MANAGEMENT AGREEMENT
WITH OPTION TO PURCHASE
(XX XX - 14 Operating Facilities)
This Management Agreement with Option to Purchase (the "Agreement") is entered
into as of March ____, 1999, by and among Emeritus Management LLC, a Washington
limited liability company, Emeritus Management I LP, a Washington limited
partnership, Emeritus Properties I, Inc., a Washington corporation, ESC I, L.P.,
a Washington limited partnership, and ESC G.P. I, Inc., a Washington corporation
(collectively "Managers" and each a "Manager"), Emeritus Corporation, a
Washington Corporation ("Emeritus"), and AL Investors II LLC, a Delaware limited
liability company ("AL Investors II") for itself and as sole managing member on
behalf of each of the Facility Entities as set forth in Exhibit A (collectively
"Facility Entities" and each a "Facility Entity"). (AL Investors II and the
respective Facility Entity which owns a Facility are sometimes collectively
referred to herein as "Owner" or with respect to all Facilities "Owners").
Owners desire to engage Managers to manage the Facilities as defined in Exhibit
A upon the terms and conditions set forth herein. All capitalized terms not
otherwise defined herein shall have the meaning set forth in Exhibit A.
1. BACKGROUND AND GENERAL TERMS
1.1 Purchase Agreements. AL Investors II has entered into (a) a Purchase and
Sale Agreement dated of even date herewith with Meditrust Company LLC, a
Delaware limited liability company ("Meditrust"), relating to the purchase of
the Facilities (the "Purchase Agreement"), and (b) a Supplemental Purchase
Agreement In Connection With Purchase Of Facilities with Emeritus, Emeritus
Properties I, Inc., ESC G.P. I, Inc., and ESC I, L.P. (the "Supplemental
Agreement") relating to certain additional terms and conditions in connection
with purchase of the Facilities (the Purchase Agreement and the Supplemental
Agreement, collectively the "Purchase Agreements"). Closing under the Purchase
Agreements will occur simultaneously and the resulting pool of fourteen (14)
Facilities will each be owned by the respective Facility Entity and managed by
the Managers pursuant to this Agreement.
1.2 Master Agreement. Under the terms and conditions of this Agreement, Emeritus
Management LLC will manage all of the Facilities other than those located in
Texas which will be managed by Emeritus Management I LP. Pursuant to Section
3.6, Emeritus Properties I, Inc., an Affiliate of Emeritus, will be co-manager
of all Facilities except Elmbrook Estates and Park Club of Xxxxxxx, subject to
the provisions of Section 3.6. ESC I, L.P., an Affiliate of Emeritus, will be
co-manager of the Facility entitled Elmbrook Estates and ESC G.P. I, Inc. will
be
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co-manager of the Facility entitled Park Club of Xxxxxxx. It is intended that
the terms of this Agreement shall apply to each of the Facilities as if this
Agreement were a direct agreement between each Facility Entity and the
respective Manager (and, if applicable, co-Manager) but the operational results
upon which the Management Fee (Base Management Fee and Accrued Management Fee)
and Operating Deficit and Operating Profit are determined, except as otherwise
expressly provided herein, shall be based on the combined results of all the
Facilities and not separately for each Facility. A default or Event of Default
under this Agreement with respect to any Facility shall be a default or Event of
Default as to all Facilities.
1.3 Qualifications. Owners desire to engage the Managers to manage, on behalf of
the Owners and subject to their overall supervision and control, each respective
Facility and Managers represent to AL Investors II and the Facility Entities
that they are experienced and duly qualified under all applicable Legal
Requirements to manage assisted living facilities. By entering into this
Agreement, Owners do not delegate or intend to delegate to Managers any powers,
duties, or responsibilities which Facility Entities are prohibited by Legal
Requirements from delegating. Owners also retain such other management authority
as shall not have been expressly delegated to the Managers pursuant to this
Agreement.
1.4 Emeritus Guaranty. Concurrently with the execution of this Agreement,
Emeritus is entering into a Guaranty of Management Agreement ("Emeritus
Guaranty") in favor of the Facility Entities and Owners guaranteeing the
Managers' obligations under this Agreement.
1.5 Consideration. In consideration of Owners' consummating the Purchase
Agreements and the mutual covenants contained herein, and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree to enter into and perform their respective obligations
under this Agreement.
2. TERM
2.1 The Term. The term ("Initial Term") of this Agreement shall commence on the
date hereof ("Commencement Date") and shall expire at midnight on December 31,
2001 (the "Termination Date"). If the Closing under the Purchase Agreements does
not occur for any reason, this Agreement shall terminate and no party hereto
shall have any liability or obligation under this Agreement. The Initial Term
and Extension Term are sometimes collectively referred to herein as the "Term".
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2.2 Extension Term. If Emeritus fails to exercise or is not entitled to exercise
the Purchase Option as provided for in Section 13, Owners may extend this
Agreement for a period of up to twelve (12) months beyond the Termination Date
as to any or all Facilities as determined by Owner in its sole discretion
("Extension Term") by giving notice of such election (which shall include
designation of the Facilities and the applicable Extension Term) to Managers at
least ninety (90) days prior to the Termination Date. In such event, the
provisions of Section 13 of this Agreement shall not be applicable during any
Extension Term.
3. GRANT OF AUTHORITY AND OBLIGATIONS OF MANAGERS
3.1 Grant to Managers. Owners hereby grant to Managers the right to supervise
and direct the management and operation of the Facilities subject to the terms
of this Agreement and the overall supervision and control of Owners. Managers
accept such grant and agree that they will supervise and direct the management
and operation of the Facilities in accordance with the terms of this Agreement
and the general supervision of Owner. Managers, subject to the terms of this
Agreement, shall have the general authority and responsibility to (i) determine
operating policy and standards of operation, maintenance, and resident care for
the Facilities except where Legal Requirements require an Owner to do so in
which event Manager and such Owner shall consult with each other to allow Owner
to determine policy and standards, (ii) supervise and direct all phases of
advertising and marketing for the Facilities, (iii) carry out all phases of the
Annual Plans and (iv) perform such other acts and things as shall be necessary
to operate the Facilities in an efficient manner which is consistent with
customary and commercially reasonable practice in the industry for comparable
facilities. Managers acknowledge the trust and confidence placed in them
pursuant to this Agreement and at all times agree to act in the best interest of
Owners in managing and operating the Facilities.
3.2 Annual Plans
3.2.1 Preparation and Approval. Not later than December 1 prior to the
commencement of each Operating Year, other than the initial Operating Year, the
Managers shall submit to Owners a draft of an annual budget and forecast for the
operation of each Facility and all Facilities in the aggregate for the
forthcoming Operating Year containing projections of Total Revenues and budgets
of Operating Expenses, Fixed Operating Expenses, Capital Improvements, and
Operating Deficit or Operating Profit (the "Annual Plan"). Such budget and
forecasts shall be in reasonable detail and in such form as reasonably required
by Owners. The Annual Plan shall include the assumptions upon which the
forecasts and budgets were prepared, and shall include a proposed annual
marketing plan and proposed resident care and services plan and such other
information as may be reasonable and
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appropriate to fully advise Owners of all material facts and assumptions
relevant to an evaluation of the Annual Plan for each Facility. Managers shall
review the Annual Plan with Owners, and subject to Owners' approval of each
Annual Plan (which Owners shall endeavor to give by December 31), Manager shall
implement and operate the Facilities in accordance with such approved Annual
Plan for the successive Operating Year. When the Annual Plan is approved by
Owners, the respective Manager is authorized to incur and pay for the Operating
Expenses, Fixed Operating Expenses and Capital Improvements set forth in the
Annual Plan and implement the provisions of the Annual Plan. The Annual Plan
shall be updated as of June 1 of each Operating Year if requested by Owner. The
draft Annual Plan for the first Operating Year shall be provided to Owners on or
before April 30, 1999 and such draft Annual Plan shall be approved or
disapproved in accordance with this Section 3.2.1. and Section 3.2.2.
3.2.2 Disapproval of Plan. If an Owner declines to approve a specific item or
items of an Annual Plan for a Facility or the Facilities, the Manager shall make
appropriate revisions to the Annual Plan and resubmit the Annual Plan to the
Owner for approval. Until an Annual Plan is approved for each Operating Year,
the item or items in question will be replaced by an amount equal to such budget
item for the Operating Year prior thereto, except for Fixed Operating Expenses
over which Manager has no control and except for Capital Improvements as to
which the item or items will be replaced with $250 per Operating Year per unit
for each Facility.
3.2.3 Compliance with Annual Plan. Managers agree to use best efforts to operate
the Facilities as provided in the Annual Plan for that Facility. Notwithstanding
the foregoing, Managers shall not expend more than the aggregate budget category
for each of Operating Expenses, Fixed Operating Expenses and Capital
Improvements with respect to each Facility or exceed any line item in Operating
Expenses or Capital Improvements for a Facility by more than ten percent (10%)
without an Owner's prior approval. In the event actual Total Revenues shall be
less than projected Total Revenues as set forth in the Annual Plan, Managers
shall use all reasonable efforts to effect a proportionate reduction in variable
Operating Expenses.
3.2.4 Group Services. Managers and their Affiliates will furnish to the
Facilities the benefits of any "Group Services" which Managers and their
Affiliates may have in effect from time to time, which phrase shall mean goods
and services provided jointly to other assisted living facilities owned or
managed by Emeritus or its Affiliates on a group or joined basis to realize
maximum economy. Group Services may include (a) bulk purchases of supplies and
services, (b) centralized purchasing service, and (c) centralized marketing
services. Each Owner shall have the option of whether and to the extent each
respective Facility shall participate in
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Group Services; provided that if Owner determines that a Facility shall not
participate in Group Services, then to the extent such goods and services are
reasonably required for the operation of such Facility, Manager shall arrange
for an alternative provider of such goods and services on the most favorable
terms then practicable. The costs of all Group Services shall be allocated among
the Facilities and other assisted living facilities on an equitable basis in
proportion to the benefits rendered to each and the costs of any Group Services
provided to the Facilities shall be included in the Annual Plan if the
Facilities participate in Group Services.
3.3 Personnel.
3.3.1 General. Consistent with the Annual Plan for each Facility, the respective
Manager shall hire, discharge, promote and supervise the executive staff of the
Facilities and will supervise through such executive staff the hiring,
discharging, promotion and work of all other operating and service employees of
the Facility. All members of the staff of a Facility shall be reasonably
qualified for their positions, and the Compensation payable to such persons
shall be comparable to the compensation paid to the staff of other comparable
assisted living facilities in the general area, taking into account the location
and size and targeted residents of each Facility. Manager shall have in its
employ at all times at each Facility a sufficient number of capable employees to
enable it to properly, adequately, safely and efficiently manage, operate,
maintain and account for the Facilities. Manager shall fully comply with all
applicable Legal Requirements with respect to such employees. Manager represents
that it is and will continue to be an equal opportunity employer and must
advertise as such and Manager shall not engage in any form of discrimination
from the employment or hiring as independent contractors of any personnel,
including, without limitation, discrimination as to race, color, creed,
religion, age, gender, marital status, sexual preference, national origin or
disability.
3.3.2 Managers as Employer. All executive staff members and other employees at
the Facilities shall be direct employees of the Managers or their Affiliates and
not of Owners, and all Compensation of such employees shall be paid by the
Managers as part of Operating Expenses as approved in the Annual Plan. Without
limiting the foregoing, Managers shall, for purposes of such employment
relationship, be acting as an independent contractor and not as an agent of
Owners. Owners shall not have any liability or responsibility for the work place
conditions or employees at any Facility. Managers shall ensure that all
employees required to be licensed under any Legal Requirements shall be so
licensed.
3.3.3 Labor Relations. The Managers will not become involved in any negotiations
with any labor unions or enter into any collective bargaining agreement
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or labor contract resulting therefrom without the prior approval of the Owner of
any affected Facility.
3.4 Additional Responsibilities of Managers. Manager shall, as agent for the
respective Facility Entity, perform the following services, or cause the same to
be performed, for each Facility:
(a) Enter into Residency Agreements in the general form approved by Owner
for each Facility and perform the services required thereunder and use diligent
efforts to enforce the provisions thereof.
(b) In accordance with the applicable Annual Plan, enter into such
Ordinary Contracts for goods and services or furnishing of utilities,
maintenance and repair as shall be reasonably necessary for the proper operation
and maintenance of each Facility. Major Contracts, unless set forth in the
Annual Plan, shall require the prior approval of Owner.
(c) In accordance with the applicable Annual Plan, enter into such
Ordinary Leases as shall be necessary or convenient for the operation of a
Facility. Major Leases, unless set forth in the applicable Annual Plan, shall
require the prior approval of Owner.
(d) In accordance with the applicable Annual Plan, make all repairs and
improvements (including Capital Improvements) to the Facility as shall be
reasonably necessary for good order, condition and repair.
(e) In accordance with the applicable Annual Plan, purchase such Operating
Equipment and Operating Supplies as shall be reasonably necessary for the proper
operation of a Facility.
