Exhibit 10.66.3
MANAGEMENT AGREEMENT WITH OPTION TO PURCHASE
for Emeritrust 25 Facilities
AMONG
AL INVESTORS LLC,
a Delaware limited liability company
AND
THE FACILITY ENTITIES SET FORTH IN EXHIBIT A
AND
EMERITUS MANAGEMENT I LP,
a Washington limited partnership
AND
EMERITUS PROPERTIES I, INC.,
a Washington corporation
AND
ESC I, L.P.,
a Washington limited partnership
AND
EMERITUS MANAGEMENT LLC,
a Washington limited liability company
AND
EMERITUS CORPORATION,
a Washington corporation
MANAGEMENT AGREEMENT WITH OPTION TO PURCHASE
(Emeritrust 25)
This Management Agreement with Option to Purchase (the "Agreement") is entered
into as of , 1998, by and among Emeritus Management LLC, a Washington limited
liability company, Emeritus Management I LP, a Washington limited partnership,
ESC I, L.P., a Washington limited partnership, and Emeritus Properties I, Inc.,
a Washington corporation (collectively "Managers" and each a "Manager"),
Emeritus Corporation, a Washington Corporation ("Emeritus"), and AL Investors
LLC, a Delaware limited liability company ("AL Investors") for itself and as
sole managing member on behalf of each of the Facility Entities as set forth in
Exhibit A (collectively "Facility Entities" and each a "Facility Entity"). (AL
Investors and the respective Facility Entity which owns a Facility are sometimes
collectively referred to herein as "Owner" or with respect to all Facilities
"Owners"). Owners desire to engage Managers to manage the Facilities as defined
in Exhibit A upon the terms and conditions set forth herein. All capitalized
terms not otherwise defined herein shall have the meaning set forth in Exhibit
A.
1. BACKGROUND AND GENERAL TERMS
1.1 Purchase Agreements
AL Investors has entered into (a) a Purchase and Sale Agreement dated of even
date herewith with Meditrust Company LLC, a Delaware limited liability company
("Meditrust"), relating to the purchase of twenty-two (22) of the Facilities
currently leased by Affiliates of Emeritus from Meditrust as more particularly
described therein ("Meditrust Facilities"), (b/ a Purchase and Sale Agreement
dated of even date herewith with Emeritus and its Affiliates, Emeritus
Properties VI Inc. and ESC I, L.P. relating to the purchase of three (3)
assisted living facilities as more particularly described therein ("Emeritus
Facilities"), and (c)a Supplemental Purchase Agreement in connection with the
purchase of the Facilities with Emeritus, Emeritus Properties I, Inc., Emeritus
Properties VI, Inc. and ESC I, L.P. relating to certain additional terms and
conditions in connection with purchase of the Facilities (collectively the
"Purchase Agreements"/. Closing under the Purchase Agreements will occur
simultaneously and the resulting pool of twenty-five (25) Facilities will each
be owned by the respective Facility Entity and managed by the Managers pursuant
to this Agreement.
1.2 Master Agreement. Under the terms and conditions of this Agreement, Emeritus
Management LLC will manage all of the Facilities other than those located in
Texas which will be managed by Emeritus Management I LP. Pursuant to Section
3.6, Emeritus Properties I, Inc., an Affiliate of Emeritus, will be
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co-manager of all Facilities except those in Texas, Tennessee, and Arizona,
subject to the provisions of Section 3.6. ESC I, L.P., an Affiliate of Emeritus,
will be co-manager of the Facilities in Tennessee and Texas. It is intended that
the terms of this Agreement shall apply to each of the Facilities as if this
Agreement were a direct agreement between each Facility Entity and the
respective Manager (and, if applicable, co-manager) but the operational results
upon which the Management Fee (Base Management Fee and Accrued Management Fee/
and Operating Deficit and Operating Profit are determined, except as otherwise
expressly provided herein, shall be based on the combined results of all the
Facilities and not separately for each Facility. A default or Event of Default
under this Agreement with respect to any Facility shall be a default or Event of
Default as to all Facilities.
1.3 Qualifications: Owners desire to engage the Managers to manage, on behalf of
the Owners and subject to their overall supervision and control, each respective
Facility and Managers represent to AL Investors and the Facility Entities that
they are experienced and duly qualified under all applicable Legal Requirements
to manage assisted living facilities. By entering into this Agreement, Owners do
not delegate or intend to delegate to Managers any powers, duties, or
responsibilities which Facility Entities are prohibited by Legal Requirements
from delegating. Owners also retain such other management authority as shall not
have been expressly delegated to the Managers pursuant to this Agreement.
1.4 Emeritus Guaranty. Concurrently with the execution of this Agreement,
Emeritus is entering into a Guaranty of Management Agreement and Shortfall
Funding Agreement ("Emeritus Guaranty") in favor of the Facility Entities and
Owners guaranteeing the Managers' obligations under this Agreement and agreeing
to fund any Operating Deficit in excess of the Owner's Deficit Contribution as
more particularly defined herein and in the Emeritus Guaranty.
1.5 Consideration. In consideration of Owners' consummating the Purchase
Agreements and the mutual covenants contained herein, and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree to enter into and perform their respective obligations
under this Agreement.
2. TERM
2.1 The Term. The term ("Initial Term") of this Agreement shall commence on the
date hereof ("Commencement Date") and shall expire at midnight on December 31,
2001 (the "Termination Date"). If the Closing under the Purchase Agreements does
not occur for any reason, this Agreement shall terminate and no party hereto
shall have any liability or obligation under this
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Agreement. The Initial Term and Extension Term are sometimes collectively
referred to herein as the "Term".
2.2 Extension Term. If Emeritus fails to exercise or is not entitled to exercise
the Purchase Option as provided for in Section 13, Owners may extend this
Agreement for a period of up to twelve (12) months beyond the Termination Date
as to any or all Facilities as determined by Owner in its sole discretion
("Extension Term") by giving notice of such election (which shall include
designation of the Facilities and the applicable Extension Term) to Managers at
least ninety (90/ days prior to the Termination Date. In such event, the
provisions of Section 13 and Section 14 of this Agreement shall not be
applicable during any Extension Term.
3. GRANT OF AUTHORITY AND OBLIGATIONS OF MANAGERS
3.1 Grant to Managers. Owners hereby grant to Managers the right to supervise
and direct the management and operation of the Facilities subject to the terms
of this Agreement and the overall supervision and control of Owners. Managers
accept such grant and agree that they will supervise and direct the management
and operation of the Facilities in accordance with the terms of this Agreement
and the general supervision of Owner. Managers, subject to the terms of this
Agreement, shall have the general authority and responsibility to (i)determine
operating policy and standards of operation, maintenance, and resident care for
the Facilities except where Legal Requirements require an Owner to do so in
which event Manager and such Owner shall consult with each other to allow Owner
to determine policy and standards, (ii) supervise and direct all phases of
advertising and marketing for the Facilities, (iii) carry out all phases of the
Annual Plans and (iv) perform such other acts and things as shall be necessary
to operate the Facilities in an efficient manner which is consistent with
customary and commercially reasonable practice in the industry for comparable
facilities. Managers acknowledge the trust and confidence placed in them
pursuant to this Agreement and at all times agree to act in the best interest of
Owners in managing and operating the Facilities.
3.2 Annual Plans
3.2.1 Preparation and Approval. Not later than December 1 prior to the
commencement of each Operating Year, other than the initial Operating Year, the
Managers shall submit to Owners a draft of an annual budget and forecast for the
operation of each Facility and all Facilities in the aggregate for the
forthcoming Operating Year containing projections of Total Revenues and budgets
of Operating Expenses, Fixed Operating Expenses, Capital Improvements, and
Operating Deficit or Operating Profit (the "Annual Plan"). Such budget and
forecasts shall be in
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reasonable detail and in such form as reasonably required by Owners. The Annual
Plan shall include the assumptions upon which the forecasts and budgets were
prepared, and shall include a proposed annual marketing plan and proposed
resident care and services plan and such other information as may be reasonable
and appropriate to fully advise Owners of all material facts and assumptions
relevant to an evaluation of the Annual Plan for each Facility. Managers shall
review the Annual Plan with Owners, and subject to Owners' approval of each
Annual Plan (which Owners shall endeavor to give by December 31), Manager shall
implement and operate the Facilities in accordance with such approved Annual
Plan for the successive Operating Year. When the Annual Plan is approved by
Owners, the respective Manager is authorized to incur and pay for the Operating
Expenses, Fixed Operating Expenses and Capital Improvements set forth in the
Annual Plan and implement the provisions of the Annual Plan. The Annual Plan
shall be updated as of June 1 of each Operating Year if requested by Owner. Each
Facility shall be operated in substantial accordance with the proforma operating
plan for such Facility previously prepared by Emeritus and provided to Owners
and the draft Annual Plan for the first Operating Year shall be provided to
Owners on or before January 30, 1999, and such draft Annual Plan shall be
approved or disapproved in accordance with this Section 3.2.1.
3.2.2 Disapproval of Plan. If an Owner declines to approve a specific item or
items of an Annual Plan for a Facility or the Facilities, the Manager shall make
appropriate revisions to the Annual Plan and resubmit the Annual Plan to the
Owner for approval. Until an Annual Plan is approved for each Operating Year,
the item or items in question will be replaced by an amount equal to such budget
item for the Operating Year prior thereto, except for Fixed Operating Expenses
over which Manager has no control and except for Capital Improvements as to
which the item or items will be replaced with $250 per Operating Year per unit
for each Facility.
3.2.3 Compliance with Annual Plan. Managers agree to use best efforts to operate
the Facilities as provided in the Annual Plan for that Facility. Notwithstanding
the foregoing, Managers shall not expend more than the aggregate budget category
for each of Operating Expenses, Fixed Operating Expenses and Capital
Improvements with respect to each Facility or exceed any line item in Operating
Expenses or Capital Improvements for a Facility by more than ten percent (10%)
without an Owner's prior approval. In the event actual Total Revenues shall be
less than projected Total Revenues as set forth in the Annual Plan, Managers
shall use all reasonable efforts to effect a proportionate reduction in variable
Operating Expenses.
3.2.4 Group Services. Managers and their Affiliates will furnish to the
Facilities the benefits of any "Group Services" which Managers and their
Affiliates
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may have in effect from time to time, which phrase shall mean goods and services
provided jointly to other assisted living facilities owned or managed by
Emeritus or its Affiliates on a group or joined basis to realize maximum
economy. Group Services may include (a) bulk purchases of supplies and services,
(b) centralized purchasing service, and (c) centralized marketing services. Each
Owner shall have the option of whether and to the extent each respective
Facility shall participate in Group Services; provided that if Owner determines
that a Facility shall not participate in Group Services, then to the extent such
goods and services are reasonably required for the operation of such Facility,
Manager shall arrange for an alternative provider of such goods and services on
the most favorable terms then practicable. The costs of all Group Services shall
be allocated among the Facilities and other assisted living facilities on an
equitable basis in proportion to the benefits rendered to each and the costs of
any Group Services provided to the Facilities shall be included in the Annual
Plan if the Facilities participate in Group Services.
3. 3 Personnel.
3.3.1 General. Consistent with the Annual Plan for each Facility, the respective
Manager shall hire, discharge, promote and supervise the executive staff of the
Facilities and will supervise through such executive staff the hiring,
discharging, promotion and work of all other operating and service employees of
the Facility. All members of the staff of a Facility shall be reasonably
qualified for their positions, and the Compensation payable to such persons
shall be comparable to the compensation paid to the staff of other comparable
assisted living facilities in the general area, taking into account the location
and size and targeted residents of each Facility. Manager shall have in its
employ at all times at each Facility a sufficient number of capable employees to
enable it to properly, adequately, safely and efficiently manage, operate,
maintain and account for the Facilities. Manager shall fully comply with all
applicable Legal Requirements with respect to such employees. Manager represents
that it is and will continue to be an equal opportunity employer and must
advertise as such and Manager shall not engage in any form of discrimination
from the employment or hiring as independent contractors of any personnel,
including, without limitation, discrimination as to race, color, creed,
religion, age, gender, marital status, sexual preference, national origin or
disability.
3.3.2 Managers as Employer. All executive staff members and other employees at
the Facilities shall be direct employees of the Managers or their Affiliates and
not of Owners, and all Compensation of such employees shall be paid by the
Managers as part of Operating Expenses as approved in the Annual Plan. Without
limiting the foregoing, Managers shall, for purposes of such employment
relationship, be acting as an independent contractor and not as an agent of
Owners. Owners shall not have any liability or responsibility for the work place
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conditions or employees at any Facility. Managers shall ensure that all
employees required to be licensed under any Legal Requirements shall be so
licensed.
3.3.3 Labor Relations. The Managers will not become involved in any negotiations
with any labor unions or enter into any collective bargaining agreement or labor
contract resulting therefrom without the prior approval of the Owner of any
affected Facility.
3.4 Additional Responsibilities of Managers. Manager shall, as agent for the
respective Facility Entity, perform the following services, or cause the same to
be performed, for each Facility:
(a) Enter into Residency Agreements in the general form approved by Owner for
each Facility and perform the services required thereunder and use diligent
efforts to enforce the provisions thereof.
(b) In accordance with the applicable Annual Plan, enter into such Ordinary
Contracts for goods and services or furnishing of utilities, maintenance and
repair as shall be reasonably necessary for the proper operation and maintenance
of each Facility. Major Contracts, unless set forth in the Annual Plan, shall
require the prior approval of Owner.
