Letter Agreement Amending Loan Agreement for $25,000,000 Assumption by Emeritus Properties XVI, Inc.

Summary

This agreement, dated December 31, 2003, involves Emeritus Properties XVI, Inc. assuming a $25 million loan originally made by GMAC Commercial Mortgage Corporation to ALS Financing, Inc., now held by LaSalle Bank National Association as trustee. The agreement amends the original loan terms, updates borrower and guarantor information, modifies facility names and addresses, and clarifies operational and insurance requirements for five assisted living facilities in California, Kansas, and Colorado. Emeritus Corporation acts as guarantor, and the agreement sets out the revised obligations and conditions for the new borrower.

EX-10.77.2 4 exhibit10772.txt Emeritus Properties XVI, Inc. Emeritus Corporation December 31, 2003 Page 10 LETTER AGREEMENT REGARDING LOAN AGREEMENT ----------------------------------------- December 31, 2003 Emeritus Properties XVI, Inc. 3131 Elliott Avenue Suite 500 Seattle, Washington 98121 Emeritus Corporation 3131 Elliott Avenue Suite 500 Seattle, Washington 98121 RE: ASSUMPTION BY EMERITUS PROPERTIES XVI, INC., A NEVADA CORPORATION ("NEW BORROWER"), OF $25,000,000 LOAN (THE "LOAN") ORIGINALLY MADE BY GMAC ------------- ---- COMMERCIAL MORTGAGE CORPORATION, A CALIFORNIA CORPORATION ("ORIGINAL LENDER"), --- --------------- TO ALS FINANCING, INC., A KANSAS CORPORATION ("EXISTING BORROWER"), PURSUANT TO ----------------- THAT CERTAIN LOAN AGREEMENT, DATED AS OF JUNE 30, 1998, BY AND BETWEEN ORIGINAL LENDER AND EXISTING BORROWER (THE "LOAN AGREEMENT"), WHICH LOAN IS EVIDENCED BY -------------- THAT CERTAIN PROMISSORY NOTE, DATED JULY 30, 1998, AND MADE BY EXISTING BORROWER PAYABLE TO THE ORDER OF ORIGINAL LENDER IN THE STATED PRINCIPAL AMOUNT OF $25,000,000.00 (THE "NOTE"), IS SECURED BY CERTAIN SECURITY INSTRUMENTS ---- (COLLECTIVELY, THE "SECURITY INSTRUMENTS"; AND THE LOAN AGREEMENT, THE NOTE, AND -------------------- THE SECURITY INSTRUMENTS, TOGETHER WITH ANY AND ALL OTHER INSTRUMENTS AND DOCUMENTS EVIDENCING, SECURING, OR OTHERWISE PERTAINING TO THE LOAN ARE HEREINAFTER REFERRED TO COLLECTIVELY AS THE "LOAN DOCUMENTS") ENCUMBERING FIVE -------------- ASSISTED LIVING FACILITIES LOCATED IN KANSAS, COLORADO, AND CALIFORNIA (COLLECTIVELY, THE "PROJECTS"),The Palms at Loma Linda Facility"); (2) the -------- ------------------------------------ facility located in San Diego, California ("The Springs at Oceanside Facility"); --------------------------------- (3) the facility located in Butler County, Kansas ("The Fairways at Augusta ----------------------- Facility"); (4) the facility located in Seward County, Kansas (the "Liberal ---- ------- Springs Facility"); and (5) the facility located in El Paso County, Colorado ------------- (the "Loyalton at Broadmoor Facility"). AND IS NOW OWNED AND HELD BY LASALLE --------------------------------- BANK NATIONAL ASSOCIATION, FORMERLY KNOWN AS LASALLE NATIONAL BANK, AS TRUSTEE FOR GMAC COMMERCIAL MORTGAGE SECURITIES, INC., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2 ("LENDER") ------ Ladies and Gentlemen: Pursuant to the provisions of Section 2(b) of that certain Loan Assumption Agreement, dated as of even date herewith, by and among Lender, Existing Borrower, New Borrower, Alterra Healthcare Corporation, a Delaware corporation ("Alterra"), and Emeritus Corporation, a Washington corporation ("Guarantor"; ------- --------- and said Loan Assumption Agreement is hereinafter referred to as the "Assumption ---------- Agreement"), this letter agreement (this "Agreement") sets forth the covenants - --------- --------- and agreements of Lender, New Borrower, and Guarantor with respect to the following modifications of the Loan Agreement: 1. Section 1.1 of the Loan Agreement is hereby amended: (a) by deleting the definition of "Commitment Letter". (b) by deleting the definition of "Guarantor" and inserting the following in lieu thereof: "Guarantor" means Emeritus Corporation, a Washington corporation. (c) by deleting the definition of "Guaranty Agreement" and inserting the following in lieu thereof: "Guaranty Agreement" means that certain Unconditional Guaranty of Payment and Performance, effective as of January 1, 2004, from Guarantor to Lender." (d) by deleting the following defined terms therefrom: "Lease Agreement," "Lessee," and "Lessee's Security Agreement," "Sterling House" and "Subordination Agreement." 2. Section 3.1 of the Loan Agreement is revised to delete the word "Kansas" and replace it with "Nevada." 