LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is
entered into as of the 18th day of February, 1997,
by and between FINOVA Capital Corporation, a
Delaware corporation ("Lender") and TDC/Emeritus
Paso Xxxxxx Associates, a Washington general
partnership ("Borrower").
RECITALS:
A. Borrower desires to obtain a loan in an
amount of up to SIX
MILLION AND NO/100 DOLLARS ($6,000,000.00) from
Lender for the purpose of providing construction
and term financing for the Creston Village at Paso
Xxxxxx, California retirement center.
B. Lender is willing to make the loan to
Borrower based on the terms and conditions of, and
Borrower's compliance with, this Agreement and the
other Loan Documents (as hereafter defined).
AGREEMENT:
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby
agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement and in the Loan
Documents, unless otherwise expressly indicated
herein or therein, the following terms shall have
the following meanings (such meanings to be
applicable equally both to the singular and plural
terms defined):
1.1 "ADVANCE" shall mean the Initial Advance
and any subsequent
advance of proceeds of the Loan by Lender pursuant
to this Agreement.
1.2 "AFFIDAVIT OF BORROWER" shall mean a
sworn Affidavit of Borrower in the form of Exhibit
F-2, to accompany a Work-Related Advance Request.
1.3 "AFFILIATE" shall mean with respect to
any Person, a Person that directly or indirectly,
through one or more intermediaries, controls or is
controlled by or is under common control with such
Person; any officer, director, partner or
shareholder of such Person; and any relative of
any of the foregoing. Notwithstanding anything to
the contrary set forth in this definition,
Affiliate shall not include (a) any shareholder of-
Emeritus Corporation or any relative of such
shareholder, or (b) Xxxxxx X. Xxxx or any Person
who otherwise would be an Affiliate of Xxxxxx X.
Xxxx. The term "control" means possession,
directly or indirectly, of the power to direct or
cause the direction of the management and policies
of a Person, whether through the ownership of
voting securities, by contract or otherwise.
1.4 "APPLICATION FEE" shall mean that certain
non-refundable fee in the amount of Ten Thousand
Dollars ($ 10,000.00) paid by Borrower to Lender
prior to the issuance of Lender's commitment
letter dated November 21,1996.
1.5 "ARCHITECT/ENGINEER" shall mean an
architect or engineer employed by Borrower to
perform architectural or engineering services.
1.6 "ARCHITECT/ENGINEER AGREEMENT" shall mean
a contract (written or oral, now or hereafter in
effect) between Borrower and an Architect/Engineer
for the performance of architectural or
engineering services, as approved by Lender in
writing and modified from time to time with
Lender's prior written consent.
1.7 "BASE RATE" shall mean: (a) the Citibank
prime rate; or (b) such per annum rate which has
been selected by Lender as the Base Rate pursuant
to the terms of the following sentences. If the
Base Rate then being utilized ceases to be
published, then Lender shall choose as the Base
Rate a reference rate which Lender deems
comparable in its sole and absolute discretion. As
used above, the Citibank prime rate shall mean the
rate per annum publicly announced from time to
time by Citibank, N.A., New York, New York
(together with any successor, "Citibank"), as its
base rate or equivalent rate of interest charged
by Citibank to its largest and most creditworthy
commercial borrowers, notwithstanding the fact
that some borrowers of Citibank may borrow from
Citibank at rates less than such announced prime
rate.
1.8 "BASIC INTEREST" shall mean the interest
due and payable on the outstanding principal
balance of the Note, which shall accrue on the
outstanding principal balance of the Loan Amount
at the lesser of (i) the Maximum Rate, or (ii) a
floating rate per annum equal to seventy-five (75)
basis points above the Base Rate ("Basic Rate");
which shall be initially determined using the Base
Rate in effect on the first Business Day of the
month in which the Loan Closing occurs, and
thereafter shall automatically change on each
Interest Rate Change Date.
At any time during the first one-year period
following the Permanent Term Commencement Date,
Borrower shall have the one time right upon seven
(7) days prior written notice to Lender to convert
the floating Basic Rate to a fixed rate for the
remaining term of the Loan (the "Conversion
Option") at a rate equal to the sum of the
Treasury Constant Maturity Rate as published by
the Federal Reserve Bank for Treasury Notes having
a maturity closest to the remaining term of the
Note plus three hundred (300) basis points,
provided that no Event of Default or Incipient
Default of which Lender has notified Borrower has
occurred and that Borrower has paid to Lender a
conversion fee equal to one-quarter of one percent
(0.25%) of the then outstanding principal balance
of the Note as of the date of Borrower's notice of
Borrower's exercise of the Conversion Option. In
the event that Borrower does not exercise the
Conversion Option and convert the floating Basic
Rate to a fixed Basic Rate during the first year
after commencement of the Permanent Term, Borrower
shall be conclusively deemed to have elected to
retain the variable Basic Rate set forth in the
preceding paragraph for the remainder of the term
of the Loan until the Maturity Date.
Notwithstanding the foregoing to the contrary, in
the event Borrower is unable to exercise the
Conversion Option on the date one year after the
commencement of the Permanent Term because at such
time there exists an Incipient Default of which
Lender has notified Borrower, and such Incipient
Default is subsequently cured by Borrower, then
Borrower may exercise the Conversion Option at any
time within thirty (30) days after the date the
Incipient Default is cured.
Basic Interest shall be calculated on the basis of
actual number of days elapsed during the period
for which interest is being charged predicated on
a year consisting of 360 days.
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Interest shall accrue from Lender's wiring or
disbursement of funds through Lender's receipt of
repayment.
1.9 "BORROWER" shall mean TDC/Emeritus Paso
Xxxxxx Associates ,
a Washington general partnership and its permitted
successors, beneficiaries and assigns. The members
of Borrower are each of the Guarantors.
1.10 "BUDGET" shall mean a detailed budget
cost itemization prepared by Borrower with respect
to construction of the Work, and approved in
writing by Lender, which specifies by item the
cost, source of payment and draw schedule of (a)
all labor, materials and services necessary for
Completion of the Work; and (b) all other expenses
incidental to the Completion of the Work. The
Budget shall include an interest reserve,
retainage and contingency reserve deemed adequate
by Lender. The original Budget for the Work shall
be attached hereto as Exhibit D at such time as it
has been prepared by Borrower and approved by
Lender in writing.
1.11 "BUSINESS DAY" shall mean any day other
than a Saturday, Sunday or any holiday on which
banks in Phoenix, Arizona are required to close.
1.12 "CASH FLOW" shall mean, for any given
accounting period, net income (as determined in
accordance with GAAP applied on a basis consistent
with prior periods) plus (to the extent deducted
from revenues in arriving at net income)
depreciation, amortization, interest expense, and
Management Fees, less, without duplication,
capital gain on the sale of assets, extraordinary
income, and an amount equal to two percent (2%) of
Gross Revenues (as a replacement reserve). In no
instance will any capital expenditure be accounted
for in determining Cash Flow.
1.13 "CERTIFICATE OF COMPLETION" shall mean,
with respect to the Work, a certificate issued by
the governmental authority having jurisdiction
over the Work when all of the Work has been
completed, allowing the use of the Improvements by
Borrower for their intended purpose.
1.14 "COLLATERAL" shall mean the Property and
the Leases and any and all other property
constituting security for the Loan under the
Mortgage or any of the other Loan Documents.
1.15 "COMPLETION" or "COMPLETION OF THE WORK"
shall mean completion of the Work (excluding
certain "punch-list" items which are not necessary
for the full operation of the Project),
substantially in accordance with the Plans and
Specifications, the Construction Contracts, all
applicable, zoning, building and other
governmental laws, regulations and private
restrictions, the Loan Documents, sound
construction, engineering and architectural
principles and commonly accepted safety standards,
and lien free and free of defective materials and
workmanship; and receipt by Lender of the
following in form and substance satisfactory to
it:
1.15.1 A certificate of completion from
Borrower and its Architect/Engineer and, if Lender
elects, from Lender's Consultant, certifying that
the Work has been so completed in accordance with
the Loan Documents including, without limitation,
the Construction Contract, in a good and
workmanlike manner, all utilities necessary to
serve the Property have been connected and are
operating, and the Improvements are ready for
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occupancy by those Tenants whose tenant
improvement work is included in the Budget (if
any);
1.15.2 A Certificate of Completion;
1.15.3 If applicable laws provide that the
recording of a notice of completion for the Work
will cause the expiration upon a date certain of
the statutory period within which mechanics' and
similar liens can be filed, verification of the
recording of such notice in the manner prescribed
by such laws;
1.15.4 Final lien waivers (which may be
conditional on payments only with respect to the
work, material, equipment, or services to be paid
from proceeds of the final Advance);
1.15.5 The Re-Issued Title Policy required
pursuant to paragraph 5.16. 9 ;
1.15.6 The "as-built survey" required
pursuant to paragraph 5.16.8 and "as built plans"
for the Property;
1.15.7 All environmental licenses or
approvals for operation within or on the Project
if any; and any other applicable governmental
permits, approvals, consents, licenses and
certificates for the use and operation of the
Project as a 100-unit independent and assisted
living facility; and
1.15.8 Evidence satisfactory to Lender that
there are no material judgments or pending
litigation or, to the best of Borrower's
knowledge, threatened litigation of a material
nature outstanding against the Borrower, or the
Project, including but not limited to litigation
or judgments which may affect title or Lender's
lien position with respect to any of the
Collateral or any litigation or judgment which
might materially affect the ability of Borrower to
perform its obligations under the Loan Documents.
1.16 "COMPLETION DATE" shall mean the date
upon which the. final Advance is funded by Lender
pursuant to paragraph 3.2.7.
1.17 "CONSTRUCTION CONTRACT" shall mean a
contract (written or oral, now or hereafter in
effect) between Borrower and a Contractor, or
between any Contractor and any other person or
entity relating in any way to the Completion of
the Work, including the performing of labor and
the furnishing of equipment, materials or services
(other than architectural or engineering
services), as approved by Lender in writing and
modified from time to time with Lender's prior
reasonable written consent.
1.18 "CONSTRUCTION TERM" shall mean a term
commencing on the Loan Closing and ending on the
earlier of (a) the date twelve ( 12) months after
the Loan Closing, or (b) the Completion Date.
1.19 "CONTRACTOR" shall mean a contractor
employed by Borrower to provide labor and/or to
furnish equipment, materials or services for any
portion of the Work. .
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1.20 "CONTRACTS, INTANGIBLES, LICENSES AND
PERMITS" shall mean the property so described in
Exhibit A-2.
1.21 "CONVERSION OPTION" shall have the
meaning prescribed in paragraph 1. 8.
1.22 "DEBT" means for any Person: (i) all
indebtedness, whether or not represented by bonds,
debentures, notes, securities, or other evidences
of indebtedness, for the repayment of money
borrowed, (ii) all indebtedness representing
deferred payment of the purchase price of property
or assets, (iii) all indebtedness under any lease
which, in conformity with GAAP, is required to be
capitalized for balance sheet purposes, (iv) all
indebtedness under guaranties, endorsements,
assumptions, or other contingent obligations, in
respect of, or to purchase or otherwise acquire,
indebtedness of others, and (v) all indebtedness
secured by a Lien existing on property owned,
subject to such lien, whether or not the
indebtedness secured thereby shall have been
assumed by the owner thereof.
1.23 "DEBT SERVICE" shall mean, for any given
accounting period, all regularly scheduled
principal and interest payments due under the Note
plus all payments on operating and capital leases
(including Equipment Leases) and any other Debt
permitted under the Loan Documents or approved in
writing by Lender.
1.24 "DEBT SERVICE AFTER MANAGEMENT FEE
COVERAGE RATIO" shall mean the ratio of (a) Post
Management Fees Cash Flow for the relevant period,
to (b) Debt Service.
1.25 "DEBT SERVICE COVERAGE RATIO" shall mean
the ratio of (a) Cash Flow for the relevant
period, to (b) Debt Service for the relevant
period.
1.26 "DEFAULT RATE" shall mean the Default
Rate of interest more fully described and set
forth in paragraph 7.1.10.
1.27 "DISTRIBUTIONS" shall have the meaning
prescribed in paragraph 5.10.
1.28 "DUE DATE" shall mean the first to occur
of (i) the Maturity Date, (ii) full repayment of
the Loan, or (iii) acceleration of the Loan upon
the occurrence of an Event of Default under the
Loan Documents.
1.29 "EQUIPMENT LEASES" shall have the
meaning prescribed in paragraph 3.1.18.
1.30 "EVENT OF DEFAULT" shall have the
meaning described and set forth in Article 6.
a
1.3 1 "EXCESS CASH FLOW" shall mean Cash Flow
minus Debt Service ,
for the relevant period.
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1.32 "FORCE MAJEURE EVENT" shall mean any
"Act of God, governmental moratorium, civil
commotion, enemy action, fire, strike, casualty,
or governmental order, or injunction issued by a
court of competent jurisdiction, which are entered
for reasons other than for Borrower's acts or
omissions which would constitute a default under
this Agreement, or similar occurrences beyond
Borrower's control.
1.33 "GAAP" shall mean generally accepted
accounting principles.
1.34 "GENERAL CONTRACT" shall mean that
Construction Contract dated as of , 1996, between
Borrower and General Contractor covering the Work
for a guaranteed fixed or maximum price not to
exceed $ , as the same may be modified from time
to time with Lender's prior written consent. The
General Contract shall provide that the Work shall
be fully completed for the foregoing guaranteed
maximum price notwithstanding (a) any future
events, including without limitation, cost
governs, whether foreseeable or unforeseeable
(except Force Majeure Events) or (b) any defaults,
disputes or litigation between the General
Contractor and its subcontractors or materialmen.
1.35 "GENERAL CONTRACTOR" shall mean
_______________, a _______________corporation.
1.36 "GROSS REVENUE" shall mean for any given
accounting period, the aggregate gross rental
income, percentage rental income and all other
income from the Property realized during such
period in accordance with GAAP.
1.37 "GUARANTIES" shall mean those guaranties
of payment and performance and subordinations
executed by the Guarantors and more particularly
described in paragraph 5.12. "Guaranty" shall mean
any one of the Guaranties.
1.38 "GUARANTORS" shall mean TDC
Convalescent, Inc., a California corporation, and
Emeritus Corporation, a Washington corporation.
1.39 "IMPROVEMENTS" shall mean all
improvements to be constructed upon the Real
Property as part of the Work, together with any
off site improvements which must be completed in
connection therewith, all as set forth in the
Plans and
Specifications and the Construction Contract(s)
and as described in the Budget.
1.40 "INCIPIENT DEFAULT" shall mean the
occurrence of any event, which with the giving of
notice or the passage of time or both, would
constitute an Event of Default under the Loan
Documents.