(c) In accordance with the applicable Annual Plan, enter into such Ordinary
Leases as shall be necessary or convenient for the operation of a Facility.
Major Leases, unless set forth in the applicable Annual Plan, shall require the
prior approval of Owner.
(d) In accordance with the applicable Annual Plan, make all repairs and
improvements (including Capital Improvements) to the Facility as shall be
reasonably necessary for good order, condition and repair.
(e) In accordance with the applicable Annual Plan, purchase such Operating
Equipment and Operating Supplies as shall be reasonably necessary for the proper
operation of a Facility.
(f) Maintain in the name of the applicable Facility Entity all Permits required
in connection with the operation and management of the Facility. In connection
with all Permits, each Facility Entity agrees to execute and deliver any and
all. applications and other documents as shall be reasonably required and to
otherwise reasonably cooperate with the Manager in applying for, obtaining and
maintaining such Permits. Provided, however, it shall be the sole responsibility
of Managers to cause each Facility and Facility Entity to obtain and maintain
all required Permits and to operate the Facility in compliance with such
Permits.
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(g) Cause to be done all such acts and things in and about a Facility as shall
be necessary to comply with all Insurance and Legal Requirements. Without
limiting the foregoing, Manager shall, consistent with the applicable Annual
Plan, provide adequate security in and about the Facility.
(h) Cause each Facility to comply with all applicable covenants and provisions
of any Mortgage to the extent such covenants and provisions relate to the
operation, management, compliance with Legal Requirements, and condition of the
Facilities, provided that Owners shall have delivered to Manager true and
correct copies of any Mortgage then in effect. Without limiting the generality
of the foregoing, (A) Managers acknowledge that they have been provided with a
copy of and have approved the terms and conditions of (i) the Initial Senior
Loan and (ii) the Initial Junior Loan and (B) Managers agree to cause the
Facilities at all times to be in compliance with the provisions of Sections 4.6,
4.7, 4.10, 4.11, 4.17, 4.18, 4.20 and Section 6 of the Loan Agreement entered
into in connection with the Initial Senior Loan. Managers also agree to cause
the Facilities to be in compliance at all times with the provisions of the
Initial Junior Loan relating to the operation, management, compliance with Legal
Requirements and condition of the Facilities. Owners shall promptly forward to
Managers any notices of default or noncompliance with respect to the foregoing
which they may receive under the Initial Senior Loan, Initial Junior Loan or any
successor Mortgage.
(i) Cause each Facility and its operations to comply with the requirements of
all Contracts, including but not limited to Residency Agreements, Third Party
Payors and Third Party Payor Programs, and all Leases.
(j) Retain legal counsel for a Facility selected by an Owner which will
represent the Owner, Manager and the Facility on all legal questions as
reasonably necessary relating to Legal Requirements, and will institute any and
all legal actions or proceedings as shall be reasonably necessary to collect
charges or other income for the Facility, prepare or review Contracts, or to
resolve claims (except those arising under this Agreement); provided, however,
that without the prior approval of Owner, Manager shall not institute any
proceedings involving claims in excess of $5,000 or to terminate any Major
Contract or Major Lease.
(k) With respect to refurbishment or renovation of any Facility or other Capital
Improvements approved by Owner, Managers shall negotiate contracts for the
construction or acquisition of such Capital Improvements, secure all necessary
Permits, and supervise the design, acquisition, and construction to assure that
such Capital Improvements are completed in a good
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and workmanlike manner free of any Liens and in accordance with the budget
approved by Owners.
(l) Promptly notify Owners of any default by Emeritus or its Affiliates under
the warranties, representations, covenants and indemnities in the Purchase
Agreements and promptly cure any such default at its sole cost and expense (and
not as an Operating Expense).
(m) Cause Emeritus to comply with all reporting, net worth, and liquidity
requirements of the Initial Senior Loan and the Initial Junior Loan applicable
to Emeritus.
(n) Cause to be done all such acts and things to maintain the Facility in good
condition for the Primary Intended Use.
(o) Maintain and repair in good condition all buses or vans used in connection
with the operation of the Facilities, title to which shall remain in Managers or
their Affiliates.
(p) Prepare and, consistent with the applicable Annual Plan, implement a life
safety plan for the Facility complying with all Legal Requirements to be used in
the event of fire or other casualty at the Facility.
3.5 Unauthorized Acts. Notwithstanding anything to the contrary herein, Managers
shall have no authority to:
3.5.1 No Borrowing. Borrow on behalf of or loan any funds of a Facility Entity;
3.5.2 No Liens or Transfer. Create or permit any Lien on all or any portion of a
Facility (except for a Mortgage) or sell, convey or otherwise transfer all or
any portion of a Facility without Owner's approval which may be withheld in its
sole discretion except for replacement of Furnishings and Equipment and
Operating Equipment in the ordinary course of business.
3.5.3 No Change of Use. Do or permit any act or omission which would impair the
use of any Facility for the Primary Intended Use;
3.5.4 No Violation. Do or permit any act or omission which would violate Legal
Requirements or the terms of any Permit with respect to any Facility or which
would cause any such Permit to lapse or expire;
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3.5.5 Violation of Agreement. Do or permit any act or omission or incur any
liability which exceeds Manager's authority under this Agreement;
3.6 Licensing. If all Permits required by Governmental Authorities have not been
duly and validly transferred or reissued in accordance with all Legal
Requirements in the name of the applicable Facility Entity at closing under the
Purchase Agreements, then Managers at their sole cost and expense shall cause
all such Permits to be transferred or reissued in accordance with all Legal
Requirements in the name of the applicable Facility Entity within ninety (90)
days after the date of this Agreement. Until such time, ESC I, L.P. and Emeritus
Properties I, Inc., as holders of the Permits, shall act as co-managers
hereunder in order to ensure that each Facility has the benefit of such Permits
as they may hold until transfer or reissuance of the Permits. At such time, ESC
I, L.P. and Emeritus Properties I, Inc. shall cease to be Managers hereunder.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF MANAGERS
Managers hereby represent, warrant and covenant as follows:
4.1 Existence, Power, Qualification. Each of the Managers is a limited liability
company or limited partnership respectively duly organized, validly existing and
in good standing under the laws of the State of Washington and qualified to do
business in each state in which it is managing a Facility. Each of the Managers
has all requisite limited liability company or limited partnership power and
authority respectively to manage each Facility pursuant to the terms of this
Agreement.
4.2 Valid and Binding. Each of the Managers is duly authorized to make and enter
into this Agreement and to carry out the duties contemplated herein. This
Agreement has been duly executed and delivered by each of the Managers and is
the legal, valid and binding obligation of each of the Managers enforceable in
accordance with its terms.
4.3 Single Purpose. Managers have not engaged in and shall not during the Term
engage in any business other than management and operation of the Facilities
pursuant to this Agreement.
4.4 Ownership of Managers. Managers are and shall remain during the Term of this
Agreement wholly owned by Emeritus and no other Person shall have any direct or
indirect interest or management rights therein.
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5. INSURANCE
5.1 General Insurance Requirements. During the Term of this Agreement and
thereafter until Managers no longer manage one or more Facilities, Managers
shall cause each Facility and the business operations conducted at the Facility
insured as set forth below (the cost of which shall be an Operating Expense):
5.1.1 Types and Amounts of Insurance. The insurance on all of the Facilities
shall include the following unless otherwise approved by Owners:
(a) property loss and physical damage insurance on an all-risk basis (with only
such exceptions as Owner may approve) covering each Facility (exclusive of Land)
for its full replacement cost (without deduction for depreciation) and a
deductible for each Facility not in excess of TWENTY FIVE THOUSAND DOLLARS
($25,000). Nonconforming uses shall be insured for replacement cost of existing
improvements without regard to the ability to rebuild the improvements. Manager
as an Operating Expense will keep in force an all risk property insurance policy
covering Manager's furniture, furnishings and equipment situated at the
Facilities, including but not limited to the van or bus for each Facility.
(b) flood insurance (if the Facility or any portion thereof is situated in an
area which is considered a flood risk area by the U.S. Department of Housing and
Urban Development or any future Governmental Authority charged with flood risk
analysis which may include Lakeridge Place, Lodge at Mainland, and Springtree)
in limits reasonably acceptable to the Owner and subject to the availability of
such flood insurance;
(c) boiler and machinery insurance (including related electrical apparatus and
components) under a standard comprehensive form, providing coverage against loss
or damage caused by explosion of steam boilers, pressure vessels or similar
vessels, now or hereafter installed at any Facility, in limits approved by
Owners;
(d) business interruption insurance in an amount and to the extent reasonably
specified by Owners, but in no event in an amount less than Fixed Operating
Expenses plus projected Operating Profit for a period of twelve
(12) months, and include either an agreed amount endorsement or a waiver of any
co-insurance provisions so as to prevent any insured from being a co-insurer;
(e) commercial general liability insurance on an occurrence basis insuring the
applicable Owner and Managers against claims for personal injury or death or
property damage occurring at each Facility, including coverages with amounts not
less than FIVE MILLION DOLLARS ($5,000,000) per occurrence with
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respect to bodily injury and death and THREE MILLION DOLLARS ($3,000,000) for
property damage;
(f) Employees' fidelity insurance in an amount not less than $1,000,000
protecting owner against any misappropriation of funds with respect to any
Facility by Manager's employees;
(g) umbrella/excess general liability insurance on an occurrence basis in an
amount not less than $5,000,000;
(h) professional liability insurance in an amount not less than TEN MILLION
DOLLARS ($10,000,000) for each medical incident;
(i) physical damage insurance on an all-risk basis (with only such exceptions as
Owners in their reasonable discretion shall approve) covering tangible Personal
Property for the full replacement cost thereof (without deduction for
depreciation) and with a deductible not in excess of $5,000 for each Facility;
(j) "Workers Compensation" and Employees Liability Insurance providing
protection against all claims arising out of injuries to all employees of
Managers (employed at the Facility or any portion thereof) in amounts approved
by Owners; and
(k) During the period of any construction at any Facility, the so-called
"builder's all-risk completed value" insurance for any improvements under
construction;
(l) Business auto liability insurance including hired and nonowned automobile
coverage in an amount not less than $1,000,000 combined single limit; and
(m) such other insurance or modifications to the above insurance requirements as
Owners from time to time approve and as may from time to time be required by
applicable Legal Requirements and/or by any Mortgagee. Managers shall be
responsible to ensure that each contractor and subcontractor working at a
Facility provides evidence of general liability insurance including coverages
with amounts not less than $1,000,000 per occurrence and workers' compensation
insurance in the amount required by law, and which liability insurance shall
cover the applicable Owner and Mortgagee as an additional insured.
5.1.2 Insurance Company Requirements. All such insurance required by this
Agreement shall be issued and underwritten by insurance companies licensed to do
insurance business by, and in good standing under the laws of, the
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state in which each Facility is located and which companies have and maintain a
rating of A:X or better by A.M. Best Co. or such higher rating as may be
required by any Mortgagee.
5.1.3 Policy Requirements. Every policy of insurance from time to time required
under this Agreement (other than worker's compensation) shall name the
respective Facility Entity and Owners as owner or loss payee and additional
named insured as appropriate with respect to liability insurance. Each such
policy, where applicable or appropriate, shall:
(a) include mortgagee, loss payable and additional named insured endorsements
reasonably acceptable to Mortgagee;
(b) provide that the coverages may not be cancelled, reduced or otherwise
modified except upon not less than thirty (30) days' prior written notice to
Owner and to any Mortgagee;
(c) be primary and noncontributing with respect to any other insurance carried
by Owners and Managers, not be invalidated by any negligent act or omission of
Owner or Manager or any foreclosure proceeding relating to a Facility and
otherwise be in such form as shall be acceptable to Owners.
5.1.4 Notices. Certificates and Polices. Manager shall promptly provide to Owner
copies of any and all notices (including notice of non-renewal), claims and
demands which Manager receives from insurers with respect to a Facility. At
least ten ( 10) days prior to the expiration of any insurance policy required
hereunder, Manager shall deliver to Owner certificates and evidence of insurance
relating to all renewals and replacements thereof, together with evidence,
satisfactory to Owner, of payment of the premiums thereon. Manager shall deliver
to Owner original counterparts or copies certified by the insurance company to
be true and complete copies, of all insurance policies required hereunder not
later than ten (10) days after receipt thereof by Manager.
5.1.5 Right to Place Insurance. If Manager shall fail to obtain any insurance
policy required hereunder or shall fail to deliver the certificate and evidence
of insurance relating to any such policy to Owner, or if any insurance policy
required hereunder (or any part thereof) shall expire or be cancelled or become
void or voidable by reason of any breach of any condition thereof, or if Owner
reasonably determines that such insurance coverage is unsatisfactory by reason
of the failure or impairment of the capital of any insurance company which wrote
any such policy, upon demand by Owner, Manager shall promptly but in any event
in not more than ten (10) days thereafter obtain new or additional insurance
coverage on the Facility, as provided herein. In the event Manager fails to
perform
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its obligations under this Section, Owner may obtain such insurance and pay the
premium or premiums therefor and be reimbursed therefor as an Operating Expense,
plus, at Manager's sole expense interest from the date advanced at the Overdue
Rate.
5.1.6 Payment of Proceeds. All insurance policies required hereunder (except for
general public liability, professional liability and workers' compensation and
employers liability insurance) shall provide that in the event of loss, injury
or damage, subject to the rights of any Mortgagee, all proceeds shall be paid
solely to Owner. Only Owner is authorized to adjust and compromise any such loss
and to collect and receive such proceeds unless Owners authorize Manager in
writing to act as Owners' authorized agent.
