CONSTRUCTION LOAN
AGREEMENT
THIS AGREEMENT made and entered into as of
the 26th day of November,1996 by and between ESC
II, L.P., a Washington limited partnership
(hereinafter called "BORROWER"), and GMAC
COMMERCIAL MORTGAGE CORPORATION, a California
corporation (hereinafter called "LENDER").
WITNESSETH:
WHEREAS, Borrower has obtained from Lender a
Commitment (as hereinafter defined) for a Loan (as
hereinafter defind); and
WHEREAS, Borrower and Lender wish to enter
into this Agreement in order to set forth the
terms and conditions of the disbursement of the
Loan to be made in accordance with the Commitment;
NOW THEREFORE, in consideration of the mutual
promises hereinafter contained and of other
valuable consideration, the receipt and
sufficiency of which are hereby acknowledged,
Borrower and Lender hereby agree as follows:
ARTICLE 1.
1.1 DEFINED TERMS. As used in this Agreement, the
following terms shall have the meanings shown:
(a) "Affidavit of Commencement of
Construction." As defined in subsection 4.1 (I).
(b) "Affidavit of Completion." As defined in
Section 7.4.
(c) "Architect." ROFDW Architects.
(d) "Architects Certificate and Consent." The
Architects Certificate and Consent as provided for
herein and in the form attached hereto as Exhibit
F.
(e) "Assignment of Architect Contract and
Plans." The Assignment of Architect Contract and
Plans as provided for herein and in the form
attached hereto as Exhibit E.
(f) "Assignment of Construction Contract."
The Assignment of Construction Contract as
provided for herein and in the form attached
hereto as Exhibit C.
THIS AGREEMENT CONTAINS INDEMNIFICATION PROVISIONS
WHICH, AMONG OTHER MATTERS AND IN CERTAIN
CIRCUMSTANCES, INDEMNIFY LENDER AGAINST THE
CONSEQUENCES OF LENDER'S OWN NEGLIGENCE AND
AGAINST ANY STRICT LIABILITY IMPOSED ON LENDER
(g) "Assignment of Engineering Contract and
Plans." The Assignment of Engineering Plans as
provided for herein and in the form attached
hereto as Exhibit G.
(h) "Assignment of Leases and Rents." The
Assignment of Leases and Rents of even date
herewith from Borrower to Lender covering certain
leases described therein, providing a source of
future payment of the Note.
(i) "Borrower's Affidavit." An affidavit by a
partner or officer of Borrower setting forth
certain facts relating to the Premises, the
Borrower and the Loan.
(j) "Certificate of Non Foreign Status." A
certificate by Borrower as required by Section
1445 of the Internal Revenue Code.
(k) "Commitment." A commitment agreement
dated October 31,1996, by and between Lender and
Borrower, in which Lender agrees to lend, and
Borrower agrees to borrow and take down, the Loan
in accordance with the terms, provisions and
conditions set forth therein, together with all
modifications and amendments to said commitment
agreement.
(l) "Completion Date." January 1,1998.
(m) "Construction Contract." An agreement
providing for the furnishing of labor and/or
materials to be used in the construction and/or
installation of the Improvements, including all
additions, changes and other amendments thereto,
and an agreement providing for the abatement of
asbestos or asbestos-containing material.
(n) "Construction Loan Period." The term of
the Loan commencing on the date hereof and ending
on the Conversion Date.
(o) "Construction Schedule." As defined in
subsection 4.1 (h).
(p) "Contractor." Shall include ▇▇▇▇▇-
▇▇▇▇▇▇▇▇ Constructors, Inc. as to the construction
of the Improvements and Total Abatement Systems
Corp. as to asbestos abatement of the existing
improvements on the Land.
(q) "Contractor's Consent, Agreement and
Certification." The Contractor's Consent,
Agreement and Certification as provided for herein
and in the form attached hereto as Exhibit D.
(r) "Conversion Date." The date on which the
Conversion Requirements have been satisfied in
Lender's sole discretion.
(s) "Conversion Requirements." The following
requirements:
(i) The conditions to the final
construction advance hereunder has been
satisfied and the final construction advance
of the Loan has been made, as provided in
Section 7.4 hereof.
(ii) All Licensing Requirements have
been satisfied.
(iii) Borrower has assigned to Lender
all its right, title and interest to all
licenses required for the ownership and
operation of the Property.
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(iv) No "Event of Default" exists under
the Loan Documents.
(iv) On a date not earlier than November
26,1998.
(t) "DHS." The Texas Department of Human
Services and its successors.
(u) "Debt Coverage Ratio." A fraction, the
numerator of which is the Net Operating Income and
the denominator of which is an amount equivalent
to the monthly installments required to amortize
principal and interest in three hundred (300)
equal monthly payments, assuming interest during
such period on the Maximum Loan Amount at a rate
of 9.5ob per annum.
(v) "Earnout Advance." The amount of the
advance of the Loan proceeds as determined
pursuant to Section 7.5 hereof.
(w) "Earnout Requirements." On or before a
date that is not later than six (6) months prior
to the maturity date of the Term Loan Period,
Borrower shall furnish evidence satisfactory to
Lender that the Improvements have produced a Net
Operating Income of not less than $200,000 for
each twelve (12) consecutive months, with a Debt
Coverage Ratio of not less than 1.35, and Lender
shall be in receipt of the Earnout Appraisal (as
hereinafter defined).
(x) "Engineer." Leigh Engineering, Inc.
(y) "Engineer's Certificate and Consent." The
Engineer's Certificate and Consent as provided for
herein and in the form attached hereto as Exhibit
H.
(z) "Engineering Plans." The plans and
specifications prepared by the Engineer listed in
the Assignment of Engineering Contract and Plans
to be used in connection with the construction of
the Improvements.
(aa) "Financing Statement." A Financing
Statement between Borrower and Lender, perfecting
the security interest in personal property created
by the Mortgage.
(ab) "Forecast." As defined in subsection 4.1
(e).
(ac) "Governmental Authority." The United
States, the State, the county, and the city, or
any other political subdivision in which the Land
is located, and any other political subdivision,
agency or instrumentality exercising jurisdiction
over Borrower, Guarantor or the Premises.
(ad) "Governmental Requirements". All laws,
ordinances, statutes, codes, rules, regulations,
orders and decrees of any Governmental Authority
applicable to Borrower, Guarantor on the Premises.
(ae) "Guaranty." A Guaranty of even date
herewith made by Emeritus Corporation, a
Washington corporation (hereinafter called
"GUARANTOR," whether one or more) guaranteeing the
payment of the Note and the performance by
Borrower of its obligations under the Mortgage,
this Agreement and the other Loan Documents.
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(af) "Hard Costs." The direct costs of
constructing the Improvements, such as labor,
services, supplies, and materials incurred in
connection with off-site improvements, sitework,
concrete, masonry, metals, wood, roofing,
insulation, doors and windows, finishes,
specialties/fireplaces, appliances, furnishings,
special construction, elevators, mechanical,
electrical, general conditions, and construction
contingency;
(ag) "Improvements." The improvements to be
constructed on the Land consisting of construction
modifications to existing buildings, construction
of a new central building and a new heating,
ventilating and air condition system, in
accordance with the Plans and Specifications (as
hereinafter defined) as provided herein and
contemplated hereby, for a total of 301 Units (152
independent Units and 149 assisted living Units).
(ah) "Initial Advance." The first advance
under the Loan pursuant to this Agreement which
such advance shall be made on the date hereof in
the amount of $7,140,628.47.
(ai) "Inspecting Architect." Any
representative of Lender designated to review the
Plans and Specifications on behalf of Lender and
to make monthly inspections of the construction of
the Improvements on behalf of Lender, such
representative may be an architect or engineer
selected by Lender. The expenses and fees of the
Inspecting Architect shall be paid by Borrower
upon demand.
(aj) "Land." The real property described in
Exhibit A attached hereto and made a part hereof.
(ak) "Licensing Requirements." All
requirements of the DHS and any other Governmental
Authority with respect to the licensing and
operation of the Property as an "assisted living
facility" or "personal care facility," as such
terms are defined by the DHS.
(al) "Loan." A loan in the maximum principal
amount of Seventeen Million and No/100 Dollars
($17,000,000) (the "MAXIMUM LOAN AMOUNT") from
Lender to Borrower; provided that advances under
the Loan for the Project Budget shall not exceed
$14,800,000 (the "MAXIMUM CONSTRUCTION LOAN
AMOUNT"), secured by a first lien on the Premises
(as hereinafter defined).
(am) "Loan Documents." This Agreement and the
documents described in certain subsections of this
Section 1.1.
(an) "Mortgage." A Deed of Trust, Mortgage
and Security Agreement of even date herewith,
conveying the Premises to Lender, as mortgagee,
and granting a security interest in certain
property and rights, to secure the payment of the
Note.
(ao) "Net Operating Income." Project Revenues
for the period in question, less all actual costs
and expenses paid to third parties in connection
with the operation and maintenance of the Premises
that are allocable to such period, computed
without regard to depreciation, amortization or
debt service, but otherwise in accordance with
sound accounting principles consistently applied.
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(ap) "Note." A promissory note of even date
herewith payable to the order of Lender and in the
principal amount of the Loan.
(aq) "Notice and Agreement." An instrument
executed by Borrower and Lender pursuant to
Subsection 26.02 of the Texas Business and
Commerce Code.
(ar) "Payment and Performance Bond." As
defined in subsection 3.1 (p).
(as) "Plans and Specifications." Plans and
specifications prepared or to be prepared by the
Architect for the construction of the Improvements
listed in the Assignment of Architect Contract and
Plans, including all additions, changes and other
amendments thereto.
(at) "Premises." The Land and the
Improvements.
(au) "Project Budget: ' As defined in
subsection 4.1 (e) and as attached hereto as
Exhibit B.
(av) "Project Costs." As defined in
subsection 4.1 (e).
(aw) "Project Revenues." As defined in
subsection 4.1 (e).
(ax) "Soft Costs." The indirect costs of
constructing the Improvements, such as accounting,
appraisal, market study, architectural fees,
engineering fees, legal fees, financing costs,
construction period interest, insurance,
marketing, municipal development fees, taxes
(construction period), title work, general
administration costs, underwriting fees and
developer fees.
(ay) "Unit(s)." An individual apartment or
place of residence within the Improvements.
(az) 'Term Loan Period." In the event the
Conversion Requirements are satisfied, the period
from the first day immediately following the
Conversion Date to November 26, 2001.
(ba) 'Title Company." American Title Company,
agent for Chicago Title Insurance Company.
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ARTICLE 2.
THE LOAN
2.1 THE LOAN. Subject to and upon the terms,
conditions and limitations contained in this
Agreement and the Commitment and relying on the
representations and warranties contained in this
Agreement and the other Loan Documents and the
Commitment, Lender agrees to lend, and Borrower
agrees to borrow and take down, the Loan, to be
evidenced by the Note. All proceeds of the Loan
shall be advanced against the Note as provided in
Article 7 hereof and shall be used by Borrower to
pay for Project Costs as contained in the Project
Budget. The principal amount actually owing on the
Note from time to time shall be the aggregate of
all advances theretofore made by the Lender
against the Note less all payments theretofore
made on the principal of the Note.
2.2 SECURITY FOR THE LOAN. The Loan, as evidenced
by the Note, shall be secured by inter alia, the
Mortgage, the Assignment of Leases, the Assignment
of Construction Contract, the Assignment of
Architect Contract and Plans and the Assignment of
Engineering Contract and Plans, and shall be
guaranteed by the Guaranty.
2.3 SCHEDULE OF DISBURSEMENTS. Disbursement of the
proceeds of the Loan is to be made by Lender to
Borrower in accordance with the Project Budget.
