1
EXHIBIT 10.18
FIRST AMENDED JOINT VENTURE AGREEMENT
between
ALTERNATIVE LIVING SERVICES, INC.
and
ASSISTED LIVING EQUITIES, LLC
APRIL 30, 1997
2
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS............................................................................................ 1
1.1. Affiliate............................................................................ 1
1.2. ALE Affiliate........................................................................ 1
1.3. ALE Ancillary Agreements............................................................. 1
1.4. ALS Affiliate........................................................................ 1
1.5. ALS Ancillary Agreements............................................................. 1
1.6. ALS-Northeast........................................................................ 2
1.7. ALS-Northeast Entities............................................................... 2
1.8. Ancillary Agreements................................................................. 2
1.9. Architect's Agreement................................................................ 2
1.10. Business............................................................................. 2
1.11. Business Plan........................................................................ 2
1.12. Capital Account...................................................................... 2
1.13. Certificate of Occupancy............................................................. 2
1.14. Collateral Assignment Agreement...................................................... 2
1.15. Commons Acquisition Agreement........................................................ 3
1.16. Commons Facility..................................................................... 3
1.17. Completion of Construction........................................................... 3
1.18. Not used............................................................................. 3
1.19. Confidential Information............................................................. 3
1.20. Construction Agreement............................................................... 3
1.21. Contracting ALE Affiliates........................................................... 3
1.22. Deal Flow Standard................................................................... 3
1.23. Defaulting Party..................................................................... 3
1.24. Default Loan Rate.................................................................... 3
1.25. Development Term..................................................................... 3
1.26. Facility or Facilities............................................................... 4
1.27. Family Member........................................................................ 4
1.28. 49% Entity........................................................................... 4
1.29. Joint Venture Agreement Year......................................................... 4
1.30. Large Facility....................................................................... 4
1.31. Majority Vote........................................................................ 4
1.32. Management Agreement................................................................. 5
1.33. Mandatory Capital Call Contribution.................................................. 5
1.34. Mandatory Capital Call Schedule...................................................... 5
1.35. Non-Defaulting Party................................................................. 5
i
3
1.36. Nonexclusive Year.................................................................... 5
1.37. Operating Agreement (ALS Northeast).................................................. 5
1.38. Operating Agreement.................................................................. 5
1.39. Original Agreement................................................................... 5
1.40. Original NY Facilities............................................................... 5
1.41. PDC.................................................................................. 5
1.42. PDC Guaranty Amendment............................................................... 6
1.43. Percentage Interest.................................................................. 6
1.44. Person............................................................................... 6
1.45. Prime Rate........................................................................... 6
1.46. Project Agreements................................................................... 6
1.47. Project Entity....................................................................... 6
1.48. Project Start........................................................................ 6
1.49. Small Facility....................................................................... 6
1.50. Territory............................................................................ 6
1.51. Total Development Cost............................................................... 7
1.52. 20% Entity........................................................................... 7
1.53. Waived Facility...................................................................... 7
ARTICLE 2
APPLICABILITY AND PURPOSE OF JOINT VENTURE............................................................. 7
ARTICLE 3
COVENANTS.............................................................................................. 8
3.1. Joint Ownership and Development...................................................... 8
3.2. Formation of Project Entities........................................................ 10
3.3. Not Used............................................................................. 10
3.4. Capitalization of Project Entities................................................... 10
3.5. Failure to Meet Capital Calls........................................................ 11
3.6. Project Financing.................................................................... 12
3.7. Responsibilities of the Parties...................................................... 14
3.8. Decision-Making...................................................................... 15
3.9. Construction......................................................................... 17
3.10. Management........................................................................... 20
3.11. Restrictions on Transferability of Interests......................................... 21
3.12. Put and Call Options................................................................. 22
3.13. Collateral Assignment................................................................ 29
3.14. Noncompetition....................................................................... 29
3.15. Interests in Profits, Losses and Distributions....................................... 32
3.16. Confidentiality...................................................................... 34
3.17. Further Assurances................................................................... 35
3.18. No Liens............................................................................. 35
ii
4
3.19. Public Statement..................................................................... 35
3.20. PDC Guaranty Amendment............................................................... 36
3.21. Special Project Entity Profit and Loss Allocations................................... 36
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALS.................................................................. 36
4.1. Organization......................................................................... 36
4.2. Authorization; Enforceability........................................................ 36
4.3. No Violation or Conflict............................................................. 37
4.4. Brokers.............................................................................. 37
4.5. Litigation........................................................................... 37
4.6. Governmental Approvals............................................................... 37
4.7. Required Consent..................................................................... 37
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ALE.................................................................. 37
5.1. Organization......................................................................... 37
5.2. Authorization; Enforceability........................................................ 38
5.3. No Violation or Conflict............................................................. 38
5.4. No Broker............................................................................ 38
5.5. No Litigation........................................................................ 38
5.6. Governmental Approvals............................................................... 38
5.7. Required Consent..................................................................... 39
ARTICLE 6
NOT USED............................................................................................... 39
ARTICLE 7
NOT USED............................................................................................... 39
ARTICLE 8
NOT USED............................................................................................... 39
ARTICLE 9
INDEMNIFICATION........................................................................................ 39
9.1. ALE's Indemnity...................................................................... 39
9.2. ALS's Indemnity...................................................................... 40
9.3. Provisions Regarding Indemnities..................................................... 41
ARTICLE 10
Not used............................................................................................... 41
iii
5
ARTICLE 11
MISCELLANEOUS.......................................................................................... 41
11.1. Entire Agreement; Amendment.......................................................... 41
11.2. Fees and Expense..................................................................... 42
11.3. Applicable Law....................................................................... 42
11.4. Binding Effect; Assignment........................................................... 42
11.5. Notices.............................................................................. 42
11.6. Counterparts......................................................................... 43
11.7. Headings............................................................................. 43
11.8. Construction......................................................................... 43
11.9. Severability......................................................................... 43
11.10. Knowledge............................................................................ 43
11.11. Survival of Representations and Warranties........................................... 44
11.12. Arbitration.......................................................................... 44
11.13. Waiver of Compliance................................................................. 45
11.14. Third Parties........................................................................ 45
11.15. Set Off Rights of Parties............................................................ 45
11.16. Effect of Commons Acquisition Agreement.............................................. 45
iv
6
FIRST AMENDED JOINT VENTURE AGREEMENT
THIS FIRST AMENDED JOINT VENTURE AGREEMENT ("Agreement") is made and
entered into as of the 30th day of April, 1997, by and between ALTERNATIVE
LIVING SERVICES, INC., a Delaware corporation ("ALS"), and ASSISTED LIVING
EQUITIES, LLC, a New York limited liability company ("ALE").
W I T N E S S E T H :
WHEREAS, the parties agreed to form a joint venture pursuant to that
certain Joint Venture Agreement dated as of September 11, 1996, between ALS and
ALE (together with the several agreements and instruments entered into in
connection therewith or pursuant thereto, including without limitation the New
York Addendum, referred to herein as the "Original Agreement"); and
WHEREAS, the parties desire to amend and restate the Original Agreement
in the manner set forth herein;
NOW, THEREFORE, in consideration of the premises and of the promises
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to the other definitions contained elsewhere herein, the
following definitions shall apply for purposes of this Agreement:
1.1. Affiliate. "Affiliate" shall have the meaning set forth in Rule
12b-2 of the Securities Exchange Act of 1934, as amended.
1.2. ALE Affiliate. "ALE Affiliate" means any Affiliate of ALE,
excluding any ALS- Northeast Entity owned jointly by ALS and ALE.
1.3. ALE Ancillary Agreements. "ALE Ancillary Agreements" means any
Ancillary Agreement to which ALE or any ALE Affiliate is a party.
1.4. ALS Affiliate. "ALS Affiliate" means any Affiliate of ALS,
excluding any ALS- Northeast Entity owned jointly by ALE and ALS.
1.5. ALS Ancillary Agreements. "ALS Ancillary Agreements" means any
Ancillary Agreement to which ALS is a party.
7
1.6. ALS-Northeast. "ALS-Northeast" means ALS-Northeast, L.L.C., a New
York limited liability company, which has been organized and formed for the
purposes referred to in the Original Agreement.
1.7. ALS-Northeast Entities. "ALS-Northeast Entities" means
ALS-Northeast and the Project Entities.
1.8. Ancillary Agreements. "Ancillary Agreements" means all of the
agreements executed and delivered by ALS and ALE, or either of them (or any ALS
Affiliate or ALE Affiliate), with an ALS-Northeast Entity or with each other,
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement, including without limitation the Operating Agreement of each
of the Project Entities.
1.9. Architect's Agreement. "Architect's Agreement" means an agreement
in substantially the form of Exhibit A, attached hereto and incorporated herein
by this reference.
1.10. Business. "Business" means the business of developing or
acquiring, owning and operating the Facilities and activities related or
incidental thereto.
1.11. Business Plan. "Business Plan" means a business plan developed
and agreed upon by ALS and ALE for each Project Entity contemporaneous with the
formation of such Project Entity as contemplated by Section 3.2 or a business
plan developed by ALS as contemplated by Section 3.1.3 hereof.
1.12. Capital Account. "Capital Account" shall have the meaning set
forth in the Operating Agreement (ALS-Northeast) with respect to the members of
ALS-Northeast, or the applicable Operating Agreement with respect to the members
of Project Entities, as the context may require.
1.13. Certificate of Occupancy. "Certificate of Occupancy" means the
certificate or other official document issued by a state or local governmental
unit or agency to evidence the permission to occupy a Facility in accordance
with applicable building ordinances and regulations (in jurisdictions, such as
certain local jurisdictions in the State of New York, where a temporary
certificate of occupancy permits occupancy of the premises, the term
"Certificate of Occupancy" shall mean such a temporary certificate of occupancy,
and in jurisdictions where no such certificate or official document is
customarily issued, a "Certificate of Occupancy" will be deemed to have been
granted upon substantial completion of the Facility in accordance with the
Construction Agreement).
1.14. Collateral Assignment Agreement. "Collateral Assignment
Agreement" means that certain Collateral Assignment Agreement dated as of
September 11, 1996 between ALS and ALE.
2
8
1.15. Commons Acquisition Agreement. "Commons Acquisition Agreement"
shall mean that certain Acquisition Agreement dated February 12, 1997, by and
among ALS, Pioneer Liberty Square Company, LLC, Liberty Common Associates, LLC,
Pioneer Kenmore Company, LLC, Pioneer Niskayuna Company, LLC, and Pioneer
Commons Associates, LLC, as amended by the First Amendment to Acquisition
Agreement dated as of March 24, 1997 an the Second Amendment to Acquisition
Agreement dated as of April 15, 1997.
1.16. Commons Facility. "Commons Facility" shall mean each of Liberty
Commons located in Manlius, New York, The Commons at Kenmore located in Kenmore,
New York and The Commons at Niskayuna located in Niskayuna, New York.
1.17. Completion of Construction. "Completion of Construction" of a
Facility means the issuance of a Certificate of Occupancy or the equivalent for
each Facility.
1.18. Not used.
1.19. Confidential Information. "Confidential Information" shall have
the meaning provided in Section 3.16 of this Agreement.
1.20. Construction Agreement. "Construction Agreement" means each
Construction Agreement between an Affiliate of ALE and a Project Entity
established to acquire and develop a Facility, in substantially the form of
Exhibit D, attached hereto and incorporated herein by this reference, subject to
such modifications as will necessarily vary by Facility and to any changes to
properly reflect the identity of the Future Project Entity and location of the
Facility being constructed, with such changes as the parties to such agreement
may agree upon.
1.21. Contracting ALE Affiliates. "Contracting ALE Affiliates" shall
have the meaning provided in Section 5.1 of this Agreement.
1.22. Deal Flow Standard. "Deal Flow Standard" means that Project
Starts have occurred during a Joint Venture Agreement Year for at least five
Facilities, the Total Development Cost of which is at least $26 million.
1.23. Defaulting Party. "Defaulting Party" shall have the meaning
provided in Section 3.5.1 of this Agreement.
1.24. Default Loan Rate. "Default Loan Rate" shall have the meaning
provided in Section 3.5.1 of this Agreement.
1.25. Development Term. "Development Term" means the five (5) year
period commencing on September 11, 1996; provided, however, such Development
Term may be immediately terminated by (A) ALS if an "Event of Default", as
defined in the PDC Guaranty, shall arise or (B) either party hereto upon written
notice to the other party if (i) no Project Entity has been formed and funded
during any consecutive 365 day period during the Development
3
9
Term; (ii) the other party files a voluntary petition of bankruptcy, is adjudged
bankrupt or insolvent or any involuntary bankruptcy proceeding is filed against
such other party, and such proceeding is not dismissed within 90 days
thereafter; (iii) the other party has become a Defaulting Party as to a
Mandatory Capital Call Contribution; or (iv) the other party or an Affiliate of
the other party has breached and failed to timely cure an Ancillary Agreement
following notice and opportunity to cure in the manner provided therein;
provided, however, that any termination of the Development Term pursuant to
clauses (iii) or (iv) hereof shall be effective only if notice of termination by
the non-defaulting party is given within 120 days of such right to terminate
(pursuant to such clauses (iii) or (iv), respectively) first becoming
exercisable by such non-defaulting party (it being understood that no such
termination will affect the obligations of the parties with respect to a Project
Entity that has already been formed).
1.26. Facility or Facilities. "Facility" or "Facilities" means the land
and improvements constituting an assisted living, dementia or other specialty
care facility or facilities for the elderly (other than a Commons Facility, an
Original NY Facility, a Waived Facility pursuant to Section 3.1.3 or a Refused
Facility pursuant to Section 3.14(d)(i)) which is or are developed or acquired
by ALE, ALS or by a Project Entity pursuant to or as contemplated by this
Agreement.
1.27. Family Member. "Family Member" means, with respect to any natural
person, (a) the spouse of such natural person, (b) any parent, grandparent,
brother, sister, child or other ancestor or descendant of such natural person,
or the spouse of any of the foregoing natural persons described in this clause
(b), (c) a custodian, guardian or personal representative of a natural person
described in clause (a) or (b); or (d) a trust for the benefit of one or more of
the natural persons described in clause (a) or (b).
1.28. 49% Entity. "49% Entity" shall mean any Project Entity formed
pursuant to Section 3.2 hereof and as to which ALE is obligated to contribute
49% of the Mandatory Capital Call Contributions of the members as more fully set
forth in the form of Project Entity Operating Agreement attached hereto as
Exhibit G.
1.29. Joint Venture Agreement Year. "Joint Venture Agreement Year"
means each successive period of October 1 through September 30 (provided that
the Joint Venture Agreement year ended September 30, 1997, shall be deemed to
include the period from September 11, 1996 through September 30, 1996).
1.30. Large Facility. "Large Facility" means any Facility other than a
Small Facility.
