Construction Loan Agreement

SCOTTSDALE


CONSTRUCTION LOAN AGREEMENT


Dated: September 28, 2000


Between


ARC SCOTTSDALE, LLC


("Borrower")


and


GUARANTY FEDERAL BANK, F.S.B. ("Lender")


$12,030,000 LOAN


FOR A ONE HUNDRED EIGHTEEN (118) UNIT ASSISTED LIVING FACILITY


LOCATED IN SCOTTSDALE, MARICOPA COUNTY, ARIZONA


2
TABLE OF CONTENTS


Page 1. BACKGROUND - 1 -
1.1 Defined Terms - 1 -
1.2 Borrower - 1 -
1.3 Land and Improvements; Property - 1 -
1.4 Intentionally Omitted - 1 -
1.5 Plans, Borrower's Architect and Architect's Contract - 1 -
1.6 General Contract - 2 -
1.7 Loan - 2 -
1.8 Schedule of Work and Completion Date; Schedule of Draws - 2 -
1.9 Project Budget - 2 -
1.10 Construction Agency Agreement - 2 -
1.11 Use of Loan Proceeds - 2 -


2. LOAN PROVISIONS - 2 -
2.1 Amount of Loan - 2 -
2.2 Term of Loan - 2 -
2.3 Interest Rate and Payment Terms - 2 -
2.5 Acceleration - 3 -


3. SECURITY FOR THE LOAN; LOAN AND SECURITY DOCUMENTS - 3 -
3.1 Security - 3 -
3.1.1 Deed of Trust and Security Agreement - 3 -
3.1.2 Assignment of Leases and Rents - 3 -
3.1.3 Collateral Assignment of Contracts - 3 -
3.1.4 Consent from the General Contractor - 3 -
3.1.5 Consent from Architect - 3 -
3.1.6 Additional Security Documents - 4 -
3.2 Loan Documents and Security Documents - 4 -


4. CONTINUING AUTHORITY OF AUTHORIZED REPRESENTATIVES - 4 -


5. CONSTRUCTION DOCUMENTS - 5 -
5.1 Approved Construction Documents - 5 -
5.2 Limits on Change in Architect or General Contractor - 5 -
5.3 Limits on Change in Approved Construction Documents or
Project Budget - 5 -
5.3.1 Changes To Plans and Specifications, Contracts - 5 -
5.3.2 Changes To Project Budget - 5 -
5.3.3 Changes To Approved Construction Documents - 5 -
5.3.4 Changes To Work Schedule - 5 -


6. FUNDING PROCEDURES - 6 -
6.1 Procedures and Limits - 6 -
6.1.1 Written Requests - 6 -
6.1.2 Requisitions, Certifications and Waivers - 6 -
6.1.3 General Limits - 7 -
6.1.4 Final Construction Advance - 7 -
6.1.5 Total Limit - 8 -
6.2 Owner's Equity; Additional Funds From Borrower - 8 -
6.3 Balancing of Loan and Borrower's Deposit - 8 -
6.4 Other Conditions - 8 -


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7. CONDITIONS PRECEDENT - 8 -
7.1 Closing Loan and Funding First Loan Advance - 8 -
7.1.1 Satisfactory Loan Documents - 9 -
7.1.2 No Material Change - 9 -
7.1.3 Warranties and Representations Accurate - 9 -
7.1.4 Financials and Appraisals - 9 -
7.1.5 Validity and Sufficiency of Security Documents - 9 -
7.1.6 No Other Liens; Taxes and Municipal Charges
Current - 9 -
7.1.7 Project and Construction Matters - 9 -
7.1.8 Compliance With Law - 10 -
7.1.9 Title Insurance; Other Evidence of Perfection - 10 -
7.1.10 Survey - 10 -
7.1.11 Condition of Property - 10 -
7.1.12 No Takings - 11 -
7.1.13 Insurance - 11 -
7.1.14 Hazardous Waste - 11 -
7.1.15 Organizational Agreements - 11 -
7.1.17 Legal and Other Opinions - 11 -
7.1.18 No Equity Deficiency - 12 -
7.1.19 Initial Draw Package - 12 -
7.1.20 No Default - 12 -
7.2 Subsequent Advances - 12 -
7.2.1 Title Endorsement - 12 -
7.2.2 Requisitions and Certificates - 12 -
7.2.3 Sufficient Funds - 12 -
7.2.4 No Violation - 12 -
7.2.5 Compliance with Approved Construction
Documents - 12 -
7.2.6 No Casualty or Taking - 12 -
7.2.7 No Adverse Changes; No Other Default - 13 -
7.2.8 Other Certificates and Opinions - 13 -
7.2.9 Interest Reserve - 13 -
7.2.10 Operating Deficit Reserve - 13 -
7.2.11 Advances to General Contractor - 14 -