(f) Maintain in the name of the applicable Facility Entity all Permits
required in connection with the operation and management of the Facility. In
connection with all Permits, each Facility Entity agrees to execute and deliver
any and all applications and other documents as shall be reasonably required and
to otherwise reasonably cooperate with the Manager in applying for, obtaining
and maintaining such Permits. Provided, however, it shall be the sole
responsibility of Managers to cause each Facility and Facility Entity to obtain
and maintain all required Permits and to operate the Facility in compliance with
such Permits.
(g) Cause to be done all such acts and things in and about a Facility as
shall be necessary to comply with all Insurance and Legal Requirements. Without
limiting the foregoing, Manager shall, consistent with the applicable Annual
Plan, provide adequate security in and about the Facility.
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(h) Cause each Facility to comply with all applicable covenants and
provisions of any Mortgage to the extent such covenants and provisions relate to
the operation, management, compliance with Legal Requirements, and condition of
the Facilities, provided that Owners shall have delivered to Manager true and
correct copies of any Mortgage then in effect. Without limiting the generality
of the foregoing, (A) Managers acknowledge that they have been provided with a
copy of and have approved the terms and conditions of (i) the Initial Senior
Loan and (ii) the Initial Junior Loan and (B) Managers agree to cause the
Facilities at all times to be in compliance with the provisions of Sections 4.6,
4.7, 4.10, 4.11, 4.17, 4.18, 4.20 and Section 6 of the Loan Agreement entered
into in connection with the Initial Senior Loan. Managers also agree to cause
the Facilities to be in compliance at all times with the provisions of the
Initial Junior Loan relating to the operation, management, compliance with Legal
Requirements and condition of the Facilities. Owners shall promptly forward to
Managers any notices of default or noncompliance with respect to the foregoing
which they may receive under the Initial Senior Loan, Initial Junior Loan or any
successor Mortgage.
(i) Cause each Facility and its operations to comply with the requirements
of all Contracts, including but not limited to Residency Agreements, Third Party
Payors and Third Party Payor Programs, and all Leases.
(j) Retain legal counsel for a Facility selected by an Owner which will
represent the Owner, Manager and the Facility on all legal questions as
reasonably necessary relating to Legal Requirements, and will institute any and
all legal actions or proceedings as shall be reasonably necessary to collect
charges or other income for the Facility, prepare or review Contracts, or to
resolve claims (except those arising under this Agreement); provided, however,
that without the prior approval of Owner, Manager shall not institute any
proceedings involving claims in excess of $5,000 or to terminate any Major
Contract or Major Lease.
(k) With respect to refurbishment or renovation of any Facility or other
Capital Improvements approved by Owner, Managers shall negotiate contracts for
the construction or acquisition of such Capital Improvements, secure all
necessary Permits, and supervise the design, acquisition, and construction to
assure that such Capital Improvements are completed in a good and workmanlike
manner free of any Liens and in accordance with the budget approved by Owners.
(l) Promptly notify Owners of any default by Emeritus or its Affiliates
under the warranties, representations, covenants and indemnities in the Purchase
Agreements and promptly cure any such default at its sole cost and expense (and
not as an Operating Expense).
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(m) Cause Emeritus to comply with all reporting, net worth, and liquidity
requirements of the Initial Senior Loan and the Initial Junior Loan applicable
to Emeritus.
(n) Cause to be done all such acts and things to maintain the Facility in
good condition for the Primary Intended Use.
(o) Maintain and repair in good condition all buses or vans used in
connection with the operation of the Facilities, title to which shall remain in
Managers or their Affiliates.
(p) Prepare and, consistent with the applicable Annual Plan, implement a
life safety plan for the Facility complying with all Legal Requirements to be
used in the event of fire or other casualty at the Facility.
3.5 Unauthorized Acts. Notwithstanding anything to the contrary herein, Managers
shall have no authority to:
3.5.1 No Borrowing. Borrow on behalf of or loan any funds of a Facility Entity;
3.5.2 No Liens or Transfer. Create or permit any Lien on all or any portion of a
Facility (except for a Mortgage) or sell, convey or otherwise transfer all or
any portion of a Facility without Owner's approval which may be withheld in its
sole discretion except for replacement of Furnishings and Equipment and
Operating Equipment in the ordinary course of business.
3.5.3 No Change of Use. Do or permit any act or omission which would impair the
use of any Facility for the Primary Intended Use;
3.5.4 No Violation. Do or permit any act or omission which would violate Legal
Requirements or the terms of any Permit with respect to any Facility or which
would cause any such Permit to lapse or expire;
3.5.5 Violation of Agreement. Do or permit any act or omission or incur any
liability which exceeds Manager's authority under this Agreement;
3.6 Licensing. If all Permits required by Governmental Authorities have not been
duly and validly transferred or reissued in accordance with all Legal
Requirements in the name of the applicable Facility Entity at closing under the
Purchase Agreements, then Managers at their sole cost and expense shall cause
all such Permits to be transferred or reissued in accordance with all Legal
Requirements in the name of the applicable Facility Entity within ninety (90)
days
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after the date of this Agreement. Until such time, ESC I, L.P., ESC G.P. I, Inc.
and Emeritus Properties I, Inc., as holders of the Permits, shall act as
co-managers hereunder in order to ensure that each Facility has the benefit of
such Permits as they may hold until transfer or reissuance of the Permits. At
such time, ESC I, L.P., ESC G.P. I, Inc. and Emeritus Properties I, Inc. shall
cease to be Managers hereunder.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MANAGERS
Managers hereby represent, warrant and covenant as follows:
4.1 Existence, Power, Qualification. Each of the Managers is a limited liability
company, corporation, or limited partnership respectively duly organized,
validly existing and in good standing under the laws of the State of Washington
and qualified to do business in each state in which it is managing a Facility.
Each of the Managers has all requisite limited liability company, corporate or
limited partnership power and authority respectively to manage each Facility
pursuant to the terms of this Agreement.
4.2 Valid and Binding. Each of the Managers is duly authorized to make and enter
into this Agreement and to carry out the duties contemplated herein. This
Agreement has been duly executed and delivered by each of the Managers and is
the legal, valid and binding obligation of each of the Managers enforceable in
accordance with its terms.
4.3 Single Purpose. Managers have not engaged in and shall not during the Term
engage in any business other than management and operation of the Facilities
pursuant to this Agreement, and the operation of the facilities pursuant to the
AL Management Agreement, and the XX XX Development Management Agreement.
4.4 Ownership of Managers. Managers are and shall remain during the Term of this
Agreement wholly owned by Emeritus and no other Person shall have any direct or
indirect interest or management rights therein.
5. INSURANCE
5.1 General Insurance Requirements. During the Term of this Agreement and
thereafter until Managers no longer manage one or more Facilities, Managers
shall cause each Facility and the business operations conducted at the Facility
insured as set forth below (the cost of which shall be an Operating Expense):
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5.1.1 Types and Amounts of Insurance. The insurance on all of the Facilities
shall include the following unless otherwise approved by Owners:
(a) property loss and physical damage insurance on an all-risk basis (with
only such exceptions as Owner may approve) covering each Facility (exclusive of
Land) for its full replacement cost (without deduction for depreciation) and a
deductible for each Facility not in excess of TWENTY FIVE THOUSAND DOLLARS
($25,000). Nonconforming uses shall be insured for replacement cost of existing
improvements without regard to the ability to rebuild the improvements. Manager
as an Operating Expense will keep in force an all risk property insurance policy
covering Manager's furniture, furnishings and equipment situated at the
Facilities, including but not limited to the van or bus for each Facility until
legal title is transferred to Owners, but the proceeds of any insurance on a van
or bus shall be paid to the respective Owner.
(b) flood insurance (if the Facility or any portion thereof is situated in
an area which is considered a flood risk area by the U.S. Department of Housing
and Urban Development or any future Governmental Authority charged with flood
risk analysis) in limits reasonably acceptable to the Owner and subject to the
availability of such flood insurance;
(c) boiler and machinery insurance (including related electrical apparatus
and components) under a standard comprehensive form, providing coverage against
loss or damage caused by explosion of steam boilers, pressure vessels or similar
vessels, now or hereafter installed at any Facility, in limits approved by
Owners;
(d) business interruption insurance in an amount and to the extent
reasonably specified by Owners, but in no event in an amount less than Fixed
Operating Expenses plus projected Operating Profit for a period of twelve (12)
months, and include either an agreed amount endorsement or a waiver of any
co-insurance provisions so as to prevent any insured from being a co-insurer;
(e) commercial general liability insurance on an occurrence basis insuring
the applicable Owner and Managers against claims for personal injury or death or
property damage occurring at each Facility, including coverages with amounts not
less than FIVE MILLION DOLLARS ($5,000,000) per occurrence with respect to
bodily injury and death and THREE MILLION DOLLARS ($3,000,000) for property
damage;
(f) Employees' fidelity insurance in an amount not less than $1,000,000
protecting owner against any misappropriation of funds with respect to any
Facility by Manager's employees;
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(g) umbrella/excess general liability insurance on an occurrence basis in
an amount not less than $5,000,000;
(h) professional liability insurance in an amount not less than TEN
MILLION DOLLARS ($10,000,000) for each medical incident;
(i) physical damage insurance on an all-risk basis (with only such
exceptions as Owners in their reasonable discretion shall approve) covering
tangible Personal Property for the full replacement cost thereof (without
deduction for depreciation) and with a deductible not in excess of $5,000 for
each Facility;
(j) "Workers Compensation" and Employees Liability Insurance providing
protection against all claims arising out of injuries to all employees of
Managers (employed at the Facility or any portion thereof) in amounts approved
by Owners; and
(k) During the period of any construction at any Facility, the so-called
"builder's all-risk completed value" insurance for any improvements under
construction;
(l) Business auto liability insurance including hired and non-owned
automobile coverage in an amount not less than $1,000,000 combined single limit;
and
(m) such other insurance or modifications to the above insurance
requirements as Owners from time to time approve and as may from time to time be
required by applicable Legal Requirements and/or by any Mortgagee. Managers
shall be responsible to ensure that each contractor and subcontractor working at
a Facility provides evidence of general liability insurance including coverages
with amounts not less than $1,000,000 per occurrence and workers' compensation
insurance in the amount required by law, and which liability insurance shall
cover the applicable Owner and Mortgagee as an additional insured.
5.1.2 Insurance Company Requirements. All such insurance required by this
Agreement shall be issued and underwritten by insurance companies licensed to do
insurance business by, and in good standing under the laws of, the state in
which each Facility is located and which companies have and maintain a rating of
A:X or better by A.M. Best Co. or such higher rating as may be required by any
Mortgagee.
5.1.3 Policy Requirements. Every policy of insurance from time to time required
under this Agreement (other than worker's compensation) shall name
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the respective Facility Entity and Owners as owner or loss payee and additional
named insured as appropriate with respect to liability insurance. Each such
policy, where applicable or appropriate, shall:
(a) include mortgagee, loss payable and additional named insured
endorsements reasonably acceptable to Mortgagee;
(b) provide that the coverages may not be cancelled, reduced or otherwise
modified except upon not less than thirty (30) days' prior written notice to
Owner and to any Mortgagee;
(c) be primary and noncontributing with respect to any other insurance
carried by Owners and Managers, not be invalidated by any negligent act or
omission of Owner or Manager or any foreclosure proceeding relating to a
Facility and otherwise be in such form as shall be acceptable to Owners.
5.1.4 Notices, Certificates and Polices. Manager shall promptly provide to Owner
copies of any and all notices (including notice of non-renewal), claims and
demands which Manager receives from insurers with respect to a Facility. At
least ten (10) days prior to the expiration of any insurance policy required
hereunder, Manager shall deliver to Owner certificates and evidence of insurance
relating to all renewals and replacements thereof, together with evidence,
satisfactory to Owner, of payment of the premiums thereon. Manager shall deliver
to Owner original counterparts or copies certified by the insurance company to
be true and complete copies, of all insurance policies required hereunder not
later than ten (10) days after receipt thereof by Manager.
5.1.5 Right to Place Insurance. If Manager shall fail to obtain any insurance
policy required hereunder or shall fail to deliver the certificate and evidence
of insurance relating to any such policy to Owner, or if any insurance policy
required hereunder (or any part thereof) shall expire or be cancelled or become
void or voidable by reason of any breach of any condition thereof, or if Owner
reasonably determines that such insurance coverage is unsatisfactory by reason
of the failure or impairment of the capital of any insurance company which wrote
any such policy, upon demand by Owner, Manager shall promptly but in any event
in not more than ten (10) days thereafter obtain new or additional insurance
coverage on the Facility, as provided herein. In the event Manager fails to
perform its obligations under this Section, Owner may obtain such insurance and
pay the premium or premiums therefor and be reimbursed therefor as an Operating
Expense, plus, at Manager's sole expense interest from the date advanced at the
Overdue Rate.
