EX 10.79.1 THIS NOTE AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPTION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE FOR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION. $5,000,000 Dated as of January 7,1998 CONVERTIBLE PROMISSORY NOTE For value received, Aurora Bay Investments, L.L.C., a Washington limited liability company, having an office at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339 ("Maker"), hereby promises to pay to the order of Emeritus Corporation, a Washington corporation ("Payee"), at 3131 Elliott Avenue, Suite 500, Seattle, Washington 98121, or such other place designated in writing by Payee in lawful money of the United State of America, Five Million Dollars ($5,000,000) or such lesser amount as may be advanced by Payee to Maker from time to time under that certain Credit Agreement dated as of January 7, 1998, by and between Maker and Payee (the "Credit Agreement"), together with interest thereon from the date of such advances until paid as hereinafter stated. 1. INTEREST ACCRUAL AND PAYMENT. Interest shall accrue on the aggregate outstanding principal balance of this Convertible Promissory Note (the "Note"), commencing on the date hereof, at nine percent (9.0"%) per annum, and shall be payable quarterly in arrears on the first day of each calendar quarter (January 1, April l, July l, and October 1), commencing on April 1,1998. Interest on this Note shall be calculated on the basis of the actual number of days elapsed in any period in which interest is payable. Whenever any payment under this Note is due on a Saturday, Sunday or any other day on which banks in the State of Washington are required to be closed, such payment shall be made on the next succeeding day on which banks in the State of Washington are not required or permitted by law to be closed. 2. PRINCIPAL PAYMENT: MATURITY. Unless sooner paid, all interest and principal payable hereunder, and all other amounts due under this Note, shall be due and payable by Maker on January 7, 2003 (the "Maturity Date"). 3. VOLUNTARY PREPAYMENT. Maker shall not lie entitled to prepay, in part or in whole, the outstanding principal balance of this Note at any time prior to its Maturity Date without the prior consent of Payee, which consent may be withheld by Payee in its sole and absolute discretion. 4. PLACE OF PAYMENT. All amounts due hereunder shall be payable to Payee at the address of Payee or at such other place as Payee may designate in writing to Maker at Maker's address set forth above. 5. CONVERSION RIGHTS. As long as there is not an uncured material default by Payee under the Credit Agreement, Payee shall have a one-time right, exercisable at any time prior to the Maturity Date, to convert effective five (5) days after the giving of such notice (the "Conversion Date"), all (but not less than all) of the principal amount of this Note outstanding as at the Conversion Date into a membership interest in Maker entitling Payee to receive cash distributions made by Maker and to be allocated profits, gains, losses, deductions, credits, or any items thereof, allocated by Maker to its Members, as such rights are stipulated in the Maker's Operating Agreement dated as of January 6,1998, which is attached hereto as Exhibit A-1 (the "Operating Agreement"). The conversion right described herein shall lapse if not exercised on or prior to the Maturity Date. Payee shall effect a conversion by surrendering this Note to Maker, together with a written notice of Payee's intent to exercise its conversion rights (the "Holder Conversion Notice"). Each Holder Conversion Notice, once given, shall be irrevocable. 6. PROCEDURES FOR IMPLEMENTING CONVERSIONS. The following procedures shall apply to the
voluntary conversion of this Note pursuant to Section 5. (a) If upon the Conversion Date, Payee has not advanced to Maker all funds that might be drawn upon by Maker under the Credit Agreement to fund its acquisition, development, construction and initial carrying cost of projects, Payee will be obligated to contribute to Maker, as additional capital contributions, funds at such times, and in such E amounts, that such funds would have been made available to Maker pursuant to the terms of the Credit Agreement. The funding of such capital contributions will be subject to the conditions set forth in the Credit Agreement, as though the Credit Agreement had. been incorporated into Maker's Operating Agreement in its entirety and Payee shall not be obligated to make such capital contributions unless and until all conditions precedent to the funding of such amounts under the Credit Agreement have been satisfied in full. Any funds contributed by Payee to Maker, pursuant to the obligations set forth in the paragraph, shall be credited to Payee's capital account in Maker. (b) If Payee exercises the conversion right described in Section 5, then, effective as of the Conversion Date, this Note shall be canceled and terminated, and Maker shall thereafter have no further obligations, and Payee shall thereafter have no further rights, under this Note. (c) The Conversion Notice shall be given by facsimile and by mail, postage prepaid, addressed to Maker at the facsimile telephone number and address of the principal place of business of Maker. (d) The membership interests issuable upon conversion of this Note will be, when as and if issued, "restricted securities" under the Securities Act and will bear a legend to that effect. The membership interests may not be sold or transferred and must be held indefinitely unless an redemption from registration is available. Maker is not obligated to register the membership interests or to comply with any exemption under the Securities Act or to supply or file any information which would facilitate the resale thereof. 7. LATE CHARGES. In the event that any payment due hereunder or under the Credit Agreement shall not be made when due a late charge of five cents ($.05) for each dollar ($ 1.00) so overdue may be charged by Payee for the purpose of defraying the expense incident to handling such delinquent payment (the "Late Charge Fee"). Such Late Charge Fee represents the reasonable estimate of Payee and Maker of a fair average compensation for the loss that will be sustained by Payee due to the failure of Maker to make timely payments. Such Late Charge Fee shall be paid without . prejudice to the right of Payee to collect any other amounts provided to be paid or to declare an Event of Default under this Note or the Credit Agreement. If an Event of Default (as hereunder defined) occurs, then the interest rate applicable in calculating any defaulted payments from the due date of the defaulted payments shall be the default rate stipulated in Section 8 until paid in full and the Late Charge Fee shall apply to any such payments. 8. DEFAULTS. At the option of Payee, all principal and interest shall immediately become due and payable on any of the following events: (a) Maker fails to make any payment as provided for in this Note, or in the Credit Agreement, and such failure to make payment continues for five (5) calendar days after Maker's receipt of written notice from Payee that such payment is due; (b) Maker makes a general assignment for the benefit of creditors; a receiver is appointed for the assets of Maker upon request by any person(s) other than Maker, or Maker makes a formal request for appointment of a receiver; or any proceeding is brought by Maker in any court or under supervision of any court-appointed officer under any federal or state bankruptcy reorganization, rearrangement, insolvency or debt readjustment law, or if any such proceedings are instituted against Maker and he fails to obtain dismissal of such proceeding within ninety (90) days after the same has been instituted; 2
(c) Maker fails to cure any material breach (other than nonpayment of a monetary obligation) of any agreement of Maker contained in this Note or in the Credit Agreement after Maker has been sent 30 calendar days' written notice of such breach (other than nonpayment of a monetary obligation) from Payee; (d) Any breach by Maker of any material representation or warranty contained in the Credit Agreement or any
(c) Maker fails to cure any material breach (other than nonpayment of a monetary obligation) of any agreement of Maker contained in this Note or in the Credit Agreement after Maker has been sent 30 calendar days' written notice of such breach (other than nonpayment of a monetary obligation) from Payee; (d) Any breach by Maker of any material representation or warranty contained in the Credit Agreement or any other instrument or agreement delivered by Maker to Payee in connection therewith; or (e) The cessation of Maker's business operations, or the insolvency of Maker an admission in writing of its inability to pay debts as they mature. In the event of such Default, the rate of interest due under this Note will. increase to a rate per annum equal to the lesser of (x) 16% per annum and (y) the maximum rate allowed by law and will continue until such Default has been cured or waived. 9. ATTORNEYS' FEES AND COSTS AND CONSULTANT/EXPERT WITNESS EXPENSES. Maker shall pay Payee a11 its direct or indirect reasonable attorneys' fees and costs and the reasonable expense of expert witness and consultants engaged directly or indirectly by Payee to advise Payee and to take whatever steps Payee deems reasonably necessary to collect this Note, including, without limitation, commencement of any action or proceeding to enforce this Note against Maker. Without limiting the generality of the foregoing, Maker understands and agrees to pay the reasonable attorneys' fees and costs and reasonable expenses for expert witnesses and consultants (a) engaged by Payee in connection with this Note, (b) incurred by Payee directly or indirectly in any insolvency proceeding or in any contested matter or adversity proceeding that is part of bankruptcy, and (c) incurred by Payee in advance of any action or proceeding relating to this Note or for the appeal of certiorari proceeding subsequent to an action or proceeding on this Note. 10. NO WAIVER. Maker hereby waives diligence, presentment, protest, any demand for payment, notice of protest, dishonor and nonpayment of this Note. Maker hereby agrees to pay all sums which are payable by it hereunder without set-off or offset. . 1l. CUMULATIVE RIGHTS. The rights and remedies of Payee provided in this Note shall be cumulative and concurrent and may be pursued singly, successively, or together against Maker for the payment hereof in the sole discretion on Payee. The failure to exercise any such right or remedy shall in no event be construed as a waiver of release of said rights and remedies or the rights to exercise them at any later time. 12. MODIFICATION. This Note may not be amended, modified, or changed, nor shall any waiver of any provision be effective, except only by an instrument in writing signed by the person against whom enforcement of such waiver, amendment, change, modification or discharge is sought. 13. JURISDICTION AND VENUE. Maker agrees that the state and federal (as Payee may in its sole discretion elect) courts in the State of Washington situated in King County, Washington, will have non- exclusive jurisdiction and venue over any action or proceeding relating to this Note. Maker submits to such courts and their jurisdiction and agrees that venue in King County, Washington is proper over any such action or proceeding. 14. USURY. It is the intent of Payee and Maker in the execution of this Note and all other instruments now or hereafter securing this Note to contract in strict compliance with applicable usury law. In furtherance thereof Payee and Maker stipulate and agree that none of the terms and provisions contained in this Note, or in any other instrument executed in connection herewith, shall ever be construed to create a contract to pay for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Interest Rate permitted under applicable law (the "Maximum Rate") (the parties hereby acknowledging and confirming that applicable law is to mean the laws of the State of Washington or the laws of the United States, whichever laws allow the greater rate of interest (as noted below) but, if for whatever reason, notwithstanding the parties' joint determination of the applicable law, which determination the parties intend to be conclusive, a court were to 3
determine that the applicable law was the laws of the State of Texas, and if such law provides for a ceiling upon interest rates under Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended, or any successor laws or regulations,
determine that the applicable law was the laws of the State of Texas, and if such law provides for a ceiling upon interest rates under Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended, or any successor laws or regulations, such ceiling shall be the indicated maximum interest rate); neither Maker nor any guarantors, endorsers or other parties now or hereafter becoming liable for payment of this Note shall ever be obligated or required to pay interest on this Note at a rate in excess of the Maximum Rate that may be lawfully charged under applicable law, and the provisions of this paragraph shall control over all other provisions of this Note and any other instruments now or hereafter executed in connection herewith which may be in apparent conflict herewith. Payee, including each holder of this Note, expressly disavows any intention to enlarge or collect excessive unearned interest or finance charges in the event the maturity of this Note is accelerated. If the maturity of this Note shall be accelerated for any reason or if the principal of this Note is paid prior to the end of the term of this Note, and as a result thereof the interest received for the actual period of existence of the Loan exceeds the amount of interest that would have accrued at the Maximum Rate, Payee or other holder of this Note shall, at its option, either refund to Maker the amount of such excess or credit the amount of such excess against the principal amount and thereby shall render inapplicable any and all penalties of any kind provided by applicable law as a result of such excess interest. In the event that Payee or any other holder of this Note shall contract for, charge or receive any amounts and/or any other thing of value which are determined to constitute interest which would increase the effective interest rate on this Note to a rate in excess of that permitted to be charged by applicable law, all such sums determined to constitute interest in excess of the amount of Interest at the lawful rate shall, upon such determination, at the option of Payee or other holder of this Note, be either immediately returned to Maker or credited against the principal amount in which event any and all penalties of any kind under applicable law as a result of such excess interest shall be inapplicable. By execution of this Note, Maker acknowledges that it believes the loan evidenced by this Note, and all arrangements in connection. therewith, to be non- usurious and agrees that if, at any time, Maker should have reason to believe that the loan is in fact usurious, it will give the Payee or other holder of this Note notice of such condition and Maker agrees that Payee or other holder shall have ninety (90) days in which to make appropriate refund or other adjustment in order to correct such condition if in fact such exists. 'The term applicable law as used in this Note shall mean the laws of the State of Washington or the laws of the United States, whichever laws allow the greater rate of interest, as such laws now exist or may be changed or amended or come into effect in the future. 15. MISCELLANEOUS. Every provision of this Note is intended to be severable and in the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall be interpreted so as to make the remaining terms and provisions binding and enforceable to the fullest extent possible. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the party to be charged. In this Note, the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. The headings at the beginning of each numbered paragraph of this Note are intended solely for convenience of reference and are not to be deemed or construed to be a part of this Note. Nothing contained in this Note or elsewhere shall be deemed or construed as creating a partnership or joint venture between Payee and Maker or between Payee and any other person, or cause the holder hereof to be responsible in any way for the debts or obligations of Maker. This Note shall be governed by and construed in accordance with the laws of the State of Washington (without giving effect to its choice of law principles). "ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW." 4
IN WITTINESS WHEREOF, Maker has executed this Note on the 7th day of January, 1998. AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company
By: /s/ Craig W. Spaulding
---------------------------------------Craig W. Spaulding, Manager
IN WITTINESS WHEREOF, Maker has executed this Note on the 7th day of January, 1998. AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company
By: /s/ Craig W. Spaulding
---------------------------------------Craig W. Spaulding, Manager By: /s/ Jerry Erwin
-------------------------------------------Jerry Erwin, Manager
5
EX 10.79.2 NOTICE AND AGREEMENT EMERITUS CORPORATION LOAN TO AURORA BAY INVESTMENTS, L.L.C. Reference is made to the following documents (the "Loan Documents"), all dated to be effective as of the date hereof and executed in connection with a loan of up to $5 million from Emeritus Corporation ("Lender") to Aurora Bay Investments, L.L.C. ("Borrower"): 1. Convertible Promissory Note in the principal amount of $5 million executed by Borrower in favor of Lender. 2. Credit Agreement between Lender and Borrower. 3. Guaranty in favor of Lender executed by Thilo Best, Erwin Investors I, L.L.C., and Craig W. Spaulding. 4. Guarantor Pledge and Security Agreements in favor of Lender executed by Thilo Best, Erwin Investors I, L.L.C., and Craig W. Spaulding. 5. Financing Statements. Borrower, Lender and Guarantors take notice of and agree to the following: 1. PURSUANT TO SUBSECTION 26.02(b) OF THE TEXAS BUSINESS AND COMMERCE CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED THEREIN EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR BY THAT PARTY'S AUTHORIZED REPRESENTATIVE. 2. PURSUANT TO SUBSECTION 26.02(c) OF THE TEXAS BUSINESS AND COMMERCE CODE, THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE DETERMINED SOLELY FROM THE LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS. 3. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES THERETO. THERE ARE NO WRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 4. NOTHING IN THIS NOTICE AND AGREEMENT IS, HOWEVER, TO BE CONSTRUED TO MAKE
EX 10.79.2 NOTICE AND AGREEMENT EMERITUS CORPORATION LOAN TO AURORA BAY INVESTMENTS, L.L.C. Reference is made to the following documents (the "Loan Documents"), all dated to be effective as of the date hereof and executed in connection with a loan of up to $5 million from Emeritus Corporation ("Lender") to Aurora Bay Investments, L.L.C. ("Borrower"): 1. Convertible Promissory Note in the principal amount of $5 million executed by Borrower in favor of Lender. 2. Credit Agreement between Lender and Borrower. 3. Guaranty in favor of Lender executed by Thilo Best, Erwin Investors I, L.L.C., and Craig W. Spaulding. 4. Guarantor Pledge and Security Agreements in favor of Lender executed by Thilo Best, Erwin Investors I, L.L.C., and Craig W. Spaulding. 5. Financing Statements. Borrower, Lender and Guarantors take notice of and agree to the following: 1. PURSUANT TO SUBSECTION 26.02(b) OF THE TEXAS BUSINESS AND COMMERCE CODE, A LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED THEREIN EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR BY THAT PARTY'S AUTHORIZED REPRESENTATIVE. 2. PURSUANT TO SUBSECTION 26.02(c) OF THE TEXAS BUSINESS AND COMMERCE CODE, THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE DETERMINED SOLELY FROM THE LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS. 3. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES THERETO. THERE ARE NO WRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 4. NOTHING IN THIS NOTICE AND AGREEMENT IS, HOWEVER, TO BE CONSTRUED TO MAKE ANY OF THE LOAN DOCUMENTS GOVERNED BY AND SUBJECT TO TEXAS LAW, BUT EACH OF SUCH LOAN DOCUMENTS IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF WASHINGTON, WITHOUT REGARD TO THE CHOICE OF LAW RULES THEREOF. IN WITNESS WHEREOF, this Notice and Agreement is executed by the undersigned parties as of January __, 1998.
BORROWER: AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company
By: /s/ Craig W. Spaulding
BORROWER: AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company
By: /s/ Craig W. Spaulding -----------------------------------Craig W. Spaulding /s/ Jerry Erwin -----------------------------------Jerry Erwin, Manager By:
LENDER: EMERITUS CORPORATION, a Washington corporation
By: /s/ Michelle A. Bickford ----------------------------------Its: V.P. New Business Development
2
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.
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.
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. 2
"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.
"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. "Erwin" means Jerry Erwin. "Erwin LLC" means Erwin Investors I, L.L.C., a Washington limited liability company, controlled by Jerry Erwin, 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, Erwin LLC and Spaulding, who will execute and deliver to Emeritus the Guaranty pursuant to Section 3.1(b) of this Agreement. 3
"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 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, 4
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,
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. 5
"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
"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 Projects, all Indebtedness due and payable on Construction/Permanent Loan for such Project, or refinancing thereof obtained by Borrower or applicable Wholly Owned Subsidiary, provided that the the any its the
proceeds of such refinancing are used exclusively to repay the existing secured indebtedness and, if applicable, the costs associated with such refinancing. "Spaulding" means Craig W. Spaulding, 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 6
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
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 an equity interest in Borrower subject to, and the terms and conditions set forth in, the
into upon
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 Spaulding, 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 7
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 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 Jerry Erwin 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
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 9
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
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. Erwin and Spaulding 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 Spaulding 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 Jerry Erwin Associates, Inc., a Washington corporation controlled by Erwin, 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 10
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.
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
(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 Spaulding and Erwin 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
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 Spaulding and Erwin 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.
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
(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
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
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
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.
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
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
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.
5.11 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
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.
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
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),
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
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. 5720 LBJ Freeway, Suite 450, Lock Box 16 Dallas, Texas 75240-6339 Attention: Craig W. Spaulding Facsimile No.: (972) 458-2233 27
(b) If to Emeritus: Emeritus Corporation 313 I Elliott Avenue, Suite 500 Seattle, Washington 98121 Attention: Ray Brandstrom Facsimile No. : (206) 301-4500
(b) If to Emeritus: Emeritus Corporation 313 I Elliott Avenue, Suite 500 Seattle, Washington 98121 Attention: Ray Brandstrom Facsimile No. : (206) 301-4500 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
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 Daniel R. Baty 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.
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. 30
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: ------------------Craig W. Spaulding, Manager By: -----------------Jerry Erwin, Manager /s/ Jerry Erwin ----------------------/s/ Craig W. Spaulding -----------------------
EMERITUS: EMERITUS CORPORATION, a Washington corporation
By: -------------------Its: Development V.P. New Business /s/ Michelle A. Bickford ----------------------
31
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: ------------------Craig W. Spaulding, Manager By: -----------------Jerry Erwin, Manager /s/ Jerry Erwin ----------------------/s/ Craig W. Spaulding -----------------------
EMERITUS: EMERITUS CORPORATION, a Washington corporation
By: -------------------Its: Development V.P. New Business /s/ Michelle A. Bickford ----------------------
31
EX 10.79.4 PROJECT PROMISSORY NOTE (Lubbock Group, Ltd.) $535,000 Dated as of January 7, 1998 For value received, Lubbock Group, Ltd., a Texas limited partnership, having an office at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339 ("Maker"), hereby promises to pay to the order of Aurora Bay Investments, L.L.C., a Washington limited liability company ("Payee"), at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339, or such other place designated in writing by Payee in lawful money of the United State of America, such amounts as may be advanced by Payee to Maker from time to time to fund Maker's business pursuant to that certain lending arrangement by and between Maker and Payee (the "Credit Agreement"), together with interest thereon from the date of such advances until paid as hereinafter stated. 1. INTEREST ACCRUAL AND PAYMENT. Interest shall accrue on the aggregate outstanding principal balance of this Project Promissory Note (the "Note") commencing on the date hereof, at nine percent (9.0%) per annum, and shall be . payable quarterly in arrears on the first day of each calendar quarter (January 1, April 1, July 1, and October 1), commencing on April 1, 1998. Interest on this Note shall be calculated on the basis of the actual number of days elapsed in any period in which interest is payable. Whenever any payment under this Note is due on a Saturday, Sunday or any other day on which banks in the State of Washington are required to be closed, such payment shall be made on the next succeeding day on which banks in the State of Washington are not required or permitted by law to be closed.