2.4 FINAL DISBURSEMENT. Lender shall have no
obligation to make any
disbursement of the Loan after the maturity of the
Note.
ARTICLE
3.
REPRESENTATIONS AND WARRANTIES OF BORROWER
3.1 Representations. Warranties and Covenants of
Borrower. Borrower hereby represents, warrants and
covenants to Lender that:
(a) STATUS AND AUTHORITY. Borrower is a
Washington limited partnership duly organized and
existing as a foreign limited partnership under
the laws of the State of Texas and has the power,
authority and legal right to carry on the business
now being conducted by it and to enter into, and
to engage in the transactions contemplated by, the
Loan Documents. The execution and delivery of the
Loan Documents and the performance and observance
of the provisions thereof are authorized by all of
the partners of Borrower.
(b) VALIDITY OF LOAN DOCUMENTS. The Loan
Documents are in all respects legal, valid and
binding obligations of Borrower according to their
terms subject to principles of equity acting as
limitations on creditors' rights generally and the
effect of bankruptcy, insolvency, moratorium, and
other similar laws of general application and the
Mortgage grants to Lender a direct, valid and
enforceable first lien upon and security interest
in the Premises and the personal property and
fixtures to be located thereon.
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(c) PRIORITY OF LIEN ON PERSONALTY. No
security interest (except in favor of Lender)
exists with respect to any personal property,
chattel or fixture used in, or in connection with,
the construction, operation or maintenance of the
Improvements.
(d) CONFLICTING TRANSACTIONS OF BORROWER. The
consummation of the transactions hereby
contemplated and the performance of the
obligations of Borrower and the Guarantor under
and by virtue of the Loan Documents will not
result in any breach of, or constitute a default
under, any mortgage, deed of trust, lease, loan or
credit agreement, corporate charter, bylaws,
articles of partnership or other instrument to
which Borrower or the Guarantor is a party or by
which it or the Premises may be bound or affected.
(e) PENDING LITIGATION. There are no actions,
suits or proceedings pending, or to the knowledge
of Borrower or the Guarantor threatened, against
or affecting Borrower or the Guarantor or the
Premises, or involving the validity or
enforceability of any of the Loan Documents or the
priority of the lien thereof, at law or in equity,
or before or by any governmental authority, except
actions, suits and proceedings which are fully
covered by insurance and which, if adversely
determined, would not substantially impair the
ability of Borrower or any Guarantor to perform
each and every one of its obligations under and by
virtue of the Loan Documents; and to Borrower's
knowledge it is not in default with respect to any
order, writ, injunction, decree or demand of any
court or any governmental authority.
(f) VIOLATIONS OF GOVERNMENTAL REQUIREMENTS.
Borrower has no knowledge, after due inquiry, of
any violations or notices of violations of any
Governmental Requirements.
(g) NO CONSENTS NECESSARY. No consent of any
other party, and no consent, license, approval or
authorization of, or registration or declaration
with, any governmental authority is required in
connection with the execution, delivery,
performance, validity or enforceability of the
transactions contemplated by this Agreement or the
Loan Documents. Borrower shall promptly submit its
plan for landscaping for approval by the
applicable authority, and shall obtain such
approval prior to the issuance of the final
certificate of occupancy for the Improvements.
(h) AVAILABILITY OF UTILITIES. All utility
and municipal services necessary for the
construction, occupancy and proper operation of
the Improvements for their intended purpose are
available at the Premises, including water supply,
storm and sanitary sewer facilities, gas or
electricity and telephone facilities, or will be
available at the Premises when constructed or
installed as part of the Improvements, and written
permission has been or will be obtained from the
applicable utility companies or municipalities to
connect the Improvements into each of said
services, and Borrower will supply evidence
thereof satisfactory to Lender. All of such
utility and municipal services will, to Borrower's
knowledge, after due inquiry, comply with all
applicable Governmental Requirements.
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(i) ROADS. All roads necessary for the full
utilization of the Improvements for their intended
purposes have been completed or the necessary
rights-of-way therefor have either been acquired
by the appropriate Governmental Authority or have
been dedicated to the public use and accepted by
such Governmental Authority and all necessary
steps have been taken by Borrower and any such
Governmental Authority to assure the complete
construction and installation thereof.
(j) BUILDING PERMITS. All zoning, utility,
building, health and operating permits (if any)
required for the construction and operation of the
Improvements have been obtained or will be
obtained prior to commencement of construction of
the Improvements and copies of same will be
delivered to Lender.
(k) CONDITION OF PREMISES. The Premises are
not now damaged or injured as a result of any
fire, explosion, accident, flood or other
casualty.
(l) CONSTRUCTION CONTRACT. Borrower has
entered into no contracts or agreements with third
parties (either written or oral) providing for the
furnishing of
labor or materials to be used in the construction
or installation of the Improvements and will enter
into no such contracts or agreements except the
Construction Contract with Contractor, and
contracts with the Architect and Engineer, in such
form and upon such terms as shall be approved in
writing by Lender.
(m) SUFFICIENCY OF FUNDS. Sufficient funds
are available to Borrower in addition to proceeds
of the Note to pay all Project Costs. Upon request
of Lender, Borrower will demonstrate to Lender
that such funds are available.
(n) FINANCIAL STATEMENTS. The financial
statements and information regarding Borrower and
Guarantor heretofore delivered to Lender are true
and correct in all respects, having been prepared
in accordance with accounting principles applied
on a consistent basis throughout the period
covered thereby, and fairly present the financial
condition of Borrower and Guarantor as of the date
thereof. No material adverse change has occurred
in the financial condition of Borrower and
Guarantor reflected therein since the date
thereof.
(o) BROKERAGE COMMISSIONS. Any brokerage
commissions due in connection with the transaction
contemplated hereby have been paid in full and any
such commissions coming due in the future will be
promptly paid by Borrower. BORROWER AGREES TO AND
SHALL INDEMNIFY LENDER FROM ANY LIABILITY, CLAIMS
OR LOSSES ARISING BY REASON OF ANY SUCH BROKERAGE
COMMISSIONS. THIS PROVISION SHALL SURVIVE THE
REPAYMENT OF THE LOAN MADE IN CONNECTION HEREWITH
AND SHALL CONTINUE IN FULL FORCE AND EFFECT SO
LONG AS THE POSSIBILITY OF SUCH LIABILITY, CLAIMS
OR LOSSES EXISTS.
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(p) PAYMENT AND PERFORMANCE BOND. Borrower
has furnished to Lender a payment and performance
bond which includes a dual obligee endorsement
(herein called the "PAYMENT AND PERTORMANCE BOND")
which satisfies all applicable requirements of
Subchapter I of Chapter 53 of the Texas Property
Code (Sections 53.201 et seq.). Without limiting
the generality of the foregoing, Borrower has
caused a payment bond for the benefit of claimants
to payment for labor and materials furnished in
the construction of the Improvements to be issued
by a corporate surety authorized and admitted to
do business in Texas and licensed by the State of
Texas to execute bonds as surety, which are in the
penal sum of at least the total of the
Construction Contract price, in favor of Borrower,
has the written approval of Borrower endorsed on
it, executed by the Contractor as principal and
the issuing surety and conditioned on prompt
payment for all labor, subcontracts, materials,
specially fabricated materials, and normal and
usual extras not exceeding 15 percent of the
Construction Contract price, which bond shall,
upon the approval of Lender, be filed with the
county clerk of Dallas County, Texas, together
with a copy of the Construction Contract.
ARTICLE 4.
COVENANTS OF BORROWER
4.1 Borrower hereby covenants and agrees with
Lender as follows:
(a) COMMITMENT. Borrower shall permit no
Event of Default under the terms of the
Commitment.
(b) TITLE INSURANCE. Borrower shall furnish
to Lender, at Borrower's expense, a mortgagee
title insurance policy (herein called the
"MORTGAGEE TITLE POLICY") showing Lender as the
insured thereunder, in the amount of the Loan and
in form and substance and written by the Title
Company on behalf of an underwriter satisfactory
to Lender insuring a valid first lien upon the
Premises by virtue of the Mortgage and containing
no exceptions except those specifically waived in
writing by Lender. If the underwriter issuing the
Mortgagee Title Policy becomes insolvent or is
placed in receivership or for any other reason
such Policy becomes unenforceable, Borrower shall
furnish Lender, at Borrower's expense, another
mortgagee title insurance policy in the amount and
in substitution for the original Mortgagee Title
Policy and meeting the above requirements.
(c) INSURANCE. Borrower shall obtain and
maintain such insurance or evidence of insurance
as Lender may reasonably require, written by
companies with a rating of A- or better from A.M.
Best Company, including but not limited to the
following:
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(i) BUILDER'S RISK INSURANCE - All Risk
Builder's Risk with replacement cost. Limit
should be for completed value risk with
coverage until! Improvements are occupied and
such other hazard insurance as Lender may
require against all risks of physical loss
including debris removal, collapse and
transit coverage, with deductibles not to
exceed $5,000, with noncontributing mortgagee
clauses and standard subrogation clauses and
a mortgagee's loss payable endorsement making
loss payable to Lender, such insurance to be
in such amounts covering the total value of
work performed and equipment, supplies and
materials furnished and in such form and by
such companies as shall be approved by
Lender, and the originals of such policies
(together with appropriate endorsements
thereto, evidence of payment of premiums
thereon and written agreement by the insurer
or insurers therein to give Lender thirty
(30) days prior written notice of
modification or intention to cancel) shall be
promptly delivered to Lender; said insurance
coverage to be kept in full force and effect
at all times until the completion of
construction of the Improvements.
(ii) PERMANENT/HAZARD INSURANCE - As
completion and occupancy of the Improvements
requires, All Risk coverage insurance with
deductibles not to exceed $5,000 (or such
greater amount as Lender may approve in
writing); such insurance shall provide for
claims to be settled on a replacement cost
basis, and shall include an agreed amount
clause with an inflation guard or similar
provision for maintaining insurance to value;
such insurance to be kept in full force and
effect at all times thereafter until the
payment in full of the Loan.
(iii) PUBLIC LIABILIY AND WORKER'S
COMPENSATION INSURANCE - A certificate from
an insurance company indicating Borrower and
Contractor are covered to the satisfaction of
Lender by public liability and worker's
compensation insurance.
(iv) BUSINESS AUTOMOBILE INSURANCE - A
certificate from an insurance company
indicating that Borrower and Contractor are
covered by commercial automobile liability
insurance, including owned, non-owned and
hired vehicles.
(v) LOSS OF RENTS/EARNINGS - A
certificate from an insurance company
indicating coverage for anticipated income
from the Premises for a period of one (1 )
year from the date of loss, in an amount
equal to one (1) year projected
rents/earnings.
(vi) FLOOD INSURANCE - Flood coverage,
if covered properly (whether equipment,
inventory or contents) is located in an A or
V flood hazard zone.
(vii) EXCESS LIABILITY - Minimum of
$6,000,000 for excess over all liability
policies. Deferred cost should be covered on
a "first dollar" basis, in addition to policy
limits.
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(viii) OTHER INSURANCE - Such other
insurance as may be reasonably required by
the Mortgage.
(d) COLLECTION OF INSURANCE PROCEEDS.
Borrower shall cooperate with Lender in obtaining
for Lender the benefits of any insurance or other
proceeds lawfully or equitably payable to it in
connection with the transactions contemplated
hereby and the collection of any indebtedness or
obligation of Borrower to Lender incurred
hereunder (including the payment by Borrower of
the expense of an independent appraisal on behalf
of lender in case of a fire or other casualty
affecting the Premises).
