-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N4PsmfvzbSkmS+So0LEI/24FxUbxTqmL/uSxCcxssqAQt8Rse3VkKnUnQX7u9v/D bG09R1Zs6yafx/SMTRpysQ== 0001095811-01-002000.txt : 20010409 0001095811-01-002000.hdr.sgml : 20010409 ACCESSION NUMBER: 0001095811-01-002000 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RETIREMENT VILLAS PROPERTIES II CENTRAL INDEX KEY: 0000830156 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330278155 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-20413 FILM NUMBER: 1589206 BUSINESS ADDRESS: STREET 1: 245 FISCHER AVE STE D1 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7147517400 MAIL ADDRESS: STREET 2: 245 FISCHER AVE STE D1 CITY: COSTA MESA STATE: CA ZIP: 92626 10-K405 1 a71045e10-k405.txt FORM 10-K405 FISCAL YEAR ENDED DECEMBER 31, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER: 0-26468 ---------------- AMERICAN RETIREMENT VILLAS PROPERTIES II A CALIFORNIA LIMITED PARTNERSHIP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 33-0278155 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.) OR ORGANIZATION)
245 FISCHER AVENUE, SUITE D-1 92626 COSTA MESA, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
---------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF CLASS UNITS OF LIMITED PARTNERSHIP ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [X] No [ ] The aggregate market value of the voting units held by non-affiliates of registrant, computed by reference to the price at which units were sold, was $16,696,569 (for purposes of calculating the preceding amount only, all directors, executive officers and unitholders holding 5% or greater of the registrant's units are assumed to be affiliates). The number of Units outstanding as of March 17, 2001 was 35,020. ================================================================================ 2 AMERICAN RETIREMENT VILLAS PROPERTIES II A CALIFORNIA LIMITED PARTNERSHIP INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PAGE ---- PART I Item 1: Business................................................................... 3 Item 2: Properties................................................................ 8 Item 3: Legal Proceedings......................................................... 9 Item 4: Submission of Matters to a Vote of Unit Holders........................... 9 PART II Item 5: Market for Our Common Equity and Related Unit Holder Matters............................................... 10 Item 6: Selected Financial Data................................................... 10 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 10 Item 7a: Quantitative and Qualitative Disclosures About Market Risk................ 13 Item 8: Financial Statements and Supplementary Data............................... 14 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 14 PART III Item 10: Our Directors and Executive Officers...................................... 15 Item 11: Executive Compensation.................................................. 16 Item 12: Security Ownership of Certain Beneficial Owners and Management............................................................ 17 Item 13: Certain Relationships and Related Transactions............................ 17 PART IV Item 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................... 18
2 3 PART I ITEM 1. BUSINESS OVERVIEW American Retirement Villas Properties II ("ARVP II") operates ten assisted living communities ("ALCs") in the state of California, nine of which we own and one of which we lease. On March 2, 1999, we obtained financing for the purchase of and, through a wholly owned subsidiary, purchased four previously leased ALCs for approximately $14.3 million. In our ALCs we house and provide personal care and support services to senior residents in facilities containing an aggregate of 923 units. For the twelve months ended December 31, 2000 and 1999, ARVP II's ALCs had a total average occupancy of approximately 89%. ARVP II was founded in February 1988 as a California limited partnership to develop, finance, acquire, and operate senior housing, inclusive of ALCs. The general partner of ARVP II as of December 31, 2000 is ARV Assisted Living, Inc., ("ARVAL" or "General Partner"), which serves as Managing General Partner, Gary L. Davidson, John A. Booty, John S. Jason, and Tony Rota (collectively known as the "Special Limited Partners"). As of March 2001, Messrs. Davidson, Booty, Jason and Rota became limited partners of ARVPII. On May 16, 1996, ARVAL tendered for the limited partnership units in ARVP II, at a net cash price of $720 per unit. Prior to the tender offer ARVAL owned 110 units. At the close of the tender offer on June 21, 1996, holders of approximately 15,524 units tendered their units representing approximately 44% of all outstanding units. On July 26, 1996, ARVAL initiated a second tender offer to purchase up to 3,715 additional limited partnership units at a net cash price of $720 per unit less second quarter distributions. At the close of the second tender offer on August 23, 1996, holders of approximately 2,164 units tendered their units representing approximately 6.2% of all units. During 1997, ARVAL acquired 525 additional limited partnership units at a net cash price of approximately $720 per unit. As of December 31, 2000, ARVAL owns 18,323 units or approximately 52.3% of the limited partnership units. As such, ARVAL has a controlling interest in the Partnership. THE ASSISTED LIVING MARKET Assisted Living. Assisted living is a stage in the elder care continuum, midway between home-based care for lower acuity residents and the more acute level of care provided by skilled nursing facilities and acute care hospitals. Assisted living represents a combination of housing, personalized support services, and health care designed to respond to the individual needs of the senior population who need help in activities of daily living, but do not need the medical care provided in a skilled nursing facility. We believe our assisted living business benefits from significant trends affecting the long-term care industry. The first is an increase in the demand for elder care resulting from the continued aging of the U.S. population, with the average age of our residents falling within the fastest growing segment of the U.S. population. While increasing numbers of Americans are living longer and healthier lives, many gradually require increasing assistance with activities of daily living, and are not able to continue to age in place at home. The second trend is the effort to contain health care costs by the government, private insurers and managed care organizations by limiting lengths of stay, services, and reimbursement to patients in acute care hospitals and skilled nursing facilities. Assisted living offers a cost-effective, long-term care alternative while preserving a more independent lifestyle for seniors who do not need the broader array of medical services that acute care hospitals and skilled nursing facilities are required to provide. Other trends include increases in the financial net worth of the elderly population, the number of individuals living alone, and the number of women who work outside the home who are less able to care for their elderly relatives. We believe these trends will result in a growing demand for assisted living services and communities to fill the gap between aging at home and aging in more expensive skilled nursing facilities. Aging Population. The primary consumers of long-term health care services are persons over the age of 65. This group represents one of the fastest growing segments of the population. According to U.S. Bureau of the Census data, the segment of the population over 65 years of age is currently 13% of the total population, or 35 million people. That number is projected to grow to 20% of the total population, or 70 million people, by the year 2030. Additionally, the number of people aged 85 and older, which comprises the largest percentage of residents at long-term care facilities, is currently 4.4 million and is projected to increase to 8.9 million by the year 2030. 3 4 We believe that growth in the assisted living industry is being driven by several factors. Advances in the medical and nutrition fields have increased life expectancy, resulting in larger numbers of elderly people. Greater numbers of women in the labor force have reduced the supply of caregivers. Historically, unpaid women (mostly daughters or daughters-in-law) represented a large portion of the caregivers for the non-institutionalized elderly. The population of individuals living alone has increased significantly since 1960, largely as a result of an aging population in which women outlive men by an average of 6.8 years, rising divorce rates, and an increase in the number of unmarried individuals. Limitation on the Supply of Long-Term Care Facilities. The majority of states in the U.S. have enacted Certificate of Need or similar legislation, which generally limits the construction of skilled nursing facilities and the addition of beds or services in existing skilled nursing facilities. High construction costs, limitations on government reimbursement for the full cost of construction, and start-up expenses also constrain growth in the supply of such facilities. Such legislation benefits the assisted living industry by limiting the supply of skilled nursing beds for the elderly. Cost factors are placing pressure on skilled nursing facilities to shift their focus toward higher acuity care, which enables them to charge more. This contributes to a shortage of lower acuity care, increasing the pool of potential assisted living residents. While Certificates of Need generally are not required for ALCs, except in a few states, most states do require assisted living providers to license their communities and comply with various regulations regarding building requirements and operating procedures and regulations. States typically impose additional requirements on ALCs over and above the standard congregate care requirements. Further, the limited pool of experienced assisted living staff and management, as well as the costs and start-up expenses to construct an ALC, provide an additional barrier to entry into the assisted living business. Cost Containment Pressures of Health Reform. In response to rapidly rising health care costs, both government and private pay sources have adopted cost containment measures that encourage reduced lengths of stay in hospitals and skilled nursing facilities. The federal government has acted to curtail increases in health care costs under Medicare by limiting acute care hospital and skilled nursing facility reimbursement to pre-established fixed amounts. Private insurers have also begun to limit reimbursement for medical services in general to predetermined "reasonable" charges. Managed care organizations, such as health maintenance organizations ("HMOs") and preferred provider organizations ("PPOs") are reducing hospitalization costs by negotiating discounted rates for hospital services and by monitoring and decreasing hospitalization. We anticipate that both HMOs and PPOs increasingly may direct patients away from higher cost nursing care facilities into less expensive ALCs. These cost containment measures have produced a "push-down" effect. As the number of patients being "pushed down" from acute care hospitals to skilled nursing facilities increases, the demand for residential options such as ALCs to serve patients who historically have been served by skilled nursing facilities will also increase. In addition, skilled nursing facility operators are continuing to focus on improving occupancy and expanding services (and fees) to subacute patients requiring very high levels of nursing care. As the acuity level of skilled nursing facility patients rises, the supply of nursing facility beds will be filled by patients with higher acuity needs who pay higher fees. This will provide opportunities for assisted living communities to increase their occupancy and services to residents requiring lower levels of care than patients in skilled nursing facilities generally receive. OUR ASSISTED LIVING SERVICES We provide services and care that are designed to meet the individual needs of our residents. The services provided are designed to enhance both the physical and mental wellbeing of seniors in each of our ALCs by promoting their independence and dignity in a home-like setting. Our assisted living program includes the following: - - Personalized Care Plan. The focus of our strategy is to meet the specific needs of each resident. We customize our services beginning with the admissions process when the ALC's management staff, the resident, the resident's family, and the resident's physician discuss the resident's needs and develop a "personalized" care plan. If recommended by the resident's physician, additional health care or medical services may be provided at the community by a third party home health care agency or other medical provider. The care plan is reviewed and modified on a regular basis. 4 5 - - Basic Service and Care Package. The basic service and care package at our ALCs generally includes: - meals in a communal, "home-like" setting; - housekeeping; - linen and laundry service; - social and recreational programs; - utilities; and - transportation in a van or minibus. Other care services can be provided under the basic package based upon the individual's personalized health care plan. Our policy is to charge base rents that are competitive with similar ALCs in the local market. - - Additional Services. Our assisted living services program offers additional levels of care beyond what is offered in the basic package. The level of care a resident receives is determined through an assessment of a resident's physical and mental health which is conducted by the community's assisted living director, with input from other staff members. The six-tiered rate structure is based on a point system. We assign points to the various care tasks required by the resident, based on the amount of staff time and expertise needed to accomplish the tasks. The point scale and pricing are part of the admissions agreement between the community, the resident and the resident's family. The community performs reassessments after the initial 30 days and periodically throughout the resident's stay to ensure that the level of care we provide corresponds to changes in a resident's condition. The types of services included in the assessment point calculation are: - Medication management; - Assistance with dressing and grooming; - Assistance with showering; - Assistance with continence; - Escort services; - Status checks related to a recent hospitalization, illness, history of falls; - Help with psychosocial needs, such as memory deficit; - Special nutritional needs and assistance with eating. In addition to the above services, we provide other levels of assistance to residents at selected ALCs in order to meet individual needs, such as assistance with diabetic care and monitoring, catheter, colostomy and ileosotomy care, minor wound care needs and light to moderate transferring needs. Specially trained staff provide personalized care and specialized activity programs and medical directors oversee the medication regimens. In addition to the base rent, we typically charge between $375 and $1,700 per month plus an additional charge for higher levels of assisted living services. Fee levels vary from community to community and we may charge additional fees for other specialized assisted living services. We expect that an increasing number of residents will use additional levels of services as they age in our ALCs. Our internal growth plan is focused on increasing revenue by continuing to improve our ability to provide residents with these services. On a same community basis the average monthly revenue per occupied unit for both the basic service package and the assisted living services increased to $2,132 from $2,066 for the year ended December 31, 2000 and 1999, respectively. There can be no assurance that any ALC will be substantially occupied at assumed rates at any time. In addition, we may only be able to lease up our ALCs to full occupancy at rates below those assumed. If operating expenses increase, local market conditions may limit the extent to which we may increase rates. Because we must provide advance notice of rate increases, generally at least 30 days, increases may lag behind increases in operating expenses. Wellness Program. We have implemented a Wellness Program for residents of our communities designed to identify and respond to changes in a resident's health or condition. Together with the resident and the resident's family and physician, as appropriate, we design a solution to fit that resident's particular needs. We monitor the physical and mental wellbeing of our residents, usually at meals and other activities, and informally as the staff performs services around the facility. Through the Wellness Program we work with: - home health care agencies to provide services the community cannot provide; - physical and occupational therapists to provide services to residents in need of such therapy; and - long-term care pharmacies to facilitate cost-effective and reliable ordering and distribution of medications. 5 6 We arrange for these services to be provided to residents as needed in consultation with their physicians and families. At the present time, all our ALCs have a comprehensive Wellness Program. FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS Our business, results of operations and financial condition are subject to many risks, including those set forth below. Certain statements contained in this report, including without limitation statements containing the words "believes," "anticipates," "expects," and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We have made forward-looking statements in this report concerning, among other things, the impact of future acquisitions and developments, if any, and the level of future capital expenditures. These statements are only predictions, however; actual events or results may differ materially as a result of risks we face. These risks include, but are not limited to, those items discussed below. Certain of these factors are discussed in more detail elsewhere in this report, including without limitation under the captions "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Given these uncertainties, we caution readers not to place undue reliance on such forward-looking statements, which speak only as of the date of this report. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained here to reflect future events or developments. We have experienced growth through the development and acquisition of ALCs and by acquiring property for the development of new ALCs. Certain risks are inherent with the execution of the development and acquisition of ALCs. These risks include, but are not limited to: - our ability to access capital necessary for operations, acquisition and development; - dependence on the availability of adequate capital; - governmental regulation; - competition; and - risks common to the assisted living industry. DEPENDENCE ON THE AVAILABILITY OF ADEQUATE CAPITAL We depend heavily on our ability to obtain adequate capital to fund our acquisitions and development. Our estimated capital needs for acquisitions and development over the next 12 months are $0.9 million. As of December 31, 2000, we had $2.2 million in cash and cash equivalents. This means we have cash and cash equivalents to meet our estimated capital needs for acquisitions and development for the next 12 months. If, however our acquisition costs and development expenses exceed our projections, we may have to obtain significant additional financing. There is no assurance that we will be able to obtain the financing on a timely basis, if at all. If we are unable to obtain the required financing on a timely basis we may not be able to execute our business plan. COMPETITION The health care industry is highly competitive and we expect that the assisted living business, in particular, will become more competitive in the future. Sources of competition include: - family members providing care at home; - numerous local, regional and national providers of assisted living and long-term care whose facilities and services range from home-based health care to skilled nursing facilities; and - acute care hospitals. In addition, we believe that as assisted living receives increased attention among the public and insurance companies, new competitors focused on assisted living will enter the market, including hospitality companies expanding into the market. Some of our competitors operate on a not-for-profit basis or as charitable organizations, while others have, or are capable of obtaining, greater financial resources than those available to us. 6 7 We also expect to face increased competition for the acquisition and development of ALCs. Some of our present and potential competitors are significantly larger or have, or may obtain, greater financial resources than we have. These forces could limit our ability to attract residents, attract qualified personnel, expand our business, or increase the cost of future acquisitions, each of which could have a material adverse effect on our financial condition, results of operations and prospects. GOVERNMENT REGULATION Assisted Living. Health care is subject to extensive regulation and frequent regulatory change. Currently, no federal rules explicitly define or regulate assisted living. However, we are and will continue to be subject to varying degrees of regulation and licensing by health or social service agencies and other regulatory authorities in California and localities where we operate or intend to operate. Changes in, or the adoption of, such laws and regulations, or new interpretations of existing laws and regulations, could have a significant effect on methods and costs of doing business, and on reimbursement levels from governmental and other payers. In addition, the President and Congress have proposed in the past, and may propose in future, health care reforms that could impose additional regulations on us or limit the amounts that we may charge for our services. We cannot assess the ultimate timing and impact that any pending or future health care reform proposals may have on the assisted living, home health care, skilled nursing or health care industry in general. No assurance can be given that any such reform will not have a material adverse effect on the business, financial condition or our results of operations. SSI Payments. A portion of our revenue comes from residents who receive SSI payments. Revenue from these residents is generally lower than the amounts we receive from our other residents and could be subject to payment delay. Approximately 3% of our residents are SSI residents. We cannot assure that our percentage of revenue received from SSI will not increase, or that the amounts paid by SSI programs will not be further limited. In addition, if we were to become a provider of services under the Medicaid program, we would be subject to Medicaid regulations designed to limit fraud and abuse. Violations of these regulations could result in civil and criminal penalties and exclusion from participation in the Medicaid program. RISKS COMMON TO OUR ASSISTED LIVING OPERATIONS Staffing and Labor Costs. We compete with other providers of assisted living and senior housing to attract and retain qualified personnel. We also rely on the available labor pool of employees, and unemployment rates are low in many areas where we operate. We make a genuine effort to remain competitive with other companies in our industry. Therefore, if it is necessary for us to increase pay and/or enhance benefits to maintain our competitive status in our industry, our labor costs could rise. We cannot provide assurance that if our labor costs do increase, they can be matched by corresponding increases in rental or assisted living revenue. Obtaining Residents and Maintaining Rates. For the year ended December 31, 2000, our ALCs had an average combined occupancy rate of 89%. Occupancy may drop in our ALCs, primarily due to: - changes in the health of residents; - increased competition from other assisted living providers, particularly those offering newer ALCs; - the reassessment of residents' physical and cognitive state and changes in management and staffing. We cannot assure that, at any time, any ALC will be substantially occupied at assumed rents. In addition, we may only achieve lease-up and full occupancy at rental rates below those assumed. If operating expenses increase, local rental market conditions may limit the extent to which we may increase prices. The implementation of rate increases for residents of new acquisitions may lag behind increases in operating expenses. In addition, if we fail to generate sufficient revenue, we may be unable to meet minimum rent obligations under our long-term operating lease and to make interest and principal payments on our indebtedness. General Real Estate Risks. The performance of our ALCs is influenced by factors affecting real estate investments, including the general economic climate. Other real estate risks include: - an oversupply of, or a reduction in demand for, ALCs in a particular market; - the attractiveness of properties to residents; - zoning, rent control, environmental quality regulations or other regulatory restrictions; - competition from other forms of housing; - our ability to provide adequate maintenance and insurance; - our ability to control operating costs, including maintenance, insurance premiums and real estate taxes. 7 8 Real estate investments are also affected by such factors as applicable laws, including tax laws, interest rates and the availability of financing. Real estate investments are relatively illiquid and, therefore, limit our ability to vary our portfolio promptly in response to changes in economic or other conditions. If we fail to operate our ALCs effectively, it may have a material adverse effect on our business, financial condition and operating results. Possible Environmental Liabilities. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be held liable for the costs of the removal or remediation of certain hazardous or toxic substances. These include, without limitation, asbestos-containing materials which could be located on, in or under such property. Such laws and regulations often impose liability whether or not the owner or operator knows of, or is responsible for, the presence of the hazardous or toxic substances. When we acquire land for development or existing facilities, we typically obtain environmental reports on the properties as part of our due diligence in order to lessen our risk of exposure. Nonetheless, the costs of any required remediation or removal of these substances could be substantial. The owner's liability is generally not limited under such laws and regulations and could exceed the value of the property and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such substances properly may also adversely affect the owner's ability to sell or rent the property or to borrow using the property as collateral. Under these laws and regulations, an owner, operator, or any entity that arranges for the disposal of hazardous or toxic substances at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. When entering into leases with health care REITs and other landlords of facilities, we typically enter into environmental indemnity agreements in which we agree to indemnify the landlord against all risk of environmental liability, both during the term of the lease and beyond. In connection with the ownership or operation of our properties or those of our Affiliated Partnerships, we could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. Restrictions Imposed by Laws Benefiting Disabled Persons. Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require us to modify existing and planned properties to allow disabled persons to access the properties. We believe that our properties are either substantially in compliance with present requirements or are exempt from them. However, if required changes cost more than anticipated, or must be made sooner than anticipated, we would incur additional costs. Further legislation may impose additional burdens or restrictions related to access by disabled persons, and the costs of compliance could be substantial. Geographic Concentration. All of our ALCs are located in California. The market value of these ALCs and the income generated from properties could be negatively affected by changes in local and regional economic conditions, specific laws and the regulatory environment in California, and by acts of nature. We cannot provide assurance that such geographic concentration will not have an adverse impact on our business, financial condition, operating results and prospects. Insurance. We believe that we maintain adequate insurance policies, based on the nature and risks of our business, historical experience and industry standards. Our business entails an inherent risk of liability. In recent years, we and other assisted living providers have become subject to an increasing number of lawsuits alleging negligence or related legal theories, which may involve large claims and significant legal costs. From time to time we are subject to such suits because of the nature of our business. We cannot assure that claims will not arise that exceed our insurance coverage or are not covered by it. A successful claim against us that is not covered by, or is in excess of our insurance, could have a material adverse effect on our financial condition, operating results or liquidity. Claims against us, regardless of their merit or eventual outcome, may also have a material adverse effect on our ability to attract residents or expand our business and would consume considerable management time. We must review our insurance policies annually and can provide no assurance that we will be able to continue to obtain liability insurance coverage in the future or that it will be available on acceptable terms. ITEM 2. PROPERTIES The following table sets forth, as of December 31, 2000, the location, the date on which operations commenced, number of units, and our interest in our ALCs.
OPERATIONS COMMUNITY LOCATION COMMENCED UNITS INTEREST --------- -------- ----------- ------- -------- Retirement Inn of Burlingame Burlingame, CA 1989 67 Fee-Owned Retirement Inn of Campbell Campbell, CA 1989 71 Fee-Owned Covina Villa Covina, CA 1988 63 Fee-Owned, subject to ground lease through July 1, 2037
8 9 Retirement Inn of Daly City Daly City, CA 1989 94 Fee-Owned Retirement Inn of Fremont Fremont, CA 1989 69 Fee-Owned Retirement Inn of Fullerton Fullerton, CA 1989 67 Fee-Owned Montego Heights Lodge Walnut Creek, CA 1989 162 Fee-Owned Retirement Inn of Sunnyvale Sunnyvale, CA 1989 123 Fee-Owned Valley View Lodge Walnut Creek, CA 1989 124 Fee-Owned Inn at Willow Glen San Jose, CA 1989 83 Leased, lease termination of November 22, 2007 with an additional 10 year option
On March 2, 1999, we purchased our landlords' fee interests in the Retirement Inn of Burlingame, Retirement Inn of Campbell, Retirement Inn of Fremont and Retirement Inn of Sunnyvale. ITEM 3. LEGAL PROCEEDINGS On June 15, 1999, we, along with five other California limited partnerships of which ARVAL is the managing general partner, including American Retirement Villas Properties III, Casa Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San Gabriel Retirement Villa, L.P. (collectively, the "ARV Partnerships") - filed an action in the Superior Court for the State of California, County of Orange, seeking a declaratory judgment and damages for breach of contract, promissory estoppel, fraud and negligent misrepresentation against PRN Mortgage Capital, L.L.C. and Red Mountain Funding, L.L.C. ("Defendants"). Defendants filed a counter-claim for amounts allegedly due under loan commitments between Defendants and the ARV Partnerships. In July 2000, the ARV Partnerships settled the dispute with the Defendants. We have received and recorded all amounts due as a result of the settlement. We do not believe the terms of the settlement are material to our operations. We are from time to time subject to lawsuits and other matters in the normal course of business. While we cannot predict the results with certainty, we do not believe that any liability from any such lawsuits or other matters will have a material effect on our financial position, results of operations, or liquidity. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS No matters were submitted to Unitholders during the fiscal year. 9 10 PART II ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED UNITHOLDER MATTERS There is no established public trading market for our securities. As noted in Item 1, ARVAL, our Managing General Partner, tendered for our limited partnership units in May 1996 and July 1996. During 1997, ARVAL acquired 525 additional units at a net cash price of approximately $720 per unit. As of March 20, 2001, ARVAL owned 18,323 limited Partnership units or approximately 52.3% of outstanding limited partner units. As of March 20, 2000, there were approximately 1,728 Unit Holders of record owning 35,019.88 units. For the years ended December 31, 2000, 1999, and 1998, we made limited partner distributions of $2.12 per unit, $502.32 per unit, and $53.63 per unit, respectively. The return of capital for the years ended December 31, 2000, 1999, and 1998 was $2.12 per unit, $461.33 per unit, and $2.38 per unit, respectively. There were distributions of earnings for the years ended December 31, 2000, 1999, and 1998 of $0.00 per unit, $40.99 per unit, and $51.25 per unit, respectively. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial data for each of our last five fiscal years. Certain of this financial data has been derived from our audited financial statements included elsewhere in this Form 10-K and should be read in conjunction with those financial statements and accompanying notes and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" at Item 7. This table is not covered by the Independent Auditors' Report.
