SECOND AMENDMENT TO MANAGEMENT AGREEMENT
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WITH OPTION TO PURCHASE
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(AL I - Emeritrust 25 Facilities)
This Second Amendment to Management Agreement with Option to Purchase (this
"Amendment") is effective as of the 1st day of January, 2002 by and among
Emeritus Management LLC, a Washington limited liability company ("Emeritus
Management"), Emeritus Management I LP, a Washington limited partnership ("Texas
Manager;" together with Emeritus Management referred to herein as "Manager"),
Emeritus Corporation, a Washington Corporation ("Emeritus), AL Investors LLC, a
Delaware limited liability company ("AL Investors"), for itself and as sole
managing member or sole managing member of the general partner of each of the
Facility Entities set forth on Exhibit A to the Management Agreement (as
hereinafter defined).
Recitals
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A. Emeritus Management, Texas Manager, Emeritus, AL Investors, ESC I,
L.P., a Washington limited partnership ("ESC"), and Emeritus Properties I, Inc.,
a Washington corporation ("EPI") entered into that certain Management Agreement
with Option to Purchase (Emeritrust 25) dated December 30, 1998, pursuant to
which, among other things, AL Investors and the Facility Entities engaged
Manager to manage certain Facilities described therein (as subsequently amended,
the "Management Agreement"). The Management Agreement has been previously
amended by First Amendment to Management Agreement with Option to Purchase,
dated March 22, 2001 (the "First Amendment"). Pursuant to the terms of the
Management Agreement, ESC and EPI have ceased to be Managers under the
Management Agreement.
B. In addition to the Management Agreement, the parties and certain of
their affiliates have previously entered into the following agreements:
1. That certain Management Agreement with Option to Purchase (XX XX -
14 Operating Facilities) dated March 26, 1999 by and among Emeritus Management,
Texas Manager, Emeritus, AL Investors II LLC (for itself and on behalf of
certain Facility Entities defined therein), ESC, ESC G.P. I, Inc., a Washington
corporation ("ESCGP"), and EPI, as amended by Amendment to Management Agreement
dated March 27, 2000 and by Second Amendment to Management Agreement dated March
22, 2001 (as amended, the "XX XX Management Agreement (GMAC))". ESC, ESCGP and
EPI have ceased to be Managers under the XX XX Management Agreement (GMAC).
2. That certain Management Agreement with Option to Purchase
(Teachers), by and among Emeritus Management, Emeritus, and AL Investors II LLC
(for itself and on behalf of certain Facility Entities defined therein), dated
March 27, 2000 (the "XX XX Management Agreement (Teachers))".
3. That certain Management Agreement with Option to Purchase (XX XX - 5
Development Facilities) by and among Manager, Emeritus, and AL Investors
Development LLC, a Delaware limited liability company (for itself and on behalf
of certain Facility Entities defined therein), dated March 25, 1999 (the "XX XX
Development Management Agreement").
C. In connection with an extension of the Senior Loan, the parties now
desire to amend the Management Agreement on the terms and conditions contained
herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars, the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
Defined Terms. All terms capitalized herein but not defined shall have the
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meanings given them in the Management Agreement.
Extension of Management Agreement. Section 2.3 of the Management Agreement
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(as added under the First Amendment) is hereby replaced with the following:
2.3 ADDITIONAL EXTENSION TERM. Under the Senior Loan Amendment, AL
Investors is currently eligible for a 9 month loan extension in accordance with
the terms and conditions contained in Section 2.4 thereof (the "First Extension
Period"), and at the end of the First Extension Period, may be eligible for one
additional 9 month loan extension in accordance with the terms and conditions
contained in Section 2.5 thereof (the "Second Extension Period") to be exercised
no later than September 15, 2002. If AL Investors is entitled to exercise its
extension rights under the terms of the Senior Loan Amendment for the First
Extension Period and the Second Extension Period, it hereby agrees that it will
do so.
The parties hereby acknowledge that AL Investors has exercised its
extension rights for the First Extension Period, and agree that the term of the
Management Agreement is hereby extended to June 30, 2003 to make it co-terminous
with the Second Extension Period. All of the terms and provisions of the
Management Agreement (as modified by this Amendment) shall continue to be
applicable throughout the extended term, including, without limitation, the
obligation to fund Operating Deficits and the right to exercise the Purchase
Option. If during any extension term the Management Agreement is terminated for
any reason (other than the failure to qualify for extension rights under the
Senior Loan Amendment), at Owner's election in its sole discretion Manager may
be required to continue to provide management services for the Facilities for up
to 90 days (until terminated by Owner upon not less than 30 days prior written
notice) and the management fee payable during such period shall be 3% of Total
Revenues from each Facility then managed.
