EXHIBIT 2.1
[EXECUTION COPY]
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
SUNRISE FIRST ASSISTED LIVING HOLDINGS, LLC
BY AND BETWEEN
SUNRISE ASSISTED LIVING INVESTMENTS, INC.,
AS THE MANAGING MEMBER,
AND
US ASSISTED LIVING FACILITIES, INC.
AS THE INVESTOR MEMBER
DATED AS OF MARCH 22, 2002
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS...................................................................1
SECTION 2. CONTINUATION OF COMPANY......................................................15
SECTION 3. NAME AND PRINCIPAL OFFICE....................................................15
SECTION 3.1. NAME..................................................................15
SECTION 3.2. PRINCIPAL OFFICE AND PLACE OF BUSINESS; REGISTERED AGENT..............15
SECTION 4. PURPOSE OF COMPANY...........................................................15
SECTION 5. TERM.15
SECTION 6. PERCENTAGE INTERESTS.........................................................16
SECTION 7. CAPITAL......................................................................16
SECTION 7.1. FIRST CLOSING.........................................................16
SECTION 7.2. SECOND CLOSING........................................................16
SECTION 7.3. SUBSEQUENT CLOSINGS AND CONDITIONS APPLICABLE TO CERTAIN ..............
FACILITIES............................................................17
SECTION 7.4. ADDITIONAL CAPITAL CONTRIBUTIONS AND OTHER CAPITAL MATTERS............18
SECTION 7.5. CAPITAL ACCOUNTS......................................................21
SECTION 7.6. INTEREST OR EARNINGS ON RETURNED CAPITAL..............................22
SECTION 7.7. NO THIRD PARTY RIGHTS.................................................22
SECTION 7.8. DEEMED CAPITAL CONTRIBUTIONS..........................................22
SECTION 8. ALLOCATION OF PROFITS AND LOSSES.............................................22
SECTION 8.1. NET PROFIT............................................................22
SECTION 8.2. NET LOSS..............................................................23
SECTION 8.3. DISPOSITION GAIN AND DISPOSITION LOSS.................................23
SECTION 8.4. SPECIAL ALLOCATIONS...................................................25
SECTION 8.5. CURATIVE ALLOCATIONS..................................................27
SECTION 8.6. OTHER ALLOCATION RULES................................................27
SECTION 8.7. TAX ALLOCATIONS: CODE SECTION 704(c)..................................27
SECTION 9. DISTRIBUTIONS................................................................28
SECTION 9.1. IN GENERAL............................................................28
SECTION 9.2. SHORTFALL PAYMENT.....................................................29
SECTION 9.3. CONSENT TO DISTRIBUTIONS..............................................30
SECTION 9.4. TAX WITHHOLDING.......................................................30
SECTION 10. MANAGEMENT OF COMPANY........................................................30
SECTION 10.1. AUTHORITY OF MANAGING MEMBER..........................................30
SECTION 10.2. GRANT OF SPECIAL AUTHORITY............................................32
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SECTION 10.3. OPERATING BUDGET AND CERTAIN RESERVES.................................33
SECTION 10.4. LIMITATIONS ON AUTHORITY OF MANAGING MEMBER...........................34
SECTION 10.5. COMPENSATION FOR SERVICES; FEES TO MANAGING MEMBER....................36
SECTION 10.6. INVESTOR MEMBER MANAGEMENT RIGHTS.....................................37
SECTION 10.7. LIABILITY OF MANAGING MEMBER..........................................37
SECTION 10.8. INDEMNITIES...........................................................37
SECTION 10.9. OTHER ACTIVITIES OF MEMBERS; NON-COMPETE..............................38
SECTION 10.10.RELEASE AND SALE OF FACILITIES........................................39
SECTION 10.11.ADDITIONAL ACQUISITIONS OF NEW FACILITIES.............................40
SECTION 10.12.LICENSE HELD BY SUNRISE AFFILIATES....................................42
SECTION 11. REPRESENTATIONS AND WARRANTIES OF THE MEMBERS................................42
SECTION 11.1. INVESTMENT INTENT.....................................................42
SECTION 11.2. UNREGISTERED COMPANY INTERESTS........................................42
SECTION 11.3. NATURE OF INVESTMENT..................................................42
SECTION 11.4. GENERAL REPRESENTATIONS AND WARRANTIES OF SUNRISE.....................43
SECTION 11.5. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR
MEMBER................................................................43
SECTION 12. POWER OF ATTORNEY............................................................44
SECTION 13. BANKING......................................................................45
SECTION 14. ACCOUNTING...................................................................45
SECTION 14.1. BOOKS OF ACCOUNT......................................................45
SECTION 14.2. METHOD OF ACCOUNTING..................................................45
SECTION 14.3. FINANCIAL AND OPERATING STATEMENTS....................................45
SECTION 14.4. TAX INFORMATION.......................................................46
SECTION 14.5. TAX MATTERS PARTNER...................................................46
SECTION 14.6. TAX TREATMENT OF LEASE FINANCING......................................46
SECTION 15. ADMISSION OF ADDITIONAL MEMBERS..............................................46
SECTION 16. TRANSFER OF COMPANY INTERESTS................................................46
SECTION 16.1. COVENANTS REGARDING TRANSFERS.........................................46
SECTION 16.2. PERMITTED TRANSFERS BY INVESTOR MEMBER................................47
SECTION 16.3. PERMITTED TRANSFERS BY MANAGING MEMBER................................48
SECTION 16.4. SUBSTITUTED MEMBERS...................................................50
SECTION 16.5. RECORDATION TAX.......................................................50
SECTION 16.6. TRANSFERS RESULTING IN CORPORATION STATUS; TRANSFERS THROUGH
ESTABLISHED SECURITIES OR SECONDARY MARKETS...........................50
SECTION 16.7. HOLDERS OF INVESTOR MEMBER INTERESTS..................................51
SECTION 17. WITHDRAWALS..................................................................52
SECTION 18. DEFAULTING EVENTS............................................................52
SECTION 18.1. CONVERSION OF DEFAULTING OR DISABLED MANAGING MEMBER'S INTEREST.......52
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SECTION 18.2. ADDITIONAL REMEDIES...................................................52
SECTION 19. DISABILITY OR DEFAULT OF THE INVESTOR MEMBER.................................53
SECTION 20. BUY-SELL AGREEMENT FOR ENTIRE PORTFOLIO......................................53
SECTION 20.1. BUY-SELL OPTION.......................................................53
SECTION 20.2. BUY-SELL VALUE........................................................54
SECTION 20.3. OFFEREE DECISION......................................................54
SECTION 20.4. BUY-SELL PRICE........................................................54
SECTION 20.5. XXXXXXX MONEY; DEFAULT................................................55
SECTION 20.6. BUY-SELL CLOSING......................................................55
SECTION 20.7. REMEDIES..............................................................56
SECTION 20.8. DISABLED OR DEFAULTING MEMBER.........................................56
SECTION 20.9. SUSPENSION OF MARKETING RIGHT.........................................56
SECTION 21. BUY-SELL OPTION FOR INDIVIDUAL FACILITIES....................................57
SECTION 21.1. BUY-SELL OPTION.......................................................57
SECTION 21.2. OFFEREE DECISION......................................................57
SECTION 21.3. LEASE TRANSACTION RELEASE.............................................57
SECTION 21.4. BUY-SELL PRICE........................................................58
SECTION 21.5. XXXXXXX MONEY; DEFAULT................................................58
SECTION 21.6. BUY-SELL CLOSING......................................................58
SECTION 21.7. REMEDIES..............................................................61
SECTION 21.8. SUSPENSION OF MARKETING RIGHT.........................................61
SECTION 22. MARKETING RIGHT..............................................................62
SECTION 22.1. INVESTOR MEMBER'S MARKETING RIGHT.....................................62
SECTION 22.2. MANAGING MEMBER'S PURCHASE RIGHT......................................62
SECTION 22.3. MANAGING MEMBER'S RIGHT TO MARKET/PURCHASE............................63
SECTION 22.4. FMV...................................................................63
SECTION 22.5. FAILURE TO SELL FACILITY..............................................64
SECTION 22.6. MANAGING MEMBER PURCHASE OF FACILITY OWNER............................64
SECTION 22.7. SUSPENSION OF BUY-SELL OPTION.........................................64
SECTION 23. TERMINATION OF COMPANY.......................................................64
SECTION 23.1. DISSOLVING EVENTS.....................................................64
SECTION 23.2. METHOD OF LIQUIDATION.................................................65
SECTION 23.3. REASONABLE TIME FOR LIQUIDATING.......................................65
SECTION 23.4. DATE OF DISSOLUTION...................................................65
SECTION 24. GENERAL PROVISIONS...........................................................66
SECTION 24.1. WAIVER OF RIGHT OF PARTITION..........................................66
SECTION 24.2. NOTICES...............................................................66
SECTION 24.3. MODIFICATIONS.........................................................67
SECTION 24.4. AUTHORIZED PERSONS....................................................67
SECTION 24.5. AMENDMENTS............................................................67
SECTION 24.6. BINDING EFFECT........................................................67
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SECTION 24.7. VALIDITY..............................................................67
SECTION 24.8. NO WAIVER.............................................................68
SECTION 24.9. DUPLICATE ORIGINALS...................................................68
SECTION 24.10.GOVERNING LAW; CONSTRUCTION...........................................68
SECTION 24.11.CONSENT TO JURISDICTION AND VENUE.....................................68
SECTION 24.12.INDEPENDENT INVESTMENT DECISION.......................................68
SECTION 24.13.ENTIRE AGREEMENT......................................................68
SECTION 24.14.FURTHER ASSURANCES....................................................69
SECTION 24.15.USE OF SUNRISE TRADE NAME.............................................69
SECTION 00.00.XXXXX RELEASES........................................................69
SECTION 24.17.LIABILITY OF MEMBERS..................................................69
SCHEDULES
1 - Facility Descriptions and Gross Asset Values
2 - Contribution Amounts
3 - Operating Budget
4 - Reporting Procedures
5 - Islamic Operating Guidelines
6 - Internal Rate of Return Calculation
7 - Authorized Representatives
8 - Minimum Gross Facility Revenues
9 - Non Compete Areas
10 - Anti-Money Laundering Policy
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AMENDED AND RESTATED OPERATING AGREEMENT
OF
SUNRISE FIRST ASSISTED LIVING HOLDINGS, LLC
THIS AMENDED AND RESTATED OPERATING AGREEMENT (this "AGREEMENT"), made
and entered into as of this 22nd day of March, 2002, by and among SUNRISE
ASSISTED LIVING INVESTMENTS, INC., a Virginia corporation ("SUNRISE") having an
address at 0000 Xxxxxxxx Xxxxx, XxXxxx, Xxxxxxxx 00000 (hereinafter referred to
as the "MANAGING MEMBER"); and US ASSISTED LIVING FACILITIES, INC., a Delaware
corporation having an address at 00 Xxxxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxx 00000
(the "INVESTOR MEMBER") (the Managing Member and the Investor Member are
hereinafter sometimes referred to collectively as the "MEMBERS" and individually
as a "MEMBER").
W I T N E S S E T H:
WHEREAS, Sunrise formed the Company as a limited liability company on
January 31, 2002 and, immediately before giving effect to this Agreement, is the
sole member of the Company;
WHEREAS, the parties hereto desire to continue the Company as a limited
liability company under the provisions of the Delaware Limited Liability Company
Act for the purposes hereinafter described; and
WHEREAS, the parties hereto desire to set forth herein their respective
rights, duties and responsibilities with respect the Company;
NOW, THEREFORE, in consideration of the premises hereof, and of the
mutual promises, obligations and agreements contained herein, the parties
hereto, intending to be legally bound, do hereby agree as follows:
SECTION 1. DEFINITIONS.
For purposes of this Agreement, each of the following terms shall have
the meaning hereinafter provided:
"ACQUISITION FEE" means a fee payable by the Company to XXXXX, or
an Affiliate designated by XXXXX, for the acquisition of each Facility
purchased pursuant to Section 10.11 from any Entity other than the
Managing Member or an Affiliate of the Managing Member, which fee shall
equal .75% of the purchase price of such Facility, and which shall be
payable at the time the Company purchases such Facility.
"ACT" has the meaning set forth in Section 2 hereof.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" of any Member means, as of any
particular date, the deficit balance, if any, in such Member's Capital
Account as of such date, as determined in the manner provided in Section
7.5 hereof and by then adjusting such Capital Account as so determined
as follows:
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(i) Such Capital Account shall be increased to reflect any
amounts which such Member is obligated to restore to the Company
under any provision of this Agreement or is deemed to be
obligated to restore pursuant to Sections 1.704-2(g) and
1.704-2(i)(5) of the Regulations; and
(ii) Such Capital Account shall be reduced to reflect any items
described in Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the
Regulations.
"AFFILIATE" means, with respect to a specified Entity, any Entity
that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with, the
specified Entity. For purposes of this definition, "control" shall mean,
with respect to any Entity, the possession of the power to direct or
cause the direction of the policies and management of such Entity,
whether through ownership of voting securities, by contract or
otherwise.
"AGREEMENT" means this Amended and Restated Operating Agreement
and the schedules hereto, as the same may be amended and in effect from
time to time.
"AL FUNDING" has the meaning specified in Section 7.1.
"ANCILLARY REVENUES" means revenues generated by the conduct of
activities at the Facilities by Affiliates of the Company or XXXXX or by
third parties, other than the provision of assisted living services,
room rentals, food service and care with activities of daily life. Such
activities may include, but not be limited to, the sale of products and
providing financial advice and services.
"APPROVE," "APPROVED" or "APPROVAL" means, as to the subject
matter thereof and as the context may require or permit, an express
approval contained in a written statement signed by an approving Entity
or any Authorized Representative thereof.
"AUTHORIZED REPRESENTATIVE" shall mean, with respect to the
Managing Member and with respect to the Investor Member, the persons set
forth on Schedule 7 hereto, any one of which shall have the authority to
bind the Member it represents. Any Member may change its Authorized
Representative or appoint additional Authorized Representatives by
giving written notice thereof to the other Members.
"BANKRUPTCY" of any Entity means: (i) a general assignment by the
Entity for the benefit of creditors; (ii) the appointment of a receiver,
trustee or custodian for all or any substantial part of the Entity's
property and assets; (iii) the entry of any "order for relief" against
the Entity in, or the commencement by the Entity of, any voluntary
proceeding under present or future federal bankruptcy laws or under any
other bankruptcy, insolvency or other laws respecting debtor's rights;
or (iv) the entry against the Entity of any "order for relief" or any
other judgment or decree by any court of competent jurisdiction in any
involuntary proceeding against the Entity under present or future
federal bankruptcy laws or under any other bankruptcy, insolvency or
other laws respecting debtor's rights, or the commencement of any such
involuntary proceeding against the Entity and the continuation of such
proceeding without dismissal or stay for a period of ninety (90) days
after such commencement.
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"BONA FIDE DISPUTE" means a dispute among the Members relating to
a Major Decision regarding the operation of the Portfolio or any
Facility; provided, however, that such dispute shall not be construed as
a Bona Fide Dispute for purposes of Section 20.1(i) hereto, unless one
Member has provided the other Member with written notice stating that it
believes the dispute to be a Bona Fide Dispute, and the other Member is
provided with ten (10) Business Days in which to cure such dispute;
provided, further, that only a dispute pursuant to subsections 10.4 (a),
(d), (e), (h), (n), (o), (p), (r) and (s) shall constitute a Bona Fide
Dispute for purposes of Section 20.1(i).
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day that is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such state are
authorized or required by law or other governmental action to close.
"BUYING MEMBER" has the meaning set forth in Section 20 hereof.
"BUY-SELL CLOSING DATE" has the meaning set forth in Section 20
hereof.
"BUY-SELL OFFER" has the meaning set forth in Section 20 hereof.
"BUY-SELL PRICE" has the meaning set forth in Section 20 hereof.
"BUY-SELL VALUE" has the meaning set forth in Section 20 hereof.
"CAP AMOUNT" shall mean the amount of $1,900,000.
"CAPITAL ACCOUNT" means, with respect to each Member, the account
established and maintained for such Member pursuant to Section 7.5
hereof.
"CAPITAL CONTRIBUTION" means a capital contribution made by a
Member in accordance with Section 7 hereof. Any Capital Contribution of
property other than cash shall be valued at the Gross Asset Value of
such property, as reduced by the amount of liabilities assumed by the
Company with respect to such property.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time. All references herein to specific sections of the Code
shall be deemed to refer also to any corresponding provisions of
succeeding law.
"COMPANY" means the limited liability company formed by the
Members pursuant to this Agreement.
"CONSUMABLES" means food, beverages, medical supplies, soaps,
shampoos or any other similar consumable product.
"CONTRIBUTION ACCOUNT" means an account to be maintained with
respect to each Member equal, as of any relevant date, to the amount of
each Member's First Capital Contribution, its Second Capital
Contribution, any Mandatory Additional Contributions and Voluntary
Additional Contributions, as set forth in Sections 7.1, 7.2, 7.3 and 7.4
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hereof, and any deemed Capital Contribution, as set forth in Section
7.8, in excess of the aggregate amount of distributions made to such
Member prior to such relevant date pursuant to subsection 9.1(b)(i)
hereof.
"CONVERSION DATE" has the meaning set forth in Section 18.1
hereof.
"CPI" means the Seasonally Adjusted National Consumer Price Index
for All Items, All Urban Consumers, as published by the Bureau of Labor
Statistics of the U.S. Department of Labor.
"DEFAULT PURCHASE PRICE" has the meaning set forth in Section
20.5 hereof.
"DEFAULTING BUYER" has the meaning set forth in Section 20.5
hereof.
"DEFAULTING EVENT" means (i) the failure of a Member to make its
First Capital Contribution or its Second Capital Contribution as set
forth in Section 7 hereof; (ii) a Member's withdrawal or retirement from
the Company in breach of the covenant contained in Section 17 hereof,
(iii) the disposition (whether voluntary or by operation of law) by a
Member of all or any part of such Member's interest in the Company (or
such Member's right to receive distributions of Company property or
assets) in breach of the covenant contained in Section 16.1 hereof, (iv)
with respect to any Member which is a corporation, partnership or trust,
the liquidation or dissolution of such Entity, except in connection with
a reorganization, merger, consolidation or business combination in which
there is a surviving Entity, subject to the Investor Member's rights set
forth in Section 16.3 hereof, or (v) any Uncured Major Default of such
Member. In the case of the Managing Member, in addition to any of the
events described in the preceding clauses (i) through (v), the Managing
Member shall have suffered a Defaulting Event in the event of a breach
by the Managing Member of the covenant contained in Section 16.3 hereof.
In the case of the Investor Member, in addition to any of the events
described in the preceding clauses (i) through (v), the Investor Member
shall have suffered a Defaulting Event in the event of a breach by the
Investor Member of the covenant contained in Section 16.2 hereof.
"DEFAULTING MEMBER" means a Member who commits or suffers a
Defaulting Event.
"DELINQUENCY ADVANCE" has the meaning set forth in Section 7.4
hereof.
"DEPRECIATION" means, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such Fiscal Year or
other period for federal income tax purposes, except that if the Gross
Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to
such beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year or other
period bears to such beginning adjusted tax basis; provided, however,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such
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year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the
Managing Member.
"DESIGNATED FACILITIES" has the meaning set forth in Section
22.3(a) hereof.
"DISABLED MEMBER" means a Member who suffers a Disabling Event.
"DISABLING EVENT" with respect to a Member means the Bankruptcy
of such Member, the liquidation or dissolution of any such Member which
is a corporation, partnership, or trust (other than in connection with a
reorganization, merger, consolidation or business combination in which
there is a surviving Entity), or the death or any other legal
incapacitation of any such Member who is a natural person.
"DISCOUNTED OFFER" has the meaning set forth in Section 22.1(b)
hereof.
"DISPOSITION FEE" means a fee payable to XXXXX, or an Affiliate
designated by XXXXX, in connection with a sale or disposition of the
Facilities in the Portfolio in an amount equal to one percent (1%) of
the gross sale price or prices of such Facilities reflected in the
applicable sale contract or contracts entered into by the applicable
Facility Owner (inclusive of any indebtedness if such Facility Owner
does not prepay such indebtedness prior to the sale or disposition);
provided, that the Disposition Fee shall be reduced by any disposition
or marketing fee payable to any third party selected by the Managing
Member to market one or more of such Facilities if the Managing Member
is permitted hereunder to select such third party to market the
Facility.
"18% RETURN AMOUNT" means an amount computed like compounding
interest at a rate of 18% per annum on the balance standing from time to
time in the Investor Member's Contribution Account. The 18% Return
Amount shall be computed using the same compounding, accrual period and
other assumptions that are used in computing the Investor Member's
Internal Rate of Return, taking into account the proviso in Section
9.1(b)(iii), if applicable.
"ENTITY" means any person, corporation, partnership (general or
limited), limited liability company, joint venture, association, joint
stock company, trust or other business entity or organization.
"EXCHANGE ACT" has the meaning assigned to it in Section 16.6.
"EXTRAORDINARY EVENT" means any sale, cancellation, release or
termination of any Lease Transaction, or any exchange, financing,
condemnation, conversion, damage or destruction of, or relating to, all
or any portion of the Portfolio (other than of any such events relating
to the Company's tangible property and fixtures that, individually,
involves property having a book value to the Company as shown on the
Company financial statements of less than $250,000).
"EXTRAORDINARY PROCEEDS" means all cash proceeds (including,
without limitation, the amount of any rent credits provided under any
Lease Transaction as a result of the receipt by the lessor thereunder of
title insurance or condemnation proceeds, insurance
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proceeds, recoveries, damages and awards, but excluding insurance
proceeds for rental loss) realized by the Company from any Extraordinary
Event, decreased by the sum of (i) the amount of such proceeds applied
by the Company to pay debts and liabilities encumbering the relevant
Facility, including, without limitation, the amount of any release
prices paid by the Company to the Facility Owner under the Lease
Transaction in connection with a sale of any Facility or the release of
any Facility from the Lease Transaction; (ii) the amount of such
proceeds used by the Company for restoration and repair (including any
developer's or similar fees) in the event of damage or destruction to or
partial condemnation of any Facility; (iii) any incidental or ancillary
expenses, costs, or liabilities incurred by the Company in effecting or
obtaining any such Extraordinary Proceeds (including, without
limitation, attorneys' and accountants' fees, court costs, recording
fees, transfer taxes and fees, appraisal costs, brokerage fees, and the
like), all of which expenses, costs, and liabilities shall be paid from
the gross amount of such cash proceeds to the extent thereof; (iv) the
amount thereof applied to fund any deficit in Company reserves Approved
by the Members; and (v) the payment of such other Company debts and
liabilities as the Members shall unanimously Approve.
"FACILITY" means each assisted living facility (including the
real property and related improvements thereon) included in the
Portfolio. The name by which each Facility is known and referred to
herein is specified in Schedule 1 hereto.
"FACILITY BUYING MEMBER" has the meaning set forth in Section 21
hereto.
