$16,000,000
LOAN AGREEMENT
Dated as of December 6, 2002
Between
EMERITUS REALTY CORPORATION,
a Nevada corporation,
as Borrower;
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and
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation,
as Lender.
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TABLE OF CONTENTS
Page
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ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS 1
Section 1.1 Certain Defined Terms 1
Section 1.2 Accounting Terms 15
Section 1.3 Other Definitional Provisions. 15
ARTICLE II. AMOUNTS AND TERMS OF LOAN 16
Section 2.1 Making the Loan. 16
(a) The Loan 16
(b) The Note 16
(c) Funding the Loan 16
Section 2.2 Interest. 16
(a) Interest Rate 16
(b) Default Interest 16
Section 2.3 Mandatory Payments 16
(a) Monthly Payments 16
(b) Maturity Date 16
(c) Payment Following Change of Control 17
Section 2.4 Voluntary Prepayments. 17
(a) No Prepayment Prior to Third Anniversary 17
(b) Full Prepayment 17
(c) Partial Prepayment 17
(d) Yield Maintenance Premium 17
Section 2.5 Payments and Computations. 18
(a) Payments 18
(b) Computations 18
(c) Payment on Business Day 18
Section 2.6 Right of First Offer to Finance 18
(a) Request to Provide Offer to Finance 18
(b) Election to Finance 19
(c) No Election 19
(d) Borrower's Election to Finance 19
Section 2.7 Taxes. 19
(a) Net Payments 19
(b) Payment of Other Taxes 20
(c) Indemnification 20
(d) Evidence of Payments 20
(e) Survival 20
Section 2.8 Additional Cash Collateral 20
ARTICLE III. CONDITIONS 20
Section 3.1 Conditions 20
(a) Representation and Warranties 20
(b) No Default 21
(c) Payment of Fees and Expenses 21
(d) No Adverse Change 21
(e) Loan Documents 21
(f) Master Lease Documents 22
(g) Borrower Corporate Documents 22
(h) Property Owner Organizational Documents 23
(i) Property Operator Organizational Documents 23
(j) Real Property Deliveries 24
(k) Health Care Licenses 26
(l) Condemnation; Casualty 27
(m) Financial Statements 27
(n) Other Document Deliveries 27
(o) Legal Opinions 28
(p) Governmental Consents 28
(q) Insurance Coverage 28
(r) Corporate and Governmental Approvals 28
(s) Minimum Aggregate Net Operating Income 28
(t) Occupancy and EBITDAR 28
(u) No Liability for Facility 29
(v) Appraised Value 29
(w) Refinancing 29
(x) Reimbursement Obligation 29
(y) Compliance with Zoning Laws 29
(z) Officers Certificate 29
(aa) Other Permitted Subsidiary Organizational Documents 29
(bb) Documents and other Evidence Satisfactory to Lender 30
ARTICLE IV. REPRESENTATIONS AND WARRANTIES 30
Section 4.1 Representations and Warranties of Borrower 30
(a) Organization 30
(b) Power and Authority 31
(c) Due Authorization 31
(d) Binding and Enforceable 31
(e) Subsidiaries 31
(f) No Indebtedness 32
(g) No Liens 32
(h) No Defaults 32
(i) No Conflicts or Restrictions 32
(j) Governmental Approval 32
(k) Litigation 32
(l) Financial Information 32
(m) Material Adverse Change 33
(n) Compliance 33
(o) Payment of Taxes 33
(p) Security Interests 33
(q) Title to Property 33
(r) Real Property Matters. 33
(s) Conduct of Business 34
(t) Investment Company 35
(u) Margin Stock 35
(v) Registration of the Note 35
(w) Environmental Laws 35
(x) ERISA Compliance. 36
(y) Restrictions on Dividends 37
(z) Solvency 37
(aa) Labor Disputes 37
(bb) Master Lease Document Default 37
(cc) Full Disclosure 37
(dd) Health Care Permits. 38
(ee) Compliance with Legal Requirements 38
ARTICLE V. COVENANTS OF BORROWER 39
Section 5.1 Financial Covenants 39
(a) First Mortgage Outstanding Principal Amount 39
(b) Minimum Operating Income 40
(c) Minimum Debt Service Coverage Ratio 40
(d) Maximum Accounts Payable Period 40
Section 5.2 Reporting Covenants 40
(a) Monthly Statements 41
(b) Quarterly Financial Statements 41
(c) Annual Financial Statements 42
(d) Annual Budgets 42
(e) Census Reports 42
(f) Compliance Certificates 42
(g) Change of Name or Location 43
(h) Management Letter 43
(i) Tax Returns 43
(j) Notice of Default 43
(k) Notice of Litigation 43
(l) Security Holder Materials and SEC Filings 44
(m) ERISA Notices. 44
(n) Environmental Notices 45
(o) Health Care Permit Violation 45
(p) Notice of Material Event or Circumstance 45
(q) Other Information 46
Section 5.3 Affirmative Covenants 46
(a) Preservation of Corporate Existence, Etc 46
(b) Maintenance of Property and Assets 46
(c) Insurance 46
(d) Compliance With Laws 46
(e) Payment of Obligations 46
(f) Use of Proceeds 47
(g) Inspection of Property and Books and Records. 47
(h) Further Assurances 47
(i) Disclosure Updates 48
(j) Environmental Laws. 48
(k) Health Care Permits and Approvals 49
(l) Compliance With ERISA. 50
(m) Operating Account. 50
(n) Reserve Accounts. 51
(o) Separateness Covenants. 55
(p) Impound Accounts 57
(q) Subordination of Management Agreements 57
(r) Board Attendance 57
(s) Reimbursement Obligation 57
(t) Consent to Acquisition of First Mortgage 57
(u) Florida Licenses 57
(v) Interim Florida Period 57
(w) Borrower's Interests 57
Section 5.4 Negative Covenants 58
(a) Liens 58
(b) Limitation on Indebtedness 58
(c) Limitation on Contingent Obligations 59
(d) Restricted Payments 59
(e) Consolidation, Merger, Sale of Assets 60
(f) Loans and Investments 60
(g) Conduct of Business 61
(h) Transactions With Affiliates 61
(i) Amendments to Corporate Documents 61
(j) Health Care Permits and Approvals 61
(k) Accounting Changes 61
(l) Amendment to and Refinancing of First Mortgages. 62
(m) Sale and Leaseback Transactions 63
(n) Separateness Covenants. 63
(o) Tax Status 64
Section 5.5 REIT Protections. 64
ARTICLE VI. EVENTS OF DEFAULT 66
Section 6.1 Events of Default 66
(a) Non-Payment of Principal, Interest or Other Amounts 66
(b) First Mortgage Loan Documents 66
(c) [Intentionally Omitted] 66
(d) Representations and Warranties 66
(e) Financial and Negative Covenants 66
(f) Reporting and Affirmative Covenants 66
(g) Other Covenants 66
(h) Bankruptcy 67
(i) Judgments 67
(j) Transaction Documents 67
(k) Collateral Documents 67
(l) ERISA 67
(m) Other Indebtedness 67
(n) Leases 68
Section 6.2 Rights Not Exclusive 68
ARTICLE VII. MISCELLANEOUS 68
Section 7.1 Collateral Matters 68
Section 7.2 Amendments 68
Section 7.3 Notices 68
Section 7.4 No Waiver; Remedies 69
Section 7.5 Costs, Expenses and Taxes. 69
(a) General Costs and Expenses 69
(b) Survival 70
Section 7.6 Right of Set-off 70
Section 7.7 Indemnity. 70
(a) Indemnity 70
(b) Limitation 70
(c) Survival 70
Section 7.8 Binding Effect 71
Section 7.9 GOVERNING LAW 71
Section 7.10 WAIVER OF JURY TRIAL 71
Section 7.11 Confidentiality 71
Section 7.12 Limitation of Liability 72
Section 7.13 Entire Agreement 72
Section 7.14 Execution in Counterparts 72
LIST OF EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Borrower Pledge Agreement
Exhibit C Form of Reserve Account Security Agreement
Exhibit D Form of Negative Pledge Agreement
Exhibit E Form of Separateness Covenant Certificate
Exhibit F-1 Form of Compliance Certificate
Exhibit F-2 Form of Compliance Certificate
Exhibit G Reviewed Facility Budgets
Exhibit H Form of Guaranty
Exhibit I Form of Mortgage
LIST OF SCHEDULES
Schedule I List of Facilities, Property Owners, Property Operators and
First Mortgage Lenders
Schedule II List of Additional Properties
Schedule III Liability Amounts for Lender's Title Policies
Schedule 2.3(b) Sample Loan Balance
Schedule 3.1(j)(i) Value of Facilities
Schedule 4.1(f) List of Existing Indebtedness
Schedule 4.1(g) List of Existing Liens
Schedule 4.1(j) List of Required Government Approvals
Schedule 4.1(r) List of Real Estate
Schedule 4.1(w) List of Environmental Reports
Schedule 4.1(aa) List of Collective Bargaining Agreements and Other
Labor Contracts
Schedule 5.4(c)(ii) List of Existing Contingent Obligations
78
| OC\567831.6||
LOAN AGREEMENT
This LOAN AGREEMENT, dated as of December 6, 2002, is made by and between
EMERITUS REALTY CORPORATION, a Nevada corporation, as Borrower; and HEALTH CARE
PROPERTY INVESTORS, INC., a Maryland corporation, as Lender.
Recitals
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A. Borrower has requested that Lender make a loan to Borrower in the
aggregate principal amount of Sixteen Million Dollars ($16,000,000.00).
C. Lender is willing to make the loan on the terms and conditions set forth
herein.
Agreement
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NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
DEFINITIONS AND ACCOUNTING TERMS
Certain Defined Terms
- -----------------------
. As used in this Agreement, the following terms shall have the following
meanings:
"Additional Properties" means the real properties more particularly described on
---------------------
Schedule II.
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"Adjusted Net Operating Income" means, for any period, (i) Aggregate Net
--------------------------------
Operating Income for such period minus (ii) a capital reserve equal to the
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product of (A) $20.83 times (B) the average number of units in the Facilities
----
during such period times (C) the number of months in such period.
-
"Affiliate" of a specified Person means any other Person that directly, or
---------
indirectly through one or more intermediaries, controls, is controlled by or is
----
under common control with the Person specified. For purposes of the foregoing,
"control," "controlled by" and "under common control with" with respect to any
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Person means (i) the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, partnership interests or other
equity interests, or by contract or otherwise, or (ii) the ownership of more
than 50 percent of the voting securities of, partnership interests or other
equity interests in, such Person; provided, however, that for a corporation, the
term "Affiliate" shall exclude any affiliate of Daniel R. Baty which but for its
relationship with Daniel R. Baty would not be considered an Affiliate of such
corporation.
"Aggregate Net Operating Income" means, for any period, the sum of the Net
---------------------------------
Operating Income for all of the Facilities for such period.
----
"Agreement" means this Loan Agreement, dated as of December 6, 2002 among
---------
Borrower and Lender.
-----
"Anniversary Date" means each anniversary of the Closing Date.
-----------------
"Authorized Officer" means the chief executive officer, the president, the chief
------------------
financial officer, the secretary, the vice president of financial planning or
the treasurer of Borrower.
"Borrower" means Emeritus Realty Corporation, a Nevada corporation.
--------
"Borrower Pledge Agreement" has the meaning provided in Section 3.1(e)(iii).
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"Borrower Pledged Interests" means the equity interests in the Property Owners
----------------------------
which are to be pledged as security pursuant to the Borrower Pledge Agreement.
"Business Day" means any day except a Saturday or Sunday or a day when
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commercial banks are authorized or required by law to be closed in Los Angeles,
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California.
"Capital Additions" has the meaning provided in the Master Lease.
------------------
"Capital Lease Obligations" means, with respect to any Person, any and all lease
-------------------------
obligations of such Person and its Subsidiaries on a consolidated basis that, in
accordance with GAAP, have been or are required to be capitalized on the books
of such Person and its Subsidiaries.
"Cash Equivalents" means: (i) securities issued or fully guaranteed or insured
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by the United States government or any agency thereof and backed by the full
faith and credit of the United States having a maturity of not more than 1 year
from the date of acquisition; (ii) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within 1 year from the date
of acquisition thereof and, at the time of acquisition, rated A by S&P or A by
Moody's; (iii) certificates of deposit, time deposits, Eurodollar time deposits,
or bankers' acceptances having in each case a tenor of not more than 1 year,
issued by an United States commercial bank having combined capital and surplus
of not less than $100,000,000 whose short-term securities are rated at least A-1
by S&P or P-1 by Moody's; (iv) certificates of deposit in an amount less than or
equal to $100,000 in the aggregate issued by any other bank insured by the
Federal Deposit Insurance Corporation; (v) commercial paper or bankers
acceptances of an issuer rated at least A-1 by S&P or P-1 by Moody's and, in
either case, having a tenor of not more than 1 year; and (vi) money market funds
invested in one or more of the foregoing.
"Change of Control" means the occurrence of any of the following: (i) at any
-------------------
time, any person other than Daniel R. Baty or group of persons (within the
-
meaning of Section 13(d) of the Securities and Exchange Act of 1934, as amended
-
(the "Exchange Act") and the regulations promulgated thereunder) owns
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beneficially (within the meaning of Rule 13d-3 promulgated by the Security and
----
Exchange Commission under the Exchange Act, or any successor or replacement
regulation), 25% or more of the issued and outstanding shares of capital stock
of Emeritus having ordinary voting power for the election of directors of
Emeritus; (ii) at any time, a majority of the members of the board of directors
of Emeritus shall not be Continuing Directors; (iii) a majority of the directors
who are Continuing Directors as of any date shall resign within a 4-month period
after such date; (iv) Emeritus shall cease for any reason to own 100% of the
outstanding ownership interest in Borrower; (v) Borrower shall cease for any
reason to own directly 100% of the outstanding ownership interest in each
Property Owner; or (vi) Emeritus shall cease for any reason to own directly or
indirectly 100% of the outstanding ownership interest in each Property Operator
other than Emeritus.
"Closing Date" means December 6, 2002.
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"Code" means the Internal Revenue Code of 1986, as amended, and any regulation
----
promulgated thereunder.
"Collateral" means all property which is subject or is to become subject to the
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security interests or Lien granted by any of the Collateral Documents.
"Collateral Documents" means, collectively, the Borrower Pledge Agreement, the
---------------------
Reserve Account Security Agreement, the Negative Pledge Agreements and all other
security agreements, collateral assignments and other instruments, documents and
agreements at any time delivered to Lender to create or evidence Liens to secure
the Obligations or any guaranty thereof, and any amendments, supplements,
modifications, renewals, replacements, consolidations, substitutions and
extensions of any of the foregoing.
"Compliance Certificate" has the meaning provided in Section 5.2(f).
----------------------- ---------------
"Condemnation" has the meaning provided in the Master Lease.
------------
"Contingent Obligation" means, as applied to any Person, any direct or indirect
----------------------
liability of that Person with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligation") of another
------------------
Person (the "primary obligor"), including any obligation of that Person, whether
---------------
or not contingent, (i) to purchase, repurchase or otherwise acquire any such
primary obligation or any property constituting direct or indirect security
therefor; or (ii) to advance or provide funds (A) for the payment or discharge
of any such primary obligation, or (B) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor; or (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation; or (iv) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof. The amount of any
Contingent Obligation of any Person shall be deemed to be an amount equal to the
maximum amount of such Person's liability with respect to the stated or
determinable amount of the primary obligation for which such Contingent
Obligation is incurred or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder).
"Continuing Director" means a director who (i) was a member of the Board of
--------------------
Directors of Emeritus on the Closing Date, or (ii) was nominated to be a member
---
of the Board of Directors by a majority of the Continuing Directors then in
office to fill a vacancy left by death, retirement or voluntary resignation of a
director.
"Contribution Documents" has the meaning provided in Section 3.1(n)(ii).
----------------------- -------------------
"Debt" means, as applied to any Person and in each case determined on a
----
consolidated basis in conformity with GAAP (without duplication): (i) all
----
obligations for borrowed money (whether by loan or the issuance of debt
----
securities or otherwise); (ii) all obligations evidenced by bonds, debentures,
----
notes, or other similar instruments; (iii) all Capital Lease Obligations of such
Person; (iv) all obligations or liabilities of others secured by a Lien on any
property or asset of such Person, irrespective of whether such obligation or
liability is assumed; (v) all obligations owed for all or any part of the
deferred purchase price of property, assets, or services that are due more than
12 months after the date of the incurrence of the obligation in respect thereto;
and (vi) all Unfunded Pension Liabilities of such Person or any of its
Subsidiaries.
"Debt Service Coverage Ratio" means, for any period, the ratio obtained by
------------------------------
dividing (i) Adjusted Net Operating Income for such period by (ii) the sum of
----
(A) the cash payments required on the Loan during such period plus (B) the
-
aggregate principal and interest payments on the First Mortgage Loans during
-
such period (excluding there from any principal paid in connection with a
-
Permitted Refinancing Loan or a Permitted Payoff) plus (C) any payments
-
required to be made into the Sinking Fund Reserve Account during such period.
-
"Default" means any event or condition which with notice, the passage of time or
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both would constitute an Event of Default.
"Depository Bank" has the meanings provided in Section 5.3(m)(i).
---------------- ------------------
"Distribution Date" means for each calendar month from the Closing Date through
------------------
the Maturity Date, any date within the 5 days after Borrower makes the payment
due on the Payment Date for such calendar month.
"DOL" means the United States Department of Labor or any successor department or
---
agency.
"Dollars" and "$" means United States dollars or such coin or currency of the
------- -
United States of America as at the time of payment shall be legal tender for the
-
payment of public and private debts in the United States of America.
"EBITDA" means, for any period for any Person, the sum of (i) Net Income for
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such period, (ii) depreciation and amortization included in calculating such Net
--
Income, (iii) Interest Expense for such period, (iv) Tax Expense for such
period, in each case determined for such Person and its Subsidiaries on a
consolidated basis.
"EBITDAR" means, for any period, the sum of (i) EBITDA for the Property Owners
-------
and the Property Operators; and (ii) the aggregate amount payable under all
leases and rental agreements, in each case determined for such period for the
Property Owners and the Property Operators on a consolidated basis in accordance
with GAAP.
"Emeritus" means Emeritus Corporation, a Washington corporation.
--------
"Environmental Laws" means all federal, state or local laws, statutes, common
-------------------
law duties, rules, regulations, ordinances and codes, together with all
-
administrative orders, directed duties, licenses, authorizations and permits of,
-
and agreements with, any Governmental Authority, in each case relating to
environmental, health, safety and land use matters.
"Environmental Lien" means a Lien in favor of any Governmental Authority for (a)
------------------
any liability under Environmental Laws, or (b) damages arising from, or costs
incurred by such Governmental Authority in response to, a Release or threatened
Release of a Hazardous Substance into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
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and any regulation promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
----------------
under common control with Borrower or any of its Subsidiaries within the meaning
---
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (i) a Reportable Event with respect to a Pension Plan, (ii)
------------
a withdrawal by Borrower or any ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which
is treated as such a withdrawal under Section 4062(e) of ERISA, (iii) a complete
or partial withdrawal by Borrower or any ERISA Affiliate from a Multi-Employer
Plan or notification that a Multi-Employer Plan is in reorganization, (iv) the
filing of a notice of intent to terminate, the treatment of a Plan amendment as
a termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multi-Employer Plan, (v)
the occurrence of an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multi-Employer Plan,
or (vi) the imposition of any liability under Title IV of ERISA, other than for
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower
or any ERISA Affiliate.
"ESC-Land" means ESC-Land, LLC, a Delaware limited liability company.
--------
"Event of Default" and "Events of Default" have the meanings provided in Section
---------------- ----------------- -------
6.1.
- ---
"Facility" means each facility being (and to be) operated or proposed to be
--------
operated on the Leased Property, together with any Capital Additions.
---
"Facilities" means, collectively, all of the Facilities. The Facilities are
---
identified on Schedule I.
-- -----------
"Fee Estate" means any fee estate in real property.
-----------
"Final Appraisal" has the meaning provided in Section 3.1(j)(iii).
---------------- --------------------
"Finance," "Financed,""Finances," "Financing" and similar terms shall mean the
------- -------- -------- ---------
provision of financing to Borrower, its Subsidiaries and/or its Affiliates
whether in the form of a loan, a synthetic lease, a sale-leaseback transaction,
or similar or related financing structure, but shall specifically exclude trade
payables incurred in the ordinary course of business consistent with past
practices and Indebtedness permitted pursuant to Section 5.4(b)(iv).
-------------------
"Financing Transaction" has the meaning provided in Section 2.6.
---------------------- ------------
"First Mortgage Lenders" means collectively (i) GECC and (ii) the Permitted
------------------------
Refinancing Lenders, if any. "First Mortgage Lender" means, individually, any
--- ---------------------
of the First Mortgage Lenders.
"First Mortgage Loan Documents" means collectively all documents evidencing or
-------------------------------
related to the First Mortgage Loans. "First Mortgage Loan Document" means
-----------------------------
individually any of the First Mortgage Loan Documents.