1.31. Majority Vote. "Majority Vote" with respect to any ALS-Northeast
Entity means the affirmative vote, approval or consent, as the case may be, of
equity owners of such ALS- Northeast Entity holding in excess of fifty percent
(50%) of the total Percentage Interests held by all equity owners of such
ALS-Northeast Entity entitled to vote on, approve or consent to the particular
matter, decision or action.
4
10
1.32. Management Agreement. "Management Agreement" means each Assisted
Living Consultant and Management Services Agreement between ALS and a Project
Entity in substantially the form of the Assisted Living Consultant and
Management Services Agreement (Future Project Entities), attached hereto as
Exhibit E and incorporated herein by this reference, together with any changes
to properly reflect the identity of the applicable Project Entity and location
of the Facility being managed and any other changes that the parties to such
agreement may agree upon.
1.33. Mandatory Capital Call Contribution. "Mandatory Capital Call
Contribution" means the funding of equity obligations, either in the form of
contributions of equity capital to a Project Entity and/or the provision of
services, as required of each party hereto by the Operating Agreement for such
Project Entity.
1.34. Mandatory Capital Call Schedule. "Mandatory Capital Call
Schedule" means the mandatory capital call schedule for a Project Entity
included in the respective Business Plan for such Project Entity.
1.35. Non-Defaulting Party. "Non-Defaulting Party" shall have the
meaning provided in Section 3.5.1 of this Agreement.
1.36. Nonexclusive Year. "Nonexclusive Year" means any Joint Venture
Agreement Year (other than the Joint Venture Agreement Year ended September 30,
1997) immediately following a Joint Venture Agreement Year in which the Deal
Flow Standard has not been met.
1.37. Operating Agreement (ALS Northeast). "Operating Agreement
(ALS-Northeast)" means the Operating Agreement of ALS-Northeast dated September
11, 1996 between ALS and ALE.
1.38. Operating Agreement. "Operating Agreement" means an Operating
Agreement in substantially the form of the Operating Agreement attached hereto
as Exhibit G as to 49% Entities and as contemplated by Section 1.52 hereof as to
20% Entities, together with changes to properly reflect the identity,
characteristics and location of the applicable Project Entity.
1.39. Original Agreement. "Original Agreement" shall have the meaning
set forth in the premises of this Agreement.
1.40. Original NY Facilities. "Original NY Facilities" shall mean each
of the first four assisted living facilities in development and/or construction
in the State of New York pursuant to the terms of the Original Agreement.
1.41. PDC. "PDC" means Pioneer Development Company, LLC, a New York
limited liability company.
5
11
1.42. PDC Guaranty Amendment. "PDC Guaranty Amendment" shall mean the
Amended Guaranty of PDC and others to be executed and delivered pursuant to
Section 3.20 hereof.
1.43. Percentage Interest. "Percentage Interest" means, as applied to
an ALS-Northeast Entity, the percentage interest of ALS or ALE in such Entity,
which shall initially be a fifty-one percent (51%) or eighty percent (80%)
interest for ALS and a forty-nine percent (49%) interest or twenty percent (20%)
interest for ALE, respectively, depending upon ALE's election pursuant to
Section 3.1 hereof unless modified pursuant to Section 3.5.1.
1.44. Person. "Person" means a natural person, corporation, trust,
partnership, limited liability company, governmental entity (or agency, branch
or department thereof) or any other legal entity.
1.45. Prime Rate. "Prime Rate" means the prime interest rate in effect
from time to time as published in the "Money Rates" section of the Wall Street
Journal, or its successor.
1.46. Project Agreements. "Project Agreements" means the agreements
entered into by ALS, ALE and their respective Affiliates, or any of them, with a
Project Entity or with each other, in connection with the formation of a Project
Entity and the development and ownership of a Facility, including, without
limitation, an Operating Agreement or other charter documents, a Management
Agreement, and a Construction Agreement for such Entity.
1.47. Project Entity. "Project Entity" means any limited liability
company or other entity formed by an ALS Affiliate and an ALE Affiliate pursuant
to Section 3.1 hereof to jointly develop or acquire and own a Facility.
1.48. Project Start. "Project Start" means the commencement of
development of a Large Facility or a Small Facility by a Project Entity
hereunder or by ALS using the development services of ALE or an ALE Affiliate as
contemplated by Section 3.9.1, which shall be deemed to have occurred when (i)
if such Facility is being developed by a Project Entity, a Business Plan for
such Facility has been approved by ALS and ALE, (ii) control of the site for the
Facility has been obtained by or on behalf of a Project Entity or ALS and (iii)
all building permits required to commence construction (or in the case of a
Facility located in the State of New York all approvals required to obtain all
building permits necessary to commence construction) of such Facility have been
obtained by or on behalf of such Project Entity or ALS.
1.49. Small Facility. "Small Facility" means a Facility that has a
projected Total Development Cost (excluding budgeted lease-up deficit) of less
than $3 million.
1.50. Territory. "Territory" means the States of New York,
Massachusetts, Connecticut and Rhode Island.
6
12
1.51. Total Development Cost. "Total Development Cost" means the
aggregate development cost of a Facility as reflected in the construction and
development budget that is part of the Business Plan for such Facility,
including the fees and expenses described in Sections 3.9.1 and 3.9.2 for such
Facility and the value of the services described in Section 3.9.3 for such
Facility.
1.52. 20% Entity. "20% Entity" shall mean any Project Entity formed
pursuant to Section 3.1 hereof and as to which ALE is obligated to contribute
20% of the Mandatory Capital Call Contributions of the members as more fully set
forth in a form of Project Entity Operating Agreement to be mutually agreed upon
by ALS and ALE, such agreement to be based on the form of Operating Agreement
for the 49% Entities, with such changes as are contemplated hereby.
1.53. Waived Facility. "Waived Facility" shall have the meaning
provided in Section 3.1.3.
ARTICLE 2
APPLICABILITY AND PURPOSE OF JOINT VENTURE
This Agreement amends and restates in its entirety the Original
Agreement and governs the affairs of the parties hereto with respect to the
subject matter hereof effective simultaneously with the execution hereof;
provided, however, the Original Agreement, as presently agreed and unmodified by
this Agreement, shall survive and continue to govern the affairs of the parties
hereto with respect to the Original NY Facilities in the manner set forth in the
Original Agreement and the Ancillary Agreements (as defined in and contemplated
by the Original Agreement), as they may now exist or be entered into or modified
in the future, without giving effect to any modification that would otherwise be
required by this Agreement except that the parties hereto hereby agree to amend
the forms of documents applicable to the Original NY Facilities in such a way as
the parties agree, each in its reasonable discretion, will preserve the existing
business arrangement as reflected in the Original Agreement with respect to the
Original NY Facilities and at the same time will incorporate profit, loss and
distribution provisions based on the model of Section 3.15 hereof and Put Option
pricing provisions based on the model of Section 3.12(e) hereof. The parties are
entering into the joint venture contemplated by this Agreement to develop or
acquire, own or lease and operate Facilities in targeted market areas throughout
the Territory through jointly owned limited liability companies or other
entities agreed to by the parties. The Facilities shall vary in size depending
on market conditions. The parties intend to operate multiple Facilities in
targeted market areas in the Territory in order to become the market leader and
preferred provider of assisted living, dementia or other specialty care services
for the elderly in each target market.
7
13
ARTICLE 3
COVENANTS
3.1.Joint Ownership and Development.
3.1.1. Formation and Capitalization of ALS Northeast. ALS and
ALE have formed ALS Northeast by entering into the Operating Agreement (ALS
Northeast). ALS Northeast will own no real property, unless the parties agree
otherwise; rather, ALS Northeast will fund and engage in site selection and
preliminary development activities with respect to a specified Facility to be
owned by a Project Entity until ALS and ALE mutually agree to develop such
Facility, a specific site is agreed upon and a Project Entity is formed to
acquire such site. Capital contributions to ALS-Northeast will be made by ALS
and ALE on a 51%/49% basis, as more fully set forth in the Operating Agreement
(ALS Northeast).
3.1.2. Joint Development of Large Facilities. During (i) the
Joint Venture Agreement Year ending September 30, 1997, and (ii) any subsequent
Joint Venture Agreement Year if for the immediately preceding Joint Venture
Agreement Year (A) the Deal Flow Standard has been met or (B) the Deal Flow
Standard would have been met but for the failure of ALS to act on or respond to
proposals of ALE for development of Facilities on a timely basis or otherwise
fulfill its obligations under the Joint Venture Agreement with reasonable
promptness, the development of Large Facilities hereunder shall be governed by
this Section 3.1.2. During the period of the Development Term when the
development of Facilities hereunder is governed by this Section 3.1.2, (i) the
decision as to whether or not to proceed to develop a Large Facility and enter
into a Project Agreement for an applicable Project Entity shall be made by ALS
and ALE in their sole and absolute discretion, (ii) a Business Plan will be
finalized prior to the formation of a Project Entity to develop any Large
Facility, (iii) with respect to each such Large Facility, ALE shall act as
developer of such Large Facility on the terms contemplated by Section 3.9 and
shall have the right, but not the obligation, to own equity in and to make
capital contributions to the Project Entity owning the Large Facility in
accordance with the terms contemplated hereby as a member of, at ALE's election,
a 20% Entity or a 49% Entity, and (iv) the other terms and conditions of the
respective equity investments of ALS and ALE in, and the respective activities
and involvement of ALS and ALE with respect to, such Project Entity shall be
governed by the terms of this Article 3 (other than Section 3.1.3 and any
provisions of this Article 3 that are by their terms inapplicable to a given
Project Entity).
3.1.3. Development Activity Not Governed by Section 3.1.2.
During any period during the Development Term when the development of Large
Facilities hereunder is no longer governed by Section 3.1.2, and at all times
during the Development Term with respect to Small Facilities, the development of
such Facilities shall be governed by this Section 3.1.3. For each Facility the
development of which is governed by this Section 3.1.3, ALS shall prepare a
Business Plan for such Facility providing a description of such facility,
estimated construction and development costs, the Mandatory Capital Call
Schedule required for such Facility and a five (5) year budget for such
Facility, and shall provide a copy of such Business Plan to ALE.
8
14
Upon its receipt of such business Plan for such a Facility, ALE shall have
thirty (30) days to make one of the following elections:
(i) In the case of a Large Facility, (w) act as the developer
of such Facility on the terms contemplated by Section 3.9; (x) to act as the
developer of such Facility on the terms contemplated by Section 3.9 and to own
equity in and to make capital contributions to the Project Entity owning the
Large Facility in accordance with the terms contemplated hereby as a member of a
20% Entity, (y) to act as the developer of such Facility on the terms
contemplated by Section 3.9 and to own equity in and to make capital
contributions to the Project Entity owning the Large Facility in accordance with
the terms contemplated hereby as a member of a 49% Entity, or (z) not to
participate in the development or equity ownership of such Facility; or
(ii) In the case of a Small Facility, (x) to act as the
developer of such Facility on the terms contemplated by Section 3.9, (y) to act
as the developer of such Facility on the terms contemplated by Section 3.9 and
to own equity in and to make capital contributions to the Project Entity owning
the Small Facility in accordance with the terms contemplated hereby as a member
of a 20% Entity, or (z) not to participate in the development or equity
ownership of such Facility;
provided, however, that ALE's right to act as a developer of any Large or Small
Facility pursuant to this Section 3.1.3 and Section 3.9 shall be extinguished as
to any Facility having its Project Start occurring in any Nonexclusive Year
unless ALE shall elect to own equity in such Facility in the manner contemplated
by this Section 3.1.3.
If ALE makes the election described in either clause (i) (z) or (ii)(z) above
with respect to a Facility or if ALE shall fail to make an election with respect
to a Facility within the applicable thirty day period (any such Facility so
described or as to which such election has not been made, a "Waived Facility"),
ALE shall be deemed to have waived its right to participate in the development
of such Facility and ALS shall be free to develop such Facility in accordance
with the terms of the applicable Business Plan in all material respects, either
alone or with one or more equity partners. If ALE makes any election to own
equity in and make capital contributions to a Project Entity as contemplated by
this Schedule 3.1.3, the Entity Documents and Mandatory Capital Call Schedule
shall be developed and implemented in the same manner as would be applicable to
a 20% Entity or a 49% Entity governed by Section 3.1.2. If ALS proceeds with the
development of a Waived Facility and after the delivery of a Business Plan to
ALE as contemplated by this Section 3.1.3 but prior to the Project Start of such
Facility the Business Plan for such Waived Facility shall change in any material
respect that is within the control of ALS (excluding, however, such changes as
would be materially adverse to such Facility or an investment therein), ALS
shall be obligated to offer or to cause the entity owning such Facility to offer
to ALE the right to make an equity investment representing an ownership interest
of 20% or 49% if such Facility is a Large Facility or 20% if such Facility is a
Small Facility in consideration of a cash payment to the equity owners of such
Facility equal to the
9
15
allocable portion (20% or 49% as the case may be) of such equity owners' actual
capital investment in such Facility.
3.2. Formation of Project Entities. When a Project Entity is formed,
each of ALS- Northeast, ALE and ALS will be reimbursed by the Project Entity for
the jointly approved site selection and development costs expended by them with
respect to the Facility to be owned by such Project Entity. Pursuant to the
terms of the Entity Documents for any Project Entity, unless consented to by ALS
and ALE, such Project Entity shall not: (i) materially change the character of
the business, Business Plan, strategy or licensing status of the Facility owned
by such Project Entity from that contemplated by this Agreement and the
applicable Business Plan; (ii) make any material investment in any person or
entity other than as contemplated by the applicable Business Plan or money
market-type investments; (iii) make any distribution in kind of assets of the
Project Entity (other than distributions of distributable cash); (iv) initiate
any litigation not in the ordinary course of business of such Project Entity; or
(v) use the proceeds of any insurance or condemnation award other than to
rebuild or repair the Facility owned by such Project Entity.
3.3. Not Used.
3.4. Capitalization of Project Entities. The parties shall make
Mandatory Capital Call Contributions to each Project Entity as more fully set
forth in the Entity Documents for such Project Entity. Unless otherwise mutually
agreed to by the parties hereto, it is contemplated that, with respect to each
Project Entity, (i) ALE will fund a portion of its Mandatory Capital Call
Contribution obligation in the form of a contribution of development services,
which services shall be valued for purposes of this Agreement as set forth in
Section 3.9.3 hereof (such value, with respect to each Project Entity, is
referred to herein as the "Development Services Contribution Amount" as defined
in Section 3.9.3 hereof), and contribute equity capital to such Project Entity
in the form of cash in an amount sufficient to satisfy the balance of its
Mandatory Capital Call Contribution obligation, and (ii) ALS will contribute
equity capital to such Project Entity in the form of cash in an amount
sufficient to satisfy its Mandatory Capital Call Contribution obligation in
full. ALE will not receive any Capital Account credit for the Development
Services Contribution Amount upon its contribution of the development services
to each Project Entity (although for all other purposes, including internal
monitoring of compliance with the parties' economic deal, ALE shall be viewed as
contributing capital in the form of development services, equal to the
Development Services Contribution Amount). The Mandatory Capital Call
Contributions for each Project Entity shall not exceed, in the aggregate, the
amounts shown in the Mandatory Capital Call Schedule in the Business Plan with
respect to such Project Entity, unless the parties otherwise agree. Neither ALS
nor ALE will have any obligation to make an expenditure, provide capital or loan
funds to any ALS-Northeast Entity except as specifically provided in the Entity
Documents for such Project Entity, the Project Agreements for such Project
Entity or as otherwise expressly agreed to by the parties in writing from time
to time. Additional equity capital beyond the Mandatory Capital Call
Contribution amounts for a Project Entity will be contributed only upon the
mutual agreement of the equity owners of such Project Entity.
