HAZARDOUS SUBSTANCES INDEMNITY

EXHIBIT 10.6



HAZARDOUS SUBSTANCES

INDEMNITY AGREEMENT

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(DLJ 1996-CF1)

(Loan No. 9690381)





THIS HAZARDOUS SUBSTANCES INDEMNITY AGREEMENT (this "Agreement"), made as

--------- of the ___ day of _____, 1998, jointly and severally by THE ATRIUM OF SAN JOSE LLC, a Delaware limited liability company ("New Borrower"), whose address is

----------- 4121-A Power Inn Road, Sacramento, California 95826, Attn: Jeffrey A. Hallsten; BROOKDALE LIVING COMMUNITIES OF CALIFORNIA, INC., a Delaware corporation ("Tenant") and BROOKDALE LIVING COMMUNITIES, INC., a Delaware corporation

------ ("Parent"), each of whose address is 77 West Wacker Drive, Suite 4800, Chicago

------ Illinois, 60601 Attn: Darryl W. Copeland, Jr. (New Borrower, Tenant and Parent being referred to herein collectively as "Indemnitors" and individually as

----------- "Indemnitor"), in favor of LASALLE NATIONAL BANK, AS TRUSTEE FOR THE REGISTERED

---------- HOLDERS OF DLJ MORTGAGE ACCEPTANCE CORP., COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-CF1 ("Lender"), whose address is 135 South LaSalle

------ Street, Suite 1625, Chicago, Illinois 60603, Attn: Linda Wirfel; DLJ 1996-CF1; Loan No. 9690381.





WITNESSETH:

----------



WHEREAS, Atrium Venture, a California limited partnership ("Original

-------- Borrower"), obtained a loan (the "Loan") in the principal amount of Eighteen - -------- ---- Million Four Hundred Thousand and No/100 Dollars ($18,400,000) from Column Financial, Inc., a Delaware corporation ("Original Lender"); and

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WHEREAS, the Loan is evidenced by a Promissory Noted dated as of January 15, 1996 (the "Note"), executed by Original Borrower and payable to the order of

---- Original Lender in the stated principal amount of Eighteen Million Four Hundred Thousand and No/100 Dollars ($18,400,000) and is secured by a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of January 15, 1996 (the "Deed of Trust") from Original Borrower, as trustor, to a trustee

------------- for the benefit of Original Lender, as beneficiary, encumbering Original Borrower's interest in that certain real property situated in the County of Santa Clara, State of California, as more particularly described on EXHIBIT A attached hereto and incorporated herein by this reference, together with the buildings, structures and other improvements now or hereafter located thereon (said real property, buildings, structures and other improvements being hereinafter collectively referred to as the "Property") and by other documents

-------- and instruments (the Note, the Deed of Trust, the Assumption Agreement (as hereinafter defined) and such other documents and instruments evidencing or securing the Loan, as the same may from time to time be amended, consolidated, renewed or replaced, being collectively referred to herein as the "Loan Documents"); and

--------------



WHEREAS, Lender is the current owner and holder of the Loan; and



WHEREAS, New Borrower desires to purchase the Property from Original Borrower and to assume all of Original Borrower's obligations under the Loan Documents; and



WHEREAS, New Borrower desires to lease the Property to Tenant pursuant to that certain lease (the "Lease") of even date herewith between Tenant, as Lessee

----- and New Borrower, as Lessor-Owner; and



WHEREAS, a sale of the Property to and the assumption of the Loan by a third party and New Borrower's entering into the Lease with Tenant without the consent of the holder of the Deed of Trust is prohibited by the terms thereof; and



WHEREAS, as a condition to Lender consenting to (i) the transfer of the Property to and the assumption of the Loan by New Borrower in accordance with the terms of a Note and Deed of Trust Assumption Agreement of even date herewith among Original Borrower, New Borrower and Lender (the "Assumption Agreement")

-------------------- and (ii) New Borrower entering into the Lease with Tenant (collectively, the "Requested Actions"), Lender has required that Indemnitors indemnify Lender with

----------------- respect to hazardous wastes on, in, under or affecting the Property as herein set forth.