1.41 " INITIAL ADVANCE" shall mean the
initial Advance in an amount not to exceed $ , in
accordance with the terms and provisions of this
Agreement including, without limitation, paragraph
2.3.
1.42 "INTEREST RATE CHANGE DATE" shall mean
the first Business Day of the publisher of the
Base Rate during each calendar month following the
date of the Initial Advance of the Loan.
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1.43 "LEASES" shall mean all of the leases,
subleases, lease guaranties, residency agreements,
licenses, rents, issues and profits related to or
arising from the Real Property or any portion
thereof made by Borrower as landlord, together
with any and all other existing or future leases
or other agreements for the use and/or occupancy
of the Real Property or any portion thereof by
Borrower as landlord, as the same may from time to
time be modified or amended.
1.44 "Lender" shall mean FINOVA Capital
Corporation, a Delaware corporation, and/or its
successors and assigns.
1.45 "LENDER'S CONSULTANT" shall have meaning
given to it in paragraph 9.1.
1.46 "LOAN" shall mean the advances of money
(including any accrued interest and other charges
under the Loan Documents not paid when due) made
by Lender to Borrower, or on Borrower's behalf,
pursuant to this Agreement and the Loan Documents.
1.47 "LOAN CLOSING" shall mean the date the
Initial Advance is advanced to Borrower from
Lender, which advancement will be made through
escrow with the Title Agent, and which Lender and
Borrower contemplate will be no later than
February 28, 1997.
1.48 "LOAN DOCUMENTS" shall mean those
documents (including this Agreement) now or
hereafter evidencing, securing or otherwise
ancillary to the Loan, as they may be hereafter
amended, renewed, replaced or restated.
1.49 "LOAN FEE" shall mean a fee for the Loan
in the amount of One Hundred Twenty Thousand
Dollars ($120,000.00).
1.50 "MANAGEMENT AGREEMENT" shall mean that
Agreement to Provide Management Services to an
Assisted Living Facility dated
between Borrower and Manager, or such other
management agreement from time to time entered
into between Borrower and a manager governing the
management of the Property, and reasonably
approved in writing by Lender.
1.51 "MANAGEMENT FEE ACCOUNT" shall have the
meaning prescribed in paragraph 5.6.2.
1.52 "MANAGEMENT FEES" fees payable pursuant
to the Management Agreement, not to exceed seven
percent (7%) of the Gross Revenue for the period
with respect to which the Management Fees are
paid.
1.53 "MANAGER" shall mean Emeritus
Corporation, a Washington corporation or such
other Person who has been designated to act as the
manager of the Property and approved in writing by
Lender.
1.54 "MATURITY DATE" shall mean the earlier
to occur of (i) the date falling seventy-two (72)
months after the Loan Closing, or (ii) the fifth
(5th) anniversary date of the Permanent Term
Commencement Date.
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1.55 "Maximum Loan Amount" shall mean the
maximum principal amount of the Loan, which shall
be the least of (a) SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), (b) the sum of (i) one hundred
percent ( 100%) of the costs of the Work set forth
in the Budget and designated as costs to be paid
from Loan proceeds, and (ii) all other amounts
Lender is obligated to advance hereunder, or (c)
eighty percent (80%) of the appraised completed
stabilized value of the Project upon Completion,
as determined by Valuation Counselors, Inc.
1.56 "MAXIMUM RATE" means the maximum rate of
nonusurious interest permitted from day to day by
applicable law, and calculated after taking into
account any and all relevant fees, payments, and
other charges in respect of the Loan Documents
which are deemed to be interest under applicable
law.
1.57 "MORTGAGE" shall mean the Deed of Trust,
Security Agreement, Assignment of Leases and Rents
and Fixture Filing securing Borrower's obligations
under the Loan Documents as more fully described
in paragraph 3.1.1.2, as it may be hereafter
amended, renewed, replaced or restated.
1.58 "NOTE" shall mean the promissory note of
Borrower evidencing the Loan, as more fully
described in paragraph 2.6, as it may be hereafter
amended,
renewed, replaced or restated.
1.59 "OBLIGATIONS" shall mean any and all of
the covenants ,
warranties, representations and other obligations,
including the obligation to repay the Loan, made
or undertaken by Borrower or others to Lender, as
set forth in the Loan Documents, any other
documents or instruments executed in connection
with the Loan.
1.60 "OPERATING CASH FLOW ACCOUNT" shall have
the meaning prescribed in paragraph 5.6.1.
1.61 "PERMITTED ENCUMBRANCES" shall mean all
matters shown on Exhibit B.
1.62 "PERSON" shall mean an individual,
trust, estate, partnership ,
limited liability company, corporation or any
other incorporated or unincorporated organization.
1.63 "PERSONAL PROPERTY" shall mean all items
of personal property, tangible and intangible
(including without limitation, fixtures,
furniture, inventory, supplies, vehicles,
machinery and equipment, together with all chattel
paper, documents, instruments, accounts, contract
rights, proprietary rights, rights to payment,
trademarks, tradenames, copyrights, patents and
patent rights, general intangibles, and books and
records) owned by Borrower and used in connection
with the Real Property or the operation of
Borrower's business thereon, or necessary or
incident to the operation of Borrower's business
on the Real Property, whether now owned or
hereafter acquired, together with all products and
proceeds of the same, all as more fully described
in Exhibit A-2 attached hereto and incorporated
herein by this reference.
1.64 "Permanent Term" shall mean a permanent
term for the Loan running from the Permanent Term
Commencement Date through the Maturity Date.
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1.65 "PERMANENT TERM COMMENCEMENT DATE" shall
mean the first day following the end of the
Construction Term.
1.66 "PLANS AND SPECIFICATIONS" shall mean
the architectural, structural, mechanical,
electrical and other plans and specifications for
the construction of the Project and the completion
of the Work and prepared by the
Architect(s)/Engineer(s), as approved by Lender
and as modified from time to time with Lender's
prior written consent.
1.67 "POST MANAGEMENT FEES CASH FLOW" shall
mean Cash Flow less
Management Fees paid by Borrower.
1.68 "PREPAYMENT FEE" shall have the meaning
prescribed in paragraph 2.7.1.
1.69 "PRINCIPAL COMMENCEMENT DATE" shall mean
the first day of the thirteenth (13th) full
calendar month after the Permanent Term
Commencement Date.
1.70 "PRINCIPAL WORK-RELATED ITEMS" shall
mean the Plans and Specifications and all
agreements between Borrower and third parties
pertaining to the Work, including, without
limitation, the Construction Contract(s) and the
Architect/Engineer Agreement(s), as approved by
Lender in writing and modified from time to time
with Lender's prior written consent.
1.71 "PROJECT" shall mean the 100-unit
independent and assisted living facility to be
constructed on the Real Property.
1.72 "PROPERTY" shall mean the Personal
Property and the Real Property.
1.73 "REAL PROPERTY" shall mean the real
property legally described on Exhibit A-1 attached
hereto and incorporated herein by this reference,
and all improvements and additions thereto, and
all mineral rights, easements and other rights
appurtenant thereto, all as more fully described
in the Mortgage.
1.74 "REQUIRED COMPLETION ASSURANCE DEPOSITS"
shall mean all amounts deposited by Borrower with
Lender pursuant to paragraph 5.22 of this
Agreement.
1.75 "REQUIRED COMPLETION DATE" shall mean
the date which is twelve (12) months after the
Loan Closing subject to Force Majeure Events not
exceeding sixty (60) days in the aggregate.
1.76 "REQUIRED FINANCIAL INFORMATION" shall
mean:
(a) Copies of financial statements of
Borrower and the Property for all fiscal quarters
ending prior to the scheduled Maturity Date of the
Note, which shall be delivered to Lender no more
than thirty (30) days after the end of each fiscal
quarter;
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(b) Copies of annual financial statements for
Borrower and the Property for all fiscal years
ending prior to the Maturity Date of the Note,
which shall be delivered to Lender no more than
one hundred twenty (120)
days after the end of each fiscal year;
(c) Copies of the annual financial statement
of such Guarantor as of December 31 of each
calendar year prior to the Maturity Date of the
Note, to be delivered no later than May 1 of each
calendar year with respect to the immediately
preceding calendar year. Copies of the federal
income tax returns of each Guarantor (except for
Emeritus Corporation) shall be delivered to Lender
within thirty (30) days after same are filed with
the Internal Revenue Service;
(d) A copy of each Form 10-K and Form 10-Q
filed by Emeritus Corporation with the United
States Securities Exchange Commission, which shall
be delivered to Lender within thirty (30) days
after filing such form with said commission; and
(e) To the extent not included under
subparagraph (a) above, a rent roll/tenant summary
reflecting the status of all Leases of the
Property or portions thereof, and accounts
receivable and accounts payable agings for each
calendar quarter (with year-to-date figures) and
each calendar year falling within the term of the
Loan prepared in accordance with GAAP, which shall
be delivered to Lender within thirty (30) days
after the end of each calendar quarter (in the
case of quarterly statements) and within ninety
(90) days after the end of each calendar year (in
the case of annual statements) during the term of
the Loan.
The financial statements delivered pursuant
to subparagraphs (a) and (b) above shall include:
for Borrower, certified balance sheets, statements
of income and expenses and statements of cash
flow; and for Guarantors, balance sheets. The
financial statements shall be prepared in
accordance with GAAP, consistently applied and
prepared in accordance with the "accrual basis" of
accounting; and shall be in detail satisfactory to
Lender. Borrower's financial statements shall
include calculations of Cash Flow, Debt Service,
Excess Cash Flow, Gross Revenue, the Debt Service
Coverage Ratio for the period in question and the
Debt Service After Management Fee Coverage Ratio
for the period in question; and shall include a
reconciliation of, and copy of the bank statement
from, each of the Special Accounts including a
summary of all expenditures made therefrom. All
financial statements of Borrower shall be
certified to be true, complete and correct in all
material aspects by the general parties of
Borrower, and include a signed statement by the
general partners of Borrower that the financial
statements represent fairly, in all material
respects, the financial position and operation of
Borrower subject to annual year end adjusting
entries. All Guarantors' financial statements
shall be signed and certified as true, correct and
complete in all material respects by the subject
Guarantor. Borrower's annual financial statements
required pursuant to Subparagraph (b) shall be
audited by a firm of certified public accountants
satisfactory to Lender and shall include a
separate accountant's certificate acceptable to
Lender, and a management letter from the auditors
to Borrower detailing any deficiencies in
Borrower's accounting practices and commenting on
any other accounting-related matters.
1.77 "SPECIAL ACCOUNTS" shall mean the
Operating Cash Flow Account and Management Fee
Account, all as defined in paragraph 5.6.
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1.78 "STABILIZATION" shall mean the earlier
to occur of (i) the last day of the calendar month
in which the Property reaches ninety-four percent
(94"%) occupancy, or (ii) the last day of the
fifteenth full calendar month after the Permanent
Term Commencement Date.
1.79 "TENANTS" shall mean each and every
party now or hereafter entitled to the possession
and use of the Property, or any part thereof,
pursuant to the Leases.
1.80 "TITLE AGENT" shall mean Chicago Title
Company.
1.81 "TITLE COMPANY" shall mean Chicago Title
Company.
1.82 "TITLE POLICY" shall have the meaning
given to it in paragraph 3.1.4.
1.83 "UNCOVERED COST OF THE WORK" shall mean
the amount equal to the excess (if any) of (a) the
remaining unpaid costs of Completion of the Work
over (b) the committed and undisbursed portion of
the Loan and any Required Completion Assurance
Deposits held by Lender.
1.84 "WORK" shall mean the construction of
the Project and the installation of any and all
furniture, furnishings, fixtures and/or equipment
required by this Agreement or shown as costs on
the Budget, the Plans and Specifications or the
Construction Contract(s) for the Project.
1.85 "WORK PROGRESS SCHEDULE" shall mean the
schedule for the Completion of the Work and parts
thereof, as approved by Lender in writing. The
Work Progress Schedule shall be attached hereto as
Exhibit E at such time as it has been prepared by
Borrower and reasonably approved by Lender in
writing.
1.86 "WORK-RELATED ADVANCE" shall mean any
Advance made for the
purpose of paying or reimbursing Borrower for the
costs of the Work.
1.87 "WORK-RELATED ADVANCE REQUEST" shall
mean the written application of Borrower on
Lender's standard forms made by Borrower
specifying by name and amount all parties to whom
Borrower is obligated for labor, materials,
equipment or services supplied for the Completion
of the Work whether or not specified in the
Budget, and requesting a Work-Related Advance for
payment of such items, accompanied by an Affidavit
of Borrower and such schedules, affidavits,
releases, waivers, statements, invoices, bills and
other documents as Lender may request.
ARTICLE 2
LOAN AMOUNT AND TERMS
2.1 MAXIMUM LOAN AMOUNT AND TERM. Lender
hereby agrees to make the Advances to Borrower in
a principal sum not to exceed the Maximum Loan
Amount, provided Borrower has complied with, and
subject to the terms and conditions of, this
Agreement and all other Loan Documents. Unless
Lender, in its sole and absolute discretion,
agrees in writing with Borrower to make such
Advances thereafter on terms and conditions
satisfactory to Lender, Borrower shall not be
entitled to obtain Work-Related Advances after the
Required Completion Date.
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2.2 USE, ALLOCATION AND TIMING OF ADVANCES.
Borrower shall use Advances (after the Initial
Advance) only for payment of and reimbursement for
hard and soft construction costs and interest
reserve set forth in the Budget and designated as
costs to be paid from the Loan proceeds. All
Advances shall be subject to the conditions and
limitations of paragraph 3.2 below.
2.3 Use and Allocation of Initial Advance.
The proceeds of the Initial Advance shall be
disbursed by Lender on the Loan Closing to or for
the benefit of Borrower for use in strict
accordance with the Initial Advance Disbursement
Schedule attached hereto as Exhibit G.
2.4 (INTENTIONALLY NOT USED)
2.5 BASIC INTEREST. Basic Interest shall
begin to accrue on each Advance as of the date
disbursed by Lender by check or wire transfer to
the Title Agent or Borrower, and such Advance
shall be added to the outstanding principal
balance of the Loan on such date. An Advance shall
be deemed to have been disbursed by Lender to
Borrower and deemed to be part of the outstanding
principal balance of the Loan if disbursed to a
third party on Borrower's behalf or disbursed to
the Title Agent to hold for disbursement to
Borrower subject to the fulfillment of certain
conditions to which Borrower has agreed. Interest
shall accrue on Advances only to the extent of the
outstanding principal balance of the Loan.
