THIRDAMENDMENT TO MANAGEMENT AGREEMENT
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WITH OPTION TO PURCHASE
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(AL 1- Emeritrust 25 Facilities)
This Third Amendment to Management Agreement with Option to Purchase (this
"Amendment") is effective as of the 30th day of June, 2003 by and among Emeritus
Management LLC, a Washington limited liability company ("Emeritus Management"),
Emeritus Management I LP, a Washington limited partnership ("Texas Manager;"
together with Emeritus Management referred to herein as "Manager"), Emeritus
Corporation, a Washington Corporation ("Emeritus), AL Investors LLC, a Delaware
limited liability company ("AL Investors"), for itself and as sole managing
member or sole managing member of the general partner of each of the Facility
Entities set forth on Exhibit A to the Management Agreement (as hereinafter
defined).
Recitals
A. Emeritus Management, Texas Manager, Emeritus, AL Investors, ESC I, L.P.,
a Washington limited partnership ("ESC"), and Emeritus Properties I, Inc., a
Washington corporation ("EPI") entered into that certain Management Agreement
with Option to Purchase (Emeritrust 25) dated December 30, 1998, pursuant to
which, among other things, AL Investors and the Facility Entities engaged
Manager to manage certain Facilities described therein (as subsequently amended,
the "Management Agreement"). Pursuant to the terms of the Management Agreement,
ESC and EPI have ceased to be Managers under the Management Agreement. The
Management Agreement has been previously amended by (1) First Amendment to
Management Agreement with Option to Purchase, dated March 22, 2001 (the "First
Amendment"), (2) Second Amendment to Management Agreement with Option to
Purchase dated January 1, 2002 (the "Second Amendment"), and (3) Waiver, Consent
and Amendment to Management Agreement dated May 1, 2002 ("Laurel Place Waiver").
Pursuant to the Laurel Place Waiver, the Facility known as Laurel Place was sold
and has been deleted from the Management Agreement. In addition, AL Investors
and Manager have agreed to the sale of the Facility known as Park Place, which
closed on August 11, 2003 and such Facility will then be deleted from the
Management Agreement.
B. In connection with an extension of the Senior Loan pursuant to Third
Amendment to Loan Agreement for the Senior Loan ("Third Loan Amendment"), the
parties now desire to amend the Management Agreement to extend the Management
Agreement for the Third Extension Period (i.e., July 1, 2003 to August 31, 2003,
as defined in the Third Loan Amendment) and for the Fourth Extension Period
(i.e., September 1, 2003 to January 2, 2004, as defined in the Third Loan
Amendment) on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars, the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Defined Terms. All terms capitalized herein but not defined
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shall have the meanings given them in the Management Agreement.
2. Extension of Management Agreement. Section 2.3 of the Management
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Agreement (as added under the First Amendment and amended by the Second
Amendment) is hereby replaced with the following:
2.3 Additional Extension Term. Under the Third Loan Amendment, AL Investors
is currently eligible for a loan extension from July 1, 2003 to August 31, 2003
in accordance with the terms and conditions contained in the Third Loan
Amendment (the "Third Extension Period"), and at the end of the Third Extension
Period, may be eligible for an additional loan extension from September 1, 2003
to January 2, 2004 in accordance with the terms and conditions contained in the
Third Loan Amendment (the "Fourth Extension Period"). If AL Investors is
entitled to exercise its extension rights under the terms of the Fourth
Extension Period, it hereby agrees that it will do so.
The parties hereby acknowledge that AL Investors has exercised its extension
rights for the Third Extension Period, and agree that the term of the Management
Agreement is hereby extended to August 31, 2003 to make it co-terminous with the
Third Extension Period. If AL Investors exercises its rights to extend for the
Fourth Extension Period under the Third Loan Amendment, the Management Agreement
shall be extended to January 2, 2004 to make it co-terminous with the Fourth
Extension Period. All of the terms and provisions of the Management Agreement
(as modified by this Amendment) shall continue to be applicable throughout the
extended Term, including, without limitation, the obligation to fund Operating
Deficits and the right to exercise the Purchase Option. If during any Extension
Period the Management Agreement is terminated for any reason (other than the
failure to qualify for extension rights for the Fourth Extension Period), at
Owner's election in its sole discretion Manager may be required to continue to
provide management services for the Facilities for up to 90 days (until
terminated by Owner upon not less than 30 days prior written notice) and the
management fee payable during such period shall be 3% of Total Revenues from
each Facility then managed.
