ECONOMIC INTEREST ASSIGNMENT AGREEMENT
AND SUBORDINATION AGREEMENT
THIS AGREEMENT is made and entered into as of
the 5th day of September,1997 (the "Effective
Date") by and between Emeritus Properties I, Inc.,
a Washington corporation ("EP I"), Emeritus
Corporation, a Washington corporation ("Emeritus")
and Mississippi Baptist Health Systems, Inc., a
Mississippi non profit corporation ("Assignee").
RECITALS
A. EP I is the current lessee and licensed
operator of that 80 unit assisted living facility
known as Ridgeland Court and located in Ridgeland,
Mississippi (the "Facility").
B. By Master Agreement and Subordination
Agreement of even date herewith between Emeritus,
EP I and Assignee (the "Master Agreement"), EP I
agreed to grant an Economic Interest (as defined
in the Master Agreement) in the Ridgeland Facility
to Assignee.
C. EP I and Assignee are interested in
documenting the terms and conditions under which
the assignment and assumption of such Economic
Interest shall occur.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants set
forth herein, IT IS HEREBY AGREED AS FOLLOWS:
1. ASSIGNMENT AND ACCEPTANCE.
(a) As of the Effective Date, EP I does
hereby assign to Assignee and Assignee does hereby
accept and assume a 50% Economic Interest in the
Ridgeland Facility. For purposes hereof, the term
50% Economic Interest" shall mean a 50% interest
in the Net Profits, Net Losses and Net Cash
Proceeds (as hereinafter defined) of the Ridgeland
Facility.
(b) For purposes hereof, the term "Net
Profits" and "Net Losses" shall mean the net
operating profits or net operating losses of the
Ridgeland Facility, after the payment of all
ordinary expenses incurred by EP I in the
operation of the Ridgeland Facility, including,
but not limited to, the Rent (as defined in the
Lease) due under the Lease and the term "Net Cash
Proceeds" shall mean the net proceeds (remaining
after the payment of all indebtedness then
outstanding with respect to the Ridgeland
Facility, including indebtedness owing to Assignor
and after the return to Assignor and/or Assignee
of any equity invested in the Ridgeland Facility)
resulting from the sale of all or substantially
all of the assets of the Ridgeland Facility, all
as determined in accordance with generally
accepted accounting principles.
(c) EP I shall determine no later than ninety
(90) days after the end of each fiscal year
whether or not there are any Net Profits, Net
Losses or Net Cash Proceeds available for
allocation or distribution to the parties and, if
and to the extent available for distribution or
allocation, shall
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allocate or distribute the same within thirty (30)
days thereafter.
(d) EP I, Emeritus and Assignee acknowledge
and agree that nothing herein shall be construed
as requiring Assignee to fund the net operating
losses of the Ridgeland Facility prior to the
earlier to occur of(i) the satisfaction of the
Release and Development Conditions (as defined in
the Master Agreement) on or prior to the
expiration of the Release and Development Period
(as defined in the Master Agreement) or (ii) the
failure of the Release and Development Conditions
prior to the expiration of the Release and
Development Period and the affirmative election by
the System to exercise the rights granted to it
under Section 6(a)(ii) of the Master Agreement, at
which time Assignee's obligations with respect to
such operating losses shall be as set forth in the
Master Agreement.
2. ACKNOWLEDGMENTS OF ASSIGNEE. In connection
with and as a material inducement to Assignor to
make the assignment provided for herein, Assignee
acknowledges and agrees as follows: (i) its status
as a holder of an Economic Interest does not
entitle it to any rights as a shareholder, officer
or director of EP I or any other rights with
respect to the Ridgeland Facility and that, except
as otherwise specifically provided herein, its
only rights are to share in the Ridgeland
Facility's Net Profits, Net Losses and Net Cash
Proceeds, (ii) Assignor has not made, and by the
execution and delivery of this Assignment does not
make, any representation, warranty, covenant or
other agreement that there will be any Net
Profits, Net Losses or Net Cash Proceeds
distributed or allocated by with respect to the
Ridgeland Facility at any time that this
Assignment is in effect and (iii) Assignor shall
have no liability to Assignee as a result of the
execution and delivery of this Agreement and the
assignment of the Economic Interest provided for
herein.
