SECURITY AGREEMENT
DEBTOR: EMERITUS PROPERTIES II, INC.
One Market Place
2003 Western Avenue, Suite 660
Seattle, Washington 98121
SECURED PARTY: RMI CAPITAL MANAGEMENT CO.
Ptarmigan Place, Suite 640
3773 Cherry Creek North Drive
Denver, Colorado 80209
DATE: May 30, 1996
1. GRANT OF SECURITY INTEREST AND COLLATERAL ASSIGNMENT. As collateral
security for the due and punctual payment and performance of the obligations (as
hereinafter defined), the Debtor hereby grants to the Secured Party, with full
power and authority to exercise all rights and powers granted by the Debtor
hereunder, a lien upon, and a security interest under the Uniform Commercial
Code in effect in the State of Montana as from time to time amended (the "UCC")
to the extent that the same shall apply, in and to, and hereby collaterally
assigns to the Secured Party, all of Debtor's interest in the Collateral,
defined below, located at the real property in Gallatin County, Montana, and
more particularly described on EXHIBIT A-1 attached hereto (collectively the
"Real Property"). Debtor's personal property is more particularly described on
EXHIBIT B-1, attached hereto (the "Collateral"). The Real Property, together
with the Collateral are collectively referred to herein as the "Property".
2. OBLIGATIONS SECURED. "Obligations" shall mean the loan evidenced by
the promissory note dated the date hereof in the principal amount of
$4,695,000.00 payable by Debtor, to the order of Secured Party ("Note"),
including without limitation, any future advances, and any and all interest,
commissions, obligations, liabilities, indebtedness, charges, and expenses now
or hereafter chargeable against Debtor by Secured Party or owing by Debtor to
Secured Party in connection with such loan, whether direct or indirect, joint or
several, absolute or contingent, due to or become due, now existing or hereafter
arising, and the performance and fulfillment by Debtor of all of the terms,
conditions, promises, covenants, and provisions contained in this Agreement or
in the Note or in any present or future agreement or instrument between Debtor
and Secured Party evidencing or securing said Note, including the Deed of Trust,
Assignment of Rents, Security
Agreement and Financing Statement executed by Debtor simultaneously herewith
(the "Deed of Trust").
3. WARRANTIES AND COVENANTS OF THE DEBTOR.
a. The Debtor has all power, statutory and otherwise, to execute and
deliver this Agreement, to perform its obligations hereunder and to subject the
Collateral to the security interest created hereby, all of which has been duly
authorized by all necessary action. The execution and delivery of this
Agreement, and the performance of this Agreement and the enforcement of the
security interest granted hereby, will not result in any violation of or be in
conflict with or constitute a default under any term of any agreement or
instrument, or, to the best of the knowledge of the Debtor, any judgment,
decree, order, law, statute, rule or governmental regulation applicable to this
Debtor or the Collateral.
b. Subject to subsection g. below, the Debtor is the sole record and
beneficial owner of the Collateral, and neither the Collateral nor the proceeds
thereof are subject to any pledge, lien, security interest, charge or
encumbrance except (i) the lien created pursuant to this Agreement, and (ii) the
lien of the UCC financing statement delivered by the Debtor to the Secured Party
with respect thereto. The Debtor shall defend the Collateral against all claims
and demands of all persons at any time claiming any interest therein.
C. The Collateral shall be located at the Debtor's places of business
shown above or at the Property. Debtor shall not remove the Collateral from
either of said locations without the prior written consent of the Secured Party
except as contemplated by section 3.g. below. Debtor shall notify Secured Party
of any change in its place of business prior to making the change.
d. Debtor shall pay all taxes and assessments of every
nature which may be levied or assessed against the Collateral.
e. The Debtor shall keep the Collateral at all times insured against risk
of loss or damage by fire (including so-called extended coverage), theft and
such other casualties as the Secured Party may reasonably require, all in such
amounts, under such forms of policies, upon such terms, for such periods and
written by such companies or underwriters as the Secured Party may approve in
its reasonable discretion, losses in all cases to be payable to the Secured
Party and the Debtor as their interests may appear. All policies of insurance
shall provide for at least ten (10) days prior written notice of cancellation to
the Secured Party; and the Debtor shall furnish the Secured Party with
certificates of such insurance or other evidence satisfactory to the Secured
Party as to compliance with the provisions of this paragraph.
