrower agrees and acknowledges that this agreement of the Bank to
extend or renew the term of the Letter of Credit (as set forth in this Section
2.02), does not and shall not constitute an express or implied commitment or
other promise of any nature whatsoever by the Bank to extend credit at any
future date, even if, for example, the then financial condition of the Borrower
equals or exceeds its current financial condition or even though the Letter of
Credit will expire before the Bonds mature if the Bank determines not to renew
or extend the Letter of Credit.
If the Letter of Credit is extended for an additional three (3) year period
pursuant to this Section 2.02, this Agreement and each Related Document (or such
substitute documents to which the Bank may in its sole discretion, accept in
writing) shall continue and be effective for said extension or renewal period(s)
until all sums of every nature whatsoever due or to become due the Bank have
been paid in full.
SECTION 2.03. Increase or Reduction of Stated Amount and Reinstatement.
--------------------------------------------------------
The Stated Amount of the Letter of Credit shall be decreased and reinstated
according to the terms of the Letter of Credit.
ARTICLE III
REIMBURSEMENT OBLIGATION AND INTEREST
SECTION 3.01. Reimbursement Obligations. Any sums drawn under the Letter
-------------------------
of Credit and paid by the Bank shall constitute value requested by and given to
or for the benefit of the Borrower and shall be an unconditional, absolute and
irrevocable obligation hereunder of the
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<PAGE>
Borrower to the Bank. The Borrower hereby promises to pay the principal and
interest on the Bonds by reimbursing the Bank for the full amount of any
drawings under the Letter of Credit notwithstanding any cancellation or payment
of Bonds. The Borrower further promises to repay to Bank the full amount of any
drawing under the Letter of Credit, and to pay all sums due or to become due
hereunder, in the manner and at the times provided in this Agreement
(collectively, "Reimbursement Obligations").
SECTION 3.02. Reimbursement and Loans.
-----------------------
(a) Reimbursement of A and B Drawings. The Borrower agrees to
---------------------------------
reimburse the Bank in immediately available funds for the amount of any A or B
Drawing made under the Letter of Credit by 2:00 p.m. local time in Seattle,
Washington, on the date of any such Drawing simultaneously with or immediately
following the Bank's payment of such Drawing. The Borrower's Reimbursement
Obligation with respect to such A or B Drawing shall be immediately due and
payable without notice, presentment, demand, protest, or other notice of any
kind, all of which are hereby waived by the Borrower.
(b) Reimbursement of C Drawings. The Borrower agrees to reimburse the
---------------------------
Bank in immediately available funds, an amount equal to all C Drawings under the
Letter of Credit as follows: On the first day of the first month following each
C Drawing, interest shall be payable on the outstanding unreimbursed amount of
such C Drawing from the date such Drawing was honored by Bank until the end of
the first month following such C Drawing at the Prime Rate, together with the
amount of any Debt Service payments required under Section 7.01(Y) of this
Agreement, if any. Commencing with the first day of the second month following
each such C Drawing and on the first day of each and every month thereafter,
interest shall be payable on the outstanding unreimbursed amount of such C
Drawing from the first day of the second month following such C Drawing until
payment (including prepayment) in full thereof, at the Prime Rate plus one
percent (1%) per annum, together with the amount of the Debt Service payments
required under Section 7.01(Y) of this Agreement, if any; provided, however,
that the full amount of all C Drawings shall be paid upon the earlier of (i) the
first day of the 13th month following the date of such C Drawing or (ii) the
Termination Date. The Borrower may prepay any Reimbursement Obligations under
this Section 3.02(b) in full or in part at any time without premium or penalty.
(c) Acceleration. If at any time that a Reimbursement Obligation is
------------
outstanding under Section 3.02(b), a Drawing on the Letter of Credit is made
because of or in connection with: a default under the Indenture; notice is
received by the Trustee from the Bank in the form of Annex D to the Letter of
Credit as a result of the occurrence of an Event of Default under the
Reimbursement Agreement and the period stated therein regarding expiration of
the Letter of Credit has expired; the Letter of Credit expires for any other
reason; or there is an Event of Default hereunder, then the full amount of
principal due or to become due under Section 3.02(b), the full amount of all
interest accrued thereon, and any other sum due or to become due under this
Agreement shall be immediately due and payable without notice to the Borrower,
presentment, protest or other notice of any kind, all of which are hereby waived
by the Borrower, and the Borrower shall repay all of the aforesaid amounts in
full on the date of such
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acceleration. If at any time a Reimbursement Obligation is outstanding under
Section 3.02(b), any Bonds which were the subject of the Drawing creating the
Reimbursement Obligation are redeemed or otherwise paid or defeased, then the
full amount of principal, interest and premium due or to become due under
Sections 3.02(a) and (b) with respect to the portion of the Reimbursement
Obligation which corresponds to such Bonds, shall be immediately due and payable
without notice to the Borrower, presentment, protest or other notice of any
kind, all of which are hereby waived by the Borrower, and the Borrower shall
repay such amounts in full on the date of such redemption, payment or
defeasance.
(d) Prepayment. The obligation to pay any amount due under Section
----------
3.02(b) may be prepaid in full or in part at any time without premium or
penalty. Any partial prepayment, or any interest paid to the Bank on the Pledged
Bonds, shall be applied to the Borrower's obligations to the Bank in the inverse
order of maturity and shall first be applied to fees or other charges, then to
interest and then to principal, in the sole discretion of the Bank.
(e) Prior Deposit for Optional or Extraordinary Redemption or
---------------------------------------------------------
Purchase. If the Borrower determines to exercise its option to cause the
redemption of any or all of the Bonds pursuant to Section 602 of the Indenture,
the Borrower shall deposit with the Bank all sums necessary to effect any such
optional redemption or purchase and to pay any premium in connection therewith,
at least 125 days before the date of any drawing for the proposed optional
redemption or purchase; provided, however, that no such deposit shall be
required with respect to optional redemption of Bonds made from the Debt Service
payments required under Section 7.01(Y) of this Agreement. The Borrower shall
not request the Trustee to optionally redeem Bonds nor shall any drawing be
allowed under the Letter of Credit for such redemption unless such deposit is
timely made. Such sums shall include the principal amount of all Bonds to be
redeemed (including, but not limited to all amounts necessary to purchase any
Pledged Bonds), the full amount of any premium due or to become due thereon, and
all interest accrued thereon at the assumed rate of twelve percent (12%) per
annum based on a year of 365/366 days.
The Borrower agrees that so long as no Event of Default has occurred and is
continuing, (i) it will redeem or purchase all Pledged Bonds before any other
Bonds, and (ii) it will redeem or purchase all Taxable Bonds before any Tax-
Exempt Bonds, and before defeasance of any Bonds pursuant to Article XII of the
Indenture, and that such redemption or purchase, together with the full amount
of any premium due upon optional or extraordinary redemption or purchase of
Pledged Bonds or the Bonds shall be made from funds of the Borrower and not from
drawings on the Letter of Credit.
So long as no Event of Default has occurred and is continuing under this
Agreement or any Related Document, any monies held by the Bank pursuant to the
first paragraph of this Section 3.02(e) shall be invested by the Bank in such
interest bearing investment obligations which qualify as Permitted Investments
under the Indenture as may be directed by the Borrower from time to time;
failing such direction, the Bank shall have sole discretion to determine all
investments, if any; provided, however, that all such investments shall be
Permitted Investments as defined in the Indenture. The Borrower agrees to
indemnify and hold the Bank harmless from and against any responsibility or
liability for any loss incurred in the making of any investment at
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the express direction of the Borrower as provided herein or upon written
directions received from the Borrower, other than as a result of the Bank's
negligence or willful misconduct. All interest received on said investments
shall be credited by the Bank to any sums due or to become due Bank by Borrower.
SECTION 3.03. Manner, Method, Place and Time of Payment. All payments
-----------------------------------------
made or caused to be made by the Borrower to the Bank shall be made in lawful
currency of the United States and in immediately available funds to Bank at
Seattle, Washington. Any payment received after 2:00 p.m. local time in Seattle,
Washington, shall be deemed to have been received on the next Business Day, and
the date for payment thereof shall be extended to the next succeeding Business
Day. However, the Borrower shall pay to Bank, on demand, default interest on
said payment for such extended time at the interest rate set forth in Section
4.06 hereof, and the extended time shall be included in the computation of fees
and other charges. All payments under this Agreement shall be made without
counterclaim, set-off, condition or qualification and free and clear of and
without deduction for any Taxes, levies, imposts, deductions or charges of any
nature whatsoever.
SECTION 3.04. Obligation to Pay Unconditional. The Borrower's
-------------------------------
obligation to reimburse or pay the Bank hereunder is absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including without limitation the
following circumstances:
(i) any lack of validity or enforceability of this Agreement,
the Bonds or any of the Related Documents;
(ii) any amendment, waiver, release or termination of or any
consent to or departure from the terms of the Bonds or any of the Related
Documents which is not consented to by Bank;
(iii) the existence of any claim, set-off, defense or other right
which the Borrower may have at any time against any Person, whether in
connection with said documents or any related or unrelated transaction;
(iv) any demand, statement or any other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or not in compliance with the terms of the Letter of Credit or
any Related Document or any statement therein being untrue or inaccurate in any
respect whatsoever;
(v) any determination of invalidity or unenforceability of the
Letter of Credit after payment by the Bank thereunder;
(vi) any failure to reduce or reinstate the Stated Amount; or
(vii) any other circumstance, happening or omission, whether or
not similar to any of the foregoing.
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The liability of the Borrower hereunder and under any Related Document shall be
reinstated and revived and the rights of Bank shall continue, with respect to
any amount at any time paid by or on behalf of the Borrower which amount shall
thereafter be required to be restored, returned or forfeited by the Bank
pursuant to any law, and the Borrower's liability therefor shall continue as if
such amount had not been paid.
SECTION 3.05. Evidence of Debt. The books and records of the Bank shall
----------------
be conclusive evidence, absent manifest error, of all amounts of principal,
interest, fees and other charges advanced, outstanding or repaid pursuant to
this Agreement or any Related Document to which the Bank is a party. The Bank
agrees to provide Borrower periodic statements of amounts advanced, outstanding
or repaid under this Agreement or any Related Documents and shall also provide
statements to the Borrower upon its written request.
ARTICLE IV
OTHER PAYMENTS
SECTION 4.01. Letter of Credit Issuance, Annual and Agency Fees. The
-------------------------------------------------
Borrower has agreed to pay the Bank certain issuance, annual and agency fees
relating to the Letter of Credit as set forth in the separate underwriting
letter between Borrower and Bank dated July 1, 1998.
The issuance fee, annual fees, agency fee and all other fees of any
letter of credit amended, extended, replaced or renewed pursuant to Section 2.02
hereof shall be established by the Bank in its sole discretion at the time of
such amendment, extension, replacement or renewal. In the event Borrower
requests an extension of the Letter of Credit pursuant to Section 2.02 which the
Bank is willing to grant, but Borrower objects to such fees, Borrower shall have
the right to withdraw, without cost or penalty the request for such amendment,
extension, replacement or renewal. Such fees shall at least include the category
of fees referenced in this Article IV (in amounts which may be less than, equal
to or exceed the amounts referenced herein) and such additional fees as the Bank
then deems appropriate in its sole discretion. The foregoing fees and all other
fees in this Article IV are or are deemed to be fully earned and nonrefundable.
SECTION 4.02. [Intentionally deleted].
SECTION 4.03. Other Fees.
----------
(a) Transfer Fee and Amendments. The Bank agrees to issue a substitute
---------------------------
Letter of Credit to any successor Trustee duly appointed pursuant to the
Indenture and applicable law upon surrender to the Bank of the original Letter
of Credit together with payment to the Bank of the fee then established by the
Bank's Letter of Credit Department together with any attorneys' fees or other
expenses incurred by the Bank in connection therewith. The Bank's current
transfer fee is $500.00. The Borrower agrees to pay the fees and expenses to the
Bank on the day of any amendment or replacement to the Letter of Credit if to
effectuate said amendment, a written change is made to the Letter of Credit or
an amended, substitute, replacement or additional Letter of Credit is issued. As
used herein, "amendment" shall not include any documents the Bank
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determines to issue to reflect a reduction of the Stated Amount but shall
include each reinstatement (other than an automatic reinstatement) of any
portion of the Stated Amount. In the event the Bank extends the Letter of Credit
pursuant to the provisions of Section 2.02 hereof the Borrower shall pay Bank an
extension fee in an amount determined by Bank.
(b) Draw Fee. Upon each draw under the Letter of Credit, the Borrower
--------
agrees to pay the Bank on demand, a draw fee in the amount then established by
the Bank's Letter of Credit Department. The initial draw fee for draws made
under the Letter of Credit during 1998 is $100.
(c) Cancellation Fee. If the Letter of Credit is canceled, or if the
----------------
Letter of Credit is substituted with an Alternate Letter of Credit prior to the
Termination Date, the Borrower agrees to pay the Bank a cancellation fee of one-
tenth of one percent (.10%) of the then Stated Amount of the Letter of Credit,
and shall cause the Trustee to tender to the Bank the fee with the original
Letter of Credit then outstanding; provided, however, that no such cancellation
fee is payable from and after the fourth anniversary of the Date of Issuance or
if the Letter of Credit is cancelled or is substituted with an Alternate Letter
of Credit because the Bank has defaulted under the Letter of Credit, the Letter
of Credit is unenforceable or the short-term deposit rating of the Bank is
reduced below A by Moody's Investors Services. No cancellation shall be
effective to discharge or reduce the liability of the Borrower to pay the annual
and agency fees payable pursuant to Section 4.01 hereof for the year in which
such cancellation occurs or to pay all other sums due the Bank under this
Agreement or any Related Document. Until such sums are fully paid to the Bank,
no such cancellation shall diminish or affect any security or other interest
granted to or for the benefit of the Bank.
SECTION 4.04. Increased Costs. If any law or regulation or if the
---------------
adoption of, or any change in, any law, regulation, guideline or request from
any central bank or financial, monetary or other supervisory or governmental
authority (whether or not having the force of law), or in the interpretation
thereof by any court or administrative or governmental body charged with the
administration thereof, shall impose on the Bank any condition affecting or
relating to this Agreement, to any Related Document evidencing an obligation of
the Borrower to the Bank, or to the Letter of Credit, the result of which shall
be to reduce the rate of return on the Letter of Credit or this Agreement to a
level below which the Bank could have achieved but for such law or regulation or
shall increase the cost to the Bank of issuing or maintaining the Letter of
Credit (or any substitute, additional, renewed or amended Letter of Credit) or
of funding amounts drawn thereunder, including but not limited to any law,
regulation or change which shall (a) impose, modify or deem applicable any
capital adequacy requirement, reserve, special deposit or similar requirement or
impose any insurance premium or assessment against letters of credit issued by,
or assets held by the Bank, or (b) require or make advisable (in the opinion of
legal counsel to the Bank), qualification, registration, filing or any other act
by the Bank to avoid violation of or to effect compliance with any law or
regulation (or judicial, administrative or regulatory decision, interpretation,
opinion, order, agreement, directive or request regarding same) relating to
underwriting, selling, distribution of, marketing or dealing in securities; or
(c) subject the Bank to any Tax, charge, fee, deduction or withholding of any
kind whatsoever, then, upon demand therefor, the Borrower shall pay to the Bank
additional amounts which shall be sufficient to compensate the Bank for such
reduction in the rate of return or increased cost, together with
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interest on each such amount from the date said amount is due until payment in
full thereof at the Prime Rate. The amount of any reduction in the rate of
return or increase in cost shall be the result of the Bank's good faith
discretionary allocation of the aggregate of such reduction or cost increases
resulting from such events; the Bank shall in connection with its demand for
such additional amounts furnish to the Borrower a certificate setting forth with
reasonable explanation such increased cost incurred by the Bank; absent manifest
error, said certificate shall be conclusive as to the amount thereof. The Bank
shall use its best efforts to promptly demand payment pursuant to this Section
4.04. Notwithstanding anything in this Section 4.04 to the contrary, the
Borrower is not obligated to pay the Bank any additional amounts resulting from
an increase in federal or state income tax rates or state business and
occupation tax rates of general application to all taxpayers.
SECTION 4.05. Payment of Expenses and Fees; Applicability.
-------------------------------------------
(a) Upon demand therefor, the Borrower agrees to pay to the Bank all
of its out-of-pocket or incurred costs, reasonable attorneys' fees, fees of
collection or other agents, and other fees and expenses of every nature
whatsoever (hereinafter, collectively "Costs and Fees") directly or indirectly
incurred in connection with the development, review, execution, amendment,
renewal, extension, forbearance (if any), refinance, renegotiation or
restructure of this Agreement or any Related Document and any other document
prepared or service performed in connection herewith or therewith; the Borrower
shall also pay the fees charged from time to time by rating agencies for any
rating or "preference opinion," if any, regarding the Bonds (but not regarding
any general rating of the Bank not related to the Bonds). Upon demand therefor,
the Borrower further agrees to pay to the Bank all Costs and Fees (whether or
not a lawsuit is brought) incurred in collecting any sums due the Bank by the
Borrower or incurred by Bank in protecting, enforcing or preserving its rights
under this Agreement or any of the Related Documents, all whether or not suit is
brought and including but not limited to all Costs and Fees incurred in any
court action, arbitration, mediation, on appeal, in any bankruptcy or state
receivership or other insolvency or similar proceedings or circumstances, in any
forfeiture or other proceeding that could affect the Bank's rights under this
Agreement or in any security therefor.
(b) The obligations of the Borrower under Section 4.04 and Section
4.05 of this Agreement shall (i) survive until all sums due Bank under this
Agreement or any Related Document have been paid in full, notwithstanding any
termination of the Letter of Credit or payment of the Bonds; and (ii) include
any reduction in the rate of return, increased costs, and Costs and Fees
incurred by any Participant.
SECTION 4.06. Calculations; Default Interest; Compounded Interest.
---------------------------------------------------
Except as otherwise expressly set forth in this Agreement, all computations of
interest and fees under this Agreement shall be made on the basis of a 360 day
year and actual days elapsed. Interest shall accrue during each period from but
excluding the first day thereof to and including the last day thereof. In the
event that any payment due hereunder shall not be made within fifteen (15) days
of the date when due, a late charge of five cents ($.05) for each dollar ($1.00)
so overdue (the "Late Charge Fee") may be charged by Bank for the purpose of
defraying the expense incident to
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<PAGE>
handling such delinquent payments. Such Late Charge Fee represents the
reasonable estimate of Bank and Borrower of a fair average compensation for the
loss that will be sustained by Bank due to the failure of Borrower to make
timely payments. Such Late Charge Fee shall be paid without prejudice to the
right of Bank to collect any other amounts provided to be paid or to declare an
Event of Default hereunder or under the Deed of Trust. If an Event of Default
occurs, then the interest rate applicable in calculating any defaulted payments
from the due date of the defaulted payment shall be the Default Rate and the
Late Charge Fee shall apply to any such payments. All amounts that are not paid
when due under this Agreement shall bear interest at the Prime Rate plus five
percent (5%) per annum (the "Default Rate"), from the time due until paid. All
interest not paid when due shall be added to principal and interest shall
thereafter accrue on said increased principal amount. All amounts due hereunder
shall be paid in United States dollars.
ARTICLE V
CONDITIONS
SECTION 5.01. Conditions Precedent to Issuance of Letter of Credit.
----------------------------------------------------
(a) The Bank will issue the Letter of Credit upon the request of the
Borrower in accordance with Section 2.01 and subject to fulfillment of the
conditions set forth in subsections (b), (c) and (d) below.
(b) The Bank shall have received on or before the Date of Issuance
the following, each addressed to the Bank and dated on or as of such date, in
form and substance satisfactory to the Bank:
(i) copies of (a) the current Articles of Incorporation of
the Borrower certified by the Secretary of State of the State of Nevada, (b)
bylaws of the Borrower certified by the Borrower as true and correct; (c)
Certificate of Good Standing issued by the Secretary of State of the State of
Nevada, (d) Certificate of Registration or Qualification of Borrower as a
foreign corporation authorized to transact business in the State of Ohio,
certified by the Secretary of the State of Ohio, and (e) Certificate of Good
Standing issued by the Secretary of State of the State of Ohio, copies of each
document as amended to the date of certification, which copies shall have been
delivered to Bank's counsel at least one week prior to Closing;
(ii) evidence satisfactory to the Bank of the adoption by
the Borrower and the Issuer of each Related Document to which either is a party
and of this Agreement;
(iii) an opinion of bond counsel in form and substance
satisfactory to the Bank and covering such matters relating to the transactions
contemplated by this Agreement and the Related Documents as the Bank may
reasonably request;
(iv) an opinion of independent counsel selected by the
Borrower (subject to Bank's reasonable approval) in form and substance
satisfactory to the Bank and covering such matters relating to the transactions
contemplated by this Agreement and the
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<PAGE>
Related Documents as the Bank may reasonably request. The Borrower hereby
requests and instructs its independent counsel to issue such an opinion;
(v) a certificate of the Secretary of the Borrower,
certifying (a) the name and true signature of the officers of the Borrower
authorized to enter into and execute this Agreement and the Related Documents on
behalf of the Borrower; (b) that the documents delivered pursuant to Section
5.01(b)(i) have not been amended or canceled since the date of certification
thereunder; and (c) the certificate described in paragraph (c) below;
(vi) the amounts specified to be paid on the Date of
Issuance pursuant to Section 4.01, establishment of the account contemplated by
Section 7.01(Y) and proof of insurance required hereunder or under any Related
Documents;
(vii) application for the Letter of Credit;
(viii) copies of all agreements (including but not limited to
each Related Document) and documents, including records of corporate
proceedings, governmental approvals and incumbency certificates executed in
connection with the transactions contemplated by this Agreement and the Related
Documents, all certified to the extent requested by the Bank;
(ix) Environmental Questionnaire and environmental reports
for each of the real properties constituting the Project satisfactory to Bank;
(x) ADA Questionnaire and Disclosure Statement and ADA
Certificate of Compliance for each of the real properties constituting the
Project satisfactory to Bank;
(xi) A copy of Borrower's most recent Form 10-K and 10-Q as
filed with the Securities and Exchange Commission;
(xii) A soils investigation report for each of the real
properties constituting the Project from a soils engineer in form and substance
satisfactory to Bank if requested by Bank;
(xiii) Evidence acceptable to Bank that all utility services
necessary for the uninterrupted and orderly operation of each of the real
properties constituting the Project is available to the boundaries thereof and
that all connections have been made to abutting public water, sewer, storm
drains, gas and electrical facilities;
(xiv) Evidence acceptable to Bank that each of the real
properties constituting the Project is accessible via completed, dedicated
streets which have been accepted for public maintenance and use by the
appropriate City and/or County, depending on each location, or that an easement
creating a perpetual right of public access to a publicly dedicated street, road
or highway is in effect;
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<PAGE>
(xv) If requested by Bank, an ALTA survey for each of the
real properties constituting the Project certified to and satisfactory to Bank
and the title insurance company that will be insuring the Mortgage for each of
the real properties constituting the Project;
(xvi) Budgets for each of the real properties constituting
the Project (including certified final cost breakdown) satisfactory to Bank;
(xvii) Final certificates of occupancy for each of the real
properties constituting the Project;
(xviii) All licenses, permits and approvals necessary to own
and operate each of the real properties constituting the Project from all
governmental authorities with jurisdiction over the Project;
(xix) each of the documents required to be delivered to the
underwriters pursuant to the Bond Purchase Agreement between the Issuer and the
underwriters regarding the Bonds;
(xx) Bank acknowledges receipt of MAI appraisals for each of
the real properties constituting the Project. Notwithstanding any provision of
this Agreement to the contrary, the Stated Amount of the Letter of Credit shall
not exceed the lesser of (a) 75% of the Appraised Value, or (b) 75% of
construction costs. Appraised Value shall mean the value for each of the real
property constituting the Project determined by the Bank after internal review
of an MAI appraisal report prepared in accordance with FIRREA requirements.
(xxi) such other documents, interpretations, instruments,
approvals or opinions as the Bank or its counsel may reasonably request.
(c) The representations and warranties of Borrower contained in
Section 6.01 hereof and in each Related Document shall be correct, accurate and
complete on and as of the Date of Issuance as though made on and as of such date
and no Event of Default and no condition or event which, with the giving of
notice or lapse of time or both, would become such an Event of Default, shall
have occurred and be continuing on the Date of Issuance and the Bank shall have
received a certificate signed by an authorized official of the Borrower, dated
the Date of Issuance, to that effect. As used in this paragraph, "Date of
Issuance" shall include any date the Letter of Credit is amended, extended or a
Substitute Letter of Credit is issued.
(d) On or before the Date of Issuance:
(i) all conditions precedent to the issuance of the Bonds
shall have occurred; and
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(ii) the Borrower (and all other parties, as
appropriate) shall have duly executed, issued and delivered the Bonds, this
Agreement, the Related Documents and all other documents or instruments referred
to, required by or related to the aforesaid.
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.01. Representations, Warranties and Covenants of Borrower.
-----------------------------------------------------
The warranties, representations, and covenants of Borrower contained in this
Agreement or in any Related Document shall be deemed to have been relied upon by
Bank regardless of any investigation made by Bank or on its behalf and shall be
true and correct on the Date of Issuance and on the date of each disbursement of
Bond proceeds out of the Mortgage Loan Fund held by the Trustee. The Borrower
hereby represents, warrants, covenants and agrees with the Bank that:
6.01(A) Organization and Standing. Borrower is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the state of
Nevada and has the power to own and operate each of the real properties
constituting the Project and carry on its business as now being conducted; is
authorized to do business in every state, county, city or other jurisdiction in
which the nature of the Project, its business or property makes such
qualification necessary including, but not limited to, the State of Ohio; the
name "Assisted Living Concepts, Inc." is the exact, true and correct name of
Borrower as set forth in its Articles of Incorporation, as amended from time to
time; Borrower has filed with the Ohio Secretary of State a Certificate of Trade
Name for all business or assumed trade names under which Borrower has done, does
or may do business, except to the extent no such filing is required by law. The
Borrower is the successor by merger to CCL Sub, Inc., a wholly owned subsidiary
of Concepts in Community Living, Inc. Certain of the facilities presently owned
by the Borrower were purchased by the Borrower from Madras Elder Care, Lincoln
Community Partners and Assisted Living Concepts Group, entities which are or
were Affiliates of the Borrower or its chief operating officer, Keren Brown
Wilson. The Borrower's chief executive office and principal place of business is
Portland, Oregon. Except as set forth above, the Borrower has not changed its
name or changed its principal place of business within five years and one month
prior to the date hereof.
6.01(B) Corporate Authorization. All corporate action on the part
-----------------------
of Borrower, its officers, directors or shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and each
Related Document to which it is a party has been duly taken. Borrower has full
power and authority (corporate or otherwise) to execute, deliver and perform
this Agreement and each Related Document to which Borrower is a party, and to
perform and observe the terms and conditions hereof and thereof.
6.01(C) Enforceability. This Agreement and the Related Documents,
--------------
when executed and delivered by the Borrower, will be the legal, valid and
binding agreements of the Borrower, enforceable in accordance with their
respective terms, except to the extent that the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, or other similar laws
affecting the rights of creditors generally.
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6.01(D) Consents or Approvals. No consent, approval, permission,
---------------------
authorization, or license of any Person with a ownership interest in Borrower or
with a Lien on any asset of Borrower, or of any trustee, issuer or holder of any
Indebtedness or Contractual Obligation of Borrower, and no consent, approval,
permission, authorization, order or license of any Governmental Body is
necessary in connection with the execution, delivery and performance of any
Related Documents to which Borrower is a party or any transaction contemplated
hereby or thereby to be performed by Borrower, except as may have already been
obtained by Borrower and copies certified as to accuracy by Borrower which have
been delivered to Bank on or prior to the Date of Issuance.
6.01(E) Restrictions. There is no provision in the articles of
------------
incorporation or bylaws of Borrower or any Requirement of Law binding on
Borrower which would be contravened by the execution and delivery of this
Agreement or any Related Documents to which Borrower is a party or by the
performance of any provision, condition, covenant, or other terms hereof or
thereof.
6.01(F) Litigation. Other than as disclosed in Exhibit E hereto or
----------
in the financial statements referenced in Section 6.02(H), there is no pending
or threatened litigation, Tax claim, action or other proceeding or dispute of
any nature whatsoever affecting the Borrower before any Governmental Body, which
could have a Material Adverse Effect on the legal existence or powers of the
Borrower or its financial condition or operations or have a Material Adverse
Effect on the ability of Borrower to perform its obligations under this
Reimbursement Agreement and/or any Related Documents, and Borrower is not in
default with respect to any Requirement of Law that might result in any such
effect.
6.01(G) No Violation. To the best of Borrower's knowledge, the
------------
Borrower is in compliance with all Requirements of Law with respect to which any
failure to comply could have a Material Adverse Effect. The execution, delivery
or performance of this Agreement and each Related Document, the consummation of
the transactions contemplated herein and therein and compliance with the terms
and provisions hereof or thereof to be performed by the Borrower does not and
will not conflict with or result in a breach of any of the terms, conditions or
provisions of the articles of incorporation or bylaws of the Borrower or, to the
best of Borrower's knowledge, of any Requirement of Law or of any Contractual
Obligation or constitute a default thereunder or result in the creation or
imposition of any Lien (except in favor of Bank) upon any of the property of the
Borrower pursuant to the terms of any such Contractual Obligation or Requirement
of Law. Borrower is not in default under any existing Indebtedness.
6.01(H) Financial Information. All financial statements and other
---------------------
information and data furnished by the Borrower to Bank are complete and correct;
have been prepared in accordance with GAAP, except as noted therein; and
accurately and fairly represent the financial condition of Borrower and the
results of operations of the Borrower as of such dates. There has been no change
in the financial condition of Borrower or results of operation of any of the
real properties constituting the Project since the date of the audited financial
statements of Borrower dated December 31, 1996 and Form 10-Q of Borrower dated
March 31, 1997, of such a character as to materially impair the ability of the
Borrower to reimburse the
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Bank for any drawing made under the Letter of Credit in accordance with the
terms hereof or thereof; and the Borrower has no Contingent Obligations except
as may be disclosed from time to time in Borrower's most recent Form 10-K and
Form 10-Q filed by the Borrower with the Securities and Exchange Commission,
except for the obligations hereunder and under any Related Document of the
Borrower.
6.01(I) Liens and Encumbrances. Borrower represents and warrants
----------------------
that at the time of the delivery of the Mortgage or amendment thereto (i)
Borrower is lawfully possessed and is the lawful owner of fee simple title to
the applicable Project; (ii) such Project is free and clear of any deed of
trust, mortgage, Lien, charge or encumbrance thereon or affecting the title
thereto, except (i) Liens regarding such Project which are shown on Schedule B
to the policy of title insurance Bank agrees in writing to accept, and (ii)
property tax liens for Taxes not yet delinquent by nonpayment.
6.01(J) Business Authorizations. To the best of Borrower's
-----------------------
knowledge, the Borrower possess all patents, patent rights or licenses,
trademarks, trademark rights, trade names or trade name rights and copyrights
required to conduct its business as now conducted without conflict with the
rights or privileges of others.
6.01(K) Taxes. The Borrower has filed or caused to be filed and
-----
will continue to file or timely cause to be filed, all Tax returns that are
required to be filed (except for extensions applied for and disclosed to the
Bank), has paid (or will cause to be paid) all Taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other Taxes, fees or other charges imposed on it or any of its property by
any Governmental Body (other than those the amount of which is currently being
contested in good faith and by appropriate proceedings and with respect to which
reserves in conformity with GAAP to which Bank has consented have been provided
on the books of the Borrower), and has fully satisfied or provided for all of
its sales and use tax, withholding tax and unemployment tax liabilities; and no
Tax liens have been filed and, to the knowledge of the Borrower, no claims are
being asserted with respect to any such taxes, fees or other charges.
6.01(L) Investment Company Act. The Borrower is not an "investment
----------------------
company" or a partnership "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
6.01(M) Federal Reserve Board ("FRB") Regulations. The Borrower is
-----------------------------------------
not engaged and will not engage, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of such terms
under FRB Regulation U. No part of the proceeds of the Bonds will be used for
"purchasing" or "carrying" "margin stock" as so defined or for any purpose that
violates, or would be inconsistent with, the provisions of the regulations of
the Federal Reserve Board. If requested by Bank, Borrower will furnish to the
Bank a statement in conformity with the requirements of Federal Reserve Form U-1
referred to in Regulation U to the foregoing effect. Further, the Borrower is
and shall remain in compliance with FRB
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Regulation B (12 C.F.R. Part 202) in connection with any credit extended now or
hereafter by the Borrower.
6.01(N) Incorporated Representations, Warranties and Covenants. The
------------------------------------------------------
Borrower hereby specifically makes to the Bank each and every representation,
warranty, and covenant made by the Borrower in the Indenture, the Remarketing
Agreement and any applicable Related Document, each of which representations,
warranties and covenants are incorporated herein by this reference (except to
the extent any of the aforesaid would contradict adversely to the Bank any
representation, warranty or covenant contained herein other than by
incorporation). All warranties, representations, and covenants made by the
Borrower herein or in any certificate or other document delivered by it or on
its behalf pursuant to this Agreement and each Related Document shall be deemed
to have been relied upon by the Bank and shall be true and correct on the Date
of Issuance and on the date of each disbursement of Bond proceeds out of the
Mortgage Loan Fund held by Trustee.
6.01(O) Information Correct. No information, exhibit, or report
-------------------
furnished by Borrower to the Bank or any other Person in connection with this
Agreement or any of the Related Documents contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make the
statements contained therein not misleading. The Borrower has disclosed to the
Bank all information about the Borrower which would be of material interest to a
reasonably prudent lender. There is, to the best of the Borrower's knowledge, no
fact which would have a Material Adverse Effect on its business, prospects,
condition, affairs or operations of Borrower or any of its properties or assets
which has not been disclosed to the Bank in writing.
6.01(P) Compliance with ERISA. Borrower is in substantial
---------------------
compliance with ERISA and the Code as to each "Plan" as defined in Section 1.01
of this Agreement.
As to each Plan maintained by Borrower:
(i) Such Plan has been maintained in substantial compliance
with all statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, applicable to such Plan.
(ii) No "reportable event," as such term is used in Section
4043 of ERISA, or "prohibited transaction," as such term is used in Section 406
of ERISA or Section 4975 of the Code, or "accumulated funding deficiency," as
such term is used in Section 412 or Section 4971 of the Code (whether or not
such accumulated funding deficiency has been waived), has heretofore occurred
with respect thereto.
(iii) Each such Plan designed to be a qualified plan since its
adoption and to date qualifies and has qualified under Section 401(a) of the
Code, and each trust, if any, established under each such Plan is exempt from
taxation pursuant to Section 501(a) of the Code.
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<PAGE>
(iv) Each such Plan has been administered and enforced
substantially in accordance with its terms, no dispute is pending or threatened
with respect thereto, and substantially all contributions due from employees
thereunder, if any, have been made.
(v) No condition exists that could constitute grounds for
termination of any such Plan.
Borrower has not incurred any material liability under Title IV of ERISA
(which remains unsatisfied as of the date hereof) arising in connection with the
complete or partial termination of, or complete or partial withdrawal from, any
Plan covered or previously covered by Title IV of ERISA; and no condition exists
or event has occurred which would be reasonably likely to result in the
imposition of any such liability upon Borrower nor has Borrower been notified
that any such Plan is in reorganization or is insolvent within the meaning of
sections 4241 and 4245 of ERISA, respectively.
For purposes of this Section 6.01(P) and as referenced in Sections 7.01(E)
and (I) and 8.01(h), the term "Borrower" shall include Borrower and any
corporation, partnership, sole proprietorship or other entity if Borrower and
such other entity or entities are (i) corporations which are members of a
controlled group of corporations as defined in Section 414(b) of the Code, (ii)
trades or businesses (whether or not incorporated) which are under common
control as defined in Section 414(c) of the Code, (iii) members of an affiliated
service group as defined in Section 414(m) or 414(o) of the Code, or (iv) any
combination of the foregoing.
6.01(Q) Americans with Disabilities Act. Each of the real
-------------------------------
properties constituting the Project is and shall at all times be in compliance
with all applicable requirements of the Fair Housing Act of 1968 (as amended)
and the Americans with Disabilities Act of 1990, (as amended) (collectively,
"Acts") and the Borrower shall cause the Project to be continuously in
compliance with such Acts (as the same may be amended from time to time).
Borrower agrees to protect, defend, indemnify and hold Bank harmless from and
against any and all liability threatened against or suffered by Bank by reason
of a breach by Borrower of the foregoing representations and warranties. The
foregoing indemnity shall include the cost of all alterations to the Project
(including architectural, engineering, legal and accounting costs), all fines,
fees and penalties, and all legal and other expenses (including attorneys'
fees), incurred in connection with the Project being in violation of such Acts
and for the cost of collection of the sums due under the indemnity. The
obligations of Borrower under this Section 6.01(Q) shall survive payment in full
of Borrower's obligations under this Agreement, all Related Documents and
termination of the Letter of Credit, and in the event that the Bank shall become
the owner of the Project by foreclosure or deed in lieu of the foreclosure of
any mortgage or deed of trust, the obligations of the Borrower under this
Section 6.01(Q) shall survive such foreclosure or deed in lieu of foreclosure.
6.01(R) No Commissions. Borrower has not made any agreement or
--------------
taken any action that may have caused any Person to become entitled to a
commission or finder's fee as a result of or in connection with the issuance of
the Letter of Credit or any extension of credit by Bank, and in connection
therewith, Borrower agrees to indemnify the Bank and hold the Bank
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<PAGE>
harmless from any and all fees, costs (including attorney fees), and expenses
arising out of any claims by Persons relating to any such commission or fee.
6.01(S) Land Use and Zoning Compliance. Each of the real
------------------------------
properties constituting the Project is a legal use permitted outright under
applicable provisions of the applicable local zoning code. To the best of
Borrower's knowledge, each of the real properties constituting the Project
complies with all applicable subdivision and platting requirements and
constitutes one or more legal lots. To the best of Borrower's knowledge, each of
the real properties constituting the Project and their intended uses comply
fully with all environmental, air quality, zoning, planning, building, health,
safety, labor, discrimination, fire, traffic safety or other governmental rules,
laws, ordinances, statutes, codes and regulations applicable to the ownership,
use, occupancy and operation of the Project.
6.01(T) Permits. Borrower has obtained all permits, licenses,
-------
certificates and approvals necessary to construct, own and operate each of the
real properties constituting the Project as a residential care facility in
compliance with all Requirements of Law. Each of the real properties
constituting the Project has been constructed in compliance with the Plans and
Specifications, and complies in full with all Requirements of Law. All streets,
easements, utilities and related services necessary for the use and operation of
each of the real properties constituting the Project for its intended purpose
are available to each parcel of real property constituting the Project.
6.01(U) Value of Collateral. If a reappraisal is required by any
-------------------
regulatory authority Bank shall have the right to cause said collateral to be
reappraised and the appraisal reviewed both at Borrower's expense.
6.01(V) Special Statutes. Borrower is eligible for reimbursement as
----------------
a health care provider under Ohio state law and the medical and private
insurance programs available in the counties in which any of the real property
constituting the Project are located.
6.01(W) Exemption of Interest from Federal Income Tax. It is the
---------------------------------------------
intention of Borrower that the interest on the Tax-Exempt Bonds be excluded from
the gross income of the registered owners thereof (other than "substantial
users," or "related persons" of substantial users, as such terms are defined in
Section 147(a) of the Code) for federal income tax purposes. To that end,
Borrower represents to Bank that it has not taken any action, and knows of no
action that any other Person has taken, which would cause interest on the Tax-
Exempt Bonds to be included in the gross income of the recipients thereof.
Borrower covenants that it will not take any action or omit to take any action
which, if taken or omitted, would cause interest on the Tax-Exempt Bonds to be
included in the gross income of the owners thereof (other than "substantial
users," or "related persons" of substantial users, as such terms are defined in
Section 147(a) of the Code) for federal income tax purposes.
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ARTICLE VII
FURTHER COVENANTS
SECTION 7.01. Covenants. Until the Letter of Credit is no longer
---------
outstanding and until all sums of every nature whatsoever due or to become due
from Borrower hereunder or under the Related Documents are paid in full, the
Borrower hereby covenants and agrees that unless the Bank shall otherwise
consent in writing, the Borrower shall:
7.01(A) Use of Proceeds. To the extent within Borrower's control,
---------------
take all steps necessary to cause the proceeds of every drawing on the Letter of
Credit to be used solely for the purpose of the payment of principal of or
interest on the Bonds (as appropriate under the Indenture and in accordance with
the terms of the Letter of Credit). To the extent within Borrower's control,
take all steps necessary to cause the Tax-Exempt Bond proceeds to be used solely
for the purpose of payment of Issuance Costs of the Tax-Exempt Bonds and/or the
costs of refinancing the acquisition of the Project which have been approved by
Bond Counsel as eligible for financing with tax-exempt bonds.
7.01(B) Additional Acts. Upon demand by Bank, the Borrower will
---------------
execute and deliver all such instruments (including but not limited to Uniform
Commercial Code continuation statements) and perform all such other acts as the
Bank may reasonably request to carry out the transactions and establish or
preserve the first lien status and priority contemplated by this Agreement or
any Related Document. Borrower shall also furnish to Bank upon demand all
approvals of Governmental Bodies or other Persons as may be required from time
to time to perform its obligations under this Agreement and any Related
Documents or, to the extent such approvals have not yet been issued, use its
best efforts to obtain all necessary approvals.
7.01(C) Financial Statements and Reports. Deliver to Bank in form
--------------------------------
and detail reasonably satisfactory to Bank and, if Borrower now or hereafter has
Subsidiaries, prepared on a consolidated basis:
(i) Quarterly. As soon as reasonably possible and in any
---------
event within forty five (45) days after the close of each quarter, the Form 10-
Qs for Borrower as filed with the Securities and Exchange Commission for such
period and for the portion of the fiscal year ended with such period, all in
reasonable detail and certified by the chief financial officer of the Borrower,
subject to year-end audit adjustments;
(ii) Annual. As soon as reasonably possible and in any event
------
within one hundred twenty (120) days after the close of each fiscal year of the
Borrower, the (1) Form 10-Ks for Borrower as filed with the Securities and
Exchange Commission, and (2) proposed operating budget for the upcoming fiscal
year including proposed Capital Expenditures and such other information as may
be reasonably requested by Bank;
Such balance sheet and income statements shall be accompanied by an unqualified
report and opinion of any one of Ernst & Young LLP, Deloitte & Touche LLP, KPMG
Peat Marwick, Arthur Andersen, Price Waterhouse or Coopers & Lybrand or other
independent public
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<PAGE>
accountants of recognized standing selected by Borrower and approved by Bank,
which approval shall not be unreasonably withheld, which report and opinion
shall be in accordance with generally accepted auditing standards relating to
reporting or, if qualified, the opinion shall not be qualified due to any
limitation in scope of the examination or due to any departure from any
Generally Accepted Accounting Principles, and shall be accompanied by a
statement of such accountants that, in making the audit necessary for the
certification of such financial statements and such report, such accountants
have obtained no knowledge of any Event of Default under Article VIII or under
any other evidence of Indebtedness or of any event which, with notice or lapse
of time, or both, would constitute an Event of Default under Article VIII or
under any other evidence of Indebtedness or, if in the opinion of such
accountants any such Event of Default or other event shall exist, shall include
a statement as to the nature and status thereof;
(iii) Certificates. As soon as reasonably possible, and in any
------------
event within forty five (45) days after the close of each quarter, submit (1) a
certificate executed by the chief financial officer of the Borrower certifying
compliance by the Borrower with the requirements of Section 7.01(G) and stating
whether any noncompliance occurred during the period in question, and containing
the calculations used to document compliance therewith; (2) a certificate
executed by the chief financial officer of the Borrower certifying that all
payments of principal and interest on the Bonds have been made and that all
payments required under the provisions of Section 7.01(Y) have been made; (3) a
certificate executed by the chief financial officer of the Borrower certifying
that there is no event of default, and no event that with the giving of notice,
the passage of time or both would constitute an event of default by Borrower
under this Agreement; and (4) a statement of the chief financial officer of the
Borrower that he has no knowledge of any Event of Default under Article VIII of
this Agreement or of any event which, with notice or lapse of time, or both,
would constitute an Event of Default under Article VIII of this Agreement, or if
in the opinion of the chief financial officer of the Borrower any such Event of
Default or other event shall exist, shall include a statement as to the nature
and status thereof.
(iv) Filings. Copies of all filings made by or concerning the
-------
Borrower with the Securities and Exchange Commission, or any Governmental Body
in the states of Nevada, Oregon, Ohio or Washington delivered to Bank within ten
days of such filing (other than tax returns filed with the taxing authorities
for the states of Nevada, Oregon, Ohio and Washington) and such other
statements, lists of property and accounts, budgets, Capital Expenditure plans,
forecasts, and such other information and reports regarding Borrower or the
Project as Bank may reasonably request.
7.01(D) Notices. Promptly give written notice to the Bank of the
-------
occurrence of any Event of Default or any event which, upon a lapse of time or
notice or both, would become an Event of Default. The Borrower shall promptly
give notice to the Bank of any pending or threatened litigation or other
circumstance or matter of any nature whatsoever, which, in the opinion of a
reasonably prudent lender reasonably exercised, would have a Material Adverse
Effect on the ability of the Borrower to repay any amount due or to become due
hereunder or any other Indebtedness due or to become due, including but not
limited to,
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<PAGE>
Indebtedness due Persons other than the Bank. The Borrower represents and
warrants that no such circumstance or matter exists as of the date hereof.
7.01(E) Compliance with Laws. Conduct its operations and cause
--------------------
those of any Subsidiary to be conducted in material compliance with all
Requirements of Law including but not limited to ERISA (for purposes of ERISA
compliance, "its operations" shall include all operations of the "Borrower" as
defined in Section 6.01(P) of this Agreement), FLSA, Environmental Laws, the
Fair Housing Act of 1968 (as amended) and the Americans with Disabilities Act of
1990 (as amended), land use and zoning, occupational health and safety, or
residential care facility licensure.
7.01(F) Compliance with Agreement and Related Documents. Perform
-----------------------------------------------
and comply with the terms and conditions of this Agreement and each Related
Document.
7.01(G) Financial Covenants. Maintain at all times until all
-------------------
Reimbursement Obligations are paid in full the following on a consolidated
basis:
(i) The difference between Current Assets less Current
Liabilities shall be greater than or equal to $1,000,000, measured quarterly.
For purposes of this calculation, Current Liabilities will exclude payments due
under construction draw requests that have committed takeout financing.
(ii) The sum of Tangible Net Worth plus Convertible Subordinated
Debentures shall be greater than or equal to $175,000,000 measured quarterly.
(iii) The Cash Flow Coverage ratio will be a two-tiered test,
both of which would need to be in default to cause an Event of Default under
this Agreement:
(a) The Borrower's ratio of Net Income (which shall
exclude any restructuring, extraordinary or changes in accounting charges) +
Interest Expense + Depreciation & Amortization divided by Interest Expense +
pro-rata (for the quarter) scheduled principal payments on all Indebtedness +
pro rata (for the quarter) annual fees relating to the Bonds and Letter of
Credit shall be greater than or equal to 1.25:1.00, measured quarterly; and
---
(b) After nine months of operation, all real properties
owned or operated by Borrower which are financed by U.S. Bank Bonds credit
enhanced by a U.S. Bank Letter of Credit shall maintain a financial performance
level such that the sum of their quarterly Net Income + Interest Expense +
Depreciation & Amortization shall exceed the sum of Interest Expense + pro-rata
------------
(for the quarter) scheduled U.S. Bank Bonds principal payments + pro rata (for
the quarter) annual fees relating to the U.S. Bank Bonds and the U.S. Bank
Letters of Credit by 1.25 times, measured quarterly.
In the event Borrower is in default under both of the financial
covenants set forth in 7.01(G)(iii)(a) and (b) above, Borrower shall not be in
default
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<PAGE>
under this Agreement if Borrower deposits $350,000 in cash collateral with Bank
within 30 days and cures such default within 180 days thereafter. Bank will
release the cash collateral to Borrower once Borrower has satisfied the
financial covenants set forth in Section 7.01(G)(iii)(a) and (b) for two
consecutive quarters.
7.01(H) Maintenance and Inspection of Records. The Borrower shall
-------------------------------------
maintain adequate and complete records and books of account in accordance with
Generally Accepted Accounting Principles, which books shall reflect all
financial transactions of the Borrower, in accordance with Generally Accepted
Accounting Principles. The Borrower shall permit any of the Bank's
representatives to visit and inspect any of the properties of the Borrower, to
examine all its books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss its affairs, finances and accounts
with its respective officers, employees and independent public accountants (and
by this provision the Borrower authorizes said accountants to discuss the
finances and affairs of the Borrower with the Bank or its accountants or other
agents) all at such reasonable times and as often as may be reasonably
requested.
7.01(I) Employee Benefit Programs. Conduct its operations so that
-------------------------
the representations, warranties and covenants in Section 6.01(P) with respect to
any Plan continue to be true during the term of this Agreement. For purposes of
this Section 7.01(I), "its operations" shall include all operations of the
"Borrower" as defined in Section 6.01(P) of this Agreement.
7.01(J) Indemnification. Indemnify and hold harmless the Bank from
---------------
and against any and all claims, actions, suits and other legal proceedings and
from and against any and all claims, damages, losses, liabilities, costs or
expenses whatsoever (including, without limitation, interest, penalties, and
reasonable attorneys' fees and expenses) which the Bank may incur (or which may
be claimed against the Bank by any other Person or entity whatsoever (other than
the Borrower) by reason of or in connection with (i) the execution and delivery
or transfer of, or payment or failure to pay under, the Letter of Credit (except
to the extent directly and actually resulting from the gross negligence or
willful misconduct of the Bank); (ii) the execution, delivery, performance,
breach (including but not limited to the inaccuracy when made of any
representation or warranty), enforcement (including affirmative suits and the
defense of any claim or liability whatsoever), collection, administration, and
any amendment of this Agreement or any Related Document (requested by the
Borrower); (iii) the offering, issuance, sale or distribution of the Bonds or
the issuance of the Letter of Credit, including, but not limited to, any
violation or alleged violation of any federal or state securities law or
regulation or restriction of any nature; (iv) any suit, proceeding or
governmental action brought or taken in connection with the execution and
delivery of the Bonds or the use of (or proposed or potential use of) the
proceeds of the Bonds or any drawing under the Letter of Credit; (v) any failure
of the Bank to honor a drawing under the Letter of Credit as a result of a
Government Act (as hereinafter defined); (vi) any loss or liability incurred by
the Bank as a result of or in connection with the use, release or existence of
hazardous wastes, toxic substances or the like on any property upon which any
part of the Project is located, including but not limited to, the property
subject to the Mortgage; or (vii) the Letter of Credit (except to the extent
directly and actually resulting from the gross negligence or willful misconduct
of the Bank), including but not limited to any violations or alleged violations
of securities laws or regulations; it being the intention of
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<PAGE>
the parties that this Agreement shall be construed and applied to protect and
indemnify the Bank against any and all risks set forth in (i) through (vii)
above or otherwise involved in the issuance and maintenance of the Letter of
Credit, all of which risks are hereby assumed by the Borrower, including,
without limitation, any and all risks of the acts or omissions, whether rightful
or wrongful, of any present or future de jure or de facto Governmental Body
------- --------
("Government Acts"). The Bank shall not, in any way, be liable for any failure
by the Bank to pay any draft under the Letter of Credit as a result of any
Government Acts or any other cause beyond the control of the Bank.
Notwithstanding the foregoing, the Borrower shall not be required to indemnify
the Bank for any claims, damages, losses, liabilities, costs or expenses to the
direct and actual extent, caused by (i) the gross negligence or willful
misconduct of the Bank in determining whether a draft or certificate timely and
properly presented under the Letter of Credit complies with the terms of the
Letter of Credit, or (ii) the Bank's wrongful failure to pay under the Letter of
Credit after the timely and proper presentation to it by the Trustee of a draft
and certificate strictly complying with the terms and conditions of the Letter
of Credit and applicable law. Nothing in this Section 7.01(J) is intended to
limit or shall limit any obligation of the Borrower to the Bank, including but
not limited to the Reimbursement Obligations of the Borrower contained in
Article III.
As between the Borrower and the Bank, the Borrower shall assume all risks
of the acts, omissions or misuse of the Letter of Credit by the Trustee or any
transferee of the Letter of Credit ("transferee"). The Bank shall not be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted to the Bank by any party in connection
with the application for and issuance of the Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (ii) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign the Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) for the
use made of the Letter of Credit or any acts or omissions of the Trustee or any
transferee or for failure of the Trustee or any transferee to comply fully with
conditions required in order to draw upon the Letter of Credit; (iv) for errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, wire, telegraph, telex or otherwise, whether or not they be in
cipher; (v) for errors in interpretation of terms (except to the extent actually
and directly resulting from the Bank's gross negligence or willful misconduct);
(vi) for reliance upon an oral statement or telecopy purportedly made or sent by
the Trustee or any transferee in lieu of submission of any draft, annex,
certificate or other document required under the Letter of Credit, or for any
loss or delay in the transmission or otherwise of any draft, certificate or
document required in order to make a drawing under the Letter of Credit or of
the proceeds thereof; (vii) for the misapplication of the proceeds of any
drawing under the Letter of Credit by the Trustee, any transferee or any Person
to whom payment was made pursuant to order of the Trustee or any transferee;
(viii) for payment by the Bank under the Letter of Credit against presentation
of documents which do not strictly comply with the terms of the Letter of
Credit, including failure of any document to bear any or adequate reference to
the Letter of Credit (except to the extent directly and actually resulting from
the gross negligence or willful misconduct of the Bank); (ix) any delay in
giving or failing to give any notice, demand or protest; and (x) for any
consequence arising from causes beyond the control of the Bank, including,
without limitation, any Government Acts. None of
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<PAGE>
the above shall affect, impair, or prevent the vesting of any of the Bank's
rights or powers hereunder.
The Bank shall not be responsible for calculating the amount of,
determining the authority for, or notifying the Borrower with respect to any
draw on the Letter of Credit. In supplementation and not in limitation of the
above provisions, any action taken or omitted by the Bank under or in connection
with the Letter of Credit or the annexes, if taken or omitted in good faith,
shall not put the Bank under any resulting liability to the Borrower.
Upon demand by Bank, the Borrower shall reimburse Bank for any reasonable
legal or other expenses (including attorneys' fees) incurred in connection with
investigating or defending against any of the foregoing. If any action, suit or
proceeding arising from any of the foregoing is brought against the Bank, the
Borrower, to the extent determined by Bank as necessary or advisable in order to
protect the Bank's rights hereunder, will resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
by Borrower (which counsel shall be reasonably satisfactory to the Bank).
Borrower hereby expressly acknowledges that each reference to the Bank in
this Section 7.01(J) is and shall be deemed to be a reference to all officers,
agents, directors and counsel for or of Bank, which Persons shall be indemnified
to the same extent and shall have the same rights and obligations of the Bank as
if specifically named under this Section 7.01(J). The obligations of Borrower
under this Section 7.01(J) shall survive payment in full of Borrower's
obligations under this Agreement, all Related Documents and termination of the
Letter of Credit.
7.01(K) Disclosure. Make all written disclosure necessary to ensure
----------
that this Agreement, the Official Statement and the Related Documents do not
contain any untrue statement of a material fact as to the Borrower and, to the
best of Borrower's knowledge, the Project, and do state all material facts
necessary in order to make such statements contained herein or therein not
misleading in light of the circumstances under which they were made.
7.01(L) Legal Existence. Preserve and maintain its legal existence,
---------------
rights, franchises and privileges in the jurisdiction of its organization and
qualify and remain qualified as a corporation in each jurisdiction where the
failure to so qualify would have a Material Adverse Effect on the business of
the Borrower or its operations. The Borrower shall take all reasonable action
to maintain all rights, privileges and franchises necessary or desirable to the
normal conduct of its business, and will comply with all Contractual Obligations
and Requirements of Law except to the extent that the failure to comply
therewith would not, in the aggregate, have a Material Adverse Effect on the
business, operations, property or financial or other condition of the Borrower.
7.01(M) Maintenance of Business; No Mergers, Etc. Cause its business
----------------------------------------
to be carried on and conducted only in the ordinary course and not merge,
consolidate, reorganize, liquidate, dissolve or otherwise dispose of, terminate
or change the corporate structure of Borrower without the prior written approval
of Bank which approval shall not be unreasonably withheld; provided, however,
that Borrower may, without the prior written consent of Bank,
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merge with another corporation organized under the laws of one of the states of
the United States so long as (a) there is no default and no event that with the
passage of time, the giving of notice, or both, would constitute an Event of
Default under this Agreement or any Related Document either prior to or after
giving effect to such merger; (b) the surviving corporation has a Tangible Net
Worth in excess of $116,818,000; (c) the surviving corporation has a Debt-to-
Worth ratio of no greater than 2.00:1.00 (Debt-to-Worth is defined as Total
Funded Debt divided by Tangible Net Worth); (d) Bank receives an opinion of
nationally recognized bond counsel that any such merger does not affect the tax-
exempt status of interest on the Bonds; and (e) the surviving corporation
expressly assumes all obligations of Borrower under this Agreement and each
Related Document. Borrower shall notify Bank immediately if William McBride III
ceases to be the Chief Executive Officer or Dr. Keren Brown ceases to be Chief
Operating Officer/President of Borrower for any reason whatsoever and shall
provide Bank with the names and qualifications of any successors appointed to
such positions. Borrower shall cause its properties to be maintained, preserved
and kept in accordance with Requirements of Law and in good repair, working
order and condition and cause all needful and proper repairs, renewals and
replacements thereof to be made. Borrower shall not change in any material way
the design, ownership, concept or management of any of the real properties
constituting the Project without the prior written consent of the Bank. Upon
demand of the Bank, Borrower shall correct any structural defect in any of the
real properties constituting the Project or any material departure from the
plans and specifications therefor approved by any Governmental Body or any
encroachment by any part of any of the real properties constituting the Project
or any other structures on or over any building lines, easements, property
lines, or other restricted areas which any survey or inspection reflects.
Borrower shall not sell, lease or otherwise dispose of a significant portion (in
the opinion of Bank) of its properties and assets (except as provided in Section
10.05 of this Agreement) until payment in full of all Indebtedness under this
Agreement, provided, however, that nothing in this Section shall prevent
Borrower from selling, leasing, abandoning or otherwise disposing of worn out or
obsolete property so long as the proceeds of such sale are used to purchase
replacement property of at least comparable quality, value and utility. Borrower
shall not sell, lease or otherwise dispose of more than ten percent (10%) of its
properties and assets (except in the ordinary course of its business) and
distribute such sale proceeds to its shareholders until payment in full of all
Indebtedness under this Agreement without the prior written approval of Bank
which approval shall not be unreasonably withheld.
7.01(N) Claims. Promptly pay or otherwise satisfy, and discharge all
------
of its Indebtedness, Contractual Obligations and all demands and claims against
it as and when the same become due and payable, other than any thereof whose
validity, amount or collectability is being contested in good faith and for
which reserves to which Bank has consented have been set aside.
7.01(O) Liens. Not cause or permit any Liens to be filed against any
-----
of the real properties constituting the Project or any part thereof except those
Liens to which Bank has consented pursuant to the provisions of Section 6.01(I)
or which are permitted pursuant to the provisions of Section 7.01(U).
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7.01(P) Insurance. Maintain for itself such insurance against loss
---------
or damage to any of the real properties constituting the Project of the kinds
customarily insured against by Persons similarly situated, with reputable
companies or with the United States government or any agency or instrumentality
thereof, in such amounts and by such methods as shall be adequate or by a
reasonably prudent amount of self-insurance, and will at all times maintain or
cause to be maintained in full force and effect, with reputable companies and in
such amounts and by such methods as shall be adequate, together with
professional liability (malpractice) insurance and public liability insurance
against loss or damage to it for bodily injury or death in or about any premises
occupied by it, and liability insurance against loss or damage to it for bodily
injury or death or injury to property occurring by reason of the operation by it
of any motor vehicle or other equipment. The requirements of this Section
7.01(P) shall be in addition to insurance provisions contained in the Mortgage
or any other Related Document. Upon demand by the Bank, Borrower shall furnish
to Bank certificates of insurance or duplicate policies evidencing such
insurance together with evidence to the satisfaction of Bank that Bank is shown
as a loss payee to the extent of its insurable interest.
7.01(Q) Third Party Beneficiary. The Borrower acknowledges that in
-----------------------
addition to all rights and benefits of Bank herein, the Bank is a beneficiary of
all representations, warranties, and covenants made by the Borrower to or for
the benefit of owners of Bonds or made in any Related Document to or for the
benefit of any Person.
7.01(R) Special Statutes. To the best of Borrower's knowledge,
----------------
issuance of the Bonds, the proposed use of Bond proceeds, and execution,
delivery and performance of the Reimbursement Agreement and the Related
Documents does not violate any Requirement of Law, including, but not limited to
nursing home and certificate of need requirements, if any. Each of the Projects
contains automatic fire extinguishing systems and fire alarm systems required by
the Ohio Revised Code. Each of the real properties constituting the Project is
duly licensed as a residential care facility by the Ohio Department of Health.
Borrower is eligible for reimbursement as a health care provider under Ohio
state law and private insurance programs, if applicable.
7.01(S) Operation of the Project. So long as the Reimbursement
------------------------
Obligations under this Agreement remain outstanding, the Borrower shall operate
all of the real properties constituting the Project with a full-time residential
care administrator licensed by the State of Ohio and in accordance with the
requirements of Chapter 3721 of the Ohio Revised Code governing Residential Care
Facilities. Borrower shall not appoint a third party to manage and operate any
Project without Bank's prior written consent which consent shall not be
unreasonably withheld.
7.01(T) Amendments. Not modify, supplement, amend or consent to the
----------
modification, supplementation or amendment of the Indenture, or any Supplemental
Indenture or any other Related Document in any respect whatsoever, and not
accept the benefit of any waiver of any provision or condition of the foregoing,
without the prior written consent of the Bank.
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7.01(U) Liens. Not create, assume or suffer to exist (excluding
-----
Liens listed on Exhibit C hereto) any Lien (including the lien of an attachment,
judgment or execution) or security interest, securing a charge or obligation, on
or of any of its property, real or personal, whether now owned or hereafter
acquired, which secures the Reimbursement Obligations except:
(i) Liens or charges for current taxes, assessments, or
other governmental charges which are not delinquent or remain payable without
any penalty, or the validity of which is contested in good faith by appropriate
proceedings diligently prosecuted upon stay of execution of the enforcement
thereof;
(ii) Deposits or pledges securing (1) statutory obligations;
(2) surety or appeal bonds; (3) bonds for release of attachment, stay of
execution or injunction; or (4) performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, for purposes of like
general nature in the ordinary course of the Borrower's business;
(iii) Easements, rights of way, covenants, restrictions and
other encumbrances affecting the Borrower's property, whether or not currently
existing, which are accepted in writing by Bank and (1) do not directly or
indirectly constitute a lien securing an obligation for the payment of money and
(2) have no Material Adverse Effect on the use of such property for its
purposes; and
(iv) Minor irregularities in the title to any such property
which have no Material Adverse Effect on the use of such property for its
purposes and which are accepted in writing by Bank.
7.01(V) Residential Care Facility. Borrower shall operate each
-------------------------
of the Projects as a licensed residential care facility in compliance with all
requirements of Chapter 3721 of the Ohio Revised Code. Borrower shall at all
times maintain in full force and effect all licenses required, to operate a
residential care facility for the elderly from the Ohio Director of Health.
Borrower shall at all times insure that each Project are used, occupied,
operated and maintained in compliance with any special conditions noted on any
certificate of use and occupancy issued for such Project.
7.01(W) Optional Redemption. The Borrower agrees to cause the
-------------------
Trustee to select all Pledged Bonds before any other Bonds for optional
redemption by the Borrower pursuant to the Indenture. The Borrower agrees to
cause the Trustee to select Taxable Bonds before Tax-Exempt Bonds for optional
redemption by the Borrower pursuant to the Indenture. The Borrower shall
optionally redeem Bonds in accordance with the mandatory sinking fund payment
schedule annexed hereto as Exhibit D-2.
7.01(X) Conditions Precedent. Each condition precedent to the
--------------------
issuance of the Bonds has been satisfied in full, and Borrower intends to use
the proceeds of the Loan solely for a purpose or purposes set forth in and as
authorized by the Mortgage Loan Documents and the Indenture.
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7.01(Y) Required Debt Service Payments. Commencing on the first
------------------------------
day of July 1, 1998, and on the first day of each and every month thereafter,
the Borrower shall pay Bank the monthly interest payments on the Bonds and the
monthly Letter of Credit draw fee in the amounts set forth in the Schedule
annexed hereto as Exhibit D-1 and by this reference incorporated herein.
Principal payments for annual optional redemption of Bonds in the amount set
forth on Exhibit D-1 shall be paid by Borrower to Bank no later than twenty-four
(24) hours prior to the date of optional redemption for such Bonds. Borrower
shall deliver a direction letter to Trustee on the Date of Issuance requesting
optional redemption of Bonds in accordance with said schedule in the form of
Exhibit D-2 attached hereto.
7.01(Z) Ongoing Representations and Warranties. The provisions
--------------------------------------
of Section 6.01(A), 6.01(F), 6.01 (G), 6.01(J), 6.01(K), 6.01(L), Section
6.01(M), Section 6.01(O), Section 6.01(P), Section 6.01(Q), Section 6.01(S)
(except to the extent Borrower obtains waivers from the appropriate Governmental
Bodies) and Section 6.01(T) (except to the extent Borrower obtains waivers from
the appropriate Governmental Bodies) shall survive the Date of Issuance and
shall continue until all Reimbursement Obligations under this Agreement have
been paid in full.
SECTION 7.02. Conditions Precedent to Disbursements of Bond Proceeds.
------------------------------------------------------
A. Conditions of Disbursements. Prior to any disbursement of Bond
---------------------------
proceeds to refinance acquisition of a Project, the following conditions must be
satisfied:
1. Bank's receipt of an MAI appraisal for the applicable
Project in form, substance and amount satisfactory to Bank;
2. Bank's receipt of an ADA Questionnaire and Disclosure
Statement and ADA Certificate of Compliance for the applicable Project
satisfactory to Bank;
3. Evidence acceptable to Bank that all utility services
necessary for the uninterrupted and orderly operation of the applicable Project
are available to such Project at the boundaries thereof. All connections have
been made to abutting public water, sewer, storm drains, gas and electrical
facilities;
4. Evidence acceptable to Bank that the applicable Project
is accessible via completed, dedicated streets which have been accepted for
public maintenance and use by the appropriate local government unit depending on
location, or that an easement creating a perpetual right of public access to a
publicly dedicated street, road or highway is in effect;
5. If requested by Bank, an ALTA survey for the applicable
Project certified to and satisfactory to Bank and the title insurance company
that will be insuring the Mortgage;
6. Budget for the applicable Project (including certified
final cost breakdown) satisfactory to Bank;
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7. Final certificate of occupancy for the applicable
Project;
8. All licenses, permits and approvals necessary to own and
operate the applicable Project;
9. Recordation with the Recorder of each county in which
any real property comprising the Project is located of a duly executed original
Land Use Restriction Agreement, Open-End Variable Rate Mortgage, Assignment of
Leases and filing with the Secretary of State's office of appropriate UCC
financing statements; receipt by the Bank of an ALTA extended coverage
mortgagee's policy of title insurance (Form B-1970 with 1984 revisions), issued
by a title insurance company satisfactory to Bank and in favor of Bank as the
insured with liability in the Stated Amount showing title to such Project
legally described in Exhibit A to the Mortgage vested in fee in the Borrower and
insuring the first lien priority of the Mortgage subject only to the Liens
authorized in writing by Bank, and containing such endorsements as are requested
by Bank;
10. Evidence of "all-risk" property, special form property
insurance coverage, rental loss, professional liability and comprehensive
commercial general liability insurance for such Project in form, substance and
amount satisfactory to Bank naming the Bank as loss payee or additional insured
as appropriate;
11. A certificate by an architect or other person or entity
acceptable to Bank confirming that such Project has been constructed and
completed substantially in accordance with the plans and specifications approved
by the Government Body with jurisdiction over such Project, and complies with
all applicable building codes and zoning ordinances and all other applicable
federal and state laws, rules, regulations, codes and orders;
12. The receipt by the Bank of copies of all final
unconditional certificates of occupancy and other permits, if any, evidencing
that such Project complies with all applicable zoning ordinances, building and
use restrictions and codes and any requirements with respect to licenses,
permits, and agreements necessary for the lawful use and operation of the
Project and that necessary utilities and municipal services required for the
Project are in place.
13. The representations and warranties of Article VI are
true and correct.
14. Receipt by the Bank of a certified copy of a policy of
property insurance with extended coverage on the basis of 100% of full
replacement cost of all improvements on the Project with a mortgagee clause
attached in favor of U.S. Bank National Association, 1420 Fifth Avenue, 11th
Floor, Mail Code WWC 395, Post Office Box 720 (98111-0720), Seattle, Washington
98101, Attention: Northwest Washington Corporate Banking, subject to Bank's
acceptance of the insuring company and evidence satisfactory to Bank that
professional liability, public liability, property damage, special form property
insurance coverage,
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worker's compensation insurance, and all other insurance required pursuant to
the Mortgage are being covered in amounts satisfactory to Bank.
15. The amount to be disbursed by Bank with respect to any of
the real properties constituting the Project shall not exceed the lesser of 75%
of (a) the Appraised Value of such property or (b) 75% of actual construction
costs certified by the Borrower and approved by bond counsel as eligible for
reimbursement from Bond proceeds. Appraised Value shall mean the value of such
property determined by the Bank after internal review of an MAI appraisal
prepared in accordance with FIRREA requirements.
16. Receipt by the Bank of a certificate of the Architect with
respect to compliance by the Project with the American with Disabilities Act and
the Fair Housing Act Amendments of 1988 (collectively the "Access Laws").
17. Receipt by the Bank of an executed certificate of
compliance and indemnification with respect to Access Laws.
18. There is no default by Borrower under this Agreement or
any of the Related Documents.
19. The Borrower has accepted the specific real property for
which disbursement is sought as complete.
20. The Borrower shall have provided evidence reasonably
satisfactory to the Bank that all construction costs associated with such real
property have been paid in full.
21. The Borrower shall, if required by the title insurance
company have signed an indemnity agreement to permit the title policy to be
issued showing the Mortgage as a first lien without exception for mechanics' or
materialmen's liens.
22. The period for filing workmen's and materialmen's liens has
expired or releases of liens in form and substance satisfactory to Bank have
been obtained.
23. Receipt of evidence of full payment for personal property
in which Bank has a security interest.
24. There has been no condemnation, casualty, or catastrophe
which has a Material Adverse Effect on the value of the security for the
Project.
25. Appropriate amendments duly executed by Borrower in
recordable form are recorded in the applicable real property records of the
counties in which all other Projects are located amending each previously
recorded Mortgage, Assignment of Leases, and UCC financing statements, if
applicable.
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26. Bank receives 110.5 and other applicable endorsements to
each of the title insurance policies with respect to all other Projects in form
and substance satisfactory to Bank insuring the continued first lien priority of
the Mortgage with no additional liens, encumbrances or other exceptions except
those approved by Bank in its sole and absolute discretion.
B. Disbursements Generally. There shall be no disbursement out of
-----------------------
the Mortgage Loan Fund held by the Trustee without the written approval of Bank,
which approval shall be given in accordance with the provisions of this
Agreement and the Mortgage Loan Documents. Bank is hereby authorized without
any request or direction by Borrower, to approve disbursements out of the
Mortgage Loan Fund held by the Trustee and other deposits, if any, of the
Borrower with the Trustee, from time to time to pay interest on the Bonds, to
reimburse Bank for drawings made on the Letter of Credit or to pay directly
Bank's expenses and advances, whether or not there are adequate reserves
therefor in accordance with the provisions of this Agreement. Bank shall
provide Borrower with invoices prior to each disbursement of funds out of the
Mortgage Loan Fund held by the Trustee.
SECTION 7.03. Assignment/Miscellaneous.
------------------------
A. Borrower Assignment. Borrower may not convey, assign, mortgage,
-------------------
pledge, transfer, hypothecate, encumber or otherwise dispose of its rights or
obligations under this Agreement, the Related Documents, or the Project (except
as provided in the Mortgage) without the prior written consent of Bank. A
breach of this provision, directly or indirectly, shall be an Event of Default
under this Agreement and shall not vest any rights in the purported transferee.
B. Bank Assignment. Bank may assign its rights and obligations in
---------------
and to this Agreement and the Related Documents to another lender having the
financial ability to perform Bank's obligations. Any such assignment by Bank
shall be deemed to have been made pursuant to this Agreement and not to be a
modification hereof, and the disbursements made by any such assignee hereunder
shall be evidenced and secured by the Mortgage.
C. Advertising. Bank reserves the right to publicize the financing
-----------
of the Project and may include in publicity releases, if applicable, the names
of the principals and a general description of the Project, its occupancy and
use. Borrower shall have the right to review and comment on such publicity
releases prior to their publication.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default; Acceleration and Remedies. The
--------------------------------------------
following shall be defaults under this Agreement and the terms "Event of
Default", "default" or "Default" shall mean any one or more of the following
events:
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(a) The Borrower shall fail to pay or cause to be paid any amount of
money required under this Agreement or any of the Related Documents when due; or
(b) Any Lien(s) of Bank in any portion of the collateral which
secures Borrower's Reimbursement Obligations under this Agreement shall, for any
reason, be impaired or cease to exist as valid and binding first priority Liens
(other than for Liens expressly permitted under Sections 7.01(O) and/or 7.01(U)
of this Agreement) which is not remedied to the satisfaction of Bank within
thirty (30) days following written notice to Borrower or a Material Adverse
Effect shall have occurred with respect to any material portion of the
collateral which secures Borrower's Reimbursement Obligations under this
Agreement as result of any uninsured loss or theft or any material portion of
such collateral becomes the subject of or affected by any forfeiture, seizure or
similar claim which is not remedied to the satisfaction of Bank within thirty
(30) days following written notice to Borrower; or
(c) The Borrower shall fail to perform, keep or observe any term,
covenant, agreement, warranty, or condition (not involving a payment obligation)
of Borrower contained in this Agreement and any such failure shall remain
unremedied for thirty (30) days after written notification thereof shall have
been given to the Borrower by the Bank; notwithstanding the preceding clause, if
------------------------------------
the Default is of a nature that is not susceptible to cure within 30 days and if
the Borrower commences to cure the Default within said period, the Borrower
shall not be deemed to be in Default if it diligently prosecutes said cure
thereafter to completion and, notwithstanding such diligence, cures said Default
by the sixtieth (60th) day after the date of said written notification; or
(d) Any representation or warranty made by the Borrower (or any of
its officers) under or in connection with this Agreement any Related Document
shall prove to have been untrue when made; or
(e) There is an event of default under any recourse Indebtedness of
the Borrower with a principal balance in excess of ten percent (10%) of
Borrower's Tangible Net Worth which has not been either (i) waived in writing by
the lender with respect thereto or (ii) cured to the satisfaction of the
affected lender prior to the expiration of applicable cure periods, if any; or
(f) Final judgment which is no longer the subject of any good faith
appeal is entered against the Borrower for an amount in excess of ten percent
(10%) of Borrower's Tangible Net Worth unless such judgment is paid, discharged
or settled within thirty (30) days following entry of such final judgment; or
(g) There is any (i) default in the payment of principal or interest
on the Washington State Housing Finance Commission's Variable Rate Demand
Multifamily Revenue Bonds (LTC Properties, Inc. Project), Series 1995 or any
default under that certain Reimbursement Agreement dated as of December 1, 1995
by and between LTC Properties, Inc. and Bank or (ii) default in the payment of
principal or interest on the Washington State Housing Finance Commission's
Variable Rate Demand Multifamily Revenue Bonds (Assisted Living
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<PAGE>
Concepts, Inc. Project), Series 1997 or any default under that certain
Reimbursement Agreement dated as of July 1, 1997, by and between Borrower and
Bank which has not been either (i) waived in writing by Bank or (ii) cured to
the satisfaction of Bank prior to the expiration of applicable cure periods, if
any; or
(h) A Plan shall fail to maintain the minimum funding standard
required by Section 412 of the Code for any Plan year or a waiver of such
standard is sought or granted under Section 412(d) of the Code; a Plan is, shall
have been or is likely to be terminated or the subject of termination
proceedings under Title IV of ERISA; or the Borrower (for purposes of this
paragraph, "Borrower" shall have the meaning set forth in Section 6.01(P) of
this Agreement) has incurred or is likely to incur a liability to or on account
of a Plan in connection with the complete or partial termination of, or complete
or partial withdrawal from, any Plan covered or previously covered by Title IV
of ERISA, which liability or material risk of liability, in the opinion of the
Bank, will have a Material Adverse Effect upon the business, operations or the
financial condition of the Borrower or such subsidiary; or
(i) The Borrower shall dissolve or liquidate or take an equivalent
action or an involuntary petition shall have been filed under any federal or
state bankruptcy, reorganization, insolvency, moratorium or similar statute
against the Borrower, or a custodian, receiver, trustee, assignee for the
benefit of creditors or other similar official shall be appointed to take
possession, custody, or control of the property of the Borrower, unless such
petition or appointment is set aside or withdrawn or ceases to be in effect
within sixty (60) days from the date of said filing or appointment; or the
Borrower shall become insolvent or admit in writing its inability to pay its
debts as they mature, or shall file any petition or action for relief relating
to any bankruptcy, reorganization, insolvency or moratorium law, or any other
law or laws for the relief of, or relating to, debtors unless such petition is
withdrawn or ceases to be in effect within sixty (60) days from the date of such
filing; or the Borrower shall make an assignment for the benefit of creditors or
enter into an agreement of composition with its creditors; or the Borrower shall
fail generally to pay its debts as they become due; fail to promptly have
discharged any judgment, execution, garnishment or attachment of such
consequence as could have a Material Adverse Effect on the ability of the
Borrower to carry on its operations as presently conducted or to fulfill its
obligations under this Agreement or any of the Related Documents; or
(j) The Borrower has failed to deliver to the Trustee (with a copy to
the Bank and the Issuer) within five (5) days following written notice from Bank
of the occurrence of an "event of default" under any Related Document which was
not cured within the applicable cure period, its notice to optionally redeem in
whole the principal amount of all Bonds then outstanding together with interest
accrued thereon to the date of redemption, or having timely given such notice,
Borrower thereafter fails to deposit with Bank on or prior to the date fixed for
such redemption, the redemption price for all Bonds including the amount of
accrued interest payable on the redemption date and premium if any.
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With respect to any Event of Default, (i) in any such event described in
Section 8.01(i), all amounts due or to become due under this Agreement shall
automatically be due and payable without notice or demand or any action
whatsoever by the Bank; and (ii) in all other Events of Default the Bank may,
upon notice (of any nature allowed by law) to the Borrower, declare all amounts
of any nature whatsoever payable under this Agreement or the Related Documents,
to be forthwith due and payable without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
and may, without notice to the Borrower, deliver Annex D to the Letter of Credit
to the Trustee.
In addition, upon any Event of Default, the Bank may at its election,
without prior notice or demand, (1) require the Borrower to deposit immediately
with the Bank in cash, out of legally available funds, as security for the
obligations of the Borrower to Bank hereunder, under any Related Document and
under the Letter of Credit, a sum equal to the then Stated Amount of the Letter
of Credit (as defined therein) and to institute legal proceedings against the
Borrower to collect that sum if it is not deposited on demand; and (2) without
further notice or demand, exercise any or all rights available to it under this
Agreement, in equity or by applicable law, including but not limited to (at the
sole option of the Bank), all actions that could be taken by a secured party
under the Ohio Uniform Commercial Code. If the deposit required by clause (1) of
this paragraph is not timely made, Borrower hereby agrees that Bank may from
time to time withdraw all or part of the required amount from any funds of
Borrower then held by Bank without demand, notice or liability for such
withdrawal(s), except that all amounts withdrawn shall be held by the Bank for
the purposes specified in clause (1). The Borrower specifically grants Bank a
security interest in such moneys and deposit and all income thereon. Borrower
further agrees that the Bank may provide notice to the Trustee upon any Default
hereunder for the purpose of causing acceleration and payment of all Bonds
pursuant to Article VIII of the Indenture. No action taken by Bank shall be
deemed to be an election of remedies by Bank, it being the intention of the
parties that Bank shall be entitled to exercise all remedies separately or
concurrently and in any manner allowed by law.
ARTICLE IX
SECURITY
SECTION 9.01. Funds, Accounts and Security Agreement. The Borrower
--------------------------------------
represents, certifies, warrants and covenants to the Bank that all monies from
time to time on deposit in the Funds and accounts established under the
Indenture shall be held by Trustee in trust for the owners of the Bonds and the
Bank until full payment of the principal of and interest on the Bonds and of all
obligations of the Borrower to the Bank under this Agreement or the Related
Documents.
The Borrower hereby makes to the Bank or Trustee (as the case may be)
for the equal benefit of the Bank and owners of the Bonds, all pledges,
assignments, grants, covenants and agreements set forth in the Indenture and the
Loan Agreement and all pledges, grants of liens and security interests and
covenants contained therein are incorporated herein by this reference as if
fully set forth herein. The Borrower hereby consents to the Bank's status as a
beneficiary under the Indenture and acknowledges that the Trust Estate of the
Indenture (as defined therein) as
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supplemented from time to time secures not only the payment of the Bonds but
also secures the payment of all sums due or to become due the Bank pursuant to
this Agreement or any Related Document.
SECTION 9.02. Funding and Maintaining the Funds. Until the principal of
---------------------------------
and interest on the Bonds shall have been fully paid and until all other sums of
every nature whatsoever due or to become due the Bank pursuant to this Agreement
or any Related Document are paid in full, the Borrower shall maintain the Funds
and cause moneys to be deposited in each fund or subaccount thereof in
accordance with the terms of the Indenture and this Agreement in amounts
sufficient to pay all principal of and interest on the Bonds as well as all
other sums due or to become due to the Bank pursuant to this Agreement or any
Related Document.
The Borrower agrees that whenever any sum is required to be placed in any
of said Funds by the terms of any agreement and whenever any other sum is due
and owing the Bank under this Agreement or the Related Documents, the Borrower
shall place sufficient moneys in said Funds to pay such sums. The Borrower
further agrees that the Trustee is authorized and hereby directed to forward
such sums to the Bank in accordance with the Indenture or this Agreement.
Nothing contained herein shall impair the right of the Bank to demand and
receive payment directly from the Borrower in lieu of or notwithstanding funding
of said Funds, which demand shall be at the sole option of the Bank. The
Borrower hereby represents, certifies and warrants to the Bank that payment of
all debt due or to become due Bank by virtue of this Agreement is payable from
(in addition to said Funds and the trust estate of the Indenture) all other
available sources of moneys to the Borrower whether now or hereafter existing.
SECTION 9.03. Interest of Bank and Owners of Bonds. Any moneys transferred
------------------------------------
by the Trustee from any of the Funds for payment on the Bonds or sums due the
Bank shall continue to be held in trust for the owners of the Bonds and the Bank
until disbursement or deemed disbursement of such moneys by the Trustee to
owners of the Bonds or, to the extent not inconsistent with the rights of the
Owners of the Bonds, to the Bank.
The Borrower agrees to deliver copies of this Agreement and the Indenture
to the Trustee on the date of execution or adoption of the aforesaid to provide
specific notice of the trust for the Bank and the owners of the Bonds in the
moneys in the Funds and to provide notice for all other purposes, including but
not limited to notice to all persons of the security interests, pledges and
liens granted to or for the benefit of the owners of Bonds and the Bank in said
Funds.
SECTION 9.04. Transfers and Other Liens. The Borrower agrees that it will
-------------------------
not (i) sell or otherwise dispose of any interest in the monies in the Funds
except as provided herein or in the Indenture, or (ii) create or permit to exist
any pledge, Lien, security interest, or other charge or encumbrance of any
nature whatsoever upon or with respect to the gross revenues or moneys in the
Funds (except the interest of the Bank or of the owners of the Bonds and as
otherwise allowed in the Indenture).
SECTION 9.05. Priority Of Payment; Application of Sums Upon Notice of
-------------------------------------------------------
Default. Upon any drawing under the Letter of Credit honored by the Bank,
- -------
the Bank shall have priority
-43-
<PAGE>
over the owners of the Bonds to all sums then or thereafter in any of the Funds
to the extent of any such drawing (but only to such extent). Upon an Event of
Default and delivery to the Trustee of notice in the form of Annex D to the
Letter of Credit, the Trustee shall apply all sums in the Funds available for
payments on the Bonds to payment of obligations of the Borrower in the following
priority: first, any other payment then due the owners of the Bonds; second, to
the reimbursement of the Bank for any amount honored by the Bank pursuant to the
Letter of Credit; and third, payment of any sums then due the Bank pursuant to
this Agreement or the Related Documents.
SECTION 9.06. Acknowledgment Regarding Funds and Accounts. The Borrower
-------------------------------------------
hereby represents, warrants and certifies to the Bank that:
(a) The Trustee, on behalf of the owners of the Bonds and the Bank,
has been granted a valid first priority security or other interest in or lien
upon and assignment of the monies from time to time on deposit in the Funds and
Accounts which is not and will not be subject to attachment, judgment lien or
any interest of any nature whatsoever of any other creditor of the Borrower or
the Borrower, whether now or hereafter existing; and
(b) no other lien or pledge or other encumbrance of any nature
whatsoever is prior to the interest of the Bondholders and Bank.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement or any Related Document, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the Bank, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION 10.02. Notices, Etc. Except as otherwise provided in this
------------
Agreement or as otherwise allowed to Bank by law, all notices, requests, demands
or other communications shall be in a writing addressed to the respective party
at the address given below or to such other address as the parties may from time
to time specify in writing. Notice shall be deemed to have been given when (a)
personally delivered, (b) given by a telex or machine-confirmed facsimile, or
(c) after placement in the U.S. mails as certified or registered, return receipt
requested, first-class postage prepaid, the receipt indicates delivery or
refusal or failure to accept delivery:
If to the Assisted Living Concepts, Inc.
Borrower: 9955 SE Washington, Suite 201
Portland, Oregon 97216
Attention: Chief Financial Officer
Telecopy: (503) 252-6597
-44-
<PAGE>
With a copy to: Assisted Living Concepts, Inc.
9955 SE Washington, Suite 303
Portland, Oregon 97216
Attention: Sandra Campbell
General Counsel and Secretary
Telecopy: (503) 255-9948
If to the Bank: U.S. Bank National Association
Northwest Washington Corporate Banking
1420 Fifth Avenue, 11th Floor
Mail Code WWC 395
P.O. Box 720 (98111-0720)
Seattle, Washington 98101
Attention: Deborah S. Watson
Vice President
Telecopy: (206) 344-2887
If to the Trustee: PNC Bank, National Association
201 East Fifth Street
Cincinnati, Ohio 45202
Attention: Corporate Trust Department
Telecopy: (513) 651-7901
or as to each party, at such other address as shall be designated by such party
in a written notice to the other parties.
SECTION 10.03. No Waiver; Remedies. No failure on the part of the
-------------------
Bank to exercise, and any delay in exercising, any right under this Agreement or
any Related Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any of the aforesaid preclude any other or
further exercise thereof or the exercise of any other right from time to time
and as often as the Bank may deem expedient and without notice (except any
notice which is specifically required by written agreement). The remedies
provided in this Agreement or the Related Documents are cumulative and not
exclusive of any remedies provided by law or in equity, now or hereafter
existing.
SECTION 10.04. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with Generally
Accepted Accounting Principles consistently applied, except as otherwise stated
herein.
SECTION 10.05. Partial Release. Provided Borrower is not in default under
---------------
any of the covenants, conditions, warranties or representations hereunder or
under any other document evidenced or securing this Agreement or under any of
the Related Documents, Bank agrees to release from the lien of the Mortgage from
time to time, one or more of the properties constituting the Project and legally
described in Exhibit B-1 through B-6 attached hereto (each, a
-45-
<PAGE>
"Release Parcel") upon satisfaction of the following terms and conditions and
only upon satisfaction of the following terms and conditions:
(a) Borrower shall notify Bank and Bond Trustee in writing on or
before the dates specified in the Reimbursement Agreement and the Indenture,
respectively, for providing notice of optional redemptions of Bonds;
(b) Borrower shall have otherwise complied with all requirements set
forth in the Reimbursement Agreement, the Indenture and any other of the Related
Documents and shall have secured the consent of all parties required under those
agreements;
(c) Payment by Borrower to Bank with respect to the Release Parcel of
a partial reconveyance fee equal to 100% of the Net Proceeds of Sale (as
hereinafter defined) from the sale of the Release Parcel (to be applied to
optional redemption of Bonds pursuant to the Indenture) provided, however, that
in no event shall the partial reconveyance fee be less than the original
principal amount of Bond proceeds disbursed with respect to such Release Parcel
less any principal payments made and allocated by Beneficiary to such Release
Parcel prior to the date of optional redemption of Bonds;
(d) Bank shall have received an opinion from nationally recognized
bond counsel that such sale of the Release Parcel and optional redemption of
Bonds as a result thereof does not adversely affect the tax-exempt status of
interest on the Tax-Exempt Bonds; and
(e) The Stated Amount of the Letter of Credit after giving effect to
such optional redemption and corresponding reduction in the Stated Amount of the
Letter of Credit shall not exceed 75% of the Appraised Value of the remaining
Project; and
(f) Borrower shall, at its sole cost and expense, deliver an
endorsement to each of Bank's policies of title insurance insuring that the
release of the Mortgage as to the Release Parcel will not affect the first lien
priority of the Mortgage on the remaining Project and without any additional
exceptions to its policies which would have priority over Bank except those
approved by Bank in its sole and absolute discretion. Borrower shall pay all
costs and expenses incurred in connection with any such reconveyance, including
but not limited to recording fees, premiums for title insurance endorsements and
escrow fees, if any charges by the title insurance company or other closing
agent.
Net Proceeds of Sale shall be defined as the gross proceeds of sale of any
Release Parcel less broker's commission, title insurance, escrow fees and
recording fees, real estate excise taxes and normal prorations of real estate
taxes, water and other utilities constituting liens against the Release Parcel,
if any.
Any release or partial release of a Mortgage as to any Release Parcel shall
in no way release, modify, discharge, impair or otherwise affect the validity of
enforceability of the Reimbursement Agreement, the Mortgage, the Land Use
Restriction Agreement or any of the Related Documents or any of the obligations
of Borrower's obligations hereunder or thereunder.
-46-
<PAGE>
SECTION 10.06. Security Costs, Expenses and Taxes. In addition to the
----------------------------------
fees and expenses the Borrower has agreed to pay pursuant to Section 4.05
hereof, the Borrower also agrees to pay on demand all reasonable costs and
expenses in connection with the preparation, execution, delivery, filing,
recording, continuation, maintenance, administration, partial release and
termination of the liens, or security interests or other interests granted by
the Borrower in any Related Document or any other documents to be delivered
under the Related Documents. The Borrower further agrees to pay all title
insurance and recording fees and costs of every nature whatsoever incurred by
Bank (if any).
SECTION 10.07. Binding Effect; Assignment. This Agreement shall become
--------------------------
effective when it shall have been executed by the Borrower and the Bank and
thereafter shall be a continuing obligation binding upon and inuring to the
benefit of the Borrower and the Bank and their respective successors and
assigns, except that the Borrower shall not have the right to assign any of its
rights or obligations hereunder or under any Related Document (including but not
limited to any rights in Bond proceeds) or any interest herein or therein
without the prior written consent of the Bank. The Bank without the consent of
the Borrower, may sell, transfer, assign, negotiate, pledge or otherwise
hypothecate or participate all or any portion of this Agreement, or grant
participations herein, in the Letter of Credit or in any of its rights or
security hereunder or under the Related Documents, including without limitation,
the instruments securing the Borrower's obligations hereunder. No such
disposition by the Bank, however, will relieve the Bank of its obligation under
the Letter of Credit. In connection with any such disposition or in connection
with any examination of the Bank, the Bank may disclose to the proposed
transferee or regulatory authority any information that the Borrower is required
to deliver to the Bank or to which the Bank is otherwise entitled pursuant to
this Agreement or any Related Document from time to time. Bank may also disclose
such information to its affiliates.
SECTION 10.08. Governing Law. This Agreement shall be governed, construed
-------------
and enforced in accordance with the laws of the State of Ohio. The Borrower
agrees to submit to the jurisdiction of the state or federal court selected by
Bank, and venue of any action concerning this Agreement or any Related Document
shall be held in King County, Washington or any county in Ohio in which any of
the real properties constituting the Project are located as the Bank may
request.
SECTION 10.09. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties regarding the terms hereof and supersedes any and
all other agreements relating to the subject matter of this Agreement, oral or
written, among any or all of the parties (except for the Related Documents). The
headings of the various sections and subsections of this Agreement and of any
Related Documents are for convenience of reference only and do not constitute a
part of the respective document and shall not affect the meaning or construction
of any provision. No amendment, waiver or forbearance of any provision of this
Agreement or of any Related Document shall be effective unless the same shall be
in a writing signed by the party intended to be bound. Any such waiver or
forbearance shall only be effective for the specific purpose and in the specific
instance given and not for other or subsequent purposes or instances and no
forbearance or waiver shall affect Bank's right to refuse further
-47-
<PAGE>
forbearances or waivers. If any portion of this Agreement or any Related
Document is held to be invalid or unenforceable, the remaining portions and
provisions and conditions thereof regarding Borrower's obligations shall remain
in full force and effect. Time is of the essence of this Agreement and each
Related Document. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same Agreement.
SECTION 10.10. JURY WAIVER. BORROWER AND BANK EACH HEREBY WAIVE ANY RIGHT
-----------
TO TRIAL BY JURY OF ANY CLAIM ARISING OUT OF THIS AGREEMENT, THE LETTER OF
CREDIT AND ANY RELATED DOCUMENT, WHETHER NOW OR HEREAFTER ARISING AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AND HEREBY CONSENT AND AGREE THAT ANY
SUCH CLAIM MAY BE DECIDED BY TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE
AN ORIGINAL COUNTERPART OR COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER AND AGREEMENT CONTAINED HEREIN.
SECTION 10.11. Securities Law. The Borrower acknowledges and agrees that
--------------
except for the information describing the Bank supplied by the Bank and except
for matters stated in the opinion of Bank's counsel, neither the Bank in its
capacity as issuer of the Letter of Credit (nor its counsel) (a) has and shall
not be deemed to have made any representation regarding sale of the Bonds or the
financial strength, integrity or revenues of the Borrower; (b) has any
responsibility or liability for the issuance, offer or sale of the Bonds; (c)
has participated in the preparation of the Official Statement (except with
respect to supplying information about the Bank) or is responsible or liable for
any statements contained therein or omissions therefrom, or for the accuracy or
completeness thereof; and that (d) nothing contained in this Agreement, the
Official Statement or any of the Related Documents is intended to impose any
liability or responsibility related to the aforesaid on the Bank or its counsel.
For use in the Official Statement, the Bank agrees to supply the aforesaid
descriptive information and, within thirty (30) days of the Borrower's written
demand therefor, an updated version of said information for use in any
subsequent or amended Official Statement regarding the Bonds. Upon written
request therefor, the Bank shall, as soon as practical, also supply copies of
the Bank's annual report. To the extent other information is requested of the
Bank, the Borrower agrees to pay all expenses and fees of every nature
whatsoever (including reasonable attorneys' fees) incurred by the Bank in
connection therewith.
SECTION 10.12. Subrogation. Notwithstanding the fact that the Bank's
-----------
obligation under the Letter of Credit is primary, as opposed to the secondary
obligation of a guarantor, Borrower expressly agrees that Bank shall be
subrogated to all rights of every nature whatsoever of the owners of Bonds or
the Trustee in or to the entire Trust Estate of the Indenture and that upon
payment by Bank under the Letter of Credit, Bank shall be entitled to exercise
all rights and remedies of any person with subrogation rights and all rights and
remedies accorded a guarantor by law or in equity. Nothing in this Section 10.12
shall impair any right of Bank under the Indenture.
-48-
<PAGE>
SECTION 10.13. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by the
Borrower in connection herewith or any Related Document shall survive the
execution and delivery of this Agreement, regardless of any investigation made
by the Bank or on its behalf, and shall continue until payment in full of all
sums due or to become due from Borrower to Bank hereunder or under any Related
Documents.
SECTION 10.14. Washington State Notice. Bank hereby notifies Borrower as
follows: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY/EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
SECTION 10.15. Ohio State Notice. Under (S)1335.02 of the Ohio Revised
Code, a promise or commitment to lend money or to grant credit in an original
principal amount of $40,000 or more, made by a financial institution, must be in
writing or such a promise or commitment is not valid.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By ___________________________
Stephen Gordon
Vice President/Treasurer
"BANK"
U.S. BANK NATIONAL ASSOCIATION
By ____________________________
Deborah S. Watson
Vice President
-49-
<PAGE>
EXHIBIT A
FORM OF LETTER OF CREDIT
------------------------
A-1
<PAGE>
EXHIBIT B-1
Legal Description - Campbell House
----------------------------------
365 Kent Drive
Bellefontaine, Ohio 43311
Real property located in the County of Logan, Ohio a more particularly
described as follows:
B-1-1
<PAGE>
EXHIBIT B-2
Legal Description - Kingsbury House
-----------------------------------
245 West Rosewood Avenue
Defiance, Ohio 43512
Real property located in the County of Defiance, Ohio, more particularly
described as follows:
B-2-1
<PAGE>
EXHIBIT B-3
Legal Description - Taylor House
--------------------------------
1920 Breckenridge
Findlay, Ohio 45840
Real property located in the County of Hancock, Ohio, more particularly
described as follows:
B-3-1
<PAGE>
EXHIBIT B-4
Legal Description - Oakley House
--------------------------------
1275 Northview Drive
Greenville, Ohio 45331
Real property located in the County of Darke, Ohio, more particularly
described as follows:
B-4-1
<PAGE>
EXHIBIT B-5
Legal Description - Blanchard House
-----------------------------------
825 Richard Lane
Kenton, Ohio 43326
Real property located in the County of Hardin, Ohio, more particularly
described as follows:
B-5-1
<PAGE>
EXHIBIT B-6
Legal Description - DeWolfe House
---------------------------------
1140 Wilson Avenue
Marion, Ohio 43302
Real property located in the County of Marion, Ohio, more particularly
described as follows:
B-6-1
<PAGE>
EXHIBIT B-7
Legal Description - Amanda House
--------------------------------
1070 Gloria Avenue
Lima, Ohio 45805
Real property located in the County of Allen, Ohio, more particularly
described as follows:
B-7-1
<PAGE>
EXHIBIT C
PERMITTED LIENS
---------------
None.
C-1
<PAGE>
EXHIBIT D-1
MANDATORY DEBT SERVICE
----------------------
PAYMENT SCHEDULE
----------------
D-1-1
<PAGE>
EXHIBIT D-2
NOTICE TO TRUSTEE RE
--------------------
OPTIONAL REDEMPTION OF BONDS
----------------------------
July 17, 1998
PNC Bank National Association
201 East Fifth Street
Cincinnati, Ohio
Attn: Corporate Trust Department
Re: $12,690,000 Ohio Housing Finance Agency Variable Rate Demand
Housing Revenue Bonds, (Assisted Living Concepts, Inc. Project)
1998 Series A-1 (the "Tax-Exempt Bonds") and $530,000 Ohio
Housing Finance Agency Taxable Variable Rate Demand Housing
Revenue Bonds, (Assisted Living Concepts, Inc. Project) 1998
Series A-2 (the "Taxable Bonds") (collectively, the "Bonds")
Ladies and Gentlemen:
Pursuant to the provisions of Section 602 of that certain Indenture of
Trust dated as of July 1, 1998 (the "Indenture") between PNC Bank National
Association, as bond trustee ("Trustee") and Ohio Housing Finance Agency
("Issuer"), the undersigned does hereby notify you of its intent to optionally
redeem Bonds in accordance with the schedule annexed hereto as Exhibit A. This
letter shall constitute the notice required under the provisions of Section 602
of the Indenture of the undersigned's irrevocable direction to the Trustee to
optionally redeem Bonds, which direction shall remain in full force and effect
until such time as you receive further written instructions from the undersigned
approved by U.S. Bank National Association of a change in the undersigned's
direction to cause optional redemption of Bonds.
CONSENTED AND AGREED: Very truly yours,
U.S. BANK NATIONAL ASSOCIATION ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By _____________________________
Deborah S. Watson By______________________________
Vice President Stephen Gordon
Vice President/Treasurer
D-2-1
<PAGE>
EXHIBIT E
PENDING LITIGATION
------------------
None.
E-1
<PAGE>
EXHIBIT F
PROJECT BUDGET
--------------
Maximum Tax-Exempt
City/Town County Bond Proceeds Allocable
- ------------------------------------------------------- -----------------------
Bellefontaine, Ohio Logan County $ 2,236,244
Kingsbury House, Defiance, Ohio Defiance County $ 2,265,520
Taylor House, Findlay, Ohio Hancock County $ 1,984,283
Oakley House, Greenville, Ohio Darke County $ 2,105,929
Blanchard House, Kenton, Ohio Hardin County $ 1,949,686
DeWolfe House, Marion, Ohio Marion County $ 2,148,338
-----------------------
$12,690,000
F-1
<PAGE>
EXHIBIT 10.17
DEUTSCHE/TRANSCAP
Health Related Facility
Form
Last Revised 2/11/98
- --------------------------------------------------------------------------------
DMG TEXAS ALC PARTNERS, L.P.,
a Texas limited partnership
as Grantor
to
AMERICAN TITLE COMPANY OF HOUSTON,
as Trustee
for the benefit of
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
as Beneficiary
Assisted Living Concepts Properties
Johnson, Grayson, Collin, Midland, Jefferson, Dallas, and Hopkins Counties,
Texas
DEED OF TRUST AND SECURITY AGREEMENT
$ 14,630,000.00
Date: March 31, 1998
PREPARED BY AND UPON RECORDATION RETURN TO:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Jeffrey Lee, Esq.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. TAXES AND UTILITIES..................................... 4
-------------------
1.1. Payment of Taxes............................................ 4
----------------
1.2. Tax and Insurance Impound Account........................... 5
---------------------------------
1.3. Payment of Utilities, Assessments, Charges, Etc............. 5
1.4. Additional Taxes............................................ 5
----------------
ARTICLE II. INSURANCE.............................................. 6
---------
2.1. Insurance................................................... 6
---------
ARTICLE III. CASUALTY AND CONDEMNATION............................. 8
-------------------------
3.1. Casualty and Condemnation................................... 9
-------------------------
ARTICLE IV. ENVIRONMENTAL MATTERS.................................. 11
---------------------
4.1. Hazardous Waste and Other Substances........................ 11
------------------------------------
ARTICLE V. RESERVES................................................ 14
--------
5.1. Payment Reserve............................................. 14
---------------
5.2. Replacement Reserve......................................... 15
-------------------
5.3. Intentionally Omitted....................................... 17
---------------------
ARTICLE VI. RENTS; LEASES; ALIENATION.............................. 17
-------------------------
6.1. Rents and Profits........................................... 18
-----------------
6.2. Leases...................................................... 18
------
6.3. Alienation and Further Encumbrances......................... 20
-----------------------------------
6.4. Easements and Rights-of-Way................................. 21
---------------------------
6.5. Partial Release of Mortgaged Property....................... 22
-------------------------------------
ARTICLE VII. PROPERTY MANAGEMENT................................... 22
-------------------
7.1. Management.................................................. 23
----------
ARTICLE VIII. INDEMNIFICATION...................................... 23
---------------
8.1. Indemnification; Subrogation................................ 23
----------------------------
ARTICLE IX. REPORTING.............................................. 24
---------
9.1. Access Privileges and Inspections........................... 24
---------------------------------
9.2. Financial Statements and Books and Records.................. 24
------------------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE X. WARRANTIES AND COVENANTS........................................ 26
------------------------
10.1. Warranties of Grantor.............................................. 26
---------------------
10.2. Waste; Alteration of Improvements.................................. 29
---------------------------------
10.3. Zoning............................................................. 29
------
10.4. Covenants with Respect to Indebtedness, Operations, Fundamental
---------------------------------------------------------------
Changes of Grantor................................................. 29
------------------
10.5. Accounts Receivable Financing...................................... 31
-----------------------------
ARTICLE XI. FURTHER ASSURANCES............................................. 33
------------------
11.1. Defense of Title................................................... 34
----------------
11.2. Performance of Obligations......................................... 34
--------------------------
11.3. Construction Liens................................................. 34
------------------
11.4. Further Documentation.............................................. 34
---------------------
11.5. Payment of Costs; Beneficiary's Right to Cure...................... 35
---------------------------------------------
11.6. Compliance with Laws............................................... 36
--------------------
11.7. Attorney-in-Fact Provisions........................................ 36
---------------------------
ARTICLE XII. PAYMENT; DEFEASANCE; PREPAYMENT.............................. 36
-------------------------------
12.1. Payment of the Notes............................................... 36
--------------------
12.2. Computation of Interest............................................ 37
-----------------------
12.3. Application of Payments............................................ 37
-----------------------
12.4. Prepayment......................................................... 37
----------
12.5. Defeasance......................................................... 37
----------
ARTICLE XIII. SECURITY PROVISIONS.......................................... 40
-------------------
13.1. Security Interest.................................................. 40
-----------------
13.2. Security Agreement................................................. 41
------------------
13.3. Secured Indebtedness................................................ 42
--------------------
ARTICLE XIV. DEFAULT....................................................... 42
-------
14.1. Events of Default.................................................. 42
-----------------
ARTICLE XV. REMEDIES....................................................... 44
--------
15.1. Remedies Available................................................. 44
------------------
15.2. Application of Proceeds............................................ 47
-----------------------
15.3. Right and Authority of Receiver or Beneficiary in the Event of
--------------------------------------------------------------
Default; Power of Attorney........................................ 47
---------------------------
15.4. Occupancy After Foreclosure........................................ 49
---------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
15.5. Notice to Account Debtors....................................... 49
-------------------------
15.6. Cumulative Remedies............................................. 49
-------------------
15.7. Payment of Expenses............................................. 49
-------------------
15.8. Grantor's Waivers............................................... 49
-----------------
15.9. Submission to Jurisdiction; Waiver of Jury Trial................ 50
------------------------------------------------
ARTICLE XVI. MISCELLANEOUS TERMS AND CONDITIONS......................... 51
----------------------------------
16.1. Time of Essence................................................. 51
---------------
16.2. Release of Mortgage............................................. 51
-------------------
16.3. Notices......................................................... 51
-------
16.4. Successors and Assigns; Joint and Several Liability............. 51
---------------------------------------------------
16.5. Severability.................................................... 52
------------
16.6. Gender.......................................................... 52
------
16.7. Waiver; Discontinuance of Proceedings........................... 52
-------------------------------------
16.8. Section Headings................................................ 52
----------------
16.9. Governing Law................................................... 52
-------------
16.10. Counting of Days............................................... 52
----------------
16.11. Relationship of the Parties.................................... 53
---------------------------
16.12. Unsecured Portion of Indebtedness.............................. 53
---------------------------------
16.13. Cross Default.................................................. 53
-------------
16.14. Inconsistency with Other Loan Documents........................ 53
---------------------------------------
16.15. No Merger...................................................... 53
---------
16.16. Rights With Respect to Junior Encumbrances..................... 53
------------------------------------------
16.17. Beneficiary May File Proofs of Claim........................... 53
------------------------------------
16.18. Fixture Filing................................................. 53
--------------
16.19. Counterparts................................................... 54
------------
16.20. Recording and Filing........................................... 54
--------------------
16.21. Entire Agreement and Modifications............................. 54
----------------------------------
16.22. MAXIMUM INTEREST............................................... 54
----------------
16.23. Certain Matters Relating to Mortgaged Property Located in the
-------------------------------------------------------------
State of Texas................................................. 55
--------------
ARTICLE XVII. CONCERNING THE TRUSTEE.................................... 58
----------------------
17.1. Certain Rights.................................................. 58
--------------
17.2. Retention of Money.............................................. 58
------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
17.3. Successor Trustees................................................ 58
------------------
17.4. Perfection of Appointment......................................... 59
-------------------------
17.5. Succession Instruments............................................ 59
----------------------
17.6. No Representation by Trustee or Beneficiary....................... 59
-------------------------------------------
</TABLE>
EXHIBIT A -- LEGAL DESCRIPTION
EXHIBIT B -- INTENTIONALLY DELETED
SCHEDULE I -- PARCEL RELEASE ALLOCATION AMOUNTS
iv
<PAGE>
INDEX OF DEFINITIONS
--------------------
"Accounts Receivable" - Paragraph 15 of the granting clause
-------------------
"Accounts Receivable Acquiror" - Section 10.5
----------------------------
"Accrued Interest" - Intentionally Deleted
----------------
"ACM's" - Section 4.1(i)
-----
"All Future Payments" - Section 12.4(c)
-------------------
"Annual Budget" - Intentionally Deleted
-------------
"Approved Annual Budget" - Intentionally Deleted
----------------------
"A/R Financing" - Section 10.5(b)
-------------
"A/R Financing Documents" - Section 10.5(b)
-----------------------
"Assignment" - Section 6.1
----------
"Buyer" - Section 6.3(b)(2)
-----
"Cash Expenses" - Intentionally Deleted
-------------
"Code" - Section 12.5
----
"CERCLA" - Section 4.1(a)
------
"Collateral" - Section 13.1
----------
"Contracts" - Paragraph 9 of the granting clause
---------
"Debt" - Last paragraph of the securing clause
----
"Default" - Section 1.2
-------
"Default Interest Rate" - As defined in the Note
---------------------
"Defeasance Collateral" - Section 12.5(c)(2)
---------------------
"Defeasance Security Agreement" - Section 12.5(c)(1)
-----------------------------
"Deferred Maintenance" - Section 5.3
--------------------
"Disbursement Agreement" - Intentionally Deleted
----------------------
"Engineering Report" - Section 5.3
------------------
v
<PAGE>
"Environmental Indemnity Agreement" - Section 4.1
---------------------------------
"Environmental Laws" - Section 4.1(a)
------------------
"Extraordinary Expense" - Intentionally Deleted
---------------------
"General Intangibles" - Paragraph 11 of the granting clause
-------------------
"Governmental Entity" - Paragraph 11 of the granting clause
-------------------
"Hazardous Substances" - Section 4.1(a)
--------------------
"Health Care Operating Licenses" - Section 10.1(f)
------------------------------
"Impound Account" - Section 1.2
---------------
"Improvements" - Paragraph 2 of the granting clause
------------
"Indemnitor" - Section 10.1(b)
----------
"Insurer" - Paragraph 15 of the granting clause
-------
"Interest" - Section 16.22
--------
"Lead Based Paint" - Section 4.1(g)
----------------
"Lead Based Paint Report" - Section 4.1(j)
-----------------------
"Lease; Leases" - Paragraph 8 of the granting clause
-------------
"Licenses" - Section 10.1(f)
--------
"Loan Documents" - Paragraph B of the securing clause
--------------
"MAGR" - Section 10.5(c)
----
"Maintenance Program" - Section 4.1(i)
-------------------
"Maturity Date" - As defined in the Note
-------------
"Monthly Payment" - As defined in the Note
---------------
"Mortgaged Property" - First paragraph of the granting clause
------------------
"Note" - Paragraph A of the securing clause
----
"O&M Plan" - Section 4.1(k)
--------
"Optional Prepayment Date" - Intentionally Deleted
------------------------
"Payment Dates" - As defined in the Note
-------------
vi
<PAGE>
"Payment Reserve" - Section 5.1(a)
---------------
"Permitted Encumbrances" - Section 10.1(a)
----------------------
"Permitted Materials" - Section 4.1(a)
-------------------
"Premises" - Paragraph 1 of the granting clause
--------
"Release Date" - Section 12.5(A)
--------
"REMIC" - Section 12.5
-----
"Rent Account" - Intentionally Deleted
------------
"Rent Roll" - Section 10.1(t)
---------
"Rents and Profits" - Paragraph 8 of the granting clause
-----------------
"Repair and Remediation Reserve" - Intentionally Deleted
------------------------------
"Replacement Reserve" - Section 5.2(a)
-------------------
"Replacements" - Section 5.2(a)
------------
"Reserves" - Section 5.2(c)
--------
"Residency or Occupancy Agreement" - Section 6.2(d)
--------------------------------
"Revised Interest Rate" - Section 12.2
---------------------
"Sale" - Section 6.3(b)
----
"Stub Interest" - As defined in the Note
-------------
"Tenant; Tenants" - Paragraph 8 of the granting clause
---------------
"UCC" - Paragraph 7 of the granting clause
---
vii
<PAGE>
DEED OF TRUST AND SECURITY AGREEMENT
------------------------------------
THIS DEED OF TRUST AND SECURITY AGREEMENT (this "Deed of Trust") is dated
-------------
as of March 31, 1998 and is given by DMG TEXAS ALC PARTNERS, L.P., a Texas
limited partnership, as Grantor ("Grantor"), whose address is 9955 S.E.
