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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
For the fiscal year ended December 31, 1997.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14012
EMERITUS CORPORATION
(Exact name of registrant as specified in its charter)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
(Address of principal executive offices)
(206) 298-2909
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- -------------------------------- --------------------------------
Common Stock, $.0001 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), (2) and has been
subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Indicate by check mark that there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-K contained in this form, and no
disclosure will be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. ( )
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 20, 1998 was $81,090,958.
As of March 20, 1998, 10,483,050 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part
III of Form 10-K (items 10-13) is incorporated herein by reference to
the Registrant's definitive Proxy Statement relating to its 1998 Annual
Meeting of Stockholders to be held on May 20, 1998.
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EMERITUS CORPORATION
Index
Part I
Page No.
Item 1. Description of Business.................................. 1
Item 2. Description of Property.................................. 16
Item 3. Legal Proceedings........................................ 20
Item 4. Submission of Matters to a Vote of Security Holders...... 20
Executive Officers of the Registrant..................... 20
Part II
Item 5. Market for Registrant's Common Equity and Related 21
Stockholder Matters......................................
Item 6. Selected Financial Data.................................. 22
Item 7. Management's Discussion and Analysis of Financial 23
condition and Results of Operations......................
Item 8. Financial Statements and Supplementary Data.............. 31
Item 9. Changes in and Disagreements with Accountants on 31
Accounting and Financial Disclosure......................
Part III
Item 10. Directors and Executive Officers of the Registrant....... 31
Item 11. Executive Compensation................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and 32
Management...............................................
Item 13. Certain Relationships and Related Transactions........... 32
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 32
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW AND BACKGROUND
Emeritus Corporation ("Emeritus" or the "Company") is a long-term-
care services company focused on operating residential-style assisted-
living communities. Since its organization in 1993, the Company has
achieved significant growth in revenues, primarily due to the
acquisition and operation of residential communities. The Company
believes it is one of the largest providers of assisted-living services
in the United States. As of March 20, 1998, the Company held ownership,
leasehold or management interests in 101 residential communities (the
"Operating Communities") consisting of approximately 8,800 units with
the capacity for 10,200 residents, located in 26 states. Of the 101
Operating Communities, 11 and 20 newly developed communities were opened
during 1996 and 1997, respectively. Additionally, the Company completed
construction on an expansion to an existing community during 1997.
Subsequent to December 31, 1997, the Company entered into an agreement
with an affiliate to provide management services for an independent-
living community located in Ohio. The Company owns, has a leasehold
interest in, management interest in or has acquired an option to
purchase development sites for 26 new assisted-living communities (the
"Development Communities"). Sixteen of the Development Communities are
currently under construction, 14 of which are scheduled to open during
1998. The Company leases 77 of its residential communities, typically
from a financial institution such as a Real Estate Investment Trust
("REIT"), owns 18 communities, manages or provides administrative
services for five communities and has a partnership interest in one
community. Additionally, the Company holds a 26.2% minority interest in
Alert Care Corporation ("Alert"), an Ontario, Canada based owner and
operator of 22 assisted-living communities consisting of approximately
1,250 units with a capacity of approximately 1,350 residents. See "-
Strategic Relationships - Alert Relationship". Assuming completion of
the Development Communities scheduled to open throughout 1998 and
including the minority interest in Alert, the Company will own, lease,
have an ownership interest in or manage 137 properties in 28 states and
Canada, containing an aggregate of approximately 11,450 units with
capacity of over 13,100 residents. There can be no assurance, however,
that the Development Communities will be completed on schedule and will
not be affected by construction delays, the effects of government
regulation or other factors beyond the Company's control. See "Factors
Affecting Future Results and Forward Looking Statements -Emphasis on
Acquisitions; Difficulties of Integrating Acquisitions", "-Ability to
Develop Additional Assisted-Living Communities", and "-Need for
Additional Capital." The Company's management of assisted-living
communities owned or leased by others has not been material to the
Company's business or revenue.
Emeritus was founded in July 1993 by Daniel R. Baty, Raymond R.
Brandstrom and Frank A. Ruffo, Jr. to become a nationwide operator of
assisted-living communities. During the 16 years prior to 1987, Mr.
Baty, the Company's Chairman of the Board and Chief Executive Officer,
served as the chief executive officer of The Hillhaven Corporation
("Hillhaven"), one of the largest operators of skilled-nursing
facilities in the United States. In 1986, Mr. Baty left Hillhaven to
pursue opportunities in the independent-living market. In 1987, he
became the chairman of the board and principal shareholder of Holiday
Retirement Corp. ("Holiday"), one of the largest operators of
independent-living communities in the United States and served as its
chief executive officer from 1991 through September 1997. Mr.
Brandstrom, the Company's President and Chief Operating Officer, and Mr.
Ruffo, the Company's Vice President have worked with Mr. Baty in various
financial, administrative and operating capacities for an aggregate of
more than 40 years, including 12 years and 13 years, respectively, at
Hillhaven. In November 1996, Gary D. Witte, joined the Company as Vice
President, Operations. Prior to joining the Company, Mr. Witte last
served as the Vice President of Operations, Southern Region for Vencor
Inc. and previously for Hillhaven Corporation where he was involved in
operating senior housing and related services for over 20 years.
By December 31, 1994, the Company had acquired seven existing long-
term facilities containing approximately 600 units. During 1995, the
Company commenced an aggressive acquisition program, acquiring 16
existing long-term-care properties containing approximately 1,600 units,
and entered into a joint venture in connection with the acquisition of
one community containing approximately 20 units located in New
Hampshire. In 1996, the Company continued its aggressive acquisition
program acquiring 35 existing long-term-care properties containing
approximately 2,700 units and entered into an agreement to provide
management services for an independent-living community containing
approximately 80 units. In addition, the Company commenced operations
at 11 newly developed communities, eight developed by the Company and
three developed by others, representing approximately 900 units. In
1997, the Company focused on its development program and commenced
operations at 20 newly developed communities containing approximately
1,600 units. Also, the Company acquired seven existing long-term-care
properties containing approximately 1,000 units and entered into an
agreement to provide management services and administrative services for
three communities containing approximately 200 units. The Company ended
the fiscal year with 100 communities containing approximately 8,700
units. Subsequent to December 31, 1997, the Company entered into an
agreement with an affiliate to provide management services for an
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independent-living community located in Ohio, entered into four
management agreements with a Holiday affiliate, whereby the Holiday
affiliate will provide management services for four of the Company's
newly developed communities located in Texas. As of March 20, 1998 the
Company owns, leases or manages 101 Operating Communities containing
approximately 8,800 units with capacity for 10,200 residents.
The following table sets forth a summary of the Company's property
interests.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1994 1995 1996 1997
---------------- ---------------- ----------------- -----------------
Buildings Units Buildings Units Buildings Units Buildings Units
--------- ------ --------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned 6 494 14 1,496 15 1,485 19 2,099
Leased 1 91 9 662 53 4,165 76 6,124
Managed - - - - 1 83 4 327
Joint Venture/Partnership - - 1 22 2 162 1 140
--------- ------ --------- ------ --------- ------- --------- -------
Sub Total 7 585 24 2,180 71 5,895 100 8,690
Annual Growth - % - % 243% 273% 196% 170% 41% 47%
Pending Acquisitions 3 461 13 895 8 1,028 - -
New Developments 9 720 26 2,112 27 2,296 26 2,483
Minority Interest - - - - 17 959 22 1,248
--------- ------ --------- ------ --------- ------- --------- -------
Total 19 1,766 63 5,187 123 10,178 148 12,421
--------- ------ --------- ------ --------- ------- --------- -------
Annual Growth - % - % 232% 194% 95% 96% 20% 22%
</TABLE>
DEMOGRAPHICS
AGING POPULATION
The Company's target market, which is comprised of seniors, age 75
and older, is one of the fastest growing segments of the U.S. population
and, according to the U.S. Census Bureau, is expected to increase from
approximately 13.0 million in 1990 to over 16.8 million or approximately
31% by 2000. As the number of seniors age 75 and older continues to
grow, the Company believes there will be a corresponding increase in the
number of seniors who need assistance with activities of daily living.
According to the U.S. General Accounting Office, over 7.0 million people
in the United States in 1993 needed assistance with activities of daily
living, which number is expected to double by 2020.
The Company believes that assisted-living has become a more popular
approach to providing long-term care for seniors, particularly in light
of the increasing emphasis by both federal and state governments to
contain long-term-care costs, limitations imposed in many states on
construction of additional skilled-nursing facilities, which have
generally increased the level of care needed by residents in such
facilities and forced less acute seniors to seek alternative long-term-
care arrangements, the relative affluence of the most elderly segment of
the population and the decreasing availability of family care. The
Company believes that its communities are attractive to those seniors
who do not require 24-hour skilled-nursing care but do desire
supervision and assistance with activities of daily living, and that the
limited availability of governmental payment programs has created a
strong and growing market demand for noninstitutional long-term-care
services designed to fill the gap between independent-living facilities
and skilled-nursing facilities.
COST-CONTAINMENT PRESSURES
In response to rapidly rising healthcare costs, governmental and
private-pay sources have adopted cost containment measures that have
encouraged reduced lengths of hospital stays. The federal government
has acted to curtail increases in healthcare costs under Medicare by
limiting acute-care hospital reimbursement for specific services to
preestablished fixed amounts. Private insurers have begun to limit
reimbursement for medical services in general to predetermined
"reasonable charges", while managed-care organizations, such as health
maintenance organizations, are attempting to limit hospitalization costs
by negotiating for discounted rates for hospital services and by
monitoring and reducing hospital use. In response, hospitals are
discharging patients earlier and referring seniors, who may be too sick
or frail to manage their lives unassisted, to skilled-nursing facilities
where the cost of providing care is lower than in a hospital. As a
result, an increased number of discharged hospital patients are seeking
skilled-nursing facility care. At the same time, skilled-nursing
facility operators continue to focus on improving occupancy and
expanding services to subacute patients requiring significantly higher
levels of skilled-nursing care. Based on its experience, the Company
estimates that between 25% to 40% of skilled-nursing facility patients
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could be more appropriately cared for in a less institutional, less
costly environment such as an assisted-living community.
RESTRICTED SUPPLY OF NURSING FACILITY BEDS
A majority of states have adopted certificate of need ("CON") or
similar statues that generally require a state agency to determine that
a need exists for new beds and that certain other criteria are also
satisfied before construction of new nursing-facility beds commences,
new services are provided or certain expenditures are made, the cost of
which would be reimbursable either in whole or in part by one or more
state-funded programs. The Company believes that this CON process tends
to restrict the supply of skilled-nursing facility beds. The Company
also believes that high construction costs, limitations on governmental
reimbursement for the full costs of construction and start-up expenses
also constrain growth in the supply of such facilities and beds.
SENIOR AFFLUENCE AND REDUCED RELIANCE ON FAMILY CARE
The Company's target market is comprised of middle- to upper-middle-
income seniors who have accumulated some assets and receive income from
investments and pensions, as well as from Social Security. The Company
believes that many of these seniors have the economic resources to pay
for an assisted-living alternative to traditional long-term care without
financial assistance.
Historically, the family has been the primary provider of senior
care. The Company believes, however, that the increased percentage of
women in the workforce and the increased mobility of society are
reducing the family's role as the traditional caregiver for seniors,
which trend will make it necessary for many seniors to look outside the
family for assistance as they age.
GROWTH STRATEGY
The Company plans to expand its network of assisted-living
communities by (a) developing new assisted-living communities and, (b)
if attractive opportunities are available, acquisition of (i) existing
assisted-living communities and (ii) properties that it believes can be
effectively repositioned as assisted-living communities. The Company
believes that there is significant demand for alternative long-term-care
services that are positioned between the limited services offered by
independent-living facilities and the more medical and institutional
care offered by skilled-nursing facilities.
A significant component of the Company's growth strategy has been
the acquisition of existing senior housing facilities that either are
currently operated as assisted-living communities or can be efficiently
repositioned by the Company as assisted-living communities. The
Company believes that the terms on which it has acquired its interest in
the Operating Communities have generally been favorable and below the
estimated replacement cost. There can be no assurance, however, that
the Company's cost of acquiring appropriate properties will remain
favorable as additional experienced and well-financed competitors enter
the assisted-living market segment. See "Factors Affecting Future
Results and Forward-Looking Statements - Emphasis on Acquisitions;
Difficulty of Integrating Acquisitions and "-Need for Additional
Capital" for a description of factors that could affect the Company's
rate of acquisitions.
The Company believes that the popularity of assisted-living as a
long-term-care alternative is decreasing the number of existing long-
term-care facilities that are available at attractive prices and that
its growth may depend more on the successful development of new assisted-
living communities. As a result, the Company has increasingly focused
on the development of assisted-living communities, with a goal to open
10 to 15 per year. However, if attractive opportunities are made
available, the Company will continue to acquire ownership or leasehold
interests in existing long-term-care facilities. There can be no
assurance that acquisitions or development will proceed at the rate
currently expected by the Company as a result of such factors as
availability of attractive properties or development sites,
possibilities of over building, regulatory impediments, development and
construction delays and availability of capital. In pursuing its growth
strategy, the Company expects to face competition in the developing and
acquiring of assisted-living communities. The Company believes that if
the development of new assisted-living communities outpaces demand for
those communities in certain markets, such markets may become saturated
and that could have a material adverse effect on the Company's business,
financial condition and results of operations, as well as, difficulties
in obtaining attractive sites for developing. See "Factors Affecting
Future Results and Regarding Forward-Looking Statements -Emphasis on
Acquisition; Difficulties of Integrating Acquisitions", "-Ability to
Develop Additional Assisted-living communities" and "-Need for
Additional Capital" for other factors that could affect the Company's
rate of development.
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MARKET SELECTION PROCESS
In selecting geographic markets for potential expansion, the
Company considers such factors as a potential market's population,
demographics and income levels, including the existing and anticipated
future population of seniors who may benefit from the Company's
services, the number of existing long-term-care facilities in the market
area and the income level of the target population. While the Company
does not apply its market selection criteria mechanically or inflexibly,
it generally seeks to select assisted-living community locations that
(a) are nonurban with populations of between 25,000 and 150,000 persons,
(b) have residents who generally enjoy mid-level incomes compared to
incomes generally realized in the region, (c) have a regulatory climate
that the Company considers favorable toward development, and (d) are
established and economically stable compared to newer, faster-growing
areas. The Company has found that communities with these
characteristics generally have a receptive population of seniors who
desire and can afford the services offered in the Company's assisted-
living communities.
In part because of Mr. Baty's close relationship with Holiday, four
of the sites currently under development or under consideration are near
existing or proposed Holiday independent-living facilities. The Company
believes that Mr. Baty's relationship with Holiday has provided, and
will continue to provide, the Company with opportunities to locate new
development sites near existing Holiday independent-living facilities
and enable the Company to gain knowledge that will allow it to select
advantageous development sites.
ACQUISITIONS
The Company has acquired, and plans to continue to acquire, if
attractive opportunities are made available, existing assisted-living
communities. The Company expects that, where an existing assisted-
living community has been well managed, has a stable occupancy and
financial performance and has in place a program of assisted-living
services comparable to those provided by the Company, the average per-
unit acquisition cost will generally be higher than for facilities that
require repositioning. The Company further expects, however, that the
expenditures otherwise associated with repositioning a facility will not
be as great, and that the anticipated time to achieve stabilized
occupancy and target resident mix will typically be shorter. Sixty-five
of the Company's 101 Operating Communities, containing 5,800 units, were
previously operated by others as assisted-living communities before
their acquisition by the Company. Of these, 11 required significant
repositioning.
Six of the Company's 101 Operating Communities, containing
approximately 400 units, were previously operated as independent-living
facilities. Under their prior owners, these properties often reflected
varying combinations of operating deficiencies, unstable occupancy and
deferred maintenance, which the Company believes enabled it to acquire
the properties at favorable prices. The Company typically implements
operating policies and procedures in assisted-living communities
previously operated as independent-living facilities to (a) stabilize
the resident population at appropriate levels with seniors who desire,
and have adequate resources for, the services offered in an assisted-
living environment and (b) aggressively market a broad array of assisted-
living services that can be provided on a basis consistent with the
Company's goal of maximizing the community's profitability.
Repositioning an acquired independent-living facility as an assisted-
living community generally requires approximately 12 to 24 months and
may require obtaining new or additional licenses, instituting policies
and procedures that implement the Company's assisted-living philosophy,
offering additional services typically provided by assisted-living
communities and improving the property to facilitate the provision of
those services and addressing deferred maintenance issues. The changes
typically involved in repositioning a facility are designed to increase
the facility's overall occupancy rate and to gradually alter the
resident mix so as to attract residents who can more readily use and
afford the additional services offered by the Company.
In certain circumstances the Company has acquired, and may continue
to acquire, independent-living and skilled-nursing facilities that for
various reasons it does not reposition as assisted-living communities.
These acquisitions will, however, generally be incidental to the
Company's overall focus on assisted-living communities, and the Company
will typically seek over time to divest itself of the ownership or
operation of properties that are inconsistent with its assisted-living
focus. There can be no assurance however, that the Company will
successfully operate such independent-living or skilled-nursing
facilities in the interim, that it will be able to locate qualified
purchasers or operators of such facilities or that the terms on which it
transfers ownership or operation of such facilities will be advantageous
to the Company. At December 31, 1997, the Company operated 15
properties or portions of properties, consisting of 1,300 units, as
independent living communities. Also, at December 31, 1997, the Company
owned one and leased three skilled-nursing communities, consisting of
approximately 100 units, three which are operated by the Company and one
which is operated by an independent third party.
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DEVELOPMENT
To further address the market need for assisted-living communities
and to anticipate growing competition for attractively priced
acquisition targets, the Company initiated a program of developing new
assisted-living communities in 1994. In 1996 and 1997, the Company
commenced operations on 11 and 20 newly developed communities,
respectively. Of the 11 developed in 1996, three were acquired by the
Company and developed by others. The Company currently owns, has a
leasehold interest in, management interest in or has acquired an option
to purchase the development sites for 26 of the Development Communities.
The Company currently anticipates opening 10 to 15 Development
Communities in 1998 and expects that its development program will enable
it to open approximately 10 to 15 newly developed assisted-living
communities in 1999. See "Factors Affecting Future Results and
Regarding Forward-Looking Statements Ability to Develop Additional
Assisted-living Communities" and "Need for Additional Capital" for a
description of factors that could affect the Company's rate of
development.
The Company intends to develop assisted-living communities
generally ranging in size from 50 to 150 units, consisting of an
aggregate of approximately 30,000 to 80,000 square feet, which are
located on sites typically ranging from three to five acres. Unit sizes
range from 350 to 500 square feet. The Company estimates that the
development cost of most of it assisted-living communities will
generally be approximately $60,000 to $95,000 per unit, depending on
local variations in land and construction cost.
The Company intends to develop new assisted-living communities by
using a combination of in-house development personnel and experienced
third-party project managers and by acquiring newly constructed
communities from developers under "turnkey" purchase and sale
agreements. Where the Company hires an outside developer, it plans to
retain the right to approve all aspects of the development, including,
among other things, site selection, plans and specifications, the
proposed construction budget and the general contractor. The Company
generally requires outside general contractors to post a performance
completion bond for each community under development. Typically, the
general contractor will be responsible for cost overruns and will be
required to build each residence to completion within a predetermined
maximum construction period. The Company expects that the average
construction time for a typical assisted-living community will be
approximately 8 to 12 months, depending on the number of units. Once a
site is developed, the Company estimates that it will take approximately
12 to 24 months for the assisted-living community to achieve a
stabilized level of occupancy.
To the extent the Company acquires newly developed communities from
a developer on a "turnkey" basis, it intends to enter into a purchase
and sale agreement whereby the Company, subject to construction of the
facility to the Company's preapproved standards and satisfaction of
typical purchase and sale contingencies for the Company's benefit, will
commit to purchase the facility upon completion at a fixed price equal
to the total development costs plus a development fee. In some
instances, the Company may agree to allow a developer that has
sufficient experience operating long-term-care facilities to open a
newly developed community and operate the community until it achieves a
certain occupancy level, at which time the Company would acquire the
community at a price that reflects the reduced lease-up risk.
MANAGEMENT AGREEMENTS
From time to time, the Company has entered into agreements whereby
it manages or provides administrative services for assisted-living
communities and independent-living communities owned or leased by
others. The agreements have terms ranging from two to four years, with
options to renew, and provide for management fees ranging from 4% to 6%
of gross operating revenues, payable monthly for management agreements
and fixed fees of $4,000 payable monthly for administrative agreements.
Acorn Service Corporation ("Acorn"), a subsidiary of the Company,
currently manages four communities containing approximately 300 units
and provides administrative services for one community containing
approximately 100 units ("Managed Communities"). The Managed
Communities are owned by Columbia House I, Limited Partnership
("Columbia House"), which is partially owned indirectly by the Company's
Chairman and Chief Executive Officer. See "Strategic Relationships -
Columbia House Relationship." The Company currently plans to have
continuing involvement with Columbia House as well as management
interests in communities with respect to the joint venture between the
Company and Sanyo Electric Co., Ltd. ("Sanyo"), of Osaka, Japan and
Aurora Bay Investments, L.L.C. ("Aurora Bay"), all of which will be
managed by Acorn. See "Strategic Relationships -Sanyo Relationship and
Aurora Bay Relationship. Management and administrative services
agreements and the Managed Communities owned or leased by others are not
currently material to the Company's overall business or revenue.
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STRATEGIC RELATIONSHIPS
HOLIDAY RELATIONSHIP
Twenty-eight of the Company's Operating Communities and two of its
Development Communities are located near existing or proposed
independent-living facilities operated by Holiday. The Company believes
that its focus on expanding in locations near Holiday facilities will
often enable it to gauge the need for its services in a particular
market by evaluating Holiday's operating performance, and that
successful Holiday facilities will generally reflect the combination of
criteria required for a successful assisted-living community. In
addition, the Company believes that, as a result of Mr. Baty's close
relationship with Holiday, opportunities may arise for (a) development
of assisted-living communities on sites near existing or proposed
Holiday independent-living facilities and (b) joint marketing programs
for attracting residents to the Company's assisted-living communities
and Holiday's independent-living facilities, depending on the level of
services required. Generally, the Company and Holiday have no written
agreement or formal understanding concerning their relationship, and
there can be no assurance that opportunities for such development or
joint marketing programs will arise and that the Company's and Holiday's
interests will be compatible in the future. In February 1998, however,
the Company and a Holiday affiliate entered into four management
agreements whereby the Holiday affiliate will provide management
services relating to four newly developed assisted-living communities
located in Texas. The agreements consist of initial terms of two years
six months and management fees based on 6% of gross revenues payable
monthly. The Company will pay a bonus fee per community to the Holiday
affiliate based on occupancy; one year after managing the communities,
if occupancy is between 75% and 89%, the Holiday affiliate will receive
a bonus fee of $25,000 and if occupancy is 90% or greater the bonus fee
will be $50,000. Mr. Baty and Mr. Colson, a director of the Company are
the principal shareholders, directors and senior executive officers of
Holiday, and substantially all the independent-living facilities
operated by Holiday are owned by partnerships controlled by Messrs. Baty
and Colson and in which they have varying financial interests.
PAINTED POST PARTNERS RELATIONSHIP
During 1995, the Company's two most senior executive officers, CEO
and President, formed a New York general partnership (the "Partnership")
to facilitate the operation of assisted-living communities in the state
of New York, which generally requires that natural persons be designated
as the licensed operators of assisted-living communities. The Company
and the Partnership have entered into Administrative Services Agreements
that extend for the term of the underlying leases. The fees payable to
the Company under the Administrative Services Agreements have been
established at a level that would equal or exceed the profit of the
community operated efficiently at full occupancy and, unless reset by
agreement of the parties, will rise automatically on an annual basis in
accordance with changes in the Consumer Price Index. In addition, the
Company has agreed to indemnify the partners against losses and in
exchange the partners have agreed to assign any profits to the Company.
As a part of the general noncompetition agreements of the CEO and
President, each has agreed that in the event he were to cease to be a
senior executive of the Company, he would transfer his interest in the
Partnership for a nominal charge to his successor at the Company or
other person designated by the Company.
ALERT RELATIONSHIP
In November 1996, the Company agreed to purchase up to 6,888,466
shares of convertible preferred stock of Alert, an Ontario, Canada based
owner and operator of assisted-living communities at prices ranging from
$0.67 to $0.74 per share (Cdn). In addition, the Company acquired an
option to purchase an additional 4,000,000 shares of convertible
preferred stock at an exercise price of $1.00 per share (Cdn), as well
as an option to purchase from Eclipse Capital Management ("Eclipse"),
the majority shareholder of Alert, and certain other shareholders of
Alert, 9,050,000 currently issued and outstanding shares of common stock
of Alert and 950,000 currently issued and outstanding shares of Class A
non-voting stock of Alert both at an exercise price of $3.25 per share
(Cdn).
Each Preferred Share is convertible into one common share or one
Class A nonvoting share, at the holder's election; the Preferred Shares
are immediately convertible into Class A nonvoting shares but are not
immediately convertible into common shares and are so convertible only
after the controlling persons of Alert have transferred to others (which
could include the Company) not less than 10 million shares of common or
Class A nonvoting shares (as of March 20, 1998 there are approximately
23.8 million such shares outstanding) and such controlling persons are
relieved of certain guarantees of indebtedness.
As of December 31, 1996, the Company had purchased and held
2,577,692 shares of preferred stock for a total investment of $1,800,000
(Cdn) or $1,331,000 (US). In 1997, the Company purchased an additional
5,010,774 shares of preferred stock increasing its ownership to
7,588,466 shares or $4,111,000 (US). As of December 31, 1997, the
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Company's total investment in Alert represents on an as-converted basis
approximately 24.2% of the outstanding common and Class A nonvoting
shares taken together. This represents approximately 41.9% of the
common shares (assuming no Class A nonvoting share are converted into
common shares) and approximately 36.3% of the Class A nonvoting shares
(assuming no common shares are converted into Class A nonvoting shares).
In January 1998, the Company purchased an additional 850,000 shares of
preferred stock resulting in an ownership interest of 8,438,466 shares
or 26.2%.
Alert has entered into an exclusive management agreement to manage
the Company's future assisted-living communities in Ontario. Eclipse,
through its wholly-owned subsidiary, Eclipse Construction Inc., develops
and constructs retirement homes for Alert on a contract basis. Under
the agreement, Eclipse has entered into an exclusive development
agreement with the Company and Alert to develop their future
construction projects in Ontario. No communities have been developed
under these agreements as of March 20, 1998.
COLUMBIA HOUSE RELATIONSHIP
Columbia House I, Limited Partnership ("Columbia House"), a
Washington limited partnership in which Mr. Baty, the Company's Chairman
and Chief Executive Officer indirectly controls the general partner and
holds an indirect 60% interest, develops, owns and leases low income
senior housing projects. The Company has entered into five agreements
with Columbia House to provide certain administrative support, due
diligence and financial support services to Columbia House with respect
to the acquisition, development and administration of Columbia House
communities. The Company currently manages four communities containing
approximately 300 units and provides administrative services for one
community containing approximately 100 units. See "Growth Strategy -
Management Agreements." The Company may in the future manage other
communities owned or leased by Columbia House.
SANYO RELATIONSHIP
In February 1998, the Company entered into a joint venture with
Sanyo to provide assisted living services in Japan. The joint venture,
Sanyo Emeritus Corporation, has been formed to provide a residential
based health care alternative for Japan's growing elderly population.
The Company will be initially capitalized with Y50 million, with each
company providing half the funds. The joint venture is expected to
complete its first assisted living project in Japan by the year 2000.
Similar to the United States, the elderly population in Japan is
experiencing dramatic growth. The Japanese Government expects that by
the year 2020, 27% of the Japanese population will be over 65 years of
age. In 1999, the Japanese Government is changing the current
reimbursement system and the Company expects that assisted-living
services will be an integral part of this new system thereby offering
Japan's elderly greater flexibility in making their health care choices.
AURORA BAY RELATIONSHIP
In January 1998, the Company entered into a $5.0 million credit
agreement with Aurora Bay, a limited liability company that acquires,
develops and operates Alzheimer's special care facilities to provide
room, board, and personal care services primarily to elderly persons
afflicted with Alzheimer's disease. Advances are evidenced by a
convertible promissory note (the "Convertible Note"), which is due in
January 2003 and accrues interest at 9.0% per annum. The Convertible
Note is convertible, at the Company's option, into a 48% equity interest
in Aurora Bay. The conversion rights will lapse if not exercised by the
Company on or prior to the maturity date of the Convertible Note. The
arrangement allows Aurora Bay to borrow up to $5.0 million to develop
Alzheimer's facilities. In January 1998, the Company advanced $535,000
to Aurora Bay for the first Alzheimer development located in Lubbock,
Texas. Under this agreement, the Company expects Aurora Bay to develop
eight to ten buildings, averaging 30 units per building with the
capacity of 56 residents per building over the next three years.
Funding for these buildings is expected to occur over the next 18 to 24
months. This relationship will allow for Aurora Bay to acquire, develop
and operate Alzheimer's communities and the Company to become a
significant owner of multiple Alzheimer's communities, with the
opportunity of obtaining financial and strategic growth in the
Alzheimer's industry without taking resources away from the development
and operations of assisted-living communities.
NORTHSTAR RELATIONSHIP
In October 1997, NorthStar Capital Partners LLC ("NorthStar"), a
private investment group with financial backing from a Union Bank of
Switzerland Securities affiliate and Quantum Realty Partners, a fund
advised by Soros Fund Management LLC, invested $25.0 million in the
Company through the purchase of 25,000 shares of Series A Convertible
Exchangeable Redeemable Preferred Stock (the "Series A Preferred
Stock"), representing approximately 10% ownership in the Company. Each
share of Series A Preferred Stock is convertible into that number of
shares of the Company's Common Stock equal to the liquidation value of a
share of Series A Preferred Stock ($1,000) divided by the conversion
price of $18.20 per share. Currently the Series A Preferred Stock is
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convertible into an aggregate of 1,373,626 shares of Common Stock. The
Series A Preferred Stock is also exchangeable into convertible debt at
the option of the Company. The conversion price is subject to adjustment
in the event of stock dividends, stock subdivisions and combinations,
and extraordinary distributions. The Series A Preferred Stock has a
mandatory redemption date of October 24, 2004.
OPERATIONS
The senior housing services industry encompasses a broad range of
accommodations and healthcare services that are provided primarily to
seniors. For seniors who require limited services, home-based care,
either in their own or a family member's home, offers a viable option
for assistance on an "as required" basis. For seniors who are
interested in community housing, retirement centers and independent-
living facilities offer support services that are often limited to
meals, housekeeping and laundry. As a senior's need for assistance
increases, care in an assisted-living community is often preferable and
more cost-effective than care at home or in a facility that does not
regularly provide the required services. Care in an assisted-living
community also offers residents a comfortable residential environment,
particularly when compared to the institutional setting often associated
with a skilled-nursing facility. Residents typically enter an assisted-
living community when other facilities are no longer able to provide the
level of services required. Under the Company's operating approach,
seniors reside in a single- or double-occupancy residential unit for a
monthly fee that is based on each resident's overall service needs. The
Company believes that its focus on residential assisted-living
communities allows seniors to maintain a more independent lifestyle than
is possible in the more medical and institutional environment of skilled-
nursing facilities. The Company also believes that certain of its
services, such as assisting residents with their activities of daily
living (including bathing, dressing, personal hygiene, grooming,
ambulating and eating) and providing health-related assistance
(including supervising residents' medication and monitoring certain
health conditions), are attractive to many seniors who are inadequately
served by independent-living facilities. Generally, residents of
assisted-living communities require higher levels of care than residents
of independent-living facilities, but require lower levels of care than
residents of skilled-nursing facilities.
STRATEGY
Using its management's expertise in operating long-term-care
facilities, the Company seeks to provide high-quality services in its
assisted-living communities while at the same time increasing operating
margins primarily by (a) increasing occupancy levels through extensive
marketing efforts to area hospitals, independent-living facilities and
other referral sources, including joint marketing efforts with Holiday
that are designed to attract residents to communities operated by the
Company or Holiday, depending on the level of services required; (b)
encouraging residents to remain longer at the Company's communities by
offering them a range of service options that will keep pace with their
needs as they age; (c) increasing revenues through modifications in rate
structures, where appropriate; and (d) identifying opportunities to
create operating efficiencies and reduce costs.
MARKETING AND REFERRAL RELATIONSHIPS
The Company's operating strategy is designed to integrate its
assisted-living communities into the continuum of healthcare providers
in the geographic markets in which it operates. One objective of this
strategy is to enable residents who require additional healthcare
services to benefit from the Company's relationships with local
hospitals, home healthcare agencies and skilled-nursing facilities in
order to obtain the most appropriate level of care. Thus, the Company
seeks to establish relationships with local hospitals (including through
joint marketing efforts, where appropriate) and home healthcare
agencies, alliances with visiting nurses associations and, on a more
limited basis, priority transfer agreements with local, high-quality
skilled-nursing facilities. In addition to benefiting residents, the
implementation of this operating strategy has strengthened and expanded
the company's network of referral sources.
Of the Company's 101 Operating Communities and 26 Development
Communities, 30 are located in markets or proposed markets in which
Holiday also operates its independent-living facilities. The Company
believes that its assisted-living communities will offer an attractive
alternative for Holiday residents as they age and require more extensive
services. The Company and Holiday do not have any formal understanding
or written agreement regarding joint marketing programs. As a result,
there can be no assurance that joint marketing programs envisioned with
Holiday will be effected. Furthermore, there can be no assurance that,
if effected, such joint marketing programs will be successful in
attracting additional residents to the Company's assisted-living
communities or that the Company's and Holiday's interest will be
compatible in the future. See "-Strategic Relationships" and "Certain
Transactions".
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RESIDENT-SERVICE PROGRAMS
The Company's assisted-living communities offer residents a
supportive, "home-like" setting and assistance with activities of daily
living. Residents of the Company's communities are typically unable to
live alone, but do not require the 24-hour care provided in skilled-
nursing facilities. Services provided to the Company's residents are
designed to respond to their individual needs and to improve their
quality of life, are available 24 hours a day to meet both anticipated
and unanticipated resident needs, and generally include three meals per
day, housekeeping and grounds keeping and building maintenance services.
Available support services include personal and routine nursing care,
social and recreational services, transportation and special services.
Personal services include bathing, dressing, personal hygiene, grooming,
ambulating and eating assistance. Health-related services, which are
made available and provided according to the resident's individual needs
and state regulatory requirements, may include assistance with taking
medication, skin care and injections, as well as healthcare monitoring.
Organized activities are available for social interaction and
entertainment. Special services include banking, shopping and pet care.
The Company provides its residents service options through its
FlexAssist living program, which employs a detailed individual
assessment and service-planning process that responds to each resident's
assistance needs.
All residents are offered the same categories of care at four
different levels. An individual resident's level of care is determined
by the degree of assistance he/she requires in each of the categories.
The more assistance required, the higher the level of care. The
categories of care include orientation to person/place/time, behavior
management, socialization, activities and transportation, medication,
continence, bathing, dressing, grooming, ambulation, dining assistance,
dietary assistance, housekeeping, laundry, medical management and
miscellaneous (which consists of diabetic management, PRN medication,
transfer, simple treatment, oxygen set up/maintenance and prosthesis).
All residents pay the base rate plus the rate for one of the levels of
care. The base rate includes apartment rent, three meals per day,
weekly housekeeping, changing of bed and bath linens, utilities
(excluding telephone), scheduled transportation, social and recreational
activities and an emergency call system.
The Company believes that its emphasis on quality and continuity of
service will enable it to increase its communities' occupancy rates,
thereby enhancing revenues. By creating a long-term-care environment
that maximizes resident autonomy and provides individualized service
programs, the Company seeks to attract seniors at an earlier state of
their search for long-term-care, before they need the higher-level care
provided in a skilled-nursing facility. By providing programs that are
designed to offer residents a range of service options as their needs
change, the Company seeks to achieve greater continuity of care,
enabling seniors to "age in place" and thereby maintain their residency
for a longer time period. The Company also believes that the physical
configuration of its facilities, combined with its level of service,
contributes to resident satisfaction and allows seniors residing at the
Company's communities to maintain an appropriate level of autonomy.
RATE STRUCTURE
The Company believes that its residents' average monthly charges
are approximately 55% to 65% of the average monthly charge for residents
receiving nursing care in private rooms at unskilled-nursing facilities
due in part to the less labor-intensive services required by seniors who
comprise the Company's target market. The Company initially
experimented with a menu-based system of charges for the services
offered at its communities. However, it has shifted to its FlexAssist
program, a tiered service structure based on the number and frequency of
activities of daily living with which a resident needs assistance.
SERVICE REVENUE SOURCES
The Company currently and for the foreseeable future expects to
rely primarily on its residents' ability to pay the Company's charges
from their own or familial resources. Although care in an assisted-
living community is typically less expensive than in a skilled-nursing
facility, the Company believes generally only seniors with income or
assets meeting or exceeding the regional median can afford to reside in
the Company's communities. Inflation or other circumstances that
adversely affect seniors' ability to pay for services such as those
provided by the Company could have an adverse effect on the Company's
business or operations. For example, if the Company were unable to
attract residents able to pay for its services, it would have to modify
its business strategy of relying primarily on the private-pay market and
be forced to rely more on the limited number of governmental
reimbursement programs. Furthermore, the federal government does not
currently provide any reimbursement for the type of assisted-living
services provided by the Company. Although some states have
reimbursement programs in place, in many cases the level of
reimbursement is insufficient to cover the total costs of delivering the
level of care that the Company currently provides.
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The Company currently serves a limited number of residents who are
eligible for subsidies in the form of additional Supplemental Security
Insurance ("SSI") payments and were residing at a facility when it was
acquired by the Company. SSI, a federal recipient assistance program
that is administered primarily at the state level, provides financial
assistance to indigent persons requiring placement in a residential-care
facility. Qualifications are generally similar to those of Medicaid,
and the Company is subject to various regulatory and governmental
reimbursement policies. Net revenues from state reimbursement programs
for the years 1996 and 1997 accounted for less than 10% of the Company's
operating revenues for such years. Payments to the Company under state
reimbursement programs in which the Company participates are currently
sufficient to cover virtually all the operating (but not financing)
costs allocable to the Company's participating residents. As third
party reimbursement programs continue to grow in certain states
(Washington, Texas, Massachusetts), the Company will pursue
reimbursement from the third party, if appropriate, given the level of
care provided to its residents. However, there can be no assurance
that the Company will continue to improve its private-pay mix or that it
will not in the future become more dependent on governmental
reimbursement programs.
ADMINISTRATION AND COST CONTAINMENT
The Company has recruited experienced key employees from several
established operators in the long-term-care services field and believes
that it has assembled the administrative, development and financial
personnel that will enable it to manage its growth and operating
strategies effectively. In 1996, the Company restructured its operations
department through the recruiting of individuals with strong backgrounds
in the senior housing industry. In November 1996, the Company hired
Gary D. Witte as its Vice President, Operations whose background
consists of over 20 years experience in the industry and in March 1997,
the Company hired a Sarah Curtis as its Vice President, Sales and
Marketing with over 15 years experience in the industry. The Company
also recruited individuals with a strong background in senior housing
for its regional director positions. In addition the Company has
developed the internal procedures, policies and standards it believes
are necessary for effective operation and management of its residential
communities. The Company provides management support services to each of
its residential communities, including establishment of operating
standards, recruiting, training, and financial and accounting services.
The Company has established Central, Eastern and Western Operational
Divisions. Each division is headed by a director who reports to the
Company's Chief Operating Officer and its Vice President, Operations.
The divisions contain two to eight operational regions for the Mid
Atlantic states, Arizona, California, Florida, New York and Texas. Each
operational region is headed by a regional director who provides
supervisory oversight for each of the communities in their respective
regions. Day to day community operations are supervised by an on-site
administrator who, in certain jurisdictions, must satisfy certain
licensing requirements.
To contain costs and maximize operating efficiency, the Company
employs an integrated structure of management and financial systems and
controls. The Company utilizes centralized accounting systems and
computer systems that link each community with the Company's executive
offices to provide management with on-line revenue and expense
information regarding its residential communities. The Company's
systems provide an on-line analysis capability for resident billing,
occupancy, marketing and statistical information.
COMMUNITY DISPOSITIONS
As of December 31, 1997, the Company is exploring strategic
alternatives regarding the disposition of five to ten of the Company's
assisted-living communities. Strategic alternatives involve possible
sublease, sale or partnership with respect to certain communities and
may depend on the geographical regions.
COMPETITION
The number of assisted-living communities in the United States, the
ownership of which is fragmented, is increasing rapidly. The Company is
experiencing an increase in competition through the development of
assisted-living communities. As the assisted-living industry continues
to grow, fewer attractive development sights are made available. This
market saturation could have an adverse effect on the Company's newly
developed communities and their availability to fill-up and achieve a
stabilized occupancy . Moreover, the senior housing services industry
has been subject to pressures that have resulted in the consolidation of
many small local operations into larger regional and national
multifacility operations. While there are several national and regional
companies that provide senior living alternatives, the Company
anticipates that its primary source of competition will come from local
and regional assisted-living companies that operate, manage and develop
residences within the same geographic area as the Company, as well as
retirement facilities and communities, home healthcare agencies, not-for-
profit or charitable operators and, to a lesser extent, skilled-nursing
facilities and convalescent centers. The Company believes that quality
of service, reputation, a facility's location and physical appearance,
and price will be significant competitive factors. Some of
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the Company's competitors have significantly greater resources,
experience and recognition within the healthcare community than does the
Company.
EMPLOYEES
As of December 31, 1997, the Company had 4,106 employees, including
708 full time employees, of which 90 were employed at the Company's
headquarters. None of the Company's employees are currently represented
by a labor union, and the Company is not aware of any union-organizing
activity among its employees. The Company believes that its
relationship with its employees is good.
Although the Company believes it is able to employ sufficient
skilled personnel to staff the communities it operates or manages, a
shortage of skilled personnel in any of the geographic areas in which it
operates could adversely affect the Company's ability to recruit and
retain qualified employees and control its operating expenses.
TRADEMARKS
The Registration of the Company's FlexAssist service mark was
granted in February 1997.
FACTORS AFFECTING FUTURE RESULTS AND REGARDING FORWARD-LOOKING
STATEMENTS
The Company's business, results of operations and financial
condition are subject to many risks, including those set forth below.
In addition, the following important factors, among others, could cause
the Company's actual results to differ materially from those expressed
in the Company's forward-looking statements in this report and presented
elsewhere by management from time to time. When used in this report,
the words "believes", "anticipates" and similar expressions are intended
to identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak
only as of the date of this report. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or
circumstances after the date of this report or to reflect the occurrence
of unanticipated events.
RECENT ORGANIZATION; HISTORY OF LOSSES. The Company was organized
and began operations in July 1993 and has operated at a loss since its
inception. For 1996 and 1997, the Company recorded a net loss of
$8.2 million and $28.2 million, respectively. The majority of the
Operating Communities that have been acquired operated at a loss
following acquisition. The Company, if provided with attractive
opportunities, intends to continue to acquire long-term-care facilities
that are likely to operate at a loss for at least 12 months to 18 months
after the Company acquires its interest in each facility. In addition,
the Company is developing new assisted-living communities, all of which
are expected to incur start-up losses for at least twelve months after
commencing operations. As a result, the Company expects to continue to
incur losses at least through the end of 1999. There can be no
assurance, however, that the Company's operations will become profitable
at the rate currently expected by the Company, if at all. The Company's
inability to achieve profitability on a timely basis could have an
adverse effect on the Company's business, operating results and
financial condition and the market price of its Common Stock.
EMPHASIS ON ACQUISITIONS; DIFFICULTIES OF INTEGRATING ACQUISITIONS.
The Company's growth strategy has emphasized a program of acquiring
existing assisted-living communities and properties that it believes it
can efficiently reposition as assisted-living communities. During the
first half of 1997, the Company acquired ownership of or leasehold
interests in seven long-term-care facilities. No further acquisitions
occurred during the year due to the unavailability of attractive
facilities and no acquisitions are currently in process. However, if
attractive opportunities are made available, the Company will continue
to acquire ownership or leasehold interest in existing long-term-care
facilities. Acquisitions of long-term-care facilities are typically
subject to a number of closing conditions, including those regarding the
status of title to real property included in the acquisition, the
results of environmental investigations performed on the Company's
behalf, the transfer of applicable licenses or permits and the
availability of appropriate financing. There can be no assurance that
the Company's acquisition of long-term-care facilities will occur at the
rate currently expected by the Company or that future acquisitions will
be completed in a timely manner, if at all. Due in part to management's
industry experience and contacts, the Company may be presented with more
attractive acquisition proposals than currently is expected and, as a
result, may attempt to purchase long-term-care facilities at a
substantially higher rate than currently expected, which could cause the
Company to overextend its management and financial resources. To the
extent that acquisitions are consummated, there can be no assurance that
the Company will, where appropriate, successfully reposition an acquired
facility or integrate a newly acquired or repositioned community with
its other operations. In addition, the Company has from time to time
acquired, and may under certain circumstances continue to acquire,
independent-living or skilled-nursing facilities that for various
reasons it does not reposition as assisted-living communities. There
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can be no assurance that the Company will successfully operate such
independent-living or skilled-nursing facilities. Even if the Company
should determine to transfer ownership or operation of such independent-
living or skilled-nursing facilities, there can be no assurance that it
will be able to locate qualified purchasers or operators of such
facilities or that the terms on which it transfers ownership or
operation of such facilities will be advantageous to the Company, either
of which could adversely affect the market price of the shares of Common
Stock as well as the Company's results of operations and financial
position. Furthermore, the acquisition of independent-living facilities
and the development of assisted-living communities by the Company may
exacerbate potential conflicts of interest between the Company and
Holiday and could expose management of the Company to claims that duties
to one or both companies have not been met. See "Conflicts of Interest
with Holiday". Finally, any failure by the Company with respect to the
repositioning, integration or operation of any acquired facilities may
have a material adverse effect on the Company's business, operating
results and financial condition.
