SECOND AMENDMENT TO
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MANAGEMENT AGREEMENT
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(XX XX - 14 Operating Facilities)
(GMAC)
This Second Amendment to Management Agreement (this "Amendment") is made
this 22 day of March, 2001 by and among Emeritus Management LLC, a Washington
limited liability company ("Emeritus Management"), Emeritus Management I LP, a
Washington limited partnership ("Texas Manager"), Emeritus Corporation, a
Washington Corporation ("Emeritus), AL Investors II LLC, a Delaware limited
liability company ("AL Investors II"), for itself and as sole managing member or
sole managing member of the general partner of each of the Facility Entities set
forth on Exhibit A to the Management Agreement (as amended and as hereinafter
defined) which own a Facility other than a Refinanced Facility.
Recitals
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A. Emeritus Management, Texas Manager, Emeritus, AL Investors II, ESC
I, L.P., a Washington limited partnership ("ESC"), ESC G.P. I, Inc., a
Washington corporation ("ESCGP"), and Emeritus Properties I, Inc., a Washington
corporation ("EPI") entered into that certain Management Agreement with Option
to Purchase (XX XX - 14 Operating Facilities), dated March 26, 1999, which was
thereafter segregated by Amendment to Management Agreement (XX XX - 14 Operating
Facilities"), dated March 27, 2000, pursuant to which the Refinanced Facilities
(as defined therein) were deleted (as so amended, the "XX XX Management
Agreement (GMAC)", and were included instead in that certain Management
Agreement with Option to Purchase (Teachers), dated March 27, 2000 (the "XX XX
Management Agreement (Teachers)". ESC, ESCGP and EPI have ceased to be Managers
under the XX XX Management Agreement (GMAC).
B. Simultaneously with the initial execution of the XX XX Management
Agreement (GMAC), Manager, Emeritus, and AL Investors Development LLC, a
Delaware limited liability company (for itself and on behalf of certain Facility
Entities defined therein), entered into that certain Management Agreement with
Option to Purchase (XX XX - 5 Development Facilities), dated March 25, 1999,
pursuant to which, among other things, Manager was engaged to manage certain
Facilities described therein (the "XX XX Development Management Agreement").
C. The parties hereto or certain affiliates thereof also entered into
that certain Management Agreement with Option to Purchase (Emeritrust 25), dated
December 30, 1998, pursuant to which, among other things, AL Investors LLC, a
Delaware limited liability company, and the Facility Entities defined therein
engaged Manager to manage certain Facilities described therein (as amended as
described below, the "AL I Management Agreement").
E. GMAC Commercial Mortgage Corporation ("GMAC") is the lender under
the Senior Loan under both the AL I Management Agreement and the XX XX
Management Agreement (GMAC). The Senior Loan as defined in the AL I Management
Agreement is referred to herein as the "AL I Senior Loan".
F. The parties to the AL I Management Agreement have agreed that it
would be beneficial to restructure the AL I Senior Loan by, among other things,
dividing the loan into three tranches, amending the interest rate, and obtaining
two 9-month conditional options to extend the term of the loan (the "AL I Loan
Restructure"). The AL I Loan Restructure is evidenced by that certain First
Amendment to Loan Agreement by and between GMAC Commercial Mortgage Corporation
and AL Investors I, dated on or about the date hereof (the "GMAC Amendment"),
and includes, among other things, the addition of five properties owned by AL
Investors II as additional collateral (the "XX XX Collateral Properties"), as
more particularly set forth and defined therein.
G. As a condition to the AL I Loan Restructure, the parties have agreed
to amend the AL I Management Agreement as set forth in the First Amendment
thereto, and to simultaneously amend the XX XX Management Agreement (GMAC) as
set forth herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars, the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
Definitions. All terms capitalized herein but not defined shall have the
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meanings given them in the XX XX Management Agreement (GMAC).
Extension of Notice to Exercise Purchase Option.
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2.1 Exercise of Option. The first sentence of Section 13.2 of the
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Management Agreement is hereby deleted and replaced in its entirety with the
following:
The Purchase Option shall permit Emeritus to purchase the Facilities at any time
during the Initial Term but not later than the last day of the Initial Term
(which shall be December 31, 2001 unless the Management Agreement is sooner
terminated), provided the written notice of the exercise of the option is given
by Emeritus to the Owners (the "Purchase Option Notice") on or before December
12, 2001. The parties acknowledge that the Purchase Option under the XX XX
Management Agreement (GMAC), the XX XX Management Agreement (Teachers) and the
XX XX Development Management Agreement must be exercised simultaneously. To
permit the exercise of each of the Purchase Options on or before December 12,
2001, Owners and AL Investors II agree to use its best efforts to cause the
Owners under the XX XX Management Agreement (Teachers) and the Xx XX Development
Management Agreement to waive any provisions in such management agreements which
are inconsistent with the foregoing, including, without limitation, time
limitations on notice of exercise of the Purchase Options thereunder.