-------
Washington, Suite 201, Portland, Oregon 97216, to AMERICAN TITLE COMPANY OF
HOUSTON, whose address is 5 Post Oak Park, Houston, Texas 77027, as Trustee
("Trustee") for the benefit of TRANSATLANTIC CAPITAL COMPANY, L.L.C., a Delaware
-------
limited liability company, as Beneficiary, and its successors and/or assigns
("Beneficiary"), whose address is 31 West 52nd Street, 12th Floor, New York, New
-----------
York 10019.
W I T N E S S E T H:
- - - - - - - - - -
In order to secure:
The debt evidenced by that certain Promissory Note (such Promissory
Note, together with any and all renewals, amendments, modifications,
consolidations and extensions thereof, is hereinafter referred to as the "Note")
----
of even date with this Deed of Trust, made by Grantor payable to the order of
Beneficiary in the principal face amount of FOURTEEN MILLION SIX HUNDRED THIRTY
THOUSAND AND NO/100 DOLLARS ($ 14,630,000.00), together with interest as therein
provided;
The full and prompt payment and performance of all of the provisions,
agreements, covenants and obligations herein contained and contained in any
other agreements, documents or instruments now or hereafter evidencing, securing
or otherwise relating to the Debt (the Note, this Deed of Trust, and such other
agreements, documents and instruments, together with any and all renewals,
amendments, extensions and modifications thereof, are hereinafter collectively
referred to as the "Loan Documents") and the payment of all other sums herein or
--------------
therein covenanted to be paid;
Any and all additional advances made by Beneficiary to protect or
preserve the Mortgaged Property or the lien or security interest created hereby
on the Mortgaged Property, or for any other purpose provided herein or in the
other Loan Documents (whether or not the original Grantor remains the owner of
the Mortgaged Property at the time of such advances); and
Any and all other indebtedness now owing or which may hereafter be
owing by Grantor to Beneficiary, however and whenever incurred or evidenced,
whether express or implied, direct or indirect, absolute or contingent, or due
or to become due.
(All of the sums and covenants referred to in Paragraphs (A) through (D) above
--------------------------
are herein referred to as the "Debt");
----
And in consideration of the Debt and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor hereby
irrevocably mortgages, grants, bargains, sells, conveys, transfers, pledges,
sets over and assigns to Beneficiary and Trustee, WITH POWER OF SALE, and
creates a security interest in, all of Grantor's estate, right, title and
interest in, to and under any and all of the following described property,
whether now owned or hereafter acquired by Grantor (collectively, the "Mortgaged
---------
Property"):
- --------
(1) All that certain real property situated in the Counties of Johnson,
Grayson, Collin, Midland, Jefferson, Dallas, and Hopkins, State of Texas, more
particularly described in Exhibit A
---------
<PAGE>
attached hereto (the "Premises"), together with all of the easements, rights and
--------
appurtenances now or hereafter in any way appertaining thereto, either at law or
in equity, whether now owned or hereafter acquired by Grantor;
(2) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Premises (the
"Improvements");
------------
(3) All easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, and other emblements now or
hereafter located on the Premises or under or above the same or any part
thereof, and all estates, rights, interests and appurtenances, reversions and
remainders whatsoever, in any way belonging or appertaining to the Mortgaged
Property or any part thereof, whether now owned or hereafter acquired by
Grantor;
(4) All water, ditches, wells, reservoirs and drains and all water, ditch,
well, reservoir and drainage rights which are appurtenant to, located on, under
or above or used in connection with the Premises or the Improvements, or any
part thereof, whether now existing or hereafter created or acquired by Grantor;
(5) All minerals, crops, timber, trees, shrubs, flowers and landscaping
features now or hereafter located on, under or above the Premises;
(6) All building materials, supplies and equipment now or hereafter placed
on the Premises or in the Improvements;
(7) All furniture, furnishings, fixtures, goods, equipment, inventory or
personal property owned by Grantor and now or hereafter located on, attached to
or used in and about the Improvements, including, but not limited to, all
machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets,
awnings, screens, shades, blinds, carpets, draperies, bedding and linens and all
appliances, communication, plumbing, heating, air conditioning, lighting,
ventilating, refrigerating, disposal and incinerating equipment, and sprinkler
and fire and theft protection equipment, and all fixtures and appurtenances
thereto, and such other goods and chattels and personal property owned by
Grantor as are now or hereafter used or furnished in operating the Improvements,
or the activities conducted therein, and all building materials and equipment
hereafter situated on or about the Premises or Improvements, and all warranties
and guaranties relating thereto, and all additions thereto and substitutions and
replacements therefor (exclusive of any of the foregoing owned or leased by
tenants of space in the Improvements except to the extent any of the same
constitute fixtures) (collectively, the "Equipment"). To the extent any portion
---------
of the Equipment is not deemed real property or Fixtures under applicable law,
it shall be deemed to be personal property, and this Deed of Trust shall be
deemed to constitute a security agreement for the purposes of creating a
security interest therein in favor of Lender under the Uniform Commercial Code
of the state in which the Premises are located (the "UCC");
---
(8) All leases (including, without limitation, oil, gas and mineral
leases), licenses, concessions, residency and occupancy agreements of all or any
part of the Premises or the Improvements (each, a "Lease" and collectively,
-----
"Leases"),whether written or oral, now or hereafter entered into and all rents,
------
royalties, issues, profits, bonus money, revenue, income, rights and other
benefits (collectively, the "Rents and Profits") of the Premises or the
-----------------
Improvements, now or hereafter arising from the use or enjoyment of all or any
portion thereof or from any present or future Lease or other agreement
pertaining thereto or any of the General Intangibles and all cash or securities
deposited to secure performance by the tenants, lessees or licensees (each, a
"Tenant" and collectively, "Tenants"), as applicable, of their obligations under
------ -------
<PAGE>
any such Leases, whether said cash or securities are to be held until the
expiration of the terms of said Leases or applied to one or more of the
installments of rent coming due prior to the expiration of said terms, subject,
however, to the provisions contained in Section 6.1 hereinbelow;
-----------
(9) All contracts and agreements now or hereafter entered into covering any
part of the Premises or the Improvements (collectively, the "Contracts") and all
---------
revenue, income and other benefits thereof, including, without limitation,
management agreements, service contracts, maintenance contracts, equipment
leases, personal property leases and any contracts or documents relating to
construction on any part of the Premises or the Improvements (including all
architectural renderings, models, specifications, plans, drawings, surveys,
tests, reports, data, bonds and governmental approvals) or to the management or
operation of any part of the Premises or the Improvements;
(10) All water taps, sewer taps, certificates of occupancy, permits,
licenses, franchises, Health Care Operating Licenses (to the extent that it may
be lawfully mortgaged), certificates, consents, approvals and other rights and
privileges now or hereafter obtained in connection with the Premises or the
Improvements and all present and future warranties and guaranties relating to
the Improvements or to any equipment, fixtures, furniture, furnishings, personal
property or components of any of the foregoing now or hereafter located or
installed on the Premises or the Improvements;
(11) All present and future funds, accounts, instruments, accounts
receivable, documents, claims, general intangibles (including, without
limitation, trademarks, trade names, service marks and symbols now or hereafter
used in connection with any part of the Premises or the Improvements, all names
by which the Premises or the Improvements may be operated or known, all rights
to carry on business under such names, and all rights, interest and privileges
which Grantor has or may have as developer or declarant under any covenants,
restrictions or declarations now or hereafter relating to the Premises or the
Improvements) (collectively, the "General Intangibles");
-------------------
(12) All insurance policies or binders now or hereafter relating to the
Mortgaged Property, including any unearned premiums thereon;
(13) All cash funds, deposit accounts and other rights and evidence of
rights to cash, now or hereafter created or held by Beneficiary pursuant to this
Deed of Trust or any other of the Loan Documents, including, without limitation,
all funds now or hereafter on deposit in the Impound Account, the Payment
Reserve, the Replacement Reserve and all notes or chattel paper now or hereafter
arising from or by virtue of any transactions related to the Premises or the
Improvements;
(14) All present and future monetary deposits given by Grantor to any
public or private utility with respect to utility services furnished to any part
of the Premises or the Improvements, to the extent Grantor is entitled to the
returns thereof;
(15) To the extent that same may be lawfully mortgaged, all rights to
receive payments owing to Grantor arising out of the rendition of services at or
from the Premises to individuals by Grantor, including all rights to
reimbursement under any agreements with, and payments from, any Insurer or
Governmental Entity, together with all accounts and general intangibles related
thereto, all rights and remedies, claims, guaranties, security interests and
liens in respect of the foregoing, all books, records and other property
evidencing or related to the foregoing and all proceeds of the foregoing, but
not including Rents and Profits (the
<PAGE>
"Accounts Receivable"). As used herein, "Insurer" means any entity
which in the ordinary course of its business or activities agrees to pay for
healthcare goods and services received by individuals, including commercial
insurance companies, non-profit insurance companies (such as Blue Cross and Blue
Shield entities), employers or unions which self-insure for employee or member
health insurance, prepaid health care organizations, preferred provider
organizations, health maintenance organizations and insurance companies issuing
health, personal injury, workers' compensation or other types of insurance. As
used herein, "Governmental Entity" means the United States of America, any
state, any political subdivision of a state and any agency or instrumentality of
the United States of America or any state or political subdivision thereof and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government. Payments from
Governmental Entities shall be deemed to include payments governed under the
Social Security Act (42 U.S.C. 1395, et. seq.), including payments under
Medicare and Medicaid, and payments administered or regulated by the Health Care
Financing Administration;
(16) All proceeds, products, substitutions and accessions (including claims
and demands therefor) of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation awards; and
(17) All other or greater rights and interests of every nature in the
Premises and the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Grantor.
TO HAVE AND TO HOLD the Mortgaged Property unto Beneficiary and Trustee,
their respective successors and assigns forever, and Grantor does hereby bind
itself, its successors and assigns, to WARRANT AND FOREVER DEFEND the title to
the Mortgaged Property, subject only to the Permitted Encumbrances, to
Beneficiary and Trustee against every person whomsoever may lawfully claim the
same or any part thereof;
PROVIDED, HOWEVER, that if the Debt shall have been paid and performed in
full, then, in such case, the liens, security interests, estates and rights
granted by this Deed of Trust shall be satisfied and the estate, right, title
and interest of Beneficiary in the Mortgaged Property shall cease, and upon
payment to Beneficiary of all costs and expenses incurred for the preparation of
the release hereinafter referenced and all recording costs if allowed by law,
Beneficiary shall promptly satisfy and release this Deed of Trust of record and
the lien hereof by proper instrument.
For the purpose of further securing the Debt for so long as the Debt or any
part thereof remains incomplete or unpaid, Grantor covenants and agrees as
follows:
ARTICLE I.
TAXES AND UTILITIES
-------------------
1.1. Payment of Taxes. Grantor shall pay or cause to be paid, except to
----------------
the extent provision is actually made therefor pursuant to Section 1.2 below,
-----------
all taxes and assessments which are or may become a lien on any portion of, or
interest in, the Mortgaged Property or which are assessed against or imposed
upon any portion of, or interest in the Mortgaged Property. Grantor shall
furnish Beneficiary with receipts (or if receipts are not immediately available,
with copies of canceled checks evidencing payment with receipts to follow
promptly after they become available) showing payment of such taxes and
assessments at least fifteen (15) days prior to the applicable delinquency date
therefor. Notwithstanding the foregoing,
<PAGE>
Grantor may, in good faith, by appropriate proceedings and upon notice to
Beneficiary, contest the validity, applicability or amount of any asserted tax
or assessment so long as (a) such contest is diligently pursued, (b) Beneficiary
determines, in its subjective opinion, that such contest suspends the obligation
to pay the tax and that nonpayment of such tax or assessment will not result in
the sale, loss, forfeiture or diminution of the Mortgaged Property or any part
thereof or any interest of Beneficiary therein and (c) prior to the earlier of
the commencement of such contest or the delinquency date of the asserted tax or
assessment, Grantor deposits in the Impound Account an amount determined by
Beneficiary to be adequate to cover the payment of such tax or assessment and an
additional sum sufficient in the sole judgment of Beneficiary to cover possible
interest, costs and penalties; provided, however, that taxes, assessments,
-------- -------
interest, costs and penalties owing shall be paid by Grantor prior to the date
any writ or order is issued under which the Mortgaged Property may be sold, lost
or forfeited.
1.2. Tax and Insurance Impound Account. Grantor shall establish and
---------------------------------
maintain at all times while this Deed of Trust continues in effect an impound
account (the "Impound Account") with Beneficiary for payment of real estate
---------------
taxes and assessments and insurance on the Mortgaged Property and as additional
security for the Debt. Simultaneously with the execution hereof, Grantor shall
deposit in the Impound Account an amount reasonably determined by Beneficiary.
Commencing on the first Payment Date under the Note and continuing thereafter on
each subsequent Payment Date, Grantor shall pay to Beneficiary, concurrently
with and in addition to the monthly payment due under the Note and until the
Debt is fully paid and performed, deposits in an amount equal to one-twelfth
(1/12) of the amount of the annual real estate taxes and assessments that will
next become due and payable on the Mortgaged Property, plus one-twelfth (1/12)
of the amount of the annual premiums that will next become due and payable on
insurance policies which Grantor is required to maintain hereunder, each as
estimated and determined by Beneficiary. So long as no Event of Default has
occurred which has not been waived, and no event has occurred or failed to occur
which with the passage of time, the giving of notice, or both would constitute
an Event of Default (a "Default"), all sums in the Impound Account shall be held
-------
by Beneficiary in the Impound Account to pay said taxes, assessments and
insurance premiums before the same become delinquent. Grantor shall be
responsible for ensuring the receipt by Beneficiary, at least thirty (30) days
prior to the respective due date for payment thereof, of all bills, invoices and
statements for all taxes, assessments and insurance premiums to be paid from the
Impound Account, and so long as no Event of Default has occurred and not been
waived, Beneficiary shall pay the governmental authority or other party entitled
thereto directly to the extent funds are available for such purpose in the
Impound Account. No interest on funds contained in the Impound Account, if any,
shall be paid by Beneficiary to Grantor.
1.3. Payment of Utilities, Assessments, Charges, Etc. Grantor shall pay
------------------------------------------------
when due all utility charges which are incurred by Grantor or which may become a
charge or lien against any portion of the Mortgaged Property for gas,
electricity, water and sewer services furnished to the Premises and/or the
Improvements and all other assessments or charges of a similar nature, or
assessments payable pursuant to any restrictive covenants, whether public or
private, affecting the Premises and/or the Improvements or any portion thereof,
whether or not such assessments or charges are or may become liens thereon.
1.4. Additional Taxes. In the event of the enactment after the date
----------------
hereof of any law imposing upon Beneficiary the payment of the whole or any part
of the taxes or assessments or charges or liens herein required to be paid by
Grantor, or changing in any way the laws relating to the taxation of mortgages
or security agreements or the interest of the Beneficiary or secured party in
the property covered thereby, or the manner of collection of such taxes, so as
to
<PAGE>
adversely affect this Deed of Trust or the Debt or Beneficiary, then, and in
any such event, Grantor, upon demand by Beneficiary, shall pay such taxes,
assessments, charges or liens, or reimburse Beneficiary therefor; provided,
--------
however, that if, in the opinion of counsel for Beneficiary, (a) it might be
- -------
unlawful to require Grantor to make such payment or (b) the making of such
payment might result in the imposition of interest beyond the maximum amount
permitted by law, then and in either such event, Beneficiary may elect, by
notice in writing given to Grantor, to declare all of the Debt to be and become
due and payable in full ninety (90) days from the giving of such notice, and, in
connection with such payment of the Debt, no prepayment premium or fee shall be
due.
ARTICLE II.
INSURANCE
---------
2.1. Insurance. Grantor shall, at Grantor's expense, maintain in force
---------
and effect on the Mortgaged Property at all times while this Deed of Trust
continues in effect the following insurance:
(a) Insurance against loss or damage to the Mortgaged Property by
fire, windstorm, lightning, tornado and hail and against loss and damage by such
other, additional risks as may be now or hereafter embraced by an "all-risk"
form of insurance policy. The amount of such insurance shall be not less than
one hundred percent (100%) of the full replacement cost (insurable value) of the
Improvements (as established by an MAI appraisal), without reduction for
depreciation. The determination of the replacement cost amount shall be
adjusted annually to comply with the requirements of the insurer issuing such
coverage or, at Beneficiary's election, by reference to such indices, appraisals
or information as Beneficiary determines in its reasonable discretion in order
to reflect increased value due to inflation. In
addition, each policy chall contain inflation guard coverage. Full replacement
cost, as used herein, means, with respect to the Improvements, the cost of
replacing the Improvements without regard to deduction for depreciation,
exclusive of the cost of excavations, foundations without regard to deduction
for depreciation, exclusive of the cost of excavations, foundations and footings
below the lowest basement floor. Grantor shall also maintain insurance against
loss or damage to furniture, furnishings, fixtures, equipment and other items
(whether personality or fixtures0 included in the Mortgaged Property and owned
by Grantor from time to time to the extent applicable.
(b) Commercial General Liability Insurance against claims for personal
injury, bodily injury, death and property damage occurring on, in or about the
Premises or the Improvements in amounts not less than $1,000,000 per occurrence
and $2,000,000 in the aggregate plus umbrella coverage in an amount not less
than $2,000,000. Beneficiary hereby retains the right to periodically review
the amount of said liability insurance and to require an increase in the amount
of said liability insurance should Beneficiary deem an increase to be reasonably
prudent under then existing circumstances.
(c) Boiler and machinery insurance (including explosion coverage), if
steam boilers or other pressure-fired vessels are in operation at the Premises.
Minimum liability coverage per accident must equal the greater of the
replacement cost (insurable value) of the Improvements housing such boiler or
pressure-fired machinery or $2,000,000. If one or more HVAC units is in
operation at the Premises, "Systems Breakdowns" coverage shall be required, as
determined by Beneficiary. Minimum liability coverage per accident must equal
the replacement value of such unit(s).
<PAGE>
(d) If the Improvements or any part thereof is situated in an area
designated by the Federal Emergency Management Agency ("FEMA") as a special
----
flood hazard area (Zone A or Zone V), flood insurance in an amount equal to the
lesser of: (a) the minimum amount required, under the terms of coverage, to
compensate for any damage or loss on a replacement basis (or the unpaid balance
of the Debt if replacement cost coverage is not available for the type of
building insured), or (b) the maximum insurance available under the appropriate
National Flood Insurance Administration program. The maximum deductible shall
be $10,000 per building or a higher minimum amount as required by FEMA or other
applicable law.
(e) During the period of any construction, renovation or alteration of
the existing Improvements which exceeds the lesser of 10% of the principal
amount of the Note or $500,000, at Beneficiary's request, a completed value,
"All Risk" Builder's Risk form or "Course of Construction" insurance policy in
non-reporting form, in an amount approved by Beneficiary, may be required.
During the period of any construction of any addition to the existing
Improvements, a completed value, "All Risk" Builder's Risk form or "Course of
Construction" insurance policy in non-reporting form, in an amount approved by
Beneficiary, shall be required.
(f) Worker's Compensation and Employer's Liability Insurance covering
all appropriate persons.
(g) Business income (loss of rents) insurance in amounts sufficient to
compensate Grantor for all Rents and Profits and other income during a period of
not less than twelve (12) months. The amount of coverage shall be adjusted
annually to reflect the Rents and Profits or income payable during the
succeeding twelve (12) month period.
(h) Such other insurance on the Mortgaged Property or on any
replacements or substitutions thereof or additions thereto as may from time to
time be required by Beneficiary against other insurable hazards or casualties
which at the time are commonly insured against in the case of property similarly
situated including, without limitation, sinkhole, mine subsidence, earthquake
and environmental insurance, due regard being given to the height and type of
Improvements, their construction, location, use and occupancy.
All such insurance shall (i) be with insurers fully licensed and authorized
to do business in the state within which the Premises is located and which have
and maintain a rating of at least A from Standard & Poors, or equivalent, (ii)
contain the complete address of the Premises (or a complete legal description),
(iii) be for terms of at least one year, with premium prepaid, and (iv) be
subject to the approval of Beneficiary as to insurance companies, amounts,
content, forms of policies and expiration dates, and (v) include a standard,
non-contributory, Beneficiary clause naming EXACTLY:
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
its successors and assigns, ATIMA
31 West 52nd Street
12th Floor
New York, New York 10019
(a) as an additional insured under all liability insurance policies, (b) as the
------------------
first Beneficiary and loss payee on all property insurance policies and (c) as
- -----------------
the loss payee on all loss of rents or loss of business income insurance
----------
policies.
<PAGE>
Grantor shall deliver to Beneficiary certificates and policies evidencing
the insurance required to be maintained hereunder at least thirty (30) days
before any such insurance shall expire. Grantor further agrees that each such
insurance policy: (i) shall provide for at least thirty (30) days' prior
written notice to Beneficiary prior to any policy reduction or cancellation for
any reason other than non-payment of premium and at least ten (10) days' prior
written notice to Beneficiary prior to any cancellation due to non-payment of
premium; (ii) shall contain an endorsement or agreement by the insurer that any
loss shall be payable to Beneficiary in accordance with the terms of such policy
notwithstanding any act or negligence of Grantor or any other person which might
otherwise result in forfeiture of such insurance; (iii) shall waive all rights
of subrogation against Beneficiary; (iv) in the event that the Premises or the
Improvements constitutes a legal non-conforming use under applicable building,
zoning or land use laws or ordinances, shall include an ordinance and law
coverage endorsement which will contain Coverage A: "Loss Due to Operation of
Law" (with a minimum liability limit equal to Replacement Cost With Agreed Value
Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased Cost of
Construction" coverages; (v) unless otherwise specified above, shall have a
maximum deductible of $10,000; (vi) shall contain a replacement cost endorsement
and either an agreed amount endorsement (to avoid the operation of any co-
insurance provisions) or a waiver of any co-insurance provisions, all subject to
Beneficiary's approval; and (vii) may be in the form of a blanket policy,
provided that, Grantor hereby acknowledges and agrees that failure to pay any
portion of the premium therefor which is not allocable to the Mortgaged Property
or any other action not relating to the Mortgaged Property which would otherwise
permit the issuer thereof to cancel the coverage thereof, would require the
Mortgaged Property to be insured by a separate, single-property policy and the
blanket policy must properly identify and fully protect the Mortgaged Property
as if a separate policy were issued for 100% of Replacement Cost at the time of
loss and otherwise meet all of Beneficiary's applicable insurance requirements
set forth in this Section 2.1. The delivery to Beneficiary of the insurance
policies or the certificates of insurance as provided above shall constitute an
assignment of all proceeds payable under such insurance policies relating to the
Mortgaged Property by Grantor to Beneficiary as further security for the Debt.
In the event of the foreclosure of this Deed of Trust, or other transfer of
title to the Mortgaged Property in extinguishment in whole or in part of the
Debt, all right, title and interest of Grantor in and to all proceeds payable
under such policies then in force concerning the Mortgaged Property shall
thereupon vest in the purchaser at such foreclosure, or in Beneficiary or other
transferee in the event of such other transfer of title. Approval of any
insurance by Beneficiary shall not be a representation of the solvency of any
insurer or the sufficiency of any amount of insurance. In the event Grantor
fails to provide, maintain, keep in force or deliver and furnish to Beneficiary
the policies of insurance required by this Deed of Trust or evidence of their
replacement or renewal as required herein, Beneficiary may, but shall not be
obligated to, procure such insurance and Grantor shall pay all amounts advanced
by Beneficiary therefor, together with interest thereon at the Default Interest
Rate from and after the date advanced by Beneficiary until actually repaid by
Grantor, promptly upon demand by Beneficiary. Beneficiary shall not be
responsible for nor incur any liability for the failure of the insurer to
perform, even though Beneficiary has caused the insurance to be placed with the
insurer after failure of Grantor to furnish such insurance. Grantor shall not
obtain insurance for the Mortgaged Property in addition to that required by
Beneficiary without the prior written consent of Beneficiary, which consent will
not be unreasonably withheld provided that (i) Beneficiary is a named insured on
such insurance, (ii) Beneficiary receives complete copies of all policies
evidencing such insurance, and (iii) such insurance complies with all of the
applicable requirements set forth herein.
ARTICLE III.
CASUALTY AND CONDEMNATION
-------------------------
<PAGE>
3.1. Casualty and Condemnation. Grantor shall give Beneficiary prompt
-------------------------
written notice of the occurrence of any casualty affecting, or the institution
of any proceedings for eminent domain or for the condemnation of, the Mortgaged
Property or any portion thereof. All insurance proceeds on the Mortgaged
Property, and all causes of action, claims, compensation, awards and recoveries
for any damage, condemnation or taking of all or any part of the Mortgaged
Property or for any diminution in value of the Mortgaged Property, are hereby
assigned to and shall be paid to Beneficiary. Beneficiary may participate in
any suits or proceedings relating to any such proceeds, causes of action,
claims, compensation, awards or recoveries, and Beneficiary is hereby
authorized, in its own name or in Grantor's name, to adjust any loss covered by
insurance or any condemnation claim or cause of action, and to settle or
compromise any claim or cause of action in connection therewith, and Grantor
shall from time to time deliver to Beneficiary any instruments required to
permit such participation; provided, however, that, so long as no Default or
-------- -------
Event of Default shall have occurred and not been waived, Beneficiary shall not
have the right to participate in the adjustment of any loss which is not in
excess of the lesser of (i) five percent (5%) of the then outstanding principal
balance of the Note and (ii) $100,000. Beneficiary shall apply any sums
received by it under this Section first to the payment of all of its costs and
expenses (including, but not limited to, reasonable legal fees and
disbursements) incurred in obtaining those sums, and then, as follows:
(a) In the event that less than sixty percent (60%) of the
Improvements located on the Premises have been taken or destroyed, then if and
so long as:
(1) no Default or Event of Default has occurred hereunder or
under any of the other Loan Documents and has not been waived, and
(2) the Mortgaged Property can, in Beneficiary's judgment, with
diligent restoration or repair, be returned to a condition at least equal
to the condition thereof that existed prior to the casualty or partial
taking causing the loss or damage within the earlier to occur of (i) nine
(9) months after the receipt of insurance proceeds or condemnation awards
by either Grantor or Beneficiary, and (ii) sixty (60) days prior to the
stated maturity date of the Note, and
(3) all necessary governmental approvals can be obtained to allow
the rebuilding and reoccupancy of the Mortgaged Property as described in
subsection (2) above, and
--------------
(4) there are sufficient sums available (through insurance
proceeds or condemnation awards and contributions by Grantor, the full
amount of which shall, at Beneficiary's option, have been deposited with
Beneficiary) for such restoration or repair (including, without limitation,
for any costs and expenses of Beneficiary to be incurred in administering
said restoration or repair) and for payment of principal and interest to
become due and payable under the Note during such restoration or repair,
and
(5) the economic feasibility of the Improvements after such
restoration or repair will be such that income from their operation is
reasonably anticipated to be sufficient to pay operating expenses of the
Mortgaged Property and debt service on the Debt in full with the same
coverage ratio considered by Beneficiary in its determination to make the
loan secured hereby, and
<PAGE>
(6) in the event that the insurance proceeds or condemnation
awards received as a result of such casualty or partial taking exceed the
lesser of (i) five percent (5%) of the then outstanding principal balance
of the Note and (ii) $150,000, Grantor shall have delivered to Beneficiary,
at Grantor's sole cost and expense, an appraisal report from an appraiser
satisfactory to Beneficiary in form and substance satisfactory to
Beneficiary appraising the value of the Mortgaged Property as proposed to
be restored or repaired to be not less than the appraised value of the
Mortgaged Property considered by Beneficiary in its determination to make
the loan secured hereby, and
(7) Grantor so elects by written notice delivered to Beneficiary
within five (5) days after settlement of the aforesaid insurance or
condemnation claim,
then, Beneficiary shall, solely for the purposes of such restoration or repair,
advance so much of the remainder of such sums as may be required for such
restoration or repair, and any funds deposited by Grantor therefor, to Grantor
in the manner and upon such terms and conditions as would be required by a
prudent interim construction lender, including, but not limited to, the prior
approval by Beneficiary of plans and specifications, contractors and form of
construction contracts and the furnishing to Beneficiary of permits, bonds, lien
waivers, invoices, receipts and affidavits from contractors and subcontractors,
in form and substance satisfactory to Beneficiary in its discretion, with any
remainder being applied by Beneficiary for payment of the Debt in whatever order
Beneficiary directs in its absolute discretion.
(b) In all other cases, namely, in the event that sixty percent (60%)
or more of the Improvements located on the Premises have been taken or destroyed
or Grantor does not elect to restore or repair the Mortgaged Property pursuant
to clause (a) above or otherwise fails to meet the requirements of clause (a)
---------- ----------
above, then, in any of such events, Beneficiary may elect, in Beneficiary's
absolute discretion and without regard to the adequacy of Beneficiary's
security, to do either of the following: (1) accelerate the maturity date of
the Note and declare any and all of the Debt to be immediately due and payable
and apply the remainder of such sums received pursuant to this Section to the
payment of the Debt in whatever order Beneficiary directs in its absolute
discretion, with any remainder being paid to Grantor, or (2) notwithstanding
that Grantor may have elected not to restore or repair the Mortgaged Property
pursuant to the provisions of Section 3.1(a)(7) above, require Grantor to
-----------------
restore or repair the Mortgaged Property in the manner and upon such terms and
conditions as would be required by a prudent interim construction lender,
including, but not limited to, the deposit by Grantor with Beneficiary, within
thirty (30) days after demand therefor, of any deficiency reasonably determined
by Beneficiary to be necessary in order to assure the availability of sufficient
funds to pay for such restoration or repair, including Beneficiary's costs and
expenses to be incurred in connection therewith, the prior approval by
Beneficiary of plans and specifications, contractors and form of construction
contracts and the furnishing to Beneficiary of permits, bonds, lien waivers,
invoices, receipts and affidavits from contractors and subcontractors, in form
and substance satisfactory to Beneficiary in its discretion, and apply the
remainder of such sums toward such restoration and repair, with any balance
thereafter remaining being applied by Beneficiary for payment of the Debt in
whatever order Beneficiary directs in its absolute discretion.
Any reduction in the Debt resulting from Beneficiary's application of
any sums received by it hereunder shall take effect only when Beneficiary
actually receives such sums and elects to apply such sums to the Debt and, in
any event, the unpaid portion of the Debt shall remain in full force and effect
and Grantor shall not be excused in the payment thereof. Partial payments
received by Beneficiary, as described in the preceding sentence, shall be
<PAGE>
applied first to the final payment due under the Note and thereafter to
installments due under the Note in the inverse order of their due date. If
Grantor elects or Beneficiary directs Grantor to restore or repair the Mortgaged
Property after the occurrence of a casualty or partial taking of the Mortgaged
Property as provided above, Grantor shall promptly and diligently, at Grantor's
sole cost and expense and regardless of whether the insurance proceeds or
condemnation award, as appropriate, shall be sufficient for such purpose,
restore, repair, replace and rebuild the Mortgaged Property as nearly as
possible to its value, condition and character immediately prior to such
casualty or partial taking in accordance with the foregoing provisions and
Grantor shall pay to Beneficiary all costs and expenses of Beneficiary incurred
in administering said rebuilding, restoration or repair. Grantor agrees to
execute and deliver from time to time such further instruments as may be
requested by Beneficiary to confirm the assignment to Beneficiary of any award,
damage, insurance proceeds, payment or other compensation. Beneficiary is hereby
irrevocably constituted and appointed the attorney-in-fact of Grantor, with full
power of substitution, subject to the terms of this Section, to settle for,
collect and receive any such awards, damages, insurance proceeds, payments or
other compensation from the parties or authorities making the same, to appear in
and prosecute any proceedings therefor and to give receipts and acquittances
therefor.
ARTICLE IV.
ENVIRONMENTAL MATTERS
---------------------
4.1. Hazardous Waste and Other Substances.
------------------------------------
(a) Grantor hereby represents and warrants to Beneficiary that, as of
the date hereof: (i) to the best of Grantor's knowledge, information and
belief, none of Grantor nor the Mortgaged Property nor any Tenant at the
Premises nor the operations conducted thereon has at any time been or presently
is in direct or indirect violation of or otherwise exposed to any liability
under any local, state or federal law, rule or regulation or common law duty
pertaining to human health, natural resources or the environment (collectively,
"Environmental Laws"), including, without limitation, the Comprehensive
------------------
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. (S)
9601 et seq.) ("CERCLA"), the Resource Conservation and Recovery Act of 1976 (42
------
U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S)
------
1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Emergency
------ ------
Planning and Community-Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), the
-------
Endangered Species Act (16 U.S.C. (S) 1531 et seq.), the Toxic Substances
------
Control Act (15 U.S.C. (S) 2601 et seq.), the Occupational Safety and Health Act
------
(29 U.S.C. (S) 651 et seq.) or the Hazardous Materials Transportation Act (49
------
U.S.C. (S) 1801 et seq.), or any regulations promulgated pursuant to said laws,
------
all as amended from time to time; (ii) no hazardous, toxic or harmful
substances, wastes, materials, pollutants or contaminants (including, without
limitation, asbestos or asbestos-containing materials, lead based paint,
polychlorinated biphenyls, petroleum or petroleum products or byproducts,
flammable explosives, radioactive materials, infectious substances or raw
materials which include hazardous constituents) or any other substances or
materials which are included under or regulated by Environmental Laws
(collectively, "Hazardous Substances") are located on, in or under or have been
--------------------
handled, generated, stored, processed or disposed of on or released or
discharged from the Mortgaged Property (including underground contamination),
except for those substances used by Grantor or any Tenant in the ordinary course
of their respective businesses and in compliance with all Environmental Laws and
where such could not reasonably be expected to give rise to liability under
Environmental Laws ("Permitted Materials"); (iii) the Mortgaged Property is not
-------------------
subject to any private or governmental lien arising under Environmental Laws;
(iv) there is no pending, nor, to Grantor's knowledge, information or belief,
threatened litigation arising under Environmental Laws
<PAGE>
affecting Grantor or the Mortgaged Property; there are no and have been no
existing or closed underground storage tanks or other underground storage
receptacles for Hazardous Substances or landfills or dumps on the Mortgaged
Property; (v) Grantor has received no notice of, and to the best of Grantor's
knowledge and belief, there exists no investigation, action, proceeding or claim
by any agency, authority or unit of government or by any third party which could
result in any liability, penalty, sanction or judgment under any Environmental
Laws with respect to any condition, use or operation of the Mortgaged Property,
nor does Grantor know of any basis for such an investigation, action, proceeding
or claim; and (vi) Grantor has received no notice of and, to the best of
Grantor's knowledge and belief, there has been no claim by any party that any
use, operation or condition of the Mortgaged Property has caused any nuisance or
any other liability or adverse condition on any other property, nor does Grantor
know of any basis for such an investigation, action, proceeding or claim.
(b) Grantor has not received nor, to the best of Grantor's knowledge,
information and belief has there been issued, any notice, notification, demand,
request for information, citation, summons, or order in any way relating to any
actual, alleged or potential violation or liability arising under Environmental
Laws.
(c) Neither the Mortgaged Property, nor to the best of Grantor's
knowledge, information and belief, any property to which Grantor has, in
connection with the maintenance or operation of the Mortgaged Property, directly
or indirectly transported or arranged for the transportation of any Hazardous
Substances is listed or, to the best of Grantor's knowledge, information and
belief, proposed for listing on the National Priorities List promulgated
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal
or state list of sites requiring environmental investigation or clean-up.
(d) Grantor shall comply with all applicable Environmental Laws.
Grantor shall keep or cause the Mortgaged Property to be kept free from
Hazardous Substances (except Permitted Materials).
(e) Grantor shall promptly notify Beneficiary of (i) the actual or
potential existence of any Hazardous Substances on the Mortgaged Property other
than Permitted Materials, (ii) any direct or indirect violation relating to the
Mortgaged Property of, or other exposure to liability under, any Environmental
Laws, (iii) any lien, action or notice affecting the Mortgaged Property or
Grantor resulting from any violation or alleged violation of or liability or
alleged liability under any Environmental Laws arising from any condition or
activity on the Mortgaged Property, (iv) the institution of any investigation,
inquiry or proceeding concerning Grantor or the Mortgaged Property pursuant to
any Environmental Laws or otherwise relating to Hazardous Substances, or (v) the
discovery of any occurrence, condition or state of facts which would render any
representation or warranty contained in this Deed of Trust incorrect in any
respect if made at the time of such discovery. Immediately upon receipt of same,
Grantor, shall deliver to Beneficiary copies of any and all requests for
information, complaints, citations, summonses, orders, notices, reports or other
communications, documents or instruments in any way relating to any actual,
alleged or potential violation or liability of any nature whatsoever arising
under Environmental Laws and relating to the Mortgaged Property or to Grantor.
Grantor shall remedy or cause to be remedied in a timely manner (and in any
event within the time period permitted by applicable Environmental Laws) any
violation of Environmental Laws or any condition that could give rise to
liability under Environmental Laws. Without limiting the foregoing, Grantor
shall, promptly and regardless of the source of the contamination or threat to
the environment or human health, at its own expense, take all actions as shall
be necessary or prudent, for the clean-up of any and all portions of the
Mortgaged Property or other affected
<PAGE>
property, including, without limitation, all investigative, monitoring, removal,
containment and remedial actions in accordance with all applicable Environmental
Laws (and in all events in a manner satisfactory to Beneficiary) and shall
further pay or cause to be paid, at no expense to Beneficiary, all clean-up,
administrative and enforcement costs of applicable governmental agencies which
may be asserted against the Mortgaged Property. In the event Grantor fails to do
so, Beneficiary may, but shall not be obligated to, cause the Mortgaged Property
or other affected property to be freed from any Hazardous Substances or
otherwise brought into conformance with Environmental Laws. Grantor hereby
grants to Beneficiary and its agents and employees access to the Mortgaged
Property and a license to remove any items deemed by Beneficiary to be Hazardous
Substances and to do all things Beneficiary shall deem necessary to bring the
Mortgaged Property into conformance with Environmental Laws.
(f) Grantor covenants and agrees, at Grantor's sole cost and expense,
to indemnify, defend (at trial and appellate levels, and with attorneys,
consultants and experts acceptable to Beneficiary), and hold Beneficiary
harmless from and against any and all liens, damages (including without
limitation, punitive or exemplary damages), losses, liabilities (including,
without limitation, strict liability), obligations, settlement payments,
penalties, fines, assessments, citations, directives, claims, litigation,
demands, defenses, judgments, suits, proceedings, costs, disbursements or
expenses of any kind or of any nature whatsoever (including, without limitation,
reasonable attorneys', consultants' and experts' fees and disbursements actually
incurred in investigating, defending, settling or prosecuting any claim,
litigation or proceeding) which may at any time be imposed upon, incurred by or
asserted or awarded against Beneficiary or the Mortgaged Property, and arising
directly or indirectly from or out of: (i) any violation or alleged violation
of, or liability or alleged liability under, any Environmental Law; (ii) the
presence, release or threat of release of or exposure to any Hazardous
Substances on, in, under or affecting all or any portion of the Mortgaged
Property or any surrounding areas, regardless of whether or not caused by or
within the control of Grantor; (iii) any transport, treatment, recycling,
storage, disposal or arrangement therefor of Hazardous Substances whether on the
Mortgaged Property, originating from the Mortgaged Property, or otherwise
associated with Grantor or any operations conducted on the Mortgaged Property at
any time; (iv) the failure by Grantor to comply fully with the terms and
conditions of this Section 4.1; (v) the breach of any representation or warranty
-----------
contained in this Section 4.1; and (vi) the enforcement of this Section 4.1.
----------- -----------
The indemnity set forth in this Section 4.1 shall also include any diminution in
-----------
the value of the security afforded by the Mortgaged Property or any future
reduction in the sales price of the Mortgaged Property by reason of any matter
set forth in this Section 4.1. Beneficiary's rights under this Section shall
-----------
survive payment in full of the Debt and shall be in addition to all other rights
of Beneficiary under this Deed of Trust, the Note and the other Loan Documents.
(g) Upon Beneficiary's request, at any time after the occurrence of an
Event of Default which has not been waived or at such other time as Beneficiary
has reasonable grounds to believe that Hazardous Substances are or have been
released, stored or disposed of on the Mortgaged Property, or on property
affecting the Mortgaged Property, or that the Mortgaged Property may be in
violation of the Environmental Laws, Grantor shall perform or cause to be
performed, at Grantor's sole cost and expense and in scope, form and substance
satisfactory to Beneficiary, an inspection or audit of the Mortgaged Property
prepared by a hydrogeologist or environmental engineer or other appropriate
consultant approved by Beneficiary indicating the presence or absence of
Hazardous Substances on the Mortgaged Property, the compliance or non-compliance
status of the Mortgaged Property and the operations conducted thereon with
applicable Environmental Laws, or an inspection or audit of the Mortgaged
Property prepared by an engineering or consulting firm approved by Beneficiary
<PAGE>
indicating the presence or absence of friable asbestos or substances containing
asbestos or lead or substances containing lead or lead based paint ("Lead Based
----------
Paint") on the Mortgaged Property. If Grantor fails to provide reports of such
- -----
inspection or audit within thirty (30) days after such request, Beneficiary may
order the same at Grantor's expense, and Grantor hereby grants to Beneficiary
and its employees and agents access to the Mortgaged Property and an irrevocable
license to undertake such inspection or audit.
(h) Reference is made to that certain Environmental Indemnity
Agreement of even date herewith from Grantor and Assisted Living Concepts, Inc.
for the benefit of Beneficiary (the "Environmental Indemnity Agreement"). The
---------------------------------
provisions of this Deed of Trust and the Environmental Indemnity Agreement shall
be read together to maximize the coverage with respect to the subject matter
thereof, as determined by Beneficiary.
(i) If, prior to the date hereof, it was determined that the Mortgaged
Property contains Lead Based Paint, Grantor had prepared an assessment report
describing the location and condition of the Lead Based Paint (a "Lead Based
----------
Paint Report"). If, at any time hereafter, Lead Based Paint is suspected of
- ------------
being present on the Mortgaged Property, Grantor agrees, at its sole cost and
expense and within twenty (20) days thereafter, to cause to be prepared a Lead
Based Paint Report prepared by an expert, and in form, scope and substance,
acceptable to Beneficiary.
(j) Grantor agrees that if it has been, or if at any time hereafter it
is, determined that the Mortgaged Property contains Lead Based Paint, on or
before thirty (30) days following (i) the date hereof, if such determination was
made prior to the date hereof or (ii) such determination, if such determination
is hereafter made, as applicable, Grantor shall, at its sole cost and expenses,
develop and implement, and thereafter diligently and continuously carry out (or
cause to be developed and implemented and thereafter diligently and continually
to be carried out), an operations, abatement and maintenance plan for the Lead
Based Paint on the Mortgaged Property, which plan shall be prepared by an
expert, and be in form, scope and substance, acceptable to Beneficiary (together
with any Lead Based Paint Report, the "O&M Plan"). If an O&M Plan has been
--------
prepared prior to the date hereof, Grantor agrees to diligently and continually
carry out (or cause to be carried out) the provisions thereof. Compliance with
the O&M Plan shall require or be deemed to require, without limitation, the
proper preparation and maintenance of all records, papers and forms required
under the Environmental Laws.
ARTICLE V.
RESERVES
--------
5.1. Payment Reserve.
---------------
(a) Contemporaneously with the execution hereof, Grantor has
established with Beneficiary a reserve in the amount of one installment of the
Monthly Payment and deposits for any applicable reserves or escrow accounts
required under the terms of this Deed of Trust or the other Loan Documents as
calculated by Beneficiary (the "Payment Reserve"). Grantor understands and
---------------
agrees that, notwithstanding the establishment of the Payment Reserve as herein
required, all of the proceeds of the Note have been, and shall be considered,
fully disbursed and shall bear interest and be payable on the terms provided
therein. No interest on funds contained in the Payment Reserve shall be paid by
Beneficiary to Grantor.
(b) For so long as no Event of Default has occurred hereunder or under
any of the other Loan Documents and not been waived, Beneficiary shall, on the
first monthly
<PAGE>
Payment Date under the Note, advance from the Payment Reserve to itself the
amount of the monthly installment due and payable by Grantor under the Note on
such Payment Date and shall also advance from the Payment Reserve into the
Impound Account the amount of any deposit for taxes and insurance premiums and
into the Replacement Reserve the amount of any deposit for Replacements and into
any other reserve account the amount of any deposit in accordance with the terms
of any other Loan Document required to be paid by Grantor concurrently with each
such monthly installment pursuant to the terms hereof and thereof. Provided no
Default or Event of Default has occurred which has not been waived, after the
final scheduled disbursement from the Payment Reserve, any amounts then
remaining in the Payment Reserve shall be paid to Grantor. Nothing contained
herein, including, without limitation, the existence of the Payment Reserve,
shall release Grantor from its obligation to make payments under the Note, this
Deed of Trust or the other Loan Documents strictly in accordance with the terms
hereof or thereof and, in this regard, without limiting the generality of the
foregoing, should the amounts contained in the Payment Reserve not be sufficient
to pay in full the Monthly Payment and the Impound Account, Replacement Reserve
and any other applicable reserve account deposits referenced above in this
subparagraph, Grantor shall be responsible for paying such deficiency on the
Payment Date of such monthly installment.
5.2. Replacement Reserve.
-------------------
(a) As additional security for the Debt, Grantor shall establish and
maintain at all times while this Deed of Trust continues in effect a capital
improvement reserve (the "Replacement Reserve") with Beneficiary for payment of
-------------------
costs and expenses incurred by Grantor in connection with the performance of
work which would normally be treated as a capital improvement under generally
accepted accounting principles (collectively, the "Replacements"). Commencing
------------
on the first Payment Date under the Note and continuing on each Payment Date
thereafter, Grantor shall pay to Beneficiary, in addition to the monthly payment
due under the Note and until the Debt is fully paid and performed, a deposit to
the Replacement Reserve in an amount equal to $ 4,401.00 per month. So long as
no Default or Event of Default has occurred and has not been waived, Beneficiary
shall, to the extent funds are available for such purpose in the Replacement
Reserve, disburse to Grantor the amount paid or incurred by Grantor in
performing Replacements within ten (10) days following: (a) the receipt by
Beneficiary of a written request from Grantor for disbursement from the
Replacement Reserve and a certification by Grantor in a form approved in writing
by Beneficiary that the applicable item of Replacement has been completed; (b)
the delivery to Beneficiary of invoices, receipts or other evidence satisfactory
to Beneficiary, verifying the cost of performing the Replacements; (c) for
disbursement requests in excess of $10,000, the delivery to Beneficiary of
affidavits, lien waivers or other evidence reasonably satisfactory to
Beneficiary showing that all parties who might or could claim statutory or
common law liens and are furnishing or have furnished material or labor to the
Mortgaged Property have been paid all amounts due for labor and materials
furnished to the Mortgaged Property; (d) for disbursement requests in excess of
$10,000, delivery to Beneficiary of a certification from an inspecting architect
or other third party acceptable to Beneficiary describing the completed
Replacements and verifying the completion of the Replacements and the value of
the completed Replacements; and (e) for disbursement requests in excess of
$50,000, delivery to Beneficiary of a new certificate of occupancy for the
portion of the Improvements covered by such Replacements, if said new
certificate of occupancy is required by law, or a certification by Grantor that
no new certificate of occupancy is required. Beneficiary shall not be required
to make advances from the Replacement Reserve more frequently than once in any
ninety (90) day period. In making any payment from the Replacement Reserve,
Beneficiary shall be entitled to rely on such request from Grantor without any
inquiry into the accuracy, validity or contestability of any such amount.
Beneficiary
<PAGE>
may, at Grantor's expense, make or cause to be made during the term
of this Deed of Trust an annual inspection of the Mortgaged Property to
determine the need, as determined by Beneficiary in its reasonable judgment, for
further Replacements of the Mortgaged Property; such inspection to be no more
frequent than once in any calendar year unless a Default or an Event of Default
shall have occurred and not been waived. In the event that such inspection
reveals that further Replacements of the Mortgaged Property are required,
Beneficiary shall provide Grantor with a written description of the required
Replacements and Grantor shall complete such Replacements to the reasonable
satisfaction of Beneficiary within ninety (90) days after the receipt of such
description from Beneficiary, or such later date as may be approved by
Beneficiary in its sole discretion.
(b) Beneficiary shall cause funds in the Replacement Reserve to be
deposited into interest bearing accounts of the type customarily maintained by
Beneficiary or its servicing agent for the investment of similar reserves, which
accounts may not yield the highest interest rate then available. Interest
payable on such amounts shall be computed based on the daily outstanding balance
in the Replacement Reserve. Such interest shall be calculated on a simple, non-
compounded interest basis based solely on contributions made to the Replacement
Reserve by Grantor. All interest earned on amounts contributed to the
Replacement Reserve shall be retained by Beneficiary and accumulated for the
benefit of Grantor and added to the balance in the Replacement Reserve and shall
be disbursed for payment of the items for which other funds in the Replacement
Reserve are to be disbursed.
(c) As additional security for the payment and performance by Grantor
of all duties, responsibilities and obligations under the Note, this Deed of
Trust and the other Loan Documents, Grantor hereby unconditionally and
irrevocably assigns and pledges to Beneficiary, and hereby grants to Beneficiary
a security interest in, (i) the Impound Account, the Payment Reserve, the
Replacement Reserve, and any other reserve or escrow account established
pursuant to the terms hereof or of any other Loan Document (collectively, the
"Reserves"), (ii) all insurance on said accounts, (iii) all accounts, contract
- ---------
rights and general intangibles or other rights and interests pertaining thereto,
(iv) all replacements, substitutions or proceeds thereof, (v) all instruments
and documents now or hereafter evidencing the Reserves or such accounts, (vi)
all powers, options, rights, privileges and immunities pertaining to the
Reserves (including the right to make withdrawals therefrom) and (vii) all
replacements, substitutions and all proceeds of the foregoing. Grantor hereby
authorizes and consents to each account into which the Reserves have been
deposited being held in Beneficiary's name or the name of any entity servicing
the loan evidenced by the Note for Beneficiary and hereby acknowledges and
agrees that Beneficiary, or at Beneficiary's election, such servicing agent,
shall have exclusive control over each account. Notice of the assignment and
security interest granted to Beneficiary herein may be delivered by Beneficiary
at any time to the financial institutions wherein the Reserves have been
established, and Beneficiary, or such servicing entity, shall have possession of
all passbooks or other evidences of such accounts. Grantor hereby assumes all
risk of loss with respect to amounts on deposit in the Reserves other than any
such loss resulting solely from the willful misconduct of Beneficiary as finally
determined by a court of competent jurisdiction. Grantor hereby knowingly,
voluntarily and intentionally stipulates, acknowledges and agrees that the
advancement of the funds from the Reserves as set forth herein is at Grantor's
direction and is not the exercise by Beneficiary of any right of set-off or
other remedy upon a Default or an Event of Default. Grantor hereby waives all
right to withdraw funds from the Reserves except as provided for in this Deed of
Trust. If an Event of Default shall occur hereunder or under any other of the
Loan Documents which is not waived, Beneficiary may, without notice or demand on
Grantor, at its option: (A) withdraw any or all of the funds (including,
without limitation, interest) then remaining in the Reserves and apply the same,
after
<PAGE>
deducting all costs and expenses of safekeeping, collection and delivery
(including, but not limited to, reasonable attorneys' fees, costs and expenses)
to the Debt or any other obligations of Grantor under the other Loan Documents
in such manner as Beneficiary shall deem appropriate in its sole discretion, and
the excess, if any, shall be paid to Grantor, (B) exercise any and all rights
and remedies of a secured party under any applicable Uniform Commercial Code or
(C) exercise any other remedies available at law or in equity. No such use or
application of the funds contained in the Reserves shall be deemed to cure any
Default or Event of Default.
(d) The Reserves shall not, unless otherwise explicitly required by
applicable law, be or be deemed to be escrow or trust funds, but, at
Beneficiary's option and in Beneficiary's discretion, may either be held in a
separate account or be commingled by Beneficiary with the general funds of
Beneficiary. Upon assignment of this Deed of Trust by Beneficiary, any funds in
the Reserves shall be turned over to the assignee and any responsibility of
Beneficiary, as assignor, with respect thereto shall terminate. If the funds in
the applicable Reserve shall exceed the amount of payments actually applied by
Beneficiary for the purposes and items for which the applicable Reserve is held,
such excess may be credited by Beneficiary on subsequent payments to be made
hereunder or, at the option of Beneficiary, refunded to Grantor. If, however,
the applicable Reserve shall not contain sufficient funds to pay the sums
required by the dates on which such sums are required to be on deposit in such
account, Grantor shall, within ten (10) days after receipt of written notice
thereof, deposit with Beneficiary the full amount of any such deficiency. If
Grantor shall fail to deposit with Beneficiary the full amount of such
deficiency as provided above, Beneficiary shall have the option, but not the
obligation, to make such deposit.
5.3. Intentionally Omitted
---------------------
ARTICLE VI.
RENTS; LEASES; ALIENATION
-------------------------
<PAGE>
6.1. Rents and Profits. As additional and collateral security for the
-----------------
payment of the Debt and cumulative of any and all rights and remedies herein
provided for, Grantor hereby absolutely and presently assigns to Beneficiary all
existing and future Rents and Profits. Grantor hereby grants to Beneficiary the
sole, exclusive and immediate right, without taking possession of the Mortgaged
Property, to demand, collect (by suit or otherwise), receive and give valid and
sufficient receipts for any and all of said Rents and Profits, for which purpose
Grantor does hereby irrevocably make, constitute and appoint Beneficiary its
attorney-in-fact with full power to appoint substitutes or a trustee to
accomplish such purpose. Beneficiary shall be without liability for any loss
which may arise from a failure or inability to collect Rents and Profits,
proceeds or other payments. However, until the occurrence of an Event of
Default under this Deed of Trust or under any other of the Loan Documents,
Grantor shall have a license to collect, receive, use and enjoy the Rents and
Profits when due and prepayments thereof for not more than one (1) month prior
to due date thereof. The assignment of Rents and Profits hereinabove granted
shall continue in full force and effect during any period of foreclosure or
redemption with respect to the Mortgaged Property. Grantor has executed an
Assignment of Leases and Rents dated of even date herewith (the "Assignment") in
----------
favor of Beneficiary covering all of the right, title and interest of Grantor,
as landlord, lessor or licensor, in and to any Leases. All rights and remedies
granted to Beneficiary under the Assignment shall be in addition to and
cumulative of all rights and remedies granted to Beneficiary hereunder.
6.2. Leases.
------
(a) With the exception of the Lease executed between the Grantor and
Assisted Living Concepts Inc. as of the same date hereof, Grantor covenants and
agrees that it shall not enter into any Lease affecting the lesser of (x) ten
percent (10%) of the gross leaseable area of the Improvements and (y) 10,000
square feet or more of the Mortgaged Property or having a term of ten (10) years
or more without the prior written approval of Beneficiary, which approval shall
not be unreasonably withheld. The request for approval of each such proposed
new Lease shall be made to Beneficiary in writing and Grantor shall furnish to
Beneficiary (and any loan servicer specified from time to time by Beneficiary):
(i) such biographical and financial information about the proposed Tenant as
Beneficiary may require in conjunction with its review, (ii) a copy of the
proposed form of Lease and (iii) a summary of the material terms of such
proposed Lease (including, without limitation, rental terms and the term of the
proposed lease and any options). It is acknowledged that Beneficiary intends to
include among its criteria for approval of any such proposed Lease the
following: (i) such Lease shall be with a bona-fide arm's-length Tenant; (ii)
the terms of such Lease shall comply with the requirements set forth in
paragraphs (b) and (c) below; and (iii) such Lease shall provide that the Tenant
pays for its expenses. Failure of Beneficiary to approve or disapprove any such
proposed Lease within fifteen (15) business days after receipt of such written
request and all the documents and information required to be furnished to
Beneficiary with such request shall be deemed approved, provided that the
written request for approval specifically mentioned the same.
(b) Prior to execution of any Leases of space in the Improvements
after the date hereof, Grantor shall submit to Beneficiary, for Beneficiary's
prior approval, which approval shall not be unreasonably withheld, a copy of the
form Lease Grantor plans to use in leasing space in the Improvements or at the
Mortgaged Property. All such Leases of space at the Mortgaged Property shall be
at a rental and on terms consistent with the terms for similar leases in the
market area of the Premises. Grantor shall also submit to Beneficiary for
Beneficiary's approval, which approval shall not be unreasonably withheld, prior
to the
18
<PAGE>
execution thereof, any proposed Lease of the Improvements or any portion
thereof that differs materially and adversely from the aforementioned form
Lease. Grantor shall not execute any Lease for all or a substantial portion of
the Mortgaged Property, except for an actual occupancy by the Tenant, lessee or
licensee thereunder, and shall at all times promptly and faithfully perform, or
cause to be performed, all of the covenants, conditions and agreements contained
in all Leases with respect to the Mortgaged Property, now or hereafter existing,
on the part of the landlord, lessor or licensor thereunder to be kept and
performed. Grantor shall furnish to Beneficiary, within ten (10) days after a
request by Beneficiary to do so, but in any event by January 1 of each year, a
current Rent Roll, certified by Grantor as being true and correct, containing
the names of all Tenants with respect to the Mortgaged Property, the terms of
their respective Leases, the spaces occupied and the rentals or fees payable
thereunder and the amount of each Tenant's security deposit. Upon the request
of Beneficiary, Grantor shall deliver to Beneficiary a copy of each such Lease.
Grantor shall not do or suffer to be done any act, or omit to take any action,
that might result in a default by the landlord, lessor or licensor under any
such Lease or allow the Tenant thereunder to withhold payment of rent or cancel
or terminate same and shall not further assign any such Lease or any such Rents
and Profits. Grantor, at no cost or expense to Beneficiary, shall enforce,
short of termination, the performance and observance of each and every condition
and covenant of each of the parties under such Leases and Grantor shall not
anticipate, discount, release, waive, compromise or otherwise discharge any rent
payable under any of the Leases. Grantor shall not, without the prior written
consent of Beneficiary, modify any of the Leases, terminate or accept the
surrender of any Leases, waive or release any other party from the performance
or observance of any obligation or condition under such Leases except, with
respect only to Leases affecting less than the lesser of (x) ten percent (10%)
of the gross leaseable area of the Improvements and (y) 10,000 square feet and
having a term of less than ten (10) years, in the normal course of business in a
manner which is consistent with sound and customary leasing and management
practices for similar properties in the community in which the Mortgaged
Property is located. Grantor shall not permit the prepayment of any rents under
any of the Leases for more than one (1) month prior to the due date thereof.
(c) Each Lease executed after the date hereof affecting any of the
Premises or the Improvements must provide, in a manner approved by Beneficiary,
that the Lease is subordinate to the lien of this Deed of Trust and that Tenant
will recognize as its landlord, lessor or licensor, as applicable, and attorn to
any person succeeding to the interest of Grantor upon any foreclosure of this
Deed of Trust or deed in lieu of foreclosure. Each such Lease shall also
provide that, upon request of said successor-in-interest, the Tenant shall
execute and deliver an instrument or instruments confirming its attornment as
provided for in this Section; provided, however, that neither Beneficiary nor
-------- -------
any successor-in-interest shall be bound by any payment of rent for more than
one (1) month in advance, or any amendment or modification of said Lease made
without the express written consent of Beneficiary or said successor-in-
interest.
(d) Each agreement with a resident or occupant for the use and
occupancy of the Premises and the services provided in connection therewith in
keeping with the Health Care Operating License (a "Residency or Occupancy
Agreement") shall be written on the standard form for such document which has
been approved by Beneficiary
19
<PAGE>
6.3. Alienation and Further Encumbrances.
-----------------------------------
(a) Grantor acknowledges that Beneficiary has relied upon the
principals of Grantor and their experience in owning and operating the Mortgaged
Property and properties similar to the Mortgaged Property in connection with the
closing of the loan evidenced by the Note. Accordingly, except as specifically
allowed hereinbelow in this Section and notwithstanding anything to the contrary
contained in Section 16.4 hereof, in the event that the Mortgaged Property or
------------
any part thereof or interest therein shall be sold, conveyed, disposed of,
alienated, hypothecated, leased (except to Tenants of space in the Improvements
in accordance with the provisions of Section 6.2 hereof), assigned, pledged,
-----------
mortgaged, further encumbered or otherwise transferred or Grantor shall be
divested of its title to the Mortgaged Property or any interest therein, in any
manner or way, whether voluntarily or involuntarily, without the prior written
consent of Beneficiary being first obtained, which consent may be withheld in
Beneficiary's sole discretion, then the same shall constitute an Event of
Default and Beneficiary shall have the right, at its option, to declare any or
all of the Debt, irrespective of the maturity date specified in the Note,
immediately due and payable and to otherwise exercise any of its other rights
and remedies contained in Article XV hereof. For the purposes of this Section:
----------
(i) in the event either Grantor or any of its general partners or members is a
corporation or trust, the sale, conveyance, transfer or disposition of more than
10% (in one or more related transactions) of the issued and outstanding capital
stock of Grantor or any of its general partners or members or of the beneficial
interest of such trust (or the issuance of new shares of capital stock in
Grantor or any of its general partners or members so that immediately after such
issuance (in one or a series of transactions) the total capital stock then
issued and outstanding is more than 110% of the total immediately prior to such
issuance) shall be deemed to be a transfer of an interest in the Mortgaged
Property; and (ii) in the event Grantor or any general partner or member of
Grantor is a limited or general partnership, a joint venture or a limited
liability company, a direct or indirect change in the ownership interests in
Grantor or any general partner, any joint venturer or any member, either
voluntarily, involuntarily or otherwise, or the sale, conveyance, transfer,
disposition, alienation, hypothecation or encumbering of all or any portion of
the interest of Grantor or any such general partner, joint venturer or member in
Grantor or such general partner or member (whether in the form of a beneficial
or partnership interest or in the form of a power of direction, control or
management, or otherwise), shall be deemed to be a transfer of an interest in
the Mortgaged Property. Notwithstanding the foregoing, however, (i) limited
partnership interests in Grantor or in any general partner or member of Grantor
shall be freely transferable without the consent of Beneficiary, (ii) any
involuntary transfer caused by the death of any general partner, shareholder,
joint venturer, or member of Grantor or any general partner or member of Grantor
or beneficial owner of a trust shall not be an Event of Default under this Deed
of Trust so long as Grantor is reconstituted, if required, following such death
and so long as those persons responsible for the management of the Mortgaged
Property and Grantor remain unchanged as a result of such death or any
replacement management is approved by Beneficiary, (iii) gifts for estate
planning purposes of any individual's interests in Grantor or in any of
Grantor's general partners, members or joint venturers to the spouse or any
lineal descendant of such individual, or to a trust for the benefit of any one
or more of such individual, spouse or lineal descendant, shall not be an Event
of Default under this Deed of Trust so long as Grantor is reconstituted, if
required, following such gift and so long as those persons responsible for the
management of the Mortgaged Property and Grantor remain unchanged following such
gift or any replacement management is approved by Beneficiary, and (iv) any
transfer caused by a change in control or merger or consolidation of the parent
company of any general partner of Grantor shall not be an Event of Default so
long as the parent of such general partner of Grantor is a publicly held
company.
20
<PAGE>
(b) Notwithstanding any other provisions of this Deed of Trust,
Beneficiary shall consent to a sale, conveyance or transfer of the Mortgaged
Property in its entirety (hereinafter, a "Sale") to any person or entity
----
provided that, for each Sale, each of the following terms and conditions are
satisfied:
(1) No Default and no Event of Default has occurred hereunder or
under any of the other Loan Documents which has not been waived;
(2) Grantor gives Beneficiary written notice of the terms of such
prospective Sale not less than sixty (60) days before the date on which
such Sale is scheduled to close and, concurrently therewith, gives
Beneficiary all such information concerning the proposed transferee of the
Mortgaged Property (hereinafter, "Buyer") as Beneficiary would require in
-----
evaluating an initial extension of credit to a borrower and pays to
Beneficiary a non-refundable application fee in the amount of $5,000.
Beneficiary shall have the right to approve or disapprove the proposed
Buyer. In determining whether to give or withhold its approval of the
proposed Buyer, Beneficiary shall consider the Buyer's experience and track
record in owning and operating facilities similar to the Mortgaged
Property, the Buyer's financial strength, the Buyer's general business
standing and the Buyer's relationships and experience with contractors,
vendors, tenants, lenders and other business entities; provided, however,
-------- -------
that, notwithstanding Beneficiary's agreement to consider the foregoing
factors in determining whether to give or withhold such approval, such
approval shall be given or withheld based on what Beneficiary determines to
be commercially reasonable in Beneficiary's sole discretion and, if given,
may be given subject to such conditions as Beneficiary may deem
appropriate;
(3) Grantor pays Beneficiary, concurrently with the closing of
such Sale, a non-refundable assumption fee in an amount equal to all
out-of-pocket costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by Beneficiary in connection with the Sale, plus
an amount equal to one-half of one percent (0.5%) of the then outstanding
principal balance of the Note;
(4) The Buyer executes, without any cost or expense to
Beneficiary, such documents and agreements as Beneficiary shall reasonably
require in connection with the Sale, including, but not limited to, an
assumption agreement, financing statements, and guaranties or indemnities,
all in form and substance satisfactory to Beneficiary. The Buyer shall also
deliver to Beneficiary such insurance policies and other documents and
certificates as the Beneficiary may require.
(c) Such Sale shall not be construed so as to relieve Grantor of any
personal liability under the Note or any of the other Loan Documents for any
acts or events occurring or obligations arising prior to or simultaneously with
the closing of such Sale, whether or not same is discovered prior or subsequent
to the closing of such Sale. Grantor shall be released from and relieved of any
personal liability under the Note or any of the other Loan Documents for any
acts or events occurring or obligations arising after the closing of such Sale
which are not caused by or arising out of any acts or events occurring or
obligations arising prior to or simultaneously with the closing of such Sale.
6.4. Easements and Rights-of-Way. Grantor shall not grant any easement or
---------------------------
right-of-way with respect to all or any portion of the Premises or the
Improvements without the prior written consent of Beneficiary. The purchaser at
any foreclosure sale hereunder may, at its discretion, disaffirm any easement or
right-of-way granted in violation of any of the
21
<PAGE>
provisions of this Deed of Trust and may take immediate possession of the
Mortgaged Property free from, and despite the terms of, such grant of easement
or right-of-way. If Beneficiary consents to the grant of an easement or right-
of-way, Beneficiary agrees to grant such consent without charge to Grantor other
than expenses, including, without limitation, reasonable attorneys' fees,
incurred by Beneficiary in the review of Grantor's request and in the
preparation of documents effecting the subordination.
6.5. Partial Release of Mortgaged Property. Distinct parcels of the
-------------------------------------
Mortgaged Property ("Partial Release Parcels") as identified on Schedule I
------- ---------------
attached hereto and by this reference incorporated herein, may be released from
time to time from the lien of this Deed of Trust (a "Partial Release"), subject
---------------
to satisfaction of all of the following conditions:
(a) Each Partial Release shall be governed by, and subject to the
provisions set forth in Section 12.5 below;
------------
(b) Beneficiary shall have received not less than sixty (60) nor more
than ninety (90) days prior written notice ("Partial Release Notice") specifying
----------------------
the following, (i) a date which shall be a Payment Date ("Partial Release
---------------
Date"), on which to effectuate the Partial Release, (ii) the specified Partial
- ----
Release Parcel(s) which Grantor wishes to have released from the lien of this
Deed of Trust;
(c) On the Partial Release Date, the amount to be paid ("Partial
-------
Release Price") to buy Defeasance Collateral upon a Partial Release and a
- -------------
Partial Defeasance of the Deed of Trust pursuant to this Section and Section
12.5, shall be the product of (1) the Allocated Loan Amount multiplied by (2)
125% multiplied by (3) a fraction whose numerator is the outstanding principal
balance of the Note on the Partial Release Date and whose denominator is the
original outstanding principal balance of the Note;
(d) No Event of Default shall have occurred and be continuing on the
date of the Partial Release Notice or on the Partial Release Date;
(e) Grantor shall, at is sole cost and expense, prepare any and all
documents and instruments necessary to effect the Partial Release, all of which
shall be subject to the reasonable approval of Beneficiary, and shall be
delivered to Beneficiary 30 days prior to the Partial Release Date, and Grantor
shall pay all costs and expenses reasonably incurred by Beneficiary or
Beneficiary's loan servicer (including, but not limited to, reasonable
attorneys' fees and disbursements) in connection with the review, execution and
delivery of the Partial Release;
(f) At the request of Beneficiary, Grantor shall, at Grantor's sole
cost and expense, obtain and deliver all appropriate title endorsements,
supplements and/or additional title insurance policies to or in connection with
Lender's original loan title insurance policy, insuring that the lien of the
Deed of Trust with respect to the portion of the Mortgaged Property remaining
after such Partial Release, is not affected by the Partial Release, and subject
to Beneficiary's reasonable approval.
ARTICLE VII.
PROPERTY MANAGEMENT
-------------------
22
<PAGE>
7.1. Management. The management of the Mortgaged Property shall be by
----------
either: (a) Grantor or an entity affiliated with Grantor approved by
Beneficiary for so long as Grantor or said affiliated entity is managing the
Mortgaged Property in a first class manner; or (b) a professional property
management company approved by Beneficiary. Such management by an affiliated
entity or a professional property management company shall be pursuant to a
written agreement approved by Beneficiary. Grantor shall give Beneficiary
prompt written notice of the occurrence of a default under any management
contract then in effect. In no event shall any manager be removed or replaced
or the terms of any management agreement be modified or amended without the
prior written consent of Beneficiary. After an Event of Default or a default
under any management contract then in effect, which default is not cured within
any applicable grace or cure period, Beneficiary shall have the right to
terminate, or to direct Grantor to terminate, such management contract upon
thirty (30) days' notice and to retain, or to direct Grantor to retain, a new
management agent approved by Beneficiary. All Rents and Profits generated by or
derived from the Mortgaged Property shall first be utilized solely for current
expenses directly attributable to the ownership and operation of the Mortgaged
Property, including, without limitation, current expenses relating to Grantor's
liabilities and obligations with respect to this Deed of Trust and the other
Loan Documents, and none of the Rents and Profits generated by or derived from
the Mortgaged Property shall be diverted by Grantor and utilized for any other
purposes unless all such current expenses attributable to the ownership and
operation of the Mortgaged Property have been fully paid and satisfied.
ARTICLE VIII.
INDEMNIFICATION
---------------
8.1. Indemnification; Subrogation.
----------------------------
(a) Grantor shall indemnify, defend and hold Beneficiary harmless from
and against: (i) any and all claims for brokerage, leasing, finders or similar
fees which may be made relating to the Mortgaged Property or the Debt and (ii)
any and all liability, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses (including Beneficiary's reasonable attorneys' fees
and expenses) of whatever kind or nature which may be asserted against, imposed
on or incurred by Beneficiary in connection with the Debt, this Deed of Trust
and any other Loan Document, the Mortgaged Property, or any part thereof, or the
exercise by Beneficiary of any rights or remedies granted to it under this Deed
of Trust; provided, however, that nothing herein shall be construed to obligate
-------- -------
Grantor to indemnify, defend and hold harmless Beneficiary from and against any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
suits, costs and expenses to the extent enacted against, imposed on or incurred
by Beneficiary solely by reason of Beneficiary's willful misconduct as finally
determined by a court of competent jurisdiction.
(b) Grantor hereby indemnifies and holds Beneficiary harmless from and
against all loss, cost and expenses with respect to any Event of Default hereof,
any liens (i.e., judgments, mechanics' and materialmen's liens, or otherwise),
charges and encumbrances filed against the Mortgaged Property, and from any
claims and demands for damages or injury, including claims for property damage,
personal injury or wrongful death, arising out of or in connection with any
accident or fire or other casualty on the Premises or the Improvements or any
nuisance made or suffered thereon, except to the extent due solely to
Beneficiary's willful misconduct as finally determined by a court of competent
jurisdiction, including, without limitation, in any case, reasonable attorneys'
fees, costs and expenses as aforesaid, whether at pretrial, trial or appellate
level, and such indemnity shall survive payment in full of the Debt.
23
<PAGE>
This Section shall not be construed to require Beneficiary to incur any
expenses, make any appearances or take any actions.
(c) If Beneficiary is made a party defendant to any litigation or any
claim is threatened or brought against Beneficiary concerning the Debt, this
Deed of Trust, the Mortgaged Property, or any part thereof, or any interest
therein, or the construction, maintenance, operation or occupancy or use
thereof, then Grantor shall indemnify, defend and hold Beneficiary harmless from
and against all liability by reason of said litigation or claims, including
reasonable attorneys' fees and expenses incurred by Beneficiary in any such
litigation or claim, whether or not any such litigation or claim is prosecuted
to judgment. If Beneficiary commences an action against Grantor to enforce any
of the terms hereof or to prosecute any breach by Grantor of any of the terms
hereof or to recover any sum secured hereby, Grantor shall pay to Beneficiary
the reasonable attorneys' fees and expenses incurred by Beneficiary in
connection therewith. The right to such attorneys' fees and expenses shall be
deemed to have accrued on the commencement of such action, and shall be
enforceable whether or not such action is prosecuted to judgment. If Grantor
breaches any term of this Deed of Trust or any other Loan Document, Beneficiary
may engage the services of an attorney or attorneys to protect its rights
hereunder, and in the event of such engagement following any breach by Grantor,
Grantor shall pay Beneficiary reasonable attorneys' fees and expenses incurred
by Beneficiary, whether or not an action is actually commenced against Grantor
by reason of such breach. All references to "attorneys" in this Subsection and
---------
elsewhere in this Deed of Trust shall include, without limitation, any attorney
or law firm engaged by Beneficiary and Beneficiary's in-house counsel, and all
references to "fees and expenses" in this Subsection and elsewhere in this Deed
-----------------
of Trust shall include, without limitation, any reasonable fees of such attorney
or law firm, any reasonable appellate counsel fees, if applicable, and any
reasonable allocation charges and reasonable allocation costs of Beneficiary's
in-house counsel.
(d) A waiver of subrogation shall be obtained by Grantor from its
insurance carrier and, consequently, Grantor waives any and all right to claim
or recover against Beneficiary, its officers, employees, agents and
representatives, for loss of or damage to Grantor, the Mortgaged Property,
Grantor's property or the property of others under Grantor's control from any
cause insured against or required to be insured against by the provisions of
this Deed of Trust.
ARTICLE IX.
REPORTING
---------
9.1. Access Privileges and Inspections. Beneficiary and the agents,
---------------------------------
representatives and employees of Beneficiary shall, subject to the rights of
Tenants, have full and free access to the Premises and the Improvements and any
other location where books and records concerning the Mortgaged Property are
kept at all reasonable times and, except in the event of an emergency, upon not
less than 24 hours prior notice (which notice may be telephonic) for the
purposes of inspecting the Mortgaged Property and of examining, copying and
making extracts from the books and records of Grantor relating to the Mortgaged
Property. Grantor shall lend assistance to all such agents, representatives and
employees of Beneficiary.
9.2. Financial Statements and Books and Records. Grantor shall keep
------------------------------------------
accurate books and records of account of the Mortgaged Property and its own
financial affairs sufficient to permit the preparation of financial statements
therefrom in accordance with generally accepted accounting principles.
Beneficiary and its duly authorized representatives shall have the right to
24
<PAGE>
examine, copy and audit Grantor's records and books of account at all reasonable
times. So long as this Deed of Trust continues in effect, Grantor shall provide
to Beneficiary, in addition to any other financial statements required hereunder
or under any of the other Loan Documents, the following financial statements and
information, all of which shall be in the form and substance acceptable to
Beneficiary and all of which must be certified to Beneficiary as being true and
correct by Grantor or the person or entity to which they pertain, as applicable.
With respect to the financial statements and information set forth in subsection
(d) hereof as it relates to Grantor or the Mortgaged Property, the same must be
prepared by an certified public accountant in accordance with generally accepted
accounting principles consistently applied and, if the original principal amount
of the Note is $15,000,000 or more, the same must be audited by such
accountants:
(a) copies of all tax returns filed by Grantor, within thirty (30)
days after the date of filing;
(b) monthly operating statements for the Mortgaged Property, within
fifteen (15) days after the end of each three calendar month period, the first
such period to commence on the first day of the month following the date hereof;
and
(c) quarterly operating statements for the Mortgaged Property, within
thirty (30) days after the end of each March, June, September and December
commencing with the first (1st) of such months to occur following the first
(1st) anniversary of the date hereof;
(d) annual balance sheets for the Mortgaged Property and annual
financial statements for Grantor, each principal or general partner in Grantor,
and each Indemnitor, within ninety (90) days after the end of each calendar
year; including, without limitation, a schedule of rates for each room and payor
type, copies of the Medicare and Medicaid cost reports, as applicable copies of
filings with the Department of Health and/or any other regulatory agency which
sets or establishes reimbursement rates promptly upon filing with any
Governmental Entity and in any event, within five (5) business days of such
filing, copies of all Health Care Operating License applications (including
renewal applications) and/or similar filings and submitted by or on behalf of
Grantor; and
(e) such other information with respect to the Mortgaged Property,
Grantor, the principals or general partners in Grantor, and each Indemnitor,
which may be reasonably requested from time to time by Beneficiary, within a
reasonable time after the applicable request.
In the event of any failure to timely provide any of the statements or other
materials referred to above in this Section 9.2 or in the event any such
-----------
statements or other materials shall be materially inaccurate or false, or in the
event of the failure of Grantor to permit Beneficiary or its representatives to
inspect said books and records upon request, an Event of Default shall
automatically exist hereunder without any notice to, or right to cure by,
Grantor. In addition to the provisions of the immediately preceding sentence,
upon each failure of Grantor to provide any of the statements or other materials
referred to above in this Section 9.2, Grantor shall, in Beneficiary 's sole and
-----------
absolute discretion, be subject to a charge in the amount of One Thousand and
00/100 Dollars ($1,000.00) which amount shall be paid to Beneficiary, together
with interest thereon at the Default Interest Rate from the date that the
applicable statement or other material was required to be delivered to
Beneficiary until the date such amount is paid to it, immediately on demand by
Beneficiary.
25
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ARTICLE X.
WARRANTIES AND COVENANTS
------------------------
10.1. Warranties of Grantor. Grantor, for itself and its successors and
---------------------
assigns, does hereby represent, warrant and covenant to and with Beneficiary,
its successors and assigns, that:
(a) Grantor has good, and indefeasible fee simple title to the
Mortgaged Property, subject only to those matters expressly set forth as
exceptions to title or subordinate matters in the title insurance policy
insuring the lien of this Deed of Trust which Beneficiary has agreed to accept
(such items being the "Permitted Encumbrances"), and has full power and lawful
----------------------
authority to Deed of Trust its interest in the Mortgaged Property in the manner
and form hereby done or intended. Grantor will preserve its interest in and
title to the Mortgaged Property and will forever warrant and defend the same to
Beneficiary against any and all claims whatsoever and will forever warrant and
defend the validity and priority of the lien and security interest created
herein against the claims of all persons and parties whomsoever, subject to the
Permitted Encumbrances. The foregoing warranty of title shall survive the
foreclosure of this Deed of Trust and shall inure to the benefit of and be
enforceable by Beneficiary in the event Beneficiary acquires title to the
Mortgaged Property by foreclosure or otherwise;
(b) No bankruptcy, reorganization or insolvency proceedings are
pending or contemplated either by Grantor or, to the best knowledge of Grantor,
against Grantor (or, if Grantor is a partnership or a limited liability company,
any of its general partners or members) or by or against any endorser or
cosigner of the Note or of any portion of the Debt, or any guarantor or
indemnitor under any guaranty or indemnity agreement executed in connection with
the Note or the loan evidenced thereby and secured hereby (an "Indemnitor");
----------
(c) All reports, certificates, affidavits, statements and other data
furnished by or on behalf of Grantor to Beneficiary in connection with the loan
evidenced by the Note are true and correct in all material respects and do not
omit to state any fact or circumstance necessary to make the statements
contained therein not misleading;
(d) The execution, delivery and performance of this Deed of Trust, the
Note and all of the other Loan Documents have been duly authorized by all
necessary action to be, and are, binding and enforceable against Grantor in
accordance with the respective terms thereof and do not (i) contravene, result
in a breach of or constitute a default (nor upon the giving of notice or the
passage of time or both will the same constitute a default) under the
organizational documents of Grantor or any contract or agreement of any nature
to which Grantor is a party or by which Grantor or any of its property may be
bound or (ii) violate or contravene any law, order, decree, rule or regulation
to which Grantor is subject;
(e) There are no judicial, administrative, mediation or arbitration
actions, suits or proceedings pending or threatened against or affecting Grantor
(or, if Grantor is a partnership or a limited liability company, any of its
general partners or members) or the Mortgaged Property which, if adversely
determined, would materially impair either the Mortgaged Property or Grantor's
ability to perform the covenants or obligations required to be performed under
the Loan Documents;
(f) Grantor possesses all franchises, patents, copyrights, trademarks,
trade names, licenses and permits (the "Licenses") necessary for the conduct of
--------
its business substantially as now conducted, including, without limitation, all
necessary federal, state and
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local certificates, permits, licenses, approvals, registrations and
authorizations required to permit Grantor to conduct its operations at the
Mortgaged Property, all fees due and payable in connection with such Licenses
have been paid and Grantor's operation of the Premises complies with such
Licenses;
(g) Grantor is not a "foreign person" within the meaning of
(S)1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the related
Treasury Department regulations, including temporary regulations;
(h) The Premises and the Improvements and the current intended use
thereof by Grantor comply in all material respects with all applicable
restrictive covenants, zoning ordinances, subdivision and building codes, flood
disaster laws, health and environmental laws and regulations and all other
ordinances, orders or requirements issued by any state, federal or municipal
authorities having or claiming jurisdiction over the Mortgaged Property. The
Premises and Improvements constitute one or more separate tax parcels for
purposes of ad valorem taxation. The Premises and Improvements do not require
any rights over, or restrictions against, other property in order to comply with
any of the aforesaid governmental ordinances, orders or requirements;
(i) All utility services necessary and sufficient for the full use,
occupancy, operation and disposition of the Premises and the Improvements for
their intended purposes are available to the Mortgaged Property, including
water, storm sewer, sanitary sewer, gas, electric, cable and telephone
facilities, through public rights-of-way or perpetual private easements approved
by Beneficiary;
(j) All streets, roads, highways, bridges, curb cuts, driveways and
traffic signals and waterways necessary for access to and full use, occupancy,
operation and disposition of the Premises and the Improvements have been
completed, have been dedicated to and accepted by the appropriate municipal
authority and are open and available to the Premises and the Improvements
without further condition or cost to Grantor;
(k) The Mortgaged Property is free from delinquent water charges,
sewer rents, taxes and assessments;
(l) As of the date of this Deed of Trust, the Mortgaged Property is
free from unrepaired damage caused by fire, flood, accident or other casualty
(except as disclosed in the Engineering Report); all insurance required by the
terms of this Deed of Trust is in full force and effect and none of the premiums
payable therefor have been, nor at any time in the future will be financed;
(m) As of the date of this Deed of Trust, no part of the Premises or
the Improvements has been taken in condemnation, eminent domain or like
proceeding nor is any such proceeding pending or, to Grantor's knowledge and
belief, threatened or contemplated;
(n) Except as may otherwise be disclosed in the Engineering Report,
the Improvements are structurally sound, in good repair and free of defects in
materials and workmanship. Except as may otherwise be disclosed in the
Engineering Report, all major building systems located within the Improvements,
including, without limitation, the heating and air conditioning systems and the
electrical and plumbing systems, are in good working order and condition;
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(o) Grantor has delivered to Beneficiary true, correct and complete
copies of all Contracts and all amendments thereto or modifications thereof;
(p) Each Contract constitutes the legal, valid and binding obligation
of Grantor and, to the best of Grantor's knowledge and belief, is enforceable
against all other parties thereto. No default exists, or with the passing of
time or the giving of notice or both would exist, under any Contract or
Contracts which would, individually or in the aggregate, have a material adverse
effect on Grantor or the Mortgaged Property;
(q) No Contract or Lease provides any party with the right to obtain a
lien or encumbrance upon the Mortgaged Property superior to the lien of this
Deed of Trust;
(r) Grantor and the Mortgaged Property are free from any past due
obligations for sales and payroll taxes;
(s) There are no security agreements or financing statements affecting
all or any portion of the Mortgaged Property other than (i) as disclosed in
writing by Grantor to Beneficiary prior to the date hereof and (ii) the security
agreements and financing statements created in favor of Beneficiary;
(t) Grantor has delivered a true, correct and complete schedule (the
"Rent Roll") of all Leases affecting the Mortgaged Property as of the date
- ----------
hereof, which accurately and completely sets forth in all material respects for
each such Lease the name of the Tenant, the Lease expiration date, extension and
renewal provisions, the base rent payable, the security deposit held thereunder
and any other material provisions of such Lease; and Grantor has delivered to
Beneficiary true, correct and complete copies of all Leases described in the
Rent Roll;
(u) Each Lease constitutes the legal, valid and binding obligation of
Grantor and, to the best of Grantor's knowledge and belief, is enforceable
against the Tenant thereunder. No default has been asserted or exists, or with
the passing of time or the giving of notice or both would exist, under any Lease
which would, in the aggregate, have a material adverse effect on Grantor or the
Mortgaged Property;
(v) No Tenant under any Lease has, as of the date hereof, paid rent
more than thirty (30) days in advance, and the rents under such Leases have not
been waived, released, or otherwise discharged or compromised;
(w) All work to be performed by Grantor under the Leases has been
substantially performed, all contributions to be made by Grantor to the Tenants
thereunder have been made and all other conditions precedent to each such
Tenant's obligations thereunder have been satisfied;
(x) Each Tenant under any Lease has entered into occupancy of the
demised premises; and
(y) To the best of Grantor's knowledge and belief, each Tenant is free
from bankruptcy, reorganization, insolvency or arrangement proceedings or a
general assignment for the benefit of creditors.
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10.2. Waste; Alteration of Improvements. Grantor shall not commit, suffer
---------------------------------
or permit any waste on the Mortgaged Property nor take or fail to take any
actions that might invalidate any insurance carried on the Mortgaged Property.
Grantor shall maintain the Mortgaged Property in good condition and repair. No
part of the Improvements may be removed, demolished or materially altered,
without the prior written consent of Beneficiary. Without the prior written
consent of Beneficiary, Grantor shall not commence construction of any
improvements on the Premises other than improvements required for the
maintenance or repair of the Mortgaged Property. Not withstanding the
foregoing, Beneficiary acknowledges that Assisted Living Concepts Inc., the
tenant at the Premises, may expand the facilities at each or any of the
Premises, at Tenant's sole cost and expense, and tenant shall retain the
revenues from the expansion.
10.3. Zoning. Without the prior written consent of Beneficiary, Grantor
------
shall not make, suffer, consent to or acquiesce in any change in the zoning or
conditions of use of the Premises or the Improvements. Grantor shall comply
with and make all payments required under the provisions of any covenants,
conditions or restrictions affecting the Premises or the Improvements. Grantor
shall comply with all existing and future requirements of all governmental
authorities having jurisdiction over the Mortgaged Property. Grantor shall keep
all licenses, permits, franchises and other approvals necessary for the
operation of the Mortgaged Property in full force and effect. Grantor shall
operate the Mortgaged Property as a assisted care facility for so long as the
Debt is outstanding. If, under applicable zoning provisions, the use of all or
any part of the Premises or the Improvements is or becomes a nonconforming use,
Grantor shall not cause or permit such use to be discontinued or abandoned
without the prior written consent of Beneficiary. Further, without
Beneficiary's prior written consent, Grantor shall not file or subject any part
of the Premises or the Improvements to any declaration of condominium or co-
operative or convert any part of the Premises or the Improvements to a
condominium, co-operative or other form of multiple ownership and governance.
10.4. Covenants with Respect to Indebtedness, Operations, Fundamental
---------------------------------------------------------------
Changes of Grantor. Grantor hereby represents, warrants and covenants as of the
- ------------------
date hereof and until such time as the Debt is paid in full, that Grantor:
(a) will not, nor will any partner, limited or general, member or
shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation, by-
laws, operating agreement, articles of organization or other formation agreement
or document, as applicable, in any material term or manner, or in a manner which
adversely affects Grantor's existence as a single purpose entity;
(b) will not liquidate or dissolve (or suffer any liquidation or
dissolution), or enter into any transaction of merger or consolidation, or
acquire by purchase or otherwise all or substantially all or any part of the
business or assets of, or any stock or other evidence of beneficial ownership
of, or make any investment in, any entity;
(c) has not and will not guarantee, pledge its assets for the benefit
of, or otherwise become liable on or in connection with, any obligation of any
other person or entity;
(d) does not own and will not own any asset other than (i) the
Mortgaged Property, and (ii) incidental personal property necessary for the
operation of the Mortgaged Property;
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<PAGE>
(e) is not engaged and will not engage, either directly or indirectly,
in any business other than the ownership, management and operation of the
Mortgaged Property;
(f) will not enter into any contract or agreement with any general
partner, principal, affiliate or member of Grantor, as applicable, or any
affiliate of any general partner, principal or member of Grantor, except upon
terms and conditions that are intrinsically fair and substantially similar to
those that would be available on an arms-length basis with unrelated third
parties;
(g) has not incurred and will not incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Debt, (ii) advances from affiliates, partners or members, as
applicable, of Grantor, provided the same are fully subordinated to the payment
in full of the Debt in a manner acceptable to Beneficiary and (iii) trade
payables or accrued expenses incurred in the ordinary course of the business of
operating the Mortgaged Property, and no debt other than the Debt will be
secured (senior, subordinate or pari passu) by the Mortgaged Property;
(h) has not made and will not make any loans or advances to any third
party (including any affiliate);
(i) is and will be solvent and pay its debts from its assets as the
same shall become due;
(j) has done or caused to be done and will do all things necessary to
preserve its existence, and will observe all formalities applicable to it;
(k) will conduct and operate its business in its own name and as
presently conducted and operated;
(l) will maintain financial statements, books and records and bank
accounts separate from those of its affiliates, including, without limitation,
its general partners or members, as applicable;
(m) 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, without
limitation, any affiliate, general partner, or member, as applicable, or any
affiliate of any general partner or member of Grantor, as applicable);
(n) will file its own tax returns;
(o) will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations;
(p) will establish and maintain an office through which its business
will be conducted separate and apart from those of its affiliates or, if it
shares office space with its affiliates, shall allocate fairly and reasonably
any overhead and expense for shared office space;
(q) will not commingle the funds and other assets of Grantor with
those of any general partner, member, affiliate, principal or any other person;
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(r) has and will maintain its assets in such a manner that it is not
costly or difficult to segregate, ascertain or identify its individual assets
from those of any affiliate or any other person;
(s) does not and will not hold itself out to be responsible for the
debts or obligations of any other person;
(t) will pay any liabilities including salaries of its employees, out
of its own funds and not funds of any affiliate;
(u) will use stationery, invoices, and checks separate from its
affiliates ; and.
10.5. Accounts Receivable Financing. Notwithstanding any other provision
-----------------------------
herein to the contrary, Beneficiary consents to the sale, assignment, pledge or
other encumbrance of all or any portion of the Mortgaged Property constituting
the Accounts Receivable existing on the date conveyed or financed to any person
or entity (an "Accounts Receivable Acquiror") and, in connection therewith,
Beneficiary hereby agrees that it will subordinate the lien created hereunder
solely with respect to the portion of the Mortgaged Property constituting the
existing Accounts Receivable to any lien or interest of any Accounts Receivable
Acquiror; provided, however, that such consent and subordination shall be
limited to, and effective only with respect to liens created upon, or sales with
respect to, then existing Accounts Receivable pledged or sold prior to the date
on which Beneficiary has notified such Accounts Receivable Acquiror that
Beneficiary has commenced an enforcement action with respect to any other
portion of the Mortgaged Property, and provided further that each of the
following terms and conditions are first satisfied:
(a) No Default or Event of Default has occurred and is continuing;
(b) Grantor gives Beneficiary written notice of the terms of any such
sale or pledge (an "A/R Financing") not less than thirty (30) days prior to
the date such A/R Financing is scheduled to close and provides Beneficiary
with forms of all documents and instruments evidencing such A/R Financing
(the "A/R Financing Documents"), not less than seven (7) days prior to the
date such A/R Financing is scheduled to close in order for Beneficiary to
determine compliance with the provisions hereof;
(c) Contemporaneously with the closing of any such A/R Financing, or
with the closing of the loan secured hereby if any A/R Financing is in
place on the date hereof, the Accounts Receivable Acquiror shall pay to
Beneficiary, on behalf of Grantor, out of the proceeds of the conveyance to
such acquiror of Accounts Receivable, as a reserve hereunder, an amount
determined by multiplying a fraction, the numerator of which is the
aggregate face amount of the Accounts Receivable conveyed or pledged to the
Accounts Receivable Acquiror and the denominator of which is the applicable
MAGR (as defined below) multiplied by an amount equal to the sum of: (i)
the monthly installment payment of principal and interest due and payable
by Grantor under the Note, (ii) the amount required to be deposited into
the Impound Account each month pursuant to the terms of Section 1.2 hereof,
and (iii) the amount required to be deposited in the Replacement Reserve
each month. For purposes of this Section, as of any date of determination,
a "MAGR" is an amount equal to the monthly average gross revenue (computed
on a 12-month rolling average basis for the 12 months preceding the month
in which such date of determination occurs) of Grantor from the Mortgaged
Property;
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(d) On or before the closing of any such A/R Financing, Grantor shall
have delivered to Beneficiary a certificate certifying as to the face
amount of the Accounts Receivable being conveyed or pledged and the amount
of the applicable MAGR, together with any related data and the calculations
used to establish the MAGR, all in reasonable detail and satisfactory to
Beneficiary;
(e) The Accounts Receivable Acquirer shall agree pursuant to a binding
written agreement enforceable by Beneficiary that (i) except as otherwise
expressly provided herein, the liens of the A/R Financing Documents shall
be subordinate to the lien of the Loan Documents and all modifications,
renewals, refinancings, replacements and extensions whatsoever of any of
the Loan Documents, (ii) the A/R Financing Documents shall at all times
incorporate by reference such written agreement and provide for such
subordination automatically, and without any notice to, consent of, or
action by the Accounts Receivable Acquiror or any other party whatsoever,
(iii) no release or waiver by Beneficiary or any subsequent holder of this
Deed of Trust of any of its rights against any person or entity under the
Loan Documents, as the same may be modified, renewed, replaced (including a
replacement upon a refinancing) or extended, shall require notice to or
consent of the Accounts Receivable Acquiror or any other party, nor shall
any such release or waiver operate as a defense to or release of any of the
obligations of Accounts Receivable Acquiror or the rights of Beneficiary or
any other subsequent holder of this Deed of Trust or the other Loan
Documents, as the same may be modified, renewed, replaced (including a
replacement upon a refinancing) or extended, and (iii) without limiting the
generality of any of the foregoing, the Accounts Receivable Acquiror
thereby consents to any increases of the indebtedness owed by Grantor under
the Loan Documents, as the same may be modified, renewed, replaced
(including a replacement upon a refinancing) or extended;
(f) The A/R Financing Documents shall also provide that without the
prior written consent of Beneficiary or any subsequent holder of this Deed
of Trust, the Accounts Receivable Acquiror shall not take an enforcement
action under any A/R Financing Document with respect to any collateral as
to which it shall hold a lien subordinate in priority to the lien created
by the Loan Documents unless all indebtedness secured by the Loan
Documents, as the same may be modified, renewed, replaced (including a
replacement upon a refinancing) or extended shall have been indefeasibly
satisfied in full, that the Accounts Receivable Acquiror shall not assert
any default under the A/R Financing Documents as a result of Grantor's
compliance with the terms of any of the Loan Documents, as the same may be
modified, renewed, replaced (including a replacement upon a refinancing) or
extended from time to time, and that the provisions of the Loan Documents,
as the same may be modified, renewed, replaced (including replacement upon
a refinancing) or extended shall govern with respect to any conflicting
provisions of the A/R Financing Documents;
(g) Acquiror shall waive any claim or right of subrogation which it
may have to any lien, estate, right or other interest in any portion of the
Property other than a lien on Accounts Receivable that is, or may be,
pursuant to this Section 10.5, prior in right to this Deed of Trust or any
other Loan Document;
(h) To further confirm the requirements of this Section 10.5, the
Accounts Receivable Acquiror shall agree pursuant to a binding written
agreement enforceable by Beneficiary that, within ten (10) days after
request by Beneficiary, it will do, execute, acknowledge and deliver all
and every such further acts, deeds, conveyances,
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documents, estoppels and instruments as Beneficiary may request for the
better assuring and evidencing the foregoing terms and provisions;
(i) In the event that any payment or distribution of assets is made to
the Accounts Receivable Acquiror in contravention of this Section 10.5, the
Accounts Receivable Acquiror shall agree that such payment or distribution
shall be received and held by it in trust for the benefit of the holder of
the Loan Documents, as the same may be modified, amended and assigned, and
shall, forthwith upon receipt thereof, be paid or distributed to such
holder; and
(j) In connection with a bankruptcy, insolvency or other proceeding
relating to any of the Loan Documents or A/R Financing Documents, the
provisions of this Section 10.5 shall remain in full force and effect, and
the court having jurisdiction over such proceeding is hereby authorized to
preserve any such priority and subordination set forth herein in approving
any plan of reorganization, arrangement or liquidation without the prior
written consent of the Beneficiary or the Accounts Receivable Acquiror.
Grantor may grant to the Accounts Receivable Acquiror a lien, subordinate
to the lien hereof, on any other portion of the Mortgaged Property representing
General Intangibles; provided, however, that (i) such lien shall not be enforced
until the Debt has been paid in full and (ii) and all documents creating,
evidencing or otherwise executed in connection therewith or herewith shall be
acceptable to Beneficiary in its sole discretion.
ARTICLE XI.
FURTHER ASSURANCES
------------------
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11.1. Defense of Title. If the title to the Mortgaged Property or the
----------------
interest of Beneficiary therein shall be directly or indirectly endangered,
clouded or adversely affected in any manner, Grantor, at Grantor's expense,
shall take all necessary and proper steps for the defense of said title or
interest, including the employment of counsel approved by Beneficiary, the
prosecution or defense of litigation, and the compromise or discharge of claims
made against said title or interest. Notwithstanding the foregoing, in the
event that Beneficiary determines that Grantor is not adequately performing its
obligations under this Section, Beneficiary may, without limiting or waiving any
other rights or remedies of Beneficiary hereunder, take such steps with respect
thereto as Beneficiary shall deem necessary or proper and any and all costs and
expenses incurred by Beneficiary in connection therewith, together with interest
thereon at the Default Interest Rate from the date incurred by Beneficiary until
actually paid by Grantor, shall be immediately paid by Grantor on demand and
shall be secured by this Deed of Trust and by all of the other Loan Documents
securing all or any part of the Debt.
11.2. Performance of Obligations. Grantor shall pay when due the
--------------------------
principal of and the interest on the Debt in accordance with the terms of the
Note and this Deed of Trust. Grantor shall also pay all charges, fees and other
sums required to be paid by Grantor as provided in the Loan Documents, in
accordance with the terms of the Loan Documents, and shall observe, perform and
discharge all obligations, covenants and agreements to be observed, performed or
discharged by Grantor set forth in the Loan Documents in accordance with their
terms. Further, Grantor shall promptly and strictly perform and comply with all
covenants, conditions, obligations and prohibitions required of Grantor in
connection with any other document or instrument affecting title to the
Mortgaged Property, or any part thereof, regardless of whether such document or
instrument is superior or subordinate to this Deed of Trust.
11.3. Construction Liens. Grantor shall pay when due all claims and
------------------
demands of mechanics, materialmen, laborers and others for any work performed or
materials delivered for the Premises or the Improvements; provided, however,
-------- -------
that Grantor shall have the right to contest in good faith any such claim or
demand, so long as it does so diligently, by appropriate proceedings and without
prejudice to Beneficiary and provided that neither the Mortgaged Property nor
any interest therein would be in any danger of sale, loss or forfeiture as a
result of such proceeding or contest. In the event Grantor shall contest any
such claim or demand, Grantor shall promptly notify Beneficiary of such contest
and thereafter shall, upon Beneficiary's request, promptly provide a bond, cash
deposit or other security satisfactory to Beneficiary to protect Beneficiary's
interest and security should the contest be unsuccessful. If Grantor shall fail
to immediately discharge or provide security against any such claim or demand as
aforesaid, Beneficiary may do so and any and all expenses incurred by
Beneficiary, together with interest thereon at the Default Interest Rate from
the date incurred by Beneficiary until actually paid by Grantor, shall be
immediately paid by Grantor on demand and shall be secured by this Deed of Trust
and by all of the other Loan Documents securing all or any part of the Debt.
11.4. Further Documentation. Grantor shall, on the request of Beneficiary
---------------------
and at the expense of Grantor: (a) promptly correct any defect, error or
omission which may be discovered in the contents of this Deed of Trust or in the
contents of any of the other Loan Documents; (b) promptly execute, acknowledge,
deliver and record or file such further instruments (including, without
limitation, further mortgages, deeds of trust, security deeds, security
agreements, financing statements, continuation statements and assignments of
rents or leases) and promptly do such further acts as may be necessary,
desirable or proper to carry out more effectively the purposes of this Deed of
Trust and the other Loan Documents and to
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subject to the liens and security interests hereof and thereof any property
intended by the terms hereof and thereof to be covered hereby and thereby,
including specifically, but without limitation, any renewals, additions,
substitutions, replacements or appurtenances to the Mortgaged Property; (c)
promptly execute, acknowledge, deliver, procure and record or file any document
or instrument (including specifically, without limitation, any financing
statement) deemed advisable by Beneficiary to protect, continue or perfect the
liens or the security interests hereunder against the rights or interests of
third persons; and (d) promptly furnish to Beneficiary, upon Beneficiary's
request, a duly acknowledged written statement and estoppel certificate
addressed to such party or parties as directed by Beneficiary and in form and
substance supplied by Beneficiary, setting forth all amounts due under the Note,
stating whether any Default or Event of Default has occurred hereunder, stating
whether any offsets or defenses exist against the Debt and containing such other
matters as Beneficiary may reasonably require.
11.5. Payment of Costs; Beneficiary's Right to Cure. Grantor shall pay
---------------------------------------------
all costs and expenses of every character reasonably incurred in connection with
the closing of the loan evidenced by the Note and secured hereby or otherwise
attributable or chargeable to Grantor as the owner of the Mortgaged Property,
including, without limitation, appraisal fees, recording fees, documentary,
stamp, Deed of Trust or intangible taxes, brokerage fees and commissions, title
policy premiums and title search fees, uniform commercial code/tax
lien/litigation search fees, escrow fees and reasonable attorneys' fees and
disbursements. If Grantor defaults in any such payment, which default is not
cured within any applicable grace or cure period, Beneficiary may, at its option
pay the same and Grantor shall reimburse Beneficiary on demand for all such
costs and expenses incurred or paid by Beneficiary, together with such interest
thereon at the Default Interest Rate from and after the date of Beneficiary's
making such payment until reimbursement thereof by Grantor. Any such sums
disbursed by Beneficiary, together with such interest thereon, shall be
additional indebtedness of Grantor secured by this Deed of Trust and by all of
the other Loan Documents securing all or any part of the Debt. Further, Grantor
shall promptly notify Beneficiary in writing of any litigation or threatened
litigation affecting the Mortgaged Property, or any other demand or claim which,
if enforced, could impair or threaten to impair Beneficiary's security
hereunder. Without limiting or waiving any other rights and remedies of
Beneficiary hereunder, if Grantor fails to perform any of its covenants or
agreements contained in this Deed of Trust or in any of the other Loan Documents
and such failure is not cured within any applicable grace or cure period, or if
any action or proceeding of any kind (including, but not limited to, any
bankruptcy, insolvency, arrangement, reorganization or other debtor relief
proceeding) is commenced which might affect Beneficiary's interest in the
Mortgaged Property or Beneficiary's right to enforce its security, then
Beneficiary may, at its option, with or without notice to Grantor, make any
appearances, disburse any sums and take any actions as may be necessary or
desirable to protect or enforce the security of this Deed of Trust or to remedy
the failure of Grantor to perform its covenants and agreements (without,
however, waiving any default of Grantor). Grantor agrees to pay on demand all
expenses of Beneficiary or Trustee incurred with respect to the foregoing
(including, but not limited to, reasonable fees and disbursements of counsel),
together with interest thereon at the Default Interest Rate from and after the
date on which Beneficiary or Trustee incurs such expenses until reimbursement
thereof by Grantor. Any such expenses so incurred by Beneficiary, together with
interest thereon as provided above, shall be additional indebtedness of Grantor
secured by this Deed of Trust and by all of the other Loan Documents securing
all or any part of the Debt. The necessity for any such actions and of the
amounts to be paid shall be determined by Beneficiary in its sole discretion.
Beneficiary is hereby empowered to enter and to authorize others to enter upon
the Mortgaged Property or any part thereof for the purpose of performing or
observing any such defaulted term, covenant or condition without thereby
35
<PAGE>
becoming liable to Grantor or any person in possession holding under Grantor.
Grantor hereby acknowledges and agrees that the remedies set forth in this
Section 11.5 shall be exercisable by Beneficiary, and any and all payments made
- ------------
or costs or expenses incurred by Beneficiary in connection therewith shall be
secured hereby and shall be, without demand, immediately repaid by Grantor with
interest thereon at the Default Interest Rate, notwithstanding the fact that
such remedies were exercised and such payments made and costs incurred by
Beneficiary after the filing by Grantor of a voluntary case or the filing
against Grantor of an involuntary case pursuant to or within the meaning of
Title 11, United States Code, as amended, or after any similar action pursuant
to any other debtor relief law (whether statutory, common law, case law or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may
be or become applicable to Grantor, Beneficiary, any Indemnitor, the Debt or any
of the Loan Documents.
11.6. Compliance with Laws. Grantor shall at all times comply with all
--------------------
statutes, ordinances, regulations and other governmental or quasi-governmental
requirements and private covenants now or hereafter relating to the ownership,
construction, use or operation of the Mortgaged Property, including, but not
limited to, those concerning employment and compensation of persons engaged in
operation and maintenance of the Mortgaged Property and any environmental or
ecological requirements, even if such compliance shall require structural
changes to the Mortgaged Property; provided, however, that, Grantor may, upon
-------- -------
providing Beneficiary with security satisfactory to Beneficiary, proceed
diligently and in good faith to contest the validity or applicability of any
such statute, ordinance, regulation or requirement so long as during such
contest the Mortgaged Property shall not be subject to any lien, charge, fine or
other liability and shall not be in danger of being forfeited, lost or closed.
Grantor shall not use or occupy, or allow the use or occupancy of, the Mortgaged
Property in any manner which violates any Lease of or any other agreement
applicable to the Mortgaged Property or any applicable law, rule, regulation or
order or which constitutes a public or private nuisance or which makes void,
voidable or cancelable, or increases the premium of, any insurance then in force
with respect thereto.
11.7. Attorney-in-Fact Provisions. With respect to any provision of this
---------------------------
Deed of Trust or any other Loan Document whereby Grantor grants to Beneficiary a
power-of-attorney, (i) such power shall be deemed to be coupled with an
interest, shall not be revocable by Grantor so long as any portion of the Debt
is outstanding, shall survive the voluntary or involuntary dissolution of
Grantor and shall not be affected by any disability or incapacity suffered by
Grantor subsequent to the date hereof and (ii) provided no Default or Event of
Default has occurred under this Deed of Trust, Beneficiary shall first give
Grantor written notice at least three (3) days prior to acting under such power,
which notice shall demand that Grantor first take the proposed action within
such period and advising Grantor that if it fails to do so, Beneficiary will so
act under the power; provided, however, that, in the event that a Default or an
Event of Default has occurred and not been waived, or if necessary to prevent
imminent death, serious injury, damage, loss, forfeiture or diminution in value
to the Mortgaged Property or any surrounding property or to prevent any adverse
affect on Beneficiary's interest in the Mortgaged Property, Beneficiary may act
immediately and without first giving such notice. In such event, Beneficiary
will give Grantor notice of such action as soon thereafter as reasonably
practical.
Article XII.
PAYMENT; DEFEASANCE; PREPAYMENT
12.1. Payment of the Notes. Grantor shall duly and punctually pay or
--------------------
cause to be paid, the principal of and the interest and premium, if any, on the
Note in accordance with the
36
<PAGE>
respective terms hereof and thereof, without demand therefor or presentation of
the Note, in lawful money of the United States of America.
12.2. Computation of Interest. Interest shall be computed hereunder and
-----------------------
under the Note based on a 360-day year comprised of twelve 30-day months except
that interest due and payable for a period less than a full month shall be
calculated by multiplying the actual number of days elapsed in such period by a
daily rate based on said 360 day year. Interest shall accrue from the date on
which funds are advanced under the Note (regardless of the time of day) through
and including the day on which funds are credited in accordance with the terms
of the Note. Interest shall be payable hereunder and under the Note.
12.3. Application of Payments. So long as no Event of Default exists
-----------------------
hereunder which has not been waived, each Monthly Payment shall be applied
first, to any amounts hereafter advanced by Beneficiary under any Loan Document,
second, to any late fees and other amounts payable to Beneficiary, third, to the
payment of accrued interest and last to reduction of principal.