2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (IN THOUSANDS EXCEPT UNIT DATA) Revenue $ 21,316 $ 20,876 $ 19,599 $ 19,044 $ 17,834 Net income (loss) (687) 1,435 1,813 2,878 1,576 Net income (loss) (per limited partner unit) (19.42) 40.99 51.25 81.35 44.55 Total assets 39,556 38,543 21,836 21,929 20,801 Partners' capital (deficit) (3,656) (2,895) 13,439 13,523 12,245 Notes payable 41,226 39,545 6,170 6,403 6,562 Per limited partner unit: Distributions of earnings 0.00 40.99 51.25 45.24 44.55 Distributions -- return of Capital 2.12 461.33 2.38 -- 16.22 Total distributions (per limited partner unit) 2.12 502.32 53.63 45.24 60.77
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY On a long-term basis, our liquidity is sustained primarily from cash flow provided by operating activities. During 2000, net cash provided by operating activities was approximately $0.1 million compared to net cash provided by operating activities of approximately $3.7 million and $2.5 million for 1999 and 1998, respectively. Given the age of the ALCs (ages range from 13 to 25 years with an average age of 21.5 years), our Managing General Partner has continued our refurbishment program put in place to repair, maintain and physically improve our ALCs. We expect to fund repairs and improvement primarily from our operating cash flow. As a result of the planned renovations, our Managing General Partner believes that distributions of cash flow from operations to the Partners will either be reduced or eliminated in the near term. Our General Partners expect that the cash to be generated from operations of our communities will be adequate to pay operating expenses, make necessary capital improvements and make required principal reductions of loans. During 2000, net cash used in investing activities was $1.1 million compared to $16.1 million and $1.3 million for 1999 and 1998, respectively. The decrease from 1999 to 2000 was a primarily a result of the 1999 purchase of our landlords' interests in four previously leased assisted living communities and capital expenditures required to qualify for the refinancing. In addition, investing activities included property improvements and the purchase of furniture, fixtures and equipment. 10 11 During 2000, net cash provided by financing activities was $1.1 million compared to $13.5 million in 1999 and net cash used in financing activities of $2.1 million for 1998. The principal components for 2000 were: - Refinancing of the 4 owned properties, as part of the $29.8 million proceeds from notes payable offset by - principal repayments of $28.1 million for loans; and - loan fees of $0.5 million. Our General Partner's Board of Directors approved the refinancing of 8 owned ALCs in March 2000. Four of the refinancings were completed by December 31, 2000, the refinancing of the remaining four communities was completed or existing loans were extended to 2002 subsequent to the end of 2000. We choose to refinance to: - take advantage of lower fixed interest rates available at the time; and - extend maturities to 35 years On June 28, 1999, we had previously obtained financing on the same eight owned communities in an aggregate principal amount of $39.2 million at a rate of interest of 9.15% with a maturity date of June 28, 2001 through a loan agreement with Banc One. As part of the loan requirements, we created a wholly-owned subsidiary Retirement Inns II, LLC as the special purpose entity. The loan was for 24 months and was secured by the various properties; in addition, our General Partner, was a guarantor on the loan for fraud, material misrepresentation and certain covenants. The $39.2 million of mortgage loans were due June 2001. As described in more detail in the preceding paragraph, four of the loans were refinanced at or prior to December 31, 2000 with 35-year loans at between 8.00% to 8.03% Subsequent to December 31, 2000 three additional loans have been refinanced and one loan's maturity has been extended to January 2002. Due to a failed financing in 1998, in October 1998 we paid a lender approximately $1.3 million of fees for an interest rate lock and $0.1 million for loan commitment and other fees. The lender terminated the loan commitment and underlying interest rate lock in October 1998 due to adverse market conditions. The lender returned $0.3 million of the interest rate lock fees in January 1999 and $0.2 million in June 2000 as full and final settlement. We included the amounts paid and received in interest expense in the accompanying consolidated statements of operations for the years ended December 31, 2000, 1999 and 1998. Our General Partner is not aware of any trends, other than national economic conditions, which have had or which may be reasonably expected to have a material favorable or unfavorable impact on revenues or income from our operations or sale of properties. Our General Partner believe that if the inflation rate increases, they will be able to recover subsequent increases in operating expenses from higher rental and assisted living rates. We have notes payable of approximately $41.2 million as of December 31, 2000. CAPITAL RESOURCES During 2000, we continued our refurbishment program in order to repair, maintain and physically improve the ten ALCs. These refurbishments were funded with cash flow from operations and cash on hand. We expect to continue the refurbishment program and expect that the funds for these improvements should be available from operations or cash on hand or other financing alternatives. Our estimated capital needs for acquisitions and development over the next 12 months are $0.9 million. Other than as disclosed above, there are no known material trends, favorable or unfavorable, in our capital resources, and there is no expected change in the mix of such resources. RESULTS OF OPERATIONS THE YEAR ENDED DECEMBER 31, 2000 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS) Increase/ 2000 1999 (decrease) ------- ------- ---------- Revenue: Assisted living community revenue ........................ $ 20.9 $ 20.4 2.5% Interest and other revenue ............................... 0.4 0.5 (13.7)% ------- ------- ------- Total revenue .................................... 21.3 20.9 2.1% ------- ------- ------- Costs and expenses: 13.9 12.8 9.2% Assisted living operating expenses General and administrative ............................... 0.6 1.0 (36.3)% Communities rent ......................................... 0.4 0.6 (36.7)% Depreciation and amortization ............................ 2.3 1.8 27.5% Property taxes ........................................... 0.7 0.6 16.6%
11 12 Advertising .............................................. 0.4 0.2 66.1% Interest ................................................. 3.4 2.5 36.6% ------- ------- ------- Total costs and expenses ......................... 21.7 19.5 11.5% ------- ------- ------- Income (loss) before income tax and extraordinary item ..... (0.4) 1.4 (125.6)% Extraordinary loss from write-off of loan fees due to refinancing, net of income tax ............................. (0.3) -- 100.0% ------- ------- ------- Net income (loss) ................................ $ (0.7) $ 1.4 (147.9)% ======= ======= =======
The increase of $0.5 million, or 2.5% in assisted living community revenue is primarily attributable to: - the increase in average rate per occupied unit to $2,132 for the year ended December 31, 2000 as compared with $2,066 for the year ended December 31, 1999, partially offset by; - the decrease in assisted living penetration to 53.6% for the year ended December 31, 2000 compared with 56.8% for the year ended December 31, 1999. The increase in assisted living operating expenses of $1.1 million, or 9.2% is primarily attributable to CPI resulting in: - increased wages of staff ; - increased payroll costs including incentive programs; insurance and worker's compensation; and - normal operating expense increases. The decrease in general and administrative costs of $0.4 million, or 36.3% is primarily attributable to: - a reduction of administration fees paid to our managing general partner; and - a reduction of expenses, that were previously allocated to G&A due to cost-cutting efforts. The decrease in communities rent of $0.2 million, or 36.7% is primarily due to the purchase, during March 1999, of four previously leased communities. The increase in depreciation and amortization of $0.5 million, or 27.5% is primarily attributable to: - increase in amortization of loan fees related to the refinancing in June 1999 of the eight owned properties; and - the purchase of four previously leased communities, in March of 1999. The increase in property taxes of $0.1 million, or 16.6% is primarily due to higher property valuations. The increase in advertising expenses or $0.2 million, or 66.1% is primarily due to more aggressive advertising due to increased competition in the Assisted Living market. The increase in interest expense of $0.9 million, or 36.6% is primarily attributable to: - the acquisition in March 1999 of four ALCs previously leased; and - the refinancing in June 1999 of eight owned properties: partially offset by - a recovery of $228,000 of interest rate lock and commitment fees incurred in connection with the failed refinancing of certain notes payable in 1998. The extraordinary loss or $0.3 million is the result of the write off of loans fees due to the refinancing of four properties in December of 2000. THE YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN MILLIONS) Increase/ 1999 1998 (decrease) ------- ------- ---------- Revenue: Assisted living community revenue ...... $ 20.4 $ 19.1 7.1% Interest and other revenue ............. 0.5 0.5 (15.9)% ------- ------- ------- Total revenue 20.9 19.6 6.5% ------- ------- ------- Costs and expenses: Assisted living operating expenses ..... 12.8 12.0 6.5% General and administrative ............. 1.0 1.1 (10.2)% Communities rent ....................... 0.6 1.2 (52.6)% Depreciation and amortization .......... 1.8 1.1 62.2% Property taxes ......................... 0.6 0.5 15.4%
12 13 Advertising ............................ 0.2 0.2 8.1% Interest ............................... 2.5 1.7 50.8% ------- ------- ------- Total costs and expenses ....... 19.5 17.8 9.3% ------- ------- ------- Net income ..................... $ 1.4 $ 1.8 (20.8)% ======= ======= =======
The increase in assisted living community revenue of $1.3 million, or 7.1% is primarily attributable to: - the increase in assisted living penetration to 56.8% for the year ended December 31, 1999 compared with 53.4% for the year ended December 31, 1998; and - the increase in average rate per occupied unit to $2,066 for the year ended December 31, 1999 as compared with $1,921 the year ended December 31, 1998; The increase in assisted living operating expenses of $0.8 million, or 6.5% is primarily attributable to: - staffing requirements related to increased assisted living services provided; - increased wages of staff; and - normal operating expense increases. The decrease in general and administrative costs of $0.1 million, or 10.2% is primarily due to cost-cutting efforts. The decrease in communities rent of $0.6 million, or 52.6% is primarily due to the purchase, during March 1999, of four previously leased communities. The increase in depreciation and amortization of $0.7 million, or 62.2% is primarily due to the four previously leased communities that now are owned which resulted in depreciation and amortization expense. The increase in interest expense of $0.8 million, or 50.8% is primarily related to the loans for the purchase of the four previously leased communities, in March of 1999, and to the refinancing on June 28, 1999 of the eight owned properties partially offset by the loan fees charged to interest expense in 1998. FUTURE CASH DISTRIBUTIONS Our General Partner believes that our ability to make cash distributions to limited partners depends on factors such as (i) our ability to rent the available units and maintain high occupancies and rates; (ii) our ability to control both operating and administrative expenses; (iii) our ability to maintain adequate working capital; (iv) the absence of any losses from uninsured property damage or future litigation; (v) our ability to generate proceeds from the sales of properties and (vi) our ability to renew the final existing lease under favorable terms. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks related to fluctuations in the interest rates on our fixed rate notes payable. With respect to our fixed rate notes payable, changes in the interest rates affect the fair market value of the notes payable, but not our earnings or cash flows. We do not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until the earlier of maturity and any required refinancing of such debt. We do not currently have any variable interest rate debt and, therefore, are not subject to interest rate risk associated with variable interest rate debt. Currently, we do not utilize interest rate swaps. Less than 1% of our total assets and total contract revenues as of and for the periods ended December 31, 2000 and 1999 were denominated in currencies other than the U.S. Dollar; accordingly, we believe that we have no material exposure to foreign currency exchange risk. This materiality assessment is based on the assumption that the foreign currency exchange rates could change unfavorably by 10%. We have no foreign currency exchange contracts. 13 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and the Report of Independent Auditors are listed at Item 14 and are included beginning on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 14 15 PART III ITEM 10. OUR DIRECTORS AND EXECUTIVE OFFICERS As an entity, we have no directors or executive officers. Our sole and managing general partner is ARVAL. As managing general partner, ARVAL is responsible for all management decisions SPECIAL LIMITED PARTNERS JOHN A. BOOTY, age 62, one of ARVAL's founders, retired in September 1996 after serving as president since the date of ARVAL's inception in 1985. Since his retirement he has served as a consultant to ARVAL and most recently as a Director until September 1999. He also served as interim president of ARVAL from October 1997 to January 1998 and as interim chief executive officer from October 1997 to December 1997. GARY L. DAVIDSON, age 66, an attorney and one of ARVAL's founders, previously practiced law in Orange County. During his professional career, he has been active in numerous business and professional sports ventures. In 1979, he co-founded the predecessor to ARVAL. In October 1997, Mr. Davidson resigned as Chief Executive Officer, Director and Chairman of the Board of ARVAL. JOHN S. JASON, age 65, was associated with KPMG LLP for 6 years. In 1979, he co-founded the predecessor to ARVAL. In February 1993, Mr. Jason retired from his positions as a Director and as Executive Vice President of ARVAL. TONY ROTA, age 72, is a licensed real estate broker, and has been active in real estate investments since 1958. In 1979, he co-founded the predecessor to ARVAL. In November 1992, Mr. Rota retired from his positions as a Director and as Vice President of ARVAL. The following table sets forth certain information regarding the executive officers and directors of our General Partner
Name Age Title - ---- --- ----- Douglas M. Pasquale 46 Chairman of the Board and Chief Executive Officer Abdo H. Khoury 51 President and Chief Financial Officer Maurice J. Dewald 60 Director David P. Collins 63 Director John A. Moore 39 Director Jeffrey D. Koblentz 33 Director
EXECUTIVE OFFICERS OF ARV ASSISTED LIVING, INC. ("ARVAL") DOUGLAS M. PASQUALE, age 46, joined ARVAL as chief operating officer on June 1, 1998, and was named a Director in October 1998 and chairman in December of 1999. Prior to joining ARVAL, Mr. Pasquale was employed for 12 years by Richfield Hospitality Services, Inc., and Regal Hotels International-North America, a leading hotel ownership and hotel management company based in Englewood, Colorado. He served as its president and chief executive officer from 1996 to 1998 and as chief financial officer from 1994 to 1996. ABDO H. KHOURY, age 51, was appointed senior vice president and chief financial officer of ARVAL on March 30, 1999. On January 1, 2001 Mr. Khoury was promoted to President and retained the position of chief financial officer of ARVAL. Previously he had served ARVAL as vice president, asset strategy and treasury, since January 1999, and as president of the Apartment Division since coming to ARVAL in May 1997. Mr. Khoury's prior background includes more than 25 years in accounting and real estate. He was a principal with Financial Performance Group in Newport Beach, CA, from 1991 to 1997. DIRECTORS OF ARVAL For a description of Mr. Pasquale, please see above. 15 16 MAURICE J. DEWALD, age 60, is chairman and chief executive officer of Verity Financial Group, Inc., a firm he founded in 1992. He currently is a director of Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of California and Monarch Funds. DAVID P. COLLINS, age 63, has served ARVAL in several capacities since 1981. He is a past president of ARV Assisted Living International, Inc., a wholly-owned subsidiary of ARVAL. From 1985 to January 1998, Mr. Collins was a senior vice president of ARVAL, responsible for investor relations and for capital formation for ARVAL and affiliated entities. Mr. Collins currently serves as a director of ARVAL. JOHN A. MOORE, age 39, is a Principal of Lazard Freres Real Estate Investors L.L.C. and its Chief Financial Officer. He joined Lazard in 1998 from World Financial Properties, where he has served as an Executive Vice President and Chief Financial Officer from 1996. Previously, he worked with Olympia and York as Senior Vice President, Finance. Mr. Moore joined Olympia and York in 1988. JEFFREY D. KOBLENTZ, age 33, is a Vice President of Lazard Freres Real Estate Investors L.L.C. He joined Lazard in 1998 from Arthur Andersen LLP, where he was a Manager in the Real Estate Services Group. Mr. Koblentz joined Arthur Andersen in 1992. ITEM 11. EXECUTIVE COMPENSATION As an entity, we have no officers or directors. We are managed by our General Partner. We compensate our General Partner as set forth in the table below. Please note that during the fiscal year 2000 the Special Limited Partners were general partners of ARVP II and, as such, were entitled to compensation set forth below. Acquisition Fees (ARV Assisted Living, Inc.) A property acquisition fee of 2% of Gross Offering Proceeds (as defined in the ARVP II, Partnership Agreement) to be paid for services in connection with the selection and purchase of Projects and related negotiations. In addition, a development, processing and renovation fee of 5.5% of Gross Offering Proceeds to be paid for services in connection with negotiations for or the renovation or improvement of existing ALCs and the development, processing or construction of Projects we have developed. There were no property acquisition fees, or, development, processing and renovation fees for the years ended December 31, 2000, 1999 and 1998. Rent-Up and Staff Training Fees (ARV Assisted Living, Inc.) Rent-up and staff training fees of 4.5% of the Gross Offering Proceeds allocated to each specific acquired or developed Project. Such fees will be paid for services in connection with the opening and initial operations of the Projects including, without limitation, design and implementation of the advertising, direct solicitation and other campaigns to attract residents and the initial hiring and training of managers, food service specialists, activities directors and other personnel employed in the individual communities. There were no rent-up and staff training fees for the years ended December 31, 2000, 1999 and 1998. Property Management Fees (ARV Assisted Living, Inc.) A property management fee of 5% of gross revenue is paid for managerial services including general supervision, hiring of onsite management personnel employed by ARVAL, renting of units, installation and provision of food service, maintenance, and other operations. For the years ended December 31, 2000, 1999, and 1998, the property management fee amounted to $1,056,000, $1,037,000, and $974,000, respectively. Partnership Management Fees (ARV Assisted Living, Inc.) A partnership management fee of 10% of cash flow before distributions is paid for implementing our business plan and supervising and managing our affairs including general administration and coordination of legal, audit, tax, and insurance
16 17 matters. For the years ended December 31, 2000, 1999, and 1998, our partnership management fee amounted to $246,000, $348,000, and $333,000, respectively. Sale of Partnership Projects (General Partners) The ARVP II Limited Partnership Agreement permits payment in the form of real estate commissions to the General Partner or its Affiliates. Any such compensation shall not exceed 3% of the gross sales price or 50% of the standard real estate brokerage commission, whichever is less. For the years ended December 31, 2000, 1999, and 1998, no real estate commissions were paid. Subordinated Incentive Compensation (ARV Assisted Living, Inc.) ARVAL is entitled to receive 15% of the proceeds of sale or refinancing of assets of the partnership subordinated to a return to the limited partners of Initial Capital Contributions (as defined in the ARVP II, Partnership Agreement) plus an 8%-10% (depending on the timing of the limited partners' investment) per annum cumulative, but not compounded, return thereon from all sources. For the years ended December 31, 2000, 1999 and 1998, no incentive compensation was earned. Partnership Interest (General Partners) 1% of all items of capital, profit or loss, and liquidating Distributions, subject to a capital account adjustment, is paid to our General Partners. Reimbursed Expenses (General Partners) All of our expenses are billed directly to and paid by us. Our General Partners may be reimbursed for the actual cost of goods and materials obtained from unaffiliated entities and used for or by us. Our General Partner is reimbursed for administrative services necessary to our prudent operation, provided that such reimbursement is at the lower of its actual cost or the amount that we would be required to pay to independent parties for comparable administrative services in the same geographic location. Total reimbursements to ARVAL amounted to $10.3 million, $9.4 million, and $7.1 million for the years ended December 31, 2000, 1999, and 1998, respectively.
See also Footnote 3 of Notes to Financial Statements (Transactions with Affiliates). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS - ---------------------- -------------------------- ------------------------ ---------- Limited Partnership ARV Assisted Living, Inc. 18,323 units 52.3% Units 245 Fischer Ave., D-1 Direct ownership Costa Mesa, CA 92626
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than the compensation earned by our General Partners, as set out under Item 11 above, no General Partner or Affiliate receives any direct or indirect compensation from us. Our General Partner receives a management fee of 5% of Gross Revenues (as defined in the ARVP II Partnership Agreement). Because these fees are payable without regard to whether particular ALCs are generating Cash Flow (as defined in the ARVP II Partnership Agreement) or otherwise benefiting us, a conflict of interest could arise in that it might be to the advantage of our General Partners that a community be retained or refinanced rather than sold. On the other hand, an affiliate of our General Partners may earn a real estate commission on sale of a property, creating an incentive to sell what might be a profitable property. Our General Partner has authority to invest our funds in properties or entities in which it or any of its affiliates have an interest, provided we acquire a controlling interest. In any such investment, duplicate property management or other fees will not be permitted. Our General Partner or any of its affiliates may, however, purchase property in their own names and temporarily hold title to facilitate acquisition for us, provided that such property is purchased by us at cost (including acquisition, closing and carrying costs). Our General Partners will not commingle our funds with those of any other person or entity. 17 18 Conflicts of interest exist to the extent that ALCs owned or operated compete, or are in a position to compete for residents, general managers or key employees with ALCs owned or operated by our General Partners and affiliates in the same geographic area. Our General Partners seek to reduce any such conflicts by offering such persons their choice of residence or employment on comparable terms in any ALC. Further conflicts may exist if and to the extent that other affiliated owners of ALCs seek to refinance or sell at the same time as us. Our General Partner seeks to reduce any such conflicts by making prospective purchasers aware of all ALCs available for sale. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: - Independent Auditors' Report; - Balance Sheets - December 31, 2000 and 1999; - Consolidated Statements of Operations - Years Ended December 31, 2000, 1999, and 1998; - Consolidated Statements of Partners' Capital - Years Ended December 31, 2000, 1999 and 1998; - Consolidated Statements of Cash Flows - Years Ended December 31, 2000, 1999 and 1998; - Notes to Financial Statements; and - Financial Statement Schedule - Schedule III - Real Estate and Related Accumulated Depreciation and Amortization - December 31, 2000. (b) Reports on Form 8-K. The Registrant did not file any 8-K reports during the last quarter of 2000. (c) Exhibits A. EXHIBITS Exhibit 10.1* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns III, LLC Exhibit 10.4* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.5* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.6* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.7* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.8* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.9* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.10* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.11* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC(1) Exhibit 10.12 * Letter Agreement as to the Loans in the aggregate amount of $39,703,100 from Banc One Capital Funding Corporation to Retirements Inns II Exhibit 10.15* Note and Agreement as to Retirement Inns II, LLC Exhibit 10.75 Deed of Trust Note of ARV Burlingame, L.P. to Red Mortgage Capital, Inc. Exhibit 10.76 Allonge #1 to Deed of Trust Note of ARV Burlingame, L.P. to Red Mortgage Capital, Inc. Exhibit 10.77 Deed of Trust between ARV Burlingame, L.P. and Fidelity National Title Insurance
18 19 Exhibit 10.78 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Burlingame, L.P. and Secretary of Housing and Urban Development Exhibit 10.79 Regulatory Agreement Nursing Homes Projects between ARV Burlingame, L.P. and Federal Housing Commissioner Exhibit 10.80 Deed of Trust Note of ARV Campbell, L.P. to Red Mortgage Capital, Inc. Exhibit 10.81 Allonge #1 to Deed of Trust Note of ARV Campbell, L.P. to Red Mortgage Capital, Inc. Exhibit 10.82 Deed of Trust between ARV Campbell, L.P. and Fidelity National Title Insurance Exhibit 10.83 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Campbell, L.P. and Secretary of Housing and Urban Development Exhibit 10.84 Regulatory Agreement Nursing Homes Projects between ARV Campbell, L.P. and Federal Housing Commissioner Exhibit 10.85 Deed of Trust Note of ARV Sunnyvale, L.P. to Red Mortgage Capital, Inc. Exhibit 10.86 Allonge #1 to Deed of Trust Note of ARV Sunnyvale, L.P. to Red Mortgage Capital, Inc. Exhibit 10.87 Deed of Trust between ARV Sunnyvale, L.P. and Fidelity National Title Insurance Exhibit 10.88 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Sunnyvale, L.P. and Secretary of Housing and Urban Development Exhibit 10.89 Regulatory Agreement Nursing Homes Projects between ARV Sunnyvale, L.P. and Federal Housing Commissioner Exhibit 10.90 Deed of Trust Note of ARV Valley View, L.P. to Red Mortgage Capital, Inc. Exhibit 10.91 Deed of Trust between ARV Valley View, L.P. and Fidelity National Title Insurance Exhibit 10.92 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Valley View, L.P. and Secretary of Housing and Urban Development Exhibit 10.93 Regulatory Agreement Nursing Homes Projects between ARV Valley View, L.P. and Federal Housing Commissioner
* Incorporated by reference to 10-Q for June 30, 1999 filed August 2, 1999. 19 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN RETIREMENT VILLAS PROPERTIES II, A CALIFORNIA LIMITED PARTNERSHIP, BY THE FOLLOWING PERSONS ON OUR BEHALF. ARV ASSISTED LIVING, INC. By: /s/ DOUGLAS M. PASQUALE ----------------------------- Douglas M. Pasquale Chief Executive Officer Date: March 30, 2001 Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DOUGLAS M. PASQUALE Chief Executive Officer April 2, 2001 - --------------------------------------- (Principal Executive Officer) Douglas M. Pasquale /s/ ABDO H. KHOURY President and Chief Financial Officer April 2, 2001 - --------------------------------------- (Principal Financial & Accounting Officer) Abdo H. Khoury /s/ JOHN A. MOORE Director April 2, 2001 - --------------------------------------- John A. Moore /s/ DAVID P. COLLINS Director April 2, 2001 - --------------------------------------- David P. Collins /s/ MAURICE J. DEWALD Director April 2, 2001 - --------------------------------------- Maurice J. DeWald /s/ JEFFREY KOBLENTZ Director April 2, 2001 - --------------------------------------- Jeffery Koblentz
20 21 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Annual Report - Form 10-K Financial Statements and Schedule Items 8 and 14(a) December 31, 2000, 1999 and 1998 (With Independent Auditors' Report Thereon) 21 22 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Annual Report - Form 10-K Items 8 and 14(a) Index to Financial Statements and Schedule
PAGE ---- Independent Auditors' Report F-1 Consolidated Balance Sheets -- December 31, 2000 and 1999 F-2 Consolidated Statements of Operations-- Years ended December 31, 2000, 1999 and 1998 F-3 Consolidated Statements of Partners' Capital (Deficit) - Years ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Cash Flows - Years ended December 31, 2000, 1999 and 1998 F-5 Notes to Consolidated Financial Statements F-6 Schedule Real Estate and Related Accumulated Depreciation and Amortization - December 31, 2000 Schedule III
All other schedules are omitted, as the required information is inapplicable or the information is presented in the financial statements or related notes. 22 23 INDEPENDENT AUDITORS' REPORT ARV Assisted Living, Inc. as the General Partner of American Retirement Villas Properties II: We have audited the consolidated financial statements of American Retirement Villas Properties II, a California limited partnership, and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Retirement Villas Properties II and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG LLP Orange County, California March 5, 2001 F-1 24 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Consolidated Balance Sheets December 31, 2000 and 1999 (In thousands, except units) ASSETS
2000 1999 -------- -------- Properties, at cost: Land $ 11,453 $ 11,453 Buildings and improvements, less accumulated depreciation of $8,120 and $7,248 in 2000 and 1999, respectively 20,157 20,662 Leasehold property and improvements, less accumulated depreciation of $1,274 and $1,244 in 2000 and 1999, respectively 222 209 Furniture, fixtures and equipment, less accumulated depreciation of $1,497 and $1,145 in 2000 and 1999, respectively 1,190 1,373 -------- -------- Net properties 33,022 33,697 Cash and cash equivalents 2,177 2,002 Other assets, including impound accounts of $2,974 and $1,112 in 2000 and 1999, respectively 4,357 2,844 -------- -------- $ 39,556 $ 38,543 ======== ======== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities: Notes payable $ 41,226 $ 39,545 Accounts payable 341 155 Accrued expenses 1,477 1,426 Amounts payable to affiliate 143 304 Distributions payable to Partners 25 8 -------- -------- Total liabilities 43,212 41,438 -------- -------- Commitments and contingencies Partners' capital (deficit): General partners 1 119 Special limited partners 111 -- Limited partners, 35,020 units authorized, issued and outstanding (3,768) (3,014) -------- -------- Total partners' capital (deficit) (3,656) (2,895) -------- -------- $ 39,556 $ 38,543 ======== ========
See accompanying notes to consolidated financial statements. F-2 25 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Consolidated Statements of Operations Years ended December 31, 2000, 1999 and 1998 (In thousands, except amounts per unit)
2000 1999 1998 -------- -------- -------- Revenues: Rent $ 17,242 $ 16,411 $ 15,400 Assisted living 3,685 4,014 3,663 Interest 190 141 105 Other 199 310 431 -------- -------- -------- Total revenues 21,316 20,876 19,599 -------- -------- -------- Costs and expenses: Rental property operations (including $6,630, $6,044, and $5,849 related to affiliates in 2000, 1999 and 1998, respectively) 11,293 10,375 10,276 Assisted living (including $2,628, $2,311 and $1,653 2,654 2,402 1,727 related to affiliates in 2000, 1999, and 1998, respectively) General and administrative (including $246, $607, and $690 related to affiliates in 2000, 1999 and 1998, respectively) 639 1,004 1,118 Communities rent 357 563 1,187 Depreciation and amortization 2,298 1,802 1,111 Property taxes 711 610 529 Advertising 361 217 201 Interest 3,370 2,468 1,637 -------- -------- -------- Total costs and expenses 21,683 19,441 17,786 -------- -------- -------- Income (loss) from operations before income tax expense and extraordinary item (367) 1,435 1,813 Income tax expense 10 -- -- -------- -------- -------- Income (loss) from operations before extraordinary item (377) 1,435 1,813 Extraordinary loss from write-off of loan fees due to refinancing 310 -- -- -------- -------- -------- Net income (loss) $ (687) $ 1,435 $ 1,813 ======== ======== ======== Net income (loss) per limited partner unit $ (19.42) $ 40.99 $ 51.25 ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 26 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Consolidated Statements of Partners' Capital (Deficit) Years ended December 31, 2000, 1999 and 1998 (In thousands, except amounts per unit)
TOTAL SPECIAL PARTNERS' GENERAL LIMITED LIMITED CAPITAL PARTNERS PARTNERS PARTNERS (DEFICIT) -------- -------- -------- --------- Balance at December 31, 1997 $ 283 $ 13,240 $ 13,523 Distribution to partners ($53.63 per limited partner unit) (19) (1,878) (1,897) Net income 18 1,795 1,813 -------- -------- -------- Balance at December 31, 1998 282 13,157 13,439 Distribution to partners ($502.32 per limited partner unit) (177) (17,592) (17,769) Net income 14 1,421 1,435 -------- -------- -------- Balance at December 31, 1999 119 (3,014) (2,895) Change in status of general partners to special limited partners (118) $118 Distribution to partners ($2.12 per limited partner unit) -- -- (74) (74) Net loss (7) (680) (687) -------- ---- -------- --------- Balance at December 31, 2000 $ 1 $111 $ (3,768) $ (3,656) ======== ==== ======== ========
See accompanying notes to consolidated financial statements. F-4 27 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Consolidated Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998 (In thousands)
2000 1999 1998 -------- -------- -------- Cash flows from operating activities: Net income (loss) $ (687) $ 1,435 $ 1,813 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,298 1,802 1,111 Extraordinary loss from write-off of loan fees due to refinancing, net of income tax 310 -- -- Change in assets and liabilities: (Increase) decrease in other assets (1,843) 319 (641) Increase in accounts payable and accrued expenses 236 315 21 Increase (decrease) in amounts payable to affiliate (161) (149) 176 -------- -------- -------- Net cash provided by operating activities 153 3,722 2,480 -------- -------- -------- Cash flows used in investing activities: Capital expenditures (1,111) (1,647) (1,281) Purchase of previously leased communities -- (14,692) -- Refund of purchase deposit, net (3) 199 -- -------- -------- -------- Net cash used in investing activities (1,114) (16,140) (1,281) -------- -------- -------- Cash flows from financing activities: Principal repayments on notes payable (28,096) (21,006) (233) Proceeds from notes payable 29,778 54,381 -- Loan fees (488) (1,640) -- Distributions paid (58) (18,268) (1,870) -------- -------- -------- Net cash provided by (used in) financing activities 1,136 13,467 (2,103) -------- -------- -------- Net increase (decrease) in cash 175 1,049 (904) Cash at beginning of year 2,002 953 1,857 -------- -------- -------- Cash at end of year $ 2,177 $ 2,002 $ 953 ======== ======== ======== Supplemental disclosure of cash flow information - cash paid during the year for interest $ 3,811 $ 2,208 $ 1,637 ======== ======== ======== Supplemental disclosure of noncash financing activities: Distributions accrued to partners $ 25 $ 8 $ 450 ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 28 AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited partnership) Notes to Consolidated Financial Statements December 31, 2000, 1999 and 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING American Retirement Villas Properties II maintains records on the accrual method of accounting for financial reporting and Federal and state tax purposes. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Partnership and its subsidiaries. Subsidiaries, which include limited partnerships and limited liability companies in which we have controlling interests, have been consolidated into the financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. CARRYING VALUE OF REAL ESTATE Property, furniture and equipment are stated at cost less accumulated depreciation which is charged to expense on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and improvements.............................. 27.5 to 35 years Leasehold property and improvements..................... Lease term Furniture, fixtures and equipment....................... 3 to 7 years
We review our long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In reviewing recoverability, we estimate the future cash flows expected to result from using the assets and eventually disposing of them. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based upon the asset's fair value. USE OF ESTIMATES In the preparation of our financial statements in conformity with generally accepted accounting principles, we have made estimates and assumptions that affect the following: - reported amounts of assets and liabilities at the date of the financial statements; - disclosure of contingent assets and liabilities at the date of the financial statements; and - reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IMPOUND ACCOUNTS The U.S. Department of Housing and Urban Development ("HUD") finances certain of our properties. HUD holds our funds in impound accounts for payment of property taxes, insurance and future property improvements (replacement reserves) on these properties. We include these impound accounts in other assets. LOAN FEES We amortize loan fees using the interest method over the term of the notes payable and include them in other assets. F-6 29 REVENUE RECOGNITION Rent agreements with tenants are on a month-to-month basis. We apply advance deposits to the first month's rent. Revenue is recognized in the month earned for rent and assisted living services. ADVERTISING COSTS Except for yellow page advertising, which is expensed over the period benefited on a straight line basis, we expense all advertising costs as they are incurred. INCOME TAXES Under provisions of the Internal Revenue Code and the California Revenue and Taxation Code, partnerships are generally not subject to income taxes. For tax purposes, any income or losses realized are those of the individual partners, not the Partnership. We have not requested a ruling from the Internal Revenue Service to the effect that we will be treated as a partnership and not an association taxable as a corporation for Federal income tax purposes. We have received an opinion of counsel as to our tax status prior to the offering of limited partnership units, but such opinion is not binding upon the Internal Revenue Service. Following are our assets and liabilities as determined in accordance with generally accepted accounting principles ("GAAP") and for Federal income tax reporting purposes at December 31 (in thousands):
2000 1999 ------------------------- ------------------------ GAAP TAX GAAP TAX BASIS BASIS(1) BASIS BASIS(1) ------- ------- ------- ------- Total assets $39,556 $42,810 $38,543 $43,270 ======= ======= ======= ======= Total liabilities $43,212 $46,466 $41,438 $41,438 ======= ======= ======= =======
Following are the differences between the financial statement and tax return income (in thousands):
2000 1999 1998 ------- ------- ------- Net income (loss) per financial statements $ (687) $ 1,435 $ 1,813 Guaranteed payments to partners 1,302 1,572 1,420 Depreciation differences on property (1) (398) (157) (344) Amortization differences on intangible assets (1) 36 (262) (158) Other (1) (69) 174 266 ------- ------- ------- Taxable income per Federal tax return(1) $ 184 $ 2,762 $ 2,997 ======= ======= =======
(1) Unaudited NET INCOME (LOSS) PER LIMITED PARTNER UNIT We based net income (loss) per limited partner unit on the weighted-average number of limited partner units outstanding of 35,020 in the years ended December 31, 2000, 1999 and 1998. RECLASSIFICATIONS We have reclassified certain prior period amounts to conform to the December 31, 2000 presentation. (2) ORGANIZATION AND PARTNERSHIP AGREEMENT We were formed on February 9, 1988 for the purpose of acquiring, developing and operating residential retirement communities. Our term is 59 years and may be dissolved earlier under certain circumstances. Limited Partner units (minimum of 2 units per investor for Individual Retirement Accounts, KEOGHs and pension plans and 5 units for all other investors) were offered for sale to the general public. A maximum number of 35,000 units were offered at $1,000 per unit and an additional 25 units were issued in lieu of commissions. We were initially capitalized by a $1,000 contribution from a Limited Partner and a $500 contribution from our General Partners. We reached our maximum capitalization in October 1989, representing a total capital F-7 30 investment of $35,000,000. In June 1990, we repurchased and effectively retired 5 units for $4,600 (the balance of unreturned initial contributions) from a Limited Partner. Under the Partnership Agreement, the maximum liability of the Limited Partners is the amount of their capital contributions. Our Managing General Partner is ARV Assisted Living, Inc. ("ARVAL"), a Delaware corporation, and the individual special limited partners are John A. Booty, John S. Jason, Gary L. Davidson and Tony Rota. Our General Partner is not required to make capital contributions to the Partnership. Profits and losses for financial and income tax reporting purposes shall generally be allocated, other than cost recovery deductions (as defined in the Partnership Agreement), 0.01% to our General Partner, 0.99% to our Special Partners and 99.00% to the Limited Partners. Cost recovery deductions for each year are allocated ), 0.01% to our General Partner, 0.99% to our Special Limited Partners and 99.00% to the Limited Partners who are taxable investors. Cash available for distribution from operations, which is determined at the sole discretion of our General Partner, is to be distributed), 0.01% to our General Partner, 0.99% to our Special Limited Partners and 99.00% to the Limited Partners. Upon any sale, refinancing or other disposition of our real properties, distributions are to be made), 0.01% to our General Partner, 0.99% to our Special Limited Partners and 99.00% to the Limited Partners until the Limited Partners have received an amount equal to 100% of their capital contributions plus an amount ranging from 8% to 10% (depending upon the timing of the Limited Partner's investment) of their capital contributions per annum, cumulative but not compounded, from the date of each Partner's investment. The cumulative return is to be reduced, but not below zero, by the aggregate amount of prior distributions from all sources. Thereafter, distributions are to be 15% split between our General Partner and Special Limited Partners according to their partnership interests and 85% to the Limited Partners, except that after the sale of the properties, the proceeds of sale of any last remaining assets we own are to be distributed in accordance with positive capital account balances. (3) TRANSACTIONS WITH AFFILIATES Our properties are managed by ARVAL. For this service we pay a property management fee of 5% of gross revenues amounting to $1,056,000, $1,037,000, and $974,000, for the years ended December 31, 2000, 1999 and 1998, respectively. Additionally, we pay a Partnership management fee of 10% of cash flow before distribution, as defined in the Partnership Agreement, amounting to $246,000, $348,000, and $333,000, for the years ended December 31, 2000, 1999 and 1998, respectively. Payment of the Partnership management fee out of cash flow is subordinated to a quarterly noncumulative distribution from each property to the Limited Partners of an amount equal to an annualized return, per quarter, of 7.5% of Capital Contributions allocated to each property. We reimburse ARVAL for certain expenses such as repairs and maintenance, supplies, and payroll and retirement benefit expenses they pay on our behalf. The total reimbursements to ARVAL are included in rental property operations, assisted living and general and administrative expenses in the accompanying statements of operations and amounted to $10.3 million, $9.4 million, and $7.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. Prior to 1995, we paid our Managing General Partner an investment advisory fee for services rendered with respect to property acquisitions up to a maximum of 2% of the gross offering proceeds. In addition, our Managing General Partner was entitled to a development and processing fee of a maximum of 5.5% of gross offering proceeds allocated to a particular project. Investment advisory and development and processing fees were capitalized to properties to the extent that gross offering proceeds were allocated to the respective properties acquired. Amounts payable to affiliates at December 31, 2000 and 1999 include expense reimbursements and accrued property management and partnership management fees. F-8 31 (4) PROPERTIES The following table sets forth, as of December 31, 2000, the location, the date on which operations commenced and number of units in the property.