"FACILITY BUY-SELL CLOSING DATE" has the meaning set forth in
Section 21 hereto.
"FACILITY BUY-SELL OFFER" has the meaning set forth in Section 21
hereto.
"FACILITY BUY-SELL PRICE" has the meaning set forth in Section 21
hereto.
"FACILITY BUY-SELL VALUE" has the meaning set forth in Section 21
hereto.
"FACILITY DEFAULT PURCHASE PRICE" has the meaning set forth in
Section 21 hereto.
"FACILITY DEFAULTING BUYER" has the meaning set forth in Section
21 hereto.
"FACILITY OFFER TO SELL" has the meaning set forth in Section 21
hereto.
"FACILITY OFFER TO PURCHASE" has the meaning set forth in Section
21 hereto.
"FACILITY OWNER" has the meaning specified in Section 7.1.
"FACILITY SELLING MEMBER" has the meaning set forth in Section 21
hereto.
"FACILITY SUBSTITUTED BUYER" has the meaning set forth in Section
21 hereto.
"FAILING MEMBER" has the meaning set forth in Section 7.4 hereof.
"FEDERAL ACT" has the meaning set forth in Section 11.2 hereof.
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"FF&E" means furniture, fixtures, furnishings, soft goods,
computer equipment, hardware, and wiring, case goods, vehicles and
equipment located in or at the Facilities or used exclusively in
connection with the operation of the Facilities, but shall not include
Consumables, Household Replacements or Software.
"FIFTEEN DAY PERIOD" has the meaning assigned to it in Section 21
hereof.
"FIRST CLOSING DATE" means the date of this Agreement.
"FISCAL YEAR" means the fiscal year of the Company, which shall
be the calendar year. The first Fiscal Year shall commence on the date
hereof, and each subsequent Fiscal Year shall commence on the date
immediately following the last day of the immediately preceding Fiscal
Year. Each Fiscal Year shall end on the earliest to occur after the
commencement of such Fiscal Year of (i) December 31, (ii) the day
immediately preceding the date on which a distribution is made to the
Members under Section 23.2 hereof, (iii) the day immediately preceding
the date of the "liquidation" of a Member's interest in the Company
(within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), or (iv) the date on which the Company is
terminated under Section 23.4 hereof.
"GAAP" means the generally accepted accounting principles in the
United States of America, as promulgated or adopted by the Financial
Accounting Standards Board and its predecessors and successors from time
to time.
"GROSS ASSET VALUE" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company shall be the gross fair market value of such
asset, as determined and Approved by all of the Members (the Gross Asset
Value of each Facility that is expected to become a part of the
Portfolio is set forth on Schedule 1);
(b) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Members, as of the following times: (i) the
acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimus capital
contribution; (ii) the distribution by the Company to a Member of more
than a de minimus amount of property as consideration for an interest in
the Company; and (iii) the liquidation of the Company within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however that
adjustments pursuant to clauses (i) and (ii) above shall be made only if
the Managing Member reasonably determines that such adjustments are
necessary or appropriate to reflect the relative economic interests of
the Members in the Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of such asset on the date of
distribution; and
(d) The Gross Asset Values of Company assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code
8
Section 734(b) or Code Section 743(b), but only to the extent that such
adjustments are taken into account in determining capital accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 8.4(g)
hereof; provided, however, that Gross Asset Values shall not be adjusted
pursuant to this clause (d) to the extent the Managing Member determines
that an adjustment pursuant to clause (b) of this definition is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this clause (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clauses (a), (b) or (d) of this definition, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Net Profit and Net Loss.
"GROSS FACILITY REVENUE" means all revenue (other than Ancillary
Revenues) derived from a Facility, determined in accordance with GAAP,
including, but not limited to, income (from both cash and credit
transactions, net of any fee therefor) from community fees, monthly
occupancy fees, health care fees and any and all other fees and payments
whatsoever received from Residents; income from food and beverage and
catering sales other than from sales of Restricted Foods; and income
from laundry, maid service, parking, phone systems, internet, cable,
utility reimbursements and vending machines; all determined in
accordance with GAAP; provided, however, that Gross Facility Revenue
shall not include (i) gratuities to employees at the Facilities; (ii)
federal, state or municipal excise, sales or use taxes or similar taxes
imposed at the point of sale and collected directly from the Residents
or guests of the Facilities or included as part of the sales price of
any goods or services; (iii) returns received from investment in
Xxxxx'ah compliant accounts (iv) proceeds of any financing or
refinancing of any Facility or any portion thereof; (v) proceeds of any
insurance policy or condemnation or other taking; (vi) any cash refunds,
rebates or discounts to Residents or cash discounts and credits of a
similar nature given, paid or returned in the course of obtaining Gross
Facility Revenue or components thereof; (vii) proceeds from any sale of
any Facility, from any other capital transaction or from any
Extraordinary Event; (viii) Resident funds on deposit or security
deposits until such time as the same are applied to current fees due for
services rendered from the Facility; (ix) awards of damages, settlement
proceeds and other payments received by the Company in respect of any
litigation other than litigation to collect fees due for services
rendered from the Facility; (x) payments under any policy of title
insurance; (xi) Capital Contributions of the Members; and (xii) Working
Capital. Any community fees or deposits that are refunded to a Resident
shall be credit against Gross Facility Revenue during the month in which
such refunds are made, if previously included in Gross Facility Revenue.
"HOUSEHOLD REPLACEMENTS" means supply items including linen,
china, glassware, silver, uniforms, and similar items, but excluding
Consumables.
"INTERNAL RATE OF RETURN" or "IRR" means for each Member the
annual discount rate, compounded monthly, that results in a net present
value equal to zero (0) when the discount rate is applied to all amounts
contributed or deemed contributed by each of the Members to the capital
of the Company pursuant to Sections 7.1, 7.2, 7.3, 7.4 or 7.8
9
hereof and all distributions made by the Company to such Member pursuant
to Section 9.1 hereof. "Internal Rate of Return" or "IRR" means with
respect to the Company's investment in the Portfolio the annual discount
rate, compounded monthly, that results in a net present value equal to
zero (0) when the discount rate is applied to all amounts invested by
the Company in the Portfolio and all cash receipts of the Company with
respect to the Portfolio. The Internal Rate of Return shall be
calculated as shown on Schedule 6 hereto.
"INVESTMENT YIELD" has the meaning set forth in Section 10.11.
"INVESTOR MEMBER" means US Assisted Living Facilities, Inc., a
Delaware corporation and its permitted successors and assigns.
"INVESTOR MEMBER CONTRIBUTION AMOUNT" means the amount for each
Facility listed on Schedule 2 hereto under the column labeled "Investor
Member Contribution Amount".
"INVESTOR MEMBER'S FIRST CAPITAL CONTRIBUTION" means the Investor
Member's initial capital contribution to the Company, which shall be
contributed to the Company pursuant to Section 7.1 hereof, in an amount
equal to the aggregate amount of Investor Member Contribution Amounts
for each of the Facilities that become part of the Portfolio on the
First Closing Date.
"INVESTOR MEMBER'S MARKETING RIGHT" has the meaning set forth in
Section 22.1(a) hereof.
"INVESTOR MEMBER'S SECOND CAPITAL CONTRIBUTION" means the
Investor Member's second capital contribution to the Company, which
shall be contributed to the Company pursuant to Section 7.2 hereof, in
an amount equal to the aggregate amount of Investor Member Contribution
Amounts for each of the Facilities that become part of the Portfolio on
the Second Closing Date.
"ISLAMIC OPERATING GUIDELINES" shall mean the principles and
operational guidelines set forth in Schedule 5 hereto.
"LEASE AGREEMENT" shall mean each of the Master Lease and Finance
Facility Agreements entered into by a Facility Owner and either the
Company or a wholly-owned subsidiary of the Company.
"LEASE FINANCING" means the lease financing provided in relation
to a Facility pursuant to the Lease Transaction applicable to such
Facility.
"LEASE TRANSACTION" means the lease financing transactions
between a Facility Owner and either the Company or a wholly-owned
subsidiary of the Company, each of which transactions shall be governed
and evidenced by, collectively, a Lease Agreement, a Call Option Letter,
a Put Option Letter, a Supplemental Agreement and a Tax Matters
Agreement, including any amendments or supplements thereto.
10
"LEGAL REQUIREMENTS" means any license, certificate, law, code,
rule, ordinance, regulation or order of any federal, state or local
governmental authority, court, department, commission, board or office,
Board of Fire Underwriters or any body similar to any of the foregoing
having jurisdiction over the Company, XXXXX or the business or operation
of the Facilities or the matters that are the subject of this Agreement,
including, without limitation, any laws, ordinances, regulations, orders
or rules concerning resident care, health care, building, zoning, use,
environmental protection, Resident funds on deposit or security
deposits, environmental protection and fire safety.
"LETTER OF INTENT" has the meaning set forth in Section 10.10
hereof.
"MAJOR DECISION" has the meaning set forth in Section 10.4
hereof.
"MANAGEMENT AGREEMENT" means the Management Agreement pertaining
to each Facility between XXXXX and either the Company or a wholly-owned
subsidiary of the Company.
"MANAGEMENT FEE" shall mean a monthly payment made by the Company
to XXXXX under each Management Agreement as consideration for XXXXX'x
management of the relevant Facility.
"MANAGING MEMBER" means Sunrise Assisted Living Investments,
Inc., and its permitted successors and assigns.
"MANAGING MEMBER CONTRIBUTION AMOUNT" means the amount for each
Facility listed on Schedule 2 hereto under the column labeled "Managing
Member Contribution Amount", which amount equals the net amount deemed
to have been contributed by the Managing Member to the Company for such
Facility.
"MANAGING MEMBER'S FIRST CAPITAL CONTRIBUTION" means the Managing
Member's initial capital contribution to the Company, which shall be
deemed to be contributed to the Company pursuant to Section 7.1 hereof,
in an amount equal to the aggregate amount of Managing Member
Contribution Amounts for each of the Facilities that become part of the
Portfolio on the First Closing Date.
"MANAGING MEMBER'S MARKETING RIGHT" has the meaning set forth in
Section 22.3(a) hereof.
"MANAGING MEMBER'S SECOND CAPITAL CONTRIBUTION" means the
Managing Member's second capital contribution to the Company, which
shall be deemed to be contributed to the Company pursuant to Section 7.2
hereof, in an amount equal to the aggregate amount of Managing Member
Contribution Amounts for each of the Facilities that become part of the
Portfolio on the Second Closing Date.
"MANDATORY ADDITIONAL CONTRIBUTIONS" has the meaning set forth in
Section 7.4 hereof.
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"MEMBERS" means the Managing Member and the Investor Member,
collectively, and any successor member admitted pursuant to Section 16
hereof.
"NET CASH FLOW" means, for any given period, any amounts released
from Company reserves in accordance with the applicable Operating Budget
or as otherwise Approved by all of the Members, together with all
receipts from the conduct of the business of the Company for such period
(specifically excluding any Extraordinary Proceeds) which are available
for distribution by the Company following (i) the payment of all
operating and capital expenses of the Company (including without
limitation the Management Fee) for such period or any prior period if
due and unpaid with respect to which no reserves have been established
and which have not been paid out of Extraordinary Proceeds or cash
proceeds realized by the Company from capital contributions of the
Members, (ii) the payment of rent and all other payments required to be
paid pursuant to the Lease Transaction during any such period, and (iii)
the establishment or replenishment of reserves, if any, for taxes, debt
service, maintenance, repairs and other expenses and other working
capital requirements of the Company or for contingent and unforeseen
liabilities of the Company.
"NET OPERATING INCOME" has the meaning set forth in Section 10.11
hereof.
"NET PROFIT" or "NET LOSS" means, for each Fiscal Year, the
Company's taxable income or taxable loss for such Fiscal Year, as
determined under Section 703(a) of the Code, and Section 1.703-1 of the
Regulations (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or taxable loss), but
with the following adjustments:
(a) Any tax-exempt income, as described in Section 705(a)(1)(B)
of the Code, realized by the Company during such Fiscal Year shall be
taken into account in computing such taxable income or taxable loss as
if it were taxable income;
(b) Any expenditures of the Company described in Section
705(a)(2)(B) of the Code for such Fiscal Year, including any items
treated under Section 1.704-1(b)(2)(iv)(i) of the Regulations as items
described in Section 705(a)(2)(B) of the Code, shall be taken into
account in computing such taxable income or taxable loss as if they were
deductible items;
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to clauses (b) or (c) of the definition of "Gross
Asset Value," the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of
computing Net Profit or Net Loss;
(d) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value;
12
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal
Year or other period; and
(f) Any items which are specially allocated pursuant to Section
8.4 or Section 8.5 hereof shall not be taken into account in computing
Net Profit or Net Loss.
If the Company's taxable income or taxable loss for such Fiscal Year, as
adjusted in the manner provided above in clauses (a) through (f) above, is a
positive amount, such amount shall be the Company's Net Profit for such Fiscal
Year; and if negative, such amount shall be the Company's Net Loss for such
Fiscal Year.
"NON-CONTROLLABLE EXPENSES" means all costs and expenses of the
Company incurred (whether incurred by the Company or by the Managing
Member on behalf of the Company for which the Managing Member is
entitled to reimbursement pursuant to this Agreement) in connection with
the payment of (i) fees for utility services or insurance coverage for
the Company or the Portfolio and other similar recurring expenses, (ii)
real estate taxes with respect to the Portfolio, (iii) the Management
Fee, (iv) personal property taxes, business and professional license
taxes and similar taxes and fees for the Company or the Portfolio, and
(v) rent under the Lease Agreements.
"NON-FAILING MEMBER" has the meaning set forth in Section 7.4
hereof.
"NON-U.S. LAWS" means any law, regulation or rule (including
without limitation all securities laws and regulations) applicable in
any jurisdiction outside of the United States that regulates or affects
the sale of any direct or indirect interest in the Company and/or the
Investor Member.
"OFFER TO PURCHASE" has the meaning set forth in Section 20.2
hereof.
"OFFER TO SELL" has the meaning set forth in Section 20.2 hereof.
"OFFERED FACILITIES" has the meaning set forth in Section 22.1(a)
hereof.
"OFFEREE" has the meaning set forth in Section 20.1 hereof.
"OFFEROR" has the meaning set forth in Section 20.1 hereof.
"OPERATING BUDGET" has the meaning set forth in subsection 10.3
hereof.
"PERCENTAGE INTERESTS" has the meaning set forth in Section 6
hereof.
"PERMITTED EXPENSES" means all costs and expenses of the Company
incurred (whether incurred by the Company or by the Managing Member on
behalf of the Company) in connection with the Company's affairs, and
which are (i) Non-Controllable Expenses, (ii) line item expenditures in
an Operating Budget, provided, that the amount of a line item
expenditure in the Operating Budget for a Fiscal Year may be exceeded by
the greater of 10% of such amount or $10,000 and , provided, further,
that the aggregate
13
amount by which line item amounts in an Operating Budget are exceeded
pursuant to this clause (ii) shall not exceed 5% of the total of all
line item expenditures in such Operating Budget, or (iii) are
expenditures immediately required by law, are necessary without delay in
order to protect the Portfolio, or are made under other circumstances
which the Managing Member reasonably believes to be an emergency,
provided that notice of the making of such expenditures is given to all
Members within five (5) business days of the making of such required or
emergency expenditures.
"PORTFOLIO" means those Facilities that are or become subject to
a Lease Agreement. The Facilities that are expected to become part of
the Portfolio are listed in Schedule 1 hereto.
"REGULATIONS" means the income tax regulations promulgated under
the Code, as such regulations may be amended from time to time. All
references herein to specific Sections of the Regulations shall be
deemed to refer also to corresponding provisions of any succeeding
regulations.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 8.5
hereof.
"RESIDENT" means an individual occupying a unit in a Facility.
"RESIDENT AGREEMENT" means an agreement between XXXXX and a
Resident for the occupancy of a unit.
"RESTRICTED FOODS" means certain food products (including, but
not limited to, pork and alcoholic beverages) that cannot be provided by
the Company at the Facilities.
"XXXXX" means Sunrise Assisted Living Management, Inc.
"SECOND CLOSING DATE" has the meaning set forth in Section 7.2
hereof.
"SELLING MEMBER" has the meaning set forth in Section 20.4
hereof.
"SENIOR FINANCING" means the financing provided to a Facility
Owner and secured by a first priority mortgage or deed of trust on the
Facility of such Facility Owner.
"SOFTWARE" means all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof) which are owned or leased by
XXXXX and used in connection with its management and operation of the
Facilities.
"STATE ACT" has the meaning set forth in Section 11.2 hereof.
"SUBSTITUTED BUYER" has the meaning set forth in Section 20.5
hereof.
"SUNRISE" has the meaning set forth in the Preamble.
14
"SUNRISE STANDARDS" means both the operational standards
(including, but not limited to, staffing levels, compensation plans,
Resident care and health care policies and procedures, and accounting
and financial reporting policies and procedures) and the physical
standards (including, but not limited to, amounts and quality of FF&E
and frequency of FF&E replacements) that are from time to time then
generally and consistently (but not necessarily absolutely or without
exception) applied at or to assisted living communities (but not nursing
homes or other acute care facilities) in the Sunrise System, which are
of comparable type, size, age and market orientation as the Facility,
all in accordance with Legal Requirements, provided, that the Sunrise
Standards shall at all times be at a level consistent with those of a
premier owner or manager of premier or first class assisted
living/dementia care facilities.
"SUNRISE SYSTEM" means, at any time, the entire system or group
of Sunrise assisted living communities then owned and/or operated or
managed by XXXXX (or one or more of its Affiliates) under the "Sunrise"
name.
"TAXES" has the meaning set forth in Section 21.6 hereof.
"13% RETURN AMOUNT" means an amount computed like compounding
interest at a rate of 13% per annum on the balance standing from time to
time in the Investor Member's Contribution Account. The 13% Return shall
be computed using the same compounding, accrual period and other
assumptions that are used in computing the Investor Member's Internal
Rate of Return, taking into account the proviso in Section 9.1(b)(ii),
if applicable.
"THIRTY DAY PERIOD" has the meaning set forth in Section 20.3
hereof.
"TITLE COMPANY" means First American Title Insurance Company.
"TRANSACTION AGREEMENT" means the Amended and Restated
Transaction Agreement, dated as of January 30, 2002, as amended from
time to time, by and among (i) Sunrise Bloomingdale Assisted Living,
L.L.C., (ii) Sunrise Smithtown A.L., L.L.C., (iii) Sunrise Alexandria
Assisted Living, L.P., (iv) Sunrise Assisted Living Limited Partnership
III, (v) Sunrise Riverside Assisted Living, L.P., (vi) Sunrise Fleetwood
A.L., L.L.C., (vii) Sunrise Buffalo Grove Assisted Living, L.L.C.,
(viii) Sunrise Beach Cities Assisted Living, L.P., (ix) Sunrise
Northville Assisted Living, L.L.C., (x) Sunrise Pacific Palisades
Assisted Living, L.P., (xi) Sunrise Sterling Canyon Assisted Living,
Limited Partnership, (xii) AL Investments, L.L.C., (xiii) Sunrise
Mission Viejo Assisted Living, L.L.C., (xiv) the Managing Member, (xv)
Sunrise Development, Inc., (xvi) Sunrise Assisted Living, Inc. and
(xvii) US Assisted Living Facilities, Inc.
"TRIGGERING TRANSFER" has the meaning set forth in Section 16.3
hereof.
"UNCURED MAJOR DEFAULT" means the commission of an act of
negligence, gross negligence, fraud or willful misconduct by a Member in
the course of such Member carrying out its activities hereunder,
following which written notice is provided by the other Member to the
defaulting Member of such other Member's intention to exercise its
remedies hereunder as a result of such default; and such default and the
damages, if any,
15
resulting from such default have not been cured within thirty (30) days
after the provision of such written notice (or within such reasonably
longer time period as the other Member may provide the defaulting Member
if such default is not susceptible to cure within thirty (30) days).
"VOLUNTARY ADDITIONAL CONTRIBUTIONS" has the meaning set forth in
Section 7.4 hereof.
"WORKING CAPITAL" means the working capital deposited by the
Company with XXXXX under the Management Agreements for use as set forth
therein.
SECTION 2 CONTINUATION OF COMPANY.
The parties do hereby agree to and do hereby continue the Company under
the Delaware Limited Liability Company Act (as amended from time to time and any
successor statute thereto, the "ACT"). The managing member of the Company shall
be the Managing Member and the non-managing member shall be the Investor Member.
SECTION 3. NAME AND PRINCIPAL OFFICE.
SECTION 3.1 NAME.
The name of the Company is "SUNRISE FIRST ASSISTED LIVING HOLDINGS,
LLC".
SECTION 3.2 PRINCIPAL OFFICE AND PLACE OF BUSINESS; REGISTERED AGENT.
The principal office of the Company shall be located at 0000 Xxxxxxxx
Xxxxx, XxXxxx, Xxxxxxxx 00000. The initial registered agent of the Company for
service of process shall be Corporation Trust Company, and the address of the
registered agent shall be 0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx. The address
of the registered office of the Company shall be the same as the address of the
registered agent of the Company.
SECTION 4. PURPOSE OF COMPANY.
The purpose of the Company shall be to own, operate, hold, lease,
manage, finance, acquire, sell, substitute and dispose of, or otherwise deal
with or provide services with respect to, the Facilities. The Members
acknowledge and agree that the goal of the Company is to maximize the Members'
return on their investment. Except as otherwise provided herein, the Company
shall not engage in any other activities and businesses unless Approved by all
Members.
SECTION 5. TERM.
The term of the Company commenced on January 31, 2002 and shall continue
until the Company is terminated, liquidated and dissolved pursuant to Section 23
hereof.
16
SECTION 6. PERCENTAGE INTERESTS.
The percentage interests (the "PERCENTAGE INTERESTS") of each of the
Members at all times (unless modified as provided in Section 7 hereof) shall be
as follows:
MEMBER PERCENTAGE INTEREST
Managing Member 20 %
Investor Member 80 %
SECTION 7. CAPITAL.
SECTION 7.1 FIRST CLOSING.
