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EXHIBIT 10.17
SECOND AMENDED JOINT VENTURE AGREEMENT
between
ALTERNATIVE LIVING SERVICES, INC.
and
ASSISTED LIVING EQUITIES, LLC
AS OF JANUARY 1, 1999
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TABLE OF CONTENTS
Page
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ARTICLE 1
DEFINITIONS...................................................................2
1.1 Affiliate...................................................2
1.2 Adjusted EBITDAR............................................2
1.3 ALE Affiliate...............................................2
1.4 ALE Ancillary Agreements....................................2
1.5 ALS Affiliate...............................................2
1.6 ALS Ancillary Agreements....................................2
1.7 ALS-Northeast...............................................2
1.8 ALS-Northeast Entities......................................2
1.9 Ancillary Agreements........................................2
1.10 Architect's Agreement.......................................2
1.11 bed.........................................................2
1.12 Business....................................................3
1.13 Business Plan...............................................3
1.14 Capital Account.............................................3
1.15 Certificate of Occupancy....................................3
1.16 Collateral Assignment Agreement.............................3
1.17 Commons Facility............................................3
1.18 Completion of Construction..................................3
1.19 Confidential Information....................................3
1.20 Construction Agreement......................................3
1.21 Contracting ALE Affiliates..................................4
1.22 Corporate Licenseholder.....................................4
1.23 Defaulting Party............................................4
1.24 Default Loan Rate...........................................4
1.25 Development Term............................................4
1.26 EBITDAR.....................................................4
1.27 EBITDAR Before Management Fees..............................5
1.28 Exclusivity Standard........................................5
1.29 Excusing Event..............................................5
1.30 Existing Project Entities...................................5
1.31 Extender Standard...........................................5
1.32 Facility or Facilities......................................5
1.33 Family Member...............................................5
1.34 Floor EBITDAR Margin........................................5
1.35 Grandfathered Project Entity................................6
1.36 Joint Venture Agreement.....................................6
1.37 Joint Venture Agreement Year................................6
1.38 Large Facility..............................................6
1.39 Large Facility Entity.......................................6
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1.40 Majority Vote...............................................6
1.41 Management Agreement........................................6
1.42 Manager.....................................................6
1.43 Mandatory Capital Call Contribution.........................6
1.44 Mandatory Capital Call Schedule.............................7
1.45 Market Approval.............................................7
1.46 Non-Defaulting Party........................................7
1.47 Nonexclusive Year...........................................7
1.48 Operating Agreement (ALS-Northeast).........................7
1.49 Operating Agreement.........................................7
1.50 Operating Losses............................................7
1.51 Original Agreement..........................................7
1.52 Original NY Facilities......................................7
1.53 PDC.........................................................7
1.54 PDC Guaranty Amendment......................................8
1.55 Percentage Interest.........................................8
1.56 Permitting Completion.......................................8
1.57 Pipeline Projects...........................................8
1.58 Pipeline Project Purchase Price.............................8
1.59 Person......................................................8
1.60 Preferred Equity Contribution...............................8
1.61 Preferred Equity Rate.......................................8
1.62 Preferred Equity Return.....................................8
1.63 Prime Rate..................................................9
1.64 Project Agreements..........................................9
1.65 Project Entity..............................................9
1.66 Project Start...............................................9
1.67 Pro Forma Stabilized Rates..................................9
1.68 Requisite Level.............................................9
1.69 Small Facility.............................................10
1.70 Small Facility Entity......................................10
1.71 Territory..................................................10
1.72 Total Development Cost.....................................10
1.73 Total ROA Base Costs.......................................10
1.74 Waived Facility............................................10
1.75 Unreturned Preferred Equity Amount.........................10
ARTICLE 2
APPLICABILITY AND PURPOSE OF
JOINT VENTURE; DEVELOPMENT TERM..............................................11
2.1 Applicability and Purpose.......................................11
2.2 Development Term................................................11
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ARTICLE 3
COVENANTS....................................................................14
3.1 Joint Ownership and Development............................14
3.2 Formation of Project Entities..............................18
3.3 Not Used...................................................19
3.4 Capitalization of Project Entities.........................19
3.5 Failure to Meet Capital Calls..............................20
3.6 Project Financing..........................................21
3.7 Responsibilities of the Parties............................23
3.8 Decision-Making............................................24
3.9 Construction and Development Services......................27
3.10 Management.................................................29
3.11 Restrictions on Transferability of Interests...............31
3.12 Put and Call Options.......................................32
3.13 Collateral Assignment......................................40
3.14 Noncompetition.............................................41
3.15 Interests in Profits, Losses and Distributions.............44
3.16 Confidentiality............................................46
3.17 Further Assurances.........................................47
3.18 No Liens...................................................47
3.19 Public Statement...........................................47
3.20 PDC Guaranty Amendment.....................................48
3.21 Special Project Entity Profit and Loss Allocations.........48
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALS........................................48
4.1 Organization...............................................48
4.2 Authorization, Enforceability..............................48
4.3 No Violation or Conflict...................................49
4.4 Brokers....................................................49
4.5 Litigation.................................................49
4.6 Governmental Approvals.....................................49
4.7 Required Consent...........................................49
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ALE........................................49
5.1 Organization...............................................49
5.2 Authorization, Enforceability..............................50
5.3 No Violation or Conflict...................................50
5.4 No Broker..................................................50
5.5 No Litigation..............................................50
5.6 Governmental Approvals.....................................51
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5.7 Required Consent...........................................51
ARTICLE 6
NOT USED.....................................................................51
ARTICLE 7
NOT USED.....................................................................51
ARTICLE 8
NOT USED.....................................................................51
ARTICLE 9
INDEMNIFICATION..............................................................51
9.1 ALE's Indemnity............................................51
9.2 ALS's Indemnity............................................52
9.3 Provisions Regarding Indemnities...........................53
ARTICLE 10
NOT USED.....................................................................54
ARTICLE 11
MISCELLANEOUS................................................................54
11.1 Entire Agreement; Amendment................................54
11.2 Fees and Expense...........................................54
11.3 Applicable Law.............................................54
11.4 Binding Effect, Assignment.................................54
11.5 Notices....................................................54
11.6 Counterparts...............................................55
11.7 Headings...................................................55
11.8 Construction...............................................55
11.9 Severability...............................................56
11.10 Knowledge..................................................56
11.11 Survival of Representations and Warranties.................56
11.12 Arbitration................................................56
11.13 Waiver of Compliance.......................................57
11.14 Third Parties..............................................57
11.15 Set Off Rights of Parties..................................57
11.16 Effect of Commons Acquisition Agreement....................58
11.17 Cross Default..............................................58
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SECOND AMENDED JOINT VENTURE AGREEMENT
THIS SECOND AMENDED JOINT VENTURE AGREEMENT (the "Second Amended
Agreement") is made and entered into as of the 1st day of January, 1999, by and
between ALTERNATIVE LIVING SERVICES, INC., a Delaware corporation ("ALS"), and
ASSISTED LIVING EQUITIES, LLC, a New York limited liability company ("ALE").
WITNESSETH:
WHEREAS, the parties agreed to form a joint venture pursuant to that
certain Joint Venture Agreement dated as of September 11, 1996, between ALS and
ALE (together with the several agreements and instruments entered into in
connection therewith or pursuant thereto, including without limitation the New
York Addendum, referred to herein as the "Original Agreement"); and
WHEREAS, the parties entered into a First Amended Joint Venture
Agreement, dated as of April 30, 1997 (together with the several agreements and
instruments entered into in connection therewith or pursuant thereto, including
without limitation the New York Addendum, and as such agreements have been
amended by Amendment No. 1 (as such term is hereinafter defined), referred to
herein as the "First Amended Agreement"); and
WHEREAS, simultaneously herewith, the parties are entering into an
amendment no. 1 ("Amendment No. 1") to the First Amended Agreement, the terms
and conditions of which will pertain to Project Entities that are Existing
Project Entities or Grandfathered Project Entities (as each such term is defined
in Amendment No. 1); and
WHEREAS, the First Amended Agreement as amended by Amendment No. 1 and
this Second Amended Agreement will each be in full force and effect
simultaneously as integral components of the expression of the parties'
intentions and agreements, with the understanding that the First Amended
Agreement as amended by Amendment No. 1 will have application to the Existing
Project Entities and the Grandfathered Project Entities and that this Second
Amended Agreement will have application to all other Project Entities;
NOW, THEREFORE, in consideration of the premises and of the promises
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, do hereby agree as follows:
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ARTICLE 1
DEFINITIONS
In addition to the other definitions contained elsewhere herein, the
following definitions shall apply for purposes of this Agreement:
1.1 Affiliate. "Affiliate" shall have the meaning set forth in
Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
1.2 Adjusted EBITDAR. "Adjusted EBITDAR" has the meaning ascribed
to such term in Schedule 1.
1.3 ALE Affiliate. "ALE Affiliate" means any Affiliate of ALE,
excluding any ALS-Northeast Entity owned jointly by ALS and ALE.
1.4 ALE Ancillary Agreements. "ALE Ancillary Agreements" means any
Ancillary Agreement to which ALE or any ALE Affiliate is a party.
1.5 ALS Affiliate. "ALS Affiliate" means any Affiliate of ALS,
excluding any ALS-Northeast Entity owned jointly by ALE and ALS.
1.6 ALS Ancillary Agreements. "ALS Ancillary Agreements" means any
Ancillary Agreement to which ALS is a party.
1.7 ALS-Northeast. "ALS-Northeast" means ALS-Northeast, L.L.C., a
New York limited liability company, which has been organized and formed for the
purposes referred to in the Original Agreement.
1.8 ALS-Northeast Entities. "ALS-Northeast Entities" means
ALS-Northeast, the Project Entities and the Corporate Licenseholders.
1.9 Ancillary Agreements. "Ancillary Agreements" means all of the
agreements executed and delivered by ALS and ALE, or either of them (or any ALS
Affiliate or ALE Affiliate), with an ALS-Northeast Entity or with each other,
pursuant to this Agreement or in connection with the transactions contemplated
by this Agreement, including without limitation the Operating Agreement of each
of the Project Entities.
1.10 Architect's Agreement. "Architect's Agreement" means an
agreement in substantially the form of Exhibit A attached to the First Amended
Agreement.
1.11 bed. "bed" means each sleeping accommodation intended to be
made available at a Facility under the applicable Business Plan (notwithstanding
that another capacity may be licensed or feasible in a given case).
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1.12 Business. "Business" means the business of developing or
acquiring, owning and operating the Facilities and activities related or
incidental thereto.
1.13 Business Plan. "Business Plan" means a business plan developed
and agreed upon by ALS and ALE for each Project Entity contemporaneous with the
formation of such Project Entity as contemplated by Section 3.2 or a business
plan developed by ALS as contemplated by Section 3.1.3 hereof or, if with
respect to a given period an operating budget has been approved by ALE, such
operating budget.
1.14 Capital Account. "Capital Account" shall have the meaning set
forth in the Operating Agreement (ALS-Northeast) with respect to the members of
ALS-Northeast, or the applicable Operating Agreement with respect to the members
of Project Entities, as the context may require.
1.15 Certificate of Occupancy. "Certificate of Occupancy" means the
certificate or other official document issued by a state or local governmental
unit or agency to evidence the permission to occupy a Facility in accordance
with applicable building ordinances and regulations (in jurisdictions, such as
certain local jurisdictions in the State of New York, where a temporary
certificate of occupancy permits occupancy of the premises, the term
"Certificate of Occupancy" shall mean such a temporary certificate of occupancy,
and in jurisdictions where no such certificate or official document is
customarily issued, a "Certificate of Occupancy" will be deemed to have been
granted upon substantial completion of the Facility in accordance with the
Construction Agreement).
1.16 Collateral Assignment Agreement. "Collateral Assignment
Agreement" means that certain Collateral Assignment Agreement dated as of
September 11, 1996 between ALS and ALE.
1.17 Commons Facility. "Commons Facility" shall have the meaning
ascribed thereto in the First Amended Agreement.
1.18 Completion of Construction. "Completion of Construction" of a
Facility means the issuance of a Certificate of Occupancy or the equivalent for
each Facility.
1.19 Confidential Information. "Confidential Information" shall
have the meaning provided in Section 3.16 of this Agreement.
1.20 Construction Agreement. "Construction Agreement" means each
Construction Agreement between an Affiliate of ALE and a Project Entity
established to acquire and develop a Facility, in substantially the form of
Exhibit D attached to this Second Amended Agreement, which form of agreement is
incorporated herein by this reference, subject to such modifications as will
necessarily vary by Facility and to any changes to properly reflect the identity
of the Project Entity and location of the Facility being constructed, with such
changes as the parties to such agreement may agree upon.
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1.21 Contracting ALE Affiliates. "Contracting ALE Affiliates" shall
have the meaning provided in Section 5.1 of this Agreement.
1.22 Corporate Licenseholder. "Corporate Licenseholder" shall mean
any corporate entity the stock of which is owned by an ALS employee or former
employee and that holds an "adult home" license for a Facility located in New
York.
1.23 Defaulting Party. "Defaulting Party" shall have the meaning
provided in Section 3.5.1 of this Agreement.
1.24 Default Loan Rate. "Default Loan Rate" shall have the meaning
provided in Section 3.5.1 of this Agreement.
1.25 Development Term. "Development Term" means with respect to
each of the states in the Territory, the period commencing on September 11, 1996
and ending on December 31, 2001; provided, however, (I) such Development Term
may be immediately terminated by (A) ALS if an "Event of Default", as defined in
the PDC Guaranty, shall arise or (B) either party hereto upon written notice to
the other party (i) if the other party files a voluntary petition of bankruptcy,
is adjudged bankrupt or insolvent or any involuntary bankruptcy proceeding is
filed against such other party, and such proceeding is not dismissed within 90
days thereafter; (ii) if the other party has become a Defaulting Party as to a
Mandatory Capital Call Contribution; or (iii) if the other party or an Affiliate
of the other party has breached and failed to timely cure an Ancillary Agreement
following notice and opportunity to cure in the manner provided therein;
provided, however, that any termination of the Development Term pursuant to
clauses (ii) or (iii) hereof shall be effective only if notice of termination by
the non-defaulting party is given within 120 days of such right to terminate
(pursuant to such clauses (ii) or (iii), respectively) first becoming
exercisable by such non-defaulting party (it being understood that no such
termination will affect the obligations of the parties with respect to a Project
Entity that has already been formed); and (II) if not previously terminated
pursuant to clause (I) above, such Development Term may be extended or shortened
with respect to a given state within the Territory as provided in Section 2.2.
1.26 EBITDAR. "EBITDAR" with respect to a Facility for any period
means the earnings (i.e., the net operating income) with respect to the Facility
(inclusive of all revenue generated at the Facility by the Project Entity owning
such Facility or by another entity that is an ALS Affiliate, such as a licensed
home care agency operating at the Facility, but without counting management fees
received by the Manager as receipts for such purpose, and exclusive of any
earnings of any person that is not an Affiliate of ALS or ALE) for such period
before (i.e., without giving effect to) charges for interest, taxes,
depreciation, amortization or rent. For any period for which EBITDAR is being
determined and during which a stated contractual management fee is not projected
to be charged by ALS or any Affiliate with respect to a Facility, EBITDAR shall
be determined for such Facility as if a management fee were charged with respect
to such a Facility for such period at a level equal to six percent (6%) of
Facility revenues.
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1.27 EBITDAR Before Management Fees. "EBITDAR Before Management
Fees" with respect to a Facility for any period means EBITDAR calculated without
giving effect to any contractual management fee that may be charged with respect
to the Facility.
1.28 Exclusivity Standard. "Exclusivity Standard" shall have the
meaning ascribed thereto in Section 2.2.1.
1.29 Excusing Event. "Excusing Event" means that ALS or an
Affiliate of ALS is in default of its obligations under this Agreement or under
its obligations in any Project Agreements, ALE has given notice to ALS that it
intends to treat such default as an Excusing Event, and ALS has not cured such
default within ten (10) days after the giving of such notice (or if such default
is not reasonably capable of cure within such ten (10) day period, ALS has
commenced efforts to have accomplished such cure within such ten (10) day period
and is diligently pursuing such cure).
1.30 Existing Project Entities. "Existing Project Entities" shall
have the meaning ascribed thereto in the First Amended Agreement.
1.31 Extender Standard. "Extender Standard" shall have the meaning
ascribed thereto in Section 2.2.1.
1.32 Facility or Facilities. "Facility" or "Facilities" means the
land and improvements constituting an assisted living, dementia or other
specialty care facility or facilities for the elderly located in the Territory
(other than a Commons Facility, an Original NY Facility, a Facility owned by a
Grandfathered Project Entity, a Waived Facility pursuant to Section 3.1.3 or a
Refused Facility pursuant to Section 3.14(d)(i)) which is or are developed or
acquired by ALE, ALS or by a Project Entity pursuant to or as contemplated by
this Agreement.
1.33 Family Member. "Family Member" means, with respect to any
natural person, (a) the spouse of such natural person, (b) any parent,
grandparent, brother, sister, child or other ancestor or descendant of such
natural person, or the spouse of any of the foregoing natural persons described
in this clause (b), (c) a custodian, guardian or personal representative of a
natural person described in clause (a) or (b); or (d) a trust for the benefit of
one or more of the natural persons described in clause (a) or (b).
1.34 Floor EBITDAR Margin. "Floor EBITDAR Margin" means a
percentage figure representing the EBITDAR margin figure to be used in applying
the provisions of Sections 3.12(d) and 3.12(e) in respect of a Facility for any
period equal to the greater of (i) the result obtained by dividing (x) EBITDAR
Before Management Fees for such Facility for such period by (y) the gross
Facility revenue (net only of allowances for bad debts and contractual
allowances) for such Facility for such period, (ii) 42% in the case of Small
Facilities and 43% in the case of Large Facilities, and (iii) that percentage
which, when multiplied by projected Facility revenue (i.e., the level of pro
forma earnings that would be utilized in respect of such Facility pursuant to
the provisions of Section 3.12(d)(iii)) would
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equal 12.5% of the Total ROA Base Costs of such Facility. It is understood that
in determining the Floor EBITDAR Margin all revenue generated at the Facility by
a Project Entity or another entity that is an ALS Affiliate, such as a licensed
home care agency, operating at the Facility will be included, but that
management fees received by the Manager will not be counted as revenue for such
purpose, and that all revenue of any person that is not an Affiliate of ALS or
ALE will be excluded).
1.35 Grandfathered Project Entity. "Grandfathered Project Entity"
shall have the meaning ascribed thereto in the First Amended Agreement.
1.36 Joint Venture Agreement. "Joint Venture Agreement" means the
First Amended Agreement as amended by Amendment No. 1 and this Second Amended
Agreement, taken as an integral whole.