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f. The Collateral is in good condition. At Debtor's expense, Debtor
shall keep the same in good condition, ordinary wear and tear excepted, and from
time to time shall replace and repair all such parts of the Collateral as may be
broken, worn out, or damaged without allowing any lien to be created upon the
Collateral on account of such replacement or repairs, and shall not waste or
destroy the Collateral. The Secured Party may examine and inspect the
Collateral at any time, wherever located.
g. Except for sales of inventory in the ordinary course of business,
Debtor shall not sell, lease, convey, encumber or in any manner transfer,
without the prior written consent of Secured Party, any tangible personal
property now or hereafter owned by Debtor and attached to or contained in and
used in connection with the operation of the assisted living facility or
otherwise forming a part of the Collateral (except such tangible personal
property as is discarded as obsolete or damaged and is replaced by substitute
items having equivalent or greater book value); provided that, notwithstanding
any terms of this Agreement to the contrary, Grantor reserves the right to
lease, finance, substitute and replace personal property and to sell inventory
in the ordinary course of business without consent from Lender. In addition,
Grantor may permit its personal property to be subject to equipment financing
and security interests in connection therewith. None of Grantor's reserved
rights described in this subsection g. shall constitute an Event of Default.
h. Debtor shall not use the Collateral in violation of any applicable
statutes, regulations or ordinances.
i. The Debtor's entity agreement does not prohibit any term or condition
of this Agreement, and when executed, this Agreement shall be a binding
obligation of the Debtor.
j. Debtor shall notify Secured Party, in writing, prior to the time
Debtor changes its name, identity or partnership structure.
k. The Collateral is used or bought primarily for use in business.
l. Debtor shall: (i) collect its rents only in the ordinary course of
business; and (ii) furnish Secured Party, at such intervals as Secured Party may
prescribe under the Deed of Trust, a copy of the rent roll indicating the
current rent status for each tenant and the amount of security deposit held by
Debtor as landlord.
m. After an Event of Default as defined in the Deed of Trust or the
appointment of a receiver as provided therein, Debtor agrees that Secured Party
shall have full power to notify tenants,
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collect, compromise, endorse, sell or otherwise deal with proceeds in its own
name or that of Debtor at any time. Secured Party may apply cash proceeds to
the payment of any obligations, or may release such cash proceeds to Debtor.
4. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an Event of Default under this Agreement:
a. Default in the payment or performance of any monetary obligation
contained or referred to herein or in the Note or in the Deed of Trust securing
the same beyond any applicable grace and cure period specified therein;
b. Material, uninsured loss, theft, damage, or destruction of any
material portion of the Collateral which is not replaced within thirty (30)
days; or the making of any levy, seizure or attachment thereof or thereon;
c. Default in the due performance or observance of any term,
covenant or agreement on Debtor's part to be performed or observed pursuant to
any of the provisions of this Agreement, other than payment and performance of
any monetary obligation, and such non-monetary default shall continue beyond a
period of thirty (30) days after written notice of the occurrence thereof; or
d. The occurrence of an Event of Default under the Deed of Trust, as
defined therein, or under any other document securing the Note.
5. RIGHTS UPON DEFAULT. Upon the occurrence of an Event of Default and at
any time thereafter, and whether or not the Secured Party shall declare any or
all of the Obligations to be immediately due and payable in the manner and with
the effect stated in the Deed of Trust, then and in such event:
a. The Secured Party may foreclose upon and take possession of the
Collateral and may exclude the Debtor, and all persons claiming by, through or
under the Debtor, from possession thereof, and may assign the Collateral to a
nominee or a third party. In connection herewith the Secured Party or any third
party assignee or nominee of the Secured Party shall have the right to exercise,
in the name of the Debtor, the Debtor's rights and powers with respect to the
Collateral.
b. The Secured Party shall have all rights and remedies of a secured
party available under the UCC and any other rights and remedies available under
this Agreement and under the Deed of Trust and any other documents securing the
Note or at law or in equity.
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c. The Debtor hereby agrees that if notice of sale or other
disposition of the Collateral is given in the manner and to the address or
addresses then required pursuant to the Deed of Trust at least five (5) business
days before the time of the sale or other disposition, such notice shall be
deemed reasonable and shall fully satisfy any requirement for the giving of said
notice, whether required by the UCC, any other law or otherwise. Any sale or
disposition may occur by private proceedings at Secured Party's election, and
Debtor acknowledges that, due to the nature of the Collateral and its essential
relationship to the operation of the facility, Secured Party may buy at any such
private sale.
d. Secured Party shall have the right, power and authority to sell
the Collateral or any part thereof at public or private sale for cash, upon
credit, or for future delivery, and at such price or prices as Secured Party may
deem best, and Secured Party may be the purchaser of any and all of the
Collateral so sold, in such manner and order as Secured Party may in its sole
discretion elect. Upon any such sale, Secured Party shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral so sold.