(e) PROJECT BUDUET AND APPLICATION OF LOAN
PROCEEDS. Contemporaneously with or prior to the
execution of this Agreement, Borrower shall submit
to Lender for approval by Lender a Project Budget
which shall include all Project Costs (as
hereinafter defined) as "uses of funds; '
including a category for contingencies, and shall
designate the "sources of funds," that is,
proceeds of the Loan, Project Revenues (as
hereinafter defined) and Borrower's equity. The
Project Budget shall include a forecast
(hereinafter called the "FORECAST") of the timing
of the sources and uses of funds through the
maturity date of the Loan. The Project Budget
shall specify the interest rate projections and
leasing assumptions used to determine the Project
Costs and the Forecast. "PROJECT COSTS" shall mean
all costs incurred in connection with the
construction, leasing and operation of the
Improvements until the maturity date of the Loan,
including without limitation Hard Costs and Soft
Costs (including interest expense). "PROJECT
REVENUES" shall mean all receipts and revenues
generated by or in connection with the Premises,
including without limitation rents, interest
income, insurance proceeds, condemnation awards
and payments received from interest rate hedging
or similar agreements. Borrower agrees to give
Lender prompt written notice of any changes that
should be made in the Project Costs or the
Forecast so that the Project Budget accurately and
realistically represents the sources and uses of
funds for the Premises. In addition, Lender may
notify Borrower that, in Lender's judgment,
changes need to be made in the Project Budget. If,
after consultation and consideration of the view
of Borrower and supporting documentation, Borrower
and Lender do not agree as to what modifications
need to be made in the Project Budget, the
determination of Lender shall govern. Lender shall
confirm to Borrower the most current approved
Project Budget. Borrower shall use the proceeds of
the Loan solely for the purpose of paying for the
Project Costs as set forth in the Project Budget
and shall in no event use any of the Loan proceeds
for any other purpose.
(f) CONSTRUCTION DOCUMENTS. Borrower shall
deliver to Lender a copy of the Construction
Contract executed by Borrower and the Contractor,
a copy of any contract executed by Borrower and
the Architect and executed copies of any other
contracts by Borrower with architects and
engineers. Borrower shall furnish Lender with a
complete list of all persons, firms or entities
which the Borrower proposes to engage to furnish
labor and/or materials in constructing the
Improvements, will periodically update such list
to reflect the persons, firms or entities working
on the Improvements, and will furnish Lender with
true copies of all written agreements (including
contracts, subcontracts and purchase orders)
therefor and the terms of all verbal agreements
therefor. All Construction Contracts shall be in
form and content satisfactory to Lender.
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If, in the sole judgment of Lender, such contracts
and subcontracts do not cover all of the work
necessary for completion of construction of the
Improvements, including the installation of such
fixtures and equipment as are required for the
operation of the Improvements and including all
work required by any leases then in effect or to
make any portion of the Improvements rentable
(whether to be done and paid for by Borrower or by
the Tenant), Borrower shall cause to be furnished
firm bids from responsible parties, or estimates
and other information satisfactory to Lender, for
the work not so covered, to enable Lender to
ascertain the total estimated cost of all work
done and to be done. The Construction Contract
together with all other contracts, subcontracts
lists, agreements and terms of verbal agreements
described in this subparagraph shall herein be
called the "CONSTRUCTION DOCUMENTS."
(g) CONSTRUCTION CONTRACT. Borrower shall (i)
permit no Event of Default under the terms of the
Construction Contract, (ii) waive none of the
obligations of the Contractor thereunder, (iii) do
no act which would relieve Contractor from its
obligations to construct the Improvements
according to the Plans and Specifications, and
(iv) make no amendments to, or change orders with
respect to, the Construction Contract or any other
Construction Document, without the prior written
consent of Lender.
(h) CONSTRUCTION SCHEDULE. Borrower shall
furnish to Lender a schedule (herein called the
"CONSTRUCTION SCHEDULE") showing the timing of
construction of the Improvements with a breakdown
by trade.
(i) COMMENCEMENT AND COMPLETION OF
CONSTRUCTION. Borrower has commenced construction
of the Improvements and shall diligently pursue
said construction to completion, and shall supply
such moneys and perform such duties as may be
necessary to complete the construction of the
Improvements pursuant to and in conformity with
the Plans and Specifications (including the
Engineering Plans) and in accordance with good
building practice and in full compliance with all
terms and conditions of the Commitment and the
Loan Documents, all of which shall be accomplished
on or before the Completion Date, and without
liens, claims or assessments (actual or
contingent) asserted against the Premises for any
material, labor or other items furnished in
connection therewith, and all in full compliance
with all Governmental Requirements. Borrower will
provide to Lender upon request therefor evidence
of satisfactory compliance with all of the
foregoing.
(j) RIGHT OF LENDER TO INSPECT PREMISES. At
all reasonable times and upon reasonable notice to
Borrower, Borrower shall permit Lender and its
representatives and agents, including the
Inspecting Architect, to enter upon the Premises
and to inspect the Improvements and all materials
to be used in the construction thereof and all
books, records, contracts, statements, invoices,
bills, plans and specifications, shop drawings,
appraisals, title and other insurance, reports,
lien waivers and all other instruments and
documents of any kind relating to the
construction, leasing and operation of the
Improvements; shall cooperate and cause Architect,
and Contractor to cooperate with Lender and its
representatives and agents during such inspections
and shall maintain all of the foregoing for said
inspections; shall permit the photographing of any
portions of the Premises or any materials thereon;
and shall, if requested by Lender or its
representatives or agents, move, remove or uncover
such materials or portions of
12
the Improvements as shall be reasonably necessary
to fully and completely inspect the Premises;
provided, however, that this provision shall not
be deemed to
impose upon Lender any duty or obligation
whatsoever to undertake such inspections, to
correct any defects in the Improvements or to
notify any person with respect thereto.
(k) AFFIDAVIT OF COMMENCEMENT OF
CONSTRUCTION. Borrower and Contractor shall
jointly file an Affidavit of Commencement with the
county clerk of the county in which the Land is
located not later than the 30th day after the date
of actual commencement of construction of the
Improvements or delivery of materials to the Land.
Such affidavit shall be in the form attached
hereto as Exhibit I, shall contain the information
required by Section 53.124(c) of the Texas
Property Code, shall not be fled prior to approval
thereof in writing by Lender (which approval shall
be given promptly by Lender if the requirements
set forth in this paragraph have been satisfied)
and shall in no event be filed showing a date of
commencement of construction which is prior to the
filing of the Mortgage with the county clerk of
the county where the Land is located.
(l) CORRECTION OF DEFECTS. Borrower shall
promptly correct any structural defect in the
Improvements or any departure from the Plans and
Specifications not previously approved by lender
and any violation of any requirement of any
governmental entity. The advance of any Loan
proceeds shall not constitute a waiver of Lender's
right to require compliance with this covenant.
(m) OFF-SITE WORK. To the extent required by
the Plans and Specifications or the Engineering
Plans, Borrower shall promptly commence and
complete any and all off-site improvements
(including public streets, walks and like areas
adjoining the Improvements) as and if required and
provide any and all utilities and other facilities
required, all in accordance with the requirements
of all Governmental Authorities having
jurisdiction thereof. Unless otherwise provided
for, such off-site improvements shall be deemed
part of the work of construction of the
Improvements. Borrower expressly agrees to
indemnify Lender and to hold it harmless against
any claim of surety furnishing bond for such work
to the Governmental Authorities having
jurisdiction, whether such claims be founded upon
existing or future liability, and whether such
liability be expressed or implied.
(n) STORAGE OF MATERIALS. Borrower shall
cause all materials supplied for or intended to be
utilized in the construction of the Improvements
but not affixed to or incorporated into the
Premises to be stored on the Premises or at such
other location as may be approved by Lender in
writing, with adequate safeguards to prevent loss,
theft, damage or commingling with other materials
not intended to be utilized in the construction of
the Improvements.
(o) VOUCHERS. Borrower shall deliver to
Lender, on demand, any contracts, bills of sale,
statements, receipted vouchers or agreements under
which Borrower claims title to any materials,
fixtures or articles incorporated in the
Improvements or otherwise subject to the lien of
the Mortgage.
13
(p) ENCROACHMENTS. Borrower agrees that (i)
the Improvements shall be constructed entirely on
the Land; (ii) until the Loan is discharged, no
conveyances of any portion of or interest in the
Premises will be made by Borrower which will cause
any encroachment above, on, or under the surface
of the Premises; (iii) such construction will not
encroach upon or overhang any easement or right-of
-way upon the land of others; (iv) the
Improvements when completed shall be wholly within
applicable building restriction lines however
established; and (v) upon request Borrower will,
from time to time, furnish satisfactory evidence
of the foregoing.
(q) LIENS. Borrower will not install nor
otherwise incorporate in the Improvements any
materials, equipment or fixtures under any
conditional sales agreements or security agreement
whereby the right is reserved or accrued to anyone
to remove or repossess any such items in excess of
$25,000 in the aggregate. Borrower will not cause
or permit any lien or claim for lien for any labor
and/or material to be fled or to become valid or
effective against the Premises; provided, however,
that the existence of any unperfected and
unrecorded mechanic's lien shall not constitute a
violation of this subsection if payment is not yet
due for the work giving rise to the lien.
Notwithstanding the foregoing, Borrower may in
good faith, by appropriate proceedings, contest
the validity, applicability or amount of any
asserted mechanic's or materialmen's lien and
pending such contest there shall be no Event of
Default hereunder as a result thereof, if Borrower
provides Lender with security reasonably
satisfactory to Lender and if Borrower promptly
causes to be paid any amount adjudged by a court
of competent jurisdiction to be due, with all
costs and interest thereon, promptly after such
judgment; provided, however, that in any event
each such contest shall be concluded and the lien,
interest and costs shall be paid, bonded around or
otherwise removed upon completion of construction
as provided in Section 4.1 (i) hereof.
(r) COOPERATION WITH INSPECTING ARCHITECT.
Borrower shall cooperate with the Inspecting
Architect and will cause the Architect, the
Contractor and the employees of each of them to
cooperate with the Inspecting Architect and, upon
request, will furnish the Inspecting Architect
whatever he may consider necessary or useful in
connection with the performance of his duties
including but not limited to permits,
subcontracts, purchase orders, lien waivers and
other documents relating to the construction of
the Improvements. Borrower acknowledges that the
duties of the Inspecting Architect run solely to
Lender and that the Inspecting Architect shall
have no obligations or responsibilities whatsoever
to Borrower, the Architect, the Contractor or to
any of their respective agents or employees.
(s) EARNOUT APPRAISAL. As one of the Earnout
Requirements, Borrower shall submit to Lender, an
MAI appraisal of the Premises by a licensed
appraiser satisfactory to Lender, such appraisal
to be in the form satisfactory to Lender and
reflect a market value of the Premises of not less
than $21,250,000 (the "EARNOUT APPRAISAL").
(t) ESTOEPEL CERTIFICATE. Borrower shall
deliver to Lender, promptly after a request
therefor by Lender, an Estoppel Certificate, duly
acknowledged, stating the amount advanced to
Borrower under this Agreement and the amounts due
on the Note and whether any offsets or defenses
exist under or against the Note.
14
(u) LEASES. Borrower shall deliver to Lender
monthly leasing and/or occupancy reports and rent
rolls with respect to all executed leases and/or
other occupancy agreements (the "LEASES") covering
any part of the Premises. Prior to the execution
of any Leases covering the Premises or any part
thereof, Borrower will obtain the prior written
approval of Lender except for Leases on the form
and at rental rates as provided in Section 4.1
(ad) hereof.