DIFFICULTIES IN DEVELOPING ADDITIONAL ASSISTED-LIVING COMMUNITIES.
The Company's prospects for growth are directly affected by its ability
to develop additional assisted-living communities. The Company expects
to open approximately 10 to 15 newly developed assisted-living
communities in 1999. Currently, the Company has 26 assisted-living
communities in various stages of development and it anticipates opening
10 to 15 assisted-living communities in 1998. In connection with the
development communities, the Company has construction commitments of
$34.8 million and $30.7 million on owned and leased developments,
respectively, for which the Company has financing in place at December
31, 1997. See "Management Discussion and Analysis". To date, the
Company has opened 31 newly developed communities, 28 developed by the
Company and three developed by others and acquired by the Company.
There can be no assurance that the Company will not suffer delays in its
development program, which could slow the Company's growth. Development
of assisted-living communities can be delayed or precluded by various
zoning, healthcare licensing and other applicable governmental
regulations and restrictions. The nature of such licenses and approvals
and the timing and likelihood of obtaining them vary widely from state
to state, depending on the community, or its operation, and the type of
services to be provided. If the Company's development schedule is
delayed, the Company's business, operating results and financial
condition could be adversely affected.
SUBSTANTIAL DEBT AND LEASE OBLIGATIONS OF THE COMPANY. At
December 31, 1997, the Company had mortgage indebtedness in an aggregate
amount of $120.9 million, with minimum principal payments estimated to
be approximately $12.8 million in 1998. Of the $120.9 million,
approximately $45.3 million represents borrowings under construction
loans totaling $51.0 million in connection with the Development
Communities. As of December 31, 1997, approximately $66.6 million
principal amount of the Company's indebtedness bore interest at
fluctuating rates (including $21.6 million of construction loans);
therefore, increases in prevailing interest rates would increase the
Company's interest payment obligations and could have an adverse effect
on the Company's operating results and financial condition. At December
31, 1997, the Company was also a party to long-term operating leases for
76 of its residential communities, which leases require minimum annual
lease payments aggregating $41.7 million, and generally provide for
annual rent increases. In addition, the Company will have approximately
$12.8 and $33.3 million in principal amount of debt repayment
obligations that become due in 1998 and 1999, respectively. The Company
intends to continue to finance its properties through a combination of
mortgage financing and operating leases, including leases arising
through sale/leaseback transactions, and, accordingly, the amount of
mortgage indebtedness and annual lease payments is expected to increase
as the Company pursues its growth strategy. As a result of such
mortgages and leases, a substantial portion of the Company's cash flow
will be devoted to debt service and lease payments. There can be no
assurance that the Company will generate sufficient cash flow from
operations to cover required interest, principal and lease payments.
Furthermore, from time to time the Company has not been in compliance
with certain covenants in its financing agreements. While to date the
Company has been able to obtain waivers for such noncompliance, there
can be no assurance that in the future it will be able to comply with
such covenants, which generally relate to matters such as cash flow and
debt coverage ratios. If the Company were unable to meet interest,
principal or lease payments, it could be required to seek renegotiation
of such payments or obtain additional equity or debt financing. There
can be no assurance, however, that such efforts would be successful or
timely or that the terms of any such financing or refinancing would be
acceptable to the Company. Furthermore, because of cross-default and
cross-collateralization provisions in certain of the Company's mortgage
and sale/leaseback agreements, a default by the Company on one of its
payment obligations could adversely affect a significant number of the
Company's properties. The Company's leverage may also adversely affect
the Company's ability to respond to changing business and economic
conditions or continue its development and acquisition program.
NEED FOR ADDITIONAL CAPITAL; NEGATIVE CASH FLOW AND FINANCING
REQUIREMENTS. The Company expects negative operating cash flow to
continue through at least 1998 as it continues to develop and acquire
assisted-living communities. The Company does not expect any of its
newly developed assisted-living communities to generate positive cash
flow for at least nine months after commencing operations. In addition,
the Company expects that the properties it acquires for repositioning as
assisted-living communities will typically require at least 12 months to
18 months after acquisition to begin to generate positive cash flows.
There can be no assurance that any newly developed or repositioned
community will achieve a stabilized occupancy rate and resident mix that
meets the Company's expectations, generate positive cash flow or
operating results sufficient to allow the Company to refinance
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outstanding indebtedness secured by the community through sale/leaseback
transactions. To successfully continue its aggressive growth, the
Company must have sufficient financial resources to fund its development
and acquisition activities and anticipated operating losses.
Furthermore, the Company's future success depends in part on arranging
sale/leaseback financing or mortgage refinancing for assisted-living
communities that have achieved stabilized occupancy rates, resident mix
and operating margins after initial development or repositioning. The
Company will from time to time seek additional funding through public or
private financing, including equity financing. If additional funds are
raised by issuing equity securities, the Company's shareholders may
experience dilution. There can be no assurance, however, that adequate
equity, debt or sale/leaseback financing will be available as needed or
on terms acceptable to the Company. A lack of available funds may
require the Company to delay, scale back or eliminate all or some of its
development and acquisition projects.
CONFLICTS OF INTEREST WITH HOLIDAY. Mr. Baty, the Company's Chief
Executive Officer, and Mr. Colson, a director of the Company, are the
principal shareholders, directors and senior executive officers of
Holiday, and substantially all the independent-living facilities
operated by Holiday are owned by partnerships controlled by Messrs. Baty
and Colson and in which they have varying financial interests.
Messrs. Baty's and Colson's responsibilities to Holiday and its
affiliates include overseeing the management of independent-living
facilities, the acquisition, financing and refinancing of existing
facilities and the development and construction of, and capital-raising
activities to finance, new facilities. Although the Company believes
that its relationship with Holiday is beneficial, the financial
interests and management and financing responsibilities of Messrs. Baty,
Colson, Brandstrom and Ruffo with respect to Holiday and its affiliated
partnerships could present conflicts of interest, including conflicts
relating to the selection of future development or acquisition sites,
competition for potential residents in markets where both companies
operate and the allocation of time and efforts of Mr. Baty. Because
Mr. Baty is the Chief Executive Officer of the Company and a principal
executive officer of Holiday circumstances could arise that would
distract them from the Company's operations, which distractions could
have an adverse effect on the Company's business, operating results and
financial condition. Moreover, there can be no assurance that the
Company's and Holiday's interests will remain compatible.
DIFFICULTIES OF MANAGING RAPID EXPANSION. Since its inception, the
Company has pursued an aggressive expansion program, and it expects that
its growth will continue as it implements its development program for
new assisted-living communities. The Company's success will depend in
large part on identifying suitable development and acquisition
opportunities, and its ability to pursue such opportunities, complete
developments, consummate acquisitions and effectively operate its
assisted-living communities. The Company's growth has placed a
significant burden on the Company's management and operating personnel.
In late 1996 and early 1997, the Company reorganized its operating and
marketing staffs with individuals having a strong background in the
senior housing industry. The Company's ability to manage its growth
effectively will require it to continue to improve its operational,
financial and management information systems and to continue to attract,
train, motivate, manage and retain key employees. If the Company is
unable to manage its growth effectively, its business, operating results
and financial condition could be adversely affected.
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL. The Company
depends, and will continue to depend, on the services of Daniel R. Baty,
its Chairman of the Board and Chief Executive Officer, Raymond R.
Brandstrom, its President and Chief Operating Officer, and Frank A.
Ruffo, Jr., its Vice President. The loss of the services of Mr. Baty or
either of Messrs. Brandstrom or Ruffo would have a material adverse
effect on the Company's operating results and financial condition. In
addition, Mr. Baty has financial interests in and management
responsibilities with respect to Holiday and its related partnerships.
And, as a result, he will not be devoting his full time and efforts to
the Company. Under certain circumstances, Mr. Baty also could have
conflicts of interest in allocating his time and efforts between the
Company and Holiday. The Company has entered into a noncompetition
agreement with Mr. Baty but this noncompetition agreement does not limit
Mr. Baty's current role with Holiday, or the related partnerships which
own or lease properties currently operated by Holiday, so long as
assisted-living is an incidental component to Holiday's operation or
management of independent-living facilities. The Company has obtained a
key employee insurance policy covering the lives of each of Messrs. Baty
and Brandstrom in the amounts of $5.0 million and $1.0 million,
respectively. The Company also depends on its ability to attract and
retain management personnel who will be responsible for the day-to-day
operations of each of its residential communities. If the Company is
unable to hire qualified management to operate its assisted-living
communities, the Company's business, operating results and financial
condition could be adversely affected.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state
and local environmental laws, ordinances and regulations, a current or
previous owner or operator of real property may be held liable for the
costs of removal or remediation of certain hazardous or toxic
substances, including, without limitation, asbestos-containing
materials, that could be located on, in or under such property. Such
laws and regulations often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of the hazardous
or toxic substances. The costs of any required remediation or removal
of these substances could be substantial and the liability of an owner
or operator as to any property is generally not limited under such laws
and regulations, and could exceed the property's value and the aggregate
assets of the owner or operator. The presence of these substances or
13
<PAGE>
failure to remediate such substances properly may also adversely affect
the owner's ability to sell or rent the property, or to borrow using the
property as collateral. Under these laws and regulations, an owner,
operator or any entity who arranges for the disposal of hazardous or
toxic substances such as asbestos-containing materials, at a disposal
site may also be liable for the costs of any required remediation or
removal of the hazardous or toxic substances at the disposal site. In
connection with the ownership or operation of its properties, the
Company could be liable for these costs, as well as certain other costs,
including governmental fines and injuries to persons or properties. As
a result, the presence, with or without the Company's knowledge, of
hazardous or toxic substances at any property held or operated by the
Company could have an adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON ATTRACTING SENIORS WITH SUFFICIENT RESOURCES TO PAY.
The Company currently, and for the foreseeable future, expects to rely
primarily on its residents' ability to pay the Company's fees from their
own or familial financial resources. Generally only seniors with income
or assets meeting or exceeding the comparable median in the region where
the Company's assisted-living communities are located can afford the
Company's fees. Inflation or other circumstances that adversely affect
the ability of seniors to pay for the Company's services could have an
adverse effect on the Company. If the Company encounters difficulty in
attracting seniors with adequate resources to pay for its services, its
business, operating results and financial condition could be adversely
affected.
STAFFING AND LABOR COSTS. The Company competes with other long-
term-care providers with respect to attracting with retaining qualified
or skilled personnel. The Company also depends on the available labor
pool of low-wage employees. A shortage of nurses or other trained
personnel or general inflationary pressures may require the Company to
enhance its wage and benefits package in order to compete. There can be
no assurance that the Company's labor costs will not increase or, if
they do, that they can be matched by corresponding increases in private-
payor revenues or governmental reimbursement. Any significant failure
by the Company to attract and retain qualified employees, to control its
labor costs or to match increases in its labor expenses with
corresponding increases in revenues could have a material adverse effect
on the Company's business, operating results and financial condition.
GOVERNMENTAL REGULATION. Healthcare is heavily regulated at the
federal, state and local levels and represents an area of expensive and
frequent regulatory change. A number of legislative and regulatory
initiatives relating to long-term care are proposed or under study at
both the federal and state levels that, if enacted or adopted, could
have an adverse effect on the Company's business and operating results.
The Company cannot predict whether and to what extent any such
legislative or regulatory initiatives will be enacted or adopted, and
therefore cannot assess what effect any current or future initiative
would have on the Company's business and operating results. Changes in
applicable laws and new interpretations of existing laws can
significantly affect the Company's operations, as well as its revenues
(particularly those from governmental sources) and expenses. The
Company's residential communities are subject to varying degrees of
regulation and licensing by local and state health and social service
agencies and other regulatory authorities specific to their location.
While regulations and licensing requirements often vary significantly
from state to state, they typically relate to fire safety, sanitation,
staff training, staffing levels and living accommodations such as room
size, number of bathrooms and ventilation, as well as regulatory
requirements relating specifically to certain of the Company's health-
related services. The Company's success will depend in part of its
ability to satisfy such regulations and requirements and to acquire and
maintain any required licenses. In addition, with respect to its
residents who receive financial assistance from governmental sources for
their assisted-living services, the Company is subject to certain
federal and state regulations that prohibit certain business practices
and relationships that might affect healthcare services reimbursable
under Medicaid or similar state reimbursements programs. The Company's
failure to comply with such regulations could jeopardize its
reimbursement payments for any affected residents and, if egregious,
could result in fines and the suspension or failure to renew the
Company's operating licenses. Federal, state and local governments
occasionally conduct unannounced investigations, audits and reviews to
determine whether violations of applicable rules and regulations exist.
Devoting management and staff time and legal resources to such
investigations, as well as any material violation by the Company that is
discovered in any such investigation, audit or review, could have a
material adverse effect on the Company's business and operating results.
There can be no assurance that regulatory oversight of construction
efforts associated with repositionings will not result in loss of
residents and disruption of community operations.
COMPETITION. The long-term-care industry is highly competitive,
and the Company believes that the assisting-living segment, in
particular, will become even more competitive in the future. The
Company will be competing with numerous other companies providing
similar long-term-care alternatives such as home healthcare agencies,
community-based service programs, retirement communities and
convalescent centers. The Company expects that, as the provision of
assisted-living services receives increased attention and the number of
states providing reimbursement for assisted-living rises, competition
will intensify as a result of new market entrants. The Company also
faces potential competition from skilled-nursing facilities that provide
long-term-care services. Moreover, in implementing its growth strategy,
the Company expects to face competition in its efforts to develop and
acquire assisted-living communities. Some of the Company's present and
14
<PAGE>
potential competitors are significantly larger and have, or may obtain,
greater financial resources than those of the Company. Consequently,
there can be no assurance that the Company will not encounter increased
competition in the future that could limit its ability to attract
residents or expand its business and therefore have a material adverse
effect on its business, operating results and financial condition.
POTENTIAL ADVERSE IMPACT OF GOVERNMENTAL REIMBURSEMENT PROGRAMS.
Currently, the federal government does not provide any reimbursement for
the type of assisted-living services offered by the Company. Although
some states have reimbursement programs in place, the level of
reimbursement is generally insufficient to cover the costs of the
Company's assisted-living services. Depending in part on the results of
the Company's acquisition program, net revenues from governmental
reimbursement programs could increase from time to time. In 1996 and
1997, less than 10% of the Company's revenues were from residents who
receive governmental assistance from a state medicaid program. There
can be no assurance that the Company will continue to meet the
requirements for participating in governmental reimbursement programs.
Furthermore, governmental reimbursement programs are subject to
statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and governmental funding restrictions, some of
which could have a material adverse effect on the future rate of payment
to communities operated by the Company. A substantial dependence on
governmental reimbursement programs, changes in the funding levels of
such programs or the failure of the Company's operations to qualify for
governmental reimbursement could have an adverse effect on the Company's
business, operating results and financial condition.
LIABILITY AND INSURANCE. The Company's business entails an
inherent risk of liability. In recent years, participants in the long-
term-care industry have become subject to an increasing number of
lawsuits alleging malpractice or related legal theories, many of which
involve large claims and significant legal costs. The Company expects
that from time to time it will be subject to such suits as a result of
the nature of its business. The Company currently maintains insurance
policies in amounts and with such coverage and deductibles as it deems
appropriate, based on the nature and risks of its business, historical
experience and industry standards. There can be no assurance, however,
that claims in excess of the Company's insurance coverage or claims not
covered by the Company's insurance coverage will not arise. A
successful claim against the Company not covered by, or in excess of,
the Company's insurance could have a material adverse effect on the
Company's operating results and financial condition. Claims against the
Company, regardless of their merit or eventual outcome, may also have a
material adverse effect on the Company's ability to attract residents or
expand its business and would require management to devote time to
matters unrelated to the operation of the Company's business. In
addition, the Company's insurance policies must be renewed annually, and
there can be no assurance that the Company will be able to obtain
liability insurance coverage in the future or, if available, that such
coverage will be on acceptable terms.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the
Company's Common Stock could be subject to significant fluctuations in
response to various factors and events, including the liquidity of the
market for the Common Stock, variations in the Company's operating
results, variations from analysts expectations, new statutes or
regulations or changes in the interpretation of existing statutes or
regulations affecting the healthcare industry generally or the assisted-
living residence business in particular. In addition, the stock market
in recent years has experienced broad price and volume fluctuations that
often have been unrelated to the operating performance of particular
companies. These market fluctuations also may adversely affect the
market price of the Common Stock.
15
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
PROPERTIES
The Company's assisted-living communities generally consist of one-
to three-story buildings and include common dining and social areas.
Twelve of the Company's Operating Communities, containing approximately
1,000 units, were previously or are currently operated as independent-
living facilities. Of these facilities, five have been or are in the
process of being, repositioned to assisted-living communities, which
process typically involves changing their operating licenses, policies
and standards, offering additional services required by assisted-living
residents and making physical improvement to the property. Four of the
Company's Operating Communities, containing approximately 100 units, are
currently operated as skilled-nursing facilities. Of these facilities,
one is managed by an independent third party.
The table below summarizes certain information regarding the
Operating Communities.
<TABLE>
<CAPTION>
Emeritus
Operations
Community Location Commenced Units (a) Beds (b) Interest
- --------------------------------------------- ----------------- ---------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Arizona
Olive Grove (d) Phoenix Jun. 1994 98 111 Lease
La Villita (d) Phoenix Jun. 1994 92 92 Own
Scottsdale Royale (1) Scottsdale Aug. 1994 63 63 Own
Villa Ocotillo Scottsdale Sep. 1994 102 106 Own
California
Fulton Villa (c) Stockton Apr. 1995 80 80 Own
Laurel Place (c) (d) San Bernadino Apr. 1996 71 72 Lease
Rosewood Court Fullerton Mar. 1996 71 78 Lease
The Terrace (c) Grand Terrace Jan. 1996 87 87 Lease
Villa Del Rey (c) (d) Escondido Mar. 1997 84 84 Own
Connecticut
Cold Spring Commons (d) Rocky Hill May 1997 80 88 Lease
Delaware
Green Meadows at Dover Dover Oct. 1995 52 63 Lease
Florida
Barrington Place LeCanto May 1996 79 120 Lease
Beneva Park Club Sarasota Jul. 1995 96 102 Lease
Central Park Village (d) (5) Orlando Jul. 1995 174 190 Lease
College Park Club (d) Brandenton Jul. 1995 85 93 Lease
Colonial Park Club Sarasota Aug. 1996 88 90 Lease
La Casa Grande New Port Richey May 1997 200 235 Own
Park Club of Brandon Brandon Jul. 1995 88 88 Lease
Park Club of Fort Myers Fort Myers Jul. 1995 77 82 Lease
Park Club of Oakbridge Lakeland Jul. 1995 88 88 Lease
Madison Glen Clearwater May 1996 135 154 Own
River Oaks Englewood May 1997 155 200 Own
Springtree Sunrise May 1996 179 246 Lease
Stanford Centre Altamonte Springs May 1997 118 180 Own
The Lodge at Mainlands Pinellas Park Aug. 1996 154 162 Lease
Idaho
Camlu Retirement (1) Coeur d'Alene Nov. 1996 83 86 Management
Highland Hills Pocatelo Oct. 1996 49 55 Lease
Juniper Meadows Lewiston Dec. 1997 82 90 Own
Ridge Wind Chubbock Aug. 1996 80 106 Lease
Summer Wind Boise Sep. 1995 49 53 Lease
The Lakewood Inn (6) Coeur d'Alene Mar. 1996 108 114 Lease
Iowa
Silver Pines Cedar Rapids Jan. 1995 80 80 Own
Kansas
Elm Grove Estates Hutchinson Jun. 1997 121 133 Lease
16
<PAGE>
Emeritus
Operations
Community Location Commenced Units (a) Beds (b) Interest
- --------------------------------------------- ----------------- ---------- --------- -------- --------------
Kentucky
Stonecreek Lodge (d) Louisville May 1997 80 88 Lease
Massachusetts
Meadow Lodge at Drum Hill (d) Chelmsford Oct. 1997 80 88 Lease
The Pines at Tewksbury (d) Tewksbury Jan. 1996 49 65 Lease
Woods at Eddy Pond (d) Auburn Jun. 1997 80 88 Lease
Mississippi
Ridgeland Court (d) Ridgeland Aug. 1997 79 87 Lease
Missouri
Autumn Ridge (5) Herculaneum Jun. 1997 94 94 Management
Montana
Springmeadows Residence Bozeman May 1997 74 81 Own
Nevada
Concorde (d) Las Vegas Nov. 1996 116 128 Own
New Jersey
Laurel Lake Estates Voorhees Jul. 1995 117 119 Lease
New York
Bassett Manor Williamsville Nov. 1996 103 105 Lease(2)
Bassett Park Manor Williamsville Nov. 1996 78 80 Lease(2)
Bellevue Manor Syracuse Nov. 1996 90 90 Lease(2)
Colonie Manor Latham Nov. 1996 94 94 Lease(2)
East Side Manor Fayettville Nov. 1996 80 88 Lease(2)
Green Meadows at Painted Post Painted Post Oct. 1995 73 96 Lease(2)
Perinton Park Manor Fairport Nov. 1996 78 86 Lease(2)
West Side Manor - Rochester Rochester Nov. 1996 72 72 Lease(2)
West Side Manor - Syracuse Syracuse Nov. 1996 78 80 Lease(2)
Woodland Manor Vestal Nov. 1996 60 116 Lease(2)
North Carolina
Heritage Health Center (3) Hendersonville Feb. 1996 66 134 Lease
Heritage Hills Retirement Community (1) Hendersonville Feb. 1996 99 99 Own
Heritage Lodge Assisted-Living Hendersonville Feb. 1996 20 24 Lease
Pine Park Retirement Community (1) Hendersonville Feb. 1996 110 110 Lease
Ohio
Park Lane (5) Toledo Jan. 1998 92 101 Management
Oregon
Meadowbrook Retirement (c) Ontario Jun. 1995 53 55 Lease
Pennsylvania
Green Meadows at Allentown Allentown Oct. 1995 76 97 Lease
Green Meadows at Latrobe Latrobe Oct. 1995 84 125 Lease
South Carolina
Anderson Place - The Summer House Anderson Oct. 1996 30 40 Lease
Anderson Place - The Village (1) Anderson Oct. 1996 75 75 Lease
Anderson Place - The Health Center (4) Anderson Oct. 1996 22 44 Lease
Bellaire Place (d) Greenville Jul. 1997 81 89 Lease
Countryside Village Health Care Center (4) Easley Feb. 1996 24 44 Lease
Countryside Village Assisted-Living Easley Feb. 1996 48 78 Lease
Countryside Village Retirement Center (1) Easley Feb. 1996 72 75 Lease
Countryside Park Easley Feb. 1996 48 66 Lease
Skylyn Health Center (4) Spartanburg Feb. 1996 26 48 Lease
Skylyn Personal Care Center Spartanburg Feb. 1996 80 119 Lease
Skylyn Retirement Community (1) Spartanburg Feb. 1996 155 155 Lease
York Care York Apr. 1997 50 100 Management
Tennessee
Walking Horse Meadows (d) Clarksville Jun. 1997 50 55 Lease
17
<PAGE>
Emeritus
Operations
Community Location Commenced Units (a) Beds (b) Interest
- --------------------------------------------- ----------------- ---------- --------- -------- --------------
Texas
Amber Oaks (d) (5) San Antonio Apr. 1997 163 275 Lease
Cambria (d) El Paso Oct. 1996 79 87 Lease
Dowlen Oaks Beaumont Mar. 1997 79 87 Lease
Eastman Estates Longview Jul. 1997 70 77 Lease
Elmbrook Estates Lubbock Feb. 1997 79 87 Lease
Lakeridge Place (7) Wichita Falls Jul. 1997 79 87 Lease
Meadowlands Terrace (d) (7) Waco Jul. 1997 71 78 Own
Myrtlewood Estates San Angelo Aug. 1997 79 87 Lease
Redwood Springs San Marcos Apr. 1997 90 90 Lease
Saddleridge Lodge (7) Midland Mar. 1997 79 87 Lease
Seville Estates (d) Amarillo Mar. 1997 50 55 Lease
Sherwood Place (d) (7) Odessa Oct. 1996 79 87 Lease
The Palisades (d) (5) El Paso Apr. 1997 158 215 Lease
Vickery Towers at Belmont (5) Dallas Apr. 1995 301 331 Own
Virginia
Carriage Hill Retirement Bedford Sep. 1994 91 137 Lease
Cobblestones at Fairmont (d) Manassas Sep. 1996 75 82 Own
Washington
Cooper George (d) (5) Spokane Jun. 1996 140 158 Partnership
Evergreen Lodge Federal Way Apr. 1996 98 124 Lease
Fairhaven Estates (d) Bellingham Oct. 1996 50 55 Lease
Garrison Creek Lodge (d) Walla Walla Jun. 1996 80 88 Lease
Harbour Pointe Shores Ocean Shores Mar. 1997 50 55 Lease
Kirkland Lodge at Lakeside Kirkland Feb. 1996 74 84 Lease
Renton Villa (d) Renton Sep. 1993 79 97 Lease
Seabrook (d) Everett Jun. 1994 60 62 Lease
The Court Yard at the Willows (d) Puyallup Oct. 1997 101 111 Own
The Hearthstone Moses Lake Nov. 1996 84 92 Lease
Van Vista Vancouver Oct. 1997 100 100 Admin Services
Wyoming
Park Place (c) Casper Feb. 1996 60 60 Lease
--------- --------
Total 8,782 10,184
========= ========
</TABLE>
(a) A unit is a single- or double-occupancy residential living
space, typically an apartment or studio.
(b) "Beds" reflects the actual number of beds, which in no event
is greater than the maximum number of licensed beds allowed
under the community's license.
(c) Previously operated as an independent-living facility,
currently repositioned as an assisted-living community.
(d) Near an existing or proposed Holiday facility.
(1) Operated as an independent-living facility; the Company does
not currently plan to reposition this facility as an assisted-
living community.
(2) The Company provides administrative services to the community
which is operated by Painted Post Partnership through a lease
agreement with an independent third party. See "Strategic
Relationships - Painted Post Partners Relationship".
(3) Operated as a skilled-nursing facility and managed by an
independent third party; the Company does not currently plan
to reposition this facility as an assisted-living community.
(4) Operated as a skilled-nursing facility; the Company does not
currently plan to reposition this facility as an assisted-
living community.
(5) Operated as both an independent-living facility and assisted-
living facility; the Company does not currently plan to
reposition the portion of the independent-living facility as
an assisted-living community.
(6) Operated as an independent-living facility; an assisted-living
addition opened during 1997.
(7) Managed by Holiday.
18
<PAGE>
DEVELOPMENTS
The following table summarizes certain information regarding the
Development Communities under construction, which are communities where
construction activities, such as ground-breaking activities, exterior
construction or interior build-out have commenced.
<TABLE>
<CAPTION>
Site
Scheduled Ownership
Community Location Opening Units (a) Beds (b) Interest
- -------------------------- ------------------- ------------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Anticipated 1998 Openings:
Arizona
North Phoenix (c) Phoenix 4th Quarter 101 111 Lease
California
Auburn Oaks (c) Auburn 2nd Quarter 89 98 Manage/Lease (3)
Northbay Retirement (1) Fairfield 2nd Quarter 172 189 Joint Venture
Creston Village (2) Paso Robles 2nd Quarter 100 110 Joint Venture
Delaware
White Chapel Village Newark 3rd Quarter 100 110 Lease
Illinois
Urbana Urbana 3rd Quarter 101 111 Manage/Lease (3)
Mississippi
Biloxi Biloxi 4th Quarter 83 91 Manage/Lease (3)
North Hill Estates Meridian 3rd Quarter 101 111 Manage
North Carolina
The Pines of Goldsboro Goldsboro 3rd Quarter 101 111 Manage
Ohio
Middleburg Heights Middleburg Heights 3rd Quarter 99 101 Lease
Utah
Emeritus Estates Ogden 1st Quarter 83 91 Lease
Virginia
Wilburn Gardens Fredericksburg 4th Quarter 101 111 Manage
Washington
Richland Gardens Richland 3rd Quarter 100 110 Manage
Wyoming
Cheyenne Cheyenne 2nd Quarter 83 91 Manage/Lease (3)
--------- --------
Total 1998 Openings 1,414 1,546
========= ========
Anticipated 1999 Openings:
Maryland
Essex Essex - 97 107 Manage
Virginia
Stauton Stauton - 100 110 Manage/Lease (3)
--------- --------
Total 1999 Openings 197 217
========= ========
</TABLE>
(a) A unit is a single- or double-occupancy residential living
space, typically an apartment or studio.
(b) "Beds" reflects the actual number of beds, which in no event
is greater than the maximum number of licensed beds allowed
under the community's license.
(c) Near an existing or proposed Holiday facility.
(1) The Company holds a 66.67% interest in a joint venture with
an independent third party.
(2) The Company holds a 50.0% interest in a joint venture with an
independent third party.
(3) The Company will provide management services for a period of
two years commencing on the date that the first resident
occupies one of the units in the community. The Company will
receive a management fee based on a percentage of gross
revenues over the term of the agreement. Commencing on the
earlier date to occur (a) two years after commencement of the
management agreement of (b) the first month in which the
community is cash flow even, the Company will lease the
community from the independent third party under an operating
lease agreement.
In addition to those Development Communities under construction,
the Company has 10 Development Communities under development, which are
communities where activities such as site surveys, preparation or
architectural plans or initiation of zoning changes have commenced (but
construction has not commenced). These communities are expected to open
during 1999.
19
<PAGE>
The Company's executive offices are located in Seattle, Washington,
where the Company leases approximately 26,500 square feet of space. The
agreement includes a lease term of 10 years with two five-year renewal
options.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security
holders during the fourth quarter of its fiscal year ended December 31,
1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information about the
executive officers of the Company. There are no family relationships
between any of the directors or executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- --------------------- --- ------------------------------------------------
<S> <C> <C>
Daniel R. Baty 53 Chairman of the Board and Chief Executive
Officer
Raymond R. Brandstrom 45 President, Chief Operating Officer and Director
Gary D. Witte 53 Vice President, Operations
Frank A. Ruffo, Jr. 55 Vice President
Kelly J. Price 29 Vice President, Finance, Chief Financial
Officer, Principal Accounting Officer and
Secretary
Michelle A. Bickford 30 Vice President, New Business Development
Sarah J. Curtis 35 Vice President, Sales and Marketing
</TABLE>
Daniel R. Baty, one of the Company's founders, has served as its
Chief Executive Officer and as a director since inception in 1993 and
became Chairman of the Board in April 1995. Mr. Baty has served as the
chairman of the board of Holiday since 1987 and as its chief executive
officer from 1991 through September 1997. Since 1984, Mr. Baty has
served as chairman of the board of Columbia-Pacific Group Inc.
("Columbia Pacific") and, since 1986, chairman of the board of Columbia
Pacific Management, Inc. ("Columbia Management"), both of which
companies are wholly owned by Mr. Baty and engaged in developing
independent-living facilities and providing consulting services
regarding that market.
Raymond R. Brandstrom, one of the Company's founders, has served as
its President and Chief Operating Officer and as a director since its
inception in 1993. From May 1992 to October 1996, Mr. Brandstrom served
as President of Columbia Pacific and Columbia Management. From May 1992
to May 1997, Mr. Brandstrom served as Vice President and Treasurer of
Columbia Winery, a company affiliated with Mr. Baty that is engaged in
the production and sale of still table wines.
Frank A. Ruffo, Jr., one of the Company's founders, has served as
its Vice President since its inception in 1993. From August 1992 until
he joined the Company, Mr. Ruffo was employed by Columbia Management in
special servicing related to securitized pools of mortgages.
Gary D. Witte, joined the Company as Vice President, Operations in
November 1996. From 1985 to June 1996, he was Vice President of
Operations, Southern Region of Hillhaven/Vencor Corporation. Mr. Witte
held a variety of operating positions at that company for 20 years.
Kelly J. Price, C.P.A., has served as the Company's Vice President
since February 1997, as Chief Financial Officer and Secretary since
September 1995 and as Principal Accounting Officer since February 1998.
Prior to that, from January 1995 he was Director of Finance. From May
1994 until joining the Company, Mr. Price was employed at Deloitte &
Touche LLP Management Consulting, where he was a senior consultant in
the real estate, healthcare and manufacturing industries. Prior to that
he was employed by Deloitte & Touche LLP from September 1991.
Michelle A. Bickford, has served as Vice President, New Business
Development since January 1997, prior to which she served as Director of
Acquisitions since July 1993. From 1990 to July 1993, Ms. Bickford was
a Senior Accountant at National Medical Enterprises, Inc., a publicly
held hospital company.
20
<PAGE>
Sarah J. Curtis, jointed the Company as Vice President of Sales and
Marketing in March 1997. Prior to that, from March 1996 she was
National Director of Sales for Beverly Enterprises, Inc. From July 1991
until February 1996 Ms. Curtis was Regional Director of Sales and
Marketing of Hillhaven/Vencor Corporation.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock
Exchange, Inc. ("AMEX") under the symbol "ESC". The Common Stock has
been listed on the AMEX since November 21, 1995, the date of the
Company's initial public offering.
The following table sets forth, for the periods indicated, the
high and low closing prices for the Common Stock as reported on AMEX.
<TABLE>
<CAPTION>
High Low
------- --------
<S> <C> <C>
1996
First Quarter............................ $21.750 $11.6250
Second Quarter........................... $20.875 $17.6250
Third Quarter............................ $18.000 $14.0000
Fourth Quarter........................... $16.000 $10.0000
1997
First Quarter............................ $13.500 $11.1250
Second Quarter........................... $16.250 $11.5000
Third Quarter............................ $15.500 $13.8750
Fourth Quarter........................... $16.250 $11.8750
1998
First Quarter (through March 20, 1998)... $13.500 $10.6875
</TABLE>
As of March 27, 1998, the number of record holders of the Company's
Common Stock was 175.
The Company has never declared or paid any dividends on its Common
Stock, and expects to retain any future earnings to finance the
operation and expansion of its business. Future dividend payments will
depend on the results or operations, financial condition, capital
expenditure plans and other obligations of the Company and will be at
the sole discretion of the Company's Board of Directors. Certain of the
Company's existing leases and lending arrangements contain provisions
that restrict the Company's ability to pay dividends, and it is
anticipated that the terms of future leases and the debt financings may
contain similar restrictions. Therefore, the Company does not
anticipate paying any cash dividends on its Common Stock in the
foreseeable future.
21
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been
derived from the audited consolidated financial statements of the
Company and subsidiaries for the period from July 28, 1993 (inception)
through December 31, 1993 and the years ended December 31, 1994, 1995,
1996 and 1997. The data set forth below should be read in conjunction
with the consolidated financial statements and related notes thereto
included elsewhere in the Form 10-K and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from
July 28, 1993
(inception)
Through Year ended December 31,
December 31, ---------------------------------------------
1993 1994 1995 1996 1997
-------------- --------- ---------- ---------- ----------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Total operating revenues.......... $ 323 $ 4,409 $ 21,277 $ 68,926 $117,772
Total operating expenses.......... 290 4,761 22,149 74,053 139,323
-------------- --------- ---------- ---------- ----------
Income (loss) from operations..... 33 (352) (872) (5,127) (21,551)
-------------- --------- ---------- ---------- ----------
Net other expense................. (63) (1,080) (6,815) (3,075) (6,660)
Extraordinary loss on
extinguishment of debt.......... - - (1,267) - -
-------------- --------- ---------- ---------- ----------
Net loss....................... (30) (1,432) (8,954) $ (8,202) $(28,211)
============== ========= ========== ========== ==========
Preferred stock dividends......... - - - - 425
-------------- --------- ---------- ---------- ----------
Net loss to common shareholders $ (30) $(1,432) $ (8,954) $ (8,202) $(28,636)
============== ========= ========== ========== ==========
Loss per common share before
extraordinary item -
basic and diluted............... $ (0.95) $ (0.75) $ (2.60)
Extraordinary loss per common
share -
basic and diluted............... $ (0.16) $ - $ -
Net loss per common share -
basic and diluted............... $ (1.11) $ (0.75) $ (2.60)
Weighted average number of common
shares outstanding (1) -
basic and diluted............... 8,062 11,000 11,000
========== ========== ==========
Consolidated Operating Data:
Communities operated (2)........ 1 6 22 69 99
Number of units (2)............. 79 494 1,857 5,807 8,624
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.............. $ 26 $ 220 $ 9,507 $ 23,039 $ 17,537
Working capital (deficit).............. (1,489) (2,762) 4,091 9,757 12,074
Total assets........................... 3,542 24,493 115,635 158,038 228,573
Long-term debt, less current portion... 2,014 22,684 66,814 60,260 108,117
Minority interests..................... - 77 2,229 1,918 1,176
Shareholders equity (deficit).......... (30) (1,462) 34,895 26,188 1,207
(1) The weighted average shares outstanding were retroactively
adjusted for the 9,200-for-1 split on April 14,1995.
(2) Information is as of the end of the period and excludes
the Operating Communities and units therein that are
managed by others.
</TABLE>
22
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its organization in July 1993, the Company has achieved
significant growth in revenues, primarily due to the acquisition
existing and development of new residential communities. The Company
believes that it is one of the largest providers of assisted-living
services in the United States. The Company's revenues are derived
primarily from rents and service fees charged to its residents. For
1995, 1996 and 1997, the Company generated total operating revenues of
$21.3 million, $68.9 million and $117.8 million, respectively. As of
December 31, 1997, the Company's accumulated deficit was $47.3 million
and its total shareholders' equity was $1.2 million. For 1995, 1996 and
1997, the Company generated losses of $9.0 million, $8.2 million and
$28.6 million, respectively. As discussed below, the Company's losses
result from a number of factors, including the opening in 1996 and 1997
a number of newly developed and acquired communities that incur
operating losses during an initial 12 to 24 months rent-up phase,
occupancy percentages in the Company's stabilized communities that have
not risen as quickly as the Company had anticipated and that in some
cases has declined, financing costs arising from sale/leaseback
transactions and mortgage financing and refinancing transactions at
proportionately higher levels of debt, increased administrative and
corporate expenses resulting from a restructuring of the Company's
operations and marketing required by rapid growth, and the costs and
expenses of the Company's attempt to acquire ARV Assisted Living, Inc.
("ARV").
The Company's operating strategy is to increase operating margins
at each acquired or newly developed community, whether leased or owned,
primarily by increasing occupancy levels, encouraging residents to
remain at the Company's communities longer by offering them a range of
service options, increasing revenues through modifications in rate
structures, where appropriate, and identifying opportunities to create
operating efficiencies and reduce costs.
As of March 20, 1998, the Company held ownership, leasehold or
management interests in 101 residential communities (the "Operating
Communities") consisting of approximately 8,800 units with the capacity
for 10,200 residents, located in 26 states. Of the 101 Operating
Communities, 11 and 20 newly developed communities were opened during
1996 and 1997, respectively. Additionally, the Company completed
construction on an expansion to an existing community during 1997.
Subsequent to December 31, 1997, the Company entered into an agreement
with an affiliate to provide management services for an independent-
living community located in Ohio. The Company owns, has a leasehold
interest in, management interest in or has acquired an option to
purchase development sites for 26 new assisted-living communities (the
"Development Communities"). Sixteen of the Development Communities are
currently under construction, 14 of which are scheduled to open during
1998. The Company leases 77 of its residential communities, typically
from a financial institution such as a Real Estate Investment Trust
("REIT"), owns 18 communities, manages or provides administrative
services for five communities and has a partnership interest in one
community. Additionally, the Company holds a minority interest in Alert
Care Corporation ("Alert"), an Ontario, Canada based owner and operator
of 22 assisted-living communities consisting of approximately 1,250
units with a capacity of approximately 1,350 residents. See "-Strategic
Relationships - Alert Relationship". Assuming completion of the
Development Communities scheduled to open throughout 1998 and including
the minority interest in Alert, the Company will own, lease, have an
ownership interest in or manage 137 properties in 28 states and Canada,
containing an aggregate of approximately 11,450 units with capacity of
over 13,100 residents. There can be no assurance, however, that the
Development Communities will be completed on schedule and will not be
affected by construction delays, the effects of government regulation or
other factors beyond the Company's control." The Company's management
of assisted-living communities owned or leased by others has not been
material to the Company's business or revenue. See "Description of
Business Growth Strategy -Management Agreements". See "Factors
Affecting Future Results and Forward Looking Statements -Emphasis on
Acquisitions; Difficulties of Integrating Acquisitions", "-Ability to
Develop Additional Assisted-Living Communities", and "-Need for
Additional Capital.
23
<PAGE>
The following table sets forth a summary of the Company's property
interests.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------------------------------
1994 1995 1996 1997
---------------- ---------------- ----------------- -----------------
Buildings Units Buildings Units Buildings Units Buildings Units
--------- ------ --------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owned 6 494 14 1,496 15 1,485 19 2,099
Leased 1 91 9 662 53 4,165 76 6,124
Managed - - - - 1 83 4 327
Joint Venture/Partnership - - 1 22 2 162 1 140
--------- ------ --------- ------ --------- ------- --------- -------
Sub Total 7 585 24 2,180 71 5,895 100 8,690
Annual Growth - % - % 243% 273% 196% 170% 41% 47%
Pending Acquisitions 3 461 13 895 8 1,028 - -
New Developments 9 720 26 2,112 27 2,296 26 2,483
Minority Interest - - - - 17 959 22 1,248
--------- ------ --------- ------ --------- ------- --------- -------
Total 19 1,766 63 5,187 123 10,178 148 12,421
--------- ------ --------- ------ --------- ------- --------- -------
Annual Growth - % - % 232% 194% 95% 96% 20% 22%
</TABLE>
When used in this discussion, the words "believes," "anticipates,"
"intends" and similar expressions are intended to identify forward-
looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
those projected. See "Factors Affecting Future Results and Regarding
Forward-Looking Statements" under "Item 1. Description of Business"
elsewhere in this report. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements that may
be made to reflect recent events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain
items of the Company's Consolidated Statements of Operations as a
percentage of total revenues and the percentage change of the dollar
amounts from year to year.
<TABLE>
<CAPTION>
Year to Year
Percentage of Revenues Percentage
Years ended December 31, Increase (Decrease)
1995 1996 1997 1995-1996 1996-1997
------ ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................... 100 % 100 % 100 % 224 % 71 %
Expenses:
Community operations.............. 75 71 70 208 69
General and administrative........ 12 9 9 134 76
Depreciation and amortization..... 12 4 6 15 131
Rent.............................. 5 23 29 1316 115
Other............................. - - 4 - N/A
------ ------- ------- --------- ---------
Total operating expenses..... 104 107 118 234 88
------ ------- ------- --------- ---------
Loss from operations......... (4) (7) (18) 488 320
------ ------- ------- --------- ---------
Other expense:
Interest expense, net............. 27 4 6 (46) 141
Write-down of note receivable..... 5 - - N/A -
Other, net........................ 1 - (1) N/A N/A
Extraordinary loss on
extinguishment of debt.......... 6 - - N/A -
------ ------- ------- --------- ---------
Net loss..................... (43)% (11)% (23)% (8)% 244 %
====== ======= ======= ========= =========
</TABLE>
24
<PAGE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Total operating revenues for 1997 were $117.8 million,
representing a $48.8 million, or 71%, increase over revenues of $68.9
million for 1996. The increase resulted from the opening of new
developments and the related fill-up of units and the acquisition of
communities during 1997. The Company ended with 71 and 100 communities
representing approximately 5,900 and 8,700 units as of December 31, 1996
and 1997, respectively, an increase of 41%. For 1997, there was a
decline in average occupancy to 71% from 74% for 1996, primarily
attributable to the opening of 20 new communities during 1997. The
impact on revenue from the decline in occupancy was offset by an
increase in the rate per occupied unit.
COMMUNITY OPERATIONS. Expenses for community operations for 1997
were $82.8 million, representing a $33.9 million, or 69%, increase over
$48.9 million for 1996, primarily due to the Company's opening of new
developments and the acquisition of communities during 1997. As a
percentage of total operating revenues, expenses for community
operations decreased to 70% for 1997, from 71% for 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
for 1997 were $10.8 million, representing an increase of $4.7 million,
or 76%, from $6.2 million for 1996. As a percentage of total operating
revenues, general and administrative expenses remained unchanged at 9%
for 1996 and 1997 while the number of employees located at the corporate
office was 83 and 90 at December 31, 1996 and 1997, respectively. The
dollar increase in general and administrative expenses was attributable
to salaries and associated costs relating to additional employment in
conjunction with new business, increased accounting costs and higher
travel and other costs relating to the Company's larger number of
communities. General and administrative costs are expected to continue
to increase in line with revenues and community operations at least
through 1998 as the Company acquires additional existing communities and
develops new communities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for
1997 was $6.6 million, or 6%, of total operating revenues, compared to
$2.9 million or 4%, of total operating revenues, for 1996. The increase
was due to a combination of an increase in pre-opening amortization
expense from the opening of 20 developments in 1997 and the addition of
four owned communities, net of communities sold in sale/leaseback
transactions in 1997. The Company owned 19%, or 19 of its 100
communities representing approximately 2,100 units at December 31, 1997
compared to 21%, or 15 of its 71 communities representing approximately
1,500 units at December 31, 1996.