Any such public sale shall be held at such time or times, within ordinary
business hours, and at such place or places, as Secured Party may fix in the
notice of such sale. At any sale the Collateral may be sold in one lot as an
entirety or in separate parcels as Secured Party may determine. Secured Party
shall not be obligated to make any sale pursuant to any such notice. Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at any time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by Secured Party until the selling price is paid by the purchaser
thereof, but Secured Party shall incur no liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold, and in case of any
such failure, such Collateral may again be sold upon like notice. Each and
every method of disposition described in this paragraph shall constitute
disposition in a commercially reasonable manner.
In conjunction therewith, in addition to or in substitution for
those rights and remedies and the rights and remedies provided for herein:
e. It shall not be necessary that the Collateral or any part thereof
be present at the location of such sale.
f. The sale by Secured Party of less than the whole of the
Collateral shall not exhaust the rights of Secured Party hereunder or with
respect to the Collateral, and Secured Party is specifically empowered to make
successive sale or sales hereunder
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until the whole of the Collateral shall be sold; and, if the proceeds of such
sale of less than the whole of the Collateral shall be less than the aggregate
of the indebtedness secured hereby, this Assignment and the security interest
created hereby shall remain in full force and effect as to the unsold portion of
the Collateral just as though no sale has been made.
g. In the event any sale hereunder is not completed or is defective
in the opinion of secured Party, such sale shall not exhaust the rights of
Secured Party hereunder and Secured Party shall have the right to cause a
subsequent sale or sales to be made hereunder.
h. Any and all statements of fact or other recitals made in any bill
of sale or assignment or other instrument evidencing any sale hereunder as to
nonpayment of the indebtedness or as to the occurrence of an Event of Default,
or as to Secured Party having declared all of such indebtedness to be due and
payable, or as to notice of time, place and terms of sale and the properties to
be sold having been duly given, as to any other act or thing having been duly
done by Secured Party shall be taken as prima facie evidence of the truth of the
facts so stated an recited.
i. Secured Party may appoint or delegate any one or more persons as
agent to perform any act or acts necessary or incident to any such sale held by
Secured Party, including the sending of notices and the conduct of sale, but in
the name and on behalf of Secured Party.
j. The proceeds of any sale or other disposition or collection of or
other realization upon all or any part of the Collateral shall be applied in the
following order of priority: first, to pay the cost and expenses of collection,
custody, sale or other disposition or delivery (including, without limitation,
reasonable legal costs and attorneys' fees) and all other charges incurred by
the Secured Party with respect to the Collateral; second, to the payment of the
Obligations in such order as the Secured Party may, in its sole discretion,
determine; and third, to pay any surplus to the Debtor or to any person or party
lawfully entitled thereto, or as a court of competent jurisdiction may direct.
k. Secured Party may use or operate the Collateral for the purpose
of preserving it or its value. Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties. Expenses of
retaking, holding, preparing for sale, selling, or costs and expenses in
enforcing this Agreement, or the like shall include Secured Party's reasonable
attorneys' fees and legal expenses, and the same,
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together with all advances made by Secured Party on behalf of the Debtor, shall
be part of the Obligations secured hereby. Debtor shall be liable to Secured
Party for any deficiency.
6. RELEASE OF COLLATERAL. If the obligations are fully paid and
discharged, all Collateral held hereunder shall be returned to the Debtor by the
Secured Party promptly upon demand, all requisite termination statements under
the UCC shall be executed and delivered to the Debtor by the Secured Party, and
the Secured Party shall take such other action in connection with such discharge
as the Debtor may reasonably request.
7. FURTHER AGREEMENTS. The Debtor has previously executed and delivered
to the Secured Party financing statements pursuant to the UCC covering that
portion of the Collateral for which a security interest may be perfected by
filing. The Debtor shall, upon request of the Secured Party, promptly make,
execute and deliver to the Secured Party, from time to time, a listing of the
specific Collateral, including personal property, goods, equipment, furnishings,
furniture acquired and/or owned in connection with the medical office complex,
and such other and further financing statements, instruments, documents and
certificates, and perform such other and further acts and assurances, as the
Secured Party may request to perfect, to maintain the priority of, or from time
to time, to renew, such security interests, to confirm or more fully perfect the
rights granted hereby, or in any way to assure the Secured Party all of its
rights hereunder. The Debtor shall pay the costs of all filings and recordings
in public offices of record, and shall, upon request of the Secured Party, make,
execute and deliver such other and further instruments, and take such other and
further actions, as the Secured Party may deem necessary or appropriate to
enable it to realize upon the Collateral, to exercise fully its rights
hereunder, and to ratify and confirm any sale hereunder.