2.2 Place and Time of Closing. Section 13.6 is hereby deleted and
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replaced in its entirety with the following:
13.6. Place and Time of Closing. If the Purchase Option is exercised,
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the closing shall occur and the Deed for each Facility shall be delivered to
Title Company (the "Closing") pursuant to escrow closing arrangements reasonably
satisfactory to Owners and Emeritus at 12:00 o'clock noon (P.S.T.) no later than
December 31, 2001 (the "Time of Closing"). It is agreed that time is of the
essence of this Purchase Option. The parties acknowledge that the Purchase
Option under the XX XX Management Agreement (GMAC), the XX XX Management
Agreement (Teachers) and the XX XX Development Management Agreement must be
exercised simultaneously. To permit the Closing on or before December 31, 2001,
Owners and AL Investors II agree to cause the Owners under the XX XX Management
Agreement (Teachers) and the Xx XX Development Management Agreement to waive any
provisions in such management agreements which are inconsistent with the
foregoing, including, without limitation, time limitations on the closing of the
Purchase Options thereunder. Notwithstanding the foregoing, Owner shall not
unreasonably withhold its consent to Manager's request for a 30 day extension of
such Closing Date, provided that Manager deposits the equity funds required to
close the Purchaser Option into escrow and provides Owner with reasonable
evidence of financing prior to the applicable Purchase Option Expiration Date,
and reimburses Owner for any additional costs incurred by such extension.
Option Facilities. Section 13.1 is hereby amended to add at the end the
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following:
The parties hereby acknowledge that the XX XX Collateral Properties have
been pledged as additional collateral in connection with the AL I Loan
Restructure. In the event that Emeritus timely exercises the Purchase Option
and at the time of exercise the XX XX Collateral Properties have not been
released as additional collateral for the AL I Senior Loan pursuant to Section
5.16 of the GMAC Amendment or otherwise, the following provisions shall apply:
3.1 If the Purchase Price allocated to the XX XX Collateral
Properties by Owners, such allocation to be computed in a manner consistent with
that set forth on Exhibit B (the "Allocated XX XX Collateral Properties Purchase
Price"), is sufficient to obtain a release of the XX XX Collateral Properties
under the terms of the GMAC Amendment solely by payment of all or a portion of
the Purchase Price for the XX XX Collateral Properties to the lender under the
GMAC Amendment, then Owner will cause the XX XX Collateral Properties to be
released from the AL I Senior Loan and the XX XX Collateral Properties shall be
purchased and sold in accordance with the terms of Purchase Option.
3.2 If the Allocated XX XX Collateral Properties Purchase Price is
not sufficient to obtain a release of the XX XX Collateral Properties under the
terms of the GMAC Amendment solely by payment of all or a portion of the
Allocated XX XX Collateral Properties Purchase Price to the lender under the
GMAC Amendment, Owner shall have the option, in its sole discretion, to:
(a) Obtain a release of the XX XX Collateral Properties from
the AL I Senior Loan and upon such release the XX XX Collateral Properties shall
be purchased and sold in accordance with the terms of Purchase Option; or
(b) Delete the XX XX Collateral Properties from the purchase
Option, allow the XX XX Collateral Properties to remain as additional collateral
under the AL I Senior Loan, and require Manager to purchase the balance of the
Facilities subject to the exercised Purchase Option under the XX XX Management
Agreement (GMAC) and the AL Management Agreement (Teachers), together with the 5
Facilities subject to the exercised Purchase Option under the XX XX Development
Management Agreement.
3.3 In the event that Owner elects to delete the XX XX Collateral
Properties then subject to the Purchase Option in accordance with option 3.2(b)
above, then Exhibit B of the Management Agreement shall be amended to decrease
the Purchase Price by (i) the Allocated XX XX Collateral Properties Purchase
Price for the XX XX Collateral Properties and (ii) the Bargain Credit. The
Bargain Credit shall be defined as the excess, if any, of the fair market value
of the XX XX Collateral Properties over the Allocated XX XX Collateral
Properties Purchase Price. Fair market value of the XX XX Collateral Properties
shall be determined using the following formula: multiply the net pre-tax
operating income from the XX XX Collateral Properties for the prior three month
period by 4 (to obtain annual net income), and divide the product by 0.11. Net
pre-tax operating income shall be determined in the manner net pre-tax income is
determined in computing the Debt Service Coverage for Tranche A under and as
defined in the GMAC Amendment (i.e. the net pre-tax income of the Additional
Collateral Properties), based on the quarterly statements provided to the lender
under the AL I Senior Loan (without deduction for Management Fees paid or
incurred), (a) plus interest expense to the extent deducted in determining net
income, (b) plus non-cash expenses or allowances for depreciation and
amortization, (c) less management fees in an assumed amount of 5% of gross
revenues, (d) less capital expenditure reserves calculated at $250 per unit per
year, (e) less Extraordinary Income and Extraordinary Expenses, as defined in
the GMAC Amendment.
