EX 10.79.3
CREDIT AGREEMENT
Between
EMERITUS CORPORATION
and
AURORA BAY INVESTMENTS, L.L.C. Dated as of January
7,1998
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as
of the 7th day of January, 1998, by and between
Emeritus Corporation, a Washington corporation
("Emeritus"), and Aurora Bay Investments, L.L.C., a
Washington limited liability company ("Borrower").
RECITALS
A. Borrower is a recently formed company organized
to own, develop, operate and acquire Alzheimer's
special care facilities to provide room, board, and
personal care services primarily to elderly persons
afflicted with Alzheimer's disease.
B. Emeritus is in the business of owning,
developing, and operating senior housing facilities
throughout the United States and is willing to make
available to Borrower certain funds to permit
Borrower's acquisition, development, and construction
of such facilities, provided that such loans are
convertible, at Emeritus' option, into an equity
interest in Borrower.
C. Subject to the terms and conditions of this
Agreement, Emeritus is prepared to advance funds to
Borrower, and Borrower is prepared to borrow funds from
Emeritus.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
covenants and conditions set herein, the parties agree
as follows:
l. DEFINITIONS
As used herein, the following terms have the
meanings set forth below:
"Affiliate" means a Person that now or hereafter,
directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with Borrower. A Person shall be deemed
to control a corporation, limited liability company,
limited partnership or partnership if such Person
possesses, directly or indirectly, the power to direct
or cause the direction of the management of such
corporation, limited liability company, limited
partnership or partnership, whether through the
ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Credit Agreement,
including all modifications and amendments thereto.
"Applicable Law" means all applicable provisions
and requirements of all (a)constitutions, statutes,
ordinances, rules, regulations, standards, orders, and
directives of any Governmental Bodies, (b) Governmental
Approvals, and (c) orders, decisions, decrees,
judgments, injunctions, and writs of all courts and
arbitrators, whether such Applicable Laws presently
exist, or are modified, promulgated, or implemented
after the date hereof.
"Best" means Thilo Best, one of the members of
Borrower.
"Borrower" means Aurora Bay Investments, L.L.C., a
Washington limited liability company.
"Borrower Project Subordinated Debt" means with
respect to each of the Projects, the amount of
subordinated debt advanced by Borrower to the Wholly
Owned Subsidiary which owns, or will own, such Project.
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"Borrowing Notice" has the meaning set forth in
Section 2.10.
"Business Day" means any day except a Saturday,
Sunday, or other day on which national banks in the
state of Washington are authorized or required by law
to close.
"Collateral" means all the property, real or
personal, tangible or intangible, now owned or
hereafter acquired, in which Emeritus has been or is to
be granted a security interest by Borrower or any other
Person, to secure the Indebtedness of Borrower to
Emeritus.
"Commitment Period" has the meaning set forth in
Section 2.1.
"Construction/Permanent Loan" means, with respect
to each of the Projects, the construction and permanent
financing, to be obtained by Borrower, to fund the
acquisition, development and construction of such
Project, to cover anticipated operational expenses,
including debt service payments, until the Project's
operations can be conducted on a break even basis, the
terms of which financing must be approved by Emeritus
as required by Section 2.7.
"Convertible Promissory Note" is the Convertible
Promissory Note attached hereto as Exhibit A to be
executed by Borrower, representing Borrower's
obligation to repay the Loan to Emeritus.
"Default" means any condition or event that
constitutes an Event of Default or with the giving of
notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Emeritus Corporation" means Emeritus Corporation,
a Washington corporation, which has agreed to advance
certain funds to Borrower pursuant to the terms of this
Agreement.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"▇▇▇▇▇" means ▇▇▇▇▇ ▇▇▇▇▇.
"▇▇▇▇▇ LLC" means ▇▇▇▇▇ Investors I, L.L.C., a
Washington limited liability company, controlled by
▇▇▇▇▇ ▇▇▇▇▇, which company is one of the three members
of Borrower.
"Event of Default" has the meaning set forth Section
7.1.
"Funding" means any disbursement of the proceeds of the
Loan.
"Governmental Approval" means any authorization,
consent, approval , certificate of compliance, license,
permit, or exemption from, contract with, registration
or filing with, or report or notice to, any
Governmental Body required or permitted by Applicable
Law.
"Governmental Body" means the government of the
United States, any state or any foreign country, or any
governmental or regulatory official, body, department,
bureau, subdivision, agency, commission, court,
arbitrator, or authority, or any instrumentality
thereof whether federal, state, or local.
"Guarantor" means each of Best, ▇▇▇▇▇ LLC and
▇▇▇▇▇▇▇▇▇, who will execute and deliver to Emeritus the
Guaranty pursuant to Section 3.1(b) of this Agreement.
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"Guarantor Pledge and Security Agreement" means
the Pledge and Security Agreement, in the form attached
hereto as Exhibit C, to be executed by each of the
Guarantors granting in favor of Emeritus a first
priority and. exclusive security interest in such
Guarantor's membership interest in Borrower.
"Guaranty" means, with respect to each of the
Guarantors, the non-recourse guaranty to be executed by
such Guarantor in favor of Emeritus, in the form
attached hereto as Exhibit B, including all renewals,
replacements, and amendments thereto.
"Hazardous Materials" means oil or petrochemical
products, PCBs, asbestos, urea formaldehyde, flammable
explosives, radioactive materials, Hazardous wastes,
toxic substances, or related materials, including, but
not limited to, substances defined as or included in
the definition of "Hazardous substances, " "Hazardous
wastes", "Hazardous materials," or "toxic substances"
under any Hazardous Materials Laws.
"Hazardous Materials Claims" means (a)enforcement,
cleanup, removal, or other regulatory actions
instituted, completed, or threatened by any
Governmental Body pursuant to any applicable Hazardous
Materials Laws and (b) claims made or threatened by any
third party against Borrower or any Wholly Owned
Subsidiary or its property relating to damage,
contribution, cost recovery, compensation, loss, or
injury resulting from Hazardous Materials.
"Hazardous Materials Laws" means all Applicable
Laws pertaining to Hazardous Materials.
"Indebtedness" means all items that in accordance
with generally accepted accounting principles would be
included in determining total liabilities as shown on
the liabilities side of the balance sheet as of the
date that "Indebtedness" is to be determined, and in
any event, includes liabilities secured by any
mortgage, deed of trust, pledge, lien, or security
interest on property owned or acquired, whether or not
such a liability has been assumed, and the ties,
endorsements (other than for collection in the ordinary
course of business), and other contingent obligations
with regard to the obligations of other Persons.
"Loan Documents" means this Agreement, the
Convertible Promissory Note , the Guaranties, the
Guarantor Pledge and Security Agreements, the Project
Promissory Notes, the Project Pledge and Security
Agreements, and the Financing Statements related to
such Pledge and Security Agreements, together with all
other agreements, instruments, and documents arising
out of or relating to this Agreement or the Loan, and
includes all renewals, replacements, and amendments
thereof.
"Loan" means the loan to be made to Borrower
pursuant to this Agreement, as well as all renewals,
replacements, and modifications thereof.
"Minimum Tax Distribution" means, with respect to
Borrower's members, an amount sufficient to permit the
Members to pay their federal and state income taxes for
a given taxable year on the aggregate taxable income,
as adjusted by the proviso of this paragraph, allocated
to such members for such tax year pursuant to the
Operating Agreement, assuming for this purpose that
such members are subject to the highest U.S. federal
statutory marginal ordinary income tax rate then
applicable for individuals; provided, however, if such
members have been allocated in prior tax years losses,
such losses shall first be offset against income for
such tax year (to determine a net taxable income),
until all such losses have been offset against income
in such tax year or prior tax years, and the amount of
such taxable income, less the offsetting losses, if
any,
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shall be regarded as the amount of taxable income of
such members for such tax year.
"Operating Agreement" means that certain Operating
Agreement of Aurora Bay Investments, L.L.C., dated as
of January 6, 1998, a copy of which is attached hereto
as Exhibit F.
"Permitted Encumbrances" means, with respect to
each of the Projects, (a) liens for taxes not yet due
or liens for taxes being contested in good faith by
appropriate proceedings for which adequate reserves
determined in accordance with general accepted
accounting principles have been established; (b)liens
securing payment of the Senior Debt on such Project,
(c)zoning and other governmental restrictions, (d)
matters common to any general area or subdivision in
which the Project is located, (e) liens in respect of
the Project imposed by law arising in the ordinary
course of business such as materialmen's mechanics',
warehousemen's, supplier's or vendor's and other like
liens provided that such liens secure only amounts not
yet due and payable or if overdue are being contested
in good faith by appropriate actions or proceedings and
adequate reserves have been established; (f) easements,
rights-or-way, restrictions, minor defects or
irregularities in title and other similar charges or
encumbrances not impairing, in any material respect,
the use of such Project for its intended purposes or
interfering, in any material respect, with the use of
such Project for its intended purposes.
"Person" means any individual, partnership, joint
venture, firm, corporation, association, limited
liability company, limited liability partnership,
trust, or other enterprise or any Governmental Body.
"Plan" means an employee pension benefit plan that
is covered by ERISA or subject to the minimum funding
standards under Section 412 of the Internal Revenue
Code of 1986, as amended, and is either (a) maintained
by Borrower or any Affiliate for employees of Borrower
or any Affiliate or (b) maintained pursuant to a
collective bargaining agreement or any other agreement
under which more than one employer makes contributions
and to which Borrower or any Affiliate is then making
or accruing an obligation to make contributions or has
within the preceding five plan years made
contributions.
"Project" means each senior housing facility to be
acquired, developed and constructed by Borrower through
a Wholly Owned Subsidiary, for which Borrower intends
to borrow funds under this Agreement.
