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CAPITAL SENIOR LIVING PROPERTIES 2-NHPCT, INC.
(Borrower)
and
LEHMAN BROTHERS HOLDINGS INC.
d/b/a LEHMAN CAPITAL, a division of
LEHMAN BROTHERS HOLDINGS INC.
(Lender)
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LOAN AGREEMENT
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Dated: As of September 30, 1998
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TABLE OF CONTENTS
Page
1. The Note and the Security Instruments....................................................................2
2. Loan Documents...........................................................................................2
3. Lock-box Account.........................................................................................2
4. Replacements and Replacement Reserve.....................................................................3
5. Required Repairs; Required Repair Funds..................................................................8
6. Events of Default........................................................................................9
7. Sale of Notes and Securitization; Indemnification.......................................................10
8. Incorporation of Provisions.............................................................................11
10. Representations and Warranties..........................................................................12
11. Construction of Agreement...............................................................................12
12. Parties Bound, Etc......................................................................................12
13. Waivers.................................................................................................12
14. Governing Law...........................................................................................13
15. Severability............................................................................................13
16. Notices.................................................................................................13
17. Fees and Expenses.......................................................................................13
18. Modification............................................................................................13
19. No Oral Agreements......................................................................................13
20. Definitions.............................................................................................14
21. Limited Recourse........................................................................................14
-i-
THIS LOAN AGREEMENT made as of the 30th day of September, 1998
between CAPITAL SENIOR LIVING PROPERTIES 2-NHPCT, INC., a Delaware corporation,
having an office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240
(hereinafter referred to as "Borrower") and LEHMAN BROTHERS HOLDINGS INC. d/b/a
LEHMAN CAPITAL, a division of LEHMAN BROTHERS HOLDINGS INC., a Delaware
corporation having an office at Three World Financial Center, New York, New York
10285 (hereinafter referred to as "Lender");
W I T N E S S E T H :
WHEREAS, at the request of Borrower, Lender has agreed to fund
to Borrower a loan in the principal amount of $60,000,000.00 (the "Loan")
pursuant to the terms of this Agreement;
WHEREAS, the Loan is evidenced by that certain note of even
date herewith made by Borrower to Lender in the original principal amount of
$60,000,000.00 (the "Note") to be secured by multistate originals of a Mortgage
and/or Deed of Trust, as the case may be, each of even date herewith, made by
Borrower and securing the Loan (collectively, the "Security Instruments"),
covering four (4) parcels of land more fully described in Schedule A attached
hereto and made a part hereof (individually, a "Parcel" and collectively, the
"Parcels");
WHEREAS, at the request of Borrower, Lender has agreed, among
other things, to (i) permit Borrower to obtain additional advances by adding
certain additional properties to the lien of the Security Instruments and (ii)
provide the establishment of a lockbox account upon the occurrence of an Event
of Default (defined herein) under the Loan Documents (defined below).
NOW, THEREFORE, in consideration of ten dollars ($10) and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Lender and Borrower hereby covenant and agree as follows:
1. The Note and the Security Instruments. The indebtedness of Borrower shall be:
(i) evidenced by the Note, and (ii) secured by, among other things, (a) the
Security Instruments made by Borrower covering the fee estate of Borrower, in
each Parcel, the Improvements (as such term is defined in the Security
Instruments) located on each Parcel and other property, rights and interests of
Borrower in the same (individually, a "Property" and collectively, the
"Properties"), and (b) assignments of leases and rents each given by Borrower to
Lender dated the date hereof and covering the Properties (the "Assignments of
Rents").
2. Loan Documents. The term "Loan Documents" as used in this Agreement shall
collectively mean the Note, the Security Instruments, the Assignments of Rents,
the Assignments of Agreements, Permits and Contracts, the Environmental
Indemnity Agreement, and the Conditional Assignment of Management Agreement and
Subordination of Management Fees, each dated the date hereof between Borrower
and Lender, this Agreement and all other documents and instruments of any nature
whatsoever executed or delivered in connection with the Loan.
3. Lock-box Account.
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(a) Upon the occurrence and continuance of an Event of Default (as
defined in the Security Instruments), Borrower shall establish and maintain a
segregated Eligible Account (defined below) (the "Lockbox Account") to be held
by Lender, which Lockbox Account shall be under the sole dominion and control of
Lender. Borrower hereby grants to Lender a first priority security interest in
the Lockbox Account and all deposits at any time contained therein and the
proceeds thereof and will take all actions necessary to maintain in favor of
Lender a perfected first priority security interest in the Lockbox Account,
including, without limitation, executing and filing UCC-1 Financing Statements
and continuations thereof. Borrower will not in any way alter or modify the
Lockbox Account and will notify Lender of the account number thereof. Lender and
or its designated agent shall have the sole right to make withdrawals from the
Lockbox Account and all costs and expenses for establishing and maintaining the
Lockbox Account shall be paid by Borrower.
(b) Upon the establishment of the Lockbox Account, Borrower shall, or
shall cause the Manager (as defined in the Security Instruments) to, deposit the
Rents (as defined in the Security Instruments) directly into the Lockbox
Account, and Borrower shall deliver written instructions to all tenants under
Leases (as defined in the Security Instruments) and credit card companies to
deliver all Rents payable thereunder directly to the Lockbox Account. Borrower
shall, and shall cause each Manager, to deposit all amounts received by Borrower
or Manager constituting Rents into the Lockbox Account within one (1) Business
Day of receipt thereof.
(c) All funds on deposit in the Lockbox Account shall be applied by
Lender to the payment of any amounts then due and payable under the Loan
Documents in such order and priority as Lender in sole discretion shall
determine.
(d) The insufficiency of funds on deposit in the Lockbox Account shall
not absolve Borrower of the obligation to make any payments, as and when due
pursuant to this Agreement and the other Loan Documents, and such obligations
shall be separate and independent, and not conditioned on any event or
circumstance whatsoever.
