AMENDED AND RESTATED FUNDING AGREEMENT
THIS AMENDED AND RESTATED FUNDING AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of May, 2002 by and between Emeritus Corporation
("Emeritus") and HB-ESC I, LLC ("HB-ESC I"), HB-ESC II, LLC ("HB-ESC II") and
HB-ESC V, LP ("HB-ESC V" and together with HB-ESC I and HB-ESC II, the "HB
Entities").
RECITALS
A. Emeritus is a party to that Sale Contract dated as of April 4, 2002
among Integrated Living Communities of Alexandria, L.L.C., Integrated Living
Communities of Lake Xxxxxxx, L.L.C., Integrated Living Communities of Lafayette,
L.L.C., Integrated Living Communities of Xxxxxxxxx, X.X., Integrated Living
Communities of Oakwell, L.P., Integrated Living Communities of San Antonio, L.P.
and Integrated Living Communities of XxXxxxxx, X.X. (the "Leased Facilities
Seller"), and Emeritus, as Buyer (the "Leased Facilities Purchase Agreement"),
pursuant to which Emeritus agreed to purchase the assets owned or leased by
Leased Facilities Seller and used in connection with the leasing and operation
of the assisted living facilities described therein (the "Leased Facilities")
including Seller's rights under the Facility Leases (as defined in the Leased
Facilities Purchase Agreement"). The Leased Facilities are leased from Health
Care Property Investors, Inc. ("HCPI") and Healthcare Realty Trust ("HRT") and
are hereinafter referred to as the "HCPI Facilities," a list of which is set
forth in Exhibit A hereto and the "HRT Facilities," a list of which is set forth
in Exhibit B hereto.
B. Emeritus is also a party to that Sale Contract dated as of April 17,
2002, between Senior Lifestyle Shreveport, L.L.C., as Seller (the "Shreveport
Seller" and together with the Leased Facilities Seller, the "Sellers"), and
Emeritus, as Buyer (the "Shreveport Purchase Agreement" and together with the
Leased Facilities Purchase Agreement, the "Purchase Agreements"), pursuant to
which Emeritus agreed to purchase the real property and other assets owned by
Shreveport Seller and used in connection with the ownership and operation of the
assisted living facility described therein (the "Shreveport Facility" and
together with the Leased Facilities, the "Facilities"). Immediately prior to
Closing, Emeritus intends to assign to HB-ESC I, and HB-ESC I intends to assume
from Emeritus, all of Emeritus' rights and obligations under the Shreveport
Purchase Agreement and HB-ESC I will thereafter purchase the Shreveport
Facility, subject to the obligations of the Shreveport Seller under certain of
the loan documents entered into by the Shreveport Seller with GMAC Commercial
Mortgage Corporation ("GMAC"), which loan documents shall be assumed by HB-ESC I
and concurrently amended by HB-ESC I and GMAC at the closing of the purchase of
the Shreveport Facility by HB-ESC I (the "Shreveport Loan Documents"). The loan
evidenced by the Shreveport Loan Documents will hereinafter be referred to as
the "Shreveport Debt."
C. Under the terms of the Purchase Agreements, the Sellers have agreed to
fund the Operating Losses (as defined in the Purchase Agreements) of the
Facilities during a two year period after the closings of the transactions which
are the subject of the Purchase Agreements subject to certain caps on the
obligations of the Sellers thereunder.
D. As a result of certain accounting issues presented by the structure of
the transaction, Emeritus agreed, with the consent of the Sellers, to assign to
the HB Entities its rights and obligations under the Purchase Agreements,
including its rights with respect to the funding of the Operating Losses, and
the HB Entities agreed to engage Emeritus to operate the Facilities, and, in
furtherance thereof, Emeritus and the HB Entities have entered into Management
Agreements of even date herewith with respect to all of the Facilities, other
than those which are located in Texas and leased from Healthcare Realty Trust as
to which management agreements will be executed concurrently with the closing of
the transaction related thereto as provided for in the Leased Purchase Agreement
(the "Management Agreements").
E. Emeritus and the HB Entities previously entered into an Agreement dated
as of May 1, 2002 (the "Original Funding Agreement") which documents (i) certain
additional agreements which they have reached with respect to the Facilities and
(ii) certain amendments to the Management Agreements to the extent necessary to
reflect such additional agreements.
