Environmental Indemnity Agreement

EXHIBIT 10.17


ENVIRONMENTAL INDEMNITY AGREEMENT
(Mezzanine Loan)


THIS ENVIRONMENTAL INDEMNITY AGREEMENT (the "AGREEMENT") is made as of August 19, 2003, by SHG PROPERTY RESOURCES, LLC, a Delaware limited liability company ("REH LLC") and SHG INVESTMENTS, LLC a Delaware limited liability company ("DE 23"), jointly and severally, each having an address c/o Fountain View, Inc., 27442 Portola Parkway, Suite 200, Foothill Ranch, California 92610 (REH LLC and DE 23, collectively, "INDEMNITOR") in favor of CAPITALSOURCE FINANCE LLC, a Delaware limited liability company, as administrative agent and collateral agent for the lenders under the Loan Agreement, having an address at 4445 Willard Avenue, 12th Floor, Chevy Chase, Maryland 20815 (in such capacity as Agent, together with its successors and assigns, referred to herein as "INDEMNITEE") and other Indemnified Parties (defined below).


RECITALS:


A. Indemnitee is prepared to make a loan (the "LOAN") to Indemnitor in the principal amount of Twenty-Three Million Dollars ($23,000,000.00) pursuant to a Loan Agreement of even date herewith between Indemnitor and the lenders under the Loan Agreement (as the same may hereafter be amended, restated, replaced, supplemented, renewed, extended or otherwise modified from time to time, the "LOAN AGREEMENT"), which Loan shall be evidenced by those certain Promissory Notes each of even date herewith given by Indemnitor in favor of Indemnitee (as amended, restated, replaced, supplemented or otherwise modified from time to time, collectively, the "NOTE"). Capitalized terms not otherwise defined herein shall have the meaning set forth in the Loan Agreement.


B. Pursuant to that certain Loan Agreement dated as of the date hereof (as the same may hereafter be amended, restated, replaced, supplemented, renewed, extended or otherwise modified from time to time, the "MORTGAGE LOAN AGREEMENT") by the entities listed on SCHEDULE A annexed thereto (collectively, "MORTGAGE BORROWER") and Column Financial, Inc. ("MORTGAGE LENDER"), Mortgage Lender has provided financing to Mortgage Borrower in the original principal amount of Ninety-Five Million Dollars ($95,000,000.00), secured by the Properties owned by Mortgage Borrower and described in the Mortgage Loan Agreement and the other Mortgage Loan Documents.


C. Indemnitee is unwilling to make the Loan unless Indemnitor agrees to provide the indemnification, representations, warranties, covenants and other matters described in this Agreement for the benefit of the Indemnified Parties.


D. Indemnitor is entering into this Agreement to induce Indemnitee to make the Loan.


AGREEMENT:


NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,


Indemnitor hereby represents, warrants, covenants and agrees for the benefit of the Indemnified Parties as follows:


1. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Except as otherwise disclosed by that certain Phase I environmental report (or Phase II environmental report, if required by Mortgage Lender) with respect to the Properties in connection with the Loan (hereinafter referred to below as the "ENVIRONMENTAL REPORT"), a copy of which has been provided to Indemnitee (a) there are no Hazardous Substances (defined below) or underground storage tanks in, on, or under the Properties, except those that are both (i) in compliance with all Environmental Laws (defined below) and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing pursuant to the Environmental Report; (b) there are no past or present Releases (defined below) of Hazardous Substances in, on, under or from the Properties which have not been fully remediated in accordance with Environmental Law; (c) Indemnitor does not know of, and has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to any threat of any Release of Hazardous Substances migrating to the Properties; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Properties which has not been fully remediated in accordance with Environmental Law; (e) Indemnitor does not know of, and has not received, any written or oral notice or other communication from any Person (including but not limited to a Governmental Authority) relating to Hazardous Substances or Remediation (defined below) thereof, of possible liability of any Person pursuant to any Environmental Law, any other environmental conditions in connection with the Properties, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (f) Indemnitor has truthfully and fully delivered to Indemnitee, in writing, any and all information relating to conditions in, on, under or from the Properties that is known to Indemnitor and all information that is contained in files and records of Indemnitor, including but not limited to any reports relating to Hazardous Substances in, on, under or from the Properties and/or to the environmental condition of the Properties.