(e) The following capitalized terms shall have the meanings set forth
below:
"Eligible Account" shall mean a separate and identifiable
account from all other funds held by the holding institution that is either (i)
an account or accounts maintained with a federal or state-chartered depository
institution or trust company which complies with the definition of Eligible
Institution (defined below) or (ii) a segregated trust account or accounts
maintained with a federal or state chartered depository institution or trust
company acting in its fiduciary capacity which, in the case of a state chartered
depository institution or trust company is subject to regulations substantially
similar to 12 C.F.R. ss.9.10(b), having in either case a combined capital and
surplus of at least Fifty Million and No/100 Dollars ($50,000,000) and subject
to supervision or examination by federal and state authority. An Eligible
Account will not be evidenced by a certificate of deposit, passbook or other
instrument.
"Eligible Institution" shall mean a depository institution or
trust company the short term unsecured debt obligations or commercial paper of
which are rated at least A-1 by Standard & Poor's Ratings Group, P-1 by Moody's
2
Investors Service, Inc., D-1 by Duff & Phelps Credit Rating Co. and F-1+ by
Fitch Investors Service, L.P. in the case of accounts in which funds are held
for thirty (30) days or less (or, in the case of accounts in which funds are
held for more than thirty (30) days, the long term unsecured debt obligations of
which are rated at least "AA" by Fitch Investors Service, L.P., Duff & Phelps
Credit Rating Co. and Standard & Poor's Ratings Group and "Aaa" by Moody's
Investors Service, Inc).
4. Replacements and Replacement Reserve.
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(a) Commencing on the first Payment Date (as defined in the Note) and
on each Payment Date thereafter, Borrower shall pay to Lender an amount (the
"Replacement Reserve Monthly Deposit") equal to $20,137.00, to be applied to
maintain and replace certain items used in connection with the operation of each
Property, which items are more particularly described on Schedule B attached
hereto and made a part hereof (collectively, the "Replacements"), and amounts so
deposited shall hereinafter be referred to as the "Replacement Reserve Fund".
Lender will maintain the Replacement Reserve Fund in an interest bearing
segregated account (the "Replacement Reserve Account") with all interest accrued
to be held for the benefit of Borrower.
(b) Intentionally deleted.
(c) Borrower hereby grants a first priority security interest to
Lender, as security for payment of all sums due under the Loan and the
performance of all other terms, conditions and provisions to be paid and
performed, of all Borrower's right, title and interest in and to the Replacement
Reserve Fund and the Replacement Reserve Account and shall execute and deliver
to Lender such UCC-1 Financing Statements and other documents or instruments as
Lender may request in order to grant and perfect such security interest.
Borrower shall not, without obtaining the prior written consent of Lender,
further pledge, assign or grant any security interest in the Replacement Reserve
Fund or the Replacement Reserve Account or permit any lien or encumbrance to
attach thereto, or any levy to be made thereon, or any UCC-1 Financing
Statements, except those naming Lender as the secured party, to be filed with
respect thereto. Upon the occurrence of an Event of Default, Lender may apply
any sums then present in the Replacement Reserve Fund to the payment of the Debt
(as defined in the Security Instruments) in any order in its reasonable
discretion. Until expended or applied as above provided, the Replacement Reserve
Fund shall constitute additional security for the Debt.
(d) (i) After the commencement of Borrower's obligation to make the
Replacement Reserve Monthly Deposit pursuant to Section 4(a), Lender shall make
disbursements from the Replacement Reserve Account to pay Borrower only for
Replacements. Lender shall not be obligated to make disbursements from the
Replacement Reserve Account to pay for or to reimburse Borrower for the costs of
routine maintenance (other than the regular replacement of furniture, fixtures
and equipment constituting Replacements or as permitted pursuant to Section 4(e)
hereof) to an individual Property or for costs which are to be reimbursed from
the Required Repair Fund (as such term is defined in Section 5 of this
Agreement).
(ii) Lender shall, upon written request from Borrower and
satisfaction of the requirements set forth in Section 4(a) of this
Agreement, disburse to Borrower amounts from the Replacement Reserve
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Account to pay for the actual approved costs of Replacements within ten
(10) days of Lender's receipt of a request for disbursement in
accordance with Section 4(d). In no event shall Lender be obligated to
disburse funds from the Replacement Reserve Account if an Event of
Default exists.
(e) Each request for disbursement from the Replacement Reserve Account
shall be in a form specified or approved by Lender and shall certify as to (i)
the specific Replacements for which the disbursement is requested, (ii) the
quantity and price of each item purchased, if the Replacement includes the
purchase or replacement of specific items, (iii) the price of all materials
(grouped by type or category) used in any Replacement other than the purchase or
replacement of specific items, and (iv) the cost of all contracted labor or
other services applicable to each Replacement for which such request for
disbursement is made. With each request for disbursement, Borrower shall certify
that all Replacements that were the subject of the prior request for
disbursement, if any, have been made in accordance with all applicable Legal
Requirements (defined below) of any Governmental Authority (defined below)
having jurisdiction over the applicable Individual Property to which the
Replacements are being provided. Each request for disbursement shall include
copies of invoices for all items or materials to be purchased and all contracted
labor or services to be provided in connection with the Replacements for which
the disbursement is requested. Each request for disbursement shall include a
statement setting forth each person or entity that supplied materials or labor
in connection with Replacements that were the subject of the prior request for
disbursement, if any, and setting forth the amount paid to each such person
pursuant to a prior request and shall include evidence satisfactory to Lender of
payment of all such amounts or other evidence of completion (or in good faith
actively proceeding towards completion) the Replacements for which the prior
request for disbursement was made, if any, which evidence shall be satisfactory
to Lender in its reasonable discretion. Prior to Borrower's making of the
initial Replacement Reserve Monthly Deposit in accordance with Section 4(a) or
thereafter with respect to any calendar month during which a request for
disbursement from the Replacement Reserve Fund is not submitted to Lender
pursuant to this Section 4(e), Borrower shall deliver to Lender, as a part of
the monthly reports to be delivered pursuant to Section 3.11 of the Security
Instruments, an Officer's Certificate setting forth the amounts paid during the
preceding calendar month for Replacements and setting forth each Person to whom
such amounts were paid, the amount paid to each such Person and the related
Replacement provided by each such Person.