"Project Development Budget" means, with respect
to each of the Projects, the initial
construction/development budget, including any updates
thereto, prepared by
Borrower and delivered to Emeritus for review and
approval, showing all anticipated costs and expenses
for acquiring, developing and constructing the Project,
and covering its carrying costs until anticipated break
even and showing the sources of all funds to be
obtained by Borrower to fund such expenditures
including the amount of the Construction/Permanent
Loan, the Borrower Project Subordinated Debt, the
amounts to be borrowed by Borrower under this Agreement
to fund such Project.
"Project Operating Budget" means, with respect to
each of the Projects, the annual operating budget for
such Project, including any updates thereto, prepared
by Borrower and delivered to Emeritus for review and
approval, showing all anticipated revenues and all
anticipated costs and expenses for the Project,
including amounts to be set aside for capital
expenditures and reserves, for such 12-month period.
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"Project Loan" means, with respect to each of the
Projects, the loan or loans made by Borrower to the
Wholly Owned Subsidiary owning such Project, funded out
of the proceeds borrowed by Borrower under this
Agreement to fund such Project or funded from
Borrower's income or other available funds.
"Project Promissory Note" means, with respect to
each of the Project Loans , the Project Promissory
Note, in the form attached hereto as Exhibit D, to be
executed by each Wholly Owned Subsidiary evidencing
such subsidiary's obligation to repay to Borrower the
Project Loan, which Project Promissory Note is to be
pledged and assigned to Emeritus pursuant to the
Project Pledge and Security Agreement.
"Project Pledge and Security Agreement" means,
with respect to each of the Project Loans, the Project
Pledge and Security Agreement, in the form attached
hereto as Exhibit E, to be executed by Borrower
granting to Emeritus a first priority and exclusive
security interest in the Project Promissory Note and
the Borrower's equity interest in such Wholly Owned
Subsidiary.
"Senior Debt" means, with respect to each of the
Projects, all Indebtedness due and payable on the
Construction/Permanent Loan for such Project, or any
refinancing thereof obtained by Borrower or its
applicable Wholly Owned Subsidiary, provided that the
proceeds of such refinancing are used exclusively to
repay the existing secured indebtedness and, if
applicable, the costs associated with such refinancing.
"▇▇▇▇▇▇▇▇▇" means ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, one of the
members of Borrower.
"Wholly Owned Subsidiary" means the special
purpose entity, which may be in the form of a limited
liability company or limited partnership, organized by
Borrower for the sole and exclusive purpose of
acquiring, developing, constructing, operating, holding
and investing in a Project, all of whose equity
securities are owned and held by Borrower, either
directly or indirectly through another wholly owned
entity; provided, however, that in the event Borrower
establishes another entity to serve as a member or
general partner of such Wholly Owned Subsidiary, which
entity will hold an interest of not more than l%,
another Person may be admitted to such a special
purpose entity and retain a l% interest therein
(thereby entitling such Person to a .0001 interest in
the Wholly Owned Subsidiary), but otherwise such entity
will be wholly owned by Borrower. In the event such
Wholly Owned Subsidiary is organized as a limited
partnership, Borrower shall establish a wholly owned
limited liability company (subject to the l% interest
in such entity that may be held by another Person) to
serve as such entity's general partner, holding a l%
interest therein, and will hold the balance of such
entity's equity (99% interest) as a limited partner. In
addition, if such Wholly Owned Subsidiary is organized
as a limited liability company in a jurisdiction
requiring two members to so conduct business, Borrower
will establish a wholly owned entity (subject to the l%
interest in such entity that may be held by another
Person) to serve as one of its members, holding a l%
interest therein, and will hold the balance of such
equity interest (99% interest) directly as a member.
2. LINE OF CREDIT
2.1 Loan Commitment
Subject to and upon the terms and conditions set
forth herein and in reliance upon the representations,
warranties, and covenants of Borrower contained herein
or made pursuant hereto, Emeritus will make Fundings to
Borrower from time to time during the period from the
date hereof through and including December 31, 2000
("Commitment Period"), but the aggregate
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amount of such Fundings shall not exceed $5 million.
This is not a revolving credit facility, and any
payments by Borrower of the outstanding principal
balance of the Loan shall not increase the amount that
Borrower may borrow from Emeritus under this Agreement.
2.2 Loan Payment Terms
All amounts funded by Emeritus shall bear interest
at nine percent (9%) per annum, compounded annually.
Interest payments on the Loan shall be made quarterly,
on January 1, April I, July 1, and October 1 of each
year, commencing with the first interest payment on
April 1, 1998. The outstanding principal, balance of
the Loan is due and payable in full on the fifth
anniversary from the date of the first Funding to
Borrower under the Loan. The Loan may not be prepaid,
in whole or in part, prior to its maturity without
Emeritus' consent. The terms of the Loan are set forth
in full in the Convertible Promissory Note, attached
hereto as Exhibit A, and, in the event of any
inconsistency between the terms of this Agreement, and
those detailed in the Convertible Promissory Note, the
terms of the Convertible Promissory Note shall control.
2.3 Collateral Securing Payment of Convertible
Promissory Note
Payment of the Convertible Promissory Note shall
be secured or supported by each of the following, until
the Indebtedness represented thereby has been paid in
full or until Emeritus has exercised its option to
convert the Loan into an equity interest in Borrower as
permitted by Section 2.4 and the terms of the
Convertible Promissory Note:
(a) Each of the Guarantors shall execute and
deliver to Emeritus the Guaranty, a non-recourse
guaranty of the Convertible Promissory Note, and shall
execute and deliver the Guarantor Pledge and Security
Agreement granting to the Emeritus a first priority and
exclusive security interest in such Guarantor's
membership interest in Borrower.
(b) Whenever any advances under the Loan are first
used to fund any Project Loan, Borrower shall execute
and deliver to Emeritus the Project Pledge and Security
Agreement granting Emeritus a first priority and
exclusive security interest in the Project Promissory
Note and in Borrower's entire equity interest, direct
and indirect, in the Wholly Owned Subsidiary owning
such Project.
2.4 Emeritus' Conversion Rights
Emeritus shall have the right to convert the Loan
into an equity interest in Borrower subject to, and
upon the terms and conditions set forth in, the
Convertible Promissory Note.
2.5 Use of Proceeds
Emeritus shall advance funds under the Loan to
Borrower solely for the purpose of allowing Borrower to
(i) make Project Loans to its Wholly Owned
Subsidiaries, (ii) make interest payments on the
Convertible Promissory Note, to the extent that such
payments cannot be funded out of the cash flow from the
Wholly Owned Subsidiaries, (iii) cover the legal
expenses incurred by Borrower, both for its counsel and
Emeritus' counsel, filing fees, and other start up and
organizational costs incurred in assisting with the
formation of Borrower and its Wholly Owned Subsidiaries
and the documentation required in connection with this
Agreement and the Project Loans; and (iv) reimburse
South Bay Partners, Inc., an Affiliate of ▇▇▇▇▇▇▇▇▇,
for out-of pocket expenses payable to unaffiliated
third parties incurred by such entity in connection
with the acquisition, construction and development of
the Projects, and the formation of Borrower and each
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of the Wholly Owned Subsidiaries. Borrower shall use
funds obtained under this Agreement solely for such
purposes. Borrower is required to carry out its
development program so as to permit development of a
minimum of seven Projects within three years of the
date of this Agreement using the $5 million credit
facility provided by Emeritus under this Agreement,
conventionally available Construction/Permanent Loans,
and such additional Borrower Project Subordinated Debt
as may be necessary, all as required by Section 2.6.
2.6 Project Development and Capital Requirements
(a) Borrower has represented to Emeritus that this
credit facility will permit Borrower to acquire and
develop seven Projects within three years of the date
of first Funding under this Agreement. Borrower
covenants and agrees to take any and all action
necessary to acquire, develop and construct such seven
Projects within that time frame.
Such actions shall include but not be limited to
the following with respect to each such Project:
(i) selecting an appropriate site for
development in a market area approved by
and acceptable to Emeritus;
(ii) negotiating the terms of purchase and
sale agreements with the owner of the
Project site;
(iii) preparing plans and
specifications for the Project;
(iv) securing all necessary Governmental
Approvals for Project development;
(v) engaging architects, contractors, surveyors, title
companies, land use consultants, legal counsel, and
others to assist with the acquisition, development and
constructions;
(vi) obtaining the Construction/Permanent Loan for the
Project; (vii) monitoring and overseeing the
performance of third party
vendors;
(viii) preparing and updating, as
necessary, the Project Development
Budget;
(ix) engaging South Bay Partners, Inc.,
to provide development services for each
of the Projects to be developed by a
Wholly Owned Subsidiary; and
(ix) engaging ▇▇▇▇▇ ▇▇▇▇▇ Associates,
Inc. or another qualified property
management company, to be responsible
for the lease up and daily operations of
the Project.
(c) Borrower covenants and agrees to make funds
available to complete each of the seven Projects
required by this Agreement to the extent that such
funds cannot be financed with the amounts available
under the Construction/Permanent Loan and the advances
made by Emeritus under this Agreement with respect to
such Project. Such funds are herein referred to as the
8
Borrower Project Subordinated Debt. Prior to borrowing
funds under this Agreement to fund a Project, Borrower
shall deliver to Emeritus for its review and approval,
a detailed Project Development Budget, showing the
estimated acquisition, development, construction and
lease-up expenses, and demonstrating that the funds
available for such purposes, including the amount of
the Construction/Permanent Loan and the amount
requested from Emeritus under this Agreement, are
sufficient to cover a11 such expenses and thereby
demonstrating the economic feasibility of the Project.
Emeritus shall have no obligation to fund any Project
Loan until it has satisfied itself based upon the
submitted Project Development Budget, that there are
adequate funds available for its acquisition,
construction and development, and initial lease up, and
that the Project is economically feasible. Should
Emeritus determine that additional funds are needed to
make the Project economically feasible, if Borrower
wishes to proceed with such Project, Borrower shall
advance such additional funds as are necessary,
concurrent with initial Funding of the Project Loan
through this Agreement, which advances shall be treated
as Borrower Project Subordinated Debt, in order to
ensure that the Project is economically feasible.