1.37 Joint Venture Agreement Year. "Joint Venture Agreement Year"
means each successive period of January 1 through December 31, provided that the
period October 1, 1998 through December 31, 1998 shall be deemed to be included
in Joint Venture Agreement Year 1999.
1.38 Large Facility. "Large Facility" means any Facility other than
a Small Facility.
1.39 Large Facility Entity. "Large Facility Entity" means a Project
Entity owning a Large Facility.
1.40 Majority Vote. "Majority Vote" with respect to any
ALS-Northeast Entity means the affirmative vote, approval or consent, as the
case may be, of equity owners of such ALS Northeast Entity holding in excess of
fifty percent (50%) of the total Percentage Interests held by all equity owners
of such ALS-Northeast Entity entitled to vote on, approve or consent to the
particular matter, decision or action.
1.41 Management Agreement. "Management Agreement" means each
Assisted Living Consultant and Management Services Agreement between ALS and a
Project Entity in substantially the form of the Assisted Living Consultant and
Management Services Agreement (Future Project Entities), attached as Exhibit E
to the First Amended Agreement, together with any changes to properly reflect
the identity of the applicable Project Entity and location of the Facility being
managed and any other changes that the parties to such agreement may agree upon.
1.42 Manager. "Manager" shall mean ALS, ALS-New York, Inc. or such
other Affiliate of ALS that acts as the manager of a Facility the adult home
license for which is held by a Corporate Licenseholder.
1.43 Mandatory Capital Call Contribution. "Mandatory Capital Call
Contribution" means the funding of equity obligations, either in the form of
contributions of equity capital to
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a Project Entity and/or the provision of services, as required of each party
hereto by the Operating Agreement for such Project Entity.
1.44 Mandatory Capital Call Schedule. "Mandatory Capital Call
Schedule" means the mandatory capital call schedule for a Project Entity
included in the respective Business Plan for such Project Entity.
1.45 Market Approval. "Market Approval" means the approval by ALS
of a given market within which ALS proposes that one or more Facilities be
constructed by a Project Entity. It is understood that each Market Approval
delivered by ALS shall relate to a market area that is generally configured in a
manner consistent with the past practice of the parties so as to contemplate and
support the development of no more than four Facilities.
1.46 Non-Defaulting Party. "Non-Defaulting Party" shall have the
meaning provided in Section 3.5.1 of this Agreement.
1.47 Nonexclusive Year. "Nonexclusive Year" means for any state in
the Territory any Joint Venture Agreement Year beginning with 2002 for which the
Exclusivity Standard has not been met for such state with respect to any
preceding Joint Venture Agreement Year commencing with 2001.
1.48 Operating Agreement (ALS-Northeast). "Operating Agreement
(ALS-Northeast)" means the Operating Agreement of ALS-Northeast dated September
11, 1996 between ALS and ALE as amended by an amendment thereto dated July 1,
1997.
1.49 Operating Agreement. "Operating Agreement" means an Operating
Agreement in substantially the form of the Operating Agreement attached as
Exhibit G to the First Amended Agreement with only such changes therein as shall
be necessary to reflect the express terms and conditions of this Second Amended
Agreement.
1.50 Operating Losses. "Operating Losses" for a Project Entity for
any period means the difference for such period between the operating expenses
of such Project Entity incurred for such period and the operating revenues of
such Project Entity for such period.
1.51 Original Agreement. "Original Agreement" shall have the
meaning set forth in the premises of this Agreement.
1.52 Original NY Facilities. "Original NY Facilities" shall mean
each of the first four assisted living facilities in development and/or
construction in the State of New York pursuant to the terms of the Original
Agreement.
1.53 PDC. "PDC" means Pioneer Development Associates, LLC, a New
York limited liability company formerly known as Pioneer Development Company,
LLC.
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1.54 PDC Guaranty Amendment. "PDC Guaranty Amendment" shall mean
the Amended Guaranty of PDC and others to be executed and delivered pursuant to
Section 3.20 hereof.
1.55 Percentage Interest. "Percentage Interest" means, as applied
to an ALS-Northeast Entity, the percentage interest of ALS or ALE in such
Entity, which shall initially be a 66.66% or 75% interest for ALS and a 33.33%
or 25% interest for ALE, depending upon whether the Facility owned by such
Entity is a Large Facility or a Small Facility, respectively.
1.56 Permitting Completion. "Permitting Completion" shall mean the
point at which a building permit has been issued with respect to a Pipeline
Project the development of which has been continued by ALS alone or with one or
more development or operational partners or participants pursuant to Section
3.1.3(b)(ii).
1.57 Pipeline Projects. "Pipeline Projects" means the development
rights of ALS and ALE with respect to a Facility for which, pursuant to a Market
Approval, site control has been obtained by or on behalf of a Project Entity as
of the first to occur of (a) the date of the commencement of a Nonexclusive Year
with respect to the state in which such Facility is located and (b) the date of
termination of the Development Term with respect to such state.
1.58 Pipeline Project Purchase Price. "Pipeline Project Purchase
Price" means, in the case where one of the parties continues the development of
a Pipeline Project without the involvement of the other party pursuant to
Section 3.1.3(b), an amount determined pursuant to Section 3.1.3(b)(iii) as the
value of the interest in the Pipeline Project of the party that is not
continuing to participate in the development of such Pipeline Project.
1.59 Person. "Person" means a natural person, corporation, trust,
partnership, limited liability company, governmental entity (or agency, branch
or department thereof) or any other legal entity.
1.60 Preferred Equity Contribution. "Preferred Equity Contribution"
shall have the meaning ascribed to such term in Section 3.4.2.
1.61 Preferred Equity Rate. "Preferred Equity Rate" means (i) for
the Joint Venture Year ending December 31, 1999, 11% and (ii) for any Joint
Venture Year thereafter a percentage that is 600 basis points in excess of the
average over the ninety (90) days preceding the first day of such Joint Venture
Year of the yield on U.S. Treasury Notes having a maturity of five years.
1.62 Preferred Equity Return. "Preferred Equity Return" means a
return calculated on the amount of any Preferred Equity Contribution to a
Project Entity from time to time at a rate per annum equal to the Preferred
Equity Rate, compounded annually.
1.63 Prime Rate. "Prime Rate" means the prime interest rate in
effect from time to time as published in the "Money Rates" section of the Wall
Street Journal, or its successor.
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1.64 Project Agreements. "Project Agreements" means the agreements
entered into by ALS, ALE and their respective Affiliates, or any of them, with a
Project Entity or with each other, in connection with the formation of a Project
Entity and the development and ownership of a Facility, including, without
limitation, an Operating Agreement or other charter documents, a Management
Agreement, and a Construction Agreement for such Entity.
1.65 Project Entity. "Project Entity" means any limited liability
company or other entity formed by an ALS Affiliate and an ALE Affiliate pursuant
to Section 3.1 hereof to jointly develop or acquire and own a Facility.
1.66 Project Start. "Project Start" means the commencement of
development of a Large Facility or a Small Facility by a Project Entity
hereunder or by ALS using the development services of ALE or an ALE Affiliate as
contemplated by Section 3.9.1, which shall be deemed to have occurred when (i)
if such Facility is being developed by a Project Entity, a Business Plan for
such Facility has been approved by ALS and ALE, (ii) control of the site for the
Facility has been obtained by or on behalf of a Project Entity or ALS and (iii)
all building permits required to commence construction (or in the case of a
Facility located in the State of New York all approvals required to obtain all
building permits necessary to commence construction) of such Facility have been
obtained by or on behalf of such Project Entity or ALS.
1.67 Pro Forma Stabilized Rates. "Pro Forma Stabilized Rates" for a
Facility means the average of (i) the actual Facility revenue derived from all
occupied beds and (ii) the projected Facility revenue to be derived from
advertised rates for all unoccupied beds over the twelve month period
immediately preceding the first day of the Put/Call Period applicable to such
Facility (including pre-opening marketing rates and actual rates applicable
after opening).
1.68 Requisite Level. "Requisite Level" means with respect to any
state for any Joint Venture Agreement Year(s) Market Approvals sufficient to
support a number of Facilities that is equal to (a) for the Joint Venture
Agreement Years 1999-2000, the product of (i) 1.5 times (ii) the difference
between (x) the number of Facilities reflected in the table in Section 2.2.1 for
such state for such Joint Venture Agreement Years and (y) the number of Project
Starts occurring in such state during the period of January 1, 1999, through
June 30, 1999 (such product rounded to the next highest whole number), and (b)
for each other Joint Venture Agreement Year, the product of 1.5 times the number
of Facilities reflected in the table in Section 2.2.1 for such state for such
Joint Venture Agreement Year (rounded to the next highest whole number).
1.69 Small Facility. "Small Facility" means a Facility that is a
Sterling House(TM), Sterling Cottage(TM) or WovenHearts(TM) Facility, as branded
by ALS or that has a projected Total Development Cost (excluding budgeted
lease-up deficit) of less than $5 million.
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1.70 Small Facility Entity. "Small Facility Entity" means a Project
Entity that owns a Small Facility.
1.71 Territory. "Territory" means the States of New York,
Massachusetts, Connecticut and Rhode Island.
1.72 Total Development Cost. "Total Development Cost" means the
aggregate development cost of a Facility as reflected in the construction and
development budget that is part of the Business Plan for such Facility,
including the fees and expenses described in Sections 3.9.1 and 3.9.2 for such
Facility and the value of the services described in Section 3.9.3 for such
Facility.
1.73 Total ROA Base Costs. "Total ROA Base Costs" for a Project
Entity means the actual total development costs incurred with respect to such
Project Entity, including the fees and expenses described in Sections 3.9.1 and
3.9.2 for such Project Entity and the value of the services described in Section
3.9.3 for such Facility, and including all other soft costs and all pre-opening
costs and all operating deficits incurred with respect to such Project Entity
prior to the achievement of stabilized occupancy and break-even operations.
1.74 Waived Facility. "Waived Facility" shall have the meaning
provided in Section 3.1.3.
1.75 Unreturned Preferred Equity Amount. "Unreturned Preferred
Equity Amount" as of any date with respect to any Project Entity to which ALE
has made a Preferred Equity Contribution means the difference between (i) the
sum of the Preferred Equity Contribution of ALE and the Preferred Equity Return
thereon from the date of contribution to the date of calculation, and (ii) the
sum at the date of calculation of all distributions of cash by such Project
Entity that are applied pursuant to Section 3.15(e) in satisfaction of ALE's
entitlements in respect of such Preferred Equity Contribution (it being
understood that any such distributions of cash shall be applied first in
satisfaction of the Preferred Equity Return and then to return the Preferred
Equity Contribution of ALE, and such application shall be taken into account to
reduce the compounding effect of the Preferred Equity Return and, if applicable,
to reduce the Preferred Equity Contribution on which the Preferred Equity Return
is calculated, in each case from time to time as and when such cash
distributions are so applied).
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ARTICLE 2
APPLICABILITY AND PURPOSE OF
JOINT VENTURE; DEVELOPMENT TERM
2.1 Applicability and Purpose. This Agreement amends and
supplements the First Amended Agreement and governs the affairs of the parties
hereto with respect to Project Entities (other than Existing Project Entities
and Grandfathered Project Entities). It is understood that the First Amended
Agreement will continue to remain in full force and effect and be applicable to
the Original NY Facilities, the Commons Facilities, Facilities owned by Existing
Project Entities and Facilities owned by Grandfathered Project Entities; that
this Second Amended Agreement will remain in full force and effect
simultaneously and be applicable to Facilities and Project Entities other than
those to which the First Amended Agreement is applicable; and that the First
Amended Agreement and this Second Amended Agreement represent integral
components of the parties' overall intentions and agreements with respect to the
Joint Venture. The parties have entered into the joint venture contemplated by
the First Amended Agreement and this Second Amended Agreement to develop or
acquire, own or lease and operate Facilities in targeted market areas throughout
the Territory through jointly owned limited liability companies or other
entities agreed to by the parties. The Facilities shall vary in size depending
on market conditions. The parties intend to operate multiple Facilities in
targeted market areas in the Territory in order to become the market leader and
preferred provider of assisted living, dementia or other specialty care services
for the elderly in each target market.
2.2 Development Term. The provisions of this Section 2.2 shall
apply to determine whether the Development Term shall be extended or, in the
case of any state in the Territory other than New York, shortened with respect
to a given state in the Territory from the termination date of December 31, 2001
that would be applicable absent the provisions of this Section 2.2.
2.2.1 Development Objectives. The parties agree that it is
their mutual objective to bring about Project Starts for Facilities or units in
each state of the Territory of at least the following levels in each of the
Joint Venture Agreement Years ending on December 31 of each of the indicated
years:
Cumulative Cumulative
Facilities Units Facilities Units Facilities Units
State 1999 and 2000 1999 and 2000 2001 2001 2002 2002
----- ------------- ------------- ------- ------ ----- ------
New York 15 688 7 288 7 288
Connecticut 6 333 3 150 3 150
Massachusetts 6 362 3 183 3 183
Rhode Island 4 243 1 60 1 60
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If Project Starts occur for Facilities or units in a given state during Joint
Venture Agreement Year 2001 or 2002 at a level that is equal to or in excess of
the level reflected in the table above in this Section 2.2.1 for such Joint
Venture Agreement Year, or if Project Starts would have occurred in such state
during such Joint Venture Agreement Year at such level but for the failure of
ALS to act on or respond to proposals of ALE for development of Facilities on a
timely basis or otherwise fulfill its obligations under the Joint Venture
Agreement with reasonable promptness (including without limitation its
obligation to provide timely Market Approvals pursuant to Section 2.2.2), then
the "Exclusivity Standard" for such state for such Joint Venture Year shall be
deemed to have been met. If Project Starts occur for Facilities or units in
Facilities in a given state during the Joint Venture Agreement Years 1999 and
2000 at a level that equals or exceeds the cumulative total reflected in the
table above in this Section 2.2.1 for the Joint Venture Agreement Years 1999 and
2000, or if Project Starts would have occurred in such state during such period
at such level but for the failure of ALS to act on or respond to proposals of
ALE for development of Facilities on a timely basis or otherwise fulfill its
obligations under the Joint Venture Agreement with reasonable promptness
(including without limitation its obligation to provide timely Market Approvals
pursuant to Section 2.2.2), then the "Extender Standard" for such state shall be
deemed to have been met.
2.2.2 Approvals. The parties agree that it is critical to
their ability to achieve the objectives described in Section 2.2.1 that ALS
deliver Market Approvals at the Requisite Levels in a timely fashion.
Accordingly, ALS agrees that it will use its best efforts to deliver a list of
Market Approvals at the Requisite Level for each Joint Venture Agreement Year or
Joint Venture Agreement Year(s) (as applicable) for each state in the Territory
by no later than the following dates:
For Joint Venture The Market Approval
Agreement Year(s): List Delivery Date is:
------------------ ----------------------
1999 and 2000 June 30, 1999
2001 September 30, 2000
2002 December 31, 2001
It is understood that a Market Approval List may include Market Approvals that
have been delivered previously by ALS that relate to markets that remain
approved for development activity hereunder but for which no Facility or site
meeting the requirements of the relevant Market Approval has been acquired or
contracted for as of the date of delivery of the Market Approval List and the
targets that incorporate activity in Joint Venture Agreement Years 2001 and 2002
as reflected in the table in Section 2.2.1 may be revised by mutual agreement of
ALS and ALE to increase (but not decrease) the production targets for such year
based upon revised targets which ALS shall deliver to ALE on or prior to
December 31 of the preceding Joint Venture Agreement Year. ALS also undertakes,
in its consideration of approvals of capital expenditure commitments (as part of
or which become incorporated into Business Plans) for Facilities in market areas
with respect to which Market Approvals have been delivered, to
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apply in good faith the same approval criteria as it applies to comparable
facilities developed by or for ALS or an ALS Affiliate outside the Territory.
2.2.3 Counting; Substitution and Reimbursement Rules. The
period of time within which the meeting of the Exclusivity Standard and the
Extender Standard for a given state and a given period may be met, and the
Development Term for the corresponding state, shall be extended in each case by
one month (i) for each month by which ALS is late in delivering Market Approvals
at the Requisite Level under the standards of Section 2.2.2 and (ii) for each
month that has elapsed after a given Market Approval is delivered by ALS, if ALS
notifies ALE that such Market Approval is withdrawn as a result of an
acquisition that ALS or an ALS Affiliate has effected (whether or not ALE has
elected to participate in such acquisition pursuant to Section 3.14(d)(i)) and
if the withdrawal of the Market Approval reduces the number of Market Approvals
delivered by ALS (excluding withdrawn Market Approvals) to a level that is below
the Requisite Level for such Joint Venture Agreement Year or Joint Venture
Agreement Years. In addition, (A) if ALS gives such a notification of withdrawal
with respect to a Market Approval, (B) such withdrawal reduces the number of
Market Approvals delivered by ALS (excluding withdrawn Market Approvals) to a
level that is below the Requisite Level for such Joint Venture Agreement Year or
Joint Venture Agreement Years, and (C) such notification is given (x) within six
months after such Market Approval was delivered to ALE (or if later within six
months after such Market Approval was last listed by ALS on a list of Market
Approvals delivered pursuant to Section 2.2.2) or (y) after site control was
achieved by ALE or an ALE Affiliate for a planned Facility within the market
area of such Market Approval, then (I) within a reasonable period of time (not
to exceed 90 days) after ALE shall request a substitute Market Approval ALS
shall deliver to ALE a Market Approval that the parties reasonably concur
constitutes a reasonable substitute for such withdrawn Market Approval and (II)
unless ALE, alone or with one or more other development or operational partners,
continues development of an assisted living, dementia or other specialty care
facility for the elderly at such site, ALS shall reimburse ALE for all costs
incurred by ALE pursuant to this Second Amended Agreement or any Ancillary
Agreement (including contributions to ALS Northeast that have not been
reimbursed) and expended by ALE in connection with the development of any
proposed Facility within the area of such Market Approval (whether such
expenditure occurred before or after the date on which such notification of
withdrawal is given, so long as the obligation to make such expenditure was
incurred prior to the date of such notification), such reimbursement to be made
within thirty days after delivery by ALE of customary supporting documentation
evidencing such expenditure. If ALE introduces to ALS the opportunity to acquire
a Facility in a state in the Territory other than New York and such Facility is
subsequently acquired by a Project Entity or ALS or an ALS Affiliate, such
acquisition shall be deemed a "Project Start" in such state for purposes of this
Section 2.2 as of the date of execution of the acquisition contract therefor,
provided that only one such acquisition may be deemed to constitute a "Project
Start" for any single Joint Venture Agreement Year.