RENT. Rent expense for 1997 was $34.6 million, representing an
increase of $18.5 million, or 115%, from rent expense of $16.1 million
for 1996. As a percentage of total operating revenues, rent expense
increased to 29% for 1997, from 23% for 1996. The dollar increases were
due to additional lease financing or sale/leaseback transactions. The
Company leased 76%, or 76 out of 100 of its residential communities
representing approximately 6,100 units as of December 31, 1997 compared
to 75%, or 53 out of 71 communities representing approximately 4,200
units as of December 31, 1996. The increase in rent expense as a
percentage of revenue is attributable to the opening of newly developed
communities, in their fill-up stage, operated by the Company under lease
agreements. The Company expects an occupancy fill-up period of 12 to
24 months for a newly developed community. As the fill-up of newly
developed communities continues, rent expense as a percentage of revenue
is expected to decrease.
OTHER. The Company incurred other expense of $4.4 million for 1997
which represents charges related to the termination of the Company's
tender offer for ARV and changes in the Company's operating structure.
In 1997, the Company wrote-off certain capitalized pre-opening and
marketing expenses related to newly opened developed communities prior
to July 1997. This write-off was a result of changes in senior
operating personnel and the Company's marketing approach.
INTEREST EXPENSE. Interest expense for 1997 was $8.4 million
compared to $4.3 million for 1996, increasing as a percentage of total
operating revenue to 7% for 1997 from 6% for 1996. The increase was
primarily due to the acquisition of four communities through mortgage
financing bearing interest at rates between 8% and 18%, construction
financings bearing interest at fixed rates between 9.0% and 9.25% and
the opening of four developments owned by the Company, all partially
offset by sale/leaseback refinancings, as well as, interest costs
related to the Company's investment in ARV common stock.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Total operating revenues for 1996 were $68.9 million,
representing a $47.6 million, or 224%, increase over revenues of $21.3
million for 1995. The increase resulted from the opening of new
developments and the related fill-up of units and the acquisition of
communities during 1996. The Company ended with 24 and 71 communities
representing approximately 2,200 and 5,900 units as of December 31, 1995
and 1996, respectively, an increase of 196%.
25
<PAGE>
COMMUNITY OPERATIONS. Expenses for community operations for 1996
were $48.9 million, representing a $33.0 million, or 208%, increase over
$15.9 million for 1995, primarily due to the Company's opening of new
developments and the acquisition of communities during 1996. As a
percentage of total operating revenues, expenses for community
operations decreased to 71% for 1996, from 75% for 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
for 1996 were $6.2 million, representing an increase of $3.5 million, or
134%, from $2.6 million for 1995. As a percentage of total operating
revenues, general and administrative expenses decreased to 9% for 1996
from 12% for 1995 while the number of employees located at the corporate
office was 43 and 83 at December 31, 1995 and 1996, respectively. The
dollar increase in general and administrative expenses was attributable
to salaries and associated costs relating to additional employment in
conjunction with new business, increased accounting costs and higher
travel and other costs relating to the Company's larger number of
communities.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization 1996
was $2.9 million, or 4% of total operating revenues, compared to $2.5
million or 12%, of total operating revenues, for 1995. The increase was
due to the opening of new developments and the acquisition of eight
communities owned by the Company, net of communities sold in
sale/leaseback transactions in 1996. The Company owned 21%, or 15 of
its 71 communities representing approximately 1,500 units at December
31, 1996 compared to 58%, or 14 of its 24 communities representing
approximately 1,500 units at December 31, 1995.
RENT. Rent expense for 1996 was $16.1 million, representing an
increase of $15.0 million, or 1316%, from rent expense of $1.1 million
for 1995. As a percentage of total operating revenues, rent expense
increased to 23% 1996, from 5% 1995. The dollar and percentage increases
were due to the Company entering into lease financing or sale/leaseback
transactions with respect to 75%, or 53 out of 71 of its residential
communities representing approximately 4,200 units as of December 31,
1996 compared to 38%, or nine out of 24 communities representing
approximately 700 units as of December 31, 1995.
INTEREST EXPENSE. Interest expense for 1996 was $4.3 million
compared to $4.2 million for 1995, decreasing as a percentage of total
operating revenues from 20% for 1995 to 6% for 1996. The decrease was
due to the repayment of existing mortgage debt with lower rate
convertible debenture proceeds and refinancing of mortgage indebtedness
through sale/leaseback transactions.
WRITE-DOWN OF NOTE RECEIVABLE FROM AFFILIATE. In 1994 and 1995,
the Company made aggregate loans of $1,133,000 to a corporation that
owned three assisted-living communities. In connection with the loan,
the Company received 49.0% of the outstanding stock of the corporation
and a pledge of the remaining 51.0%. The holder of the first mortgages
initiated foreclosure proceedings in October 1995 and the Company no
longer has an interest in the communities or the corporation and the
note receivable was written-off in 1995.
LOSS ON EXTINGUISHMENT OF DEBT. On April 17, 1995, the Company
issued 4,158,000 shares of Series A Preferred Stock and $25.9 million
principal amount of Subordinated Secured Promissory Notes to a group of
investors. In connection with this transaction, the Company incurred
$979,000 of deferred financing costs. Upon completion of the initial
public offering November 1995, the Series A Preferred Stock was
converted to Common Stock, the Notes were repaid in full, and the
deferred financing costs were written off, resulting in an extraordinary
loss. Additionally, the Company completed refinancings during 1995 on
three communities, resulting in an extraordinary loss of approximately
$288,000 relating to the write-off of deferred financing costs.
SAME COMMUNITY COMPARISON
The Company operated 50 communities ("Same Community") on a
comparable basis during both the three months ended December 31, 1996
and 1997. The Same Communities represented 61% of the Company's total
revenue for the quarter. Net operating margins increased by $849,000 to
31% on revenue of $20.0 million as compared to 28% on revenue of $19.3
million for the three months ended December 31, 1996. The increase in
revenue can be attributed to monthly rate increases and greater services
offered at the communities, partially offset by a decline in average
occupancy. Same Community pre-tax loss, before corporate overhead,
decreased by $878,000 from $893,000 to $15,000 compared to the
comparable period last year. In addition, average revenue per occupied
unit increased approximately 5%, from $2,012 to $2,105, during the
fourth quarter 1996 and 1997, respectively, while Same Community average
occupancy declined slightly to 79% during the three months ended
December 31, 1997 compared to 80% for the comparable period last year.
Included among the 50 Same Communities, were nine communities newly
developed in 1996. These communities reported an average occupancy of
38% and 62%, net operating margin of 1% and 18% on revenue of $1.5
million and $2.6 million and pre-tax net loss of $1.2 million and
$795,000 for the three months ended December 31, 1996 and 1997,
respectively.
26
<PAGE>
The following table sets forth a comparison of Same Community
results of operations before corporate overhead for the three months
ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended December 31,
(In thousands)
Dollar Percentage
1996 1997 Change Change
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Revenue........................... $19,252 $19,987 $735 4 %
Community operating expense....... 13,833 13,719 (114) (1)
--------- --------- -------- ----------
Community operating income... 5,419 6,268 849 16
--------- --------- -------- ----------
Depreciation and amortization..... 663 583 (80) (12)
Rent.............................. 5,097 5,318 221 4
--------- --------- -------- ----------
Operating income............. (341) 367 708 (208)
--------- --------- -------- ----------
Interest income (expense), net.... (691) (643) 48 (7)
Other income, net................. 139 261 122 88
--------- --------- -------- ----------
Pre-tax income (loss)........ $ (893) $ (15) $878 (98)%
========= ========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Three months ended
December 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Other Same Community Information:
Communities....................... 50 50
Total units....................... 3,985 3,985
Average occupancy................. 80% 79%
Revenue per average occupied unit. $2,012 $2,105
</TABLE>
The 39 Same Communities included in the quarters ending September
30, 1997 and December 31, 1997 reported revenue of 16.6 million and
$16.5 million, community operating expenses of $11.3 million and $11.2
million and pre-tax income of $371,000 and $503,000 for such quarters,
respectively, while average occupancy remained unchanged at 82% for the
two quarters.
STABILIZED (GROUP ONE) AND START-UP/REPOSITIONED (GROUP TWO) COMMUNITY
COMPARISON
For the three months ended December 31, 1997, the Company had 54
communities that had achieved average occupancy of at least 90% during
one quarter ("Group One Communities") and 46 communities that had
average occupancy of less than 90%, which includes 38 newly opened
developments and/or communities with significant ongoing repositioning
and/or refurbishment activity ("Group Two Communities").
27
<PAGE>
The following table sets forth a comparison of Group One and Group
Two Community results of operations for the three months ended December
31, 1997.
<TABLE>
<CAPTION>
Three Months Ended December 31, 1997
(In thousands)
Start-Up/
Stabilized Repositioned
Communities Communities
(Group One) (Group Two) Overhead Total
------------- ------------- -------- ---------
<S> <C> <C> <C> <C>
Revenue........................... $23,238 $ 9,549 $ 16 $ 32,803
Community operating expense....... 15,036 8,842 - 23,878
------------- ------------- -------- ---------
Community operating income... 8,202 707 16 8,925
------------- ------------- -------- ---------
General and administrative........ - - 3,109 3,109
Depreciation and amortization..... 490 1,565 131 2,186
Rent.............................. 5,931 4,127 120 10,178
Other............................. - - 4,426 4,426
------------- ------------- -------- ---------
Operating income (loss)...... 1,781 (4,985) (7,770) (10,794)
------------- ------------- -------- ---------
Interest income (expense), net.... (945) (1,330) (379) (2,654)
Other income (expense), net....... 127 (655) 782 254
------------- ------------- -------- ---------
Pre-tax income (loss)........ $ 963 $(6,970) $(7,367) $(13,374)
============= ============= ======== =========
Other Group One and Group Two
Information:
Communities..................... 54 46 100
Total units..................... 4,460 4,230 8,690
Average Occupancy............... 89% 45% 68%
Revenue per average occupied
unit.......................... $ 1,954 $ 1,721 $ 1,881
</TABLE>
Group One Communities ended the fourth quarter of 1997 with an
average occupancy of 89% compared to 93% for the fourth quarter of 1996
while net operating margins increased by $3.3 million to 35% on revenue
of $23.2 million for the three months ended December 31, 1997 as
compared to 33% on revenue of $15.2 million for the three months ended
December 31, 1996. Group One Community pre-tax income, before corporate
overhead, increased by 56% to $963,000 compared to the comparable period
last year. The total number of Group One Communities increased by 18 in
the fourth quarter of 1997 compared to the fourth quarter of 1996 due to
a combination of acquisitions and communities achieving an occupancy of
at least 90% during one quarter.
Group Two Communities ended the fourth quarter of 1997 with an
average occupancy of 45% compared to 56% for the fourth quarter of 1996
while net operating margins decreased by $733,000 to 7% on revenue of
$9.5 million as compared to 19% on revenue of $7.6 million for the three
months ended December 31, 1996. Group Two Community pre-tax loss, before
corporate overhead, increased by 203% to $7.0 million compared to the
comparable period last year. The total number of Group Two Communities
had a net increase of 11 compared to the fourth quarter of 1996 due
primarily to the opening of new developments.
28
<PAGE>
The following tables set forth a comparison of Group One and Group
Two Community results of operations before corporate overhead for the
three months ended December 31, 1996 and 1997.
<TABLE>
<CAPTION>
Stabilized Communities (Group One)
Three Months Ended December 31,
(In thousands)
Dollar Percentage
1996 1997 Change Change
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
Revenue........................... $15,182 $ 23,238 $8,056 53 %
Community operating expense....... 10,235 15,036 4,801 47
--------- --------- -------- ----------
Community operating income... 4,947 8,202 3,255 66
--------- --------- -------- ----------
Depreciation and amortization..... 350 490 140 40
Rent.............................. 3,586 5,931 2,345 65
--------- --------- -------- ----------
Operating income............. 1,011 1,781 770 76
--------- --------- -------- ----------
Interest income (expense), net.... (393) (945) (552) 140
Other income, net................. - 127 127 100
--------- --------- -------- ----------
Pre-tax income............... $ 618 $ 963 $ 345 56 %
========= ========= ======== ==========
Other Group One Information:
Communities.................... 36 54
Total units.................... 2,675 4,460
Average occupancy.............. 93% 89%
Revenue per occupied unit...... $ 2,034 $ 1,954
</TABLE>
<TABLE>
<CAPTION>
Start-Up/Repositioned Communities (Group Two)
Three Months Ended December 31,
(In thousands)
Dollar Percentage
1996 1997 Change Change
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue........................... $ 7,598 $ 9,549 $ 1,951 26 %
Community operating expense....... 6,158 8,842 2,684 44
--------- --------- ---------- -----------
Community operating income... 1,440 707 (733) 49
--------- --------- ---------- -----------
Depreciation and amortization..... 484 1,565 1,081 223
Rent.............................. 2,560 4,127 1,567 61
--------- --------- ---------- -----------
Operating loss............... (1,604) (4,985) (3,381) 211
--------- --------- ---------- -----------
Interest income (expense), net.... (560) (1,330) (770) 138
Other income (expense), net....... (136) (655) (519) 382
--------- --------- ---------- -----------
Pre-tax loss................. $(2,300) $(6,970) $(4,670) 203 %
========= ========= ========== ===========
Other Group Two Information:
Communities.................... 35 46
Total units.................... 3,219 4,230
Average occupancy.............. 56% 45%
Revenue per occupied unit...... $ 1,580 $ 1,721
</TABLE>
Group One Communities for the three months ended December 31, 1997
and September 30, 1997, consisted of 54 and 52 communities,
respectively. Average Occupancy declined slightly to 89% for the fourth
quarter 1997 compared to 90% for the third quarter 1997. Revenue
increased $886,000, or 4%, to $23.2 million for the three months ended
December 31, 1997 from $22.4 million for the three months ended
September 30, 1997. Community operating expenses for the forth quarter
1997 increased $866,000, or 6%, to $15.0 million for the three months
ended December 31, 1997 from $14.2 million for the three months ended
September 30, 1997. Pre-tax income decreased $431,000, or 31% to
$963,000 for the three months ended December 31, 1997 from $1.4 million
for the three months ended September 30, 1997.
29
<PAGE>
Group Two Communities for the three months ended December 31, 1997
and September 30, 1997, consisted of 46 communities and 44 communities,
respectively, representing 32 and 29 newly developed communities,
respectively. Average Occupancy declined slightly to 45% for the fourth
quarter 1997 compared to 48% for the third quarter 1997. Revenue
increased $381,000, or 4%, to $9.5 million for the three months ended
December 31, 1997 from $9.2 million for the three months ended September
30, 1997. Community operating expenses for the fourth quarter 1997 were
$8.8 million, representing an increase of $399,000, or 5%, over $8.4
million for the third quarter 1997. Pre-tax loss increased $152,000, or
2%, to $7.0 million for the three months ended December 31, 1997 from
$6.8 million for the three months ended September 30, 1997.
The changes between third quarter 1997 and fourth quarter 1997
Group Two Communities are primarily a result of newly opened
developments. The Company expects an occupancy fill-up period of 12 to
24 months for a newly developed community to show positive operating
results. Newly developed communities generated $5.5 million in revenue
for the three months ended December 31, 1997 compared to $3.9 million
for the three months ended September 30, 1997, $5.6 million in community
operating expenses for the fourth quarter 1997 compared to $4.4 million
for the third quarter 1997 and pre-tax loss of $6.1 million for the
fourth quarter 1997 compared to pre-tax loss of $4.5 million for the
third quarter 1997. The increase in pre-tax loss between quarters can
be attributed to the charge for the change in the Company's operating
structure. See "Results of Operations - Comparison of the Years Ended
December 31, 1997 and 1996 - Other" above.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997. For 1997, net cash
used in operating activities was $17.7 million, primarily due to losses
incurred on newly acquired and developed communities. The Company
obtained $28.7 million in proceeds from the sale of communities in
sale/leaseback financing transactions and repaid related mortgage
indebtedness of $12.3 million as well as $16.7 million of unrelated
mortgage indebtedness which includes refinancing $5.6 million in long-
term debt on two assisted-living communities and repaying $2.2 million
in long-term debt on one assisted-living community. The Company
obtained $1.7 million in proceeds from the sale of land. The Company
also incurred additional long-term debt of $44.6 million, obtained $25.0
million in net proceeds from the sale of redeemable preferred stock and
purchased additional property and equipment and property held for
development of $40.2 million. As a result of these acquisition and
financing transactions the Company decreased its cash position by
approximately $5.5 million. As of December 31, 1997, the Company had
working capital of $12.1 million.
CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1996. For 1996, net
cash used in operating activities was $5.4 million, primarily due to
losses incurred on newly acquired communities. The Company obtained
$73.3 million in proceeds from the sale of communities in sale/leaseback
financing transactions and repaid related mortgage debt of $52.8 million
as well as $17.2 million of unrelated mortgage debt. The Company also
incurred additional long-term debt of $64.4 million, including $30.7
million, net proceeds from the private placement of convertible
subordinated debentures, and purchased additional property and equipment
and property held for development of $66.7 million. As of December 31,
1996, the Company had working capital of $9.8 million.
CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995. For the year
ended December 31, 1995, net cash used in operating activities was $4.8
million, primarily due to losses incurred on newly acquired
communities. The Company used $ 78.4 million to acquire property and
equipment and property held for development and obtained $11.6 million
in proceeds from the sale of communities in sale/leaseback financing
transactions. The Company obtained $84.1 million in net cash from
financing activities including its initial public offering and net
proceeds from long and short-term borrowings.
The Company is committed under construction contracts with respect
to certain development projects. Total construction commitments for
owned developments at December 31, 1997, were $34.8 million, of which
$25.2 million had been incurred. At December 31, 1997, $9.5 million in
construction financing commitments remained in place which bear interest
at rates ranging between prime plus 0.75% and 1.25% and are due through
January 2003.
In October 1997, NorthStar Capital Partners LLC ("NorthStar"), a
private investment group with financial backing from a Union Bank of
Switzerland Securities affiliate and Quantum Realty Partners, a fund
advised by Soros Fund Management LLC, invested $25.0 million in the
Company through the purchase of 25,000 shares of Series A Convertible
Exchangeable Redeemable Preferred Stock (the "Series A Preferred
Stock"), representing approximately 10% ownership in the Company. Each
share of Series A Preferred Stock is convertible into that number of
shares of the Company's Common Stock equal to the liquidation value of a
share of Series A Preferred Stock ($1,000) divided by the conversion
price of $18.20 per share. Currently the Series A Preferred Stock is
convertible into an aggregate of 1,373,626 shares of Common Stock. The
Series A Preferred Stock is also exchangeable into convertible debt at
the option of the Company. The conversion price is subject to adjustment
30
<PAGE>
in the event of stock dividends, stock subdivisions and combinations,
and extraordinary distributions. The Series A Preferred Stock has a
mandatory redemption date of October 24, 2004.
In December 1997, the Company purchased 25,600 shares of its common
stock at an aggregate cost of $341,000. Subsequently, in January 1998,
the Company's Board of Directors authorized a treasury stock purchase
program to acquire up to an additional 500,000 shares of the Company's
common stock from time to time on the open market. As of March 20,
1998, the Company has purchased 517,200 shares of its common stock at an
aggregate cost of $5.7.
In March 1998, the Company entered into a commitment with German
American Capital Corporation ("GACC"), a wholly owned subsidiary of Deutsche
Bank North America. The commitment terms include a three year loan not to
exceed $77.9 million with a 30-day LIBOR rate plus 2.95%. The Company plans
to use the proceeds to refinance up to ten of its Operating Communities.
The Company has been, and expects to continue to be, dependent on
third-party financing for its acquisition and development programs.
There can be no assurance that financing for the Company's acquisition
and development programs will be available to the Company on acceptable
terms. Moreover, to the extent the Company acquires communities that do
not generate positive cash flow, the Company may be required to seek
additional capital or borrowings for working capital and liquidity
purposes.
YEAR 2000
Concerns surrounding the Year 2000 are the result of computer
programs being written using two digits rather than four to define the
applicable year. Thus programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather then the year 2000
resulting in a major system failure or miscalculations. The Company has
conducted a comprehensive review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue. The Company
presently believes that, with modifications to existing software and
converting to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems as
so modified and converted and there will be no substantial impact on the
financial statements. However, if such modifications and conversions
are not completed timely, the Year 2000 issue may have a material impact
on the operations of the Company.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the Company.
Inflation could, however, affect the Company's future revenues and
operating income due to the Company's dependence on its senior resident
population, most of whom rely on relatively fixed incomes to pay for the
Company's services. As a result, the Company's ability to increase
revenues in proportion to increased operating expenses may be limited.
The Company typically does not rely to a significant extent on
governmental reimbursement programs. In pricing its services, the
Company attempts to anticipate inflation levels, but there can be no
assurance that the Company will be able to respond to inflationary
pressures in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of Independent Auditors are
listed at Item 14 and are included beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the caption "Executive Officers of the
Registrant" in Part I of this Form 10-K and under the captions "Election
of Directors -Nominees for Election" and "Compliance with Section 16(a)
of the Exchange Act of 1934" in the Company's Proxy Statement relating
to its 1998 annual meeting of shareholders (the "Proxy Statement") is
hereby incorporated by reference.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation" and
"Election of Directors -Director Compensation" in the Company's Proxy
Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in the
Company's Proxy Statement is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of the report:
(1) FINANCIAL STATEMENTS. The following financial statements of the
Registrant and the Report of Independent Public Accountants therein
are filed as part of this Report on Form 10-K:
Page
Independent Auditors' Reports............................. F-2
Consolidated Balance Sheets............................... F-4
Consolidated Statements of Operations..................... F-5
Consolidated Statements of Cash Flows..................... F-6
Consolidated Statements of Shareholders' Equity (Deficit). F-8
Notes to Consolidated Financial Statements................ F-9
(2) FINANCIAL STATEMENT SCHEDULES. Schedule II Valuation and Qualifying
Accounts (contained on page F-24) Other financial statement schedules
have been omitted because the information required to be set forth
therein is not applicable, is immaterial or is shown in the
consolidated financial statements or notes thereto.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Registrant during the quarter ended December 31, 1997.
(c) EXHIBITS: The following exhibits are filed as a part of, or
incorporated by reference into, this Report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit Description Reference
- ---- ----------------------------------------------------------- ------
<S> <C> <C>
3.1 Restated Articles of Incorporation of registrant (Exhibit (2)
3.1).
3.2 Amended and Restated Bylaws of the registrant (Exhibit (1)
3.2).
4.1 Forms of 6.25% Convertible Subordinated Debenture due 2006 (2)
(Exhibit 4.1).
4.2 Indenture dated February 15, 1996 between the registrant
and Fleet National Bank ("Trustee") (Exhibit 4.2). (2)
4.3 Preferred Stock Purchase Agreement (including Designation
of Rights and Preferences of Series A Convertible
Exchangeable Redeemable Preferred Stock of Emeritus
Corporation Agreement, Registration of Rights Agreement and (12)
Shareholders Agreement) dated October 24, 1997 between the
registrant ("Seller") and Merit Partners, LLC ("Purchaser")
(Exhibit 4.1).
10.1 1995 Stock Incentive Plan (Exhibit 10.1). (1)
10.2 Stock Option Plan for Nonemployee Directors (Exhibit 10.2). (2)
10.3 Form of Indemnification Agreement for officers and (1)
directors of the registrant (Exhibit 10.3).
10.4 Noncompetition Agreements entered into between the
registrant and each of the following individuals:
10.4. Daniel R. Baty (Exhibit 10.4.1), Raymond R.
1 Brandstrom (Exhibit 10.4.2) and Frank A. Ruffo (2)
(Exhibit 10.4.3).
10.5 Shareholders Agreement dated as of April 17, 1995, and as
amended September 27, 1995, among the registrant, its (1)
Founders and certain Investors, as defined therein (Exhibit
10.5).
10.6 Form of Stock Purchase Agreement dated July 31, 1995,
entered into between Daniel R. Baty and each of Michelle A. (1)
Bickford, Jean T. Fukuda, James S. Keller, George T. Lenes
and Kelly J. Price (Exhibit 10.6).
10.7 Series A Preferred Stock and Note Purchase Agreement dated
as of April 17, 1995 among the registrant and the investors (1)
listed on Schedule I thereto (Exhibit 10.7).
32
<PAGE>
10.8 La Villita in Phoenix, Arizona
10.8. Promissory Note dated April 22, 1997 in the amount of
1 $3,500,000 between U.S. Bank of Washington ("Lender") (9)
and Emeritus Properties VI, Inc. ("Borrower")
(Exhibit 10.2.1).
10.8. First Addendum to Promissory Note between Lender and (9)
2 Borrower (Exhibit 10.2.2).
10.8. Second Addendum to Promissory Note between Lender and (9)
3 Borrower (Exhibit 10.2.3).
10.8. Construction Deed of Trust dated April 22, 1997
4 between Emeritus Properties VI, Inc. ("Trustor"), (9)
U.S. Bank of Washington ("Lender " and "Beneficiary")
and United States National Bank of Oregon ("Trustee")
(Exhibit 10.2.4).
10.8. Addendum to Construction Deed of Trust between (9)
5 Trustor, Lender and Trustee (Exhibit 10.2.5).
10.8. Guaranty dated April 22, 1997 between Daniel R. Baty
6 ("Guarantor") U.S. Bank of Washington ("Lender") and (9)
Emeritus Properties VI, Inc. ("Borrower") (Exhibit
10.2.6).
10.9 Scottsdale Royale in Scottsdale, Arizona, Villa Ocotillo in
Scottsdale, Arizona and Madison Glen in Clearwater,
Florida. The following agreements are representative of
those executed in connection with these properties:
10.9. Loan Agreement dated December 31, 1996 in the amount
1 of $12,275,000 by the registrant ("Borrower") and (5)
Lender (Exhibit 10.9.1).
10.9. Promissory Note dated December 31, 1996 in the amount
2 of $6,775,000 between the registrant to Bank United (5)
(the "Lender") with respect to Madison Glen (Exhibit
10.9.2).
10.9. Promissory Note dated December 31, 1996 in the amount
3 of $5,500,000 between the registrant to Bank United
(the "Lender") with respect to Scottsdale Royale and (5)
Villa Ocotillo (Exhibit 10.9.3).
10.9. Deed of Trust, Security Agreement, Assignment of
4 Leases and Rents, and Fixture Filing (Financial
Statement) dated as of December 31, 1996, by the
registrant, as Trustor and debtor, to Chicago Title (5)
Insurance Company, as Trustee, for the benefit of the
Lender, Beneficiary and secured party with respect to
Scottsdale Royale and Villa Ocotillo (Exhibit
10.9.4).
10.9. Mortgage and Security Agreement between the
5 registrant ("Mortgagor") and Bank United (5)
("Mortgagee") with respect to Madison Glen (Exhibit
10.9.5).
10.1 Rosewood Court in Fullerton, California
0
10.10 Lease Agreement dated March 29, 1996 between the
.1 registrant ("Lessee") and Health Care Property (3)
Investors, Inc. ("Lessor") (Exhibit 10.1.1).
10.10 First Amendment Lease Agreement dated April 25, 1996
.2 by and between the registrant ("Lessee") and Health (3)
Care Property Investors, Inc. ("Lessor") (Exhibit
10.1.2).
10.1 The Arbor at Olive Grove in Phoenix, Arizona
1
10.11 Lease Agreement dated as of December 27, 1995 between
.1 the registrant and Health Care Property Investors, (2)
Inc. (Exhibit 10.12.1).
10.11 First Amended Lease Agreement dated as of February
.2 19, 1996 by and between the registrant and Health (2)
Care Property Investors, Inc. (Exhibit 10.12.2).
10.1 Renton Villa in Renton, Washington
2
10.12 Lease Agreement dated as of December 27, 1995 between
.1 the registrant and Health Care Property Investor, (2)
Inc. (Exhibit 10.13.1).
10.12 First Amended Lease Agreement dated as of February
.2 19, 1996 by and between the registrant and Health (2)
Care Property Investors, Inc. (Exhibit 10.13.2).
10.1 Seabrook, in Everett, Washington
3
10.13 Lease Agreement dated as of December 27, 1995 between
.1 the registrant and Health Care Property Investor, (2)
Inc. (Exhibit 10.14.1).
10.13 First Amended Lease Agreement dated as of February
.2 19, 1996 by and between the registrant and Health (2)
Care Property Investors, Inc. (Exhibit 10.14.2).
10.1 Laurel Lake Estates in Voorhees, New Jersey
4
10.14 Lease Agreement dated as of December 27, 1995 between
.1 the registrant and Health Care Property Investor, (2)
Inc. (Exhibit 10.15.1).
10.14 First Amended Lease Agreement dated as of February
.2 19, 1996 by and between the registrant and Health (2)
Care Property Investors, Inc. (Exhibit 10.15.2).
10.1 Florida Communities.
5
10.15 Lease Agreement dated March 15, 1996 between
.1 Meditrust Acquisition Corporation I ("Lessor") and
Emeritus Properties I, Inc., ("Lessee") with respect (2)
to Beneva Park Club (Exhibit 10.16.1).
10.15 Lease Agreement dated March 15, 1996 between
.2 Meditrust Acquisition Corporation I ("Lessor") and
Emeritus Properties I, Inc., ("Lessee") with respect (2)
to Central Park Club (Exhibit 10.16.2).
10.15 Lease Agreement dated March 15, 1996 between
.3 Meditrust Acquisition Corporation I ("Lessor") and
Emeritus Properties I, Inc., ("Lessee") with respect (2)
to College Park Club (Exhibit 10.16.3).
10.15 Lease Agreement dated March 15, 1996 between
.4 Meditrust Acquisition Corporation I ("Lessor") and
ESC I, G.P., Inc. ("Lessee") with respect to Park (2)
Club of Brandon (Exhibit 10.16.4).
33
<PAGE>
10.15 Lease Agreement dated March 15, 1996 between
.5 Meditrust Acquisition Corporation I ("Lessor") and
Emeritus Properties I, Inc., ("Lessee") with respect (2)
to Park Club of Fort Myers (Exhibit 10.16.5).
10.15 Lease Agreement dated March 15, 1996 between
.6 Meditrust Acquisition Corporation I ("Lessor") and
Emeritus Properties I, Inc., ("Lessee") with respect (2)
to Park Club of Oakbridge (Exhibit 10.16.6).
10.1 Summer Wind in Boise, Idaho
6
10.16 Lease Agreement dated as of August 31, 1995 between
.1 AHP of Washington, Inc. and the registrant (Exhibit (1)
10.18.1).
10.16 First Amended Lease Agreement dated as of December
.2 31, 1996 by and between the registrant and AHP of (5)
Washington, Inc. (Exhibit 10.16.2).
10.1 Silver Pines (formerly Willowbrook) in Cedar Rapids, Iowa
7
10.17 Purchase and Sale Agreement (including Real Estate
.1 Contract) dated January 4, 1995 between Jabo, Ltd. (1)
("Jabo") and the registrant (Exhibit 10.19.1).
10.17 Assignment and Assumption Agreement with respect to
.2 facility leases dated as of January 17, 1995 by and (1)
between Jabo, as Assignor, and the registrant, as
Assignee (Exhibit 10.19.2).
10.1 The Palisades in El Paso, Texas, Amber Oaks in San Antonio,
8 Texas and Redwood Springs in San Marcos, Texas. The
following agreements are representative of those executed
in connection with these properties.
10.18 Lease Agreement dated April 1, 1997 between ESC III,
.1 L.P. D/B/A Texas-ESC III, L.P. ("Lessee") and Texas (6)
HCP Holding , L.P. ("Lessor") (Exhibit 10.4.1).
10.18 First Amendment to Lease Agreement dated April 1,
.2 1997 between Lessee and Texas HCP Holding , L.P. (6)
Lessor (Exhibit 10.4.2).
10.18 Guaranty dated April 1, 1997 by the registrant
.3 ("Guarantor") in favor of Texas HCP Holding , L.P. (6)
(Exhibit 10.4.3)
10.18 Assignment Agreement dated April 1, 1997 between the
.4 registrant ("Assignor") and Texas HCP Holding , L.P. (6)
("Assignee") (Exhibit 10.4.4).
10.1 Carriage Hill Retirement in Bedford, Virginia
9
10.19 Lease Agreement dated August 31, 1994 between the
.1 registrant, as Tenant, and Carriage Hill Retirement (1)
of Virginia, Ltd. as Landlord (Exhibit 10.23.1).
10.19 Supplemental Lease Agreement dated September 2, 1994 (1)
.2 (Exhibit 10.23.2).
10.2 Green Meadows Communities
0
10.20 Consent to Assignment of and First Amendment to Asset
.1 Purchase Agreement dated September 1, 1995 among the
registrant, The Standish Care Company and Painted
Post Partnership, Allentown Personal Car General
Partnership, Unity Partnership, Saulsbury General
Partnership and P. Jules Patt (collectively, the (1)
"Partnerships"), together with Asset Purchase
Agreement dated July 27, 1995 among The Standish Care
Company and the Partnerships (Exhibit 10.24.1).
10.20 Lease Agreement dated October 19, 1995 between the
.2 registrant and HCPI Trust with respect to Green (1)
Meadows - Allentown (Exhibit 10.24.2).
10.20 Lease Agreement dated October 16, 1995 between the
.3 registrant and HCPI Trust with respect to Green (1)
Meadows - Dover (Exhibit 10.24.3).
10.20 Lease Agreement dated October 19, 1995 between the
.4 registrant and HCPI Trust with respect to Green (1)
Meadows - Latrobe (Exhibit 10.24.4).
10.20 Lease Agreement dated October 19, 1995 between the
.5 registrant and HCPI Trust with respect to Green (1)
Meadows - Painted Post (Exhibit 10.24.5).
10.20 Agreement to Provide Administrative Services to an
.6 Adult Home dated October 23, 1995 between the (1)
registrant and P. Jules Patt and Pamela J. Patt
(Exhibit 10.24.6).
10.20 Assignment Agreement dated October 19, 1995 between
.7 the registrant, HCPI Trust and Health Care Property (1)
Investors, Inc. (Exhibit 10.24.8).
10.20 Assignment and Assumption Agreement dated August 31,
.8 1995 between the registrant and The Standish Care (1)
Company (Exhibit 10.24.9).
10.20 Guaranty dated October 19, 1995 by Daniel R. Baty in
.9 favor of Health Care Property Investors, Inc., and (1)
HCPI Trust (Exhibit 10.24.10).
10.20 Guaranty dated October 19, 1995 by the registrant in
.10 favor of Health Care Property Investors, Inc. (1)
(Exhibit 10.24.11).
10.20 First Amended Lease Agreement dated as of December
.11 13, 1995 by and between the registrant and HCPI, (5)
Trust with respect to Green Meadows - Allentown
(Exhibit 20.12).
10.20 Second Amended Lease Agreement dated as of February
.12 13, 1996 by and between the registrant and HCPI, (5)
Trust with respect to Green Meadows - Allentown
(Exhibit 10.20.13).
10.20 First Amended Lease Agreement dated as of December
.13 13, 1995 by and between the registrant and Health
Care Property Investors, Inc., with respect to Green (5)
Meadows - Dover (Exhibit 10.20.14).
10.20 Second Amended Lease Agreement dated as of February
.14 13, 1996 by and between the registrant and Health
Care Property Investors, Inc., with respect to Green (5)
Meadows - Dover (Exhibit 10.20.15).
10.20 First Amended Lease Agreement dated as of December
.15 13, 1995 by and between the registrant and HCPI, (5)
Trust with respect to Green Meadows - Latrobe
(Exhibit 10.20.16).
34
<PAGE>
10.20 Second Amended Lease Agreement dated as of February
.16 13, 1996 by and between the registrant and HCPI, (5)
Trust with respect to Green Meadows - Latrobe
(Exhibit 10.20.17).
10.20 First Amended Lease Agreement dated as of December
.17 13, 1995 by and between the registrant and Health
Care Property Investors, Inc., with respect to Green (5)
Meadows - Painted Post (Exhibit 10.20.18).
10.20 Second Amended Lease Agreement dated as of June 24,
.18 1996 by and between the registrant and Health Care
Property Investors, Inc., with respect to Green (5)
Meadows - Painted Post (Exhibit 10.20.19).
10.20 Second Amendment to Agreement to provide
.19 Administrative Services to an Adult Home dated (10)
January 1, 1997 between Painted Post Partners and the
registrant (Exhibit 10.2).
10.2 Carolina Communities
1
10.21 Lease Agreement dated January 26, 1996 between the
.1 registrant and HCPI Trust with respect to Countryside (2)
Facility (Exhibit 10.23.1).
10.21 Lease Agreement dated January 26, 1996 between the
.2 registrant and Health Care Property Investors with (2)
respect to Heritage Health Center Facility (Exhibit
10.23.2).
10.21 Management Services Agreement between the registrant
.3 and Sunrise Healthcare Corporation ("Manger") dated (13)
December 1997.
10.21 Promissory Note dated as of January 26, 1996 in the
.4 amount of $3,991,190 from Heritage Hills Retirement,
Inc. ("Borrower") to Health Care Property Investors, (2)
Inc. ("Lender") (Exhibit 10.23.4).
10.21 Loan Agreement dated January 26, 1996 between the
.5 Borrower and the Lender (Exhibit 10.23.5). (2)
10.21 Guaranty dated January 26, 1996 by the registrant in (2)
.6 favor of the Borrower (Exhibit 10.23.6).
10.21 Deed of Trust with Assignment of Rents, Security
.7 Agreement and Fixture Filing dated as of January 26,
1996 by and among Heritage Hills Retirement, Inc.
("Grantor"), Chicago Title Insurance Company (2)
("Trustee") and Health Care Property Investor, Inc.
("Beneficiary") (Exhibit 10.23.7).
10.21 Lease Agreement dated as of January 26, 1996 between
.8 the registrant and Health Care Property Investor, (2)
Inc. with respect to Heritage Lodge Facility (Exhibit
10.23.8).
10.21 Lease Agreement dated as of January 26, 1996 between
.9 the registrant and Health Care Property Investor, (2)
Inc. with respect to Pine Park Facility (Exhibit
10.23.9).
10.21 Lease Agreement dated January 26, 1996 between the
.10 registrant and HCPI Trust with respect to Skylyn (2)
Facility (Exhibit 10.23.10).
10.21 Lease Agreement dated January 26, 1996 between the
.11 registrant and HCPI Trust with respect to Summit (2)
Place Facility (Exhibit 10.23.11).
10.21 Amendment to Deed of Trust dated April 25, 1996
.12 between Heritage Hills Retirement, Inc. ("Grantor"), (5)
and Health Care Property Investors, Inc.
("Beneficiary") (Exhibit 10.21.12).
10.21 First Amendment to Lease Agreement dated March 29,
.13 1996 between registrant and Health Care Property (5)
Investors, Inc. with respect to Heritage Health
Center (Exhibit 10.21.13).
10.2 Letter of Intent dated January 31, 1996 between the
3 registrant and Meditrust Acquisition Corporation I relating (2)
to developments (Exhibit 10.33).
10.2 Letter of Intent dated January 31, 1996 between the
4 registrant and Meditrust Acquisition Corporation I relating (2)
to acquisitions (Exhibit 10.34).
10.2 Letter of Intent dated August 13, 1996 between the
4 registrant and Meditrust Acquisition Corporation I relating (5)
to acquisitions (Exhibit 10.24).
10.2 Letter of Intent dated August 13, 1996 between the
5 registrant and Meditust Acquisition Corporation I relating (5)
to developments (Exhibit 10.24).
10.2 Juniper Meadows in Lewiston, Idaho
6
10.26 Agreement to Purchase Construction Loan dated January
.1 30, 1997 between RMI Capital Management Co. (5)
("Construction Lender") and the registrant (Exhibit
10.26.1).
10.26 Construction Loan Agreement between RMI Capital
.2 Management Co. ("Lender") and Emeritus Properties II, (5)
Inc. ("Borrower") (Exhibit 10.26.2).
10.26 Promissory Note dated January 30, 1997 in the amount
.3 of $5,080,082.39 between RMI Capital Management Co. (5)
("Holder") and Emeritus Properties II, Inc. ("Maker")
(Exhibit 10.26.3).
10.26 Deed of Trust, Assignment of Rents, Security
.4 Agreement and Financing Statement dated January 30,
1997 between Emeritus Properties II, Inc. ("Borrower" (5)
or "Grantor"), Alliance Title & Escrow Corp.
("Trustee") and RMI Capital Management Co. (Exhibit
10.26.4).
10.2 Assignment, Assumption and Consent Agreement dated as of
7 April 17, 1995 Between the registrant and Columbia-Pacific (1)
Group, Inc. (Exhibit 10.32).
10.2 Convertible Debenture Agreement dated as of June 10, 1994
8 among The Standish Care Company and the individuals on (1)
Schedule I attached thereto (Exhibit 10.33).
10.2 Registration Rights Agreement dated June 10, 1994 among The
9 Standish Care Company and Columbia-Pacific Group (Exhibit (1)
10.34).
10.3 Warrant to Purchase Common Stock of The Standish Care (1)
0 Company (Exhibit 10.35)
35
<PAGE>
10.3 Development Property in Fairfield, California
1
10.31 Loan Agreement in the amount of $12,800,000 dated
.1 January 10, 1997, between Fairfield Retirement
Center, LLC ("Borrower") and the Finova Capital (5)
Corporation ("Lender") (Exhibit 10.31.1).
10.31 Promissory Note dated January 10, 1997 in the amount
.2 of $12,800,000 between Fairfield Retirement Center,
LLC ("Borrower") and Finova Capital Corporation (5)
("Lender") (Exhibit 10.31.2).
10.31 Deed of Trust, Security Agreement, Assignment of
.3 Leases and Rents and Fixture Filing dated January 10,
1997 between Fairfield Retirement Center, LLC (5)
("Trustor"), Chicago Title Company ("Trustee") and
Finova Capital Corporation ("Beneficiary") (Exhibit
10.31.3).
10.31 Guaranty Agreement dated January 10, 1997 between the
.4 registrant ("Guarantor") and Finova Capital (5)
Corporation ("Lender") (Exhibit 10.31.4).
10.3 Courtyard at the Willows in Puyallup, Washington
2
10.32 Loan Agreement dated January 30, 1997, between
.1 Emeritus Properties III, Inc. ("Maker") and Ocwen (5)
Federal Bank FSB ("Payee") (Exhibit 10.32.1).
10.32 Promissory Note dated January 30, 1997 in the amount
.2 of $6,465,000 between Emeritus Properties III, Inc. (5)
("Maker") and Ocwen Federal Bank, FSB ("Payee")
(Exhibit 10.32.2).
10.32 Deed of Trust, Security Agreement, Assignment of
.3 Leases and Rents and Fixture Filing dated January 30,
1997 between Emeritus Properties III, Inc. (5)
("Borrower"), Chicago Title Insurance Company
("Trustee") and Ocwen Federal Bank, FSB ("Lender")
(Exhibit 10.32.3).
10.32 Deed of Trust, Security Agreement, Financing
.4 Statement and Assignment of Resident Agreements and
Rents dated January 30, 1997 between Emeritus
Properties III, Inc. ("Grantor"), Chicago Title (6)
Insurance Company ("Trustee") and Ocwen Federal Bank
FSB ("Beneficiary") (Exhibit 10.5.1).
10.32 Agreement for Amendment of Documents dated January
.5 30, 1997 between Emeritus Properties III, Inc., (6)
("Borrower") and OCWEN Federal Bank FSB, ("Lender")
(Exhibit 10.5.2).
10.3 Kirkland Lodge at Lakeside in Kirkland, Washington, Park
3 Place in Casper, Wyoming, The Hearthstone in Moses Lake,
Washington and Meadowbrook Retirement in Ontario, Oregon.
The following agreement is representative of that executed
in connection with these properties.
10.33 Lease Agreement dated May 1, 1997 and May 23, 1997
.1 between Emeritus Properties I, Inc., ("Lessee") and (9)
Meditrust Acquisition Corporation I ("Lessor")
(Exhibit 10.1.1).
10.3 The Pines at Tewksbury in Tewksbury, Massachusetts
4
10.34 Lease Agreement dated March 15, 1996 between
.1 Meditrust Acquisition Corporation I ("Lessor") and
Emeritus Properties I, Inc., ("Lessee") with respect (2)
to Tewksbury (Exhibit 10.37.1).
10.3 Garrison Creek Lodge in Walla Walla, Washington, Cambria in
5 El Paso Texas, and Sherwood Place in Odessa, Texas. The
following agreements are representative of those executed
in connection with these properties:
10.35 Lease Agreement dated July, August and September 1996
.1 between the registrant ("Lessee") and American Health (4)
Properties, Inc. ("Lessor") (Exhibit 10.3.1).
10.35 First Amendment to Lease Agreement dated December 31,
.2 1996 between the registrant ("Lessee") and AHP of (5)
Washington, Inc., ("Lessor") (Exhibit 10.35.2).
10.3 Cobblestone at Fairmont in Manassas, Virginia
6
10.36 Loan Agreement effective as of October 26, 1995
.1 between the registrant and Health Care REIT, Inc. (1)
(Exhibit 10.42.1).
10.36 Deed of Trust, Security Agreement, Assignment of
.2 Leases and Rents and Fixture Filing dated as of (1)
October 26, 1995 by the registrant to Health Care
REIT, Inc. (Exhibit 10.42.2).
10.36 Note dated October 26, 1995 from the registrant to (1)
.3 Health Care REIT, Inc. (Exhibit 10.42.3).
10.36 Unconditional and Continuing Guaranty dated as of
.4 October 26, 1995 by Daniel R. Baty in favor of Health (1)
Care REIT, Inc. (Exhibit 10.42.4).