NOW, THEREFORE, to induce Lender to consent to the Requested Actions and in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitors hereby covenant and agree for the benefit of Lender, as follows;



1. INDEMNITY. Indemnitors hereby assume liability for, and hereby agree to

---------

pay, protect, defend (at trial and appellate levels) with attorneys,

consultants and experts acceptable to Lender, and save Lender harmless from

and against, and hereby indemnify Lender from and against any and all

liens, damages, losses, liabilities, obligations, settlement payments,

penalties, assessments, citations, directives, claims, litigation, demands,

defenses, judgments, suits, proceedings, costs, disbursements and expenses

of any kind or of any nature whatsoever (including, without limitation,

attorneys', consultants' and experts' fees and disbursements actually incurred in investigating, defending, settling or prosecuting any claim, litigation or proceeding) (collectively "Costs") which may at any time be imposed upon,

----- incurred by or asserted or awarded against Lender or the Property, and arising directly or indirectly from or out of: (i) the violation of any local, state or federal law, rule or regulation pertaining to environmental regulation, contamination or clean-up (collectively, "Environmental Laws"), including,

------------------ without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. (S) 9601 et seq. and 40 CFR (S) 302.1 et seq.),

-- --- -- --- the Resource Conservation and Recovery Act of 1976 (42 U.S.C. (S) 6901 et seq.),

-- --- The Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq. and 40 CFR

-- --- (S) 116 et seq. and the Hazardous Materials Transportation Act (49 U.S.C (S)

-- --- 1801 et seq.), and the regulations promulgated pursuant to said laws, all as

-- --- amended, relating to or affecting the Property, whether or not caused by or within the control of Indemnitors; (ii) the presence, release or threat of release of any hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, infectious substances or raw materials which include hazardous constituents) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, "Hazardous Substances"), on, in,

-------------------- under or affecting all or any portion of the Property or any surrounding areas, regardless of whether or not caused by or within the control of Indemnitors; (iii) the failure by Indemnitors to comply fully with the terms and conditions of this Agreement; (iv) the breach of any representation or warranty contained in this Agreement; or (v) the enforcement of this Agreement, including, without limitation, the cost of assessment, containment and/or removal of any and all Hazardous Substances from all or any portion of the Property or any surrounding areas, the cost of any actions taken in response to the presence, release or threat of release of any Hazardous Substances on, in, under or affecting any portion of the Property or any surrounding areas to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the





environment, and costs incurred to comply with the Environmental Laws in

connection with all or any portion of the Property or any surrounding

areas. "Costs" as used in this Agreement shall also include any diminution

-----

in the value of the security afforded by the Property or any future

reduction of the sales price of the Property by reason of any matter set

forth in this Paragraph 1. The foregoing indemnity shall specifically not

include any such costs relating to Hazardous Substances which are initially

placed on, in or under the Property (i) after foreclosure or other taking

of title to the Property or (ii) by Lender or anyone claiming by, through

or under Lender.



2. REPRESENTATIONS REGARDING HAZARDOUS SUBSTANCES: Indemnitors hereby

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represent and warrant to and covenant and agree with Lender as follows:



(1) To the best of Indemnitors' knowledge, information and belief, the Property is not in direct or indirect violation of any Environmental Law;



(2) No Hazardous Substances are located on or have been handled, generated, stored, processed or disposed of on, or released or discharged from, the Property (including underground contamination) except for those substances used by New Borrower in the ordinary course of its business and in compliance with all Environmental Laws. Indemnitors and Lender have been advised that certain underground storage tanks previously may have been located on the Property, and have been removed, with closure of certain issues respecting the Property having been granted by the California Regional Water Quality Control Board on July 17, 1985, and by the Santa Clara Valley Water District on February 5, 1992. To the best of Indemnitors' knowledge, there is no current or pending issue with respect to the presence of any Hazardous Substances at the Property;