2.6 THE NOTE. In order to evidence the Loan,
Borrower shall execute and. deliver to Lender the
Note in the Maximum Loan Amount, which Note shall
be payable in accordance with the terms set forth
therein and in this Agreement, with Basic Interest
at the rates set forth therein and herein. The
principal balance and interest thereon shall be
payable as follows:
2.6.1 CONSTRUCTION INTEREST PAYMENTS.
Commencing on the first day of the second calendar
month following the Loan Closing and on the first
day of each calendar month thereafter during the
Construction Term
,Borrower shall remit monthly payments consisting
of accrued Basic Interest (at the Basic Rate) on
the outstanding principal balance of the Loan (in
arrears); provided that, during the Construction
Term, as long as there is no Event of Default or
Incipient Default, such Basic Interest shall be
paid from the interest reserve set forth in the
Budget; until such interest reserve is exhausted,
at which point Borrower will commence making such
interest payments.
2.6.2 PERMANENT TERM INTEREST PAYMENTS.
Commencing on the first day of the first full
calendar month after the Permanent Term
Commencement Date, and on the first day of each
calendar month thereafter until the Principal
Commencement Date, Borrower shall remit monthly
payments consisting of accrued Basic Interest (at
the Basic Rate) on the outstanding principal
balance of the Loan (in arrears). .
2.6.3 PERMANENT TERM PRINCIPAL AND INTEREST
PAYMENTS. Commencing on the Principal Commencement
Date through Lender's receipt of repayment of the
Loan in full, Borrower shall remit monthly
payments consisting of the amounts specified in
2.6.2 above plus principal in an amount which
would be amortized monthly if the outstanding
principal balance of the Loan Amount on the
Principal
12
Commencement Date was being fully amortized in
consecutive level monthly installments of
principal and interest calculated over 240 months,
assuming a fixed interest rate for purposes of
calculating such amortization equal to the Basic
Rate in effect on the Principal Commencement Date.
2.6.4 PAYMENT OF REMAINING AMOUNTS. The
remaining principal balance of the Note together
with all accrued but unpaid Basic Interest and all
other amounts payable thereunder and hereunder
shall be all due and payable in full upon the Due
Date.
2.7 PREPAYMENT.
2.7.1 VOLUNTARY, FULL PREPAYMENT. Borrower
shall have the right, at any time upon giving
Lender (i) thirty (30) days advance written notice
thereof (which notice shall be irrevocable) if
Borrower has exercised the Conversion Option, or
(ii) ninety (90) days advance written notice
thereof (which notice shall be irrevocable) if
Borrower has not exercised the Conversion Option,
to prepay all, but not a portion of, the amount of
principal and interest due on the Note provided
that (A) on the date of such prepayment Borrower
shall also pay to the order of Lender on the date
of prepayment a fee equal to the "Prepayment Fee"
set forth below; (B) no Event of Default then
exists; and (C) Borrower pays, in addition to the
full principal amount of the Note, all accrued but
unpaid interest at the applicable interest rate
and all fees and other charges then outstanding.
The Prepayment Fee shall be equal to the
appropriate amount set forth below:
(a) Borrower shall pay to Lender a prepayment
premium equal to six percent (6%) of the amount
prepaid if such prepayment occurs during the first
Loan Year; an amount equal to five percent (5%) of
the amount prepaid if such prepayment occurs
during the second Loan Year; an amount equal to
four percent (4%) if such prepayment occurs during
the third Loan Year; an amount equal to three
percent (3%) if such prepayment occurs during the
fourth Loan Year; and an amount equal to $50,000
if the prepayment occurs after the fourth Loan
Year.
(b) In addition to the amount set forth in
paragraph 2.7.1(a) above, if Borrower has
exercised the Conversion Option, if there is a
decline between the yield to maturity (expressed
as a percentage) on the date the Basic Rate was
fixed pursuant to the Conversion Option on United
States Treasury Notes with a maturity closest to
and prior to the scheduled Maturity Date (the
"Existing Treasury Note Rate") and the yield on
United States Treasury Notes with a maturity
closest to and prior to the scheduled Maturity
Date as reported in The Wall Street Journal or
similar publication reasonably acceptable to
Lender on the fifth business day preceding the
prepayment date (the "Future Treasury Note Rate"),
an amount equal to the product of (i) the
difference between the Existing Treasury Note Rate
and the Future Treasury Note Rate (expressed as a
percentage) multiplied by (ii) the outstanding
balance of the Note inclusive of all accrued and
unpaid interest as of the date of prepayment and
further
multiplied by (iii) the number of whole and
fractional years remaining until the scheduled
Maturity Date.
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2.7.2 INVOLUNTARY PREPAYMENT. Upon the
occurrence of an Event of Default under any of the
Loan Documents at any time during the term of the
Loan which results in Lender's acceleration of all
amounts due under the Note, Borrower shall pay, in
addition to all other amounts to which Lender is
entitled upon such an acceleration, the Prepayment
Fee described above, and such Prepayment Fee shall
be fully due and payable upon such acceleration
unless the Event of Default is cured and Lender
reinstates the Loan. The foregoing Prepayment Fee
represents the estimate of Lender and Borrower of
a fair average compensation for the loss that may
be sustained by Lender due to the payment of any
of the indebtedness evidenced by the Note prior to
the due date thereof stated herein. Such
Prepayment Fee shall be paid without prejudice to
the right of Lender to collect any other amounts
provided to be paid hereunder.
2.7.3 UNPERMITTED PARTIAL PAYMENTS. In the
event Borrower makes any partial prepayment(s) of
principal not permitted hereunder, such
prepayment(s) shall be deemed a payment(s) of the
principal as of the scheduled Maturity Date, and
interest shall continue to accrue on the full Loan
amount as if such prepayment(s) had not been made
until the scheduled Maturity Date.
2.8 APPLICATION OF PAYMENTS. All payments
received by Lender in respect of the Loan shall be
applied first to any late charges and other fees
and expenses due under the Loan Documents, then to
accrued and unpaid interest and then to
outstanding principal.
ARTICLE 3
CONDITIONS PRECEDENT TO THE LOAN
3.1 CONDITIONS TO LOAN CLOSING AND INITIAL
ADVANCE. The obligation of Lender to make the
Initial Advance is subject to the following
express conditions precedent, which requirements
must be satisfied at least ten (10) days prior to
the Loan Closing.
3.1.1 LOAN DOCUMENTS. On or before the Loan
Closing, Borrower shall have executed or obtained
execution of and delivered to Lender the following
documents and instruments, the final form and
substance of which shall be acceptable to Lender:
3.1.1.1 The Note;
3.1.1.2 Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing
securing the Note and all of Borrower's
obligations under the other Loan Documents
(excluding the Environmental Certificate with
Representations, Covenants and Warranties
described in paragraph 3.1.18), and constituting:
(a) a first and prior lien on the fee title to the
Real Property, including all buildings and
improvements now or hereafter located on the Real
Property, and all fixtures and attachments of and
to the buildings now on the Real Property, if any,
and those to be erected on the Real Property and
all rights and interest appurtenant thereto; (b) a
first priority assignment of all Borrower's
interest in and to the Leases including without
limitation all rents, issues or pro its therefrom;
and (c) a security agreement establishing a valid
first priority security interest in and to all of
the Personal Property not otherwise encumbered in
another Loan Document;
14
3.1. I.3 UCC-1 Financing Statements for
filing and recording as required to perfect all of
the security interests granted and/or created
pursuant to the Loan Documents;
3.1.1.4 A Collateral Assignment of
Agreements, granting to Lender, inter alia, a
first priority assignment in the Construction
Contract, in the Architect/Engineer Agreement and
the Plans and Specifications, and in the
Management Agreement;
3. 1.1.5 An Acknowledgment of Assignment and
Subordination Agreement (Contractor);
3.1.1.6 An Acknowledgment of Assignment and
Subordination Agreement (Engineer);
3.1. I.7 An Acknowledgment of Assignment and
Subordination Agreement (Architect);
3.1.1.8 An Environmental Certificate with
Representations, Covenants and Warranties;
3.1.1.9 The Guaranties;
3.1.1.10 A Subordination Agreement executed
by
Emeritus Corporation, and TDC Convalescent, Inc.
3.1.1.11 The Account Agreements required by
paragraph 5.6 below;
3.1.1.12 A separate Assignment of Leases and
Rents, granting to Lender, as additional security
for the Loan, a first priority assignment of all
of Borrower's rights under and interest in all
Leases and the rents payable thereunder;
3.1.1.13 This Agreement; and
3.1.1.14 Such other documents and security
instruments as Lender deems necessary to
effectuate the purposes hereof.
3.1.2 ORGANIZATION DOCUMENTS. Borrower shall
provide, at Borrower's cost and expense, the
following organizational documents, the final form
and substance of which shall be acceptable to
Lender (collectively, the
"Organization Documents"):
3.1.2.1 Partnership agreement of Borrower,
and evidence from the State of Washington that
Borrower is a partnership which is duly formed and
in good standing.
3.1.2.2 If applicable, certificate of "good
standing" from the state of organization
addressing the status of each corporate partner of
Borrower.
3.1.2.3 A Partnership Resolution of Borrower
authorizing its obtaining the Loan, and a
corporate resolution of each general partner of
Borrower with respect thereto, ratifying the terms
of this Agreement, approving the Loan Documents,
and
15
setting forth the person or persons authorized to
execute the Loan Documents on behalf of Borrower;
3.1.2.4 Certified copies of the Articles of
Incorporation and by-laws of each Guarantor and
all amendments thereto;
3.1.2.5 Certificate of "Good Standing" or
"Status" from the State of incorporation
addressing the corporate status of each Guarantor
and tax clearance from the California franchise
tax board for each Guarantor which is organized
under the laws of or does business in the State of
California;
3. 1.2.6 Corporate Resolution of each
Guarantor authorizing such Guarantor's guarantee
of the Loan, ratifying the terms of the Guaranty,
approving the Guaranty, and setting forth the
person or persons authorized to execute the
Guaranty on behalf of such corporation; and
3.1.2.7 Any other organization documents
and/or verifications of authority, consent and
existence as Lender may reasonably require.
3.1.3 GOVERNMENTAL APPROVALS. Borrower shall
deliver to Lender, and Lender shall be satisfied
with copies of any licenses or approvals for
construction of the Improvements and operation
(within or on the Real Property) of the Property
as an independent and assisted living facility, if
any; and any other applicable governmental
permits, approvals, consents, licenses and
certificates for the construction of the
Improvements of the Property or which may affect
the value of the Collateral.
3.1.4 TITLE INSURANCE COMMITMENT. Title Agent
shall issue or be committed to issue an extended
coverage lender's policy of title insurance (the
Title Policy ) underwritten by Title Company in an
amount not less than the amount of the Loan (with
a pending disbursements clause acceptable to
Lender) and insuring the lien of the Mortgage to
be a first priority lien on the Property, subject
only to the Permitted Encumbrances, and including
such endorsements and co-insurance as Lender
requires.
3.1.5 SURVEY. Borrower shall deliver to
Lender an ALTA/ACSM survey of the Property by a
licensed surveyor acceptable to Lender and the
Title Company dated not more than sixty (60) days
prior to the Loan Closing and certified in favor
of Borrower, Lender, and the Title Company. The
certification shall be in a form acceptable to
Lender and the Title Company.
3.1.6 APPRAISAL. Borrower shall deliver to
Lender a current MAI appraisal of the Property
prepared by Valuation Counselors, Inc. Upon
Completion and prior to commencement of the
Permanent Term, Borrower shall provide to Lender
an appraisal of the Property prepared by Valuation
Counselors, Inc., establishing that the completed
stabilized value of the Project is not less than
$7,500,000.
3.1.7 INSURANCE. Borrower shall provide
evidence that there
is in effect such hazardous, earthquake, flood,
business intervention, public
liability, builder's risk and other insurance as
is required by Lender, and written by insurers,
and in forms and amounts, satisfactory to Lender.
16
3.1.8 LITIGATION. There shall be no material
judgments or pending litigation or, to the best of
Borrower's knowledge, threatened litigation of a
material nature outstanding against Borrower, the
Property or any Guarantor, including but not
limited to litigation or judgments which may
affect title or Lender's lien position with
respect to any of the Collateral or any litigation
or judgment which might materially, adversely
affect the ability of Borrower or any Guarantor to
perform its obligations under the Loan Documents.
3.1.9 TAXES. Borrower shall provide evidence
that all taxes and assessments levied against or
affecting the Collateral have been paid current;
or in the event Borrower has commenced a legal or
administrative challenge to any such tax or
assessment, evidence that such liability has been
bonded over, or that funds for the payment thereof
(in the amount of the original assessment) have
been escrowed with an independent third party with
provisions for the payment thereof satisfactory to
Lender.
3.1.10 HAZARDOUS WASTE. Borrower shall
provide to Lender, at Borrower's sole cost and
expense, a Phase I Environmental Site Assessment
of the Property (the "Site Assessment"). The
results of such Site Assessment must be
satisfactory to Lender in its sole and absolute
discretion. Lender has the right to require
Borrower to retain the services of an
environmental engineer acceptable to Lender to
perform such additional environmental
investigations as may be required by Lender in its
sole and absolute discretion. Such investigations
may include but are not limited to soil and ground
water testing to fully identify the scope of any
environmental issues impacting the Property. All
costs incurred in performing any additional
investigation shall be borne by Borrower. If any
environmental issues exist prior to the Loan
Closing, Lender reserves the right, in its sole
and absolute discretion, to terminate this
Agreement. However, if Lender determines, in its
sole discretion, that known environmental problems
with respect to the Property are capable of being
resolved at a reasonable cost, Lender may proceed
with the closing and funding of the Loan provided
that sufficient funds, as determined by Lender in
its sole discretion, are held back from the Loan
proceeds and deposited into an escrow account
which is established for the purpose of securing
all aspects of correcting the subject
environmental problems and is pledged to Lender.
Release of such escrowed funds will be controlled
exclusively by Lender.
3.1.11 ZONING. Borrower shall provide
evidence satisfactory to Lender that the Real
Property is properly zoned for its intended use as
a 100-unit independent and assisted living
facility and that any and all zoning stipulations
have been complied with.
3.1.12 ACCESS, PARKING AND COMMON AREAS.
Lender shall be satisfied that all easements and
other agreements providing for public access to,
adequate parking for, and the maintenance of any
and all common areas and party walls related to
the Property and its intended use as an
independent and assisted living facility are in
effect, fully enforceable, and fully assignable to
Lender as part of its collateral for the Loan.
3.1.13 UTILITIES. Borrower shall provide
evidence satisfactory to Lender that all
utilities, including without limitation, water,
gas and electricity, are available to the Real
Property (or will be upon Completion of the Work),
and that the suppliers of such utilities have the
capacity to serve the Real Property in amounts
necessary for its intended
17
use as an independent and assisted living facility
and are committed to supply those utilities in
such amounts upon Completion of the Work.