On the First Closing Date, the Investor Member shall, for each Facility
that is to become part of the Portfolio on the First Closing Date, make the
Investor Member's First Capital Contribution to the capital of the Company and
the Managing Member shall, for each Facility that is to become part of the
Portfolio on the First Closing Date, be deemed to have made the Managing
Member's First Capital Contribution to the capital of the Company. A Facility
shall become part of the Portfolio as a result of the Managing Member, or an
Affiliate of the Managing Member, (i)(A) transferring 81% of its ownership
interests in the entity holding title to, or a ground lessee's interest in, such
Facility (such entity being the "FACILITY OWNER") to AL Funding Inc. and/or AL
Subfunding LLC (together, "AL FUNDING") and arranging for such Facility Owner to
enter into a Lease Transaction with the Company or a wholly-owned limited
liability company subsidiary of the Company or (B) transferring its fee interest
in the Rochester Facility to Sunrise Rochester Assisted Living, LLC (which, upon
such transfer shall become a Facility Owner for all purposes hereunder) and
arranging for such Facility Owner to enter into a Lease Transaction with the
Company or a wholly-owned subsidiary of the Company, (ii) transferring to the
Company the reserves for FF&E and capital improvements held by the Managing
Member for each Facility, which reserves equal $100 per unit and (iii) causing
the Facility Owner to use the initial payment made by the Company to a Facility
Owner under the Lease Transaction to satisfy certain debt obligations associated
with the Facilities. As a condition to the contribution by the Investor Member
of the Investor Member's First Capital Contribution to the capital of the
Company, the Investor Member requires that the Company direct the Managing
Member to make (or to arrange for its Affiliates to make) the transfers
described in clauses (i) and (ii) of the immediately preceding sentence, and the
Company does hereby direct the Managing Member to make such transfers. The
Members agree that no Facility shall become part of the Portfolio on the First
Closing Date unless on such date such Facility is or becomes subject to Lease
Financing in an amount not less than the amount for such Facility specified in
Schedule 2 hereto and the terms of which are satisfactory to the Investor
Member.
SECTION 7.2 SECOND CLOSING.
On March 27, 2002, or such other date as may be Approved by all of the
Members (the "SECOND CLOSING DATE"), the Investor Member shall, for each
Facility that is to become part of the Portfolio on the Second Closing Date,
make the Investor Member's Second Capital Contribution to the Company, and the
Managing Member shall, for each Facility that is to
17
become part of the Portfolio on the Second Closing Date, be deemed to have made
the Managing Member's Second Capital Contribution to the Company. Each Facility
that is not made a part of the Portfolio on the First Closing Date shall be made
a part of the Portfolio on the Second Closing Date (in the manner described in
Section 7.1), provided that no Facility shall become part of the Portfolio on
the Second Closing Date unless on such date such Facility is subject to Lease
Financing that is in an amount not less than the amount for such Facility
specified in Schedule 2 hereto and the terms of which are satisfactory to the
Investor Member.
SECTION 7.3 SUBSEQUENT CLOSINGS AND CONDITIONS APPLICABLE TO CERTAIN
FACILITIES.
(a) If by the Second Closing Date the Canyon Crest Facility or the
Buffalo Grove Facility is not, or will not become, subject to Lease
Financing in the minimum amount specified on Schedule 2 hereto and on
terms acceptable to the Investor Member, the Managing Member shall
continue to be obligated to arrange Lease Financing for each such
Facility in the minimum amount specified on Schedule 2 hereto and on
terms acceptable to the Investor Member. The Members agree that (i) the
Investor Member's acceptance of the terms of the Lease Financing for the
Buffalo Grove Facility will include the review and acceptance of the
terms of any credit support or other financial support provided by the
Managing Member or its Affiliates in connection with the Lease
Financing, and (ii) the Managing Member is not entitled to any credit or
compensation hereunder as a result of providing any such credit or other
financial support. If such Lease Financing has been arranged by July 31,
2002 for either of such Facilities, the Managing Member shall notify the
Investor Member, and the Investor Member shall have the right, on notice
to the Managing Member, to require each such Facility for which such
Lease Financing has been arranged to be made part of the Portfolio (in
the manner described in Section 7.1) and to require the Members to make
capital contributions to the Company in the amounts specified for each
such Facility in Schedule 1 hereto. If such Lease Financing has not been
arranged for any such Facility by July 31, 2002, the Investor Member
shall have the right, on notice to the Managing Member, to terminate any
remaining obligation of the Company or the Members to make such Facility
a part of the Portfolio and to make capital contributions in relation to
such Facility.
(b) The Members acknowledge that the Pacific Palisades Facility is
not subject to permanent Lease Financing, and that permanent Lease
Financing will not be sought until after the Pacific Palisades Facility
reaches stabilization, which is expected to occur mid-2002.
Notwithstanding the absence of permanent Lease Financing for the Pacific
Palisades Facility, but subject to the conditions set forth in this
Section 7.3(b), the Members intend to have such Facility become part of
the Portfolio at the First Closing in accordance with Section 7.1. The
Managing Member agrees that it will use its best efforts to obtain
short-term lease financing in an amount equal to approximately 50% of
the Gross Asset Value of the Pacific Palisades Facility and will
provide, or will cause one of its Affiliates to provide, additional
financing equal to approximately 15% of the Gross Asset Value of such
Facility. The additional short-term lease financing provided by the
Managing Member or its Affiliate will be subordinate to the short-term
lease financing obtained for such Facility. All such short-term lease
financing shall be provided in an Islamically-compliant structure and
shall have a market rate of return. The Members agree to seek permanent,
fixed rate lease financing for the Pacific Palisades Facility after
18
such Facility reaches stabilization. It is the intention of the Members
that such lease financing will have a rental rate of 7.5% per annum, an
acquisition cost of not less than 60% of the Gross Asset Value of the
Pacific Palisades Facility and a term acceptable to the Members. If the
Company determines that it is unable to obtain lease financing for the
Pacific Palisades Facility satisfying such criteria, then the marketing
right of the Investor Member set forth in Section 22.1 shall commence as
to the Pacific Palisades Facility on such date of determination and the
marketing right of the Managing Member set forth in Section 22.3 shall
commence as to the Pacific Palisades Facility on the date one year after
such date of determination.
(c) The Members acknowledge that the Canyon Crest Facility
includes undeveloped land that may be used for the expansion of the
Canyon Crest Facility, and the Members agree to undertake such expansion
on the following terms and conditions. The Managing Member may at any
time recommend the expansion of the Canyon Crest Facility, provided that
at the time of such recommendation the Canyon Crest Facility has had an
average occupancy level for at least the six consecutive months then
ended of at least 93%. Any such recommendation of the Managing Member
shall include complete information as to the proposed expansion and
shall be subject to the approval of the Investor Member. If the Members
agree to proceed with such expansion, they will seek the consent of the
Facility Owner (which consent may be subject to the Facility Owner
obtaining the consent of any mortgage holder). If such consent is
obtained, the Company will hire the Managing Member to serve as the
development manager of the expansion and will pay to the Managing Member
a reasonable fee for such services. Such expansion will be financed with
construction financing obtained by the Facility Owner of the Canyon
Crest Facility and will be subject to (i) receiving all necessary
construction and operation permits and licenses and (ii) obtaining
construction financing in an amount not less than 70% of the cost of
construction. The Members agree to make capital contributions to the
Company as needed to provide the remaining funds needed for such
construction. The terms and structure of such construction arrangements
and the financing thereof shall be subject to the approval of the
Investor Member to confirm that they comply or are otherwise consistent
with the Islamic Operating Guidelines and other Xxxxx'ah principles
applicable to the Company. Upon completion of construction, the Company
will request that the Facility Owner obtain permanent financing for the
Canyon Crest Facility. If the Company determines that the Facility Owner
is unable to arrange such permanent financing on acceptable terms, then
the marketing right of the Investor Member set forth in Section 22.1
shall commence as to the Canyon Crest Facility on such date of
determination and the marketing right of the Managing Member set forth
in Section 22.3 shall commence as to the Canyon Crest Facility on the
date one year after such date of determination.
SECTION 7.4. ADDITIONAL CAPITAL CONTRIBUTIONS AND OTHER
CAPITAL MATTERS.
(a) MANDATORY AND VOLUNTARY ADDITIONAL CONTRIBUTIONS.
(i) Pursuant to the Management Agreement for each
Facility, the Company has agreed to establish and maintain a
reserve account for each Facility in which the Company shall
collect and hold funds to cover the FF&E and capital
19
improvement costs specified in Sections 10.02 and 10.03 of each
such Management Agreement. The amounts held in the reserve
accounts for the Facilities may be aggregated by the Company
into a single account (the "CENTRAL ACCOUNT"), notwithstanding
the provisions of the Management Agreements. The reserve account
for each Facility shall be funded initially with the $100 per
unit referenced in Section 7.1(ii) hereof and $300 per unit from
the capital of the Company. Commencing in April, 2002 and
continuing each month thereafter, the Company will add to the
reserve account for each Facility the amount of $33.33 per unit
of such Facility, such amount to be derived from the Gross
Facility Revenue of such Facility. The amount to be funded per
unit of a Facility is subject to adjustment as set forth in the
Management Agreement for such Facility. The Members agree that
the aggregate of the amounts held in the Central Account are to
be used by the Company and the Manager to pay the expenses
incurred in maintaining the FF&E of the Facilities in good
condition and repair in a manner consistent with the Sunrise
Standards and to pay the cost of capital improvements of the
Facilities, subject to the Management Agreement and the Approved
Operating Budget for each Facility. If at any time after the
First Closing Date, the aggregate FF&E and capital improvement
costs in a Fiscal Year for all of the Facilities, as set forth
in the Approved Operating Budgets for the Facilities, plus the
aggregate FF&E and capital improvement costs incurred for all of
the Facilities as a result of emergencies at the Facilities (as
described in Section 10.4(a)), exceed or are reasonably expected
to exceed the aggregate of the funds held in the reserve
accounts, then the Managing Member may, in its sole discretion,
call for the Members to make Capital Contributions to the
Company in proportion to their respective Percentage Interests,
in an aggregate cumulative amount not to exceed the Cap Amount
("MANDATORY ADDITIONAL CONTRIBUTIONS"). The Managing Member
agrees that in calling for such Mandatory Additional
Contributions, it shall take into consideration the amounts then
held in the reserve accounts, the monthly deposits being made
into the reserve accounts and the timing of the FF&E and capital
improvement costs to be incurred at the Facilities during such
Fiscal Year. The Managing Member shall provide the Investor
Member with thirty (30) days advance notice of the date on which
such contributions are required to be made. Following receipt of
such notice, the Managing Member and the Investor Member shall
make their respective Mandatory Additional Contributions as and
when requested in such notice. To assure the Company that the
Investor Member will contribute its proportionate share of such
Mandatory Additional Contributions, not later than thirty (30)
days after the Approval of the Operating Budgets for the
Facilities, the Investor Member will fund its proportionate
share (based on its Percentage Interest) of the amount of the
projected Mandatory Additional Contributions for such Fiscal
Year, as reasonably determined by the Managing Member. Such
funded amount will be held by the Company in a separate reserve
account. If and when the Managing Member calls on the members to
make Mandatory Additional Contributions pursuant hereto, the
Managing Member shall draw on the funds in such reserve account
in satisfaction of the Investor Member's proportionate share of
such Mandatory Additional Contributions.
20
(ii) If the Mandatory Additional Contributions made by
the Members are determined by the Managing Member to be
insufficient, then the Managing Member may propose, as a Major
Decision, that the Members make further Capital Contributions
("VOLUNTARY ADDITIONAL CONTRIBUTIONS") to the Company in
proportion to their respective Percentage Interests in an amount
determined to be necessary by the Managing Member. If the
Members agree, as a Major Decision, to make such Voluntary
Additional Contributions, the Managing Member shall provide the
Investor Member with thirty (30) days advance notice of the date
on which such contributions are required to be made. Following
receipt of such notice, the Managing Member and the Investor
Member shall make their respective Voluntary Additional
Contributions as and when requested in such notice.
(iii) If all of the Members do not agree to make
Voluntary Additional Contributions requested by the Managing
Member, then any Member may promptly thereafter make all (but
not less than all) of the requested Voluntary Additional
Contributions. The amount of the Voluntary Additional
Contributions made by such Member shall be credited to the
Capital Account of such Member for all purposes of this
Agreement and treated as a Capital Contribution for all purposes
of this Agreement, and the Members' Percentage Interests shall
be recalculated by reference to their relative cumulative
Capital Contributions.
(iv) If a Member fails to fund its proportionate share
of any Mandatory Additional Contribution or any Voluntary
Additional Contribution specifically agreed to by such Member in
accordance with Sections 7.4(a)(i) or 7.4(a)(ii) hereof as and
when required, and the other Member shall have funded its
proportionate share of such Mandatory Additional Contribution or
Voluntary Additional Contribution, then such other Member shall
have the rights specified in Section 7.4(c), in addition to any
remedy provided in Section 18.
(b) ADJUSTMENT AND RETURN OF CAPITAL CONTRIBUTIONS. If the Gross
Revenue of a Facility during any of the four consecutive fiscal quarters
commencing with the first quarter of 2002 (January 1 through March 31,
2002) is less than the Gross Revenue amount specified in Schedule 8
hereto for such Facility for such fiscal quarter, then the aggregate
Capital Contributions made by the Members in relation to such Facility
shall be reduced by the adjustment amount specified in Schedule 8, and
the Managing Member shall distribute to the Members their proportionate
share of such reduction. Such distribution shall be made by the Managing
Member within sixty (60) days after the fiscal quarter in which such
Facility failed to generate the required Gross Revenue, as specified in
Schedule 8. The amount of any such reduction shall be allocated against
the value of such Facility as shown on Schedule 8 hereto. Such
allocation shall be made promptly after the end of the fiscal quarter in
which such shortfall occurred. Except as and to the extent provided in
this Section 7.4, in Section 9 and in Section 23, no portion of a
Member's Capital Contribution will be returned to such Member, no Member
shall have the right to demand or receive the return of any portion of
its Capital Contribution, and no Member shall have the right to receive
the distribution of any property other than cash.
21
(c) FAILURE TO MAKE CAPITAL CONTRIBUTIONS. If a Member (the
"FAILING MEMBER") fails to contribute on a timely basis its full
proportionate share of a Mandatory Additional Contribution pursuant to
Section 7.4(a)(i) or a Voluntary Additional Contribution agreed upon by
the Members as a Major Decision pursuant to Section 7.4(a)(ii), and if
the other Member (the "NON-FAILING MEMBER") contributes on a timely
basis its full proportionate share of such Mandatory Additional
Contribution or Voluntary Additional Contribution, then the Non-Failing
Member may provide written notice to the Failing Member of the Failing
Member's default. If the Failing Member fails to contribute its full
proportionate share of such Mandatory Additional Contribution or
Voluntary Additional Contribution within ten (10) days of such written
notice, then the Non-Failing Member shall have the following rights and
options, none of which shall be exclusive of the other or of any other
right or remedy available to the Non-Failing Member hereunder or at law
or equity:
(i) the Non-Failing Member may, but need not, require
the Company to repay immediately to the Non-Failing Member all
or any portion of the amount contributed by the Non-Failing
Member that is disproportionately (based on the required
percentage contribution) in excess of the amount (if any) the
Failing Member contributed to the Company pursuant to the
relevant notice, together with actual earnings thereon accruing
to the benefit of the Company, if any, until such amount is
repaid;
(ii) the Non-Failing Member may, but need not, make an
additional Capital Contribution to the Company (a "DELINQUENCY
ADVANCE") not in excess of the amount the Failing Member failed
to contribute. If the Non-Failing Member makes such Delinquency
Advance, the amount thereof shall be credited to the Capital
Account of the Non-Failing Member for all purposes of this
Agreement and treated as a Capital Contribution for all purposes
of this Agreement, and the Members' Percentage Interests shall
be recalculated by reference to their relative cumulative
Capital Contributions; and
(iii) the Non-Failing Member may, but need not, make a
Buy-Sell Offer under Section 20.
SECTION 7.5. CAPITAL ACCOUNTS.
A separate Capital Account shall be maintained for each Member in
accordance with the following provisions:
(a) To each Member's Capital Account there shall be added (i)
the amount of money and the initial Gross Asset Value of any property
other than money contributed to the capital of the Company by such
Member, (ii) such Member's distributive share of Net Profit and any
items in the nature of income or gain that are specially allocated to
such Member pursuant to Section 8.4 and Section 8.5, and (iii) the
amount of any Company liabilities assumed by such Member or that are
secured by any property distributed to such Member.
22
(b) From each Member's Capital Account there shall be subtracted
(i) the amount of money and the Gross Asset Value of any property
distributed by the Company to such Member, (ii) such Member's
distributive share of Net Loss and any items in the nature of expense or
loss that are specially allocated to such Member pursuant to Section 8.4
and Section 8.5, and (iii) the amount of any liabilities of such Member
assumed by the Company or that are secured by any property contributed
by such Member to the Company.
(c) In the event all or a portion of an interest in the Company
is transferred in accordance with the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the
extent it relates to the transferred interest.
(d) In determining the amount of any liability for purposes of
(a) and (b) hereof, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations.
SECTION 7.6. INTEREST OR EARNINGS ON RETURNED CAPITAL.
Except as provided in Section 7.4(c)(i), no Member shall be entitled to
any interest or earnings on such Member's Capital Account or on such Member's
contributions to the capital of the Company.
SECTION 7.7. NO THIRD PARTY RIGHTS.
Neither this Section 7 nor any other provision of this Agreement shall
be construed to create any rights or benefits in any Entity other than the
Company and the Members, and their respective legal representatives,
transferees, successors and assigns, subject to the limitations on transfer
contained herein.
SECTION 7.8. DEEMED CAPITAL CONTRIBUTIONS.
Any reduction in the "Acquisition Cost" to be paid under any Lease
Agreement and related agreement resulting from the utilization of funds of a
Member shall be treated, as of the time of such reduction, as a Capital
Contribution of cash to the Company by such Member that increases such Member's
Capital Account and Contribution Account, and the Members' Percentage Interests
shall be recalculated by reference to their relative Capital Contributions.
SECTION 8. ALLOCATION OF PROFITS AND LOSSES.
SECTION 8.1. NET PROFIT.
After giving effect to the special allocations set forth in Sections 8.4
and 8.5 (but before making any special allocations of Disposition Gain or
Disposition Loss under Section 8.3), Net
23
Profit for each Fiscal Year shall be allocated to the Members in accordance with
their respective Percentage Interests.
SECTION 8.2. NET LOSS.
(a) After giving effect to the special allocations set forth in
Sections 8.4 and 8.5 (but before making any special allocations of
Disposition Gain or Disposition Loss under Section 8.3), Net Loss for
each Fiscal Year shall be allocated to the Members in accordance with
their respective Percentage Interests.
(b) If the amount of Net Loss for any Fiscal Year that otherwise
would be allocated to a Member under Section 8.2(a) would cause or
increase an Adjusted Capital Account Deficit of such Member as of the
last day of such Fiscal Year (after all other allocations have been made
pursuant to this Section 8), then such Member shall be allocated that
amount of Net Loss which does not cause or increase such Adjusted
Capital Account Deficit, and the remainder of such Net Loss that would
have been allocated to such Member shall be allocated to the other
Members.
SECTION 8.3. DISPOSITION GAIN AND DISPOSITION LOSS.
(a) DISPOSITION GAIN. In the event that, in any Fiscal Year, the
Company realizes, or is deemed to realize gain (determined by reference
to Gross Asset Value immediately prior to the event triggering such
gain) from an Extraordinary Event or from an adjustment to the Gross
Asset Value of any assets of the Company, such gain ("DISPOSITION GAIN")
shall be allocated (as of the end of such Fiscal Year, but after making
all special allocations pursuant to Sections 8.4 and 8.5 and all
allocations of Net Profit or Net Loss under Section 8.1 or 8.2 for such
Fiscal Year) in the following order and priority:
(i) First, to the Members, in proportion to and to the
extent of, the excess, if any, of (A) the sum of cumulative
allocations of Net Loss to each Member pursuant to Section
8.2(a) for the current and all prior Fiscal Years and the
cumulative allocations of Disposition Loss to each Member
pursuant to Sections 8.3(b)(iv) and 8.3(b)(v) for the current
and all prior Fiscal Years, over (B) the sum of the cumulative
allocations of Net Profit to such Member pursuant to Section 8.1
for the current and all prior Fiscal Years and the cumulative
allocations of Disposition Gain to such Member under this
Section 8.3(a)(i) for the current and all prior Fiscal Years;
(ii) Second, to the Members in accordance with their
Percentage Interests, until the sum of (A) the cumulative
Disposition Gain allocated to the Investor Member under Section
8.3(a)(i) and this Section 8.3(a)(ii) for the current and all
prior Fiscal Years, and (B) the cumulative Profits allocated to
the Investor Member under Section 8.1 for the current and all
prior Fiscal Years (net of the cumulative Disposition Loss
allocated to the Investor Member under Sections 8.3(b)(iii),
8.3(b)(iv) and 8.3(b)(v) and the cumulative Net Loss allocated
to the Investor Member under Section 8.2(a) for the current and
all prior Fiscal Years) is
24
equal to the 13% Return Amount that has accrued on the Investor
Member's Contribution Account from the date of its first Capital
Contribution through the end of the current Fiscal Year;
(iii) Third, 30% to the Managing Member and 70%
to the Investor Member, until the sum of (A) the
cumulative Disposition Gain allocated to the Investor
Member under Sections 8.3(a)(i) and 8.3(a)(ii) and this
Section 8.3(a)(iii) for the current and all prior Fiscal
Years, and (B) the cumulative Profits allocated to the
Investor Member under Section 8.1 for the current and
all prior Fiscal Years (net of the cumulative
Disposition Loss allocated to the Investor Member under
Sections 8.3(b)(ii), 8.3(b)(iii), 8.3(b)(iv) and
8.3(b)(v) and the cumulative Net Loss allocated to the
Investor Member under Section 8.2(a) for the current and
all prior Fiscal Years) is equal to the 18% Return
Amount that has accrued on the Investor Member's
Contribution Account from the date of its first Capital
Contribution through the end of the current Fiscal Year;
and
(iv) Thereafter, 35% to the Managing Member and
65% to the Investor Member.
(b) DISPOSITION LOSS. In the event that, in any Fiscal Year, the
Company realizes, or is deemed to realize, loss (determined by reference
to Gross Asset Value immediately prior to the event triggering such
loss) from an Extraordinary Event or from an adjustment to the Gross
Asset Value of any assets of the Company, such loss ("DISPOSITION LOSS")
shall be allocated (as of the end of such Fiscal Year, but after making
all special allocations pursuant to Sections 8.4 and 8.5 and all
allocations of Net Profit or Net Loss under Section 8.1 or 8.2 for such
Fiscal Year) in the following order and priority:
(i) First, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative amount of
Disposition Gain allocated to each Member pursuant to Section
8.3(a)(iv) for the current and all prior Fiscal Years, over (B)
the sum of (i) the cumulative distributions to such Member
pursuant to Section 9.1(b)(iv) for the current and all prior
Fiscal Years, and (ii) the cumulative allocations of Disposition
Loss under this Section 8.3(b)(i) for the current and all prior
Fiscal Years;
(ii) Second, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative amount of
Disposition Gain allocated to each Member pursuant to Section
8.3(a)(iii) for the current and all prior Fiscal Years, over (B)
the sum of (i) the cumulative distributions to such Member
pursuant to Section 9.1(b)(iii) for the current and all prior
Fiscal Years, and (ii) the cumulative allocations of Disposition
Loss under this Section 8.3(b)(ii) for the current and all prior
Fiscal Years;
(iii) Third, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative amount of
Disposition Gain allocated to each Member pursuant to Section
8.3(a)(ii) for the current and all prior Fiscal Years,
25
over (B) the sum of (i) the cumulative distributions to such
Member pursuant to Section 9.1(b)(ii) for the current and all
prior Fiscal Years, and (ii) the cumulative allocations of
Disposition Loss under this Section 8.3(b)(iii) for the current
and all prior Fiscal Years;
(iv) Fourth, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative allocations
of Net Profit to each Member pursuant to Section 8.1 for the
current and all prior Fiscal Years, over (B) the sum of (i) the
cumulative distributions to such Member pursuant to Section
9.1(a) for the current and all prior Fiscal Years, (ii) the
cumulative allocations of Net Loss to such Member pursuant to
Section 8.2(a) for the current and all prior Fiscal Years, and
(iii) the cumulative allocations of Disposition Loss under this
Section 8.3(b)(iv) for the current and all prior Fiscal Years;
(v) Thereafter, to the Members in accordance with their
respective Percentage Interests.