10
16
3.5. Failure to Meet Capital Calls.
3.5.1. If either ALS or ALE fails to meet a Mandatory Capital
Call Contribution for a Project Entity (such party referred to herein as a
"Defaulting Party"), then the non-defaulting party (the "Non-Defaulting Party")
may, at its option and in addition to any and all other remedies available to
it, (a) make its or its and the Defaulting Party's Mandatory Capital Call
Contributions to such Project Entity, and in such event the respective
Percentage Interests in the Project Entity will be adjusted to reflect the
relative cumulative capital contributions made by the parties to the Project
Entity after giving effect to such contribution by the Non-Defaulting Party, (b)
loan its and/or the Defaulting Party's Mandatory Capital Call Contribution
(provided that such Non-Defaulting Party has either made its Mandatory Capital
Call Contribution or loaned such amount as contemplated hereby) to such Project
Entity in exchange for a note bearing interest at a rate equal to three (3)
percentage points over the Project Entity's mortgage loan rate in effect from
time to time, (or if there is no mortgage loan, then at a rate equal to the
Prime Rate from time to time in effect plus five (5) percentage points) (such
applicable rate, the "Default Loan Rate") or (c) elect not make its Mandatory
Capital Call Contribution. If, with respect to any Mandatory Capital Call
Contribution, the Non-Defaulting Party shall make its Mandatory Capital Call
Contribution and shall loan the Defaulting Party's portion of such contribution,
then any repayment of such loan (or interest thereon) by the Project Entity
shall be treated, as between ALS and ALE, as a distribution by such Project
Entity for the benefit of such Defaulting Party (and shall be so reflected in
the Capital Account of the Defaulting Party for such Project Entity) such that
distributions to the Non-Defaulting Party will not be reduced as a result of
such loan payments. In addition, upon a failure to meet a Mandatory Capital Call
Contribution for any Project Entity, the Non-Defaulting Party shall also have
the right pursuant to the provisions of the applicable Operating Agreement to
designate a majority of the governing board of, and otherwise assume control of,
such Project Entity, and to terminate any one or more Ancillary Agreements
between such Project Entity and the Defaulting Party or its Affiliates.
3.5.2. All notes from a Project Entity to a Non-Defaulting
Party pursuant to Section 3.5.1 hereof shall be non-recourse to ALS and ALE
(except the parties hereby agree that such note shall be recourse to the
respective interests of ALS and ALE in and to some or all Project Entities
pursuant to the Collateral Assignment Agreement), shall be subordinated only to
the senior and other debt of the Project Entity issuing the note, and shall be
repaid only as and when cash becomes available from such Project Entity or any
other Project Entity, but in any event, within one year.
3.5.3. If after the expenditure or commitment of the Mandatory
Capital Call Contributions for a Project Entity either ALS or ALE reasonably
believes that additional capital ("Additional Capital") is required by such
Project Entity in accordance with the Business Plan for such Project Entity and
the construction plans and specifications, and the other party herein does not
agree to contribute its proportionate share of such Additional Capital (based on
its Percentage Interest in the Project Entity at the time the contribution is
requested) after being advised by the first party of the required amount of
Additional Capital and the portion thereof
11
17
that would be required to be contributed by each of the parties, then the
contributing party may loan such required funds to such Project Entity in
exchange for a note bearing interest at a rate equal to the Prime Rate from time
to time in effect plus two (2) percentage points (such interest to begin to
accrue only when such Additional Capital is actually applied or invested by such
Project Entity). Notwithstanding the foregoing, if the party who declines to
contribute such Additional Capital is able to arrange for financing from a third
party on a non-recourse basis (except for recourse by the third party to the
respective Percentage Interest of ALS and ALE in and to such Project Entity,
which recourse shall be prior in right to any security interest granted to ALE
or ALS pursuant to the Collateral Assignment Agreement) in a timely manner on
the same or more favorable economic terms to the Project Entity than the loan
terms from the first party, then the Project Entity shall borrow the funds from
the third party.
3.5.4. All notes from a Project Entity to either party
pursuant to Section 3.5.3 hereof shall be subordinated only to the senior and
other debt of the Project Entity issuing the note and shall be repaid only as
and when cash becomes available from the cash flow of the Project Entity (but
prior to distributions to the parties), but in any event, within ten years. Such
notes shall be non-recourse to ALS and ALE except that (i) in the case of
Additional Capital to fund operating deficits, such note shall be recourse to
the respective Percentage Interests of ALS and ALE in and to all Project
Entities pursuant to the Collateral Assignment Agreement and (ii) in the case of
Additional Capital to fund capital improvements and other non-operating items,
such note shall be recourse to the respective interests of ALS and ALE solely in
and to the Project Entity receiving such Additional Capital.
3.5.5. No reduction of a party's Percentage Interest in a
Project Entity pursuant to Section 3.5.1 shall reduce the percentage of a
Mandatory Capital Call Contribution required to be contributed to such Project
Entity by such party or otherwise reduce the indemnification or other
obligations of such party to the other party pursuant to this Agreement, the
Operating Agreement (ALS-Northeast), the Entity Documents for any Project Entity
or any Ancillary Agreement.
3.6. Project Financing
3.6.1. ALS Northeast will use its best efforts to obtain the
necessary construction and permanent financing for each new Facility constructed
by a 49% Entity. If required by the construction loan lender, ALE or an ALE
Affiliate acceptable to the lender will guaranty the construction financing for
each new Facility to be constructed by any 49% Entity. With respect to any
payment or call upon such guaranty occurring prior to such time as a Certificate
of Occupancy is issued for such Facility, ALS shall indemnify ALE for 51% of
such payment or call provided that such payment or call is not the result of any
breach or failure to perform by ALE or an ALE Affiliate under the Construction
Agreement for that Facility (in which case, ALS shall have no such indemnity or
contribution obligation with respect thereto). Subsequent to receiving the
Certificate of Occupancy and until such time as a Facility owned by a 49% Entity
reaches 75% of full occupancy ("75% Occupancy"), provided that the interest of
ALE in the 49% Entity has not been acquired by ALS pursuant to Section 3.12, ALS
and ALE shall,
12
18
as between each other, bear a portion of any risk or obligation arising under
any guarantee given by ALS or ALE to secure financing for such Facility on a
51%/49% basis, respectively. The 49% Entity and ALS will each use its best
efforts to obtain permanent financing promptly after a Facility reaches 75%
Occupancy, and ALS will be the sole guarantor of such permanent financing if a
guaranty is required. During any period after 75% Occupancy has been initially
attained and regardless of whether permanent financing has been obtained, ALS
shall indemnify ALE and its Affiliates for any obligation ALE or its Affiliates
may have arising under, and shall thereafter bear all risk associated with, any
guaranty given by ALS or ALE and its Affiliates to secure financing for such
Facility. Promptly following such time as a Facility reaches 75% occupancy, ALS
shall offer to the lender with respect to such Facility its unsecured guaranty
in substitution for the guaranty or guaranties of ALE or such ALE Affiliate as
has guaranteed the construction financing for such Facility and will cooperate
with ALE or such ALE Affiliate to obtain the release by such lender of any such
existing guarantees of ALE or such ALE Affiliate, provided that the terms of the
construction financing that is then in place or the permanent financing that has
been arranged for such Facility remain the same as those previously approved by
ALS or are otherwise acceptable to ALS in its sole discretion. ALE shall have no
obligation to indemnify ALS in respect of any indebtedness of a 49% Entity after
the interest of ALE in such 49% Entity has been acquired by ALS pursuant to
Section 3.12.
3.6.2. ALS will use its best efforts to obtain the necessary
construction and permanent financing for each new Facility constructed by a 20%
Entity. If required by the construction loan lender, ALS will guaranty the
construction financing for each new Facility to be constructed by a 20% Entity.
With respect to any payment or call upon such guaranty occurring prior to such
time as a 75% Occupancy has been initially attained at such Facility, provided
that the interest of ALE in the 20% Entity has not been acquired by ALS pursuant
to Section 3.12, ALE and ALS shall, as between each other, bear a portion of any
risk or obligation arising under any guarantee given by ALS to secure financing
for such Facility on a 20%/80% basis, respectively. The 20% Entity and ALS will
each use its best efforts to obtain permanent financing promptly after a
Facility reaches 75% Occupancy, and ALS will be the sole guarantor of such
permanent financing if a guaranty is required. During any period after 75%
Occupancy has been initially attained and regardless of whether permanent
financing has been obtained, ALS shall bear all risk associated with any
guaranty given by ALS to secure financing for such Facility.
3.6.3. If an existing Facility is acquired by a Project Entity
and a guaranty of the financing for such Facility is required by the lender,
then (i) ALS and, if required by the lender, ALE will guarantee such financing
for such Facility and (ii) if either or both of the parties are called on as
guarantors to pay any obligations pursuant to their guaranties, then the parties
shall make payments on such obligations in proportion to their Percentage
Interests in the Project Entity as of the date of acquisition (except that ALE
shall have no such liability following a purchase of ALE's interest by ALS
pursuant to Section 3.12), so that at all times neither party has paid more than
its proportionate share of such obligations based on its Percentage Interests in
the Project Entity as of the date of acquisition.
13
19
3.6.4. If either party is called upon to make any payment to a
lender pursuant to any guaranty described in this Section 3.6, the Project
Entity shall evidence its obligations to repay such advance by delivery to such
party of a promissory demand note bearing interest at the Default Loan Rate.
3.7. Responsibilities of the Parties. With respect to the activities to
be conducted by the Project Entities:
(a) ALS shall be responsible for:
(i) providing to the Project Entities market
research with site-specific market studies
for purposes of obtaining debt and/or equity
capital;
(ii) providing to the Project Entities sales,
pre-marketing and ongoing marketing
supervision;
(iii) obtaining state (and, if applicable,
federal) licensing for Project Entities or
Facilities, compliance with state (and, if
applicable, federal) regulations;
(iv) day-to-day facility operations management
for Project Entities pursuant to the
applicable Management Agreement; and
(v) obtaining construction financing for 20%
Entities and permanent financing for Project
Entities, as contemplated hereby.
(b) ALE will be responsible for:
(i) providing to the Project Entities analysis
and advice regarding site acquisition,
right-to-build, zoning and use issues;
(ii) obtaining any permits and approvals
necessary from municipal, state or federal
agencies to construct Facilities for Project
Entities;
(iii) obtaining construction financing for 49%
Entities;
(iv) hiring of all necessary consultants for
building design and construction for Project
Entities; and
(v) building construction supervision for
Facilities.
(c) All charges associated with the foregoing services
provided by ALS or ALE, including, without limitation, pre-marketing,
pre-opening, operating, pre- development, third party, overhead and
aborted project costs, shall be paid by ALS-
14
20
Northeast (or if incurred for the benefit of an existing Project
Entity, then by such Project Entity) or as agreed to by both parties in
writing. Each Project Entity shall reimburse ALS-Northeast for any site
selection, development or other costs incurred by ALS-Northeast for
such Project Entity's benefit. A detailed schedule of services to be
performed by ALS and ALE (or their respective Affiliates) as set forth
in Sections 3.7(a) and 3.7(b) of this Agreement ("Listed Services") and
any related charges are set forth in Exhibit H, attached hereto and
incorporated herein by reference. Except for the Listed Services, and
except as otherwise expressly contemplated by this Agreement or as
subsequently agreed on by ALS and ALE, the Project Entities will not
pay any compensation of any type to ALS, ALE or their Affiliates.
3.8. Decision-Making.
(a) Except as otherwise provided in Section 3.8(c), approval
of a Sale Transaction (as defined in Section 3.12(n) hereof) shall
require the approval of the equity owners of the respective Project
Entity holding the right to cast a Majority Vote (provided that prior
to or upon the consummation of the Sale Transaction any guarantees by
ALE or any ALE Affiliate of indebtedness of such Project Entity are
released). The prior approval of both ALS and ALE shall be required for
any activities related to the following:
(i) site selection, facility design,
architectural features, site layout and
facility type for Facilities jointly
developed pursuant to Section 3.1.2 and
equity capital calls of Project Entities
other than Mandatory Capital Call
Contributions; and
(ii) approval of a Business Plan for each
ALS-Northeast Entity and approval of
amendments to the Entity Documents of any
Project Entity;
(iii) the retention by any ALS-Northeast Entity of
the following professionals or any other
professionals in connection with the
construction or development of a Facility
(and any contract or engagement letter
executed in connection therewith):
1. geotechnical professionals;
2. environmental consulting
professionals; and
3. architectural professionals;
(iv) the execution or amendment of, or any waiver
under or early termination of, any agreement
between any ALS-Northeast Entity, on the one
hand, and ALS, ALE or any of their
respective Affiliates, on the other hand;
15
21
(v) the determination by any ALS-Northeast
Entity to commence bankruptcy, insolvency or
dissolution proceedings; and
(vi) any tax election not in the ordinary course
of business that materially alters the
anticipated tax treatment of the equity
owners of any ALS- Northeast Entity.
Subject to Section 3.2 and the preceding provisions of this Section
3.8(a) and the delegation of authority to ALS for the day-to-day
management of the Facilities pursuant to applicable Management
Agreements, all other matters pertaining to the operation and
activities of (i) ALS-Northeast shall require the approval of both ALS
and ALE and (ii) each Project Entity shall require the approval of (A)
both ALS and ALE with respect to matters arising prior to the first to
occur of the achievement of the 75% Trigger (as defined in Section
3.12(a)) for such Project Entity or the second anniversary of the
issuance of the Certificate of Occupancy for the Facility owned by such
Project Entity (such first to occur date, the "First Date") and (B)
equity owners of the Project Entity holding the right to cast a
Majority Vote with respect to matters arising after the First Date.
(b) ALE shall be responsible for the preparation of a
construction budget for each Facility, and ALS shall be responsible for
the preparation of the annual operating budgets for each Facility;
provided, however, that with respect to each such construction budget
and operating budget, the non-preparing party shall have a minimum of a
twenty (20) day period to review, comment and approve each such budget.
Notwithstanding the foregoing provisions of this Section 3.8(b), each
party to this Agreement shall be entitled to enforce on behalf of an
ALS-Northeast Entity, or solely direct the actions of an ALS- Northeast
Entity with respect to, any obligation of the other party to this
Agreement or its Affiliate to such ALS-Northeast Entity or solely
direct the exercise by such ALS- Northeast Entity of any significant
discretionary action to be taken by such ALS- Northeast Entity pursuant
to any agreement with the other party to this Agreement or its
Affiliate.