3.1.14 ADDITIONAL CONSTRUCTION-RELATED
REQUIREMENTS. Borrower shall provide to Lender (at
least ten ( 10) days prior to the Loan Closing):
3.1.14.1 a payment bond which is issued by a
surety satisfactory to Lender and in a form
satisfactory to Lender and is for the construction
of the Improvements adequate to cause all persons
providing labor, materials, equipment or services
with respect thereto to look solely to such bond,
rather than the Property and other security for
the Loan, in the event of non-payment;
3. 1.14.2 a performance bond or bonds which
is/are issued by a surety satisfactory to Lender
and in a form satisfactory to Lender, covering
contracts for the Improvements and naming Lender
as co-obligee;
3.1.14.3 a soils test report with respect to
the suitability of the soils on the Real Property
for purposes of constructing the Work;
3.1.14.4 if required by Lender, a traffic
study with respect to the impact of existing and
anticipated traffic upon the Property ;
3.1.14.5 a flood and drainage study with
respect to the Real Property and the Improvements;
3.1.14.6 the Architect/Engineer Agreement and
consent to the assignment of that agreement to
Lender; such certificates as Lender may require
from the Architect/Engineer regarding the adequacy
of the Plans and Specifications (including,
without limitation, their compliance with the
Americans With Disabilities Act and all other
applicable laws and regulations) and the Budget
and such other matters as Lender may deem
pertinent;
3.1.14.7 the Plans and Specifications;
3.1.14. 8 the Budget;
3.1.14.9 a detailed draw schedule acceptable
to Lender, and the Work Progress Schedule;
3.1.14.10 The General Contract and any other
Construction Contracts, any other consents from
the General Contractor and any other Contractor to
the assignment of their contracts to Lender; and
such certificates and financial information as
Lender may request from the General Contractor and
any other direct contractors regarding their
financial viability, the adequacy of the Budget
and such other matters as Lender may deem
appropriate;
3.1.14.11 A construction completion schedule
to which Borrower shall agree to adhere; failure
of Borrower to comply with and adhere to such
construction schedule (subject to a Force Majeure
Event) shall constitute an Event of Default;
18
3.1.14.12 A list of all contractors and major
subcontractors who will perform work, all whom
must be satisfactory to Lender;
3.1.14.13 Evidence that the General Contract
provides that (a) the General Contractor must
begin and complete construction by certain
specified dates in accordance with the Loan
Documents and (b) change orders will be permitted
only up to amounts of $10,000 for any single
occurrence and up to $100,000 in the aggregate;
3.1.14.14 Financial statements for the last
two (2) years and federal employer tax
identification numbers for the General Contractor,
any other direct contractors, and, if required by
Lender, the major subcontractors; and
3. 1. 1 4.15 Copies of all other direct
contracts with contractors and all major
subcontracts all of which shall be acceptable to
Lender.
3.1.14.16 A guaranteed maximum "Lump Sum"
price construction contract for the general
contractor in such form as shall be acceptable to
Lender, including without limitation, terms
regarding the timing of payments to the general
contractor, which contract shall provide that the
Work shall be fully completed for the guaranteed
maximum price (as approved by Lender)
notwithstanding (a) any future events, including
without limitation, cost overruns, whether
foreseeable or unforeseeable (except Force Majeure
Events) or (b) any defaults, disputes or
litigation between the general contractor and its
subcontractors or materialmen; and
3.1.14.17 Consents from the general
contractor and all other direct contractors to the
assignment of their contracts to Lender; and such
certificates as Lender may request from the
general contractor and any other direct
contractors regarding the adequacy of the budget
and such other matters as Lender may deem
appropriate.
3. 1.15 EQUITY INVESTMENT. Borrower shall
deliver evidence that Borrower has access to
$1,500,000 to be advanced by Emeritus Corporation
and TDC Convalescent, Inc., and that any amounts
already advanced by Emeritus Corporation and TDC
Convalescent, Inc., have been or will be spent for
items in the approved budget.
3.1.16 GENERAL INFORMATION. Borrower shall
provide Lender with legible copies of all Property-
related information which Lender may from time to
time request.
3.1.17 REVIEW AND APPROVAL OF RELATED
DOCUMENTATION. Borrower shall have provided to
Lender, and Lender shall have reviewed and
approved all documentation deemed material by
Lender to the present condition and proposed
operation or use of the Property.
3.1.18 EQUIPMENT LEASES. Lender shall have
reviewed and approved all leases and financing
agreements covering furniture, fixtures, equipment
and other personal property used on the Property
(the "Equipment Leases"). The obligations under
the Equipment Leases shall be considered
"indebtedness for borrowed money" and "debt", to
the extent such Equipment Leases would be
accounted for as "capitalized leases" in
accordance with GAAP, and the interest element of
the Borrower's obligations under Equipment Leases
which constitute capitalized leases, together with
all of
19
Borrower's obligations under Equipment Leases
constituting true operating leases, shall be
considered an "expense" of Borrower for purposes
of this Loan Agreement. In addition, Borrower
shall provide to Lender written agreements from
each of the equipment lessors or financiers under
such Equipment Leases granting to Lender rights to
notice and cure under such Equipment Leases.
3.1.19 ESTABLISHMENT OF SPECIAL ACCOUNTS.
Borrower shall have established each of the
Special Accounts.
3.1.20 MATERIAL ADVERSE CHANGE. Lender shall
have the right to terminate this Agreement at any
time prior to the Loan Closing and to retain the
Application Fee and the Loan Fee in the event of
any material adverse change in the financial
condition of Borrower or of any Guarantor (as
compared to the financial condition as presented
in the financial information provided to Lender as
of the date of the commitment letter dated
November 21,1996, from Lender to Borrower). .
3.1.21 OPINION LETTERS. A favorable legal
opinion of counsel for Borrower and each
Guarantor, which counsel must be acceptable to
Lender, dated as of the Closing Date, covering the
due authorization, execution, delivery,
enforceability, validity and binding effect of the
Loan Documents to which the Borrower and each of
the Guarantors, respectively, is a party, and
(except with respect to the Guarantors and
Guaranties) of all liens and security interests
granted thereby, compliance with applicable usury
laws (provided, however, such opinion may assume
that Lender is the holder of a valid commercial
finance lender license issued by the State of
California and/or that the Loan was arranged by a
real estate broker licensed in the State of
California) and such other matters as Lender may
require. The Loan Documents provide that
California law applies to certain portions of the
Loan Documents and that Arizona law applies to all
other portions of the Loan Documents. The attorney
for Borrower and the Guarantors will not be
required to opine on the enforceability of the
choice of law provisions and will
be entitled to assume, with respect to the
portions of the Loan Documents covered by Arizona
Law, that Arizona law is identical to California
Law. In connection with such usury opinion,
counsel shall be required to opine that the Loan
is not usurious (without reliance on any usury
savings clause). Each such opinion of counsel
shall confirm, to the satisfaction of Lender, that
the opinion is being delivered to Lender at the
instruction of the party represented by such
counsel, that Lender is entitled to rely on such
opinion, that for purposes of such reliance Lender
is deemed to be in privity with the opining
counsel, and that such counsel shall not assert
and waive any position to the contrary.
3.1.22 TAX LIEN SEARCH. Lender will have
obtained a tax lien, litigation, judgment and UCC
searches conducted on Borrower and each Guarantor,
all of which shall be satisfactory to Lender.
3.1.23 CREDIT REFERENCES. Borrower shall
provide to Lender credit references for Borrower
and each Guarantor, which shall be satisfactory to
Lender.
3.1.24 START-UP FINANCIAL STATEMENTS.
Borrower shall provide to Lender copies of the
"start-up" financial statements of Borrower and
copies of the financial statements of each
Guarantor for the last two (2) fiscal year ends.
20
3. 1.25 TERMINATIONS BY EXISTING LENDERS. On
or before the Loan Closing, Borrower shall deliver
to Lender evidence that all debt owing to third
parties and secured by the Property has been
repaid in full, and Borrower's existing lenders
shall have executed and delivered to the Title
Agent all UCC and mortgage terminations evidencing
the termination of their liens and security
interests, in a form satisfactory to Lender and
the Title Company.
3.1.26 MISCELLANEOUS. Borrower shall fulfill
any other conditions and provide such additional
information, security and documentation as may be
required by Lender and the results of all credit
inquiries, tax lien, litigation, judgment and UCC
searches on Borrower, Guarantors and the Property
shall have proven satisfactory to Lender.
3.1.27 ASSIGNMENT OF RIGHTS. To the extent
assignable, Lender shall receive from Borrower a
valid first priority assignment of (and to the
extent reasonably required by Lender, Borrower
will use reasonable efforts to obtain rights to
cure defaults under) any and all management
contracts, equipment leases and any other
contracts, agreements, licenses and permits as are
necessary or desirable for the operation, design,
construction and use of the Property as an
independent and assisted living facility (the
"Contracts and Licenses"). The form and content of
all Contracts and Licenses shall be fully
acceptable to Lender.
3.1.28 SITE INSPECTION. The Property shall
have been inspected and approved by
representatives of Lender. In connection with such
inspection, Borrower shall pay to Lender an
inspection fee equal to the costs associated with
the inspection.
3.2 ADDITIONAL CONDITIONS TO ADVANCES. In
addition to all other terms and conditions set
forth herein, Advances shall be subject to
satisfaction of all of the following conditions
and limitations:
3.2.1 FUNDING OF BORROWER EQUITY; APPROVAL OF
CONSTRUCTION BUDGET. No Advances shall be made
hereunder until Borrower has advanced $ 1,500,000
for amounts shown in an approved construction
budget. Prior to the Closing, Borrower shall
provide to Lender a complete construction budget,
showing all categories and expected fundings for
each month with respect to each category. Such
construction budget shall be acceptable to Lender
in Lender's sole determination.
3.2.2 FREQUENCY OF ADVANCES. Advances shall
be made no more frequently than monthly and each
such monthly disbursement shall be based upon
actual completed work in place rather than upon
percentage of completion.
3.2.3 ADVANCE LIMITATIONS. Lender shall have
no obligation to make an Advance (including,
without limitation, the Initial Advance) if the
undisbursed portion of the Loan Amount (or, in
reference to the Initial Advance, the full Loan
Amount) is less than the remaining Completion
Costs, as defined in paragraph 5.22, until
Borrower has deposited the Required Completion
Deposit Assurances.
21
3.2.4 RETAINAGE. During the Construction
Term, Lender shall withhold from each Work-Related
Advance an amount equal to ten percent (10%) of
such costs ("Basic Retainage") or such greater
amount as is provided for in the General Contract
or any other Construction Contracts for the Work
("Additional Retainage"). The Basic Retainage
shall be released as provided in paragraph 3.2.8
below. The Additional Retainage shall be released
at the times specified in the applicable
Construction Contract(s).
3.2.5 ADVANCE REQUEST AFFIDAVIT. Each Work-
Related Advance shall be Conditioned upon Lender's
receipt and approval of all items
required to be delivered by Borrower pursuant to
Exhibit F hereof.
3.2.6 TITLE INSURANCE AND SURVEY; NO BREAK IN
PRIORITY. Advances shall be subject to the receipt
of the Title Policy, Title Policy endorsements,
trailing mechanics' and materialmen's lien waivers
on a thirty (30) day basis and any surveys
required pursuant to paragraphs 3.1.4, 3.1.5,
5.16.8 and 5.16.9. Borrower shall not commence any
work on the Property prior to recordation of the
Mortgage, if it would affect priority of the
Mortgage.
3.2.7 FINAL CONSTRUCTION ADVANCES. Subject to
the escrow provisions of paragraph 3.2.8 below,
the final Advance (including all Basic Retainage
and any unused contingency reserves) shall be made
directly to the Title Agent upon Completion,
provided that there does not then exist any Event
of Default or Incipient Default.
3.2.8 POST-COMPLETION ESCROW. Upon the
funding of the final Advance, Lender shall hold
back and retain the Basic Retainage and any unused
contingency reserves. The Basic Retainage and any
unused contingency reserves shall be funded by
Lender to, or at the direction of, Borrower upon
Borrower's written certification to Lender that
all "punch list items" have been resolved to
Borrower's satisfaction, accompanied by a
certificate from the Borrower's Architect/Engineer
and Lender's Consultant certifying to the same and
subject to Lender's approval of such items. At the
time of making each disbursement of the Basic
Retainage and any unused contingency reserves, the
Title Agent shall, as a condition to such
disbursement by Lender, be irrevocably committed
to issue to Lender a date-down endorsement to the
Title Policy meeting the substantive requirements
of paragraph 5.16.9 hereof; provided, however,
that actual issuance of a date-down endorsement
may be deferred by the Title Agent until its final
advance of such Basic Retainage and any unused
contingency reserves, whereupon a final date-down
endorsement (or reissued Title Policy, as the case
may be) shall be issued to Lender.
3.2.9 DISBURSEMENTS THROUGH TITLE COMPANY.
Lender will make the initial Advance and the final
Advance directly to the Title Agent. Other
Advances may, at Borrower's election, be made
directly to Borrower provided that all conditions
precedent to the making of an Advance have been
satisfied.
3.3 CONDITIONS TO ALL ADVANCES AFTER THE LOAN
CLOSING. All
Advances made after the Loan Closing shall be
subject to the fulfillment of each of
the following conditions precedent:
22
3.3.1 NO DEFAULT; REAFFIRMATION OF
REPRESENTATIONS AND WARRANTIES. No Event of
Default or Incipient Default exists and all
representations and warranties shall be reaffirmed
as of the Advance date.
3.3.2 MATERIAL ADVERSE CHANGE. There shall
exist no material adverse change in the financial
condition of Borrower, the Property proforma, or
any Guarantor (as compared to the financial
condition as presented in the financial
information provided to Lender as of the date of
this Agreement).
3.3.3 OTHER. Lender shall have received,
reviewed and approved all other items required
under this Agreement that are conditional to the
making of an Advance.
3.3.4 ADVANCES AGAINST GOODS. Lender shall
have the right to approve or disapprove
disbursements for stored or ordered goods. Without
limiting the generality of such right, Lender may
condition its approval of disbursements of the
Loan for payments of or deposits upon stored or
ordered goods upon Lender's prior receipt of the
following:
3.3.4.1 Evidence satisfactory to Lender that
such goods are covered by the insurance policies
required to be delivered pursuant to paragraph
5.14 ;
3.3.4.2 Evidence satisfactory to Lender from
the vendor of such goods that, upon full payment
to the vendor, ownership of such goods will vest
in the name of Borrower free and clear of any
liens or claims of the vendor or any other third
party;
3.3.4.3 (i) Evidence satisfactory to Lender
that the goods are and upon disbursement shall be
stored upon the Property in a manner which is
adequate to protect the goods against theft and
damage and otherwise satisfactory to Lender; or
(ii) if the goods will not be stored upon the
Property at disbursement, evidence (including the
original warehouse receipt) satisfactory to Lender
that the goods are being fabricated or sold by a
reputable and creditworthy vendor, that the goods
are being or will be stored in a bonded warehouse
or storage yard unless the goods are still being
fabricated ant that the warehouse or storage yard
has been notified of Lender's security interest.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower hereby represents and warrants as
follows:
4.1 Borrower is a validly existing general
partnership duly organized and in good standing
under the laws of the State of Washington; is in
good standing and is authorized and has the
requisite power and authority to conduct business
in the State of California; and has the full legal
right and authority to make this Agreement and to
borrow hereunder.
