Exhibit 10.39
AGREEMENT TO PROVIDE MANAGEMENT
SERVICES TO WASHINGTON ASSISTED LIVING FACILITIES
This Agreement made as of the 31st day of December, 2001, by
and between Regent Assisted Living, Inc., an Oregon corporation (hereinafter
referred to as "Licensee") and Emeritus Corporation, a Washington corporation
(hereinafter referred to as "Manager").
WHEREAS, as set forth more fully in Exhibit A, Licensee either
owns, leases or manages under contract or in its capacity as the managing member
of the Licensee or lessee of, the assisted living facilities which are licensed
under Washington law as boarding homes and which are described in Exhibit A (the
"Facilities" and, where the context requires, individually, a "Facility") and
is, in each instance, authorized to engage a manager or submanager in connection
with its operation of the Facilities;
WHEREAS, Licensee wants someone to manage the Facilities on
its behalf;
WHEREAS, Manager is experienced and qualified in the field of
assisted living facilities management and has agreed to manage the Facilities on
behalf of Licensee, pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants herein contained, IT IS AGREED AS FOLLOWS:
I. Responsibilities of Manager: Licensee hereby engages Manager and
Manager hereby accepts such engagement and agrees to provide management,
consulting and advisory services to Licensee in connection with the operation of
the Facilities, upon the terms and conditions set forth in this Agreement;
provided, however, Licensee has and retains under this Agreement the ultimate
responsibility for the operational decisions of the Facility. By entering into
this Agreement, Licensee does not delegate to Manager any powers, duties or
responsibilities which it is prohibited by law from delegating. Licensee also
retains such other authority as shall not have been expressly delegated to
Manager pursuant to this Agreement. Subject to the foregoing, Manager shall
provide the following services:
(a) Operational Policies and Forms: Manager shall develop and
implement such operational policies and procedures as may be necessary to ensure
the ongoing licensure of the Facilities and the establishment and maintenance of
operational standards appropriate for the nature of the Facilities. Licensee
shall have the right to recommend changes to such policies and procedures in the
event, in its capacity as the licensed operator of the Facilities, it believes
1
that such changes are needed to ensure the compliance of the Facilities with
applicable licensure laws.
(b) Charges: Manager shall establish the schedules of recommended
charges, including any and all special charges for services rendered to the
residents at the Facilities. Manager shall have the right to review the fee
schedules as the same may change from time to time. Residents of the Facilities
shall be provided with notice of any changes in the schedules of charges in
accordance with RCW Chapter 70.120, the Long Term Care Residents Rights Act,
and, if applicable, the terms of their admission agreement and the policies and
procedures of the Facilities.
(c) Information: Manager shall develop any informational material,
mass media releases, and other related publicity materials, which are necessary
or appropriate for the operation of the Facilities. If and to the extent any
such materials developed by Manager contain Manager's name or logo, the same
shall clearly reflect that Manager is the manager and shall not, directly or
indirectly, give the appearance that Manager is the licensee of the Facility.
Further, when Manager takes any action on behalf of Licensee, any communication
or correspondence must clearly indicate that it is acting as the agent of
Licensee.
(d) Regulatory Compliance: Subject to the force majeure and notice
and cure right contained in the Agreement below, Manager shall assist Licensee
in maintaining all licenses, permits, qualifications and approvals from any
applicable governmental or regulatory authority for the operation of the
Facilities, it being understood and agreed that under Washington law, Licensee
is responsible for ensuring that all such licenses are obtained and maintained
and that the Facilities are operated in compliance with all applicable laws and
regulations, including, but not limited to, the laws and regulations governing
the licensure of boarding homes and local, state and federal employment rules
and regulations. Manager shall manage the operation of the Facilities in a
manner which is intended to ensure their full compliance with all applicable
laws and regulations; provided, however, Manager shall not be deemed to be in
default of its obligations under this Section I(d) in the event (i) of a
violation of any applicable law or regulation which occurs during the first
thirty (30) days after the Commencement Date (the "Protected Period"), (ii) of
the citation of any deficiency or deficiencies which do not result in the
threatened revocation of the licensure or Medicaid certification of, or the
imposition of a ban on admissions at, the affected Facility or Facilities and
which deficiency or deficiencies are timely corrected in accordance with a plan
of correction approved by the applicable regulatory authority, (iii) Manager is
duly contesting the application of any law to the operation of a Facility or
Facilities and compliance therewith is stayed during the period that such
contest is pending or (iv) compliance with law requires the expenditure of funds
which require the approval of Licensee and for which Licensee refuses or fails
to provide such approval. In order to ensure Manager's compliance with its
obligations under this Section I(d) Licensee shall provide
2
Manager prior to the Commencement Date with a copy of any agreements or orders
to which Licensee may be a party in connection with the operation of the
Facilities. Within 48 hours of receipt, Manager shall provide Licensee with
copies by fax, overnight mail, email or other comparable means of expedited
transmission of any written notices of non-compliance which it receives from any
governmental authority having jurisdiction over the Facilities in which such
authorities threaten a loss or licensure or Medicaid certification of, or the
imposition of a ban on admissions at or the imposition of civil or criminal
penalties against, a Facility or Licensee. In addition, Licensee shall have the
right to approve, which approval shall not be unreasonably withheld, any plan of
correction developed by Manager with respect to any survey or other governmental
action which threatens revocation of the licensure or Medicaid certification of,
or a ban on admissions at or the imposition of civil or criminal penalties
against, a Facility or Licensee and to approve the election by Manager to
contest the application of any law to the operation of a Facility or Facilities.
(e) Capital Repairs, Replacements and Improvements: Recognizing the
Licensee is ultimately responsible for compliance with and meeting all
applicable state boarding home licensing requirements, Manager shall make all
capital repairs, replacements and improvements which are necessary for the
efficient and effective operation of the Facilities and their compliance with
law unless doing so involves an expenditure requiring Licensee's approval in
accordance with the terms of this Agreement and Licensee fails to provide such
approval. The cost of such capital repairs, replacements and improvements shall
be within the budgetary limits set forth in the annual capital budgets prepared
by Manager pursuant to Paragraph I(L); provided, however, Manager shall not be
deemed to be in default of its obligations under this Section I(e) in the event
the cost of such repairs, replacements and/or improvements exceeds the
applicable budgetary limits provided such repairs, replacements and/or
improvements are (a) of such an emergency nature that Licensee's prior notice
and approval is not feasible in order to adequately protect the Facilities and
the health and safety of the occupants or (b) the cost of such repairs,
replacements and/or improvements are within 10% of the budgetary limits set
forth in the annual approved capital budget then in effect for the affected
Facility or Facilities prepared by Manager pursuant to Paragraph I(L). Any other
capital expenditures for repairs, replacements or improvements that exceed such
budgetary limits shall be subject to the prior approval of the Licensee, which
approval shall not be unreasonably withheld; provided, however, Licensee shall
not be deemed to have unreasonably withheld its approval if (i) Licensee lacks
the financial resources to cover the cost of such capital repair, replacement or
improvement or (ii) the cost of such capital repair, replacement or improvement
will exceed $25,000 individually or in the aggregate with other unbudgeted
capital repairs, replacements or improvements undertaken by Manager in the same
fiscal year. In performing the foregoing repairs, replacements and improvements
Manager shall use the Facilities' on site maintenance personnel as and where
possible and shall otherwise contract with qualified third parties to
3
provide the necessary services and shall undertake the same or cause the same to
be undertaken in a workman like and lien free manner.