(v) ADDITIONAL EXPENDITURES BY LENDER.
Borrower agrees that all sums paid or expended by
Lender under the terms of this Agreement in excess
of the amount of the Loan shall be considered to
be an additional loan to Borrower and the
repayment thereof, together with interest thereon
at the rate of interest payable on matured but
unpaid principal of or interest on the Note, shall
be secured by the Mortgage and the other Loan
Documents and shall be immediately due and payable
without notice, and Borrower agrees to pay such
sum upon demand. Nothing contained herein,
however, shall obligate Lender to make such
advances.
(w) INDEMNITY OF LENDER. BORROWER SHALL
INDEMNIFY AND HOLD HARMLESS LENDER (FOR PURPOSES
OF THIS SUBSECTION, THE TERM "LENDER" SHALL
INCLUDE THE DlRECTORS, OFFICERS, EMPLOYEES AND
AGENTS OF LENDER, ANY PARTICIPANTS IN THE LOAN,
AND ANY PERSONS OR ENTITIES OWNED OR CONTROLLED
BY, OWNING OR CONTROLLING, OR UNDER COMMON CONTROL
OR AFFILIATED WITH LENDER) FROM AND AGAINST, AND
REIMBURSE THEM FOR, ALL CLAIMS, DEMANDS,
LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION,
JUDGMENTS, PENALTIES, COSTS AND EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEY'S FEES ACTUALLY INCURRED) WHICH MAY BE
IMPOSED UPON, ASSERTED AGAINST OR INCURRED OR PAID
BY THEM BY REASON OF, ON ACCOUNT OF OR IN
CONNECTION WITH ANY BODILY INJURY OR DEATH OR
PROPERTY DAMAGE OCCURRING IN OR UPON OR IN THE
VICINITY OF THE PREMISES THROUGH ANY CAUSE
WHATSOEVER OR ASSERTED AGAINST THEM ON ACCOUNT OF
ANY ACT PERFORMED OR OMITTED TO BE PERFORMED
HEREUNDER BY BORROWER OR ITS AGENTS OR ON ACCOUNT
OF ANY TRANSACTION ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THE PREMISES OR WITH THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT. WITHOUT LIMITATION, IT
IS THE INTENTION OF BORROWER AND BORROWER AGREES
THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH
INDEMNIFIED PARTYWITH RESPECT TO CLAIMS, DEMANDS,
LIABILITIES,
LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS,
PENALTIES, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEY'S FEES) WHICH IN
WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE
NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED
PARTY. HOWEVER, SUCH INDEMNITIES SHALL NOT APPLY
TO ANY INDEMNIFIED PARTY TO THE EXTENT THE SUBJECT
OF THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT
OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PARTY. THE FOREGOING INDEMNITIES
SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT,
THE FORECLOSURE OF THE MORTGAGE OR
15
CONVEYANCE IN LIEU OF FORECLOSURE AND THE
REPAYMENT OF THE LOAN AND THE DISCHARGE AND
RELEASE OF THE LOAN DOCUMENTS. ANY AMOUNT TO BE
PAID HEREUNDER SHALL BE SUBJECT TO AND GOVERNED BY
THE PROVISIONS OF SECTION 4.2 HEREOF.
(x) EXPENSES AND APPROVAL OF DOCUMENTS.
Borrower shall pay all costs of closing the Loan
and all expenses of Lender with respect thereto,
including but not limited to, legal fees
(including legal fees incurred by Lender
subsequent to the closing of the Loan but incurred
in connection with the disbursement,
administration, collection or transfer of the
Loan), title insurance premiums and other charges
of the title company issuing the Mortgagee Title
Policy, appraisal fees, consulting architect fees,
consulting inspection fees, advances, recording
expenses, surveys, intangible taxes, expenses of
foreclosure (including reasonable attorneys' fees)
and similar items, and shall allow all closing
papers, Loan Documents and other legal matters to
be subject to the approval of Lender's attorneys.
(y) ADDITIONAL DOCUMENTS. Borrower shall:
(i) REGARDING CONSTRUCTION - furnish to
Lender all instruments, documents, initial
surveys, footing or foundation surveys,
certificates, plans and specifications,
appraisals, title and other insurance,
reports and agreements and each and every
other document and instrument required to be
furnished by the terms of the Commitment, all
at Borrower's expense.
(ii) REGARDING PRESERVATION OF SECURITY
- sign and deliver to Lender such documents,
instruments, assignments and other writings,
and to do such other acts necessary or
desirable, to preserve and protect the
collateral at any time securing or intended
to secure the Note, as Lender may require;
(iii) REGARDING THIS AGREEMENT - do and
execute all and such further lawful and
reasonable acts, conveyances and assurances
for the better and more effective carrying
out of the intents and purposes of this
Agreement as Lender shall require from time
to time; and
(iv) REGARDING PERMITS AND APPROVALS -
furnish to Lender
(x) evidence satisfactory to Lender that the
Plans and Specifications and the Engineering
Plans and construction pursuant thereto and
the use of the Premises contemplated thereby
comply with all applicable utility
requirements, restrictive covenants,
Governmental Requirements and all standards
and regulations of appropriate supervising
boards of fire underwriters and similar
agencies, (y) that the engineering
specifications contained in the Plans and
Specifications are within applicable
environmental standards, and (z) all permits
and approvals issued by applicable
Governmental Authorities pursuant to
Governmental Requirements, approving the
Plans and Specifications and the commencement
of construction of the Improvements.
16
(z) FURTHER ASSURANCES. Borrower shall sign
and deliver to Lender such documents, instruments,
assignments and other writings, and do such other
acts necessary or desirable, to preserve and
protect the collateral at any time securing or
intended to secure the Note, as Lender may
reasonably require; and shall do and execute all
and such further lawful and reasonable acts,
conveyances and assurances in the law for the
better and more effective carrying out of the
intents and purposes of this Agreement as Lender
shall reasonably require from time to time.
(aa) NOTICES BY DHS OR OTHER GOVERNMENTAL
AUTHORITY. Borrower has notified DHS of the
commencement of construction of the Improvements.
Borrower shall timely comply with and promptly
furnish to Lender within five (5) days true and
complete copies of any notice or claim by DHS or
any Governmental Authority pertaining to the
Premises.
(ab) LICENSURE COMPLIANCE.
(i) Borrower shall immediately and
diligently pursue all Licensing Requirements.
Following the issuance of a license to
operate a personal care facility, Borrower
shall maintain in full force and effect all
Licensing Requirements and Borrower agrees to
provide a Certificate of Good Standing within
thirty (30) days from the end of each
calendar quarter, in form substantially
similar to that reflected on Exhibit M
attached hereto, which Certificate will
include an attestation from Borrower as to
the existence and status of any and all
complaints made to any Governmental Authority
involving tenants, occupants or residents
(collectively, 'TENANTS") or the facilities,
services or supplies at the Premises.
(ii) Borrower agrees to promptly furnish
Lender a true and correct copy of each and
every survey or inspection conducted of or at
the Premises by DHS or by any other
Governmental Authority, which survey or
inspection could have a bearing or impact on
Borrower's license to operate a personal care
facility and/or to receive state or federal
reimbursement for services provided under
such license. Such information shall be
accompanied by a duly executed Certificate of
Licensure Compliance in form substantially
similar to that reflected on Exhibit N
attached hereto, noting any deficiencies
found as a result of such survey or
inspection, as well as the corrective action
plan necessary to correct such deficiencies
or concerns.
(ac) ASSIGNMENT OF LICENSING. To the extent
allowed by applicable laws and regulations,
Borrower agrees to collaterally assign to Lender
all licenses and permits necessary for the
ownership and operation of the Premises. All such
assignments shall be in form and substance
acceptable to Lender in its sole discretion.
(ad) AGREEMENTS FOR SERVICES. Borrower agrees
to enter into Leases or agreements with Tenants of
the personal care facility or assisted living
facility within the Improvements only (a) on the
forms of agreement attached hereto as Exhibit K
which are approved by Lender, and (b) for amounts
at an average rate for occupied Units equal to or
in excess of the amounts per unit per month, as
set forth on Exhibit O of the attached hereto.
17
(ae) MINIMUM CAPITAL EXPENDITURE REQUIREMENT.
Borrower shall expend a minimum capital
expenditure of $150 for each bed in each Unit
based on such Units which have been licensed by
the DHS, annually during the last two years of the
Term Loan Period (which such capital expenditure
may include ordinary repairs needed to maintain or
improve the condition of the Units). Borrower
shall furnish to Lender evidence, as reasonably
required by Lender, that such capital expenditures
have been made, within thirty (30) days of
Lender's request. If Borrower fails to provide
evidence to Lender that it has expended such
funds, Borrower shall immediately escrow with
Lender the difference between the amount required
to be expended and the amount actually expended,
such escrow to be pledged, pursuant to a pledge
agreement in form acceptable to Lender, as
additional collateral for the Loan.
(af) DEBT SERVICE COVERANE. Within three (3)
months after the Conversion Date, the Improvements
shall achieve and maintain a Debt Coverage Ratio,
on a combined basis (after deduction of an assumed
management fee of 5% of net revenues, regardless
of actual management fees paid or incurred) of not
less than 1.35, such Debt Coverage Ratio to be
reviewed by Lender each calendar quarter, based on
the operation of the Premises the preceding twelve
(12) months.
(ag) FINANCIAL REPORTS. Borrower shall
deposit with Lender during the entire term of the
Loan, within the times as hereinafter set forth,
the following:
(i) Within one hundred twenty (120)
days after the end of the fiscal year of
Borrower and Guarantor, audited financial
statements of each of such entities, prepared
by nationally recognized accounting firms or
independent certified public accounting firms
acceptable to Lender, which statements shall
include a balance sheet and a statement of
income and expenses for the year then ended.
(ii) Within forty-five (45) days after
the end of each fiscal quarter, unaudited
interim financial statements of Guarantor,
certified as true and correct in all material
respects by a financial officer of Guarantor,
prepared in accordance with generally
accepted accounting principles consistently
applied, which statements shall include a
balance sheet and statement of income and
expenses for the quarter then ended.
(iii) Within forty-five (45) days after
the end of each fiscal quarter of Borrower,
unaudited interim financial statements
pertaining to the operation of the Premises,
certified as true and correct in all material
respects by a financial officer of Borrower,
prepared in accordance with generally
accepted accounting principles consistently
applied, which statements shall include a
balance sheet, statement of income and
expenses for the quarter then ended, and
quarterly census information of the Premises
in sufficient detail to show occupant-mix on
a daily average basis for such quarter.
18
(iv) Within thirty (30) days after the
end of each calendar month, unaudited interim
financial statements pertaining to the
operation of the Premises, certified as true
and correct in all material respects by a
financial officer of Borrower, prepared in
accordance with generally accepted accounting
principles consistently applied, including a
rent roll reflecting all occupants of the
Premises in detail as reasonably required by
Lender.
(v) Within twenty (20) days of receipt
by Borrower, copies of all licensure and
certification survey reports (with plans of
correction attached thereto).
(vi) Within ten (10) days of receipt by
Borrower, any and all notices (regardless of
form) from any and all licensing and/or
certifying agencies that any Improvements'
license is being downgraded to a substandard
category, revoked, or suspended, or that
action is pending or being considered to
downgrade to a substandard category, revoke,
or suspend any Improvements' license or
certification.
(vii) If requested by Lender, evidence
of payment by Borrower or any - lessee, of
any applicable provider bed taxes or similar
taxes.
(viii) If requested by Lender, an
accounts aging report of the Premises.
Borrower shall correct any deficiency
(identified pursuant to (v) or (vi) above) by
the date required by the licensure and
certification agency or other Governmental
Authority.