12.4. Prepayment.
----------
The Note may not be prepaid in whole or in part at the option of
the Grantor except as provided below;
Partial prepayments of the Note shall not be permitted, except for
partial prepayments resulting from Beneficiary's election to apply insurance or
condemnation proceeds to reduce the outstanding principal balance of the Note as
provided in Section 3.1(b) hereof, in which event no prepayment fee or premium
--------------
shall be due unless, at the time of either Beneficiary's receipt of such
proceeds or the application of such proceeds to the outstanding principal
balance of the Note, an Event of Default shall have occurred and not been
waived, in which case, the provisions of Section 15.2 hereof shall be
------------
controlling.
If the indebtedness evidenced by the Note shall have been declared
due and payable by Beneficiary pursuant to the terms thereof or the terms hereof
or the provisions of any other Loan Document due to a default by Grantor, then
subject to Section 16.22 hereof there shall also then be immediately due and
payable, a prepayment fee in an amount equal to the greater of (A) five percent
(5%) of the then outstanding principal balance of the Note on the date of
acceleration, and (B) an amount which would be sufficient to purchase securities
meeting the requirements of Section 12.5(C)(2) below. In the event that any
------------------
prepayment fee is due hereunder, Beneficiary shall deliver to Grantor a
statement setting forth the amount and determination of the prepayment fee, and
provided that Beneficiary shall have in good faith applied the formula described
above, Grantor shall not have the right to challenge the calculation or the
method of calculation set forth in any such statement in the absence of manifest
error.
12.5. Defeasance. Notwithstanding any provision of this Deed of Trust to the
----------
contrary, at any time after the date which (1) is two years after the "startup
day," within the meaning of Section 860G(a)(9) of the Internal Revenue Code of
1986, as amended from time to time or any successor statute (the "Code"), of a
----
"real estate Deed of Trust investment conduit," ("REMIC") within the meaning of
-----
Section 860D of the Code, that holds the Note and this Deed of Trust or (2)
three years after the date hereof, whichever shall later occur, and provided no
Event of Default has occurred, Grantor may cause the release of either (x) the
entire Mortgaged Property or (y) a Partial Release consisting of one or more
Partial Release Parcels as provided in
37
<PAGE>
Section 6.5, from the lien of this Deed of Trust and the other Loan Documents
upon the satisfaction of the following conditions (and, with respect to a
-----------------------
Partial Release, upon the satisfaction of the additional conditions set forth in
- --------------------------------------------------------------------------------
Section 6.5 above):
- ------------------
(a) with respect to a release of the entire Mortgaged Property (a
"Defeasance"), not less than thirty (30) days prior written notice shall be
given to Beneficiary specifying a Payment Date (the "Release Date") on which the
------------
Defeasance Collateral is to be delivered; provided however, that with respect to
----------------
a Partial Release, Grantor shall give Beneficiary a Partial Release Notice in
accordance with Section 6.5;
(b) Grantor shall deliver to Beneficiary on or prior to the Release
Date or Partial Release Date, as applicable:
(1) a pledge and security agreement, in form and substance
satisfactory to Beneficiary in its sole discretion, creating
a first priority security interest in favor of Beneficiary
in the Defeasance Collateral (the "Defeasance Security
-------------------
Agreement"), which shall provide, among other things, that
---------
any payments generated by the Defeasance Collateral shall be
paid directly to Beneficiary and applied by Beneficiary in
satisfaction of all amounts then due and payable hereunder
and any excess received by Beneficiary from the Defeasance
Collateral which, when added to the amounts received under
the Note, exceeds the amounts payable by Grantor hereunder
or under the Note shall be refunded to Grantor promptly
after each Payment Date;
(2) direct, non-callable obligations of the United States of
America (the "Defeasance Collateral") that provide for
payments prior, but as close as possible, to all successive
Payment Dates occurring after the Release Date, with each
such payment being equal to or greater than (x) with respect
to a complete Defeasance of all of the Mortgaged Property,
the amount of the corresponding installment of principal and
interest required to be paid under the Note for the balance
of the term hereof to the Maturity Date, and (y) with
respect to a Partial Release, the amount of the
corresponding installment of the principal and interest
required to be paid with respect to the Partial Release
Parcel(s) so Defeased, (in either case the "Defeasance
----------
Collateral Payments"), for the balance of the term hereof to
-------------------
the Maturity Date (provided that for all purposes of this
Section 12.5(C)(2), all principal, accrued interest and
------------------
other amounts payable under this Deed of Trust, the Note and
the other Loan Documents shall be due and payable in full on
the Maturity Date). The Defeasance Collateral shall be duly
endorsed by the holder thereof as directed by Beneficiary or
accompanied by a written instrument of transfer in form and
substance satisfactory to Beneficiary in its sole discretion
(including, without limitation, such instruments as may be
required by the depository institution holding such
securities or the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the
book-entry facilities of such institution) in order to
perfect upon the delivery of the Defeasance Security
Agreement the first priority
38
<PAGE>
security interest in the Defeasance Collateral in favor of
Beneficiary in conformity with all applicable state and
federal laws governing granting of such security interests;
(3) a certificate of Grantor certifying that all of the
requirements set forth in this Section 12.5 have been
------------
satisfied;
(4) an opinion of counsel for Grantor in form and substance and
delivered by counsel satisfactory to Beneficiary in its sole
discretion stating, among other things, that (x) Beneficiary
has a perfected first priority security interest in the
Defeasance Collateral and that the Defeasance Security
Agreement is enforceable against Grantor in accordance with
its terms and (y) that any trust formed as a REMIC pursuant
to a securitization will not fail to maintain its status as
a REMIC as a result of such defeasance;
(5) such other certificates, documents or instruments as
Beneficiary may reasonably require;
(6) upon compliance with the requirements of this Section 12.5,
------------
the Mortgaged Property (or the Partial Release Parcels, in
the event of a Partial Release) shall be released from the
lien of this Deed of Trust and the other Loan Documents, and
the Defeasance Collateral shall constitute collateral which
shall secure the Note (or, in the event of a Partial
Release, the "Defeased Note," as hereinafter defined), and
all other obligations under the Loan Documents. In the
event of a Partial Release, the Note shall be amended,
modified to reduce the unpaid principal balance and modify
the payment schedule to account for the Partial Release
Payment, and Grantor shall execute and deliver to
Beneficiary a new note, as follows: the Note shall be in
the principal amount of the then unpaid principal balance of
the Note, less the amount of the applicable Partial Release
----
Price, and continuing to be secured by the Mortgaged
Property remaining after the Partial Release; and the new
note shall be in the principal amount equal to the
applicable Partial Release Price and to be secured by the
Defeasance Collateral [such new note, secured by the
Defeasance Collateral, being sometimes referred to as the
"Defeased Note"]). Beneficiary will, at Grantor's expense,
--------------
execute and deliver any agreements reasonably requested by
Grantor to release the lien of the Deed of Trust and any
other appropriate Loan Documents from the applicable
Mortgaged Property; and
(7) upon the release of the applicable Mortgaged Property in
accordance with this Section 12.5, Grantor may assign all
------------
its obligations and rights under the Note, or, in the event
of a partial Defeasance, under the Defeased Note, together
with the pledged Defeasance Collateral, to a successor
entity designated by Grantor and approved by Beneficiary in
its sole discretion. Such successor entity shall execute an
assumption agreement in form and substance satisfactory to
Beneficiary in its sole discretion pursuant to which it
shall assume Grantor's obligations under the Note or, in the
event of a partial Defeasance, the Defeased Note and the
Defeasance Security Agreement. As conditions to such
assignment and assumption, Grantor shall (x) deliver to
Beneficiary an opinion of counsel in form
39
<PAGE>
and substance and delivered by counsel satisfactory to
Beneficiary in its sole discretion stating, among other
things, that such assumption agreement and, in the event of
a partial Defeasance, the Defeased Note, are enforceable
against Grantor in accordance with their respective terms
and that such assumption agreement, under the Note or, in
the event of a partial Defeasance, under the Defeased Note,
the Defeasance Security Agreement and the other Loan
Documents, as so assumed, are enforceable against such
successor entity in accordance with their respective terms,
and (y) pay all costs and expenses incurred by Beneficiary
or its agents in connection with such assignment and
assumption (including, without limitation, the review of the
proposed transferee and the preparation of the assumption
agreement and related documentation). Upon such assumption,
Grantor shall be relieved of its obligations (a) in the
event of total Defeasance, under the Note, the other Loan
Documents and the Defeasance Security Agreement and (b) in
the event of a partial Defeasance, under the Defeased Note
and the Defeasance Security Agreement.
Upon compliance with the requirements of this Section 12.5, the Mortgaged
------------
Property shall be released from the lien of this Deed of Trust and the other
Loan Documents, and the balance of the Mortgaged Property, if any, shall
constitute collateral which shall secure the Note and all other obligations
under the Loan Documents. Beneficiary will, at Grantor's expense, execute and
deliver any agreements reasonably requested by Grantor to release the lien this
Deed of Trust from the Mortgaged Property, or the Release Parcels as applicable.
ARTICLE XIII.
SECURITY PROVISIONS
-------------------
13.1. Security Interest. This Deed of Trust is also intended to encumber
-----------------
and create a security interest in, and Grantor hereby grants to Beneficiary a
security interest in, all sums on deposit with Beneficiary pursuant to the
provisions of Section 1.2, Section 5.1 and Section 5.2 hereof or any other
----------- ----------- -----------
Section hereof or of any other Loan Document and all fixtures, chattels,
accounts, equipment, inventory, contract rights, general intangibles and other
personal property included within the Mortgaged Property, all renewals,
replacements of any of the aforementioned items, or articles in substitution
therefor or in addition thereto or the proceeds thereof (said property is
hereinafter referred to collectively as the "Collateral"), whether or not the
----------
same shall be attached to the Premises or the Improvements in any manner. It is
hereby agreed that to the extent permitted by law, all of the foregoing property
is to be deemed and held to be a part of and affixed to the Premises and the
Improvements. The foregoing security interest shall also cover Grantor's
leasehold interest in any of the foregoing property which is leased by Grantor.
Notwithstanding the foregoing, all of the foregoing property shall be owned by
Grantor and no leasing or installment sales or other financing or title
retention agreement in connection therewith shall be permitted without the prior
written approval of Beneficiary.
40
<PAGE>
Grantor shall, from time to time upon the request of Beneficiary, supply
Beneficiary with a current inventory of all of the property in which Beneficiary
is granted a security interest hereunder, in such detail as Beneficiary may
reasonably require. Grantor shall promptly replace all of the Collateral subject
to the lien or security interest of this Deed of Trust when worn or obsolete
with Collateral comparable to the worn out or obsolete Collateral when new and
will not, without the prior written consent of Beneficiary, remove from the
Premises or the Improvements any of the Collateral subject to the lien or
security interest of this Deed of Trust except such as is replaced by an article
of equal suitability and value as above provided, owned by Grantor free and
clear of any lien or security interest except that created by this Deed of Trust
and the other Loan Documents. All of the Collateral shall be kept at the
location of the Premises except as otherwise required by the terms of the Loan
Documents. Grantor shall not use any of the Collateral in violation of any
applicable statute, ordinance or insurance policy.
13.2. Security Agreement. This Deed of Trust constitutes a security
------------------
agreement between Grantor and Beneficiary with respect to the Collateral in
which Beneficiary is granted a security interest hereunder, and, cumulative of
all other rights and remedies of Beneficiary hereunder, Beneficiary shall have
all of the rights and remedies of a secured party under any applicable Uniform
Commercial Code. Grantor hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Beneficiary the attorney-in-fact of
Grantor to execute and deliver and, if appropriate, to file with the appropriate
filing officer or office, such security agreements, financing statements,
continuation statements or other instruments as Beneficiary may request or
require in order to impose, perfect or continue the perfection of the lien or
security interest created hereby. To the extent specifically provided herein,
Beneficiary shall have the right of possession of all cash, securities,
instruments, negotiable instruments, documents, certificates and any other
evidences of cash or other property or evidences of rights to cash rather than
property, which are now or hereafter a part of the Mortgaged Property, and
Grantor shall promptly deliver the same to Beneficiary, endorsed to Beneficiary,
without further notice from Beneficiary. Grantor agrees to furnish Beneficiary
in writing with notice of any change in the name, identity, organizational
structure, residence, or principal place of business or mailing address of
Grantor thirty (30) days prior to the effective date of any such change.
Expenses of retaking, holding, preparing for sale, selling or the like
(including, without limitation, Beneficiary's reasonable attorneys' fees and
legal expenses), together with interest thereon at the Default Interest Rate
from the date incurred by Beneficiary until actually paid by Grantor, shall be
paid by Grantor on demand and shall be secured by this Deed of Trust and by all
of the other Loan Documents securing all or any part of the Debt. Beneficiary
shall have the right to enter upon the Premises and the Improvements or any real
property where any of the property which is the subject of the security interest
granted herein is located to take possession of, assemble and collect the same
or to render it unusable, or Grantor, upon demand of Beneficiary, shall assemble
such property and make it available to Beneficiary at the Premises, or at a
place which is mutually agreed upon or, if no such place is agreed upon, at a
place reasonably designated by Beneficiary to be reasonably convenient to
Beneficiary and Grantor. If notice is required by law, Beneficiary shall give
Grantor at least ten (10) days' prior written notice of the time and place of
any public sale of such property, or adjournments thereof, or of the time of or
after which any private sale or any other intended disposition thereof is to be
made, and if such notice is sent to Grantor, as the same is provided for the
mailing of notices herein, it is hereby deemed that such notice shall be and is
reasonable notice to Grantor. No such notice is necessary for any such property
which is perishable, threatens to decline speedily in value or is of a type
customarily sold on a recognized market. Any sale made pursuant to the
provisions of this Section shall be deemed to have been a public sale conducted
in a commercially reasonable manner if held contemporaneously with a
41
<PAGE>
foreclosure sale as provided in Section 15.1(e) hereof upon giving the same
---------------
notice with respect to the sale of the Mortgaged Property hereunder as is
required under said Section 15.1(e).
---------------
The name and principal place of business of Grantor (as Debtor under
any applicable Uniform Commercial Code) are:
DMG TEXAS ALC PARTNERS, L.P.
9955 S.E. Washington, Suite 201
Portland, Oregon 97216
The name and principal place of business of Beneficiary (as Secured
Party) are:
TRANSATLANTIC CAPITAL COMPANY, L.L.C.
31 West 52nd Street
12th Floor
New York, New York 10019
13.3. Secured Indebtedness. It is understood and agreed that this Deed of
--------------------
Trust shall secure payment of not only the indebtedness evidenced by the Note
but also any and all substitutions, replacements, renewals and extensions of the
Note, any and all indebtedness and obligations arising pursuant to the terms
hereof and any and all indebtedness and obligations arising pursuant to the
terms of any of the other Loan Documents, all of which indebtedness is equally
secured with and has the same priority as any amounts advanced as of the date
hereof. It is agreed that any future advances made by Beneficiary to or for the
benefit of Grantor from time to time under this Deed of Trust or the other Loan
Documents and whether or not such advances are obligatory or are made at the
option of Beneficiary, or otherwise, made for any purpose, within twenty (20)
years from the date hereof, and all interest accruing thereon, shall be equally
secured by this Deed of Trust and shall have the same priority as all amounts,
if any, advanced as of the date hereof and shall be subject to all of the terms
and provisions of this Deed of Trust.
ARTICLE XIV.
DEFAULT
-------
14.1. Events of Default. The occurrence of any of the following events
-----------------
shall be an "Event of Default" hereunder:
(a) Grantor fails to timely make payments of principal or interest as
stipulated in the Note and any such payment is not made within ten (10) days of
the date such payment is due (provided that no grace period is provided for the
payment of principal and interest due on the Maturity Date).
(b) Grantor fails to provide insurance as required by Section 2.1
-----------
hereof or fails to perform any covenant, agreement, obligation, term or
condition set forth in Section 4.1, Section 6.3 or Section 10.4 hereof.
----------- ----------- ------------
(c) Grantor fails to perform any other covenant, agreement,
obligation, term or condition set forth herein, other than those otherwise
described in this Section 14.1, and, to the extent such failure or default is
------------
susceptible of being cured, the continuance of such failure or default for
thirty (30) days after written notice thereof from Beneficiary to Grantor;
provided, however, that if such default is susceptible of cure but such cure
- -------- -------
cannot be accomplished with
42
<PAGE>
reasonable diligence within said period of time, and if Grantor commences to
cure such default promptly after receipt of notice thereof from Beneficiary, and
thereafter prosecutes the curing of such default with reasonable diligence, such
period of time shall be extended for such period of time as may be necessary to
cure such default with reasonable diligence, but not to exceed an additional
sixty (60) days.
(d) Any representation or warranty made herein, in or in connection
with any application or commitment relating to the loan evidenced by the Note,
or in any of the other Loan Documents to Beneficiary by Grantor, by any
principal, general partner, manager or member in Grantor, or by any Indemnitor
is determined by Beneficiary to have been false or misleading in any material
respect at the time made.
(e) A default occurs under any of the other Loan Documents which has
not been cured within any applicable grace or cure period therein provided.
(f) Grantor, any principal, general partner or managing member in
Grantor or any Indemnitor becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or files a
petition in bankruptcy, or is voluntarily adjudicated insolvent or bankrupt or
admits in writing the inability to pay its debts as they mature, or petitions or
applies to any tribunal for or consents to or fails to contest the appointment
of a receiver, trustee, custodian or similar officer for Grantor, for any such
principal, general partner or managing member of Grantor or for any Indemnitor
or for a substantial part of the assets of Grantor, of any such principal,
general partner or managing member of Grantor or of any Indemnitor, or commences
any case, proceeding or other action under any bankruptcy, insolvency,
reorganization, arrangement, receivership or other debtor relief under any law
or statute of any jurisdiction, whether now or hereafter in effect.
(g) A petition is filed or any case, proceeding or other action is
commenced against Grantor, against any principal, general partner or managing
member of Grantor or against any Indemnitor seeking to have an order for relief
entered against it as debtor or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or other relief under
any law relating to bankruptcy, insolvency, arrangement, reorganization,
receivership or other debtor relief under any law or statute of any
jurisdiction, whether now or hereafter in effect, or a court of competent
jurisdiction enters an order for relief against Grantor, against any principal,
general partner or managing member of Grantor or against any Indemnitor, as
debtor, or an order, judgment or decree is entered appointing, with or without
the consent of Grantor, of any such principal, general partner or managing
member of Grantor or of any Indemnitor, a receiver, trustee, custodian or
similar officer for Grantor, for any such principal, general partner or managing
member of Grantor or for any Indemnitor, or for any substantial part of any of
the properties of Grantor, of any such principal, general partner or managing
member of Grantor or of any Indemnitor, and if any such event shall occur, such
petition, case, proceeding, action, order, judgment or decree is not dismissed
within sixty (60) days after being commenced.
(h) The Mortgaged Property or any part thereof is taken on execution
or other process of law in any action against Grantor.
(i) Grantor abandons all or a portion of the Mortgaged Property.
(j) The holder of any lien or security interest on the Mortgaged
Property (without implying the consent of Beneficiary to the existence or
creation of any such lien or
43
<PAGE>
security interest other than in connection with A/R Financing permitted pursuant
to the terms of Section 10.5 hereof), whether superior or subordinate to this
Deed of Trust or any of the other Loan Documents, declares a default and such
default is not cured within any applicable grace or cure period set forth in the
applicable document or such holder institutes foreclosure or other proceedings
for the enforcement of its remedies thereunder.
(k) The Mortgaged Property, or any part thereof, is subjected to waste
or to removal, demolition or material alteration so that the value of the
Mortgaged Property is materially diminished thereby and Beneficiary determines
that it is not adequately protected from any loss, damage or risk associated
therewith.
(l) Any dissolution, termination, partial or complete liquidation,
merger or consolidation of Grantor, any of its principals, any general partner
or any managing member.
(m) The business conducted by Grantor or operation of the Mortgaged
Property is in imminent danger of being suspended as a result of any violation
of any state, local or federal rule, law or regulation.
ARTICLE XV.
REMEDIES
--------
15.1. Remedies Available. If there shall occur an Event of Default under
------------------
this Deed of Trust, then this Deed of Trust is subject to foreclosure as
provided by law and Beneficiary may, at its option and by or through a trustee,
nominee, assignee or otherwise (including, without limitation, the Trustee), to
the fullest extent permitted by law, exercise any or all of the following
rights, remedies and recourses, either successively or concurrently:
(a) Acceleration. Accelerate the maturity date of the Note and
------------
declare any or all of the Debt to be immediately due and payable without any
presentment, demand, protest, notice or action of any kind whatever (each of
which is hereby expressly waived by Grantor), whereupon the same shall become
immediately due and payable. Upon any such acceleration, payment of such
accelerated amount shall constitute a prepayment of the principal balance of the
Note and any applicable prepayment fee provided for in the Note shall then be
immediately due and payable.
(b) Entry on the Mortgaged Property. Either in person or by agent,
-------------------------------
with or without bringing any action or proceeding, or by a receiver appointed by
a court and without regard to the adequacy of its security, enter upon and take
possession of the Mortgaged Property, or any part thereof, without force or with
such force as is permitted by law and without notice or process or with such
notice or process as is required by law, unless such notice and process is
waivable, in which case Grantor hereby waives such notice and process, and do
any and all acts and perform any and all work which may be desirable or
necessary in Beneficiary's judgment to complete any unfinished construction on
the Premises, to preserve the value, marketability or rentability of the
Mortgaged Property, to increase the income therefrom, to manage and operate the
Mortgaged Property or to protect the security hereof, and all sums expended by
Beneficiary therefor, together with interest thereon at the Default Interest
Rate, shall be immediately due and payable to Beneficiary by Grantor on demand
and shall be secured hereby and by all of the other Loan Documents securing all
or any part of the Debt.
44
<PAGE>
(c) Collect Rents and Profits. With or without taking possession of
-------------------------
the Mortgaged Property, sue or otherwise collect the Rents and Profits,
including those past due and unpaid.
(d) Appointment of Receiver. Upon, or at any time prior or after,
-----------------------
initiating the exercise of any power of sale, instituting any judicial
foreclosure or instituting any other foreclosure of the liens and security
interests provided for herein or any other legal proceedings hereunder, make
application to a court of competent jurisdiction for appointment of a receiver
for all or any part of the Mortgaged Property, as a matter of strict right and
without notice to Grantor and without regard to the adequacy of the Mortgaged
Property for the repayment of the Debt or the solvency of Grantor or any person
or persons liable for the payment of the Debt, and Grantor does hereby
irrevocably consent to such appointment, waive any and all notices of and
defenses to such appointment and agree not to oppose any application therefor by
Beneficiary, but nothing herein is to be construed to deprive Beneficiary of any
other right, remedy or privilege Beneficiary may now have under the law to have
a receiver appointed, provided, however, that the appointment of such receiver,
-------- -------
trustee or other appointee by virtue of any court order, statute or regulation
shall not impair or in any manner prejudice the rights of Beneficiary to receive
payment of the Rents and Profits pursuant to other terms and provisions hereof.
Any such receiver shall have all of the usual powers and duties of receivers in
similar cases, including, without limitation, the full power to hold, develop,
rent, lease, manage, maintain, operate and otherwise use or permit the use of
the Mortgaged Property upon such terms and conditions as said receiver may deem
to be prudent and reasonable under the circumstances as more fully set forth in
Section 15.3 below. Such receivership shall, at the option of Beneficiary,
- ------------
continue until full payment of all of the Debt or until title to the Mortgaged
Property shall have passed by foreclosure sale under this Deed of Trust or deed
in lieu of foreclosure.
(e) Foreclosure. Immediately commence an action to foreclose this
-----------
Deed of Trust or to specifically enforce its provisions with respect to any of
the Debt, pursuant to the statutes in such case made and provided, and sell the
Mortgaged Property or cause the Mortgaged Property to be sold in accordance with
the requirements and procedures provided by said statutes in a single parcel or
in several parcels at the option of Beneficiary. In the event foreclosure
proceedings are instituted by Beneficiary, all expenses incident to such
proceedings, including, but not limited to, reasonable attorneys' fees and
costs, shall be paid by Grantor and secured by this Deed of Trust and by all of
the other Loan Documents securing all or any part of the Debt. The Debt and all
other obligations secured by this Deed of Trust, including, without limitation,
interest at the Default Interest Rate any prepayment charge, fee or premium
required to be paid under the Note in order to prepay principal (to the extent
permitted by applicable law), reasonable attorneys' fees and any other amounts
due and unpaid to Beneficiary under the Loan Documents, may be bid by
Beneficiary in the event of a foreclosure sale hereunder. In the event of a
judicial sale pursuant to a foreclosure decree, it is understood and agreed that
Beneficiary or its assigns may become the purchaser of the Mortgaged Property or
any part thereof.
(f) Judicial Remedies. Proceed by suit or suits, at law or in equity,
-----------------
instituted by or on behalf of Beneficiary, upon written request of Beneficiary,
to enforce the payment of the Debt or the other obligations of Grantor hereunder
or pursuant to the Loan Documents, to foreclose the liens and security interests
of this Deed of Trust as against all or any part of the Mortgaged Property, and
to have all or any part of the Mortgaged Property sold under the judgment or
decree of a court of competent jurisdiction. This remedy shall be cumulative of
any other non-judicial remedies available to Beneficiary with respect to the
Loan Documents.
45
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Proceeding with the request or receiving a judgement for legal relief shall not
be or be deemed to be an election of remedies or bar any available non-judicial
remedy of Beneficiary.
(g) Sale of Property. (i) Trustee, at the request of Beneficiary,
----------------
shall have the power to sell the Mortgaged Property or any part thereof at
public auction, in such manner, at such time, and place, upon such terms and
conditions, and upon five (5) days notice to Grantor and such public notice as
Beneficiary may deem best for the interest of Beneficiary or as may be required
or permitted by applicable law, consisting of advertisement in a newspaper of
general circulation in the jurisdiction and for such period as applicable law
may require and at such other times and by such other methods, if any, as may be
required by law to convey the Mortgaged Property in fee simple by trustee's deed
with special warranty of title to and at the cost of the purchaser, who shall
not be liable to see to the application of the purchase money. The proceeds or
avails of any sale made under or by virtue of this paragraph, together with any
other sums which then may be held by Beneficiary under this Deed of Trust,
whether under the provisions of this paragraph or otherwise, shall be applied as
provided in Section 15.2 hereof. Beneficiary, Trustee and any receiver or
custodian of the Mortgaged Property or any part thereof shall be liable to
account for only those rents, issues, proceeds and profits actually received by
it.
(ii) Beneficiary and Trustee, as applicable, may adjourn from time to
time any sale by it to be made under or by virtue of this Deed of Trust 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 law,
Beneficiary or Trustee, without further notice or publication, may make such
sale at the time and place to which the same shall be so adjourned.
(iii) Upon the completion of any sale or sales ordered by Beneficiary
and made by Trustee under or by virtue of this paragraph, Beneficiary or
Trustee, or any officer of any court empowered to do so, shall execute and
deliver to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, granting, conveying, assigning
and transferring all estate, right, title and interest in and to the property
and rights sold. Trustee is hereby irrevocably appointed the true and lawful
attorney-in-fact for Grantor (coupled with an interest), in its name and stead,
to make all necessary conveyances, assignments, transfers and deliveries of the
property and rights so sold and for that purpose Trustee may execute all
necessary instruments of conveyance, assignment, transfer and delivery, and may
substitute one or more persons with like power, Grantor hereby ratifying and
confirming all that its said attorney-in-fact or such substitute or substitutes
shall lawfully do by virtue hereof. Nevertheless, Grantor, if so requested by
Trustee or Beneficiary, shall ratify and confirm any such sale or sales by
executing and delivering to Beneficiary, or to such purchaser or purchasers all
such instruments as may be advisable, in the sole judgment of Beneficiary, for
such purpose, and as may be designated in such request. Any such sale or sales
made under or by virtue or this paragraph, whether made under the power of sale
herein granted or under or by virtue of judicial proceedings or 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
Grantor in and to the property and rights so sold, and shall, to the fullest
extent permitted under law, be a perpetual bar both at law and in equity against
Grantor and against any and all persons claiming or who may claim the same, or
any party thereof, from, through or under Grantor.
(iv) In the event of any sale made under or by virtue of this Deed of
Trust (whether made under the power of sale herein granted or under or by virtue
of judicial proceedings or a judgment or decree of foreclosure and sale), the
entire Debt relative to the
46
<PAGE>
Mortgaged Property, immediately thereupon shall, anything in the Note, this Deed
of Trust or any other of the Loan Documents to the contrary notwithstanding,
become due and payable.
(v) Upon any sale under or by virtue of this Deed of Trust (whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or a judgment or decree of foreclosure and sale), Beneficiary 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 the
Debt to and against the net sales price after deducting therefrom the expenses
of the sale and the costs of the action.
(vi) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Mortgaged Property or any part thereof or
upon any other property of Grantor shall release the lien of this Deed of Trust
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Beneficiary hereunder, but such liens, rights, powers and remedies
of Beneficiary shall continue unimpaired until the entire Debt is paid in full.
(h) Other. Exercise any other right or remedy available hereunder,
-----
under any of the other Loan Documents or at law or in equity.
15.2. Application of Proceeds. To the fullest extent permitted by law,
-----------------------
the proceeds of any sale under this Deed of Trust shall be applied, to the
extent funds are so available, to the following items in such order as
Beneficiary in its discretion may determine:
(a) To payment of the reasonable costs, expenses and fees of taking
possession of the Mortgaged Property, and of holding, operating, maintaining,
using, leasing, repairing, improving, marketing and selling the same and of
otherwise enforcing Beneficiary's rights and remedies hereunder and under the
other Loan Documents, including, but not limited to, receivers' fees, court
costs, attorneys', accountants', appraisers', managers' and other professional
fees, title charges and transfer taxes.
(b) To payment of all sums expended by Beneficiary under the terms of
any of the Loan Documents and not yet repaid, together with interest on such
sums at the Default Interest Rate.
(c) To payment of the Debt and all other obligations secured by this
Deed of Trust, including, without limitation, interest at the Default Interest
Rate and, to the extent permitted by applicable law, any prepayment fee, charge
or premium required to be paid under the Note in order to prepay principal, in
any order that Beneficiary chooses in its sole discretion.
(d) The remainder, if any, of such funds shall be disbursed to Grantor
or to the person or persons legally entitled thereto.
15.3. Right and Authority of Receiver or Beneficiary in the Event of
--------------------------------------------------------------
Default; Power of Attorney. Upon the occurrence of an Event of Default, and
- --------------------------
entry upon the Mortgaged Property pursuant to Section 15.1(b) hereof or
---------------
appointment of a receiver pursuant to Section 15.1(d) hereof, and under such
---------------
terms and conditions as may be prudent and reasonable under the circumstances in
Beneficiary's or the receiver's sole discretion, all at Grantor's expense,
Beneficiary or said receiver, or such other persons or entities as they shall
hire, direct or engage, as the case may be, may do or permit one or more of the
following, successively or concurrently: (a) enter upon and take possession and
control of any and all of the Mortgaged
47
<PAGE>
Property; (b) take and maintain possession of all documents, books, records,
papers and accounts relating to the Mortgaged Property; (c) exclude Grantor and
its agents, servants and employees wholly from the Mortgaged Property; (d)
manage and operate the Mortgaged Property; (e) preserve and maintain the
Mortgaged Property; (f) make repairs and alterations to the Mortgaged Property;
(g) complete any construction or repair of the Improvements, with such changes,
additions or modifications of the plans and specifications or intended
disposition and use of the Improvements as Beneficiary may in its sole
discretion deem appropriate or desirable to place the Mortgaged Property in such
condition as will, in Beneficiary's sole discretion, make it or any part thereof
readily marketable or rentable; (h) conduct a marketing or leasing program with
respect to the Mortgaged Property, or employ a marketing or leasing agent or
agents to do so, directed to the leasing or sale of the Mortgaged Property under
such terms and conditions as Beneficiary may in its sole discretion deem
appropriate or desirable; (i) employ such contractors, subcontractors,
materialmen, architects, engineers, consultants, managers, brokers, marketing
agents, or other employees, agents, independent contractors or professionals, as
Beneficiary may in its sole discretion deem appropriate or desirable to
implement and effectuate the rights and powers granted herein and in the other
Loan Documents; (j) execute and deliver, in the name of Beneficiary as attorney-
in-fact and agent of Grantor or in its own name as Beneficiary, such documents
and instruments as are necessary or appropriate to consummate authorized
transactions; (k) enter into such leases, whether of real or personal property,
or tenancy agreements, under such terms and conditions as Beneficiary may in its
sole discretion deem appropriate or desirable; (l) collect and receive the Rents
and Profits from the Mortgaged Property; (m) eject tenants or repossess personal
property, as provided by law, for breaches of the conditions of their leases or
other agreements; (n) sue for unpaid Rents and Profits, payments, income or
proceeds in the name of Grantor or Beneficiary; (o) maintain actions in forcible
entry and detainer, ejectment for possession and actions in distress for rent;
(p) compromise or give acquittance for Rents and Profits, payments, income or
proceeds that may become due; (q) delegate or assign any and all rights and
powers given to Beneficiary by this Deed of Trust; and (r) do any acts which
Beneficiary or the receiver in its sole discretion deems appropriate or
desirable to protect the security hereof and use such measures, legal or
equitable, as Beneficiary or the receiver may in its sole discretion deem
appropriate or desirable to implement and effectuate the provisions of this Deed
of Trust. This Deed of Trust shall constitute a direction to and full authority
to any Tenant, or other third party who has heretofore dealt or contracted or
may hereafter deal or contract with Grantor or Beneficiary, at the request of
Beneficiary, to pay all amounts owing under any lease, contract, concession,
license or other agreement to Beneficiary without proof of the Event of Default
relied upon. Any such Tenant or third party is hereby irrevocably authorized to
rely upon and comply with (and shall be fully protected by Grantor in so doing)
any request, notice or demand by Beneficiary for the payment to Beneficiary of
any Rents and Profits or other sums which may be or thereafter become due under
its lease, contract, concession, license or other agreement, or for the
performance of any undertakings under any such lease, contract, concession,
license or other agreement, and shall have no right or duty to inquire whether
any Event of Default under this Deed of Trust or under any of the other Loan
Documents has actually occurred or is then existing. Grantor hereby irrevocably
constitutes and appoints Beneficiary, its assignees, successors, transferees and
nominees, as Grantor's true and lawful attorney-in-fact and agent, with full
power of substitution in the Mortgaged Property, in Grantor's name, place and
stead, to do or permit any one or more of the foregoing described rights,
remedies, powers and authorities, successively or concurrently. Any money
advanced by Beneficiary in connection with any action taken under this Section
-------
15.3, together with interest thereon at the Default Interest Rate from the date
- ----
of making such advancement by Beneficiary until actually paid by
48
<PAGE>
Grantor, shall be a demand obligation owing by Grantor to Beneficiary and shall
be secured by this Deed of Trust and by every other instrument securing all or
any portion of the Debt.
15.4. Occupancy After Foreclosure. In the event there is a foreclosure
---------------------------
sale hereunder and at the time of such sale, Grantor or Grantor's
representatives, successors or assigns, or any other persons claiming any
interest in the Mortgaged Property by, through or under Grantor (except Tenants
under Leases entered into prior to the date hereof), are occupying or using the
Mortgaged Property, or any part thereof, then, to the extent not prohibited by
applicable law, each and all shall, at the option of Beneficiary or the
purchaser at such sale, as the case may be, immediately become the tenant of the
purchaser at such sale, which tenancy shall be a tenancy from day-to-day,
terminable at the will of either landlord or tenant, at a reasonable rental per
day based upon the higher of either (i) any rate provided in a lease then in
effect with Grantor or, if none exists, then (ii) the value of the Mortgaged
Property occupied or used, such rental to be due daily to the purchaser.
Further, to the extent permitted by applicable law, in the event the tenant
fails to surrender possession of the Mortgaged Property upon the termination of
such tenancy, the purchaser shall be entitled to institute and maintain an
action for unlawful detainer of the Mortgaged Property in the appropriate court
of the county in which the Premises is located.
15.5. Notice to Account Debtors. Beneficiary may, at any time after an
-------------------------
Event of Default, notify the account debtors and obligors of any accounts,
chattel paper, negotiable instruments or other evidences of indebtedness to
Grantor included in the Mortgaged Property to pay Beneficiary directly. Grantor
shall at any time or from time to time upon the request of Beneficiary provide
to Beneficiary a current list of all such account debtors and obligors and their
addresses.
15.6. Cumulative Remedies. All remedies contained in this Deed of Trust
-------------------
are cumulative and Beneficiary shall also have all other remedies provided at
law and in equity or in any other Loan Documents. Such remedies may be pursued
separately, successively or concurrently at the sole subjective direction of
Beneficiary and may be exercised in any order and as often as occasion therefor
shall arise.
15.7. Payment of Expenses. Grantor shall pay on demand all of
-------------------
Beneficiary's expenses incurred in any efforts to enforce any terms of this Deed
of Trust, whether or not any lawsuit is filed and whether or not foreclosure is
commenced but not completed, including, but not limited to, reasonable legal
fees and disbursements, foreclosure costs and title charges, together with
interest thereon from and after the date incurred by Beneficiary until actually
paid by Grantor at the Default Interest Rate, and the same shall be secured by
this Deed of Trust and by all of the other Loan Documents securing all or any
part of the Debt.
15.8. Grantor's Waivers. To the full extent permitted by law, Grantor
-----------------
agrees that Grantor shall not at any time insist upon, plead, claim or take the
benefit or advantage of any law now or hereafter in force providing for any
appraisement, valuation, stay, moratorium or extension, or any law now or
hereafter in force providing for the reinstatement of the Debt prior to any sale
of the Mortgaged Property to be made pursuant to any provisions contained herein
or prior to the entering of any decree, judgment or order of any court of
competent jurisdiction, or any right under any statute to redeem all or any part
of the Mortgaged Property so sold. Grantor, for Grantor and Grantor's
successors and assigns, and for any and all persons ever claiming any interest
in the Mortgaged Property, to the full extent permitted by law, hereby
knowingly, intentionally and voluntarily, with and upon the advice of competent
counsel: (a) waives, releases, relinquishes and forever forgoes all rights of
valuation, appraisement, stay of
49
<PAGE>
execution, reinstatement and notice of election or intention to mature or
declare due the Debt (except such notices as are specifically provided for
herein); (b) waives, releases, relinquishes and forever forgoes all right to a
marshaling of the assets of Grantor, including the Mortgaged Property, to a sale
in the inverse order of alienation, or to direct the order in which any of the
Mortgaged Property shall be sold in the event of foreclosure of the liens and
security interests hereby created and agrees that any court having jurisdiction
to foreclose such liens and security interests may order the Mortgaged Property
sold as an entirety; and (c) waives, releases, relinquishes and forever forgoes
all rights and periods of redemption provided under applicable law. To the full
extent permitted by law, Grantor shall not have or assert any right under any
statute or rule of law pertaining to the exemption of homestead or other
exemption under any federal, state or local law now or hereafter in effect, the
administration of estates of decedents or other matters whatever to defeat,
reduce or affect the right of Beneficiary under the terms of this Deed of Trust
to a sale of the Mortgaged Property, for the collection of the Debt without any
prior or different resort for collection, or the right of Beneficiary under the
terms of this Deed of Trust to the payment of the Debt out of the proceeds of
sale of the Mortgaged Property in preference to every other claimant whatever.
Furthermore, Grantor hereby knowingly, intentionally and voluntarily, with and
upon the advice of competent counsel, waives, releases, relinquishes and forever
forgoes all present and future statutes of limitations as a defense to any
action to enforce the provisions of this Deed of Trust or to collect any of the
Debt to the fullest extent permitted by law. Grantor covenants and agrees that
upon the commencement of a voluntary or involuntary bankruptcy proceeding by or
against Grantor, Grantor shall not seek a supplemental stay or otherwise shall
not seek pursuant to 11 U.S.C. (S)105 or any other provision of Title 11, United
States Code, as amended, or any other debtor relief law (whether statutory,
common law, case law, or otherwise) of any jurisdiction whatsoever, now or
hereafter in effect, which may be or become applicable, to stay, interdict,
condition, reduce or inhibit the ability of Beneficiary to enforce any rights of
Beneficiary against any guarantor or indemnitor of the secured obligations or
any other party liable with respect thereto by virtue of any indemnity, guaranty
or otherwise.
15.9. Submission to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------
(a) GRANTOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
(i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE PREMISES IS
LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR
RELATING TO THE NOTE, THIS DEED OF TRUST OR ANY OTHER OF THE LOAN DOCUMENTS,
(ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY IN WHICH THE
PREMISES IS LOCATED, (iii) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND (iv)
TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY
ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT
THE RIGHT OF BENEFICIARY TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER
FORUM).
(b) EACH OF GRANTOR AND BENEFICIARY BY ITS ACCEPTANCE OF THIS DEED OF
TRUST, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND
VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES
AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED UPON, ARISING OUT
50
<PAGE>
OF, OR IN ANY WAY RELATING TO THE DEBT OR ANY CONDUCT, ACT OR OMISSION OF
BENEFICIARY OR GRANTOR, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS
AFFILIATED WITH BENEFICIARY OR GRANTOR, IN EACH OR THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE. GRANTOR HEREBY CONSENTS AND AGREES TO
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS, IN CONNECTION WITH ANY
SUIT, ACTION OR PROCEEDING ARISING FROM OR RELATING TO THE NOTE, THIS DEED OF
TRUST OR ANY OF THE OTHER LOAN DOCUMENTS BY REGISTERED OR CERTIFIED U.S. MAIL,
POSTAGE PREPAID TO GRANTOR AT THE ADDRESS FOR NOTICES DESCRIBED HEREINABOVE.
ARTICLE XVI.
MISCELLANEOUS TERMS AND CONDITIONS
----------------------------------
16.1. Time of Essence. Time is of the essence with respect to all
---------------
provisions of this Deed of Trust.
16.2. Release of Deed of Trust. If all of the Debt be paid, then and in
------------------------
that event only, all rights under this Deed of Trust, except for those
provisions hereof which by their terms survive, shall terminate and the
Mortgaged Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, which shall be promptly released
of record by Beneficiary in due form at Grantor's cost.
16.3. Notices. All notices, demands, requests or other communications to
-------
be sent by one party to the other hereunder or required by law shall be in
writing and shall be deemed to have been validly given or served by delivery of
the same in person to the intended addressee, or by depositing the same with
Federal Express or another reputable private courier service for next business
day delivery, or by depositing the same in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, in any event
addressed to the intended addressee at its address set forth on the first page
of this Deed of Trust or at such other address as may be designated by such
party as herein provided. All notices, demands and requests shall be effective
upon such personal delivery, or one (1) business day after being deposited with
the private courier service, or three (3) business days after being deposited in
the United States mail as required above. Rejection or other refusal to accept
or the inability to deliver because of changed address of which no notice was
given as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least fifteen (15) days'
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
16.4. Successors and Assigns; Joint and Several Liability. The terms,
---------------------------------------------------
provisions, indemnities, covenants and conditions hereof shall be binding upon
Grantor and the successors and assigns of Grantor, including all successors in
interest of Grantor in and to all or any part of the Mortgaged Property, and
shall inure to the benefit of Beneficiary, its directors, officers,
shareholders, employees and agents and their respective successors and assigns
and shall constitute covenants running with the land. The term "Beneficiary" as
used herein shall also mean and refer to any lawful holder or owner, including
pledgees and participants, of any of the Debt. If more than one person or
entity is the "Grantor" hereunder, each is jointly and severally
51
<PAGE>
liable to perform the obligations of Grantor hereunder and all representations,
warranties, covenants and agreements made by Grantor hereunder are joint and
several.
16.5. Severability. A determination that any provision of this Deed of
------------
Trust is unenforceable or invalid shall not affect the enforceability or
validity of any other provision, and any determination that the application of
any provision of this Deed of Trust to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.
16.6. Gender. Within this Deed of Trust, words of any gender shall be
------
held and construed to include any other gender, and words in the singular shall
be held and construed to include the plural, and vice versa, unless the context
otherwise requires.
16.7. Waiver; Discontinuance of Proceedings. Beneficiary may waive any
-------------------------------------
single Event of Default by Grantor hereunder without waiving any other prior or
subsequent Event of Default. No waiver of an Event of Default shall be valid
for any purpose hereunder unless given in writing by Beneficiary. Beneficiary
may cure any Event of Default by Grantor hereunder without waiving the Event of
Default remedied. Neither the failure by Beneficiary to exercise, nor the delay
by Beneficiary in exercising, any right, power or remedy upon any Event of
Default by Grantor hereunder shall be construed as a waiver of such Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at a later date. No single or partial exercise by Beneficiary of any right,
power or remedy hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time. No modification or waiver of any
provision hereof nor consent to any departure by Grantor therefrom shall in any
event be effective unless the same shall be in writing and signed by
Beneficiary, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose given. No notice to nor demand
on Grantor in any case shall of itself entitle Grantor to any other or further
notice or demand in similar or other circumstances. Acceptance by Beneficiary
of any payment in an amount less than the amount then due on any of the Debt
shall be deemed an acceptance on account only and shall not in any way affect
the existence of an Event of Default. In case Beneficiary shall have proceeded
to invoke any right, remedy or recourse permitted hereunder or under the other
Loan Documents and shall thereafter elect to discontinue or abandon the same for
any reason, Beneficiary shall have the unqualified right to do so and, in such
an event, Grantor and Beneficiary shall be restored to their former positions
with respect to the Debt, the Loan Documents, the Mortgaged Property and
otherwise, and the rights, remedies, recourses and powers of Beneficiary shall
continue as if the same had never been invoked.
16.8. Section Headings. The headings of the sections and paragraphs of
----------------
this Deed of Trust are for convenience of reference only, are not to be
considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.
16.9. Governing Law. THIS DEED OF TRUST WILL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED
WITHOUT REGARD TO ITS CONFLICTS OF LAWS RULES.
16.10. Counting of Days. The term "days" when used herein shall mean
----------------
calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the state within which the Premises is located, the
period shall be deemed to end on the next succeeding business day. The term
"business day" when used herein shall mean a weekday, Monday
52
<PAGE>
through Friday, except a legal holiday or a day on which banking institutions in
the state in which the Premises are located and in New York, New York are
authorized by law to be closed.
16.11. Relationship of the Parties. The relationship between Grantor and
---------------------------
Beneficiary is that of a borrower and a lender only and neither of those parties
is, nor shall it hold itself out to be, the agent, employee, joint venturer or
partner of the other party.
16.12. Unsecured Portion of Indebtedness. If any part of the Debt cannot
---------------------------------
be lawfully secured by this Deed of Trust or if any part of the Mortgaged
Property cannot be lawfully subject to the lien and security interest hereof to
the full extent of such indebtedness, then all payments made shall be applied on
said indebtedness first in discharge of that portion thereof which is unsecured
by this Deed of Trust.
16.13. Cross Default. An Event of Default hereunder shall be a default
-------------
under each of the other Loan Documents.
16.14. Inconsistency with Other Loan Documents. In the event of any
---------------------------------------
inconsistency between the provisions hereof and the provisions in any of the
other Loan Documents, it is intended that the provisions of the Note shall
control over the provisions of this Deed of Trust, and that the provisions of
this Deed of Trust shall control over the provisions of the Assignment of Leases
and Rents and Profits, the Environmental Indemnity Agreement and the other Loan
Documents.
16.15. No Merger. It is the desire and intention of the parties hereto
---------
that this Deed of Trust and the lien hereof do not merge in fee simple title to
the Mortgaged Property.
16.16. Rights With Respect to Junior Encumbrances. Without implying that
------------------------------------------
any person or entity has the right to do so, any person or entity purporting to
have or to take a junior Deed of Trust or other lien upon the Mortgaged Property
or any interest therein shall be subject to the rights of Beneficiary to amend,
modify, increase, vary, alter or supplement this Deed of Trust, the Note or any
of the other Loan Documents, and to extend the maturity date of the Debt, and to
increase the amount of the Debt, and to waive or forebear the exercise of any of
its rights and remedies hereunder or under any of the other Loan Documents and
to release any collateral or security for the Debt, in each and every case
without obtaining the consent of the holder of such junior lien and without the
lien or security interest of this Deed of Trust losing its priority over the
rights of any such junior lien.
16.17. Beneficiary May File Proofs of Claim. In the case of any
------------------------------------
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Grantor or the principals, general
partners or managing members in Grantor, or their respective creditors or
property, Beneficiary, to the extent permitted by law, shall be entitled to file
such proofs of claim and other documents as may be necessary or advisable in
order to have the claims of Beneficiary allowed in such proceedings for the
entire Debt at the date of the institution of such proceedings and for any
additional amount which may become due and payable by Grantor hereunder after
such date.
16.18. Fixture Filing. This Deed of Trust shall be effective from the
--------------
date of its recording as a financing statement filed as a fixture filing with
respect to all goods constituting part of the Mortgaged Property which are or
are to become fixtures. This Deed of Trust shall also be effective as a
financing statement covering minerals or the like (including oil and gas) and is
to be filed for record in the real estate records of the county where the
Premises is situated. The
53
<PAGE>
Mortgaged Property are or are to become fixtures. The address of the Beneficiary
from whom information concerning the security interest in the Mortgaged Property
may be obtained is as set forth on page 1 of this Deed of Trust.
16.19. Counterparts. This Deed of Trust may be executed in any number of
------------
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if the signatory(s) hereto had signed
the same signature page.
16.20. Recording and Filing. Grantor will cause the Loan Documents and
--------------------
all amendments and supplements thereto and substitutions therefor to be
recorded, filed, re-recorded and re-filed in such manner and in such places as
Beneficiary shall reasonably request, and will pay on demand all such recording,
filing, re-recording and re-filing taxes, fees and other charges. Grantor shall
reimburse Beneficiary, or its servicing agent, for the costs incurred in
obtaining a tax service company to verify the status of payment of taxes and
assessments on the Mortgaged Property.
16.21. Entire Agreement and Modifications. This Deed of Trust and the
----------------------------------
other Loan Documents contain the entire agreements between the parties relating
to the subject matter hereof and thereof and all prior agreements relative
hereto and thereto which are not contained herein or therein are terminated.
This Deed of Trust and the other Loan Documents may not be amended, revised,
waived, discharged, released or terminated orally but only by a written
instrument or instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is asserted.
16.22. MAXIMUM INTEREST. THE PROVISIONS OF THIS DEED OF TRUST AND OF ALL
----------------
AGREEMENTS BETWEEN GRANTOR AND BENEFICIARY, WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER WRITTEN OR ORAL, ARE HEREBY EXPRESSLY LIMITED SO THAT IN NO
CONTINGENCY OR EVENT WHATSOEVER, WHETHER BY REASON OF DEMAND OR ACCELERATION OF
THE MATURITY OF THE NOTE OR OTHERWISE, SHALL THE AMOUNT CHARGED, CONTRACTED FOR,
RECEIVED, PAID, OR AGREED TO BE PAID ("INTEREST") TO BENEFICIARY FOR THE USE,
--------
FORBEARANCE OR RETENTION OF THE MONEY LOANED UNDER THE NOTE EXCEED THE MAXIMUM
AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM ANY CIRCUMSTANCE WHATSOEVER,
PERFORMANCE OR FULFILLMENT OF ANY PROVISION HEREOF OR OF ANY AGREEMENT BETWEEN
GRANTOR AND BENEFICIARY SHALL, AT THE TIME PERFORMANCE OR FULFILLMENT OF SUCH
PROVISION SHALL BE DUE, EXCEED THE LIMIT FOR INTEREST PRESCRIBED BY LAW OR
OTHERWISE TRANSCEND THE LIMIT OF VALIDITY PRESCRIBED BY APPLICABLE LAW, THEN,
IPSO FACTO, THE OBLIGATION TO BE PERFORMED OR FULFILLED SHALL BE REDUCED TO SUCH
- ---- -----
LIMIT, AND IF, FROM ANY CIRCUMSTANCE WHATSOEVER, BENEFICIARY SHALL EVER RECEIVE
ANYTHING OF VALUE DEEMED INTEREST BY APPLICABLE LAW IN EXCESS OF THE MAXIMUM
LAWFUL AMOUNT, AN AMOUNT EQUAL TO ANY EXCESSIVE INTEREST SHALL BE APPLIED TO THE
REDUCTION OF THE PRINCIPAL BALANCE OWING UNDER THE NOTE IN THE INVERSE ORDER OF
ITS MATURITY (WHETHER OR NOT THEN DUE) OR, AT THE OPTION OF BENEFICIARY, BE PAID
OVER TO GRANTOR, AND NOT TO THE PAYMENT OF INTEREST. ALL INTEREST (INCLUDING
ANY AMOUNTS OR PAYMENTS DEEMED TO BE INTEREST) PAID OR AGREED TO BE PAID TO
BENEFICIARY SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE AMORTIZED,
PRORATED, ALLOCATED AND SPREAD THROUGHOUT THE FULL PERIOD
54
<PAGE>
UNTIL PAYMENT IN FULL OF THE PRINCIPAL BALANCE OF THE NOTE SO THAT THE INTEREST
THEREON FOR SUCH FULL PERIOD WILL NOT EXCEED THE MAXIMUM AMOUNT PERMITTED BY
APPLICABLE LAW. THIS SECTION WILL CONTROL ALL AGREEMENTS BETWEEN GRANTOR AND
BENEFICIARY.
16.23. Certain Matters Relating to Mortgaged Property Located in the State
-------------------------------------------------------------------
of Texas. With respect to the Mortgaged Property which is located in the State
- --------
of Texas, notwithstanding anything contained herein to the contrary:
(a) Without limitation to the provisions of this Deed of Trust, and
cumulative of the remedies provided herein, the following provisions shall be
applicable to foreclosures in the State of Texas:
(i) Beneficiary shall have the right, by and through Trustee,
or otherwise, to sell or offer for sale the Mortgaged
Property upon the occurrence of an Event of Default, in
such portions, order and parcels as Beneficiary may
determine, with or without having first taken possession
of the same, to the highest bidder for cash at public
auction in accordance with the requirements of Section
51.002 of the Texas Property Code, as it may be amended,
supplemented, replaced or succeeded from time to time (the
"Property Code"). In instances where the Property is
-------------
located in the State of Texas, such sale shall be made at
the courthouse of the county in which the Mortgaged
Property (or any portion thereof to be sold) is located,
whether the parts or parcels thereof, if any, in different
counties are contiguous or not, and without the necessity
of having any personal property present at such sale. Each
such sale shall be made in the area designated by the
county commissioners for foreclosure sales (or, if no area
has been designated, at the location at the courthouse
designated by Beneficiary by or through Trustee in the
written notice hereinafter described), on the first
Tuesday of a month between the hours of 10:00 a.m. and
4:00 p.m. after advertising the time, place and terms of
sale and that portion of the Mortgaged Property to be sold
by posting or causing to be posted written or printed
notice thereof at least twenty-one (21) days before the
date of the sale, both at the courthouse door of each
county in which the Mortgaged Property is located and with
the county clerk of each county in which the Mortgaged
Property is located, which notice shall be posted at the
courthouse door and filed with the county clerk by
Trustee, or by any Person acting for him. The written
notice shall include the earliest time at which the sale
will be held.
(ii) Beneficiary shall serve, or shall cause to be served,
at least twenty-one (21) days before the date of sale
written or printed notice of the proposed sale by
certified mail on each debtor obligated to pay the Debt
according to the records of Beneficiary by the deposit of
such notice in the United States mail, postage prepaid and
addressed to the debtor at the debtor's last known address
as shown by the records of Lender.
55
<PAGE>
If and to the extent that the Property Code shall at any
time or from time to time be amended to change the manner
or procedure of sale as set forth above, then the
provisions of this paragraph shall be deemed to be
automatically amended to conform such provisions to the
amended provisions of the Property Code. The affidavit of
a Person knowledgeable of the facts to the effect that
service was completed is prima facie evidence of service.
(iii) Beneficiary may, at its option, accomplish all or
any of the aforesaid in such manner as permitted or
required by the Property Code relating to the sale of real
property or by Chapter 9 of the Texas Business and
Commerce Code, as it may be amended, supplemented,
replaced or succeeded from time to time (the "Commerce
--------
Code") relating to the sale of collateral after default by
----
a debtor, or by any other present or subsequent articles
or enactments relating thereto. Nothing contained in this
paragraph shall be construed to limit in any way Trustee's
right to sell the Mortgaged Property by private or
judicial sale if, and to the extent that, such private or
judicial sale is permitted under the laws of the state
where the Mortgaged Property (or that portion thereof to
be sold) is located, or by public or private sale after
entry of a judgment by any court of competent jurisdiction
ordering the same. At any such sale:
A. whether made under the power herein contained, the
Property Code, the Commerce Code, any other Legal
Requirement, or by virtue of any judicial
proceedings or any other legal right, remedy or
recourse, it shall not be necessary for Trustee to
have physically present, or to have constructive
possession of, the Property, and the title to and
right of possession of any such Property sold
shall pass to the purchaser thereof as completely
as if the same had been actually present and
delivered to the purchaser at such sale. Grantor
shall deliver to Trustee any portion of the
Property not actually or constructively possessed
by Trustee immediately upon demand by Trustee;
B. each instrument of conveyance executed by Trustee
shall contain a general warranty of title, binding
upon Grantor;
C. each and every recital contained in any instrument
of conveyance made by Trustee shall conclusively
establish the truth and accuracy of the matters
recited therein, including, without limitation,
nonpayment of the Debt, advertisement and conduct
of such sale in the manner provided herein and
otherwise by law, and appointment of any successor
Trustee hereunder;
D. any and all prerequisites to the validity thereof
shall be prima facia presumed to have been
performed;
56
<PAGE>
E. the receipt by Trustee or such other party or
officer making the sale of the full amount of the
purchase money shall be sufficient to discharge
the purchaser or purchasers from any further
obligation for the payment thereof, and no such
purchaser or purchasers, or his or their assigns
or personal representatives, shall thereafter be
obligated to see to the application of such
purchase money or be in any way answerable for any
loss, misapplication or nonapplication thereof;
F. to the fullest extent permitted by law, Grantor
shall be completely and irrevocably divested of
all of its right, title, interest, claim and
demand whatsoever, either at law or in equity, in
and to the Mortgaged Property or portion thereof
sold, and such sale shall be a perpetual bar, both
at law and in equity, against Grantor and against
all other persons claiming or to claim the
Mortgaged Property or portion thereof sold or to
any part thereof; and
G. to the extent and under such circumstances as are
permitted by law, Beneficiary may be a purchaser
at any such sale.
(iv) In addition to the rights and remedies described
above, Beneficiary may also exercise any and all other
rights, remedies and recourses granted under the Loan
Documents or now or hereafter existing in equity, at law,
by virtue of statute or otherwise.
(v) If the Beneficiary elects to cause the Mortgaged
Property or any portion thereof to be sold, Trustee shall
sell the Mortgaged Property in accordance with Article XV
hereof, to the extent the same is not inconsistent with
the provisions of this Section 17.1.
(b) WAIVER OF CONSUMER RIGHTS UNDER TEXAS DECEPTIVE TRADE PRACTICES --
------------------------------------------------------------------
CONSUMER PROTECTION ACT. GRANTOR REPRESENTS AND ACKNOWLEDGES THAT (I) IT IS A
- -----------------------
"BUSINESS CONSUMER" AS DEFINED IN THE TEXAS DECEPTIVE TRADE PRACTICES --
CONSUMER PROTECTION ACT, AS SAME MAY BE AMENDED, SUPPLEMENTED, REPLACED OR
SUCCEEDED FROM TIME TO TIME (THE "ACT"), (II) IT HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS
OF A TRANSACTION, (III) IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION WITH RESPECT TO BENEFICIARY, (IV) IT HAS BEEN REPRESENTED BY COUNSEL OF
ITS SELECTION IN CONNECTION WITH THE LOAN AND THE TRANSACTIONS CONTEMPLATED
THEREBY OR UNDER ANY OF THE OTHER LOAN DOCUMENTS, WHICH COUNSEL WAS NOT DIRECTLY
OR INDIRECTLY IDENTIFIED, SUGGESTED OR SELECTED BY BENEFICIARY OR AN AGENT OF
BENEFICIARY, (V) THE TRANSACTIONS INVOLVE TOTAL CONSIDERATION BY GRANTOR OF MORE
THAN ONE HUNDRED THOUSAND ($100,000.00) DOLLARS, AND (VI) THE TRANSACTIONS AND
THIS
57
<PAGE>
DOCUMENT DO NOT INVOLVE GRANTOR'S RESIDENCE. FURTHERMORE, GRANTOR WAIVES ITS
RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES --CONSUMER PROTECTION ACT, SECTION
17.41 ET. SEQ., TEXAS BUSINESS AND COMMERCE CODE, A LAW THAT GIVES SPECIAL
RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF GRANTOR'S OWN
SELECTION, GRANTOR VOLUNTARILY CONSENTS TO THIS WAIVER.
(c) INDEMNITY AND RELEASE: WHEREVER IN THIS DEED OF TRUST OR THE OTHER
---------------------
LOAN DOCUMENTS, BENEFICIARY OR TRUSTEE IS INDEMNIFIED, OR THE LIABILITY OF
BENEFICIARY OR TRUSTEE IS WAIVED OR RELEASED, GRANTOR EXPRESSLY AGREES THAT SUCH
WILL INCLUDE AND APPLY TO, WITHOUT LIMITATION, THE NEGLIGENCE OF BENEFICIARY AND
TRUSTEE.
ARTICLE XVII.
CONCERNING THE TRUSTEE
----------------------
17.1. Certain Rights. With the approval of Beneficiary, Trustee shall
--------------
have the right to take any and all of the following actions: (i) to select,
employ and consult with counsel (who may be, but need not be, counsel for
Beneficiary) upon any matters arising hereunder, including the preparation,
execution and interpretation of the Loan Documents, and shall be fully protected
in relying as to legal matters on the advice of counsel, (ii) to execute any of
the trusts and powers hereof and to perform any duty hereunder either directly
or through his or her agents or attorneys, (iii) to select and employ, in and
about the execution of his or her duties hereunder, suitable accountants,
engineers and other experts, agents and attorneys-in-fact, either corporate or
individual, not regularly in the employ of Trustee (and Trustee shall not be
answerable for any act, default, negligence, or misconduct of any such
accountant, engineer or other expert, agent or attorney-in-fact, if selected
with reasonable care, or for any error of judgment or act done by Trustee in
good faith, or be otherwise responsible or accountable under any circumstances
whatsoever, except for Trustee's gross negligence or bad faith), and (iv) any
and all other lawful action that Beneficiary may instruct Trustee to take to
protect or enforce Beneficiary's rights hereunder. Trustee shall not be
personally liable in case of entry by Trustee, or anyone entering by virtue of
the powers herein granted to Trustee, upon the Mortgaged Property for debts
contracted for or liability or damages incurred in the management or operation
of the Mortgaged Property. Trustee shall have the right to rely on any
instrument, document, or signature authorizing or supporting any action taken or
proposed to be taken by Trustee hereunder, believed by Trustee in good faith to
be genuine. Trustee shall be entitled to reimbursement for expenses incurred by
Trustee in the performance of Trustee's duties hereunder and to reasonable
compensation for such of Trustee's services hereunder as shall be rendered.
Grantor will, from time to time, pay the compensation due to Trustee hereunder
and reimburse Trustee for, and save and hold Trustee harmless against, any and
all liability and expenses which may be incurred by Trustee in the performance
of Trustee's duties.
17.2. Retention of Money. All moneys received by Trustee shall, until
------------------
used or applied as herein provided, be held in trust for the purposes for which
they were received, and shall be segregated from any other moneys of Trustee.
17.3. Successor Trustees. Trustee may resign by the giving of notice of
------------------
such resignation in writing to Beneficiary. If Trustee shall die, resign or
become disqualified from
58
<PAGE>
acting in the execution of this trust, or if, for any reason, Beneficiary, in
Beneficiary's sole discretion and with or without cause, shall prefer to appoint
a substitute trustee or multiple substitute trustees, or successive substitute
trustees or successive multiple substitute trustees, to act instead of the
aforenamed Trustee, Beneficiary shall have full power to appoint a substitute
trustee in succession who shall succeed to all the estates, rights, powers and
duties of the aforenamed Trustee. Such appointment may be executed by any
authorized agent of Beneficiary, and if such Beneficiary be a corporation and
such appointment be executed on its behalf by any officer of such corporation,
such appointment shall be conclusively presumed to be executed with authority
and shall be valid and sufficient without proof of any action by the board of
directors or any superior officer of the corporation. Grantor hereby ratifies
and confirms any and all acts which the aforenamed Trustee, or his or her
successor or successors in this trust, shall do lawfully by virtue hereof.
17.4. Perfection of Appointment. Should any deed, conveyance, or
-------------------------
instrument of any nature be required from Grantor by any Trustee or substitute
Trustee to more fully and certainly vest in and confirm to Trustee or substitute
Trustee such estates, rights, powers, and duties, then, upon request by Trustee
or substitute trustee, any and all such deeds, conveyances and instruments shall
be made, executed, acknowledged, and delivered and shall be caused to be
recorded and/or filed by Grantor.
17.5. Succession Instruments. Any substitute trustee appointed pursuant
----------------------
to any of the provisions hereof shall, without any further act, deed or
conveyance, become vested with all the estates, properties, rights, powers, and
trusts of its, his or her predecessor in the rights hereunder with like effect
as if originally named as Trustee herein; but nevertheless, upon the written
request of Beneficiary or of the substitute trustee, the Trustee ceasing to act
shall execute and deliver any instrument transferring to such substitute
trustee, upon the trusts herein expressed, all the estates, properties, rights,
powers, and trusts of the Trustee so ceasing to act, and shall duly assign,
transfer and deliver any of the property and moneys held by such Trustee to the
substitute trustee so appointed in such Trustee's place.
17.6. No Representation by Trustee or Beneficiary. By accepting or
-------------------------------------------
approving anything required to be observed, performed, or fulfilled or to be
given to Trustee or Beneficiary pursuant to the Loan Documents, including,
without limitation, any officer's certificate, balance sheet, statement of
profit and loss or other financial statement, survey, appraisal or insurance
policy, neither Trustee nor Beneficiary shall be deemed to have warranted,
consented to, or affirmed the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision, or condition thereof, and such
acceptance or approval thereof shall not be or constitute any warranty or
affirmation with respect thereto by Trustee or Beneficiary.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
59
<PAGE>
IN WITNESS WHEREOF, Grantor has executed this Deed of Trust effective
as of the day and year first written above, regardless of the date actually
executed by the party.
GRANTOR:
-------
DMG TEXAS ALC PARTNERS, L.P.,
a Texas limited partnership
By: DMG TEXAS ALC, INC.,
a Nevada corporation,
its General Partner
By: _________________________
Name: William McBride, III
Title: President
<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
PARTIAL RELEASE PARCEL ALLOCATED LOAN AMOUNT
- ---------------------- ---------------------
Property Name/County
- --------------------
<S> <C>
1. Cimmaron/Midland $ 2,000,000.00
2. Hopkins/Hopkins $ 1,620,000.00
3. Mercer/Dallas $ 1,970,000.00
4. Redbud/Collin $ 2,400,000.00
5. Rose/Jefferson $ 3,120,000.00
6. Katy/Grayson $ 1,520,000.00
7. Wren/Johnson $ 2,000,000.00
--------------
$14,630,000.00
</TABLE>
<PAGE>
EXHIBIT 10.18
================================================================================
DMG NEW JERSEY ALC, INC.,
as Mortgagor
to
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
as Mortgagee
----------------------
MORTGAGE AND SECURITY AGREEMENT
----------------------
Date: November 12, 1998
PREPARED BY AND UPON RECORDATION RETURN TO:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Robert McDonough, Esq.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
INDEX OF DEFINITIONS............................................................................... iv
PART I
ARTICLE I. TAXES AND UTILITIES.................................................................... 5
1.1. Payment of Taxes........................................................................... 5
1.2. Tax and Insurance Impound Account.......................................................... 5
1.3. Payment of Utilities, Assessments, Charges, Etc............................................ 6
1.4. Additional Taxes........................................................................... 6
ARTICLE II. INSURANCE............................................................................. 7
2.1. Insurance.................................................................................. 7
ARTICLE III. CASUALTY AND CONDEMNATION............................................................ 10
3.1. Casualty and Condemnation.................................................................. 10
ARTICLE IV. ENVIRONMENTAL MATTERS................................................................. 12
4.1. Hazardous Waste and Other Substances....................................................... 12
ARTICLE V. RESERVES............................................................................... 16
5.1. Payment Reserve............................................................................ 16
5.2. Replacement Reserve........................................................................ 17
5.3. Repair and Remediation Reserve............................................................. 18
5.4. Intentionally Deleted...................................................................... 19
5.5. Reserves Generally; Security Interest...................................................... 19
ARTICLE VI. RENTS; LEASES; ALIENATION............................................................. 20
6.1. Rents and Profits.......................................................................... 20
6.2. Leases..................................................................................... 21
6.3. Alienation and Further Encumbrances........................................................ 22
6.4. Easements and Rights-of-Way................................................................ 25
6.5. Partial Release of Mortgaged Property...................................................... 25
ARTICLE VII. PROPERTY MANAGEMENT.................................................................. 26
7.1. Management................................................................................. 26
ARTICLE VIII. INDEMNIFICATION..................................................................... 27
8.1. Indemnification; Subrogation............................................................... 27
ARTICLE IX. REPORTING............................................................................. 28
9.1. Access Privileges and Inspections.......................................................... 28
9.2. Financial Statements and Books and Records................................................. 28
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE X. WARRANTIES AND COVENANTS............................................................... 29
10.1. Warranties of Mortgagor................................................................... 29
10.2. Waste; Alteration of Improvements......................................................... 33
10.3. Zoning.................................................................................... 33
10.4. Covenants with Respect to Indebtedness, Operations, Fundamental Changes of Mortgagor...... 33
10.5. Accounts Receivable Financing............................................................. 35
ARTICLE XI. FURTHER ASSURANCES.................................................................... 38
11.1. Defense of Title.......................................................................... 38
11.2. Performance of Obligations................................................................ 38
11.3. Construction Liens........................................................................ 39
11.4. Further Documentation..................................................................... 39
11.5. Payment of Costs; Mortgagee's Right to Cure............................................... 40
11.6. Compliance with Laws...................................................................... 41
11.7. Attorney-in-Fact Provisions............................................................... 41
ARTICLE XII. PAYMENT; DEFEASANCE; PREPAYMENT...................................................... 41
12.1. Payment of the Notes...................................................................... 41
12.2. Computation of Interest................................................................... 42
12.3. Application of Payments................................................................... 42
12.4. Prepayment................................................................................ 42
12.5. Defeasance................................................................................ 42
12.6. Optional Prepayment Date Provisions....................................................... 46
ARTICLE XIII. SECURITY PROVISIONS................................................................. 46
13.1. Security Interest......................................................................... 46
13.2. Security Agreement........................................................................ 46
13.3. Secured Indebtedness...................................................................... 46
ARTICLE XIV. DEFAULT.............................................................................. 48
14.1. Events of Default......................................................................... 48
ARTICLE XV. REMEDIES.............................................................................. 50
15.1. Remedies Available........................................................................ 50
15.2. Application of Proceeds................................................................... 52
15.3. Right and Authority of Receiver or Mortgagee in the Event of Default; Power of Attorney... 52
15.4. Occupancy After Foreclosure............................................................... 54
15.5. Notice to Account Debtors................................................................. 54
15.6. Cumulative Remedies....................................................................... 54
15.7. Payment of Expenses....................................................................... 54
15.8. Mortgagor's Waivers....................................................................... 54
15.9. Submission to Jurisdiction; Waiver of Jury Trial.......................................... 55
ARTICLE XVI. MISCELLANEOUS TERMS AND CONDITIONS................................................... 56
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
16.1. Time of Essence........................................................................... 56
16.2. Release of Mortgage....................................................................... 56
16.3. Notices................................................................................... 56
16.4. Successors and Assigns; Joint and Several Liability....................................... 57
16.5. Severability.............................................................................. 57
16.7. Gender.................................................................................... 57
16.7. Waiver; Discontinuance of Proceedings..................................................... 57
16.8. Section Headings.......................................................................... 58
16.9. Governing Law............................................................................. 58
16.10. Counting of Days.......................................................................... 58
16.11. Relationship of the Parties............................................................... 58
16.12. Unsecured Portion of Indebtedness......................................................... 58
16.13. Cross Default............................................................................. 58
16.14. Inconsistency with Other Loan Documents................................................... 58
16.15. No Merger................................................................................. 59
16.16. Rights With Respect to Junior Encumbrances................................................ 59
16.17. Mortgagee May File Proofs of Claim........................................................ 59
16.18. Fixture Filing............................................................................ 59
16.19. Counterparts.............................................................................. 59
16.20. Recording and Filing...................................................................... 59
16.21. Entire Agreement and Modifications........................................................ 60
16.22. Maximum Interest.......................................................................... 60
17.01. Certain Matters Relating to Mortgaged Property Located in the State of New Jersey......... 60
17.02. Receipt of Mortgage....................................................................... 63
</TABLE>
iii
<PAGE>
INDEX OF DEFINITIONS
"Accounts Receivable" - Paragraph (o) of the granting clause
-------------------
"Accounts Receivable Acquiror" - Section 10.5
----------------------------
"Accrued Interest" - Section 12.6. (h)
----------------
"Assignment" - Section 6.1.
----------
"A/R Financing Documents" - Section 10.5 (b)
-----------------------
"Buyer" - Section 6.3. (a) (ii)
-----
"CERCLA" - Section 4.1. (a)
------
"Collateral" - Section 13.1.
----------
"Contracts" - Paragraph (i) of the granting clause
---------
"Debt" - Paragraph (d) of the securing clause
----
"Default" - Section 1.2.
-------
"Default Interest Rate" - As defined in the Note
---------------------
"Defeasance Collateral" - Section 12.5.
---------------------
"Defeasance Security Agreement" - Section 12.5.
-----------------------------
"Engineering Report" - Section 10.1.
-------------------
"Environmental Indemnity Agreement" - Section 4.1.
---------------------------------
"Environmental Laws" - Section 4.1. (a)
------------------
"Equipment" - Paragraph (g) of the granting clause
---------
"Event of Default" - Section 14.1.
----------------
"General Intangibles" - Paragraph (k) of the granting clause
-------------------
"Governmental Entities" - Paragraph (o) of the granting clause
---------------------
"Hazardous Substances" - Section 4.1. (a)
--------------------
"Impound Account" - Section 1.2.
---------------
"Improvements" - Paragraph (b) of the granting clause
------------
iv
<PAGE>
"Indemnitor" - Section 10.1. (b)
----------
"Insurer" - Paragraph (o) of the granting clause
-------
"Interest" - Section 16.22.
--------
"Lead Based Paint" - Section 4.1.
----------------
"Lead Based Paint Report" - Section 4.1.
-----------------------
"Lease; Leases" - Paragraph (h) of the granting clause
-------------
"Licenses" - Section 10.1. (f)
--------
"Loan Documents" - Paragraph (b) of the securing clause & Section 6.5
--------------
"MAGR" - Section 10.5 (c)
----
"Monthly Payment" - As defined in the Note
---------------
"Mortgaged Property" - First paragraph of the granting clause
------------------
"Note" - Paragraph (a) of the securing clause
----
"Optional Prepayment Date" - Section 12.6. (a)
------------------------
"O&M" - Section 4.1 (j)
---
"Partial Release" - Section 6.5
---------------
"Partial Release Parcels" - Section 6.5
-----------------------
"Payment Dates" - As defined in the Note
-------------
"Payment Reserve" - Section 5.1. (a)
---------------
"Permitted Encumbrances" - Section 10.1. (a)
----------------------
"Permitted Materials" - Section 4.1. (a)
-------------------
"Premises" - Paragraph (a) of the granting clause
--------
"Release Date" - Section 12.5.
--------
"REMIC" - Section 12.5.
-----
"Rent Roll" - Section 10.1. (t)
---------
"Rents and Profits" - Paragraph (h) of the granting clause
-----------------
v
<PAGE>
"Replacement Reserve" - Section 5.2. (a)
-------------------
"Replacements" - Section 5.2. (a)
------------
"Reserves" - Section 5.5.
--------
"Rollover Expenses" - Section 5.4.
-----------------
"Rollover Reserve" - Section 5.4.
----------------
"Sale" - Section 6.3. (a)
----
"Stub Interest" - As defined in the Note
-------------
"Tenant; Tenants" - Paragraph (h) of the granting clause
---------------
"Tenant Improvements" - Section 5.4.
-------------------
"UCC" - Paragraph (g) of the granting clause
---
vi
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
-------------------------------
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is dated as of
--------
November 12, 1998 and is given by DMG NEW JERSEY ALC, INC., a Nevada
corporation, as Mortgagor ("Mortgagor"), whose address is 9955 S.E. Washington,
---------
Suite 303, Portland, Oregon 97216 to TRANSATLANTIC CAPITAL COMPANY, L.L.C., a
Delaware limited liability company, as Mortgagee ("Mortgagee"), whose address is
---------
31 West 52nd Street, 10th Floor, New York, New York 10019.
W I T N E S S E T H:
- - - - - - - - - -
In order to secure:
(a) The debt evidenced by that certain Promissory Note (such
Promissory Note, together with any and all renewals, amendments, modifications,
consolidations and extensions thereof, is hereinafter referred to as the "Note")
----
of even date with this Mortgage, made by Mortgagor payable to the order of
Mortgagee in the principal face amount of EIGHT MILLION SEVEN HUNDRED THOUSAND
AND NO/100 DOLLARS ($8,700,000), together with interest as therein provided;
(b) The full and prompt payment and performance of all of the
provisions, agreements, covenants and obligations herein contained and contained
in any other agreements, documents or instruments now or hereafter evidencing,
securing or otherwise relating to the Debt (the Note, this Mortgage, and such
other agreements, documents and instruments, together with any and all renewals,
amendments, extensions and modifications thereof, are hereinafter collectively
referred to as the "Loan Documents") and the payment of all other sums herein or
--------------
therein covenanted to be paid;
(c) Any and all additional advances made by Mortgagee to protect or
preserve the Mortgaged Property or the lien or security interest created hereby
on the Mortgaged Property, or for any other purpose provided herein or in the
other Loan Documents (whether or not the original Mortgagor remains the owner of
the Mortgaged Property at the time of such advances); and
(d) Any and all other indebtedness now owing or which may hereafter be
owing by Mortgagor to Mortgagee, however and whenever incurred or evidenced,
whether express or implied, direct or indirect, absolute or contingent, or due
or to become due.
(All of the sums and covenants referred to in Paragraphs (A) through
----------------------
(D) above are herein referred to as the "Debt");
- --- ----
And in consideration of the Debt and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Mortgagor hereby
irrevocably mortgages, grants, bargains, sells, conveys, transfers, pledges,
sets over and assigns to Mortgagee, and creates a security interest in, all of
Mortgagor's estate, right, title and interest in, to and under any and all
1
<PAGE>
of the following described property, whether now owned or hereafter acquired by
Mortgagor (collectively, the "Mortgaged Property"):
------------------
(a) All that certain real property situated in the Counties of Salem,
Cape May and Burlington, State of New Jersey, more particularly described in
Exhibit A attached hereto (the "Premises"), together with all of the easements,
- --------- --------
rights and appurtenances now or hereafter in any way appertaining thereto,
either at law or in equity, whether now owned or hereafter acquired by
Mortgagor;
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Premises (the
"Improvements");
- -------------
(c) All easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, and other emblements now or
hereafter located on the Premises or under or above the same or any part
thereof, and all estates, rights, interests and appurtenances, reversions and
remainders whatsoever, in any way belonging or appertaining to the Mortgaged
Property or any part thereof, whether now owned or hereafter acquired by
Mortgagor;
(d) All water, ditches, wells, reservoirs and drains and all water,
ditch, well, reservoir and drainage rights which are appurtenant to, located on,
under or above or used in connection with the Premises or the Improvements, or
any part thereof, whether now existing or hereafter created or acquired by
Mortgagor;
(e) All minerals, crops, timber, trees, shrubs, flowers and
landscaping features now or hereafter located on, under or above the Premises;
(f) All building materials, supplies and equipment now or hereafter
placed on the Premises or in the Improvements;
(g) All furniture, furnishings, fixtures, goods, equipment, inventory
or personal property owned by Mortgagor and now or hereafter located on,
attached to or used in and about the Improvements, including, but not limited
to, all machines, engines, boilers, dynamos, elevators, stokers, tanks,
cabinets, awnings, screens, shades, blinds, carpets, draperies, bedding and
linens and all appliances, communication, plumbing, heating, air conditioning,
lighting, ventilating, refrigerating, disposal and incinerating equipment, and
sprinkler and fire and theft protection equipment, and all fixtures and
appurtenances thereto, and such other goods and chattels and personal property
owned by Mortgagor as are now or hereafter used or furnished in operating the
Improvements, or the activities conducted therein, and all building materials
and equipment hereafter situated on or about the Premises or Improvements, and
all warranties and guaranties relating thereto, and all additions thereto and
substitutions and replacements therefor (exclusive of any of the foregoing owned
or leased by tenants of space in the Improvements except to the extent any of
the same constitute fixtures) (collectively, the "Equipment"). To the extent
---------
any portion of the Equipment is not deemed real property or Fixtures under
applicable law, it shall be deemed to be personal property, and this Mortgage
shall be deemed to constitute a
2
<PAGE>
security agreement for the purposes of creating a security interest therein in
favor of Lender under the Uniform Commercial Code of the state in which the
Premises are located (the "UCC");
---
(h) All leases (including, without limitation, oil, gas and mineral
leases), licenses, concessions and residency and occupancy agreements of all or
any part of the Premises or the Improvements (each, a "Lease" and collectively,
-----
"Leases"), whether written or oral, now or hereafter entered into and all rents,
------
royalties, issues, profits, bonus money, revenue, income, rights and other
benefits (collectively, the "Rents and Profits") of the Premises or the
-----------------
Improvements, now or hereafter arising from the use or enjoyment of all or any
portion thereof or from any present or future Lease or other agreement
pertaining thereto or any of the General Intangibles and all cash or securities
deposited to secure performance by the tenants, lessees or licensees (each, a
"Tenant" and collectively, "Tenants"), as applicable, of their obligations under
- ------- -------
any such Leases, whether said cash or securities are to be held until the
expiration of the terms of said Leases or applied to one or more of the
installments of rent coming due prior to the expiration of said terms, subject,
however, to the provisions contained in Section 6.1 hereinbelow;
-----------
(i) All contracts and agreements now or hereafter entered into
covering any part of the Premises or the Improvements (collectively, the
"Contracts") and all revenue, income and other benefits thereof, including,
- ----------
without limitation, management agreements, service contracts, maintenance
contracts, equipment leases, personal property leases and any contracts or
documents relating to construction on any part of the Premises or the
Improvements (including all architectural renderings, models, specifications,
plans, drawings, surveys, tests, reports, data, bonds and governmental
approvals) or to the management or operation of any part of the Premises or the
Improvements;
(j) All water taps, sewer taps, certificates of occupancy, permits,
licenses, franchises, Health Care Operating Licenses (to the extent that it may
be lawfully mortgaged), certificates, consents, approvals and other rights and
privileges now or hereafter obtained in connection with the Premises or the
Improvements and all present and future warranties and guaranties relating to
the Improvements or to any equipment, fixtures, furniture, furnishings, personal
property or components of any of the foregoing now or hereafter located or
installed on the Premises or the Improvements;
(k) All present and future funds, accounts, instruments, accounts
receivable, documents, claims, general intangibles (including, without
limitation, trademarks, trade names, service marks and symbols now or hereafter
used in connection with any part of the Premises or the Improvements, all names
by which the Premises or the Improvements may be operated or known, all rights
to carry on business under such names, and all rights, interest and privileges
which Mortgagor has or may have as developer or declarant under any covenants,
restrictions or declarations now or hereafter relating to the Premises or the
Improvements) (collectively, the "General Intangibles"), but not including any
-------------------
Accounts Receivable;
(l) All insurance policies or binders now or hereafter relating to the
Mortgaged Property, including any unearned premiums thereon;
3
<PAGE>
(m) All cash funds, deposit accounts and other rights and evidence of
rights to cash, now or hereafter created or held by Mortgagee pursuant to this
Mortgage or any other of the Loan Documents, including, without limitation, all
funds now or hereafter on deposit in the Impound Account, the Payment Reserve,
and the Replacement Reserve and all notes or chattel paper now or hereafter
arising from or by virtue of any transactions related to the Premises or the
Improvements;
(n) All present and future monetary deposits given by Mortgagor to
any public or private utility with respect to utility services furnished to any
part of the Premises or the Improvements, to the extent Mortgagor is entitled to
returns thereof;
(o) To the extent that same may be lawfully mortgaged, all rights to
receive payments owing to Mortgagor arising out of the rendition of services at
or from the Premises to individuals by Mortgagor, including all rights to
reimbursement under any agreements with, and payments from, any Insurer or
Governmental Entity, together with all accounts and general intangibles related
thereto, all rights and remedies, claims, guaranties, security interests and
liens in respect of the foregoing, all books, records and other property
evidencing or related to the foregoing and all proceeds of the foregoing, but
not including Rents and Profits (the "Accounts Receivable"). As used herein,
"Insurer" means any entity which in the ordinary course of its business or
activities agrees to pay for Healthcare goods and services received by
individuals, including commercial insurance companies, non-profit insurance
companies (such as Blue Cross and Blue Shield entities), employers or unions
which self-insure for employee or member health insurance, prepaid health care
organizations, preferred provider organizations, health maintenance
organizations and insurance companies issuing health, personal injury, workers'
compensation or other types of insurance. As used herein, "Governmental Entity"
means the United States of America, any state, any political subdivision of a
state and any agency or instrumentality of the United States of America or any
state or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government. Payments from Governmental Entities shall be deemed to include
payments governed under the Social Security Act (42 U.S.C. 1395, et. seq.),
including payments under Medicare and Medicaid, and payments administered or
regulated by the Health Care Financing Administration;
(p) All proceeds, products, substitutions and accessions (including
claims and demands therefor) of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation awards; and
(q) All other or greater rights and interests of every nature in the
Premises and the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Mortgagor.
TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, their
respective successors and assigns forever, and Mortgagor does hereby bind
itself, its successors and assigns, to WARRANT AND FOREVER DEFEND the title to
the Mortgaged Property,
4
<PAGE>
subject only to the Permitted Encumbrances, to Mortgagee against every person
whomsoever may lawfully claim the same or any part thereof;
PROVIDED, HOWEVER, that if the Debt shall have been paid and performed
in full, then, in such case, the liens, security interests, estates and rights
granted by this Mortgage shall be satisfied and the estate, right, title and
interest of Mortgagee in the Mortgaged Property shall cease, and upon payment to
Mortgagee of all costs and expenses incurred for the preparation of the release
hereinafter referenced and all recording costs if allowed by law, Mortgagee
shall promptly satisfy and release this Mortgage of record and the lien hereof
by proper instrument.
For the purpose of further securing the Debt for so long as the Debt
or any part thereof remains incomplete or unpaid, Mortgagor covenants and agrees
as follows:
PART I
ARTICLE I.
TAXES AND UTILITIES
-------------------
1.1. Payment of Taxes. Mortgagor shall pay or cause to be paid,
----------------
except to the extent provision is actually made therefor pursuant to Section 1.2
-----------
below, all taxes and assessments which are or may become a lien on any portion
of, or interest in, the Mortgaged Property or which are assessed against or
imposed upon any portion of, or interest in the Mortgaged Property. Mortgagor
shall furnish Mortgagee with receipts (or if receipts are not immediately
available, with copies of canceled checks evidencing payment with receipts to
follow promptly after they become available) showing payment of such taxes and
assessments at least fifteen (15) days prior to the applicable delinquency date
therefor. Notwithstanding the foregoing, Mortgagor may, in good faith, by
appropriate proceedings and upon notice to Mortgagee, contest the validity,
applicability or amount of any asserted tax or assessment so long as (a) such
contest is diligently pursued, (b) Mortgagee determines, in its subjective
opinion, that such contest suspends the obligation to pay the tax and that
nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Mortgaged Property or any part thereof or any
interest of Mortgagee therein and (c) prior to the earlier of the commencement
of such contest or the delinquency date of the asserted tax or assessment,
Mortgagor deposits in the Impound Account an amount determined by Mortgagee to
be adequate to cover the payment of such tax or assessment and an additional sum
sufficient in the sole judgment of Mortgagee to cover possible interest, costs
and penalties; provided, however, that taxes, assessments, interest, costs and
-------- -------
penalties owing shall be paid by Mortgagor prior to the date any writ or order
is issued under which the Mortgaged Property may be sold, lost or forfeited.
1.2. Tax and Insurance Impound Account. Mortgagor shall establish and
---------------------------------
maintain at all times while this Mortgage continues in effect an impound account
(the "Impound Account") with Mortgagee for payment of real estate taxes and
---------------
assessments and insurance on the Mortgaged Property and as additional security
for the Debt. Simultaneously with the execution hereof, Mortgagor shall deposit
in the Impound Account an amount
5
<PAGE>
reasonably determined by Mortgagee. Commencing on the first Payment Date under
the Note and continuing thereafter on each subsequent Payment Date, Mortgagor
shall pay to Mortgagee, concurrently with and in addition to the monthly payment
due under the Note and until the Debt is fully paid and performed, deposits in
an amount equal to one-twelfth (1/12) of the amount of the annual real estate
taxes and assessments that will next become due and payable on the Mortgaged
Property, plus one-twelfth (1/12) of the amount of the annual premiums that will
next become due and payable on insurance policies which Mortgagor is required to
maintain hereunder, each as estimated and determined by Mortgagee. So long as no
Event of Default has occurred which has not been waived, and no event has
occurred or failed to occur which with the passage of time, the giving of
notice, or both would constitute an Event of Default (a "Default"), all sums in
-------
the Impound Account shall be held by Mortgagee in the Impound Account to pay
said taxes, assessments and insurance premiums before the same become
delinquent. Mortgagor shall be responsible for ensuring the receipt by
Mortgagee, at least thirty (30) days prior to the respective due date for
payment thereof, of all bills, invoices and statements for all taxes,
assessments and insurance premiums to be paid from the Impound Account, and so
long as no Event of Default has occurred and not been waived, Mortgagee shall
pay the governmental authority or other party entitled thereto directly to the
extent funds are available for such purpose in the Impound Account. No interest
on funds contained in the Impound Account, if any, shall be paid by Mortgagee to
Mortgagor.
1.3. Payment of Utilities, Assessments, Charges, Etc. Mortgagor shall
------------------------------------------------
pay when due all utility charges which are incurred by Mortgagor or which may
become a charge or lien against any portion of the Mortgaged Property for gas,
electricity, water and sewer services furnished to the Premises and/or the
Improvements and all other assessments or charges of a similar nature, or
assessments payable pursuant to any restrictive covenants, whether public or
private, affecting the Premises and/or the Improvements or any portion thereof,
whether or not such assessments or charges are or may become liens thereon.
1.4. Additional Taxes. In the event of the enactment after the date
----------------
hereof of any law imposing upon Mortgagee the payment of the whole or any part
of the taxes or assessments or charges or liens herein required to be paid by
Mortgagor, or changing in any way the laws relating to the taxation of mortgages
or security agreements or the interest of the Mortgagee or secured party in the
property covered thereby, or the manner of collection of such taxes, so as to
adversely affect this Mortgage or the Debt or Mortgagee, then, and in any such
event, Mortgagor, upon demand by Mortgagee, shall pay such taxes, assessments,
charges or liens, or reimburse Mortgagee therefor; provided, however, that if,
-------- -------
in the opinion of counsel for Mortgagee, (a) it might be unlawful to require
Mortgagor to make such payment or (b) the making of such payment might result in
the imposition of interest beyond the maximum amount permitted by law, then and
in either such event, Mortgagee may elect, by notice in writing given to
Mortgagor, to declare all of the Debt to be and become due and payable in full
ninety (90) days from the giving of such notice, and, in connection with such
payment of the Debt, no prepayment premium or fee shall be due.
6
<PAGE>
ARTICLE II.
INSURANCE
---------
2.1. Insurance. Mortgagor shall, at Mortgagor's expense, maintain in
---------
force and effect on the Mortgaged Property at all times while this Mortgage
continues in effect the following insurance:
(a) Insurance against loss or damage to the Mortgaged Property by
fire, windstorm, lightning, tornado and hail and against loss and damage by such
other, additional risks as may be now or hereafter embraced by an "all-risk"
form of insurance policy. The amount of such insurance shall be not less than
one hundred percent (100%) of the full replacement cost (insurable value) of the
Improvements (as established by an MAI appraisal), without reduction for
depreciation. The determination of the replacement cost amount shall be
adjusted annually to comply with the requirements of the insurer issuing such
coverage or, at Mortgagee's election, by reference to such indices, appraisals
or information as Mortgagee determines in its reasonable discretion in order to
reflect increased value due to inflation. In addition, each policy shall
contain inflation guard coverage. Full replacement cost, as used herein, means,
with respect to the Improvements, the cost of replacing the Improvements without
regard to deduction for depreciation, exclusive of the cost of excavations,
foundations and footings below the lowest basement floor. Mortgagor shall also
maintain insurance against loss or damage to furniture, furnishings, fixtures,
equipment and other items (whether personalty or fixtures) included in the
Mortgaged Property and owned by Mortgagor from time to time to the extent
applicable.
(b) Commercial General Liability Insurance against claims for personal
injury, bodily injury, death and property damage occurring on, in or about the
Premises or the Improvements in amounts not less than $1,000,000 per occurrence
and $2,000,000 in the aggregate plus umbrella coverage in an amount not less
than $2,000,000. Mortgagee hereby retains the right to periodically review the
amount of said liability insurance and to require an increase in the amount of
said liability insurance should Mortgagee deem an increase to be reasonably
prudent under then existing circumstances.
(c) Boiler and machinery insurance (including explosion coverage), if
steam boilers or other pressure-fired vessels are in operation at the Premises.
Minimum liability coverage per accident must equal the greater of the
replacement cost (insurable value) of the Improvements housing such boiler or
pressure-fired machinery or $2,000,000. If one or more HVAC units is in
operation at the Premises, "Systems Breakdowns" coverage shall be required, as
determined by Mortgagee. Minimum liability coverage per accident must equal the
replacement value of such unit(s).
(d) If the Improvements or any part thereof is situated in an area
designated by the Federal Emergency Management Agency ("FEMA") as a special
----
flood hazard area (Zone A or Zone V), flood insurance in an amount equal to the
lesser of: (a) the minimum amount required, under the terms of coverage, to
compensate for any damage or loss on a replacement basis (or the unpaid balance
of the Debt if replacement cost coverage is not available for the type of
building insured), or (b) the maximum insurance available under the
7
<PAGE>
appropriate National Flood Insurance Administration program. The maximum
deductible shall be $10,000 per building or a higher minimum amount as required
by FEMA or other applicable law.
(e) During the period of any construction, renovation or alteration of
the existing Improvements which exceeds the lesser of 10% of the principal
amount of the Note or $500,000, at Mortgagee's request, a completed value, "All
Risk" Builder's Risk form or "Course of Construction" insurance policy in non-
reporting form, in an amount approved by Mortgagee, may be required. During the
period of any construction of any addition to the existing Improvements, a
completed value, "All Risk" Builder's Risk form or "Course of Construction"
insurance policy in non-reporting form, in an amount approved by Mortgagee,
shall be required.
(f) Worker's Compensation and Employer's Liability Insurance covering
all appropriate persons.
(g) Business income (loss of rents) insurance in amounts sufficient to
compensate Mortgagor for all Rents and Profits and other income during a period
of not less than twelve (12) months. The amount of coverage shall be adjusted
annually to reflect the Rents and Profits or income payable during the
succeeding twelve (12) month period.
(h) Such other insurance on the Mortgaged Property or on any
replacements or substitutions thereof or additions thereto as may from time to
time be required by Mortgagee against other insurable hazards or casualties
which at the time are commonly insured against in the case of property similarly
situated including, without limitation, sinkhole, mine subsidence, earthquake
and environmental insurance, due regard being given to the height and type of
improvements, their construction, location, use and occupancy.
All such insurance shall (i) be with insurers fully licensed and
authorized to do business in the state within which the Premises is located and
which have and maintain a rating of at least A from Standard & Poors, or
equivalent; (ii) contain the complete address of the Premises (or a complete
legal description), (iii) be for terms of at least one year, with premium
prepaid, and (iv) be subject to the approval of Mortgagee as to insurance
companies, amounts, content, forms of policies and expiration dates, and (v)
include a standard, non-contributory, Mortgagee clause naming EXACTLY:
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
its successors and assigns, ATIMA
31 West 52nd Street
10th Floor
New York, New York 10019
Attention: Mr. James Howard
(a) as an additional insured under all liability insurance policies,
------------------
(b) as the first Mortgagee and loss payee on all property insurance policies and
---------------
(c) as the loss payee on all loss of rents or loss of business income insurance
----------
policies.
8
<PAGE>
Mortgagor shall deliver to Mortgagee certificates and policies
evidencing the insurance required to be maintained hereunder at least thirty
(30) days before any such insurance shall expire. Mortgagor further agrees that
each such insurance policy: (i) shall provide for at least thirty (30) days'
prior written notice to Mortgagee prior to any policy reduction or cancellation
for any reason other than non-payment of premium and at least ten (10) days'
prior written notice to Mortgagee prior to any cancellation due to non-payment
of premium; (ii) shall contain an endorsement or agreement by the insurer that
any loss shall be payable to Mortgagee in accordance with the terms of such
policy notwithstanding any act or negligence of Mortgagor or any other person
which might otherwise result in forfeiture of such insurance; (iii) shall waive
all rights of subrogation against Mortgagee; (iv) in the event that the Premises
or the Improvements constitutes a legal non-conforming use under applicable
building, zoning or land use laws or ordinances, shall include an ordinance and
law coverage endorsement which will contain Coverage A: "Loss Due to Operation
of Law" (with a minimum liability limit equal to Replacement Cost With Agreed
Value Endorsement), Coverage B: "Demolition Cost" and Coverage C: "Increased
Cost of Construction" coverages; (v) unless otherwise specified above, shall
have a maximum deductible of $10,000; (vi) shall contain a replacement cost
endorsement and either an agreed amount endorsement (to avoid the operation of
any co-insurance provisions) or a waiver of any co-insurance provisions, all
subject to Mortgagee's approval; and (vii) may be in the form of a blanket
policy provided that, Mortgagor hereby acknowledges and agrees that failure to
pay any portion of the premium therefor which is not allocable to the Mortgaged
Property or any other action not relating to the Mortgaged Property which would
otherwise permit the issuer thereof to cancel the coverage thereof, would
require the Mortgaged Property to be insured as if by a separate, single-
property policy and the blanket policy must properly identify and fully protect
the Mortgaged Property as if a separate policy were issued for 100% of
Replacement Cost at the time of loss and otherwise meet all of Mortgagee's
applicable insurance requirements set forth in this Section 2.1. The delivery
to Mortgagee of the insurance policies or the certificates of insurance as
provided above shall constitute an assignment of all proceeds payable under such
insurance policies relating to the Mortgaged Property by Mortgagor to Mortgagee
as further security for the Debt. In the event of the foreclosure of this
Mortgage, or other transfer of title to the Mortgaged Property in extinguishment
in whole or in part of the Debt, all right, title and interest of Mortgagor in
and to all proceeds payable under such policies then in force concerning the
Mortgaged Property shall thereupon vest in the purchaser at such foreclosure, or
in Mortgagee or other transferee in the event of such other transfer of title.
Approval of any insurance by Mortgagee shall not be a representation of the
solvency of any insurer or the sufficiency of any amount of insurance. In the
event Mortgagor fails to provide, maintain, keep in force or deliver and furnish
to Mortgagee the policies of insurance required by this Mortgage or evidence of
their replacement or renewal as required herein, Mortgagee may, but shall not be
obligated to, procure such insurance and Mortgagor shall pay all amounts
advanced by Mortgagee therefor, together with interest thereon at the Default
Interest Rate from and after the date advanced by Mortgagee until actually
repaid by Mortgagor, promptly upon demand by Mortgagee. Mortgagee shall not be
responsible for nor incur any liability for the failure of the insurer to
perform, even though Mortgagee has caused the insurance to be placed with the
insurer after failure of Mortgagor to furnish such insurance. Mortgagor shall
not obtain insurance for the Mortgaged Property in addition to that required by
Mortgagee without the prior written consent of Mortgagee, which consent will not
be
9
<PAGE>
unreasonably withheld provided that (i) Mortgagee is a named insured on such
insurance, (ii) Mortgagee receives complete copies of all policies evidencing
such insurance, and (iii) such insurance complies with all of the applicable
requirements set forth herein.
ARTICLE III.
CASUALTY AND CONDEMNATION
-------------------------
3.1. Casualty and Condemnation. (a) Mortgagor shall give Mortgagee
-------------------------
prompt written notice of the occurrence of any casualty affecting, or the
institution of any proceedings for eminent domain or for the condemnation of,
the Mortgaged Property or any portion thereof. All insurance proceeds on the
Mortgaged Property, and all causes of action, claims, compensation, awards and
recoveries for any damage, condemnation or taking of all or any part of the
Mortgaged Property or for any diminution in value of the Mortgaged Property, are
hereby assigned to and shall be paid to Mortgagee. Mortgagee may participate in
any suits or proceedings relating to any such proceeds, causes of action,
claims, compensation, awards or recoveries, and Mortgagee is hereby authorized,
in its own name or in Mortgagor's name, to adjust any loss covered by insurance
or any condemnation claim or cause of action, and to settle or compromise any
claim or cause of action in connection therewith, and Mortgagor shall from time
to time deliver to Mortgagee any instruments required to permit such
participation; provided, however, that, so long as no Default or Event of
-------- -------
Default shall have occurred and not been waived, Mortgagee shall not have the
right to participate in the adjustment of any loss which is not in excess of the
lesser of (i) five percent (5%) of the then outstanding principal balance of the
Note and (ii) $100,000. Mortgagee shall apply any sums received by it under
this Section first to the payment of all of its costs and expenses (including,
but not limited to, reasonable legal fees and disbursements) incurred in
obtaining those sums, and then, as follows:
In the event that less than sixty percent (60%) of the Improvements
located on the Premises have been taken or destroyed, then if and so long as:
(i) no Default or Event of Default has occurred hereunder or under any
of the other Loan Documents and has not been waived, and
(ii) the Mortgaged Property can, in Mortgagee's judgment, with
diligent restoration or repair, be returned to a condition at least equal
to the condition thereof that existed prior to the casualty or partial
taking causing the loss or damage within the earlier to occur of (i) nine
(9) months after the receipt of insurance proceeds or condemnation awards
by either Mortgagor or Mortgagee, and (ii) sixty (60) days prior to the
stated maturity date of the Note, and
(iii) all necessary governmental approvals can be obtained to allow
the rebuilding and reoccupancy of the Mortgaged Property as described in
subsection (2) above, and
--------------
(iv) there are sufficient sums available (through insurance proceeds
or condemnation awards and contributions by Mortgagor, the full amount of
which shall, at
10
<PAGE>
Mortgagee's option, have been deposited with Mortgagee) for such
restoration or repair (including, without limitation, for any costs and
expenses of Mortgagee to be incurred in administering said restoration or
repair) and for payment of principal and interest to become due and payable
under the Note during such restoration or repair, and
(v) the economic feasibility of the Improvements after such
restoration or repair will be such that income from their operation is
reasonably anticipated to be sufficient to pay operating expenses of the
Mortgaged Property and debt service on the Debt in full with the same
coverage ratio considered by Mortgagee in its determination to make the
loan secured hereby, and
(vi) in the event that the insurance proceeds or condemnation awards
received as a result of such casualty or partial taking exceed the lesser
of (i) five percent (5%) of the then outstanding principal balance of the
Note and (ii) $150,000, Mortgagor shall have delivered to Mortgagee, at
Mortgagor's sole cost and expense, an appraisal report from an appraiser
satisfactory to Mortgagee in form and substance satisfactory to Mortgagee
appraising the value of the Mortgaged Property as proposed to be restored
or repaired to be not less than the appraised value of the Mortgaged
Property considered by Mortgagee in its determination to make the loan
secured hereby, and
(vii) Mortgagor so elects by written notice delivered to Mortgagee
within five (5) days after settlement of the aforesaid insurance or
condemnation claim, then, Mortgagee shall, solely for the purposes of such
restoration or repair, advance so much of the remainder of such sums as may
be required for such restoration or repair, and any funds deposited by
Mortgagor therefor, to Mortgagor in the manner and upon such terms and
conditions as would be required by a prudent interim construction lender,
including, but not limited to, the prior approval by Mortgagee of plans and
specifications, contractors and form of construction contracts and the
furnishing to Mortgagee of permits, bonds, lien waivers, invoices, receipts
and affidavits from contractors and subcontractors, in form and substance
satisfactory to Mortgagee in its discretion, with any remainder being
applied by Mortgagee for payment of the Debt in whatever order Mortgagee
directs in its absolute discretion.
(b) In all other cases, namely, in the event that sixty percent (60%)
or more of the Improvements located on the Premises have been taken or destroyed
or Mortgagor does not elect to restore or repair the Mortgaged Property pursuant
to clause (a) above or otherwise fails to meet the requirements of clause (a)
---------- ----------
above, then, in any of such events, Mortgagee may elect, in Mortgagee's absolute
discretion and without regard to the adequacy of Mortgagee's security, to do
either of the following: (1) accelerate the maturity date of the Note and
declare any and all of the Debt to be immediately due and payable and apply the
remainder of such sums received pursuant to this Section to the payment of the
Debt in whatever order Mortgagee directs in its absolute discretion, with any
remainder being paid to Mortgagor, or (2) notwithstanding that Mortgagor may
have elected not to restore or repair the Mortgaged Property pursuant to the
provisions of Section 3.1(a)(7) above, require Mortgagor to restore or repair
-----------------
the Mortgaged Property in the manner and upon such terms and conditions as would
be required by a prudent interim construction lender, including, but not limited
to, the deposit by
11
<PAGE>
Mortgagor with Mortgagee, within thirty (30) days after demand therefor, of any
deficiency reasonably determined by Mortgagee to be necessary in order to assure
the availability of sufficient funds to pay for such restoration or repair,
including Mortgagee's costs and expenses to be incurred in connection therewith,
the prior approval by Mortgagee of plans and specifications, contractors and
form of construction contracts and the furnishing to Mortgagee of permits,
bonds, lien waivers, invoices, receipts and affidavits from contractors and
subcontractors, in form and substance satisfactory to Mortgagee in its
discretion, and apply the remainder of such sums toward such restoration and
repair, with any balance thereafter remaining being applied by Mortgagee for
payment of the Debt in whatever order Mortgagee directs in its absolute
discretion.
(c) Any reduction in the Debt resulting from Mortgagee's application
of any sums received by it hereunder shall take effect only when Mortgagee
actually receives such sums and elects to apply such sums to the Debt and, in
any event, the unpaid portion of the Debt shall remain in full force and effect
and Mortgagor shall not be excused in the payment thereof. Partial payments
received by Mortgagee, as described in the preceding sentence, shall be applied
first to the final payment due under the Note and thereafter to installments due
under the Note in the inverse order of their due date. If Mortgagor elects or
Mortgagee directs Mortgagor to restore or repair the Mortgaged Property after
the occurrence of a casualty or partial taking of the Mortgaged Property as
provided above, Mortgagor shall promptly and diligently, at Mortgagor's sole
cost and expense and regardless of whether the insurance proceeds or
condemnation award, as appropriate, shall be sufficient for such purpose,
restore, repair, replace and rebuild the Mortgaged Property as nearly as
possible to its value, condition and character immediately prior to such
casualty or partial taking in accordance with the foregoing provisions and
Mortgagor shall pay to Mortgagee all costs and expenses of Mortgagee incurred in
administering said rebuilding, restoration or repair. Mortgagor agrees to
execute and deliver from time to time such further instruments as may be
requested by Mortgagee to confirm the assignment to Mortgagee of any award,
damage, insurance proceeds, payment or other compensation. Mortgagee is hereby
irrevocably constituted and appointed the attorney-in-fact of Mortgagor, with
full power of substitution, subject to the terms of this Section, to settle for,
collect and receive any such awards, damages, insurance proceeds, payments or
other compensation from the parties or authorities making the same, to appear in
and prosecute any proceedings therefor and to give receipts and acquittances
therefor.
ARTICLE IV.
ENVIRONMENTAL MATTERS
---------------------
4.1. Hazardous Waste and Other Substances. (a) Mortgagor hereby
------------------------------------
represents and warrants to Mortgagee that, as of the date hereof: (i) to the
best of Mortgagor's knowledge, information and belief, none of Mortgagor nor the
Mortgaged Property nor any Tenant at the Premises nor the operations conducted
thereon has at any time been or presently is in direct or indirect violation of
or otherwise exposed to any liability under any local, state or federal law,
rule or regulation or common law duty pertaining to human health, natural
resources or the environment (collectively, "Environmental Laws"), including,
------------------
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of
12
<PAGE>
1980 (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), the Resource Conservation and
------
Recovery Act of 1976 (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution
------
Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401
------
et seq.), the Emergency Planning and Community-Right-to-Know Act (42 U.S.C. (S)
- ------
11001 et seq.), the Endangered Species Act (16 U.S.C. (S) 1531 et seq.), the
------ ------
Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Occupational
------
Safety and Health Act (29 U.S.C. (S) 651 et seq.) or the Hazardous Materials
------
Transportation Act (49 U.S.C. (S) 1801 et seq.), or any regulations promulgated
------
pursuant to said laws, all as amended from time to time; (ii) no hazardous,
toxic or harmful substances, wastes, materials, pollutants or contaminants
(including, without limitation, asbestos or asbestos-containing materials, lead
based paint, polychlorinated biphenyls, petroleum or petroleum products or
byproducts, flammable explosives, radioactive materials, infectious substances
or raw materials which include hazardous constituents) or any other substances
or materials which are included under or regulated by Environmental Laws
(collectively, "Hazardous Substances") are located on, in or under or have been
handled, generated, stored, processed or disposed of on or released or
discharged from the Mortgaged Property (including underground contamination),
except for those substances used by Mortgagor or any Tenant in the ordinary
course of their respective businesses and in compliance with all Environmental
Laws and where such could not reasonably be expected to give rise to liability
under Environmental Laws ("Permitted Materials"); (iii) the Mortgaged Property
-------------------
is not subject to any private or governmental lien arising under Environmental
Laws; (iv) there is no pending, nor, to Mortgagor's knowledge, information or
belief, threatened litigation arising under Environmental Laws affecting
Mortgagor or the Mortgaged Property; there are no and have been no existing or
closed underground storage tanks or other underground storage receptacles for
Hazardous Substances or landfills or dumps on the Mortgaged Property; (v)
Mortgagor has received no notice of, and to the best of Mortgagor's knowledge
and belief, there exists no investigation, action, proceeding or claim by any
agency, authority or unit of government or by any third party which could result
in any liability, penalty, sanction or judgment under any Environmental Laws
with respect to any condition, use or operation of the Mortgaged Property, nor
does Mortgagor know of any basis for such an investigation, action, proceeding
or claim; and (vi) Mortgagor has received no notice of and, to the best of
Mortgagor's knowledge and belief, there has been no claim by any party that any
use, operation or condition of the Mortgaged Property has caused any nuisance or
any other liability or adverse condition on any other property, nor does
Mortgagor know of any basis for such an investigation, action, proceeding or
claim.
(b) Mortgagor has not received nor, to the best of Mortgagor's
knowledge, information and belief has there been issued, any notice,
notification, demand, request for information, citation, summons, or order in
any way relating to any actual, alleged or potential violation or liability
arising under Environmental Laws.