4.2 The execution, delivery, and performance
by Borrower of the Loan Documents will not (a)
violate any provision of any law of the United
States of America, the State of California, the
State of Washington, any municipal department or
23
governmental authority; or (b) result in the
breach of, or require any consent under, or result
in the creation of any lien, charge, or
encumbrance upon any property or assets of
Borrower pursuant to, any indenture or other
agreements or instruments to which Borrower is a
party or by which Borrower or its property may be
bound or affected, other than as specifically
provided herein.
4.3 The proceeds of the Loan will be used by
Borrower solely for the purposes specified in this
Agreement, and in all events for a valid business
purpose of Borrower.
4.4 All information set forth in Borrower's
loan application and in the financial statements
given by Borrower to Lender and all other
information given (or to be given) by Borrower to
Lender in connection with the Loan, including any
statement regarding Borrowers last credit
dealings, is true, correct, and complete in all
material respects. No material adverse change has
occurred as of the Loan Closing in any such
financial condition nor with respect to any other
information supplied by Borrower to Lender.
4.5 The Loan Documents are in all respects
legal, valid, and binding upon Borrower, according
to their terms (other than as such enforceability
may be subject to or limited by bankruptcy,
insolvency, reorganization, arrangement,
moratorium, similar laws relating or affecting
rights of creditors generally or general
principles of equity) and grant to Lender direct,
valid, and enforceable first liens upon, and
security interests in, the Collateral, and the
Loan Documents executed by the
Guarantors are in all respects legal, valid and
binding upon Guarantors according to
their terms.
4.6 No xxxx of sale, security agreement,
financing statement or other instrument affecting
title or creating security interests (except those
executed in favor of Lender) has been or will be
executed in connection with or with respect to any
of the Collateral, except for liens which have
been released on or before the Loan Closing, the
Permitted Encumbrances and Personal Property
financing or dispositions disclosed to and
approved in writing by Lender or permitted under
the Loan Documents.
4.7 The consummation of the Loan described in
this Agreement and the performance of the
obligations of Borrower under and by virtue of the
Loan Documents will not result in any breach of,
or constitute a default under, any mortgage, deed
of trust, loan or credit agreement, articles of
organization, regulations, or any breach of any
other agreement or instrument to which Borrower is
a party or by which Borrower may be bound or
affected.
4.8 There are no judgments, and no actions,
suits, or proceedings pending, or to Borrower's
knowledge threatened, against or affecting
Borrower or the Collateral, or involving the
validity or enforceability of any of the Loan
Documents or the priority of the lien thereof, at
law or in equity, or before or by any governmental
authority, and Borrower is not in default with
respect to any writ, injunction, decree, or demand
of any court or any governmental authority.
4.9 Borrower has received no written notice
of and, to Borrower's knowledge, there is not any
violation of any law, municipal ordinance, or
order, or of any requirement of the State of
California or any other state, municipal
department or other
governmental authority, which violations in any
way relate to or affect Borrower or the Property.
24
4.10 The title to the Collateral and
Borrower's interest therein as of the Loan Closing
is free and clear of all liens, encumbrances, and
security interests except only the Permitted
Encumbrances.
4.11 The Loan Documents and all other
instruments executed and delivered to Lender in
connection with this Loan were executed and
delivered in accordance with the requirements of
law.
4.12 Borrower is and shall continue to be the
lawful owner of the Collateral; no third party,
including without limitation any Affiliate of
Borrower has any interest in the Collateral (or
any part thereof or in Borrower's interest in the
Collateral except as described in Exhibit "B"; and
Borrower agrees to protect,
preserve, and defend Lender's interest in the
Collateral and the title thereto.
4.13 All utility services (including water,
storm and sanitary sewer, gas, electric and
telephone facilities and garbage removal)
necessary for the Completion of the Work and the
intended use of the Property as an independent and
assisted living facility are available to the Real
Property (or will be upon Completion); the
suppliers of such utilities have the capacity to
serve the Property and are committed to supply
such utilities in such amounts as are required
upon Completion; and all fees and deposits due to
the suppliers of such utilities have been paid
current or amounts adequate for such purposes have
been reserved in the Budget.
4.14 All Leases, contracts and agreements
relating to the Property, or utilized in
connection therewith, or constituting any portion
of the Collateral, are in full force, and true and
correct copies of all such Leases, contracts and
agreements have previously been furnished to
Lender.
4.15 No services, work, equipment or
materials of any kind that may give rise to any
mechanics or similar statutory lien, including,
without limitation, site work, clearing, grubbing,
draining or fencing of the Real Property has been
performed or commenced on the Real Property or
otherwise provided in connection with the Work,
except to the extent that such services, work,
equipment, materials have been fully disclosed in
writing to Lender and Title Company and the Title
Policy insures the priority of the Mortgage over
all mechanics and similar liens.
4.16 Each of the representations and
warranties made by Borrower in the Loan Documents
shall be considered and determined to have been
made by Borrower at the time of its execution of
this Agreement and to have been made again at the
time of each Advance and shall survive funding of
the Loan, and shall survive the Loan Closing.
4.17 The relationship of Borrower and Lender
is that of debtor and creditor, and it is not the
intention of either of such parties by this or any
other instrument being executed in connection with
the Loan to establish a partnership, and the
parties hereto shall not under any circumstances
be construed to be partners or joint venturers.
25
4.18 Borrower has dealt with no mortgage
broker, finder or placement agent with regard to
the Loan. Borrower shall indemnify and hold Lender
harmless from any and all claims for fees or
compensation claimed to be due in connection with
the Loan as a result of the acts of Borrower.
4.19 The Real Property has legal access to
publicly dedicated streets.
ARTICLE 5
COVENANTS OF BORROWER
Borrower hereby covenants and agrees as
follows (with the understanding that unless
specifically provided to the contrary herein, a
breach of any of the following covenants shall
constitute an Event of Default upon expiration of
any cure period provided in Article 6):
5.1 NO ADDITIONAL LIENS. Subject to its right
to contest such lien in accordance with the
Mortgage, and except for the Permitted
Encumbrances, Borrower shall not allow any liens,
encumbrances or other interests to affect the
Collateral or any part thereof or Lender's first
priority lien therein without the prior written
consent of Lender, which may be withheld in
Lender's sole and absolute discretion.
5.2 NO ADDITIONAL DEBT. During the term of
the Loan, Borrower shall not, without Lender's
prior written consent, which may be withheld in
Lender's sole and absolute discretion, incur any
additional Debt with respect to, or in connection
with its ownership and operation of the Property
(including without limitation any contingent or
guarantor liability), except for short term
accounts payable incurred in connection with the
ordinary course of Borrower's construction and
operation of the Property.
5.3 RESTRICTIONS ON TRANSFER. Except for (a)
the lease of space in accordance with the approval
requirements of paragraph 5.18 (including the
lease of space to residents occupying the Project
pursuant to the Lender-approved form of residency
agreement), and (b) the disposal of Personal
Property when such property is replaced with
property of equal or greater value subject to
Lender's first priority lien, without repayment of
the Loan in full (including any applicable
prepayment premium), Borrower shall not (i) sell,
transfer, lease, encumber or otherwise dispose of
the Collateral or any part thereof or interest
therein or (ii) permit a sale, transfer, lease,
encumbrance or other disposition of any
partnership interest in Borrower which would
result in the Guarantors failing to own more than
fifty percent (50%) of the partnership interests
in Borrower or failing to maintain the control of
Borrower
,without the prior written consent of Lender,
which consent may be withheld by Lender in its
sole and absolute discretion.
5.4 REQUIRED FINANCIAL INFORMATION. Borrower
shall timely tender, or cause to be tendered, the
Required Financial Information as described in
Article 1 hereof.
26
5.5 LIMITATION ON MANAGEMENT AND DEVELOPMENT
FEES.
5.5.1 LIMITATION ON MANAGEMENT CONTRACT.
Borrower shall not pay to any Affiliate of
Borrower or of any Guarantor, any fees for the
operation and management of the Project or any
fees for consulting services rendered in
connection therewith, until the thirteenth full
calendar month after the commencement of the
Permanent Term. Borrower may pay to the Management
Fee Account (defined in paragraph 5.6 below) any
fees for the operation and management of the
Project which would otherwise have been paid to
any Affiliate of Borrower prior to the date
thirteen full calendar months after the
commencement of the Permanent Term. Thereafter,
Borrower shall pay only such fees for the
operation and management of the Project (and
consulting services rendered in connection
therewith) which do not exceed those provided for
in any management or consulting agreement as
approved by Lender and in any event shall not
exceed seven percent (7%) of the Gross Revenues of
the Project. Borrower shall not enter into any
contract to manage the Project or any substantial
portion thereof or to render consulting services
to Borrower in connection therewith without
Lender's prior written consent. Any consent to
such management contract may be conditioned upon
(a) the agreement of the manager thereunder that
all fees to be paid to it are subordinated to the
payment of any sums owing to Lender under the Note
and any other sums then due and payable by
Borrower to Lender under any other instrument
securing the payment of the Note and cannot be
paid or collected during the occurrence and
continuance of an Event of Default, (b) Borrower
collaterally assigning its rights under such
contract to Lender as additional collateral for
the Note, and (c) the consent of the manager to
such collateral assignment. The form of such
collateral assignment and consent of manager shall
be subject to the approval of counsel for Lender.
Borrower agrees to pay all of Lenders costs and
expenses incurred in connection with reviewing the
foregoing described matters.
5.5.2 LIMITATION ON CONSTRUCTION TERM FEES.
During the Construction Term, Borrower shall not
pay to any Affiliate of Borrower or of any
Guarantor, any contractor's fee, construction
management fee, development fee or any other
similar fee, compensation or payment
(collectively, the "Construction and Development
Fees"), except that Borrower shall be permitted to
pay Construction and Development Fees in the
aggregate of One Hundred Twelve Thousand Dollars
($112,000) to Guarantors, the general partners of
Borrower, from their equity contribution to the
Project, in consideration of the time and effort
spent by such Persons prior to the Closing with
respect to the development of the Project, and
Borrower shall further be permitted to pay to
Guarantors, as part of their equity contribution,
up to the
aggregate amount of an additional Thirty-seven
Thousand Five Hundred
Dollars ($37,500) during the construction phase
for the Project, such amount to be paid and
disbursed on a monthly basis. Any Construction and
Development Fees in excess of the foregoing
amounts may be paid by Borrower to any Affiliate
of Borrower or of any Guarantor only with the
approval of Lender upon the achievement of
Completion and the commencement of the Permanent
Term of the Loan. Lender shall have the right to
approve all agreements between Borrower and any
Affiliate of Borrower or of any Guarantor
regarding the Construction and Development Fees.
5.6 SPECIAL ACCOUNTS. Borrower shall maintain
two (2) segregated interest bearing accounts
(collectively, the "Special Accounts") with a
federally insured bank
approved by Lender, as provided herein. Such bank,
Borrower and Lender shall enter
27
into an account agreement acceptable to Lender,
which includes the bank's waiver of any
right of set off and grants to. Lender the
exclusive right to withdraw all funds in the
Special Accounts upon an Event of Default under
the Loan Documents. Borrower shall deliver to
Lender within thirty (30) days after the end of
each calendar quarter, an accounting of all
deposits and withdrawals of each of the Special
Accounts. The Special Accounts shall consist of
the Operating Cash Flow Account, and the
Management Fee Account as follows:
5.6.1 Prior to the commencement of the
Permanent Term, Borrower shall deposit all of
Borrower's Cash Flow into an account (the
"Operating Cash Flow Account"). Borrower shall
have no right to make withdrawals from the
Operating Cash Flow Account prior to the Permanent
Term. So long as there is no Event of Default or
Incipient Default of which Lender has notified
Borrower under the Loan Documents, on the first
day of the Permanent Term (or, if such funds may
not be withdrawn due to the existence of an
Incipient Default which is thereafter cured, then
on the date such Incipient Default is cured),
Borrower may withdraw all amounts previously
deposited in the Operating Cash Flow Account.
5.6.2 As more fully set forth in paragraph
5.5.1, prior to the thirteenth (13th) full
calendar month after the commencement of the
Permanent Term, Borrower shall deposit within an
account (the "Management Fee Account") any fees
for the operation and management of the Project
and fees for consulting services rendered in
connection therewith. So long as there is no Event
of Default or Incipient Default of which Lender
notified Borrower under the Loan Documents, on the
first day of the Permanent Term (or if such funds
may not be withdrawn due to the existence of an
Incipient Default which is thereafter cured, then
on the date such Incipient Default is cured)
Borrower
may withdraw all amounts previously deposited in
the Management Fee
Account.
5.7 INSPECTIONS. Lender and Lender's
Consultant or Lender's designee shall have the
right to inspect the Property at any time prior to
Completion, and Borrower hereby agrees to
reimburse Lender upon request and presentation of
written invoices, for any and all travel expenses
and other costs incurred by Lender in performing
inspections of the Work prior to Completion;
provided, however, Lender may, at its election,
advance such expenses and costs directly to itself
under the Loan. Borrower agrees that Lender
retains the right to inspect the Property after
Completion once each calendar year when no Event
of Default exists and as often as Lender may deem
appropriate when an Event of Default exists; and,
Borrower hereby agrees to reimburse Lender upon
request and presentation of written invoices, for
any and all travel expenses and other costs
incurred by Lender in performing such annual
inspections.
5.8 ANNUAL RECERTIFICATION REGARDING
ENVIRONMENTAL MATTERS. Borrower shall, on each
anniversary of the Loan Closing, throughout the
term of the Loan, provide to Lender a written
statement signed by a general partner of Borrower
certifying that all representations and warranties
set forth in the Environmental Certificate with
Representations, Covenants and Warranties executed
by Borrower on the Loan Closing remain, as of such
anniversary date, true, correct and complete in
all material respects, together with a detailed
explanation of any exceptions to such
certification.
28
5.9 DEBT SERVICE RATIOS.
5.9.1 DEBT SERVICE COVERAGE RATIO. Commencing
with the first full calendar quarter after
Stabilization, Borrower shall maintain with
respect to the Property a Debt Service Coverage
Ratio of not less than 1.25 : I. The foregoing
ratio shall be tested quarterly, on a trailing
twelve (12) month basis.