(f) Accounting:
----------
(i) Manager shall, at its expense, provide accounting support
to the Facilities. Licensee acknowledges and agrees that such accounting support
shall not include the preparation of Licensee's corporate financial statements
or securities filings, but only the individual financial statements for the
Facilities, in each case meeting the requirements of Section 1(G). Manager shall
not be required to reflect in the financial statements for the Facilities any
corporate accounting adjustments provided to Manager by Licensee until such time
as Manager fully understands the rationale for such adjustment.
(ii) All accounting procedures and systems utilized in
providing said support shall be in accordance with the operating capital and
cash programs developed by Manager, which programs shall conform to generally
accepted accounting principles ("GAAP") and shall not materially distort income
or loss; provided, however, Manager shall have no liability for errors in the
financial statements prepared during the term of this Agreement which arise from
errors in starting accounting balances provided by Licensee to Manager pursuant
to Section I(f)(v).
(iii) In addition, as a cost of operating the Facilities,
Manager shall prepare or cause to be prepared all payroll tax returns, sales and
use tax returns, real and personal property tax returns, informational tax
returns, Forms 5500 and local or state gross receipts and/or business and
occupation tax returns and Manager shall cause to be paid all of the taxes
reflected on such returns as being due, which taxes shall be paid from the cash
receipts of the Facilities or the working capital provided by Licensee under the
terms of this Agreement. All other tax returns, including Licensee's local,
state or federal income tax returns and state corporate franchise tax returns
and third party payor cost reports, shall be prepared by Licensee or its
designee and the taxes and other payments due thereunder shall be the sole
responsibility of Licensee.
(iv) Nothing herein shall preclude Manager from delegating to
a third party a portion of the accounting duties provided for in this section;
provided, that such delegation shall not relieve Manager from ultimate liability
for the timely and complete performance of the obligations provided for herein
or for the expense thereof, to the extent such expense is to be borne hereunder
by Manager. Licensee acknowledges and agrees that in the event Manager retains
one or more third parties to review the real and/or personal property tax
returns or utility bills of the Facilities or other third party charges in an
effort to effect cost savings for the
4
Facilities, the fees and expenses of such third parties shall be paid from the
cash receipts of the Facilities or the working capital provided by Licensee
under the terms of this Agreement.
(v) In order to enable Manager to provide the accounting
support services described in this Section, prior to the Commencement Date,
Licensee shall provide to Manager the information and shall take the transition
actions described in Exhibit B hereto (the "Accounting Transition Services"), it
being understood and agreed that Manager will not be able to fully perform its
obligations under this Section I(f) unless and until Licensee has fully complied
with its obligations with respect to the Accounting Transition Services.
(g) Reports: Manager shall prepare and provide to Licensee any
reasonable financial and operational information with respect to the Facilities
which may from time to time be specifically requested by Licensee, including any
information needed to assist Licensee in completing the tax returns for which it
is responsible under Section I(f),in complying with any reporting obligations
imposed on Licensee or Licensee's parent under its leases and loan agreements or
as a publicly traded company, in refinancing any of the debt secured by the
Facilities and in complying with the reporting obligations described in Exhibit
C. In addition, by no later than thirty (30) days after the end of each calendar
month, Manager shall provide Licensee with an unaudited balance sheet of the
Facilities, dated the last day of such month, and an unaudited statement of
income and expenses for such month and for the fiscal year to date relating to
the operation of the Facilities showing the variance between the actual and
budgeted operating results of the Facilities for said month and in the form
attached hereto as Exhibit D and with a census report for the month indicating
the number of units occupied and the number of units vacant. Upon request
Manager shall cooperate with Licensee or Licensee's certified public accountant
in the event Licensee elects, or is required, to have audited annual financial
statements prepared. The financial statements prepared by Manager shall be
prepared in accordance with (i) GAAP, consistently applied, (ii) this Agreement,
and (iii) the procedures and practices provided for in this Agreement.
(h) Bank Accounts:
-------------
(i) With respect to each of the Facilities, Manager shall
establish and maintain a checking account for each of the Facilities in the name
set forth opposite the name of each of the Facilities in Exhibit E (each of
which accounts shall hereinafter be referred to as the "Depository Account") and
shall deposit therein all money received during the term of this Agreement in
the course of the operation of the applicable Facility including any money
received upon the collection of accounts receivable which are outstanding as of
the Commencement Date for goods sold or services rendered at the Facilities
prior to the Commencement Date and shall pay therefrom the expenses incurred in
the operation of the applicable Facility during the Term of, and in accordance
with the terms of, this Agreement.
5
(ii) During the Term hereof, withdrawals and payments from the
Depository Account for each Facility shall be made only on checks signed by a
person or persons designated by Manager but Manager shall have no ownership
interest in or other rights to the Depository Account other than the right to
make withdrawals therefrom and to make deposits thereto; and provided, further
that Licensee shall be given notice as to the identity of said authorized
signatories.
(iii) Withdrawals from the Depository Account for each
Facility shall be made first to pay to Licensee the management fee due with
respect to such Facility as set forth in Exhibit F (the "Regent Management
Fees"), which Regent Management Fees shall be deposited in an account
established by Licensee in Seattle, Washington (the "Regent Account") and
thereafter to pay the expenses of operating such Facility, including payroll and
related state and federal payroll tax obligations (the "Daily Operating
Expenses") and rent and debt service payments to the lenders and landlords set
forth in Exhibit G and in the amounts set forth in Exhibit G as the same may be
amended from time to time to reflect changes in such rent and debt service
payments or in the amounts otherwise specified by Licensee to Manager in writing
from time to time (the "Property Expenses"); provided, however, that regardless
of the priority of payments set forth in this Section I(h)(iii), Licensee shall
be required to ensure that all expenses related to the care of the residents of
the Facilities are paid, it being understood and agreed that any limitation on
resources or insufficiency of funds of the Licensee or the Facilities shall not
excuse Licensee, as the licensed operator of the Facility, from fulfilling its
obligation to ensure that the Facilities meet all applicable state licensing
requirements. Exhibit G shall also reflect when the rent or debt service payment
is due under the terms of the applicable lease or loan documents and any
available grace period. The Daily Operating Expenses and the Property Expenses
shall be paid by Manager in such order of priority as Manager deems appropriate
from time to time to the operation of such Facility, provided however, Daily
Operating Expenses and the Property Expenses shall be paid by no later than
their due date or, if applicable, before the expiration of any applicable grace
period in which payment may be made prior to the occurrence of a default under
the terms of the applicable lease, loan agreement, contract, agreement or
purchasing arrangement, unless resulting from the failure of Licensee to provide
the Working Capital Funds (as defined in Section I(h)(v) below) or Management
Fee Funds (as defined in Section I(h)(v) below) as and when due in accordance
with Section I(h)(v) below. Manager shall make any rent and debt service
payments which are made by it by wire transfer in accordance with wiring
instructions provided by Licensee to Manager.