EX 10.79.4 PROJECT PROMISSORY NOTE (Lubbock Group, Ltd.) $535,000 Dated as of January 7, 1998 For value received, Lubbock Group, Ltd., a Texas limited partnership, having an office at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339 ("Maker"), hereby promises to pay to the order of Aurora Bay Investments, L.L.C., a Washington limited liability company ("Payee"), at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339, or such other place designated in writing by Payee in lawful money of the United State of America, such amounts as may be advanced by Payee to Maker from time to time to fund Maker's business pursuant to that certain lending arrangement by and between Maker and Payee (the "Credit Agreement"), together with interest thereon from the date of such advances until paid as hereinafter stated. 1. INTEREST ACCRUAL AND PAYMENT. Interest shall accrue on the aggregate outstanding principal balance of this Project Promissory Note (the "Note") commencing on the date hereof, at nine percent (9.0%) per annum, and shall be . payable quarterly in arrears on the first day of each calendar quarter (January 1, April 1, July 1, and October 1), commencing on April 1, 1998. Interest on this Note shall be calculated on the basis of the actual number of days elapsed in any period in which interest is payable. Whenever any payment under this Note is due on a Saturday, Sunday or any other day on which banks in the State of Washington are required to be closed, such payment shall be made on the next succeeding day on which banks in the State of Washington are not required or permitted by law to be closed. 2, PRINCIPAL PAYMENT MATURITY. Unless sooner paid, all interest and principal payable hereunder, and all other amounts due under this Note, shall be due and payable by Maker on January 7, 2003 (the "Maturity Date"). 3. VOLUNTARY PREPAYMENT. Maker shall not be entitled to prepay, in part or in whole, the outstanding principal balance of this Note at any time prior to its Maturity Date without the prior consent of Payee, which consent may be withheld by Payee in its sole and absolute discretion. 4. PLACE OF PAYMENT. All amounts due hereunder shall be payable to Payee at the address of Payee or at such other place as Payee may designate in writing to Maker at Maker's address set forth above. 5. LATE CHARGES. In the event that any payment due hereunder or under the Credit Agreement shall not be made when due a late charge of five cents ($.05) for each dollar ($1.00) so overdue may be charged by Payee for the purpose of defraying the expense incident to handling such delinquent payment (the "Late Charge Fee"). Such Late Charge Fee represents the reasonable estimate of Payee and Maker of a fair average compensation for the loss that will be sustained by Payee due to the failure of Maker to make timely payments. Such Late Charge Fee shall be paid without prejudice to the right of Payee to collect any other amounts provided to be paid or to declare an Event of Default under this Note or the Credit Agreement. If an Event of Default (as hereunder defined) occurs, then the interest rate applicable in calculating any defaulted. payments from the due date of the defaulted payments shall be the default rate stipulated in Section 6 until paid in full and the Late Charge Fee shall apply to any such payments. 6. DEFAULTS. At the option of Payee, all principal and interest shall immediately become due and payable on any of the following events:
(a) Maker fails to make any payment as provided for in this Note or the Credit Agreement, and such failure to make payment continues for five (5) calendar days after Maker's receipt of written notice from Payee that such payment is due; (b). Maker makes a general assignment for the benefit of creditors; a receiver is appointed for the assets of Maker upon request by any person(s) other than Maker, or -Maker makes a formal request for appointment of a receiver; or any proceeding is brought by Maker in any court or under supervision of any court- appointed officer
(a) Maker fails to make any payment as provided for in this Note or the Credit Agreement, and such failure to make payment continues for five (5) calendar days after Maker's receipt of written notice from Payee that such payment is due; (b). Maker makes a general assignment for the benefit of creditors; a receiver is appointed for the assets of Maker upon request by any person(s) other than Maker, or -Maker makes a formal request for appointment of a receiver; or any proceeding is brought by Maker in any court or under supervision of any court- appointed officer under any federal or state bankruptcy reorganization, rearrangement, insolvency or debt readjustment law, or if any such proceedings are instituted against Maker and he fails to obtain dismissal of such proceeding within ninety (90) days after the same has been instituted; (c) Maker fails to cure any material breach (other than nonpayment of a monetary obligation) of any agreement of Maker contained in this Note or in the Credit Agreement after Maker has been sent 30 calendar days' written notice of such breach (other than nonpayment of a monetary obligation) from Payee; (d) Any breach by Maker of any material representation or warranty contained in the Credit Agreement or any other instrument or agreement delivered by Maker to Payee in connection therewith; or (e) The cessation of Maker's business operations, or the insolvency of Maker, an admission in writing of its inability to pay debts as they mature. In the event of such Default, the rate of interest due under this Note will increase to a rate per annum equal to the lesser of (x) 16% per annum and (y) the maximum rate allowed by law and will continue until such Default has been cured or waived. 7. ATTORNEYS' FEES AND COSTS AND CONSULTANT/EXPERT WITNESS EXPENSES. Maker shall pay Payee all its direct or indirect reasonable attorneys' fees and costs and the reasonable expense of expert witness and consultants engaged directly or indirectly by Payee to advise Payee and to take whatever steps Payee. deems reasonably necessary to collect this Note, including, without limitation, commencement of any action or proceeding to enforce this Note against Maker. Without limiting the generality of the foregoing, Maker understands and agrees to pay the reasonable attorneys' fees and costs and reasonable expenses for expert witnesses and consultants (a) engaged by Payee in connection with this Note, (b) incurred by Payee directly or indirectly in any insolvency proceeding or in any contested matter or adversary proceeding that is part of bankruptcy, and (c) incurred by Payee in advance of any action or proceeding relating to this Note or for the appeal of certiorari proceeding subsequent to an action or proceeding on this Note. 8. NO WAIVER. Maker hereby waives diligence, presentment, protest, any demand for payment, notice of protest, dishonor and nonpayment of this Note. Maker hereby agrees to pay all sums which are payable by it hereunder without set-off or offset. 2
9. CUMULATIVE RIGHTS. The rights and-remedies of Payee provided in this Note shall be cumulative and concurrent and may be pursued singly, successively, or together against Maker for the payment hereof in the sole discretion on Payee. The failure to exercise any such right or remedy shall in no event be construed as a waiver . of release of said rights and remedies or the rights to exercise them at any later time. 10. MODIFICATION. This Note may not be amended, modified, or changed, nor shall any waiver of any provision be effective, except only by an instrument in writing signed by the person against whom enforcement of such waiver, amendment, change, modification or discharge is sought. 1l. JURISDICTION AND VENUE. Maker agrees that the state and federal (as Payee may in its sole discretion elect) courts in the State of Washington situated in King County, Washington, will have non-exclusive jurisdiction and venue over any action or proceeding relating to this Note. Maker submits to such courts and their jurisdiction and agrees that venue in King County, Washington is proper over any such action or proceeding. 12. USURY. It is the intent of Payee and Maker in the execution of this Note and all other instruments now or hereafter securing this Note to contract in strict compliance with applicable usury law. In furtherance thereof,
9. CUMULATIVE RIGHTS. The rights and-remedies of Payee provided in this Note shall be cumulative and concurrent and may be pursued singly, successively, or together against Maker for the payment hereof in the sole discretion on Payee. The failure to exercise any such right or remedy shall in no event be construed as a waiver . of release of said rights and remedies or the rights to exercise them at any later time. 10. MODIFICATION. This Note may not be amended, modified, or changed, nor shall any waiver of any provision be effective, except only by an instrument in writing signed by the person against whom enforcement of such waiver, amendment, change, modification or discharge is sought. 1l. JURISDICTION AND VENUE. Maker agrees that the state and federal (as Payee may in its sole discretion elect) courts in the State of Washington situated in King County, Washington, will have non-exclusive jurisdiction and venue over any action or proceeding relating to this Note. Maker submits to such courts and their jurisdiction and agrees that venue in King County, Washington is proper over any such action or proceeding. 12. USURY. It is the intent of Payee and Maker in the execution of this Note and all other instruments now or hereafter securing this Note to contract in strict compliance with applicable usury law. In furtherance thereof, Payee and Maker stipulate and agree that none of the terms and provisions contained in this Note, or in any other instrument executed in connection herewith, shall ever be construed to create a contract to pay for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Interest Rate permitted under applicable law (the "Maximum Rate") (the parties hereby acknowledging and confirming that applicable law is to mean the laws of the State of Washington or the laws of the United States, whichever laws allow the greater rate of interest (as noted below) but, if for whatever reason, notwithstanding the parties' joint determination of the applicable law, which determination the parties intend to be conclusive, a court were to determine that the applicable law was the laws of the State of Texas, and if such law provides for a ceiling upon interest rates under Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended, or any successor laws or regulations, such ceiling shall be the indicated maximum interest rate); neither Maker nor any guarantors, endorsers or other parties now or hereafter becoming liable for payment of this Note shall ever be obligated or required to pay interest on this Note at a rate in excess of the Maximum Rate that may be lawfully charged under applicable law, and the provisions of this paragraph shall control over all other provisions of this Note and any other instruments now or hereafter executed in connection herewith which may be in apparent conflict herewith. Payee, including each holder of this Note, expressly disavows any intention to enlarge or collect excessive unearned interest or finance charges in the event the maturity of this Note is accelerated. If the maturity of this Note shall be accelerated for any reason or if the principal of this Note is paid prior to the end of the term of this Note, and as a result thereof the interest received for the actual period of existence of the Loan exceeds the amount of interest that would have accrued at the Maximum Rate, Payee or other holder of this Note shall, at its option, either refund to Maker the amount of such excess or credit the amount of such excess against the principal amount and thereby shall render inapplicable any and all penalties of any kind provided by applicable law as a result of such excess interest. In the event that Payee or any other holder of this Note shall contract for, charge or receive any amounts and/or any 'other thing of value which are determined to constitute interest which would increase the effective interest rate on this Note to a rate in excess of that permitted to be charged by applicable law, all such sums determined to constitute interest in excess of the amount of Interest at the lawful rate shall, upon such determination, at the option of Payee or other holder of this Note, be either immediately returned to Maker or credited against the principal amount in which event any and all penalties of any kind under applicable law as a result of such excess interest shall be inapplicable. By execution of this Note, Maker acknowledges that it believes the loan evidenced by this Note, and all arrangements in connection therewith, to be non-usurious and agrees that if, at any time, Maker should have reason to believe that the loan is in fact usurious, it will give the Payee or other holder of this Note 3
notice of such condition and Maker agrees that Payee or other holder shall have ninety (90) days in which to make appropriate refund or other adjustment in order to correct such condition if in fact such exists. The term "applicable law" as used in this Note shall mean the laws of the State of Washington or the laws of the United States, whichever laws allow the greater rate of interest, as such laws now exist or may be changed or amended or come into effect in the future. 13. MISCELLANEOUS. Every provision of this Note is intended to be severable and in the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason
notice of such condition and Maker agrees that Payee or other holder shall have ninety (90) days in which to make appropriate refund or other adjustment in order to correct such condition if in fact such exists. The term "applicable law" as used in this Note shall mean the laws of the State of Washington or the laws of the United States, whichever laws allow the greater rate of interest, as such laws now exist or may be changed or amended or come into effect in the future. 13. MISCELLANEOUS. Every provision of this Note is intended to be severable and in the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall be interpreted so as to make the remaining terms and provisions binding and enforceable to the fullest extent possible. This Note may not be changed, modified or terminated orally, but only by an agreement in writing signed by the party to be charged. In this Note, the singular shall include the plural and the masculine shall include the feminine and neuter gender, and vice versa, if the context so requires. The headings at the beginning of each numbered paragraph of this Note are intended solely for convenience of reference and are not to be deemed or construed to be a part of this Note. Nothing contained in this Note or elsewhere shall be deemed or construed as creating a partnership or joint venture between Payee and Maker or between Payee and any other person, or cause the holder hereof to be responsible in any way for the debts or obligations of Maker. This Note shall be governed by and construed in accordance with the laws of the State of Washington (without giving effect to its choice of law principles). "ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.". 4
IN WITNESS WHEREOF, Maker has executed this Note on the 7th day of January, 1998. Lubbock Group, Ltd., a Texas limited partnership By Aurora Bay I, L.L.C., a Washington limited liability company, Its General Partner
By: Spaulding ---------------------------------Its: Manager Craig W. Spaulding, /s/ Craig W.
5
ENDORSEMENT OF PROJECT PROMISSORY NOTE Pay to the order of Emeritus Corporation AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company,
By: Spaulding ---------------------------------/s/ Craig W.
IN WITNESS WHEREOF, Maker has executed this Note on the 7th day of January, 1998. Lubbock Group, Ltd., a Texas limited partnership By Aurora Bay I, L.L.C., a Washington limited liability company, Its General Partner
By: Spaulding ---------------------------------Its: Manager Craig W. Spaulding, /s/ Craig W.
5
ENDORSEMENT OF PROJECT PROMISSORY NOTE Pay to the order of Emeritus Corporation AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company,
By: Spaulding ---------------------------------Craig W. Spaulding, Manager By: /s/ Jerry Erwin /s/ Craig W.
------------------------------------Jerry Erwin, Manager
6
EX 10.79.5 PROJECT PLEDGE AND SECURITY AGREEMENT (Pledge of General and Limited Partnership Interests-- Lubbock Group, Ltd.) This Pledge and Security Agreement (this "Agreement") is made as of January 7, 1998 by Aurora Bay. Investments, L.L.C., a Washington limited liability company ("Aurora Bay"), Aurora Bay I, L.L.C., a Washington limited liability company ("General Partner") (each individually a "Pledgor" and collectively "Pledgors"), each having an office at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339, for the benefit of Emeritus Corporation, a Washington corporation ("Pledgee"), having an office at 3131 Elliott Avenue, Suite 500, Seattle, WA 98121. RECITALS
ENDORSEMENT OF PROJECT PROMISSORY NOTE Pay to the order of Emeritus Corporation AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company,
By: Spaulding ---------------------------------Craig W. Spaulding, Manager By: /s/ Jerry Erwin /s/ Craig W.
------------------------------------Jerry Erwin, Manager
6
EX 10.79.5 PROJECT PLEDGE AND SECURITY AGREEMENT (Pledge of General and Limited Partnership Interests-- Lubbock Group, Ltd.) This Pledge and Security Agreement (this "Agreement") is made as of January 7, 1998 by Aurora Bay. Investments, L.L.C., a Washington limited liability company ("Aurora Bay"), Aurora Bay I, L.L.C., a Washington limited liability company ("General Partner") (each individually a "Pledgor" and collectively "Pledgors"), each having an office at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339, for the benefit of Emeritus Corporation, a Washington corporation ("Pledgee"), having an office at 3131 Elliott Avenue, Suite 500, Seattle, WA 98121. RECITALS A. Contemporaneously with the execution hereof, Aurora Bay has entered into a Credit Agreement dated as of January 7, 1998 between Aurora Bay and Emeritus (the "Credit Agreement"), establishing a $5 million credit facility in favor of Aurora Bay, and in connection therewith executed and delivered to Emeritus a Convertible Promissory Note (the "Note"). B. . Aurora Bay has used, or expects to use, a portion of the proceeds borrowed under the Credit Agreement to make loans to Lubbock Group, Ltd., a Texas limited partnership ("Subco") and such loan will be evidenced by a Project Promissory Note from Subco to Aurora Bay. C. Each of the Pledgors is a partner, directly or indirectly, in Subco and will financially benefit from the loans represented by the Project Promissory Note and Pledgee's extension of credit under the Credit Agreement to permit Aurora Bay's advancing funds to Subco. D. Subco is governed by and will operate pursuant to the terms of that certain Amended and Restated Limited Partnership Agreement dated as of January 6, 1998, by and among the Pledgors.(the "Partnership Agreement"). E. In order to induce Pledgee to extend credit to Aurora Bay, each of the Pledgors desire to assign, pledge, and grant a security to Pledgee in the Collateral described herein.
EX 10.79.5 PROJECT PLEDGE AND SECURITY AGREEMENT (Pledge of General and Limited Partnership Interests-- Lubbock Group, Ltd.) This Pledge and Security Agreement (this "Agreement") is made as of January 7, 1998 by Aurora Bay. Investments, L.L.C., a Washington limited liability company ("Aurora Bay"), Aurora Bay I, L.L.C., a Washington limited liability company ("General Partner") (each individually a "Pledgor" and collectively "Pledgors"), each having an office at 5720 LBJ Freeway, Suite 450, Dallas, Texas 75240-6339, for the benefit of Emeritus Corporation, a Washington corporation ("Pledgee"), having an office at 3131 Elliott Avenue, Suite 500, Seattle, WA 98121. RECITALS A. Contemporaneously with the execution hereof, Aurora Bay has entered into a Credit Agreement dated as of January 7, 1998 between Aurora Bay and Emeritus (the "Credit Agreement"), establishing a $5 million credit facility in favor of Aurora Bay, and in connection therewith executed and delivered to Emeritus a Convertible Promissory Note (the "Note"). B. . Aurora Bay has used, or expects to use, a portion of the proceeds borrowed under the Credit Agreement to make loans to Lubbock Group, Ltd., a Texas limited partnership ("Subco") and such loan will be evidenced by a Project Promissory Note from Subco to Aurora Bay. C. Each of the Pledgors is a partner, directly or indirectly, in Subco and will financially benefit from the loans represented by the Project Promissory Note and Pledgee's extension of credit under the Credit Agreement to permit Aurora Bay's advancing funds to Subco. D. Subco is governed by and will operate pursuant to the terms of that certain Amended and Restated Limited Partnership Agreement dated as of January 6, 1998, by and among the Pledgors.(the "Partnership Agreement"). E. In order to induce Pledgee to extend credit to Aurora Bay, each of the Pledgors desire to assign, pledge, and grant a security to Pledgee in the Collateral described herein. AGREEMENT NOW, THEREFORE, in consideration of the recitals, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. COLLATERAL "Collateral" shall mean: (a) All of Pledgor's right, title and interest in Subco, including without limitation its general and/or limited partnership interest in Subco, and all of Pledgor's units representing any right, title, and interest in Subco ("Units"), together with any additional Units or interest arising out of the interest pledged hereunder by way of dividend, split- up, reorganization, recapitalization or other similar proceedings, whether now owned or hereafter acquired; (b) Pledgor's right to receive distributions, allocations and payments under the Partnership Agreement, as such Partnership Agreement may be modified from time to time; (c) All indebtedness of Subco to Pledgor of any kind or description; (d) With respect to Aurora Bay, the Project Promissory Note from Subco to Aurora Bay; and (e) All substitutions, replacements, products and proceeds, whether cash proceeds or noncash proceeds, and
products of any and all of the foregoing. If any redemption, reclassification, readjustment or other exchange is proposed or made with respect to the Collateral, Pledgee may, but need not, accept the property so exchanged in lieu of the Collateral described herein, and Pledgor agrees to deliver and hypothecate for the benefit of Pledgee any securities, cash, personalty or other property received in exchange for the Collateral, on such reasonable terms and conditions which will not impair Pledgee's security. Such substituted collateral shall be held by Pledgee under the terms of this Agreement in the same manner as the original Collateral pledged hereunder. 2. PLEDGE Pledgor hereby assigns, pledges and grants a security interest to Pledgee, to and in the Collateral to secure the payment and performance of all obligations of Aurora Bay to Pledgee, whether - presently existing or hereafter arising, direct and indirect, and with interest thereon, under the Note and the Credit Agreement made by Aurora Bay in favor of Pledgee and all further costs and expenses provided for in this Agreement (collectively the "Obligations"). When more than one person is liable on any of the Obligations, Pledgor shall be jointly and severally liable with such person or persons. Pledgor agrees and acknowledges that Pledgor may cause a notation to be made in the record books of Aurora Bay to the effect that the Collateral is subject to this Agreement, and Pledgee may cause a copy of this Agreement to be attached to the record books of Subco at all times while this Agreement remains in effect. 3. MANNER OF PERFECTING SECURITY Concurrently with the execution of this Agreement, Pledgor shall deliver signed UCC-1 Financing Statements for filing in the States of Washington and Texas to reflect the Pledgee's interest in the Collateral. In addition, Aurora Bay as the Pledgor shall endorse in blank the Project Promissory Note and shall deliver such note to the possession of Pledgee. Pledgor agrees that it owns the Collateral in constructive trust for the Pledgee so long as the Pledgor's obligations hereunder remain outstanding, and agrees to provide the Pledgee advance notice of any change of address. 4. RIGHTS OF PARTIES WHEN NO DEFAULT Unless an Event of Default (as hereinafter defined) shall have occurred and be continuing, the Pledgor shall be entitled to vote the Collateral and to give consents, waivers and ratifications with respect thereto and the Pledgor shall be entitled to receive any payments with respect to any indebtedness of Subco to Pledgor to the extent that such payments are permitted under such circumstances under the Credit Agreement. In order to permit the Pledgor to exercise such voting and/or consensual powers, the Pledgee shall, if necessary, upon the written request of the Pledgor from time to time, execute and deliver to the Pledgor appropriate proxies. In addition, prior to the occurrence of an Event of Default, Pledgor may (i) receive, use, and dispose of any distributions, allocations, and payments it receives in the operation of its business but subject to any limitations with respect to distributions to Pledgor's members contained in the Credit Agreement and (ii) use the proceeds of all payments made upon any indebtedness of Subco to Pledgor to satisfy and make payments upon the Note and to make 2
additional Project Loans as defined in the Credit Agreement. Upon the occurrence of an Event of Default, Pledgee shall receive (i) all cash or other dividends or distributions paid or made with respect to the Collateral, (ii) any and all sums paid with respect to any of the Collateral, and (iii) all amounts payable and/or distributable on the liquidation, whether voluntary or involuntary, of Subco (collectively, "Distributions"), and shall hold the same, together with any other amount to which the Pledgee is entitled in an interest bearing cash collateral account ' as additional collateral subject to the terms of this Agreement. 5. PLEDGEE'S ADDITIONAL RIGHTS DURING DEFAULT
additional Project Loans as defined in the Credit Agreement. Upon the occurrence of an Event of Default, Pledgee shall receive (i) all cash or other dividends or distributions paid or made with respect to the Collateral, (ii) any and all sums paid with respect to any of the Collateral, and (iii) all amounts payable and/or distributable on the liquidation, whether voluntary or involuntary, of Subco (collectively, "Distributions"), and shall hold the same, together with any other amount to which the Pledgee is entitled in an interest bearing cash collateral account ' as additional collateral subject to the terms of this Agreement. 5. PLEDGEE'S ADDITIONAL RIGHTS DURING DEFAULT If an Event of Default shall have occurred and shall be continuing, i.e. not have been remedied or waived), in addition to any other rights granted hereunder, the Pledgee shall be entitled to exercise any, all or any combination of the following rights: (a) Vote the Collateral and to give consents, waivers and ratifications with respect thereto and otherwise act with respect thereto as though the Pledgee were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Pledgee its proxy and attorney-in-fact with full power and substitution so to do, such appointing being a power coupled with an interest), although the Pledgee shall not have any duty to exercise any such rights, privileges, options or powers or to sell or to otherwise realize upon any of the Collateral, as hereinafter authorized, or to preserve the same, and the Pledgee shall not be responsible for any failure to do so or delay in so doing; (b) Receive all Distributions; (c) Exercise any and all rights of collection, conversion or exchange, and any and all other rights, privileges, options or power of the Pledgor pertaining or relating to the Collateral (the Pledgor hereby irrevocably constituting and appointing the Pledgee his proxy and attorney-in-fact with full power of substitution so to do), although the Pledgee shall not have any duty to exercise any such rights, privileges, options or powers or to sell or to otherwise realize upon any of the Collateral, as hereinafter authorized, or to preserve the same, and the Pledgee shall not be responsible for any failure to do so or delay in so doing; (d) Apply any or all amounts held in any cash collateral account to payment of the Obligations; (e) Sell, assign and deliver the whole or, from time to time, any part of the Collateral at any broker's board or at any private sale or at public auction, with demand or notice or advertisement of the time or place of sale or adjournment thereof or otherwise, for cash, for credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as determined in an arms length sale with an unrelated third party or pursuant to a price determined under the most current agreement between the partners of Subco, and the Pledgee may bid for and purchase the whole or any part of the Collateral so sold. Any such notice shall state the time, place and method fixed for such sale and, in case of sale at a broker's board, shall state the board at which such sale is to be made and the day on which Collateral, or that portion thereof so being sold, will first be offered for sale at such board. The Pledgee may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. For the purposes hereof, (i) a private sale shall, in 3
the case of the Collateral, include, a sale after solicitation of a number of persons reasonably approximating the maximum number which, in the sole opinion of the Pledgee, shall not require registration of the Collateral so being offered for sale pursuant to the Securities Act of 1933, as amended, or compliance with any applicable state securities law commonly known as a "Blue Sky Law," and (ii) an agreement to sell all or any part of the Collateral shall be treated as a sale thereof, and the Pledgee shall be free to call out such sale pursuant to such agreement and the Pledgor shall not be entitled to the return of any Collateral subject thereto, notwithstanding the fact that after the Pledgee shall have entered into such an agreement all Events of Default may have been remedied or the Obligations may have been paid in full;
the case of the Collateral, include, a sale after solicitation of a number of persons reasonably approximating the maximum number which, in the sole opinion of the Pledgee, shall not require registration of the Collateral so being offered for sale pursuant to the Securities Act of 1933, as amended, or compliance with any applicable state securities law commonly known as a "Blue Sky Law," and (ii) an agreement to sell all or any part of the Collateral shall be treated as a sale thereof, and the Pledgee shall be free to call out such sale pursuant to such agreement and the Pledgor shall not be entitled to the return of any Collateral subject thereto, notwithstanding the fact that after the Pledgee shall have entered into such an agreement all Events of Default may have been remedied or the Obligations may have been paid in full; (f) Either personally or by means of a court appointed receiver, take possession of all or any part of the Collateral and exclude therefrom the Pledgor and all others claiming under the Pledgor, and thereafter exercise all rights and powers of the Pledgor with respect to the Collateral or any part thereof. If the Pledgee demands or attempts to take possession of any of the Collateral in the exercise of any rights under this Agreement, the Pledgor promises and agrees to promptly turn over and deliver complete possession thereof to the Pledgee; and (g) Exercise any remedies of a secured party under the Uniform Commercial Code of the States of Washington and/or Texas, or any other applicable law, and exercise any remedies available to the Pledgee under any other agreement among the parties. 6. CERTAIN SECURITIES LAW RESTRICTIONS In view of the possible position of the Pledgor as an "affiliate" or "control person" of Subco, or because of other present or future circumstances, a question may arise under the Securities Act of 1933, as amended, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being hereinafter called the "Federal Securities Laws") with respect to any disposition of the Collateral permitted hereunder. The Pledgor understands that compliance with the Federal Securities Laws may very strictly limit the course of conduct of the Pledgee if the Pledgee were to attempt to dispose of all or any part of the Collateral and may also limit the extent to which or the manner in which any subsequent transferee of the Collateral may dispose of the same. Similarly, because of the position of the Pledgor with respect to the Subco or because of other circumstances, there may be other legal restrictions or limitations affecting the Pledgee in any attempts to dispose of all or any part of the Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. The Pledgor agrees that any such private sale conducted in a manner which complies with such Federal Securities Laws and Blue Sky or state securities laws shall be commercially reasonable (within the meaning of Section 9-504(3) of the Uniform Commercial Code), and the Pledgor hereby waives any claims against the Pledgee arising by reason of the fact that the price at which the Collateral may have been sold at such a private. sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Pledgee accepts the first offer received and does not offer the Collateral to more than one possible purchaser. Without limiting the generality of the foregoing, these provisions would apply if, for example, the Pledgee placed all or any part of the Collateral privately with a purchaser or purchasers. 7. REDELIVERY OF COLLATERAL UPON FULL SATISFACTION Upon full and complete payment and performance of the Obligations, the Pledgor shall, except as otherwise provided herein, be entitled to the return, at its expense, of such of the Collateral as has not theretofore been sold pursuant to the provisions of this Agreement, together with any moneys at the time held by the Pledgee in any collateral account pursuant to this 4
Agreement, and all rights of Pledgee hereunder shall terminate; and Pledgee shall execute and file terminations of any financing statements covering any part of the Collateral. 8. REALIZATION OF COLLATERAL (a) The Pledgee shall apply the proceeds of any sale of the whole or any part of the Collateral, together with any other moneys at the time held by the Pledgee under the provisions of this Agreement after deducting all
Agreement, and all rights of Pledgee hereunder shall terminate; and Pledgee shall execute and file terminations of any financing statements covering any part of the Collateral. 8. REALIZATION OF COLLATERAL (a) The Pledgee shall apply the proceeds of any sale of the whole or any part of the Collateral, together with any other moneys at the time held by the Pledgee under the provisions of this Agreement after deducting all reasonable costs and expenses of collection, sale and delivery (including, without limitation, counsel fees and expenses) incurred by the Pledgee in connection with such sale, to the payment of the Obligations, the application as between the Obligations to be such as the Pledgee may in its sole discretion determine. (b) To the full extent that the Pledgor may lawfully so agrees, the Pledgor will not at any time plead, claim or take the benefit of any appraisement or valuation, law now or hereafter in force in order to prevent or delay the enforcement of this Agreement or the absolute sale of any portion or all. of the Collateral, or the possession thereof by any purchaser at any sale, and the Pledgor, for itself and all who may claim under the Pledgor, as far as the Pledgor now or hereafter lawfully may, hereby waives the benefit of all such laws. The Pledgor, for itself and all who may claim under the Pledgor, as far as the Pledgor now or hereafter lawfully may, also waives all right to have all or any portion of the Collateral marshalled upon any foreclosure hereof and agrees that any court having jurisdiction over this Agreement may order the sale of all or any portion of the Collateral as an entirety. Any sale of, or the grant of options to purchase, or any other realization upon, all or any portion of the Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Pledgor in and to the Collateral so sold, optioned or realized upon, and shall be a perpetual bar both in law and in equity against the Pledgor and against any and all persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under the Pledgor. No delay on the pair of the Pledgee in exercising any power of sale, lien, option or other right hereunder, and no notice or demand which may be given to or made upon the Pledgor with respect to any power of sale, lien, option or other right hereunder shall constitute a waiver thereof, or limit or impair the right of the Pledgee to take any action or to exercise any power of sale, lien, option or any other right under this Agreement, or otherwise, nor shall any single or partial exercise thereof or the exercise of any power, lien, option or other right under this Agreement or otherwise all without notice or demand nor shall any of the same prejudice its rights against the Pledgor in any respect. Each and every remedy given the Pledgee shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. (c) The Pledgee may bid for or purchase, free from any right of redemption on the part of the Pledgor (all said rights being also hereby waived and released), any part of or all the Collateral offered for sale and may make payment on account thereof by using any claim then due and payable to the to the Pledgee from the Pledgor as a credit against the purchase price, and the Pledgee may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability therefor. 9. EVENTS OF DEFAULT Time is of the essence in this Agreement. Subject to the right of cure set forth below in this Section 9, any of the following events shall constitute a default of this. Security Agreement ("Event of Default"). 5
(a) Any misrepresentation, breach, default or failure to perform under any of the covenants, representations or warranties of this Agreement by Pledgor, or any failure to pay any of the Obligations or any guaranty of any such Obligations, by Pledgor, Subco, or any guarantor, or the breach any other agreement relating to any of the Obligations or pursuant to which any of the Obligations arose; (b) Any failure to pay when due the full amount of any payment of principal, interest, taxes, insurance premiums or other charges which are or may be secured hereby; (c) The Collateral or any portion thereof being seized or levied upon under any legal or governmental process; (d) Pledgor becoming insolvent or the subject of a petition in bankruptcy, either voluntary or involuntary, or any
(a) Any misrepresentation, breach, default or failure to perform under any of the covenants, representations or warranties of this Agreement by Pledgor, or any failure to pay any of the Obligations or any guaranty of any such Obligations, by Pledgor, Subco, or any guarantor, or the breach any other agreement relating to any of the Obligations or pursuant to which any of the Obligations arose; (b) Any failure to pay when due the full amount of any payment of principal, interest, taxes, insurance premiums or other charges which are or may be secured hereby; (c) The Collateral or any portion thereof being seized or levied upon under any legal or governmental process; (d) Pledgor becoming insolvent or the subject of a petition in bankruptcy, either voluntary or involuntary, or any other proceeding under the Federal Bankruptcy Code; or Pledgor making an assignment for the benefit of creditors; or . Pledgor being named in or the Collateral being subjected to a suit for the appointment of a receiver; (e) Entry of any judgment against Pledgor; (f) The Collateral or proceeds thereof for any reason whatsoever, becoming uncollectible in part or in their entirety; (g) Subco admits an additional Partner without the prior written consent of Pledgee; (h) The Pledgor terminates or amends the Partnership Agreement without the prior written consent of Pledgee; (i) Any Unit, or any right, title or interest, in Subco, whether or not evidenced by certificates, is issued, granted, sold, assigned, transferred, or otherwise conveyed to any party other than the Pledgee; (j) Subco is dissolved; or (k) An event shall have occurred that upon notice or lapse of time or both would constitute an Event of Default. Notwithstanding the foregoing, in the event of any nonmonetary default described above, such default shall not become an Event of Default until Pledgee has given Pledgor written notice of such default and Pledgor shall have failed to cure the default within thirty (30) days after notice. Upon the happening of any of the foregoing Events of Default the Obligations shall, at the option of the Pledgee, become immediately due and payable in their entirety without presentment, demand, protest or other notice of any kind, all of which are waived by the Pledgor, and the Pledgee may at any time thereafter proceed with the collection thereof and the realization upon all security which it may hold, including all rights hereunder or otherwise existing at law. 10. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF PLEDGOR (a) Pledgor represents and warrants that: 6
(i) There are no restrictions upon the Pledgor's right to transfer or encumber the Collateral in favor of Pledgee, and the Pledgor has the right to transfer such Collateral free and clear of any lien, claim or encumbrances and of any right of first refusal to purchase or option to purchase or any similar such right, and without obtaining the consent of any other person, including any other partner of Subco, Subco, or any other individual or entity. (ii) The Collateral of Pledgors collectively represents not less than ONE-HUNDRED PERCENT (100%) of the presently issued and outstanding interests in Subco. (iii) There are no other interests in Subco other than the Collateral, and Subco has no other Partners other than Pledgors.