8. WARRANTIES AND REPRESENTATIONS - 14 -
8.1 Financial Information - 14 -
8.2 No Violations - 14 -
8.3 No Litigation - 14 -
8.4 Construction Documents and Other Agreements - 14 -
8.5 Quality of Work - 15 -
8.6 Work to Comply - 15 -
8.7 Required Licenses and Permits - 15 -
8.8 Curb Cuts and Utility Connections - 15 -
8.9 Good Title and No Liens - 15 -
8.10 Use of Proceeds - 15 -
8.11 Entity Matters - 16 -
8.11.1 Organization - 16 -
8.11.2 Authorization - 16 -
8.12 Valid and Binding - 16 -
8.13 Deferred Compensation and ERISA - 16 -
8.14 Conditions Satisfied - 16 -
8.15 No Material Change; No Default - 16 -
8.16 No Broker or Finder - 17 -
8.17 Background Information and Certificates - 17 -


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8.18 Project Budget Amounts - 17 -
8.19 Commencement of Construction - 17 -
8.20 Guarantor's and Manager's Warranties and Representations - 17 -


9. COVENANTS - 17 -
9.1 Notices - 17 -
9.2 Financial Statements and Reports - 18 -
9.3 Payment of Taxes and Other Obligations - 18 -
9.4 Conduct of Business, Compliance With Law - 18 -
9.5 Insurance - 18 -
9.6 Restrictions on Liens, Transfers and Additional Debt - 18 -
9.6.1 Prohibited Transactions - 18 -
9.6.2 Permitted Transactions - 19 -
9.6.3 Permitted Transfers - 19 -
9.6.4 Permitted Additional Debt - 19 -
9.6.5 Right To Accelerate Loan - 20 -
9.6.6 Lender's Options - 20 -
9.7 Limits on Guaranties and Distributions - 20 -
9.8 Indemnification Against Payment of Brokers' Fees - 20 -
9.9 No Merger or Acquisition - 20 -
9.10 Construction and Completion of Improvements - 20 -
9.11 Delivery of Certified As-Built Plans - 21 -
9.12 Estoppel Certificate - 21 -
9.13 Costs and Expenses - 21 -
9.14 Compliance with Legal Requirements - 21 -
9.15 Indemnification - 21 -
9.16 Updated Appraisals - 22 -
9.16.1 Right to Updated Appraisals - 22 -
9.16.2 Costs of Appraisal - 22 -
9.17 Inspecting Architect - 22 -
9.18 Intentionally Omitted - 23 -
9.19 Off-Site Work - 23 -
9.20 Storage of Materials - 23 -
9.21 Management - 23 -


10. SPECIAL PROVISIONS - 24 -
10.1 Right to Contest - 24 -
10.1.1 Taxes and Claims by Third Parties - 24 -
10.1.2 Legal Requirements - 24 -
10.2 Limited Recourse Provisions - 24 -
10.2.1 Loan Nonrecourse to Borrower - 24 -
10.2.2 Additional Matters - 25 -


11. EVENTS OF DEFAULT - 25 -
11.1 Default and Events of Default - 25 -
11.1.1 Generally - 25 -
11.1.2 Note, Mortgage and Other Loan Documents - 26 -
11.1.3 Default Under Assigned Contract - 26 -
11.1.4 Guarantor or Manager Default - 26 -
11.1.5 Completion Date - 26 -
11.1.6 Financial Status and Insolvency - 26 -
11.1.7 Liens - 27 -
11.1.8 Breach of Representation or Warranty - 27 -
11.1.9 Intentionally Omitted - 27 -
11.1.10 Cessation of Work - 27 -
11.1.11 Licensure - 27 -


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11.1.12 Government Fraud - 27 -
11.2 Grace Periods and Notice - 28 -
11.2.1 No Notice or Grace Period - 28 -
11.2.2 Nonpayment of Interest and Principal - 28 -
11.2.3 Monetary Defaults - 28 -
11.2.4 Nonmonetary Defaults Capable of Cure - 28 -
11.3 Certain Lender Remedies - 29 -
11.3.1 Withhold Loan Advance - 29 -
11.3.2 Accelerate Debt - 29 -
11.3.3 Pursue Remedies - 29 -
11.4 Written Waivers - 29 -