"First Mortgage Loans" means collectively (i) the mortgage loans identified on
----------------------
Schedule I to this Agreement and (ii) the Permitted Refinancing Loans, if any.
----------
"First Mortgage Loan" means individually any of the First Mortgage Loans.
---------------------
"Flood Hazard Area" means an area designated by the Federal Emergency Management
-----------------
Agency and/or the Secretary of Housing and Urban Development as having special
flood hazards.
"Florida Licensee" means ESC-Port St. Richie, LLC, a Washington limited
-----------------
liability company.
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"GAAP" means generally accepted accounting principles set forth in the opinions
----
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accounts and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the accounting profession), or in such other
statements by such entity as may be in general use by significant segments of
the United States accounting profession, which are applicable to the
circumstances on the date of determination; provided that if one or more changes
in GAAP after the date hereof are required to be applied to the then existing
transactions, and such change or changes have a material effect on the financial
computations required under this Agreement, then as used in this Agreement, GAAP
means generally accepted accounting principles as in effect prior to such change
or changes.
"GECC" means General Electric Capital Corporation.
----
"GECC Loan" means the First Mortgage Loans from GECC to the Property Owners
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totaling $58,000,000.
---
"Governmental Authority" means any nation or government, any state or other
-----------------------
political subdivision thereof and any entity exercising executive, legislative,
---
judicial, regulatory or administrative functions of or pertaining to government.
"Governmental Requirement" means any law, ordinance, order, rule, regulation,
-------------------------
decree or similar edict of a Governmental Authority.
-
"Gross Revenues" means, for any period for any Facility, all revenues received
---------------
or receivable during such period from or by reason of the operation of such
Facility or any other use of the Leased Property (as defined in the Master
Lease) related to such Facility, the Personal Property (as defined in the Master
Lease) of the Property Operator for such Facility and Capital Additions related
to such Facilities including all revenues received or receivable for the use of
or otherwise attributable to units, rooms, beds and other facilities provided,
meals served, services performed (including ancillary services), space or
facilities subleased or goods sold on or from the Leased Property and Capital
Additions related to such Facility, all determined in accordance with GAAP;
provided, however, that Gross Revenues shall not include: (i) non-operating
revenues such as interest income or income from the sale of assets not sold in
the ordinary course of business; (ii) contractual allowances (relating to any
period during the Term (as defined in the Master Lease)) for billings not paid
by or received from the appropriate governmental agencies or third party
providers; (iii) all proper patient billing credits and adjustments according to
GAAP relating to health care accounting; and (iv) federal, state or local excise
taxes and any tax based upon or measured by such revenues which is added to or
made a part of the amount billed to the patient or other recipient of such
services or goods, whether included in the billing or stated separately. Gross
Revenues for any period for any Facility shall include all cost report
settlement amounts received in or payable during such period for such Facility
in accordance with GAAP relating to health care accounting, regardless of the
period to which such settlement amounts are applicable; provided, however, that
to the extent settlement amounts are applicable to periods, or portions thereof,
prior to the Closing Date, such settlement amounts shall not be included in
Gross Revenues for the period in which such settlement amounts are received or
paid. Gross Revenues for any Facility shall also include (x) the Gross Revenues
of any Occupant (as defined in the Master Lease) under a Commercial Occupancy
Arrangement (as defined in the Master Lease) (i.e., the Gross Revenues generated
from the operations conducted on or from such subleased, licensed or other used
or occupied portion of the Leased Property and all Capital Additions of such
Facility shall be included directly in the Gross Revenues) if all or any portion
of the rent received or receivable by the Property Operator for such Facility
from or under such Commercial Occupancy Arrangement is based on net income of
such Occupant or would otherwise fail to qualify as "rents from real property"
within the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto (in which event the rent received or receivable by the
Property Operator for such Facility from or under such Commercial Occupancy
Arrangement shall be excluded from Gross Revenues), or (y) the rent received or
receivable by the Property Operator for such Facility from or under such
Commercial Occupancy Arrangement, if no portion of the rent received or
receivable by the Property Operators from or under such Commercial Occupancy
Arrangement is based on net income of such Occupant and such rent qualifies as
"rents from real property" within the meaning of Section 856(d) of the Code, or
any similar or successor provision thereto (in which event the Gross Revenues of
such Occupant shall be excluded from Gross Revenues herein).
"Hazardous Substances" means, collectively, any petroleum, petroleum product or
---------------------
byproduct or any substance, material or waste regulated or listed pursuant to
any Environmental Law.
"HCPI Lease" means that certain Amended and Restated Master Lease, dated as of
-----------
September 18, 2002, between HCPI, HCPI Trust, a Maryland real estate trust, and
Texas HCP Holding, L.P., a Delaware limited partnership, on the one hand; and
the HCPI Lessees, on the other hand.
"HCPI Lease Documents" means the HCPI Lease and all other guaranties and other
----------------------
agreements, documents and instruments delivered to Lender by or on behalf of
Emeritus or any Affiliate of Emeritus pursuant to or in connection with the HCPI
Lease.
"HCPI Lessees" means, collectively, Emeritus and ESC III, L.P. d/b/a Texas-ESC
-------------
III, L.P.
"Health Care Facility" means a facility which provides any pharmaceutical
----------------------
products or any level of geriatric care, home health care, medical care
-----
(including sub-acute care), assisted living service or rehabilitative services,
-----
whether licensed as a skilled nursing facility, intermediate care facility,
personal care facility, hospital or pharmacy or any products or services
reasonably related thereto.
"Health Care Permit" means every accreditation, authorization, certificate of
--------------------
need, license or permit that is required pursuant to applicable federal, state
-
or local law, rule, ordinance or authority to own, lease, operate or manage a
Facility or any Subsidiary of Borrower or any Property Operator.
"Hedging Agreement" means (i) any foreign exchange contract, currency swap
------------------
agreement, futures contract, option contract, synthetic cap or other similar
----
agreement or arrangement designed to protect against fluctuations in currency
--
values; or (ii) any interest rate swap agreement, interest rate cap agreement,
-
interest rate collar agreement or other similar agreement or arrangement which
is designed to protect against fluctuations in interest rates.
"Indebtedness" means, as applied to any Person and in each case determined on a
------------
consolidated basis in conformity with GAAP (without duplication): (i) all Debt;
(ii) all reimbursement obligations with respect to surety bonds, letters of
credit, bankers acceptances and similar instruments (in each case, whether or
not matured); (iii) all obligations (contingent or otherwise) to purchase,
retire or redeem any capital stock or any other equity interest of such Person;
(iv) all monetary obligations measured by, or determined on the basis of, the
value of any capital stock of such Person; (v) all obligations, whether or not
such obligations constitute Indebtedness described in clauses (i) through (iv)
above, secured by (or for which the holder of the obligation has an existing
right, contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contract rights) owned by such Person or any Subsidiary
of such Person; (vi) Contingent Obligations; and (vii) all monetary claims
against such Person or any Subsidiary of such Person under Hedging Agreements.
"Indemnified Liabilities" has the meaning provided in Section 7.7(a).
------------------------ ---------------
"Indemnified Person" has the meaning provided in Section 7.7(a).
------------------- ---------------
"Intercreditor Agreement" and "Intercreditor Agreements" have the meanings
------------------------ -------------------------
provided in Section 3.1(e)(v).
---- ------------------
"Interest Expense" means, for any period for any Person, the interest expense
-----------------
(net of interest income) for such period of such Person and its Subsidiaries on
-
a consolidated basis, determined in conformity with GAAP.
"Interim Florida Period" means the period from the Closing Date through and
------------------------
including the earlier to occur of (i) December 30, 2002 or (ii) the date ESC-New
---
Port Richey, LLC, a Washington limited liability company, to has obtained all
Health Care Permits necessary to operate the La Casa Grande Facility described
as the "La Casa Grande Facility" on Schedule I.
"IRS" means the Internal Revenue Service and any successor agency.
---
"La Casa Grande Facility" means the Facility described as the "La Casa Grande
--------------------------
Facility" on Schedule I.
-
"Leased Property" has the meaning provided in the Master Lease.
----------------
"Leasehold Estate" means any interest in real property which is not a Fee
-----------------
Estate.
-----
"Lender" means Health Care Property Investors, Inc., a Maryland corporation, and
------
its successors and assigns.
"Lender Finance Proposal" has the meaning provided in Section 2.6(c).
------------------------- ---------------
"Lien" means: (i) any interest in property securing an obligation owed to, or a
----
claim by, a Person other than the owner of the property, whether such interest
is based on the common law, statute, or contract, and including a security
interest, charge, claim, or lien arising from a mortgage, deed of trust,
encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes; (ii) to the extent not included under clause
------
(i), any reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or other title exception or encumbrance affecting
property; and (iii) any contingent or other agreement to provide any of the
foregoing.
"Loan" has the meaning given in Section 2.1(a).
---- ---------------
"Loan Documents" means this Agreement, the Note, the Collateral Documents, the
---------------
Intercreditor Agreements and all other guaranties and other agreements,
instruments and written indicia of the Obligations delivered to Lender by or on
behalf of Borrower or any other Loan Party pursuant to or in connection with the
transactions contemplated hereby.
"Loan Parties" means Borrower, the Property Owners and ESC-Land.
-------------
"Master Lease" means that certain Master Lease, dated as of the Closing Date,
-------------
between the Property Owners, on the one hand, and the Property Operators, on the
-
other hand.
"Master Lease Documents" means the Master Lease and all other guaranties and
------------------------
other agreements, documents and instruments delivered to Property Owners or
--
Lender by or on behalf of Borrower or any Affiliate of Borrower pursuant to or
--
in connection with the transactions contemplated by the Master Lease.
"Master Lease Payment Date" means the first Business Day of each calendar month
--------------------------
during the term of the Master Lease.
"Material Adverse Change" means (i) a material adverse change in the business,
-------------------------
properties, assets, nature of the assets, liabilities, operations, prospects or
condition (financial or otherwise) of (a) Borrower and its Subsidiaries, taken
as a whole; (b) any Facility; or (c) Emeritus and its Subsidiaries, taken as a
whole, in each case as compared with the business, properties, assets, nature of
the assets, liabilities, operations, prospects or condition (financial or
otherwise) of Borrower and its Subsidiaries, such Facility or Emeritus and its
Subsidiaries, as the case may be, as of September 30, 2002; (ii) a material
impairment after the Closing Date of the ability of Borrower or any Affiliate of
Borrower to perform under any Transaction Document to which it is a party; or
(iii) a material adverse change in the legality, validity, binding effect or
enforceability against any Loan Party or any Operating Company of any
Transaction Document to which it is a party.
"Material Adverse Effect" means (i) a material adverse effect upon the business,
-----------------------
properties, assets, nature of the assets, liabilities, operations, prospects or
condition (financial or otherwise) of (a) Borrower and its Subsidiaries, taken
as a whole; (b) any Facility; or (c) Emeritus and its Subsidiaries, taken as a
whole; (ii) a material impairment of the ability of Borrower or any Affiliate of
Borrower to perform under any Transaction Document to which it is a party; or
(iii) a material adverse effect upon the legality, validity, binding effect or
enforceability against any Loan Party or any Operating Company of any
Transaction Document to which it is a party.
"Maturity Date" means the date 5 years after the Closing Date.
--------------
"Moody's" means Moody's Investors Service, Inc. or any successor thereto.
-------
"Mortgage Payment Reserve Account" has the meaning provided in Section
----------------------------------- -------
5.3(n)(i)(C).
-----------
"Mortgage Loan Balance Excess" has the meaning provided in Section 5.3(n)(iii).
----------------------------- -------------------
"Multi-Employer Plan" means a multi-employer plan (as defined in Section
--------------------
4001(a)(3) of ERISA) which is, or was at any time during the current year or the
----
immediately preceding 6 years, contributed to by Borrower or any ERISA
Affiliate.
"Negative Pledge Agreements" and "Negative Pledge Agreement" have the meanings
---------------------------- -------------------------
provided in Section 3.1(e)(iv).
-------------------
"Net Income" means, for any period for any Person, the net income (exclusive of
-----------
minority interests and extraordinary items) for such period of such Person and
its Subsidiaries on a consolidated basis, determined in conformity with GAAP.
"Net Mortgage Loan Balance" has the meaning set forth in Section 5.3(n)(iii).
---------------------------- -------------------
"Net Operating Income" means, for any Facility for any period, (i) Gross
----------------------
Revenues for such Facility for such period minus (ii) the sum of (a) Operating
------
Expenses for such Facility for such period plus (b) a management fee equal to
the greater of (x) 5% times Gross Revenues for such Facility for such period and
(y) the actual amount of management fees paid by the Property Owner or the
Property Operator for such Facility for such period.
"New Florida Property Owner" means Emeritus Realty Port St. Richie, LLC, a
-----------------------------
Delaware limited liability company.
----
"Non-REIT Asset" has the meaning set forth in Section 5.5(c).
--------------- ---------------
"Non-REIT Income" has the meaning set forth in Section 5.5(c).
---------------- ---------------
"Note" has the meaning provided in Section 2.1(b).
---- ---------------
"Obligations" means all present and future debts, obligations and liabilities of
-----------
Borrower of every type and description arising under or in connection with this
Agreement or any other Loan Document, due or to become due to Lender or any
other Person required to be indemnified under any Loan Document, or any of their
respective successors, transferees or assigns and shall include (without
limitation) (i) all liability for principal of and interest on the Loan; and
(ii) all liability under the Loan Documents for any fees, taxes, additional
compensation, expense reimbursements and indemnification.
"Operating Expenses" means, for any period for any Facility, the operating
-------------------
expenses of such Facility during such period, as determined in accordance with
---
GAAP.
"Other Permitted Subsidiaries" has the meaning provided in Section 3.2(aa).
------------------------------ ---------------
"Other Taxes" has the meaning provided in Section 2.7(b).
------------ ---------------
"Payment Date" means the fourth Business Day of each calendar month from the
-------------
Closing Date through the Maturity Date.
--
"PBGC" means the Pension Benefit Guaranty Corporation or any Governmental
----
Authority succeeding to the functions thereof.
----
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
-------------
subject to Title IV of ERISA which Borrower or any ERISA Affiliate sponsors,
-----
maintains, or to which it makes, is making, or is obligated to make
--
contributions, or in the case of a Multi-Employer Plan is making, is obligated
--
to make, or has made contributions at any time during the immediately preceding
6 plan years.
"Permitted Letter of Credit" means a letter of credit (i) which is issued by a
----------------------------
financial institution which is satisfactory to Lender in its sole discretion and
whose long-term debt is rated at least "A" by S&P and "A2" by Moody's; (ii)
which names Lender as the beneficiary; (iii) which contains terms and provisions
satisfactory to Lender in its sole discretion; and (iv) with respect to which
the Borrower has the reimbursement obligation (and such reimbursement obligation
is not guarantied by Emeritus or any Affiliate of Emeritus).
"Permitted Payoff" means the payment in full of all obligations under, and the
-----------------
release of any Liens with respect to, a First Mortgage Loan; provided that such
payment was made in accordance with this Agreement.
"Permitted Refinancing Loan" means, individually, any mortgage loan which
----------------------------
refinances a First Mortgage Loan and is consented to by Lender in accordance
-----
with this Agreement. "Permitted Refinancing Loans" means, collectively, all
-- -----------------------------
Permitted Refinancing Loans.
--
"Permitted Refinancing Lender" means, individually, a Person that is a lender
------------------------------
under a Permitted Refinancing Loan. "Permitted Refinancing Lenders" means,
- ------------------------------
collectively, all Permitted Refinancing Lenders.
-
"Permitted Subsidiaries" has the meaning provided in Section 4.1(e).
-----------------------
"Person" means an individual, partnership, limited liability company,
------
corporation (including a business trust), joint stock company, trust,
------
unincorporated association, joint venture or other entity, or a government or
------
any political subdivision or agency thereof.
-
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
----
which Borrower or any ERISA Affiliate sponsors or maintains or to which Borrower
---
or any ERISA Affiliate makes, is making, or is obligated to make contributions
and includes any Pension Plan.
"Primary Intended Use" has the meaning provided in the Master Lease.
----------------------
"Property Operators" means the Persons identified as Property Operators on Part
-------------------
A of Schedule I.
-----------
"Property Owners" means the Persons identified as Property Owners on Part A of
----------------
Schedule I.
----------
"Proposed Refinancing Transaction" has the meaning provided in Section
---------------------------------- -------
5.4(l)(ii).
---------
"Real Property" means any Fee Estate or any Leasehold Estate.
--------------
"Reinvestment Rate" means, with respect to any prepayment of the Loan, an amount
-----------------
equal to the yield on U.S. Treasuries issued with a term a near to equal to the
remaining term as the Loan as possible, such yield being based on the bid price
for such issue as published in the Wall Street Journal on the date that is 14
days prior to the date of such prepayment (of, if such bid price is not
published on such date, the next preceding date on which such bid price is so
published) and converted to a monthly (not compounded) nominal yield, such
Reinvestment Rate to be determined by Lender.
"Release" means a release, spill, emission, leaking, pumping, injection,
-------
deposit, disposal, discharge, dispersal, leaching or migration of a Hazardous
------
Substance into the indoor or outdoor environment or into or out of any Real
-
Property or other property, including the movement of Hazardous Substances
-
through or in the air, soil, surface water, groundwater or Real Property or
-
other property.
-
"Repair and Replacement Expenditures" has the meaning provided in Section
-------------------------------------- -------
5.3(n)(ii).
---------
"Repair and Replacement Reserve Account" has the meaning provided in Section
------------------------------------------ -------
5.3(n)(i)(A).
-----------
"Reportable Event" shall mean any of the events set forth in Section 4043(c) of
-----------------
ERISA or the regulations thereunder, a withdrawal from a plan described in
Section 4063 of ERISA or a cessation of operations described in Section 4062(e)
of ERISA.
"Request to Provide Offer to Finance" has the meaning provided in Section
---------------------------------------- -------
2.6(a).
-----
"Required Mortgage Loan Balance" has the meaning provided in Section
--------------------------------- -------
5.3(n)(iii).
----------
"Reserve Account Security Agreement" has the meanings provided in Section
------------------------------------- -------
3.1(e)(vi).
--------
"Reserve Accounts" and "Reserve Account" have the meanings provided in Section
----------------- --------------- -------
5.3(n)(i).
--------
"Review Period" has the meaning provided in Section 2.6(b).
-------------- ---------------
"Reviewed Budget" means the budget of the Facilities delivered prior to the
----------------
Closing Date and reviewed and accepted by Lender, a copy of which is attached
---
hereto as Exhibit G.
- -----------
"Right of First Offer" has the meaning provided in Section 2.6.
----------------------- ------------
"River Oaks Facility" means the Facility described as the "River Oaks Facility"
--------------------
on Schedule I.
"S&P" means Standard & Poor's Corporation or any successor thereto.
---
"Sinking Fund Reserve Account" has the meaning specified in Section
------------------------------- -------
5.3(n)(i)(B).
-----------
"Solvent" means, when used with respect to any Person, that at the time of
-------
determination: (i) the assets of such Person, at a fair valuation, are in
----
excess of the total amount of its debts (including contingent liabilities); (ii)
----
the present fair saleable value of its assets is greater than its probable
liability on its existing debts as such debts become absolute and matured; (iii)
it is then able and expects to be able to pay its debts (including contingent
debts and other commitments) as they mature; and (iv) it has capital sufficient
to carry on its business as conducted and as proposed to be conducted.
"Stanford Centre Facility" means the Facility described as the "Stanford Centre
-------------------------
Facility" on Schedule I.
"State" means the District of Columbia or any state of the United States.
-----
"Subsidiary" means, with respect to any Person, any corporation, association,
----------
partnership, joint venture or other business entity of which 50% or more of the
-
voting stock or other equity interests is owned or controlled directly or
indirectly by such Person, or one or more Subsidiaries of such Person or a
combination thereof.
"Tax Expense" means, for any period for any Person, charges for taxes accrued
------------
during such period by such Person and its Subsidiaries on a consolidated basis,
-
determined in conformity with GAAP.
"Taxes" has the meaning provided in Section 2.7(a).
----- ---------------
"Test Period" means (i) for any Distribution Date occurring on any date from the
-----------
Closing Date through and including the Distribution Date in February 2003, the
period from November 1, 2002 to the last day of the calendar month commencing
two calendar months prior to such Distribution Date; and (ii) for any
Distribution Date thereafter, the period from the beginning of the applicable
calendar year through the last day of the calendar month commencing two calendar
months prior to such Distribution Date.
"Title Company" has the meaning provided in Section 3.1(j)(i).
-------------- ------------------
"Title Policy" has the meaning provided in Section 3.1(j)(i).
------------- ------------------
"Transaction Document" means, collectively, the Loan Documents, the Contribution
--------------------
Documents and the Master Lease Documents.
"Unfunded Pension Liability" means the excess of a Pension Plan's benefit
----------------------------
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
-----
Pension Plan's assets, determined in accordance with the assumptions used for
funding such Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
"Unmatured Surviving Obligation" means, as of any date, an Obligation which is
--------------------------------
contingent and unliquidated and not due and owing on such date and which
pursuant to provisions of this Agreement survives termination of this Agreement
and the repayment of the Loan, such as, for example, a contingent and
unliquidated indemnification obligation under Section 7.7.