(c) Neither the Mortgaged Property, nor to the best of Mortgagor's
knowledge, information and belief, any property to which Mortgagor has, in
connection with the maintenance or operation of the Mortgaged Property, directly
or indirectly transported or arranged for the transportation of any Hazardous
Substances is listed or, to the best of Mortgagor's knowledge, information and
belief, proposed for listing on the National Priorities
13
<PAGE>
List promulgated pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any
similar federal or state list of sites requiring environmental investigation or
clean-up.
(d) Mortgagor shall comply with all applicable Environmental Laws.
Mortgagor shall keep or cause the Mortgaged Property to be kept free from
Hazardous Substances (except Permitted Materials).
(e) Mortgagor shall promptly notify Mortgagee of (i) the actual or
potential existence of any Hazardous Substances on the Mortgaged Property other
than Permitted Materials, (ii) any direct or indirect violation relating to the
Mortgaged Property of, or other exposure to liability under, any Environmental
Laws, (iii) any lien, action or notice affecting the Mortgaged Property or
Mortgagor resulting from any violation or alleged violation of or liability or
alleged liability under any Environmental Laws arising from any condition or
activity on the Mortgaged Property, (iv) the institution of any investigation,
inquiry or proceeding concerning Mortgagor or the Mortgaged Property pursuant to
any Environmental Laws or otherwise relating to Hazardous Substances, or (v) the
discovery of any occurrence, condition or state of facts which would render any
representation or warranty contained in this Mortgage incorrect in any respect
if made at the time of such discovery. Immediately upon receipt of same,
Mortgagor, shall deliver to Mortgagee copies of any and all requests for
information, complaints, citations, summonses, orders, notices, reports or other
communications, documents or instruments in any way relating to any actual,
alleged or potential violation or liability of any nature whatsoever arising
under Environmental Laws and relating to the Mortgaged Property or to Mortgagor.
Mortgagor shall remedy or cause to be remedied in a timely manner (and in any
event within the time period permitted by applicable Environmental Laws) any
violation of Environmental Laws or any condition that could give rise liability
under Environmental Laws. Without limiting the foregoing, Mortgagor shall,
promptly and regardless of the source of the contamination or threat to the
environment or human health, at its own expense, take all actions as shall be
necessary or prudent, for the clean-up of any and all portions of the Mortgaged
Property or other affected property, including, without limitation, all
investigative, monitoring, removal, containment and remedial actions in
accordance with all applicable Environmental Laws (and in all events in a manner
satisfactory to Mortgagee) and shall further pay or cause to be paid, at no
expense to Mortgagee, all clean-up, administrative and enforcement costs of
applicable governmental agencies which may be asserted against the Mortgaged
Property. In the event Mortgagor fails to do so, Mortgagee may, but shall not
be obligated to, cause the Mortgaged Property or other affected property to be
freed from any Hazardous Substances or otherwise brought into conformance with
Environmental Laws. Mortgagor hereby grants to Mortgagee and its agents and
employees access to the Mortgaged Property and a license to remove any items
deemed by Mortgagee to be Hazardous Substances and to do all things Mortgagee
shall deem necessary to bring the Mortgaged Property into conformance with
Environmental Laws.
(f) Mortgagor covenants and agrees, at Mortgagor's sole cost and
expense, to indemnify, defend (at trial and appellate levels, and with
attorneys, consultants and experts acceptable to Mortgagee), and hold Mortgagee
harmless from and against any and all liens, damages (including without
limitation, punitive or exemplary damages), losses, liabilities (including,
without limitation, strict liability), obligations, settlement payments,
penalties,
14
<PAGE>
fines, assessments, citations, directives, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements or expenses of any
kind or of any nature whatsoever (including, without limitation, reasonable
attorneys', consultants' and experts' fees and disbursements actually incurred
in investigating, defending, settling or prosecuting any claim, litigation or
proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against Mortgagee or the Mortgaged Property, and arising directly or
indirectly from or out of: (i) any violation or alleged violation of, or
liability or alleged liability under, any Environmental Law; (ii) the presence,
release or threat of release of or exposure to any Hazardous Substances on, in,
under or affecting all or any portion of the Mortgaged Property or any
surrounding areas, regardless of whether or not caused by or within the control
of Mortgagor; (iii) any transport, treatment, recycling, storage, disposal or
arrangement therefor of Hazardous Substances whether on the Mortgaged Property,
originating from the Mortgaged Property, or otherwise associated
with Mortgagor or any operations conducted on the Mortgaged Property at any
time; (iv) the failure by Mortgagor to comply fully with the terms and
conditions of this Section 4.1; (v) the breach of any representation or warranty
-----------
contained in this Section 4.1; (vi) the enforcement of this Section 4.1. The
----------- -----------
indemnity set forth in this Section 4.1 shall also include any diminution in the
-----------
value of the security afforded by the Mortgaged Property or any future reduction
in the sales price of the Mortgaged Property by reason of any matter set forth
in this Section 4.1. Mortgagee's rights under this Section shall survive
-----------
payment in full of the Debt and shall be in addition to all other rights of
Mortgagee under this Mortgage, the Note and the other Loan Documents.
(g) Upon Mortgagee's request, at any time after the occurrence of an
Event of Default which has not been waived or at such other time as Mortgagee
has reasonable grounds to believe that Hazardous Substances are or have been
released, stored or disposed of on the Mortgaged Property, or on property
affecting the Mortgaged Property, or that the Mortgaged Property may be in
violation of the Environmental Laws, Mortgagor shall perform or cause to be
performed, at Mortgagor's sole cost and expense and in scope, form and substance
satisfactory to Mortgagee, an inspection or audit of the Mortgaged Property
prepared by a hydrogeologist or environmental engineer or other appropriate
consultant approved by Mortgagee indicating the presence or absence of Hazardous
Substances on the Mortgaged Property, the compliance or non-compliance status of
the Mortgaged Property and the operations conducted thereon with applicable
Environmental Laws, or an inspection or audit of the Mortgaged Property prepared
by an engineering or consulting firm approved by Mortgagee indicating the
presence or absence of friable asbestos or substances containing asbestos or
lead or substances containing lead or lead based paint ("Lead Based Paint") on
----------------
the Mortgaged Property. If Mortgagor fails to provide reports of such
inspection or audit within thirty (30) days after such request, Mortgagee may
order the same at Mortgagor's expense, and Mortgagor hereby grants to Mortgagee
and its employees and agents access to the Mortgaged Property and an irrevocable
license to undertake such inspection or audit.
(h) Reference is made to that certain Environmental Indemnity
Agreement of even date herewith from Mortgagor and Assisted Living Concepts,
Inc. for the benefit of Mortgagee (the "Environmental Indemnity Agreement").
---------------------------------
The provisions of this Mortgage and
15
<PAGE>
the Environmental Indemnity Agreement shall be read together to maximize the
coverage with respect to the subject matter thereof, as determined by Mortgagee.
(i) If, prior to the date hereof, it was determined that the Mortgaged
Property contains Lead Based Paint, Mortgagor had prepared an assessment report
describing the location and condition of the Lead Based Paint (a "Lead Based
----------
Paint Report"). If, at any time hereafter, Lead Based Paint is suspected of
- ------------
being present on the Mortgaged Property, Mortgagor agrees, at its sole cost and
expense and within twenty (20) days thereafter, to cause to be prepared a Lead
Based Paint Report prepared by an expert, and in form, scope and substance,
acceptable to Mortgagee.
(j) Mortgagor agrees that if it has been, or if at any time hereafter
it is, determined that the Mortgaged Property contains Lead Based Paint, on or
before thirty (30) days following (i) the date hereof, if such determination was
made prior to the date hereof or (ii) such determination, if such determination
is hereafter made, as applicable, Mortgagor shall, at its sole cost and
expenses, develop and implement, and thereafter diligently and continuously
carry out (or cause to be developed and implemented and thereafter diligently
and continually to be carried out), an operations, abatement and maintenance
plan for the Lead Based Paint on the Mortgaged Property, which plan shall be
prepared by an expert, and be in form, scope and substance, acceptable to
Mortgagee (together with any Lead Based Paint Report, the "O&M Plan"). If an
--------
O&M Plan has been prepared prior to the date hereof, Mortgagor agrees to
diligently and continually carry out (or cause to be carried out) the provisions
thereof. Compliance with the O&M Plan shall require or be deemed to require,
without limitation, the proper preparation and maintenance of all records,
papers and forms required under the Environmental Laws.
ARTICLE V.
RESERVES
--------
5.1 Payment Reserve. (a) Contemporaneously with the execution
---------------
hereof, Mortgagor has established with Mortgagee a reserve in the amount of one
installment of the Monthly Payment and deposits for any applicable reserves or
escrow accounts required under the terms of this Mortgage or the other Loan
Documents as calculated by Mortgagee (the "Payment Reserve"). Mortgagor
---------------
understands and agrees that, notwithstanding the establishment of the Payment
Reserve as herein required, all of the proceeds of the Note have been, and shall
be considered, fully disbursed and shall bear interest and be payable on the
terms provided therein. No interest on funds contained in the Payment Reserve
shall be paid by Mortgagee to Mortgagor.
(b) For so long as no Event of Default has occurred hereunder or under
any of the other Loan Documents and not been waived, Mortgagee shall, on the
first monthly Payment Date under the Note, advance from the Payment Reserve to
itself the amount of the monthly installment due and payable by Mortgagor under
the Note on such Payment Date and shall also advance from the Payment Reserve
into the Impound Account the amount of any deposit for taxes and insurance
premiums and into the Replacement Reserve the amount of any
16
<PAGE>
deposit for Replacements and into any other reserve account the amount of any
deposit in accordance with the terms of any other Loan Document required to be
paid by Mortgagor concurrently with each such monthly installment pursuant to
the terms hereof and thereof. Provided no Default or Event of Default has
occurred which has not been waived, after the final scheduled disbursement from
the Payment Reserve, any amounts then remaining in the Payment Reserve shall be
paid to Mortgagor. Nothing contained herein, including, without limitation, the
existence of the Payment Reserve, shall release Mortgagor from its obligation to
make payments under the Note, this Mortgage or the other Loan Documents strictly
in accordance with the terms hereof or thereof and, in this regard, without
limiting the generality of the foregoing, should the amounts contained in the
Payment Reserve not be sufficient to pay in full the Monthly Payment and the
Impound Account, Replacement Reserve and any other applicable reserve account
deposits referenced above in this subparagraph, Mortgagor shall be responsible
for paying such deficiency on the Payment Date of such monthly installment.
5.2 Replacement Reserve. As additional security for the Debt,
-------------------
Mortgagor shall establish and maintain at all times while this Mortgage
continues in effect a capital improvement reserve (the "Replacement Reserve")
-------------------
with Mortgagee for payment of costs and expenses incurred by Mortgagor in
connection with the performance of work which would normally be treated as a
capital improvement under generally accepted accounting principles
(collectively, the "Replacements"). Commencing on the first Payment Date under
------------
the Note and continuing on each Payment Date thereafter until the Debt is fully
paid and performed, Mortgagor shall pay to Mortgagee, in addition to the monthly
payment due under the Note and until the Debt is fully paid and performed, a
deposit to the Replacement Reserve in an amount equal to $2,437.50 per month. So
long as no Default or Event of Default has occurred and has not been waived,
Mortgagee shall, to the extent funds are available for such purpose in the
Replacement Reserve, disburse to Mortgagor the amount paid or incurred by
Mortgagor in performing Replacements within ten (10) days following: (a) the
receipt by Mortgagee of a written request from Mortgagor for disbursement from
the Replacement Reserve and a certification by Mortgagor in a form approved in
writing by Mortgagee that the applicable item of Replacement has been completed;
(b) the delivery to Mortgagee of invoices, receipts or other evidence
satisfactory to Mortgagee, verifying the cost of performing the Replacements;
(c) for disbursement requests in excess of $10,000, the delivery to Mortgagee of
affidavits, lien waivers or other evidence reasonably satisfactory to Mortgagee
showing that all parties who might or could claim statutory or common law liens
and are furnishing or have furnished material or labor to the Mortgaged Property
have been paid all amounts due for labor and materials furnished to the
Mortgaged Property; (d) for disbursement requests in excess of $10,000, delivery
to Mortgagee of a certification from an inspecting architect or other third
party acceptable to Mortgagee describing the completed Replacements and
verifying the completion of the Replacements and the value of the completed
Replacements; and (e) for disbursement requests in excess of $50,000, delivery
to Mortgagee of a new certificate of occupancy for the portion of the
Improvements covered by such Replacements, if said new certificate of occupancy
is required by law, or a certification by Mortgagor that no new certificate of
occupancy is required. Mortgagee shall not be required to make advances from
the Replacement Reserve more frequently than once in any ninety (90) day period.
In making any payment from the Replacement Reserve, Mortgagee shall be entitled
to rely on such
17
<PAGE>
request from Mortgagor without any inquiry into the accuracy, validity or
contestability of any such amount. Mortgagee may, at Mortgagor's expense, make
or cause to be made during the term of this Mortgage an annual inspection of the
Mortgaged Property to determine the need, as determined by Mortgagee in its
reasonable judgment, for further Replacements of the Mortgaged Property; such
inspection to be no more frequent than once in any calendar year unless a
Default or an Event of Default shall have occurred and not been waived. In the
event that such inspection reveals that further Replacements of the Mortgaged
Property are required, Mortgagee shall provide Mortgagor with a written
description of the required Replacements and Mortgagor shall complete such
Replacements to the reasonable satisfaction of Mortgagee within ninety (90) days
after the receipt of such description from Mortgagee, or such later date as may
be approved by Mortgagee in its sole discretion.
5.3 Repair and Remediation Reserve. Prior to the execution of this
------------------------------
Mortgage, Mortgagee has caused the Mortgaged Property to be inspected and such
inspection has revealed that the Mortgaged Property is in need of certain
maintenance, repairs and/or remedial or corrective work. Contemporaneously with
the execution hereof, Mortgagor has established with the Mortgagee a reserve in
the amount of $1,250 (the "Repair and Remediation Reserve") by depositing such
amount with Mortgagee. Mortgagor shall cause each of the items described in
that certain Engineering Report (the "Engineering Report") entitled Property
Condition Surveys, dated October 9, 1998 and prepared by EMG(the "Deferred
Maintenance") to be completed, performed, remediated and corrected to the
satisfaction of Mortgagee and as necessary to bring the Mortgaged Property into
compliance with all applicable laws, ordinances, rules and regulations on or
before the expiration of six (6) months after the effective date hereof, as such
time period may be extended by Mortgagee in its sole discretion. So long as no
Event of Default has occurred, all sums in the Repair and Remediation Reserve
shall be held by Mortgagee in the Repair and Remediation Reserve to pay the
costs and expenses of completing the Deferred Maintenance. So long as no Event
of Default has occurred, Mortgagee shall, to the extent funds are available for
such purpose in the Repair and Remediation Reserve, disburse to Mortgagor the
amount paid or incurred by Mortgagor in completing, performing, remediating or
correcting the Deferred Maintenance upon (a) the receipt by Mortgagee of a
written request from Mortgagor for disbursement from the Repair and Remediation
Reserve and a certification by Mortgagor in a form as may be required by
Mortgagee that the applicable item of Deferred Maintenance has been completed in
accordance with the terms of this Mortgage, (b) delivery to Mortgagee of
invoices, receipts or other evidence satisfactory to Mortgagee verifying the
costs of the Deferred Maintenance to be reimbursed, (c) delivery to Mortgagee of
a certification from an inspecting architect, engineer or other consultant
reasonably acceptable to Mortgagee describing the completed work, verifying the
completion of the work and the value of the completed work and, if applicable,
certifying that the Mortgaged Property is, as a result of such work, in
compliance with all applicable laws, ordinances, rules and regulations relating
to the Deferred Maintenance so performed, and (d) delivery to Mortgagee of
affidavits, lien waivers or other evidence reasonably satisfactory to Mortgagee
showing that all materialmen, laborers, subcontractors and any other parties who
might or could claim statutory or common law liens and are furnishing or have
furnished materials or labor to the Mortgaged Property have been paid all
amounts due for such labor and materials furnished to the Mortgaged Property.
Mortgagee
18
<PAGE>
shall not be required to make advances from the Repair and Remediation
Reserve more frequently than once in any ninety (90) day period. In making any
payment from the Repair and Remediation Reserve, Mortgagee shall be entitled to
rely on such request from Mortgagor without any inquiry into the accuracy,
validity or contestability of any such amount. Mortgagor hereby grants to
Mortgagee a power-of-attorney, coupled with an interest, to cause the Deferred
Maintenance to be completed, performed, remediated and corrected to the
satisfaction of Mortgagee upon Mortgagor's failure to do so in accordance with
the terms and conditions of this Section 5.3, and to apply the amounts on
deposit in the Repair and Remediation Reserve to the costs associated therewith,
all as Mortgagee may determine in its sole and absolute discretion but without
obligation to do so.
5.4 Intentionally Deleted.
---------------------
5.5 Reserves Generally; Security Interest.
--------------------------------------
(a) Mortgagee shall cause funds in the Replacement Reserve to be
deposited into interest bearing accounts of the type customarily maintained by
Mortgagee or its servicing agent for the investment of similar reserves, which
accounts may not yield the highest interest rate then available. Interest
payable on such amounts shall be computed based on the daily outstanding balance
in the Replacement Reserve. Such interest shall be calculated on a simple, non-
compounded interest basis based solely on contributions made to the Replacement
Reserve by Mortgagor. All interest earned on amounts contributed to the
Replacement Reserve shall be retained by Mortgagee and accumulated for the
benefit of Mortgagor and added to the balance in the Replacement Reserve and
shall be disbursed for payment of the items for which other funds in the
Replacement Reserve are to be disbursed.
(b) As additional security for the payment and performance by
Mortgagor of all duties, responsibilities and obligations under the Note, this
Mortgage and the other Loan Documents, Mortgagor hereby unconditionally and
irrevocably assigns and pledges to Mortgagee, and hereby grants to Mortgagee a
security interest in, (i) the Impound Account, the Payment Reserve, the
Replacement Reserve and any other reserve or escrow account established pursuant
to the terms hereof or of any other Loan Document (collectively, the
"Reserves"), (ii) all insurance on said accounts, (iii) all accounts, contract
- ----------
rights and general intangibles or other rights and interests pertaining thereto,
(iv) all replacements, substitutions or proceeds thereof, (v) all instruments
and documents now or hereafter evidencing the Reserves or such accounts, (vi)
all powers, options, rights, privileges and immunities pertaining to the
Reserves (including the right to make withdrawals therefrom), and (vii) all
replacements, substitutions and all proceeds of the foregoing. Mortgagor hereby
authorizes and consents to each account into which the Reserves have been
deposited being held in Mortgagee's name or the name of any entity servicing the
loan evidenced by the Note for Mortgagee and hereby acknowledges and agrees that
Mortgagee, or at Mortgagee's election, such servicing agent, shall have
exclusive control over each account. Notice of the assignment and security
interest granted to Mortgagee herein may be delivered by Mortgagee at any time
to the financial institution wherein the Reserves have been established, and
Mortgagee, or such
19
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servicing entity, shall have possession of all passbooks or other evidences of
such accounts. Mortgagor hereby assumes all risk of loss with respect to
amounts on deposit in the Reserves other than any such loss resulting solely
from the willful misconduct of Mortgagee as finally determined by a court of
competent jurisdiction. Mortgagor hereby knowingly, voluntarily and
intentionally stipulates, acknowledges and agrees that the advancement of the
funds from the Reserves as set forth herein is at Mortgagor's direction and is
not the exercise by Mortgagee of any right of set-off or other remedy upon a
Default or an Event of Default. Mortgagor hereby waives all right to withdraw
funds from the Reserves except as provided for in this Mortgage. If an Event of
Default shall occur hereunder or under any other of the Loan Documents, which is
not waived, Mortgagee may, without notice or demand on Mortgagor, at its option:
(A) withdraw any or all of the funds (including, without limitation, interest)
then remaining in the Reserves and apply the same, after deducting all costs and
expenses of safekeeping, collection and delivery (including, but not limited to,
reasonable attorneys' fees, costs and expenses) to the Debt or any other
obligations of Mortgagor under the other Loan Documents in such manner as
Mortgagee shall deem appropriate in its sole discretion, and the excess, if any,
shall be paid to Mortgagor, (B) exercise any and all rights and remedies of a
secured party under any applicable Uniform Commercial Code, or (C) exercise any
other remedies available at law or in equity. No such use or application of the
funds contained in the Reserves shall be deemed to cure any Default or Event of
Default.
(c) The Reserves shall not, unless otherwise explicitly required by
applicable law, be or be deemed to be escrow or trust funds, but, at Mortgagee's
option and in Mortgagee's discretion, may either be held in a separate account
or be commingled by Mortgagee with the general funds of Mortgagee. Upon
assignment of this Mortgage by Mortgagee, any funds in the Reserves shall be
turned over to the assignee and any responsibility of Mortgagee, as assignor,
with respect thereto shall terminate. If the funds in the applicable Reserve
shall exceed the amount of payments actually applied by Mortgagee for the
purposes and items for which the applicable Reserve is held, such excess may be
credited by Mortgagee on subsequent payments to be made hereunder or, at the
option of Mortgagee, refunded to Mortgagor. If, however, the applicable Reserve
shall not contain sufficient funds to pay the sums required by the dates on
which such sums are required to be on deposit in such account, Mortgagor shall,
within ten (10) days after receipt of written notice thereof, deposit with
Mortgagee the full amount of any such deficiency. If Mortgagor shall fail to
deposit with Mortgagee the full amount of such deficiency as provided above,
Mortgagee shall have the option, but not the obligation, to make such deposit.
ARTICLE VI.
RENTS; LEASES; ALIENATION
-------------------------
6.1. Rents and Profits. As additional and collateral security for
-----------------
the payment of the Debt and cumulative of any and all rights and remedies herein
provided for, Mortgagor hereby absolutely and presently assigns to Mortgagee all
existing and future Rents and Profits. Mortgagor hereby grants to Mortgagee the
sole, exclusive and immediate right, without taking possession of the Mortgaged
Property, to demand, collect (by suit or otherwise), receive and give valid and
sufficient receipts for any and all of said Rents and Profits, for which purpose
20
<PAGE>
Mortgagor does hereby irrevocably make, constitute and appoint Mortgagee its
attorney-in-fact with full power to appoint substitutes or a trustee to
accomplish such purpose. Mortgagee shall be without liability for any loss
which may arise from a failure or inability to collect Rents and Profits,
proceeds or other payments. However, until the occurrence of an Event of
Default under this Mortgage or under any other of the Loan Documents, Mortgagor
shall have a license to collect, receive, use and enjoy the Rents and Profits
when due and prepayments thereof for not more than one (1) month prior to due
date thereof. The assignment of Rents and Profits hereinabove granted shall
continue in full force and effect during any period of foreclosure or redemption
with respect to the Mortgaged Property. Mortgagor has executed an Assignment of
Leases and Rents dated of even date herewith (the "Assignment") in favor of
----------
Mortgagee covering all of the right, title and interest of Mortgagor, as
landlord, lessor or licensor, in and to any Leases. All rights and remedies
granted to Mortgagee under the Assignment shall be in addition to and cumulative
of all rights and remedies granted to Mortgagee hereunder.
6.2. Leases. (a) With the exception of the Lease executed between
------
the Mortgagor and Assisted Living Concepts Inc. as of the same date hereof,
Mortgagor covenants and agrees that it shall not enter into any Lease affecting
the lesser of (x) ten percent (10%) of the gross leaseable area of the
Improvements and (y) 10,000 square feet or more of the Mortgaged Property or
having a term of ten (10) years or more without the prior written approval of
Mortgagee, which approval shall not be unreasonably withheld. The request for
approval of each such proposed new Lease shall be made to Mortgagee in writing
and Mortgagor shall furnish to Mortgagee (and any loan servicer specified from
time to time by Mortgagee): (i) such biographical and financial information
about the proposed Tenant as Mortgagee may require in conjunction with its
review, (ii) a copy of the proposed form of Lease and (iii) a summary of the
material terms of such proposed Lease (including, without limitation, rental
terms and the term of the proposed lease and any options). It is acknowledged
that Mortgagee intends to include among its criteria for approval of any such
proposed Lease the following: (i) such Lease shall be with a bona-fide arm's-
length Tenant; (ii) the terms of such Lease shall comply with the requirements
set forth in paragraphs (b) and (c) below; and (iii) such Lease shall provide
that the Tenant pays for its expenses. Failure of Mortgagee to approve or
disapprove any such proposed Lease within fifteen (15) business days after
receipt of such written request and all the documents and information required
to be furnished to Mortgagee with such request shall be deemed approved,
provided that the written request for approval specifically mentioned the same.
(b) Prior to execution of any Leases of space in the Improvements
after the date hereof, Mortgagor shall submit to Mortgagee, for Mortgagee's
prior approval, which approval shall not be unreasonably withheld, a copy of the
form Lease Mortgagor plans to use in leasing space in the Improvements or at the
Mortgaged Property. All such Leases of space at the Mortgaged Property shall be
at a rental and on terms consistent with the terms for similar leases in the
market area of the Premises. Mortgagor shall also submit to Mortgagee for
Mortgagee's approval, which approval shall not be unreasonably withheld, prior
to the execution thereof, any proposed Lease of the Improvements or any portion
thereof that differs materially and adversely from the aforementioned form
Lease. Mortgagor shall not execute
21
<PAGE>
any Lease for all or a substantial portion of the Mortgaged Property, except for
an actual occupancy by the Tenant, lessee or licensee thereunder, and shall at
all times promptly and faithfully perform, or cause to be performed, all of the
covenants, conditions and agreements contained in all Leases with respect to the
Mortgaged Property, now or hereafter existing, on the part of the landlord,
lessor or licensor thereunder to be kept and performed. Mortgagor shall furnish
to Mortgagee, within ten (10) days after a request by Mortgagee to do so, but in
any event by January 1 of each year, a current Rent Roll, certified by Mortgagor
as being true and correct, containing the names of all Tenants with respect to
the Mortgaged Property, the terms of their respective Leases, the spaces
occupied and the rentals or fees payable thereunder and the amount of each
Tenant's security deposit. Upon the request of Mortgagee, Mortgagor shall
deliver to Mortgagee a copy of each such Lease. Mortgagor shall not do or suffer
to be done any act, or omit to take any action, that might result in a default
by the landlord, lessor or licensor under any such Lease or allow the Tenant
thereunder to withhold payment of rent or cancel or terminate same and shall not
further assign any such Lease or any such Rents and Profits. Mortgagor, at no
cost or expense to Mortgagee, shall enforce, short of termination, the
performance and observance of each and every condition and covenant of each of
the parties under such Leases and Mortgagor shall not anticipate, discount,
release, waive, compromise or otherwise discharge any rent payable under any of
the Leases. Mortgagor shall not, without the prior written consent of Mortgagee,
modify any of the Leases, terminate or accept the surrender of any Leases, waive
or release any other party from the performance or observance of any obligation
or condition under such Leases except, with respect only to Leases affecting
less than the lesser of (x) ten percent (10%) of the gross leaseable area of the
Improvements and (y) 10,000 square feet and having a term of less than ten (10)
years, in the normal course of business in a manner which is consistent with
sound and customary leasing and management practices for similar properties in
the community in which the Mortgaged Property is located. Mortgagor shall not
permit the prepayment of any rents under any of the Leases for more than one (1)
month prior to the due date thereof.
(c) Each Lease executed after the date hereof affecting any of the
Premises or the Improvements must provide, in a manner approved by Mortgagee,
that the Lease is subordinate to the lien of this Mortgage and that Tenant will
recognize as its landlord, lessor or licensor, as applicable, and attorn to any
person succeeding to the interest of Mortgagor upon any foreclosure of this
Mortgage or deed in lieu of foreclosure. Each such Lease shall also provide
that, upon request of said successor-in-interest, the Tenant shall execute and
deliver an instrument or instruments confirming its attornment as provided for
in this Section; provided, however, that neither Mortgagee nor any successor-in-
-------- -------
interest shall be bound by any payment of rent for more than one (1) month in
advance, or any amendment or modification of said Lease made without the express
written consent of Mortgagee or said successor-in-interest.
(d) Each agreement with a resident or occupant for the use and
occupancy of the Premises and the services provided in connection therewith in
keeping with the Health Care Operating License (a "Residency or Occupancy
Agreement") shall be written on the standard form for such document which has
been approved by Mortgagee.
6.3. Alienation and Further Encumbrances. (a) Mortgagor
-----------------------------------
acknowledges that Mortgagee has relied upon the principals of Mortgagor and
their experience in owning and
22
<PAGE>
operating the Mortgaged Property and properties similar to the Mortgaged
Property in connection with the closing of the loan evidenced by the Note.
Accordingly, except as specifically allowed hereinbelow in this Section and
notwithstanding anything to the contrary contained in Section 16.4 hereof,
------------
in the event that the Mortgaged Property or any part thereof or interest therein
shall be sold, conveyed, disposed of, alienated, hypothecated, leased (except to
Tenants of space in the Improvements in accordance with the provisions of
Section 6.2 hereof), assigned, pledged, mortgaged, further encumbered or
- -----------
otherwise transferred or Mortgagor shall be divested of its title to the
Mortgaged Property or any interest therein, in any manner or way, whether
voluntarily or involuntarily, without the prior written consent of Mortgagee
being first obtained, which consent may be withheld in Mortgagee's sole
discretion, then the same shall constitute an Event of Default and Mortgagee
shall have the right, at its option, to declare any or all of the Debt,
irrespective of the maturity date specified in the Note, immediately due and
payable and to otherwise exercise any of its other rights and remedies
contained in Article XIV hereof. For the purposes of this Section: (i) in the
-----------
event either Mortgagor or any of its general partners or members is a
corporation or trust, the sale, conveyance, transfer or disposition of more than
10% (in one or more related transactions) of the issued and outstanding capital
stock of Mortgagor or any of its general partners or members or of the
beneficial interest of such trust (or the issuance of new shares of capital
stock in Mortgagor or any of its general partners or members so that immediately
after such issuance (in one or a series of transactions) the total capital stock
then issued and outstanding is more than 110% of the total immediately prior to
such issuance) shall be deemed to be a transfer of an interest in the Mortgaged
Property; and (ii) in the event Mortgagor or any general partner or member of
Mortgagor is a limited or general partnership, a joint venture or a limited
liability company, a direct or indirect change in the ownership interests in any
general partner, any joint venturer or any member, either voluntarily,
involuntarily or otherwise, or the sale, conveyance, transfer, disposition,
alienation, hypothecation or encumbering of all or any portion of the interest
of any such general partner, joint venturer or member in Mortgagor or such
general partner or member (whether in the form of a beneficial or partnership
interest or in the form of a power of direction, control or management, or
otherwise), shall be deemed to be a transfer of an interest in the Mortgaged
Property. Notwithstanding the foregoing, however, (i) limited partnership
interests in Mortgagor or in any general partner or member of Mortgagor shall be
freely transferable without the consent of Mortgagee, (ii) any involuntary
transfer caused by the death of any general partner, shareholder, joint
venturer, or member of Mortgagor or any general partner or member of Mortgagor
or beneficial owner of a trust shall not be an Event of Default under this
Mortgage so long as Mortgagor is reconstituted, if required, following such
death and so long as those persons responsible for the management of the
Mortgaged Property and Mortgagor remain unchanged as a result of such death or
any replacement management is approved by Mortgagee, and (iii) gifts for estate
planning purposes of any individual's interests in Mortgagor or in any of
Mortgagor's general partners, members or joint venturers to the spouse or any
lineal descendant of such individual, or to a trust for the benefit of any one
or more of such individual, spouse or lineal descendant, shall not be an Event
of Default under this Mortgage so long as Mortgagor is reconstituted, if
required, following such gift and so long as those persons responsible for the
management of the Mortgaged Property and Mortgagor remain unchanged following
such gift or any replacement management is approved by Mortgagee; and (iv) any
transfer caused by a change in control or
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<PAGE>
merger or consolidation of the parent company of any general partner of
Mortgagor shall not be an Event of Default so long as the parent of such general
partner of Mortgagor is a publicly held company.
(b) Notwithstanding any other provisions of this Mortgage, Mortgagee
shall consent to a sale, conveyance or transfer of the Mortgaged Property in its
entirety (hereinafter, a "Sale") to any person or entity provided that, for each
----
Sale, each of the following terms and conditions are satisfied:
(i) No Default and no Event of Default has occurred hereunder or under
any of the other Loan Documents which has not been waived;
(ii) Mortgagor gives Mortgagee written notice of the terms of such
prospective Sale not less than sixty (60) days before the date on which
such Sale is scheduled to close and, concurrently therewith, gives
Mortgagee all such information concerning the proposed transferee of the
Mortgaged Property (hereinafter, "Buyer") as Mortgagee would require in
-----
evaluating an initial extension of credit to a borrower and pays to
Mortgagee a non-refundable application fee in the amount of $5,000.
Mortgagee shall have the right to approve or disapprove the proposed Buyer.
In determining whether to give or withhold its approval of the proposed
Buyer, Mortgagee shall consider the Buyer's experience and track record in
owning and operating facilities similar to the Mortgaged Property, the
Buyer's financial strength, the Buyer's general business standing and the
Buyer's relationships and experience with contractors, vendors, tenants,
lenders and other business entities; provided, however, that,
-------- -------
notwithstanding Mortgagee's agreement to consider the foregoing factors in
determining whether to give or withhold such approval, such approval shall
be given or withheld based on what Mortgagee determines to be commercially
reasonable in Mortgagee's sole discretion and, if given, may be given
subject to such conditions as Mortgagee may deem appropriate;
(iii) Mortgagor pays Mortgagee, concurrently with the closing of such
Sale, a non-refundable assumption fee in an amount equal to all out-of-
pocket costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by Mortgagee in connection with the Sale, plus an
amount equal to one-half percent (.5%) of the then outstanding principal
balance of the Note;
(iv) The Buyer executes, without any cost or expense to Mortgagee,
such documents and agreements as Mortgagee shall reasonably require in
connection with the Sale, including, but not limited to, an assumption
agreement, financing statements, and guaranties or indemnities, all in form
and substance satisfactory to Mortgagee. The Buyer shall also deliver to
Mortgagee such insurance policies and other documents and certificates as
the Mortgagee may require.
(c) Such Sale shall not be construed so as to relieve Mortgagor of any
personal liability under the Note or any of the other Loan Documents for any
acts or events occurring or obligations arising prior to or simultaneously with
the closing of such Sale, whether or not same is discovered prior or subsequent
to the closing of such Sale. Mortgagor
24
<PAGE>
shall be released from and relieved of any personal liability under the Note or
any of the other Loan Documents for any acts or events occurring or obligations
arising after the closing of such Sale which are not caused by or arising out of
any acts or events occurring or obligations arising prior to or simultaneously
with the closing of such Sale.
6.4. Easements and Rights-of-Way. Mortgagor shall not grant any
---------------------------
easement or right-of-way with respect to all or any portion of the Premises or
the Improvements without the prior written consent of Mortgagee. The purchaser
at any foreclosure sale hereunder may, at its discretion, disaffirm any easement
or right-of-way granted in violation of any of the provisions of this Mortgage
and may take immediate possession of the Mortgaged Property free from, and
despite the terms of, such grant of easement or right-of-way. If Mortgagee
consents to the grant of an easement or right-of-way, Mortgagee agrees to grant
such consent without charge to Mortgagor other than expenses, including, without
limitation, reasonable attorneys' fees, incurred by Mortgagee in the review of
Mortgagor's request and in the preparation of documents effecting the
subordination.
6.5. Partial Release of Mortgaged Property . Distinct parcels of the
-------------------------------------
Mortgaged Property ("Partial Release Parcels") as identified on Schedule I
------- ---------------
attached hereto and by this reference incorporated herein, may be released from
time to time from the lien of this Mortgage (a "Partial Release"), subject to
---------------
satisfaction of all of the following conditions:
(a) Each Partial Release shall be governed by, and subject to the
provisions set forth in Section 12.5 below;
------------
(b) Mortgagee shall have received not less than sixty (60) nor more
than ninety (90) days prior written notice ("Partial Release Notice") specifying
----------------------
the following, (i) a date which shall be a Payment Date ("Partial Release
---------------
Date"), on which to effectuate the Partial Release, (ii) the specified Partial
Release Parcel(s) which Mortgagor wishes to have released from the lien of this
Mortgage;
(c) Simultaneously with each Partial Release, Mortgagor shall convey
the Partial Release Parcel(s) in question to a third party which third party may
be the parent company or an affiliate of Mortgagor, in exchange for fair
consideration;
(d) On the Partial Release Date, the amount to be paid ("Partial
-------
Release Price") to buy Defeasance Collateral upon a Partial Release and a
- -------------
Partial Defeasance of the Mortgage pursuant to this Section and Section 12.5,
shall be the product of (1) the Allocated Loan Amount multiplied by (2) 125%
multiplied by (3) a fraction whose numerator is the outstanding principal
balance of the Note on the Partial Release Date and whose denominator is the
original outstanding principal balance of the Note;
(e) No Event of Default shall have occurred and be continuing on the
date of the Partial Release Notice or on the Partial Release Date;
(f) Mortgagor shall, at is sole cost and expense, prepare any and all
documents and instruments necessary to effect the Partial Release, all of which
shall be subject
25
<PAGE>
to the reasonable approval of Mortgagee, and shall be delivered to Mortgagee 30
days prior to the Partial Release Date, and Mortgagor shall pay all costs and
expenses reasonably incurred by Mortgagee or Mortgagee's loan servicer
(including, but not limited to, reasonable attorneys' fees and disbursements) in
connection with the review, execution and delivery of the Partial Release;
(g) At the request of Mortgagee, Mortgagor shall, at Mortgagor's sole
cost and expense, obtain and deliver all appropriate title endorsements,
supplements and/or additional title insurance policies to or in connection with
Lender's original loan title insurance policy, insuring that the lien of the
Mortgage with respect to the portion of the Mortgaged Property remaining after
such Partial Release, is not affected by the Partial Release, and subject to
Mortgagee's reasonable approval.
ARTICLE VII.
PROPERTY MANAGEMENT
-------------------
7.1. Management. The management of the Mortgaged Property shall be
----------
by either: (a) Mortgagor or an entity affiliated with Mortgagor approved by
Mortgagee for so long as Mortgagor or said affiliated entity is managing the
Mortgaged Property in a first class manner; or (b) a professional property
management company approved by Mortgagee which approval shall not be
unreasonably withheld, provided that (i) the professional property management
-------------
company agrees that the management agreement shall be subject to and subordinate
to this Mortgage, and (ii) the annual fee to be received by the professional
property management company does not exceed five (5%) of the annual gross
revenues from the operation of the Mortgaged Property. Such management by an
affiliated entity or a professional property management company shall be
pursuant to a written agreement approved by Mortgagee. Mortgagor shall give
Mortgagee prompt written notice of the occurrence of a default under any
management contract then in effect. In no event shall any manager be removed or
replaced or the terms of any management agreement be modified or amended without
the prior written consent of Mortgagee. After an Event of Default or a default
under any management contract then in effect, which default is not cured within
any applicable grace or cure period, Mortgagee shall have the right to
terminate, or to direct Mortgagor to terminate, such management contract upon
thirty (30) days' notice and to retain, or to direct Mortgagor to retain, a new
management agent approved by Mortgagee. All Rents and Profits generated by or
derived from the Mortgaged Property shall first be utilized solely for current
expenses directly attributable to the ownership and operation of the Mortgaged
Property, including, without limitation, current expenses relating to
Mortgagor's liabilities and obligations with respect to this Mortgage and the
other Loan Documents, and none of the Rents and Profits generated by or derived
from the Mortgaged Property shall be diverted by Mortgagor and utilized for any
other purposes unless all such current expenses attributable to the ownership
and operation of the Mortgaged Property have been fully paid and satisfied.
26
<PAGE>
ARTICLE VIII.
INDEMNIFICATION
---------------
8.1. Indemnification; Subrogation. (a) Mortgagor shall indemnify,
----------------------------
defend and hold Mortgagee harmless from and against: (i) any and all claims for
brokerage, leasing, finders or similar fees which may be made relating to the
Mortgaged Property or the Debt and (ii) any and all liability, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses
(including Mortgagee's reasonable attorneys' fees and expenses) of whatever kind
or nature which may be asserted against, imposed on or incurred by Mortgagee in
connection with the Debt, this Mortgage and any other Loan Document, the
Mortgaged Property, or any part thereof, or the exercise by Mortgagee of any
rights or remedies granted to it under this Mortgage; provided, however, that
-------- -------
nothing herein shall be construed to obligate Mortgagor to indemnify, defend and
hold harmless Mortgagee from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses to the
extent enacted against, imposed on or incurred by Mortgagee solely by reason of
Mortgagee's willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Mortgagor hereby indemnifies and holds Mortgagee harmless from
and against all loss, cost and expenses with respect to any Event of Default
hereof, any liens (i.e., judgments, mechanics' and materialmen's liens, or
otherwise), charges and encumbrances filed against the Mortgaged Property, and
from any claims and demands for damages or injury, including claims for property
damage, personal injury or wrongful death, arising out of or in connection with
any accident or fire or other casualty on the Premises or the Improvements or
any nuisance made or suffered thereon, except to the extent due solely to
Mortgagee's willful misconduct as finally determined by a court of competent
jurisdiction, including, without limitation, in any case, reasonable attorneys'
fees, costs and expenses as aforesaid, whether at pretrial, trial or appellate
level, and such indemnity shall survive payment in full of the Debt. This
Section shall not be construed to require Mortgagee to incur any expenses, make
any appearances or take any actions.
(c) If Mortgagee is made a party defendant to any litigation or any
claim is threatened or brought against Mortgagee concerning the Debt, this
Mortgage, the Mortgaged Property, or any part thereof, or any interest therein,
or the construction, maintenance, operation or occupancy or use thereof, then
Mortgagor shall indemnify, defend and hold Mortgagee harmless from and against
all liability by reason of said litigation or claims, including reasonable
attorneys' fees and expenses incurred by Mortgagee in any such litigation or
claim, whether or not any such litigation or claim is prosecuted to judgment.
If Mortgagee commences an action against Mortgagor to enforce any of the terms
hereof or to prosecute any breach by Mortgagor of any of the terms hereof or to
recover any sum secured hereby, Mortgagor shall pay to Mortgagee the reasonable
attorneys' fees and expenses incurred by Mortgagee in connection therewith. The
right to such attorneys' fees and expenses shall be deemed to have accrued on
the commencement of such action, and shall be enforceable whether or not such
action is prosecuted to judgment. If Mortgagor breaches any term of this
Mortgage or any other Loan Document, Mortgagee may engage the services of an
attorney or attorneys to protect its rights hereunder, and in the event of such
engagement following any breach by Mortgagor, Mortgagor shall pay Mortgagee
reasonable attorneys' fees and expenses
27
<PAGE>
incurred by Mortgagee, whether or not an action is actually commenced against
Mortgagor by reason of such breach. All references to "attorneys" in this
---------
Subsection and elsewhere in this Mortgage shall include, without limitation, any
attorney or law firm engaged by Mortgagee and Mortgagee's in-house counsel, and
all references to "fees and expenses" in this Subsection and elsewhere in this
-----------------
Mortgage shall include, without limitation, any reasonable fees of such attorney
or law firm, any reasonable appellate counsel fees, if applicable, and any
reasonable allocation charges and reasonable allocation costs of Mortgagee's in-
house counsel.
(d) A waiver of subrogation shall be obtained by Mortgagor from its
insurance carrier and, consequently, Mortgagor waives any and all right to claim
or recover against Mortgagee, its officers, employees, agents and
representatives, for loss of or damage to Mortgagor, the Mortgaged Property,
Mortgagor's property or the property of others under Mortgagor's control from
any cause insured against or required to be insured against by the provisions of
this Mortgage.
ARTICLE IX.
REPORTING
---------
9.1. Access Privileges and Inspections. Mortgagee and the agents,
---------------------------------
representatives and employees of Mortgagee shall, subject to the rights of
Tenants, have full and free access to the Premises and the Improvements and any
other location where books and records concerning the Mortgaged Property are
kept at all reasonable times and, except in the event of an emergency, upon not
less than 24 hours prior notice (which notice may be telephonic) for the
purposes of inspecting the Mortgaged Property and of examining, copying and
making extracts from the books and records of Mortgagor relating to the
Mortgaged Property. Mortgagor shall lend assistance to all such agents,
representatives and employees of Mortgagee.
9.2. Financial Statements and Books and Records. Mortgagor shall
------------------------------------------
keep accurate books and records of account of the Mortgaged Property and its own
financial affairs sufficient to permit the preparation of financial statements
therefrom in accordance with generally accepted accounting principles.
Mortgagee and its duly authorized representatives shall have the right to
examine, copy and audit Mortgagor's records and books of account at all
reasonable times. So long as this Mortgage continues in effect, Mortgagor shall
provide to Mortgagee, in addition to any other financial statements required
hereunder or under any of the other Loan Documents, the following financial
statements and information, all of which shall be in the form and substance
acceptable to Mortgagee and all of which must be certified to Mortgagee as being
true and correct by Mortgagor or the person or entity to which they pertain, as
applicable. With respect to the financial statements and information set forth
in subsection (d) hereof as it relates to Mortgagor or the Mortgaged Property,
the same must be prepared by an certified public accountant in accordance with
generally accepted accounting principles consistently applied and, if the
original principal amount of the Note is $15,000,000 or more, the same must be
audited by such accountants:
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(a) copies of all tax returns filed by Mortgagor, within thirty (30)
days after the date of filing;
(b) monthly operating statements for the Mortgaged Property, within
fifteen (15) days after the end of each three calendar month period, the first
such period to commence on the first day of the month following the date hereof;
and;
(c) quarterly operating statements for the Mortgaged Property, within
thirty (30) days after the end of each March, June, September and December
commencing with the first (1st) of such months to occur following the first
(1st) anniversary of the date hereof;
(d) annual balance sheets for the Mortgaged Property and annual
financial statements for Mortgagor, each principal or general partner in
Mortgagor, and each Indemnitor, within ninety (90) days after the end of each
calendar year; including, without limitation, a schedule of rates for each room
and payor type, copies of the Medicare and Medicaid cost reports, as applicable
copies of filings with the Department of Health and/or any other regulatory
agency which sets or establishes reimbursement rates promptly upon filing with
any Governmental Entity and in any event, within five (5) business days of such
filing, copies of all Health Care Operating License applications (including
renewal applications) and/or similar filings and submitted by or on behalf of
Mortgagor; and
(e) such other information with respect to the Mortgaged Property,
Mortgagor, the principals or general partners in Mortgagor, and each Indemnitor,
which may be reasonably requested from time to time by Mortgagee, within a
reasonable time after the applicable request.
In the event of any failure to timely provide any of the statements or other
materials referred to above in this Section 9.2 or in the event any such
-----------
statements or other materials shall be materially inaccurate or false, or in the
event of the failure of Mortgagor to permit Mortgagee or its representatives to
inspect said books and records upon request, an Event of Default shall
automatically exist hereunder without any notice to, or right to cure by,
Mortgagor. In addition to the provisions of the immediately preceding sentence,
upon each failure of Mortgagor to provide any of the statements or other
materials referred to above in this Section 9.2, Mortgagor shall, in Mortgagee's
-----------
sole and absolute discretion, be subject to a charge in the amount of One
Thousand and 00/100 Dollars ($1,000) which amount shall be paid to Mortgagee,
together with interest thereon at the Default Interest Rate from the date that
the applicable statement or other material was required to be delivered to
Mortgagee until the date such amount is paid to it, immediately on demand by
Mortgagee.
ARTICLE X.
WARRANTIES AND COVENANTS
------------------------
10.1. Warranties of Mortgagor. Mortgagor, for itself and its
-----------------------
successors and assigns, does hereby represent, warrant and covenant to and with
Mortgagee, its successors and assigns, that:
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(a) Mortgagor has good, marketable and indefeasible fee simple title
to the Mortgaged Property, subject only to those matters expressly set forth as
exceptions to title or subordinate matters in the title insurance policy
insuring the lien of this Mortgage which Mortgagee has agreed to accept (such
items being the "Permitted Encumbrances"), and has full power and lawful
----------------------
authority to grant its interest in the Mortgaged Property in the manner and form
hereby done or intended. Mortgagor will preserve its interest in and title to
the Mortgaged Property and will forever warrant and defend the same to Mortgagee
against any and all claims whatsoever and will forever warrant and defend the
validity and priority of the lien and security interest created herein against
the claims of all persons and parties whomsoever, subject to the Permitted
Encumbrances. The foregoing warranty of title shall survive the foreclosure of
this Mortgage and shall inure to the benefit of and be enforceable by Mortgagee
in the event Mortgagee acquires title to the Mortgaged Property by foreclosure
or otherwise;
(b) No bankruptcy, reorganization or insolvency proceedings are
pending or contemplated either by Mortgagor or, to the best knowledge of
Mortgagor, against Mortgagor (or, if Mortgagor is a partnership or a limited
liability company, any of its general partners or members) or by or against any
endorser or cosigner of the Note or of any portion of the Debt, or any guarantor
or indemnitor under any guaranty or indemnity agreement executed in connection
with the Note or the loan evidenced thereby and secured hereby (an
"Indemnitor");
----------
(c) All reports, certificates, affidavits, statements and other data
furnished by or on behalf of Mortgagor to Mortgagee in connection with the loan
evidenced by the Note are true and correct in all material respects and do not
omit to state any fact or circumstance necessary to make the statements
contained therein not misleading;
(d) The execution, delivery and performance of this Mortgage, the Note
and all of the other Loan Documents have been duly authorized by all necessary
action to be, and are, binding and enforceable against Mortgagor in accordance
with the respective terms thereof and do not (i) contravene, result in a breach
of or constitute a default (nor upon the giving of notice or the passage of time
or both will the same constitute a default) under the organizational documents
of Mortgagor or any contract or agreement of any nature to which Mortgagor is a
party or by which Mortgagor or any of its property may be bound or (ii) violate
or contravene any law, order, decree, rule or regulation to which Mortgagor is
subject;
(e) There are no judicial, administrative, mediation or arbitration
actions, suits or proceedings pending or threatened against or affecting
Mortgagor (or, if Mortgagor is a partnership or a limited liability company, any
of its general partners or members) or the Mortgaged Property which, if
adversely determined, would materially impair either the Mortgaged Property or
Mortgagor's ability to perform the covenants or obligations required to be
performed under the Loan Documents;
(f) Mortgagor possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits (the "Licenses") necessary for the
--------
conduct of its business substantially as now conducted, including, without
limitation, all necessary federal, state and local certificates, permits,
licenses, approvals, registrations and authorizations required to
30
<PAGE>
permit Mortgagor to conduct its operations at the Mortgaged Property, all fees
due and payable in connection with such Licenses have been paid and Mortgagor's
operation of the Premises complies with such Licenses;
(g) Mortgagor is not a "foreign person" within the meaning of
(S)1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the related
Treasury Department regulations, including temporary regulations;
(h) The Premises and the Improvements and the current intended use
thereof by Mortgagor comply in all material respects with all applicable
restrictive covenants, zoning ordinances, subdivision and building codes, flood
disaster laws, health and environmental laws and regulations and all other
ordinances, orders or requirements issued by any state, federal or municipal
authorities having or claiming jurisdiction over the Mortgaged Property. The
Premises and Improvements constitute one or more separate tax parcels for
purposes of ad valorem taxation. The Premises and Improvements do not require
any rights over, or restrictions against, other property in order to comply with
any of the aforesaid governmental ordinances, orders or requirements;
(i) All utility services necessary and sufficient for the full use,
occupancy, operation and disposition of the Premises and the Improvements for
their intended purposes are available to the Mortgaged Property, including
water, storm sewer, sanitary sewer, gas, electric, cable and telephone
facilities, through public rights-of-way or perpetual private easements approved
by Mortgagee;
(j) All streets, roads, highways, bridges, curb cuts, driveways and
traffic signals and waterways necessary for access to and full use, occupancy,
operation and disposition of the Premises and the Improvements have been
completed, have been dedicated to and accepted by the appropriate municipal
authority and are open and available to the Premises and the Improvements
without further condition or cost to Mortgagor;
(k) The Mortgaged Property is free from delinquent water charges,
sewer rents, taxes and assessments;
(l) As of the date of this Mortgage, the Mortgaged Property is free
from unrepaired damage caused by fire, flood, accident or other casualty (except
as disclosed in the Engineering Report); all insurance required by the terms of
this Mortgage is in full force and effect and none of the premiums payable
therefor have been, nor at any time in the future will be financed;
(m) As of the date of this Mortgage, no part of the Premises or the
Improvements has been taken in condemnation, eminent domain or like proceeding
nor is any such proceeding pending or, to Mortgagor's knowledge and belief,
threatened or contemplated;
(n) Except as may otherwise be disclosed in the Engineering Reports
entitled Property Condition Surveys, dated October 9, 1998 (Burlington), October
9, 1998 (Pennsville), and October 9, 1998 (Rio Grande) respectively, and
prepared by EMG (the
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"Engineering Report"), the Improvements are structurally sound, in good repair
and free of defects in materials and workmanship. Except as may otherwise be
disclosed in the Engineering Report, all major building systems located within
the Improvements, including, without limitation, the heating and air
conditioning systems and the electrical and plumbing systems, are in good
working order and condition;
(o) Mortgagor has delivered to Mortgagee true, correct and complete
copies of all Contracts and all amendments thereto or modifications thereof;
(p) Each Contract constitutes the legal, valid and binding obligation
of Mortgagor and, to the best of Mortgagor's knowledge and belief, is
enforceable against all other parties thereto. No default exists, or with the
passing of time or the giving of notice or both would exist, under any Contract
or Contracts which would, individually or in the aggregate, have a material
adverse effect on Mortgagor or the Mortgaged Property;
(q) No Contract or Lease provides any party with the right to obtain a
lien or encumbrance upon the Mortgaged Property superior to the lien of this
Mortgage;
(r) Mortgagor and the Mortgaged Property are free from any past due
obligations for sales and payroll taxes;
(s) There are no security agreements or financing statements affecting
all or any portion of the Mortgaged Property other than (i) as disclosed in
writing by Mortgagor to Mortgagee prior to the date hereof and (ii) the security
agreements and financing statements created in favor of Mortgagee;
(t) Mortgagor has delivered a true, correct and complete schedule (the
"Rent Roll") of all Leases affecting the Mortgaged Property as of the date
---------
hereof, which accurately and completely sets forth in all material respects for
each such Lease the name of the Tenant, the Lease expiration date, extension and
renewal provisions, the base rent payable, the security deposit held thereunder
and any other material provisions of such Lease; and Mortgagor has delivered to
Mortgagee true, correct and complete copies of all Leases described in the Rent
Roll;
(u) Each Lease constitutes the legal, valid and binding obligation of
Mortgagor and, to the best of Mortgagor's knowledge and belief, is enforceable
against the Tenant thereunder. No default has been asserted or exists, or with
the passing of time or the giving of notice or both would exist, under any Lease
which would, in the aggregate, have a material adverse effect on Mortgagor or
the Mortgaged Property;
(v) No Tenant under any Lease has, as of the date hereof, paid rent
more than thirty (30) days in advance, and the rents under such Leases have not
been waived, released, or otherwise discharged or compromised;
(w) All work to be performed by Mortgagor under the Leases has been
substantially performed, all contributions to be made by Mortgagor to the
Tenants thereunder
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<PAGE>
have been made and all other conditions precedent to each such Tenant's
obligations thereunder have been satisfied;
(x) Each Tenant under any Lease has entered into occupancy of the
demised premises; and
(y) To the best of Mortgagor's knowledge and belief, each Tenant is
free from bankruptcy, reorganization, insolvency or arrangement proceedings or a
general assignment for the benefit of creditors.
10.2. Waste; Alteration of Improvements. Mortgagor shall not commit,
---------------------------------
suffer or permit any waste on the Mortgaged Property nor take or fail to take
any actions that might invalidate any insurance carried on the Mortgaged
Property. Mortgagor shall maintain the Mortgaged Property in good condition and
repair. No part of the Improvements may be removed, demolished or materially
altered, without the prior written consent of Mortgagee. Without the prior
written consent of Mortgagee, Mortgagor shall not commence construction of any
improvements on the Premises other than improvements required for the
maintenance or repair of the Mortgaged Property. Notwithstanding the foregoing,
Mortgagee acknowledges that Assisted Living Concepts Inc., the tenant at the
Premises, may expand the facilities at each or any of the Premises, at Tenant's
sole cost and expense, and Tenant shall retain the revenues from such expansion.
10.3. Zoning. Without the prior written consent of Mortgagee,
------
Mortgagor shall not make, suffer, consent to or acquiesce in any change in the
zoning or conditions of use of the Premises or the Improvements. Mortgagor
shall comply with and make all payments required under the provisions of any
covenants, conditions or restrictions affecting the Premises or the
Improvements. Mortgagor shall comply with all existing and future requirements
of all governmental authorities having jurisdiction over the Mortgaged Property.
Mortgagor shall keep all licenses, permits, franchises and other approvals
necessary for the operation of the Mortgaged Property in full force and effect.
Mortgagor shall operate the Mortgaged Property as an assisted care facility for
so long as the Debt is outstanding. If, under applicable zoning provisions, the
use of all or any part of the Premises or the Improvements is or becomes a
nonconforming use, Mortgagor shall not cause or permit such use to be
discontinued or abandoned without the prior written consent of Mortgagee.
Further, without Mortgagee's prior written consent, Mortgagor shall not file or
subject any part of the Premises or the Improvements to any declaration of
condominium or co-operative or convert any part of the Premises or the
Improvements to a condominium, co-operative or other form of multiple ownership
and governance.
10.4. Covenants with Respect to Indebtedness, Operations, Fundamental
---------------------------------------------------------------
Changes of Mortgagor. Mortgagor hereby represents, warrants and covenants as of
- --------------------
the date hereof and until such time as the Debt is paid in full, that Mortgagor:
(a) will not, nor will any partner, limited or general, member or
shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation, by-
laws, operating agreement, articles of
33
<PAGE>
organization or other formation agreement or document, as applicable, in any
material term or manner, or in a manner which adversely affects Mortgagor's
existence as a single purpose entity;
(b) will not liquidate or dissolve (or suffer any liquidation or
dissolution), or enter into any transaction of merger or consolidation, or
acquire by purchase or otherwise all or substantially all or any part of the
business or assets of, or any stock or other evidence of beneficial ownership
of, or make any investment in, any entity;
(c) has not and will not guarantee, pledge its assets for the benefit
of, or otherwise become liable on or in connection with, any obligation of any
other person or entity;
(d) does not own and will not own any asset other than (i) the
Mortgaged Property, and (ii) incidental personal property necessary for the
operation of the Mortgaged Property;
(e) is not engaged and will not engage, either directly or indirectly,
in any business other than the ownership, management and operation of the
Mortgaged Property;
(f) will not enter into any contract or agreement with any general
partner, principal, affiliate or member of Mortgagor, as applicable, or any
affiliate of any general partner, principal or member of Mortgagor, except upon
terms and conditions that are intrinsically fair and substantially similar to
those that would be available on an arms-length basis with unrelated third
parties;
(g) has not incurred and will not incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Debt, (ii) advances from affiliates, partners or members, as
applicable, of Mortgagor, provided the same are fully subordinated to the
payment in full of the Debt in a manner acceptable to Mortgagee and (iii) trade
payables or accrued expenses incurred in the ordinary course of the business of
operating the Mortgaged Property, and no debt other than the Debt will be
secured (senior, subordinate or pari passu) by the Mortgaged Property;
(h) has not made and will not make any loans or advances to any third
party (including any affiliate);
(i) is and will be solvent and pay its debts from its assets as the
same shall become due;
(j) has done or caused to be done and will do all things necessary to
preserve its existence, and will observe all formalities applicable to it;
(k) will conduct and operate its business in its own name and as
presently conducted and operated;
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<PAGE>
(l) will maintain financial statements, books and records and bank
accounts separate from those of its affiliates, including, without limitation,
its general partners or members, as applicable;
(m) 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, without
limitation, any affiliate, general partner, or member, as applicable, or any
affiliate of any general partner or member of Mortgagor, as applicable);
(n) will file its own tax returns;
(o) will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations;
(p) will establish and maintain an office through which its business
will be conducted separate and apart from those of its affiliates or, if it
shares office space with its affiliates, shall allocate fairly and reasonably
any overhead and expense for shared office space;
(q) will not commingle the funds and other assets of Mortgagor with
those of any general partner, member, affiliate, principal or any other person;
(r) has and will maintain its assets in such a manner that it is not
costly or difficult to segregate, ascertain or identify its individual assets
from those of any affiliate or any other person;
(s) does not and will not hold itself out to be responsible for the
debts or obligations of any other person;
(t) will pay any liabilities including salaries of its employees, out
of its own funds and not funds of any affiliate;
(u) will use stationery, invoices, and checks separate from its
affiliates;
(v) will at all times during which any portion of the Debt remains
outstanding have, or if Mortgagor is a limited liability company or partnership
have a managing member or general partner that is a corporation as set forth in
the charter documents of Mortgagor; and
(w) shall comply with the provisions of its articles of incorporation,
by-laws, partnership agreement, articles of organization or operating agreement,
as applicable;
10.5 Accounts Receivable Financing. Notwithstanding any other
-----------------------------
provision herein to the contrary, Mortgagee consents to the sale, assignment,
pledge or other encumbrance of all or any portion of the Mortgaged Property
constituting the Accounts Receivable existing on the date conveyed or financed
to any person or entity (an "Accounts
35
<PAGE>
Receivable Acquiror") and, in connection therewith, Mortgagee hereby agrees that
it will subordinate the lien created hereunder solely with respect to the
portion of the Mortgaged Property constituting the existing Accounts Receivable
to any lien or interest of any Accounts Receivable Acquiror; provided, however,
that such consent and subordination shall be limited to, and effective only with
respect to liens created upon, or sales with respect to, then existing Accounts
Receivable pledged or sold prior to the date on which Mortgagee has notified
such Accounts Receivable Acquiror that Mortgagee has commenced an enforcement
action with respect to any other portion of the Mortgaged Property, and provided
further that each of the following terms and conditions are first satisfied.
(a) No Default or Event of Default has occurred and is continuing;
(b) Mortgagor gives Mortgagee written notice of the terms of any such
sale or pledge (an "A/R Financing") not less than thirty (30) days prior to
the date such A/R Financing is scheduled to close and provides Mortgagee
with forms of all documents and instruments evidencing such A/R Financing
(the "A/R Financing Documents"), not less than seven (7) days prior to the
date such A/R Financing is scheduled to close in order for Mortgagee to
determine compliance with the provisions hereof;
(c) Contemporaneously with the closing of any such A/R Financing, or
with the closing of the loan secured hereby if any A/R Financing is in
place on the date hereof, the Accounts Receivable Acquiror shall pay to
Mortgagee, on behalf of Mortgagor, out of the proceeds of the conveyance to
such acquiror of Accounts Receivable, as a reserve hereunder, an amount
determined by multiplying a fraction, the numerator of which is the
aggregate face amount of the Accounts Receivable conveyed or pledged to the
Accounts Receivable Acquiror and the denominator of which is the applicable
MAGR (as defined below) multiplied by an amount equal to the sum of: (i)
the monthly installment payment of principal and interest due and payable
by Mortgagor under the Note, (ii) the amount required to be deposited into
the Impound Account each month pursuant to the terms of Section 1.2 hereof,
and (iii) the amount required to be deposited in the Replacement Reserve
each month. For purposes of this Section, as of any date of determination,
a "MAGR" is an amount equal to the monthly average gross revenue (computed
on a 12-month rolling average basis for the 12 months preceding the month
in which such date of determination occurs) of Mortgagor from the Mortgaged
Property;
(d) On or before the closing of any such A/R Financing, Mortgagor
shall have delivered to Mortgagee a certificate certifying as to the face
amount of the Accounts Receivable being conveyed or pledged and the amount
of the applicable MAGR, together with any related data and the calculations
used to establish the MAGR, all in reasonable detail and satisfactory to
Mortgagee;
(e) The Accounts Receivable Acquirer shall agree pursuant to a binding
written agreement enforceable by Mortgagee that (i) except as otherwise
expressly provided herein, the liens of the A/R Financing Documents shall
be subordinate to the
36
<PAGE>
lien of the Loan Documents and all modifications, renewals, refinancings,
replacements and extensions whatsoever of any of the Loan Documents, (ii)
the A/R Financing Documents shall at all times incorporate by reference
such written agreement and provide for such subordination automatically,
and without any notice to, consent of, or action by the Accounts Receivable
Acquiror or any other party whatsoever, (iii) no release or waiver by
Mortgagee or any subsequent holder of this Mortgage of any of its rights
against any person or entity under the Loan Documents, as the same may be
modified, renewed, replaced (including a replacement upon a refinancing) or
extended, shall require notice to or consent of the Accounts Receivable
Acquiror or any other party, nor shall any such release or waiver operate
as a defense to or release of any of the obligations of Accounts Receivable
Acquiror or the rights of Mortgagee or any other subsequent holder of this
Mortgage or the other Loan Documents, as the same may be modified, renewed,
replaced (including a replacement upon a refinancing) or extended, and
(iii) without limiting the generality of any of the foregoing, the Accounts
Receivable Acquiror thereby consents to any increases of the indebtedness
owed by Mortgagor under the Loan Documents, as the same may be modified,
renewed, replaced (including a replacement upon a refinancing) or extended;
(f) The A/R Financing Documents shall also provide that without the
prior written consent of Mortgagee or any subsequent holder of this
Mortgage, the Accounts Receivable Acquiror shall not take an enforcement
action under any A/R Financing Document with respect to any collateral as
to which it shall hold a lien subordinate in priority to the lien created
by the Loan Documents unless all indebtedness secured by the Loan
Documents, as the same may be modified, renewed, replaced (including a
replacement upon a refinancing) or extended shall have been indefeasibly
satisfied in full, that the Accounts Receivable Acquiror shall not assert
any default under the A/R Financing Documents as a result of Mortgagor's
compliance with the terms of any of the Loan Documents, as the same may be
modified, renewed, replaced (including a replacement upon a refinancing) or
extended from time to time, and that the provisions of the Loan Documents,
as the same may be modified, renewed, replaced (including replacement upon
a refinancing) or extended shall govern with respect to any conflicting
provisions of the A/R Financing Documents;
(g) Acquiror shall waive any claim or right of subrogation which it
may have to any lien, estate, right or other interest in any portion of the
Property other than a lien on Accounts Receivable that is, or may be,
pursuant to this Section 10.5, prior in right to this Mortgage or any other
Loan Document;
(h) To further confirm the requirements of this Section 10.5, the
Accounts Receivable Acquiror shall agree pursuant to a binding written
agreement enforceable by Mortgagee that, within ten (10) days after request
by Mortgagee, it will do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, documents, estoppels and instruments
as Mortgagee may request for the better assuring and evidencing the
foregoing terms and provisions;
37
<PAGE>
(i) In the event that any payment or distribution of assets is made to
the Accounts Receivable Acquiror in contravention of this Section 10.5, the
Accounts Receivable Acquiror shall agree that such payment or distribution
shall be received and held by it in trust for the benefit of the holder of
the Loan Documents, as the same may be modified, amended and assigned, and
shall, forthwith upon receipt thereof, be paid or distributed to such
holder; and
(j) In connection with a bankruptcy, insolvency or other proceeding
relating to any of the Loan Documents or A/R Financing Documents, the
provisions of this Section 10.5 shall remain in full force and effect, and
the court having jurisdiction over such proceeding is hereby authorized to
preserve any such priority and subordination set forth herein in approving
any plan of reorganization, arrangement or liquidation without the prior
written consent of the Mortgagee or the Accounts Receivable Acquiror.
Mortgagor may grant to the Accounts Receivable Acquiror a lien, subordinate
to the lien hereof, on any other portion of the Mortgaged Property representing
General Intangibles; provided, however, that (i) such lien shall not be enforced
until the Debt has been paid in full and (ii) and all documents creating,
evidencing or otherwise executed in connection therewith or herewith shall be
acceptable to Mortgagee in its sole discretion.
ARTICLE XI.
FURTHER ASSURANCES
------------------
11.1. Defense of Title. If the title to the Mortgaged Property or
----------------
the interest of Mortgagee therein shall be directly or indirectly endangered,
clouded or adversely affected in any manner, Mortgagor, at Mortgagor's expense,
shall take all necessary and proper steps for the defense of said title or
interest, including the employment of counsel approved by Mortgagee, the
prosecution or defense of litigation, and the compromise or discharge of claims
made against said title or interest. Notwithstanding the foregoing, in the
event that Mortgagee determines that Mortgagor is not adequately performing its
obligations under this Section, Mortgagee may, without limiting or waiving any
other rights or remedies of Mortgagee hereunder, take such steps with respect
thereto as Mortgagee shall deem necessary or proper and any and all costs and
expenses incurred by Mortgagee in connection therewith, together with interest
thereon at the Default Interest Rate from the date incurred by Mortgagee until
actually paid by Mortgagor, shall be immediately paid by Mortgagor on demand and
shall be secured by this Mortgage and by all of the other Loan Documents
securing all or any part of the Debt.
11.2. Performance of Obligations. Mortgagor shall pay when due the
--------------------------
principal of and the interest on the Debt in accordance with the terms of the
Note and this Mortgage. Mortgagor shall also pay all charges, fees and other
sums required to be paid by Mortgagor as provided in the Loan Documents, in
accordance with the terms of the Loan Documents, and shall observe, perform and
discharge all obligations, covenants and agreements to be observed, performed or
discharged by Mortgagor set forth in the Loan Documents in accordance with
38
<PAGE>
their terms. Further, Mortgagor shall promptly and strictly perform and comply
with all covenants, conditions, obligations and prohibitions required of
Mortgagor in connection with any other document or instrument affecting title to
the Mortgaged Property, or any part thereof, regardless of whether such document
or instrument is superior or subordinate to this Mortgage.
11.3. Construction Liens. Mortgagor shall pay when due all claims
------------------
and demands of mechanics, materialmen, laborers and others for any work
performed or materials delivered for the Premises or the Improvements; provided,
--------
however, that Mortgagor shall have the right to contest in good faith any such
- -------
claim or demand, so long as it does so diligently, by appropriate proceedings
and without prejudice to Mortgagee and provided that neither the Mortgaged
Property nor any interest therein would be in any danger of sale, loss or
forfeiture as a result of such proceeding or contest. In the event Mortgagor
shall contest any such claim or demand, Mortgagor shall promptly notify
Mortgagee of such contest and thereafter shall, upon Mortgagee's request,
promptly provide a bond, cash deposit or other security satisfactory to
Mortgagee to protect Mortgagee's interest and security should the contest be
unsuccessful. If Mortgagor shall fail to immediately discharge or provide
security against any such claim or demand as aforesaid, Mortgagee may do so and
any and all expenses incurred by Mortgagee, together with interest thereon at
the Default Interest Rate from the date incurred by Mortgagee until actually
paid by Mortgagor, shall be immediately paid by Mortgagor on demand and shall be
secured by this Mortgage and by all of the other Loan Documents securing all or
any part of the Debt.
11.4. Further Documentation. Mortgagor shall, on the request of
---------------------
Mortgagee and at the expense of Mortgagor: (a) promptly correct any defect,
error or omission which may be discovered in the contents of this Mortgage or in
the contents of any of the other Loan Documents; (b) promptly execute,
acknowledge, deliver and record or file such further instruments (including,
without limitation, further mortgages, deeds of trust, security deeds, security
agreements, financing statements, continuation statements and assignments of
rents or leases) and promptly do such further acts as may be necessary,
desirable or proper to carry out more effectively the purposes of this Mortgage
and the other Loan Documents and to subject to the liens and security interests
hereof and thereof any property intended by the terms hereof and thereof to be
covered hereby and thereby, including specifically, but without limitation, any
renewals, additions, substitutions, replacements or appurtenances to the
Mortgaged Property; (c) promptly execute, acknowledge, deliver, procure and
record or file any document or instrument (including specifically, without
limitation, any financing statement) deemed advisable by Mortgagee to protect,
continue or perfect the liens or the security interests hereunder against the
rights or interests of third persons; and (d) promptly furnish to Mortgagee,
upon Mortgagee's request, a duly acknowledged written statement and estoppel
certificate addressed to such party or parties as directed by Mortgagee and in
form and substance supplied by Mortgagee, setting forth all amounts due under
the Note, stating whether any Default or Event of Default has occurred
hereunder, stating whether any offsets or defenses exist against the Debt and
containing such other matters as Mortgagee may reasonably require.
39
<PAGE>
11.5. Payment of Costs; Mortgagee's Right to Cure. Mortgagor shall
-------------------------------------------
pay all costs and expenses of every character reasonably incurred in connection
with the closing of the loan evidenced by the Note and secured hereby or
otherwise attributable or chargeable to Mortgagor as the owner of the Mortgaged
Property, including, without limitation, appraisal fees, recording fees,
documentary, stamp, Mortgage or intangible taxes, brokerage fees and
commissions, title policy premiums and title search fees, uniform commercial
code/tax lien/litigation search fees, escrow fees and reasonable attorneys' fees
and disbursements. If Mortgagor defaults in any such payment, which default is
not cured within any applicable grace or cure period, Mortgagee may, at its
option, pay the same and Mortgagor shall reimburse Mortgagee on demand for all
such costs and expenses incurred or paid by Mortgagee, together with such
interest thereon at the Default Interest Rate from and after the date of
Mortgagee's making such payment until reimbursement thereof by Mortgagor. Any
such sums disbursed by Mortgagee, together with such interest thereon, shall be
additional indebtedness of Mortgagor secured by this Mortgage and by all of the
other Loan Documents securing all or any part of the Debt. Further, Mortgagor
shall promptly notify Mortgagee in writing of any litigation or threatened
litigation affecting the Mortgaged Property, or any other demand or claim which,
if enforced, could impair or threaten to impair Mortgagee's security hereunder.
Without limiting or waiving any other rights and remedies of Mortgagee
hereunder, if Mortgagor fails to perform any of its covenants or agreements
contained in this Mortgage or in any of the other Loan Documents and such
failure is not cured within any applicable grace or cure period, or if any
action or proceeding of any kind (including, but not limited to, any bankruptcy,
insolvency, arrangement, reorganization or other debtor relief proceeding) is
commenced which might affect Mortgagee's interest in the Mortgaged Property or
Mortgagee's right to enforce its security, then Mortgagee may, at its option,
with or without notice to Mortgagor, make any appearances, disburse any sums and
take any actions as may be necessary or desirable to protect or enforce the
security of this Mortgage or to remedy the failure of Mortgagor to perform its
covenants and agreements (without, however, waiving any default of Mortgagor).
Mortgagor agrees to pay on demand all expenses of Mortgagee incurred with
respect to the foregoing (including, but not limited to, reasonable fees and
disbursements of counsel), together with interest thereon at the Default
Interest Rate from and after the date on which Mortgagee incurs such expenses
until reimbursement thereof by Mortgagor. Any such expenses so incurred by
Mortgagee, together with interest thereon as provided above, shall be additional
indebtedness of Mortgagor secured by this Mortgage and by all of the other Loan
Documents securing all or any part of the Debt. The necessity for any such
actions and of the amounts to be paid shall be determined by Mortgagee in its
sole discretion. Mortgagee is hereby empowered to enter and to authorize others
to enter upon the Mortgaged Property or any part thereof for the purpose of
performing or observing any such defaulted term, covenant or condition without
thereby becoming liable to Mortgagor or any person in possession holding under
Mortgagor. Mortgagor hereby acknowledges and agrees that the remedies set forth
in this Section 11.5 shall be exercisable by Mortgagee, and any and all payments
------------
made or costs or expenses incurred by Mortgagee in connection therewith shall be
secured hereby and shall be, without demand, immediately repaid by Mortgagor
with interest thereon at the Default Interest Rate, notwithstanding the fact
that such remedies were exercised and such payments made and costs incurred by
Mortgagee after the filing by Mortgagor of a voluntary case or the filing
against Mortgagor of an involuntary case pursuant to or within the
40
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meaning of the Bankruptcy Reform Act of 1978, as amended, Title 11 U.S.C., or
after any similar action pursuant to any other debtor relief law (whether
statutory, common law, case law or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, which may be or become applicable to Mortgagor,
Mortgagee, any Indemnitor, the Debt or any of the Loan Documents.
11.6. Compliance with Laws. Mortgagor shall at all times comply with
--------------------
all statutes, ordinances, regulations and other governmental or quasi-
governmental requirements and private covenants now or hereafter relating to the
ownership, construction, use or operation of the Mortgaged Property, including,
but not limited to, those concerning employment and compensation of persons
engaged in operation and maintenance of the Mortgaged Property and any
environmental or ecological requirements, even if such compliance shall require
structural changes to the Mortgaged Property; provided, however, that, Mortgagor
-------- -------
may, upon providing Mortgagee with security satisfactory to Mortgagee, proceed
diligently and in good faith to contest the validity or applicability of any
such statute, ordinance, regulation or requirement so long as during such
contest the Mortgaged Property shall not be subject to any lien, charge, fine or
other liability and shall not be in danger of being forfeited, lost or closed.
Mortgagor shall not use or occupy, or allow the use or occupancy of, the
Mortgaged Property in any manner which violates any Lease of or any other
agreement applicable to the Mortgaged Property or any applicable law, rule,
regulation or order or which constitutes a public or private nuisance or which
makes void, voidable or cancelable, or increases the premium of, any insurance
then in force with respect thereto.
11.7. Attorney-in-Fact Provisions. With respect to any provision of
---------------------------
this Mortgage or any other Loan Document whereby Mortgagor grants to Mortgagee a
power-of-attorney, (i) such power shall be deemed to be coupled with an
interest, shall not be revocable by Mortgagor so long as any portion of the Debt
is outstanding, shall survive the voluntary or involuntary dissolution of
Mortgagor and shall not be affected by any disability or incapacity suffered by
Mortgagor subsequent to the date hereof and (ii) provided no Default or Event of
Default has occurred under this Mortgage, Mortgagee shall first give Mortgagor
written notice at least three (3) days prior to acting under such power, which
notice shall demand that Mortgagor first take the proposed action within such
period and advising Mortgagor that if it fails to do so, Mortgagee will so act
under the power; provided, however, that, in the event that a Default or an
Event of Default has occurred and not been waived, or if necessary to prevent
imminent death, serious injury, damage, loss, forfeiture or diminution in value
to the Mortgaged Property or any surrounding property or to prevent any adverse
affect on Mortgagee's interest in the Mortgaged Property, Mortgagee may act
immediately and without first giving such notice. In such event, Mortgagee will
give Mortgagor notice of such action as soon thereafter as reasonably practical.
ARTICLE XII.
PAYMENT; DEFEASANCE; PREPAYMENT
-------------------------------
12.1. Payment of the Notes. Mortgagor shall duly and punctually pay
--------------------
or cause to be paid, the principal of and the interest and premium, if any, on
the Note in accordance
41
<PAGE>
with the respective terms hereof and thereof, without demand therefor or
presentation of the Note, in lawful money of the United States of America.
12.2. Computation of Interest. Interest shall be computed hereunder
-----------------------
and under the Note based on a 360-day year comprised of twelve 30-day months
except that interest due and payable for a period less than a full month shall
be calculated by multiplying the actual number of days elapsed in such period by
a daily rate based on said 360 day year. Interest shall accrue from the date on
which funds are advanced under the Note (regardless of the time of day) through
and including the day on which funds are credited in accordance with the terms
of the Note. Interest shall be payable hereunder and under the Note.
12.3. Application of Payments. So long as no Event of Default exists
-----------------------
hereunder which has not been waived, each Monthly Payment shall be applied
first, to any amounts hereafter advanced by Mortgagee under any Loan Document,
second, to any late fees and other amounts payable to Mortgagee, third, to the
payment of accrued interest and last to reduction of principal.
12.4. Prepayment. (a) The Note may not be prepaid in whole or in
----------
part at the option of the Mortgagor except as provided below.
(b) Partial prepayments of the Note shall not be permitted, except
for partial prepayments resulting from Mortgagee's election to apply insurance
or condemnation proceeds to reduce the outstanding principal balance of the Note
as provided in Section 3.1(b) hereof, in which event no prepayment fee or
--------------
premium shall be due unless, at the time of either Mortgagee's receipt of such
proceeds or the application of such proceeds to the outstanding principal
balance of the Note, an Event of Default shall have occurred and not been
waived, in which case, the provisions of Section 15.2 hereof shall be
------------
controlling.
(c) If the indebtedness evidenced by the Note shall have been
declared due and payable by Mortgagee pursuant to the terms thereof or the terms
hereof or the provisions of any other Loan Document due to a default by
Mortgagor, then subject to Section 16.22 hereof there shall also then be
immediately due and payable, a prepayment fee in an amount equal to the greater
of (A) five percent (5%) of the then outstanding principal balance of the Note
on the date of acceleration, and (B) an amount which would be sufficient to
purchase securities meeting the requirements of Section 12.5 below. In the
------------
event that any prepayment fee is due hereunder, Mortgagee shall deliver to
Mortgagor a statement setting forth the amount and determination of the
prepayment fee, and provided that Mortgagee shall have in good faith applied the
formula described above, Mortgagor shall not have the right to challenge the
calculation or the method of calculation set forth in any such statement in the
absence of manifest error
12.5. Defeasance. Notwithstanding any provision of this Mortgage to
----------
the contrary, at any time after the date which (1) is two years after the
"startup day," within the meaning of Section 860G(a)(9) of the Internal Revenue
Code of 1986, as amended from time to time or any successor statute (the
"Code"), of a "real estate Mortgage investment conduit," ("REMIC") within the
---- -----
meaning of Section 860D of the Code, that holds the Note and this
42
<PAGE>
Mortgage or (2) three years after the date hereof, whichever shall later occur,
and provided no Event of Default has occurred, Mortgagor may cause the release
of either (x) the entire Mortgaged Property or (y) a Partial Release consisting
of one or more Partial Release Parcels as provided in Section 6.5, from the lien
of this Mortgage and the other Loan Documents upon the satisfaction of the
following conditions (and, with respect to a Partial Release, upon the
satisfaction of the additional conditions set forth in Section 6.5 above):
(a) with respect to a release of the entire Mortgaged Property (a
"Defeasance"), not less than thirty (30) days prior written notice shall be
given to Mortgagee specifying a Payment Date (the "Release Date") on which
------------
the Defeasance Collateral is to be delivered; provided however, that with
----------------
respect to a Partial Release, Mortgagor shall give Mortgagee a Partial
Release Notice in accordance with Section 6.5;
(b) Mortgagor shall deliver to Mortgagee on or prior to the Release
Date or Partial Release Date, as applicable:
(i) a pledge and security agreement, in form and substance
satisfactory to Mortgagee in its sole discretion, creating a
first priority security interest in favor of Mortgagee in
the Defeasance Collateral (the "Defeasance Security
-------------------
Agreement"), which shall provide, among other things, that
---------
any payments generated by the Defeasance Collateral shall be
paid directly to Mortgagee and applied by Mortgagee in
satisfaction of all amounts then due and payable hereunder
and any excess received by Mortgagee from the Defeasance
Collateral which, when added to the amounts received under
the Note, exceeds the amounts payable by Mortgagor hereunder
or under the Note shall be refunded to Mortgagor promptly
after each Payment Date;
(ii) direct, non-callable obligations of the United States of
America (the "Defeasance Collateral") that provide for
payments prior, but as close as possible, to all successive
Payment Dates occurring after the Release Date, with each
such payment being equal to or greater than (x) with respect
to a complete Defeasance of all of the Mortgaged Property,
the amount of the corresponding installment of principal and
interest required to be paid under the Note for the balance
of the term hereof to the Maturity Date, and (y) with
respect to a Partial Release, the amount of the
corresponding installment of the principal and interest
required to be paid with respect to the Partial Release
Parcel(s) so Defeased, (in either case the "Defeasance
----------
Collateral Payments"), for the balance of the term hereof to
-------------------
the Maturity Date (provided that for all purposes of this
Section 12.5, all principal, accrued interest and other
------------
amounts payable under this Mortgage, the Note and the
43
<PAGE>
other Loan Documents shall be due and payable in full on the
Maturity Date). The Defeasance Collateral shall be duly
endorsed by the holder thereof as directed by Mortgagee or
accompanied by a written instrument of transfer in form and
substance satisfactory to Mortgagee in its sole discretion
(including, without limitation, such instruments as may be
required by the depository institution holding such
securities or the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the
book-entry facilities of such institution) in order to
perfect upon the delivery of the Defeasance Security
Agreement the first priority security interest in the
Defeasance Collateral in favor of Mortgagee in conformity
with all applicable state and federal laws governing
granting of such security interests;
(iii) a certificate of Mortgagor certifying that all of the
requirements set forth in this Section 12.5 have been
------------
satisfied;
(iv) an opinion of counsel for Mortgagor in form and substance
and delivered by counsel satisfactory to Mortgagee in its
sole discretion stating, among other things, that (x)
Mortgagee has a perfected first priority security interest
in the Defeasance Collateral and that the Defeasance
Security Agreement is enforceable against Mortgagor in
accordance with its terms and (y) that any trust formed as
a REMIC pursuant to a securitization will not fail to
maintain its status as a REMIC as a result of such
defeasance;
(v) such other certificates, documents or instruments as
Mortgagee may reasonably require;
(vi) upon compliance with the requirements of this Section 12.5,
------------
the Mortgaged Property (or the Partial Release Parcels, in
the event of a Partial Release) shall be released from the
lien of this Mortgage and the other Loan Documents, and the
Defeasance Collateral shall constitute collateral which
shall secure the Note (or, in the event of a Partial
Release, the "Defeased Note," as hereinafter defined), and
all other obligations under the Loan Documents. In the
event of a Partial Release, the Note shall be amended,
modified to reduce the unpaid principal balance and modify
the payment schedule to account for the Partial Release
Payment, and Mortgagor shall execute and deliver to
Mortgagee a new note, as follows: the Note shall be in the
principal amount of the then unpaid principal balance of the
Note, less the amount of the applicable Partial Release
----
Price, and continuing to be
44
<PAGE>
secured by the Mortgaged Property remaining after the
Partial Release; and the new note shall be in the principal
amount equal to the applicable Partial Release Price and to
be secured by the Defeasance Collateral [such new note,
secured by the Defeasance Collateral, being sometimes
referred to as the "Defeased Note"]). Mortgagee will, at
--------------
Mortgagor's expense, execute and deliver any agreements
reasonably requested by Mortgagor to release the lien of the
Mortgage and any other appropriate Loan Documents from the
applicable Mortgaged Property; and
(vii) upon the release of the applicable Mortgaged Property in
accordance with this Section 12.5, Mortgagor may assign all
------------
its obligations and rights under the Note, or, in the event
of a partial Defeasance, under the Defeased Note, together
with the pledged Defeasance Collateral, to a successor
entity designated by Mortgagor and approved by Mortgagee in
its sole discretion. Such successor entity shall execute an
assumption agreement in form and substance satisfactory to
Mortgagee in its sole discretion pursuant to which it shall
assume Mortgagor's obligations under the Note or, in the
event of a partial Defeasance, the Defeased Note and the
Defeasance Security Agreement. As conditions to such
assignment and assumption, Mortgagor shall (x) deliver to
Mortgagee an opinion of counsel in form and substance and
delivered by counsel satisfactory to Mortgagee in its sole
discretion stating, among other things, that such assumption
agreement and, in the event of a partial Defeasance, the
Defeased Note, are enforceable against Mortgagor in
accordance with their respective terms and that such
assumption agreement, under the Note or, in the event of a
partial Defeasance, under the Defeased Note, the Defeasance
Security Agreement and the other Loan Documents, as so
assumed, are enforceable against such successor entity in
accordance with their respective terms, and (y) pay all
costs and expenses incurred by Mortgagee or its agents in
connection with such assignment and assumption (including,
without limitation, the review of the proposed transferee
and the preparation of the assumption agreement and related
documentation). Upon such assumption, Mortgagor shall be
relieved of its obligations (a) in the event of total
Defeasance, under the Note, the other Loan Documents and the
Defeasance Security Agreement and (b) in the event of a
partial Defeasance, under the Defeased Note and the
Defeasance Security Agreement.
Upon compliance with the requirements of this Section 12.5, the
------------
Mortgaged Property shall be released from the lien of this Mortgage and the
other Loan Documents, and the balance of the Mortgaged Property, if any,
shall constitute
45
<PAGE>
collateral which shall secure the Note and all other obligations under the
Loan Documents. Mortgagee will, at Mortgagor's expense, execute and deliver
any agreements reasonably requested by Mortgagor to release the lien this
Mortgage from the Mortgaged Property, or the Release Parcels as applicable
12.6. Optional Prepayment Date Provisions. INTENTIONALLY DELETED.
-----------------------------------
ARTICLE XIII.
SECURITY PROVISIONS
-------------------
13.1. Security Interest. This Mortgage is also intended to encumber
-----------------
and create a security interest in, and Mortgagor hereby grants to Mortgagee a
security interest in, all sums on deposit with Mortgagee pursuant to the
provisions of Section 1.2, Section 5.1, and Section 5.2 hereof or any other
----------- ----------- -----------
Section hereof or of any other Loan Document and all fixtures, chattels,
accounts, equipment, inventory, contract rights, general intangibles and other
personal property included within the Mortgaged Property, all renewals,
replacements of any of the aforementioned items, or articles in substitution
therefor or in addition thereto or the proceeds thereof (said property is
hereinafter referred to collectively as the "Collateral"), whether or not the
----------
same shall be attached to the Premises or the Improvements in any manner. It is
hereby agreed that to the extent permitted by law, all of the foregoing property
is to be deemed and held to be a part of and affixed to the Premises and the
Improvements. The foregoing security interest shall also cover Mortgagor's
leasehold interest in any of the foregoing property which is leased by
Mortgagor. Notwithstanding the foregoing, all of the foregoing property shall
be owned by Mortgagor and no leasing or installment sales or other financing or
title retention agreement in connection therewith shall be permitted without the
prior written approval of Mortgagee. Mortgagor shall, from time to time upon
the request of Mortgagee, supply Mortgagee with a current inventory of all of
the property in which Mortgagee is granted a security interest hereunder, in
such detail as Mortgagee may reasonably require. Mortgagor shall promptly
replace all of the Collateral subject to the lien or security interest of this
Mortgage when worn or obsolete with Collateral comparable to the worn out or
obsolete Collateral when new and will not, without the prior written consent of
Mortgagee, remove from the Premises or the Improvements any of the Collateral
subject to the lien or security interest of this Mortgage except such as is
replaced by an article of equal suitability and value as above provided, owned
by Mortgagor free and clear of any lien or security interest except that created
by this Mortgage and the other Loan Documents. All of the Collateral shall be
kept at the location of the Premises except as otherwise required by the terms
of the Loan Documents. Mortgagor shall not use any of the Collateral in
violation of any applicable statute, ordinance or insurance policy.
13.2. Security Agreement. This Mortgage constitutes a security
------------------
agreement between Mortgagor and Mortgagee with respect to the Collateral in
which Mortgagee is granted a security interest hereunder, and, cumulative of all
other rights and remedies of Mortgagee hereunder, Mortgagee shall have all of
the rights and remedies of a secured party under any applicable Uniform
Commercial Code. Mortgagor hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Mortgagee the
46
<PAGE>
attorney-in-fact of Mortgagor to execute and deliver and, if appropriate, to
file with the appropriate filing officer or office, such security agreements,
financing statements, continuation statements or other instruments as Mortgagee
may request or require in order to impose, perfect or continue the perfection of
the lien or security interest created hereby. To the extent specifically
provided herein, Mortgagee shall have the right of possession of all cash,
securities, instruments, negotiable instruments, documents, certificates and any
other evidences of cash or other property or evidences of rights to cash rather
than property, which are now or hereafter a part of the Mortgaged Property, and
Mortgagor shall promptly deliver the same to Mortgagee, endorsed to Mortgagee,
without further notice from Mortgagee. Mortgagor agrees to furnish Mortgagee in
writing with notice of any change in the name, identity, organizational
structure, residence, or principal place of business or mailing address of
Mortgagor thirty (30) days prior to the effective date of any such change.
Expenses of retaking, holding, preparing for sale, selling or the like
(including, without limitation, Mortgagee's reasonable attorneys' fees and legal
expenses), together with interest thereon at the Default Interest Rate from the
date incurred by Mortgagee until actually paid by Mortgagor, shall be paid by
Mortgagor on demand and shall be secured by this Mortgage and by all of the
other Loan Documents securing all or any part of the Debt. Mortgagee shall have
the right to enter upon the Premises and the Improvements or any real property
where any of the property which is the subject of the security interest granted
herein is located to take possession of, assemble and collect the same or to
render it unusable, or Mortgagor, upon demand of Mortgagee, shall assemble such
property and make it available to Mortgagee at the Premises, or at a place which
is mutually agreed upon or, if no such place is agreed upon, at a place
reasonably designated by Mortgagee to be reasonably convenient to Mortgagee and
Mortgagor. If notice is required by law, Mortgagee shall give Mortgagor at least
ten (10) days' prior written notice of the time and place of any public sale of
such property, or adjournments thereof, or of the time of or after which any
private sale or any other intended disposition thereof is to be made, and if
such notice is sent to Mortgagor, as the same is provided for the mailing of
notices herein, it is hereby deemed that such notice shall be and is reasonable
notice to Mortgagor. No such notice is necessary for any such property which is
perishable, threatens to decline speedily in value or is of a type customarily
sold on a recognized market. Any sale made pursuant to the provisions of this
Section shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with a foreclosure sale as provided
in Section 15.1(e) hereof upon giving the same notice with respect to the sale
---------------
of the Mortgaged Property hereunder as is required under said Section 15.1(e).
---------------
The name and principal place of business of Mortgagor (as Debtor under
any applicable Uniform Commercial Code) are:
DMG NEW JERSEY ALC, INC.
9955 S.E. Washington
Suite 303
Portland, Oregon 97216
47
<PAGE>
13.3. Secured Indebtedness. It is understood and agreed that this
--------------------
Mortgage shall secure payment of not only the indebtedness evidenced by the Note
but also any and all substitutions, replacements, renewals and extensions of the
Note, any and all indebtedness and obligations arising pursuant to the terms
hereof and any and all indebtedness and obligations arising pursuant to the
terms of any of the other Loan Documents, all of which indebtedness is equally
secured with and has the same priority as any amounts advanced as of the date
hereof. It is agreed that any future advances made by Mortgagee to or for the
benefit of Mortgagor from time to time under this Mortgage or the other Loan
Documents and whether or not such advances are obligatory or are made at the
option of Mortgagee, or otherwise, made for any purpose, within twenty (20)
years from the date hereof, and all interest accruing thereon, shall be equally
secured by this Mortgage and shall have the same priority as all amounts, if
any, advanced as of the date hereof and shall be subject to all of the terms and
provisions of this Mortgage.
ARTICLE XIV.
DEFAULT
-------
14.1. Events of Default. The occurrence of any of the following
-----------------
events shall be an "Event of Default" hereunder:
(a) Mortgagor fails to timely make payments of principal or interest
as stipulated in the Note and any such payment is not made within ten (10) days
of the date such payment is due (provided that no grace period is provided for
the payment of principal and interest due on the Maturity Date).
(b) Mortgagor fails to provide insurance as required by Section 2.1
-----------
hereof or fails to perform any covenant, agreement, obligation, term or
condition set forth in Section 4.1, Section 6.3 or Section 10.4 hereof.
----------- ----------- ------------
(c) Mortgagor fails to perform any other covenant, agreement,
obligation, term or condition set forth herein, other than those otherwise
described in this Section 14.1, and, to the extent such failure or default is
------------
susceptible of being cured, the continuance of such failure or default for
thirty (30) days after written notice thereof from Mortgagee to Mortgagor;
provided, however, that if such default is susceptible of cure but such cure
- -------- -------
cannot be accomplished with reasonable diligence within said period of time, and
if Mortgagor commences to cure such default promptly after receipt of notice
thereof from Mortgagee, and thereafter prosecutes the curing of such default
with reasonable diligence, such period of time shall be extended for such period
of time as may be necessary to cure such default with reasonable diligence, but
not to exceed an additional sixty (60) days.
(d) Any representation or warranty made herein, in or in connection
with any application or commitment relating to the loan evidenced by the Note,
or in any of the other Loan Documents to Mortgagee by Mortgagor, by any
principal, general partner, manager or member in Mortgagor, or by any Indemnitor
is determined by Mortgagee to have been false or misleading in any material
respect at the time made.
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<PAGE>
(e) A default occurs under any of the other Loan Documents which has
not been cured within any applicable grace or cure period therein provided.
(f) Mortgagor, any principal, general partner or managing member in
Mortgagor or any Indemnitor becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or files a
petition in bankruptcy, or is voluntarily adjudicated insolvent or bankrupt or
admits in writing the inability to pay its debts as they mature, or petitions or
applies to any tribunal for or consents to or fails to contest the appointment
of a receiver, trustee, custodian or similar officer for Mortgagor, for any such
principal, general partner or managing member of Mortgagor or for any Indemnitor
or for a substantial part of the assets of Mortgagor, of any such principal,
general partner or managing member of Mortgagor or of any Indemnitor, or
commences any case, proceeding or other action under any bankruptcy, insolvency,
reorganization, arrangement, receivership or other debtor relief under any law
or statute of any jurisdiction, whether now or hereafter in effect.
(g) A petition is filed or any case, proceeding or other action is
commenced against Mortgagor, against any principal, general partner or managing
member of Mortgagor or against any Indemnitor seeking to have an order for
relief entered against it as debtor or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts or other
relief under any law relating to bankruptcy, insolvency, arrangement,
reorganization, receivership or other debtor relief under any law or statute of
any jurisdiction, whether now or hereafter in effect, or a court of competent
jurisdiction enters an order for relief against Mortgagor, against any
principal, general partner or managing member of Mortgagor or against any
Indemnitor, as debtor, or an order, judgment or decree is entered appointing,
with or without the consent of Mortgagor, of any such principal, general partner
or managing member of Mortgagor or of any Indemnitor, a receiver, trustee,
custodian or similar officer for Mortgagor, for any such principal, general
partner or managing member of Mortgagor or for any Indemnitor, or for any
substantial part of any of the properties of Mortgagor, of any such principal,
general partner or managing member of Mortgagor or of any Indemnitor, and if any
such event shall occur, such petition, case, proceeding, action, order, judgment
or decree is not dismissed within sixty (60) days after being commenced.
(h) The Mortgaged Property or any part thereof is taken on execution
or other process of law in any action against Mortgagor.
(i) Mortgagor abandons all or a portion of the Mortgaged Property.
(j) The holder of any lien or security interest on the Mortgaged
Property (without implying the consent of Mortgagee to the existence or creation
of any such lien or security interest other than in connection with A/R
Financing permitted pursuant to the terms of Section 10.5), whether superior or
subordinate to this Mortgage or any of the other Loan Documents, declares a
default and such default is not cured within any applicable grace or cure period
set forth in the applicable document or such holder institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder.
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(k) The Mortgaged Property, or any part thereof, is subjected to waste
or to removal, demolition or material alteration so that the value of the
Mortgaged Property is materially diminished thereby and Mortgagee determines
that it is not adequately protected from any loss, damage or risk associated
therewith.
(l) Any dissolution, termination, partial or complete liquidation,
merger or consolidation of Mortgagor, any of its principals, any general partner
or any managing member.
(m) The business conducted by Mortgagor or operation of the Mortgaged
Property is in imminent danger of being suspended as a result of any violation
of any state, local or federal rule, law or regulation.
ARTICLE XV.
REMEDIES
--------
15.1. Remedies Available. If there shall occur an Event of Default
------------------
under this Mortgage, then this Mortgage is subject to foreclosure as provided by
law and Mortgagee may, at its option and by or through a trustee, nominee,
assignee or otherwise, to the fullest extent permitted by law, exercise any or
all of the following rights, remedies and recourses, either successively or
concurrently:
(a) Acceleration. Accelerate the maturity date of the Note and
declare any or all of the Debt to be immediately due and payable without any
presentment, demand, protest, notice or action of any kind whatever (each of
which is hereby expressly waived by Mortgagor), whereupon the same shall become
immediately due and payable. Upon any such acceleration, payment of such
accelerated amount shall constitute a prepayment of the principal balance of the
Note and any applicable prepayment fee provided for in the Note shall then be
immediately due and payable.
(b) Entry on the Mortgaged Property. Either in person or by agent,
with or without bringing any action or proceeding, or by a receiver appointed by
a court and without regard to the adequacy of its security, enter upon and take
possession of the Mortgaged Property, or any part thereof, without force or with
such force as is permitted by law and without notice or process or with such
notice or process as is required by law, unless such notice and process is
waivable, in which case Mortgagor hereby waives such notice and process, and do
any and all acts and perform any and all work which may be desirable or
necessary in Mortgagee's judgment to complete any unfinished construction on the
Premises, to preserve the value, marketability or rentability of the Mortgaged
Property, to increase the income therefrom, to manage and operate the Mortgaged
Property or to protect the security hereof, and all sums expended by Mortgagee
therefor, together with interest thereon at the Default Interest Rate, shall be
immediately due and payable to Mortgagee by Mortgagor on demand and shall be
secured hereby and by all of the other Loan Documents securing all or any part
of the Debt.
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(c) Collect Rents and Profits. With or without taking possession of
the Mortgaged Property, sue or otherwise collect the Rents and Profits,
including those past due and unpaid.
(d) Appointment of Receiver. Upon, or at any time prior or after,
initiating the exercise of any power of sale, instituting any judicial
foreclosure or instituting any other foreclosure of the liens and security
interests provided for herein or any other legal proceedings hereunder, make
application to a court of competent jurisdiction for appointment of a receiver
for all or any part of the Mortgaged Property, as a matter of strict right and
without notice to Mortgagor and without regard to the adequacy of the Mortgaged
Property for the repayment of the Debt or the solvency of Mortgagor or any
person or persons liable for the payment of the Debt, and Mortgagor does hereby
irrevocably consent to such appointment, waive any and all notices of and
defenses to such appointment and agree not to oppose any application therefor by
Mortgagee, but nothing herein is to be construed to deprive Mortgagee of any
other right, remedy or privilege Mortgagee may now have under the law to have a
receiver appointed, provided, however, that the appointment of such receiver,
trustee or other appointee by virtue of any court order, statute or regulation
shall not impair or in any manner prejudice the rights of Mortgagee to receive
payment of the Rents and Profits pursuant to other terms and provisions hereof.
Any such receiver shall have all of the usual powers and duties of receivers in
similar cases, including, without limitation, the full power to hold, develop,
rent, lease, manage, maintain, operate and otherwise use or permit the use of
the Mortgaged Property upon such terms and conditions as said receiver may deem
to be prudent and reasonable under the circumstances as more fully set forth in
Section 15.3 below. Such receivership shall, at the option of Mortgagee,
continue until full payment of all of the Debt or until title to the Mortgaged
Property shall have passed by foreclosure sale under this Mortgage or deed in
lieu of foreclosure.
(e) Foreclosure. Immediately commence an action to foreclose this
Mortgage or to specifically enforce its provisions with respect to any of the
Debt, pursuant to the statutes in such case made and provided, and sell the
Mortgaged Property or cause the Mortgaged Property to be sold in accordance with
the requirements and procedures provided by said statutes in a single parcel or
in several parcels at the option of Mortgagee. In the event foreclosure
proceedings are instituted by Mortgagee, all expenses incident to such
proceedings, including, but not limited to, reasonable attorneys' fees and
costs, shall be paid by Mortgagor and secured by this Mortgage and by all of the
other Loan Documents securing all or any part of the Debt. The Debt and all
other obligations secured by this Mortgage, including, without limitation,
interest at the Default Interest Rate any prepayment charge, fee or premium
required to be paid under the Note in order to prepay principal (to the extent
permitted by applicable law), reasonable attorneys' fees and any other amounts
due and unpaid to Mortgagee under the Loan Documents, may be bid by Mortgagee in
the event of a foreclosure sale hereunder. In the event of a judicial sale
pursuant to a foreclosure decree, it is understood and agreed that Mortgagee or
its assigns may become the purchaser of the Mortgaged Property or any part
thereof.
(f) Judicial Remedies. Proceed by suit or suits, at law or in equity,
instituted by or on behalf of Mortgagee, upon written request of Mortgagee, to
enforce the
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payment of the Debt or the other obligations of Mortgagor hereunder or pursuant
to the Loan Documents, to foreclose the liens and security interests of this
Mortgage as against all or any part of the Mortgaged Property, and to have all
or any part of the Mortgaged Property sold under the judgment or decree of a
court of competent jurisdiction. This remedy shall be cumulative of any other
non-judicial remedies available to Mortgagee with respect to the Loan Documents.
Proceeding with the request or receiving a judgment for legal relief shall not
be or be deemed to be an election of remedies or bar any available non-judicial
remedy of Mortgagee.
(g) Other. Exercise any other right or remedy available hereunder,
under any of the other Loan Documents or at law or in equity.
15.2. Application of Proceeds. To the fullest extent permitted by
-----------------------
law, the proceeds of any sale under this Mortgage shall be applied, to the
extent funds are so available, to the following items in such order as Mortgagee
in its discretion may determine:
(a) To payment of the reasonable costs, expenses and fees of taking
possession of the Mortgaged Property, and of holding, operating, maintaining,
using, leasing, repairing, improving, marketing and selling the same and of
otherwise enforcing Mortgagee's rights and remedies hereunder and under the
other Loan Documents, including, but not limited to, receivers' fees, court
costs, attorneys', accountants', appraisers', managers' and other professional
fees, title charges and transfer taxes.
(b) To payment of all sums expended by Mortgagee under the terms of
any of the Loan Documents and not yet repaid, together with interest on such
sums at the Default Interest Rate.
(c) To payment of the Debt and all other obligations secured by this
Mortgage, including, without limitation, interest at the Default Interest Rate
and, to the extent permitted by applicable law, any prepayment fee, charge or
premium required to be paid under the Note in order to prepay principal, in any
order that Mortgagee chooses in its sole discretion.
(d) The remainder, if any, of such funds shall be disbursed to
Mortgagor or to the person or persons legally entitled thereto.
15.3. Right and Authority of Receiver or Mortgagee in the Event of
------------------------------------------------------------
Default; Power of Attorney. Upon the occurrence of an Event of Default, and
- --------------------------
entry upon the Mortgaged Property pursuant to Section 15.1(b) hereof or
---------------
appointment of a receiver pursuant to Section 15.1(d) hereof, and under such
---------------
terms and conditions as may be prudent and reasonable under the circumstances in
Mortgagee's or the receiver's sole discretion, all at Mortgagor's expense,
Mortgagee or said receiver, or such other persons or entities as they shall
hire, direct or engage, as the case may be, may do or permit one or more of the
following, successively or concurrently: (a) enter upon and take possession and
control of any and all of the Mortgaged Property; (b) take and maintain
possession of all documents, books, records, papers and accounts relating to the
Mortgaged Property; (c) exclude Mortgagor and
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its agents, servants and employees wholly from the Mortgaged Property; (d)
manage and operate the Mortgaged Property; (e) preserve and maintain the
Mortgaged Property; (f) make repairs and alterations to the Mortgaged Property;
(g) complete any construction or repair of the Improvements, with such changes,
additions or modifications of the plans and specifications or intended
disposition and use of the Improvements as Mortgagee may in its sole discretion
deem appropriate or desirable to place the Mortgaged Property in such condition
as will, in Mortgagee's sole discretion, make it or any part thereof readily
marketable or rentable; (h) conduct a marketing or leasing program with respect
to the Mortgaged Property, or employ a marketing or leasing agent or agents to
do so, directed to the leasing or sale of the Mortgaged Property under such
terms and conditions as Mortgagee may in its sole discretion deem appropriate or
desirable; (i) employ such contractors, subcontractors, materialmen, architects,
engineers, consultants, managers, brokers, marketing agents, or other employees,
agents, independent contractors or professionals, as Mortgagee may in its sole
discretion deem appropriate or desirable to implement and effectuate the rights
and powers granted herein and in the other Loan Documents; (j) execute and
deliver, in the name of Mortgagee as attorney-in-fact and agent of Mortgagor or
in its own name as Mortgagee, such documents and instruments as are necessary or
appropriate to consummate authorized transactions; (k) enter into such leases,
whether of real or personal property, or tenancy agreements, under such terms
and conditions as Mortgagee may in its sole discretion deem appropriate or
desirable; (l) collect and receive the Rents and Profits from the Mortgaged
Property; (m) eject tenants or repossess personal property, as provided by law,
for breaches of the conditions of their leases or other agreements; (n) sue for
unpaid Rents and Profits, payments, income or proceeds in the name of Mortgagor
or Mortgagee; (o) maintain actions in forcible entry and detainer, ejectment for
possession and actions in distress for rent; (p) compromise or give acquittance
for Rents and Profits, payments, income or proceeds that may become due; (q)
delegate or assign any and all rights and powers given to Mortgagee by this
Mortgage; and (r) do any acts which Mortgagee or the receiver in its sole
discretion deems appropriate or desirable to protect the security hereof and use
such measures, legal or equitable, as Mortgagee or the receiver may in its sole
discretion deem appropriate or desirable to implement and effectuate the
provisions of this Mortgage. This Mortgage shall constitute a direction to and
full authority to any Tenant, or other third party who has heretofore dealt or
contracted or may hereafter deal or contract with Mortgagor or Mortgagee, at the
request of Mortgagee, to pay all amounts owing under any lease, contract,
concession, license or other agreement to Mortgagee without proof of the Event
of Default relied upon. Any such Tenant or third party is hereby irrevocably
authorized to rely upon and comply with (and shall be fully protected by
Mortgagor in so doing) any request, notice or demand by Mortgagee for the
payment to Mortgagee of any Rents and Profits or other sums which may be or
thereafter become due under its lease, contract, concession, license or other
agreement, or for the performance of any undertakings under any such lease,
contract, concession, license or other agreement, and shall have no right or
duty to inquire whether any Event of Default under this Mortgage or under any of
the other Loan Documents has actually occurred or is then existing. Mortgagor
hereby irrevocably constitutes and appoints Mortgagee, its assignees,
successors, transferees and nominees, as Mortgagor's true and lawful attorney-
in-fact and agent, with full power of substitution in the Mortgaged Property, in
Mortgagor's name, place and stead, to do or permit any one or more of the
foregoing described rights, remedies, powers and authorities,
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successively or concurrently. Any money advanced by Mortgagee in connection
with any action taken under this Section 15.3, together with interest thereon at
------------
the Default Interest Rate from the date of making such advancement by Mortgagee
until actually paid by Mortgagor, shall be a demand obligation owing by
Mortgagor to Mortgagee and shall be secured by this Mortgage and by every other
instrument securing all or any portion of the Debt.
15.4. Occupancy After Foreclosure. In the event there is a
---------------------------
foreclosure sale hereunder and at the time of such sale, Mortgagor or
Mortgagor's representatives, successors or assigns, or any other persons
claiming any interest in the Mortgaged Property by, through or under Mortgagor
(except Tenants under Leases entered into prior to the date hereof), are
occupying or using the Mortgaged Property, or any part thereof, then, to the
extent not prohibited by applicable law, each and all shall, at the option of
Mortgagee or the purchaser at such sale, as the case may be, immediately become
the tenant of the purchaser at such sale, which tenancy shall be a tenancy from
day-to-day, terminable at the will of either landlord or tenant, at a reasonable
rental per day based upon the higher of either (i) any rate provided in a lease
then in effect with Mortgagor or, if none exists, then (ii) the value of the
Mortgaged Property occupied or used, such rental to be due daily to the
purchaser. Further, to the extent permitted by applicable law, in the event the
tenant fails to surrender possession of the Mortgaged Property upon the
termination of such tenancy, the purchaser shall be entitled to institute and
maintain an action for unlawful detainer of the Mortgaged Property in the
appropriate court of the county in which the Premises is located.