Moreover, to the extent that the Project has cost
overruns, slower than anticipated lease-up or other
events causing its actual expenses to exceed budgeted
amounts, and to the extent that additional advances are
not made available by Emeritus pursuant to the terms of
Section 2.7, Borrower shall make available to the
Wholly Owned Subsidiary such additional funds as may be
necessary to complete the acquisition, development and
construction of the Project, to allow the Project to
achieve break even, to cover any other operating
deficits, and to cover any capital improvements and
replacements necessary to allow the Project to operate
in the ordinary course of business. Such additional
funds shall be available when needed by the Project,
and advanced promptly so there is no delay or
disruption in the Project's development, lease-up and
operations, and such amounts, if advanced by one or
more of Borrower's managers or Affiliates thereof,
shall be regarded as loans from the person(s) making
the funds available to the Wholly Owned Subsidiary. Any
such loan, if made, shall bear interest at the lesser
of nine percent (9"%) per annum or the lender's cost of
funds, shall be an unsecured obligation of the Wholly
Owned Subsidiary, and shall be subordinated, in all
respects, to the prior payment of the Project
Promissory Note from the Wholly Owned Subsidiary to
Borrower and payment of the Convertible Promissory Note
from Borrower to Emeritus; provided, however, that
there is no Event of Default hereunder and that the
Project's cash flow permits the Wholly Owned Subsidiary
to pay out of cash flow the current portion of all
principal and interest payments due on Senior Debt, the
Project Promissory Note, and any other Indebtedness,
and to cover other expenses of the Wholly Owned
Subsidiary as they become due and payable, all such
payments to be made so there is no default under this
Agreement or any of such other obligations, the Wholly
Owned Subsidiary may apply the excess cash flow, if
any, toward payment of the outstanding principal
balance plus accrued but unpaid interest on any loan
from one or more of the Borrower's managers or
Affiliates thereof, on such basis as Borrower deems
appropriate. Moreover, the other terms of such loan
shall not be more favorable than those included in the
loan from Borrower to the Wholly Owned Subsidiary. Such
loan, if advanced, shall be evidenced by an unsecured
promissory note, the form and substance of which must
be acceptable to Emeritus.
(d) Borrower shall promptly give Emeritus written
notice of any event expected to cause such Project to
require funding above and beyond the amount initially
budgeted for such Project in the Project Development
Budget. Upon receipt of such written notice, Emeritus
shall, as required by Section 2.8, determine whether it
is willing to advance any additional funds under this
Agreement to fund such Project expenses.
2.7 Construction/Permanent Loans
Borrower shall obtain a Construction/Permanent
loan for each of the Projects. It is anticipated that
such financing will be obtained from a conventional
mortgage lender. Moreover, it is anticipated that the
Construction/Permanent Loan will bear interest at a
market rate, require
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payments of interest only during the construction
phase, but provide for the outstanding principal to be
amortized over a period of twenty to twenty-five years
once. debt amortization commences, and be secured by a
first priority lien on the real and personal property
of the Wholly Owned Subsidiary. Borrower shall use its
best efforts to obtain financing for as long a period
as is reasonably practicable, taking into account the
market conditions, the cost of the financing, lenders'
willingness to make long-term financing available for
construction projects and other similar factors, with
the expectation that such financing will, if at a11
possible, have a term of not less than five years after
completion of the Project's construction and with the
understanding that Emeritus expects to have long-term
financing available for the Projects before permitting
draws against the Loan to fund Project Loans. It is
expected that the mortgage lender will also require a
construction budget and may condition the loan upon the
establishment of construction contingency reserves and
a lease-up reserve. The lender of the
Construction/Permanent Loan must be advised as to
Emeritus' right to convert the Loan into an equity
interest in Borrower, and as to Emeritus' security
rights under this Agreement, and consent to Emeritus'
possession of such rights and acknowledge that the
exercise thereof does not, and will not, constitute an
event of default under the Construction/Permanent Loan.
Borrower will be responsible for negotiating the terms
and conditions of the loan commitment letter for the
Construction/Permanent Loan, and such financing shall
be presented to Emeritus for its review and approval,
which approval shall not be unreasonably withheld.
▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ each agrees to personally
guarantee, if required by the lender, the payment of
the Construction/Permanent Loan.
2.8 Project Loans in Excess of $750,000
Emeritus is not obligated to permit draws against
the Loan to fund a Project, if and to the extent that
the aggregate amount of the draws for such Project
would exceed $750,000. Any draws against the Loan used
to cover interest due on Project Promissory Notes or to
cover acquisition, development, construction,
operational expenses, or start-up or organizational
expenses of the related Wholly Owned Subsidiaries,
shall be allocated to such Projects in determining the
maximum amount advanced for the benefit of such
Projects. If for whatever reason, Borrower needs
additional funds under the Loan for such Project,
Borrower may make a request in writing for such funds,
and Emeritus may permit additional Funding for such
Project if it has been demonstrated, to Emeritus'
satisfaction, that making such additional funds
available will not jeopardize the development of any
other Project or reduce the likelihood of Borrower's
ability to complete the seven Projects required by
Section 2.6. Should Emeritus decline to make such
additional funds available for such Project, Borrower
shall make loans available to the Wholly Owned
Subsidiary to permit its completion and to cover lease-
up expenses and other operational expenses as required
by Section 2.6.
2.9 Engagement of Affiliates
Emeritus hereby acknowledges that each of the
Wholly Owned Subsidiaries intends to (i) engage South
Bay Partners, Inc., a Texas corporation wholly owned by
▇▇▇▇▇▇▇▇▇ to assist with the development of its Project
pursuant to a Development Services Agreement in the
form attached hereto as Exhibit I; and (ii) engage
▇▇▇▇▇ ▇▇▇▇▇ Associates, Inc., a Washington corporation
controlled by ▇▇▇▇▇, to manage the Project, pursuant to
the Property Management Agreement, in the form attached
hereto as Exhibit J. No payments beyond those
authorized by these Agreements shall be payable to such
parties for rendering the services required thereby.
A condition to Emeritus' obligation to make any
Fundings under this Agreement is that each such
developer and manager pledges to Emeritus its rights
under the applicable Project Management Agreement and
Development Services Agreement concurrent with the
initial Funding of the Project Loan for that Project.
The Development Services Agreement and Property
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Management Agreement each reserves to Borrower and its
Wholly Owned Subsidiary the right to suspend the
payment of any further amounts due, and to terminate
such agreement without penalty, upon the occurrence of
a Default or an Event of Default under this Agreement.
Emeritus may cause such right of suspension or
termination to be exercised, if it so wished, upon the
occurrence of Default or an Event of Default and shall
exercise such right, by giving written notice thereof
to Borrower, the Wholly Owned Subsidiary, and the
developer and property manager, as the case may be.
Such suspension or termination shall be effective
immediately upon receipt of such written notice from
Emeritus and no further action shall be required of any
other party in order to cause such action to be
effective.
2.10 Funding Requisitions
Each request for the Funding of a Project loan
must be initiated by the Borrower by submitting to
Emeritus a written notice (the "Borrower "Notice").
Such Borrower Notice must be signed by the manager of
Borrower and must (i) certify that all conditions to
Funding of the Project Loan, whether such Funding is an
initial Funding or subsequent Funding, have been
satisfied; (ii) be accompanied by the items required by
Section 3.2 as to the initial Funding of the Project
Loan or by the items required by Section 3.3. as to the
subsequent funding of the Project Loan, to the extent
that such items have not previously been delivered to
Emeritus; (iii) state the amount requested and specify
in reasonable detail the uses of the funds requested;
(iv) confirm the maximum loan amount available for such
Project, as required by Section 3.2(i); (v) certify
that the amount requested, together with any prior
advances for such Project Loan, will not exceed the
maximum loan amount authorized for the Project; and
(vi) confirm that the funds requested will be used
exclusively for the purposes permitted under Section
2.5. A Borrower Notice with respect to each Project
shall not be submitted to Emeritus for Funding more
frequently than once per calendar month; provided,
however, that, under unusual circumstances, Borrower
may, upon reasonable notice to Emeritus, submit
requests for Funding of a Project Loan twice in each
calendar month. Subject to confirming compliance with
the applicable funding requirements under Section 3,
Emeritus shall advance the funds requested in Borrower
Notice no later than three days after receipt of such
Borrower Notice. It is the intent of Borrower and
Emeritus that funds will not be drawn upon by Borrower
to fund Project Loans until such funds are needed.
Accordingly, Borrower shall not submit Borrower Notices
with respect to any of the Projects unless it
reasonable expects that the funds requested will be
expended by Borrower or the Wholly Owned Subsidiary for
permissible expenses within 45 days of the Funding of
such amounts by Emeritus or that the receipt of such
funds is expressly required by the lender of the
Construction/Permanent Loan. Fundings of the Loan shall
be by wire transfer of immediately good funds to such
account as may be designated by Borrower.
3. CONDITIONS PRECEDENT FOR FUNDINGS UNDER THE LOAN
3.1 Conditions Precedent for Initial Funding
Emeritus shall not be required to make the initial
Funding under the Loan unless or until the following
conditions have been fulfilled to the satisfaction of
Emeritus:
(a) Borrower shall have executed and delivered to
Emeritus this Agreement and the Convertible Promissory
Note.
(b) Each of the Guarantors shall have executed and
delivered to Emeritus the Guaranty and the Guarantor
Pledge and Security Agreement.
11
(c) Each of the Guarantors shall have executed and
delivered to Emeritus such financing statements and
other documents deemed necessary by Emeritus to protect
the security interest granted to Emeritus by such
Guarantor.
(d) No Default or Event of Default hereunder
shall exist, and after having given effect to the
requested Funding; no Default or Event of Default shall
exist.
(e) All representations and warranties of Borrower
contained herein or otherwise made in writing in
connection herewith shall be true and correct in all
material respects with the same effect as though such
representations and warranties had been made on and as
of the date of the initial Funding.