4.2 FAILURE TO PERFORM. If Borrower fails to
perform any act or to take any action or to pay
any amount provided to be paid by it under the
provisions of any of the covenants and agreements
contained in this Agreement, Lender may but shall
not be obligated to perform or cause to be
performed such act or take such action or pay such
money, and any expenses so incurred by Lender and
any money so paid by Lender shall be an advance
against the Note and shall bear interest from the
date of making such payment until paid at the rate
of interest payable on matured but unpaid
principal of or interest on the Note and shall be
part of the indebtedness secured by the Mortgage,
and Lender upon making any such payment shall be
subrogated to all rights of the person,
corporation or body politic receiving such
payment.
19
ARTICLE 5.
PLANS AND
SPECIFICATIONS
5.1 PLANS AND SPECIFICATIONS. Borrower shall
furnish Lender the Plans and Specifications for
construction of the Improvements within sixty (60)
days after the date hereof, which include
engineering studies and plans, complete
architectural plans, specifications and working
drawings, projected costs and related information,
site plans, and proposed plat dedications and
proposed development restrictions and conditions
and copies of all requisite building permits
authorizing construction of the Improvements.
Borrower has also furnished Lender with a detailed
listing of the Plans and Specifications. The Plans
and Specifications and the Improvements shall
comply with all applicable restrictive covenants
and Governmental Requirements and all standards
and regulations of appropriate supervising boards
of fire underwriters and similar agencies (and the
engineering specifications contained in the Plans
and Specifications are within applicable
environmental standards). The Plans and
Specifications as approved will not be modified or
supplemented in any respect without the prior
written approval of Lender pursuant to Section 5.3
hereof.
5.2 SUPPLEMENTAL DATA. Borrower shall promptly
submit to Lender a statement of the projected cost
of constructing the Improvements, including a
description of all contracts let or to be let by
Borrower for the design, engineering, construction
and equipping of the Improvements, setting forth
the name or names of the contractor or
contractors, the date of the contracts and of any
supplements or amendments thereto, the scope of
the work covered thereby, and the aggregate
amounts payable to the
contractors thereunder, and further stating
whether said contract or contracts embrace - all
of the work required to be done and all of the
material necessary for completion of construction,
and, if not, setting forth sufficient information
to enable Lender to determine the estimated cost
of any work or materials not so covered.
5.3 CHANGES IN PLANS. All requests for approval of
changes in the Plans and Specifications must be in
writing, signed by Borrower, and shall be
conditioned upon acceptance by Lender, which
acceptance shall be subject to such conditions and
qualifications as Lender in its sole and absolute
discretion may reasonably prescribe.
Notwithstanding the foregoing, Lender's approval
shall not be required if all of the following
conditions are satisfied:
(a) Said changes do not have a material
effect on the structural portions or the exterior
appearance of the Improvements or the
architectural design concept thereof;
(b) None of said changes increases the cost
of construction by more than $25,000;
(c) The aggregate of all of said changes does
not increase the cost of construction by more than
$100,000; and
(d) At the end of each month Borrower submits
to Lender copies of all change orders effecting
said changes made in such month.
20
ARTICLE
6.
6.1 LOAN FUNDING. The Initial Advance under the
Loan shall take place in the offices of Lender or
at such other place as Lender may designate, on
the date hereof.
6.2 CONDITIONS PRECEDENT TO LOAN FUNDING. The
following shall be conditions precedent to
Lender's obligations to make the Initial Advance
under the Loan and any other funding or disbursal
of the Loan (unless waived by Lender) :
(a) REPRESENTATIONS AND WARRANTIES. On the
date of disbursal of the Loan (hereinafter called
the "LOAN FUNDING DATE"), all of Borrower's
representations and warranties contained herein or
in any other Loan Document or in the Commitment
shall be true and correct in all material
respects.
(b) COVENANTS AND AGREEMENTS. On the Loan
Funding Date, Borrower shall have performed each
covenant and agreement to be performed by Borrower
pursuant to this Agreement, any other Loan
Document or the Commitment, within the time
specified.
(c) OTHER CONDITIONS. The conditions to each
disbursement described - in Section 7.2 hereof
shall be satisfied.
(d) DUE EXECUTION AND RECORDINA OF LOAN
DOCUMENTS. Borrower shall have delivered to Lender
evidence, in form satisfactory to Lender, that the
Loan Documents have each been duly executed and
constitute valid, binding documents, enforceable
in accordance with their respective terms and have
been filed or recorded, as appropriate, in all
proper of ices.
(e) MORTGAGEE TTLE POLICY. Borrower shall
have furnished Lender with the Mortgagee Title
Policy.
(f) INSURANCE. Borrower shall have obtained
the insurance and delivered the policies and
certificates to Lender as required by subsection
4.1 (c) above.
(g) PROJECT BUDGET. Lender shall have
approved the Project Budget and all changes
thereto.
(h) FINAL PLANS AND SPECIFCATIONS. No
disbursement shall be made unless Borrower shall
have delivered to Lender final Plans and
Specifications for the portion of Improvements for
which the disbursement is being made.
(i) CONSTRUCTION CONTRACT AND OTHER
CONSTRUCTION DOCUMENTS. Lender shall have approved
the Construction Contract and all other
Construction Documents and all changes to any
thereof. .
(J) CONSTRUCTION SCHEDULE. Lender shall have
approved the Construction Schedule and all changes
thereto.
21
(k) COMMENCEMENT OF CONSTRUCTION. Lender
shall have received and approved the Affidavit of
Commencement of Construction and such other
evidence regarding commencement of construction as
is required by Lender.
(l) ASSIGNMENT OF CONSTRUCTION CONTRACT AND
SUBCONTRACTS. Borrower shall have furnished Lender
with the executed Assignment of Construction
Contract and with each Assignment of Construction
Sub-Contract executed by the Contractor.
(m) CONTRACTOR'S CONSENT. AAREEMENT AND
CERTIFICATION. Borrower shall have furnished
Lender with the executed Contractor's Consent,
Agreement and Certification.
(n) ASSIGNMENT OF ARCHITECT AND ENQINEERINQ
CONTRACT AND PLANS. Borrower shall have furnished
Lender with the executed Assignment of Architect
Contract and Plans and the Assignment of
Engineering Contract and Plans.
(o) ARCHITECT'S CERTIFICATE AND CONSENT AND
ENGINEER'S CERTIFCATE AND CONSENT. Borrower shall
have furnished Lender with the executed
Architect's Certificate and Consent and Engineer's
Certificate and Consent.
(p) APPRAISAL. Borrower shall have furnished
Lender or paid Lender's cost of acquiring an MAI
appraisal of the Premises and the proposed
Improvements by a licensed appraiser satisfactory
to Lender, such appraisal to be in the form
satisfactory to Lender and reflect a market value
of not less than $18,500,000.
(q) SURVEY. Borrower shall have furnished to
Lender a certified plat of survey of the Premises
made by a licensed surveyor or civil engineer
satisfactory to Lender meeting the requirements
contained in the Pre-Closing Document List
furnished Borrower by Lender.
(r) ZONING AND COMPLIANCE WITH LAWS. Borrower
shall have delivered to Lender evidence, in form
satisfactory to Lender, that the Premises are
zoned for the use for which the proposed
Improvements are designed and are otherwise in
compliance with all applicable Governmental
Requirements, including, if applicable, all
provisions of environmental statutes.
(s) UTILITIES. Borrower shall have furnished
Lender with evidence satisfactory to Lender that
all utilities and municipal services (including
such utilities as are necessary to secure a
certificate of occupancy or equivalent) will in a
timely manner be supplied to the Premises upon
completion of construction, including commitment
letters from the agencies or entities supplying
such services.
22
(t) PERMITS. No disbursement of the Loan
shall be made unless Borrower shall have furnished
Lender (A) two complete and true copies of the
building permits and any other permits, licenses
or certificates which are required in connection
with construction of the portion of the
Improvements for which the disbursement is being
made in accordance with the Plans and
Specifications, issued by the appropriate
Governmental Authorities with jurisdiction over
the Premises, and (B) a verified statement that no
proceedings of any kind are pending or threatened
by any person, firm, corporation or public agency
with respect to the revocation or suspension of
any permits, licenses or certificates.
(u) SOILS REPORT. Borrower shall have
furnished Lender a soils report, prepared by a
licensed soil engineer, showing that the condition
of the soil of the land is adequate to support the
Improvements which soils report shall have been
approved by Lender.
(v) BALANCE SHEET. Borrower shall have
furnished Lender a current balance sheet and
income statement for Borrower, or Borrower's
parent company if a consolidated accounting format
is used.
(w) OTHER DOCUMENTS. Borrower shall have
delivered to Lender such other documents and
certificates as Lender or Lender's counsel may
reasonably request.
(x) ORGANIZATIONAL DOCUMENTS. Borrower shall
have furnished Lender with copies of corporate
resolutions of its corporate general partner
authorizing the execution of the Loan Documents by
an appropriate officer of the general partner of
Borrower and the consummation of the matters
contemplated hereby. Borrower shall have furnished
Lender certified copies of the certificate of
limited partnership agreement of Borrower
currently in full force and effect, certificates
of existence and good standing from the state of
incorporation of the general partner of Borrower
and the incumbency certificate of the general
partner of Borrower.
(y) FINANCING FEE. Borrower shall have paid
to Lender the financing fee as required by the
Commitment.
(z) ENVIRONMENTAL REPORT. Borrower shall have
supplied to Lender an environmental report in form
and content satisfactory to and approved by
Lender.
Notwithstanding the above conditions precedent to
the Initial Advance, Lender may waive any such
requirements with respect to the Initial Advance,
but such requirements shall be conditions
precedent to all subsequent advances hereunder.
Borrower acknowledges that certain documents set
forth below, required by Lender, are not available
on the date hereof, but Borrower covenants and
agrees to diligently pursue obtaining and
delivering to Lender each and every one of the
following as and when reasonably obtainable or
available:
(a) Copies of documents relevant to licensing
requirements of DHS;
(b) Assignment of all licenses and permits
issued to Borrower after the date hereof necessary
for the operation of the Property as a personal
care or assisted living facility;
23
(c) Building permits for the Improvements;
(d) Certificates of occupancy after the
Improvements are completed;
(e) Certificate from the Texas Department of
Licensing and Regulation certifying that the Plans
and Specifications comply with Tex. Rev. Civ.
Stat. ▇▇▇. art. 9102 and the regulations
promulgated thereunder.
ARTICLE 7
METHOD AND CONDITIONS OF DISBURSEMENTS
OF LOAN PROCEEDS
7.1 DISBURSEMENT PROCEDURE. Disbursement of the
proceeds of the Loan (less a ten percent (10%)
retainage (the "RETAINAGE") from each advance
hereunder for costs of construction of the
Improvements), shall be made by Lender to Borrower
in accordance with the following procedure:
(a) CERTIFCATE FOR PAYMENT. At such time as
Borrower shall desire to obtain, subject to the
requirements contained herein, a disbursement of
any portion of the Loan proceeds, Borrower shall
complete, execute and deliver to Lender a request
for an advance in the form of a certificate for
payment approved by Lender and the Title Company
pursuant to the Construction Loan Disbursement
Agreement, in the form attached hereto as Exhibit
L.