2.2.4 Extension of Development Term. If the Extender
Standard is met with respect to a given state, then the Development Term shall
be deemed to be extended for such state through the period ending March 31,
2003. During any Nonexclusive Year for any state,
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the development activity pursuant to the Joint Venture Agreement for such state
shall be governed by Section 3.1.3.
2.2.5 Shortening of Development Term. If the Extender
Standard is not met for a given state for the Joint Venture Agreement Years 1999
and 2000, then (i) if such state is a state other than the State of New York,
the Development Term shall terminate with respect to such state as of December
31, 2000, or (ii) if such state is the State of New York, the Development Term
shall terminate with respect to such state as of December 31, 2001.
2.2.6 Failure to Meet Exclusivity Standard. If the
Exclusivity Standard is not met for a given state with respect to any Joint
Venture Agreement Year in accordance with Section 2.2.1 then, commencing as of
the first day of the Nonexclusive Year arising therefrom, and subject to the
provisions of Section 3.1.3 with respect to Pipeline Projects, the provisions of
Section 3.14(a) shall no longer be operative with respect to such state and the
parties hereto shall have no further exclusive obligation to one another
pursuant to this Agreement to jointly develop, acquire, own, lease or operate
additional Facilities in such state. It is understood that, notwithstanding the
commencement of a Nonexclusive Year, the provisions of Sections 3.14(b)-(f)
shall continue to bind the parties in accordance with their terms. It is further
understood that, once a Project Start occurs with respect to a given Facility,
the terms of this Agreement shall continue to apply to such Facility and the
Project Entity that owns it, regardless of whether after such Project Start the
Development Term shall end or a Nonexclusive Year shall commence.
ARTICLE 3
COVENANTS
3.1 Joint Ownership and Development.
3.1.1 Formation and Capitalization of ALS Northeast. ALS
and ALE have formed ALS Northeast by entering into the Operating Agreement (ALS
Northeast). ALS Northeast will own no real property, unless the parties agree
otherwise; rather, ALS Northeast will fund and engage in site selection and
preliminary development activities with respect to a specified Facility to be
owned by a Project Entity until ALS and ALE mutually agree to develop such
Facility, a specific site is agreed upon and a Project Entity is formed to
acquire such site. Capital contributions to ALS-Northeast will be made by ALS
and ALE with respect to each proposed Facility in the percentages that the
equity of the Project Entity that will own such Facility are proposed to be
owned by ALS and ALE, respectively, as of the date any capital contribution to
ALS-Northeast is required.
3.1.2 Joint Development of Large Facilities. During (i) the
period of the Development Term for any state that falls within Joint Venture
Agreement Years 1999, 2000 and 2001 and (ii) the period of the Development Term
for any state in the Territory that falls within any subsequent Joint Venture
Agreement Year for such state if such Joint Venture Year
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is not a Nonexclusive Year, the development of Large Facilities hereunder shall
be governed by this Section 3.1.2. During the period of the Development Term for
a given state in the Territory when the development of Facilities hereunder is
governed by this Section 3.1.2, (i) the decision as to whether or not to proceed
to develop a Large Facility and enter into a Project Agreement for an applicable
Project Entity shall be made by ALS and ALE in their sole and absolute
discretion, (ii) a Business Plan will be finalized prior to the acquisition of
real property by a Project Entity that is developing a Large Facility, (iii)
with respect to each such Large Facility, ALE shall act as developer of such
Large Facility on the terms contemplated by Section 3.9 and shall have the
right, but not the obligation, to own equity in and to make capital
contributions to the Project Entity owning the Large Facility in accordance with
the terms contemplated hereby as a member of a Large Facility Entity in which
the percentage interest of ALE will equal 33.33%, and (iv) the other terms and
conditions of the respective equity investments of ALS and ALE in, and the
respective activities and involvement of ALS and ALE with respect to, such
Project Entity shall be governed by the terms of this Article 3 (other than
Section 3.1.3 and any provisions of this Article 3 that are by their terms
inapplicable to a given Project Entity).
3.1.3 Development Activity Not Governed by Section 3.1.2.
(a) At all times during the Development Term for a given state in the Territory
with respect to Small Facilities (other than periods of the Development Term
falling within a Nonexclusive Year for such state), the development of such
Facilities shall be governed by this Section 3.1.3(a). For each Small Facility
the development of which is governed by this Section 3.1.3(a), ALS shall prepare
a Business Plan for such Facility providing a description of such Facility,
estimated construction and development costs, the Mandatory Capital Call
Schedule required for such Facility and a five (5) year budget for such
Facility, and shall provide a copy of such Business Plan to ALE. Upon its
receipt of such Business Plan for such a Facility, ALE shall have thirty (30)
days to make one of the following elections: (x) to act as the developer of such
Facility on the terms contemplated by Section 3.9, (y) to act as the developer
of such Facility on the terms contemplated by Section 3.9 and to own equity in
and to make capital contributions to the Project Entity owning the Small
Facility in accordance with the terms contemplated hereby as a member of a Small
Facility Entity in which the percentage interest of ALE will be 25%, or (z) not
to participate in the development or equity ownership of such Facility.
If ALE makes the election described in clause (z) of the preceding
sentence with respect to a Facility or if ALE shall fail to make an election
with respect to a Facility within the applicable thirty day period (any such
Facility so described or as to which such election has not been made, a "Waived
Facility"), ALE shall be deemed to have waived its right to participate in the
development of such Facility and ALS shall be free to develop such Facility in
accordance with the terms of the applicable Business Plan in all material
respects, either alone or with one or more equity partners. If ALE makes any
election to own equity in and make capital contributions to a Project Entity as
contemplated by this Section 3.1.3(a), the Entity Documents and Mandatory
Capital Call Schedule shall be developed and implemented in the same manner as
would be applicable to a Large Facility Entity governed by Section 3.1.2. If ALS
proceeds with the development of a Waived Facility and after the delivery of a
Business Plan to ALE as contemplated by this Section 3.1.3 but prior to the
Project Start of such
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Facility the Business Plan for such Waived Facility shall change in any material
respect that is within the control of ALS (excluding, however, such changes as
would be materially adverse to such Facility or an investment therein), ALS
shall be obligated to offer or to cause the entity owning such Facility to offer
to ALE the right to make an equity investment representing an ownership interest
of 25% in consideration of a cash payment to the equity owners of such Facility
equal to 25% of such equity owners' actual capital investment in such Facility.
(b) Within fifteen days after the date on which a
Nonexclusive Year begins for any state within the Territory or the Development
Term is terminated for any state within the Territory, ALS shall determine, in
its sole discretion, whether to subject any Pipeline Project to development in
accordance with the terms of this Agreement as if the Development Term continued
and such Joint Venture Agreement Year were not a Nonexclusive Year with respect
to the development of such Pipeline Project. If within such fifteen-day period
ALS gives notice to ALE of its election so to continue the development of a
given Pipeline Project, then the parties shall be bound by all of the terms of
this Agreement with respect to such Pipeline Project as if the Development Term
continued with respect to such Pipeline Project and such Joint Venture Agreement
Year were not a Nonexclusive Year. If ALS does not give such notice of election
within such period, then the parties shall follow the procedure described in
this Section 3.1.3(b) with respect to each such Pipeline Project:
(i) Within thirty days after the end of the
fifteen-day period provided for such notice
of election by ALS, ALE shall by notice
given to ALS elect whether it wishes to
continue development of such Pipeline
Project alone or with one or more other
development or operational partners or
participants, and shall include in such
notice of election the Pipeline Project
Purchase Price that ALE proposes to pay to
ALS in respect of such Pipeline Project. If
ALE determines so to continue development of
the Pipeline Project, ALE shall within a
period of forty-five days after the date on
which the amount of the Pipeline Project
Purchase Price for such Pipeline Project is
determined pursuant to Section 3.1.3(b)(iii)
pay to ALS the Pipeline Project Purchase
Price for such Pipeline Project.
(ii) If ALE does not give notice to ALS of its
election so to continue the development of
such Pipeline Project, ALS shall have the
right to elect, by notice given to ALE
within thirty days after the expiration of
the 30-day period described in Section
3.1.3(b)(i), to continue the development of
such Pipeline Project alone or with one or
more other development or operational
partners or participants, and in such event
ALS shall include in such notice of election
the amount of the Pipeline Project Purchase
Price that ALS proposes to pay to ALE in
respect of such Pipeline Project. If ALS
elects so to continue development of the
Pipeline Project, ALS shall, within a period
of forty-five days after the date on
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which the Pipeline Project Purchase Price is
determined for such Pipeline Project
pursuant to Section 3.1.3(b)(iii), pay to
ALE the Pipeline Project Purchase Price for
such Pipeline Project.
(iii) Upon the giving by either ALE or ALS of a
notice of election to continue development
of a Pipeline Project without the
participation of the other, the parties
shall endeavor, within a period of fifteen
days after the date on which such notice of
election is given by the electing party, to
determine by mutual agreement the amount of
the Pipeline Project Purchase Price payable
by the electing party pursuant to this
Section 3.1.3(b). If within such period the
parties are unable to reach mutual agreement
with respect to the amount of the Pipeline
Project Purchase Price, then the amount of
the applicable Pipeline Project Purchase
Price shall be determined by arbitration as
follows: (A) within five days after the
expiration of the fifteen-day period
referred to in this Section 3.1.3(b)(iii),
each party shall by notice to the other
designate an independent real estate
development expert with expertise in the
development of assisted living projects; (B)
the two experts designated by the parties
(or, if one party fails to appoint an
expert, the expert appointed by the other
party) shall determine, based on information
submitted to him, her or them by the parties
within five days after his, or her or their
appointment, the applicable Pipeline Project
Purchase Price in accordance with the terms
of this Agreement including without
limitation the next sentence of this Section
3.1.3(b)(iii) and shall give notice thereof
to the parties within fifteen days after
such appointment; and (C) if one expert is
appointed, his or her determination shall
constitute the applicable Pipeline Project
Purchase Price, and if two experts are
appointed and their determinations are
different, the applicable Pipeline Project
Purchase Price shall be the average of the
two determinations. It is understood that
the Pipeline Project Purchase Price payable
to a party shall in no event be less than
the project costs incurred by such party in
connection with the development of the
applicable Pipeline Project to the date on
which the other party gives such notice of
election, plus, in the case of ALE, an
amount equal to a percentage of the
Development Services Contribution Amount
with respect to the Project Entity
developing such Pipeline Project pursuant to
Section 3.9.3 determined as follows: (x) if
as of the date of termination of the
Development Term or the commencement of the
Nonexclusive Year (as applicable) the
Project Entity developing such Pipeline
Project has had site control of the
development site for six months or more,
such percentage shall be fifty, and (y) if
as of the date of termination
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of the Development Term or the commencement
of the Nonexclusive Year (as applicable) the
Project Entity developing such Pipeline
Project has had site control of the
development site for less than six months,
such percentage shall be twenty-five.
(iv) Upon the payment by ALS or ALE, as the case
may be, of the Pipeline Project Purchase
Price with respect to a Pipeline Project,
the paying party shall be free to exercise
all rights with respect to such Pipeline
Project free of any claim of the receiving
party with respect thereto.
(v) At the election of ALS by notice given to
ALE together with ALS's notice to ALE
pursuant to Section 3.1.3(b)(ii), ALS may
require ALE, at the cost and risk of ALS, to
continue to pursue the permitting of the
applicable Pipeline Project to the point of
Permitting Completion, at which point ALS
shall pay to ALE an amount equal to the
difference between (x) 100% of the
Development Services Contribution Amount
with respect to such Pipeline Project
determined as if Section 3.9.3 were
applicable thereto, and (y) the percentage
of such Development Services Contribution
Amount with respect to such Pipeline Project
described in the last sentence of Section
3.1.3(b)(iii).
3.2 Formation of Project Entities. When a Project Entity is
formed, each of ALS-Northeast, ALE and ALS will be reimbursed by the Project
Entity for the jointly approved site selection and development costs expended by
them with respect to the Facility to be owned by such Project Entity. Pursuant
to the terms of the Entity Documents for any Project Entity, unless consented to
by ALS and ALE such Project Entity shall not: (i) materially change the
character of the business, Business Plan, strategy or licensing status of the
Facility owned by such Project Entity from that contemplated by this Agreement
and the applicable Business Plan; (ii) make any material investment in any
person or entity other than as contemplated by the applicable Business Plan or
money market-type investments; (iii) make any distribution in kind of assets of
the Project Entity (other than distributions of distributable cash); (iv)
initiate any litigation not in the ordinary course of business of such Project
Entity; or (v) use the proceeds of any insurance or condemnation award other
than to rebuild or repair the Facility owned by such Project Entity.
3.3 Not Used.
3.4 Capitalization of Project Entities.
3.4.1 The parties shall make Mandatory Capital Call
Contributions to each Project Entity as more fully set forth in the Entity
Documents for such Project Entity. Unless otherwise mutually agreed to by the
parties hereto, it is contemplated that, with respect to each Project Entity,
(i) ALE will fund a portion of its Mandatory Capital Call Contribution
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obligation in the form of a contribution of development services, which services
shall be valued for purposes of this Agreement as set forth in Section 3.9.3
hereof (such value, with respect to each Project Entity, is referred to herein
as the "Development Services Contribution Amount" as defined in Section 3.9.3
hereof), and contribute equity capital to such Project Entity in the form of
cash in an amount sufficient to satisfy the balance of its Mandatory Capital
Call Contribution obligation, and (ii) ALS will contribute equity capital to
such Project Entity in the form of cash in an amount sufficient to satisfy its
Mandatory Capital Call Contribution obligation in full. ALE will not receive any
Capital Account credit for the Development Services Contribution Amount upon its
contribution of the development services to each Project Entity (although for
all other purposes, including internal monitoring of compliance with the
parties' economic deal, ALE shall be viewed as contributing capital in the form
of development services, equal to the Development Services Contribution Amount).
The Mandatory Capital Call Contributions for each Project Entity shall not
exceed, in the aggregate, the amounts shown in the Mandatory Capital Call
Schedule in the Business Plan with respect to such Project Entity, unless the
parties otherwise agree. Neither ALS nor ALE will have any obligation to make an
expenditure, provide capital or loan funds to any ALS-Northeast Entity except as
specifically provided in the Entity Documents for such Project Entity, the
Project Agreements for such Project Entity or as otherwise expressly agreed to
by the parties in writing from time to time. Additional equity capital beyond
the Mandatory Capital Call Contribution amounts for a Project Entity will be
contributed only upon the mutual agreement of the equity owners of such Project
Entity.
3.4.2 Provided that an Excusing Event has not occurred
(unless the default given rise to such Excusing Event has been cured), if during
the period when ALE is an equity owner of a Project Entity the Project Entity
requires equity capital in order to fund Operating Losses at a time when losses
have been allocated to ALE that have exceeded the amount of Mandatory Capital
Contributions theretofore made to the Project Entity by ALE, then ALE shall be
obligated to contribute 100% of the amount of such required additional capital
within fifteen days after ALE's call therefor to which ALE does not reasonably
object up to a maximum amount of (i) $1,500 per bed in the case of a Small
Facility Entity or (ii) $2,000 per bed in the case of a Large Facility Entity
(any such required additional capital that ALE contributes is referred to as a
"Preferred Equity Contribution").
3.5 Failure to Meet Capital Calls.
3.5.1 If either ALS or ALE fails to meet a Mandatory
Capital Call Contribution for a Project Entity (ALS or ALE, as applicable, is
referred to herein as a "Defaulting Party"), then the nondefaulting party (the
"Non-Defaulting Party") may, at its option and in addition to any and all other
remedies available to it, (a) make its or its and the Defaulting Party's
Mandatory Capital Call Contributions to such Project Entity, and in such event
the respective Percentage Interests in the Project Entity will be adjusted to
reflect the relative cumulative capital contributions made by the parties to the
Project Entity after giving effect to such contribution by the Non-Defaulting
Party, (b) loan its and/or the Defaulting Party's Mandatory Capital Call
Contribution (provided that such Non-Defaulting Party has either made its
Mandatory Capital Call Contribution or loaned such amount as contemplated
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hereby) to such Project Entity in exchange for a note bearing interest at a rate
equal to three (3) percentage points over the Project Entity's mortgage loan
rate in effect from time to time, (or if there is no mortgage loan, then at a
rate equal to the Prime Rate from time to time in effect plus five (5)
percentage points) (such applicable rate, the "Default Loan Rate") or (c) elect
not make its Mandatory Capital Call Contribution. If, with respect to any
Mandatory Capital Call Contribution, the Non-Defaulting Party shall make its
Mandatory Capital Call Contribution and shall loan the Defaulting Party's
portion of such contribution, then any repayment of such loan (or interest
thereon) by the Project Entity shall be treated, as between ALS and ALE, as a
distribution by such Project Entity for the benefit of such Defaulting Party
(and shall be so reflected in the Capital Account of the Defaulting Party for
such Project Entity) such that distributions to the Non-Defaulting Party will
not be reduced as a result of such loan payments. In addition, upon a failure to
meet a Mandatory Capital Call Contribution for any Project Entity, the
Non-Defaulting Party shall also have the right pursuant to the provisions of the
applicable Operating Agreement to designate a majority of the governing board
of, and otherwise assume control of, such Project Entity, and to terminate any
one or more Ancillary Agreements between such Project Entity and the Defaulting
Party or its Affiliates.
3.5.2 All notes from a Project Entity to a Non-Defaulting
Party pursuant to Section 3.5.1 hereof shall be non-recourse to ALS and ALE
(except the parties hereby agree that such note shall be recourse to the
respective interests of ALS and ALE in and to some or all Project Entities
pursuant to the Collateral Assignment Agreement), shall be subordinated only to
the senior and other debt of the Project Entity issuing the note, and shall be
repaid only as and when cash becomes available from such Project Entity or any
other Project Entity, but in any event, within one year.
3.5.3 If after the expenditure or commitment of the
Mandatory Capital Cash Contributions and any Preferred Equity Contributions for
a Project Entity either ALS or ALE reasonably believes that additional capital
("Additional Capital") is required by such Project Entity in accordance with the
Business Plan for such Project Entity and the construction plans and
specifications, and the other party herein does not agree to contribute its
proportionate share of such Additional Capital (based on its Percentage Interest
in the Project Entity at the time the contribution is requested) after being
advised by the first party of the required amount of Additional Capital and the
portion thereof that would be required to be contributed by each of the parties,
then the contributing party may loan such required funds to such Project Entity
in exchange for a note bearing interest at a rate equal to the Prime Rate from
time to time in effect plus two (2) percentage points (such interest to begin to
accrue only when such Additional Capital is actually applied or invested by such
Project Entity). Notwithstanding the foregoing, if the party who declines to
contribute such Additional Capital is able to arrange for financing from a third
party on a non-recourse basis (except for recourse by the third party to the
respective Percentage Interest of ALS and ALE in and to such Project Entity,
which recourse shall be prior in right to any security interest granted to ALE
or ALS pursuant to the Collateral Assignment Agreement) in a timely manner on
the same or more favorable economic terms to the Project Entity than the loan
terms from the first party, then the Project Entity shall borrow the funds from
the third party.