OPERATIONS COMMUNITY LOCATION COMMENCED UNITS --------- -------------- ----------- ------- Retirement Inn of Burlingame Burlingame, CA 1989 67 Retirement Inn of Campbell Campbell, CA 1989 71 Covina Villa Covina, CA 1988 63 Retirement Inn of Daly City Daly City, CA 1989 94 Retirement Inn of Fremont Fremont, CA 1989 69 Retirement Inn of Fullerton Fullerton, CA 1989 67 Montego Heights Lodge Walnut Creek, CA 1989 162 Retirement Inn of Sunnyvale Sunnyvale, CA 1989 123 Valley View Lodge Walnut Creek, CA 1989 124 Inn at Willow Glen San Jose, CA 1989 83
(5) COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS: Covina Villa In October 1988, we purchased Covina Villa, an existing assisted living community in Covina, California. In conjunction with the acquisition, we assumed a ground lease, expiring in 2037, covering the land on which the community is built. Pledged as collateral for the ground lease is a security interest in the community property and in all furniture, fixtures and equipment which we place in the community. Rent expense under the ground lease for 2000, 1999 and 1998 was $115,000, $115,000, and $116,000, respectively. Retirement Inns of America In April 1989, we acquired the operations of eight existing assisted living communities located throughout California from Retirement Inns of America, Inc. As part of the purchase agreement, we acquired certain assets and assumed certain liabilities relating to the operations of the communities. We purchased three of the communities and assumed a tenant's position under long-term operating leases for the other five communities. On March 2, 1999, we purchased our landlords' fee interests in four of the five operating leases. Rent expense under the operating leases for 2000, 1999, and 1998 was $241,400, $448,000, and $1,071,000, respectively. Future minimum lease payments under all ground and community leases, which are treated as operating leases, are as follows (in thousands): Year ending December 31: 2001 $ 279 2002 279 2003 265 2004 279 2005 279 Thereafter 4,219 -------- $ 5,600 ========
F-9 32 LITIGATION On June 15, 1999, we, along with five other California limited partnerships of which ARVAL is the managing general partner, including American Retirement Villas Properties III, Casa Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San Gabriel Retirement Villa, L.P. (collectively, the "ARV Partnerships") - filed an action in the Superior Court for the State of California, County of Orange, seeking a declaratory judgment and damages for breach of contract, promissory estoppel, fraud and negligent misrepresentation against PRN Mortgage Capital, L.L.C. and Red Mountain Funding, L.L.C. ("Defendants"). Defendants filed a counter-claim for amounts allegedly due under loan commitments between Defendants and the ARV Partnerships. In July 2000, the ARV Partnerships settled the dispute with the Defendants. We have received and recorded all amounts due as a result of the settlement. We are from time to time subject to lawsuits and other matters in the normal course of business. While we cannot predict the results with certainty, we do not believe that any liability from any such lawsuits or other matters will have a material effect on our financial position, results of operations, or liquidity. (6) NOTES PAYABLE On June 28, 1999, we obtained financing on eight owned communities. As part of the loan requirements, we created a wholly owned subsidiary Retirement Inns II, LLC. The loan was for 24 months and is secured by the various properties; in addition, ARV Assisted Living, our managing general partner, is a guarantor on the loan for fraud, material misrepresentation and certain covenants. The $39.2 million of mortgage loans were due June 2001. At December 31, 2000 four of the loans were refinanced with 35-year, bearing interest between 8.00% and 8.03%. Subsequent to December 31, 2000 three additional loans have been refinanced with 35-year loans and one loan's maturity has been extended to January 2002. At December 31, 2000 and 1999, notes payable included the following (in thousands):
2000 1999 ------- ------- HUD issued notes payable, bearing interest ranging from 8.00% to 8.03% Monthly principal and interest payments of $212; due December 2035; collateralized by various properties $29,778 $ -- Notes payable to bank, bearing interest at 9.15% Monthly principal and interest payments $99; collateralized by various properties 11,447 39,527 Various notes payable, bearing interest at rates of 8.67%, payable in monthly principal and interest installments of $1; collateralized by equipment 1 18 ------- ------- $41,226 $39,545 ======= =======
The annual principal payments of the notes payable are as follows (in thousands): Year ending December 31: 2001.......................................................... $ 224 2002.......................................................... 11,432 2003.......................................................... 139 2004.......................................................... 151 2005.......................................................... 163 Thereafter.................................................... 29,117 ------- $41,226 =======
Due to the failed financing in 1998, we paid a lender approximately $1.3 million of fees for an interest rate lock and $0.1 for loan commitment and other fees. The lender terminated the loan commitment and underlying interest rate lock in October 1998 due to adverse market conditions. The lender returned $0.3 million of the interest rate lock fees in January 1999 and $0.2 million in June 2000 as full and final settlement. We included the amounts paid and received in interest expense in the accompanying consolidated statements of operations for the years ended December 31, 2000, 1999, and 1998. F-10 33 (7) EMPLOYEE BENEFIT PLANS Effective January 1, 1997, ARVAL established a savings plan (the "Savings Plan") that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating employees who are at least 21 years of age may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. ARVAL matches 25% of each employee's contributions up to a maximum of 6% of the employee's earnings. Employees are eligible to enroll at the first enrollment date following the start of their employment (July 1 or January 1). ARVAL matches employees' contributions beginning on the first enrollment date following one year of service or 1,000 hours of service. Our Savings Plan expense was $22,000, $22,000 and $20,000 (as a reimbursement to ARVAL) for the years ended December 31, 2000, 1999 and 1998. (8) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of our financial instruments have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material impact on the estimated fair value amounts. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, fees receivable and other amounts due from affiliates and accounts payable, accrued liabilities and accrued interest payable approximate fair value due to the short-term nature of these instruments. NOTES PAYABLE For notes payable with variable interest rates, fair value is the amount reported as payable in the financial statements. For notes payable with fixed rates of interest, fair value is estimated using the rates currently offered for bank borrowings with similar terms. As of December 31, 2000 there were no notes payable with variable interest rates. The fair market value of the fixed rate notes is approximately $41.2 million. (9) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FOR THE QUARTER ENDED ------------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ ------- -------- (In thousands) 2000 Total revenue..................... $6,357 $5,506 $5,296 $4,157 Net income (loss)................. (556) (41) 172 (262) 1999 Total revenue..................... $6,345 $5,324 $5,220 $3,987 Net income (loss)................. 5 74 624 732
F-11 34 Schedule III AMERICAN RETIREMENT VILLAS PROPERTIES II (A California Limited Partnership) Real Estate and Related Accumulated Depreciation and Amortization December 31, 2000 (In thousands)
LEASEHOLD BLDGS PROPERTY COSTS BLDGS AND AND CAPITALIZED AND IMPROVE- IMPROVE- SUBSEQUENT IMPROVE- DESCRIPTION ENCUMBRANCES LAND MENTS MENTS TO ACQUISITION LAND MENTS - ----------- ------------ ------- ------- --------- -------------- ------- -------- Covina Villa $ -- $ -- 1,850 $ -- $ 677 $ -- $ 2,527 Retirement Inns: Burlingame 3,151 -- -- 938 1,751 1,536 1,153 Campbell 1,790 -- -- 814 2,843 2,002 1,655 Daly City 3,620 500 1,178 -- 739 500 1,917 Fremont 2,801 -- -- 567 1,772 1,247 1,092 Fullerton 1,876 500 982 -- 973 500 1,955 Willow Glen -- -- -- 1,011 485 -- -- Sunnyvale 8,855 -- -- 1,431 5,396 3,765 3,062 Valley View 11,369 1,000 4,018 -- 1,384 1,000 5,402 Montego Heights 7,764 900 7,800 -- 1,717 903 9,514 ------- ------- ------- ------- ------- ------- ------- $41,226 $ 2,900 $15,828 $ 4,761 $17,737 $11,453 $28,277 ======= ======= ======= ======= ======= ======= =======
LEASEHOLD PROPERTY ACCUMU- DATE DEPRE- AND MULATED OF CIABLE IMPROVE- TOTAL DEPRE- ACQUI- LIVES DESCRIPTION MENTS (1) CIATION SITION (YEARS) - ----------- --------- ------- ------- ------- ------- Covina Villa $ -- $ 2,527 $ 1,056 10/88 35 Retirement Inns: Burlingame -- 2,689 76 4/89 8.5(2) Campbell -- 3,657 105 4/89 6.3(2) Daly City -- 2,417 744 4/89 35 Fremont -- 2,339 69 4/89 7.8(2) Fullerton -- 2,455 659 4/89 35 Willow Glen 1,496 1,496 1,274 4/89 8.7(2) Sunnyvale -- 6,827 197 4/89 7.0(2) Valley View -- 6,402 1,926 4/89 35 Montego Heights -- 10,417 3,288 11/89 35 ------- ------- ------- $ 1,496 $41,226 $ 9,394 ======= ======= =======
(1) Aggregate cost for Federal income tax purposes is $35,018 as of December 31, 2000. (2) Leasehold property and improvements are amortized over remaining terms of ground leases, which are shorter than the estimated useful lives. 35 Following is a summary of investment in properties for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 -------- -------- -------- Balance at beginning of year $ 40,816 $ 30,155 $ 29,405 Improvements/construction 410 15,238 750 Transfer NBV to LLCs -- (1,613) -- Disposals -- (2,964) -- -------- -------- -------- Balance at end of year $ 41,226 $ 40,816 $ 30,155 ======== ======== ========
Following is a summary of accumulated depreciation and amortization of investment in properties for the years ended December 31, 2000, 1999, and 1998:
2000 1999 1998 -------- -------- -------- Balance at beginning of year $ 8,492 $ 12,187 $ 11,513 Transfer NBV to LLCs -- (1,613) -- Disposals -- (2,964) -- Additions charged to expense 902 882 674 -------- -------- -------- Balance at end of year $ 9,394 $ 8,492 $ 12,187 ======== ======== ========
36 EXHIBIT INDEX
EXHIBITS DESCRIPTION - -------- ----------- Exhibit 10.1* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns III, LLC Exhibit 10.4* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.5* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.6* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.7* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.8* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.9* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.10* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.11* Loan Agreement by and between Banc One Capital Funding Corporation and Retirement Inns II, LLC (1) Exhibit 10.12 * Letter Agreement as to the Loans in the aggregate amount of $39,703,100 from Banc One Capital Funding Corporation to Retirements Inns II Exhibit 10.15* Note and Agreement as to Retirement Inns II, LLC HUD loan documents Exhibit 10.75 Deed of Trust Note of ARV Burlingame, L.P. to Red Mortgage Capital, Inc. Exhibit 10.76 Allonge #1 to Deed of Trust Note of ARV Burlingame, L.P. to Red Mortgage Capital, Inc. Exhibit 10.77 Deed of Trust between ARV Burlingame, L.P. and Fidelity National Title Insurance
37
EXHIBITS DESCRIPTION - -------- ----------- Exhibit 10.78 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Burlingame, L.P. and Secretary of Housing and Urban Development Exhibit 10.79 Regulatory Agreement Nursing Homes Projects between ARV Burlingame, L.P. and Federal Housing Commissioner Exhibit 10.80 Deed of Trust Note of ARV Campbell, L.P. to Red Mortgage Capital, Inc. Exhibit 10.81 Allonge #1 to Deed of Trust Note of ARV Campbell, L.P. to Red Mortgage Capital, Inc. Exhibit 10.82 Deed of Trust between ARV Campbell, L.P. and Fidelity National Title Insurance Exhibit 10.83 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Campbell, L.P. and Secretary of Housing and Urban Development Exhibit 10.84 Regulatory Agreement Nursing Homes Projects between ARV Campbell, L.P. and Federal Housing Commissioner Exhibit 10.85 Deed of Trust Note of ARV Sunnyvale, L.P. to Red Mortgage Capital, Inc. Exhibit 10.86 Allonge #1 to Deed of Trust Note of ARV Sunnyvale, L.P. to Red Mortgage Capital, Inc. Exhibit 10.87 Deed of Trust between ARV Sunnyvale, L.P. and Fidelity National Title Insurance Exhibit 10.88 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Sunnyvale, L.P. and Secretary of Housing and Urban Development Exhibit 10.89 Regulatory Agreement Nursing Homes Projects between ARV Sunnyvale, L.P. and Federal Housing Commissioner Exhibit 10.90 Deed of Trust Note of ARV Valley View, L.P. to Red Mortgage Capital, Inc. Exhibit 10.91 Deed of Trust between ARV Valley View, L.P. and Fidelity National Title Insurance Exhibit 10.92 Regulatory Agreement for U.S. Department of Housing Multifamily Housing Projects between ARV Valley View, L.P. and Secretary of Housing and Urban Development Exhibit 10.93 Regulatory Agreement Nursing Homes Projects between ARV Valley View, L.P. and Federal Housing Commissioner
* Incorporated by reference EX-10.75 2 a71045ex10-75.txt EXHIBIT 10.75 1 EXHIBIT 10.75 DEED OF TRUST NOTE $3,244,000.00 Burlingame, California March 1, 2001 FOR VALUE RECEIVED, the undersigned, ARV BURLINGAME, L.P., a California limited partnership, promises to pay RED MORTGAGE CAPITAL, INC., an Ohio corporation, or order, at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or at such other place as may be designated in writing by the holder of this Note, the principal sum of THREE MILLION TWO HUNDRED FORTY-FOUR THOUSAND AND 00/100THS DOLLARS ($3,244,000.00), with interest thereon from the date hereof at the rate of Seven and seventy-nine hundredths per centum (7.79 %) per annum on the unpaid balance until paid. The principal and interest shall be payable in monthly installments as follows: Interest alone shall be due and payable on the first day of April, 2001. Thereafter, commencing on May 1, 2001, monthly installments of principal and interest at the rate of Seven and Seventy-nine hundredths per centum (7.79 %) per annum shall be due and payable in the sum of TWENTY-TWO THOUSAND FIVE HUNDRED FORTY-SEVEN AND 73/100THS DOLLARS ($22,547.73) each, such payments to continue monthly thereafter on the first day of each succeeding month until the entire indebtedness has been paid in full. In any event, the balance of principal (if any) remaining unpaid, plus accrued interest, shall be due and payable on April 1, 2036. The installments of principal and interest shall be applied first to interest at the rate aforesaid upon the principal sum or so much thereof as shall from time to time remain unpaid, and the balance thereof shall be applied on account of principal. Both principal and interest under this Note, as well as the additional payments set forth in the Deed of Trust shall be payable at the office of RED MORTGAGE CAPITAL, INC., at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or such other place as the holder may designate in writing. Prepayment of this Note is subject to the terms and provisions set forth in Allonge #1 attached hereto and incorporated herein by this reference. If default be made in the payment of any installment under this Note, and if the default is not made good prior to the due date of the next such installment, the entire principal sum and accrued interest shall at once become due and payable without notice at the option of the holder 2 of this Note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. The makers and endorsers severally waive diligence, presentment, protest, and demand, and also notice of protest, dishonor, and nonpayment of this Note, and expressly agree that this Note, or any payment thereunder, may be extended from time to time, and consent to the acceptance of further security for this Note, including other types of security, all without in any way affecting the liability of the makers and endorsers hereof. The right to plead any and all statutes of limitations as a defense to any demand on this Note, or any guaranty thereof, or to any agreement to pay the same, or to any demand secured by the Deed of Trust, (hereinafter defined) or other security, securing this Note, or any and all obligations, or liabilities arising out of or in connection with said Note or Deed of Trust by any of the parties hereto, is expressly waived by each and every of the makers, endorsers, guarantors or sureties. Principal and interest are payable in lawful money of the United States. If action be instituted on this Note, the undersigned promise(s) to pay in addition to the costs and disbursements allowed by law such sum as the Court may adjudge reasonable as attorney's fees in said action. This Note is secured by a Deed of Trust, of even date herewith, to Fidelity National Title Insurance Company, as Trustee, on real estate situated in the City of Burlingame, County of San Mateo, California (the "Deed of Trust"). In the event any installment or part of any installment due hereunder becomes delinquent for more than fifteen (15) days, there shall be due, at the option of the holder, in addition to other sums due hereunder, a sum equal to two percent (2%) of the amount of such installment of principal and interest so delinquent. Whenever under the law of the jurisdiction where the property is located, the amount of any such late charge is considered to be additional interest, this provision shall not be effective if the rate of interest specified in this Note, together with the amount of the late charge, would aggregate an amount in excess of the maximum rate of interest permitted and would constitute usury. All parties to this Note, whether principal, surety, guarantor, or endorser hereby waive presentment for payment, demand, protect, notice of protest, and notice of dishonor. Notwithstanding any other provision contained in this Note, it is agreed that the execution of this Note shall impose no personal liability on the maker hereof (nor any of its present or future limited or general partners) for payment of the indebtedness evidenced hereby and in the event of a default, the holder of this Note shall look solely to the property described in the Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced hereby and will not seek or obtain any deficiency or personal judgment against the maker hereof (nor any of its present or future limited or general partners) except such judgment or decree as may be necessary to foreclose and bar its interest in the property and all other property mortgaged, pledged, conveyed or assigned to secure payment of this Note, except as set out in the Deed of Trust of even date given to secure this indebtedness. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed in its name and on its behalf by its Vice President, thereunto duly authorized the day and year first above written. 3 ARV BURLINGAME, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: _____________________________ Douglas Armstrong Vice President ================================================================================ I HEREBY CERTIFY that this is the Note described in and secured by the Deed of Trust of even date herewith, and in the same principal amount as herein stated, to Fidelity National Title Insurance Company, Trustee(s), on real estate in the City of Burlingame, San Mateo County, California. Dated this ____ day of March, 2001. [SEAL] __________________________________________ Notary Public My Commission Expires: ___________________ 4 STATE OF CALIFORNIA LOAN NO. 121-22027-PM-ALF/REF Deed of Trust Note No. 121-22027-PM-ALF/REF Insured under Section 232 pursuant to Section 223(f) of the National Housing Act and Regulations published thereunder In effect on February 8, 2001 A total sum of $3,244,000.00 has been approved for insurance hereunder by the Secretary of Housing and Urban Development acting by and through the Federal Housing Commissioner By: _____________________________________ (Authorized Agent) Date: March _____, 2001 Reference is made to the Act and to the Regulations thereunder covering assignments of the insurance protection on this note. EX-10.76 3 a71045ex10-76.txt EXHIBIT 10.76 1 EXHIBIT 10.76 ALLONGE #1 TO DEED OF TRUST NOTE OF ARV BURLINGAME, L.P. TO RED MORTGAGE CAPTIAL, INC. IN THE ORIGINAL PRINCIPAL SUM OF $3,244,000.00 DATED MARCH 1, 2001 ================================================================================ 1. Except as provided in Paragraphs 2, and 3 below, Maker may not prepay any sums due under this Mortgage Note (the "Note") prior to May 1, 2006. Commencing on May l 1, 2006, Maker may prepay, upon thirty (30) days advance written notice to the holder, the indebtedness evidenced by this Note, in whole or in an amount equal to one or more monthly installments of the principal next due, on the last day of any month, provided such prepayment is accompanied by the applicable prepayment penalty (expressed as a percentage of the principal amount so prepaid) set forth below:
PREPAYMENT PERIOD PREPAYMENT PENALTY ----------------- ------------------ May 1, 2006 through April 30, 2007 5% May 1, 2007 through April 30, 2008 4% May 1, 2008 through April 30, 2009 3% May 1, 2009 through April 30, 2010 2% May 1, 2010 through April 30, 2011 1% May 1, 2011 and thereafter None
All such prepayments, including the principal sum so prepaid, interest thereon to and including the date of such prepayment and the prepayment penalty due in connection therewith, shall be in immediately available Federal Funds. 2. Notwithstanding any prepayment prohibition imposed and/or penalty required by this Allonge #1 with respect to voluntary prepayments made prior to May 1, 2010, the indebtedness may be prepaid in whole or in part without the consent of the holder and without prepayment premium if the Commissioner determines that prepayment will avoid a mortgage insurance claim and is therefore in the best interest of the Federal Government. 2 3. The provisions of Paragraph 1 of this Allonge #1 shall not apply and no prepayment premium shall be collected by the holder with respect to any prepayment which is made by or on behalf of Maker from insurance proceeds as a result of damage to the property or condemnation awards which may, at the option of the holder, be applied to reduce the indebtedness evidenced by the Note pursuant to the terms of the Mortgage given of even date to secure the indebtedness evidenced by the Note. 4. A reduction in the principal amount of the Note required by the Commissioner at the time of Initial/Final Endorsement by the Commissioner as a result of the Commissioner's cost certification requirements shall not be construed as a prepayment hereunder. If a reduction is required by the Commissioner as aforesaid, or if any prepayment from any source (to the extent permitted herein) is made, the remaining payments due on the Note may, with the approval of the holder and the Commissioner, be recast such that the required monthly payments of principal and interest shall be in equal amounts sufficient to amortize the Note over the then remaining term thereof. ARV BURLINGAME, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership, General Partner By: ARV Assisted Living, Inc. a Delaware corporation, General Partner By: ________________________ Douglas Armstrong Vice President EX-10.77 4 a71045ex10-77.txt EXHIBIT 10.77 1 EXHIBIT 10.77 DEED OF TRUST With Assignment of Rents THIS DEED OF TRUST, made into this 1st day of March, 2001, by and between ARV BURLINGAME, L.P., a California limited partnership, with offices at 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, herein called Trustor, and FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, Trustee(s), and RED MORTGAGE CAPITAL, INC., an Ohio corporation, with offices at 150 East Gay Street, 22nd Floor, Columbus, Ohio 53215, herein called Beneficiary. WITNESSETH: That Trustor grants, transfers, and assigns to Trustee in trust, upon the trusts, covenants, conditions and agreements and for the uses and purposes hereinafter contained, with power of sale, all that real property situate, lying and being in San Mateo County, State of California, described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF. Together with the rents, issues, and profits thereof, SUBJECT, HOWEVER, to the right, power, and authority hereinafter given to and conferred upon Beneficiary to collect and apply such rents, issues, and profits; and together with all buildings and improvements of every kind and description now or hereafter erected or placed thereon, and all fixtures, including but not limited to all gas and electric fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, laundry equipment, steam and hot-water boilers, stoves, ranges, elevators and motors, bath tubs, sinks, water closets, basins, pipes, faucets and other plumbing and heating fixtures, mantels, cabinets, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking apparatus and appurtenances, and all shades, awnings, screens, blinds and other furnishings, it being hereby agreed that all such fixtures and furnishings shall to the extent permitted by law be deemed to be permanently affixed to and a part of the realty; and Together with all building materials and equipment now or hereafter delivered to said premises and intended to be installed therein; and 2 Together with all articles of personal property now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the lands described which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner, and said Trustor agrees to execute a Security Agreement covering the aforesaid fixtures and articles of personal property, at the time of placing such personal property or any part thereof in the building or buildings to be erected on the lands herein described in the manner and form required by law, at its expense and satisfactory to the Beneficiary. To have and to hold the property hereinbefore described together with appurtenances to the Trustee, its or his successors and assigns forever. FOR THE PURPOSE of securing performance of each agreement of Trustor herein and payment of a just indebtedness of the Trustor to the Beneficiary in the principal sum of THREE MILLION TWO HUNDRED FORTY-FOUR THOUSAND AND NO/100THS DOLLARS ($3,244,000.00), evidenced by its Note of even date herewith, bearing interest from date on outstanding balances at Seven and seventy-nine hundreds percent (7.79 %) per annum, said principal and interest being payable in monthly installments as provided in said Note with a final maturity of April 1, 2036, which Note is identified as being secured hereby by a certificate thereon. Said Note and all of its terms are incorporated herein by reference and this conveyance shall secure any and all extensions thereof, however evidenced. AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: 1. That it will pay the Note at the times and in the manner provided therein; 2. That it will not permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Deed of Trust was executed; 3. That the Regulatory Agreement, if any, executed by the Trustor and the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, which is being recorded simultaneously herewith, is incorporated in and made a part of this Deed of Trust. Upon default under the Regulatory Agreement and upon the request of the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, the Beneficiary, at its option, may declare the whole of the indebtedness secured hereby to be due and payable; 4. That all rents, profits and income from the property covered by this Deed of Trust are hereby assigned to the Beneficiary for the purpose of discharging the debt hereby secured. Permission is hereby given to Trustor so long as no default exists hereunder, to collect such rents, profits and income for use in accordance with the provisions of the Regulatory Agreement; 3 That the Trustor grants to the holder or holders of the Note secured hereby the right and power to appoint a substitute Trustee or Trustees hereunder for any reason whatsoever by instrument of appointment duly executed and acknowledged by the holder or holders of the Note and to be filed for record in the office wherein this Deed of Trust is recorded. Such power of appointment may be exercised as often as deemed necessary by the holder or holders of the Note. Upon such appointment, the substitute Trustee or Trustees shall be vested with all the rights, powers, authority and duties vested in the Trustee hereunder; 5. That upon default hereunder or under the aforementioned Regulatory Agreement, Beneficiary shall be entitled to the Appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom; 6. That at the option of the Trustor the principal balance secured hereby may be reamortized on terms acceptable to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner if a partial prepayment results from an award in condemnation in accordance with provisions of Paragraph 21 herein, or from an insurance payment made in accordance with provisions of Paragraph 7 herein, where there is a resulting loss of project income; 7. That the Trustor will keep the improvements now existing or hereafter erected on the deeded property insured against loss by fire and such other hazards, casualties, and contingencies, as may be stipulated by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner upon the insurance of the Deed of Trust and other hazards as may be required from time to time by the Beneficiary, and all such insurance shall be evidenced by standard fire and extended coverage insurance policy or policies, in amounts not less than necessary to comply with the applicable Coinsurance Clause percentage, but in no event shall the amounts of coverage be less than 80 percent of the Insurable Values or not less than the unpaid balance of the insured Deed of Trust, whichever is the lesser, and in default thereof the Beneficiary shall have the right to effect insurance. Such policies shall be endorsed with standard Mortgagee clause with loss payable to the Beneficiary and the Secretary of Housing and Urban Development as their interests may appear, and shall be deposited with the Beneficiary; The insurance carrier providing the insurance shall be chosen by Trustor, subject to approval by Beneficiary, provided that such approval shall not be unreasonably withheld. That if the premises covered hereby, or any part thereof, shall be damaged by fire or other hazard against which insurance is held as hereinabove provided, the amounts paid by any insurance company in pursuance of the contract of insurance to the extent of the indebtedness then remaining unpaid, shall be paid to the Beneficiary, and, at its option, may be applied to the debt or released for the repairing or rebuilding of the premises. Any unexpired insurance shall inure to the benefit of, and pass to, the purchaser of the property covered thereby at any Trustee's sale held hereunder; 4 8. Together with and in addition to the monthly payments of interest or of principal and interest payable under the terms of said Note, to pay to Beneficiary monthly until said Note is fully paid, beginning on the first day of the first month after the date hereof, the following sums: (a) An amount sufficient to provide the Beneficiary with funds to pay the next mortgage insurance premium if this instrument and the Note secured hereby are insured, or a monthly service charge, if they are held by the Secretary of Housing and Urban Development, as follows: (I) If and so long as said Note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the Beneficiary one month prior to its due date the annual mortgage insurance premium, in order to provide such Beneficiary with funds to pay such premium to the Secretary of Housing and Urban Development, pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or (II) Beginning with the first day of the month following an assignment of this instrument and the Note secured hereby to the Secretary of Housing and Urban Development, a monthly service charge which shall be an amount equal to one-twelfth of one-half percent (1/12 of 1/2%) of the average outstanding principal balance due on the Note computed for each successive year beginning with the first of the month following such assignment, without taking into account delinquencies or prepayments. (b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other property insurance covering the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby (all as estimated by the Beneficiary) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, water rates, taxes and assessments will become delinquent, such sums to be held by Beneficiary in trust to pay said ground rents, premiums, water rates, taxes, and special assessments. (c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the Note secured hereby shall be added together and the aggregate amount thereof shall be paid each month in a single payment to be applied by Beneficiary to the following items in the order set forth: (I) premium charges under the Contract of Insurance with the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner or service charge; 5 (II) ground rents, taxes, special assessments, water rates, fire and other property insurance premiums; (III) interest on the Note secured hereby; (IV) amortization of the principal of said Note. 9. Any excess funds accumulated under paragraph (b) above remaining after payment of the items therein mentioned, shall be credited to subsequent monthly payments of the same nature required thereunder; but if any such item shall exceed the estimate therefor, the Trustor shall without demand forthwith make good the deficiency. Failure to do so before the due date of such item shall be a default hereunder. In case of termination of the Contract of Mortgage Insurance by prepayment of the mortgage in full, or otherwise (except as hereinafter provided), accumulations under paragraph (a) above not required to meet payments due under the Contract of Mortgage Insurance, shall be credited to the Trustor. If the property is sold under foreclosure or is otherwise acquired by the Beneficiary after default, any remaining balance of the accumulations under paragraph (b) above shall be credited to the principal of the debt as of the date of commencement of foreclosure proceedings or as of the date the property is otherwise acquired; and accumulations under paragraph (a) above shall be similarly applied unless required to pay sums due to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner under the Contract of Mortgage Insurance; 10. To keep said property in good condition and repair, not to remove or demolish any buildings thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged, or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor; to comply with all laws affecting said property or requiring any alterations or improvements to be made thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon said property in violation of law and/or covenants, conditions and/or restrictions affecting said property; not to permit or suffer any alterations of or addition to the buildings or improvements hereafter constructed in or upon said property without the consent of the Beneficiary; 11. To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and to pay all costs and expenses, including cost of evidence of title and attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear; 12. Should Trustor fail to make any payment or do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon said property for such purposes; may commence, appear in and/or defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; may pay, purchase, contest, or compromise any encumbrance, charge, or lien which in the judgment of either appears to be 6 prior or superior hereto; and, in exercising any such powers, may pay necessary expenses, employ counsel, and pay his reasonable fees; 13. The Beneficiary shall have the right to pay mortgage insurance premiums or fire and other property insurance premiums when due to the extent that monthly payments made hereunder for the purpose of meeting same are insufficient. All such payments made by the Beneficiary shall be added to the principal sum secured hereby; 14. To pay immediately and without demand all sums so expended by Beneficiary or Trustee, under permission given under this Deed of Trust, with interest from date of expenditure at the rate specified in said Note; 15. 16. The Trustor further covenants that it will not voluntarily create, suffer, or permit to be created against the property subject to this Deed of Trust any lien or liens inferior or superior to the lien of this Deed of Trust and further that it will keep and maintain the same free from the claim of all persons supplying labor or materials which will enter into the construction of any and all buildings now being erected or to be erected on said premises; 17. That the improvements upon the premises, covered by the Deed of Trust, and all plans and specifications comply with all municipal ordinances and regulations and all of other regulations made or promulgated, now or hereafter, by lawful authority, and that the same will comply with all such municipal ordinances and regulations and with the rules of the applicable fire rating or inspection organization, bureau, association or office; 18. That so long as this Deed of Trust and the said Note secured hereby are insured under the provisions of the National Housing Act, or held by the Secretary of Housing and Urban Development, it will not execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the mortgaged property on the basis of race, color, creed or national origin. 7 ABOVE IT IS MUTUALLY AGREED THAT: 19. Trustor herein agrees to pay to Beneficiary or to the authorized loan servicing representative of the Beneficiary a charge not to exceed $15 for providing a statement regarding the obligation secured by this Deed of Trust as provided by Section 2954, Article 2, chapter 2, Title 14, Part 4, Division 3, of the Civil Code of the State of California. 20. 21. Should the property or any part thereof be taken or damaged by reason of any public improvement or condemnation preceding, or damaged by fire, or earthquake, or in any other manner, the Beneficiary shall be entitled to all compensation, awards, and other payments or relief therefor, and shall be entitled at its option to commence, appear in and prosecute in its own name any action to proceedings, or to make any compromise or settlement in connection with such taking or damage. All awards of compensation in connection with condemnation for public use of or a taking of any of that property, shall be paid to the Beneficiary to be applied to the amount due under this Note secured hereby in (1) amounts equal to the next maturing installment or installments or principal and (2) with any balance to be credited to the next payment due under the Note. All awards of damages in connection with any condemnation for public use of or injury to any residue of that property shall be paid to the Beneficiary to be applied to a fund held for and on behalf of the Trustor which fund shall, at the option of the Beneficiary, and with the prior approval of the Secretary of Housing and Urban Development, either be applied to the amount due under the Note as specified in the preceding sentence, or be disturbed for the restoration or repair of the damage to the residue. No amount applied to the reduction of the principal amount due in accordance with (1) shall be considered an optional prepayment as the term is used in this Deed of Trust and the Note secured hereby, nor relieve the Trustor from making regular monthly payments commencing on the first day of the first month following the date of receipt of the award. The Beneficiary is hereby authorized in the name of the Trustor to execute and deliver valid acquittances for such awards and to appeal from such award; 22. Upon default by Trustor in making any monthly payment provided for herein or in the Note secured hereby, and if such default is not made good prior to the due date of the next such installment, or if Trustor shall fail to perform any covenant or agreement in this Deed of 8 Trust, all sums secured hereby shall, at the option of the Beneficiary, be deemed to have become immediately due and payable, and shall thereupon be collectable by foreclosure of this Deed of Trust. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default, to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 23. After the lapse of such time as may then be required by law following the recordation of said notice of defaults, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell said property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of said property by public announcement at the time and place of sale, and from time to time thereafter may postpone the sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to the purchaser its Deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in the Deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee, or Beneficiary, may purchase at the sale. The Trustee shall apply the proceeds of sale to payment of (1) the expenses of such sale, together with the reasonable expenses of this trust including therein reasonable Trustee's fees or attorney's fees for conducting the sale, and the actual cost of publishing, recording, mailing and posting notice of the sale; (2) the cost of any search and/or other evidence of title procured in connection with such sale and revenue stamps on Trustees' Deed; (3) all sums expended under the terms hereof, not then repaid, with accrued interest at the rate specified in said Note; (4) all other sums then secured hereby; and (5) the remainder, if any, to the person or persons legally entitled thereto; 24. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed and its place of record which, when duly recorded in the proper office of the county or counties in which the property is situated, shall be conclusive proof of proper appointment of the successor trustee. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 25. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed is hereby waived to the full extent permissible by law; 26. Upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed of Trust and said Note to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or fact shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto;" 9 27. The trust created hereby is irrevocable by Trustor; 28. This Deed of Trust applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors, and assigns. The term "Beneficiary" shall include not only the original Beneficiary hereunder but also any future owner and holder including pledgees, of the Note secured hereby. In this Deed, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. All obligations of each Trustor hereunder are joint and several; 29. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee; 30. The Undersigned TRUSTOR REQUESTS that a copy of any notice of default and of any notice of sale hereunder be mailed to him at the mailing address opposite his name hereto. Failure to insert such address shall be deemed a waiver of any request hereunder for a copy of such notices. Mailing Address for Notices 245 Fischer Avenue, Suite D-1 Costa Mesa, California 92626 31. Notwithstanding any other provision contained herein or in the Note, hereinabove referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. 10 IN WITNESS WHEREOF the Trustor has caused its name to be hereunto subscribed by its duly authorized General Partner as of the day and year herein first above written. ARV BURLINGAME, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Douglas Armstrong Vice President EX-10.78 5 a71045ex10-78.txt EXHIBIT 10.78 1 EXHIBIT 10.78 REGULATORY AGREEMENT FOR U.S. Department of Housing MULTIFAMILY HOUSING PROJECTS and Urban Development OFFICE OF HOUSING FEDERAL HOUSING COMMISSIONER ________________________________________________________________________________ Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits Project No. 121-22027-PM-ALF/REF Mortgagee: RED MORTGAGE CAPITAL, INC. Amount of Mortgage Note: $3,244,000.00 Date: March 1, 2001 Mortgage: Recorded: State: California County: San Mateo Date: March 1, 2001 Concurrently Herewith Book __ Page __ Originally endorsed for insurance under Section 232 pursuant to Section 223(f) of the National Housing Act, as amended. This Agreement entered into this 1st day of March, 2001, between ARV BURLINGAME, L.P., a California limited partnership whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, their successors, heirs, and assigns (jointly and severally, hereinafter referred to as Owners) and the undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his successors (hereinafter referred to as Secretary). In consideration of the endorsement for insurance by the Secretary of the above described note or in consideration of the consent of the Secretary to the transfer of the mortgaged property or the sale and conveyance of the mortgaged property by the Secretary, and in order to comply with the requirements of the National Housing Act, as amended, and the Regulations adopted by the Secretary pursuant thereto, Owners agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the contract of mortgage insurance continues in effect, and during such further period of time as the Secretary shall be the owner, holder or reinsurer of the mortgage, or during any time the Secretary is obligated to insure a mortgage on the mortgage property: 1. Owners, except as limited by paragraph 17 hereof, assume and agree to make promptly all payments due under the note and mortgage. 2 2. (a) Owners shall establish or continue to maintain a reserve fund for replacements by the allocation to such reserve fund in a separate account with the mortgagee or in a safe and responsible depository designated by the mortgagee, concurrently with the beginning of payments towards amortization of the principal of the mortgage insured or held by the Secretary of an amount equal to $3,846.08 per month unless a different date or amount is approved in writing by the Secretary. Said monthly deposit consists of $2,501.42 for Realty and $1,344.66 for Non-Realty. In addition, the Owner has made an initial deposit to the fund of $107,216.00. Such fund, whether in the form of a cash deposit or invested in obligations of, or fully guaranteed as to principal by, the United States of America shall at all times be under the control of the mortgagee. Disbursements from such fund, whether for the purpose of effecting replacement of structural elements and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the Secretary. In the event that the owner is unable to make a mortgage note payment on the due date and that payment cannot be made prior to the due day of the next such installment or when the mortgagee has agreed to forgo making an election to assign the mortgage to the Secretary based on a monetary default, or to withdraw an election already made, the Secretary is authorized to instruct the mortgagee to withdraw funds from the reserve fund for replacements to be applied to the mortgage payment in order to prevent or cure the default. In addition, in the event of a default in the terms of the mortgage, pursuant to which the loan has been accelerated, the Secretary may apply or authorize the application of the balance in such fund to the amount due on the mortgage debt as accelerated. (b) Where Owners are acquiring a project already subject to an insured mortgage, the reserve fund for replacements to be established will be equal to the amount due to be in such fund under existing agreements or charter provisions at the time Owners acquire such project, and payments hereunder shall begin with the first payment due on the mortgage after acquisition, unless some other method of establishing and maintaining the fund is approved in writing by the Secretary. 3. Real property covered by the mortgage and this agreement is described in Exhibit A attached hereto. (This paragraph 4 is not applicable to cases insured under Section 232). 3 5. (a) If the mortgage is originally a Secretary-held purchase money mortgage, or is originally endorsed for insurance under any Section other than Sections 231 or 232 and is not designed primarily for occupancy by elderly persons, Owners shall not in selecting tenants discriminate against any person or persons by reason of the fact that there are children in the family. (b) If the mortgage is originally endorsed for insurance under Section 221, Owners shall in selecting tenants give to displaced persons or families an absolute preference or priority of occupancy which shall be accomplished as follows: (1) For a period of sixty (60) days from the date of original offering, unless a shorter period of time is approved in writing by the Secretary, all units shall be held for such preferred applicants, after which time any remaining unrented units may be rented to non-preferred applicants; (2) Thereafter, and on a continuing basis, such preferred applicants shall be given preference over non-preferred applicants in their placement on a waiting list to be maintained by the Owners; and (3) Through such further provisions agreed to in writing by the parties. (c) Without the prior written approval of the Secretary not more than 25% of the number of units in a project insured under Section 231 shall be occupied by persons other than elderly persons. (d) All advertising or efforts to rent a project insured under Section 231 shall reflect a bona fide effort of the Owners to obtain occupancy by elderly persons. 6. Owners shall not without the prior written approval of the Secretary: (a) Convey, transfer, or encumber any of the mortgaged property, or permit the conveyance, transfer or encumbrance of such property. (b) Assign, transfer, dispose of, or encumber any personal property of the project, including rents, or pay out any funds except from surplus cash, except for reasonable operating expenses and necessary repairs. (c) Convey, assign, or transfer any beneficial interest in any trust holding title to the property, or the interest of any general partner in a partnership owning the property, or any right to manage or receive the rents and profits from the mortgaged property. (d) Remodel, add to, reconstruct, or demolish any part of the mortgaged property or subtract from any real or personal property of the project. (e) Make, or receive and retain, any distribution of assets or any income of any kind of the project except surplus cash and except on the following conditions: 4 (1) All distributions shall be made only as of and after the end of a semiannual or annual fiscal period, and only as permitted by the law of the applicable jurisdiction; (2) No distribution shall be made from borrowed funds, prior to the completion of the project or when there is any default under this Agreement or under the note or mortgage; (3) Any distribution of any funds of the project, which the party receiving such funds is not entitled to retain hereunder, shall be held in trust separate and apart from any other funds; and (4) There shall have been compliance with all outstanding notices of requirements for proper maintenance of the project. (f) Engage, except for natural persons, in any other business or activity, including the operation of any other rental project, or incur any liability or obligation not in connection with the project. (g) Require, as a condition of the occupancy or leasing of any unit in the project, any consideration or deposit other than the prepayment of the first month's rent plus a security deposit in an amount not in excess of one month's rent to guarantee the performance of the covenants of the lease. Any funds collected as security deposits shall be kept separate and apart from all other funds of the project in a trust account the amount of which shall at all times equal or exceed the aggregate of all outstanding obligations under said account. (h) Permit the use of the dwelling accommodations or nursing facilities of the project for any purpose except the use which was originally intended, or permit commercial use greater than that originally approved by the Secretary. 7. Owners shall maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition. In the event all or any of the buildings covered by the mortgage shall be destroyed or damaged by fire or other casualty, the money derived from any insurance on the property shall be applied in accordance with the terms of the mortgage. 8. Owners shall not file any petition in bankruptcy or for a receiver or in insolvency or for reorganization or composition, or make any assignment for the benefit of creditors or to a trustee for creditors, or permit an adjudication in bankruptcy or 5 the taking possession of the mortgaged property or any part thereof by a receiver or the seizure and sale of the mortgaged property or any part hereof under judicial process or pursuant to any power of sale, and fail to have such adverse actions set aside within forty-five (45) days. 9. (a) Any management contract entered into by Owners or any of them involving the project shall contain a provision that, in the event of default hereunder, it shall be subject to termination without penalty upon written request by the Secretary. Upon such request Owners shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Secretary for continuing proper management of the project. (b) Payment for services, supplies, or materials shall not exceed the amount ordinarily paid for such services, supplies, or materials in the area where the services are rendered or the supplies or materials furnished. (c) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Secretary or his duly authorized agents. Owners shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Secretary or his duly authorized agents. (d) The books and accounts of the operations of the mortgaged property and of the project shall be kept in accordance with the requirements of the Secretary. (e) Within sixty (60) days following the end of each fiscal year the Secretary shall be furnished with a complete annual financial report based upon an examination of the books and records of mortgagor prepared in accordance with the requirements of the Secretary, prepared and certified to by an officer or responsible Owner and, when required by the Secretary, prepared and certified by a Certified Public Accountant, or other person acceptable to the Secretary. (f) At the request of the Secretary, his agents, employees, or attorneys, the Owners shall furnish monthly occupancy reports and shall give specific answers to questions upon which information is desired from time to time relative to 6 income, assets, liabilities, contracts, operation, and condition of the property and the status of the insured mortgage. (g) All rents and other receipts of the project shall be deposited in the name of the project in a financial institution, whose deposits are insured by an agency of the Federal Government. Such funds shall be withdrawn only in accordance with the provisions of this Agreement for expenses of the project or for distributions of surplus cash as permitted by paragraph 6(e) above. Any Owner receiving funds of the project other than by such distribution of surplus cash shall immediately deposit such funds in the project bank account and failing so to do in violation of this Agreement shall hold such funds in trust. Any Owner receiving property of the project in violation of this Agreement shall hold such funds in trust. At such time as the Owners shall have lost control and/or possession of the project, all funds held in trust shall be delivered to the mortgagee to the extent that the mortgage indebtedness has not been satisfied. (h) If the mortgage is insured under Section 232: 1. The Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as a nursing home and shall not lease all or part of the project except on terms approved by the Secretary. 2. The Owners shall suitably equip the project for nursing home operations. 3. The Owners shall execute a Security Agreement and Financing Statement (or other form of chattel lien) upon all items of equipment, except as the Secretary may exempt, which are not incorporated as security for the insured mortgage. The Security Agreement and Financing Statement shall constitute a first lien upon such equipment and shall run in favor of the mortgagee as additional security for the insured mortgage. (i) If the mortgage is insured under Section 231, Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as housing for the elderly. 10. Owners will comply with the provisions of any Federal, State, or local law prohibiting discrimination in housing on the grounds of race, color, religion or creed, sex, or national origin, including Title VIII of the Civil Rights Act of 1968 7 (Public Law 90-284; 82 Stat. 73), as amended, Executive Order 11063, and all requirements imposed by or pursuant to the regulations of the Department of Housing and Urban Development implementing these authorities (including 24 CFR Parts 100, 107 and 110, and Subparts I and M of Part 200). 11. Upon a violation of any of the above provisions of this Agreement by Owners, the Secretary may give written notice thereof, to Owners, by registered or certified mail, addressed to the addresses stated in this Agreement, or such other addresses as may subsequently, upon appropriate written notice thereof to the Secretary, be designated by the Owners as their legal business address. If such violation is not corrected to the satisfaction of the Secretary within thirty (30) days after the date such notice is mailed or within such further time as the Secretary determines is necessary to correct the violation, without further notice the Secretary may declare a default under this Agreement effective on the date of such declaration of default and upon such default the Secretary may: (a) (i) If the Secretary holds the note - declare the whole of said indebtedness immediately due and payable and then proceed with the foreclosure of the mortgage; (ii) If said note is not held by the Secretary - notify the holder of the note of such default and request holder to declare a default under the note and mortgage, and holder after receiving such notice and request, but not otherwise, at its option, may declare the whole indebtedness due, and thereupon proceed with foreclosure of the mortgage, or assign the note and mortgage to the Secretary as provided in the Regulations; (b) Collect all rents and charges in connection with the operation of the project and use such collections to pay the Owners' obligations under this Agreement and under the note and mortgage and the necessary expenses of preserving the property and operating the project. (c) Take possession of the project, bring any action necessary to enforce any rights of the Owners growing out of the project operation, and operate the project in accordance with the terms of this Agreement until such time as the Secretary in his discretion determines that the Owners are again in a position to operate the project in accordance with the terms of this Agreement and in compliance with the requirements of the note and mortgage. 8 (d) Apply to any court, state or Federal, for specific performance of this Agreement, for an injunction against any violation of the Agreement, for the appointment of a receiver to take over and operate the project in accordance with the terms of the Agreement, or for such other relief as may be appropriate, since the injury to the Secretary arising from a default under any of the terms of this Agreement would be irreparable and the amount of damage would be difficult to ascertain. 12. As security for the payment due under this Agreement to the reserve fund for replacements, and to secure the Secretary because of his liability under the endorsement of the note for insurance, and as security for the other obligations under this Agreement, the Owners respectively assign, pledge and mortgage to the Secretary their rights to the rents, profits, income and charges of whatsoever sort which they may receive or be entitled to receive from the operation of the mortgaged property, subject, however, to any assignment of rents in the insured mortgage referred to herein. Until a default is declared under this Agreement, however, permission is granted to Owners to collect and retain under the provisions of this Agreement such rents, profits, income, and charges, but upon default this permission is terminated as to all rents due or collected thereafter. 13. As used in this Agreement the term: (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage", "Security Instrument", and any other security for the note identified herein, and endorsed for insurance or held by the Secretary; (b) "Mortgagee" refers to the holder of the mortgage identified herein, its successors and assigns; (c) "Owners" refers to the persons named in the first paragraph hereof and designated as Owners, their successors, heirs and assigns; (d) "Mortgaged Property" includes all property, real, personal or mixed, covered by the mortgage or mortgages securing the note endorsed for insurance or held by the Secretary; (e) "Project" includes the mortgaged property and all its other assets of whatsoever nature or wheresoever situate, used in or owned by the business conducted on said mortgaged property, which business is providing housing and other activities as are incidental thereto; 9 (f) "Surplus Cash" means any cash remaining after: (1) the payment of: (i) All sums due or currently required to be paid under the terms of any mortgage or note insured or held by the Secretary; (ii) All amounts required to be deposited in the reserve fund for replacements; (iii) All obligations of the project other than the insured mortgage unless funds for payment are set aside or deferment of payment has been approved by the Secretary; and (2) the segregation of: (i) An amount equal to the aggregate of all special funds required to be maintained by the project; and (ii) All tenant security deposits held. (g) "Distribution" means any withdrawal or taking of cash or any assets of the project, including the segregation of cash or assets for subsequent withdrawal within the limitations of Paragraph 6(e) hereof, and excluding payment for reasonable expenses incident to the operation and maintenance of the project. (h) "Default" means a default declared by the Secretary when a violation of this Agreement is not corrected to his satisfaction within the time allowed by this Agreement or such further time as may be allowed by the Secretary after written notice; (i) "Section" refers to a Section of the National Housing Act, as amended. (j) "Displaced persons or families" shall mean a family or families, or a person, displaced from an urban renewal area, or as the result of government action, or as a result of a major disaster as determined by the President pursuant to the Disaster Relief Act of 1970. 10 (k) "Elderly person" means any person, married or single, who is sixty-two years of age or over. 14. This instrument shall bind, and the benefits shall inure to, the respective Owners, their heirs, legal representatives, executors, administrators, successors in office or interest, and assigns, and to the Secretary and his successors so long as the contract of mortgage insurance continues in effect, and during such further time as the Secretary shall be the owner, holder, or reinsurer of the mortgage, or obligated to reinsure the mortgage. 15. Owners warrant that they have not, and will not, execute any other agreement with provisions contradictory of, or in opposition to, the provisions hereof, and that, in any event, the requirements of this Agreement are paramount and controlling as to the rights and obligations set forth and supersede any other requirements in conflict therewith. 16. The invalidity of any clause, part or provision of this Agreement shall not affect the validity or the remaining portions thereof. 17. The following Owners: ARV Burlingame, L.P., a California limited partnership, and all present and future limited and general partners thereof, do not assume personal liability for payments due under the note and mortgage, or for the payments to the reserve for replacements, or for matters not under their control, provided that said Owners shall remain liable under this Agreement only with respect to the matters hereinafter stated; namely: (a) for funds or property of the project coming into their hands which, by the provisions hereof, they are not entitled to retain; and (b) for their own acts and deeds or acts and deeds of others which they have authorized in violation of the provisions hereof. (To be executed with formalities for recording a deed to real estate) 11 All references herein to the terms "nursing home" or nursing homes" shall mean and include the terms "assisted living facility" and "assisted living facilities." See Rider I attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. ARV BURLINGAME, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Douglas Armstrong Vice President March 1, 2001 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent March 1, 2001 EX-10.79 6 a71045ex10-79.txt EXHIBIT 10.79 1 EXHIBIT 10.79 Regulatory Agreement NURSING HOMES U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Housing Federal Housing Commissioner - -------------------------------------------------------------------------------- Project Number Mortgagee 121-22027-PM-ALF/REF Red Mortgage Capital, Inc., an Ohio corporation - -------------------------------------------------------------------------------- Amount of Mortgage Note Date $3,244,000.00 March 1, 2001 - -------------------------------------------------------------------------------- Mortgage Recorded (State) County Date California San Mateo March 1, 2001 - -------------------------------------------------------------------------------- Book Page - -------------------------------------------------------------------------------- This Agreement entered into this 1st day of March, 2001 between RETIREMENT INNS II, LLC, a Delaware limited liability company whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626 (jointly and severally, hereinafter referred to as Lessee) and the undersigned FEDERAL HOUSING COMMISSIONER, (hereinafter called Commissioner). In consideration of the consent of the Commissioner to the leasing of the aforesaid project by ARV BURLINGAME, L.P., a California limited partnership, Mortgagor, and in order to comply with the requirements of the National Housing Act and the Regulations adopted by the Commissioner pursuant thereto, Lessee agrees for itself, its successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the Contract of Mortgage Insurance continues in effect, and during such further period of time as the Commissioner shall be the owner, holder or reinsurer of the mortgage, or during any time the Commissioner is obligated to insure a mortgage on the mortgaged property: (1) The lease shall be subject and subordinate to the mortgage securing the note or other obligation endorsed for insurance by the Commissioner; (2) Lessee shall make payments under lease when due; (3) Payments by the Lessee to the lessor shall be sufficient to pay all mortgage payments including payments to reserves for taxes, insurance, etc., payments to the Reserve for Replacements, and to take care of necessary maintenance. If at the end of any calendar year, or any fiscal year if the project operates on the basis of a fiscal year, payments under the lease have not been sufficient to take care of the above items, the lessor and Lessee upon request in writing from the Commissioner shall renegotiate the amounts due under the lease so that such amounts shall be sufficient to take care 2 of such items; the Commissioner shall be furnished by the Lessee, within thirty days after being called upon to do so, with a financial report in form satisfactory to the Commissioner covering the operations of the mortgaged property and of the project; (4) The Lessee shall not sublease the project or any part thereof without the consent of the Commissioner; (5) The Lessee shall at all times maintain in full force and effect a license from the State or other licensing authority to operate the project as a nursing home, but the owner shall not be required to maintain such a license; (6) Lessee shall maintain in good repair and condition any parts of the project for the maintenance of which Lessee is responsible under the terms of the lease; (7) Lessee shall not remodel, reconstruct, add to, or demolish any part of the mortgaged property or subtract from any real or personal property of the project; (8) Lessee shall not use the project for any purpose except the operation of a nursing home; (9) If a default is declared by the Commissioner under the provisions of Paragraph 10 of the Regulatory Agreement entered into by the lessor-mortgagor and the Commissioner on the 1st day of March, 2001, a copy of notice of default having been given to the lessee, the lessee will thereafter make all future payments under the lease to the Commissioner; (10) The lease may be cancelled upon thirty days written notice by the Commissioner given to the lessor and the Lessee for a violation of any of the above provisions unless the violation is corrected to the satisfaction of the Commissioner within said thirty day period. (11) The Commissioner must approve any change in or transfer of ownership of the lessee entity, and any change in or transfer of the management operation, or control of the project. (12) The Lessee shall not reduce or expand, allow to be reduced or expanded, or cause the expansion or reduction of the bed capacity of the project without the consent of the Commissioner. Any change in the bed capacity shall violate this Regulatory Agreement. (13) The Lessee shall not enter into any management contract involving the project, unless such shall contain a provision that, in the event of default under the Regulatory Agreement as recited in paragraph 9 (above) of this Agreement, the management agreement shall be subject to termination without penalty upon written request of the Commissioner. Upon such request the lessee shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Commissioner for continuing proper management of the project. (14) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Commissioner or his duly authorized agents. Lessee shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Commissioner or his/her duly authorized agents. 3 (15) There shall be full compliance with the provisions of (1) any State or local laws prohibiting discrimination in housing on the basis of race, color, creed, or national origin; and (2) with the Regulations of the Federal Housing Administration providing for non-discrimination and equal opportunity in housing. It is understood and agreed that failure or refusal to comply with any such provisions shall be a proper basis for the Commissioner to take any corrective action he may deem necessary including, but not limited to, the refusal to consent to a further renewal of the lease between the Mortgagor-Lessor and the Lessee, the rejection of applications for FHA mortgage insurance and the refusal to enter into future contracts of any kind with which the Lessee is identified; and further, if the Lessee is a corporation or any other type of business association or organization which may fail or refuse to comply with the aforementioned provisions, the Commissioner shall have a similar right of corrective action (1) with respect to any individuals who are officers, directors, trustees, managers, partners, associates or principal stockholders of the Lessee; and (2) with respect to any other type of business association, or organization with which the officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee may be identified. 4 IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. RETIREMENT INNS II, LLC a Delaware limited liability company By: America Retirement Villas Properties II Its sole member By: ___________________________ Douglas Armstrong Vice President March 1, 2001 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent March 1, 2001 EX-10.80 7 a71045ex10-80.txt EXHIBIT 10.80 1 EXHIBIT 10.80 DEED OF TRUST NOTE $1,789,700.00 San Francisco, California December 5, 2000 FOR VALUE RECEIVED, the undersigned, ARV CAMPBELL, L.P., a California limited partnership, promises to pay RED MORTGAGE CAPITAL, INC., an Ohio corporation, or order, at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or at such other place as may be designated in writing by the holder of this Note, the principal sum of ONE MILLION SEVEN HUNDRED EIGHTY-NINE THOUSAND SEVEN HUNDRED AND 00/100THS DOLLARS ($1,789,700.00), with interest thereon from the date hereof at the rate of Eight and three hundredths per centum (8.03 %) per annum on the unpaid balance until paid. The principal and interest shall be payable in monthly installments as follows: Interest alone shall be due and payable on the first day of January, 2001. Thereafter, commencing on February 1, 2001, monthly installments of principal and interest at the rate of Eight and three hundredths per centum (8.03 %) per annum shall be due and payable in the sum of TWELVE THOUSAND SEVEN HUNDRED FIFTY AND 56/100THS DOLLARS ($12,750.56) each, such payments to continue monthly thereafter on the first day of each succeeding month until the entire indebtedness has been paid in full. In any event, the balance of principal (if any) remaining unpaid, plus accrued interest, shall be due and payable on January 1, 2036. The installments of principal and interest shall be applied first to interest at the rate aforesaid upon the principal sum or so much thereof as shall from time to time remain unpaid, and the balance thereof shall be applied on account of principal. Both principal and interest under this Note, as well as the additional payments set forth in the Deed of Trust shall be payable at the office of RED MORTGAGE CAPITAL, INC., at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or such other place as the holder may designate in writing. Prepayment of this Note is subject to the terms and provisions set forth in Allonge #1 attached hereto and incorporated herein by this reference. If default be made in the payment of any installment under this Note, and if the default is not made good prior to the due date of the next such installment, the entire principal sum and 2 accrued interest shall at once become due and payable without notice at the option of the holder of this Note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. The makers and endorsers severally waive diligence, presentment, protest, and demand, and also notice of protest, dishonor, and nonpayment of this Note, and expressly agree that this Note, or any payment thereunder, may be extended from time to time, and consent to the acceptance of further security for this Note, including other types of security, all without in any way affecting the liability of the makers and endorsers hereof. The right to plead any and all statutes of limitations as a defense to any demand on this Note, or any guaranty thereof, or to any agreement to pay the same, or to any demand secured by the Deed of Trust, (hereinafter defined) or other security, securing this Note, or any and all obligations, or liabilities arising out of or in connection with said Note or Deed of Trust by any of the parties hereto, is expressly waived by each and every of the makers, endorsers, guarantors or sureties. Principal and interest are payable in lawful money of the United States. If action be instituted on this Note, the undersigned promise(s) to pay in addition to the costs and disbursements allowed by law such sum as the Court may adjudge reasonable as attorney's fees in said action. This Note is secured by a Deed of Trust, of even date herewith, to Fidelity National Title Insurance Company, as Trustee, on real estate situated in the City of Campbell, County of Santa Clara, California (the "Deed of Trust"). In the event any installment or part of any installment due hereunder becomes delinquent for more than fifteen (15) days, there shall be due, at the option of the holder, in addition to other sums due hereunder, a sum equal to two percent (2%) of the amount of such installment of principal and interest so delinquent. Whenever under the law of the jurisdiction where the property is located, the amount of any such late charge is considered to be additional interest, this provision shall not be effective if the rate of interest specified in this Note, together with the amount of the late charge, would aggregate an amount in excess of the maximum rate of interest permitted and would constitute usury. All parties to this Note, whether principal, surety, guarantor, or endorser hereby waive presentment for payment, demand, protect, notice of protest, and notice of dishonor. Notwithstanding any other provision contained in this Note, it is agreed that the execution of this Note shall impose no personal liability on the maker hereof (nor any of its present or future limited or general partners) for payment of the indebtedness evidenced hereby and in the event of a default, the holder of this Note shall look solely to the property described in the Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced hereby and will not seek or obtain any deficiency or personal judgment against the maker hereof (nor any of its present or future limited or general partners) except such judgment or decree as may be necessary to foreclose and bar its interest in the property and all other property mortgaged, pledged, conveyed or assigned to secure payment of this Note, except as set out in the Deed of Trust of even date given to secure this indebtedness. 3 IN WITNESS WHEREOF, the undersigned has caused this Note to be executed in its name and on its behalf by its Senior Vice President, thereunto duly authorized the day and year first above written. ARV CAMPBELL, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: _____________________________ Abdo H. Khoury Senior Vice President ================================================================================ I HEREBY CERTIFY that this is the Note described in and secured by the Deed of Trust of even date herewith, and in the same principal amount as herein stated, to Fidelity National Title Insurance Company, Trustee(s), on real estate in the City of Campbell, Santa Clara County, California. Dated this ____ day of December, 2000. [SEAL] __________________________________________ Notary Public My Commission Expires: ___________________ EX-10.81 8 a71045ex10-81.txt EXHIBIT 10.81 1 EXHIBIT 10.81 ALLONGE #1 TO DEED OF TRUST NOTE OF ARV CAMPBELL, L.P. TO RED MORTGAGE CAPITAL, INC. IN THE ORIGINAL PRINCIPAL SUM OF $1,789,700.00 DATED DECEMBER 5, 2000 - -------------------------------------------------------------------------------- 1. Except as provided in Paragraphs 2, and 3 below, Maker may not prepay any sums due under the Mortgage Note (the "Note") prior to February 1, 2006. Commencing on February 1, 2006, upon thirty (30) days advance written notice to the Holder, Maker may prepay the indebtedness evidenced by this Note, in whole or in an amount equal to one or more monthly payments of principal next due, on the last day of any month, provided such prepayment is accompanied by the prepayment penalty (expressed as a percentage of the principal amount so prepaid) set forth below: PREPAYMENT PERIODS PREPAYMENT PENALTY ------------------ ------------------ February 1, 2006 through January 31, 2007 5% February 1, 2007 through January 31, 2008 4% February 1, 2008 through January 31, 2009 3% February 1, 2009 through January 31, 2010 2% February 1, 2010 through January 31, 2011 1% February 1, 2011 and thereafter None All such prepayments, including the principal sum and interest thereon to and including the date of such prepayment, shall be in immediately available Federal Funds. 2. Notwithstanding any prepayment prohibition imposed and/or penalty required by this Allonge #1 with respect to voluntary prepayments made prior to February 1, 2010, the indebtedness may be prepaid in whole or in part without the consent of the holder and without prepayment premium if the Commissioner determines that prepayment will avoid a mortgage insurance claim and is therefore in the best interest of the Federal Government. 