Notwithstanding the foregoing provisions, if any allocation of
Disposition Gain or Disposition Loss pursuant to this Section 8.3 would result
in the Members having Capital Account balances which are not equal to the
amounts which would be distributed to the Members pursuant to Section 9.1 if the
Company were to liquidate immediately following such allocation, then such
Disposition Gain or Disposition Loss (as the case may be) shall be allocated in
a manner that causes the Capital Account balances of the Members (taking into
account any other allocations required to be made upon liquidation of the
Company) to equal the amounts that would be so distributed to the Members
pursuant to Section 9.1.
SECTION 8.4. SPECIAL ALLOCATIONS.
The following special allocations shall be made in the following order:
(a) MINIMUM GAIN CHARGEBACK. If there is a net decrease in
"company minimum gain" (as that term is defined in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations) during any Company
Fiscal Year, each Member shall be specially allocated items of Company
income and gain for such Fiscal Year in an amount equal to that Member's
share of the net decrease in partnership minimum gain. Allocations
pursuant to the previous sentence shall be made in accordance with
Section 1.704-2(f)(6) of the Regulations. This subsection 8.4(a) is
intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. If there is a net decrease
in "partner nonrecourse debt minimum gain" (as that term is defined in
Sections 1.704-2(i)(2) and (3) of the Regulations) during any Company
Fiscal Year, each Member who has a share of that partner nonrecourse
debt minimum gain as of the beginning of the Fiscal Year shall, to the
extent required by Section 1.704-2(i)(4) of the Regulations, be
specially allocated items of Company income and gain for such year (and,
if necessary, subsequent years) equal to that Member's share of the net
decrease in partner nonrecourse debt
26
minimum gain. Allocations pursuant to the previous sentence shall be
made in accordance with Section 1.704-2(i)(4) of the Regulations. This
subsection 8.4(b) is intended to comply with the requirement in Section
1.704-2(i)(4) of the Regulations and shall be interpreted consistently
therewith.
(c) QUALIFIED INCOME OFFSET. If any Member unexpectedly receives
any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and
gain shall be specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as
quickly as possible, provided that an allocation pursuant to this
subsection 8.4(c) shall be made only if and to the extent that such
Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 8 have been tentatively made as
if this subsection 8.4(c) were not in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Member has a
deficit Capital Account at the end of any Fiscal Year which is in excess
of the sum of (i) the amount such Member is obligated to restore
pursuant to any provision of this Agreement, and (ii) the amount such
Member is obligated to restore pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such
Member shall be specially allocated items of Company income and gain in
the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 8.4(d) shall be made only if and to
the extent that such Member would have a deficit Capital Account in
excess of such sum after all allocations provided for in this Section 8
have been made as if Section 8.4(c) and this Section 8.4(d) were not in
the Agreement.
(e) NONRECOURSE DEDUCTIONS. "Nonrecourse deductions" (as that
term is defined in Sections 1.704-2(b)(1) and (c) of the Regulations)
for any Fiscal Year or other period shall be specially allocated to the
Members in proportion to their respective Percentage Interests in the
Company.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member "nonrecourse
deductions" (as that term is defined in Section 1.704-2(i) of the
Regulations) for any Fiscal Year or other period shall be specially
allocated to the Member who bears the economic risk of loss with respect
to the "partner nonrecourse debt" (as that term is defined in Section
1.704-2(b)(4) of the Regulations) to which such Member nonrecourse
deductions are attributable, in accordance with Regulations Section
1.704-2(i)(1).
(g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b)
or Code Section 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining capital
accounts, the amount of such adjustment to capital accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis) and such gain or
loss shall be specially allocated to the Member in a manner consistent
with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Regulations.
27
(h) DEDUCTION FOR CERTAIN PAYMENTS. The deductions
attributable to the NOI Payment, as defined in Section 9.1(c), and the
Shortfall Payment, as defined in Section 9.2, shall be allocated solely
to the Managing Member. The Members intend that, for federal income tax
purposes, the NOI Payment and the Shortfall Payment shall be treated as
"guaranteed payments" under Section 707(c) of the Code and not as
distributions.
SECTION 8.5. CURATIVE ALLOCATIONS.
The allocations set forth in subsections 8.2(b), 8.4(a), 8.4(b), 8.4(c),
8.4(d), 8.4(e), 8.4(f) and 8.4(g) hereof (the "REGULATORY ALLOCATIONS") are
intended to comply with certain requirements of the Regulations. It is the
intent of the Members that, to the extent possible, all Regulatory Allocations
that are made be offset either with other Regulatory Allocations or with special
allocations pursuant to this Section 8.5. Therefore, notwithstanding any other
provision of this Section 8 (other than the Regulatory Allocations), the
Managing Member, shall make such offsetting special allocations in whatever
manner it determines appropriate so that, after such offsetting allocations are
made, each Member's Capital Account balance is, to the extent possible, equal to
the Capital Account balance such Member would have had if the Regulatory
Allocations were not part of the Agreement and all Company items were allocated
pursuant to Sections 8.1 and 8.2(a). Provided it acts in good faith in making a
special allocation pursuant to this Section 8.5, the Managing Member shall not
be liable to the Company or any Member in the event the Internal Revenue Service
overturns any such allocation on audit. In exercising its discretion under this
Section 8.5, the Managing Member shall take into account future Regulatory
Allocations under subsections 8.4(a) and 8.4(b) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under subsections
8.4(e) and 8.4(f).
SECTION 8.6. OTHER ALLOCATION RULES.
(a) For purposes of determining the Net Profit, Net Loss, or any
other items allocable to any period, Net Profit, Net Loss, and any such
other items shall be determined on a daily, monthly, or other basis, as
determined by the Managing Member with the consent of the Investor
Member using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction, and any other allocations not
otherwise provided for shall be divided among the Members in the same
proportions as they share Net Profit or Net Loss, as the case may be,
for the Fiscal Year.
SECTION 8.7. TAX ALLOCATIONS: CODE SECTION 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Gross Asset Value. Such allocations shall be made using the "remedial allocation
method," as such term is defined in Regulations Section 1.704-3(d).
28
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to clause (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Allocations pursuant to this Section 8.7 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Net Profit,
Net Loss, other items, or distributions pursuant to any provision of this
Agreement.
SECTION 9. DISTRIBUTIONS.
SECTION 9.1. IN GENERAL.
(a) NET CASH FLOW. All Net Cash Flow for any Fiscal Year shall
be distributed to the Members in accordance with their Percentage
Interests.
(b) EXTRAORDINARY PROCEEDS. All Extraordinary Proceeds shall be
distributed to the Members in the following manner and in the following
order of priority:
(i) First, to the Members in proportion to, and to
the extent of, the balances standing in their respective
Contribution Accounts;
(ii) Second, to the Investor Member and to the
Managing Member according to their Percentage Interests, until
the Investor Member has received cumulative distributions
pursuant to Section 9.1 sufficient to yield a thirteen percent
(13%) IRR (determined in accordance with the definition of IRR
as illustrated on Schedule 6 hereto); provided that if the
Investor Member has suffered a reduction in its Percentage
Interest as a result of being a Failing Member, the
determination of whether the Investor Member has received a
thirteen percent (13%) IRR shall be made on a pro forma basis
assuming the Investor Member received the distribution of
Extraordinary Proceeds it would have received had its Percentage
Interest not been so reduced;
(iii) Third, 30% to the Managing Member and 70% to the
Investor Member until the Investor Member has received
cumulative distributions pursuant to Section 9.1 sufficient to
yield an eighteen percent (18%) IRR to the Investor (determined
in accordance with the definition of IRR as illustrated on
Schedule 6 hereto); provided that if the Investor Member has
suffered a reduction in its Percentage Interest as a result of
being a Failing Member, the determination of whether the
Investor Member has received an eighteen percent (18%) IRR shall
be made on a pro forma basis assuming the Investor Member
received the distribution of Extraordinary Proceeds it would
have received had its Percentage Interest not been so reduced;
and
(iv) Fourth, 35% to the Managing Member and 65% to
the Investor Member.
29
(c) DISTRIBUTIONS WITH RESPECT TO BUFFALO GROVE FACILITY AND
PACIFIC PALISADES FACILITY. For each calendar month from the date that
the Buffalo Grove Facility and the Pacific Palisades Facility,
respectively, become part of the portfolio through March 31, 2003, the
Company shall determine the amount, if any, by which (i) the Net
Operating Income for the Buffalo Grove Facility for such month is less
than $116,445 (the "BUFFALO GROVE NOI SHORTFALL AMOUNT"), and (ii) the
Net Operating Income for the Pacific Palisades Facility for such month
is less than $148,629 (the "PACIFIC PALISADES NOI SHORTFALL AMOUNT" and
collectively with the Buffalo Grove NOI Shortfall Amount, the "AGGREGATE
NOI SHORTFALL AMOUNT."). For each such calendar month, the Company shall
make a payment to the Investor Member, out of the Net Cash Flow for such
calendar month that would otherwise be distributable to the Managing
Member under Section 9.1(a) from any of the Facilities, an amount (the
"NOI PAYMENT") equal to 80% of the Aggregate NOI Shortfall Amount;
provided, however, (A) that in determining the Net Operating Income from
the Buffalo Grove Facility and from the Pacific Palisades Facility for a
calendar month for purposes of this Section 9.1(c), the Company shall
gross up the Net Operating Income for each such Facility for such
calendar month by the amount of any Resident payments due and payable,
but not paid, at such Facility during such month, and (B) in no event
shall a payment to the Investor Member out of the Net Cash Flow
otherwise distributable to the Managing Member result in the Managing
Member receiving less than one percent (1%) of such Net Cash Flow.
The Managing Member shall make distributions of the Net Cash Flow of the
Company within twenty (20) days of the end of each calendar month in the order
set forth above and as available for such monthly distributions after retainage
of such reserves as are provided for in the then effective Operating Budget. At
such time as the Company's Net Cash Flow is finally determined with respect to a
Fiscal Year, the Company shall distribute to the Members their respective
undistributed shares, if any, of the Company's Net Cash Flow for such Fiscal
Year, and if monthly distributions to a Member exceed such Member's distributive
share of such Net Cash Flow for such Fiscal Year, as finally determined, such
Member shall immediately repay to the Company the amount of such excess;
provided however, that nothing herein shall be construed as creating an
obligation for the Investor Member to repay any of the NOI Payment it received
during such Fiscal Year. The Managing Member shall distribute Extraordinary
Proceeds to the Members within thirty (30) days after receipt thereof in the
order and priority prescribed above.
SECTION 9.2. SHORTFALL PAYMENT.
As a result of certain environmental liability risks relating to the
Rochester Facility, the Members agree that, notwithstanding the provisions of
Section 9.1 to the contrary, at the time the Company disposes of its interest in
all but one of the Facilities, the Company shall not distribute the proceeds of
such disposition but shall instead retain such proceeds for distribution as part
of the final distribution of Extraordinary Proceeds pursuant to Section 9.1(b)
and this Section 9.2. Promptly after the Company disposes of its interest in all
Facilities (including dispositions of Facilities pursuant to Section 21 but not
the disposition of a Member's interest in the Company pursuant to Section 20),
the Investor Member shall compute the IRR of the Company for the Rochester
Facility and the average IRR of the Company for all of the Facilities other than
the Rochester Facility (the "AVERAGE IRR"). Both such calculations shall not
take into consideration
30
any Senior Financing affecting the Facilities, and the Average IRR calculation
shall be weighted based on the relative initial Gross Asset Values of the
Facilities involved in such calculation. If the Average IRR is higher than the
IRR of the Company for the Rochester Facility, then the Investor Member shall
also compute the amount (the "SHORTFALL AMOUNT") which, if added to the proceeds
received from the disposition of the Company's interest in the Rochester
Facility, would have resulted in an IRR of the Company for the Rochester
Facility equal to the Average IRR, provided, that the Shortfall Amount shall be
subject to a limit of $1,000,000. At the time of the final distribution of
Extraordinary Proceeds pursuant to Section 9.1(b), the Company shall,
notwithstanding the provisions of Section 9.1(b), make a payment to the Investor
Member, out of the amounts that would otherwise be distributed to the Managing
Member under Section 9.1(b) at such time, an amount (the "SHORTFALL PAYMENT")
equal to the Investor Member's proportionate share of the Shortfall Amount, such
proportionate share to be based on the distribution percentages under Section
9.1(b) applicable at such time, and the amount otherwise distributable to the
Managing Member under Section 9.1(b) shall be reduced by an amount equal to the
Shortfall Payment. For Xxxxx'ah purposes only, the Shortfall Payment will be
deemed to be an adjustment to the Gross Asset Value of the Rochester Facility.
SECTION 9.3. CONSENT TO DISTRIBUTIONS.
Each of the Members does hereby consent to the distributions provided
for herein.
SECTION 9.4. TAX WITHHOLDING.
If the Managing Member determines that the Code or Regulations require
the Company to withhold with respect to any Member's distributive share of
income or share of distributions, it shall do so. Such withheld amounts shall be
from cash otherwise distributable to such Member, which shall be deemed to have
been distributed hereunder to such Member. The Managing Member shall be
authorized to take such other actions as shall be necessary or appropriate for
the Managing Member to comply with its obligations under the Code and
Regulations. In the event any such payment made by the Managing Member to the
Internal Revenue Service exceeds the amount of cash otherwise then distributable
to such Member, the amount of such payment equal to such excess shall constitute
an advance by the Company to such Member for which such Member shall have
personal liability, and such Member shall immediately repay such advance to the
Company, together with interest thereon from the date when such payment is made
to the date of repayment, at an annual rate equal to the interest rate which
Citicorp or its successor designates as its "prime rate" from the date such
payment was made.
SECTION 10. MANAGEMENT OF COMPANY.
SECTION 10.1. AUTHORITY OF MANAGING MEMBER.
Subject to the limitations set forth herein, the Managing Member shall
be responsible for the management of the Company's business and affairs and
shall devote such time and effort to the Company as is appropriate in light of
all facts and circumstances, provided, however, that all decisions and actions
described in Section 10.3 and 10.4 shall require the Approval of the Investor
Member. Except as provided in this Agreement, the Managing Member shall have all
31
the rights and powers to manage the Company as are permitted under the Act, and
it shall be the duty and responsibility of the Managing Member to manage and
control the day-to-day affairs of the Company, including, without limitation,
the following:
(a) Establish and maintain, or cause to be established and
maintained, programs to promote the most effective and profitable
utilization of the services provided by the Facilities;
(b) Provide, or cause to be provided, quality services to
Residents at the Facilities in the manner required by the Resident
Agreements for such Residents and consistent with the Sunrise Standards
and the Operating Budget;
(c) Establish, or cause to be established, appropriate marketing
programs for the Facilities and maintain a public image of excellence
and first-class operation for the Facilities, all in accordance with the
Sunrise Standards and the Operating Budget;
(d) Maintain, or cause to be maintained, well trained,
adequately supervised, quality staff, in sufficient number, at the
Facilities in a manner consistent with the Sunrise Standards and the
Operating Budget;
(e) Operate the Facilities, or cause the Facilities to be
operated, prudently, and in a manner consistent with the Sunrise
Standards and the Operating Budget;
(f) Establish and maintain, or cause to be maintained, a sound
financial accounting system for the Company and each Facility;
(g) Institute and maintain, or cause to be instituted and
maintained, adequate internal fiscal controls for the Company and each
Facility through proper budgeting, accounting procedures, and timely
financial reporting in a manner consistent with the Operating Budget;
(h) Institute and maintain, or cause to be instituted and
maintained, sound billing and collection procedures and methods for the
Company and the Facilities;
(i) Maintain and increase gross revenues and cash flow at the
Facilities;
(j) Conform the operations at the Facilities to, or cause the
operations of the Facilities to be conformed to, and comply or cause
compliance with, all applicable Legal Requirements, including without
limitation, those pertaining to licensing, and take all steps necessary
to ensure that all licenses and certificates necessary to operate the
Facilities are maintained at all times, without interruption;
(k) Take such other steps as are necessary to provide high
quality care to the Residents, consistent with the Sunrise Standards and
the Operating Budget;
(l) Prepare or cause to be prepared for execution by the Company
all forms, reports and returns, if any, required to be filed by the
Company under applicable federal,
32
state or local laws, including tax laws, provided that the Managing
Member shall not be obligated to prepare any of the Company's federal,
state or local income tax returns; and
(m) Use all reasonable efforts to maintain the Facilities as a
safe and secure environment, notify the Company of any security risks or
issues related to any Facility that become known to the Managing Member,
and attempt to rectify or remedy such risks or issues if funds are
available for such purpose.
Subject to Section 10.3 with respect to the Operating Budget, Section 10.4 with
respect to Major Decisions and any other provision hereof that requires the
Approval of all Members, any action taken by the Managing Member on behalf of
the Company shall constitute the act of, and serve to bind, the Company. In no
event shall any Entity dealing with the Managing Member with respect to the
conduct of the affairs of the Company be obligated to ascertain that the terms
of this Agreement have been complied with, or be obligated to inquire into the
necessity or expediency of any action of the Managing Member. The Managing
Member may delegate certain of its responsibilities for management and control
of the Facilities and affairs of the Company to any Entity as may be Approved by
all of the Members and to no other Entity, provided, that such delegation shall
not relieve the Managing Member of any of its obligations hereunder. The Members
hereby Approve the Management Agreement for each Facility.
SECTION 10.2. GRANT OF SPECIAL AUTHORITY.
Notwithstanding any limitation on the authority of the Managing Member
imposed by this Agreement, the Investor Member does hereby authorize and direct
and hereby Approves in advance the following actions to be taken by the Managing
Member, for and on behalf of the Company, subject in all cases to the Islamic
Operating Guidelines:
(a) Subject to subsection 10.4(c), to authorize XXXXX to enter
into Resident Agreements with Residents at the Facilities.
(b) Subject to the Investor Member's right under Section 10.4 to
Approve the form and substance of the documents governing and evidencing
the Lease Transactions (and any amendments or modifications thereto), to
perform and discharge all of the Company's duties and obligations with
respect to the closing, consummation of, and performance under the Lease
Transactions, including, without limitation, the execution and delivery
of the Call Option Letters and the Put Option Letters and the
Supplemental Agreements that comprise the Lease Transactions, and such
other documents required by the Facility Owner to consummate the Lease
Transactions.
(c) Subject to the Investor Member's rights of Approval under
Section 10.4 hereof, to disburse the Capital Contributions of the
Members to pay all of the reasonable costs and expenses incurred by the
Company in closing and consummating the Lease Transactions, including,
without limitation, legal fees, transfer taxes, intangibles taxes,
appraisal fees, recording fees, survey costs, title insurance commitment
fees and premiums, and title examination charges and abstract costs.
(d) Subject to any restrictions contained in the Lease
Agreements, to acquire and enter into any contract of insurance that the
Managing Member deems necessary or
33
appropriate for the protection of the Company, for the conservation of
its assets or for any purpose convenient or beneficial to the Company;
(e) To pay any and all Permitted Expenses;
(f) Subject to the terms and conditions of this Agreement,
including without limitation Section 10.1, to employ, when and if
required, such accountants, agents and attorneys as the Managing Member
may from time to time determine to be necessary;
(g) Subject to the terms and conditions of this Agreement,
including without limitation Section 10.1, to execute any and all
agreements, contracts, documents, certifications and instruments
necessary or convenient in connection with the management, maintenance
and ownership of the Facilities;
(h) Subject to any restrictions contained in the Lease
Agreements and the applicable Operating Budget, to construct, alter,
improve, repair, rehabilitate, raze, rebuild or replace any building or
other improvement on all or any portion of any Facility; and
(i) Subject to the terms and conditions of this Agreement,
including without limitation Section 10.1, to engage in any kind of
activity and perform and carry out contracts of any kind necessary or
incidental to or in connection with the accomplishment of the purposes
of the Company as may be lawfully carried out or performed by a limited
liability company under the laws of the State of Delaware and, to the
extent applicable, the laws of each state in which the Company is
registered or qualified to do business.
SECTION 10.3. OPERATING BUDGET AND CERTAIN RESERVES.
On or before each November 20, the Managing Member shall prepare or
cause to be prepared and submit to the Investor Member a proposed annual
operating budget for each Facility for the next following Fiscal Year. Each
proposed operating budget shall include projections, in reasonable detail, of
the Company's anticipated cash receipts from such Facility and required cash
expenditures for such Facility, including without limitation Class I Capital
Expenditures and Class II Capital Expenditures, together with an explanation of
anticipated changes to Resident charges, payroll rates and positions, nonwage
cost increases, and all other factors differing from the current fiscal year.
Each proposed operating budget may also provide for Company financing in
relation to such Facility on an Islamically-compliant basis and for the creation
of, addition to, or reduction in, any reserves maintained by the Company. Each
such proposed operating budget shall be considered by the Investor Member and,
in consultation with the Managing Member and XXXXX, the Manager will prepare or
cause to be prepared the operating budget for each Facility for the ensuing
Fiscal Year, with the final contents of such budget to be determined mutually by
the Investor Member and the Managing Member. Any Approved operating budget,
including any Approved modification of any such budget, is herein called an
"OPERATING BUDGET." The Operating Budget shall be accompanied by a narrative
description of management objectives and assumptions, together with the other
components, of such Operating Budget. The Operating Budget through December 31,
2002 is set forth on Schedule 3 attached hereto. All Operating Budgets shall
reflect any reserves created thereunder
34
or pursuant to this Agreement. The Managing Member may amend an Operating Budget
only with the Approval of the Investor Member. Until final Approval of the
proposed operating budget for a Facility has been given, the Managing Member
shall be authorized to operate such Facility on the basis of the previous
Approved Operating Budget for the last month of the preceding Fiscal Year,
adjusted to reflect the then-current charges, to the extent known, and if not
known, increased by the greater (i) of 103.5% or (ii) the increase in the CPI
from the first day of the current Fiscal Year compared to the CPI on the first
day of the previous Fiscal Year; provided, however, that aggregate of the line
items for FF&E and for capital improvements set forth in the previous Approved
Operating Budget for such Facility shall be replaced with an amount equal to the
aggregate of the amounts for such line items set forth in the previous Approved
Operating Budgets for all Facilities divided by the number of Facilities in the
Portfolio, which amount shall then be adjusted as provided in foregoing clauses
(i) or (ii). The Managing Member shall use its best efforts to operate each
Facility or cause each Facility to be operated so that the Gross Facility
Revenues and the expenses of such Facility during any applicable period of the
Company's Fiscal Year shall be consistent with the Operating Budget, provided
that the foregoing agreement of the Managing Member shall not limit the
authority of the Managing Member under Sections 10.2(e) and 10.4(h). All
expenses must be charged to the proper account on a basis consistent with the
Operating Budget classifications. No expense may be reclassified except as
needed to correct an inadvertent error. During the Fiscal Year, the Managing
Member shall inform the Investor Member promptly of any major increases or
decreases in costs, expenses or income that were not reflected in the Operating
Budget.