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3.5.4 All notes from a Project Entity to either party
pursuant to Section 3.5.3 hereof shall be subordinated only to the senior and
other debt of the Project Entity issuing the note and shall be repaid only as
and when cash becomes available from the cash flow of the Project Entity (but
prior to distributions to the parties), but in any event, within ten years. Such
notes shall be non-recourse to ALS and ALE except that (i) in the case of
Additional Capital to fund operating deficits, such note shall be recourse to
the respective Percentage Interests of ALS and ALE in and to all Project
Entities pursuant to the Collateral Assignment Agreement and (ii) in the case of
Additional Capital to fund capital improvements and other non-operating items,
such note shall be recourse to the respective interests of ALS and ALE solely in
and to the Project Entity receiving such Additional Capital.
3.5.5 No reduction of a party's Percentage Interest in a
Project Entity pursuant to Section 3.5.1 shall reduce the percentage of a
Mandatory Capital Call Contribution required to be contributed to such Project
Entity by such party or otherwise reduce the indemnification or other
obligations of such party to the other party pursuant to this Agreement, the
Operating Agreement (ALS-Northeast), the Entity Documents for any Project Entity
or any Ancillary Agreement.
3.6 Project Financing.
3.6.1 ALS Northeast will use its best efforts to obtain the
necessary construction and permanent financing for each new Facility constructed
by a Large Facility Entity. If required by the construction loan lender, ALE or
an ALE Affiliate acceptable to the lender will guaranty the construction
financing for each new Facility to be constructed by any Large Facility Entity.
With respect to any payment or call upon such guaranty occurring prior to such
time as a Certificate of Occupancy is issued for such Facility, ALS shall
indemnify ALE for 66.66% of such payment or call provided that such payment or
call is not the result of any breach or failure to perform by ALE or an ALE
Affiliate under the Construction Agreement for that Facility (in which case, ALS
shall have no such indemnity or contribution obligation with respect thereto).
Subsequent to receiving the Certificate of Occupancy and until such time as a
Facility owned by a Large Facility Entity reaches 75% of full occupancy ("75%
Occupancy"), provided that the interest of ALE in the Large Facility Entity has
not been acquired by ALS pursuant to Section 3.12, ALS and ALE shall, as between
each other, bear a portion of any risk or obligation arising under any guarantee
given by ALS or ALE to secure financing for such Facility on a 66.66%/33.33%
basis, respectively. The Large Facility Entity and ALS will each use its best
efforts to obtain permanent financing promptly after a Facility reaches 75%
Occupancy, and ALS will be the sole guarantor of such permanent financing if a
guaranty is required. During any period after 75% Occupancy has been initially
attained and regardless of whether permanent financing has been obtained, ALS
shall indemnify ALE and its Affiliates for any obligation ALE or its Affiliates
may have arising under, and shall thereafter bear all risk associated with, any
guaranty given by ALS or ALE and its Affiliates to secure financing for such
Facility. Promptly following such time as a Facility reaches 75% occupancy, ALS
shall offer to the lender with respect to such Facility its unsecured guaranty
in substitution for the guaranty or guaranties of ALE or such ALE Affiliate
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as has guaranteed the construction financing for such Facility and will
cooperate with ALE or such ALE Affiliate to obtain the release by such lender of
any such existing guarantees of ALE or such ALE Affiliate, provided that the
terms of the construction financing that is then in place or the permanent
financing that has been arranged for such Facility remain the same as those
previously approved by ALS or are otherwise acceptable to ALS in its sole
discretion. ALE shall have no obligation to indemnify ALS in respect of any
indebtedness of a Large Facility Entity after the interest of ALE in such Large
Facility Entity has been acquired by ALS pursuant to Section 3.12, and ALS shall
bear all risk associated with any guaranty given by ALS to secure financing for
such Facility.
3.6.2 ALS will use its best efforts to obtain the necessary
construction and permanent financing for each new Facility constructed by a
Small Facility Entity. If required by the construction loan lender, ALS will
guaranty the construction financing for each new Facility to be constructed by a
Small Facility Entity. With respect to any payment or call upon such guaranty
occurring prior to such time as a 75% Occupancy has been initially attained at a
Facility owned by a Small Facility Entity, provided that the interest of ALE in
the Small Facility Entity has not been acquired by ALS pursuant to Section 3.12,
ALE and ALS shall, as between each other, bear a portion of any risk or
obligation arising under any guarantee given by ALS to secure financing for such
Facility on a 25%/75% basis, respectively. The Small Facility Entity and ALS
will each use its best efforts to obtain permanent financing promptly after a
Facility reaches 75% Occupancy, and ALS will be the sole guarantor of such
permanent financing if a guaranty is required. During any period after 75%
Occupancy has been initially attained at a Facility owned by a Small Facility
Entity, and regardless of whether permanent financing has been obtained,
3.6.3 If an existing Facility is acquired by a Project
Entity and a guaranty of the financing for such Facility is required by the
lender, then (i) ALS and, if required by the lender, ALE will guarantee such
financing for such Facility and (ii) if either or both of the parties are called
on as guarantors to pay any obligations pursuant to their guaranties, then the
parties shall make payments on such obligations in proportion to their
Percentage Interests in the Project Entity as of the date of acquisition (except
that ALE shall have no such liability following a purchase of ALE's interest by
ALS pursuant to Section 3.12), so that at all times neither party has paid more
than its proportionate share of such obligations based on its Percentage
Interests in the Project Entity as of the date of acquisition.
3.6.4 If either party is called upon to make any payment to
a lender pursuant to any guaranty described in this Section 3.6, the Project
Entity shall evidence its obligations to repay such advance by delivery to such
party of a promissory demand note bearing interest at the Default Loan Rate.
3.7 Responsibilities of the Parties. With respect to the
activities to be conducted by the Project Entities:
(a) ALS shall be responsible for:
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(i) providing to the Project Entities market
research with site-specific market studies
for purposes of obtaining debt and/or equity
capital;
(ii) providing to the Project Entities sales,
pre-marketing and ongoing marketing
supervision;
(iii) obtaining state (and, if applicable,
federal) licensing for Project Entities or
Facilities, compliance with state (and, if
applicable, federal) regulations;
(iv) day-to-day facility operations management
for Project Entities pursuant to the
applicable Management Agreement; and
(v) obtaining construction financing for Small
Facility Entities and permanent financing
for Project Entities, as contemplated
hereby.
(b) ALE will be responsible for:
(i) providing to the Project Entities analysis
and advice regarding site acquisition,
right-to-build, zoning and use issues;
(ii) obtaining any permits and approvals
necessary from municipal, state or federal
agencies to construct Facilities for Project
Entities;
(iii) obtaining construction financing for Large
Facility Entities; hiring of all necessary
consultants for building design and
construction for Project Entities; and
(iv) building construction supervision for
Facilities.
(c) All charges associated with the foregoing services
provided by ALS or ALE, including, without limitation, pre-marketing,
pre-opening, operating, predevelopment, third party, overhead and aborted
project costs, shall be paid by ALS-Northeast (or if incurred for the benefit of
an existing Project Entity, then by such Project Entity) or as agreed to by both
parties in writing. Each Project Entity shall reimburse ALS-Northeast for any
site selection, development or other costs incurred by ALS-Northeast for such
Project Entity's benefit. A detailed schedule of services to be performed by ALS
and ALE (or their respective Affiliates) as set forth in Sections 3.7(a) and
3.7(b) of this Agreement ("Listed Services") and any related charges are set
forth in Exhibit H attached hereto and incorporated herein by reference. Except
for the Listed Services, and except as otherwise expressly contemplated by this
Agreement or as subsequently agreed on by ALS and ALE, the Project Entities will
not pay any compensation of any type to ALS, ALE or their Affiliates.
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3.8 Decision-Making.
(a) Subject to the provisions of this Section 3.8 and the
provisions of Section 3.12(n), approval of a Sale Transaction (as defined in
Section 3.12(n) hereof) shall require the approval of the equity owners of the
respective Project Entity holding the right to cast a Majority Vote (provided
that prior to or upon the consummation of the Sale Transaction any guarantees by
ALE or any ALE Affiliate of indebtedness of such Project Entity are released).
The prior approval of both ALS and ALE shall be required for any activities
related to the following:
(i) site selection, facility design,
architectural features, site layout and
facility type for Facilities jointly
developed pursuant to Section 3.1.2 and
equity capital calls of Project Entities
other than Mandatory Capital Call
Contributions; and
(ii) approval of a Business Plan for each
ALS-Northeast Entity and approval of
amendments to the Entity Documents of any
Project Entity; in addition, ALS shall not
adopt an operating budget for any period to
which ALE has not consented (such consent
not to be unreasonably withheld);
(iii) the retention by any ALS-Northeast Entity of
the following professionals or any other
professionals in connection with the
construction or development of a Facility
(and any contract or engagement letter
executed in connection therewith):
1. geotechnical professionals;
2. environmental consulting
professionals; and
3. architectural professionals;
(iv) the execution or amendment of, or any waiver
under or early termination of, any agreement
between any ALS-Northeast Entity, on the one
hand, and ALS, ALE or any of their
respective Affiliates, on the other hand;
(v) the determination by any ALS-Northeast
Entity to commence bankruptcy, insolvency or
dissolution proceedings; and
(vi) any tax election not in the ordinary course
of business that materially alters the
anticipated tax treatment of the equity
owners of any ALS-Northeast Entity.
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Subject to Section 3.2 and the preceding provisions of this Section 3.8(a) and
the delegation of authority to ALS or the Manager for the day-to-day management
of the Facilities pursuant to applicable Management Agreements, all other
matters pertaining to the operation and activities of (i) ALS-Northeast shall
require the approval of both ALS and ALE and (ii) each Project Entity shall
require the approval of (A) both ALS and ALE with respect to matters arising
prior to the date (the "First Occupancy Date") on which the Facility owned by
such Project Entity actually opens and residency at such Facility actually
begins and (B) equity owners of the Project Entity holding the right to cast a
Majority Vote with respect to matters arising after the First Occupancy Date for
such Facility.
(b) ALE shall be responsible for the preparation of a
construction budget for each Facility, and ALS shall be responsible for the
preparation of the annual operating budgets for each Facility; provided,
however, that with respect to each such construction budget and operating
budget, the non-preparing party shall have a minimum of a twenty (20) day period
to review, comment and approve each such budget. Notwithstanding the foregoing
provisions of this Section 3.8(b), each party to this Agreement shall be
entitled to enforce on behalf of an ALS-Northeast Entity, or solely direct the
actions of an ALS-Northeast Entity with respect to, any obligation of the other
party to this Agreement or its Affiliate to such ALS-Northeast Entity or solely
direct the exercise by such ALS-Northeast Entity of any significant
discretionary action to be taken by such ALS-Northeast Entity pursuant to any
agreement with the other party to this Agreement or its Affiliate.
(c) In the case of a Corporate Licenseholder with respect
to a Facility, so long as ALE has an interest in such Facility or in such
Corporate Licenseholder:
(i) ALS shall not, without first obtaining the
express written consent of ALE, cause the
Manager to enter into or amend any
subcontract with respect to any of the
functions of the Manager to any third party
on any basis that places an additional
expense burden on the Facility not
anticipated in the applicable Approved
Business Plan (as such term is defined in
the applicable Management Agreement) or the
annual operating budget for such Facility
that has been approved by ALE.
(ii) ALS shall cause the Manager to keep ALE
informed and advised of any reports of
inspection or investigation by any
governmental agency and of any actual or
threatened enforcement actions or other
governmental citations which could result in
fines or the revocation or suspension of the
operating certificate of the Operator with
respect to the Facility, and shall cause the
Manager to consult with ALE in advance with
respect to any response to any of the
foregoing.
(iii) ALS shall not, without first obtaining the
express written authorization of ALE, cause
the Manager to draw on the Facility
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Account to pay any amounts that are not
Facility Expenses, such consent not to be
unreasonably withheld.
(iv) ALS shall cause the Manager to provide to
ALE its calculation of all amounts paid or
payable, pursuant to the MSA, as Base
Management Fees.
(v) In the circumstances described in Section
6.4(b) of the MSA, ALS shall not permit the
Manager to engage a submanager unless ALE
shall have given its prior written consent
to the identity and terms of engagement of
such submanager, such consent not to be
unreasonably withheld.
(vi) With respect to each Facility and each
fiscal period, ALS shall cause the Manager
to adopt for such Facility and for such
period, and to abide by, in all material
respects, an annual operating budget with
respect to such Facility and for such period
that has been consented to by ALE (such
consent not to be unreasonably withheld).
3.9 Construction and Development Services.
3.9.1 Feasibility and Right-to-Build Phase Expenses. During
the Development Term, ALE shall provide development services to each Project
Entity formed to develop a Facility. Each Project Entity will reimburse ALE for
personnel costs expended in connection with ALE's services to such Project
Entity during the feasibility and right-to-build phase of a specific Facility's
development, as per an agreed upon rate schedule, up to a not-to-exceed cost of
$3,500.00 and $3,200.00 per bed for Large and Small Facilities, respectively.
Costs that exceed the applicable per bed cap will not be reimbursed unless
otherwise agreed upon by ALS and ALE. ALS and ALE shall each be separately
entitled to reimbursement for reasonable travel and subsistence expenses of
their respective personnel incurred during the feasibility and right-to-build
phase of such Facility (the parties agreeing that such costs shall not exceed
$350.00 per bed per party for any Large or Small Facility). Except as otherwise
provided herein with respect to Listed Services, all miscellaneous and "soft
costs" related to site, feasibility, right-to-build and preconstruction services
will be charged directly to the Facility, with no additional mark-up, "at cost".
During the Development Term, ALE shall also have the right to provide to ALS
development services in accordance with Section 3.9.3 with respect to Waived
Facilities other than Waived Facilities whose Project Start occurs during a
Nonexclusive Year and shall be entitled to reimbursement of personnel, travel
and subsistence expenses in accordance herewith with respect to Waived
Facilities other than such expenses incurred after notice from ALS during a
Nonexclusive Year with regard to Waived Facilities whose Project Start occurs
during a Nonexclusive Year.
3.9.2 Construction Services. During the Development Term,
ALE or an ALE Affiliate ("ALE Construction"), shall have the right to provide
construction services to (i) any
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Project Entity or (ii) ALS with respect to any Waived Facility whose Project
Start occurs during the Development Term (but not during any Nonexclusive Year)
(ALS or such Project Entity, as applicable in such cases, the "Developer
Entity") on an exclusive basis, in the manner contemplated hereby, in connection
with the construction by such Developer Entity of new assisted living or
specialty care facilities for the elderly ("New Facilities") in the Territory in
the manner set forth below:
(a) Except as provided in Section 3.9.2(b) below, ALE
Construction shall cause each New Facility to be constructed for a guaranteed
maximum price (the "GMP") agreed upon by ALE Construction and the Developer
Entity in accordance with the terms of a construction agreement for such New
Facility, such agreement (if ALE Construction shall be the successful bidder
pursuant to Section 3.9.2(b)) to be substantially in the form of the
Construction Agreement.
(b) The Developer Entity shall solicit from ALE
Construction and, at the election of the Developer Entity, from others, sealed
bids for the construction of the New Facility prior to executing the
Construction Agreement with ALE Construction (such bids from others, but not
from ALE Construction, to be inclusive of a payment and performance bond from a
nationally recognized insurer). Such sealed bids shall be opened in the presence
of a representative of ALE Construction. If (i) as a result of such competitive
bidding process, the guaranteed maximum price bid (covering project hard costs,
excluding the cost of any furniture, fixtures and equipment purchased directly
by the Developer Entity, excluding the amounts reimbursable to ALE pursuant to
Section 3.9. 1, excluding the value of the development services to be provided
by ALE pursuant to Section 3.9.3 and excluding any construction management
personnel costs reimbursable to ALE pursuant to Section 3.9.3) made by ALE
Construction shall be 105 % or more than the comparable bid (the "Lower Bid")
made by another reputable, qualified, bona fide bidder (the "Lower Bidder") and
(ii) within ten (10) Business days following notice of such Lower Bid to ALE
Construction, ALE Construction does not revise its bid to no higher than 105% of
the Lower Bid, then the Developer Entity shall be entitled to engage such Lower
Bidder to construction the New Facility and the Developer Entity shall have no
further obligation to engage ALE Construction with respect to the construction
of such New Facility; provided, however, ALE or ALE Construction shall be
entitled to all fees to which they may otherwise be entitled in accordance with
the terms of this Agreement, including without limitation recognition of the
value of development services provided or contributed to the Developer Entity as
contemplated by Section 3.9.3.
(c) To the extent that the total actual costs of the
construction for a Facility with respect to which ALE Construction is providing
construction services under a Construction Agreement that are intended to be
"capped" within the definition of GMP pursuant to such construction Agreement
(including construction profit of 5% of costs of construction as calculated
pursuant to this Section 3.9) as of the date of the issuance of a Certificate of
Occupancy in respect of such Facility are less than such GMP applicable to such
Facility on such date (such difference, the "Construction Cost Savings"), then
ALE (i) shall cause ALE Construction to retain 100% of such Construction Cost
Savings for a period of
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twelve months following issuance of the Certificate of Occupancy, (ii) during
such twelve month period shall cause ALE Construction to apply 100% of such
Construction Cost Savings to the discharge of any costs of construction for
which ALE Construction is responsible in excess of the GMP budget with respect
to any other Facility completed during such 12-month period as to which ALE
Construction is acting as builder, and (iii) at the end of such twelve-month
period shall cause ALE Construction to pay to the Project Entity owning such
Facility an amount equal to 50% of any remaining balance of such Construction
Cost Savings after application of the amounts described in clause (ii) of this
sentence. Upon payment to a Project Entity of the amount described in clause
(iii) of the preceding sentence, ALE Construction shall be entitled to retain
the other 50% portion of such remaining balance of such Construction Cost
Savings.
3.9.3 Development Services. ALE shall contribute
development services to each Project Entity in connection with the development
of New Facilities in the Territory during the Development Term and shall have
the right to provide development services to ALS in connection with the
development of New Facilities in the circumstances specified in Section 3.9.1.