If AL Investors is not eligible to exercise its extension rights under the
Senior Loan Amendment for the Second Extension Period, then AL Investors shall
have the right to terminate the Management Agreement. However, if AL Investors
does not terminate the Management Agreement and obtains alternative financing
for the Facilities or modifies the existing Senior Loan to extend the term,
Manager's obligation to fund Operating Deficits shall not exceed the Operating
Deficits that would have been required to be paid during the Second Extension
Period had it been exercised or permitted to be exercised. For purposes of
calculating Operating Deficits pursuant to this section, Manager shall have the
benefit of any interest rate caps in effect.
If Al Investors elects to terminate the Management Agreement because it
does not qualify for the Second Extension Period, then Owner shall be deemed to
have notified Manager of its intent to extend beyond such maturity date pursuant
and subject to the terms of section 2.2 of the Management Agreement. During
the first 90 days of such extension Owner shall notify Manager of the duration
of the extension and the Facilities to which such extension is applicable, which
extension may be up to 12 months from the date of termination, subject to any
earlier termination rights contained in the Management Agreement or this
Amendment. The extension exercised pursuant to section 2.2 of the Management
Agreement in accordance with this paragraph shall not be subject to the 90 day
prior notice requirement contained in section 2.2 of the Management Agreement
but shall be for a Management Fee of 5% of gross revenues as set forth in
Section 2.2 and Manager shall not be obligated to fund Operating Deficits during
such period.
The extension of the Purchase Option shall continue to be governed by
Section 4.2 of the First Amendment.
1. Management Fee. The parties agree that in connection with the extension
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of the Senior Loan being exercised in connection with this Agreement, AL
Investors has agreed to pay from funds held by Emeritus on behalf of AL
Investors (i) an interest rate cap not to exceed 4% for LIBOR for the entire
amount of the Tranche A and Tranch B indebtedness, (ii) all extension fees
charged by the Senior Lender with respect to the first and the second loan
extensions, and (iii) all closing costs related to the first and second loan
extensions, including, without limitation, all costs and fees incurred by the
Senior Lender, title insurance fees, UCC search costs, attorneys fees and costs
to AL Investors and Senior Housing Partners I, L.P. and all other reasonable out
of pocket costs and expenses (collectively, the "Loan Extension Closing Costs").
AL Investors shall be entitled to recoup all Loan Extension Closing Costs out of
Operating Profit from the Facilities, without interest, after payment of a
management fee of 3% of Total Revenues from the Facilities to Emeritus. To the
extent not modified by this paragraph 3, paragraph 9 of the First Amendment
governing prior loan restructure fees shall continue to be applicable with
respect to the Pooled Expenses related to the Senior Loan Restructure as defined
therein. To memorialize the foregoing agreement, Section 7.2 of the Management
Agreement (as replaced by Paragraph 5 of the First Amendment) is hereby deleted
and replaced in its entirety with the following:
7.2 REIMBURSEMENT OF LOAN EXTENSION CLOSING COSTS; ADDITIONAL
MANAGEMENT FEE. Any Operating Profit in excess of the Base Management Fee and
any Accrued Base Management Fee at the end of each month shall be paid first to
Owner until Owner has been reimbursed for all Loan Extension Closing Costs then
outstanding on any loan extension, then 50% to Manager and 50% to Owners until
Manager has received (i) an additional management fee of 4% of Total Revenues
from all Facilities in the aggregate subject to this Agreement (the "Additional
Management Fee") plus (ii) any Accrued Additional Management Fee (as hereinafter
defined). If there is insufficient Operating Profit after payment of the Base
Management Fee, Accrued Base Management Fee, and any Loan Extension Closing
Costs during any month to pay the Additional Management Fee, the unpaid portion
shall accrue and be added to any accrued amounts for prior months commencing
January 1, 2002 (the "Accrued Additional Management Fee"). The Base Management
Fee, any Accrued Base Management Fee, the Additional Management Fee and any
Accrued Additional Management Fee are sometimes referred to herein as the
"Management Fee".
In addition, Section 8.2 of the Management Agreement (as replaced pursuant
to paragraph 6 of the First Amendment), is hereby amended to (i) exclude Capital
Improvements from Fixed Operating Expenses for purposes of subsection (b)
thereof, and (ii) add a new section (e) as follows: "(e) Any Loan Extension
Closing Costs to be reimbursed to Owner", such that Loan Extension Closing Costs
are paid after the Base Management Fee and Accrued Base Management Fee, but
prior to any Additional Management Fee or Accrued Additional Management Fee.