10.3 Rosewood Court in Fullerton, California, The Arbor at Olive
7 Grove in Phoenix, Arizona, Renton Villa in Renton,
Washington, Seabrook in Everett, Washington and Laurel Lake
Estates in Voorhees, New Jersey. The following agreements
are representative of those executed in connection with
these properties:
10.37 Second Amended Lease Agreement dated as of December
.1 30, 1996 by and between the registrant and Health (5)
Care Property Investors, Inc. (Exhibit 10.37.1).
10.3 Eastman Estates in Longview, Texas
8
10.38 Lease Agreement dated September 30, 1997 between
.1 Meditrust Acquisition Corporation I ("Lessor") and (12)
ESC I, L.P. ("Lessee") (Exhibit 10.3.1).
10.3 Meadowlands Terrace in Waco, Texas
9
10.39 Loan Agreement dated September 30, 1997 between
.1 Meditrust Mortgage Investments, Inc. ("Lender") and (12)
ESC I, L.P. ("Borrower") (Exhibit 10.4.1).
10.39 Promissory Note dated September 30, 1997 in the
.2 amount of $4,288,000 between Meditrust Mortgage (12)
Investments, Inc. ("Lender") and ESC I, L.P.
("Borrower") (Exhibit 10.4.2).
10.4 Cooper George Partners Limited Partnership
0
36
<PAGE>
10.40 Agreement of Cooper George Partners Limited
.1 Partnership dated August 7, 1995 between Emeritus
Real Estate IV, L.L.C. ("General Partner") and Bella (2)
Torre De Pisa Limited Partnership ("Limited
Partner") (Exhibit 10.43.1).
10.40 Construction Loan Agreement dated December 12, 1995
.2 between Cooper George Partners Limited Partnership ("
Borrower") and Intervest-Mortgage Investment Company (2)
("Lender") (Exhibit 10.43.2).
10.40 Promissory Note dated December 1995 between Cooper
.3 George Partners Limited Partnership ("Maker") and the (2)
Lender (Exhibit 10.43.3).
10.40 Guaranty dated December 1995 by Daniel R. Baty and
.4 Pamela D. Baty ("Guarantor") in favor of the Lender (2)
(Exhibit 10.43.4).
10.40 Deed of Trust, Assignment of Rents and Security
.5 Agreement dated December 1995 between Cooper George
Partners Limited Partnership ("Grantor"), First
American Title Insurance Company ("Trustee") and (2)
Intervest-Mortgage Investment Company ("Beneficiary")
(Exhibit 10.43.5).
10.4 Registration Rights Agreement dated February 8, 1996 with
1 respect to the registrant's 6.25% Convertible Subordinated (2)
Debentures due 2006 (Exhibit 10.44).
10.4 Registration Rights Agreement dated February 8, 1996 with
2 respect to the registrant's 6.25% Convertible Subordinated (2)
Debentures due 2006 (Exhibit 10.45).
10.4 Development Properties in Beaumont, Texas, Midland, Texas,
3 Lubbock, Texas, Amarillo, Texas, Clarksville, Tennessee,
Wichita Falls in Wichita Falls, Texas and San Angelo in San
Angelo, Texas. The following agreements are representative
of those executed in connection with these properties:
10.43 Lease Agreement dated April and July 1996 between ESC
.1 I, L.P. ("Lessee") and Meditrust Acquisition (3)
Corporation I ("Lessor") (Exhibit 10.2.1).
10.43 Leasehold Improvement Agreement dated April 15, 1996
.2 between Meditrust Acquisition Corporation I (3)
("Lessor") and ESC I, L.P. ("Lessee") (Exhibit
10.2.2).
10.4 Barrington Place in LeCanto, Florida and Springtree in
4 Sunrise, Florida. The following agreement is
representative of those executed in connection with these
properties:
10.44 Lease Agreement dated May 1, 1996 between Emeritus
.1 Properties I, Inc. ("Lessee") and Meditrust (3)
Acquisition Corporation I ("Lessor") (Exhibit
10.3.1).
10.4 Laurel Place in San Bernardino, California
5
10.45 Purchase and Sale Agreement dated January 24, 1996
.1 between Western Biologics Inc., ("Seller"), Nancy F.
Feinstein and Jay L. Feinstein ("Seller") and the (3)
registrant ("Purchaser") (Exhibit 10.4.1).
10.4 Lakewood Inn in Coeur d'Alene, Idaho, Evergreen Lodge in
6 Federal Way, Washington, Greenville in Greenville, South
Carolina, Grand Terrace in Grand Terrace, California, Ridge
Wind In Chubbock, Idaho and Ocean Shores in Ocean Shores,
Washington. The following agreement is representative of
those executed in connection with these properties:
10.46 Lease Agreement dated April and June 1996 between
.1 Emeritus Properties I, Inc. ("Lessee") and Meditrust (3)
Acquisition Corporation I ("Lessor") (Exhibit
10.5.1).
10.4 Lakewood Inn in Coeur d'Alene, Idaho, Greenville in
7 Greenville, South Carolina and Ocean Shores in Ocean
Shores, Washington. The following agreement is
representative of those executed in connection with these
properties:
10.47 Leasehold Improvement Agreement dated April and June
.1 1996 between Meditrust Acquisition Corporation I (3)
("Lessor") and Emeritus Properties I ("Lessee")
(Exhibit 10.6.1).
10.4 Development Property in Bozeman, Montana
8
10.48 Agreement to Purchase Construction Loan dated May 30,
.1 1996 between RMI Capital Management Co. (3)
("Construction Lender") and Emeritus Corporation
(Exhibit 10.7.1).
10.48 Construction Loan Agreement between RMI Capital
.2 Management Co. ("Lender") and Emeritus Properties II, (3)
Inc. ("Borrower") (Exhibit 10.7.2).
10.48 Promissory Note dated May 30, 1996 in the amount of
.3 $4,695,000 between RMI Capital Management Co. (3)
("Holder") and Emeritus Properties II, Inc. ("Maker")
(Exhibit 10.7.3).
10.48 Security Agreement dated May 30, 1996 between
.4 Emeritus Properties II, Inc. ("Debtor") and RMI (3)
Capital Management Co. ("Secured Party") (Exhibit
10.7.4).
10.48 Deed of Trust, Assignment of Rents, Security
.5 Agreement and Financing Statement dated May 30, 1996
between Emeritus Properties II, Inc. ("Borrower" or
"Grantor"), American Land Title Company ("Trustee") (3)
and RMI Capital Management Co. ("Beneficiary" or
"Lender") (Exhibit 10.7.5).
10.48 Guaranty Agreement dated May 30, 1996 between
.6 Emeritus Corporation ("Guarantor") and RMI Capital (3)
Management Co. ("Lender") (Exhibit 10.7.6).
10.4 Office Lease Agreement dated April 29, 1996 between Martin
9 Selig ("Lessor") and the registrant ("Lessee") (Exhibit (3)
10.8).
10.5 The Lodge at Mainlands in Pinellas Park, Florida, Colonial
0 Park Club in Sarasota, Florida, Fairhaven Estates in
Bellingham, Washington, Highland Hills in Pocatello, Idaho
and Anderson Place in Anderson, South Carolina. The
following agreements are representative of those executed
in connection with these properties:
10.50 Lease Agreement dated August and October 1996 between
.1 Emeritus Properties I, Inc. ("Lessee") and Meditrust (4)
Acquisition Corporation I ("Lessor") (Exhibit
10.1.1).
10.5 Colonial Park Club in Sarasota, Florida.
1
10.51 Leasehold Improvement Agreement dated August 21, 1996
.1 between Emeritus Properties I, Inc. ("Lessee") and (4)
Meditrust Acquisition Corporation I ("Lessor")
(Exhibit 10.2.1).
37
<PAGE>
10.5 Colonie Manor in Latham, New York, Bassett Manor in
2 Williamsville, New York, West Side Manor in Liverpool, New
York, Bellevue Manor in Syracuse, New York, Perinton Park
Manor in Fairport, New York, Bassett Park Manor in
Williamsville, New York, Woodland Manor in Vestal, New
York, East Side Manor in Fayetteville, New York and West
Side Manor in Rochester, New York. The following agreement
is representative of those executed in connection with
these properties:
10.52 Lease Agreement dated September 1, 1996 between
.1 Philip Wegman ("Landlord") and Painted Post Partners (4)
("Tenant") (Exhibit 10.4.1).
10.52 Agreement to Provide Administrative Services to an
.2 Adult Home dated September 2, 1996 between the (4)
registrant and Painted Post Partners ("Operator")
(Exhibit 10.4.2).
10.52 First Amendment to Agreement to Provide
.3 Administrative Services to an Adult Home dated (10)
January 1, 1997 between Painted Post Partners and the
registrant (Exhibit 10.1).
10.5 Columbia House Communities.
3
10.53 Management Services Agreement between the Registrant
.1 ("Manager") and Columbia House, LLC ("Lessee") dated (4)
November 1, 1996 with respect to Camlu Retirement
(Exhibit 10.6.1).
10.53 Management Services Agreement dated January 1, 19998
.2 between the registrant ("Manager") and Columbia House (13)
LLC ("Lessee") with respect to York Care.
10.53 Commercial Lease Agreement dated January 13, 1997
.3 between Albert M. Lynch ("Landlord") and Columbia (6)
House, LLC ("Tenant") with respect to York Care
(Exhibit 10.3.2).
10.53 Management Services Agreement dated June 1, 1997
.4 between the registrant ("Manager") and Columbia House (9)
LLC ("Owner") with respect to Autumn Ridge (Exhibit
10.3.1).
10.53 Agreement to Provide Accounting and Administrative
.5 Services dated October 1, 1997 between Acorn Service
Corporation ("Administrator") and Vancouver Housing, (12)
L.L.C., ("Manager") with respect to Van Vista and
Columbia House (Exhibit 10.6.1).
10.53 Assignment and First Amendment to Agreement to
.6 Provide Management Services dated September 1, 1997
between the registrant, Columbia House, L.L.C., Acorn (13)
Service Corporation and Camlu Coeur d'Alene, L.L.C.
with respect to Camlu.
10.53 Assignment and First Amendment to Agreement to
.7 Provide Management Services dated September 1, 1997
between the registrant, Columbia House, L.L.C., Acorn (13)
Service Corporation and Autumn Ridge Herculaneum,
L.L.C. with respect to Autumn Ridge.
10.53 Management Services Agreement dated January 1, 1998
.8 between the registrant ("Manager") and Columbia House (13)
LLC ("Owner") with respect to Park Lane.
10.5 Development Property in Ogden, Utah
4
10.54 Lease Agreement dated April 30, 1997 between Emeritus
.1 Properties I, Inc., ("Lessee") and Meditrust (9)
Acquisition Corporation I ("Lessor") (Exhibit
10.4.1).
10.54 Leasehold Improvement Agreement dated April 30, 1997
.2 between Emeritus Properties I, Inc., ("Lessee") and (9)
Meditrust Acquisition Corporation I ("Lessor")
(Exhibit 10.4.2).
10.5 Vickery Towers in Dallas, Texas
5
10.55 Promissory Note dated November 26, 1996 in the amount
.1 of $17,000,000 between ESC II, L.P. ("Maker") and (5)
GMAC Commercial Mortgage Corporation ("Payee")
(Exhibit 10.55.1).
10.55 Construction Loan Agreement dated November 26, 1996
.2 by ESC II, L.P., (Borrower) and GMAC Commercial (5)
Mortgage Corporation ("Lender") (Exhibit 10.55.2).
10.55 Deed of Trust, Mortgage and Security Agreement dated
.3 as of November 26, 1996 by ESC II, L.P. ("Grantor") (5)
to Andrew D. Rocker, Trustee (Exhibit 10.55.3).
10.55 Guaranty Agreement dated November 26, 1996 between
.4 Emeritus Corporation ("Guarantor") and GMAC (5)
Commercial Mortgage Corporation ("Creditor") (Exhibit
10.55.4).
10.5 Concorde in Las Vegas, Nevada
6
10.56 Purchase and Sale Agreement dated July 9, 1996
.1 between the registrant ("Purchaser") and Sunday (5)
Estates, Inc. ("Seller") (Exhibit 10.56.1).
10.56 First Amendment to Purchase and Sale Agreement dated
.2 July 11, 1996 between the registrant the Seller (5)
(Exhibit 10.56.2).
10.56 Promissory Note dated November 18, 1996 in the amount
.3 of $4,000,000 between the registrant ("Maker") and (5)
Sunday Estates, Inc. ("Payee") (Exhibit 10.56.3).
10.56 All-Inclusive Deed of Trust and Assignment of Rents
.4 dated November 18, 1996 between the registrant
("Trustor"), Fidelity National Title Agency of (5)
Nevada, Inc. ("Trustor") and Sunday Estates, Inc.,
("Beneficiary") (Exhibit 10.56.4).
10.56 Addendum to All-Inclusive Deed of Trust and
.5 Assignment of Rents dated November 18, 1996 between (5)
the Trustor and the ("Beneficiary") (Exhibit
10.56.5).
10.5 Development Properties in Hutchinson, Kansas and Ridgeland,
7 Mississippi. The following agreements are representative of
those executed in connection with these properties:
38
<PAGE>
10.57 Lease Agreement dated March 1996 between Emeritus
.1 Properties I, Inc. ("Lessee") and Meditrust (5)
Acquisition Corporation I ("Lessor") (Exhibit
10.57.1).
10.57 Leasehold Improvement Agreement dated March 1996
.2 between Meditrust Acquisition Corporation I (5)
("Lessor") and Emeritus Properties I, Inc. (Exhibit
10.57.2).
10.5 Development Properties in Auburn and Chelmsford,
8 Massachusetts, Louisville, Kentucky and Rocky Hill,
Connecticut. The following agreements are representative
of those executed in connection with these properties:
10.58 Lease Agreement dated February 1996 between the
.1 registrant ("Lessee") and LM Auburn Assisted Living
LLC, and LM Louisville Assisted Living LLC, (5)
("Landlords") with respect to the development
properties in Auburn and Louisville (Exhibit
10.58.1).
10.58 Amended and Restated Lease Agreement dated February
.2 26, 1996 between the registrant ("Lessee") and LM
Rocky Hill Assisted Living Limited Partnership, (5)
("Landlord") with respect to the development property
in Rocky Hill (Exhibit 10.58.2).
10.58 Lease Agreement dated October 10, 1996 between the
.3 registrant ("Lessee") and LM Chelmsford Assisted (5)
Living LLC, ("Landlord") with respect to the
development property in Chelmsford (Exhibit 10.58.3).
10.58 Promissory Note in the amount of $1,255,000 dated
.4 December 1996 between the registrant ("Lender") and (5)
LM Auburn Assisted Living LLC, ("Borrower") with
respect to the development property in Auburn
(Exhibit 10.58.4).
10.58 Promissory Note in the amount of $1,450,000 dated
.5 January 1997 between the registrant ("Lender") and LM
Louisville Assisted Living LLC, ("Borrower") with (5)
respect to the development property in Louisville
(Exhibit 10.58.5).
10.58 Promissory Note in the amount of $1,275,000 dated
.6 January 1997 between the registrant ("Lender") and LM
Rocky Hill Assisted Living Limited Liability (5)
Partnership, ("Borrower") with respect to the
development property in Rocky Hill (Exhibit 10.58.6).
10.58 Promissory Note in the amount of $300,000 dated
.7 January 1997 between the registrant ("Lender") and LM
Chelmsford Assisted Living LLC, ("Borrower") with (5)
respect to the development property in Chelmsford
(Exhibit 10.58.7).
10.5 Beneva Park Club, Central Park Village, College Park Club,
9 Park Club Brandon, Park Club Fort Myers and Park Club
Oakbridge, The Pines at Tewksbury and The Terrace. The
following documents are representative of those executed in
connection with these properties:
10.59 First Amendment to Facility Lease dated December 31,
.1 1996 between Meditrust Acquisition Corporation I (5)
("Lessor") and Emeritus Properties I, Inc. ("Lessee")
(Exhibit 10.59.1).
10.59 Amended and Restated Memorandum of Lease dated
.2 December 31, 1996 between Meditrust Acquisition (5)
Corporation I ("Lessor") and Emeritus Properties I,
Inc. ("Lessee") (Exhibit 10.59.2).
10.6 Evergreen Lodge in Federal Way, Washington
0
10.60 First Amendment to Facility Lease dated December 31,
.1 1996 between Meditrust Acquisition Corporation I (5)
("Lessor") and Emeritus Properties I, Inc. ("Lessee")
(Exhibit 10.60.1).
10.60 Amended and Restated Memorandum of Lease dated
.2 December 31, 1996 between Meditrust Acquisition
Corporation I ("Lessor") and Emeritus Properties I, (5)
Inc. ("Lessee") (Exhibit 10.60.2).
10.6 Development Properties in Cheyenne, Wyoming and Auburn,
1 California. The following agreements are representative of
those executed in connection with these properties.
10.61 Management Agreement dated May 30, 1997 between
.1 Willard Holdings, Inc., ("Owner") and the registrant (9)
("Manager") (Exhibit 10.5.1).
10.61 Lease Agreement dated May 30, 1997 between Willard
.2 Holdings, Inc., ("Lessor") and the registrant (9)
("Lessee") (Exhibit 10.5.2).
10.6 Senior Management Employment Agreements entered into
2 between the registrant and each of the following
individuals:
10.62 Michelle A. Bickford (Exhibit 10.6.1), Frank A. Ruffo
.1 (Exhibit 10.6.2), Kelly J. Price (Exhibit 10.6.3),
Gary D. Witte (Exhibit 10.6.4), Sarah J. Curtis (9)
(Exhibit 10.6.4) and Raymond R. Brandstrom (Exhibit
10.6.5).
10.6 La Casa Grande in New Port Richey, Florida, River Oaks in
3 Englewood, Florida, and Stanford Centre in Altamonte
Springs, Florida. The following agreements are
representative of those executed in connection with these
properties.
10.63 Stock Purchase Agreement dated September 30, 1996
.1 between Wayne Voegele, Jerome Lang, Ronald Carlson,
Thomas Stanford, Frank McMillan, Lonnie Carlson, and (7)
Carla Holweger ("Seller") and the registrant
("Purchaser") with respect to La Casa Grande (Exhibit
10.1).
10.63 First Amendment to Stock Purchase Agreement dated
.2 January 31, 1997 between the Seller and the (7)
registrant with respect to La Case Grande (Exhibit
10.2).
10.63 Stock Purchase Agreement dated September 30, 1996
.3 between the Seller and the registrant with respect (7)
to River Oaks (Exhibit 10.3).
10.63 First Amendment to Stock Purchase Agreement dated
.4 January 31, 1997 between the Seller and the (7)
registrant with respect to River Oaks (Exhibit 10.4).
10.63 Stock Purchase Agreement dated September 30, 1996
.5 between the Seller and the registrant with respect (7)
to Stanford Centre (Exhibit 10.5).
10.63 First Amendment to Stock Purchase Agreement dated
.6 January 31, 1997 between the Seller and the (7)
registrant with respect to Stanford Centre (Exhibit
10.6).
39
<PAGE>
10.63 Term Loan Agreement dated May 1, 1997 in the amount
.7 of $26,000,000 between Emeritus Properties V, Inc., (8)
("Borrower") and Fleet National Bank ("Lender")
(Exhibit 10.7).
10.63 Promissory note dated May 1, 1997 in the amount of
.8 $26,000,000 between Emeritus Properties V, Inc., (8)
("Borrower") and Fleet National Bank ("Lender")
(Exhibit 10.8).
10.63 Promissory Note dated May 1, 1997 in the amount of
.9 $7,000,000 between Emeritus Properties V, Inc., (8)
("Borrower") and High Yield Partners LLC, ("Lender")
(Exhibit 10.9).
10.63 Credit Agreement dated May 1, 1997 between Emeritus
.10 Properties V, Inc. and High Yield Partners LLC (8)
(Exhibit 10.10).
10.63 Guaranty dated May 1, 1997 between the registrant
.11 ("Guarantor") Emeritus Properties V, Inc., ("Debtor") (8)
and High Yield Partners LLC ("Lender") (Exhibit
10.11).
10.63 Mortgage Deed and Security Agreement entered into
.12 between the registrant ("Mortgagor") and Fleet (13)
national Bank ("Lender").
10.6 Painted Post Partnership
4
10.64 Painted Post Partners Partnership Agreement dated (1)
.1 October 1, 1995 (Exhibit 10.24.7).
10.64 First Amendment to Painted Post Partners Partnership
.2 Agreement dated October 22, 1996 between Daniel R. (5)
Baty and Raymond R. Brandstrom (Exhibit 10.20.20).
10.64 Indemnity Agreement dated November 3, 1996 between
.3 the registrant and Painted Post Partners (Exhibit (10)
10.3).
10.64 First Amendment to Indemnity Agreement dated January
.4 1, 1997 between the registrant and Painted Post (10)
Partners (Exhibit 10.4).
10.64 Undertaking and Indemnity Agreement dated October 23,
.5 1995 between the registrant, P. Jules Patt and Pamela (10)
J. Patt and Painted Post Partnership (Exhibit 10.5).
10.64 First Amendment to Undertaking and Indemnity
.6 Agreement dated January 1, 1997 between Painted post (10)
Partners and the registrant (Exhibit 10.6).
10.64 First Amendment to Non-Competition Agreement between
.7 the registrant and Daniel R. Baty (Exhibit 10.1.1) (11)
and Raymond R. Brandstrom (Exhibit 10.1.2).
10.6 Ridgeland Court in Ridgeland, Mississippi
5
10.65 Master Agreement and Subordination Agreement dated
.1 September 5, 1997 between the registrant, Emeritus
Properties I, Inc., and Mississippi Baptist health (12)
Systems, Inc. (Exhibit 10.1.1).
10.65 License Agreement dated September 5, 1997 between the
.2 registrant and its subsidiary and affiliated (12)
corporations and Mississippi Baptist health Systems,
Inc. (Exhibit 10.1.2).
10.65 Economic Interest Assignment Agreement and
.3 Subordination Agreement dated September 5, 1997
between the registrant, Emeritus Properties I, Inc., (12)
and Mississippi Baptist Health Systems, Inc. (Exhibit
10.1.3).
10.6 Development Property in Urbana, Illinois.
6
10.66 Lease Agreement dated September 10, 1997 between ALCO
.1 IV, L.L.C. ("Lessor") and the registrant ("Lessee") (12)
(Exhibit 10.2.1).
10.66 Management Agreement dated September 10, 1997 between
.2 the registrant ("Manager" and ALCO IV, L.L.C. (12)
("Owner") (Exhibit 10.2.2).
10.6 Development Properties in Middleburg Heights, Ohio and
7 Newark, Delaware. The following agreements are
representative of those executed in connection with these
properties.
10.67 Lease Agreement dated September, 1997 between
.1 Emeritus Properties I, Inc., ("Lessee") and Meditrust (12)
Acquisition Corporation I, ("Lessor") (Exhibit
10.5.1).
10.67 Leasehold Improvement Agreement dated September, 1997
.2 between Emeritus Properties I, Inc., ("Lessee") and (12)
Meditrust Acquisition Corporation I, ("Lessor")
(Exhibit 10.5.2).
10.6 Settlement Agreement dated April 25, 1997 by and between
8 the registrant and Carematrix Corporation (formerly The (13)
Standish Care Company).
10.6 Amendment to Office Lease Agreement dated September 6, 1996
9 between Martin Selig ("Lessor") and the registrant. (13)
10.7 Villa Del Rey in Escondido, California
0
10.70 Purchase and Sale Agreement dated December 19, 1996
.1 between the registrant ("Purchaser") and Northwest (6)
Retirement ("Seller") (Exhibit 10.1.1).
10.70 Restated Promissory Note dated February 26, 1997 in
.2 the amount of $3,030,773.40 between the registrant (6)
("Borrower") and Redlands Federal Bank ("Lender")
(Exhibit 10.1.2).
10.70 Agreement for Modification of Loan Documents dated
.3 February 26, 1997 between the registrant and Redlands (6)
Federal Savings Bank (Exhibit 10.1.3).
10.70 Loan Assumption Agreement dated February 26, 1997
.4 between the registrant and Redlands Federal Savings (6)
Bank (Exhibit 10.1.4).
10.70 Amended and Restated Deed of Trust dated February 26,
.5 1997 between the registrant ("Borrower") and Redlands
Financial Services, Inc. ("Trustee") and Redlands (6)
Federal Bank ("Lender") (Exhibit 10.1.5).
10.70 All-Inclusive Promissory Note dated March 25, 1997 in
.6 the amount of $749,512.17 between the registrant and (6)
Northwest Retirement ("Payee") (Exhibit 10.1.6).
40
<PAGE>
10.70 All-Inclusive Deed of Trust dated March 26, 1997
.7 between the registrant ("Trustor"), Chicago Title
Insurance Company ("Trustee") and Northwest (6)
Retirement ("Beneficiary") (Exhibit 10.1.7).
10.7 Development Property in Paso Robles, California
1
10.71 Agreement of TDC/Emeritus Paso Robles Associates
.1 dated June 1, 1995 between the registrant and TDC (6)
Convalescent, Inc. (Exhibit 10.2.1).
10.71 Loan Agreement in the amount of $6,000,000 dated
.2 February 15, 1997 between Finova Capital Corporation
("Lender") and TDC/Emeritus Paso Robles Associates (6)
("Borrower") (Exhibit 10.2.2).
10.71 Promissory Note dated February 28, 1997 in the amount
.3 of $6,000,000 between Finova Capital Corporation
("Lender") and TDC/Emeritus Paso Robles Associates (6)
("Borrower") (Exhibit 10.2.3).
10.71 Deed of Trust, Security Agreement, Assignment of
.4 Leases and Rents and Fixture Filing dated February
18, 1997 between TDC/Emeritus Paso Robles Associates (6)
("Trustor"), Chicago Title Company ("Trustee") and
Finova Capital Corporation ("Beneficiary") (Exhibit
10.2.4).
10.71 Guaranty between TDC Convalescent, Inc. ("Guarantor")
.5 and Finova Capital Corporation (Exhibit 10.2.5). (6)
10.71 Guaranty between the registrant ("Guarantor") and
.6 Finova Capital Corporation (Exhibit 10.2.6). (6)
10.7 Development Property in Staunton, Virginia
2
10.72 Purchase and Sale Agreement dated February 5, 1997
.1 between Greencastle Retirement Partners, L.L.C. (13)
("Purchaser") and Gail G. Brown ("Seller").
10.72 Assignment and Assumption of Purchase and Sale
.2 Agreement dated February 12, 1997 between Greencastle (13)
Retirement Partners, L.L.C. and the registrant.
10.7 Development Property in Jamestown New York
3
10.73 Purchase Agreement dated December 12, 1996 between
.1 June Fagerstrom ("Seller") and Wegman Family LLC (13)
("Buyer").
10.73 Assignment and Assumption Agreement dated December
.2 30, 1997 between Wegman Family LLC ("Assignor") and (13)
Painted Post Partners ("Assignee").
10.7 Development Property in Danville, Illinois
4
10.74 Purchase and Sale Agreement dated October 14, 1997
.1 between South Bay Partners, Inc. ("Purchaser") and (13)
Elks Lodge No. 332, BPOE ("Seller").
10.74 Assignment and Assumption of Purchase and Sale
.2 Agreement dated October 21, 1997 between South Bay (13)
Partners, Inc. and the registrant.
10.7 Development Property in Biloxi, Mississippi
5
10.75 Management Agreement dated December 18, 1997 between
.1 the registrant ("Manager") and ALCO VII, L.L.C. (13)
("Owner").
10.7 Sanyo Electric Co., Ltd.
6
10.76 Agreement entered into on May 30, 1996 between the
.1 registrant and Sanyo Electric Co., Ltd. for the
interest in jointly entering the development, (13)
construction and /or operation of the Senior Housing
Business in Japan.
10.76 Joint Venture Agreement entered into on July 9, 1997,
.2 between the registrant and Sanyo Electric Co., Ltd. (13)
10.7 Development Property in North Phoenix, Arizona.
7
10.77 Leasehold Improvement Agreement dated December 30,
.1 1997 between Emeritus Properties I, Inc., ("Lessee") (13)
and Meditrust Acquisition Corporation I, ("Lessor").
10.7 Lakeridge Place in Wichita Falls, Texas, Meadowlands
8 Terrace in Waco, Texas, Saddleridge Lodge in Midland, Texas
and Sherwood Place in Odessa, Texas. The following
agreements are representative of those executed in
connection with these properties.
10.78 Management and Consulting Agreement dated February 1,
.1 1997 between ESC I, L.P., and XL Management Company (13)
L.L.C.
10.7 Aurora Bay Agreements
9
10.79 Convertible Promissory Note dated January 7, 1998
.1 between Aurora Bay Investments, LLC and the (13)
registrant.
10.79 Notice and Agreement Emeritus Corporation Loan to
.2 Aurora Bay Investments, LLC dated January 7, 1998. (13)
10.79 Credit Agreement dated January 7, 1998 between the
.3 registrants and Aurora Bay Investments, LLC. (13)
10.79 Project Promissory Note dated January 7, 1998 between
.4 Lubbock Group, Ltd. and Aurora Bay Investments, LLC. (13)
10.79 Project Pledge and Security Agreement dated January
.5 7, 1998 between Aurora Investments, LLC and Aurora (13)
Bay I, LLC for the benefit of the registrant.
10.79 Guarantor Pledge and Security Agreement dated January
.6 7, 1998 between Thilo Best, Erwin Investors I, LLC (13)
and Craig Spaulding for the benefit of the
registrant.
10.79 Guaranty dated January 7, 1998 between Thilo Best,
.7 Erwin Investors I, LLC. And Craig Spaulding for the (13)
benefit of the registrant.
10.79 Operating Agreement of Aurora Bay I, LLC. Dated
.8 January 6, 1998 entered into between Aurora Bay (13)
Investment, LLC and Erwin Investors I, LLC.
41
<PAGE>
10.79 Development Services Agreement dated January 9, 1998
.9 between Lubbock Group, Ltd. and South Bay Partners, (13)
Inc. with respect to the development property in
Lubbock, Texas.
21.1 Subsidiaries of the registrant. (13)
23.1 Consent of KPMG Peat Marwick, LLP. (13)
27.1 Financial Data Schedule. (13)
</TABLE>
(1) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-1 (File No. 33-97508)
declared effective on November 21, 1995.
(2) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 29,
1996.
(3) Incorporated by reference to the indicated exhibit filed with the
Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
August 14, 1996.
(4) Incorporated by reference to the indicated exhibit filed with the
Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
November 14, 1996.
(5) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 31,
1997.
(6) Incorporated by reference to the indicated exhibit filed with the
Company's First Quarter Report on Form 10-Q (File No. 1-14012) on May
15, 1997.
(7) Incorporated by reference to the indicated exhibit filed with the
Company's Current Report on Form 8-K (File No. 1-14012) on May 16,
1997.
(8) Incorporated by reference to the indicated exhibit filed with the
Company's Current Report on Form 8-K Amendment No. 1 (File No. 1-
14012) on July 14, 1997.
(9) Incorporated by reference to the indicated exhibit filed with the
Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
August 14, 1997.
(10) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-3 Amendment No. 2 (File
No. 333-20805) on August 14, 1997.
(11) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-3 Amendment No. 3 (File
No. 333-20805) on October 29, 1997.
(12) Incorporated by reference to the indicated exhibit filed with the
Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
November 14, 1997.
(13) Filed herewith.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: March 27, 1998
EMERITUS CORPORATION
(Registrant)
/s/ Daniel R. Baty
--------------------------------
Daniel R. Baty, Chief Executive Officer and Director
/s/ Raymond R. Brandstrom
--------------------------------
Raymond R. Brandstrom, Chief Operating Officer and Director
/s/ Kelly J. Price
--------------------------------
Kelly J. Price, Chief Financial Officer, Vice President, Finance
and Principal Accounting Officer
/s/ Tom A. Alberg
--------------------------------
Tom A. Alberg, Director
/s/ Patrick Carter
--------------------------------
Patrick Carter, Director
/s/ William E. Colson
--------------------------------
William E. Colson, Director
/s/ David Hamamoto
--------------------------------
David Hamamoto, Director
/s/ Motoharu Iue
--------------------------------
Motoharu Iue, Director
<PAGE>
Index to Consolidated Financial Statements
Page No.
Independent Auditors' Report..................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997..... F-4
Consolidated Statements of Operations for the years ended F-5
December 31, 1995, 1996 and 1997.................................
Consolidated Statements of Cash Flows for the years ended F-6
December 31, 1995, 1996 and 1997.................................
Consolidated Statements of Shareholders' Equity (Deficit) for the F-8
years ended December 31, 1995, 1996 and 1997.....................
Notes to Consolidated Financial Statements....................... F-9
Schedule II - Valuation and Qualifying Accounts.................. F-24
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Emeritus Corporation:
We have audited the accompanying consolidated balance sheets of
Emeritus Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Emeritus Corporation and subsidiaries as of December 31, 1997 and
1996 and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick, LLP
Seattle, Washington
February 27, 1998, except for Note 10
as to which the date is March 13, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Shareholders
Emeritus Corporation
Under date of February 27, 1998, except for note 10 as to which the date
is March 13, 1998, we reported on the consolidated balance sheets of
Emeritus Corporation and subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for each of the years in the three year
period ended December 31, 1997, as contained in the 1997 annual report
on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related
consolidated financial statement schedule of valuation and qualifying
accounts. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule
based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respect, the
information set forth therein.
/s/ KPMG Peat Marwick, LLP
Seattle, Washington
February 27, 1998
F-3
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 23,039 $ 17,537
Short-term investments............................ 2,152 17,235
Current portion of restricted deposits............ 934 550
Trade accounts receivable, net.................... 1,713 2,191
Other receivables................................. 1,292 1,362
Prepaid expenses and other current assets......... 3,269 3,716
Property held for sale............................ - 8,202
--------- ---------
Total current assets...................... 32,399 50,793
Property and equipment, net......................... 99,590 145,831
Property held for development....................... 6,356 2,754
Notes receivable from and investments in affiliates. 2,464 6,422
Restricted deposits, less current portion........... 6,875 10,273
Lease acquisition costs, net........................ 8,127 8,677
Other assets, net................................... 2,227 3,823
--------- ---------
Total assets.............................. $158,038 $228,573
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................. $ 5,816 $ 12,815
Margin loan on short-term investments............. - 9,165
Trade accounts payable............................ 4,707 2,541
Construction advances - leased communities........ 6,387 -
Accrued employee compensation and benefits........ 3,071 3,987
Other accrued expenses............................ 1,898 9,064
Other current liabilities......................... 763 1,147
--------- ---------
Total current liabilities................. 22,642 38,719
Deferred rent....................................... 3,662 8,474
Deferred gains on sale of communities............... 9,433 12,314
Deferred income..................................... 843 114
Convertible debentures.............................. 32,000 32,000
Long-term debt, less current portion................ 60,260 108,117
Security deposits and other long-term liabilities... 1,092 1,452
--------- ---------
Total liabilities......................... 129,932 201,190
--------- ---------
Minority interests.................................. 1,918 1,176
Redeemable preferred stock.......................... - 25,000
Shareholders' equity:
Common stock, $.0001 par value. Authorized
40,000,000 shares; issued and outstanding
11,000,000 and 10,974,650 shares at December 31,
1996 and 1997, respectively...................... 1 1
Additional paid-in capital......................... 44,787 44,449
Unrealized gain on investment securities........... 18 4,015
Foreign currency translation adjustment............ - (4)
Accumulated deficit................................ (18,618) (47,254)
--------- ---------
Total shareholders' equity................ 26,188 1,207
Commitments, contingencies and subsequent events....
--------- ---------
Total liabilities and shareholders' equity $158,038 $228,573
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Community revenue....................... $20,814 $67,243 $114,299
Other service fees...................... 456 1,494 3,370
Management fees......................... 7 189 103
--------- --------- ---------
Total operating revenues........ 21,277 68,926 117,772
--------- --------- ---------
Expenses:
Community operations.................... 15,864 48,900 82,783
General and administrative.............. 2,630 6,158 10,819
Depreciation and amortization........... 2,517 2,881 6,644
Rent.................................... 1,138 16,114 34,651
Other................................... - - 4,426
--------- --------- ---------
Total operating expenses........ 22,149 74,053 139,323
--------- --------- ---------
Loss from operations............ (872) (5,127) (21,551)
--------- --------- ---------
Other income (expense):
Interest income......................... 355 1,236 1,157
Interest expense on debt payable to
affiliates........................... (1,802) - -
Other interest expense.................. (4,187) (4,259) (8,427)
Write-down of note receivable from
affiliate............................ (1,002) - -
Other, net.............................. (179) (52) 610
--------- --------- ---------
Net other expense............... (6,815) (3,075) (6,660)
--------- --------- ---------
Loss before extraordinary item.. (7,687) (8,202) (28,211)
--------- --------- ---------
Extraordinary loss on extinguishment of
debt................................. (1,267) - -
--------- --------- ---------
Net loss........................ (8,954) (8,202) (28,211)
========= ========= =========
Preferred stock dividends................. - - 425
--------- --------- ---------
Net loss to common shareholders. $(8,954) $ (8,202) $(28,636)
========= ========= =========
Loss per common share before extraordinary
item -
basic and diluted....................... $ (0.95) $ (0.75) $ (2.60)
Extraordinary loss per common share -
basic and diluted....................... $ (0.16) $ - $ -
Net loss per common share -
basic and diluted....................... $ (1.11) $ (0.75) $ (2.60)
Weighted average number of common shares
outstanding -
basic and diluted....................... 8,062 11,000 11,000
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(8,954) $(8,202) $(28,211)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............. 2,800 3,641 7,759
Amortization of deferred gains and income. - (1,254) (1,887)
Other..................................... 143 (237) 242
Changes in operating assets and
liabilities:
Trade accounts receivable............ (166) (1,615) (699)
Other receivables.................... (876) (416) 533
Prepaid expenses and other current
assets............................ (877) (2,493) (947)
Other assets......................... (3,398) (420) -
Trade accounts payable............... 3,433 458 (2,166)
Accrued employee compensation and
benefits.......................... 849 2,034 853
Other accrued expenses............... 1,330 (61) 1,368
Other current liabilities............ 256 392 384
Security deposits and other long-term
liabilities....................... 670 274 293
Deferred rent........................ - 2,467 4,812
-------- -------- --------
Net cash used in operating
activities..................... (4,790) (5,432) (17,666)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment........ (62,987) (36,650) (17,471)
Acquisition of property held for development. (15,418) (30,069) (22,743)
Proceeds from sale of property and equipment. 11,554 73,290 28,675
Purchase of investment securities............ (2,425) (54) (13,285)
Proceeds from the sale of investment
securities................................. - 670 3,207
Construction advances - leased communities... - 43,411 25,139
Construction expenditures - leased
communities................................ - (37,024) (31,101)
Advances to and investments in affiliates.... (139) (2,626) (4,188)
Repayments of advances by affiliates......... - 800 -
Acquisition of businesses and partnership
interests.................................. (604) (4,339) -
-------- -------- --------
Net cash provided by (used in)
investing activities............ (70,019) 7,409 (31,767)
-------- -------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in restricted deposits.............. (1,025) (6,247) (3,014)
Proceeds from (repayment of) short-term
borrowings, net............................ 6,272 (520) 9,165
Proceeds from long-term borrowings........... 78,886 64,356 44,597
Repayment of long-term borrowings............ (44,276) (69,977) (29,023)
Increase in lease acquisition and deferred
financing costs............................ (672) (6,554) (2,452)
Proceeds from sale of common stock........... 43,831 - -
Proceeds from sale of redeemable preferred
stock...................................... 1,080 - 25,000
Proceeds from issuance of convertible
debentures................................. - 30,620 -
Repurchase of common stock................... - - (341)
Other........................................ - (123) 3
-------- -------- --------
Net cash provided by financing
activities...................... 84,096 11,555 43,935
Effect of exchange rate changes on cash........ - - (4)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents............ 9,287 13,532 (5,502)
Cash and cash equivalents at beginning of year. 220 9,507 23,039
-------- -------- --------
Cash and cash equivalents at end of year....... $ 9,507 $23,039 $17,537
======== ======== ========
Supplemental disclosure of cash flow
information cash paid during the year for
interest..................................... $ 5,468 $ 3,300 $ 9,444
======== ======== ========
Noncash investing and financing activities:
Acquisition of business and majority interest
in a partnership:
Assets acquired........................... $ 5,025 $11,215 $37,347
Liabilities assumed....................... 2,800 7,042 36,997
Transfer of property held for development to
property and equipment...................... 4,200 22,500 26,345
Transfer of property and equipment to property
held for sale............................... - - 8,202
Vehicles acquired through debt financing...... - - 2,375
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Preferred stock Common stock gain (loss) Foreign
------------------- ------------------- Additional on currency
Number Number paid-in investment translation Accumulated
Of shares Amount of shares Amount capital securities adjustment deficit
----------- ------ ----------- ------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 - $ - 3,542,000 $ - $ - $ - $ - $ (1,462)
Sale of preferred
stock............ 4,158,000 - - - 1,080 - - -
Conversion of
preferred stock
to common stock.. (4,158,000) - 4,158,000 - - - - -
Sale of common
stock, net of
issue costs of
$5,670........... - - 3,300,000 1 43,830 - - -
Unrealized gain on
investment
securities....... - - - - - 400 - -
Net loss for the
year ended
December 31, 1995 - - - - - - - (8,954)
----------- ------ ----------- ------ ---------- ----------- ----------- -----------
Balances at - - 11,000,000 1 44,910 400 - (10,416)
December 31, 1995
Common stock issue
costs............ - - - - (123) - - -
Unrealized loss on
investment
securities....... - - - - - (382) - -
Net loss for the
year ended
December 31, 1996 - - - - - - - (8,202)
----------- ------ ----------- ------ ---------- ----------- ----------- -----------
Balances at
December 31, 1996 - - 11,000,000 1 44,787 18 - (18,618)
Unrealized gain on
investment
securities....... - - - - - 3,997 - -
Foreign currency
translation
adjustment....... - - - - - - (4) -
Repurchase of
common stock..... - - (25,600) - (341) - - -
Stock options
exercised........ - - 250 - 3 - - -
Preferred stock
dividend declared - - - - - - - (425)
Net loss for the
year ended
December 31, 1997 - - - - - - - (28,211)
----------- ------ ----------- ------ ---------- ----------- ----------- -----------
Balances at
December 31, 1997 - $ 10,974,650 $ 1 $44,449 $4,015 $ (4) $(47,254)
=========== ====== =========== ====== ========== =========== =========== ===========
<CAPTION>
Total
shareholders'
equity (deficit)
------------------
<S> <C>
Balances at
December 31, 1994 $ (1,462)
Sale of preferred
stock............ 1,080
Conversion of
preferred stock
to common stock.. -
Sale of common
stock, net of
issue costs of
$5,670........... 43,831
Unrealized gain on
investment
securities....... 400
Net loss for the
year ended
December 31, 1995 (8,954)
----------
Balance at
December 31, 1995 34,895
Common stock, issue
costs............ (123)
Unrealized loss on
investment
securities....... (382)
Net loss for the
year ended
December 31, 1996 (8,202)
----------
Balances at
December 31, 1996 26,188
Unrealized gain on
investment
securities....... 3,997
Foreign currency
translation
adjustment....... (4)
Repurchase of
common stock..... (341)
Stock options
exercised........ 3
Preferred stock
dividend declared (425)
Net loss for the
year ended
December 31, 1997 (28,211)
----------
Balances at
December 31, 1997 $ 1,207
==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-8
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Emeritus Corporation (conducting business as Emeritus
Assisted Living) (the "Company") is a long-term-care
services company focused on operating residential-style
assisted-living communities throughout the United States.
The Company was incorporated on July 28, 1993.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries.
In addition, the accounts of a partnership have been
consolidated where the Company maintains effective control
over the partnership's assets and operations, not
withstanding a lack of technical majority ownership of the
partnership. All significant intercompany balances and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Resident units are rented on a month-to-month basis and
rent is recognized in the month the unit is occupied.
Service fees paid by residents for assisted-living and other
related services and management fees are recognized in the
period services are rendered.
CASH AND CASH EQUIVALENTS
All short-term investments with a maturity at date of
purchase of three months or less are considered to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the
assets as follows: buildings and improvements, 25 to 40
years; furniture, equipment and vehicles, 5 to 7 years;
leasehold improvements, over the lesser of the estimated
useful life or the lease term.
For long-lived assets, including property and
equipment, the Company evaluates the carrying value of the
assets by comparing the estimated future cash flows
generated from the use of the assets and their eventual
disposition with the assets' reported net book values. The
carrying values of assets are evaluated for impairment when
events or changes in circumstances occur which may indicate
the carrying amount of the assets may not be recoverable.
INVESTMENTS
Investment securities are classified as available-for-
sale and are recorded at fair value. Unrealized holding
gains and losses, net of any related tax effect, are
excluded from results of operations and are reported as a
separate component of shareholders' equity.
Investments in 20% to 50% owned affiliates are
accounted for under the equity method. Investments in less
than 20% owned entities are accounted for under the cost
method.
INTANGIBLE ASSETS
Intangible assets, which are included in other assets,
are composed of deferred financing and community pre-opening
costs. Deferred financing costs are amortized using a
method which approximates the effective interest method over
the term of the related debt. Community pre-opening costs,
which consist of costs related to opening a facility, are
amortized using the straight-line method over one-year.
F-9
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
INCOME TAXES
Deferred income taxes are provided based on the
estimated future tax effects of temporary differences
between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates that are expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that
such deferred tax assets will not be realized.
LEASING ACTIVITIES
Lease acquisition costs represent legal and other
costs, incurred in conjunction with the negotiation of
leases. These costs are capitalized and amortized using the
straight-line method over the lives of the associated
leases.