(i) There are no restrictions upon the Pledgor's right to transfer or encumber the Collateral in favor of Pledgee, and the Pledgor has the right to transfer such Collateral free and clear of any lien, claim or encumbrances and of any right of first refusal to purchase or option to purchase or any similar such right, and without obtaining the consent of any other person, including any other partner of Subco, Subco, or any other individual or entity. (ii) The Collateral of Pledgors collectively represents not less than ONE-HUNDRED PERCENT (100%) of the presently issued and outstanding interests in Subco. (iii) There are no other interests in Subco other than the Collateral, and Subco has no other Partners other than Pledgors. (b) Pledgor covenants that it shall deliver copies of any proposed amendments to the Partnership Agreement to Pledgee. (c) Pledgor covenants that. it shall not, without the prior written consent of Pledgee, which consent may not be unreasonably withheld (i) sell, encumber or in any manner dispose of its interest in the Collateral or any of the Collateral; (ii) permit Subco to issue any additional interests; (iii) permit Subco to dissolve, reorganize, recapitalize, liquidate or merge or consolidate with any other person, firm, limited liability company or corporation. 11. GENERAL PROVISIONS (a) All notices hereunder shall be in writing and shall be effectively given when delivered personally on the date of delivery, or if mailed, two days after deposit in the United States mail, first class, postage prepaid, certified or registered, addressed as follows:
If to Pledgee: Emeritus Corporation 3131 Elliott Avenue Suite 500 Seattle, WA 98121 George Beal, Esq. Perkins Coie 1201 Third Avenue, 40th Floor Seattle, WA 981013099 If to Aurora Bay: Bay Investments, L.L.C. 5720 LBJ Freeway Suite 450 Dallas, Texas 75240-6339 If to General Partner: Aurora Bay I, L.L.C. 5720 LBJ Freeway Suite 450 Aurora
With a copy to:
Dallas, Texas 75240-6339 with a copy to: Sam S. Stollenwerck, Esq. Stollenwerck, Moore & Silverberg, P.C. 5949
Sherry Lane, Suite 1025 Dallas, Texas 75225 or such other addresses as either party may from time to time specify in writing to the other. (b) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. (c) Pledgor hereby appoints Pledgee as its attorney in fact to execute and file, on its behalf, any financing statements, continuation statements or other documentation required to perfect or continue the security interest created hereby. (d) This Agreement and the rights and obligations of the parties hereto shall be construed and interpreted in accordance with the laws of the State of Washington. (e) All agreements, covenants, conditions and provisions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. (f) This Agreement may be modified or rescinded only by a writing expressly relating to this Agreement and signed by all of the Pledgors and the Pledgee. (The balance of the page left intentionally blank.) 8
DATED this 7th day of January , 1998. AURORA BAY: Aurora Bay Investments, L.L.C. a Washington limited liability company
By: Spaulding --------------------------------------Its: Manager /s/ Craig W.
GENERAL PARTNERS: Aurora Bay I, L.L.C., a Washington limited liability company
By: Spaulding -------------------------------------Its: Manager /s/ Craig W.
EMERITUS CORPORATION, a Washington corporation
DATED this 7th day of January , 1998. AURORA BAY: Aurora Bay Investments, L.L.C. a Washington limited liability company
By: Spaulding --------------------------------------Its: Manager /s/ Craig W.
GENERAL PARTNERS: Aurora Bay I, L.L.C., a Washington limited liability company
By: Spaulding -------------------------------------Its: Manager /s/ Craig W.
EMERITUS CORPORATION, a Washington corporation
By: Bickford -----------------------------------Its: Development V.P. New Business /s/ Michelle A.
9
EX 10.79.6 GUARANTOR PLEDGE AND SECURITY AGREEMENT (Pledge of Limited Liability Company Interests) This Pledge and Security Agreement (this "Agreement") is made as of January 7, 1998 by Thilo Best ("Best"), Erwin Investors I, L.L.C., a Washington limited liability company ("Erwin"), and Craig Spaulding ("Spaulding") (each individually a "Pledgor" and collectively "Pledgors"), for the benefit of Emeritus Corporation, a Washington corporation ("Pledgee"), having an office at 3131 Elliott Avenue, Suite 500, Seattle, Washington 98121. RECITALS A. Contemporaneously with the execution hereof, Aurora Bay Investments, L.L.C., a Washington limited liability
EX 10.79.6 GUARANTOR PLEDGE AND SECURITY AGREEMENT (Pledge of Limited Liability Company Interests) This Pledge and Security Agreement (this "Agreement") is made as of January 7, 1998 by Thilo Best ("Best"), Erwin Investors I, L.L.C., a Washington limited liability company ("Erwin"), and Craig Spaulding ("Spaulding") (each individually a "Pledgor" and collectively "Pledgors"), for the benefit of Emeritus Corporation, a Washington corporation ("Pledgee"), having an office at 3131 Elliott Avenue, Suite 500, Seattle, Washington 98121. RECITALS A. Contemporaneously with the execution hereof, Aurora Bay Investments, L.L.C., a Washington limited liability company ("Aurora Bay"), has entered into a Credit Agreement dated as of January 7, 1998 between Aurora Bay and Pledgee (the "Credit Agreement"), establishing a $5 million credit facility in favor of Aurora Bay, and in connection therewith executed and delivered to Pledgee a Convertible Promissory Note (the "Note"). B. Each of the Pledgors is a member of Aurora Bay and will financially benefit from Pledgee' extension of credit to Aurora Bay. C. Aurora Bay is organized under, and will be governed by, its Operating Agreement dated as of January 6,1998 (the "LLC Agreement"). C. Each of the Pledgors has executed and delivered to Pledgee an nonrecourse guarantee in favor of Pledgee and is willing to pledge such Pledgor's equity interest in Aurora Bay to secure repayment of all amounts due and payable to Pledgee under the Note and the Credit Agreement. D. In order to induce Pledgee to extend credit to Aurora Bay, Erwin, Spaulding and Best desire to assign, pledge, and grant a security to Pledgee in the Collateral described herein. AGREEMENT NOW, THEREFORE, in consideration of the recitals, covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. COLLATERAL "Collateral" shall mean: (a) All of each Pledgor's right, title and interest i n A u r o r a B a y , including without limitation his membership interests in Aurora Bay, and all of Pledgor's units representing any right, title, and interest in Aurora Bay ("Units"), together with any additional Units or interest arising out of the interest pledged hereunder by way of dividend, split-up, reorganization, recapitalization or other similar proceedings, whether now owned or hereafter acquired; (b) Pledgor's right to receive distributions, allocations and payments under the LLC Agreement, as such LLC Agreement may be modified from time to time; (c) All indebtedness of Aurora Bay to Pledgor of any kind or description; and
(d) All substitutions, replacements, products and proceeds, whether cash proceeds or noncash proceeds, and products of any and all of the foregoing.
(d) All substitutions, replacements, products and proceeds, whether cash proceeds or noncash proceeds, and products of any and all of the foregoing. If any redemption, reclassification, readjustment or other exchange is proposed or made with respect to the Collateral, Pledgee may, but need not, accept the property so exchanged in lieu of the Collateral, described herein, and Pledgor agrees to deliver and hypothecate for the benefit of Pledgee any securities, cash, personalty or other property received in exchange for the Collateral, on such reasonable terms and conditions which will not impair Pledgee's security. Such substituted collateral shall be held by Pledgee under the terms of this Agreement in the same manner as the original Collateral pledged hereunder. 2. PLEDGE Pledgor hereby assigns, pledges and grants a security interest to Pledgee, to and in the Collateral to secure the payment and performance of all obligations of Aurora Bay to Pledgee, whether presently existing or hereafter arising, direct and indirect, and with interest thereon, under the Note and the Credit Agreement made by Aurora Bay in favor of Pledgee and all further costs and expenses provided for in this Agreement (collectively the "Obligations"). When more than one person is liable on any of the Obligations, Pledgor shall be jointly and severally liable with such person or persons. Pledgor agrees and acknowledges that Pledgor may cause a notation to be made in the record books of Aurora Bay to the effect that the Collateral is subject to this Agreement, and Pledgee may cause a copy of this Agreement to be attached to the record books of Aurora Bay at all times while this Agreement remains in effect. 3. MANNER OF PERFECTING SECURITY Concurrently with the execution of this Agreement, Pledgor shall deliver signed UCC-1 Financing Statements for filing in the States of Washington and Texas to reflect the Pledge's interest in the Collateral. Pledgor agrees that it owns the Collateral in constructive trust for the Pledgee so long as the Pledgor's obligations hereunder remain outstanding, and agrees to provide the Pledgee advance notice of any change of address. 4. RIGHTS OF PARTIES WHEN NO DEFAULT Unless an Event of Default (as hereinafter defined) shall have occurred and be continuing, the Pledgor shall be entitled to vote the Collateral and to give consents, waivers and ratifications with respect thereto. In order to permit the Pledgor to exercise such voting and/or consensual powers, the Pledgee shall, if necessary, upon the written request of the Pledgor from time to time, execute and deliver to the Pledgor appropriate proxies. Prior to the occurrence of an Event of Default (as hereinafter defined), Pledgor may use the proceeds of all payments made, as permitted by the terms of the Credit Agreement, upon the indebtedness of Aurora Bay to Pledgor in such manner as Pledgor shall determine in Pledgor's absolute discretion. Upon the occurrence of an Event of Default, Pledgee shall receive (i) all cash or other dividends or distributions paid or made with respect to the Collateral, (ii) any and all sums paid with respect to any of the Collateral, and (iii) all amounts payable and/or distributable on the liquidation, whether voluntary or involuntary, of Aurora Bay (collectively, "Distributions"), and shall hold the same, together with any other amount to which the Pledgee is entitled in an interest bearing cash collateral account as additional collateral subject to the terms of this Agreement. 2
5. PLEDGEE'S ADDITIONAL RIGHTS DURING DEFAULT If an Event of Default shall have occurred and shall be continuing, i.e. not have been remedied or waived), in addition to any other rights granted hereunder, the Pledgee shall be entitled to exercise any, all or any combination of the following rights: (a) Vote the Collateral and to give consents, waivers and ratifications with respect thereto and otherwise act with
5. PLEDGEE'S ADDITIONAL RIGHTS DURING DEFAULT If an Event of Default shall have occurred and shall be continuing, i.e. not have been remedied or waived), in addition to any other rights granted hereunder, the Pledgee shall be entitled to exercise any, all or any combination of the following rights: (a) Vote the Collateral and to give consents, waivers and ratifications with respect thereto and otherwise act with respect thereto as though the Pledgee were the outright owner thereof (the Pledgor hereby irrevocably constituting and appointing the Pledgee its proxy and attorney-in-fact with full power and substitution so to do, such appointing being a power coupled with an interest), although the Pledgee shall not have any duty to exercise any such rights, privileges, options or powers or to sell or to otherwise realize upon any of the Collateral, as hereinafter authorized, or to preserve the same, and the Pledgee shall not be responsible for any failure to do so or delay in so doing; (b) Receive all Distributions; (c) Exercise any and all rights of collection, conversion or exchange, and any and all other rights, privileges, options or power of the Pledgor pertaining or relating to the Collateral (the Pledgor hereby irrevocably constituting and appointing the Pledgee his proxy and attorney-in-fact with full power of substitution so to do), although the Pledgee shall not have any duty to exercise any such rights, privileges, options or powers or to sell or to otherwise realize upon any of the Collateral, as hereinafter authorized, or to preserve the same, and the Pledgee shall not be responsible for any failure to do so or delay in so doing; (d) Apply any or all amounts held in any cash collateral account to payment of the Obligations; (e) Sell, assign and deliver the whole or, from time to time, any part .. of the Collateral at any broker's board or at any private sale or at public auction, with demand or notice or advertisement of the time or place of sale or adjournment thereof or otherwise, for cash, for credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as determined in an arms length sale with an unrelated third party or pursuant to a price determined under the most current agreement between the Members of Aurora Bay, and the Pledgee may bid for and purchase the whole or any part of the Collateral so sold. Any such notice shall state the time, place and method fixed for such sale and, in case of sale at a broker's board, shall state the board at which such sale is to be made and the day on which Collateral, or that portion thereof so being sold, will first be offered for sale at such board. The Pledgee may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. For the purposes hereof, (i) a private sale shall, in the case of the Collateral, include, a sale after solicitation of a number of persons reasonably approximating the maximum number which, in the sole opinion of the Pledgee, shall not require registration of the Collateral so being offered for sale pursuant to the Securities Act of 1933, as amended, or compliance with any applicable state securities law commonly known as a "Blue Sky Law," and (ii) an agreement to sell all or any part of the Collateral shall be treated as a sale thereof, and the Pledgee shall be free to carry out such sale pursuant to such agreement and the Pledgor shall not be entitled to the return of any Collateral subject thereto, notwithstanding the fact that after the Pledgee shall have entered into such an agreement all Events of Default may have been remedied or the Obligations may have been paid in full; 3
(f) Either personally or by means of a court appointed receiver, take possession of all or any part of the Collateral and exclude therefrom the Pledgor and all others claiming under the Pledgor, and thereafter exercise all rights and powers of the Pledgor with respect to the Collateral or any part thereof. If the Pledgee demands or attempts to take possession of any of the Collateral in the exercise of any rights under this Agreement, the Pledgor promises and agrees to promptly turn over and deliver complete possession thereof to the Pledgee; and (g) Exercise any remedies of a secured party under the Uniform Commercial Code of the States of Washington and/or Texas, or any other applicable law, and exercise any remedies available to the Pledgee under any other agreement among the parties. 6. CERTAIN SECURITIES LAW RESTRICTIONS
(f) Either personally or by means of a court appointed receiver, take possession of all or any part of the Collateral and exclude therefrom the Pledgor and all others claiming under the Pledgor, and thereafter exercise all rights and powers of the Pledgor with respect to the Collateral or any part thereof. If the Pledgee demands or attempts to take possession of any of the Collateral in the exercise of any rights under this Agreement, the Pledgor promises and agrees to promptly turn over and deliver complete possession thereof to the Pledgee; and (g) Exercise any remedies of a secured party under the Uniform Commercial Code of the States of Washington and/or Texas, or any other applicable law, and exercise any remedies available to the Pledgee under any other agreement among the parties. 6. CERTAIN SECURITIES LAW RESTRICTIONS In view of the possible position of the Pledgor as an "affiliate" or "control person" of Aurora Bay, or because of other present or future circumstances, a question may arise under the Securities Act of 1933, as amended, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being hereinafter called the "Federal Securities Laws") with respect to any disposition of the Collateral permitted hereunder. The Pledgor understands that compliance with the Federal Securities Laws may very strictly limit the course of conduct of the Pledgee if the Pledgee were to attempt to dispose of all or any part of the Collateral and may also limit the extent to . which or the manner in which any subsequent transferee of the Collateral may dispose of the same. Similarly, because of the position of the Pledgor with respect to the Aurora Bay or because of other circumstances, there may be other legal restrictions or limitations affecting the Pledgee in any attempts to dispose of all or any part of the Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. The Pledgor agrees that any such private sale conducted in a manner which complies with such Federal Securities Laws and Blue Sky or state securities laws shall be commercially reasonable (within the meaning of Section 9-504(3) of the Uniform Commercial Code), and the Pledgor hereby waives any claims against the Pledgee arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Pledgee accepts the first offer received and does not offer the Collateral to more than one possible purchaser. Without limiting the generality of the foregoing, these provisions would apply if, for example, the Pledgee placed all or any part of the Collateral privately with a purchaser or purchasers. 7. REDELIVERY OF COLLATERAL UPON FULL SATISFACTION .Upon full and complete payment and performance of the Obligations, the Pledgor shall, except as otherwise provided herein, be entitled to the return, at its expense, of such of the Collateral as has not theretofore been sold pursuant to the provisions of this Agreement, together with any moneys at the time held by the Pledgee in any collateral account pursuant to this Agreement, and all rights of Pledgee hereunder shall terminate; and Pledgee shall execute and file terminations of any financing statements covering any part-of the Collateral. 8. REALIZATION OF COLLATERAL (a) The Pledgee shall apply the proceeds of any sale of the whole or any part of the Collateral, together with any other moneys at the time held. by the Pledgee under the provisions of this Agreement after deducting all reasonable costs and expenses of collection, sale and delivery (including, without limitation, counsel fees and expenses) incurred by the Pledgee in connection with such sale, to the payment of the Obligations, the application as between the Obligations to be such as .. the Pledgee may in its sole discretion determine. 4
(b) To the full extent that the Pledgor may lawfully so agrees, the Pledgor will not at any time plead, claim or take- the benefit of any appraisement or valuation, law now or hereafter in force in order to prevent or delay the enforcement of this Agreement or the absolute sale of any portion or all of the Collateral, or the possession thereof by any purchaser at any sale, and the Pledgor, for itself and all who may claim under the Pledgor, as far as the Pledgor now or hereafter lawfully may, hereby waives the benefit of all such laws. The Pledgor, for itself and all who may claim under the Pledgor, as far as the Pledgor now or hereafter lawfully may, also waives all right to have all or any portion of the Collateral marshalled upon any foreclosure hereof and agrees that any court
(b) To the full extent that the Pledgor may lawfully so agrees, the Pledgor will not at any time plead, claim or take- the benefit of any appraisement or valuation, law now or hereafter in force in order to prevent or delay the enforcement of this Agreement or the absolute sale of any portion or all of the Collateral, or the possession thereof by any purchaser at any sale, and the Pledgor, for itself and all who may claim under the Pledgor, as far as the Pledgor now or hereafter lawfully may, hereby waives the benefit of all such laws. The Pledgor, for itself and all who may claim under the Pledgor, as far as the Pledgor now or hereafter lawfully may, also waives all right to have all or any portion of the Collateral marshalled upon any foreclosure hereof and agrees that any court having jurisdiction over this Agreement may order the sale of all or any portion of the Collateral as an entirety. Any sale of, or the grant of options to purchase, or any other realization upon, all or any portion of the Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the Pledgor in and to the Collateral so sold, optioned or realized upon, and shall be a perpetual bar both in law and in equity against the Pledgor and against any and all persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under the Pledgor. No delay on the part of the Pledgee in exercising any power of sale, lien, option or other right hereunder, and no notice or demand which may be given to or made upon the Pledgor with respect to any power of sale, lien, option or other right hereunder shall constitute a waiver thereof, or limit or impair the right of the Pledgee to take any action or to exercise any power of sale, lien, option or any other right under this Agreement, or otherwise, nor shall any single or partial exercise thereof, or the exercise of any power, lien, option or other right under this Agreement or otherwise all without notice or demand nor shall any of the same prejudice its rights against the Pledgor in any respect. Each and every remedy given the Pledgee shall, to the extent permitted by law, be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or by statute. (c) The Pledgee may bid for or purchase, free from any right of redemption on the part of the Pledgor (all said rights being also hereby waived and released), any part of or all the Collateral offered for sale and may make payment on account thereof by using any claim then due and payable to the to the Pledgee from the Pledgor as a credit against the purchase price, and the Pledgee may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability therefor. 9. EVENTS OF DEFAULT Time is of the essence in this Agreement. Subject to the right of cure set forth below in this Section 9, any of the following events shall constitute a default of this Security Agreement ("Event of Default"). (a) Any misrepresentation, breath, default or failure to perform under any of the covenants, representations or warranties of this Agreement by Pledgor, or any failure to pay any of the Obligations or any guaranty of any such Obligations by Pledgor, Aurora Bay, or any guarantor, or the breach of any other agreement relating to any of the Obligations or pursuant to which any of the Obligations arose; (b) Any failure to pay when due the full amount of any payment of principal, interest, taxes, insurance premiums or other charges which are or may be secured hereby; (c) The Collateral or any portion thereof being seized or levied upon under any legal or governmental process; 5
(d) Pledgor becoming insolvent or the subject of a petition in bankruptcy, either voluntary or involuntary, or any other proceeding under the Federal Bankruptcy Code; or Pledgor making an assignment for the benefit of creditors; or Pledgor being named in or the Collateral being subjected to a suit for the appointment of a receiver; (e) Entry of any judgment against Pledgor; (f) The Collateral or proceeds thereof, for any reason whatsoever, becoming uncollectible in part or in their entirety; (g) Aurora Bay admits an additional Member without. the prior written consent of Pledgee; (h) The Pledgor terminates or amends the LLC Agreement without the prior written consent of Pledgee;
(d) Pledgor becoming insolvent or the subject of a petition in bankruptcy, either voluntary or involuntary, or any other proceeding under the Federal Bankruptcy Code; or Pledgor making an assignment for the benefit of creditors; or Pledgor being named in or the Collateral being subjected to a suit for the appointment of a receiver; (e) Entry of any judgment against Pledgor; (f) The Collateral or proceeds thereof, for any reason whatsoever, becoming uncollectible in part or in their entirety; (g) Aurora Bay admits an additional Member without. the prior written consent of Pledgee; (h) The Pledgor terminates or amends the LLC Agreement without the prior written consent of Pledgee; (i) Any Unit, or any right, title or interest, in Aurora Bay, whether or not evidenced by certificates, is issued, granted, sold, assigned, transferred, or otherwise conveyed to any party other than the Pledgee; (j) Aurora Bay is dissolved; or (k) An event shall have occurred that upon notice or lapse of time or both would constitute an Event of Default. Notwithstanding the foregoing, in the event of any nonmonetary default described above, such default shall not become an Event of Default until Pledgee has given Pledgor written notice of such default and Pledgor shall have failed to cure the default within thirty (30) days after notice. Upon the happening of any of the foregoing Events of Default the Obligations shall, at the option of the Pledgee, become immediately due and payable in their , entirety without presentment, demand, protest or other notice of any kind, all of which are waived by the Pledgor, and the Pledgee may at -any time thereafter proceed with the collection thereof and the realization upon all security which it may hold, including all rights hereunder or otherwise existing at law. 10. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF PLEDGOR (a) Pledgor represents and warrants that: (i)There are no restrictions upon Pledgor's right to transfer or encumber the Collateral in favor of Pledgee, and Pledgor has the right to transfer such Collateral to Pledgee free and clear of any lien, claim or encumbrances and of any right of first refusal to purchase or option to purchase or any similar such right, and without obtaining the consent of any other person, including any other Member of Aurora Bay, Aurora Bay, or any other individual or entity. (ii) The Collateral of Pledgors collectively represents not less than ONE-HUNDRED PERCENT (100"%) of the presently issued and outstanding interests in Aurora Bay. (iii) There are no other interests in Aurora Bay other than the Collateral, and Aurora Bay has no other Members other than the 6