5.1.7 Blanket Policies. Notwithstanding anything to the contrary contained
herein, Managers' obligations to secure and maintain the insurance provided for
herein may be brought within the coverage of a so-called blanket policy or
policies of insurance carried and maintained by Managers and its Affiliates;
provided, however, that any such blanket policy shall include an agreed amount
endorsement with respect to each Facility and such other provisions so that the
coverage afforded to Owner shall not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all other
requirements of this Agreement by reason of the use of such blanket policy of
insurance.
5.2 Waiver of Liability. Notwithstanding anything to the contrary herein,
neither Managers nor Owners shall assert against the other, and do hereby waive
with respect to each other, any claims for any losses, damages, liability or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property arising out of the ownership,
operation and maintenance of the Facilities to the extent that the same are
covered by the insurance carried under this Section 5. Each party shall notify
their respective insurance carriers of such mutual waivers and shall cause their
respective insurance companies to waive in writing, by endorsement or otherwise,
subrogation against the other on account thereof and to acknowledge that such
waivers do not cause any invalidation of coverage provided by such insurance
companies.
6. INDEMNITY
6.1 Indemnification by Manager. Except with respect to the gross negligence or
willful misconduct of the respective Owner or any of the other Indemnified
Parties, as to which no indemnity is provided, each Manager and Emeritus,
jointly and severally, hereby agrees to indemnify, defend and hold
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harmless with counsel reasonably acceptable to Owner, the respective Owner and
each of the other Indemnified Parties from and against all damages, losses,
liabilities, obligations, penalties, costs and expenses (including, without
limitation, reasonable attorneys' fees, court costs and other expenses of
litigation) suffered by, or claimed or asserted against, the respective Owner or
any of the other Indemnified Parties, directly or indirectly, by any Person
based on, arising out of or resulting from (a) the management of the Facility or
any business conducted therein; (b) any act, fault, omission to act or
misconduct by (i) any Manager, (ii) any Affiliate of a Manager, or (iii) any
employee, agent, licensee, business invitee, guest, customer, contractor or
submanager of any of the foregoing parties, relating to, directly or indirectly,
the respective Facility; (c) any accident, claim of malpractice, injury or
damage whatsoever caused to any Person; (d) any default or Event of Default
under this Agreement by Manager or any liability, damage, loss, obligation,
penalty, cost, and other expense incurred by Manager which exceeds Manager's
authority under this Agreement; (e) following closing pursuant to the Purchase
Option set forth in Section 13 or the Right of First Refusal pursuant to Section
14 any liability, damage, loss, obligation, penalty, cost, and other expense
whatsoever, whether arising before or after closing thereunder from the
Contracts, Leases, Legal Requirements, the Permits, or the operation of the
Facility or any business conducted therein; and (f) any liability under Section
6.10 of the Loan Agreement executed in connection with the Initial Senior Loan
and comparable provisions of the Initial Junior Loan except to the extent caused
by the actions of Owners. All costs and expenses of Manager pursuant to this
indemnity shall be at the sole expense of Manager except the cost or expense
shall be an Operating Expense rather than the sole expense of Manager only under
the following circumstances and only under subsections (a) and (c) above as long
as Manager was not in violation or breach of this Agreement, not negligent, and
such claim arose in the ordinary course of business. In all other circumstances,
all costs and expenses under this Section shall be the sole cost and expense of
Managers and shall not be an Operating Expense. The indemnity provided for in
this Section 6.1 shall survive the expiration or sooner termination of this
Agreement.
6.2 Indemnified Parties. As used in Section 6.1, the term "Indemnified Parties"
shall mean Owners or any of them, the Facility Entities or any of them, any
Mortgagee and their respective successors, assigns, employees, servants, agents,
attorneys, officers, directors, shareholders, members, managers, partners and
owners.
6.3 Indemnification by Owners. Owners, jointly and severally, agree to
indemnify, defend, and hold harmless with counsel reasonably acceptable to
Managers, the Managers and Emeritus from and against all damages, losses,
liabilities, obligations, penalties, costs and expenses (including without
limitation, reasonable attorneys' fees, court costs and other expenses of
litigation) suffered
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by, or claimed or asserted against, the Managers or Emeritus, directly or
indirectly, by any Person based on, arising out of or resulting from the gross
negligence or willful misconduct of Owners under this Agreement.
7. MANAGEMENT FEES
7.1 Payment. Subject to the provisions of Section 7.2, the Facility Entities
shall pay the Managers for services rendered by the Managers pursuant to this
Agreement an amount equal to seven percent (7%) of the Total Revenues from all
Facilities in the aggregate then subject to this Agreement during the Initial
Term and any Extension Term of this Agreement ("Management Fee"), which amount
shall be paid on a monthly basis, based upon the Total Revenues earned by the
Facilities during the previous month, with the first payment to be made on the
4th day of the first full month after the Commencement Date, and continuing on
the 4th day of each month thereafter until the expiration or sooner termination
of this Agreement. During the Extension Term, the Management Fee shall be 7% of
Total Revenues with no further accrual of any portion of the Management Fee.
7.2 Limitation on Fees. The Management Fees payable to the Managers shall be
limited during the Initial Term to five percent (5%) of Total Revenues ("Base
Management Fee") until such time that the Facilities in the aggregate are
producing an Operating Profit for three (3) consecutive calendar months. The
unpaid two percent (2%) of the Management Fee shall be accrued without interest
until an Operating Profit is achieved for three (3) consecutive calendar months
("Accrued Management Fee"). From and after the date that the Facilities in the
aggregate continue to produce an Operating Profit for not less than three (3)
consecutive calendar months, the Managers shall be entitled to receive the full
Management Fee and the Accrued Management Fee from prior periods to the extent
Operating Profit is available therefor. If there is an Operating Deficit for
three (3) consecutive calendar months, the Management Fee shall be limited to
the Base Management Fee thereafter until Operating Profit is thereafter achieved
for three (3) consecutive calendar months. Notwithstanding anything to the
contrary contained herein, any obligation of Owners to pay any Accrued
Management Fee shall terminate automatically at the expiration of the Initial
Term if Emeritus does not timely exercise or at such time as it is not entitled
to exercise the Purchase Option set forth in Section 13, and in any event any
Accrued Management Fee shall be paid solely out of Operating Profit and neither
the Facility Entities nor AL Investors shall have any liability to pay the
Accrued Management Fee during the Initial Term or upon expiration or sooner
termination of this Agreement from any other funds or by any Owner's Deficit
Contribution pursuant to Section 8.3.
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8. ACCOUNTS; OPERATING DEFICIT CONTRIBUTIONS; RECORDS AND REPORTS
8.1 Bank Accounts. Manager shall establish an Agency Account and a Reserve
Account for each Facility (which may be aggregated for one or more Facilities as
Owner may reasonably specify) at a banking institution or institutions selected
by Owner after consultation with Manager, and such accounts shall be in
Manager's name, as agent for the respective Owner (collectively the "Facility
Accounts"). Manager, as agent of Owners, will deposit in the Agency Account all
monies received from the operation of the Facilities as Total Revenue and,
together with any interest earned thereon, will disburse the same from the
Agency Account for the purposes set forth in the following Section 8.2. Revenues
or funds received by Managers from the Facilities that do not constitute Total
Revenues shall be immediately paid to Owner or placed in the Agency Account as
directed by Owners. To the extent required under any Legal Requirement, deposits
received pursuant to any Residency Agreement shall be maintained in a segregated
Agency Account for such deposits, and all amounts in such segregated deposit
Agency Account shall be used only to refund deposits in accordance with
Residency Agreements and, if any such deposits are forfeited under the terms of
a Residency Agreement, for deposit into the Agency Account. All funds derived
from the deduction for the Reserve Fund described in Section 8.4 shall be placed
in the Reserve Account and shall be transferred to the Agency Account for the
purpose of disbursement as expenditures are made in accordance with the
provisions of Section 8.4. Manager shall not commingle any funds in the Facility
Accounts with Manager's or any Affiliate's other funds. Notwithstanding the
foregoing as to each of the Facility Accounts, the Owner shall be designated as
an additional signatory on each of the Facility Accounts entitled to withdraw
all or any of the funds in said accounts in the event that Manager has filed a
voluntary petition or is the subject of an involuntary petition in bankruptcy,
insolvency or reorganization under the bankruptcy law or in any event if this
Agreement has expired or sooner terminated. In addition, if Emeritus does not
timely exercise or no longer has the right to exercise the Purchase Option, then
Owner shall have the right to implement a cash management system whereby amounts
in the Agency Accounts are automatically swept into accounts of the Owners on a
monthly or other regular basis specified by Owners. Managers shall reasonably
cooperate with Owners in implementing such cash management system. It is
expressly agreed and understood that all funds standing in the Facility Accounts
described herein are the sole property of the respective Owner, notwithstanding
that Manager shall have the right to withdraw funds therefrom for the purposes
set forth in this Agreement.
8.2 Expenditures. In accordance with the Annual Plan, except as otherwise
approved by Owners, Managers as agent of the Facility Entities are hereby
authorized to pay from the Agency Account for each Facility in the
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following order of priority such amounts and at such times as are required to
pay the following expenditures:
(a) The Operating Expenses;
(b) The Fixed Operating Expenses (exclusive of any Base, Accrued or other
Management Fee and Capital Improvements) except for such items as Owner has
elected to pay directly;
(c) The cost of Capital Improvements approved by Owner;
(d) The Base Management Fee or if the conditions set forth in Section 7.2 have
been satisfied the full Management Fee for the current period;
(e) The Accrued Management Fee from prior periods if the conditions set forth in
Section 7.2 have been satisfied;
(f) Any Cash Available for Distribution to Owner, which shall be paid over to
Owners as directed by Owners within twenty (20I days after the end of each
calendar month during the Term. Funds in the Agency Account shall not be
utilized for any other purpose.
8.3 Deficit Contributions. In the event that Total Revenue from the Facilities
is insufficient, or is anticipated to be insufficient, to pay the Operating
Expenses and Fixed Operating Expenses of the Facilities during any calendar
month during the Initial Term, upon ten (10) days written notice from the
Manager, Owners shall deposit or cause to be deposited funds in the Agency
Account in advance on a monthly basis in an amount equal to the Operating
Deficit for the upcoming calendar month up to the aggregate cumulative amount of
54,500,000 ("Owner's Deficit Contribution"). Promptly after the end of such
calendar month the parties shall reconcile the payment of Owner's Deficit
Contribution based upon the actual Operating Deficit for such month. All
Operating Deficits during the Initial Term remaining after Owner has funded the
full amount of the Owner's Deficit Contribution, i.e., $4,500,000, shall be
funded absolutely and unconditionally by Emeritus into the Agency Account or
otherwise as directed by Owners as and when necessary to pay, but in any event
no later than ten (10) days after written notice from Owners, all Operating
Deficits during any calendar month during the Initial Term ( which commences on
the date hereof and expires December 31, 2001) as more particularly set forth
herein and in the Emeritus Guaranty ("Emeritus Deficit Contribution"). Owners
shall have no obligations whatsoever to reimburse, bear the burden of or
otherwise pay Emeritus for any Emeritus Deficit Contribution. AL Investors shall
provide reasonable evidence of the availability of Owner's Deficit
- -17-
Contribution. The obligation of Emeritus to make Emeritus Deficit Contributions
pursuant to this Section 8.3 shall survive any termination of this Agreement
prior to the expiration of the Initial Term; provided, however, that such
obligations shall not survive any termination of this Agreement arising out of
an Event of Default by Owner, and shall not survive any partial termination of
this Agreement with respect to any Facility purchased by Daniel R. Baty pursuant
to the Put and Purchase Agreement following closing thereunder.
8.4 Reserve Account. In the event the approved Annual Plan for any Facility
provides for expenditures of less than $250 per unit in such Facility for the
applicable Operating Year for replacements of Furnishings and Equipment or
Capital Improvements, there shall be deducted from Total Revenue as part of
Fixed Operating Expenses the difference between such expenditures and $250 per
unit in such Facility for such Operating Year /or such lesser amount as Owners
may approve) funded quarterly and the cash funds so created shall be deposited
in the Reserve Account. Funds in the Reserve Account shall be utilized for the
purpose of making replacements, substitutions, and additions to Furnishings and
Equipment originally included in the Facility or Capital Improvements to the
extent approved by Owners in the Annual Plan or as directed by Owners to
maintain each Facility in good order and operating condition. Funds in the
Reserve Account shall be invested in an interest bearing account or securities
as Owners may direct and interest thereon shall be added to the Reserve Account.
Funds from the Reserve Account shall not be utilized for any other purpose.
8.5 Books and Records. Under Manager's supervision, each Facility shall keep (at
the Facility or at Emeritus' corporate headquarters) full and adequate books of
account and such other records and information as are necessary to reflect the
results of the operation of the Facility and to comply with all Legal
Requirements with respect to the Facility. Managers will keep the books and
records for each Facility in all material respects in accordance with generally
accepted accounting principles except as otherwise approved by Owners. All such
records shall be and remain the exclusive property of the Owners, subject to
Manager's right to make and retain copies thereof.