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5.1.6 Payment of Proceeds. All insurance policies required hereunder (except for
general public liability, professional liability and workers' compensation and
employers liability insurance) shall provide that in the event of loss, injury
or damage, subject to the rights of any Mortgagee, all proceeds shall be paid
solely to Owner. Only Owner is authorized to adjust and compromise any such loss
and to collect and receive such proceeds unless Owners authorize Manager in
writing to act as Owners' authorized agent.
5.1.7 Blanket Policies. Notwithstanding anything to the contrary contained
herein, Managers' obligations to secure and maintain the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Managers and its Affiliates;
provided, however, that any such blanket policy shall include an agreed amount
endorsement with respect to each Facility and such other provisions so that the
coverage afforded to Owner shall not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all other
requirements of this Agreement by reason of the use of such blanket policy of
insurance.
5.2 Waiver of Liability. Notwithstanding anything to the contrary herein,
neither Managers nor Owners shall assert against the other, and do hereby waive
with respect to each other, any claims for any losses, damages, liability or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property arising out of the ownership,
operation and maintenance of the Facilities to the extent that the same are
covered by the insurance carried under this Section 5. Each party shall notify
their respective insurance carriers of such mutual waivers and shall cause their
respective insurance companies to waive in writing, by endorsement or otherwise,
subrogation against the other on account thereof and to acknowledge that such
waivers do not cause any invalidation of coverage provided by such insurance
companies.
6. INDEMNITY
6.1 Indemnification by Manager. Except with respect to the gross negligence or
willful misconduct of the respective Owner or any of the other Indemnified
Parties, as to which no indemnity is provided, each Manager and Emeritus,
jointly and severally, hereby agrees to indemnify, defend and hold harmless with
counsel reasonably acceptable to Owner, the respective Owner and each of the
other Indemnified Parties from and against all damages, losses, liabilities,
obligations, penalties, costs and expenses (including, without limitation,
reasonable attorneys' fees, court costs and other expenses of litigation)
suffered by, or claimed or asserted against, the respective Owner or any of the
other
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Indemnified Parties, directly or indirectly, by any Person based on, arising out
of or resulting from (a) the management of the Facility or any business
conducted therein; (b) any act, fault, omission to act or misconduct by (i) any
Manager, (ii) any Affiliate of a Manager, or (iii) any employee, agent,
licensee, business invitee, guest, customer, contractor or submanager of any of
the foregoing parties, relating to, directly or indirectly, the respective
Facility; (c) any accident, claim of malpractice, injury or damage whatsoever
caused to any Person; (d) any default or Event of Default under this Agreement
by Manager or any liability, damage, loss, obligation, penalty, cost, and other
expense incurred by Manager which exceeds Manager's authority under this
Agreement; (e) following closing pursuant to the Purchase Option set forth in
Section 13 any liability, damage, loss, obligation, penalty, cost, and other
expense whatsoever, whether arising before or after closing thereunder from the
Contracts, Leases, Legal Requirements, the Permits, or the operation of the
Facility or any business conducted therein; and (f) any liability under Section
6.10 of the Loan Agreement executed in connection with the Initial Senior Loan
and comparable provisions of the Initial Junior Loan except to the extent caused
by the actions of Owners. All costs and expenses of Manager pursuant to this
indemnity shall be at the sole expense of Manager except the cost or expense
shall be an Operating Expense rather than the sole expense of Manager only under
the following circumstances and only under subsections (a) and (c) above as long
as Manager was not in violation or breach of this Agreement, not negligent, and
such claim arose in the ordinary course of business. In all other circumstances,
all costs and expenses under this Section shall be the sole cost and expense of
Managers and shall not be an Operating Expense. The indemnity provided for in
this Section 6.1 shall survive the expiration or sooner termination of this
Agreement.
6.2 Indemnified Parties. As used in Section 6.1, the term "Indemnified Parties"
shall mean Owners or any of them, the Facility Entities or any of them, XX XX
Holdings, any Mortgagee and their respective successors, assigns, employees,
servants, agents, attorneys, officers, directors, shareholders, members,
managers, partners and owners.
6.3 Indemnification by Owners. Owners, jointly and severally, agree to
indemnify, defend, and hold harmless with counsel reasonably acceptable to
Managers, the Managers and Emeritus from and against all damages, losses,
liabilities, obligations, penalties, costs and expenses (including without
limitation, reasonable attorneys' fees, court costs and other expenses of
litigation) suffered by, or claimed or asserted against, the Managers or
Emeritus, directly or indirectly, by any Person based on, arising out of or
resulting from the gross negligence or willful misconduct of Owners under this
Agreement.
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7. MANAGEMENT FEES
7.1 Payment. Subject to the provisions of Section 7.2, the Facility Entities
shall pay the Managers for services rendered by the Managers pursuant to this
Agreement an amount equal to seven percent (7%) of the Total Revenues from all
Facilities in the aggregate then subject to this Agreement during the Initial
Term and any Extension Term of this Agreement ("Management Fee"), which amount
shall be paid on a monthly basis, based upon the Total Revenues earned by the
Facilities during the previous month, with the first payment to be made on the
4th day of the first full month after the Commencement Date, and continuing on
the 4th day of each month thereafter until the expiration or sooner termination
of this Agreement. During the Extension Term, the Management Fee shall be 7% of
Total Revenues with no further accrual of any portion of the Management Fee.
7.2 Limitation on Fees. The Management Fees payable to the Managers shall be
limited during the Initial Term to five percent (5%) of Total Revenues ("Base
Management Fee") until such time that the Facilities in the aggregate are
producing an Operating Profit for three (3) consecutive calendar months. The
unpaid two percent (2%) of the Management Fee shall be accrued without interest
until an Operating Profit is achieved for three (3) consecutive calendar months
("Accrued Management Fee"). From and after the date that the Facilities in the
aggregate continue to produce an Operating Profit for not less than three (3)
consecutive calendar months, the Managers shall be entitled to receive the full
Management Fee and the Accrued Management Fee from prior periods to the extent
Operating Profit is available therefor. If there is an Operating Deficit for
three (3) consecutive calendar months, the Management Fee shall be limited to
the Base Management Fee thereafter until Operating Profit is thereafter achieved
for three (3) consecutive calendar months. Notwithstanding anything to the
contrary contained herein, any obligation of Owners to pay any Accrued
Management Fee shall terminate automatically at the expiration of the Initial
Term if Emeritus does not timely exercise or at such time as it is not entitled
to exercise the Purchase Option set forth in Section 13, and in any event any
Accrued Management Fee shall be paid solely out of Operating Profit and neither
the Facility Entities nor AL Investors II shall have any liability to pay the
Accrued Management Fee during the Initial Term or upon expiration or sooner
termination of this Agreement from any other funds or by any Owner's Deficit
Contribution pursuant to Section 8.3.
8. ACCOUNTS; OPERATING DEFICIT CONTRIBUTIONS; RECORDS AND REPORTS
8.1 Bank Accounts. Manager shall establish an Agency Account and a Reserve
Account for each Facility (which may be aggregated for one or more Facilities as
Owner may reasonably specify) at a banking institution or institutions selected
by Owner after consultation with Manager, and such accounts shall be in
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Manager's name, as agent for the respective Owner (collectively the "Facility
Accounts"). Manager, as agent of Owners, will deposit in the Agency Account all
monies received from the operation of the Facilities as Total Revenue and,
together with any interest earned thereon, will disburse the same from the
Agency Account for the purposes set forth in the following Section 8.2. Revenues
or funds received by Managers from the Facilities that do not constitute Total
Revenues shall be immediately paid to Owner or placed in the Agency Account as
directed by Owners. To the extent required under any Legal Requirement, deposits
received pursuant to any Residency Agreement shall be maintained in a segregated
Agency Account for such deposits, and all amounts in such segregated deposit
Agency Account shall be used only to refund deposits in accordance with
Residency Agreements and, if any such deposits are forfeited under the terms of
a Residency Agreement, for deposit into the Agency Account. All funds derived
from the deduction for the Reserve Fund described in Section 8.4 shall be placed
in the Reserve Account and shall be transferred to the Agency Account for the
purpose of disbursement as expenditures are made in accordance with the
provisions of Section 8.4. Manager shall not commingle any funds in the Facility
Accounts with Manager's or any Affiliate's other funds. Notwithstanding the
foregoing as to each of the Facility Accounts, the Owner shall be designated as
an additional signatory on each of the Facility Accounts entitled to withdraw
all or any of the funds in said accounts in the event that Manager has filed a
voluntary petition or is the subject of an involuntary petition in bankruptcy,
insolvency or reorganization under the bankruptcy law or in any event if this
Agreement has expired or sooner terminated. In addition, if Emeritus does not
timely exercise or no longer has the right to exercise the Purchase Option, then
Owner shall have the right to implement a cash management system whereby amounts
in the Agency Accounts are automatically swept into accounts of the Owners on a
monthly or other regular basis specified by Owners. Managers shall reasonably
cooperate with Owners in implementing such cash management system. It is
expressly agreed and understood that all funds standing in the Facility Accounts
described herein are the sole property of the respective Owner, notwithstanding
that Manager shall have the right to withdraw funds therefrom for the purposes
set forth in this Agreement.
8.2 Expenditures. In accordance with the Annual Plan, except as otherwise
approved by Owners, Managers as agent of the Facility Entities are hereby
authorized to pay from the Agency Account for each Facility in the following
order of priority such amounts and at such times as are required to pay the
following expenditures:
(a) The Operating Expenses;
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(b) The Fixed Operating Expenses (exclusive of any Base, Accrued or other
Management Fee and Capital Improvements) except for such items as Owner has
elected to pay directly;
(c) The cost of Capital Improvements approved by Owner;
(d) The Base Management Fee or if the conditions set forth in Section 7.2
have been satisfied the full Management Fee for the current period;
(e) The Accrued Management Fee from prior periods if the conditions set
forth in Section 7.2 have been satisfied;
(f) Any Operating Deficit Loan (as defined in Section 8.3 below), if any:
(g) Any Cash Available for Distribution to Owner, which shall be paid over
to Owners as directed by Owners within twenty (20) days after the end of each
calendar month during the Term.
Funds in the Agency Account shall not be utilized for any other purpose.
8.3 Deficit Contributions. It is anticipated that Total Revenues will be
sufficient to pay the Operating Expenses and Fixed Operating Expenses of the
Facilities during the Term. In the event that Total Revenue from the Facilities
is insufficient, or is anticipated to be insufficient, to pay the Operating
Expenses and Fixed Operating Expenses of the Facilities during any calendar
month during the Initial Term, then Emeritus shall loan such Operating Deficit
to Owners, with interest accruing at the Prime Rate ("Operating Deficit Loan").
If an Operating Deficit Loan for any calendar month is not repaid as provided in
Section 8.2 within six (6) months from the date of advance, then upon twenty
(20) days written notice from the Manager, Owners shall deposit or cause to be
deposited funds in the Agency Account in an amount equal to the outstanding
Operating Deficit Loan ("Owner's Deficit Contribution") which shall be used to
repay such Operating Deficit Loan. Notwithstanding anything in this Agreement to
the contrary, upon expiration or sooner termination of this Agreement, repayment
and priority of any outstanding Operating Deficit Loan shall be subordinate in
all respects to repayment and priority of the Senior Loan.
8.4 Reserve Account. In the event the approved Annual Plan for any Facility
provides for expenditures of less than $250 per unit in such Facility for the
applicable Operating Year for replacements of Furnishings and Equipment or
Capital Improvements, there shall be deducted from Total Revenue as part of
Fixed Operating Expenses the difference between such expenditures and $250 per
unit in
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such Facility for such Operating Year (or such lesser amount as Owners may
approve) funded quarterly and the cash funds so created shall be deposited in
the Reserve Account. Funds in the Reserve Account shall be utilized for the
purpose of making replacements, substitutions, and additions to Furnishings and
Equipment originally included in the Facility or Capital Improvements to the
extent approved by Owners in the Annual Plan or as directed by Owners to
maintain each Facility in good order and operating condition. Funds in the
Reserve Account shall be invested in an interest bearing account or securities
as Owners may direct and interest thereon shall be added to the Reserve Account.
Funds from the Reserve Account shall not be utilized for any other purpose.
8.5 Books and Records. Under Manager's supervision, each Facility shall keep (at
the Facility or at Emeritus' corporate headquarters) full and adequate books of
account and such other records and information as are necessary to reflect the
results of the operation of the Facility and to comply with all Legal
Requirements with respect to the Facility. Managers will keep the books and
records for each Facility in all material respects in accordance with generally
accepted accounting principles except as otherwise approved by Owners. All such
records shall be and remain the exclusive property of the Owners, subject to
Manager's right to make and retain copies thereof.