F. In order to address certain concerns raised by GMAC with respect to the
Original Funding Agreement and the Management Agreement related to the
Shreveport Facility (the "Shreveport Management Agreement"), Emeritus and the HB
Entities have agreed to amend and restate the Original Funding Agreement in its
entirety.
G. The Original Funding Agreement provides that it may be amended by written
agreement signed by Emeritus and the HB Entities.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants of the parties set forth herein, IT IS HEREBY AGREED THAT THE ORIGINAL
FUNDING AGREEMENT SHALL BE AND HEREBY IS AMENDED AND RESTATED IN ITS ENTIRETY AS
FOLLOWS:
1. For a period commencing on May 1, 2002 and ending on the earlier of (i) the
date on which Emeritus acquires title to the Facilities from the HB Entities in
accordance with Section 3 hereof or (ii) April 30, 2007 or (iii) the date on
which the Management Agreements are terminated with respect to the Facilities in
accordance with the terms of Section 2 hereof (the "Funding Period"), on the
terms and conditions set forth herein, Emeritus shall be responsible for any
Operating Losses (as defined in the Purchase Agreements) attributable to the
Facilities, taken as whole, which are in excess of the sum of the cash receipts
of the Facilities, taken as a whole, and the Operating Losses with respect to
all of the Facilities taken as a whole actually funded by the Sellers under the
terms of the Purchase Agreements (the "Covered Expenses"). In furtherance of
the foregoing and for purposes of clarification, the parties further agree that
regardless of the fact that the Operating Losses for the Leased Facilities and
the Shreveport Facility are calculated separately under the Purchase Agreements,
for purposes of determining the liability of Emeritus under this Agreement, such
Operating Losses and the amount thereof which are funded by Sellers under the
Purchase Agreements and which are to be funded by Emeritus under this Agreement
shall be calculated on an aggregate basis for all of the Facilities taken as a
whole. The parties further agree that the amount of Operating Losses to be
funded by Emeritus shall not be affected by a breach by the Sellers of their
obligations under the Purchase Agreements, it being understood and agreed that
should such a breach occur, Emeritus will nonetheless be required to fund the
Operating Losses of the Facilities in accordance with the terms of this Section
1 but the HB Entities shall, upon request, execute any and all documents which
may be necessary to assign to Emeritus any rights which the HB Entities may have
under the Purchase Agreements to pursue the Sellers and/or any guarantor of the
Sellers' obligations, for a breach of their funding obligations under the
Purchase Agreements.
In furtherance of the foregoing, Emeritus and the HB Entities acknowledge and
agree that Section 4 of each Purchase Agreement establishes a mechanism for the
submission of a Monthly Report (as defined in Section 4(b) of each Purchase
Agreement) which will reflect the Operating Losses for the Leased Facilities and
for the Shreveport Facility, as applicable, during the relevant reporting period
and that Emeritus shall be required under the terms of this Agreement (A) during
the first two years of the Funding Period, to be responsible for the aggregate
Operating Losses reflected in the Monthly Report which relate to the Facilities,
taken as a whole, and which are not covered by the total amount of the Monthly
Reimbursement paid by the Sellers under the Purchase Agreements, (B) during the
last three years of the Funding Period, to continue to prepare and submit to the
HB Entities a Monthly Report for all of the Facilities, taken as a whole and (C)
during the last three years of the Funding Period to be responsible for the
aggregate Operating Losses reflected in the Monthly Report for the Facilities,
taken as a whole. During the Funding Period, the obligation imposed on Emeritus
under this Section 1 shall supersede any obligation imposed on the HB Entities
under the terms of the Management Agreements to provide working capital for the
Facilities.