(c) In the event a Project Entity has not achieved 95% of full
occupancy on or before the second anniversary of the issuance of a
Certificate of Occupancy for the Facility owned by such entity, during
the two year period following said second anniversary (the "Disposition
Period") ALE shall be entitled to authorize and approve, without the
consent of ALS, the marketing and sale of such Facility by such Project
Entity as contemplated by this Section 3.8(c). If during any
Disposition Period ALE wishes to offer such Facility for sale, ALE
shall give notice of the terms on which ALE wishes to make such offer,
including the price (the "Offer Price") at which ALE proposes to offer
such Facility for sale. Within fifteen (15) days after ALE gives ALS
notice of the Offer Price for a Facility, ALS shall have the right to
either (x) by notice given to ALE exercise its Call Option on the terms
described in Section 3.12(c), by paying to ALE in lieu of the price
determined pursuant to Section 3.12(d), a purchase
16
22
price equal to the product obtained by multiplying (I) ALE's Percentage
Interest in such Project Entity at the time of exercise of such Call
Option times (II) such Offer Price, or (y) by notice given to ALE
exercise its Call Option with respect to the interest of ALE in the
Project Entity owning such Facility on the terms described in Section
3.12(c) by paying to ALE the lower of the purchase price determined
pursuant to clause (x) of this sentence and the purchase price
determined pursuant to Section 3.12(d) (including the price protection
afforded by the last sentence thereof). During any period when the
purchase price for ALS's Call Option with respect to ALE's interest in
a Project Entity is being determined pursuant to Section 3.12(d), ALE's
right to cause the Facility owned by such Project Entity to be marketed
and sold shall be stayed, provided that (i) ALS shall not have the
right to stay ALE's authority to market and sell a Facility by giving
notice of its exercise of its Call Option more than 15 days after ALE
gives notice to ALS of the Offer Price at which ALE proposes to offer
such Facility for sale, and (ii) ALE's right to cause a Facility to be
marketed and sold shall be reinstated, and shall not thereafter be
stayed, if ALS shall, after notice from ALE and a reasonable
opportunity to cure, fail to diligently pursue the procedures
contemplated by Section 3.12(d) or upon the determination of the price
for the Call Option to consummate the acquisition of ALE's interest in
the Project Entity owning such Facility. During any period after ALE's
exercise of its Put Option with respect to a Project Entity when the
procedures contemplated by Sections 3.12(a) and 3.12(e) are being
implemented, ALE's right to cause the Facility owned by such Project
Entity to be marketed and sold shall be stayed. Upon the consummation
of the exercise of the Put Option or the Call Option, ALE's right to
cause the Facility owned by such Project Entity to be marketed and sold
shall be extinguished. Upon the consummation of the sale of a Facility
by ALE using its authority granted in this Section 3.8(c), the
Management Agreement then in effect with respect to such Facility shall
terminate without further liability to either party thereto.
3.9. Construction and Development Services.
3.9.1. Feasibility and Right-to-Build Phase Expenses. During
the Development Term, ALE shall provide development services to each
Project Entity formed to develop a Facility. Each Project Entity will
reimburse ALE for personnel costs expended in connection with ALE's
services to such Project Entity during the feasibility and right-to-
build phase of a specific Facility's development, as per an agreed upon
rate schedule, up to a not-to-exceed cost of $3,500.00 and $3,200.00
per bed for Large and Small Facilities, respectively. Costs that exceed
the applicable per bed cap will not be reimbursed unless otherwise
agreed upon by ALS and ALE. ALS and ALE shall each be separately
entitled to reimbursement for reasonable travel and subsistence
expenses of their respective personnel incurred during the feasibility
and right-to-build phase of such Facility (the parties agreeing that
such costs shall not exceed $350.00 per bed per party for any Large or
Small Facility). Except as otherwise provided herein with respect to
Listed Services, all miscellaneous and "soft costs" related to site,
feasibility, right-to- build and preconstruction services will be
charged directly to the Facility, with no additional xxxx-up, "at
cost". During the Development Term, ALE shall also have the
17
23
right to provide to ALS development services in accordance with Section
3.9.3 with respect to Waived Facilities other than Waived Facilities
whose Project Start occurs during a Nonexclusive Year and shall be
entitled to reimbursement of personnel, travel and subsistence expenses
in accordance herewith with respect to Waived Facilities other than
such expenses incurred after notice from ALS during a Nonexclusive Year
with regard to Waived Facilities whose Project Start occurs during a
Nonexclusive Year.
3.9.2. Construction Services. During the Development Term, ALE
or an ALE Affiliate ("ALE Construction"), shall have the right to
provide construction services to (i) any Project Entity or (ii) ALS
with respect to any Waived Facility whose Project Start occurs during
the Development Term (but not during any Nonexclusive Year) (ALS or
such Project Entity, as applicable in such cases, the "Developer
Entity") on an exclusive basis, in the manner contemplated hereby, in
connection with the construction by such Developer Entity of new
assisted living or specialty care facilities for the elderly ("New
Facilities") in the Territory in the manner set forth below:
(a) Except as provided in Section 3.9.2(b) below, ALE
Construction shall cause each New Facility to be constructed for a
guaranteed maximum price agreed upon by ALE Construction and the
Developer Entity in accordance with the terms of a construction
agreement for such New Facility, such agreement (if ALE Construction
shall be the successful bidder pursuant to Section 3.9.2(b)) to be
substantially in the form of the Construction Agreement.
(b) The Developer Entity shall solicit from ALE Construction
and, at the election of the Developer Entity, from others, sealed bids
for the construction of the New Facility prior to executing the
Construction Agreement with ALE Construction (such bids from others,
but not from ALE Construction, to be inclusive of a payment and
performance bond from a nationally recognized insurer). Such sealed
bids shall be opened in the presence of a representative of ALE
Construction. If (i) as a result of such competitive bidding process,
the guaranteed maximum price bid (covering project hard costs,
excluding the cost of any furniture, fixtures and equipment purchased
directly by the Developer Entity, excluding the amounts reimbursable to
ALE pursuant to Section 3.9.1, excluding the value of the development
services to be provided by ALE pursuant to Section 3.9.3 and excluding
any construction management personnel costs reimbursable to ALE
pursuant to Section 3.9.3) made by ALE Construction shall be 105% or
more than the comparable bid (the "Lower Bid") made by another
reputable, qualified, bona fide bidder (the "Lower Bidder") and (ii)
within ten (10) Business days following notice of such Lower Bid to ALE
Construction, ALE Construction does not revise its bid to no higher
than 105% of the Lower Bid, then the Developer Entity shall be entitled
to engage such Lower Bidder to construction the New Facility and the
Developer Entity shall have no further obligation to engage ALE
Construction with respect to the construction of such New Facility;
provided, however, ALE or ALE Construction shall be entitled to all
fees to which they may otherwise be entitled in accordance with the
terms of this Agreement,
18
24
including without limitation recognition of the value of development
services provided or contributed to the Developer Entity as
contemplated by Section 3.9.3.
3.9.3. Development Services. ALE shall contribute development
services to each Project Entity in connection with the development of
New Facilities in the Territory during the Development Term and shall
have the right to provide development services to ALS in connection
with the development of New Facilities in the circumstances specified
in Section 3.9.1. Such services will be valued at an amount (the
"Development Services Contribution Amount") equal to (a) in the case of
any Large Facility, the product obtained by multiplying $6,000 times
the number of beds in the New Facility if such New Facility is intended
to have 55 beds or less, or $5,000 times the number of beds in the New
Facility if the New Facility is intended to have more than 55 beds or
(b) in the case of any Small Facility with more than forty (40) beds,
the product obtained by multiplying $4,500.00 times the number of beds
in the New Facility or (c) in the case of a Small Facility with forty
(40) or fewer beds, the product obtained by multiplying $4,500 times
the number of beds for the first such three (3) Small Facilities having
a Project Start in any calendar year and $4,000 times the number of
beds for any additional Small Facilities having a Project Start within
said year. Except as otherwise provided in the Construction Agreement,
the Development Services Contribution Amount shall encompass within it
all construction profit and overhead except for construction management
personnel (at cost) pursuant to an agreed upon rate schedule expressly
allowed pursuant to the applicable Construction Agreement. If the
Development Service Contribution Amount for any Project Entity exceeds
ALE's Mandatory Capital Call Contribution to such Project Entity, such
excess shall be payable by such Project Entity to ALE in cash in the
manner set forth in the following sentence. If ALE shall provide
development services to ALS (and not to a Project Entity) as
contemplated by Section 3.9.1 hereof, ALS shall pay ALE the Development
Services Contribution Amount as follows: fifty percent (50%) of the
Development Services Contribution Amount shall be paid at the point of
issuance of a building permit to ALS; an additional twenty-five percent
(25%) of the Development Services Contribution Amount shall be paid at
the point at which as mutually agreed by the parties construction is
fifty percent (50%) complete; and the final twenty-five percent (25%)
of the Development Services Contribution Amount shall be paid at
issuance of a certificate of occupancy.
3.9.4. CPI Adjustment. All per bed dollar amounts and caps set
forth in Section 3.9.3 shall be CPI adjusted on December 31 of each
year commencing in 1996 using December 31, 1995 as the base year, in
the same manner as described in Section 4.1 of the Management
Agreement.
3.9.5. Architect. The architect shall be Xxxxxxx Xxxxxxxxxx,
Elm Grove, Wisconsin or such other architect hereafter approved by ALS
and ALE (the "Architect"), and each contract with the Architect shall
be in the form of the Architect's Agreement, with such changes as
agreed to by the parties therein.
19
25
3.10. Management. ALS shall perform management services for each
Project Entity. Such services will be provided pursuant to a management
agreement pursuant to which ALS will manage the Facility owned by such Project
Entity for an initial term of eight (8) years, subject to an extension by
agreement of ALS and ALE for two additional five (5) year periods. The term of a
management agreement for a Facility shall expire automatically upon a sale of
the Facility. The management fee (which shall be applicable to both Large
Facilities and Small Facilities) under each such management agreement shall be
as follows:
Individual Project No. of Large Facilities
Revenue Managed by ALS Fee (% of Revenue)
------------------ ----------------------- ------------------
Up to $2 million 1 - 2 7.5%
in annual revenue 3 - 5 7.0%
more than 5 6.5%
Greater than $2 million 1 - 2 7.0%
in annual revenue 3 - 5 6.5%
more than 5 6.0%
The $2 million revenue threshold will be adjusted for inflation for
each calendar year based upon the change in the Consumer Price Index for Medical
Care Services ("CPI", as defined as "Medical Care Services - United States City
Average," as published by the United States Department of Labor, Bureau of Labor
Statistics, converted to 1982 - 1984 base 100, or successor index most
comparable thereto) from December 31, 1995 to December 31 of each such calendar
year. Each management agreement for a Facility (an "Existing Facility") shall
state that as other Facilities within the same "Individual Project Revenue"
category as such Existing Facility are developed, the management fee payable
under the management agreement for such Existing Facility shall be reduced, if
necessary, so that the management fee payable shall be the same for all
Facilities in such category.
For purposes of the above table, (i) annual revenue will be measured on
a calendar year basis for each Facility (and annualized for any partial calendar
year falling within the term of the management agreement) and (ii) the number of
Large Facilities shall consist of all Large Facilities located in the Territory
and managed by ALS for its own account or for the account of entities in which
ALS owns a majority equity interest or for a Project Entity (including a Project
Entity as to which the applicable Put Option or Call Option (each, as
hereinafter defined) has been exercised) and any Managed Facilities (hereinafter
defined in Section 3.14(d)(ii)), provided that such Managed Facility, had it
been developed by ALS and ALE hereunder, would have been a Large Facility.
The management agreements will provide that ALS will be reimbursed at
ALS's actual cost for pre-opening, operating, sales and marketing costs provided
to ALS-Northeast and/or each new Project Entity during the construction period
but not to exceed the amounts shown in
20
26
each Facility operating proforma budget (the "Proforma") included as part of the
applicable Business Plan. During the lease-up period set forth in the Proforma
for each Facility, the management fee will be equal to a fixed amount determined
by multiplying the monthly fee which would be payable once the projected
stabilized revenue is attained by the number of months in such lease-up period,
and shall be payable monthly on a pro-rata basis during such period. Thereafter,
the management fee shall be based on a percentage of revenues as set forth
above, regardless of whether stabilized revenue has been obtained, and payable
monthly.
If a 75% occupancy level for a Facility is not attained within the
timeframe set forth in the Proforma, ALS shall thereafter continue to earn its
management fee at the rate specified in the table above, but the payment of such
management fee (up to $100,000) shall be deferred until (a) such 75% occupancy
level is achieved, or (b) the Facility is sold or the Project Entity is
liquidated. Thereafter, any deferred management fees due ALS shall be paid as
soon as cash becomes available from such Project Entity to pay such deferred
management fees after the payment of operating expenses then due (and funding of
appropriate working capital reserves) but before any distributions to the equity
owners of such Project Entity, provided that the payment of such deferred fees
does not cause the Project Entity paying such deferred fees to violate any
covenants in the loan documentation to which such Project Entity is a party.
ALS shall enter into a Management Agreement in the form of the
Management Agreement, subject to such modifications that will necessarily vary
by Facility in accordance herewith, which agreement will be executed by ALS, as
facility manager, and the applicable Project Entity, as the owner, when such
Project Entity is formed.
3.11. Restrictions on Transferability of Interests. From and after the
date hereof, neither ALS nor ALE shall transfer any of its Percentage Interest
in any ALS-Northeast Entity except to the other party or pursuant to the
Collateral Assignment Agreement; provided, however, that ALS may transfer a
nominal portion of its Percentage Interest in a Project Entity to an ALS
Affiliate prior to the exercise and closing of a Put or Call Option solely to
preserve the existence of such Project Entity following such purchase. Any
purported transfer prohibited by this Section 3.11 shall be void ab initio, and
shall be deemed a breach of both this Agreement and the Operating Agreement of
the applicable ALS-Northeast Entity. A transfer means any disposition of a
Percentage Interest, including, without limitation, any sale, gift, assignment,
pledge or encumbrance, whether such disposition occurs voluntarily, by operation
of law or otherwise. A transfer shall be deemed to have occurred by ALE in
violation of the foregoing restriction if a combination of Messrs. Xxxxxxx X.
Xxxxxxx, Xxxxxxx X. Xxxxxxx and Xxxx X. Xxxxxxx (or, upon their respective
deaths, their Family Members) and trusts for the benefit of Xxxxxxx X. Xxxxxxx,
Xxxx X. Xxxxxxx and their sisters and their respective children cease to control
ALE (a "ALE Change in Control") and any transfers of interests in ALE that do
not result in a ALE Change in Control shall not be prohibited by this Section
3.11. No change or changes in ownership of ALS shall be deemed to be a transfer
by ALS in violation of this Section 3.11.