Pledgors. (b) Pledgor covenants that it shall deliver copies of any proposed amendments to the LLC Agreement to Pledgee. (c) Pledgor covenants that it shall not, without the prior written consent of Pledgee, which consent may not be unreasonably withheld (i) sell, encumber or in any manner dispose of its interest in the Collateral or any of the Collateral; (ii) permit Aurora Bay to issue any additional interests;
Pledgors. (b) Pledgor covenants that it shall deliver copies of any proposed amendments to the LLC Agreement to Pledgee. (c) Pledgor covenants that it shall not, without the prior written consent of Pledgee, which consent may not be unreasonably withheld (i) sell, encumber or in any manner dispose of its interest in the Collateral or any of the Collateral; (ii) permit Aurora Bay to issue any additional interests; (iii) permit Aurora Bay to dissolve, reorganize, recapitalize, liquidate or merge or consolidate with any other person, firm, limited liability company or corporation; (iv) permit Aurora Bay to amend its certificate of formation or its LLC Agreement; (v) permit Aurora Bay to declare or pay any dividends on, or purchase, redeem or retire, or make any other distribution on account of or with respect to, any interest in Aurora Bay; except Aurora Bay may make annual distributions to each Member to defray its tax liabilities on allocable taxable income for the prior year as permitted by the Credit Agreement. 11. GENERAL PROVISIONS (a) All notices hereunder shall be in writing and shall be effectively given when delivered personally on the date of delivery, or if mailed, two days after deposit in the United States mail, first class, postage prepaid, certified or registered, addressed as follows:
If to Pledgee: Emeritus Corporation 3131 Elliott Avenue Suite 500 Seattle, WA 98121 George Beal, Esq. Perkins Coie 1201 Third Avenue, 40th Floor Seattle, WA 98101-3099 Thilo Best 18254 Westminster Drive Lake Oswego, OR 97034
With a copy to:
If to Pledgors:
Erwin Investors I, L.L.C. 9817 N.E. 54th Vancouver, Washington 98662 7
Craig W. Spaulding 5720 LBJ Freeway Suite 450 Dallas, Texas 75240
with a copy to: Sam S. Stollenwerck, Esq.
Stollenwerck, Moore & Silverberg, P.C. 5949 Sherry Lane, Suite 1025
Dallas, Texas 75225
Craig W. Spaulding 5720 LBJ Freeway Suite 450 Dallas, Texas 75240
with a copy to: Sam S. Stollenwerck, Esq.
Stollenwerck, Moore & Silverberg, P.C. 5949 Sherry Lane, Suite 1025
Dallas, Texas 75225 or such other addresses as either party may from time to time specify in writing to the other. (b) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. (c) The Pledgor hereby appoints the Pledgee. as its attorney in fact to execute and file, on its behalf, any financing statements, continuation statements or other documentation required to perfect or continue the security interest created hereby. (d) This Agreement and the rights and obligations of the parties hereto shall be construed and interpreted in accordance with the laws of the State of Washington. (e) All agreements, covenants, conditions and provisions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto. (f) This Agreement may be modified or rescinded only by a writing expressly relating to this Agreement and signed by all of the Pledgors and the Pledgee. DATED this 7th day of January, 1998. Erwin Investors I, L.L.C., a Washington Limited liability company
By: ----------------Jerry Erwin, Manager /s/ Craig W. Spaulding ---------------------------------------Craig W. Spaulding /s/ Thilo Best --------------------------------------/s/ Jerry Erwin ----------------------
8
EX 10.79.7 GUARANTY This Guaranty is made as of the 7th day of January, 1998, by Thilo Best, Erwin Investors I, L.L.C., a Washington limited liability company, and Craig Spaulding (each individually a "Guarantor," and collectively "Guarantors"), to and for the benefit of Emeritus Corporation, a Washington corporation, and its successors, participants, and assigns ("Emeritus"). RECITALS: A. Contemporaneously with the execution hereof, Aurora Bay Investments, L.L.C., a Washington limited liability company ("Aurora Bay"), has entered into a Credit Agreement dated as of January 7,1998 between Aurora Bay and Emeritus (the "Credit Agreement"), establishing a $5 million credit facility in favor of Aurora Bay, and in connection therewith executed and delivered to Emeritus a Convertible Promissory Note (the "Note"). B. Each of the Guarantors is a member of Aurora Bay and will financially benefit from Emeritus' extension of credit to Aurora Bay. C. Each of the Guarantors is willing to execute this nonrecourse guaranty in favor of Emeritus and to pledge such Guarantor's equity interest in Aurora Bay to secure repayment of all amounts due and payable to Emeritus under the Note and the Credit Agreement. NOW, THEREFORE, in order to induce Emeritus to extend credit to Aurora Bay, Guarantor agrees as follows: ARTICLE I. GUARANTY Guarantor jointly, severally, unconditionally, absolutely, and irrevocably guarantees all past, present, and future indebtedness of Aurora Bay to Emeritus, including but not limited to (a) the due and punctual payment of the principal and interest of the Note and all money due or that may become due thereunder, whether according to the present terms of the Note or at any earlier or accelerated date or dates as provided therein, pursuant to any extension of time, or pursuant to any amendment, modification, or replacement of the Note hereafter made or granted and (b) the due and punctual payment of all money due or that may become due under the Credit Agreement, whether according to the present terms of the Credit Agreement or at any earlier or accelerated date or dates as provided therein, pursuant to any extension of time, or pursuant to an amendment, modification, or replacement of the Credit Agreement hereafter made or granted (collectively, "Obligations"). Guarantor acknowledges and agrees that Guarantor's liability hereunder is cumulative with the liability of Guarantor under all other unterminated guaranties of Guarantor. ARTICLE II. WAIVERS BY GUARANTOR AND RIGHTS OF EMERITUS Guarantor intends that it shall remain unconditionally liable for payment of. all the Obligations regardless of any act or omission which might otherwise operate as a legal or equitable defense to discharge Aurora Bay, Guarantor, or any other guarantor in whole or part. Therefore, Guarantor hereby waives any defense Guarantor may have to
the enforceability of its obligations hereunder by virtue of any of the following and Emeritus may do any of the following things as many times as Emeritus wishes, without Guarantor's permission and without notifying Guarantor, and this will not affect Guarantor's promise to pay Emeritus the amount of the Obligations: (a) Emeritus does not have to notify Guarantor of Emeritus' acceptance of this Guaranty; (b) Emeritus does not have to notify Guarantor when Emeritus, extends credit to Aurora Bay, or pays the obligations of Aurora Bay; (c) Emeritus does not have to notify Guarantor of (i) Aurora Bay's failure to pay Aurora Bay's obligations when
the enforceability of its obligations hereunder by virtue of any of the following and Emeritus may do any of the following things as many times as Emeritus wishes, without Guarantor's permission and without notifying Guarantor, and this will not affect Guarantor's promise to pay Emeritus the amount of the Obligations: (a) Emeritus does not have to notify Guarantor of Emeritus' acceptance of this Guaranty; (b) Emeritus does not have to notify Guarantor when Emeritus, extends credit to Aurora Bay, or pays the obligations of Aurora Bay; (c) Emeritus does not have to notify Guarantor of (i) Aurora Bay's failure to pay Aurora Bay's obligations when due or (ii) Aurora Bay's failure to perform any other obligation under the Note or the Credit Agreement; (d) Emeritus may extend, renew, accelerate, or otherwise change the time for payment of any of Aurora Bay's obligations to Emeritus, (e) Emeritus may make any other changes in the terms of the Note or the Credit Agreement; (f) Emeritus may release Aurora Bay, any other guarantor, or anyone else against whom Emeritus may have the right to collect amounts that may become due under the Note or the Credit Agreement; (g) Emeritus may apply collateral and direct the order or manner of sale thereof as Emeritus in its discretion may determine; (h) Emeritus may apply any money or collateral received from or on behalf of the Aurora Bay to the repayment of any indebtedness due to Emeritus in any order Emeritus determines; (i) Emeritus may release, surrender; substitute, take additional, or exchange, any collateral Emeritus now holds or may later acquire as security for Aurora Bay's indebtedness to Emeritus or Guarantor's obligations hereunder; (j) Emeritus may forbear from pursuing Aurora Bay or from foreclosing or otherwise realizing upon any security interest, letter of credit, or other (k) Emeritus may impair any and all collateral given, now or thereafter, to secure Aurora Bay's performance of its Obligations (collectively, the "Collateral") or Guarantor's obligations hereunder by its acts or omissions, including but not limited to failing to perfect a security interest in any Collateral; (l) Guarantor hereby waives any defense arising out of the absence, impairment, or loss of (i) any or all rights of recourse, reimbursement, contribution, or subrogation or (ii) any other right or remedy of Guarantor against Aurora Bay or any other party or Collateral to collect amounts that Guarantor is obligated to pay under this Guaranty;. (m) Guarantor hereby waives any defense arising (i) by reason of any invalidity, ineffectiveness, or unenforceability of all or any portion of the Note or the 2
Credit Agreement or (ii) on the basis of any other defense available to Aurora Bay (other than full payment in cash); (n) Guarantor waives diligence, demand for performance, notice of nonperformance, presentment, protest, notice of dishonor, and indulgences and notices of every other kind;. (o) Guarantor agrees that Emeritus may in its sole discretion proceed against all or any portion of the Collateral by way of either judicial or nonjudicial foreclosure. ARTICLE III. EMERITUS' RIGHT NOT TO PROCEED AGAINST AURORA BAY, OTHER GUARANTORS OR COLLATERAL
Credit Agreement or (ii) on the basis of any other defense available to Aurora Bay (other than full payment in cash); (n) Guarantor waives diligence, demand for performance, notice of nonperformance, presentment, protest, notice of dishonor, and indulgences and notices of every other kind;. (o) Guarantor agrees that Emeritus may in its sole discretion proceed against all or any portion of the Collateral by way of either judicial or nonjudicial foreclosure. ARTICLE III. EMERITUS' RIGHT NOT TO PROCEED AGAINST AURORA BAY, OTHER GUARANTORS OR COLLATERAL If an Event of Default occurs under the Note or the Credit Agreement, Emeritus may enforce this guaranty against Guarantor (a)without attempting to collect or without exhausting Emeritus' efforts to collect from Aurora Bay, any other guarantor, or anyone else who is liable for the Obligations or (b) without attempting to enforce Emeritus' rights in any Collateral. Without limiting the foregoing, Emeritus may sue on the Note or the Credit Agreement or may take any other action authorized by law. In each case, Emeritus shall have the right to exercise its remedies in whatever order it elects and may join Guarantor in any suit on the Note or the Credit Agreement or can proceed against Guarantor in a separate proceeding. In case of suit, sale, or foreclosure, only the net proceeds therefrom, after deducting all charges and expenses of any kind and nature whatsoever, shall be applied to the reduction of the amount due on the Note or the Credit Agreement, and Emeritus shall not be required to institute or prosecute proceedings to recover any deficiency as a condition of payment under or enforcement of this Guaranty. At any sale of the Collateral, Emeritus may at its discretion purchase all or any part of the Collateral and may apply against the amount bid therefor all or any portion of the balance due it pursuant to the terms of the Note or the Credit Agreement. Guarantor hereby waives the right to object to the amount that may be bid by Emeritus at such foreclosure sale. ARTICLE IV. BANKRUPTCY AND ASSIGNMENT OF RIGHTS Guarantor agrees that its obligation to make payment under the terms of this Guaranty shall not be impaired, modified, changed, released, or limited in any manner by any impairment, modification, change, release, defense, or limitation of the liability of Aurora Bay or of a receiver, trustee, debtor-in-possession, or estate under any bankruptcy or receivership proceeding. If any payment made by Aurora Bay is reclaimed in a bankruptcy or receivership proceeding, Guarantor shall pay to Emeritus the dollar amount of the amount reclaimed. Guarantor further assigns to Emeritus all rights Guarantor may have in any proceeding under the U. S. Bankruptcy Code or any receivership or insolvency proceeding until all Indebtedness of Aurora Bay to Emeritus has been paid in full. This assignment includes all rights of Guarantor to be paid by Aurora Bay even if those rights have nothing to do with this Guaranty. This assignment does not prevent Emeritus from enforcing Guarantor's obligations under this Guaranty in any way. ARTICLE V. GUARANTOR'S DUTY TO KEEP INFORMED OF AURORA BAY'S AND THE OTHER GUARANTOR'S FINANCIAL CONDITION 3
Guarantor is now adequately informed of Aurora Bay's financial condition, and Guarantor agrees to keep so informed. Emeritus need not provide Guarantor with any present or future information concerning the financial condition of Aurora Bay or any other guarantor, and changes in Aurora Bay's or Guarantor's financial condition shall not affect Guarantor's obligations under this Guaranty. Guarantor has not relied on financial information furnished by Emeritus, nor will Guarantor do so in the future. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF GUARANTOR Guarantor represents and warrants to Emeritus as follows:
Guarantor is now adequately informed of Aurora Bay's financial condition, and Guarantor agrees to keep so informed. Emeritus need not provide Guarantor with any present or future information concerning the financial condition of Aurora Bay or any other guarantor, and changes in Aurora Bay's or Guarantor's financial condition shall not affect Guarantor's obligations under this Guaranty. Guarantor has not relied on financial information furnished by Emeritus, nor will Guarantor do so in the future. ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF GUARANTOR Guarantor represents and warrants to Emeritus as follows: (a) The execution, delivery, and performance by Guarantor of this Guaranty do not and will not (i) conflict with or contravene any law, rule, regulation, judgment, order, or decree of any government, governmental instrumentality, or court having jurisdiction over Guarantor or Guarantor's activities or properties, (ii) conflict with, or result in any default under, any agreement or instrument of any kind to which Guarantor is a party or by which Guarantor or any of Guarantor's properties may be bound or affected, or (iii) require the consent, approval, order, or authorization of, or registration with, or the giving of notice to any United States or other governmental authority or any person or entity; (b) This Guaranty constitutes a legal, valid, and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms; (c) There is no action, litigation, or other proceeding pending or to Guarantor's knowledge threatened against Guarantor before any court; arbitrator, or administrative agency that may have a material adverse effect on the assets or the business or financial condition of Guarantor or that would prevent, hinder, or jeopardize the performance by Guarantor of Guarantor's obligations under this Guaranty; (d) Guarantor is fully familiar with all the covenants, terms, and conditions of the Note or the Credit Agreement; and (e) Guarantor is not party to any contract, agreement, indenture, or instrument or subject to any restriction individually or in the aggregate would have a material adverse effect on guarantor's financial condition or business or that would in any way jeopardize the ability of Guarantor to perform under this Guaranty. ARTICLE VII. SUBORDINATION OF INDEBTEDNESS OF AURORA BAY TO GUARANTOR Any Indebtedness of Aurora Bay now or hereafter held by Guarantor is hereby subordinated to the indebtedness of Aurora Bay to Emeritus, and such indebtedness of Aurora Bay to Guarantor, if Emeritus so requests and if there exists an event of default under this Guaranty and/or under the Credit Agreement, shall be collected, enforced, and received by Guarantor as trustee for Emeritus and be paid over to Emeritus on account of the indebtedness of Aurora Bay to Emeritus, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. 4
ARTICLE VIII. WAIVER OF RIGHT OF SUBROGATION Guarantor agrees that Guarantor shall not have, and hereby expressly waives, any claim, right, or remedy that Guarantor may now have or hereafter acquire against. Aurora Bay including, without limitation, any claim, remedy; or right of subrogation, reimbursement, exoneration, indemnification, or participation in any claim, right, or remedy that Emeritus has or may hereafter have against Aurora Bay or any Collateral that Emeritus now has or hereafter acquires, whether or not such claim, right,. or remedy arises in equity, under contract, by statute, under common law, or otherwise. Guarantor hereby acknowledges and agrees that this waiver is intended to benefit Aurora Bay and Emeritus and shall not limit or otherwise affect Guarantor's liability under this Guaranty. Notwithstanding the foregoing, Guarantor shall not be obliged to waive such rights of subrogation, as long as they are in all respects subordinate to any and a11 rights Emeritus may have or acquire against Aurora Bay, and no
ARTICLE VIII. WAIVER OF RIGHT OF SUBROGATION Guarantor agrees that Guarantor shall not have, and hereby expressly waives, any claim, right, or remedy that Guarantor may now have or hereafter acquire against. Aurora Bay including, without limitation, any claim, remedy; or right of subrogation, reimbursement, exoneration, indemnification, or participation in any claim, right, or remedy that Emeritus has or may hereafter have against Aurora Bay or any Collateral that Emeritus now has or hereafter acquires, whether or not such claim, right,. or remedy arises in equity, under contract, by statute, under common law, or otherwise. Guarantor hereby acknowledges and agrees that this waiver is intended to benefit Aurora Bay and Emeritus and shall not limit or otherwise affect Guarantor's liability under this Guaranty. Notwithstanding the foregoing, Guarantor shall not be obliged to waive such rights of subrogation, as long as they are in all respects subordinate to any and a11 rights Emeritus may have or acquire against Aurora Bay, and no payments may be made by Aurora Bay to Guarantor with respect to such subrogation rights, until any and a11 amounts owed by Aurora Bay to Emeritus have been paid in full. ARTICLE IX. PAYMENT OF OBLIGATIONS; EFFECT OF BANKRUPTCY This Guaranty shall terminate upon payment in full of the Obligations and termination of Emeritus' commitment to make advances of credit and to lend funds to Aurora Bay; but this Guaranty shall be automatically reinstated if. any payment is reclaimed in a bankruptcy or receivership proceeding, until Guarantor pays Emeritus the amount reclaimed or the amount is otherwise paid to Emeritus and is not subject to further reclamation. ARTICLE X. EVENTS OF DEFAULT; REMEDIES 10.1 EVENTS OF DEFAULT "Event of Default," whenever 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 effected by operation of Applicable Law): (a) If there shall occur an Event of Default under the Note or the Credit Agreement; or (b) If Guarantor fails to observe or perform any term, covenant, or agreement to be performed or observed pursuant to this Guaranty. 10.2 REMEDIES (a) Upon the occurrence of any Event of Default hereunder, the Obligations shall then or at any time thereafter, at the option of Emeritus become immediately due and payable without notice or demand, and Emeritus shall have an immediate right to pursue the remedies provided herein. (b) If an Event of Default occurs hereunder, Emeritus shall have all remedies provided by law. Guarantor hereby waives any notice of the occurrence of any Event of Default hereunder. ARTICLE XI. GENERAL PROVISIONS 5
11.1 BENEFITS OF AGREEMENT Guarantor agrees that (a) this Guaranty shall inure to the benefit of and may be enforced by Emeritus and any subsequent holder of any of the Note or the Credit Agreement and (b) this Guaranty shall be binding upon and enforceable against Guarantor and its successors and assigns. 11.2 NO ASSIGNMENT Guarantor agrees that no assignment of Guarantor's obligations under this Guaranty may be made to any person
11.1 BENEFITS OF AGREEMENT Guarantor agrees that (a) this Guaranty shall inure to the benefit of and may be enforced by Emeritus and any subsequent holder of any of the Note or the Credit Agreement and (b) this Guaranty shall be binding upon and enforceable against Guarantor and its successors and assigns. 11.2 NO ASSIGNMENT Guarantor agrees that no assignment of Guarantor's obligations under this Guaranty may be made to any person or entity without the prior written consent of Emeritus. 11.3 RULES OF CONSTRUCTION Unless some other meaning and intent is apparent from the context, the plural shall include the singular and vice versa, and masculine, feminine, and neuter words shall be used interchangeably. 11.4 GOVERNING LAW This Guaranty shall be construed according to the laws of the state of Washington, without giving effect to its principles of conflicts of law. 11.5 ENTIRE AGREEMENT; MERGER This Agreement constitutes the entire understanding between Emeritus and Guarantor with respect to the subject matter hereof; no course of prior dealing between the parties, no usage of trade, and no parole or extrinsic evidence of any nature shall be used to supplement or modify any terms; and there are no conditions to the full effectiveness of this Guaranty. All prior, and contemporaneous negotiations, understandings, and agreements between Guarantor and Emeritus with respect to the subject matter hereof are merged in this Guaranty. 11.6 INVALID PROVISIONS If any provision of this Guaranty is invalid, illegal, or unenforceable, such provision shall be considered severed from the rest of this Guaranty and the remaining provisions shall continue in full force and effect as if the invalid provision had not been included. This Guaranty may be changed, modified, or supplemented only through a writing signed by Guarantor and Emeritus. 11.7 ATTORNEYS' FEES AND COLLECTION EXPENSES If there shall occur any Default or Event of Default, Emeritus shall be entitled to recover from Guarantor, upon demand, any costs and expenses incurred in connection with the preservation of rights under, and enforcement of, this Guaranty and the Note or the Credit Agreement 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, 6
whether employed in-house or otherwise, overhead costs as reasonably allocated to the collection effort, and all other expenses actually. incurred. Reasonable attorneys' fees and costs shall include, without limitation, attorneys' fees and costs incurred in connection with any bankruptcy case or other insolvency proceeding commenced by or against Aurora Bay or any person granting a security interest in any item of Collateral, including all fees incurred in connection with (a) moving for 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. 11.8 CONSENT TO JURISDICTION AND VENUE