2. In consideration for the obligations assumed by Emeritus pursuant to Section
1 hereof, the Management Agreements are amended to provide that (a) they shall
have a term of five (5) years commencing on May 1, 2002 and ending on April 30,
2007 (the "Term") unless earlier terminated by the applicable HB Entity upon the
occurrence of a Manager Event of Default (as defined in Exhibit C hereto) or by
Emeritus upon the occurrence of a Licensee/Owner Event of Default (as defined in
Exhibit D hereto) and by mutual agreement of the parties upon the acquisition of
title to the Facilities by Emeritus, (b) that any and all references in the
Management Agreements to the Commencement Date shall be May 1, 2002, (c) except
with respect to the Shreveport Management Agreement which may only be terminated
by HB-ESC I or Emeritus in accordance with the terms of this Section 2 and
subject to any rights granted to GMAC under the documents evidencing the
Shreveport Debt, an election by any HB Entity to terminate a Management
Agreement shall be deemed to be an election by all of the HB Entities to
terminate all of the Management Agreements and (c) to provide in the Shreveport
Management Agreement that for so long as the Shreveport Debt remains
outstanding, the reports due from Manager under Section I(G) thereof will also
include the reports due from HB-ESC I with respect to Manager or the Shreveport
Facility under Section 5.5 of the Loan Agreement included within the Shreveport
Loan Documents assumed by HB-ESC I.
3. In further consideration for the obligations assumed by Emeritus pursuant to
Section 1 hereof, each of the HB Entities acknowledges and agrees that Emeritus
shall have the right between the date hereof and April 30, 2007 (the "Exercise
Period"), on written notice to the HB Entities (the "Exercise Notice"), to
require the HB Entities (i) to assign to it the Facility Leases and (ii) to
convey to it title to the Shreveport Facility, subject, however, (A) if the
Shreveport Debt to GMAC remains outstanding, to the receipt by HB-ESC I of the
prior written consent and approval of GMAC or (B) if the Shreveport Debt has
been refinanced, then to the receipt by HB-ESC I of the prior written consent
and approval of the holder of the New Shreveport Loan (as defined below) if and
to the extent such consent is required by the terms of the New Shreveport Loan
documents,.
Conveyance of title to the Shreveport Facility shall be made only with the prior
written consent and approval of GMAC (or, if applicable, the holder of the New
Shreveport Loan), and the rights of Emeritus under this Section 3 shall be
subject and subordinate to the rights of GMAC (or, if applicable, the holder of
the New Shreveport Loan) and the obligations of the "Borrower" under the
Shreveport Loan Documents (or the obligations of the "Borrower" under any of the
New Shreveport Loan documents, if applicable), as such documents may be modified
by agreement of Emeritus and GMAC (or the holder of the New Shreveport Loan, if
applicable) at the time of, and as a condition to securing, such written
approval, it being understood and agreed that it is the intent of the parties
that Emeritus will assume the Shreveport Debt (or the New Shreveport Loan, if
applicable) concurrently with its acquisition of title to the Shreveport
Facility.
In furtherance of the foregoing, the HB Entities acknowledge and agree that in
the event HB-ESC I refinances the Shreveport Debt at anytime during the Exercise
Period, then HB-ESC I shall use its commercially reasonable efforts to ensure
that any loan secured by it in conjunction with such refinancing transaction
(the "New Shreveport Loan") shall specifically provide that the New Shreveport
Loan is assumable by Emeritus in the event Emeritus exercises its rights granted
under this Section 3 during the Exercise Period or if an assumable loan is not
available, in the reasonable determination of HB-ESC I, on commercially
reasonable terms, then the terms of the New Shreveport Loan shall not, without
the prior written consent of Emeritus, which consent shall not be unreasonably
withheld, vary materially from the terms of the loan evidencing the Shreveport
Debt.
In the event any of HCPI, HRT, GMAC or the holder of the New Shreveport
Loan, if applicable, refuses for reasons beyond the reasonable control of
Emeritus to consent to the assignment of its Facilities Leases or the assumption
of the New Shreveport Loan, then, at the option of the HB Entities exercised by
written notice to Emeritus, either none of the Facilities and the rights of the
HB Entities therein shall be conveyed to Emeritus or such lease
assignment/conveyance of title shall be effective as to those Facilities for
which the necessary consents have been secured and, in either event, as to the
remaining Facilities, Emeritus will continue to manage the same in accordance
with the terms of the applicable Management Agreement as amended by this
Agreement; provided, however, in the event that the only party refusing to grant
the necessary consent is the holder of the New Shreveport Loan, then the HB
Entities shall be required to transfer to Emeritus their rights with respect to
all of the Facilities other than the Shreveport Facility and Emeritus will
continue to manage the Shreveport Facility in accordance with the terms of the
Shreveport Management Agreement, as amended by this Agreement.