(f) Intentionally deleted.
(g) Borrower shall not make a request for disbursement from the
Replacement Reserve Account more frequently than once in any calendar month.
(h) Borrower shall make Replacements when required in order to keep
each individual Property in condition and repair consistent with other senior
living facilities, as applicable, in the same market segment which the
respective individual Property is located, and to keep each individual Property
or any portion thereof from deteriorating. Borrower shall complete all
Replacements in a good and workmanlike manner as soon as practicable following
the commencement of making each such Replacement.
(i) Lender reserves the right, at its option, to approve in its
reasonable discretion all material contracts or work orders with materialmen,
mechanics, suppliers, subcontractors, contractors or other parties providing
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labor or materials in connection with the Replacements. Upon Lender's request
following an Event of Default, Borrower shall assign any contract or subcontract
to Lender.
(j) Following an Event of Default, in the event Lender determines in
its reasonable discretion that any Replacement is not being performed in a
workmanlike or timely manner or that any Replacement has not been completed in a
workmanlike or timely manner, Lender shall have the option to withhold any
further disbursements from the Replacement Reserve Account and, upon ten (10)
days prior written notice, to proceed under existing contracts or to contract
with third parties to complete such Replacement and to apply the Replacement
Reserve Fund toward the labor and materials necessary to complete such
Replacement and, without providing any prior notice to Borrower, to exercise any
and all other remedies available to Lender upon an Event of Default hereunder.
(k) Borrower grants Lender, following an Event of Default, the right to
enter onto any individual Property during reasonable hours and subject to the
rights of any tenant in possession of the Property in accordance with the terms
of the Security Instruments and perform any and all work and labor necessary to
complete or make the Replacements and/or employ watchmen to protect such
individual Property from damage. All sums so expended by Lender shall be deemed
to have been advanced under the Loan to Borrower and secured by the Security
Instruments. For this purpose Borrower constitutes and appoints Lender its true
and lawful attorney-in-fact with full power of substitution to complete or
undertake the Replacements in the name of Borrower. Such power of attorney shall
be deemed to be a power coupled with an interest and cannot be revoked. Borrower
empowers said attorney-in-fact following an Event of Default as follows: (i) to
use any funds in the Replacement Reserve Account for the purpose of making or
completing the Replacements; (ii) to make such additions, changes and
corrections to the Replacements as shall be necessary or desirable to complete
the Replacements; (iii) to employ such contractors, subcontractors, agents,
architects and inspectors as shall be required for such purposes; (iv) to pay,
settle or compromise all existing bills and claims which are or may become liens
against any individual Property, or as may be necessary or desirable for the
completion of the Replacements, or for clearance of title; (v) to execute all
applications and certificates in the name of Borrower which may be required by
any of the contract documents; (vi) to prosecute and defend all actions or
proceedings in connection with any individual Property or the rehabilitation and
repair of any individual Property; and (vii) to do any and every act which
Borrower might do in its own behalf to fulfill the terms of this Agreement.
(l) Nothing in this Section 4 shall: (i) make Lender responsible for
making or completing the Replacements; (ii) require Lender to expend funds in
addition to the Replacement Reserve Fund to make or complete any Replacement;
(iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender
to demand from Borrower additional sums to make or complete any Replacement.
(m) Borrower shall permit Lender and Lender's agents and
representatives (including, without limitation, Lender's engineer, architect, or
inspector) or third parties making Replacements pursuant to this Section 4 to
enter onto each individual Property during normal business hours (subject to the
rights of tenants under their Leases) to inspect the progress of any
Replacements and all materials being used in connection therewith and to examine
all plans and shop drawings relating to such Replacements which are or may be
kept at each individual Property. Borrower shall cause all contractors and
5
subcontractors to cooperate with Lender or Lender's representatives or such
other persons described above in connection with inspections described in this
Section 4(m), the completion of Replacements pursuant to Section 4(j) or in
connection with the inspections described in Section 4(n) below.
(n) Following an Event of Default, if Lender has determined in its sole
discretion that any Replacements are not being completed in a timely and
workmanlike manner, Lender may require an inspection of the applicable
individual Property at Borrower's expense prior to making a monthly disbursement
from the Replacement Reserve Account in order to verify completion of such
Replacements. Lender may require that such inspection be conducted by an
appropriate independent qualified professional selected by Lender and/or may
require a copy of a certificate of completion by an independent qualified
professional acceptable to Lender prior to the disbursement of any amounts from
the Replacement Reserve Account. Borrower shall pay the expense of the
inspection as required hereunder, whether such inspection is conducted by Lender
or by an independent qualified professional.
(o) The Replacements and all materials, equipment, fixtures, or any
other item comprising a part of any Replacement shall be constructed, installed
or completed, as applicable, free and clear of all mechanic's, materialman's or
other liens (except for those liens which have been approved in writing by
Lender).
(p) In the event that the prior request for disbursement included any
amount in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) for
any single Replacement requiring construction, installation or completion,
Lender may require Borrower to provide Lender with a search of title to the
applicable individual Property prior to making any additional disbursements from
the Replacement Reserve Account, which search shows that no mechanic's or
materialmen's liens or other liens of any nature have been placed against the
applicable individual Property since the date of recordation of the related
Security Instruments and that title to such individual Property is free and
clear of all liens (other than the lien of the related Security Instruments and
any other liens previously approved in writing by the Lender, if any).
(q) All Replacements shall comply with all applicable Legal
Requirements of all Governmental Authorities having jurisdiction over the
applicable individual Property and applicable insurance requirements including,
without limitation, applicable building codes, special use permits,
environmental regulations, and requirements of insurance underwriters.