3. SUBORDINATION. Assignee acknowledges and
agrees that Emeritus and EP I have secured the
consent of Meditrust to the assignment by EP I of
the Economic Interest on the specific condition
that any payments to Assignee due with respect to
the Economic Interest are and will be subordinate
to the obligations of EP I and Emeritus to
Meditrust, and to the rights of Meditrust against
Emeritus and EP I, under the Lease and the Lease
Documents (as that term is defined in the Lease).
Accordingly, Assignee acknowledges and agrees for
the direct benefit of Meditrust (on which
Meditrust may rely) as follows:
(a) It has been provided with a true and
correct copy of the Lease and the Lease Documents
and it has reviewed the same and is familiar with
the terms and conditions thereof.
(b) The payment of any and all amounts due to
Assignee under this Agreement or under any other
agreement executed pursuant hereto, including, but
not limited to, the Economic Interest Assignment,
shall be and hereby is subordinated and made
junior to the complete and prior payment and
performance as and when due of all fees,
indebtedness, liabilities, obligations and other
amounts due or owing from or by Emeritus or EP I
under the Lease Documents; provided, however, that
for so long as (A) (i) there is no Event of
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Default under the Lease or event outstanding
which, with the giving of notice or the passage of
time or both, would constitute an Event of Default
under the Lease or (ii) Meditrust (pursuant to any
of the Lease Documents) shall not have commenced
to exercise any right or remedy under the Lease
Documents and (B) after giving effect to any such
payment, Emeritus and EP I will be able to
continue to comply with all of their obligations
under the Lease Documents, then EP I shall be
permitted to make any payments which are then due
and owing to Assignee under this Agreement or
under any other agreement executed pursuant
hereto, including, but not limited to, the
Economic Interest Assignment.
(c) In the event Assignee receives any
payments in contravention of the terms of this
Agreement, whether or not it has been provided
with notice of the existence of such Event of
Default or any other event by Meditrust or
Emeritus, it shall receive and hold those payment
in trust for the benefit of Meditrust and it shall
immediately remit the same to Meditrust.
(d) In the event of any voluntary or
involuntary insolvency, bankruptcy, receivership,
custodianship, readjustment of debt, arrangement,
composition, assignment for the benefit of
creditors or other similar proceedings relative to
Emeritus ox EP I or any of their property (the
"Triggering Events"), then and in any such event:
(i) any payment or distribution of any
character, which would otherwise (but for the
terms hereof be payable or deliverable in
respect of the amounts owed to Assignee shall
be paid or delivered directly to Meditrust
until any and all amounts due under the Lease
Documents shall have been paid in full;
(ii) upon the written request of Meditrust,
Assignee shall provide, enforce and endeavor
to obtain payment of the aggregate
outstanding amount of all unpaid payments due
and payable to Assignee or thereafter
becoming due and payable from Emeritus or EP
I to Assignee and shall turn over to
Meditrust, in precisely the form received,
any such unpaid payment of any kind or
character on account of such amounts owed to
Assignee for application to the payment of
all amounts then due by Emeritus or EP I
under the Lease Documents. In the event that
Assignee fails to take any such action
requested by Meditrust, Meditrust, as
attorney in fact for Assignee for the limited
purpose of enforcing and obtaining such
payments, with full power of substitution,
may take such action on behalf of Assignee,
but for the use and benefit of Meditrust.
This limited power of attorney, being coupled
with an interest, shall be irrevocable until
all of the amounts due by Emeritus or EP I
under the Lease Documents are fully paid and
performed. The power of attorney conferred on
Meditrust is provided solely to protect the
interests of Meditrust and shall not impose
any duty on Meditrust to exercise any such
power and Meditrust, as such attorney-in-
fact, shall not be liable for any act,
omission, error in judgment or mistake of
law, except as the same may result from its
gross negligence, breach of fiduciary duty to
System or wilful misconduct;
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(iii) System shall execute and deliver to
Meditrust all such further instruments
confirming the authorization referred to in
the foregoing clauses (i) and (ii) and any
powers of attorney specifically confirming
the rights of Meditrust arising hereunder and
all such proofs of claim, assignments of
claim and other instruments and shall take
all such other actions as may be requested by
Meditrust in order to enable Meditrust to
enforce any and all claims upon or in respect
of any and all amounts due by Emeritus or EP
I under the Lease Documents and to collect
any and all payment or distributions which
may be payable or deliverable to System after
the occurrence of the aforementioned
Triggering Events at any time upon, or with
respect to, such amounts.
