SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement (this "Second Amendment") is
executed as of this 29th day of January, 2003, by and between EMERITUS
PROPERTIES XIII, LLC, a Washington limited liability company (the "Borrower"),
and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation (the
"Lender").
Recitals
A. The Borrower and the Lender executed that certain Loan Agreement dated
February 15, 2000, as amended by that certain First Amendment to Loan Agreement
by and between Borrower and Lender dated June 12, 2001 (as amended, the
"Agreement'). Unless otherwise defined herein, capitalized terms shall have the
meaning assigned to them in the Agreement.
B. The parties desire to extend the Maturity Date, divide the Note into two
separate promissory notes, to be referred to as Note A and Note B, as
hereinafter defined, and to amend certain other covenants, terms and conditions
of the Agreement.
Agreement
NOW, THEREFORE, in consideration of the Recitals, the Borrower and the
Lender hereby amend the Agreement as follows:
1. In Article I, the term "Debt Service Coverage for the Facility"
shall be deleted and replaced with the following three definitions:
"Debt Service Coverage for the Facility - A" means a ratio in which the first
number is the sum of net pre-tax income of the Borrower from the operations of
the Facility as set forth in the quarterly statements provided to Lender
(without deduction for Actual Management Fees paid or incurred), calculated
based upon the preceding twelve (12) months, plus interest expense, to the
extent deducted in determining net income, plus non-cash expenses or allowances
for depreciation and amortization of the Facility for said period, less either
Assumed Management Fees or Actual Management Fees, as specified in the
particular covenant being tested, and the second number is the sum of the
principal and interest amount due (even if not paid) on Note A for the
applicable period. In calculating "pre-tax income", Extraordinary Income and
Extraordinary Expenses of the Borrower shall be excluded.
"Debt Service Coverage for the Facility - A & B" means a ratio in which the
first number is the sum of net pre-tax income of the Borrower from the
operations of the Facility as set forth in the quarterly statements provided to
Lender (without deduction for Actual Management Fees paid or incurred),
calculated based upon the preceding twelve (12) months, plus interest expense,
to the extent deducted in determining net income, plus non-cash expenses or
allowances for depreciation and amortization of the Facility for said period,
less Assumed Management Fees, and the second number is the sum of the principal
and interest amount due (even if not paid) on Note A and Note B for the
applicable period. In calculating "pre-tax income", Extraordinary Income and
Extraordinary Expenses of the Borrower shall be excluded.
2. In Article I, the term "Governmental Authority" shall be deleted and
replaced with the following:
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, and any Person exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to such
government.
3. In Article I, the term "Loan" shall be deleted and replaced with the
following:
"Loan" means the loan in the original principal sum of $6,800,000 made by Lender
to the Borrower on February 15, 2000, as amended by that certain First Amendment
to Loan Agreement dated as of June 12, 2001, and as further amended, bifurcated,
extended and restated as of January 29, 2003, evidenced jointly by Note A and
Note B.
4. In Article I, the term "Maturity Date" shall be amended by deleting the
date "March 1, 2003" and replacing it with "March 1, 2006".
5. In Article I, the term "Note" shall be deleted and replaced with the
following:
"Note" means, collectively, Note A and Note B.
6. In Article I, the following definitions shall be added:
"Note A" means that certain Restatement, Amendment and Bifurcation of Note (Note
A), dated January 29, 2003, in the principal amount of $6,240,000, payable by
the Borrower to the Lender, as amended, extended and/or restated from time to
time, executed in restatement, amendment and bifurcation of that certain
Promissory Note executed by Borrower in the original principal amount of
$6,800,000, dated February 15, 2000, as amended by First Amendment dated June
12, 2001.