(r) In addition to any insurance required under the Loan Documents,
Borrower shall provide or cause to be provided workmen's compensation insurance,
builder's risk, and public liability insurance and other insurance to the extent
required under applicable law in connection with a particular Replacement. All
such policies shall be in form and amount reasonably satisfactory to Lender. All
such policies which can be endorsed with standard mortgagee clauses making loss
payable to Lender or its assigns shall be so endorsed. Certified copies of such
policies shall be delivered to Lender.
(s) It shall be an Event of Default under this Agreement if (A)
Borrower fails to make the initial Replacement Reserve Monthly Deposit in
accordance with this Section 4 or (B) Borrower fails to comply with any other
6
provision of this Section 4 and such failure is not cured within thirty (30)
days after prior written notice from Lender. Upon the occurrence of an Event of
Default, Lender may use the Replacement Reserve Fund (or any portion thereof)
for any purpose, including but not limited to completion of the Replacements as
provided in Section 4(j), or for any other repair or replacement to any
individual Property or toward payment of the Debt in such order, proportion and
priority as Lender may determine in its sole discretion. Lender's right to
withdraw and apply the Replacement Reserve Funds shall be in addition to all
other rights and remedies provided to Lender under this Agreement and the other
Loan Documents.
(ii) Nothing in this Agreement shall obligate Lender to apply all or
any portion of the Replacement Reserve Fund on account of an Event of Default to
payment of the Debt or in any specific order or priority.
(t) The insufficiency of any balance in the Replacement Reserve Account
shall not relieve Borrower from its obligation to fulfill all preservation and
maintenance covenants in the Loan Documents.
(u) Borrower shall indemnify Lender and hold Lender harmless from and
against any and all actions, suits, claims, demands, liabilities, losses,
damages, obligations and costs and expenses (including litigation costs and
reasonable attorneys fees and expenses) arising from or in any way connected
with the performance of the Replacements. Borrower shall assign to Lender all
rights and claims Borrower may have against all persons or entities supplying
labor or materials in connection with the Replacements; provided, however, that
Lender may not pursue any such right or claim unless an Event of Default has
occurred and remains uncured.
(v) The following capitalized terms appearing in Section 4 and Section
5 of this Agreement shall have the meanings set forth below:
"Governmental Authority" shall mean any court, board, agency,
commission, office or authority of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"Legal Requirements" shall mean, with respect to each individual
Property, all federal, state, county, municipal and other governmental
statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions of Governmental Authorities affecting such
individual Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof, whether now or
hereafter enacted and in force, and all permits, licenses,
authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments,
either of record or known to Borrower, at any time in force affecting
such individual Property or any part thereof, including, without
limitation, any which may (i) require repairs, modifications or
alterations in or to such individual Property or any part thereof, or
(ii) in any way limit the use and enjoyment thereof.
5. Required Repairs; Required Repair Funds.
---------------------------------------
7
(a) Borrower shall perform the repairs at its Properties, as more
particularly set forth on Schedule C hereto (such repairs hereinafter referred
to as "Property Required Repairs"). Borrower shall complete each of the Property
Required Repairs on or before October 1, 1999. On the date hereof, Borrower
shall deposit with Lender an amount equal to $47,350.00 to perform the Property
Required Repairs for each Property in accordance with this Section 5. Amounts so
deposited shall hereinafter be referred to as the "Required Repair Fund". Lender
will maintain the Required Repair Fund in an interest bearing segregated account
(the "Required Repair Account") with all interest accrued to be held for the
benefit of Borrower. Borrower hereby grants a first priority security interest
to Lender, as security for payment of all sums due under the Loan and the
performance of all other terms, conditions and covenants on Borrower's part to
be paid and performed, in all of Borrower's right, title and interest in and to
the Required Repair Fund and the Required Repair Account and shall execute and
deliver to Lender such UCC-1 Financing Statements and other documents or
instruments as Lender may request in order to grant and perfect such security
interest. Borrower shall not, without obtaining the prior written consent of
Lender, further pledge, assign or grant any security interest in the Required
Repair Fund or the Required Repair Account or permit any lien or encumbrance to
attach thereto, to any levy to be made thereon, or any UCC-1 Financing
Statements, except those naming Lender as the secured party, to be filed with
respect thereto. Upon the occurrence of an Event of Default, Lender may apply
any sums then present in the Required Repair Fund to the payment of the Debt in
any order in its reasonable discretion. Until expended or applied as herein
provided, the Required Repair Fund shall constitute additional security for the
Debt.
(b) After Borrower's initial deposit into the Required Repair Account
pursuant to paragraph (a) hereof, Lender shall disburse to Borrower the Required
Repair Funds from the Required Repair Account from time to time upon
satisfaction by Borrower of each of the following conditions: (i) Borrower shall
submit a written request for payment to Lender at least ten (10) days prior to
the date on which Borrower requests such payment be made and specifies the
Property Required Repairs to be paid; (ii) on the date such request is received
by Lender and on the date such payment is to be made, no Event of Default shall
exist and remain uncured; (iii) Lender shall have received a certificate from
Borrower (A) stating that all Property Required Repairs at the applicable
Property funded by the prior requested disbursement, if any, have been or are in
good faith being completed in a good and workmanlike manner and in accordance
with all applicable federal, state and local laws, rules and regulations, (B)
any license, permit or other approval by any Governmental Authority required to
commence and/or complete the Property Required Repairs to be funded by the
requested disbursement have been obtained, (C) identifying each person that will
supply materials or labor in connection with the Property Required Repairs to be
performed at such Property and to be funded by the requested disbursement and
including copies of invoices or statements from each such person or entity
setting forth the costs for such materials or labor, and (D) stating that each
person or entity that supplied materials or labor in connection with the
Property Required Repairs performed at a Property and funded by the prior
requested disbursement, if any, has been paid all amounts to be paid to such
person or entity as set forth in the written request with respect to such prior
requested disbursement and setting forth the amount paid to each such person
and, if such requested disbursement includes amounts constituting the final
payment to any person on account of any Property Required Repairs, such
certificate shall be accompanied by lien waivers or other evidence of payment
satisfactory to Lender and (iv) Lender shall have received such other evidence
as Lender shall reasonably request that the Property Required Repairs at any
Property funded by the prior requested disbursement, if any, have been or are in
good faith being completed and the related costs and expenses have been paid.