8.6 Reports to Owners. Manager and Emeritus will deliver, or cause to be
delivered, to Owners the following forecasts, budgets, reports and statements
each in form reasonably acceptable to Owners:
8.6.1 Not later than December 1 the draft Annual Plan for the succeeding
Operating Year;
8.6.2 Within thirty (30) days after the end of each calendar month, an end of
the month financial report showing the results of operation of each Facility
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and a balance sheet for the prior month and the year to date for each Facility
and all Facilities in the aggregate prepared in accordance with GAAP and
certified as fairly representing the financial results in all material respects
by a financial officer of Emeritus;
8.6.3 Within thirty (30) days after the end of each calendar month during the
Term, a computation for all Facilities in the aggregate and for each Facility
individually of Total Revenue, Operating Expenses, Fixed Operating Expenses and
Operating Deficit or Operating Profit for the prior month, year to date, and for
Operating Profit or Operating Deficit cumulative from the Commencement Date, in
each case on a cash basis and certified as fairly representing the financial
results in all material respects by a financial officer of Emeritus;
8.6.4 As soon as practicable after each Operating Year, but in any event, within
seventy-five (75) days of the end of each Operating Year, an income statement
and balance sheet for all Facilities in the aggregate and for each Facility
individually in form reasonably acceptable to Owners as of the last day of such
Operating Year, which income statement and balance sheet shall be certified as
fairly representing the financial results in all material respects by a
financial officer of Emeritus and if requested by Owners be audited by an
independent nationally recognized accounting firm approved by Owners and such
other annual end of year financial reports as may be reasonably necessary for
each Owner and Owners to file its or their federal and state income tax returns;
8.6.5 The financial reports to be delivered to any Mortgagee as more
particularly defined in the respective Mortgage or related loan documents;
8.6.6 Within ninety (90) days after the end of each fiscal year of Emeritus,
audited financial statements of Emeritus prepared by an independent "big five"
accounting firm approved by Owners, prepared in accordance with GAAP, including
a balance sheet and an income statement for such fiscal year, certified as true
and correct in all material respects by a financial officer of Emeritus.
Emeritus shall also submit to Owners, upon its filing thereof, a copy of any
Form 1 OK or Form 1 OQ as filed with the United States Securities and Exchange
Commission;
8.6.7 Copies of all Medicare and/or Medicaid cost reports and any amendments
thereto filed with any Governmental Authority with respect to any Facility, and
all responses, audit reports and other correspondence and other documents
received with respect to such cost reports.
8.6.8 Within three (3) days of receipt, copies of any notice received from any
Governmental Authority or Third Party Payor that any Permit, Medicare
- -19-
and/or Medicaid certification or similar item with respect to a Facility is
being downgraded, revoked or suspended or that any such action is pending or
being considered.
8.6.9 Such other reports reasonably required by Owners or any Mortgagee.
8.7 Rights to Inspection and Review. Each Owner, its accountants, attorneys,
agents and any Mortgagee shall have the right to enter upon any part of any
Facility at any time during normal business hours during the Term, and on not
less than eight (8) hours prior notice unless an emergency exists, for the
purpose of examining or inspecting the same or examining and making extracts and
copies of books and records of the Facility or for any other purpose, including
audits, which the Owner of any Facility, in its discretion, shall deem necessary
or advisable, but same shall be done with as little disruption to the business
of the Facility as practicable. Books and records of the Facility shall be kept
at the Facility and a summary thereof in such location as directed by Owners.
8.8 Deficiencies and Overpayments. If any audit or financial report discloses a
deficiency in the reporting of Total Revenues, or any overpayment in Operating
Expenses, Fixed Operating Expenses or Management Fees, Managers shall forthwith
recalculate Operating Profit, Operating Deficit or Management Fees and pay to
the Owners any overpayment or otherwise, together with interest at Manager's
sole expense on the amount of deficiency or overpayment, calculated at the
Overdue Rate, from the date when such overpayment was made until the date Owners
receive return of such overpayment. If any audit conducted for Owners pursuant
to the provisions hereof discloses that the Total Revenues for any Operating
Year exceed those reported by Managers by more than five percent (5%) or that
the full Management Fee or any Accrued Management Fee was overpaid by more than
five percent (5%), the Managers at their sole expense (and not as an Operating
Expense) shall pay the reasonable cost of such audit and examination. Otherwise,
the cost of audits approved by Owners shall be an Operating Expense.
8.9 Survival. The obligations and rights of the Managers and Owners referenced
in Section 8.8 shall survive the expiration or earlier termination of this
Agreement for a period of three (3) years.
9. TERMINATION RIGHTS AND REMEDIES
9.1 By Managers. The Managers may terminate this Agreement, except for the
provisions of Section 8.3, with respect to all (but not less than all) of the
Facilities by reason of any of the following ("Event of Default"): (i) failure
of Owners to fund an Operating Deficit in accordance with Section 8.3 within
fifteen
- -20-
(15) days after written notice to the Owner that payment has not been paid when
due; or (ii) the Owner otherwise breaches or fails to perform a material term of
this Agreement, which breach or failure is not cured within thirty (30) days
after written notice of said breach is provided to Owner. Provided, however,
that Manager shall not have the right to terminate this Agreement without the
prior written consent of any Mortgagee. Provided, further, Manager shall have no
right to terminate this Agreement nor shall Owner be in default if such right to
terminate or such default is caused by a failure by Emeritus to fund Operating
Deficits or a default or an Event of Default committed or suffered hereunder by
Managers or Emeritus. If Managers terminate the Agreement pursuant to this
Section 9.1, such termination shall not terminate the Purchase Option or Right
of First Refusal under Section 13 or Section 14 below, and the Purchase Option
and Right of First Refusal shall remain in full force and effect. If Managers
terminate this Agreement pursuant to this Section 9.1 and the Purchase Option is
thereafter exercised, the purchaser shall be entitled to offset and deduct from
the Purchase Price that portion of Owner's Deficit Contribution which Owners did
not fund but were required to do so in accordance with Section 8.3 and which
Managers or Emeritus funded and were not reimbursed by Owners.
9.2 Owner. The Owner may terminate this Agreement with respect to any one or all
of the Facilities by reason of any of the following (each an "Event of
Default"): (i) Managers or Emeritus fail to fund the Emeritus Deficit
Contribution under Section 8.3 within fifteen (15) days after written notice
from Owner that payment has not been paid when due; (ii) Emeritus breaches or
fails to perform any obligation, including but not limited to the warranties,
representations and indemnities, under the Emeritus Guaranty which is not cured
within the time period set forth therein; (iii) Emeritus or its Affiliates fail
to perform any obligation under the Purchase Agreements which survive closing
thereunder; (iv) Managers or any of them or Emeritus breaches or fails to
perform a material term of this Agreement as to any or all Facilities, which
breach or failure is not cured within thirty (30) days after written notice of
said breach is provided to the Managers; (v) Daniel Baty fails to perform or
defaults under the Put and Purchase Agreement within the time period set forth
therein or fails to comply with the liquidity and reporting requirements of the
Initial Senior Loan /which is not cured within any applicable cure period set
forth therein); (vi) Emeritus fails to perform or defaults under the Licensing
Indemnity Agreement within the time period set forth therein; or (vii) either
Manager or Emeritus suffers a Bankruptcy Event. Provided, however, Owners shall
have no right to terminate this Agreement nor shall Managers be in default if
such right to terminate or such default is caused by a failure by Owner to fund
Operating Deficits to the extent provided in Section 8.3. Any such
- -21-
termination pursuant to this Section 9.2 shall also constitute a termination of
the Purchase Option.
9.3 Curing Defaults. Except for failure to close under the Purchase Option set
forth in Section 13, or under the Right of First Refusal under Section 14, or a
default under Section 9.2(v), (vi), or (vii), any default by Managers or Owner
under the provisions of Section 9.1 or 9.2, except for defaults involving the
payment of money which must be cured within the applicable cure period, shall
not constitute an Event of Default if the nature of such default will not permit
it to be cured within the cure period allotted, provided that either Managers or
Owner promptly shall commence to cure such default and shall proceed to complete
the same with diligence but in no event later than sixty (60) days after the
written notice of default has been given.
9.4 Effect of Termination. The termination of this Agreement in whole or in part
under the provisions of this Section 9 shall not affect the rights of the
terminating party with respect to any damages it may have suffered as a result
of any breach of this Agreement, nor shall it affect the rights of either party
with respect to liability or claims accrued or arising out of events occurring
prior to the date of termination. Any termination of this Agreement, whether in
whole or in part, other than by reason of an Event of Default by Owner and other
than as a result of a Casualty or Condemnation as to a particular Facility,
shall automatically terminate the Purchase Option provided for in Section 13 and
the Right of First Refusal provided by Section 14, but any termination of this
Agreement by reason of an Event of Default by Owner shall not terminate the
Purchase Option provided for in Section 13 and the Right of First Refusal
provided by Section 14. No termination of this Agreement for any reason under
any provision hereof, including without limitation, Section 9.1, whether in
whole or in part, shall terminate any obligation of Emeritus to fund the
Emeritus Deficit Contribution or otherwise hereunder or under the Emeritus
Guaranty except only as to those Facilities terminated from this Agreement as a
result of Casualty or Condemnation pursuant to Section 9.7.2.
9.5 Remedies Cumulative. The right of termination shall not be an exclusive
remedy and either party shall have the right to sue for damages or seek
equitable relief following an Event of Default. Neither the right of termination
nor the right to sue for damages nor any other remedy available to either party
hereunder shall be exclusive of any other remedy given hereunder or now or
hereafter existing at law or in equity.
9.6 Transfer Upon Termination. Upon expiration or sooner termination of this
Agreement in whole or in part, except for termination upon closing under the
Purchase Option and the Right of First Refusal, Managers at their sole expense
shall
- -22-
transfer or assign as directed by Owners to the respective Facility Entity all
books, records, Facility Accounts, Permits, Contracts, Leases, any Personal
Property owned by or in the possession of Managers, all of which shall be free
and clear of all Liens (except for the Mortgage), and other matters and things
utilized by Manager in the operation of the Facilities which are no longer
subject to this Agreement. Any vans or buses shall be conveyed to Owners upon
payment by Owners of the then book value determined in accordance with GAAP.
Upon any termination of this Agreement, Manager shall assign and otherwise take
all actions required to effectively transfer to the Facility Entities all
Permits which are required under applicable Legal Requirements to be issued in
the name of Managers. Managers shall cooperate fully in such transfer and shall
not interfere with an Owner employing any and all employees of the Facility who
desire to accept such Owner's offer of employment. Manager's obligations
hereunder and under the Purchase Agreements and Owner's remedies for breach
thereof shall survive the expiration or sooner termination of this Agreement and
the transfer and assignment herein.
9.7 Termination of Agreement as to Individual Facilities. The parties
acknowledge that this is a master Management Agreement with respect to all of
the Facilities and this Agreement may be terminated by Owner as to a
particular Facility in one or more of the following circumstances. In such
event, this Agreement shall continue in full force and effect as to the
remaining Facilities but the provisions of Section8.3 shall nonetheless
continue as to any Facilities terminated from this Agreement except only for
termination pursuant to 9.7.2 below:
9.7.1 Default. There has been an Event of Default by the Manager as to a
particular Facility and Owner has terminated this Agreement as to such Facility;
9.7.2 Casualty or Condemnation. There has been an election by Owner to terminate
this Agreement as to a particular Facility resulting from Casualty or
Condemnation which Owner has elected not to repair as provided for in Section
11; or
9.7.3 Termination During Extension Term. If Owner has elected the option for the
Extension Term, Owner may terminate this Agreement as to any Facility in its
sole discretion upon not less than sixty (60) days prior notice to the Manager;
9.7.4 Termination of Put Facilities. Upon closing of the purchase of a Put
Facility pursuant to the Put and Purchase Agreement, such Put Facility or
Facilities shall be automatically deleted from this Agreement.
- -23-
9.7.5 Termination of Failed Facilities. Upon closing of the purchase by Emeritus
or its Affiliates of a Failed Facility pursuant to the Licensing Indemnity
Agreement, such Failed Facility or Facilities shall be automatically deleted
from this Agreement.
In the event of the termination of this Agreement as to less than all of the
Facilities, then in determining Operating Deficit and Operating Profit the
Facilities, less only those Facilities terminated pursuant to Section 9.7.2 -
9.7.5, shall be the basis for such calculations.
10. ASSIGNMENT
10.1 Assignment by Manager. Manager shall not assign, transfer or encumber this
Agreement or any right or interest herein or hereunder voluntarily or by
operation of law or in any other manner without the prior written consent of
Owners, which may be withheld in their sole discretion. Notwithstanding the
foregoing, Managers may sublet management of Facilities entitled Meadowlands
Terrace, Lakeridge Place, and Saddleridge Lodge to X.L. Management, an Affiliate
of Holiday Retirement Corp; provided, however, that such sublet management
arrangements shall not affect in any way Emeritus' or Managers' obligations
under this Agreement or Emeritus' obligations under the Emeritus Guaranty.
10.2 Assignment by Facility Entities. Owners may assign or transfer this
Agreement to any Affiliate or to any Mortgagee without the consent of Emeritus
or Managers. In such event, the Owner or Owners assigning this Agreement (except
as to an assignment for security purposes to any Mortgagee, but not excepting
the realization by such Mortgagee of such assignment in connection with a
foreclosure of the applicable Mortgage or the granting of a deed in lieu of
foreclosure to such Mortgagee) shall be relieved of all liability under this
Agreement accruing or arising out of facts and circumstances occurring after the
date of such assignment, except for the obligation to fund the Owner's Deficit
Contribution pursuant to Section 8.3 /which shall not apply to the holder of any
Senior Loan). In connection with any security assignment to a Mortgagee,
Managers and Emeritus shall subordinate this Agreement to the Mortgage in such
form as any Mortgagee may require.