(e) The subordination provisions provided for
herein shall not be affected, modified or impaired
in any manner or to any extent by: (i) any
renewal, replacement, amendment, extension,
substitution, revision, consolidation,
modification or termination of any of the Lease
Documents, (ii) the validity or enforceability of
any of the Lease Documents, (iii) the release,
sale, exchange or surrender, in whole or in part,
by Meditrust of any collateral which it is holding
as security for the performance by EP I or
Emeritus of its or their obligations under the
Lease Documents, (iv) any exercise or non-exercise
of any right, power or remedy in respect of any
amounts due under the Lease or (v) any waiver,
consent, release, indulgence, extension, renewal,
modification, delay or other action or inaction or
omission in respect of the amounts now or
hereafter due from Emeritus or EP I under the
Lease, in each instance whether or not Assignee
had notice or knowledge thereof or consents
thereto.
Any and all rights granted by Emeritus and EP
I to Assignee under this Agreement or under any
other documents executed pursuant hereto, may at
the option of Meditrust be terminated in the event
that upon the occurrence of an Event of Default
under the Lease, Meditrust elects either to
terminate the Lease or to retake possession of the
Ridgeland Facility; provided, however, that
concurrently with such termination, the rights
granted to Emeritus and its subsidiaries,
including EP I, under the License Agreement shall
also terminate, it being understood and agreed
that Meditrust shall have no right to succeed to
the rights granted to Emeritus thereunder even in
the event it retakes possession of the Ridgeland
Facility, and the Initial Payment and the
Subsequent Payment, if applicable, shall be
returned to Assignee upon written demand therefor.
(g) Meditrust shall have no liability to
Assignee for any payments due to Assignee under
this Agreement or under any document executed
pursuant to this Agreement, it being understood
and agreed that Assignee's sole recourse for such
payments shall be solely to Emeritus or EP I, as
appropriate.
(h) In consideration for the agreements of
Assignee set forth in this Section 3, Emeritus and
EP I do hereby agree to provide Assignee with
copies of any and all notices of default which may
be provided by Meditrust to either Emeritus or EP
I under any of the Lease Documents; provided,
however, that Assignee acknowledges and agrees for
the benefit of Emeritus, EP I and Meditrust, that
the giving of such notice shall not be construed
in any manner as granting Assignee any right to
cure any such default under the Lease Documents
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or to otherwise interfere with or affect the
rights granted to Meditrust under the Lease
Documents upon the occurrence of a default
thereunder.
4. SPECIAL RIGHTS OF ASSIGNEE. In the event
of the failure of the Release and Development
Conditions (as defined in the Master Agreement)
and of the affirmative election by Assignee
pursuant to Section 5(a)(ii) of the Master
Agreement to increase its deposit under the terms
of the Master Agreement notwithstanding the
failure of the Release and Development Conditions,
from and after the date on which Assignee makes
such election, Assignee shall have the right to
approve the following actions with respect to the
Ridgeland Facility, which approval shall not be
unreasonably withheld or delayed:
(a) Any act which would make it impossible to
carry on the ordinary business of the Ridgeland
Facility;
(b) Any material change in the nature of the
Ridgeland Facility's business;
(c) The possession, assignment or use of
funds or other property of the Ridgeland Facility
with a value in excess of $25,000 for other than a
Facility purpose;
(d) The execution or delivery on behalf of
the Ridgeland Facility an assignment for the
benefit of creditors; cause the Ridgeland Facility
or any part thereof or interest therein to be
subject to the authority of any trustee, custodian
or receiver or to be subject to any proceeding for
bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, relief of
debtors, dissolution or liquidation or similar
proceedings;
(e) The annual Operating and Capital Budgets
of the Ridgeland Facility;
(f) The incurrence of any expenditure
not contemplated by the Approved Budgets and which
alone or in conjunction with any prior unapproved
expenditures equals or exceeds $25,000;
(g) The granting of any additional Economic
Interests.