8
Lender shall not be required to make disbursements from the Required Repair
Account with respect to any such Property more frequently than once per calendar
month and unless such requested disbursement is in an amount greater than Five
Thousand and No/100 Dollars ($5,000) (or a lesser amount if the total amount in
the Required Repair Account is less than Five Thousand and No/100 Dollars
($5,000), in which case only one disbursement of the amount remaining in the
account shall be made) and such disbursement shall be made only upon
satisfaction of each condition contained in this paragraph (b). Prior to
Borrower's initial deposit of funds into the Required Repair Fund in accordance
with paragraph (a) hereof or thereafter with respect to any calendar month
during which a request for payment from the Required Repair Fund is not
submitted to Lender pursuant to this paragraph (b), Borrower shall deliver to
Lender, as a part of the monthly reports to be delivered pursuant to Section
3.11 of the Security Instruments, a certificate setting forth the amounts paid,
if any, during the preceding calendar month for Property Required Repairs and
setting forth each person to whom such amounts were paid, the amount paid to
each such person or entity and the related Property Required Repairs performed
by each such person.
(c) It shall be an Event of Default under this Agreement if (i)
Borrower does not exercise diligent efforts to complete the Property Required
Repairs at each Property by the required deadline for each repair as set forth
on Schedule C, or (ii) Borrower does not make the initial deposit into the
Required Repair Fund in accordance with paragraph (a) hereof. Upon the
occurrence of an Event of Default, Lender, at its option, may withdraw all
Required Repair Funds from the Required Repair Account and Lender may apply such
funds either to completion of the Property Required Repairs at one or more of
the Properties or toward payment of the Debt in such order, proportion and
priority as Lender may determine in its sole discretion. Lender's right to
withdraw and apply Required Repair Funds shall be in addition to all other
rights and remedies provided to Lender under this Agreement and the other Loan
Documents.
6. Addition of Cottonwood and Tesson Properties. Provided that no Event of
Default has occurred and is continuing, Borrower shall have the one time right
(with respect to each of the following Additional Properties (hereinafter
defined)), on or before November 30, 1998 (the "Addition Date") to request (a)
that the assisted living facilities known as (i) Tesson Heights located at 12335
West Bend Drive, St. Louis, Missouri 63128 (the "Tesson Property") and (ii)
Cottonwood Village located at 201 East Mingus Avenue, Cottonwood, Arizona 86236
(the "Cottonwood Property") each as more particularly described on Schedule D
attached hereto and made a part hereof (the Tesson Property and the Cottonwood
Property hereinafter referred to, individually and collectively, as the context
may require, as the "Additional Property"), each to be owned in fee simple by
Borrower, and to be subjected to the lien of a new mortgage, deed of trust, deed
to secure debt or similar security instruments (hereinafter referred to,
individually and collectively, as the context may require, as the "Addition"),
in the same form and substance as the Security Instruments (hereinafter referred
to individually and collectively, as the context may require, as the "Additional
Security Instrument") and to the lien of the Loan Documents, as a first lien
thereon and managed by Manager (as defined in the Security Instruments) pursuant
to the terms of the Management Agreement or a Replacement Management Agreement
(as defined in the Security Instruments) and (b) that Lender make an additional
advance for each Addition of the Tesson Property (the "Tesson Advance") and the
Cottonwood Property (the "Cottonwood Advance"; together with the Tesson Advance,
hereinafter referred to, individually and collectively, as the context may
require, as an "Advance") upon compliance with and conditioned on receipt by
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Lender on or before the Addition Date of each of the following with respect to
each Additional Property:
(a) evidence which would be reasonably satisfactory to a prudent
institutional mortgage lender that the Additional Property is fully operational.
(b) (1) a current appraisal of the Additional Property prepared within
one hundred eighty (180) days prior to the corresponding Advance showing an
appraised value equal to or greater than 125% of the Advance; (2) an aggregate
loan-to-value ratio with respect to the Properties subject to the lien of the
Security Instruments after each Addition not greater than the ratio equal to the
aggregate loan-to-value ratio as of the date hereof with respect to the
Properties immediately prior to the Addition and (3) such other standard
underwriting criteria as Lender may apply in its sole discretion.
(c) an opinion of Borrower's counsel which would be reasonably
satisfactory to a prudent institutional mortgage lender stating that (i) the
Additional Security Instrument and the Loan Documents by which the Additional
Property will be encumbered have been duly authorized, executed and delivered by
such Borrower and are valid and enforceable in accordance with their terms,
subject to bankruptcy and equitable principles exceptions, (ii) Borrower is
qualified to do business and in good standing under the laws of the State where
the Additional Property is located, or that Borrower is not required by
Applicable Law (as defined in the Security Instruments) to qualify to do
business in such state, and (iii) based solely on a certificate of Borrower that
the encumbrance of the Additional Property with the lien of the Additional
Security Instrument and the Loan Documents shall not cause a breach of, or a
default under any agreement, document or instrument to which Borrower is a party
or to which it or its properties are bound or affected.
(d) a certification by the Borrower that (x) the certificates, opinions
and other instruments which have been or are therewith delivered to or deposited
with Lender in connection with the Advance conform to the requirements of this
Agreement and the Security Instruments, and (y) all conditions precedent to the
delivery of the Additional Security Instrument and Loan Documents contained in
this Agreement have been fulfilled.
(e) original executed counterparts of the Additional Security
Instrument and the Loan Documents encumbering the Additional Property and
related collateral, including without limitation, any financing statements or
other documents necessary to grant or perfect Lender's first priority security
interest in the Personal Property (defined in the Security Instruments) located
thereon and the Rents derived therefrom; the principal amount of such Additional
Security Instrument shall equal the face amount of the Note, provided that in
the event that the jurisdiction in which the Additional Property is located
imposes a mortgage recording intangibles or similar tax, and does not permit the
allocation of indebtedness for the purpose of determining the amount of such tax
payable, the principal amount of such Additional Security Instrument shall equal
125% of the Advance for such Additional Advance.