(b) EVIDENCE OF PROGRESS OF CONSTRUCTION, The
said Certificate for Payment (hereinafter so
called) shall, upon the request of Lender, be
accompanied by evidence in form and content
satisfactory to Lender, including but not limited
to certificates and affidavits of Borrower,
Architect and/or Contractor or such other person
as Lender may require, showing:
(i) The value of that portion of the
Improvements completed at that time;
(ii) That all outstanding claims for
labor, materials and fixtures have been paid;
(iii) That there are no liens
outstanding against the Premises, except for
Lender's lien and security interest evidenced
by the Mortgage, other than inchoate liens
for property taxes not yet due;
(iv) That Borrower has complied with all
of Borrower's obligations ,
as of the date thereof, under the Loan
Documents and under the Commitment;
(v) That all construction prior to the
date of the request for an advance has been
performed and completed in accordance with
the Plans and Specifications;
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(vi) That all funds previously disbursed
by Lender have been applied directly to the
cost of acquiring the Land and the
construction of Improvements and other
incidental costs, all as set forth in the
Project Budget or otherwise as Lender shall
have approved in writing;
(vii) That all change orders in any
amount whatsoever shall have been approved in
writing by Lender, and, if required by
Lender, by any surety and any Guarantor,
except as provided in Section 5.3 hereof;
(viii) In reasonable detail but only if
applicable, all tangible personal property
installed in or appurtenant to the
Improvements, but not considered to be
fixtures, and the value thereof;
(ix) That the amount of undisbursed Loan
proceeds is sufficient to pay the cost of
completing the Improvements in accordance
with the Plans and Specifications;
(x) That the location of the
Improvements will not encroach upon any
adjoining properties or interfere with any
easement;
(xi) That all of Borrower's
representations and warranties contained
herein or in any other Loan Document or in
the Commitment are true and correct as of the
date of such advance;
(xii) That Borrower has performed each
covenant and agreement to be performed by
Borrower pursuant to this Agreement, any
other Loan Document or the Commitment, within
the time specified;
(xiii) That, if payments are to be made
on account of materials or equipment not
incorporated in the work but delivered and
suitably stored on the Premises, or at some
other location agreed upon in writing, such
payments shall be conditioned upon submission
to Lender by Borrower of bills of sale or
such other procedures satisfactory to Lender
to establish Borrower's title to, and
Lender's lien upon, such materials or
equipment or otherwise protect Lender's
interest; and
(xiv) That neither the Premises nor the
Improvements are the subject of any
litigation which adversely affects or could
adversely affect the title thereof and/or the
validity or priority of the Mortgage or the
right of the Borrower to construct the
Improvements;
and shall be accompanied by copies of all bills or
statements for expenses for which the advance is
requested.
(c) CERTIFICATE OF INSPECTING ARCHITECT. Each
request for disbursement shall be accompanied by
written certification from the Inspecting
Architect indicating the status of construction,
compliance with the Plans and Specifications, and
approval of the disbursement request. Borrower
shall pay all fees and expenses of such architect
or engineer for monthly inspections, or more
frequently if such inspections result from more
frequent disbursement requests from
Borrower.
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(d) CONTINUATION OF TITLE INSURANCE COVERAGE.
The above said request for disbursement shall, at
the request of Lender, be accompanied by a
satisfactory down date endorsement to the
previously delivered Mortgagee Title Policy which
endorsement shall (i) extend the effective date of
the Mortgagee Title Policy to the date of
advancement and show that since the effective date
of said Policy (or the effective date of the last
such endorsement, if any) there has been no change
in the status of the title to the Premises and no
new encumbrance thereon and (ii) state the amount
of coverage then existing under the Mortgagee
Title Policy which shall be the total of all
disbursements of the Loan including the
disbursement which is made concurrently with the
down date endorsement.
7.2 CONDITIONS TO EACH DISBURSEMENT. At no time
and in no event shall Lender be obligated to
disburse funds:
(a) In excess of the amount recommended by
the Lender's Inspecting Architect;
(b) If any Event of Default as described in
Article 8 hereof shall have occurred;
(c) If Lender in its reasonable discretion is
not satisfied that the construction of the
Improvements will be completed on or before the
date specified herein;
(d) If the Loan is not "in balance" as
provided in Section 7.3 following;
or
(e) If the Premises shall have been damaged
by fire or other casualty and Lender shall not
have received insurance proceeds sufficient in the
sole judgment of Lender to effect the restoration
of the Improvements in accordance with Plans and
Specifications and to permit the completion of the
Improvements on or before the Completion Date set
forth herein.
7.3 BALANCING OF LOAN AND BORROWER'S DEPOSIT.
(a) The Loan shall be deemed to be "in
balance" only at such time as Borrower has paid a
sufficient amount of Project Costs from its own
funds so that the undisbursed portion of the Loan,
together with projected Project Revenues as set
forth in the Project Budget, are sufficient, in
the reasonable judgment of Lender, to pay all
Project Costs until the Conversion Date and the
achievement of ninety-five percent (95%) occupancy
of the Units under Leases approved by Lender. In
determining whether the Loan is in balance, Lender
shall determine, among other things, whether the
amounts allocated for each category of Project
Costs in the Project Budget are sufficient and
whether the timing of receipts and expenditures
set forth in the Forecast are realistic and
achievable.
(b) Within ten (10) days after written notice
from Lender to Borrower that the Loan is not in
balance, Borrower shall deposit with Lender
sufficient funds (herein called "BORROWER'S
DEPOSIT") with Lender to bring the Loan in
balance. The Borrower's Deposit will be held by
Lender in a non-interest bearing account
collaterally assigned to secure the Loan and will
be disbursed by Lender to pay Project Costs
pursuant to this Agreement, prior to the
disbursement of any additional proceeds of the
Loan. Upon the occurrence of an Event of Default
under this Agreement, Lender may apply Borrower's
26
Deposit against the unpaid indebtedness evidenced
by the Note, principal, accrued interest or
attorney's fees, in such order as Lender may
determine. Upon the payment in full of the Loan
and all other obligations of Borrower to Lender
hereunder, Lender shall return the remaining
balance of Borrower's Deposit, if any, to
Borrower.
(c) Borrower agrees to use all Project
Revenues for payment of Project Costs and to
provide Lender with satisfactory evidence of such
payment. To the extent Project Revenues are
available, they will be used to pay Project Costs
prior to the use of Loan proceeds. Project
Revenues may not be distributed to partners or
shareholders or members of Borrower, or used for
anything other than Project Costs, prior to
completion of the Improvements and occupancy of
the Units by Tenants. Monthly Project Revenues in
excess of Project Costs up to $250,000 (the
"EXCESS FUNDS") shall be remitted to Lender on a
monthly basis and shall be applied by Lender
toward the payment of accrued interest due on the
Note or any other sum then due and owing to Lender
in such order of priority as determined by Lender.
The balance of the Excess Funds (after such
application as aforesaid) shall be deposited in an
interest bearing account (the "EXCESS FUNDS
ACCOUNT"), as selected by Lender, and such Excess
Funds Account and the Excess Funds shall be
collaterally pledged to Lender pursuant to a
pledge agreement, in form and substance
satisfactory to Lender (the "PLEDGE AND SECURITY
AGREEMENT"). At such time as Excess Funds in the
Excess Funds Account reach $250,000, Borrower's
obligation to continue making such monthly
disbursements shall cease until such time as
Lender advises Borrower that the Excess Funds in
the Excess Funds Account are less than $250,000.
(d) Borrower will provide Lender with draw
request documents, satisfactory title endorsements
and other information required hereunder with
respect to funds used to pay Project Costs under
subsections (b) and (c) above, on a monthly basis,
as if such funds were disbursements of the Loan.
7.4 FINAL CONSTRUCTION ADVANCE. The final
construction advance hereunder together with the
Retainage shall be disbursed only upon compliance
with the following requirements (in addition to
the requirements for all other disbursements):
(a) Receipt by Lender of satisfactory
evidence of the substantial completion of the
Improvements in accordance with Plans and
Specifications and approval of such completion by
Governmental Authorities having jurisdiction and
approval of such completion by the Inspecting
Architect, including, but not limited to, delivery
to Lender of certificates of occupancy (or other
similar evidence of right to occupancy) permitting
the Units to be legally occupied;
(b) Receipt by Lender of a satisfactory "as-
built" blueprint or survey reflecting the location
of the Improvements on the Land in accordance with
the Plans and Specifications;
(c) Receipt by Lender of either (i) lien
waivers or lien subordination's or releases from
all contractors, subcontractors, laborers and
materialmen employed in furnishing labor or
materials in connection with the construction of
the Improvements or (ii) an affidavit of
Contractor sufficient in the opinion of the Title
Company to issue a mortgagee title policy covering
the Premises with no exception with respect to
liens arising by
27
reason of unpaid bills or claims for work
performed or materials furnished in connection
with the Improvements or to remove any such
exception from the Mortgagee Title Policy covering
the Premises previously issued to Lender;
(d) A period of thirty (30) days shall have
elapsed after the later of (i) the date of
completion of construction of the Improvements or
(ii) the date of filing with the County Clerk of
the County where the Land is located of an
Affidavit of Completion by Borrower in the form
attached hereto as Exhibit J and otherwise meeting
the requirements of Section 53.106 of the Texas Property
Code, provided that a copy of said affidavit is
sent to the parties and within the time periods
required by said Section 53.106; and
(e) Receipt by Lender of such other
certificates, assurances and opinions as Lender
shall reasonably require.
7.5 EARNOUT ADVANCE. At such time as the Earnout
Requirements are satisfied, and in addition to the
requirements for all other disbursements
hereunder, Lender shall make a Loan advance to
Borrower in an amount equal to the difference
between the then unpaid principal amount of the
Note and the Maximum Loan Amount.
7.6 NOTICE FREQUENCY AND PLACE OF DISBURSEMENTS.
The Certificate for Payment shall be submitted to
Lender at least ten (10) business days prior to
the date of the requested advance. Disbursements
shall be no more frequently than monthly and,
except for the final advance hereunder, in amounts
of not less than Fifty Thousand Dollars ($50,000).
All disbursements shall be made at the principal
office of Lender in Chicago, Illinois, or at such
other place as Lender may designate. All
disbursements shall be made on the 25th day of a
calendar month (or, if not a business day, on the
first business day following).
7.7 DEPOSIT OF FUNDS ADVANCED. Borrower will
immediately deposit all Loan proceeds advanced by
Lender in a separate and exclusive account, to be
withdrawn and
used solely for the purposes permitted under the
provisions of this Agreement, and will promptly
furnish Lender with evidence thereof.
7.8 ADVANCES TO CONTRACTOR. At its option, Lender
may make any or all advances of the Loan directly
to Contractor for deposit in an appropriately
designated special bank account and the execution
of this Agreement by Borrower shall, and hereby
does, constitute an irrevocable direction and
authorization to so advance the funds. No further
direction or authorization from Borrower shall be
necessary to warrant such direct advances to
Contractor and all such advances shall satisfy pro
tanto the obligations of Lender hereunder and
shall be secured by the Mortgage and the other
Loan Documents as fully as if made to Borrower,
regardless of the disposition thereof by
Contractor.
7.9 ADVANCES DO NOT CONSTITUTE A WAIVER. No
advance of Loan proceeds hereunder shall
constitute a waiver of any of the conditions of
Lender's obligation to make further advances nor,
in the event Borrower is unable to satisfy any
such condition, shall any such advance have the
effect of precluding Lender from thereafter
declaring such inability to be an Event of Default
hereunder.
28
ARTICLE 8.