15.5. Notice to Account Debtors. Mortgagee may, at any time after an
-------------------------
Event of Default, notify the account debtors and obligors of any accounts,
chattel paper, negotiable instruments or other evidences of indebtedness to
Mortgagor included in the Mortgaged Property to pay Mortgagee directly.
Mortgagor shall at any time or from time to time upon the request of Mortgagee
provide to Mortgagee a current list of all such account debtors and obligors and
their addresses.
15.6. Cumulative Remedies. All remedies contained in this Mortgage
-------------------
are cumulative and Mortgagee shall also have all other remedies provided at law
and in equity or in any other Loan Documents. Such remedies may be pursued
separately, successively or concurrently at the sole subjective direction of
Mortgagee and may be exercised in any order and as often as occasion therefor
shall arise.
15.7. Payment of Expenses. Mortgagor shall pay on demand all of
-------------------
Mortgagee's expenses incurred in any efforts to enforce any terms of this
Mortgage, whether or not any lawsuit is filed and whether or not foreclosure is
commenced but not completed, including, but not limited to, reasonable legal
fees and disbursements, foreclosure costs and title charges, together with
interest thereon from and after the date incurred by Mortgagee until actually
paid by Mortgagor at the Default Interest Rate, and the same shall be secured by
this Mortgage and by all of the other Loan Documents securing all or any part of
the Debt.
15.8. Mortgagor's Waivers. To the full extent permitted by law,
-------------------
Mortgagor agrees that Mortgagor shall not at any time insist upon, plead, claim
or take the benefit or advantage of any law now or hereafter in force providing
for any appraisement, valuation,
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stay, moratorium or extension, or any law now or hereafter in force providing
for the reinstatement of the Debt prior to any sale of the Mortgaged Property to
be made pursuant to any provisions contained herein or prior to the entering of
any decree, judgment or order of any court of competent jurisdiction, or any
right under any statute to redeem all or any part of the Mortgaged Property so
sold. Mortgagor, for Mortgagor and Mortgagor's successors and assigns, and for
any and all persons ever claiming any interest in the Mortgaged Property, to the
full extent permitted by law, hereby knowingly, intentionally and voluntarily,
with and upon the advice of competent counsel: (a) waives, releases,
relinquishes and forever forgoes all rights of valuation, appraisement, stay of
execution, reinstatement and notice of election or intention to mature or
declare due the Debt (except such notices as are specifically provided for
herein); (b) waives, releases, relinquishes and forever forgoes all right to a
marshaling of the assets of Mortgagor, including the Mortgaged Property, to a
sale in the inverse order of alienation, or to direct the order in which any of
the Mortgaged Property shall be sold in the event of foreclosure of the liens
and security interests hereby created and agrees that any court having
jurisdiction to foreclose such liens and security interests may order the
Mortgaged Property sold as an entirety; and (c) waives, releases, relinquishes
and forever forgoes all rights and periods of redemption provided under
applicable law. To the full extent permitted by law, Mortgagor shall not have or
assert any right under any statute or rule of law pertaining to the exemption of
homestead or other exemption under any federal, state or local law now or
hereafter in effect, the administration of estates of decedents or other matters
whatever to defeat, reduce or affect the right of Mortgagee under the terms of
this Mortgage to a sale of the Mortgaged Property, for the collection of the
Debt without any prior or different resort for collection, or the right of
Mortgagee under the terms of this Mortgage to the payment of the Debt out of the
proceeds of sale of the Mortgaged Property in preference to every other claimant
whatever. Furthermore, Mortgagor hereby knowingly, intentionally and
voluntarily, with and upon the advice of competent counsel, waives, releases,
relinquishes and forever forgoes all present and future statutes of limitations
as a defense to any action to enforce the provisions of this Mortgage or to
collect any of the Debt to the fullest extent permitted by law. Mortgagor
covenants and agrees that upon the commencement of a voluntary or involuntary
bankruptcy proceeding by or against Mortgagor, Mortgagor shall not seek a
supplemental stay or otherwise shall not seek pursuant to 11 U.S.C. (S)105 or
any other provision of the Bankruptcy Reform Act of 1978, as amended, or any
other debtor relief law (whether statutory, common law, case law, or otherwise)
of any jurisdiction whatsoever, now or hereafter in effect, which may be or
become applicable, to stay, interdict, condition, reduce or inhibit the ability
of Mortgagee to enforce any rights of Mortgagee against any guarantor or
indemnitor of the secured obligations or any other party liable with respect
thereto by virtue of any indemnity, guaranty or otherwise.
15.9. Submission to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------
(a) MORTGAGOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
(i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE PREMISES IS
LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR
RELATING
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TO THE NOTE, THIS MORTGAGE OR ANY OTHER OF THE LOAN DOCUMENTS, (ii) AGREES THAT
ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT
OF COMPETENT JURISDICTION SITTING IN THE COUNTY IN WHICH THE PREMISES IS
LOCATED, (iii) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND (iv) TO THE
FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY ACTION, SUIT
OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF
MORTGAGEE TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).
(b) EACH OF MORTGAGOR AND MORTGAGEE BY ITS ACCEPTANCE OF THIS
MORTGAGE, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES,
RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE DEBT OR ANY
CONDUCT, ACT OR OMISSION OF MORTGAGEE OR MORTGAGOR, OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY
OTHER PERSONS AFFILIATED WITH MORTGAGEE OR MORTGAGOR, IN EACH OR THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. MORTGAGOR HEREBY
CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS,
IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING ARISING FROM OR RELATING TO
THE NOTE, THIS MORTGAGE OR ANY OF THE OTHER LOAN DOCUMENTS BY REGISTERED OR
CERTIFIED U.S. MAIL, POSTAGE PREPAID TO MORTGAGOR AT THE ADDRESS FOR NOTICES
DESCRIBED HEREINABOVE.
ARTICLE XVI.
MISCELLANEOUS TERMS AND CONDITIONS
----------------------------------
16.1. Time of Essence. Time is of the essence with respect to all
---------------
provisions of this Mortgage.
16.2. Release of Mortgage. If all of the Debt be paid, then and in
-------------------
that event only, all rights under this Mortgage, except for those provisions
hereof which by their terms survive, shall terminate and the Mortgaged Property
shall become wholly clear of the liens, security interests, conveyances and
assignments evidenced hereby, which shall be promptly released of record by
Mortgagee in due form at Mortgagor's cost.
16.3. Notices. All notices, demands, requests or other
-------
communications to be sent by one party to the other hereunder or required by law
shall be in writing and shall be deemed to have been validly given or served by
delivery of the same in person to the intended addressee, or by depositing the
same with Federal Express or another reputable private courier service for next
business day delivery, or by depositing the same in the United States mail,
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postage prepaid, registered or certified mail, return receipt requested, in any
event addressed to the intended addressee at its address set forth on the first
page of this Mortgage or at such other address as may be designated by such
party as herein provided. All notices, demands and requests shall be effective
upon such personal delivery, or one (1) business day after being deposited with
the private courier service, or three (3) business days after being deposited in
the United States mail as required above. Rejection or other refusal to accept
or the inability to deliver because of changed address of which no notice was
given as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least fifteen (15) days'
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
16.4. Successors and Assigns; Joint and Several Liability. The
---------------------------------------------------
terms, provisions, indemnities, covenants and conditions hereof shall be binding
upon Mortgagor and the successors and assigns of Mortgagor, including all
successors in interest of Mortgagor in and to all or any part of the Mortgaged
Property, and shall inure to the benefit of Mortgagee, its directors, officers,
shareholders, employees and agents and their respective successors and assigns
and shall constitute covenants running with the land. The term "Mortgagee" as
used herein shall also mean and refer to any lawful holder or owner, including
pledgees and participants, of any of the Debt. If more than one person or
entity is the "Mortgagor" hereunder, each is jointly and severally liable to
perform the obligations of Mortgagor hereunder and all representations,
warranties, covenants and agreements made by Mortgagor hereunder are joint and
several.
16.5. Severability. A determination that any provision of this
------------
Mortgage is unenforceable or invalid shall not affect the enforceability or
validity of any other provision, and any determination that the application of
any provision of this Mortgage to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision
as it may apply to any other persons or circumstances.
16.6. Gender. Within this Mortgage, words of any gender shall be
------
held and construed to include any other gender, and words in the singular shall
be held and construed to include the plural, and vice versa, unless the context
otherwise requires.
16.7. Waiver; Discontinuance of Proceedings. Mortgagee may waive any
-------------------------------------
single Event of Default by Mortgagor hereunder without waiving any other prior
or subsequent Event of Default. No waiver of an Event of Default shall be valid
for any purpose hereunder unless given in writing by Mortgagee. Mortgagee may
cure any Event of Default by Mortgagor hereunder without waiving the Event of
Default remedied. Neither the failure by Mortgagee to exercise, nor the delay
by Mortgagee in exercising, any right, power or remedy upon any Event of Default
by Mortgagor hereunder shall be construed as a waiver of such Event of Default
or as a waiver of the right to exercise any such right, power or remedy at a
later date. No single or partial exercise by Mortgagee of any right, power or
remedy hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to
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time. No modification or waiver of any provision hereof nor consent to any
departure by Mortgagor therefrom shall in any event be effective unless the same
shall be in writing and signed by Mortgagee, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
given. No notice to nor demand on Mortgagor in any case shall of itself entitle
Mortgagor to any other or further notice or demand in similar or other
circumstances. Acceptance by Mortgagee of any payment in an amount less than the
amount then due on any of the Debt shall be deemed an acceptance on account only
and shall not in any way affect the existence of an Event of Default. In case
Mortgagee shall have proceeded to invoke any right, remedy or recourse permitted
hereunder or under the other Loan Documents and shall thereafter elect to
discontinue or abandon the same for any reason, Mortgagee shall have the
unqualified right to do so and, in such an event, Mortgagor and Mortgagee shall
be restored to their former positions with respect to the Debt, the Loan
Documents, the Mortgaged Property and otherwise, and the rights, remedies,
recourses and powers of Mortgagee shall continue as if the same had never been
invoked.
16.8. Section Headings. The headings of the sections and paragraphs
----------------
of this Mortgage are for convenience of reference only, are not to be considered
a part hereof and shall not limit or otherwise affect any of the terms hereof.
16.9. Governing Law. THIS MORTGAGE WILL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED
WITHOUT REGARD TO ITS CONFLICTS OF LAWS RULES.
16.10. Counting of Days. The term "days" when used herein shall mean
----------------
calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the state within which the Premises is located, the
period shall be deemed to end on the next succeeding business day. The term
"business day" when used herein shall mean a weekday, Monday through Friday,
except a legal holiday or a day on which banking institutions in the state in
which the Premises are located and in New York, New York are authorized by law
to be closed.
16.11. Relationship of the Parties. The relationship between
---------------------------
Mortgagor and Mortgagee is that of a borrower and a lender only and neither of
those parties is, nor shall it hold itself out to be, the agent, employee, joint
venturer or partner of the other party.
16.12. Unsecured Portion of Indebtedness. If any part of the Debt
---------------------------------
cannot be lawfully secured by this Mortgage or if any part of the Mortgaged
Property cannot be lawfully subject to the lien and security interest hereof to
the full extent of such indebtedness, then all payments made shall be applied on
said indebtedness first in discharge of that portion thereof which is unsecured
by this Mortgage.
16.13. Cross Default. An Event of Default hereunder shall be a
-------------
default under each of the other Loan Documents.
16.14. Inconsistency with Other Loan Documents. In the event of any
---------------------------------------
inconsistency between the provisions hereof and the provisions in any of the
other Loan
58
<PAGE>
Documents, it is intended that the provisions of the Note shall control over
the provisions of this Mortgage, and that the provisions of this Mortgage shall
control over the provisions of the Assignment of Leases and Rents and Profits,
the Environmental Indemnity Agreement and the other Loan Documents.
16.15. No Merger. It is the desire and intention of the parties
---------
hereto that this Mortgage and the lien hereof do not merge in fee simple title
to the Mortgaged Property.
16.16. Rights With Respect to Junior Encumbrances. Without implying
------------------------------------------
that any person or entity has the right to do so, any person or entity
purporting to have or to take a junior Mortgage or other lien upon the Mortgaged
Property or any interest therein shall be subject to the rights of Mortgagee to
amend, modify, increase, vary, alter or supplement this Mortgage, the Note or
any of the other Loan Documents, and to extend the maturity date of the Debt,
and to increase the amount of the Debt, and to waive or forebear the exercise of
any of its rights and remedies hereunder or under any of the other Loan
Documents and to release any collateral or security for the Debt, in each and
every case without obtaining the consent of the holder of such junior lien and
without the lien or security interest of this Mortgage losing its priority over
the rights of any such junior lien.
16.17. Mortgagee May File Proofs of Claim. In the case of any
----------------------------------
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Mortgagor or the principals, general
partners or managing members in Mortgagor, or their respective creditors or
property, Mortgagee, to the extent permitted by law, shall be entitled to file
such proofs of claim and other documents as may be necessary or advisable in
order to have the claims of Mortgagee allowed in such proceedings for the entire
Debt at the date of the institution of such proceedings and for any additional
amount which may become due and payable by Mortgagor hereunder after such date.
16.18. Fixture Filing. This Mortgage shall be effective from the
--------------
date of its recording as a financing statement filed as a fixture filing with
respect to all goods constituting part of the Mortgaged Property which are or
are to become fixtures. This Mortgage shall also be effective as a financing
statement covering minerals or the like (including oil and gas) and is to be
filed for record in the real estate records of the county where the Premises is
situated. The Mortgaged Property are or are to become fixtures. The address of
the Mortgagee from whom information concerning the security interest in the
Mortgaged Property may be obtained is as set forth on page 1 of this Mortgage.
16.19. Counterparts. This Mortgage may be executed in any number of
------------
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if the signatory(s) hereto had signed
the same signature page.
16.20. Recording and Filing. Mortgagor will cause the Loan Documents
--------------------
and all amendments and supplements thereto and substitutions therefor to be
recorded, filed, re-recorded and re-filed in such manner and in such places as
Mortgagee shall reasonably request, and will pay on demand all such recording,
filing, re-recording and re-filing taxes,
59
<PAGE>
fees and other charges. Mortgagor shall reimburse Mortgagee, or its servicing
agent, for the costs incurred in obtaining a tax service company to verify the
status of payment of taxes and assessments on the Mortgaged Property.
16.21. Entire Agreement and Modifications. This Mortgage and the
----------------------------------
other Loan Documents contain the entire agreements between the parties relating
to the subject matter hereof and thereof and all prior agreements relative
hereto and thereto which are not contained herein or therein are terminated.
This Mortgage and the other Loan Documents may not be amended, revised, waived,
discharged, released or terminated orally but only by a written instrument or
instruments executed by the party against which enforcement of the amendment,
revision, waiver, discharge, release or termination is asserted.
16.22. Maximum Interest. The provisions of this Mortgage and of all
----------------
agreements between Mortgagor and Mortgagee, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration of
the maturity of the Note or otherwise, shall the amount charged, contracted for,
received, paid, or agreed to be paid ("Interest") to Mortgagee for the use,
--------
forbearance or retention of the money loaned under the Note exceed the maximum
amount permissible under applicable law. If, from any circumstance whatsoever,
performance or fulfillment of any provision hereof or of any agreement between
Mortgagor and Mortgagee shall, at the time performance or fulfillment of such
provision shall be due, exceed the limit for Interest prescribed by law or
otherwise transcend the limit of validity prescribed by applicable law, then,
ipso facto, the obligation to be performed or fulfilled shall be reduced to such
- ---- -----
limit, and if, from any circumstance whatsoever, Mortgagee shall ever receive
anything of value deemed Interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive Interest shall be applied to the
reduction of the principal balance owing under the Note in the inverse order of
its maturity (whether or not then due) or, at the option of Mortgagee, be paid
over to Mortgagor, and not to the payment of Interest. All Interest (including
any amounts or payments deemed to be Interest) paid or agreed to be paid to
Mortgagee shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full period until payment in full
of the principal balance of the Note so that the Interest thereon for such full
period will not exceed the maximum amount permitted by applicable law. This
Section will control all agreements between Mortgagor and Mortgagee.
PART II
NEW JERSEY STATE PROVISIONS
17.01 Certain Matters Relating to Mortgaged Property Located in the
-------------------------------------------------------------
State of New Jersey. With respect to the Mortgaged Property which is located in
- -------------------
the State of New Jersey notwithstanding anything contained herein to the
contrary:
(a) In the event of any inconsistencies between the terms and
conditions of Part I and Part II of this Mortgage, the terms of Part II shall
control and be binding.
60
<PAGE>
(b) Paragraph 4.1(a) of this Mortgage is hereby deleted in its
entirety and the following Paragraph 4.1(a) is substituted therefor:
"4.1(a) Mortgagor hereby represents and warrants to Mortgagee that,
to the best of Mortgagor's knowledge: (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, 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 ("CERCLA"), the Resource Conservation and
------
Recovery Act, as amended ("RCRA"), the Emergency Planning and Community
----
Right-to-Know Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, the Solid Waste Disposal Act, as amended,
the Clean Water Act, as amended, the Clean Air Act, as amended, the Toxic
Substance Control Act, as amended, the Safe Drinking Water Act, as amended,
the Occupational Safety and Health Act, as amended, the New Jersey
Industrial Site Recovery Act, N.J.S.A. 13:1k-6 et.seq., as amended
("ISRA"), the New Jersey Spill Compensation and Control Act, N.J.S.A.
----
58:10-23.11 et. seq., as amended, the New Jersey Underground Storage of
Hazardous Substances Act, N.J.S.A. 58:10A-1, et seq., as amended, the New
Jersey Water Pollution Control Act, N.J.S.A. 58:10A-1 et seq., as amended,
the Sanitary Landfill Facility Closure and Contingency Fund Act, N.J.S.A.
13:1E-100 et seq., as amended, and any state super-lien and environmental
clean-up statutes and all regulations adopted in respect to the foregoing
laws (collectively, "Environmental Laws"); (b) the Mortgaged Property is
------------------
not subject to any private or governmental lien or judicial or
administrative notice or action or inquiry, investigation or claim relating
to hazardous and/or toxic, dangerous and/or regulated, substances, wastes,
materials, raw materials which include hazardous constituents, pollutants
or contaminants including without limitation, petroleum, tremolite,
anthlophylie, actinolite or polychlorinated biphenyls, radon, formaldehyde
insulation and any other substances or materials which are included under
or regulated by Environmental Laws (collectively, "Hazardous Substances")
--------------------
except for those substances used by Mortgagor or any Tenant in the ordinary
course of their respective businesses and in compliance with all
Environmental Laws and where such could not reasonably be expected to give
rise to liability under Environmental Laws ("Permitted Materials"); (c) no
-------------------
Hazardous Substances are or have been (including the period prior to
Mortgagor'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; (d) no underground storage tanks exist on any of the
Mortgaged Property; and (e) the Mortgaged Property is not located within a
"freshwater wetlands" or a "transition area," each as defined by N.J.S.A.
13:9B-3, and is not subject to the terms of the New Jersey Freshwater
Wetlands Protection Act, as amended, N.J.S.A. 13:9B-1 et. seq., or the
--- ---
rules and regulations promulgated thereunder. So long as Mortgagor owns or
is in possession of the Mortgaged Property, Mortgagor (i) shall keep or
cause the Mortgaged Property to be kept free from Hazardous Substances and
in compliance with all Environmental Laws, (ii) shall
61
<PAGE>
promptly notify Mortgagee if Mortgagor shall become aware of any Hazardous
Substances on the Mortgaged Property and/or if Mortgagor shall become aware
that the Mortgaged Property is in direct or indirect violation of any
Environmental Laws and/or if Mortgagor shall become aware of any condition
on the Mortgaged Property which shall pose a threat to the health, safety
or welfare of humans, and (iii) shall remove such Hazardous Substances
and/or cure such violations and/or remove such threats, as applicable, as
required by law (or as shall be required by Mortgagee in the case of
removal which is not required by law, but in response to the opinion of
Mortgagee's Consultant (hereinafter defined)), promptly after Mortgagor
becomes aware of same, at Mortgagor's sole expense. Nothing herein shall
prevent Mortgagor from recovering such expenses from any other party that
may be liable for such removal or cure. The obligations and liabilities of
Mortgagor under this Paragraph 4.1(a) shall survive any termination,
satisfaction, or assignment of this Mortgage and the exercise by Mortgagee
of any of its rights or remedies hereunder, including, without limitation,
the acquisition of the Mortgaged Property by foreclosure or a conveyance in
lieu of foreclosure.
(b) Mortgagor shall not conduct or cause or permit to be
conducted on the Mortgaged Property any activity which constitutes an
Industrial Establishment (as such term is defined in ISRA) without the
prior written consent of Mortgagee. In the event that the provisions of
ISRA become applicable to the Mortgaged Property subsequent to the date
hereof, Mortgagor shall give prompt written notice thereof to Mortgagee and
shall take immediate requisite action to insure full compliance therewith.
Mortgagor shall deliver to Mortgagee copies of all correspondence, notices
and submissions that it sends to or receives from the New Jersey Department
of Environmental Protection in connection with such ISRA compliance.
Mortgagor's obligation to comply with ISRA shall, notwithstanding its
general applicability, also specifically apply to sale, transfer, closure
or termination of operations associated with any foreclosure action,
including, without limitation, a foreclosure action brought with respect to
this Mortgage. In connection with the purchase of the Mortgaged Property,
Mortgagor required that the seller of the Mortgaged Property comply with
the provisions of ISRA and the Seller did comply therewith.
(c) The Mortgaged Property has not been and is not now being used
as a Major Facility (as defined in the Environmental Laws), and Mortgagor
shall not use any such property as a Major Facility in the future without
the prior written consent of Mortgagee. If Mortgagor ever becomes an owner
or operator of a Major Facility, then Mortgagor shall furnish the New
Jersey Department of Environmental Protection with all the information
required by N.J.S.A. 58:10-23.11d, and shall duly file with the Director of
the Division of Taxation in the New Jersey Department of the Treasury a tax
report or return, and shall pay all taxes due therewith, in accordance with
N.J.S.A. 58:10-23, 11b."
(c) If, after receipt of any payment of all or any part of the Debt,
Mortgagee is compelled or agrees, for settlement purposes, to surrender such
payment to any person or entity for any reason (including, without limitation, a
determination that such payment is void or voidable as a preference or
fraudulent conveyance, an impermissible setoff, or a diversion
62
<PAGE>
of trust funds), then this Mortgage and the other Loan Documents shall continue
in full force and effect, and Mortgagor shall be liable for, and shall
indemnify, defend and hold harmless Mortgagee with respect to the full amount so
surrendered. The provisions of this Section 17.01(c) shall survive the
----------------
cancellation or discharge of this Mortgage and shall remain effective
notwithstanding the payment of the Debt, the cancellation of the Note, the
release of any security interest, lien or encumbrance securing the Debt or any
other action which Mortgagee may have taken in reliance upon its receipt of such
payment. Any cancellation, release or other such action by Mortgagee shall be
deemed to have been conditioned upon any payment of the Debt having become final
and irrevocable.
17.02 RECEIPT OF MORTGAGE. MORTGAGOR HEREBY ACKNOWLEDGES RECEIPT OF A TRUE
-------------------
COPY OF THIS MORTGAGE, WITHOUT CHARGE.
17.03 (a) Forced Insurance Notice. WARNING: UNLESS MORTGAGOR PROVIDES
-----------------------
MORTGAGEE WITH EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY THE LOAN
DOCUMENTS, THE MORTGAGEE MAY PURCHASE INSURANCE AT MORTGAGOR'S EXPENSE TO
PROTECT MORTGAGEE'S INTEREST. THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT
MORTGAGOR'S INTEREST. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE MORTGAGEE
PURCHASES MAY NOT PAY ANY CLAIM MORTGAGOR MAKES OR ANY CLAIM MADE AGAINST
MORTGAGOR MORTGAGOR MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT
MORTGAGOR HAS OBTAINED PROPERTY COVERAGE ELSEWHERE.
63
<PAGE>
MORTGAGOR IS RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY
MORTGAGEE. THE COST OF THIS INSURANCE MAY BE ADDED TO THE LOAN BALANCE. IF
THIS COST IS ADDED TO THE LOAN BALANCE, THE INTEREST RATE PAYABLE UNDER THE
UNDERLYING LOAN WILL APPLY TO THE ADDED AMOUNT. THE EFFECTIVE DATE OF THE
COVERAGE MAY BE THE DATE MORTGAGOR'S PRIOR COVERAGE LAPSED OR THE DATE MORTGAGOR
FAILED TO PROVIDE PROOF OF COVERAGE.
THE COVERAGE MORTGAGEE PURCHASES MAY BE CONSIDERABLY MORE EXPENSIVE
THAN INSURANCE MORTGAGOR CAN OBTAIN ON MORTGAGOR'S OWN AND MAY NOT SATISFY ANY
NEED FOR PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE
REQUIREMENTS IMPOSED BY APPLICABLE LAW.
(b) No Oral Commitments Notice. UNDER OREGON LAW, MOST AGREEMENTS,
--------------------------
PROMISES AND COMMITMENTS MADE BY MORTGAGEE AFTER NOVEMBER 3, 1989, CONCERNING
LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR
HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE MORTGAGOR'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage on the
day and year first written above.
MORTGAGOR:
---------
DMG NEW JERSEY ALC, INC. ,
a Nevada corporation
By: _____________________
Name:
Title:
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
31 West 52nd
10th Floor
New York, New York 10019
-------------------------------------
On behalf of the Mortgagee
64
<PAGE>
STATE OF )
) ss:
COUNTY OF )
BE IT REMEMBERED, that on this _____ day of November, 1998 before me,
the subscriber, personally appeared ______________________________ who, I am
satisfied, is the person who signed the within instrument as
___________________________ of DMG NEW JERSEY ALC, INC., a Nevada corporation,
named therein and this person thereupon acknowledged that the said instrument
made by said corporation and sealed with its corporate seal, was signed, sealed
and delivered by this person as such officer and is the voluntary act and deed
of the corporation, made by virtue of authority from said corporation's Board of
Directors.
--------------------------------
65
<PAGE>
BURLINGTON, NJ
EXHIBIT A
All that certain tract, parcel and lot of land lying and being situate in the
Township of Burlington, County of Burlington, State of New Jersey, being more
particularly described as follows:
Beginning at a point in the southerly line of Sunset Road (Burlington County
Route No. 634, 49.50 feet wide), at its intersection with the easterly line of
Tax Map Lot 7.05, Block 119, and extending; thence
(1) South 87 degrees 30 minutes 00 seconds east, along the southerly line of
Sunset Road, 609.67 feet to a point; thence
(2) South 19 degrees 45 minutes 00 seconds west, along the westerly line of Tax
Map Lot 7.06, Block 119, 383.79 feet to a point; thence
(3) North 77 degrees 15 minutes 00 seconds west, along the northerly line of Tax
Map Lot 10, Block 119, 397.64 feet to a point; thence
(4) North 16 degrees 58 minutes 13 seconds west, along the easterly line of Tax
Map Lot 7.05, Block 119, 313.71 feet to a point in the southerly line of Sunset
Road, being the point and place of beginning.
Lot 7.03, Block 119, on the official Tax Map of Burlington Township.
66
<PAGE>
PENNSVILLE, NJ
All that certain tract, parcel and lot of land lying and being situate in the
Township of Middle, County of Cape May, State of New Jersey, being more
particularly described as follows:
Beginning at a point in the northeasterly line of New Jersey State Highway Route
47 (66 feet wide) at the intersection with the southeasterly line of Tax Map Lot
26, Block 1414.01, extending; thence
(1) North 38 degrees 28 minutes 30 seconds east, along the southeasterly line of
Tax map Lots 26 and 12.01, Block 1414.01, 565.51 feet to a point; thence
(2) South 27 degrees 30 minutes east, along the southwesterly line of Tax Map
Lot 24, Block 1414.01, 327.48 feet to a point; thence
(3) South 38 degrees 28 minutes 30 seconds west, along the northwesterly line of
Tax Map Lot 25.03, Block 1414.01, 455.24 feet to a point in the northeasterly
line of New Jersey State Highway Route 47; thence
(4) North 47 degrees 7 minutes 00 seconds west, along the northeasterly line of
New Jersey State Highway Route 47, 300 feet to the point and place of beginning.
Being known and designated as Lot 25.01, Block 1414.01 on the Tax Map of the
Township of Middle, Cape May County, New Jersey.
Lot 25.01, Block 1414.01, on the Official Tax Map of Middle Township
67
<PAGE>
RIO GRANDE, NJ
All that certain tract, parcel and lot of land lying and being situate in the
Township of Pennsville, County of Salem, State of New Jersey, being more
particularly described as follows:
Beginning at a point in the westerly line of Supawna Road, (at this point 50
feet wide as widened 17.00 feet eastwardly from the original easterly line of
same), at its intersection with the southerly line of Tax Map Lot 3, Block 4503,
lands now or formerly of Joseph and Debra Galanti, and extending; thence
(1) South 06 degrees 57 minutes 49 seconds west, along the westerly line of
Supawna Road, 154.91 feet to an angle point in same;
(2) South 07 degrees 05 minutes 49 seconds west, continuing along the westerly
line of Supawna Road, 331.00 feet to a point;
(3) North 82 degrees 54 minutes 25 seconds west, 351.28 feet to a point in the
approximate center line of an existing drainage ditch flowing southwardly from
the aforementioned lands of Galenti; thence
(4) North 9 degrees 02 minutes 17 seconds east, along the approximate center
line of said ditch (for this and the following two courses), 36.76 feet to a
point; thence
(5) North 12 degrees 34 minutes 54 seconds east, 350.00 feet to a point; thence
(6) North 12 degrees 28 minutes 29 seconds east, 137.91 feet to a point in the
southerly line of Tax Map Lot 3; thence
(7) South 76 degrees 02 minutes 21 seconds east, along same, 305.47 feet to the
point and place of beginning.
Lot 4.01, Block 4503, on the Official Tax Map of Pennsville Township.
68
<PAGE>
SCHEDULE I
----------
Property Specific Information
-----------------------------
<TABLE>
<CAPTION>
Allocated Loan Replacement Reserve
Premises Amount
- --------------------------------------------------------------------------------------
<S> <C> <C>
1. Granville (Burlingson) $2,980,000.00 $812.50/month
2. Chapin (Rio Grande) $2,980,000.00 $812.50/month
3. Lindsay (Pennsville) $2,740,000.00 $812.50/month
Total $8,700,000.00 $2,437.50/month
- --------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
EXHIBIT 10.19
=================================================================
DMG OREGON ALC, INC.,
as Grantor
to
CHICAGO TITLE COMPANY
as Trustee
for the benefit of
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
as Beneficiary
_________________________
DEED OF TRUST AND SECURITY AGREEMENT
_________________________
Date: July 10, 1998
Effective as of July 16, 1998
PREPARED BY AND UPON RECORDATION RETURN TO:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Robert McDonough, Esq.
=================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEX OF DEFINITIONS.................................................... iv
PART I
ARTICLE I. TAXES AND UTILITIES.......................................... 5
1.1. Payment of Taxes................................................ 5
1.2. Tax and Insurance Impound Account............................... 6
1.3. Payment of Utilities, Assessments, Charges, Etc................. 6
1.4. Additional Taxes................................................ 6
ARTICLE II. INSURANCE.................................................. 7
2.1. Insurance....................................................... 7
ARTICLE III. CASUALTY AND CONDEMNATION................................. 10
3.1. Casualty and Condemnation....................................... 10
ARTICLE IV. ENVIRONMENTAL MATTERS...................................... 13
4.1. Hazardous Waste and Other Substances............................ 13
ARTICLE V. RESERVES.................................................... 16
5.1 Payment Reserve................................................. 16
5.2 Replacement Reserve............................................. 17
5.3 Intentionally Deleted........................................... 18
5.4 Intentionally Deleted........................................... 18
5.5 Reserves Generally; Security Interest........................... 18
ARTICLE VI. RENTS; LEASES; ALIENATION.................................. 20
6.1. Rents and Profits............................................... 20
6.2. Leases.......................................................... 20
6.3. Alienation and Further Encumbrances............................. 22
6.4. Easements and Rights-of-Way..................................... 24
6.5. Partial Release of Mortgaged Property........................... 24
ARTICLE VII. PROPERTY MANAGEMENT....................................... 25
7.1. Management...................................................... 25
ARTICLE VIII. INDEMNIFICATION.......................................... 26
8.1. Indemnification; Subrogation.................................... 26
ARTICLE IX. REPORTING.................................................. 27
9.1. Access Privileges and Inspections............................... 27
9.2. Financial Statements and Books and Records...................... 28
ARTICLE X. WARRANTIES AND COVENANTS.................................... 29
10.1. Warranties of Grantor........................................... 29
10.2. Waste; Alteration of Improvements............................... 32
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
10.3. Zoning.......................................................... 32
10.4. Covenants with Respect to Indebtedness, Operations, Fundamental
Changes of Grantor.............................................. 33
10.5. Accounts Receivable Financing................................... 35
ARTICLE XI. FURTHER ASSURANCES......................................... 37
11.1. Defense of Title................................................ 37
11.2. Performance of Obligations...................................... 38
11.3. Construction Liens.............................................. 38
11.4. Further Documentation........................................... 38
11.5. Payment of Costs; Beneficiary's Right to Cure................... 39
11.6. Compliance with Laws............................................ 40
11.7. Attorney-in-Fact Provisions..................................... 40
ARTICLE XII. PAYMENT; DEFEASANCE; PREPAYMENT........................... 41
12.1. Payment of the Notes............................................ 41
12.2. Computation of Interest......................................... 41
12.3. Application of Payments......................................... 41
12.4. Prepayment...................................................... 41
12.5. Defeasance...................................................... 42
12.6. Optional Prepayment Date Provisions............................. 45
ARTICLE XIII. SECURITY PROVISIONS...................................... 45
13.1. Security Interest............................................... 45
13.2. Security Agreement.............................................. 46
13.3. Secured Indebtedness............................................ 47
ARTICLE XIV. DEFAULT................................................... 47
14.1. Events of Default............................................... 47
ARTICLE XV. REMEDIES................................................... 49
15.1. Remedies Available.............................................. 49
15.2. Application of Proceeds......................................... 53
15.3. Right and Authority of Receiver or Beneficiary in the Event of
Default; Power of Attorney...................................... 53
15.4. Occupancy After Foreclosure..................................... 55
15.5. Notice to Account Debtors....................................... 55
15.6. Cumulative Remedies............................................. 55
15.7. Payment of Expenses............................................. 55
15.8. Grantor's Waivers............................................... 55
15.9. Submission to Jurisdiction; Waiver of Jury Trial................ 56
ARTICLE XVI. MISCELLANEOUS TERMS AND CONDITIONS........................ 57
16.1. Time of Essence................................................. 57
16.2. Release of Deed of Trust........................................ 57
16.3. Notices......................................................... 57
16.4. Successors and Assigns; Joint and Several Liability............. 58
16.5. Severability.................................................... 58
16.7. Gender.......................................................... 58
16.7. Waiver; Discontinuance of Proceedings........................... 58
16.8. Section Headings................................................ 59
16.9. Governing Law................................................... 59
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
16.10. Counting of Days............................................... 59
16.11. Relationship of the Parties.................................... 59
16.12. Unsecured Portion of Indebtedness.............................. 59
16.13. Cross Default.................................................. 59
16.14. Inconsistency with Other Loan Documents........................ 59
16.15. No Merger...................................................... 60
16.16. Rights With Respect to Junior Encumbrances..................... 60
16.17. Beneficiary May File Proofs of Claim........................... 60
16.18. Fixture Filing................................................. 60
16.19. Counterparts................................................... 60
16.20. Recording and Filing........................................... 60
16.21. Entire Agreement and Modifications............................. 61
16.22. Maximum Interest............................................... 61
16.23. Certain Matters Relating to Mortgaged Property Located in the
State of Oregon................................................ 61
ARTICLE XVII. CONCERNING THE TRUSTEE................................... 62
17.1. Certain Rights................................................. 62
17.2. Retention of Money............................................. 63
17.3. Successor Trustees............................................. 63
17.4. Perfection of Appointment...................................... 63
17.5. Succession Instruments......................................... 63
17.6. No Representation by Trustee or Beneficiary.................... 64
</TABLE>
iii
<PAGE>
INDEX OF DEFINITIONS
"Accrued Interest" - Section 12.6. (h)
----------------
"Assignment" - Section 6.1.
----------
"Buyer" - Section 6.3. (a) (ii)
------
"CERCLA" - Section 4.1. (a)
-------
["Code" - Section 12.5]
----
"Collateral" - Section 13.1.
"Contracts" - Paragraph (i) of the granting clause
---------
"Debt" - Paragraph (d) of the securing clause
----
"Default" - Section 1.2.
-------
"Default Interest Rate" - As defined in the Note
---------------------
"Defeasance Collateral" - Section 12.5.
---------------------
"Defeasance Security Agreement" - Section 12.5.
- ------------------------------
"Engineering Report" - Section 10.1.
------------------
"Environmental Indemnity Agreement" - Section 4.1.
---------------------------------
"Environmental Laws" - Section 4.1. (a)
------------------
"Equipment" - Paragraph (g) of the granting clause
---------
"Event of Default" - Section 14.1.
----------------
"General Intangibles" - Paragraph (k) of the granting clause
-------------------
"Hazardous Substances" - Section 4.1. (a)
--------------------
"Impound Account" - Section 1.2.
---------------
"Improvements" - Paragraph (b) of the granting clause
------------
"Indemnitor" - Section 10.1. (b)
----------
"Interest" - Section 16.22.
--------
"Lead Based Paint" - Section 4.1.
----------------
iv
<PAGE>
"Lead Based Paint Report" - Section 4.1.
-----------------------
"Lease; Leases" - Paragraph (h) of the granting clause
-------------
"Licenses" - Section 10.1. (f)
--------
"Loan Documents" - Paragraph (b) of the securing clause & Section 6.5
--------------
"Monthly Payment" - As defined in the Note
---------------
"Mortgaged Property" - First paragraph of the granting clause
------------------
"Note" - Paragraph (a) of the securing clause
----
"Optional Prepayment Date" - Section 12.6. (a)
------------------------
"O&M" - Section 4.1 (j)
---
"Payment Dates" - As defined in the Note
-------------
"Payment Reserve" - Section 5.1. (a)
---------------
"Permitted Encumbrances" - Section 10.1. (a)
----------------------
"Permitted Materials" - Section 4.1. (a)
-------------------
"Premises" - Paragraph (a) of the granting clause
--------
"Release Date" - Section 12.5.
------------
"REMIC" - Section 12.5.
-----
"Rent Roll" - Section 10.1. (t)
---------
"Rents and Profits" - Paragraph (h) of the granting clause
-----------------
"Replacement Reserve" - Section 5.2. (a)
-------------------
"Replacements" - Section 5.2. (a)
------------
"Reserves" - Section 5.5.
--------
"Rollover Expenses" - Section 5.4.
-----------------
"Rollover Reserve" - Section 5.4.
----------------
"Sale" - Section 6.3. (a)
----
"Stub Interest" - As defined in the Note
-------------
v
<PAGE>
"Tenant; Tenants" - Paragraph (h) of the granting clause
---------------
"Tenant Improvements" - Section 5.4.
-------------------
"UCC" - Paragraph (g) of the granting clause
---
vi
<PAGE>
DEED OF TRUST AND SECURITY AGREEMENT
------------------------------------
THIS DEED OF TRUST AND SECURITY AGREEMENT (this "Deed of Trust") is
-------------
dated as of July 10, 1998 and is given by DMG OREGON ALC, INC., a Nevada
corporation, as Grantor ("Grantor"), whose address is 9955 S.E. Washington,
-------
Suite 303, Portland, Oregon 97216 to CHICAGO TITLE COMPANY, a Delaware
corporation whose address is 888 S.W. Fifth Avenue, Suite 930, Portland, Oregon
97204, as Trustee ("Trustee") for the benefit of TRANSATLANTIC CAPITAL COMPANY,
-------
L.L.C., a Delaware limited liability company, as Beneficiary ("Beneficiary"),
-----------
whose address is 31 West 52nd Street, 10th Floor, New York, New York 10019.
W I T N E S S E T H:
- - - - - - - - - -
In order to secure:
(a) The debt evidenced by that certain Promissory Note (such
Promissory Note, together with any and all renewals, amendments, modifications,
consolidations and extensions thereof, is hereinafter referred to as the "Note")
----
of even date with this Deed of Trust, made by Grantor payable to the order of
Beneficiary in the principal face amount of SIX MILLION SIX HUNDRED THOUSAND AND
NO/100 DOLLARS ($6,600,000), together with interest as therein provided;
(b) The full and prompt payment and performance of all of the
provisions, agreements, covenants and obligations herein contained and contained
in any other agreements, documents or instruments now or hereafter evidencing,
securing or otherwise relating to the Debt (the Note, this Deed of Trust, and
such other agreements, documents and instruments, together with any and all
renewals, amendments, extensions and modifications thereof, are hereinafter
collectively referred to as the "Loan Documents") and the payment of all other
--------------
sums herein or therein covenanted to be paid;
(c) Any and all additional advances made by Beneficiary to protect or
preserve the Mortgaged Property or the lien or security interest created hereby
on the Mortgaged Property, or for any other purpose provided herein or in the
other Loan Documents (whether or not the original Grantor remains the owner of
the Mortgaged Property at the time of such advances); and
(d) Any and all other indebtedness now owing or which may hereafter
be owing by Grantor to Beneficiary, however and whenever incurred or evidenced,
whether express or implied, direct or indirect, absolute or contingent, or due
or to become due.
(All of the sums and covenants referred to in Paragraphs (A) through
----------------------
(D) above are herein referred to as the "Debt");
- --- ----
And in consideration of the Debt and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor hereby
irrevocably mortgages, grants, bargains, sells, conveys, transfers, pledges,
sets over and assigns to Beneficiary and Trustee,
1
<PAGE>
WITH POWER OF SALE, and creates a security interest in, all of Grantor's estate,
right, title and interest in, to and under any and all of the following
described property, whether now owned or hereafter acquired by Grantor
(collectively, the "Mortgaged Property"):
------------------
(a) All that certain real property situated in the Counties of
Jackson, Curry, and Clatsop, State of Oregon, more particularly described in
Exhibit A attached hereto (the "Premises"), together with all of the easements,
- --------- --------
rights and appurtenances now or hereafter in any way appertaining thereto,
either at law or in equity, whether now owned or hereafter acquired by Grantor;
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Premises (the
"Improvements");
------------
(c) All easements, rights-of-way, strips and gores of land, vaults,
streets, ways, alleys, passages, sewer rights, and other emblements now or
hereafter located on the Premises or under or above the same or any part
thereof, and all estates, rights, interests and appurtenances, reversions and
remainders whatsoever, in any way belonging or appertaining to the Mortgaged
Property or any part thereof, whether now owned or hereafter acquired by
Grantor;
(d) All water, ditches, wells, reservoirs and drains and all water,
ditch, well, reservoir and drainage rights which are appurtenant to, located on,
under or above or used in connection with the Premises or the Improvements, or
any part thereof, whether now existing or hereafter created or acquired by
Grantor;
(e) All minerals, crops, timber, trees, shrubs, flowers and
landscaping features now or hereafter located on, under or above the Premises;
(f) All building materials, supplies and equipment now or hereafter
placed on the Premises or in the Improvements;
(g) All furniture, furnishings, fixtures, goods, equipment, inventory
or personal property owned by Grantor and now or hereafter located on, attached
to or used in and about the Improvements, including, but not limited to, all
machines, engines, boilers, dynamos, elevators, stokers, tanks, cabinets,
awnings, screens, shades, blinds, carpets, draperies, bedding and linens and all
appliances, communication, plumbing, heating, air conditioning, lighting,
ventilating, refrigerating, disposal and incinerating equipment, and sprinkler
and fire and theft protection equipment, and all fixtures and appurtenances
thereto, and such other goods and chattels and personal property owned by
Grantor as are now or hereafter used or furnished in operating the Improvements,
or the activities conducted therein, and all building materials and equipment
hereafter situated on or about the Premises or Improvements, and all warranties
and guaranties relating thereto, and all additions thereto and substitutions and
replacements therefor (exclusive of any of the foregoing owned or leased by
tenants of space in the Improvements except to the extent any of the same
constitute fixtures) (collectively, the "Equipment"). To the extent any portion
---------
of the Equipment is not deemed real property or Fixtures under applicable law,
it shall be deemed to be personal property, and this Deed of Trust shall be
deemed to constitute a
2
<PAGE>
security agreement for the purposes of creating a security interest therein in
favor of Lender under the Uniform Commercial Code of the state in which the
Premises are located (the "UCC");
---
(h) All leases (including, without limitation, oil, gas and mineral
leases), licenses, concessions and residency and occupancy agreements of all or
any part of the Premises or the Improvements (each, a "Lease" and collectively,
-----
"Leases"), whether written or oral, now or hereafter entered into and all rents,
------
royalties, issues, profits, bonus money, revenue, income, rights and other
benefits (collectively, the "Rents and Profits") of the Premises or the
-----------------
Improvements, now or hereafter arising from the use or enjoyment of all or any
portion thereof or from any present or future Lease or other agreement
pertaining thereto or any of the General Intangibles and all cash or securities
deposited to secure performance by the tenants, lessees or licensees (each, a
"Tenant" and collectively, "Tenants"), as applicable, of their obligations under
- ------- -------
any such Leases, whether said cash or securities are to be held until the
expiration of the terms of said Leases or applied to one or more of the
installments of rent coming due prior to the expiration of said terms, subject,
however, to the provisions contained in Section 6.1 hereinbelow;
-----------
(i) All contracts and agreements now or hereafter entered into
covering any part of the Premises or the Improvements (collectively, the
"Contracts") and all revenue, income and other benefits thereof, including,
---------
without limitation, management agreements, service contracts, maintenance
contracts, equipment leases, personal property leases and any contracts or
documents relating to construction on any part of the Premises or the
Improvements (including all architectural renderings, models, specifications,
plans, drawings, surveys, tests, reports, data, bonds and governmental
approvals) or to the management or operation of any part of the Premises or the
Improvements;
(j) All water taps, sewer taps, certificates of occupancy, permits,
licenses, franchises, Health Care Operating Licenses (to the extent that it may
be lawfully mortgaged), certificates, consents, approvals and other rights and
privileges now or hereafter obtained in connection with the Premises or the
Improvements and all present and future warranties and guaranties relating to
the Improvements or to any equipment, fixtures, furniture, furnishings, personal
property or components of any of the foregoing now or hereafter located or
installed on the Premises or the Improvements;
(k) All present and future funds, accounts, instruments, accounts
receivable, documents, claims, general intangibles (including, without
limitation, trademarks, trade names, service marks and symbols now or hereafter
used in connection with any part of the Premises or the Improvements, all names
by which the Premises or the Improvements may be operated or known, all rights
to carry on business under such names, and all rights, interest and privileges
which Grantor has or may have as developer or declarant under any covenants,
restrictions or declarations now or hereafter relating to the Premises or the
Improvements) (collectively, the "General Intangibles"), but not including any
-------------------
Accounts Receivable;
(l) All insurance policies or binders now or hereafter relating to
the Mortgaged Property, including any unearned premiums thereon;
3
<PAGE>
(m) All cash funds, deposit accounts and other rights and evidence of
rights to cash, now or hereafter created or held by Beneficiary pursuant to this
Deed of Trust or any other of the Loan Documents, including, without limitation,
all funds now or hereafter on deposit in the Impound Account, the Payment
Reserve, and the Replacement Reserve and all notes or chattel paper now or
hereafter arising from or by virtue of any transactions related to the Premises
or the Improvements;
(n) All present and future monetary deposits given by Grantor to any
public or private utility with respect to utility services furnished to any part
of the Premises or the Improvements, to the extent Grantor is entitled to
returns thereof;
(o) To the extent that same may be lawfully mortgaged, all rights to
receive payments owing to Grantor arising out of the rendition of services at or
from the Premises to individuals by Grantor, including all rights to
reimbursement under any agreements with, and payments from, any Insurer or
Governmental Entity, together with all accounts and general intangibles related
thereto, all rights and remedies, claims, guaranties, security interests and
liens in respect of the foregoing, all books, records and other property
evidencing or related to the foregoing and all proceeds of the foregoing, but
not including Rents and Profits (the "Accounts Receivable"). As used herein,
"Insurer" means any entity which in the ordinary course of its business or
activities agrees to pay for Healthcare goods and services received by
individuals, including commercial insurance companies, non-profit insurance
companies (such as Blue Cross and Blue Shield entities), employers or unions
which self-insure for employee or member health insurance, prepaid health care
organizations, preferred provider organizations, health maintenance
organizations and insurance companies issuing health, personal injury, workers'
compensation or other types of insurance. As used herein, "Governmental Entity"
means the United States of America, any state, any political subdivision of a
state and any agency or instrumentality of the United States of America or any
state or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government. Payments from Governmental Entities shall be deemed to include
payments governed under the Social Security Act (42 U.S.C. 1395, et. seq.),
including payments under Medicare and Medicaid, and payments administered or
regulated by the Health Care Financing Administration;
(p) All proceeds, products, substitutions and accessions (including
claims and demands therefor) of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims, including, without limitation,
proceeds of insurance and condemnation awards; and
(q) All other or greater rights and interests of every nature in the
Premises and the Improvements and in the possession or use thereof and income
therefrom, whether now owned or hereafter acquired by Grantor.
TO HAVE AND TO HOLD the Mortgaged Property unto Beneficiary and
Trustee, their respective successors and assigns forever, and Grantor does
hereby bind itself, its successors and assigns, to WARRANT AND FOREVER DEFEND
the title to the Mortgaged
4
<PAGE>
Property, subject only to the Permitted Encumbrances, to Beneficiary and Trustee
against every person whomsoever may lawfully claim the same or any part thereof;
PROVIDED, HOWEVER, that if the Debt shall have been paid and performed
in full, then, in such case, the liens, security interests, estates and rights
granted by this Deed of Trust shall be satisfied and the estate, right, title
and interest of Beneficiary in the Mortgaged Property shall cease, and upon
payment to Beneficiary of all costs and expenses incurred for the preparation of
the release hereinafter referenced and all recording costs if allowed by law,
Beneficiary shall promptly satisfy and release this Deed of Trust of record and
the lien hereof by proper instrument.
For the purpose of further securing the Debt for so long as the Debt
or any part thereof remains incomplete or unpaid, Grantor covenants and agrees
as follows:
PART I
ARTICLE I.
TAXES AND UTILITIES
-------------------
1.1. Payment of Taxes. Grantor shall pay or cause to be paid, except
----------------
to the extent provision is actually made therefor pursuant to Section 1.2 below,
-----------
all taxes and assessments which are or may become a lien on any portion of, or
interest in, the Mortgaged Property or which are assessed against or imposed
upon any portion of, or interest in the Mortgaged Property. Grantor shall
furnish Beneficiary with receipts (or if receipts are not immediately available,
with copies of canceled checks evidencing payment with receipts to follow
promptly after they become available) showing payment of such taxes and
assessments at least fifteen (15) days prior to the applicable delinquency date
therefor. Notwithstanding the foregoing, Grantor may, in good faith, by
appropriate proceedings and upon notice to Beneficiary, contest the validity,
applicability or amount of any asserted tax or assessment so long as (a) such
contest is diligently pursued, (b) Beneficiary determines, in its subjective
opinion, that such contest suspends the obligation to pay the tax and that
nonpayment of such tax or assessment will not result in the sale, loss,
forfeiture or diminution of the Mortgaged Property or any part thereof or any
interest of Beneficiary therein and (c) prior to the earlier of the commencement
of such contest or the delinquency date of the asserted tax or assessment,
Grantor deposits in the Impound Account an amount determined by Beneficiary to
be adequate to cover the payment of such tax or assessment and an additional sum
sufficient in the sole judgment of Beneficiary to cover possible interest, costs
and penalties; provided, however, that taxes, assessments, interest, costs and
-------- -------
penalties owing shall be paid by Grantor prior to the date any writ or order is
issued under which the Mortgaged Property may be sold, lost or forfeited.
1.2. Tax and Insurance Impound Account. Grantor shall establish and
---------------------------------
maintain at all times while this Deed of Trust continues in effect an impound
account (the "Impound Account") with Beneficiary for payment of real estate
---------------
taxes and assessments and insurance on the Mortgaged Property and as additional
security for the Debt. Simultaneously
5
<PAGE>
with the execution hereof, Grantor shall deposit in the Impound Account an
amount reasonably determined by Beneficiary. Commencing on the first Payment
Date under the Note and continuing thereafter on each subsequent Payment Date,
Grantor shall pay to Beneficiary, concurrently with and in addition to the
monthly payment due under the Note and until the Debt is fully paid and
performed, deposits in an amount equal to one-twelfth (1/12) of the amount of
the annual real estate taxes and assessments that will next become due and
payable on the Mortgaged Property, plus one-twelfth (1/12) of the amount of the
annual premiums that will next become due and payable on insurance policies
which Grantor is required to maintain hereunder, each as estimated and
determined by Beneficiary. So long as no Event of Default has occurred which has
not been waived, and no event has occurred or failed to occur which with the
passage of time, the giving of notice, or both would constitute an Event of
Default (a "Default"), all sums in the Impound Account shall be held by
-------
Beneficiary in the Impound Account to pay said taxes, assessments and insurance
premiums before the same become delinquent. Grantor shall be responsible for
ensuring the receipt by Beneficiary, at least thirty (30) days prior to the
respective due date for payment thereof, of all bills, invoices and statements
for all taxes, assessments and insurance premiums to be paid from the Impound
Account, and so long as no Event of Default has occurred and not been waived,
Beneficiary shall pay the governmental authority or other party entitled thereto
directly to the extent funds are available for such purpose in the Impound
Account. No interest on funds contained in the Impound Account, if any, shall be
paid by Beneficiary to Grantor.
1.3. Payment of Utilities, Assessments, Charges, Etc. Grantor shall
-----------------------------------------------
pay when due all utility charges which are incurred by Grantor or which may
become a charge or lien against any portion of the Mortgaged Property for gas,
electricity, water and sewer services furnished to the Premises and/or the
Improvements and all other assessments or charges of a similar nature, or
assessments payable pursuant to any restrictive covenants, whether public or
private, affecting the Premises and/or the Improvements or any portion thereof,
whether or not such assessments or charges are or may become liens thereon.
1.4. Additional Taxes. In the event of the enactment after the date
----------------
hereof of any law imposing upon Beneficiary the payment of the whole or any part
of the taxes or assessments or charges or liens herein required to be paid by
Grantor, or changing in any way the laws relating to the taxation of mortgages
or security agreements or the interest of the Beneficiary or secured party in
the property covered thereby, or the manner of collection of such taxes, so as
to adversely affect this Deed of Trust or the Debt or Beneficiary, then, and in
any such event, Grantor, upon demand by Beneficiary, shall pay such taxes,
assessments, charges or liens, or reimburse Beneficiary therefor; provided,
--------
however, that if, in the opinion of counsel for Beneficiary, (a) it might be
- -------
unlawful to require Grantor to make such payment or (b) the making of such
payment might result in the imposition of interest beyond the maximum amount
permitted by law, then and in either such event, Beneficiary may elect, by
notice in writing given to Grantor, to declare all of the Debt to be and become
due and payable in full ninety (90) days from the giving of such notice, and, in
connection with such payment of the Debt, no prepayment premium or fee shall be
due.
6
<PAGE>
ARTICLE II.
INSURANCE
---------
2.1. Insurance. Grantor shall, at Grantor's expense, maintain in force
---------
and effect on the Mortgaged Property at all times while this Deed of Trust
continues in effect the following insurance:
(a) Insurance against loss or damage to the Mortgaged Property by
fire, windstorm, lightning, tornado and hail and against loss and damage by such
other, additional risks as may be now or hereafter embraced by an "all-risk"
form of insurance policy. The amount of such insurance shall be not less than
one hundred percent (100%) of the full replacement cost (insurable value) of the
Improvements (as established by an MAI appraisal), without reduction for
depreciation. The determination of the replacement cost amount shall be adjusted
annually to comply with the requirements of the insurer issuing such coverage
or, at Beneficiary's election, by reference to such indices, appraisals or
information as Beneficiary determines in its reasonable discretion in order to
reflect increased value due to inflation. In addition, each policy shall contain
inflation guard coverage. Full replacement cost, as used herein, means, with
respect to the Improvements, the cost of replacing the Improvements without
regard to deduction for depreciation, exclusive of the cost of excavations,
foundations and footings below the lowest basement floor. Grantor shall also
maintain insurance against loss or damage to furniture, furnishings, fixtures,
equipment and other items (whether personalty or fixtures) included in the
Mortgaged Property and owned by Grantor from time to time to the extent
applicable.
(b) Commercial General Liability Insurance against claims for
personal injury, bodily injury, death and property damage occurring on, in or
about the Premises or the Improvements in amounts not less than $1,000,000 per
occurrence and $2,000,000 in the aggregate plus umbrella coverage in an amount
not less than $2,000,000. Beneficiary hereby retains the right to periodically
review the amount of said liability insurance and to require an increase in the
amount of said liability insurance should Beneficiary deem an increase to be
reasonably prudent under then existing circumstances.
(c) Boiler and machinery insurance (including explosion coverage), if
steam boilers or other pressure-fired vessels are in operation at the Premises.
Minimum liability coverage per accident must equal the greater of the
replacement cost (insurable value) of the Improvements housing such boiler or
pressure-fired machinery or $2,000,000. If one or more HVAC units is in
operation at the Premises, "Systems Breakdowns" coverage shall be required, as
determined by Beneficiary. Minimum liability coverage per accident must equal
the replacement value of such unit(s).
(d) If the Improvements or any part thereof is situated in an area
designated by the Federal Emergency Management Agency ("FEMA") as a special
----
flood hazard area (Zone A or Zone V), flood insurance in an amount equal to the
lesser of: (a) the minimum amount required, under the terms of coverage, to
compensate for any damage or loss on a replacement basis (or the unpaid balance
of the Debt if replacement cost coverage is not available for the type of
building insured), or (b) the maximum insurance available under the
7
<PAGE>
appropriate National Flood Insurance Administration program. The maximum
deductible shall be $10,000 per building or a higher minimum amount as required
by FEMA or other applicable law.
(e) During the period of any construction, renovation or alteration
of the existing Improvements which exceeds the lesser of 10% of the principal
amount of the Note or $500,000, at Beneficiary's request, a completed value,
"All Risk" Builder's Risk form or "Course of Construction" insurance policy in
non-reporting form, in an amount approved by Beneficiary, may be required.
During the period of any construction of any addition to the existing
Improvements, a completed value, "All Risk" Builder's Risk form or "Course of
Construction" insurance policy in non-reporting form, in an amount approved by
Beneficiary, shall be required.
(f) Worker's Compensation and Employer's Liability Insurance covering
all appropriate persons.
(g) Business income (loss of rents) insurance in amounts sufficient
to compensate Grantor for all Rents and Profits and other income during a period
of not less than twelve (12) months. The amount of coverage shall be adjusted
annually to reflect the Rents and Profits or income payable during the
succeeding twelve (12) month period.
(h) Such other insurance on the Mortgaged Property or on any
replacements or substitutions thereof or additions thereto as may from time to
time be required by Beneficiary against other insurable hazards or casualties
which at the time are commonly insured against in the case of property similarly
situated including, without limitation, sinkhole, mine subsidence, earthquake
and environmental insurance, due regard being given to the height and type of
improvements, their construction, location, use and occupancy.
All such insurance shall (i) be with insurers fully licensed and
authorized to do business in the state within which the Premises is located and
which have and maintain a rating of at least A from Standard & Poors, or
equivalent; (ii) contain the complete address of the Premises (or a complete
legal description), (iii) be for terms of at least one year, with premium
prepaid, and (iv) be subject to the approval of Beneficiary as to insurance
companies, amounts, content, forms of policies and expiration dates, and (v)
include a standard, non-contributory, Beneficiary clause naming EXACTLY:
TRANSATLANTIC CAPITAL COMPANY, L.L.C.,
its successors and assigns, ATIMA
31 West 52nd Street
10th Floor
New York, New York 10019
Attention: Mr. James Howard
(a) as an additional insured under all liability insurance policies, (b) as the
------------------
first Beneficiary and loss payee on all property insurance policies and (c) as
- -----------------
the loss payee on all loss of rents or loss of business income insurance
----------
policies.
8
<PAGE>
Grantor shall deliver to Beneficiary certificates and policies
evidencing the insurance required to be maintained hereunder at least thirty
(30) days before any such insurance shall expire. Grantor further agrees that
each such insurance policy: (i) shall provide for at least thirty (30) days'
prior written notice to Beneficiary prior to any policy reduction or
cancellation for any reason other than non-payment of premium and at least ten
(10) days' prior written notice to Beneficiary prior to any cancellation due to
non-payment of premium; (ii) shall contain an endorsement or agreement by the
insurer that any loss shall be payable to Beneficiary in accordance with the
terms of such policy notwithstanding any act or negligence of Grantor or any
other person which might otherwise result in forfeiture of such insurance; (iii)
shall waive all rights of subrogation against Beneficiary; (iv) in the event
that the Premises or the Improvements constitutes a legal non-conforming use
under applicable building, zoning or land use laws or ordinances, shall include
an ordinance and law coverage endorsement which will contain Coverage A: "Loss
Due to Operation of Law" (with a minimum liability limit equal to Replacement
Cost With Agreed Value Endorsement), Coverage B: "Demolition Cost" and Coverage
C: "Increased Cost of Construction" coverages; (v) unless otherwise specified
above, shall have a maximum deductible of $10,000; (vi) shall contain a
replacement cost endorsement and either an agreed amount endorsement (to avoid
the operation of any co-insurance provisions) or a waiver of any co-insurance
provisions, all subject to Beneficiary's approval; and (vii) may be in the form
of a blanket policy provided that, Grantor hereby acknowledges and agrees that
failure to pay any portion of the premium therefor which is not allocable to the
Mortgaged Property or any other action not relating to the Mortgaged Property
which would otherwise permit the issuer thereof to cancel the coverage thereof,
would require the Mortgaged Property to be insured as if by a separate, single-
property policy and the blanket policy must properly identify and fully protect
the Mortgaged Property as if a separate policy were issued for 100% of
Replacement Cost at the time of loss and otherwise meet all of Beneficiary's
applicable insurance requirements set forth in this Section 2.1. The delivery to
Beneficiary of the insurance policies or the certificates of insurance as
provided above shall constitute an assignment of all proceeds payable under such
insurance policies relating to the Mortgaged Property by Grantor to Beneficiary
as further security for the Debt. In the event of the foreclosure of this Deed
of Trust, or other transfer of title to the Mortgaged Property in extinguishment
in whole or in part of the Debt, all right, title and interest of Grantor in and
to all proceeds payable under such policies then in force concerning the
Mortgaged Property shall thereupon vest in the purchaser at such foreclosure, or
in Beneficiary or other transferee in the event of such other transfer of title.
Approval of any insurance by Beneficiary shall not be a representation of the
solvency of any insurer or the sufficiency of any amount of insurance. In the
event Grantor fails to provide, maintain, keep in force or deliver and furnish
to Beneficiary the policies of insurance required by this Deed of Trust or
evidence of their replacement or renewal as required herein, Beneficiary may,
but shall not be obligated to, procure such insurance and Grantor shall pay all
amounts advanced by Beneficiary therefor, together with interest thereon at the
Default Interest Rate from and after the date advanced by Beneficiary until
actually repaid by Grantor, promptly upon demand by Beneficiary. Beneficiary
shall not be responsible for nor incur any liability for the failure of the
insurer to perform, even though Beneficiary has caused the insurance to be
placed with the insurer after failure of Grantor to furnish such insurance.
Grantor shall not obtain insurance for the Mortgaged Property in addition to
that required by Beneficiary without the prior written consent of Beneficiary,
which consent will not be unreasonably withheld
9
<PAGE>
provided that (i) Beneficiary is a named insured on such insurance, (ii)
Beneficiary receives complete copies of all policies evidencing such insurance,
and (iii) such insurance complies with all of the applicable requirements set
forth herein.
ARTICLE III.
CASUALTY AND CONDEMNATION
-------------------------
3.1. Casualty and Condemnation. (a) Grantor shall give Beneficiary
-------------------------
prompt written notice of the occurrence of any casualty affecting, or the
institution of any proceedings for eminent domain or for the condemnation of,
the Mortgaged Property or any portion thereof. All insurance proceeds on the
Mortgaged Property, and all causes of action, claims, compensation, awards and
recoveries for any damage, condemnation or taking of all or any part of the
Mortgaged Property or for any diminution in value of the Mortgaged Property, are
hereby assigned to and shall be paid to Beneficiary. Beneficiary may participate
in any suits or proceedings relating to any such proceeds, causes of action,
claims, compensation, awards or recoveries, and Beneficiary is hereby
authorized, in its own name or in Grantor's name, to adjust any loss covered by
insurance or any condemnation claim or cause of action, and to settle or
compromise any claim or cause of action in connection therewith, and Grantor
shall from time to time deliver to Beneficiary any instruments required to
permit such participation; provided, however, that, so long as no Default or
-------- -------
Event of Default shall have occurred and not been waived, Beneficiary shall not
have the right to participate in the adjustment of any loss which is not in
excess of the lesser of (i) five percent (5%) of the then outstanding principal
balance of the Note and (ii) $100,000. Beneficiary shall apply any sums received
by it under this Section first to the payment of all of its costs and expenses
(including, but not limited to, reasonable legal fees and disbursements)
incurred in obtaining those sums, and then, as follows:
In the event that less than sixty percent (60%) of the Improvements
located on the Premises have been taken or destroyed, then if and so long as:
(i) no Default or Event of Default has occurred hereunder or under
any of the other Loan Documents and has not been waived, and
(ii) the Mortgaged Property can, in Beneficiary's judgment, with
diligent restoration or repair, be returned to a condition at least equal
to the condition thereof that existed prior to the casualty or partial
taking causing the loss or damage within the earlier to occur of (i) nine
(9) months after the receipt of insurance proceeds or condemnation awards
by either Grantor or Beneficiary, and (ii) sixty (60) days prior to the
stated maturity date of the Note, and
(iii) all necessary governmental approvals can be obtained to allow
the rebuilding and reoccupancy of the Mortgaged Property as described in
subsection (2) above, and
--------------
(iv) there are sufficient sums available (through insurance proceeds
or condemnation awards and contributions by Grantor, the full amount of
which shall, at
10
<PAGE>
Beneficiary's option, have been deposited with Beneficiary) for such
restoration or repair (including, without limitation, for any costs and
expenses of Beneficiary to be incurred in administering said restoration or
repair) and for payment of principal and interest to become due and payable
under the Note during such restoration or repair, and
(v) the economic feasibility of the Improvements after such
restoration or repair will be such that income from their operation is
reasonably anticipated to be sufficient to pay operating expenses of the
Mortgaged Property and debt service on the Debt in full with the same
coverage ratio considered by Beneficiary in its determination to make the
loan secured hereby, and
(vi) in the event that the insurance proceeds or condemnation awards
received as a result of such casualty or partial taking exceed the lesser
of (i) five percent (5%) of the then outstanding principal balance of the
Note and (ii) $150,000, Grantor shall have delivered to Beneficiary, at
Grantor's sole cost and expense, an appraisal report from an appraiser
satisfactory to Beneficiary in form and substance satisfactory to
Beneficiary appraising the value of the Mortgaged Property as proposed to
be restored or repaired to be not less than the appraised value of the
Mortgaged Property considered by Beneficiary in its determination to make
the loan secured hereby, and
(vii) Grantor so elects by written notice delivered to Beneficiary
within five (5) days after settlement of the aforesaid insurance or
condemnation claim,
then, Beneficiary shall, solely for the purposes of such restoration or repair,
advance so much of the remainder of such sums as may be required for such
restoration or repair, and any funds deposited by Grantor therefor, to Grantor
in the manner and upon such terms and conditions as would be required by a
prudent interim construction lender, including, but not limited to, the prior
approval by Beneficiary of plans and specifications, contractors and form of
construction contracts and the furnishing to Beneficiary of permits, bonds, lien
waivers, invoices, receipts and affidavits from contractors and subcontractors,
in form and substance satisfactory to Beneficiary in its discretion, with any
remainder being applied by Beneficiary for payment of the Debt in whatever order
Beneficiary directs in its absolute discretion.
(b) In all other cases, namely, in the event that sixty percent
(60%) or more of the Improvements located on the Premises have been taken or
destroyed or Grantor does not elect to restore or repair the Mortgaged Property
pursuant to clause (a) above or otherwise fails to meet the requirements of
----------
clause (a) above, then, in any of such events, Beneficiary may elect, in
- ----------
Beneficiary's absolute discretion and without regard to the adequacy of
Beneficiary's security, to do either of the following: (1) accelerate the
maturity date of the Note and declare any and all of the Debt to be immediately
due and payable and apply the remainder of such sums received pursuant to this
Section to the payment of the Debt in whatever order Beneficiary directs in its
absolute discretion, with any remainder being paid to Grantor, or (2)
notwithstanding that Grantor may have elected not to restore or repair the
Mortgaged Property pursuant to the provisions of Section 3.1(a)(7) above,
-----------------
require Grantor to restore or repair the Mortgaged Property in the manner and
upon such terms and conditions as would be required by a prudent interim
construction lender, including, but not limited to, the deposit by Grantor
11
<PAGE>
with Beneficiary, within thirty (30) days after demand therefor, of any
deficiency reasonably determined by Beneficiary to be necessary in order to
assure the availability of sufficient funds to pay for such restoration or
repair, including Beneficiary's costs and expenses to be incurred in connection
therewith, the prior approval by Beneficiary of plans and specifications,
contractors and form of construction contracts and the furnishing to Beneficiary
of permits, bonds, lien waivers, invoices, receipts and affidavits from
contractors and subcontractors, in form and substance satisfactory to
Beneficiary in its discretion, and apply the remainder of such sums toward such
restoration and repair, with any balance thereafter remaining being applied by
Beneficiary for payment of the Debt in whatever order Beneficiary directs in its
absolute discretion.
(c) Any reduction in the Debt resulting from Beneficiary's
application of any sums received by it hereunder shall take effect only when
Beneficiary actually receives such sums and elects to apply such sums to the
Debt and, in any event, the unpaid portion of the Debt shall remain in full
force and effect and Grantor shall not be excused in the payment thereof.
Partial payments received by Beneficiary, as described in the preceding
sentence, shall be applied first to the final payment due under the Note and
thereafter to installments due under the Note in the inverse order of their due
date. If Grantor elects or Beneficiary directs Grantor to restore or repair the
Mortgaged Property after the occurrence of a casualty or partial taking of the
Mortgaged Property as provided above, Grantor shall promptly and diligently, at
Grantor's sole cost and expense and regardless of whether the insurance proceeds
or condemnation award, as appropriate, shall be sufficient for such purpose,
restore, repair, replace and rebuild the Mortgaged Property as nearly as
possible to its value, condition and character immediately prior to such
casualty or partial taking in accordance with the foregoing provisions and
Grantor shall pay to Beneficiary all costs and expenses of Beneficiary incurred
in administering said rebuilding, restoration or repair. Grantor agrees to
execute and deliver from time to time such further instruments as may be
requested by Beneficiary to confirm the assignment to Beneficiary of any award,
damage, insurance proceeds, payment or other compensation. Beneficiary is hereby
irrevocably constituted and appointed the attorney-in-fact of Grantor, with full
power of substitution, subject to the terms of this Section, to settle for,
collect and receive any such awards, damages, insurance proceeds, payments or
other compensation from the parties or authorities making the same, to appear in
and prosecute any proceedings therefor and to give receipts and acquittances
therefor.
ARTICLE IV.
ENVIRONMENTAL MATTERS
---------------------
4.1. Hazardous Waste and Other Substances. (a) Grantor hereby
------------------------------------
represents and warrants to Beneficiary that, as of the date hereof: (i) to the
best of Grantor's knowledge, information and belief, none of Grantor nor the
Mortgaged Property nor any Tenant at the Premises nor the operations conducted
thereon has at any time been or presently is in direct or indirect violation of
or otherwise exposed to any liability under any local, state or federal law,
rule or regulation or common law duty pertaining to human health, natural
resources or the environment (collectively, "Environmental Laws"), including,
------------------
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of
12
<PAGE>
1980 (42 U.S.C. (S) 9601 et seq.) ("CERCLA"), the Resource Conservation and
------
Recovery Act of 1976 (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution
------
Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401
------
et seq.), the Emergency Planning and Community-Right-to-Know Act (42 U.S.C. (S)
- ------
11001 et seq.), the Endangered Species Act (16 U.S.C. (S) 1531 et seq.), the
------- -- ---
Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Occupational
------
Safety and Health Act (29 U.S.C. (S) 651 et seq.) or the Hazardous Materials
------
Transportation Act (49 U.S.C. (S) 1801 et seq.), or any regulations promulgated
------
pursuant to said laws, all as amended from time to time; (ii) no hazardous,
toxic or harmful substances, wastes, materials, pollutants or contaminants
(including, without limitation, asbestos or asbestos-containing materials, lead
based paint, polychlorinated biphenyls, petroleum or petroleum products or
byproducts, flammable explosives, radioactive materials, infectious substances
or raw materials which include hazardous constituents) or any other substances
or materials which are included under or regulated by Environmental Laws
(collectively, "Hazardous Substances") are located on, in or under or have been
--------------------
handled, generated, stored, processed or disposed of on or released or
discharged from the Mortgaged Property (including underground contamination),
except for those substances used by Grantor or any Tenant in the ordinary course
of their respective businesses and in compliance with all Environmental Laws and
where such could not reasonably be expected to give rise to liability under
Environmental Laws ("Permitted Materials"); (iii) the Mortgaged Property is not
-------------------
subject to any private or governmental lien arising under Environmental Laws;
(iv) there is no pending, nor, to Grantor's knowledge, information or belief,
threatened litigation arising under Environmental Laws affecting Grantor or the
Mortgaged Property; there are no and have been no existing or closed underground
storage tanks or other underground storage receptacles for Hazardous Substances
or landfills or dumps on the Mortgaged Property; (v) Grantor has received no
notice of, and to the best of Grantor's knowledge and belief, there exists no
investigation, action, proceeding or claim by any agency, authority or unit of
government or by any third party which could result in any liability, penalty,
sanction or judgment under any Environmental Laws with respect to any condition,
use or operation of the Mortgaged Property, nor does Grantor know of any basis
for such an investigation, action, proceeding or claim; and (vi) Grantor has
received no notice of and, to the best of Grantor's knowledge and belief, there
has been no claim by any party that any use, operation or condition of the
Mortgaged Property has caused any nuisance or any other liability or adverse
condition on any other property, nor does Grantor know of any basis for such an
investigation, action, proceeding or claim.
(b) Grantor has not received nor, to the best of Grantor's knowledge,
information and belief has there been issued, any notice, notification, demand,
request for information, citation, summons, or order in any way relating to any
actual, alleged or potential violation or liability arising under Environmental
Laws.
(c) Neither the Mortgaged Property, nor to the best of Grantor's
knowledge, information and belief, any property to which Grantor has, in
connection with the maintenance or operation of the Mortgaged Property, directly
or indirectly transported or arranged for the transportation of any Hazardous
Substances is listed or, to the best of Grantor's knowledge, information and
belief, proposed for listing on the National Priorities List promulgated
13
<PAGE>
pursuant to CERCLA, on CERCLIS (as defined in CERCLA) or on any similar federal
or state list of sites requiring environmental investigation or clean-up.
(d) Grantor shall comply with all applicable Environmental Laws.
Grantor shall keep or cause the Mortgaged Property to be kept free from
Hazardous Substances (except Permitted Materials).
(e) Grantor shall promptly notify Beneficiary of (i) the actual or
potential existence of any Hazardous Substances on the Mortgaged Property other
than Permitted Materials, (ii) any direct or indirect violation relating to the
Mortgaged Property of, or other exposure to liability under, any Environmental
Laws, (iii) any lien, action or notice affecting the Mortgaged Property or
Grantor resulting from any violation or alleged violation of or liability or
alleged liability under any Environmental Laws arising from any condition or
activity on the Mortgaged Property, (iv) the institution of any investigation,
inquiry or proceeding concerning Grantor or the Mortgaged Property pursuant to
any Environmental Laws or otherwise relating to Hazardous Substances, or (v) the
discovery of any occurrence, condition or state of facts which would render any
representation or warranty contained in this Deed of Trust incorrect in any
respect if made at the time of such discovery. Immediately upon receipt of same,
Grantor, shall deliver to Beneficiary copies of any and all requests for
information, complaints, citations, summonses, orders, notices, reports or other
communications, documents or instruments in any way relating to any actual,
alleged or potential violation or liability of any nature whatsoever arising
under Environmental Laws and relating to the Mortgaged Property or to Grantor.
Grantor shall remedy or cause to be remedied in a timely manner (and in any
event within the time period permitted by applicable Environmental Laws) any
violation of Environmental Laws or any condition that could give rise liability
under Environmental Laws. Without limiting the foregoing, Grantor shall,
promptly and regardless of the source of the contamination or threat to the
environment or human health, at its own expense, take all actions as shall be
necessary or prudent, for the clean-up of any and all portions of the Mortgaged
Property or other affected property, including, without limitation, all
investigative, monitoring, removal, containment and remedial actions in
accordance with all applicable Environmental Laws (and in all events in a manner
satisfactory to Beneficiary) and shall further pay or cause to be paid, at no
expense to Beneficiary, all clean-up, administrative and enforcement costs of
applicable governmental agencies which may be asserted against the Mortgaged
Property. In the event Grantor fails to do so, Beneficiary may, but shall not
be obligated to, cause the Mortgaged Property or other affected property to be
freed from any Hazardous Substances or otherwise brought into conformance with
Environmental Laws. Grantor hereby grants to Beneficiary and its agents and
employees access to the Mortgaged Property and a license to remove any items
deemed by Beneficiary to be Hazardous Substances and to do all things
Beneficiary shall deem necessary to bring the Mortgaged Property into
conformance with Environmental Laws.
(f) Grantor covenants and agrees, at Grantor's sole cost and expense,
to indemnify, defend (at trial and appellate levels, and with attorneys,
consultants and experts acceptable to Beneficiary), and hold Beneficiary
harmless from and against any and all liens, damages (including without
limitation, punitive or exemplary damages), losses, liabilities (including,
without limitation, strict liability), obligations, settlement payments,
penalties,
14
<PAGE>
fines, assessments, citations, directives, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements or expenses of any
kind or of any nature whatsoever (including, without limitation, reasonable
attorneys', consultants' and experts' fees and disbursements actually incurred
in investigating, defending, settling or prosecuting any claim, litigation or
proceeding) which may at any time be imposed upon, incurred by or asserted or
awarded against Beneficiary or the Mortgaged Property, and arising directly or
indirectly from or out of: (i) any violation or alleged violation of, or
liability or alleged liability under, any Environmental Law; (ii) the presence,
release or threat of release of or exposure to any Hazardous Substances on, in,
under or affecting all or any portion of the Mortgaged Property or any
surrounding areas, regardless of whether or not caused by or within the control
of Grantor; (iii) any transport, treatment, recycling, storage, disposal or
arrangement therefor of Hazardous Substances whether on the Mortgaged Property,
originating from the Mortgaged Property, or otherwise associated with Grantor or
any operations conducted on the Mortgaged Property at any time; (iv) the failure
by Grantor to comply fully with the terms and conditions of this Section 4.1;
-----------
(v) the breach of any representation or warranty contained in this Section 4.1;
-----------
(vi) the enforcement of this Section 4.1. The indemnity set forth in this
-----------
Section 4.1 shall also include any diminution in the value of the security
- -----------
afforded by the Mortgaged Property or any future reduction in the sales price of
the Mortgaged Property by reason of any matter set forth in this Section 4.1.
-----------
Beneficiary's rights under this Section shall survive payment in full of the
Debt and shall be in addition to all other rights of Beneficiary under this Deed
of Trust, the Note and the other Loan Documents.
(g) Upon Beneficiary's request, at any time after the occurrence of
an Event of Default which has not been waived or at such other time as
Beneficiary has reasonable grounds to believe that Hazardous Substances are or
have been released, stored or disposed of on the Mortgaged Property, or on
property affecting the Mortgaged Property, or that the Mortgaged Property may be
in violation of the Environmental Laws, Grantor shall perform or cause to be
performed, at Grantor's sole cost and expense and in scope, form and substance
satisfactory to Beneficiary, an inspection or audit of the Mortgaged Property
prepared by a hydrogeologist or environmental engineer or other appropriate
consultant approved by Beneficiary indicating the presence or absence of
Hazardous Substances on the Mortgaged Property, the compliance or non-compliance
status of the Mortgaged Property and the operations conducted thereon with
applicable Environmental Laws, or an inspection or audit of the Mortgaged
Property prepared by an engineering or consulting firm approved by Beneficiary
indicating the presence or absence of friable asbestos or substances containing
asbestos or lead or substances containing lead or lead based paint ("Lead Based
----------
Paint") on the Mortgaged Property. If Grantor fails to provide reports of such
- -----
inspection or audit within thirty (30) days after such request, Beneficiary may
order the same at Grantor's expense, and Grantor hereby grants to Beneficiary
and its employees and agents access to the Mortgaged Property and an irrevocable
license to undertake such inspection or audit.
(h) Reference is made to that certain Environmental Indemnity
Agreement of even date herewith from Grantor and Assisted Living Concepts, Inc.
for the benefit of Beneficiary (the "Environmental Indemnity Agreement"). The
---------------------------------
provisions of this Deed of
15
<PAGE>
Trust and the Environmental Indemnity Agreement shall be read together to
maximize the coverage with respect to the subject matter thereof, as determined
by Beneficiary.
(i) If, prior to the date hereof, it was determined that the
Mortgaged Property contains Lead Based Paint, Grantor had prepared an assessment
report describing the location and condition of the Lead Based Paint (a "Lead
----
Based Paint Report"). If, at any time hereafter, Lead Based Paint is suspected
- ------------------
of being present on the Mortgaged Property, Grantor agrees, at its sole cost and
expense and within twenty (20) days thereafter, to cause to be prepared a Lead
Based Paint Report prepared by an expert, and in form, scope and substance,
acceptable to Beneficiary.
(j) Grantor agrees that if it has been, or if at any time hereafter
it is, determined that the Mortgaged Property contains Lead Based Paint, on or
before thirty (30) days following (i) the date hereof, if such determination was
made prior to the date hereof or (ii) such determination, if such determination
is hereafter made, as applicable, Grantor shall, at its sole cost and expenses,
develop and implement, and thereafter diligently and continuously carry out (or
cause to be developed and implemented and thereafter diligently and continually
to be carried out), an operations, abatement and maintenance plan for the Lead
Based Paint on the Mortgaged Property, which plan shall be prepared by an
expert, and be in form, scope and substance, acceptable to Beneficiary (together
with any Lead Based Paint Report, the "O&M Plan"). If an O&M Plan has been
--------
prepared prior to the date hereof, Grantor agrees to diligently and continually
carry out (or cause to be carried out) the provisions thereof. Compliance with
the O&M Plan shall require or be deemed to require, without limitation, the
proper preparation and maintenance of all records, papers and forms required
under the Environmental Laws.
ARTICLE V.
RESERVES
--------
5.1 Payment Reserve. (a) Contemporaneously with the execution
---------------
hereof, Grantor has established with Beneficiary a reserve in the amount of one
installment of the Monthly Payment and deposits for any applicable reserves or
escrow accounts required under the terms of this Deed of Trust or the other Loan
Documents as calculated by Beneficiary (the "Payment Reserve"). Grantor
---------------
understands and agrees that, notwithstanding the establishment of the Payment
Reserve as herein required, all of the proceeds of the Note have been, and shall
be considered, fully disbursed and shall bear interest and be payable on the
terms provided therein. No interest on funds contained in the Payment Reserve
shall be paid by Beneficiary to Grantor.
(b) For so long as no Event of Default has occurred hereunder or
under any of the other Loan Documents and not been waived, Beneficiary shall, on
the first monthly Payment Date under the Note, advance from the Payment Reserve
to itself the amount of the monthly installment due and payable by Grantor under
the Note on such Payment Date and shall also advance from the Payment Reserve
into the Impound Account the amount of any deposit for taxes and insurance
premiums and into the Replacement Reserve the amount of any
16
<PAGE>
deposit for Replacements and into any other reserve account the amount of any
deposit in accordance with the terms of any other Loan Document required to be
paid by Grantor concurrently with each such monthly installment pursuant to the
terms hereof and thereof. Provided no Default or Event of Default has occurred
which has not been waived, after the final scheduled disbursement from the
Payment Reserve, any amounts then remaining in the Payment Reserve shall be paid
to Grantor. Nothing contained herein, including, without limitation, the
existence of the Payment Reserve, shall release Grantor from its obligation to
make payments under the Note, this Deed of Trust or the other Loan Documents
strictly in accordance with the terms hereof or thereof and, in this regard,
without limiting the generality of the foregoing, should the amounts contained
in the Payment Reserve not be sufficient to pay in full the Monthly Payment and
the Impound Account, Replacement Reserve and any other applicable reserve
account deposits referenced above in this subparagraph, Grantor shall be
responsible for paying such deficiency on the Payment Date of such monthly
installment.
5.2 Replacement Reserve. As additional security for the Debt,
-------------------
Grantor shall establish and maintain at all times while this Deed of Trust
continues in effect a capital improvement reserve (the "Replacement Reserve")
-------------------
with Beneficiary for payment of costs and expenses incurred by Grantor in
connection with the performance of work which would normally be treated as a
capital improvement under generally accepted accounting principles
(collectively, the "Replacements"). Commencing on the first Payment Date under
------------
the Note and continuing on each Payment Date thereafter until the Debt is fully
paid and performed, Grantor shall pay to Beneficiary, in addition to the monthly
payment due under the Note and until the Debt is fully paid and performed, a
deposit to the Replacement Reserve in an amount equal to $2,083 per month. So
long as no Default or Event of Default has occurred and has not been waived,
Beneficiary shall, to the extent funds are available for such purpose in the
Replacement Reserve, disburse to Grantor the amount paid or incurred by Grantor
in performing Replacements within ten (10) days following: (a) the receipt by
Beneficiary of a written request from Grantor for disbursement from the
Replacement Reserve and a certification by Grantor in a form approved in writing
by Beneficiary that the applicable item of Replacement has been completed; (b)
the delivery to Beneficiary of invoices, receipts or other evidence satisfactory
to Beneficiary, verifying the cost of performing the Replacements; (c) for
disbursement requests in excess of $10,000, the delivery to Beneficiary of
affidavits, lien waivers or other evidence reasonably satisfactory to
Beneficiary showing that all parties who might or could claim statutory or
common law liens and are furnishing or have furnished material or labor to the
Mortgaged Property have been paid all amounts due for labor and materials
furnished to the Mortgaged Property; (d) for disbursement requests in excess of
$10,000, delivery to Beneficiary of a certification from an inspecting architect
or other third party acceptable to Beneficiary describing the completed
Replacements and verifying the completion of the Replacements and the value of
the completed Replacements; and (e) for disbursement requests in excess of
$50,000, delivery to Beneficiary of a new certificate of occupancy for the
portion of the Improvements covered by such Replacements, if said new
certificate of occupancy is required by law, or a certification by Grantor that
no new certificate of occupancy is required. Beneficiary shall not be required
to make advances from the Replacement Reserve more frequently than once in any
ninety (90) day period. In making any payment from the Replacement Reserve,
Beneficiary shall be entitled to rely on such request
17
<PAGE>
from Grantor without any inquiry into the accuracy, validity or contestability
of any such amount. Beneficiary may, at Grantor's expense, make or cause to be
made during the term of this Deed of Trust an annual inspection of the Mortgaged
Property to determine the need, as determined by Beneficiary in its reasonable
judgment, for further Replacements of the Mortgaged Property; such inspection to
be no more frequent than once in any calendar year unless a Default or an Event
of Default shall have occurred and not been waived. In the event that such
inspection reveals that further Replacements of the Mortgaged Property are
required, Beneficiary shall provide Grantor with a written description of the
required Replacements and Grantor shall complete such Replacements to the
reasonable satisfaction of Beneficiary within ninety (90) days after the receipt
of such description from Beneficiary, or such later date as may be approved by
Beneficiary in its sole discretion.
5.3 Intentionally Deleted.
---------------------
5.4 Intentionally Deleted.
---------------------
5.5 Reserves Generally; Security Interest.
--------------------------------------
(a) Beneficiary shall cause funds in the Replacement Reserve to
be deposited into interest bearing accounts of the type customarily maintained
by Beneficiary or its servicing agent for the investment of similar reserves,
which accounts may not yield the highest interest rate then available. Interest
payable on such amounts shall be computed based on the daily outstanding balance
in the Replacement Reserve. Such interest shall be calculated on a simple, non-
compounded interest basis based solely on contributions made to the Replacement
Reserve by Grantor. All interest earned on amounts contributed to the
Replacement Reserve shall be retained by Beneficiary and accumulated for the
benefit of Grantor and added to the balance in the Replacement Reserve and shall
be disbursed for payment of the items for which other funds in the Replacement
Reserve are to be disbursed.
(b) As additional security for the payment and performance by
Grantor of all duties, responsibilities and obligations under the Note, this
Deed of Trust and the other Loan Documents, Grantor hereby unconditionally and
irrevocably assigns and pledges to Beneficiary, and hereby grants to Beneficiary
a security interest in, (i) the Impound Account, the Payment Reserve, the
Replacement Reserve and any other reserve or escrow account established pursuant
to the terms hereof or of any other Loan Document (collectively, the
"Reserves"), (ii) all insurance on said accounts, (iii) all accounts, contract
--------
rights and general intangibles or other rights and interests pertaining thereto,
(iv) all replacements, substitutions or proceeds thereof, (v) all instruments
and documents now or hereafter evidencing the Reserves or such accounts, (vi)
all powers, options, rights, privileges and immunities pertaining to the
Reserves (including the right to make withdrawals therefrom), and (vii) all
replacements, substitutions and all proceeds of the foregoing. Grantor hereby
authorizes and consents to each account into which the Reserves have been
deposited being held in Beneficiary's name or the name of any entity servicing
the loan evidenced by the Note for Beneficiary and hereby acknowledges and
agrees that Beneficiary, or at Beneficiary's election, such servicing agent,
shall have exclusive control over each account. Notice of the assignment and
security interest granted to Beneficiary herein may be delivered by Beneficiary
18
<PAGE>
at any time to the financial institution wherein the Reserves have been
established, and Beneficiary, or such servicing entity, shall have possession of
all passbooks or other evidences of such accounts. Grantor hereby assumes all
risk of loss with respect to amounts on deposit in the Reserves other than any
such loss resulting solely from the willful misconduct of Beneficiary as finally
determined by a court of competent jurisdiction. Grantor hereby knowingly,
voluntarily and intentionally stipulates, acknowledges and agrees that the
advancement of the funds from the Reserves as set forth herein is at Grantor's
direction and is not the exercise by Beneficiary of any right of set-off or
other remedy upon a Default or an Event of Default. Grantor hereby waives all
right to withdraw funds from the Reserves except as provided for in this Deed of
Trust. If an Event of Default shall occur hereunder or under any other of the
Loan Documents, which is not waived, Beneficiary may, without notice or demand
on Grantor, at its option: (A) withdraw any or all of the funds (including,
without limitation, interest) then remaining in the Reserves and apply the same,
after deducting all costs and expenses of safekeeping, collection and delivery
(including, but not limited to, reasonable attorneys' fees, costs and expenses)
to the Debt or any other obligations of Grantor under the other Loan Documents
in such manner as Beneficiary shall deem appropriate in its sole discretion, and
the excess, if any, shall be paid to Grantor, (B) exercise any and all rights
and remedies of a secured party under any applicable Uniform Commercial Code, or
(C) exercise any other remedies available at law or in equity. No such use or
application of the funds contained in the Reserves shall be deemed to cure any
Default or Event of Default.
(c) The Reserves shall not, unless otherwise explicitly required
by applicable law, be or be deemed to be escrow or trust funds, but, at
Beneficiary's option and in Beneficiary's discretion, may either be held in a
separate account or be commingled by Beneficiary with the general funds of
Beneficiary. Upon assignment of this Deed of Trust by Beneficiary, any funds in
the Reserves shall be turned over to the assignee and any responsibility of
Beneficiary, as assignor, with respect thereto shall terminate. If the funds in
the applicable Reserve shall exceed the amount of payments actually applied by
Beneficiary for the purposes and items for which the applicable Reserve is held,
such excess may be credited by Beneficiary on subsequent payments to be made
hereunder or, at the option of Beneficiary, refunded to Grantor. If, however,
the applicable Reserve shall not contain sufficient funds to pay the sums
required by the dates on which such sums are required to be on deposit in such
account, Grantor shall, within ten (10) days after receipt of written notice
thereof, deposit with Beneficiary the full amount of any such deficiency. If
Grantor shall fail to deposit with Beneficiary the full amount of such
deficiency as provided above, Beneficiary shall have the option, but not the
obligation, to make such deposit.
ARTICLE VI.
RENTS; LEASES; ALIENATION
-------------------------
6.1. Rents and Profits. As additional and collateral security for the
-----------------
payment of the Debt and cumulative of any and all rights and remedies herein
provided for, Grantor hereby absolutely and presently assigns to Beneficiary all
existing and future Rents and Profits. Grantor hereby grants to Beneficiary the
sole, exclusive and immediate right, without taking possession of the Mortgaged
Property, to demand, collect (by suit or otherwise), receive and
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give valid and sufficient receipts for any and all of said Rents and Profits,
for which purpose Grantor does hereby irrevocably make, constitute and appoint
Beneficiary its attorney-in-fact with full power to appoint substitutes or a
trustee to accomplish such purpose. Beneficiary shall be without liability for
any loss which may arise from a failure or inability to collect Rents and
Profits, proceeds or other payments. However, until the occurrence of an Event
of Default under this Deed of Trust or under any other of the Loan Documents,
Grantor shall have a license to collect, receive, use and enjoy the Rents and
Profits when due and prepayments thereof for not more than one (1) month prior
to due date thereof. The assignment of Rents and Profits hereinabove granted
shall continue in full force and effect during any period of foreclosure or
redemption with respect to the Mortgaged Property. Grantor has executed an
Assignment of Leases and Rents dated of even date herewith (the "Assignment") in
----------
favor of Beneficiary covering all of the right, title and interest of Grantor,
as landlord, lessor or licensor, in and to any Leases. All rights and remedies
granted to Beneficiary under the Assignment shall be in addition to and
cumulative of all rights and remedies granted to Beneficiary hereunder.
6.2. Leases. (a) With the exception of the Lease executed between
------
the Grantor and Assisted Living Concepts Inc. as of the same date hereof,
Grantor covenants and agrees that it shall not enter into any Lease affecting
the lesser of (x) ten percent (10%) of the gross leaseable area of the
Improvements and (y) 10,000 square feet or more of the Mortgaged Property or
having a term of ten (10) years or more without the prior written approval of
Beneficiary, which approval shall not be unreasonably withheld. The request for
approval of each such proposed new Lease shall be made to Beneficiary in writing
and Grantor shall furnish to Beneficiary (and any loan servicer specified from
time to time by Beneficiary): (i) such biographical and financial information
about the proposed Tenant as Beneficiary may require in conjunction with its
review, (ii) a copy of the proposed form of Lease and (iii) a summary of the
material terms of such proposed Lease (including, without limitation, rental
terms and the term of the proposed lease and any options). It is acknowledged
that Beneficiary intends to include among its criteria for approval of any such
proposed Lease the following: (i) such Lease shall be with a bona-fide arm's-
length Tenant; (ii) the terms of such Lease shall comply with the requirements
set forth in paragraphs (b) and (c) below; and (iii) such Lease shall provide
that the Tenant pays for its expenses. Failure of Beneficiary to approve or
disapprove any such proposed Lease within fifteen (15) business days after
receipt of such written request and all the documents and information required
to be furnished to Beneficiary with such request shall be deemed approved,
provided that the written request for approval specifically mentioned the same.
(b) Prior to execution of any Leases of space in the Improvements
after the date hereof, Grantor shall submit to Beneficiary, for Beneficiary's
prior approval, which approval shall not be unreasonably withheld, a copy of the
form Lease Grantor plans to use in leasing space in the Improvements or at the
Mortgaged Property. All such Leases of space at the Mortgaged Property shall be
at a rental and on terms consistent with the terms for similar leases in the
market area of the Premises. Grantor shall also submit to Beneficiary for
Beneficiary's approval, which approval shall not be unreasonably withheld, prior
to the execution thereof, any proposed Lease of the Improvements or any portion
thereof that differs
20
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materially and adversely from the aforementioned form Lease. Grantor shall not
execute any Lease for all or a substantial portion of the Mortgaged Property,
except for an actual occupancy by the Tenant, lessee or licensee thereunder, and
shall at all times promptly and faithfully perform, or cause to be performed,
all of the covenants, conditions and agreements contained in all Leases with
respect to the Mortgaged Property, now or hereafter existing, on the part of the
landlord, lessor or licensor thereunder to be kept and performed. Grantor shall
furnish to Beneficiary, within ten (10) days after a request by Beneficiary to
do so, but in any event by January 1 of each year, a current Rent Roll,
certified by Grantor as being true and correct, containing the names of all
Tenants with respect to the Mortgaged Property, the terms of their respective
Leases, the spaces occupied and the rentals or fees payable thereunder and the
amount of each Tenant's security deposit. Upon the request of Beneficiary,
Grantor shall deliver to Beneficiary a copy of each such Lease. Grantor shall
not do or suffer to be done any act, or omit to take any action, that might
result in a default by the landlord, lessor or licensor under any such Lease or
allow the Tenant thereunder to withhold payment of rent or cancel or terminate
same and shall not further assign any such Lease or any such Rents and Profits.
Grantor, at no cost or expense to Beneficiary, shall enforce, short of
termination, the performance and observance of each and every condition and
covenant of each of the parties under such Leases and Grantor shall not
anticipate, discount, release, waive, compromise or otherwise discharge any rent
payable under any of the Leases. Grantor shall not, without the prior written
consent of Beneficiary, modify any of the Leases, terminate or accept the
surrender of any Leases, waive or release any other party from the performance
or observance of any obligation or condition under such Leases except, with
respect only to Leases affecting less than the lesser of (x) ten percent (10%)
of the gross leaseable area of the Improvements and (y) 10,000 square feet and
having a term of less than ten (10) years, in the normal course of business in a
manner which is consistent with sound and customary leasing and management
practices for similar properties in the community in which the Mortgaged
Property is located. Grantor shall not permit the prepayment of any rents under
any of the Leases for more than one (1) month prior to the due date thereof.
(c) Each Lease executed after the date hereof affecting any of the
Premises or the Improvements must provide, in a manner approved by Beneficiary,
that the Lease is subordinate to the lien of this Deed of Trust and that Tenant
will recognize as its landlord, lessor or licensor, as applicable, and attorn to
any person succeeding to the interest of Grantor upon any foreclosure of this
Deed of Trust or deed in lieu of foreclosure. Each such Lease shall also
provide that, upon request of said successor-in-interest, the Tenant shall
execute and deliver an instrument or instruments confirming its attornment as
provided for in this Section; provided, however, that neither Beneficiary nor
-------- -------
any successor-in-interest shall be bound by any payment of rent for more than
one (1) month in advance, or any amendment or modification of said Lease made
without the express written consent of Beneficiary or said successor-in-
interest.
(d) Each agreement with a resident or occupant for the use and
occupancy of the Premises and the services provided in connection therewith in
keeping with the Health Care Operating License (a "Residency or Occupancy
Agreement") shall be written on the standard form for such document which has
been approved by Beneficiary.
21
<PAGE>
6.3. Alienation and Further Encumbrances. (a) Grantor acknowledges
-----------------------------------
that Beneficiary has relied upon the principals of Grantor and their experience
in owning and operating the Mortgaged Property and properties similar to the
Mortgaged Property in connection with the closing of the loan evidenced by the
Note. Accordingly, except as specifically allowed hereinbelow in this Section
and notwithstanding anything to the contrary contained in Section 16.4 hereof,
------------
in the event that the Mortgaged Property or any part thereof or interest therein
shall be sold, conveyed, disposed of, alienated, hypothecated, leased (except to
Tenants of space in the Improvements in accordance with the provisions of
Section 6.2 hereof), assigned, pledged, mortgaged, further encumbered or
- -----------
otherwise transferred or Grantor shall be divested of its title to the Mortgaged
Property or any interest therein, in any manner or way, whether voluntarily or
involuntarily, without the prior written consent of Beneficiary being first
obtained, which consent may be withheld in Beneficiary's sole discretion, then
the same shall constitute an Event of Default and Beneficiary shall have the
right, at its option, to declare any or all of the Debt, irrespective of the
maturity date specified in the Note, immediately due and payable and to
otherwise exercise any of its other rights and remedies contained in Article XIV
-----------
hereof. For the purposes of this Section: (i) in the event either Grantor or
any of its general partners or members is a corporation or trust, the sale,
conveyance, transfer or disposition of more than 10% (in one or more related
transactions) of the issued and outstanding capital stock of Grantor or any of
its general partners or members or of the beneficial interest of such trust (or
the issuance of new shares of capital stock in Grantor or any of its general
partners or members so that immediately after such issuance (in one or a series
of transactions) the total capital stock then issued and outstanding is more
than 110% of the total immediately prior to such issuance) shall be deemed to be
a transfer of an interest in the Mortgaged Property; and (ii) in the event
Grantor or any general partner or member of Grantor is a limited or general
partnership, a joint venture or a limited liability company, a direct or
indirect change in the ownership interests in any general partner, any joint
venturer or any member, either voluntarily, involuntarily or otherwise, or the
sale, conveyance, transfer, disposition, alienation, hypothecation or
encumbering of all or any portion of the interest of any such general partner,
joint venturer or member in Grantor or such general partner or member (whether
in the form of a beneficial or partnership interest or in the form of a power of
direction, control or management, or otherwise), shall be deemed to be a
transfer of an interest in the Mortgaged Property. Notwithstanding the
foregoing, however, (i) limited partnership interests in Grantor or in any
general partner or member of Grantor shall be freely transferable without the
consent of Beneficiary, (ii) any involuntary transfer caused by the death of any
general partner, shareholder, joint venturer, or member of Grantor or any
general partner or member of Grantor or beneficial owner of a trust shall not be
an Event of Default under this Deed of Trust so long as Grantor is
reconstituted, if required, following such death and so long as those persons
responsible for the management of the Mortgaged Property and Grantor remain
unchanged as a result of such death or any replacement management is approved by
Beneficiary, and (iii) gifts for estate planning purposes of any individual's
interests in Grantor or in any of Grantor's general partners, members or joint
venturers to the spouse or any lineal descendant of such individual, or to a
trust for the benefit of any one or more of such individual, spouse or lineal
descendant, shall not be an Event of Default under this Deed of Trust so long as
Grantor is reconstituted, if required, following such gift and so long as those
persons responsible for the management of the Mortgaged
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<PAGE>
Property and Grantor remain unchanged following such gift or any replacement
management is approved by Beneficiary; and (iv) any transfer caused by a change
in control or merger or consolidation of the parent company of any general
partner of Grantor shall not be an Event of Default so long as the parent of
such general partner of Grantor is a publicly held company.
(b) Notwithstanding any other provisions of this Deed of Trust,
Beneficiary shall consent to a sale, conveyance or transfer of the Mortgaged
Property in its entirety (hereinafter, a "Sale") to any person or entity
----
provided that, for each Sale, each of the following terms and conditions are
satisfied:
(i) No Default and no Event of Default has occurred hereunder or
under any of the other Loan Documents which has not been waived;
(ii) Grantor gives Beneficiary written notice of the terms of such
prospective Sale not less than sixty (60) days before the date on which
such Sale is scheduled to close and, concurrently therewith, gives
Beneficiary all such information concerning the proposed transferee of the
Mortgaged Property (hereinafter, "Buyer") as Beneficiary would require in
-----
evaluating an initial extension of credit to a borrower and pays to
Beneficiary a non-refundable application fee in the amount of $5,000.
Beneficiary shall have the right to approve or disapprove the proposed
Buyer. In determining whether to give or withhold its approval of the
proposed Buyer, Beneficiary shall consider the Buyer's experience and track
record in owning and operating facilities similar to the Mortgaged
Property, the Buyer's financial strength, the Buyer's general business
standing and the Buyer's relationships and experience with contractors,
vendors, tenants, lenders and other business entities; provided, however,
-------- -------
that, notwithstanding Beneficiary's agreement to consider the foregoing
factors in determining whether to give or withhold such approval, such
approval shall be given or withheld based on what Beneficiary determines to
be commercially reasonable in Beneficiary's sole discretion and, if given,
may be given subject to such conditions as Beneficiary may deem
appropriate;
(iii) Grantor pays Beneficiary, concurrently with the closing of such
Sale, a non-refundable assumption fee in an amount equal to all out-of-
pocket costs and expenses, including, without limitation, reasonable
attorneys' fees, incurred by Beneficiary in connection with the Sale, plus
an amount equal to one-half percent (.5%) of the then outstanding principal
balance of the Note;
(iv) The Buyer executes, without any cost or expense to Beneficiary,
such documents and agreements as Beneficiary shall reasonably require in
connection with the Sale, including, but not limited to, an assumption
agreement, financing statements, and guaranties or indemnities, all in form
and substance satisfactory to Beneficiary. The Buyer shall also deliver to
Beneficiary such insurance policies and other documents and certificates as
the Beneficiary may require.
(c) Such Sale shall not be construed so as to relieve Grantor of any
personal liability under the Note or any of the other Loan Documents for any
acts or events occurring or obligations arising prior to or simultaneously with
the closing of such Sale, whether or not
23
<PAGE>
same is discovered prior or subsequent to the closing of such Sale. Grantor
shall be released from and relieved of any personal liability under the Note or
any of the other Loan Documents for any acts or events occurring or obligations
arising after the closing of such Sale which are not caused by or arising out of
any acts or events occurring or obligations arising prior to or simultaneously
with the closing of such Sale.
6.4. Easements and Rights-of-Way. Grantor shall not grant any
---------------------------
easement or right-of-way with respect to all or any portion of the Premises or
the Improvements without the prior written consent of Beneficiary. The
purchaser at any foreclosure sale hereunder may, at its discretion, disaffirm
any easement or right-of-way granted in violation of any of the provisions of
this Deed of Trust and may take immediate possession of the Mortgaged Property
free from, and despite the terms of, such grant of easement or right-of-way. If
Beneficiary consents to the grant of an easement or right-of-way, Beneficiary
agrees to grant such consent without charge to Grantor other than expenses,
including, without limitation, reasonable attorneys' fees, incurred by
Beneficiary in the review of Grantor's request and in the preparation of
documents effecting the subordination.
6.5. Partial Release of Mortgaged Property. Distinct parcels of the
-------------------------------------
Mortgaged Property ("Partial Release Parcels") as identified on Schedule I
-----------------------
attached hereto and by this reference incorporated herein, may be released from
time to time from the lien of this Deed of Trust (a "Partial Release"), subject
---------------
to satisfaction of all of the following conditions:
(a) Each Partial Release shall be governed by, and subject to the
provisions set forth in Section 12.5 below;
------------
(b) Beneficiary shall have received not less than sixty (60) nor more
than ninety (90) days prior written notice ("Partial Release Notice") specifying
----------------------
the following, (i) a date which shall be a Payment Date ("Partial Release
---------------
Date"), on which to effectuate the Partial Release, (ii) the specified Partial
Release Parcel(s) which Grantor wishes to have released from the lien of this
Deed of Trust;
(c) Simultaneously with each Partial Release, Grantor shall convey
the Partial Release Parcel(s) in question to a third party which third party may
be the parent company or an affiliate of Grantor, in exchange for fair
consideration;
(d) On the Partial Release Date, the amount to be paid ("Partial
-------
Release Price") to buy Defeasance Collateral upon a Partial Release and a
- -------------
Partial Defeasance of the Deed of Trust pursuant to this Section and Section
12.5, shall be the product of (1) the Allocated Loan Amount multiplied by (2)
125% multiplied by (3) a fraction whose numerator is the outstanding principal
balance of the Note on the Partial Release Date and whose denominator is the
original outstanding principal balance of the Note;
(e) No Event of Default shall have occurred and be continuing on the
date of the Partial Release Notice or on the Partial Release Date;
24
<PAGE>
(f) Grantor shall, at is sole cost and expense, prepare any and all
documents and instruments necessary to effect the Partial Release, all of which
shall be subject to the reasonable approval of Beneficiary, and shall be
delivered to Beneficiary 30 days prior to the Partial Release Date, and Grantor
shall pay all costs and expenses reasonably incurred by Beneficiary or
Beneficiary's loan servicer (including, but not limited to, reasonable
attorneys' fees and disbursements) in connection with the review, execution and
delivery of the Partial Release;
(g) At the request of Beneficiary, Grantor shall, at Grantor's sole
cost and expense, obtain and deliver all appropriate title endorsements,
supplements and/or additional title insurance policies to or in connection with
Lender's original loan title insurance policy, insuring that the lien of the
Deed of Trust with respect to the portion of the Mortgaged Property remaining
after such Partial Release, is not affected by the Partial Release, and subject
to Beneficiary's reasonable approval.
ARTICLE VII.
PROPERTY MANAGEMENT
-------------------
7.1. Management. The management of the Mortgaged Property shall be by
----------
either: (a) Grantor or an entity affiliated with Grantor approved by Beneficiary
for so long as Grantor or said affiliated entity is managing the Mortgaged
Property in a first class manner; or (b) a professional property management
company approved by Beneficiary. Such management by an affiliated entity or a
professional property management company shall be pursuant to a written
agreement approved by Beneficiary. Grantor shall give Beneficiary prompt written
notice of the occurrence of a default under any management contract then in
effect. In no event shall any manager be removed or replaced or the terms of any
management agreement be modified or amended without the prior written consent of
Beneficiary. After an Event of Default or a default under any management
contract then in effect, which default is not cured within any applicable grace
or cure period, Beneficiary shall have the right to terminate, or to direct
Grantor to terminate, such management contract upon thirty (30) days' notice and
to retain, or to direct Grantor to retain, a new management agent approved by
Beneficiary. All Rents and Profits generated by or derived from the Mortgaged
Property shall first be utilized solely for current expenses directly
attributable to the ownership and operation of the Mortgaged Property,
including, without limitation, current expenses relating to Grantor's
liabilities and obligations with respect to this Deed of Trust and the other
Loan Documents, and none of the Rents and Profits generated by or derived from
the Mortgaged Property shall be diverted by Grantor and utilized for any other
purposes unless all such current expenses attributable to the ownership and
operation of the Mortgaged Property have been fully paid and satisfied.
ARTICLE VIII.