21
27
3.12. Put and Call Options.
(a) ALS hereby grants to ALE, and shall confirm in each
Project Entity Operating Agreement, the right to sell to ALS all (but
not less than all) of ALE's equity interest in any one or more Project
Entities at the purchase price (determined as set forth below) for
ALE's interest in such Project Entity or Entities pursuant to the terms
and conditions set forth herein ("Put Option"). The Put Option with
respect to a Facility shall be exercisable by ALE at any time from and
after the earlier to occur of (i) achievement of 75% Occupancy at such
Facility (the "75% Trigger"); or (ii) the six month anniversary of the
issuance of the Certificate of Occupancy for the Facility owned by such
Project Entity, through and until the tenth (10th) anniversary of the
date of issuance of the Certificate of Occupancy for such Facility
(such period, the "Put/Call Period"). ALE shall not be entitled to
exercise a Put Option in any given Put Year (as hereafter defined)
utilizing the 75% Trigger if during the then-existing Put Year ALE's
equity interest in one or more Facilities already have been put to ALS
utilizing such 75% Trigger, and such equity interests have an aggregate
purchase price in excess of $5 million. "Put Year" shall refer to each
consecutive twelve (12) month period commencing on the first day of the
first Put/Call Period.
(b) At ALS' election, the purchase price for ALE's equity
interest in such Facility pursuant to Section 3.12(a) shall be payable
either: (a) all in cash or in cash and a note as provided below (the
"Non-Stock Option") or (b) in cash and/or ALS common stock ("ALS
Stock"), such cash and ALS stock to be in such combination as ALS may
elect.
(i) To the extent a Put Option is exercised and
ALS elects to pay the purchase price using
the Non-Stock Option, (A) if the price is
$500,000 or less, the entire price shall be
paid in cash at the closing of the sale of
ALE's equity interest to ALS; and (B) if the
price to be paid is in excess of $500,000,
an amount equal to 1/3 of such price shall
be paid in cash at the closing of the sale
of ALE's interest to ALS, and ALS shall give
to ALE at such closing ALS's promissory note
for the remaining 2/3 of the price. Such
note shall provide for payment of (C) 50% of
the principal amount of the note on the
six-month anniversary of the note, (D) the
balance of the principal amount of the note
on the one-year anniversary date of the
note, (E) monthly installments of interest
only in arrears at the Default Loan Rate
applicable to such Project Entity, and (F)
acceleration of the entire balance due at
the election of the holder of the note upon
default in the payment of any installment of
principal or interest which continues for at
least ten (10) days uncured or upon the sale
of the Project Entity or ALS's ownership
interest therein. Such note may be prepaid
at ALS's option without penalty. The note
shall be secured by a collateral pledge of
the ownership interest in the Project Entity
which is sold.
22
28
(ii) To the extent a Put Option is exercised and
ALS elects to pay the purchase price using
ALS Stock, then (A) ALE shall be entitled to
confirm ALS's intentions with respect
thereto prior to exercising the Put Option
and rely upon such expression of intention;
(B) if a Public Offering (hereinafter
defined) shall not have occurred prior to
the closing of such Put Option exercise, ALS
shall pay a portion of the purchase price in
cash to the extent necessary to permit ALE
to pay state and federal income taxes due as
a result of the sale of its interest in the
Project Entity pursuant to the exercise of
such Put Option (such cash portion of the
purchase price referred to as a "Required
Cash Portion"); and (C) if ALS Stock shall
have been sold in a public offering
registered under the Securities Act of 1933
(a "Public Offering") prior to the closing
of such Put Option exercise, but ALS shares
to be delivered as payment (or partial
payment) of the purchase price shall be
subject to resale restrictions under
applicable securities laws, then ALS shall
either (1) pay a portion of the purchase
price in cash equal to the Required Cash
Portion or (2) register such ALS Stock to be
delivered in connection therewith pursuant
to applicable federal and state securities
laws, and cause such shares to be listed on
any applicable exchange or trading system
upon which the ALS Stock is listed, prior to
or concurrently with its delivery. ALE shall
advise ALS of the amount and its basis of
calculation of the Required Cash Portion
prior to requesting ALS's confirmation
referenced in clause (A) of this Section
3.12(b)(ii).
The Put Option shall be exercised by written notice from ALE to ALS
during such times as such Put Option is exercisable in accordance
herewith, and the exercise by ALE of its Put Option or a failure to
exercise such Put Option for one Project Entity shall not preclude ALE
from later exercising one or more Put Options for other Project
Entities.
(c) ALE hereby grants to ALS, and shall confirm in each
Project Entity Operating Agreement, the right to purchase all (but not
less than all) of ALE's equity interest in any one or more Project
Entities at the purchase price (determined as set forth below) for
ALE's interest in such Project Entity or Entities pursuant to the terms
and conditions set forth herein ("Call Option"). The Call Option shall
be exercisable as to each Project Entity at any time during the
applicable Put/Call Period, such purchase price to be payable either in
cash or ALS Stock (or a combination thereof, provided that the stock
portion shall constitute at least 50% of such consideration and have a
value of at least $500,000) at ALE's election, payable at the closing.
The Call Option shall be exercised by written notice from ALS to ALE
during such times as such Call Option is exercisable in accordance
herewith, and the exercise by ALS of its Call Option or a failure to
exercise such Call Option for a Project Entity shall not preclude ALS
from later exercising one or more Call Options for other Project
Entities. Prior to exercising the Call Option, ALS shall use
commercially reasonable efforts to seek to release ALE and any ALE
Affiliate from any loan guarantees that may exist with respect to loans
to
23
29
the Project Entity to which such Call Option relates. ALS shall be
deemed to have made commercially reasonable efforts if ALS shall have
taken such steps as are contemplated by the second to last sentence of
Section 3.6.1 hereof in an effort to secure such release or releases.
If ALS is not successful in securing such release or releases, then
ALS's indemnity pursuant to Section 3.12(h) hereof shall be secured
pursuant to the Collateral Assignment and by a pledge of ALS's equity
interest in said Project Entity, which collateral security interest for
such Section 3.12(h) indemnity obligations shall be extinguished upon
the release or releases of ALE or its Affiliates contemplated hereby.
(d) The purchase price for ALE's equity interest in each
Project Entity payable upon the exercise of a Call Option shall be
equal to the product obtained by multiplying (a) ALE's Percentage
Interest in the Project Entity at the time of exercise of such Call
Option times (b) the fair market value of the Project Entity, which
fair market value shall be determined as of the end of the calendar
month preceding the date on which a Call Option is exercised, as
follows: The fair market value of a Project Entity shall be the fair
market value of such Project Entity as established by an appraiser
jointly agreed upon by both parties. If the parties are unable to agree
to an appraiser, then each party will designate an appraiser and the
two appraisers will each determine a fair market value. If any party
shall fail to designate an appraiser within fifteen (15) days following
its receipt of notice from the other party containing (i) the identity
of the appraiser designated by such other party and (ii) reference to
such party's obligation to designate an appraiser pursuant to this
Section 3.12 within said fifteen (15) day period, then the appraiser
for such other party shall be deemed to be jointly agreed upon by both
parties. If the fair market value amounts determined by the two
appraisers are equal to or within 5% of their average, then the fair
market value shall be equal to such average. Otherwise, the two
appraisers will mutually select and appoint a third appraiser to
determine the fair market value, in which event the fair market value
of the Project Entity shall be equal to the result obtained by
averaging the two of the three appraisals which deviate the least from
the average of the first two appraisals, and multiplying the result by
ALE's Percentage Interest in the Project Entity. Each party will bear
equally the fees and expenses of the appraiser jointly agreed upon or
selected and if applicable the third appraiser, but each party will be
solely responsible for the fees and expenses of any appraiser selected
solely by such party. In determining such fair market value of a
Project Entity (on the condition, however, that ALS is not a Defaulting
Party with respect to such Project Entity), the assumption shall be
made that the management agreement with ALS or another manager will
continue indefinitely and that the percentage management fee then being
charged to the applicable Project Entity is equal to the greater of (i)
the percentage management fee which is actually being charged at such
time, or (ii) six percent (6%). Each appraiser selected hereunder shall
be a reputable appraisal firm which has experience in appraising
commercial real estate and long-term care and/or assisted living
facilities (or similar businesses). All appraisers shall have complete
access to the relevant books and records of the Project Entity they are
appraising during the conduct of their appraisals. Notwithstanding the
provisions of this Section 3.12(d), if ALE's equity interest in a
Project Entity is to be acquired by ALS
24
30
pursuant to the exercise of a Call Option at any time prior to the
second anniversary of the issuance of the Certificate of Occupancy for
the Facility owned by such Project Entity, the fair market value for
such Project Entity shall be determined in the manner described in this
Section 3.12(d), except that the assumption shall be made that such
Facility has achieved and is maintaining stabilized occupancy and is
operating at corresponding revenue and expense levels (based on such
occupancy) as contemplated by the Business Plan for such Project Entity
unless the fair market value determination based on such assumption is
less than the fair market value determination made hereunder without
such assumption (in which case such fair market value determination
shall be made without such assumption). Notwithstanding the foregoing,
the purchase price for ALE's equity interest in a Project Entity
payable upon the exercise of a Call Option shall in no event be less
than (x) the Percentage Interest of ALE in such Project Entity (as a
fraction of one) times the sum of the total capital contributions by
the equity owners of such Project Entity and the amount of the
Development Service Contribution Amount for such Project Entity and (y)
any payments by ALE or any ALE Affiliates pursuant to a loan repayment
guaranty given by them for which reimbursement pursuant to ALS's
indemnity obligation under Section 3.12(h) has not been received.
(e) The purchase price for ALE's equity interest in each
Project Entity payable upon the exercise of a Put Option shall be equal
to the proceeds that ALE would receive if such Project Entity were to
sell its Facility at its then-fair market value (allocating any gain or
loss resulting therefrom pursuant to the methodology set forth in
Sections 3.15(b), 3.15(d) and 3.21 hereof), satisfy all creditors, and
then liquidate in accordance with Section 3.15(e) hereof. For this
purpose, the fair market value of a Facility shall be determined as of
the end of the calendar month preceding the date on which a Put Option
is exercised, as follows: The fair market value of a Facility shall be
the fair market value of such Facility as established by an appraiser
jointly agreed upon by both parties. If the parties are unable to agree
to an appraiser, then each party will designate an appraiser and the
two appraisers will each determine a fair market value. If any party
shall fail to designate an appraiser within fifteen (15) days following
its receipt of notice from the other party containing (i) the identity
of the appraiser designated by such other party and (ii) reference to
such party's obligation to designate an appraiser pursuant to this
Section 3.12 within said fifteen (15) day period, then the appraiser
for such other party shall be deemed to be jointly agreed upon by both
parties. If the fair market value amounts determined by the two
appraisers are equal to or within 5% of their average, then the fair
market value shall be equal to such average. Otherwise, the two
appraisers will mutually select and appoint a third appraiser to
determine the fair market value, in which event the fair market value
of the Facility shall be equal to the result obtained by averaging the
two of the three appraisals which deviate the least from the average of
the first two appraisals. Each party will bear equally the fees and
expenses of the appraiser jointly agreed upon or selected and if
applicable the third appraiser, but each party will be solely
responsible for the fees and expenses of any appraiser selected solely
by such party. In determining such fair market value of a Facility (on
the condition, however, that ALS is not a Defaulting Party with respect
to such Facility), the assumption shall
25
31
be made that the management agreement with ALS or another manager will
continue indefinitely and that the percentage management fee then being
charged to the applicable Project Entity is equal to the greater of (i)
the percentage management fee which is actually being charged at such
time, or (ii) six percent (6%). Each appraiser selected hereunder shall
be a reputable appraisal firm which has experience in appraising
commercial real estate and long-term care and/or assisted living
facilities (or similar businesses). All appraisers shall have complete
access to the relevant books and records of the Project Entity which
owns the Facility that they are appraising during the conduct of their
appraisals.
(f) Either party may invoke the appraisal process of this
Section 3.12 for a Project Entity prior to the exercise of its Put or
Call Option, as the case may be, so as to enable such party to
determine the fair market value of such Project Entity or Facility (as
the case may be) before it exercises its option, and the price so
determined shall govern any subsequent exercise of such Put or Call
Option that occurs within the 60-day period after the determination
thereof; provided, however, that if the party invoking the appraisal
process or the other party does not exercise its Put or Call Option
within sixty (60) days after the determination of the fair market value
in accordance herewith, then the party invoking the appraisal process
will bear all the costs of the appraisal(s).
(g) Any and all transfers to ALS of ALE's equity interest in
such Project Entity pursuant to the exercise of a Put or a Call Option
as provided herein shall be closed, and all payments and deliveries
contemplated thereby made, upon the last to occur of (i) thirty (30)
days after the purchase price for ALE's equity interest in such Project
Entity or Entities is determined in accordance herewith or (ii) ninety
(90) days following the exercise of such Put or Call Option.
(h) At the closing of the exercise of a Put or Call Option
required by Section 3.12(g) of this Agreement:
(i) ALE shall deliver to ALS an instrument
evidencing the transfer of the ownership
interest in the Project Entity being
purchased and sold, free and clear of all
security interests, liens and restrictions
(other than liens arising under the
Collateral Assignment Agreement and
restrictions imposed by this Agreement and
the Ancillary Agreements and any Loan
Documents), together with such other
documents as ALS may reasonably request in
connection therewith; and
(ii) ALS shall deliver to ALE cash, ALS's
promissory note and pledge securing such
note and/or ALS Stock, if applicable,
constituting the purchase price for ALE's
equity interest in such Project Entity,
together with such other documents as ALE
may reasonably request.
26
32
At the time of the exercise of an Option, if ALE has guaranteed any
financing of a Project Entity subject to such option, then ALS will use
its best efforts to obtain a release of ALE of such guaranty. If ALS is
unable to obtain such a release, and following the closing of a Put or
Call Option there occurs a default in the payment or performance of any
obligation whatsoever, whether monetary or otherwise, in connection
with such financing, then ALS will indemnify ALE for any damages, costs
and expenses (including reasonable attorneys' fees) which ALE incurs
pursuant to any guaranty.