(iv) Any excess funds in the Depository Account for a
Facility, after establishing the working capital reserves required by Section
VIII(c), shall be distributed by Manager to Licensee.
6
(v) In the event (A) at any time Manager determines in the
exercise of its reasonable judgment that there are insufficient funds in the
Depository Account or in the Other Authorized Accounts (as hereinafter defined),
in the case of a Designated Facility (as hereinafter defined), to maintain the
minimum bank balance required by Section VIII(c) and pay all Daily Operating
Expenses and Property Expenses due and payable in the following thirty (30) day
period (the "Working Capital Funds") or (B) in the event there are at any time
insufficient funds available in the Regent Account to pay Manager's Base
Management Fee (as defined below) (the "Management Fee Funds"), no less than
three (3) days prior to the date on which Manager determines that Working
Capital Funds or Management Fee Funds, as applicable, are required, Manager
shall provide Licensee with a verbal demand therefor followed by a written
confirmation of such demand, which written confirmation shall specify in
reasonable detail the amount needed and the reason therefor and, Licensee shall,
within five (5) business days of its receipt of such written demand by Manager,
deposit in the applicable Depository Account or the Regent Account, as
applicable, the amount so demanded by Manager. For purposes hereof, the Other
Authorized Accounts shall be defined as those accounts designated in writing by
Licensee to Manager from which Manager is authorized to draw funds in order to
meet the working capital needs of certain other Facilities designated in writing
by Licensee to Manager (the "Designated Facilities" or individually a
"Designated Facility"), provided the designation shall not be effective unless
the same is accompanied by either (i) an opinion of Licensee's outside legal
counsel confirming that it has reviewed all necessary legal documents and
determined that Licensee is authorized to lend money from the Other Authorized
Accounts for the benefit of the Designated Facilities or (ii) a certificate, in
form and substance reasonably acceptable to Manager signed by Licensee's
Representative to the effect that Licensee is authorized to lend money from the
Other Authorized Accounts for the benefit of the Designated Facilities, along
with appropriate supporting documentation with respect to the statements
contained in such certificate, which documentation shall be in form and
substance acceptable to Manager in the exercise of its reasonable discretion.
Licensee acknowledges and agrees that in no event will Manager have any
obligation to pay any Daily Operating Expenses or the Regent Management Fee
other than from funds available in the applicable Depository Account, including
funds deposited therein by Manager after withdrawing funds from the Other
Authorized Accounts, if applicable, or to provide its own funds to satisfy or
support in any manner the working capital needs of the Facilities or to pay its
own Base Management Fee, and that (i) such working capital is to be provided
solely from the cash receipt of the Facilities, if applicable, withdrawals from
the Other Authorized Accounts and the working capital provided by Licensee
pursuant to this Section I(h) and (ii) such management fees are to be paid from
the funds deposited by Manager in payment of the Regent Management Fees and by
Licensee pursuant to this Section I(h)(v), if applicable, in the Regent Account.
(vi) Licensee acknowledges and agrees that in the course of
its operation of the Facilities Manager may incur common expenses benefiting all
of the facilities owned and/or
7
operated by Manager, including the Facilities (the "Common Expenses"). Such
Common Expenses shall be included in the Daily Operating Expenses of the
Facilities and may be paid from the cash in the applicable Depository Account(s)
if (i) the same relate to the direct cost of corporate, regional or divisional
meetings or training sessions held by Manager and in which the administrative
personnel of the Facilities have participated ("Meeting and Training Common
Expenses"), (ii) the same are included within the approved annual capital or
operating budgets ("Budgeted Common Expenses") or (iii) the same are not Meeting
and Training Common Expenses or Budgeted Common Expenses (the "Other Common
Expenses") but are approved by Licensee, which approval shall not be
unreasonably withheld, after Manager has provided Licensee with a specification
setting forth in reasonable detail the nature of such Other Common Expenses.
(i) Personnel: All of the personnel of the Facilities, including the
community directors, business managers and the Wellness Directors, if
applicable, shall be the employees of Licensee and the salaries, bonuses,
commissions, state and federal payroll and social security tax obligations and
benefits paid to or on behalf of such employees shall be deemed to be included
in the Daily Operating Expenses of the Facilities and thus shall be paid from
the Facilities Depository Account, subject to the limitation set forth in
Section II with respect to the payment of Insurance Costs (as defined in Section
II). Notwithstanding the foregoing, Manager shall recruit, employ, train,
promote, direct, discipline, suspend and discharge the personnel of the
Facilities; establish salary levels, personnel policies and employee benefits;
and establish employee performance standards, all as needed during the term of
this Agreement to ensure the efficient operation of all departments within and
services offered by the Facilities; provided, however, that ultimate control
over the community directors, including their appointment, and over personnel
matters relating to the operation of the Facilities and the care provided to the
residents of the Facilities and responsibility for the staffing levels, and
training of the personnel at, the Facilities shall remain with Licensee.
(j) Supplies and Equipment: Manager shall purchase supplies and
non-capital equipment needed to operate the Facilities. In purchasing said
supplies and equipment, if possible without Manager incurring personal liability
for the cost of such supplies and equipment, Manager shall take advantage of any
national or group purchasing agreements to which Manager may be a party.
(k) Legal Proceedings: Manager shall, with the assistance and at the
direction of Licensee and its legal counsel, take any and all appropriate steps
to protect and/or assist in litigating to a final decision in an appropriate
court or forum any such third party claim of violation, order, rule or
regulation affecting the Facilities and its operation or any claim, loss,
violation or cause of action relating to the Facilities, it being understood and
agreed that under Washington law any administrative appeals of licensing or
contract action/enforcement imposed
8
by the Washington Department of Social and Health Services ("DSHS") may only be
filed by Licensee or by Manager if it is expressly authorized to do so by
Licensee. All of the costs incurred in any litigation of third party claims
respecting the Facilities, including the reasonable legal fees and expenses of
legal counsel retained to defend Licensee and/or Licensee and Manager jointly
and/or any landlord or lender, shall be included in the Daily Operating Expenses
and shall be reimbursed from the funds in the Depository Account of the
applicable Facility established pursuant to Section 1(h) if previously paid by
Licensee or shall be paid from the funds in the Depository Account of the
applicable Facility if not previously paid by Licensee. Nothing herein shall be
construed as precluding Licensee from seeking to recover from Manager the fees
and expenses described in this Section I(k) to the extent Manager is otherwise
liable therefore under the default or indemnification provisions of this
Agreement.
(l) Budgets:
-------
(i) The Facilities shall be operated on a fiscal year of
January 1 through December 31.
(ii) Licensee and Manager shall agree prior to the
Commencement Date (as hereinafter defined) on an initial operating budget and
capital budget for the period from the Commencement Date through December 31,
2002.