INDEMNIFICATION
---------------
8.1. Indemnification; Subrogation. (a) Grantor shall indemnify,
----------------------------
defend and hold Beneficiary harmless from and against: (i) any and all claims
for brokerage, leasing,
25
<PAGE>
finders or similar fees which may be made relating to the Mortgaged Property or
the Debt and (ii) any and all liability, obligations, losses, damages,
penalties, claims, actions, suits, costs and expenses (including Beneficiary's
reasonable attorneys' fees and expenses) of whatever kind or nature which may be
asserted against, imposed on or incurred by Beneficiary in connection with the
Debt, this Deed of Trust and any other Loan Document, the Mortgaged Property, or
any part thereof, or the exercise by Beneficiary of any rights or remedies
granted to it under this Deed of Trust; provided, however, that nothing herein
-------- -------
shall be construed to obligate Grantor to indemnify, defend and hold harmless
Beneficiary from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs and expenses to the extent
enacted against, imposed on or incurred by Beneficiary solely by reason of
Beneficiary's willful misconduct as finally determined by a court of competent
jurisdiction.
(b) Grantor hereby indemnifies and holds Beneficiary harmless from
and against all loss, cost and expenses with respect to any Event of Default
hereof, any liens (i.e., judgments, mechanics' and materialmen's liens, or
otherwise), charges and encumbrances filed against the Mortgaged Property, and
from any claims and demands for damages or injury, including claims for property
damage, personal injury or wrongful death, arising out of or in connection with
any accident or fire or other casualty on the Premises or the Improvements or
any nuisance made or suffered thereon, except to the extent due solely to
Beneficiary's willful misconduct as finally determined by a court of competent
jurisdiction, including, without limitation, in any case, reasonable attorneys'
fees, costs and expenses as aforesaid, whether at pretrial, trial or appellate
level, and such indemnity shall survive payment in full of the Debt. This
Section shall not be construed to require Beneficiary to incur any expenses,
make any appearances or take any actions.
(c) If Beneficiary is made a party defendant to any litigation or any
claim is threatened or brought against Beneficiary concerning the Debt, this
Deed of Trust, the Mortgaged Property, or any part thereof, or any interest
therein, or the construction, maintenance, operation or occupancy or use
thereof, then Grantor shall indemnify, defend and hold Beneficiary harmless from
and against all liability by reason of said litigation or claims, including
reasonable attorneys' fees and expenses incurred by Beneficiary in any such
litigation or claim, whether or not any such litigation or claim is prosecuted
to judgment. If Beneficiary commences an action against Grantor to enforce any
of the terms hereof or to prosecute any breach by Grantor of any of the terms
hereof or to recover any sum secured hereby, Grantor shall pay to Beneficiary
the reasonable attorneys' fees and expenses incurred by Beneficiary in
connection therewith. The right to such attorneys' fees and expenses shall be
deemed to have accrued on the commencement of such action, and shall be
enforceable whether or not such action is prosecuted to judgment. If Grantor
breaches any term of this Deed of Trust or any other Loan Document, Beneficiary
may engage the services of an attorney or attorneys to protect its rights
hereunder, and in the event of such engagement following any breach by Grantor,
Grantor shall pay Beneficiary reasonable attorneys' fees and expenses incurred
by Beneficiary, whether or not an action is actually commenced against Grantor
by reason of such breach. All references to "attorneys" in this Subsection and
---------
elsewhere in this Deed of Trust shall include, without limitation, any attorney
or law firm engaged by Beneficiary and Beneficiary's in-house counsel, and all
references to "fees and expenses" in this Subsection
-----------------
26
<PAGE>
and elsewhere in this Deed of Trust shall include, without limitation, any
reasonable fees of such attorney or law firm, any reasonable appellate counsel
fees, if applicable, and any reasonable allocation charges and reasonable
allocation costs of Beneficiary's in-house counsel.
(d) A waiver of subrogation shall be obtained by Grantor from its
insurance carrier and, consequently, Grantor waives any and all right to claim
or recover against Beneficiary, its officers, employees, agents and
representatives, for loss of or damage to Grantor, the Mortgaged Property,
Grantor's property or the property of others under Grantor's control from any
cause insured against or required to be insured against by the provisions of
this Deed of Trust.
ARTICLE IX.
REPORTING
---------
9.1. Access Privileges and Inspections. Beneficiary and the agents,
---------------------------------
representatives and employees of Beneficiary shall, subject to the rights of
Tenants, have full and free access to the Premises and the Improvements and any
other location where books and records concerning the Mortgaged Property are
kept at all reasonable times and, except in the event of an emergency, upon not
less than 24 hours prior notice (which notice may be telephonic) for the
purposes of inspecting the Mortgaged Property and of examining, copying and
making extracts from the books and records of Grantor relating to the Mortgaged
Property. Grantor shall lend assistance to all such agents, representatives and
employees of Beneficiary.
9.2. Financial Statements and Books and Records. Grantor shall keep
------------------------------------------
accurate books and records of account of the Mortgaged Property and its own
financial affairs sufficient to permit the preparation of financial statements
therefrom in accordance with generally accepted accounting principles.
Beneficiary and its duly authorized representatives shall have the right to
examine, copy and audit Grantor's records and books of account at all reasonable
times. So long as this Deed of Trust continues in effect, Grantor shall provide
to Beneficiary, in addition to any other financial statements required hereunder
or under any of the other Loan Documents, the following financial statements and
information, all of which shall be in the form and substance acceptable to
Beneficiary and all of which must be certified to Beneficiary as being true and
correct by Grantor or the person or entity to which they pertain, as applicable.
With respect to the financial statements and information set forth in subsection
(d) hereof as it relates to Grantor or the Mortgaged Property, the same must be
prepared by an certified public accountant in accordance with generally accepted
accounting principles consistently applied and, if the original principal amount
of the Note is $15,000,000 or more, the same must be audited by such
accountants:
(a) copies of all tax returns filed by Grantor, within thirty (30)
days after the date of filing;
(b) monthly operating statements for the Mortgaged Property, within
fifteen (15) days after the end of each three calendar month period, the first
such period to commence on the first day of the month following the date hereof;
and;
27
<PAGE>
(c) quarterly operating statements for the Mortgaged Property,
within thirty (30) days after the end of each March, June, September and
December commencing with the first (1st) of such months to occur following the
first (1st) anniversary of the date hereof;
(d) annual balance sheets for the Mortgaged Property and annual
financial statements for Grantor, each principal or general partner in Grantor,
and each Indemnitor, within ninety (90) days after the end of each calendar
year; including, without limitation, a schedule of rates for each room and payor
type, copies of the Medicare and Medicaid cost reports, as applicable copies of
filings with the Department of Health and/or any other regulatory agency which
sets or establishes reimbursement rates promptly upon filing with any
Governmental Entity and in any event, within five (5) business days of such
filing, copies of all Health Care Operating License applications (including
renewal applications) and/or similar filings and submitted by or on behalf of
Grantor; and
(e) such other information with respect to the Mortgaged Property,
Grantor, the principals or general partners in Grantor, and each Indemnitor,
which may be reasonably requested from time to time by Beneficiary, within a
reasonable time after the applicable request.
In the event of any failure to timely provide any of the statements or other
materials referred to above in this Section 9.2 or in the event any such
-----------
statements or other materials shall be materially inaccurate or false, or in the
event of the failure of Grantor to permit Beneficiary or its representatives to
inspect said books and records upon request, an Event of Default shall
automatically exist hereunder without any notice to, or right to cure by,
Grantor. In addition to the provisions of the immediately preceding sentence,
upon each failure of Grantor to provide any of the statements or other materials
referred to above in this Section 9.2, Grantor shall, in Beneficiary's sole and
-----------
absolute discretion, be subject to a charge in the amount of One Thousand and
00/100 Dollars ($1,000) which amount shall be paid to Beneficiary, together with
interest thereon at the Default Interest Rate from the date that the applicable
statement or other material was required to be delivered to Beneficiary until
the date such amount is paid to it, immediately on demand by Beneficiary.
ARTICLE X.
WARRANTIES AND COVENANTS
------------------------
10.1. Warranties of Grantor. Grantor, for itself and its successors
---------------------
and assigns, does hereby represent, warrant and covenant to and with
Beneficiary, its successors and assigns, that:
(a) Grantor has good, marketable and indefeasible fee simple title
to the Mortgaged Property, subject only to those matters expressly set forth as
exceptions to title or subordinate matters in the title insurance policy
insuring the lien of this Deed of Trust which Beneficiary has agreed to accept
(such items being the "Permitted Encumbrances"), and has full power and lawful
----------------------
authority to grant its interest in the Mortgaged Property in the manner and form
hereby done or intended. Grantor will preserve its interest in and title to the
Mortgaged Property and will forever warrant and defend the same to Beneficiary
against any
28
<PAGE>
and all claims whatsoever and will forever warrant and defend the validity and
priority of the lien and security interest created herein against the claims of
all persons and parties whomsoever, subject to the Permitted Encumbrances. The
foregoing warranty of title shall survive the foreclosure of this Deed of Trust
and shall inure to the benefit of and be enforceable by Beneficiary in the event
Beneficiary acquires title to the Mortgaged Property by foreclosure or
otherwise;
(b) No bankruptcy, reorganization or insolvency proceedings are
pending or contemplated either by Grantor or, to the best knowledge of Grantor,
against Grantor (or, if Grantor is a partnership or a limited liability company,
any of its general partners or members) or by or against any endorser or
cosigner of the Note or of any portion of the Debt, or any guarantor or
indemnitor under any guaranty or indemnity agreement executed in connection with
the Note or the loan evidenced thereby and secured hereby (an "Indemnitor");
----------
(c) All reports, certificates, affidavits, statements and other data
furnished by or on behalf of Grantor to Beneficiary in connection with the loan
evidenced by the Note are true and correct in all material respects and do not
omit to state any fact or circumstance necessary to make the statements
contained therein not misleading;
(d) The execution, delivery and performance of this Deed of Trust,
the Note and all of the other Loan Documents have been duly authorized by all
necessary action to be, and are, binding and enforceable against Grantor in
accordance with the respective terms thereof and do not (i) contravene, result
in a breach of or constitute a default (nor upon the giving of notice or the
passage of time or both will the same constitute a default) under the
organizational documents of Grantor or any contract or agreement of any nature
to which Grantor is a party or by which Grantor or any of its property may be
bound or (ii) violate or contravene any law, order, decree, rule or regulation
to which Grantor is subject;
(e) There are no judicial, administrative, mediation or arbitration
actions, suits or proceedings pending or threatened against or affecting Grantor
(or, if Grantor is a partnership or a limited liability company, any of its
general partners or members) or the Mortgaged Property which, if adversely
determined, would materially impair either the Mortgaged Property or Grantor's
ability to perform the covenants or obligations required to be performed under
the Loan Documents;
(f) Grantor possesses all franchises, patents, copyrights,
trademarks, trade names, licenses and permits (the "Licenses") necessary for the
--------
conduct of its business substantially as now conducted, including, without
limitation, all necessary federal, state and local certificates, permits,
licenses, approvals, registrations and authorizations required to permit Grantor
to conduct its operations at the Mortgaged Property, all fees due and payable in
connection with such Licenses have been paid and Grantor's operation of the
Premises complies with such Licenses;
(g) Grantor is not a "foreign person" within the meaning of
(S)1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the related
Treasury Department regulations, including temporary regulations;
29
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(h) The Premises and the Improvements and the current intended use
thereof by Grantor comply in all material respects with all applicable
restrictive covenants, zoning ordinances, subdivision and building codes, flood
disaster laws, health and environmental laws and regulations and all other
ordinances, orders or requirements issued by any state, federal or municipal
authorities having or claiming jurisdiction over the Mortgaged Property. The
Premises and Improvements constitute one or more separate tax parcels for
purposes of ad valorem taxation. The Premises and Improvements do not require
any rights over, or restrictions against, other property in order to comply with
any of the aforesaid governmental ordinances, orders or requirements;
(i) All utility services necessary and sufficient for the full use,
occupancy, operation and disposition of the Premises and the Improvements for
their intended purposes are available to the Mortgaged Property, including
water, storm sewer, sanitary sewer, gas, electric, cable and telephone
facilities, through public rights-of-way or perpetual private easements approved
by Beneficiary;
(j) All streets, roads, highways, bridges, curb cuts, driveways and
traffic signals and waterways necessary for access to and full use, occupancy,
operation and disposition of the Premises and the Improvements have been
completed, have been dedicated to and accepted by the appropriate municipal
authority and are open and available to the Premises and the Improvements
without further condition or cost to Grantor;
(k) The Mortgaged Property is free from delinquent water charges,
sewer rents, taxes and assessments;
(l) As of the date of this Deed of Trust, the Mortgaged Property is
free from unrepaired damage caused by fire, flood, accident or other casualty
(except as disclosed in the Engineering Report); all insurance required by the
terms of this Deed of Trust is in full force and effect and none of the premiums
payable therefor have been, nor at any time in the future will be financed;
(m) As of the date of this Deed of Trust, no part of the Premises or
the Improvements has been taken in condemnation, eminent domain or like
proceeding nor is any such proceeding pending or, to Grantor's knowledge and
belief, threatened or contemplated;
(n) Except as may otherwise be disclosed in the Engineering Reports
entitled Property Condition Surveys, dated June 5, 1998 (Astor), June 6, 1998
(Macklyn), and July 10, 1998 (Jackson) respectively, and prepared by EMG (the
"Engineering Report"), the Improvements are structurally sound, in good repair
and free of defects in materials and workmanship. Except as may otherwise be
disclosed in the Engineering Report, all major building systems located within
the Improvements, including, without limitation, the heating and air
conditioning systems and the electrical and plumbing systems, are in good
working order and condition;
(o) Grantor has delivered to Beneficiary true, correct and complete
copies of all Contracts and all amendments thereto or modifications thereof;
30
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(p) Each Contract constitutes the legal, valid and binding obligation
of Grantor and, to the best of Grantor's knowledge and belief, is enforceable
against all other parties thereto. No default exists, or with the passing of
time or the giving of notice or both would exist, under any Contract or
Contracts which would, individually or in the aggregate, have a material adverse
effect on Grantor or the Mortgaged Property;
(q) No Contract or Lease provides any party with the right to obtain
a lien or encumbrance upon the Mortgaged Property superior to the lien of this
Deed of Trust;
(r) Grantor and the Mortgaged Property are free from any past due
obligations for sales and payroll taxes;
(s) There are no security agreements or financing statements
affecting all or any portion of the Mortgaged Property other than (i) as
disclosed in writing by Grantor to Beneficiary prior to the date hereof and (ii)
the security agreements and financing statements created in favor of
Beneficiary;
(t) Grantor has delivered a true, correct and complete schedule (the
"Rent Roll") of all Leases affecting the Mortgaged Property as of the date
- ----------
hereof, which accurately and completely sets forth in all material respects for
each such Lease the name of the Tenant, the Lease expiration date, extension and
renewal provisions, the base rent payable, the security deposit held thereunder
and any other material provisions of such Lease; and Grantor has delivered to
Beneficiary true, correct and complete copies of all Leases described in the
Rent Roll;
(u) Each Lease constitutes the legal, valid and binding obligation of
Grantor and, to the best of Grantor's knowledge and belief, is enforceable
against the Tenant thereunder. No default has been asserted or exists, or with
the passing of time or the giving of notice or both would exist, under any Lease
which would, in the aggregate, have a material adverse effect on Grantor or the
Mortgaged Property;
(v) No Tenant under any Lease has, as of the date hereof, paid rent
more than thirty (30) days in advance, and the rents under such Leases have not
been waived, released, or otherwise discharged or compromised;
(w) All work to be performed by Grantor under the Leases has been
substantially performed, all contributions to be made by Grantor to the Tenants
thereunder have been made and all other conditions precedent to each such
Tenant's obligations thereunder have been satisfied;
(x) Each Tenant under any Lease has entered into occupancy of the
demised premises; and
(y) To the best of Grantor's knowledge and belief, each Tenant is
free from bankruptcy, reorganization, insolvency or arrangement proceedings or a
general assignment for the benefit of creditors.
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10.2. Waste; Alteration of Improvements. Grantor shall not commit,
---------------------------------
suffer or permit any waste on the Mortgaged Property nor take or fail to take
any actions that might invalidate any insurance carried on the Mortgaged
Property. Grantor shall maintain the Mortgaged Property in good condition and
repair. No part of the Improvements may be removed, demolished or materially
altered, without the prior written consent of Beneficiary. Without the prior
written consent of Beneficiary, Grantor shall not commence construction of any
improvements on the Premises other than improvements required for the
maintenance or repair of the Mortgaged Property. Notwithstanding the foregoing,
Beneficiary acknowledges that Assisted Living Concepts Inc., the tenant at the
Premises, may expand the facilities at each or any of the Premises, at Tenant's
sole cost and expense, and Tenant shall retain the revenues from such expansion.
10.3. Zoning. Without the prior written consent of Beneficiary,
------
Grantor shall not make, suffer, consent to or acquiesce in any change in the
zoning or conditions of use of the Premises or the Improvements. Grantor shall
comply with and make all payments required under the provisions of any
covenants, conditions or restrictions affecting the Premises or the
Improvements. Grantor shall comply with all existing and future requirements of
all governmental authorities having jurisdiction over the Mortgaged Property.
Grantor shall keep all licenses, permits, franchises and other approvals
necessary for the operation of the Mortgaged Property in full force and effect.
Grantor shall operate the Mortgaged Property as an assisted care facility for so
long as the Debt is outstanding. If, under applicable zoning provisions, the use
of all or any part of the Premises or the Improvements is or becomes a
nonconforming use, Grantor shall not cause or permit such use to be discontinued
or abandoned without the prior written consent of Beneficiary. Further, without
Beneficiary's prior written consent, Grantor shall not file or subject any part
of the Premises or the Improvements to any declaration of condominium or co-
operative or convert any part of the Premises or the Improvements to a
condominium, co-operative or other form of multiple ownership and governance.
10.4. Covenants with Respect to Indebtedness, Operations, Fundamental
---------------------------------------------------------------
Changes of Grantor. Grantor hereby represents, warrants and covenants as of the
- ------------------
date hereof and until such time as the Debt is paid in full, that Grantor:
(a) will not, nor will any partner, limited or general, member or
shareholder thereof, as applicable, amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of incorporation, by-
laws, operating agreement, articles of organization or other formation agreement
or document, as applicable, in any material term or manner, or in a manner which
adversely affects Grantor's existence as a single purpose entity;
(b) will not liquidate or dissolve (or suffer any liquidation or
dissolution), or enter into any transaction of merger or consolidation, or
acquire by purchase or otherwise all or substantially all or any part of the
business or assets of, or any stock or other evidence of beneficial ownership
of, or make any investment in, any entity;
(c) has not and will not guarantee, pledge its assets for the
benefit of, or otherwise become liable on or in connection with, any obligation
of any other person or entity;
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(d) does not own and will not own any asset other than (i) the
Mortgaged Property, and (ii) incidental personal property necessary for the
operation of the Mortgaged Property;
(e) is not engaged and will not engage, either directly or
indirectly, in any business other than the ownership, management and operation
of the Mortgaged Property;
(f) will not enter into any contract or agreement with any general
partner, principal, affiliate or member of Grantor, as applicable, or any
affiliate of any general partner, principal or member of Grantor, except upon
terms and conditions that are intrinsically fair and substantially similar to
those that would be available on an arms-length basis with unrelated third
parties;
(g) has not incurred and will not incur any debt, secured or
unsecured, direct or contingent (including guaranteeing any obligation), other
than (i) the Debt, (ii) advances from affiliates, partners or members, as
applicable, of Grantor, provided the same are fully subordinated to the payment
in full of the Debt in a manner acceptable to Beneficiary and (iii) trade
payables or accrued expenses incurred in the ordinary course of the business of
operating the Mortgaged Property, and no debt other than the Debt will be
secured (senior, subordinate or pari passu) by the Mortgaged Property;
(h) has not made and will not make any loans or advances to any
third party (including any affiliate);
(i) is and will be solvent and pay its debts from its assets as the
same shall become due;
(j) has done or caused to be done and will do all things necessary
to preserve its existence, and will observe all formalities applicable to it;
(k) will conduct and operate its business in its own name and as
presently conducted and operated;
(l) will maintain financial statements, books and records and bank
accounts separate from those of its affiliates, including, without limitation,
its general partners or members, as applicable;
(m) 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, without
limitation, any affiliate, general partner, or member, as applicable, or any
affiliate of any general partner or member of Grantor, as applicable);
(n) will file its own tax returns;
(o) will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations;
33
<PAGE>
(p) will establish and maintain an office through which its business
will be conducted separate and apart from those of its affiliates or, if it
shares office space with its affiliates, shall allocate fairly and reasonably
any overhead and expense for shared office space;
(q) will not commingle the funds and other assets of Grantor with
those of any general partner, member, affiliate, principal or any other person;
(r) has and will maintain its assets in such a manner that it is not
costly or difficult to segregate, ascertain or identify its individual assets
from those of any affiliate or any other person;
(s) does not and will not hold itself out to be responsible for the
debts or obligations of any other person;
(t) will pay any liabilities including salaries of its employees,
out of its own funds and not funds of any affiliate;
(u) will use stationery, invoices, and checks separate from its
affiliates;
(v) will at all times during which any portion of the Debt remains
outstanding have, or if Grantor is a limited liability company or partnership
have a managing member or general partner that is a corporation as set forth in
the charter documents of Grantor; and
(w) shall comply with the provisions of its articles of
incorporation, by-laws, partnership agreement, articles of organization or
operating agreement, as applicable;
10.5 Accounts Receivable Financing. Notwithstanding any other
-----------------------------
provision herein to the contrary, Beneficiary consents to the sale, assignment,
pledge or other encumbrance of all or any portion of the Mortgaged Property
constituting the Accounts Receivable existing on the date conveyed or financed
to any person or entity (an "Accounts Receivable Acquiror") and, in connection
therewith, Beneficiary hereby agrees that it will subordinate the lien created
hereunder solely with respect to the portion of the Mortgaged Property
constituting the existing Accounts Receivable to any lien or interest of any
Accounts Receivable Acquiror; provided, however, that such consent and
subordination shall be limited to, and effective only with respect to liens
created upon, or sales with respect to, then existing Accounts Receivable
pledged or sold prior to the date on which Beneficiary has notified such
Accounts Receivable Acquiror that Beneficiary has commenced an enforcement
action with respect to any other portion of the Mortgaged Property, and provided
further that each of the following terms and conditions are first satisfied.
(a) No Default or Event of Default has occurred and is continuing;
(b) Grantor gives Beneficiary written notice of the terms of any
such sale or pledge (an "A/R Financing") not less than thirty (30) days
prior to the date such A/R
34
<PAGE>
Financing is scheduled to close and provides Beneficiary with forms of all
documents and instruments evidencing such A/R Financing (the "A/R Financing
Documents"), not less than seven (7) days prior to the date such A/R
Financing is scheduled to close in order for Beneficiary to determine
compliance with the provisions hereof;
(c) Contemporaneously with the closing of any such A/R Financing, or
with the closing of the loan secured hereby if any A/R Financing is in
place on the date hereof, the Accounts Receivable Acquiror shall pay to
Beneficiary, on behalf of Grantor, out of the proceeds of the conveyance to
such acquiror of Accounts Receivable, as a reserve hereunder, an amount
determined by multiplying a fraction, the numerator of which is the
aggregate face amount of the Accounts Receivable conveyed or pledged to the
Accounts Receivable Acquiror and the denominator of which is the applicable
MAGR (as defined below) multiplied by an amount equal to the sum of: (i)
the monthly installment payment of principal and interest due and payable
by Grantor under the Note, (ii) the amount required to be deposited into
the Impound Account each month pursuant to the terms of Section 1.2 hereof,
and (iii) the amount required to be deposited in the Replacement Reserve
each month. For purposes of this Section, as of any date of determination,
a "MAGR" is an amount equal to the monthly average gross revenue (computed
on a 12-month rolling average basis for the 12 months preceding the month
in which such date of determination occurs) of Grantor from the Mortgaged
Property;
(d) On or before the closing of any such A/R Financing, Grantor shall
have delivered to Beneficiary a certificate certifying as to the face
amount of the Accounts Receivable being conveyed or pledged and the amount
of the applicable MAGR, together with any related data and the calculations
used to establish the MAGR, all in reasonable detail and satisfactory to
Beneficiary;
(e) The Accounts Receivable Acquirer shall agree pursuant to a
binding written agreement enforceable by Beneficiary that (i) except as
otherwise expressly provided herein, the liens of the A/R Financing
Documents shall be subordinate to the lien of the Loan Documents and all
modifications, renewals, refinancings, replacements and extensions
whatsoever of any of the Loan Documents, (ii) the A/R Financing Documents
shall at all times incorporate by reference such written agreement and
provide for such subordination automatically, and without any notice to,
consent of, or action by the Accounts Receivable Acquiror or any other
party whatsoever, (iii) no release or waiver by Beneficiary or any
subsequent holder of this Deed of Trust of any of its rights against any
person or entity under the Loan Documents, as the same may be modified,
renewed, replaced (including a replacement upon a refinancing) or extended,
shall require notice to or consent of the Accounts Receivable Acquiror or
any other party, nor shall any such release or waiver operate as a defense
to or release of any of the obligations of Accounts Receivable Acquiror or
the rights of Beneficiary or any other subsequent holder of this Deed of
Trust or the other Loan Documents, as the same may be modified, renewed,
replaced (including a replacement upon a refinancing) or extended, and
(iii) without limiting the generality of any of the foregoing, the
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<PAGE>
Accounts Receivable Acquiror thereby consents to any increases of the
indebtedness owed by Grantor under the Loan Documents, as the same may be
modified, renewed, replaced (including a replacement upon a refinancing) or
extended;
(f) The A/R Financing Documents shall also provide that without the
prior written consent of Beneficiary or any subsequent holder of this Deed
of Trust, the Accounts Receivable Acquiror shall not take an enforcement
action under any A/R Financing Document with respect to any collateral as
to which it shall hold a lien subordinate in priority to the lien created
by the Loan Documents unless all indebtedness secured by the Loan
Documents, as the same may be modified, renewed, replaced (including a
replacement upon a refinancing) or extended shall have been indefeasibly
satisfied in full, that the Accounts Receivable Acquiror shall not assert
any default under the A/R Financing Documents as a result of Grantor's
compliance with the terms of any of the Loan Documents, as the same may be
modified, renewed, replaced (including a replacement upon a refinancing) or
extended from time to time, and that the provisions of the Loan Documents,
as the same may be modified, renewed, replaced (including replacement upon
a refinancing) or extended shall govern with respect to any conflicting
provisions of the A/R Financing Documents;
(g) Acquiror shall waive any claim or right of subrogation which it
may have to any lien, estate, right or other interest in any portion of the
Property other than a lien on Accounts Receivable that is, or may be,
pursuant to this Section 10.5, prior in right to this Deed of Trust or any
other Loan Document;
(h) To further confirm the requirements of this Section 10.5, the
Accounts Receivable Acquiror shall agree pursuant to a binding written
agreement enforceable by Beneficiary that, within ten (10) days after
request by Beneficiary, it will do, execute, acknowledge and deliver all
and every such further acts, deeds, conveyances, documents, estoppels and
instruments as Beneficiary may request for the better assuring and
evidencing the foregoing terms and provisions;
(i) In the event that any payment or distribution of assets is made
to the Accounts Receivable Acquiror in contravention of this Section 10.5,
the Accounts Receivable Acquiror shall agree that such payment or
distribution shall be received and held by it in trust for the benefit of
the holder of the Loan Documents, as the same may be modified, amended and
assigned, and shall, forthwith upon receipt thereof, be paid or distributed
to such holder; and
(j) In connection with a bankruptcy, insolvency or other proceeding
relating to any of the Loan Documents or A/R Financing Documents, the
provisions of this Section 10.5 shall remain in full force and effect, and
the court having jurisdiction over such proceeding is hereby authorized to
preserve any such priority and subordination set forth herein in approving
any plan of reorganization, arrangement or liquidation without the prior
written consent of the Beneficiary or the Accounts Receivable Acquiror.
36
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Grantor may grant to the Accounts Receivable Acquiror a lien, subordinate
to the lien hereof, on any other portion of the Mortgaged Property representing
General Intangibles; provided, however, that (i) such lien shall not be enforced
until the Debt has been paid in full and (ii) and all documents creating,
evidencing or otherwise executed in connection therewith or herewith shall be
acceptable to Beneficiary in its sole discretion.
ARTICLE XI.
FURTHER ASSURANCES
------------------
11.1. Defense of Title. If the title to the Mortgaged Property or
----------------
the interest of Beneficiary therein shall be directly or indirectly endangered,
clouded or adversely affected in any manner, Grantor, at Grantor's expense,
shall take all necessary and proper steps for the defense of said title or
interest, including the employment of counsel approved by Beneficiary, the
prosecution or defense of litigation, and the compromise or discharge of claims
made against said title or interest. Notwithstanding the foregoing, in the event
that Beneficiary determines that Grantor is not adequately performing its
obligations under this Section, Beneficiary may, without limiting or waiving any
other rights or remedies of Beneficiary hereunder, take such steps with respect
thereto as Beneficiary shall deem necessary or proper and any and all costs and
expenses incurred by Beneficiary in connection therewith, together with interest
thereon at the Default Interest Rate from the date incurred by Beneficiary until
actually paid by Grantor, shall be immediately paid by Grantor on demand and
shall be secured by this Deed of Trust and by all of the other Loan Documents
securing all or any part of the Debt.
11.2. Performance of Obligations. Grantor shall pay when due the
--------------------------
principal of and the interest on the Debt in accordance with the terms of the
Note and this Deed of Trust. Grantor shall also pay all charges, fees and other
sums required to be paid by Grantor as provided in the Loan Documents, in
accordance with the terms of the Loan Documents, and shall observe, perform and
discharge all obligations, covenants and agreements to be observed, performed or
discharged by Grantor set forth in the Loan Documents in accordance with their
terms. Further, Grantor shall promptly and strictly perform and comply with all
covenants, conditions, obligations and prohibitions required of Grantor in
connection with any other document or instrument affecting title to the
Mortgaged Property, or any part thereof, regardless of whether such document or
instrument is superior or subordinate to this Deed of Trust.
11.3. Construction Liens. Grantor shall pay when due all claims and
------------------
demands of mechanics, materialmen, laborers and others for any work performed or
materials delivered for the Premises or the Improvements; provided, however,
-------- -------
that Grantor shall have the right to contest in good faith any such claim or
demand, so long as it does so diligently, by appropriate proceedings and without
prejudice to Beneficiary and provided that neither the Mortgaged Property nor
any interest therein would be in any danger of sale, loss or forfeiture as a
result of such proceeding or contest. In the event Grantor shall contest any
such claim or demand, Grantor shall promptly notify Beneficiary of such contest
and thereafter shall, upon Beneficiary's request, promptly provide a bond, cash
deposit or other security satisfactory to
37
<PAGE>
Beneficiary to protect Beneficiary's interest and security should the contest be
unsuccessful. If Grantor shall fail to immediately discharge or provide security
against any such claim or demand as aforesaid, Beneficiary may do so and any and
all expenses incurred by Beneficiary, together with interest thereon at the
Default Interest Rate from the date incurred by Beneficiary until actually paid
by Grantor, shall be immediately paid by Grantor on demand and shall be secured
by this Deed of Trust and by all of the other Loan Documents securing all or any
part of the Debt.
11.4. Further Documentation. Grantor shall, on the request of
---------------------
Beneficiary and at the expense of Grantor: (a) promptly correct any defect,
error or omission which may be discovered in the contents of this Deed of Trust
or in the contents of any of the other Loan Documents; (b) promptly execute,
acknowledge, deliver and record or file such further instruments (including,
without limitation, further mortgages, deeds of trust, security deeds, security
agreements, financing statements, continuation statements and assignments of
rents or leases) and promptly do such further acts as may be necessary,
desirable or proper to carry out more effectively the purposes of this Deed of
Trust and the other Loan Documents and to subject to the liens and security
interests hereof and thereof any property intended by the terms hereof and
thereof to be covered hereby and thereby, including specifically, but without
limitation, any renewals, additions, substitutions, replacements or
appurtenances to the Mortgaged Property; (c) promptly execute, acknowledge,
deliver, procure and record or file any document or instrument (including
specifically, without limitation, any financing statement) deemed advisable by
Beneficiary to protect, continue or perfect the liens or the security interests
hereunder against the rights or interests of third persons; and (d) promptly
furnish to Beneficiary, upon Beneficiary's request, a duly acknowledged written
statement and estoppel certificate addressed to such party or parties as
directed by Beneficiary and in form and substance supplied by Beneficiary,
setting forth all amounts due under the Note, stating whether any Default or
Event of Default has occurred hereunder, stating whether any offsets or defenses
exist against the Debt and containing such other matters as Beneficiary may
reasonably require.
11.5. Payment of Costs; Beneficiary's Right to Cure. Grantor shall
---------------------------------------------
pay all costs and expenses of every character reasonably incurred in connection
with the closing of the loan evidenced by the Note and secured hereby or
otherwise attributable or chargeable to Grantor as the owner of the Mortgaged
Property, including, without limitation, appraisal fees, recording fees,
documentary, stamp, Deed of Trust or intangible taxes, brokerage fees and
commissions, title policy premiums and title search fees, uniform commercial
code/tax lien/litigation search fees, escrow fees and reasonable attorneys' fees
and disbursements. If Grantor defaults in any such payment, which default is not
cured within any applicable grace or cure period, Beneficiary may, at its
option, pay the same and Grantor shall reimburse Beneficiary on demand for all
such costs and expenses incurred or paid by Beneficiary, together with such
interest thereon at the Default Interest Rate from and after the date of
Beneficiary's making such payment until reimbursement thereof by Grantor. Any
such sums disbursed by Beneficiary, together with such interest thereon, shall
be additional indebtedness of Grantor secured by this Deed of Trust and by all
of the other Loan Documents securing all or any part of the Debt. Further,
Grantor shall promptly notify Beneficiary in writing of any
38
<PAGE>
litigation or threatened litigation affecting the Mortgaged Property, or any
other demand or claim which, if enforced, could impair or threaten to impair
Beneficiary's security hereunder. Without limiting or waiving any other rights
and remedies of Beneficiary hereunder, if Grantor fails to perform any of its
covenants or agreements contained in this Deed of Trust or in any of the other
Loan Documents and such failure is not cured within any applicable grace or cure
period, or if any action or proceeding of any kind (including, but not limited
to, any bankruptcy, insolvency, arrangement, reorganization or other debtor
relief proceeding) is commenced which might affect Beneficiary's interest in the
Mortgaged Property or Beneficiary's right to enforce its security, then
Beneficiary may, at its option, with or without notice to Grantor, make any
appearances, disburse any sums and take any actions as may be necessary or
desirable to protect or enforce the security of this Deed of Trust or to remedy
the failure of Grantor to perform its covenants and agreements (without,
however, waiving any default of Grantor). Grantor agrees to pay on demand all
expenses of Beneficiary or Trustee incurred with respect to the foregoing
(including, but not limited to, reasonable fees and disbursements of counsel),
together with interest thereon at the Default Interest Rate from and after the
date on which Beneficiary or Trustee incurs such expenses until reimbursement
thereof by Grantor. Any such expenses so incurred by Beneficiary, together with
interest thereon as provided above, shall be additional indebtedness of Grantor
secured by this Deed of Trust and by all of the other Loan Documents securing
all or any part of the Debt. The necessity for any such actions and of the
amounts to be paid shall be determined by Beneficiary in its sole discretion.
Beneficiary is hereby empowered to enter and to authorize others to enter upon
the Mortgaged Property or any part thereof for the purpose of performing or
observing any such defaulted term, covenant or condition without thereby
becoming liable to Grantor or any person in possession holding under Grantor.
Grantor hereby acknowledges and agrees that the remedies set forth in this
Section 11.5 shall be exercisable by Beneficiary, and any and all payments made
- ------------
or costs or expenses incurred by Beneficiary in connection therewith shall be
secured hereby and shall be, without demand, immediately repaid by Grantor with
interest thereon at the Default Interest Rate, notwithstanding the fact that
such remedies were exercised and such payments made and costs incurred by
Beneficiary after the filing by Grantor of a voluntary case or the filing
against Grantor of an involuntary case pursuant to or within the meaning of the
Bankruptcy Reform Act of 1978, as amended, Title 11 U.S.C., or after any similar
action pursuant to any other debtor relief law (whether statutory, common law,
case law or otherwise) of any jurisdiction whatsoever, now or hereafter in
effect, which may be or become applicable to Grantor, Beneficiary, any
Indemnitor, the Debt or any of the Loan Documents.
11.6. Compliance with Laws. Grantor shall at all times comply with
--------------------
all statutes, ordinances, regulations and other governmental or quasi-
governmental requirements and private covenants now or hereafter relating to the
ownership, construction, use or operation of the Mortgaged Property, including,
but not limited to, those concerning employment and compensation of persons
engaged in operation and maintenance of the Mortgaged Property and any
environmental or ecological requirements, even if such compliance shall require
structural changes to the Mortgaged Property; provided, however, that, Grantor
-------- -------
may, upon providing Beneficiary with security satisfactory to Beneficiary,
proceed diligently and in good faith to contest the validity or applicability of
any such statute,
39
<PAGE>
ordinance, regulation or requirement so long as during such contest the
Mortgaged Property shall not be subject to any lien, charge, fine or other
liability and shall not be in danger of being forfeited, lost or closed. Grantor
shall not use or occupy, or allow the use or occupancy of, the Mortgaged
Property in any manner which violates any Lease of or any other agreement
applicable to the Mortgaged Property or any applicable law, rule, regulation or
order or which constitutes a public or private nuisance or which makes void,
voidable or cancelable, or increases the premium of, any insurance then in force
with respect thereto.
11.7. Attorney-in-Fact Provisions. With respect to any provision of
---------------------------
this Deed of Trust or any other Loan Document whereby Grantor grants to
Beneficiary a power-of-attorney, (i) such power shall be deemed to be coupled
with an interest, shall not be revocable by Grantor so long as any portion of
the Debt is outstanding, shall survive the voluntary or involuntary dissolution
of Grantor and shall not be affected by any disability or incapacity suffered by
Grantor subsequent to the date hereof and (ii) provided no Default or Event of
Default has occurred under this Deed of Trust, Beneficiary shall first give
Grantor written notice at least three (3) days prior to acting under such power,
which notice shall demand that Grantor first take the proposed action within
such period and advising Grantor that if it fails to do so, Beneficiary will so
act under the power; provided, however, that, in the event that a Default or an
Event of Default has occurred and not been waived, or if necessary to prevent
imminent death, serious injury, damage, loss, forfeiture or diminution in value
to the Mortgaged Property or any surrounding property or to prevent any adverse
affect on Beneficiary's interest in the Mortgaged Property, Beneficiary may act
immediately and without first giving such notice. In such event, Beneficiary
will give Grantor notice of such action as soon thereafter as reasonably
practical.
ARTICLE XII.
PAYMENT; DEFEASANCE; PREPAYMENT
-------------------------------
12.1. Payment of the Notes. Grantor shall duly and punctually pay or
--------------------
cause to be paid, the principal of and the interest and premium, if any, on the
Note in accordance with the respective terms hereof and thereof, without demand
therefor or presentation of the Note, in lawful money of the United States of
America.
12.2. Computation of Interest. Interest shall be computed hereunder
-----------------------
and under the Note based on a 360-day year comprised of twelve 30-day months
except that interest due and payable for a period less than a full month shall
be calculated by multiplying the actual number of days elapsed in such period by
a daily rate based on said 360 day year. Interest shall accrue from the date on
which funds are advanced under the Note (regardless of the time of day) through
and including the day on which funds are credited in accordance with the terms
of the Note. Interest shall be payable hereunder and under the Note.
12.3. Application of Payments. So long as no Event of Default exists
-----------------------
hereunder which has not been waived, each Monthly Payment shall be applied
first, to any amounts hereafter advanced by Beneficiary under any Loan Document,
second, to any late fees
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and other amounts payable to Beneficiary, third, to the payment of accrued
interest and last to reduction of principal.
12.4. Prepayment. (a) The Note may not be prepaid in whole or in
----------
part at the option of the Grantor except as provided below.
(b) Partial prepayments of the Note shall not be permitted, except
for partial prepayments resulting from Beneficiary's election to apply insurance
or condemnation proceeds to reduce the outstanding principal balance of the Note
as provided in Section 3.1(b) hereof, in which event no prepayment fee or
-------------
premium shall be due unless, at the time of either Beneficiary's receipt of such
proceeds or the application of such proceeds to the outstanding principal
balance of the Note, an Event of Default shall have occurred and not been
waived, in which case, the provisions of Section 15.2 hereof shall be
------------
controlling.
(c) If the indebtedness evidenced by the Note shall have been
declared due and payable by Beneficiary pursuant to the terms thereof or the
terms hereof or the provisions of any other Loan Document due to a default by
Grantor, then subject to Section 16.22 hereof there shall also then be
immediately due and payable, a prepayment fee in an amount equal to the greater
of (A) five percent (5%) of the then outstanding principal balance of the Note
on the date of acceleration, and (B) an amount which would be sufficient to
purchase securities meeting the requirements of Section 12.5 below. In the
------------
event that any prepayment fee is due hereunder, Beneficiary shall deliver to
Grantor a statement setting forth the amount and determination of the prepayment
fee, and provided that Beneficiary shall have in good faith applied the formula
described above, Grantor shall not have the right to challenge the calculation
or the method of calculation set forth in any such statement in the absence of
manifest error
12.5. Defeasance. Notwithstanding any provision of this Deed of
----------
Trust to the contrary, at any time after the date which (1) is two years after
the "startup day," within the meaning of Section 860G(a)(9) of the Internal
Revenue Code of 1986, as amended from time to time or any successor statute (the
"Code"), of a "real estate Deed of Trust investment conduit," ("REMIC") within
---- -----
the meaning of Section 860D of the Code, that holds the Note and this Deed of
Trust or (2) three years after the date hereof, whichever shall later occur, and
provided no Event of Default has occurred, Grantor may cause the release of
either (x) the entire Mortgaged Property or (y) a Partial Release consisting of
one or more Partial Release Parcels as provided in Section 6.5, from the lien of
this Deed of Trust and the other Loan Documents upon the satisfaction of the
following conditions (and, with respect to a Partial Release, upon the
-------------------------------------------------
satisfaction of the additional conditions set forth in Section 6.5 above):
- -------------------------------------------------------------------------
(a) with respect to a release of the entire Mortgaged Property (a
"Defeasance"), not less than thirty (30) days prior written notice shall be
given to Beneficiary specifying a Payment Date (the "Release Date") on
------------
which the Defeasance Collateral is to be delivered; provided however, that
----------------
with respect to a Partial Release, Grantor shall give Beneficiary a Partial
Release Notice in accordance with Section 6.5;
41
<PAGE>
(b) Grantor shall deliver to Beneficiary on or prior to the Release
Date or Partial Release Date, as applicable:
(i) a pledge and security agreement, in form and substance
satisfactory to Beneficiary in its sole discretion,
creating a first priority security interest in favor of
Beneficiary in the Defeasance Collateral (the
"Defeasance Security Agreement"), which shall provide,
-----------------------------
among other things, that any payments generated by the
Defeasance Collateral shall be paid directly to
Beneficiary and applied by Beneficiary in satisfaction
of all amounts then due and payable hereunder and any
excess received by Beneficiary from the Defeasance
Collateral which, when added to the amounts received
under the Note, exceeds the amounts payable by Grantor
hereunder or under the Note shall be refunded to Grantor
promptly after each Payment Date;
(ii) direct, non-callable obligations of the United States of
America (the "Defeasance Collateral") that provide for
payments prior, but as close as possible, to all
successive Payment Dates occurring after the Release
Date, with each such payment being equal to or greater
than (x) with respect to a complete Defeasance of all of
the Mortgaged Property, the amount of the corresponding
installment of principal and interest required to be
paid under the Note for the balance of the term hereof
to the Maturity Date, and (y) with respect to a Partial
Release, the amount of the corresponding installment of
the principal and interest required to be paid with
respect to the Partial Release Parcel(s) so Defeased,
(in either case the "Defeasance Collateral Payments"),
------------------------------
for the balance of the term hereof to the Maturity Date
(provided that for all purposes of this Section 12.5,
------------
all principal, accrued interest and other amounts
payable under this Deed of Trust, the Note and the other
Loan Documents shall be due and payable in full on the
Maturity Date). The Defeasance Collateral shall be duly
endorsed by the holder thereof as directed by
Beneficiary or accompanied by a written instrument of
transfer in form and substance satisfactory to
Beneficiary in its sole discretion (including, without
limitation, such instruments as may be required by the
depository institution holding such securities or the
issuer thereof, as the case may be, to effectuate book-
entry transfers and pledges through the book-entry
facilities of such institution) in order to perfect upon
the delivery of the Defeasance Security Agreement the
first priority security interest in the Defeasance
Collateral in favor of Beneficiary in conformity with
all applicable state and federal laws governing granting
of such security interests;
42
<PAGE>
(iii) a certificate of Grantor certifying that all of the
requirements set forth in this Section 12.5 have been
------------
satisfied;
(iv) an opinion of counsel for Grantor in form and substance
and delivered by counsel satisfactory to Beneficiary in
its sole discretion stating, among other things, that (x)
Beneficiary has a perfected first priority security
interest in the Defeasance Collateral and that the
Defeasance Security Agreement is enforceable against
Grantor in accordance with its terms and (y) that any
trust formed as a REMIC pursuant to a securitization will
not fail to maintain its status as a REMIC as a result of
such defeasance;
(v) such other certificates, documents or instruments as
Beneficiary may reasonably require;
(vi) upon compliance with the requirements of this Section
-------
12.5, the Mortgaged Property (or the Partial Release
----
Parcels, in the event of a Partial Release) shall be
released from the lien of this Deed of Trust and the
other Loan Documents, and the Defeasance Collateral shall
constitute collateral which shall secure the Note (or, in
the event of a Partial Release, the "Defeased Note," as
hereinafter defined), and all other obligations under the
Loan Documents. In the event of a Partial Release, the
Note shall be amended, modified to reduce the unpaid
principal balance and modify the payment schedule to
account for the Partial Release Payment, and Grantor
shall execute and deliver to Beneficiary a new note, as
follows: the Note shall be in the principal amount of the
then unpaid principal balance of the Note, less the
----
amount of the applicable Partial Release Price, and
continuing to be secured by the Mortgaged Property
remaining after the Partial Release; and the new note
shall be in the principal amount equal to the applicable
Partial Release Price and to be secured by the Defeasance
Collateral [such new note, secured by the Defeasance
Collateral, being sometimes referred to as the "Defeased
--------
Note"]). Beneficiary will, at Grantor's expense, execute
----
and deliver any agreements reasonably requested by
Grantor to release the lien of the Deed of Trust and any
other appropriate Loan Documents from the applicable
Mortgaged Property; and
(vii) upon the release of the applicable Mortgaged Property in
accordance with this Section 12.5, Grantor may assign all
------------
its obligations and rights under the Note, or, in the
event of a partial Defeasance, under the Defeased Note,
together with the pledged
43
<PAGE>
Defeasance Collateral, to a successor entity designated
by Grantor and approved by Beneficiary in its sole
discretion. Such successor entity shall execute an
assumption agreement in form and substance satisfactory
to Beneficiary in its sole discretion pursuant to which
it shall assume Grantor's obligations under the Note or,
in the event of a partial Defeasance, the Defeased Note
and the Defeasance Security Agreement. As conditions to
such assignment and assumption, Grantor shall (x) deliver
to Beneficiary an opinion of counsel in form and
substance and delivered by counsel satisfactory to
Beneficiary in its sole discretion stating, among other
things, that such assumption agreement and, in the event
of a partial Defeasance, the Defeased Note, are
enforceable against Grantor in accordance with their
respective terms and that such assumption agreement,
under the Note or, in the event of a partial Defeasance,
under the Defeased Note, the Defeasance Security
Agreement and the other Loan Documents, as so assumed,
are enforceable against such successor entity in
accordance with their respective terms, and (y) pay all
costs and expenses incurred by Beneficiary or its agents
in connection with such assignment and assumption
(including, without limitation, the review of the
proposed transferee and the preparation of the assumption
agreement and related documentation). Upon such
assumption, Grantor shall be relieved of its obligations
(a) in the event of total Defeasance, under the Note, the
other Loan Documents and the Defeasance Security
Agreement and (b) in the event of a partial Defeasance,
under the Defeased Note and the Defeasance Security
Agreement.
Upon compliance with the requirements of this Section 12.5, the
------------
Mortgaged Property shall be released from the lien of this Deed of Trust
and the other Loan Documents, and the balance of the Mortgaged Property, if
any, shall constitute collateral which shall secure the Note and all other
obligations under the Loan Documents. Beneficiary will, at Grantor's
expense, execute and deliver any agreements reasonably requested by Grantor
to release the lien this Deed of Trust from the Mortgaged Property, or the
Release Parcels as applicable
12.6. Optional Prepayment Date Provisions. INTENTIONALLY DELETED.
-----------------------------------
ARTICLE XIII.
SECURITY PROVISIONS
-------------------
13.1. Security Interest. This Deed of Trust is also intended to
-----------------
encumber and create a security interest in, and Grantor hereby grants to
Beneficiary a security interest in, all sums on deposit with Beneficiary
pursuant to the provisions of Section 1.2, Section 5.1, and Section 5.2 hereof
----------- ----------- -----------
or any other Section hereof or of any other Loan Document and all fixtures,
44
<PAGE>
chattels, accounts, equipment, inventory, contract rights, general intangibles
and other personal property included within the Mortgaged Property, all
renewals, replacements of any of the aforementioned items, or articles in
substitution therefor or in addition thereto or the proceeds thereof (said
property is hereinafter referred to collectively as the "Collateral"), whether
----------
or not the same shall be attached to the Premises or the Improvements in any
manner. It is hereby agreed that to the extent permitted by law, all of the
foregoing property is to be deemed and held to be a part of and affixed to the
Premises and the Improvements. The foregoing security interest shall also cover
Grantor's leasehold interest in any of the foregoing property which is leased by
Grantor. Notwithstanding the foregoing, all of the foregoing property shall be
owned by Grantor and no leasing or installment sales or other financing or title
retention agreement in connection therewith shall be permitted without the prior
written approval of Beneficiary. Grantor shall, from time to time upon the
request of Beneficiary, supply Beneficiary with a current inventory of all of
the property in which Beneficiary is granted a security interest hereunder, in
such detail as Beneficiary may reasonably require. Grantor shall promptly
replace all of the Collateral subject to the lien or security interest of this
Deed of Trust when worn or obsolete with Collateral comparable to the worn out
or obsolete Collateral when new and will not, without the prior written consent
of Beneficiary, remove from the Premises or the Improvements any of the
Collateral subject to the lien or security interest of this Deed of Trust except
such as is replaced by an article of equal suitability and value as above
provided, owned by Grantor free and clear of any lien or security interest
except that created by this Deed of Trust and the other Loan Documents. All of
the Collateral shall be kept at the location of the Premises except as otherwise
required by the terms of the Loan Documents. Grantor shall not use any of the
Collateral in violation of any applicable statute, ordinance or insurance
policy.
13.2. Security Agreement. This Deed of Trust constitutes a security
------------------
agreement between Grantor and Beneficiary with respect to the Collateral in
which Beneficiary is granted a security interest hereunder, and, cumulative of
all other rights and remedies of Beneficiary hereunder, Beneficiary shall have
all of the rights and remedies of a secured party under any applicable Uniform
Commercial Code. Grantor hereby agrees to execute and deliver on demand and
hereby irrevocably constitutes and appoints Beneficiary the attorney-in-fact of
Grantor to execute and deliver and, if appropriate, to file with the appropriate
filing officer or office, such security agreements, financing statements,
continuation statements or other instruments as Beneficiary may request or
require in order to impose, perfect or continue the perfection of the lien or
security interest created hereby. To the extent specifically provided herein,
Beneficiary shall have the right of possession of all cash, securities,
instruments, negotiable instruments, documents, certificates and any other
evidences of cash or other property or evidences of rights to cash rather than
property, which are now or hereafter a part of the Mortgaged Property, and
Grantor shall promptly deliver the same to Beneficiary, endorsed to Beneficiary,
without further notice from Beneficiary. Grantor agrees to furnish Beneficiary
in writing with notice of any change in the name, identity, organizational
structure, residence, or principal place of business or mailing address of
Grantor thirty (30) days prior to the effective date of any such change.
Expenses of retaking, holding, preparing for sale, selling or the like
(including, without limitation, Beneficiary's reasonable attorneys' fees and
legal expenses), together with interest thereon at the Default Interest Rate
from the date
45
<PAGE>
incurred by Beneficiary until actually paid by Grantor, shall be paid by Grantor
on demand and shall be secured by this Deed of Trust and by all of the other
Loan Documents securing all or any part of the Debt. Beneficiary shall have the
right to enter upon the Premises and the Improvements or any real property where
any of the property which is the subject of the security interest granted herein
is located to take possession of, assemble and collect the same or to render it
unusable, or Grantor, upon demand of Beneficiary, shall assemble such property
and make it available to Beneficiary at the Premises, or at a place which is
mutually agreed upon or, if no such place is agreed upon, at a place reasonably
designated by Beneficiary to be reasonably convenient to Beneficiary and
Grantor. If notice is required by law, Beneficiary shall give Grantor at least
ten (10) days' prior written notice of the time and place of any public sale of
such property, or adjournments thereof, or of the time of or after which any
private sale or any other intended disposition thereof is to be made, and if
such notice is sent to Grantor, as the same is provided for the mailing of
notices herein, it is hereby deemed that such notice shall be and is reasonable
notice to Grantor. No such notice is necessary for any such property which is
perishable, threatens to decline speedily in value or is of a type customarily
sold on a recognized market. Any sale made pursuant to the provisions of this
Section shall be deemed to have been a public sale conducted in a commercially
reasonable manner if held contemporaneously with a foreclosure sale as provided
in Section 15.1(e) hereof upon giving the same notice with respect to the sale
---------------
of the Mortgaged Property hereunder as is required under said Section 15.1(e).
---------------
The name and principal place of business of Grantor (as Debtor under
any applicable Uniform Commercial Code) are:
DMG OREGON ALC, INC.
9955 S.E. Washington
Suite 303
Portland, Oregon 97216
13.3. Secured Indebtedness. It is understood and agreed that this
--------------------
Deed of Trust shall secure payment of not only the indebtedness evidenced by the
Note but also any and all substitutions, replacements, renewals and extensions
of the Note, any and all indebtedness and obligations arising pursuant to the
terms hereof and any and all indebtedness and obligations arising pursuant to
the terms of any of the other Loan Documents, all of which indebtedness is
equally secured with and has the same priority as any amounts advanced as of the
date hereof. It is agreed that any future advances made by Beneficiary to or
for the benefit of Grantor from time to time under this Deed of Trust or the
other Loan Documents and whether or not such advances are obligatory or are made
at the option of Beneficiary, or otherwise, made for any purpose, within twenty
(20) years from the date hereof, and all interest accruing thereon, shall be
equally secured by this Deed of Trust and shall have the same priority as all
amounts, if any, advanced as of the date hereof and shall be subject to all of
the terms and provisions of this Deed of Trust.
46
<PAGE>
ARTICLE XIV.
DEFAULT
-------
14.1. Events of Default. The occurrence of any of the following
-----------------
events shall be an "Event of Default" hereunder:
(a) Grantor fails to timely make payments of principal or interest
as stipulated in the Note and any such payment is not made within ten (10) days
of the date such payment is due (provided that no grace period is provided for
the payment of principal and interest due on the Maturity Date).
(b) Grantor fails to provide insurance as required by Section 2.1
-----------
hereof or fails to perform any covenant, agreement, obligation, term or
condition set forth in Section 4.1, Section 6.3 or Section 10.4 hereof.
----------- ----------- ------------
(c) Grantor fails to perform any other covenant, agreement,
obligation, term or condition set forth herein, other than those otherwise
described in this Section 14.1, and, to the extent such failure or default is
------------
susceptible of being cured, the continuance of such failure or default for
thirty (30) days after written notice thereof from Beneficiary to Grantor;
provided, however, that if such default is susceptible of cure but such cure
- -------- -------
cannot be accomplished with reasonable diligence within said period of time, and
if Grantor commences to cure such default promptly after receipt of notice
thereof from Beneficiary, and thereafter prosecutes the curing of such default
with reasonable diligence, such period of time shall be extended for such period
of time as may be necessary to cure such default with reasonable diligence, but
not to exceed an additional sixty (60) days.
(d) Any representation or warranty made herein, in or in connection
with any application or commitment relating to the loan evidenced by the Note,
or in any of the other Loan Documents to Beneficiary by Grantor, by any
principal, general partner, manager or member in Grantor, or by any Indemnitor
is determined by Beneficiary to have been false or misleading in any material
respect at the time made.
(e) A default occurs under any of the other Loan Documents which
has not been cured within any applicable grace or cure period therein provided.
(f) Grantor, any principal, general partner or managing member in
Grantor or any Indemnitor becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or files a
petition in bankruptcy, or is voluntarily adjudicated insolvent or bankrupt or
admits in writing the inability to pay its debts as they mature, or petitions or
applies to any tribunal for or consents to or fails to contest the appointment
of a receiver, trustee, custodian or similar officer for Grantor, for any such
principal, general partner or managing member of Grantor or for any Indemnitor
or for a substantial part of the assets of Grantor, of any such principal,
general partner or managing member of Grantor or of any Indemnitor, or commences
any case, proceeding or other action under any bankruptcy, insolvency,
reorganization, arrangement, receivership or other debtor relief under any law
or statute of any jurisdiction, whether now or hereafter in effect.
47
<PAGE>
(g) A petition is filed or any case, proceeding or other action is
commenced against Grantor, against any principal, general partner or managing
member of Grantor or against any Indemnitor seeking to have an order for relief
entered against it as debtor or seeking reorganization, arrangement, adjustment,
liquidation, dissolution or composition of it or its debts or other relief under
any law relating to bankruptcy, insolvency, arrangement, reorganization,
receivership or other debtor relief under any law or statute of any
jurisdiction, whether now or hereafter in effect, or a court of competent
jurisdiction enters an order for relief against Grantor, against any principal,
general partner or managing member of Grantor or against any Indemnitor, as
debtor, or an order, judgment or decree is entered appointing, with or without
the consent of Grantor, of any such principal, general partner or managing
member of Grantor or of any Indemnitor, a receiver, trustee, custodian or
similar officer for Grantor, for any such principal, general partner or managing
member of Grantor or for any Indemnitor, or for any substantial part of any of
the properties of Grantor, of any such principal, general partner or managing
member of Grantor or of any Indemnitor, and if any such event shall occur, such
petition, case, proceeding, action, order, judgment or decree is not dismissed
within sixty (60) days after being commenced.
(h) The Mortgaged Property or any part thereof is taken on execution
or other process of law in any action against Grantor.
(i) Grantor abandons all or a portion of the Mortgaged Property.
(j) The holder of any lien or security interest on the Mortgaged
Property (without implying the consent of Beneficiary to the existence or
creation of any such lien or security interest other than in connection with A/R
Financing permitted pursuant to the terms of Section 10.5), whether superior or
subordinate to this Deed of Trust or any of the other Loan Documents, declares a
default and such default is not cured within any applicable grace or cure period
set forth in the applicable document or such holder institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder.
(k) The Mortgaged Property, or any part thereof, is subjected to
waste or to removal, demolition or material alteration so that the value of the
Mortgaged Property is materially diminished thereby and Beneficiary determines
that it is not adequately protected from any loss, damage or risk associated
therewith.
(l) Any dissolution, termination, partial or complete liquidation,
merger or consolidation of Grantor, any of its principals, any general partner
or any managing member.
(m) The business conducted by Grantor or operation of the Mortgaged
Property is in imminent danger of being suspended as a result of any violation
of any state, local or federal rule, law or regulation.
48
<PAGE>
ARTICLE XV.
REMEDIES
--------
15.1. Remedies Available. If there shall occur an Event of Default
------------------
under this Deed of Trust, then this Deed of Trust is subject to foreclosure as
provided by law and Beneficiary may, at its option and by or through a trustee,
nominee, assignee or otherwise (including, without limitation, the Trustee), to
the fullest extent permitted by law, exercise any or all of the following
rights, remedies and recourses, either successively or concurrently:
(a) Acceleration. Accelerate the maturity date of the Note and
declare any or all of the Debt to be immediately due and payable without any
presentment, demand, protest, notice or action of any kind whatever (each of
which is hereby expressly waived by Grantor), whereupon the same shall become
immediately due and payable. Upon any such acceleration, payment of such
accelerated amount shall constitute a prepayment of the principal balance of the
Note and any applicable prepayment fee provided for in the Note shall then be
immediately due and payable.
(b) Entry on the Mortgaged Property. Either in person or by agent,
with or without bringing any action or proceeding, or by a receiver appointed by
a court and without regard to the adequacy of its security, enter upon and take
possession of the Mortgaged Property, or any part thereof, without force or with
such force as is permitted by law and without notice or process or with such
notice or process as is required by law, unless such notice and process is
waivable, in which case Grantor hereby waives such notice and process, and do
any and all acts and perform any and all work which may be desirable or
necessary in Beneficiary's judgment to complete any unfinished construction on
the Premises, to preserve the value, marketability or rentability of the
Mortgaged Property, to increase the income therefrom, to manage and operate the
Mortgaged Property or to protect the security hereof, and all sums expended by
Beneficiary therefor, together with interest thereon at the Default Interest
Rate, shall be immediately due and payable to Beneficiary by Grantor on demand
and shall be secured hereby and by all of the other Loan Documents securing all
or any part of the Debt.
(c) Collect Rents and Profits. With or without taking possession of
the Mortgaged Property, sue or otherwise collect the Rents and Profits,
including those past due and unpaid.
(d) Appointment of Receiver. Upon, or at any time prior or after,
initiating the exercise of any power of sale, instituting any judicial
foreclosure or instituting any other foreclosure of the liens and security
interests provided for herein or any other legal proceedings hereunder, make
application to a court of competent jurisdiction for appointment of a receiver
for all or any part of the Mortgaged Property, as a matter of strict right and
without notice to Grantor and without regard to the adequacy of the Mortgaged
Property for the repayment of the Debt or the solvency of Grantor or any person
or persons liable for the payment of the Debt, and Grantor does hereby
irrevocably consent to such appointment, waive any and all notices of and
defenses to such appointment and agree not to oppose any application therefor by
Beneficiary, but nothing herein is to be construed to deprive
49
<PAGE>
Beneficiary of any other right, remedy or privilege Beneficiary may now have
under the law to have a receiver appointed, provided, however, that the
appointment of such receiver, trustee or other appointee by virtue of any court
order, statute or regulation shall not impair or in any manner prejudice the
rights of Beneficiary to receive payment of the Rents and Profits pursuant to
other terms and provisions hereof. Any such receiver shall have all of the usual
powers and duties of receivers in similar cases, including, without limitation,
the full power to hold, develop, rent, lease, manage, maintain, operate and
otherwise use or permit the use of the Mortgaged Property upon such terms and
conditions as said receiver may deem to be prudent and reasonable under the
circumstances as more fully set forth in Section 15.3 below. Such receivership
shall, at the option of Beneficiary, continue until full payment of all of the
Debt or until title to the Mortgaged Property shall have passed by foreclosure
sale under this Deed of Trust or deed in lieu of foreclosure.
(e) Foreclosure. Immediately commence an action to foreclose this
Deed of Trust or to specifically enforce its provisions with respect to any of
the Debt, pursuant to the statutes in such case made and provided, and sell the
Mortgaged Property or cause the Mortgaged Property to be sold in accordance with
the requirements and procedures provided by said statutes in a single parcel or
in several parcels at the option of Beneficiary. In the event foreclosure
proceedings are instituted by Beneficiary, all expenses incident to such
proceedings, including, but not limited to, reasonable attorneys' fees and
costs, shall be paid by Grantor and secured by this Deed of Trust and by all of
the other Loan Documents securing all or any part of the Debt. The Debt and all
other obligations secured by this Deed of Trust, including, without limitation,
interest at the Default Interest Rate any prepayment charge, fee or premium
required to be paid under the Note in order to prepay principal (to the extent
permitted by applicable law), reasonable attorneys' fees and any other amounts
due and unpaid to Beneficiary under the Loan Documents, may be bid by
Beneficiary in the event of a foreclosure sale hereunder. In the event of a
judicial sale pursuant to a foreclosure decree, it is understood and agreed that
Beneficiary or its assigns may become the purchaser of the Mortgaged Property or
any part thereof.
(f) Judicial Remedies. Proceed by suit or suits, at law or in
equity, instituted by or on behalf of Beneficiary, upon written request of
Beneficiary, to enforce the payment of the Debt or the other obligations of
Grantor hereunder or pursuant to the Loan Documents, to foreclose the liens and
security interests of this Deed of Trust as against all or any part of the
Mortgaged Property, and to have all or any part of the Mortgaged Property sold
under the judgment or decree of a court of competent jurisdiction. This remedy
shall be cumulative of any other non-judicial remedies available to Beneficiary
with respect to the Loan Documents. Proceeding with the request or receiving a
judgment for legal relief shall not be or be deemed to be an election of
remedies or bar any available non-judicial remedy of Beneficiary.
(g) Sale of Property.
(i) Trustee, at the request of Beneficiary, shall have the power to
sell the Mortgaged Property or any part thereof at public auction, in such
manner, at such time, and place, upon such terms and conditions, and upon
five (5) days notice to Grantor
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and such public notice as Beneficiary may deem best for the interest of
Beneficiary or as may be required or permitted by applicable law,
consisting of advertisement in a newspaper of general circulation in the
jurisdiction and for such period as applicable law may require and at such
other times and by such other methods, if any, as may be required by law to
convey the Mortgaged Property in fee simple by trustee's deed with special
warranty of title to and at the cost of the purchaser, who shall not be
liable to see to the application of the purchase money. The proceeds or
avails of any sale made under or by virtue of this paragraph, together with
any other sums which then may be held by Beneficiary under this Deed of
Trust, whether under the provisions of this paragraph or otherwise, shall
be applied as provided in Section 3.2 hereof. Beneficiary, Trustee and any
receiver or custodian of the Mortgaged Property or any part thereof shall
be liable to account for only those rents, issues, proceeds and profits
actually received by it.
(ii) Beneficiary and Trustee, as applicable, may adjourn from time to
time any sale by it to be made under or by virtue of this Deed of Trust 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
law, Beneficiary or Trustee, without further notice or publication, may
make such sale at the time and place to which the same shall be so
adjourned.
(iii) Upon the completion of any sale or sales ordered by Beneficiary
and made by Trustee under or by virtue of this paragraph, Beneficiary or
Trustee, or any officer of any court empowered to do so, shall execute and
deliver to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, granting, conveying,
assigning and transferring all estate, right, title and interest in and to
the property and rights sold. Trustee is hereby irrevocably appointed the
true and lawful attorney-in-fact for Grantor (coupled with an interest), in
its name and stead, to make all necessary conveyances, assignments,
transfers and deliveries of the property and rights so sold and for that
purpose Trustee may execute all necessary instruments of conveyance,
assignment, transfer and delivery, and may substitute one or more persons
with like power, Grantor hereby ratifying and confirming all that its said
attorney-in-fact or such substitute or substitutes shall lawfully do by
virtue hereof. Nevertheless, Grantor, if so requested by Trustee or
Beneficiary, shall ratify and confirm any such sale or sales by executing
and delivering to Beneficiary, or to such purchaser or purchasers all such
instruments as may be advisable, in the sole judgment of Beneficiary, for
such purpose, and as may be designated in such request. Any such sale or
sales made under or by virtue or this paragraph, whether made under the
power of sale herein granted or under or by virtue of judicial proceedings
or 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 Grantor in and to the property and rights
so sold, and shall, to the fullest extent permitted under law, be a
perpetual bar both at law and in equity against Grantor and against any and
all persons claiming or who may claim the same, or any party thereof, from,
through or under Grantor.
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(iv) In the event of any sale made under or by virtue of this Deed of
Trust (whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or a judgment or decree of foreclosure and
sale), the entire Debt relative to the Mortgaged Property, immediately
thereupon shall, anything in the Note, this Deed of Trust or any other of
the Loan Documents to the contrary notwithstanding, become due and payable.
(v) Upon any sale under or by virtue of this Deed of Trust (whether
made under the power of sale herein granted or under or by virtue of
judicial proceedings or a judgment or decree of foreclosure and sale),
Beneficiary 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 the Debt to and against the net sales price
after deducting therefrom the expenses of the sale and the costs of the
action.
(vi) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Mortgaged Property or any part
thereof or upon any other property of Grantor shall release the lien of
this Deed of Trust upon the Mortgaged Property or any part thereof, or any
liens, rights, powers or remedies of Beneficiary hereunder, but such liens,
rights, powers and remedies of Beneficiary shall continue unimpaired until
the entire Debt is paid in full.
(h) Other. Exercise any other right or remedy available hereunder,
under any of the other Loan Documents or at law or in equity.
15.2. Application of Proceeds. To the fullest extent permitted by
-----------------------
law, the proceeds of any sale under this Deed of Trust shall be applied, to the
extent funds are so available, to the following items in such order as
Beneficiary in its discretion may determine:
(a) To payment of the reasonable costs, expenses and fees of taking
possession of the Mortgaged Property, and of holding, operating, maintaining,
using, leasing, repairing, improving, marketing and selling the same and of
otherwise enforcing Beneficiary's rights and remedies hereunder and under the
other Loan Documents, including, but not limited to, receivers' fees, court
costs, attorneys', accountants', appraisers', managers' and other professional
fees, title charges and transfer taxes.
(b) To payment of all sums expended by Beneficiary under the terms
of any of the Loan Documents and not yet repaid, together with interest on such
sums at the Default Interest Rate.
(c) To payment of the Debt and all other obligations secured by this
Deed of Trust, including, without limitation, interest at the Default Interest
Rate and, to the extent permitted by applicable law, any prepayment fee, charge
or premium required to be paid under the Note in order to prepay principal, in
any order that Beneficiary chooses in its sole discretion.
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(d) The remainder, if any, of such funds shall be disbursed to
Grantor or to the person or persons legally entitled thereto.
15.3. Right and Authority of Receiver or Beneficiary in the Event of
--------------------------------------------------------------
Default; Power of Attorney. Upon the occurrence of an Event of Default, and
- --------------------------
entry upon the Mortgaged Property pursuant to Section 15.1(b) hereof or
---------------
appointment of a receiver pursuant to Section 15.1(d) hereof, and under such
---------------
terms and conditions as may be prudent and reasonable under the circumstances in
Beneficiary's or the receiver's sole discretion, all at Grantor's expense,
Beneficiary or said receiver, or such other persons or entities as they shall
hire, direct or engage, as the case may be, may do or permit one or more of the
following, successively or concurrently: (a) enter upon and take possession and
control of any and all of the Mortgaged Property; (b) take and maintain
possession of all documents, books, records, papers and accounts relating to the
Mortgaged Property; (c) exclude Grantor and its agents, servants and employees
wholly from the Mortgaged Property; (d) manage and operate the Mortgaged
Property; (e) preserve and maintain the Mortgaged Property; (f) make repairs and
alterations to the Mortgaged Property; (g) complete any construction or repair
of the Improvements, with such changes, additions or modifications of the plans
and specifications or intended disposition and use of the Improvements as
Beneficiary may in its sole discretion deem appropriate or desirable to place
the Mortgaged Property in such condition as will, in Beneficiary's sole
discretion, make it or any part thereof readily marketable or rentable; (h)
conduct a marketing or leasing program with respect to the Mortgaged Property,
or employ a marketing or leasing agent or agents to do so, directed to the
leasing or sale of the Mortgaged Property under such terms and conditions as
Beneficiary may in its sole discretion deem appropriate or desirable; (i) employ
such contractors, subcontractors, materialmen, architects, engineers,
consultants, managers, brokers, marketing agents, or other employees, agents,
independent contractors or professionals, as Beneficiary may in its sole
discretion deem appropriate or desirable to implement and effectuate the rights
and powers granted herein and in the other Loan Documents; (j) execute and
deliver, in the name of Beneficiary as attorney-in-fact and agent of Grantor or
in its own name as Beneficiary, such documents and instruments as are necessary
or appropriate to consummate authorized transactions; (k) enter into such
leases, whether of real or personal property, or tenancy agreements, under such
terms and conditions as Beneficiary may in its sole discretion deem appropriate
or desirable; (l) collect and receive the Rents and Profits from the Mortgaged
Property; (m) eject tenants or repossess personal property, as provided by law,
for breaches of the conditions of their leases or other agreements; (n) sue for
unpaid Rents and Profits, payments, income or proceeds in the name of Grantor or
Beneficiary; (o) maintain actions in forcible entry and detainer, ejectment for
possession and actions in distress for rent; (p) compromise or give acquittance
for Rents and Profits, payments, income or proceeds that may become due; (q)
delegate or assign any and all rights and powers given to Beneficiary by this
Deed of Trust; and (r) do any acts which Beneficiary or the receiver in its sole
discretion deems appropriate or desirable to protect the security hereof and use
such measures, legal or equitable, as Beneficiary or the receiver may in its
sole discretion deem appropriate or desirable to implement and effectuate the
provisions of this Deed of Trust. This Deed of Trust shall constitute a
direction to and full authority to any Tenant, or other third party who has
heretofore dealt or contracted or may hereafter deal or contract with Grantor or
Beneficiary, at the request of Beneficiary, to pay all amounts owing
53
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under any lease, contract, concession, license or other agreement to Beneficiary
without proof of the Event of Default relied upon. Any such Tenant or third
party is hereby irrevocably authorized to rely upon and comply with (and shall
be fully protected by Grantor in so doing) any request, notice or demand by
Beneficiary for the payment to Beneficiary of any Rents and Profits or other
sums which may be or thereafter become due under its lease, contract,
concession, license or other agreement, or for the performance of any
undertakings under any such lease, contract, concession, license or other
agreement, and shall have no right or duty to inquire whether any Event of
Default under this Deed of Trust or under any of the other Loan Documents has
actually occurred or is then existing. Grantor hereby irrevocably constitutes
and appoints Beneficiary, its assignees, successors, transferees and nominees,
as Grantor's true and lawful attorney-in-fact and agent, with full power of
substitution in the Mortgaged Property, in Grantor's name, place and stead, to
do or permit any one or more of the foregoing described rights, remedies, powers
and authorities, successively or concurrently. Any money advanced by Beneficiary
in connection with any action taken under this Section 15.3, together with
------------
interest thereon at the Default Interest Rate from the date of making such
advancement by Beneficiary until actually paid by Grantor, shall be a demand
obligation owing by Grantor to Beneficiary and shall be secured by this Deed of
Trust and by every other instrument securing all or any portion of the Debt.
15.4. Occupancy After Foreclosure. In the event there is a
---------------------------
foreclosure sale hereunder and at the time of such sale, Grantor or Grantor's
representatives, successors or assigns, or any other persons claiming any
interest in the Mortgaged Property by, through or under Grantor (except Tenants
under Leases entered into prior to the date hereof), are occupying or using the
Mortgaged Property, or any part thereof, then, to the extent not prohibited by
applicable law, each and all shall, at the option of Beneficiary or the
purchaser at such sale, as the case may be, immediately become the tenant of the
purchaser at such sale, which tenancy shall be a tenancy from day-to-day,
terminable at the will of either landlord or tenant, at a reasonable rental per
day based upon the higher of either (i) any rate provided in a lease then in
effect with Grantor or, if none exists, then (ii) the value of the Mortgaged
Property occupied or used, such rental to be due daily to the purchaser.
Further, to the extent permitted by applicable law, in the event the tenant
fails to surrender possession of the Mortgaged Property upon the termination of
such tenancy, the purchaser shall be entitled to institute and maintain an
action for unlawful detainer of the Mortgaged Property in the appropriate court
of the county in which the Premises is located.
15.5. Notice to Account Debtors. Beneficiary may, at any time after
-------------------------
an Event of Default, notify the account debtors and obligors of any accounts,
chattel paper, negotiable instruments or other evidences of indebtedness to
Grantor included in the Mortgaged Property to pay Beneficiary directly. Grantor
shall at any time or from time to time upon the request of Beneficiary provide
to Beneficiary a current list of all such account debtors and obligors and their
addresses.
15.6. Cumulative Remedies. All remedies contained in this Deed of
-------------------
Trust are cumulative and Beneficiary shall also have all other remedies provided
at law and in equity or in any other Loan Documents. Such remedies may be
pursued separately, successively or
54
<PAGE>
concurrently at the sole subjective direction of Beneficiary and may be
exercised in any order and as often as occasion therefor shall arise.
15.7. Payment of Expenses. Grantor shall pay on demand all of
-------------------
Beneficiary's expenses incurred in any efforts to enforce any terms of this Deed
of Trust, whether or not any lawsuit is filed and whether or not foreclosure is
commenced but not completed, including, but not limited to, reasonable legal
fees and disbursements, foreclosure costs and title charges, together with
interest thereon from and after the date incurred by Beneficiary until actually
paid by Grantor at the Default Interest Rate, and the same shall be secured by
this Deed of Trust and by all of the other Loan Documents securing all or any
part of the Debt.
15.8. Grantor's Waivers. To the full extent permitted by law,
-----------------
Grantor agrees that Grantor shall not at any time insist upon, plead, claim or
take the benefit or advantage of any law now or hereafter in force providing for
any appraisement, valuation, stay, moratorium or extension, or any law now or
hereafter in force providing for the reinstatement of the Debt prior to any sale
of the Mortgaged Property to be made pursuant to any provisions contained herein
or prior to the entering of any decree, judgment or order of any court of
competent jurisdiction, or any right under any statute to redeem all or any part
of the Mortgaged Property so sold. Grantor, for Grantor and Grantor's successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the full extent permitted by law, hereby knowingly,
intentionally and voluntarily, with and upon the advice of competent counsel:
(a) waives, releases, relinquishes and forever forgoes all rights of valuation,
appraisement, stay of execution, reinstatement and notice of election or
intention to mature or declare due the Debt (except such notices as are
specifically provided for herein); (b) waives, releases, relinquishes and
forever forgoes all right to a marshaling of the assets of Grantor, including
the Mortgaged Property, to a sale in the inverse order of alienation, or to
direct the order in which any of the Mortgaged Property shall be sold in the
event of foreclosure of the liens and security interests hereby created and
agrees that any court having jurisdiction to foreclose such liens and security
interests may order the Mortgaged Property sold as an entirety; and (c) waives,
releases, relinquishes and forever forgoes all rights and periods of redemption
provided under applicable law. To the full extent permitted by law, Grantor
shall not have or assert any right under any statute or rule of law pertaining
to the exemption of homestead or other exemption under any federal, state or
local law now or hereafter in effect, the administration of estates of decedents
or other matters whatever to defeat, reduce or affect the right of Beneficiary
under the terms of this Deed of Trust to a sale of the Mortgaged Property, for
the collection of the Debt without any prior or different resort for collection,
or the right of Beneficiary under the terms of this Deed of Trust to the payment
of the Debt out of the proceeds of sale of the Mortgaged Property in preference
to every other claimant whatever. Furthermore, Grantor hereby knowingly,
intentionally and voluntarily, with and upon the advice of competent counsel,
waives, releases, relinquishes and forever forgoes all present and future
statutes of limitations as a defense to any action to enforce the provisions of
this Deed of Trust or to collect any of the Debt to the fullest extent permitted
by law. Grantor covenants and agrees that upon the commencement of a voluntary
or involuntary bankruptcy proceeding by or against Grantor, Grantor shall not
seek a supplemental stay or otherwise shall not seek pursuant to 11 U.S.C.
(S)105 or any other provision of the Bankruptcy Reform Act of 1978, as
55
<PAGE>
amended, or any other debtor relief law (whether statutory, common law, case
law, or otherwise) of any jurisdiction whatsoever, now or hereafter in effect,
which may be or become applicable, to stay, interdict, condition, reduce or
inhibit the ability of Beneficiary to enforce any rights of Beneficiary against
any guarantor or indemnitor of the secured obligations or any other party liable
with respect thereto by virtue of any indemnity, guaranty or otherwise.
15.9. Submission to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------
(a) GRANTOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
(i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE PREMISES IS
LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR
RELATING TO THE NOTE, THIS DEED OF TRUST OR ANY OTHER OF THE LOAN DOCUMENTS,
(ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY IN WHICH THE
PREMISES IS LOCATED, (iii) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND (iv)
TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT WILL NOT BRING ANY
ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT
THE RIGHT OF BENEFICIARY TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER
FORUM).
(b) EACH OF GRANTOR AND BENEFICIARY BY ITS ACCEPTANCE OF THIS DEED
OF TRUST, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES,
RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE DEBT OR ANY
CONDUCT, ACT OR OMISSION OF BENEFICIARY OR GRANTOR, OR ANY OF THEIR RESPECTIVE
DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY
OTHER PERSONS AFFILIATED WITH BENEFICIARY OR GRANTOR, IN EACH OR THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. GRANTOR HEREBY CONSENTS
AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS, IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING ARISING FROM OR RELATING TO THE
NOTE, THIS DEED OF TRUST OR ANY OF THE OTHER LOAN DOCUMENTS BY REGISTERED OR
CERTIFIED U.S. MAIL, POSTAGE PREPAID TO GRANTOR AT THE ADDRESS FOR NOTICES
DESCRIBED HEREINABOVE.
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ARTICLE XVI.
MISCELLANEOUS TERMS AND CONDITIONS
----------------------------------
16.1. Time of Essence. Time is of the essence with respect to all
---------------
provisions of this Deed of Trust.
16.2. Release of Deed of Trust. If all of the Debt be paid, then and
------------------------
in that event only, all rights under this Deed of Trust, except for those
provisions hereof which by their terms survive, shall terminate and the
Mortgaged Property shall become wholly clear of the liens, security interests,
conveyances and assignments evidenced hereby, which shall be promptly released
of record by Beneficiary in due form at Grantor's cost.
16.3. Notices. All notices, demands, requests or other
-------
communications to be sent by one party to the other hereunder or required by law
shall be in writing and shall be deemed to have been validly given or served by
delivery of the same in person to the intended addressee, or by depositing the
same with Federal Express or another reputable private courier service for next
business day delivery, or by depositing the same in the United States mail,
postage prepaid, registered or certified mail, return receipt requested, in any
event addressed to the intended addressee at its address set forth on the first
page of this Deed of Trust or at such other address as may be designated by such
party as herein provided. All notices, demands and requests shall be effective
upon such personal delivery, or one (1) business day after being deposited with
the private courier service, or three (3) business days after being deposited in
the United States mail as required above. Rejection or other refusal to accept
or the inability to deliver because of changed address of which no notice was
given as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least fifteen (15) days'
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.
16.4. Successors and Assigns; Joint and Several Liability. The
---------------------------------------------------
terms, provisions, indemnities, covenants and conditions hereof shall be binding
upon Grantor and the successors and assigns of Grantor, including all successors
in interest of Grantor in and to all or any part of the Mortgaged Property, and
shall inure to the benefit of Beneficiary, its directors, officers,
shareholders, employees and agents and their respective successors and assigns
and shall constitute covenants running with the land. The term "Beneficiary" as
used herein shall also mean and refer to any lawful holder or owner, including
pledgees and participants, of any of the Debt. If more than one person or entity
is the "Grantor" hereunder, each is jointly and severally liable to perform the
obligations of Grantor hereunder and all representations, warranties, covenants
and agreements made by Grantor hereunder are joint and several.
16.5. Severability. A determination that any provision of this Deed
------------
of Trust is unenforceable or invalid shall not affect the enforceability or
validity of any other provision, and any determination that the application of
any provision of this Deed of Trust to any person
57
<PAGE>
or circumstance is illegal or unenforceable shall not affect the enforceability
or validity of such provision as it may apply to any other persons or
circumstances.
16.6. Gender. Within this Deed of Trust, words of any gender shall
------
be held and construed to include any other gender, and words in the singular
shall be held and construed to include the plural, and vice versa, unless the
context otherwise requires.
16.7. Waiver; Discontinuance of Proceedings. Beneficiary may waive
-------------------------------------
any single Event of Default by Grantor hereunder without waiving any other prior
or subsequent Event of Default. No waiver of an Event of Default shall be valid
for any purpose hereunder unless given in writing by Beneficiary. Beneficiary
may cure any Event of Default by Grantor hereunder without waiving the Event of
Default remedied. Neither the failure by Beneficiary to exercise, nor the delay
by Beneficiary in exercising, any right, power or remedy upon any Event of
Default by Grantor hereunder shall be construed as a waiver of such Event of
Default or as a waiver of the right to exercise any such right, power or remedy
at a later date. No single or partial exercise by Beneficiary of any right,
power or remedy hereunder shall exhaust the same or shall preclude any other or
further exercise thereof, and every such right, power or remedy hereunder may be
exercised at any time and from time to time. No modification or waiver of any
provision hereof nor consent to any departure by Grantor therefrom shall in any
event be effective unless the same shall be in writing and signed by
Beneficiary, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose given. No notice to nor demand on
Grantor in any case shall of itself entitle Grantor to any other or further
notice or demand in similar or other circumstances. Acceptance by Beneficiary of
any payment in an amount less than the amount then due on any of the Debt shall
be deemed an acceptance on account only and shall not in any way affect the
existence of an Event of Default. In case Beneficiary shall have proceeded to
invoke any right, remedy or recourse permitted hereunder or under the other Loan
Documents and shall thereafter elect to discontinue or abandon the same for any
reason, Beneficiary shall have the unqualified right to do so and, in such an
event, Grantor and Beneficiary shall be restored to their former positions with
respect to the Debt, the Loan Documents, the Mortgaged Property and otherwise,
and the rights, remedies, recourses and powers of Beneficiary shall continue as
if the same had never been invoked.
16.8. Section Headings. The headings of the sections and paragraphs
----------------
of this Deed of Trust are for convenience of reference only, are not to be
considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.
16.9. Governing Law. THIS DEED OF TRUST WILL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS
LOCATED WITHOUT REGARD TO ITS CONFLICTS OF LAWS RULES.
16.10. Counting of Days. The term "days" when used herein shall mean
----------------
calendar days. If any time period ends on a Saturday, Sunday or holiday
officially recognized by the state within which the Premises is located, the
period shall be deemed to end on the next succeeding business day. The term
"business day" when used herein shall mean a weekday,
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Monday through Friday, except a legal holiday or a day on which banking
institutions in the state in which the Premises are located and in New York, New
York are authorized by law to be closed.
16.11. Relationship of the Parties. The relationship between Grantor
---------------------------
and Beneficiary is that of a borrower and a lender only and neither of those
parties is, nor shall it hold itself out to be, the agent, employee, joint
venturer or partner of the other party.
16.12. Unsecured Portion of Indebtedness. If any part of the Debt
---------------------------------
cannot be lawfully secured by this Deed of Trust or if any part of the Mortgaged
Property cannot be lawfully subject to the lien and security interest hereof to
the full extent of such indebtedness, then all payments made shall be applied on
said indebtedness first in discharge of that portion thereof which is unsecured
by this Deed of Trust.
16.13. Cross Default. An Event of Default hereunder shall be a
-------------
default under each of the other Loan Documents.
16.14. Inconsistency with Other Loan Documents. In the event of any
---------------------------------------
inconsistency between the provisions hereof and the provisions in any of the
other Loan Documents, it is intended that the provisions of the Note shall
control over the provisions of this Deed of Trust, and that the provisions of
this Deed of Trust shall control over the provisions of the Assignment of Leases
and Rents and Profits, the Environmental Indemnity Agreement and the other Loan
Documents.
16.15. No Merger. It is the desire and intention of the parties
---------
hereto that this Deed of Trust and the lien hereof do not merge in fee simple
title to the Mortgaged Property.
16.16. Rights With Respect to Junior Encumbrances. Without implying
------------------------------------------
that any person or entity has the right to do so, any person or entity
purporting to have or to take a junior Deed of Trust or other lien upon the
Mortgaged Property or any interest therein shall be subject to the rights of
Beneficiary to amend, modify, increase, vary, alter or supplement this Deed of
Trust, the Note or any of the other Loan Documents, and to extend the maturity
date of the Debt, and to increase the amount of the Debt, and to waive or
forebear the exercise of any of its rights and remedies hereunder or under any
of the other Loan Documents and to release any collateral or security for the
Debt, in each and every case without obtaining the consent of the holder of such
junior lien and without the lien or security interest of this Deed of Trust
losing its priority over the rights of any such junior lien.
16.17. Beneficiary May File Proofs of Claim. In the case of any
------------------------------------
receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment,
composition or other proceedings affecting Grantor or the principals, general
partners or managing members in Grantor, or their respective creditors or
property, Beneficiary, to the extent permitted by law, shall be entitled to file
such proofs of claim and other documents as may be necessary or advisable in
order to have the claims of Beneficiary allowed in such proceedings for the
entire Debt at the date of the institution of such proceedings and for any
additional amount which may become due and payable by Grantor hereunder after
such date.
59
<PAGE>
16.18. Fixture Filing. This Deed of Trust shall be effective from
--------------
the date of its recording as a financing statement filed as a fixture filing
with respect to all goods constituting part of the Mortgaged Property which are
or are to become fixtures. This Deed of Trust shall also be effective as a
financing statement covering minerals or the like (including oil and gas) and is
to be filed for record in the real estate records of the county where the
Premises is situated. The Mortgaged Property are or are to become fixtures. The
address of the Beneficiary from whom information concerning the security
interest in the Mortgaged Property may be obtained is as set forth on page 1 of
this Deed of Trust.
16.19. Counterparts. This Deed of Trust may be executed in any
------------
number of counterparts, each of which shall be effective only upon delivery and
thereafter shall be deemed an original, and all of which shall be taken to be
one and the same instrument, for the same effect as if the signatory(s) hereto
had signed the same signature page.
16.20. Recording and Filing. Grantor will cause the Loan Documents
--------------------
and all amendments and supplements thereto and substitutions therefor to be
recorded, filed, re-recorded and re-filed in such manner and in such places as
Beneficiary shall reasonably request, and will pay on demand all such recording,
filing, re-recording and re-filing taxes, fees and other charges. Grantor shall
reimburse Beneficiary, or its servicing agent, for the costs incurred in
obtaining a tax service company to verify the status of payment of taxes and
assessments on the Mortgaged Property.
16.21. Entire Agreement and Modifications. This Deed of Trust and
----------------------------------
the other Loan Documents contain the entire agreements between the parties
relating to the subject matter hereof and thereof and all prior agreements
relative hereto and thereto which are not contained herein or therein are
terminated. This Deed of Trust and the other Loan Documents may not be amended,
revised, waived, discharged, released or terminated orally but only by a written
instrument or instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is asserted.
16.22. Maximum Interest. The provisions of this Deed of Trust and of
----------------
all agreements between Grantor and Beneficiary, whether now existing or
hereafter arising and whether written or oral, are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of demand or
acceleration of the maturity of the Note or otherwise, shall the amount charged,
contracted for, received, paid, or agreed to be paid ("Interest") to Beneficiary
--------
for the use, forbearance or retention of the money loaned under the Note exceed
the maximum amount permissible under applicable law. If, from any circumstance
whatsoever, performance or fulfillment of any provision hereof or of any
agreement between Grantor and Beneficiary shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then, ipso facto, the obligation to be performed or fulfilled
---- -----
shall be reduced to such limit, and if, from any circumstance whatsoever,
Beneficiary shall ever receive anything of value deemed Interest by applicable
law in excess of the maximum lawful amount, an amount equal to any excessive
Interest shall be applied to the reduction of the principal balance owing under
the Note in the inverse order of its maturity (whether or not then due) or, at
the option of Beneficiary, be paid over to Grantor,
60
<PAGE>
and not to the payment of Interest. All Interest (including any amounts or
payments deemed to be Interest) paid or agreed to be paid to Beneficiary shall,
to the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full period until payment in full of the principal balance
of the Note so that the Interest thereon for such full period will not exceed
the maximum amount permitted by applicable law. This Section will control all
agreements between Grantor and Beneficiary.
16.23. Certain Matters Relating to Mortgaged Property Located in the
-------------------------------------------------------------
State of Oregon. With respect to the Mortgaged Property which is located in the
- ---------------
State of Oregon notwithstanding anything contained herein to the contrary:
(a) Forced Insurance Notice. WARNING: UNLESS GRANTOR PROVIDES
-----------------------
BENEFICIARY WITH EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY THE LOAN
DOCUMENTS, THE BENEFICIARY MAY PURCHASE INSURANCE AT GRANTOR'S EXPENSE TO
PROTECT BENEFICIARY'S INTEREST. THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT
GRANTOR'S INTEREST. IF THE COLLATERAL BECOMES DAMAGED, THE COVERAGE BENEFICIARY
PURCHASES MAY NOT PAY ANY CLAIM GRANTOR MAKES OR ANY CLAIM MADE AGAINST GRANTOR
GRANTOR MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE THAT GRANTOR HAS
OBTAINED PROPERTY COVERAGE ELSEWHERE.
GRANTOR IS RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY
BENEFICIARY. THE COST OF THIS INSURANCE MAY BE ADDED TO THE LOAN BALANCE. IF
THIS COST IS ADDED TO THE LOAN BALANCE, THE INTEREST RATE PAYABLE UNDER THE
UNDERLYING LOAN WILL APPLY TO THE ADDED AMOUNT. THE EFFECTIVE DATE OF THE
COVERAGE MAY BE THE DATE GRANTOR'S PRIOR COVERAGE LAPSED OR THE DATE GRANTOR
FAILED TO PROVIDE PROOF OF COVERAGE.
THE COVERAGE BENEFICIARY PURCHASES MAY BE CONSIDERABLY MORE EXPENSIVE
THAN INSURANCE GRANTOR CAN OBTAIN ON GRANTOR'S OWN AND MAY NOT SATISFY ANY NEED
FOR PROPERTY DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS
IMPOSED BY APPLICABLE LAW.
(b) No Oral Commitments Notice. UNDER OREGON LAW, MOST AGREEMENTS,
--------------------------
PROMISES AND COMMITMENTS MADE BY BENEFICIARY AFTER OCTOBER 3, 1989, CONCERNING
LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR
HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE GRANTOR'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.
61
<PAGE>
ARTICLE XVII.
CONCERNING THE TRUSTEE
----------------------
17.1. Certain Rights. With the approval of Beneficiary, Trustee
--------------
shall have the right to take any and all of the following actions: (i) to
select, employ and consult with counsel (who may be, but need not be, counsel
for Beneficiary) upon any matters arising hereunder, including the preparation,
execution and interpretation of the Loan Documents, and shall be fully protected
in relying as to legal matters on the advice of counsel, (ii) to execute any of
the trusts and powers hereof and to perform any duty hereunder either directly
or through his or her agents or attorneys, (iii) to select and employ, in and
about the execution of his or her duties hereunder, suitable accountants,
engineers and other experts, agents and attorneys-in-fact, either corporate or
individual, not regularly in the employ of Trustee (and Trustee shall not be
answerable for any act, default, negligence, or misconduct of any such
accountant, engineer or other expert, agent or attorney-in-fact, if selected
with reasonable care, or for any error of judgment or act done by Trustee in
good faith, or be otherwise responsible or accountable under any circumstances
whatsoever, except for Trustee's gross negligence or bad faith), and (iv) any
and all other lawful action that Beneficiary may instruct Trustee to take to
protect or enforce Beneficiary's rights hereunder. Trustee shall not be
personally liable in case of entry by Trustee, or anyone entering by virtue of
the powers herein granted to Trustee, upon the Mortgaged Property for debts
contracted for or liability or damages incurred in the management or operation
of the Mortgaged Property. Trustee shall have the right to rely on any
instrument, document, or signature authorizing or supporting any action taken or
proposed to be taken by Trustee hereunder, believed by Trustee in good faith to
be genuine. Trustee shall be entitled to reimbursement for expenses incurred by
Trustee in the performance of Trustee's duties hereunder and to reasonable
compensation for such of Trustee's services hereunder as shall be rendered.
Grantor will, from time to time, pay the compensation due to Trustee hereunder
and reimburse Trustee for, and save and hold Trustee harmless against, any and
all liability and expenses which may be incurred by Trustee in the performance
of Trustee's duties.
17.2. Retention of Money. All moneys received by Trustee shall,
------------------
until used or applied as herein provided, be held in trust for the purposes for
which they were received, and shall be segregated from any other moneys of
Trustee.
17.3. Successor Trustees. Trustee may resign by the giving of notice
------------------
of such resignation in writing to Beneficiary. If Trustee shall die, resign or
become disqualified from acting in the execution of this trust, or if, for any
reason, Beneficiary, in Beneficiary's sole discretion and with or without cause,
shall prefer to appoint a substitute trustee or multiple substitute trustees, or
successive substitute trustees or successive multiple substitute trustees, to
act instead of the aforenamed Trustee, Beneficiary shall have full power to
appoint a substitute trustee (or, if preferred, multiple substitute trustees) in
succession who shall succeed (and if multiple substitute trustees are appointed,
each of such multiple substitute trustees shall succeed) to all the estates,
rights, powers and duties of the aforenamed Trustee. Such appointment may be
executed by any authorized agent of Beneficiary, and if such Beneficiary be a
corporation and such appointment be executed on its behalf by any officer of
such corporation, such appointment shall be conclusively presumed to be executed
with authority
62
<PAGE>
and shall be valid and sufficient without proof of any action by the board of
directors or any superior officer of the corporation. Grantor hereby ratifies
and confirms any and all acts which the aforenamed Trustee, or his or her
successor or successors in this trust, shall do lawfully by virtue hereof. If
multiple substitute trustees are appointed, each of such multiple substitute
trustees shall be empowered and authorized to act alone without the necessity of
the joinder of the other multiple substitute trustees, whenever any action or
undertaking of such substitute trustees is requested or required under or
pursuant to this Deed of Trust or applicable law. Any prior election to act
jointly or severally shall not prevent either or both of such multiple
substitute Trustees from subsequently executing, jointly or severally, any or
all of the provisions hereof.
17.4. Perfection of Appointment. Should any deed, conveyance, or
-------------------------
instrument of any nature be required from Grantor by any Trustee or substitute
Trustee to more fully and certainly vest in and confirm to Trustee or substitute
Trustee such estates, rights, powers, and duties, then, upon request by Trustee
or substitute trustee, any and all such deeds, conveyances and instruments shall
be made, executed, acknowledged, and delivered and shall be caused to be
recorded and/or filed by Grantor.
17.5. Succession Instruments. Any substitute trustee appointed
----------------------
pursuant to any of the provisions hereof shall, without any further act, deed or
conveyance, become vested with all the estates, properties, rights, powers, and
trusts of its, his or her predecessor in the rights hereunder with like effect
as if originally named as Trustee herein; but nevertheless, upon the written
request of Beneficiary or of the substitute trustee, the Trustee ceasing to act
shall execute and deliver any instrument transferring to such substitute
trustee, upon the trusts herein expressed, all the estates, properties, rights,
powers, and trusts of the Trustee so ceasing to act, and shall duly assign,
transfer and deliver any of the property and moneys held by such Trustee to the
substitute trustee so appointed in such Trustee's place.
17.6. No Representation by Trustee or Beneficiary. By accepting or
-------------------------------------------
approving anything required to be observed, performed, or fulfilled or to be
given to Trustee or Beneficiary pursuant to the Loan Documents, including,
without limitation, any officer's certificate, balance sheet, statement of
profit and loss or other financial statement, survey, appraisal or insurance
policy, neither Trustee nor Beneficiary shall be deemed to have warranted,
consented to, or affirmed the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision, or condition thereof, and such
acceptance or approval thereof shall not be or constitute any warranty or
affirmation with respect thereto by Trustee or Beneficiary.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
63
<PAGE>
IN WITNESS WHEREOF, Grantor has executed this Deed of Trust on the day
and year first written above.
GRANTOR:
-------
DMG OREGON ALC, INC.,
a Nevada corporation
By: _____________________
Name:
Title:
64
<PAGE>
STATE OF OREGON )
) ss.:
COUNTY OF )
On this __ day of July, 1998, personally appeared DMG Oregon ALC,
Inc., a Nevada corporation, acting herein by, acting herein by
_______________________, its ___________________________, duly authorized,
signer and sealer of the foregoing instrument, who acknowledged the same to be
his free act and deed, and the free act and deed of said corporation, before me.
__________________________
Notary Public
My commission expires _________________.
65
<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
66
<PAGE>
SCHEDULE I
----------
Property Specific Information
-----------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Allocated Loan Replacement
Premises Amount Reserve
---------------------------------------------------------------------
<S> <C> <C>
1. Brookings $2,475,000.00 $ 750.00
2. Talent $2,475,000.00 $ 750.00
3. Astoria $1,650,000.00 $ 583.00
Total $6,600,000.00 $2,083.00
---------------------------------------------------------------------
</TABLE>
67
<PAGE>
EXHIBIT 10.20
LOAN AGREEMENT
By and Between
MLD DELAWARE TRUST,
a Delaware business trust
as "Lender"
and
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
as "Borrower"
Dated as of September 3, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS.............................................. 1
ARTICLE II THE LOAN................................................ 11
2.1 Agreement to Lend and Borrow................................ 11
2.2 Evidence of Indebtedness and Maturity....................... 11
2.3 Interest.................................................... 11
2.4 Security.................................................... 11
2.5 Environmental Indemnity..................................... 11
2.6 Prepayment.................................................. 12
ARTICLE III LOAN CLOSING CONDITIONS................................ 12
3.1 Conditions Precedent........................................ 12
ARTICLE IV CLOSING COSTS AND PRORATIONS............................ 13
4.1 Closing Costs............................................... 13
ARTICLE V DISBURSEMENTS OF THE LOAN................................ 14
5.1 Disbursements............................................... 14
5.2 Disbursement of the Loan.................................... 14
5.3 Liens....................................................... 14
ARTICLE VI REPRESENTATIONS AND WARRANTIES.......................... 14
6.1 Title....................................................... 14
6.2 Utilities................................................... 15
6.3 Physical Condition; Completeness............................ 15
6.4 Compliance.................................................. 15
6.5 Zoning...................................................... 16
6.6 No Notices of Non-Compliance................................ 16
6.7 Due Authorization, Execution, Organization, etc............. 16
6.8 True, Correct and Complete Information...................... 16
6.9 Existing Agreements......................................... 17
6.10 Default..................................................... 17
6.11 Litigation; Condemnation.................................... 17
6.12 No Taxes or Utilities Due................................... 17
6.13 Employee Benefit Plans...................................... 17
6.14 Union Agreements............................................ 18
6.15 Hazardous Materials Representations......................... 18
ARTICLE VII COVENANTS OF BORROWER.................................. 18
7.1 No Liens.................................................... 18
7.2 Compliance with Legal Requirements.......................... 19
7.3 Use of the Facility......................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.4 Payment of Impositions...................................... 19
7.5 Intentionally Omitted....................................... 20
7.6 Hazardous Material Covenants................................ 20
7.7 Environmental Matters....................................... 20
7.8 Participation in Hazardous Materials Claims................. 21
7.9 Environmental Inspections................................... 21
7.10 Environmental Indemnification............................... 21
7.11 Lender Inspections.......................................... 22
7.12 Financial Statements........................................ 22
7.13 Statements for Facility..................................... 22
7.14 Regulatory Reports.......................................... 23
7.15 Expenses.................................................... 23
7.16 Litigation.................................................. 23
7.17 Representations and Warranties.............................. 23
7.18 Further Assurances.......................................... 23
7.19 Operating Leases............................................ 24
7.20 ERISA Events................................................ 24
7.21 Maintenance Obligations..................................... 24
7.22 Upgrade Expenditures........................................ 24
7.23 Debt Service Reserve........................................ 25
ARTICLE VIII INSURANCE REQUIREMENTS................................ 25
8.1 Insurance Types............................................. 25
8.2 Replacement Cost Determination.............................. 27
8.3 Deductible Amounts.......................................... 27
8.4 Evidence of Insurance....................................... 27
8.5 Damages..................................................... 27
8.6 Waiver of Subrogation....................................... 28
8.7 Additional Insured.......................................... 28
8.8 No Separate Insurance....................................... 28
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES.......................... 28
9.1 Events of Default........................................... 28
9.2 Remedies.................................................... 31
ARTICLE X MISCELLANEOUS............................................ 32
10.1 Assignment.................................................. 32
10.2 Notices..................................................... 32
10.3 Incorporation of Recitals and Exhibits...................... 33
10.4 Titles and Headings......................................... 33
10.5 Brokers..................................................... 33
10.6 Changes, Waivers, Discharge and Modifications in Writing.... 33
10.7 Choice of Law............................................... 33
10.8 Counterparts................................................ 33
10.9 Time is of the Essence...................................... 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.10 Attorneys' Fees............................................. 34
10.11 Authority to File Notices................................... 34
10.12 Disclaimer by Lender........................................ 34
10.13 Indemnification............................................. 34
10.14 Inconsistencies with Loan Documents......................... 34
10.15 Disbursements in Excess of Loan Amount...................... 34
10.16 Participations.............................................. 35
10.17 Entire Agreement............................................ 35
10.18 Severability................................................ 35
10.19 Consent to Jurisdiction and Service of Process.............. 35
10.20 Waiver of Jury Trial........................................ 35
10.21 Terminology................................................. 36
10.22 Interpretation.............................................. 36
</TABLE>
iii
<PAGE>
EXHIBIT A LEGAL DESCRIPTION OF THE LAND
EXHIBIT B CLOSING CONDITIONS
EXHIBIT C FORM OF CLOSING PROCEDURE LETTER
EXHIBIT D FORM OF WRITTEN AUTHORIZATION TO CLOSE
iv
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of the 3rd day of
September, 1998 by and between ASSISTED LIVING CONCEPTS, INC., a Nevada
corporation ("Borrower"), and MLD DELAWARE TRUST, a Delaware business trust
("Lender"), with respect to the following:
R E C I T A L S:
- - - - - - - -
A. Borrower owns fee simple title to that certain real property
located in the County of Berkeley, State of South Carolina and more particularly
described in Exhibit A attached hereto and by this reference incorporated herein
---------
(the "Land").
B. The Land is improved with certain buildings and other
Improvements (as hereinafter defined) and is presently operated as a 39-unit
community residential care (the "Facility").
C. Borrower desires to borrow from Lender, and Lender desires to
lend to Borrower, an amount up to Two Million Nine Hundred Fifty-Five Thousand
Dollars ($2,955,000) upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions
herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms shall have the meanings set forth below (unless expressly stated to the
contrary):
"Account" shall have the meaning ascribed such term in the Debt
Service Reserve Pledge Agreement.
"Adjoining Property" shall mean all roadways, sidewalks and curbs
appurtenant to the Facility and all utility vaults which are under Borrower's
control or which are required to be maintained by Borrower.
"Affiliate" shall mean, with respect to any Person, any other Person
which Controls, is controlled by or is under common Control with the first
person. Without limiting the generality of the foregoing, all of the following
shall be deemed to be Affiliates of Borrower: (i) any and all of the officers,
directors and shareholders in Borrower, and (ii) any and all of the partners and
shareholders of any and all of the officers, directors and shareholders in
Borrower.
1
<PAGE>
"Agreed Rate" shall mean the lesser of (a) the maximum rate permitted
under the laws of the State of South Carolina or (b) the Basic Interest (as
defined in the Note) plus four percent (4%).
"ALC Leases" shall mean any and all leases and the ancillary documents
executed in connection therewith between Borrower or any Affiliate of Borrower,
as tenant, and Lender or any Affiliate of Lender, as landlord.
"Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals or removals of, and all
substitutions or replacements for, any of the Fixtures or Improvements, whether
interior or exterior, structural or non-structural, ordinary or extraordinary.
As used in this Agreement, "Alteration" shall not include any maintenance,
repair, replacement or restoration work the cost of which is included in the
Upgrade Expenditures.
"Basic Interest" shall have the meaning ascribed such term in the
Note.
"Borrower's Fiscal Year" shall mean the twelve (12) month period
beginning January 1 and ending December 31.
"Business Agreements" shall mean any and all leases, rental
agreements, management agreements, loan agreements, mortgages, deeds of trust,
easements, covenants, restrictions or other agreements or instruments affecting
all or a portion of the Facility and which is binding upon Borrower or all or
any portion of the Facility.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which national banks in the City of New York,
State of New York are authorized, or obligated, by law or executive order, to
close.
"Closing" shall mean the consummation of the loan transaction provided
for herein.
"Closing Procedure Letter" shall mean a letter to the Title Company
executed by Lender and Borrower setting forth directions for the Title Company
in connection with the Closing and in the form of Exhibit E attached hereto.
---------
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all of Borrower's interest in all Fixtures,
Personal Property and Intangible Property.
"Condemnation" shall mean either (a) the taking by a Condemnor of the
Facility or any part thereof or interest therein, for public or quasi-public use
under the power of eminent domain, condemnation or otherwise, (b) a voluntary
sale or transfer of the Facility or any part thereof or interest therein by
Borrower to any Condemnor or to any other Person either under threat of
2
<PAGE>
condemnation or while legal proceedings for condemnation are pending, (c) a de
facto condemnation by a Condemnor.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights of action and proceeds payable to Borrower or Lender by reason of any
Condemnation of all or any portion of the Facility or the Collateral or any part
of either.
"Condemnor" shall mean any Governmental Authority or Person having the
power of condemnation.
"Control" and "control" with correlative meanings for the terms
"controlling", "controlled by" and "under common control with" shall mean, as
applied to any Person, the possession, directly or indirectly, of the power to
direct the management and policies of that Person, whether through ownership,
voting control, by contract or otherwise.
"Cost of Living Index" shall mean the United States Department of
Labor, Bureau of Labor Statistics Consumer Price Index for all Urban Consumers,
United States Average, Subgroup "All Items" (1982 - 1984 = 100).
"County" shall mean the County in which the Facility is located.
"Debt Service Reserve" shall mean an amount equal to Eighty-Six
Thousand Five Hundred Eighty-Two Dollars ($86,582), given by Borrower to Lender
as additional security for Borrower's obligations under this Agreement and the
other Loan Documents, which amount shall be withheld by Lender from the
disbursement of the Loan pursuant to the provisions of Sections 5.2 and 7.23
-------- --- ----
below.
"Debt Service Reserve Pledge Agreement" shall mean a pledge agreement,
between Borrower and Lender, in form and substance satisfactory to Lender,
pursuant to which Borrower shall pledge the amounts deposited therein to Lender
as security for the Loan.
"Employee Benefit Plan" shall mean any "employee benefit plan" as
defined in Section 3(3) of ERISA which is, or was at any time, maintained or
contributed to by Borrower or any of its ERISA Affiliates.
"Environmental Activities" shall mean the use, generation,
transportation, handling, discharge, production, treatment, storage, release or
disposal of any Hazardous Materials at any time to or from the Facility or
located on or present on or under the Facility.
"Environmental Indemnity" shall mean an indemnity relating to
Environmental Activities and other environmental matters concerning the
Facility, of even date herewith, executed by Borrower, in favor of Lender, in
form and substance acceptable to Lender.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
3
<PAGE>
"ERISA Affiliate", as applied to any Person, shall mean (a) any
corporation which is, or was at any time, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code of which that
Person is, or was at any time, a member; (b) any trade or business (whether or
not incorporated) which is, or was at any time, a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the Code
of which that Person is, or was at any time, a member; and (c) any member of an
affiliated service group within the meaning of Section 414(m) or (o) of the Code
of which that Person, any corporation described in clause (a) above or any trade
or business described in clause (b) above is, or was at any time, a member.