8.6 Reports to Owners. Manager and Emeritus will deliver, or cause to be
delivered, to Owners the following forecasts, budgets, reports and statements
each in form reasonably acceptable to Owners:
8.6.1 Not later than December 1 the draft Annual Plan for the succeeding
Operating Year;
8.6.2 Within thirty (30) days after the end of each calendar month, an end of
the month financial report showing the results of operation of each Facility and
a balance sheet for the prior month and the year to date for each Facility and
all Facilities in the aggregate prepared in accordance with GAAP and certified
as fairly representing the financial results in all material respects by a
financial officer of Emeritus;
8.6.3 Within thirty (30) days after the end of each calendar month during the
Term, a computation for all Facilities in the aggregate and for each Facility
individually of Total Revenue, Operating Expenses, Fixed Operating Expenses and
Operating Deficit or Operating Profit for the prior month, year to date, and for
Operating Profit or Operating Deficit cumulative from the Commencement Date, in
each case on a cash basis and certified as fairly representing the financial
results in all material respects by a financial officer of Emeritus;
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8.6.4 As soon as practicable after each Operating Year, but in any event, within
seventy-five (75) days of the end of each Operating Year, an income statement
and balance sheet for all Facilities in the aggregate and for each Facility
individually in form reasonably acceptable to Owners as of the last day of such
Operating Year, which income statement and balance sheet shall be certified as
fairly representing the financial results in all material respects by a
financial officer of Emeritus and if requested by Owners be audited by an
independent nationally recognized accounting firm approved by Owners and such
other annual end of year financial reports as may be reasonably necessary for
each Owner and Owners to file its or their federal and state income tax returns;
8.6.5 The financial reports to be delivered to any Mortgagee as more
particularly defined in the respective Mortgage or related loan documents;
8.6.6 Within ninety (90) days after the end of each fiscal year of Emeritus,
audited financial statements of Emeritus prepared by an independent "big five"
accounting firm approved by Owners, prepared in accordance with GAAP, including
a balance sheet and an income statement for such fiscal year, certified as true
and correct in all material respects by a financial officer of Emeritus.
Emeritus shall also submit to Owners, upon its filing thereof, a copy of any
Form 10K or Form 10Q as filed with the United States Securities and Exchange
Commission;
8.6.7 Copies of all Medicare and/or Medicaid cost reports and any amendments
thereto filed with any Governmental Authority with respect to any Facility, and
all responses, audit reports and other correspondence and other documents
received with respect to such cost reports.
8.6.8 Within three (3) days of receipt, copies of any notice received from any
Governmental Authority or Third Party Payor that any Permit, Medicare and/or
Medicaid certification or similar item with respect to a Facility is being
downgraded, revoked or suspended or that any such action is pending or being
considered.
8.6.9 Such other reports reasonably required by Owners or any Mortgagee.
8.7 Rights to Inspection and Review. Each Owner, its accountants, attorneys,
agents and any Mortgagee shall have the right to enter upon any part of any
Facility at any time during normal business hours during the Term, and on not
less than eight (8) hours prior notice unless an emergency exists, for the
purpose of examining or inspecting the same or examining and making extracts and
copies of books and records of the Facility or for any other purpose, including
audits, which
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the Owner of any Facility, in its discretion, shall deem necessary or advisable,
but same shall be done with as little disruption to the business of the Facility
as practicable. Books and records of the Facility shall be kept at the Facility
and a summary thereof in such location as directed by Owners.
8.8 Deficiencies and Overpayments. If any audit or financial report discloses a
deficiency in the reporting of Total Revenues, or any overpayment in Operating
Expenses, Fixed Operating Expenses or Management Fees, Managers shall forthwith
recalculate Operating Profit, Operating Deficit or Management Fees and pay to
the Owners any overpayment or otherwise, together with interest at Manager's
sole expense on the amount of deficiency or overpayment, calculated at the
Overdue Rate, from the date when such overpayment was made until the date Owners
receive return of such overpayment. If any audit conducted for Owners pursuant
to the provisions hereof discloses that the Total Revenues for any Operating
Year exceed those reported by Managers by more than five percent (5%) or that
the full Management Fee or any Accrued Management Fee was overpaid by more than
five percent (5%), the Managers at their sole expense (and not as an Operating
Expense) shall pay the reasonable cost of such audit and examination. Otherwise,
the cost of audits approved by Owners shall be an Operating Expense.
8.9 Survival. The obligations and rights of the Managers and Owners referenced
in Section 8.8 shall survive the expiration or earlier termination of this
Agreement for a period of three (3) years.
9. TERMINATION RIGHTS AND REMEDIES
9.1 By Managers. The Managers may terminate this Agreement with respect to all
(but not less than all) of the Facilities by reason of any of the following
("Event of Default"): (i) failure of Owners to fund an Operating Deficit in
accordance with Section 8.3 within fifteen (15) days after written notice to the
Owner that payment has not been paid when due; or (ii) the Owner otherwise
breaches or fails to perform a material term of this Agreement, which breach or
failure is not cured within thirty (30) days after written notice of said breach
is provided to Owner. Provided, however, that Manager shall not have the right
to terminate this Agreement without the prior written consent of any Mortgagee.
Provided, further, Manager shall have no right to terminate this Agreement nor
shall Owner be in default if such right to terminate or such default is caused
by a default or an Event of Default committed or suffered hereunder by Managers
or Emeritus.
If Managers terminate the Agreement pursuant to this Section 9.1, such
termination shall not terminate the Purchase Option under Section 13 below, and
the Purchase Option shall remain in full force and effect. If Managers terminate
this Agreement pursuant to this Section 9.1 and the Purchase Option is
thereafter
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exercised, the purchaser shall be entitled to offset and deduct from the
Purchase Price that portion of Owner's Deficit Contribution which Owners did not
fund but were required to do so in accordance with Section 8.3 and which
Managers or Emeritus funded and were not reimbursed by Owners.
9.2 Owner. The Owner may terminate this Agreement with respect to any one or all
of the Facilities by reason of any of the following (each an "Event of
Default"): (i) Emeritus breaches or fails to perform any obligation, including
but not limited to the warranties, representations and indemnities, under the
Emeritus Guaranty which is not cured within the time period set forth therein;
(ii) Emeritus or its Affiliates fail to perform any obligation under the
Purchase Agreements which survive closing thereunder; (iii) Managers or any of
them or Emeritus breaches or fails to perform a material term of this Agreement
as to any or all Facilities, which breach or failure is not cured within thirty
(30) days after written notice of said breach is provided to the Managers; (iv)
Xxxxxx Xxxx fails to perform or defaults under the Put and Purchase Agreement
within the time period set forth therein; (v) Emeritus fails to perform or
defaults under the Licensing Indemnity Agreement within the time period set
forth therein; or (vi) either Manager or Emeritus suffers a Bankruptcy Event.
Provided, however, Owners shall have no right to terminate this Agreement nor
shall Managers be in default if such right to terminate or such default is
caused by a failure by Owner to fund Operating Deficits to the extent provided
in Section 8.3. Any such termination pursuant to this Section 9.2 shall also
constitute a termination of the Purchase Option.
9.3 Curing Defaults. Except for failure to close under the Purchase Option set
forth in Section 13, or a default under Section 9.2(iv), (v), or (vi), any
default by Managers or Owner under the provisions of Section 9.1 or 9.2, except
for defaults involving the payment of money which must be cured within the
applicable cure period, shall not constitute an Event of Default if the nature
of such default will not permit it to be cured within the cure period allotted,
provided that either Managers or Owner promptly shall commence to cure such
default and shall proceed to complete the same with diligence but in no event
later than sixty (60) days after the written notice of default has been given.
9.4 Effect of Termination. The termination of this Agreement in whole or in part
under the provisions of this Section 9 shall not affect the rights of the
terminating party with respect to any damages it may have suffered as a result
of any breach of this Agreement, nor shall it affect the rights of either party
with respect to liability or claims accrued or arising out of events occurring
prior to the date of termination. Any termination of this Agreement, whether in
whole or in part, other than by reason of an Event of Default by Owner and other
than as a result of a Casualty or Condemnation as to a particular Facility,
shall automatically terminate the Purchase Option provided for in Section 13,
but any termination of
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this Agreement by reason of an Event of Default by Owner shall not terminate the
Purchase Option provided for in Section 13. Upon any termination, Owner shall
repay any outstanding Operating Deficit Loan subject to prior repayment of the
Senior Loan as more particularly provided in Section 8.3.
9.5 Remedies Cumulative. The right of termination shall not be an exclusive
remedy and either party shall have the right to xxx for damages or seek
equitable relief following an Event of Default. Neither the right of termination
nor the right to xxx for damages nor any other remedy available to either party
hereunder shall be exclusive of any other remedy given hereunder or now or
hereafter existing at law or in equity.
9.6 Transfer Upon Termination. Upon expiration or sooner termination of this
Agreement in whole or in part, except for termination upon closing under the
Purchase Option, Managers at their sole expense shall transfer or assign as
directed by Owners to the respective Facility Entity all books, records,
Facility Accounts, Permits, Contracts, Leases, any Personal Property owned by or
in the possession of Managers, all of which shall be free and clear of all Liens
(except for the Mortgage), and other matters and things utilized by Manager in
the operation of the Facilities which are no longer subject to this Agreement.
In such event, legal title to any vans or buses in the name of Emeritus or
Managers shall be transferred to the respective Facility Entity free and clear
of Liens at the sole cost of Managers and for no additional consideration.
Without limiting the generality of the foregoing, all licensing fees and sales
tax on the transfer shall be paid by Emeritus and Managers. Upon any termination
of this Agreement, Manager shall assign and otherwise take all actions required
to effectively transfer to the Facility Entities all Permits which are required
under applicable Legal Requirements to be issued in the name of Managers.
Managers shall cooperate fully in such transfer and shall not interfere with an
Owner employing any and all employees of the Facility who desire to accept such
Owner's offer of employment. Manager's obligations hereunder and under the
Purchase Agreements and Owner's remedies for breach thereof shall survive the
expiration or sooner termination of this Agreement and the transfer and
assignment herein.
9.7 Termination of Agreement as to Individual Facilities. The parties
acknowledge that this is a master Management Agreement with respect to all of
the Facilities and this Agreement may be terminated by Owner as to a particular
Facility in one or more of the following circumstances. In such event, this
Agreement shall continue in full force and effect as to the remaining
Facilities.
9.7.1 Default. There has been an Event of Default by the Manager as to a
particular Facility and Owner has terminated this Agreement as to such Facility;
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9.7.2 Casualty or Condemnation. There has been an election by Owner to terminate
this Agreement as to a particular Facility resulting from Casualty or
Condemnation which Owner has elected not to repair as provided for in Section
11; or
9.7.3 Termination During Extension Term. If Owner has elected the option for the
Extension Term, Owner may terminate this Agreement as to any Facility in its
sole discretion upon not less than sixty (60) days prior notice to the Manager;
9.7.4 Termination of Put Facilities. Upon closing of the purchase of a Put
Facility pursuant to the Put and Purchase Agreement, such Put Facility or
Facilities shall be automatically deleted from this Agreement.
9.7.5 Termination of Failed Facilities. Upon closing of the purchase by Emeritus
or its Affiliates of a Failed Facility pursuant to the Licensing Indemnity
Agreement, such Failed Facility or Facilities shall be automatically deleted
from this Agreement.
In the event of the termination of this Agreement as to less than all of the
Facilities, then in determining Operating Deficit and Operating Profit the
Facilities, less only those Facilities terminated pursuant to Section 9.7.2 -
9.7.5, shall be the basis for such calculations.
10. ASSIGNMENT
10.1 Assignment by Manager. Manager shall not assign, transfer or encumber this
Agreement or any right or interest herein or hereunder voluntarily or by
operation of law or in any other manner without the prior written consent of
Owners, which may be withheld in their sole discretion.
10.2 Assignment by Facility Entities. Owners may assign or transfer this
Agreement to any Affiliate or to any Mortgagee without the consent of Emeritus
or Managers. In such event, the Owner or Owners assigning this Agreement (except
as to an assignment for security purposes to any Mortgagee, but not excepting
the realization by such Mortgagee of such assignment in connection with a
foreclosure of the applicable Mortgage or the granting of a deed in lieu of
foreclosure to such Mortgagee) shall be relieved of all liability under this
Agreement accruing or arising out of facts and circumstances occurring after the
date of such assignment, except for the obligation to fund the Owner's Deficit
Contribution pursuant to Section 8.3 (which shall not apply to the holder of any
Senior Loan). In connection with any
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security assignment to a Mortgagee, Managers and Emeritus shall subordinate this
Agreement to the Mortgage in such form as any Mortgagee may require.
10.3 Refinancing. Without the consent of Managers and Emeritus, the Facility
Entities shall have the right to refinance the Mortgage initially held by the
Lending Group as to one or more Facilities upon the following terms and
conditions:
10.3.1 Obligations of Managers and Emeritus. Any refinancing shall provide that
upon closing of the Purchase Option, Emeritus may assume the Mortgage resulting
from such refinancing upon commercially-reasonable terms including payment of
the Mortgagee's assumption expenses and an assumption fee not to exceed one-half
percent (.5%) of the indebtedness secured by the Mortgage.