------------
Accounting Terms
- -----------------
. Except where context otherwise requires, all accounting terms not
expressly defined herein shall be construed and all financial computations
required under this Agreement shall be made in accordance with GAAP as then in
effect.
Other Definitional Provisions.
- -------------------------------
Unless otherwise specified herein or therein, all terms defined in this
Agreement have the defined meanings when used in any other Transaction Document
or in any certificate or other document made or delivered pursuant hereto.
The words "hereof," "herein," "hereunder," and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, schedule and exhibit
references are to sections, schedules and exhibits to this Agreement unless
otherwise specified.
The meaning of defined terms shall be equally applicable to the singular and
plural forms of the defined terms.
The term "including" is not limiting and means "including without limitation."
In the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including"; the words "to" and "until"
each mean "to but excluding"; and the word "through" means "to and including."
References to agreements and other documents shall be deemed to include all
subsequent amendments and other modifications thereto that are permitted under
this Agreement.
References to statutes or regulations are to be construed as including all
statutory and regulatory provisions consolidating, amending or replacing the
statute or regulation.
The captions and headings of this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement.
AMOUNTS AND TERMS OF LOAN
Making the Loan.
- -----------------
The Loan
- ---------
. Lender agrees, subject to the terms and conditions set forth in this
Agreement, to make a loan to Borrower (the "Loan") in the aggregate principal
----
amount of $16,000,000 on any Business Day (the date of the making of the Loan,
the "Closing Date") prior to December 6, 2002.
-------------
The Note
- ---------
. The Loan shall be evidenced by a promissory note (the "Note"),
----
substantially in the form of Exhibit A, in an original principal of $16,000,000.
---------
Funding the Loan
- ------------------
. Upon fulfillment of the conditions set forth in Section 3.1, Lender
-----------
shall make the proceeds of the Loan available to Borrower by transferring funds
to the Title Company.
Interest.
- --------
Interest Rate
- --------------
. Interest shall accrue on the unpaid principal amount of the Loan from
the Closing Date until the principal amount of the Loan shall be paid in full,
at a rate per annum equal to 13.75%.
Default Interest
- -----------------
. For any period of time during which an Event of Default has occurred and
is continuing, the principal amount of the Loan shall bear interest payable upon
demand at a rate per annum equal to the sum of (i) 2 percent plus (ii) the rate
otherwise payable pursuant to Section 2.2(a), but not to exceed the maximum rate
--------------
permitted by applicable law.
Mandatory Payments
- -------------------
. Borrower agrees to make the following payments on the Loan:
Monthly Payments
- -----------------
.. On each Payment Date (other than the Payment Date occurring in December
2002), Borrower shall make a cash payment to Lender in an amount equal to
$160,000; provided, however, that if the Closing Date is prior to December 4,
2002, Borrower shall make a cash payment to Lender on the Closing Date in an
amount equal to $160,000 times a fraction, the numerator of which is the number
of days between the Closing Date through and including December 4, 2002, and the
denominator of which is 30. Any payment made pursuant to this Section 2.3(a)
--------------
shall be applied first to accrued and unpaid interest and then to the unpaid
principal amount of the Loan. On each Payment Date, any interest which has
accrued pursuant to Section 2.2(a) and is not paid pursuant to this Section
--------------- -------
2.3(a) shall be added to the principal amount of the Loan and shall thereafter
--
accrue interest at the rate provided in Section 2.2(a).
---------------
Maturity Date
- --------------
. On the Maturity Date, Borrower shall pay the full outstanding principal
amount of the Loan (including any principal that was added to the Loan pursuant
to Section 2.3(a)), all accrued and unpaid interest on the Loan and all other
---------------
Obligations then due and owing under this Agreement or any other Loan Document.
For the convenience of the parties hereto, attached as Schedule 2.3(b) is a
---------------
schedule showing the accrual of interest and principal amounts for the loan on a
timely basis and that the Loan is funded on the Closing Date and assuming all
payments are made on the due dates for such payments.
Payment Following Change of Control
- ---------------------------------------
. If within the period commencing on the date of a Change of Control and
ending 90 days after written notice from Borrower to Lender of such Change of
Control, Lender shall request in writing that Borrower repay the Loan, then
within 30 days after delivery to Borrower of such written request, Borrower
shall immediately repay the full outstanding principal amount of the Loan
(including any principal that was added to the Loan pursuant to Section 2.3(a)),
--------------
all accrued and unpaid interest on the Loan and all other Obligations then due
and owing under this Agreement or any other Loan Document.
Voluntary Prepayments.
- ----------------------
No Prepayment Prior to Third Anniversary
- ---------------------------------------------
. Borrower may not, under any circumstance, prepay the Loan prior to the
third anniversary of the Closing Date.
Full Prepayment
- ----------------
. After the third anniversary of the Closing Date, Borrower may prepay the
Loan in whole, but not in part. For any such prepayment, Borrower shall provide
Lender written notice of such prepayment not later than 30 days prior to the
date of such prepayment, and such written notice must state that Borrower
intends to prepay the Loan and must provide the date on which such prepayment
will be made. If such notice is given Borrower shall, on the prepayment date
set forth in such notice, prepay the full outstanding principal amount of the
Loan (including any principal that was added to the Loan pursuant to Section
-------
2.3(a)), all accrued and unpaid interest on the Loan and all other Obligations
---
then due and owing under this Agreement or any other Loan Document.
Partial Prepayment
- -------------------
. After the third anniversary of the Closing Date, Borrower may with the
approval of Lender (which approval may be withheld in the sole and absolute
discretion of Lender) make a partial prepayment of the Loan; provided that such
partial prepayments may not be requested more frequently than quarterly and may
not be requested for a principal amount less than $4,000,000. For any such
prepayment, Borrower shall provide Lender written notice of such prepayment not
later than 30 days prior to the date of such prepayment, and such written notice
must state that Borrower desires to prepay the Loan and must provide the date on
which such prepayment will be made, if approved by Lender. If such notice is
given and the Lender approves such prepayment, Borrower shall, on the prepayment
date set forth in such notice, prepay the principal amount of the Loan approved
by Lender and all accrued and unpaid interest on such principal amount. If
Borrower makes such prepayment, each future payment required under Section
2.3(a) shall be reduced by a percentage equal to (i) the amount of such
prepayment, divided by (ii) the then-outstanding principal amount of the Loan
(including any principal that was added to the Loan pursuant to Section 2.3(a)).
Yield Maintenance Premium
- ---------------------------
. If, for any reason, the Loan is involuntarily prepaid prior to the third
anniversary of the Closing Date (including, by reason of an acceleration
following the occurrence of an Event of Default but excluding by reason of a
Change of Control), Borrower shall, concurrently with such prepayment, pay to
Lender an amount equal to the greater of (x) 1% and (y) the positive difference,
if any, between (i) the net present value of the remaining payments of principal
and interest (including the payment on the Maturity Date) discounted at the
Reinvestment Rate expressed in monthly terms (not compounded), determined one
Business Day prior to such prepayment, and (ii) the principal amount of the
Loan, as at the date of such prepayment.
Payments and Computations.
- ---------------------------
Payments
- --------
. Borrower shall make each payment hereunder not later than 2:00 p.m. (Los
Angeles, California time) on the day when due in Dollars to Lender at its
address referred to in Section 7.3 in same day funds.
------------
Computations
- ------------
. All computations of interest shall be made by Lender on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest are payable.
Payment on Business Day
- --------------------------
. Whenever any payment under this Agreement or the other Loan Documents
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or fees, as the
case may be.
Right of First Offer to Finance
- ------------------------------------
. So long as any Obligation (other than an Unmatured Surviving Obligation)
shall remain unpaid, if Borrower or any of its Subsidiaries desires to Finance
any of its Health Care Facilities or other property (including to refinance any
loan or other financing arrangement of Borrower or any of its Subsidiaries),
including any financing done in the form of a sale/leaseback transaction (each
such financing or refinancing, a "Financing Transaction"), then Lender shall
---------------------
have a right of first offer to Finance such Health Care Facility or other
property or to refinance such loan or other financing arrangement (such right,
the "Right of First Offer"). The Right of First Offer shall be continuing and
---------------------
shall not terminate until the date Lender exercises such right and Finances such
Financing Transaction or elects not to provide a Lender Finance Proposal. The
following provisions shall govern such rights and such Financing:
Request to Provide Offer to Finance
- ----------------------------------------
. For so long as the Right of First Offer has not expired, for every
Financing Transaction which is proposed to be Financed in whole or in part by a
third-party, Borrower shall deliver to Lender a written request for Lender to
provide a written proposal to Finance a Financing Transaction. Such written
request shall set forth the property(ies) and/or construction plans which is
(are) the subject of such written request, the amount requested to be Financed,
the requested term of the loan or lease, the collateral available to secure the
loan, and such other information pertaining to the terms and conditions of the
proposed Financing as Lender may reasonably request (each such written request
to provide a written proposal containing the foregoing information, a "Request
-------
to Provide Offer to Finance").
------------------------------
Election to Finance
- ---------------------
. Lender shall have 20 days from the date of receipt of the Request to
Provide Offer to Finance (the "Review Period") to determine whether or not
--------------
Lender will provide a written proposal to Finance. During the applicable Review
Period, Borrower shall cooperate and shall cause the applicable Subsidiary to
cooperate with Lender and shall use reasonable efforts to provide Lender with
such further information as Lender may reasonably require with respect to the
applicable Request to Provide Offer to Finance.
No Election
- ------------
. Lender shall be deemed to have declined to exercise the Right of First
Offer with respect to a Request to Provide Offer to Finance if Lender fails to
provide a written proposal to Finance (each such proposal, a "Lender Finance
--------------
Proposal") within the applicable Review Period. Each Lender Finance Proposal
-----
shall contain the material terms under which Lender proposes to provide the
proposed Financing, including the amount to be Financed, the term of the loan or
lease, as applicable, the interest rate or lease rate, as applicable, the
amounts and schedule of principal and interest payments or rental amounts, as
applicable, the terms of any prepayment or yield maintenance provisions, any
loan recourse provisions, any "due on" provisions and related transfer
restrictions, the collateral to secure the loan, whether or not a guaranty of
the loan or lease is required, any cross-default or cross-collateralization
provisions and any fees and other costs to be charged in connection with the
proposed Financing.
Borrower's Election to Finance
- ---------------------------------
. With respect to each Request to Provide Offer to Finance, if Lender
declines (or is deemed to have declined its right) to provide a Lender Finance
Proposal, Borrower and/or the applicable Subsidiary may elect to Finance such
Finance Transaction with any third party provided, however, that Borrower or the
-------- -------
applicable Subsidiary shall have closed escrow with respect to such Finance
Transaction within 6 months after the expiration of the applicable Review
Period. With respect to each Request to Provide Offer to Finance, if Lender
provides a Finance Proposal then Borrower and/or the applicable Subsidiary may
Finance such Finance Transaction with any third party only if (i) such Finance
Transaction is consummated on financing terms and conditions less favorable to
such third party than those set forth in such Lender Finance Proposal, and (ii)
Borrower or the applicable Subsidiary shall have closed escrow with respect to
such Finance Transaction within 6 months after the expiration of the applicable
Review Period. If, within either such 6 month period, Borrower or the
applicable Subsidiary fails to close such Finance Transaction in accordance with
the terms set forth in this Section 2.6(d), then the Right of First Offer with
--------------
respect to such Finance Transaction shall be reinstated, and Lender shall have
the review and financing rights for such Finance Transaction as set forth in
this Section 2.6.
------------
Taxes.
- -----
Net Payments
- -------------
. Any and all payments by Borrower under this Agreement and the other Loan
Documents shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding, any taxes imposed on
---------
Lender's net income (whether denominated as a franchise or capital stock or
other tax) or net worth (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or
-----
in respect of any sum payable under this Agreement or any other Loan Document to
Lender, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.7) Lender receives an amount equal to the sum
-----------
it would have received had no such deductions been made; (ii) Borrower shall
make such deductions; and (iii) Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
Payment of Other Taxes
- -------------------------
. In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made under this Agreement or any other Loan
Document or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents, provided Borrower shall
not be required to pay any tax based on Lender's net income (whether denominated
as a franchise or capital stock or other tax) or net worth (all such
non-excluded taxes or other items hereinafter referred to as "Other Taxes").
-----------
Indemnification
- ---------------
. Borrower will indemnify Lender for the full amount of Taxes or Other
Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.7) paid by Lender and any liability (including
------------
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within 5 days from the date Lender makes
written demand therefor.
Evidence of Payments
- ----------------------
. Within 30 days after the date of any payment of Taxes, Borrower will
furnish to Lender, at its address referred to in Section 7.3, the original or a
-----------
certified copy of a receipt evidencing payment thereof.
Survival
- --------
. Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
-------
2.7 shall survive the termination of this Agreement.
- ---
Additional Cash Collateral
- ----------------------------
. If Lender receives any amounts pursuant to Sections 46.1(g), (h) or (i)
of the Master Lease, Lender shall hold such amounts as additional collateral for
the Loan in a cash collateral account reasonably satisfactory to Lender, and
shall, on the Maturity Date, credit any such amounts against any outstanding
principal amount of the Loan.
CONDITIONS
Conditions
- ----------
. The obligation of Lender to make the Loan is subject to the satisfaction
of each of the following conditions unless waived in writing by Lender:
Representation and Warranties
- -------------------------------
. Each of the representations and warranties contained in this Agreement
and in each of the other Transaction Documents shall be true and correct in all
material respects on and as of the Closing Date, before and after giving effect
to the Loan and to the application of the proceeds of the Loan.
No Default
- -----------
. No event shall have occurred and be continuing, or shall result from the
Loan or from the application of the proceeds of the Loan, which constitutes a
Default or Event of Default.
Payment of Fees and Expenses
- --------------------------------
. All fees and expenses of Lender (including fees and disbursements of
counsel to Lender) due and payable on or prior to the Closing Date under this
Agreement shall have been paid.
No Adverse Change
- -------------------
. There shall not have been any Material Adverse Change.
Loan Documents
- ---------------
. Borrower shall have delivered to Lender each of the following:
this Agreement duly executed by Borrower and Lender;
the Note duly executed by Borrower;
a pledge agreement, in substantially the form of Exhibit B (the "Borrower Pledge
--------- ---------------
Agreement"), duly executed by Borrower and Lender, together with certificates
- ---------
representing the Borrower Pledged Interests identified in Part A of Schedule I
- -- ----------
to the Borrower Pledge Agreement, accompanied by undated transfer documents
executed in blank;
a Negative Pledge Agreement, in substantially the form of Exhibit D
----------
(collectively, the "Negative Pledge Agreements", and individually a "Negative
--------------------------- --------
Pledge Agreement"), duly executed by each Property Owner and Lender;
---------------
an intercreditor agreement, with each of the First Mortgage Lenders, in form and
substance satisfactory to Lender (collectively, the "Intercreditor Agreements",
------------------------
and individually an "Intercreditor Agreement"), duly executed by each First
------------------------
Mortgage Lender and Lender;
a reserve account security agreement, in substantially the form of Exhibit C
---------
(the "Reserve Account Security Agreement"), duly executed by Borrower and
-------------------------------------
Lender;
a control agreement, in form and substance reasonably acceptable to Lender, duly
executed by the Depository Bank and Lender;
evidence that the Negative Pledge Agreements have each been recorded in the
appropriate real property recording offices;
evidence that the financing statements referred to in the opinion of counsel
delivered pursuant to Section 3.1(o) have been filed in the offices identified
--------------
therein;
a Guaranty of Obligations in substantially the form of Exhibit H, duly executed
---------
by Daniel R. Baty;
a Mortgage or Deed of Trust, as appropriate, for each of the Real Properties, in
substantially the form of Exhibit I (collectively, the "Mortgages", and
---------- ---------
individually a "Mortgage"), duly executed by each Property Owner and Lender;
--------
evidence that the Mortgages have each been recorded in the appropriate real
property recording offices; and
an escrow holdback agreement in a form satisfactory to Lender, duly executed by
Borrower and Lender, together with executed but undated originals of any
agreements required in connection therewith.
Master Lease Documents
- ------------------------
. Borrower shall have delivered to Lender certified copies of the Master
Lease Documents.
Borrower Corporate Documents
- ------------------------------
. Borrower shall have delivered to Lender each of the following:
the certificate of incorporation of Borrower, certified by the Secretary of
State of Nevada, dated as of a date not more than 10 days prior to the Closing
Date;
a good standing certificate dated as of a recent date for Borrower from the
Secretary of State of (x) Nevada and (y) each other jurisdiction where Borrower
is qualified to do business, in each case, dated as of a date not more than 10
days prior to the Closing Date;
a certificate of an Authorized Officer of Borrower, dated as of the Closing
Date, certifying as to:
the certificate of incorporation of Borrower as in effect on the Closing Date;
the bylaws of Borrower as in effect on the Closing Date;
the resolutions of the Board of Directors of Borrower approving each Transaction
Document to which it is a party, and of all documents evidencing other necessary
corporate or organizational action and governmental approvals, if any, with
respect to each such Transaction Document; and
the names and true signatures of the officers of Borrower authorized to sign
each Transaction Document to which it is a party and the other documents to be
delivered hereunder.
Property Owner Organizational Documents
- ------------------------------------------
. Borrower shall have delivered to Lender each of the following:
the articles of organization or certificate of formation, as applicable, of each
Property Owner, certified by the Secretary of State of the jurisdiction in which
each such Property Owner is formed, dated as of a date not more than 10 days
prior to the Closing Date;
a good standing certificate dated as of a recent date for each Property Owner
from the Secretary of State of (x) the jurisdiction in which each such Property
Owner is formed and (y) each other jurisdiction where such Property Owner is
qualified to do business, in each case, dated as of a date not more than 10 days
prior to the Closing Date;
a certificate of the Secretary of Borrower, as the sole Member of each Property
Owner, dated as of the Closing Date, certifying as to:
the articles of organization or certificate of formation, as applicable, of such
Property Owner as in effect on the Closing Date;
the limited liability company agreement or operating agreement, as applicable,
of such Property Owner as in effect on the Closing Date;
resolutions of the Board of Governors or Board of Managers, as applicable, of
such Property Owner approving each Transaction Document to which it is a party,
and of all documents evidencing other necessary corporate or organizational
action and governmental approvals, if any, with respect to each such Transaction
Document; and
the names and true signatures of the officers of each such Property Owner
authorized to sign each Transaction Document to which it is a party and the
other documents to be delivered hereunder.
Property Operator Organizational Documents
- ---------------------------------------------
. Borrower shall have delivered to Lender each of the following:
the charter, certificate of incorporation, articles of organization or
certificate of limited partnership, as applicable, of each Property Operator,
certified by the Secretary of State of the jurisdiction in which each such
Property Operator is formed, dated as of a date not more than 10 days prior to
the Closing Date;
a good standing certificate dated as of a recent date for each Property Operator
from the Secretary of State of (x) the jurisdiction in which each such Property
Operator is formed and (y) each other jurisdiction where such Property Operator
is qualified to do business, in each case, dated as of a date not more than 10
days prior to the Closing Date;
a certificate of the Secretary of each Property Operator (or of such Property
Operator's sole member), dated as of the Closing Date, certifying as to:
the charter, certificate of incorporation, articles of organization or
certificate of limited partnership, as applicable, of such Property Operator as
in effect on the Closing Date;
the bylaws, operating agreement or partnership agreement, as applicable, of such
Property Operator as in effect on the Closing Date;
resolutions of the Board of Directors, Board of Governors or general partner, as
applicable, of such Property Operator approving the Transaction Documents to
which such Property Operator is a party, and of all documents evidencing other
necessary corporate or organizational action and governmental approvals, if any,
with respect to the Transaction Documents; and
the names and true signatures of the officers of each such Property Operator or
the general partner of such Property Operator, as applicable, authorized to sign
the Transaction Documents to which such Property Operator is a party and the
other documents to be delivered thereunder or hereunder.
Real Property Deliveries
- --------------------------
. Borrower shall have delivered to Lender each of the following for each
Facility:
The current owner's policy of title insurance issued by a title company
acceptable to Lender (the "Title Company") showing good and indefeasible title
-------------
to such Facility in fee simple vested in the Property Owner for such Facility
and subject only to (x) liens for taxes, assessments and governmental charges
not yet past due and payable or delinquent and (y) such other title exceptions
as Lender may approve, in its sole and absolute discretion. Such policy (the
"Title Policy"), when issued, shall:
------------
be in current ALTA extended coverage owner's form (but without a general
exception for creditors' rights);
be issued in an amount not less than the value of such Facility, as set forth in
Schedule 3.1(j)(i);
include endorsements 100 (no violations, etc., modified for an owner), 103.7
(access), 116.1 (survey accuracy), and 123.2 (zoning-improved property) (if
available), and a non-imputation endorsement or the equivalents thereof
available in the applicable State, and such other endorsements as Lender may
reasonably require; and
insure (i) that any conditions, covenants and restrictions affecting such
Facility have not been violated and that a future violation thereof will not
result in a forfeiture or reversion of title; (ii) if obtainable, that all
streets adjoining such Facility have been completed, dedicated and accepted for
public maintenance and use by the appropriate governmental authorities and that
such Facility has access to public streets; (iii) if available, that local
zoning ordinances, general plans and all other applicable land use regulations
and all private covenants, conditions and restrictions, if any, permit the
transfer and use of such Facility (and reconstruction and resumption of use of
such Facility in the event of damage or destruction thereof or cessation of use
thereof) for all uses contemplated by the Master Lease as a matter of right for
an unlimited time period, and specifically not merely as a legal non-conforming
use or any other legal status which would by its terms or by operation of law
limit the duration of such use or the right to rebuild and resume use of such
Facility for all uses contemplated by the Master Lease in the event of damage,
destruction or cessation of use of such Facility for any reason; and (iv) over
and against all parties in possession except the current occupants thereof.
a title policy for each Facility showing good and indefeasible title to such
Facilities in fee simple vested in the applicable Property Owner, in the
principal amount set forth on Schedule III and insuring the continued validity
------------
and priority of the lien of the Mortgage upon such Facility, subject only to
such exceptions as are acceptable to Lender in its sole and absolute discretion.