3. Section 3.7 of the Loan Agreement is hereby amended by (a) adding in the seventh from the last line of the last paragraph thereof after the words "foreclosure or otherwise," the words "under currently existing and applicable laws"; and (b) by deleting Subsections 3.7(a) through (e), inclusive, and substituting in lieu thereof the following: (a) with respect to the Loma Linda Facility, as a 140 unit residential care facility for the elderly under the applicable laws of the State of California, currently operated as a residential care facility for the elderly; (b) with respect to the Oceanside Facility as a 113 unit residential care facility for the elderly under the applicable laws of the State of California, currently operated as a residential care facility for the elderly; (c) with respect to the Augusta Facility as a 21 unit assisted living facility under the applicable laws of the State of Kansas, currently operated as an assisted living facility; (d) with respect to the Liberal Facility, as a 44 unit assisted living facility under the applicable laws of the State of Kansas, currently operated as an assisted living facility; and (e) with respect to the Colorado Springs Facility, as a 37 unit assisted living residence under the applicable laws of the State of Colorado, is currently operated as an assisted living residence. 4. It is acknowledged that the representation set forth in Section 3.9 of the Loan Agreement as assumed by New Borrower is acknowledged to be made by New Borrower only as of the date of the Assumption Agreement. 5. Exhibit B of the Loan Agreement as referenced in Section 3.17 of the Loan --------- Agreement is revised to reflect the following principal place of business and address, and to delete the reference to the addresses of the chief executive officers: Emeritus Properties, XVI, Inc. 3131 Elliott Avenue Suite 500 Seattle, Washington 98121 6. Section 3.19 of the Loan Agreement and Exhibit B as referenced therein --------- are revised to reflect the new names under which New Borrower intends to operate the Facilities as follows: (a) "The Palms at Loma Linda" in lieu of "Crossings at the Palms"; (b) "The Springs at Oceanside" in lieu of "Lake Park Villas"; (c) "The Fairways of Augusta" in lieu of "Sterling House of Augusta"; (d) "Loyalton of Broadmoor" in lieu of "Sterling House of Broadmoor"; (e) "Liberal Springs" in lieu of "Woodland Terrace"; 7. Section 3.21 of the Loan Agreement and Exhibit C as referenced therein --------- are revised to reflect that Borrower is 100% owned by Emeritus Corporation, a Washington Corporation. 8. Section 3.24 of the Loan Agreement is hereby amended as follows: (a) Section 3.24(b) of the Loan Agreement is hereby deleted in its entirety and the following inserted in lieu thereof: "(b) indebtedness which represents trade payables or accrued expenses incurred in the ordinary course of business of owning and operating the Property, which shall be understood to include, without limitation, equipment leasing and leasing and financing costs relating to office equipment, vehicles and telephone systems." (b) Section 3.24(c) is hereby amended by inserting the word "other" before the word "indebtedness" at the beginning thereof. 9. (a) Section 3.27 of the Loan Agreement is hereby deleted and replaced with the following: 3.27 Intentionally Deleted. (b) Section 3.29 of the Loan Agreement is hereby deleted. 10. Lender hereby approves the insurance policies and coverage as maintained by New Borrower as described in Exhibit A attached hereto for purposes of --------- compliance with Section 4.5 of the Loan Agreement for calendar year 2004. 11. Section 4.13 of the Loan Agreement is hereby amended by deleting the word "and" from the end of subsection 4.13(a)(i), by deleting the period at the end of subsection 4.13(a)(ii) and inserting ";and" in lieu thereof and by adding a new subsection 4.13(a)(iii) as follows: (iii) provided, however, that the foregoing debt-service coverage requirements set forth in this Section 4.13(a)(i) and (ii) applicable to the Facility identified in Schedule I hereto as the "Oceanside Facility" shall be waived during the period beginning on January 1, 2004, and ending on December 31, 2005, and that the foregoing debt-service coverage requirements set forth in this Section 4.13(a) applicable to the Facilities identified in Schedule I hereto as the "Loma Linda Facility," the "Augusta Facility," the "Liberal Facility," and the "Colorado Springs Facility" shall be waived during the period beginning on January 1, 2004, and ending on June 30, 2005. For purposes of calculating the debt service coverage ratio in accordance with the foregoing, for the period beginning on July 1, 2005 and ending on December 31, 2005, the Debt Service Coverage for the Facility shall be calculated (a) for purposes of the first number referred to in the definition of Debt Service Coverage for the Facility by excluding the income earned from the Oceanside Facility and (b) for purposes of the second number referred to in the definition of Debt Service Coverage for the Facility by including only fifty-four percent (54.0%) of the actual principal amounts due (even if not paid) under the Loan for the applicable period plus fifty-four (54.0%) of the interest expense on the Loan for the applicable period. 