Such services will be valued at an amount (the "Development Services
Contribution Amount") equal to (a) in the case of any Large Facility, the
product obtained by multiplying $5,000 times the number of beds in the New
Facility or (b) in the case of any Small Facility, the product obtained by
multiplying $4,000 times the number of beds in the New Facility. Except as
otherwise provided in the Construction Agreement, the Development Services
Contribution Amount shall encompass within it all construction profit and
overhead except for construction management personnel (at cost) pursuant to an
agreed upon rate schedule expressly allowed pursuant to the applicable
Construction Agreement. If the Development Service Contribution Amount for any
Project Entity exceeds ALE's Mandatory Capital Call Contribution to such Project
Entity, such excess shall be payable by such Project Entity to ALE in cash in
the manner set forth in the following sentence. If ALE shall provide development
services to ALS (and not to a Project Entity) as contemplated by Section 3.9.1
hereof, ALS shall pay ALE the Development Services Contribution Amount as
follows: fifty percent (50%) of the Development Services Contribution Amount
shall be paid at the point of issuance of a building permit to ALS; an
additional twenty-five percent (25%) of the Development Services Contribution
Amount shall be paid at the point at which as mutually agreed by the parties
construction is fifty percent (50%) complete; and the final twenty-five percent
(25%) of the Development Services Contribution Amount shall be paid at issuance
of a certificate of occupancy.
3.9.4 CPI Adjustment. All per bed dollar amounts and caps
set forth in Section 3.9.3 shall be CPI adjusted on December 31 of each year
commencing in 1996 using December 31, 1995 as the base year, in the same manner
as described in Section 4.1 of the Management Agreement.
3.9.5 Architect. The architect shall be Aldrian Guszkowski,
Elm Grove, Wisconsin or such other architect hereafter approved by ALS and ALE
(the "Architect"), and each contract with the Architect shall be in the form of
the Architect's Agreement, with such changes as agreed to by the parties
therein.
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3.10 Management. ALS shall perform management services for each
Project Entity. Such services will be provided pursuant to a management
agreement pursuant to which ALS will manage the Facility owned by such Project
Entity for an initial term of eight (8) years, subject to an extension by
agreement of ALS and ALE for two additional five (5) year periods. The term of a
management agreement for a Facility shall expire automatically upon a sale of
the Facility. The management fee (which shall be applicable to both Large
Facilities and Small Facilities) under each such management agreement shall be
as follows:
Individual No. of Large Facilities
Project Revenue Managed by ALS Fee (% of Revenue)
- --------------- -------------- ------------------
Up to $2 million 1 - 2 7.5%
in annual revenue 3 - 5 7.0%
more than 5 6.5%
Greater than $2 million 1 - 2 7.0%
in annual revenue 3 - 5 6.5%
more than 5 6.0%
The $2 million revenue threshold will be adjusted for inflation for
each calendar year based upon the change in the Consumer Price Index for Medical
Care Services ("CPI", as defined as "Medical Care Services - United States City
Average," as published by the United States Department of Labor, Bureau of Labor
Statistics, converted to 1982 - 1984 base 100, or successor index most
comparable thereto) from December 31, 1995 to December 31 of each such calendar
year. Each management agreement for a Facility (an "Existing Facility") shall
state that as other Facilities within the same "Individual Project Revenue"
category as such Existing Facility are developed, the management fee payable
under the management agreement for such Existing Facility shall be reduced, if
necessary, so that the management fee payable shall be the same for all
Facilities in such category.
For purposes of the above table, (i) annual revenue will be measured on
a calendar year basis for each Facility (and annualized for any partial calendar
year falling within the term of the management agreement) and (ii) the number of
Large Facilities shall consist of all Large Facilities located in the Territory
and managed by ALS for its own account or for the account of entities in which
ALS owns a majority equity interest or for a Project Entity (including a Project
Entity as to which the applicable Put Option or Call Option (each, as
hereinafter defined) has been exercised) and any Managed Facilities (hereinafter
defined in Section 3.14(d)(ii)), provided that such Managed Facility, had it
been developed by ALS and ALE hereunder, would have been a Large Facility.
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The management agreements will provide that ALS will be reimbursed at
ALS's actual cost for pre-opening, operating, sales and marketing costs provided
to ALS-Northeast and/or each new Project Entity during the construction period
but not to exceed the amounts shown in each Facility operating proforma budget
(the "Proforma") included as part of the applicable Business Plan. During the
lease-up period set forth in the Proforma for each Facility, the management fee
will be equal to a fixed amount determined by multiplying the monthly fee which
would be payable once the projected stabilized revenue is attained by the number
of months in such lease-up period, and shall be payable monthly on a pro-rata
basis during such period. Thereafter, the management fee shall be based on a
percentage of revenues as set forth above, regardless of whether stabilized
revenue has been obtained, and payable monthly.
If a 75% occupancy level for a Facility is not attained within the
timeframe set forth in the Proforma, ALS shall thereafter continue to earn its
management fee at the rate specified in the table above, but the payment of such
management fee (up to $100,000) shall be deferred (a) until such 75% occupancy
level is achieved or the Facility is sold or the Project Entity is liquidated,
and (b) if ALE has made any Preferred Equity Contributions to the Project Entity
owning such Facility, to the extent necessary to enable the Project Entity
owning such Facility to satisfy in full the entitlement of ALE to receive
distributions from such Project Entity equal to the Preferred Equity Return (but
not a return of the Preferred Equity Contribution) in respect of such Project
Entity. Thereafter, any deferred management fees due ALS shall be paid as soon
as cash becomes available from such Project Entity to pay such deferred
management fees after the payment of operating expenses then due (and funding of
appropriate working capital reserves) but before any distributions to the equity
owners of such Project Entity other than distributions in respect of the
Preferred Equity Return entitlement of ALE, provided that the payment of such
deferred fees does not cause the Project Entity paying such deferred fees to
violate any covenants in the loan documentation to which such Project Entity is
a party.
ALS shall enter into a Management Agreement in the form of the
Management Agreement, subject to such modifications that will necessarily vary
by Facility in accordance herewith, which agreement will be executed by ALS, as
facility manager, and the applicable Project Entity, as the owner, when such
Project Entity is formed.
3.11 Restrictions on Transferability of Interests. From and after
the date hereof, neither ALS nor ALE shall transfer any of its Percentage
Interest in any ALS-Northeast Entity except to the other party or pursuant to
the Collateral Assignment Agreement; provided, however, that ALS may transfer a
nominal portion of its Percentage Interest in a Project Entity to an ALS
Affiliate prior to the exercise and closing of a Put or Call Option solely to
preserve the existence of such Project Entity following such purchase. Any
purported transfer prohibited by this Section 3.11 shall be void ab initio, and
shall be deemed a breach of both this Agreement and the Operating Agreement of
the applicable ALS-Northeast Entity. A transfer means any disposition of a
Percentage Interest, including, without limitation, any sale, gift, assignment,
pledge or encumbrance, whether such disposition occurs voluntarily, by operation
of law or otherwise. A transfer shall be deemed to have occurred by ALE in
violation of the foregoing restriction if a combination of Messrs. Michael J.
Falcone, Michael
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P. Falcone and Mark G. Falcone (or, upon their respective deaths, their Family
Members) and trusts for the benefit of Michael P. Falcone, Mark G. Falcone and
their sisters and their respective children cease to control ALE (a "ALE Change
in Control") and any transfers of interests in ALE that do not result in a ALE
Change in Control shall not be prohibited by this Section 3.11. No change or
changes in ownership of ALS shall be deemed to be a transfer by ALS in violation
of this Section 3.11.
3.12 Put and Call Options.
(a) ALS hereby grants to ALE, and shall confirm in each
Project Entity Operating Agreement, the right to sell to ALS all (but not less
than all) of ALE's equity interest in any one or more Project Entities at the
purchase price (determined as set forth below) for ALE's interest in such
Project Entity or Entities pursuant to the terms and conditions set forth herein
("Put Option"). The Put Option with respect to a Project Entity owning a
Facility shall be exercisable by ALE at any time from and after the earlier to
occur of (i) achievement of 75% Occupancy at such Facility (the "75% Trigger");
or (ii) the six month anniversary of the issuance of the Certificate of
Occupancy for the Facility owned by such Project Entity, through and until the
tenth (10th) anniversary of the date of issuance of the Certificate of Occupancy
for such Facility (such period, the "Put/Call Period"). ALE shall not be
entitled to exercise a Put Option in any given Put Year (as hereafter defined)
utilizing the 75% Trigger if during the then-existing Put Year ALE's equity
interest in one or more Facilities already have been put to ALS utilizing such
75% Trigger, and such equity interests have an aggregate purchase price in
excess of $5 million. "Put Year" shall refer to each consecutive twelve (12)
month period commencing on the first day of the first Put/Call Period.
(b) At ALS' election, the purchase price for ALE's equity
interest in a Project Entity owning a Facility pursuant to Section 3.12(a) shall
be payable either: (a) all in cash or in cash and a note as provided below (the
"Non-Stock Option") or (b) in cash and/or ALS common stock ("ALS Stock"), such
cash and ALS stock to be in such combination as ALS may elect.
(i) To the extent a Put Option is exercised and ALS
elects to pay the purchase price using the Non-Stock
Option, (A) if the price is $500,000 or less, the
entire price shall be paid in cash at the closing of
the sale of ALE's equity interest to ALS; and (B) if
the price to be paid is in excess of $500,000, an
amount equal to 1/3 of such price shall be paid in
cash at the closing of the sale of ALE's interest to
ALS, and ALS shall give to ALE at such closing ALS's
promissory note for the remaining 2/3 of the price.
Such note shall provide for payment of (C) 50% of the
principal amount of the note on the six-month
anniversary of the note, (D) the balance of the
principal amount of the note on the one-year
anniversary date of the note, (E) monthly
installments of interest only in arrears at the
Default Loan Rate applicable to such Project Entity,
and (F) acceleration of the entire balance due at the
election of the holder of the note upon default in
the payment of any installment of principal or
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interest which continues for at least ten (10) days
uncured or upon the sale of the Project Entity or
ALS's ownership interest therein. Such note may be
prepaid at ALS's option without penalty. The note
shall be secured by a collateral pledge of the
ownership interest in the Project Entity which is
sold.
(ii) To the extent a Put Option is exercised and ALS
elects to pay the purchase price using ALS Stock,
then (A) ALE shall be entitled to confirm ALS's
intentions with respect thereto prior to exercising
the Put Option and rely upon such expression of
intention; (B) if a Public Offering (hereinafter
defined) shall not have occurred prior to the closing
of such Put Option exercise, ALS shall pay a portion
of the purchase price in cash to the extent necessary
to permit ALE to pay state and federal income taxes
due as a result of the sale of its interest in the
Project Entity pursuant to the exercise of such Put
Option (such cash portion of the purchase price
referred to as a "Required Cash Portion"); and (C) if
ALS Stock shall have been sold in a public offering
registered under the Securities Act of 1933 (a
"Public Offering") prior to the closing of such Put
Option exercise, but ALS shares to be delivered as
payment (or partial payment) of the purchase price
shall be subject to resale restrictions under
applicable securities laws, then ALS shall either (1)
pay a portion of the purchase price in cash equal to
the Required Cash Portion or (2) register such ALS
Stock to be delivered in connection therewith
pursuant to applicable federal and state securities
laws, and cause such shares to be listed on any
applicable exchange or trading system upon which the
ALS Stock is listed, prior to or concurrently with
its delivery. ALE shall advise ALS of the amount and
its basis of calculation of the Required Cash Portion
prior to requesting ALS's confirmation referenced in
clause (A) of this Section 3.12(b)(ii).
The Put Option shall be exercised by written notice from ALE to ALS during such
times as such Put Option is exercisable in accordance herewith, and the exercise
by ALE of its Put Option or a failure to exercise such Put Option for one
Project Entity shall not preclude ALE from later exercising one or more Put
Options for other Project Entities.
(c) ALE hereby grants to ALS, and shall confirm in each
Project Entity Operating Agreement, the right to purchase all (but not less than
all) of ALE's equity interest in any one or more Project Entities at the
purchase price (determined as set forth below) for ALE's interest in such
Project Entity or Entities pursuant to the terms and conditions set forth herein
("Call Option"). The Call Option shall be exercisable as to each Project Entity
at any time during the applicable Put/Call Period. The purchase price with
respect to a Call Option shall be payable either in cash or ALS Stock (or a
combination thereof, provided that the stock portion shall constitute at least
50% of such consideration and have a value of at least $500,000) at ALE's
election, payable at the closing. The Call Option shall be exercised by written
notice from ALS to ALE during such times as such Call Option is exercisable in
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accordance herewith, and the exercise by ALS of its Call Option or a failure to
exercise such Call Option for a Project Entity shall not preclude ALS from later
exercising one or more Call Options for other Project Entities. Prior to
exercising the Call Option, ALS shall use commercially reasonable efforts to
seek to release ALE and any ALE Affiliate from any loan guarantees that may
exist with respect to loans to the Project Entity to which such Call Option
relates. ALS shall be deemed to have made commercially reasonable efforts if ALS
shall have taken such steps as are contemplated by the second to last sentence
of Section 3.6.1 hereof in an effort to secure such release or releases. If ALS
is not successful in securing such release or releases, then ALS's indemnity
pursuant to Section 3.12(h) hereof shall be secured pursuant to the Collateral
Assignment and by a pledge of ALS's equity interest in said Project Entity,
which collateral security interest for such Section 3.12(h) indemnity
obligations shall be extinguished upon the release or releases of ALE or its
Affiliates contemplated hereby.
(d) (i) The purchase price for ALE's equity interest in each
Project Entity payable upon the exercise of a Call
Option shall be equal to the sum of (x) the
Unreturned Preferred Equity Amount, if any, with
respect to such Project Entity as of the date of the
purchase, and (y) the product obtained by multiplying
(a) ALE's Percentage Interest in the Project Entity
at the time of exercise of such Call Option times (b)
the excess of the fair market value of the Project
Entity over the Unreturned Preferred Equity Amount,
if any, which fair market value shall be determined
as of the end of the calendar month preceding the
date on which a Call Option is exercised, as follows:
The fair market value of a Project Entity shall be
the fair market value of such Project Entity as
mutually agreed in writing by ALS and ALE within
fifteen days following the exercise of a Call Option
or, if the parties shall be unable so to agree within
such period, as established in accordance with
Section 3.2(d)(ii) by an appraiser jointly agreed
upon by both parties.
(ii) In determining the fair market value of such Project
Entity in connection with the exercise of a Call
Option such appraiser (and any other appraisers
designated pursuant to this Section 3.12(d)) shall be
instructed to separately value any working capital of
such Project Entity in accordance with generally
accepted accounting principles and to add thereto the
value of the Facility owned by such Project Entity
utilizing Adjusted EBITDAR (as described in Schedule
1) in lieu of the component of any valuation formula
that corresponds to EBITDAR to the extent required by
the terms of Schedule 1. If the parties are unable to
agree to an appraiser, then each party will designate
an appraiser and the two appraisers will each
determine a fair market value. If any party shall
fail to designate an appraiser within fifteen (15)
days following its receipt of notice from the other
party containing (i) the identity of the appraiser
designated by such other party and (ii) reference to
such party's obligation to designate an appraiser
pursuant to this Section 3.12 within said fifteen
(15) day period, then the appraiser for such other
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party shall be deemed to be jointly agreed upon by
both parties. If the fair market value amounts
determined by the two appraisers are equal to or
within 5% of their average, then the fair market
value shall be equal to such average. Otherwise, the
two appraisers will mutually select and appoint a
third appraiser to determine the fair market value,
in which event the fair market value of the Project
Entity shall be equal to the result obtained by
averaging the two of the three appraisals which
deviate the least from the average of the first two
appraisals, and multiplying the result by ALE's
Percentage Interest in the Project Entity. Each party
will bear equally the fees and expenses of the
appraiser jointly agreed upon or selected and if
applicable the third appraiser, but each party will
be solely responsible for the fees and expenses of
any appraiser selected solely by such party. In
determining such fair market value of a Project
Entity (on the condition, however, that ALS is not a
Defaulting Party with respect to such Project
Entity), the assumption shall be made that the
management agreement with ALS or another manager will
continue indefinitely and that the percentage
management fee then being charged to the applicable
Project Entity is equal to the greater of (i) the
percentage management fee which is actually being
charged at such time, or (ii) six percent (6%). Each
appraiser selected hereunder shall be a reputable
appraisal firm which has experience in appraising
commercial real estate and long-term care and/or
assisted living facilities (or similar businesses).
All appraisers shall have complete access to the
relevant books and records of the Project Entity they
are appraising during the conduct of their
appraisals.
(iii) Notwithstanding the provisions of this Section
3.12(d), if ALE's equity interest in a Project Entity
is to be acquired by ALS pursuant to the exercise of
a Call Option at any time prior to (x) the second
anniversary of the First Occupancy Date for the
Facility owned by such Project Entity or (y) if the
Facility has not reached 95% occupancy by the second
anniversary of the First Occupancy Date for the
Facility owned by such Project Entity, then the third
anniversary of such First Occupancy Date, the fair
market value for such Project Entity shall not be
less than the sum of the working capital of such
Project Entity as of the date of the closing of the
conveyance of ALE's equity interest plus an amount
determined by capitalizing at 11% (i.e., dividing by
11%) the pro forma earnings that would be generated
by such Facility assuming (i) 95% occupancy, (ii) the
constant application of Pro Forma Stabilized Rates
inflated at the rate of 4% annually at each
anniversary of the First Occupancy Date (i) inflated
for each anniversary of such First Occupancy Date
that precedes such exercise of the Call Option, which
in no case will exceed two (in the circumstances
contemplated in clause (x) of this sentence) or three
(in the circumstances contemplated by (y) of this
sentence) anniversary dates), and (iii) the constant
application of an
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EBITDAR margin equal to the Floor EBITDAR Margin. In
addition, the purchase price for ALE's equity
interest in a Project Entity payable upon the
exercise of a Call Option at any time shall in no
event be less than (x) the Percentage Interest of ALE
in such Project Entity (as a fraction of one) times
the sum of the total capital contributions by the
equity owners of such Project Entity and the amount
of the Development Service Contribution Amount for
such Project Entity and (y) any payments by ALE or
any ALE Affiliates pursuant to a loan repayment
guaranty given by them for which reimbursement
pursuant to ALS's indemnity obligation under Section
3.12(h) has not been received.