Such title policy shall be in current ALTA extended coverage lender's form
(without a creditors right exception) and shall include such endorsements as
Lender may require in its sole and absolute discretion.
either (x) a final "as-built" ALTA survey of such Facility completed in
accordance with the Minimum Standard Detail requirements for ALTA/ACSM Land
Title Surveys, with additional Title A survey requirements, jointly established
and adopted by ALTA and ACSM in 1999 that meet the requirements of a Class A
Survey as defined therein, certified within 90 days of the Closing Date or (y)
such other form of title survey which is in form and substance satisfactory to
Lender in its sole and absolute discretion. Such survey shall:
be certified to Lender, Property Owner and the Title Company as being true and
accurate, which such certification shall include the acreage of such Facility
and a statement that such Facility is not located in a Flood Hazard Area;
identify thereon all telephone, water, sewage, electricity, gas and other
utility facilities to the points of connection; and
show no encroachments onto or conflicts with any adjacent property other than
pursuant to easements appurtenant to such Facility or such other agreements with
the affected landowner approved by Lender and which are, in turn, insured under
the Title Policy;
a final appraisal of such Facility, performed by a firm selected or approved by
Lender (individually, a "Final Appraisal" and collectively, the "Final
---------------- -----
Appraisals"), each such Appraisal to be in form and substance satisfactory to
-
Lender;
copies of the First Mortgage Loan Documents for such Facility, all such
documents to be satisfactory to Lender;
evidence satisfactory to Lender that each Facility and each Additional Property
is a separate legal lot or parcel; and
information, satisfactory to Lender, with respect to the amount of the real
property taxes with respect to each Facility and each Additional Property and
any real property that is a part of the same tax parcel as such Facility or such
Additional Property.
Health Care Licenses
- ----------------------
. With respect to each Facility, Borrower shall have delivered to Lender
with respect to such Facility evidence satisfactory to Lender that (i) such
Facility and/or the Property Operator for such Facility holds all licenses,
permits, accreditations, authorizations and certifications from all applicable
Governmental Authorities required for the operation thereof for its Primary
Intended Use and for all other uses (if any) contemplated under the Master
Lease, including the applicable licenses (collectively, the "Health Care
------------
Licenses") from the California Department of Health Services, the Florida Agency
-
for Healthcare Administration, the Idaho Department of Health and Welfare, the
Iowa Department of Public Health, the Massachusetts Public Health Department,
the Montana Department of Public Health and Human Services, the Nevada Health
Planning and Statistics Bureau, and/or the Washington State Department of Health
and each other state authority having jurisdiction over such Facility
(collectively, the "Issuing Agencies"); (ii) such Facility is not subject to, or
----------------
threatened with, any hold on admissions or other sanction and there are no
outstanding, or threatened, notices of deficiency resulting from any survey of
such Facility which have not been fully responded to with an acceptable plan of
correction with which such Facility is being operated in compliance; and (iii)
such Facility and/or the Property Operator for such Facility is, to the extent
applicable, (A) duly certified as a provider under the Medicare and Medicaid
programs and (B) in compliance in all material respects with all Governmental
Requirements, including rules and regulations relating to Medicare/Medicaid
fraud and abuse practices, and all insurance requirements.
Condemnation; Casualty
- -----------------------
. No Condemnation shall be pending or threatened with respect to any
Facility or any Additional Property and no casualty shall have occurred with
respect to any Facility or any Additional Property any portion thereof.
Financial Statements
- ---------------------
. Borrower shall have delivered to Lender each of the following:
a copy of the audited financial statements of Emeritus and its Subsidiaries on a
consolidated basis for the fiscal year ended December 31, 2001, audited by KPMG;
a copy of the unaudited financial statements of Emeritus and its Subsidiaries on
a consolidated basis for each fiscal quarter ending after December 31, 2001 and
more than 45 days prior to the Closing Date;
a copy of the pro forma unaudited financial statements of Borrower and its
Subsidiaries on a consolidated basis for the fiscal year ended December 31,
2001;
a copy of the pro forma unaudited financial statements of Borrower and its
Subsidiaries on a consolidated basis for each fiscal quarter ending after
December 31, 2001 and more than 45 days prior to the Closing Date;
unaudited operating statements for each Facility showing the Net Operating
Income for such Facility for the trailing twelve-month period ended December 31,
2001; and
unaudited operating statements for each Facility showing the Net Operating
Income for such Facility for the trailing twelve month periods ended on the last
day of each month ending after December 31, 2001 and more than 10 Business Days
prior to the Closing Date.
Other Document Deliveries
- ---------------------------
. Borrower shall have delivered to Lender each of the following:
Written disclosure, for Lender's review, of all pending or threatened litigation
or governmental proceedings seeking to enjoin, challenge or collect material
damages in connection with Emeritus, Borrower, any Subsidiary of Emeritus or
Borrower or any Facility or any Additional Property; and
All documents evidencing or otherwise related to the contributions of assets to
the Property Owners and the Property Operators, which documents shall be
satisfactory to Lender (such documents, the "Contribution Documents").
-----------------------
Legal Opinions
- ---------------
. Borrower shall have delivered to Lender each of the following:
an opinion of The Nathanson Group, counsel for Borrower and the other Loan
Parties, in form and substance satisfactory to Lender;
an opinion, in form and substance satisfactory to Lender, of New York counsel
for Borrower and the other Loan Parties, such counsel to be acceptable to
Lender;
an opinion of special local counsel to each Property Owner, in form and
substance satisfactory to Lender;
an opinion with respect to the Master Lease, in form and substance satisfactory
to Lender, of counsel for each Property Owner and each Property Operator, such
counsel to be acceptable to Lender;
a substantive non-consolidation opinion (with respect to substantive
consolidation of Borrower or any Property Owner with Emeritus) from Foster
Pepper & Shefelman PLLC, counsel for Borrower and the other Loan Parties, in
form and substance satisfactory to Lender; and
such other opinions as Lender may reasonably request.
Governmental Consents
- ----------------------
. Each Loan Party and each Property Operator shall have obtained all
consents, approvals and authorizations required from any Governmental Authority
in connection with execution, delivery and performance of their respective
obligations under this Agreement and the other Transaction Documents.
Insurance Coverage
- -------------------
. Borrower shall have delivered to Lender evidence that Borrower and each
other Loan Party has in place the insurance coverage required by this Agreement
and that Lender, as Lender under this Agreement, has been named an additional
insured on all insurance policies of Borrower or any of its Subsidiaries.
Corporate and Governmental Approvals
- ---------------------------------------
. Borrower shall have delivered to Lender all documents evidencing other
necessary corporate action and governmental approvals, if any, with respect to
this Agreement, the other Transaction Documents and the Collateral Documents.
Minimum Aggregate Net Operating Income
- ------------------------------------------
. The sum of the Aggregate Net Operating Income for the trailing twelve
months ended as of each month after August 31, 2002 and more than 10 days prior
to the Closing Date is not less than $8,100,000.
Occupancy and EBITDAR
- -----------------------
. The occupancy and the EBITDAR of the Facilities, as a whole, must
reasonably be within the Reviewed Budget for the one-month periods, and for the
fiscal year-to-date periods, ending on the last day of each calendar month
ending after June 2002 and more than 10 days prior to the Closing Date.
No Liability for Facility
- ----------------------------
. Borrower shall have delivered to Lender evidence that no Property Owner
is subject to liability for the operations at the Facility owned by such
Property Owner.
Appraised Value
- ----------------
. The aggregate appraised value of all of the Facilities (as indicated in
the Final Appraisals) shall be no less than $80,500,000. The aggregate
appraised value of the Additional Properties (as reasonably determined by
Borrower) shall be no less than $1,200,000.
Refinancing
- -----------
The satisfactory completion of a $58,000,000 refinancing transaction with
GECC, such refinancing to be on terms and conditions satisfactory to Lender.
Reimbursement Obligation
- -------------------------
. To the extent that any letter of credit has been issued to support an
obligation of Borrower or any Subsidiary of Borrower, Borrower or such
Subsidiary shall either (i) have the direct reimbursement obligation with
respect to such letter of credit or (ii) have an intercompany reimbursement
agreement with Emeritus or the Subsidiary of Emeritus that has the direct
reimbursement obligation with respect to such letter of credit, which shall in
each event be in form and substance satisfactory to Lender.
Compliance with Zoning Laws
- ------------------------------
. With respect to each Facility, Borrower shall have delivered to Lender
with respect to such Facility (i) copies of the applicable zoning ordinances and
map marked to show the location of such Facility and certified by an appropriate
Governmental Authority to be complete and accurate, and (ii) evidence
satisfactory to Lender that such zoning ordinances and the general
plans/specific plans and all other land use regulations of the applicable
municipal jurisdictions and all covenants, conditions and restrictions, if any,
affecting such Facility permit the transfer of such Facility and use thereof for
its Primary Intended Use and for all other uses (if any) contemplated under the
Master Lease (and reconstruction and resumption of use in the event of damage,
destruction, or cessation of use) as a matter of right for an unlimited time
period and not merely as a legal non-conforming use.
Officers Certificate
- ---------------------
. Borrower shall have delivered to Lender a certificate dated as of the
Closing Date and signed by the Chairman, Chief Executive Officer or Chief
Financial Officer of Borrower, in his or her capacity as an officer (and not as
an individual) certifying that, as of the Closing Date, (w) the representations
and warranties contained in this Agreement and each of the other Transaction
Documents are true and correct on and as of the Closing Date, as though made on
and as of such date; (x) no Event of Default or Default has occurred and is
continuing; (y) there has been no Material Adverse Change; and (z) each of the
other conditions precedent to the Closing Date has been satisfied.
Other Permitted Subsidiary Organizational Documents
- -------------------------------------------------------
. Borrower shall have delivered to Lender each of the following for each
Permitted Subsidiary (other than a Property Owner) (collectively, the "Other
-----
Permitted Subsidiaries", and individually, an "Other Permitted Subsidiary"):
-------------------- --------------------------
the charter, certificate of incorporation, articles of organization or
certificate of limited partnership, as applicable, of each Other Permitted
Subsidiary, certified by the Secretary of State of the jurisdiction in which
each such Other Permitted Subsidiary is formed, dated as of a date not more than
10 days prior to the Funding Date;
a good standing certificate dated as of a recent date for each Other Permitted
Subsidiary from the Secretary of State of (x) the jurisdiction in which each
such Other Permitted Subsidiary is formed and (y) each other jurisdiction where
such Other Permitted Subsidiary is qualified to do business, in each case, dated
as of a date not more than 10 days prior to the Funding Date;
a certificate of the Secretary or general partner, as applicable, of each Other
Permitted Subsidiary, dated as of the Funding Date, certifying as to;
the charter, certificate of incorporation, articles of organization or
certificate of limited partnership, as applicable, of such Other Permitted
Subsidiary as in effect on the Funding Date;
the bylaws, operating agreement or partnership agreement, as applicable, of such
Other Permitted Subsidiary as in effect on the Funding Date;
resolutions of the Board of Directors, Board of Governors or general partner, as
applicable, of such Other Permitted Subsidiary approving the Transaction
Documents to which such Other Permitted Subsidiary is a party, and of all
documents evidencing other necessary corporate or organizational action and
governmental approvals, if any, with respect to the Transaction Documents; and
the names and true signatures of the officers of each such Other Permitted
Subsidiary or the general partner of such Other Permitted Subsidiary, as
applicable, authorized to sign the Transaction Documents to which such Other
Permitted Subsidiary is a party and the other documents to be delivered
thereunder or hereunder.
Documents and other Evidence Satisfactory to Lender
- ---------------------------------------------------------
. The documents, agreements and evidence deliver by Borrower to Lender
pursuant to Section 3.1 shall be satisfactory in all respects to Lender.
------------
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of Borrower
- ----------------------------------------------
. Borrower represents and warrants as follows:
Organization
- ------------
. Each of the Loan Parties and the Property Operators is duly organized
and in good standing under the laws of the jurisdiction where such Loan Party or
Property Operator, as the case may be, is organized and is duly qualified to do
business in each jurisdiction where the absence of such qualification could have
a Material Adverse Effect.
Power and Authority
- ---------------------
. Each of the Loan Parties and the Property Operators has the corporate or
other organizational power: (i) to carry on its business as now being conducted
and as proposed to be conducted by it; (ii) to execute, deliver and perform each
Transaction Document to which it is a party; and (iii) to take all action as may
be necessary to consummate the transactions contemplated thereunder.
Due Authorization
- ------------------
. The execution, delivery and performance by:
each of the Loan Parties of each Transaction Document to which it is a party
have been duly authorized by all necessary corporate or other organizational
action, and do not contravene (A) such Loan Party's charter or bylaws or other
organizational documents or (B) any law or any contractual restriction binding
on or affecting such Loan Party, and do not result in or require the creation of
any Lien upon or with respect to any of its respective properties (other than
Liens created pursuant to the Collateral Documents); and
each of the Property Operators of each Transaction Document to which it is a
party have been duly authorized by all necessary corporate or other
organizational action, and do not contravene (A) such Property Operator's
charter or bylaws or other organizational documents or (B) any law or any
contractual restriction binding on or affecting such Property Operator, and do
not result in or require the creation of any Lien upon or with respect to any of
its respective properties.
Binding and Enforceable
- -------------------------
. This Agreement and each other Transaction Document to which any Loan
Party is a party has been duly executed and delivered by such Loan Party and is
a legally valid and binding obligation of each such Loan Party enforceable
against each such Loan Party in accordance with its respective terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally and subject to the availability of equitable remedies. Each
Transaction Document to which any Property Operator is a party has been duly
executed and delivered by such Property Operator and is a legally valid and
binding obligation of each such Property Operator enforceable against each such
Property Operator in accordance with its respective terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
and subject to the availability of equitable remedies.
Subsidiaries
- ------------
.. Except for the Permitted Subsidiaries, there are no direct or indirect
Subsidiaries of Borrower on the Closing Date. As of the Closing Date, Borrower
owns directly or indirectly only the following Subsidiaries (collectively, the
"Permitted Subsidiaries"):
-----------------------
the Property Owners;
ESC-Land; and
the New Florida Property Owner.
No Indebtedness
- ----------------
. On the Closing Date, neither Borrower nor any Subsidiary of Borrower is
subject to any Indebtedness other than Indebtedness identified on Schedule
--------
4.1(f) and the Contingent Obligations on Schedule 5.4(c)(ii). From and after
- -------------------
the Closing Date, neither Borrower nor any Subsidiary of Borrower is subject to
any Indebtedness other than Indebtedness permitted pursuant to Section 5.4(b).
--------------
No Liens
- ---------
. As of the Closing Date, there are no Liens on assets of Borrower or any
Subsidiary of Borrower, other than Liens securing Indebtedness identified on
Schedule 4.1(g). From and after the Closing Date, there are no Liens on assets
-------------
of Borrower or any Subsidiary of Borrower, other than Liens permitted pursuant
to Section 5.4(a).
---------------
No Defaults
- ------------
. No Default or Event of Default has occurred and is continuing.
No Conflicts or Restrictions
- -------------------------------
. The execution, delivery and performance by each Loan Party and each
Property Operator of each of the Transaction Documents to which it is a party do
not and will not (i) conflict with, result in a breach of, or constitute (with
or without notice or the lapse of time or both) a default under, any material
agreement, document or other instrument of any Loan Party or Property Operator,
as the case may be, or binding on any Loan Party or Property Operator, as the
case may be, or any property of any Loan Party or Property Operator, as the case
may be; or (ii) result in or require the creation or imposition of any Lien upon
any of the property or assets of any Loan Party or Property Operator, as the
case may be, (other than Liens created pursuant to the Collateral Documents).
Governmental Approval
- ----------------------
. Except for those listed on Schedule 4.1(j) (each of which has been duly
---------------
obtained or made and is in full force and effect), no authorization or approval
or other action by, and no notice to or filing with, any Governmental Authority
is required for the due execution, delivery and performance by each Loan Party
and each Property Operator of any Transaction Document to which it is or will be
a party.
Litigation
- ----------
. There is no pending or overtly threatened action or proceeding affecting
Emeritus or any Subsidiaries of Emeritus or Borrower or any Subsidiaries of
Borrower before any Governmental Authority which could reasonably be expected to
have a Material Adverse Effect or which purports to affect the legality,
validity or enforceability of this Agreement or any other Transaction Document
to which any Loan Party or any Property Operator is or will be a party.
Financial Information
- ----------------------
. The financial statements delivered to Lender pursuant to Section 3.1(m)
--------------
and each of the subsequent financial statements delivered to the Lender pursuant
to Section 5.2(a), Section 5.2(b) or Section 5.2(c) fairly present the financial
------------------------------ --------------
condition of Borrower and its Subsidiaries or Emeritus and its Subsidiaries, as
the case may be, as at the date of such financial statements and the results of
the operations of Borrower and its Subsidiaries or Emeritus and its
Subsidiaries, as the case may be, for the period ended on such date, all in
accordance with GAAP consistently applied except, (x) in the case of financial
statements delivered pursuant to Section 3.1(m)(ii), (iii), (iv), (v), or (vi),
------------------ ----- ---- --- ----
or Section 5.2(a), Section 5.2(b) or Section 5.2(c)(iii) or (iv), for year-end
--------------- -------------- ------------------- ----
adjustments and the lack of footnotes; and (y) in the case of statements of
income delivered pursuant to Section 5.2(c)(ii), for lack of footnotes.
-------------------
Material Adverse Change
- -------------------------
. There has been no Material Adverse Change.
Compliance
- ----------
. Each Loan Party and each Property Operator is in compliance in all
material respects with all applicable laws, rules, regulations.
Payment of Taxes
- ------------------
. Borrower and each of its Subsidiaries and Emeritus and each of its
Subsidiaries have timely and accurately filed all federal income tax returns and
all other tax returns required to be filed by each of them and have timely paid
all taxes and assessments payable by each of them which have become due, except
to the extent that such taxes or assessments are being contested in good faith
by appropriate proceedings diligently pursued, and as to which Borrower or its
Subsidiaries or Emeritus and its Subsidiaries, as the case may be, have
established reserves acceptable to Lender.
Security Interests
- -------------------
. The provisions of each of the Collateral Documents are effective to
create in favor of Lender legal, valid, and enforceable security interests in
all right, title and interest of Borrower in the Collateral described therein
and Borrower has taken all action necessary to perfect such security interests,
to the extent they can be perfected by delivery in pledge to Lender or by the
filing of a financing statement.
Title to Property
- -------------------
. Borrower, each Loan Party and each Property Operator (other than
Emeritus) has good and indefeasible title to all properties reflected in its
books and records as being owned by each of them, free and clear of all Liens
other than Liens permitted pursuant to Section 5.4(a); Emeritus has good and
--------------
indefeasible title to all properties reflected in its books and records as being
owned by it, and related to the Facilities, free and clear of all Liens other
than Liens permitted pursuant to Section 5.4(a).
---------------
Real Property Matters.
- -----------------------
Schedule 4.1(r) sets forth each Fee Estate and each Leasehold Estate owned by
- ----------------
Borrower or any Subsidiary of Borrower, including the ownership in the Real
- --
Property as of the Closing Date.
- --
Current local zoning ordinances, general plans and other applicable land use
regulations and all private covenants, conditions and restrictions, if any,
affecting the Facilities, permit the use of the Facilities for their Primary
Intended Use (and reconstruction and resumption of use in the event of damage,
destruction, or cessation of use) as a matter of right for an unlimited time
period and not merely as a legal non-conforming use.
The Property Owner and/or Property Operator for each Facility has obtained all
material consents, permits, licenses approvals or authorizations from
Governmental Authorities or other third parties which are necessary to permit
the use of such Facility for its Primary Intended Use and for all other uses
contemplated under the Master Lease (if any), and each Facility is in
substantial compliance with all applicable zoning ordinances.
Each Property Operator's Medicare and Medicaid participation agreements, if any,
are in full force and effect and no action has been taken to revoke, cancel,
suspend or modify any of such agreements; each Property Operator's material
provider contracts, if any, including managed care contracts, are in full force
and effect and no action has been taken to revoke, cancel, suspend or modify any
such agreement, nor is there any basis for such action; and reimbursement
pursuant to the Medicare and Medicaid participation agreements, if any, and any
material provider contract will not be adversely affected as a result of the
transactions contemplated hereby.