SECTION 10.4. LIMITATIONS ON AUTHORITY OF MANAGING MEMBER.
Notwithstanding the other provisions of Section 10 hereof, the Managing
Member shall not have the authority on behalf of the Company to take any action,
make any decision, expend any sum or undertake or suffer any obligation if to do
so would constitute a Major Decision without first obtaining the Approval of the
Investor Member. As used herein, "MAJOR DECISION" means any decision proposed by
the Managing Member that the Company (or in the case of (s) below, the Members)
do or take any of the following actions:
(a) OPERATING BUDGET AMENDMENTS OR VARIATIONS. Amend or modify
any Operating Budget or vary from the limitations set forth therein,
except in the case of emergency repairs or other emergency actions with
respect to any Facility (i.e., repairs which are necessary to reduce the
threat of material injury to any Facility, to the Company, to any
Residents or to any other persons or property, or are necessary to avoid
the suspension of necessary services to any Facility);
(b) SALES. Except for entering into Resident Agreements with
Residents at the Facilities pursuant to subsection 10.2(a), and except
for the release of Facility in accordance with Section 10.10, sell,
exchange or otherwise transfer all or any portion of a Facility or any
interest therein or any other property of the Company; provided,
however, that without any such Approval, the Managing Member may make
incidental sales, exchanges, conveyances or transfers of Company
tangible personality or fixtures in the ordinary course of business if
such transactions, together with all other such transactions in such
Fiscal Year, involve property having a value or sales price of less than
$75,000 in the aggregate, and the Managing Member may grant, or request
the Facility Owner to
35
grant, utility and other similar easements to serve any Facility or any
adjoining property as the Managing Member shall determine to be
necessary or advisable;
(c) RESIDENT AGREEMENTS. Authorize XXXXX to enter into any
Resident Agreement with any Resident at any Facility except in
accordance with the Approved Operating Budget for such Facility and any
guidelines as to Resident Agreements set forth therein.
(d) ENCUMBRANCES. Except (i) for liens arising by operation of
law and securing Company debts which are not then currently due or
payable; (ii) for Approved financing, which shall be in compliance with
the Islamic Operating Guidelines; (iii) in connection with the Lease
Transactions; or (iv) for the grant of utility and other similar
easements or licenses to serve a Facility or any adjoining property for
the purpose of providing utilities, cable television, internet access or
other necessary or desirable services to a Facility or adjoining
property, subject all or any portion of a Facility to any mortgage, lien
or other encumbrance or pledge any Company assets;
(e) FINANCINGS. Except in connection with the Lease
Transactions, effect any financing (excluding trade debt, accounts
payable or equipment leases incurred in the ordinary course of the
Company's business) or execute any promissory note, evidence of
indebtedness, guaranty or the like not authorized and duly Approved in
an Operating Budget, or the prepayment, modification or refinancing of
any Company debt (including the Lease Transactions);
(f) LEGAL ACTIONS. Prosecute, waive, settle or compromise any
claims or causes of action of the Company against any third party (or
parties) (other than actions in the ordinary course to enforce Resident
Agreements and other claims of less than $100,000 each), or agree on
behalf of the Company to pay any claim or cause of action against the
Company if the portion of such claim or cause of action not covered by
insurance and to be paid by the Company exceeds $100,000;
(g) BUSINESS OF COMPANY. Except as otherwise provided herein, do
any act which would make it impossible to carry on the ordinary business
of the Company;
(h) CAPITAL EXPENDITURES. Except as permitted in an Operating
Budget or in the case of an emergency as described in Section 10.4(a),
(i) make any capital expenditures in excess of $15,000 for any Facility
in any Fiscal Year, provided that the aggregate amount of such capital
expenditures shall not exceed $50,000 in the aggregate in any Fiscal
Year of the Company, or (ii) undertake an expansion or substantial
renovation of any Facility;
(i) EMPLOYEES. Employ any people for the Company;
(j) REZONING OR SUBDIVISION. Initiate a re-zoning or subdivision
of any Facility or convert any Facility to a condominium, cooperative or
similar form of ownership;
(k) CONFESS JUDGMENTS. Confess a judgment against the Company;
36
(l) ASSIGNMENTS. Assign the rights of any Member in any
Facility, other than for a Company purpose;
(m) ACTS IN CONTRAVENTION. Perform any act in contravention of
this Agreement;
(n) NEW MEMBERS. Admit additional Members to the Company;
(o) MERGER. Merge the Company with any Entity;
(p) LEASE TRANSACTION DOCUMENTATION. Enter into or, thereafter,
modify or amend, the definitive documentation with respect to the Lease
Transactions;
(q) PROFESSIONAL SERVICES CONTRACTS. Except for the Management
Agreement for each Facility or as permitted in an Operating Budget,
enter into, or thereafter modify or amend, any contract or arrangement
for routine and non-routine professional services to be rendered to the
Company (including, without limitation, legal, accounting and consulting
services) that is reasonably anticipated to obligate the Company to
expend more than $30,000 in any Fiscal Year;
(r) TAX ELECTIONS. Make any election under the Code or
Regulations, including without limitation any election under Section
301.7701-3 of the Regulations to classify the Company for federal income
tax purposes as anything other than a partnership; or
(s) VOLUNTARY ADDITIONAL CONTRIBUTIONS. Obligate the Members to
make any Voluntary Additional Contributions pursuant to Section
7.4(a)(ii).
(t) AUDITORS. Replace the Company's auditors pursuant to Section
14.3.
With respect to all matters submitted to the Investor Member for
Approval (including, without limitation, the decisions and actions described in
this Section 10.4, but excluding Approval of proposed operating budgets pursuant
to Section 10.3), the Investor Member agrees that it will respond within ten
(10) Business Days after a written request for such Approval (and fewer than ten
(10) Business Days if such written notice is with reference to an emergency as
reasonably determined by the Managing Member, but in no event less than two (2)
Business Days) and, to the extent the Investor Member disapproves of any such
matter, the Investor Member's notice of disapproval shall set forth in
reasonable detail the basis for such disapproval. The failure of the Investor
Member to provide a timely response to a request for Approval or to provide in
reasonable detail the basis for its disapproval shall not be deemed or construed
to be an Approval by the Investor Member.
SECTION 10.5. COMPENSATION FOR SERVICES; FEES TO MANAGING MEMBER.
Except as expressly provided in this Agreement, no Member or any
Affiliate thereof shall receive any compensation from the Company for services
to the Company without having first obtained the Approval of all other Members,
which may be given or withheld in each Member's sole discretion. The Company is
authorized to pay to XXXXX or an Affiliate designated by XXXXX (other than the
Managing Member) the Acquisition Fee and the Disposition Fee, and to pay to
XXXXX the Management Fee pursuant to the Management Agreement. Costs relating to
37
the formation of the Company, including senior financing arrangement fees,
transfer taxes, legal fees of counsel to the Members associated with preparing
Company-related documentation and other expenses associated therewith (which do
not include the costs of formation and maintenance of the Investor Member and
its owners but which do include the costs associated with the Company's
structuring of and entering into the Lease Transactions), shall be borne by the
Managing Member and the Investor Member in accordance with their Percentage
Interests. The Members shall otherwise pay their own expenses associated with
the Company's formation.
SECTION 10.6. INVESTOR MEMBER MANAGEMENT RIGHTS.
The Investor Member, subject to its right of Approval expressly set
forth in this Agreement, shall not participate in the management and control of
the Company's business and shall not have any right or authority to act for or
to bind the Company, provided, however, that the Investor Member shall, at no
cost to the Company, provide oversight of the management of the Company to
ensure compliance with the Islamic Operating Guidelines. The Investor Member
hereby appoints the Managing Member as the manager of the Company, with sole and
exclusive right to manage the Company's business and to act for and bind the
Company, subject to its right of Approval expressly set forth in this Agreement.
SECTION 10.7. LIABILITY OF MANAGING MEMBER.
So long as the Managing Member in good faith reasonably believes that it
is acting in the Company's best interest with respect to the conduct of the
business and affairs of the Company, the Managing Member shall not be liable or
accountable to the Company or to the Investor Member, in damages or otherwise,
for any error of judgment, for any mistake of fact or of law, or for any other
act or thing which it may do or refrain from doing in connection with the
business and affairs of the Company, provided that the Managing Member shall be
responsible for all costs, expenses, claims or damages arising from the Managing
Member's willful misconduct, gross negligence or negligence. Nothing contained
in this Section 10.7 shall be construed as excusing the Managing Member from
making any contribution to the capital of the Company which is required to be
made by the Managing Member, in its capacity as a Member, under any provision of
this Agreement.
SECTION 10.8. INDEMNITIES.
(a) The Company does hereby agree to indemnify and to hold
harmless the Managing Member and its Affiliates and the directors,
trustees, officers, employees, members and owners of each of them
(collectively, "COMPANY INDEMNIFIED PERSONS") from and against any loss,
claim, cost, expense or damage suffered by the Company Indemnified
Persons (excluding any liability of the Managing Member to make
additional capital contributions to the Company as required under this
Agreement) by reason of anything the Managing Member or its Affiliates
may do or refrain from doing hereafter for and on behalf of the Company
and in furtherance of its best interests to the extent within the
Managing Member's authority hereunder and by reason of any amounts paid
by the Managing Member or its Affiliates pursuant to any "non-recourse
carve out" guaranty delivered in connection with any Facility; provided,
however, that the Company shall not be required to indemnify any Company
Indemnified Person to the extent any
38
loss, expense or damage which any of them might suffer (including any
such guaranty payment) results from any Company Indemnified Person's
willful misconduct, gross negligence, negligence or bad faith. The
Investor Member shall not be deemed to have incurred any liability with
respect to the Company's indemnity obligations contained in this Section
10.8 beyond its interest in the Company.
(b) The Managing Member does hereby agree to indemnify and to
hold harmless the Company, the Investor Member and the shareholders,
directors, officers and employees of the Investor Member and its
Affiliates (collectively, "MANAGING MEMBER INDEMNIFIED PERSONS") from
and against any loss, claim, cost, expense or damage suffered by the
Managing Member Indemnified Persons resulting from any and all claims
and causes of action brought by any third party, including without
limitation by past or present Residents or by persons employed at the
Facilities, relating to any Facility and arising from any occurrence
prior to the date on which such Facility became a part of the Portfolio.
(c) The Managing Member represents and warrants that all
certificates, licenses, permits or approvals required by any
governmental authority in connection with the ownership, use, occupancy,
operation, management or maintenance of the Facility were valid and in
full force and effect at all times prior to and on the date on which
such Facility became part of the Portfolio. The Managing Member does
hereby agree to indemnify and to hold harmless the Managing Member
Indemnified Persons from and against any loss, claim, cost, expense or
damage suffered by the Managing Member Indemnified Persons resulting
from the foregoing representation and warranty being untrue, incomplete
or incorrect.
SECTION 10.9. OTHER ACTIVITIES OF MEMBERS; NON-COMPETE.
Subject to Section 10.10 hereto, each Member, in such Member's
individual capacity or otherwise, shall be free to engage in, to conduct or to
participate in any business or activity whatsoever, without any accountability,
liability or obligation to the Company or to any other Member, even if such
business or activity competes with or is enhanced by the business of the
Company. Notwithstanding the previous sentence, neither the Managing Member nor
any of its Affiliates may invest in, operate, manage, develop, participate in or
have an interest in any senior housing or assisted living facility located
within the geographic areas (the "NON-COMPETE AREA") specified for each Facility
on Schedule 9; provided, that the Managing Member or its Affiliates may invest
in a facility located in the Non-Compete Area if such facility is part of a
larger portfolio of facilities in which the Managing Member or its Affiliate is
investing, and at least 75% of the fair market value of such portfolio of
facilities is located outside of the Non-Compete Area; provided, further, that
the Managing Member or its Affiliates may manage a facility located in the
Non-Compete Area if the Managing Member and its Affiliates collectively own,
directly and indirectly, less than 20% of the ownership interests in such
facility. If the Managing Member or its Affiliates are permitted under this
Section 10.9 to invest in or manage a facility located in the Non-Compete Area,
then the Managing Member or such Affiliate shall not be permitted use the name
"Sunrise" in promoting, operating or managing such facility, provided, however,
that the Managing Member or such Affiliate may state in promoting, operating or
managing such facility that such facility is "managed by" a Sunrise affiliate.
39
SECTION 10.10. RELEASE AND SALE OF FACILITIES.
(a) NOTICE OF INTENT. At any time after the date of this
Agreement, the Managing Member may provide the Investor Member with
written notice of its desire to exercise a Call Option (as defined in
the Lease Agreements) and to concurrently sell one or more of the
Facilities. Such notice shall include the Managing Member's best good
faith estimate of the sale price to be obtained for such Facility and a
calculation of the projected distribution of the Extraordinary Proceeds
that would result from such release and sale.
(b) INVESTOR MEMBER APPROVAL/MARKETING. Within ten (10) days
after receipt of such notice, the Investor Member shall notify the
Managing Member whether or not it Approves the sale on the terms
proposed by the Managing Member. The failure of the Investor Member to
respond within this time period shall be deemed to be a disapproval by
the Investor Member of the proposed sale and the Managing Member shall
discontinue efforts to sell the Facility. If the Investor Member
Approves the request, the Managing Member shall begin to market the
Facility and may, subject to the Investor Member's Approval (including ,
without limitation, Approval by the Investor Member of the fees and
commission to be paid and the form of brokerage or supplemental agency
agreement), retain agents or brokers to market the Facility.
(c) LETTER OF INTENT/PURCHASE AND SALE CONTRACT.
(i) LETTER OF INTENT. If a prospective buyer is located,
the Managing Member shall negotiate a non-binding letter of
intent (the "LETTER OF INTENT") to sell the Facility which
contains the basic business terms for the sale. The Letter of
Intent shall be submitted to the Investor Member, which shall
have ten (10) days to grant or withhold its Approval. The
failure of the Investor Member to respond within this time
period shall be deemed to be a disapproval by the Investor
Member of the Letter of Intent, and the Investor Member shall
discontinue efforts to sell the Facility.
(ii) PURCHASE AND SALE. If the Investor Member Approves
the Letter of Intent, the Managing Member shall negotiate a
binding sales contract with the prospective buyer and shall have
full authority to complete the sale on terms substantially
similar to those contained in the Letter of Intent; provided,
however, that any material change from the terms set forth in
the Letter of Intent shall require the Approval of the Investor
Member. Any such binding sales contract shall be subject to the
final Approval of the Investor Member solely to ensure
compliance with the Islamic Operating Guidelines, which shall be
given or withheld within ten (10) days after submission by the
Managing Member. If final Approval by the Investor Member is
withheld pursuant to this 10.10(c)(ii), the Investor Member
shall provide an explanation of why such contract does not
comply with the Islamic Operating Guidelines and, if alternative
means for such contract to comply with the Islamic Operating
Guidelines are possible, shall provide the Managing Member,
within the such ten (10) day period, with a description of the
changes required to be made to the contract to have it comply
with the Islamic Operating Guidelines.
40
(d) PAYMENT OF EXTRAORDINARY PROCEEDS. Unless such proceeds are
reinvested under Section 10.11, the Managing Member shall distribute the
Extraordinary Proceeds of any sale made under this Section 10.10 under
Section 9.1(b) hereof.
SECTION 10.11. ADDITIONAL ACQUISITIONS OF NEW FACILITIES.
(a) IDENTIFICATION AND PRESENTMENT OF NEW FACILITIES. The
Managing Member may, but shall not be obligated to, seek to identify new
assisted living facilities (which may, but need not, come from the
Managing Member's portfolio) that satisfy the investment criteria set
forth by the Company (and Approved by the Investor Member). If the
Managing Member identifies a facility that it proposes to have the
Company acquire, the Managing Member shall prepare and deliver to
Investor Member an investment summary for such facility. Such summary
will include an historical cash flow statement, a five-year projected
cash flow statement, a five-year projected capital expenditure budget,
and an Investment Yield calculation. For purposes of this Section,
"INVESTMENT YIELD" means the 12-month budgeted Net Operating Income for
a facility divided by the aggregate acquisition cost of such facility,
including transaction costs, and "NET OPERATING INCOME" means the Gross
Facility Revenue attributable to such facility, less all operating
expenses of such facility, including the Management Fee. The Investor
Member shall have thirty (30) days after receipt of the investment
summary to grant or withhold its initial Approval of the proposed
transaction pending a due diligence investigation. The failure of the
Investor Member to respond within this time period shall be deemed to be
a disapproval by the Investor Member of the proposed transaction, and
the Managing Member shall discontinue efforts to acquire the facility
for the Company.
(b) TRANSACTION PROCEDURE.
(i) NOTICES AND PURCHASE AND SALE. If and when the
Managing Member receives the Approval of the Investor Member, it
shall provide all notices required pursuant to the Lease
Agreements and take all steps required under Section 10.11(d) to
add the identified facility to the Portfolio. The Managing
Member shall then negotiate a binding purchase and sale
agreement. Any such binding sales agreement shall be subject to
the Approval of the Investor Member in order to ensure
compliance with the Islamic Operating Guidelines, which Approval
shall be given or withheld within ten (10) days after submission
by the Managing Member. If the purchase and sale agreement
contains a due diligence "out" provision, the Managing Member
shall not waive such provision without the Approval of the
Investor Member.
(ii) DUE DILIGENCE. The Managing Member shall be
responsible for coordinating all property due diligence
(including retention of attorneys, accountants and other third
party consultants), and shall provide the Investor Member with
copies of all material reports obtained for the purpose of such
acquisition including, but not limited to, financial, title,
survey, physical/mechanical, environmental and demographic. The
cost of performing such due diligence review shall be borne by
the Company. Any due diligence investigation conducted by the
Investor Member shall take place
41
contemporaneously with that of the Managing Member, provided,
however, that any issues arising out of the Investor Member's
due diligence investigation shall promptly be reported to the
Managing Member.
(iii) FINAL ACQUISITION. After execution of the binding
purchase and sale agreement and the final Approval of the
Investor Member described above, the Managing Member shall have
full authority to complete the applicable acquisition on behalf
of the Company.
(c) ADDITIONAL CAPITAL.
(i) DOWN PAYMENTS. The Managing Member may either (A)
make a request for a Voluntary Additional Contribution under
Section 7.4(a)(ii) hereof (which Voluntary Additional
Contribution shall be deemed to have been Approved by all of the
Members) or (B) with the prior Approval of the Investor Member,
use undistributed Net Cash Flow to post required down payments.
In the event the Managing Member shall request a Voluntary
Additional Contribution, the Members shall contribute their
Percentage Interests of such additional capital within ten (10)
days of receipt of such request from the Managing Member;
provided, however, that the Managing Member may make the full
down payment required, which payment shall be subsequently
reimbursed to the Managing Member upon the contribution of the
Investor Member of its Percentage Interest of such Voluntary
Additional Contribution.
(ii) CLOSING FUNDS. At least five (5) Business Days
prior to the scheduled closing, the Members shall contribute
their Percentage Interests of the required additional capital
and/or authorize the Managing Member to use undistributed
Extraordinary Proceeds to effect the acquisition.
(d) LEASE TRANSACTION. The Managing Member shall arrange for any
facility acquired under this Section 10.11 to be made subject to a Lease
Agreement and related documentation with AL Funding or an Affiliate
thereof. The Managing Member shall satisfy and perform all conditions
pursuant to such Lease Agreement and shall direct AL Funding or its
Affiliate to satisfy all conditions of its debt financing.
(e) CLOSING. The Managing Member shall coordinate the closing of
the new facility. The Managing Member will provide a set of all closing
documents to the Investor Member within a reasonable time after the
closing, and shall provide copies of any closing documents requested by
the Investor Member as they become available to the Managing Member.
(f) ACQUISITION FEE. In the event a facility is acquired under
this Section 10.11 from an Entity other than the Managing Member or an
Affiliate of the Managing Member, then an Affiliate designated by XXXXX
(other than the Managing Member) shall be entitled to an Acquisition Fee
equal to 0.75% of the purchase price of such facility, which fee shall
be payable at the time of closing.
42
SECTION 10.12. LICENSE HELD BY SUNRISE AFFILIATES.
The Investor Member acknowledges that Dignity Home Care, Inc., a New
York corporation and an Affiliate of the Managing Member ("DIGNITY") holds an
operating license issued by the State of New York pursuant to which Dignity is
authorized to provide personal and health care services to persons in need of
home care, including residents of the Smithtown Facility and the Fleetwood
Facility. The Managing Member covenants and agrees that neither Dignity nor any
other Affiliate of the Managing Member that subsequently provides home care
services at the Smithtown Facility or the Fleetwood Facility will realize any
net profit in connection with or as a result of providing such personal or home
care services.
SECTION 11. REPRESENTATIONS AND WARRANTIES OF THE MEMBERS.
SECTION 11.1. INVESTMENT INTENT.
Except as set forth in Section 16.2 herein, the Members do hereby
represent and warrant to the Company and to each other that they have acquired
their interest in the Company for investment solely for their own account with
the intention of holding such interest for investment, without any intention of
participating directly or indirectly in any distribution of any portion of such
interest, and without the financial participation of any other person in
acquiring such interest.
SECTION 11.2. UNREGISTERED COMPANY INTERESTS.
The Members do hereby acknowledge that they are aware that their
interests in the Company have not been registered under the Securities Act of
1933, as amended (the "FEDERAL ACT"), or under any state securities laws (a
"STATE ACT"). The Members further understand and acknowledge that their
representations and warranties contained in this Section 11 are being relied
upon by the Company as the basis for the exemption of the Members' interests in
the Company from the registration requirements of the Federal Act and from the
registration requirements under any applicable State Act. The Members further
acknowledge that the Company will not, and has no obligation to, recognize any
sale, transfer or assignment of all or any part of their respective interests in
the Company to any person unless and until the provisions of Section 16 hereof
have been fully satisfied.
SECTION 11.3. NATURE OF INVESTMENT.
The Members do hereby acknowledge that they are thoroughly familiar with
the terms of this Agreement, and that they are familiar with the Company's plans
to own, operate, hold, lease, manage, finance, acquire, sell, substitute and
dispose of, or otherwise deal with or provide services with respect to the
Facilities, and that they do not desire any further information or data relating
to the Facilities, the Company or the Managing Member. Furthermore, the Members
do hereby acknowledge that they understand that their interests in the Company
are a speculative investment involving a high degree of risk of financial
exposure and do hereby represent that they have a net worth sufficient to bear
the economic risk of their investment in the Company and to justify their
investing in a highly speculative venture of this type.