5. TERM. The assignment and assumption
provided for herein shall be effective as of the
Lease Assignment Effective Date (as that term is
defined in the Master Agreement) (the "Effective
Date") and shall remain in full force and effect
until the earlier to occur of (i) the expiration
or sooner termination of the Lease Term, including
the termination of the Lease Term upon the
occurrence of an Event of Default thereunder, (ii)
the sale or other disposition of all or
substantially all of the Ridgeland Facility's
assets, (iii) the satisfaction of the Release and
Development Conditions and the transfer of
ownership of the Ridgeland Facility to the
Ridgeland LLC (as defined in the Master Agreement)
or (iv) the failure to satisfy the Release and
Development Conditions and the election by
Assignee to terminate its the relationships
provided for therein pursuant to Section 6(a)(i)
of the Master Agreement.
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6. FINANCIAL REPORTS/INSPECTION OF BOOKS AND
RECORDS. On or before the twenty fifth (25th) day
of each month, Emeritus shall provide Assignee
with monthly operating financial statements for
the Ridgeland Facility for the immediately
preceding month, which financial statements shall
be prepared in accordance with generally accepted
accounting principles and shall include a
statement of cash flows and a comparison of each
item reflected therein for the current period and
year to date to the budgeted amounts with respect
thereto. In addition, Assignee shall have the
right on reasonable notice and during normal
business hours to inspect the books, records and
accounts of the Ridgeland Facility.
7. AMENDMENT AND MODIFICATION OF THE LEASE
DOCUMENTS. For so long as Assignee holds the
Economic Interest, Emeritus will not, nor will it
permit EP I to, amend, modify, extend, replace,
consolidate, renew or terminate any of the terms
of the Lease Documents in a manner which would
adversely affect the rights of Assignee hereunder
without the prior written consent of Assignee,
which consent shall not be unreasonably withheld;
provided, however, that nothing herein shall be
construed as prohibiting Emeritus and EP I from
terminating the Lease Documents in accordance with
the terms thereof which have been disclosed to
Assignee, it being understood and agreed that such
termination may adversely affect the rights of
Assignee hereunder.
8 MISCELLANEOUS.
(a) This Agreement represents the entire and
final agreement of the parties hereto with respect
to the subject matter hereof and may not be
amended or modified except by written instrument
signed by the parties hereto.
(b) In the event of a dispute between the
parties hereto with respect to the interpretation
or enforcement of the terms hereof, the prevailing
party shall be entitled to collect from the other
its reasonable costs and attorneys fees, including
its costs and fees on appeal.
(c) Each of the parties has had an
opportunity to participate in the drafting of this
Agreement and to be represented by counsel in
connection therewith. Accordingly, in the event of
a dispute between the parties hereto with respect
to the interpretation of any term or provision
hereof, no provision shall be read so as to favor
or disfavor either party hereto.
(d) This Agreement may be executed in
counterparts, each of which shall be deemed. to be
an original but all of which taken together shall
constitute but one and the same instrument.
(e) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and
their successors and assigns; provided, however,
that neither party shall have the right to assign
its rights or obligations hereunder, without the
prior written consent of the other party hereto,
which consent may be withheld in its sole and
absolute discretion, it being understood and
agreed that
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the rights and obligations provided for in this
Agreement are personal to the parties hereto.
(f) Nothing herein is intended to confer
a benefit on any person or entity not a party
hereto other than Meditrust, which is and shall be
an intended beneficiary of the provisions of
Paragraph 3 hereof.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
EMERITUS PROPERTIES I,
INC.
By: /s/ Raymond R. Brandstrom
---------------------------
Its: President
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
--------------------------
Its: President
MISSISSIPP BAPTIST HEALTH
SYSTEMS, INC.
By: /s/ Kurt W. Metzner
---------------------------
Its: President & CEO
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