No Facility or Additional Property is located within an area of special risk
with respect to natural or man-made disasters or hazards, including any Flood
Hazard Area.
There are no material adverse geological or soil conditions affecting any
Facility.
All public utilities, including telephone, gas, electric power, sanitary and
storm sewer and water, are available for connection at the boundaries of each
Facility; such utilities are adequate for the Primary Intended Use of such
Facility; and the means of ingress and egress, parking, access to public streets
and drainage facilities are adequate for the Primary Intended Use of such
Facility.
Each Facility and Additional Property is a legal lot or parcel which for all
purposes may be mortgaged, conveyed and otherwise dealt with as a separate
parcel and taxed as a separate lot or parcel.
No exception to title to and no interest in any Facility will interfere in any
material respect with the use of the Leased Property for its Primary Intended
Use.
The real property tax assessor's parcel numbers for each Facility and Additional
Property are as set forth on Schedule 4.1(r).
----------------
Neither Borrower, any Subsidiary of Borrower nor any Affiliate of Borrower have
any interest in any contiguous or adjacent property to any Facility other than
such property that is subject to a non compete agreement acceptable to Lender.
Conduct of Business
- ---------------------
. Borrower and each Subsidiary of Borrower is in compliance with Section
-------
5.4(g).
-----
Investment Company
- -------------------
. Neither Borrower nor any other Loan Party is an "investment company" or
a company "controlled" by and "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Margin Stock
- -------------
. Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U issued by the Board of Governors of the Federal Reserve System), and no
proceeds of the Loan will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
Registration of the Note
- ---------------------------
. It is not necessary to register the Note under the Securities Act of
1933, as amended, or to qualify this Agreement as an indenture under the Trust
Indenture Act of 1939, as amended.
Environmental Laws
- -------------------
. Except as set forth in the reports set forth on Schedule 4.1(w):
---------------
Borrower and its Subsidiaries have complied in all material respects with all
Environmental Laws and neither Borrower nor any Subsidiary nor any of its
presently owned Real Property or presently conducted operations, nor its
previously owned Real Property or prior operations, is subject to any current
enforcement order from or liability agreement with any Governmental Authority or
private Person respecting (x) compliance with any Environmental Law or (y) any
potential liabilities and costs or remedial action arising from the Release or
threatened Release of a Hazardous Substance.
Borrower and its Subsidiaries have obtained all material permits necessary for
their current operations under Environmental Laws, and all such permits are in
good standing and Borrower and its Subsidiaries are in substantial compliance
with all terms and conditions of such permits.
Neither Borrower nor any of its Subsidiaries, nor, to the best knowledge of
Borrower, any predecessors in interest, has in violation of applicable law
stored, treated or disposed of any hazardous waste.
Neither Borrower nor any of its Subsidiaries has received any summons,
complaint, order or similar written notice indicating that it is not currently
in compliance with, or that any Governmental Authority is investigating its
compliance with, any Environmental Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Hazardous
Substance.
To the knowledge of Borrower, none of the present or past operations of Borrower
and its Subsidiaries is the subject of any pending or threatened investigation
by any Governmental Authority evaluating whether any remedial action is needed
to respond to a Release or threatened Release of a Hazardous Substance.
There is not now, nor to the best knowledge of Borrower has there ever been, on
or in the Real Property owned or operated by Borrower or any of its
Subsidiaries:
any underground storage tanks other than those maintained and/or closed in
compliance in all material respects with applicable laws or surface
impoundments,
any asbestos-containing material that is friable, except such as has been
removed or encapsulated in compliance in all material respects with
Environmental Laws, or
any polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical
transformers or other equipment, other than those maintained in compliance in
all material respects with Environmental Laws.
Neither Borrower nor any of its Subsidiaries has filed any notice under any
requirement of Environmental Law reporting a spill or accidental and unpermitted
Release or discharge of a Hazardous Substance into the environment.
Neither Borrower nor any of its Subsidiaries has entered into any negotiations
or settlement agreements with any Person (including the prior owner of its
property) imposing material obligations or liabilities on Borrower or any of its
Subsidiaries with respect to any remedial action in response to the Release of a
Hazardous Substance or environmentally related claim.
No Environmental Lien has attached to the Real Property owned or operated by
Borrower or any of its Subsidiaries.
ERISA Compliance.
- -----------------
Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law. Each Plan which
is intended to qualify under Section 401(a) of the Code either (i) has received
a favorable determination letter from the IRS or (ii) uses a standardized
prototype document, which prototype document is subject to a determination
letter from the IRS, and, in each case, to the best knowledge of Borrower,
nothing has occurred with respect to any such Plan which would cause the
disqualification of such Plan. Borrower and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
There are no pending or, to the best knowledge of Borrower, threatened claims,
actions or lawsuits, or action by any Governmental Authority, with respect to
any Plan. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan.
(A) No ERISA Event has occurred or is reasonably expected to occur; (B) no
Pension Plan has any Unfunded Pension Liability; (C) neither Borrower nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (D) neither Borrower nor
any ERISA Affiliate has incurred, or reasonably expects to incur, any liability
(and no event has occurred which, with the giving of notice under Section 4219
of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA
with respect to a Multi-Employer Plan; and (E) neither Borrower nor any ERISA
Affiliate has engaged in a transaction that could be subject to Section 4069 or
4212(c) of ERISA.
Restrictions on Dividends
- ---------------------------
. Except for restrictions contained in (i) the governing documents of each
Permitted Subsidiary delivered to Lender pursuant to Section 3.1(h); and (ii)
-------------- ----
the First Mortgage Loan Documents, no Subsidiary of Borrower is subject to any
agreement which restricts the ability of such Subsidiary of Borrower to declare
or make any dividend payment or other distribution of assets, properties, cash,
rights, obligations or securities to its stockholders or other equity owners or
to make any loan or advance to Borrower or any other Subsidiary of Borrower.
Solvency
- --------
. Each Loan Party and each Property Operator is, and upon the incurrence
of any Obligations by such Loan Party or Property Operator, as the case may be,
will be, Solvent.
Labor Disputes
- ---------------
. Except as set forth on Schedule 4.1(aa), (i) there is no collective
----------------
bargaining agreement or other labor contract covering employees of Borrower or
any of its Subsidiaries, (ii) no such collective bargaining agreement or other
labor contract is scheduled to expire during the term of this Agreement, (iii)
no union or other labor organization is seeking to organize, or to be recognized
as, a collective bargaining unit of employees of Borrower or any of its
Subsidiaries or for any similar purpose, and (iv) there is no pending or (to the
best knowledge of the Borrower) threatened, strike, work stoppage, material
unfair labor practice claim, or other material labor dispute against or
affecting Borrower or its Subsidiaries or their employees.
Master Lease Document Default
- --------------------------------
. No Property Owner or Property Operator is in default of any provision of
any Master Lease Document.
Full Disclosure
- ----------------
. None of the representations or warranties made by Borrower or any
Subsidiary in the Transaction Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of Borrower
or any Subsidiary in connection with the Transaction Documents, contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
Health Care Permits.
- ---------------------
Each Property Operator now has, and has no reason to believe it will not be able
to maintain in effect, all Health Care Permits necessary for the lawful conduct
of its business or operations wherever now conducted and as planned to be
conducted, with respect to the operation of the Facility or Facilities operated
by such Property Operator pursuant to all applicable laws, of all Governmental
Authorities having jurisdiction over such Property Operator or over any part of
its operations related to the Facilities. All such Health Care Permits are in
full force and effect and have not been amended or otherwise modified,
rescinded, revoked or assigned. No Property Operator is in default in any
material respect under, or in violation in any material respect of, any such
Health Care Permit, and to the best knowledge of Borrower, no event has
occurred, and no condition exists, which, with the giving of notice, the passage
of time, or both, could constitute a default thereunder or a violation thereof,
which default or violation would (with the passage of time, notice or both)
result in the loss of any Health Care Permit which is necessary to operate any
Facility. Neither Borrower, any Property Owner or any Property Operator has
received any notice of any violation of applicable laws which could (with the
passage of time, notice or both) cause any of such Health Care Permits to be
modified, rescinded or revoked. No condition exists or event has occurred which
in itself or with the giving of notice or the lapse of time, or both, could
result in the suspension, revocation, impairment, forfeiture or non-renewal of
any such Health Care Permit, and to the best knowledge of Borrower, there is no
claim challenging the validity of any such Health Care Permit. The
continuation, validity and effectiveness of all such Health Care Permits are not
reasonably expected to be in any way adversely affected by the transactions
contemplated by this Agreement or any of the other Transaction Documents.
All Facilities are entitled to participate in, and receive payment under, the
appropriate Medicare, Medicaid and related reimbursement programs, and any
similar state or local government-sponsored program, to the extent that any
Property Operator has decided to participate in any such program, and to receive
reimbursement from private and commercial payers and health maintenance
organizations to the extent applicable thereto.
Compliance with Legal Requirements
- -------------------------------------
. Each Property Owner, each Property Operator, each Facility and each
Additional Property is in compliance with (i) all requirements of any
Governmental Authority applicable to such Property Owner, such Property
Operator, such Facility and/or such Additional Property, as the case may be,
including compliance with all permits, licenses and conditional use permits
applicable to such Property Owner, such Property Operator, such Facility and/or
such Additional Property, as the case may be; and (ii) all insurance
requirements applicable to such Property Owner, such Property Operator, such
Facility and/or such Additional Property, as the case may be except, as to
Emeritus as a Property Operator, where its noncompliance could not be expected
to have a Material Adverse Effect.
COVENANTS OF BORROWER
Financial Covenants
- --------------------
. So long as any Obligation (other than an Unmatured Surviving Obligation)
shall remain unpaid, unless Lender shall otherwise consent in writing, Borrower
will:
First Mortgage Outstanding Principal Amount
- -----------------------------------------------
. (x) Pay down or cause the Property Owners to pay down the principal
amount of the First Mortgage Loans and/or (y) make deposits into the Sinking
Fund Reserve Account so that as of each date set forth below the outstanding
principal amount of the First Mortgage Loans on such date minus the sum of (i)
the amount of all deposits in reserve accounts to be used for, or used solely to
support, debt service pursuant to the provisions of the First Mortgage Loan
Documents for the Facilities; and (ii) the then amount on deposit in the Sinking
Fund Reserve Account on such date is less than or equal to the amount set forth
opposite such date in the following table:
Date Amount
---- ------
December 31, 2002 $58,000,000
March 31, 2003 $57,785,000
June 30, 2003 $57,565,000
September 30, 2003 $57,340,000
December 31, 2003 $57,115,000
March 31, 2004 $56,880,000
June 30, 2004 $56,645,000
September 30, 2004 $56,405,000
December 31, 2004 $56,160,000
March 31, 2005 $55,915,000
June 30, 2005 $55,560,000
September 30, 2005 $55,405,000
December 31, 2005 $55,140,000
March 31, 2006 $54,875,000
June 30, 2006 $54,605,000
September 30, 2006 $54,330,000
December 31, 2006 $54,050,000
Minimum Operating Income
- --------------------------
. Maintain an Aggregate Net Operating Income, determined for each period
identified in the table set forth below as of the last day of such period, in an
amount not less than the amount set forth in the following table for such
period:
Minimum
Period Operating Income
------ ----------------
Four fiscal quarter period ending on the last day of each fiscal quarter
ending after the Closing Date and on or prior to December 31, 2005
$8,100,000
One fiscal quarter period ending on the last day of each fiscal quarter
ending after December 31, 2005 and on or prior to December 31, 2006
$9,500,000
One fiscal quarter period ending on the last day of each fiscal quarter
ending after December 31, 2006 and on or prior to December 31, 2007
$9,700,000
Minimum Debt Service Coverage Ratio
- ---------------------------------------
. Maintain a Debt Service Coverage Ratio, determined as of the last day of
each fiscal quarter, at an amount not less than the amount set forth in the
following table for the applicable period:
Minimum Debt Service
Quarter Ended During Period Coverage Ratio
--------------------------- --------------
From Closing Date through November 30, 2003 1.05
From December 1, 2003 through November 30, 2004 1.10
From December 1, 2004 through November 30, 2005 1.13
From December 1, 2005 through November 30, 2006 1.16
From December 1, 2006 through November 30, 2007 1.20
Maximum Accounts Payable Period
- ----------------------------------
. Aggregate accounts payable, excluding any accounts payable being
disputed in good faith, must be not more than 60 days old for (i) Borrower and
its Subsidiaries, (ii) all Property Operators (other than Emeritus) and (iii)
the Facilities for which Emeritus is the Property Operator.
Reporting Covenants
- --------------------
. So long as any Obligation (other than an Unmatured Surviving Obligation)
shall remain unpaid, unless Lender shall otherwise consent in writing, Borrower
will, and will cause its Subsidiaries and the Property Operators to deliver to
Lender:
Monthly Statements
- -------------------
. As soon as available, and in any event within 30 days after the end of
each fiscal month of Borrower:
the unaudited consolidated financial statements of Borrower and its Subsidiaries
(including, for each, a balance sheet as of the end of such fiscal month and a
statement of income and retained earnings for such month and for the period
commencing at the end of the previous fiscal year and ending with the end of
such month), and, in the case of each statement of income, setting forth
comparable figures for the related periods in the prior fiscal year and
comparable budgeted figures for such period, all of which shall be certified by
the chief financial officer or the vice president of financial planning of
Borrower, subject to normal year-end adjustments;
An operating statement for such month for each Property Owner;
An operating statement for such month for each Property Operator (other than
Emeritus); and
the operating statement for such month for each Facility for which Emeritus is
the Property Operator.
Quarterly Financial Statements
- --------------------------------
. As soon as available, and in any event within 45 days (90 days for the
final fiscal quarter in each fiscal year) after the end of each fiscal quarter
of Borrower:
the unaudited consolidated financial statements of Borrower and its Subsidiaries
and of Emeritus and its Subsidiaries (including, for each, a balance sheet as of
the end of such fiscal quarter, a statement of income and retained earnings for
such quarter and for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter and a cash flow statement for such
quarter and for the period commencing at the end of the previous calendar year
and ending with the end of such quarter), and, in the case of each statement of
income, setting forth comparable figures for the related periods in the prior
fiscal year and comparable budgeted figures for such period (provided that
Emeritus shall not be required to provide comparable budgeted figures for such
period), all of which shall be certified by the chief financial officer or the
vice president of financial planning of Borrower or Emeritus, as the case may
be, subject to normal year-end adjustments;
An operating statement for such quarter for each Property Owner;
An operating statement for such quarter for each Property Operator (other than
Emeritus); and
the operating statement for such quarter for each Facility for which Emeritus is
the Property Operator.
At the request of Lender, not later than 5 Business Days after delivery by
Borrower of the statements referred to in this Section 5(b) shall arrange for a
------------
conference by the management of Emeritus to provide Lender a detailed briefing
of the operations and activities of Emeritus and its Subsidiaries.
Annual Financial Statements
- -----------------------------
. As soon as available, and in any event within 90 days after the end of
each fiscal year of Borrower:
the consolidated financial statements of Borrower and its Subsidiaries and of
Emeritus and its Subsidiaries (including, for each, a balance sheet as of the
end of such fiscal year, a statement of income and retained earnings for such
year and for the period commencing at the end of the previous fiscal year and
ending with the end of such year and a cash flow statement for such year and for
the period commencing at the end of the previous calendar year and ending with
the end of such year), and, in the case of each statement of income, setting
forth comparable figures for the related periods in the prior fiscal year, all
of which shall be audited by KPMG or other independent public accountants
acceptable to Lender, together with an unqualified opinion of such accounting
firm;
for each statement of income delivered pursuant to Section 5.2(c)(i), a
------------------
statement setting forth comparable budget figures for the applicable period;
An operating statement for such year for each Property Operator (other than
Emeritus); and
the operating statement for such year for each Facility for which Emeritus is
the Property Operator.
Annual Budgets
- ---------------
.. As soon as available and in any event prior to the beginning of each fiscal
year of Borrower, an operating and capital budget for each Facility for such
fiscal year; including, for each, a budgeted statement of income and retained
earnings and a cash flow statement for such fiscal year and any such budget will
be promptly updated and such update delivered to Lender upon the occurrence of
any material change to the budget or to any of the assumptions made in preparing
the budget.
Census Reports
- ---------------
. As soon as available, and in any event not later than 5 Business Days
after the end of every other week commencing with the week ended November __,
2002, biweekly census reports for each Facility of each Property Operator.
Compliance Certificates
- ------------------------
.
Together with the financial statements delivered pursuant to Section 5.2(a),
--------------
each of the following:
a Separateness Covenant Certificate of an Authorized Officer of Borrower in his
or her capacity as an officer (and not as an individual) and in substantially
the form of Exhibit E (the "Separateness Covenant Certificate"), stating that,
--------- ---------------------------------
to the best of such officer's knowledge, during such period, Borrower and each
Subsidiary of Borrower has observed or performed all of its covenants and other
agreements set forth in Section 5.3(o) and Section 5.4(n); and
--------------- ---------------
a Compliance Certificate of an Authorized Officer of Borrower in his or her
capacity as an officer (and not as an individual) in substantially the form of
Exhibit F1, stating that, to the best of such officer's knowledge, during such
----------
period, each Loan Party has observed or performed the covenant in Section
-------
5.1(d).
Together with the financial statements delivered pursuant to Section 5.2(b), a
--------------
Compliance Certificate of an Authorized Officer of Borrower in his or her
capacity as an officer (and not as an individual) and in substantially the form
of Exhibit F-2, stating that, to the best of such officer's knowledge, during
------------
such period, each Loan Party has observed or performed all of its covenants and
other agreements, and satisfied every condition contained in this Agreement and
all other Transaction Documents to be observed, performed or satisfied by them,
and that such officer has obtained no knowledge of any Default or Event of
Default except as set forth in a notice delivered pursuant to Section 5.2(j).
--------------
Change of Name or Location
- ------------------------------
. Any change in any Loan Party's name, state of organization, locations of
Collateral, or form of organization, trade names under which it does business,
in each case at least 30 days prior thereto.
Management Letter
- ------------------
. As soon as available and in any event within 15 days of receipt thereof,
a copy of each management letter prepared for Emeritus, Borrower, any Property
Operator or any Subsidiary of Borrower by any independent certified public
accountants.
Tax Returns
- ------------
. Promptly after filing with the IRS, a copy of each income tax return
filed by Emeritus, Borrower, any Property Operator or any Subsidiary of
Borrower.
Notice of Default
- -------------------
. As soon as possible and in any event within 10 Business Days after
obtaining knowledge of each Default or Event of Default continuing on the date
of such statement, a statement of an Authorized Officer of Borrower setting
forth details of such Default or Event of Default and the action which Borrower
has taken and proposes to take with respect thereto.
Notice of Litigation
- ----------------------
. As soon as possible and in any event within 10 days of obtaining
knowledge of the commencement of any action or proceeding affecting Emeritus,
Borrower or any of their respective Subsidiaries before any court, governmental
agency or arbitrator, which, if decided adversely could reasonably be expected
to have a Material Adverse Effect or which purports to affect the legality,
validity or enforceability of this Agreement or any other Transaction Document
to which any Loan Party or any Property Operator is a party.
Security Holder Materials and SEC Filings
- ----------------------------------------------
. Promptly after the sending or filing thereof, and in any event within 10
Business Days after such sending or filing, copies of all reports which Emeritus
or Borrower sends to any of its security holders, and copies of all reports and
registration statements which Emeritus, Borrower or any Subsidiary of Emeritus
or Borrower files with the Securities and Exchange Commission or any national
securities exchange.
ERISA Notices.
- --------------
Within 10 Business Days after Borrower or any ERISA Affiliate knows or has
reason to know, that an ERISA Event or a prohibited transaction (as defined in
Sections 406 of ERISA and 4975 of the Code) has occurred, and, when known, any
action taken or threatened by the IRS, the DOL or the PBGC with respect thereto.
Upon request, or, in the event that such filing reflects a significant change
with respect to the matters covered thereby, within 3 Business Days after the
filing thereof with the PBGC, the DOL or the IRS, as applicable, copies of the
following: (A) each annual report (form 5500 series), including Schedule B
thereto, filed with the PBGC, the DOL or the IRS with respect to each Plan, (B)
a copy of each funding waiver request filed with the PBGC, the DOL or the IRS
with respect to any Plan and all communications received by Borrower or any
ERISA Affiliate from the PBGC, the DOL or the IRS with respect to such request,
and (C) a copy of each other filing or notice filed with the PBGC, the DOL or
the IRS, with respect to each Plan by either Borrower or any ERISA Affiliate.
Upon request, copies of each actuarial report for any Plan or Multi-Employer
Plan and annual report for any Multi-Employer Plan; and within 3 Business Days
after receipt thereof by Borrower or any ERISA Affiliate, copies of the
following: (A) any notices of the PBGC's intention to terminate a Plan or to
have a trustee appointed to administer such Plan; (B) any favorable or
unfavorable determination letter from the IRS regarding the qualification of a
Plan under Section 401(a) of the Code; or (C) any notice from a Multi-Employer
Plan regarding the imposition of withdrawal liability.