Deferred rent primarily represents lease incentives
which are deferred and amortized using the straight-line
method over the lives of the associated leases.
DEFERRED GAINS ON SALE OF COMMUNITIES
Deferred gains on sale of communities represents gains
on sale/leaseback transactions which are deferred and
amortized using the straight-line method over the lives of
the associated leases. The Company has no continuing
involvement in communities which it has sold and leased back
outside of operating the communities.
COMMUNITY OPERATIONS
Community operations represent direct costs incurred to
operate the communities and include costs such as activities
for the residents, marketing, housekeeping, food service,
payroll and benefits, facility maintenance, utilities, taxes
and licenses.
STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25, Accounting for
Stock Issued to Employees and related Interpretations in
measuring compensation costs for its stock option plans.
The Company discloses pro forma net income (loss) and net
income (loss) per share as if compensation cost had been
determined consistent with Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation.
NET LOSS PER SHARE
In 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share.
This statement establishes standards for computing and
presenting earnings per share (EPS), replacing the
presentation of primary EPS with a presentation of Basic
EPS. Under this new statement, Basic EPS is computed based
on weighted average shares outstanding and excludes any
potential dilution. Diluted EPS reflects potential dilution
from the exercise or conversion of securities into common
stock or from other contracts to issue common stock and is
similar to the previously required fully diluted EPS. The
capital structure of the Company includes convertible
debentures, redeemable convertible preferred stock, as well
as stock options. The assumed conversion and exercise of
these securities have been excluded from the calculation of
Diluted EPS as their effect is anti-dilutive.
F-10
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
FOREIGN CURRENCY TRANSLATIONS
Foreign currency amounts attributable to foreign
operations have been translated into U.S. dollars using year-
end exchange rates for assets and liabilities, historical
rates for equity, and average annual rates for revenues and
expenses. Unrealized gains and losses arising from
fluctuations in the year-end exchange rates are recorded as
equity adjustments from foreign currency translation.
RECLASSIFICATIONS
Certain reclassifications of the 1995 and 1996 amounts
have been made to conform to the 1997 presentation.
(2) CHANGE IN ACCOUNTING ESTIMATES
Effective January 1, 1997, the Company changed the
period over which pre-opening costs on newly opened
developments are amortized from 18 months to one-year. The
impact for the year ended December 31, 1997, was to increase
amortization expense and net loss by $627,000, or $.06 per
share.
Effective January 1, 1997, the Company also changed the
estimate for the useful life of acquired buildings. The
impact for the year ended December 31, 1997, was to decrease
depreciation expense and net loss by $403,000, or $.04 per
share.
(3) RESTRICTED DEPOSITS AND CONSTRUCTION ADVANCES - LEASED
COMMUNITIES
Restricted deposits consist of funds required by
various Real Estate Investment Trusts ("REITs") to be placed
on deposit until the Company's communities meet certain debt
coverage and/or cash flow coverage ratios, at which time the
funds will be released to the Company.
In January 1996, the Company entered into a letter of
intent with a REIT relating to sale/leaseback financing of
$100 million for newly developed facilities and, in
September 1996, the Company entered into a similar
arrangement with the REIT for an additional $100 million
financing for newly developed facilities. As part of this
arrangement, the Company manages and oversees the
development of projects owned by this REIT. Upon completion
of the projects, the Company will lease the facilities from
the REIT under operating lease agreements. Approximately
$101.0 million of such financing remains available to the
Company. At December 31, 1996, the REIT had advanced funds
in excess of amounts expended on the development projects
which have been classified as construction advances - leased
communities.
F-11
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
In thousands 1996 1997
- ---------------------------------- ------- --------
<S> <C> <C>
Land and improvements............. $ 7,826 $ 10,810
Buildings and improvements........ 65,367 104,199
Furniture and equipment........... 7,231 11,368
Vehicles.......................... 1,783 2,997
Leasehold improvements............ 885 2,433
------- --------
83,092 131,807
Less accumulated depreciation and
amortization................... 3,996 7,700
------- --------
79,096 124,107
Construction in progress.......... 20,494 21,724
------- --------
$99,590 $145,831
======= ========
</TABLE>
Depreciation and amortization expense related to
property and equipment totaled $2.4 million, $2.7 million
and $4.4 million for 1995, 1996 and 1997, respectively.
(5) PROPERTY HELD FOR DEVELOPMENT
Property held for development is recorded at cost.
Interest costs capitalized on property held for development
and construction in progress was $880,000, $1.4 million and
$2.7 million for 1995, 1996 and 1997, respectively.
The Company is committed under construction contracts
with respect to certain development projects. Total
construction commitments for owned developments at December
31, 1997, were $34.8 million, of which $25.2 million had
been incurred. At December 31, 1997, $9.5 million in
construction financing commitments remained which bears
interest at rates ranging between the prime rate plus .75%
and 1.25% and will be payable through January 2003.
In addition to developments owned by the Company, the
Company has commitments with respect to developments under
construction owned by a REIT. Under these commitments, the
Company is committed to construction of the development and
the REIT is to provide $30.4 million in construction
financing, of which $9.5 million has been incurred as of
December 31, 1997. Upon completion of the developments, the
Company will enter into long-term operating leases with the
REIT where the Company will be committed to annual lease
payments based on the cost of the developments as funded by
the REIT at rates tied to the 10-year U.S. Treasury note.
(6) INVESTMENT SECURITIES
In April 1995, the Company purchased investment
securities in The Standish Care Company ("Standish") from
Columbia-Pacific Group, Inc., a company wholly-owned by a
principal shareholder of the Company. The investment
securities consisted of common stock, warrants and an
agreement to provide a $2.0 million credit facility through
the purchase of convertible debentures, of which $1,410,000
was outstanding at the time of purchase. The remaining
$590,000 was loaned to Standish prior to December 31, 1995.
The Company purchased the investment securities at the
affiliate's original cost, which exceeded fair value.
During 1996, Standish completed a merger transaction with 12
"Carematrix" corporations, changed its name and completed a
public offering. As a result of these transactions, the
convertible debentures that bear interest at 8.5%, are
convertible into Carematrix common stock at the option of
the Company at $15.00 per share. The contractual maturity
of these convertible debt securities is June 10, 1998.
F-12
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In 1996, the Company sold a portion of the Carematrix
equity securities and recognized a gain on sale of $325,000
which is included in other expenses, net. The cost basis of
the securities sold was determined on the specific
identification basis.
In 1997, the Company sold all of its remaining
Carematrix equity securities and convertible debentures and
recognized a gain of $410,000 on the transaction. This gain
is included in other income, net.
During 1997, the Company purchased common stock of ARV
Assisted Living, Inc. ("ARV") in market transactions. At
December 31, 1997 the Company held 1,077,200 shares of ARV
common stock which is recorded at fair market value. The
unrealized gain on the ARV investment securities of
$4,015,000 at December 31, 1997 is included as a component
of shareholders' equity.
Also in 1997, the Company initiated a tender offer
which was terminated in January 1998, for all of the
remaining outstanding common stock of ARV. The Company
incurred costs of $3,418,000 associated with this activity
in 1997.
Details regarding investment securities by major
security type as of December 31, are as follows:
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
In thousands Cost Gains value
- ----------------------------- -------- ---------- -------
<S> <C> <C> <C>
1996
Equity securities......... $ 134 $ 18 $ 152
Convertible debt
Securities.............. 2,000 - 2,000
--------- ---------- -------
$ 2,134 $ 18 $ 2,152
========= ========== ========
1997
Equity securities......... $13,220 $4,015 $17,235
========= ========== ========
</TABLE>
(7) FINANCIAL INSTRUMENTS
The Company has financial instruments other than
investment securities consisting of cash and cash
equivalents, trade accounts receivable, notes receivable
from and investments in affiliates, short-term borrowings,
accounts payable, convertible debentures, redeemable
preferred stock and long-term debt. The fair value of the
Company's financial instruments based on their short-term
nature or current market indicators such as prevailing
interest rates approximate their carrying value with the
exception of the convertible debentures which had a fair
value of $28.3 million versus a book value of $32.0 million
at December 31, 1997.
(8) NOTES RECEIVABLE FROM AND INVESTMENTS IN AFFILIATED
COMPANIES
In 1994 and 1995, the Company made loans to Extended
Care Corporation ("Extended Care") of $700,000 and $433,000,
respectively. The Company received 49.0% of the
F-13
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
outstanding capital stock of Extended Care in connection
with the loans and a pledge of the remaining 51.0% as
additional security for the loans. In 1995, the Company
wrote-off the note receivable due to Extended Care's
continued losses and the Company's belief that the holder of
the first mortgages on the Extended Care communities
intended to initiate foreclosure proceedings, which would
have the effect of terminating the Company's second
mortgages and making the loans uncollectible. The holder of
the first mortgages initiated foreclosure proceedings in
October 1995, and Extended Care filed for protection from
its creditors under Chapter 11 of the Bankruptcy Code during
1996.
In 1995, the Company advanced $600,000 to a limited
liability company (the "LLC"), which operates an assisted-
living community, as a part of a financing agreement. The
advance was due in 1998 and accrued interest at 10% per
annum. Under the agreement, the Company received a 49%
ownership interest in the LLC for which no value was
assigned. The remaining 51% interest is owned by
Carematrix. As of December 31, 1996, the amount due the
Company was $410,000. As a member of the LLC, the Company
has provided a tertiary guarantee for the currently
outstanding debt of the LLC in the amount of $1.1 million.
The Company's equity in earnings of the LLC was
approximately $25,000 for 1995 and its equity in losses was
approximately $6,000 in 1996. In April 1997, the Company
and Carematrix entered into an agreement whereby the Company
transferred and relinquished its 49% interest in the LLC.
Pursuant to the agreement, Carematrix paid the Company
$410,000 plus accrued interest for all outstanding
obligations between the two parties.
During 1995, the Company became a 50% partner in a
general partnership which was formed to jointly develop an
assisted-living facility in Paso Robles, California. As of
December 31, 1996 and 1997, the Company had $750,000 in
construction commitments of which $445,000 and $750,000 had
been incurred, respectively.
In November 1996, the Company agreed to purchase up to
6,888,466 shares of convertible preferred stock of Alert
Care Corporation ("Alert"), an Ontario, Canada-based owner
and operator of assisted-living communities at prices
ranging from $0.67 to $0.74 per share (Cdn). In addition,
the Company acquired an option to purchase an additional
4,000,000 shares of convertible preferred stock at an
exercise price of $1.00 per share (Cdn), as well as an
option to purchase from Eclipse Capital Management
("Eclipse"), the majority shareholder of Alert, and certain
other shareholders of Alert, 9,050,000 currently issued and
outstanding shares of common stock of Alert and 950,000
currently issued and outstanding shares of Class A non-
voting stock of Alert both at an exercise price of $3.25 per
share (Cdn).
Each Preferred Share is convertible into one common
share or one Class A non-voting share, at the holder's
election; the Preferred Shares are immediately convertible
into Class A nonvoting shares but are not immediately
convertible into common shares and are so convertible only
after the controlling persons of Alert have transferred to
others (which could include the Company) not less than 10
million shares of common or Class A nonvoting shares (as of
December 31, 1997, there are approximately 23.8 million such
shares outstanding) and such controlling persons are
relieved of certain guarantees of indebtedness.
As of December 31, 1996, the Company had purchased and
held 2,577,692 shares of preferred stock for a total
investment of $1,331,000 (US). An additional 5,010,774
shares of preferred stock were acquired and paid for in
1997, increasing its ownership to 7,588,466 shares or
$4,111,000 (US) at December 31, 1997. As of December 31,
1997, the Company's total investment in Alert represents on
an as-converted basis approximately 24.2% of the outstanding
common and Class A non-voting shares taken together. In
January 1998, the Company purchased an additional 850,000
shares of preferred stock resulting in an ownership interest
of 8,438,466 shares or 26.2%. There was no cost in acquiring
the option to purchase additional shares from Alert and no
value to the option was recorded in the financial
statements. The investment in Alert is accounted for under
the cost method, as the Company's equity ownership consists
of non-voting preferred stock.
Alert has entered into an exclusive management
agreement to manage the Company's future assisted-living
communities in Ontario. Eclipse, through its wholly-owned
subsidiary, Eclipse Construction Inc., develops and
constructs retirement homes for Alert on a contract basis.
Under the agreement, Eclipse has entered into an exclusive
development agreement with the Company and Alert to develop
their future construction projects in Ontario. No
communities have been developed under these agreements as of
December 31, 1997.
(9) CONVERTIBLE DEBENTURES
On February 15, 1996, the Company completed a $32.0
million Private Placement Offering of 6.25% convertible
subordinated debentures (the "Debentures") due in 2006. The
Debentures, non-callable for three years, are convertible
into common stock at the rate of $22 per share, which
equates to an aggregate of approximately 1,454,545 shares of
the Company's common stock and bear interest
F-14
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
payable semiannually on January 1 and July 1 of each year,
commencing July 1, 1996. The Debentures are unsecured and
subordinated to all other indebtedness of the Company.
The holders of the Debentures are entitled, subject to
prior redemption, to convert the Debentures or portions
thereof into shares of common stock at the conversion price
set forth in the Debentures. The conversion price is
subject to adjustments in certain events.
The Debentures are subject to redemption, as a whole or
in part, at any time or from time to time commencing after
July 1, 1999 at the Company's option on at least 30 days'
and not more than 60 days' prior notice by mail. The
redemption prices (expressed as a percentage of principal
amount) are as follows for the 12-month period beginning
after July 1 of the following years:
<TABLE>
<CAPTION>
Year Price
------------------- --------------
<S> <C>
1999 102%
2000 101%
2001 and thereafter 100%
</TABLE>
(10) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
In thousands 1996 1997
- ---------------------------------------------- --------- ---------
<S> <C> <C>
Notes payable, interest only at rates
between 10.5% and 18%, payable monthly,
unpaid principal and interest due May 2000..$ 12,585 $ 7,000
Notes payable, interest only at the 30 day
LIBOR rate plus 2.25% (7.9% at December
31, 1997), payable monthly, unpaid
principal and interest due December 1998.... 9,269 10,220
Notes payable, interest at rates between 6.9%
and 12%, payable in monthly installments,
due through July 2009....................... 7,688 10,279
Note payable, interest only at 8.4%, payable
monthly, unpaid principal and interest due
November 1999, refinanced through
sale/leaseback transaction, see note 17..... 4,160 -
Note payable, interest at 11%, payable in
monthly installments, balance due July 2004,
refinanced with long-term debt, interest
only at the prime rate plus 1% (9.5% at
December 31, 1997), unpaid principal and
interest due May 2000....................... 2,169 -
Note payable, interest at 9.25%, payable in
monthly installments, due September 1997,
refinanced with long-term debt, interest at
the LIBOR rate plus 2.25% (7.9% at December
31, 1997), payable monthly, unpaid principle
and interest due December 1998.............. 1,837 -
Notes payable, interest at the LIBOR rate plus
2.50% (8.4% at December 31, 1997), payable
monthly, unpaid principal and interest due
April 1999.................................. - 26,000
Note payable, interest only at the LIBOR rate
plus 2.25% (8.0% at December 31, 1997),
payable monthly, unpaid principal and
interest due May 2000....................... - 3,500
Note payable interest only through September
1998 at 9.28%, principal and interest over
remaining term, unpaid principal and
interest due April 2009..................... - 4,288
F-15
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Construction loan, total commitment $17.0
million, interest only through November 1998
at the 30 day LIBOR rate plus 2.75% (8.4%
at December 31, 1997), principal and
interest payments over remaining term,
unpaid principal and interest due through
November 2001............................... 7,670 14,066
Construction loan from bank, total commitment
$7.3 million, interest only at the prime
rate plus 1.25%, payable monthly, unpaid
principal and interest due November 1997,
refinanced with long - term debt, (interest
only October 1997 through September 1998 at
9.28%, principal and interest remaining
term, unpaid principal and interest due
April 2009) and sale/leaseback transactions,
see note 17................................. 4,807 -
Construction loan from bank, total commitment
$4.8 million, interest only at the prime
rate plus 1%, payable monthly, unpaid
principal and interest due July 1998, with
an option to extend to January 1999,
refinanced through sale/leaseback
transaction, see note 17.................... 4,639 -
Construction loan from bank, total commitment
$4.9 million, interest only at the prime
rate plus 3.5% (12% at December 31, 1997),
payable monthly, unpaid principal and
interest due February 2004.................. 4,307 4,799
Construction loan, total commitment $4.7
million, interest only at 9.75%, payable
monthly, unpaid principal and interest due
May 1999.................................... 1,905 4,695
Construction loan, total commitment $12.8
million, interest only during the
construction term (completion date or 18
months after loan closing) at the prime rate
plus .75% (9.25% at December 31, 1997),
principal and interest over remaining term,
unpaid principal and interest due earlier of
90 months after loan closing or 6 years
after the completion of construction........ - 7,578
Construction loan, total commitment $6.5
million, interest only during the
construction term at the prime rate plus
1.25% (9.75% at December 31, 1997),
principal and interest at the prime rate
plus 3.25% over remaining term, unpaid
principal and interest due January 2001..... - 5,216
Construction loan, total commitment $5.1
million, interest only at 9%, payable
monthly, unpaid principal and interest due
February 2000............................... - 4,444
Other......................................... 5,040 4,452
--------- ---------
Subtotal................................. 66,076 106,537
--------- -----------
Debt with commitment to refinance with long-
term debt subsequent to year end -
notes payable, interest only at rates
between 9% and 11%, payable monthly, unpaid
principal and interest due through
December 1998 to be refinanced through long-
term debt in 1998, interest only at the 30
day LIBOR rate plus 2.95% due April 2001.... - 14,395
--------- ---------
66,076 120,932
Less current portion.......................... 5,816 12,815
--------- ---------
Long-term debt, less current portion..... $60,260 $108,117
========= =========
</TABLE>
Substantially all long-term debt is secured by the
Company's property and equipment and/or by personal
guarantees of a principal shareholder of the Company.
Certain of the Company's indebtedness includes
restrictive provisions related to cash dividends,
investments and borrowings, and require maintenance of
specified operating ratios, levels of working capital and
F-16
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
net worth. As of December 31, 1997, the Company was in
compliance with such covenants or obtained waivers for
noncompliance .
Principal maturities of long-term debt at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
In thousands
---------------------------- --------
<S> <C>
1998........................ $ 12,815
1999........................ 33,308
2000........................ 17,191
2001........................ 34,962
2002........................ 451
Thereafter.................. 22,205
--------
$120,932
========
</TABLE>
(11) MARGIN LOAN ON EQUITY SECURITIES
During 1997, the Company opened a margin account to
facilitate the acquisition of marketable securities. This
account had a loan balance of $9,165,000 at December 31,
1997 secured by marketable equity securities with a market
value of $17,235,000. This loan is due upon the sale of the
securities and bears interest at 0.375% under broker call
(7.75% as of December 31, 1997).
(12) INCOME TAXES
Income taxes reported by the Company differ from the
amount computed by applying the statutory rate primarily due
to limitations on utilizing net operating losses.
The tax effect of temporary differences and
carryforwards that give rise to significant portions of
federal deferred tax assets and liabilities are comprised of
the following:
<TABLE>
<CAPTION>
December 31,
In thousands 1996 1997
- --------------------------------------- ------- ---------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization........ $ (127) $(1,470)
Other................................ - (361)
------- ---------
Gross deferred tax liabilities... (127) (1,831)
------- ---------
Deferred tax assets:
Net operating loss carryforwards..... 1,220 10,966
Deferred gains on sale/leaseback..... 3,245 4,187
Unearned rental income............... 255 382
Vacation accrual..................... 389 349
Other................................ 418 727
------- ---------
Gross deferred tax assets........ 5,527 16,611
Less valuation allowance............... (5,400) (14,780)
------- ---------
Deferred tax assets, net............... 127 1,831
------- ---------
Net deferred tax assets.......... $ - $ -
======= =========
</TABLE>
The net increase in the total valuation allowance was
$2,070,000, $2,800,000 and $9,380,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. The
increases were primarily due to the increase in deferred
gains on sale/leasebacks and the amount of net operating
loss carryforwards, for which management does not believe
that it is more likely than not that realization is assured.
For federal income tax purposes, the Company has net
operating loss carryforwards at December 31, 1997, available
to offset future federal taxable income, if any, of
approximately $32,252,000 expiring beginning in 2012.
F-17
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(13) RELATED-PARTY MANAGEMENT AGREEMENTS
During 1995, the Company's two most senior executive
officers, CEO and President, formed a New York general
partnership (the "Partnership") to facilitate the operation
of assisted-living communities in the state of New York,
which generally requires that natural persons be designated
as the licensed operators of assisted-living communities.
The Partnership operates ten leased communities in New York.
The Company has agreements with the Partnership and the
partners under which all of the Partnership's profits have
been assigned to the Company and the Company has indemnified
the partners against losses. In addition, the partners have
agreed to transfer their ownership interests in the
Partnership at a nominal value to Company nominees in the
event that they cease to be officers of the Company. As the
Company has a unilateral and perpetual control over the
Partnership's assets and operations, the results of
operations of the Partnership are consolidated with those of
the Company.
Columbia House I, Limited Partnership, ("Columbia
House"), which is partly owned indirectly by Mr. Baty, the
Company's Chairman and Chief Executive Officer, develops,
owns and leases low income senior housing projects. The
Company has agreements with Columbia House to provide
certain administrative support, due diligence and financial
support services to Columbia House with respect to the
acquisition, development and administration of Columbia
House communities. The agreements have terms ranging from
two to four years, with options to renew, and provide for
management fees ranging from 4% to 6% of gross operating
revenues and fixed administrative fees. Fees earned under
these agreements were $103,000 in 1997, of which $16,000 was
receivable at December 31, 1997. The Company also had
receivables of $137,000 due from Columbia House at December
31, 1997 representing advances related to various Columbia
House communities.
(14) SHAREHOLDERS' EQUITY
In April 1995, the Company authorized a 9,200-for-1
stock split of the Company's common stock and, on September
28, 1995, authorized a 3.85-for-1 stock split of the
Company's common stock and preferred stock. All share and
per share information, except par value, has been adjusted
for all years to reflect the stock splits.
On November 21, 1995, the Company completed an initial
public offering of 6,534,000 shares of its common stock at a
price of $15 per share. Of the total amount of shares sold,
3,300,000 shares were sold by the Company and 3,234,000 were
sold by existing shareholders.
In December 1997, the Company purchased 25,600 shares
of its common stock at an aggregate cost of $341,000. In
January 1998, the Company's board of directors authorized a
stock repurchase program to acquire up to an additional
500,000 shares of the Company's common stock. As of
February 25, 1998, the Company had purchased in 1997 and
1998 a total of 517,200 shares of its common stock at an
aggregate cost of $5.7 million.
1995 STOCK INCENTIVE PLAN
The Company has a 1995 stock incentive plan ("1995
Plan") which combines the features of an incentive and
nonqualified stock option plan, stock appreciation rights
and a stock award plan (including restricted stock). The
1995 Plan is a long-term incentive compensation plan and is
designed to provide a competitive and balanced incentive and
reward program for participants.
The Company has authorized 1,100,000 shares of common
stock to be reserved for grants under the 1995 Plan of which
615,100 remained available for future awards at December 31,
1997. Options generally vest over a five-year period in
cumulative increments of 20% each year beginning one year
after the date of the grant and expire not later than ten
years from the date of grant. The options are granted at an
exercise price equal to the fair market value of the common
stock on the date of the grant.
F-18
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
Had compensation cost for the Company's option plan
been determined consistent with SFAS 123, the Company's pro
forma net loss and pro forma net loss per share would have
been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
In thousands,
except per share data 1995 1996 1997
- ----------------------------- -------- -------- ---------
<S> <C> <C> <C>
Net loss to common
shareholders:
As reported............. $(8,954) $(8,202) $(28,636)
Pro forma............... (8,970) (8,477) (29,236)
Net loss per common share -
basic and diluted:
As reported............. $ (1.11) $ (0.75) $ (2.60)
Pro forma............... (1.11) (0.77) (2.66)
</TABLE>
The fair value of each option grant has been estimated
on the date of grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in
1995, 1996 and 1997: dividend yield of 0.0% for all periods;
expected volatility of 55% for 1995 and 1996 and 49.1% for
1997; risk-free interest rates of 5.53% for 1995, 5.47% to
6.39% for 1996, and 5.45% to 5.50% for 1997; and an expected
option term of 5 years, 4.5 years and 5 years for 1995, 1996
and 1997, respectively.
A summary of the activity in the Company's stock option
plans follows:
<TABLE>
<CAPTION>
1995 1996 1997
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------------------ -------- ------------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year - $ - 202,000 $14.38 484,900 $11.90
Granted 202,000 $14.38 363,500 $11.06 703,000 $13.43
Exercised - $ - - $ - (250) $15.25
Canceled - $ - (80,600) $14.34 (98,000) $12.32
------- ------------------ -------- ------------------ ---------- ------------------
Outstanding at end
of year 202,000 $14.38 484,900 $11.90 1,089,650 $12.86
Options exercisable
at year-end - $ - 37,950 $14.38 101,800 $12.40
Weighted-average
fair value of
options granted
during the year $ 7.69 $ 5.67 $ 6.65
</TABLE>
F-19
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
The following is a summary of stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 13.38 575,500 9.89 $13.38 - -
$12.00 - 15.63 127,500 9.33 $13.70 - -
$ 10.50 261,950 8.89 $10.50 52,650 $10.50
$14.38 - 20.38 124,700 7.21 $14.52 49,150 $14.44
----------- ----------- --------- ----------- ---------
1,089,650 9.28 $12.86 101,800 $12.40
=========== =========== ========= =========== =========
</TABLE>
(15) REDEEMABLE PREFERRED STOCK
The Company has authorized 5,000,000 shares of
preferred stock, $0.0001 par value. Pursuant to such
authority, in October 1997, the Company issued and sold
25,000 shares of Series A cumulative convertible,
exchangeable, redeemable preferred stock for $25,000,000.
Cumulative dividends of 9% are payable quarterly. The
preferred stock has a mandatory redemption date of October
24, 2004 at a price equal to $1,000 per share plus any
accrued but unpaid dividends. Each share of preferred stock
may be converted, at the option of the holder, into 55
shares of common stock. The preferred stock is also
exchangeable in whole only, at the option of the Company, to
9% subordinated convertible notes due October 24, 2004. The
9% subordinated notes would contain the same conversion
rights, restrictions and other terms as the preferred stock.
The Company may redeem the preferred stock, in whole or
in part, after October 24, 2001 for $1,050 per share plus
accrued dividends, provided that the market price of common
stock is at least 130% of the conversion price for the
preferred stock. In the event of liquidation of the
Company, the holders of outstanding preferred stock shall be
entitled to receive a distribution of $1,000 per share plus
accrued dividends.
(16) LEASES
The Company leases office space and 76 assisted-living
communities . The office lease expires in 2006 and contains
two five-year renewal options. The community leases expire
from 2004 to 2017 and contain two to six five-year renewal
options.
Minimum lease payments under noncancelable operating
leases at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In thousands
---------------------------- --------
<S> <C>
1998........................ $ 41,747
1999........................ 41,747
2000........................ 41,747
2001........................ 41,753
2002........................ 42,110
Thereafter.................. 302,715
-----------
$511,819
===========
</TABLE>
Rent expense under noncancelable operating leases was
$1,138,000, $16,114,000 and $34,651,000 for 1995, 1996 and
1997, respectively.
F-20
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(17) ACQUISITIONS
During 1996 and 1997, the Company completed several
acquisitions of assisted-living, independent-living and
skilled nursing communities. These acquisitions have been
accounted for as purchases and, accordingly, the assets and
liabilities of the acquired communities were recorded at
their estimated fair values at the dates of acquisitions.
No goodwill or other identifiable intangibles were recorded
with respect to any of the acquisitions. The results of
operations of the communities acquired have been included in
the Company's consolidated financial statements from the
dates of the acquisition. Summary information concerning
the acquisitions is as follows:
<TABLE>
<CAPTION>
Total
Communities acquired Acquisition date Purchase price Units
- --------------------------------------- ----------------- -------------- ---------
(in thousands)
<S> <C> <C> <C>
Heritage Hills Retirement Community.... February 1996 $ 4,338 100
The Lakewood Inn (1)................... March 1996 2,800 108
The Hearthstone (2).................... November 1996 5,200 84
Concorde............................... November 1996 8,400 116
Other 1996 Acquisitions................ Various 8,202 272
Villa Del Rey.......................... March 1997 4,252 84
La Casa Communities (3)................ May 1997 33,062 473
-------------- ---------
$66,254 1,237
============== =========
</TABLE>
(1) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 13 years with
four five-year renewal options and annual base
rent of approximately $686,000. The Company has
no continuing involvement outside of operating
the community.
(2) Refinanced through a sale/leaseback with a REIT.
Lease includes an initial term of 11 years 11
months with four five-year renewal options and
annual base rent of approximately $596,000. The
Company has no continuing involvement outside of
operating the community.
(3) Consists of three long-term-care communities.
The foregoing acquisitions were generally financed
through borrowings.
During the years ended December 31, 1996 and 1997, the
Company completed several acquisitions or sale/leasebacks of
communities through lease financing transactions with
certain REITs', pursuant to which the REITs' leased such
communities to the Company under operating leases. The
results of operations of the communities acquired have been
included in the Company's consolidated financial statements
from the dates the leases commenced for those communities
not previously owned.
<TABLE>
<CAPTION>
Lease Initial Renewal Annual
Communities leased Acquisition date Lease Term Options Rent Units
- --------------------------- ------------------ -------------- ----------------- ----------- -----
<S> <C> <C> <C> <C> <C>
Carolina Communities (1)... February 1996 15 years Three five-year $ 4,145,607 648
Evergreen Lodge............ April 1996 13 years Four five-year 572,569 98
Rosewood Court (2)......... April 1996 14 yrs/9 mos Three five-year 393,200 71
Barrington Place........... May 1996 11 yrs/11 mos Four five-year 413,601 80
Springtree................. May 1996 11 yrs/11 mos Four five-year 1,410,353 185
The Terrace (3)............ August 1996 11 yrs/8 mos Four five-year 416,887 88
The Lodge at Mainlands..... August 1996 11 yrs/7 mos Four five-year 924,530 154
Colonial Park Club......... August 1996 11 yrs/7 mos Four five-year 770,862 90
Ridge Wind................. August 1996 11 yrs/8 mos Four five-year 458,061 80
Other 1996 Leases.......... October 1996 11 years Four five-year 1,753,006 226
New York Communities (4)... November 1996 15 years Two five-year 4,975,000 738
Texas Communities (5)...... April 1997 15 years Three five-year 2,174,328 411
----------- -----
$18,408,004 2,869
=========== =====
</TABLE>
F-21
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(1) Consists of 10 long-term-care communities located
in North and South Carolina.
(2) Originally acquired in 1995, refinanced through a
sale/leaseback with a REIT. The Company has no
continuing involvement outside of operating the
community.
(3) Originally acquired in 1996, refinanced through a
sale/leaseback with a REIT. The Company has no
continuing involvement outside of operating the
community.
(4) Consists of 9 long-term-care communities located
in New York.
(5) Consists of 3 long-term-care communities located
in Texas.
In January 1996, the Company entered into a letter of
intent with a REIT relating to sale/leaseback financing of
$100 million for newly purchased facilities and, in
September 1996, the Company entered into a similar
arrangement with the REIT for an additional $100 million
financing for newly purchased facilities. At December 31,
1997, approximately $58.3 million of such financing remains
available to the Company.
During 1996, the Company entered into sale/leaseback
transactions with a REIT, pursuant to which the REIT
acquired four new communities developed by the Company (The
Pines at Tewksbury, Garrison Creek Lodge, Cambria and
Sherwood Place) and leased the communities back to the
Company with initial lease terms from 10 to 11 years, four
to six five-year renewal options and annual lease payments
aggregating approximately $2.2 million. Also, during 1996,
the Company entered into a sale/leaseback transaction with a
REIT pursuant to which the REIT acquired seven existing
communities (Beneva Park Club, Central Park Village, College
Park Club, Park Club Brandon, Park Club of Fort Myers and
Park Club of Oakbridge) and leased such communities back to
the Company with initial lease terms of 10 to 12 years,
three and four five-year renewal options and annual lease
payments aggregating approximately $4.2 million. The
Company has no continuing involvement outside of operating
the communities.
During 1997, the Company entered into sale/leaseback
transactions with a REIT, pursuant to which the REIT
acquired two new communities developed by the Company
(Eastman Estates and Kirkland Lodge) and three existing
communities (Meadowbrook, Park Place and The Hearthstone)
and leased the communities back to the Company with initial
lease terms from 11 years seven months to 12 years one month
and four five-year renewal options and annual lease payments
aggregating approximately $2.5 million. The Company has no
continuing involvement outside of operating the communities.
The following summary, prepared on a pro forma basis,
combines the results of operations of the acquired
businesses with those of the Company as if the acquisitions,
acquisitions through lease financings and sale/leaseback
financings had been consummated as of January 1, 1996 and
1997, after including the impact of certain adjustments such
as depreciation on assets acquired and interest expense on
acquisition financing.
<TABLE>
<CAPTION>
December 31,
In thousands, except per share data (unaudited) 1996 1997
- ----------------------------------------------- --------- ---------
<S> <C> <C>
Revenues....................................... $109,830 $122,703
Net loss to common shareholders................ (10,906) (29,061)
Pro forma net loss per common
share - basic and diluted.................... $ (0.99) $ (2.64)
</TABLE>
The unaudited pro forma results are not necessarily
indicative of what actually might have occurred if the
acquisitions had been completed as of the beginning of the
periods presented. In addition, they are not intended to be
a projection of future results of operations and do not
reflect any of the synergies that might be achieved from
combined operations.
F-22
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(18) SUBSEQUENT EVENTS
In January 1998, the Company entered into a $5.0
million credit with Aurora Bay Investments, L.L.C. ("Aurora
Bay"), a limited liability company that acquires, develops
and operates Alzheimer's special care facilities to provide
room, board, and personal care services primarily to elderly
persons afflicted with Alzheimer's disease. Advances are
evidenced by a convertible promissory note (the "Convertible
Note"), which is due in January 2003 and accrues interest
at 9.0% per annum. The Convertible Note is convertible, at
the Company's option, into a 48% equity interest in Aurora
Bay. The conversion rights will lapse if not exercised by
the Company on or prior to the maturity date of the
Convertible Note. The arrangement allows for Aurora Bay to
borrow up to $5.0 million to develop Alzheimer's
facilities. In January 1998, the Company advanced $535,000
to Aurora Bay for the first Alzheimer development located in
Lubbock, Texas.
In February 1998, the Company entered into a joint
venture with Sanyo Electric Co. Ltd., ("Sanyo") of Osaka,
Japan, to provide assisted living services in Japan. The
joint venture, Sanyo Emeritus Corporation, has been formed
to provide a residential based health care alternative for
Japan's growing elderly population. The joint venture will
be initially capitalized with Y50 million ($384,000 U.S.),
with each company providing half the funds. The joint
venture is expected to complete its first assisted living
project in Japan by the year 2000.
Also in February 1998, the Company and XL Management
Company L.L.C., ("XL Management"), an affiliate of Holiday
Retirement Corp., an owner and operator of independent-
living communities, entered into four management agreements
whereby XL Management will provide management services
relating to four newly developed assisted-living communities
located in Texas. The agreements consist of initial terms
of two years six months and management fees based on 6% of
gross revenues payable monthly. The Company will pay a
bonus fee per community to XL Management based on occupancy;
one year after managing the communities, if occupancy is
between 75% and 89%, XL Management will receive a bonus fee
of $25,000 and if occupancy is 90% or greater the bonus fee
will be $50,000. The Company's Chairman and Chief Executive
Officer and another member of the Company's board of
directors are principal shareholders and officers of
Holiday.
Additionally, in February 1998, the Company completed a
$4.0 million sale/leaseback transaction with a REIT pursuant
to which the REIT acquired the community and leased it back
to the Company under an operating lease agreement. The
lease has an initial term of 11 years with four five-year
renewal options and annual rent of approximately $354,000.
F-23
<PAGE>
EMERITUS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------------------ --------- ------------- ---------- --------
Balance
at Charged to Balance
Beginning Other Costs (1) at End
Description Of Year and Expenses Deductions of Year
- ------------------------------------------ --------- ------------- ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Valuation accounts deducted from assets:
Allowance for doubtful receivables $127 $317 $96 $348
========= ============= ========== ========
Year ended December 31, 1996:
Valuation accounts deducted from assets:
Allowance for doubtful receivables 14 128 15 127
========= ============= ========== ========
Year ended December 31, 1995:
Valuation accounts deducted from assets:
Allowance for doubtful receivables $ - $ 14 $ - $ 14
========= ============= ========== ========
</TABLE>
___________________
(1) Represents amounts written off
F-24
<PAGE> EX 10.21.3
AGREEMENT TO PROVIDE MANAGEMENT SERVICES
TO A LONG TERM CARE FACILITY
<PAGE>
AGREEMENT TO PROVIDE MANAGEMENT
SERVICES TO A LONG TERM CARE FACILITY
This Agreement made this __ day of December, 1997,
between Sunrise Healthcare Corporation, a New Mexico
corporation (hereinafter referred to as "Manager"), and
Emeritus Corporation, a Washington corporation
(hereinafter referred to as "Emeritus").
WHEREAS, Emeritus is the lessee of a long term
care facility known as Heritage Health Center and
located at 200 Heritage Drive, Hendersonville, North
Carolina (the "Facility") under the terms of that Lease
Agreement dated January 26,1996 between Health Care
Property Investors, Inc. ("HCPI"), as landlord and
Emeritus, as Tenant (the "Lease"); and
WHEREAS, Emeritus wants someone to manage the
Facility on its behalf;
WHEREAS, Manager is experienced and qualified in
the field of health care management;
WHEREAS, Emeritus has determined that Manager's
price is economical in light of the range of services
which it provides; and
WHEREAS, Manager is willing to operate the
Facility on Emeritus' behalf, 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. MANAGEMENT AND CONSULTING RESPONSIBILITIES OF
MANAGER: Emeritus hereby engages Manager and Manager
hereby accepts such engagement and agrees to provide
management, consulting and advisory services to
Emeritus in connection with the operation of the
Facility, upon the terms and conditions set forth in
this Agreement. By entering into this Agreement,
Emeritus does not delegate to Manager any powers,
duties or responsibilities which it is prohibited by
law from delegating. Emeritus 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
implement operational policies and procedures and
develop such new policies and procedures as it deems
necessary to insure the establishment and maintenance
of operational standards appropriate for the nature of
the Facility.
(b) CHARGES: Manager shall establish the schedules
of recommended charges, including any and all special
charges for services rendered to the patients at the
Facility. Emeritus shall have the right to review the
charge schedules established by Manager.
(c) INFORMATION: Manager shall develop any
informational material, mass media releases, and other
related publicity materials, which it deems necessary
for the operation of the Facility.
(d) REGULATORY COMPLIANCE: Manager, with the
assistance of Emeritus if requested by Manager, shall
use its best efforts to maintain all licenses, permits,
qualifications and
<PAGE>
approvals from any applicable governmental or
regulatory authority for the operation of the Facility
and to manage the operations of the Facility in full
compliance with all applicable laws and regulations,
including, but not limited to the laws and regulations
governing the licensure of nursing homes under North
Carolina law and the certification of nursing homes
under Medicare and Medicaid and local, state and
federal employment rules and regulations. The cost of
all such regulatory and legal compliance shall be
deemed to be a Facility operating expense and shall be
paid from the revenues of the Facility or from the
working capital provided by Emeritus pursuant to the
terms of this Agreement; provided, however, that if and
to the extent Emeritus is able to demonstrate that any
such regulatory and/or legal non-compliance is due to
the acts or omissions of Manager in performing its
obligations under this Agreement, Manager shall be
solely liable for any damages, losses, costs or
expenses which Emeritus incurs as a result thereof.
(e) EQUIPMENT AND IMPROVEMENTS: Manager shall
advise Emeritus as to equipment and improvements which
are needed to maintain or upgrade the quality of the
Facility and to replace obsolete or run-down equipment
or to correct any other survey deficiencies which may
be cited during the term of this Agreement. Emeritus
shall review and act upon Manager's recommendations as
expeditiously as possible. Manager shall not be liable
for any cost or liability which Emeritus may incur in
the event Emeritus disregards Manager's
recommendations. Manager shall make all necessary and
approved repairs, replacements and maintenance within
the budgetary limits set forth in the annual capital
budget prepared by Manager pursuant to Paragraph L and
in a workmanlike and lien free manner.
(f) ACCOUNTING: Manager shall provide home office
and accounting support to the Facility, which shall
include the preparation of any Medicare or Medicaid
cost reports due for the cost reporting periods covered
by the term of this Agreement; provided, however, that
to the extent any such cost reporting periods include
periods prior to the commencement of the term of this
Agreement, Emeritus shall provide or cause to be
provided to Manager any and all documentation which
Manager may deem to be reasonably necessary to prepare
such cost reports; and provided, further that to the
extent any costs reports are required to be filed after
the expiration or sooner termination of the term of
this Agreement which include, in part, the period
covered by the term of this Agreement, Manager shall,
upon request, provide Emeritus or any successor manager
with any information which it may have which is
reasonably necessary for the preparation of such cost
reports. 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 and shall not materially
distort income or loss. In addition, at Emeritus' sole
cost and expense, Manager shall prepare or cause to be
prepared all payroll tax returns which may be due
during the term of this Agreement. Emeritus shall
prepare or cause to be prepared all other local, state
and federal tax returns, subject to Manager's
obligation, upon request of Emeritus, to pay any taxes
which are due thereunder from the funds in the
Facility's bank account, except to the extent the same
are being duly contested by Emeritus or, at Emeritus's
request and at Emeritus' sole cost and expense, by
Manager. The costs incurred by Manager in preparing the
payroll tax returns shall not be included in Manager's
management fee, but shall be separately reimbursed by
Emeritus; the costs incurred by Manager in preparing
the Medicare and Medicaid cost reports and any other
financial information required by the terms of this
Agreement shall be included in Manager's management
fee. The taxes and any reimbursement obligations due to
Medicare and/or Medicaid shall be deemed to be Facility
operating expenses and shall be paid out of the
revenues of the Facility or the working capital
provided by Emeritus.
(g) REPORTS: Manager shall prepare and provide to
Emeritus any reasonable operational information which
may from time to time be specifically requested by
Emeritus, including any information needed to assist
Emeritus in completing its tax returns and in complying
with any reporting obligations imposed by any landlords
or mortgagees. In addition, (i) within twenty (20) days
after the end of each calendar month, Manager shall
provide Emeritus with an
2
<PAGE>
unaudited balance sheet of the Facility, dated the last
day of such month, and an unaudited statement of income
and expenses for such month relating to the operation
of the Facility and a "mini" Medicare cost report and
(ii) within forty five (45) days after the end of the
fiscal year of the Facility, Manager shall provide
Emeritus with unaudited financial statements including
a balance sheet of the Facility, dated the last day of
said fiscal year, and a statement of income and expense
for the year then ended relating to the operation of
the Facility. Upon request Manager shall provide
Emeritus with any and all supporting documentation
which it may reasonably request with respect to the
information contained in the financial statements
prepared by Manager and delivered to Emeritus pursuant
hereto.
(h) BANK ACCOUNTS: Manager shall maintain the
existing checking account previously established by
Emeritus in the name of the Facility and shall deposit
therein all money received during the term of this
Agreement in the course of the operation of the
Facility; provided, however, that during the term
hereof, withdrawals and payments from this account
shall be made only on checks signed by a person or
persons designated by Manager. Emeritus shall be given
notice as to the identity of said authorized
signatories. All expenses incurred in the operation of
the Facility in accordance with the terms of the
Budgets submitted to Emeritus under Paragraph I(1),
including, but not limited to, Facility mortgage or
lease payments, payroll and employee benefits and
payment of Manager's management fee, shall be paid by
check drawn on this account. Withdrawals from this
account shall be made first to pay Manager's management
fee and thereafter to pay Facility expenses in such
order of priority as Manager deems appropriate to the
operation of the Facility. In the event the revenues
generated by the Facility are at any time insufficient
to pay all of the expenses associated with its
operation, including, but not limited to, Manager's
management fee, Emeritus shall, within five (5) days of
its receipt of a written demand by Manager, deposit in
the Facility bank account sufficient funds to satisfy
the then working capital needs of the Facility. The
amounts so advanced shall be deemed to be loans by
Emeritus to the Facility and shall be repaid by Manager
from future Facility revenues in accordance with the
provisions of Section IX hereof
(i) PERSONNEL: Manager shall recruit, employ,
train, promote, direct, discipline, suspend and
discharge Facility personnel; 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 Facility. All of the Facility personnel,
other than the Facility Administrator who shall be an
employee of Manager, shall be the employees of
Emeritus. Notwithstanding the foregoing, the salary and
benefits of the Administrator shall be deemed to be an
operating expense of the Facility and shall be paid
from the bank account described in Paragraph I(h).
Manager shall provide Emeritus with a workers
compensation loss run within twenty (20) days after the
end of each month, along with the monthly financial
statements provided pursuant to Paragraph I(f) and with
copies of any and all equal employment opportunity
claims which may be filed during the term of this
Agreement within five (5) business days after Manager's
receipt thereof, whether such claims related to the
period prior to or during the term of this Agreement.
Emeritus shall be responsible for the defense of any
and all such EEOC claims but Manager shall cooperate in
such defense and shall provide Emeritus with any and
all documents necessary for such defense which Emeritus
may reasonably request and which are in Manager's
possession or under Manager's control.