whether employed in-house or otherwise, overhead costs as reasonably allocated to the collection effort, and all other expenses actually. incurred. Reasonable attorneys' fees and costs shall include, without limitation, attorneys' fees and costs incurred in connection with any bankruptcy case or other insolvency proceeding commenced by or against Aurora Bay or any person granting a security interest in any item of Collateral, including all fees incurred in connection with (a) moving for 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. 11.8 CONSENT TO JURISDICTION AND VENUE Guarantor hereby (a) irrevocably submits to the jurisdiction of any state or federal court sitting in Seattle, King County, Washington, in any action or proceeding brought to enforce, or otherwise arising out of or relating to, this Guaranty; (6) irrevocably waives to the fullest extent permitted by law any objection that Guarantor may now or hereafter have to the laying of venue in any such action or proceeding in any such forum; and (c) further irrevocably waives any claim that any such forum is an inconvenient forum. Guarantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. Nothing herein shall impair the right of Emeritus to bring any action or proceeding against Guarantor in any court of any other jurisdiction. 11.9 COUNTERPARTS This Guaranty can be executed in counterpart originals. This Guaranty shall be binding on each person who signs a counterpart of this Guaranty even if everyone listed in the Guaranty does not agree to the Guaranty. 11.10 LIMITATIONS ON SCOPE OF GUARANTY Anything contained herein to the contrary notwithstanding, any claim based on or in respect of any liability of Guarantor under this Guaranty shall be "nonrecourse' and enforced only against the collateral pledged by such Guarantor to secure the payment and performance of the Obligations and Emeritus shall not seek to procure payment out of any other assets, properties or funds of Guarantor (or any legal representative, heir, estate, successor or assign thereof, nor to seek judgment for any sums which are or may be due hereunder, as well as any claim or judgment for any deficiency remaining after exercising its rights against the Collateral pledged by Guarantor. THE UNDERSIGNED CLEARLY UNDERSTANDS THAT EMERITUS DOES NOT HAVE TO PURSUE AURORA BAY OR PURSUE ANY OTHER REMEDIES BEFORE DEMANDING PAYMENT FROM GUARANTOR. GUARANTOR FURTHER UNDERSTANDS THAT IT WILL HAVE TO PAY AMOUNTS THEN DUE EVEN IF AURORA BAY OR ANY OF THE OTHER [The balance of the page intentionally left blank.] 7
GUARANTORS DO NOT MAKE THE PAYMENTS OR ARE RELIEVED OF THE OBLIGATION TO MAKE PAYMENTS. Erwin Investors I, L.L.C., a Washington limited liability company
/s/ Jerry Erwin --------------------------------------Jerry Erwin, Manager By:
/s/ Craig W. Spaulding -------------------------
GUARANTORS DO NOT MAKE THE PAYMENTS OR ARE RELIEVED OF THE OBLIGATION TO MAKE PAYMENTS. Erwin Investors I, L.L.C., a Washington limited liability company
/s/ Jerry Erwin --------------------------------------Jerry Erwin, Manager By:
/s/ Craig W. Spaulding --------------------------------------Craig W. Spaulding /s/ Thilo Best -------------------------------------Thilo Best
8
EX 10.79.8 THE LIMITED LIABILITY COMPANY INTERESTS CREATED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED, OR UNDER THE STATE BLUE SKY STATUTES IN THE VARIOUS STATES WHERE THE INTEREST(S) MAY BE OFFERED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAME ACT OR THE APPLICABLE STATE BLUE SKY STATUTES OR SATISFACTORY ASSURANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION THE SALE OR TRANSFER OF ANY INTEREST(S) IN THE COMPANY MUST BE MADE IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. IN VIEW OF THESE RESTRICTIONS, THE PURCHASER OF ANY INTEREST(S) IN THE COMPANY MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. OPERATING AGREEMENT OF AURORA BAY I, L.L.C. January 6,1998 This Operating Agreement (the "Agreement") is made and entered into as of the 6th day of January, 1998, by AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company, and ERWIN INVESTORS. I, LLC., a Washington limited liability company, as We initial members ("Members"). The Members agree to operate the Company (hereinafter defined) as a limited liability company under the laws of the state of Washington, as follows: The parties hereto agree as follows: 1. Definitions. The following terms used in the Agreement shall have the meanings specified below: 1.1 "Act" means the Washington limited Liability Company Act, as amended from time to time. 1.2 "Additional Member" means a Member who has been admitted to all rights of membership pursuant to
EX 10.79.8 THE LIMITED LIABILITY COMPANY INTERESTS CREATED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; AS AMENDED, OR UNDER THE STATE BLUE SKY STATUTES IN THE VARIOUS STATES WHERE THE INTEREST(S) MAY BE OFFERED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAME ACT OR THE APPLICABLE STATE BLUE SKY STATUTES OR SATISFACTORY ASSURANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN ADDITION THE SALE OR TRANSFER OF ANY INTEREST(S) IN THE COMPANY MUST BE MADE IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. IN VIEW OF THESE RESTRICTIONS, THE PURCHASER OF ANY INTEREST(S) IN THE COMPANY MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. OPERATING AGREEMENT OF AURORA BAY I, L.L.C. January 6,1998 This Operating Agreement (the "Agreement") is made and entered into as of the 6th day of January, 1998, by AURORA BAY INVESTMENTS, L.L.C., a Washington limited liability company, and ERWIN INVESTORS. I, LLC., a Washington limited liability company, as We initial members ("Members"). The Members agree to operate the Company (hereinafter defined) as a limited liability company under the laws of the state of Washington, as follows: The parties hereto agree as follows: 1. Definitions. The following terms used in the Agreement shall have the meanings specified below: 1.1 "Act" means the Washington limited Liability Company Act, as amended from time to time. 1.2 "Additional Member" means a Member who has been admitted to all rights of membership pursuant to Section 14.5 below. 1.3 "Adjusted Contribution Amount" with respect to each Member means the Capital Contributions pursuant to Sections 7.1 and 7.4 below. 1.4 "Affiliate" means, with respect to the second person (as defined in this paragraph) (i) any person (the "first person") who directly or indirectly controls a second person, or owns or controls 10% or more of the outstanding securities of the second person; (ii) any officer, director, partner, or member of the immediate family of the second person; and (iii) if the second person is an officer, director, or partner, any company for which the second person acts in that capacity. Control includes the terms "controlled by"-and "under common control with" and means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise. 1.5 "Agreement" means this Operating Agreement of the Au r o r a B a y 1 , L.L.C., as it may be amended from time to time. 1.6 "Assignee" means a person who has acquired a Member's interest in whole
or part and has not become a Substitute Member.
or part and has not become a Substitute Member. 1.7 "Capital Account" means the account maintained for each Member in accordance with Section 7S. In the case of a transfer of an interest, the transferee shall succeed to the Capital Account of the transferor or, in the case of a partial transfer, a proportionate share thereof. 1.8 "Capital Contribution" means the total amount of money and the fair market value of a11 property contributed to the Company by each Member pursuant to the terms of the Agreement. Capital Contribution shall also include any amounts paid directly by a Member to any creditor of the Company in respect of any guarantee or similar obligation undertaken by such Member in connection with the Company's operations. Any reference to the Capital Contribution of a Member shall include the Capital Contribution made by a predecessor holder of the interest of such Member. 1.9 "Cash Available for Distribution" means all cash receipts of the Company, excluding cash available upon liquidation of the Company, in excess of amounts reasonably required for payment of operating expenses, repayment of current liabilities, repayment of such amounts of Company indebtedness as the Managers shall determine necessary or advisable, and the establishment of and additions to such cash reserves as the Managers shall deem necessary or advisable, including, but not limited to, reserves for capital expenditures, replacements, contingent or unforeseen liabilities, or other obligations of the Company. 1.10 "Code" means the United States Internal Revenue Code of 1986, as amended. References to specific Code Sections or Treasury Regulations shall be deemed to refer to such Code Sections or Treasury Regulations as they may be amended from time to time or to any successor Code Sections or Treasury Regulations if the Code Section or Treasury Regulation referred to is repealed. 1.11 "Company" means the Aurora Bay 1, L.L.C. governed by the Agreement. 1.12 "Company Property" means all the real and personal property owned by the Company. 1.13 "Credit Agreement" means that certain Credit Agreement dated as of January 7,1998, by and between the Company and Emeritus Corporation. 1.14 "Deemed Capital Account" means a Member's Capital Account as calculated from time to time, adjusted by (i) adding thereto the sum of (A) the amount of such Member's Mandatory Obligation, if any, and (B) each Member's share of Minimum Gain (determined after any decreases therein for such year) and (ii) subtracting therefrom (A) allocations of losses and deductions which are reasonably expected to be made as of the end of the taxable year to the Members pursuant to Code Section 704(e)(2), Code Section 706(d) and Treasury Regulation Section 1.751-1(b)(2)(ii), and (B) distributions which at the end of the taxable year are reasonably expected to be made to the Member to the extent that said distributions exceed offsetting increases to the Member's Capital Account (including allocations of the Qualified Income Offset pursuant to Section 8.5 but excluding allocations of Minimum Gain Chargeback pursuant to Section 8.4) that are reasonably expected to occur during (or prior to) the taxable years in which such distributions are reasonably expected to be made. 1.15 "Emeritus" means Emeritus Corporation, a Washington corporation. 2
1.16 "Emeritus Corporation Loan" means a loan from Emeritus Corporation to the Company, to be made to the Company pursuant to the Credit Agreement, in an amount up to $5,000,000.00, with an option in favor of Emeritus Corporation to convert the loan to a Company Interest with a Percentage Interest of forty-eight percent (48%). 1.17 "Interest" or "Company Interest" means the ownership interest of a Member in the Company at any particular time, including the right of such Member to any and all benefits to which such Member may be entitled as provided in the Agreement and in the Act, together with the obligations of such Member to comply with all the terms and provisions of the Agreement and the Act.
1.16 "Emeritus Corporation Loan" means a loan from Emeritus Corporation to the Company, to be made to the Company pursuant to the Credit Agreement, in an amount up to $5,000,000.00, with an option in favor of Emeritus Corporation to convert the loan to a Company Interest with a Percentage Interest of forty-eight percent (48%). 1.17 "Interest" or "Company Interest" means the ownership interest of a Member in the Company at any particular time, including the right of such Member to any and all benefits to which such Member may be entitled as provided in the Agreement and in the Act, together with the obligations of such Member to comply with all the terms and provisions of the Agreement and the Act. 1.18 "Mandatory Obligation" means the sum of (i) the amount of a Member's re contribution obligation (including the amount of any Capital Account deficit such Member is obligated to restore upon liquidation) provided that such contribution must be made in all events within ninety (90) days of liquidation of the Member's interest as determined under Treasury Regulation Section 1.704-1(b)(2)(ii)(g) and (ii) the additional amount, if any, such Member would be obligated to contribute as of year end to retire recourse indebtedness of the Company if the Company were to liquidate as of such date and dispose of all of its assets at book value. 1.19 "Manager(s)" means those Member(s) and other persons who are appointed in accordance with this Agreement to exercise the authority of Manager under this Agreement and the Act. If at any time a Member who is a Manager ceases to be a Member for any reason, that Member shall simultaneously cease to be a Manager. At all times there shall be at least one Manager who is a Member. The Managers of the Company as of the date of this Agreement are Craig W. Spaulding and Jerry Erwin. . 120 "Member(s)" means those persons and/or entities that execute a counterpart of this Agreement and those persons and/or entities that are hereafter admitted as members under Section 14.4 below. 121 "Minimum Gain" means the amount determined by computing, with respect to each nonrecourse liability of the Company, the amount of gain, if any, that would be realized by the Company if it disposed of the Company Property subject to such nonrecourse liability in full satisfaction thereof in a taxable transaction and then by aggregating the amounts so determined. Such gain shall be determined in accordance with Treasury Regulation Section 1.704-2(d). Each Member's share of Minimum Gain at the end of a taxable year of the Company shall be determined in accordance with Treasury Regulation Section 1.704- 2(g)(1). 1.22 "Net Income" or "Net Loss" means taxable income or loss (including items requiring separate computation under Section 702 of the Code) of the Company as determined using the method of accounting chosen by the Managers and used by the Company for federal income tax purposes, adjusted in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(g), for any property with differing tax and book values, to take into account depreciation, depletion, amortization, and gain or loss as computed for book purposes. 1.23 "Partnership" means Lubbock Group, Ltd., a Texas limited partnership, for which the Company will serve as its sole general partner. 3
1.24 "Percentage Interest" means the percent interest of each Member as set forth on Appendix A. 1.25 "Project" means the senior housing facility owned and developed by the Company. 1.26 "Project Loan" means the loan to be made by Aurora B a y I n v e s t m
1.24 "Percentage Interest" means the percent interest of each Member as set forth on Appendix A. 1.25 "Project" means the senior housing facility owned and developed by the Company. 1.26 "Project Loan" means the loan to be made by Aurora B a y I n v e s t m e n t s , L.L.C. to the Partnership from proceeds of the Emeritus Corporation Loan, as contemplated by the Credit Agreement, and from its available cash, which loan is to be evidenced by the terms of the "Project Promissory Note", a copy of which is attached hereto as Exhibit "A". 1.27 "Senior Debt" means the construction and short-term permanent financing arranged by the Company to construct and develop a Project as described in Section 7.7 hereof including Take-out Commitments. 1.28 "Subsidiary Loan" means a loan made by Aurora Bay Investments, I, L.L.C. to the Partnership from proceeds of loans made to Aurora Bay Investments, LLC. by its Managers. 129 "Substitute Member" means an Assignee who has been admitted to all of the rights of membership pursuant to Section 14.4 below. 2. Formation. The Members hereby agree to operate the Company under the terms and conditions set forth herein. Except as otherwise provided herein, the rights and liabilities of the Members shall be governed by the Act. 2.1 Defects as to Formalities. A failure to observe any formalities or requirements of this Agreement, the certificate of formation for the Company, or the Act shall not be grounds for imposing personal liability on the Members for liabilities of the Company. 2.2 No Partnership Intended for Nontax Purposes. The Members have formed the Company under the Act and expressly do not intend hereby to form a partnership under either the Washington Uniform Partnership Act or the Washington Uniform I Limited Partnership Act or a corporation under the Washington Business Corporation Act. The Members do not intend to be partners one to another or partners as to any third party. The Members hereto agree and acknowledge that the Company is to be treated as a partnership for federal income tax purposes. 2.3 Rights of Creditors and Third Parties. This Agreement is entered into among the Company and the Members for the exclusive benefit of the Company, its Members, their successors, and assigns. The Agreement is expressly not intended for the benefit of a creditor of the Company or any other person. Except, and only to the extent provided by applicable statute, no such creditor or third party shall have all rights under the Agreement or any agreement between the Company and any Member with respect to any Contribution or otherwise. 2.4 Title to Property. All Company Properly shall be owned by the Company as an entity, and no Member shall have any ownership interest in such Company Properly in the Member's individual name or right. Each Member's interest in the Company shall be 4
personal property for all purposes. Except as otherwise provided in this Agreement, the Company shall hold all Company Property in the name of the Company and not in the name or names of any Member or Members. 2.5 Payments of Individual Obligations. The Company's credit and assets shall be used solely for the benefit of the Company, and no asset of the Company shall be transferred or encumbered for, or in payment of any individual obligation of any Member unless otherwise provided for herein. 3. Name. The name of the Company shall be AURORA BAY I, L.L.C. The Managers may from time to time change the name of the Company or adopt such trade or fictitious names as they may determine to be appropriate. 4. Office; Agent for Service of Process. The principal office of the Company shall be at 520 Pike Street, Seattle, Washington 98101. The Company may maintain such other offices at such other places as the Managers may determine to be appropriate. The agent for service of process for the Company shall be CT Corporation System at the above address. 5. Purposes. The primary purpose and general character of the business of the Company is to serve as the general partner of Lubbock Group, Ltd., a Texas limited partnership, specially formed to acquire, develop, construct, operate, hold, and invest in certain real property located in Lubbock, Texas, and to engage in any lawful act or activity for which a limited liability company may be organized under the laws of the State of Washington, incident, necessary, advisable, or desirable to carry out the purpose of the Company. 6. Term. The term of the Company commenced upon the filing of the Articles of Organization for the Company in the office of the Washington Secretary of State and shall continue until January l, 2027, unless sooner dissolved, wound up, and terminated in accordance with the provisions of this Agreement and the Act. 7. Percentage Interest and Capital Contributions. 7.1 Initial Capital Contributions; Percentage Interests . The Members made initial Capital Contributions to the Company in the amounts set forth on Appendix A for the Percentage Interests in the Company as shown on Appendix A. 7.2 No Interest on Capital. No Member shall be entitled to receive interest on such Member's Capital Contributions or such Member's Capital Account. 7.3 No Withdrawal of Capital. Except as otherwise provided in this Agreement, no Member shall have the right to withdraw or demand a return of any or all of such Member's Capital Contribution. It is the intent of the Members that no distribution (or any part of any distribution) made to any Member pursuant to Section 10 hereof shall be deemed a return or withdrawal of Capital Contributions, even if such distribution represents (in full or in part) a distribution of revenue offset by depreciation or any other noncash item accounted for as an expense, loss, or deduction from, or offset to, the Company's income and that no Member shall be obligated to pay any such amount to or for the account of the Company or any creditor of the Company. However, if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Member is obligated to make any such payment, such obligation shall be the obligation of such Member and not of any other Member, including Managers. 5
7.4 Additional Capital. Except as otherwise provided for herein or mutually agreed upon by the Members, no Member shall be obligated to make an additional capital contribution to the Company. 7.5 Capital Accounts. The Company shall establish and maintain a Capital Account for each Member in accordance with Treasury Regulations issued under Section 704. The initial Capital Account balance for each Member shall be the amount of initial Capital Contributions made by each Member under Section 7.1 above. The Capital Account of each Member shall be increased to reflect (i) such Member's cash contributions, (ii) the fair market value of property contributed by such Member (net of liabilities securing such contributed property that the Company is considered to assume or take subject to Code
7.4 Additional Capital. Except as otherwise provided for herein or mutually agreed upon by the Members, no Member shall be obligated to make an additional capital contribution to the Company. 7.5 Capital Accounts. The Company shall establish and maintain a Capital Account for each Member in accordance with Treasury Regulations issued under Section 704. The initial Capital Account balance for each Member shall be the amount of initial Capital Contributions made by each Member under Section 7.1 above. The Capital Account of each Member shall be increased to reflect (i) such Member's cash contributions, (ii) the fair market value of property contributed by such Member (net of liabilities securing such contributed property that the Company is considered to assume or take subject to Code Section 752), (iii) such Member's share of Net Income (including all gain as calculated pursuant to Section 1001 of the Code) of the Company and (iv) such Member's share of income and gain exempt from tax. The Capital Account of each Member shall be reduced to reflect (a) the amount of money and the fair market value of property distributed to such Member (net of liabilities securing such distributed property that the Member is considered to assume or take subject to under Section 752), (b) such Member's share of noncapitalized expenditures not deductible by the Company in computing its taxable income as determined under Code Section 705(a)(2)(B), (c) such Member's share of Net Loss of the Company and (d) such Member's share of amounts paid or incurred to organize the Company or to promote the sale of Company Interests to the extent that an election under Code Section 709(b) has not properly been made for such amounts. The Managers shall determine the fair market value of all property which is distributed in kind, and the Capital Accounts of the Members shall be adjusted as though the property had been sold for its fair market value and the gain or loss attributable to such sale allocated among the Members in accordance with Section 8, as applicable. In the event of a contribution of property with a fair market value which is not equal to its adjusted basis (as determined for federal income tax purposes), a revaluation of the Members' Capital Amounts upon the admission of new members to the Company, or in other appropriate situations as permitted by Treasury Regulations issued under Code Section 704, the Company shall separately maintain "tax" Capital Accounts solely for purposes of taking into account the variation between the adjusted tax basis and book value of Company Property in tax allocations to the Members consistent with the principles of Code Section 704(c) in accordance with the rules prescribed in Treasury Regulations promulgated under Code Section 704. 7.6 Default. In the event any Member shall fail to contribute any cash or property when due hereunder, such Member shall remain liable therefor to the Company, which may institute proceedings in any court of competent jurisdiction in connection with which such Member shall pay the costs of such collection, including reasonable attorneys' fees. Any compromise or settlement with a Member failing to contribute cash or properly due hereunder may be approved by a majority by Percentage Interest of the other Members. 7.7 Financing. The Company shall manage Senior Debt financing for the development and lease-up of its Project in accordance with its development budget. 8. Allocations. 8.1 Allocation of Net Income and Net Loss. Except as otherwise provided in this Section 8, Net Income and Net Loss for each fiscal year shall be allocated to the Members in proportion to each Member's Percentage Interest. 6
8.2 Special Allocation. Notwithstanding Section 8.1, depreciation, depletion, amortization, and gain or loss for tax purposes with respect to contributed property or with respect to property which has been revalued under Code Section 7.5(b) shall be allocated consistent with the principal of Section 704(c) and the regulations thereunder and Treasury Regulation Section 1.704-1(b)(4)(i). 8.3 Limitation on Net Loss Allocations. Notwithstanding anything contained in this Section 8, no Member shall be allocated Net Loss to the extent such allocation would cause a negative balance in such Member's Deemed Capital Account as of the end of the taxable year to which such allocation relates.