Within 3 Business Days after the occurrence thereof: (A) any changes in the
benefits of any existing Plan which materially increase the annual costs of
Borrower and its Subsidiaries with respect thereto or the establishment of any
new Plan or the commencement of contributions to any Plan to which Borrower or
any ERISA Affiliate was not previously contributing; or (B) any failure by
Borrower or any ERISA Affiliate to make a required installment or any other
required payment under Section 412 of the Code on or before the due date for
such installment or payment.
Within 3 Business Days after Borrower or any ERISA Affiliate knows or has reason
to know that any of the following events has or will occur: (A) a
Multi-Employer Plan has been or will be terminated; (B) the administrator or
plan sponsor of a Multi-Employer Plan intends to terminate a Multi-Employer
Plan; or (C) the PBGC has instituted or will institute proceedings under Section
4042 of ERISA to terminate a Multi-Employer Plan.
Environmental Notices
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. Promptly after receipt of:
Any notice of any violation by Property Operator, Borrower or any Subsidiary of
Borrower of any Environmental Law which could reasonably be expected to have a
Material Adverse Effect or that any Governmental Authority has asserted in
writing that Property Operator, Borrower or any Subsidiary of Borrower is not in
compliance in any material respect with any Environmental Law or is
investigating the compliance with any Environmental Law by Property Operator,
Borrower or any Subsidiary of Borrower.
Any written notice that Property Operator, Borrower or any Subsidiary of
Borrower is or may be liable to any Person as a result of the Release or
threatened Release of any Hazardous Substance or that Property Operator,
Borrower or any Subsidiary of Borrower is subject to investigation by any
Governmental Authority evaluating whether any remedial action is needed to
respond to the Release or threatened Release of any Hazardous Substance.
Any written notice of the imposition of any Environmental Lien against any
property of Property Operator, Borrower or any Subsidiary of Borrower.
Health Care Permit Violation
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. As soon as possible, and in any event within 5 Business Days (i) after
obtaining knowledge thereof, notice of the occurrence of any event that would
(with the passage of time, notice or both) be a default under or a violation of
any Health Care Permit necessary for the lawful conduct of the business or
operations of any Loan Party or any Property Operator with respect to the
ownership and operation of the Facilities; and (ii) after receipt thereof, any
notice of any violation of applicable laws which would (with the passage of
time, notice or both) cause any of the Health Care Permits referred to in clause
(i) to be modified, rescinded or revoked. Notwithstanding the foregoing to the
contrary, Borrower shall not be required to notify Lender of routine, customary
inspection deficiencies that are being remedied in the ordinary course
consistent with past practices.
Notice of Material Event or Circumstance
- ---------------------------------------------
. As soon as possible and in any event within 10 days of obtaining
knowledge of such event or circumstance, notice of any event or circumstance
that could (with the passage of time, notice or both) have a Material Adverse
Effect.
Other Information
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. As soon as practicable after request therefor, such other information
respecting the condition or operations, financial or otherwise, of Borrower or
any Subsidiary of Borrower as Lender may from time to time reasonably request.
Affirmative Covenants
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. So long as any Obligation (other than an Unmatured Surviving Obligation)
shall remain unpaid, unless Lender shall otherwise consent in writing, Borrower
will, and will cause each of its Subsidiaries and each Property Operator to:
Preservation of Corporate Existence, Etc
- --------------------------------------------
. Preserve and maintain in full force and effect (i) all material rights,
privileges, qualifications, permits, licenses and franchises reasonably
necessary or desirable in reimbursement programs and in the normal conduct of
its business; (ii) its corporate, partnership or limited liability company
existence and good standing under the laws of its state or jurisdiction of
incorporation or organization; and (iii) its good standing under the laws of
each jurisdiction where the character of its properties or the nature of its
activities makes it necessary for it to qualify to do business, except any
jurisdiction where the failure to be in good standing could not have a Material
Adverse Effect.
Maintenance of Property and Assets
- --------------------------------------
. Maintain and preserve all its property which is necessary for use in its
business in good working order and condition, ordinary wear and tear excepted
and to use the standard of care typical in the industry in the operation of the
Facilities in each case except where failure to do so would have a Material
Adverse Effect.
Insurance
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. Maintain insurance required pursuant to the Master Lease; and, upon
request of Lender, (i) furnish Lender a certificate of any insurance broker of
Borrower and/or the Property Operators) setting forth the nature and extent of
all insurance maintained by Borrower, the Property Operators and the
Subsidiaries of Borrower in accordance with this Section 5.3(c) (and which, in
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the case of a certificate of a broker, was placed through such broker); (ii)
furnish Lender a certified copy of each policy of insurance maintained in
accordance with this Section 5.3(c); and (iii) cause Lender to be named as an
--------------
additional insured on all or any of such insurance.
Compliance With Laws
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. Comply in all material respects with all applicable laws, rules,
regulations and orders applicable to Borrower, such Subsidiaries, such Property
Operators or its properties.
Payment of Obligations
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. Pay and discharge as the same shall become due and payable:
all material tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets; and
all material lawful claims which, if unpaid, would, with the passage of time,
notice or both, by law become a Lien upon its property;
except that any such item may be contested in good faith and when so contested
may remain unpaid so long as (A) adequate reserves have been established in an
amount sufficient to pay any such claims, accrued interest thereon and potential
penalties or other costs relating thereto, or other adequate provision for the
payment thereof shall have been made, (B) enforcement of the contested item is
effectively stayed for the entire duration of such contest, and (C) any amount
determined to be due, together with any interest or penalties thereon, is
promptly paid after resolution of such contest.
Use of Proceeds
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. Use the proceeds of the Loan for lawful general corporate purposes
permitted under and in accordance with the terms of this Agreement.
Inspection of Property and Books and Records.
- --------------------------------------------------
Maintain proper books of record and account, in which full, true and correct
entries in conformity with GAAP consistently applied shall be made of all
financial transactions and matters involving the assets and business of
Borrower, the Property Operators and the Subsidiaries of Borrower, and permit
representatives of Lender to visit and inspect any of their respective
properties (with respect to Emeritus, which are related to the Facilities), to
examine their respective corporate, financial and operating records and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants, all at the expense of Borrower and at such reasonable times
during normal business hours and as often as may be reasonably requested, upon
reasonable notice to Borrower; provided that unless a Default or Event of
Default shall have occurred and be continuing, Borrower shall not be required to
pay expenses for more than one visit per fiscal year.
Cause each Property Owner to permit Lender and its authorized representatives,
upon reasonable prior notice, to inspect the Leased Property and any Capital
Additions of such Property Owner during usual business hours and subject to any
reasonable security, health, safety or confidentiality requirements of such
Property Owner or any Legal Requirements (as defined in the Master Lease) or any
insurance required pursuant to the Master Lease. Each Property Operator shall
cooperate with each Property Owner in exhibiting the Leased Property and any
Capital Additions to prospective lenders and, if an Event of Default has
occurred and is continuing, prospective purchasers, lessees and managers.
Further Assurances
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. Promptly upon reasonable request by Lender, execute, acknowledge,
deliver, file, re-file, register and re-register, any and all such further acts,
security agreements, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as Lender may require
from time to time in order (i) to carry out more effectively the purposes of
this Agreement or any other Loan Document; (ii) to subject to the Liens created
by any of the Collateral Documents to any of the properties, rights or interests
covered thereby; (iii) to perfect and maintain the validity, effectiveness and
priority of any of the Collateral Documents or any of the Liens intended to be
created thereby; and (iv) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm to Lender the rights granted or now or hereafter
intended to be granted to the Lender under any Loan Document or under any other
instrument executed in connection therewith.
Disclosure Updates
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. Promptly and in no event later than 5 Business Days after obtaining
knowledge thereof, (i) notify Lender if any written information, exhibits and
reports furnished to Lender contained any untrue statement of a material fact or
omitted to state any material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in which made;
and (ii) correct any defect or error that may be discovered therein or in any
Transaction Document or in the execution, acknowledgement, filing or recordation
thereof.
Environmental Laws.
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Conduct its business in compliance in all material respects with all
Environmental Laws applicable to it, including those relating to the generation,
handling, use, storage, and disposal of any Hazardous Substance; take prompt and
appropriate action to respond to any material non-compliance with Environmental
Laws and shall regularly report to Lender on such response.
Without limiting the generality of the foregoing, submit to Lender annually,
commencing on the first Anniversary Date, and on each Anniversary Date
thereafter, an update of the status of each material environmental compliance or
material liability issue, if any; provided that with respect to Emeritus, only
as such issues relate to the Facilities. Lender may request copies of technical
reports prepared by Borrower or any of its Subsidiaries and its communications
with any Governmental Authority to determine whether Borrower or any of its
Subsidiaries is proceeding reasonably to correct, cure or contest in good faith
any alleged material non-compliance or material environmental liability.
Borrower shall, at Lender's request and at Borrower's expense, (i) retain an
independent environmental engineer acceptable to Lender to evaluate the site,
including tests if appropriate, where the material non-compliance or alleged
material non-compliance with Environmental Laws has occurred and prepare and
deliver to Lender a report setting forth the results of such evaluation, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof, and (ii) provide to Lender a supplemental
report of such engineer whenever the scope of the environmental problems, or the
response thereto or the estimated costs thereof, shall increase in any material
respect.
Lender and its representatives will have the right at any reasonable time to
enter and visit the Real Property related to the Facilities owned or operated by
Borrower, any Property Operator or any Subsidiary of Borrower and any other
place where any property of any Loan Party is located for the purposes of
observing such Real Property and, if Lender reasonably believes Borrower, any
Property Operator or any Subsidiary of Borrower is not in compliance with this
Section 5.3(j), taking and removing soil or groundwater samples, and conducting
--------------
tests on any part of the Real Property related to the Facilities owned or
operated by Borrower, any Property Operator or any Subsidiary of Borrower.
Lender is under no duty, however, to visit or observe such Real Property or to
conduct tests, and any such acts by Lender will be solely for the purposes of
protecting Lender's Liens and preserving Lender's rights under the Transaction
Documents. No site visit, observation or testing by Lender will result in a
waiver of any default or impose any liability on Lender. In no event will any
site visit, observation or testing by Lender be a representation that hazardous
substances are or are not present in, on or under the Real Property, or that
there has been or will be compliance with any Environmental Law. Neither
Borrower, any Property Operator nor any of its Subsidiaries nor any other party
is entitled to rely on any site visit, observation or testing by Lender. Lender
owes no duty of care to protect Borrower, any Property Operator or any of its
Subsidiaries or any other party against, or to inform Borrower, any Property
Operator or any of its Subsidiaries or any other party of, any hazardous
substances or any other adverse condition affecting the Real Property owned or
operated by Borrower, any Property Operator or any Subsidiary of Borrower.
Lender may in its discretion disclose to Borrower or to any other party if so
required by law any report or findings made as a result of, or in connection
with, any site visit, observation or testing by Lender. Borrower understands
and agrees that Lender makes no warranty or representation to any Loan Party or
any other party regarding the truth, accuracy or completeness of any such report
or findings that may be disclosed. Borrower also understands that depending on
the results of any site visit, observation or testing by Lender and disclosed to
Borrower, Borrower, a Property Operator or a Subsidiary of Borrower may have a
legal obligation to notify one or more environmental agencies of the results,
that such reporting requirements are site-specific, and are to be evaluated by
Borrower, the Property Operators or its Subsidiaries of Borrower without advice
or assistance from Lender. In each instance, Lender will give Borrower
reasonable notice before entering the Real Property owned or operated by
Borrower, any Property Operator or any Subsidiary of Borrower or any other place
Lender is permitted to enter under this Section 5.3(j). Lender will make
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reasonable efforts to avoid interfering with the use of the Real Property or any
other property in exercising any rights provided hereunder.
Health Care Permits and Approvals
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. Take all action reasonably necessary (i) to maintain in full force and
effect all Health Care Permits reasonably necessary for the lawful conduct of
its business or operations wherever now conducted and as planned to be conducted
with respect to the ownership and operation of the Facilities, pursuant to all
applicable laws, of all Governmental Authorities having jurisdiction over any
such Loan Party or over any part of its operations; and (ii) to ensure that all
of the Facilities owned, leased, managed or operated by any Property Operator or
any Subsidiary of Borrower are entitled to participate in, and receive payment
under, the appropriate Medicare, Medicaid and related reimbursement programs,
and any similar state or local government-sponsored program, to the extent that
such Property Operator or such Subsidiary, as the case may be, has decided to
participate in any such program, and to receive reimbursement from private and
commercial payers and health maintenance organizations to the extent applicable
thereto, except (in each case) where a failure to do so could not have a
Material Adverse Effect.
Compliance With ERISA.
- -----------------------
maintain each Plan in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state law;
cause each Plan which is qualified under Section 401(a) of the Code to maintain
such qualification;
make all required contributions to any Plan subject to Section 412 of the Code;
not engage in a prohibited transaction or violation of the fiduciary
responsibility rules which prohibited transaction or violation of fiduciary
responsibility rules, together with all other prohibited transactions and
violations of fiduciary responsibility rules; and
not engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
Operating Account.
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On or prior to the Closing Date, Borrower shall establish at a financial
institution acceptable to Lender (the "Depository Bank") an operating account
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(the "Operating Account"). The Operating Account shall be in the name of
------------------
Borrower, but shall be subject to a control agreement permitting Lender, at its
election if an Event of Default has occurred and is continuing, to assume
exclusive control over the Operating Account.
All rents, issues and profits received by any Property Owner (other than rents,
issues and profits required to be deposited with the holder of the First
Mortgage Loan Documents with respect to the Facility of such Property Owner)
shall be deposited into the Operating Account. In addition, all other payments
to which any Property Owner is entitled pursuant to the Master Lease, including,
insurance or condemnation proceeds, proceeds of any put payment required
pursuant to the Master Lease, shall also be deposited into the Operating
Account.
So long as no Event of Default has occurred and is continuing or will occur upon
giving effect to the application described below, funds in the Operating Account
may be applied by Borrower to make additional investments in the Permitted
Subsidiaries or for general corporate purposes of Borrower; provided that
Borrower may make dividend payments, loans or other distributions to Emeritus
only on a Distribution Date and only if such payments or distributions are
permitted pursuant to this Loan Agreement and the other Loan Documents.
Lender and Borrower acknowledge that Borrower, and not Lender, shall be treated
as the owner of the funds in the Operating Account for tax purposes, except to
the extent and at such time that Lender actually withdraws funds from the
Operating Account in accordance with this Section 5.3(m) and the Reserve Account
--------------
Security Agreement.
Reserve Accounts.
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On or prior to the Closing Date Borrower shall establish at the Depository Bank
the following reserve accounts (collectively, the "Reserve Accounts," and
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individually, a "Reserve Account"):
----------------
a repair and replacement reserve account (the "Repair and Replacement Reserve
------------------------------
Account") to be used in accordance with the provisions of Section 5.3(n)(ii);
----- ------------------
a sinking fund reserve account (the "Sinking Fund Reserve Account") to be used
----------------------------
in accordance with the provisions of Section 5.3(n)(iii);
---------------------
a mortgage payment reserve account (the "Mortgage Payment Reserve Account") to
--------------------------------
be used in accordance with the provisions of Section 5.3(n)(iv).
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The Sinking Fund Reserve Account shall be in the name of Borrower, but Borrower
hereby acknowledges and agrees, that Lender, or at Lender's election, a
servicing agent for Lender, shall have exclusive control over the Sinking Fund
Reserve Account, but the Sinking Fund Reserve Account shall be subject to, and
Lender shall have only the rights provided in, the provisions of this Agreement
and the other Loan Documents, including Section 5.3(n)(iii), (iv) and (v) and
------------------- ---- ---
the provisions of the Reserve Account Security Agreement. The Repair and
Replacement Reserve Account and the Mortgage Payment Reserve Account shall be in
the name of Borrower, but shall be subject to a control agreement permitting
Lender, at its election if an Event of Default has occurred, to assume exclusive
control over the Repair and Replacement Reserve Account and the Mortgage Payment
Reserve Account, but the Repair and Replacement Reserve Account and the Mortgage
Payment Reserve Account shall be subject to the provisions of this Agreement and
the other Loan Documents. Until Lender assumes exclusive control, Borrower may
issue instructions with respect to the disbursement and use of funds in the
Repair and Replacement Reserve Account and the Mortgage Payment Reserve Account,
provided that such instructions are in compliance with the provisions of this
Agreement and the other Loan Documents.
On each Distribution Date, Borrower shall make a deposit into the Repair and
Replacement Reserve Account for the Facilities in an amount equal to (A)(I)
$20.83 times (II) the number of units in the Facilities on the last day of the
calendar month commencing two calendar months prior to such Distribution Date
times (III) the number of calendar months in the then current Test Period minus
(B) the sum of (I) the aggregate amount spent on repair, replacement and
renovation of the Facilities (but specifically excluding all Capital Additions
and day-to-day maintenance with respect to the Facilities) (the "Repair and
----------
Replacement Expenditures") made at the Facilities during the applicable Test
---------------------
Period plus (II) the difference, if positive, between (x) the sum of (A) the
amount of all deposits made during the applicable Test Period into a reserve
account to be used for Repair and Replacement Expenditures pursuant to the
provisions of the First Mortgage Loan Documents for the Facilities and (B) the
amount of deposits made during the applicable Test Period into the Repair and
Replacement Reserve Account and (y) the Repair and Replacement Expenditures made
during the applicable Test Period. So long as no Default or Event of Default
has occurred and is continuing, Borrower may withdraw funds from the Repair and
Replacement Reserve to pay Repair and Replacement Expenditures, provided that,
if Lender so requests, Borrower shall deliver to Lender the following to the
extent reasonably applicable: (w) copies of paid invoices, receipts or other
evidence satisfactory to Lender, verifying the cost and payment of the Repair
and Replacement Expenditures; (x) copies of affidavits, lien waivers or other
evidence reasonably satisfactory to Lender showing that all materialmen,
laborers, subcontractors and any other parties who might or could claim
statutory or common law liens and are furnishing or have furnished material or
labor to the applicable Facility have been paid all amounts due for labor and
materials furnished to such Facility; (y) a certification from an inspecting
architect, engineer or other consultant acceptable to Lender (the "Work
----
Inspector") describing the completed Repair and Replacement Expenditures and
-
verifying the completion of the Repair and Replacement Expenditures; and (z) a
copy of a new (or amended) certificate of occupancy for the portion of the
Facility covered by such Repair and Replacement Expenditures, if said new (or
amended) certificate of occupancy is required by law, or a certification
acceptable to Lender by the Work Inspector that no new (or amended) certificate
of occupancy is required. Lender may, at Borrower's expense, make or cause to
be made an annual inspection at each Facility to determine the need, as
determined by Lender in its judgment, for further Repair and Replacement
Expenditures at such Facility (or at such other times as Lender shall elect if a
Default or Event of Default has occurred and is continuing, in an emergency or
in connection with inspecting the Repair and Replacement Expenditures). In the
event that such inspection reveals that further Repair and Replacement
Expenditures on any Facility are required in order to maintain the Facilities in
compliance with the Master Lease, Lender shall provide Borrower with a written
description of the required Repair and Replacement Expenditures and Borrower
shall complete, or cause the applicable Property Owner or Property Operator to
complete, such Repair and Replacement Expenditures to the satisfaction of Lender
within 90 days after the receipt of such description from Lender, or such later
date as may be approved by Lender.
On each Distribution Date that is in the last month of any fiscal quarter, if
(A) the difference (the "Net Mortgage Loan Balance") between (I) the outstanding
-------------------------
principal amount of the First Mortgage Loans as of the last day of the calendar
month ending immediately prior to such Distribution Date minus (II) the sum of
(w) the amount of all deposits in reserve accounts to be used for, or used
solely to support, debt service pursuant to the provisions of the First Mortgage
Loan Documents for the Facilities; (x) the amount on deposit in the Sinking Fund
Reserve Account as of the last day of such calendar month; (y) the scheduled
principal payments for the First Mortgage Loans for the period from the last day
of such calendar month through the end of the fiscal quarter containing such
Distribution Date; and (z) the stated amount of any Permitted Letter of Credit
outstanding with respect to the Sinking Fund Reserve Account, is greater than
(B) the balance (the "Required Mortgage Loan Balance") required as of the last
------------------------------
day of the calendar quarter containing such Distribution Date pursuant to
Section 5.1(a), then Borrower shall make a deposit into the Sinking Fund Reserve
--------
Account in an amount sufficient to cause the Net Mortgage Loan Balance
calculated as of such Distribution Date to be less than or equal to the Required
Mortgage Loan Balance in each case, as of the last day of such fiscal quarter.
So long as no Default or Event of Default has occurred and is continuing, on any
Distribution Date that is in the last month of any fiscal quarter on which the
sum of (w) the amount of all deposits in reserve accounts to be used for, or
used to solely support, debt service pursuant to the provisions of the First
Mortgage Loan Documents for the Facilities; (x) the amount on deposit in the
Sinking Fund Reserve Account and (z) the stated amount of any Permitted Letter
of Credit outstanding with respect to the Sinking Fund Reserve Account, is in
excess of (such excess, the "Mortgage Loan Balance Excess") the difference
-----------------------------
between (i) the Required Mortgage Loan Balance as of the last day of such fiscal
quarter minus (ii) the Net Mortgage Loan Balance calculated as of such
Distribution Date, then Lender shall, on the written request from Borrower,
release funds from the Sinking Fund Reserve Account or reduce the stated amount
of the Permitted Letter of Credit issued with respect to the Sinking Fund
Reserve Account in an amount equal to the Mortgage Loan Balance Excess for such
Distribution Date.