5.9.2 DEBT SERVICE AFTER MANAGEMENT FEE
COVERAGE RATIO. Commencing with the first full
calendar quarter after Stabilization, Borrower
shall maintain with respect to the Property a Debt
Service After Management Fee Coverage Ratio of not
less than 1.15 :1. The foregoing ratio shall be
tested quarterly, on a trailing twelve (12) month
basis.
5.10 LIMITATIONS ON DISTRIBUTIONS. Capital
distributions, loans to, and/or repayment of loans
from any Affiliates (including without limitation
any loans to Borrower by partners of Borrower in
lieu of capital contributions to Borrower)
(collectively "Distributions") shall be made by
Borrower during the term of the Loan
only on the following terms and conditions:
5.10.1 No Distributions shall be made prior
to the Permanent Term;
5.10.2 During the Permanent Term,
Distributions may be made only once each calendar
quarter from Excess Cash Flow after all Required
Financial Information for the immediately
preceding calendar quarter has been delivered to
and approved by Lender; Lender shall deliver
notice of approval or disapproval to Borrower
within thirty (30) days of Lender's receipt of the
Required Financial Information for such quarter;
5. 10.3 There exists no Event of Default or
Incipient Default of which Lender has notified
Borrower under the Loan Documents;
5.10.4 Without limiting the generality of
subparagraph 5.10.3 above, the most current
financial information provided by Borrower to
Lender demonstrates that the Property is in
compliance with the Debt Service Coverage Ratio
and Debt Service After Management Fee Coverage
Ratio requirements set forth in paragraph 5.9
above; and
5.10.5 Without limiting the generality of
subparagraph 5.10.3 above, Borrower has not
incurred any additional Debt except as permitted
by the Loan Documents, without Lender's prior
written consent.
Any Distribution not taken in one quarter may
be carried over to a future quarter and taken out
at that time, so long as Borrower is entitled to a
Distribution at that time under the requirements
set forth in this paragraph.
5.11 EQUIPMENT LEASES. Borrower shall not
enter into any Equipment Leases unless (i) the
amount of all such Equipment Leases then
outstanding, after giving effect to the Equipment
Lease proposed to be entered into, will not exceed
$250,000, and (ii) Borrower has first offered to
permit Lender to enter into any such Equipment
Lease on the same terms and conditions offered by
a third party lender, and Lender has refused such
offer.
29
5.12 GUARANTIES. Borrower shall cause
Guarantors to execute the Guaranties and shall
deliver them to Lender at the Loan Closing. The
Guaranties shall constitute an unconditional
guarantee of the Obligations of Borrower to
Lender. Provided there is no Event of Default or
Incipient Default of which Borrower has received
notice from Lender at such time, on the fifth
anniversary of the Loan Closing Lender will
consider a reduction in the amount of the
guaranteed indebtedness
covered by the Guaranties, such reduction, if any,
to be in such amounts and upon such terms as
Lender, in its sole and absolute discretion, may
determine.
5.13 LAWS. Borrower will comply with all
applicable laws and regulations, including,
without limitation, all environmental laws and
regulations applicable to the Property.
5.14 INSURANCE. Borrower will maintain all
insurance policies required by Lender, upon forms
required by Lender, and written by insurers and in
amounts satisfactory to Lender; and will deliver
such policies or copies thereof to Lender.
5.15 MAINTENANCE OF LICENSES ETC. Borrower
shall maintain in force at all times, and apply in
a timely manner for renewal of, all licenses,
patents, approvals, permits, franchises,
trademarks, tradenames and other agreements
necessary to cause Completion of the Work to occur
and to operate the Property, the loss of which
would have a material adverse effect upon Borrower
or upon the operation of the Property or the
ability of Borrower to perform its obligations
under the Loan Documents, and shall give Lender at
least thirty (30) days prior written notice of the
proposed amendment of any of such licenses,
patents, permits, franchises, trademarks,
tradenames and other agreements.
5.16 CONSTRUCTION-RELATED COVENANTS. Borrower
shall:
5.16.1 commence construction of the Property
promptly after the Loan Closing and in any event
no later than thirty (30) days after the Loan
Closing. Borrower shall cause Completion of the
Work to occur in substantial compliance with the
Work Progress Schedule, subject to Force Majeure
Events (not to exceed sixty (60) days in the
aggregate), all in accordance with the Plans and
Specifications, Construction Contract(s),
applicable laws, regulations and private
restrictions, the Loan Documents, sound
construction, engineering and architectural
principles and commonly accepted safety standards
and free from defective materials and workmanship;
subject to Force Majeure Events not to exceed
sixty (60) days in the aggregate, cause Completion
to occur on the Required Completion Date. The Work
Progress Schedule shall require commencement of
the Work to occur in thirty (30) days following
Loan Closing;
5.16.2 pay when due all costs, expenses and
claims pertaining to the Work; and deliver to
Lender during the course of the Work in order to
monitor and/or provide assurance that the Work is
proceeding lien free in accordance with the
requirements of this Agreement: bills of sale,
conveyances and paid invoices pertaining to the
Work; all waivers and releases of lien or claims
on the Rea1 Property and/or the Improvements on
account of the Work Lender may deem necessary or
may request for its protection; and
from persons acceptable to Lender, additional
engineering or architectural studies and reports
as Lender or Lender's Consultant may require;
30
5.16.3 record all notices of
commencement/completion and similar notices
permitted by applicable laws and regulations which
have the effect of shortening periods within which
mechanics and similar liens may be filed;
5.16.4 not enter into any Architect/Engineer
Agreement or Construction Contract with respect to
the Work except upon terms and with such parties
as Lender may reasonably approve in writing (which
approval or rejection shall occur within five (5)
Business Days after Lender's receipt of a request
for such approval);
5.16.5 deliver to Lender true and complete
copies of all Principal Work-Related Items and all
other Contracts, Intangibles, Licenses and
Permits;
5.16.6 not amend any of the Principal Work-
Related Items without Lender's consent, except for
change orders which (a) do not change the cost of
Completion of the Work by more than Ten Thousand
and No/100 Dollars ($10,000.00) individually or
One Hundred Thousand and No/100 Dollars
($100,000.00) in the aggregate beyond that shown
in the Budget as originally approved by Lender,
and (b) do not materially affect the design,
structural integrity or quality of the
Improvernents. Borrower shall deliver to Lender,
immediately upon execution thereof, all change
orders with respect to the Work including those
within the scope of clauses (a) and (b) above;
5.16.7 perform all its obligations and
preserve its rights under the Principal Work-
Related Items in force and secure the performance
of the other parties to the Principal Work-Related
Items and all other Contracts, Intangibles,
Licenses and Permits;
5.16.8 deliver to Lender promptly after the
completion of the foundation and, if required by
Lender, after the pouring of a street, curbstone
or concrete slab on the Real Property, a survey
prepared in accordance with the requirements of
paragraph 3.1.5 showing such Improvements, their
location within Property lines and a lack of
encroachments, and deliver to Lender promptly upon
the Completion, a survey which is certified to
Lender, and the Title Company showing the "as-
built" Improvements and otherwise satisfying the
requirements of paragraph 3.1. 5 ;
5.16.9 deliver to Lender prior to or
concurrently with each Work-Related Advance, a
date down endorsement in a form acceptable to
Lender issued by the Title Company insuring that
the Mortgage at the time of each Work-Related
Advance, constitutes a valid first lien upon the
Real Property or title, subject only to the
Permitted Encumbrances; upon construction of the
foundation for any building comprising part of the
Improvements deliver to Lender an endorsement
("foundation endorsement") insuring that the
foundations, as constructed, are located within
all set-back and boundary lines of the Real
Property and do not encroach upon any easements,
rights of way (public or private) or upon any
other adjoining landowner s property; and upon the
final advance by Title Agent of the Basic
Retainage described in paragraph 3.2.8 hereof,
Borrower shall deliver, or cause Title Agent to
deliver, to Lender a date down endorsement or a re-
issued title policy ("Re-Issued Title Policy")
meeting the substantive requirements set forth
above.
5.16.10 after obtaining knowledge or
receiving notice thereof, correct or cause to be
corrected (a) any material defect in the Work, (b)
any material departure in the completion of the
Work from the Plans and Specifications and the
Construction
31
Contract(s) unless expressly permitted in this
Agreement or consented to in writing by Lender,
(c) any failure of the Work to comply with
applicable laws, regulations or restrictions of
record, sound construction, engineering or
architectural principles or commonly accepted
safety standards or (d) any encroachment of any
part of the Improvements on any set-back or
boundary line, easement, or other restricted area;
5.16.11 promptly deliver to Lender any and
all notices received by Borrower that it is not
complying with applicable laws, regulations and
private restrictions pertaining to the Work or
that the Work is not being completed in accordance
with the Plans and Specifications, the
Construction Contract(s), sound construction,
engineering and architectural principles and
commonly accepted safety standards;
5.16.12 notify Lender in writing if and when
the unpaid costs of Completion of the Work exceeds
or appears likely to exceed the undisbursed
portion of the Loan and any undisbursed Required
Completion Assurance Deposit(s) held by Lender;
5.16.13 cause all materials supplied for or
intended to be
utilized in the Completion of the Work, but
previously not affixed to or incorporated into the
improvements, to be stored on the Real Property
with adequate safeguards, to prevent loss, theft,
damage or commingling with other materials; and
5.16.14 promptly after receipt by Borrower,
deliver to Lender copies of all building permits
and certificates of acceptance and/or occupancy
relating to the Work.
5.17 SUBORDINATION OF DEBT TO AFFILIATES.
Borrower shall obtain and deliver to Lender
Subordination Agreements (collectively, the
"Subordination Agreements") in form and substance
satisfactory to Lender, from Guarantors, and from
the Project general contractor, architect and
engineer, Affiliates of Borrower or of Guarantor
(collectively, the "Subordinating Parties")
subordinating any and all obligations now or
hereafter owing to such Subordinating Party by
Borrower (including, without limitation, all
management fees, salaries and loan repayments) to
Borrower's obligations to Lender under the Loan
Documents; subordinating the lien of any deed of
trust or other security instrument in any of
Borrower's assets to liens created by Lender's
Mortgage and other Loan Documents; and evidencing
such Subordinating Party's agreement to not
exercise any remedies against Borrower with
respect to such loans so long as the Loan is
outstanding. Bona fide indebtedness owed by
Borrower to an Affiliate in the way of salary and
other compensation paid on an arm's-length basis
to bona fide employees of Borrower shall not be
subject to a Subordination Agreement.
5.18 LEASES. Prior to the commencement of the
Permanent Term, Borrower shall obtain from all
tenants and subtenants under any leases or
subleases (except for residents occupying the
Project pursuant to the Lender approved form of
residency agreement) which will be in effect upon
the commencement of the Permanent Term, and
deliver to Lender, estoppel certificates executed
and effective as of a date not earlier than thirty
(30) days prior to the commencement of the
Permanent Term, and (where required) subordination
agreements, embodying such subordination,
attornment and other provisions as Lender deems
necessary. The form and content of all leases,
subleases, tenancies, licenses and any other
agreements with tenants or subtenants of the
Project shall be acceptable to Lender; however
Lender may elect to approve Borrower's standard
form of residency agreement in advance in which
event Borrower shall be authorized to
32
enter into residency agreements on such standard
form without, in each instance, Lender's consent.
All leases, subleases, tenancies, licenses and
other agreement shall contain provisions, in form
and content acceptable to Lender, subordinating
such leases, in lien and priority to all payments
due Lender under the Loan Documents.
5.19 SIGNAGE. Throughout the Construction
Term, Borrower shall maintain prominent
informational signage acceptable to Lender,
stating that financing was provided by Lender and
including the telephone numbers of Lender's New
York, Chicago, and Scottsdale, Arizona offices.
5.20 FURTHER ASSURANCES. Borrower will
execute or cause to be executed all documents and
do or cause to be done all acts reasonably deemed
necessary or appropriate by Lender to perfect and
to continue the perfection of the first priority
security interests of Lender in the security for
the performance of the obligations or otherwise to
effect the intent and purposes of the Loan
Documents.
5.21 MEDICARE/MEDICAID REPORTS. Borrower
shall submit to Lender all certificates of
necessity, licenses, inspection reports for
licensure, and, if applicable, Medicaid and
Medicare purposes, for the Project, within thirty
(30) days of issuance.
5.22 REQUIRED COMPLETION ASSURANCE DEPOSITS.
If at any time the remaining Project costs which
must be incurred before Completion can occur
("Completion Costs") are more than the committed
and undisbursed portion of the Loan and, in any
event within ten (10) days after Lender's demand
that it do so, Borrower shall deliver to Lender
cash deposits equal to the shortfall ("the
Required Completion Deposit Assurances"). In the
event of any dispute, the necessity for an amount
of any Completion Deposit shall be determined by
Lender in its discretion based upon the approved
Budget and the advice of Lender's Consultant. The
required Completion Deposit may be deposited in a
non-interest bearing account and need not be
segregated from any of Lender's other funds.
Lender shall disburse the Required Assurance
Completion Deposits to pay and/or reimburse
Borrower for the cost of the Work prior to any
further disbursement of Loan proceeds for such
purposes, but subject to the terms and conditions
of the Loan Documents. Borrower shall promptly
notify Lender in writing if and when the
Completion Costs appear likely to exceed the
committed and undisbursed portion of the Loan and
any undisbursed Required Completion Assurance
Deposits held by Lender.
5.23 ARCHITECTURAL AND ENGINEERING REPORTS.
Borrower shall pay when due the cost of all
architectural, engineering, structural and
mechanical studies, reports and inspections with
respect to the design and construction of the
Project.
5.24 OTHER COVENANTS. Borrower shall timely
perform and strictly comply with all other
covenants set forth in the Loan Documents.