8.2 Special Allocation. Notwithstanding Section 8.1, depreciation, depletion, amortization, and gain or loss for tax purposes with respect to contributed property or with respect to property which has been revalued under Code Section 7.5(b) shall be allocated consistent with the principal of Section 704(c) and the regulations thereunder and Treasury Regulation Section 1.704-1(b)(4)(i). 8.3 Limitation on Net Loss Allocations. Notwithstanding anything contained in this Section 8, no Member shall be allocated Net Loss to the extent such allocation would cause a negative balance in such Member's Deemed Capital Account as of the end of the taxable year to which such allocation relates. 8.4 Minimum Gain Chargeback If there is a net decrease in Minimum Gain during a taxable year of the Company, then notwithstanding any other provision of this Section 8 or Section 16.3, each Member must be allocated items of income and gain for such year and succeeding taxable years to the extent necessary (the "Minimum Gain Chargeback"), in proportion to, and to the extent of an amount required under Treasury Regulation Section 1.704- 2(f). 85 Qualified Income Offset. If at the end of any taxable year and after operation of Section 8.4, any Member shall have a negative balance in such Members Deemed Capital Account, then notwithstanding anything contained in this Section 8, there shall be reallocated to each Member with a negative balance in such Member's Deemed Capital Account (determined after the allocation of income, gain, or loss under this Section 8 for such year), each item of Company gross income (unreduced by any deductions) and gain in proportion to such negative balances until the Deemed Capital Account for each such Member is increased to zero. 8.6 Curative Allocations. The allocations set forth in Sections 83, 8.4, and 8S (the "Regulatory Allocations") are intended to comply with certain requirements of the Treasury Regulations issued pursuant to Code Section 704 (b). It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 8.6. Therefore, notwithstanding any other provision of this Section 8 (other than the Regulatory Allocations), the Managers shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner they determine appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to Sections 8.1 and 8.2. . 8.7 Modification of Company Allocations. It is the intent of the Members that each Member's distributive share of income, gain, loss, deduction, or credit (or items thereof) shall be determined and allocated in accordance with this Section 8 to the fullest extent permitted by Section 704(b) of the Code. In order to preserve and protect the determinations and allocations provided for in this Section 8, the Managers shall be, and hereby are, authorized and directed to allocate income gain, loss, deduction, or credit (or items thereof) arising in any year differently from the manner otherwise provided for in this Section 8 if, and to the extent that, allocation of income, gain, loss, deduction, or credit (or items thereof) arising in any year different from the manner otherwise provided for in this Section 8 if, and to the extent that, allocation of income, gain, loss, deduction, or credit (or items thereof) in the manner provided for in this 7
Section 8 would cause the determination and allocation of each Member's distributive share of income, gain, loss, deduction, or credit (or items thereof) not to be permitted by Section 704(b) of the Code and Treasury Regulations promulgated thereunder. Any allocation made pursuant to this Section 8.7 shall be made only after the Managers have secured an opinion of counsel that such modification is the minimum modification required to comply with Code Section 704(b) and shall be deemed to be a complete substitute for any allocation otherwise provided for in this Section 8, and no amendment of this Agreement or approval of any Member shall be required. The Members shall be given notice of the modification within thirty (30) days of the effective date thereof such notice to include the text of the modification and a statement of the circumstances requiring the modification to be made.
Section 8 would cause the determination and allocation of each Member's distributive share of income, gain, loss, deduction, or credit (or items thereof) not to be permitted by Section 704(b) of the Code and Treasury Regulations promulgated thereunder. Any allocation made pursuant to this Section 8.7 shall be made only after the Managers have secured an opinion of counsel that such modification is the minimum modification required to comply with Code Section 704(b) and shall be deemed to be a complete substitute for any allocation otherwise provided for in this Section 8, and no amendment of this Agreement or approval of any Member shall be required. The Members shall be given notice of the modification within thirty (30) days of the effective date thereof such notice to include the text of the modification and a statement of the circumstances requiring the modification to be made. 8.8 Deficit Capital Accounts at Liquidation. It is understood and agreed that one purpose of the provisions of this Section 8 is to insure that none of the Members has a deficit Capital Account balance after liquidation and to insure that all allocations under this Section 8 will be respected by the Internal Revenue Service. The Members and the Company neither intend nor expect that any Member will have a deficit Capital Account balance after liquidation; and, notwithstanding any thing to the contrary in this Agreement, the provisions of this Agreement shall be construed and interpreted to give effect to such intention. However, if following a liquidation of a Member's interest as determined under Treasury Regulation Section 1.7041(b)92)(ii)(g), a Member has a deficit balance in such Member's Capital Account after the allocation of Net Income pursuant to this Section 8 and Section 16.3 and all other adjustments have been made to such Member's Capital Account for Company operations and liquidation, no Member shall have any obligation to restore such deficit balance. 9. Company Expenses. In addition to the costs to be reimbursed to the Managers pursuant to the provisions of Section 11.8 hereof but subject to the limitations set forth therein, the Company shall pay, and the Managers shall be reimbursed for, all costs and expenses of the Company, which may include, but are not limited to: (a) All organizational expenses incurred in the formation of the Company and the selling of interests in the Company; (b) All costs of personnel employed by the Company; (c) All costs reasonably related to the conduct of the Company's day-to-day business affairs, including, but without limitation, the cost of supplies, utilities, taxes, licenses, fees, and services contracted from third parties; (d) All costs of borrowed money, taxes, and assessments on Company Property and other taxes applicable to the Company; (e) Legal, audit, accounting, brokerage, and other fees; (f) Printing and other expenses and taxes incurred in connection with the issuance, distribution, transfer, registration, and recording of documents evidencing ownership of an interest in the Company or in connection with the business of the Company; (g) Fees and expenses paid to contractors, mortgage bankers, brokers 8
and services, leasing agents, consultants, onsite managers, real estate brokers, insurance brokers, and other agents, including affiliates of the Managers; (h) Expenses in connection with the acquisition, preparation, design, planning, construction, development, disposition, replacement, alteration, repair, remodeling, refurbishment, leasing, financing, and refinancing and operation of Company Property (including the costs and expenses of legal and accounting fees, insurance premiums, real estate brokerage, leasing commissions, and maintenance of such property); (i) The cost of insurance obtained in connection with the business of the Company;
and services, leasing agents, consultants, onsite managers, real estate brokers, insurance brokers, and other agents, including affiliates of the Managers; (h) Expenses in connection with the acquisition, preparation, design, planning, construction, development, disposition, replacement, alteration, repair, remodeling, refurbishment, leasing, financing, and refinancing and operation of Company Property (including the costs and expenses of legal and accounting fees, insurance premiums, real estate brokerage, leasing commissions, and maintenance of such property); (i) The cost of insurance obtained in connection with the business of the Company; (j) Expenses of revising, amending, converting, modifying, or terminating the Company; (k) Expenses in connection with distributions made by the Company to, and communications and bookkeeping and clerical work necessary in maintaining relations with, Members; (1) Expenses in connection with preparing and making reports required to be furnished to Members for investment, tax reporting, or other purposes that the Managers deem appropriate; (m) Costs incurred in connection with any litigation, including any examinations or audits by regulatory agencies; and (n) Costs of preparation and dissemination of informational material and documentation relating to potential sale, refinancing, or other disposition of Company properties. 10. Distributions of Cash Available for Distribution. At such times and in such amounts as the Managers in their discretion determine appropriate, and subject to a11 restrictions concerning distribution contained in any agreement with a third party, Cash Available for Distribution shall be distributed in the following order of priority: (a) First, among the Members in proportion to their Adjusted Contribution Amounts until such balances are reduced to zero; and (b) Thereafter, among the Members in proportion to their Percentage Interests. As long as there are any amounts due and owing to Emeritus under the Emeritus Corporation Loan, or Emeritus is a member of Aurora Bay Investments, L.L.C., the Managers shall cause the Company to make quarterly distributions of Cash Available for Distribution, no later than 45 days after the end of each calendar quarter. In computing Cash Available for Distribution, the Managers may set aside reasonable amounts as reserves for capital expenditures, replacements, contingent or unforeseen liability, or other obligations of the Company, but the amounts of such reserves shall be reassessed at the end of each quarter to determine whether such balances are adequate in amount, should be increased or decreased, and if decreased the excess reserves will be available for distribution to the Members. Moreover, Cash 9
Available for Distribution may not be used by the Company to make investments in new Projects without the prior consent of Emeritus. It is the intent of the Parties to make periodic distributions of Cash Available for Distribution if and when such excess cash is available and not to hold such funds to build up reserves beyond reasonable amounts or to make investments in new Projects. 11. Powers, Rights, and Obligations of Managers. 11.1 General Authority and Powers of Managers. Except as provided in Section 11.7 and elsewhere in the Agreement, the Managers shall have the exclusive right and power to manage, operate, and control the Company and to do all things and make all decisions necessary or appropriate to carry on the business and affairs of the Company. All decisions required to be made by the Managers shall require the approval of all Managers, except as the Managers shall otherwise agree. In the event the Managers shall be unable to agree upon any matter described in this Section 11.1, then the Managers shall provide written notice of the proposed action to all
Available for Distribution may not be used by the Company to make investments in new Projects without the prior consent of Emeritus. It is the intent of the Parties to make periodic distributions of Cash Available for Distribution if and when such excess cash is available and not to hold such funds to build up reserves beyond reasonable amounts or to make investments in new Projects. 11. Powers, Rights, and Obligations of Managers. 11.1 General Authority and Powers of Managers. Except as provided in Section 11.7 and elsewhere in the Agreement, the Managers shall have the exclusive right and power to manage, operate, and control the Company and to do all things and make all decisions necessary or appropriate to carry on the business and affairs of the Company. All decisions required to be made by the Managers shall require the approval of all Managers, except as the Managers shall otherwise agree. In the event the Managers shall be unable to agree upon any matter described in this Section 11.1, then the Managers shall provide written notice of the proposed action to all Members, and the decision of Members holding a majority of the Percentage Interests in the Company shall be binding upon the Managers. The authority of the Managers shall include, but shall not be limited to, the following: (a) To spend the capital and revenues of the Company; (b) To manage, sell, develop, improve, operate, and dispose of any Company properties and assets, including to act on behalf of the Company with respect to any partnership or joint venture in which the Company participates; (c) To employ persons, firms, and/or corporations for the operation and management of the Company's business and for the operation and development of the properties and assets of the Company, including, but not limited to, sales agents, management agents, architects, engineers, contractors, attorneys, and accountants; (d) To acquire, lease, and sell personal and/or real property, hire and fire employees, and to do all other acts necessary, appropriate, or helpful for the operation of the Company business; (e) To execute, acknowledge, and deliver any and all instruments to effectuate any of the foregoing powers and any other powers granted the Managers under the laws of the state of Washington or other provisions of this Agreement; (f) To enter into and to execute agreements for employment or services, as well as any other agreements and all other instruments the Managers deem necessary or appropriate to operate the Company's business and to operate and dispose of Company properties and assets or to effectively and properly perform its duties or exercise its powers hereunder; (g) To borrow money on a secured or unsecured basis from individuals, banks, and other lending institutions to finance its Subsidiaries in the construction of a Project or refinance Company assets, to meet other Company obligations, provide Company working capital and for any other Company purpose, and to execute promissory notes, mortgages, deeds of trust, and 10
assignments of Company's property and assets, and such other security instruments as a lender of funds may require, to secure repayment of such borrowings; provided, that no individual, entity, bank, or other lending institution to which the Managers apply for a loan shall be required to inquire as to the purpose for which such loan is sought, and as between the Company and such individual, entity, bank, or other lending institution, it shall be conclusively presumed that the proceeds of such loan are to be, and will be, used for purposes authorized under the terms of this Agreement; (h) To enter into such agreements and contracts and to give such receipts, releases, and discharges, with respect to the business of the Company, as the Managers deem advisable or appropriate; (i) To purchase, at the expense of the Company, such liability and other insurance as the Managers, in their sole discretion, deem advisable to protect the Company's assets and business; however, the Managers - shall not be liable to the Company or the other Members for failure to purchase any insurance; and
assignments of Company's property and assets, and such other security instruments as a lender of funds may require, to secure repayment of such borrowings; provided, that no individual, entity, bank, or other lending institution to which the Managers apply for a loan shall be required to inquire as to the purpose for which such loan is sought, and as between the Company and such individual, entity, bank, or other lending institution, it shall be conclusively presumed that the proceeds of such loan are to be, and will be, used for purposes authorized under the terms of this Agreement; (h) To enter into such agreements and contracts and to give such receipts, releases, and discharges, with respect to the business of the Company, as the Managers deem advisable or appropriate; (i) To purchase, at the expense of the Company, such liability and other insurance as the Managers, in their sole discretion, deem advisable to protect the Company's assets and business; however, the Managers - shall not be liable to the Company or the other Members for failure to purchase any insurance; and (j) To sue and be sued, complain, defend, settle, and/or compromise with respect to any claim in favor of or against the Company, in the name and on behalf of the Company. (k) To lend money to the Company to pay Company operating costs, including, without limitation, all start-up costs, upon such terms and conditions as the Managers shall reasonably determine. 11.2 Time Devoted to company; Other Ventures. The Managers shall devote so much of their time to the business of the Company as in their judgment the conduct of the Company's business reasonably requires. The Managers may engage in business ventures and activities of any nature and description independently or with others, whether or not in competition with the business of the Company, and shall have no obligation to disclose business opportunities available to it, and neither the Company nor any of the other Members shall have any rights in and to such independent ventures and activities or the income or profits derived therefrom by reason of its acquisition of interests in the Company. This Section 11.2 is intended to modify any provisions or obligations of the Act to the contrary, and each Manager and the Company hereby waives and releases any claims they may have under the Act with respect to any such activities or ventures of the Managers or other Members. 11.3 Liability of Managers to Members and to the Company. In carrying out its duties and exercising the powers hereunder, the Managers shall exercise reasonable skill, care, and business judgment. The Managers shall not be liable to the Company or other Members for any act or omission performed or omitted by it in good faith pursuant to the authority granted to it by this Agreement as a Manager or Tax Matters Partner (as defined in the Code) unless such act or omission constitutes negligence or willful misconduct by such Manager. 11.4 Indemnification. The Company shall indemnify and hold harmless the Managers from any loss or damage, including attorneys' fees actually and reasonably incurred by it, by reason of any act or omission performed or omitted by it on behalf of the Company or in furtherance of the Company's interests or as Tax Matters Partner; 11
however, such indemnification or agreement to hold harmless shall be recoverable only out of the assets of the Company and not from the Members. 11.5 Fiduciary Responsibility. The Managers shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, and all such funds and assets shall be used in accordance with the terms of this Agreement. 11.6 Contract with the Manager. (a) Without limitation upon the other powers set forth herein, the Managers are expressly authorized for, in the name and on behalf of the Company to: (i) Cause the Company Members for expenses incurred accordance with Section 11.8; to reimburse the Managers and on behalf of the Company in
however, such indemnification or agreement to hold harmless shall be recoverable only out of the assets of the Company and not from the Members. 11.5 Fiduciary Responsibility. The Managers shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, and all such funds and assets shall be used in accordance with the terms of this Agreement. 11.6 Contract with the Manager. (a) Without limitation upon the other powers set forth herein, the Managers are expressly authorized for, in the name and on behalf of the Company to: (i) Cause the Company Members for expenses incurred accordance with Section 11.8; to reimburse the Managers and on behalf of the Company in (ii) Permit the Partnership to borrow monies from the Managers in connection with the development, construction, and operations of the Projects as contemplated and permitted by the Credit Agreement; (iii) Permit the Partnership to engage South Bay Partners, Inc., an Affiliate of Craig W. Spaulding, to provide certain development services to the Partnership to develop the Project pursuant to the terms and conditions of a Development Services Agreement, the form and substance of which is set forth in Exhibit "B" attached hereto; (iv) Permit the Partnership to engage Jerry Erwin Associates, Inc., an Affiliate of Jerry Erwin, to manage the Project pursuant to the terms and conditions or a Property Management Agreement, the form and substance of which is set forth in Exhibit "C" attached hereto. (b) The Company may not enter into, nor may the Managers permit the Partnership to enter into, any other agreement, contract, or arrangement with a Manager, Member, or aa Affiliate thereof or provide for an amendment for any of the pre-authorized transactions, pursuant to which such person may profit or benefit, unless and until each of the following conditions is satisfied: (i) Such agreement, contract, or arrangement or amendment is embodied in a written contract that described the goods to be provided, the services to be rendered or the property to be sold, transferred, assigned, or conveyed, and all compensation, payments, remuneration, or other consideration to be paid; (ii) Such agreement, contract, or arrangement is promptly disclosed and its terms summarized in the reports to the Members and to Emeritus; (iii) Such agreement, contract, or arrangement is approved 12
or ratified by a majority vote of the Member (excluding for this purpose the Interests held by the interested Member) and by Emeritus; and (iv) Once approved, such agreement, contract, or arrangement may not be amended, modified, or supplemented without the prior approval of a majority of the Members (excluding for this purpose the Interests held by the interested Member) and by Emeritus. (c) The foregoing provisions are specifically included herein for the benefit of the Company and all the Members to enable the Company to operate efficiently and expeditiously, consistent with the standard set forth, and the Members hereby waive and release any claims they may have under the Act for any contracts of agreements entered into by the Managers which are consistent with the provisions of this Section 11.6. 11.7 Restrictions on Authority of Managers The Company will not take any of the acts enumerated below or cause or permit the Partnership to take similar
or ratified by a majority vote of the Member (excluding for this purpose the Interests held by the interested Member) and by Emeritus; and (iv) Once approved, such agreement, contract, or arrangement may not be amended, modified, or supplemented without the prior approval of a majority of the Members (excluding for this purpose the Interests held by the interested Member) and by Emeritus. (c) The foregoing provisions are specifically included herein for the benefit of the Company and all the Members to enable the Company to operate efficiently and expeditiously, consistent with the standard set forth, and the Members hereby waive and release any claims they may have under the Act for any contracts of agreements entered into by the Managers which are consistent with the provisions of this Section 11.6. 11.7 Restrictions on Authority of Managers The Company will not take any of the acts enumerated below or cause or permit the Partnership to take similar acts, unless proposed by the Managers and approved by Emeritus or unless requested by Emeritus and approved by Emeritus and Members holding a majority of the outstanding Interests, with or without the concurrence of the Managers: (i) The sale, exchange, or other disposition of entity assets having a fair market value of $50,000.00 or more; (ii) The sale, exchange, or other disposition of any real estate assets; (iii) The incurrence of any indebtedness by the entity, whether secured or unsecured, recourse or nonrecourse, in an amount of $100,000.00 or more (standing authorization may be given for certain accounts receivable financing or a permanent line of credit for the benefit of the entity);(iv) Any decision to expand or broaden the scope of the entity's business beyond that specifically authorized in the entity's organizational documents; (v) Any expenditures for capital improvements or assets in excess of $50,000.00; (vi) The approval of an annual budget for the entity, with the Managers being authorized to expend funds consistent with the annual budget as long as such expenditures do not exceed 5% of the budgeted amounts; (vii) Decisions regarding any claims made by or against the entity, including, but not limited to, decisions regarding the prosecution, settlement, or other disposition of such claims; 13
(viii) The response to any governmental investigation, inquiry, action, or the like affecting the business and affairs of the entity; (ix) Entering into a joint venture, partnership, limited partnership, or other business arrangement with any third party to conduct the entity's business; (x) The admission of any new Member to the entity (except to the extent that such admission is expressly authorized under this Agreement); (xi) Any encumbrance, mortgage, pledge, or granting of a security interest or lien in any real or personal property owned or to be owned by the entity, except to the extent such security interest or lien is granted to secure entity financing permitted by the terms of the Credit Agreement;
(viii) The response to any governmental investigation, inquiry, action, or the like affecting the business and affairs of the entity; (ix) Entering into a joint venture, partnership, limited partnership, or other business arrangement with any third party to conduct the entity's business; (x) The admission of any new Member to the entity (except to the extent that such admission is expressly authorized under this Agreement); (xi) Any encumbrance, mortgage, pledge, or granting of a security interest or lien in any real or personal property owned or to be owned by the entity, except to the extent such security interest or lien is granted to secure entity financing permitted by the terms of the Credit Agreement; (xii) The execution of any guaranty by the entity of another's obligations; (xiii) The dissolution and winding up of the Company; (xiv) Approval of the withdrawal of a Manager; (xv) Appointment of a new Manager; (xvi) Continuation of the Company in accordance with Section 16.1(d); (xvii) The acquisition of any real property; (xviii) Developing a Project other than an Alzheimer's facility; (xix) The engagement of the Manager or any Affiliate thereof to enter into a transaction with, or to provide goods, materials, or services to the entity (except to the extent that such transaction is expressly permitted by the terms of this Agreement or the written contracts contemplated hereby); and (xx) The issuance of any equity securities by the Company or the Partnership. 11.8 Reimbursement and Compensation. Except as otherwise provided herein, the Managers will be entitled to be reimbursed for direct payment of all reasonable and necessary business expenses incurred in the administration of the Company. Notwithstanding anything in this Agreement to the contrary, the Company shall not pay nor reimburse either of the Managers for: (a) any compensation, salary or salaryrelated expenses, or other remuneration, however designated, paid to, or incurred by Craig W. Spaulding, Jerry Erwin, or Thilo Best, in rendering any services to and on behalf of the
.
14
Company under this Agreement. (b) the Manager's overhead, such as rent or depreciation, utilities, and capital expenditures, or any other indirect costs incurred by the Manager in maintaining its corporate offices; (c) any services rendered by the Manager or its Affiliates pursuant to a separate agreement between such persons and the Company, providing separately for payment for such services; or (d) any compensation, salary or salaryrelated expenses, or other remuneration, however designated, paid to, or incurred by, the employees of the Manager or any Affiliate thereof in rendering services to or on behalf of the Company (exclusive of services covered by subparagraph (c) above, which are to be handled as provided for therein) or any goods, services, or products not purchased for the exclusive use of the Company, except to the extent that such arrangements are disclosed to Emeritus in advance and approved by it. 12. Status of Members. 12.1 No Participation in Management. Except as specifically provided in Section 11.7 above, no Member shall take part in the conduct or control of the Company's business or the management of the Company or have any right or authority to act for or on the behalf of or otherwise bind, the Company (except a Member who may also be a Manager and then only in such Member's capacity as a Manager within the scope of such Member's authority hereunder).
12.2 Limitation of Liability. No Member shall have, solely by virtue of such Member's status as a Member in the Company, any personal liability whatever, whether to the Company, to any Members, or to the creditors of the Company, for the debts or obligations of the Company or any of its losses beyond the amount committed by such Member to the capital of the Company, except as otherwise required by the Act. 12.3 Death or Incapacity of Non-Manager Member. The death, incompetence, withdrawal, expulsion, bankruptcy, or dissolution of a Member, or the occurrence of any other event which terminates the continued membership of a Member in the Company, shall not cause a dissolution of the Company. Upon the occurrence of such event, the rights of such Member to share in the Net Income and Net Loss of the Company, to receive distributions from the Company, and to assign an interest in the Company pursuant to Section 14.3 below shall, on the happening of such an event, devolve upon such Member's executor, administrator, guardian, conservator, or other legal representative or successor as the case may be, subject to the terms and conditions of this Agreement, and the Company shall continue as a limited liability company. However, in any such
Company under this Agreement. (b) the Manager's overhead, such as rent or depreciation, utilities, and capital expenditures, or any other indirect costs incurred by the Manager in maintaining its corporate offices; (c) any services rendered by the Manager or its Affiliates pursuant to a separate agreement between such persons and the Company, providing separately for payment for such services; or (d) any compensation, salary or salaryrelated expenses, or other remuneration, however designated, paid to, or incurred by, the employees of the Manager or any Affiliate thereof in rendering services to or on behalf of the Company (exclusive of services covered by subparagraph (c) above, which are to be handled as provided for therein) or any goods, services, or products not purchased for the exclusive use of the Company, except to the extent that such arrangements are disclosed to Emeritus in advance and approved by it. 12. Status of Members. 12.1 No Participation in Management. Except as specifically provided in Section 11.7 above, no Member shall take part in the conduct or control of the Company's business or the management of the Company or have any right or authority to act for or on the behalf of or otherwise bind, the Company (except a Member who may also be a Manager and then only in such Member's capacity as a Manager within the scope of such Member's authority hereunder).