(f) All company proceedings of Borrower shall be
satisfactory in form and substance to Emeritus, and
Emeritus shall have received all information and copies
of all documents, including records of all company
proceedings, that Emeritus has requested in connection
therewith, such documents where appropriate to be
certified by proper company authorities or Governmental
Bodies. Borrower shall provide Emeritus with. the
following documents prior to or upon the execution of
this Agreement:
(i) Copies of Borrower's Certificate of
Formation and Operating Agreement, together with
all amendments thereto, certified by Borrower to
be true and complete;
(ii) A certificate of authority or good
standing for Borrower in its state of organization
and in the state of its principal place of
business, dated within 30 days of the date of the
execution of this Agreement; and
(iii) A certified resolution of Borrower's
members and incumbency certificate of Borrower.
(g) Emeritus shall have received such evidence
deemed necessary by Emeritus that Emeritus' security
interests in the Collateral constitute first priority
and exclusive security interests.
(h) With respect to each of the Projects to be
financed with such initial Funding under the Loan, the
conditions set forth in Section 3.2 for the initial
funding of such Project have been fulfilled to the
satisfaction of Emeritus.
3.2 Conditions Precedent to Initial Funding for Each
Project
The obligation of Emeritus to make any Funding
(including the initial Funding) under the Loan, the
proceeds of which are to be used for the initial
financing of a Project, is subject to the fulfillment
to the satisfaction of Emeritus of the following
conditions as to such Project:
(a) Borrower has organized, or caused to be
organized, a Wholly Owned Subsidiary, which may either
be a limited partnership or a limited liability
company, to acquire, develop, construct, operate and
hold the Project.
(b) Borrower shall provide Emeritus with the
following. documents, which must be in form and
substance satisfactory to Emeritus, prior to the
initial Funding of the Project:
(i) Copies of the Wholly Owned Subsidiary's
certificate of limited partnership
12
and limited partnership agreement, or certificate
of formation and operating agreement (as the case
may be), together with all amendments thereto,
certified by Borrower to be true and complete;
(f) Emeritus shall have received insurance
certificates in form satisfactory to Emeritus to the
effect set forth in Section 4.6.
(g) Borrower shall deliver, or cause to be
delivered, the plans and specifications for the
Project, evidencing that the Project to be delivered is
substantially equivalent, in all material respects, to
the "prototype" facility historically developed by
▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ and to the extent that Borrower
intends to depart, in any material respects, from the
"prototype" facility, Borrower shall expressly identify
for Emeritus' attentions such departures, giving
reasons therefor, and such variations in the plans and
specifications are subject to the approval of Emeritus,
which approval may be granted or withheld in its sole
discretion. .
(h) The Project is located in the market area
approved by Borrower and Emeritus. Attached hereto as
Exhibit G is a list of pre-approved market areas
mutually acceptable to Borrower and Emeritus. If the
Project is not within one of these market areas, no
Funding for such Project will be permitted unless and
until such market area has been approved by Emeritus.
(i) The maximum amount to be borrowed by Borrower
for any one Project under this Agreement must be
established, to Borrower's and Emeritus' satisfaction,
prior to the first draw request under this Loan for
such Project, and such amount may not be subsequently
increased without Emeritus' consent. All amounts
advanced to a Wholly Owned Subsidiary to cover its
acquisition, development and construction expenses, to
fund interest on amounts borrowed by such Wholly Owned
Subsidiary, and to cover its organizational and start-
up expenses, shall be treated as loans from the
Borrower to such Wholly Owned Subsidiary and reflected
in a Project Promissory Note. The maximum amount
advanced by the Borrower to a Wholly Owned Subsidiary
may not exceed $750,000 per Project.
(j) The Wholly Owned Subsidiary shall execute and
deliver to Borrower the Project Promissory Note, and
Borrower shall endorse the Project Promissory Note in
favor of Emeritus, and deliver to Emeritus the
endorsed. Project Promissory Note and shall execute and
deliver to Emeritus the Project Pledge and Security
Agreement.
(k) Borrower shall have executed and delivered to
Emeritus such financing statements and other documents
deemed necessary by Emeritus to protect the security
interests granted to Emeritus by Borrower.
(l) Borrower shall prepare and deliver to Emeritus
the Borrower Notice containing the information required
by Section 2.10 and advising Emeritus of the amount of
such Funding to be applied toward the Project.
(m) All amounts advanced by Emeritus for the
Project Loan shall immediately be deposited into an
account, in the name and for the benefit of the Wholly
Owned Subsidiary, and such funds. shall thereafter not
be returned to Borrower or any of its Affiliates, or
used for any other purpose other than paying the
expenses of the Wholly Owned Subsidiary as itemized in
the Project Development Budget.
(n) Borrower shall prepare and deliver to Emeritus
for its review and approval a Project Development
Budget demonstrating that the amount of the Project
Loan, the
13
Construction/Permanent Loan and the Borrower Project
Subordinated Debt, if any, are sufficient to cover the
projected acquisition, development, construction cost,
and operational costs, until such time as the Project
is expected to reach break even and that the Project is
economically feasible.
(o) If and to the extent that the Project
Development Budget requires Borrower to make available
Borrower Project Subordinated Debt to fund the Project,
Borrower shall advance such funds to the Wholly Owned
Subsidiary prior to the initial funding of the Project
Loan.
(p) No Default or Event of Default hereunder shall
exist, and after giving effect to the requested
Funding, no Default or Event of Default shall exist.
(q) All representations and warranties of Borrower
contained herein or otherwise made in writing in
connection herewith shall be true and correct in all
material respects with the same effect as though such
representations and warranties had been on and as of
the date of such Funding.
(r) Emeritus shall have received from counsel for
Borrower an opinion addressed to Emeritus, dated as of
the date of the Funding, substantially in the form and
substance attached hereto as Exhibit H, with such
modifications thereto as are reasonably necessary for
the Project.
3.3 Conditions Precedent for Subsequent Fundings of
the Project Loans
Emeritus shall not be required to make any
subsequent Funding under the Loan to permit any
subsequent Funding of a Project loan unless and until
the following conditions have been fulfilled to the
satisfaction of Emeritus:
(a) All Fundings to be used by Borrower to fund
the Project Loan shall not exceed a maximum of
$750,000, without the prior written consent of
Emeritus, which consent may be granted or withheld in
its sole and absolute discretion.
(b) All Fundings to be used by Borrower to finance
the Project Loan shall not exceed the maximum amount
for such Project Loan established by Borrower, and
disclosed to Emeritus, at or prior to the time of the
initial Funding of the Project Loan.
(c) If additional funds are needed to finance a
Project, beyond the Maximum Project Loan Amount,
Borrower may request that additional advances be made
to fund the Project Loan, and Emeritus may make such
additional advances after Borrower's demonstration, to
Emeritus' satisfaction, that the additional advances
toward the Project Loan would not jeopardy any other
Project's acquisition and development or Borrower's
objective of acquiring, constructing and developing,
and bringing to break even the seven Projects required
by the terms of this Agreement. If Emeritus does not
approve such further advances, additional funds for
such Project Loan shall be furnished by Borrower as
required by Section 2.8.
(d) On or prior to the Funding, Borrower shall
deliver to Emeritus a title update confirming that, as
of such date, the Project is not subject to any liens,
encumbrances or adverse claims other than the Permitted
Encumbrances.
(e) No Default or Event of Default hereunder shall
exist, and after giving effect to the requested
Funding, no Default or Event of Default shall exist.
14
(f) All representations and warranties of Borrower
contained herein or otherwise made in writing in
connection herewith shall be true and correct in all
material respects with the same effect as though such
representations and warranties had been on and as of
the date of such Funding.
3.4 Review of Funding Request Materials
Borrower shall use all reasonable efforts to
assemble the materials to be submitted to Emeritus
under either Section 3.2 or 3.3 so that only one or two
packages are submitted for Emeritus' review. The
initial package submitted to Emeritus for Funding under
Section 3.2 will include a summary of the proposed
Project, together with the Project Development Budget.
In addition, to the extent feasible, Borrower will
assemble an overall due diligence package, comparable
to the information to be provided to the prospective
lender of the Construction/Permanent Loan including as
many of the items set forth in this Section 3.2 as are
reasonably possible, in order to facilitate Emeritus'
efficient review of the Project and the related
Project documentation. Emeritus shall have a period of
ten business days following the receipt of information
from Borrower to advise Borrower whether the items so
submitted are approved or disapproved. If, for whatever
reason, Borrower requires an expedited review of such
materials, Borrower shall so advise Emeritus, providing
an explanation of the reasons therefor. Requests for
expedited review are to be made only under
extraordinary circumstances, the parties acknowledging
that expedited review requests are not intended to
become the standard course of dealing between the
parties. Emeritus shall use reasonable efforts to
respond to such expedited requests, but the parties
acknowledge and agree that Emeritus is not obligated to
waive its right to have a full ten business days after
the receipt of such items for their review and
approval, even when these items are accompanied by
expedited review requests.
4. AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that so long
as this Agreement is in effect, and until the Loan,
together with interest thereon, and all other
obligations incurred hereunder is paid or satisfied in
full, Borrower shall:
4.1 Financial Data
Keep its books of account, and cause the books of
account of each of its Wholly Owned Subsidiaries to be
kept, in accordance with generally accepted accounting
principles, consistently applied, and furnish to
Emeritus:
(a) As soon as practicable and in any event within
45 days after the close of each month, a written
report, certified by Borrower's manager describing the
status of each of the Projects, the remaining funds
allocated for the acquisition and development of such
Project, and the anticipated uses of such funds to
ensure the completion of construction and lease-up, in
accordance with the applicable Project Development
Budget.
(b) As soon as practicable and in any event within
25 days after the close of each month, the following
unaudited financial statements of Borrower and each of
the Wholly Owned Subsidiaries for each such month, all
in reasonable detail, in comparative form to historical
and budgeted financial statements, and certified by
Borrower to be true and correct: balance sheet,
statement of income, and statement of cash flows.