43
SECTION 11.4. GENERAL REPRESENTATIONS AND WARRANTIES OF SUNRISE.
Sunrise hereby represents and warrants to the Investor Member as
follows, which representations and warranties shall be deemed to have been made
and shall be true and correct as of the date of this Agreement:
(a) Sunrise is a corporation duly formed and validly existing
under the laws of the Commonwealth of Virginia with all requisite power
and authority to own, lease and operate its properties and to carry on
its business as now being conducted. Sunrise has all requisite power and
authority to enter into this Agreement and the other agreements
contemplated to be entered into by it in connection herewith and to
carry out the transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement and the other
agreements to be entered into by it in connection herewith and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of Sunrise.
This Agreement and such other agreements have been executed and
delivered by a duly authorized officer of Sunrise and constitute the
valid and binding obligations of Sunrise, enforceable against Sunrise in
accordance with the terms hereof and thereof, subject as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or effecting creditor's rights and to general
principles of equity.
(c) The execution, delivery and performance of this Agreement
and all other agreements contemplated hereby by Sunrise do not (i)
violate any decree or judgment of any court or governmental authority
which may be applicable to Sunrise; (ii) violate any law (or regulation
promulgated under any law); (iii) violate or conflict with, or result in
a breach of, or constitute a default under (or an event with or without
notice or lapse of time or both would constitute a default) under any
contract or agreement to which Sunrise is a party; or (iv) violate or
conflict with any provision of the organizational documents of Sunrise.
(d) No broker, finder, agent or other intermediary has been
employed by or on behalf of Sunrise in connection with the negotiation
or consummation of this Agreement or any of the transactions
contemplated hereby, and no such party has any claim for any commission,
finder's fee or similar amount payable as a result of any engagement of
such party by Sunrise; provided, that Sunrise may pay a consulting fee
to Macquarie Capital Partners LLC.
SECTION 11.5. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF
INVESTOR MEMBER.
The Investor Member hereby represents and warrants to Sunrise as
follows, which representations and warranties shall be deemed to have been made
and shall be true and correct as of the date of this Agreement:
(a) The Investor Member is a corporation duly incorporated and
validly existing under the laws of Delaware with all requisite power and
authority to carry on its business
44
as now being conducted. The Investor Member has all requisite power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Investor Member.
This Agreement has been executed and delivered by a duly authorized
officer of the Investor Member and constitutes the valid and binding
obligation of the Investor Member, enforceable against the Investor
Member in accordance with the terms hereof, subject as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or effecting creditors' rights and to general
principles of equity.
(c) The execution, delivery and performance of this Agreement by
the Investor Member do not (i) violate any decree or judgment of any
court or governmental authority which may be applicable to the Investor
Member; (ii) violate any law (or regulation promulgated under any law);
(iii) violate or conflict with, or result in a breach of, or constitute
a default under (or an event with or without notice or lapse of time or
both would constitute a default) under any contract or agreement to
which the Investor Member is a party; or (iv) violate or conflict with
any provision of the organizational documents of the Investor Member.
(d) No broker, finder, agent or other intermediary has been
employed by or on behalf of the Investor Member in connection with the
negotiation or consummation of this Agreement or any of the transactions
contemplated hereby, and no such party has any claim for any commission,
finder's fee or similar amount payable as a result of any engagement of
such party by the Investor Member.
(e) The Investor Member has conducted its own due diligence with
respect to the Portfolio and, except as set forth in the Transaction
Agreement, the Investor Member has not received any representations and
warranties from the Managing Member or any of its Affiliates in
connection therewith.
SECTION 12. POWER OF ATTORNEY.
Investor Member (including any permitted assignee thereof) does hereby
irrevocably constitute and appoint Managing Member as Investor Member's true and
lawful attorney, in Investor Member's name, place and stead, to make, execute,
consent to, swear to, acknowledge, record and file any certificate or other
instrument which may be required to be filed by the Company or by the Members
under the laws of the State of Delaware and/or under the applicable laws of any
other jurisdiction to the extent Managing Member deems such filing to be
necessary or desirable, including, but not limited (i) this Agreement and any
amendment to this Agreement adopted by the Members in accordance with this
Agreement; (ii) the Certificate of Formation of the Company and all amendments
thereto required or permitted by law or the provisions of this Agreement; (iii)
all certificates and other instruments deemed advisable by Managing Member to
carry out the provisions of this Agreement and applicable law or to permit the
Company to become or to continue as a limited liability company in any
jurisdiction where the Company may be doing business; and (iv) all fictitious or
assumed name certificates required or permitted to be
45
filed on behalf of the Company; provided, however, that any such document is
consistent with the terms of this Agreement and, provided, further, that
Investor Member shall be provided with a copy of such certificate or instrument
promptly following the filing thereof. It is expressly understood, intended and
agreed by Investor Member, and for and on behalf of its successors and assigns,
that the grant of the power of attorney to Managing Member pursuant to this
Section 12 is coupled with an interest, is irrevocable and shall survive the
death or legal incompetency of each of the Members and the transfer of their
interest in the Company.
SECTION 13. BANKING.
All cash and other monies received by the Company or the Manager in
relation to a Facility shall be deposited in a separate non-interest bearing
bank account established in the name of the Company for such Facility, such
account to be in form and with an institution Approved by the Investor Member.
Each month, the funds in each such account will be transferred into a central
non-interest bearing account established in the name of the Company in a form
and with an institution Approved by the Investor Member. Withdrawals from such
central account shall be made on such signature or signatures as may from time
to time be Approved by all of the Members. The Members agree that if
non-interest bearing bank accounts in relation to a Facility or for the Company
are unavailable or otherwise impracticable, such accounts may be interest
bearing, provided that in such event the Investor Member will contribute to
charity its share of any interest received by the Company on funds in such
accounts.
SECTION 14. ACCOUNTING.
SECTION 14.1. BOOKS OF ACCOUNT.
The Managing Member shall maintain true and accurate books of account
for the Company at the principal office of the Company specified in Section 3.2
or such other location or locations as may be Approved by the Investor Member,
and the Investor Member shall at all reasonable times have access thereto and
shall have the right, at the Investor Member's expense, to have the books and
records of the Company audited by a firm of independent accountants selected by
the Investor Member.
SECTION 14.2. METHOD OF ACCOUNTING.
The Company's books of account shall be maintained, and its income,
gains, losses expenses, contributions and distributions and deductions shall be
determined and accounted for in accordance with GAAP.
SECTION 14.3. FINANCIAL AND OPERATING STATEMENTS.
The Managing Member shall, at the expense of the Company, have financial
statements of the Company for each Fiscal Year audited by an accounting firm
which shall initially be Ernst & Young, but which may be replaced with a
different nationally recognized accounting firm Approved by all of the Members.
The Managing Member shall have prepared and delivered to the Investor Member the
annual audited financial statements and tax returns in accordance with Schedule
4 attached hereto. Also, the Managing Member shall have prepared and delivered
to the Investor Member in accordance with Schedule 4 an unaudited operating
statement, which
46
shall be prepared in accordance with the accrual method of accounting, and which
shall include, without limitation, full trial balances and a comparison to the
applicable Operating Budget of the cash flow, income and expenses of the Company
through the end of each fiscal quarter, together with a written narrative
explaining all material variances.
SECTION 14.4. TAX INFORMATION.
Promptly after the close of each taxable year of the Company, the
Managing Member shall cause to be prepared and delivered to the Members, at the
Company's expense, information with respect to the business transactions of the
Company for such Fiscal Year in sufficient detail to enable the accounting firm
performing the audit of the Company's financial statements to prepare the
Company's federal, state and local income tax returns in accordance with all
then applicable laws, rules and regulations. The Managing Member shall also
cause to be prepared by the accounting firm performing the audit, at the expense
of the Company, all federal, state and local income tax returns required of the
Company. The Managing Member shall also cause such accounting firm to file the
tax returns and to furnish to the Members all necessary information concerning
the Members' distributive share of the Company items shown on the Company's tax
returns to enable the Members to prepare their federal, state and local income
tax returns, with such information for each Fiscal Year to be furnished to the
Members pursuant to Schedule 4 attached hereto.
SECTION 14.5. TAX MATTERS PARTNER.
Pursuant to Section 6231(a)(7)(A) of the Code, the Members hereby
designate the Managing Member as the Company's "tax matters partner." The
Managing Member is authorized, empowered, and required to make such filings with
the Internal Revenue Service, at the Company's expense, as may be required to
designate the Managing Member as the tax matters partner.
SECTION 14.6. TAX TREATMENT OF LEASE FINANCING.
Each Member hereby agrees for all tax and accounting purposes to report
the Lease Transactions in the manner specified in the Tax Matters Agreement.
SECTION 15. ADMISSION OF ADDITIONAL MEMBERS.
Except as otherwise provided in Section 16 hereof, no Entity shall be
admitted to the Company without the Approval of each Member, which may be given
or withheld in such Member's sole discretion.
SECTION 16. TRANSFER OF COMPANY INTERESTS.
SECTION 16.1. COVENANTS REGARDING TRANSFERS.
Each of the Members hereby covenants and agrees that such Member will
not at any time sell, assign, transfer, convey, mortgage, pledge, encumber,
hypothecate or otherwise dispose of all or any part of such Member's interest
(including such Member's right to distributions hereunder) in the Company to any
Entity, other than pursuant to the following provisions of this
47
Section 16, without (except as otherwise expressly provided herein) first having
obtained the Approval to any such proposed disposition from all other Members
and without having complied with the Federal Act or any applicable State Acts or
Non-U.S. Laws. Furthermore, no voluntary or involuntary transfer of a Member's
interest in the Company may be made unless each other Member has received
reasonable assurances from the transferring Member that such transfer will not
require registration of such Member's interest to be transferred or of the
Company under the Federal Act and all applicable State Acts. Any transfer by any
Member of all or any portion of such Member's interest in the Company in
violation of this covenant shall be null and void and of no effect whatsoever,
and shall be a Defaulting Event for purposes of Section 18.
SECTION 16.2. PERMITTED TRANSFERS BY INVESTOR MEMBER.
Notwithstanding the terms of Section 16.1 to the contrary, but subject
to the second sentence of Section 16.1 and to Section 16.6, the interests of the
Investor Member in the Company may be sold, assigned, or transferred in their
entirety, or direct or indirect ownership or beneficial interests in the
Investor Member may be sold, assigned or transferred, or the Investor Member may
issue shares in the Investor Member in each case, without the consent (except in
the case of (d) below) of the Managing Member, to any of the following:
(a) to any Affiliate of the Investor Member, provided that no
such transfer shall result in the initial record owners of the voting
stock of the Investor Member owning less than 51% of such voting stock;
(b) to any Entity which may result from a reorganization,
merger, consolidation or business combination by or with the Investor
Member or to any Entity to which the Investor Member is selling all or
substantially all of its assets, provided that no such reorganization,
merger, consolidation or business combination shall result in the
initial record owners of the voting stock of the Investor Member owning
less than 51% of such voting stock;
(c) to any Entity that is not a United States citizen or, in the
case of Entities that are not natural persons, that is formed in a
jurisdiction outside the United States, in either case pursuant to the
private placement of shares of, or indirect beneficial interests in, the
Investor Member undertaken by an Affiliate of the Investor Member,
provided that no such transfer shall result in the initial record owners
of the voting stock of the Investor Member owning less than 51% of such
voting stock; and
(d) with the prior consent of the Managing Member, which consent
may be granted or withheld in the Managing Member's sole discretion,
fifty percent (50%) or less of the Investor Member's interest in the
Company may be transferred to any Entity, provided the Investor Member
has the power and authority to, and as a condition to such transfer
covenants and agrees to, act for and on behalf of such transferee in
relation to such transferee's interest in the Company, and the Managing
Member shall be entitled to treat the Investor Member as such
transferee's Authorized Representative.
Without limiting Section 16.2(a), (b) or (c) above, any transfer of all
or any part of the Investor Member's interest in the Company or any shares of
the Investor Member shall not be
48
permitted (and any attempted transfer shall be null and void and of no force and
effect) unless and until the Investor Member delivers to the Company and the
Managing Member at least five (5) days advance written notice of any such
transfer and the identity of the transferee together with such assurances as the
Managing Member may reasonably request to ensure that such transfer is in
compliance with the Federal Act and all applicable State Acts, this Section 16.2
and the provisions of Section 16.7 regarding permitted transferees. In addition,
promptly following the consummation of any such transfer, the Investor Member
shall provide the Managing Member with copies of the documents executed to
effect such transfer, modified as necessary to preserve the confidentiality of
any confidential information contained therein.
SECTION 16.3. PERMITTED TRANSFERS BY MANAGING MEMBER.
Notwithstanding the terms of Section 16.1 to the contrary, but subject
to Section 16.6, the interests of the Managing Member in the Company may be
sold, assigned, or transferred in their entirety, without the consent of the
Investor Member, to any of the following:
(a) to any Entity which may result from a reorganization,
merger, consolidation or business combination by or with the Managing
Member, regardless of whether the Managing Member is the surviving
entity;
(b) to any Affiliate of the Managing Member; and
(c) to any Entity to which the Managing Member is selling all or
substantially all of its assets;
provided, however, that if, pursuant to a transfer under this Section 16.3, a
Change of Control other than a Permitted Change of Control shall occur (such
transfer being a "TRIGGERING TRANSFER"), then the Investor Member shall have the
right to initiate the buy-sell option pursuant to Section 20 of this Agreement.
Such option shall remain in place for a period of ninety (90) days after such
transfer, at which point, if not exercised, it shall be deemed waived by the
Investor Member. A "CHANGE OF CONTROL" shall be deemed to occur if, at any time
after the date of this Agreement, (i) any Entity (or one or more Entities acting
in concert as a group) directly or indirectly acquires (A) more than fifty
percent (50%) of the outstanding capital stock of the Managing Member or (B)
such percentage of the outstanding common stock of the Managing Member or such
other rights as would entitle such Entity (or such group) to (x) exercise
control over the day-to-day management of the Managing Member or (y) appoint or
determine the vote for a majority of the board of directors of the Managing
Member, and in the case of (y) such Entity or group actually exercises such
right and elects a majority of the board members who were not members prior to
such time; (ii) a merger exchange, consolidation, recapitalization or other
business combination (a "BUSINESS COMBINATION") occurs in which the beneficial
holders of the outstanding capital stock of the Managing Member immediately
prior to the Business Combination beneficially own immediately following such
Business Combination less than fifty-one percent (51%) of the aggregate equity
interests of the surviving entity or less than fifty-one percent (51%) of the
securities of the Managing Member having the power to elect a majority of the
board of directors of the Managing Member; or (iii) all or substantially all of
the assets of the Managing Member are sold or otherwise disposed of, directly,
indirectly, voluntarily, involuntarily, by operation of law or otherwise. A
"PERMITTED CHANGE OF CONTROL" is a Change
49
of Control pursuant to which any applicable Entity or group acquiring beneficial
ownership of the stock of the Managing Member (in the case of clause (i) of the
preceding sentence), the surviving entity of any applicable Business Combination
(in the case of clause (ii) of the preceding sentence), or the Entity that
purchases all of substantially all of the assets of the Managing Member (in the
case of clause (iii) of the preceding sentence) (each such Entity being referred
to herein as the "NEW ENTITY") satisfies all of the following requirements:
(i) The tangible net worth of the New Entity, computed in accordance
with GAAP, as of the date of the Change in Control is not less than the greater
of (A) the tangible net worth of the Managing Member as of the date of this
Agreement or (B) the tangible net worth of the Managing Member on the day prior
to the date of the Change of Control;
(ii) Neither the New Entity nor any Entity directly or indirectly
controlling the New Entity, or any of the New Entity's operational subsidiaries
shall, at any time (A) have filed a petition in bankruptcy or sought the
protection of any bankruptcy or similar insolvency laws, or had a petition under
any bankruptcy or creditors rights laws filed against it; or (B) had any
assisted living/dementia care or skilled nursing license or certification denied
or revoked by any governmental authority due to any actual or alleged fault or
failure by, or the negative reputation of, the New Entity or any of its
Affiliates;
(iii) The New Entity, or its operational subsidiary or subsidiaries,
shall (A) be licensed or certified for the operation of assisted living/dementia
care facilities in the states in which the Facilities are located, and (B) have
a good reputation in the industry and have at least five (5) years experience
in, the operation of a substantial number of premier first-class assisted
living/dementia care facilities containing no less than an average of 50 units
each and located in metropolitan markets substantially similar to the markets in
which the Facilities are located; and (C) operate such facilities in a manner
comparable to the Sunrise Standards, in each case as determined by the Investor
Member in its reasonable judgment; and
(iv) The New Entity or its operational subsidiary or subsidiaries
must have in place or adopt as of the date of the Change of Control, hiring,
training and quality assurance programs and operating and management standards
that are equivalent to or higher in quality than the Sunrise Standards.
Without limiting Section 16.3(a), (b) or (c) above, any transfer of all
or any part of the Managing Member's interest in the Company or any shares of
the Managing Member shall not be permitted (and any attempted transfer shall be
null and void and of no force and effect) unless and until the Managing Member
delivers to the Company and the Investor Member at least five (5) days advance
written notice of any such transfer and the identity of the transferee together
with such assurances as the Investor Member may reasonably request to ensure
that such transfer is in compliance with the Federal Act and all applicable
State Acts and this Section 16.3. In addition, promptly following the
consummation of any such transfer, the Managing Member shall provide the
Investor Member with copies of the documents executed to effect such transfer,
modified as necessary to preserve the confidentiality of any confidential
information contained therein.
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SECTION 16.4. SUBSTITUTED MEMBERS.
In the event a Member transfers all or any part of its membership
interest in the Company in compliance with the provisions of Sections 16.2 or
16.3 above, the transferee of such Member shall not have the right to become a
substituted Member of the Company unless the transferring Member has given such
transferee such right and unless:
(a) such Member and such transferee execute and deliver such
instruments as the other Member reasonably deems necessary or desirable
to effect such substitution;
(b) such transferee accepts and agrees in writing to be bound by
all of the terms and provisions of this Agreement;
(c) such transferee pays all reasonable expenses connected with
such substitution; and
(d) the other Member, in its sole discretion, consents to the
substitution of such transferee (only if such transferee is not already
a Member of the Company) as a substituted Member.
SECTION 16.5. RECORDATION TAX.
In the event any permitted transfer or sale of an interest pursuant to
this Section 16 results in the imposition of a state or local transfer,
recordation or similar tax on transfers of economic interests (or any similar
tax), the Member whose transfer or sale triggers such imposition shall be
responsible for the payment of such transfer and recordation tax or similar tax.
SECTION 16.6. TRANSFERS RESULTING IN CORPORATION STATUS; TRANSFERS
THROUGH ESTABLISHED SECURITIES OR SECONDARY MARKETS.
Notwithstanding anything to the contrary in this Agreement, no transfer
by a Member of its interest in the Company (or any economic or other interest,
right or attribute therein) may be made to any Entity if (i) in the opinion of
legal counsel for the Company, it would result in the Company being treated as
an association taxable as a corporation, or (ii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.
Notwithstanding anything to the contrary in this Agreement, (A) no interests in
the Company shall be issued in a transaction that is (or transactions that are)
registered or required to be registered under the Federal Act, and to the extent
such interests were not required to be registered under the Federal Act by
reason of Regulation S (17 CFR 230.901 through 230.904) or any successor
thereto, such issuances would not have been required to be registered under the
Federal Act if the interests so offered or sold had been offered and sold within
the United States, (B) any admission (or purported admission) of a Member and
any transfer or assignment (or purported transfer or assignment) of all or part
of a Member's interest (or any interest or right or attribute therein) in the
Company, whether to another Member or to a third party, shall not be effective,
and any such transfer or assignment (or purported transfer or assignment) shall
be void ab initio, and no person shall otherwise become a Member if (1) at the
time of such transfer or assignment (or purported transfer or assignment) any
interest in the Company (or economic interest therein) is traded on an
51
established securities market or readily tradable on a secondary market or the
substantial equivalent thereof or (2) after such transfer or assignment (or
purported transfer or assignment) the Company would have more than 100 Members.
For purposes of clause (1) of the preceding sentence and clause (ii) above, an
established securities market is a national securities exchange that is either
registered under Section 6 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") or exempt from registration because of the limited volume
of transactions, a foreign securities exchange that, under the law of the
jurisdiction where it is organized, satisfies regulatory requirements that are
analogous to the regulatory requirements of the Exchange Act, a regional or
local exchange, or an interdealer quotation system that regularly disseminates
firm buy or sell quotations by identified brokers or dealers by electronic means
or otherwise. For purposes of such clause (1) and clause (ii) above, interests
in the Company (or interests therein) are readily tradable on a secondary market
or the substantial equivalent thereof if (i) interests in the Company (or
interests therein) are regularly quoted by any person, such as a broker or
dealer, making a market in the interests; (ii) any person regularly makes
available to the public (including customers or subscribers) bid or offer quotes
with respect to interests in the Company (or interests therein) and stands ready
to effect buy or sell transactions at the quoted prices for itself or on behalf
of others; (iii) the holder of an interest in the Company has a readily
available, regular, and ongoing opportunity to sell or exchange such interest
(or interests therein) through a public means of obtaining or providing
information of offers to buy, sell, or exchange such interests; or (iv)
prospective buyers and sellers otherwise have the opportunity to buy, sell, or
exchange interests in the Company (or interests therein) in a time frame and
with the regularity and continuity that is comparable to that described in
clauses (i), (ii) and (iii) of this sentence. For purposes of determining
whether the Company will have more than 100 Members, each person indirectly
owning an interest in the Company through a partnership (including any entity
treated as a partnership for federal income tax purposes), a grantor trust or an
S corporation (each such entity a "FLOW-THROUGH ENTITY") shall be treated as a
Member unless the Managing Member determines in its sole and absolute discretion
that less than substantially all of the value of the beneficial owner's interest
in the flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the Company.
SECTION 16.7. HOLDERS OF INVESTOR MEMBER INTERESTS.
The Managing Member acknowledges that indirect ownership interests in
the Investor Member will be syndicated to various offshore parties pursuant to a
private placement memorandum to be prepared by representatives of the Investor
Member. Such parties may trade their indirect ownership interests. Personnel who
have been identified to the Managing Member ("IDENTIFIED PERSONNEL") will
initially control and manage the Investor Member and the offshore parties which
hold shares in the Investor Member. The Managing Member will have the right to
receive a copy of the foregoing private placement memorandum. The trading of the
indirect ownership interests in the Investor Member shall not impact the
operations of the Company or the relationship between the Members under this
Agreement. Identified Personnel and the Investor Member will provide sufficient
information to enable the Managing Member and the Facility Owners to confirm
that none of the parties owning indirect ownership interests in the Investor
Member are on the United States Treasury Department's Office of Foreign Asset
Control Restricted List, or subject to economic sanctions imposed by acts, laws
or regulations and/or executive orders issued thereunder. The Investor Member
shall adhere to the anti-money laundering policy attached hereto as Schedule 10.