(i) If at the time of the closing of a Put or Call Option ALS
Stock is being publicly traded on either the New York, American,
Philadelphia or Pacific Stock Exchange or quoted on NASDAQ or in the
over-the-counter market, the price of ALS Stock to be utilized for
purposes of a Put or Call Option shall be the average closing sales
price per share of ALS Stock (or in the case where no closing sales
prices are reported, the average of the bid and the asked price) during
the period commencing thirty (30) trading days prior to the exercise of
the Put or Call Option and ending on the date of the exercise of the
Put or Call Option. If the ALS Stock is not publicly traded in such
manner, the value per share shall be equal to the fair market value of
ALS (determined by an appraiser jointly agreed to by the parties)
divided by the total number of shares of common stock of ALS then
issued and outstanding. If the parties are unable to agree upon an
appraiser, then each party will designate an appraiser and the two
appraisers will each determine a fair market value. If the two fair
market value amounts are equal to or within 5% of their average, then
the fair market value shall be equal to such average. Otherwise, the
two appraisers will mutually select and appoint a third appraiser to
determine the fair market value, in which event the fair market value
of ALS shall be equal to the result obtained by averaging the two of
the three appraisals which deviate the least from the average of the
first two appraisals. If any party shall fail to designate an appraiser
within fifteen (15) days following its receipt of notice from the other
party containing (i) the identity of the appraiser designated by such
other party and (ii) reference to such party's obligation to designate
an appraiser pursuant to this Section 3.12 within said fifteen (15) day
period, then the appraiser for such other party shall be deemed to be
jointly agreed upon by both parties. Each party will bear equally the
fees and expenses of the appraiser jointly agreed upon or selected and
if applicable the third appraiser, but each party will be solely
responsible for the fees and expenses of any appraiser selected solely
by such party. Either party may invoke the foregoing appraisal process
for ALS Stock prior to the exercise of its Put or Call Option, so as to
enable such party to determine the fair market value of such stock
before it exercises its Put or Call Option and the price so determined
shall govern any subsequent exercise of such Put or Call Option that
occurs within the 60-day period after the determination thereof;
provided, however, that if the party invoking the appraisal process or
the other party does not exercise the Put or Call Option within a
specified period after completion of the appraisal(s), the party
invoking the appraisal process will bear all the costs of the
appraisals.
27
33
(j) Notwithstanding any provision contained in this
Section 3.12 to the contrary:
(i) if a Put or Call Option is exercised, then
ALS may assign its rights and obligations in
respect of the Put or Call Option to an
Affiliate of ALS so as to preserve the legal
existence of the Project Entity, but no such
assignment shall relieve ALS from any
obligations to ALE;
(ii) any real estate transfer fee which arises in
connection with any purchase and sale
hereunder shall be borne by the parties in
proportion to their respective Percentage
Interests; and
(iii) equitable adjustments shall be made for any
distributions or capital contributions which
occur between the date of the determination
of the fair market value of the Project
Entity and the closing of the Put Option or
Call Option transaction.
(k) The Put Option and the Call Option provided for in this
Section 3.12 are intended to be agreements of the type described in
Item 901(c)(2)(i) of Regulation S-K promulgated by the Securities and
Exchange Commission.
(l) Any shares of ALS Stock acquired pursuant to Section 3.12
that are not registered at the time of delivery will be acquired by ALE
for investment only and not with a view to resell or otherwise
distribute them, and ALE will not sell, transfer, give, pledge or
otherwise transfer or dispose of the shares, or any of them, unless and
until such disposition of such shares is registered or, in the written
opinion of counsel to ALE reasonably acceptable to ALS, such sale,
transfer, pledge or other disposition of the shares, or any of them,
does not contravene any provision of the federal securities laws or
applicable state securities laws. ALE acknowledges that ALS may cause
the stock certificate(s) representing such shares to have the following
legend printed or typed thereon:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. No transfer of
the shares represented by this certificate may be made without
compliance with or exception from the Act and other applicable
securities laws.
(m) Neither ALS nor ALE shall take any action that would have
the effect of frustrating the Put Option or Call Option, respectively.
(n) If any Project Entity (i) shall sell or lease any Facility
or any material portion thereof or any material interest or estate
therein (a "Sale Transaction") and (ii) such Sale Transaction has not
been approved by both ALS and ALE, then,
28
34
notwithstanding anything herein to the contrary, ALE (or the ALE
Affiliate owning an equity interest in such Project Entity) may
exercise the Put Option regardless of whether the Put Option is then
exercisable and the purchase price for ALE's equity interest shall be
determined in the manner provided in Section 3.12(d) hereof in the case
of the exercise of a Call Option (and, accordingly, the penultimate (as
well as the last) sentence of Section 3.12(d) shall be applicable in
determining such purchase price). The Put Option pursuant to this
Section 3.12(n) shall be exercisable at any time during the thirty (30)
day period following the last to occur of (x) the consummation of such
Sale Transaction and (y) notice by the Project Entity or ALS to ALE of
the principal terms of such Sale Transaction. Any exercise of a Put
Option pursuant to this Section 3.12(n) shall not be considered to be
the exercise of a Put Option using the 75% Trigger described in Section
3.12(a).
(o) ALS will consider in connection with the exercise of a Put
or Call Option for a Project Entity, (a) participating in an Internal
Revenue Code Section 1031 exchange for the Facility owned by the
Project Entity or (b) structuring the purchase of ALE's equity interest
in the Project Entity as a tax-free exchange under Internal Revenue
Code Section 368. However, in any such case ALE shall bear the entire
amount of transactional costs, and legal and tax costs and risks,
created by such alternative structuring.
3.13. Collateral Assignment. Simultaneously with the execution of this
Agreement, the Collateral Assignment Agreement shall be amended to (i)
incorporate the matters described in Section 3.12(c), (ii) include within the
definition of "Joint Venture Agreement" therein both this Agreement and the
Original Agreement, and (iii) provide for the securing pursuant to the
Collateral Assignment (as well as by a pledge of ALS's equity interest in
Pioneer Kenmore Company, LLC or Pioneer Niskayuna Company, LLC, corresponding to
the pledge contemplated by Section 3.12(c) hereof) of ALS's corresponding
indemnity obligations (including tax penalties and interest indemnities) under
the operating agreements governing Pioneer Kenmore Company, LLC and Pioneer
Niskayuna Company, LLC if the interest of the ALE Affiliates is acquired by ALS
pursuant to the put/call options contained in such operating agreements prior to
the release of any guarantees of any ALE Affiliates with respect to the senior
debt financing incurred by such entities.
3.14. Noncompetition.
(a) During the Development Term, neither ALE nor ALS will
directly or indirectly (except through or in connection with
ALS-Northeast Entities, the Original NY Facilities, the Commons
Facilities or as otherwise permitted by Section 3.1.3 hereof) own,
operate, develop, construct, manage or participate in the ownership,
development, construction, operation or management of an assisted
living, dementia or other specialty care facility for the elderly
located in the Territory.
29
35
(b) Beginning on the date hereof and ending on the first
anniversary of the last date on which ALS and ALE jointly own equity
interests in a given Facility, neither party will directly or
indirectly (except through or in connection with ALS-Northeast
Entities, the Original NY Facilities, the Commons Facilities or Waived
Facilities) own, operate, develop, construct, manage or participate in
the ownership, operation, development, construction, or management of
an assisted living, dementia or other specialty care facility for the
elderly located within ten (10) miles of any such jointly- owned
Facility or any Waived Facility, Original NY Facility or Commons
Facility. In the event that either ALE or ALS ceases to own an equity
interest in one or more ALS- Northeast Entities by reason of the
failure to make a Mandatory Capital Call Contribution or otherwise
through the foreclosure of its equity interest in a Project Entity or
Entities pursuant to the Collateral Assignment Agreement, such party
shall nonetheless be deemed to be restricted by the provisions of this
Section 3.14 as if such party were a joint owner of all ALS-Northeast
Entities, until the first to occur of: (i) such time as the other party
ceases to have an interest in every ALS-Northeast Entity, or (ii) three
(3) years after such party ceases to have an interest in any
ALS-Northeast Entity.
(c) The restrictions on ALE set forth in Section 3.14(a) and
(b) also apply to Messrs. Xxxxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxxx and
Xxxx X. Xxxxxxx, and any entities directly or indirectly under the
control of ALE or such individuals. The restrictions on ALS set forth
in Section 3.14(a) and (b) herein also apply to any entity directly or
indirectly under the control of ALS, but in no event shall such
restrictions apply to the shareholders of ALS.
(d) The restrictions set forth heretofore in this Section 3.14
(the "Restrictions") are subject to the following exceptions:
(i) The Restrictions shall not be violated by
reason of ALS or ALE, or any of their
respective Affiliates, acquiring any
assisted living, dementia or other specialty
care facility for the elderly located in the
Territory ("Assisted Living Facilities"), or
acquiring an entity that owns such a
facility, as long as (A) such facility is
not located within ten (10) miles of a
Commons Facility, a Waived Facility or any
Facility owned jointly by ALS and ALE or any
Facility in which a Defaulting Party once
owned an interest if that party or its
Affiliates are the acquiring party and (B)
ALS or ALE, as the case may be, has first
offered to ALE or ALS, respectively, in
writing, an opportunity to participate in
such acquisition on substantially the same
terms as contemplated herein, and ALE or
ALS, respectively, has declined such offer
(such facility, a "Refused Facility"). ALE
or ALS, respectively, shall have thirty (30)
days following its receipt of any such offer
and of all material economic information
regarding such offer to accept or reject, in
writing, such offer made to it by the other
party in this regard, and a failure to
timely respond shall be deemed a rejection.
30
36
(ii) The Restrictions shall not be violated by
ALS if ALS manages an Assisted Living
Facility or the Person(s) that own such
facility, so long as ALS has no direct or
indirect equity interest in the facility or
the entity that owns such facility and no
right to receive a fee based on the
profitability (other than gross revenues) of
such facility (such facilities referred to
herein as "Managed Facilities");
(iii) The Restrictions shall not be considered
violated solely by reason of the activities
of a person or entity which is not an
Affiliate of ALS or ALE at the time this
Agreement is signed but which subsequently
becomes an Affiliate of such party insofar
as the activities of such Affiliate that
predate such affiliation are concerned;
(iv) The Restrictions in Section 3.14(a) shall
not apply to a Non-Defaulting Party from and
after any default by the other party in the
making of a Mandatory Capital Call
Contribution to any ALS-Northeast Entity;
(v) The Restrictions shall not apply to a party
during the continuance of any order or other
action by a regulatory agency or body which
prohibits or restricts the other party from
owning, operating or managing an Assisted
Living Facility in the Territory;
(vi) The Restrictions shall not prevent ALE or
its Affiliates from managing any
ALS-Northeast Facility following the
termination of the Management Agreement with
ALS for such Facility;
(vii) Not Used.
(viii) The Restrictions shall not be violated by
reason of ALS, ALE or any of their
respective Affiliates acquiring all or
substantially all of the operations of
another multi-facility operator (or a
multi-facility division or operating unit of
such operator) of Assisted Living
Facilities, whether by merger, stock or
asset purchase or otherwise, provided that
(A) none of the acquired Assisted Living
Facilities (the "Acquired Facilities") are
located within ten (10) miles of any
Facility then jointly owned by ALS and ALE
or any Facility in which a Defaulting Party
once owned an interest if that party is the
acquiring party or any Facility not yet
completed but for which a Project Entity has
been formed, and (B) the Acquired Facilities
include one or more facilities located
outside of the Territory; and
(ix) The Restrictions shall not be violated by
ALS by ALS providing feasibility studies and
related services to third parties on a fee
basis (i.e., compensation that is not
calculated on or with respect to, or that
otherwise constitutes a participation in,
the profits (as opposed to gross revenue or
31
37
adjusted gross revenue) of any subject
facility) so long as ALS has no direct or
indirect equity interest in such third party
or in the facilities owned or operated by
such third party.
(e) Each party to this Agreement hereby agrees that the
restrictions set forth in this Section 3.14 are founded on valuable
consideration and are reasonable in duration and geographic area in
view of the circumstances under which this Agreement was executed, and
that such restrictions are necessary to protect the legitimate
interests of the parties. If any provision of this Section 3.14 is
determined to be invalid by any arbitrator or court of competent
jurisdiction, then the provisions of this Section 3.14 shall be deemed
to have been amended, and the parties agree to execute any documents
and take whatever action is necessary to evidence such amendment, so as
to eliminate or modify any such invalid provision and to carry out the
intent of this Section 3.14 and to render the terms of this Section
3.14 enforceable in all respects as so modified.
(f) Each party to this Agreement acknowledges and agrees that
irreparable injury may result to the other party and/or a Project
Entity if the other party breaches any covenant contained in this
Section 3.14, and that the remedy at law for the breach of any such
covenant will be inadequate. Therefore, if either party shall engage in
any act which is a violation of any of the provisions of this Section
3.14, then the other party and the affected Project Entity (or either
of them) shall be entitled to, in addition to such other remedies and
damages as may be available to either or both of them at law or
pursuant to this Agreement, injunctive relief to enforce the provisions
of this Section 3.14.
3.15. Interests in Profits, Losses and Distributions. The Entity
Documents for each Project Entity shall provide as follows:
(a) Net Losses from Operations. Any net losses with respect to
a particular Facility, other than net losses resulting from a sale or
other disposition of such Facility, as determined on a quarterly basis,
shall be allocated (i) first, to the extent that net profits have been
allocated pursuant to Section 3.15(c)(iv) hereof in proportion to the
parties' respective Percentage Interests for any prior fiscal quarter
and such net profits have not been distributed by the Project Entity to
the members or already reversed out pursuant to Section 3.15(b)(i)
hereof or this Section 3.15(a)(i), net losses shall be allocated to
offset such undistributed net profits pro rata among the members in
proportion to their shares of the retained net profits being offset
(and thereafter such allocations of retained profits, to the extent
offset pursuant to this Section 3.15(a)(i), shall be disregarded for
purposes of computing subsequent allocations pursuant to this Section
3.15); (ii) second, one percent (1%) to ALS and ninety-nine percent
(99%) to ALE until ALE's Capital Account is a negative number that is
equal to ALE's limited Capital Account restoration obligation as set
forth in clause (b) of the second to last sentence of Section 3.21
hereof (the "ALE Restoration Amount"); (iii) third, one hundred percent
(100%) to ALS until its Capital Account is a positive number that is
equal to the ALE
32
38
Restoration Amount; and (iv) lastly, in proportion to the parties' then
respective Percentage Interests (provided, however, that any such net
loss to be allocated pursuant to this clause (iv) that is attributable
to Partner Nonrecourse Debt (as such term is defined in Section
1.704-2(b)(4) of the Treasury Regulations (herein, "Regulations")
promulgated under the Internal Revenue Code of 1986, as amended (the
"Code")) shall be allocated to the member that bears the economic risk
of loss pursuant to Section 1.752-2(b)-(j) of the Regulations for such
Partner Nonrecourse Debt and, if more than one member bears such
economic risk of loss, such Partner Nonrecourse Deductions shall be
allocated among the members in accordance with the ratios in which they
share such economic risk of loss). Nonrecourse Deductions (as such term
is defined in Section 1.704-2(b)(1) of the Regulations) shall be
allocated to ALS and ALE in proportion to their Percentage Interests.