12. ADDITIONAL REMEDIES OF LENDER - 29 -
12.1 Remedies - 29 -
12.1.1 Complete Improvements - 29 -
12.1.2 Discontinue Work - 29 -
12.1.3 Take Over - 30 -
12.1.4 Take Other Actions - 30 -
12.2 Interest and Other Charges - 30 -
12.3 Authorization - 30 -


13. SECURITY INTEREST AND SET-OFF - 30 -
13.1 Security Interest - 30 -
13.2 Set-Off - 31 -
13.3 Additional Rights - 31 -


14. CASUALTY AND TAKING - 31 -
14.1 Casualty and Obligation To Repair - 31 -
14.2 Adjustment of Claims - 31 -
14.3 Payment and Application of Insurance Proceeds - 31 -
14.4 Conditions To Release of Insurance Proceeds - 32 -
14.4.1 Prior To Substantial Completion - 32 -
14.4.2 After Substantial Completion - 32 -
14.5 Taking - 33 -


15. GENERAL PROVISIONS - 33 -
15.1 Notices - 33 -
15.2 Limitations on Assignment - 34 -
15.3 Further Assurances - 35 -
15.4 Payments to be Charged as an Advance - 35 -
15.5 Parties Bound - 35 -
15.6 Waivers, Extensions and Releases - 35 -
15.7 Governing Law, Consent to Jurisdiction, Mutual Waiver
of Jury Trial - 35 -
15.7.1 Substantial Relationship - 35 -
15.7.2 Place of Delivery - 36 -
15.7.3 Governing Law - 36 -
15.7.4 Intentionally omitted - 36 -
15.7.5 Consent to Jurisdiction - 36 -
15.7.6 JURY TRIAL WAIVER - 36 -
15.8 Survival - 36 -
15.9 Cumulative Rights - 36 -
15.10 Claims Against Lender - 36 -
15.10.1 Borrower Must Notify - 36 -
15.10.2 Remedies - 37 -
15.10.3 Limitations - 37 -


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15.11 Obligations Absolute - 37 -
15.12 Table of Contents, Title and Headings - 37 -
15.13 Counterparts - 37 -
15.14 Monthly Statements - 38 -
15.15 Lender's Right to Transfer - 38 -
15.16 Time of the Essence - 39 -
15.17 No Oral Change - 39 -
15.18 Rights of Third Parties - 39 -
15.19 Evidence of Satisfaction of Conditions - 39 -
15.20 Exhibits - 40 -


EXHIBITS - 43 -


EXHIBIT A TO LOAN AGREEMENT
DEFINITIONS - 1 -


EXHIBIT B TO LOAN AGREEMENT
HEALTHCARE RIDER - 10 -


EXHIBIT C TO LOAN AGREEMENT


AUTHORIZED REPRESENTATIVES - 11 -


EXHIBIT D TO AGREEMENT


REQUIRED PROPERTY, HAZARD AND OTHER INSURANCE - 1 -


EXHIBIT E TO LOAN AGREEMENT - 3 -


EXHIBIT F TO LOAN AGREEMENT


IDENTIFICATION OF CONTRACTORS AND CONSTRUCTION CONTRACTS - 4 -


EXHIBIT G TO LOAN AGREEMENT


PROPOSED SCHEDULE OF WORK AND PROPOSED SCHEDULE OF DRAWS - 5 -


EXHIBIT H TO LOAN AGREEMENT


PROJECT BUDGET - 6 -


v 7


CONSTRUCTION LOAN AGREEMENT


This agreement (this "Agreement") is made and entered into as of the 28th day of September, 2000, by and between ARC SCOTTSDALE, LLC, a Tennessee limited liability company ("Borrower") and GUARANTY FEDERAL BANK, F.S.B. ("Lender").


WITNESSETH:


1. BACKGROUND.


2.


2.1 Defined Terms. Capitalized terms used in this Agreement are defined either in Exhibit A, or in specific sections of this Agreement, or in another Loan Document, as referenced in Exhibit A.


1.1 Borrower. Borrower is a Tennessee limited liability company with an address c/o American Retirement Corporation, 111 Westwood Place, Suite 402, Brentwood, Tennessee 37027.