10.3.2 Segregation of this Agreement. In connection with a refinancing, this
Agreement shall be segregated into two or more separate management agreements
with the Facilities being managed pursuant to each management agreement
corresponding to the Facilities subject to each Mortgage or Mortgages held by a
separate Mortgagee. In such event, the terms and conditions of each separate
management agreement shall be the same as this Agreement, except Total Revenues,
Operating Expenses, Fixed Operating Expenses, Operating Profit and Operating
Deficit shall be computed only with respect to the Facilities subject to each
separate management agreement. Each segregated management agreement may be
assigned to the respective Mortgagee and shall be subordinate to the respective
Mortgage as provided in Section 10.2 above. Upon such segregation, Emeritus
shall execute a restated Emeritus Guaranty or such other confirmation of the
continuing obligations under the Emeritus Guaranty.
10.3.3 Costs of Refinancing. The reasonable costs and expenses of such
refinancing, including but not limited to the Mortgagee's title review and
insurance, due diligence, loan fees, mortgage taxes (if any), loan document
preparation, legal fees, and other customary loan closing costs, together with
Owners' reasonable costs and expenses of arranging and closing such refinancing,
shall be an Operating Expense unless otherwise approved or directed by Owners in
their sole discretion.
10.4 Remedies. Any assignment by either party of this Agreement in violation of
the provisions of this Section 10 shall be null and void. In addition to any
other remedies available to the parties, the provisions of this Section 10 shall
be enforceable by injunctive proceeding or by a suit for specific performance.
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11. CASUALTY AND CONDEMNATION
11.1 Casualty. If a Facility shall be damaged by a Casualty such that Owner
determines in its sole but good faith judgment that it is not feasible to
restore the Facility, or if for any reason insurance proceeds are not available
to effect such restoration, then Owner may terminate this Agreement as to that
Facility upon thirty (30) days prior written notice to Manager, and neither
party shall have any further obligation to the other party hereunder with
respect to that Facility and this Agreement shall remain in full force and
effect as to the remaining Facilities. If this Agreement shall not be terminated
by Owner in the event of a Casualty to the Facility, then Owner with the
cooperation of Manager, or Manager if Owner so directs, shall proceed with
reasonable diligence to commence and complete the restoration of the Facility to
substantially its condition and character just prior to the occurrence of such
casualty to the extent permitted under Legal Requirements. The cost of
restoration shall not be an Operating Expense or Fixed Operating Expense except
to the extent such cost of restoration exceeds available insurance proceeds and
such costs of restoration in excess of available insurance proceeds, including
any deductibles under applicable insurance policies shall constitute an
Operating Expense.
11.2 Condemnation. If a Facility is subject to Condemnation, or such substantial
portion thereto as to make it unfeasible, in the sole but good faith judgment of
Owner, to restore and continue to operate the remaining portion of the Facility
following Condemnation, then upon the Date of Taking, this Agreement shall
terminate as to that Facility and neither party shall have any further
obligation to the other party hereunder with respect to that Facility and this
Agreement shall remain in full force and effect as to the remaining Facilities.
If Owner elects to restore and continue to operate the remaining portion of the
Facility, then this Agreement shall not terminate as to the Facility, and Owner
with the cooperation of Manager, or Manager if Owner so directs, shall proceed
with reasonable diligence to repair any damage to the Facility, or to alter or
modify the Facility so as to render it a complete architectural unit which can
be operated as a Facility of substantially the same type and class as before.
The cost of restoration shall not be an Operating Expense or Fixed Operating
Expense except to the extent the cost of restoration exceeds the net amount of
any Award received by any Owner. In the case of any Condemnation, whether or not
this Agreement shall cease and terminate, the entire Award shall be the property
of Owner, and Manager hereby assigns to Owner all its right, title and interest
in and to any Award. Manager shall have the right, however, to claim and recover
from the condemning authority compensation for any loss which Manager may be put
for Manager's moving expenses or taking of Manager's personal property (not
including any value assigned to this Agreement), provided that such damages may
be claimed only if
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they are awarded separately in the Condemnation proceedings and not out of or as
part of the Award recoverable by Owner.
12. CAPITAL IMPROVEMENTS.
Any program of improvements, or improvement involving an addition to a Facility
or the renovation or refurbishing of the Facility, the cost of which is not or
should not be charged to property operation and maintenance and which should be
capitalized in accordance with generally accepted accounting principles, shall
be a "Capital Improvement." Capital Improvements shall be undertaken only upon
the approval of or direction by Owner in its sole discretion, which may be by
separate approval or by specific inclusion in the Annual Plan. Notwithstanding
anything to the contrary herein, Emeritus shall have the unconditional
obligation at its sole expense (and not as an Operating Expense or Fixed
Operating Expense) to complete and pay for: (a) to the extent Managers or
Emeritus are obligated to perform or pay for construction of kitchen facilities
at Facility entitled Park Club of Oakbridge, (b) all Capital Improvements made
or contracted or committed during calendar year 1998 and the first quarter of
1999, (c) any sales tax or other Impositions resulting from construction of any
Facilities in Texas. All capital improvements required by that letter agreement
dated March 26, 1999 between AL Investors II and the Lending Group related to
Xxxxxxxx Place shall be performed by the Managers at their direct cost (without
markup of any kind) within six (6) months of the date hereof, but the cost
thereof shall be an Operating Expense or Fixed Operating Expense as the case may
be. To the extent any improvements to the Facilities are to be funded from an
escrow or similar account at Closing under the Purchase Agreements or the terms
of any Mortgage ("Holdback Accounts"), such improvements shall not be deemed
Capital Improvements hereunder and the cost thereof shall not be Operating
Expenses or Fixed Operating Expenses. Managers shall expeditiously cause the
completion of all improvements to be funded by the Holdback Accounts.
13. EMERITUS' OPTION TO PURCHASE
13.1 Conditions to Option. On the conditions precedent (which conditions Owners
may waive, in their sole discretion, by notice to Emeritus at any time) that (a)
at the time of exercise of the Purchase Option, there then exists no Event of
Default under this Agreement, or the XX XX Development Management Agreement by
the Managers or Emeritus, and (b) Emeritus timely complies with the provisions
of this Section 13, and (c) the Purchase Option under the XX XX Development
Management Agreement has been exercised simultaneously by delivery of a Purchase
Option Notice (as defined therein) and (d) if a Put Notice has been delivered on
account of Section 3.1(d) or 3.1(e) of the Put and Purchase Agreement, less than
sixty (60) days has elapsed since delivery of such Put Notice,
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then Emeritus or its Affiliates shall have the option to purchase all, but not
less than all, of the Facilities then subject to this Agreement including,
without limitation, any Facilities which are the subject of a segregated
Management Agreement pursuant to Section 10.3, at the price and upon the terms
hereinafter set forth in this Section 13 (the "Purchase Option").
13.2 Exercise of Option; Deposit. The Purchase Option shall permit Emeritus to
purchase the Facilities (a) at any time during the Initial Term but not later
than the last day of the Initial Term ("Purchase Option Expiration Date")
provided that written notice of the exercise of the option is given by Emeritus
to the Owners (the "Purchase Option Notice") at least one hundred eighty (180)
days prior to the Purchase Option Expiration Date. Emeritus shall have no right
to rescind the Purchase Option Notice once given. With the Purchase Option
Notice, Emeritus shall deposit with the Owners the sum of $340,000 (together
with the interest earned thereon, the "Deposit") which shall constitute
liquidated damages and Owners' sole remedy if Emeritus fails to consummate the
purchase of the Facilities for any reason other than Owners' default and refusal
to deliver the Deeds conveying the Facilities upon payment of the Purchase
Price, but the Deposit shall be applied to the Purchase Price if the Purchase
Option closes. Emeritus and the Owners acknowledge that damages that would
accrue from Emeritus' failure to close the Purchase Option are difficult to
determine and that the amount of liquidated damages set forth above constitutes
a good faith and reasonable estimate of the damages that would otherwise have
accrued. The Deposit shall be deposited in a money market or similar account
with a commercial bank with all interest thereon remaining in such account and
reported as income of Emeritus, and Emeritus agrees to complete a Form W-9 and
such other forms as such bank may require in order to report such interest.
13.3 Conveyance. If the Purchase Option is exercised by Emeritus in accordance
with the terms hereof, each Facility shall be conveyed by a special warranty
deed subject to the Permitted Exceptions, Leases, Contracts and Permits (except
for the Mortgage) and all matters arising through or with the consent of
Managers or Emeritus with covenants only against acts of Owners or Persons
claiming by, through or under Owners during their period of ownership, a quit
claim xxxx of sale as to all Personal Property, and a quit claim assignment of
all Leases, Contracts, Permits, and funds in Facility Accounts in form
satisfactory to Owners (collectively, the "Deed") running to Emeritus or to its
designee. Transfer of all Permits to Emeritus or its Affiliate designee in
accordance with Legal Requirements shall be the sole responsibility of Emeritus.
Owners, other than an obligation to reasonably cooperate (at no material
out-of-pocket cost) in such transfer, shall have no liability or responsibility
for the adequacy or completeness of any transfer of the Permits. Owners shall
reasonably cooperate with Emeritus and its title companies in order to provide
all necessary documents, owner's affidavits (provided Owners
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have no liability thereunder except for their own acts during their period of
ownership) and other evidence of authority to enable Emeritus to purchase title
insurance covering all of the Facilities at the closing under the Purchase
Option.
13.4 Calculation of Purchase Price. The price to be paid by Emeritus for the
acquisition of the Facilities pursuant to this Purchase Option shall be equal to
the amount calculated as set forth on Exhibit B ("Purchase Price"). The Purchase
Price shall be a net price to be received by Owners without deduction for due
diligence, transfer taxes, title insurance or other closing costs, all of which
shall be paid by Emeritus. Owners shall not bear any closing costs or prorations
of any kind or nature, subject to any offset as provided in Section 9.1. and
except for repayment of any outstanding Operating Deficit Loan.
13.5 Payment of Purchase Price. The Purchase Price, less the Deposit, shall be
paid by Emeritus at the Time of Closing in good funds.
13.6 Place and Time of Closing. If this Purchase Option is exercised, the
closing shall occur and the Deed for each Facility shall be delivered to Title
Company (the "Closing") pursuant to escrow closing arrangements reasonably
satisfactory to Owners and Emeritus at 12:00 o'clock noon (P.S.T.) one hundred
eighty (180) days following delivery of the Purchase Option Notice but in no
event later than the Purchase Option Expiration Date (such time, as the same may
be extended to the next succeeding Business Day, the "Time of Closing"). It is
agreed that time is of the essence of this Purchase Option.
13.7 Condition of Facilities. The Facilities and each of them shall be purchased
by Emeritus "AS IS" and "WHERE IS" as of the Time of Closing. Without limiting
the foregoing, and except as set forth in the Deed, Owners make and shall not
make representations or warranties, express or implied, with respect to, and
shall have no liability for: (i) the condition of the Facilities or any
Improvements thereon or the suitability, habitability, merchantability or
fitness of the Facilities; (ii) compliance with any Legal Requirements; (iii)
the presence of any Hazardous Substances in or about the Facilities, including
without limitation asbestos or urea-formaldehyde, or the presence of any
Hazardous Substances on or under the Land; (iv) the accuracy or completeness of
any plans and specifications, reports, or other materials provided to Emeritus;
or (v) any other matter relating to the Facilities, including, without
limitation, the title thereto or the condition, value or operating results or
prospects thereof. Without limiting the generality of the foregoing, Owners
shall have no liability to Emeritus with respect to the condition of the
Facilities under common law, or under any Legal Requirements and Emeritus hereby
waives any and all claims which Emeritus has or may have against Owners with
respect to the condition, value or operating results or prospects of the
Facilities. Emeritus assumes the responsibility and risks of all defects and
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conditions, including such defects and conditions, if any, that cannot be
observed by inspection or examination of records. Managers and Emeritus shall
indemnify, defend, and hold harmless Owners from and against all claims and
liabilities arising out of or related to the Facilities as more particularly set
forth in Section 6.1 and from and against any guaranties of any Mortgages, it
being intended that Owners shall have no liability from and after the Time of
Closing with respect to the Facilities, except as set forth in the Deed.
13.8 Use of Purchase Price to Clear Title. To enable the Facility Entities to
make the conveyance as provided in this Section 13, the Facility Entities may,
at the Time of Closing, use the Purchase Price or any portion thereof to clear
the title of any Mortgage, provided that all instruments so procured are
recorded contemporaneously with the Closing or reasonable arrangements are made
for recording subsequent to the Time of Closing in accordance with customary
conveyance practices.
13.9 Emeritus' Default. If Emeritus delivers the Purchase Option Notice and
fails to timely consummate the purchase of the Facilities in accordance with the
terms hereof for any reason other than Facility Entities' default and refusal to
deliver the Deed, (a) the Purchase Option hereunder and under the XX XX
Development Management Agreement shall be deemed terminated and Emeritus shall
thereafter have no further right to purchase the Facilities pursuant to this
Section 13 or otherwise, (b) Owners shall retain the Deposit as liquidated
damages and as Owners' sole remedy in full satisfaction of any claims against
Emeritus for its failure to consummate the purchase of the Facilities, but
nothing herein shall relieve Emeritus from its obligations under the Emeritus
Guaranty, and (c) Owners shall have the right to terminate this Agreement
without further notice.