"ERISA Event" shall mean (a) a "reportable event" within the meaning
of Section 4043 of ERISA and the regulations issued thereunder with respect to
any Pension Plan (excluding those for which the provision for 30-day notice to
the PBGC has been waived by regulation); (b) the failure to meet the minimum
funding standard of Section 412 of the Code with respect to any Pension Plan
(whether or not waived in accordance with Section 412(d) of the Code) or the
failure to make by its due date a required installment under Section 412(m) of
the Code with respect to any Pension Plan or the failure to make any required
contribution to a Multiemployer Plan; (c) the provision by the administrator of
any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent
to terminate such plan in a distress termination described in Section 4041(c) of
ERISA; (d) the withdrawal by Borrower or any of its ERISA Affiliates from any
Pension Plan with two or more contributing sponsors or the termination of any
such Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of
ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension
Plan, or the occurrence of any event or condition which might constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (f) the imposition of liability on Borrower or any
of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by
reason of the application of Section 4212(c) of ERISA; (g) the withdrawal by
Borrower or any of its ERISA Affiliates in a complete or partial withdrawal
(within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer
Plan if there is any potential liability therefor, or the receipt by Borrower or
any of its ERISA Affiliates of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that
it intends to terminate or has terminated under Section 4041A or 4042 of ERISA;
(h) the occurrence of an act or omission which could give rise to the imposition
on Borrower or any of its ERISA Affiliates of fines, penalties, taxes or related
charges under Chapter 43 of the Code or under Section 409 or 502(c), (i) or (l)
or 4071 of ERISA in respect of any Employee Benefit Plan; (i) the assertion of a
material claim (other than routine claims for benefits) against any Employee
Benefit Plan other than a Multiemployer Plan or the assets thereof, or against
Borrower or any of its ERISA Affiliates in connection with any such Employee
Benefit Plan; (j) receipt from the Internal Revenue Service of notice of the
failure of any Pension Plan (or any other Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code) to qualify under Section 401(a) of
the Code, or the failure of any trust forming part of any Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Code; or (k) the
imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Code or
pursuant to ERISA with respect to any Pension Plan.
4
<PAGE>
"Event of Default" shall mean the occurrence of any of the events
listed in Section 9.1(a) and the expiration of any applicable notice and cure
--------------
period provided in Section 9.1(b).
--------------
"Existing Encumbrances" shall have the meaning given such term in
Section 4.1(c).
- --------------
"Facility" shall have the meaning ascribed to such term in Recital B.
"Financial Statement" shall mean a financial statement of the party
delivering such statement including a balance sheet and income statement, all
prepared in accordance with GAAP and certified as true and complete without
qualification by a general partner or officer, as applicable, of the party
delivering such statement.
"Financing Statement" shall mean a UCC-1 financing statement executed
by Borrower as debtor, in favor of Lender as secured party, and perfecting
Lender's security interest in the Collateral, in form and substance satisfactory
to Lender, to be filed in the Offices of the Secretary of State of South
Carolina and Nevada.
"Fixture Filing" shall mean a fixture filing (which may be a part of
the Mortgage if Lender so elects) executed by Borrower as debtor, in favor of
Lender as secured party, in form and substance satisfactory to Lender, to be
recorded in the Official Records of the County.
"Fixtures" shall mean all permanently affixed equipment, machinery,
fixtures and other items of real and/or personal property, including all
components thereof, now and hereafter located in, or used in connection with, or
permanently affixed to or incorporated into any of the Improvements or the Land,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, together with all replacements, modifications, alterations
and additions thereto, all of which are hereby deemed to constitute real
property.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean any governmental or quasi-
governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, court, administrative tribunal or public
utility.
"Hazardous Materials" shall mean (a) any petroleum products and/or by-
products (including any fraction thereof), flammable substances, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances, known carcinogens or any other materials, contaminants or pollutants
which (i) pose a hazard to the Facility or to persons on or about the Facility
or (ii) cause the Facility to be in violation of any Hazardous Materials Laws;
(b) asbestos in any form which is or could become friable; (c) urea formaldehyde
in foam insulation or any other form; (d) transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty (50) parts per million or any other more restrictive standard
then prevailing; (e) any chemical, material or substance defined as or included
in the
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definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic substances"
or words of similar import under any applicable Hazardous Material Laws; (f)
medical wastes and biohazards; (g) radon gas above allowable levels; and (h) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Governmental Authority or may or could pose a hazard to the
health and safety of the occupants of the Facility or the owners and/or
occupants of property adjacent to or surrounding the Facility.
"Hazardous Materials Claims" shall mean any and all enforcement,
clean-up, removal or other governmental or regulatory actions or orders
threatened, instituted or completed pursuant to any Hazardous Material Laws,
together with all claims made or threatened by any third party against the
Facility, Lender or Borrower relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials.
"Hazardous Materials Laws" shall mean any federal, state or local
laws, ordinances, regulations, rules, orders, guidelines or policies relating to
the environment, health and safety, Environmental Activities, Hazardous
Materials, air and water quality, waste disposal and other environmental
matters, including, but not limited to, the Clean Water Act, Clean Air Act,
Federal Water Pollution Control Act, Solid Waste Disposal Act, Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Section 1801, et. seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901, et. seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; the South
Carolina Pollution Control Act, S.C. Code Ann. (S) 48-1-10, et seq., the South
Carolina Hazardous Waste Management Act, S.C. Code Ann. (S) 44-56-10, et seq.;
and the rules, regulations and ordinances of the County and municipalities in
which the Facility is located, the State Department of Health Services, the
Regional Water Quality Control Board, the State Water Resources Control Board
(or the equivalent agencies or authorities) and the Environmental Protection
Agency or any other agency which regulates Hazardous Materials or Environmental
Activities.
"Impositions" shall mean, collectively, all utility charges incurred
by Borrower for the benefit of the Facility or which may become a lien against
the Facility and all assessments or charges of a similar nature, all taxes
(including, without limitation, all ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or similar taxes as the same relate
to or are imposed upon Borrower or its business conducted upon the Facility or
are levied or imposed upon Lender with respect to the Facility or measured by
any amount payable under the Loan Documents), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof), ground rents, water, sewer or
other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other levies or assessments by any Governmental Authority or private Persons
(including, without limitation, any and all mechanic's or materialmen's liens,
or similar liens or encumbrances), in each case whether general or special,
ordinary, or extraordinary, or foreseen or unforeseen, of every character in
respect of the Facility or the business conducted thereon (including all
interest and penalties thereon due to any failure in payment), which may be
assessed against or imposed upon (a) Borrower, (b) Lender's interest in the
Facility, (c) the Facility
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or any part thereof or any rent therefrom or any estate, right, title or
interest therein, (d) any occupancy, operation, use or possession of, or sales
or other revenue from, or activity conducted on, or in connection with the
Facility or the leasing or use of the Facility or any part thereof by Borrower
or (e) Lender as a result of or arising with respect to the Loan; (f) provided,
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however, "Impositions" shall not include any of the following, except to the
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extent that any Impositions in effect which Borrower is obligated to pay are
totally or partially repealed, and any of the following taxes, assessments, tax
levies or charges are levied, assessed or imposed in lieu thereof: (i) any tax
based on gross (except to the extent that any franchise, business use or other
similar tax is based on the gross income related to the Loan imposed upon
Lender) or net income related to the Loan imposed upon Lender, (ii) any tax
imposed with respect to the proceeds of the Loan, or (iii) any estate,
inheritance, gift or documentary transfer taxes related to the Loan imposed upon
Lender.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or hereafter located on any of the Land, including, without
limitation, landscaped areas, parking lots and structures, roads, drainage and
other utility structures and other so-called "infrastructure" improvements.
"Insurance Proceeds" shall mean all proceeds of insurance payable as a
result of any fire, earthquake, act of God, or other casualty to or in
connection with the Facility or any part thereof.
"Insured Property" shall mean the Improvements, Fixtures and Personal
Property.
"Intangible Property" shall mean all of Borrower's right, title and
interest in and to (a) all rents, profits, income or revenue derived from the
use of rooms or other space within the Facility or the providing of services in
or from the Facility, documents, chattel paper, instruments, contract rights,
deposit accounts, general intangibles, chosen in action, now owned or hereafter
acquired by Borrower (including any right to any refund of any taxes or other
charges heretofore or hereafter paid to any Governmental Authority) arising from
or in connection with Borrower's operation or ownership of the Facility; (b) all
Permits; and (c) all other intangible property or any interest therein now or on
the Loan Closing Date owned or held by Borrower in connection with the Land, the
Improvements or the Fixtures, or any business or businesses now or hereafter
conducted by Borrower or any lessee thereon or with the use thereof, including
all rights of Borrower in and to all leases, contract rights, agreements, trade
names, water rights and reservations, zoning rights, business licenses and
warranties (including those relating to construction or fabrication) related to
the Land, the Improvements or the Fixtures, or any part thereof.
"Intended Use" shall mean the use of the Facility for operation of the
healthcare facility described in Recital B (or, with Lender's consent, which
shall not be unreasonably withheld, as a skilled nursing home, dedicated
Alzheimer's units, an independent nursing facility or other similar facility for
frail, elderly adults) and any other uses ancillary or reasonably related
thereto and for no other purpose.
"Land" shall have the meaning ascribed to such term in Recital A.
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"Legal Requirements" shall mean all federal, State, county, municipal
and other governmental and quasi-governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting the
Facility or the construction, use or alteration thereof, whether now or
hereafter enacted and in force including, without limitation, the Americans With
Disabilities Act, 42 U.S.C. (S)(S) 12101-12213 (1991) and including any zoning
or other land use entitlements and any requirements which may require repairs,
modifications or alterations in or to the Facility, and all permits, licenses
and authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances running in favor of any Person,
contained in any instruments, either of record or known to Borrower, at any time
in force affecting the Facility.
"Lender" shall mean MLD Delaware Trust, a Delaware business trust, its
successors and assigns and any party to which the Note is assigned or otherwise
transferred.
"Letter of Credit" shall mean an irrevocable letter of credit issued
pursuant to the Letter of Credit Agreement by a financial institution mutually
acceptable to Lender and Borrower in the initial face amount of the Debt Service
Reserve.
"Letter of Credit Agreement" shall mean a letter of credit agreement
on Lender's then standard form as of the applicable date of determination.
"Licensing Requirements" shall mean those Legal Requirements which
specifically relate to the use of the Facility for the Intended Use.
"Lien" shall mean any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest) and any option, trust
or other preferential arrangement having the practical effect of any of the
foregoing.
"Loan" shall mean the loan described in this Agreement in the
principal amount of the Loan Amount.
"Loan Amount" shall mean the original principal amount of Two Million
Nine Hundred Fifty-Five Thousand Dollars ($2,955,000), or so much thereof as is
advanced, as such amount may be reduced through repayments by Borrower pursuant
to the Note.
"Loan Closing Date" shall mean the date on which the Loan is disbursed
to or for the benefit of Borrower.
"Loan Documents" shall mean the documents described in Section 3.1 of
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this Agreement.
"Loan Year" shall mean (a) the period beginning on the Loan Closing
Date and ending on the one (1) year anniversary of the last day of the calendar
month in which the Loan Closing Date falls, and (b) each subsequent and
consecutive twelve (12) month period.
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"Maturity Date" shall mean the date set forth in the Note upon which
the entire principal amount of the Loan shall be due and payable.
"Mortgage" shall mean a mortgage, assignment of rents, security
agreement, financing statement and fixture filing, in form and substance
satisfactory to Lender, executed by Borrower in favor of Lender, creating a lien
on the Land, the Facility, the Fixtures and the Improvements, and all rights and
easements appurtenant thereto.
"Multiemployer Plan" shall mean a "multiemployer plan", as defined in
Section 3(37) of ERISA, to which Borrower or any of its ERISA Affiliates is
contributing, or ever has contributed, or to which Borrower or any of its ERISA
Affiliates has, or ever has had, an obligation to contribute.
"Net Condemnation Proceeds" shall mean all Condemnation Proceeds
remaining after deduction of all expenses of collection and settlement thereof,
including, without limitation, attorneys' and adjustors' fees and expenses.
"Net Insurance Proceeds" shall mean all Insurance Proceeds remaining
after deduction of all expenses of collection and settlement thereof, including,
without limitation, attorneys' fees and expenses.
"Note" shall mean a secured promissory note, in the original principal
amount of Two Million Nine Hundred Fifty-Five Thousand Dollars ($2,955,000),
executed by Borrower as maker, in favor of Lender as holder, in form and
substance satisfactory to Lender.
"Other ALC Loans" shall mean any and all loan agreements, other than
this Agreement and the ancillary documents executed in connection therewith
between Borrower or any Affiliate of Borrower and Lender or any Affiliate of
Lender.
"Pension Plan" shall mean any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Code or Section 302
of ERISA.
"Permits" shall mean all permits, licenses, approvals, entitlements
and other governmental and quasi-governmental authorizations now owned or
hereafter acquired by Borrower (including, without limitation, certificates of
need, health care provider licenses and certificates of occupancy) and necessary
or desirable in connection with the ownership, planning, development,
construction, use, operation or maintenance of the Facility for the Intended
Use. As used herein, "quasi-governmental" shall include the providers of all
utilities services to the Facility.
"Permitted Exceptions" shall mean those title exceptions or defects
which have been approved in writing by Lender and, with respect to the Land and
Improvements, those exceptions or defects which Lender has approved in writing
to appear as exceptions on the Title Policy.
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"Person" shall mean any individual, partnership, association,
corporation, Governmental Authority or other entity.
"Personal Property" shall mean all Intangible Property and all
machinery, equipment, furniture, tools, furnishings, movable walls or
partitions, computers or trade fixtures or other personal property (but
specifically excluding consumable inventory and supplies), acquired by or for
the account of Borrower and used or useful in the operation of Borrower's
business at the Facility whether now owned or hereafter acquired by Borrower,
together with all accessions, additions, parts, attachments, accessories or
appurtenances thereto.
"Phase 1 Site Assessment Report" shall mean that certain Phase 1
Environmental Site Assessment Report delivered to Lender in connection with the
Facility, dated July, 1997, prepared by C-K Associates, Inc.
"Potential Default" shall mean the existence of any event which, with
the giving of notice, the passage of time, or both, would constitute an Event of
Default under any of the Loan Documents.
"Proceeds" shall mean the Net Insurance Proceeds or Net Condemnation
Proceeds, as applicable.
"State" shall mean the State of South Carolina.
"Subdivision Map Act" shall mean the applicable statutes of the State
of South Carolina which govern the subdivision of real property for sale, lease
or finance.
"Title Company" shall mean the title insurance company selected by
Lender in its sole discretion to provide the Title Policy.
"Title Policy" shall mean a title insurance policy in the form of an
American Land Title Association Extended Coverage Loan Policy of Title Insurance
(1970 Form B, without modification, revision or amendment), insuring that on the
date of recordation of the Mortgage, Borrower owns fee simple title to the
Facility and that the Mortgage is a valid first priority lien on the Facility in
the amount of the Loan Amount. The Title Policy shall contain such endorsements
and reinsurance agreements as Lender reasonably requires and shall be subject
only to the Permitted Exceptions.
"Upgrade Expenditures" shall mean an annual sum of money to be
expended by Borrower for upgrades or improvements to the Facility which have the
effect of maintaining or improving the competitive position of the Facility in
its respective marketplace. Such expenditures shall include cash payments only
and shall not include any amount for depreciation, amortization, interest
payments or rent. Non-exclusive examples of Upgrade Expenditures are new or
replacement wallpaper, tiles, window coverings, lighting fixtures, painting,
upgraded landscaping, carpeting, architectural adornments, common area amenities
and the like. It is expressly understood that capital improvements or repairs
(such as but not limited to repairs or replacements to the structural elements
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of the walls, parking area, or the roof or to the electrical, plumbing, HVAC or
other mechanical or structural systems in the Facility) shall not be considered
to be Upgrade Expenditures.
"Written Authorization" shall mean a letter to the Title Company, in
the form of Exhibit F, executed by Borrower and Lender, directing the Title
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Company to comply with the instructions in the Closing Procedure Letter.
ARTICLE II
THE LOAN
II.1 Agreement to Lend and Borrow. Subject to the terms and
conditions of this Agreement, Lender will lend and Borrower will borrow up to
the Loan Amount. Lender shall disburse the proceeds of the Loan in accordance
with the provisions of Article V of this Agreement. Notwithstanding the parties'
---------
intention that the transaction contemplated by the Loan Documents is a loan to
Borrower, Lender shall be entitled to account for the Loan on Lender's books in
any manner that Lender elects in its sole discretion, and any such accounting by
Lender shall not be deemed or construed to affect in any manner the rights and
obligations of Borrower and Lender under the Loan Documents.
II.2 Evidence of Indebtedness and Maturity. The Loan shall be
evidenced by the Note in the principal amount of the Loan Amount. The
outstanding principal balance of the Loan, together with accrued and unpaid
Basic Interest thereon, and all other amounts payable by Borrower under the
terms of the Loan Documents, shall be due and payable on the Maturity Date.
II.3 Interest. The Loan Amount shall bear interest at the rate per
annum specified in the Note, which interest shall be due and payable as
specified therein.
II.4 Security. Payment of the Note and performance of all of
Borrower's other obligations under the Loan Documents shall be secured by the
following: (a) the Mortgage; (b) the Financing Statement; (c) the Fixture
Filing; (d) the Debt Service Reserve Pledge Agreement; and (e) such other
security interests in property of Borrower as Lender shall require in the Loan
Documents.
II.5 Environmental Indemnity. Lender shall be indemnified with
respect to environmental matters by the Environmental Indemnity.
II.6 Prepayment. Except as provided in the Note, Borrower shall have
no right to prepay the Loan Amount, in whole or in part, prior to the Maturity
Date.
ARTICLE III
LOAN CLOSING CONDITIONS
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III.1 Conditions Precedent. Lender's obligation to make the Loan and
to perform the remainder of its obligations under this Agreement are expressly
conditioned upon the occurrence of all of the following on or before the Loan
Closing Date:
(a) Lender's receipt and approval of all of the items set forth in
Exhibit B; and
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(b) Borrower's delivery to Lender of the following items and
documents, in form and content satisfactory to Lender, duly executed (and
acknowledged where necessary) by the appropriate parties thereto:
(i) This Agreement;
(ii) The Note;
(iii) The Mortgage, which shall be duly recorded in the
Official Records of the County;
(iv) The Financing Statement, which shall be duly filed in
the Offices of the Secretary of State of South Carolina and Nevada;
(v) The Fixture Filing, which shall be duly recorded in the
Official Records of the County;
(vi) The Debt Service Reserve Pledge Agreement;
(vii) The Environmental Indemnity; and
(viii) Such other documents that Lender may reasonably require.
(c) Upon receipt of the items described in this Article III, and
upon compliance with the other terms and conditions of this Agreement,
Borrower and Lender shall execute and deliver to Title Company the Written
Authorization.
ARTICLE IV
CLOSING COSTS AND PRORATIONS
IV.1 Closing Costs.
(a) Borrower shall pay:
(i) any and all state, municipal or other documentary or
transfer taxes payable in connection with the delivery of any
instrument or document provided in or contemplated by this Agreement,
any agreement or commitment described or referred to herein or the
transactions contemplated herein;
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(ii) one-half of all escrow fees and charges;
(iii) the charges for or in connection with the recording and/or
filing of any instrument or document provided herein or contemplated
by this Agreement or any agreement or document described or referred
to herein.
(iv) any and all broker's fees or similar fees claimed by any
party employed by Borrower in connection with the transactions
contemplated herein, provided, however, Borrower shall not be deemed
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to have employed any party by merely receiving information concerning
Lender, the Facility or related to the transactions contemplated
hereunder or by executing any agreement to hold such information
confidential; and
(v) Borrower's legal, accounting and other professional fees
and expenses and the cost of all opinions, certificates, instruments,
documents and papers required to be delivered, or to cause to be
delivered, by Borrower hereunder, including, without limitation, the
cost of all performances by Borrower of its obligations hereunder;
(b) Lender shall pay:
(i) any and all broker's fees or similar fees claimed by any
party employed by Lender in connection with the transactions
hereunder, provided, however, Lender shall not be deemed to have
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employed any party by merely receiving information concerning
Borrower, the Facility or related to the transactions contemplated
hereunder or by executing any agreement to hold such information
confidential;
(ii) Lender's legal fees and expenses and the costs of any site
inspections, environmental audits and surveys performed by or on
behalf of Lender, including travel and out-of-pocket expenses for such
inspections, audits and surveys; and
(iii) one-half of all escrow fees and charges and all expenses of
or related to the issuance of the Title Policy.
(c) If the Facility is presently encumbered by certain mortgages and
certain other security instruments (individually and collectively, the
"Existing Encumbrances"), Borrower shall cause the Existing Encumbrances
and all indebtedness secured thereby to be fully satisfied, released and
discharged of record on or prior to the Loan Closing Date (recognizing that
Borrower may use the proceeds of the loan contemplated hereby to satisfy
the same). Borrower acknowledges that such satisfaction, release and
discharge may involve prepayment penalties or premiums and other costs or
expenses, all of which shall be paid by Borrower at its sole cost and
expense on or before the Loan Closing Date.
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ARTICLE V
DISBURSEMENTS OF THE LOAN
V.1 Disbursements. Lender shall have no obligation to make
disbursements of the Loan except as provided in this Article V.
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V.2 Disbursement of the Loan. Lender shall disburse the Loan Amount
to Borrower (less the Debt Service Reserve) upon Borrower's delivery and
satisfaction of the conditions precedent set forth in Section 3.1 of this
-----------
Agreement. Borrower acknowledges and agrees that although Lender shall deposit
the Debt Service Reserve into the Account pursuant to the provisions of Section
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7.23 below, Borrower shall be deemed to have been advanced the full amount of
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the Loan at such time as Lender has disbursed the Loan proceeds in accordance
with the immediately preceding sentence.
V.3 Liens. All construction shall be free and clear of defects and
liens or claims for liens for materials supplied or labor or services performed
in connection with the Facility, except for liens which are being duly contested
in accordance with the provisions of Section 7.1 of this Agreement.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
As an inducement to Lender to execute this Agreement and to disburse
the proceeds of the Loan, Borrower represents and warrants to Lender the truth
and accuracy of the matters set forth in this Article VI.
VI.1 Title. Borrower has, or as of the Loan Closing Date will have,
good, marketable (and insurable with respect to the Land and Improvements) title
to, and the entire right, title, and interest in, the Facility, free and clear
of any and all leases, Liens, encumbrances or other liabilities, subject only to
the Permitted Exceptions.
VI.2 Utilities. To the best of Seller's knowledge, the Facility has
available to its boundary adequate utilities, including, without limitation,
adequate water supply, storm and sanitary sewage facilities, telephone, gas,
electricity and fire protection, as is required for the operation of the
Facility for the Intended Use.
VI.3 Physical Condition; Completeness.
(a) The Facility has been constructed in a good, workmanlike and
substantial manner, free from material defects and in accordance with all
Legal Requirements.
(b) Neither the zoning nor any other right to construct upon or to
use the Facility is to any extent dependent upon or related to any real
estate other than the Facility, the
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<PAGE>
improvement of such other real estate or the payment of any fees for the
improvement of such other real estate.
(c) The Facility, and each portion thereof, is in good condition and
repair and is free from material defects. Borrower will use its best
efforts to maintain the Facility in good condition and repair.
(d) There are no soil conditions adversely affecting the Facility in
any material respect.
(e) Other than as disclosed on the Phase I Site Assessment Report
there are and have been no Hazardous Materials installed or stored in or
otherwise existing at, on, in or under the Facility which are or have been
at any time in violation of any applicable Legal Requirements or which are
or have been at any time in amounts or concentrations sufficient to require
the reporting of such materials to any Governmental Authority, except in
the ordinary course of business in compliance with applicable laws.
VI.4 Compliance.
(a) Borrower has obtained and shall maintain all consents,
approvals, licenses, permits and other permissions related to the operation
of the Facility for the Intended Use as are required under Legal
Requirements and Licensing Requirements.
(b) Borrower has and shall maintain all Permits and all other
consents, approvals, licenses, permits and other permissions related to the
operation of the Facility for the Intended Use as are required under Legal
Requirements and Licensing Requirements.
(c) Notwithstanding the foregoing in (a) and (b) above, if any
additional consents, approvals, licenses, permits or other permissions are
required in connection with the operation of the Facility for the Intended
Use, Borrower hereby agrees that Borrower shall, as promptly as practical,
use its best efforts to obtain all such additional consents, approvals,
licenses, permits and other permissions related to such Intended Use and
required under any of the Legal Requirements or Licensing Requirements.
VI.5 Zoning. The Facility is properly and fully zoned for the
Intended Use and the Facility and the operation and use thereof, including,
without limitation, all boundary line adjustments to the Facility, complies, in
all material respects, with all applicable Legal Requirements (including,
without limitation, the Subdivision Map Act).
VI.6 No Notices of Non-Compliance. Borrower has not received any
notice that and Borrower has no knowledge that (a) any Government Authority or
any employee or official thereof considers that the operation or use of the
Facility for the Intended Use to have materially failed or will materially fail
to comply with any Legal Requirements, (b) any investigation has been commenced
or is contemplated respecting any such possible or actual failure of the
operation or use of the Facility for the Intended Use to comply with any of the
Legal Requirements, and (c) there are
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any unsatisfied requests for material repairs, restorations or alterations with
regard to the Facility from any Person, including, but not limited to, any
lender, insurance carrier or Government Authority.
VI.7 Due Authorization, Execution, Organization, etc.
(a) This Agreement and all of the Loan Documents are, and on the
Loan Closing Date will be, duly authorized, executed and delivered by and
are binding in accordance with their terms upon Borrower, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general application and of legal or equitable principles
generally and covenants of good faith and fair dealing.
(b) Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nevada and duly qualified
to do business in the State of South Carolina.
(c) Borrower has the authority to enter into this Agreement, the
Loan Documents and all other agreements, instruments and documents herein
provided, and to consummate the transactions herein provided and nothing
prohibits or restricts the right or ability of Borrower to close the
transactions contemplated hereunder and carry out the terms hereof.
VI.8 True, Correct and Complete Information.
(a) To the best of Borrower's knowledge, all documents, plans,
surveys and other data or information prepared by parties other than
Borrower or Borrower's agents or employees and provided to Lender in
connection herewith, are true, correct and complete in all material
respects and disclose all material facts with no material omissions with
respect thereto.
(b) All documents and other data or information prepared by Borrower
or Borrower's employees or, to the best of Borrower's knowledge, agents are
true, correct and complete in all material respects with no material
omissions with respect thereto.
VI.9 Existing Agreements. To the best of Borrower's knowledge, there
are no material agreements or understandings (whether written or oral) to which
Borrower is a party or is bound, including, without limitation, any Business
Agreements, relating to the Facility or the operation or use thereof other than
the Permitted Exceptions and those documents and instruments which have been
delivered by Borrower to Lender prior to the Loan Closing Date.
VI.10 Default. Borrower is not in default with respect to any of its
material obligations or liabilities pertaining to the Facility.
VI.11 Litigation; Condemnation. There are no material actions, suits
or proceedings pending or, to the best of Seller's knowledge, threatened before
or by any judicial, administrative or union body, any arbiter or any
Governmental Authority, against or affecting
16
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Borrower or the Facility or any portion thereof. To the best of Seller's
knowledge, there are no existing, proposed or threatened eminent domain or
similar proceedings which would affect the Land or Improvements in any manner
whatsoever.
VI.12 No Taxes or Utilities Due. To the best of Seller's knowledge,
Borrower is not in default (beyond any applicable cure periods) in the payment
of any and all insurance premiums relating to the Facility, real and personal
property taxes and assessments on the Facility and the cost of all gas, water,
electricity, heat, fuel, sewer, telecommunications and other utilities relating
to the Facility.
VI.13 Employee Benefit Plans.
(a) Borrower and each of its ERISA Affiliates are in compliance
with all applicable provisions and requirements of ERISA and the
regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all their obligations under each
Employee Benefit Plan.
(b) No ERISA Event has occurred or is reasonably expected to occur.
(c) Except to the extent required under Section 4980B of the Code,
no Employee Benefit Plan provides health or welfare benefits (through the
purchase of insurance or otherwise) for any retired or former employees of
Borrower or any of its ERISA Affiliates.
(d) As of the most recent valuation date for any Pension Plan, the
amount of unfunded benefit liabilities (as defined in Section 4001(a)(18)
of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect
to which assets exceed benefit liabilities), does not exceed $20,000.
VI.14 Union Agreements. Borrower has delivered to Lender true and
correct copies of all collective bargaining and other agreements, if any, with
labor unions or other employee groups or associations which include or will
include Borrower's operations at the Facility.
VI.15 Hazardous Materials Representations. The Facility and the
Intended Use do currently, and will at all times throughout the term hereof
continue to, comply, in all material respects, with all applicable laws and
governmental regulations including, without limitation, all Hazardous Materials
Laws.
ARTICLE VII
COVENANTS OF BORROWER
As an inducement to Lender to execute this Agreement and to make each
disbursement of the Loan, Borrower hereby covenants as follows:
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VII.1 No Liens; Permitted Contests. Borrower shall not cause or
permit any Lien to be placed or assessed against the Land or the Facility or the
operation thereof, or permit any receiver, trustee or assignee for the benefit
of creditors to be appointed to take possession of the Facility, or any portion
thereof; provided, however, Borrower shall be permitted in good faith and at
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Borrower's expense to contest the existence, amount or validity of any Lien upon
the Facility by appropriate proceedings sufficient to prevent (i) the collection
or other realization of the Lien or claim so contested, (ii) the sale,
forfeiture or loss of the Facility or any portion thereof, any (iii) any
interference with the use or occupancy of the Facility, (iv) any interference
with the payment of any amounts due under the Loan Documents, and (v) the
cancellation of any fire or other insurance policy or policies required under
any of the Loan Documents. Borrower shall provide Lender with security
satisfactory to Lender, in Lender's reasonable judgment, to assure the payment,
compliance, discharge, removal and/or other action in connection with such Lien,
including all costs, attorneys' fees, interest and penalties that may be or
become due in connection therewith. Borrower further agrees that each contest
permitted by this Section 7.1 shall be promptly and diligently prosecuted to a
-----------
final conclusion by Borrower. Borrower hereby agrees to indemnify, defend and
save Lender harmless against, any and all losses, judgments, decrees and costs
(including all reasonable attorneys' fees and expenses) in connection with any
such contest and shall, promptly after the final determination of such contest,
fully pay and discharge the amounts which shall be levied, assessed, charged or
imposed or be determined to be payable therein or in connection therewith,
together with all penalties, fines, interest, costs and expenses thereof or in
connection therewith, and perform all acts the performance of which shall be
ordered or decreed as a result thereof. In the event Borrower does not comply
with the provisions of this Section 7.1, Lender may, but shall not be required
-----------
to, procure the release of any such Lien and in furtherance thereof may, in its
sole discretion, effect any settlement or compromise with respect thereto. Any
amounts expended by Lender in settling, compromising or arranging for the
release of any Lien shall bear interest at the Agreed Rate from the date of
expenditure by Lender and shall be payable by Borrower upon demand by Lender.
Notwithstanding anything to the contrary contained herein, Borrower may grant
security interests encumbering specific items of Borrower's personal property
located on the Land or at the Facility (but not any fixtures attached to the
Facility) in favor of purchase-money lenders for such items of Borrower's
personal property, provided that (a) such personal property is permitted on the
Land or at the Facility in accordance with the Intended Use, (b) is not owned by
or subject to any claim or right of Lender, and (c) such liens secure
obligations of Borrower which do not require payments in excess, in the
aggregate, of One Thousand Five Hundred Dollars ($1,500) per month (unless
agreed in writing by Lender).
VII.2 Compliance with Legal Requirements. Borrower, at its expense,
shall promptly comply with all applicable Legal Requirements as well as the
certification requirements of Medicare and Medicaid, if and to the extent the
Facility is certified for participation therein, (or any successor programs)
with respect to the use, operation, maintenance, repair and restoration of the
Facility. Borrower covenants and agrees that Borrower's use of the Facility and
the maintenance, alteration, and operation of the same, and all parts thereof,
shall at all times conform to all Legal Requirements. Borrower shall promptly
give written notice to Lender of any violation of any Legal Requirement.
Borrower and Lender have expressly agreed that Borrower's obligation under this
Agreement to comply with Legal Requirements as to the Facility specifically
includes the
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requirement that Borrower comply with the Americans with Disabilities Act, 42
U.S.C. (S)(S) 1201 et seq, and all rules and regulations adopted thereunder.
VII.3 Use of the Facility. Borrower shall continuously use or cause
to be used the Facility only for the Intended Use. Except with the prior written
consent of Lender, Borrower shall not decrease, or permit a decrease in, the
number of units available for residential occupancy or licensed beds being used
for the Intended Use. No use shall be made or permitted to be made of the
Facility, and no acts shall be done to or upon the Facility, which will cause
the cancellation of, or make void or voidable, any insurance policy covering the
Facility or any part thereof, nor shall Borrower sell or otherwise provide to
any Person therein, or permit to be kept, used or sold in or about the Facility
any article which may be prohibited by law or by any insurance policies required
to be carried hereunder, or fire underwriter's regulations. Borrower shall not
use or occupy the Facility or permit the Facility to be used or occupied, in a
manner which (a) violates any certificate of occupancy, or any equivalent
thereof, affecting the Facility or any other Legal Requirement in any material
respect, (b) makes it substantially more difficult or impossible to obtain fire
or other insurance which Borrower is required to furnish hereunder at
commercially reasonable rates, (c) causes structural injury to any of the
Improvements, (d) constitutes waste, (e) gives rise to a claim or claims of
adverse usage or adverse possession or of implied dedication of the Facility or
any portion thereof. Borrower shall not use or allow the Facility to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Borrower
cause, maintain or permit any nuisance in, on or about the Facility. Borrower
shall comply with all Legal Requirements and/or Licensing Requirements in all
material respects.
VII.4 Payment of Impositions. Subject to the provisions of Section
-------
7.1 relating to permitted contests, Borrower will pay, or cause to be paid prior
- ---
to delinquency, directly to the applicable Governmental Authority or Person, all
Impositions before delinquency, and Borrower will promptly, upon request by
Lender, furnish to Lender copies of official receipts or other satisfactory
proof evidencing such payments. Without limiting the generality of the
foregoing, Borrower will pay or reimburse Lender for all Impositions which are
sales, use, single business, gross receipts, transaction privilege, rent or
other excise taxes which are levied or imposed upon or measured by any amount
payable under the Loan Documents.
VII.5 Intentionally Omitted.
VII.6 Hazardous Material Covenants. Borrower shall at its expense
comply, and cause its agents, employees, contractors, partners, directors,
officers and shareholders, to comply with all Hazardous Materials Laws,
including, without limitation, obtaining and filing all applicable notices,
permits, licenses and similar authorizations. Borrower shall not create or
permit to continue in existence any lien upon the Facility or any portion
thereof pursuant to Hazardous Materials Laws. Subject to the provisions of
Section 7.3, Borrower shall not change or alter any use of the Facility or any
- -----------
portion thereof unless Borrower shall have notified Lender thereof in writing
and Lender shall have determined, in its sole and absolute discretion, that such
change or modification will not result in the presence of Hazardous Materials on
the Facility in violation of Hazardous Materials Laws or any portion thereof in
such a level that would increase the potential liability for Hazardous Materials
Claims. If Borrower fails to comply with any provision of this Section 7.7,
-----------
Lender may, at its sole
19
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option, but without any obligation so to do, take any and all actions as Lender
shall deem necessary to cure such failure. Any amounts so paid by Lender,
together with interest thereon from the date of such expenditure at the Agreed
Rate, shall be payable by Borrower upon demand by Lender.
VII.7 Environmental Matters.
(a Without limiting the generality of Section 7.6, Borrower covenants
-----------
and agrees that it will not engage in nor will it permit the performance of
any Environmental Activities in connection with the Facility or any portion
thereof, to the extent any such Environmental Activities would violate any
Hazardous Materials Laws. In the event any Environmental Activities occur
in violation of any Hazardous Materials Laws, Borrower shall promptly and
at its sole cost and expense, (i) notify Lender of such occurrence in
writing, (ii) obtain all permits and approvals necessary to remedy any such
suspected problem through the removal of Hazardous Materials or otherwise;
and (iii) upon Lender's approval of the remediation plan, remedy any such
problem to the satisfaction of Lender, in accordance with all Hazardous
Materials Laws and good business practices.
(b Borrower shall immediately advise Lender in writing of (i) any and
all Hazardous Materials Claims against Borrower or the Facility or any
portion thereof, (ii) any remedial action taken by Borrower in response to
any (A) Hazardous Materials on, under or about the Facility or any portion
thereof in violation of any Hazardous Materials Laws or (B) Hazardous
Materials Claims, and (iii) Borrower's discovery of any occurrence or
condition on any of the Adjoining Property or in the vicinity of the
Facility that could, in Borrower's reasonable judgment, cause the Facility
or any part thereof to be classified as "border-zone property" under the
provisions of any applicable law of the State, or to be otherwise subject
to any restrictions on the ownership, occupancy, transferability or use of
the Facility or any portion thereof under any Hazardous Materials Laws. In
addition, Borrower shall provide Lender with copies of all communications
to or from Borrower, any Governmental Authority or any other Person
relating to Hazardous Materials Laws or Hazardous Materials Claims.
VII.8 Participation in Hazardous Materials Claims. Lender shall have
the right, at Borrower's sole cost and expense (including, without limitation,
Lender's reasonable attorneys' fees) and with counsel chosen by Lender in its
reasonable judgment, to join and participate in, as a party if it so elects, any
legal proceedings or actions initiated in connection with any Hazardous
Materials Claims.
VII.9 Environmental Inspections. Borrower hereby grants to Lender,
its agents, employees, consultants and contractors, the right to enter upon the
Facility upon reasonable advance notice, and to perform such tests on the
Facility as Lender reasonably deems necessary and to conduct such review and/or
investigation of the Facility as Lender deems necessary or desirable to confirm
Borrower's compliance with Section 7.6 and 7.7; provided, however, in the
------------------- -------- -------
exercise of such rights Lender shall take due care not to unreasonably interfere
with Borrower's operations at the Facility. Borrower shall pay for any such
tests performed by Lender, its agents, employees, consultants or contractors,
provided that Lender has reasonable grounds to believe that
20
<PAGE>
Environmental Activities in violation of the Hazardous Materials Laws have
occurred or may imminently occur. For the purposes of the preceding sentence,
Lender shall be deemed to have reasonable grounds to believe that Environmental
Activities in violation of the Hazardous Materials Laws have occurred or may
immediately occur if the tests performed by or on behalf of Lender indicate that
Environmental Activities in violation of the Hazardous Materials Laws actually
occurred. Borrower hereby acknowledges and agrees that Lender, its agents,
employees, consultants and contractors will be deemed to be the agents of
Borrower when entering on the Facility and performing tests pursuant to the
foregoing sentence. Notwithstanding Lender's review and/or approval of any
environment reports, assessments, or evaluations, either before or after the
execution of this Agreement, Borrower shall have the sole responsibility of
ensuring its compliance with the provisions of Sections 7.6 and 7.7 and nothing
--------------------
contained in this Agreement shall be deemed or construed as placing any
responsibility upon Lender for any of Borrower's Environmental Activities.
Borrower shall not be relieved of its responsibility as set forth in the
preceding sentence as a result of any mistake, error, act or omission by Lender
or its agents, employees, consultants or contractors in connection with the
review, approval or enforcement of any environmental reports, assessments or
evaluations, whenever made, or the monitoring by Lender of Borrower's
Environmental Activities. In addition to the foregoing, no mistake, error, act
or omission by Lender or its agents, employees, consultants or contractors shall
create any rights in favor of any Person other than Borrower, including, without
limitation, third party beneficiary rights.
VII.10 Environmental Indemnification. To the fullest extent permitted
by law, Borrower agrees to protect, indemnify, defend, save and hold harmless
Lender, its directors, officers, shareholders, agents and employees from and
against any and all foreseeable or unforeseeable claim, action, suit,
proceeding, loss, cost, damage (including, without limitation, any consequential
damage), liability, deficiency, fine, penalty, damage or expense (including,
without limitation, punitive or consequential damages) of any kind or nature,
including reasonable attorneys' fees, from any suits, claims or demands, on
account of any matter or thing, action or failure to act arising out of or
based upon (a) any Environmental Activities in connection with the Facility or
any residual contamination affecting any natural resource or the environment; or
(b) the violation, or alleged violation, of any Hazardous Materials Laws with
respect to the Facility, including, without limitation, any Hazardous Materials
Claims. This indemnity shall include, without limitation, any damage,
liability, fine, penalty, punitive damage, cost or expense arising from or out
of any claim, action, suit or proceeding for personal injury (including
sickness, disease or death), tangible or intangible property damage,
compensation for lost wages, business income, profits or other economic loss,
damage to the natural resources or the environment, nuisance, pollution,
contamination, leak, spill, release or other adverse affect upon the
environment. Upon receiving knowledge of any suit, claim or demand asserted by
a third party that Lender believes is covered by this indemnity, Lender shall
give Borrower notice of the matter and an opportunity to defend it, at
Borrower's sole cost and expense, with legal counsel satisfactory to Lender.
Lender may require Borrower to so defend the matter or Lender may elect to
defend the matter with its own counsel selected in Lender's reasonable
discretion at Borrower's expense (including, without limitation, Lender's
reasonable attorneys' fees and costs). The obligations on the part of Borrower
set forth in this Section 7.10 shall, with respect to acts or omissions
------------
occurring prior to foreclosure or deed-in-lieu of foreclosure, survive the
repayment of the Loan and the release and reconveyance of the lien of the
Mortgage.
21
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VII.11 Lender Inspections. During normal business hours and upon not
less than forty-eight (48) hours notice and, in the event of an emergency, at
any time, Borrower shall permit Lender and Lender's representatives, inspectors
and consultants to (a) enter upon the Facility, (b) inspect the Facility, and
(c) examine all contracts, books and records relating to Borrower's operations
at the Facility, and make copies of any such items at Lender's expense.
VII.12 Financial Statements.
(a Within forty-five (45) days of the end of each quarter of
Borrower's Fiscal Year, Borrower shall deliver to Lender a quarterly
unaudited Financial Statement for Borrower for such quarter, certified by
an officer of Borrower.
(b Within one hundred ten (110) days of the end of Borrower's Fiscal
Year, Borrower shall deliver to Lender an annual consolidated Financial
Statement for Borrower for such year, audited by a reputable certified
public accounting firm.
(c Promptly after the giving, sending or filing thereof, Borrower
shall transmit to Lender (i) copies of all reports, if any, which Borrower
or any of its subsidiaries or parent companies provide to the holders of
their respective capital stock or other securities, and (ii) all reports or
filings, if any, made by Borrower or any of its subsidiaries or parent
companies to or with the Securities Exchange Commission or any national
securities exchange.
VII.13 Statements for Facility. Within forty-five (45) days of the
end of each quarter of Borrower's Fiscal Year, Borrower shall deliver to Lender
an unaudited statement certified as true and correct without qualification by
Borrower setting forth the following as to the Facility with respect to each
month covered by such report: (a) gross revenues for the Facility; (b) gross
expenses for the Facility, including all cash expenses including management
fees; (c) net operating income for the Facility; (d) total patient days; (e)
occupancy percentage; and (f) payor mix.
VII.14 Regulatory Reports.
(a Borrower shall, within thirty (30) days of receipt thereof,
deliver to Lender all federal, state and local licensing and reimbursement
certification surveys, inspections and all other reports received by
Borrower as to the Facility from any Governmental Authority, including,
without limitation, the designated Medicare and Medicaid and other agencies
of the State or the United States governments with licensing or regulatory
oversight or other responsibility for the operation of the Facility for the
Intended Use. Within ninety (90) days of the end of each calendar year,
Borrower shall deliver to Lender an annual audited Medicaid cost report for
the Facility for such year certified by an independent auditor and in form
acceptable to Lender. Within fifteen (15) days of the end of each calendar
month, Borrower shall deliver to Lender a census report for the Facility in
form acceptable to Lender.
(b Within five (5) Business Days of receipt thereof, Borrower shall
give Lender written notice of any violation of any Licensing Requirement or
any suspension, termination, restriction, threatened suspension,
termination or restriction of any such licenses, permits,
22
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approvals or certifications or of any material litigation threatened or
filed against the Facility or Borrower.
VII.15 Expenses. Borrower shall pay all expenses, costs and
disbursements of every kind and nature incurred by or on behalf of Borrower
during the term of the Loan with respect to the operation, maintenance and
management of the Facility.
VII.16 Litigation. Borrower shall give Lender prompt written notice
of any action or proceeding commenced or threatened against Borrower or the
Facility with an amount in controversy equal to or greater than Fifty Thousand
Dollars ($50,000) and will deliver to Lender copies of all notices, and other
information regarding such proceeding or action promptly upon receipt or
transmittal thereof.
VII.17 Representations and Warranties. Until the repayment in full of
the Note and all other obligations secured by the Mortgage, the representations
and warranties of Article VI shall remain true and complete.
----------
VII.18 Further Assurances. Borrower shall execute and deliver from
time to time, promptly after any reasonable request therefor by Lender, any and
all instruments, agreements and documents and shall take such other action as
may be reasonably necessary in the opinion of Lender to maintain, perfect or
insure Lender's security provided for herein and in the other Loan Documents,
including, without limitation, the execution of UCC-1 renewal statements, the
execution of such amendments to the Mortgage and the other Loan Documents and
the delivery of such endorsements to the Title Policy, all as Lender shall
reasonably require, and shall pay all fees and expenses (including reasonable
attorneys' fees) related thereto. Promptly upon the request of Lender, Borrower
shall execute and deliver a certification of non-foreign status consistent with
the requirements of Section 1445 of the Code.
VII.19 Operating Leases. Other than leases entered into by Borrower
in the ordinary course of business to occupants of the Facility, Borrower shall
not enter into any lease of any portion of the Facility without Lender's prior
written approval, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, Borrower may without Lender's consent lease up to
the greater of 2,000 square feet or ten percent (10%) of the total square
footage of the Facility to any person or entity providing any services related
or ancillary to the Intended Use or in connection with the provision of home
health services both within and outside the Facility. Any of the foregoing acts
without such approval shall be void, but shall, at the option of Lender in its
sole discretion, be an Event of Default hereunder.
VII.20 ERISA Events.
(a Promptly upon becoming aware of the occurrence of or forthcoming
occurrence of any ERISA Event, Borrower will deliver to Lender a written
notice specifying the nature thereof, what action Borrower or any of the
ERISA Affiliates has taken, is taking or proposes to take with respect
thereto and, when known, any action taken or threatened by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto.
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(b With reasonable promptness, Borrower shall deliver to Lender
copies of (i) each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) filed by Borrower or any of its ERISA Affiliates with
the Internal Revenue Service with respect to each Pension Plan; (ii) all
notices received by Borrower or any of its ERISA Affiliates from a
Multiemployer Plan sponsor concerning an ERISA Event; and (iii) such other
documents or governmental reports or filings relating to any Employee
Benefit Plan as Lender shall reasonably request.
VII.21 Maintenance Obligations. Borrower shall keep and maintain the
Facility in good appearance, repair and condition and maintain proper
housekeeping. Borrower shall promptly make or cause to be made all repairs,
interior and exterior, structural and nonstructural, ordinary and extraordinary,
foreseen and unforeseen, necessary to keep the Facility in good and lawful order
and condition and in substantial compliance with all requirements for the
licensing of assisted living facilities in the State of South Carolina or as
otherwise required under all applicable local, state and federal laws and to the
extent applicable, certification for participation in Medicare and Medicaid (or
any successor programs). As part of Borrower's obligations under this Section
-------
7.21, Borrower shall be responsible to maintain, repair and replace all Personal
- ----
Property in good condition, ordinary wear and tear excepted, consistent with
prudent industry practice.
VII.22 Upgrade Expenditures. Without limiting Borrower's obligations
to maintain the Facility under this Agreement, Borrower shall spend an annual
average of at least Two Hundred Dollars ($200) per living unit on Upgrade
Expenditures, and upon request of Lender, Borrower shall provide Lender with
evidence satisfactory to Lender in the reasonable exercise of Lender's
discretion that it has made the Upgrade Expenditures required under this Section
7.22.
VII.23 Debt Service Reserve. Concurrently with the making of the
Loan, Lender shall deposit into the Account the amount of the Debt Service
Reserve, which Debt Service Reserve shall be held by Lender as additional
security for Borrower's obligations under the Loan Documents. Lender shall not
be deemed a trustee as to the Debt Service Reserve. Lender shall be entitled to
draw on the Debt Service Reserve one or more times for the purpose of
compensating Lender for any amounts due to Lender under this Agreement or the
other Loan Documents by reason of an Event of Default occurring under any of the
Loan Documents. Any amount drawn by Lender shall not be deemed: (a) to fix or
determine the amounts to which Lender is entitled to recover under this
Agreement or otherwise; (b) to waive or cure any default under this Agreement or
the other Loan Documents; or (c) to limit or waive Lender's right to pursue any
remedies provided for hereunder or under the other Loan Documents. If all or any
portion of the Debt Service Reserve is drawn against by Lender pursuant to the
provisions of this Section 7.23, Borrower shall, within ten (10) business days
after written demand by Lender, deposit into the Account immediately available
funds equal to the amount so drawn by Lender, such that at all times during the
term of this Agreement Lender shall have the ability to draw upon the entire
amount of the Debt Service Reserve. Borrower shall have the right to substitute
a Letter of Credit for the Debt Service Reserve issued by a financial
institution mutually acceptable to Lender and Borrower. In the event that
Borrower substitutes a Letter of Credit, Borrower and Lender shall execute a
Letter of Credit Agreement. Upon the
24
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satisfaction in full of all of Borrower's obligations under the Loan Documents,
Lender shall return the Debt Service Reserve to Borrower, together with any
interest earned thereon.
ARTICLE VII
INSURANCE REQUIREMENTS
VIII.1 Insurance Types.
(a Borrower shall maintain at its sole cost and expense, the
following insurance on or in connection with the Facility:
(i) Insurance against loss or damage to the Insured Property by
fire and other risks from time to time included under standard
extended and additional extended coverage policies, including
vandalism and malicious mischief, sprinkler, flood insurance (if the
Facility is located in a flood zone) and earthquake insurance (if the
Facility is located in an earthquake zone), in amounts not less than
the actual replacement value of the Facility, excluding footings and
foundations and other parts of the Improvements which are not
insurable (or, in the case of plate glass insurance, the replacement
cost of all plate glass in the Facility). Such policies shall contain
replacement cost endorsements.
(ii) General public liability insurance against claims for bodily
injury, death or property damage occurring on, in or about the
Facility or the Adjoining Property, including, without limitation,
medical malpractice insurance and products liability insurance, in an
amount not less than Five Million Dollars ($5,000,000) for bodily
injury or death to any one person, not less than Five Million Dollars
($5,000,000) or any one accident, and not less than One Million
Dollars ($1,000,000) for property damage.
(iii) Insurance against liability imposed by law upon Borrower
and its Affiliates for damages on account of professional services
rendered or which should have been rendered by Borrower or any person
for which acts Borrower is legally liable on account of injury,
sickness or disease, including death at any time resulting therefrom,
and including damages allowed for loss of service, in a minimum amount
of Five Million Dollars ($5,000,000) for each claim and Five Million
Dollars ($5,000,000) in the aggregate.
(iv) Worker's compensation insurance covering all persons
employed by Borrower in connection with any work done on or about the
Facility for which claims for death or bodily injury could be asserted
against Lender, Borrower or the Facility.
(v) Boiler and pressure vessel insurance, including an
endorsement for boiler business interruption insurance, on any of the
Fixtures or any other equipment on or in the Facility which by reason
of its use or existence is capable of bursting,
25
<PAGE>
erupting, collapsing or exploding, in an amount not less than Five
Million Dollars ($5,000,000) for damage to property, bodily injury or
death resulting from such perils.
(vi) Business interruption insurance or rental loss insurance
insuring against loss of rental value for a period of not less than
one (1) year.
(vii) Such other insurance on or in connection with the Facility
and the Insured Property as Lender may reasonably require, which at
the time is commonly obtained in connection with properties similar to
the Facility.
(b All insurance required to be carried pursuant to this Article VIII
------------
will be maintained with insurance carriers licensed and approved to do
business in the State, having a general policyholders rating of not less
than an "A-" and financial rating of not less than "X" in the then most
current Best's Insurance Report. All such insurance shall be for such
terms as Lender may approve and shall be in amounts sufficient at all times
to satisfy any coinsurance requirements thereof. In no event will such
insurance be terminated or otherwise allowed to lapse during the term
hereof. In the event of Borrower's failure to comply with any of the
foregoing requirements, Lender may, but shall not be obligated to, procure
such insurance. Any sums expended by Lender in procuring such insurance
shall be repaid by Borrower, together with interest thereon at the Agreed
Rate from the date of such expenditure by Lender, upon written demand
therefor by Lender. Any and all policies of insurance required under this
Agreement shall name Lender as an additional insured and shall be on an
"occurrence" basis. In addition, Lender shall be shown as the loss payable
beneficiary under the property insurance policy maintained by Borrower
pursuant to Section 8.1(a)(i).
(c Notwithstanding the foregoing, Borrower may provide the insurance
described in this Article VIII in whole or in part through a "blanket" or
------------
"umbrella" policy or policies covering other liabilities and properties of
Borrower; provided, however, that any such policy or policies shall: (i)
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otherwise comply with this Article VIII, (ii) allocate to the Facility the
------------
full amount of insurance required hereunder, and (iii) contain, permit or
otherwise unconditionally authorize the waiver contained in Section 8.6.
-----------
The amount of insurance allocated to the Facility pursuant to any such
policy or policies shall either be set forth in such policy or policies or
a written statement from such insurer delivered to Lender.
VIII.2 Replacement Cost Determination. Borrower shall have the
replacement cost and insurable value of the Facility determined from time to
time as required by the replacement cost endorsements and shall deliver to
Lender the new replacement cost endorsements promptly upon Borrower's receipt
thereof. If, at any time, a replacement cost endorsement is not available,
Borrower shall have the replacement cost and insurable value of the Facility
determined at least once a year by the underwriter of fire insurance on the
Facility, or, if such underwriter will not determine the replacement costs, by a
qualified appraiser reasonably satisfactory to Lender. Borrower shall deliver
such determination to Lender promptly upon Borrower's receipt thereof.
26
<PAGE>
VIII.3 Deductible Amounts. The policies of insurance which Borrower
is required to provide under this Article VIII will not have deductibles or
------------
self-insured retentions in excess of One Hundred Thousand Dollars ($100,000);
provided, however, and solely with respect to earthquake insurance and flood
- -------- -------
insurance coverage for property located in Flood Zone A, the deductible amount
for such insurance may be increased to Two Hundred Fifty Thousand Dollars
($250,000).
VIII.4 Evidence of Insurance. As evidence of the insurance coverage
required to be carried by Borrower pursuant to this Article VIII, Borrower shall
------------
deliver to Lender original or certified policies of such insurance, but Lender
may, as Lender reasonably deems appropriate, accept certificates issued by the
insurance carrier (meeting the criteria set forth in Section 8.1) showing such
-----------
policies in force for the specified period as evidence of such coverage.
Evidence of such insurance coverage shall be delivered to Lender promptly upon
the Loan Closing Date. Each policy and certificate shall be subject to
reasonable approval by Lender and shall provide that such policy shall not be
subject to material alteration to the detriment of Borrower or Lender or to
cancellation without thirty (30) days prior written notice to Lender. Borrower
shall deliver replacement policies of insurance to Lender at least two (2)
Business Days prior to the expiration of any policy of insurance required to be
carried pursuant to this Article VIII. Should any policy expire or be cancelled
------------
and should Borrower fail to immediately procure other insurance as specified
herein, Lender reserves the right, but shall have no obligation, to procure such
insurance for the benefit of Lender and Borrower, at Borrower's sole cost and
expense.
VIII.5 Damages. Nothing contained in these insurance requirements is
to be construed as limiting the type, quality or quantity of insurance Borrower
should maintain or the extent of Borrower's responsibility for payment of
damages resulting from the breach of its obligations hereunder nor shall
anything contained herein be deemed to place any responsibility on Lender for
ensuring that the insurance required hereunder is sufficient for the conduct of
Borrower's business.
VIII.6 Waiver of Subrogation. Borrower hereby waives all rights of
subrogation, which any insurance carrier, or Borrower, may have as to Lender by
reason of any provision in any policy of insurance required to be carried by
Borrower pursuant to this Agreement, provided such waiver does not thereby
invalidate the policy of insurance.
VIII.7 Additional Insured. Lender shall be included as an additional
insured under the coverage specified in this Article VIII, with the following
------------
endorsement or provision included within each applicable policy: "It is
understood and agreed that coverage afforded by this Policy shall also apply to
MLD Delaware Trust, a Delaware business trust, and its officers, directors,
agents, servants, employees, divisions, subsidiaries, partners, shareholders and
affiliated companies as additional insureds. This insurance is primary and any
other insurance maintained by such additional insured is noncontributing with
this insurance as respects claims or liability arising out of or resulting from
the acts or omissions of the named insured, or of others performed on behalf of
the named insured." Each insurance policy required to be carried pursuant to
this Article VIII shall (a) contain standard non-contributory mortgagee clauses
------------
(438 BFU) in favor of and acceptable to Lender and Lender's lenders, if any, and
(b) name Lender as a loss payee under a standard loss payee clause.
27
<PAGE>
VIII.8 No Separate Insurance. Borrower shall not carry insurance
concurrent in form or contributing in the event of loss with the insurance
required by this Article VIII unless (a) Lender, and any lender of Lender, are
------------
named as additional insureds as provided in Section 8.7, (b) Lender approves
-----------
such separate insurance, and (c) such separate insurance shall otherwise comply
with this Article VIII. Upon obtaining any such separate insurance, Borrower
------------
shall immediately deliver original or certified policies of such insurance to
Lender.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
IX.1 Events of Default.
(a) Upon the expiration of any applicable cure period set forth in
Section 9.1(b) below, the occurrence of any one or more of the following
--------------
shall constitute an "Event of Default" under this Agreement:
(i) the failure to make payment of any amount due under the
Note or other Loan Documents when the same becomes due and payable;
(ii) the failure to make payment of any Impositions;
(iii) intentionally omitted;
(iv) intentionally omitted;
(v) any material misstatement or omission of fact in any
written report, notice or communication from Borrower to Lender with
respect to Borrower or the Facility;
(vi) the commencement of any action or proceeding which seeks as
one of its remedies the dissolution of Borrower;
(vii) any Governmental Authority, or any court at the instance
thereof, shall take possession of any substantial part of the property
of, or assume control over, the affairs or operations of, or a
receiver or trustee shall be appointed over all of or of any
substantial part of, or a writ or order of attachment or garnishment
(with respect to any claim in excess of One Hundred Thousand Dollars
($100,000)) shall be issued or made against any of, the property of
Borrower;
(viii) Borrower shall admit in writing its inability to pay its
debts when due, or shall make an assignment for the benefit of
creditors; or Borrower shall apply for or consent to the appointment
of any receiver, trustee or similar officer for Borrower for all or
any substantial part of the property of Borrower; or Borrower shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency,
28
<PAGE>
reorganization, arrangement, readjustment of debts, dissolution,
liquidation, or similar proceedings relating to Borrower under the
laws of any jurisdiction;
(ix) an involuntary bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution or liquidation case or
proceeding, or other similar proceedings, which shall not be dismissed
within ninety (90) days (whether or not consecutive) after the same
shall have been commenced, shall be commenced (by petition,
application or otherwise) seeking relief with respect to Borrower or
all or a substantial part of the property of Borrower;
(x) a court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Borrower a bankrupt or insolvent or
approving a petition filed against Borrower seeking any
reorganization, dissolution or similar relief under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such order,
judgment or decree shall not be discharged or dismissed within ninety
(90) days after the date of filing;
(xi) a writ of execution or attachment or any similar process
shall be issued or levied against all or any part or interest in the
Facility, or any judgment involving monetary damages in excess of One
Hundred Thousand Dollars ($100,000) in any such case shall be entered
against Borrower which shall become a lien on the Facility or any
portion thereof or Borrower's interest therein, and such writ of
execution, attachment, levy or judgment shall not be released or
discharged within ninety (90) days after the date of filing;
(xii) any representation or warranty of Borrower in (A) any of
the Loan Documents, or (B) any Financial Statement, certificate or
other financial information delivered to Lender, shall be materially
and adversely incorrect or misleading as of the date made;
(xiii) a final judgment or judgments for the payment of money in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate is
entered against Borrower and such judgment or judgments shall not be
discharged within a period of ninety (90) days;
(xiv) a material default by Borrower (or any Affiliate of
Borrower) under any other agreement entered into by Borrower (or any
Affiliate of Borrower) in connection with any other obligation owed by
Borrower (or any Affiliate of Borrower) to Lender or any Affiliate of
Lender (including, without limitation, the ALC Leases and the Other
ALC Loans), which default is not cured within any applicable cure
period;
(xv) intentionally omitted;
29
<PAGE>
(xvi) if, except as a result of damage or destruction or a
partial or complete Condemnation with respect to all or any portion of
the Facility, Borrower voluntarily or involuntarily ceases operations
on the Facility or any material portion of the Facility is vacated or
abandoned;
(xvii) failure to deliver replacement policies of insurance to
Lender as required by the provisions of Section 8.4;
-----------
(xviii) the institution of any proceedings, hearings, suits or
other actions which seek to suspend, revoke or otherwise adversely
impair (including, without limitation, the imposition of any
operational restrictions) any license, approval certificate or other
authorization used or held by Borrower in connection with the
operation of the Facility for the Intended Use;
(xix) the occurrence of a default and the failure to cure such
default within the applicable cure period, if any, under the Debt
Service Reserve Pledge Agreement or under any of the other Loan
Documents; or
(xx) failure to observe or perform, in any material respect,
any other term, covenant or condition of this Agreement or any of the
other Loan Documents, which cannot be cured by the payment of money;
(b) Cure Periods.
(i) Borrower shall not be entitled to a cure period with
respect to the Events of Default described in subsections 9.1(a)(v),
---------------------
(vii) through (xvi), inclusive, and (xix), above, except as may be
------------------- -----
specifically provided therein.
(ii) The default described in subsection 9.1(a)(i) above is
--------------------
curable and shall be deemed cured if Borrower makes such payment
within five (5) days after the date such payment is due; provided,
--------
however, with the exception of the imposition of the late charge and
-------
the commencement of the accrual of Basic Interest at the Agreed Rate
as provided in the Note, Holder shall not proceed with the enforcement
of any other remedies available under this Agreement or the Loan
Documents or at law until the fifth (5/th/) day after Lender gives
Borrower written notice of such Event of Default.
(iii) The default described in subsection 9.1(a)(ii), above, is
---------------------
curable and shall be deemed cured if Borrower makes such payment
within five (5) days of written demand by Lender, or within such other
grace period applicable to such payment as specified elsewhere in this
Agreement.
(iv) The default described in subsection 9.1(a)(xvii), above,
-----------------------
is curable and shall be deemed cured if Borrower delivers replacement
policies of insurance to Lender within five (5) days of written demand
by Lender.
30
<PAGE>
(v) The default described in subsections 9.1(a)(vi), (xviii) and
---------------------- -------
(xx), above, is curable and shall be deemed cured, if: (A) within
----
seven (7) days of Borrower's receipt of a notice of default from
Lender, Borrower gives Lender notice of its intent to cure such
default; and (B) Borrower cures such default within thirty (30) days,
or such other period as may be specified in this Agreement, after such
notice from Lender, unless such default cannot with due diligence be
cured within a period of thirty (30) days, or such other period as may
be specified in this Agreement, because of the nature of the default
or delays beyond the control of Borrower, and cure after such period
will not have a material and adverse effect upon the Facility, in
which case such default shall not be deemed to continue if cure of
such default is promptly commenced and diligently pursued to the
completion thereof, provided, however, no such default shall continue
-------- -------
for more than one hundred twenty (120) days in the aggregate.
(c) All notice and cure periods provided herein or in any other Loan
Document shall run concurrently with any notice or cure periods provided by
applicable law.
IX.2 Remedies.
(a) Notwithstanding any provision to the contrary herein or in any of
the other Loan Documents, upon the occurrence of any Event of Default under this
Agreement, or upon an Event of Default under any of the other Loan Documents:
(i) Lender's obligation to make further disbursements of the Loan, if any, shall
cease, (ii) Lender shall, at its option, have the rights and remedies provided
in the Loan Documents, including, without limitation, the option to declare all
outstanding indebtedness to be immediately due and payable without presentment,
demand, protest or further notice of any kind, to apply any of Borrower's funds
in its possession to the outstanding indebtedness under the Note whether or not
such indebtedness is then due, to draw on the Account (or a Letter of Credit if
the same replaced the Account) and apply such withdrawal to the outstanding
indebtedness under the Note whether or not such indebtedness is then due, to
obtain the appointment of a receiver and to, upon the occurrence of a monetary
Event of Default with respect to the Loan, file a confession of judgment, and
(iii) Lender may pursue any remedies available to it pursuant to law or in
equity. All sums expended by Lender for such purposes shall be deemed to have
been disbursed to and borrowed by Borrower and shall be secured by the Mortgage.
(b) All remedies of Lender provided for herein are cumulative and
shall be in addition to any and all other rights and remedies provided in the
Note, the Mortgage or any of the other Loan Documents or by law. The exercise
of any rights of Lender hereunder shall not in any way constitute a cure or
waiver of a default hereunder or elsewhere, or invalidate any act done pursuant
to any notice of default, or prejudice Lender in the exercise of any of its
other rights hereunder or elsewhere unless, in the exercise of said rights,
Lender realizes all amounts owed to it hereunder and under the Note, the
Mortgage and the other Loan Documents.
ARTICLE X
MISCELLANEOUS
31
<PAGE>
X.1 Assignment. Borrower shall not assign any of its rights under
this Agreement.
X.2 Notices. All notices, demands, certificates, requests, consents,
approvals and other similar instruments under this Agreement shall be made in
writing to the addresses set forth below and shall be given by any of the
following means: (a) personal service; (b) electronic communication, whether by
telex, telegram or telecopying; (c) certified or registered mail, postage
prepaid, return receipt requested; or (d) nationally recognized courier or
delivery service. Such addresses may be changed by notice to the other parties
given in the same manner as provided above. Any notice, demand or request sent
pursuant to either subsection (a), (b) or (d) hereof shall be deemed received
------------------- ---
upon the actual delivery thereof, and, if sent pursuant to subsection (c) shall
--------------
be deemed received five (5) days following deposit in the mail. Refusal to
accept delivery of any notice, request or demand shall be deemed to be delivery
thereof. If Borrower is not an individual, notice may be made on any officer,
general partner or principal thereof. In the event Lender notifies Borrower of
the name and address of Lender's lender, Borrower shall cause a copy of all
notices delivered to Lender by Borrower to be concurrently therewith delivered
to such lender.
<TABLE>
<CAPTION>
To Seller: To Buyer:
- ---------- ---------
<S> <C>
Assisted Living Concepts, Inc. MLD Delaware Trust
9955 SE Washington, Suite 303 c/o Nationwide Health Properties, Inc.
Portland, Oregon 97216 610 Newport Center Drive, Suite 1150
Attn: Chief Executive Officer and Newport Beach, California 92660
General Counsel Attn: President and General Counsel
Facsimile: (503) 255-0048 Facsimile: (949) 759-6887
<CAPTION>
With Copy To: With Copy To:
- ------------- -------------
<S> <C>
Rasmussen Coomber, LLP Sherry, Coleman & Holthouse LLP
660 South Figueroa Street, Suite 1450 610 Newport Center Drive, Suite 1200
Los Angeles, CA 90017-3452 Newport Beach, CA 92660
Attn: Richard G. Rasmussen, Esq. Attn: Kevin L. Sherry, Esq.
Facsimile: (213) 622-2829 Facsimile: (949) 719-1212
</TABLE>
X.3 Incorporation of Recitals and Exhibits. The recitals and exhibits
hereto are hereby incorporated into this Agreement and made a part hereof.
X.4 Titles and Headings. The titles and headings of sections of this
Agreement are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
X.5 Brokers. Lender and Borrower represent to each other that neither
of them knows of any brokerage commissions or finders' fee due or claimed with
respect to the transaction
32
<PAGE>
contemplated hereby. Lender and Borrower shall indemnify and hold harmless the
other party from and against any and all loss, damage, liability, or expense,
including costs and reasonable attorney fees, which such other party may incur
or sustain by reason of or in connection with any misrepresentation by the
indemnifying party with respect to the foregoing.
X.6 Changes, Waivers, Discharge and Modifications in Writing. No
provision of this Agreement may be changed, waived, discharged or terminated
except by an instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought.
X.7 Choice of Law. Lender and Borrower agree that the rights and
obligations under this Agreement and the other Loan Documents shall be governed
by and construed and interpreted in accordance with the internal law of the
State of South Carolina without giving effect to the conflicts-of-law rules and
principles of such state.
X.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.
X.9 Time is of the Essence. Time is of the essence in this Agreement.
X.10 Attorneys' Fees. Borrower agrees to pay Lender all costs and
expenses, including, without limitation, attorneys' fees and costs, incurred by
Lender in enforcing any of the terms, covenants or conditions of this Agreement.
The terms "attorneys' fees" or "attorneys' fees and costs" shall also include,
without limitation, all such fees and expenses incurred with respect to appeals,
arbitrations and bankruptcy proceedings, and whether or not any action or
proceeding is brought with respect to the matter for which said fees and
expenses were incurred.
X.11 Authority to File Notices. Borrower irrevocably appoints Lender as
its attorney-in-fact, with full power of substitution, to file for record, at
the Borrower's cost and expense and in Borrower's name, any notices that Lender
considers necessary or desirable to protect its security.
X.12 Disclaimer by Lender. Lender shall not be liable to any
contractor, subcontractor, supplier, laborer, architect, engineer or any other
party for services performed or materials supplied in connection with the
Facility. Lender shall not be liable for any debts or claims accruing in favor
of any such parties against Borrower or others or against the Facility.
Borrower is not and shall not be an agent of Lender for any purpose. Lender is
not a joint venture partner with Borrower in any manner whatsoever. Approvals
granted by Lender for any matters covered under this Agreement shall be narrowly
construed to cover only the parties and acts identified in any written approval
or, if not in writing, such approvals shall be solely for the benefit of
Borrower.
X.13 Indemnification. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless Lender, its directors,
officers, agents and employees from and against any and all liability, expense,
loss or damage of any kind or nature and from any suits, claims or demands,
including reasonable attorneys' fees and costs, on account of any matter or
thing or action or failure to act by Lender, whether in suit or not, arising out
of this Agreement or in
33
<PAGE>
connection herewith, unless such suit, claim or demand is caused solely by any
act, omission or willful malfeasance of Lender, its directors, officers, agents
and employees. Upon receiving knowledge of any suit, claim or demand asserted by
a third party that Lender believes is covered by this indemnity, Lender shall
give Borrower notice of the matter and an opportunity to defend it, at
Borrower's sole cost and expense, with legal counsel satisfactory to Lender.
Lender may also require Borrower to so defend the matter. This obligation on the
part of Borrower shall survive the closing of the Loan and the repayment
thereof.
X.14 Inconsistencies with Loan Documents. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the
Loan Documents, the terms of this Agreement shall govern and prevail.
X.15 Disbursements in Excess of Loan Amount. In the event the total
disbursements by Lender exceed the Loan Amount, to the extent permitted by the
laws of the State of South Carolina, the total of all disbursements shall be
secured by the Mortgage. All other sums expended by Lender pursuant to this
Agreement or any other Loan Document shall be deemed to have been paid to
Borrower and shall be secured by, among other things, the Mortgage.
X.16 Participations. Lender shall have the right at any time to sell,
assign or transfer the Loan or the Note or to sell or grant participations in
all or any part therein, all without notice to or the consent of Borrower.
Borrower hereby acknowledges and agrees that any such disposition will give rise
to a direct obligation of Borrower to each holder of the Note or the Loan or
each participant or assignee of all or any part of the Loan or Note. Lender may
disclose to third parties, including, without limitation, prospective purchasers
of the Loan or participation interests therein, financial or other information
in Lender's possession regarding Borrower or the Facility.
X.17 Entire Agreement. This Agreement and the Loan Documents constitute
the entire agreement and understanding of Lender and Borrower with respect to
the matters set forth herein and therein. No representation, warranty,
covenant, promise, understanding or condition shall be enforceable against any
party unless it is contained in this Agreement or the Loan Documents.
X.18 Severability. The invalidity or unenforceability of any one or
more provisions of this Agreement or any Loan Document shall not affect the
validity or enforceability of any other provision.
X.19 Consent to Jurisdiction and Service of Process. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF SOUTH CAROLINA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
34
<PAGE>
Borrower designates and appoints CSC The United States Corporation Company, and
such other Persons as may hereafter be selected by Borrower irrevocably agreeing
in writing to so serve, as its agent to receive on its behalf service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by Borrower to be effective and binding service in every respect. A
copy of any such process so served shall be mailed by registered mail to
Borrower as provided in this Agreement; provided that, unless otherwise provided
--------
by applicable law, any failure to mail such copy shall not affect the validity
of service of such process. If any agent appointed by Borrower refuses to accept
service, Borrower hereby agrees that service of process sufficient for personal
jurisdiction in any action against Borrower in the State of South Carolina may
be made by registered or certified mail, return receipt requested, to Borrower
as provided in this Agreement, and Borrower hereby acknowledges that such
service shall be effective and binding in every respect. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of Lender to bring proceedings against Borrower in the courts of
any other jurisdiction.
X.20 Waiver of Jury Trial. BORROWER AND LENDER HEREBY AGREE TO WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL IN ANY ACTION, PROCEEDINGS OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER IN CONNECTION
WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Borrower and Lender each acknowledge
that this waiver is a material inducement for Borrower and Lender to enter into
a business relationship, that Borrower and Lender have already relied on this
waiver in entering into this Agreement and the other Loan Documents and that
each will continue to rely on this waiver in their related future dealings.
Borrower and Lender further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
X.21 Terminology. Whenever the words "including", "include" or
"includes" are used in this Agreement, they should be interpreted in a non-
exclusive manner as though the words, "without limitation," immediately followed
the same. Except as otherwise indicated, all Section and Exhibit references in
this Agreement shall be deemed to refer to the Sections and Exhibits in or to
this Agreement.
X.22 Interpretation. Both Borrower and Lender have been represented by
counsel and this Agreement has been freely and fairly negotiated. Consequently,
all provisions of this Agreement shall be interpreted according to their fair
meaning and shall not be strictly construed against any party.
35
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to
be executed and delivered as of the date first above written.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By:
----------------------------------
Its:
-----------------------------
"LENDER"
MLD DELAWARE TRUST,
a Delaware business trust
By:
----------------------------------
Mark L. Desmond, not in his individual
capacity, but solely as Trustee
36
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE LAND
ALL that certain piece, parcel or tract of land, situate, lying and being in
Crowfield Plantation, Berkeley County, South Carolina, shown and designated as
Tract L, Parcel XI-C, 4.896 acres on the plat prepared by Westvaco Development
Corporation, dated July 30, 1997, entitled "PLAT SHOWING TRACT "L", 4.552 ACRES,
A PORTION OF PARCEL XI-C, PROPERTY OF WESTVACO DEVELOPMENT CORPORATION, LOCATED
ON CROWFIELD PLANATATION, IN THE CITY OF GOOSE CREEK, BERKELEY COUNTY, SOUTH
CAROLINA", recorded in the Office of the RMC for Berkeley County, SC in Plat
Cabinet M, at Page 354-A; reference is hereby craved to said plat and same is
made a part and parcel of this description.
Being the same property conveyed to Assisted Living Concepts, Inc. by Deed of
Westvaco Development Corporation, dated August 22, 1997, recorded in the Office
of the RMC for Berkeley County, South Carolina in Book 1173, Page 0095.
1
<PAGE>
EXHIBIT B
CLOSING CONDITIONS
Lender shall not be obligated to make any disbursements of the Loan or
perform any other obligation under the Loan Documents unless all of the
following conditions precedent are satisfied prior to the date set forth in
Section 3.1 of this Agreement:
1. There shall exist no Event of Default or Potential Default under
any of the Loan Documents.
2. All representations and warranties contained in this Agreement
and any other Loan Documents shall be true and correct in all material respects
as of the Loan Closing Date.
3. Lender shall have received each of the following items and
documents, all of which shall be in form and substance satisfactory to Lender:
(a) The Debt Service Reserve;
(b) A preliminary title report or reports with respect to the
Facility and evidence satisfactory to Lender that the Title Company is
prepared to issue the Title Policy;
(c) A search of the records of the Offices of the Secretary of the
States of South Carolina, and Nevada and the Official Records of the County
showing all Uniform Commercial Code financing statements and fixture
filings against Borrower and/or the Facility or any part thereof or
interest therein;
(d) The policies of insurance required under this Agreement;
(e) Certified copies of Borrower's articles of incorporation, bylaws
and other formation documents, together with a certificate of status from
the Secretary of the States of Nevada and South Carolina;
(f) Evidence satisfactory to Lender that Borrower has taken all
necessary action to authorize it to execute, deliver and be bound by the
Loan Documents, including, without limitation, corporate resolutions
together with incumbency certificates attached thereto;
(g) A search of the records of the Offices of the Secretary of State
of South Carolina and the Official Records of the County showing all
Uniform Commercial Code financing statements and fixture filings against
Borrower and/or the Facility or any part thereof or interest therein;
(h) an ALTA survey for the Facility;
1
<PAGE>
(i) Financial Statements of Borrower for Borrower's most recent fiscal
year, together with interim 1998 statements if available, certified by an
officer of Borrower;
(j) Satisfactory evidence that Borrower has complied with all
applicable Licensing Requirements;
(k) Satisfactory evidence that the Facility complies with all zoning
ordinances, including, without limitation, a statement from the appropriate
Governmental Authority setting forth the current zoning designation for the
Land;
(l) The Phase I Site Assessment Report for the Facility, prepared by a
consultant satisfactory to Lender; and
(m) Such other documents and instruments as may be reasonably required
by Lender.
2
<PAGE>
EXHIBIT C
FORM OF CLOSING PROCEDURE LETTER
September ___, 1998
First American Title Insurance Company
114 East Fifth Street
Santa Ana, California 92701
Attention: Mickey Elkinton
Re: $2,955,000 from MLD Delaware Trust, a Delaware business trust
("Lender") to Assisted Living Concepts, Inc., a Nevada
corporation ("Borrower"); Your Escrow No: N984114E
Ladies and Gentlemen:
Please refer to that certain Loan Agreement dated as of September 3,
1998 by and between Borrower and Lender, a copy of which is being delivered to
you with this letter. Except as otherwise defined herein, all initially-
capitalized terms used herein shall have the same meaning given such terms in
the Loan Agreement.
This letter shall constitute your instructions with respect to the
"Funds" and "Documents" described herein.
A. Delivery of Funds.
-----------------
On or before September ___, 1998, Lender shall wire-transfer to you
immediately available funds in the sum of (i) the Loan (less the amount of the
Debt Service Reserve) and (ii) such additional funds as may be due from Lender
pursuant to the Closing Statement described in Paragraph B(3) below (the
--------------
"Funds").
B. Delivery of Documents.
---------------------
1. Delivery of Recording Documents. Borrower or Lender shall deliver
to you one fully executed (and acknowledged where applicable) original of
each of the following documents (the "Recording Documents"):
(a) ___________________;
(b) ___________________; and
1
<PAGE>
(c) ____________________.
2. Borrower's Delivery of Non-Recordation Documents. Borrower shall
deliver to you one fully executed original of each of the following
documents (the "Non-Recordation Documents"):
(a) Pay-off letters or demands (the "Pay-Off Letters") from the
then record holders or claimants of any encumbrance or monetary lien
affecting the Facility, stating the cash amount required to be paid
and where and to whom such amount is to be paid in order to satisfy
and discharge of record such encumbrances.
3. Delivery and Approval of Closing Statement. You shall prepare,
and Lender and Borrower shall approve and execute, a closing statement
showing the source and application of funds received by you and the costs
and expenses incurred in connection herewith (the "Closing Statement").
4. Definition of Documents. As used herein, "Documents" shall mean,
collectively, the Recording Documents, the Non-Recordation Documents and
the Closing Statement.
C. Conditions to Closing.
---------------------
The Funds shall not be disbursed and the Documents shall not be recorded or
delivered to any person or entity until each of the following conditions are
satisfied:
1. You have received the Funds and are unconditionally and
irrevocably prepared to disburse the same in accordance with Paragraph D
-----------
hereof.
2. You have received the Documents and are unconditionally and
irrevocably prepared to record the Recording Documents in accordance with
Paragraph D hereof.
-----------
3. You are unconditionally and irrevocably committed to issue the
Title Policy, together with a [DESCRIPTION OF ENDORSEMENTS] subject only to
those exceptions (the "Permitted Exceptions") which appear on the pro forma
title policy attached hereto as Exhibit A.
---------
4. You have received the Written Authorization.
D. Closing. When the conditions specified in Paragraph C above are satisfied,
------- -----------
then you shall immediately deliver to Borrower and Lender a written confirmation
of such satisfaction in the form of Exhibit B hereto (which confirmation shall
---------
evidence your agreement to immediately take or cause to be taken the actions
hereinafter specified), and thereafter you shall immediately:
1. Record the Recording Documents in the order listed below in
Official Records of Berkeley County, South Carolina:
2
<PAGE>
(a) the ________________; and
(b) _______________________.
2. Disburse the respective amounts due to third parties (e.g., lien
holders) under the Closing Statement in accordance with the respective
instructions from such third parties.
3. Disburse any amounts due Lender under the Closing Statement in
accordance with the following wiring instructions:
Wells Fargo Bank
420 Montgomery Street
San Francisco, California
ABA No. 121000248
for the benefit of
Nationwide Health Properties, Inc.
Account No. 4692089329
Upon receipt, notify Mark Desmond by telephone at
(949) 718-4412
4. Disburse to Borrower the remainder of the Funds pursuant to the
instructions to be provided by Borrower.
5. Issue the Title Policy and deliver such Title Policy to Sherry,
Coleman & Holthouse LLP, at the address specified in Paragraph E hereof,
-----------
within 20 working days.
E. Delivery of Documents. As soon as they are available, please deliver the
---------------------
Documents as follows:
1. To Sherry, Coleman & Holthouse LLP, 610 Newport Center Drive,
Suite 1200, Newport Beach, California 92660, Attention: Kevin L. Sherry,
Esq., the following: (a) the recorded originals of each of the Recording
Documents, and (b) the originals of the Documents other than the Recording
Documents.
2. To Borrower, c/o Rasmussen Coomber, LLP, 660 Figueroa Street,
Suite 1450, Los Angeles, California 90017-3452, Attention: Richard G.
Rasmussen, Esq., a copy of each of the Documents.
F. Closing Costs. All closing costs incurred in carrying out your duties
-------------
under this letter are to be billed in accordance with Section 4.1 of the Loan
-----------
Agreement.
3
<PAGE>
G. Investment of Funds.
-------------------
1. Lender's Funds. As soon as you receive any portion of the Funds,
you shall notify Lender of such fact. If Lender gives you written
instructions to do so, you shall invest the Funds in treasury bills (or
such other short-term investment as may be authorized by Lender) for the
benefit of Lender. The interest accrued on the Funds shall be delivered to
Lender, in accordance with Lender's wiring instructions, upon the closing
(or, if sooner, from time to time upon the oral or written request of
Lender).
H. Cancellation of Instructions. Notwithstanding anything to the contrary
----------------------------
herein, if the conditions specified in Paragraph C hereof are not satisfied on
-----------
or before September ___, 1998, then, if you receive written instructions to
cancel this transaction from either of the undersigned, the instructions set
forth in Paragraphs A through E above shall be deemed cancelled, you shall
------------ -
immediately return the Funds (and any interest thereon) to Lender, in accordance
with Lender's wiring instructions and you shall destroy the Documents on the
next business day thereafter.
I. Limitation of Liability. You are acting solely as closing agent, and you
-----------------------
shall be liable solely for your failure to comply with the terms of this letter.
The foregoing will not limit your liability as title insurer under the terms of
the Title Policy (such liability being in accordance with the terms of such
policy).
J. Execution by Counterparts; Facsimile Signatures. This letter of
-----------------------------------------------
instructions may be executed in two or more counterparts, each of which shall be
an original, but all of which shall constitute one and the same letter of
instructions. You are hereby authorized to accept facsimile signatures on this
letter of instructions as original signatures, and such facsimile signatures are
hereby deemed originals.
4
<PAGE>
K. Interpleader. Borrower and Lender expressly agree that if they give you
------------
contradictory instructions, you shall have the right, at your election, to file
an action in interpleader requiring the Borrower and Lender to answer and
litigate their several claims and rights between themselves and you are
authorized to deposit with the clerk of the court all documents and funds held
by you. In the event such action is filed, Borrower and Lender agree to pay
your cancellation charges and costs, expenses and reasonable attorneys' fees
which you are required to expend or incur in the interpleader action, the amount
thereof to be fixed and judgment therefor to be rendered by the court. Upon the
filing of such an action, you shall be fully released and discharged from all
obligations to perform further any duties or obligations imposed hereunder.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By:
-----------------------------------
Its:
-----------------------------
"LENDER"
MLD DELAWARE TRUST,
a Delaware business trust
By:
-----------------------------------
Mark L. Desmond, not in his individual
capacity, but solely as Trustee
ACCEPTED AND AGREED TO
as of the date first above written:
FIRST AMERICAN TITLE INSURANCE COMPANY
By:
-------------------------------------
Its:
-------------------------------
5
<PAGE>
SCHEDULE 1 TO EXHIBIT C
EXHIBIT A
PRO FORMA TITLE POLICY
[See Attached]
6
<PAGE>
SCHEDULE 2 TO EXHIBIT C
EXHIBIT B
CONFIRMATION BY TITLE COMPANY
September ___, 1998
MLD Delaware Trust
c/o Sherry, Coleman & Holthouse LLP
610 Newport Center Drive, Suite 1200
Newport Beach, California 92660
Attention: Kevin L. Sherry, Esq.
Assisted Living Concepts, Inc.
c/o Rasmussen Coomber, LLP
660 Figueroa Street, Suite 1450
Los Angeles, California 90017-3452
Attention: Richard G. Rasmussen, Esq.
Re: $2,955,000 from MLD Delaware Trust, a Delaware business trust
("Lender") to Assisted Living Concepts, Inc., a Nevada
corporation ("Borrower"); Your Escrow No: N984114E
Ladies and Gentlemen:
Please refer to that certain letter (the "Letter of Instructions")
captioned "CLOSING PROCEDURE LETTER", dated as of September ___, 1998, from
Borrower and Lender to the undersigned.
Pursuant to Paragraph D of the Letter of Instructions, we hereby
-----------
confirm that each of the conditions to disbursement and recordation set forth in
Paragraph C of the Letter of Instructions has been satisfied.
- -----------
Very truly yours,
FIRST AMERICAN TITLE INSURANCE COMPANY
By:
----------------------------------
Its:
-----------------------------
7
<PAGE>
EXHIBIT D
FORM OF WRITTEN AUTHORIZATION TO CLOSE
September ___, 1998
First American Title Insurance Company
114 East Fifth Street
Santa Ana, California 92701
Attention: Mickey Elkinton
Re: $2,955,000 from MLD Delaware Trust, a Delaware business trust
("Lender") to Assisted Living Concepts, Inc., a Nevada corporation
("Borrower"); Your Escrow No: N984114E
Ladies and Gentlemen:
You are hereby authorized to comply with the instructions delivered to you
in our Closing Procedure Letter dated September ___, 1998.
Please confirm your receipt hereof and compliance with the aforementioned
instructions by contacting, via telephone, either Kevin L. Sherry, Esq., at
(949) 719-2190 or Andrew P. Hanson, Esq., at (949) 719-2199.
This Written Authorization to Close may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
Very truly yours,.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By:
-----------------------------------
Its:
------------------------------
1
<PAGE>
"LENDER"
MLD DELAWARE TRUST,
a Delaware business trust
By:
-----------------------------------
Mark L. Desmond, not in his individual
capacity, but solely as Trustee
2
<PAGE>
EXHIBIT 10.21
LOAN AGREEMENT
By and Between
MLD DELAWARE TRUST,
a Delaware business trust
as "Lender"
and
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
as "Borrower"
Dated as of September 3, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I DEFINITIONS.........................................................................................1
ARTICLE II THE LOAN...........................................................................................11
2.1 Agreement to Lend and Borrow........................................................................11
2.2 Evidence of Indebtedness and Maturity...............................................................11
2.3 Interest............................................................................................11
2.4 Security............................................................................................12
2.5 Environmental Indemnity.............................................................................12
2.6 Prepayment..........................................................................................12
ARTICLE III LOAN CLOSING CONDITIONS...........................................................................12
3.1 Conditions Precedent................................................................................12
ARTICLE IV CLOSING COSTS AND PRORATIONS.......................................................................13
4.1 Closing Costs.......................................................................................13
ARTICLE V DISBURSEMENTS OF THE LOAN...........................................................................14
5.1 Disbursements.......................................................................................14
5.2 Disbursement of the Loan............................................................................14
5.3 Liens...............................................................................................14
ARTICLE VI REPRESENTATIONS AND WARRANTIES.....................................................................14
6.1 Title...............................................................................................15
6.2 Utilities...........................................................................................15
6.3 Physical Condition; Completeness....................................................................15
6.4 Compliance..........................................................................................15
6.5 Zoning..............................................................................................16
6.6 No Notices of Non-Compliance........................................................................16
6.7 Due Authorization, Execution, Organization, etc.....................................................16
6.8 True, Correct and Complete Information..............................................................16
6.9 Existing Agreements.................................................................................17
6.10 Default.............................................................................................17
6.11 Litigation; Condemnation............................................................................17
6.12 No Taxes or Utilities Due...........................................................................17
6.13 Employee Benefit Plans..............................................................................17
6.14 Union Agreements....................................................................................18
6.15 Hazardous Materials Representations.................................................................18
ARTICLE VII COVENANTS OF BORROWER.............................................................................18
7.1 No Liens............................................................................................18
7.2 Compliance with Legal Requirements..................................................................19
7.3 Use of the Facility.................................................................................19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
7.4 Payment of Impositions..............................................................................20
7.5 Other Facilities....................................................................................20
7.6 Hazardous Material Covenants........................................................................20
7.7 Environmental Matters...............................................................................21
7.8 Participation in Hazardous Materials Claims.........................................................21
7.9 Environmental Inspections...........................................................................22
7.10 Environmental Indemnification.......................................................................22
7.11 Lender Inspections..................................................................................23
7.12 Financial Statements................................................................................23
7.13 Statements for Facility.............................................................................23
7.14 Regulatory Reports..................................................................................23
7.15 Expenses............................................................................................24
7.16 Litigation..........................................................................................24
7.17 Representations and Warranties......................................................................24
7.18 Further Assurances..................................................................................24
7.19 Operating Leases....................................................................................25
7.20 ERISA Events........................................................................................25
7.21 Maintenance Obligations.............................................................................25
7.22 Upgrade Expenditures................................................................................25
7.23 Debt Service Reserve................................................................................26
ARTICLE VIII INSURANCE REQUIREMENTS...........................................................................26
8.1 Insurance Types.....................................................................................26
8.2 Replacement Cost Determination......................................................................28
8.3 Deductible Amounts..................................................................................28
8.4 Evidence of Insurance...............................................................................29
8.5 Damages.............................................................................................29
8.6 Waiver of Subrogation...............................................................................29
8.7 Additional Insured..................................................................................29
8.8 No Separate Insurance...............................................................................29
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES.....................................................................30
9.1 Events of Default..................................................................................30
9.2 Remedies...........................................................................................33
ARTICLE X MISCELLANEOUS.......................................................................................34
10.1 Assignment.........................................................................................34
10.2 Notices............................................................................................34
10.3 Incorporation of Recitals and Exhibits.............................................................35
10.4 Titles and Headings................................................................................35
10.5 Brokers............................................................................................35
10.6 Changes, Waivers, Discharge and Modifications in Writing...........................................35
10.7 Choice of Law......................................................................................35
10.8 Counterparts.......................................................................................35
10.9 Time is of the Essence.............................................................................35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
10.10 Attorneys' Fees.....................................................................................35
10.11 Authority to File Notices...........................................................................36
10.12 Disclaimer by Lender................................................................................36
10.13 Indemnification.....................................................................................36
10.14 Inconsistencies with Loan Documents.................................................................36
10.15 Disbursements in Excess of Loan Amount..............................................................36
10.16 Participations......................................................................................36
10.17 Entire Agreement....................................................................................37
10.18 Severability........................................................................................37
10.19 Consent to Jurisdiction and Service of Process......................................................37
10.20 Waiver of Jury Trial................................................................................37
10.21 Terminology.........................................................................................38
10.22 Interpretation......................................................................................38
</TABLE>
iii
<PAGE>
EXHIBIT A LEGAL DESCRIPTION OF THE LAND
EXHIBIT B CLOSING CONDITIONS
EXHIBIT C FORM OF CLOSING PROCEDURE LETTER
EXHIBIT D FORM OF WRITTEN AUTHORIZATION TO CLOSE
iv
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of the 3rd day of
September, 1998 by and between ASSISTED LIVING CONCEPTS, INC., a Nevada
corporation ("Borrower"), and MLD DELAWARE TRUST, a Delaware business trust
("Lender"), with respect to the following:
R E C I T A L S:
---------------
A. Borrower owns fee simple title to that certain real property
located in the County of Indiana, State of Pennsylvania and more particularly
described in Exhibit A attached hereto and by this reference incorporated herein
---------
(the "Land").
B. The Land is improved with certain buildings and other
Improvements (as hereinafter defined) and is presently operated as a 39-unit
assisted living facility (the "Facility").
C. Borrower desires to borrow from Lender, and Lender desires to
lend to Borrower, an amount up to Two Million Nine Hundred Thousand Dollars
($2,900,000) upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions
herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used herein (including any Exhibits attached hereto), the following
terms shall have the meanings set forth below (unless expressly stated to the
contrary):
"Account" shall have the meaning ascribed such term in the Debt
Service Reserve Pledge Agreement.
"Adjoining Property" shall mean all roadways, sidewalks and curbs
appurtenant to the Facility and all utility vaults which are under Borrower's
control or which are required to be maintained by Borrower.
"Affiliate" shall mean, with respect to any Person, any other Person
which Controls, is controlled by or is under common Control with the first
person. Without limiting the generality of the foregoing, all of the following
shall be deemed to be Affiliates of Borrower: (i) any and all of the officers,
directors and shareholders in Borrower, and (ii) any and all of the partners and
shareholders of any and all of the officers, directors and shareholders in
Borrower.
1
<PAGE>
"Agreed Rate" shall mean the lesser of (a) the maximum rate permitted
under the laws of the State of Pennsylvania or (b) the Basic Interest (as
defined in the Note) plus four percent (4%).
"ALC Leases" shall mean any and all leases and the ancillary documents
executed in connection therewith between Borrower or any Affiliate of Borrower,
as tenant, and Lender or any Affiliate of Lender, as landlord.
"Alterations" shall mean all changes, additions, improvements or
repairs to, all alterations, reconstructions, renewals or removals of, and all
substitutions or replacements for, any of the Fixtures or Improvements, whether
interior or exterior, structural or non-structural, ordinary or extraordinary.
As used in this Agreement, "Alteration" shall not include any maintenance,
repair, replacement or restoration work the cost of which is included in the
Upgrade Expenditures.
"Basic Interest" shall have the meaning ascribed such term in the
Note.
"Borrower's Fiscal Year" shall mean the twelve (12) month period
beginning January 1 and ending December 31.
"Business Agreements" shall mean any and all leases, rental
agreements, management agreements, loan agreements, mortgages, deeds of trust,
easements, covenants, restrictions or other agreements or instruments affecting
all or a portion of the Facility and which is binding upon Borrower or all or
any portion of the Facility.
"Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which national banks in the City of New York,
State of New York are authorized, or obligated, by law or executive order, to
close.
"Closing" shall mean the consummation of the loan transaction provided
for herein.
"Closing Procedure Letter" shall mean a letter to the Title Company
executed by Lender and Borrower setting forth directions for the Title Company
in connection with the Closing and in the form of Exhibit E attached hereto.
---------
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean all of Borrower's interest in all Fixtures,
Personal Property and Intangible Property.
"Condemnation" shall mean either (a) the taking by a Condemnor of the
Facility or any part thereof or interest therein, for public or quasi-public use
under the power of eminent domain, condemnation or otherwise, (b) a voluntary
sale or transfer of the Facility or any part thereof or interest therein by
Borrower to any Condemnor or to any other Person either under threat of
2
<PAGE>
condemnation or while legal proceedings for condemnation are pending, (c) a de
facto condemnation by a Condemnor.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights of action and proceeds payable to Borrower or Lender by reason of any
Condemnation of all or any portion of the Facility or the Collateral or any part
of either.
"Condemnor" shall mean any Governmental Authority or Person having the
power of condemnation.
"Control" and "control" with correlative meanings for the terms
"controlling", "controlled by" and "under common control with" shall mean, as
applied to any Person, the possession, directly or indirectly, of the power to
direct the management and policies of that Person, whether through ownership,
voting control, by contract or otherwise.
"Cost of Living Index" shall mean the United States Department of
Labor, Bureau of Labor Statistics Consumer Price Index for all Urban Consumers,
United States Average, Subgroup "All Items" (1982 - 1984 = 100).
"County" shall mean the County in which the Facility is located.
"Debt Service Reserve" shall mean an amount equal to Eighty-Four
Thousand Nine Hundred Seventy Dollars ($84,970), given by Borrower to Lender as
additional security for Borrower's obligations under this Agreement and the
other Loan Documents, which amount shall be withheld by Lender from the
disbursement of the Loan pursuant to the provisions of Sections 5.2 and 7.23
-------- --- ----
below.
"Debt Service Reserve Pledge Agreement" shall mean a pledge agreement,
between Borrower and Lender, in form and substance satisfactory to Lender,
pursuant to which Borrower shall pledge the amounts deposited therein to Lender
as security for the Loan.
"Employee Benefit Plan" shall mean any "employee benefit plan" as
defined in Section 3(3) of ERISA which is, or was at any time, maintained or
contributed to by Borrower or any of its ERISA Affiliates.
"Environmental Activities" shall mean the use, generation,
transportation, handling, discharge, production, treatment, storage, release or
disposal of any Hazardous Materials at any time to or from the Facility or
located on or present on or under the Facility.
"Environmental Indemnity" shall mean an indemnity relating to
Environmental Activities and other environmental matters concerning the
Facility, of even date herewith, executed by Borrower, in favor of Lender, in
form and substance acceptable to Lender.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
3
<PAGE>
"ERISA Affiliate", as applied to any Person, shall mean (a) any
corporation which is, or was at any time, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code of which that
Person is, or was at any time, a member; (b) any trade or business (whether or
not incorporated) which is, or was at any time, a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the Code
of which that Person is, or was at any time, a member; and (c) any member of an
affiliated service group within the meaning of Section 414(m) or (o) of the Code
of which that Person, any corporation described in clause (a) above or any trade
or business described in clause (b) above is, or was at any time, a member.
"ERISA Event" shall mean (a) a "reportable event" within the meaning
of Section 4043 of ERISA and the regulations issued thereunder with respect to
any Pension Plan (excluding those for which the provision for 30-day notice to
the PBGC has been waived by regulation); (b) the failure to meet the minimum
funding standard of Section 412 of the Code with respect to any Pension Plan
(whether or not waived in accordance with Section 412(d) of the Code) or the
failure to make by its due date a required installment under Section 412(m) of
the Code with respect to any Pension Plan or the failure to make any required
contribution to a Multiemployer Plan; (c) the provision by the administrator of
any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent
to terminate such plan in a distress termination described in Section 4041(c) of
ERISA; (d) the withdrawal by Borrower or any of its ERISA Affiliates from any
Pension Plan with two or more contributing sponsors or the termination of any
such Pension Plan resulting in liability pursuant to Sections 4063 or 4064 of
ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension
Plan, or the occurrence of any event or condition which might constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (f) the imposition of liability on Borrower or any
of its ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by
reason of the application of Section 4212(c) of ERISA; (g) the withdrawal by
Borrower or any of its ERISA Affiliates in a complete or partial withdrawal
(within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer
Plan if there is any potential liability therefor, or the receipt by Borrower or
any of its ERISA Affiliates of notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that
it intends to terminate or has terminated under Section 4041A or 4042 of ERISA;
(h) the occurrence of an act or omission which could give rise to the imposition
on Borrower or any of its ERISA Affiliates of fines, penalties, taxes or related
charges under Chapter 43 of the Code or under Section 409 or 502(c), (i) or (l)
or 4071 of ERISA in respect of any Employee Benefit Plan; (i) the assertion of a
material claim (other than routine claims for benefits) against any Employee
Benefit Plan other than a Multiemployer Plan or the assets thereof, or against
Borrower or any of its ERISA Affiliates in connection with any such Employee
Benefit Plan; (j) receipt from the Internal Revenue Service of notice of the
failure of any Pension Plan (or any other Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code) to qualify under Section 401(a) of
the Code, or the failure of any trust forming part of any Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Code; or (k) the
imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Code or
pursuant to ERISA with respect to any Pension Plan.
4
<PAGE>
"Event of Default" shall mean the occurrence of any of the events
listed in Section 9.1(a) and the expiration of any applicable notice and cure
--------------
period provided in Section 9.1(b).
--------------
"Existing Encumbrances" shall have the meaning given such term in
Section 4.1(c).
- --------------
"Facility" shall have the meaning ascribed to such term in Recital B.
"Financial Statement" shall mean a financial statement of the party
delivering such statement including a balance sheet and income statement, all
prepared in accordance with GAAP and certified as true and complete without
qualification by a general partner or officer, as applicable, of the party
delivering such statement.
"Financing Statement" shall mean a UCC-1 financing statement executed
by Borrower as debtor, in favor of Lender as secured party, and perfecting
Lender's security interest in the Collateral, in form and substance satisfactory
to Lender, to be filed in the Offices of the Secretary of State of Pennsylvania
and Nevada.
"Fixture Filing" shall mean a fixture filing (which may be a part of
the Mortgage if Lender so elects) executed by Borrower as debtor, in favor of
Lender as secured party, in form and substance satisfactory to Lender, to be
recorded in the Official Records of the County.
"Fixtures" shall mean all permanently affixed equipment, machinery,
fixtures and other items of real and/or personal property, including all
components thereof, now and hereafter located in, or used in connection with, or
permanently affixed to or incorporated into any of the Improvements or the Land,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air-conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, together with all replacements, modifications, alterations
and additions thereto, all of which are hereby deemed to constitute real
property.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Governmental Authority" shall mean any governmental or quasi-
governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, court, administrative tribunal or public
utility.
"Hazardous Materials" shall mean (a) any petroleum products and/or by-
products (including any fraction thereof), flammable substances, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances, known carcinogens or any other materials, contaminants or pollutants
which (i) pose a hazard to the Facility or to persons on or about the Facility
or (ii) cause the Facility to be in violation of any Hazardous Materials Laws;
(b) asbestos in any form which is or could become friable; (c) urea formaldehyde
in foam insulation or any other form; (d) transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty (50) parts per million or any other more restrictive standard
then prevailing; (e) any chemical, material or substance defined as or included
in the
5
<PAGE>
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic substances"
or words of similar import under any applicable Hazardous Material Laws; (f)
medical wastes and biohazards; (g) radon gas above allowable levels; and (h) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any Governmental Authority or may or could pose a hazard to the
health and safety of the occupants of the Facility or the owners and/or
occupants of property adjacent to or surrounding the Facility.
"Hazardous Materials Claims" shall mean any and all enforcement,
clean-up, removal or other governmental or regulatory actions or orders
threatened, instituted or completed pursuant to any Hazardous Material Laws,
together with all claims made or threatened by any third party against the
Facility, Lender or Borrower relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials.
"Hazardous Materials Laws" shall mean any federal, state or local
laws, ordinances, regulations, rules, orders, guidelines or policies relating to
the environment, health and safety, Environmental Activities, Hazardous
Materials, air and water quality, waste disposal and other environmental
matters, including, but not limited to, the Clean Water Act, Clean Air Act,
Federal Water Pollution Control Act, Solid Waste Disposal Act, Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq.; the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Section 1801, et. seq.; the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. Section 6901, et. seq.; the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1251, et seq.; and the
rules, regulations and ordinances of the County and municipalities in which the
Facility is located, the State Department of Health Services, the Regional Water
Quality Control Board, the State Water Resources Control Board (or the
equivalent agencies or authorities) and the Environmental Protection Agency or
any other agency which regulates Hazardous Materials or Environmental
Activities.
"Impositions" shall mean, collectively, all utility charges incurred
by Borrower for the benefit of the Facility or which may become a lien against
the Facility and all assessments or charges of a similar nature, all taxes
(including, without limitation, all ad valorem, sales and use, single business,
gross receipts, transaction privilege, rent or similar taxes as the same relate
to or are imposed upon Borrower or its business conducted upon the Facility or
are levied or imposed upon Lender with respect to the Facility or measured by
any amount payable under the Loan Documents), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof), ground rents, water, sewer or
other rents and charges, excises, tax levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other levies or assessments by any Governmental Authority or private Persons
(including, without limitation, any and all mechanic's or materialmen's liens,
or similar liens or encumbrances), in each case whether general or special,
ordinary, or extraordinary, or foreseen or unforeseen, of every character in
respect of the Facility or the business conducted thereon (including all
interest and penalties thereon due to any failure in payment), which may be
assessed against or imposed upon (a) Borrower, (b) Lender's interest in the
Facility, (c) the Facility or any part thereof or any rent therefrom or any
estate, right, title or interest therein, (d) any
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occupancy, operation, use or possession of, or sales or other revenue from, or
activity conducted on, or in connection with the Facility or the leasing or use
of the Facility or any part thereof by Borrower or (e) Lender as a result of or
arising with respect to the Loan; (f) provided, however, "Impositions" shall not
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include any of the following, except to the extent that any Impositions in
effect which Borrower is obligated to pay are totally or partially repealed, and
any of the following taxes, assessments, tax levies or charges are levied,
assessed or imposed in lieu thereof: (i) any tax based on gross (except to the
extent that any franchise, business use or other similar tax is based on the
gross income related to the Loan imposed upon Lender) or net income related to
the Loan imposed upon Lender, (ii) any tax imposed with respect to the proceeds
of the Loan, or (iii) any estate, inheritance, gift or documentary transfer
taxes related to the Loan imposed upon Lender.
"Improvements" shall mean all buildings, improvements, structures and
Fixtures now or hereafter located on any of the Land, including, without
limitation, landscaped areas, parking lots and structures, roads, drainage and
other utility structures and other so-called "infrastructure" improvements.
"Insurance Proceeds" shall mean all proceeds of insurance payable as a
result of any fire, earthquake, act of God, or other casualty to or in
connection with the Facility or any part thereof.
"Insured Property" shall mean the Improvements, Fixtures and Personal
Property.
"Intangible Property" shall mean all of Borrower's right, title and
interest in and to (a) all rents, profits, income or revenue derived from the
use of rooms or other space within the Facility or the providing of services in
or from the Facility, documents, chattel paper, instruments, contract rights,
deposit accounts, general intangibles, chosen in action, now owned or hereafter
acquired by Borrower (including any right to any refund of any taxes or other
charges heretofore or hereafter paid to any Governmental Authority) arising from
or in connection with Borrower's operation or ownership of the Facility; (b) all
Permits; and (c) all other intangible property or any interest therein now or on
the Loan Closing Date owned or held by Borrower in connection with the Land, the
Improvements or the Fixtures, or any business or businesses now or hereafter
conducted by Borrower or any lessee thereon or with the use thereof, including
all rights of Borrower in and to all leases, contract rights, agreements, trade
names, water rights and reservations, zoning rights, business licenses and
warranties (including those relating to construction or fabrication) related to
the Land, the Improvements or the Fixtures, or any part thereof.
"Intended Use" shall mean the use of the Facility for operation of the
healthcare facility described in Recital B (or, with Lender's consent, which
shall not be unreasonably withheld, as a skilled nursing home, dedicated
Alzheimer's units, an independent nursing facility or other similar facility for
frail, elderly adults) and any other uses ancillary or reasonably related
thereto and for no other purpose.
"Land" shall have the meaning ascribed to such term in Recital A.
"Legal Requirements" shall mean all federal, State, county, municipal
and other governmental and quasi-governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees and injunctions affecting the
Facility or the construction, use or alteration thereof,
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whether now or hereafter enacted and in force including, without limitation, the
Americans With Disabilities Act, 42 U.S.C. (S)(S) 12101-12213 (1991) and
including any zoning or other land use entitlements and any requirements which
may require repairs, modifications or alterations in or to the Facility, and all
permits, licenses and authorizations and regulations relating thereto, and all
covenants, agreements, restrictions and encumbrances running in favor of any
Person, contained in any instruments, either of record or known to Borrower, at
any time in force affecting the Facility.
"Lender" shall mean MLD Delaware Trust, a Delaware business trust, its
successors and assigns and any party to which the Note is assigned or otherwise
transferred.
"Letter of Credit" shall mean an irrevocable letter of credit issued
pursuant to the Letter of Credit Agreement by a financial institution mutually
acceptable to Lender and Borrower in the initial face amount of the Debt Service
Reserve.
"Letter of Credit Agreement" shall mean a letter of credit agreement
on Lender's then standard form as of the applicable date of determination.
"Licensing Requirements" shall mean those Legal Requirements which
specifically relate to the use of the Facility for the Intended Use.
"Lien" shall mean any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest) and any option, trust
or other preferential arrangement having the practical effect of any of the
foregoing.
"Loan" shall mean the loan described in this Agreement in the
principal amount of the Loan Amount.
"Loan Amount" shall mean the original principal amount of Two Million
Nine Hundred Thousand Dollars ($2,900,000), or so much thereof as is advanced,
as such amount may be reduced through repayments by Borrower pursuant to the
Note.
"Loan Closing Date" shall mean the date on which the Loan is disbursed
to or for the benefit of Borrower.
"Loan Documents" shall mean the documents described in Section 3.1 of
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this Agreement.
"Loan Year" shall mean (a) the period beginning on the Loan Closing
Date and ending on the one (1) year anniversary of the last day of the calendar
month in which the Loan Closing Date falls, and (b) each subsequent and
consecutive twelve (12) month period.
"Maturity Date" shall mean the date set forth in the Note upon which
the entire principal amount of the Loan shall be due and payable.
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"Mortgage" shall mean a mortgage, assignment of rents, security
agreement, financing statement and fixture filing, in form and substance
satisfactory to Lender, executed by Borrower in favor of Lender, creating a lien
on the Land, the Facility, the Fixtures and the Improvements, and all rights and
easements appurtenant thereto.
"Multiemployer Plan" shall mean a "multiemployer plan", as defined in
Section 3(37) of ERISA, to which Borrower or any of its ERISA Affiliates is
contributing, or ever has contributed, or to which Borrower or any of its ERISA
Affiliates has, or ever has had, an obligation to contribute.
"Net Condemnation Proceeds" shall mean all Condemnation Proceeds
remaining after deduction of all expenses of collection and settlement thereof,
including, without limitation, attorneys' and adjustors' fees and expenses.
"Net Insurance Proceeds" shall mean all Insurance Proceeds remaining
after deduction of all expenses of collection and settlement thereof, including,
without limitation, attorneys' fees and expenses.