12. Section 4.14 of the Loan Agreement is hereby amended by deleting the period at the end of said Section 4.14 and by adding the following new additional proviso at the end of said Section 4.14: ; and provided further that the foregoing occupancy requirements set forth in this Section 4.14 applicable to the Facility identified in Schedule I hereto as the "Oceanside Facility" shall be waived during the period beginning on January 1, 2004, and ending on December 31, 2005, and that the foregoing occupancy requirements set forth in this Section 4.14 applicable to the Facilities identified in Schedule I hereto as the "Loma Linda Facility," the "Augusta Facility," the "Liberal Facility," and the "Colorado Springs Facility" shall be waived during the period beginning on January 1, 2004, and ending on June 30, 2005. 13. Section 4.15 of the Loan Agreement is hereby amended by inserting "(a)" before the existing provisions thereof and adding the following new sentences as a new subsection (b) thereto: (b) Lender acknowledges and agrees that Borrower has delivered to Lender a one-year capital expenditure budget (which is in form and substance satisfactory to Lender) with respect to the anticipated capital expenditures relating to the operation of each of the Facilities during the period beginning on January 1, 2004, and continuing through December 31, 2004 (the "Capital Expenditure Budget"). Borrower shall not be required to fund the amounts set forth in the Capital Expenditure Budget in advance, but Borrower shall establish and maintain throughout calendar year 2004 a designated capital repair and reserve account for each of the Facilities (the "Capital Repair and Reserve Account"). Each Capital Repair and Reserve Account shall be funded on a monthly basis from net cash flow generated from the Facility to which it applies after payment in full of (a) all normal operating expenses for each such Facility, (b) all debt service payments as required by Section 2.1 of the Note, and (c) all other payments required by the Loan Documents. Borrower shall have implemented and completed the full extent of the capital improvements to each respective Facility set forth in the Capital Expenditure Budget by no later than December 31, 2004. Any amounts expended by Borrower as required in calendar year 2004 pursuant to this Section 4.15(b) shall be applied against Borrower's annual minimum capital expenditure obligation set forth in Section 4.15(a) for calendar year 2004, but for calendar year 2004 only and not any subsequent years. Any failure on the part of Borrower fully to comply with the requirements set forth in this Section 4.15(b) which is not cured within thirty (30) days after written notice from Lender setting forth in reasonable detail the nature of such failure to comply shall constitute an Event of Default. Such implementation by Borrower shall be reviewed through inspections by an outside construction consultant conducted on behalf of Lender at Borrower's expense during the calendar year 2004 in accordance with the provisions of Section 4.15(a). 14. Section 4.20 of the Loan Agreement is hereby deleted and replaced with the following: 4.20 Intentionally Deleted. 15. The following words are deleted from the following referenced Sections in the Loan Agreement and replaced with the words indicated below: (a) The words ", or cause the Lessee to conduct," are deleted from the first two lines of Section 4.11; (b) The words "or cause Lessee to furnish" are deleted from the first line of Section 4.12; (c) The words "and cause the Lessee to maintain" are deleted from the first two lines of Section 4.15; (d) The words ", and cause the Lessee to comply" are deleted from the first two lines of Section 4.18; and (e) The words "and cause the Lessee to pay" are deleted from the third line of Section 4.19. 