ARTICLE 6
EVENTS OF DEFAIJLT
For all purposes under this Agreement, any of
the following shall be deemed to constitute an
Event of Default hereunder and under the Loan
Documents:
33
6.1 A failure to pay when and as the same
shall become due and payable, whether by maturity
or otherwise, any interest, principal or other
amounts required to be paid hereunder or on the
Note or under any of the Loan Documents, which
default continues for a period of five (5) days
after Lender delivers written notice of such
failure to Borrower; provided, however, Lender
shall only be obligated to deliver two (2) such
notices within any twelve (12) month period and if
Lender has delivered two written notices of prior
failures to Borrower, Lender shall not be
obligated to deliver any additional written
notices of subsequent failures within the twelve
(12) month period after the two (2) written
notices of the prior failures and an Event of
Default shall be deemed to occur automatically
upon the subsequent failure to pay any such sum
when due and payable within said twelve (12) month
period without any notice to Borrower;
6.2 Any failure on the part of Borrower to
strictly comply with and perform any term,
provision, covenant, or condition contained in the
Loan Documents not covered by paragraph 6.1 above,
or the default on any other indebtedness or
obligation of Borrower to Lender, or the failure
of any warranty or representation of Borrower to
be true (provided, however, that any such failure
shall not constitute an Event of Default if
performance of any non-monetary obligation or
covenant not specifically addressed in paragraph
6.3 through 6.23 below is commenced immediately
and completed within thirty (30) days after
written notice demanding performance thereof;
provided, however, that if such performance is of
a nature that it cannot be completed solely by the
payment of money to a third party, and cannot
otherwise be accomplished within such thirty (30)
day period, then so long as Borrower has commenced
and is diligently pursuing such performance, it
shall have such additional time as is necessary
(but in no event more than an additional sixty
(60) days to complete such performance); '
6.3 The voluntary or involuntary commencement
of bankruptcy or insolvency proceedings or the
filing for an arrangement or composition of
creditors against Borrower or upon the filing of
any suit or legal action materially adversely
affecting the Collateral or adversely affecting
Borrower's ability to perform its obligations
under the Loan Documents unless such proceeding is
involuntary and is dismissed within sixty (60)
days of commencement or filing;
6.4 Immediately upon any final action, rule,
law, or decision of any
legislative or administrative body or of any court
which would materially impair or
adversely affect the lien or enforceability of
this Agreement or any one or more of the Loan
Documents;
6.5 Immediately upon the commencement of any
action or proceeding to establish, assert,
perfect, foreclose, or enforce any claim,
restriction, encumbrance, deficiency tax
assessment, or tax lien, on or with respect to the
Collateral, whether or not superior or inferior to
the lien of the Loan Documents unless such matter
is fully insured by the Title Company, unless
Borrower within thirty (30) days from the
commencement of such action causes the same to be
dismissed, or unless Borrower shall within such
thirty (30) day period record and serve a surety
bond pursuant to California law or otherwise fully
protect Lender from any loss or liability arising
therefrom;
6.6 Immediately upon the assignment by
Borrower, without Lender's prior written consent,
of any of the Loan Documents or any rights of
Borrower thereunder;
34
6.7 Immediately upon the material damage or
destruction of the Collateral by any casualty not
covered by insurance required pursuant to
paragraph 5.14 hereof or rendering impossible, in
Lender's reasonable judgment, the Completion of
the Work in accordance with the Budget, or upon
Completion, the continued operation of the
Property as an independent and assisted living
facility;
6.8 Immediately upon the Borrower's
abandonment of all or any part of the Collateral
or the cessation, upon Completion, of operation of
the Property as an independent and assisted living
facility;
6.9 Immediately upon the insolvency of
Borrower or the execution by Borrower of an
assignment for the benefit of its creditors; or
the convening by Borrower of a meeting of its
creditors, or any class thereof, for purposes of
effecting a moratorium upon or extension or
composition of its debts;
6.10 Immediately upon the admission in
writing by Borrower that it is unable to pay its
debts as they mature or that it is generally not
paying its debts as they mature;
6.11 Immediately upon the existence or the
filing of any lien or encumbrance against any and
all of the Collateral, other than those permitted
hereunder, unless Borrower shall immediately
record and serve a surety bond pursuant to
applicable law or otherwise fully protect Lender
from any loss or liability arising therefrom;
6.12 Immediately upon the occurrence or any
default under, or breach or any provision or,
covenants, conditions and restrictions or
easements now or hereafter recorded against the
Real Property or any part thereof. which default
materially affects the value, use or operation of
the Property;
6.13 Immediately upon Borrower's failure to
(i) pay any taxes due on the Collateral prior to
such taxes being delinquent, or (ii) maintain
insurance on the Collateral of the types and in
the amounts required under this Agreement;
6.14 Any of the events enumerated in
paragraphs 6.3 6 9 and/or 6.10 occurs with respect
to any Guarantor;
6.15 An order or decree has been entered by
any court of competent jurisdiction enjoining the
intended use of the Property as an independent and
assisted living facility and judgment is not
vacated within ninety (90) days after Borrower has
obtained knowledge or notice thereof;
6.16 Unless otherwise covered in this Article
6, upon fifteen ( 15 ) days following written
notice, upon a default in the performance of the
obligations of Borrower set forth in paragraphs
5.1 through 5.11;
6.17 Immediately upon (a) Failure to cause
Completion to occur on or before the Required
Completion Date, or (b) at any time prior to
Completion of the Work, (i) Borrower abandons the
Work or (ii) Borrower delays construction of the
Improvements for any period of time, for any
reason whatsoever not covered by item (i) above
which in the reasonable judgment of Lender will
prevent Completion of the Work in the ordinary
course of construction on or before the Required
Completion Date subject to Force
35
Majeure Events not to exceed sixty (60) days in
the aggregate; or
6.18 Immediately, if whether voluntarily,
involuntarily, by operation of law or otherwise,
Borrower sells, leases (other than leases approved
by Lender), exchanges, assigns, transfers, conveys
or otherwise disposes of the Property or any
interest therein, including the Leases, rents or
income thereof, or enters into a written agreement
to do so, or grants or permits to exist any other
mortgage, deed of trust or other lien, charge or
encumbrance against the Property, whether superior
or inferior to this Deed of Trust unless Borrower
immediately records and serves a surety bond
pursuant to applicable law or otherwise fully
protects Lender from any loss or liability arising
therefrom; or
6.19 Immediately, if Borrower is in default
under the terms of any document evidencing or
securing payment of a Debt secured by any lien or
security
interest on the Property (without implying
Lender's consent to the existence, placing,
creating or permitting of any lien or security
interest); or
6.20 Immediately upon the dissolution of
Borrower or any of the Guarantors; or
6.21 Immediately if without the prior written
consent of Lender, (A) any of the Guarantors cease
to be a general partner of Borrower, (B) the
Guarantors cease to control Borrower, or (C) the
Guarantors cease to own at least fifty percent
(50%) of the beneficial ownership interest and
partnership interest in Borrower. As used herein
the term "control" as used with respect to
Borrower shall mean the possession of the power to
direct the management and policies of Borrower.
ARTICLE 7
LENDER'S REMEDIES
7. 1 Upon the occurrence of any Event of
Default hereunder, Lender may at its option either
simultaneously or in any order whatsoever, take
the following actions:
7.1.1 Decline and refuse and be relieved of
any obligation to make any Advance hereunder or
under the Note.
7.1.2 Declare to be immediately due and
payable, with interest, all funds advanced by or
owed to Lender under the Note and any of the other
Loan Documents.
7.1.3 Foreclose its lien and/or exercise its
right to cause the Collateral to be sold under the
Mortgage and exercise any other rights and
remedies given to Lender in all other Loan
Documents.
7.1.4 Take such other action as Lender may
deem necessary to protect its interest.
7.1.5 File suit against Borrower for any sums
owing and/or for damages.
7.1.6 Enter into possession of the Property
in accordance with and for the purposes set forth
in the Mortgage (all funds disbursed by Lender in
exercising such rights shall be deemed to have
been disbursed to Borrower, shal1 become
additional obligations under the Loan Documents
and shall be secured by the Loan Documents).
36
7.1.7 Exercise any and all remedies of a
secured party under the Uniform Commercial Code
with respect to the Collateral;
7.1. 8 Take such other actions or remedies as
may be available to Lender under the Loan
Documents and/or at law or in equity.
7.1.9 Take one or more of the following
actions in connection with the construction of the
Improvements: (a) use any funds of Borrower,
including the Required Completion Assurance
Deposit(s) (if any) and any sums which may remain
unadvanced hereunder, to continue and/or cause
Completion of the Work; (b) demand and receive
performances due under the Principal Work-Related
Items and the other Contracts, Intangibles,
Permits and Licenses; (c) make such changes to the
scope of the Work and to the Principal Work-
Related Items and other Contracts, Intangibles,
Permits and Licenses as Lender may deem necessary
or desirable in its sole and absolute judgment;
(d) file claims, institute enforcement actions and
otherwise prosecute and defend all actions or
proceedings relating to the Work, the Principal
Work-Related Items and the other Contracts,
Intangibles, Permits and Licenses as Lender may
deem necessary or desirable in its sole and
absolute judgment; (e) pay, settle or compromise
all existing bills and claims which are or may be
liens against the Property or any Contracts,
Intangibles, Permits and Licenses, or may be
necessary or desirable for the continuance or
Completion of the Work related thereto or the
clearance of title, all without notice to
Borrower; (f) execute in Borrower's name all
applications, certificates, notices and other
instruments and give all instructions and
communications which may be required or permitted
by the Principal Work Related Principal Items,
other Contracts, Intangibles, Permits and
Licenses, as determined by Lender in its sole and
absolute judgment; (g) do any and every act with
respect to the Completion of the Work, the
Principal Work-Related Items and the other
Contracts, Intangibles, Permits and Licenses which
Borrower may do in its behalf; (h) employ such
contractors, subcontractors, suppliers, agents,
attorneys, architects, accountants, appraisers,
security guards and inspectors as Lender may in
its sole and absolute judgment deem necessary or
desirable to accomplish any of the above purposes;
and (i) receive, collect, open and read all mail
of Borrower for the sole purpose of obtaining all
items pertaining to the Work, the Principal Work-
Related Items and the other Contracts,
Intangibles, Permits and Licenses.
7.1.10 Charge and collect interest on the
outstanding principal
balance of the Loan at a Default Rate equal to the
lesser of (i) the Maximum Rate, or (ii) the Basic
Rate plus 500 basis points (the "Default Rate").
7.2 If Borrower shall fail to comply with or
fully perform any of its obligations under the
Loan Documents, regardless of whether an Event of
Default shall then exist, Lender may (but shall
not be obligated to), without further demand upon
Borrower and without waiving or releasing Borrower
from any such obligation or remedying any Event of
Default or Incipient Default pay or perform any of
such obligations. Lender shall give Borrower at
least ten (10) Business Days' notice before making
any payment required to be made by Borrower,
except that if such payment is required, as
determined by Lender in its sole discretion, to be
made immediately to protect the Collateral, no
prior notice of payment to Borrower shall be
required. Unless an Event of Default exists and
the Note is then due in full (whether by
acceleration or otherwise), Lender shall notify
Borrower within a reasonable period of time after
it takes any action without notice pursuant to the
37
preceding sentence, but failure to do so shall not
excuse Borrower from its obligation to
reimburse Lender in accordance with the terms of
the following sentence or otherwise prevent the
exercise by Lender of its rights and remedies on
account of any default by Borrower. Borrower shall
immediately pay to Lender upon demand all expenses
incurred by Lender in taking any action permitted
by this paragraph, together with interest from the
date of expenditure by Lender at the rate at which
interest is then accruing under the Note or, at
the option of Lender, if not paid within five (5)
Business Days after demand, at the Default Rate
from and after such fifth (5th) Business Day. All
such sums, together with interest as aforesaid,
shall become additional indebtedness secured by
the Collateral. No such payment by Lender shall be
deemed to relieve Borrower from any default or
Event of Default under any of the Loan Documents.
7.3 For the purpose set forth under paragraph
7.1.6 7.1.9 and 7.2, Borrower hereby irrevocably
appoints Lender as Borrower's true and lawful
attorney-in-fact with full power of substitution
(and such power of attorney shall be deemed to be
a power coupled with an interest that cannot be
revoked for any reason) from and after the
occurrence of an Event of Default, to operate the
Property and to take such action and require such
performance as it deems necessary. Without
limiting the generality of the powers granted to
Lender, Borrower hereby specifically empowers
Lender, as such attorney-in-fact:
7.3.1 To take all actions reasonably
necessary in connection therewith for the purpose
of operating the Property;
7.3.2 To employ such management companies as
shall be convenient to operate the Property; and
7.3.3 To pay, settle, or compromise all
existing or future bills and claims which are or
may be liens against the Property or may be
reasonably necessary or desirable for the
operation of the Property.
ARTICLE 8
LEGAL FEES AND COSTS
8.1 Except as otherwise expressly provided
herein, Borrower shall pay all actual closing and
pre-closing costs for the Loan and all expenses of
Lender with respect thereto, including, without
limitation, all of Lender's outside attorneys'
fees, Lenders Consultant fees and costs (Borrower
hereby acknowledging that the fees and costs of
Lender's Consultant as described in that certain
Letter Agreement between Borrower and Lender's
Consultant dated __________ are reasonable),
travel expenses, escrow fees, recording fees,
title search and title insurance fees, UCC lien,
litigation and tax lien searches, mortgage taxes
and appraisal and survey fees and all other legal
fees incurred by Lender in conjunction with the
Loan, including all fees incurred subsequent to
the closing of the Loan in connection with the
disbursement, administration (including, without
limitation, Lender's Consultant fees), collection
(regardless of whether litigation is commenced),
or satisfaction of the Loan, advances, recording
expenses, survey, taxes, expenses of collection or
foreclosure (including attorneys fees) and similar
items. Lender may, at its option, withhold funds
from the Advances for application against Lender's
expenses and Borrower shall pay any excess within
ten (10) days after its receipt of a written
request therefor.
38
8.2 In addition to any rights Borrower and
Lender may have under applicable law, Borrower
shall pay Lender's attorneys' fees and costs
(including expert witness fees) incurred in the
collection of any indebtedness hereunder, or in
enforcing this Agreement, whether or not suit is
brought, including any reasonable attorneys' fees
and costs (including expert witness fees) incurred
by Lender in any proceeding under the Federal
Bankruptcy Code in order to collect any
indebtedness hereunder or to preserve, protect or
realize upon any security for such indebtedness.
ARTICLE 9
LENDER'S CONSULTANT
9.1 Lender may retain an architectural,
engineering or consulting firm or firms acceptable
to Lender ("Lender's Consultant") to review the
Plans and Specifications, the Construction
Contract(s) and the Budget; perform an analysis of
the anticipated cost of the Work; make periodic
inspections of the Property and Work so that
Lender may monitor whether Borrower is in
compliance with the terms and conditions of this
Agreement with respect to completion of the Work;
certify that each
Work-Related Advance Request is not in excess of
the Work completed and the
amount to which Borrower is entitled under the
terms and conditions of this
Agreement; and provide evidence satisfactory to
Lender prior to the funding of any
Work-Related Advance that (subject to completion
thereof as part of the Work as contemplated by
this Agreement), all necessary streets, easements
and utilities are available to the boundary of the
Real Property and that the respective lines and
treatment or generator plants are of adequate
capacity and size for the intended use of the
Property. Furthermore, Lender may require an
inspection of the Work by Lender's Consultant (a)
prior to each Work-Related Advance; (b) monthly or
more frequently if deemed necessary by Lender
during the course of construction of the Work; (c)
upon Completion of the Work; and (d) at such other
time as Lender may deem necessary due to actual or
suspected non-compliance with the Plans and
Specifications, Construction Contract(s), the Loan
Documents, any law, regulation or private
restriction, sound architectural, engineering or
construction principles or commonly accepted
safety standards or Borrower's failure to satisfy
the requirements of the Loan Documents.