"Note B" means that certain Restatement, Amendment and Bifurcation of Note (Note
B), dated January 29, 2003, in the principal amount of $560,000, payable by the
Borrower to the Lender, as amended, extended and/or restated from time to time,
executed in restatement, amendment and bifurcation of that certain Promissory
Note executed by Borrower in the original principal amount of $6,800,000, dated
February 15, 2000, as amended by First Amendment dated June 12, 2001.
"OFAC List" means the list of specially designated nationals and blocked Persons
subject to financial sanctions that is maintained by the U.S. Treasury
Department, Office of Foreign Assets Control and any other similar list
maintained by the U.S. Treasury Department, Office of Foreign Assets Control
pursuant to any Requirements of Law, including, without limitation, trade
embargo, economic sanctions, or other prohibitions imposed by Executive Order of
the President of the United States. The OFAC List currently is accessible
through the internet website www.treas.gov/ofac/t11sdn.pdf.
"Requirements of Law" means (a) the organizational documents of an entity, and
(b) any law, regulation, ordinance, code, decree, treaty, ruling or
determination of an arbitrator, court or other Governmental Authority, or any
Executive Order issued by the President of the United States, in each case
applicable to or binding upon such Person or to which such Person, any of its
property or the conduct of its business is subject including, without
limitation, laws, ordinances and regulations pertaining to the zoning, occupancy
and subdivision of real property.
7. In Article I, the term "Person" shall be deleted and replaced with the
following:
"Person" means an individual, partnership, limited partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
8. In Article I, the term "Total Debt Service Coverage" shall be deleted and
replaced with the following:
"Total Debt Service Coverage" means a ratio in which the first number is the sum
of net pre-tax income of the Borrower from the operations of the Facility as set
forth in the quarterly statements provided to Lender (without deduction for
Actual Management Fees paid or incurred), calculated based upon the preceding
twelve (12) months, plus interest expense, to the extent deducted in determining
net income, plus non-cash expenses or allowances for depreciation and
amortization of the Facility for said period, less Assumed Management Fees, and
the second number is the sum of the principal and interest amount due (even if
not paid) on Note A, Note B and the Seller Loan for the applicable period."
9. A new Section 2.3 is added:
"2.3 Fees.
(a) Origination Fee. An origination fee of 1% ($68,000) of the outstanding
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principal balance of the Loan as of December 31, 2002 shall be due and payable
by Borrower to Lender on January 29 2003.
(b) Underwriting Fee.An underwriting fee of $5,000 shall be due and
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payable by Borrower to Lender on January 29, 2003."
10. In Article III, the following sections are added:
3.30 No Illegal Activity as Source of Funds. No portion of the Collateral has
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been or will be purchased, improved, equipped or furnished with proceeds of any
illegal activity.
3.31 Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money
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Laundering Laws. Borrower, has no actual knowledge nor has it received any
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written notice that (a) each Person owning an interest of 20% or more in
Borrower, (b) Guarantor or (c) Manager: (i) is currently identified on OFAC
List, or (ii) is a Person with whom a citizen of the United States is prohibited
to engage in transactions by any trade embargo, economic sanction, or other
prohibition of United States law, regulation, or Executive Order of the
President of the United States. Borrower has implemented procedures, and will
consistently apply those procedures throughout the term of the Loan, to ensure
the foregoing representations and warranties remain true and correct during the
term of the Loan.
3.32 Seller Loan.Borrower represents and warrants to Lender that the Seller
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Loan has been extended to mature on or following the Maturity Date under the
terms and in the form of that certain Amendment to Note dated as of January
29, 2003, by and between Seller and Borrower, attached hereto as Schedule
3.32 and made apart hereof, and Lender acknowledges and consents to same.