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(f) a title insurance policy issued by a title insurance company
reasonably satisfactory to the Rating Agencies (or, if a Securitization has not
occurred, to Lender) insuring the lien of the Additional Security Instrument on
the Additional Property, in form and substance which would be reasonably
satisfactory to a prudent institutional mortgage lender insuring that the
Additional Security Instrument is a valid and enforceable first lien on the good
and marketable fee simple estate of Borrower to the Additional Property in an
amount equal to the Advance for such Additional Advance, subject only to
standard and customary exceptions and such other exceptions that would be
reasonably approved by a prudent institutional mortgage lender, together with
such affirmative insurance and other endorsements customarily reasonably
required by a prudent institutional mortgage lender, including a "tie-in" and
first loss endorsement satisfactory to Lender, or, if such endorsement is not
available in the State where the Additional Property is located, insurance in an
amount equal to the greater of one hundred twenty five percent (125%) of the
such Advance or the amount on which mortgage or intangibles tax was paid with
respect to the Additional Security Instrument, together with a "last dollar
endorsement". Such title insurance policy shall not contain any exception for
any state of facts that an accurate survey might show or that a survey made
after the date of the survey referred to in Section 6(l) might show.
(g) intentionally deleted.
(h) evidence which would be reasonably satisfactory to a prudent
institutional mortgage lender to the effect that the Additional Property and the
use thereof are in substantial compliance with the applicable zoning,
subdivision, and all other applicable federal, state or local laws and
ordinances affecting the Additional Property, and that all material building and
operating licenses and permits necessary for the use and occupancy of the
Additional Property as a senior living facility, but not limited to, current
certificates of occupancy, have been obtained and are in full force and effect.
(i) an environmental report dated within six (6) months prior to
delivery which states that the Additional Property does not contain any
Hazardous Substances (as defined in the Security Instrument) in violation of
Environmental Law (as defined in the Security Instrument) or material risk of
contamination from off-site Hazardous Substances.
(j) payment of all reasonable costs and expenses incurred by Lender
including reasonable counsel fees and disbursements in connection with the
addition of the Additional Property as collateral, all recording charges, filing
fees, taxes, or other expenses, including but not limited to intangibles taxes
and documentary stamp taxes in connection with the recording of the Additional
Security Instrument and the lien necessary to grant and perfect Lender a first
priority lien on and security interest in the Additional Property, the Personal
Property located therein and the Rents derived therefrom. In the event that the
State where the Additional Property is located imposes a mortgage recording or
intangibles tax, or similar tax, and does not permit the allocation of
indebtedness for the purpose of determining the amount of such tax payable, if
permitted by applicable law in such jurisdiction, such tax shall be paid on an
amount equal to 125% of the Advance for such Additional Advance.
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(k) a recent survey of the Additional Property prepared by a land
surveyor licensed in the State where the Additional Property is located pursuant
to the then current American Land Title Association/American Congress of
Surveying and Mapping standards for title surveys and which would be otherwise
reasonably satisfactory to a prudent institutional mortgage lender, provided
that no structural additions to the improvements shown on such survey or new
structures have been made or built since the date of such survey and that there
has been no material change in the legal description of the Additional Property
since the date of such survey, whether due to sales, transfers, condemnation or
otherwise.
(l) evidence indicating whether the Additional Property is located
within a flood plain.
(m) a property inspection report dated within six (6) months of the
Advance prepared by an independent licensed engineer reasonably approved by
Lender, prepared in accordance with standards employed by prudent institutional
mortgage lenders stating, among other things, that the Additional Property is in
good condition and repair and free of material damage or waste and complies in
all material respects with the Americans with Disabilities Act, or which
otherwise reveals a state of fact that would be reasonably satisfactory to a
prudent institutional mortgage lender and provided that adequate reserves
reasonably satisfactory to Lender and the Rating Agencies are established.
(n) annual operating statements and occupancy statements for the
Additional Property for the most recent fiscal year of the owner thereof,
together with a year to date operating statement, current occupancy statements,
and a budget for the current fiscal year, each certified by Borrower, and a
certificate of no adverse change since the date thereof executed by Borrower, in
each case in a form and substance which would be reasonably satisfactory to a
prudent institutional mortgage lender.
(o) original certificates and copies of policies of insurance required
by Lender under the terms of the Additional Security Instrument for the
Additional Property.
(p) evidence of the qualification and good standing of Borrower (and
the principals, if necessary) in the State where the Additional Property is
located unless such qualification is not required in such state by Applicable
Law.
(q) certified copies of all material contracts and agreements relating
to the management, leasing and operation of the Additional Property, including,
without limitation, the Management Agreement, which shall be in a form and
substance which would be reasonably satisfactory to a prudent institutional
mortgage lender in a transaction of similar type.
(r) copies of all material licenses and approvals, if any, required in
connection with the Advance, including evidence that such licenses and approvals
are in full force and effect.
(s) a certificate by Borrower certifying that all of the
representations and warranties contained in the Security Instruments and in the
other Loan Documents, after giving effect to the addition of the Additional
12
Property, are true and correct in all material respects with respect to the
Additional Property and that there is no Event of Default hereunder.
(t) UCC Searches with respect to the Additional Property and Borrower
in the State where the Additional Property is located and the jurisdictions
where such person has its principal place of business.
(u) a certified copy of (i) the management agreement for the Additional
Property between Borrower and Manager or (ii) an amendment to the Management
Agreement to include the Additional Property, in either case in a form and
substance that would be reasonably satisfactory to a prudent institutional
lender together with a Conditional Assignment of Management Agreement in the
same form and substance as with respect to the other Properties.
(v) a certificate of Borrower dated the date of the applicable Advance,
certifying (i) the names and true signatures of the incumbent officers of such
person authorized to sign the applicable Loan Documents, (ii) the by-laws of
Borrower as in effect on the date of such Advance, (iii) the resolutions of such
person's board of directors approving and authorizing the execution, delivery
and performance of all Loan Documents executed by such person, and (iv) that
there have been no changes in the certificate of incorporation of such person
since the date of the most recent certification thereof by the appropriate
Secretary of State.