(iii) Prior to the start of each subsequent fiscal year,
Manager shall prepare and submit to Licensee for its review and approval, which
approval shall not be unreasonably withheld, an annual operating budget, an
annual capital expenditure budget, an annual operating plan, an annual marketing
plan and an annual cash flow projection for each of the Facilities. The annual
operating budget and capital expenditure budget shall be prepared using the
format set forth in Exhibit H. In the event a budget for a Facility has not been
agreed upon by the beginning of the fiscal year for any reason whatsoever
including Licensee's or Manager's unreasonable refusal to approve the same,
Manager sole remedy shall be that the operating results of the prior fiscal year
for such Facility plus 5% shall serve as the budget for the following fiscal
year for such Facility unless and until the new budget is agreed upon, it being
understood and agreed that the refusal by Licensee or Manager to approve a
budget shall not be deemed to be an Event of Default hereunder.
(m) Collection of Accounts: Manager shall issue bills for goods and
services furnished by the Facilities during the term of this Agreement and shall
attempt to collect the balances reflected on such bills, including, but not
limited to, enforcing the rights of Licensee and the Facilities as creditor
under any contract or in connection with the rendering of any services;
provided, however, that any expenses incurred by Manager in so doing with
respect to any Facility shall be included in the Daily Operating Expenses of
such Facility and shall be
9
payable out of funds deposited in the Depository Account of such Facility
described in Section I(h). In addition, upon request by Licensee, Manager shall
issue bills and collect accounts and monies owed for goods and services
furnished by the Facilities prior to the Commencement Date. Regardless of any
standard of performance set forth in this Agreement, Licensee acknowledges and
agrees that there can be no assurances that Manager will be able to collect any
or all of the Facilities' accounts receivable.
(n) Contracts. Manager shall negotiate and enter into any and all
contracts necessary from time to time in connection with the day to day
operation of the Facilities including, but not limited to, contracts for water,
electricity, natural gas, telephone, sewer, cleaning, trash removal, pest
control and extermination, cable, elevator and boiler maintenance, pharmacy
services, therapy services and other appropriate ancillary services and
contracts for the provision of various services which are designed to identify
potential cost savings to the Facilities, such as utility and tax bill review
services; provided that such contracts can be terminated on no more than 90 days
notice. Any contract which cannot be terminated on no more than 90 days notice
shall require the approval of Licensee before the same may be executed by
Manager, which approval shall not be unreasonably withheld. Manager shall have
the right to contract with entities which are owned by or under common ownership
with Manager provided the terms of any such contracts are no less favorable than
the terms then offered by unrelated third parties for the same or similar goods
or services. All contracts shall be entered into in the name of Licensee or the
Facilities. All resident leases or admission agreements entered into by Manager
in connection with the operation of the Facilities shall comply with the Long
Term Care Residents Act, RCW Chapter 70.129.
(o) Manager's and Licensee's Representative: Manager hereby appoints
Frank Ruffo (the "Manager's Representative") as the person employed by Manager
with whom Licensee shall interact and upon whose decisions Licensee shall be
authorized to rely, and Licensee hereby appoints Walt Bowen (the "Licensee's
Representative") as the person employed by Licensee with whom Manager shall
interact and upon whose decisions Manager shall be authorized to rely, with
respect to the performance by Manager of its duties hereunder. Manager shall
have the right from time to time during the term of this Agreement to replace
the Manager's Representative upon written notice to Licensee designating the
replacement Manager's Representative and Licensee shall have the right from time
to time during the term of this Agreement to replace the Licensee's
Representative upon written notice to Manager designating the replacement
Licensee's Representative. Nothing herein shall be construed as imposing any
personal liability on the Manager's Representative or Licensee's Representative
with respect to the acts or omissions of Manager or Licensee, respectively,
under this Agreement. Owner and Licensee shall use good faith efforts to notify
DSHS in the event of any changes in the Manager's Representative or the
Licensee's Representative but neither shall be in default of its obligations
hereunder should it fail to do so. Any such notice to DSHS shall be sent to the
10
following address (the "DSHS Address"): Residential Care Services (Attn: Deb
Burman, PO Box 45600, Olympia, WA 98504-5600).
II. Insurance: Licensee shall, at its sole cost and expense, arrange
for and maintain all necessary and proper property insurance covering the
Facilities, the furniture, fixtures, and equipment situated thereon, and all
necessary and proper professional and commercial general liability insurance for
Licensee's and Manager's protection. Manager shall, at its sole cost and
expense, maintain commercial general liability insurance for its operations. All
such liability insurance policies shall include coverage for liability to each
party's respective employees involved in the operation of the Facilities and
arising from any improper employment practices (except in the case of Manager
where Licensee acknowledges no such coverage shall be provided by Manager) and
employee crime and theft coverage. All such policies of liability insurance
shall name the other party as, as well as any landlord or lender identified by
Licensee to Manager in writing as additional insureds thereunder (except in the
case of Manager's directors and officers insurance and employee crime insurance
as to which Licensee acknowledges Manager has advised it no such additional
insureds shall be named). In addition, each party shall provide all employee
health and worker's compensation insurance required for their respective
employees. Each party shall be responsible for all deductibles due with respect
to any insurance maintained by it and for any uninsured losses of any nature
whether arising from an failure by the party to maintain insurance or from the
loss not being covered under the terms of any policy of insurance maintained by
the party. All premiums, claims and deductibles related to the Licensee's
insurance covered by this Section II (the "Insurance Costs") shall, at
Licensee's request, be paid by Manager from the applicable Facility's Depository
Account provided (i) Licensee has provided Manager in writing with reasonable
details concerning the amount to be paid and the purpose of such payment, (ii)
there are sufficient funds, whether in the form of cash receipts of the
Facilities or working capital funds deposited by Licensee, in the Depository
Account to enable Manager to pay the same from the Depository Account, (iii) all
other Daily Operating Expenses and the Regent Management Fee which are then due
and payable have been paid from the Depository Account as of the time when
Licensee requests payment of the premiums, deductibles and/or claims from the
Depository Account, (iv) Manager's Base Management Fee which is then due and
payable have been paid from the Regent Account as of the time when Licensee
requests payment of the premiums, deductibles and/or claims from the Depository
Account and (v) Licensee in not otherwise in default of its obligations under
this Agreement.
III. Proprietary Interest and Noncompetition:
---------------------------------------
(a) The systems, methods, procedures and controls employed by
Manager and Licensee and any written materials, computer software or policies
developed by Manager and Licensee to document the same are to remain the
property of Manager and Licensee,
11
respectively, and are not, at any time during or after the term of this
Agreement, to be utilized, distributed, copied or otherwise employed or
acquired, except as authorized by the respective Licensee thereof, provided,
however, that upon request of Licensee, Manager shall negotiate in good faith
the terms and conditions upon which Licensee may be permitted by Manager to use
such systems, methods, procedures, controls, materials, software or brochures
containing Manager's name or logo for a limited transitional period following
the termination of this Agreement, which terms and conditions shall be
satisfactory to both Manager and Licensee in their respective discretion. Any
written materials developed or used by Manager in connection with the operation
of the Facilities shall meet the requirements of Section I(c) of this Agreement,
if applicable.