14. INTENTIONALLY DELETED
15. GENERAL PROVISIONS
15.1 Purchases by Manager. In purchasing services, goods and supplies for the
Facilities, Managers shall use their best efforts to obtain the benefits of
volume purchasing for Owners. In addition, all direct and indirect trade
discounts, rebates and refunds, and all returns from the sale of Furnishings and
Equipment and Operating Equipment or other equipment shall accrue to the benefit
of the Facility Entities.
15.2 Budgets and Forecasts. In preparing all budgets and forecasts to be
submitted to the Facility Entities hereunder, Managers will base its estimates
upon the most recent and reliable information then available, taking into
account the
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location of each Facility and its experience in other comparable assisted living
facilities.
15.3 Notices. Any notice, demand, offer, approval or other writing required or
permitted pursuant to this Agreement shall be in writing, furnished in duplicate
and shall be transmitted by hand delivery, facsimile, certified mail, return
receipt requested, or Federal Express or another nationally recognized overnight
courier service which provides evidence of delivery, postage prepaid, as
follows:
If to any Owner
or Owners: AL Investors II LLC
c/o Xxxxx X. Xxxxx
0000 XxXxxxxxxxx Xxxxxx XX, Xxxxx 000
Xxxxx, Xxxxxx 00000
Facsimile: (000)000-0000
Telephone: (503)370-7071 ext. 7143
With a copy to: Xxxxxx Pepper & Shefelman PLLC
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxxx
Facsimile: (000)000-0000
Telephone: (000)000-0000
and Senior Housing Partners I, L.P.
c/o Xx. Xxxx Xxxx
Xxx Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Facsimile: (000)000-0000
Telephone: (000)000-0000
and Xxxxxxx Procter & Xxxx LLP
Exchange Place
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attn: Xxxxx Xxx
Facsimile: (000)000-0000
Telephone: (000)000-0000
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and Prudential Real Estate Investors
0 Xxxxxx Xxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxx Xxxxxx
Facsimile: (000)000-0000
Telephone: (000)000-0000
If to the Managers
or Emeritus: c/o Emeritus Corporation
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Mr. Xxxxx Xxxxx
Facsimile: (000)000-0000
Telephone: (000)000-0000
With a copy to: Xxxxxxx Coie
Suite 4000, 0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx
Facsimile: (000)000-0000
Telephone: (000)000-0000
Any party shall have the right to change the place to which such notice shall be
given or add additional parties, including any Mortgagee, to receive notices by
similar notice sent in like manner to all other parties hereto. Any notice if
sent by overnight courier service shall be deemed delivered on the earlier of
the date of actual delivery or the next business day, if delivered by hand
delivery or facsimile shall be deemed delivered on the date of the actual
delivery and if sent by mail, shall be deemed delivered on the earlier of the
third day following deposit with the U.S. Postal Service or actual delivery. Any
notice sent by facsimile shall also be sent on the same business day by
overnight courier or mail as set forth above.
15.4 No Partnership or Joint Venture. This Agreement shall not be construed to
be or create a partnership or joint venture between Owners and their successors
or assigns, on the one part, and Emeritus and Managers, their successors and
assigns, on the other part. Managers are acting as independent contractors to
the Facility Entities in performing their duties and obligations hereunder,
except where this Agreement expressly provides Managers are acting as the agent
of Owners.
15.5 Modification and Changes. This Agreement cannot be changed or modified
except by another agreement in writing signed by the party sought to be charged
therewith.
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15.6 Understandings and Agreements. This Agreement constitutes all of the
understandings and agreements of whatsoever nature or kind existing between the
parties with respect to Managers' management of the Facilities.
15.7 Headings. Section headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
15.8 Consents. Except as otherwise specified herein, each party agrees that it
will not unreasonably withhold any consent or approval requested by the other
party pursuant to the terms of the Agreement, and that any such consent or
approval shall not be unreasonably delayed or qualified. Similarly, each party
agrees that any provision of this Agreement which permits such party to make
requests of the other party shall not be construed to permit the making of
unreasonable requests.
15.9 Survival of Covenants. Any indemnity, agreement, covenant, term or
provision of this Agreement which, in order to be effective, must survive the
termination of this Agreement, shall survive any such termination.
15.10 Third Parties. None of the obligations hereunder of any party shall run to
or be enforceable by any party other than the parties to this Agreement and the
Facility Entities or by a party deriving rights hereunder as a result of an
assignment permitted pursuant to the terms hereof.
15.11 Waivers. No failure by the Owners to enforce or insist upon the strict
performances of any covenant, agreement, term or condition of this Agreement
shall constitute a waiver of any such breach or any subsequent breach of such
covenant, agreement, term or condition. No covenant, agreement, term or
condition of this Agreement and no breach thereof shall be waived, altered or
modified except by written instrument.
15.12 Applicable Law. This Agreement shall be construed and interpreted, and be
governed by, the laws of the State of Washington.
15.13 Non-Discrimination. Managers shall not discriminate against any Person as
provided by Legal Requirements.
15.14 Joint and Several. The obligations and liabilities of each of Managers and
Emeritus hereunder shall be joint and several. The obligations of each of AL
Investors II and the Facility Entities hereunder shall be joint and several.
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15.15 Exculpation. The liability of Owners hereunder shall be limited to their
interest in the Facilities and no personal judgment or personal liability or
deficiency judgment beyond their interest in the Facilities shall be asserted
against Owners or any member thereof.
15.16 Status of AL Investors II. AL Investors II joins in this Agreement for the
purpose of exercising management rights in its capacity as the sole managing
member or the sole managing member of the general partner of Owners. AL
Investors II does not intend to be conducting business or holding title to any
property in any jurisdiction. AL Investors II may enforce any or all of the
provisions of this Agreement directly against Managers or Emeritus in the State
of Washington or at its option may enforce this Agreement on behalf of any
Facility Entity in any state in which such Facility Entity owns a Facility.
15.17 Owners Right to Cure Default. If Managers or Emeritus commit or suffer any
Event of Default hereunder, Owners, at their option and in their sole
discretion, may cure such Event of Default and the cost thereof or funds
advanced, together with interest at the Overdue Rate, shall be repaid on demand
("Default Advances"). Each of Managers and Emeritus shall be jointly and
severally liable for the repayment of Default Advances.
15.18 Recording. The parties agree that simultaneously herewith they shall
execute and deliver a memorandum of this Agreement and the Purchase Option or
Right of First Refusal and record the memorandum in the appropriate real estate
records applicable to each Facility which shall be in form satisfactory to
Owners and Managers.
IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to
be executed, all as of the day and year first above written.
EMERITUS: EMERITUS CORPORATION, a Washington
corporation
By /s/ Xxxxxx X. Xxxx
Name Xxxxxx X. Xxxx
Its Chairman
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MANAGERS: EMERITUS PROPERTIES I, INC., a Washington
corporation
By /s/ Xxxxxx X. Xxxx
Name Xxxxxx X. Xxxx
Its Chairman
ESC I, L.P., a Washington limited
partnership
By: ESC G.P. I, INC., a Washington
corporation
By /s/ Xxxxxx X. Xxxx
Name Xxxxxx X. Xxxx
Its Chairman
EMERITUS MANAGEMENT LLC, a Washington
limited liability company
By: Emeritus Corporation, a Washington
corporation
By /s/ Xxxxxx X. Xxxx
Name Xxxxxx X. Xxxx
Its Chairman
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EMERITUS MANAGEMENT I LP, a Washington
limited partnership
By: EM I, LLC, a Washington limited
liability company
By: Emeritus Corporation, a
Washington Corporation
By /s/ Xxxxxx X. Xxxx
Name Xxxxxx X. Xxxx
Its Chairman
ESC G.P. I, Inc., a Washington corporation
By /s/ Xxxxxx X. Xxxx
Name Xxxxxx X. Xxxx
Its Chairman
OWNER: AL INVESTORS II LLC, a Delaware limited
liability company, for itself and as sole
managing member on behalf of each of the
Facility Entities, or in cases where the
Facility Entity is a limited partnership,
as sole managing member on behalf of the
general partner thereof
By /s/ Xxxxxx X. Xxxxxxx
Name: Xxxxxx X. Xxxxxxx
Its: Manager
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EXHIBIT A
TO MANAGEMENT AGREEMENT
WITH OPTION TO PURCHASE
Certain Defined Terms
XX XX Holdings: XX XX Holdings LLC, a Delaware limited liability company, which
is the sole member of AL Investors II and AL Investors Development.
AL Investors II: AL Investors II LLC, a Delaware limited liability company
AL Investors Development: AL Investors Development LLC, a Delaware limited
liability company
XX XX Development Management Agreement: That certain Management Agreement with
Option to Purchase dated on or about the same date hereof, among AL Investors
Development and Emeritus Corporation and its Affiliates relating to the
management of up to five (5) assisted living facilities.
AL Management Agreement: That certain Management Agreement With Option to
Purchase dated December 30, 1998 Among AL Investors LLC and Emeritus Corporation
and its Affiliates relating to the management of twenty-five (25) assisted
living facilities.
Affiliate: with respect to any Person (i) any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person, (ii) any other Person that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding capital stock, shares or equity
interests of such Person or (iii) any officer, director, employee, general
partner or trustee of such Person, or any other Person controlling, controlled
by, or under common control with, such Person (excluding trustees and Persons
serving in a fiduciary or similar capacity who are not otherwise an Affiliate of
such Person). For the purposes of this definition, "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
Agency Account: The Agency Account to be maintained for each Facility for
payment of Fixed Operating Expenses and Operating Expenses as described in
Section 8.1 of the Management Agreement.
Annual Plan(s): as defined in Section 4.2 of the Management Agreement.
A-1
Award: all compensation, sums or anything of value awarded, paid or received on
a total or partial Condemnation.
Base Management Fee: as defined in Section 7.1 of the Management Agreement.
Bankruptcy Event: Any of Emeritus or Managers admit in writing its inability to
pay debts as they become due; or applies for, consents to, or acquiesces in the
appointment of, a trustee, receiver or other custodian or makes a general
assignment for the benefit of creditors, or in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is appointed and
is not discharged within sixty (60) days after such appointment; or an order for
relief is entered or a petition is filed under Xxxxx 00, Xxxxxx Xxxxxx
Bankruptcy Code, with respect to any of them; or any other bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, now or hereafter in effect, is commenced with
respect to any of them.
Business Day: any day which is not a Saturday or Sunday or a public holiday
under the laws of the United States of America or the State of Washington.
Capital Improvements: as defined in Section 12 of the Management Agreement.
Cash Available for Distribution: on any date the amount contained in the Agency
Accounts (as defined in Section 8.1 of the Management Agreement), minus an
amount (to be retained in the Agency Accounts) equal to any reasonably projected
Operating Deficit for the succeeding 30 days, taking into account all Operating
Expenses and Fixed Operating Expenses and all anticipated Total Revenues during
such 30-day period.
Casualty: the damage or destruction by act of God or otherwise of any portion of
any Facility which Owner reasonably estimates would cost more than $50,000 to
repair or restore.
Change of Control: shall mean the occurrence of any one of the following events
with respect to Emeritus:
(a) any Person or group of Persons (within the meaning of Rule 13d-5 under
the Act (as defined below) other than Emeritus, any of its subsidiaries, or any
trustee, fiduciary or other person or entity holding securities under any
employee benefit plan or trust of Emeritus or any of its subsidiaries, together
with all "affiliates" and "associates" (as such terms are defined in
A-2
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Act")) of
such Person or group, shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
Emeritus representing a greater percentage than that then owned by Xxxxxx X.
Xxxx, together with all "affiliates" and "associates" of Xxxxxx X. Xxxx (as
defined above) of either (A) the combined voting power of Emeritus' then
outstanding securities having the right to vote in an election of Emeritus'
Board of Directors ("Voting Securities") or (B) the then outstanding shares of
Stock of Emeritus; or
(b) Persons who, as of the date hereof, constitute Emeritus' Board of
Directors (the "Incumbent Directors") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that any
person becoming a director of Emeritus subsequent to the date hereof whose
election or nomination for election was approved by a vote of at least a
majority of the Incumbent Directors shall, for purposes of this Plan, be
considered an Incumbent Director; or
(c) the stockholders of Emeritus shall approve (A) any consolidation or
merger of Emeritus or any subsidiary where the shareholders of Emeritus,
immediately prior to the consolidation or merger, would not, immediately after
the consolidation or merger, beneficially own (as such term is defined in Rule
13d-3 under the Act), directly or indirectly, shares representing a majority of
the voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any), (B) any
sale, lease, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of Emeritus or (C) any plan or proposal for the
liquidation or dissolution of Emeritus; or
(d) other than by reason of death or legal disability, Xxxxxx Xxxx ceases
to be the chief executive officer of Emeritus.