The following conforming amendments are hereby made: the prior subsection (e)
of Section 8.2 shall become subsection (f), the prior subsection (f) shall
become subsection (g), and the reference to "Section 8.2(e)" in Section 9.9 (as
added by the First Amendment) shall instead refer to "Section 8.2(f)".
Emeritus acknowledges that is has no right to reimbursement for any amounts
deposited on account of Section 4.12 of the Senior Loan loan documents or any
additional amounts funded by Manager to cover any deferred Tranche A interest.
2. Failure to Achieve Financial Performance. A new subsection 9.8(d) is
hereby added as follows:
(d) For purposes of calculating Cash Available for Distribution
actually distributed to Owner pursuant to this Section 9.8, Manager shall be
entitled to include as part of such distribution any amounts reimbursed to Owner
for Loan Extension Closing Costs.
3. Purchase Option Requirements. Section 13.1 of the Management Agreement
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is hereby amended to add the following condition to the exercise of the Purchase
Option: "(d) the Purchase Option under each of (i) the XX XX Management
Agreement (GMAC), (ii) the XX XX Management Agreement (Teachers), and (iii) the
XX XX Development Management Agreement, have been simultaneously exercised." In
addition, effective from and after December 31, 2002, a new subsection (f) is
added to Section 13.1 of the Management Agreement as follows: "(f) the term of
the XX XX Development Management Agreement has been extended to December 31,
2003."
4. Cross Default of Purchase Options. Section 13.9 of the Management
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Agreement is hereby amended by adding the following at the end: "If Emeritus
elects to exercise its purchase options under the XX XX Development Management
Agreement, the XX XX Management Agreement (Teachers), and the XX XX Management
Agreement (GMAC), and thereafter fails to timely consummate the purchase of the
facilities subject to the exercised purchase options in accordance with the
terms thereof for any reason other than a default by the owners and failure to
deliver the applicable deeds for each of the facilities, the Purchase Option
under this AL I Management Agreement shall be deemed terminated and Emeritus
shall thereafter have no further right to purchase the Facilities".
5. Additional Collateral Properties. The parties acknowledge that under the
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terms of the Senior Loan Restructure, Tranche A and Tranche B will be
resized as permitted thereunder, which will consolidate Tranche B into Tranche A
and eliminate the collateralization of Tranche B with the Additional Collateral
Properties.
Ratification. The Management Agreement, as amended by this Agreement, is
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hereby ratified and confirmed.
Understandings and Agreements. This Amendment, together with the
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Management Agreement, constitutes all of the understandings and agreements
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between the parties with respect to the management of the Facilities.
Headings. The headings contained herein are for convenience of reference
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only and are not intended to define, limit or describe the scope or intent of
any provision of this Agreement.
Applicable Law. This Agreement shall be construed and interpreted and be
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governed by the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date and year first above written.
EMERITUS MANAGEMENT
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EMERITUS MANAGEMENT LLC,
a Washington limited liability company
By: Emeritus Corporation,
a Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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EMERITUS MANAGEMENT I LP
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EMERITUS MANAGEMENT I LP,
a Washington limited partnership
By: EM I, LLC, a Washington limited liability company
By: Emeritus Corporation, a
Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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EMERITUS
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EMERITUS CORPORATION, a Washington
corporation
By: /s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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AL INVESTORS
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AL INVESTORS LLC, a Delaware limited liability company, for itself and as sole
managing member on behalf of each of the Owners, or in the case where the Owner
is a limited partnership, as sole managing member on behalf of the general
partner thereof
By: /s/ Xxxxxx X. Brendan
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Name Xxxxxx X. Xxxxxxx
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Title Manager
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The undersigned lenders in connection with the Senior Loan and the Junior Loan
have executed this Agreement for the sole purpose of consenting to the foregoing
Amendment.
GMAC Commercial Mortgage Corporation, a California corporation
By:
Name
Title
Senior Housing Partners I, L.P.,
a Delaware limited partnership
By: /s/ Xxxx X. Xxxx
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Name Xxxx X. Xxxx
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Title Vice President
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The undersigned has executed this Agreement for the sole purpose of (i)
acknowledging and consenting to the foregoing Amendment, (ii) ratifying that
certain Guaranty of Management Agreement and Shortfall Funding Agreement dated
December 30, 1998, as amended by Amendment dated March 22, 2001, entered into by
Emeritus in favor or AL Investors and the Facility Entities (the "Guaranty"),
and (iii) confirming and agreeing that foregoing Amendment does not alter,
modify, amend or waive any terms contained in the Guaranty.
Emeritus Corporation,
a Washington corporation
By:/s/ Xxxxxxx X. Xxxxxxxxxx
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Name Xxxxxxx X. Xxxxxxxxxx
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Title Vice President of Finance
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