(b) With respect to each of the Facilities, from the
Commencement Date until the earlier to occur of (i) the termination of this
Agreement by Manager as a result of the occurrence of an Licensee Event of
Default or (ii) the date on which Licensee, voluntarily or involuntarily, losses
possession of such Facility or (iii) three years after the expiration of the
term of this Agreement as to such Facility for any reason whatsoever other than
the reasons set forth in clause (ii), Manager shall not solicit, discuss,
negotiate or enter into any agreement or arrangement by which the Manager would
obtain any substantial control of the ownership or management of such Facility
from any third party having an interest in such Facility superior to the
Licensee's. The restrictions in the preceding sentence shall be applicable,
without limitation, to any purchase, lease, license, franchise, partnership,
joint venture or other means, direct or indirect by which Manager or any entity
or person controlling, controlled by or under common control with Manager
obtains substantial ownership or control of one or more of the Facilities;
provided, however, nothing herein shall be construed to prohibit the acquisition
by an entity under common control with Manager of the Facility in Folsom,
California and of one of the Facilities in Scottsdale, Arizona.
IV. Term of Agreement and Termination Payments:
------------------------------------------
(a) The Term of this Agreement shall commence on January 1,
2002 (the "Commencement Date.
(b) The Term of this Agreement shall terminate upon the first
to occur of the following:
(i) the occurrence of an Event of Default hereunder and the
exercise by Manager or Licensee, as applicable, of its right to terminate this
Agreement as a result thereof; or
(ii) on written notice from Licensee to Manager delivered
within the last ninety days of the third year of the term of this Agreement (the
"Termination Period")
12
terminating this Agreement as of the end of the third (3rd) year of the term of
this Agreement (the "Termination Notice"); provided, however, if the Termination
Notice is not delivered by Licensee within the Termination Period, then this
Agreement shall automatically renew for successive one year terms, subject to
Licensee's right to terminate the same on no less than ninety (90) days written
notice to Manager; or
(iii) on no less than ninety (90) days written notice from
either Licensee or Manager as to all, but not less than all, of the Facilities;
or
(iv) with respect to one or more Facilities, by Licensee or
Manager on no less than ninety (90) days prior written notice in the event that
at any time during the term of this Agreement Licensee will no longer own or
control such Facilities whether resulting from a sale or other reasons, whether
voluntary or involuntary; or
(v) with respect to one of more of the Facilities, by Licensee
in the event it is unable on or before February 28, 2002 to secure any consents
of its lenders, landlords or joint venture partners which may be required for it
to enter into this Agreement with Manager (the "Third Party Consents");
provided, however, in the event of the termination of this Agreement by Licensee
pursuant to this Section IV(b)(v), effective with the termination of this
Agreement as to the affected Facility, Licensee and Manager shall enter into an
Accounting Services Agreement with respect to such Facility unless prohibited by
such lender, landlord or joint venture partner; and provided, further, that
Licensee shall be solely responsible for any and all costs of securing such
Third Party Consents, including any consent fees or other consideration required
by such landlords, lenders or joint venture partners as a condition to granting
their consent; or
(vi) by either Licensee or Manager on thirty (30) days notice
to the other in the event that on or before February 28, 2002 they have not
secured formal approval of this Management Agreement from DSHS (the "State
Approval"), it being understood and agreed that this Agreement has been drafted
in a manner intended to address the concerns identified by DSHS in a letter
dated December 10, 2001 from Deb Burman to Chris Radzom and that the parties
have agreed to negotiate in good faith the terms of any reasonable amendments or
modifications hereto which may be required to secure the State Approval; or
(vii) by Licensee effective as of a date specified by DSHS if
DSHS is able to demonstrate to the satisfaction of Licensee and Manger that DSHS
has the authority to lawfully require Licensee to terminate this Management
Agreement as to any or all of the Facilities as a result of violations of law
occurring at any or all of the Facilities.
13
For the purposes of Sections IV, V, and VI of this Agreement,
any termination due to an Licensee Event of Default or a Manager Event of
Default or by Licensee pursuant to Section IV(b)(v) shall be a partial
termination as if there were a separate Agreement for each Facility if the Event
of Default or failure to secure the necessary Third Party Consent relates to
less than all of the Facilities. In such event, Licensee's or Manager's required
termination payments shall only be with respect to the Facilities covered by the
partial termination. Each of Licensee and Owner agrees to use good faith efforts
to give notice of the termination of this Agreement to DSHS at the DSHS Address
prior to the effective date thereof but neither shall be in default of its
obligations hereunder should it fail to do so.
(c) In the event of the termination of this Agreement prior to
the end of the third year of this Agreement, the following payments shall be due
and owing from Manager or Licensee, as applicable:
(i) In the event of the termination of this Agreement by
Licensee as a result of the occurrence of a Manager Event of Default, Manager
shall pay to Licensee an amount equal to one month's base management fee
concurrently with the termination of this Agreement.
(ii) In the event of the termination of this Agreement during
the first year either by Manager as a result of the occurrence of an Licensee
Event of Default of the Term or by Licensee pursuant to Section IV(b)(iii) other
than with respect to the Bowen Facility (as hereinafter defined), Licensee shall
pay to Manager an amount equal to the difference between the aggregate Base
Management Fee due during the first year of the Term and the Base Management Fee
actually paid to Manager to the date of such termination. For purposes hereof,
the Bowen Facility shall mean the Facility located in Redmond, Washington.
(iii) In the event of the termination of this Agreement at any
time after the first year of the Term either by Manager as a result of the
occurrence of an Licensee Event of Default or by Licensee pursuant to Section
IV(b)(iii), Licensee shall pay to Manager an amount equal to the then applicable
Base Management Fee multiplied by three.
(iv) In the event of the termination of this Agreement by
Manager pursuant to Section IV(b)(iii) no payment shall be due from Manager to
Licensee upon termination and in the event of the termination of this Agreement
by Licensee pursuant to Sections IV(b)(v), (vi) or (vii) no payment shall be due
from Licensee to Manager upon termination.
(v) Examples of the calculation of the termination fees due
pursuant to this Section IV(c) are set forth in Exhibit I.
14
(d) In the event of the termination of this Agreement by Licensee or
Manager in accordance with the terms hereof, (A) no such termination shall be
effective until all amounts due and owing from one party to the other in
accordance with the terms of this Agreement, including the monetary damages
specifically provided for in Sections VI(a) and (b), but specifically excluding
any other damages alleged to have been suffered by a party as a result of the
termination of this Agreement after the occurrence of an Event of Default, have
been paid in full and (B) Manager shall cooperate with Licensee or its designee,
at no cost to Manager and without the assumption of any further liability by
Manager other than the liability imposed on Manager under this Agreement, in an
orderly transition of operational responsibility for the affected Facility or
Facilities to Licensee or its designee (who the parties acknowledge and agree
may only assume operational responsibility in accordance with the requirements
of Washington law) subject to the limitation set forth in this Section IV with
respect to Licensee's obligation to remove Manager from any affected Facility's
license before such termination and transfer are effective.