If AL Investors is not eligible to exercise its extension rights under the
Third Loan Amendment for the Fourth Extension Period, then AL Investors shall
have the right to terminate the Management Agreement. However, if AL Investors
does not terminate the Management Agreement and obtains alternative financing
for the Facilities or further modifies the existing Senior Loan to extend the
term, Manager's obligation to fund Operating Deficits shall not exceed the
Operating Deficits that would have been required to be paid during the Fourth
Extension Period had it been exercised or permitted to be exercised. For
purposes of calculating Operating Deficits pursuant to this section, Manager
shall have the benefit of any interest rate caps in effect, but Manager
understands there are none currently in effect.
If AL Investors elects to terminate the Management Agreement because it
does not qualify for the Fourth Extension Period, then Owner shall be deemed to
have notified Manager of its intent to extend beyond such maturity date pursuant
and subject to the terms of section 2.2 of the Management Agreement. During the
first 90 days of such extension Owner shall notify Manager of the duration of
the extension and the Facilities to which such extension is applicable, which
extension may be up to 12 months from the date of termination, subject to any
earlier termination rights contained in the Management Agreement or this
Amendment. The extension exercised pursuant to section 2.2 of the Management
Agreement in accordance with this paragraph shall not be subject to the 90 day
prior notice requirement contained in section 2.2 of the Management Agreement
but shall be for a Management Fee of 5% of gross revenues as set forth in
Section 2.2 and Manager shall not be obligated to fund Operating Deficits during
such period.
The extension of the Purchase Option shall continue to be governed by
Section 4.2 of the First Amendment.
3. Management Fee.The parties agree that in connection with the
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extension of the Senior Loan being exercised in connection with this Agreement,
AL Investors has agreed to pay from funds held by Emeritus on behalf of AL
Investors (i) all extension fees charged by the Senior Lender with respect to
the Third and Fourth Extension Periods (which amounts are $127,509 and $255,019,
respectively), and (ii) all closing costs related to the Third and Fourth
Extension Periods, including, without limitation, all costs and fees incurred by
the Senior lender, title insurance fees, UCC search costs, attorneys fees and
costs to AL Investors and Senior Housing Partners I, L.P. and all other
reasonable out of pocket costs and expenses (collectively, the "Loan Extension
Closing Costs"). AL Investors shall be entitled to recoup all Loan Extension
Closing Costs out of Operating Profit from the Facilities, without interest,
after payment of a management fee of 3% of Total Revenues from the Facilities to
Emeritus. To the extent not modified by this Paragraph 3, Paragraph 9 of the
First Amendment governing prior loan restructure fees and Paragraph 7.2 of the
Second Amendment governing Loan Extension Closing Costs shall continue to be
applicable with respect to the Pooled Expenses and the Loan Extension Closing
Costs related to the prior Senior Loan Restructure and extensions as defined
therein. To memorialize the foregoing agreement, Section 7.2 of the Management
Agreement (as replaced by Paragraph 5 of the First Amendment) is hereby deleted
and replaced in its entirety with the following:
7.2 Reimbursement of Loan Extension Closing Costs; Additional Management
Fee. Any Operating Profit in excess of the Base Management Fee (i.e., 3% of
Total Revenues) and any Accrued Base Management Fee at the end of each month
shall be paid first to Owner until Owner has been reimbursed for all Loan
Extension Closing Costs under this Amendment and under the Second Amendment
relating to the prior Senior Loan Extension, then 50% to Manager and 50% to
Owners until Manager has received (i) an additional management fee of 4% of
Total Revenues from all Facilities In the aggregate subject to this Agreement
(the "Additional Management Fee") plus (ii) any Accrued Additional Management
Fee (as hereinafter defined). If there is insufficient Operating Profit after
payment of the Base Management Fee, Accrued Base Management Fee, and any Loan
Extension Closing Costs during any month to pay the Additional Management Fee,
the unpaid portion shall accrue and be added to any accrued amounts for prior
months commencing January 1, 2002 (the" Accrued Additional Management Fee").
The Base Management Fee, any Accrued Base Management Fee, the Additional
Management Fee and any Accrued Additional Management Fee are sometimes referred
to herein as the "Management Fee".