12.2 Limitation of Liability. No Member shall have, solely by virtue of such Member's status as a Member in the Company, any personal liability whatever, whether to the Company, to any Members, or to the creditors of the Company, for the debts or obligations of the Company or any of its losses beyond the amount committed by such Member to the capital of the Company, except as otherwise required by the Act. 12.3 Death or Incapacity of Non-Manager Member. The death, incompetence, withdrawal, expulsion, bankruptcy, or dissolution of a Member, or the occurrence of any other event which terminates the continued membership of a Member in the Company, shall not cause a dissolution of the Company. Upon the occurrence of such event, the rights of such Member to share in the Net Income and Net Loss of the Company, to receive distributions from the Company, and to assign an interest in the Company pursuant to Section 14.3 below shall, on the happening of such an event, devolve upon such Member's executor, administrator, guardian, conservator, or other legal representative or successor as the case may be, subject to the terms and conditions of this Agreement, and the Company shall continue as a limited liability company. However, in any such event, such legal representative or successor, or any assignee of such legal representative or successor, shall be admitted to the Company as a Member only in accordance with and pursuant to all of the terms and conditions of Section 14.4 hereof
12.4 Recourse of Members. Each Member shall look solely to the assets of the Company for all distributions with respect to the Company and such Member's Capital 15
Contribution thereto and share of Net Income and Net Loss thereof and shall have no recourse therefor, upon dissolution or otherwise, against any Manager or any other Member. 12.5 No Right to Proper r. No Member, regardless of the nature of such Member's contributions to the capital of the Company, shall have any right to demand or receive any distribution from the Company in any form other than cash, upon dissolution or otherwise. 13. Books and Records, Accounting, Reports and Statements, and Tax Matters. 13.1 Books and Records. The Managers shall, at the expense of the Company, keep and maintain, or cause to be kept and maintained, the books and records of the Company on the same method of accounting as utilized for federal income tax purposes. 132 Annual Accounting Period. All books and records of the Company shall be kept on the basis of an annual accounting period ending December 31 of each year, except for the final accounting period which shall end on the date of termination of the Company. All references herein to the "fiscal year of the Company" are to the annual accounting period described in the preceding sentence, whether the same shall consist of twelve months or less. 133 Managers' Reports to Members. The Managers shall send, at Company expense, to each Member the following: (a) Within seventy-five (75) days after the end of each fiscal year of the Company, such information as shall be necessary for the preparation by such Member of such Member's federal income tax return which shall include a computation of the distributions to such Member and the allocation to such Member of profits or losses as the case may be; and (b) Within forty-five (45) days after the end of each fiscal quarter of the Company, a quarterly report, which shall include: (i) A balance sheet; (ii) A statement of income and expenses; (iii) A statement of changes in Member's capital; and (iv) A statement of the balances in the Capital Accounts of the Members. 13.4 Right to Examine Records. Members
Contribution thereto and share of Net Income and Net Loss thereof and shall have no recourse therefor, upon dissolution or otherwise, against any Manager or any other Member. 12.5 No Right to Proper r. No Member, regardless of the nature of such Member's contributions to the capital of the Company, shall have any right to demand or receive any distribution from the Company in any form other than cash, upon dissolution or otherwise. 13. Books and Records, Accounting, Reports and Statements, and Tax Matters. 13.1 Books and Records. The Managers shall, at the expense of the Company, keep and maintain, or cause to be kept and maintained, the books and records of the Company on the same method of accounting as utilized for federal income tax purposes. 132 Annual Accounting Period. All books and records of the Company shall be kept on the basis of an annual accounting period ending December 31 of each year, except for the final accounting period which shall end on the date of termination of the Company. All references herein to the "fiscal year of the Company" are to the annual accounting period described in the preceding sentence, whether the same shall consist of twelve months or less. 133 Managers' Reports to Members. The Managers shall send, at Company expense, to each Member the following: (a) Within seventy-five (75) days after the end of each fiscal year of the Company, such information as shall be necessary for the preparation by such Member of such Member's federal income tax return which shall include a computation of the distributions to such Member and the allocation to such Member of profits or losses as the case may be; and (b) Within forty-five (45) days after the end of each fiscal quarter of the Company, a quarterly report, which shall include: (i) A balance sheet; (ii) A statement of income and expenses; (iii) A statement of changes in Member's capital; and (iv) A statement of the balances in the Capital Accounts of the Members. 13.4 Right to Examine Records. Members shall be entitled, upon written request directed to the Company, to review and copy at such Members' expense the records of the Company at all reasonable times and at the location where such records are kept by the Company. 13.5 Tax Matters Partner. Should there be any controversy with the Internal Revenue Service or any other taxing authority involving the Company, the Managers
16
may expend such funds as they deem necessary and advisable in the interest of the Company to resolve such controversy satisfactorily, including, without being limited thereto, attorneys' and accounting fees. Aurora Bay Investments, L.L.C. is hereby designated as the 'Tax Matters Partner" as referred to in Section 6231(a)(7)(A) of the Code and is specially authorized to exercise all of the rights and powers now or hereafter granted to the Tax Matters Partner under the Code. Any cost incurred in the audit by any governmental authority of the income tax returns of a Member (as opposed to the company) shall not be a Company expense. The Managers agree to consult with and keep the Members advised with respect to (i) any income tax audit of a Company income tax return, and (ii) any elections made by the Company for federal, state, or local income tax purposes. 13.6 Tax Returns. The Managers shall, at Company expense, cause the Company to prepare and file a United States Partnership Return of Income and all other tax returns required to be filed by the Company for each fiscal year of the Company. 13.7 Tax Elections. The Managers shall be permitted in its discretion to determine whether the Company should make an election pursuant to
Section 754 of the Code to adjust the basis of the assets of the Company. Each of the Members shall, upon request, supply any information necessary to properly give effect to any such election. In addition, the Manager, in its sole discretion, shall be authorized to cause the Company to make and revoke any other elections for federal income tax purposes as they deem appropriate, necessary, or advisable. 14. Transfers of Company Interests; Withdrawal and Admission of Members 14.1 General Provision. No Member may voluntarily or involuntarily, directly or indirectly, sell, transfer, assign, pledge, or otherwise dispose of or mortgage, pledge, hypothecate, or otherwise encumber, or permit or suffer any encumbrance of all or any part of such Member's interest in the Company, except as provided in this Section 14. Any other purported sale, transfer, assignment, pledge, or encumbrance shall be null and void and of no force or effect whatsoever. Notwithstanding anything in this agreement to the contrary, each of the Members is authorized to grant to Emeritus a first priority and exclusive security interest in such Members Interest in the Company to secure the Company's performance under the Credit Agreement and related documents. 14.2 Withdrawal of Member. A Member shall have no power to withdraw voluntarily from the Company, except that a Member may withdraw upon written approval of a majority of the non- withdrawing Members voting by Percentage Interests, which approval shall include the terms for redemption by the Company of the Interest of such Member. 14.3 Transfer by Members. (a) Subject to any restrictions on transferability required by law or contained elsewhere in this Agreement, a Member may transfer such Member's entire interest in the Company upon satisfaction of the following conditions: (i) The transfer shall be approved in writing by the 17
may expend such funds as they deem necessary and advisable in the interest of the Company to resolve such controversy satisfactorily, including, without being limited thereto, attorneys' and accounting fees. Aurora Bay Investments, L.L.C. is hereby designated as the 'Tax Matters Partner" as referred to in Section 6231(a)(7)(A) of the Code and is specially authorized to exercise all of the rights and powers now or hereafter granted to the Tax Matters Partner under the Code. Any cost incurred in the audit by any governmental authority of the income tax returns of a Member (as opposed to the company) shall not be a Company expense. The Managers agree to consult with and keep the Members advised with respect to (i) any income tax audit of a Company income tax return, and (ii) any elections made by the Company for federal, state, or local income tax purposes. 13.6 Tax Returns. The Managers shall, at Company expense, cause the Company to prepare and file a United States Partnership Return of Income and all other tax returns required to be filed by the Company for each fiscal year of the Company. 13.7 Tax Elections. The Managers shall be permitted in its discretion to determine whether the Company should make an election pursuant to
Section 754 of the Code to adjust the basis of the assets of the Company. Each of the Members shall, upon request, supply any information necessary to properly give effect to any such election. In addition, the Manager, in its sole discretion, shall be authorized to cause the Company to make and revoke any other elections for federal income tax purposes as they deem appropriate, necessary, or advisable. 14. Transfers of Company Interests; Withdrawal and Admission of Members 14.1 General Provision. No Member may voluntarily or involuntarily, directly or indirectly, sell, transfer, assign, pledge, or otherwise dispose of or mortgage, pledge, hypothecate, or otherwise encumber, or permit or suffer any encumbrance of all or any part of such Member's interest in the Company, except as provided in this Section 14. Any other purported sale, transfer, assignment, pledge, or encumbrance shall be null and void and of no force or effect whatsoever. Notwithstanding anything in this agreement to the contrary, each of the Members is authorized to grant to Emeritus a first priority and exclusive security interest in such Members Interest in the Company to secure the Company's performance under the Credit Agreement and related documents. 14.2 Withdrawal of Member. A Member shall have no power to withdraw voluntarily from the Company, except that a Member may withdraw upon written approval of a majority of the non- withdrawing Members voting by Percentage Interests, which approval shall include the terms for redemption by the Company of the Interest of such Member. 14.3 Transfer by Members. (a) Subject to any restrictions on transferability required by law or contained elsewhere in this Agreement, a Member may transfer such Member's entire interest in the Company upon satisfaction of the following conditions: (i) The transfer shall be approved in writing by the 17
Members and Emeritus, which approvals may be granted or denied in their sole discretion. (ii) The transferor and transferee shall have executed and acknowledged such reasonable and customary
Members and Emeritus, which approvals may be granted or denied in their sole discretion. (ii) The transferor and transferee shall have executed and acknowledged such reasonable and customary instruments as the Members may deem necessary or desirable to effect such transfer; and (iii) The transfer does not violate any applicable law or governmental rule or regulation, including, without limitation, any federal or state securities laws. (b) At the time of a transfer of any Member's interest, whether or not such transfer is made in accordance with this Section 14.3, all the rights possessed as a Member in connection with the transferred interest, which rights otherwise would be held either by the transferor or the transferee, shall terminate against the Company unless the transferee is admitted to the Company as a Substitute Member pursuant to the provisions of Section 14.4 hereof; provided, however, that if the transfer is made in accordance with this Section 143, such transferee shall be entitled to receive distributions to which his transferor would otherwise be entitled from and after the effective date of such transfer, which date shall be specified by the Managers and shall be no later than the last day of the calendar month following the first calendar month during which the Managers have received notice of the transfer and all conditions precedent to such transfer provided for in this Agreement have been satisfied. 'The Company and the Managers shall be entitled to treat the transferor as the recognized owner of such interests until such effective date and shall incur no liability for distributions made in good faith to the transferor prior to the effective date. (c) Notwithstanding any other provision of this Agreement, a Member may not transfer such Member's interest in any case if such a transfer, when aggregated with all other transfers within a twelve (12)-month period, would cause the termination of the Company as a partnership for federal income tax purposes pursuant to Section 708 of the Code, unless such transfer has been previously approved by the Manager. 14.4 Admission of Transferees as Members (a) No transferee of a Member shall be admitted as a Member unless a11 of the following conditions have been satisfied: . (i) The transfer complies with Section 14.3; (ii) The prospective transferee has executed an instrument, in form and substance satisfactory to the Manager, accepting and agreeing to be bound by all the terms and conditions of this Agreement, including the power of attorney set forth in Section 17 hereof and has paid all expenses of the Company in effecting the transfer; (iii) All requirements of the Act regarding the admission of a 18
transferee Member have been complied with by the transferee, the transferring Member, and the Company; and (iv) Such transfer is effective in compliance with all applicable state and federal securities laws. (b) In the event of a transfer complying with all the requirements of Section 14.3 hereof. and the transferee being admitted as a Member pursuant to this Section 14.4, the Manager, for itself and for each Member pursuant to the Power of Attorney granted by each Member, shall execute an amendment to this Agreement and file any necessary amendments to the articles of organization for the Company. Unless named in this Agreement, as amended from time to time, no person shall be considered a Member. 14.5 Admission of Additional Members. Additional Members of the Company may be admitted if a proposed additional Member desires to purchase an Interest from the Company, such purchase may be made and the admission of the additional Member shall become effective only if approved by unanimous vote of the existing
transferee Member have been complied with by the transferee, the transferring Member, and the Company; and (iv) Such transfer is effective in compliance with all applicable state and federal securities laws. (b) In the event of a transfer complying with all the requirements of Section 14.3 hereof. and the transferee being admitted as a Member pursuant to this Section 14.4, the Manager, for itself and for each Member pursuant to the Power of Attorney granted by each Member, shall execute an amendment to this Agreement and file any necessary amendments to the articles of organization for the Company. Unless named in this Agreement, as amended from time to time, no person shall be considered a Member. 14.5 Admission of Additional Members. Additional Members of the Company may be admitted if a proposed additional Member desires to purchase an Interest from the Company, such purchase may be made and the admission of the additional Member shall become effective only if approved by unanimous vote of the existing Members and Emeritus and compliance with the provisions of this Section 14.5 and 14.4(a)(ii), (iii), and (iv) hereof. Notwithstanding anything in this Agreement to the contrary, Emeritus will be admitted, without requiring additional consents or approvals of the Members or the Managers or the taking of any other action, as substitute or additional Member, should it exercise its rights to acquire the Interest of a Member pursuant to the pledge given to Emeritus to secure performance under the Credit Agreement. There are no additional conditions to Emeritus' admission to the Company under those circumstances. The Company will, however, cause an amendment to this Agreement to be promptly prepared to evidence Emeritus' decision to acquire such equity interest in the Company. Emeritus' rights as a new Member are, however, not contingent upon the Company's preparing such an amendment; 15. Resignation and Admission of Manager. 15.1 Resignation of Manager. A Manager shall not be entitled to resign as Manager. Moreover, if a Manager resigns in contradiction to this prohibition, such resigning Manager shall be liable to the Company for any and all damages, liabilities, costs, and expenses incurred by the Company or the other Members as a result of such resignation. 15.2 Death or Incompetency of Manager. A Manager shall cease to be a Manager upon the death, incompetency, bankruptcy, or dissolution of such Manager. 15.3 Removal of a Manager. A Manager that is a Member may be removed as a Manager upon the unanimous written approval of the remaining Members. A Manager that is not a Member may be removed as a Manager upon the unanimous written approval of Members, provided any Member which is owned in whole or in part by the Manager sought to be removed shall not be entitled to vote on such Manager's removal, and the unanimous written approval of the remaining Members shall be necessary and sufficient to remove such Manager. Removal of a Manager who is a Member of the Company, pursuant to this Section 15.3, shall not affect such Manager's interest as a Member of the Company, if any. 19
15.4 Appointment of a New or Replacement Manager. A new or replacement Manager may be appointed with the written approval of Members holding a majority of the Percentage Interests of the Company and by Emeritus, provided, however, that at all times there must be at least one Manager in the Company. 15.5 Automatic Removal of a Manager. In the event Craig W. Spaulding ceases to be a Member of Aurora Bay Investments, L.L.C. for any reason, he shall simultaneously cease to be a Manager. In the event Erwin Investors I, L.L.C. ceases to be a Member of Aurora Bay Investments, L.L.C. for any reason, Jerry Erwin shall simultaneously cease to be a Manager. 16. Dissolution, Winding Up, and Termination 16.1 Events Causing Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the happening of the first to occur of any of the following events:
15.4 Appointment of a New or Replacement Manager. A new or replacement Manager may be appointed with the written approval of Members holding a majority of the Percentage Interests of the Company and by Emeritus, provided, however, that at all times there must be at least one Manager in the Company. 15.5 Automatic Removal of a Manager. In the event Craig W. Spaulding ceases to be a Member of Aurora Bay Investments, L.L.C. for any reason, he shall simultaneously cease to be a Manager. In the event Erwin Investors I, L.L.C. ceases to be a Member of Aurora Bay Investments, L.L.C. for any reason, Jerry Erwin shall simultaneously cease to be a Manager. 16. Dissolution, Winding Up, and Termination 16.1 Events Causing Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the happening of the first to occur of any of the following events: (aj Expiration of the term of the Company stated in Section 6 hereof; (b) Entry of a decree of administrative or judicial dissolution pursuant to the Act; (c) The sale or other disposition of all or substantially all of the assets of the Company; (d) The death, incompetence, withdrawal, expulsion, resignation, removal, bankruptcy, or dissolution of the last remaining Manager of the Company, unless (i) within 120 days of such occurrence, Members owning at least a majority of Percentage Interests in the Company, consent to the appointment of a new Manager(s) in accordance with Section 15.4, in which case the business of the Company shall be carried on by the newly appointed Manager(s); (e) The unanimous written approval of the Members to dissolve. 16.2 Winding Up. (a) Upon dissolution of the Company for any reason, the Managers shall commence to wind up the affairs of the Company and to liquidate its assets. In the event the Company has terminated because the Company lacks a Manager, then the remaining Members shall appoint a new Manager solely for the purpose of winding up the affairs of the Company. The Managers shall have the full right and unlimited discretion to determine the time, manner, and terms of any sale or sales of Company Property pursuant to such liquidation. Pending such sales., the Managers shall have the right to continue to operate or otherwise deal with the assets of the Company. A reasonable time shall be allowed for the orderly winding up of the business of the Company and the liquidation of its assets and the discharge of its liabilities to creditors so as to enable the Managers to minimal the normal losses attendant upon a liquidation, having due regard to the activity and condition of the relevant markets for the Company properties and general financial and economic conditions. . 20
(b) The Managers shall cause the proceeds from the sale and liquidation of the Company's property to be applied and distributed in the following order: (i) First to the payment and discharge of all of the Company's debt and liabilities to creditors, including payments of any Project Loans and Subsidiary Loans and other loans from Members and their affiliates, and all expenses of liquidation; (ii) Second, after giving effect to all the allocations required to be made under this Agreement, to Members in proportion to their Capital Account balances; and (iii) Thereafter, the balance, if any, to the Members in proportion to their Percentage Interests. (c) It is intended and anticipated that the amount of case distributed upon a termination or dissolution of the Company should equal the sum of the Members' Capital Accounts after adjustments of such balance in
(b) The Managers shall cause the proceeds from the sale and liquidation of the Company's property to be applied and distributed in the following order: (i) First to the payment and discharge of all of the Company's debt and liabilities to creditors, including payments of any Project Loans and Subsidiary Loans and other loans from Members and their affiliates, and all expenses of liquidation; (ii) Second, after giving effect to all the allocations required to be made under this Agreement, to Members in proportion to their Capital Account balances; and (iii) Thereafter, the balance, if any, to the Members in proportion to their Percentage Interests. (c) It is intended and anticipated that the amount of case distributed upon a termination or dissolution of the Company should equal the sum of the Members' Capital Accounts after adjustments of such balance in accordance with Sections 7 and 8 hereof. 16.3 Certificate of Cancellation; Report; Termination. Upon the dissolution and completion of winding up of the Company, the Managers shall execute and file a certificate of cancellation for the Company. Within a reasonable time following the completion of the liquidation of the Company's assets, the Managers shall prepare and furnish to each Member, at the expense of the Company, a statement which shall set for the assets and liabilities of the Company as of the date of complete liquidation and the amount of each Member's distribution pursuant to Section 162 hereof Upon completion of the liquidation and distribution of all Company funds, the Company shall terminate, and the Managers shall have the authority to execute and file all documents required to effectuate the termination of the Company. 17. Special and Limited Powers of Attorney (a) The Managers shall at all times during the existence of the Company have a special and limited power of attorney as the authority to act in the name and on the behalf of each Member to make, execute, swear to, verify, acknowledge, and file the following documents and any other .documents deemed by the Managers to be necessary for the business of the Company; (b) This Agreement, any separate certificate of formation, fictitious business name statements, as well as any amendments to the foregoing which under the laws of any state are required to be fled or which the Managers deem it advisable to file; (c) Any other instrument or document which may be required to be filed by the Company under the laws of any state or by any governmental agency or which the Managers deem advisable to file; and (d) The special and limited power of attorney granted to the Manager hereby: 21
(i) Is a special and limited power of attorney coupled with an interest, is irrevocable, shall survive the dissolution or incompetency of the granting Members and is limited to those matters herein set forth; (ii) May be exercised by the Managers(or by any authorized officer of the Manager, if not a natural person) for each Member by referencing the list of Members on Appendix A and executing any instrument with a single signature acting as attorney-in-fact for all of them; (iii) Shall survive a transfer by a Member of such Member's interest in the Company pursuant to Section 14.3 hereof for the sole purpose of enabling the Managers to execute, acknowledge, and file any instrument or document necessary or appropriate to admit a transferee as a Member; and (iv) Notwithstanding the foregoing, in the event that a Manager ceases to be a Manager in the Company, the power of attorney granted by this Section 17 to such Manager shall terminate immediately; but any such termination shall not affect the validity of any documents executed prior to such termination or any other actions
(i) Is a special and limited power of attorney coupled with an interest, is irrevocable, shall survive the dissolution or incompetency of the granting Members and is limited to those matters herein set forth; (ii) May be exercised by the Managers(or by any authorized officer of the Manager, if not a natural person) for each Member by referencing the list of Members on Appendix A and executing any instrument with a single signature acting as attorney-in-fact for all of them; (iii) Shall survive a transfer by a Member of such Member's interest in the Company pursuant to Section 14.3 hereof for the sole purpose of enabling the Managers to execute, acknowledge, and file any instrument or document necessary or appropriate to admit a transferee as a Member; and (iv) Notwithstanding the foregoing, in the event that a Manager ceases to be a Manager in the Company, the power of attorney granted by this Section 17 to such Manager shall terminate immediately; but any such termination shall not affect the validity of any documents executed prior to such termination or any other actions previously taken pursuant to this power of attorney or in reliance upon its validity, all of which shall continue to be valid and binding upon the Members in accordance with their terms. 18. Amendments. Except as otherwise provided by law, this Agreement may be amended in any respect by the unanimous written approval of the Members and Emeritus. 19. Miscellaneous. 19.1 Notices. Any notices or communications required or permitted to be delivered hereunder must be in writing and shall be deemed to be delivered (i) upon receipt if delivered personally or (ii) upon deposit in the United States Mail, certified, return receipt requested, postage prepaid, addressed to the Members, as the case may be, or (iii) upon receipt of a facsimile transmission, at the following addresses and/or facsimile numbers: Aurora Bay I, L.L.C. Attention: Craig W. Spaulding 5720 LBJ Freeway Suite 450, Lock Box 16 Dallas, Texas 75240 Phone: 972-458-0025 Fax #: 972-458-2233 Aurora Bay Investments, L.L.C.
Attention: Craig w. Spaulding 5720 LBJ Freeway Suite 450, Lock Box 16 Dallas, Texas 75240 22
Phone: 972-458-0025 Fax #: 972-458-2233 Erwin Investors I, L.L.C.
Attention: Jerry Erwin 9817 N.E. 54th Street Vancouver, Washington 98662
Phone: 972-458-0025 Fax #: 972-458-2233 Erwin Investors I, L.L.C.