(e) In the event of the termination of this Agreement for any
reason, Licensee shall continue to be responsible for the care of the residents
of the Facilities until the earlier to occur of (i) the transfer of the affected
Facility or Facilities to a new licensee or (ii) the transfer of the residents
another facility or facilities licensed under applicable state law or (iii)
management responsibility for the affected Facility or Facilities is assumed by
a manager operating under a management agreement which has been approved by
DSHS.
V. Default: Either party may terminate this Agreement, as specified
in this Section V, in the event of a default ("Event of Default") by the other
party.
(a) With respect to Manager, it shall be an "Event of Default"
hereunder:
(i) If Manager shall fail to keep, observe or perform any
material agreement, term or provision of this Agreement, and such default shall
continue for a period of forty five (45) days (subject to the force majeure
provisions below) after notice thereof shall have been given to Manager by
Licensee, which notice shall specify in detail the event or events constituting
the default;
(ii) If Manager shall (A) apply for or consent to the
appointment of a receiver, trustee or liquidator of Manager of all or a
substantial part of its assets, (B) file a voluntary petition in bankruptcy, or
admit in writing its inability to pay its debts as they become due, (C) make a
general assignment for the benefit of creditors, or (D) file a petition or an
answer seeking reorganization or arrangement with creditors or taking advantage
of any insolvency law, or if an order judgment or decree shall be entered by a
court of competent jurisdiction, on the application of a creditor, adjudicating
Manager, a bankrupt or insolvent or approving a petition
15
seeking reorganization of Manager, or appointing a receiver, trustee or
liquidator of Manager, of all or a substantial part of its assets;
(iii) If, at anytime after the Protected Period, (A)
proceedings are commenced which threaten to revoke, rescind, terminate or not
renew the licensure or certification of the Facilities and Manager is unable to
develop a plan of correction with respect thereto which is acceptable to the
applicable state or federal authorities within the applicable cure period
provided by such authorities or (B) a ban on admissions lasting more than ninety
(90) days is imposed against the Facilities; or
(iv) If at the end of any year, the actual "Net Operating
Income/Loss Before Property" less "Property Insurance" and "Liability Insurance"
for any Facility as reflected on the financial statements of the Facilities
prepared by Manager is more than ten percent (10%) less than the amount for "Net
Operating Income/Loss Before Property" less "Property Insurance" and "Liability
Insurance" as reflected in the annual approved operating budget for such
Facility the same shall be an Event of Default but only with respect to the
affected Facility .
(b) With respect to Licensee, it shall be an Event of Default
hereunder:
(i) If Licensee shall fail to make or cause to be made any
payment to Manager required to be made hereunder (other than its working capital
obligation which is addressed in clause (iii)) and such failure shall continue
for a period of thirty (30) days after notice, which notice shall specify the
payment or payments which Licensee has failed to make;
(ii) If Licensee shall fail to keep, observe or perform any
material agreement, term or provision of this Agreement and such default shall
continue for a period of forty five (45) days after notice (subject to the force
majeure provisions below), which notice shall specify in detail the event or
events constituting the default thereof by Manager to Licensee;
(iii) If Licensee shall fail to provide necessary working
capital upon demand by Manager with respect to the payment of the Daily
Operating Expenses or the Base Management Fee due to Manager within the time
provided in Section I(h), and such failure continues uncured for five (5)
business days after Manager gives Licensee notice of such failure;
(iv) If Licensee shall fail to make payments, or keep any
covenants, owing to any third party which are beyond the control of Manager to
make or keep (which for purposes hereof shall include any covenants by which
Licensee may be bound as of the Commencement Date (the "Pre-Existing Covenants")
or to which Licensee may agree to be bound after the Commencement Date without
the prior approval of Manager (the "Unapproved
16
Covenants")), and which would cause Licensee to lose possession of the
Facilities or any personal property required to operate the Facilities in the
normal course; provided that Manager shall give Licensee prompt notice of any
such payment and failure to pay of which Manager has knowledge;
(v) If Licensee shall be dissolved or shall apply for or
consent to the appointment of a receiver, trustee or liquidator of Licensee or
of all or a substantial part of its assets, file a voluntary petition in
bankruptcy, or admit in writing its inability to pay its debts as they become
due, make a general assignment for the benefit of creditors, file a petition or
an answer seeking reorganization of arrangement with creditors or taking
advantage of any insolvency law, or if an order, judgment or decree shall be
entered by a court of competent jurisdiction, on the application of a creditor,
adjudicating Licensee a bankrupt or insolvent or approving a petition seeking
reorganization of Licensee or appointing a receiver, trustee or liquidator of
Licensee of all or a substantial part of its assets; or
(vi) If Licensee or any of its principal officers is convicted
or a crime that materially affects the operation or regulation of the
Facilities.
(c) Licensee and Manager shall use good faith efforts to provide
DSHS at the DSHS Address with copies of any written notices of default issued
under the terms of this Section V but neither Licensee nor Manager shall be in
default of its obligations hereunder should it fail to do so.
VI. Remedies and Obligations Upon Default:
-------------------------------------
(a) If any Event of Default by Licensee shall occur, Manager may,
in addition to any other remedy available to it in law or equity on account of
such Event of Default, forthwith terminate this Agreement, and neither party
shall have any further obligations whatsoever under this Agreement except for
Manager's right to receive damages from Licensee in the amount specified in
Section IV and except any settlement and payment obligations and other
obligations that by their nature survive termination of this Agreement.
(b) If any Event of Default by Manager shall occur, Licensee may,
in addition to any other remedy available to it in law or equity on account of
such Event of Default, forthwith terminate this Agreement and the exclusive
right to possession of the Facilities granted to Manager hereunder, and neither
party shall have any further obligation whatsoever under this Agreement; except
for Licensee's right to receive payment of liquidated damages from Manager in an
amount specified in Section IV.
17
VII. Licensee's Inspection: Manager acknowledges and agrees that
during the term of this Agreement, Licensee is ultimately responsible for the
care provided to the residents of the Facilities and for the compliance of the
Facilities with applicable law. Accordingly, during the term hereof, Licensee
may enter and inspect the Facilities at any time provided Licensee coordinates
such inspections with the on site administrative personnel at the Facilities in
order to minimize any disruption of Manager's day to day operations of the
Facilities and to ensure that such inspections do not violate resident rights to
privacy under state or federal resident rights laws. During such inspections,
Licensee may inspect and/or audit all books and records pertaining to the
operation of the Facilities. In addition, Licensee shall have the right to
conduct telephonic or personal interviews with the Community Directors and/or
with any of Manager's regional personnel involved in the operation of the
Facilities with respect to any matters related to the operation thereof subject
to the same duty to minimize the disruption to Manager's operations resulting
from such interviews. In no event will Licensee have the right as part of such
inspections or otherwise to provide directions to the employees of the
Facilities, it being understood and agreed that all such directions shall come
from Manager for so long as this Agreement is in effect and in the event of any
disputes between Licensee and Manager with respect to the management of the
Facilities the same shall be resolved directly between Licensee and Manager.