9.2 Lender shall have no duty to supervise or
to review and inspect the Plans and
Specifications, the Construction Contract(s), any
budget proposed to be the Budget, the construction
of the Work, or any books and records pertaining
thereto. Any inspection made by Lender shall be
for the sole purpose of determining whether
Borrower's obligations under the Loan Documents
are being performed and preserving Lender s rights
under these documents. If Lender, or Lender's
Consultant acting on behalf of Lender, should
review or inspect the Plans and Specifications,
the Construction Contract(s), the Budget, the
construction of the Work or any books and records
pertaining thereto, Lender and Lender's Consultant
shall have no liability or obligation to Borrower
or any third person arising out of such
inspection; and neither Borrower nor any third
person shall be entitled to rely upon any such
inspection or review. Inspection not followed by
notice of default shall not constitute (a) a
waiver of any default then existing; (b) an
acknowledgment or representation by Lender or
Lenders Consultant that there has been or will be
compliance with the Plans and Specifications, the
Construction Contract(s), the Budget, the Loan
Documents, applicable laws, regulations and
private restrictions, sound construction,
engineering or architectural principles or
commonly accepted safety standards, or that the
construction is free from defective materials or
39
workmanship or (c) a waiver of Lender's right to
insist that Completion of the Work occur in
accordance with the Plans and Specifications,
Construction Contract(s), the Budget, Loan
Documents, applicable laws, regulations and
restrictions of record, sound construction,
engineering or architectural principles or
commonly safety standards and free from defective
materials and workmanship. Lender and Lender's
Consultant owe no duty of care to Borrower or any
third person to protect against, or inform
Borrower or any third person of, the existence of
negligence, faulty, inadequate or defective design
or construction of the Work.
ARTICLE 10
MISCELLANEOCJS
10.1 Any waiver of any of the terms of this
Agreement by Lender shall not be construed as a
waiver of any other terms of this Agreement, and
no waiver shall be effective unless made in
writing. The failure of Lender to exercise any
right with respect to the declaration of any
default shall not be deemed or construed to
constitute a waiver of, or to preclude Lender from
exercising, any right with respect to such default
at a later date or with respect to any subsequent
default by Borrower.
10.2 Borrower shall execute and deliver any
and all documents which may reasonably be
requested by Lender in order to effectuate the
purposes of this Agreement.
10.3 This Agreement is made solely between
Borrower and Lender. No other person shall have
any right of action hereunder. The parties
expressly agree that no person shall be a third-
party beneficiary to this Agreement.
10.4 Borrower shall indemnify, defend and
hold Lender harmless from and against all claims,
costs, expenses, actions, suits, proceedings,
losses, damages, and liabilities of any kind
whatsoever, including but not limited to,
attorneys' fees and expenses (including, without
limitation, expert witness fees), arising out of
any matter relating to the Loan or to the
ownership, development, construction, sale, rental
or financing of the Property and whether resulting
from internal disputes of Borrower, disputes
between Borrower and any Affiliate of Borrower or
whether involving other third persons or entities,
or out of any other matter whatsoever related to
this Agreement, any of the Loan Documents or any
property encumbered thereby; excluding, however,
claims, costs, expenses, actions, suits,
proceedings, losses, damages and liabilities of
any kind whatsoever which result from Lender's
gross negligence or willful misconduct. This
indemnity provision shall continue in full force
and effect and shall survive not only the making
of the Loan and all Advances thereof but shall
also survive the repayment of the Loan and the
performance of all of Borrower's other obligations
under this Agreement.
10.5 This Agreement shall inure to the
benefit of, and be binding upon, the parties
hereto, their respective executors,
administrators, heirs, successors, and assigns
(including without limitation any other lender
participating with Lender in the Loan), provided,
however, that neither this Agreement nor any
rights or obligations hereunder shall be
assignable by Borrower without the prior express
written consent of Lender, and any purported
assignment made in contravention
here0f shall be void. No standard of
reasonableness shall attach to Lender's discretion
in consenting or not consenting to any assignment.
40
10.6 The Recitals and all of the exhibits
attached hereto are an integral part hereof and
are fully incorporated herein by this reference.
10.7 Time is of the essence of each and every
provision of this Agreement and the other Loan
Documents.
10.8 This Agreement embodies the entire
agreement of the parties in relation to the
subject matter hereof, and supersedes all terms,
conditions and provisions embodied in the
commitment letter between Lender and Borrower
dated November 21, 1996, and any and all other
previous writings between Borrower and Lender.
There are no representations, promises,
warranties, understandings or agreements,
expressed or implied, oral or otherwise, in
relation thereto, except those expressly referred
to or set forth herein. Borrower acknowledges that
the execution and delivery of this Agreement is
its free and voluntary act and deed, and that said
execution and delivery have not been induced by,
nor done in reliance upon, any representations,
promises, warranties, understandings, or
agreements made by Lender, its agents, officers,
employees, or representatives, other than those
expressly set forth herein. No promise,
representation, warranty or agreement made
subsequent to the execution and delivery hereof by
either party hereto, and no revocation, partial or
otherwise, or change, amendment, addition,
alteration or modification of this Agreement shall
be valid unless the same be in writing signed by
all the parties hereto.
10.9 Unless otherwise specifically stipulated
elsewhere in this Agreement, all approvals,
consents and other matters requiring acceptance or
satisfaction on Lender's part contained in the
Loan Documents shall be deemed exercisable by
Lender in its sole and absolute discretion.
However, whenever the Loan Documents contain the
terms "reasonably satisfactory to Lender",
"reasonably determined by Lender", "reasonably
acceptable to Lender", "reasonable consent of
Lender", "Lender shall reasonably elect", "Lender
shall reasonably request" or similar terms wherein
the word reasonable or a derivative thereof is
used with regard to an action of Lender, such
terms shall mean satisfactory to, at the election
of, determined by, acceptable to or requested by,
as applicable, Lender in its sole (but reasonably
exercised) discretion. It is the intention of the
parties to permit Lender a broad latitude in which
to exercise its discretion, within the range of
reasonableness, acknowledging that, while such
discretion may not be exercised arbitrarily or
capriciously, it may be exercised conservatively
for Lender's protection and benefit. By way of
illustration, and not of limitation, it shall not
be unreasonable for Lender, in exercising its
discretion, to make conservative assumptions
regarding the possible outcome of future events.
10.10 NOTICES. Any notice required or
permitted to be given hereunder shall be in
writing and shall be (i) personally delivered to
the party being notified if an individual or to an
officer, general partner or member if a
corporation, partnership or limited liability
company, (ii) transmitted by postage prepaid,
certified or registered mail (return receipt
requested), or (iii) transmitted by a nationally
recognized overnight courier service such as
Federal Express, to such party at its address set
forth below or such other address as the party
being notified may have otherwise designated in a
notice given as provided in this paragraph- Such
notice shall be deemed to have been given and be
effective, unless actual receipt is expressly
specified herein, upon the date of receipt or the
date delivery is first attempted and refused if
transmitted by registered or certified mail, or by
overnight courier service, whichever shall occur
first.
41
If to Borrower: TDC/Emeritus Paso
Xxxxxx Associates
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxxx 00000
With Copy to: Emeritus Corporation
0000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
TDC Convalescent, Inc.
0000 Xxxxxxx Xxxxxxxxx, Xxxxx
000
Xxxxxxxxx, Xxxxxxxxxx 00000
Xxxxx Xxxxxxxxx, Esq.
The Xxxxxxxxx Group
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 9810 I
Xxxx Xxxxx, Esq.
Argue Xxxxxxx Xxxxxxxx &
Xxxxx, CLP
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-
4699
If to Lender: FINOVA Capital
Corporation
0000 Xxxx Xxxxxx Xxxxx, Xxxxx
Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
with copy to: FINOVA Capital
Corporation
0000 Xxxx Xxxxxx Xxxxxx Xxxx,
Xxxxx 000
Xxxxxxxxxx, Xxxxxxx 00000
Attn.: Vice President - Group
Counsel
I0.11 THIS LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO HAVE BEEN, DELIVERED
AND ACCEPTED IN, AND THIS LOAN AGREEMENT, AND THE
OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS
AND DECISIONS OF, THE STATE OF ARIZONA (WITHOUT
REGARD FOR ITS CONFLICTS OF LAW PRINCIPLES), THE
STATE IN WHICH LENDER'S PRINCIPAL PLACE OF
BUSINESS IS LOCATED, AND BY EXECUTION HEREOF
BORROWER AND BY ACCEPTANCE HEREOF, LENDER, EACH
AGREES THAT SUCH LAWS AND DECISIONS OF THE STATE
OF ARIZONA SHALL GOVERN THIS LOAN AGREEMENT AND
THE OTHER LOAN DOCUMENTS, NOTWITHSTANDING THE FACT
THAT THERE MAY BE OTHER JURISDICTIONS WHICH MAY
BEAR A REASONABLE RELATIONSHIP TO THE TRANSACTIONS
CONTEMPLATED HEREBY; PROVIDED, HOWEVER, THAT WITH
RESPECT TO THE PROCEDURAL AND SUBSTANTIVE MATTERS
RELATING ONLY TO THE CREATION, VALIDITY,
PERFECTION AND ENFORCEMENT BY LENDER OF ITS RIGHTS
AND REMEDIES AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL LOCATED IN ANY STATE OTHER THAN
ARIZONA, SUCH MATTERS SHALL BE GOVERNED BY THE
LAWS OF THE STATE IN WHICH SUCH PROPERTY IS
LOCATED.
42
10. 12 BORROWER HEREBY AGREES THAT ALL
ACTIONS OR PROCEEDINGS INITIATED BY BORROWER AND
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS LOAN
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE
LITIGATED IN THE SUPERIOR COURT OF ARIZONA,
MARICOPA COUNTY DIVISION, OR THE UNITED STATES
DISTRICT COURT FOR THE DISTRICT OF ARIZONA OR, IF
LENDER INITIATES SUCH ACTION, IN ADDITION TO THE
FOREGOING COURTS ANY COURT IN WHICH LENDER SHALL
INITIATE SUCH ACTION, TO THE EXTENT SUCH COURT HAS
JURISDICTION. BORROWER HEREBY EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN
ANY ACTION OR PROCEEDING COMMENCED BY LENDER IN
ANY OF SUCH COURTS AND HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER
PROCESS OR PAPERS ISSUED THEREIN, AND AGREES THAT
SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER
PROCESS OR PAPERS MAY BE MADE BY ACTUAL DELIVERY
OR REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO THE BORROWER AT THE
ADDRESS TO WHICH NOTICES ARE TO BE SENT PURSUANT
TO THE MORTGAGE. BORROWER WAIVES ANY CLAIM THAT
PHOENIX, ARIZONA OR THE DISTRICT OF ARIZONA IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON
LACK OF VENUE. SHOULD BORROWER, AFTER BEING SO
SERVED, FAIL TO APPEAR OR ANSWER TO ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THE
NUMBER OF DAYS PRESCRIBED BY LAW AFTER THE MAILING
THEREOF, BORROWER SHALL BE DEEMED IN DEFAULT AND
AN ORDER AND/OR JUDGMENT MAY BE ENTERED BY LENDER
AGAINST BORROWER AS DEMANDED OR PRAYED FOR IN SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS; PROVIDED,
HOWEVER, LENDER MAY NOT SEEK SUCH A DEFAULT
JUDGMENT FOR AT LEAST THIRTY (30) DAYS AFTER THE
DATE OF PROOF OF SERVICE. THE EXCLUSIVE CHOICE OF
FORUM FOR BORROWER SET FORTH HEREIN SHALL NOT BE
DEEMED TO PRECLUDE THE ENFORCEMENT, BY LENDER, OF
ANY ACTION TO ENFORCE THE SAME IN ANY OTHER
APPROPRIATE JURISDICTION, AND BORROWER HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY SUCH
JUDGMENT OR ACTION.
10.13 FOR AND IN CONSIDERATION OF LENDER'S
ADVANCEMENT OF THE PRINCIPAL SUMS HEREUNDER IN THE
AMOUNT OF UP TO SIX MILLION AND NO/100 DOLLARS
($6,000,000.00), BORROWER, BEING AN EXPERIENCED
OWNER AND OPERATOR OF REAL ESTATE AND PARTICIPANT
IN SOPHISTICATED REAL ESTATE VENTURES, AND HAVING
CONSULTED WITH COUNSEL OF ITS CHOOSING, HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO
ANY ACTION OR PROCEEDING ( 1 ) BROUGHT BY
BORROWER, LENDER OR ANY OTHER PERSONS RELATING TO
(A) THIS LOAN AGREEMENT, OR (B) THE OTHER LOAN
DOCUMENTS OR (2) TO WHICH LENDER IS A PARTY.
BORROWER HEREBY AGREES THAT THIS LOAN AGREEMENT
CONSTITUTES A WRITTEN CONSENT TO WAIVER OF TRIAL
BY JURY, AND BORROWER DOES HEREBY CONSTITUTE AND
APPOINT LENDER ITS TRUE AND LAWFUL ATTORNEY IN
FACT, WHICH APPOINTMENT IS COUPLED WITH AN
INTEREST AND IRREVOCABLE, AND BORROWER DOES HEREBY
AUTHORIZE AND EMPOWER LENDER, IN THE NAME, PLACE,
AND STEAD OF BORROWER, TO FILE THIS LOAN AGREEMENT
WITH THE CLERK OR JUDGE OF ANY COURT OF COMPETENT
43
JURISDICTION AS A WRITTEN CONSENT TO WAIVER OF
TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT ITS
WAIVER OF TRIAL BY JURY HAS BEEN MADE KNOWINGLY,
INTENTIONALLY AND WILLINGLY BY BORROWER AS A PART
OF A BARGAINED FOR LOAN TRANSACTION.
IN WITNESS WHEREOF, the parties hereto have
duly executed this Agreement as of the day and
year first above written.
BORROWER:
TDC/EMERITUS PASO XXXXXX
ASSOCIATES, a Washington general
partnership
By: Emeritus Corporation,
a Washington corporation,
Its General Partner
By: /s/ Xxxxxxx X. Xxxxxxxxxx
----------------------------------
----------
Name: Xxxxxxx X. Xxxxxxxxxx
Title: President
By: TDC Convalescent, Inc.
a California corporation,
Its General Partner
By: /s/ Xxxxxx X. Xxxxx
----------------------------------
----------
Name: Xxxxxx X. Xxxxx
Title: President
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ Xxxx X. XxXxxx
---------------------------------
-----------
Name: Xxxx X. XxXxxx
Title: Assistant Vice President
44