(j) SUPPLIES AND EQUIPMENT: Manager shall purchase
supplies and non-capital equipment needed to operate
the Facility within the budgetary limits set forth in
the annual operating budget prepared by Manager
pursuant to Paragraph I(1). In purchasing said supplies
and equipment, if possible, Manager shall take
advantage of any national or group purchasing
agreements to which Manager or Emeritus (if and to the
extent Emeritus gives Manager notice of such
agreements) may be a party.
3
<PAGE>
(k) LEGAL PROCEEDINGS: Manager shall, through its
legal counsel, coordinate all legal matters and
proceedings with Emeritus' counsel.
(1) BUDGETS: The Facility shall be operated on a
fiscal year of January 1 through December 31. Within
forty-five (45) days prior to the start of each fiscal
year, Manager shall prepare and submit to Emeritus for
its review and approval, which approval shall not be
unreasonably withheld, an annual operating budget, an
annual capital expenditure budget, and an annual cash
flow projection. The capital budget shall in
substantially the form attached hereto as Exhibit A. In
the event a budget has not been agreed upon by the
beginning of the fiscal year, the budget in effect for
the prior fiscal year shall continue in effect until
the new budget is agreed upon. Thereafter, any
expenditures made during the year pursuant to said
budgets and/or any expenditures on an item-by-item
basis exceeding by no more than 10% the amounts set
forth therein for the applicable expense item (the
"Budget Threshold") may be made without Emeritus' prior
approval. Any unbudgeted expenditures and/or any
expenditures in excess of the Budget Threshold shall be
subject to Emeritus' prior approval, which approval
shall not be unreasonably withheld.
(m) COLLECTION OF ACCOUNTS: Manager shall issue
bills and collect accounts and monies owed for goods
and services furnished by the Facility, including, but
not limited to, enforcing the rights of Emeritus and
the Facility 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 shall be treated as Facility
operating expenses, which shall be payable out of
Facility funds deposited in the bank account described
in Section I(h).
II. INSURANCE: Upon request, Manager, at Emeritus'
sole cost and expense, shall arrange for and maintain
all necessary and proper hazard insurance covering the
Facility, the furniture, fixtures, and equipment
situated thereon, and all necessary and proper
malpractice and public liability insurance for
Emeritus' protection and for the protection of
Emeritus' officers, agents and employees. Until such a
request is made and/or in the event Manager is unable
to secure insurance coverage for the Facility for any
reason whatsoever, Emeritus shall be responsible for
obtaining and maintaining said insurance. In addition,
Emeritus shall provide all employee health and worker's
compensation insurance for its employees, which
insurance shall be administered by Manager. Manager
shall arrange for and maintain all necessary and proper
malpractice and public liability insurance for the
protection of itself, its officers, agents and
employees. Any insurance provided pursuant to this
paragraph shall comply with the requirements of the
Lease or any applicable Facility mortgage.
III. PROPERTY INTEREST: The systems, methods,
procedures and controls employed by Manager and any
written materials or brochures developed by Manager to
document the same are to remain the property of Manager
and are not, at any time during or after the term of
this Agreement, to be utilized, distributed, copied or
otherwise employed or acquired by Emeritus, except as
authorized by Manager.
IV. TERM OF AGREEMENT: The Term of this Agreement
shall commence at 12 : 01 AM on January 1,1998 and
shall terminate at midnight on December 31,1998, unless
sooner terminated (i) due to the fact that 50"% or more
of the Facility is damaged or destroyed or taken by
condemnation proceedings or otherwise and Emeritus to
the extent permitted by the Lease or mortgage documents
does not elect to rebuild or repair, (ii) upon the
occurrence of an Event of Default or (iii) upon the
assignment of the Lease to Manager pursuant to the
terms of the First of First Refusal Agreement of even
date herewith between Emeritus and Manager.
V. DEFAULT: Either party may terminate this
Agreement, as specified in this Section V,
4
<PAGE>
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 thirty (30) days after notice thereof shall
have been given to Manager by Emeritus, which notice
shall specify the event or events constituting the
default; or
(ii) If written notice is received by Emeritus,
Manager of the Facility, or proceedings are commenced,
which threaten to revoke, rescind, termination or not
renew the licensure or certification of the Facility
(whether or not a period is granted prior to the
effective date thereof in which corrective action may
be undertaken or the same are stayed pending appeal)
(the "Negative Regulatory Proceedings") and Emeritus is
not satisfied, in its sole and absolute discretion,
that Manager has the resources (financial and
otherwise) necessary to undertake the corrective action
required to successfully terminate such Negative
Regulatory Proceedings, it being understood and agreed
that in such event (A) Emeritus shall have the right,
without further notice to Manager and without giving
Manager any further opportunity to cure such breach, to
terminate this Agreement effective upon such date as
may be specified by written notice to Manager and (B)
Manager shall be solely responsible for any damages,
losses, costs or expenses incurred or suffered by
Emeritus or any successor manager as a result of such
Negative Regulatory Proceedings if and to the extent
Emeritus can demonstrate that such damages, losses,
costs or expenses are attributable to the acts or
omissions of Manager in performing its obligations
under this Agreement prior to the date on which this
Agreement is terminated; provided, however, that in no
event shall such damages, losses, costs or expenses for
which Emeritus can seek recovery from Manager include
any additional management or other fees or compensation
which Emeritus may be required to pay to a successor
operator of the Facility for any other costs incurred
in transitioning operational responsibility for the
Facility from Manager to such successor operator; or
(ii) If Manager shall apply for or consent to the
appointment of a receiver, trustee or liquidator of
Manager 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 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 seeking reorganization of
Manager, or appointing a receiver, trustee or
liquidator of Manager, of all or a substantial part of
its assets; or
(iii) If any of the representations, warranties or
covenants of Manager set forth in this Agreement shall
be untrue in any material respect and Emeritus suffers
or incurs any damages as a result thereof.
(b) With respect to Emeritus, it shall be an Event
of Default hereunder:
(i) If Emeritus 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 default is subject to the provisions of Paragraph
V(b)(ii)), and such failure shall continue for a period
of thirty (30) days; or
(ii) If Emeritus shall fail to keep, observe or
perform any material agreement, term or
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<PAGE>
provision of this Agreement and such default shall
continue for a period of thirty (30) days after notice,
which notice shall specify an event or events
constituting the default thereof by Manager to
Emeritus; provided, however, that in the case of
Emeritus' failure to provide necessary working capital
upon demand by Manager, it shall be deemed to be an
Event of Default hereunder if the same is not paid
within ten (10) days of Manager's initial demand
therefor without any further notice from Manager being
required; or
(iii) If Emeritus 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, and
which would cause Emeritus to lose possession of the
Facility or any personal property which would be
required to operate the Facility in the normal course;
or
(iv) If Emeritus shall be dissolved or shall apply
for or consent to the appointment of a receiver,
trustee or liquidator of Emeritus 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 or creditors, 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 Emeritus
a bankrupt or insolvent or approving a petition seeking
reorganization of Emeritus or appointing a receiver,
trustee or liquidator of Emeritus of all or a
substantial part of its assets; or
(v) If any of the representations, warranties or
covenants of Emeritus set forth in this Agreement shall
be untrue in any material respect and Manager suffers
or incurs any damages as a result thereof.
VI. REMEDIES UPON DEFAULT:
(a) If any Event of Default by Emeritus 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, but Manager shall
immediately be entitled to receive payment of all
amounts theretofore unpaid but earned to the date of
termination.
(b) If any Event of Default by Manager shall
occur, Emeritus 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 obligation
whatsoever under this Agreement; provided, however,
that Manager shall immediately be entitled to receive
payment of all amounts theretofore unpaid but earned to
date of termination, subject to Emeritus' right to
receive payment of damages from Manager.
VII. EMERITUS' INSPECTION: During the term hereof,
each of Emeritus and HCPI and their agents and
representatives shall have the right, upon request and
at reasonable times, to inspect the Facility and to
inspect and/or audit all books and records pertaining
to the operation thereof.
VIII. FACILITY OPERATIONS:
(a) NO GUARANTEE OF PROFITABILITY: Manager does
not guarantee that operation of the Facility will be
profitable, but Manager shall use its best efforts to
operate the Facility in as cost efficient and
profitable a manner as possible.
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<PAGE>
(b) STANDARD OF PERFORMANCE: In performing its
obligations under this Agreement and, if applicable, in
transitioning operational responsibility for the
Facility back to Emeritus or to a successor manager
designated by Emeritus at the expiration or sooner
termination of the term of this Agreement, Manager
shall use its best efforts and act in good faith and
with professionalism in accordance with acceptable and
prevailing standards of health care and the policies
adopted by, and resources available to, the Facility.
(c) FORCE MAJEURE: Manager will not 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, war, acts of
God, lack of Emeritus' financial resources, or any
statute, regulation or rule of federal, state or local
government or agency thereof.
(d) CONTRACTS WITH AFFILIATES AND OTHERS FOR
ANCILLARY SERVICES. Emeritus acknowledges and agrees
that the residents of the Facility require certain
ancillary services such as physical, occupational.
speech and respiratory therapy, medical supplies and
pharmaceutical goods and services (collectively, the
"Ancillary Services") and that certain of Manager's
affiliates are in the business of providing Ancillary
Services to long term care facilities. Emeritus hereby
authorizes Manager, in the course of its operation of
the Facility, to contact on Emeritus' behalf and in
Emeritus' name with such affiliates or with any other
party for the provision of Ancillary Services provided,
however, that any such contact shall provide that it is
terminable on no more than thirty (30) days notice
without penalty or premium. Emeritus represents that it
is, as of the date hereof, a party to the contracts for
the provision of Ancillary Services at the Facility
which are described in Exhibit B, and that from and
after the date hereof and throughout the term of this
Agreement, it shall not enter into any other contracts
for the provision of Ancillary Services at the
Facility. Manager shall ensure that the execution of
such Ancillary Services agreements does not constitute
or create a default under any pre-existing contracts
which relate to such services entered into by Emeritus
with other third party provides; provided, however,
that with respect to contracts for the provision of
pharmaceutical services, respiratory therapy services
and medical supplies, Manager shall not be in breach of
this Paragraph VIII(d), in the event it enters into
contracts (which otherwise comply with the terms of
this Paragraph VIII(d)) for such Ancillary Services at
any time on or after February 1, 1998 even if the
execution of such contracts would give rise to a breach
under any existing agreements for such services to
which Emeritus or the Facility may be a party; and
provided, further, that in the event of any such
breath, Emeritus shall indemnify, defend and hold
harmless Manager from and against any and all losses,
costs, damages and expenses, including, but not limited
to, reasonable attorneys fees, which Manager may incur
as a result thereof. Manager shall further ensure, in
the case of any contract for Ancillary Services with an
affiliate of Manager that the costs charged do not
exceed those which would be charged to Emeritus by an
unrelated third party in an arms length transaction.
IX. WITHDRAWAL OF FUNDS BY EMERITUS; MINIMUM BANK
BALANCE:
(a) Emeritus may withdraw the then accumulated
operating cash surplus (as determined by Manager) from
the Facility bank account subject to the limitations
set forth in clause (b) below and to the right of
Manager to restrict withdrawal by Emeritus of any
Facility funds in accordance with the provisions of
subparagraph B, below.
(b) At all times Manager shall maintain a minimum
cash balance in the checking account established for
the Facility equal to the sum of
(i) All current and unpaid invoices (both those
received and those pending), any mortgage
7
<PAGE>
or lease payments, note or installment payments,
payrolls, rents, expenses, management fees and other
charges incident To the operation of the Facility which
will become due and payable within the ensuing forty-
five (45) days; plus
(ii) An amount not to exceed $50,000 deemed
necessary by Manager to be adequate for unanticipated
contingencies.
X. MANAGEMENT FEE:
(a) INITIAL FEE. During the Term of This Agreement
Manager shall be entitled to a monthly management fee
equal to five percent (5%) of the gross revenues
generated each month by the Facility. For purposes
hereof, "gross revenues" shall mean all revenues
generated by the Facility, including revenues from
routine patient care and ancillary services, but shall
specifically exclude the proceeds from the sale of any
Facility equipment and any insurance and condemnation
proceeds.
(b) PRORATION OF FEE. 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 fee shall be prorated in proportion
to the number of days for which services are actually
rendered.
(c) PAYMENT OF FEE. The Management fee provided
for herein shall be disbursed by Manager to itself out
of the Facility bank account on a priority basis prior
to the payment of any other Facility expenses and to
the repayment of any working capital loans made by
Emeritus pursuant to the terms hereof.
(d) ADJUSTMENT OF FEE.
(i) In conjunction with the delivery of the annual
financial statements required under Paragraph 1(f),
Manager shall deliver to Emeritus a review prepared by
Manager's independent certified public accountants of
the outstanding "patient" (as compared to "settlement")
accounts receivable of the Facility for the immediately
preceding year, along with a statement of the amount of
the "specific" (as compared to "general") bad debt
reserve recommended by such accountants to be
established with respect thereto (the "Reserve
Amount"). Any costs and expenses of such accountants'
review shall be borne an operating expense of the
Facility.
(ii) In the event the accountant recommends a
range of specific bad debt reserves, for purposes
hereof, the Reserve Amount shall be the minimum
specific bad debt reserve recommended by the
accountant. In the event the Reserve Amount, plus any
write offs for bad debts occurring during the preceding
year, exceeds 3% of the gross revenues of the
applicable year end (the "Bad Debt Threshold"), such
excess shall hereinafter be referred to as the Excess
Reserve Amount.
(iii) Manager shall remit to Emeritus,
concurrently with the delivery of such accounts
receivable review, an amount equal to the lesser of (i)
five percent (5%) of the Excess Reserve Amount and (ii)
the difference between the management fees paid to
Manager during the applicable year and the management
fees which would have been paid to Manager during the
applicable year had the fee been calculated at the rate
of 4% of gross revenues, it being understood and agreed
that in no event shall the fee paid to Manager after
taking into consideration the adjustment provided for
in this Paragraph X(d), be less than 4% of the Facility
gross revenues.
(iv) With respect to the settlement receivables
which are excluded from the calculation of
8
<PAGE>
the Reserve Amount pursuant to Paragraph X(d), Manager
and Emeritus agree that at such time as payment is made
by the appropriate third party payor with respect to
such settlement receivables, the following provisions
shall apply:
(A) to the extent the amount paid is equal to
the amount of the settlement receivable, no adjustment
shall be made to the management fee previously paid to
Manager;
(B) to the extent the amount paid is less
than the amount of the settlement receivable and the
difference between the amount of the settlement
receivable and the amount paid, when aggregated with
the Reserve Amount for the year to which such
settlement receivables relate, is equal to or less than
the Bad Debt Threshold, no adjustment shall be made to
the management fee previously paid to Manager;
(C) to the extent the amount paid is less
than the amount of the settlement receivable and the
difference between the amount of the settlement
receivable and the amount paid, when aggregated with
the Reserve Amount for the year to which such
settlement receivables relate, exceeds the Bad Debt
Threshold, Emeritus shall so advise Manager in writing,
which notice shall include such supporting
documentation as may be reasonably requested by
Manager, and the management fee paid in such year shall
be subject to adjustment in the manner set forth in
Paragraph X(d), in which case Manager shall remit to
Emeritus on demand the amount of such adjustment;
(D) to the extent the amount paid is more
than the amount of the settlement receivable, an amount
equal to 5% of the excess shall be paid to Manager as
an additional management fee.
(v) The provisions of this Paragraph X(d) shall
survive the expiration or earlier termination of the
term of this Management Agreement.
XI. ASSIGNMENT: This Agreement shall not be
assigned by Manager without the prior written consent
of the other party, which consent shall not be
unreasonably withheld. In the event of the transfer or
assignment by Emeritus of its leasehold rights in the
Facility to any person or entity other than Manager,
such transfer or assignment shall not require the
consent of Manager but such transfer of assignment
shall be subject to the rights of Manager under this
Agreement.
XII. 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.
To Manager:
Sunrise Healthcare
Corporation
101 Sun Lane, NE
Albuquerque, NM 87109
Attn: Warren Mclnteer
Phone: 505-856-2370
Fax: 505-858-4998
To Emeritus:
Emeritus Corporation
313 I Elliott Avenue,
Suite 500
Seattle, WA 98101
9
<PAGE>
Attn: Gary Witte
Phone: 206-298-2909
Fax: 206-301-4500
XIII. 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
Facility 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 Emeritus, its successors
and assigns on the one hand, and Manager, its
successors and assigns on the other hand. Manager will
not be liable in the performance of its duties for any
loss incurred by or damage to Emeritus, unless such
loss or damage results from the negligence or willful
misconduct of Manager. Manager shall indemnify, defend
and hold harmless Emeritus from any loss or damage
resulting from the acts or omissions of Manager's
officers, agents or employees in connection with the
operation of the Facility by Manager. Emeritus shall
indemnify, defend and hold Manager harmless from any
loss incurred by or damage to Manager where such loss
or damage result from the negligence or willful
misconduct of Emeritus in performing its obligations
under the Agreement and from any and all damages,
losses, costs and expenses which Manager may incur in
the event of any litigation related to the termination
of the Management Agreement with the Current Manager
(as defined below).
XIV. ENTIRE AGREEMENT: This Agreement contains the
entire agreement between the parties and shall be
binding upon and inure to the benefit of their
successors and assigns, and shall be construed in
accordance with the laws of the State of North
Carolina. This Agreement may not be modified or amended
except by written instrument signed by both of the
parties hereto.
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.
XVI. ATTORNEY'S FEES: In the event either party
brings an action to enforce this Agreement, the
prevailing party in such action shall be entitled to
recover from the other all costs incurred in connection
therewith, including reasonable attorney's fees.
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: A 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 Emeritus and
Manager have been duly authorized by all necessary
laws, resolutions or corporate action, and this
Agreement constitutes the valid and enforceable
obligations of
10
<PAGE>
Emeritus and Manager in accordance with its terms.
XX. ACCESS OF THE GOVERNMENT TO BOOKS AND RECORDS:
In the event the services provided hereunder have a 12-
month cost or value of $10,000 or more (or such other
amount as may hereafter be established by law):
(a) Until the expiration of four years after the
furnishing of services pursuant to this Agreement,
Manager shall make available upon written request to
the Secretary of the United States Department of Health
and Human Services, or upon request to the Comptroller
General of the United States, or any of their duly
authorized representatives, this Agreement, and books,
documents and records that are necessary to certify the
nature and extent of such costs.
(b) If Manager or its affiliates carries out any
of the duties of this Agreement through a subcontract,
with a related organization, such subcontract shall
contain a clause to the effect that until the
expiration of four years after the furnishing of such
services pursuant to such subcontract, the related
organization shall make available, upon written request
to the Secretary of the United States Department of
Health and Human Services, or upon request to the
Comptroller General of the United States, or any of
their duly authorized representatives, the subcontract,
and books, documents and records of such organization
that are necessary to certify the nature and extent of
such costs.
(c) The parties agree that any applicable attorney-
client or other legal privileges shall not be deemed
waived by virtue of this Agreement.
XXI. 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.
XXII. THIRD PARTY BENEFICIARY. Nothing in this
Agreement express or implied is intended to and shall
not be construed to confer upon or create in any
person, other than the parties hereto, any rights or
remedies under or by reason of this Agreement,
including without limitation, any right to enforce this
Agreement.
XXIII. CONSTRUCTION. Each of Emeritus and Manager
acknowledges and agrees that it has participated in the
drafting and negotiation of this Agreement and
accordingly that in the event of any dispute between
Emeritus and Manager 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. In addition, each of Emeritus and Manager
acknowledges and agrees that it has been represented by
the same counsel in the drafting and negotiation of
this Agreement and that it has each knowingly and
voluntarily consented thereto and accordingly neither
shall raise such fact as a defense to the enforcement
of any obligation imposed by it under this Agreement or
as a factor in the interpretation or any provision of
this Agreement.
XXIV. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
EMERITUS. As a material inducement to Manager to enter
into this Agreement, Emeritus does hereby represent,
warrant and covenant as follows to Manager in
connection with this Agreement and the Facility:
(a) Emeritus is the due and lawful lessee of the
Facility under the terms of the Lease, a true and
correct copy of which is attached hereto as Exhibit C;
11
<PAGE>
(b) The Lease is in full force and effect as of
the date hereof and has not been amended or modified
except as set forth in Exhibit C;
(c) Neither Emeritus nor HCPI is in default in any
of its obligations under the Lease nor is Emeritus
aware of any event which, with the giving of notice or
the passage of time or both, would constitute an Event
of Default under the Lease;
(d) The Facility is a skilled nursing facility
with 134 licensed and operational beds and is certified
to participate in the Medicare and Medicaid Programs.
As of the date hereof, there is no action pending or
threatened to revoke or suspend the Facility's license
or to terminate or to not renew the participation of
the Facility in the Medicare and/or Medicaid Programs
nor are there any outstanding deficiencies which are
not the subject of a Plan of Correction which has been
approved by the applicable governmental authority. A
true and correct copy of the Facility's license and of
its most recent licensure and certification survey(s)
are attached hereto as Exhibit D;
(e) Set forth in Exhibit E is a true and accurate
description of all litigation currently pending or
threatened with respect to the Facility. Emeritus shall
be and remain solely responsible for the resolution of
all such litigation, subject to any indemnity rights
which Emeritus may have against the Current Manager (as
defined below) but Manager shall cooperate, upon
request, in Emeritus' efforts to defend the same,
including, but not limited to, providing copies of
Facility records and access to the Facility to
Emeritus' counsel or any other party designated by
Emeritus. Any litigation filed after the Commencement
Date, whether the same relates to the period prior to
or after the Commencement Date, shall also be and
remain the sole responsibility of Emeritus subject,
however, in the case of any litigation which relates to
the period after the Commencement Date to any indemnity
rights which Emeritus may have against Manager under
the terms of this Agreement;
(f) The Facility includes all personal property
and inventory necessary for its lawful operation in
accordance with applicable state and federal laws;
(g) A true and correct copy of the financial
statements of the Facility dated as of October 31,1997
have been provided to Manager, including a true and
correct census report as of October 31,1997, which
accurately identifies each of the residents of the
Facility, the daily rate paid by said residents and the
date to which said rate has been paid, the payor status
of said resident, i. e. , private, Medicare, Medicaid
or other (the "Facility Financials"). Since the date of
the Facility Financials there has not been any material
adverse change in the financial condition (including,
but not limited to, the working capital), business,
assets, liabilities or results of operations of any or
all of the Facility, whether in the ordinary course of
business or otherwise;
(h) There are no union contracts in effect between
Emeritus, on the one hand, and the employees of the
Facility, on the other hand. To the best of Emeritus'
knowledge, none of its employees who are not currently
members of a labor union are actively seeking the
formation of a labor union at the Facility. Except as
set forth in Exhibit E, Emeritus is not a party to any
labor dispute at the Facility, it being agreed that a
claim for wrongful termination shall not be deemed to
be a labor dispute but that an unfair labor practice
and/or an EEOC charge shall be deemed to be a labor
dispute;
(i) Emeritus has not made any contributions,
payments or gifts to or for the private use of any
governmental official, employee or agent where either
the payment or the purpose of such contribution,
payment or gift is illegal under the laws of the United
States or the jurisdiction in which made or given or
received any payments or other forms of remuneration in
connection with the referral of patients which would
violate the Medicare/Medicaid Anti-kickback Law,
Section
12
<PAGE>
1128(b) of the Social Security Act, 42 USC Section
1320a-7b(b) or any analogous state statute;
(j) The Facility is currently subject to a
Management Agreement in favor of Diversified Health
Services, Inc. (the "Current Manager"), which shall be
terminated on or prior to the Commencement Date and as
to which Emeritus shall retain full responsibility for
any costs or expenses owing under such Management
Agreement. Emeritus shall provide Manager with evidence
of the termination of the Management Agreement with the
Current Manager as of the Commencement Date. Emeritus
shall take such action as may be necessary to cause the
Current Manager of the Facility to cooperate with
Manager at no cost to Manager in a smooth transition of
operational responsibility for the Facility as of the
Commencement Date. If requested by Manager, Emeritus
shall cause the Current Manager to enter into a
Transfer of Operations Agreement with Manager in form
and substance acceptable to Manager;
(k) Emeritus is a duly organized, validly existing
Washington corporation and is in good standing under
the laws thereof and is duly qualified to do business
as a foreign corporation in the State of North Carolina
and is in good standing under the laws thereof. Subject
to obtaining the consent of HCPI under the Lease,
Emeritus has full corporate power and authority to
enter into this Agreement and to carry out the
transaction provided for herein and the same do not
conflict with Emeritus' Articles of Incorporation or
Bylaws or any agreement, note, document, contract or
instrument to which Emeritus is a party or by which its
assets may be bound or affected, including, but not
limited to the Management Agreement in effect with the
Current Manager. This Management Agreement is the valid
and binding obligation of Emeritus enforceable in
accordance with the terms hereof, except as such
enforceability may be limited by applicable creditors
rights laws and general principles of equity;
(1) The person executing this Agreement on behalf
of Emeritus is duly authorized to do so and holds the
position set forth below his/her name;
(m) Emeritus shall proceed with all due diligence
and at its sole cost and expense to secure the consent
of HCPI to this Management Agreement and shall provide
Manager on or prior to the Commencement Date with
evidence of the issuance thereof;
(n) Emeritus is not a party to any litigation
which would interfere with the consummation of the
transaction contemplated by this Agreement.
(o) No representation or warranty by or on behalf
of Emeritus contained in this Agreement or in the
exhibits hereto and no statement contained in any
certificate, list, exhibit, or other instrument
furnished or to be furnished to Manager pursuant hereto
contains or will contain any untrue statement of a
material fact, or omits or will omit to state any
material facts which are necessary in order to make the
statements contained herein or therein, in light of the
circumstances under which they were made, not
misleading.
XXV. REPRESENTATIONS, WARRANTIES AND COVENANTS OF
MANAGER. As a material inducement to Emeritus to enter
into this Agreement, Manager does hereby represent,
warrant and covenant as follows to Emeritus in
connection with this Agreement and the Facility:
(a) Manager is a duly organized, validly existing
New Mexico corporation and is in good standing under
the laws thereof and is duly qualified to do business
as a foreign corporation in the State of North Carolina
and is in good standing under the laws thereof. Manager
has full corporate power and authority to enter into
this Agreement and to carry out the transaction
provided for herein and the same do not conflict with
Manager's Articles of Incorporation or Bylaws or any
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<PAGE>
agreement, note, document, contract or instrument to
which Manager is a party or by which its assets may be
bound or affected. This Management Agreement is the
valid and binding obligation of Manager enforceable in
accordance with the terms hereof, except as such
enforceability may be limited by applicable creditors
rights laws and general principles of equity;
(b) The person executing this Agreement on behalf
of Manager is duly authorized to do so and holds the
position set forth below his/her name.
(c) Manager shall provide Emeritus with such
information as it may reasonably request in connection
with securing the consent of HCPI to this Management
Agreement (d) Manager is not a party to any litigation
which would interfere with the- consummation of the
transaction contemplated by this Agreement.
(e) No representation or warranty by or on behalf
of Manager contained in this Agreement or in the
exhibits hereto and no statement contained in any
certificate, list, exhibit, or other instrument
furnished or to be furnished to Emeritus pursuant
hereto contains or will contain any untrue statement of
a material fact, or omits or will omit to state any
material facts which are necessary in order to make the
statements contained herein or therein, in light of the
circumstances under which they were made, not
misleading.
IN WITNESS WHEREOF, the parties have hereto caused
this Agreement to be duly executed, as of the day and
year first above written.
EMERITUS : EMERITUS CORPORATION
By: /s/ Gary D. Witte
-------------------------
Its: Vice President
Operations
MANAGER: SUNRISE HEALTHCARE
CORPORATION
By: /s/
------------------------
- --------
Its: V.P.
15
<PAGE> EX 10.53.2
AGREEMENT TO PROVIDE MANAGEMENT SERVICES
TO AN
ASSISTED LIVING FACILITY
(YORK, SOUTH CAROLINA)
This Agreement to Provide Management Services to
an Assisted Living Facility ("Agreement") dated as of
January 1, 1998, is made and entered into by and
between YORK CARE, L.L.C., a Washington limited
liability company ("Owner") and ACORN SERVICE
CORPORATION, a Washington corporation ("Manager").
RECITALS
A. Owner is the owner of that certain real
property located at 40 - 42 Ross Cannon Street (the
"Real Property") including the improvements on the Real
Property that constitute the 50 unit assisted living
facility commonly known as "York Care Facility" and
located in York, South Carolina (the "Facility");
B. Owner desires to engage the services of a
person or entity to manage the Facility on Owner' s
behalf and to provide certain consulting services to
Owner in connection therewith;
C. Manager is experienced and qualified in the
field of assisted living facility management;
D. Owner has determined that Manager's fee is
economical in light of the range of services which
Manager is willing to provide to Owner; and
E. Manager is willing to operate the Facility on
Owner's behalf and provide consulting services to Owner
in connection therewith, 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:
1. MANAGEMENT AND CONSULTING RESPONSIBILITIES OF
MANAGER.
Owner hereby engages Manager to provide, and
Manager hereby accepts such engagement and agrees to
provide, management, consulting, advisory and
supervisory services to Owner in connection with the
operation of the Facility, upon the terms and
conditions set forth in this Agreement. By entering
into this Agreement, Owner does not delegate to Manager
any powers, duties, or responsibilities which Owner is
prohibited by law from delegating. Owner also retains
such other authority as shall not have been expressly
delegated to Manager pursuant to this Agreement.
Subject to the foregoing, and commencing on January I,
1998 (the
"Commencement Date") Manager shall provide the
following services to, or on behalf of Owner:
1.1 Operational Policies and Forms. Manager shall
implement operational policies and procedures and
develop such new policies and procedures as Manager
deems necessary to insure the establishment and
maintenance of operational standards appropriate for
the nature of the Facility.
1.2 Charges. Manager shall establish the schedules
of recommended charges, including any and all special
charges for services rendered to residents at the
Facility. Owner shall have the right to review and
approve the charge schedules established by Manager.
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1.3 Information. Manager shall develop any
informational material, mass media releases, and other
related publicity materials, which Manager deems
necessary for the operation of the Facility.
1.4 Regulatory Compliance. Manager, with the
assistance of Owner if requested by Manager, shall use
its best efforts to obtain and maintain all licenses,
permits, qualifications, and approvals from any
applicable governmental or regulatory authority for the
operation of the Facility and to manage the operations
of the Facility in full compliance with a11 applicable
laws and regulations, and in accordance with all such
licenses, permits, qualifications, and approvals.
1.5 Equipment and Improvements. Manager shall
advise Owner as to equipment and improvements which are
needed to maintain or upgrade the quality of the
Facility, to replace obsolete or run-down equipment, or
to correct any deficiencies (including, without
limitation, any survey deficiencies) which may be
observed or cited during the term of this Agreement.
Owner shall review and act upon Manager's
recommendations as expeditiously as possible. Manager
shall not be liable for any cost or liability which
Owner may incur in the event Owner disregards Manager's
recommendations. Manager shall, as a Facility Expense
(such term as used in this Agreement shall have the
meaning specified in Paragraph 8.2 below), make all
necessary and approved repairs, replacements and
maintenance within the budgetary limits set forth in
the annual capital expenditure budget prepared by
Manager pursuant to Paragraph 1.12. hereof and in a
workmanlike and lien-free manner.
1.6 Accounting. Manager shall provide home office
and accounting support to the Facility. 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 and shall not materially distort income or
loss. If Owner so elects by notice to Manager, Manager
shall prepare or cause to be prepared all tax returns
required in connection with operation of the Facility,
including payroll tax returns (but excluding Owner's
income tax returns, which Manager shall prepare only if
Owner and Manager agree upon separate compensation to
be paid to Manager for preparing such income tax
returns) and, at Owner's sole cost and expense, Manager
shall cause all local, state and federal taxes to be
timely paid or contested, as appropriate. Such taxes
shall be deemed to be Facility Expenses and shall be
paid out of the revenues of the Facility or the working
capital for the Facility provided by Owner. 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 Manager's ultimate
liability for the timely and complete performance of
the obligations provided for herein.
1.7 Reports. Manager shall prepare and provide to
the Owner any reasonable operational information which
may from time to time be specifically requested by
Owner, including any information needed to assist Owner
in completing its tax returns and in complying with any
reporting obligations imposed by any mortgagees of the
Facility. In addition: (i) within thirty (30) days
after the end of each calendar month, Manager shall
provide Owner with an unaudited balance sheet of the
Facility, dated the last day of such month, and an
unaudited statement of income and expenses for such
month relating to the operation of the Facility; and
(ii) within ninety (90) days after the end of the
fiscal year of the Facility, Manager shall provide
Owner with unaudited financial statements including a
balance sheet of the Facility, dated the last day of
said fiscal year, and an unaudited statement of income
and expense for the fiscal year then-ended relating to
the operation of the Facility.
1.8 Bank Accounts. Manager shall open a new
checking account in the name of the Facility ("Facility
Checking Account") and shall deposit in the Facility
Checking Account all
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money received during the term of this Agreement in the
course of the operation of the Facility; provided,
however, that during the term hereof, withdrawals and
payments from the Facility Checking Account shall be
made only on checks signed by a person or persons
authorized by Manager. Owner shall be given notice as
to the identity of said authorized signatories. All
Facility Expenses incurred in the operation of the
Facility in accordance with the terms of the budgets
submitted to Owner under Paragraph 1.12 hereof, shall
be paid by check drawn on the Facility Checking
Account. Withdrawals from the Facility Checking Account
shall be made first to pay the Base Management Fee (as
that term is defined in Subparagraph 9.2, below), and,
thereafter, to pay Facility Expenses in such order of
priority as Manager deems appropriate to the operation
of the Facility. In the event the revenues generated by
the Facility are at any time insufficient to pay all of
the Facility Expenses, Owner shall, within five (5)
days of Owner's receipt of a written demand by Manager,
deposit in the Facility Checking Account sufficient
funds to satisfy the then working capital needs of the
Facility.
1.9 Personnel. Manager shall: (i) recruit, employ,
train, promote, direct, discipline, suspend, and
discharge Facility personnel; (ii) establish salary
levels, personnel policies, and employee benefits; and
(iii) 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 Facility. All Facility
personnel shall be employees of Manager, not Owner, and
all salaries, benefits, payroll taxes and other costs
related to Facility personnel (including, without
limitation, computer training and other employee
training and education, including tuition, travel and
other expenses relating thereto if such expenses are
incurred with Owner's approval) shall not be included
in the Base Management Fee, but shall be separately
reimbursed by Owner as a Facility Expense. In addition,
the costs and expenses (including, without limitation,
travel expenses) of consultants, independent
contractors or other providers of services engaged by
Manager with Owner's approval shall be separately
reimbursed as Facility Expenses.
1.10 Supplies and Equipment. Manager shall
purchase, as a Facility Expense, supplies and non-
capital equipment (including, without limitation,
computer hardware and software) needed to operate the
Facility within the budgetary limits set forth in the
annual operating budget prepared by Manager pursuant to
Paragraph 1.12 hereof. In purchasing said supplies and
equipment Manager shall, if possible, take advantage of
any national or group purchasing agreements to which
Manager may be a party.
1.11 Legal Proceedings. If approved by Owner,
Manager shall, as a Facility Expense and through its
legal counsel, coordinate all legal matters and
proceedings with Owner's counsel; if Owner does not
approve the same, Owner shall indemnify, protect,
defend and hold Manager harmless with respect to such
legal matters and proceedings. .
1.12 Budgets. The Facility shall be operated on a
fiscal year of January 1 through December 31. Within
forty-five (45) days prior to the start of each fiscal
year, Manager shall prepare and submit to Owner for
Owner's review and agreement, which agreement shall not
be unreasonably withheld (i) an annual operating
budget, (ii) an annual capital expenditure budget, and
(iii) an annual cash flow projection. In the event the
operating budget or the capital expenditure budget (or
both) have not been agreed upon prior to the first day
of the then-current fiscal year, beginning in fiscal
year 1998, the operating budget or capital expenditure
budget in effect for the prior fiscal year, as
appropriate, shall continue in effect until the new
operating budget or capital expenditure budget, as
appropriate, is agreed upon by Owner and Manager.
Thereafter, any expenditures made during the year
pursuant to said agreed-upon budgets and/or any
expenditures on an item-by-item basis exceeding by no
more than 10% the amounts set forth therein for the
applicable expense item (the "Budget Threshold") may be
made without Owner's prior approval. Any unbudgeted
expenditures and/or any expenditures in excess of the
Budget
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Threshold shall be subject to Owner's prior approval,
which approval shall not be unreasonably withheld.
1.13 Collection of Accounts. Manager shall issue
bills and collect accounts and monies owed for goods
and services furnished by the Facility, including, but
not limited to, enforcing the rights of Owner and the
Facility as creditor under any contract or in
connection with the rendering of any services;
provided, however, that any expenses incurred by
Manager shall not be included in the Base Management
Fee, but shall be separately reimbursed by Owner as a
Facility Expense. Notwithstanding any other provision
of this Agreement to the contrary, Manager does not
guaranty the collectability of such accounts or monies
and shall have no liability to Owner for Manager's
inability to so collect such accounts or monies.
1.14 Construction Supervision. Owner and Manager
may agree that Manager shall act as construction
supervisor with respect to any construction work for
the Facility or on the Real Property after the
Commencement Date (as defined in Paragraph 1, above),
in which event Manager will supervise, oversee and
administer each and every aspect of any such
improvements and construction work. For the purposes of
this Agreement, "construction work" shall include any
construction, reconstruction or alteration of any
improvements constituting part of the Real Property,
but shall not include usual maintenance and repairs
made to the Facility or the Real Property. Without
limitation of the foregoing, if Owner and Manager agree
that Manager shall act as construction supervisor, and
subject to Owner's approval in each instance, Manager
will: (a) negotiate contracts for architectural,
design, engineering and construction services; (b)
secure any and all necessary consents and approvals;
(c) oversee the administration of construction
contracts; and (d) act as project manager with respect
to the construction work.
1.15 Extraordinary Costs. Except as otherwise
specifically provided herein, all extraordinary costs
incurred by Manager with respect to the Facility shall
be separately reimbursed as Facility Expenses (and not
included in the Base Management Fee) after first having
been approved by Owner.
2. INSURANCE.
Upon request, Manager, at Owner's sole cost and
expense, shall arrange for and maintain all necessary
and proper hazard insurance covering the Facility, the
furniture, fixtures, and equipment situated thereon,
and all necessary and proper malpractice and public
liability insurance for Owner's protection and for the
protection of Owner's officers, agents and employees.
Until such a request is made and/or in the event
Manager is unable to secure insurance coverage for the
Facility for any reason whatsoever, Owner shall be
responsible for obtaining and maintaining said
insurance. In addition, Manager shall provide employee
health and worker's compensation insurance for all
Manager employees at the Facility in accordance with
Manager's policies therefor, and the costs thereof
shall not be included in the Base Management Fee, but
shall be separately reimbursed by Owner as a Facility
Expense. Manager shall, at Manager's sole cost and
expense, arrange for and maintain all necessary and
proper malpractice and public liability insurance for
the protection of Manager, and Manager's officers,
agents, and employees. Any insurance provided by Owner
pursuant to this Paragraph 2. shall comply with the
requirements of any mortgage or deed of trust
encumbering the Facility, and any insurance provided by
Manager pursuant to this Paragraph 2 shall comply with
such requirements provided that Owner shall have
provided Manager with a copy of such mortgage or deed
of trust.
3. PROPRIETARY INTEREST.
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The systems, methods, procedures, and controls
employed by Manager and any written materials or
brochures developed by Manager to document the same
are, and shall remain, the property of Manager and are
not, at any time during or after the term of this
Agreement, to be utilized, distributed, copied, or
otherwise employed or acquired by Owner, except as
authorized by Manager.
4. TERM AND TERMINATION OF AGREEMENT.
4.1 Term. The term of this Agreement ("Term")
shall commence on the Commencement Date and expire on
the fifth (5th) anniversary of the Commencement Date;
provided, however, that the Term shall be extended
automatically for successive two (2) year periods
unless terminated prior to expiration of the Term (as
the same may have be extended) pursuant to this
Paragraph 4.
4.2 Termination. The Term (as the same may be have
been extended ) may be terminated by either Manager or
Owner
(a) at any time, with or without cause, by giving
notice of termination not. less than thirty
(30) days prior to the effective date of such
termination;
(b) if fifty percent (50%) or more of the
Facility is either (i) damaged or destroyed
or (ii) taken by condemnation, proceedings or
otherwise, whether or not Owner elects to
rebuild or repair the Facility, by giving
notice of termination not less than ten ( 10)
days prior to the effective date of such
termination;
(c) immediately upon the occurrence of an Event
of Default by the other party (as defined in
Paragraph 5, below), by giving notice of
termination, effective the date of receipt
(or deemed receipt) by the defaulting party
of such notice of termination.
4.3 Effect of Termination. In the event of a
termination of Term pursuant to Subparagraphs 4.2(a) or
4.2(b), above, upon the effective date of such
termination, neither party shall have any further
obligations whatsoever under this Agreement; provided,
however, that Manager shall be entitled to receive
immediate payment of all amounts theretofore unpaid by
Owner but earned by Manager as of the effective date of
such termination. In the event of a termination of the
Term pursuant to Subparagraph 4.2(c), above, except as
expressly provided in Paragraph 5.3, below, neither
party shall have any further obligation whatsoever
under this Agreement; provided, however, that Manager
shall be entitled to receive immediate payment of all
amounts theretofore unpaid by Owner but earned by
Manager as of the effective date of such termination.
In the event that Owner desires Manager to leave any
equipment owned by Manager at the Facility upon such
termination, Owner shall pay to Manager the fair market
value of such equipment to be left at the Facility and
Manager shall transfer title thereto to Owner upon such
payment.
5. DEFAULT, REMEDIES UPON DEFAULT.
5.1 Manager's Events of Default. With respect to
Manager, it shall be an "Event of Default" under this
Agreement:
(a) If Manager shall fail to keep, observe,
or perform any material agreement, term,
or provision of this Agreement, and such
default shall continue
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<PAGE>
for a period of thirty (30)
days after Manager's receipt of notice
of such default from Owner, which notice
shall specify the event or events
constituting the default; or
(b) If (i) 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
Manager's assets, (B) file a voluntary
petition in bankruptcy, or admit in
writing Manager's inability to pay
Manager's 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 (ii) an order,
judgment or decree shall be entered by a
court of competent jurisdiction, on the
application of a creditor (A)
adjudicating Manager as bankrupt or
insolvent, (B) approving a petition
seeking reorganization of Manager, or
(C) appointing a receiver, trustee, or
liquidator for Manager or for all or a
substantial part of Manager's assets.
5.2 Owner's Events of Default. With respect to
Owner, it shall be an Event of Default under this
Agreement:
(a) If Owner shall fail to make or cause to
be made any payment to Manager required
to be made hereunder (other than Owner's
obligation, pursuant to Paragraph 1.8,
above, to deposit working capital into
the Facility Checking Account, which
circumstance shall be handled in
accordance with Subparagraph 5.2(b),
below), and such failure shall continue
for a period of thirty (30) days;
(b) If Owner 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
thirty (30) days after Owner's receipt
of notice of such default from Manager,
which notice shall specify an event or
events constituting the default
provided, however, that in the case of
Owner s failure to provide, pursuant to
Paragraph 1.8, above, necessary working
capital upon demand by Manager, it shall
be deemed to be an Event of Default
hereunder if the such necessary working
capital is not deposited in the Facility
Checking Account within ten ( 10) days
of Manager's initial demand therefor
without any further notice from Manager
being required;
(c) If Owner 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, and which would
cause Owner to lose possession of the
Facility or any personal property
required to operate the Facility in the
normal course of operation; or
(d) If.. (i) Owner shall (A) be dissolved,
(B) apply for or consent to the
appointment of a receiver, trustee or
liquidator for Owner or for all or a
substantial part of Owner's assets, (C)
file a voluntary petition in bankruptcy
or admit in writing its inability to pay
Owner's debts as they become due, (D)
make a general assignment for the
benefit or creditors, or (E) file a
petition or an answer seeking
reorganization or
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<PAGE>
arrangement with creditors or
taking advantage of any insolvency law;
or (ii) an order, judgment or decree
shall be entered by a court of competent
jurisdiction, on the application of a
creditor (A) adjudicating Owner as
bankrupt or insolvent, (B) approving a
petition seeking reorganization of
Owner, or (C) appointing a receiver,
trustee or liquidator for Owner or of
all or a substantial part of Owner's
assets.
5.3 Remedies Upon Default by Owner. In the event
of an Event of Default by a party, the non-defaulting
party shall have, in addition to the right to terminate
the Term pursuant to Subparagraph 4.2(c), above, all
rights and remedies available to such non-defaulting
party at law or in equity.
6. OWNER'S RIGHT TO INSPECT FACILITY/BOOKS AND RECORDS.
During the Term, Owner shall have the right, upon
not less than forty-eight (48) hours prior notice to
Manager and at reasonable times during normal business
hours, to inspect the Facility and to inspect and/or
audit all books and records pertaining to the operation
thereof.
7. FACILITY OPERATIONS.
7.1 No Guarantee of Profitability. Manager does
not guarantee, and shall not be construed to have
guaranteed, to Owner or any third party (including any
mortgagee) that operation of the Facility will be
profitable, but Manager shall use Manager' s
commercially reasonable, diligent, and good faith
efforts to operate the Facility in as cost-efficient
and profitable a manner as possible in light of all of
the circumstances then-existing.
7.2 Standard of Performance. In performing
Manager's obligations under this Agreement, Manager
shall use Manager's commercially reasonable, diligent,
and good faith efforts, and act with professionalism,
in undertaking management of the Facility, all in
accordance with accepted and prevailing standards of
health care in the general location of the Facility and
with the policies adopted by, and resources available
to, the Facility.