The assignment of the Facility Leases and conveyance of title to the Shreveport
Facility (i) shall be evidenced by conveyancing documents in substantially the
same form and substance as those under which the HB Entities took title to the
Facility Leases and/or the Shreveport Facility or under which the HB Entity
later took title, in the case of any of the Leased Facilities which are acquired
by the HB Entities during the Exercise Period and (ii) shall be subject to the
payment by Emeritus at the closing of the assignment/conveyance transactions (A)
to the applicable HB Entity of an amount equal to the sum of (I) all of its cash
invested in connection with its acquisition of fee and/or leasehold title to and
leasing/ownership of the Facilities (or so many thereof as are being conveyed to
Emeritus pursuant to this Section 3) and (II) interest on such investment in an
amount equal to 9% per annum calculated from the date of the investment to the
Closing Date (as hereinafter defined) and (B) to the applicable HB Entity or
appropriate third party of all of the costs of the transaction, including but
not limited to, title insurance premiums, surveyor fees and expenses, legal fees
for Emeritus and the HB Entities and other third party costs and expenses
incurred in connection with the transaction. For purposes hereof, the Closing
Date shall be defined as the date on which Emeritus acquires fee and/or
leasehold title to the Facilities (or so many thereof as are being conveyed to
Emeritus pursuant to this Section 3).
4. In further consideration for the obligations assumed by Emeritus under
Section 1, the HB Entities shall, upon request, pay to Emeritus an amount equal
to the sum of (i) all of the legal fees and expenses incurred by it in
connection with the negotiation of the Purchase Agreement and the consummation
of the transactions provided for therein and (ii) $15,000 per Facility to
reimburse Emeritus for its due diligence costs and expenses incurred in
connection with such transactions.
5. This Agreement represents the entire and final agreement of the parties
hereto with respect to the subject matter hereof and supersedes all prior
negotiations, discussions or writings with respect thereto including, but not
limited to, the Original Funding Agreement. This Agreement may not be amended
or modified except by written instrument signed by the parties hereto. In the
event of a conflict between this Agreement and any or all of the Management
Agreements, this Agreement shall control and this Agreement is intended to amend
the Management Agreements in the manner provided for herein.
6. This Agreement may be executed in counterparts, each of which shall be deemed
to be an original, but all of which taken together shall constitute but one and
the same instrument.
7. Each of the parties acknowledges and agrees that it has participated in the
drafting and negotiation of this Agreement. Accordingly, in the event of a
dispute with respect to the interpretation or enforcement of the terms hereof,
no provision shall be construed so as to favor or disfavor any party hereto.
8. In the event of dispute with respect to the interpretation or enforcement of
the terms hereof, the prevailing party shall be entitled to collect from the
other its reasonable costs and attorneys fees, including its costs and fees on
appeal.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day and
year first set forth above.
EMERITUS CORPORATION
By: /s/ Xxxxxx X. Baty_______
Xxxxxx X. Xxxx
Its: Chief Executive Officer
HB-ESC I, LLC
By: /s/ Xxxxxx X. Baty_______
Xxxxxx X. Xxxx
Manager
HB-ESC II, LLC
By: /s/ Xxxxxx X. Baty_______
Xxxxxx X. Xxxx
Manager
HB-ESC V, L.P.