11. Sections 4.4(a) through 4.4(i), and, beginning on page 17, the
paragraphs following 4.4(i) of the Agreement extending through and including all
paragraphs on page 18 of the Agreement (ending with the phrase "subrogation
rights of the Lender."), are hereby deleted in their entirety and replaced with
the following:
"4.4 Insurance. Maintain, at its expense, the following insurance coverages
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and policies with respect to the Collateral and the Facility, which coverages
and policies must be acceptable to Lender's insurance consultant in its sole
discretion:
(a) Comprehensive "all risk" insurance, including coverage for windstorms
and hail, in an amount equal to 100% of the full replacement cost of the
Facility, which replacement cost shall be determined by the "Insurable Value" or
"Cost Approach to Value" reflected in the most recent Lender approved appraisal
for the Facility, without deduction for depreciation. Such insurance shall also
include (i) agreed insurance amount endorsement waiving all co-insurance
provisions, and (ii) an "Ordinance or Law Coverage" endorsement if the Facility
or the use thereof shall constitute a legal non-conforming structure or use.
(b) Commercial general liability insurance against claims for sexual
harassment abuse of residents and/or patients, personal injury, bodily injury,
death or property damage, in or about the Facility to be on a so-called
"occurrence" basis for at least $1,000,000.00 per occurrence and $3,000,000.00
in the aggregate with a $5,000,000.00 umbrella coverage.
(c) Professional liability insurance against claims for personal injury,
bodily injury or death, in or about the Facility to be on a so-called
"occurrence" basis for at least $1,000,000.00 per occurrence and $3,000,000.00
in the aggregate.
(d) Business interruption income insurance for the Facility in an amount
equal to 100% of the net income plus carrying costs and extraordinary expenses
of the Facility for a period of twelve (12) months as projected by Lender,
containing a 90-day extended period of indemnity endorsement
(e) Flood Hazard insurance if any portion of the Improvements is located in
a "flood zone area," as identified in the Federal Register by the Federal
Emergency Management Agency as a 100-year flood zone or "special flood hazard
area" and in which flood insurance is available. In lieu thereof, Lender will
accept proof, satisfactory to it in its sole discretion, that the Improvements
are not within the boundaries of a designated area.
(f) Workers' compensation insurance, if applicable and required by state
law, subject to applicable state statutory limits, and employer's liability
insurance with a limit of $1,000,000.00 per accident and per disease per
employee with respect to the Facility.
(g) Comprehensive boiler and machinery insurance, including properly damage
coverage and time element coverage in an amount equal to 100% of the full
replacement cost, without deduction for depreciation, of the Facility housing
the machinery, if steam boilers, pipes, turbines, engines or any other pressure
vessels are in operation with respect to the Facility. Such insurance coverage
shall include a "joint loss" clause if such coverage is provided by an insurance
carrier other than that which provides the comprehensive "all risk" insurance
described above.
(h) During the period of any construction and/or renovation of capital
improvements with respect to the Facility or any new construction at the
Facility, builder's risk insurance for any improvements under construction
and/or renovation, including, without limitation, costs of demolition and
increased cost of construction or renovation, in an amount equal the amount of
the general contract plus the value of any existing purchase money financing for
improvements and materials stored on or off the Properly, including "soft cost"
coverage.
(i) If the Facility is located in a seismically active area or an area
prone to geologic instability and mine subsidence, Lender may require an
inspection by a qualified structural or geological engineer satisfactory to
Lender, and at Borrower's expense. The Facility must be structurally and
geologically sound and capable of withstanding normal seismic activity or
geological movement Lender reserves the right to require earthquake insurance or
Maximum Probable Loss insurance on a case by case basis in amounts determined by
Lender.
(j) Such other insurance coverages as may be deemed necessary at any time
during the term of the Loan and as shall be provided within such time periods as
Lender may determine, in each case, in its commercially reasonable discretion.
All insurance policies shall have a term of not less than one year and
shall be in the form and amount and with deductibles as, from time to time,
shall be acceptable to Lender in its sole discretion. All such policies shall
provide for loss payable solely to Lender and shall contain a standard
"non-contributory mortgagee" endorsement or its equivalent relating, among other
things, to recovery by Lender notwithstanding the negligent or willful acts or
omissions of Borrower and notwithstanding (i) occupancy or use of the Facility
for purposes more hazardous than those permitted by the terms of such policy,
(ii) any foreclosure or other action taken by Lender pursuant to the Mortgage
upon the occurrence of an Event of Default thereunder, or (iii) any change in
title or ownership of the Facility.