1.2


1.3 Land and Improvements; Property. Borrower is the owner of approximately 4.5 acres of land, more or less ("Land"), located in Scottsdale, Maricopa County, Arizona, and more particularly described in the survey entitled "ALTA/ACSM LAND TITLE SURVEY" ("Survey Plan") prepared by Wood/Patel Civil Engineers ("Surveyor"). Borrower proposes to construct on a portion of the Land a one hundred eighteen (118) unit assisted living/Alzheimer's facility (said facility together with all site improvements, buildings systems, equipment and related fixtures now or hereafter existing on the Land and any substitution or replacements of the same are referred to herein as the "Improvements" or "Project") to be managed by ARC Management, LLC, a Tennessee limited liability company ("Manager"). The Land and Improvements are collectively called the "Property".


1.4


1.5 Intentionally Omitted.


1.6


1.7 Plans, Borrower's Architect and Architect's Contract. The Improvements are to be constructed and completed in accordance with the plans, specifications and working drawings ("Plans and Specifications") prepared by Architectural Concepts, Inc. ("Borrower's Architect") pursuant to the architect's contract dated June 1, 1998, amended on August 16, 1999 ("Architect's Contract").


1.8


1.9 General Contract. The construction of the Improvements shall be implemented by Sundt Construction, Inc., as general contractor, as amended on November 17, 1998 ("General Contractor"), pursuant to a general contract ("General Contract") dated as of November 17, 1998.


1.10


1.11 Loan. Subject to all of the terms, conditions and provisions of this Agreement, and of the agreements and instruments referred to herein, Lender agrees to make the Loan ("Commitment") and Borrower agrees to accept and repay the Loan.


1.12


1.13 Schedule of Work and Completion Date; Schedule of Draws. The work necessary to complete the Improvements is to be undertaken and completed in accordance with the schedule previously submitted to Lender ("Proposed Schedule of Work") and Substantially Completed by ____________________, ______ ("Substantial Completion Date") and Fully Completed by the end of a thirty (30) day period immediately following Substantial Completion ("Full Completion Date").


1.14


1.15 Project Budget. Borrower has submitted to Lender a line item budget ("Project Budget") which is annexed hereto as Exhibit E for construction costs ("Hard Costs") and all other costs ("Soft Costs"), including contingencies and carrying costs, for the Project through the maturity date of the Loan in the estimated total amount set forth in Exhibit E attached hereto.


1.16


1.17 Intentionally Omitted.


1.18


1.19 Use of Loan Proceeds. Borrower has applied to Lender for a loan of $12,030,000.00 ("Loan"), the proceeds of which are to be used for the payment of Project Costs.


1 8


1. LOAN PROVISIONS.


2.


2.1 Amount of Loan. In no event shall the amount of the Loan and Commitment exceed $12,030,000.00.


1.1 Term of Loan. The Loan shall be for the term provided in the Note.


1.2


1.3 Interest Rate and Payment Terms. The Loan shall be payable as to interest and principal in accordance with the provisions of the Note. The Note also provides for interest at a Default Rate and prepayment rights and fees.


1.4


1.5 Intentionally Omitted.


1.6


1.7 Acceleration. The Loan may be accelerated, at the option of Lender, during the continuance of an Event of Default. Upon such an acceleration, all principal, accrued interest and costs and expenses shall be due and payable together with interest on such principal after acceleration at the Default Rate.


1. SECURITY FOR THE LOAN; LOAN AND SECURITY DOCUMENTS.


2.


2.1 Security. The Loan together with interest thereon and all other charges and amounts payable by, and all other obligations of, Borrower to Lender, with respect to the Property or the Project, whenever incurred, direct or indirect, absolute or contingent ("Obligations") shall be secured by the following liens, collateral assignments and other rights and interests (the "Security") which Borrower agrees to provide and maintain:


1.1.1 Construction Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Fixture Filing. A first priority deed of trust and security
agreement ("Mortgage") granted by Borrower on its interests in (i) the
Property (which totals approximately 4.5 acres of land), (ii) all land,
improvements, furniture, fixtures, equipment, and other assets (including,
without limitation, contracts, contract rights, accounts, Licenses and
Permits and general intangibles), including all after-acquired property,
Borrower has or obtains any interest in connection with the Property or the
Project, and (iii) all insurance proceeds and other proceeds therefrom.


1.1.1 Assignment of Leases and Rents. A first priority collateral assignment
of leases and rents ("Assignment of Leases and Rents") with respect to all
leases of the Property and all income and profits to be derived from the
operation and leasing of the Property.


1.1.1 Collateral Assignment of Contracts. A first priority assignment
("Collateral Assignment") with respect to the Licenses and Permits and all
other contracts, agreements and warranties, now owned or hereafter acq ...