8.1 EVENT OF DEFAULT. An "Event of Default" shall
be deemed to have occurred hereunder if:
(a) DEFAULT UNDER LOAN DOCUMENTS. Any default
or event of default occurs under any of the Loan
Documents; or
(b) FAILURE TO OBTAIN AN ADVANCE. Borrower is
unable to satisfy any condition of its right to
the receipt of any advance hereunder for a period
in excess of fifteen (15) days; or
(c) BREACH OF COVENANT. Borrower breaches or
fails timely and properly to observe, keep or
perform any covenant, agreement, warranty or
condition herein required to be observed, kept or
performed, other than those referred to in any
other subsection hereof; or
(d) BREACH OF REPRESENTATION. Any
representation contained herein or in any other
Loan Documents or in the Commitment is false or
misleading in any material respect; or
(e) FILING OF LIENS AGAINST THE PREMISES. Any
lien for labor, material, taxes or otherwise shall
be filed against the Premises and shall not be
removed within twenty (20) days after such fling
except for any lien being contested as provided in
Paragraph 2.2(f) of the Mortgage and Section 4.1
(r) hereof; or
(f) LITIGATION AGAINST BORROWER. Any suit
shall be fled against Borrower or any Guarantor
under the Guaranty, which if adversely determined,
could substantially impair the ability of Borrower
or the Guarantor to perform each and every one of
its obligations under and by virtue of the Loan
Documents; or
(g) LEVY UPON THE PREMISES. A levy be made
under any process on, or a receiver be appointed
for, the Premises or any other property of
Borrower; or
(h) ACCELERATION OF OTHER DEBTS. Borrower or
any Guarantor does, or omits to do, any act, or
any event occurs, as a result of which any
material obligation of Borrower or such Guarantor,
not arising hereunder, is declared immediately due
and payable by the holder thereof; provided,
however, with respect to Guarantor such act or
event must also materially and adversely affect
the ability of Guarantor to perform its
obligations under the Guaranty; or
(i) NONCOMPLIANCE WITH LAWS. The Improvements
are not constructed in compliance with all
Governmental Requirements and regulations of
appropriate supervising boards of fire
underwriters and similar agencies; or
29
(j) DEVIATION FROM PLANS AND SNECIFCATIONS.
There is any substantial deviation in the work of
construction from the Plans and Specifications
without the prior written approval of Lender, or
there is incorporated in the Improvements any
substantially defective workmanship or materials,
which said deviation or defect is not commenced to
be corrected within ten (10) days after written
notice thereof and such correction diligently
continued to its conclusion; or
(k) ENCROACHMENTS. There appears on any
survey required hereunder encroachments which have
occurred without the approval of Lender and which
are not commenced to be removed or corrected
within ten (10) days after receipt of Lender's
notification to Borrower of the existence thereof
and such removal or correction diligently
continued to its conclusion; or
(l) CESSATION OF WORK. There occurs cessation
of the work of construction prior to completion of
the Improvements for a continuous period of ten
(10) days or more for causes other than those
beyond the control of Borrower or consented to in
writing by Lender; or
(m) INJUNCTION. Any person obtains an order
or decree in any court of competent jurisdiction
enjoining the construction of the Improvements or
enjoining or prohibiting Borrower or Lender from
performing this Agreement, and such proceedings
are not properly contested or such decree is not
vacated within sixty (60) days after the granting
thereof; or
(n) LAPSE OF PERMIT. Borrower neglects,
fails, or refuses to keep in full force and effect
any required permit or approval with respect to
the construction of the Improvements; or
(o) FAILURE TO DISPROVE EVENT OF DEFAULT.
Lender shall reasonably suspect the occurrence of
one or more of the above said Events of Default
and Borrower, upon request of the Lender, shall
fail to provide evidence reasonably satisfactory
to Lender that such event or Events of Default
have not in fact occurred.
ARTICLE 9.
REMEDIES
9.1 REMEDIES. Upon the occurrence of any one or
more of the Events of Default set out in Article 8
hereof, Lender shall at its option be entitled to
proceed to exercise any of the following remedies:
(a) Borrower agrees that the occurrence of
such Event of Default shall constitute a default
under each of the Loan Documents, thereby
entitling Lender (i) to exercise any of the
various remedies therein provided including the
acceleration of the indebtedness evidenced by the
Note and the foreclosure of the Mortgage and.(ii)
cumulatively to exercise all other rights, options
and privileges provided by law.
30
(b) Lender shall have the right:
(i) to take whatever action is necessary
or appropriate by the use of legal.
proceedings or otherwise (A) to cause
Borrower to vacate the Premises and (B) to
take possession of the Premises;
(ii) to perform or cause to be performed
any and all work and labor necessary to
complete the Improvements in accordance with
Plans and Specifications;
(iii) to employ security watchmen to
protect the Premises; and
(iv) to disburse that portion of the
Loan proceeds not previously disbursed
(including any retainage) and the Borrower's
Deposit to the extent necessary to complete
construction of the Improvements in
accordance with the Plans and Specifications,
and if the completion requires a larger sum
than the remaining undisbursed portion of the
Loan, to disburse such additional funds, all
of which funds so disbursed by Lender shall
be deemed to have been disbursed to Borrower
and shall be secured by the Mortgage and the
other Loan Documents. For this purpose,
Borrower hereby constitutes and appoints
Lender its true and lawful attorney-in-fact
with full power of substitution to complete
the construction of the Improvements in the
name of the Borrower and hereby empowers
Lender as said attorney to take all actions
necessary in connection therewith, including
but not limited to the following: to use any
funds of Borrower including the Borrower's
Deposit and any balance which may be held in
escrow and any Loan or other funds which may
remain unadvanced hereunder for the purpose
of completing the Improvements in the manner
called for by the Plans and Specifications;
to make such additions and changes and
corrections in the Plans and Specifications
which shall be necessary or desirable to
complete the Improvements in substantially
the manner contemplated by the Plans and
Specifications, to employ such contractors,
subcontractors, agents, architects and
inspectors as shall be required for said
purposes; to pay, settle or compromise all
existing or future bills and claims which are
or may be liens against said Premises or as
may be necessary or desirable for the
completion of the Improvements or the
clearance of title to the Premises; to
execute all applications and certificates in
the name of Borrower which may be required by
any construction contract and to do any and
every act with respect to the construction of
the Improvements which Borrower may do in its
own behalf. It is understood and agreed that
this power of attorney shall be deemed to be
a power coupled with an interest which cannot
be revoked by death or otherwise. Said
attorney-in-fact shall also have power to
prosecute and defend all actions or
proceedings in connection with the
construction of the Improvements and to take
such action and require such performance as
it deems necessary. In accordance therewith
Borrower hereby assigns and quitclaims to
Lender all sums to be advanced hereunder
including retainage and the Borrower's
Deposit and any sums in escrow conditioned
upon the use of said sums, if any, for the
completion of the Improvements. Lender shall
have no obligation to undertake any of the
foregoing actions and if Lender shall do so,
it shall have no liability to Borrower for
the sufficiency or adequacy of any such
actions taken by Lender.
31
(c) Lender may declare all indebtedness
secured by the Mortgage immediately due and
payable and credit the same in such manner as it
elects upon such indebtedness, and thereupon
Lender shall be released from all obligations to
Borrower under this Agreement. Such application
shall not operate to waive or cure any Event of
Default existing under the Mortgage or Note or any
other Loan Documents, nor to invalidate any notice
of an Event of Default or any act done pursuant to
such notice and shall not prejudice any rights of
the Mortgagee under the Mortgage or any other Loan
Documents.
(d) Lender shall have the right at any time
and from time to time, without notice to Borrower
(any such notice being expressly waived), to set-
off and apply
any and all deposits (general or special, time or
demand, provisional or final) at
any time held, and any other indebtedness at any
time owing by Lender to or for the credit or the
account of Borrower, against any and all of the
indebtedness of Borrower evidenced by the Note or
this Agreement and/or secured by the Mortgage,
irrespective of whether or not Lender shall have
made any demand under this Agreement or the Note
and although such indebtedness may be unmatured.
Lender agrees to notify Borrower promptly after
any such set-off and application, provided that
the failure to give such notice shall not affect
the validity of such set-off and application. The
rights of Lender under this subsection are in
addition to any other rights and remedies
(including, without limitation, other rights of
set-off) which Lender may have under the Note or
the other Loan Documents or otherwise.
ARTICLE 10.
GENERAL
CONDITIONS
10.1 RIGHTS OF THIRD PARTIES. All conditions of
the obligations of Lender hereunder, including the
obligation to make advances, are imposed solely
and exclusively for the benefit of Lender and its
successors and assigns and no other person shall
have standing to require satisfaction of such
conditions in accordance with their terms or be
entitled to assume that Lender will make advances
or refuse to make advances in the absence of
strict compliance with any or all thereof and no
other person shall, under any circumstances, be
deemed to be a beneficiary of such conditions, any
and all of which may be freely waived in whole or
in part by Lender at any time if in its sole
discretion it deems it desirable to do so. In
particular, Lender makes no representations and
assumes no duties or obligations as to third
parties concerning the quality of the construction
by Borrower of the Improvements or the absence
therefrom of defects. Failure to inspect the
construction of the Improvements or any part
thereof or inspection whether or not followed by
notice of an Event of Default shall not constitute
a waiver of any of Lender's rights hereunder nor
shall it constitute a representation that there
has been compliance with the Plans and
Specifications or that the construction of the
Improvements is free from defective materials or
workmanship. In this connection borrower agrees to
and shall indemnify Lender from any liability,
claims or losses resulting from the disbursement
of the Loan proceeds or from the condition of the
Premises whether related to the quality of
construction or otherwise and whether arising
during or after the term of the Loan. This
provision shall survive the repayment of the Loan
and shall continue in full force and effect so
long as the possibility of such liability, claims
or losses exists.
32
10.2 WAIVERS. No waiver of or consent to any
departure from any provision hereof shall be
effective unless in writing and signed by Lender
and shall be effective only in the specific
instance for the purpose for which given and to
the extent specified in such writing. No advance
of Loan proceeds hereunder shall constitute a
waiver of any of the conditions to Lender's
obligation to make further advances nor, in the
event Borrower fails to satisfy any such
condition, shall any advance have the effect of
precluding Lender
from thereafter declaring such failure to be an
Event of Default. No waiver of any Event of
Default hereunder shall affect or constitute a
waiver of any later Event of Default. No delay or
omission of Lender to exercise any right or remedy
upon the happening of any Event of Default shall
impair any such right or remedy or be deemed to be
a waiver of such Event of Default.
10.3 EVIDENCE OF SATISFACTION OF CONDITIONS. Any
condition of this Agreement which requires the
submission of evidence of the existence or
nonexistence of a specified fact or facts implies
as a condition the existence or nonexistence, as
the case may be, of such fact or facts, and Lender
shall, at all times, be free independently to
establish to its satisfaction and in its absolute
discretion such existence or nonexistence.
10.4 ASSIGNMENT BY BORROWER. Anything to the
contrary herein notwithstanding, Borrower shall
have no right to assign its rights hereunder or
the proceeds of the Loan without the written
consent of Lender and any such assignment or
purported assignment shall, at Lender's option,
relieve Lender from all further obligations
hereunder and shall constitute an Event of Default
under this Agreement.
10.5 SUCCESSORS AND ASSIGNS INCLUDED IN PARTIES.
Whenever in this Agreement one of the parties
hereto is named or referred to, the heirs, legal
representatives, successors and assigns of such
party shall be included and all covenants and
agreements contained in this Agreement by or on
behalf of the Borrower or by or on behalf of
Lender shall bind and inure to the benefit of
their respective heirs, legal representatives,
successors and assigns, whether so expressed or
not.
10.6 EXERCISE OF RIGHTS AND REMEDIES. All rights
and remedies of Lender hereunder or under the Note
or under the Mortgage or under any other Loan
Document shall be separate, distinct and
cumulative and no single, partial or full exercise
of any right or remedy shall exhaust the same or
preclude Lender from thereafter exercising in full
or in part the same right or remedy or from
concurrently or thereafter exercising any other
right or remedy which Lender may have hereunder,
under the Note or Mortgage or any other Loan
Document, or at law or in equity, and each and
every such right and remedy may be exercised at
any time or from time to time.