10.3 Refinancing. With the prior consent of Managers and Emeritus, which shall
not unreasonably be withheld, the Facility Entities shall have the right to
refinance the Mortgage initially held by the Lending Group as to one or more
Facilities upon the following terms and conditions:
10.3.1 Obligations of Managers and Emeritus. If any refinancing would increase
the reasonably projected amount of the Emeritus Deficit
- -24-
Contribution as computed under this Agreement with respect to the initial
Mortgage over the remaining balance of the Initial Term, then, unless Emeritus
shall approve such refinancing, Emeritus shall not be obligated to fund such
increased amount of the Emeritus Deficit Contribution to the extent resulting
from such refinancing. Any refinancing shall provide that upon closing of the
Purchase Option or Right of First Refusal, Emeritus may assume the Mortgage
resulting from such refinancing upon commercially-reasonable terms including
payment of the Mortgagee's assumption expenses and an assumption fee not to
exceed one-half percent (.5%) of the indebtedness secured by the Mortgage.
10.3.2 Segregation of this Agreement. In connection with a refinancing, this
Agreement shall be segregated into two or more separate management agreements
with the Facilities being managed pursuant to each management agreement
corresponding to the Facilities subject to each Mortgage or Mortgages held by a
separate Mortgagee. In such event, the terms and conditions of each separate
management agreement shall be the same as this Agreement, except Total Revenues,
Operating Expenses, Fixed Operating Expenses, Operating Profit and Operating
Deficit shall be computed only with respect to the Facilities subject to each
separate management agreement. If such segregation would increase the reasonably
projected amount of the Emeritus Deficit Contribution as computed under this
Agreement with respect to the initial Mortgage, than unless Emeritus shall
approve such segregation, Emeritus shall not be obligated to fund such increased
amount of the Emeritus Deficit Contribution to the extent resulting from such
segregation. Each segregated management agreement may be assigned to the
respective Mortgagee and shall be subordinate to the respective Mortgage as
provided in Section 10.2 above. Upon such segregation, Emeritus shall execute a
restated Emeritus Guaranty or such other confirmation of the continuing
obligations under the Emeritus Guaranty.
10.3.3 Costs of Refinancing. The reasonable costs and expenses of such
refinancing, including but not limited to the Mortgagee's title review and
insurance, due diligence, loan fees, mortgage taxes (if any), loan document
preparation, legal fees, and other customary loan closing costs, together with
Owners' reasonable costs and expenses of arranging and closing such refinancing,
shall be an Operating Expense unless otherwise approved or directed by Owners in
their sole discretion.
10.4 Remedies. Any assignment by either party of this Agreement in violation of
the provisions of this Section 10 shall be null and void. In addition to any
other remedies available to the parties, the provisions of this Section 10 shall
be enforceable by injunctive proceeding or by a suit for specific performance.
- -25-
11. CASUALTY AND CONDEMNATION
11.1 Casualty. If a Facility shall be damaged by a Casualty such that Owner
determines in its sole but good faith judgment that it is not feasible to
restore the Facility, or if for any reason insurance proceeds are not available
to effect such restoration, then Owner may terminate this Agreement as to that
Facility upon thirty (30) days prior written notice to Manager, and neither
party shall have any further obligation to the other party hereunder with
respect to that Facility and this Agreement shall remain in full force and
effect as to the remaining Facilities. If this Agreement shall not be terminated
by Owner in the event of a Casualty to the Facility, then Owner with the
cooperation of Manager, or Manager if Owner so directs, shall proceed with
reasonable diligence to commence and complete the restoration of the Facility to
substantially its condition and character just prior to the occurrence of such
casualty to the extent permitted under Legal Requirements. The cost of
restoration shall not be an Operating Expense or Fixed Operating Expense except
to the extent such cost of restoration exceeds available insurance proceeds and
such costs of restoration in excess of available insurance proceeds, including
any deductibles under applicable insurance policies shall constitute an
Operating Expense.
11.2 Condemnation. If a Facility is subject to Condemnation, or such substantial
portion thereto as to make it unfeasible, in the sole but good faith judgment of
Owner, to restore and continue to operate the remaining portion of the Facility
following Condemnation, then upon the Date of Taking, this Agreement shall
terminate as to that Facility and neither party shall have any further
obligation to the other party hereunder with respect to that Facility and this
Agreement shall remain in full force and effect as to the remaining Facilities.
If Owner elects to restore and continue to operate the remaining portion of the
Facility, then this Agreement shall not terminate as to the Facility, and Owner
with the cooperation of Manager, or Manager if Owner so directs, shall proceed
with reasonable diligence to repair any damage to the Facility, or to alter or
modify the Facility so as to render it a complete architectural unit which can
be operated as a Facility of substantially the same type and class as before.
The cost of restoration shall not be an Operating Expense or Fixed Operating
Expense except to the extent the cost of restoration exceeds the net amount of
any Award received by any Owner. In the case of any Condemnation, whether or not
this Agreement shall cease and terminate, the entire Award shall be the property
of Owner, and Manager hereby assigns to Owner all its right, title and interest
in and to any Award. Manager shall have the right, however, to claim and recover
from the condemning authority compensation for any loss which Manager may be put
for Manager's moving expenses or taking of Manager's personal property (not
including any value assigned to this Agreement), provided that such damages may
be claimed only if
- -26-
they are awarded separately in the Condemnation proceedings and not out of or as
part of the Award recoverable by Owner.
12. CAPITAL IMPROVEMENTS
Any program of improvements, or improvement involving an addition to a Facility
or the renovation or refurbishing of the Facility, the cost of which is not or
should not be charged to property operation and maintenance and which should be
capitalized in accordance with generally accepted accounting principles, shall
be a "Capital Improvement." Capital Improvements shall be undertaken only upon
the approval of or direction by Owner in its sole discretion, which may be by
separate approval or by specific inclusion in the Annual Plan. Notwithstanding
anything to the contrary herein, Emeritus shall have the unconditional
obligation at its sole expense (and not as an Operating Expense or Fixed
Operating Expense) to complete and pay for: (a) all development, construction
and furnishing of Furnishings and Equipment, Operating Equipment and Operating
Supplies of Facilities entitled "Brookside Estates" and "Gardens at White
Chapel", (b) all Capital Improvements made or acquired during calendar year
1998, and (c) any sales tax or other Impositions resulting from construction of
any Facilities in Texas. To the extent any improvements to the Facilities are to
be funded from an escrow or similar account at Closing under the Purchase
Agreements ("Holdback Accounts"), such improvements shall not be deemed Capital
Improvements hereunder and the cost thereof shall not be Operating Expenses or
Fixed Operating Expenses. Managers shall expeditiously cause the completion of
all improvements to be funded by the Holdback Accounts.
13. EMERITUS' OPTION TO PURCHASE
13.1 Conditions to Option. On the conditions precedent (which conditions Owners
may waive, in their sole discretion, by notice to Emeritus at any time) that (a)
at the time of exercise of the Purchase Option, there then exists no Event of
Default under this Agreement by the Managers or Emeritus, and (b) Emeritus
timely complies with the provisions of this Section 13, and (c) if a Put Notice
has been delivered on account of Section 3.1 (d) or 3.1 (e) of the Put and
Purchase Agreement, less than sixty (60) days has elapsed since delivery of such
Put Notice, then Emeritus or its Affiliates shall have the option to purchase
all, but not less than all, of the Meditrust Facilities then subject to this
Agreement including, without limitation, any Meditrust Facilities which are the
subject of a segregated Management Agreement pursuant to Section 10.3, at the
price and upon the terms hereinafter set forth in this Section 13 (the "Purchase
Option"/.
13.2 Exercise of Option; Deposit. The Purchase Option shall permit Emeritus to
purchase the Meditrust Facilities (a) at any time during the Initial Term
- -27-
but not later than the last day of the Initial Term ("Purchase Option Expiration
Date") provided that written notice of the exercise of the option is given by
Emeritus to the Owners (the "Purchase Option Notice") at least one hundred
eighty (180) days prior to the Purchase Option Expiration Date. Emeritus shall
have no right to rescind the Purchase Option Notice once given. With the
Purchase Option Notice, Emeritus shall deposit with the Owners the sum of
5602,540 (together with the interest earned thereon, the "Deposit") which shall
constitute liquidated damages and Owners' sole remedy if Emeritus fails to
consummate the purchase of the Meditrust Facilities for any reason other than
Owners' default and refusal to deliver the Deeds conveying the Meditrust
Facilities upon payment of the Purchase Price, but the Deposit shall be applied
to the Purchase Price if the Purchase Option closes. Emeritus and the Owners
acknowledge that damages that would accrue from Emeritus' failure to close the
Purchase Option are difficult to determine and that the amount of liquidated
damages set forth above constitutes a good faith and reasonable estimate of the
damages that would otherwise have accrued. The Deposit shall be deposited in a
money market or similar account with a commercial bank with all interest thereon
remaining in such account and reported as income of Emeritus, and Emeritus
agrees to complete a Form W-9 and such other forms as such bank may require in
order to report such interest.
13.3 Conveyance. If the Purchase Option is exercised by Emeritus in accordance
with the terms hereof, each Meditrust Facility shall be conveyed by a special
warranty deed subject to the Permitted Exceptions, Leases, Contracts and Permits
(except for the Mortgage) and all matters arising through or with the consent of
Managers or Emeritus with covenants only against acts of Owners or Persons
claiming by, through or under Owners during their period of ownership, a quit
claim bill of sale as to all Personal Property, and a quit claim assignment of
all Leases, Contracts, Permits, and funds in Facility Accounts in form
satisfactory to Owners (collectively, the "Deed") running to Emeritus or to its
designee. Transfer of all Permits to Emeritus or its Affiliate designee in
accordance with Legal Requirements shall be the sole responsibility of Emeritus.
Owners, other than an obligation to reasonably cooperate (at no material
out-of-pocket cost) in such transfer, shall have no liability or responsibility
for the adequacy or completeness of any transfer of the Permits. Owners shall
reasonably cooperate with Emeritus and its title companies in order to provide
all necessary documents, owner's affidavits (provided Owners have no liability
thereunder except for their own acts during their period of ownership) and other
evidence of authority to enable Emeritus to purchase title insurance covering
all of the Facilities at the closing under the Purchase Option.
13.4 Calculation of Purchase Price. The price to be paid by Emeritus for the
acquisition of the Meditrust Facilities pursuant to this Purchase Option shall
be equal to the amount calculated as set forth on Exhibit B ("Purchase Price").
The
- -28-
Purchase Price shall be a net price to be received by Owners without deduction
for due diligence, transfer taxes, title insurance or other closing costs, all
of which shall be paid by Emeritus. Owners shall not bear any closing costs or
prorations of any kind or nature, subject to any offset as provided in Section
9.1.
13.5 Payment of Purchase Price. The Purchase Price, less the Deposit, shall be
paid by Emeritus at the Time of Closing in good funds.
13.6 Place and Time of Closing. If this Purchase Option is exercised, the
closing shall occur and the Deed for each Meditrust Facility shall be delivered
to Title Company (the "Closing") pursuant to escrow closing arrangements
reasonably satisfactory to Owners and Emeritus at 12:00 o'clock noon (P.S.T.)
one hundred eighty (180) days following delivery of the Purchase Option Notice
but in no event later than the Purchase Option Expiration Date (such time, as
the same may be extended to the next succeeding Business Day, the "Time of
Closing"/. It is agreed that time is of the essence of this Purchase Option.
13.7 Condition of Facilities. The Meditrust Facilities and each of them shall be
purchased by Emeritus "AS IS" and "WHERE IS" as of the Time of Closing. Without
limiting the foregoing, and except as set forth in the Deed, Owners make and
shall not make representations or warranties, express or implied, with respect
to, and shall have no liability for: (I) the condition of the Facilities or any
Improvements thereon or the suitability, habitability, merchantability or
fitness of the Facilities; (ii) compliance with any Legal Requirements; (iii)
the presence of any Hazardous Substances in or about the Facilities, including
without limitation asbestos or urea-formaldehyde, or the presence of any
Hazardous Substances on or under the Land; (iv) the accuracy or completeness of
any plans and specifications, reports, or other materials provided to Emeritus;
or (v) any other matter relating to the Facilities, including, without
limitation, the title thereto or the condition, value or operating results or
prospects thereof. Without limiting the generality of the foregoing, Owners
shall have no liability to Emeritus with respect to the condition of the
Facilities under common law, or under any Legal Requirements and Emeritus hereby
waives any and all claims which Emeritus has or may have against Owners with
respect to the condition, value or operating results or prospects of the
Facilities. Emeritus assumes the responsibility and risks of all defects and
conditions, including such defects and conditions, if any, that cannot be
observed by inspection or examination of records. Managers and Emeritus shall
indemnify, defend, and hold harmless Owners from and against all claims and
liabilities arising out of or related to the Facilities as more particularly set
forth in Section 6.1 and from and against any guaranties of any Mortgages, it
being intended that Owners shall have no liability from and after the Time of
Closing with respect to the Facilities, except as set forth in the Deed.
- -29-
13.8 Use of Purchase Price to Clear Title. To enable the Facility Entities to
make the conveyance as provided in this Section 13, the Facility Entities may,
at the Time of Closing, use the Purchase Price or any portion thereof to clear
the title of any Mortgage, provided that all instruments so procured are
recorded contemporaneously with the Closing or reasonable arrangements are made
for recording subsequent to the Time of Closing in accordance with customary
conveyance practices.