"Note" shall mean a secured promissory note, in the original principal
amount of Two Million Nine Hundred Thousand Dollars ($2,900,000), executed by
Borrower as maker, in favor of Lender as holder, in form and substance
satisfactory to Lender.
"Other ALC Loans" shall mean any and all loan agreements, other than
this Agreement and the ancillary documents executed in connection therewith
between Borrower or any Affiliate of Borrower and Lender or any Affiliate of
Lender.
"Pension Plan" shall mean any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Code or Section 302
of ERISA.
"Permits" shall mean all permits, licenses, approvals, entitlements
and other governmental and quasi-governmental authorizations now owned or
hereafter acquired by Borrower (including, without limitation, certificates of
need, health care provider licenses and certificates of occupancy) and necessary
or desirable in connection with the ownership, planning, development,
construction, use, operation or maintenance of the Facility for the Intended
Use. As used herein, "quasi-governmental" shall include the providers of all
utilities services to the Facility.
"Permitted Exceptions" shall mean those title exceptions or defects
which have been approved in writing by Lender and, with respect to the Land and
Improvements, those exceptions or defects which Lender has approved in writing
to appear as exceptions on the Title Policy.
"Person" shall mean any individual, partnership, association,
corporation, Governmental Authority or other entity.
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"Personal Property" shall mean all Intangible Property and all
machinery, equipment, furniture, tools, furnishings, movable walls or
partitions, computers or trade fixtures or other personal property (but
specifically excluding consumable inventory and supplies), acquired by or for
the account of Borrower and used or useful in the operation of Borrower's
business at the Facility whether now owned or hereafter acquired by Borrower,
together with all accessions, additions, parts, attachments, accessories or
appurtenances thereto.
"Phase 1 Site Assessment Report" shall mean that certain Phase 1
Environmental Site Assessment Report delivered to Lender in connection with the
Facility, dated December, 1997, prepared by C-K Associates, Inc.
"Potential Default" shall mean the existence of any event which, with
the giving of notice, the passage of time, or both, would constitute an Event of
Default under any of the Loan Documents.
"Proceeds" shall mean the Net Insurance Proceeds or Net Condemnation
Proceeds, as applicable.
"State" shall mean the State of Pennsylvania.
"Subdivision Map Act" shall mean the applicable statutes of the State
of Pennsylvania which govern the subdivision of real property for sale, lease or
finance.
"Title Company" shall mean the title insurance company selected by
Lender in its sole discretion to provide the Title Policy.
"Title Policy" shall mean a title insurance policy in the form of an
American Land Title Association Extended Coverage Loan Policy of Title Insurance
(1970 Form B, without modification, revision or amendment), insuring that on the
date of recordation of the Mortgage, Borrower owns fee simple title to the
Facility and that the Mortgage is a valid first priority lien on the Facility in
the amount of the Loan Amount. The Title Policy shall contain such endorsements
and reinsurance agreements as Lender reasonably requires and shall be subject
only to the Permitted Exceptions.
"Upgrade Expenditures" shall mean an annual sum of money to be
expended by Borrower for upgrades or improvements to the Facility which have the
effect of maintaining or improving the competitive position of the Facility in
its respective marketplace. Such expenditures shall include cash payments only
and shall not include any amount for depreciation, amortization, interest
payments or rent. Non-exclusive examples of Upgrade Expenditures are new or
replacement wallpaper, tiles, window coverings, lighting fixtures, painting,
upgraded landscaping, carpeting, architectural adornments, common area amenities
and the like. It is expressly understood that capital improvements or repairs
(such as but not limited to repairs or replacements to the structural elements
of the walls, parking area, or the roof or to the electrical, plumbing, HVAC or
other mechanical or structural systems in the Facility) shall not be considered
to be Upgrade Expenditures.
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"Written Authorization" shall mean a letter to the Title Company, in
the form of Exhibit F, executed by Borrower and Lender, directing the Title
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Company to comply with the instructions in the Closing Procedure Letter.
ARTICLE II
THE LOAN
II.1 Agreement to Lend and Borrow. Subject to the terms and
conditions of this Agreement, Lender will lend and Borrower will borrow up to
the Loan Amount. Lender shall disburse the proceeds of the Loan in accordance
with the provisions of Article V of this Agreement. Notwithstanding the parties'
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intention that the transaction contemplated by the Loan Documents is a loan to
Borrower, Lender shall be entitled to account for the Loan on Lender's books in
any manner that Lender elects in its sole discretion, and any such accounting by
Lender shall not be deemed or construed to affect in any manner the rights and
obligations of Borrower and Lender under the Loan Documents.
II.2 Evidence of Indebtedness and Maturity. The Loan shall be
evidenced by the Note in the principal amount of the Loan Amount. The
outstanding principal balance of the Loan, together with accrued and unpaid
Basic Interest thereon, and all other amounts payable by Borrower under the
terms of the Loan Documents, shall be due and payable on the Maturity Date.
II.3 Interest. The Loan Amount shall bear interest at the rate per
annum specified in the Note, which interest shall be due and payable as
specified therein.
II.4 Security. Payment of the Note and performance of all of
Borrower's other obligations under the Loan Documents shall be secured by the
following: (a) the Mortgage; (b) the Financing Statement; (c) the Fixture
Filing; (d) the Debt Service Reserve Pledge Agreement; and (e) such other
security interests in property of Borrower as Lender shall require in the Loan
Documents.
II.5 Environmental Indemnity. Lender shall be indemnified with
respect to environmental matters by the Environmental Indemnity.
II.6 Prepayment. Except as provided in the Note, Borrower shall have
no right to prepay the Loan Amount, in whole or in part, prior to the Maturity
Date.
ARTICLE III
LOAN CLOSING CONDITIONS
III.1 Conditions Precedent. Lender's obligation to make the Loan and
to perform the remainder of its obligations under this Agreement are expressly
conditioned upon the occurrence of all of the following on or before the Loan
Closing Date:
(a) Lender's receipt and approval of all of the items set forth in
Exhibit B; and
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(b) Borrower's delivery to Lender of the following items and
documents, in form and content satisfactory to Lender, duly executed (and
acknowledged where necessary) by the appropriate parties thereto:
(i) This Agreement;
(ii) The Note;
(iii) The Mortgage, which shall be duly recorded in the Official
Records of the County;
(iv) The Financing Statement, which shall be duly filed in the
Offices of the Secretary of State of Pennsylvania and Nevada;
(v) The Fixture Filing, which shall be duly recorded in the
Official Records of the County;
(vi) The Debt Service Reserve Pledge Agreement;
(vii) The Environmental Indemnity; and
(viii) Such other documents that Lender may reasonably require.
(c) Upon receipt of the items described in this Article III, and upon
compliance with the other terms and conditions of this Agreement, Borrower
and Lender shall execute and deliver to Title Company the Written
Authorization.
ARTICLE IV
CLOSING COSTS AND PRORATIONS
IV.1 Closing Costs.
(a) Borrower shall pay:
(i) any and all state, municipal or other documentary or
transfer taxes payable in connection with the delivery of any
instrument or document provided in or contemplated by this Agreement,
any agreement or commitment described or referred to herein or the
transactions contemplated herein;
(ii) one-half of all escrow fees and charges;
(iii) the charges for or in connection with the recording and/or
filing of any instrument or document provided herein or contemplated
by this Agreement or any agreement or document described or referred
to herein.
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(iv) any and all broker's fees or similar fees claimed by any
party employed by Borrower in connection with the transactions
contemplated herein, provided, however, Borrower shall not be deemed
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to have employed any party by merely receiving information concerning
Lender, the Facility or related to the transactions contemplated
hereunder or by executing any agreement to hold such information
confidential; and
(v) Borrower's legal, accounting and other professional fees
and expenses and the cost of all opinions, certificates, instruments,
documents and papers required to be delivered, or to cause to be
delivered, by Borrower hereunder, including, without limitation, the
cost of all performances by Borrower of its obligations hereunder;
(b) Lender shall pay:
(i) any and all broker's fees or similar fees claimed by any
party employed by Lender in connection with the transactions
hereunder, provided, however, Lender shall not be deemed to have
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employed any party by merely receiving information concerning
Borrower, the Facility or related to the transactions contemplated
hereunder or by executing any agreement to hold such information
confidential;
(ii) Lender's legal fees and expenses and the costs of any site
inspections, environmental audits and surveys performed by or on
behalf of Lender, including travel and out-of-pocket expenses for such
inspections, audits and surveys; and
(iii) one-half of all escrow fees and charges and all expenses
of or related to the issuance of the Title Policy.
(c) If the Facility is presently encumbered by certain mortgages and
certain other security instruments (individually and collectively, the
"Existing Encumbrances"), Borrower shall cause the Existing Encumbrances
and all indebtedness secured thereby to be fully satisfied, released and
discharged of record on or prior to the Loan Closing Date (recognizing that
Borrower may use the proceeds of the loan contemplated hereby to satisfy
the same). Borrower acknowledges that such satisfaction, release and
discharge may involve prepayment penalties or premiums and other costs or
expenses, all of which shall be paid by Borrower at its sole cost and
expense on or before the Loan Closing Date.
ARTICLE V
DISBURSEMENTS OF THE LOAN
V.1 Disbursements. Lender shall have no obligation to make
disbursements of the Loan except as provided in this Article V.
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V.2 Disbursement of the Loan. Lender shall disburse the Loan Amount
to Borrower (less the Debt Service Reserve) upon Borrower's delivery and
satisfaction of the conditions precedent set forth in Section 3.1 of this
-----------
Agreement. Borrower acknowledges and agrees that although Lender shall deposit
the Debt Service Reserve into the Account pursuant to the provisions of Section
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7.23 below, Borrower shall be deemed to have been advanced the full amount of
- ----
the Loan at such time as Lender has disbursed the Loan proceeds in accordance
with the immediately preceding sentence.
V.3 Liens. All construction shall be free and clear of defects and
liens or claims for liens for materials supplied or labor or services performed
in connection with the Facility, except for liens which are being duly contested
in accordance with the provisions of Section 7.1 of this Agreement.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES
As an inducement to Lender to execute this Agreement and to disburse
the proceeds of the Loan, Borrower represents and warrants to Lender the truth
and accuracy of the matters set forth in this Article VI.
VI.1 Title. Borrower has, or as of the Loan Closing Date will have,
good, marketable (and insurable with respect to the Land and Improvements) title
to, and the entire right, title, and interest in, the Facility, free and clear
of any and all leases, Liens, encumbrances or other liabilities, subject only to
the Permitted Exceptions.
VI.2 Utilities. To the best of Seller's knowledge, the Facility has
available to its boundary adequate utilities, including, without limitation,
adequate water supply, storm and sanitary sewage facilities, telephone, gas,
electricity and fire protection, as is required for the operation of the
Facility for the Intended Use.
V1.3 Physical Condition; Completeness.
(a) The Facility has been constructed in a good, workmanlike and
substantial manner, free from material defects and in accordance with all
Legal Requirements.
(b) Neither the zoning nor any other right to construct upon or to use
the Facility is to any extent dependent upon or related to any real estate
other than the Facility, the improvement of such other real estate or the
payment of any fees for the improvement of such other real estate.
(c) The Facility, and each portion thereof, is in good condition and
repair and is free from material defects. Borrower will use its best
efforts to maintain the Facility in good condition and repair.
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(d) There are no soil conditions adversely affecting the Facility in
any material respect.
(e) Other than as disclosed on the Phase I Site Assessment Report
there are and have been no Hazardous Materials installed or stored in or
otherwise existing at, on, in or under the Facility which are or have been
at any time in violation of any applicable Legal Requirements or which are
or have been at any time in amounts or concentrations sufficient to require
the reporting of such materials to any Governmental Authority, except in
the ordinary course of business in compliance with applicable laws.
VI.4 Compliance.
(a) Borrower has obtained and shall maintain all consents, approvals,
licenses, permits and other permissions related to the operation of the
Facility for the Intended Use as are required under Legal Requirements and
Licensing Requirements.
(b) Borrower has and shall maintain all Permits and all other
consents, approvals, licenses, permits and other permissions related to the
operation of the Facility for the Intended Use as are required under Legal
Requirements and Licensing Requirements.
(c) Notwithstanding the foregoing in (a) and (b) above, if any
additional consents, approvals, licenses, permits or other permissions are
required in connection with the operation of the Facility for the Intended
Use, Borrower hereby agrees that Borrower shall, as promptly as practical,
use its best efforts to obtain all such additional consents, approvals,
licenses, permits and other permissions related to such Intended Use and
required under any of the Legal Requirements or Licensing Requirements.
VI.5 Zoning. The Facility is properly and fully zoned for the
Intended Use and the Facility and the operation and use thereof, including,
without limitation, all boundary line adjustments to the Facility, complies, in
all material respects, with all applicable Legal Requirements (including,
without limitation, the Subdivision Map Act).
VI.6 No Notices of Non-Compliance. Borrower has not received any
notice that and Borrower has no knowledge that (a) any Government Authority or
any employee or official thereof considers that the operation or use of the
Facility for the Intended Use to have materially failed or will materially fail
to comply with any Legal Requirements, (b) any investigation has been commenced
or is contemplated respecting any such possible or actual failure of the
operation or use of the Facility for the Intended Use to comply with any of the
Legal Requirements, and (c) there are any unsatisfied requests for material
repairs, restorations or alterations with regard to the Facility from any
Person, including, but not limited to, any lender, insurance carrier or
Government Authority.
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VI.7 Due Authorization, Execution, Organization, etc.
(a) This Agreement and all of the Loan Documents are, and on the Loan
Closing Date will be, duly authorized, executed and delivered by and are
binding in accordance with their terms upon Borrower, subject to the effect
of bankruptcy, insolvency, reorganization, moratorium or other similar laws
of general application and of legal or equitable principles generally and
covenants of good faith and fair dealing.
(b) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada and duly qualified to
do business in the State of Pennsylvania.
(c) Borrower has the authority to enter into this Agreement, the Loan
Documents and all other agreements, instruments and documents herein
provided, and to consummate the transactions herein provided and nothing
prohibits or restricts the right or ability of Borrower to close the
transactions contemplated hereunder and carry out the terms hereof.
VI.8 True, Correct and Complete Information.
(a) To the best of Borrower's knowledge, all documents, plans, surveys
and other data or information prepared by parties other than Borrower or
Borrower's agents or employees and provided to Lender in connection
herewith, are true, correct and complete in all material respects and
disclose all material facts with no material omissions with respect
thereto.
(b) All documents and other data or information prepared by Borrower
or Borrower's employees or, to the best of Borrower's knowledge, agents are
true, correct and complete in all material respects with no material
omissions with respect thereto.
VI.9 Existing Agreements. To the best of Borrower's knowledge, there
are no material agreements or understandings (whether written or oral) to which
Borrower is a party or is bound, including, without limitation, any Business
Agreements, relating to the Facility or the operation or use thereof other than
the Permitted Exceptions and those documents and instruments which have been
delivered by Borrower to Lender prior to the Loan Closing Date.
VI.10 Default. Borrower is not in default with respect to any of its
material obligations or liabilities pertaining to the Facility.
VI.11 Litigation; Condemnation. There are no material actions, suits
or proceedings pending or, to the best of Seller's knowledge, threatened before
or by any judicial, administrative or union body, any arbiter or any
Governmental Authority, against or affecting Borrower or the Facility or any
portion thereof. To the best of Seller's knowledge, there are no existing,
proposed or threatened eminent domain or similar proceedings which would affect
the Land or Improvements in any manner whatsoever.
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<PAGE>
VI.12 No Taxes or Utilities Due. To the best of Seller's knowledge,
Borrower is not in default (beyond any applicable cure periods) in the payment
of any and all insurance premiums relating to the Facility, real and personal
property taxes and assessments on the Facility and the cost of all gas, water,
electricity, heat, fuel, sewer, telecommunications and other utilities relating
to the Facility.
VI.13 Employee Benefit Plans.
(a) Borrower and each of its ERISA Affiliates are in compliance with
all applicable provisions and requirements of ERISA and the regulations and
published interpretations thereunder with respect to each Employee Benefit
Plan, and have performed all their obligations under each Employee Benefit
Plan.
(b) No ERISA Event has occurred or is reasonably expected to occur.
(c) Except to the extent required under Section 4980B of the Code, no
Employee Benefit Plan provides health or welfare benefits (through the
purchase of insurance or otherwise) for any retired or former employees of
Borrower or any of its ERISA Affiliates.
(d) As of the most recent valuation date for any Pension Plan, the
amount of unfunded benefit liabilities (as defined in Section 4001(a)(18)
of ERISA), individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans with respect
to which assets exceed benefit liabilities), does not exceed $20,000.
VI.14 Union Agreements. Borrower has delivered to Lender true and
correct copies of all collective bargaining and other agreements, if any, with
labor unions or other employee groups or associations which include or will
include Borrower's operations at the Facility.
VI.15 Hazardous Materials Representations. The Facility and the
Intended Use do currently, and will at all times throughout the term hereof
continue to, comply, in all material respects, with all applicable laws and
governmental regulations including, without limitation, all Hazardous Materials
Laws.
ARTICLE VII
COVENANTS OF BORROWER
As an inducement to Lender to execute this Agreement and to make each
disbursement of the Loan, Borrower hereby covenants as follows:
VII.11 No Liens; Permitted Contests. Borrower shall not cause or
permit any Lien to be placed or assessed against the Land or the Facility or the
operation thereof, or permit any receiver, trustee or assignee for the benefit
of creditors to be appointed to take possession of the Facility, or any portion
thereof; provided, however, Borrower shall be permitted in good faith and at
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Borrower's expense to contest the existence, amount or validity of any Lien upon
the Facility by
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appropriate proceedings sufficient to prevent (i) the collection or other
realization of the Lien or claim so contested, (ii) the sale, forfeiture or loss
of the Facility or any portion thereof, any (iii) any interference with the use
or occupancy of the Facility, (iv) any interference with the payment of any
amounts due under the Loan Documents, and (v) the cancellation of any fire or
other insurance policy or policies required under any of the Loan Documents.
Borrower shall provide Lender with security satisfactory to Lender, in Lender's
reasonable judgment, to assure the payment, compliance, discharge, removal
and/or other action in connection with such Lien, including all costs,
attorneys' fees, interest and penalties that may be or become due in connection
therewith. Borrower further agrees that each contest permitted by this Section
-------
7.1 shall be promptly and diligently prosecuted to a final conclusion by
- ---
Borrower. Borrower hereby agrees to indemnify, defend and save Lender harmless
against, any and all losses, judgments, decrees and costs (including all
reasonable attorneys' fees and expenses) in connection with any such contest and
shall, promptly after the final determination of such contest, fully pay and
discharge the amounts which shall be levied, assessed, charged or imposed or be
determined to be payable therein or in connection therewith, together with all
penalties, fines, interest, costs and expenses thereof or in connection
therewith, and perform all acts the performance of which shall be ordered or
decreed as a result thereof. In the event Borrower does not comply with the
provisions of this Section 7.1, Lender may, but shall not be required to,
-----------
procure the release of any such Lien and in furtherance thereof may, in its sole
discretion, effect any settlement or compromise with respect thereto. Any
amounts expended by Lender in settling, compromising or arranging for the
release of any Lien shall bear interest at the Agreed Rate from the date of
expenditure by Lender and shall be payable by Borrower upon demand by Lender.
Notwithstanding anything to the contrary contained herein, Borrower may grant
security interests encumbering specific items of Borrower's personal property
located on the Land or at the Facility (but not any fixtures attached to the
Facility) in favor of purchase-money lenders for such items of Borrower's
personal property, provided that (a) such personal property is permitted on the
Land or at the Facility in accordance with the Intended Use, (b) is not owned by
or subject to any claim or right of Lender, and (c) such liens secure
obligations of Borrower which do not require payments in excess, in the
aggregate, of One Thousand Five Hundred Dollars ($1,500) per month (unless
agreed in writing by Lender).
VII.2 Compliance with Legal Requirements. Borrower, at its expense,
shall promptly comply with all applicable Legal Requirements as well as the
certification requirements of Medicare and Medicaid, if and to the extent the
Facility is certified for participation therein, (or any successor programs)
with respect to the use, operation, maintenance, repair and restoration of the
Facility. Borrower covenants and agrees that Borrower's use of the Facility and
the maintenance, alteration, and operation of the same, and all parts thereof,
shall at all times conform to all Legal Requirements. Borrower shall promptly
give written notice to Lender of any violation of any Legal Requirement.
Borrower and Lender have expressly agreed that Borrower's obligation under this
Agreement to comply with Legal Requirements as to the Facility specifically
includes the requirement that Borrower comply with the Americans with
Disabilities Act, 42 U.S.C. (S)(S) 1201 et seq, and all rules and regulations
adopted thereunder.
VII.3 Use of the Facility. Borrower shall continuously use or cause
to be used the Facility only for the Intended Use. Except with the prior written
consent of Lender, Borrower shall not decrease, or permit a decrease in, the
number of units available for residential occupancy or
18
<PAGE>
licensed beds being used for the Intended Use. No use shall be made or permitted
to be made of the Facility, and no acts shall be done to or upon the Facility,
which will cause the cancellation of, or make void or voidable, any insurance
policy covering the Facility or any part thereof, nor shall Borrower sell or
otherwise provide to any Person therein, or permit to be kept, used or sold in
or about the Facility any article which may be prohibited by law or by any
insurance policies required to be carried hereunder, or fire underwriter's
regulations. Borrower shall not use or occupy the Facility or permit the
Facility to be used or occupied, in a manner which (a) violates any certificate
of occupancy, or any equivalent thereof, affecting the Facility or any other
Legal Requirement in any material respect, (b) makes it substantially more
difficult or impossible to obtain fire or other insurance which Borrower is
required to furnish hereunder at commercially reasonable rates, (c) causes
structural injury to any of the Improvements, (d) constitutes waste, (e) gives
rise to a claim or claims of adverse usage or adverse possession or of implied
dedication of the Facility or any portion thereof. Borrower shall not use or
allow the Facility to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Borrower cause, maintain or permit any nuisance
in, on or about the Facility. Borrower shall comply with all Legal Requirements
and/or Licensing Requirements in all material respects.
VII.4 Payment of Impositions. Subject to the provisions of Section
-------
7.1 relating to permitted contests, Borrower will pay, or cause to be paid prior
- ---
to delinquency, directly to the applicable Governmental Authority or Person, all
Impositions before delinquency, and Borrower will promptly, upon request by
Lender, furnish to Lender copies of official receipts or other satisfactory
proof evidencing such payments. Without limiting the generality of the
foregoing, Borrower will pay or reimburse Lender for all Impositions which are
sales, use, single business, gross receipts, transaction privilege, rent or
other excise taxes which are levied or imposed upon or measured by any amount
payable under the Loan Documents.
VII.5 Intentionally Omitted.
VII.6 Hazardous Material Covenants. Borrower shall at its expense
comply, and cause its agents, employees, contractors, partners, directors,
officers and shareholders, to comply with all Hazardous Materials Laws,
including, without limitation, obtaining and filing all applicable notices,
permits, licenses and similar authorizations. Borrower shall not create or
permit to continue in existence any lien upon the Facility or any portion
thereof pursuant to Hazardous Materials Laws. Subject to the provisions of
Section 7.3, Borrower shall not change or alter any use of the Facility or any
- -----------
portion thereof unless Borrower shall have notified Lender thereof in writing
and Lender shall have determined, in its sole and absolute discretion, that such
change or modification will not result in the presence of Hazardous Materials on
the Facility in violation of Hazardous Materials Laws or any portion thereof in
such a level that would increase the potential liability for Hazardous Materials
Claims. If Borrower fails to comply with any provision of this Section 7.7,
-----------
Lender may, at its sole option, but without any obligation so to do, take any
and all actions as Lender shall deem necessary to cure such failure. Any
amounts so paid by Lender, together with interest thereon from the date of such
expenditure at the Agreed Rate, shall be payable by Borrower upon demand by
Lender.
19
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VII.7 Environmental Matters.
(a) Without limiting the generality of Section 7.6, Borrower covenants
-----------
and agrees that it will not engage in nor will it permit the performance of
any Environmental Activities in connection with the Facility or any portion
thereof, to the extent any such Environmental Activities would violate any
Hazardous Materials Laws. In the event any Environmental Activities occur
in violation of any Hazardous Materials Laws, Borrower shall promptly and
at its sole cost and expense, (i) notify Lender of such occurrence in
writing, (ii) obtain all permits and approvals necessary to remedy any such
suspected problem through the removal of Hazardous Materials or otherwise;
and (iii) upon Lender's approval of the remediation plan, remedy any such
problem to the satisfaction of Lender, in accordance with all Hazardous
Materials Laws and good business practices.
(b) Borrower shall immediately advise Lender in writing of (i) any and
all Hazardous Materials Claims against Borrower or the Facility or any
portion thereof, (ii) any remedial action taken by Borrower in response to
any (A) Hazardous Materials on, under or about the Facility or any portion
thereof in violation of any Hazardous Materials Laws or (B) Hazardous
Materials Claims, and (iii) Borrower's discovery of any occurrence or
condition on any of the Adjoining Property or in the vicinity of the
Facility that could, in Borrower's reasonable judgment, cause the Facility
or any part thereof to be classified as "border-zone property" under the
provisions of any applicable law of the State, or to be otherwise subject
to any restrictions on the ownership, occupancy, transferability or use of
the Facility or any portion thereof under any Hazardous Materials Laws. In
addition, Borrower shall provide Lender with copies of all communications
to or from Borrower, any Governmental Authority or any other Person
relating to Hazardous Materials Laws or Hazardous Materials Claims.
VII.8 Participation in Hazardous Materials Claims. Lender shall have
the right, at Borrower's sole cost and expense (including, without limitation,
Lender's reasonable attorneys' fees) and with counsel chosen by Lender in its
reasonable discretion, to join and participate in, as a party if it so elects,
any legal proceedings or actions initiated in connection with any Hazardous
Materials Claims.
7.9 Environmental Inspections. Borrower hereby grants to Lender, its
agents, employees, consultants and contractors, the right to enter upon the
Facility upon reasonable advance notice, and to perform such tests on the
Facility as Lender reasonably deems necessary and to conduct such review and/or
investigation of the Facility as Lender deems necessary or desirable to confirm
Borrower's compliance with Section 7.6 and 7.7; provided, however, in the
------------------- -------- -------
exercise of such rights Lender shall take due care not to unreasonably interfere
with Borrower's operations at the Facility. Borrower shall pay for any such
tests performed by Lender, its agents, employees, consultants or contractors,
provided that Lender has reasonable grounds to believe that Environmental
Activities in violation of the Hazardous Materials Laws have occurred or may
imminently occur. For the purposes of the preceding sentence, Lender shall be
deemed to have reasonable grounds to believe that Environmental Activities in
violation of the Hazardous Materials Laws have occurred or may immediately occur
if the tests performed by or on behalf of Lender
20
<PAGE>
indicate that Environmental Activities in violation of the Hazardous Materials
Laws actually occurred. Borrower hereby acknowledges and agrees that Lender, its
agents, employees, consultants and contractors will be deemed to be the agents
of Borrower when entering on the Facility and performing tests pursuant to the
foregoing sentence. Notwithstanding Lender's review and/or approval of any
environment reports, assessments, or evaluations, either before or after the
execution of this Agreement, Borrower shall have the sole responsibility of
ensuring its compliance with the provisions of Sections 7.6 and 7.7 and nothing
--------------------
contained in this Agreement shall be deemed or construed as placing any
responsibility upon Lender for any of Borrower's Environmental Activities.
Borrower shall not be relieved of its responsibility as set forth in the
preceding sentence as a result of any mistake, error, act or omission by Lender
or its agents, employees, consultants or contractors in connection with the
review, approval or enforcement of any environmental reports, assessments or
evaluations, whenever made, or the monitoring by Lender of Borrower's
Environmental Activities. In addition to the foregoing, no mistake, error, act
or omission by Lender or its agents, employees, consultants or contractors shall
create any rights in favor of any Person other than Borrower, including, without
limitation, third party beneficiary rights.
VII.10 Environmental Indemnification. To the fullest extent
permitted by law, Borrower agrees to protect, indemnify, defend, save and hold
harmless Lender, its directors, officers, shareholders, agents and employees
from and against any and all foreseeable or unforeseeable claim, action, suit,
proceeding, loss, cost, damage (including, without limitation, any consequential
damage), liability, deficiency, fine, penalty, damage or expense (including,
without limitation, punitive or consequential damages) of any kind or nature,
including reasonable attorneys' fees, from any suits, claims or demands, on
account of any matter or thing, action or failure to act arising out of or based
upon (a) any Environmental Activities in connection with the Facility or any
residual contamination affecting any natural resource or the environment; or (b)
the violation, or alleged violation, of any Hazardous Materials Laws with
respect to the Facility, including, without limitation, any Hazardous Materials
Claims. This indemnity shall include, without limitation, any damage, liability,
fine, penalty, punitive damage, cost or expense arising from or out of any
claim, action, suit or proceeding for personal injury (including sickness,
disease or death), tangible or intangible property damage, compensation for lost
wages, business income, profits or other economic loss, damage to the natural
resources or the environment, nuisance, pollution, contamination, leak, spill,
release or other adverse affect upon the environment. Upon receiving knowledge
of any suit, claim or demand asserted by a third party that Lender believes is
covered by this indemnity, Lender shall give Borrower notice of the matter and
an opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel satisfactory to Lender. Lender may require Borrower to so defend the
matter or Lender may elect to defend the matter with its own counsel selected in
Lender's reasonable discretion at Borrower's expense (including, without
limitation, Lender's reasonable attorneys' fees and costs). The obligations on
the part of Borrower set forth in this Section 7.10 shall, with respect to acts
------------
or omissions occurring prior to foreclosure or deed-in-lieu of foreclosure,
survive the repayment of the Loan and the release and reconveyance of the lien
of the Mortgage.
VII.11 Lender Inspections. During normal business hours and upon not
less than forty-eight (48) hours notice and, in the event of an emergency, at
any time, Borrower shall permit Lender and Lender's representatives, inspectors
and consultants to (a) enter upon the Facility, (b)
21
<PAGE>
inspect the Facility, and (c) examine all contracts, books and records relating
to Borrower's operations at the Facility, and make copies of any such items at
Lender's expense.
VII.12 Financial Statements.
(a) Within forty-five (45) days of the end of each quarter of
Borrower's Fiscal Year, Borrower shall deliver to Lender a quarterly
unaudited Financial Statement for Borrower for such quarter, certified by
an officer of Borrower.
(b) Within one hundred ten (110) days of the end of Borrower's Fiscal
Year, Borrower shall deliver to Lender an annual consolidated Financial
Statement for Borrower for such year, audited by a reputable certified
public accounting firm.
(c) Promptly after the giving, sending or filing thereof, Borrower
shall transmit to Lender (i) copies of all reports, if any, which Borrower
or any of its subsidiaries or parent companies provide to the holders of
their respective capital stock or other securities, and (ii) all reports or
filings, if any, made by Borrower or any of its subsidiaries or parent
companies to or with the Securities Exchange Commission or any national
securities exchange.
VII.13 Statements for Facility. Within forty-five (45) days of the
end of each quarter of Borrower's Fiscal Year, Borrower shall deliver to Lender
an unaudited statement certified as true and correct without qualification by
Borrower setting forth the following as to the Facility with respect to each
month covered by such report: (a) gross revenues for the Facility; (b) gross
expenses for the Facility, including all cash expenses including management
fees; (c) net operating income for the Facility; (d) total patient days; (e)
occupancy percentage; and (f) payor mix.
VII.14 Regulatory Reports.
(a) Borrower shall, within thirty (30) days of receipt thereof,
deliver to Lender all federal, state and local licensing and reimbursement
certification surveys, inspections and all other reports received by
Borrower as to the Facility from any Governmental Authority, including,
without limitation, the designated Medicare and Medicaid and other agencies
of the State or the United States governments with licensing or regulatory
oversight or other responsibility for the operation of the Facility for the
Intended Use. Within ninety (90) days of the end of each calendar year,
Borrower shall deliver to Lender an annual audited Medicaid cost report for
the Facility for such year certified by an independent auditor and in form
acceptable to Lender. Within fifteen (15) days of the end of each calendar
month, Borrower shall deliver to Lender a census report for the Facility in
form acceptable to Lender.
(b) Within five (5) Business Days of receipt thereof, Borrower shall
give Lender written notice of any violation of any Licensing Requirement or
any suspension, termination, restriction, threatened suspension,
termination or restriction of any such licenses, permits, approvals or
certifications or of any material litigation threatened or filed against
the Facility or Borrower.
22
<PAGE>
VII.15 Expenses. Borrower shall pay all expenses, costs and
disbursements of every kind and nature incurred by or on behalf of Borrower
during the term of the Loan with respect to the operation, maintenance and
management of the Facility.
VII.16 Litigation. Borrower shall give Lender prompt written notice
of any action or proceeding commenced or threatened against Borrower or the
Facility with an amount in controversy equal to or greater than Fifty Thousand
Dollars ($50,000) and will deliver to Lender copies of all notices, and other
information regarding such proceeding or action promptly upon receipt or
transmittal thereof.
VII.17 Representations and Warranties. Until the repayment in full
of the Note and all other obligations secured by the Mortgage, the
representations and warranties of Article VI shall remain true and complete.
----------
VII.18 Further Assurances. Borrower shall execute and deliver from
time to time, promptly after any reasonable request therefor by Lender, any and
all instruments, agreements and documents and shall take such other action as
may be reasonably necessary in the opinion of Lender to maintain, perfect or
insure Lender's security provided for herein and in the other Loan Documents,
including, without limitation, the execution of UCC-1 renewal statements, the
execution of such amendments to the Mortgage and the other Loan Documents and
the delivery of such endorsements to the Title Policy, all as Lender shall
reasonably require, and shall pay all fees and expenses (including reasonable
attorneys' fees) related thereto. Promptly upon the request of Lender, Borrower
shall execute and deliver a certification of non-foreign status consistent with
the requirements of Section 1445 of the Code.
VII.19 Operating Leases. Other than leases entered into by Borrower
in the ordinary course of business to occupants of the Facility, Borrower shall
not enter into any lease of any portion of the Facility without Lender's prior
written approval, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, Borrower may without Lender's consent lease up to
the greater of 2,000 square feet or ten percent (10%) of the total square
footage of the Facility to any person or entity providing any services related
or ancillary to the Intended Use or in connection with the provision of home
health services both within and outside the Facility. Any of the foregoing acts
without such approval shall be void, but shall, at the option of Lender in its
sole discretion, be an Event of Default hereunder.
VII.20 ERISA Events.
(a) Promptly upon becoming aware of the occurrence of or forthcoming
occurrence of any ERISA Event, Borrower will deliver to Lender a written
notice specifying the nature thereof, what action Borrower or any of the
ERISA Affiliates has taken, is taking or proposes to take with respect
thereto and, when known, any action taken or threatened by the Internal
Revenue Service, the Department of Labor or the PBGC with respect thereto.
(b) With reasonable promptness, Borrower shall deliver to Lender
copies of (i) each Schedule B (Actuarial Information) to the annual report
(Form 5500 Series) filed by
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Borrower or any of its ERISA Affiliates with the Internal Revenue Service
with respect to each Pension Plan; (ii) all notices received by Borrower or
any of its ERISA Affiliates from a Multiemployer Plan sponsor concerning an
ERISA Event; and (iii) such other documents or governmental reports or
filings relating to any Employee Benefit Plan as Lender shall reasonably
request.
VII.21 Maintenance Obligations. Borrower shall keep and maintain the
Facility in good appearance, repair and condition and maintain proper
housekeeping. Borrower shall promptly make or cause to be made all repairs,
interior and exterior, structural and nonstructural, ordinary and extraordinary,
foreseen and unforeseen, necessary to keep the Facility in good and lawful order
and condition and in substantial compliance with all requirements for the
licensing of assisted living facilities in the State of Pennsylvania or as
otherwise required under all applicable local, state and federal laws and to the
extent applicable, certification for participation in Medicare and Medicaid (or
any successor programs). As part of Borrower's obligations under this Section
-------
7.21, Borrower shall be responsible to maintain, repair and replace all Personal
- ----
Property in good condition, ordinary wear and tear excepted, consistent with
prudent industry practice.
VII.22 Upgrade Expenditures. Without limiting Borrower's obligations
to maintain the Facility under this Agreement, Borrower shall spend an annual
average of at least Two Hundred Dollars ($200) per living unit on Upgrade
Expenditures, and upon request of Lender, Borrower shall provide Lender with
evidence satisfactory to Lender in the reasonable exercise of Lender's
discretion that it has made the Upgrade Expenditures required under this Section
7.22.
VII.23 Debt Service Reserve. Concurrently with the making of the
Loan, Lender shall deposit into the Account the amount of the Debt Service
Reserve, which Debt Service Reserve shall be held by Lender as additional
security for Borrower's obligations under the Loan Documents. Lender shall not
be deemed a trustee as to the Debt Service Reserve. Lender shall be entitled to
draw on the Debt Service Reserve one or more times for the purpose of
compensating Lender for any amounts due to Lender under this Agreement or the
other Loan Documents by reason of an Event of Default occurring under any of the
Loan Documents. Any amount drawn by Lender shall not be deemed: (a) to fix or
determine the amounts to which Lender is entitled to recover under this
Agreement or otherwise; (b) to waive or cure any default under this Agreement or
the other Loan Documents; or (c) to limit or waive Lender's right to pursue any
remedies provided for hereunder or under the other Loan Documents. If all or any
portion of the Debt Service Reserve is drawn against by Lender pursuant to the
provisions of this Section 7.23, Borrower shall, within ten (10) business days
after written demand by Lender, deposit into the Account immediately available
funds equal to the amount so drawn by Lender, such that at all times during the
term of this Agreement Lender shall have the ability to draw upon the entire
amount of the Debt Service Reserve. Borrower shall have the right to substitute
a Letter of Credit for the Debt Service Reserve issued by a financial
institution mutually acceptable to Lender and Borrower. In the event that
Borrower substitutes a Letter of Credit, Borrower and Lender shall execute a
Letter of Credit Agreement. Upon the satisfaction in full of all of Borrower's
obligations under the Loan Documents, Lender shall return the Debt Service
Reserve to Borrower, together with any interest earned thereon.
24
<PAGE>
ARTICLE VIII
INSURANCE REQUIREMENTS
VIII.1 Insurance Types.
(a) Borrower shall maintain at its sole cost and expense, the
following insurance on or in connection with the Facility:
(i) Insurance against loss or damage to the Insured Property
by fire and other risks from time to time included under standard
extended and additional extended coverage policies, including
vandalism and malicious mischief, sprinkler, flood insurance (if the
Facility is located in a flood zone) and earthquake insurance (if the
Facility is located in an earthquake zone), in amounts not less than
the actual replacement value of the Facility, excluding footings and
foundations and other parts of the Improvements which are not
insurable (or, in the case of plate glass insurance, the replacement
cost of all plate glass in the Facility). Such policies shall contain
replacement cost endorsements.
(ii) General public liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the
Facility or the Adjoining Property, including, without limitation,
medical malpractice insurance and products liability insurance, in an
amount not less than Five Million Dollars ($5,000,000) for bodily
injury or death to any one person, not less than Five Million Dollars
($5,000,000) or any one accident, and not less than One Million
Dollars ($1,000,000) for property damage.
(iii) Insurance against liability imposed by law upon Borrower
and its Affiliates for damages on account of professional services
rendered or which should have been rendered by Borrower or any person
for which acts Borrower is legally liable on account of injury,
sickness or disease, including death at any time resulting therefrom,
and including damages allowed for loss of service, in a minimum amount
of Five Million Dollars ($5,000,000) for each claim and Five Million
Dollars ($5,000,000) in the aggregate.
(iv) Worker's compensation insurance covering all persons
employed by Borrower in connection with any work done on or about the
Facility for which claims for death or bodily injury could be asserted
against Lender, Borrower or the Facility.
(v) Boiler and pressure vessel insurance, including an
endorsement for boiler business interruption insurance, on any of the
Fixtures or any other equipment on or in the Facility which by reason
of its use or existence is capable of bursting, erupting, collapsing
or exploding, in an amount not less than Five Million Dollars
($5,000,000) for damage to property, bodily injury or death resulting
from such perils.
25
<PAGE>
(vi) Business interruption insurance or rental loss insurance
insuring against loss of rental value for a period of not less than
one (1) year.
(vii) Such other insurance on or in connection with the Facility
and the Insured Property as Lender may reasonably require, which at
the time is commonly obtained in connection with properties similar to
the Facility.
(b) All insurance required to be carried pursuant to this Article VIII
------------
will be maintained with insurance carriers licensed and approved to do
business in the State, having a general policyholders rating of not less
than an "A-" and financial rating of not less than "X" in the then most
current Best's Insurance Report. All such insurance shall be for such
terms as Lender may approve and shall be in amounts sufficient at all times
to satisfy any coinsurance requirements thereof. In no event will such
insurance be terminated or otherwise allowed to lapse during the term
hereof. In the event of Borrower's failure to comply with any of the
foregoing requirements, Lender may, but shall not be obligated to, procure
such insurance. Any sums expended by Lender in procuring such insurance
shall be repaid by Borrower, together with interest thereon at the Agreed
Rate from the date of such expenditure by Lender, upon written demand
therefor by Lender. Any and all policies of insurance required under this
Agreement shall name Lender as an additional insured and shall be on an
"occurrence" basis. In addition, Lender shall be shown as the loss payable
beneficiary under the property insurance policy maintained by Borrower
pursuant to Section 8.1(a)(i).
(c) Notwithstanding the foregoing, Borrower may provide the insurance
described in this Article VIII in whole or in part through a "blanket" or
------------
"umbrella" policy or policies covering other liabilities and properties of
Borrower; provided, however, that any such policy or policies shall: (i)
-------- -------
otherwise comply with this Article VIII, (ii) allocate to the Facility the
------------
full amount of insurance required hereunder, and (iii) contain, permit or
otherwise unconditionally authorize the waiver contained in Section 8.6.
-----------
The amount of insurance allocated to the Facility pursuant to any such
policy or policies shall either be set forth in such policy or policies or
a written statement from such insurer delivered to Lender.
VIII.2 Replacement Cost Determination. Borrower shall have the
replacement cost and insurable value of the Facility determined from time to
time as required by the replacement cost endorsements and shall deliver to
Lender the new replacement cost endorsements promptly upon Borrower's receipt
thereof. If, at any time, a replacement cost endorsement is not available,
Borrower shall have the replacement cost and insurable value of the Facility
determined at least once a year by the underwriter of fire insurance on the
Facility, or, if such underwriter will not determine the replacement costs, by a
qualified appraiser reasonably satisfactory to Lender. Borrower shall deliver
such determination to Lender promptly upon Borrower's receipt thereof.
VIII.3 Deductible Amounts. The policies of insurance which Borrower
is required to provide under this Article VIII will not have deductibles or
------------
self-insured retentions in excess of One Hundred Thousand Dollars ($100,000);
provided, however, and solely with respect to earthquake insurance and flood
- -------- -------
insurance coverage for property located in Flood Zone A, the deductible amount
for such insurance may be increased to Two Hundred Fifty Thousand Dollars
($250,000).
26
<PAGE>
VIII.4 Evidence of Insurance. As evidence of the insurance coverage
required to be carried by Borrower pursuant to this Article VIII, Borrower shall
------------
deliver to Lender original or certified policies of such insurance, but Lender
may, as Lender reasonably deems appropriate, accept certificates issued by the
insurance carrier (meeting the criteria set forth in Section 8.1) showing such
-----------
policies in force for the specified period as evidence of such coverage.
Evidence of such insurance coverage shall be delivered to Lender promptly upon
the Loan Closing Date. Each policy and certificate shall be subject to
reasonable approval by Lender and shall provide that such policy shall not be
subject to material alteration to the detriment of Borrower or Lender or to
cancellation without thirty (30) days prior written notice to Lender. Borrower
shall deliver replacement policies of insurance to Lender at least two (2)
Business Days prior to the expiration of any policy of insurance required to be
carried pursuant to this Article VIII. Should any policy expire or be cancelled
------------
and should Borrower fail to immediately procure other insurance as specified
herein, Lender reserves the right, but shall have no obligation, to procure such
insurance for the benefit of Lender and Borrower, at Borrower's sole cost and
expense.
VIII.5 Damages. Nothing contained in these insurance requirements is
to be construed as limiting the type, quality or quantity of insurance Borrower
should maintain or the extent of Borrower's responsibility for payment of
damages resulting from the breach of its obligations hereunder nor shall
anything contained herein be deemed to place any responsibility on Lender for
ensuring that the insurance required hereunder is sufficient for the conduct of
Borrower's business.
VIII.6 Waiver of Subrogation. Borrower hereby waives all rights of
subrogation, which any insurance carrier, or Borrower, may have as to Lender by
reason of any provision in any policy of insurance required to be carried by
Borrower pursuant to this Agreement, provided such waiver does not thereby
invalidate the policy of insurance.
VIII.7 Additional Insured. Lender shall be included as an additional
insured under the coverage specified in this Article VIII, with the following
------------
endorsement or provision included within each applicable policy: "It is
understood and agreed that coverage afforded by this Policy shall also apply to
MLD Delaware Trust, a Delaware business trust, and its officers, directors,
agents, servants, employees, divisions, subsidiaries, partners, shareholders and
affiliated companies as additional insureds. This insurance is primary and any
other insurance maintained by such additional insured is noncontributing with
this insurance as respects claims or liability arising out of or resulting from
the acts or omissions of the named insured, or of others performed on behalf of
the named insured." Each insurance policy required to be carried pursuant to
this Article VIII shall (a) contain standard non-contributory mortgagee clauses
------------
(438 BFU) in favor of and acceptable to Lender and Lender's lenders, if any, and
(b) name Lender as a loss payee under a standard loss payee clause.
VIII.8 No Separate Insurance. Borrower shall not carry insurance
concurrent in form or contributing in the event of loss with the insurance
required by this Article VIII unless (a) Lender, and any lender of Lender, are
------------
named as additional insureds as provided in Section 8.7, (b) Lender approves
-----------
such separate insurance, and (c) such separate insurance shall otherwise comply
with this Article VIII. Upon obtaining any such separate insurance, Borrower
------------
shall immediately deliver original or certified policies of such insurance to
Lender.
27
<PAGE>
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
IX.1 Events of Default.
(a) Upon the expiration of any applicable cure period set forth in
Section 9.1(b) below, the occurrence of any one or more of the following
--------------
shall constitute an "Event of Default" under this Agreement:
(i) the failure to make payment of any amount due under the
Note or other Loan Documents when the same becomes due and payable;
(ii) the failure to make payment of any Impositions;
(iii) intentionally omitted;
(iv) intentionally omitted;
(v) any material misstatement or omission of fact in any
written report, notice or communication from Borrower to Lender with
respect to Borrower or the Facility;
(vi) the commencement of any action or proceeding which seeks
as one of its remedies the dissolution of Borrower;
(vii) any Governmental Authority, or any court at the instance
thereof, shall take possession of any substantial part of the property
of, or assume control over, the affairs or operations of, or a
receiver or trustee shall be appointed over all of or of any
substantial part of, or a writ or order of attachment or garnishment
(with respect to any claim in excess of One Hundred Thousand Dollars
($100,000)) shall be issued or made against any of, the property of
Borrower;
(viii) Borrower shall admit in writing its inability to pay its
debts when due, or shall make an assignment for the benefit of
creditors; or Borrower shall apply for or consent to the appointment
of any receiver, trustee or similar officer for Borrower for all or
any substantial part of the property of Borrower; or Borrower shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of
debts, dissolution, liquidation, or similar proceedings relating to
Borrower under the laws of any jurisdiction;
(ix) an involuntary bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution or liquidation case or
proceeding, or other similar proceedings, which shall not be dismissed
within ninety (90) days (whether or not consecutive) after the same
shall have been commenced, shall be commenced (by
28
<PAGE>
petition, application or otherwise) seeking relief with respect to
Borrower or all or a substantial part of the property of Borrower;
(x) a court of competent jurisdiction shall enter an order,
judgment or decree adjudicating Borrower a bankrupt or insolvent or
approving a petition filed against Borrower seeking any
reorganization, dissolution or similar relief under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such order,
judgment or decree shall not be discharged or dismissed within ninety
(90) days after the date of filing;
(xi) a writ of execution or attachment or any similar process
shall be issued or levied against all or any part or interest in the
Facility, or any judgment involving monetary damages in excess of One
Hundred Thousand Dollars ($100,000) in any such case shall be entered
against Borrower which shall become a lien on the Facility or any
portion thereof or Borrower's interest therein, and such writ of
execution, attachment, levy or judgment shall not be released or
discharged within ninety (90) days after the date of filing;
(xii) any representation or warranty of Borrower in (A) any of
the Loan Documents, or (B) any Financial Statement, certificate or
other financial information delivered to Lender, shall be materially
and adversely incorrect or misleading as of the date made;
(xiii) a final judgment or judgments for the payment of money in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate is
entered against Borrower and such judgment or judgments shall not be
discharged within a period of ninety (90) days;
(xiv) a material default by Borrower (or any Affiliate of
Borrower) under any other agreement entered into by Borrower (or any
Affiliate of Borrower) in connection with any other obligation owed by
Borrower (or any Affiliate of Borrower) to Lender or any Affiliate of
Lender (including, without limitation, the ALC Leases and the Other
ALC Loans), which default is not cured within any applicable cure
period;
(xv) intentionally omitted;
(xvi) if, except as a result of damage or destruction or a
partial or complete Condemnation with respect to all or any portion of
the Facility, Borrower voluntarily or involuntarily ceases operations
on the Facility or any material portion of the Facility is vacated or
abandoned;
(xvii) failure to deliver replacement policies of insurance to
Lender as required by the provisions of Section 8.4;
-----------
29
<PAGE>
(xviii) the institution of any proceedings, hearings, suits or
other actions which seek to suspend, revoke or otherwise adversely
impair (including, without limitation, the imposition of any
operational restrictions) any license, approval certificate or other
authorization used or held by Borrower in connection with the
operation of the Facility for the Intended Use;
(xix) the occurrence of a default and the failure to cure such
default within the applicable cure period, if any, under the Debt
Service Reserve Pledge Agreement or under any of the other Loan
Documents; or
(xx) failure to observe or perform, in any material respect,
any other term, covenant or condition of this Agreement or any of the
other Loan Documents, which cannot be cured by the payment of money;
(b) Cure Periods.
(i) Borrower shall not be entitled to a cure period with
respect to the Events of Default described in subsections 9.1(a)(v),
---------------------
(vii) through (xvi), inclusive, and (xix), above, except as may be
------------------- -----
specifically provided therein.
(ii) The default described in subsection 9.1(a)(i) above is
--------------------
curable and shall be deemed cured if Borrower makes such payment
within five (5) days after the date such payment is due; provided,
--------
however, with the exception of the imposition of the late charge and
-------
the commencement of the accrual of Basic Interest at the Agreed Rate
as provided in the Note, Holder shall not proceed with the enforcement
of any other remedies available under this Agreement or the Loan
Documents or at law until the fifth (5th) day after Lender gives
Borrower written notice of such Event of Default.
(iii) The default described in subsection 9.1(a)(ii), above, is
---------------------
curable and shall be deemed cured if Borrower makes such payment
within five (5) days of written demand by Lender, or within such other
grace period applicable to such payment as specified elsewhere in this
Agreement.
(iv) The default described in subsection 9.1(a)(xvii), above,
-----------------------
is curable and shall be deemed cured if Borrower delivers replacement
policies of insurance to Lender within five (5) days of written demand
by Lender.
(v) The default described in subsections 9.1(a)(vi), (xviii)
---------------------- -------
and (xx), above, is curable and shall be deemed cured, if: (A) within
----
seven (7) days of Borrower's receipt of a notice of default from
Lender, Borrower gives Lender notice of its intent to cure such
default; and (B) Borrower cures such default within thirty (30) days,
or such other period as may be specified in this Agreement, after such
notice from Lender, unless such default cannot with due diligence be
cured within a period of thirty (30) days, or such other period as may
be specified in this Agreement, because of the nature of the default
or delays beyond the control of Borrower,
30
<PAGE>
and cure after such period will not have a material and adverse effect
upon the Facility, in which case such default shall not be deemed to
continue if cure of such default is promptly commenced and diligently
pursued to the completion thereof, provided, however, no such default
-------- -------
shall continue for more than one hundred twenty (120) days in the
aggregate.
(c) All notice and cure periods provided herein or in any other Loan
Document shall run concurrently with any notice or cure periods provided by
applicable law.
IX.2 Remedies.
(a) Notwithstanding any provision to the contrary herein or in any of
the other Loan Documents, upon the occurrence of any Event of Default under this
Agreement, or upon an Event of Default under any of the other Loan Documents:
(i) Lender's obligation to make further disbursements of the Loan, if any, shall
cease, (ii) Lender shall, at its option, have the rights and remedies provided
in the Loan Documents, including, without limitation, the option to declare all
outstanding indebtedness to be immediately due and payable without presentment,
demand, protest or further notice of any kind, to apply any of Borrower's funds
in its possession to the outstanding indebtedness under the Note whether or not
such indebtedness is then due, to draw on the Account (or a Letter of Credit if
the same replaced the Account) and apply such withdrawal to the outstanding
indebtedness under the Note whether or not such indebtedness is then due, to
obtain the appointment of a receiver and to, upon the occurrence of a monetary
Event of Default with respect to the Loan, file a confession of judgment, and
(iii) Lender may pursue any remedies available to it pursuant to law or in
equity. All sums expended by Lender for such purposes shall be deemed to have
been disbursed to and borrowed by Borrower and shall be secured by the Mortgage.
(b) All remedies of Lender provided for herein are cumulative and
shall be in addition to any and all other rights and remedies provided in the
Note, the Mortgage or any of the other Loan Documents or by law. The exercise
of any rights of Lender hereunder shall not in any way constitute a cure or
waiver of a default hereunder or elsewhere, or invalidate any act done pursuant
to any notice of default, or prejudice Lender in the exercise of any of its
other rights hereunder or elsewhere unless, in the exercise of said rights,
Lender realizes all amounts owed to it hereunder and under the Note, the
Mortgage and the other Loan Documents.
ARTICLE X
MISCELLANEOUS
X.1. Assignment. Borrower shall not assign any of its rights under
this Agreement.
X.2. Notices. All notices, demands, certificates, requests,
consents, approvals and other similar instruments under this Agreement shall be
made in writing to the addresses set forth below and shall be given by any of
the following means: (a) personal service; (b) electronic communication, whether
by telex, telegram or telecopying; (c) certified or registered mail, postage
prepaid, return receipt requested; or (d) nationally recognized courier or
delivery service. Such
31
<PAGE>
addresses may be changed by notice to the other parties given in the same manner
as provided above. Any notice, demand or request sent pursuant to either
subsection (a), (b) or (d) hereof shall be deemed received upon the actual
- ------------------- ---
delivery thereof, and, if sent pursuant to subsection (c) shall be deemed
--------------
received five (5) days following deposit in the mail. Refusal to accept delivery
of any notice, request or demand shall be deemed to be delivery thereof. If
Borrower is not an individual, notice may be made on any officer, general
partner or principal thereof. In the event Lender notifies Borrower of the name
and address of Lender's lender, Borrower shall cause a copy of all notices
delivered to Lender by Borrower to be concurrently therewith delivered to such
lender.
To Seller: To Buyer:
- ---------- ---------
Assisted Living Concepts, Inc. MLD Delaware Trust
9955 SE Washington, Suite 303 c/o Nationwide Health Properties, Inc.
Portland, Oregon 97216 610 Newport Center Drive, Suite 1150
Attn: Chief Executive Officer and Newport Beach, California 92660
General Counsel Attn: President and General Counsel
Facsimile: (503) 255-0048 Facsimile: (949) 759-6887
With Copy To: With Copy To:
- ------------- -------------
Rasmussen Coomber, LLP Sherry, Coleman & Holthouse LLP
660 South Figueroa Street, Suite 1450 610 Newport Center Drive, Suite 1200
Los Angeles, CA 90017-3452 Newport Beach, CA 92660
Attn: Richard G. Rasmussen, Esq. Attn: Kevin L. Sherry, Esq.
Facsimile: (213) 622-2829 Facsimile: (949) 719-1212
X.3 Incorporation of Recitals and Exhibits. The recitals and exhibits
hereto are hereby incorporated into this Agreement and made a part hereof.
X.4 Titles and Headings. The titles and headings of sections of this
Agreement are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.
X.5 Brokers. Lender and Borrower represent to each other that neither
of them knows of any brokerage commissions or finders' fee due or claimed with
respect to the transaction contemplated hereby. Lender and Borrower shall
indemnify and hold harmless the other party from and against any and all loss,
damage, liability, or expense, including costs and reasonable attorney fees,
which such other party may incur or sustain by reason of or in connection with
any misrepresentation by the indemnifying party with respect to the foregoing.
X.6 Changes, Waivers, Discharge and Modifications in Writing. No
provision of this Agreement may be changed, waived, discharged or terminated
except by an instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought.
32
<PAGE>
X.7 Choice of Law. Lender and Borrower agree that the rights and
obligations under this Agreement and the other Loan Documents shall be governed
by and construed and interpreted in accordance with the internal law of the
State of Pennsylvania without giving effect to the conflicts-of-law rules and
principles of such state.
X.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.
X.9 Time is of the Essence. Time is of the essence in this Agreement.
X.10 Attorneys' Fees. Borrower agrees to pay Lender all costs and
expenses, including, without limitation, attorneys' fees and costs, incurred by
Lender in enforcing any of the terms, covenants or conditions of this Agreement.
The terms "attorneys' fees" or "attorneys' fees and costs" shall also include,
without limitation, all such fees and expenses incurred with respect to appeals,
arbitrations and bankruptcy proceedings, and whether or not any action or
proceeding is brought with respect to the matter for which said fees and
expenses were incurred.
X.11 Authority to File Notices. Borrower irrevocably appoints Lender as
its attorney-in-fact, with full power of substitution, to file for record, at
the Borrower's cost and expense and in Borrower's name, any notices that Lender
considers necessary or desirable to protect its security.
X.12 Disclaimer by Lender. Lender shall not be liable to any
contractor, subcontractor, supplier, laborer, architect, engineer or any other
party for services performed or materials supplied in connection with the
Facility. Lender shall not be liable for any debts or claims accruing in favor
of any such parties against Borrower or others or against the Facility. Borrower
is not and shall not be an agent of Lender for any purpose. Lender is not a
joint venture partner with Borrower in any manner whatsoever. Approvals granted
by Lender for any matters covered under this Agreement shall be narrowly
construed to cover only the parties and acts identified in any written approval
or, if not in writing, such approvals shall be solely for the benefit of
Borrower.
X.13. Indemnification. To the fullest extent permitted by law, Borrower
agrees to protect, indemnify, defend and hold harmless Lender, its directors,
officers, agents and employees from and against any and all liability, expense,
loss or damage of any kind or nature and from any suits, claims or demands,
including reasonable attorneys' fees and costs, on account of any matter or
thing or action or failure to act by Lender, whether in suit or not, arising out
of this Agreement or in connection herewith, unless such suit, claim or demand
is caused solely by any act, omission or willful malfeasance of Lender, its
directors, officers, agents and employees. Upon receiving knowledge of any suit,
claim or demand asserted by a third party that Lender believes is covered by
this indemnity, Lender shall give Borrower notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel satisfactory to Lender. Lender may also require Borrower to so defend
the matter. This obligation on the part of Borrower shall survive the closing of
the Loan and the repayment thereof.
33
<PAGE>
X.14 Inconsistencies with Loan Documents. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the
Loan Documents, the terms of this Agreement shall govern and prevail.
X.15 Disbursements in Excess of Loan Amount. In the event the total
disbursements by Lender exceed the Loan Amount, to the extent permitted by the
laws of the State of Pennsylvania, the total of all disbursements shall be
secured by the Mortgage. All other sums expended by Lender pursuant to this
Agreement or any other Loan Document shall be deemed to have been paid to
Borrower and shall be secured by, among other things, the Mortgage.
X.16 Participations. Lender shall have the right at any time to sell,
assign or transfer the Loan or the Note or to sell or grant participations in
all or any part therein, all without notice to or the consent of Borrower.
Borrower hereby acknowledges and agrees that any such disposition will give rise
to a direct obligation of Borrower to each holder of the Note or the Loan or
each participant or assignee of all or any part of the Loan or Note. Lender may
disclose to third parties, including, without limitation, prospective purchasers
of the Loan or participation interests therein, financial or other information
in Lender's possession regarding Borrower or the Facility.
X.17 Entire Agreement. This Agreement and the Loan Documents constitute
the entire agreement and understanding of Lender and Borrower with respect to
the matters set forth herein and therein. No representation, warranty, covenant,
promise, understanding or condition shall be enforceable against any party
unless it is contained in this Agreement or the Loan Documents.
X.18 Severability. The invalidity or unenforceability of any one or
more provisions of this Agreement or any Loan Document shall not affect the
validity or enforceability of any other provision.
X.19 Consent to Jurisdiction and Service of Process. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST BORROWER ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF PENNSYLVANIA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT BORROWER ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT. Borrower designates and appoints CSC The
United States Corporation Company, and such other Persons as may hereafter be
selected by Borrower irrevocably agreeing in writing to so serve, as its agent
to receive on its behalf service of all process in any such proceedings in any
such court, such service being hereby acknowledged by Borrower to be effective
and binding service in every respect. A copy of any such process so served shall
be mailed by registered mail to Borrower as provided in this Agreement; provided
--------
that, unless otherwise provided by applicable law, any failure to mail such copy
shall not affect the validity of service of such process. If any agent
appointed by Borrower refuses to accept service, Borrower hereby agrees that
service of process sufficient for personal
34
<PAGE>
jurisdiction in any action against Borrower in the State of Pennsylvania may be
made by registered or certified mail, return receipt requested, to Borrower as
provided in this Agreement, and Borrower hereby acknowledges that such service
shall be effective and binding in every respect. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of Lender to bring proceedings against Borrower in the courts of any other
jurisdiction.
X.20 Waiver of Jury Trial. BORROWER AND LENDER HEREBY AGREE TO WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL IN ANY ACTION, PROCEEDINGS OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER IN CONNECTION
WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. The scope of this waiver is
intended to be all-encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including
without limitation contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. Borrower and Lender each acknowledge
that this waiver is a material inducement for Borrower and Lender to enter into
a business relationship, that Borrower and Lender have already relied on this
waiver in entering into this Agreement and the other Loan Documents and that
each will continue to rely on this waiver in their related future dealings.
Borrower and Lender further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.
X.21 Terminology. Whenever the words "including", "include" or
"includes" are used in this Agreement, they should be interpreted in a non-
exclusive manner as though the words, "without limitation," immediately followed
the same. Except as otherwise indicated, all Section and Exhibit references in
this Agreement shall be deemed to refer to the Sections and Exhibits in or to
this Agreement.
X.22 Interpretation. Both Borrower and Lender have been represented by
counsel and this Agreement has been freely and fairly negotiated. Consequently,
all provisions of this Agreement shall be interpreted according to their fair
meaning and shall not be strictly construed against any party.
35
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be
executed and delivered as of the date first above written.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By: _________________________________
Its: _______________________________
"LENDER"
MLD DELAWARE TRUST,
a Delaware business trust
By: __________________________________
Mark L. Desmond, not in his individual
capacity, but solely as Trustee
36
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE LAND
ALL that certain piece, parcel and lot of land situate in the Township of White,
County of Indiana and Commonwealth of Pennsylvania, bounded and described as
follows:
BEGINNING at an iron pin at the Southwest corner of the tract herein conveyed,
said point being the Northeast corner of Lot No. 83, in the Fairfax Estates Plan
of Lots and the Southeast corner of land of Joseph A. Kuzneski and William
Friedman; thence along the Eastern line of said lands of Joseph A. Kuzneski and
William Friedman North 4 (degrees) 54' 20" East for a distance of 356.21 feet to
an iron pin at the southwest corner of lands of Lawrence Bouma; thence along the
South line of said lands of Lawrence Bouma and along the South line of lands of
Joseph Rensoky, South 89 (degrees) 44' 50" East for a distance 415.00 feet to an
iron pin; thence through lands of now or formerly LMC Enterprises, Inc. South 4
(degrees) 54' 20" West for a distance of 356.21 feet to an iron pin on the North
line of Lot No. 72 in the Fairfax Estates Plan of Lots; thence along the North
line of Lot No. 72, Lot No. 73 and Lot No. 82 in the Fairfax Estates Plan of
Lots North 89 (degrees) 44' 50" West for a distance of 352.56 feet to an iron
pin on the Eastern right of way line of Madison Circle, a street fifty feet in
width; thence along the Eastern right of way line of Madison Circle North 37
(degrees) 17' 23" East for a distance of 9.47 feet; thence continuing along the
right of way line of Madison Circle by a curve concave to the Southwest, said
curve having a radius of 50.00 feet for an arc distance of 261.80 feet to a
point on the Western right of way line of Madison Circle; thence along the
Western right of way line of Madison Circle, South 37 (degrees) 17' 23" West for
a distance of 47.20 feet to an iron pin at the Northeast corner of Lot No. 83 in
the Fairfax Estates Plan of Lots to the point or place of beginning.
1
<PAGE>
EXHIBIT B
CLOSING CONDITIONS
Lender shall not be obligated to make any disbursements of the Loan or
perform any other obligation under the Loan Documents unless all of the
following conditions precedent are satisfied prior to the date set forth in
Section 3.1 of this Agreement:
1. There shall exist no Event of Default or Potential Default under
any of the Loan Documents.
2. All representations and warranties contained in this Agreement
and any other Loan Documents shall be true and correct in all material respects
as of the Loan Closing Date.
3. Lender shall have received each of the following items and
documents, all of which shall be in form and substance satisfactory to Lender:
(a) The Debt Service Reserve;
(b) A preliminary title report or reports with respect to the Facility
and evidence satisfactory to Lender that the Title Company is prepared to
issue the Title Policy;
(c) A search of the records of the Offices of the Secretary of the
States of Pennsylvania, and Nevada and the Official Records of the County
showing all Uniform Commercial Code financing statements and fixture
filings against Borrower and/or the Facility or any part thereof or
interest therein;
(d) The policies of insurance required under this Agreement;
(e) Certified copies of Borrower's articles of incorporation, bylaws
and other formation documents, together with a certificate of status from
the Secretary of the States of Nevada and Pennsylvania;
(f) Evidence satisfactory to Lender that Borrower has taken all
necessary action to authorize it to execute, deliver and be bound by the
Loan Documents, including, without limitation, corporate resolutions
together with incumbency certificates attached thereto;
(g) A search of the records of the Offices of the Secretary of State
of Pennsylvania and the Official Records of the County showing all Uniform
Commercial Code financing statements and fixture filings against Borrower
and/or the Facility or any part thereof or interest therein;
(h) an ALTA survey for the Facility;
1
<PAGE>
(i) Financial Statements of Borrower for Borrower's most recent fiscal
year, together with interim 1998 statements if available, certified by an
officer of Borrower;
(j) Satisfactory evidence that Borrower has complied with all
applicable Licensing Requirements;
(k) Satisfactory evidence that the Facility complies with all zoning
ordinances, including, without limitation, a statement from the appropriate
Governmental Authority setting forth the current zoning designation for the
Land;
(l) The Phase I Site Assessment Report for the Facility, prepared by a
consultant satisfactory to Lender; and
(m) Such other documents and instruments as may be reasonably required
by Lender.
2
<PAGE>
EXHIBIT C
FORM OF CLOSING PROCEDURE LETTER
September ___, 1998
First American Title Insurance Company
114 East Fifth Street
Santa Ana, California 92701
Attention: Mickey Elkinton
Re: $2,900,000 from MLD Delaware Trust, a Delaware business trust
("Lender") to Assisted Living Concepts, Inc., a Nevada
corporation ("Borrower"); Your Escrow No: N984116E
Ladies and Gentlemen:
Please refer to that certain Loan Agreement dated as of September ___,
1998 by and between Borrower and Lender, a copy of which is being delivered to
you with this letter. Except as otherwise defined herein, all initially-
capitalized terms used herein shall have the same meaning given such terms in
the Loan Agreement.
This letter shall constitute your instructions with respect to the
"Funds" and "Documents" described herein.
A. Delivery of Funds.
-----------------
On or before September ___, 1998, Lender shall wire-transfer to you
immediately available funds in the sum of (i) the Loan (less the amount of the
Debt Service Reserve) and (ii) such additional funds as may be due from Lender
pursuant to the Closing Statement described in Paragraph B(3) below (the
--------------
"Funds").
B. Delivery of Documents.
---------------------
1. Delivery of Recording Documents. Borrower or Lender shall deliver
to you one fully executed (and acknowledged where applicable) original of
each of the following documents (the "Recording Documents"):
(a) ___________________;
(b) ___________________; and
1
<PAGE>
(c) ____________________.
2. Borrower's Delivery of Non-Recordation Documents. Borrower shall
deliver to you one fully executed original of each of the following
documents (the "Non-Recordation Documents"):
(a) Pay-off letters or demands (the "Pay-Off Letters") from the
then record holders or claimants of any encumbrance or monetary lien
affecting the Facility, stating the cash amount required to be paid
and where and to whom such amount is to be paid in order to satisfy
and discharge of record such encumbrances.
3. Delivery and Approval of Closing Statement. You shall prepare,
and Lender and Borrower shall approve and execute, a closing statement
showing the source and application of funds received by you and the costs
and expenses incurred in connection herewith (the "Closing Statement").
4. Definition of Documents. As used herein, "Documents" shall mean,
collectively, the Recording Documents, the Non-Recordation Documents and
the Closing Statement.
C. Conditions to Closing.
---------------------
The Funds shall not be disbursed and the Documents shall not be recorded or
delivered to any person or entity until each of the following conditions are
satisfied:
1. You have received the Funds and are unconditionally and
irrevocably prepared to disburse the same in accordance with Paragraph D
-----------
hereof.
2. You have received the Documents and are unconditionally and
irrevocably prepared to record the Recording Documents in accordance with
Paragraph D hereof.
-----------
3. You are unconditionally and irrevocably committed to issue the
Title Policy, together with a [DESCRIPTION OF ENDORSEMENTS] subject only to
those exceptions (the "Permitted Exceptions") which appear on the pro forma
title policy attached hereto as Exhibit A.
---------
4. You have received the Written Authorization.
D. Closing. When the conditions specified in Paragraph C above are satisfied,
------- -----------
then you shall immediately deliver to Borrower and Lender a written confirmation
of such satisfaction in the form of Exhibit B hereto (which confirmation shall
---------
evidence your agreement to immediately take or cause to be taken the actions
hereinafter specified), and thereafter you shall immediately:
1. Record the Recording Documents in the order listed below in
Official Records of Indiana County, Pennsylvania:
2
<PAGE>
(a) the ________________; and
(b) _______________________.
2. Disburse the respective amounts due to third parties (e.g., lien
holders) under the Closing Statement in accordance with the respective
instructions from such third parties.
3. Disburse any amounts due Lender under the Closing Statement in
accordance with the following wiring instructions:
Wells Fargo Bank
420 Montgomery Street
San Francisco, California
ABA No. 121000248
for the benefit of
Nationwide Health Properties, Inc.
Account No. 4692089329
Upon receipt, notify Mark Desmond by telephone at
(949) 718-4412
4. Disburse to Borrower the remainder of the Funds pursuant to the
instructions to be provided by Borrower.
5. Issue the Title Policy and deliver such Title Policy to Sherry,
Coleman & Holthouse LLP, at the address specified in Paragraph E hereof,
-----------
within 20 working days.
E. Delivery of Documents. As soon as they are available, please deliver the
---------------------
Documents as follows:
1. To Sherry, Coleman & Holthouse LLP, 610 Newport Center Drive,
Suite 1200, Newport Beach, California 92660, Attention: Kevin L. Sherry,
Esq., the following: (a) the recorded originals of each of the Recording
Documents, and (b) the originals of the Documents other than the Recording
Documents.
2. To Borrower, c/o Rasmussen Coomber, LLP, 660 Figueroa Street,
Suite 1450, Los Angeles, California 90017-3452, Attention: Richard G.
Rasmussen, Esq., a copy of each of the Documents.
F. Closing Costs. All closing costs incurred in carrying out your duties
-------------
under this letter are to be billed in accordance with Section 4.1 of the Loan
-----------
Agreement.
3
<PAGE>
G. Investment of Funds.
-------------------
1. Lender's Funds. As soon as you receive any portion of the Funds,
you shall notify Lender of such fact. If Lender gives you written
instructions to do so, you shall invest the Funds in treasury bills (or
such other short-term investment as may be authorized by Lender) for the
benefit of Lender. The interest accrued on the Funds shall be delivered to
Lender, in accordance with Lender's wiring instructions, upon the closing
(or, if sooner, from time to time upon the oral or written request of
Lender).
H. Cancellation of Instructions. Notwithstanding anything to the contrary
----------------------------
herein, if the conditions specified in Paragraph C hereof are not satisfied on
-----------
or before September ___, 1998, then, if you receive written instructions to
cancel this transaction from either of the undersigned, the instructions set
forth in Paragraphs A through E above shall be deemed cancelled, you shall
------------ -
immediately return the Funds (and any interest thereon) to Lender, in accordance
with Lender's wiring instructions and you shall destroy the Documents on the
next business day thereafter.
I. Limitation of Liability. You are acting solely as closing agent, and you
-----------------------
shall be liable solely for your failure to comply with the terms of this letter.
The foregoing will not limit your liability as title insurer under the terms of
the Title Policy (such liability being in accordance with the terms of such
policy).
J. Execution by Counterparts; Facsimile Signatures. This letter of
-----------------------------------------------
instructions may be executed in two or more counterparts, each of which shall be
an original, but all of which shall constitute one and the same letter of
instructions. You are hereby authorized to accept facsimile signatures on this
letter of instructions as original signatures, and such facsimile signatures are
hereby deemed originals.
4
<PAGE>
K. Interpleader. Borrower and Lender expressly agree that if they give you
------------
contradictory instructions, you shall have the right, at your election, to file
an action in interpleader requiring the Borrower and Lender to answer and
litigate their several claims and rights between themselves and you are
authorized to deposit with the clerk of the court all documents and funds held
by you. In the event such action is filed, Borrower and Lender agree to pay
your cancellation charges and costs, expenses and reasonable attorneys' fees
which you are required to expend or incur in the interpleader action, the amount
thereof to be fixed and judgment therefor to be rendered by the court. Upon the
filing of such an action, you shall be fully released and discharged from all
obligations to perform further any duties or obligations imposed hereunder.
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By: __________________________________
Its: _____________________________
"LENDER"
MLD DELAWARE TRUST,
a Delaware business trust
By: __________________________________
Mark L. Desmond, not in his individual
capacity, but solely as Trustee
ACCEPTED AND AGREED TO
as of the date first above written:
FIRST AMERICAN TITLE INSURANCE COMPANY
By: ____________________________________
Its: _______________________________
5
<PAGE>
SCHEDULE 1 TO EXHIBIT C
EXHIBIT A
PRO FORMA TITLE POLICY
[See Attached]
6
<PAGE>
SCHEDULE 2 TO EXHIBIT C
EXHIBIT B
CONFIRMATION BY TITLE COMPANY
September ___, 1998
MLD Delaware Trust
c/o Sherry, Coleman & Holthouse LLP
610 Newport Center Drive, Suite 1200
Newport Beach, California 92660
Attention: Kevin L. Sherry, Esq.
Assisted Living Concepts, Inc.
c/o Rasmussen Coomber, LLP
660 Figueroa Street, Suite 1450
Los Angeles, California 90017-3452
Attention: Richard G. Rasmussen, Esq.
Re: $2,900,000 from MLD Delaware Trust, a Delaware business
trust ("Lender") to Assisted Living Concepts, Inc., a
Nevada corporation ("Borrower"); Your Escrow No: N984116E
Ladies and Gentlemen:
Please refer to that certain letter (the "Letter of Instructions")
captioned "CLOSING PROCEDURE LETTER", dated as of September ___, 1998, from
Borrower and Lender to the undersigned.
Pursuant to Paragraph D of the Letter of Instructions, we hereby
-----------
confirm that each of the conditions to disbursement and recordation set forth in
Paragraph C of the Letter of Instructions has been satisfied.
- -----------
Very truly yours,
FIRST AMERICAN TITLE INSURANCE COMPANY
By:________________________________
Its: _____________________________
7
<PAGE>
EXHIBIT D
FORM OF WRITTEN AUTHORIZATION TO CLOSE
September ___, 1998
First American Title Insurance Company
114 East Fifth Street
Santa Ana, California 92701
Attention: Mickey Elkinton
Re: $2,900,000 from MLD Delaware Trust, a Delaware business trust
("Lender") to Assisted Living Concepts, Inc., a Nevada corporation
("Borrower"); Your Escrow No: N984116E
Ladies and Gentlemen:
You are hereby authorized to comply with the instructions delivered to you
in our Closing Procedure Letter dated September ___, 1998.
Please confirm your receipt hereof and compliance with the aforementioned
instructions by contacting, via telephone, either Kevin L. Sherry, Esq., at
(949) 719-2190 or Andrew P. Hanson, Esq., at (949) 719-2199.
This Written Authorization to Close may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
Very truly yours,
"BORROWER"
ASSISTED LIVING CONCEPTS, INC.,
a Nevada corporation
By: __________________________________
Its: __________________________
1
<PAGE>
"LENDER"
MLD DELAWARE TRUST,
a Delaware business trust
By: __________________________________
Mark L. Desmond, not in his individual
capacity, but solely as Trustee
2
<PAGE>
EXHIBIT 10.22
AMENDMENT AND MODIFICATION OF
REIMBURSEMENT AGREEMENTS
THIS AMENDMENT AND MODIFICATION OF REIMBURSEMENT AGREEMENTS (the
"Amendment") entered into as of the 18th day of August, 1999 by and between
ASSISTED LIVING CONCEPTS, INC., a Nevada corporation ("Borrower") and U.S. BANK
NATIONAL ASSOCIATION ("Bank") is made with reference to the following facts:
RECITALS
--------
A. Pursuant to Reimbursement Agreement dated as of November 1, 1996 by and
between Borrower and Bank (the "Washington Reimbursement Agreement"), Bank
issued a letter of credit on behalf of the Borrower in the total Stated Amount
of $8,667,671.20 (the "Washington Letter of Credit") to Norwest Bank Minnesota,
National Association, as Trustee under that certain Indenture of Trust dated as
of November 1, 1996, in connection with the issuance by the Washington State
Housing Finance Commission of $8,500,000 in aggregate principal amount of its
Variable Rate Demand Multifamily Revenue Bonds (Assisted Living Concepts, Inc.
Project), Series 1996 (the "Washington Bonds"). Borrower's obligations under
the Washington Reimbursement Agreement are secured, in part, by deeds of trust,
security agreements, assignments of leases and rents and fixture filings on 5
real properties located in the State of Washington legally described in Exhibit
B-1 through Exhibit B-5 to the Washington Reimbursement Agreement and by this
reference incorporated herein (collectively, "the Washington Properties") and
other security interests in other real and personal property owned by Borrower.
B. Pursuant to Reimbursement Agreement dated as of July 1, 1997 by and
between Borrower and Bank (the "Idaho Reimbursement Agreement"), Bank issued a
letter of credit on behalf of the Borrower in the total Stated Amount of
$7,494,987 (the "Idaho Letter of Credit") to First Security Bank, N.A., as
Trustee under that certain Indenture of Trust dated as of July 1, 1997, in
connection with the issuance by the Idaho Housing and Finance Association of
$7,350,000 in aggregate principal amount of its Variable Rate Demand Housing
Revenue Bonds (Assisted Living Concepts, Inc. Project), Series 1997 (the "Idaho
Bonds"). Borrower's obligations under the Idaho Reimbursement Agreement are
secured, in part, by deeds of trust, security agreements, assignments of leases
and rents and fixture filings on 4 real properties located in the State of Idaho
legally described in Exhibit B-1 through Exhibit B-4 to the Idaho Reimbursement
Agreement and by this reference incorporated herein (collectively, the "Idaho
Properties") and other security interests in other real and personal property
owned by Borrower.
C. Pursuant to Reimbursement Agreement dated as of July 1, 1998 by and
between Borrower and Bank (the "Ohio Reimbursement Agreement"), Bank issued a
letter of credit on behalf of the Borrower in the total Stated Amount of
$13,480,779 (the "Ohio Letter of Credit") to PNC Bank, National Association, as
Trustee under that certain Indenture of Trust dated as of July 1, 1998, in
connection with the issuance by the Ohio Housing Finance Agency of $12,690,000
in aggregate principal amount of its Variable Rate Demand Housing Revenue Bonds
(Assisted Living Concepts, Inc, Project) 1998 Series A-1 and $530,000 aggregate
principal
-1-
<PAGE>
amount of its Taxable Variable Rate Demand Housing Revenue Bonds (Assisted
Living Concepts, Inc. Project) 1998 Series A-2 (the "Taxable Bonds")
(collectively, the "Ohio Bonds"). Borrower's obligations under the Ohio
Reimbursement Agreement are secured, in part, by open-ended mortgages, security
agreements, assignment of leases and rents and fixture filings on 7 real
properties located in the State of Ohio legally described in Exhibit B-1 through
Exhibit B-7 to the Ohio Reimbursement Agreement and by this reference
incorporated herein (collectively, the "Ohio Properties") and other security
interests in other real and personal property owned by Borrower. The Washington
Reimbursement Agreement, the Idaho Reimbursement Agreement and the Ohio
Reimbursement Agreement are hereinafter referred to collectively as the
"Reimbursement Agreements." The Washington Properties, the Idaho Properties, the
Ohio Properties and all other facilities owned or leased by the Borrower that
are financed with the proceeds of a Bank credit enhanced bond issue, including,
but not limited to, all facilities financed by the Washington State Housing
Finance Commission's Variable Rate Demand Multifamily Revenue Bonds (LTC
Properties, Inc. Project), Series 1995 are hereinafter referred to collectively
as the "Bond Financed Properties."
D. The Borrower has requested that Bank forbear or waive certain defaults
under the Reimbursement Agreements and Related Documents (as defined in the
Reimbursement Agreements) and the Bank is willing to forbear or waive certain
defaults under the Reimbursement Agreements on the express condition that
Borrower agree to modify and restructure Borrower's obligations under the
Reimbursement Agreements and Related Documents (as defined in the Reimbursement
Agreements) on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing recitals and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
---------
1. Incorporation of Recitals. Each recital set forth above is incorporated
-------------------------
into this Amendment as though fully set forth herein.
2. Forbearance and Waiver of Certain Defaults. In exchange for the
------------------------------------------
modification and restructure of the Borrower's obligations to the Bank under the
Reimbursement Agreements, on the terms and conditions hereinafter set forth, the
Bank will:
A. Forbear until September 30, 1999, the declaration by the Bank of an
Event of Default under the Reimbursement Agreements and Related Documents (as
defined in the Reimbursement Agreements) as a result of the Borrower's failure
to deliver to Bank its financial statements for fiscal year 1998, officer's
certificates from December 31, 1998 to date and its failure to file its Form 10-
K with the Securities and Exchange Commission for 1998 and its Form 10-Q for the
first two quarters of 1999 with the Securities and Exchange Commission, and its
failure to deliver to Bank any required operating budgets or officer's
certificates, each within the time period required under the Reimbursement
Agreements. Upon delivery to the Bank in Seattle, Washington of audited
financial statements to be included in the Borrower's Form 10-K
-2-
<PAGE>
for 1998 in the form attached to this Amendment as Exhibit 1, which audited
financial statements shall have received an unqualified opinion from the
Borrower's certified public accountants KPMG, officers' certificates and the
fiscal year 1999 operating budget including proposed Capital Expenditures for
the Borrower in the form required under the Reimbursement Agreements, together
with copies of the Form 10-K and Form 10-Q described above filed with the
Securities and Exchange Commission on or before the close of business September
30, 1999, the Bank will waive any Event of Default that would otherwise occur
under the Reimbursement Agreements or any of the Related Documents (as defined
in the Reimbursement Agreements) by reason of the Borrower's previous failure to
provide the financial statements, officer's certificates, operating budgets,
public filings and the other documents described above.
B. Waive the Bank's right to declare an Event of Default under Section
8.01(d) of the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements) resulting from the restatement of
Borrower's financial statements for 1996 and 1997 and resulting change in the
financial condition of the Borrower from the financial statements originally
delivered to the Bank that reported profitable operations for the Borrower as
set forth in its financial statements for fiscal years 1996, 1997, and the first
two quarters of 1998, assuming that the final restated financial statements of
the Borrower for fiscal years 1996, 1997, and the first three quarters of 1998
are materially consistent with the draft restated financial statements prepared
by the Borrower and delivered to the Bank August 3, 1999, copies of which are
attached to this Amendment as Exhibit 1; provided, however, such audited
financial statements included in the Borrower's Form 10-K for 1998 shall have
received an unqualified opinion from the Borrower's certified public accountants
KPMG.
C. Waive the Bank's right to declare an Event of Default under the
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements) by reason of the Borrower's anticipated first and
second quarter 1999 cash flow coverage covenant defaults under the cash flow
coverage covenant set forth in Section 7.01(G) of the Reimbursement Agreements
at both the corporate level and the Bond Financed Properties level,
respectively.
D. Waive the Bank's right to declare an Event of Default under the
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements) by reason of the Borrower's failure to notify the Bank
of the license suspension on the Vancouver Washington facility and the
Borrower's failure to notify the Bank of shareholder lawsuits filed against the
Borrower.
E. As of the date of this Amendment Bank has not received written notice
from any person of the occurrence of an event that would constitute an Event of
Default under the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements).
3. Deposit and Release of Additional Security for the Borrower's
-------------------------------------------------------------
Obligations Under the Reimbursement Agreements. In exchange for the forbearance
- ----------------------------------------------
and waiver of certain defaults under the Reimbursement Agreements:
-3-
<PAGE>
A. Borrower shall deposit $8,300,0000 in cash collateral with the Bank on
or before the effective date of this Amendment, and shall execute such documents
as the Bank may request to perfect the Bank's security interest in the cash
collateral (the "Cash Collateral"). Each of the Reimbursement Agreements is
hereby amended to provide that the Cash Collateral constitutes additional
security for any and all indebtedness of Borrower to the Bank, including, but
not limited to, the Borrower's obligations under the Reimbursement Agreements
and the Related Documents.
B. The Bank will agree to release up to $4,000,000 of the Cash Collateral
to Borrower, provided there is no Event of Default under the Reimbursement
Agreements or any of the Related Documents (as defined in the Reimbursement
Agreements) and no event that with the giving of notice, the passage of time, or
both, would constitute an Event of Default, when each of the following
conditions has been satisfied: (i) The Washington Properties, the Idaho
Properties or the Ohio Properties independently meet the following cash flow
coverage ratio for two consecutive quarters, commencing with the fiscal quarter
ending June 30, 1999; and (ii) all other covenants under the Reimbursement
Agreements and each of the Related Documents (as defined in the Reimbursement
Agreements) remain in compliance. For purposes of this Section 3(B), cash flow
coverage ratio shall mean that for the actual quarter, the Washington
Properties, the Idaho Properties or the Ohio Properties, as applicable, shall
maintain a financial performance level such that the sum of their quarterly Net
Income + Interest Expense + Depreciation & Amortization shall exceed the sum of
----- ------
Interest Expense + pro rata (for the quarter) scheduled Washington Bonds, Idaho
Bonds or Ohio Bonds, as applicable, principal payments + pro rata (for the
quarter) annual fees relating to the Washington Bonds and the Washington Letter
of Credit, the Idaho Bonds and the Idaho Letter of Credit and the Ohio Bonds and
the Ohio Letter of Credit, as applicable, by 1.25 times, measured quarterly.
All cash flow coverage calculations shall be based solely upon the operating
performance of the Washington Properties, the Idaho Properties or the Ohio
Properties, as applicable, and shall not take into consideration any cash
collateral deposited with Bank including, but not limited to, the Cash
Collateral required under Section 3(A) above. If any of the Washington
Properties, the Idaho Properties or the Ohio Properties has satisfied the
conditions set forth above, the Bank shall consent to a pro rata release of up
to $4,000,000 of the Cash Collateral based on the following schedule:
<TABLE>
<CAPTION>
Properties Percentage Pro Rata Share of $4,000,000 Cash Collateral
<S> <C> <C>
Washington 29.86% $1,194,400
Idaho 25.01% $1,000,400
Ohio 45.13% $1,805,200
------ ----------
Total 100.00% $4,000,000
</TABLE>
C. The Bank will agree to release the balance of the Cash Collateral to
Borrower, provided there is no event of default under the Reimbursement
Agreements or any of the Related Documents (as defined in the Reimbursement
Agreements) and no event that with the giving of notice, the passage of time, or
both, would constitute an Event of Default under the Reimbursement Agreements or
any Related Documents (as defined in the Reimbursement Agreements), when each of
the following conditions have been satisfied: (i) Each of the Bond
-4-
<PAGE>
Financed Properties independently meets the following cash flow coverage ratio
requirements for two consecutive quarters, commencing with the fiscal quarter
ending June 30, 1999; and (ii) the Borrower is in compliance with the following
corporate cash flow coverage ratio measured on Borrower-wide operations for two
consecutive quarters, commencing with the fiscal quarter ending June 30, 1999;
and (iii) all other covenants under the Reimbursement Agreements and each of the
Related Documents (as defined in the Reimbursement Agreements) remain in
compliance. For purposes of this Section 3(C) the cash flow coverage ratio will
be two independent tests and Borrower must comply with both tests and the other
requirements in this Section 3(C) in order to obtain a release of the remaining
Cash Collateral.
(a) For the actual quarter, the Borrower's ratio of Net Income (which
shall exclude any restructuring, extraordinary or changes in accounting charges)
+ Interest Expenses + Depreciation & Amortization divided by Interest Expense +
pro rata (for the quarter) scheduled principal payments on all Indebtedness +
pro rata (for the quarter) annual fees relating to the U.S. Bank Bonds and the
U.S. Bank Letters of Credit shall be greater than or equal to 1.25:1.00 measured
quarterly; and
---
(b) For the actual quarter, all Bond Financed Properties shall maintain
a financial performance level such that the sum of their quarterly Net Income +
Interest Expense + pro rata (for the quarter) scheduled U.S. Bank Bonds
principal payments + pro rata (for the quarter) annual fees relating to the U.S.
Bank Bonds and the U.S. Bank Letters of Credit by 1.25 times, measured
quarterly.
All cash flow coverage calculations shall be based upon operating
performance of the Bond Financed Properties and shall not take into
consideration any cash collateral deposited with the Bank, including, but not
limited to, the remaining Cash Collateral.
4. Modification and Restructure of Reimbursement Agreements. In exchange
--------------------------------------------------------
for the forbearance and waiver of certain defaults under the Reimbursement
Agreements, and in addition to the deposit of the Cash Collateral with Bank as
additional security for the Borrower's obligations under the Reimbursement
Agreements and Related Documents (as defined in the Reimbursement Agreements) as
required under Section 3 of this Amendment, each of the Reimbursement Agreements
is hereby modified as follows:
A. Article I of each of the Reimbursement Agreements is amended to
add the following definitions:
"Bond Financed Properties" means, individually and collectively, the
Washington Properties, the Idaho Properties, the Ohio Properties and all other
facilities now or hereafter owned, leased or operated by the Borrower that are
financed with the proceeds of a Bank credit enhanced bond issue, including, but
not limited to, all facilities financed by the Washington State Housing Finance
Commission's Variable Rate Demand Multifamily Revenue Bonds (LTC Properties,
Inc. Project), Series 1995.
"Idaho Properties" means, individually and collectively, the 4 real
properties located in
-5-
<PAGE>
the State of Idaho which secure, in part, the Borrower's obligations to the
Bank under the Idaho Reimbursement Agreement and which are legally described in
Exhibit B-1 through Exhibit B-4 to the Idaho Reimbursement Agreement.
"Idaho Reimbursement Agreement" means that certain Reimbursement Agreement
dated as of July 1, 1997 by and between Borrower and Bank, as amended by the
Amendment, as the same may from time to time be further amended, modified or
supplemented.
"Ohio Properties" means, individually and collectively, the 7 real
properties located in the State of Ohio which secure, in part, the Borrower's
obligations to the Bank under the Ohio Reimbursement Agreement and which are
legally described in Exhibit B-1 through Exhibit B-7 to the Ohio Reimbursement
Agreement.
"Ohio Reimbursement Agreement" means that certain Reimbursement Agreement
dated as of July 1, 1998, by and between Borrower and Bank, as amended by the
Amendment, as the same may from time to time be further amended, modified or
supplemented.
"Washington Properties" means, individually and collectively, the 5 real
properties located in the State of Washington which secure, in part, the
Borrower's obligations to the Bank under the Washington Reimbursement Agreement
and which are legally described in Exhibit B-1 through Exhibit B-5 to the
Washington Reimbursement Agreement.
"Washington Reimbursement Agreement" means that certain Reimbursement
Agreement dated as of November 1, 1996 by and between Borrower and Bank, as
amended by the Amendment, as the same may from time to time be further amended,
modified or supplemented.
"U.S. Bank Bonds" means, individually and collectively, any bonds now or
hereafter issued by a political subdivision of any state or other entity
authorized to issue revenue bonds, on behalf of the Borrower or the proceeds of
which are loaned to the Borrower or to any Person who leases assisted living
facilities to, or which are operated by, Borrower, the principal and interest of
which is to be paid with the proceeds of drawings on a letter of credit now or
hereafter issued by U.S. Bank National Association, including, but not limited
to, the following bond issues: (a) Washington State Housing Finance
Commission's Variable Rate Demand Multifamily Revenue Bonds (LTC Project),
Series 1995; (b) Washington State Housing Finance Commission's Variable Rate
Demand Multifamily Revenue Bonds (Assisted Living Concepts, Inc. Project),
Series 1996; (c) Idaho Housing and Finance Association's Variable Rate Demand
Housing Revenue Bonds (Assisted Living Concepts, Inc. Project), Series 1997, and
(d) Ohio Housing Finance Agency's Variable Rate Demand Housing Revenue Bonds
(Assisted Living Concepts, Inc. Project), 1998 Series A-1 and Taxable Variable
Rate Demand Housing Revenue Bonds (Assisted Living Concepts, Inc. Project), 1998
Series A-2.
"U.S. Bank Letters of Credit" means, individually and collectively, any
letter of credit now or hereafter issued by Bank at the request of, on behalf
of, or for the direct or indirect benefit of the Borrower including, but not
limited to, the following letters of credit: (a) U.S. Bank of Washington,
National Association Letter of Credit No. S102742 issued December 13, 1995;
-6-
<PAGE>
(b) U.S. Bank of Washington, National Association Letter of Credit No. S000230
issued November 21, 1996; (c) United States National Bank of Oregon Letter of
Credit No. S001062 issued July 31, 1997; and (d) U.S. Bank National Association
Letter of Credit No. SLCSSEA00008 issued July 17, 1998.
"U.S. Bank Reimbursement Agreements" means, individually and collectively,
the Washington Reimbursement Agreement, the Idaho Reimbursement Agreement, the
Ohio Reimbursement Agreement and any other reimbursement agreement now or
hereafter entered into between Borrower and Bank in connection with the issuance
of U.S. Bank Letters of Credit, including, but not limited to, that certain
Reimbursement Agreement dated as of November 1, 1995 entered into between LTC
Properties, Inc. and Bank, as the same may from time to time be amended,
modified or supplemented.
B. Section 7.01(G)(iii) of each of the Reimbursement Agreements is amended
to read as follows:
The Cash Flow Coverage ratio will be two independent tests. Failure to
comply with either test shall constitute an Event of Default under this
Agreement:
(a) For the actual quarter, the Borrower's ratio of Net Income (which
shall exclude any restructuring, extraordinary or changes in accounting charges)
+ Interest Expenses + Depreciation & Amortization divided by Interest Expense +
pro rata (for the quarter) scheduled principal payments on all Indebtedness +
pro rata (for the quarter) annual fees relating to the U.S. Bank Bonds and the
U.S. Bank Letters of Credit shall be greater than or equal to 1.25:1.00 measured
quarterly commencing June 30, 2000; and
---
(b) For the actual quarter, all Bond Financed Properties shall maintain
a financial performance level such that the sum of their quarterly Net Income +
Interest Expense + Depreciation & Amortization shall exceed the sum of Interest
------------
Expense + pro-rata (for the quarter) scheduled U.S. Bank Bonds principal
payments + pro rata for the quarter) annual fees relating to the U.S. Bank Bonds
and the U.S. Bank Letters of Credit by 1.25:1.00, measured quarterly commencing
June 30, 2000.
C. Section 8.01 of each of the Reimbursement Agreements is amended to add
the following new Section 8.01(k) immediately following Section 8.01(j):
(k) The commencement of any administrative or other proceeding seeking
license revocation or suspension or limitation on admission of residents to any
of the Bond Financed Properties (collectively, "Regulatory Action") by any
federal or state regulatory agency (collectively "Regulatory Agency") that is
not settled, dismissed or resolved to the satisfaction of such Regulatory Agency
within ninety (90) days shall constitute an Event of Default under the
Reimbursement Agreements; provided, however, that if such matter cannot be
resolved within ninety (90) days, the Borrower will not be in default under the
Reimbursement Agreements as a result of such Regulatory Action so long as
Borrower promptly and, in any event, within thirty (30) days following such
Regulatory Action, commences resolution of the matter and thereafter
-7-
<PAGE>
diligently and continuously prosecutes in good faith a settlement, dismissal or
resolution of such Regulatory Action.
5. Confirmation. The Reimbursement Agreements and each of the Related
------------
Documents (as defined in the Reimbursement Agreements) are each hereby modified
to provide that the term "Reimbursement Agreement" or "Reimbursement Agreements"
shall mean the Reimbursement Agreement or the Reimbursement Agreements, as
modified hereby. Borrower hereby confirms, subject to this Amendment, each of
the covenants, agreements and obligations of Borrower set forth in the
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements). Borrower acknowledges and agrees that, if and to the
extent that the Bank has not heretofore required strict compliance with the
performance by Borrower of such covenants, agreements and obligations, such
action or inaction shall not constitute a waiver of, or otherwise affect in any
manner, Bank's rights and remedies under any of the Reimbursement Agreements, as
amended hereby, or any of the Related Documents (as defined in the Reimbursement
Agreements), including the right to require performance of such covenants,
agreements and obligations strictly in accordance with the terms and provisions
thereof except as waived herein. Each Deed of Trust or, with respect to the
Ohio Properties, Mortgage which secures the Borrower's obligations under any
Reimbursement Agreement is hereby modified to provide that such Deed of Trust or
Mortgage secures such Reimbursement Agreement as modified hereby. Borrower
represents and warrants that (i) upon filing and/or delivery of the financial
statements and financial information described in Section 2 of this Amendment in
the form and within the time period therein set forth; (ii) the deposit of the
$8,300,000 Cash Collateral with Bank and execution of the documents described in
Section 3 of this Amendment, and (iii) upon the satisfaction of all of the terms
and conditions set forth in this Amendment, including, but not limited to,
payment of the restructuring fee and other costs and expenses set forth in
Section 15 of this Amendment, Borrower will not be in default in the performance
of any of the obligations, terms, covenants, conditions, representations,
warranties or other provisions set forth in the Reimbursement Agreements or any
of the Related Documents (as defined in the Reimbursement Agreements, as
amended), and (iv) Borrower has no knowledge of any defenses, offsets or claims
which may be asserted by Borrower, or by anyone claiming by or through Borrower,
to the indebtedness owned by Borrower to Bank under the Reimbursement Agreements
or any of the Related Documents (as defined in the Reimbursement Agreements) or
to the performance of any of the obligations, terms, covenants, conditions,
representations, warranties or other provisions set forth in the Reimbursement
Agreements or any of the Related Documents (as defined in the Reimbursement
Agreements).
6. Validity. Except as specifically modified and amended by this
--------
Amendment, all of the terms, covenants, conditions and provisions of the
Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements) shall remain in full force and effect. Nothing herein
shall be deemed or construed to be an impairment of the lien of each Deed of
Trust or, with respect to the Ohio Properties, each Mortgage and the lien of
each Deed of Trust or each Mortgage shall remain a first lien against the
Washington Properties, the Idaho Properties or the Ohio Properties, as
applicable, described in such Deed of Trust or, with respect to the Ohio
Properties, such Mortgage.
-8-
<PAGE>
7. Bankruptcy. Borrower hereby represents and warrants that Borrower has
----------
not filed for relief under any chapter of Title 11 of the United States Code, as
amended (hereinafter referred to as the "Bankruptcy Code") at any time prior to
the date of this Amendment, and that it has not been subject to an involuntary
petition under the Bankruptcy Code. Borrower further represents and warrants
that as of the date of this Amendment (i) Borrower is and reasonably believes it
will continue to be able to pay all of its creditors in a timely manner; (ii)
Borrower will not be rendered insolvent as a result of entering into this
Amendment and reasonably believes it will continue to have assets which are
reasonable in relation to its business; and (iii) the agreements made and
obligations provided for herein and the cure periods provided to Borrower to
cure the Events of Default set forth in Section 2 above, were not made or
incurred with any intent, actual or otherwise, to hinder, delay or defraud any
person or entity. Borrower waives its right pursuant to Bankruptcy Code Section
1121(d) to seek any extension of the exclusive period in which it may file a
plan for reorganization and seek approval thereof. The foregoing
representations and warranties are a material inducement for Bank to agree to
enter into this Amendment. Nothing in this Section 7 shall be deemed in any way
to limit or restrict any of Bank's rights to seek in the bankruptcy court any
relief (or take any other action) that Bank, in Bank's sole discretion, may deem
appropriate in the event that a case under the Bankruptcy Code is commenced by
or against Borrower, and in particular, Bank shall be free to move for an
immediate vacation of the automatic stay under Section 362 of the Bankruptcy
Code, and Borrower agrees not to resist or oppose any such motion. Bank shall
also be free to move to terminate the exclusive period under Section 1121 of the
Bankruptcy Code and/or to dismiss the filed bankruptcy case.
8. Release of Claims.
-----------------
(a) Release of All Claims. Borrower, on behalf of itself, its
---------------------
affiliates and their respective successors and assigns (collectively, the
"Releasing Parties"), hereby release and forever discharge Bank and all of
Bank's officers, directors, employees, agents, attorneys, advisors, participants
and their respective successors and assigns (collectively, the "Released
Parties") from any and all claims, demands, debts, liabilities, contracts,
obligations, accounts, torts, causes of action or claims for relief of whatever
kind or nature, whether known or unknown, whether suspected or unsuspected,
which the Releasing Parties may have or which may hereafter be asserted or
accrue against Released Parties, or any of them, resulting from or in any way
relating to any act or omission done or committed by Released Parties, or any of
them, prior to the date hereof.
(b) Complete Defense. This release by Releasing Parties shall
----------------
constitute a complete defense to any claim, cause of action, defense, contract,
liability, indebtedness or obligation released pursuant to this release. Nothing
in this release shall be construed as (or shall be admissible in any legal
action or proceeding as) an admission by Bank or any other Released Party that
any defense, indebtedness, obligation, liability, claim or cause of action
exists which is within the scope of those hereby released.
9. No Continuing Waiver. No waiver of any of the provisions of the
--------------------
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements)
-9-
<PAGE>
shall be deemed, or shall constitute, a continuing waiver of any of the
provisions of the Reimbursement Agreements or any of the Related Documents (as
defined in the Reimbursement Agreements) nor shall any provision of this
Amendment be deemed, or constitute, a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No waiver of
any of the provisions of the Reimbursement Agreements shall be binding unless
executed in writing by the party making the waiver. Nothing contained in this
Amendment or in any ongoing discussions or negotiations between Borrower or Bank
shall directly or indirectly (i) create any obligation to make any further
extension of credit; (ii) create any obligation to make any further forbearance
or waiver or defer any enforcement action by Bank as a result of the occurrence
of an Event of Default under the Reimbursement Agreements or any of the Related
Documents (as defined in the Reimbursement Agreements) which is not described in
Section 2 of this Amendment or with respect to any Event of Default which is
described in Section 2 of this Amendment beyond the dates set forth in Section 2
of this Amendment; (iii) constitute a consent or waiver of any past, present or
future Event of Default or other violation of any provision of the Reimbursement
Agreements or any of the Related Documents (as defined in the Reimbursement
Agreements) except to the extent expressly set forth in Section 2 of this
Amendment; (iv) constitute a course of dealing or other basis for altering any
of Borrower's obligations to Bank under the Reimbursements Agreements or any of
the Related Documents (as defined in the Reimbursement Agreements). Bank
expressly reserves all of its rights, powers and remedies under the
Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements).
10. Reaffirmation of Representations and Warranties. Borrower does hereby
-----------------------------------------------
reaffirm to Bank each of the representations, warranties, covenants and
agreements made by Borrower set forth in each of the Reimbursement Agreements
with the same force and effect as if each were separately stated herein and made
again as of the date hereof. This reaffirmation shall not in any way limit,
derogate or abrogate the representations, warranties, covenants and agreements
made by Borrower as set forth in the Reimbursement Agreements. Borrower further
represents and warrants to Bank that with the exception of the Events of
Defaults set forth in Section 2 of this Amendment, Borrower is in compliance
with all of the terms, covenants, representations, warranties and agreements
made by Borrower in the Reimbursement Agreements and each of the Related
Documents (as defined in the Reimbursement Agreements). There is no Event of
Default under and no event that with the giving of notice, the passage of time,
or both, would constitute an Event of Default under any of the Reimbursement
Agreements, or any of the Related Documents (as defined in the Reimbursement
Agreements).
11. Time is of the Essence. Time is of the essence of this Amendment.
----------------------
12. Binding Effect. This Amendment shall be binding upon Borrower and its
--------------
successors and permitted assigns and shall inure to the benefit of Bank and its
successors and assigns.
13. Prior Agreements. The Reimbursement Agreements and each of the Related
----------------
Documents (as defined in the Reimbursement Agreements), including this Amendment
(i) integrate all the terms and conditions mentioned in or incidental to the
Reimbursement
-10-
<PAGE>
Agreements and each of the Related Documents (as defined in the Reimbursement
Agreements), (ii) supersede all oral negotiations and prior and other writings
with respect to the subject matter thereof, and (iii) are intended by the
parties as the final expression of the agreement with respect to the terms and
conditions set forth in this Amendment modifying and restructuring the
Reimbursement Agreements and each of the Related Documents (as defined in the
Reimbursement Agreements) and as the complete and exclusive statement of the
terms agreed to by the parties. If there is any conflict between the terms,
conditions and provisions of this Amendment and those of any of the
Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements), the terms, conditions and provisions of this
Amendment shall prevail.
14. No Rights Conferred on Others. Nothing contained in this Amendment,
-----------------------------
the Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements) shall be construed as giving any person, other than
the parties hereto, any right, remedy or claim under or in respect of this
Amendment except for the rights granted to the Released Parties in Section 8
hereof.
15. Costs and Expenses. Bank's agreement to forbear and waive certain
------------------
Events of Default under the Reimbursement Agreements is expressly conditioned
upon payment to Bank of a non-refundable restructuring fee of $71,162.00.
Borrower shall reimburse Bank for all fees, costs and expenses incurred by Bank
in the negotiation, preparation and administration of the modification and
restructuring of the Reimbursement Agreements and other Related Documents
contemplated by this Amendment. Such fees and costs include, but are not
limited to, outside counsel attorney fees and costs, inspection fees, filing and
recording fees, and the costs incurred to satisfy all terms of this Amendment.
All such costs and expenses shall be paid upon execution of this Amendment.
16. Governing Law. This Amendment and the rights and obligations of the
-------------
parties hereunder shall in all respects be governed by, and construed and
enforced in accordance with the laws of the State of Washington. If any court
of competent jurisdiction determines any provision of this Amendment or any of
the Reimbursement Agreements or any of the Related Documents (as defined in the
Reimbursement Agreements) to be invalid, illegal or unenforceable, that portion
shall be deemed severed from the rest, which shall remain in full force and
effect as though the invalid, illegal or unenforceable portion had never been a
part hereof or of the Reimbursement Agreements or any of the Related Documents
(as defined in the Reimbursement Agreements).
17. Voluntary Agreement. The Borrower acknowledges that the Borrower is
-------------------
represented by legal counsel of the Borrower's choice, is fully aware of the
terms contained in this Amendment, and has voluntarily and without coercion or
duress of any kind entered into this Amendment and the documents executed in
connection with this Amendment.
18. Counterparts. This Amendment may be executed in any number of
------------
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
-11-
<PAGE>
19. Notice re Oral Commitments. Oral agreements or oral commitments to
--------------------------
loan money, extend credit, or to forbear from enforcing repayment of a debt are
not enforceable under Washington law.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
"Bank" "Borrower"
U.S. BANK NATIONAL ASSOCIATION ASSISTED LIVING CONCEPTS, INC., a
Nevada corporation
By /s/ Deborah S. Watson By /s/ James W. Cruckshank
--------------------- -----------------------
Deborah S. Watson Name James W. Cruckshank
Vice President Title Vice President, CFO
-12-
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------ ------------
(in thousands)
<S> <C> <C>
Net loss before cumulative effect of change in
accounting principle............................... $(2,479) $(19,222)
Add fixed charges...................................
Interest costs including amortization of debt
issuance cost...................................... 4,946 11,039
------- --------
Earnings (loss) before fixed charges............ $ 2,467 $ (8,183)
======= ========
Fixed charges:
Interest expense including amortization of debt
issuance costs................................... 4,946 11,039
Capitalized interest.............................. 6,616 5,979
------- --------
Total fixed charges............................. $11,562 $ 17,018
======= ========
Ratio of earnings to fixed charges.................. .21 --
======= ========
Deficiency of earnings to cover fixed charges....... $ 9,095 $ 25,201
======= ========
</TABLE>
<PAGE>
EXHIBIT 23.1
Independent Auditors' Report on Schedule and Consent
The Board of Directors
Assisted Living Concepts, Inc.:
The audits referred to in our report dated September 10, 1999, included the
related financial statement schedule as of December 31, 1996, 1997 and 1998,
included in the annual report on Form 10-K. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We consent to incorporation by reference in the Registration Statements (No.
333-58953 and No. 333-2352) on Forms S-8 of Assisted Living Concepts, Inc. of
our report dated September 10, 1999, relating to the consolidated balance
sheets of Assisted Living Concepts, Inc. and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the each of the years in the three-
year period ended December 31, 1998, which report appears in the December 31,
1998 annual report on Form 10-K of Assisted Living Concepts, Inc.
As discussed in note 20 to the consolidated financial statements, the
Company restated its financial statements as of and for the years ended
December 31, 1996 and 1997.
KPMG LLP
Portland, Oregon
September 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 55,036
<SECURITIES> 4,000
<RECEIVABLES> 5,306
<ALLOWANCES> 179
<INVENTORY> 0
<CURRENT-ASSETS> 69,627
<PP&E> 336,058
<DEPRECIATION> 9,133
<TOTAL-ASSETS> 414,669
<CURRENT-LIABILITIES> 25,771
<BONDS> 266,286
0
0
<COMMON> 173
<OTHER-SE> 119,024
<TOTAL-LIABILITY-AND-EQUITY> 414,669
<SALES> 89,384
<TOTAL-REVENUES> 89,384
<CGS> 57,443
<TOTAL-COSTS> 99,611
<OTHER-EXPENSES> 1,174
<LOSS-PROVISION> 359
<INTEREST-EXPENSE> 11,039
<INCOME-PRETAX> (19,222)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,222)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,523)
<NET-INCOME> (20,745)
<EPS-BASIC> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