Change of Control with respect to any Manager shall mean the occurrence of any
event whereby 100% of the ownership interests in such Manager are no longer
owned by Emeritus.
Closing: the date of closing under the Purchase Agreements.
Code: the Internal Revenue Code of 1986, as amended.
Commencement Date: as defined in Section 2.1 of the Management Agreement.
A-3
Compensation: the direct salaries and wages paid to, or accrued for the benefit
of, any employee working and employed at each Facility together with all
reasonably customary fringe benefits payable to, or accrued for the benefit of
such employee, including employer's contribution under FICA., unemployment
compensation, or other employment taxes, pension fund contributions, workmen's
compensation, group life and accident and health insurance premiums, and other
reasonable employee benefits customary in the industry.
Condemnation: with respect to any Facility or any interest therein or right
accruing thereto or use thereof (i) the exercise of the power of condemnation,
whether by legal proceedings or otherwise, by a Condemnor or (ii) a voluntary
sale or transfer to any Condemnor under threat of condemnation.
Condemnor: any public or quasi-public authority, or private corporation or
individual, having the power of condemnation.
Contracts: Collectively, all Provider Agreements, Residency Agreements, Ordinary
Contracts and Major Contracts.
CPA: The certified public accountants retained to provide necessary accounting
services for the Facility or Owner, the selection of which shall be subject to
approval by Owner.
Date of Taking: the date the Condemnor has the right to possession of the
property being condemned.
Environmental Laws: means all federal, state, and local laws, ordinances and
regulations and standards, rules, policies and other governmental requirements,
administrative rulings, and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous Materials and
apply to the Facilities or to the Land and/or the Improvements. Hazardous
Materials Laws include, but are not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the
Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water
Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, and their state analogs.
Excluded Expenses: depreciation, amortization and other non-cash expenses; items
to be provided or paid for at Owner's or Managers' sole expense as provided
herein; costs and expenses resulting from or required to cure any matter or
defect which constitutes a breach of warranty, representation or indemnity under
the Purchase Agreements, the Licensing Agreement, or the Management Agreement
A-4
which cost or expense shall be the sole responsibility of the breaching party;
unreasonable or excessive charges or expenses.
Escrow Holder: First American Title Insurance Company.
Extension Term: as defined in Section 2.2 of the Management Agreement.
Facility or Facilities: Each of the assisted living facilities, including the
Land, Improvements, and Personal Property associated therewith, located in the
city and state as set forth below:
Facility City State Units Beds Facility LLC and LP
Name
Colonial Park
Club Sarasota FL 90 110 AL Investors II Sarasota
LLC
Park Club of
Fort Xxxxx Fort Xxxxx FL 90 100 AL Investors II Fort
Xxxxx LLC
Park Club of
Oakbridge Lakeland FL 77 94 AL Investors II Lakeland
LLC
Park Club of
Xxxxxxx Brandon FL 89 110 AL Investors II Xxxxxxx
LLC
Highland Hills Pocatello ID 49 57 AL Investors II Pocatello
LLC
Ridge Wind Chubbuck ID 110 96 AL Investors II Chubbuck
LLC
Lakewood Inn Coeur d'Alene ID 73 109 AL Investors II Coeur
D'Alene
The Pines of
Tewksbury Tewksbury MA 49 50 AL Investors II Tewksbury
LLC
Meadowbrook Ontario OR 53 82 AL Investors II Ontario
LLC
Xxxxxxxx Place Anderson SC 127 84 AL Investors II Xxxxxxxx
LLC
Elmbrook Estates Lubbock TX 79 100 Lubbock AL Investors II
LP
Fairhaven Estates Bellingham WA 98 110 AL Investors II
Bellingham LLC
Hearthstone MosesLake WA 50 100 AL Investors II Moses
Lake LLC
Xxxxxxxxx Xxxxx Xxxxxxx Xxx XX 84 92 AL Investors II Federal
Way LLC
Facility Accounts: as defined in Section 8.1 of the Management Agreement.
Facility Entity: each of the Facility LLC's or LP's which owns a Facility as set
forth opposite the name of each Facility above and their respective successors
or assigns.
Fixed Operating Expenses: for any period, all fixed costs and expenses of
owning, and operating the Facilities in the aggregate except where the Agreement
expressly provides that Fixed Operating Expenses shall be determined for each
Facility to the extent such costs and expenses are not included in Operating
Expenses, including but not limited to (a) Managers' Base Management Fee
(excluding the amount of any Accrued Management Fee accrued during such period);
(b) all amounts to be paid into the Reserve Account and the cost of Capital
Improvements approved by Owners not funded from the Reserve Account; (c) the
debt service on account of the Senior Loan; (d) the real and personal property
ad valorem taxes and assessments; and (e) all costs and expenses of all property
and casualty insurance on or in respect of the Facilities provided for herein
and the amount of all self-insured
A-5
losses or deductibles. Fixed Operating Expenses shall not include the Excluded
Expenses.
Furnishings and Equipment: all furniture, furnishings, beds, equipment, food
service equipment, apparatus and other personal property used in (or if the
context so dictates, required in connection with), the operation of each
Facility, other than Operating Equipment, Operating Supplies and fixtures
attached to and forming part of the Improvements.
GAAP: means generally accepted accounting principles applied on a consistent
basis.
Governmental Authorities: Collectively, all agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures, and offices of any
nature whatsoever of any government, quasi-government unit or political
subdivision, whether with a federal, state, county, district, municipal, city or
otherwise and whether now or hereinafter in existence which exercises
jurisdiction over any Facility.
Group Service: as defined in Section 3.2.4 of the Management Agreement.
Hazardous Substances: "Hazardous Substances" shall mean petroleum and petroleum
products and compounds containing them, including gasoline, diesel fuel and oil;
explosives; flammable materials, radioactive materials; polychlorinated
biphenyls ("PCBs") and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become
friable; underground storage tanks, whether empty or containing any substance;
any substance the presence of which on any Facility is prohibited by any
federal, state or local authority; any substance that requires special handling;
and any other material, or substance now or in the future defined as a
"hazardous substance," "hazardous material," hazardous waste," "toxic
substance," "toxic pollutant," "contaminant," or "Pollutant" within the meaning
of any Environmental Law. Provided, however, Hazardous Substances shall not
include the safe and lawful use and storage of quantities of (i) pre-packaged
supplies, medical waste, cleaning materials and petroleum products customarily
used in the operation and maintenance of comparable Facilities, (ii) cleaning
materials, personal grooming items and other items sold in pre-packaged
containers for consumer use and used by occupants of any Facility; and (iii)
petroleum products used in the operation and maintenance of motor vehicles from
time to time located on the Facilities' parking areas, so long as all of the
foregoing are used, stored, handled, transported and disposed of in compliance
with Environmental Laws.
A-6
Impositions: collectively, all taxes (including, without limitation, all capital
stock and franchise taxes of AL Investors II, XX XX Holdings, or any Facility
Entity, all ad valorem, property, sales and use, single business, gross
receipts, transaction privilege, rent or similar taxes), assessments (including,
without limitation, all assessments for public improvements or benefits, whether
or not commenced or completed prior to the date hereof and assessments levied by
condominium associations), ground rents, water and sewer rents other than normal
utility charges, excises, tax levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees), and all other
charges imposed by Governmental Authorities, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Facility (including all interest and penalties
thereon due to any failure in payment by Manager), which at any time prior to,
during or in respect of the Term of the Management Agreement may be assessed or
imposed on or in respect of or be a Lien upon (a) Facility Entities' interest in
the Facility, (b) the Facility or any rent or income therefrom or any estate,
right, title or interest therein, or (c) any occupancy, operation, use or
possession of, sales from, or activity conducted on, or in connection with, the
Facility or the leasing or use of the Facility. Notwithstanding the foregoing,
"Impositions" shall not include: (1) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on any Owners
or Managers, (2) any tax imposed with respect to the sale, exchange or other
disposition of a Facility or the proceeds thereof, or (3) any principal or
interest on any Mortgage; provided, however, the provisos set forth in clause
(1) of this sentence shall not be applicable to the extent that any real or
personal property tax, assessment, tax levy or charge pursuant to the first
sentence of this definition and which is in effect at any time during the Term
hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause (1) is levied, assessed or imposed expressly in lieu
thereof.
Improvements: the buildings, structures (surface and sub-surface) and other
improvements now or hereafter located on the Land.
Initial Term: as defined in Section 2.1 of the Management Agreement.
Insurance Requirements: all terms of each insurance policy required to be
carried in this Agreement, or agreed to be carried by Owners and Managers, and
all orders, rules, regulations and other requirements of the National Board of
Fire Underwriters (or any other body exercising similar functions) applicable to
the Facilities or the operation thereof.
Junior Loan: any indebtedness incurred by Owners which is secured by a mortgage,
pledge, and related security instruments against, among other things, the
membership interests of XX XX Holdings in AL Investors II and/or the membership
interests of AL Investors II in the Facility Entities. Initially, the Junior
Loan is
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evidenced by that certain Loan Agreement among XX XX Holdings, AL Investors II,
AL Investors Development and the Facility Entities and Senior Housing Partners
I, L.P. dated on or about the same date hereof ("Initial Junior Loan").
Land: the parcel or parcels of land on which each of the Facilities is situated,
together with all rights of ingress and egress thereto and parking associated
therewith as legally described in the Purchase Agreements.
Leases: Collectively, the Ordinary Leases and Major Leases.
Legal Requirements: collectively, all statutes, ordinances, by-laws, codes,
rules, regulations, restrictions, orders, judgments, decrees and injunctions
(including, without limitation, all applicable building, health code, zoning,
subdivision, and other land use and assisted living licensing statutes,
ordinances, by-laws, codes, rules and regulations), whether now or hereafter
enacted, promulgated or issued by any Governmental Authority, Accreditation Body
or Third Party Payor affecting a Facility Entity or any Facility or the
ownership, construction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof or the operation of any programs or
services in connection with a Facility, including, without limitation, any of
the foregoing which may (i) require repairs, modifications or alterations in or
to any Facility, (ii) in any way affect (adversely or otherwise) the use and
enjoyment of any Facility or (iii) require the assessment, monitoring, clean-up,
containment, removal, remediation or other treatment of any Hazardous Substances
on, under or from any Facility. Without limiting the foregoing, the term "Legal
Requirements" includes all Environmental Laws and shall also include all Permits
and Contracts issued or entered into by any Governmental Authority, any
Accreditation Body and/or any Third Party Payor and all Permitted Encumbrances.
Lending Group: GMAC Commercial Mortgage in a debt facility referred to herein as
the Initial Senior Loan secured by the Facilities in the maximum aggregate
original principal balance of $68,000,000.
Licensing Indemnity Agreement: that certain Licensing Indemnity Agreement
between Emeritus Corporation and AL Investors II dated on or about the same date
hereof.
Lien: with respect to any real or personal property, any mortgage, mechanics' or
materialmen's lien, pledge, collateral assignment, hypothecation, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property which secures or is intended to secure the payment of money, whether or
not inchoate, vested or perfected, other than the Mortgage.
A-8
Major Contracts: Any contract for the purchase of goods or services or any other
agreement which requires payments in excess of $50,000 per year for any Facility
or which cannot be terminated without penalty or termination fee on sixty (60)
days notice or in which the provider of the goods or services is Emeritus or an
Affiliate (except pursuant to Group Services approved in connection with an
Annual Plan).
Major Lease: Any Lease which has a noncancellable term in excess of one year or
a rental payment in excess of $10,000 per year or pursuant to which Emeritus or
an Affiliate is the lessee or lessor.
Managed Care Plans: all health maintenance organizations, preferred provider
organizations, individual practice associations, competitive medical plans, and
similar arrangements.
Management Fee: an amount equal to seven percent (7%) of Total Revenue for all
Facilities, subject to the provisions of Section 7.2 of the Management
Agreement.
Medicaid: the medical assistance program established by Title XIX of the Social
Security Act (42 US C xx.xx. 1396 et seq.) and any statute succeeding thereto.
Medicare: the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act (42 USC xx.xx. 1395 et seq.) and any
statute succeeding thereto.
Mortgage: collectively, the terms and conditions of the Senior Loan and the
Junior Loan.
Mortgagee: the holder or beneficiary of a Mortgage and their respective
successors and assigns.
Operating Deficit and Operating Profit: for any period, the amount, if any, by
which Total Revenues for that period is less than or exceeds, respectively, the
sum of (i) Operating Expenses and (ii) Fixed Operating Expenses for that period
in each case determined on a cash basis.
Operating Equipment: all dishes, glassware, bed coverings, towels, silverware,
uniforms and similar items used in, or held in storage for use in (or if the
context so dictates, required in connection with) the operation of the
Facilities.