7.3 Force Majeure. Manager will not be deemed to
be in violation of this Management Agreement if Manager
is prevented from performing any of Manager' s
obligations hereunder for any reason beyond Manager's
reasonable control, including, without limitation:
strikes, sick-outs, or labor disputes; material or
supply shortages; war, insurrection or civil unrest;
fire, earthquakes, severe weather, flooding; acts of
God; Owner's failure to perform Owner obligations under
this Agreement; or any law, statute, regulation,
ordinance, or rule of any federal, state or local
government or agency thereof, or any order, decree, or
judgment of any court with jurisdiction.
8. WITHDRAWAL OF FUNDS BY OWNER; MINIMUM BANK BALANCE.
8.1 Withdrawal by Owner. From time to time, Owner
may withdraw the then accumulated operating cash
surplus (as determined by Manager) from the Facility
Checking Account subject to the right of Manager to
restrict withdrawal by Owner of any Facility funds in
accordance with the provisions of Paragraph 8.2, below.
8.2. Minimum Cash Balance. At all times (subject
to Manager's right, pursuant to Paragraph 1.8, above,
to demand working capital from Owner in the event of a
shortfall), Manager shall maintain a minimum cash
balance in the Facility Checking Account equal to the
sum of..
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(a) All costs and expenses associated with
the ownership or operation of the
Facility (each a "Facility Expense" and
any two or more or all the
"Facility Expenses"), including, without
limitation, any principal and interest
payments due in connection with any loan
secured by a mortgage on the Facility,
payroll, insurance, supplies, services,
taxes (but excluding all federal, state,
and local income taxes assessed against
Owner), and the Base Management Fee, all
of which Facility Expenses are unpaid
but will become due and payable within
the ensuing forty-five (45) days; plus
(b) An amount deemed necessary by Manager to
be adequate for unanticipated
contingencies, which amount initially
shall be $5,000 and which amount shall
be adjusted as reasonably determined by
Manager.
9. MANAGEMENT FEES.
9.1 Construction Supervision Fee. For any services
performed by Manager pursuant to Paragraph 1.14, above,
Manager shall receive a construction supervision fee
equal to five percent (5"%)of the total amount of
construction costs approved by Owner, due payable
concurrently with the applicable payments to the
construction contractor(s) and materialmen.
9.2 Base Management Fee. Throughout the term of
this Agreement, Manager shall receive a monthly fee
("Base Management Fee") equal to six percent (6%) of
the gross revenues generated for the prior month by the
Facility, payable on or before the 10th day of each
month. For purposes hereof, "gross revenues" shall mean
all revenues generated by the Facility, but shall
specifically exclude the proceeds from the sale of any
Facility equipment and any insurance and condemnation
proceeds.
9.3 Proration of Fees. If the services of Manager
commence or terminate for any reason (including,
without limitation, those set forth in Paragraph 5
hereof other than on the first day of any calendar
month, the Base Management Fee for such partial month
shall be prorated based upon the number of days for
which services are actually rendered by Manager during
such partial month.
9.4 Payment of Fees. Notwithstanding any other
provision of this Agreement to the contrary, the Base
Management Fee shall be disbursed by Manager to itself
out of the Facility Checking Account prior to the
payment of any other Facility Expenses and prior to the
repayment to Owner of any working capital deposits made
by Owner pursuant to the terms hereof(without limiting
the generality of the foregoing, the Base Management
Fee shall be paid to Manager on a priority basis, and
Manager may disburse the Base Management Fee to itself
without regard for the minimum cash balance
requirement, or the need to demand additional working
capital from Owner, pursuant to Paragraph 8.2, above).
10. INDEMNIFICATION.
10.1 By Manager. Manager shall indemnify, defend,
and hold harmless Owner from and against any loss
incurred by or damage to Owner where such loss or
damage results from the negligent acts or omissions or
the willful misconduct of Manager in performing
Manager's obligations under this Agreement.
10.2 By Owner. Owner shall indemnify, defend and
hold harmless Manager from and against any loss
incurred by or damage to Manager where such loss or
damage results from the
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negligent act or omissions or the willful misconduct of
Owner in performing Owner's obligations under the
Agreement.
10.3 Survival of Indemnification Obligations.
Notwithstanding any other provision of this Agreement
to the contrary (including, without limitation,
Paragraph 4.3, above), each party's obligation to
indemnify, defend and hold harmless the other party
shall survive the termination of the Term and this
Agreement with respect to the negligent acts or
omissions or willful misconduct of the indemnifying
party prior to the effective date of such termination.
11. RIGHT OF FIRST REFUSAL
In the event Owner desires to sell, convey or
lease ("Transfer") the Facility prior to the expiration
of the Term, and Owner receives a bona fide offer to
effect a Transfer of the Facility from a third party
capable of performing such offer ("Transfer Offer")
which Owner desires to accept, Owner shall first give
written notice of such Transfer Offer to Manager. Such
notice shall include all of the material terms and
conditions of the Transfer Offer (e.g. , purchase price
or lease rate, terms of payments, closing date, earnest
money or other deposits, documents required for
Closing, options to purchase). For a period of thirty
(30) days after Manager's receipt of such notice,
Manager shall have the right to elect to acquire the
Facility or interest therein upon the same terms and
conditions as are contained in the Transfer Offer,
which election shall be made by giving written notice
thereof to Owner within such thirty (30) day period. If
Owner does not timely receive Manager's written notice
of Manager's election to acquire the Facility or
interest therein on the terms and conditions of the
Transfer Offer, Owner shall have the right to accept
such Transfer Offer and Transfer the Facility to such
third party in accordance with the terms of the
Transfer Offer free and clear of Manager' s right of
first refusal hereunder. Notwithstanding any other
provision of this Paragraph 11, in no event shall Owner
be entitled to Transfer the Facility to any third party
on terms or conditions materially different from those
set out in the notice of Transfer Offer provided by
Owner to Manager, unless Owner has given Manager
written notice of such materially different terms and
conditions and provided Manager an additional thirty
(30) days in which to elect to effect a Transfer on
such materially different terms and conditions.
12. MISCELLANEOUS
12.1 Notices. All notices required or permitted
pursuant to this Agreement: (a) shall be given in
writing; and (b) delivered by (i) hand delivery, (ii)
registered or certified mail, postage prepaid, (iii)
nationally recognized courier guaranteeing next-
business day delivery), or (iv) facsimile transmission
(with receipt confirmed telephonically by 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 by giving notice
in accordance with this Paragraph 12. I.
To Manager: Acorn Service Corporation
3131 Elliott Avenue, Suite
500
Seattle, WA 98121
Phone: 206-301-4495
Fax: 206-301-4500
Attn: Jeff Mikus
To Owner: York Care, L.L.C.
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Phone: 206-301-4095
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Fax: 206-301-4545
Attn: Keith James
12.2 Assignment. Except as otherwise provided in
Paragraph 1.6, above, this Agreement shall not be
assigned by either party without the prior written
consent of the non assigning party, which consent shall
not be unreasonably withheld, conditioned, delayed.
12.3 Relationship of the Parties. The relationship
of the parties shall be that of Owner and independent
contractor and all acts performed by Manager during the
term hereof as Manager of the Facility shall be deemed
to be performed by Manager in Manager's 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 Owner, and Owner's successors and
assigns on the one hand, and Manager, and Manager's
successors and assigns on the other hand.
12.4 Entire Agreement. This Agreement contains the
entire agreement between the parties and shall be
binding upon and inure to the benefit of their
successors and, to the extent permitted hereby, their
assigns, and shall be construed in accordance with the
laws of the State of Washington. This Agreement may not
be modified or amended except by written instrument
signed by both of the parties hereto.
(a) The parties hereby acknowledge that
effective as of the Commencement Date, the
Agreement to Provide Accounting and
Administrative Services to an
Independent/Assisted Living Facility dated
as of March 31,1997, and as amended by
that certain First Amendment dated as of
September 1, I 997, entered into by and
between the parties, shall terminate and
be of no further force and effect.
12.5 Headings/Captions. The headings and captions
used in this Agreement are for convenience of reference
only and shall not be construed in any manner to limit
or modify any of the provisions hereof.
12.6 Attorneys' Fees. In the event either party
brings an action to enforce or interpret this
Agreement, the prevailing party in such action shall be
entitled to recover from the other party all costs
incurred in connection therewith, including reasonable
attorneys' fees incurred in the preparation, conduct,
and/or settlement thereof.
12.7 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.
12.8 Cumulative; No Waiver. No right or remedy
herein conferred upon or reserved to either party 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. The failure of
either party 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 Event
of Default. Each and every right and remedy given by
this Agreement to a party may be exercised from time to
time and as often as may be deemed expedient by such
party.
10
<PAGE>
12.9 Authorization for Agreement. The execution
and performance of this Agreement by Owner and Manager
have been duly authorized by all necessary laws,
resolutions or corporate action, and this Agreement
constitutes the valid, binding and enforceable
obligations of Owner and Manager, respectively, in
accordance with its terms.
12.10 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be
an original but collectively shall constitute but one
and the same Agreement.
IN WITNESS WHEREOF, the parties have hereto caused
this Agreement to be duly executed, as of the day and
year first above written.
Owner: YORK CARE, L.L.C.,
a Washington limited
liability company
By: /s/ Daniel R. Baty
--------------------
--------------
Its: Manager
Manager: ACORN SERVICE
CORPORATION,
a Washington corporation
By: /s/ Michelle A.
Bickford
------------------
-------------------
Its: V.P. New Business
Development
11
<PAGE> EX 10.53.6
ASSIGNMENT AND FIRST AMENDMENT TO
AGREEMENT TO PROVIDE MANAGEMENT SERVICES TO AN
INDEPENDENT LIVING FACILITY
THIS ASSIGNMENT AND FIRST AMENDMENT TO AGREEMENT
TO PROVIDE MANAGEMENT SERVICES TO AN INDEPENDENT LIVING
FACILITY (the "Assignment and Amendment") is made and
entered into as of this 1st day of September, 1997 by
and among EMERITUS CORPORATION, a Washington
corporation, COLUMBIA HOUSE, L.L.C., a Washington
limited liability company, ACORN SERVICE CORPORATION, a
Washington corporation ("Acorn"), and CAMLU COEUR
D'ALENE, L.L.C., a Washington limited liability company
("Camlu").
Emeritus Corporation, as the manager, and Columbia
House, LLC, as the lessee, previously entered into the
Agreement to Provide Management Services to an
Independent Living Facility dated November 1, 1996 for
that certain independent living facility located in
Coeur d'Alene, Idaho, commonly known and described as
Camlu Retirement Apartments (the "Management
Agreement"). Defined terms used herein and not
otherwise defined herein shall have the meaning
specified in the Management Agreement. Camlu has
acquired the interest of Columbia House, LLC in the
Facility and Camlu wishes to have Acorn, an affiliate
of Emeritus Corporation, act as the manager of the
Facility, and the parties wish to make certain other
changes in the Management Agreement as provided herein.
Accordingly, Emeritus Corporation hereby assigns
its interest in the Management Agreement to Acorn and
Acorn hereby assumes and agrees to perform all of
Emeritus Corporation' s obligations thereunder, and
Columbia House, L.L.C. hereby assigns its interest in
the Management Agreement to Camlu and Camlu hereby
assumes and agrees to perform all of Columbia House,
L.L.C.'s obligations thereunder. Acorn and Camlu agree
that the Management Agreement is hereby amended as
follows :
1. Acorn shall be substituted for the Manager and
Camlu shall be substituted for the Lessee as referenced
in the Management Agreement. Camlu shall look solely to
Acorn to perform Manager's obligations under the
Management Agreement, and Acorn shall look solely to
Camlu to perform Lessee's obligations under the
Management Agreement, and neither Emeritus Corporation
nor Columbia House, L.L.C. shall have any further
liability or obligation under the Management Agreement.
2. The following sentence is hereby inserted as
the last sentence of Paragraph I.F. of the Management
Agreement:
"If Lessee so elects by notice to Manager, Manager
shall prepare or cause to be prepared Lessee's
income tax returns, but only if Lessee and Manager
agree upon separate compensation to be paid to
Manager for preparing such income tax returns."
3. The following is hereby inserted as Paragraph I.O.
of the Management Agreement:
"O. EXTRAORDINARY COSTS. Except as otherwise
specifically provided herein, all extraordinary costs
incurred by Manager with respect to the Facility shall
be separately reimbursed as Facility expenses (and not
included in the management fee) after first having been
approved by Lessee.
4. The following is hereby inserted as Paragraph I.P.
of the Management Agreement:
"P. LEGAL PROCEEDINGS. If approved by Owner,
Manager shall, as a Facility
<PAGE>
Expense and through its legal counsel, coordinate
all legal matters and proceedings with Owner's
counsel; if Owner does not approve the same, Owner
shall indemnify, protect, defend and hold Manager
harmless with respect to such legal matters and
proceedings except any such legal matters and
proceedings resulting from Manager's negligent
acts or omissions or willful misconduct."
5. The Management Agreement and all of the terms
thereof as hereby amended shall remain in full force
and effect upon and subject to the terms and conditions
thereof as so amended.
6. This Assignment and Amendment may be executed
in any number of counterparts, each of which shall be
deemed to be an original and all of which together
shall comprise but a single instrument.
IN WITNESS WHEREOF, the parties hereby execute this
Assignment and Amendment on
the day and year first written above.
CAMLU: ACORN
CAMLU COUER D'ALENE, L.L.C. ACORN SERVICE
CORPORATION
By: /s/ Daniel R. Baty By: /s/
Raymond R. Brandstrom
-----------------------------------
- ------------------------------------------
Its: Manger Its: President
CONSENT AND AGREEMENT OF ORIGINAL PARTIES:
Emeritus Corporation and Columbia House, L.L.C. hereby
consent and agree to the foregoing effective as of the
date first set forth above.
EMERITUS CORPORATION COLUMBIA HOUSE
L.L.C.
By: /s/ Raymond R. Brandstrom By: /s/
Daniel R. Baty
-----------------------------------
- ----------------------------------
Its: President Its: Manager
2
<PAGE> EX 10.53.7
ASSIGNMENT AND FIRST AMENDMENT TO
AGREEMENT TO PROVIDE MANAGEMENT SERVICES TO
AN ASSISTED LIVING AND INDEPENDENT LIVING
FACILITY
THIS ASSIGNMENT AND FIRST AMENDMENT TO AGREEMENT
TO PROVIDE MANAGEMENT SERVICES TO AN ASSISTED LIVING
AND INDEPENDENT LIVING FACILITY (the "Assignment and
Amendment") is made and entered into as of this 1st day
of September, 1997 by and among EMERITUS CORPORATION, a
Washington corporation, COLUMBIA HOUSE, L.L.C., a
Washington limited liability company, ACORN SERVICE
CORPORATION, a Washington corporation ("Acorn"), and
AUTUMN RIDGE HERCULANEUM, L.L.C., a Washington limited
liability company ("Autumn Ridge").
Emeritus Corporation, as the manager, and Columbia
House, LLC, as the Owner, previously entered into the
Agreement to Provide Management Services to an Assisted
Living and Independent Living Facility dated June
1,1997 for that certain congregate care and assisted
living facility located at 300 Autumn Ridge Drive,
Herculaneum, Missouri, commonly known and described as
"Autumn Ridge Retirement Home" or "Autumn Ridge
Residential Care Apartments" (the "Management
Agreement"). Defined terms used herein and not
otherwise defined herein shall have the meaning
specified in the Management Agreement. Autumn Ridge has
acquired the interest of Columbia House, LLC in the
Facility and Autumn Ridge wishes to have Acorn, an
affiliate of Emeritus Corporation, act as the manager
of the Facility, and the parties wish to make certain
other changes in the Management Agreement as provided
herein.
Accordingly, Emeritus Corporation hereby assigns
its interest in the Management Agreement to Acorn and
Acorn hereby assumes and agrees to perform all of
Emeritus Corporation' s obligations thereunder, and
Columbia House, L.L.C. hereby assigns its interest in
the Management Agreement to Autumn Ridge and Autumn
Ridge hereby assumes and agrees to perform all of
Columbia House, L.L.C.'s obligations thereunder. Acorn
and Autumn Ridge agree that the Management Agreement is
hereby amended as follows:
1. Acorn shall be substituted for the Manager and
Autumn Ridge shall be substituted for the Owner as
referenced in the Management Agreement. Autumn Ridge
shall look solely to Acorn to perform Manager' s
obligations under the Management Agreement, and Acorn
shall look solely to Autumn Ridge to perform Owner's
obligations under the Management Agreement, and neither
Emeritus Corporation nor Columbia House, L.L.C. shall
have any further liability or obligation under the
Management Agreement.
2. The following is hereby inserted as Paragraph
1. I 5 of the Management Agreement:
"1.15. EXTRAORDINARY COSTS. Except as
otherwise specifically provided herein, all
extraordinary costs incurred by Manager with
respect to the Facility shall be separately
reimbursed as Facility expenses (and not included
in the management fee) after first having been
approved by Owner."
3. The following is hereby inserted as Paragraph
1.16 of the Management Agreement:
"1.16 LEGAL PROCEEDINGS. If approved by
Owner, Manager shall, as a Facility Expense and
through its legal counsel, coordinate all legal
matters and proceedings with Owner's counsel; if
Owner does not approve the same, Owner shall
indemnify, protect, defend and hold Manager
harmless with respect to such legal matters and
proceedings except any such legal matters and
proceedings resulting from Manager's negligent
acts or omissions or willful misconduct."
1
<PAGE>
4. EFFECT OF AMENDMENT. The Management Agreement
and all of the terms thereof as hereby amended shall
remain in full force and effect upon and subject to the
terms and conditions
thereof as so amended.
5. COUNTERPARTS. This Assignment and Amendment may
be executed in any number of counterparts, each of
which shall be deemed to be an original and all of
which together shall comprise but a single instrument.
IN WITNESS WHEREOF, the parties hereby execute
this Assignment and Amendment on the day and year first
written above.
AUTUMN RIDGE: ACORN:
AUTUMN RIDGE HERCULANEUM, .L.C. ACORN
SERVICE CORPORATION:
By: /s/ Daniel R. Baty By:
/s/ Raymond R. Brandstrom
-----------------------------------
- -----------------------------------------
Its: Manager Its:
President
CONSENT AND AGREEMENT OF ORIGINAL PARTIES:
Emeritus Corporation and Columbia House, L.L.C. hereby
consent and agree to the foregoing effective as of the
date first set forth above.
EMERITUS CORPORATION COLUMBIA HOUSE,
L.L.C.
By: /s/ Raymond R. Brandstrom By:
/s/ Daniel R. Baty
----------------------------------------
- --------------------------------
Its: President Its:
Manager
2
<PAGE> EX 10.53.8
AGREEMENT TO PROVIDE
MANAGEMENT SERVICES
TO
AN INDEPENDENT AND ASSISTED LIVING FACILITY
(TOLEDO, OHIO)
This Agreement to Provide Management Services to
an Independent and Assisted Living Facility
("Agreement") dated as of January 1, 1998, is made and
entered into by and between PARK LANE TOLEDO L.L.C., a
Washington limited liability company ("Owner") and
ACORN SERVICE CORPORATION, a Washington corporation
("Manager").
RECITALS
A. Owner is the owner of that certain real
property located at 142 - 23rd at Jefferson in Toledo,
Ohio (the "Real Property") including the improvements
on the Real Property that constitute the 92 unit
independent and assisted living facility commonly known
as "Park Lane" and located in Toledo, Ohio (the
"Facility");
B. Owner desires to engage the services of a
person or entity to manage the Facility on Owner's
behalf and to provide certain consulting services to
Owner in connection therewith.
C. Manager is experienced and qualified in the
field of assisted living facility management;
D. Owner has determined that Manager's fee is
economical in light of the range of services which
Manager is willing to provide to Owner; and
E. Manager is willing to operate the Facility on
Owner's behalf and provide consulting services to Owner
in connection therewith, 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:
1. MANAGEMENT AND CONSULTING RESPONSIBILITIES OF
MANAGER.
Owner hereby engages Manager to provide, and
Manager hereby accepts such engagement and agrees to
provide, management, consulting, advisory and
supervisory services to Owner in connection with the
operation of the Facility, upon the terms and
conditions set forth in this Agreement. By entering
into this Agreement, Owner does not delegate to Manager
any powers, duties, or responsibilities which Owner is
prohibited by law from delegating. Owner also retains
such other authority as shall not have been expressly
delegated to Manager pursuant to this Agreement.
Subject to the foregoing, and commencing on January 1,
1998 (the "Commencement Date") Manager shall provide
the following services to, or on behalf of Owner:
1.1 Operational Policies and Forms. Manager shall
implement operational policies and procedures and
develop such new policies and procedures as Manager
deems necessary to insure the establishment and
maintenance of operational standards appropriate for
the nature of the Facility.
1.2 Charges. Manager shall establish the schedules
of recommended charges, including any and all special
charges for services rendered to residents at the
Facility. Owner shall have the right to review and
approve the charge schedules established by Manager.
<PAGE>
1.3 Information. Manager shall develop any
informational material, mass media releases, and other
related publicity materials, which Manager deems
necessary for the operation of the Facility.
1.4 Regulatory Compliance. Manager, with the
assistance of Owner if requested by Manager, shall use
its best efforts to obtain and maintain all licenses,
permits, qualifications, and approvals from any
applicable governmental or regulatory authority for the
operation of the Facility and to manage the operations
of the Facility in full compliance with all applicable
laws and regulations, and in accordance with all such
licenses, permits, qualifications, and approvals.
1.5 Equipment and Improvements. Manager shall
advise Owner as to equipment and improvements which are
needed to maintain or upgrade the quality of the
Facility, to replace obsolete or run-down equipment, or
to correct any deficiencies (including, without
limitation, any survey deficiencies) which may be
observed or cited during the term of this Agreement.
Owner shall review and act upon Manager's
recommendations as expeditiously as possible. Manager
shall not be liable for any cost or liability which
Owner may incur in the event Owner disregards Manager's
recommendations. Manager shall, as a Facility Expense
(such term as used in this Agreement shall have the
meaning specified in Paragraph 8.2 below), make all
necessary and approved repairs, replacements and
maintenance within the budgetary limits set forth in
the annual capital expenditure budget prepared by
Manager pursuant to Paragraph 1.12. hereof and in a
workmanlike and lien-free manner.
1.6 Accounting. Manager shall provide home office
and accounting support to the Facility. 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 and shall not materially distort income or
loss. If Owner so elects by notice to Manager, Manager
shall prepare or cause to be prepared all tax returns
required in connection with operation of the Facility,
including payroll tax returns (but excluding Owner's
income tax returns, which Manager shall prepare only if
Owner and Manager agree upon separate compensation to
be paid to Manager for preparing such income tax
returns) and, at Owner's sole cost and expense, Manager
shall cause all local, state and federal taxes to be
timely paid or contested, as appropriate. Such taxes
shall be deemed to be Facility Expenses and shall be
paid out of the revenues of the Facility or the working
capital for the Facility provided by Owner. 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 Manager's ultimate
liability for the timely and complete performance of
the obligations provided for herein.
1.7 Reports. Manager shall prepare and provide to
the Owner any reasonable operational information which
may from time to time be specifically requested by
Owner, including any information needed to assist Owner
in completing its tax returns and in complying with any
reporting obligations imposed by any mortgagees of the
Facility. In addition: (i) within thirty (30) days
after the end of each calendar month, Manager shall
provide Owner with an unaudited balance sheet of the
Facility, dated the last day of such month, and an
unaudited statement of income and expenses for such
month relating to the operation of the Facility; and
(ii) within ninety (90) days after the end of the
fiscal year of the Facility, Manager shall provide
Owner with unaudited financial statements including a
balance sheet of the Facility, dated the last day of
said fiscal year, and an unaudited statement of income
and expense for the fiscal year then-ended relating to
the operation of the Facility.
1.8 Bank Accounts. Manager shall open a new
checking account in the name of the Facility ("Facility
Checking Account") and shall deposit in the Facility
Checking Account all money received during the term of
this Agreement in the course of the operation of the
Facility; provided, however, that during the term
hereof, withdrawals and payments from the Facility
2
<PAGE>
Checking Account shall be made only on checks signed by
a person or persons authorized by Manager. Owner shall
be given notice as to the identity of said authorized
signatories. All Facility Expenses incurred in the
operation of the Facility in accordance with the terms
of the budgets submitted to Owner under Paragraph 1.12
hereof, shall be paid by check drawn on the Facility
Checking Account. Withdrawals from the Facility
Checking Account shall be made first to pay the Base
Management Fee (as that term is defined in Subparagraph
9.2, below), and, thereafter, to pay Facility Expenses
in such order of priority as Manager deems appropriate
to the operation of the Facility. In the event the
revenues generated by the Facility are at any time
insufficient to pay all of the Facility Expenses, Owner
shall, within five (5) days of Owner's receipt of a
written demand by Manager, deposit in the Facility
Checking Account sufficient funds to satisfy the then
working capital needs of the Facility.
1.9 Personnel. Manager shall: (i) recruit, employ,
train, promote, direct, discipline, suspend, and
discharge Facility personnel; (ii) establish salary
levels, personnel policies, and employee benefits; and
(iii) 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 Facility. All Facility
personnel shall be employees of Manager, not Owner, and
all salaries, benefits, payroll taxes and other costs
related to Facility personnel (including, without
limitation, computer training and other employee
training and education, including tuition, travel and
other expenses relating thereto if such expenses are
incurred with Owner's approval) shall not be included
in the Base Management Fee, but shall be separately
reimbursed by Owner as a Facility Expense. In addition,
the costs and expenses (including, without limitation,
travel expenses) of consultants, independent
contractors or other providers of services engaged by
Manager with Owner's approval shall be separately
reimbursed as Facility Expenses.
1.10 Supplies and Equipment. Manager shall
purchase, as a Facility Expense, supplies and non-
capital equipment (including, without limitation,
computer hardware and software) needed to operate the
Facility within the budgetary limits set forth in the
annual operating budget prepared by Manager pursuant to
Paragraph 1.12 hereof. In purchasing said supplies and
equipment Manager shall, if possible, take advantage of
any national or group purchasing agreements to which
Manager may be a party.
1.11 Legal Proceedings. If approved by Owner,
Manager shall, as a Facility Expense and through its
legal counsel, coordinate all legal matters and
proceedings with Owner's counsel; if Owner does not
approve the same, Owner shall indemnify, protect,
defend and hold Manager harmless with respect to such
legal matters and proceedings.
1.12 Budgets. The Facility shall be operated on a
fiscal year of January 1 through December 31. Within
forty-five (45) days prior to the start of each fiscal
year, Manager shall prepare and submit to Owner for
Owner's review and agreement, which agreement shall not
be unreasonably withheld (i) an annual operating
budget, (ii) an annual capital expenditure budget, and
(iii) an annual cash flow projection. In the event the
operating budget or the capital expenditure budget (or
both) have not been agreed upon prior to the first day
of the then-current fiscal year, beginning in fiscal
year 1998, the operating budget or capital expenditure
budget in effect for the prior fiscal year, as
appropriate., shall continue in effect until the new
operating budget or capital expenditure budget, as
appropriate, is agreed upon by Owner and Manager.
Thereafter, any expenditures made during the year
pursuant to said agreed-upon budgets and/or any
expenditures on an item-by-item basis exceeding by no
more than 10"% the amounts set forth therein for the
applicable expense item (the "Budget Threshold") may be
made without Owner's prior approval. Any unbudgeted
expenditures and/or any expenditures in excess of the
Budget Threshold shall be subject to Owner's prior
approval, which approval shall not be unreasonably
withheld.
3
<PAGE>
1.13 Collection of Accounts. Manager shall issue
bills and collect accounts and monies owed for goods
and services furnished by the Facility, including, but
not limited to, enforcing the rights of Owner and the
Facility as creditor under any contract or in
connection with the rendering of any services;
provided, however, that any expenses incurred by
Manager shall not be included in the Base Management
Fee, but shall be separately reimbursed by Owner as a
Facility Expense. Notwithstanding any other provision
of this Agreement to the contrary, Manager does not
guaranty the collectability of such accounts or monies
and shall have no liability to Owner for Manager's
inability to so collect such accounts or monies.
1.14 Construction Supervision. Owner and Manager
may agree that Manager shall act as construction
supervisor with respect to any construction work for
the Facility or on the Real Property after the
Commencement Date (as defined in Paragraph 3, below),
in which event Manager will supervise, oversee and
administer each and every aspect of any such
improvements and construction work. For the purposes of
this Agreement, "construction work" shall include any
construction, reconstruction or alteration of any
improvements constituting part of the Real Property,
but shall not include usual maintenance and repairs
made to the Facility or the Real Property. Without
limitation of the foregoing, if Owner and Manager agree
that Manager shall act as construction supervisor, and
subject to Owner's approval in each instance, Manager
will: (a) negotiate contracts for architectural,
design, engineering and construction services; (b)
secure any and all necessary consents and approvals;
(c) oversee the administration of construction
contracts; and (d) act as project manager with respect
to the construction work.
1.15 Extraordinary Costs. Except as otherwise
specifically provided herein, all extraordinary costs
incurred by Manager with respect to the Facility shall
be separately reimbursed as Facility Expenses (and not
included in the Base Management Fee) after first having
been approved by Owner.
2. INSURANCE.
Upon request, Manager, at Owner's sole cost and
expense, shall arrange for and maintain all necessary
and proper hazard insurance covering the Facility, the
furniture, fixtures, and equipment situated thereon,
and all necessary and proper malpractice and public
liability insurance for Owner's protection and for the
protection of Owner's officers, agents and employees.
Until such a request is made and/or in the event
Manager is unable to secure insurance coverage for the
Facility for any reason whatsoever, Owner shall be
responsible for obtaining and maintaining said
insurance. In addition, Manager shall provide employee
health and worker's compensation insurance for all
Manager employees at the Facility in accordance with
Manager's policies therefor, and the costs thereof
shall not be included in the Base Management Fee, but
shall be separately reimbursed by Owner as a Facility
Expense. Manager shall, at Manager's sole cost and
expense, arrange for and maintain all necessary and
proper malpractice and public liability insurance for
the protection of Manager, and Manager's officers,
agents, and employees. Any insurance provided by Owner
pursuant to this Paragraph 2 shall comply with the
requirements of any mortgage or deed of trust
encumbering the Facility, and any insurance provided by
Manager pursuant to this Paragraph 2 shall comply with
such requirements provided that Owner shall have
provided Manager with a copy of such mortgage or deed
of trust.
3. PROPRIETARY INTEREST.
The systems, methods, procedures, and controls
employed by Manager and any written materials or
brochures developed by Manager to document the same
are, and shall remain, the property of Manager and are
not, at any time during or after the term of this
Agreement, to be utilized, distributed, copied, or
otherwise employed or acquired by Owner, except as
authorized by Manager.
4
<PAGE>
4. TERM AND TERMINATION OF AGREEMENT.
4.1 Term. The term of this Agreement ("Term")
shall commence on the Commencement Date and expire on
the fifth (5th) anniversary of the Commencement Date;
provided, however, that the Term shall be extended
automatically for successive two (2) year periods
unless terminated prior to expiration of the Term (as
the same may have be extended) pursuant to this
Paragraph 4.
4.2 Termination. The Term (as the same may be have
been extended ) may be terminated by either Manager or
Owner
(a) at any time, with or without cause, by giving
notice of termination not less than thirty
(30) days prior to the effective date of such
termination;
(b) if fifty percent (50%) or more of the
Facility is either (i) damaged or destroyed
or (ii) taken by condemnation proceedings or
otherwise, whether or not Owner elects to
rebuild or repair the Facility, by giving
notice of termination not less than ten ( 10)
days prior to the effective date of such
termination;
(c) immediately upon the occurrence of an Event
of Default by the other party (as defined in
Paragraph 5, below), by giving notice of
termination, effective the date of receipt
(or deemed receipt) by the defaulting party
of such notice of termination.
4.3 Effect of Termination. In the event of a
termination of Term pursuant to Subparagraphs 4.2(a) or
4.2(b), above, upon the effective date of such
termination, neither party shall have any further
obligations whatsoever under this Agreement; provided,
however, that Manager shall be entitled to receive
immediate payment of all amounts theretofore unpaid by
Owner but earned by Manager as of the effective date of
such termination. In the event of a termination of the
Term pursuant to Subparagraph 4.2(c), above, except as
expressly provided in Paragraph 5.3, below, neither
party shall have any further obligation whatsoever
under this Agreement; provided, however, that Manager
shall be entitled to receive immediate payment of all
amounts theretofore unpaid by Owner but earned by
Manager as of the effective date of such termination.
In the event that Owner desires Manager to leave any
equipment owned by Manager at the Facility upon such
termination, Owner shall pay to Manager the fair market
value of such equipment to be left at the Facility and
Manager shall transfer title thereto to Owner upon such
payment.
5. DEFAULT, REMEDIES UPON DEFAULT.
5.1 Manager's Events of Default. With respect to
Manager, it shall be an "Event of Default" under this
Agreement:
(a) 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
thirty (30) days after Manager' s
receipt of notice of such default from
Owner, which notice shall specify the
event or events constituting the
default; or
(b) If (i) 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
Manager's assets, (B) file a voluntary
petition in bankruptcy, or admit
5
<PAGE>
in writing Manager's inability to pay
Manager's 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 (ii) an order,
judgment or decree shall be entered by a
court of competent jurisdiction, on the
application of a creditor (A)
adjudicating Manager as bankrupt or
insolvent, (B).approving a petition
seeking reorganization of Manager, or
(C) appointing a receiver, trustee, or
liquidator for Manager or for all or a
substantial part of Manager's assets.
5.2 Owner's Events of Default. With respect to
Owner, it shall be an Event of Default under this
Agreement:
(a) If Owner shall fail to make or cause to
be made any payment to Manager required
to be made hereunder (other than Owner's
obligation, pursuant to Paragraph 1.8,
above, to deposit working capital into
the Facility Checking Account, which
circumstance shall be handled in
accordance with Subparagraph 5.2(b),
below), and such failure shall continue
for a period of thirty (30) days;
(b) If Owner 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
thirty (30) days after Owner' s receipt
of notice of such default from Manager,
which notice shall specify an event or
events constituting the default;
provided, however, that in the case of
Owner's failure to provide, pursuant to
Paragraph 1.8, above, necessary working
capital upon demand by Manager, it shall
be deemed to be an Event of Default
hereunder if the such necessary working
capital is not deposited in the Facility
Checking Account within ten ( I 0) days
of Manager's initial demand therefor
without any further notice from Manager
being required;
(c) If Owner 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, and which would
cause Owner to lose possession of the
Facility or any personal property
required to operate the Facility in the
normal course of operation; or
(d) If: (i) Owner shall (A) be dissolved,
(B) apply for or consent to the
appointment of a receiver, trustee or
liquidator for Owner or for all or a
substantial part of Owner's assets, (C)
file a voluntary petition in bankruptcy
or admit in writing its inability to pay
Owner's debts as they become due, (D)
make a general assignment for the
benefit or creditors, or (E) file a
petition or an answer seeking
reorganization or arrangement with
creditors or taking advantage of any
insolvency law; or (ii) an order,
judgment or decree shall be entered by a
court of competent jurisdiction, on the
application of a creditor (A)
adjudicating Owner as bankrupt or
insolvent, (B) approving a petition
seeking reorganization of Owner, or (C)
appointing a receiver, trustee or
liquidator for Owner or of all or a
substantial part of Owner's assets.
6
<PAGE>
5.3 Remedies Upon Default by Owner. In the event
of an Event of Default by a party, the non-defaulting
party shall have, in addition to the right to terminate
the Term pursuant to Subparagraph 4.2(c), above, all
rights and remedies available to such non-defaulting
party at law or in equity.
6. OWNER'S RIGHT TO INSPECT FACILITY/BOOKS AND RECORDS.
During the Term, Owner shall have the right, upon
not less than forty-eight (48) hours prior notice to
Manager and at reasonable times during normal business
hours, to inspect the Facility and to inspect and/or
audit all books and records pertaining to the operation
thereof.
7. FACILITY OPERATIONS.
7.1 No Guarantee of Profitability. Manager does
not guarantee, and shall not be construed to have
guaranteed, to Owner or any third party (including any
mortgagee) that operation of the Facility will be
profitable, but Manager shall use Manager's
commercially reasonable, diligent, and good faith
efforts to operate the Facility in as cost-efficient
and profitable a manner as possible in light of all of
the circumstances then-existing.
7.2 Standard of Performance. In performing
Manager's obligations under this Agreement, Manager
shall use Manager's commercially reasonable, diligent,
and good faith efforts, and act with professionalism,
in undertaking management of the Facility, all in
accordance with accepted and prevailing standards of
health care in the general location of the Facility and
with the policies adopted by, and resources available
to, the Facility.
7.3 Force Majeure. Manager will not be deemed to
be in violation of this Management Agreement if Manager
is prevented from performing any of Manager' s
obligations hereunder for any reason beyond Manager's
reasonable control, including, without limitation:
strikes, sick-outs, or labor disputes; material or
supply shortages; war, insurrection or civil unrest;
fire, earthquakes, severe weather, flooding; acts of
God; Owner's failure to perform Owner obligations under
this Agreement; or any law, statute, regulation,
ordinance, or rule of any federal, state or local
government or agency thereof, or any order, decree, or
judgment of any court with jurisdiction.
8. WITHDRAWAL OF FUNDS BY OWNER; MINIMUM BANK BALANCE.
8.1 Withdrawal by Owner. From time to time, Owner
may withdraw the then accumulated operating cash
surplus (as determined by Manager) from the Facility
Checking Account subject to the right of Manager to
restrict withdrawal by Owner of any Facility funds in
accordance with the provisions of Paragraph 8.2, below.
8.2. Minimum Cash Balance. At a11 times (subject
to Manager's right, pursuant to Paragraph I.8, above,
to demand working capital from Owner in the event of a
shortfall), Manager shall maintain a minimum cash
balance in the Facility Checking Account equal to the
sum of:
(a) All costs and expenses associated with
the ownership or operation of the
Facility (each a "Facility Expense" and
any two or more or all the
"Facility Expenses"), including, without
limitation, any principal and interest
payments due in connection with any loan
secured by a mortgage on the Facility,
payroll, insurance, supplies, services,
taxes (but excluding all federal, state,
and local income taxes assessed against
Owner), and the Base Management Fee, all
of which Facility Expenses
7
<PAGE>
are unpaid but will become due and
payable within the ensuing forty-five
(45) days; plus
(b) An amount deemed necessary by Manager to
be adequate for unanticipated
contingencies, which amount initially
shall be $5,000 and which amount shall
be adjusted as reasonably determined by
Manager.
9. MANAGEMENT FEES.
9.1 Construction Supervision Fee. For any services
performed by Manager pursuant to Paragraph I.14, above,
Manager shall receive a construction supervision fee
equal to five percent (5%)of the total amount of
construction costs approved by Owner, due payable
concurrently with the applicable payments to the
construction contractor(s) and materialmen.
9.2 Base Management Fee. Throughout the term of
this Agreement, Manager shall receive a monthly fee
("Base Management Fee") equal to the greater of: i) six
percent (6%) of the gross revenues generated for the
prior month by the Facility; or ii) $5,000, payable on
or before the 10th day of each month. For purposes
hereof, "gross revenues" shall mean all revenues
generated by the Facility, but shall specifically
exclude the proceeds from the sale of any Facility
equipment and any insurance and condemnation proceeds.
9.3 Proration of Fees. If the services of Manager
commence or terminate for any reason (including,
without limitation, those set forth in Paragraph 5
hereof other than on the first day of any calendar
month, the Base Management Fee for such partial month
shall be prorated based upon the number of days for
which services are actually rendered by Manager during
such partial month.
9.4 Payment of Fees. Notwithstanding any other
provision of this Agreement to the contrary, the Base
Management Fee shall be disbursed by Manager to itself
out of the Facility Checking Account prior to the
payment of any other Facility Expenses and prior to the
repayment to Owner of any working capital deposits made
by Owner pursuant to the terms hereof (without limiting
the generality of the foregoing, the Base Management
Fee shall be paid to Manager on a priority basis, and
Manager may disburse the Base Management Fee to itself
without regard for the minimum cash balance
requirement, or the need to demand additional working
capital from Owner, pursuant to Paragraph 8.2, above).
10. INDEMNIFICATION.
10.1 By Manager. Manager shall indemnify, defend,
and hold harmless Owner from and against any loss
incurred by or damage to Owner where such loss or
damage results from the negligent acts or omissions or
the willful misconduct of Manager in performing
Manager's obligations under this Agreement.
10.2 By Owner. Owner shall indemnify, defend and
hold harmless Manager from and against any loss
incurred by or damage to Manager where such loss or
damage results from the negligent act or omissions or
the willful misconduct of Owner in performing Owner's
obligations under the Agreement.
10.3 Survival of Indemnification Obligations.
Notwithstanding any other provision of this Agreement
to the contrary (including, without limitation,
Paragraph 4.3, above), each party's obligation to
indemnify, defend and hold harmless the other party
shall survive the termination of the Term and this
Agreement with respect to the negligent acts or
omissions or willful misconduct
8
<PAGE>
of the indemnifying party prior to the effective date
of such termination.
11. RIGHT OF FIRST REFUSAL
In the event Owner desires to sell, convey or
lease ("Transfer") the Facility prior to the expiration
of the Term, and Owner receives a bona fide offer to
effect a Transfer of the Facility from a third party
capable of performing such offer ("Transfer Offer")
which Owner desires to accept, Owner shall first give
written notice of such Transfer Offer to Manager. Such
notice shall include all of the material terms and
conditions of the Transfer Offer (e. g. , purchase
price or lease rate, terms of payments, closing date,
earnest money or other deposits, documents required for
Closing, options to purchase). For a period of thirty
(30) days after Manager's receipt of such notice,
Manager shall have the right to elect to acquire the
Facility or interest therein upon the same terms and
conditions as are contained in the Transfer Offer,
which election shall be made by giving written notice
thereof to Owner within such thirty (30) day period. If
Owner does not timely receive Manager's written notice
of Manager's election to acquire the Facility or
interest therein on the terms and conditions of the
Transfer Offer, Owner shall have the right to accept
such Transfer Offer and Transfer the Facility to such
third party in accordance with the terms of the
Transfer Offer free and clear of Manager' s right of
first refusal hereunder. Notwithstanding any other
provision of this Paragraph 11, in no event shall Owner
be entitled to Transfer the Facility to any third party
on terms or conditions materially different from those
set out in the notice of Transfer Offer provided by
Owner to Manager, unless Owner has given Manager
written notice of such materially different terms and
conditions and provided Manager an additional thirty
(30) days in which to elect to effect a Transfer on
such materially different terms and conditions.
12. MISCELLANEOUS
12.1 Notices. All notices required or permitted
pursuant to this Agreement: (a) shall be given in
writing; and (b) delivered by (i) hand delivery, (ii)
registered or certified mail, postage prepaid, (iii)
nationally recognized courier guaranteeing next-
business day delivery), or (iv) facsimile transmission
(with receipt confirmed telephonically by 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 by giving notice
in accordance with this Paragraph I 2.1.
To Manager: Acorn
Service Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Phone: 206-301-4495
Fax: 206-301-4500
Attn: Jeff Mikus
To Owner: Park Lane
Toledo, L.L.C.
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Phone: 206-301-4095
Fax: 206-301-4545
Attn: Keith James
12.2 Assignment. Except as otherwise provided in
Paragraph 1.6, above, this Agreement shall not be
assigned by either party without the prior written
consent of the non assigning party,
9
<PAGE>
which consent shall not be unreasonably withheld,
conditioned, delayed.
12.3 Relationship of the Parties. The relationship
of the parties shall be that of Owner and independent
contractor and all acts performed by Manager during the
term hereof as Manager of the Facility shall be deemed
to be performed by Manager in Manager's 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 Owner, and Owner's successors and
assigns on the one hand, and Manager; and Manager's
successors and assigns on the other hand.
12.4 Entire Agreement. This Agreement contains the
entire agreement between the parties and shall be
binding upon and inure to the benefit of their
successors and, to the extent permitted hereby, their
assigns, and shall be construed in accordance with the
laws of the State of Washington. This Agreement may not
be modified or amended except by written instrument
signed by both of the parties hereto.
12.5 Headings/Captions. The headings and captions
used in this Agreement are for convenience of reference
only and shall not be construed in any manner to limit
or modify any of the provisions hereof.
12.6 Attorneys' Fees. In the event either party
brings an action to enforce or interpret this
Agreement, the prevailing party in such action shall be
entitled to recover from the other party all costs
incurred in connection therewith, including reasonable
attorneys' fees incurred in the preparation, conduct,
and/or settlement thereof.
12.7 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.
12.8 Cumulative; No Waiver. No right or remedy
herein conferred upon or reserved to either party 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. The failure of
either party 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 Event
of Default. Each and every right and remedy given by
this Agreement to a party may be exercised from time to
time and as often as may be deemed expedient by such
party.
12.9 Authorization for Agreement. The execution
and performance of this Agreement by Owner and Manager
have been duly authorized by all necessary laws,
resolutions or corporate action, and this Agreement
constitutes the valid, binding and enforceable
obligations of Owner and Manager, respectively, in
accordance with its terms.
12.10 Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be
an original but collectively shall constitute but one
and the same Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties have hereto caused
this Agreement to be duly executed, as of the day and
year first above written.
Owner:
PARK LANE TOLEDO, L.L.C.,
a Washington limited
liability company
By: /s/ Daniel R. Baty
------------
-------------------------
-
Its: Manager
Manager: ACORN SERVICE
CORPORATION, a Washington
corporation
By: /s/ Michelle A.