The Investor Member shall be responsible for
52
obtaining and providing to the Managing Member from time to time reasonably
sufficient information to enable the Managing Member to satisfy itself as to the
identity of the beneficial owners of the Investor Member, and to enable the
Members to execute any certifications required to be submitted by any Facility
Owner to the provider of the Senior Financing applicable to its Facility.
SECTION 17. WITHDRAWALS.
Each of the Members does hereby covenant and agree that such Member will
not withdraw or retire from the Company except as the result of a permitted
transfer of such Member's entire interest in the Company pursuant to Section 16
hereof, and that such Member will carry out such Member's duties and
responsibilities hereunder until the Company is terminated, liquidated and
dissolved under Section 23 hereof. A withdrawing Member shall not be entitled to
receive any amount from the Company in connection with such withdrawal except to
the extent specifically provided in this Agreement.
SECTION 18. DEFAULTING EVENTS.
SECTION 18.1. CONVERSION OF DEFAULTING OR DISABLED MANAGING MEMBER'S
INTEREST.
If the Managing Member suffers a Defaulting Event or a Disabling Event,
and if the Investor Member elects under Section 23.1 hereof to continue the
Company notwithstanding the happening of such Defaulting Event or Disabling
Event, then the Investor Member may elect, by delivery of written notice thereof
to the Managing Member, to become the Managing Member or to admit an Affiliate
of the Investor Member as the Managing Member (but in no event shall such
admission dilute the Percentage Interest of the Managing Member who suffered the
Defaulting Event or Disabling Event), and the Managing Member's entire interest
in the Company as a Managing Member shall be converted into the interest of a
non-managing Member (entitled to all of the rights of the non-managing Member
hereunder, including all rights of Approval) effective as of the date of the
occurrence of such Defaulting Event or Disabling Event (the "CONVERSION DATE").
As a result of such conversion, the Managing Member shall cease to be a managing
member of the Company as of the Conversion Date and shall become solely a
non-managing member as of such Conversion Date. In the event the Managing Member
becomes a Defaulting Member or Disabled Member, and such Managing Member's
interest in the Company is required to be converted hereunder into the interest
of a non-managing member, such Defaulting Member or Disabled Member or its
successor-in-interest, as the case may be, shall promptly upon demand of the
Investor Member execute and deliver to the Company all documents that may be
necessary or appropriate, in the opinion of counsel for the Company, to effect
such conversion. Notwithstanding such conversion and removal, such Disabled
Member or Defaulting Member shall remain liable for all liabilities, duties and
obligations of such Managing Member arising prior to the conversion of such
Managing Member to a non-managing Member.
SECTION 18.2. ADDITIONAL REMEDIES.
Except as otherwise expressly provided in this Agreement, the rights and
remedies of the Members under this Agreement shall not be mutually exclusive and
shall be cumulative of all
53
rights or remedies available at law, in equity, or under this Agreement. Each
Member confirms that damages at law may be an inadequate remedy for a breach or
a threatened breach of this Agreement and agrees that, without prejudice to the
right of a Member in an appropriate case to pursue a remedy at law or otherwise,
in the event of a breach or threatened breach of any provision hereof, the
respective rights and obligations hereunder shall be enforceable by specific
performance, injunction, or other equitable remedy.
SECTION 19. DISABILITY OR DEFAULT OF THE INVESTOR MEMBER.
In the event the Investor Member suffers a Disabling Event, such
Disabling Event shall not terminate the Company, and in the event such Disabled
Member's interest in the Company passes to a successor-in-interest, such
successor-in-interest shall succeed to such Disabled Member's entire interest in
the Company and shall have the same Percentage Interest in the Company, the same
obligations with respect to contributions to the capital of the Company and with
respect to the obligations of the Company, the same rights in and to all
distributions made by the Company, in liquidation or otherwise, and the same
share of the Company's Net Profit, Net Loss, and specially allocated items for
both financial accounting and income tax purposes as such Disabled Member had
with respect to its interest in the Company. Upon admission to the Company of
such Disabled Member's successor-in-interest, such successor shall promptly,
upon demand of the Company, execute and deliver to the Company, and does hereby
irrevocably constitute and appoint the Managing Member as such successor's true
and lawful attorney-in-fact to execute and to deliver to the Company for and on
such successor's behalf, all documents that may be necessary or appropriate, in
the opinion of counsel for the Company, to reflect such successor's admission to
the Company as a non-managing member and such successor's agreement to be bound
by all of the terms and conditions of this Agreement. The Disabled Member shall
be deemed to have given its successor or successors in interest the right to
become a substituted non-managing member. Upon and during the continuance of a
Defaulting Event by the Investor Member, the Investor Member (including its
successor in interest) shall have no further rights of Approval.
SECTION 20. BUY-SELL AGREEMENT FOR ENTIRE PORTFOLIO.
SECTION 20.1. BUY-SELL OPTION.
If at any time after the date of this Agreement one of the following
events occurs:
(i) the occurrence and continuance of a Bona Fide Dispute;
(ii) the Investor Member exercises its rights of conversion
under Section 18 hereto; or
(iii) the Investor Member suffers a Disabling Event pursuant
to Section 19;
then the Managing Member and the Investor Member shall each have the right to
make an offer (the "BUY-SELL OFFER") in writing to the other Member (the
"OFFEREE"), which shall state an amount in cash (the "BUY-SELL VALUE"),
determined in the sole and absolute discretion of the Member making the Buy-Sell
Offer (the "OFFEROR"), to be used in determining the Buy-Sell Price
54
pursuant to Section 20.4. In addition, if a Member fails to make a Capital
Contribution required to be made by it under this Agreement (including a
Voluntary Additional Contribution Approved by such Member) the Non-Failing
Member shall thereafter be permitted to make a Buy-Sell Offer as provided in the
preceding sentence, provided, however, that, if a Buy-Sell Offer is triggered by
such failure, then the Thirty Day Period specified in Section 20.3 hereto shall
be reduced to ten (10) days, and provided, further, that the ninety (90) days
specified in Section 20.6 (within which a Buy-Sell Closing Date shall be
designated) shall be reduced to thirty (30) days. Further, if a Triggering
Transfer described under Section 16.3 hereto with respect to the Managing Member
occurs, the Investor Member shall, within ninety (90) days after such Triggering
Transfer, be permitted to make a Buy-Sell Offer as provided in the preceding
sentence.
SECTION 20.2. BUY-SELL VALUE.
The Buy-Sell Value shall be the amount that the Offeror chooses to be
the net value of the Company's assets as of the Buy-Sell Closing Date
(hereinafter defined) after distribution of all Net Cash Flow to the Members and
net of any amounts required to be paid to fully satisfy and obtain a release of
the Lease Transaction. The Buy-Sell Value shall not be adjusted as a result of
distributions of Net Cash Flow occurring after the date on which the Buy-Sell
Offer is given, but shall be reduced by the amount of Extraordinary Proceeds
distributed after the date on which the Buy-Sell Offer is given. The Buy-Sell
Offer shall constitute an irrevocable offer by the Offeror to the Offeree either
(i) to sell to the Offeree all, but not less than all, of the Offeror's interest
in the Company in consideration for the payment of a Buy-Sell Price determined
pursuant to Section 20.4 (the "OFFER TO SELL") or (ii) to purchase all, but not
less than all, of the Offeree's interest in the Company in consideration for the
payment of a Buy-Sell Price determined pursuant to Section 20.4 (the "OFFER TO
PURCHASE").
SECTION 20.3. OFFEREE DECISION.
Unless a shorter time period is specified in Section 20.1, the Offeree
shall have thirty (30) days (the "THIRTY DAY PERIOD") after receipt of the
Buy-Sell Offer to respond to either, but not both, the Offer to Sell or the
Offer to Purchase, by giving the Offeror notice of such response within the
Thirty Day Period. If the Offeree fails to accept either the Offer to Sell or
the Offer to Purchase within the Thirty Day Period, then the Offeree shall be
deemed to have accepted the Offeror's Offer to Purchase.
SECTION 20.4. BUY-SELL PRICE.
The price (the "BUY-SELL PRICE") payable to the Member whose interest in
the Company is being sold pursuant to this Section 20 (the "SELLING MEMBER") by
the Member who is purchasing such interest of the Selling Member pursuant to
this Section 20 (the "BUYING MEMBER") shall be an amount equal to the amount of
cash which the Selling Member would have received pursuant to Section 9 hereof
on the Buy-Sell Closing Date if the Company had distributed to the Members in
accordance with Section 9 a cash amount equal to the Buy-Sell Value as stated in
the Buy-Sell Offer.
55
SECTION 20.5. XXXXXXX MONEY; DEFAULT.
Within five (5) Business Days after the date of the exercise of the
election by the Offeree or five (5) Business Days after the expiration of the
Thirty Day Period, whichever is earlier, the Buying Member shall deposit in cash
an amount equal to 10% of Buy-Sell Price (the "XXXXXXX MONEY") with an
independent and neutral party reasonably satisfactory to the Selling Member. The
xxxxxxx money shall be applied against the purchase price at the closing
referenced below, or shall be paid to the Selling Member as liquidated damages
in the event of default by the Buying Member. In the event Buying Member fails
to deposit timely such xxxxxxx money as provided above (such Buying Member being
then referred to as a "DEFAULTING BUYER"), the Selling Member shall have the
option (i) within thirty (30) days thereafter, unless the Defaulting Buyer has
earlier cured such default by depositing the required xxxxxxx money as provided
above, of substituting itself as the Buying Member (such Selling Member being
then referred to as a "SUBSTITUTED BUYER") under this Section 20.5 at a purchase
price (the "DEFAULT PURCHASE PRICE") equal to the price that would be obtained
pursuant to Section 20.4 if an amount equal to 90% of the Buy-Sell Value were
used to determine the Buy-Sell Price, by giving notice to the Defaulting Buyer
of its intention to do so and by depositing, within five (5) Business Days after
such notice, xxxxxxx money equal to 10% of the Default Purchase Price with an
independent and neutral party reasonably selected by the Substituted Buyer,
whereupon, for purposes this Section 20, the Substituted Buyer shall become the
Buying Member and the Defaulting Buyer shall become the Selling Member; or (ii)
at any time after default by the Defaulting Buyer in depositing the xxxxxxx
money, of seeking from the Defaulting Buyer by judicial proceedings or as
otherwise permitted by law, as liquidated damages for its default in its
obligations under this Section 20, an amount of money equal to the amount of
xxxxxxx money the Defaulting Buyer was required to deposit pursuant to this
Section 20.5.
SECTION 20.6. BUY-SELL CLOSING.
The sale of the Selling Member's interest in the Company and the
withdrawal of the Selling Member from the Company shall be closed and
consummated on that date (the "BUY-SELL CLOSING DATE") designated by the Buying
Member in a notice to the Selling Member, which date shall be within ninety (90)
days after the expiration of the Thirty Day Period (unless otherwise specified
under Section 20.1 hereto); provided, however, that such date shall be within
one hundred eighty (180) days after the expiration of the Thirty Day Period if
this Section 20 is being initiated pursuant to a Triggering Transfer under
Section 16.3 hereto. All Net Cash Flow, if any (after establishment of a
reasonable liability reserve), shall be distributed to the Members in accordance
with the applicable provisions of Section 9 on the Buy-Sell Closing Date and
prior to consummation of the purchase and sale pursuant to this Section 20 as if
such distribution date were the last day of a Fiscal Year. Effective as of the
Buy-Sell Closing Date, the Selling Member shall cease to be a Member of the
Company and the provisions of this Section 20.6 shall apply. The Buy-Sell Price
shall be paid to the Selling Member by the Buying Member or its designee in cash
on the Buy-Sell Closing Date. Simultaneously with the receipt of such payment,
the Selling Member shall execute, seal, swear to, and deliver for and on its
behalf, all documents that may be necessary or appropriate, in the reasonable
opinion of counsel to the Buying Member, to effect such sale free and clear of
all liens and encumbrances, other than the Selling Member's share of Company
liabilities (excluding any liability arising out of any negligent or grossly
negligent act or omission, willful misconduct or fraud by the Selling
56
Member for which the Selling Member shall remain liable), which shall thereby be
assumed by the Buying Member, and the Buying Member shall thereafter indemnify,
hold harmless and defend the Selling Member from and against any and all such
liabilities, other than any liability arising out of any negligent or grossly
negligent act or omission, willful misconduct, or fraud by the Selling Member.
The Buying Member shall arrange for the release of the Selling Member and its
Affiliates from any guaranties or other liabilities by or of the Selling Member
or its Affiliates in relation to any Senior Financing that is not being
satisfied in connection with the contemplated sale of the Selling Member's
interest in the Company. The Selling Member shall have no further obligations
with respect to Capital Contributions. In the event either the Buying Member or
the Selling Member defaults in the performance of its obligations under the
buy-sell procedure described in this Section 20, the non-defaulting Member shall
have the right to exercise all rights and remedies against the defaulting Member
available at law or in equity, including, without limitation, the remedy of
specific performance. The Selling Member shall pay all closing costs incurred in
connection with the implementation of the buy-sell procedure normally and
customarily paid by a seller of a real property interest and the Buying Member
shall pay all closing costs incurred in connection with the implementation of
the buy-sell procedure normally and customarily paid by a buyer of a real
property interest; provided, however, that the Buying Member and the Selling
Member shall each pay the fees and expenses of its own legal counsel.
SECTION 20.7. REMEDIES.
Without limiting the remedies available to either Member as a result of
the breach of the other Member's obligations described above, the Selling Member
shall have the option, within sixty (60) days of default by the Buying Member in
its obligation to purchase under this Section 20 (such Buying Member being then
referred to as the Defaulting Buyer), of retaining the escrow deposit and
substituting itself as Buying Member under this Section 20 (such Selling Member
being then referred to as a Substituted Buyer) at a purchase price equal to the
price that would have been obtained pursuant to Section 20.4 by using the
Buy-Sell Value to determine the Buy-Sell Price (such purchase price being then
referred to as the Default Purchase Price). Such option shall be exercised by
giving notice to the Defaulting Buyer of such exercise and by depositing, within
five days after such notice, xxxxxxx money equal to 10% of the Default Purchase
Price with an independent and neutral party reasonably selected by the
Substituted Buyer, whereupon, for purposes of this Section 20, the Substituted
Buyer shall become the Buying Member and the Defaulting Buyer shall become the
Selling Member.
SECTION 20.8. DISABLED OR DEFAULTING MEMBER.
Notwithstanding anything in this Agreement to the contrary, a Member
shall not have the right to make a Buy-Sell Offer under this Section 20 if such
Member is at such time a Disabled Member or Defaulting Member.
SECTION 20.9. SUSPENSION OF MARKETING RIGHT.
If either Member exercises its rights under this Section 20, then each
Member's marketing rights under Section 22 hereto shall be deemed suspended
until the Buy-Sell Closing
57
Date or, if such closing does not occur, for ninety (90) days after the
expiration of the Thirty Day Period.
SECTION 21. BUY-SELL OPTION FOR INDIVIDUAL FACILITIES.
SECTION 21.1. BUY-SELL OPTION.
At any time after the date of this Agreement, during the continuance of
a Bona Fide Dispute over a proposed Major Decision concerning a proposed
Voluntary Additional Contribution pursuant to Section 7.4(a)(ii) hereof, either
the Managing Member or the Investor Member (as the Offeror) shall have the right
to make an offer (the "FACILITY BUY-SELL OFFER") in writing to the other Member
(as the Offeree) solely with respect to the Facility or Facilities that are the
subject of the dispute over Voluntary Additional Contributions, which shall
state an amount in cash (the "FACILITY BUY-SELL VALUE"), determined in the sole
and absolute discretion of the Offeror. The Facility Buy-Sell Offer shall
constitute an irrevocable offer by the Offeror to the Company and the Offeree
either (i) to cause the Company to sell the Facility or Facilities identified in
such Facility Buy-Sell Offer to the Offeree in consideration for the payment of
a Facility Buy-Sell Price determined pursuant to Section 21.4 (the "FACILITY
OFFER TO SELL") or (ii) to purchase the Facility from the Company in
consideration for the payment of a Facility Buy-Sell Price determined pursuant
to Section 21.4 (the "FACILITY OFFER TO PURCHASE"). Such Facility Buy-Sell Offer
shall be made subject to the conditions of the Lease Agreement applicable to the
Facility or Facilities subject to such Facility Buy-Sell Offer; if such
conditions are unable to be met, then the Offeror shall have the option, but not
the obligation, to trigger the buy-sell provisions of Section 20 hereto.
SECTION 21.2. OFFEREE DECISION.
The Offeree shall have thirty (30) days (a "THIRTY DAY PERIOD") after
receipt of the Facility Buy-Sell Offer to respond to either, but not both, the
Facility Offer to Sell or the Facility Offer to Purchase, by giving the Offeror
notice of such response within the Thirty Day Period. If the Offeree fails to
accept either the Facility Offer to Sell or the Facility Offer to Purchase
within the Thirty Day Period, then the Offeree shall be deemed to have caused
the Company to accept the Offeror's Facility Offer to Purchase.
SECTION 21.3. LEASE TRANSACTION RELEASE.
The Facility Buying Member (as defined in Section 21.4) under this
Section 21 shall be responsible for representing the Company with respect to the
exercise of the Call Option (as defined in the Lease Agreements) on the Facility
Buy-Sell Closing Date, and with respect to overseeing the release procedure
under the Lease Transactions, including without limitation compliance with any
notice provisions, and shall be responsible for the payment of any release
premiums or yield maintenance costs under the Lease Agreements. The Facility
Buying Member is expressly authorized to act on behalf of the Company under this
Section 21.3
58
SECTION 21.4. BUY-SELL PRICE.
The price (the "FACILITY BUY-SELL PRICE") payable to the Company by the
Member who is purchasing the Facility pursuant to Section 21.2 (the "FACILITY
BUYING MEMBER") shall be an amount equal to the Facility Buy-Sell Value as
stated in the Facility Buy-Sell Offer.
SECTION 21.5. XXXXXXX MONEY; DEFAULT.
Within five (5) Business Days after the date of the exercise of the
election by the Offeree or five (5) Business Days after the expiration of the
Thirty Day Period, whichever is earlier, the Facility Buying Member shall
deposit in cash an amount equal to 10% of the Facility Buy-Sell Price (the
"XXXXXXX MONEY") with an independent and neutral party reasonably satisfactory
to the Facility Selling Member (as defined below). The xxxxxxx money shall be
applied against the purchase price at the closing referenced below, or shall be
paid to the other Member (the "FACILITY SELLING MEMBER") as liquidated damages
in the event of default by the Facility Buying Member. In the event Facility
Buying Member fails to deposit timely such xxxxxxx money as provided above (such
Facility Buying Member being then referred to as a "FACILITY DEFAULTING BUYER"),
the Facility Selling Member shall have the option (i) within fifteen (15) days
thereafter, unless the Facility Defaulting Buyer has earlier cured such default
by depositing the required xxxxxxx money as provided above, of substituting
itself as the Facility Buying Member (such Facility Selling Member being then
referred to as a "FACILITY SUBSTITUTED BUYER") under this Section 21.5 at a
purchase price (the "FACILITY DEFAULT PURCHASE PRICE") equal to 90% of the
Facility Buy-Sell Value, by giving notice to the Facility Defaulting Buyer of
its intention to do so and by depositing, within five (5) Business Days after
such notice, xxxxxxx money equal to 10% of the Facility Default Purchase Price
with an independent and neutral party reasonably selected by the Facility
Substituted Buyer, whereupon, for purposes this Section 21, the Facility
Substituted Buyer shall become the Facility Buying Member and the Facility
Defaulting Buyer shall become the Facility Selling Member; or (ii) at any time
after default by the Facility Defaulting Buyer in depositing the xxxxxxx money,
of seeking from the Facility Defaulting Buyer by judicial proceedings or as
otherwise permitted by law, as liquidated damages for its default in its
obligations under this Section 21, an amount of money equal to the amount of
xxxxxxx money the Facility Defaulting Buyer was required to deposit pursuant to
this Section 21.
SECTION 21.6. BUY-SELL CLOSING.
(a) The sale of the Facility by the Company shall be closed and
consummated on that date (the "FACILITY BUY-SELL CLOSING DATE")
designated by the Facility Buying Member in a notice to the Facility
Selling Member, which date shall be within ninety (90) days after the
expiration of the Thirty Day Period. The Facility Buying Member may
elect, at any time within the ninety-day period, to assign its right to
purchase the Facility or Facilities to a third party, which party shall
then become the Facility Buying Member, provided, however, that such
sale shall be for the same price and on the same terms as if it were
being made to the Facility Buying Member, and the Facility Buying Member
shall remain responsible for any default in the purchase by such third
party as if no such assignment had taken place. The Facility Buy-Sell
Price shall be paid to the Company by the Facility Buying Member or its
assignee in cash on the Facility Buy-Sell Closing Date. On such Facility
Buy-Sell Closing Date, the Company and the Facility Selling Member
59
shall deliver to a title company selected by the Facility Buying Member
(the "TITLE COMPANY") the following items:
(i) DEED. A Special Warranty Deed in form and substance
reasonably acceptable to the Facility Buying Member executed and
acknowledged by the Company, conveying to the Facility Buying
Member good, marketable and indefeasible fee simple title to the
applicable Facility or Facilities, free and clear of all liens
and encumbrances, security interests and adverse claims relating
to the Lease Agreement financing applicable to such Facility or
Facilities, subject to matters of record reasonably acceptable
to the Facility Buying Member, provided, however, that if the
Facility Buying Member is the Managing Member, then it shall
have the right, but not the obligation, to assume any or all
liens relating to such Lease Agreement financing.
(ii) XXXX OF SALE. A Xxxx of Sale, in form reasonable
acceptable to the Facility Buying Member with full warranty of
title for all tangible personal property relating to the
applicable Facility or Facilities owned by the Company or the
Facility Owner, which Xxxx of Sale shall convey good title to
such personal property to the Facility Buying Member free and
clear of all liens, encumbrances, security interests and adverse
claims.
(iii) ASSIGNMENT OF RESIDENT AGREEMENTS, CONTRACTS AND
PERMITS. Original executed copies of all Resident Agreements and
leases then in effect, together with an assignment of such
Resident Agreements and leases, all service contracts, and all
intangible property rights of the Company relating to the
applicable Facility or Facilities in form and substance
acceptable to the Facility Buying Member
(iv) FIRPTA. A Foreign Investment in Real Property Tax
Act affidavit executed by the Company. If the Company fails to
provide the necessary affidavit and/or documentation of
exemption on the Buy-Sell Closing Date, the Facility Buying
Member may proceed with withholding provisions as provided by
law.
(v) AUTHORITY. Evidence of existence and organization of
the Company and the authority of the person executing documents
on behalf of the Company reasonably satisfactory to the Facility
Buying Member and the Title Company.