(3) The Property is not subject to any private or governmental lien or judicial or administrative notice or action relating to Hazardous Substances;



(4) There are no existing or closed underground storage tanks or other underground storage receptacles for Hazardous Substances on the Property, except those three underground storage



tanks removed from the Property in 1985 as described in that certain Phase I Environmental Site Assessment for the Property prepared by EMG dated November 6, 1995;



(5) None of Indemnitors has received any notice of, and to the best of Indemnitors' knowledge and belief, there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of the Property nor do Indemnitors know of any basis for such a claim; and



(6) Indemnitors have received no notice that, and to the best of Indemnitors' knowledge and belief, there has been no claim by any party that, any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor do Indemnitors know of any basis for such a claim.



3. COVENANTS OF INDEMNITORS.

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(1) Indemnitors shall keep or cause the Property to be kept free from Hazardous Substances (except those substances used by New Borrower or Tenant in the ordinary course of its business and in compliance with all Environmental Laws) and in compliance with all Environmental Laws, shall not install or use any underground storage tanks, shall expressly prohibit the use, generation, handling, storage, production, processing and disposal of Hazardous Substances by all tenants or subtenants of space in the Improvements, and, without limiting the generality of the foregoing, during the term of this Agreement, shall not install in the Improvements or permit to, be installed in the Improvements asbestos or any substance containing asbestos.



(2) Indemnitors shall immediately notify Lender should Indemnitors, or any of them, become aware of (i) any Hazardous Substances, or other potential environmental problem or liability, with respect to the Property; (ii) any lien, action or notice affecting the Property, New Borrower or Tenant resulting from any violation or alleged violation of the Environmental Law; (iii) the institution of any investigation, inquiry or proceeding concerning New Borrower, Tenant or the Property pursuant to any Environmental



Law or otherwise relating to Hazardous Substances; or (iv) the discovery of any occurrence, condition or state of facts which would render any representation or warranty contained in this Agreement incorrect in any respect if made at the time of such discovery. Indemnitors shall, promptly and when and as required and regardless of the source of the contamination, at their own expense, take all actions as shall be necessary or advisable for the clean-up of any and all portions of the Property or other affected property, including, without limitation, all investigative, monitoring, removal, containment and remedial actions in accordance with all applicable Environmental Laws (and in all events in a manner satisfactory to Lender), and shall further pay or cause to be paid, at no expense to Lender, all clean-up, administrative and enforcement costs of applicable governmental agencies which may be asserted against the Property. In the event Indemnitors fail to do so, Lender may cause the Property or other affected property to be freed from any Hazardous Substances or otherwise brought into conformance with Environmental Laws and any cost incurred in connection therewith shall be included in Costs and shall be paid by Indemnitors in accordance with the terms of Paragraph 4(c) hereof. In furtherance of the foregoing, Indemnitors hereby grant to Lender access to the Property and an irrevocable license to remove any items deemed by Lender to be Hazardous Substances and to do all things Lender shall deem necessary to bring the Property into conformance with Environmental Laws.



(3) Upon the request of Lender, at any time and from time to time after the occurrence of a default under this Agreement or the Loan Documents or at such other time as Lender has reasonable grounds to believe that Hazardous Substances are or have been released, stored or disposed of on or around the Property or that the Property may be in violation of the Environmental Laws, Indemnitors shall provide, at Indemnitors' sole expense, an inspection or audit of the Property prepared by a hydrogeologist or environmental engineer or other appropriate consultant reasonably approved by Lender indicating the presence or absence of Hazardous Substances on the Property or an inspection or audit of the improvements located on the Property prepared by an engineering or consulting firm approved by Lender indicating the presence or absence of friable asbestos or substances containing asbestos on the Property. If Indemnitors fail to provide such inspection or audit within thirty (30) days after such request, Lender may order



the same, and Indemnitors hereby grant to Lender access to the Property and an irrevocable license to undertake such inspection or audit ...