3. The provisions of Paragraph 1 of this Allonge #1 shall not apply and no prepayment premium shall be collected by the holder with respect to any prepayment which is made by or on behalf of Maker from insurance proceeds as a result of damage to the property or condemnation awards which may, at the option of the holder, be applied to reduce the indebtedness evidenced by the Note pursuant to the terms of the Mortgage given of even date to secure the indebtedness evidenced by the Note. 2 4. A reduction in the principal amount of the Note required by the Commissioner at the time of Initial/Final Endorsement by the Commissioner as a result of the Commissioner's cost certification requirements shall not be construed as a prepayment hereunder. If a reduction is required by the Commissioner as aforesaid, or if any prepayment from any source (to the extent permitted herein) is made, the remaining payments due on the Note may, with the approval of the holder and the Commissioner, be recast such that the required monthly payments of principal and interest shall be in equal amounts sufficient to amortize the Note over the then remaining term thereof. ARV CAMPBELL, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership, General Partner By: ARV Assisted Living, Inc. a Delaware corporation, General Partner By: _____________________________ Abdo H. Khoury Senior Vice President EX-10.82 9 a71045ex10-82.txt EXHIBIT 10.82 1 EXHIBIT 10.82 DEED OF TRUST With Assignment of Rents THIS DEED OF TRUST, made into this 5th day of December, 2000, by and between ARV CAMPBELL, L.P., a California limited partnership, with offices at 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, herein called Trustor, and FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, Trustee(s), and RED MORTGAGE CAPITAL, INC., an Ohio corporation, with offices at 150 East Gay Street, 22nd Floor, Columbus, Ohio 53215, herein called Beneficiary. WITNESSETH: That Trustor grants, transfers, and assigns to Trustee in trust, upon the trusts, covenants, conditions and agreements and for the uses and purposes hereinafter contained, with power of sale, all that real property situate, lying and being in Santa Clara County, State of California, described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF. Together with the rents, issues, and profits thereof, SUBJECT, HOWEVER, to the right, power, and authority hereinafter given to and conferred upon Beneficiary to collect and apply such rents, issues, and profits; and together with all buildings and improvements of every kind and description now or hereafter erected or placed thereon, and all fixtures, including but not limited to all gas and electric fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, laundry equipment, steam and hot-water boilers, stoves, ranges, elevators and motors, bath tubs, sinks, water closets, basins, pipes, faucets and other plumbing and heating fixtures, mantels, cabinets, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking apparatus and appurtenances, and all shades, awnings, screens, blinds and other furnishings, it being hereby agreed that all such fixtures and furnishings shall to the extent permitted by law be deemed to be permanently affixed to and a part of the realty; and Together with all building materials and equipment now or hereafter delivered to said premises and intended to be installed therein; and Together with all articles of personal property now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the lands described which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the 2 activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner, and said Trustor agrees to execute a Security Agreement covering the aforesaid fixtures and articles of personal property, at the time of placing such personal property or any part thereof in the building or buildings to be erected on the lands herein described in the manner and form required by law, at its expense and satisfactory to the Beneficiary. To have and to hold the property hereinbefore described together with appurtenances to the Trustee, its or his successors and assigns forever. FOR THE PURPOSE of securing performance of each agreement of Trustor herein and payment of a just indebtedness of the Trustor to the Beneficiary in the principal sum of ONE MILLION SEVEN HUNDRED EIGHTY-NINE THOUSAND SEVEN HUNDRED AND NO/100THS DOLLARS ($1,789,700.00), evidenced by its Note of even date herewith, bearing interest from date on outstanding balances at Eight and three-hundredths percent (8.03%) per annum, said principal and interest being payable in monthly installments as provided in said Note with a final maturity of January 1, 2036, which Note is identified as being secured hereby by a certificate thereon. Said Note and all of its terms are incorporated herein by reference and this conveyance shall secure any and all extensions thereof, however evidenced. AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: 1. That it will pay the Note at the times and in the manner provided therein; 2. That it will not permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Deed of Trust was executed; 3. That the Regulatory Agreement, if any, executed by the Trustor and the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, which is being recorded simultaneously herewith, is incorporated in and made a part of this Deed of Trust. Upon default under the Regulatory Agreement and upon the request of the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, the Beneficiary, at its option, may declare the whole of the indebtedness secured hereby to be due and payable; 4. That all rents, profits and income from the property covered by this Deed of Trust are hereby assigned to the Beneficiary for the purpose of discharging the debt hereby secured. Permission is hereby given to Trustor so long as no default exists hereunder, to collect such rents, profits and income for use in accordance with the provisions of the Regulatory Agreement; That the Trustor grants to the holder or holders of the Note secured hereby the right and power to appoint a substitute Trustee or Trustees hereunder for any reason whatsoever by instrument of appointment duly executed and acknowledged by the holder or holders of the Note and to be filed for record in the office wherein this Deed of Trust is recorded. Such power of 3 appointment may be exercised as often as deemed necessary by the holder or holders of the Note. Upon such appointment, the substitute Trustee or Trustees shall be vested with all the rights, powers, authority and duties vested in the Trustee hereunder; 5. That upon default hereunder or under the aforementioned Regulatory Agreement, Beneficiary shall be entitled to the Appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom; 6. That at the option of the Trustor the principal balance secured hereby may be reamortized on terms acceptable to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner if a partial prepayment results from an award in condemnation in accordance with provisions of Paragraph 21 herein, or from an insurance payment made in accordance with provisions of Paragraph 7 herein, where there is a resulting loss of project income; 7. That the Trustor will keep the improvements now existing or hereafter erected on the deeded property insured against loss by fire and such other hazards, casualties, and contingencies, as may be stipulated by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner upon the insurance of the Deed of Trust and other hazards as may be required from time to time by the Beneficiary, and all such insurance shall be evidenced by standard fire and extended coverage insurance policy or policies, in amounts not less than necessary to comply with the applicable Coinsurance Clause percentage, but in no event shall the amounts of coverage be less than 80 percent of the Insurable Values or not less than the unpaid balance of the insured Deed of Trust, whichever is the lesser, and in default thereof the Beneficiary shall have the right to effect insurance. Such policies shall be endorsed with standard Mortgagee clause with loss payable to the Beneficiary and the Secretary of Housing and Urban Development as their interests may appear, and shall be deposited with the Beneficiary; The insurance carrier providing the insurance shall be chosen by Trustor, subject to approval by Beneficiary, provided that such approval shall not be unreasonably withheld. That if the premises covered hereby, or any part thereof, shall be damaged by fire or other hazard against which insurance is held as hereinabove provided, the amounts paid by any insurance company in pursuance of the contract of insurance to the extent of the indebtedness then remaining unpaid, shall be paid to the Beneficiary, and, at its option, may be applied to the debt or released for the repairing or rebuilding of the premises. Any unexpired insurance shall inure to the benefit of, and pass to, the purchaser of the property covered thereby at any Trustee's sale held hereunder; 8. Together with and in addition to the monthly payments of interest or of principal and interest payable under the terms of said Note, to pay to Beneficiary monthly until said Note is fully paid, beginning on the first day of the first month after the date hereof, the following sums: 4 (a) An amount sufficient to provide the Beneficiary with funds to pay the next mortgage insurance premium if this instrument and the Note secured hereby are insured, or a monthly service charge, if they are held by the Secretary of Housing and Urban Development, as follows: (I) If and so long as said Note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the Beneficiary one month prior to its due date the annual mortgage insurance premium, in order to provide such Beneficiary with funds to pay such premium to the Secretary of Housing and Urban Development, pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or (II) Beginning with the first day of the month following an assignment of this instrument and the Note secured hereby to the Secretary of Housing and Urban Development, a monthly service charge which shall be an amount equal to one-twelfth of one-half percent (1/12 of 1/2%) of the average outstanding principal balance due on the Note computed for each successive year beginning with the first of the month following such assignment, without taking into account delinquencies or prepayments. (b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other property insurance covering the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby (all as estimated by the Beneficiary) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, water rates, taxes and assessments will become delinquent, such sums to be held by Beneficiary in trust to pay said ground rents, premiums, water rates, taxes, and special assessments. (c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the Note secured hereby shall be added together and the aggregate amount thereof shall be paid each month in a single payment to be applied by Beneficiary to the following items in the order set forth: (I) premium charges under the Contract of Insurance with the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner or service charge; (II) ground rents, taxes, special assessments, water rates, fire and other property insurance premiums; (III) interest on the Note secured hereby; 5 (IV) amortization of the principal of said Note. 9. Any excess funds accumulated under paragraph (b) above remaining after payment of the items therein mentioned, shall be credited to subsequent monthly payments of the same nature required thereunder; but if any such item shall exceed the estimate therefor, the Trustor shall without demand forthwith make good the deficiency. Failure to do so before the due date of such item shall be a default hereunder. In case of termination of the Contract of Mortgage Insurance by prepayment of the mortgage in full, or otherwise (except as hereinafter provided), accumulations under paragraph (a) above not required to meet payments due under the Contract of Mortgage Insurance, shall be credited to the Trustor. If the property is sold under foreclosure or is otherwise acquired by the Beneficiary after default, any remaining balance of the accumulations under paragraph (b) above shall be credited to the principal of the debt as of the date of commencement of foreclosure proceedings or as of the date the property is otherwise acquired; and accumulations under paragraph (a) above shall be similarly applied unless required to pay sums due to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner under the Contract of Mortgage Insurance; 10. To keep said property in good condition and repair, not to remove or demolish any buildings thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged, or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor; to comply with all laws affecting said property or requiring any alterations or improvements to be made thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon said property in violation of law and/or covenants, conditions and/or restrictions affecting said property; not to permit or suffer any alterations of or addition to the buildings or improvements hereafter constructed in or upon said property without the consent of the Beneficiary; 11. To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and to pay all costs and expenses, including cost of evidence of title and attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear; 12. Should Trustor fail to make any payment or do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon said property for such purposes; may commence, appear in and/or defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; may pay, purchase, contest, or compromise any encumbrance, charge, or lien which in the judgment of either appears to be prior or superior hereto; and, in exercising any such powers, may pay necessary expenses, employ counsel, and pay his reasonable fees; 13. The Beneficiary shall have the right to pay mortgage insurance premiums or fire and other property insurance premiums when due to the extent that monthly payments made 6 hereunder for the purpose of meeting same are insufficient. All such payments made by the Beneficiary shall be added to the principal sum secured hereby; 14. To pay immediately and without demand all sums so expended by Beneficiary or Trustee, under permission given under this Deed of Trust, with interest from date of expenditure at the rate specified in said Note; 15. 16. The Trustor further covenants that it will not voluntarily create, suffer, or permit to be created against the property subject to this Deed of Trust any lien or liens inferior or superior to the lien of this Deed of Trust and further that it will keep and maintain the same free from the claim of all persons supplying labor or materials which will enter into the construction of any and all buildings now being erected or to be erected on said premises; 17. That the improvements upon the premises, covered by the Deed of Trust, and all plans and specifications comply with all municipal ordinances and regulations and all of other regulations made or promulgated, now or hereafter, by lawful authority, and that the same will comply with all such municipal ordinances and regulations and with the rules of the applicable fire rating or inspection organization, bureau, association or office; 18. That so long as this Deed of Trust and the said Note secured hereby are insured under the provisions of the National Housing Act, or held by the Secretary of Housing and Urban Development, it will not execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the mortgaged property on the basis of race, color, creed or national origin. ABOVE IT IS MUTUALLY AGREED THAT: 19. Trustor herein agrees to pay to Beneficiary or to the authorized loan servicing representative of the Beneficiary a charge not to exceed $15 for providing a statement regarding the obligation secured by this Deed of Trust as provided by Section 2954, Article 2, chapter 2, Title 14, Part 4, Division 3, of the Civil Code of the State of California. 7 20. 21. Should the property or any part thereof be taken or damaged by reason of any public improvement or condemnation preceding, or damaged by fire, or earthquake, or in any other manner, the Beneficiary shall be entitled to all compensation, awards, and other payments or relief therefor, and shall be entitled at its option to commence, appear in and prosecute in its own name any action to proceedings, or to make any compromise or settlement in connection with such taking or damage. All awards of compensation in connection with condemnation for public use of or a taking of any of that property, shall be paid to the Beneficiary to be applied to the amount due under this Note secured hereby in (1) amounts equal to the next maturing installment or installments or principal and (2) with any balance to be credited to the next payment due under the Note. All awards of damages in connection with any condemnation for public use of or injury to any residue of that property shall be paid to the Beneficiary to be applied to a fund held for and on behalf of the Trustor which fund shall, at the option of the Beneficiary, and with the prior approval of the Secretary of Housing and Urban Development, either be applied to the amount due under the Note as specified in the preceding sentence, or be disturbed for the restoration or repair of the damage to the residue. No amount applied to the reduction of the principal amount due in accordance with (1) shall be considered an optional prepayment as the term is used in this Deed of Trust and the Note secured hereby, nor relieve the Trustor from making regular monthly payments commencing on the first day of the first month following the date of receipt of the award. The Beneficiary is hereby authorized in the name of the Trustor to execute and deliver valid acquittances for such awards and to appeal from such award; 22. Upon default by Trustor in making any monthly payment provided for herein or in the Note secured hereby, and if such default is not made good prior to the due date of the next such installment, or if Trustor shall fail to perform any covenant or agreement in this Deed of Trust, all sums secured hereby shall, at the option of the Beneficiary, be deemed to have become immediately due and payable, and shall thereupon be collectable by foreclosure of this Deed of Trust. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default, to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 8 23. After the lapse of such time as may then be required by law following the recordation of said notice of defaults, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell said property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of said property by public announcement at the time and place of sale, and from time to time thereafter may postpone the sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to the purchaser its Deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in the Deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee, or Beneficiary, may purchase at the sale. The Trustee shall apply the proceeds of sale to payment of (1) the expenses of such sale, together with the reasonable expenses of this trust including therein reasonable Trustee's fees or attorney's fees for conducting the sale, and the actual cost of publishing, recording, mailing and posting notice of the sale; (2) the cost of any search and/or other evidence of title procured in connection with such sale and revenue stamps on Trustees' Deed; (3) all sums expended under the terms hereof, not then repaid, with accrued interest at the rate specified in said Note; (4) all other sums then secured hereby; and (5) the remainder, if any, to the person or persons legally entitled thereto; 24. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed and its place of record which, when duly recorded in the proper office of the county or counties in which the property is situated, shall be conclusive proof of proper appointment of the successor trustee. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 25. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed is hereby waived to the full extent permissible by law; 26. Upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed of Trust and said Note to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or fact shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto;" 27. The trust created hereby is irrevocable by Trustor; 28. This Deed of Trust applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors, and assigns. The term 9 "Beneficiary" shall include not only the original Beneficiary hereunder but also any future owner and holder including pledgees, of the Note secured hereby. In this Deed, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. All obligations of each Trustor hereunder are joint and several; 29. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee; 30. The Undersigned TRUSTOR REQUESTS that a copy of any notice of default and of any notice of sale hereunder be mailed to him at the mailing address opposite his name hereto. Failure to insert such address shall be deemed a waiver of any request hereunder for a copy of such notices. Mailing Address for Notices 245 Fischer Avenue, Suite D-1 Costa Mesa, California 92626 31. Notwithstanding any other provision contained herein or in the Note, hereinabove referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. 32. Notwithstanding any other provision contained herein or in the Note, hereinafter referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor (or any of its present or future limited and general partners) for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor (or any of its present or future limited and general partners) except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this 10 condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. IN WITNESS WHEREOF the Trustor has caused its name to be hereunto subscribed by its duly authorized General Partner as of the day and year herein first above written. ARV CAMPBELL, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Abdo H. Khoury Senior Vice President EX-10.83 10 a71045ex10-83.txt EXHIBIT 10.83 1 EXHIBIT 10.83 REGULATORY AGREEMENT FOR U.S. Department of Housing MULTIFAMILY HOUSING PROJECTS and Urban Development OFFICE OF HOUSING FEDERAL HOUSING COMMISSIONER - -------------------------------------------------------------------------------- Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits Project No. 121-22028-ALF Mortgagee: RED MORTGAGE CAPITAL, INC. Amount of Mortgage Note: $1,789,700.00 Date: December 5, 2000 Mortgage: Recorded: State: California County: Santa Clara Date: December ____, 2000 Concurrently Herewith Book __ Page __ Originally endorsed for insurance under Section 232 pursuant to Section 223(f) of the National Housing Act, as amended. This Agreement entered into this 5th day of December, 2000, between ARV CAMPBELL, L.P., a California limited partnership whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, their successors, heirs, and assigns (jointly and severally, hereinafter referred to as Owners) and the undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his successors (hereinafter referred to as Secretary). In consideration of the endorsement for insurance by the Secretary of the above described note or in consideration of the consent of the Secretary to the transfer of the mortgaged property or the sale and conveyance of the mortgaged property by the Secretary, and in order to comply with the requirements of the National Housing Act, as amended, and the Regulations adopted by the Secretary pursuant thereto, Owners agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the contract of mortgage insurance continues in effect, and during such further period of time as the Secretary shall be the owner, holder or reinsurer of the mortgage, or during any time the Secretary is obligated to insure a mortgage on the mortgage property: 1. Owners, except as limited by paragraph 17 hereof, assume and agree to make promptly all payments due under the note and mortgage. 2 2. (a) Owners shall establish or continue to maintain a reserve fund for replacements by the allocation to such reserve fund in a separate account with the mortgagee or in a safe and responsible depository designated by the mortgagee, concurrently with the beginning of payments towards amortization of the principal of the mortgage insured or held by the Secretary of an amount equal to $3,078.92 per month unless a different date or amount is approved in writing by the Secretary. Said monthly deposit consists of $1,880.50 for Realty and $1,198.42 for Non-Realty. In addition, the Owner has made an initial deposit to the fund of $117,869.00. Such fund, whether in the form of a cash deposit or invested in obligations of, or fully guaranteed as to principal by, the United States of America shall at all times be under the control of the mortgagee. Disbursements from such fund, whether for the purpose of effecting replacement of structural elements and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the Secretary. In the event that the owner is unable to make a mortgage note payment on the due date and that payment cannot be made prior to the due day of the next such installment or when the mortgagee has agreed to forgo making an election to assign the mortgage to the Secretary based on a monetary default, or to withdraw an election already made, the Secretary is authorized to instruct the mortgagee to withdraw funds from the reserve fund for replacements to be applied to the mortgage payment in order to prevent or cure the default. In addition, in the event of a default in the terms of the mortgage, pursuant to which the loan has been accelerated, the Secretary may apply or authorize the application of the balance in such fund to the amount due on the mortgage debt as accelerated. (b) Where Owners are acquiring a project already subject to an insured mortgage, the reserve fund for replacements to be established will be equal to the amount due to be in such fund under existing agreements or charter provisions at the time Owners acquire such project, and payments hereunder shall begin with the first payment due on the mortgage after acquisition, unless some other method of establishing and maintaining the fund is approved in writing by the Secretary. 3. Real property covered by the mortgage and this agreement is described in Exhibit A attached hereto. (This paragraph 4 is not applicable to cases insured under Section 232). 3 5. (a) If the mortgage is originally a Secretary-held purchase money mortgage, or is originally endorsed for insurance under any Section other than Sections 231 or 232 and is not designed primarily for occupancy by elderly persons, Owners shall not in selecting tenants discriminate against any person or persons by reason of the fact that there are children in the family. (b) If the mortgage is originally endorsed for insurance under Section 221, Owners shall in selecting tenants give to displaced persons or families an absolute preference or priority of occupancy which shall be accomplished as follows: (1) For a period of sixty (60) days from the date of original offering, unless a shorter period of time is approved in writing by the Secretary, all units shall be held for such preferred applicants, after which time any remaining unrented units may be rented to non-preferred applicants; (2) Thereafter, and on a continuing basis, such preferred applicants shall be given preference over non-preferred applicants in their placement on a waiting list to be maintained by the Owners; and (3) Through such further provisions agreed to in writing by the parties. (c) Without the prior written approval of the Secretary not more than 25% of the number of units in a project insured under Section 231 shall be occupied by persons other than elderly persons. (d) All advertising or efforts to rent a project insured under Section 231 shall reflect a bona fide effort of the Owners to obtain occupancy by elderly persons. 6. Owners shall not without the prior written approval of the Secretary: (a) Convey, transfer, or encumber any of the mortgaged property, or permit the conveyance, transfer or encumbrance of such property. (b) Assign, transfer, dispose of, or encumber any personal property of the project, including rents, or pay out any funds except from surplus cash, except for reasonable operating expenses and necessary repairs. (c) Convey, assign, or transfer any beneficial interest in any trust holding title to the property, or the interest of any general partner in a partnership owning the property, or any right to manage or receive the rents and profits from the mortgaged property. (d) Remodel, add to, reconstruct, or demolish any part of the mortgaged property or subtract from any real or personal property of the project. (e) Make, or receive and retain, any distribution of assets or any income of any kind of the project except surplus cash and except on the following conditions: 4 (1) All distributions shall be made only as of and after the end of a semiannual or annual fiscal period, and only as permitted by the law of the applicable jurisdiction; (2) No distribution shall be made from borrowed funds, prior to the completion of the project or when there is any default under this Agreement or under the note or mortgage; (3) Any distribution of any funds of the project, which the party receiving such funds is not entitled to retain hereunder, shall be held in trust separate and apart from any other funds; and (4) There shall have been compliance with all outstanding notices of requirements for proper maintenance of the project. (f) Engage, except for natural persons, in any other business or activity, including the operation of any other rental project, or incur any liability or obligation not in connection with the project. (g) Require, as a condition of the occupancy or leasing of any unit in the project, any consideration or deposit other than the prepayment of the first month's rent plus a security deposit in an amount not in excess of one month's rent to guarantee the performance of the covenants of the lease. Any funds collected as security deposits shall be kept separate and apart from all other funds of the project in a trust account the amount of which shall at all times equal or exceed the aggregate of all outstanding obligations under said account. (h) Permit the use of the dwelling accommodations or nursing facilities of the project for any purpose except the use which was originally intended, or permit commercial use greater than that originally approved by the Secretary. 7. Owners shall maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition. In the event all or any of the buildings covered by the mortgage shall be destroyed or damaged by fire or other casualty, the money derived from any insurance on the property shall be applied in accordance with the terms of the mortgage. 8. Owners shall not file any petition in bankruptcy or for a receiver or in insolvency or for reorganization or composition, or make any assignment for the benefit of creditors or to a trustee for creditors, or permit an adjudication in bankruptcy or 5 the taking possession of the mortgaged property or any part thereof by a receiver or the seizure and sale of the mortgaged property or any part hereof under judicial process or pursuant to any power of sale, and fail to have such adverse actions set aside within forty-five (45) days. 9. (a) Any management contract entered into by Owners or any of them involving the project shall contain a provision that, in the event of default hereunder, it shall be subject to termination without penalty upon written request by the Secretary. Upon such request Owners shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Secretary for continuing proper management of the project. (b) Payment for services, supplies, or materials shall not exceed the amount ordinarily paid for such services, supplies, or materials in the area where the services are rendered or the supplies or materials furnished. (c) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Secretary or his duly authorized agents. Owners shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Secretary or his duly authorized agents. (d) The books and accounts of the operations of the mortgaged property and of the project shall be kept in accordance with the requirements of the Secretary. (e) Within sixty (60) days following the end of each fiscal year the Secretary shall be furnished with a complete annual financial report based upon an examination of the books and records of mortgagor prepared in accordance with the requirements of the Secretary, prepared and certified to by an officer or responsible Owner and, when required by the Secretary, prepared and certified by a Certified Public Accountant, or other person acceptable to the Secretary. (f) At the request of the Secretary, his agents, employees, or attorneys, the Owners shall furnish monthly occupancy reports and shall give specific answers to questions upon which information is desired from time to time relative to 6 income, assets, liabilities, contracts, operation, and condition of the property and the status of the insured mortgage. (g) All rents and other receipts of the project shall be deposited in the name of the project in a financial institution, whose deposits are insured by an agency of the Federal Government. Such funds shall be withdrawn only in accordance with the provisions of this Agreement for expenses of the project or for distributions of surplus cash as permitted by paragraph 6(e) above. Any Owner receiving funds of the project other than by such distribution of surplus cash shall immediately deposit such funds in the project bank account and failing so to do in violation of this Agreement shall hold such funds in trust. Any Owner receiving property of the project in violation of this Agreement shall hold such funds in trust. At such time as the Owners shall have lost control and/or possession of the project, all funds held in trust shall be delivered to the mortgagee to the extent that the mortgage indebtedness has not been satisfied. (h) If the mortgage is insured under Section 232: 1. The Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as a nursing home and shall not lease all or part of the project except on terms approved by the Secretary. 2. The Owners shall suitably equip the project for nursing home operations. 3. The Owners shall execute a Security Agreement and Financing Statement (or other form of chattel lien) upon all items of equipment, except as the Secretary may exempt, which are not incorporated as security for the insured mortgage. The Security Agreement and Financing Statement shall constitute a first lien upon such equipment and shall run in favor of the mortgagee as additional security for the insured mortgage. (i) If the mortgage is insured under Section 231, Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as housing for the elderly. 10. Owners will comply with the provisions of any Federal, State, or local law prohibiting discrimination in housing on the grounds of race, color, religion or creed, sex, or national origin, including Title VIII of the Civil Rights Act of 1968 7 (Public Law 90-284; 82 Stat. 73), as amended, Executive Order 11063, and all requirements imposed by or pursuant to the regulations of the Department of Housing and Urban Development implementing these authorities (including 24 CFR Parts 100, 107 and 110, and Subparts I and M of Part 200). 11. Upon a violation of any of the above provisions of this Agreement by Owners, the Secretary may give written notice thereof, to Owners, by registered or certified mail, addressed to the addresses stated in this Agreement, or such other addresses as may subsequently, upon appropriate written notice thereof to the Secretary, be designated by the Owners as their legal business address. If such violation is not corrected to the satisfaction of the Secretary within thirty (30) days after the date such notice is mailed or within such further time as the Secretary determines is necessary to correct the violation, without further notice the Secretary may declare a default under this Agreement effective on the date of such declaration of default and upon such default the Secretary may: (a) (i) If the Secretary holds the note - declare the whole of said indebtedness immediately due and payable and then proceed with the foreclosure of the mortgage; (ii) If said note is not held by the Secretary - notify the holder of the note of such default and request holder to declare a default under the note and mortgage, and holder after receiving such notice and request, but not otherwise, at its option, may declare the whole indebtedness due, and thereupon proceed with foreclosure of the mortgage, or assign the note and mortgage to the Secretary as provided in the Regulations; (b) Collect all rents and charges in connection with the operation of the project and use such collections to pay the Owners' obligations under this Agreement and under the note and mortgage and the necessary expenses of preserving the property and operating the project. (c) Take possession of the project, bring any action necessary to enforce any rights of the Owners growing out of the project operation, and operate the project in accordance with the terms of this Agreement until such time as the Secretary in his discretion determines that the Owners are again in a position to operate the project in accordance with the terms of this Agreement and in compliance with the requirements of the note and mortgage. 8 (d) Apply to any court, state or Federal, for specific performance of this Agreement, for an injunction against any violation of the Agreement, for the appointment of a receiver to take over and operate the project in accordance with the terms of the Agreement, or for such other relief as may be appropriate, since the injury to the Secretary arising from a default under any of the terms of this Agreement would be irreparable and the amount of damage would be difficult to ascertain. 12. As security for the payment due under this Agreement to the reserve fund for replacements, and to secure the Secretary because of his liability under the endorsement of the note for insurance, and as security for the other obligations under this Agreement, the Owners respectively assign, pledge and mortgage to the Secretary their rights to the rents, profits, income and charges of whatsoever sort which they may receive or be entitled to receive from the operation of the mortgaged property, subject, however, to any assignment of rents in the insured mortgage referred to herein. Until a default is declared under this Agreement, however, permission is granted to Owners to collect and retain under the provisions of this Agreement such rents, profits, income, and charges, but upon default this permission is terminated as to all rents due or collected thereafter. 13. As used in this Agreement the term: (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage", "Security Instrument", and any other security for the note identified herein, and endorsed for insurance or held by the Secretary; (b) "Mortgagee" refers to the holder of the mortgage identified herein, its successors and assigns; (c) "Owners" refers to the persons named in the first paragraph hereof and designated as Owners, their successors, heirs and assigns; (d) "Mortgaged Property" includes all property, real, personal or mixed, covered by the mortgage or mortgages securing the note endorsed for insurance or held by the Secretary; (e) "Project" includes the mortgaged property and all its other assets of whatsoever nature or wheresoever situate, used in or owned by the business conducted on said mortgaged property, which business is providing housing and other activities as are incidental thereto; 9 (f) "Surplus Cash" means any cash remaining after: (1) the payment of: (i) All sums due or currently required to be paid under the terms of any mortgage or note insured or held by the Secretary; (ii) All amounts required to be deposited in the reserve fund for replacements; (iii) All obligations of the project other than the insured mortgage unless funds for payment are set aside or deferment of payment has been approved by the Secretary; and (2) the segregation of: (i) An amount equal to the aggregate of all special funds required to be maintained by the project; and (ii) All tenant security deposits held. (g) "Distribution" means any withdrawal or taking of cash or any assets of the project, including the segregation of cash or assets for subsequent withdrawal within the limitations of Paragraph 6(e) hereof, and excluding payment for reasonable expenses incident to the operation and maintenance of the project. (h) "Default" means a default declared by the Secretary when a violation of this Agreement is not corrected to his satisfaction within the time allowed by this Agreement or such further time as may be allowed by the Secretary after written notice; (i) "Section" refers to a Section of the National Housing Act, as amended. (j) "Displaced persons or families" shall mean a family or families, or a person, displaced from an urban renewal area, or as the result of government action, or as a result of a major disaster as determined by the President pursuant to the Disaster Relief Act of 1970. 10 (k) "Elderly person" means any person, married or single, who is sixty-two years of age or over. 14. This instrument shall bind, and the benefits shall inure to, the respective Owners, their heirs, legal representatives, executors, administrators, successors in office or interest, and assigns, and to the Secretary and his successors so long as the contract of mortgage insurance continues in effect, and during such further time as the Secretary shall be the owner, holder, or reinsurer of the mortgage, or obligated to reinsure the mortgage. 15. Owners warrant that they have not, and will not, execute any other agreement with provisions contradictory of, or in opposition to, the provisions hereof, and that, in any event, the requirements of this Agreement are paramount and controlling as to the rights and obligations set forth and supersede any other requirements in conflict therewith. 16. The invalidity of any clause, part or provision of this Agreement shall not affect the validity or the remaining portions thereof. 