(e) The purchase price for ALE's equity interest in each
Project Entity payable upon the exercise of a Put Option shall be equal to the
proceeds that ALE would receive if such Project Entity were to sell its Facility
at its then-fair market value (allocating any gain or loss resulting therefrom
pursuant to the methodology set forth in Sections 3.15(b), 3.15(d) and 3.21
hereof), satisfy all creditors, and then liquidate in accordance with Section
3.15(e) hereof. For this purpose, the fair market value of a Facility shall be
determined as of the end of the calendar month preceding the date on which a Put
Option is exercised, as follows: The fair market value of a Facility shall be
the fair market value of such Facility as mutually agreed in writing by ALS and
ALE within fifteen days following the exercise of a Put Option or, if the
parties shall be unable so to agree within such period, as established by an
appraiser jointly agreed upon by both parties, provided, however, that in
determining the fair market value of such Project Entity such appraiser (and any
other appraisers designated pursuant to this Section 3.12(d)) shall be
instructed to separately value any working capital of such Project Entity in
accordance with generally accepted accounting principles and to add thereto the
value of the Facility owned by such Project Entity utilizing Adjusted EBITDAR
(as described in Schedule 1) in lieu of the component of any valuation formula
that corresponds to EBITDAR to the extent required by the terms of Schedule 1.
If the parties are unable to agree to an appraiser, then each party will
designate an appraiser and the two appraisers will each determine a fair market
value. If any party shall fail to designate an appraiser within fifteen (15)
days following its receipt of notice from the other party containing (i) the
identity of the appraiser designated by such other party and (ii) reference to
such party's obligation to designate an appraiser pursuant to this Section 3.12
within said fifteen (15) day period, then the appraiser for such other party
shall be deemed to be jointly agreed upon by both parties. If the fair market
value amounts determined by the two appraisers are equal to or within 5 % of
their average, then the fair market value shall be equal to such average.
Otherwise, the two appraisers will mutually select and appoint a third appraiser
to determine the fair market value, in which event the fair market value of the
Facility shall be equal to the result obtained by averaging the two of the three
appraisals which deviate the least from the average of the first two appraisals.
Each party will bear equally the fees and expenses of the appraiser jointly
agreed upon or selected and if applicable the third appraiser, but each party
will be solely responsible for the fees and expenses of any appraiser selected
solely by such party. In determining such fair market value of a Facility (on
the condition, however, that ALS is not a Defaulting Party with respect to such
Facility), the assumption shall be made that the management agreement with ALS
or another manager will continue indefinitely and that the
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percentage management fee then being charged to the applicable Project Entity is
equal to the greater of (i) the percentage management fee which is actually
being charged at such time, or (ii) six percent (6%). Each appraiser selected
hereunder shall be a reputable appraisal firm which has experience in appraising
commercial real estate and long-term care and/or assisted living facilities (or
similar businesses). All appraisers shall have complete access to the relevant
books and records of the Project Entity which owns the Facility that they are
appraising during the conduct of their appraisals.
(f) Either party may invoke the appraisal process of this
Section 3.12 for a Project Entity prior to the exercise of its Put or Call
Option, as the case may be, so as to enable such party to determine the fair
market value of such Project Entity or Facility (as the case may be) before it
exercises its option, and the price so determined shall govern any subsequent
exercise of such Put or Call Option that occurs within the 60-day period after
the determination thereof; provided, however, that if the party invoking the
appraisal process or the other party does not exercise its Put or Call Option
within sixty (60) days after the determination of the fair market value in
accordance herewith, then the party invoking the appraisal process will bear all
the costs of the appraisal(s).
(g) Any and all transfers to ALS of ALE's equity interest
in such Project Entity pursuant to the exercise of a Put or a Call Option as
provided herein shall be closed, and all payments and deliveries contemplated
thereby made, upon the last to occur of (i) thirty (30) days after the purchase
price for ALE's equity interest in such Project Entity or Entities is determined
in accordance herewith or (ii) ninety (90) days following the exercise of such
Put or Call Option.
(h) At the closing of the exercise of a Put or Call
Option required by Section 3.12(g) of this Agreement:
(i) ALE shall deliver to ALS an instrument
evidencing the transfer of the ownership
interest in the Project Entity being
purchased and sold, free and clear of all
security interests, liens and restrictions
(other than liens arising under the
Collateral Assignment Agreement and
restrictions imposed by this Agreement and
the Ancillary Agreements and any Loan
Documents), together with such other
documents as ALS may reasonably request in
connection therewith; and
(ii) ALS shall deliver to ALE cash, ALS's
promissory note and pledge securing such
note and/or ALS Stock, if applicable,
constituting the purchase price for ALE's
equity interest in such Project Entity,
together with such other documents as ALE
may reasonably request.
At the time of the exercise of an Option, if ALE has guaranteed any financing of
a Project Entity subject to such option, then ALS will use its best efforts to
obtain a release of ALE of
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such guaranty. If ALS is unable to obtain such a release, and following the
closing of a Put or Call Option there occurs a default in the payment or
performance of any obligation whatsoever, whether monetary or otherwise, in
connection with such financing, then ALS will indemnify ALE for any damages,
costs and expenses (including reasonable attorneys' fees) which ALE incurs
pursuant to any guaranty.
(i) If at the time of the closing of a Put or Call Option
ALS Stock is being publicly traded on either the New York, American,
Philadelphia or Pacific Stock Exchange or quoted on NASDAQ or in the
over-the-counter market, the price of ALS Stock to be utilized for purposes of a
Put or Call Option shall be the average closing sales price per share of ALS
Stock (or in the case where no closing sales prices are reported, the average of
the bid and the asked price) during the period commencing thirty (30) trading
days prior to the exercise of the Put or Call Option and ending on the date of
the exercise of the Put or Call Option. If the ALS Stock is not publicly traded
in such manner, the value per share shall be equal to the fair market value of
ALS (determined by an appraiser jointly agreed to by the parties) divided by the
total number of shares of common stock of ALS then issued and outstanding. If
the parties are unable to agree upon an appraiser, then each party will
designate an appraiser and the two appraisers will each determine a fair market
value. If the two fair market value amounts are equal to or within 5% of their
average, then the fair market value shall be equal to such average. Otherwise,
the two appraisers will mutually select and appoint a third appraiser to
determine the fair market value, in which event the fair market value of ALS
shall be equal to the result obtained by averaging the two of the three
appraisals which deviate the least from the average of the first two appraisals.
If any party shall fail to designate an appraiser within fifteen (15) days
following its receipt of notice from the other party containing (i) the identity
of the appraiser designated by such other party and (ii) reference to such
party's obligation to designate an appraiser pursuant to this Section 3.12
with-in said fifteen (15) day period, then the appraiser for such other party
shall be deemed to be jointly agreed upon by both parties. Each party will bear
equally the fees and expenses of the appraiser jointly agreed upon or selected
and if applicable the third appraiser, but each party will be solely responsible
for the fees and expenses of any appraiser selected solely by such party. Either
party may invoke the foregoing appraisal process for ALS Stock prior to the
exercise of its Put or Call Option, so as to enable such party to determine the
fair market value of such stock before it exercises its Put or Call Option and
the price so determined shall govern any subsequent exercise of such Put or Call
Option that occurs within the 60-day period after the determination thereof;
provided, however, that if the party invoking the appraisal process or the other
party does not exercise the Put or Call Option within a specified period after
completion of the appraisal(s), the party invoking the appraisal process will
bear all the costs of the appraisals.
(j) Notwithstanding any provision contained in this
Section 3.12 to the contrary:
(i) if a Put or Call Option is exercised, then
ALS may assign its rights and obligations in
respect of the Put or Call Option to an
Affiliate of ALS so as to preserve the legal
existence of the
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Project Entity, but no such assignment shall
relieve ALS from any obligations to ALE;
(ii) any real estate transfer fee which arises in
connection with any purchase and sale
hereunder shall be borne by the parties in
proportion to their respective Percentage
Interests; and
(iii) equitable adjustments shall be made for any
distributions or capital contributions which
occur between the date of the determination
of the fair market value of the Project
Entity and the closing of the Put Option or
Call Option transaction.
(k) The Put Option and the Call Option provided for in
this Section 3.12 are intended to be agreements of the type described in Item
901(c)(2)(i) of Regulation S-K promulgated by the Securities and Exchange
Commission.
(l) Any shares of ALS Stock acquired pursuant to Section
3.12 that are not registered at the time of delivery will be acquired by ALE for
investment only and not with a view to resell or otherwise distribute them, and
ALE will not sell, transfer, give, pledge or otherwise transfer or dispose of
the shares, or any of them, unless and until such disposition of such shares is
registered or, in the written opinion of counsel to ALE reasonably acceptable to
ALS, such sale, transfer, pledge or other disposition of the shares, or any of
them, does not contravene any provision of the federal securities laws or
applicable state securities laws. ALE acknowledges that ALS may cause the stock
certificate(s) representing such shares to have the following legend printed or
typed thereon:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any state. No transfer of
the shares represented by this certificate may be made without
compliance with or exception from the Act and other applicable
securities laws.
(m) Neither ALS nor ALE shall take any action that would
have the effect of frustrating the Put Option or Call Option, respectively.
(n) If any Project Entity (i) shall desire to accept a
bona fide third party offer (a "Third Party Offer") to purchase or lease any
Facility or any material portion thereof or any material interest or estate
therein to a third party (a "Sale Transaction") and (ii) such Sale Transaction
has not been approved by both ALS and ALE, then, notwithstanding anything herein
to the contrary, ALS shall cause such Project Entity to offer (the "RFR Offer
Notice") to ALE the opportunity to consummate the Sale Transaction on the same
terms and conditions as are contained in the Third Party Offer, and shall not
consummate such Sale Transaction with any party other than ALE prior to the
expiration of thirty (30) days after the giving of the RFR Offer Notice (unless
ALE first waives its rights pursuant to this Section 3.12(n) in writing). If
during such thirty (30) day period, ALE accepts such offer contained in the RFR
Offer Notice,
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then ALS shall not permit such Project Entity to enter into the Sale Transaction
with any party unless ALE accepting such offer defaults in its obligations in
respect thereof. If ALE accepts such an offer contained in the RFR Offer Notice,
ALS shall cooperate with ALE to structure the terms of the Sale Transaction to
allow ALE or an ALE Affiliate designated by ALE to acquire the interest of ALS
in such Project Entity at a price equal to the amount that ALS would have
received had such Project Entity sold or leased (as applicable) its Facility
pursuant to the terms of the Third Party Offer and such Project Entity had
thereafter been liquidated. ALS shall also offer as part of the RFR Offer Notice
to continue, extinguish or modify any management arrangements and/or debt
guarantees on the same terms as would be applicable under the terms of the Third
Party Offer. If any offer made to ALE pursuant to this Section 3.12(n) is not
accepted within the time period described herein, then the applicable Project
Entity shall be free to consummate the Sale Transaction pursuant to the Third
Party Offer described in the applicable RFR Offer Notice, provided that if such
Sale Transaction is to be consummated on terms that are in any material respects
less favorable to the Project Entity than those described in the Third Party
Offer within a period of one hundred eight (180) days after the giving of the
RFR Offer Notice, then ALS shall not permit such Project Entity to enter into a
Sale Transaction with respect to such Facility unless it first causes such
Project Entity again to comply with the provisions of this Section 3.12(n). The
exercise by ALE or an ALE Affiliate of its rights pursuant to Section 3.12(n)
shall not constitute the exercise of a Put Option for purposes of the other
provisions of this Section 3.12.
(o) ALS will consider in connection with the exercise of
a Put or Call Option for a Project Entity, (a) participating in an Internal
Revenue Code Section 1031 exchange for the Facility owned by the Project Entity
or (b) structuring the purchase of ALE's equity interest in the Project Entity
as a tax-free exchange under Internal Revenue Code Section 368. However, in any
such case ALE shall bear the entire amount of transactional costs, and legal and
tax costs and risks, created by such alternative structuring.
3.13 Collateral Assignment. Simultaneously with the execution of
this Agreement, the Collateral Assignment Agreement shall be amended to (i)
incorporate the matters described in Section 3.12(c), (ii) include within the
definition of "Joint Venture Agreement" therein this Second Amended Agreement.
3.14 Noncompetition.
(a) With respect to each state in the Territory, neither
ALE nor ALS will directly or indirectly (except (i) for facilities acquired by
ALS or ALE or their Affiliates pursuant to the exercise of a Put Option, Call
Option, RFR Offer Notice or otherwise as permitted by the Joint Venture
Agreement or pursuant to any other transaction in which ALS or ALE, or their
respective Affiliates, have expressly consented to such ownership or activity
otherwise prohibited by this Section 3.14, (ii) through or in connection with
ALS-Northeast Entities, the Original NY Facilities, the Commons Facilities, the
Corporate Licenseholders or as otherwise permitted by the First Amended
Agreement, this Section 3.14 or Section 3.1.3 hereof) own, operate, develop,
construct, manage or participate in the ownership, development, construction,
operation or management of an assisted living, dementia or other
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specialty care facility for the elderly located in such state until the first to
occur of (A) the expiration or termination of the Development Term of such state
or (B) the first day of a Nonexclusive Year as to such state. The parties
acknowledge that their mutual election to continue development of a Pipeline
Project after the end of the Development Term for the state in which such
Pipeline Project is located shall not constitute an extension of the Development
Term for such state for purposes of this Section 3.14(a).
(b) Beginning on the date hereof and ending on the first
anniversary of the last date on which ALS and ALE jointly own equity interests
in a given Facility, neither party will directly or indirectly (except (i) for
facilities acquired by ALS or ALE or their Affiliates pursuant to the exercise
of a Put Option, Call Option, RFR Offer Notice or otherwise as permitted by the
Joint Venture Agreement or pursuant to any other transaction in which ALS or
ALE, or their respective Affiliates, have expressly consented to such ownership
or activity otherwise prohibited by this Section 3.14, (ii) through or in
connection with ALS-Northeast Entities, the Original NY Facilities, the Commons
Facilities, the Corporate Licenseholders or Waived Facilities) own, operate,
develop, construct, manage or participate in the ownership, operation,
development, construction, or management of an assisted living, dementia or
other specialty care facility for the elderly located within ten (10) miles of
any such jointly-owned Facility or any Waived Facility, Original NY Facility or
Commons Facility. In the event that either ALE or ALS ceases to own an equity
interest in one or more ALS Northeast Entities by reason of the failure to make
a Mandatory Capital Call Contribution or otherwise through the foreclosure of
its equity interest in a Project Entity or Entities pursuant to the Collateral
Assignment Agreement, such party shall nonetheless be deemed to be restricted by
the provisions of this Section 3.14 as if such party were a joint owner of all
ALS-Northeast Entities, until the first to occur of: (i) such time as the other
party ceases to have an interest in every ALS-Northeast Entity, or (ii) three
(3) years after such party ceases to have an interest in any ALS-Northeast
Entity.
(c) The restrictions on ALE set forth in Section 3.14(a)
and (b) also apply to Messrs. Michael J. Falcone, Michael P. Falcone and Mark G.
Falcone, and any entities directly or indirectly under the control of ALE or
such individuals. The restrictions on ALS set forth in Section 3.14(a) and (b)
herein also apply to any entity directly or indirectly under the control of ALS,
but in no event shall such restrictions apply to the shareholders of ALS.
(d) The restrictions set forth heretofore in this Section
3.14 (the "Restrictions") are subject to the following exceptions:
(i) The Restrictions shall not be violated by reason of
ALS or ALE, or any of their respective Affiliates,
acquiring any assisted living, dementia or other
specialty care facility for the elderly located in
the Territory ("Assisted Living Facilities"), or
acquiring an entity that owns such a facility, as
long as (A) such facility is not located within ten
(10) miles of a Commons Facility, a Waived Facility
or any Facility owned jointly by ALS and ALE or any
Facility in which a Defaulting Party once owned an
interest if that party or its Affiliates are the
acquiring party and (B)
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either (I) ALS or ALE, as the case may be, has first
offered to ALE or ALS, respectively, in writing, an
opportunity to participate in such acquisition on
substantially the same terms as contemplated herein,
and ALE or ALS, respectively, has declined such offer
(such facility, a "Refused Facility") or (II) in the
case of ALS only, ALS has delivered Market Approvals
at the Requisite Level for each of Massachusetts,
Connecticut and Rhode Island for each of the Joint
Venture Agreement Years ending December 31, 1999 and
December 31, 2000 prior to undertaking any
acquisition pursuant to this Section
3.14(d)(i)(B)(II) and so long as the aggregate number
of facilities acquired by ALS pursuant to this
Section 3.14(d)(i)(B)(II) does not exceed seven in
the aggregate in Massachusetts, Connecticut and Rhode
Island. ALE or ALS, respectively, shall have thirty
(30) days following its receipt of any such offer and
of all material economic information regarding such
offer to accept or reject, in writing, such offer
made to it by the other party in this regard, and a
failure to timely respond shall be deemed a
rejection.
(ii) The Restrictions shall not be violated by ALS if ALS
manages an Assisted Living Facility or the Person(s)
that own such facility, so long as ALS has no direct
or indirect equity interest in the facility or the
entity that owns such facility and no right to
receive a fee based on the profitability (other than
gross revenues) of such facility (such facilities
referred to herein as "Managed Facilities");
(iii) The Restrictions shall not be considered violated
solely by reason of the activities of a person or
entity which is not an Affiliate of ALS or ALE at the
time this Agreement is signed but which subsequently
becomes an Affiliate of such party insofar as the
activities of such Affiliate that predate such
affiliation are concerned;
(iv) The Restrictions in Section 3.14(a) shall not apply
to a Non-Defaulting Party from and after any default
by the other party in the making of a Mandatory
Capital Call Contribution to any ALS-Northeast
Entity;
(v) The Restrictions shall not apply to a party during
the continuance of any order or other action by a
regulatory agency or body which prohibits or
restricts the other party from owning, operating or
managing an Assisted Living Facility in the
Territory;
(vi) The Restrictions shall not prevent ALE or its
Affiliates from managing any ALS-Northeast Facility
following the termination of the Management Agreement
with ALS for such Facility;
(vii) Not Used.
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(viii) The Restrictions shall not be violated by reason of
ALS, ALE or any of their respective Affiliates
acquiring all or substantially all of the operations
of another multi-facility operator (or a
multi-facility division or operating unit of such
operator) of Assisted Living Facilities, whether by
merger, stock or asset purchase or otherwise,
provided that (A) none of the acquired Assisted
Living Facilities (the "Acquired Facilities") are
located within ten (10) miles of any Facility then
jointly owned by ALS and ALE or any Facility in which
a Defaulting Party once owned an interest if that
party is the acquiring party or any Facility not yet
completed but for which a Project Entity has been
formed, and (B) the Acquired Facilities include one
or more facilities located outside of the Territory;
and
(ix) The Restrictions shall not be violated by ALS by ALS
providing feasibility studies and related services to
third parties on a fee basis (i.e., compensation that
is not calculated on or with respect to, or that
otherwise constitutes a participation in, the profits
(as opposed to gross revenue or adjusted gross
revenue) of any subject facility) so long as ALS has
no direct or indirect equity interest in such third
party or in the facilities owned or operated by such
third party.