All insurance policies must be written by a licensed insurance carrier in
the State in which the Facility is located and such insurance carrier must have
a long-term senior debt rating of at least "A" by Standard and Poor's Rating
Service; provided, that if the initial principal balance of the Loan is in
excess of $25,000,000.00, such insurance carrier must have a long-term senior
debt rating of at least "AA" by Standard & Poor's Rating Service.
All liability insurance policies must name "GMAC Commercial Mortgage
Corporation and its successors and/or assigns as their interests may appear" as
additional insureds, and all property insurance policies must name "GMAC
Commercial Mortgage Corporation and its successors and/or assigns" as the named
mortgage holder entitled to all insurance proceeds. Lender shall have the right,
without Borrower's consent, by notice to the insurance company, to change the
additional insured and named mortgagee endorsements in connection with any sale
of the Loan. Notwithstanding anything contained herein, Borrower shall be
entitled to all insurance proceeds covered by and disbursed under the above
referenced comprehensive all risk insurance policy provided such proceeds do not
exceed $25,000.00 per occurrence.
All insurance policies for the above required insurance must provide for
thrty (30) days prior written notice of cancellation to Lender.
Policies or binders, together with evidence of the above required insurance
on ACORD Form 27 or its equivalent, must be submitted to Lender prior to setting
the interest rate on the Loan.
With respect to insurance policies which require payment of premiums
annually, not less than thirty (30) days prior to the expiration dates of the
insurance policies obtained pursuant to this Agreement, Borrower shall pay such
amount, except to the extent Lender is escrowing sums therefor pursuant to the
Loan Documents. Not less than thirty (30) days prior to the expiration dates of
the insurance policies obtained pursuant to this Agreement, originals or
certified copies of renewals of such policies (or certificates evidencing such
renewals) bearing notations evidencing the payment of premiums or accompanied by
other evidence satisfactory to Lender of such payment, which premiums shall not
be paid by Borrower through or by any financing arrangement, shall be delivered
by Borrower to Lender at the address set forth in Section 8.7 hereof and in
Exhibit "E" hereto. Borrower shall not carry separate insurance, concurrent in
kind or form or contributing in the event of loss, with any insurance required
under this Section 4.4. If the limits of any policy required hereunder are
reduced or eliminated due to a covered loss, Borrower shall pay the additional
premium, if any, in order to have the original limits of insurance reinstated,
or Borrower shall purchase new insurance in the same type and amount that
existed immediately prior to the loss.
If Borrower fails to maintain and deliver to Lender the original policies
or certificates of insurance required by this Agreement, Lender may, at its
option, procure such insurance and Borrower shall pay or, as the case may be,
reimburse Lender for, all premiums thereon promptly, upon demand by Lender, with
interest thereon at the Default Rate from the date paid by Lender to the date of
repayment and such sum shall constitute a part of the Loan Obligations.
The insurance required by this Agreement may, at the option of Borrower, be
effected by blanket and/or umbrella policies issued to Borrower or to an
Affiliate of Borrower covering the Facility and the properties of such
Affiliate; provided that, in each case, the policies otherwise comply with the
provisions of this Agreement and allocate to the Facility, from time to time,
the coverage specified by this Agreement, without possibility of reduction or
coinsurance by reason of, or damage to, any other property (real or personal)
named therein. If the insurance required by this Agreement shall be effected by
any such blanket or umbrella policies, Borrower shall furnish to Lender original
policies or certified copies thereof, with schedules attached thereto showing
the amount of the insurance provided under such policies which is applicable to
the Facility.