On each Distribution Date, Borrower shall deposit into the Mortgage Payment
Reserve Account an amount equal to the difference, if positive between (i) the
sum of the required principal and interest payments for each First Mortgage Loan
that has a required payment prior to the next subsequent Master Lease Payment
Date minus (ii) the sum, for all First Mortgage Loans that have required
payments prior to the next subsequent Master Lease Payment Date, of (x) the
amount held by the holders of such First Mortgage Loans for the payment of
principal and interest with respect to such First Mortgage Loan and (y) the
amount held by the Property Owners for the payment of principal and interest
with respect to such First Mortgage Loans. Amounts in the Mortgage Payment
Reserve Account may only be used to make required payments on the First Mortgage
Loans on the date such payments are due.
None of the Reserve Accounts shall, unless otherwise explicitly required by
applicable law, be or be deemed to be escrow or trust funds, but, at Lender's
option and in Lender's discretion, may either be held in a separate account or
be commingled with the other Reserve Accounts. The Reserve Accounts are solely
for the protection of Lender and entail no responsibility on Lender's part
beyond the payment of the respective items for which they are held following
receipt of bills, invoices or statements therefor in accordance with the terms
hereof and beyond the allowing of due credit for the sums actually received. If
an Event of Default has occurred and is continuing, Lender may, but shall not be
obligated, to apply at any time the balance then remaining in any or all of the
Reserve Accounts against the Obligations in whatever order Lender shall
subjectively determine. No such application of any or all of the Reserve
Accounts shall be deemed to cure any Event of Default. Upon full payment of the
Obligations in accordance with the terms of the Loan Documents or at such
earlier time as Lender may elect, the balance of any or all of the Reserve
Accounts then in Lender's control shall be paid over to Borrower and no other
party shall have any right or claim thereto. Lender and Borrower acknowledge
that Borrower, and not Lender, shall be treated as the owner of the funds in the
Reserve Accounts for tax purposes, except to the extent and at such time that
Lender actually withdraws funds from a Reserve Account in accordance with this
Section 5.3(n) and the Reserve Account Security Agreement.
--------------
On any Distribution Date so long as no Event of Default has occurred, Borrower
may substitute a Permitted Letter of Credit for any cash required to be
maintained in a Reserve Account, so long as after giving effect to such
substitution the stated amount of such Permitted Letter of Credit plus amounts
on deposit in the Reserve Account with respect to which such Permitted Letter of
Credit was issued equals or exceed the amount required to be on deposit in such
Reserve Account. In addition, if, on any Distribution Date, the amounts on
deposit in any Reserve Account plus the stated amount of the Permitted Letter of
Credit issued with respect to such Reserve Account exceeds the amount required
to be on deposit in such Reserve Account, upon the written request of Borrower,
cash in such Reserve Account in an amount equal to such excess shall be released
to Borrower. If no agreement for a renewal or replacement of any Permitted
Letter of Credit has been made 15 days prior to the expiration of such Permitted
Letter of Credit, Lender may draw upon such Permitted Letter of Credit and
deposit such drawing in the Reserve Account with respect to which such Permitted
Letter of Credit was issued.
Separateness Covenants.
- -----------------------
maintain an arm's length relationship with its Affiliates and its shareholders
or other equity holders and any other parties furnishing services to it;
be solvent and pay its own liabilities, indebtedness and obligations of any
kind, including administrative expenses, from its own assets as the same shall
become due;
do all things necessary to preserve its existence, and observe all formalities
applicable to it, and do all things necessary to maintain its identity as an
entity separate and distinct from the Permitted Subsidiaries and all of its
other Affiliates;
conduct and operate its business in its own name and as presently conducted and
operated;
maintain financial statements, books and records and bank accounts separate from
those of its Affiliates, including, without limitation, its shareholders or
other equity holders or any other Person; provided, however, that Borrower or
any Subsidiary may be included in consolidated financial statements of another
Person, provided that such consolidated financial statements contain a note
indicating that management intends that Borrower or such Subsidiary, as the case
may be, is a separate legal entity and the assets and liabilities of Borrower or
such Subsidiary, as the case may be, neither are available to pay the debts of
the consolidated Person nor constitute obligations of the consolidated Person
and that the consolidated Person is not liable for any of the liabilities of
Borrower or such Subsidiary, as the case may be;
be, and at all times hold itself out to the public as, a legal entity separate
and distinct from any other Person (including, without limitation, any
Affiliate, shareholder or other equity holder of Borrower or such Subsidiary, or
any Affiliate of any shareholder or other equity holder of Borrower or such
Subsidiary);
file its own tax returns (except to the extent it is treated as a division of
another taxpayer for tax purposes) and pay any taxes so required to be paid
under applicable law; provided, however, that so long as (x) the tax liability
of Borrower or any Subsidiary and its respective income and expenses are readily
determinable based on a review of the books and records of Borrower or such
Subsidiary, as the case may be, and (y) Borrower or such Subsidiary, as the case
may be, maintains sufficient books and records to determine its separate tax
obligations for any particular reporting periods, Borrower or any Subsidiary, as
the case may be, may file consolidated tax returns;
maintain adequate capital for the normal obligations reasonably foreseeable in a
business of its size and character and in light of its contemplated business
operations;
maintain its assets in such a manner that it is not costly or difficult to
segregate, ascertain or identify its individual assets from those of any
Affiliate or any other Person;
pay any liabilities out of its own funds, including salaries of its employees,
not out of the funds of any Affiliate;
use stationery, invoices, and checks separate from its Affiliates, including the
Permitted Subsidiaries;
deposit all of its funds in checking accounts, savings accounts, time deposits
or certificates of deposit of Borrower or any Subsidiary in its own name or
invest such funds in its own name;
correct any known misunderstanding regarding the separate identity of Borrower
or any Subsidiary;
participate in the fair and reasonable allocation of any and all overhead
expenses and other common expenses for facilities, goods or services provided to
multiple entities;
establish and maintain an office through which its business is conducted
separate and apart from that of the Permitted Subsidiaries or any other
Affiliate; provided, however, that nothing herein shall be construed so as to
prevent Borrower or any Subsidiary from having office space at the same address
as any of the Permitted Subsidiaries or any other Affiliate, so long as the
costs and expenses associated with such office space are allocated as set forth
in paragraph (xiv) above; and
maintain a separate telephone number from that of the Permitted Subsidiaries or
any other Affiliate (except that (x) any Subsidiary that is a partnership may
maintain the same telephone number as its General Partner and (y) any Subsidiary
that is a General Partner may maintain the same telephone number as the
partnership for which it is the general partner).
Notwithstanding anything herein to the contrary in this Section 5.3(o), (x) the
--------------
provisions of this Section 5.3(o) shall not apply to any Property Operator and
--------------
(y) Borrower or any Subsidiary may, from time to time, (i) make lawful
distributions in accordance with applicable law or loans on an arm's length
basis to its Affiliates subject to the provisions of Section 5.3(o)(viii) above
--------------------
and Section 5.4(f), or (ii) obtain loans on an arm's length basis or lawful
---------------
capital contributions in accordance with applicable law from its Affiliates to
the extent necessary to satisfy its obligations as they become due; provided,
however, that all such transactions are accurately reflected in the books and
records of Borrower or such Subsidiary, as the case may be, and each of its
respective applicable Affiliates.
Impound Accounts
- -----------------
. To the extent that any Property Operator is required to maintain an
impound account pursuant to Section 4.4 of the Master Lease, Borrower shall
cause the Property Owner with respect to the Facility leased by such Property
Operator to direct that such impound account to be maintained with and subject
to the control of Lender, and shall cause the applicable Property Owner to
execute such documents as shall be requested by Lender with respect thereto.
Subordination of Management Agreements
- -----------------------------------------
. To the extent that any management fees are paid to Emeritus or any
Affiliate of Emeritus with respect to any Facility, Borrower shall cause, or
shall cause the applicable Subsidiary of Borrower to cause, Emeritus or such
Affiliate of Emeritus to deliver an agreement, in form and substance
satisfactory to Lender, that the payment of such management fees is subordinate
to Borrower's obligations under Section 5.3(n) to make deposits into the Reserve
--------------
Accounts.
Board Attendance
- -----------------
. Borrower shall at all times give Lender notice of (in the same manner as
notice is given to directors), and permit one Person designated by Lender to
attend as an observer all meetings of Borrower's Board of Directors and all
executive and other committee meetings of the Board of Directors and shall
provide to Lender the same information concerning Borrower, and access thereto,
provided to members of Borrower's Board of Directors and such committees. The
reasonable travel expenses incurred by any such designee of Lender in attending
any board or committee meetings shall be reimbursed by Borrower.
Reimbursement Obligation
- -------------------------
. From and after the Closing Date, no obligation of Borrower or any
Subsidiary of Borrower shall be supported by a letter of credit unless, Borrower
or such Subsidiary shall either (i) have the direct reimbursement obligation
with respect to such letter of credit or (ii) have an intercompany reimbursement
agreement with the Person that has the direct reimbursement obligation with
respect to such letter of credit, which shall in each event be in form and
substance satisfactory to Lender.
Consent to Acquisition of First Mortgage
- ---------------------------------------------
. Notwithstanding anything to the contrary in any First Mortgage Loan
Document, Borrower hereby consents, and shall cause any Property Owner with
respect to which Lender acquires the First Mortgage Loan to consent, to Lender
becoming the lender under any First Mortgage Loan.
Florida Licenses
- -----------------
. On or prior to December 30, 2002, cause ESC-New Port Richey, LLC, a
Washington limited liability company, to obtain all Health Care Permits
necessary to operate the Facility described as the "La Casa Grande Facility" on
Schedule I.
- -----------
[INTENTIONALLY OMITTED]
..
Borrower's Interests
- ---------------------
. Borrower shall own one hundred percent (100%) of the membership or
equity interests in each Property Owner and ESC-Land.
Negative Covenants
- -------------------
. So long as any Obligation (other than an Unmatured Surviving Obligation)
shall remain unpaid, unless Lender shall otherwise consent in writing, Borrower
will not, and will not cause or permit any Subsidiary of Borrower to:
Liens
- -----
. Directly or indirectly (x) make, create, incur, assume or suffer to
exist any Lien upon or with respect to any part of its property or assets,
whether now owned or hereafter acquired, or offer or agree to do so; or (y)
enter into any contract or agreement (other than the First Mortgage Loan
Documents) that in any way restricts the ability of Borrower or such Subsidiary
to make, create, incur, assume or suffer to exist any Lien upon or with respect
to any part of its property or assets, whether now owned or hereafter acquired,
other than the following:
any Lien created under any Loan Document;
any Lien for taxes, fees, assessments or other governmental charges which are
not delinquent and remain payable without penalty;
any carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Lien arising in the ordinary course of business,
the underlying claim with respect to which is not delinquent or remains payable
without penalty or being contested pursuant to Section 5.3(e);
any Lien (other than a Lien imposed by Environmental Laws or by ERISA) on the
property of Borrower or any of its Subsidiaries imposed by law, or pledges or
deposits required by law pursuant to worker's compensation, unemployment
insurance and other social security legislation;
any easement, defect, right-of-way, restriction and other similar encumbrances
incurred in the ordinary course of business that do not interfere in any
material respect with the business of the Loan Party whose asset is subject to
such Lien;
any Lien (other than Liens on the Collateral) existing on the property of
Borrower or its Subsidiaries on the Closing Date and set forth in Schedule
--------
4.1(g) securing Indebtedness permitted under Section 5.4(b)(ii);
- -------------------
any Lien on assets of Borrower (other than Collateral and Borrower's ownership
interest in the Permitted Subsidiaries) securing Indebtedness permitted under
Section 5.4(b)(iv); and
-----------------
any Lien on assets of any Property Operator securing such Property Operator's
obligations under the Master Lease.
Limitation on Indebtedness
- ----------------------------
. Directly or indirectly create, incur, assume, guarantee, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except:
Indebtedness incurred pursuant to the Loan Documents;
Indebtedness existing on the Closing Date and set forth in Part A of Schedule
--------
4.1(f) and extensions, renewals and replacements thereof made in compliance with
----
the terms of this Agreement;
Contingent Obligations permitted pursuant to Section 5.4(c);
---------------
Indebtedness of Borrower which is a reimbursement obligation with respect to any
Permitted Letter of Credit;
Indebtedness of Borrower or the applicable Subsidiary set forth on Part B or
Part C of Schedule 4.1(f); and
----------------
additional Indebtedness of Borrower in an aggregate outstanding principal amount
outstanding at any one time not in excess of $50,000.
Notwithstanding anything to the contrary contained in this Section 5.4(b), prior
--------------
to seeking any Indebtedness not outstanding on the Closing Date (other than
Indebtedness permitted pursuant to Section 5.4(b)(iv)), Borrower will or will
-------------------
cause the applicable Subsidiary to first offer to Lender an opportunity to
provide such Indebtedness pursuant to the provisions of Section 2.6.
------------
Limitation on Contingent Obligations
- ---------------------------------------
. Directly or indirectly create, incur, assume, guarantee, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Contingent Obligations, except:
Contingent Obligations incurred pursuant to the Loan Documents;
Contingent Obligations existing on the Closing Date and set forth in Schedule
--------
5.4(c)(ii) and extensions, renewals and replacements thereof made in compliance
--------
with the terms of this Agreement; and
endorsements of checks for collection or deposit in the ordinary course of
business.
Restricted Payments
- --------------------
. Directly or indirectly (x) declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of any class of capital stock or any
warrants, rights or options to acquire any such shares, now or hereafter
outstanding; or (y) enter into any agreement (other than the First Mortgage Loan
Documents) restricting the ability of Borrower or any Subsidiary of Borrower to
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities to its stockholders or to
make any loan or advance to Borrower or another Subsidiary of Borrower, except
that:
Borrower may declare and make any dividend payments or other distributions
payable solely by Borrower in common stock of Borrower or in warrants, rights or
options to acquire such common stock;
any Subsidiary of Borrower may declare and make any dividend payment or other
distribution payable solely to Borrower or any other wholly-owned direct or
indirect Subsidiary of Borrower;
on any Distribution Date, Borrower may declare or make any dividend payment or
other distribution of cash to Emeritus; provided that (x) all payments of any
kind and all deposits into any Reserve Account required under the Loan Documents
on or prior to such Distribution Date shall have been made and (y) no Default or
Event of Default has occurred and is continuing; and
(iv) IF THE CONDITION IN SECTION 5.3(U) IS SATISFIED, THENafter the
Interim Florida Period, Borrower may dividend or otherwise distribute its
ownership interest in the New Florida Property Owners to Emeritus.
Consolidation, Merger, Sale of Assets
- -----------------------------------------
.. Wind up, liquidate or dissolve its affairs, or enter into any transaction of
merger or consolidation or to directly or indirectly sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) all or any portion of its assets, business or property (including
accounts and notes receivable (with or without recourse) and equipment
sale-leaseback transactions) or enter into any agreement to do any of the
foregoing except Property Owners may enter into the First Mortgage Loan
Documents and, IF THE CONDITION IN SECTION 5.3(U) IS SATISFIED, THEN Borrower
may liquidate or dissolve the New Florida Property Owners in accordance with the
provisions of its governing documents.
Loans and Investments
- -----------------------
. Directly or indirectly purchase, acquire, carry or maintain (or make any
commitment to purchase, acquire, carry or maintain) any capital stock, equity
interest, Indebtedness, obligations or other securities of or any interest in,
any Person or any business or assets or make any advance, loan, extension of
credit or capital contribution to or any other investment in any Person
including any Affiliates of Borrower, except for:
investments in cash or Cash Equivalents provided that Property Owners may only
--------
invest in Cash Equivalents described in clause (i) of the definition thereof;
investments on the Closing Date by Borrower in the Permitted Subsidiaries;
other investments by Borrower or any other Subsidiary of Borrower in an
aggregate amount not to exceed at any time $20,000; and
Borrower may make loans to Affiliates of Emeritus; provided that (i) any such
loan is in the ordinary course of business and on terms no less favorable to
Borrower than Borrower would obtain in a comparable arm's-length transaction
with a Person not an Affiliate; and (ii) any such loan must comply with
applicable law and with the provisions of Section 5.3(o) and Section 5.4(n).
-------------- --------------
Conduct of Business
- ---------------------
. Engage in any business other than the following:
for Borrower, the business of (x) acquiring and holding shares of stock,
partnership interests or membership interests (as applicable) in the Permitted
Subsidiaries; (y) guaranteeing the obligations of the Property Owners identified
on Schedule I for the benefit of the First Mortgage Lenders identified on such
-----------
schedule; and (z) any other business incidental thereto;
for each of the Property Owners, the business of owning the Fee Estate with
respect to the Facility set forth opposite such Property Owner's name on
Schedule I; and with respect to the Florida Licensees for the Interim Florida
----
Period, the business of operating the Florida Facilities; and
for ESC-Land, the business of owning the Additional Properties.
Transactions With Affiliates
- ------------------------------
. Enter or agree to enter into any transaction with any Affiliate of
Emeritus except in the ordinary course of business and upon terms no less
favorable to Borrower or such Subsidiary than Borrower or such Subsidiary would
obtain in a comparable arm's-length transaction with a Person not an Affiliate.
Amendments to Corporate Documents
- ------------------------------------
. Amend, modify or otherwise change the certificate or articles of
incorporation, bylaws or other organizational document of Borrower or any
Permitted Subsidiary.
Health Care Permits and Approvals
- -------------------------------------
. Engage, or permit any Property Operator to engage, in any activity that
(i) constitutes or, with the passage of time, notice or both, would result in a
material default under or violation of, any such Health Care Permit necessary
for the lawful conduct of its business or operations; or (ii) constitutes or,
with the passage of time, notice or both, would result in the loss by any
Facility owned, leased, managed or operated by any Property Operator of the
right to participate in, and receive payment under, the appropriate Medicare,
Medicaid and related reimbursement programs, and any similar state or local
government-sponsored program, to the extent that such Property Operator has
decided to participate in any such program, and to receive reimbursement from
private and commercial payers and health maintenance organizations to the extent
applicable thereto.
Accounting Changes
- -------------------
. Permit any change in the fiscal year of Borrower or any Subsidiary or in
any of the accounting procedures maintained by Borrower or such Subsidiary as of
the Closing Date (other than changes required as a result of a change in GAAP).
Amendment to and Refinancing of First Mortgages.
- -----------------------------------------------------
Without the prior written consent of Lender (which consent may be withheld or
granted in Lender's sole and absolute discretion), neither Borrower nor any of
its Subsidiaries will (x) agree to any amendment to, or waive any of its rights
under, any First Mortgage Loan Document or (y) submit a written request to any
Initial Facility Mortgagee for any additional disbursements under the First
Mortgage Documents.
Without limiting Lender's approval rights as set forth in clause (i), in order
to accommodate Borrower's desire for a prompt approval of any transactions
contemplated to refinance a First Mortgage Loan (each a "Proposed Refinancing
--------------------
Transaction"), Lender hereby agrees that it will (x) respond to Borrower's
---------
written request for approval of a Proposed Refinancing Transaction within 10
---
Business Days after receipt by Lender of such written request and of each of the
-
following: (A) a summary of, or a term sheet reflecting, the material terms of
the Proposed Refinancing Transaction; and (B) all other information requested by
Lender with respect to such Proposed Refinancing Transaction or the lender or
lenders with respect to such Proposed Refinancing Transaction and (y) respond to
Borrower's written request for approval of the agreement or documents or
documents proposed to be entered into by Borrower or any Affiliate of Borrower
into in connection with such Proposed Refinancing Transaction within 10 Business
Days after receipt by Lender of such written request and of each of the
following: (A) copies of all the agreements or documents (including, for each
First Mortgage Loan, an Intercreditor Agreement acceptable to Lender) proposed
to be entered into by Borrower or any Affiliate of Borrower into in connection
with such Proposed Refinancing Transaction and (B) all other information
requested by Lender with respect to such Proposed Refinancing Transaction or the
lender or lenders with respect to such Proposed Refinancing Transaction.
Borrower specifically acknowledges that (A) Borrower may not request approval
from Lender of any Proposed Refinancing Transaction that would, on a pro forma
basis, cause Borrower to fail to comply with any of the covenants contained in
Section 5.1 of this Agreement and (B) Lender's response to a request for
-----------
approval of a Proposed Refinancing Transaction may include conditions that are
------
required to be met in order for Lender to approve such Proposed Refinancing
Transaction. If any request for approval provided pursuant to this Section
-------
5.4(l)(ii) contains a clear statement indicating that the request will be deemed
------
approved if no response is received from Lender within 10 Business Days, then if
Lender fails to respond to Borrower's written request with such 10 Business
Days, Lender shall be deemed to have approved a Proposed Refinancing Transaction
or the agreements or documents proposed to be entered into by Borrower or any
Affiliate of Borrower into in connection with such Proposed Refinancing
Transaction, as the case may be.