13.9 Emeritus' Default. If Emeritus delivers the Purchase Option Notice and
fails to timely consummate the purchase of the Facilities in accordance with the
terms hereof for any reason other than Facility Entities' default and refusal to
deliver the Deed, (a) the Purchase Option and Right of First Refusal shall be
deemed terminated and Emeritus shall thereafter have no further right to
purchase the Facilities pursuant to this Section 13 or Section 14 or otherwise,
(b) Owners shall retain the Deposit as liquidated damages and as Owners' sole
remedy in full satisfaction of any claims against Emeritus for its failure to
consummate the purchase of the Facilities, but nothing herein shall relieve
Emeritus from its obligations under the Emeritus Guaranty, and (c) Owners shall
have the right to terminate this Agreement without further notice.
14. EMERITUS' RIGHT OF FIRST REFUSAL
14.1 Conditions of Right of First Refusal. On the conditions (which conditions
Owners may waive, in their sole discretion, by notice to Emeritus at any time)
that (a/ at the time of exercise of the Right of First Refusal granted herein on
the First Refusal Date, there then exists no Event of Default under this
Agreement by the Managers or Emeritus, and (b) Emeritus complies with the
provisions of this Section 14, then Emeritus shall have a right of first refusal
to purchase the Emeritus Facilities then subject to this Agreement, at the price
and upon the terms hereinafter set forth in this Section 14 (the "Right of First
Refusal").
14.2 Exercise of Right, Deposit. If, at any time during the Initial Term, the
Owners of the Emeritus Facilities should receive a bonafide third-party offer to
purchase the Emeritus Facilities acceptable to the Owners or such Owners should
exercise their rights to require Daniel R. Baty ("Baty") to purchase the
Emeritus Facilities pursuant to the Put and Purchase Agreement, Emeritus shall
have the right to purchase the Emeritus Facilities on the same terms and
conditions as contained in such bona-fide third-party offer to purchase or on
the same terms and conditions applicable to Baty with respect to the Emeritus
Facilities under the Put and Purchase Agreement. Upon receipt of such bona fide
third-party offer to purchase or upon the giving of the notice to Baty to
purchase the Emeritus Facilities under the Put and Purchase Agreement, a copy of
the applicable document shall be given within ten (10) days thereafter to
Emeritus. Within thirty
- -30-
(30) days after the receipt of such document, Emeritus shall have the right to
give notice to Owners of its exercise of the Right of First Refusal /"First
Refusal Date").
14.3 Terms of Closing. If Emeritus should timely exercise its Right of First
Refusal with respect to the Emeritus Facilities, the terms (including, without
limitation, any deposit) and the closing shall be governed by the provisions of
such bonafide third-party offer, the provisions applicable to Baty under the Put
and Purchase Agreement with respect to the Emeritus Facilities, which provisions
are incorporated herein by this reference, except in any event closing shall
occur on or before expiration of the Initial Term. Time is of the essence of
this Right of First Refusal.
14.4 Emeritus Default. If Emeritus timely delivers notice of exercise of the
Right of First Refusal and fails to timely consummate the purchase of the
Facilities in accordance with the terms hereof for any reason other than the
Facility Entities' default, (a) the right of First Refusal granted herein shall
be deemed terminated and Emeritus shall thereafter have no further right
hereunder, (b) Owners shall retain any deposit as liquidated damages and as
Owners' sole remedy in satisfaction of any claims against Emeritus for its
failure to consummate the purchase of the Emeritus Facilities, but nothing
herein shall relieve Emeritus from its obligations under the Emeritus Guaranty,
and (c) Owners shall have the right to terminate this Agreement without further
notice.
15. GENERAL PROVISIONS
15.1 Purchases by Manager. In purchasing services, goods and supplies for the
Facilities, Managers shall use their best efforts to obtain the benefits of
volume purchasing for Owners. In addition, all direct and indirect trade
discounts, rebates and refunds, and all returns from the sale of Furnishings and
Equipment and Operating Equipment or other equipment shall accrue to the benefit
of the Facility Entities.
15.2 Budgets and Forecasts. In preparing all budgets and forecasts to be
submitted to the Facility Entities hereunder, Managers will base its estimates
upon the most recent and reliable information then available, taking into
account the location of each Facility and its experience in other comparable
assisted living facilities.
15.3 Notices. Any notice, demand, offer, approval or other writing required or
permitted pursuant to this Agreement shall be in writing, furnished in duplicate
and shall be transmitted by hand delivery, facsimile, certified mail, return
receipt requested, or Federal Express or another nationally recognized overnight
courier service which provides evidence of delivery, postage prepaid, as
follows:
- -31-
If to any Owner
or Owners: AL Investors LLC
c/o Bruce D. Thorn
2250 McGilchrist Street SE, Suite 200
Salem, Oregon 97302
Facsimile: (503)375-7644
Telephone: (503)370-7071 ext. 7143
With a copy to: Foster Pepper & Shefelman PLLC
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attn: Gary E. Fluhrer
Facsimile: (206)447-9700
Telephone: (206)447-4400
And Senior Housing Partners I, L.P.
c/o Mr. Noah Levy
Two Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
Facsimile: (770)399-5363
Telephone: (770)395-8606
And Goodwin Procter & Hoar LLP
Exchange Place
53 State Street
Boston, Massachusetts 02109-2881
Attn: Minta Kay
Facsimile: (617)227-8591
Telephone: (617)570-1877
If to the Managers
or Emeritus: c/o Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, Washington 98121-1031
Attn: Mr. Kelly Price
Facsimile: (206)301-4500
Telephone: (206)301-4507
- -32-
With a copy to: Perkins Coie
Suite 4000, 1201 Third Avenue
Seattle, Washington 98101
Attn: Michael E. Stansbury
Facsimile: (206)583-8500
Telephone: (206)583-8888
Any party shall have the right to change the place to which such notice shall be
given or add additional parties, including any Mortgagee, to receive notices by
similar notice sent in like manner to all other parties hereto. Any notice if
sent by overnight courier service shall be deemed delivered on the earlier of
the date of actual delivery or the next business day, if delivered by hand
delivery or facsimile shall be deemed delivered on the date of the actual
delivery and if sent by mail, shall be deemed delivered on the earlier of the
third day following deposit with the U.S. Postal Service or actual delivery. Any
notice sent by facsimile shall also be sent on the same business day by
overnight courier or mail as set forth above.
15.4 No Partnership or Joint Venture. This Agreement shall not be construed to
be or create a partnership or joint venture between Owners and their successors
or assigns, on the one part, and Emeritus and Managers, their successors and
assigns, on the other part. Managers are acting as independent contractors to
the Facility Entities in performing their duties and obligations hereunder,
except where this Agreement expressly provides Managers are acting as the agent
of Owners.
15.5 Modification and Changes. This Agreement cannot be changed or modified
except by another agreement in writing signed by the party sought to be charged
therewith.
15.6 Understandings and Agreements. This Agreement constitutes all of the
understandings and agreements of whatsoever nature or kind existing between the
parties with respect to Managers' management of the Facilities.
15.7 Headings. Section headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
15.8 Consents. Except as otherwise specified herein, each party agrees that it
will not unreasonably withhold any consent or approval requested by the other
party pursuant to the terms of the Agreement, and that any such consent or
approval shall not be unreasonably delayed or qualified. Similarly, each party
agrees that any provision of this Agreement which permits such party to make
- -33-
requests of the other party shall not be construed to permit the making of
unreasonable requests.
15.9 Survival of Covenants. Any indemnity, agreement, covenant, term or
provision of this Agreement which, in order to be effective, must survive the
termination of this Agreement, shall survive any such termination.
15.10 Third Parties. None of the obligations hereunder of any party shall run to
or be enforceable by any party other than the parties to this Agreement and the
Facility Entities or by a party deriving rights hereunder as a result of an
assignment permitted pursuant to the terms hereof.
15.11 Waivers. No failure by the Owners to enforce or insist upon the strict
performances of any covenant, agreement, term or condition of this Agreement
shall constitute a waiver of any such breach or any subsequent breach of such
covenant, agreement, term or condition. No covenant, agreement, term or
condition of this Agreement and no breach thereof shall be waived, altered or
modified except by written instrument.
15.12 Applicable Law. This Agreement shall be construed and interpreted, and be
governed by, the laws of the State of Washington.
15.13 Non-Discrimination. Managers shall not discriminate against any Person as
provided by Legal Requirements.
15.14 Joint and Several. The obligations and liabilities of each of Managers and
Emeritus hereunder shall be joint and several. The obligations of each of AL
Investors and the Facility Entities hereunder shall be joint and several.
15.15 Exculpation. The liability of Owners hereunder shall be limited to their
interest in the Facilities and no personal judgment or personal liability or
deficiency judgment beyond their interest in the Facilities shall be asserted
against Owners or any member thereof.
15.16 Status of AL Investors. AL Investors joins in this Agreement for the
purpose of exercising management rights in its capacity as the sole managing
member or the sole managing member of the general partner of Owners. AL
Investors does not intend to be conducting business or holding title to any
property in any jurisdiction. AL Investors may enforce any or all of the
provisions of this Agreement directly against Managers or Emeritus in the State
of Washington or at its option may enforce this Agreement on behalf of any
Facility Entity in any state in which such Facility Entity owns a Facility.
- -34-
15.17 Owners Right to Cure Default. If Managers or Emeritus commit or suffer any
Event of Default hereunder, Owners, at their option and in their sole
discretion, may cure such Event of Default and the cost thereof or funds
advanced, together with interest at the Overdue Rate, shall be repaid on demand
("Default Advances"). Each of Managers and Emeritus shall be jointly and
severally liable for the repayment of Default Advances.
15.18 Recording. The parties agree that simultaneously herewith they shall
execute and deliver a memorandum of this Agreement and the Purchase Option or
Right of First Refusal and record the memorandum in the appropriate real estate
records applicable to each Facility which shall be in form satisfactory to
Owners and Managers.
IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to
be executed, all as of the day and year first above written.
EMERITUS: EMERITUS CORPORATION, a Washington corporation
By: /s/ Daniel R. Baty
Its: Chairman of the Board
EMERITUS PROPERTIES I, INC., a Washington corporation
By: /s/ Daniel R. Baty
Its: Chairman of the Board
- -35-
ESC I, L.P., a Washington limited partnership
By: ESC G.P. I, INC., a Washington corporation
By: /s/ Daniel R. Baty
Its: Chairman of the Board
MANAGERS: EMERITUS MANAGEMENT LLC, a Washington limited liability company
By: Emeritus Corporation, a Washington corporation
By: /s/ Daniel R. Baty
Its: Chairman of the Board
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/ Daniel R. Baty
Its: Chairman of the Board
- -36-
OWNER: AL INVESTORS LLC, a Delaware limited
liability company, for itself and as sole
managing member on behalf of each of the
Facility Entities, or in cases where the
Facility Entity is a limited partnership,
as sole managing member on behalf of the
general partner thereof
By: /s/ Norman L. Brenden
Its: Manager
- -37-
EXHIBIT A
TO MANAGEMENT AGREEMENT WITH OPTION TO PURCHASE
Certain Defined Terms
Affiliate: with respect to any Person (i) any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person, (ii) any other Person that owns, beneficially, directly or indirectly,
five percent (5%) or more of the outstanding capital stock, shares or equity
interests of such Person or (iii) any officer, director, employee, general
partner or trustee of such Person, or any other Person controlling, controlled
by, or under common control with, such Person (excluding trustees and Persons
serving in a fiduciary or similar capacity who are not otherwise an Affiliate of
such Person). For the purposes of this definition, "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
Agency Account: The Agency Account to be maintained for each Facility for
payment of Fixed Operating Expenses and Operating Expenses as described in
Section 8.1 of the Management Agreement.
Annual Plan(s): as defined in Section 4.2 of the Management Agreement.
Award: all compensation, sums or anything of value awarded, paid or received on
a total or partial Condemnation.
Base Management Fee: as defined in Section 7.1 of the Management Agreement.
Bankruptcy Event: Any of Emeritus or Managers admit in writing its inability to
pay debts as they become due; or applies for, consents to, or acquiesces in the
appointment of, a trustee, receiver or other custodian or makes a general
assignment for the benefit of creditors, or in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is appointed and
is not discharged within sixty (60) days after such appointment; or an order for
relief is entered or a petition is filed under Title 11, United States
Bankruptcy Code, with respect to any of them; or any other bankruptcy,
reorganization, debt arrangement, or other case or proceeding under any
bankruptcy or insolvency law, now or hereafter in effect, is commenced with
respect to any of them.
A-1
Business Day: any day which is not a Saturday or Sunday or a public holiday
under the laws of the United States of America or the State of Washington.
Capital Improvements: as defined in Section 12 of the Management Agreement.
Cash Available for Distribution: on any date the amount contained in the Agency
Accounts (as defined in Section 8.1 of the Management Agreement), minus an
amount (to be retained in the Agency Accounts equal to any reasonably projected
Operating Deficit for the succeeding 30 days, taking into account all Operating
Expenses and Fixed Operating Expenses and all anticipated Total Revenues during
such 30-day period.
Casualty: the damage or destruction by act of God or otherwise of any portion of
any Facility which Owner reasonably estimates would cost more than 550,000 to
repair or restore.