By: HB-ESC III, LLC
Its: General Partner
By: /s/ Xxxxxx X. Baty_______
Xxxxxx X. Xxxx
Manager
EXHIBIT A
THE HCPI FACILITIES
Xxxxxxxx Place at Alexandria
000 Xxxxxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxxx
Xxxxxxxx Place at Lake Xxxxxxx
0000 Xxxxxxx Xxxx Xxxx
Xxxx Xxxxxxx, Xxxxxxxxx
Xxxxxxxx Place at Lafayette
000 Xxxx Xxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxx
EXHIBIT B
THE HRT FACILITIES
Xxxxxxxx Place of Xxxxxxxxx
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxx
Xxxxxxxx Place at Oakwell Farms
0000 Xxxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxx
Xxxxxxxx Place at The Medical Center
0000 Xxxxx Xxxx Xxxxx
Xxx Xxxxxxx, Xxxxx
Xxxxxxxx Place at Stonebridge
0000 X. Xxxxxxxxxxx Xxxxx
XxXxxxxx, Xxxxx
EXHIBIT C
MANAGER EVENT OF DEFAULT
With respect to Emeritus ("Manager"), it shall be an "Event of Default"
under the Management Agreements:
(a) If Manager shall fail to keep, observe, or perform any material
agreement, term, or provision of the Management Agreement, and such default
shall continue for a period of thirty (30) days after Manager's receipt of
notice of such default from the applicable HB Entity ("Licensee/Owner"), which
notice shall specify in reasonable detail the event or events constituting the
default; or
(b) If (i) Manager shall (A) apply for, or consent to, the appointment of a
receiver, trustee, or liquidator of Manager of all or a substantial part of
Manager's assets, (B) file a voluntary petition in bankruptcy, or admit in
writing Manager's inability to pay Manager's debts as they become due, (C) make
a general assignment for the benefit of creditors, or (D) file a petition or an
answer seeking reorganization or arrangement with creditors or taking advantage
of any insolvency law; or (ii) an order, judgment or decree shall be entered by
a court of competent jurisdiction, on the application of a creditor (A)
adjudicating Manager as bankrupt or insolvent, (B) approving a petition seeking
reorganization of Manager, or (C) appointing a receiver, trustee, or liquidator
for Manager or for all or a substantial part of Manager's assets; or
(c) If as a result of the acts or omissions of Manager an Event of Default
shall occur under any of the Leases or any of the Shreveport Loan Documents;
other than an Event of Default related to the failure of the Facility to comply
with any financial covenants set forth in the Leases, or the Shreveport Loan
Documents, which failure shall be subject to clause (d) below; or
(d) If any of the Facilities fails to comply with any financial covenants
set forth in the Leases or in any of the Shreveport Loan Documents whether or
not any cure period applicable to such failure has expired it being understood
and agreed that Licensee/Owner shall have no obligation to grant Manager a right
to cure any failure to comply with the financial covenants set forth in the
Leases or in any of the Shreveport Loan Documents; or
(e) If Manager defaults in its funding obligations set forth in Paragraph 1
of the Amended and Restated Funding Agreement dated as of May 1, 2002 between
Manager, Licensee/Owner and certain affiliates of Licensee/Owner and such
default is not cured within ten (10) days after Manager's receipt of written
notice from Licensee/Owner setting forth in reasonable detail the nature of such
default.
EXHIBIT D
LICENSEE/OWNER EVENT OF DEFAULT
With respect to the HB Entities ("Licensee/Owner"), it shall be an Event of
Default under the Management Agreements:
(a) If Licensee/Owner shall fail, other than as a result of a breach by
Emeritus ("Manager") of its obligations under either that Amended and Restated
Agreement dated as of May 1, 2002 between Licensee/Owner and its affiliates and
Manager (the "Funding Agreement") or under the applicable Management Agreement
in effect between such Licensee/Owner and Manager, to keep, observe, or perform
any material agreement, term, or provision of this Agreement and such default
shall continue for a period of thirty (30) days after Licensee/Owner's receipt
of notice of such default from Manager, which notice shall specify in reasonable
detail the event or events constituting the default;
(b) If Licensee/Owner shall fail, other than as a result of a breach by
Manager of its obligations under either the Funding Agreement and/or the
applicable Management Agreement, to make payments, or keep any covenants, owing
to any third party and which would cause Licensee/Owner to lose possession of
the Facility or any personal property required to operate the Facility in the
normal course of operation; or
(c) If (i) Licensee/Owner shall (A) be dissolved, (B) apply for or consent
to the appointment of a receiver, trustee or liquidator for Licensee/Owner or
for all or a substantial part of Licensee/Owner's assets, (C) file a voluntary
petition in bankruptcy or admit in writing its inability to pay Licensee/Owner's
debts as they become due, (D) make a general assignment for the benefit or
creditors, or (E) file a petition or an answer seeking reorganization or
arrangement with creditors or taking advantage of any insolvency law; or (ii) an
order, judgment or decree shall be entered by a court of competent jurisdiction,
on the application of a creditor (A) adjudicating Licensee/Owner as bankrupt or
insolvent, (B) approving a petition seeking reorganization of Licensee/Owner, or
(C) appointing a receiver, trustee or liquidator for Licensee/Owner or of all or
a substantial part of Licensee/Owner's assets.