Attention: Jerry Erwin 9817 N.E. 54th Street Vancouver, Washington 98662 Phone: 360-254-9442 Fax #: 360-254-1770 Mr. Craig W. Spaulding 5720 LBJ Freeway Suite 450, Lock Box 16 Dallas, Texas 75240 Phone: 972-458-0025 Fax #: 972-458-2233 Mr. Jerry Erwin 9817 N.E. 54th Street Vancouver, Washington 98662 Phone: 360-254-9442 Fax #: 360-254-1770 19.2 Entire Agreement. This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understandings among them, oral or written, all of which are hereby cancelled. This Agreement may not be modified or amended other than pursuant to Section 18 hereof. 19.3 Captions: Pronouns. The paragraph and section titles or captions contained in this Agreement are inserted only as a matter of convenience of reference. Such titles and captions in no way define, limit, extend, or describe the scope of this Agreement nor the intent of any provision hereof All pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, singular or plural, as the identify of the person or persons may require. 19.4 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and that same agreement. Delivery of any executed counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of an executed original counterpart of this Agreement. 19.5 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Washington. 19.6 Expiration of Emeritus' Rights. The rights granted to Emeritus will expire and be of no further force and effect if the following conditions is satisfied: (i) Emeritus does not exercise its right to convert the Emeritus Corporation Loan into an equity interest in the Company prior to the expiration of such right under the Convertible Promissory Note, and (ii) the Managers discharge, and each of the Members discharges, in full any and all obligations it owes to Emeritus under the Credit Agreement, the Convertible Promissory Note, and any and all other documents executed in connection 23
therewith. IN WITTINESS WHEREOF the parties have executed this Agreement as of the date first hereinabove written.
therewith. IN WITTINESS WHEREOF the parties have executed this Agreement as of the date first hereinabove written. MEMBERS: Aurora Bay Investments, L.L.C., a Washington limited liability company
By: /s/ Craig W. Spaulding -----------------------------------Craig W. Spaulding, Manager /s/ Jerry Erwin ---------------------------------Jerry Erwin, Manager By:
ERWIN INVESTORS I, L.L.C., a Washington limited liability company
By: /s/ Jerry Erwin
-------------------------------
Jerry Erwin, Manager 24
EX 10.79.9 DEVELOPMENT SERVICES AGREEMENT (Lubbock, Texas) This Development Services Agreement (Lubbock, Texas) ("Agreement") is made and entered into as of the 9th day of January, 1998, by and between LUBBOCK GROUP, LTD., a Texas limited partnership (hereinafter referred to as "Owner") and SOUTH BAY PARTNERS, INC., a Texas corporation ("South Bay"). A. Owner has an interest in acquiring real property in or around the City of Lubbock, Texas (hereinafter referred to as the "Property"), to construct thereon an Alzheimer's special care facility ("ALZ") to provide room, board, and personal care services primary to the elderly afflicted with Alzheimer's disease; B. Owner wishes to employ the services of South Bay for the furnishing of services to and for the benefit of Owner in connection with the development of the Property; and C. The parties hereto desire to enter into this Agreement to evidence the respective rights and obligations of the parties with respect to the acquisition and development of the Property by the Owner. NOW, THEREFORE, for and in consideration of the premises, the mutual covenants and agreements contained
EX 10.79.9 DEVELOPMENT SERVICES AGREEMENT (Lubbock, Texas) This Development Services Agreement (Lubbock, Texas) ("Agreement") is made and entered into as of the 9th day of January, 1998, by and between LUBBOCK GROUP, LTD., a Texas limited partnership (hereinafter referred to as "Owner") and SOUTH BAY PARTNERS, INC., a Texas corporation ("South Bay"). A. Owner has an interest in acquiring real property in or around the City of Lubbock, Texas (hereinafter referred to as the "Property"), to construct thereon an Alzheimer's special care facility ("ALZ") to provide room, board, and personal care services primary to the elderly afflicted with Alzheimer's disease; B. Owner wishes to employ the services of South Bay for the furnishing of services to and for the benefit of Owner in connection with the development of the Property; and C. The parties hereto desire to enter into this Agreement to evidence the respective rights and obligations of the parties with respect to the acquisition and development of the Property by the Owner. NOW, THEREFORE, for and in consideration of the premises, the mutual covenants and agreements contained herein and Ten and No/100 Dollars ($10.00) and other good and valuable consideration received by each of the parties hereto, Owner and South Bay hereby agree as follows: 1. COMMENCEMENT DATE AND TERM. This Agreement shall become effective on the date hereof and shall continue until the ALZ has been constructed upon the Property, and the Owner accepts the completion of the final "punch list" required to be performed by the general contractor employed to construct the ALZ subject to the right of Owner to terminate this Agreement as provided herein. 2. APPOINTMENT AND ACCEPTANCE. Owner hereby appoints South Bay to act as an agent for Owner with respect to the services to be rendered hereunder, and South Bay hereby accepts such appointment subject to the terms and conditions herein set forth. 3. ADMINISTRATIVE AND MANAGEMENT SERVICES. South Bay shall provide for Owner all services with respect to the Property as set forth herein and such additional duties and responsibilities as are reasonable within the general scope of such services and responsibilities. South Bays services shall be performed on behalf of Owner and shall consist of the duties -set forth below. Subject to the provisions of paragraph 4 hereof South Bay is authorized to and shall perform the following: (a) Negotiate in the name of and on behalf of Owner, and submit to Owner for its approval and execution, (i) an agreement for the acquisition of the Property and (ii) a construction contract with a general contractor to construct and place an ALZ into operation upon the Property. (b) Negotiate in the name of and on behalf of, Owner an agreement with an Architect acceptable to Owner, to provide all architectural services in connection with the design, planning, and construction of the ALZ upon the Property, which agreement shall also include services to be performed by other professional consultants engaged and supervised by the Architect, to-wit: (1) civil engineering, (2) structural engineering, (3) food service design, (4) mechanical, electrical, and plumbing engineering, (5)
geotechnical services, (6) environmental testing, and such other consultants as South Bay and/or the Architect shall deem necessary or required, and Owner shall approve, in connection with the design, planning, and construction of the ALZ on the Property. Owner agrees to pay to Architect, monthly as invoiced by South Bay, for a11 fees and costs charged and approved by Owner for the services to be performed by the Architect and the other consultants engaged by the Architect, which amounts shall not be credited to and applied toward the Fee, as that term is hereinafter defined. Site plans, design drawings, and construction drawings and specifications
geotechnical services, (6) environmental testing, and such other consultants as South Bay and/or the Architect shall deem necessary or required, and Owner shall approve, in connection with the design, planning, and construction of the ALZ on the Property. Owner agrees to pay to Architect, monthly as invoiced by South Bay, for a11 fees and costs charged and approved by Owner for the services to be performed by the Architect and the other consultants engaged by the Architect, which amounts shall not be credited to and applied toward the Fee, as that term is hereinafter defined. Site plans, design drawings, and construction drawings and specifications prepared by or under the supervision of the Architect shall be subject to Owner's written approval. Owner shall look solely to the Architect for the content of the services performed by the Architect and the consultants engaged and/or supervised by the Architect. (c) Assist Owner in the preparation of a budget for the acquisition and development of the Property for the period from the date of this Agreement to the date of issuance of a certificate of occupancy by the applicable authority of the municipality in which the Property is situated and periodically (not less often than monthly) update the budget. (d) Provide review of construction in progress to assure conformance with site plan and construction drawings and specifications and adherence to budget and construction schedules. (e) Preparation and compilation of the general draw, including review of each draw request from the general contractor and other parties that contracted directly with Owner to perform services and/or supply materials to the project and give Owner its comments with respect to each such draw request. (f) Advise Owner concerning all insurance respecting the project, including the type and amount of insurance coverage. (g) Advise Owner concerning, and assist Owner in obtaining, all licenses and permits required to construct an ALZ upon the Property and place the same into operation. (h) Provide Owner with a monthly written report of the status of the project in such detail as Owner may reasonably request. (i) Provide Owner with other reasonable services in connection with the acquisition of the Property and construction of an ALZ thereon as may be mutually agreed to by Owner and South Bay. (j) Negotiate and execute in the name of Owner, for and on behalf of Owner, agreements for geotechnical services and environmental testing with firms (hereinafter referred to as "Engineering Firms") acceptable to South Bay and approved by Owner, to provide those services in connection with the development of an ALZ upon the Properly. Owner agrees to pay to said Engineering Firms, monthly as invoiced by South Bay, all fees and costs charged and approved by Owner for the services to be performed by the Engineering Firms, which amounts shall not be credited to and applied toward the Fee, as that term is hereinafter defined. Owner shall look solely to the Engineering Firms for the content of services performed by them. 4. LIMITATIONS AND RESTRICTIONS. Notwithstanding any other provision of this Agreement to the contrary, South Bay shall not bind or attempt to bind Owner or incur any obligation on behalf of Owner. South Bay makes no representation or warranty to Owner respecting the total cost to acquire the Property or the cost to construct and place into operation an ALZ upon the Property. 2
5. SOUTH BAYS FEE. In consideration for the services to be rendered by South Bay hereunder, Owner hereby agrees to pay South Bay a fee (the "Fee") in the amount of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00), payable as follows: on the date the agreement to acquire the Property between Owner and the owner of the Property is closed, Owner shall pay South Bay the sum of $37,500.00; on the date of completion of the improvements, Owner shall pay South Bay the sum of $37,495.00; and, the sum of $10,715.00 each month commencing on the fifteenth day of the first month after commencement of construction and a like amount due on the fifteenth day of each succeeding month until the total Fee has been paid. Any unpaid balance of the Fee remaining unpaid on the date a certificate of occupancy ("CO") is issued by the municipality in which the Property is situated shall be paid within thirty
5. SOUTH BAYS FEE. In consideration for the services to be rendered by South Bay hereunder, Owner hereby agrees to pay South Bay a fee (the "Fee") in the amount of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00), payable as follows: on the date the agreement to acquire the Property between Owner and the owner of the Property is closed, Owner shall pay South Bay the sum of $37,500.00; on the date of completion of the improvements, Owner shall pay South Bay the sum of $37,495.00; and, the sum of $10,715.00 each month commencing on the fifteenth day of the first month after commencement of construction and a like amount due on the fifteenth day of each succeeding month until the total Fee has been paid. Any unpaid balance of the Fee remaining unpaid on the date a certificate of occupancy ("CO") is issued by the municipality in which the Property is situated shall be paid within thirty (30) days following the date of the CO. Owner shall reimburse South Bay for all travel expenses and costs incurred by South Bay in the performance of its duties hereunder, monthly upon receipt of an invoice from South Bay for such costs and expenses. South Bay shall not be responsible for payment of any of Owner's acquisition, development, or operating costs, including, without limitation, those costs incurred or paid by South Bay by reason of the agreements entered into and negotiated by South Bay for the benefit of Owner. 6. DEFAULT BY OWNER. (a) In the event of default by Owner hereunder, South Bay shall give Owner written notice of default and an opportunity to cure such default as follows: (i) With respect to a monetary default, Owner shall have fifteen (15) days to cure; and (ii) With respect to a nonmonetary default, Owner shall have thirty (30) days to cure; provided, however, in the event any nonmonetary default cannot reasonably be cured within the thirty (30) day period, Owner shall not be deemed in default hereunder if Owner commences to cure said nonmonetary default within said thirty (30) day period and, thereafter, diligently causes such default to be cured. (b) The cure period shall commence upon delivery of written notice of default but not later than three (3) days after such written notice is deposited in the United States mail, certified mail, return receipt requested, or upon actual receipt by the intended recipient if hand delivered. (c) In the event the default is not timely cured, South Bay may: (i) Terminate this Agreement and/or bring suit for damages as South Bays sole and exclusive remedies hereunder. 7. DEFAULT BY SOUTH BAY. (a) In the event of default by South Bay hereunder, Owner shall give South Bay written notice of default and an opportunity to cure such default as follows: (i) With respect to a monetary default, South Bay shall have fifteen (15) days to cure; and (ii) With respect to a nonmonetary default, South Bay shall have thirty 3
(30) days to cure; provided, however, in the event any nonmonetary default cannot reasonably be cured within the thirty (30) day period, South Bay shall not be deemed in default hereunder if South Bay commences to cure said nonmonetary default within said thirty (30) day period and, thereafter, diligently causes such default to be cured. (b) The cure period shall commence upon delivery of written notice of default but not later than three (3) days after such written notice is deposited in the United States mail, certified mail, return receipt requested, or upon actual receipt by the intended recipient if hand delivered. (c) In the event the default is not timely cured, Owner may: (i) Terminate this Agreement and/or enforce specific performance of this Agreement as Owner's sole and exclusive remedies hereunder.
(30) days to cure; provided, however, in the event any nonmonetary default cannot reasonably be cured within the thirty (30) day period, South Bay shall not be deemed in default hereunder if South Bay commences to cure said nonmonetary default within said thirty (30) day period and, thereafter, diligently causes such default to be cured. (b) The cure period shall commence upon delivery of written notice of default but not later than three (3) days after such written notice is deposited in the United States mail, certified mail, return receipt requested, or upon actual receipt by the intended recipient if hand delivered. (c) In the event the default is not timely cured, Owner may: (i) Terminate this Agreement and/or enforce specific performance of this Agreement as Owner's sole and exclusive remedies hereunder. 8. TERMINATION RIGHTS. Notwithstanding anything in agreement to the contrary, if there is an event of default under that certain Credit Agreement dated as of January 7th, 1998, between Aurora Bay Investments, L.L.C. ("Aurora Bay") and Emeritus Corporation ("Emeritus"), Emeritus may, but has no obligation to, terminate this Agreement by giving written notice of such termination directly to Owner and South Bay. Such notice shall be effective upon its delivery to Owner and South Bay. Should Emeritus exercise its termination rights hereunder, Emeritus may thereafter designate a new party to provide similar development services to Owner, upon such terms and conditions as Emeritus may stipulate. This paragraph may not be amended by Owner and South Bay without Emeritus' prior written consent, as long as any amounts are due and owing from Aurora Bay to Emeritus under the Credit Agreement or any of the Loan Documents as that term is defined in the Credit Agreement. Upon termination hereof Owner or Emeritus shall pay to South Bay all amounts then due hereunder, prorated for any partial monthly fee due under paragraph 5 hereof. 9. INDEMNITY. (a) Owner hereby indemnifies, defends, and holds South Bay, its partners, shareholders, directors, officers, agents, and employees harmless of and from all loss, liability, costs, attorney fees, and expenses incurred, paid or suffered by South Bay and claims asserted against South Bay, its partners, shareholders, directors, officers, agents, and employees in connection with the acquisition of the Property and the construction of improvements thereon and/or claims arising out of the performance of South Bay's obligations and duties hereunder (except where arising out of the negligence or willful misconduct of South Bay or any of its employees, its partners, shareholders, directors, officers, agents, or employees). (b) South Bay hereby indemnifies, defends, and holds Owner, its shareholders, directors, officers, agents, and employees harmless of and from all loss, liability, costs, attorney fees, and expenses incurred, paid, or suffered by Owner and claims asserted against Owner, its shareholders, directors, agents, and employees arising out of the negligence or willful misconduct of South Bay or any of its employees or agents in the performance of South Bays obligations and duties hereunder (except where arising out of the negligence or willful misconduct of Owner or any of its employees, its shareholders, directors, agents, or employees). 10. ARBITRATION. 4
(a) Owner and South Bay agree to settle any and all disputes by binding arbitration as provided in this Section 9. In the event of any such unresolved dispute, arbitration may be instituted by either party hereto by giving written notice to the other party of its intention to arbitrate the matter(s) specified in the notice. If Owner and South Bay cannot agree (within fifteen (15) days from the service of such notice upon the other) as to the selection of such arbitrator, the arbitrator shall be designated in accordance with the Rules of the American Arbitration Association. Arbitration shall be conducted in accordance with the rules and procedures of the American Arbitration Association. The decision rendered in any arbitration proceeding hereunder shall be binding on Owner and South Bay and may be entered in any court having jurisdiction thereof. In determining any matter before them, arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. The arbitrators shall not have the power to add to, modify, or change any portion of this Agreement. (b) Owner and South Bay shall pay the fees and expenses of its own counsel and witnesses. All other fees and
(a) Owner and South Bay agree to settle any and all disputes by binding arbitration as provided in this Section 9. In the event of any such unresolved dispute, arbitration may be instituted by either party hereto by giving written notice to the other party of its intention to arbitrate the matter(s) specified in the notice. If Owner and South Bay cannot agree (within fifteen (15) days from the service of such notice upon the other) as to the selection of such arbitrator, the arbitrator shall be designated in accordance with the Rules of the American Arbitration Association. Arbitration shall be conducted in accordance with the rules and procedures of the American Arbitration Association. The decision rendered in any arbitration proceeding hereunder shall be binding on Owner and South Bay and may be entered in any court having jurisdiction thereof. In determining any matter before them, arbitrators shall apply the provisions of this Agreement without varying therefrom in any respect. The arbitrators shall not have the power to add to, modify, or change any portion of this Agreement. (b) Owner and South Bay shall pay the fees and expenses of its own counsel and witnesses. All other fees and expenses of arbitration shall be shared equally by Owner and South Bay unless the arbitrators conclude that one party has not acted in good faith, in which event they may assign fees and expenses. 11. MISCELLANEOUS. (a) All notices required or permitted hereunder shall be given in writing by actual delivery or by facsimile transmission, with a concurrent copy sent by certified U. S. mail, postage prepaid to Owner, by addressing the same to: Lubbock Group, Ltd. Attention: Jerry Erwin 9817 N. E. 54th Street Vancouver, WA 98662 Fax # 360-254-1770 to South Bay, by addressing the same to: South Bay Partners, Inc. Attention: Mr. Craig W. Spaulding 5720 LBJ Freeway Suite 450, Lock Box 16 Dallas, Texas 75240-6339 Fax # 214-458-2233 or to such other address or to such other person as may be designated by notice given from time to time during the Term hereof by one party to the other. Any notice hereunder shall be deemed given upon delivery or not later than three (3) business days after depositing with the U. S. Postal Service in the manner described above. (b) If any term or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to the persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby; and, each term and provision of this Agreement shall be valid and be 5
enforced to the fullest extent permitted by law. (c) This Agreement contains the entire agreement between the parties hereto with respect to the matters herein contained, and any agreement hereafter made shall be ineffective to effect any change or modification, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the change or modification is sought.
enforced to the fullest extent permitted by law. (c) This Agreement contains the entire agreement between the parties hereto with respect to the matters herein contained, and any agreement hereafter made shall be ineffective to effect any change or modification, in whole or in part, unless such agreement is in writing and signed by the party against whom enforcement of the change or modification is sought. (d) Neither Owner nor South Bay may assign all or part of this Agreement without the prior written approval of the party. This Agreement shall be binding upon and inure to the benefit of Owner and South Bay, as well as to their respective successors and assigns, where permitted hereby. (e) In the event of a default hereunder, if the nondefaulting party employs an attorney to enforce its rights hereunder, the defaulting party shall be liable for all reasonable attorneys' fees, court costs, and other collection expense incurred by the nondefaulting party regardless of whether a lawsuit is filed. (f) Time is of the essence of this Agreement. (g) THIS AGREEMENT HAS BEEN MADE AND EXECUTED IN, AND SHALL BE GOVERNED BY THE LAWS OF, THE STATE OF TEXAS. (h) Nothing contained herein shall be deemed to create a joint venture, partnership, or similar relationship between the parties. (i) South Bay is acting hereunder as the agent for Owner. (j) This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same agreement. 6
EXECUTED as of the date first above written. OWNER: LUBBOCK GROUP, LTD., a Texas limited partnership By: Aurora Bay I, L.L.C., a Washington limited liability company, General Partner By: Aurora Bay Investments, L.L.C., Member
By: /s/ Jerry Erwin ---------------------------------Jerry Erwin, a Manager
SOUTH BAY PARTNERS, INC., a Texas corporation
By: /s/ Craig W. Spaulding
EXECUTED as of the date first above written. OWNER: LUBBOCK GROUP, LTD., a Texas limited partnership By: Aurora Bay I, L.L.C., a Washington limited liability company, General Partner By: Aurora Bay Investments, L.L.C., Member
By: /s/ Jerry Erwin ---------------------------------Jerry Erwin, a Manager
SOUTH BAY PARTNERS, INC., a Texas corporation
By: /s/ Craig W. Spaulding
-----------------------------------------------Craig W. Spaulding, President
7
EX 21.1 SUBSIDIARIES OF EMERITUS CORPORATION Acorn Service Corporation, Washington corporation ALAI, L.L.C., Arizona corporation EMAC Corp., Delaware corporation EmeriCare, Inc., Washington corporation EmeriCare of Arizona, Inc., Washington corporation EmeriCare of Washington, Inc., Washington corporation Emeritus Canada Ltd., Toronto, Ontario Emeritus Employee Leasing, Inc., Washington corporation Emeritus Home Health, Inc., Washington corporation Emeritus Properties I, Inc., Washington corporation, Emeritus Properties II, Inc., Washington corporation Emeritus Properties III, Inc., Washington corporation Emeritus Properties IV, Inc., Washington corporation Emeritus Properties V, Inc., Washington corporation Emeritus Properties VI, Inc., Washington corporation Emeritus Properties of Illinois, Inc., Washington corporation Emeritus Real Estate L.L.C., Delaware limited liability company Emeritus Real Estate II, L.L.C., Delaware limited liability company Emeritus Real Estate IV, L.L.C., Delaware limited liability company ESC G.P. I, Inc., Washington corporation ESC G.P. II, Inc., Washington corporation ESC I, L.P., Washington limited partnership ESC II, L.P., Washington limited partnership ESC III, L.P., Washington limited partnership Cooper George Partners LTD. Partnership, Washington limited partnership Fairfield Retirement Center L.L.C., Delaware limited liability company Grand Terrace L.L.C., Delaware limited liability company Heritage Hills Retirement, Inc., North Carolina corporation Painted Post Partnership, Pennsylvania general partnership TDC/Emeritus Paso Robles Associates, Washington partnership
EX 23.1
EX 21.1 SUBSIDIARIES OF EMERITUS CORPORATION Acorn Service Corporation, Washington corporation ALAI, L.L.C., Arizona corporation EMAC Corp., Delaware corporation EmeriCare, Inc., Washington corporation EmeriCare of Arizona, Inc., Washington corporation EmeriCare of Washington, Inc., Washington corporation Emeritus Canada Ltd., Toronto, Ontario Emeritus Employee Leasing, Inc., Washington corporation Emeritus Home Health, Inc., Washington corporation Emeritus Properties I, Inc., Washington corporation, Emeritus Properties II, Inc., Washington corporation Emeritus Properties III, Inc., Washington corporation Emeritus Properties IV, Inc., Washington corporation Emeritus Properties V, Inc., Washington corporation Emeritus Properties VI, Inc., Washington corporation Emeritus Properties of Illinois, Inc., Washington corporation Emeritus Real Estate L.L.C., Delaware limited liability company Emeritus Real Estate II, L.L.C., Delaware limited liability company Emeritus Real Estate IV, L.L.C., Delaware limited liability company ESC G.P. I, Inc., Washington corporation ESC G.P. II, Inc., Washington corporation ESC I, L.P., Washington limited partnership ESC II, L.P., Washington limited partnership ESC III, L.P., Washington limited partnership Cooper George Partners LTD. Partnership, Washington limited partnership Fairfield Retirement Center L.L.C., Delaware limited liability company Grand Terrace L.L.C., Delaware limited liability company Heritage Hills Retirement, Inc., North Carolina corporation Painted Post Partnership, Pennsylvania general partnership TDC/Emeritus Paso Robles Associates, Washington partnership
EX 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Emeritus Corporation We consent to incorporation by reference in the registration statements (No. 333-05965) on Form S-8 and (No. 333-20805) on Form S-3 of Emeritus Corporation of our report dated February 27, 1998, except for note 10 as to which the date is March 13, 1998, relating to the consolidated balance sheets of Emeritus Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders equity (deficit), and cash flows and the related schedule for each of the years in the three year period ended December 31, 1997, which reports appears in the December 31, 1997, annual report on Form 10-K of Emeritus Corporation.
/s/ KPMG Peat Marwick, LLP Seattle, Washington March 27, 1998
ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES F-4 AND F-5 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000
PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES
YEAR DEC 31 1997 JAN 01 1997 DEC 31 1997 17,537 17,235 2,539
EX 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Emeritus Corporation We consent to incorporation by reference in the registration statements (No. 333-05965) on Form S-8 and (No. 333-20805) on Form S-3 of Emeritus Corporation of our report dated February 27, 1998, except for note 10 as to which the date is March 13, 1998, relating to the consolidated balance sheets of Emeritus Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders equity (deficit), and cash flows and the related schedule for each of the years in the three year period ended December 31, 1997, which reports appears in the December 31, 1997, annual report on Form 10-K of Emeritus Corporation.
/s/ KPMG Peat Marwick, LLP Seattle, Washington March 27, 1998
ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES F-4 AND F-5 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000
PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED
YEAR DEC 31 1997 JAN 01 1997 DEC 31 1997 17,537 17,235 2,539 (348) 369 50,793 153,532 (7,701) 228,573 38,719 162,097 25,000 0 1 1,206 228,573 0 117,772 0 139,323 (610) 0 8,427 (28,636) 0 (28,636) 0 0 0 (28,636) (2.60) (2.60)
ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES F-4 AND F-5 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. MULTIPLIER: 1,000
PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS PRIMARY EPS DILUTED
YEAR DEC 31 1997 JAN 01 1997 DEC 31 1997 17,537 17,235 2,539 (348) 369 50,793 153,532 (7,701) 228,573 38,719 162,097 25,000 0 1 1,206 228,573 0 117,772 0 139,323 (610) 0 8,427 (28,636) 0 (28,636) 0 0 0 (28,636) (2.60) (2.60)