(c) As soon as practicable and in any event within
90 days after the close of each fiscal
15
year of Borrower, the following financial statements of
Borrower, and each of the Wholly Owned Subsidiaries,
setting forth the corresponding figures for the
previous fiscal year in comparative form where
appropriate, all in reasonable detail and reviewed
(without any qualification or exception deemed material
by Emeritus) by Borrower's current independent
certified public accountant or such other independent
certified public accountants selected by Borrower and
satisfactory to Emeritus: balance sheet, statement of
income, and statement of cash flows. Borrower shall
provide Emeritus with a copy of its independent
certified public accountants' review letter or other
similar report or correspondence to Borrower.
(d) As soon as practicable and in any event within
45 days after the close of each fiscal quarter of
Borrower, certificates signed by Borrower, stating that
during such period no Default or Event of Default
existed or, if any such Default or Event of Default
existed, specifying the nature thereof, the period of
existence thereof, and what action Borrower proposes to
take or has taken with respect thereto.
(e) Promptly upon the occurrence of any Default or
Event of Default, a certificate signed by Borrower,
specifying the nature thereof, the period of existence
thereof, and what action Borrower proposes to take or
has taken with respect thereto.
(f) Upon request by Emeritus, copies of all
reports relative to the operations of Borrower and its
Affiliates filed with any Governmental Body.
(g) As soon as practicable and in any event no
later than December 1 prior to each fiscal year, a
Project Operating Budget for each of the Projects then
owned by a Wholly Owned Subsidiary, in a format
satisfactory to Emeritus, projecting a11 anticipated
capital expenditures, revenues, and expenses for the
following fiscal year.
(h) With reasonable promptness, such other
information regarding the business, operations, and
financial condition of Borrower and Wholly Owned
Subsidiaries as Emeritus may from time to time
reasonably request.
4.2 Licenses and Permits
Maintain, and cause each of the its Wholly Owned
Subsidiaries to maintain, all Governmental Approvals
and all related or other material agreements necessary
for Borrower and the Wholly Owned Subsidiaries to
operate their businesses, as they now exists or as they
may be modified or expanded. Borrower and the Wholly
Owned Subsidiaries will at all times comply with a11
Applicable Laws relating to the operations, facilities,
or activities of Borrower and the Wholly Owned
Subsidiaries.
4.3 Maintenance of Properties
Keep Borrower's and Wholly Owned Subsidiaries'
properties in good repair and in good working order and
condition, in a manner consistent with past practices
and comparable to industry standards; from time to time
make all appropriate and proper repairs, renewals,
replacements, additions, and improvements thereto; and
keep all equipment that may now or in the future be
subject to compliance with any Applicable Laws in full
compliance with such Applicable Laws.
4.4 Payment of Charges
16
Duly pay and discharge all (a) taxes, assessments,
levies, and any other charges of Governmental Bodies
imposed on or against Borrower, the Wholly Owned
Subsidiaries, or their property or assets, or upon any
property leased by Borrower or the Wholly Owned
Subsidiaries, prior to the date on which penalties
attached thereto, unless and to the extent only that
such taxes, assessments, levies, and any other charges
of Governmental Bodies, after written notice thereof
having been given to Emeritus, are being contested in
good faith and by appropriate proceedings, (b) claims
allowed by Applicable laws, whether for labor,
materials, rentals, or anything else, that could, if
unpaid, become a lien or charge upon Borrower's or
Wholly Owned Subsidiaries' property or assets or the
outstanding capital stock of Borrower or adversely
affect the facilities or operations of Borrower or the
Wholly Owned Subsidiaries (unless and to the extent
only that the validity thereof is being contested in
good faith and by appropriate proceedings after written
notice thereof has been given to Emeritus); (c) trade
bills in accordance with the terms thereof or generally
prevailing industry standards; and (d) the Secured Debt
and all other Indebtedness heretofore or hereafter
incurred or assumed by Borrower or Wholly Owned
Subsidiaries. In the event any charge is being
contested by Borrower as allowed above, Borrower shall
establish adequate reserves against possible liability
therefor.
4.5 Comply with the Requirements of the Construction/
Permanent Loans
Comply in all respects with the requirements of
the loan agreements, deeds of trust, mortgages, pledge
agreements, financing statements, and any and all other
documents, instruments or agreements as may be executed
by Borrower or its Wholly Owned Subsidiaries in
connection with the Construction/Permanent Loans
obtained for the Projects, together with any
refinancing thereof.
4.6 Insurance
(a) Obtain and maintain insurance upon Borrower's
and Wholly Owned Subsidiaries' properties and business
insuring against such risks as Emeritus shall
reasonably determine from time to time. Borrower shall
cause each insurance policy issued in connection
therewith to provide and shall cause the insurer
issuing such policy to certify to Emeritus that (i) if
such insurance is proposed to be canceled or materially
changed for any reason whatsoever, such insurer will
promptly notify Emeritus, and such cancellation or
change shall not be effective as to Emeritus for 30
days after receipt by Emeritus of such notice, unless
the effect of the change is to extend or increase
coverage under the policy; and (ii) Emeritus will have
the right at its election to remedy any default in the
payment of premiums within 30 days of notice from the
insurer of the default.
(b) From time to time upon request by Emeritus,
promptly furnish or cause to be furnished to Emeritus
evidence, in form and substance satisfactory to
Emeritus, of the maintenance of all insurance,
indemnities, or bonds required by this Section 4.6 or
by any license, lease, or other agreement to be
maintained, including, but not limited to, such
originals or copies as Emeritus may request of
policies, certificates of insurance, riders,
assignments, and endorsements relating to the insurance
and proof of premium payments.
4.7 Maintenance of Records
Keep at all times books of account and other
records in which full, true, and correct entries will
be made of all dealings or transactions in relation to
the business and affairs of Borrower and the Wholly
Owned Subsidiaries.
4.8 Inspection
17
Allow any representative of Emeritus to visit and
inspect any of the properties of Borrower and the
Wholly Owned Subsidiaries, to examine the books of
account and other records and files of Borrower and the
Wholly Owned Subsidiaries, to make copies thereof and
to discuss the affairs, business; finances, and
accounts of Borrower and the Wholly Owned Subsidiaries
with their officers, employees, and accountants, all at
such reasonable times and as often as Emeritus may
desire. This right of inspection shall specifically
include Emeritus' collateral and financial
examinations.
4.9 Hazardous Substances
(a) Borrower hereby covenants and agrees that so
long as any Indebtedness of Borrower to Emeritus is
outstanding:
(i) Neither Borrower nor the Wholly Owned
Subsidiaries will permit its property or
any portion thereof to be a site for the
storage, use, generation, manufacture,
disposal or transportation of Hazardous
Materials in violation of Hazardous
Materials Laws;
(ii) Neither Borrower nor the Wholly Owned
Subsidiaries will permit any Hazardous
Materials to be disposed of off its
property other than in properly
licensed disposal sites;
(iii) Borrower and the Wholly Owned
Subsidiaries, at their cost and expense,
will keep and maintain their property
and each portion thereof in compliance
with and shall not cause or permit its
properly or any portion thereof to be in
violation of any Hazardous Materials
Laws; and
(iv) Borrower will immediately advise
Emeritus in writing of any Hazardous
Material Claim..
(b) Borrower agrees to indemnify Emeritus and hold
Emeritus harmless from and against any and all claims,
demands, damages, losses, liens, liabilities,
penalties, fines, lawsuits, and other proceedings and
costs and expenses (including attorneys' fees), arising
directly or indirectly from or out of or in any way
connected with (i) the accuracy of the representations
contained in Section 6.15 hereof; (ii) any activities
on its property during Borrower's or any Wholly Owned
Subsidiary's ownership, possession, or control of its
property that directly or indirectly results in its
property or any other property becoming contaminated
with Hazardous Materials; (iii) the discovery of
Hazardous Materials the property of Borrower or any of
its Wholly Owned Subsidiaries; (iv)the cleanup of
Hazardous Materials from the property of Borrower or
any of its Wholly Owned Subsidiaries; and (v) the
discovery of Hazardous Materials or the cleanup of
Hazardous Materials from adjacent or other property
that has become contaminated as a result of any
activity on the property of Borrower or any of its
Wholly Owned Subsidiaries. As between Borrower and
Emeritus, Borrower acknowledges that it will be solely
responsible for all costs and expenses relating to the
cleanup of Hazardous Materials from the properly of
Borrower or any of its Wholly Owned Subsidiaries or
from any other properties that become contaminated with
Hazardous Materials as a result of activities on or the
contamination of such properly.
(c) The representations, warranties, and covenants
of Borrower set forth in this Section 4.9 and Section
6. IS (including, but not limited to, the indemnity
provided for in Section 4.9(b))
18
shall survive the closing and repayment of the Loan to
Emeritus; and, to the extent permitted by Applicable
Laws and Hazardous Materials Laws, shall survive the
transfer of the property of Borrower or any of its
Wholly Owned Subsidiaries by foreclosure proceedings
(whether judicial or nonjudicial), deed in lieu of
foreclosure, or otherwise. Borrower acknowledges and
agrees that its covenants and obligations hereunder are
separate and distinct from its obligations under the
Loan and the Loan Documents.
4.10 Existence
Maintain and preserve the existence under the laws
of the state of its organization, and qualification to
do business in each foreign jurisdiction in which such
qualification is necessary, of Borrower and each of the
Wholly Owned Subsidiaries.