17. The following Owners: ARV Campbell, L.P., a California limited partnership, and all present and future limited and general partners thereof, do not assume personal liability for payments due under the note and mortgage, or for the payments to the reserve for replacements, or for matters not under their control, provided that said Owners shall remain liable under this Agreement only with respect to the matters hereinafter stated; namely: (a) for funds or property of the project coming into their hands which, by the provisions hereof, they are not entitled to retain; and (b) for their own acts and deeds or acts and deeds of others which they have authorized in violation of the provisions hereof. (To be executed with formalities for recording a deed to real estate) 11 All references herein to the terms "nursing home" or nursing homes" shall mean and include the terms "assisted living facility" and "assisted living facilities." See Rider I attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. ARV CAMPBELL, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Abdo H. Khoury Senior Vice President December 5, 2000 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent December 5, 2000 EX-10.84 11 a71045ex10-84.txt EXHIBIT 10.84 1 EXHIBIT 10.84 Regulatory Agreement NURSING HOMES U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Housing Federal Housing Commissioner - -------------------------------------------------------------------------------- Project Number Mortgagee 121-22028-ALF Red Capital Mortgage, Inc., an Ohio corporation - -------------------------------------------------------------------------------- Amount of Mortgage Note Date $1,789,700.00 December 5, 2000 - -------------------------------------------------------------------------------- Mortgage Recorded (State) County Date California Santa Clara December __, 2000 - -------------------------------------------------------------------------------- Book Page - -------------------------------------------------------------------------------- This Agreement entered into this 5th day of December, 2000 between RETIREMENT INNS II, LLC, a Delaware limited liability company whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626 (jointly and severally, hereinafter referred to as Lessee) and the undersigned FEDERAL HOUSING COMMISSIONER, (hereinafter called Commissioner). In consideration of the consent of the Commissioner to the leasing of the aforesaid project by ARV CAMPBELL, L.P., a California limited partnership, Mortgagor, and in order to comply with the requirements of the National Housing Act and the Regulations adopted by the Commissioner pursuant thereto, Lessees agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the Contract of Mortgage Insurance continues in effect, and during such further period of time as the Commissioner shall be the owner, holder or reinsurer of the mortgage, or during any time the Commissioner is obligated to insure a mortgage on the mortgaged property: (1) The lease shall be subject and subordinate to the mortgage securing the note or other obligation endorsed for insurance by the commissioner; (2) Lessee shall make payments under lease when due; (3) Payments by the lessee to the lessor shall be sufficient to pay all mortgage payments including payments to reserves for taxes, insurance, etc., payments to the Reserve for Replacements, and to take care of necessary maintenance. If at the end of any calendar year, or any fiscal year if the project operates on the basis of a fiscal year, payments under the lease have not been sufficient to take care of the above items, the lessor and lessee upon request in writing from the Commissioner shall renegotiate the amounts due under the lease so that such amounts shall be sufficient to take care of such items; the Commissioner shall be furnished by the lessee, within thirty days after being called upon to do so, with a financial report in form satisfactory to the Commissioner covering the operations of the mortgaged property and of the project; 2 (4) The lessee shall not sublease the project or any part thereof without the consent of the Commissioner; (5) The lessee shall at all times maintain in full force and effect a license from the State or other licensing authority to operate the project as a nursing home, but the owner shall not be required to maintain such a license; (6) Lessee shall maintain in good repair and condition any parts of the project for the maintenance of which lessee is responsible under the terms of the lease; (7) Lessee shall not remodel, reconstruct, add to, or demolish any part of the mortgaged property or subtract from any real or personal property of the project; (8) Lessee shall not use the project for any purpose except the operation of a nursing home; (9) If a default is declared by the Commissioner under the provisions of Paragraph 10 of the Regulatory Agreement entered into by the lessor-mortgagor and the Commissioner on the 5th day of December, 2000, a copy of notice of default having been given to the lessee, the lessee will thereafter make all future payments under the lease to the Commissioner; (10) The lease may be cancelled upon thirty days written notice by the Commissioner given to the lessor and the lessee for a violation of any of the above provisions unless the violation is corrected to the satisfaction of the Commissioner within said thirty day period. (11) The Commissioner must approve any change in or transfer of ownership of the lessee entity, and any change in or transfer of the management operation, or control of the project. (12) The lessee shall not reduce or expand, allow to be reduced or expanded, or cause the expansion or reduction of the bed capacity of the project without the consent of the Commissioner. Any change in the bed capacity shall violate this Regulatory Agreement. (13) The lessee shall not enter into any management contract involving the project, unless such shall contain a provision that, in the event of default under the Regulatory Agreement as recited in paragraph 9 (above) of this Agreement, the management agreement shall be subject to termination without penalty upon written request of the Commissioner. Upon such request the lessee shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Commissioner for continuing proper management of the project. (14) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Commissioner or his duly authorized agents. Lessee shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Commissioner or his/her duly authorized agents. (15) There shall be full compliance with the provisions of (1) any State or local laws prohibiting discrimination in housing on the basis of race, color, creed, or national origin; and (2) with the 3 Regulations of the Federal Housing Administration providing for non-discrimination and equal opportunity in housing. It is understood and agreed that failure or refusal to comply with any such provisions shall be a proper basis for the Commissioner to take any corrective action he may deem necessary including, but not limited to, the refusal to consent to a further renewal of the lease between the mortgagor-lessor and the lessee, the rejection of applications for FHA mortgage insurance and the refusal to enter into future contracts of any kind with which the lessee is identified; and further, if the lessee is a corporation or any other type of business association or organization which may fail or refuse to comply with the aforementioned provisions, the Commissioner shall have a similar right of corrective action (1) with respect to any individuals who are officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee; and (2) with respect to any other type of business association, or organization with which the officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee may be identified. IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. RETIREMENT INNS II, LLC a Delaware limited liability company By: ___________________________ Abdo H. Khoury Manager December 5, 2000 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent December 5, 2000 EX-10.85 12 a71045ex10-85.txt EXHIBIT 10.85 1 EXHIBIT 10.85 DEED OF TRUST NOTE $8,855,000.00 San Francisco, California December 5, 2000 FOR VALUE RECEIVED, the undersigned, ARV SUNNYVALE, L.P., a California limited partnership, promises to pay RED MORTGAGE CAPITAL, INC., an Ohio corporation, or order, at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or at such other place as may be designated in writing by the holder of this Note, the principal sum of EIGHT MILLION EIGHT HUNDRED FIFTY-FIVE THOUSAND AND 00/100THS DOLLARS ($8,855,000.00), with interest thereon from the date hereof at the rate of Eight and three hundredths per centum (8.03 %) per annum on the unpaid balance until paid. The principal and interest shall be payable in monthly installments as follows: Interest alone shall be due and payable on the first day of January, 2000. Thereafter, commencing on February 1, 2001, monthly installments of principal and interest at the rate of Eight and three hundredths per centum (8.03 %) per annum shall be due and payable in the sum of SIXTY-THREE THOUSAND EIGHTY-SIX AND 65/100THS DOLLARS ($63,086.65) each, such payments to continue monthly thereafter on the first day of each succeeding month until the entire indebtedness has been paid in full. In any event, the balance of principal (if any) remaining unpaid, plus accrued interest, shall be due and payable on January 1, 2036. The installments of principal and interest shall be applied first to interest at the rate aforesaid upon the principal sum or so much thereof as shall from time to time remain unpaid, and the balance thereof shall be applied on account of principal. Both principal and interest under this Note, as well as the additional payments set forth in the Deed of Trust shall be payable at the office of RED MORTGAGE CAPITAL, INC., at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or such other place as the holder may designate in writing. Prepayment of this Note is subject to the terms and provisions set forth in Allonge #1 attached hereto and incorporated herein by this reference. If default be made in the payment of any installment under this Note, and if the default is not made good prior to the due date of the next such installment, the entire principal sum and accrued interest shall at once become due and payable without notice at the option of the holder of this Note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. 2 The makers and endorsers severally waive diligence, presentment, protest, and demand, and also notice of protest, dishonor, and nonpayment of this Note, and expressly agree that this Note, or any payment thereunder, may be extended from time to time, and consent to the acceptance of further security for this Note, including other types of security, all without in any way affecting the liability of the makers and endorsers hereof. The right to plead any and all statutes of limitations as a defense to any demand on this Note, or any guaranty thereof, or to any agreement to pay the same, or to any demand secured by the Deed of Trust, (hereinafter defined) or other security, securing this Note, or any and all obligations, or liabilities arising out of or in connection with said Note or Deed of Trust by any of the parties hereto, is expressly waived by each and every of the makers, endorsers, guarantors or sureties. Principal and interest are payable in lawful money of the United States. If action be instituted on this Note, the undersigned promise(s) to pay in addition to the costs and disbursements allowed by law such sum as the Court may adjudge reasonable as attorney's fees in said action. This Note is secured by a Deed of Trust, of even date herewith, to Fidelity National Title Insurance Company, as Trustee, on real estate situated in the City of Sunnyvale, County of Santa Clara, California (the "Deed of Trust"). In the event any installment or part of any installment due hereunder becomes delinquent for more than fifteen (15) days, there shall be due, at the option of the holder, in addition to other sums due hereunder, a sum equal to two percent (2%) of the amount of such installment of principal and interest so delinquent. Whenever under the law of the jurisdiction where the property is located, the amount of any such late charge is considered to be additional interest, this provision shall not be effective if the rate of interest specified in this Note, together with the amount of the late charge, would aggregate an amount in excess of the maximum rate of interest permitted and would constitute usury. All parties to this Note, whether principal, surety, guarantor, or endorser hereby waive presentment for payment, demand, protect, notice of protest, and notice of dishonor. Notwithstanding any other provision contained in this Note, it is agreed that the execution of this Note shall impose no personal liability on the maker hereof (nor any of its present or future limited or general partners) for payment of the indebtedness evidenced hereby and in the event of a default, the holder of this Note shall look solely to the property described in the Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced hereby and will not seek or obtain any deficiency or personal judgment against the maker hereof (nor any of its present or future limited or general partners) except such judgment or decree as may be necessary to foreclose and bar its interest in the property and all other property mortgaged, pledged, conveyed or assigned to secure payment of this Note, except as set out in the Deed of Trust of even date given to secure this indebtedness. IN WITNESS WHEREOF, the undersigned has caused this Note to be executed in its name and on its behalf by its Senior Vice President, thereunto duly authorized the day and year first above written. 3 ARV SUNNYVALE, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: _____________________________ Abdo H. Khoury Senior Vice President ================================================================================ I HEREBY CERTIFY that this is the Note described in and secured by the Deed of Trust of even date herewith, and in the same principal amount as herein stated, to Fidelity National Title Insurance Company, Trustee(s), on real estate in the City of Sunnyvale, Santa Clara County, California. Dated this ____ day of December, 2000. [SEAL] __________________________________________ Notary Public My Commission Expires: ___________________ EX-10.86 13 a71045ex10-86.txt EXHIBIT 10.86 1 EXHIBIT 10.86 ALLONGE #1 TO DEED OF TRUST NOTE OF ARV SUNNYVALE, L.P. TO RED MORTGAGE CAPITAL, INC. IN THE ORIGINAL PRINCIPAL SUM OF $8,855,000.00 DATED DECEMBER 5, 2000 - -------------------------------------------------------------------------------- 1. Except as provided in Paragraphs 2, and 3 below, Maker may not prepay any sums due under the Mortgage Note (the "Note") prior to February 1, 2006. Commencing on February 1, 2006, upon thirty (30) days advance written notice to the Holder, Maker may prepay the indebtedness evidenced by this Note, in whole or in an amount equal to one or more monthly payments of principal next due, on the last day of any month, provided such prepayment is accompanied by the prepayment penalty (expressed as a percentage of the principal amount so prepaid) set forth below: PREPAYMENT PERIODS PREPAYMENT PENALTY ------------------ ------------------ February 1, 2006 through January 31, 2007 5% February 1, 2007 through January 31, 2008 4% February 1, 2008 through January 31, 2009 3% February 1, 2009 through January 31, 2010 2% February 1, 2010 through January 31, 2011 1% February 1, 2011 and thereafter None All such prepayments, including the principal sum and interest thereon to and including the date of such prepayment, shall be in immediately available Federal Funds. 2. Notwithstanding any prepayment prohibition imposed and/or penalty required by this Allonge #1 with respect to voluntary prepayments made prior to February 1, 2010, the indebtedness may be prepaid in whole or in part without the consent of the holder and without prepayment premium if the Commissioner determines that prepayment will avoid a mortgage insurance claim and is therefore in the best interest of the Federal Government. 3. The provisions of Paragraph 1 of this Allonge #1 shall not apply and no prepayment premium shall be collected by the holder with respect to any prepayment which is made by or on behalf of Maker from insurance proceeds as a result of damage to the property or condemnation awards which may, at the option of the holder, be applied to reduce the indebtedness evidenced by the Note pursuant to the terms of the Mortgage given of even date to secure the indebtedness evidenced by the Note. 2 4. A reduction in the principal amount of the Note required by the Commissioner at the time of Initial/Final Endorsement by the Commissioner as a result of the Commissioner's cost certification requirements shall not be construed as a prepayment hereunder. If a reduction is required by the Commissioner as aforesaid, or if any prepayment from any source (to the extent permitted herein) is made, the remaining payments due on the Note may, with the approval of the holder and the Commissioner, be recast such that the required monthly payments of principal and interest shall be in equal amounts sufficient to amortize the Note over the then remaining term thereof. ARV SUNNYVALE, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership, General Partner By: ARV Assisted Living, Inc. a Delaware corporation, General Partner By: ____________________________ Abdo H. Khoury Senior Vice President EX-10.87 14 a71045ex10-87.txt EXHIBIT 10.87 1 EXHIBIT 10.87 DEED OF TRUST With Assignment of Rents THIS DEED OF TRUST, made into this 5th day of December, 2000, by and between ARV SUNNYVALE, L.P., a California limited partnership, with offices at 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, herein called Trustor, and FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, Trustee(s), and RED MORTGAGE CAPITAL, INC., an Ohio corporation, with offices at 150 East Gay Street, 22nd Floor, Columbus, Ohio 53215, herein called Beneficiary. WITNESSETH: That Trustor grants, transfers, and assigns to Trustee in trust, upon the trusts, covenants, conditions and agreements and for the uses and purposes hereinafter contained, with power of sale, all that real property situate, lying and being in Santa Clara County, State of California, described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF. Together with the rents, issues, and profits thereof, SUBJECT, HOWEVER, to the right, power, and authority hereinafter given to and conferred upon Beneficiary to collect and apply such rents, issues, and profits; and together with all buildings and improvements of every kind and description now or hereafter erected or placed thereon, and all fixtures, including but not limited to all gas and electric fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, laundry equipment, steam and hot-water boilers, stoves, ranges, elevators and motors, bath tubs, sinks, water closets, basins, pipes, faucets and other plumbing and heating fixtures, mantels, cabinets, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking apparatus and appurtenances, and all shades, awnings, screens, blinds and other furnishings, it being hereby agreed that all such fixtures and furnishings shall to the extent permitted by law be deemed to be permanently affixed to and a part of the realty; and Together with all building materials and equipment now or hereafter delivered to said premises and intended to be installed therein; and 2 Together with all articles of personal property now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the lands described which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner, and said Trustor agrees to execute a Security Agreement covering the aforesaid fixtures and articles of personal property, at the time of placing such personal property or any part thereof in the building or buildings to be erected on the lands herein described in the manner and form required by law, at its expense and satisfactory to the Beneficiary. To have and to hold the property hereinbefore described together with appurtenances to the Trustee, its or his successors and assigns forever. FOR THE PURPOSE of securing performance of each agreement of Trustor herein and payment of a just indebtedness of the Trustor to the Beneficiary in the principal sum of EIGHT MILLION EIGHT HUNDRED FIFTY-FIVE THOUSAND AND NO/100THS DOLLARS ($8,855,000.00), evidenced by its Note of even date herewith, bearing interest from date on outstanding balances at Eight and three-hundredths percent (8.03%) per annum, said principal and interest being payable in monthly installments as provided in said Note with a final maturity of January 1, 2036, which Note is identified as being secured hereby by a certificate thereon. Said Note and all of its terms are incorporated herein by reference and this conveyance shall secure any and all extensions thereof, however evidenced. AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: 1. That it will pay the Note at the times and in the manner provided therein; 2. That it will not permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Deed of Trust was executed; 3. That the Regulatory Agreement, if any, executed by the Trustor and the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, which is being recorded simultaneously herewith, is incorporated in and made a part of this Deed of Trust. Upon default under the Regulatory Agreement and upon the request of the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, the Beneficiary, at its option, may declare the whole of the indebtedness secured hereby to be due and payable; 4. That all rents, profits and income from the property covered by this Deed of Trust are hereby assigned to the Beneficiary for the purpose of discharging the debt hereby secured. Permission is hereby given to Trustor so long as no default exists hereunder, to collect such rents, profits and income for use in accordance with the provisions of the Regulatory Agreement; 3 That the Trustor grants to the holder or holders of the Note secured hereby the right and power to appoint a substitute Trustee or Trustees hereunder for any reason whatsoever by instrument of appointment duly executed and acknowledged by the holder or holders of the Note and to be filed for record in the office wherein this Deed of Trust is recorded. Such power of appointment may be exercised as often as deemed necessary by the holder or holders of the Note. Upon such appointment, the substitute Trustee or Trustees shall be vested with all the rights, powers, authority and duties vested in the Trustee hereunder; 5. That upon default hereunder or under the aforementioned Regulatory Agreement, Beneficiary shall be entitled to the Appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom; 6. That at the option of the Trustor the principal balance secured hereby may be reamortized on terms acceptable to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner if a partial prepayment results from an award in condemnation in accordance with provisions of Paragraph 21 herein, or from an insurance payment made in accordance with provisions of Paragraph 7 herein, where there is a resulting loss of project income; 7. That the Trustor will keep the improvements now existing or hereafter erected on the deeded property insured against loss by fire and such other hazards, casualties, and contingencies, as may be stipulated by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner upon the insurance of the Deed of Trust and other hazards as may be required from time to time by the Beneficiary, and all such insurance shall be evidenced by standard fire and extended coverage insurance policy or policies, in amounts not less than necessary to comply with the applicable Coinsurance Clause percentage, but in no event shall the amounts of coverage be less than 80 percent of the Insurable Values or not less than the unpaid balance of the insured Deed of Trust, whichever is the lesser, and in default thereof the Beneficiary shall have the right to effect insurance. Such policies shall be endorsed with standard Mortgagee clause with loss payable to the Beneficiary and the Secretary of Housing and Urban Development as their interests may appear, and shall be deposited with the Beneficiary; The insurance carrier providing the insurance shall be chosen by Trustor, subject to approval by Beneficiary, provided that such approval shall not be unreasonably withheld. That if the premises covered hereby, or any part thereof, shall be damaged by fire or other hazard against which insurance is held as hereinabove provided, the amounts paid by any insurance company in pursuance of the contract of insurance to the extent of the indebtedness then remaining unpaid, shall be paid to the Beneficiary, and, at its option, may be applied to the debt or released for the repairing or rebuilding of the premises. Any unexpired insurance shall inure to the benefit of, and pass to, the purchaser of the property covered thereby at any Trustee's sale held hereunder; 4 8. Together with and in addition to the monthly payments of interest or of principal and interest payable under the terms of said Note, to pay to Beneficiary monthly until said Note is fully paid, beginning on the first day of the first month after the date hereof, the following sums: (a) An amount sufficient to provide the Beneficiary with funds to pay the next mortgage insurance premium if this instrument and the Note secured hereby are insured, or a monthly service charge, if they are held by the Secretary of Housing and Urban Development, as follows: (I) If and so long as said Note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the Beneficiary one month prior to its due date the annual mortgage insurance premium, in order to provide such Beneficiary with funds to pay such premium to the Secretary of Housing and Urban Development, pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or (II) Beginning with the first day of the month following an assignment of this instrument and the Note secured hereby to the Secretary of Housing and Urban Development, a monthly service charge which shall be an amount equal to one-twelfth of one-half percent (1/12 of 1/2%) of the average outstanding principal balance due on the Note computed for each successive year beginning with the first of the month following such assignment, without taking into account delinquencies or prepayments. (b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other property insurance covering the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby (all as estimated by the Beneficiary) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, water rates, taxes and assessments will become delinquent, such sums to be held by Beneficiary in trust to pay said ground rents, premiums, water rates, taxes, and special assessments. (c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the Note secured hereby shall be added together and the aggregate amount thereof shall be paid each month in a single payment to be applied by Beneficiary to the following items in the order set forth: 5 (I) premium charges under the Contract of Insurance with the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner or service charge; (II) ground rents, taxes, special assessments, water rates, fire and other property insurance premiums; (III) interest on the Note secured hereby; (IV) amortization of the principal of said Note. 9. Any excess funds accumulated under paragraph (b) above remaining after payment of the items therein mentioned, shall be credited to subsequent monthly payments of the same nature required thereunder; but if any such item shall exceed the estimate therefor, the Trustor shall without demand forthwith make good the deficiency. Failure to do so before the due date of such item shall be a default hereunder. In case of termination of the Contract of Mortgage Insurance by prepayment of the mortgage in full, or otherwise (except as hereinafter provided), accumulations under paragraph (a) above not required to meet payments due under the Contract of Mortgage Insurance, shall be credited to the Trustor. If the property is sold under foreclosure or is otherwise acquired by the Beneficiary after default, any remaining balance of the accumulations under paragraph (b) above shall be credited to the principal of the debt as of the date of commencement of foreclosure proceedings or as of the date the property is otherwise acquired; and accumulations under paragraph (a) above shall be similarly applied unless required to pay sums due to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner under the Contract of Mortgage Insurance; 10. To keep said property in good condition and repair, not to remove or demolish any buildings thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged, or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor; to comply with all laws affecting said property or requiring any alterations or improvements to be made thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon said property in violation of law and/or covenants, conditions and/or restrictions affecting said property; not to permit or suffer any alterations of or addition to the buildings or improvements hereafter constructed in or upon said property without the consent of the Beneficiary; 11. To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and to pay all costs and expenses, including cost of evidence of title and attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear; 12. Should Trustor fail to make any payment or do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon said property for such purposes; may 6 commence, appear in and/or defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; may pay, purchase, contest, or compromise any encumbrance, charge, or lien which in the judgment of either appears to be prior or superior hereto; and, in exercising any such powers, may pay necessary expenses, employ counsel, and pay his reasonable fees; 13. The Beneficiary shall have the right to pay mortgage insurance premiums or fire and other property insurance premiums when due to the extent that monthly payments made hereunder for the purpose of meeting same are insufficient. All such payments made by the Beneficiary shall be added to the principal sum secured hereby; 14. To pay immediately and without demand all sums so expended by Beneficiary or Trustee, under permission given under this Deed of Trust, with interest from date of expenditure at the rate specified in said Note; 15. 16. The Trustor further covenants that it will not voluntarily create, suffer, or permit to be created against the property subject to this Deed of Trust any lien or liens inferior or superior to the lien of this Deed of Trust and further that it will keep and maintain the same free from the claim of all persons supplying labor or materials which will enter into the construction of any and all buildings now being erected or to be erected on said premises; 17. That the improvements upon the premises, covered by the Deed of Trust, and all plans and specifications comply with all municipal ordinances and regulations and all of other regulations made or promulgated, now or hereafter, by lawful authority, and that the same will comply with all such municipal ordinances and regulations and with the rules of the applicable fire rating or inspection organization, bureau, association or office; 18. That so long as this Deed of Trust and the said Note secured hereby are insured under the provisions of the National Housing Act, or held by the Secretary of Housing and Urban Development, it will not execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the mortgaged property on the basis of race, color, creed or national origin. 7 ABOVE IT IS MUTUALLY AGREED THAT: 19. Trustor herein agrees to pay to Beneficiary or to the authorized loan servicing representative of the Beneficiary a charge not to exceed $15 for providing a statement regarding the obligation secured by this Deed of Trust as provided by Section 2954, Article 2, chapter 2, Title 14, Part 4, Division 3, of the Civil Code of the State of California. 20. 21. Should the property or any part thereof be taken or damaged by reason of any public improvement or condemnation preceding, or damaged by fire, or earthquake, or in any other manner, the Beneficiary shall be entitled to all compensation, awards, and other payments or relief therefor, and shall be entitled at its option to commence, appear in and prosecute in its own name any action to proceedings, or to make any compromise or settlement in connection with such taking or damage. All awards of compensation in connection with condemnation for public use of or a taking of any of that property, shall be paid to the Beneficiary to be applied to the amount due under this Note secured hereby in (1) amounts equal to the next maturing installment or installments or principal and (2) with any balance to be credited to the next payment due under the Note. All awards of damages in connection with any condemnation for public use of or injury to any residue of that property shall be paid to the Beneficiary to be applied to a fund held for and on behalf of the Trustor which fund shall, at the option of the Beneficiary, and with the prior approval of the Secretary of Housing and Urban Development, either be applied to the amount due under the Note as specified in the preceding sentence, or be disturbed for the restoration or repair of the damage to the residue. No amount applied to the reduction of the principal amount due in accordance with (1) shall be considered an optional prepayment as the term is used in this Deed of Trust and the Note secured hereby, nor relieve the Trustor from making regular monthly payments commencing on the first day of the first month following the date of receipt of the award. The Beneficiary is hereby authorized in the name of the Trustor to execute and deliver valid acquittances for such awards and to appeal from such award; 8 22. Upon default by Trustor in making any monthly payment provided for herein or in the Note secured hereby, and if such default is not made good prior to the due date of the next such installment, or if Trustor shall fail to perform any covenant or agreement in this Deed of Trust, all sums secured hereby shall, at the option of the Beneficiary, be deemed to have become immediately due and payable, and shall thereupon be collectable by foreclosure of this Deed of Trust. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default, to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 23. After the lapse of such time as may then be required by law following the recordation of said notice of defaults, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell said property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of said property by public announcement at the time and place of sale, and from time to time thereafter may postpone the sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to the purchaser its Deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in the Deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee, or Beneficiary, may purchase at the sale. The Trustee shall apply the proceeds of sale to payment of (1) the expenses of such sale, together with the reasonable expenses of this trust including therein reasonable Trustee's fees or attorney's fees for conducting the sale, and the actual cost of publishing, recording, mailing and posting notice of the sale; (2) the cost of any search and/or other evidence of title procured in connection with such sale and revenue stamps on Trustees' Deed; (3) all sums expended under the terms hereof, not then repaid, with accrued interest at the rate specified in said Note; (4) all other sums then secured hereby; and (5) the remainder, if any, to the person or persons legally entitled thereto; 24. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed and its place of record which, when duly recorded in the proper office of the county or counties in which the property is situated, shall be conclusive proof of proper appointment of the successor trustee. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 25. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed is hereby waived to the full extent permissible by law; 26. Upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed of Trust and said Note to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the property 9 then held hereunder. The recitals in such reconveyance of any matters or fact shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto;" 27. The trust created hereby is irrevocable by Trustor; 28. This Deed of Trust applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors, and assigns. The term "Beneficiary" shall include not only the original Beneficiary hereunder but also any future owner and holder including pledgees, of the Note secured hereby. In this Deed, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. All obligations of each Trustor hereunder are joint and several; 29. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee; 30. The Undersigned TRUSTOR REQUESTS that a copy of any notice of default and of any notice of sale hereunder be mailed to him at the mailing address opposite his name hereto. Failure to insert such address shall be deemed a waiver of any request hereunder for a copy of such notices. Mailing Address for Notices 245 Fischer Avenue, Suite D-1 Costa Mesa, California 92626 31. Notwithstanding any other provision contained herein or in the Note, hereinabove referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. 32. Notwithstanding any other provision contained herein or in the Note, hereinafter referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor (or any of its present or future limited and general partners) for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the 10 Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor (or any of its present or future limited and general partners) except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. IN WITNESS WHEREOF the Trustor has caused its name to be hereunto subscribed by its duly authorized General Partner as of the day and year herein first above written. ARV SUNNYVALE, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Abdo H. Khoury Senior Vice President 11 CALIFORNIA DEED OF TRUST Between ARV SUNNYVALE, L.P. Trustor and FIDELITY NATIONAL TITLE INSURANCE COMPANY Trustee, and RED MORTGAGE CAPITAL, INC. Beneficiary. Dated: December 5, 2000 Recorded: December ___, 2000 at minutes past in Liber at page records of Santa Clara County, California RECORDER'S INSTRUCTIONS Index this document as a Deed of Trust and as an Assignment of Rents. Escrow No. Order No. EX-10.88 15 a71045ex10-88.txt EXHIBIT 10.88 1 EXHIBIT 10.88 REGULATORY AGREEMENT FOR U.S. Department of Housing MULTIFAMILY HOUSING PROJECTS and Urban Development OFFICE OF HOUSING FEDERAL HOUSING COMMISSIONER - -------------------------------------------------------------------------------- Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits Project No. 121-22026-PM-ALF/REF Mortgagee: RED MORTGAGE CAPITAL, INC. Amount of Mortgage Note: $8,855,000.00 Date: December 5, 2000 Mortgage: Recorded: State: California County: Santa Clara Date: December ___, 2000 Concurrently Herewith Book __ Page __ Originally endorsed for insurance under Section 232 pursuant to Section 223(f) of the National Housing Act, as amended. This Agreement entered into this 5th day of December, 2000, between ARV SUNNYVALE, L.P., a California limited partnership whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, their successors, heirs, and assigns (jointly and severally, hereinafter referred to as Owners) and the undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his successors (hereinafter referred to as Secretary). In consideration of the endorsement for insurance by the Secretary of the above described note or in consideration of the consent of the Secretary to the transfer of the mortgaged property or the sale and conveyance of the mortgaged property by the Secretary, and in order to comply with the requirements of the National Housing Act, as amended, and the Regulations adopted by the Secretary pursuant thereto, Owners agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the contract of mortgage insurance continues in effect, and during such further period of time as the Secretary shall be the owner, holder or reinsurer of the mortgage, or during any time the Secretary is obligated to insure a mortgage on the mortgage property: 1. Owners, except as limited by paragraph 17 hereof, assume and agree to make promptly all payments due under the note and mortgage. 2 2. (a) Owners shall establish or continue to maintain a reserve fund for replacements by the allocation to such reserve fund in a separate account with the mortgagee or in a safe and responsible depository designated by the mortgagee, concurrently with the beginning of payments towards amortization of the principal of the mortgage insured or held by the Secretary of an amount equal to $5,682.75 per month unless a different date or amount is approved in writing by the Secretary. Said monthly deposit consists of $3,290.25 for Realty and $2,392.50 for Non-Realty. In addition, the Owner has made an initial deposit to the fund of $334,433.00. Such fund, whether in the form of a cash deposit or invested in obligations of, or fully guaranteed as to principal by, the United States of America shall at all times be under the control of the mortgagee. Disbursements from such fund, whether for the purpose of effecting replacement of structural elements and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the Secretary. In the event that the owner is unable to make a mortgage note payment on the due date and that payment cannot be made prior to the due day of the next such installment or when the mortgagee has agreed to forgo making an election to assign the mortgage to the Secretary based on a monetary default, or to withdraw an election already made, the Secretary is authorized to instruct the mortgagee to withdraw funds from the reserve fund for replacements to be applied to the mortgage payment in order to prevent or cure the default. In addition, in the event of a default in the terms of the mortgage, pursuant to which the loan has been accelerated, the Secretary may apply or authorize the application of the balance in such fund to the amount due on the mortgage debt as accelerated. (b) Where Owners are acquiring a project already subject to an insured mortgage, the reserve fund for replacements to be established will be equal to the amount due to be in such fund under existing agreements or charter provisions at the time Owners acquire such project, and payments hereunder shall begin with the first payment due on the mortgage after acquisition, unless some other method of establishing and maintaining the fund is approved in writing by the Secretary. 