(vi) OTHER DOCUMENTS. A release of the Facility Selling
Member and its Affiliates from any guaranties or other
liabilities by or of the Facility Selling Member or its
Affiliates in relation to any Senior Financing for the relevant
Facility that is not being satisfied in connection with the
contemplated sale of such Facility, and any additional documents
that the Facility Buying Member or the Title Company may
reasonably require for the proper consummation of the
transaction contemplated by this Section.
60
(b) Also at such closing, the Facility Buying Member shall
deliver to the Title Company the following items:
(i) PURCHASE PRICE. The amount of the Facility Buy-Sell
Price or Facility Default Purchase Price payable at closing,
plus or minus applicable prorations.
(ii) AUTHORITY. Evidence of existence and organization
of the Facility Buying Member and the authority of the person
executing documents on behalf of the Facility Buying Member
reasonably satisfactory to the Company, the Facility Selling
Member and the Title Company.
(iii) OTHER DOCUMENTS. Any additional documents that the
Company, the Facility Selling Member or the Title Company may
reasonably require for the proper consummation of the
transaction contemplated by this Section 21.
(c) The following items shall be apportioned between the Company
and the Facility Buying Member as of the date of such closing, with the
date of such closing belonging to the Facility Buying Member:
(i) TAXES AND ASSESSMENTS. General real estate taxes and
assessments imposed by governmental authority and any
assessments imposed by private covenant constituting a lien or
charge on the applicable Facility or Facilities for the then
current calendar year or other current tax period (collectively,
"TAXES") not yet due and payable shall be prorated. If such
closing occurs prior to the receipt by the Company of the tax
xxxx for the calendar year or other applicable tax period in
which such closing occurs, the Company and Facility Buying
Member shall prorate Taxes for such calendar year or other
applicable tax period based upon the most recent ascertainable
assessed values and tax rates.
(ii) RENT. All rent and other income (and any applicable
state or local tax on rent) under leases in effect on the
closing date, whether collected or uncollected, but net of
expected delinquencies on an historical basis, shall be
prorated. Any prepaid rents for the period following the closing
date shall be paid over by the Company to the Facility Buying
Member.
(iii) UTILITIES. Utilities, including water, sewer,
electric, and gas, based upon the last reading of meters prior
to such closing shall be prorated. The Company shall endeavor to
obtain meter readings on the day before such closing date, and
if such readings are obtained, there shall be no proration of
such items. The Company shall pay at such closing the bills
therefor for the period to the day preceding such closing, and
the Facility Buying Member shall pay the bills therefor for the
period subsequent thereto. If the utility company will not issue
separate bills, the Facility Buying Member will receive a credit
for the Company's portion and will pay the entire xxxx prior to
delinquency after such closing. If the Company has paid any
utilities no more than thirty (30) days in
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advance in the ordinary course of business, then the Facility
Buying Member shall be charged its portion of such payment at
such closing.
(iv) OTHER. All other charges, escrows, inventories,
deposits and fees customarily prorated and adjusted in similar
transactions shall be so prorated and adjusted. In the event
that accurate prorations and other adjustments cannot be made at
such closing because current bills are not obtainable, the
Company and Facility Buying Member shall prorate on the best
available information, subject to adjustment upon receipt of the
final bills.
In the event either the Facility Buying Member or the Facility Selling Member
defaults in the performance of its obligations under the buy-sell procedure
described in this Section 21, the non-defaulting Member shall have the right to
and, if applicable, to cause the Company to, exercise all rights and remedies
against the defaulting Member available at law or in equity, including, without
limitation, the remedy of specific performance. The Company shall pay all
closing costs incurred in connection with the implementation of the buy-sell
procedure normally and customarily paid by a seller of a real property interest
and the Facility Buying Member shall pay all closing costs incurred in
connection with the implementation of the buy-sell procedure normally and
customarily paid by a buyer of a real property interest; provided, however, that
the Facility Buying Member and the Facility Selling Member shall each pay the
fees and expenses of its own legal counsel.
SECTION 21.7. REMEDIES.
Without limiting the remedies available to either Member as a result of
the breach of the other Member's obligations described above, the Facility
Selling Member shall have the option, within sixty (60) days of default by the
Facility Buying Member in its obligation to purchase under this Section 21 (such
Facility Buying Member being then referred to as the Facility Defaulting Buyer)
of retaining the escrow deposit for its own account and substituting itself as
Facility Buying Member under this Section 21 (such Facility Selling Member being
then referred to as a Facility Substituted Buyer) at a purchase price equal to
the Facility Buy-Sell. Such option shall be exercised by giving notice to the
Facility Defaulting Buyer of such exercise and by depositing, within five days
after such notice, xxxxxxx money equal to 10% of the Facility Buy-Sell Price
with an independent and neutral party reasonably selected by the Facility
Substituted Buyer, whereupon, for purposes of this Section 21, the Facility
Substituted Buyer shall become the Facility Selling Member and the Facility
Defaulting Buyer shall become the Facility Selling Member.
SECTION 21.8. SUSPENSION OF MARKETING RIGHT.
If either Member exercises its rights under this Section 21, then each
Member's marketing rights under Section 22 hereto shall be deemed suspended
until the Facility Buy-Sell Closing Date, or, if such closing does not occur,
for ninety (90) days after the expiration of the Thirty Day Period.
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SECTION 22. MARKETING RIGHT.
SECTION 22.1. INVESTOR MEMBER'S MARKETING RIGHT.
(a) INVESTOR MEMBER'S MARKETING RIGHT. On and after the fifth
(5th) anniversary of the date of the First Closing Date, the Investor
Member shall have the right to market the Portfolio, in whole or in part
(the "INVESTOR MEMBER'S MARKETING RIGHT") which election shall be made
by written notice given to the Managing Member. Within seventy-five (75)
days after the date of such notice, fair market value (the "FMV") shall
be established for each Facility (the "OFFERED FACILITIES"). FMV shall
be determined as set forth in Section 22.4 herein.
(b) MARKETING PROCEDURE. If the Managing Member does not elect
to purchase all of the Offered Facilities pursuant to its Purchase
Right, as set forth in Section 22.2 below, the Investor Member may
require the Managing Member to market the remaining Offered Facilities
to third parties; provided, that, if the Investor Member accepts an
offer to purchase the Offered Facilities that is less than ninety-seven
percent (97%) of the FMV for the Offered Facilities, the Investor Member
shall again offer such Facilities to the Managing Member in accordance
with Section 22.2, but at the lower purchase price (the "DISCOUNTED
OFFER"). Upon receipt by the Managing Member of the Discounted Offer, it
shall have ten (10) Business Days to elect to purchase the Offered
Facilities at the Discounted Offer. If the Managing Member elects to
purchase the Offered Facilities, or the Managing Member fails to so
elect, the Investor Member shall then follow the procedure set forth in
Section 10.10 hereof (as if the Investor Member were acting as the
Managing Member and provided that if the Managing Member fails to elect
to purchase such Facility, the Managing Member shall have no further
right to grant or withhold its Approval to such sale and release) to
obtain the necessary releases and approvals to sell such Facilities. The
Managing Member shall retain the exclusive right to negotiate and
execute on behalf of the Company the sale agreement related to the
marketing and sale of the Offered Facilities under this Section 22.1,
unless the sale is to the Managing Member or an Affiliate of the
Managing Member, in which case the sale agreement shall be subject to
the Approval of the Investor Member.
SECTION 22.2. MANAGING MEMBER'S PURCHASE RIGHT.
If the Investor Member exercises its right under Section 22.1, the
Managing Member shall have the right to purchase the Portfolio, in whole or in
part, at the FMV established in accordance with Section 22.4 herein. Once FMV
has been established for the Offered Facilities, Managing Member shall have
twenty (20) Business Days to elect to purchase some or all of the Offered
Facilities. If the Managing Member elects to purchase the Offered Facilities at
FMV, it shall have one hundred and twenty (120) days from the date of such
election to close said purchase, pursuant to the procedures and mechanisms set
forth in Section 21.6 hereof (as if, under Section 21.6, the Managing Member
were acting as the Facility Buying Member and the Investor Member were acting as
the Facility Selling Member).
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SECTION 22.3. MANAGING MEMBER'S RIGHT TO MARKET/PURCHASE.
(a) MANAGING MEMBER'S MARKETING RIGHT. On and after the sixth
(6th) anniversary of the date of this Agreement, the Managing Member
shall have the right to market the Portfolio in whole or in part (the
"MANAGING MEMBER'S MARKETING RIGHT"), which election shall be made by
written notice given to the Investor Member. Within seventy-five (75)
days after the date of such notice, the FMV shall be established for the
Designated Facilities (as defined hereafter). If the Managing Member
elects to exercise its Marketing Right, then the Portfolio, in whole or
in part (the "DESIGNATED FACILITIES"), shall be marketed pursuant to
Section 22.3(b) below.
(b) MARKETING PROCEDURE. Once the Managing Member has elected to
market the Designated Facilities, the Managing Member shall select
either (i) an Affiliate of the Managing Member or (ii) a third party to
act as the broker to market the Designated Facilities; provided, that,
if the Managing Member elects to use a third party, the Managing Member
shall consult with the Investor Member in the selection of such third
party. The Managing Member shall have the right to negotiate and Approve
any sales agent or broker agreement, except that the compensation of
such sales agent or broker and any fee to be paid to the party selected
to market the Designated Facilities shall be deducted from the Company's
payment of the Disposition Fee. Notwithstanding the foregoing, the
Managing Member shall retain the exclusive right to negotiate and
execute on behalf of the Company the sale agreement related to the
marketing and sale of the Designated Facilities under this Section 22.3,
unless the sale is to the Managing Member or an Affiliate of the
Managing Member, in which case the manner of closing shall comply with
the provisions set forth in Section 21.6 hereto (as if, under Section
21.6, the Investor Member were acting as the Facility Selling Member and
the Managing Member were acting as the Facility Buying Member).
(c) MANAGING MEMBER'S RIGHT TO PURCHASE. If the Managing Member
exercises its Marketing Right, the Managing Member or an Affiliate may
bid on the Designated Facilities on the terms and conditions as such
other third party purchasers. Nothing shall limit the Investor Member or
an Affiliate of the Investor Member from likewise bidding on such
Designated Facilities.
(d) SALE PROCEDURE. The Managing Member shall follow the
procedure in Section 10.10 hereof to effectuate the sale and release of
the Designated Facilities; provided, however, that if the Managing
Member is selected to purchase the Designated Facilities, then the
manner of closing shall comply with the provisions set forth in Section
21.6 hereto (as if, under Section 21.6, the Investor Member were acting
as the Facility Selling Member and the Managing Member were acting as
the Facility Buying Member).
SECTION 22.4. FMV.
For purposes of Section 22.1, Section 22.2 and Section 22.3 above, FMV
shall be determined by mutual agreement of the Investor Member and the Managing
Member. If the parties are unable to agree to FMV within seventy-five (75) days
after the initial notice given under Section 22.1 or 22.3, then each party shall
obtain a broker's opinion of value of the
64
Offered Facilities or Designated Facilities and the two opinions of value shall
be averaged together to obtain FMV; provided, that if the opinions of value vary
in value by more than five percent (5%), a third broker shall be selected by
mutual agreement of the parties, and the three opinions of value shall be
average together to obtain FMV; provided, further, that if one of the three
opinions of value is more than 110% or less than 90% of the average of the other
two opinions of value, FMV shall be the average of the other two opinions of
value. The Company shall pay the cost of all opinions of value required under
this Section 22.4.
SECTION 22.5. FAILURE TO SELL FACILITY.
If a definitive contract (which contract may be subject to due diligence
contingencies and other conditions as agreed to by the Managing Member) for the
sale of the Offered Facilities or Designated Facilities is not entered into
pursuant to this Section 22 within one hundred twenty (120) days after the
Investor Member or the Managing Member, as the case may be, makes its marketing
election under this Section 22, the Offered Facilities or Designated Facilities
shall be removed from the market. Once an Offered Facility or a Designated
Facility is removed from the market, either the Investor Member or the Managing
Member may elect to remarket the Offered Facility or Designated Facility
pursuant to the terms of Section 22.1 and 22.3 respectively.
SECTION 22.6. MANAGING MEMBER PURCHASE OF FACILITY OWNER.
If the Managing Member exercises its right pursuant to this Section 22
to purchase a Facility, then it may, in lieu of taking title to such Facility
from the Facility Owner, request that the Company, in connection with the
exercise of the Call Option (as defined in the relevant Lease Agreement),
arrange for the ownership interests of the Facility Owner that owns such
Facility to be transferred to the Managing Member. The Managing Member will pay
the purchase price for the Facility to the Company, which will use such amount
to satisfy its obligations under the Call Option. Any balance shall be retained
by the Company, and in such an instance, the Investor Member shall receive the
amount of cash which it would have received pursuant to Section 9 hereof on the
closing date for the sale of such Facility if the Company had distributed to the
Members in accordance with Section 9.1(b) a cash amount equal to the
Extraordinary Proceeds that would have resulted from a sale of such Facility at
their FMV or at the Discounted Offer, as applicable.
SECTION 22.7. SUSPENSION OF BUY-SELL OPTION.
If either Member exercises its rights under this Section 22, then each
Member's rights to exercise its buy-sell option under Sections 20 and 21 hereto
shall be deemed suspended until the closing of the Offered Facilities, or, if
such closing does not occur, for ninety (90) days after such Member's exercise
of its rights under this Section 22.
SECTION 23. TERMINATION OF COMPANY.
SECTION 23.1. DISSOLVING EVENTS.
The Company shall be terminated, liquidated and dissolved in the manner
hereinafter provided upon the happening of any of the following events or dates:
65
(a) the Approval of all of the Members to terminate the Company;
(b) the permitted sale of all of the Company's interest in the
Portfolio and the receipt of all sales proceeds in full and in cash;
(c) the happening of a Defaulting Event or a Disabling Event if,
at the time of the happening of such event, the Member suffering or
causing such event is the Managing Member of the Company, unless all of
the remaining Members unanimously agree in writing to continue the
Company within the ninety (90) day period immediately succeeding the
happening of such Defaulting Event or Disabling Event and within said
ninety (90) day period elect and admit a new managing member of the
Company effective as of the date of such Defaulting Event or Disabling
Event; or
(d) if not previously terminated, no later than the fifth (5th)
anniversary of the First Closing Date; provided, however, that such date
may be extended twice upon Approval of all of the Members, each such
extension to be for a one-year period.
SECTION 23.2. METHOD OF LIQUIDATION.
Upon the happening of any of the events specified in Section 23.1 above
which require the Company to be terminated, liquidated and dissolved, the
Company, notwithstanding any provisions to the contrary in the Act, shall
liquidate its assets in a manner that is consistent with avoiding undue loss and
apply and distribute its assets in the following manner and in the following
order of priority:
(a) To the payment of the debts and liabilities of the Company
(other than the Capital Accounts of the Members) and to the expenses of
liquidation in the order of priority as provided by law; then
(b) To the repayment of any debts or liabilities of the Company
to the Members, and
(c) Then in the order of priority set forth in Section 9.1(b)
hereof;
SECTION 23.3. REASONABLE TIME FOR LIQUIDATING.
A reasonable time shall be allowed for the orderly liquidation of the
Company's assets pursuant to Section 23.2 above in order to reduce the risk of
losses which might be attendant upon such a liquidation.
SECTION 23.4. DATE OF DISSOLUTION.
The Company shall be terminated and dissolved when all of its assets
shall have been applied and distributed in accordance with the provisions of
Section 23.2 above.
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SECTION 24. GENERAL PROVISIONS.
SECTION 24.1. WAIVER OF RIGHT OF PARTITION.
Each of the Members does hereby agree to and does hereby waive any right
such Member may otherwise have to cause any of the Company's assets to be
partitioned among the Members or to file any complaint or to institute any
proceeding at law or in equity seeking to have any such assets partitioned.
SECTION 24.2. NOTICES.
Any notice, request for Approval, election or other communication
provided for or required by this Agreement shall be in writing and shall be
delivered by hand, by air courier service, by certified or registered mail,
return receipt requested, postage prepaid, or by facsimile transmission followed
by delivery of the hard copy of such communication by air courier service or
mail as aforesaid, addressed to the person to whom such notice is intended to be
given at such address as such person may have previously furnished in writing to
the Company or to such person's last known address. In the case of any request
for Approval or other communication which requires a response within a specified
period of time pursuant to the terms of this Agreement, the time period in which
such response must be given shall commence upon the date of actual receipt of a
hard copy of any such communication. Delivery to any officer, partner, agent or
employee of a party at the designated address of such party shall constitute
actual receipt for purposes hereof. Until receipt of written notice to the
contrary, the Members' addresses for notices shall be:
MANAGING MEMBER: Sunrise Assisted Living, Inc.
0000 Xxxxxxxx Xxxxx
XxXxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Executive Vice President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with copies to: Sunrise Assisted Living, Inc.
0000 Xxxxxxxx Xxxxx
XxXxxx, Xxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and: Watt, Tieder, Hoffar & Xxxxxxxxxx, L.L.P.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
XxXxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
67
INVESTOR MEMBER: US Assisted Living Facilities, Inc.
00 Xxxxxxxxxx Xxxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
Attention: XxxXxxxx Xxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to: King & Spalding
1185 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
SECTION 24.3. MODIFICATIONS.
No change or modification of this Agreement shall be valid or binding
upon the Members, nor shall any term or condition of this Agreement be
considered waived by a Member, unless such change or modification or waiver
shall be in writing and signed by the Member to be charged.
SECTION 24.4. AUTHORIZED PERSONS.
For purposes of this Agreement, all Approvals and other necessary
representations shall be deemed valid and binding if given by any of the
Authorized Representatives of each of the Managing Member and the Investor
Member set forth in Schedule 7 hereto; provided that the Members may designate
replacements for the individuals set forth on Schedule 7 upon prior written
notice to the other Member.
SECTION 24.5. AMENDMENTS.
This Agreement may be amended from time to time by Approval of all
Members.
SECTION 24.6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon
the Members, their legal representatives, transferees, heirs, permitted
successors and assigns.
SECTION 24.7. VALIDITY.
If any provision of this Agreement or the application of such provision
to any Entity or circumstance shall be held invalid, the remainder of this
Agreement or the application of such provision to Entities or circumstances
other than those with respect to which it is held invalid, shall not be affected
thereby and shall continue to be binding and in force.
68
SECTION 24.8. NO WAIVER.
The waiver by any party hereto of the breach of any term, covenant,
agreement or condition herein contained shall not be deemed a waiver of any
subsequent breach of the same or any other term, covenant, agreement or
condition herein, nor shall any custom, practice or course of dealings arising
among the parties hereto in the administration hereof be construed as a waiver
or diminution of the right of any party hereto to insist upon the strict
performance by any other party hereto of the terms, covenants, agreements and
conditions herein contained.
SECTION 24.9. DUPLICATE ORIGINALS.
For the convenience of the Members, any number of counterparts hereof
may be executed, and each such counterpart shall be deemed to be an original
instrument.
SECTION 24.10. GOVERNING LAW; CONSTRUCTION.
This Agreement shall be interpreted and construed in accordance with the
laws of the State of Delaware. The titles of the sections and subsections herein
have been inserted as a matter of convenience of reference only and shall not
control or affect the meaning or construction of any of the terms or provisions
herein. Wherever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the plural, and
pronouns stated in either the masculine or the neuter gender shall include the
masculine, feminine and neuter.
SECTION 24.11. CONSENT TO JURISDICTION AND VENUE.
The parties hereto agree that any and all disputes, claims, actions or
proceedings arising directly, indirectly or otherwise in connection with, out
of, related to or from this Agreement and any related agreements may be
litigated in the state courts of, and the Federal courts for, the State of
Delaware, and the parties hereto consent to the non-exclusive jurisdiction of
such state and federal courts.
SECTION 24.12. INDEPENDENT INVESTMENT DECISION.
Each Member hereby covenants, represents and warrants to the other that
its decision to invest in this Company and in the Facility is its decision alone
and the other Member shall have no responsibility or liability whatsoever on
account of such investment decision or any of the consequences thereof.
SECTION 24.13. ENTIRE AGREEMENT.
Except as otherwise provided in this Section, this Agreement represents
the entire Agreement of the parties hereto with respect to the subject matter
hereof and all prior agreements and understandings of the parties hereto,
whether written or oral, shall be superseded hereby. The parties agree that if
the Transaction Agreement and this Agreement address the same issue (i) in a
conflicting manner, the relevant provision or provisions of this Agreement shall
control to the exclusion of the conflicting provision or provisions of the
Transaction Agreement, or (ii) in a manner that is consistent and completely or
partially overlapping, the relevant provision or
69
provisions of this Agreement shall control to the exclusion of the conflicting
provision or provisions of the Transaction Agreement. The Transaction Agreement
shall continue in full force and effect as to those provisions that are not
excluded pursuant to the immediately preceding sentence.
SECTION 24.14. FURTHER ASSURANCES.
The Members agree to execute such further documents, instruments and
other agreements as may be reasonably requested by the other Members as may be
reasonably necessary to carry out and implement the intent hereof.
SECTION 24.15. USE OF SUNRISE TRADE NAME.
If any other Entity acquires the interest of Sunrise as a result of the
implementation of the buy/sell rights under Section 20 hereof or otherwise, or,
if Sunrise is removed as the Managing Member for any reason, then the substitute
Managing Member shall cause the Company to cease to use the name "Sunrise"
within thirty (30) days of any such events, unless Sunrise agrees in writing to
allow the Company to continue to use such name beyond such thirty-day period. At
all times while any Facility is operated under the "Sunrise" name, such Facility
will be managed in accordance with the quality standards and management policies
(including with respect to education, training, trips, seminars, awards,
newsletters, resident satisfaction surveys and technology) as are used by
Sunrise and its Affiliates in operating residential apartment communities which
are wholly-owned by Sunrise.
SECTION 24.16. PRESS RELEASES.
Each Member agrees that, prior to issuing any press releases or other
marketing items, such items shall be presented to and subject to the Approval of
the other Member, such Approval not to be unreasonably withheld, provided,
however, that such restriction shall not apply to any regular reports that the
Investor Member provides to its investors.
SECTION 24.17. LIABILITY OF MEMBERS.
Anything contained above or elsewhere herein to the contrary
notwithstanding, no personal liability or personal deficiency judgment shall be
asserted or enforced against the trustees, officers, advisors, employees,
agents, partners, shareholders or principals of the Managing Member or the
Investor Member, or against the assets of any such parties, for payment of any
amount hereunder or for observance or performance of any of the obligations of
the Managing Member, the Investor Member or the Company; provided, however, that
nothing contained hereunder shall eliminate the obligations of any Entity under
any other agreement.
[signature page follows]
S-1
IN WITNESS WHEREOF, this Amended and Restated Operating Agreement is
executed under seal effective as of the date first set forth above.
MANAGING MEMBER:
SUNRISE ASSISTED LIVING INVESTMENTS, INC.
By: /s/ Xxxxxx X. Xxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
INVESTOR MEMBER:
US ASSISTED LIVING FACILITIES, INC.
By: /s/ Xxxxx Xxxxxxxx
---------------------------------------
Name: Xxxxx Xxxxxxxx
Title: President