4.11 Notice of Disputes and Other Matters
Promptly give written notice to Emeritus of:
(a) Any citation, order to show cause, or other
legal process or order that could have a material
adverse effect on Borrower or any Wholly Owned
Subsidiary, directing Borrower to become a party to or
to appear at any proceeding or hearing by or before any
Governmental Body that has granted to Borrower or any
Wholly Owned Subsidiary any Governmental Approval, and
include with such notice a copy of any such citation,
order to show cause, or other legal process or order;
(b) Any (i)refusal, denial, threatened denial, or
failure by any Governmental Body to grant, issue,
renew, or extend any material Governmental Approval;
(ii) proposed or actual revocation, termination, or
modification (whether favorable or adverse) of any
Governmental Approval by any Governmental Body; (iii)
dispute or other action with regard to any Governmental
Approval by any Governmental Body; (iv) notice from any
Governmental Body of the imposition of any material
fines or penalties or forfeitures; or (v) threats or
notice with respect to any of the foregoing or with
respect to any proceeding or hearing that might result
in any of the foregoing;
(c) Any dispute concerning or any threatened non
renewal or modification of any material lease for real
or personal property to which Borrower or any Wholly
Owned Subsidiary is a party; or
(d) Any actions, proceedings, or claims of which
Borrower may have notice that may. be commenced or
asserted against Borrower or any Wholly Owned
Subsidiary in which the amount involved is $25,000 or
more and is not fully covered by insurance or which, if
not solely a claim for monetary damages, could, if
adversely determined, have a material adverse effect on
Borrower or any Wholly Owned Subsidiary.
4.12 Maintenance of Liens
At all times maintain the liens and security
interests provided under or pursuant to this Agreement
as valid and perfected first liens and security
interests on the property and assets intended to be
covered thereby. Except as contemplated under Section
5.5, Borrower shall take all action requested by
Emeritus necessary to assure that Emeritus has valid
and exclusive liens and security interests in all
Collateral.
19
5. NEGATIVE COVENANTS
Borrower covenants and agrees that until the Loan,
together with interest thereon, and all other
obligations incurred hereunder are paid or satisfied in
full, neither Borrower nor any of its Wholly Owned
Subsidiaries shall, without the prior written consent
of Emeritus:
5.1 Dividends and Distributions
Prior to Emeritus' conversion of the Loan into an equity in
t
e
r
e
s
t
i
n
B
o
r
r
o
w
e
r
,
declare or pay any cash distributions or dividends or
return any capital to any of Borrower's members;
authority or make any distribution, payment, or
delivery of property or cash to any of Borrowers
members; redeem, retire, purchase, or otherwise
acquire, directly or indirectly, for consideration, any
shares or other interests of Borrower now or hereafter
outstanding; or set aside any funds for any of the
foregoing purposes; provided, however, that
notwithstanding anything in this Section 5.1 to the
contrary, Borrower may make distributions to its
Members on an annual basis in an amount equal to the
Minimum Tax Distributions. Any pre-conversion cash
accumulations held by Borrower shall be used by
Borrower to acquire, develop and construct new
Projects.
5.2 Transactions With Affiliates
Except for the Project Loans and as provided in
Section 2.9, and except as to any Borrower loans that
may be made to a Wholly Owned Subsidiary pursuant to
Section 2.6, enter into any transaction, other than an
arm's-length transaction, in which an Affiliate of
Borrower shall have any interest; or make any payment
or agree to make any payment to any such Affiliate; or
transfer or agree to transfer ownership or possession
of any of its business or assets, tangible or
intangible, real, personal, or mixed, to any Affiliate.
5.3 Other Indebtedness
Create, incur, assume, or suffer to exist,
contingently or otherwise, any Indebtedness except (a)
Senior Debts; (b) Indebtedness represented by the Loan;
(c) accounts and other current payables arising from
the ordinary course of business; and (d) Indebtedness
created as a result of Borrower loans pursuant to
Section 2.6.
5.4 Leases and Leasebacks
Enter into any agreement to rent or lease any
material real or personal property or enter into any
arrangement with any bank, insurance company, or other
lender or investor providing for the leasing of any
real or personal property or equipment (a) that at the
time has been or is sold or transferred by Borrower to
such lender or investor or (b) that has been or is
being acquired from another Person by such lender or
investor or on which one or more buildings have been or
are to be constructed by such lender or investor, for
the purpose of leasing such property to Borrower.
Borrower may, however, enter into such leases in the
ordinary course of business.
5.5 Liens
Contract, create, incur, assume, or suffer to
exist any mortgage, pledge, lien, or other charge or
encumbrance of any kind (including, but not limited to,
the charge upon property purchased under conditional
sales or other title retention agreements) upon or
grant any interest in any of the property of Borrower
or the Wholly Owned Subsidiary or assets whether now
owned or
20
hereafter acquired, except (a)liens granted pursuant to
this Agreement; (b) liens granted to secure payment of
the Senior Debt on the Project; and (c) any other
Permitted Encumbrances.
5.6 Advances and Loans
Subsequent to the date of this Agreement, lend
money, make credit available (other than in the
ordinary course of business to customers), or lend
property or the use thereof to any Person; purchase or
repurchase the stock or Indebtedness or all or a
substantial part of the assets or properties of any
Person; guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly or by any
instrument having the effect of assuring any Person's
payment, performance, or capability) the Indebtedness,
performance, obligations, stock, or dividends of any
Person; but Borrower or the Wholly Owned Subsidiary may
endorse negotiable instruments for deposit or
collection in the ordinary course of business.
Notwithstanding the foregoing, Borrower may make the
Project Loans as contemplated and permitted by Section
20.6.
5.7 Investments
Except as otherwise contemplated by this
Agreement, invest in (by capital contribution or
otherwise), acquire, purchase, or make any commitment
to purchase the obligations, stock, or equity of any
Person, except (a) direct obligations of the government
of the United States of America or any agency or
instrumentality thereof, (b) interest-bearing
certificates of deposit or repurchase agreements issued
by any commercial banking institution satisfactory to
Emeritus, and (c) stock or obligations issued in
settlement of claims of Borrower or the Wholly Owned
Subsidiary against others by reason of bankruptcy or a
composition or readjustment of debt or reorganization
of any debtor of Borrower or the Wholly Owned
Subsidiary.
5.8 Acquisitions
Either directly or through an Affiliate, acquire,
purchase, or make any commitment to acquire or purchase
a controlling interest in the stock or other equity
interest of any Person or all or a substantial portion
of the assets of any Person unless (a) such Person will
be a Wholly Owned Subsidiary, or (b) Borrower receives
Emeritus' prior written consent.
5.9 Consolidation, Merger, and Sale of Assets
Wind up, liquidate, or dissolve Borrower's or the
Wholly Owned Subsidiary's affairs or enter into any
transaction of merger or consolidation with any Person;
convey, sell, lease, or otherwise dispose of (or agree
to do any of the foregoing at any time) any of its
material licenses, contracts, or permits, sell all or a
substantial part of its property or assets or sell any
part of its property or assets necessary or desirable
for the conduct of its business as now generally
conducted or as proposed to be conducted; sell any of
its notes receivable, installment or conditional sales
agreements, or accounts receivable: purchase, lease, or
otherwise acquire all or a substantial part of the
property or assets of any other Person (except as
contemplated by this Agreement).
5.10 Type of Business
Enter into any business which is substantially
different from or not connected with the business in
which Borrower or the Wholly Owned Subsidiary is
presently engaged or make any substantial change in the
nature of its business or operations, or the Wholly
Owned Subsidiary.
21
5.11 Change of Chief Executive Office or Name
Change (a) the chief executive office of Borrower,
or any Wholly Owned Subsidiary, (b) Borrower's, or any
Wholly Owned Subsidiary's name, or (c) the location of
any of the Collateral, except in the ordinary course of
business; or adopt or use any trade name without (x)
prior written notice to Emeritus, and (y) the
execution, delivery, and filing (and payment of filing
fees and taxes) of all such documents as may be
necessary or advisable in the opinion of Emeritus to
continue to perfect and protect the liens and security
interests in the Collateral.
5.12 Change in Documents
Amend, supplement, terminate, or otherwise modify
in any way Borrower's or any Wholly Owned Subsidiary's
certificates of formation, articles of incorporation,
operating agreements, bylaws, or organizational
documents, contracts, or other documents delivered to
Emeritus hereunder or executed in connection herewith.
5.13 Control
Enter into any agreement (other than employment
agreements) with any Person that confers upon such
Person the right or authority to control or direct a
major portion of the business or assets of Borrower or
the Wholly Owned Subsidiary.
5.14 Pension Plan
Establish, create, fund or otherwise assume
responsibility as. to any Plan for Borrower or the
Wholly Owned Subsidiary; or permit any other event or
circumstance to occur that results or could result in
liability to the Pension Benefit Guaranties Corporation
or a violation of ERISA.
5.15 Transfers of Interest
Permit, consent to, or otherwise authorize any of
its equity holders to transfer an interest in such
Person, except to the extent permitted by the terms of
the Operating Agreement, or issue or authorize such
Person to issue any additional equity securities.
6. REPRESENTATIONS AND WARRANTIES
In order to induce Emeritus to enter into this
Agreement and to make the Loan as herein provided,
Borrower hereby makes the following representations,
covenants, and warranties, a11 of which shall survive
the execution and delivery of this Agreement and shall
not be affected or waived by any inspection or
examination made by or on behalf of Emeritus:
6.1 Corporate Status
Borrower and each Wholly Owned Subsidiary is an
entity organized and validly existing under the laws of
the state of its organization. Borrower and each Wholly
Owned Subsidiary has the power and authority to own its
property and assets and to transact the business in
which it is engaged or presently proposes to engage.
Borrower and each Wholly Owned Subsidiary is qualified
to do business in all states except where the failure
to be qualified could not have a material adverse
effect on Borrower.
22
6.2 Power and Authority
Borrower and each Wholly Owned Subsidiary has the
power to execute, deliver, and carry out the terms and
provisions of this Agreement and each of the Loan
Documents and has taken all necessary action to
authorize the execution, delivery, and performance of
this Agreement and the other Loan Documents, the
borrowings hereunder, and the making and delivery of
the Convertible Promissory Note and all Loan Documents
delivered hereunder. This Agreement constitutes and the
Convertible Promissory Note and other Loan Documents
and instruments issued or to be issued hereunder, when
executed and delivered pursuant hereto, constitute or
will constitute the authorized, valid, and legally
binding obligations of Borrower and each Wholly Owned
Subsidiary (as the case may be) enforceable in
accordance with their respective terms.