3. Real property covered by the mortgage and this agreement is described in Exhibit A attached hereto. (This paragraph 4 is not applicable to cases insured under Section 232). 3 5. (a) If the mortgage is originally a Secretary-held purchase money mortgage, or is originally endorsed for insurance under any Section other than Sections 231 or 232 and is not designed primarily for occupancy by elderly persons, Owners shall not in selecting tenants discriminate against any person or persons by reason of the fact that there are children in the family. (b) If the mortgage is originally endorsed for insurance under Section 221, Owners shall in selecting tenants give to displaced persons or families an absolute preference or priority of occupancy which shall be accomplished as follows: (1) For a period of sixty (60) days from the date of original offering, unless a shorter period of time is approved in writing by the Secretary, all units shall be held for such preferred applicants, after which time any remaining unrented units may be rented to non-preferred applicants; (2) Thereafter, and on a continuing basis, such preferred applicants shall be given preference over non-preferred applicants in their placement on a waiting list to be maintained by the Owners; and (3) Through such further provisions agreed to in writing by the parties. (c) Without the prior written approval of the Secretary not more than 25% of the number of units in a project insured under Section 231 shall be occupied by persons other than elderly persons. (d) All advertising or efforts to rent a project insured under Section 231 shall reflect a bona fide effort of the Owners to obtain occupancy by elderly persons. 6. Owners shall not without the prior written approval of the Secretary: (a) Convey, transfer, or encumber any of the mortgaged property, or permit the conveyance, transfer or encumbrance of such property. (b) Assign, transfer, dispose of, or encumber any personal property of the project, including rents, or pay out any funds except from surplus cash, except for reasonable operating expenses and necessary repairs. (c) Convey, assign, or transfer any beneficial interest in any trust holding title to the property, or the interest of any general partner in a partnership owning the property, or any right to manage or receive the rents and profits from the mortgaged property. (d) Remodel, add to, reconstruct, or demolish any part of the mortgaged property or subtract from any real or personal property of the project. (e) Make, or receive and retain, any distribution of assets or any income of any kind of the project except surplus cash and except on the following conditions: 4 (1) All distributions shall be made only as of and after the end of a semiannual or annual fiscal period, and only as permitted by the law of the applicable jurisdiction; (2) No distribution shall be made from borrowed funds, prior to the completion of the project or when there is any default under this Agreement or under the note or mortgage; (3) Any distribution of any funds of the project, which the party receiving such funds is not entitled to retain hereunder, shall be held in trust separate and apart from any other funds; and (4) There shall have been compliance with all outstanding notices of requirements for proper maintenance of the project. (f) Engage, except for natural persons, in any other business or activity, including the operation of any other rental project, or incur any liability or obligation not in connection with the project. (g) Require, as a condition of the occupancy or leasing of any unit in the project, any consideration or deposit other than the prepayment of the first month's rent plus a security deposit in an amount not in excess of one month's rent to guarantee the performance of the covenants of the lease. Any funds collected as security deposits shall be kept separate and apart from all other funds of the project in a trust account the amount of which shall at all times equal or exceed the aggregate of all outstanding obligations under said account. (h) Permit the use of the dwelling accommodations or nursing facilities of the project for any purpose except the use which was originally intended, or permit commercial use greater than that originally approved by the Secretary. 7. Owners shall maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition. In the event all or any of the buildings covered by the mortgage shall be destroyed or damaged by fire or other casualty, the money derived from any insurance on the property shall be applied in accordance with the terms of the mortgage. 8. Owners shall not file any petition in bankruptcy or for a receiver or in insolvency or for reorganization or composition, or make any assignment for the benefit of 5 creditors or to a trustee for creditors, or permit an adjudication in bankruptcy or the taking possession of the mortgaged property or any part thereof by a receiver or the seizure and sale of the mortgaged property or any part hereof under judicial process or pursuant to any power of sale, and fail to have such adverse actions set aside within forty-five (45) days. 9. (a) Any management contract entered into by Owners or any of them involving the project shall contain a provision that, in the event of default hereunder, it shall be subject to termination without penalty upon written request by the Secretary. Upon such request Owners shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Secretary for continuing proper management of the project. (b) Payment for services, supplies, or materials shall not exceed the amount ordinarily paid for such services, supplies, or materials in the area where the services are rendered or the supplies or materials furnished. (c) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Secretary or his duly authorized agents. Owners shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Secretary or his duly authorized agents. (d) The books and accounts of the operations of the mortgaged property and of the project shall be kept in accordance with the requirements of the Secretary. (e) Within sixty (60) days following the end of each fiscal year the Secretary shall be furnished with a complete annual financial report based upon an examination of the books and records of mortgagor prepared in accordance with the requirements of the Secretary, prepared and certified to by an officer or responsible Owner and, when required by the Secretary, prepared and certified by a Certified Public Accountant, or other person acceptable to the Secretary. (f) At the request of the Secretary, his agents, employees, or attorneys, the Owners shall furnish monthly occupancy reports and shall give specific answers to questions upon which information is desired from time to time relative to 6 income, assets, liabilities, contracts, operation, and condition of the property and the status of the insured mortgage. (g) All rents and other receipts of the project shall be deposited in the name of the project in a financial institution, whose deposits are insured by an agency of the Federal Government. Such funds shall be withdrawn only in accordance with the provisions of this Agreement for expenses of the project or for distributions of surplus cash as permitted by paragraph 6(e) above. Any Owner receiving funds of the project other than by such distribution of surplus cash shall immediately deposit such funds in the project bank account and failing so to do in violation of this Agreement shall hold such funds in trust. Any Owner receiving property of the project in violation of this Agreement shall hold such funds in trust. At such time as the Owners shall have lost control and/or possession of the project, all funds held in trust shall be delivered to the mortgagee to the extent that the mortgage indebtedness has not been satisfied. (h) If the mortgage is insured under Section 232: 1. The Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as a nursing home and shall not lease all or part of the project except on terms approved by the Secretary. 2. The Owners shall suitably equip the project for nursing home operations. 3. The Owners shall execute a Security Agreement and Financing Statement (or other form of chattel lien) upon all items of equipment, except as the Secretary may exempt, which are not incorporated as security for the insured mortgage. The Security Agreement and Financing Statement shall constitute a first lien upon such equipment and shall run in favor of the mortgagee as additional security for the insured mortgage. (i) If the mortgage is insured under Section 231, Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as housing for the elderly. 10. Owners will comply with the provisions of any Federal, State, or local law prohibiting discrimination in housing on the grounds of race, color, religion or creed, sex, or national origin, including Title VIII of the Civil Rights Act of 1968 7 (Public Law 90-284; 82 Stat. 73), as amended, Executive Order 11063, and all requirements imposed by or pursuant to the regulations of the Department of Housing and Urban Development implementing these authorities (including 24 CFR Parts 100, 107 and 110, and Subparts I and M of Part 200). 11. Upon a violation of any of the above provisions of this Agreement by Owners, the Secretary may give written notice thereof, to Owners, by registered or certified mail, addressed to the addresses stated in this Agreement, or such other addresses as may subsequently, upon appropriate written notice thereof to the Secretary, be designated by the Owners as their legal business address. If such violation is not corrected to the satisfaction of the Secretary within thirty (30) days after the date such notice is mailed or within such further time as the Secretary determines is necessary to correct the violation, without further notice the Secretary may declare a default under this Agreement effective on the date of such declaration of default and upon such default the Secretary may: (a) (i) If the Secretary holds the note - declare the whole of said indebtedness immediately due and payable and then proceed with the foreclosure of the mortgage; (ii) If said note is not held by the Secretary - notify the holder of the note of such default and request holder to declare a default under the note and mortgage, and holder after receiving such notice and request, but not otherwise, at its option, may declare the whole indebtedness due, and thereupon proceed with foreclosure of the mortgage, or assign the note and mortgage to the Secretary as provided in the Regulations; (b) Collect all rents and charges in connection with the operation of the project and use such collections to pay the Owners' obligations under this Agreement and under the note and mortgage and the necessary expenses of preserving the property and operating the project. (c) Take possession of the project, bring any action necessary to enforce any rights of the Owners growing out of the project operation, and operate the project in accordance with the terms of this Agreement until such time as the Secretary in his discretion determines that the Owners are again in a position to operate the project in accordance with the terms of this Agreement and in compliance with the requirements of the note and mortgage. 8 (d) Apply to any court, state or Federal, for specific performance of this Agreement, for an injunction against any violation of the Agreement, for the appointment of a receiver to take over and operate the project in accordance with the terms of the Agreement, or for such other relief as may be appropriate, since the injury to the Secretary arising from a default under any of the terms of this Agreement would be irreparable and the amount of damage would be difficult to ascertain. 12. As security for the payment due under this Agreement to the reserve fund for replacements, and to secure the Secretary because of his liability under the endorsement of the note for insurance, and as security for the other obligations under this Agreement, the Owners respectively assign, pledge and mortgage to the Secretary their rights to the rents, profits, income and charges of whatsoever sort which they may receive or be entitled to receive from the operation of the mortgaged property, subject, however, to any assignment of rents in the insured mortgage referred to herein. Until a default is declared under this Agreement, however, permission is granted to Owners to collect and retain under the provisions of this Agreement such rents, profits, income, and charges, but upon default this permission is terminated as to all rents due or collected thereafter. 13. As used in this Agreement the term: (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage", "Security Instrument", and any other security for the note identified herein, and endorsed for insurance or held by the Secretary; (b) "Mortgagee" refers to the holder of the mortgage identified herein, its successors and assigns; (c) "Owners" refers to the persons named in the first paragraph hereof and designated as Owners, their successors, heirs and assigns; (d) "Mortgaged Property" includes all property, real, personal or mixed, covered by the mortgage or mortgages securing the note endorsed for insurance or held by the Secretary; (e) "Project" includes the mortgaged property and all its other assets of whatsoever nature or wheresoever situate, used in or owned by the business conducted on said mortgaged property, which business is providing housing and other activities as are incidental thereto; 9 (f) "Surplus Cash" means any cash remaining after: (1) the payment of: (i) All sums due or currently required to be paid under the terms of any mortgage or note insured or held by the Secretary; (ii) All amounts required to be deposited in the reserve fund for replacements; (iii) All obligations of the project other than the insured mortgage unless funds for payment are set aside or deferment of payment has been approved by the Secretary; and (2) the segregation of: (i) An amount equal to the aggregate of all special funds required to be maintained by the project; and (ii) All tenant security deposits held. (g) "Distribution" means any withdrawal or taking of cash or any assets of the project, including the segregation of cash or assets for subsequent withdrawal within the limitations of Paragraph 6(e) hereof, and excluding payment for reasonable expenses incident to the operation and maintenance of the project. (h) "Default" means a default declared by the Secretary when a violation of this Agreement is not corrected to his satisfaction within the time allowed by this Agreement or such further time as may be allowed by the Secretary after written notice; (i) "Section" refers to a Section of the National Housing Act, as amended. (j) "Displaced persons or families" shall mean a family or families, or a person, displaced from an urban renewal area, or as the result of government action, or as a result of a major disaster as determined by the President pursuant to the Disaster Relief Act of 1970. 10 (k) "Elderly person" means any person, married or single, who is sixty-two years of age or over. 14. This instrument shall bind, and the benefits shall inure to, the respective Owners, their heirs, legal representatives, executors, administrators, successors in office or interest, and assigns, and to the Secretary and his successors so long as the contract of mortgage insurance continues in effect, and during such further time as the Secretary shall be the owner, holder, or reinsurer of the mortgage, or obligated to reinsure the mortgage. 15. Owners warrant that they have not, and will not, execute any other agreement with provisions contradictory of, or in opposition to, the provisions hereof, and that, in any event, the requirements of this Agreement are paramount and controlling as to the rights and obligations set forth and supersede any other requirements in conflict therewith. 16. The invalidity of any clause, part or provision of this Agreement shall not affect the validity or the remaining portions thereof. 17. The following Owners: ARV Sunnyvale, L.P., a California limited partnership, and all present and future limited and general partners thereof, do not assume personal liability for payments due under the note and mortgage, or for the payments to the reserve for replacements, or for matters not under their control, provided that said Owners shall remain liable under this Agreement only with respect to the matters hereinafter stated; namely: (a) for funds or property of the project coming into their hands which, by the provisions hereof, they are not entitled to retain; and (b) for their own acts and deeds or acts and deeds of others which they have authorized in violation of the provisions hereof. (To be executed with formalities for recording a deed to real estate) 11 All references herein to the terms "nursing home" or nursing homes" shall mean and include the terms "assisted living facility" and "assisted living facilities." See Rider I attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. ARV SUNNYVALE, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Abdo H. Khoury Senior Vice President December 5, 2000 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent December 5, 2000 EX-10.89 16 a71045ex10-89.txt EXHIBIT 10.89 1 EXHIBIT 10.89 Regulatory Agreement NURSING HOMES U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Housing Federal Housing Commissioner - -------------------------------------------------------------------------------- Project Number Mortgagee 121-22026-PM-ALF/REF Red Capital Mortgage, Inc., an Ohio corporation - -------------------------------------------------------------------------------- Amount of Mortgage Note Date $8,855,000.00 December 5, 2000 - -------------------------------------------------------------------------------- Mortgage Recorded (State) County Date California Santa Clara December ___, 2000 - -------------------------------------------------------------------------------- Book Page - -------------------------------------------------------------------------------- This Agreement entered into this 5th day of December, 2000 between RETIREMENT INNS II, LLC, a Delaware limited liability company whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626 (jointly and severally, hereinafter referred to as Lessee) and the undersigned FEDERAL HOUSING COMMISSIONER, (hereinafter called Commissioner). In consideration of the consent of the Commissioner to the leasing of the aforesaid project by ARV SUNNYVALE, L.P., a California limited partnership, Mortgagor, and in order to comply with the requirements of the National Housing Act and the Regulations adopted by the Commissioner pursuant thereto, Lessees agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the Contract of Mortgage Insurance continues in effect, and during such further period of time as the Commissioner shall be the owner, holder or reinsurer of the mortgage, or during any time the Commissioner is obligated to insure a mortgage on the mortgaged property: (1) The lease shall be subject and subordinate to the mortgage securing the note or other obligation endorsed for insurance by the commissioner; (2) Lessee shall make payments under lease when due; (3) Payments by the lessee to the lessor shall be sufficient to pay all mortgage payments including payments to reserves for taxes, insurance, etc., payments to the Reserve for Replacements, and to take care of necessary maintenance. If at the end of any calendar year, or any fiscal year if the project operates on the basis of a fiscal year, payments under the lease have not been sufficient to take care of the above items, the lessor and lessee upon request in writing from the Commissioner shall renegotiate the amounts due under the lease so that such amounts shall be sufficient to take care of such items; the Commissioner shall be furnished by the lessee, within thirty days after being 2 called upon to do so, with a financial report in form satisfactory to the Commissioner covering the operations of the mortgaged property and of the project; (4) The lessee shall not sublease the project or any part thereof without the consent of the Commissioner; (5) The lessee shall at all times maintain in full force and effect a license from the State or other licensing authority to operate the project as a nursing home, but the owner shall not be required to maintain such a license; (6) Lessee shall maintain in good repair and condition any parts of the project for the maintenance of which lessee is responsible under the terms of the lease; (7) Lessee shall not remodel, reconstruct, add to, or demolish any part of the mortgaged property or subtract from any real or personal property of the project; (8) Lessee shall not use the project for any purpose except the operation of a nursing home; (9) If a default is declared by the Commissioner under the provisions of Paragraph 10 of the Regulatory Agreement entered into by the lessor-mortgagor and the Commissioner on the 5th day of December, 2000, a copy of notice of default having been given to the lessee, the lessee will thereafter make all future payments under the lease to the Commissioner; (10) The lease may be cancelled upon thirty days written notice by the Commissioner given to the lessor and the lessee for a violation of any of the above provisions unless the violation is corrected to the satisfaction of the Commissioner within said thirty day period. (11) The Commissioner must approve any change in or transfer of ownership of the lessee entity, and any change in or transfer of the management operation, or control of the project. (12) The lessee shall not reduce or expand, allow to be reduced or expanded, or cause the expansion or reduction of the bed capacity of the project without the consent of the Commissioner. Any change in the bed capacity shall violate this Regulatory Agreement. (13) The lessee shall not enter into any management contract involving the project, unless such shall contain a provision that, in the event of default under the Regulatory Agreement as recited in paragraph 9 (above) of this Agreement, the management agreement shall be subject to termination without penalty upon written request of the Commissioner. Upon such request the lessee shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Commissioner for continuing proper management of the project. (14) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Commissioner or his duly authorized agents. Lessee shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Commissioner or his/her duly authorized agents. 3 (15) There shall be full compliance with the provisions of (1) any State or local laws prohibiting discrimination in housing on the basis of race, color, creed, or national origin; and (2) with the Regulations of the Federal Housing Administration providing for non-discrimination and equal opportunity in housing. It is understood and agreed that failure or refusal to comply with any such provisions shall be a proper basis for the Commissioner to take any corrective action he may deem necessary including, but not limited to, the refusal to consent to a further renewal of the lease between the mortgagor-lessor and the lessee, the rejection of applications for FHA mortgage insurance and the refusal to enter into future contracts of any kind with which the lessee is identified; and further, if the lessee is a corporation or any other type of business association or organization which may fail or refuse to comply with the aforementioned provisions, the Commissioner shall have a similar right of corrective action (1) with respect to any individuals who are officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee; and (2) with respect to any other type of business association, or organization with which the officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee may be identified. 4 IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. RETIREMENT INNS II, LLC a Delaware limited liability company By: ___________________________ Abdo H. Khoury Manager December 5, 2000 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent December 5, 2000 EX-10.90 17 a71045ex10-90.txt EXHIBIT 10.90 1 EXHIBIT 10.90 DEED OF TRUST NOTE $11,369,500.00 San Francisco, California December 12, 2000 FOR VALUE RECEIVED, the undersigned, ARV VALLEY VIEW, L.P., a California limited partnership, promises to pay RED MORTGAGE CAPITAL, INC., an Ohio corporation, or order, at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or at such other place as may be designated in writing by the holder of this Note, the principal sum of ELEVEN MILLION THREE HUNDRED SIXTY-NINE THOUSAND FIVE HUNDRED AND 00/100THS DOLLARS ($11,369,500.00), with interest thereon from the date hereof at the rate of Eight per centum (8.00%) per annum on the unpaid balance until paid. The principal and interest shall be payable in monthly installments as follows: Interest alone shall be due and payable on the first day of January, 2001. Thereafter, commencing on February 1, 2001, monthly installments of principal and interest at the rate of Eight per centum (8.00 %) per annum shall be due and payable in the sum of EIGHTY THOUSAND SEVEN HUNDRED FIFTY-THREE AND 11/100THS DOLLARS ($80,753.11) each, such payments to continue monthly thereafter on the first day of each succeeding month until the entire indebtedness has been paid in full. In any event, the balance of principal (if any) remaining unpaid, plus accrued interest, shall be due and payable on January 1, 2036. The installments of principal and interest shall be applied first to interest at the rate aforesaid upon the principal sum or so much thereof as shall from time to time remain unpaid, and the balance thereof shall be applied on account of principal. Both principal and interest under this Note, as well as the additional payments set forth in the Deed of Trust shall be payable at the office of RED MORTGAGE CAPITAL, INC., at its principal office at 150 East Gay Street, 22nd Floor, Columbus, Ohio 43215 or such other place as the holder may designate in writing. Prepayment of this Note is subject to the terms and provisions set forth in Allonge #1 attached hereto and incorporated herein by this reference. If default be made in the payment of any installment under this Note, and if the default is not made good prior to the due date of the next such installment, the entire principal sum and accrued interest shall at once become due and payable without notice at the option of the holder 2 of this Note. Failure to exercise this option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. The makers and endorsers severally waive diligence, presentment, protest, and demand, and also notice of protest, dishonor, and nonpayment of this Note, and expressly agree that this Note, or any payment thereunder, may be extended from time to time, and consent to the acceptance of further security for this Note, including other types of security, all without in any way affecting the liability of the makers and endorsers hereof. The right to plead any and all statutes of limitations as a defense to any demand on this Note, or any guaranty thereof, or to any agreement to pay the same, or to any demand secured by the Deed of Trust, (hereinafter defined) or other security, securing this Note, or any and all obligations, or liabilities arising out of or in connection with said Note or Deed of Trust by any of the parties hereto, is expressly waived by each and every of the makers, endorsers, guarantors or sureties. Principal and interest are payable in lawful money of the United States. If action be instituted on this Note, the undersigned promise(s) to pay in addition to the costs and disbursements allowed by law such sum as the Court may adjudge reasonable as attorney's fees in said action. This Note is secured by a Deed of Trust, of even date herewith, to Fidelity National Title Insurance Company, as Trustee, on real estate situated in the City of Campbell, County of Santa Clara, California (the "Deed of Trust"). In the event any installment or part of any installment due hereunder becomes delinquent for more than fifteen (15) days, there shall be due, at the option of the holder, in addition to other sums due hereunder, a sum equal to two percent (2%) of the amount of such installment of principal and interest so delinquent. Whenever under the law of the jurisdiction where the property is located, the amount of any such late charge is considered to be additional interest, this provision shall not be effective if the rate of interest specified in this Note, together with the amount of the late charge, would aggregate an amount in excess of the maximum rate of interest permitted and would constitute usury. All parties to this Note, whether principal, surety, guarantor, or endorser hereby waive presentment for payment, demand, protect, notice of protest, and notice of dishonor. Notwithstanding any other provision contained in this Note, it is agreed that the execution of this Note shall impose no personal liability on the maker hereof (nor any of its limited or general partners) for payment of the indebtedness evidenced hereby and in the event of a default, the holder of this Note shall look solely to the property described in the Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced hereby and will not seek or obtain any deficiency or personal judgment against the maker hereof (nor any of its limited or general partners) except such judgment or decree as may be necessary to foreclose and bar its interest in the property and all other property mortgaged, pledged, conveyed or assigned to secure payment of this Note, except as set out in the Deed of Trust of even date given to secure this indebtedness. 3 IN WITNESS WHEREOF, the undersigned has caused this Note to be executed in its name and on its behalf by its Senior Vice President, thereunto duly authorized the day and year first above written. ARV VALLEY VIEW, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: _____________________________ Abdo H. Khoury Senior Vice President ================================================================================ I HEREBY CERTIFY that this is the Note described in and secured by the Deed of Trust of even date herewith, and in the same principal amount as herein stated, to Fidelity National Title Insurance Company, Trustee(s), on real estate in the City of Walnut Creek, Contra Costa County, California. Dated this ____ day of December, 2000. [SEAL] __________________________________________ Notary Public My Commission Expires: ___________________ EX-10.91 18 a71045ex10-91.txt EXHIBIT 10.91 1 EXHIBIT 10.91 DEED OF TRUST With Assignment of Rents THIS DEED OF TRUST, made as of the 12th day of December, 2000, by and between ARV VALLEY VIEW, L.P., a California limited partnership, with offices at 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, herein called Trustor, and FIDELITY NATIONAL TITLE INSURANCE COMPANY, a California corporation, Trustee(s), and RED MORTGAGE CAPITAL, INC., an Ohio corporation, with offices at 150 East Gay Street, 22nd Floor, Columbus, Ohio 53215, herein called Beneficiary. WITNESSETH: That Trustor grants, transfers, and assigns to Trustee in trust, upon the trusts, covenants, conditions and agreements and for the uses and purposes hereinafter contained, with power of sale, all that real property situate, lying and being in Santa Clara County, State of California, described as follows: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF. Together with the rents, issues, and profits thereof, SUBJECT, HOWEVER, to the right, power, and authority hereinafter given to and conferred upon Beneficiary to collect and apply such rents, issues, and profits; and together with all buildings and improvements of every kind and description now or hereafter erected or placed thereon, and all fixtures, including but not limited to all gas and electric fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, laundry equipment, steam and hot-water boilers, stoves, ranges, elevators and motors, bath tubs, sinks, water closets, basins, pipes, faucets and other plumbing and heating fixtures, mantels, cabinets, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking apparatus and appurtenances, and all shades, awnings, screens, blinds and other furnishings, it being hereby agreed that all such fixtures and furnishings shall to the extent permitted by law be deemed to be permanently affixed to and a part of the realty; and Together with all building materials and equipment now or hereafter delivered to said premises and intended to be installed therein; and Together with all articles of personal property now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the lands described 2 which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are, or shall be attached to said building or buildings in any manner, and said Trustor agrees to execute a Security Agreement covering the aforesaid fixtures and articles of personal property, at the time of placing such personal property or any part thereof in the building or buildings to be erected on the lands herein described in the manner and form required by law, at its expense and satisfactory to the Beneficiary. To have and to hold the property hereinbefore described together with appurtenances to the Trustee, its or his successors and assigns forever. FOR THE PURPOSE of securing performance of each agreement of Trustor herein and payment of a just indebtedness of the Trustor to the Beneficiary in the principal sum of ELEVEN MILLION THREE HUNDRED SIXTY-NINE THOUSAND FIVE HUNDRED AND NO/100THS DOLLARS ($11,369,500.00), evidenced by its Note of even date herewith, bearing interest from date on outstanding balances at Eight percent (8.00%) per annum, said principal and interest being payable in monthly installments as provided in said Note with a final maturity of January 1, 2036, which Note is identified as being secured hereby by a certificate thereon. Said Note and all of its terms are incorporated herein by reference and this conveyance shall secure any and all extensions thereof, however evidenced. AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: 1. That it will pay the Note at the times and in the manner provided therein; 2. That it will not permit or suffer the use of any of the property for any purpose other than the use for which the same was intended at the time this Deed of Trust was executed; 3. That the Regulatory Agreement, if any, executed by the Trustor and the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, which is being recorded simultaneously herewith, is incorporated in and made a part of this Deed of Trust. Upon default under the Regulatory Agreement and upon the request of the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, the Beneficiary, at its option, may declare the whole of the indebtedness secured hereby to be due and payable; 4. That all rents, profits and income from the property covered by this Deed of Trust are hereby assigned to the Beneficiary for the purpose of discharging the debt hereby secured. Permission is hereby given to Trustor so long as no default exists hereunder, to collect such rents, profits and income for use in accordance with the provisions of the Regulatory Agreement; 3 That the Trustor grants to the holder or holders of the Note secured hereby the right and power to appoint a substitute Trustee or Trustees hereunder for any reason whatsoever by instrument of appointment duly executed and acknowledged by the holder or holders of the Note and to be filed for record in the office wherein this Deed of Trust is recorded. Such power of appointment may be exercised as often as deemed necessary by the holder or holders of the Note. Upon such appointment, the substitute Trustee or Trustees shall be vested with all the rights, powers, authority and duties vested in the Trustee hereunder; 5. That upon default hereunder or under the aforementioned Regulatory Agreement, Beneficiary shall be entitled to the Appointment of a receiver by any court having jurisdiction, without notice, to take possession and protect the property described herein and operate same and collect the rents, profits and income therefrom; 6. That at the option of the Trustor the principal balance secured hereby may be reamortized on terms acceptable to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner if a partial prepayment results from an award in condemnation in accordance with provisions of Paragraph 21 herein, or from an insurance payment made in accordance with provisions of Paragraph 7 herein, where there is a resulting loss of project income; 7. That the Trustor will keep the improvements now existing or hereafter erected on the deeded property insured against loss by fire and such other hazards, casualties, and contingencies, as may be stipulated by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner upon the insurance of the Deed of Trust and other hazards as may be required from time to time by the Beneficiary, and all such insurance shall be evidenced by standard fire and extended coverage insurance policy or policies, in amounts not less than necessary to comply with the applicable Coinsurance Clause percentage, but in no event shall the amounts of coverage be less than 80 percent of the Insurable Values or not less than the unpaid balance of the insured Deed of Trust, whichever is the lesser, and in default thereof the Beneficiary shall have the right to effect insurance. Such policies shall be endorsed with standard Mortgagee clause with loss payable to the Beneficiary and the Secretary of Housing and Urban Development as their interests may appear, and shall be deposited with the Beneficiary; The insurance carrier providing the insurance shall be chosen by Trustor, subject to approval by Beneficiary, provided that such approval shall not be unreasonably withheld. That if the premises covered hereby, or any part thereof, shall be damaged by fire or other hazard against which insurance is held as hereinabove provided, the amounts paid by any insurance company in pursuance of the contract of insurance to the extent of the indebtedness then remaining unpaid, shall be paid to the Beneficiary, and, at its option, may be applied to the debt or released for the repairing or rebuilding of the premises. Any unexpired insurance shall inure to the benefit of, and pass to, the purchaser of the property covered thereby at any Trustee's sale held hereunder; 8. Together with and in addition to the monthly payments of interest or of principal and interest payable under the terms of said Note, to pay to Beneficiary monthly until said Note 4 is fully paid, beginning on the first day of the first month after the date hereof, the following sums: (a) An amount sufficient to provide the Beneficiary with funds to pay the next mortgage insurance premium if this instrument and the Note secured hereby are insured, or a monthly service charge, if they are held by the Secretary of Housing and Urban Development, as follows: (I) If and so long as said Note of even date and this instrument are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the Beneficiary one month prior to its due date the annual mortgage insurance premium, in order to provide such Beneficiary with funds to pay such premium to the Secretary of Housing and Urban Development, pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or (II) Beginning with the first day of the month following an assignment of this instrument and the Note secured hereby to the Secretary of Housing and Urban Development, a monthly service charge which shall be an amount equal to one-twelfth of one-half percent (1/12 of 1/2%) of the average outstanding principal balance due on the Note computed for each successive year beginning with the first of the month following such assignment, without taking into account delinquencies or prepayments. (b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other property insurance covering the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby (all as estimated by the Beneficiary) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, water rates, taxes and assessments will become delinquent, such sums to be held by Beneficiary in trust to pay said ground rents, premiums, water rates, taxes, and special assessments. (c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the Note secured hereby shall be added together and the aggregate amount thereof shall be paid each month in a single payment to be applied by Beneficiary to the following items in the order set forth: (I) premium charges under the Contract of Insurance with the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner or service charge; 5 (II) ground rents, taxes, special assessments, water rates, fire and other property insurance premiums; (III) interest on the Note secured hereby; (IV) amortization of the principal of said Note. 9. Any excess funds accumulated under paragraph (b) above remaining after payment of the items therein mentioned, shall be credited to subsequent monthly payments of the same nature required thereunder; but if any such item shall exceed the estimate therefor, the Trustor shall without demand forthwith make good the deficiency. Failure to do so before the due date of such item shall be a default hereunder. In case of termination of the Contract of Mortgage Insurance by prepayment of the mortgage in full, or otherwise (except as hereinafter provided), accumulations under paragraph (a) above not required to meet payments due under the Contract of Mortgage Insurance, shall be credited to the Trustor. If the property is sold under foreclosure or is otherwise acquired by the Beneficiary after default, any remaining balance of the accumulations under paragraph (b) above shall be credited to the principal of the debt as of the date of commencement of foreclosure proceedings or as of the date the property is otherwise acquired; and accumulations under paragraph (a) above shall be similarly applied unless required to pay sums due to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner under the Contract of Mortgage Insurance; 10. To keep said property in good condition and repair, not to remove or demolish any buildings thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged, or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor; to comply with all laws affecting said property or requiring any alterations or improvements to be made thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon said property in violation of law and/or covenants, conditions and/or restrictions affecting said property; not to permit or suffer any alterations of or addition to the buildings or improvements hereafter constructed in or upon said property without the consent of the Beneficiary; 11. To appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and to pay all costs and expenses, including cost of evidence of title and attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear; 12. Should Trustor fail to make any payment or do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may make or do the same in such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon said property for such purposes; may commence, appear in and/or defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; may pay, purchase, contest, or compromise any encumbrance, charge, or lien which in the judgment of either appears to be 6 prior or superior hereto; and, in exercising any such powers, may pay necessary expenses, employ counsel, and pay his reasonable fees; 13. The Beneficiary shall have the right to pay mortgage insurance premiums or fire and other property insurance premiums when due to the extent that monthly payments made hereunder for the purpose of meeting same are insufficient. All such payments made by the Beneficiary shall be added to the principal sum secured hereby; 14. To pay immediately and without demand all sums so expended by Beneficiary or Trustee, under permission given under this Deed of Trust, with interest from date of expenditure at the rate specified in said Note; 15. 