(e) Each party to this Agreement hereby agrees that the
restrictions set forth in this Section 3.14 are founded on valuable
consideration and are reasonable in duration and geographic area in view of the
circumstances under which this Agreement was executed, and that such
restrictions are necessary to protect the legitimate interests of the parties.
If any provision of this Section 3.14 is determined to be invalid by any
arbitrator or court of competent jurisdiction, then the provisions of this
Section 3.14 shall be deemed to have been amended, and the parties agree to
execute any documents and take whatever action is necessary to evidence such
amendment, so as to eliminate or modify any such invalid provision and to carry
out the intent of this Section 3.14 and to render the terms of this Section 3.14
enforceable in all respects as so modified.
(f) Each party to this Agreement acknowledges and agrees
that irreparable injury may result to the other party and/or a Project Entity if
the other party breaches any covenant contained in this Section 3.14, and that
the remedy at law for the breach of any such covenant will be inadequate.
Therefore, if either party shall engage in any act which is a violation of any
of the provisions of this Section 3.14, then the other party and the affected
Project Entity (or either of them) shall be entitled to, in addition to such
other remedies and damages as may be available to either or both of them at law
or pursuant to this Agreement, injunctive relief to enforce the provisions of
this Section 3.14.
3.15 Interests in Profits, Losses and Distributions. The Entity
Documents for each Project Entity shall provide as follows:
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(a) Net Losses from Operations. Any net losses with
respect to a particular Facility, other than net losses resulting from a sale or
other disposition of such Facility, as determined on a quarterly basis, shall be
allocated (i) first, to the extent that net profits have been allocated pursuant
to Section 3.15(c)(v) hereof in proportion to the parties' respective Percentage
Interests for any prior fiscal quarter and such net profits have not been
distributed by the Project Entity to the members or already reversed out
pursuant to Section 3.15(b)(i) hereof or this Section 3.15(a)(i), net losses
shall be allocated to offset such undistributed net profits pro rata among the
members in proportion to their shares of the retained net profits being offset
(and thereafter such allocations of retained profits, to the extent offset
pursuant to this Section 3.15(a)(i), shall be disregarded for purposes of
computing subsequent allocations pursuant to this Section 3.15); (ii) second,
one hundred percent (100%) to ALE until ALE's Capital Account is a negative
number that is equal to ALE's limited Capital Account restoration obligation as
set forth in clause (b) of the second to last sentence of Section 3.21 hereof
(the "ALE Restoration Amount"); (iii) third, one hundred percent (100%) to ALS
until its Capital Account is a positive number that is equal to the ALE
Restoration Amount; and (iv) lastly, in proportion to the parties' then
respective Percentage Interests (provided, however, that any such net loss to be
allocated pursuant to this clause (iv) that is attributable to Partner
Nonrecourse Debt (as such term is defined in Section 1.704-2(b)(4) of the
Treasury Regulations (herein, "Regulations") promulgated under the Internal
Revenue Code of 1986, as amended (the "Code")) shall be allocated to the member
that bears the economic risk of loss pursuant to Section 1.752-2(b)-(j) of the
Regulations for such Partner Nonrecourse Debt and, if more than one member bears
such economic risk of loss, such Partner Nonrecourse Deductions shall be
allocated among the members in accordance with the ratios in which they share
such economic risk of loss). Nonrecourse Deductions (as such term is defined in
Section 1.704-2(b)(1) of the Regulations) shall be allocated to ALS and ALE in
proportion to their Percentage Interests.
(b) Net Losses from Dispositions. Except as otherwise
provided in Section 3.21 hereof, any net loss resulting from a sale or other
disposition of a Facility shall be allocated (i) first, to the extent that net
profits have been allocated pursuant to Section 3.15(c)(v) hereof in proportion
to the parties' respective Percentage Interests for any prior fiscal quarter and
such net profits have not been distributed by the Project Entity to the members
or already reversed out pursuant to Section 3.15(a)(i) hereof or this Section
3.15(b)(i), net loss on a sale or other disposition of a Facility shall be
allocated to offset such undistributed net profits pro rata among the members in
proportion to their shares of the retained net profits being offset; (ii)
second, one hundred percent (100%) to ALS until the sum of the cumulative net
losses allocated to ALS pursuant to this Section 3.15(b)(ii) and the cumulative
net losses previously allocated to ALS pursuant to Section 3.15(a)(iii) hereof
(but only to the extent such net losses have not been previously reversed out by
net profit allocations made to ALS pursuant to Section 3.15(c)(ii) hereof) equal
75/25ths (assuming that the Percentage Interests of ALS and ALE are 75 % and
25%, respectively, and if such Percentage Interests are different, the
applicable ratio for each loss allocation offset shall be the ratio of the
Percentage Interest held by ALS at the time of such loss allocation to the
Percentage Interest held by ALE at such time) of the cumulative net losses
allocated to ALE pursuant to Section 3.15(a)(ii) (but only to the extent such
net losses have not been previously
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reversed out by net profit allocations made to ALE pursuant to Section
3.15(c)(iii) hereof); (iii) third, to ALE and ALS, in proportion to their
positive Capital Account balances, until the Capital Account balances of both
ALE and ALS equal zero; and (iv) lastly, in proportion to the parties' then
respective Percentage Interests.
(c) Net Profits from Operations. Any net profits with
respect to a particular Facility, other than net profits resulting from a sale
or other disposition of such Facility, as determined on a quarterly basis, shall
be allocated first to the parties to "reverse out" any prior net loss
allocations made pursuant to Sections 3.15(a)(ii), (iii) and (iv) hereof in the
reverse order made, and then to ALE to "match" any Preferred Equity Return, with
any remaining net profit (i.e., any net overall profit in excess of previously
allocated losses and ALE's Preferred Equity Return) to be allocated in
proportion to the parties' then respective Percentage Interests. That is, any
quarterly net profits shall be allocated (i) first, between ALS and ALE to
restore any net losses previously allocated to them pursuant to Section
3.15(a)(iv) hereof, in proportion to their relative shares of such net losses;
(ii) second, one hundred percent (100%) to ALS to restore any net losses
allocated to it pursuant to Section 3.15(a)(iii) hereof; (iii) third, one
hundred percent (100%) to ALE to reverse any net losses allocated to it pursuant
to Section 3.15(a)(ii) hereof; (iv) fourth, one hundred percent (100%) to ALE to
the extent that the total Preferred Equity Return computed through the end of
such quarter exceeds the cumulative net profits previously allocated to ALE
pursuant to this Section 3.15(c)(iv); and (v) lastly, between ALS and ALE in
proportion to their respective Percentage Interests.
(d) Net Profits from Dispositions. Except as otherwise
provided in Section 3.21 hereof, any net profits resulting from a sale or other
disposition of a Facility shall be allocated (i) first, one hundred percent
(100%) to ALE until its Capital Account balance (as increased by the amounts, if
any, which ALE is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulation Sections 1.7042(g)(1) and 1.704-2(i)(5)) is
equal to the sum of (A) 25/75ths (assuming that the Percentage Interests of ALS
and ALE are 75% and 25%, respectively, and if such Percentage Interests are
different, the applicable ratio shall be the ratio of the Percentage Interest
held by ALE at the time of the relevant loss allocation that is being restored
by this net profits allocation to the Percentage Interest held by ALS at such
time) of ALS's Capital Account balance (as increased by the amounts, if any,
which ALS is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5)), plus
(B) the Unreturned Preferred Equity Amount, if any and (ii) then, to ALS and ALE
in proportion to their respective Percentage Interests.
(e) Distributions. Each Project Entity with respect to
which a Preferred Equity Contribution has been made shall determine on a
quarterly basis its cash flow after the payment of scheduled debt service and
operating expenses and prior to the payment of any management fees for such
quarter, and shall distribute such cash flow 100% to ALE to the extent necessary
to enable such Project Entity to satisfy in full the entitlement of ALE to
receive distributions from such Project Entity equal to the Preferred Equity
Return (but not a return of the Preferred Equity Contribution) in respect of
such Project Entity. Each Project Entity as to which no Preferred Equity
Contribution has been made, or as to which such
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Preferred Equity Return entitlement has been satisfied, shall determine on a
quarterly basis its cash flow after the payment of scheduled debt service and
operating expenses and after the payment the payment of scheduled management
fees for such quarter, and shall distribute such cash flow in proportion to the
parties' respective Percentage Interests. Distributions upon liquidation of the
Project Entity (i.e., the distribution of proceeds from the sale of the
respective Facility) shall be distributed in accordance with the parties'
respective Capital Account balances (after giving effect to the allocation of
any gain or loss resulting from such liquidating sale in accordance with the
provisions of this Section 3.15 as modified by Section 3.21 hereof). The Project
Agreements of each Project Entity (including the Project Agreements of the
Grandfathered Project Entities) shall be amended or be prepared so as to conform
to the provisions of this Section 3.15(e).
3.16 Confidentiality. Except to the extent permitted by Section
3.19 hereof, the parties hereto will at all times hold and cause their officers,
employees, agents, consultants and advisors (collectively, "Representatives") to
hold in confidence the information contained in this Agreement. In addition,
each party (the "Receiving Party") who receives any Confidential Information
(hereinafter defined) concerning the other party (the "Disclosing Party") will
at all times hold and cause its Representatives to hold in strict confidence
such Confidential Information which shall have been or will be furnished by the
Disclosing Party to the Receiving Party or its Representatives in connection
with the transactions contemplated by this Agreement. All such Confidential
Information shall be disclosed by a Receiving Party only to its Representatives
engaged in the evaluation of such information. The provisions of this Section
3.16 shall not apply to the extent that such Confidential Information (a) was
previously known to the Receiving Party prior to disclosure by the Disclosing
Party, (b) is in the public domain through no fault of the Receiving Party, (c)
is lawfully acquired by the Receiving Party from a third party under no
obligation of confidence to the Disclosing Party, or (d) is required by any law
or by any governmental or judicial body to be disclosed. Such Confidential
Information shall not be used to the detriment of the Disclosing Party in any
manner. Notwithstanding the foregoing, the parties acknowledge that the
financial position and results of operations of, and other operating
characteristics or data relating to, any Facility may be disclosed by ALS in
connection with its public reporting under applicable securities laws and stock
exchange rules.
For purposes of this Section 3.16, the term "Confidential Information"
shall mean any data or information that is designated as "confidential" by the
Disclosing Party, is of value to the Disclosing Party and is not generally known
to competitors of the Disclosing Party or to the public, and whose
confidentiality is maintained by the Disclosing Party. Confidential Information
shall include, but not be limited to, written lists of the Disclosing Party's
current or potential residents or other customers, the identity of various
suppliers, non-public information concerning the Disclosing Party's executives
and employees and its financial affairs, business plans, services, research,
development, purchasing, accounting, engineering and marketing.
Nothing in this Section 3.16 will limit or restrict a Non-Defaulting
Party in respect of its ownership or operation of a Facility following a default
by the other party or its Affiliates in
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51
an obligation to make a Mandatory Capital Call Contribution or under an
Ancillary Agreement relating to such Facility.
3.17 Further Assurances. Each party agrees to execute such further
documents and perform such further acts as may be reasonably necessary to con
ate the transactions contemplated by this Agreement, the Commons Acquisition
Agreement and the Ancillary Agreements and in accordance with the terms of this
Agreement, the Commons Acquisition Agreement and the Ancillary Agreements, to
aid the more efficient execution of the transactions contemplated hereby and
thereby.
3.18 No Liens. Each of ALS and ALE hereby agrees to keep its
ownership interest in all ALS-Northeast Entities free and clear from any and all
security interests, liens, restrictive covenants or other encumbrances in favor
of any and all third parties other than those arising pursuant to the Collateral
Assignment Agreement or the Loan Documents.
3.19 Public Statement. Each party to this Agreement will consult
with the other party prior to issuing any press release or making any other
public statement with respect to this Agreement and the transactions
contemplated in this Agreement, and will not issue any such release or make any
such statement without the approval of the other party (in the other party's
sole discretion), except, such disclosure as is required to be reported in any
regulatory filings, and as may be required or appropriate in the reasonable
judgment of such party's counsel pursuant to any applicable state or federal
securities law or the rules and regulations of any relevant securities exchange
or quotation system upon which such party's securities are listed or traded.
3.20 PDC Guaranty Amendment. ALE and ALS are simultaneously
herewith executing an amendment to the PDC Guaranty Amendment described in the
First Amended Agreement to release Assisted Living Equity Investors as a
guarantor under such PDC Guaranty Amendment.
3.21 Special Project Entity Profit and Loss Allocations. Each
Operating Agreement for a Project Entity shall, except as otherwise provided in
the balance of this Section, generally allocate all profits, gains, losses and
deductions (including nonrecourse deductions), as well as any distributions,
among the parties hereto in accordance with the provisions of Section 3.15
hereof. Notwithstanding the provisions of Section 3.15 hereof, each Operating
Agreement shall contain special allocation provisions whereby, prior to any
allocations provided for in Section 3.15 hereof, (i) ALE shall be specially
allocated any gain realized on any sale or other disposition of a Facility in an
amount necessary to reflect in its Capital Account (after consideration of all
prior special gain and loss allocations provided for in this Section 3.21), and
limited to, the Development Services Contribution Amount, and (ii) ALS shall be
specially allocated losses realized on any sale or other disposition of a
Facility in an amount equal to (after consideration of all such prior special
gain and loss allocations provided for in this Section 3.21), and limited to,
75/25ths (or 66.66/33.33ths, as applicable) of the Development Services
Contribution Amount. Upon liquidation of the Project Entity, ALE shall be
obligated to restore the lesser of (a) its negative Capital Account balance, if
any, or (b) 75% or 66.66%
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(as applicable) of the Development Services Contribution Amount. Liquidating
distributions upon the liquidation of a Project Entity shall be made to ALE and
ALS in accordance with the balances in their respective Capital Accounts (after
taking into account all allocations of profits, gains, losses, and deductions of
the Project Entity, including all special gain or loss allocations described in
this Section).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ALS
ALS hereby represents and warrants to ALE that:
4.1 Organization. ALS is a corporation validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to conduct its business as presently conducted and to become
an owner of the ALS-Northeast Entities. ALS will be qualified to transact
business as a foreign corporation in the States of New York, Massachusetts,
Connecticut and Rhode Island, as necessary to carry out the transactions
contemplated by this Agreement and the Ancillary Agreements.
4.2 Authorization, Enforceability. The execution, delivery and
performance by ALS of this Agreement and the ALS Ancillary Agreements are within
the corporate power of ALS and have been duly authorized by all necessary
corporate action. A certified copy of resolutions of the Board of Directors of
ALS authorizing this Agreement and the ALS Ancillary Agreements has been
delivered to ALE. This Agreement, and the ALS Ancillary Agreements when executed
and delivered by ALS, will be the valid and binding obligations of ALS,
enforceable against ALS in accordance with the respective terms of such
agreements.
4.3 No Violation or Conflict. The execution, delivery and
performance of this Agreement and the ALS Ancillary Agreements by ALS will not
conflict with or violate any law, judgment, order, decree or regulation, the
Certificate of Incorporation or Bylaws of ALS, or any contract or agreement to
which ALS is a party or by which ALS is bound.
4.4 Brokers. Neither ALS nor any Affiliate of ALS has incurred any
brokers', finders' or any similar fee in connection with the transactions
contemplated by this Agreement or the ALS Ancillary Agreements.
4.5 Litigation. There is no litigation, arbitration, proceeding,
governmental investigation, citation or action of any kind pending or, to the
knowledge of ALS, proposed or threatened, against ALS which could have a
material adverse effect on the transactions contemplated hereby. There is no
action, suit or proceeding against ALS by any person or entity which questions
the validity, legality or propriety of the transactions contemplated by this
Agreement or the ALS Ancillary Agreements.
4.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory
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authority is required on the part of ALS in connection with its execution and
delivery of this Agreement and the ALS Ancillary Agreements and the consummation
by ALS of the transactions contemplated in this Agreement and the ALS Ancillary
Agreements, other than such licenses as may be required to operate or manage
Facilities in the Territory.
4.7 Required Consent. There are no approvals or consents which ALS
is required to obtain from any third parties to enter into this Agreement or the
ALS Ancillary Agreements which have not been obtained.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ALE
ALE hereby represents and warrants to ALS that:
5.1 Organization. ALE is a limited liability company validly
existing and in good standing under the laws of the State of New York. Each ALE
Affiliate that is or is intended to be a party to the Ancillary Agreements,
including without limitation PDC (the "Contracting ALE Affiliates") is (or upon
formation will be) a corporation, partnership or limited liability company, as
applicable, validly existing and in good standing under the laws of its
organization. ALE and each Contracting ALE Affiliate have (or, as to Contracting
ALE Affiliates, upon formation will have) full corporate, partnership or limited
liability company (as applicable) power and authority to conduct its business as
presently conducted and, in the case of ALE, to become an owner of the
ALS-Northeast Entities. ALE and the Contracting ALE Affiliates are (or upon
formation will be) duly qualified to transact business as a limited liability
company or other entity in the States of New York, Massachusetts, Connecticut
and Rhode Island, as necessary to carry out the transactions contemplated by
this Agreement and the Ancillary Agreements. Exhibit I, attached hereto and
incorporated herein by this reference, contains a correct list of the current
owners of ALE, PDC and Central New York Contractors, Inc. (the ALE Affiliate
that will enter into the Construction Agreement).
5.2 Authorization, Enforceability. The execution, delivery and
performance by ALE of this Agreement and by ALE and the Contracting ALE
Affiliates of the ALE Ancillary Agreements are within the corporate, partnership
or limited liability company (as applicable) power of, and have been duly
authorized by, ALE and the Contracting ALE Affiliates, respectively. This
Agreement, and the ALE Ancillary Agreements when executed and delivered by ALE
and the Contracting ALE Affiliates, will be the valid and binding obligations of
ALE and the Contracting ALE Affiliates, as applicable, enforceable against ALE
and such Contracting ALE Affiliates in accordance with their respective terms
and conditions. A certified copy of the resolutions of the members of ALE and
the Contracting ALE Affiliates authorizing this Agreement and ALE Ancillary
Agreements has been delivered to ALS.
5.3 No Violation or Conflict. The execution, delivery and
performance by ALE of this Agreement and by ALE and the Contracting ALE
Affiliates of the ALE Ancillary Agreements will not conflict with or violate any
law, judgment, order, decree or regulation,
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the Articles of Incorporation, Articles of Organization or operating agreement
of ALE and the Contracting ALE Affiliates, respectively, or any contract or
agreement to which ALE and the Contracting ALE Affiliates are a party or by
which they are bound.