(b) Net Losses from Dispositions. Except as otherwise provided
in Section 3.21 hereof, any net loss resulting from a sale or other
disposition of a Facility shall be allocated (i) first, to the extent
that net profits have been allocated pursuant to Section 3.15(c)(iv)
hereof in proportion to the parties' respective Percentage Interests
for any prior fiscal quarter and such net profits have not been
distributed by the Project Entity to the members or already reversed
out pursuant to Section 3.15(a)(i) hereof or this Section 3.15(b)(i),
net loss on a sale or other disposition of a Facility shall be
allocated to offset such undistributed net profits pro rata among the
members in proportion to their shares of the retained net profits being
offset; (ii) second, one hundred percent (100%) to ALS until the sum of
the cumulative net losses allocated to ALS pursuant to this Section
3.15(b)(ii) and the cumulative net losses previously allocated to ALS
pursuant to Sections 3.15(a)(ii) and (iii) hereof (but only to the
extent such net losses have not been previously reversed out by net
profit allocations made to ALS pursuant to Sections 3.15(c)(ii) and
(iii) hereof) equal 51/49ths (assuming that the Percentage Interests of
ALS and ALE are 51% and 49%, respectively, and if such Percentage
Interests are different, the applicable ratio for each loss allocation
offset shall be the ratio of the Percentage Interest held by ALS at the
time of such loss allocation to the Percentage Interest held by ALE at
such time) of the cumulative net losses allocated to ALE pursuant to
Section 3.15(a)(ii) (but only to the extent such net losses have not
been previously reversed out by net profit allocations made to ALE
pursuant to Section 3.15(c)(iii) hereof); (iii) to ALE and ALS, in
proportion to their positive Capital Account balances, until the
Capital Account balances of both ALE and ALS equal zero; and (iv)
lastly, in proportion to the parties' then respective Percentage
Interests.
(c) Net Profits from Operations. Any net profits with respect
to a particular Facility, other than net profits resulting from a sale
or other disposition of such Facility, as determined on a quarterly
basis, shall be allocated first to "reverse out" any prior net loss
allocations made pursuant to Sections 3.15(a)(ii), (iii) or (iv) hereof
in the reverse order made, with any remaining net profit (i.e., any net
overall profit in excess of losses previously allocated pursuant to
such sections) to be allocated in proportion to the parties' then
respective Percentage Interests. That is, any quarterly net profits
shall be allocated
33
39
(i) first, between ALS and ALE to restore any
net losses previously allocated to them
pursuant to Section 3.15(a)(iv) hereof, in
proportion to their relative shares of such
net losses; (ii) second, one hundred percent
(100%) to ALS to restore any net losses
allocated to it pursuant to Section
3.15(a)(iii) hereof; (iii) third, one
percent (1%) to ALS and ninety-nine percent
(99%) to ALE to reverse the net losses
allocated to the parties in that same
proportion pursuant to Section 3.15(a)(ii)
hereof, and (iv) lastly, between ALS and ALE
in proportion to their then respective
Percentage Interests.
(d) Net Profits from Dispositions. Except as otherwise
provided in Section 3.21 hereof, any net profits resulting from a sale
or other disposition of a Facility shall be allocated (i) first, one
hundred percent (100%) to ALE until its Capital Account balance (as
increased by the amounts, if any, which ALE is deemed to be obligated
to restore pursuant to the penultimate sentences of Treasury Regulation
Sections 1.704- 2(g)(1) and 1.704-2(i)(5)) is equal to 49/51ths
(assuming that the Percentage Interests of ALS and ALE are 51% and 49%,
respectively, and if such Percentage Interests are different, the
applicable ratio shall be the ratio of the Percentage Interest held by
ALE at the time of the relevant loss allocation that is being restored
by this net profits allocation to the Percentage Interest held by ALS
at such time) of ALS's Capital Account balance (as increased by the
amounts, if any, which ALS is deemed to be obligated to restore
pursuant to the penultimate sentences of Treasury Regulation Sections
1.704- 2(g)(1) and 1.704-2(i)(5)), and (ii) then, to ALS and ALE in
proportion to their respective Percentage Interests.
(e) Distributions. Any distributions of current cash flow
shall be made in proportion to the parties' respective Percentage
Interests. No distributions shall be made with respect to any quarter
in which the Project Entity derives a net loss, without the consent of
both parties. Distributions upon liquidation of the Project Entity
(i.e., the distribution of proceeds from the sale of the respective
Facility) shall be distributed in accordance with the parties'
respective Capital Account balances (after giving effect to the
allocation of any gain or loss resulting from such liquidating sale in
accordance with the provisions of this Section 3.15 as modified by
Section 3.21 hereof).
3.16. Confidentiality. Except to the extent permitted by Section 3.19
hereof, the parties hereto will at all times hold and cause their officers,
employees, agents, consultants and advisors (collectively, "Representatives") to
hold in confidence the information contained in this Agreement. In addition,
each party (the "Receiving Party") who receives any Confidential Information
(hereinafter defined) concerning the other party (the "Disclosing Party") will
at all times hold and cause its Representatives to hold in strict confidence
such Confidential Information which shall have been or will be furnished by the
Disclosing Party to the Receiving Party or its Representatives in connection
with the transactions contemplated by this Agreement. All such Confidential
Information shall be disclosed by a Receiving Party only to its Representatives
engaged in the evaluation of such information. The provisions of this Section
3.16 shall not apply to the extent that such Confidential Information (a) was
previously known to the Receiving Party prior to disclosure by the Disclosing
Party, (b) is in the public domain through
34
40
no fault of the Receiving Party, (c) is lawfully acquired by the Receiving Party
from a third party under no obligation of confidence to the Disclosing Party, or
(d) is required by any law or by any governmental or judicial body to be
disclosed. Such Confidential Information shall not be used to the detriment of
the Disclosing Party in any manner. Notwithstanding the foregoing, the parties
acknowledge that the financial position and results of operations of, and other
operating characteristics or data relating to, any Facility may be disclosed by
ALS in connection with its public reporting under applicable securities laws and
stock exchange rules.
For purposes of this Section 3.16, the term "Confidential Information"
shall mean any data or information that is designated as "confidential" by the
Disclosing Party, is of value to the Disclosing Party and is not generally known
to competitors of the Disclosing Party or to the public, and whose
confidentiality is maintained by the Disclosing Party. Confidential Information
shall include, but not be limited to, written lists of the Disclosing Party's
current or potential residents or other customers, the identity of various
suppliers, non-public information concerning the Disclosing Party's executives
and employees and its financial affairs, business plans, services, research,
development, purchasing, accounting, engineering and marketing.
Nothing in this Section 3.16 will limit or restrict a Non-Defaulting
Party in respect of its ownership or operation of a Facility following a default
by the other party or its Affiliates in an obligation to make a Mandatory
Capital Call Contribution or under an Ancillary Agreement relating to such
Facility.
3.17. Further Assurances. Each party agrees to execute such further
documents and perform such further acts as may be reasonably necessary to
consummate the transactions contemplated by this Agreement, the Commons
Acquisition Agreement and the Ancillary Agreements and in accordance with the
terms of this Agreement, the Commons Acquisition Agreement and the Ancillary
Agreements, to aid the more efficient execution of the transactions contemplated
hereby and thereby.
3.18. No Liens. Each of ALS and ALE hereby agrees to keep its ownership
interest in all ALS-Northeast Entities free and clear from any and all security
interests, liens, restrictive covenants or other encumbrances in favor of any
and all third parties other than those arising pursuant to the Collateral
Assignment Agreement or the Loan Documents.
3.19. Public Statement. Each party to this Agreement will consult with
the other party prior to issuing any press release or making any other public
statement with respect to this Agreement and the transactions contemplated in
this Agreement, and will not issue any such release or make any such statement
without the approval of the other party (in the other party's sole discretion),
except, such disclosure as is required to be reported in any regulatory filings,
and as may be required or appropriate in the reasonable judgment of such party's
counsel pursuant to any applicable state or federal securities law or the rules
and regulations of any relevant securities exchange or quotation system upon
which such party's securities are listed or traded.
35
41
3.20. PDC Guaranty Amendment. Within thirty (30) days following the
execution hereof, ALE shall deliver to ALS an Amended Guaranty Amendment (the
"PDC Guaranty Amendment," such PDC Guaranty Amendment to be based upon the
Guaranty dated September 11, 1996 given by ALE and others in connection with the
Original Agreement (the "Original Guaranty") and to secure the obligations of
ALE and the ALE Affiliates hereunder and under the Original Agreement) duly
executed by PDC, ALE and Assisted Living Equity Investors, and ALS shall execute
the PDC Guaranty Amendment.
3.21. Special Project Entity Profit and Loss Allocations. Each
Operating Agreement for a Project Entity shall, except as otherwise provided in
the balance of this Section, generally allocate all profits, gains, losses and
deductions (including nonrecourse deductions), as well as any distributions,
among the parties hereto in accordance with the provisions of Section 3.15
hereof. Notwithstanding the provisions of Section 3.15 hereof, each Operating
Agreement shall contain special allocation provisions whereby, prior to any
allocations provided for in Section 3.15 hereof, (i) ALE shall be specially
allocated any gain realized on any sale or other disposition of a Facility in an
amount necessary to reflect in its Capital Account (after consideration of all
prior special gain and loss allocations provided for in this Section 3.21), and
limited to, the Development Services Contribution Amount, and (ii) ALS shall be
specially allocated losses realized on any sale or other disposition of a
Facility in an amount equal to (after consideration of all such prior special
gain and loss allocations provided for in this Section 3.21), and limited to,
51/49ths of the Development Services Contribution Amount. Upon liquidation of
the Project Entity, ALE shall be obligated to restore the lesser of (a) its
negative Capital Account balance, if any, or (b) 51% of the Development Services
Contribution Amount. Liquidating distributions upon the liquidation of a Project
Entity shall be made to ALE and ALS in accordance with the balances in their
respective Capital Accounts (after taking into account all allocations of
profits, gains, losses, and deductions of the Project Entity, including all
special gain or loss allocations described in this Section).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALS
ALS hereby represents and warrants to ALE that:
4.1. Organization. ALS is a corporation validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to conduct its business as presently conducted and to become an
owner of the ALS-Northeast Entities. ALS will be qualified to transact business
as a foreign corporation in the States of New York, Massachusetts, Connecticut
and Rhode Island, as necessary to carry out the transactions contemplated by
this Agreement and the Ancillary Agreements.
4.2. Authorization; Enforceability. The execution, delivery and
performance by ALS of this Agreement and the ALS Ancillary Agreements are within
the corporate power of ALS and have been duly authorized by all necessary
corporate action. A certified copy of resolutions
36
42
of the Board of Directors of ALS authorizing this Agreement and the ALS
Ancillary Agreements has been delivered to ALE. This Agreement, and the ALS
Ancillary Agreements when executed and delivered by ALS, will be the valid and
binding obligations of ALS, enforceable against ALS in accordance with the
respective terms of such agreements.
4.3. No Violation or Conflict. The execution, delivery and performance
of this Agreement and the ALS Ancillary Agreements by ALS will not conflict with
or violate any law, judgment, order, decree or regulation, the Certificate of
Incorporation or Bylaws of ALS, or any contract or agreement to which ALS is a
party or by which ALS is bound.
4.4. Brokers. Neither ALS nor any Affiliate of ALS has incurred any
brokers', finders' or any similar fee in connection with the transactions
contemplated by this Agreement or the ALS Ancillary Agreements.
4.5. Litigation. There is no litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending or, to the
knowledge of ALS, proposed or threatened, against ALS which could have a
material adverse effect on the transactions contemplated hereby. There is no
action, suit or proceeding against ALS by any person or entity which questions
the validity, legality or propriety of the transactions contemplated by this
Agreement or the ALS Ancillary Agreements.
4.6. Governmental Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any
governmental or regulatory authority is required on the part of ALS in
connection with its execution and delivery of this Agreement and the ALS
Ancillary Agreements and the consummation by ALS of the transactions
contemplated in this Agreement and the ALS Ancillary Agreements, other than such
licenses as may be required to operate or manage Facilities in the Territory.
4.7. Required Consent. There are no approvals or consents which ALS is
required to obtain from any third parties to enter into this Agreement or the
ALS Ancillary Agreements which have not been obtained.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ALE
ALE hereby represents and warrants to ALS that:
5.1. Organization. ALE is a limited liability company validly existing
and in good standing under the laws of the State of New York. Each ALE Affiliate
that is or is intended to be a party to the Ancillary Agreements, including
without limitation PDC (the "Contracting ALE Affiliates") is (or upon formation
will be) a corporation, partnership or limited liability company, as applicable,
validly existing and in good standing under the laws of its organization. ALE
and each Contracting ALE Affiliate have (or, as to Contracting ALE Affiliates,
upon
37
43
formation will have) full corporate, partnership or limited liability company
(as applicable) power and authority to conduct its business as presently
conducted and, in the case of ALE, to become an owner of the ALS-Northeast
Entities. ALE and the Contracting ALE Affiliates are (or upon formation will be)
duly qualified to transact business as a limited liability company or other
entity in the States of New York, Massachusetts, Connecticut and Rhode Island,
as necessary to carry out the transactions contemplated by this Agreement and
the Ancillary Agreements. Exhibit I, attached hereto and incorporated herein by
this reference, contains a correct list of the current owners of ALE, PDC and
Central New York Contractors, Inc. (the ALE Affiliate that will enter into the
Construction Agreement).
5.2. Authorization; Enforceability. The execution, delivery and
performance by ALE of this Agreement and by ALE and the Contracting ALE
Affiliates of the ALE Ancillary Agreements are within the corporate, partnership
or limited liability company (as applicable) power of, and have been duly
authorized by, ALE and the Contracting ALE Affiliates, respectively. This
Agreement, and the ALE Ancillary Agreements when executed and delivered by ALE
and the Contracting ALE Affiliates, will be the valid and binding obligations of
ALE and the Contracting ALE Affiliates, as applicable, enforceable against ALE
and such Contracting ALE Affiliates in accordance with their respective terms
and conditions. A certified copy of the resolutions of the members of ALE and
the Contracting ALE Affiliates authorizing this Agreement and ALE Ancillary
Agreements has been delivered to ALS.
5.3. No Violation or Conflict. The execution, delivery and performance
by ALE of this Agreement and by ALE and the Contracting ALE Affiliates of the
ALE Ancillary Agreements will not conflict with or violate any law, judgment,
order, decree or regulation, the Articles of Incorporation, Articles of
Organization or operating agreement of ALE and the Contracting ALE Affiliates,
respectively, or any contract or agreement to which ALE and the Contracting ALE
Affiliates are a party or by which they are bound.
5.4. No Broker. Neither ALE nor any Affiliate of ALE (including the
Contracting ALE Affiliates) has incurred any brokers', finders' or any similar
fee in connection with the transactions contemplated by this Agreement or the
ALE Ancillary Agreements.
5.5. No Litigation. There is no litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending or, to the
knowledge of ALE, proposed or threatened, against ALE or any Contracting ALE
Affiliate which could have a material adverse effect on the transactions
contemplated hereby. There is no action, suit or proceeding by any person or
governmental agency against ALE or any Contracting ALE Affiliate which questions
the legality, validity or propriety of the transactions contemplated by this
Agreement or the ALE Ancillary Agreements.