Change of Control: shall mean the occurrence of any one of the following events
with respect to Emeritus:
(a) any Person (other than Emeritus, any of its subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of Emeritus or any of its subsidiaries), together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "Act")) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of Emeritus representing a greater
percentage than that then owned by Daniel R. Baty, together with all
"affiliates" and "associates" of Daniel R. Baty (as defined above) of either (Ao
the combined voting power of Emeritus' then outstanding securities having the
right to vote in an election of Emeritus' Board of Directors ("Voting
Securities") or (B) the then outstanding shares of Stock of Emeritus; or
(b) Persons who, as of the date hereof, constitute Emeritus' Board of Directors
(the "Incumbent Directors") cease for any reason, including, without limitation,
as a result of a tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of the Board, provided that any person becoming a
director of Emeritus subsequent to the date hereof whose election or nomination
for election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent Director;
or
A-2
(c) the stockholders of Emeritus shall approve (A/ any consolidation or merger
of Emeritus or any subsidiary where the shareholders of Emeritus, immediately
prior to the consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, shares representing a majority of the
voting shares of the corporation issuing cash or securities in the consolidation
or merger (or of its ultimate parent corporation, if any), (B) any sale, lease,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or substantially
all of the assets of Emeritus or (C) any plan or proposal for the liquidation or
dissolution of Emeritus; or
(d) other than by reason of death or legal disability, Daniel Baty ceases to be
the chief executive officer of Emeritus.
Change of Control with respect to any Manager shall mean the occurrence of any
event whereby 100% of the ownership interests in such Manager are no longer
owned by Emeritus.
Closing: the date of closing under the Purchase Agreements.
Code: the Internal Revenue Code of 1986, as amended.
Commencement Date: as defined in Section2.1 of the Management Agreement.
Compensation: the direct salaries and wages paid to, or accrued for the benefit
of, any employee working and employed at each Facility together with all
reasonably customary fringe benefits payable to, or accrued for the benefit of
such employee, including employer's contribution under FICA., unemployment
compensation, or other employment taxes, pension fund contributions, workmen's
compensation, group life and accident and health insurance premiums, and other
reasonable employee benefits customary in the industry.
Condemnation: with respect to any Facility or any interest therein or right
accruing thereto or use thereof (i) the exercise of the power of condemnation,
whether by legal proceedings or otherwise, by a Condemnor or (ii) a voluntary
sale or transfer to any Condemnor under threat of condemnation.
Condemnor: any public or quasi-public authority, or private corporation or
individual, having the power of condemnation.
A-3
Contracts: Collectively, all Provider Agreements, Residency Agreements, Ordinary
Contracts and Major Contracts.
CPA: The certified public accountants retained to provide necessary accounting
services for the Facility or Owner, the selection of which shall be subject to
approval by Owner.
Date of Taking: the date the Condemnor has the right to possession of the
property being condemned.
Environmental Laws: means all federal, state, and local laws, ordinances and
regulations and standards, rules, policies and other governmental requirements,
administrative rulings, and court judgments and decrees in effect now or in the
future and including all amendments, that relate to Hazardous Materials and
apply to Emeritus and the Emeritus Entities or to the Land and/or the
Improvements. Hazardous Materials Laws include, but are not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601,
et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., and the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, and their state analogs.
Excluded Expenses: depreciation, amortization and other non-cash expenses; items
to be provided or paid for at Owner's or Managers' sole expense as provided
herein; costs and expenses resulting from or required to cure any matter or
defect which constitutes a breach of warranty, representation or indemnity under
the Purchase Agreements, the Licensing Agreement, or the Management Agreement
which cost or expense shall be the sole responsibility of the breaching party;
unreasonable or excessive charges or expenses.
Escrow Holder: First American Title Insurance Company.
Extension Term: as defined in Section 2.2 of the Management Agreement.
Facility or Facilities: Each of the assisted living facilities, including the
Land, Improvements, and Personal Property associated therewith, located in the
city and state as set forth below:
Facility City State Units Beds Facility LLC and LP
Name
La Villita Phoenix AZ 87 110 AL Investors Phoenix LLC
Laurel Place San Bernardino CA 71 87 AL Investors San
Bernardino LLC
The Terrace Grand
Terrace CA 88 97 AL Investors Grand
Terrace LLC
Gardens at
Whitechapel Newark DE 100 110 AL Investors Newark LLC
Barrington
Place Lecanto FL 79 94 AL Investors Lecanto LLC
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Facility City State Units Beds Facility LLC and LP
Name
Beneva Park
Club Sarasota FL 95 104 AL Investors Sarasota
LLC
Central Park
Village Orlando FL 174 189 AL Investors Orlando LLC
College Park
Club Bradenton FL 85 96 AL Investors Bradenton
LLC
Lodge at Pinellas
Mainlands Park FL 153 160 AL Investors Pinellas
Park LLC
Madison Glen Clearwater FL 135 200 AL Investors Clearwater
LLC
Springtree Sunrise FL 179 220 AL Investors Sunrise LLC
Elm Grove Hutchinson KS 121 142 AL Investors Hutchinson
LLC
Brookside Middleburg
Estates Heights OH 99 105 AL Investors Middleburg
Heights LLC
Bellaire
Place Greenville SC 81 88 AL Investors Greenville
LLC
Walking
Horse Meadows Clarksville TN 50 57 AL Investors Clarksville
LLC
Dowlen Oaks Beaumont TX 79 87 AL Investors Beaumont
LLC
Eastman
Estates Longview TX 70 78 AL Investors Longview LP
Lakeridge Wichita
Place Falls TX 79 87 AL Investors Wichita
Falls LP
Meadowlands
Terrace Waco TX 71 76 AL Investors Waco LP
Myrtlewood
Estates San Angelo TX 79 88 AL Investors San Angelo
LP
Saddleridge
Lodge Midland TX 79 88 AL Investors Midland LP
Seville
Estates Amarillo TX 50 55 AL Investors Amarillo LP
Emeritus
Estates Ogden UT 83 91 AL Investors Ogden LLC
Harbour
Pointe Shores Ocean Shores WA 50 55 AL Investors Ocean
Shores LLC
Park Place Casper WY 60 68 AL Investors Casper LLC
Facility Accounts: as defined in Section 8.1 of the Management Agreement.
Facility Entity: each of the Facility LLC's or LP's which owns a Facility as set
forth opposite the name of each Facility above and their respective successors
or assigns.
Fixed Operating Expenses: for any period, all fixed costs and expenses of
owning, and operating the Facilities in the aggregate except where the Agreement
expressly provides that Fixed Operating Expenses shall be determined for each
Facility to the extent such costs and expenses are not included in Operating
Expenses, including but not limited to (a) Managers' Base Management Fee
(excluding the amount of any Accrued Management Fee accrued during such period);
(b) all amounts to be paid into the Reserve Account and the cost of Capital
Improvements approved by Owners not funded from the Reserve Account; (c) the
debt service on account of any Mortgage; (d) the real and personal property ad
valorem taxes and assessments; and (e) all costs and expenses of all property
and casualty insurance on or in respect of the Facilities provided for herein
and the amount of all self-insured losses or deductibles. Fixed Operating
Expenses shall not include the Excluded Expenses.
Furnishings and Equipment: all furniture, furnishings, beds, equipment, food
service equipment, apparatus and other personal property used in (or if the
context so dictates, required in connection with), the operation of each
Facility, other than Operating Equipment, Operating Supplies and fixtures
attached to and forming part of the Improvements.
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GAAP: means generally accepted accounting principles applied on a consistent
basis.
Governmental Authorities: Collectively, all agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures, and offices of any
nature whatsoever of any government, quasi-government unit or political
subdivision, whether with a federal, state, county, district, municipal, city or
otherwise and whether now or hereinafter in existence which exercises
jurisdiction over any Facility.
Group Service: as defined in Section 3.2.4 of the Management Agreement.
Hazardous Substances: "Hazardous Substances" shall mean petroleum and petroleum
products and compounds containing them, including gasoline, diesel fuel and oil;
explosives; flammable materials, radioactive materials; polychlorinated
biphenyls ("PCBs") and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become
friable; underground storage tanks, whether empty or containing any substance;
any substance the presence of which on any Facility is prohibited by any
federal, state or local authority; any substance that requires special handling;
and any other material, or substance now or in the future defined as a
"hazardous substance," "hazardous material," hazardous waste," "toxic
substance," "toxic pollutant," "contaminant," or "Pollutant" within the meaning
of any Environmental Law. Provided, however, Hazardous Substances shall not
include the safe and lawful use and storage of quantities of (i) pre-packaged
supplies, medical waste, cleaning materials and petroleum products customarily
used in the operation and maintenance of comparable Facilities, (ii) cleaning
materials, personal grooming items and other items sold in pre-packaged
containers for consumer use and used by occupants of any Facility; and (iii)
petroleum products used in the operation and maintenance of motor vehicles from
time to time located on the Facilities' parking areas, so long as all of the
foregoing are used, stored, handled, transported and disposed of in compliance
with Environmental Laws.
Impositions: collectively, all taxes (including, without limitation, all capital
stock and franchise taxes of AL Investors or any Facility Entity, all ad
valorem, property, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes), assessments (including, without limitation,
all assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and assessments levied by condominium
associations), ground rents, water and sewer rents other than normal utility
charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), and all other charges
imposed by Governmental Authorities, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character in
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respect of the Facility (including all interest and penalties thereon due to any
failure in payment by Manager), which at any time prior to, during or in respect
of the Term of the Management Agreement may be assessed or imposed on or in
respect of or be a Lien upon (a) Facility Entities' interest in the Facility,
(b/ the Facility or any rent or income therefrom or any estate, right, title or
interest therein, or (c) any occupancy, operation, use or possession of, sales
from, or activity conducted on, or in connection with, the Facility or the
leasing or use of the Facility. Notwithstanding the foregoing, "Impositions"
shall not include: (1)any tax based on net income (whether denominated as a
franchise or capital stock or other tax) imposed on any Owners or Managers, (2)
any tax imposed with respect to the sale, exchange or other disposition of a
Facility or the proceeds thereof, or (3) any principal or interest on any
Mortgage; provided, however, the provisos set forth in clause (1) of this
sentence shall not be applicable to the extent that any real or personal
property tax, assessment, tax levy or charge pursuant to the first sentence of
this definition and which is in effect at any time during the Term hereof is
totally or partially repealed, and a tax, assessment, tax levy or charge set
forth in clause (1) is levied, assessed or imposed expressly in lieu thereof.
Improvements: the buildings, structures (surface and sub-surface) and other
improvements now or hereafter located on the Land.
Initial Term: as defined in Section 2.1 of the Management Agreement.
Insurance Requirements: all terms of each insurance policy required to be
carried in this Agreement, or agreed to be carried by Owners and Managers, and
all orders, rules, regulations and other requirements of the National Board of
Fire Underwriters (or any other body exercising similar functions) applicable to
the Facilities or the operation thereof.
Junior Loan: any indebtedness incurred by Owners which is secured by a mortgage,
pledge, and related security instruments against the membership interests of AL
Investors in the Facility Entities. Initially, the Junior Loan is evidenced by
that certain Loan Agreement between AL Investors (and the Facility Entities) and
Senior Housing Partners I, L.P. dated on or about the same date hereof ("Initial
Junior Loan"/.
Land: the parcel or parcels of land on which each of the Facilities is situated,
together with all rights of ingress and egress thereto and parking associated
therewith as legally described in the Purchase Agreements.
Leases: Collectively, the Ordinary Leases and Major Leases.
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Legal Requirements: collectively, all statutes, ordinances, by-laws, codes,
rules, regulations, restrictions, orders, judgments, decrees and injunctions
(including, without limitation, all applicable building, health code, zoning,
subdivision, and other land use and assisted living licensing statutes,
ordinances, by-laws, codes, rules and regulations), whether now or hereafter
enacted, promulgated or issued by any Governmental Authority, Accreditation Body
or Third Party Payor affecting a Facility Entity or any Facility or the
ownership, construction, development, maintenance, management, repair, use,
occupancy, possession or operation thereof or the operation of any programs or
services in connection with a Facility, including, without limitation, any of
the foregoing which may (i) require repairs, modifications or alterations in or
to any Facility, (ii) in any way affect (adversely or otherwise) the use and
enjoyment of any Facility or (iii) require the assessment, monitoring, clean-up,
containment, removal, remediation or other treatment of any Hazardous Substances
on, under or from any Facility. Without limiting the foregoing, the term "Legal
Requirements" includes all Environmental Laws and shall also include all Permits
and Contracts issued or entered into by any Governmental Authority, any
Accreditation Body and/or any Third Party Payor and all Permitted Encumbrances.
Lending Group: GMAC Commercial Mortgage for itself and as agent for other
participating lenders in a debt facility referred to herein as the Initial
Senior Loan secured by the Facilities in the maximum aggregate original
principal balance of $ 138,000,000.
Licensing Indemnity Agreement: that certain Licensing Indemnity Agreement
between Emeritus Corporation and AL Investors dated on or about the same date
hereof.
Lien: with respect to any real or personal property, any mortgage, mechanics' or
materialmen's lien, pledge, collateral assignment, hypothecation, charge,
security interest, title retention agreement, levy, execution, seizure,
attachment, garnishment or other encumbrance of any kind in respect of such
property which secures or is intended to secure the payment of money, whether or
not inchoate, vested or perfected, other than the Mortgage.
Major Contracts: Any contract for the purchase of goods or services or any other
agreement which requires payments in excess of $50,000 per year for any Facility
or which cannot be terminated without penalty or termination fee on sixty (60)
days notice or in which the provider of the goods or services is Emeritus or an
Affiliate (except pursuant to Group Services approved in connection with an
Annual Plan).
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Major Lease. Any Lease which has a noncancellable term in excess of one year or
a rental payment in excess of S 10,000 per year or pursuant to which Emeritus or
an Affiliate is the lessee or lessor.
Managed Care Plans: all health maintenance organizations, preferred provider
organizations, individual practice associations, competitive medical plans, and
similar arrangements.