(w) if a Securitization has occurred, an opinion of Borrower's counsel
reasonably satisfactory to Lender stating, among other things, that the tax
qualification and status of the REMIC will not be adversely affected or impaired
as a result of the addition of the Additional Property.
(x) such other certificates, opinions, documents and instruments
relating to the applicable Advance reasonably requested by Lender, its counsel
or the Rating Agencies, and all corporate and other proceedings and all other
documents (including, without limitation, all documents referred to herein and
not appearing as exhibits hereto) and all legal matters in connection with such
Advance shall be reasonably satisfactory in form and substance to Lender in its
reasonable discretion.
(y) if a Securitization has occurred, written confirmation from the
Rating Agencies that the addition of the Additional Property shall not result in
a withdrawal, downgrade or qualification of the then current ratings by the
applicable Rating Agencies of the Securities and otherwise in form and substance
reasonably satisfactory to Lender and its counsel.
Following compliance with the conditions set forth above in
this Section 6, Lender shall fund to an account in Borrower's name, in
accordance with Borrower's written instructions, an Advance for the Additional
Properties which in the aggregate shall not exceed $27,700,000.00. Upon the
addition of the each Additional Property in accordance with the terms and
conditions of this Section 6, such Additional Property shall be deemed a
Property for all purposes under this Agreement.
7. Events of Default.
-----------------
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The term "Event of Default" as used in this Agreement shall have the
meaning ascribed to such term in the Security Instruments.
Upon the occurrence of an Event of Default, and, if Lender shall not
have exercised its option under clause (i) below, during the continuance
thereof, Lender (i) may, at its option and in its sole discretion, declare the
Debt immediately due and payable, and (ii) may pursue any and all remedies
provided for in the Loan Documents, or otherwise available.
8. Sale of Notes and Securitization; Indemnification.
-------------------------------------------------
(a) At the request of the holder of the Note, and, to the extent not
already required to be provided by Borrower under this Agreement, Borrower shall
use reasonable efforts to satisfy the market standards to which the holder of
the Note customarily adheres or which may be reasonably required in the
marketplace or by the Rating Agencies in connection with the sale or transfer of
the Note or participations or other interests therein or, subject to Section
7(c) below, the first successful securitization (such sale, transfer and/or
securitization, the "Securitization") of rated single or multiclass securities
(the "Securities") secured by or evidencing ownership interests in the Note and
the Security Instruments, including, without limitation, to:
(i) (A) provide such financial and other information with
respect to the Properties, the Borrower and the Manager as
is reasonably available to Borrower, (B) provide existing
budgets relating to the Properties and (C) at Lender's
expense, to perform or permit or cause to be performed or
permitted such site inspection, appraisals, market studies,
environmental reviews and reports (Phase I's and, if
appropriate, Phase II's), engineering reports (including
updates of any such information delivered to Lender at the
closing of the Loan) and other due diligence investigations
of the Properties, as may be reasonably requested by the
holder of the Note or the Rating Agencies or as may be
necessary or appropriate in connection with the
Securitization (the "Provided Information"), together, if
customary, with appropriate verification and/or consents of
the Provided Information through letters of independent
auditors or opinions of counsel in form reasonably
acceptable to the Lender and otherwise acceptable to the
Rating Agencies;
(ii) if required by the Rating Agencies, and at Lender's expense,
deliver (A) revised opinions of counsel as to
non-consolidation, due execution and enforceability with
respect to the Property, the Borrower and its constituent
entities and the Loan Documents and (B) revised
organizational documents of the Borrower and its constituent
entities, which counsel opinions and organizational
documents shall be reasonably satisfactory to Lender and the
Rating Agencies;
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(iii)(A) deliver one or more Officer's Certificates certifying
as to the accuracy of all representations made by Borrower
in the Loan Documents as of the date of the closing of the
Securitization setting forth any then existing facts
conflicting with any such representations, (B) deliver
certificates of the relevant Governmental Authorities in all
relevant jurisdictions indicating the good standing and
qualification of each individual Borrower and their
respective general partners or managing members, as
applicable, as of the date of the Securitization and (C)
make such additional representations and warranties as of
the closing date of the Securitization with respect to the
Properties, Borrower, and the Loan Documents as are
customarily provided in securitization transactions and as
may be reasonably requested by the holder of the Note or the
Rating Agencies and consistent with the facts covered by
such representations and warranties as they exist on the
date thereof; and
(iv) execute such amendments to the Loan Documents and establish
and fund such reserve funds as and to the extent provided
herein or as otherwise may be reasonably requested by the
Rating Agencies to effect the Securitization; provided,
however, that the Borrower shall not be required to modify
or amend any Loan Document if such modification or amendment
would (A) change the interest rate, the stated maturity or
the amortization of principal amount of the Loan set forth
herein, or (B) modify or amend any other economic term or
other material term of any Loan Document in a manner that
has a material adverse effect on Borrower.
(b) Borrower understands that certain of the Provided Information and
the financial statements, certificates, reports or information required to be
provided by Borrower to Lender pursuant to Section 3.11 of the Security
Instruments (collectively, the "Required Records") may be included in disclosure
documents in connection with the Securitization including, without limitation, a
prospectus, prospectus supplement or private placement memorandum (each, a
"Disclosure Document") and may also be included in filings with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and that such Disclosure Documents may be provided or made
available to investors or prospective investors in the Securities, the Rating
Agencies, and service providers relating to the Securitization and the Initial
Securitization. If required by Lender, Borrower shall review such Disclosure
Document and advise Lender in writing of any required revisions to correct
inaccuracies with respect to the Provided Information and or the Required
Records. In the event that any Disclosure Document is required to be revised
prior to the sale of all Securities, the Borrower will use reasonable efforts to
cooperate with Lender in updating the Disclosure Document by providing all
current information necessary to keep the Disclosure Document accurate and
complete in all material respects. Lender will promptly discontinue the use of
any Disclosure Document upon such holder's receipt of written notice from
Borrower that such Disclosure Document requires revision to correct any
inaccuracy.