16. The Trustor further covenants that it will not voluntarily create, suffer, or permit to be created against the property subject to this Deed of Trust any lien or liens inferior or superior to the lien of this Deed of Trust and further that it will keep and maintain the same free from the claim of all persons supplying labor or materials which will enter into the construction of any and all buildings now being erected or to be erected on said premises; 17. That the improvements upon the premises, covered by the Deed of Trust, and all plans and specifications comply with all municipal ordinances and regulations and all of other regulations made or promulgated, now or hereafter, by lawful authority, and that the same will comply with all such municipal ordinances and regulations and with the rules of the applicable fire rating or inspection organization, bureau, association or office; 18. That so long as this Deed of Trust and the said Note secured hereby are insured under the provisions of the National Housing Act, or held by the Secretary of Housing and Urban Development, it will not execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the mortgaged property on the basis of race, color, creed or national origin. 7 ABOVE IT IS MUTUALLY AGREED THAT: 19. Trustor herein agrees to pay to Beneficiary or to the authorized loan servicing representative of the Beneficiary a charge not to exceed $15 for providing a statement regarding the obligation secured by this Deed of Trust as provided by Section 2954, Article 2, chapter 2, Title 14, Part 4, Division 3, of the Civil Code of the State of California. 20. 21. Should the property or any part thereof be taken or damaged by reason of any public improvement or condemnation preceding, or damaged by fire, or earthquake, or in any other manner, the Beneficiary shall be entitled to all compensation, awards, and other payments or relief therefor, and shall be entitled at its option to commence, appear in and prosecute in its own name any action to proceedings, or to make any compromise or settlement in connection with such taking or damage. All awards of compensation in connection with condemnation for public use of or a taking of any of that property, shall be paid to the Beneficiary to be applied to the amount due under this Note secured hereby in (1) amounts equal to the next maturing installment or installments or principal and (2) with any balance to be credited to the next payment due under the Note. All awards of damages in connection with any condemnation for public use of or injury to any residue of that property shall be paid to the Beneficiary to be applied to a fund held for and on behalf of the Trustor which fund shall, at the option of the Beneficiary, and with the prior approval of the Secretary of Housing and Urban Development, either be applied to the amount due under the Note as specified in the preceding sentence, or be disturbed for the restoration or repair of the damage to the residue. No amount applied to the reduction of the principal amount due in accordance with (1) shall be considered an optional prepayment as the term is used in this Deed of Trust and the Note secured hereby, nor relieve the Trustor from making regular monthly payments commencing on the first day of the first month following the date of receipt of the award. The Beneficiary is hereby authorized in the name of the Trustor to execute and deliver valid acquittances for such awards and to appeal from such award; 22. Upon default by Trustor in making any monthly payment provided for herein or in the Note secured hereby, and if such default is not made good prior to the due date of the next such installment, or if Trustor shall fail to perform any covenant or agreement in this Deed of 8 Trust, all sums secured hereby shall, at the option of the Beneficiary, be deemed to have become immediately due and payable, and shall thereupon be collectable by foreclosure of this Deed of Trust. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default, to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 23. After the lapse of such time as may then be required by law following the recordation of said notice of defaults, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell said property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Trustee may postpone sale of all or any portion of said property by public announcement at the time and place of sale, and from time to time thereafter may postpone the sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to the purchaser its Deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in the Deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee, or Beneficiary, may purchase at the sale. The Trustee shall apply the proceeds of sale to payment of (1) the expenses of such sale, together with the reasonable expenses of this trust including therein reasonable Trustee's fees or attorney's fees for conducting the sale, and the actual cost of publishing, recording, mailing and posting notice of the sale; (2) the cost of any search and/or other evidence of title procured in connection with such sale and revenue stamps on Trustees' Deed; (3) all sums expended under the terms hereof, not then repaid, with accrued interest at the rate specified in said Note; (4) all other sums then secured hereby; and (5) the remainder, if any, to the person or persons legally entitled thereto; 24. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter shall be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution shall be made by written instrument executed by Beneficiary, containing reference to this Deed and its place of record which, when duly recorded in the proper office of the county or counties in which the property is situated, shall be conclusive proof of proper appointment of the successor trustee. In the event of default, Trustee hereunder shall be, and is authorized and empowered when given notice to do so by Beneficiary after such default to cause the property to be sold, which notice Trustee shall cause to be duly filed for record. 25. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed is hereby waived to the full extent permissible by law; 26. Upon written request of Beneficiary stating that all sums secured hereby have been paid, and upon surrender of this Deed of Trust and said Note to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the property then held hereunder. The recitals in such reconveyance of any matters or fact shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto;" 9 27. The trust created hereby is irrevocable by Trustor; 28. This Deed of Trust applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors, and assigns. The term "Beneficiary" shall include not only the original Beneficiary hereunder but also any future owner and holder including pledgees, of the Note secured hereby. In this Deed, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. All obligations of each Trustor hereunder are joint and several; 29. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law the Trustee is not obligated to notify any party hereto of pending sale under this Deed of Trust or of any action of proceeding in which Trustor, Beneficiary, or Trustee shall be a party unless brought by Trustee; 30. The Undersigned TRUSTOR REQUESTS that a copy of any notice of default and of any notice of sale hereunder be mailed to him at the mailing address opposite his name hereto. Failure to insert such address shall be deemed a waiver of any request hereunder for a copy of such notices. Mailing Address for Notices 245 Fischer Avenue, Suite D-1 Costa Mesa, California 92626 31. Notwithstanding any other provision contained herein or in the Note, hereinabove referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. 32. Notwithstanding any other provision contained herein or in the Note, hereinafter referred to, it is agreed that the execution of the Note shall impose no personal liability upon the Trustor (or any of its present or future limited and general partners) for payment of the indebtedness evidenced thereby and in the event of a default, the Beneficiary, as holder of the Note, shall look solely to the property subject to this Deed of Trust and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and will not seek or obtain any deficiency or personal judgment against the Trustor (or any of its present or future 10 limited and general partners) except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Deed of Trust and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Note; provided, that nothing in this condition and no action so taken shall operate to impair any obligation of the Trustor under the Regulatory Agreement herein referred to and made a part hereof. IN WITNESS WHEREOF the Trustor has caused its name to be hereunto subscribed by its duly authorized General Partner as of the day and year herein first above written. ARV VALLEY VIEW, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Abdo H. Khoury Senior Vice President 11 CALIFORNIA DEED OF TRUST Between ARV VALLEY VIEW, L.P. Trustor and FIDELITY NATIONAL TITLE INSURANCE COMPANY Trustee, and RED MORTGAGE CAPITAL, INC. Beneficiary. Dated: December 12, 2000 Recorded: December __, 2000 at minutes past in Liber at page records of Contra Costa County, California RECORDER'S INSTRUCTIONS Index this document as a Deed of Trust and as an Assignment of Rents. Escrow No. Order No. EX-10.92 19 a71045ex10-92.txt EXHIBIT 10.92 1 EXHIBIT 10.92 REGULATORY AGREEMENT FOR U.S. Department of Housing MULTIFAMILY HOUSING PROJECTS and Urban Development OFFICE OF HOUSING FEDERAL HOUSING COMMISSIONER - -------------------------------------------------------------------------------- Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits Project No. 121-22032-ALF/REF Mortgagee: RED MORTGAGE CAPITAL, INC. Amount of Mortgage Note: $11,369,500.00 Date: December 12, 2000 Mortgage: Recorded: State: California County: Contra Costa Date: December 12, 2000 Concurrently Herewith Book __ Page __ Originally endorsed for insurance under Section 232 pursuant to Section 223(f) of the National Housing Act, as amended. This Agreement entered into this 12th day of December, 2000, between ARV VALLEY VIEW, L.P., a California limited partnership whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, their successors, heirs, and assigns (jointly and severally, hereinafter referred to as Owners) and the undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his successors (hereinafter referred to as Secretary). In consideration of the endorsement for insurance by the Secretary of the above described note or in consideration of the consent of the Secretary to the transfer of the mortgaged property or the sale and conveyance of the mortgaged property by the Secretary, and in order to comply with the requirements of the National Housing Act, as amended, and the Regulations adopted by the Secretary pursuant thereto, Owners agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the contract of mortgage insurance continues in effect, and during such further period of time as the Secretary shall be the owner, holder or reinsurer of the mortgage, or during any time the Secretary is obligated to insure a mortgage on the mortgage property: 2 1. Owners, except as limited by paragraph 17 hereof, assume and agree to make promptly all payments due under the note and mortgage. 2. (a) Owners shall establish or continue to maintain a reserve fund for replacements by the allocation to such reserve fund in a separate account with the mortgagee or in a safe and responsible depository designated by the mortgagee, concurrently with the beginning of payments towards amortization of the principal of the mortgage insured or held by the Secretary of an amount equal to $8,453.17 per month unless a different date or amount is approved in writing by the Secretary. Said monthly deposit consists of $4,978.84 for Realty and $3,496.83 for Non-Realty. In addition, the Owner has made an initial deposit to the fund of $235,728. Such fund, whether in the form of a cash deposit or invested in obligations of, or fully guaranteed as to principal by, the United States of America shall at all times be under the control of the mortgagee. Disbursements from such fund, whether for the purpose of effecting replacement of structural elements and mechanical equipment of the project or for any other purpose, may be made only after receiving the consent in writing of the Secretary. In the event that the owner is unable to make a mortgage note payment on the due date and that payment cannot be made prior to the due day of the next such installment or when the mortgagee has agreed to forgo making an election to assign the mortgage to the Secretary based on a monetary default, or to withdraw an election already made, the Secretary is authorized to instruct the mortgagee to withdraw funds from the reserve fund for replacements to be applied to the mortgage payment in order to prevent or cure the default. In addition, in the event of a default in the terms of the mortgage, pursuant to which the loan has been accelerated, the Secretary may apply or authorize the application of the balance in such fund to the amount due on the mortgage debt as accelerated. (b) Where Owners are acquiring a project already subject to an insured mortgage, the reserve fund for replacements to be established will be equal to the amount due to be in such fund under existing agreements or charter provisions at the time Owners acquire such project, and payments hereunder shall begin with the first payment due on the mortgage after acquisition, unless some other method of establishing and maintaining the fund is approved in writing by the Secretary. 3. Real property covered by the mortgage and this agreement is described in Exhibit A attached hereto. (This paragraph 4 is not applicable to cases insured under Section 232). 3 5. (a) If the mortgage is originally a Secretary-held purchase money mortgage, or is originally endorsed for insurance under any Section other than Sections 231 or 232 and is not designed primarily for occupancy by elderly persons, Owners shall not in selecting tenants discriminate against any person or persons by reason of the fact that there are children in the family. (b) If the mortgage is originally endorsed for insurance under Section 221, Owners shall in selecting tenants give to displaced persons or families an absolute preference or priority of occupancy which shall be accomplished as follows: (1) For a period of sixty (60) days from the date of original offering, unless a shorter period of time is approved in writing by the Secretary, all units shall be held for such preferred applicants, after which time any remaining unrented units may be rented to non-preferred applicants; (2) Thereafter, and on a continuing basis, such preferred applicants shall be given preference over non-preferred applicants in their placement on a waiting list to be maintained by the Owners; and (3) Through such further provisions agreed to in writing by the parties. (c) Without the prior written approval of the Secretary not more than 25% of the number of units in a project insured under Section 231 shall be occupied by persons other than elderly persons. (d) All advertising or efforts to rent a project insured under Section 231 shall reflect a bona fide effort of the Owners to obtain occupancy by elderly persons. 6. Owners shall not without the prior written approval of the Secretary: (a) Convey, transfer, or encumber any of the mortgaged property, or permit the conveyance, transfer or encumbrance of such property. (b) Assign, transfer, dispose of, or encumber any personal property of the project, including rents, or pay out any funds except from surplus cash, except for reasonable operating expenses and necessary repairs. (c) Convey, assign, or transfer any beneficial interest in any trust holding title to the property, or the interest of any general partner in a partnership owning the property, or any right to manage or receive the rents and profits from the mortgaged property. (d) Remodel, add to, reconstruct, or demolish any part of the mortgaged property or subtract from any real or personal property of the project. 4 (e) Make, or receive and retain, any distribution of assets or any income of any kind of the project except surplus cash and except on the following conditions: (1) All distributions shall be made only as of and after the end of a semiannual or annual fiscal period, and only as permitted by the law of the applicable jurisdiction; (2) No distribution shall be made from borrowed funds, prior to the completion of the project or when there is any default under this Agreement or under the note or mortgage; (3) Any distribution of any funds of the project, which the party receiving such funds is not entitled to retain hereunder, shall be held in trust separate and apart from any other funds; and (4) There shall have been compliance with all outstanding notices of requirements for proper maintenance of the project. (f) Engage, except for natural persons, in any other business or activity, including the operation of any other rental project, or incur any liability or obligation not in connection with the project. (g) Require, as a condition of the occupancy or leasing of any unit in the project, any consideration or deposit other than the prepayment of the first month's rent plus a security deposit in an amount not in excess of one month's rent to guarantee the performance of the covenants of the lease. Any funds collected as security deposits shall be kept separate and apart from all other funds of the project in a trust account the amount of which shall at all times equal or exceed the aggregate of all outstanding obligations under said account. (h) Permit the use of the dwelling accommodations or nursing facilities of the project for any purpose except the use which was originally intended, or permit commercial use greater than that originally approved by the Secretary. 7. Owners shall maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition. In the event all or any of the buildings covered by the mortgage shall be destroyed or damaged by fire or other casualty, the money derived from any insurance on the property shall be applied in accordance with the terms of the mortgage. 5 8. Owners shall not file any petition in bankruptcy or for a receiver or in insolvency or for reorganization or composition, or make any assignment for the benefit of creditors or to a trustee for creditors, or permit an adjudication in bankruptcy or the taking possession of the mortgaged property or any part thereof by a receiver or the seizure and sale of the mortgaged property or any part hereof under judicial process or pursuant to any power of sale, and fail to have such adverse actions set aside within forty-five (45) days. 9. (a) Any management contract entered into by Owners or any of them involving the project shall contain a provision that, in the event of default hereunder, it shall be subject to termination without penalty upon written request by the Secretary. Upon such request Owners shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Secretary for continuing proper management of the project. (b) Payment for services, supplies, or materials shall not exceed the amount ordinarily paid for such services, supplies, or materials in the area where the services are rendered or the supplies or materials furnished. (c) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Secretary or his duly authorized agents. Owners shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Secretary or his duly authorized agents. (d) The books and accounts of the operations of the mortgaged property and of the project shall be kept in accordance with the requirements of the Secretary. (e) Within sixty (60) days following the end of each fiscal year the Secretary shall be furnished with a complete annual financial report based upon an examination of the books and records of mortgagor prepared in accordance with the requirements of the Secretary, prepared and certified to by an officer or responsible Owner and, when required by the Secretary, prepared and certified by a Certified Public Accountant, or other person acceptable to the Secretary. 6 (f) At the request of the Secretary, his agents, employees, or attorneys, the Owners shall furnish monthly occupancy reports and shall give specific answers to questions upon which information is desired from time to time relative to income, assets, liabilities, contracts, operation, and condition of the property and the status of the insured mortgage. (g) All rents and other receipts of the project shall be deposited in the name of the project in a financial institution, whose deposits are insured by an agency of the Federal Government. Such funds shall be withdrawn only in accordance with the provisions of this Agreement for expenses of the project or for distributions of surplus cash as permitted by paragraph 6(e) above. Any Owner receiving funds of the project other than by such distribution of surplus cash shall immediately deposit such funds in the project bank account and failing so to do in violation of this Agreement shall hold such funds in trust. Any Owner receiving property of the project in violation of this Agreement shall hold such funds in trust. At such time as the Owners shall have lost control and/or possession of the project, all funds held in trust shall be delivered to the mortgagee to the extent that the mortgage indebtedness has not been satisfied. (h) If the mortgage is insured under Section 232: 1. The Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as a nursing home and shall not lease all or part of the project except on terms approved by the Secretary. 2. The Owners shall suitably equip the project for nursing home operations. 3. The Owners shall execute a Security Agreement and Financing Statement (or other form of chattel lien) upon all items of equipment, except as the Secretary may exempt, which are not incorporated as security for the insured mortgage. The Security Agreement and Financing Statement shall constitute a first lien upon such equipment and shall run in favor of the mortgagee as additional security for the insured mortgage. (i) If the mortgage is insured under Section 231, Owners or lessees shall at all times maintain in full force and effect from the state or other licensing authority such license as may be required to operate the project as housing for the elderly. 7 10. Owners will comply with the provisions of any Federal, State, or local law prohibiting discrimination in housing on the grounds of race, color, religion or creed, sex, or national origin, including Title VIII of the Civil Rights Act of 1968 (Public Law 90-284; 82 Stat. 73), as amended, Executive Order 11063, and all requirements imposed by or pursuant to the regulations of the Department of Housing and Urban Development implementing these authorities (including 24 CFR Parts 100, 107 and 110, and Subparts I and M of Part 200). 11. Upon a violation of any of the above provisions of this Agreement by Owners, the Secretary may give written notice thereof, to Owners, by registered or certified mail, addressed to the addresses stated in this Agreement, or such other addresses as may subsequently, upon appropriate written notice thereof to the Secretary, be designated by the Owners as their legal business address. If such violation is not corrected to the satisfaction of the Secretary within thirty (30) days after the date such notice is mailed or within such further time as the Secretary determines is necessary to correct the violation, without further notice the Secretary may declare a default under this Agreement effective on the date of such declaration of default and upon such default the Secretary may: (a) (i) If the Secretary holds the note - declare the whole of said indebtedness immediately due and payable and then proceed with the foreclosure of the mortgage; (ii) If said note is not held by the Secretary - notify the holder of the note of such default and request holder to declare a default under the note and mortgage, and holder after receiving such notice and request, but not otherwise, at its option, may declare the whole indebtedness due, and thereupon proceed with foreclosure of the mortgage, or assign the note and mortgage to the Secretary as provided in the Regulations; (b) Collect all rents and charges in connection with the operation of the project and use such collections to pay the Owners' obligations under this Agreement and under the note and mortgage and the necessary expenses of preserving the property and operating the project. (c) Take possession of the project, bring any action necessary to enforce any rights of the Owners growing out of the project operation, and operate the project in accordance with the terms of this Agreement until such time as the Secretary in his discretion determines that the Owners are again in a position to operate the 8 project in accordance with the terms of this Agreement and in compliance with the requirements of the note and mortgage. (d) Apply to any court, state or Federal, for specific performance of this Agreement, for an injunction against any violation of the Agreement, for the appointment of a receiver to take over and operate the project in accordance with the terms of the Agreement, or for such other relief as may be appropriate, since the injury to the Secretary arising from a default under any of the terms of this Agreement would be irreparable and the amount of damage would be difficult to ascertain. 12. As security for the payment due under this Agreement to the reserve fund for replacements, and to secure the Secretary because of his liability under the endorsement of the note for insurance, and as security for the other obligations under this Agreement, the Owners respectively assign, pledge and mortgage to the Secretary their rights to the rents, profits, income and charges of whatsoever sort which they may receive or be entitled to receive from the operation of the mortgaged property, subject, however, to any assignment of rents in the insured mortgage referred to herein. Until a default is declared under this Agreement, however, permission is granted to Owners to collect and retain under the provisions of this Agreement such rents, profits, income, and charges, but upon default this permission is terminated as to all rents due or collected thereafter. 13. As used in this Agreement the term: (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage", "Security Instrument", and any other security for the note identified herein, and endorsed for insurance or held by the Secretary; (b) "Mortgagee" refers to the holder of the mortgage identified herein, its successors and assigns; (c) "Owners" refers to the persons named in the first paragraph hereof and designated as Owners, their successors, heirs and assigns; (d) "Mortgaged Property" includes all property, real, personal or mixed, covered by the mortgage or mortgages securing the note endorsed for insurance or held by the Secretary; 9 (e) "Project" includes the mortgaged property and all its other assets of whatsoever nature or wheresoever situate, used in or owned by the business conducted on said mortgaged property, which business is providing housing and other activities as are incidental thereto; (f) "Surplus Cash" means any cash remaining after: (1) the payment of: (i) All sums due or currently required to be paid under the terms of any mortgage or note insured or held by the Secretary; (ii) All amounts required to be deposited in the reserve fund for replacements; (iii) All obligations of the project other than the insured mortgage unless funds for payment are set aside or deferment of payment has been approved by the Secretary; and (2) the segregation of: (i) An amount equal to the aggregate of all special funds required to be maintained by the project; and (ii) All tenant security deposits held. (g) "Distribution" means any withdrawal or taking of cash or any assets of the project, including the segregation of cash or assets for subsequent withdrawal within the limitations of Paragraph 6(e) hereof, and excluding payment for reasonable expenses incident to the operation and maintenance of the project. (h) "Default" means a default declared by the Secretary when a violation of this Agreement is not corrected to his satisfaction within the time allowed by this Agreement or such further time as may be allowed by the Secretary after written notice; (i) "Section" refers to a Section of the National Housing Act, as amended. 10 (j) "Displaced persons or families" shall mean a family or families, or a person, displaced from an urban renewal area, or as the result of government action, or as a result of a major disaster as determined by the President pursuant to the Disaster Relief Act of 1970. (k) "Elderly person" means any person, married or single, who is sixty-two years of age or over. 14. This instrument shall bind, and the benefits shall inure to, the respective Owners, their heirs, legal representatives, executors, administrators, successors in office or interest, and assigns, and to the Secretary and his successors so long as the contract of mortgage insurance continues in effect, and during such further time as the Secretary shall be the owner, holder, or reinsurer of the mortgage, or obligated to reinsure the mortgage. 15. Owners warrant that they have not, and will not, execute any other agreement with provisions contradictory of, or in opposition to, the provisions hereof, and that, in any event, the requirements of this Agreement are paramount and controlling as to the rights and obligations set forth and supersede any other requirements in conflict therewith. 16. The invalidity of any clause, part or provision of this Agreement shall not affect the validity or the remaining portions thereof. 17. The following Owners: ARV Valley View, L.P., a California limited partnership, and all present and future limited and general partners thereof, do not assume personal liability for payments due under the note and mortgage, or for the payments to the reserve for replacements, or for matters not under their control, provided that said Owners shall remain liable under this Agreement only with respect to the matters hereinafter stated; namely: (a) for funds or property of the project coming into their hands which, by the provisions hereof, they are not entitled to retain; and (b) for their own acts and deeds or acts and deeds of others which they have authorized in violation of the provisions hereof. (To be executed with formalities for recording a deed to real estate) 11 All references herein to the terms "nursing home" or nursing homes" shall mean and include the terms "assisted living facility" and "assisted living facilities." See Rider I attached hereto and made a part hereof. IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. ARV VALLEY VIEW, L.P. a California limited partnership By: American Retirement Villas Properties II a California limited partnership General Partner By: ARV Assisted Living, Inc. a Delaware corporation General Partner By: ____________________________ Abdo H. Khoury Senior Vice President December 12, 2000 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent December 12, 2000 EX-10.93 20 a71045ex10-93.txt EXHIBIT 10.93 1 EXHIBIT 10.93 Regulatory Agreement NURSING HOMES U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Housing Federal Housing Commissioner - -------------------------------------------------------------------------------- Project Number Mortgagee 121-22032-ALF/REF Red Capital Mortgage, Inc., an Ohio corporation - -------------------------------------------------------------------------------- Amount of Mortgage Note Date $11,369,500.00 December 12, 2000 - -------------------------------------------------------------------------------- Mortgage Recorded (State) County Date California Contra Costa December 12, 2000 - -------------------------------------------------------------------------------- Book Page - -------------------------------------------------------------------------------- This Agreement entered into as of this 12th day of December, 2000 between RETIREMENT INNS II, LLC, a Delaware limited liability company whose address is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626 (jointly and severally, hereinafter referred to as Lessee) and the undersigned FEDERAL HOUSING COMMISSIONER, (hereinafter called Commissioner). In consideration of the consent of the Commissioner to the leasing of the aforesaid project by ARV VALLEY VIEW, L.P., a California limited partnership, Mortgagor, and in order to comply with the requirements of the National Housing Act and the Regulations adopted by the Commissioner pursuant thereto, Lessees agree for themselves, their successors, heirs and assigns, that in connection with the mortgaged property and the project operated thereon and so long as the Contract of Mortgage Insurance continues in effect, and during such further period of time as the Commissioner shall be the owner, holder or reinsurer of the mortgage, or during any time the Commissioner is obligated to insure a mortgage on the mortgaged property: (1) The lease shall be subject and subordinate to the mortgage securing the note or other obligation endorsed for insurance by the commissioner; (2) Lessee shall make payments under lease when due; (3) Payments by the lessee to the lessor shall be sufficient to pay all mortgage payments including payments to reserves for taxes, insurance, etc., payments to the Reserve for Replacements, and to take care of necessary maintenance. If at the end of any calendar year, or any fiscal year if the project operates on the basis of a fiscal year, payments under the lease have not been sufficient to take care of the above items, the lessor and lessee upon request in writing from the Commissioner shall renegotiate the amounts due under the lease so that such amounts shall be sufficient to take care of such items; the Commissioner shall be furnished by the lessee, within thirty days after being called upon to do so, with a financial report in form satisfactory to the Commissioner covering the operations of the mortgaged property and of the project; (4) The lessee shall not sublease the project or any part thereof without the consent of the Commissioner; (5) The lessee shall at all times maintain in full force and effect a license from the State or other licensing authority to operate the project as a nursing home, but the owner shall not be required to maintain such a license; (6) Lessee shall maintain in good repair and condition any parts of the project for the maintenance of which lessee is responsible under the terms of the lease; (7) Lessee shall not remodel, reconstruct, add to, or demolish any part of the mortgaged property or subtract from any real or personal property of the project; (8) Lessee shall not use the project for any purpose except the operation of a nursing home; (9) If a default is declared by the Commissioner under the provisions of Paragraph 10 of the Regulatory Agreement entered into by the lessor-mortgagor and the Commissioner on the 12th day of December, 2000, a copy of notice of default having been given to the lessee, the lessee will thereafter make all future payments under the lease to the Commissioner; (10) The lease may be cancelled upon thirty days written notice by the Commissioner given to the lessor and the lessee for a violation of any of the above provisions unless the violation is corrected to the satisfaction of the Commissioner within said thirty day period. 2 (11) The Commissioner must approve any change in or transfer of ownership of the lessee entity, and any change in or transfer of the management operation, or control of the project. (12) The lessee shall not reduce or expand, allow to be reduced or expanded, or cause the expansion or reduction of the bed capacity of the project without the consent of the Commissioner. Any change in the bed capacity shall violate this Regulatory Agreement. (13) The lessee shall not enter into any management contract involving the project, unless such shall contain a provision that, in the event of default under the Regulatory Agreement as recited in paragraph 9 (above) of this Agreement, the management agreement shall be subject to termination without penalty upon written request of the Commissioner. Upon such request the lessee shall immediately arrange to terminate the contract within a period of not more than thirty (30) days and shall make arrangements satisfactory to the Commissioner for continuing proper management of the project. (14) The mortgaged property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and other papers relating thereto shall at all times be maintained in reasonable condition for proper audit and subject to examination and inspection at any reasonable time by the Commissioner or his duly authorized agents. Lessee shall keep copies of all written contracts or other instruments which affect the mortgaged property, all or any of which may be subject to inspection and examination by the Commissioner or his/her duly authorized agents. (15) There shall be full compliance with the provisions of (1) any State or local laws prohibiting discrimination in housing on the basis of race, color, creed, or national origin; and (2) with the Regulations of the Federal Housing Administration providing for non-discrimination and equal opportunity in housing. It is understood and agreed that failure or refusal to comply with any such provisions shall be a proper basis for the Commissioner to take any corrective action he may deem necessary including, but not limited to, the refusal to consent to a further renewal of the lease between the mortgagor-lessor and the lessee, the rejection of applications for FHA mortgage insurance and the refusal to enter into future contracts of any kind with which the lessee is identified; and further, if the lessee is a corporation or any other type of business association or organization which may fail or refuse to comply with the aforementioned provisions, the Commissioner shall have a similar right of corrective action (1) with respect to any individuals who are officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee; and (2) with respect to any other type of business association, or organization with which the officers, directors, trustees, managers, partners, associates or principal stockholders of the lessee may be identified. IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the date first hereinabove written. RETIREMENT INNS II, LLC a Delaware limited liability company By: ___________________________ Abdo H. Khoury Manager December 12, 2000 SECRETARY OF HOUSING AND URBAN DEVELOPMENT ACTING BY AND THROUGH THE FEDERAL HOUSING COMMISSIONER By: ________________________________ Authorized Agent December 12, 2000 -----END PRIVACY-ENHANCED MESSAGE-----