10.7 HEADINGS. The headings of the sections and
subsections of this Agreement are for the
convenience of reference only, are not to be
considered a part hereof and shall not limit or
otherwise affect any of the terms hereof.
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10.8 APPLICABLE LAW. THIS AGREEMENT HAS BEEN
EXECUTED IN DALLAS, TEXAS, AND SHALL BE GOVERNED
BY AND CONSTRUED ACCORDING TO THE LAWS OF THE
STATE OF TEXAS (EXCLUSIVE OF ITS CHOICE OF LAW
RULES) AND THE LAWS OF THE UNITED STATES
APPLICABLE TO TRANSACTIONS IN TEXAS. BORROWER
HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY TEXAS OR FEDERAL COURT SITTING
IN DALLAS, TEXAS OVER
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS, AND
BORROWER HEREBY AGREES AND CONSENTS THAT, IN
ADDITION TO ANY METHODS OF SERVICE OF PROCESS
PROVIDED FOR UNDER APPLICABLE LAW, ALL SERVICE OF
PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING IN
ANY TEXAS OR FEDERAL COURT SITTING IN DALLAS,
TEXAS MAY BE MADE BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, DIRECTED TO BORROWER AT
THE ADDRESS BELOW, AND SERVICE SO MADE SHALL BE
COMPLETE FIVE (5) DAYS AFTER THE SAME SHALL HAVE
BEEN SO MAILED.
10.9 SUPPLEMENTS MORTGAGE. The provisions of this
Agreement are not intended to supersede the
provisions of the Mortgage but shall be construed
as supplemental thereto. In the event of any
inconsistency between the provisions hereof and
the Mortgage, it is intended that, during the
applicability of this Agreement, this Agreement
shall be controlling.
10.10 USURY. It is the intent of Lender and
Borrower in the execution of the Note, this
Agreement and all other instruments now or
hereafter securing the Note or executed in
connection therewith or under any other written or
oral agreement by Borrower in favor. of Lender to
contract in strict compliance with applicable
usury law. In furtherance thereof, Lender and
Borrower stipulate and agree that none of the
terms and provisions contained in the Note, this
Agreement or any other instrument securing the
Note or executed in connection herewith, or in any
other written or oral agreement by Borrower in
favor of Lender, shall ever be construed to create
a contract to pay for the use, forbearance or
detention of money, or interest at a rate in
excess of the maximum interest rate permitted to
be charged by applicable law. Neither Borrower nor
any guarantors, endorsers or other parties now or
hereafter becoming liable for payment of the Note
or the other indebtedness secured by the Loan
Documents shall ever be required to pay interest
on the Note or on indebtedness arising under any
instrument securing the Note or executed in
connection therewith, or in any other written or
oral agreement by Borrower in favor of Lender, at
a rate in excess of the maximum interest that may
be lawfully charged under applicable law, and the
provisions of this Section shall control over all
other provisions of the Note, this Agreement and
any other instruments now or hereafter securing
the Note or executed in connection herewith or any
other oral or written agreements which may be in
apparent conflict herewith. Lender expressly
disavows any intention to charge or collect
excessive unearned interest or finance charges in
the event the maturity of the Note is accelerated.
If the maturity of the Note shall be accelerated
for any reason or if the principal of the Note is
paid prior to the end of the term of the Note, and
as a result thereof the interest received for the
actual period of existence of the Loan exceeds the
applicable maximum lawful rate, Lender shall, at
its option, either refund to
34
Borrower the amount of such excess or credit the
amount of such excess against the principal
balance of the Note then outstanding and thereby
shall render inapplicable any and all penalties of
any kind provided by applicable law as a result of
such excess interest. In the event that Lender
shall collect monies and/or any other thing of
value which are deemed to constitute interest
which would increase the effective interest rate
on the Note or the other indebtedness secured by
the Loan Documents to a rate in excess of that
permitted to be charged by applicable law, an
amount equal to interest in excess of the lawful
rate shall, upon such determination, at the option
of Lender, be either immediately returned to
Borrower or credited against the principal balance
of the Note then outstanding or the other
indebtedness secured by the Loan Documents, in
which event any and all penalties of any kind
under applicable law as a result of such excess
interest shall be inapplicable. By execution of
this Agreement, Borrower acknowledges that it
believes the Loan to be non-usurious and agrees
that if, at any time, Borrower should have reason
to believe, that the Loan is in fact usurious, it
will give Lender notice of such condition and
Borrower agrees that Lender shall have ninety (90)
days after receipt of such notice in which to make
appropriate refund or other adjustment in order to
correct such condition if in fact such exists. The
term "applicable law" as used in this Section
shall mean the laws of the State of Texas or the
laws of the United States, whichever laws allow
the greater rate of interest, as such laws now
exist or may be changed or amended or come into
effect in the future.
10.11 INVALID PROVISIONS TO AFFECT NO OTHERS. If
fulfillment of any provision hereof or any
transaction related hereto at the time performance
of such provisions shall be due, shall involve
transcending the limit of validity prescribed by
law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such
validity, and if. any clause or provisions herein
contained operates or would prospectively operate
to invalidate this agreement in whole or in part,
then such clause or provision only shall be held
for naught, as though not herein contained, and
the remainder of this Agreement shall remain
operative and in full force and effect.
10.12 NUMBER AND GENDER. Whenever the singular or
plural number, masculine or feminine or neuter
gender is used herein, it shall equally include
the other.
10.13 AMENDMENTS. Neither this Agreement nor any
provision hereof may be changed, waived,
discharged or terminated orally, but only by an
instrument in writing signed by the party against
whom enforcement of the change, waiver, discharge
or termination is sought.
10.14 NOTICE. Any notice or communication required
or permitted hereunder shall be given in writing,
sent by (a) personal delivery, or (b) expedited
delivery service with proof of delivery, or (c)
United States Mail, postage prepaid, registered or
certified mail, or (d) prepaid telegram, telex or
telecopy, addressed as follows:
To Lender: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
35
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Esq.
▇▇▇▇▇ ▇▇▇▇▇▇▇ Rain ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Borrower: ESC II, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President of ESC ▇.▇. ▇▇, Inc.
With a copy to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ Coie
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
or to such other address or to the attention of
such other person as hereafter shall be designated
in writing by the applicable party sent in
accordance herewith. Any such notice or
communication shall be deemed to have been given
either at the time of personal delivery or, in the
case of delivery service or mail as of the date of
first attempted delivery at the address and in the
manner provided herein, or in the case of
telegram, telex or telecopy, upon receipt.
10.15 LEGAL PROCEEDINGS. Lender shall have the
right to commence, appear in, or to defend any
action or proceeding purporting to affect the
rights or duties of the parties hereunder or the
payment of any funds, and in connection therewith
pay necessary expenses, employ counsel and pay its
reasonable fees. Any such expenditures shall be
considered additional advances hereunder and shall
bear interest at the rate payable under the Note
for installments of principal and/or interest
after maturity shall be secured by the Loan
Documents and shall be paid by Borrower to Lender
upon demand.
10.16 ASSIANMENT BY LENDER. Lender shall have the
right to assign any portion of this Agreement
and/or the Loan to a responsible institutional
lender and to disseminate to such lender any
information it has pertaining to the Loan,
including without limitation, complete and current
credit information on Borrower, any of its
principals and any Guarantor. In the event of such
an assignment, Borrower will agree to such
modifications to this Agreement as will facilitate
such assignment, provided that such modifications
will not materially add to the obligations of
Borrower. It is understood that any assignment by
Lender will not result in additional cash expense
to Borrower. Neither the shareholders, nor the
trustees of a real estate investment trust
assignee shall be personally liable for the
obligations of such trust and Borrower will agree
to look solely to the trust property for
the payment of any claim hereunder.
36
10.17 LENDER NOT A JOINT VENTURER. Notwithstanding
anything to the contrary herein contained, Lender,
by entering into this Agreement or by any action
taken pursuant hereto, will not be deemed a
partner or joint venturer with Borrower, and
Borrower will indemnify and hold Lender harmless
from any and all damages resulting from such a
construction of the parties and their
relationship.
10.18 SURVIVAL OF COVENANTS. All covenants of
either party contained herein shall continue and
survive until the Loan has been fully paid and
discharged.
10.19 TME IS OF THE ESSENCE. Time is of the
essence of this Agreement.
10.20 WAIVER OF JUDICIAL PROCEDURAL MATTERS.
Borrower hereby expressly and unconditionally
waives, in connection with any suit, action or
proceeding brought by Lender in connection with
any of the Loan Documents, any and every right it
may have to (i) injunctive relief, (ii) a trial by
jury, (iii) interpose any counterclaim therein and
(iv) have the same consolidated with any other or
separate suit, action or proceeding. Nothing
herein contained shall prevent or prohibit
Borrower from instituting or maintaining a
separate action against Lender with respect to any
asserted claim.
10.21 LOAN PARTICIPATION. Borrower acknowledges
and agrees that Lender may, from time to time,
sell or offer to sell interests in the Loan and
Loan Documents to one or more participants.
Borrower authorizes Lender to disseminate to such
participant or prospective participant, any
information it has pertaining to the Loan,
including without limitation, complete and current
credit information on the Borrower; any of its
principals and any Guarantor.
10.22 COMPLIANCE WITH LAWS AND RESTRICTIONS.
Borrower hereby covenants and agrees that it has
examined, is familiar with, and shall comply with
all applicable conditions, covenants,
restrictions, easements; reservations, rights, or
rights-of-way, laws, ordinances, and all
applicable administrative rules and regulations of
any governmental agency involved affecting the
Premises, compliance with which is necessary for
completion of the Improvements in substantial
conformance with the Plans and Specifications or
for issuance of a Certificate of Occupancy for the
Improvements. Except as permitted herein, Borrower
shall not create or cause or suffer to become
effective any lien (except for taxes and
assessments not delinquent), restriction,
encumbrance, or title limitation affecting the
Premises or the Improvements without the prior
written approval of Lender.
10.23 RIGHT OF FIRST REFUSAL. Borrower hereby
grants to Lender the right of first refusal and
last refusal to provide permanent loan financing
or to negotiate an equity sale of the Premises.
10.24 WAIVER OF CONSUMER RIGHTS. Borrower hereby
voluntarily consents to waive its rights under the
Deceptive Trade Practices-Consumer Protection Act
("DTPA"), Section 17.41 et seq., Business &
Commerce Code, a law that gives consumers special
rights and protections, and after consultation
with an attorney of its own selection, expressly
recognizes that (i) Borrower is not in a
significantly disparate bargaining position
relative to other parties to this Agreement, and
(ii) Borrower is represented by legal counsel in
this transaction.
37
10.25 COUNTERPART ORIGINALS. This Agreement may be
executed and delivered in any number of
counterparts, each of which so executed and
delivered shall be deemed to be an original and
all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Borrower and Lender have
hereunto caused these presents to be executed on
the date first above written.
BORROWER:
ESC II, L.P., a Washington limited partnership
By: ESC ▇.▇. ▇▇, INC., a Washington
corporation, general partner
By: /s/ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇
------------
------------------------------
----
Name: ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇
------------
------------------------------
----
Title:
President
LENDER:
GMAC COMMERCIAL
MORTGAGE
CORPORATION, a
California corporation
By: /s/ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇
-----------
------------------------------
-----
Name: ▇▇▇▇▇▇▇ ▇.
▇▇▇▇
-----------
------------------------------
-----
Title: Vice
President
38