16. (a) Section 5.4 (n) of the Loan Agreement is hereby revised to insert therein after the word "returns" the words "unless Borrower files a consolidated return with its Affiliates". (b) Section 5.4(l) of the Loan Agreement is hereby amended by inserting at the end of such section after the word "applicable" the following: "; and to the extent Borrower and any of its Affiliates employ a "sweep" arrangement with respect to Borrower's bank accounts, the interest of Borrower in the swept funds will be shown on the Affiliate's financial statements if such statements include the swept funds." 17. Section 5.10 of the Loan Agreement is hereby amended by inserting the following in the first line thereof after the word "Facility": "(other than the addition of memory loss units which shall be permissible)". 18. Lender acknowledges and agrees that (a) the representations and warranties relating to environmental matters set forth in Article VI of the Loan Agreement as assumed by New Borrower shall be understood not to be made by New Borrower and (b) the indemnity and hold harmless agreement by New Borrower in favor of Lender in Section 6.10 of the Loan Agreement shall be deemed and understood to be applicable only to any event or circumstance first occurring after the date of the Assumption Agreement, and excluding any event or circumstance occurring during the period of ownership of the Projects by Existing Borrower and possession of the Projects by Alterra or otherwise caused by Existing Borrower or Alterra during such period. 19. Section 4.24 of the Loan Agreement is hereby amended by deleting the heading and text of said section and by substituting in lieu thereof the following: 4.24 Intentionally Omitted 20. Section 7.1 of the Loan Agreement is hereby amended by deleting subsection 7.1(n) and replacing it with the following: n. Any failure on the part of Borrower fully to comply with the requirements regarding the timing of Borrower's implementation and completion of improvements to the Facilities as set forth in the Capital Expenditure Budget as set forth in Section 4.15 hereof. 21. The addresses for "Borrower" and "Lender" set forth in Section 8.7 of the Loan Agreement are hereby deleted and replaced with the following: If to Lender: LaSalle Bank National Association, formerly known as LaSalle National Bank, as trustee for GMAC Commercial Mortgage Pass-Through Certificates, Series 1998-C2 c/o GMAC Commercial Mortgage Corporation 650 Dresher Road P.O. Box 1015 Horsham, Pennsylvania 19044-8015 Attn: Servicing Department with a copy to: Patrick M. McGeehan, Esq. McKenna Long & Aldridge LLP 303 Peachtree Street, Suite 5300 Atlanta, Georgia 30308 Facsimile: (404) 527-4198 If to Borrower: Emeritus Properties XVI, Inc. 3131 Elliott Avenue, Suite 500 Seattle, Washington 98121 Attn: Raymond R. Brandstrom Facsimile: (206) 301-4500 with a copy to: Randi S. Nathanson, Esq. The Nathanson Group PLLC 1520 Fourth Avenue, Sixth Floor Seattle, Washington 98101 Facsimile: (206) 623-1738 22. Schedule I of the Loan Agreement is hereby deleted in its entirety and replaced with the following: SCHEDULE I "FACILITY" means the following: (a) the facility known as "The Palms at Loma Linda", presently a 140 unit residential care facility for the elderly, and located at 25585 Van Leuven, in Loma Linda, California 92354, as it may now or hereafter exist, together with any other general and specialized care facilities, if any (including any Alzheimer's care unit, subacute, and nursing home facility), now or hereafter operated on the Property (the "Loma Linda Facility"); (b) the facility known as "The Springs at Oceanside", presently a 113 unit residential care facility for the elderly located at 3524 Lake Boulevard, in Oceanside, California 92056, as it may now or hereafter exist, together with any other general or specialized care facilities, if any (including any Alzheimer's care unit, subacute, and nursing home facility), now or hereafter operated on the Property (the "Oceanside Facility"); (c) the facility known as "The Fairways at Augusta", presently a 21 unit assisted living facility located at 1611 Fairway Drive, in Augusta, Kansas 67010, as it may now or hereafter exist, together with any other general or specialized care facilities, if any (including any Alzheimer's care unit, subacute, and any nursing home facility), now or hereafter operated on the Property (the "Augusta Facility"); (d) the facility known as "Liberal Springs", presently a 44 unit assisted living facility located at 1500 N. Terrace, in Liberal, Kansas 67901, as it may now or hereafter exist, together with any other general or specialized care facilities, if any (including any Alzheimer's care unit, subacute, and any nursing home facility), now or hereafter operated on the Property (the "Liberal Facility"); and (e) the facility known as "Loyalton at Broadmoor", presently a 37 unit assisted living residence located at 615 Southpointe Court, in Colorado Springs, Colorado 80906, as it may now or hereafter exist, together with any other general or specialized care facilities, if any (including any Alzheimer's care unit, subacute, and any nursing home facility), now or hereafter operated on the Property (the "Colorado Springs Facility"). 