15
9. Incorporation of Provisions. If the Note, the Security Instruments and the
other Loan Documents conflict with this Agreement, then the conditions,
stipulations, agreements and covenants contained herein shall govern and control
to the same extent and effect as if fully set forth therein until this Agreement
is terminated by the payment in full of the Debt.
10. Further Assurances. Borrower shall on reasonable demand of Lender do any act
or execute any additional documents required by Lender to confirm the lien of
the Security Instruments.
11. Representations and Warranties. Borrower represents and warrants to Lender
as follows:
(a) Borrower is duly qualified to do business in the States in which
the Properties are located unless such qualification is not necessary pursuant
to the applicable laws of the States.
(b) Borrower (and the undersigned representative, if any, of Borrower)
has the full power and authority to execute and deliver this Agreement and the
Loan Documents, and the same constitute the legal, valid and binding obligations
of Borrower.
(c) Borrower is not contemplating either the filing of a petition by it
under any state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of such individual Borrower's assets or property, and no
individual Borrower has knowledge of any person contemplating the filing of any
such petition against it.
(d) No statement of fact made by Borrower in this Agreement or in any
of the other Loan Documents contains any untrue statement of a material fact or
omits to state any material fact known to Borrower necessary to make statements
contained herein or therein not misleading. There is no fact presently known to
Borrower which has not been disclosed to Lender which materially and adversely
affects, nor as far as Borrower can foresee, would materially and adversely
affect, any of the Properties or the business, operations or condition
(financial or otherwise) of Borrower.
(e) No part of the proceeds of the Loan will be used for the purpose of
purchasing or acquiring any "margin stock" within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or for any other purpose
which would be inconsistent with such Regulation U or any other Regulations of
such Board of Governors, or for any purposes prohibited by Legal Requirements or
by the terms and conditions of this Agreement or the other Loan Documents.
12. Construction of Agreement. The titles and headings of the paragraphs of this
Agreement have been inserted for convenience of reference only and are not
intended to summarize or otherwise describe the subject matter of such
paragraphs and shall not be given any consideration in the construction of this
Agreement.
13. Parties Bound, Etc. The provisions of this Agreement shall be binding upon
and inure to the benefit of Borrower, Lender and their respective heirs,
executors, legal representatives, successors and assigns (except as otherwise
prohibited by this Agreement).
16
14. Waivers. Lender may at any time and from time to time waive any one or more
of the conditions contained herein, but any such waiver shall be deemed to be
made in pursuance hereof and not in modification thereof, and any such waiver in
any instance or under any particular circumstance shall not be considered a
waiver of such condition in any other instance or any other circumstance.
15. Governing Law. (a) This Agreement shall be deemed to be a contract entered
into pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York, provided however, that with respect to the creation,
perfection, priority and enforcement of the lien of the Security Instruments,
and the determination of deficiency judgments, the laws of the State where the
applicable Property is located shall apply.
(b) Any legal action or proceeding with respect to this
Agreement or any other Loan Document and any action for enforcement of any
judgment in respect thereof may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, Borrower hereby accepts, each
for itself and in respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts and appellate courts from any
thereof. Borrower irrevocably consents to the service of process out of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to Borrower at
its address set forth in Article 16 of the Security Instruments. Borrower hereby
irrevocably waives any objection which it may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Agreement or any other Loan Document brought in the
courts referred to above and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of Lender, to serve process in any other manner permitted by
law or to commence legal proceedings or otherwise proceed against Borrower in
any other jurisdiction.
16. Severability. If any term, covenant or provision of this Agreement shall be
held to be invalid, illegal or unenforceable in any respect, this Agreement
shall be construed without such term, covenant or provision.
17. Notices. All notices required to be given under the terms of this Agreement
shall be given in accordance with and to the addresses set forth in Article 16
of the Security Instruments.
18. Fees and Expenses. Borrower shall pay to Lender, upon demand, all expenses
incurred by Lender in connection with the collection of the Debt, the
enforcement of the Loan Documents, and in curing any defaults under the Loan
Documents (including, without limitation, reasonable attorneys' fees, which
shall include attorney's fees incurred in any trial, appellate or bankruptcy
proceeding), with, if any such expenses are past due, interest thereon at a rate
per annum equal to the rate of interest payable pursuant to the Note, provided
that such interest rate shall in no event exceed the maximum interest rate which
Borrower may by law pay, from the date of payment by Lender to the date of
payment to Lender, which sums and interest shall be secured by the Security
Instruments.
17
19. Modification. This Agreement may not be modified, amended or terminated,
except by an agreement in writing executed by the parties hereto.
20. No Oral Agreements. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO
EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND
US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND
EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY AGREE IN
WRITING TO MODIFY IT.
21. Definitions. Capitalized terms not defined herein shall have the meaning set
forth in the Security Instruments. In addition to the foregoing, the word
"person" shall include an individual, corporation, partnership, limited
liability company, trust, unincorporated association, government, governmental
authority and any other entity.
22. Limited Recourse. The provisions of Article 14 of the Note are hereby
incorporated by reference to the fullest extent as if the text of such Article
were set forth in its entirety herein.
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IN WITNESS WHEREOF, Borrower and Lender have duly executed
this Agreement the day and year first above written.
BORROWER:
CAPITAL SENIOR LIVING PROPERTIES 2-NHPCT, INC., a
Delaware corporation
By: /s/ Lawrence A. Cohen
-----------------------------------------
Name: Lawrence A. Cohen
Title: Chief Financial Officer
LENDER:
LEHMAN BROTHERS HOLDINGS INC. d/b/a LEHMAN
CAPITAL, a division of LEHMAN BROTHERS HOLDINGS
INC., a Delaware corporation
By: /s/ Larry Kravetz
------------------------------------------
Name: Larry Kravetz
Title: Authorized Signatory