Nothing in this Section or elsewhere in this Agreement shall be construed as
limiting in any manner Manager's or Licensee's obligation to retain, disclose or
produce appropriate documentation and records to any governmental agency having
authority over the Facilities pursuant to applicable laws and regulations or as
limiting the rights of the residents of the Facilities to address to Licensee
any concerns, questions or complaints which they may have with respect to the
operation of the facilities.
VIII. Operations of the Facilities:
----------------------------
(a) Standard of Performance: In performing its obligations
under this Agreement, Manager shall manage the Facilities as assisted living
facilities licensed under Washington law as boarding homes in accordance with
the terms of this Agreement, including, but not limited to, the limitations set
forth herein on operating and capital expenditures, and the policies adopted by,
and resources available to, the Facilities; provided, however, that regardless
of the standard of performance imposed by this Section VIII(a), Manager shall
have no liability in the event the operation of the Facilities fail to comply
with the Pre-Existing Covenants or the Unapproved Covenants; and provided,
further, that nothing in this Agreement shall relieve Licensee as the licensed
operator of the Facilities from its ultimate responsibility under State law for
the care provided at the Facilities.
(b) Force Majeure: Neither party will be deemed to be in
violation of this Management Agreement if it is prevented from performing any of
its obligations hereunder for any reason beyond its control, including, without
limitation, strikes, shortages, acts of terrorism,
18
war, acts of God, (but excluding lack of the party's own financial resources),
or any statute, regulation or rule of federal, state or local government or
agency thereof or, in the case of Manager, unreasonable interference by Licensee
with Manager's performance of its duties hereunder or in the case of Licensee,
unreasonable interference by Manager with Licensee's performance of its duties
hereunder.
(c) Minimum Bank Balances: During the Term hereof, Licensee and
Manager shall attempt to agree on the necessary minimum cash balance to be
maintained in the Depository Account for each Facility but if they are unable to
so agree such minimum cash balance shall upon demand of Manager be required to
be equal to 50% of the Daily Operating Expenses of such Facility during the
prior month and Licensee shall upon demand in accordance with Section I(h)
provide Manager with any working capital which may be needed to enable Manager
to maintain such minimum cash balances. In addition, during the Term hereof,
Licensee shall at all times maintain a minimum balance in the Regent Account of
$80,000.
(d) Facility Records. All of the records of the Facilities shall
be and remain the property of Licensee and Manager shall at all times maintain
the confidentiality of all resident records, including, without limitation, all
medical records and shall only disclose the same as required by law and/or as
authorized by the resident to whom such record relates; provided, however, that
Manager's failure to maintain the confidentiality of resident records in
accordance with the requirements of this Section VIII(d) shall not relieve
Licensee of liability should any such resident records be improperly disclosed
in whole or in part.
(e) Notice to Residents. Within a reasonable period of time after
the Commencement Date, Manager shall provide written notice to all of the
residents of the Facilities that it has assumed management responsibility for
the Facilities and confirming the address at which they can reach Licensee
should they elect to do so for any reason.
IX. Management Fee:
--------------
(a) In consideration for the provision of the services
contemplated in this Agreement, Manager shall receive a management fee of $8,000
per month (the "Base Management Fee") payable in advance on the first day of
each month during the term of this Agreement except for the month of January
2002, one third of which shall be paid on the earlier to occur of the first day
of February, March and April of 2002 or the date of the termination of this
Agreement. The Base Management Fee payable with respect to all of the Facilities
shall be increased by 5% on the second anniversary of the Commencement Date.
(b) If the services of Manager commence or terminate (for any
reason, including those set forth in Paragraph V) other than on the first day of
the month, the revenues upon which
19
the fee is calculated shall be prorated in proportion to the number of days for
which services are actually rendered.
(c) The Base Management Fee provided for herein shall be disbursed
by Manager to itself out of the Regent Account in accordance with the provisions
of I(H).
(d) Any amounts due from Licensee to Manager or Manager to
Licensee pursuant to this Section IX which are not paid when due shall bear
interest at the annual rate equal to the Prime Rate as set forth in the Money
Rates Section of The Wall Street Journal (as the same may change from time to
time) plus 5% from the date due to the date paid in full.
X. Assignment: Except as otherwise provided in Section I(f), this
Agreement shall not be assigned by either party without the prior written
consent of the other party; provided, however, Manager shall have the right to
assign this Agreement to an entity which is owned or controlled by Manager or
its principal shareholder, Daniel R. Baty, without the prior written consent of
Licensee; provided, however, no assignment of this Agreement shall be effective
unless the assignee, in the case of an assignment by Licensee, has first been
duly licensed by DSHS, or unless the Management Agreement between Licensee and
the assignee, in the case of an assignment by Manager, has been approved by
DSHS.
XI. Notices: All notices required or permitted hereunder shall be
given in writing by hand delivery, by registered or certified mail, postage
prepaid, by overnight delivery or by facsimile transmission (with receipt
confirmed with the recipient). Notice shall be delivered or mailed to the
parties at the following addresses or at such other places as either party shall
designate in writing. The parties agree to use their good faith efforts to give
notice of any change of address to DSHS at the DSHS Address but neither shall be
in default of its obligations hereunder should it fail to do so. All notices
shall be deemed duly given when delivery is received or refused by a party if
delivered by hand, three (3) business days after being deposited in the mails if
sent by registered or certified mail, on the next business day if sent by
overnight delivery and on confirmed receipt, if sent by facsimile transmission.
To Manager: Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121
Facsimile: 206-301-4500
Attn: Raymond R. Brandstrom, Vice President
-Finance
To Licensee: Regent Assisted Living, Inc.
Bank of America Building
20
121 SW Morrison
Suite 100
Portland, OR 97201
Facsimile: 503-274-4685
Attn: Walt Bowen, President
XII. Relationship of the Parties: The relationship of the parties
shall be that of principal and independent contractor and all acts performed by
Manager during the term hereof as Manager of the Facilities shall be deemed to
be performed in its capacity as an independent contractor. Nothing contained in
this Agreement is intended to or shall be construed to give rise to or create a
partnership or joint venture or lease between Licensee, its successors and
assigns on the one hand, and Manager, its successors and assigns on the other
hand. Notwithstanding the foregoing, Manager shall be authorized to execute
certain documents in the course of the day to day operation of the Facilities as
the agent of Licensee, such as credit applications for supplies, banking
resolutions for the Depository Account, utility deposit forms, etc.
XIII. Indemnification: Manager shall indemnify, defend and hold
harmless Licensee from any loss incurred by or damage to Licensee where such
loss or damage results from the negligence or willful misconduct of Manager in
performing its obligations under this Agreement or from a breach of this
Agreement by Manager; provided, however, Licensee specifically acknowledges and
agrees that nothing in this Section XIII shall be construed as imposing any
liability on Manager for any insurance deductibles for which Licensee shall be
solely responsible under Section II hereof. Licensee shall indemnify, defend and
hold Manager harmless from any loss incurred by or damage to Manager where such
loss or damage results from the negligence or willful misconduct of Licensee in
performing its obligations under the Agreement, from a breach of this Agreement
by Licensee, from Licensee's lack of authority to enter into this Agreement or
in the event any lease, loan, limited liability company operating agreement or
other document or instrument to which Licensee (or, in the case of third party
management agreements, Licensee's principal) may be a party prohibits Manager
from fulfilling any of the obligations imposed on Manager or from exercising any
of the rights granted to Manager hereunder.