Neither Lender nor its agents or employees shall be liable for any loss or
damage insured by the insurance policies required to be maintained under this
Agreement; it being understood that (a) Borrower shall look solely to its
insurance company for the recovery of such loss or damage, (b) such insurance
company shall have no rights of subrogation against Lender, its agents or
employees, and (c) Borrower shall use its best efforts to procure from such
insurance company a waiver of subrogation rights against Lender. If, however,
such insurance policies do not provide for a waiver of subrogation rights
against Lender (whether because such a waiver is unavailable or otherwise), then
Borrower hereby agrees, to the extent permitted by law and to the extent not
prohibited by such insurance policies, to waive its rights of recovery, if any,
against Lender, its agents and employees, whether resulting from any damage to
the Facility, any liability claim in connection with the Facility or otherwise.
If any such insurance policy shall prohibit Borrower from waiving such claims,
then Borrower must obtain from such insurance company a waiver of subrogation
rights against Lender.
Borrower appoints Lender as Borrower's attorney-in-fact to cause the
issuance of an endorsement of any insurance policy to bring Borrower into
compliance herewith and, as limited above, at Lender's sole option, to make any
claim for, receive payment for, and execute and endorse any documents, checks or
other instruments in payment for loss, theft, or damage covered under any such
insurance policy; provided, however, that in no event will Lender be liable for
failure to collect any amounts payable under any insurance policy.
12. Section 4.5, Financial and Other Information, (a) is hereby amended by
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deleting the phrase "one hundred twenty (120)" in the first line and replacing
it with the phrase "ninety (90)".
13. Section 4.5, Financial and Other Information(d) is hereby deleted in its
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entirety and replaced with the following:
"d. Within forty-five (45) days after the end of each fiscal quarter, unaudited
financial statements of the Facility, certified as true and correct in all
material respects by a financial officer of Borrower, prepared in accordance
with GAAP, which shall include a balance sheet and statement of income and
expenses for the quarter then ended."
14. Section 4.5, Financial and Other Information, (e) is hereby deleted in
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its entirety and replaced with the following:
"e. Within forty-five (45) days after the end of each fiscal quarter of
Borrower, unaudited financial statements of Borrower, prepared in accordance
with GAAP, which shall include a balance sheet and statement of income and
expenses for the quarter then ended."
15. A new Section 4.5, Financial and Other Information, (n) is added:
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"Within forty-five (45) days after the end of each fiscal quarter of the
Facility, a statement of the accounts receivable and accounts payable of the
Facility, prepared in accordance with generally accepted accounting principles
consistently applied, certified by a financial officer of the Borrower to be
true and correct"
16. Section 4.12, Debt Service Coverage Requirements, (a) is hereby deleted
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in its entirety and replaced with the following:
"a. Required Ratios.
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(i) Debt Service Coverage for the Facility (Notes A & B). Commencing with
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the quarter ending June 30, 2003, achieve and thereafter maintain, and within
forty-five (45) days after the end of each fiscal quarter of Borrower, provide
evidence to Lender of the achievement of, the following debt service coverage
ratios until the Loan is paid in full:
(A) a Debt Service Coverage for the Facility - A, after deduction of
Actual Management Fees, of not less than 1.25 to 1.0;
(B) a Debt Service Coverage for the Facility - A, after deduction of
Assumed Management Fees, of not less than 1.35 to 1.0;
(C) a Debt Service Coverage for the Facility - A & B of not less than
1.10 to 1.0; and
(ii) Total Debt Service Coverage. Commencing with the quarter ending
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December 31, 2003, a Total Debt Service Coverage of not less than 1.0 to 1.0.
17. Section 4.12, Debt Service Coverage Ratio, (d) is hereby amended by
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adding the
following sentence:
"It is understood that notwithstanding anything to the contrary contained in
this subparagraph (d), this subparagraph (d) shall apply in the event that any
of the Debt Service Coverage for the Facility -A & B, the Debt Service Coverage
for the Facility-A, or the Total Debt Service Coverage is not achieved or
maintained."