Management Fee: an amount equal to seven percent (7%) of Total Revenue for all
Facilities, subject to the provisions of Section7.2 of the Management Agreement.
Medicaid: the medical assistance program established by Title XIX of the Social
Security Act and any statute succeeding thereto.
Medicare: the health insurance program for the aged and disabled established by
Title XVIII of the Social Security Act (42 USC - - 1395 et seq.) and any statute
succeeding thereto.
Mortgage: collectively, the terms and conditions of the Senior Loan and the
Junior Loan.
Mortgagee: the holder or beneficiary of a Mortgage and their respective
successors and assigns. Operating Deficit and Operating Profit: for any period,
the amount, if any, by which Total Revenues for that period is less than or
exceeds, respectively, the sum of (i) Operating Expenses and (ii) Fixed
Operating Expenses for that period in each case determined on a cash basis.
Operating Equipment: all dishes, glassware, bed coverings, towels, silverware,
uniforms and similar items used in, or held in storage for use in (or if the
context so dictates, required in connection with) the operation of the
Facilities.
Operating Expenses: for any period, all reasonable costs and expenses of owning
and operating the Facilities in the aggregate except where the Agreement
expressly provides that Operating Expenses shall be determined for each Facility
(which costs and expenses do not include the Fixed Operating Expenses or the
Excluded Expenses) including the following:
(a) The cost of all Operating Equipment and Operating Supplies placed in use,
with the exception of the Operating Equipment and Operating Supplies initially
supplied by the Facility Entities. The cost of maintaining and
A-9
operating the vans and buses for each Facility (but not any debt service or
lease payments which shall remain the sole expense of Emeritus) plus $2,000 per
Operating Year for each bus or van in monthly installments as compensation for
making the buses available at the Facilities.
(b) The Compensation of all employees working and employed by Managers at the
Facilities. The Compensation of Managers' or Emeritus' home office or executive
or other personnel not regularly employed at the Facilities shall not be
included in Operating Expenses or Fixed Operating Expenses, but reasonable
out-of-pocket travel expenses of Managers or Owners' executive personnel while
traveling to and from a Facility on business shall be reimbursable as an
Operating Expense; provided, however, that if such business travel relates to
business or properties other than with respect to the Facilities, then such
travel expenses shall be equitably prorated between such other business or
properties and the Facilities.
(c) The cost of all utilities including, without limitation, electricity, water,
gas, heat and other utilities, and office supplies and equipment, and goods and
services purchased under all Contracts, including leasing expenses in connection
with telephone and data processing equipment and such other equipment as the
parties hereto may agree upon in writing.
(d) The cost of repairs to and maintenance of the Facilities whether performed
by Facility employees or contracted to third parties.
(e) Insurance premiums for all insurance required under this Agreement and
self-insured losses and deductibles with respect to such insurance coverages
(but excluding premiums and self-insured losses and deductibles on property and
casualty insurance which are included in Fixed Operating Costs). Premiums on
policies for more than one year will be prorated over the period of insurance
coverage and premiums under blanket policies will be equitably allocated among
properties covered.
(f) All Impositions (except for real and Personal Property ad valorem taxes and
assessments which shall be a Fixed Operating Expenses).
(g) Except as otherwise provided in Section 6.1 of the Management Agreement,
legal fees and fees of any CPA for services directly related to the operations
of the Facilities (whether incurred by Owners or Managers).
(h) The costs and expenses of technical consultants and specialized operational
experts for specialized services in connection with non
A-10
recurring work on operational, functional, design or construction problems and
activities whether incurred by Owner or Manager; provided, however, that if such
costs end expenses have not been included in the Annual Plan, the same shall be
subject to approval by Owner.
(i) All expenses for marketing the Facilities and all expenses of sales
promotion and public relations activities as set forth in the Annual Plan
(j) The cost of Group Services, as provided in Section 3.2.4 of the Management
Agreement. Facilities.
(k) Bad debts or uncollectible amounts from residents of the
(I) refund of deposits to residents under Residency Agreements
(m) Owners' reasonable costs and expenses of administering, supervising, and
managing Owners' activities in connection with this Agreement and any Mortgage,
including Owners' reasonable cost and expense of preparing and filing federal,
state and local income tax returns and audits.
(n) All other reasonable expenses and charges incurred in the operation and
management of the Facilities to the extent set forth in the Annual Plan or
otherwise approved by the Owners or as otherwise set forth in the Agreement.
Operating Period: the period beginning with the Commencement Date and ending
upon the expiration of the Initial Term.
Operating Supplies: consumable items used in, or held in storage for use in (or
if the context so dictates, required in connection with), the operation of the
Facilities, including food, medical supplies, fuel, soap, cleaning materials,
and other similar consumable items.
Operating Year: the Operating Years shall coincide with and be identical with
the calendar years, except that the first Operating Year shall be the period
beginning on the Commencement Date and ending on December 31 of the following
full calendar year if the Commencement Date is before December 31, 1998, or
beginning on the Commencement Date and ending on the following December 31,
1999, if the Commencement Date is after December 31, 1998 and such long or short
year, as applicable, shall constitute a full Operating Year as used herein.
A-11
Ordinary Contracts: All agreements and contracts to purchase goods and services
(excluding Major Contracts) in the ordinary course of business of refurbishing,
owning, operating or managing the Facilities, or the operation of any programs
or services in conjunction with the Facility and all renewals, replacement and
substitutions therefor with any Governmental Authority, Accreditation Body or
Third Party Payor or entered into with any third Person, excluding, however, any
agreements pursuant to which money has been or will be borrowed or advanced, the
Leases, any agreement creating or permitting any Lien or other encumbrance on
title (except for the Permitted Exceptions), and any Major Contract.
Ordinary Leases: Collectively, all subleases, licenses, use agreements,
equipment leases, concession agreements, tenancy at will agreements and other
occupancy agreements /but excluding any Residency Agreement, Facility Lease or
Major Lease), whether oral or in writing, entered into by Managers affecting a
Facility.
Overdue Rate: on any date, a rate of interest per annum equal to the greater of:
(i) a variable rate of interest per annum equal to one hundred twenty percent
(120%) of the Prime Rate, or (ii) twelve percent (12%) per annum; provided,
however, in no event shall the Overdue Rate be greater than the maximum rate
then permitted under Legal Requirements.
Permits: collectively, all permits, licenses, approvals, qualifications, rights,
variances, permissive uses, accreditation, certificates, certifications,
consents, agreements, contracts, contract rights, franchises, interim licenses,
permits and other authorizations of every nature whatsoever required by, or
issued under, applicable Legal Requirements relating or affecting a Facility or
the construction, development, maintenance, management, use or operation
thereof, or the operation of any programs or services in conjunction with the
Facility and all renewals, replacements and substitutions therefor, now or
hereafter required or issued by any Governmental Authority, Accreditation Body
or Third Party Payor to Owners or Managers.
Permitted Exceptions: (i) all encumbrances to title present at closing pursuant
to the Purchase Agreements; (ii) liens for Impositions not delinquent; (iii)
easements, restrictions on use, zoning laws and ordinances, rights of way and
other encumbrances and minor irregularities in title, whether now existing or
hereafter arising, which are approved by Owner and do not individually or in the
aggregate materially impair the use of any Facility.
Person: any individual, corporation, general partnership, limited partnership,
joint venture, stock company or association, company, bank, trust, trust
company, land trust, business trust, unincorporated organization, unincorporated
association, Governmental Authority or other entity of any kind or nature.
A-12
Personal Property: all machinery, equipment, furniture, furnishings, movable
walls or partitions, computers or trade fixtures, goods, inventory, supplies,
the name of the Facility, and other personal or intangible property used in the
operation of the Facility, including, but not limited to, all Operating
Equipment, Furnishings and Equipment and Operating Supplies; provided, however,
that the Personal Property shall not include vans or buses, but title to all
vans and buses shall remain in Emeritus or its Affiliates and be transferred to
Owners as provided in Section 9.6 of the Management Agreement.
Primary Intended Use: the use of the Facility as an assisted living facility and
such ancillary uses as are permitted by applicable Legal Requirements and may be
necessary in connection therewith or incidental thereto.
Prime Rate: the variable rate of interest per annum from time to time set forth
in the Wallstreet Journal as the prime rate of interest and in the event that
the Wallstreet Journal no longer publishes a prime rate of interest, then the
Prime Rate shall be deemed to be the variable rate of interest per annum which
is the prime rate of interest or base rate of interest from time to time
announced by any major bank or other financial institution reasonably selected
by AL Investors.
Provider Agreements: all participation, provider and reimbursement agreements or
arrangements, if any, in effect for the benefit of Owners or Managers in
connection with the operation of the Facility relating to any right of payment
or other claim arising out of or in connection with participation in any Third
Party Payor Program.
Put and Purchase Agreement: that certain Put and Purchase Agreement between
Daniel Baty and AL Investors dated on or about the same date hereof.
Residency Agreement: all contracts, agreements and consents executed by or on
behalf of any resident or other Person seeking services at the Facility,
including, without limitation, assignments of benefits and guarantees.
Senior Loan: any indebtedness incurred by Owners which is secured by any
mortgage, deed of trust and related security instruments against a Facility.
Initially, the Senior Debt is evidenced by that certain Loan Agreement between
AL Investors (and the Facility Entities) and GMAC Commercial Mortgage
Corporation dated on or about the same date hereof ("Initial Senior Loan").
Third Party Payor Programs: collectively, all third party payor programs in
which the Emeritus Entities presently or in the future may participate,
including
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without limitation, Medicare, Medicaid, Blue Cross and/or Blue Shield, Managed
Care Plans, other private insurance plans and employee assistance programs.
Third Party Payors: collectively, Medicare, Medicaid, Blue Cross and/or Blue
Shield, private insurers and any other Person which presently or in the future
maintains Third Party Payor Programs.
Title Company: First American Title Insurance Company.
Total Revenues: collectively, but without duplication all revenues generated by
reason of the operation of the Facilities in the aggregate, except where the
Agreement expressly provides that Total Revenues shall be determined for each
Facility, directly or indirectly received by any Facility Entity or Managers,
including, without limitation, all resident revenues received or receivable for
the use of, or otherwise by reason of, all rooms, units and other facilities
provided, deposits received from residents under Residency Agreements, meals
served, services performed, space or facilities leased pursuant to the Leases or
goods sold on or from the Facility, all amounts from Third Party Payors, and all
revenues from all ancillary services provided at or relating to any Facility;
provided, however, that Total Revenues shall not include:
(a) federal, state or local sales, use, gross receipts and excise taxes and any
tax based upon or measured by said Total Revenues which is added to or made a
part of the amount billed to the resident or other recipient of such services or
goods, whether included in the billing or stated separately, which is paid to
the Governmental Authority;
(b) proceeds from sale of capital assets, including the sale of the Facility and
proceeds therefrom other than sale of Furnishings and Equipment in the ordinary
course of business,;
(c) proceeds of any insurance other than business interruption insurance;
(d) proceeds of any financing or capital contributions to Owners;
(e) interest or earnings on the Reserve Account;
(f) any Award resulting from Condemnation;
(g) any other income or proceeds from any source other than in the ordinary
course of business of the Facility.
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Except as otherwise specifically indicated, all references to Section and
Subsection numbers refer to Sections and Subsections of this Agreement, and all
references to Exhibits refer to the Exhibits attached hereto. The words
"herein," "hereof", "hereunder", "hereinafter", and words of similar import
refer to this Agreement as a whole and not to any particular Section or
Subsection hereof unless the context otherwise requires.
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EXHIBIT B
TO MANAGEMENT AGREEMENT WITH OPTION TO PURCHASE
Determination of Purchase Price
The Purchase Price with respect to all of the Meditrust Facilities means:
(a/ The amount required to repay the Senior Loan secured by all Facilities
(including both the Meditrust Facilities and the Emeritus Facilities) in full,
including prepayment penalties or other costs of repayment; plus
(b) The amount required to repay in full the Junior Loan evidenced by that
certain Series A Promissory Note dated of even date herewith, in the original
principal amount of $6,000,000, including repayment of principal, Base Interest,
and Contingent Interest, as such terms are defined therein, plus
(c) The amount required to repay in full the Junior Loan evidenced by that
certain Series B Promissory Note dated of even date herewith, in the original
principal amount of $18,994,873, including repayment of principal, Base
Interest, and Contingent Interest, as such terms are defined therein, plus
(d) The amount required to repay in full the initial investment of $5,126,984
made by the members of AL Investors, plus an eighteen percent per annum rate of
return, compounded annually (computed taking into account any distributions made
by AL Investors to its members from time to time), plus an additional amount
equal to $ 102,540, plus
(e) The reasonable costs which AL Investors and its Subsidiaries will incur to
dissolve and fully liquidate, and less
(f) The Fair Market Value as defined in Exhibit B of the Put and Purchase
Agreement. The foregoing Option Price is intended to equal the purchase price
which would be required to be paid for the Meditrust Facilities in connection
with a dissolution and liquidation of AL Investors and its Subsidiaries
(assuming a simultaneous sale of the Emeritus Facilities for their Fair Market
Value as defined in Exhibit B of the Put and Purchase Agreement/, to provide a
net liquidating payment to the members of AL Investors, after satisfaction in
full of the Senior Loan and the Junior Loan, and payment of all reasonable costs
of such assumed dissolutions,
Page B-1
equal to members' investment in AL Investors plus an 18% per annum return,
compounded annually (computed taking into account periodic distributions), plus
$102,540. The parties hereto acknowledge such intention and agree that the
foregoing shall be construed accordingly.
Page B-2