6.3 No Violation of Agreements
Neither Borrower nor any Wholly Owned Subsidiary
is in default under any material provision of any
agreement to which it is a party or in violation of any
Applicable Laws. The execution and delivery of this
Agreement, the Convertible Promissory Note, the other
Loan Documents, and the instruments incidental hereto;
the consummation of the transactions herein or therein
contemplated; and compliance with the terms and
provisions hereof or thereof (a) will not violate any
material Applicable Law and (b) will. not conflict or
be inconsistent with; result in any breach of any of
the material terms, covenants, conditions, or
provisions of; constitute a default under; or result in
the creation or imposition of (or the obligation to
impose) any lien, charge, or encumbrance upon any of
the property or assets of Borrower or any Wholly Owned
Subsidiary pursuant to the terms of any material
Governmental Approval, mortgage, deed of trust, lease,
agreement, or other instrument to which Borrower is a
party, by which Borrower or any Wholly Owned Subsidiary
may be bound, or to which Borrower or any Wholly Owned
Subsidiary may be subject, and (c) will not violate any
of the provisions of the certificate of formation,
operating agreement or other organizational documents
of Borrower or any Wholly Owned Subsidiary. No
Governmental Approval is necessary (i) for the
execution of this Agreement, or the making of the
Convertible Promissory Note, or (ii)for the
consummation by Borrower and Wholly Owned Subsidiaries
of the transactions contemplated by this Agreement,
including, but not limited to, the grant of the
security interests to Emeritus.
6.4 Recording and Enforceability
Neither the certificates of formation, operating
agreements, certificates of limited partnership,
limited partnership agreement, or other applicable
organizational documents of Borrower or any Wholly
Owned Subsidiary, nor other agreements require
recording, filing, registration, notice, or other
similar action in order to insure the legality,
validity, binding effect, or enforceability against all
Persons of this Agreement, the Convertible Promissory
Note, or other Loan Documents executed or to be
executed hereunder, other than filings or recordings
that may be required under the Uniform Commercial Code
or in connection with the perfection of the security
interests of Emeritus in patents, trademarks, and
similar types of Collateral.
6.5 Litigation
There are no actions, suits, or proceedings
pending or, to the Borrower's knowledge, threatened
against or affecting Borrower or any Wholly Owned
Subsidiary before any Governmental Body that could have
a material adverse effect on Borrower or any Wholly
Owned Subsidiary or the Collateral. Neither Borrower
nor any Wholly Owned Subsidiary is in default
23
under any material provision of any Applicable Law or
Governmental Approval of any Governmental Body which
could have a material adverse effect on Borrower or any
Wholly Owned Subsidiary or on the Collateral.
6.6 Good Title to Properties
Borrower and each Wholly Owned Subsidiary has good
and indefeasible title to, or a valid leasehold
interest in, its property and assets, subject to no
liens, mortgages, pledges, encumbrances, or charges of
any kind, except any of the Permitted Encumbrances.
6.7 Licenses and Permits
All Governmental Approvals with respect to the
business of Borrower and Wholly Owned Subsidiaries were
to Borrower's knowledge duly and validly issued by the
respective Governmental Bodies, are in full force and
effect, and are to Borrower's knowledge valid and
enforceable in accordance with their terms. With regard
to such Governmental Approvals, no fact or circumstance
exists that constitutes or, with the passage of time or
the giving of notice or both, would constitute a
material default under any thereof or permit the
grantor thereof to cancel or terminate the rights
thereunder, except upon the expiration of the full term
thereof. Borrower and Wholly Owned Subsidiaries
presently holds all material Governmental Approvals as
are necessary or advisable in connection with the
conduct of its business as now conducted and as
presently proposed to be conducted.
6.8 No Burdensome Agreements
Neither Borrower nor any Wholly Owned Subsidiary
is a party to any agreement or instrument or subject to
any restrictions that now have or, as far as can be
foreseen, could have a material adverse effect on
Borrower or any Wholly Owned Subsidiary.
6.9 Properties in Good Condition
All the material properties of Borrower and Wholly
Owned Subsidiaries are, and all material properties to
be added in connection with any contemplated expansion
will be in good repair and good working order and
condition in a manner consistent with past practices of
Borrower and Wholly Owned Subsidiaries, and comparable
to industry standards and are and will be in compliance
with all Applicable Laws.
6.10 Taxes
Borrower and Wholly Owned Subsidiaries have duly
filed all tax returns and reports required by
Applicable law to be filed; and all taxes, assessments,
levies, fees, and other charges of Governmental Bodies
upon Borrower and Wholly Owned Subsidiaries or upon
their assets that are due and payable have been paid
(except as otherwise permitted in this Agreement).
6. 1I License Fees
Borrower and Wholly Owned Subsidiaries have paid
all fees and charges that have become due for any
Governmental Approval for their business or has made
adequate provisions for any such fees and charges that
have accrued.
6.12 Trademarks, Patents, Etc.
24
Borrower and Wholly Owned Subsidiaries possess all
necessary trademarks, trade names, service marks,
copyrights, patents, patent rights, and licenses to
conduct their businesses as now and as proposed to be
conducted, without conflict with the rights or claimed
rights of others.
6.13 Disclosure
To the best of Borrower's knowledge, the exhibits
hereto, the financial information and statements
referred to in Section 4.l, hereof, any certificate,
statement, report or other document furnished to
Emeritus by Borrower or any other Person in connection
herewith or in connection with any transaction
contemplated hereby, and this Agreement, do not contain
any untrue statements of material fact or omit to state
any material fact necessary in order to make the
statements contained therein or herein not misleading.
6.14 Regulations U and X
Borrower does not own and no part of the proceeds
hereof will be used to purchase or carry any margin
stock (within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing
or carrying any margin stock. Borrower is not engaged
principally or as one of its important activities in
the business of extending credit for the purpose of
purchasing or carrying any margin stock. If requested
by Emeritus, Borrower will furnish to Emeritus a
statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said
Regulation. No part of the proceeds of the Loan will be
used for any purpose that violates or is inconsistent
with the provisions of Regulation X of said Board of
Governors.
6.15 Condition of Property
Except as otherwise disclosed to Emeritus,
Borrower hereby represents and warrants to Emeritus
that as of the date hereof and continuing hereafter,
Borrower's and Wholly Owned Subsidiaries' property
(both owned and leased) and each portion thereof (a)
are not and to the best knowledge of Borrower after due
investigation have not been a site for the use,
generation, manufacture, storage, disposal, or
transportation of any Hazardous Material; (b) are
presently in compliance with all Hazardous Materials
Laws; and (c) are not being used and to the best
knowledge of Borrower after due investigation have not
been used in any manner that has resulted in or will
result in Hazardous Materials being spilled or disposed
of on any adjacent or other property.
7. EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default
"Event of Default," wherever used herein, means
any one of the following events (whatever the reason
for the Event of Default, whether it shall relate to
one or more of the parties hereto, and whether it shall
be voluntary or involuntary or be pursuant to or
affected by operation of Applicable Law):
(a) If Borrower fails to pay the principal of or
any installment of interest on the Convertible
Promissory Note, when and as the same becomes due and
payable, whether at scheduled maturity, by
acceleration, or otherwise; or
(b) If any Indebtedness of Borrower or any Wholly
Owned Subsidiary for money
25
borrowed or credit extended becomes or is declared due
and payable (after any applicable grace period) prior
to the stated maturity thereof or is not paid as and
when it becomes due and payable, or if any event occurs
which constitutes an event of default under any
instrument, agreement, or evidence of Indebtedness
relating to any such obligation of Borrower or any
Wholly Owned Subsidiary; or
(c) If Borrower or any Wholly Owned Subsidiary
fails to pay or perform (after any applicable grace
period) any obligation or Indebtedness to others in
excess of $25,000 (other than as set forth in Section
7.1(b) hereof), whether now or hereafter incurred; or
(d) If any representation or warranty (i)made by
Borrower in this Agreement or (ii) made by Borrower,
Wholly Owned Subsidiary, or any other Person in any
document, certificate, or statement furnished pursuant
to this Agreement or in connection herewith, is false
or misleading in any material respect; or
(e) If Borrower fails to (i) observe or perform
any term, covenant, or agreement to be performed or
observed pursuant to Sections 4 and 5 hereof; or
(ii) observe or perform (not otherwise
specified in this Section 7) any term, covenant,
or agreement to be performed or observed pursuant
to the provisions of this Agreement, the other
Loan Documents, or any other agreement incidental
hereto; or . (iii) perform any of its obligations
under any of the Loan Documents not otherwise
specified in this Section 7, or if the validity of
any of such documents has been disaffirmed by or
on behalf of any of the parties thereto other than
Emeritus; and, in
each such case, such breach or failure has not
been cured within thirty (30) days of Emeritus'
giving Borrower written notice thereof or if such
breach or failure is not susceptible to cure
within thirty (30) days but could be cured, to
commence to cure within such thirty (30) day
period and thereafter diligently proceed to
complete such cure, which cure must under all
circumstances be completed with ninety (90) days
of Emeritus' giving the Borrower written notice
thereof; or
If custody or control of any substantial part of
the property of Borrower or any Wholly Owned Subsidiary
is assumed by any Governmental Body or if any
Governmental Body takes any final action, the effect of
which would be to have a material adverse effect on
Borrower; or
(g) If Borrower or any Wholly Owned Subsidiary
suspends or discontinues its business, or if Borrower
or Wholly Owned Subsidiary makes an assignment for the
benefit of creditors or a composition with creditors,
is unable or admits in writing its inability to pay its
debts as they mature, files a petition in bankruptcy,
becomes insolvent (howsoever such insolvency may be
evidenced), is adjudicated insolvent or bankrupt,
petitions or applies to any tribunal for the
appointment of any receiver; liquidator, or trustee of
or for it or any substantial part of its property or
assets, commences any proceeding relating to it under
any Applicable Law of any jurisdiction whether now or
hereafter in effect relating to bankruptcy,
reorganization, arrangement, readjustment of debt,
receivership, dissolution, or liquidation; or if there
is commenced against Borrower or any Wholly Owned
Subsidiary any such proceeding that remains undismissed
for a period of 60 days or more, or an order, judgment,
or decree approving the petition in any such proceeding
is entered; or if Borrower or any Wholly Owned
Subsidiary by any act or failure to act indicates its
consent to, approval of, or acquiescence in, any such
proceeding or any appointment of any receiver,
liquidator, or trustee of or for it or for any
substantial part of its property or assets, suffers any
such appointment to continue undischarged or unstayed
for a period of 60 days or more, or takes any corporate
action for the purpose of effecting any of the
foregoing; or if any court of competent jurisdiction
assumes jurisdiction with respect to any such
proceeding, or if a
26
receiver or a trustee or other officer or
representative of a court or of creditors, or if any
Governmental Body, under color of legal authority,
takes and holds possession of any substantial part of
the property or assets of Borrower or any Wholly Owned
Subsidiary; or
(j) If there is any refusal or failure by any
Governmental Body to issue, renew, or extend any lease
or Governmental Approval with respect to the operation
of the business of Borrower or any Wholly Owned
Subsidiary, or any denial, forfeiture or revocation by
any Governmental Body of any Governmental Approval that
could have a material adverse effect on Borrower; or
(k) If any of the events described in Section 4.10
occur or are threatened and, in Emeritus' reasonable
judgment, such event jeopardizes or could reasonably be
expected to jeopardize repayment of the Convertible
Promissory Note; or
(1) If Borrower or Borrower's managers or
Affiliates thereof fail to make available to Borrower
the funds necessary to satisfy on a timely basis
Borrower's obligations under Section 2.6.