Management Fee. Any Accrued Management Fee shall be paid solely out of
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Operating Profit and not from any other funds or by any Owner's Deficit
Contribution pursuant to Section 8.3. Upon the expiration or termination of the
Management Agreement for any reason whatsoever, all Accrued Management Fees
not then paid shall be written off in their entirety and Manager shall not be
entitled to receive any such written-off amounts from future revenues of the
Facilities or any other source whatsoever.
Conforming Definitions. Exhibit A is hereby amended as follows:
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5.1 Junior Loan. The definition of Junior Loan is hereby deleted and
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replaced in its entirety with the following: any indebtedness incurred by
Owners which is secured by a mortgage, pledge, and related security instruments
against, among other things, the membership interests of XX XX Holdings in AL
Investors Development and AL Investors II and/or the membership interests of AL
Investors Development or AL Investors II in the Facility Entities. Initially,
the Junior Loan is evidenced by that certain Loan Agreement among XX XX
Holdings, AL Investors II, AL Investors Development and the Facility Entities
and Senior Housing Partners I, L.P. dated on or about the same date hereof, as
subsequently amended ("Initial Junior Loan").
5.3 Put and Purchase Agreement The definition of Put and Purchase
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Agreement is hereby deleted and replaced in its entirety with the following:
that certain Put and Purchase Agreement dated March 26, 1999, as amended by
First Amendment to Put and Purchase Agreement dated March 27, 2000, and as
amended by Second Amendment to Put and Purchase Agreement dated on or about the
date of this Amendment and as subsequently amended.
The foregoing terms in the XX XX Management Agreement (Teachers) and the XX
XX Development Management Agreement, together with the guaranties thereof, shall
be deemed amended as set forth above.
Notices. All notices to be given by either party to this Agreement to the
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other party hereto shall be in writing, and shall be sent to the parties at the
addresses and in the manner set forth in the Management Agreement.
Ratification. The Management Agreement, as amended by this Agreement, is
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hereby ratified and confirmed
Understandings and Agreements. This Amendment, together with the
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Management Agreement, constitutes all of the understandings and agreements
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between the parties with respect to the management of the Facilities.
Headings. The headings contained herein are for convenience of reference
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only and are not intended to define, limit or describe the scope or intent of
any provision of this Agreement.
Applicable Law. This Agreement shall be construed and interpreted and be
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governed by the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date and year first above written.
EMERITUS MANAGEMENT
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EMERITUS MANAGEMENT LLC,
a Washington limited liability company
By: Emeritus Corporation,
a Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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EMERITUS MANAGEMENT I LP
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EMERITUS MANAGEMENT I LP,
a Washington limited partnership
By: EM I, LLC, a Washington limited liability company
By: Emeritus Corporation, a
Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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EMERITUS
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EMERITUS CORPORATION, a Washington
corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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AL INVESTORS II
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AL INVESTORS II LLC, a Delaware limited liability company, for itself and as
sole managing member on behalf of each of the Owners, or in the case where the
Owner is a limited partnership, as sole managing member on behalf of the general
partner thereof
By: /s/ Xxxxxx X. Xxxxxxx
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Name Xxxxxx X. Brendan
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Title Manager
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The undersigned lenders in connection with the Senior Loan and the Junior Loan
have executed this Agreement for the sole purpose of consenting to the foregoing
Amendment.
GMAC Commercial Mortgage Corporation, a California corporation
By: /s/ Xxxx X. Lautner
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Name Xxxx X. Lautner
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Title Senior Vice President
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Senior Housing Partners I, L.P.,
a Delaware limited partnership
By: /s/ Xxxx X. Xxxx
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Name Xxxx X. Xxxx
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Title Vice President
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The undersigned has executed this Agreement for the sole purpose of
acknowledging and consenting to the foregoing Amendment, ratifying the Emeritus
Guaranty, and confirming and agreeing that foregoing Amendment does not alter,
modify, amend or waive any terms contained in the Emeritus Guaranty.
Emeritus Corporation,
a Washington corporation
By:/s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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