In addition, as provided in the Second Amendment, Section 8.2 of the
Management Agreement (as replaced pursuant to paragraph 6 of the First
Amendment), is hereby amended to (i) exclude Capital Improvements from Fixed
Operating Expenses for purposes of subsection
(b) thereof, and (ii) add a new section (e) as follows: "(e) Any Loan Extension
Closing Costs to be reimbursed to Owner", such that Loan Extension Closing Costs
under this Amendment and the Second Amendment are paid after the Base Management
Fee and Accrued Base Management Fee, but prior to any Additional Management Fee
or Accrued Additional Management Fee. The following conforming amendments are
hereby made: the prior subsection (e) of Section 8.2 shall become subsection
(f), the prior subsection (f) shall become subsection (g), and the reference to
"Section 8.2(e)" in Section 9.9 (as added by the First Amendment) shall instead
refer to "Section 8.2(f)".
Emeritus acknowledges that is has no right to reimbursement for any amounts
deposited on account of Section 4.12 of the Senior Loan loan documents or any
additional amounts funded by Manager to cover any deferred Tranche A interest.
4. Failure to Achieve Financial Performance. As provided in the
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Second Amendment and extended to this Amendment, new subsection 9.8(d) is hereby
added as follows:
(d) For purposes of calculating Cash Available for Distribution actually
distributed to Owner pursuant to this Section 9.8, Manager shall be entitled to
include as part of such distribution any amounts reimbursed to Owner for Loan
Extension Closing Costs pursuant to this Amendment or the Second Amendment, but
such aggregate distribution of Cash Available for Distribution shall not be less
than $90,000 per month as provided in Section 9.8(c).
5. Senior Loan.The Senior Loan, as defined in the Management Agreement,
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is further amended to acknowledge and include the amended interest rates set
forth in the Third Loan Amendment and which are applicable during the Third
Extension Period and the Fourth Extension Period.
6. Ratification.The Management Agreement, as amended by this Agreement, is
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hereby ratified and confirmed.
7. Understandings and Agreements. This Amendment, together with
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the Management Agreement, constitutes all of the understandings and agreements
between the parties with respect to the management of the Facilities.
8. Headinqs.The headings contained herein are for convenience of reference
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only and are not intended to define, limit or describe the scope or intent of
any provision of this Agreement.
9. Applicable Law.This Agreement shall be construed and interpreted and be
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governed by the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date and year first above written.
EMERITUS MANAGEMENT
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EMERITUS MANAGEMENT LLC, a Washington
limited liability company
By: Emeritus Corporation,
a Washington corporation
By: /s/ William M. Shorten
Name: William M. Shorten
Title: Director of Real Estate Finance
EMERITUS MANAGEMENT I LP
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EMERITUS MANAGEMENT I LP, a Washington limited partnership
By: EM I, LLC, a Washington limited liability company
By: Emeritus Corporation, a Washington corporation
By: /s/ William M. Shorten
Name: William M. Shorten
Title: Director of Real Estate Finance
EMERITUS
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EMERITUS CORPORATION, a Washington
corporation
By: /s/ William M. Shorten
Name: William M. Shorten
Title: Director of Real Estate Finance
AL Investors
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AL Investors LLC, a Delaware limited liability company, for itself and as sole
managing member on behalf of each of the Owners, or in the case where the Owner
is a limited partnership, as sole managing member on behalf of the general
partner thereof
By: /s/ Norman L. Brendan
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Name: Norman L. Brendan
Title: Manager
The undersigned lenders in connection with the Senior Loan and the Junior Loan
have executed this Agreement for the sole purpose of consenting to the foregoing
Amendment.
GMAC Commercial Mortgage Corporation,
a California corporation
By: /s/ William E. Shine
Name: William E. Shine
Title: EVP
Senior Housing Partners l, L.P., a Delaware limited partnership
By: /s/ Noah R. Levy
Name: Noah R. Levy
Title: Vice President
The undersigned has executed this Agreement for the sole purpose of (i)
acknowledging and consenting to the foregoing Amendment, (ii) ratifying that
certain Guaranty of Management Agreement and Shortfall Funding Agreement dated
December 30, 1998, as amended by Amendment dated March 22, 2001, and ratified in
the Second Amendment, entered into by Emeritus in favor of AL Investors and the
Facility Entities (the "Guaranty"), and (Hi) confirming and agreeing that
foregoing Amendment does not alter, modify, amend or waive any terms contained
in the Guaranty.
Emeritus Corporation,
a Washington corporation
By: /s/ William M. Shorten
Name: William M. Shorten
Title: Director of Real Estate Finance