Sale and Leaseback Transactions
- ----------------------------------
. Directly or indirectly become, or permit any of its Subsidiaries to
directly or indirectly become or remain liable as lessee or as a guarantor or
other surety with respect to any lease of any property (whether real, personal
or mixed), whether now owned or hereafter acquired, (i) which Borrower or any of
its Subsidiaries has sold or transferred or is to sell or transfer to any other
Person (including Borrower or any of its Affiliates) or (ii) which Borrower or
any of its Subsidiaries intends to use for substantially the same purpose as any
other property which has been or is to be sold or transferred by such Loan Party
to any Person (including Borrower or any of its Affiliates) in connection with
such lease.
Separateness Covenants.
- -----------------------
amend, modify or otherwise change its charter, bylaws or other organizational
documents in any material term or manner, or in a manner which adversely affects
the existence of Borrower or any such Subsidiary, as the case may be, as a
single purpose entity without the prior written consent of Lender;
permit any shareholder or other equity holder of Borrower or any such Subsidiary
to amend, modify or otherwise change the charter, bylaws or other organizational
documents of Borrower or any such Subsidiary, as the case may be, in any
material term or manner, or in a manner which adversely affects the existence of
Borrower or any such Subsidiary, as the case may be, as a single purpose entity
without the prior written consent of Lender;
to the full extent permitted by law, liquidate or dissolve (or suffer any
liquidation or dissolution), or enter into any transaction of merger or
consolidation, or acquire by purchase or otherwise all or substantially all the
business or assets of, or any stock or other beneficial ownership of, any entity
(other than the Permitted Subsidiaries) without the prior written consent of
Lender;
guarantee, pledge its assets for the benefit of, hold its credit as being
available to satisfy, or otherwise become liable, on or in connection with, any
obligation of any other person (other than as permitted pursuant to Section
-------
5.4(c)(i) or (ii)) without the prior written consent of Lender;
----- ----
without the prior written consent of Lender, own any asset other than (x)
incidental personal property necessary for compliance with the provisions of
Section 5.3(o) and this Section 5.4(n) and (y) (A) for the Borrower, (I) the
------------ --------------
shares of stock, partnership interests and membership interests in the Permitted
Subsidiaries; and (II) incidental personal property necessary for the ownership
of the shares of stock, partnership interests and membership interests in the
Permitted Subsidiaries; (B) for any Property Owners, the Fee Estate with respect
to the Facility set forth opposite such Property Owner's name on Schedule I and
----------
other property designated as being owned by such Property Owner pursuant to the
Master Lease, and (C) for ESC-Land, the Additional Properties;
engage, either directly or indirectly, in any business other than the business
permitted pursuant to Section 5.4(g) for Borrower or such Subsidiary, as the
---------------
case may be, without the prior written consent of Lender;
incur any debt, secured or unsecured, direct or contingent (including
guaranteeing any obligation) without the prior written consent of Lender (other
than accounts payable incurred in the ordinary course of business and the
Indebtedness permitted pursuant to Section 5.4(b));
---------------
make any loans or advances to any other person or entity, including the
Permitted Subsidiaries, other than loans or advances permitted pursuant to
Section 5.4(f);
----------
commingle the funds and other assets of Borrower or such Subsidiary, as the case
may be, with those of the Permitted Subsidiaries, any shareholder or other
equity holder, Affiliate or any other Person;
hold itself out to be responsible for the debts or obligations of any other
Person;
do any act which would make it impossible for Borrower or such Subsidiary, as
the case may be, to carry on the ordinary business of Borrower or such
Subsidiary, as the case may be; and
hold title to the assets of Borrower or such Subsidiary, as the case may be,
other than in the name of Borrower or such Subsidiary, as the case may be.
Notwithstanding anything herein to the contrary in this Section 5.4(n), (x)
--------------
Borrower or any Subsidiary may, from time to time, (i) make lawful distributions
in accordance with applicable law or loans on an arm's length basis to its
Affiliates subject to the provisions of Section 5.3(o)(viii), or (ii) obtain
--------------------
loans on an arm's length basis or lawful capital contributions in accordance
with applicable law from its Affiliates to the extent necessary to satisfy its
obligations as they become due; provided, however, that all such transactions
are accurately reflected in the books and records of Borrower or such
Subsidiary, as the case may be, and each of its respective applicable
Affiliates.
Tax Status
- -----------
. No election shall be made with respect to any Property Owner to have
such Property Owner or ESC-Land treated as an association taxable as a
corporation for tax purposes.
REIT Protections.
- -----------------
(a) Notwithstanding anything else to the contrary in this Agreement,
unless Lender shall otherwise consent in writing (which consent may be withheld
in Lender's sole and absolute discretion), Borrower shall not permit any of the
Property Owners or ESC-Land to:
own or acquire any stock, loan or other debt or equity securities of or make any
advance to another issuer (including an Affiliate of Borrower or any
Subsidiary);
enter into any lease which is not approved by Lender or provide any services to
any lessee;
enter into any lease which provides for the rental of personal property, except
a lease which provide for the rental of both personal property and real property
and in which the personal property accounts for less than 10% of the total rent
(as determined pursuant to Section 856(d)(1) of the Code);
derive income in any calendar year other than from rent or interest on any bank
time deposits, in either case which is not based on net income or profits of the
lessee or bank, as the case may be, which would cause the aggregate amount of
such income earned by all Property Owners to exceed $100,000 during such
calendar year; provided that during the Interim Florida Period, the Florida
Licensee may derive income from the operation of the La Casa Grande Facility;
own any assets other than the Facilities, cash, bank time deposits and
receivables such as rent, which arise in the ordinary course of its rental
business; provided that during the Interim Florida Period, the Florida Licensee
may own property related to the operation of the La Casa Grande Facility; or
sell, dispose, convey or otherwise transfer any of its properties (or interests
therein) in a manner that fails to satisfy the requirements of the prohibited
transaction safe-harbor set forth in Section 857(b)(6)(C) of the Code with
respect to Lender and as if Lender became the owner of such properties at the
time the Loan was made.
(b) Borrower shall, promptly upon Lender's request, make available to
Lender all data and information in the possession of Borrower or any Subsidiary
relating to Borrower, any Subsidiary or any of their respective assets, which is
determined by Lender to be necessary or helpful to monitor its compliance with
the REIT income and asset tests and other legal requirements relating to the
status of Lender as a REIT.
(c) Notwithstanding anything to the contrary herein, while Borrower shall
not be required independently to determine whether any transaction or
arrangement would adversely affect Lender's ability to qualify as a REIT or
would result in a Property Owner or ESC-Land holding any assets other than "real
estate assets" as defined in Section 856(c)(5)(B) of the Code ("Non-REIT
--------
Assets") or generating income which would not qualify under Sections 856(c)(3)
of the Code ("Non-REIT Income"), if Borrower or any Subsidiary has actual
----------------
knowledge, or is otherwise informed by Lender in the exercise of Lender's
reasonable judgment, that a transaction or arrangement could have an adverse
effect on Lender's ability to qualify as a REIT or could result in a Property
Owner or ESC-Land holding Non-REIT Assets or generating Non-REIT Income, the
Borrower or any Subsidiary, as applicable, shall take such actions (or refrain
from taking such actions) as are required to protect Lender's REIT status or to
avoid a Property Owner's or ESC-Land's receipt of such Non-REIT Income and/or
its ownership of such Non-REIT Assets (as the case may be).
EVENTS OF DEFAULT
Events of Default
- -------------------
. If any of the following events (each such occurrence an "Event of
--------
Default," and collectively, the "Events of Default") shall occur:
- -------------------
Non-Payment of Principal, Interest or Other Amounts
- ---------------------------------------------------------
. Borrower or any other Loan Party shall fail to pay (i) when due any
principal of the Loan, (ii) within 5 days of the date when due, any interest
thereon or (iii) within 5 days of the date when due, any other amount payable
under this Agreement or any other Loan Document;
First Mortgage Loan Documents
- --------------------------------
. Any breach, default or event of default shall occur and any applicable
grace period shall have passed, or any event shall occur or condition exist,
under any First Mortgage Loan Document if the effect thereof is to accelerate,
or permit the holder or holders of the First Mortgage Loan with respect to such
First Mortgage Loan Document to accelerate such First Mortgage Loan;
[Intentionally Omitted]
.
Representations and Warranties
- --------------------------------
. Any representation or warranty made by any Loan Party under or in
connection with any Loan Document shall prove to have been incorrect in any
material respect when made;
Financial and Negative Covenants
- -----------------------------------
. Borrower shall fail to perform or observe any term, covenant or
agreement contained in Sections 5.1 (Financial Covenants), 5.2(j) (Notice of
------------- ------
Default), 5.3(m) (Operating Account), 5.3(n) (Reserve Accounts), 5.3(o)
------ ------ ------
(Separateness Covenants), or 5.4 (Negative Covenants) of this Agreement;
---
Reporting and Affirmative Covenants
- --------------------------------------
. Borrower shall fail to perform or observe any term, covenant or
agreement contained in Sections 5.2 (Reporting Covenants) (other than Section
------------ -------
5.2(j)), 5.3(c) (Insurance), 5.3(e) (Payment of Obligations), 5.3(h) (Further
---- ------ ------ ------
Assurances), 5.3(i) (Disclosure Updates), 5.3(j) (Environmental Laws), 5.3(k)
------ ------ ------
(Health Care Permits and Approvals), or 5.3(l) (Compliance with ERISA) if such
------
failure shall remain unremedied for 5 days after such failure;
Other Covenants
- ----------------
. Borrower or any Loan Party shall fail to perform or observe any term,
covenant or agreement contained in this Agreement or any other Transaction
Document (other than a default under subsection (a), (b), (c), (d), (e) or (f)
of this Section 6.1) if such failure shall remain unremedied for 30 days after
-----------
the earlier of (i) the date Borrower or such Loan Party obtains knowledge of
such failure or (ii) the date Borrower receives notice from Lender of such
failure; provided, however that if such failure cannot with due diligence be
cured within a period of 30 days, such failure shall not be deemed to be an
Event of Default if Lessee proceeds promptly and with due diligence to cure the
failure and diligently completes the curing thereof; provided, however, that in
no event shall such failure remain unremedied for more than 60 days after the
earlier of (i) the date Borrower or such Loan Party obtains knowledge of such
failure or (ii) the date Borrower receives notice from Lender of such failure.
Bankruptcy
- ----------
. Borrower or any other Loan Party shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by or against any Loan Party seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either (i) such
proceeding shall remain undismissed or unstayed for a period of 60 days; or (ii)
any of the actions sought in such proceeding (including the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for, it or for any substantial part of its property)
shall occur; or any Loan Party shall take any corporate action to authorize any
of the actions set forth above in this Section 6.1(h);
---------------
Judgments
- ---------
. Any judgment or order for the payment of money shall be rendered against
any Loan Party and either (i) enforcement proceedings shall have been commenced
by any creditor upon such judgment or order and not stayed for any period of 30
consecutive days; or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
Transaction Documents
- ----------------------
. Any Transaction Document shall cease to be in full force and effect
after delivery thereof, or any Loan Party or Property Operator shall so state in
writing;
Collateral Documents
- ---------------------
. The Collateral Documents, after delivery thereof pursuant to this
Agreement or any of the other Loan Documents, shall for any reason (other than
pursuant to the terms thereof) cease to create a valid and enforceable security
interest in, or the Lien created thereby shall not be duly perfected as to, any
Collateral purported to be covered thereby;
ERISA
- -----
. (i) An ERISA Event shall occur with respect to a Pension Plan or
Multi-Employer Plan which has resulted or could reasonably be expected to result
in liability of Borrower or any ERISA Affiliate under Title IV of ERISA to the
Pension Plan, Multi-Employer Plan or the PBGC; (ii) the aggregate amount of
Unfunded Pension Liability among all Pension Plans at any time exceeds $100,000;
or (iii) Borrower or any ERISA Affiliate shall fail to pay when due, after the
expiration of any applicable grace period, any installment payment with respect
to its withdrawal liability under Section 4201 of ERISA under a Multi-Employer
Plan;
Other Indebtedness
- -------------------
. Borrower or any of its Subsidiaries shall fail to pay when due any
principal of or premium or interest on Indebtedness having an unpaid principal
balance of $1,000,000 or more; or any breach, default or event of default shall
occur and any applicable grace period shall have passed, or any event shall
occur or condition exist, under any Indebtedness if the effect thereof, is to
accelerate or permit the holder or holders of such Indebtedness to accelerate
the maturity thereof; or
Leases
- ------
. Any breach, default or event of default shall occur, or any event shall
occur or condition exist, under any Master Lease Document or any HCPI Lease
Document; or the Master Lease or the HCPI Lease shall be terminated for any
reason,
then, and in any such event, Lender may declare the Note, all interest thereon
and all other amounts payable under any Loan Document to be forthwith due and
payable, whereupon the Note, all such interest and all such amounts shall become
and be forthwith due and payable (without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower); provided, however, that in the event of an Event of Default with
respect to Borrower under Section 6.1(g), the Note, all such interest and all
--------------
such amounts shall automatically become and be due and payable (without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by Borrower).
Rights Not Exclusive
- ----------------------
. The rights provided for in this Agreement and the other Loan Documents
are cumulative and are not exclusive of any other rights, powers or privileges
or remedies provided by law or in equity, or under any other instrument,
document or agreement.
MISCELLANEOUS
Collateral Matters
- -------------------
. Lender is hereby irrevocably authorized (but shall not be obligated),
without the necessity of any notice to or further consent from any Person, from
time to time to take any action with respect to any Collateral or Collateral
Documents which may be necessary or appropriate to perfect and keep perfected
the Liens created in favor of Lender pursuant to the Collateral Documents.
Amendments
- ----------
. No amendment or waiver of any provision of this Agreement or the Notes,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by Lender, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
Notices
- -------
. Any notice, consent, approval, demand or other communication required or
permitted to be given hereunder (a "notice") must be in writing and may be
served personally or by U.S. Mail. If served by U.S. Mail, it shall be
addressed as follows:
If to Borrower: Emeritus Realty Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attn: Mr. Ray Brandstrom
Fax: (206) ____________
with a copy to: The Nathanson Group
1520 Fourth Avenue, Sixth Floor
Seattle, Washington 98101
Attn: Jim Spencer, Esq.
Fax: (206) 623-1738
If to Lender: Health Care Property Investors, Inc.
4675 MacArthur Court, Suite 900
Newport Beach, California 92660
Attn: Legal Department
Fax: (949) 221-0607
with a copy to: Latham & Watkins
650 Town Center Drive, Suite 2000
Costa Mesa, California 92626
Attn: David C. Meckler, Esq.
Fax: (714) 755-8290
Any notice which is personally served shall be effective upon the date of
service; any notice given by U.S. Mail shall be deemed effectively given, if
deposited in the United States Mail, registered or certified with return receipt
requested, postage prepaid and addressed as provided above, on the date of
receipt, refusal or non-delivery indicated on the return receipt. In lieu of
notice by U.S. Mail, either party may send notices by facsimile or by a
nationally recognized overnight courier service which provides written proof of
delivery (such as U.P.S. or Federal Express). Any notice sent by facsimile
shall be effective upon confirmation of receipt in legible form, provided that
an original of such facsimile is also sent to the intended addressee by another
method approved in this Section 7.3, and any notice sent by a nationally
------------
recognized overnight courier shall be effective on the date of delivery to the
party at its address specified above as set forth in the courier's delivery
receipt. Either party may, by notice to the other from time to time in the
manner herein provided, specify a different address for notice purposes.
No Waiver; Remedies
- ---------------------
. No failure on the part of Lender to exercise, and no delay in
exercising, any right under any Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
Costs, Expenses and Taxes.
- ----------------------------
General Costs and Expenses
- -----------------------------
. Borrower agrees to pay on demand all reasonable costs and expenses of
Lender in connection with the preparation, execution, delivery, administration,
modification and amendment of the Transaction Documents and the other documents
to be delivered under the Transaction Documents, including the fees and
out-of-pocket expenses of counsel for Lender actually incurred with respect
thereto and with respect to advising Lender as to its rights and
responsibilities under the Loan Documents. Borrower further agrees to pay on
demand all costs and expenses, if any (including counsel fees and expenses)
actually incurred, in connection with the enforcement by Lender (whether through
negotiations, legal proceedings or otherwise) of the Loan Documents and the
other documents to be delivered under the Loan Documents, including counsel fees
and expenses actually incurred in connection with the enforcement of rights
under this Section 7.5. In addition, Borrower shall pay any and all stamp and
-----------
other taxes payable or determined to be payable in connection with the
execution, delivery, filing and recording of the Loan Documents and the other
documents to be delivered under the Loan Documents, and agrees to save Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
Survival
- --------
. The provisions of this Section 7.5 shall survive the termination of this
-----------
Agreement and the repayment of the Loan.
Right of Set-off
- ------------------
. Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by Lender to or for the credit or the
account of Borrower against any and all of the obligations of Borrower now or
hereafter existing under any Transaction Document, whether or not Lender shall
have made any demand under this Agreement or such Note and although such
obligations may be unmatured. The rights of Lender under this Section 7.6 are
-----------
in addition to other rights and remedies (including other rights of set-off)
which Lender may have.
Indemnity.
- ---------
Indemnity
- ---------
. Borrower shall pay, indemnify, defend and hold Lender and each of its
directors, officers, employees, attorneys or agents (each, an "Indemnified
-----------
Person") harmless (to the fullest extent permitted by law) from and against any
-
and all claims, demands, suits, actions, investigations, proceedings and
damages, and all attorney's fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
whether or not suit is brought), at any time asserted against, imposed upon or
incurred by any of them in connection with or as a result of or related to the
execution, delivery, enforcement, performance and administration of this
Agreement and any other Loan Documents or the transactions contemplated herein,
and with respect to any investigation, litigation or proceeding related to this
Agreement, any other Loan Document or the Loan or the use of the proceeds
thereof (whether or not any Indemnified Person is a party thereto) any act,
omission, event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities").
------------------------
Limitation
- ----------
. Borrower shall have no obligation to any Indemnified Person under this
Section 7.7 with respect to any Indemnified Liability that a court of competent
-----------
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person.
Survival
- --------
. The provisions of this Section 7.7 shall survive the termination of this
-----------
Agreement and the repayment of the Loan.
Binding Effect
- ---------------
. This Agreement shall become effective when it shall have been executed
by Borrower and Lender and thereafter shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns,
except that (x) Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent of Lender (which
consent may be withheld or granted in Lender's sole and absolute discretion) and
(y) so long as no Event of Default has occurred, Lender shall not have the right
to assign its rights hereunder or any interest herein to a Person that competes
directly with Borrower or any Subsidiary of Borrower without the prior written
consent of Borrower (which consent may be withheld or granted in Borrower's sole
and absolute discretion).
GOVERNING LAW
- --------------
. THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF
THOSE COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE
BY ANY MEANS PERMITTED BY NEW YORK LAW.
WAIVER OF JURY TRIAL
- -----------------------
. BORROWER AND LENDER WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY
OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREE THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY
JURY IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH
SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
Confidentiality
- ---------------
. Lender agrees that material, non-public information regarding Borrower,
its Subsidiaries, operations, assets, and existing and contemplated business
plans shall be treated by Lender in a confidential manner, and shall not be
disclosed by it to Persons who are not parties to this Agreement, except: (i)
to counsel for and other advisors, accountants, and auditors to Lender; (ii) as
may be required by statute, decision, or judicial or administrative order, rule,
or regulation; (iii) as may be agreed to in advance by Borrower; (iv) as to any
such information that is generally available to the public; and (v) in
connection with any assignment, prospective assignment, sale, prospective sale,
participation or prospective participation of Lender's interests hereunder.
Limitation of Liability
- -------------------------
. No claim may be made by Borrower, any Subsidiary of Borrower, or any
Lender or the Affiliates, directors, officers, employees, attorneys or agents of
any of them for any special, indirect, consequential or punitive damages in
respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
the other Loan Documents, or any act, omission or event occurring in connection
therewith, and Borrower, each Subsidiary of Borrower, and Lender hereby waives,
releases and agrees not to sue upon any claim for any such damages, whether or
not now accrued and whether or not known or suspected to exist in its favor.
Entire Agreement
- -----------------
. This Agreement, together with the other Loan Documents, embodies the
entire Agreement and understanding between Borrower and Lender and supersedes
all prior or contemporaneous agreements and understandings of such persons,
verbal or written, relating to the subject matter hereof and thereof.
Execution in Counterparts
- ---------------------------
. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(remainder of page intentionally blank)
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
EMERITUS REALTY CORPORATION, a Nevada corporation, as Borrower
By: /s/ Raymond R. Brandstrom
----------------------------
Name: Raymond R. Brandstrom
-----------------------
Title: Vice President of Finance
----------------------------
HEALTH CARE PROPERTY INVESTORS, INC., a Maryland corporation, as Lender
By: /s/ Edward J. Henning
------------------------
Name: Edward J. Henning
-------------------
Title: Senior Vice President
-----------------------