23. The general miscellaneous provisions of the Assumption Agreement set forth in Section 15, Sections 18 through 25 and Section 28 of the Assumption Agreement are hereby incorporated by reference into this letter agreement as if fully set forth herein. 24. Kansas Notice. The following provision is included in this Agreement -------------- for purposes of compliance with Sections 16-117 and 16-118 of the Kansas Statutes Annotated: NOTICE TO DEBTOR. THIS AGREEMENT IS THE FINAL EXPRESSION OF THE AGREEMENT - ------------------ BETWEEN THE PARTIES. IT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL - ----- CREDIT AGREEMENT OR OF A CONTEMPORANEOUS ORAL CREDIT AGREEMENT AMONG THE PARTIES HERETO. ANY NONSTANDARD TERMS OR PREVIOUS ORAL CREDIT AGREEMENTS BETWEEN THE PARTIES MUST BE INSERTED HERE TO BE ENFORCEABLE: NONE. THE PARTIES AFFIRM BY THEIR INITIALS BELOW THAT NO UNWRITTEN, ORAL CREDIT AGREEMENT EXISTS BETWEEN THEM: GMAC COMMERCIAL MORTGAGE CORPORATION, AS ATTORNEY-IN- FACT FOR LASALLE BANK NATIONAL ASSOCIATION, FORMERLY KNOWN AS LASALLE NATIONAL BANK, AS TRUSTEE FOR GMAC COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2 EMERITUS PROPERTIES XVI, INC. EMERITUS CORPORATION [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] LENDER: - ------ LASALLE BANK NATIONAL ASSOCIATION, FORMERLY KNOWN AS LASALLE NATIONAL BANK, AS TRUSTEE FOR GMAC COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-C2 By: GMAC Commercial Mortgage Corporation, Special Servicer and Attorney-In-Fact By: /s/ David J. Stoller Name: David J. Stoller Title: Vice President Accepted, agreed, and consented to as of the 31st day of December, 2003. NEW BORROWER: - ------------- EMERITUS PROPERTIES XVI, INC., a Nevada corporation By: /s/ William M. Shorten Name: William M. Shorten Title: Director of Real Estate Finance GUARANTOR: - --------- EMERITUS CORPORATION, a Washington corporation By: /s/ Daniel R. Baty Name: Daniel R. Baty Title: President EXHIBIT "A" - 1 ATLANTA ###-###-####.4 EXHIBIT A --------- CURRENT POLICY S&P RATING PROFESSIONAL LIABILITY/GENERAL LIABILITY NATIONAL OLYMPIC INSURANCE COMPANY Provider Name N/R $4,000,000 per occurrence Per Incident/Aggregate Limits Claims Made $4,000,000 aggregate --------------------- $1,000,000 per occurrence $1,600,000 aggregate SELF-INSURED RETENTION (Coverage for ALL properties under blanket policy. Not per location coverage) PROPERTY INSURANCE - $100,000,000 LIMIT Primary LEXINGTON INSURANCE CO. AAA $25,000,000 per occurrence (bldg., contents, flood/earthquake, business interruption, & extra expense) 1st Excess Coverage ACE INSURANCE CO. $25,000,000 x $25,000,000 per occurrence LANDMARK INSURANCE 2nd Excess $50,000,000 x $50,000,000 per occurrence - ----------- -------------------------------------------- Also includes: Earthquake $100,000,000 primary/excess coverage (except Calif, Hawaii, Alaska) 5% TIV/$100,000 deductible in Calif, Hawaii, Alaska; $100,000 for all other states Flood: $100,000,000 flood coverage with 5% TIV/$1,000,000 in Flood Zones A, 5% TIV/$100,000 in any other; 3% TIV/$100,000 for wind all locations Business Interruption/Extra Expense-extended period of indemnity Builder's Risk - $5,000,000 - 90 days Sub-Limits (Coverage is for ALL Emeritus properties, NOT per location - ---------- ----------------------------------------------------------------- coverage.) - ---------- LEXINGTON INSURANCE CO AAA $25,000,000 per occurrence/aggregate ACE INSURANCE CO. $25,000,000 x $25,000,000 per occurrence/aggregate TERRORISM INSURANCE - $50,000,000 LIMITS Included in Property Insurance primary and 1st Excess layer of coverage. Providers Name Coverage (Coverage is for ALL Emeritus properties, NOT per location - -------- ------------------------------------------------------------------ coverage.) - ---------- CLARENDON GROUP EXCESS EARTHQUAKE COVERAGE - California, Hawaii, Alaska Only $20,000,000 excess $5,000,000 in primary (Lexington Insurance) ($25,000,000 TOTAL LIMIT) - --------------------------- LEXINGTON INSURANCE CO AAA $25,000,000 primary layer BOILER & MACHINERY INSURANCE HARTFORD STEAM BOILER N/R Provider Name $25,000,000 excess layer Coverage $50,000 per occurrence deductible Deductible Projects are comprised of the following facilities: (1) the facility located in San Bernardino County, California ("