5.4 No Broker. Neither ALE nor any Affiliate of ALE (including the
Contracting ALE Affiliates) has incurred any brokers', finders' or any similar
fee in connection with the transactions contemplated by this Agreement or the
ALE Ancillary Agreements.
5.5 No Litigation. There is no litigation, arbitration,
proceeding, governmental investigation, citation or action of any kind pending
or, to the knowledge of ALE, proposed or threatened, against ALE or any
Contracting ALE Affiliate which could have a material adverse effect on the
transactions contemplated hereby. There is no action, suit or proceeding by any
person or governmental agency against ALE or any Contracting ALE Affiliate which
questions the legality, validity or propriety of the transactions contemplated
by this Agreement or the ALE Ancillary Agreements.
5.6 Governmental Approvals. No permission, approval,
determination, consent or waiver by, or any declaration, filing or registration
with, any governmental or regulatory authority is required on the part of ALE or
any Contracting ALE Affiliate in connection with its execution and delivery of
this Agreement and the ALE Ancillary Agreements and the consummation by ALE and
the Contracting ALE Affiliates of the transactions contemplated in this
Agreement and the ALE Ancillary Agreements, other than such licenses and permits
as may be required in connection with the construction of Facilities.
5.7 Required Consent. There are no approvals or consents which ALE
or any Contracting ALE Affiliate are required to obtain from third parties to
enter into this Agreement or the ALE Ancillary Agreements which have not been
obtained.
ARTICLE 6
NOT USED
ARTICLE 7
NOT USED
ARTICLE 8
NOT USED
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ARTICLE 9
INDEMNIFICATION
9.1 ALE's Indemnity. ALE hereby agrees to indemnify ALS, each ALS
Affiliate and, except for the matters referenced in (c) and (d) below, the
ALS-Northeast Entities, or any of them, and hold them harmless from and against
any and all losses, damages, costs, expenses, liabilities, obligations and
claims of any kind (including, without limitation, reasonable attorneys fees and
other reasonable legal costs and expenses) which any of them may at any time
suffer or incur, or become subject to, as a result of or in connection with:
(a) any breach or inaccuracy when made of any of the
representations and warranties made by ALE or any ALE Affiliates in
this Agreement or in any ALE Ancillary Agreement;
(b) any failure by ALE or any ALE Affiliate to carry out,
perform, satisfy or discharge any of its covenants, agreements,
undertakings, liabilities or obligations under this Agreement or under
any ALE Ancillary Agreement;
(c) any unpaid or unsatisfied indemnification right of
ALS pursuant to Section 3.6 hereof;
(d) provided that the interest of ALE in the
ALS-Northeast Entity has not been acquired by ALS pursuant to Section
3.12, any payments by ALS with respect to any obligations of any
ALS-Northeast Entity not described in Section 3.6 which have been
jointly guaranteed in writing by ALS and ALE, to the extent such
payments exceed the initial ALS Percentage Interest in such
ALS-Northeast Entity upon its organization;
(e) any suit, action or other proceeding brought by any
Person against ALS, any ALS Affiliate or any ALS-Northeast Entity
arising out of, or in any way related to, any obligation in respect of
which an indemnity obligation is owed pursuant to paragraphs (a)
through (d) of this Section 9.1.
9.2 ALS's Indemnity. ALS hereby agrees to indemnify ALE, each ALE
Affiliate and, except for the matters referenced in (c) and (d) below, the
ALS-Northeast Entities or any of them, for and hold them harmless from and
against any and all losses, damages, costs, expenses, liabilities, obligations
and claims of any kind (including reasonable attorneys' fees and other
reasonable legal costs and expenses) which any of them may at any time suffer or
incur, or become subject to, as a result of or in connection with:
(a) any breach or inaccuracy when made of any of the
representations and warranties made by ALS in this Agreement or in any
and all ALS Ancillary Agreements;
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(b) any failure by ALS to carry out, perform, satisfy or
discharge any of its covenants, agreements, undertakings, liabilities
or obligations under this Agreement or under any and all ALS Ancillary
Agreements;
(c) any unpaid or unsatisfied indemnification right of
ALE pursuant to Section 3.6 hereof;
(d) any payments by ALE with respect to any obligations
of any ALS-Northeast Entity not described in Section 3.6 which have
been jointly guaranteed in writing by ALE and ALS, to the extent such
payments exceed the initial ALE Percentage Interest in such
ALS-Northeast Entity upon its organization; or
(e) any suit, action or other proceeding brought by any
Person against ALE, any ALE Affiliate or any ALS-Northeast Entity
arising out of, or in any way related to, any obligation in respect of
which an indemnity obligation is owed pursuant to paragraphs (a)
through (d) of this Section 9.2.
Further, in the event that any net losses of a Project Entity properly allocated
to ALE pursuant to Section 3.15(a)(ii) are disallowed upon federal and/or state
income tax audit and additional federal, state or local income tax, interest
thereon and/or penalties related thereto are therefore assessed upon the members
of ALE by reason of such disallowance, ALS shall indemnify such members for 100%
of such penalties and an amount equal to the product of (i) ALS's initial
Percentage Interest with respect to such Project Entity times (ii) any interest
(but no portion of the additional tax itself) incurred by such members solely by
reason of such disallowance; provided, however, that such indemnification
obligation shall arise and apply only to the extent that such disallowance is
solely attributable to ALE's being allocated a portion of net loss pursuant to
Section 3.15(a)(ii) that is greater than its Percentage Interest at the time of
such net loss allocation with respect to such Project Entity.
9.3 Provisions Regarding Indemnities.
(a) The obligations of ALE and ALS under Section 9 of
this Agreement shall survive for the statute of limitations period applicable to
claims in respect of which such rights of indemnification apply. Delivery of any
written demand for indemnification by an indemnified party shall toll the
survival period for the subject of the particular demand and, once notice is
given, the indemnified party may pursue the particular claim to its conclusion
to the extent permitted by applicable law.
(b) The indemnified party shall promptly notify the
indemnifying party in writing and in reasonable detail of any claim, demand,
action or proceeding for which indemnification will be sought under Section 9 of
this Agreement, and if such claim, demand, action or proceeding is a third party
claim, demand, action or proceeding, the indemnifying party will have the right,
at its expense, to assume the defense thereof using counsel reasonably
acceptable to the indemnified party. The indemnified party shall have the right
to participate, at its own expense, with respect to any such third party claim,
demand, action or proceeding.
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In connection with any such third party claim, demand, action or proceeding, the
parties shall cooperate with each other and provide each other with access to
relevant books and records in their possession. No such third party claim,
demand, action or proceeding shall be settled without the prior written consent
of the indemnified party, unless the settlement is for money damages only and is
satisfied in full simultaneously with the conclusion of the settlement.
(c) Any indebtedness or other obligations of ALE or ALS
to its respective Affiliates will be subordinated to any indemnification
obligations of ALE to ALS or ALS to ALE, respectively.
ARTICLE 10
NOT USED
ARTICLE 11
MISCELLANEOUS
11.1 Entire Agreement; Amendment. This Agreement, the Commons
Acquisition Agreement and the other agreements and documents executed in
connection therewith or contemplated thereby, constitute the entire agreement
between the parties pertaining to the subject matter of this Agreement, and
(except as otherwise provided in Article 2 and Section 11.16 hereof) supersede
all prior agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer, employee
or representative of any party hereto. No amendment, supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shah such waiver constitute a continuing
waiver unless otherwise expressly provided.
11.2 Fees and Expense. Whether or not the transactions contemplated
by this Agreement are consummated, and except as expressly provided herein or in
any Ancillary Agreement, each of the parties hereto shall pay the fees and
expenses of such party's counsel, accountants, brokers, consultants, investment
bankers and other experts incident to the negotiation and preparation of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
11.3 Applicable Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the law of the State
of New York without giving effect to principles of conflicts of laws.
11.4 Binding Effect, Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective
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successors and assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by any of the
parties hereto without the prior written consent of the other party, whether by
operation of law or otherwise.
11.5 Notices. Each notice, request, demand or other communication
("Notice") by either party to the other party pursuant to this Agreement shall
be in writing and shall be personally delivered or sent by U.S. certified mail,
return receipt requested, postage prepaid, or by nationally recognized overnight
commercial courier, charges prepaid, or by facsimile transmission (but each such
Notice sent by facsimile transmission shall be confirmed by sending an original
thereof to the other party by U.S. mail or commercial courier as provided herein
no later than the following business day), addressed to the address of the
receiving party set forth below or to such other address as such party shall
have communicated to the other party in accordance with this Section. Any Notice
hereunder shall be deemed to have been given and received on the date when
personally delivered, on the date of sending when sent by facsimile, on the
third business day following the date of sending when sent by mail or on the
first business day following the date of sending when sent by commercial
courier.
If to ALE: Assisted Living Equities, LLC
250 South Clinton Street, Suite 200
Syracuse, New York 13202-1258
Attn: Legal Department
Telephone: (315) 471-3181
Fax: (315) 471-1154
with a copy to: Kalkines, Arky, Zall & Bernstein LLP
1675 Broadway
New York, New York 10019-5809
Attn: Peter F. Olberg, Esq.
Telephone: (212) 541-9090
Fax: (212) 541-9250
If to ALS: Alternative Living Services, Inc.
450 North Sunnyslope Road
Suite 300
Brookfield, Wisconsin 53005
Attn: Mr. William F. Lasky
Fax: (414) 789-9592
with a copy to: Rogers & Hardin
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Alan C. Leet, Esq.
Fax: (404) 525-2224
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11.6 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute one and the same Agreement.
11.7 Headings. The Article and Section headings in this Agreement
are inserted for convenience of reference only and shall not constitute a part
hereof.
11.8 Construction. Common nouns and pronouns shall be deemed to
refer to the masculine, feminine, neuter, singular and plural, as the identity
of the person may in the context require. References to Sections herein include
all subsections which are subsidiary to the Section referred to. No provision of
this Agreement shall be construed in favor of or against any party hereto by
reason of the extent to which any such party or its counsel participated in the
drafting thereof.
11.9 Severability. If any provision, clause or part of this
Agreement, or the application thereof under certain circumstances, is held
invalid, then the remainder of this Agreement, or the application of such
provision, clause or part under other circumstances, shall not be affected
thereby unless such invalidity materially impairs the ability of the parties to
consummate the transactions contemplated by this Agreement.
11.10 Knowledge. Any representation, warranty, covenant or statement
which is made to the knowledge of any party to this Agreement shall require that
such party make reasonable investigation and inquiry with respect thereto to
ascertain the correctness and validity thereof.
11.11 Survival of Representations and Warranties. All
representations and warranties of the parties contained in this Agreement or
made pursuant to this Agreement shall survive the execution of this Agreement
and the consummation of the transactions contemplated by this Agreement. All
obligations of the parties hereunder with respect to any Project Entity will
survive the term hereof for so long as the parties or their Affiliates have
interests in or rights or obligations in respect of such Project Entity. Any
termination of the Development Term shall not affect the obligations of ALE or
ALS or their respective Affiliates to complete any Facilities then under
development for which a Project Entity has been formed.
11.12 Arbitration. The parties hereto agree that, subject to the
provisions of this Section 11.12, any and all controversies or claims arising
out of or relating to this Agreement, any of the ALS Ancillary Agreements or ALE
Ancillary Agreements or the breach of any of the foregoing, shall be settled by
arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. ss.1 et seq., in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The parties hereto further agree that the arbitrators in any such
arbitration shall not be authorized to award any punitive damages in connection
with any controversy or a claim settled by arbitration hereunder. The decision
of the arbitrator in any such arbitration shall be final and binding upon the
parties and judgment upon the award may be entered in any court having
jurisdiction thereof. Any arbitration shall take place in such place as is
agreed on by the parties hereto, or, if they cannot agree, in Chicago, Illinois,
and the expenses of the
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arbitrators shall be borne by the losing party. The arbitration shall be
conducted before a panel of three (3) arbitrators, one selected by ALE, one
selected by ALS, and one selected by mutual agreement of the arbitrators
selected by ALE and ALS. The arbitrators shall have the right to retain and
consult experts and competent authorities skilled in the matters under
arbitration. The arbitrators shall render their award, upon the concurrence of
at least two (2) of their number, if practicable, within sixty (60) days after
the appointment of the third arbitrator. Such award shall be in writing and
shall be final and conclusive on the parties and counterpart copies thereof
shall be delivered to each of the parties. In rendering such decision and award,
the arbitrators shall not add to, subtract from or otherwise modify the
provisions of this Agreement. Judgment may be had on the decision and award of
the arbitrators so rendered, in any court of competent jurisdiction. Each party
shall pay the fees and expenses of the one of the two original arbitrators
appointed by or for such party, as well as the attorneys' fees, witness fees and
similar expenses incurred by such party, and the fees and expenses of the third
arbitrator and all other expenses of the arbitration shall be borne by the
parties equally. Notwithstanding the foregoing, if a majority of the arbitrators
determine that the position of either party was taken willfully and is without
merit, the arbitrators may require such party to bear all of the expenses of the
arbitration as well as all or part of the prevailing party's witness fees,
attorney fees and similar expenses. To the extent that one or more of the
provisions of this Section 11.12 shall be declared invalid, void or
unenforceable, the remainder of the provisions of this Section 11.12 shall
remain in full force and effect. All notices in connection with the arbitration
shall be made in the manner set forth in Section 115 hereof. Notwithstanding the
foregoing, any determination of value of a Project Entity or of ALS Stock in the
manner set forth in Section 3.12 of this Agreement shall be final and binding
upon the parties and not subject to arbitration under this Section 11.12.
11.13 Waiver of Compliance. Any failure of ALS or ALE to comply with
any obligation, covenant, agreement or condition contained herein may be
expressly waived in writing by ALE or ALS, respectively; provided, however, that
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure by the other party.
11.14 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason of this
Agreement.
11.15 Set Off Rights of Parties. Each of ALS and any ALS Affiliate
shall have the right to set off against any liquidated monetary obligation it
may owe ALE or any ALE Affiliate under this Agreement or any Ancillary Agreement
any liquidated monetary obligation which ALE or any ALE Affiliate may owe ALS or
any ALS Affiliate. Similarly, each of ALE and any ALE Affiliate shall have the
right to set off against any liquidated monetary obligation it may owe ALS or
any ALS Affiliate under this Agreement or any Ancillary Agreement any liquidated
monetary obligation which ALS or any ALS Affiliate may owe ALE or any ALE
Affiliate. This mutual dollar-for-dollar set off of liquidated monetary
obligations due and owing between ALS and the ALS Affiliates, on the one hand,
and ALE and the ALE
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Affiliates, on the other hand is contained in this Agreement because the parties
understand and acknowledge that such mutual set off right in all events arises
out of the single transaction memorialized by this Agreement. The ALS Affiliates
and ALE Affiliates having obligations under this Agreement or an Ancillary
Agreement are intended beneficiaries of this Section 11. 15.
11.16 Effect of Commons Acquisition Agreement. The parties'
respective rights and obligations hereunder, and under any other Project
Agreement or Ancillary Agreement, shall not be dependent on or in any manner
affected by the performance or lack of performance by any party to the Commons
Acquisition Agreement. The entities owning the Commons Facilities are not
ALS-Northeast Entities and the Commons Acquisition Agreement is not an Ancillary
Agreement. The rights and responsibilities of the parties with respect to the
Commons Facilities shall be solely as set forth in the Commons Acquisition
Agreement and in the other agreements and instruments entered into or to be
entered into directly in connection therewith or pursuant thereto.
Notwithstanding the foregoing, it is understood that the Collateral Assignment
will be amended to collateralize certain indemnity obligations of ALS related to
Pioneer Kenmore Company, LLC and Pioneer Niskayuna Company, LLC as contemplated
by Section 3.13.
11.17 Cross Default. Any breach or default by a party under the
First Amended Agreement as amended by Amendment No. 1 which extends beyond the
applicable grace or cure period, if any, shall also constitute a breach or
default by such party beyond any applicable grace or cure period under this
Second Amended Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
ALTERNATIVE LIVING SERVICES, INC.
By: /s/ Mark W. Ohlendorf
-------------------------------
Its: Senior Vice President
-------------------------------
ASSISTED LIVING EQUITIES, LLC
By: /s/ Neil A. Rube
-------------------------------
Its: Executive Committee Member
-------------------------------
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SCHEDULE 1
PUT/CALL PRICING LIMITING FACTOR
In determining the purchase price for ALE's equity interest in any
Project Entity, the appraisers establishing the fair market value of the
Facility owned by such Project Entity shall apply the limiting factor described
in this Schedule 1 if the annual projected stabilized EBITDAR for the Facility
in question equals an amount (the "Triggering Amount") in excess of 14.75% of
Total ROA Base Cost for the Project Entity owning such Facility. It is
understood that the appraisers' determination of the fair market value of a
Facility represents a calculation separate and distinct from the determination
of the valuation of any non-Facility assets of a Project Entity, and that any
such non-Facility assets shall be valued without giving effect to the limiting
factor described in this Schedule 1 (e.g., the valuation of the working capital
of any Project Entity shall be established in accordance with generally accepted
accounting principles).
In the case described in the preceding paragraph, the appraisers shall
utilize an adjusted annual projected stabilized EBITDAR ("Adjusted EBITDAR") in
establishing or determining fair market value of a Facility, as follows:
(i) To the extent that annual projected stabilized
EBITDAR as determined by the appraiser exceeds the Triggering Amount,
then
(ii) Adjusted EBITDAR shall be calculated by reducing such
EBITDAR figure by an amount equal to 70% of the excess of such EBITDAR
over the Triggering Amount.
Example:
=============================================================================
Total ROA Base Cost: $5,000,000 (A)
- -----------------------------------------------------------------------------
Triggering Amount (14.75% x (A)): $ 737,500 (B)
- -----------------------------------------------------------------------------
Annual Projected Stabilized EBITDAR: $ 787,500 (C)
- -----------------------------------------------------------------------------
Difference between (C) and (B): $ 50,000 (D)
- -----------------------------------------------------------------------------
Reduction in EBITDAR to calculate Adjusted $ 35,000 (E)
EBITDAR
(70% of (D)):
- -----------------------------------------------------------------------------
Adjusted EBITDAR $ 752,500
((C) - (E)):
=============================================================================
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EXHIBIT A
[Not Used]
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EXHIBIT B
[Not Used]
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EXHIBIT C
[Not Used]
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66
EXHIBIT D
[Construction Agreement]
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67
EXHIBIT E
[Not Used]
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68
EXHIBIT F
[Not Used]
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69
EXHIBIT G
[Not Used]
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70
EXHIBIT H
[Not Used]
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