18. In Section 4.15, Management Agreement, the following sentence is added
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to the
end of the section:
"Borrower shall cause the Management Agreement to be coterminous with the Loan
and any extensions thereto."
19. In Article IV, the following section is added:
4.23 Compliance with Anti-Terrorism, Embargo, Sanctions and Anti-Money
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Laundering Laws. Borrower shall comply with all Requirements of Law relating to
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money laundering, anti-terrorism, trade embargos and economic sanctions, now or
hereafter in effect. Upon Lender's request from time to time during the term of
the Loan, Borrower shall certify in writing to Lender that Borrower's
representations, warranties and obligations under Sections 3.30 and 3.31 and
this Section 4.23 remain true and correct and have not been breached. Borrower
shall immediately notify Lender in writing if any of such representations,
warranties or covenants are no longer true or have been breached or if Borrower
has a reasonable basis to believe that they may no longer be true or have been
breached. In connection with such an event, Borrower shall comply with all
Requirements of Law and directives of Govermnental Authorities and, at Lender's
request, provide to Lender copies of all notices, reports and other
communications exchanged with, or received from, Governmental Authorities
relating to such an event. Borrower shall also reimburse Lender any expense
reasonably incurred by Lender in evaluating the effect of such an event on the
Loan and Lender's interest in the collateral for the Loan, in obtaining any
necessary license from Governmental Authorities as may be necessary for Lender
to enforce its rights under the Loan Documents, and in complying with all
Requirements of Law applicable to Lender as the result of the existence of such
an event and for any penalties or fines imposed upon Lender as a result thereof.
20. Section 8.7, Notices is hereby amended by deleting the existing
notice addresses and replacing them with the following notice addresses:
"If to Borrower:
Emeritus Properties XIII, LLC c/o Emeritus Corporation 3131 Elliott Avenue,
Suite 500 Seattle, Washington 98121 Attention: Raymond R. Brandstrom
With copy to:
Randi S. Nathanson, Esq.
The Nathanson Group PLLC
1520 Fourth Avenue
Sixth Floor
Seattle, Washington 98101
With copy to Seller:
c/o David McClinton
7901 168th Avenue Northeast
Redmond, Washington 98073
If to Lender:
GMAC Commercial Mortgage Corporation
200 Witmer Road
Horsham, Pennsylvania 19044
ATTN: Servicing Department
With copy to:
Kay K. Dams, Esq.
Walston, Wells, Anderson & Dams, LLP
505 20th Street North, Suite 500
Birmingham, Alabama 35203"
Except as expressly amended hereby, the Agreement shall remain in full
force and effect in accordance with its terms.
With the exception of any representations and warranties regarding
Borrower's method of accounting for move-in fees complying with GAAP, the
Borrower represents and warrants that the representations and warranties set
forth in Article III of the Agreement are as true and correct on the date hereof
as when initially made, except as such representation or warranty expressly
relates to another date.
The Borrower acknowledges and agrees that there are no offsets or defenses
to the obligations set forth in the Agreement, as hereby amended, and represents
that there are no Events of Default existing on the date hereof, nor are there
any facts or consequences which will or would reasonably be expected as of the
date hereof to lead to an Event of Default under the Agreement.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this Second
Amendment to be executed by their duly authorized respective representatives as
of the date first set forth above.
PLEASE BE ADVISED THAT ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND
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CREDIT, OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE UNENFORCEABLE UNDER
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WASHINGTON LAW.
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EMERITUS PROPERTIES XIII, LLC, a Washington limited liability company
By: Emeritus Corporation, a Washington corporation Its: Sole Member
By: /s/ Raymond R. Brandstrom
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Name: Raymond R. Brandstrom
Its: Vice President of Finance
GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation
By: /s/ Lisa M. Lautner
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Name: Lisa M. Lautner
Its: SVP