5.6. Governmental Approvals. No permission, approval, determination,
consent or waiver by, or any declaration, filing or registration with, any
governmental or regulatory authority is required on the part of ALE or any
Contracting ALE Affiliate in connection with its execution and delivery of this
Agreement and the ALE Ancillary Agreements and the
38
44
consummation by ALE and the Contracting ALE Affiliates of the transactions
contemplated in this Agreement and the ALE Ancillary Agreements, other than such
licenses and permits as may be required in connection with the construction of
Facilities.
5.7. Required Consent. There are no approvals or consents which ALE or
any Contracting ALE Affiliate are required to obtain from third parties to enter
into this Agreement or the ALE Ancillary Agreements which have not been
obtained.
ARTICLE 6
NOT USED
ARTICLE 7
NOT USED
ARTICLE 8
NOT USED
ARTICLE 9
INDEMNIFICATION
9.1. ALE's Indemnity. ALE hereby agrees to indemnify ALS, each ALS
Affiliate and, except for the matters referenced in (c) and (d) below, the
ALS-Northeast Entities, or any of them, and hold them harmless from and against
any and all losses, damages, costs, expenses, liabilities, obligations and
claims of any kind (including, without limitation, reasonable attorneys fees and
other reasonable legal costs and expenses) which any of them may at any time
suffer or incur, or become subject to, as a result of or in connection with:
(a) any breach or inaccuracy when made of any of the
representations and warranties made by ALE or any ALE Affiliates in
this Agreement or in any ALE Ancillary Agreement;
(b) any failure by ALE or any ALE Affiliate to carry out,
perform, satisfy or discharge any of its covenants, agreements,
undertakings, liabilities or obligations under this Agreement or under
any ALE Ancillary Agreement;
(c) any unpaid or unsatisfied indemnification right of ALS
pursuant to Section 3.6 hereof;
(d) provided that the interest of ALE in the ALS-Northeast
Entity has not been acquired by ALS pursuant to Section 3.12, any
payments by ALS with respect to any
39
45
obligations of any ALS-Northeast Entity not described in Section 3.6
which have been jointly guaranteed in writing by ALS and ALE, to the
extent such payments exceed the initial ALS Percentage Interest in such
ALS-Northeast Entity upon its organization;
(e) any suit, action or other proceeding brought by any Person
against ALS, any ALS Affiliate or any ALS-Northeast Entity arising out
of, or in any way related to, any obligation in respect of which an
indemnity obligation is owed pursuant to paragraphs (a) through (d) of
this Section 9.1.
9.2. ALS's Indemnity. ALS hereby agrees to indemnify ALE, each ALE
Affiliate and, except for the matters referenced in (c) and (d) below, the
ALS-Northeast Entities or any of them, for and hold them harmless from and
against any and all losses, damages, costs, expenses, liabilities, obligations
and claims of any kind (including reasonable attorneys' fees and other
reasonable legal costs and expenses) which any of them may at any time suffer or
incur, or become subject to, as a result of or in connection with:
(a) any breach or inaccuracy when made of any of the
representations and warranties made by ALS in this Agreement or in any
and all ALS Ancillary Agreements;
(b) any failure by ALS to carry out, perform, satisfy or
discharge any of its covenants, agreements, undertakings, liabilities
or obligations under this Agreement or under any and all ALS Ancillary
Agreements;
(c) any unpaid or unsatisfied indemnification right of ALE
pursuant to Section 3.6 hereof;
(d) any payments by ALE with respect to any obligations of any
ALS- Northeast Entity not described in Section 3.6 which have been
jointly guaranteed in writing by ALE and ALS, to the extent such
payments exceed the initial ALE Percentage Interest in such
ALS-Northeast Entity upon its organization; or
(e) any suit, action or other proceeding brought by any Person
against ALE, any ALE Affiliate or any ALS-Northeast Entity arising out
of, or in any way related to, any obligation in respect of which an
indemnity obligation is owed pursuant to paragraphs (a) through (d) of
this Section 9.2.
Further, in the event that any net losses of a Project Entity properly allocated
to ALE pursuant to Section 3.15(a)(ii) are disallowed upon federal and/or state
income tax audit and additional federal, state or local income tax, interest
thereon and/or penalties related thereto are therefore assessed upon the members
of ALE by reason of such disallowance, ALS shall indemnify such members for 100%
of such penalties and an amount equal to the product of (i) ALS's initial
Percentage Interest with respect to such Project Entity times (ii) any interest
(but no portion of the additional tax itself) incurred by such members solely by
reason of such disallowance; provided, however, that such indemnification
obligation shall arise and apply only to the extent
40
46
that such disallowance is solely attributable to ALE's being allocated a portion
of net loss pursuant to Section 3.15(a)(ii) that is greater than its Percentage
Interest at the time of such net loss allocation with respect to such Project
Entity.
9.3. Provisions Regarding Indemnities.
(a) The obligations of ALE and ALS under Section 9 of this
Agreement shall survive for the statute of limitations period
applicable to claims in respect of which such rights of indemnification
apply. Delivery of any written demand for indemnification by an
indemnified party shall toll the survival period for the subject of the
particular demand and, once notice is given, the indemnified party may
pursue the particular claim to its conclusion to the extent permitted
by applicable law.
(b) The indemnified party shall promptly notify the
indemnifying party in writing and in reasonable detail of any claim,
demand, action or proceeding for which indemnification will be sought
under Section 9 of this Agreement, and if such claim, demand, action or
proceeding is a third party claim, demand, action or proceeding, the
indemnifying party will have the right, at its expense, to assume the
defense thereof using counsel reasonably acceptable to the indemnified
party. The indemnified party shall have the right to participate, at
its own expense, with respect to any such third party claim, demand,
action or proceeding. In connection with any such third party claim,
demand, action or proceeding, the parties shall cooperate with each
other and provide each other with access to relevant books and records
in their possession. No such third party claim, demand, action or
proceeding shall be settled without the prior written consent of the
indemnified party, unless the settlement is for money damages only and
is satisfied in full simultaneously with the conclusion of the
settlement.
(c) Any indebtedness or other obligations of ALE or ALS to its
respective Affiliates will be subordinated to any indemnification
obligations of ALE to ALS or ALS to ALE, respectively.
ARTICLE 10
Not used.
ARTICLE 11
MISCELLANEOUS
11.1. Entire Agreement; Amendment. This Agreement, the Commons
Acquisition Agreement and the other agreements and documents executed in
connection therewith or contemplated thereby, constitute the entire agreement
between the parties pertaining to the subject matter of this Agreement, and
(except as otherwise provided in Article 2 and Section
41
47
11.16 hereof) supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto. No amendment,
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
11.2. Fees and Expense. Whether or not the transactions contemplated by
this Agreement are consummated, and except as expressly provided herein or in
any Ancillary Agreement, each of the parties hereto shall pay the fees and
expenses of such party's counsel, accountants, brokers, consultants, investment
bankers and other experts incident to the negotiation and preparation of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
11.3. Applicable Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the law of the State
of New York without giving effect to principles of conflicts of laws.
11.4. Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned or
delegated by any of the parties hereto without the prior written consent of the
other party, whether by operation of law or otherwise.
11.5. Notices. Each notice, request, demand or other communication
("Notice") by either party to the other party pursuant to this Agreement shall
be in writing and shall be personally delivered or sent by U.S. certified mail,
return receipt requested, postage prepaid, or by nationally recognized overnight
commercial courier, charges prepaid, or by facsimile transmission (but each such
Notice sent by facsimile transmission shall be confirmed by sending an original
thereof to the other party by U.S. mail or commercial courier as provided herein
no later than the following business day), addressed to the address of the
receiving party set forth below or to such other address as such party shall
have communicated to the other party in accordance with this Section. Any Notice
hereunder shall be deemed to have been given and received on the date when
personally delivered, on the date of sending when sent by facsimile, on the
third business day following the date of sending when sent by mail or on the
first business day following the date of sending when sent by commercial
courier.
42
48
If to ALE: Assisted Living Equities, LLC
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxx Xxxx 00000-0000
Attn: Legal Department
Telephone: (000) 000-0000
Fax: (000) 000-0000
with a copy to: Kalkines, Arky, Xxxx & Xxxxxxxxx LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attn: Xxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to ALS: Alternative Living Services, Inc.
000 Xxxxx Xxxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xx. Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
with a copy to: Xxxxxx & Xxxxxx
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxx X. Xxxx, Esq.
Fax: (000) 000-0000
11.6. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same Agreement.
11.7. Headings. The Article and Section headings in this Agreement are
inserted for convenience of reference only and shall not constitute a part
hereof.
11.8. Construction. Common nouns and pronouns shall be deemed to refer
to the masculine, feminine, neuter, singular and plural, as the identity of the
person may in the context require. References to Sections herein include all
subsections which are subsidiary to the Section referred to. No provision of
this Agreement shall be construed in favor of or against any party hereto by
reason of the extent to which any such party or its counsel participated in the
drafting thereof.
11.9. Severability. If any provision, clause or part of this Agreement,
or the application thereof under certain circumstances, is held invalid, then
the remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected
43
49
thereby unless such invalidity materially impairs the ability of the
parties to consummate the transactions contemplated by this Agreement,
11.10. Knowledge. Any representation, warranty, covenant or statement
which is made to the knowledge of any party to this Agreement shall require that
such party make reasonable investigation and inquiry with respect thereto to
ascertain the correctness and validity thereof.
11.11. Survival of Representations and Warranties. All representations
and warranties of the parties contained in this Agreement or made pursuant to
this Agreement shall survive the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement. All obligations
of the parties hereunder with respect to any Project Entity will survive the
term hereof for so long as the parties or their Affiliates have interests in or
rights or obligations in respect of such Project Entity. Any termination of the
Development Term shall not affect the obligations of ALE or ALS or their
respective Affiliates to complete any Facilities then under development for
which a Project Entity has been formed.
11.12. Arbitration. The parties hereto agree that, subject to the
provisions of this Section 11.12, any and all controversies or claims arising
out of or relating to this Agreement, any of the ALS Ancillary Agreements or ALE
Ancillary Agreements or the breach of any of the foregoing, shall be settled by
arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. ss.1 et seq., in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The parties hereto further agree that the arbitrators in any such
arbitration shall not be authorized to award any punitive damages in connection
with any controversy or a claim settled by arbitration hereunder. The decision
of the arbitrator in any such arbitration shall be final and binding upon the
parties and judgment upon the award may be entered in any court having
jurisdiction thereof. Any arbitration shall take place in such place as is
agreed on by the parties hereto, or, if they cannot agree, in Chicago, Illinois,
and the expenses of the arbitrators shall be borne by the losing party. The
arbitration shall be conducted before a panel of three (3) arbitrators, one
selected by ALE, one selected by ALS, and one selected by mutual agreement of
the arbitrators selected by ALE and ALS. The arbitrators shall have the right to
retain and consult experts and competent authorities skilled in the matters
under arbitration. The arbitrators shall render their award, upon the
concurrence of at least two (2) of their number, if practicable, within sixty
(60) days after the appointment of the third arbitrator. Such award shall be in
writing and shall be final and conclusive on the parties and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and award, the arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Agreement. Judgment may be had on the decision and award
of the arbitrators so rendered, in any court of competent jurisdiction. Each
party shall pay the fees and expenses of the one of the two original arbitrators
appointed by or for such party, as well as the attorneys' fees, witness fees and
similar expenses incurred by such party, and the fees and expenses of the third
arbitrator and all other expenses of the arbitration shall be borne by the
parties equally. Notwithstanding the foregoing, if a majority of the arbitrators
determine that the position of either party was taken willfully and is without
merit, the arbitrators may require such party to bear all of the expenses of the
arbitration as well as all or part of the prevailing party's witness fees,
attorney fees and similar expenses.
44
50
To the extent that one or more of the provisions of this Section 11.12 shall be
declared invalid, void or unenforceable, the remainder of the provisions of this
Section 11.12 shall remain in full force and effect. All notices in connection
with the arbitration shall be made in the manner set forth in Section 11.5
hereof. Notwithstanding the foregoing, any determination of value of a Project
Entity or of ALS Stock in the manner set forth in Section 3.12 of this Agreement
shall be final and binding upon the parties and not subject to arbitration under
this Section 11.12.
11.13. Waiver of Compliance. Any failure of ALS or ALE to comply with
any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by ALE or ALS, respectively; provided, however, that
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure by the other party.
11.14. Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason of this
Agreement.
11.15. Set Off Rights of Parties. Each of ALS and any ALS Affiliate
shall have the right to set off against any liquidated monetary obligation it
may owe ALE or any ALE Affiliate under this Agreement or any Ancillary Agreement
any liquidated monetary obligation which ALE or any ALE Affiliate may owe ALS or
any ALS Affiliate. Similarly, each of ALE and any ALE Affiliate shall have the
right to set off against any liquidated monetary obligation it may owe ALS or
any ALS Affiliate under this Agreement or any Ancillary Agreement any liquidated
monetary obligation which ALS or any ALS Affiliate may owe ALE or any ALE
Affiliate. This mutual dollar-for-dollar set off of liquidated monetary
obligations due and owing between ALS and the ALS Affiliates, on the one hand,
and ALE and the ALE Affiliates, on the other hand is contained in this Agreement
because the parties understand and acknowledge that such mutual set off right in
all events arises out of the single transaction memorialized by this Agreement.
The ALS Affiliates and ALE Affiliates having obligations under this Agreement or
an Ancillary Agreement are intended beneficiaries of this Section 11.15.
11.16. Effect of Commons Acquisition Agreement. The parties' respective
rights and obligations hereunder, and under any other Project Agreement or
Ancillary Agreement, shall not be dependent on or in any manner affected by the
performance or lack of performance by any party to the Commons Acquisition
Agreement. The entities owning the Commons Facilities are not ALS-Northeast
Entities and the Commons Acquisition Agreement is not an Ancillary Agreement.
The rights and responsibilities of the parties with respect to the Commons
Facilities shall be solely as set forth in the Commons Acquisition Agreement and
in the other agreements and instruments entered into or to be entered into
directly in connection therewith or pursuant thereto. Notwithstanding the
foregoing, it is understood that the Collateral Assignment will be amended to
collateralize certain indemnity obligations of ALS related to Pioneer Kenmore
Company, LLC and Pioneer Niskayuna Company, LLC as contemplated by Section 3.13.
45
51
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
ALTERNATIVE LIVING SERVICES, INC.
By:______________________________
Its:_____________________________
ASSISTED LIVING EQUITIES, LLC
By:______________________________
Its:_____________________________
46
52
LIST OF EXHIBITS
EXHIBIT DESCRIPTION
A Form of Architect's Agreement
B Not Used
C Not Used
D Form of Construction Agreement
E Form of Management Agreement
F Not Used
G Form of Operating Agreement (49%
Entities)
H Services and related charges
I Current owners of ALE and any of its
Affiliates which will be a party to
an Ancillary Agreement
J Not Used
K Not Used
47