XIV. Entire Agreement: This Agreement contains the entire agreement
between the parties relating to the operation of the Facilities and shall be
binding upon and inure to the benefit of their successors and assigns. This
Agreement may not be modified or amended except by written instrument signed by
both of the parties hereto. Licensee and Manager agree to use their good faith
efforts to give DSHS at the DSHS Address copies of any amendments to this
Agreement but neither shall be in default of its obligations hereunder should it
fail to do so.
XV. Captions: The captions used herein are for convenience of
reference only and shall not be construed in any manner to limit or modify any
of the terms hereof.
21
XVI. Arbitration: In the event of any dispute among the parties
regarding the Facilities or this Agreement, the parties agree to submit the same
to resolution before an arbitrator, in the case of disputes alleged to involve
less than $250,000, and before a panel of three arbitrators, in the case of
disputes alleged to involve $250,000 or more, selected by mutual agreement of
the parties or, if the parties are unable to agree on an arbitrator or panel of
arbitrators within a period of twenty (20) days, selected by a court of
competent jurisdiction. Such arbitration shall be held in accordance with the
rules of the American Arbitration Association and the decision of the arbitrator
shall be final and binding on the parties and may be enforced by a court of
competent jurisdiction.. The party requesting arbitration shall do so by giving
notice to that effect to the other party, specifying in reasonable detail in
said notice the nature of the dispute; provided, however, in the event that
notwithstanding the terms hereof, a party commences legal proceedings, rather
than arbitration proceedings, before a court of competent jurisdiction, the
other party shall be deemed to have forfeited its right to have such dispute
determined by binding arbitration in accordance with this Section XVI unless
within thirty (30) days after being served with the first pleading in such legal
proceedings, it files a motion to dismiss such legal proceedings and serves on
the other party notice of its intent to submit such dispute to arbitration. Any
party who fails to submit to binding arbitration following a lawful demand by
the other party shall bear all costs and expenses, including reasonable
attorneys fees (including those incurred in any trial, bankruptcy proceeding,
appeal or review) incurred by the other party in obtaining a stay of any pending
judicial proceeding concerning a dispute which by the terms of this Agreement
has been properly submitted to mandatory arbitration and/or in compelling
arbitration of any dispute. All disputes under this Section XVI shall be
determined in the City of Portland, Oregon, if the arbitration is initiated by
Licensee and in the City of Seattle, Washington, if the arbitration is initiated
by Manager, by a single arbitrator. All arbitrators shall be a licensed
attorneys having at least ten (10) years experience, with at least five (5)
years experience with assisted living facility sale, lease or management
transactions. The award in such arbitration may be enforced on the application
of either party by the order of judgment of a court of competent jurisdiction.
The prevailing party shall be entitled to recover the reasonable fees and
expenses of its attorneys and experts. The arbitrator(s) shall resolve all
disputes in accordance with the substantive law of the state of Oregon. The
arbitrator(s) shall have no authority or jurisdiction to award any damages or
any other remedies beyond those which could have been awarded in a court of law
if the parties had litigated the claims instead of arbitrating them. The parties
shall not assert any claim for punitive damages . The Federal Arbitration Act,
Title 9 of the United States Code, is applicable to this transaction and shall
be controlling in any judicial proceedings and in the arbitration itself as to
issues of arbitrability and procedure. Nothing herein shall preclude a party
from curing either their own or the other party's alleged default which is, or
could be, the subject of an arbitration proceeding under this Section XVI or
from seeking equitable relief which the arbitrator or panel of arbitrators is
not empowered to award, such as an injunction, receivership, attachment or
garnishment.
22
XVII. Severability: In the event one or more of the provisions
contained in this Agreement is deemed to be invalid, illegal or unenforceable in
any respect under applicable law, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be impaired thereby.
XVIII. Cumulative; No Waiver: No right or remedy herein conferred
upon or reserved to either of the parties hereto is intended to be exclusive of
any other right or remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given hereunder, or now
or hereafter legally existing upon the occurrence of an Event of Default
hereunder. The failure of either party hereto to insist at any time upon the
strict observance or performance of any of the provisions of this Agreement or
to exercise any right or remedy as provided in this Agreement shall not impair
any such right or remedy or be construed as a waiver or relinquishment thereof
with respect to subsequent defaults. Every right and remedy given by this
Agreement to the parties hereof may be exercised from time to time and as often
as may be deemed expedient by the parties thereto, as the case may be.
XIX. Authorization for Agreement: The execution and performance of
this Agreement by Licensee and Manager have been duly authorized by all
necessary laws, resolutions or corporate action, and this Agreement constitutes
the valid and enforceable obligations of Licensee and Manager in accordance with
its terms.
XX. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
XXI. Confidentiality: Throughout the Term of this Agreement and for
a period of one (1) year after the expiration or earlier termination of this
Agreement, each of Manager and Licensee agrees to maintain the confidentiality
of any proprietary information concerning the other or the Facilities to which
they may gain access during the term of this Agreement and shall only disclose
the same with the consent of the other party or as required by an order of a
court of competent jurisdiction.
XXII. Construction: Each of the parties acknowledges and agrees that
it has participated in the drafting and negotiation of this Agreement.
Accordingly, in the event of a dispute with respect to the interpretation or
enforcement of the terms hereof, no provision shall be construed so as to favor
or disfavor either party hereto.
23
IN WITNESS WHEREOF, the parties have hereto caused this
Agreement to be duly executed, as of the day and year first above written.
REGENT ASSISTED LIVING, INC.
By: /s/ Walter C. Bowen
-------------------
Its: CEO & Chairman
--------------------
EMERITUS CORPORATION
By: /s/ Martin D. Roffe
--------------------
Its: Vice President of Financial Planning
-------------------------------------
24
EXHIBIT A
DESCRIPTION OF THE FACILITIES, INCLUDING
WHETHER OWNED, LEASED OR MANAGED BY REGENT
25
EXHIBIT B
ACCOUNTING TRANSITION SERVICES
26
EXHIBIT C
ADDITIONAL SPECIFIC REPORTING OBLIGATIONS BY FACILITY
27
EXHIBIT D
FORM OF FINANCIAL STATEMENTS
28
EXHIBIT E
FACILITY BANK ACCOUNT INFORMATION
29
EXHIBIT F
REGENT MANAGEMENT FEES BY FACILITY
30
EXHIBIT G
RENT AND DEBT SERVICE PAYMENTS BY FACILITY
31
EXHIBIT H
FORM OF BUDGET
32
EXHIBIT I
TERMINATION FEE CALCULATION EXAMPLES
33