2. ENVIRONMENTAL COVENANTS. Indemnitor covenants and agrees that: (a) all uses and operations on or of the Properties, whether by Indemnitor or any other Person, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances in, on, under or from the Properties, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing; (c) there shall be no Hazardous Substances in, on, or under the Properties, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto and (ii) fully disclosed to Indemnitee in writing; (d) Indemnitor shall keep the Properties free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Indemnitor or any other Person (the "Environmental Liens"); (e) Indemnitor shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to Paragraph 3 of this Agreement, including, but not limited to, providing all relevant information and making knowledgeable persons available for interviews; (f) Indemnitor shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Properties, pursuant to any reasonable written request of Indemnitee (including, but not limited to, sampling, testing and analysis of soil, water, air, building materials, and other materials and substances whether solid, liquid or gas), and share with


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Indemnitee the reports and other results thereof, and Indemnitee and the other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (g) Indemnitor shall, at its sole cost and expense, comply with all reasonable written requests of Indemnitee to (i) effectuate Remediation of any condition (including, but not limited to, a Release of a Hazardous Substance) in, on, under or from the Properties; (ii) comply with any Environmental Law; (iii) comply with any directive from any Governmental Authority; and (iv) take any other reasonable action necessary or appropriate for protection of human health or the environment with respect to the Properties; (h) Indemnitor shall not do, or knowingly allow any tenant or other user of the Properties to do, any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any Person (whether on or off the Properties), impairs or may impair the value of the Properties, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste; and (i) Indemnitor shall immediately notify Indemnitee in writing of (i) any presence or Releases or threatened Releases of Hazardous Substances in, on, under, from or migrating towards the Properties; (ii) any non-compliance with any Environmental Laws related in any way to the Properties; (iii) any actual or potential Environmental Lien; (iv) any required or proposed Remediation of environmental conditions relating to the Properties; and (v) any written or oral notice or other communication of which any Indemnitor becomes aware from any source whatsoever (including, but not limited to, a Governmental Authority) relating in any way to Hazardous Substances or Remediation thereof, possible liability of any Person pursuant to any Environmental Law, other environmental conditions in connection with the Properties, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Agreement.


3. INDEMNIFIED RIGHTS/COOPERATION AND ACCESS. In the event the Indemnified Parties have reason to believe that an environmental hazard exists on the Properties that does not, in the sole discretion of the Indemnified Parties, endanger any tenants or other occupants of the Properties or their guests or the general public or materially and adversely affect the value of the Properties, upon reasonable notice from the Indemnitee, Indemnitor shall, at Indemnitor's expense, promptly cause an engineer or consultant satisfactory to the Indemnified Parties to conduct an environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the Indemnified Parties) and take any samples of soil, groundwater or other water, air, or building materials or any other invasive testing requested by Indemnitee and promptly deliver to Indemnitee the results of any such assessment, audit, sampling or other testing; provided, however, if such results are not delivered to the Indemnified Parties within a reasonable period or if the Indemnified Parties have reason to believe that an environmental hazard exists on the Properties that, in the sole judgment of the Indemnified Parties, endangers any tenant or other occupant of the Properties or their guests or the general public or may materially and adversely affect the value of the Properties, upon reasonable notice to Borrower, the Indemnified Parties and any other Person designated by the Indemnified Parties, including, but not limited to, any receiver, any representative of a governmental entity, and any environmental consultant, shall have the right, but not the obligation, to enter upon the Properties at all reasonable times to assess any and all aspects of the environmental condition of the Properties and its use, including but not limited to, conducting any environmental assessment or audit (the scope of which shall be determined in the sole and absolute discretion of the Indemnified Parties) and taking samples of soil, groundwater or other water, air, or building materials, and reasonably conducting other invasive testing. Indemnitor shall cooperate with and


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provide the Indemnified Parties and any such Person designated by the Indemnified Parties with access to the Properties.


4. INDEMNIFICATION. Indemnitor covenants and agrees, at its sole cost and expense, to protect, defend, indemnify, release and hold Indemnified Parties harmless from and against any and all Losses (defined below) imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any presence of any Hazardous Substances in, on, above, or under the Properties; (b) any past, present or threatened Release of Hazardous Substances in, on, above, under or from the Properties; (c) any activity by Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Properties of any Hazardous Substances at any time located in, under, on or above the Properties; (d) any activity by Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties in connection with any actual or proposed Remediation of any Hazardous Substances at any time located in, under, on or above the Properties, whether or not such Remediation is voluntary or pursuant to court or administrative order, including, but not limited to, any removal, remedial or corrective action; (e) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Properties or operations thereon, including, but not limited to, any failure by Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties to comply with any order of any Governmental Authority in connection with any Environmental Laws; (f) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Properties; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in this Agreement; (h) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Properties, including, but not limited to, costs to investigate and assess such injury, destruction or loss; (i) any acts of Indemnitor, any Person affiliated with Indemnitor, and any tenant or other user of the Properties in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, ...