8. INDEMNIFICATION; WAIVERS. The Debtor shall indemnify and hold harmless
the Secured Party from any and all liability or damage which the Secured Party
may incur in the exercise and performance, in good faith, of any of its powers
and duties specifically set forth herein, but not for any liability or damage
incurred on account of the negligence or willful misconduct of the Secured Party
provided, however, that Debtor shall not indemnify Secured Party from and
against claims asserted by third parties as a consequence of the Secured Party's
negligence or misconduct. No delay or omission on the part of the Secured Party
in exercising any right hereunder shall operate as a waiver of such right or of
any other right hereunder. Any waiver of any such right on any one occasion
shall not be construed as a bar to or waiver of any such right on any such
future occasion. No course of dealing between the Debtor and the Secured Party
nor any failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any
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right, power or privilege hereunder or under any of the Obligations, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or in the exercise of any other right, power or privilege. The
Secured Party shall be under no duty or liability with respect to the Collateral
other than to use reasonable care in the custody of any Collateral while in its
possession and shall not be liable for any failure to take action necessary to
preserve rights against prior or other parties on any instrument constituting
the Collateral.
9. FURTHER TRANSFERS PROHIBITED. The Debtor covenants and agrees that it
will not, at any time during the term of this Agreement, except as contemplated
by section 3.g. hereof, further convey or encumber the Collateral in any manner
whatsoever; and the Debtor agrees that it will do all things necessary to
maintain the enforceability and priority of the Secured Party's security
interest in the Collateral.
10. NOTICES. Any and all notices, demands, consents, and other
communications required or permitted under this Agreement shall be deemed
adequately given only if given in the manner and to the addresses provided in
the Deed of Trust.
11. GENERAL PROVISIONS.
a. No waiver by Secured Party of any default shall operate as a
waiver of any other default or of the same default on a future occasion. The
taking of this Security Agreement shall not waive or impair any other security
said Secured Party may have or hereafter acquire for the payment of the above
indebtedness, nor shall the taking of any such additional security waive or
impair this Security Agreement; but said Secured Party may resort to any
security it may have in the order it may deem proper, and notwithstanding any
collateral security, Secured Party shall retain its rights of setoff against
Debtor.
b. At its option, after an Event of Default, the Secured Party may
discharge taxes, liens, or security interests or other encumbrances at any time
levied or placed on the Collateral, may place and pay for insurance thereon, may
order and pay for the repair, maintenance and preservation thereof and may pay
any necessary filing or recording fees. The Debtor agrees to reimburse the
Secured Party on demand for payment made or any reasonable expense incurred by
the Secured Party pursuant to the foregoing authorization.
c. Until the occurrence of an Event of Default, Debtor may have
possession of the Collateral and use it in any lawful manner not inconsistent
with this Agreement or any policy of
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insurance thereon, and upon the occurrence of an Event of Default, Secured Party
shall have immediate right to possession of the Collateral, provided, however,
that Secured Party may perfect its interest in the Collateral by possession.
d. All rights of the Secured Party hereunder shall inure to the
benefit of its successors and assigns; and all promises and duties of Debtor
shall bind its legal representatives, successors and assigns.
e. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of Montana. Further, the place where this Agreement
is entered into and the place of performance and transaction of business shall
be deemed to be the State of Montana, and in the event of litigation, the
exclusive forum, venue and jurisdiction shall be the State of Montana.
f. Unless the context otherwise requires, all terms used herein
which are defined in the Montana Uniform Commercial Code, shall have the meaning
therein stated.
DATED effective the 30th day of May, 1996.
DEBTOR:
EMERITUS PROPERTIES II, INC.
By: /s/ Raymond R. Brandstrom
--------------------------
Title: PRESIDENT
-----------------------
SECURED PARTY:
RMI CAPITAL MANAGEMENT CO.
By: /s/ W. Bradley Frizell
--------------------------
Title: Managing Director
-----------------------
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STATE OF Washington )
)ss.
COUNTY OF King )
The foregoing instrument was acknowledged before me this 30th day of May,
1996, by Raymond R. Brandstrom as President of Emeritus Properties II, Inc.
Debtor.
Witness my hand and official seal. [SEAL]
My commission expires: 11-20-98.
/s/Sarah M. Deines
------------------------
Notary Public
STATE OF Washington )
)ss.
COUNTY OF King )
The foregoing instrument was acknowledged before me this 30th day of May,
1996, by W. Bradley Frizell as Managing Director of RMI Capital Management Co.,
Secured Party.
Witness my hand and official seal. [SEAL]
My commission expires: 11-20-98.
/s/Sarah M. Deines
------------------------
Notary Public
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