7.2 Acceleration; Remedies
Upon the occurrence of any Event of Default or at
any time thereafter, if any Event of Default is then
continuing, Emeritus may, by written notice to
Borrower, declare the entire unpaid principal balance
or any portion of the principal balance of the
Convertible Promissory Note and interest accrued
thereon to be immediately due and payable by the maker
thereof; and such principal and interest shall
thereupon become and be immediately due and payable,
without presentation, demand, protest, notice of
protest, or other notice of dishonor of any kind, all
of which are hereby expressly waived by Borrower.
Emeritus may proceed to protect and enforce its rights
hereunder or realize on any or all security granted
pursuant hereto in any manner or order it deems
expedient without regard to any equitable principles of
marshaling or otherwise. All rights and remedies given
by this Agreement, the Convertible Promissory Note, and
the other Loan Documents are cumulative and not
exclusive of any thereof or of any other rights or
remedies available to Emeritus; no course of dealing
between Borrower and Emeritus or any delay or omission
in exercising any right or remedy shall operate as a
waiver of any right or remedy; and every right and
remedy may be exercised from time to time and as often
as deemed appropriate by Emeritus.
8. MISCELLANEOUS
8.1 Notices
All notices, requests, consents, demands,
approvals, and other communications hereunder shall be
deemed to have been duly given, made, or served if made
in writing and delivered personally, sent via
facsimile, or mailed by first-class certified or
registered mail, postage prepaid, to the respective
parties to this Agreement as follows:
(a) If to Borrower:
Aurora Bay Investments, L.L.C.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
27
(b) If to Emeritus:
Emeritus Corporation
▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile No. : (▇▇▇) ▇▇▇-▇▇▇▇
Any notice sent via facsimile shall be confirmed by a
copy, sent on the same day, via first-class certified
or registered mail, postage prepaid. Any notice or
other communication, if addressed and sent, mailed or
delivered as provided above, shall be deemed given or
received three days after the date of mailing as
indicated on the certified or registered mail receipt,
or on the date of delivery or transmission if hand
delivered or sent by facsimile transmission. The
designation of the persons to be so notified or the
address of such persons for the purposes of such notice
may be changed from time to time by similar notice in
writing, except that any communication with respect to
a change of address shall be deemed to be given or made
when received by the party to whom such communication
was sent.
8.2 Payment of Expenses
Whether or not the transactions hereby
contemplated are consummated, Borrower shall pay on
demand all costs and expenses of Emeritus incurred in
connection with the preparation, negotiation,
execution, and delivery of the Loan Documents, as well
as any amendments, modifications, consents, or waivers
relating thereto, including, without limitation,
reasonable attorneys' fees, appraisal fees, title
insurance fees, and recording fees. In addition, if
there shall occur any Default or Event of Default,
Emeritus shall be entitled to recover any costs and
expenses incurred in connection with the preservation
of rights under, and enforcement of, the Loan
Documents, whether or not any lawsuit or arbitration
proceeding is commenced, in all such cases, including,
without limitation, reasonable attorneys' fees and
costs (including the allocated fees of internal
counsel). Costs and expenses as referred to above,
shall include, without limitation, a reasonable hourly
rate for collection personnel, whether employed in-
house or otherwise, overhead costs as reasonably
allocated to the collection effort, and all other
expenses actually incurred. Reasonable attorneys' fees
shall include, without limitation, attorneys' fees and
costs incurred in connection with any bankruptcy case
or other insolvency proceeding commenced by or against
Borrower or any Person granting a security interest in
any item of Collateral, including all fees incurred in
connection with (a) moving from relief from the
automatic. stay, to convert or dismiss the case or
proceeding, or to appoint a trustee or examiner, or (b)
proposing or opposing confirmation of a plan of
reorganization or liquidation, in any case without
regard to the identity of the prevailing party.
8.3 Fees and Commissions
Borrower agrees to indemnify Emeritus and hold it
harmless with regard to any commissions, fees,
judgments, or expenses of any nature and kind that
Emeritus may become liable to pay by reason of any
claims by or on behalf of brokers, finders, or agents
in connection with any act or failure to act by
Borrower or any litigation or similar proceeding
arising from such claims. Borrower states that it is
aware of no valid basis for any such claims.
8.4 No Waiver
No failure or delay on the part of Emeritus or the
holder of any of the Convertible
28
Promissory Note in exercising any right, power, or
privilege hereunder and no course of dealing between
Borrower and Emeritus or the holder of any of the
Convertible Promissory Note shall operate as a waiver
thereof; nor shall any single or partial exercise of
any right, power, or privilege hereunder preclude any
other or further exercise thereof or the exercise of
any right, power, or privilege. The rights and remedies
herein expressly provided are cumulative and not
exclusive of any rights or remedies that Emeritus or
any subsequent holder of any of the Convertible
Promissory Note would otherwise have. No notice to or
demand on Borrower in any case shall entitle Borrower
to any other or further notice or demand in similar or
other circumstances or shall constitute a waiver of the
right of Emeritus to any other or further action in any
circumstances without notice or demand.
8.5 Entire Agreement and Amendments
This Agreement and the exhibits to this Agreement
represent the entire agreement between the parties
hereto with respect to the Loans and the transactions
contemplated hereunder and, except as expressly
provided herein, shall not be affected by reference to
any other documents. This Agreement, or any provision
hereof, may not 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.
8.6 Benefit of Agreement
This Agreement is binding upon and inures to the
benefit of Borrower and Emeritus and their successors
and assigns and all subsequent holders of any of the
Convertible Promissory Note or any portion thereof.
Borrower expressly acknowledges that Emeritus is not
prohibited or restricted from assigning rights or
participations hereunder or any portion thereof to
another Person. In addition, Borrower may delegate its
responsibilities and assign it rights hereunder to
▇▇▇▇▇▇ ▇. ▇▇▇▇ or to an Affiliate thereof. Borrower,
however, is precluded from assigning any of its
respective rights or delegating any of its obligations
hereunder or under any of the other agreements between
Borrower and Emeritus without the prior written consent
of Emeritus.
8.7 Severability
If any provision of this Agreement or any of the
Loan Documents is held invalid under any Applicable
Laws, such invalidity shall not affect any other
provision of this Agreement that can be given an effect
without the invalid provision, and, to this end, the
provisions hereof are severable.
8.8 Descriptive Headings
The descriptive headings of the several sections
of this Agreement are inserted for convenience only and
do not affect the meaning or construction of any of the
provisions hereof.
8.9 Governing Law
This Agreement and the rights and obligations of
the parties hereunder and under the other Loan
Documents shall be construed in accordance with and
shall be governed by the laws of the state of
Washington without regard to the choice of law rules
thereof.
8.10 Consent to Jurisdiction, Service, and Venue
29
For the purpose of enforcing payment of the
Convertible Promissory Note, and the performance of
Borrower's obligations under this Agreement, the other
Loan Documents, or otherwise in connection herewith,
Borrower hereby consents to the jurisdiction and venue
of the courts of the state of Washington or of any
federal court located in such state, including, but not
limited to, the Superior Court of Washington for King
County and the United States District Court for the
Western District of Washington. Borrower hereby waives
the right to contest the jurisdiction and venue of
courts located in King County, Washington, on the
ground of inconvenience or otherwise and waives any
right to bring any action or proceeding against
Emeritus in any court outside King County, Washington.
The provisions of this section do not limit or
otherwise affect the right of Emeritus to institute and
conduct action in any other appropriate manner,
jurisdiction, or court.
8.11 Counterparts
This Agreement and each of the Loan Documents may
be executed in one or more counterparts, each of which
shall constitute an original agreement, but all of
which together shall constitute one and the same
instrument.
8.12 Statutory Notice
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A
DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
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IN WITNESS WHEREOF, Borrower and Emeritus, have
caused this Agreement to be duly executed by the
respective, duly authorized signatories as of the date
first above written.
BORROWER:
AURORA BAY INVESTMENTS,
L.L.C.,
a Washington limited liability
company
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------
-------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Manager
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
-----------------------
------------------
▇▇▇▇▇ ▇▇▇▇▇, Manager
EMERITUS:
EMERITUS CORPORATION,
a Washington corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------
--------------------
Its: V.P. New Business
Development
31