Operating Expenses: for any period, all reasonable costs and expenses of owning
and operating the Facilities in the aggregate except where the Agreement
A-9
expressly provides that Operating Expenses shall be determined for each Facility
(which costs and expenses do not include the Fixed Operating Expenses or the
Excluded Expenses) including the following:
(a) The cost of all Operating Equipment and Operating Supplies placed in
use, with the exception of the Operating Equipment and Operating Supplies
initially supplied by the Facility Entities. The cost of maintaining and
operating the vans and buses for each Facility (but not any debt service or
lease payments which shall remain the sole expense of Emeritus).
(b) The Compensation of all employees working and employed by Managers at
the Facilities. The Compensation of Managers' or Emeritus' home office or
executive or other personnel not regularly employed at the Facilities shall not
be included in Operating Expenses or Fixed Operating Expenses, but reasonable
out-of-pocket travel expenses of Managers or Owners' executive personnel while
traveling to and from a Facility on business shall be reimbursable as an
Operating Expense; provided, however, that if such business travel relates to
business or properties other than with respect to the Facilities, then such
travel expenses shall be equitably prorated between such other business or
properties and the Facilities.
(c) The cost of all utilities including, without limitation, electricity,
water, gas, heat and other utilities, and office supplies and equipment, and
goods and services purchased under all Contracts, including leasing expenses in
connection with telephone and data processing equipment and such other equipment
as the parties hereto may agree upon in writing.
(d) The cost of repairs to and maintenance of the Facilities whether
performed by Facility employees or contracted to third parties.
(e) Insurance premiums for all insurance required under this Agreement and
self-insured losses and deductibles with respect to such insurance coverages
(but excluding premiums and self-insured losses and deductibles on property and
casualty insurance which are included in Fixed Operating Costs). Premiums on
policies for more than one year will be prorated over the period of insurance
coverage and premiums under blanket policies will be equitably allocated among
properties covered.
(f) All Impositions (except for real and Personal Property ad valorem
taxes and assessments which shall be a Fixed Operating Expenses).
(g) Except as otherwise provided in Section 6.1 of the Management
Agreement, legal fees and fees of any CPA for services directly related to the
operations of the Facilities (whether incurred by Owners or Managers).
A-10
(h) The costs and expenses of technical consultants and specialized
operational experts for specialized services in connection with non-recurring
work on operational, functional, design or construction problems and activities
whether incurred by Owner or Manager; provided, however, that if such costs end
expenses have not been included in the Annual Plan, the same shall be subject to
approval by Owner.
(i) All expenses for marketing the Facilities and all expenses of sales
promotion and public relations activities as set forth in the Annual Plan
(j) The cost of Group Services, as provided in Section 3.2.4 of the
Management Agreement.
(k) Bad debts or uncollectible amounts from residents of the Facilities.
(l) Refund of deposits to residents under Residency Agreements
(m) Owners' reasonable costs and expenses of administering, supervising,
and managing Owners' activities in connection with this Agreement and any
Mortgage, including Owners' reasonable cost and expense of preparing and filing
federal, state and local income tax returns and audits.
(n) All other reasonable expenses and charges incurred in the operation
and management of the Facilities to the extent set forth in the Annual Plan or
otherwise approved by the Owners or as otherwise set forth in the Agreement.
Operating Period: the period beginning with the Commencement Date and ending
upon the expiration of the Initial Term.
Operating Supplies: consumable items used in, or held in storage for use in (or
if the context so dictates, required in connection with), the operation of the
Facilities, including food, medical supplies, fuel, soap, cleaning materials,
and other similar consumable items.
Operating Year: the Operating Years shall coincide with and be identical with
the calendar years, except that the first Operating Year shall be the period
beginning on the Commencement Date and ending on the following December 31,
1999, and such long or short year, as applicable, shall constitute a full
Operating Year as used herein.
Ordinary Contracts: All agreements and contracts to purchase goods and services
(excluding Major Contracts) in the ordinary course of business of
A-11
refurbishing, owning, operating or managing the Facilities, or the operation of
any programs or services in conjunction with the Facility and all renewals,
replacement and substitutions therefor with any Governmental Authority,
Accreditation Body or Third Party Payor or entered into with any third Person,
excluding, however, any agreements pursuant to which money has been or will be
borrowed or advanced, the Leases, any agreement creating or permitting any Lien
or other encumbrance on title (except for the Permitted Exceptions), and any
Major Contract.
Ordinary Leases: Collectively, all subleases, licenses, use agreements,
equipment leases, concession agreements, tenancy at will agreements and other
occupancy agreements (but excluding any Residency Agreement, Facility Lease or
Major Lease), whether oral or in writing, entered into by Managers affecting a
Facility.
Overdue Rate: on any date, a rate of interest per annum equal to the greater of:
(i) a variable rate of interest per annum equal to one hundred twenty percent
(120%) of the Prime Rate, or (ii) twelve percent (12%) per annum; provided,
however, in no event shall the Overdue Rate be greater than the maximum rate
then permitted under Legal Requirements.
Permits: collectively, all permits, licenses, approvals, qualifications, rights,
variances, permissive uses, accreditation, certificates, certifications,
consents, agreements, contracts, contract rights, franchises, interim licenses,
permits and other authorizations of every nature whatsoever required by, or
issued under, applicable Legal Requirements relating or affecting a Facility or
the construction, development, maintenance, management, use or operation
thereof, or the operation of any programs or services in conjunction with the
Facility and all renewals, replacements and substitutions therefor, now or
hereafter required or issued by any Governmental Authority, Accreditation Body
or Third Party Payor to Owners or Managers.
Permitted Exceptions: (i) all encumbrances to title present at closing pursuant
to the Purchase Agreements; (ii) liens for Impositions not delinquent; (iii)
easements, restrictions on use, zoning laws and ordinances, rights of way and
other encumbrances and minor irregularities in title, whether now existing or
hereafter arising, which are approved by Owner and do not individually or in the
aggregate materially impair the use of any Facility.
Person: any individual, corporation, general partnership, limited partnership,
joint venture, stock company or association, company, bank, trust, trust
company, land trust, business trust, unincorporated organization, unincorporated
association, Governmental Authority or other entity of any kind or nature.
A-12
Personal Property: all machinery, equipment, furniture, furnishings, vans,
buses, movable walls or partitions, computers or trade fixtures, goods,
inventory, supplies, the name of the Facility, and other personal or intangible
property used in the operation of the Facility, including, but not limited to,
all Operating Equipment, Furnishings and Equipment and Operating Supplies.
Notwithstanding the foregoing, title to the vans and buses shall remain in
Emeritus or Managers and be held in trust by them for the benefit of the
respective Owner; provided that legal title to the vans and buses shall be
transferred to the respective Facility Entity upon expiration or sooner
termination of the Management Agreement as provided in Section 9.6 of the
Management Agreement.
Primary Intended Use: the use of the Facility as an assisted living facility and
such ancillary uses as are permitted by applicable Legal Requirements and may be
necessary in connection therewith or incidental thereto.
Prime Rate: the variable rate of interest per annum from time to time set forth
in the Wallstreet Journal as the prime rate of interest and in the event that
the Wallstreet Journal no longer publishes a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any major bank or other financial institution reasonably selected
by AL Investors.
Provider Agreements: all participation, provider and reimbursement agreements or
arrangements, if any, in effect for the benefit of Owners or Managers in
connection with the operation of the Facility relating to any right of payment
or other claim arising out of or in connection with participation in any Third
Party Payor Program.
Put and Purchase Agreement: that certain Put and Purchase Agreement between
Xxxxxx Xxxx and XX XX Holdings dated on or about the same date hereof.
Residency Agreement: all contracts, agreements and consents executed by or on
behalf of any resident or other Person seeking services at the Facility,
including, without limitation, assignments of benefits and guarantees.
Senior Loan: any indebtedness incurred by Owners which is secured by any
mortgage, deed of trust and related security instruments against a Facility.
Initially, the Senior Debt is evidenced by that certain Loan Agreement between
AL Investors II (and the Facility Entities) and GMAC Commercial Mortgage
Corporation dated on or about the same date hereof ("Initial Senior Loan").
Third Party Payor Programs: collectively, all third party payor programs in
which the Emeritus Entities presently or in the future may participate,
including
A-13
without limitation, Medicare, Medicaid, Blue Cross and/or Blue Shield, Managed
Care Plans, other private insurance plans and employee assistance programs.
Third Party Payors: collectively, Medicare, Medicaid, Blue Cross and/or Blue
Shield, private insurers and any other Person which presently or in the future
maintains Third Party Payor Programs.
Title Company: First American Title Insurance Company.
Total Revenues: collectively, but without duplication all revenues generated by
reason of the operation of the Facilities in the aggregate, except where the
Agreement expressly provides that Total Revenues shall be determined for each
Facility, directly or indirectly received by any Facility Entity or Managers,
including, without limitation, all resident revenues received or receivable for
the use of, or otherwise by reason of, all rooms, units and other facilities
provided, deposits received from residents under Residency Agreements, meals
served, services performed, space or facilities leased pursuant to the Leases or
goods sold on or from the Facility, all amounts from Third Party Payors, and all
revenues from all ancillary services provided at or relating to any Facility;
provided, however, that Total Revenues shall not include:
(a) federal, state or local sales, use, gross receipts and excise taxes
and any tax based upon or measured by said Total Revenues which is added to or
made a part of the amount billed to the resident or other recipient of such
services or goods, whether included in the billing or stated separately, which
is paid to the Governmental Authority;
(b) proceeds from sale of capital assets, including the sale of the
Facility and proceeds therefrom other than sale of Furnishings and Equipment in
the ordinary course of business,;
(c) proceeds of any insurance other than business interruption insurance;
(d) proceeds of any financing or capital contributions to Owners;
(e) interest or earnings on the Reserve Account;
(f) any Award resulting from Condemnation;
(g) any other income or proceeds from any source other than in the
ordinary course of business of the Facility.
A-14
Except as otherwise specifically indicated, all references to Section and
Subsection numbers refer to Sections and Subsections of this Agreement, and all
references to Exhibits refer to the Exhibits attached hereto. The words
"herein," "hereof", "hereunder", "hereinafter", and words of similar import
refer to this Agreement as a whole and not to any particular Section or
Subsection hereof unless the context otherwise requires.
A-15
EXHIBIT B
TO MANAGEMENT AGREEMENT
WITH OPTION TO PURCHASE
Determination of Purchase Price
The Purchase Price with respect to all of the Facilities means:
(a) The amount required to repay the Senior Loan secured by all Facilities
in full, including prepayment penalties or other costs of repayment; plus
(b) The amount required to repay that portion of the Junior Loan allocable
by XX XX Holdings to the Facilities (which allocation, together with the
allocation of the Junior Loan set forth in Exhibit C to the XX XX Development
Management Agreement, shall repay the Junior Loan in full) evidenced by that
certain Promissory Note dated of even date herewith, in the original principal
amount of $19,704,000, including repayment of the allocable portion of
principal, Base Interest, and Contingent Interest, as such terms are defined
therein, plus
(c) The amount required to repay in full the initial investment of
$3,400,000 made by the members of XX XX Holdings through AL Investors II to
acquire the Facilities, plus any additional contributions by XX XX Holdings to
AL Investors II, plus an eighteen percent per annum rate of return, compounded
annually (computed taking into account any distributions made by AL Investors II
to XX XX Holdings from time to time), plus an additional amount equal to
$68,000, as may be increased by the Emeritus Stock Appreciation Amount, plus
(d) The outstanding amount of any Operating Deficit Loan, plus
(e) The reasonable costs allocable to the Facilities which XX XX Holdings,
AL Investors II and its Subsidiaries will incur to dissolve and fully liquidate.
The foregoing Option Price is intended to equal the purchase price which would
be required to be paid for the Facilities in connection with a dissolution and
liquidation of AL Investors II and its Subsidiaries (assuming a simultaneous
closing of the Purchase Option under the XX XX Development Management
Agreement), to provide a net liquidating payment to the members of XX XX
Holdings, after satisfaction in full of the Senior Loan and the Junior Loan, and
payment of all reasonable costs of such assumed dissolutions, equal to XX XX
Holdings' investment in AL Investors II plus an 18% per annum return, compounded
annually (computed taking into account periodic distributions), plus $68,000 as
may be increased by
B-1
the Emeritus Stock Appreciation Amount. The parties hereto acknowledge such
intention and agree that the foregoing shall be construed accordingly.
For purposes hereof, the "Emeritus Stock Appreciation Amount" means (a) the sum
of $68,000 divided by the arithmetic average of the closing price of one share
of Emeritus common stock as reported in the Wall Street Journal for the
60-trading-day period preceding the Commencement Date plus $1, which amount is
_____________; (b) the quotient of (a) multiplied by the arithmetic average of
the closing price of one share of Emeritus common stock as reported in the Wall
Street Journal for the 20-trading-day period preceding the Time of Closing (as
defined in Section 13 of the Management Agreement); and (c) the product derived
from (b) less $68,000 (if such number is negative, it shall be deemed zero). The
foregoing calculation shall be appropriately adjusted for any dilution of
Emeritus common stock occurring between the Commencement Date and the Time of
Closing.
B-2