Bickford
------------------
- ---------------------
Its: V.P. New Business
Development
11
<PAGE> EX 10.63.2
925 South
River Road, Englewood, Sarasota County, Florida 7G Q
State of Florida Intangible Taxes in the amount of
$52,000 and State of Florida Documentary Stamps in the
amount of $9 l,000 applicable to this transaction have
been paid and affixed to that certain mortgage of even
date herewith between the mortgagor and the mortgagee
and recorded in Seminole County, Florida.
MORTGAGE DEED AND SECURITY AGREEMENT
925 South River Road, Englewood, Sarasota County,
Florida
6400 Trouble Creek Road, New Port Richey, Pasco County,
Florida 433 Orange Drive, Altamonte Springs, Seminole
County, Florida
(This Mortgage Deed and Security Agreement also serves
as a fixture filing)
KNOW ALL MEN BY THESE PRESENTS that EMERITUS
PROPERTIES V, INC., a Washington corporation having an
address at c/o Emeritus Corporation, 3131 Elliott
Avenue, Suite 500, Seattle, Washington 98121
hereinafter called "Mortgagor" or "Borrower") for
consideration paid, hereby grants, conveys, transfers,
assigns and sets-over unto FLEET NATIONAL BANK, a
national banking association with an office at 75 State
Street, Boston, Massachusetts 02 I 09 hereinafter
called "Lender", the Mortgaged Property (as defined
below) to secure the Obligations (as defined below).
The term Borrower shall include wherever the
context permits its successors and assigns. The term
Lender shall include, wherever the context permits, its
successors and assigns as the holder for the time being
of this Mortgage Deed and Security Agreement and the
Note and other Obligations hereby secured.
This Mortgage Deed and Security Agreement is granted
pursuant to the terms, provisions and conditions of
that certain Term Loan Agreement (the "Loan Agreement")
dated as of even date herewith between Borrower and
Lender. Capitalized terms used herein which are not
otherwise specifically defined shall have the same
meaning herein as in the Loan Agreement.
The term "Mortgaged Property" shall mean and include
all of the following described property:
A. REAL ESTATE. The parcels of land more particularly
described on Exhibit A which is annexed hereto and made
a part hereof ("Land") together with the improvements
and other structures now or hereafter situated thereon
(such improvements being sometimes called the
"Improvements") together with all rights, privileges,
tenements, hereditaments, appurtenances, easements,
including, but not limited to, rights and easements for
access and egress and utility connections, and other
rights now or hereafter appurtenant thereto ("Real
Estate");
B. FIXTURES. All real estate fixtures or items which by
agreement of the parties may be deemed to be such
fixtures, now or hereafter owned by Borrower, or in
which Borrower has or hereafter obtains an interest,
and now or hereafter located in or upon the Real
Estate, or now or hereafter attached to, installed in,
or used in connection with any of the Real Estate,
including, but not limited to, any and all portable or
sectional buildings, bathroom, plumbing, heating,
lighting, refrigerating, ventilating and air-
conditioning apparatus and equipment, garbage
incinerators and receptacles, elevators and elevator
machinery, boilers, furnaces, stoves, tanks, motors,
sprinkler and fire detection and extinguishing systems,
doorbell and alarm systems, window shades, screens,
awnings, screen doors, storm and other detachable
windows and doors, mantels,
<PAGE>
partitions, built-in cases, counters and other fixtures
whether or not included in the foregoing enumeration
("Fixtures");
C. ADDITIONAL APPURTENANCES. All bridges, easements,
rights of way, licenses, privileges, hereditaments,
permits and appurtenances hereafter belonging to or
inuring to the benefit of the Real Estate and all
right, title and interest of Borrower in and to the
land lying within any street or roadway adjoining any
of the Real Estate and all right, title and interest of
Borrower in and to any vacated or hereafter vacated
streets or roads adjoining any of the Real Estate and
any and all reversionary or remainder rights
("Additional Appurtenances");
D. AWARDS. All of the right, title and interest of
Borrower in and to any award or awards heretofore made
or hereafter to be made by any municipal, county, state
or federal authorities to the present or any subsequent
owners of any of the Real Estate or the Land, or the
Improvements, or the Fixtures, or the Additional
Appurtenances, or the Leases or the Personal Property,
including, without limitation, any award or awards, or
settlements or payments, or other compensation
hereafter made resulting from (x) condemnation
proceedings or the taking of the Real Estate, or the
Land, or the Improvements, or the Fixtures, or the
Additional Appurtenances, or the Leases or the Personal
Property, or any part thereof, under the power of
eminent domain, or (y) the alteration of grade or the
location or discontinuance of any street adjoining the
Land or any portion thereof, or (z) any other injury to
or decrease in value of the Mortgaged Property
("Awards");
E. LEASES. All leases now or hereafter entered into
of the Real Estate, or any portion thereof, and all
rents, issues, profits, revenues, earnings and
royalties therefrom, and all right, title and interest
of Borrower thereunder, including, without limitation,
cash, letters of credit, or securities deposited
thereunder to secure performance by the tenants or
occupants of their obligations thereunder, whether such
cash, letters of credit, or securities are to be held
until the expiration of the terms of such leases or
occupancy agreements or applied to one or more of the
installments of rent coming due prior to the expiration
of such terms including, without limitation, the right
to receive and collect the rents thereunder ("Leases");
and
F. PERSONAL PROPERTY. All tangible and intangible
personal property now owned or at any time hereafter
acquired by Borrower of every nature and description,
and whether or not used in any way in connection with
the Real Estate, the Fixtures, the Additional
Appurtenances, or any other portion of the Mortgaged
Property, including, without limitation express or
implied upon the generality of the foregoing, all
Equipment, Goods, Inventory, Fixtures, Accounts,
Instruments, Documents and General Intangibles (as each
such capitalized term is defined in the Uniform
Commercial Code in effect in the state where the Real
Estate is situated) and further including, without any
such limitation, the following whether or not included
in the foregoing: materials; supplies; furnishings;
chattel paper; money; bank accounts; security deposits;
utility deposits; any insurance or tax reserves
deposited with Lender; any cash collateral deposited
with Lender; claims to rebates, refunds or abatements
of real estate taxes or any other taxes; contract
rights; plans and specifications; licenses, permits,
approvals and other rights; the rights of Borrower
under contracts with respect to the Real Estate or any
other portion of the Mortgaged Property, or the
Project; signs, brochures, advertising, the name by
which the Mortgaged Property is known and any variation
of the words thereof, and good will; copyrights,
service marks, and all goodwill associates therewith;
and trademarks; all proceeds paid for any damage or
loss to all or any portion of the Real Estate, the
Fixtures, the Additional Appurtenances, any other
Personal Property or any other portion of the Mortgaged
Property ("Insurance Proceeds"); all Awards; all
Leases; all books and records; and all proceeds,
products, additions, accessions, substitutions and
replacements to any one or more of the foregoing
(collectively, the "Personal Property").
The term "Obligations" shall mean and include:
2
<PAGE>
A. The payment of the principal sum, interest at
variable rates, charges and indebtedness evidenced by a
promissory note ("Note") dated as of even date
herewith, including any extensions, renewals,
replacements, modifications and amendments thereof, in
the original amount of TWENTY SIX MILLION DOLLARS
($26,000,000) given by Borrower to the order of Lender.
A portion of the principal outstanding under such Note
is anticipated to be payable as a balloon payment upon
maturity;
B. The payment, performance, discharge and
satisfaction of each covenant, warranty,
representation, undertaking and condition to be paid,
performed, satisfied and complied with by Borrower
under and pursuant to this Mortgage or the Loan
Agreement and also by Borrower under and pursuant to
each of the other Loan Documents referred to in, or
executed in connection with, the Loan Agreement;
C. The payment of all costs, expenses, legal fees
and liabilities incurred by Lender in connection with
the enforcement of any of Lender's rights or remedies
under this Mortgage, the other Loan Documents, or any
other instrument, agreement or document which evidences
or secures any other Obligations or collateral
therefor, whether now in effect or hereafter executed;
and
D. The payment, performance, discharge and
satisfaction of all other liabilities and obligations
of Borrower to Lender, whether now existing or
hereafter arising, direct or indirect, absolute or
contingent, under any one or more of the Loan Documents
and any amendment, extension, modification, replacement
or recasting of any one or more of the instruments,
agreements and documents referred to herein or therein
or executed in connection with the transactions
contemplated hereby or thereby.
This instrument is sometimes referred to as "this
Mortgage".
Borrower hereby grants to Lender a continuing
security interest in all of the Mortgaged Property in
which a security interest may be granted under the
Uniform Commercial Code as such is in effect in the
State of Florida including, without limitation, the
Fixtures and the Personal Property, together with all
proceeds and products, whether now or at any time
hereafter acquired and whether or not used in any way
in connection with the development, construction,
marketing or operation of the Real Estate, or in
connection with the Improvements, to secure all
Obligations.
Borrower covenants, warrants, represents and agrees
with Lender, its successors and assigns, that:
1. TITLE. Borrower has good record and marketable
title to the Mortgaged Property and has good right,
full power and lawful authority to grant and convey the
same in the manner aforesaid; and that the Mortgaged
Property is free and clear of all encumbrances and
exceptions, except for the Permitted Title Exceptions,
if any, as set forth on Exhibit B which is annexed
hereto and made a part hereof. Borrower shall make any
further assurances of title that Lender may reasonably
and in good faith require including, without
limitation, such further instruments as may be
requested by Lender to confirm the assignment to Lender
of all Awards.
2. PERFORMANCE OF OBLIGATIONS. Borrower shall pay
the Note and interest thereon as the same shall become
due and payable or within any applicable cured period,
and pay and perform and observe when due or within any
applicable cure period all of the obligations and
conditions set forth in each of the Note, this Mortgage
Deed and Security Agreement, the Assignment of Leases
and Rents, the Loan Agreement, and each of the other
Loan Documents or
3
<PAGE>
other agreements, if any, executed by Borrower in
connection with the Loan.
3. PROTECTION AND MAINTENANCE. Borrower shall
protect and maintain, or cause to be maintained, in
good, order, repair and tenantable condition at all
times, the buildings and structures now standing or
hereafter erected on the Mortgaged Property, and any
additions and improvements thereto, and all Personal
Property now or hereafter situated therein, and the
utility services, the parking areas and access roads,
and all building fixtures and equipment and articles of
personal property now or hereafter acquired and used in
connection with the operation of the Mortgaged
Property. Borrower shall, subject to the limitations of
applicable law promptly replace any of the aforesaid
which may become lost, destroyed or unsuitable for use
with other property of similar character.
4. INSURANCE COVERAGES. Borrower shall insure the
Mortgaged Property and the operation thereof with such
coverages and in such amounts as are required by the
provisions of the Loan Agreement and shall at all times
keep such insurance in full force and effect and pay
all premiums therefor as and when due. The original or
certified copies of all such policies of insurance (or
certificates or binders thereof issued by the insurer
in form, content and manner of execution reasonably
satisfactory to Lender) shall be delivered to Lender,
and Borrower shall deliver to the Lender a new policy
or certified copy thereof (or such a certificate) as
replacement for an expiring policy (or such a
certificate) required to be deposited hereunder at
least ten ( 10) days before the date of such
expiration. Borrower hereby irrevocably appoints Lender
its true and lawful attorney-in-fact, with full power
of substitution, to assign any such policy (to the
extent assignable) in the event of the foreclosure of
this Mortgage.
5. INSURANCE PROCEEDS. The proceeds of any hazard
insurance shall be applied to or toward the
indebtedness secured hereby or to the repair or
restoration of the Mortgaged Property in accordance
with the terms of the Loan Agreement. Notwithstanding
anything in this Section 5 to the contrary, however, if
the insurer denies liability to Borrower, Borrower
shall not be relieved of any obligation under Section 3
of this Mortgage. If, pursuant to the provisions hereof
and of the Loan Agreement, Lender applies insurance
proceeds to the Loan and does not release the same to
Borrower, the obligation of Borrower to repair, restore
or rebuild shall be limited to taking all actions
reasonably required to make the Mortgaged Property
under applicable Legal Requirements safe and to restore
the undamaged portion to an economically functional
unit to the extent that it is reasonably possible to do
so.
6. EMINENT DOMAIN. The awards of damages on account
of any condemnation for public use of, or injury to,
the Mortgaged Property shall be paid to Lender; such
Awards shall, be applied to or toward the indebtedness
secured hereby or released to Borrower to be applied to
restoration of that part of the Mortgaged Property in
accordance with the terms of the Loan Agreement.. If
Lender applies such Awards to the Loan and does not
release the same to Borrower, the obligation of
Borrower to repair, restore or rebuild shall be limited
to taking all actions reasonably required to make the
Mortgaged Property, or what remains thereof, safe under
applicable Legal Requirements and to restore the
remaining portion to an economically functional unit to
the extent that it is reasonably possible to do so.
7. NO WASTE: COMPLIANCE WITH LAW. Borrower shall not
commit or suffer any strip or waste of the Mortgaged
Property, or any portion thereof, or any violation of
any law, rule, regulation, ordinance, license or
permit, or the requirements of any licensing authority
affecting the Mortgaged Property or any business
conducted thereon, and shall not commit or suffer any
demolition, removal or material alteration of any of
the Mortgaged Property (except for the replacement of
Fixtures and Personal Property in the ordinary course
of business, so long as items of comparable value and
quality are installed free and clear of liens in favor
of any other party),
4
<PAGE>
without the express prior written consent of Lender in
each instance which consent shall not be unreasonably
withheld or delayed, and shall not violate nor suffer
the violation of the covenants and agreements, if any,
of record against the Mortgaged Property, and in all
respects Borrower shall do all things necessary to
comply with, and keep in full force and effect all
licenses, permits and other governmental authorizations
for the operation of the Mortgaged Property for its
intended purposes, including, without limitation
express or implied, the licenses, permits and
authorizations referenced in the Loan Agreement.
8. ENVIRONMENTAL AND RELATED MATTERS. Indemnification.
Borrower shall at all times comply with all of the
terms, conditions and provisions imposed on the
Indemnitors under the Environmental Indemnity and both
before and after the repayment of the Loan, at
Borrower's sole cost and expense, indemnify, exonerate
and save harmless Lender and each other Indemnified
Party (as defined in the Environmental Indemnity)
against and from all damages, losses, liabilities,
obligations, penalties, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs,
disbursements or expenses of any kind whatsoever,
including, without limitation, reasonable attorneys'
fees and experts' fees and disbursements which may at
time (including, without limitation, before or after
the discharge or foreclosure of this Mortgage) be
imposed upon, incurred by or asserted or awarded
against Lender or any other Indemnified Party and
arising from or out of any of the matters for which
indemnification is provided by Borrower pursuant to the
Environmental Indemnity or on account of any liability
for damage to person or property arising out of any
act, omission, negligence or conduct at or related to
the Mortgaged Property, or arising or claim to have
arisen, out of any act, omission, negligence or conduct
of Borrower, or any contractor, subcontractor, tenant,
occupant or invitee thereof which is in any way related
to the Mortgaged Property during the Borrower's period
of ownership.
9. PAYMENT OF TAXES AND PREVENTION OF LIENS.
Borrower shall pay before delinquent or before any
penalty for nonpayment attaches thereto, all taxes,
assessments and charges of every nature and to whomever
assessed that may now or hereafter be levied or
assessed upon the Mortgaged Property or any part
thereof, or upon the rents, issues, income or profits
thereof or upon the lien or estate hereby created,
whether any or all of said taxes, assessments or
charges be levied directly or indirectly or as excise
taxes or as income taxes. Borrower may apply for tax
abatements and prosecute diligently and in good faith
claims for refund so long as: Borrower complies with
the provisions of Section 10.1.1 of the Loan Agreement.
Borrower shall pay all sums which, if unpaid, may
result in the imposition of a lien on the Mortgaged
Property before such lien may attach (except that real
estate taxes need not be paid prior to the due date
thereof and except to the extent such lien is being
duly contested in accordance with the terms of the Loan
Agreement) or which may result in conferring upon a
tenant of any part or all of the Mortgaged Property a
right to recover such sums as prepaid rent.
10. DUE ON SALE; NO OTHER ENCUMBRANCES; NO TRANSFER
OF OWNERSHIP INTERESTS: FAILURE TO COMPLY WITH
PERMITTED EXCEPTIONS. Except as otherwise specifically
provided for in the Loan Agreement with respect to
Permitted Transactions, or in this Mortgage, it shall
be an Event of Default under the Loan Agreement, a
breach of the conditions of this Mortgage and an event
permitting Lender to accelerate all indebtedness
secured hereby, if, without Lender's prior written
consent in each instance, which consent may be granted,
withheld or conditionally granted in Lender's sole
discretion: (a) there is any sale, conveyance, transfer
or encumbrance of, or lien imposed upon, all or any
portion of the Mortgaged Property; or (b) there is any
transfer or assignment of, or grant of any security
interest in, any of the direct or indirect ownership
interests in Borrower other than in connection with the
Mezzanine Loan; or (c) there is a failure to comply
with the provisions of, or there is a default under,
any of the Permitted Title Exceptions unless cured
within any applicable grace period provided for in the
applicable
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Permitted Title Exception.
11. LENDER'S RIGHTS. If Borrower shall neglect or
refuse: (a) to maintain and keep in good repair the
Mortgaged Property or any part thereof as required by
this Mortgage or the Loan Agreement, or (b) to maintain
and pay the premiums for insurance which may be
required by this Mortgage or the Loan Agreement, or (c)
to pay and discharge all taxes of whatsoever nature,
assessments and charges of every nature and to whomever
assessed, as required by this Mortgage or the Loan
Agreement except to the extent being contested in
accordance with the Loan Agreement, or (d) to pay the
sums required to be paid by this Mortgage or the Loan
Agreement when due or within any applicable cure
period, or (e) to satisfy any other terms or conditions
of this Mortgage, or any instrument secured hereby,
Lender may, at its election in each instance, but
without any obligation whatsoever to do so, upon thirty
(30) days prior written notice (except in the case of
(i) an emergency where there is danger to person or
property, or (ii) required insurance coverage would
lapse, or (iii) an Event of Default exists, in each of
which events no further notice shall be required),
cause such repairs or replacements to be made, obtain
such insurance or pay said taxes, assessments, charges,
and sums, incur and pay reasonable amounts in
protecting its rights hereunder and the security hereby
granted, pay any balance due under any conditional
agreement of sale (or lease) of any property included
as a part of the Mortgaged Property, and pay any
amounts as Lender deems reasonably necessary or
appropriate to satisfy any term or condition of this
Mortgage, which Borrower shall have failed to satisfy
when due or within any applicable cure period, or to
remedy any breach of such term or condition which was
not cured within any applicable cure period and any
amounts or expenses so paid or incurred, together with
interest thereon from the date of payment by Lender at
the Default Rate as provided in the Note or Loan
Agreement shall be immediately due and payable by
Borrower to Lender and until paid shall be secured
hereby equally and ratably, and the same may be
collected as part of said principal debt in any suit
hereon or upon the Note. No payment by Lender shall
relieve Borrower from any default hereunder or impair
any right or remedy of Lender consequent thereon.
12. TAX RESERVE AND INSURANCE RESERVE. Upon the
occurrence of an Event of Default, Borrower shall, upon
the request of Lender, from time to time, pay to Lender
on dates upon which installments of interest are
payable under the Note or the Loan Agreement, such
amount as Lender from time to time estimates as
necessary to create and maintain a reserve fund from
which to pay before the same become due: (a) all taxes,
assessments, liens and charges on or against the
Mortgaged Property, and (b) all premiums for insurance
policies which are required by this Mortgage. Such
payments, if so requested, shall be invested in a non-
interest bearing account which shall be held by Lender
as Cash Collateral, and so long as no Event of Default
exists hereunder or under any of other Loan Documents,
shall be paid to or for Borrower's benefit as set forth
below. Payments from such reserve fund for said
purposes may be made by Lender at its discretion. In
the event of any Event of Default under the Loan
Agreement or under the terms of this Mortgage, any part
or all of such reserve fund may be applied, at the
option of Lender, to cure any such Event of Default or
to any part of the indebtedness hereby secured.
13. CERTAIN EXPENSES. If any action or proceeding is
commenced, including, without limitation, an action to
foreclose this Mortgage Deed and Security Agreement or
to collect the debt hereby secured, to which action or
proceeding Lender is made a party by reason of the
execution of this Mortgage Deed and Security Agreement,
or by reason of any obligation which it secures, or by
reason of entry or any other action under this Mortgage
Deed and Security Agreement, or if in Lender's judgment
it becomes necessary in connection with legal
proceedings or otherwise to defend or uphold the
mortgage hereby granted or the lien hereby created or
any act taken to defend or uphold the mortgage hereby
granted or the lien hereby created or any act taken
under this Mortgage Deed and Security Agreement, all
sums reasonably paid or incurred by Lender for the
expense of any litigation or otherwise, in connection
with any rights created by this Mortgage
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Deed and Security Agreement or any other Loan Document,
shall be paid by Borrower, or may at the option of
Lender, if not so paid, be added to the debt secured
hereby and shall be secured hereby equally and ratably
and shall bear interest until paid at the Default Rate
set forth in the Note or the Loan Agreement.
14. REGARDING LEASES. Except as otherwise provided
in the Loan Agreement, Borrower shall not enter into
any leases or occupancy agreements with respect to the
Mortgaged Property and shall not modify or amend any
such leases or occupancy agreements without Lender's
prior written consent in each instance. As to each
permitted lease or occupancy agreement, Borrower will
perform every material obligation of the lessor and, to
the extent commercially reasonable, will enforce every
material obligation of the lessee in the leases in
effect with respect to all or any part or all of the
Mortgaged Property and, except as otherwise provided in
the Loan Agreement, Borrower will not: (i) cancel any
such lease, nor terminate or accept a surrender
thereof, or reduce the rent payable thereunder or
modify or amend any such lease; (ii) accept any
prepayment of rent thereunder (except any rent which
may be required to be prepaid by the terms of any such
lease); or (iii) enter into any new leases, without
first obtaining on each occasion the prior written
consent of Lender. If any portion of the Mortgaged
Property are leased or rented for residential purposes,
Borrower shall comply with all legal requirements
pertaining to security deposits, last month's rent, and
interest thereon, and Borrower shall defend, indemnify
and save harmless Lender with respect to all claims
relating thereto. As to all leases and occupancy
agreements, Lender, at its option from time to time,
may require that all security deposits and similar
funds or security provided by a lessee or occupant be
deposited with Lender, or with an escrow agent
satisfactory to Lender, subject to the rights of the
lessee or occupant, but otherwise subject to a security
interest in favor of Lender.
15. DECLARATION OF SUBORDINATION. At the option of
Lender, which may be exercised at any time or from time
to time, by written notice to Borrower and to any
applicable tenant, this Mortgage shall become subject
and subordinate, in whole or in part (but not with
respect to priority of entitlement to insurance
proceeds or condemnation proceeds), to any and all
leases of all or any part of the Mortgaged Property
upon the execution by Lender and recording or filing
thereof, at any time hereafter in the appropriate
official records of the county wherein the Mortgaged
Property is situated of a unilateral declaration to
that effect.
16. FURTHER ASSIGNMENT BY BORROWER. Borrower hereby
further. assigns to Lender as security for the
Obligations the lessor's interests in any or all
leases, now or hereafter outstanding, and to the extent
it may lawfully do so Borrower's interests in all
agreements, contracts, licenses and permits, now or
hereafter outstanding, affecting all or any portion of
the Mortgaged Property. Borrower shall execute,
acknowledge and deliver such further or confirmatory
assignments thereof, by instruments in form reasonably
satisfactory to the Lender, as Lender may reasonably
require. Borrower hereby authorizes Lender in the event
of foreclosure, to sell and assign said interests to
the purchaser at foreclosure, but neither such
assignment nor any such future assignment shall be
construed as binding Lender to any lease, agreement,
contract, license or permit so assigned, or to impose
upon Lender any obligations with respect thereto.
Borrower hereby irrevocably appoints Lender, or any
agent designated by Lender, the true and lawful
attorney-in-fact of Borrower, with full power of
substitution, to execute, acknowledge and deliver any
such assignment on behalf of Borrower which Borrower
fails or refuses to do.
17. UCC FILING. Borrower upon Lender's written
request shall promptly cause this Mortgage Deed and
Security Agreement and any required financing
statements to be recorded
and re-recorded, registered and re-registered, filed
and re-filed at such times and places as may be
required by law or reasonably deemed advisable by
Lender to create, preserve or protect the priority
hereof and of any lien created hereby upon the
Mortgaged Property or any part thereof;
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and Borrower shall from time to time do and cause to be
done all such things as may be reasonably required by
Lender, or required by law, including all things which
may from time to time be necessary under the Uniform
Commercial Code of Florida fully to create, preserve
and protect the priority hereof and of any lien created
hereby upon said property. Borrower hereby irrevocably
appoints Lender, or any agent designated by Lender, the
true and lawful attorney-in- fact of Borrower, with
full power of substitution, to execute, acknowledge and
deliver any such
18. RIGHT TO DEAL WITH SUCCESSOR. Lender may,
without notice to any person, deal with any successor
in interest of Borrower herein regarding this Mortgage
and the debt hereby secured in all respects as it might
deal with Borrower herein, without in any way affecting
the liability hereunder or upon the debt hereby secured
of any predecessor in interest of the person so dealt
with; and no sale of the premises hereby mortgaged, nor
any forbearance on the part of Lender, nor any
extension by Lender of the time for payment of the debt
hereby secured, shall operate to release, discharge,
modify, change or affect the original liability of any
predecessor in interest of the equity owner at the time
of such sale, forbearance or extension.
19. PERSONAL PROPERTY KEPT ON PROPERTY. The Personal
Property will be kept on or at the Property and
Borrower will not remove the Personal Property from the
Property without the prior written consent of Lender,
except such portions or items of Personal Property
which are consumed or worn out in ordinary usage, all
of which shall be promptly replaced by Borrower.
20. BUSINESS IN STATE. Borrower's only place of
business in the state is at the Mortgaged Property.
Borrower will immediately notify Lender in writing of
any change in its principal place of business as set
forth in the beginning of this Mortgage.
21. FINANCING STATEMENTS. At the request of Lender,
Borrower will join Lender in executing one or more
financing statements and renewals and amendments
thereof pursuant to the Uniform Commercial Code of
Florida in form reasonably satisfactory to Lender, and
will pay the cost of filing the same in all public
offices wherever filing is deemed by Lender to be
necessary or desirable.
22. COVENANTS APPLY TO PERSONAL PROPERTY. All
covenants and obligations of Borrower contained herein
relating to the Mortgaged Property shall be deemed to
apply to the Personal Property whether or not expressly
referred to herein.
23. SECURITY AGREEMENT. This Mortgage constitutes a
security agreement as that term is used in the Uniform
Commercial Code of Florida.
24. ACCELERATION OF DEBT. If there is an Event of
Default under the Note or the Loan Agreement or if an
event occurs which pursuant to the Note or the Loan
Agreement entitles Lender to accelerate the Loan, then,
at the option of Lender, the entire indebtedness hereby
secured shall become immediately due and payable
without further notice.
25. ADDITIONAL RIGHTS OF LENDER.
25.1 ENTER AND PERFORM. Borrower authorizes Lender,
in addition to all other rights granted by law or by
this Mortgage, or by any of the other Loan Documents,
whenever and as long as any Event of Default hereunder
or under the Loan Agreement shall exist to enter and
take possession of all or any part of the Mortgaged
Property and to use, lease, operate, manage and control
the same and conduct the business thereof, and perform
Borrower's obligations as lessor under any lease or
Borrower's obligations under any other agreement
affecting all or any part of
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the Mortgaged Property, and collect the rents, profits
and all receipts of every nature therefrom as Lender
shall deem best.
25.2 REPAIRS AND IMPROVEMENTS. Upon every such
entry, Lender may from time to time at the expense of
Borrower make all such repairs, replacements,
alterations, additions and improvements to the
Mortgaged Property as Lender may deem proper, but in no
event shall Lender be obligated to do so, and may, but
shall not be obligated to, exercise all rights and
powers of Borrower, either in the name of Borrower, or
otherwise as Lender shall determine. Without limitation
express or implied upon the generality of the
foregoing, Lender shall have the right to do all things
necessary or desirable in order to keep in full force
and effect all applicable licenses, permits and
authorizations and any amendments thereto.
25.3 PAY COSTS AND EXPENSES. Upon such entry, Lender
may, at its option, but without any obligation to do
so, do any one or more of the following: pay and incur
all expenses necessary or deemed by it appropriate for
the holding and operating of the Mortgaged Property,
the conduct of any business thereon, the maintenance,
repair, replacement, alteration, addition and
improvement of the Mortgaged Property, including
without limitation payments of taxes, assessments,
insurance, wages of employees connected with the
Mortgaged Property or any business conducted thereon,
charges and reasonable compensation for services of
Lender, its attorneys and accountants and all other
persons engaged or employed in connection with the
Mortgaged Property or of any business conducted thereon
and, in addition, Lender, at its option, may, but shall
not be obligated to, make payments or incur liability
with respect to obligations arising prior to the date
it takes possession.
25.4 ADD TO SECURED INDEBTEDNESS. All obligations so
paid or incurred by Lender shall be reimbursed or paid
for by Borrower upon demand and prior to the repayment
thereof shall be added to the debt secured hereby and
shall bear interest at the Default Rate provided for in
the Note or the Loan Agreement, and shall be secured
hereby equally and ratably. Lender may also reimburse
itself therefor from the income or receipts of the
Mortgaged Property or any business conducted thereon,
or from the sale of all or any portion of the Mortgaged
Property. Lender may also apply toward any of the
Obligations any tax or insurance reserve account,
deposit or any sum credited or due from Lender to
Borrower without first enforcing any other rights of
Lender against Borrower or the against any endorser or
guarantor of any of the Obligations or against the
Mortgaged Property.
25.5 ATTORNEY-IN-FACT. Borrower hereby irrevocably
constitutes and appoints Lender, or any agent
designated by Lender, for so long as this Mortgage
remains undischarged of record, as attorney-in-fact of
Borrower to execute, acknowledge, seal and deliver all
instruments, agreements, deeds, certificates and other
documents of every nature and description in order to
carry out or implement the exercise of Lender's rights
hereunder and under the other Loan Documents from and
after the occurrence of an Event of Default.
26. CONTEST OF LAWS. Borrower shall have the right
to contest by appropriate legal proceedings, but
without cost or expense to Lender, the validity of any
Legal Requirements affecting the Mortgaged Property
subject to the provisions of the Loan Agreement and the
Environmental Indemnity dealing with the right to
contest.
27. NOTICES. Any demand, notice or request by either
party to the other shall be given in the manner
provided therefor in the Loan Agreement.
28. LENDER NOT OBLIGATED; CUMULATIVE RIGHTS. Nothing
in this instrument
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shall be construed as obligating Lender to take any
action or incur any liability with respect to the
Mortgaged Property or any business conducted thereon,
and all options given to Lender are for its benefit and
shall and may be exercised in such order and in such
combination as Lender in its sole discretion may from
time to time decide.
29. SEVERABILITY. In case any one or more of the
provisions of this Mortgage Deed and Security
Agreement, the Note, the Assignment of Leases and
Rents, the Loan Agreement, any of the other Loan
Documents, or any other agreement now or hereafter
executed in connection with any one or more of the
foregoing are held to be invalid, illegal or
unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any
other provision hereof. Each of the provisions of every
such agreement, document or instrument shall be
enforceable by Lender to the fullest extent now or
hereafter not prohibited by applicable law.
30. APPOINTMENT OF RECEIVER. Upon, or at any time
after the filing of a complaint to foreclose this
Mortgage, the court in which such complaint is filed
may appoint a receiver of the Mortgaged Property. Such
appointment may be made either before or after sale,
without notice, without regard to the solvency or
insolvency of Borrower at the time of application for
such receiver and without regard to the then value of
the Mortgaged Property or whether the same shall be
then occupied as a homestead or not and Lender
hereunder or any holders may be appointed as such
receiver. Such receiver shall have power: (a) to
collect the rents, issues and profits of the Mortgaged
Property during the pendency of such foreclosure suit
and, in case of a sale and a deficiency, during the
full statutory period of redemption, whether there be
redemption or not, as well as during any further times
when Borrower, except for the intervention of such
receiver, would be entitled to collect such rents,
issues and profits; (b) to extend or modify any then
existing leases and to make new leases, which
extensions, modifications and new leases may provide
for terms to expire, or for options to lessees to
extend or renew terms to expire, beyond the maturity
date of the indebtedness hereunder and beyond the date
of the issuance of a deed or deeds to a purchaser or
purchasers at a foreclosure sale, it being understood
and agreed that any such leases, and the options or
other such provisions to be contained therein, shall be
binding upon Borrower and all persons whose interests
in the premises are subject to the lien hereof and upon
the purchaser or purchasers at any foreclosure sale,
notwithstanding any redemption from sale, discharge of
the mortgage indebtedness, satisfaction of any
foreclosure decree, or issuance of any certificate of
sale or deed to any purchaser; and (c) all other powers
which may be necessary or are usual in such cases for
the protection, possession, control, management; and
operation of the premises during the whole of said
period. The court from time to time may authorize the
receiver to apply the net income in his hands in
payment in whole or, in part of (a) the indebtedness
secured hereby, or by any decree foreclosing this
mortgage, or any tax, special assessment or other lien
which may be or become superior to the lien hereof or
of such decree, provided such application is made prior
to foreclosure sale; (b) the deficiency in case of a
sale and deficiency.
31. STAMP TAX, ETC. If at any time any governmental
body shall impose a stamp, documentary or other similar
tax on the Note, this Mortgage, the debt secured hereby
or the income generated therefrom, or any modification,
amendment, extension or consolidation of either
thereof, Borrower will pay the same within ten (10)
days after demand by the Lender.
32. RECOVERY OF SUMS. Lender shall have the right
from time to time to take action to recover any sums,
whether interest, principal or any installment of
either, or any other sums required to be paid under the
terms of this Mortgage which is not paid, as the same
become due or within any applicable cure period and
without prejudice to the right of Lender thereafter to
bring an action of foreclosure, or any other action,
for a default or defaults by Borrower existing at the
time such earlier action was commenced.
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33. GOVERNING LAW. This Mortgage and the rights and
obligations of the parties hereto shall be governed by
and construed and enforced in accordance with the laws
of the Commonwealth of Massachusetts, except to the
extent that the laws of the State of Florida may govern
matters of title, enforcement, remedies, and similar
matters.
34. CONSENT TO JURISDICTION. Borrower, to the extent
that it may lawfully do so, hereby submits to the
jurisdiction of the courts of the Commonwealth of
Massachusetts and the State of Florida and the United
States District Courts for the Districts of
Commonwealth of Massachusetts and Florida, as well as
to the jurisdiction of all courts from which an appeal
may be taken from the aforesaid courts, for the purpose
of any suit, action or other proceeding arising out of
the breach by Borrower of any of obligations under or
with respect to the Note or this Mortgage, and
expressly waives any and all objections it may have as
to venue in any of such courts.
3 5. LIMITATION OF INTEREST. It is the intent of
Borrower and Lender in the execution of this Mortgage
and the Note and all other instruments securing the
Note to contract in strict compliance with the usury
laws of the Commonwealth of Massachusetts governing the
loan evidenced by the Note. In furtherance thereof,
Lender and Borrower stipulate and agree that none of
the terms and provisions contained in the Loan
Documents shall ever be construed to create a contract
for the use, forbearance or detention of money
requiring payment of interest at a rate in excess of
the maximum interest rate permitted to be charged by
the laws of the Commonwealth of Massachusetts governing
the loan evidenced by the Note. Borrower or any
guarantor, endorser or other party now or hereafter
becoming liable for the payment of the Note shall never
be liable for unearned interest on the Note and shall
never be required to pay interest on the Note at a rate
in excess of the maximum interest that may be lawfully
charged under the laws of the Commonwealth of
Massachusetts and the provisions of this Section shall
control over all other provisions of the Note and any
other instrument executed in connection herewith which
may be in apparent conflict herewith. In the event any
holder of the Note shall collect monies which are
deemed to constitute interest in excess of the maximum
rate permitted by the laws of the Commonwealth of
Massachusetts, all such sums deemed to constitute
interest in excess of the legal rate shall be
immediately returned to Borrower upon such
determination.
36. LENDER'S RIGHTS. Borrower acknowledges its
understanding that Lender may have rights against
Borrower, now or in the future, in its capacity as
secured party, creditor, or in any other capacities.
Such rights may include the right to deprive Borrower
of or affect the use of or possession or enjoyment of
Borrower's Mortgaged Property; and in the event Lender
deems it necessary to exercise any of such rights prior
to the rendition of a final judgment against Borrower,
or otherwise, Borrower may be entitled to notice and/or
hearing under the Constitution of the United States
and/or Commonwealth of Massachusetts, and/or
Commonwealth of Massachusetts statutes (to determine
whether or not Lender has a probable cause to sustain
the validity of Lender's claim), or the right to notice
and/or hearing under other applicable state or federal
laws pertaining to prejudgment remedies, prior to the
exercise by Lender of any such rights. Borrower
expressly waives any such right to prejudgment remedy
notice or hearing to which Borrower may be entitled;
provided, however, that this waiver shall not include a
waiver of such rights as Borrower shall have to prior
notice of the proposed disposition of Mortgaged
Property by Lender. Specifically and without limiting,
the generality of the foregoing, Borrower recognizes
that Lender has and shall continue to have an absolute
right to effect collection of any of the Mortgaged
Property with respect to which Lender holds a security
interest without the necessity of according to Borrower
any prior notice or hearing. This shall be a continuing
waiver and remain in full force and effect so long as
Borrower is obligated to Lender.
37. REINSTATEMENT OF LIEN. Lender's rights hereunder
shall be reinstated and
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reviewed, and the enforceability of this Mortgage shall
continue with respect to any amount at any time paid on
account of the Obligations which Borrower is thereafter
required to restore or return in connection with a
bankruptcy, insolvency, reorganization or similar
proceedings with respect to the Borrower.
38. RELEASE. Upon payment in full of the
indebtedness secured hereby, subject to Section 38
above, this instrument shall become null and void and
shall be released by the Lender at Borrower's expense.
39. NO WAIVER. No consent or waiver, express or
implied, by Lender to or of any Default by Borrower
shall be construed as a consent or waiver to or of any
other Default at the same time or upon any future
occasion.
40. WAIVERS BY BORROWER. Borrower, to the fullest
extent that Borrower may do so, hereby: (a) agrees that
Borrower will not at any time insist upon, plead, claim
or take the benefit or advantage of any law now or
hereafter in force providing for any appraisement,
valuation, stay or extension, or any redemption after
foreclosure sale, and waives and releases all rights of
redemption after foreclosure sale, valuation,
appraisement, stay of execution, notice of election to
mature or declare due the debt secured hereby; and (b)
waives all rights to a marshalling of the assets of
Borrower, including the Mortgaged Property, or to a
sale in inverse order of alienation in the event of a
sale hereunder of the Mortgaged Property, and agrees
not to assert any right under any statute or rule of
law pertaining to the marshalling of assets, sale in
inverse order of alienation, or other matters whatever
to defeat, reduce or affect the right of Lender under
the terms of this Mortgage Deed and Security Agreement
or the Note to a sale of the Mortgaged Property for the
collection of the indebtedness evidenced by the Note
without any prior or different resort for collection,
or the right of Lender to the payment of such
indebtedness out of the proceeds of sale of the
Mortgaged Property in preference to every other
claimant whatever.
41. BUSINESS LOAN: NOT PERSONAL RESIDENCE. Borrower
covenants, warrants and represents that all of the
proceeds of the Loan secured hereby shall be used for
business or commercial purposes, none of the proceeds
of the Loan secured hereby shall be used for personal,
family or household purposes, and that no individual
liable for the Loan resides or intends to reside in any
portion of the Mortgaged Property.
42. CERTIFICATION. The undersigned hereby certifies
that Borrower is a duly organized, validly existing
corporation organized and in good standing under the
laws of the State of Washington and duly qualified to
do business in the State of Florida and that the
execution and delivery hereof and of all of the other
Loan Documents by Borrower has been duly authorized by
a resolution of the board of directors of the general
partner of the Borrower which is in full force and
effect.
43. HEADINGS. Headings and captions in this Mortgage
are for convenience and reference only and the words
and phrases contained therein shall in no way be held
to explain, modify, amplify or aid in the
interpretation, construction or meaning of any of the
provisions hereof.
44. TIME OF ESSENCE. Time shall be of the essence of
each and every provision of the Loan Agreement, the
Note, this Mortgage and each of the other Loan
Documents subject to any cure period provided for
therein.
NEXT PAGE IS SIGNATURE PAGE
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IN WITNESS WHEREOF, the Borrower has caused this
Mortgage to be duly executed and delivered as a sealed
instrument as of the 30th day of April, 1997
WITNESSES: BORROWER:
/s/ Jennifer A. Valenta By: /s/ Raymond
R. Brandstrom
- --------------------------------------
- ---------------------------------------
Name: Jennifer A. Valenta Raymond
R. Brandstrom
Its: President
/s/ Susan Griffin
- -------------------------------------
Name: Susan Griffin
* This document has been executed on the 30th day of
April, 1997, but is to be effective as of May 1, 1997
upon the filing with the Secretary of State,
Corporations Division, in the State of Washington and
with the Department of State of the State of Florida of
the Articles Merger with NPR Retirement Center, Inc.,
Stanford Centre, Inc. and Englewood Retirement Center,
Inc. merged into Emeritus Properties V, Inc., a
Washington corporation.
13
<PAGE>
STATE OF Washington
COUNTY OF King
On the 30th day of April, 1997, before me personally
appeared Raymond R. Brandstrom, the President f
Emeritus Properties V, Inc., to me known and known by
me to be the party executing the foregoing instrument
on behalf of said partnership and acknowledged said
instrument so executed to be his free act and deed in
said capacity and the free act and deed
of said corporation.
/s/ Catherine L. Pasquan
---------------------------------
----------
Notary Public
Print Name Catherine L. Pasquan
My commission expires 3-30-99
This instrument prepared by:
Lorne W. McDougall, Esq.
Edwards & Angell
101 Federal Street [SEAL]
Boston, MA 02110
14
<PAGE> EX 10.68
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (this "Agreement") is
made and entered into as of the 25th day of April,
1997, by and between EMERITUS CORPORATION (formerly
known as Assisted Living of America, Inc.), a
Washington corporation, with a place of business at
3131 Elliott Avenue, Suite 500, Seattle, Washington
98121 ("Emeritus") and CAREMATRIX CORPORATION (formerly
known as The Standish Care Company), a Delaware
corporation, with a place of business at 197 First
Avenue, Needham, Massachusetts 02194 ("CareMatrix").
RECITALS :
WHEREAS, Emeritus and CareMatrix entered into that
certain Development Agreement dated June 9,1995 (the
"Tewksbury Development Agreement"), a copy of which is
attached hereto as Exhibit A, pursuant to which
CareMatrix agreed to rehabilitate an assisted living
community located in Tewksbury, Massachusetts (the
"Tewksbury Facility");
WHEREAS, Emeritus and CareMatrix entered into that
certain Management & Marketing Agreement dated June
9,1995 pursuant to which CareMatrix agreed to
establish, market and manage the Tewksbury Facility
(the "Tewksbury Management & Marketing Agreement"), a
copy of which is attached hereto as Exhibit B;
WHEREAS, Emeritus and CareMatrix entered into that
certain Equity Participation Agreement dated June 26,
1995 (the "Equity Participation Agreement"), a copy of
which is attached hereto as Exhibit C, pursuant to
which Emeritus and CareMatrix agreed that Emeritus
would receive eighty-five percent (85%) and CareMatrix
would receive fifteen percent (15%) of, among other
things, the Net Cash Flow, as defined in the Equity
Participation Agreement, and the proceeds from any
Capital Item, as defined in the Equity Participation
Agreement, from the Tewksbury Facility, in the manner
provided, and upon the terms and conditions set forth,
in the Equity Participation Agreement;
WHEREAS Emeritus and CareMatrix entered into that
certain Development Agreement dated as of November
7,1994 (the "Pikesville Development Agreement"), a copy
of which is attached hereto as Exhibit D, pursuant to
which CareMatrix agreed to develop a facility to be
located in Pikesville, Maryland (the "Pikesville
Facility").
WHEREAS Emeritus and CareMatrix entered into that
certain Management and Marketing Agreement dated as of
June 29,1995 (the "Pikesville Management and Marketing
Agreement"), a copy of which is attached hereto as
Exhibit E, pursuant to which CareMatrix agreed to
establish, market and manage the Pikesville Facility.
WHEREAS, Emeritus and CareMatrix entered into that
certain Management Agreement dated September 1,1994, a
copy of which is attached hereto as Exhibit F, pursuant
to which CareMatrix agreed to manage an assisted living
community (the "Carriage Hill Facility") located in
Bedford, Virginia (the "Carriage Hill Management
Agreement");
WHEREAS, as of the date hereof, approximately
Seventy-Five Thousand Four Hundred Ninety Dollars
($75,490) is due and owing to CareMatrix under the
Tewksbury Development Agreement, the Tewksbury
Management & Marketing Agreement and the Carriage Hill
Management Agreement;
WHEREAS, pursuant to that certain Limited
Liability Company
Agreement of Lakes Region Villages, L.L.C. (the "Lakes
Region Villages Agreement"), a copy of which is
attached hereto as Exhibit G, S Standish Lakes Region
Villages, Inc., a wholly-owned
<PAGE>
subsidiary of CareMatrix Standish Lakes"), and Emeritus
formed a limited liability company ("Lakes Region
Villages"), in which Standish Lakes holds a fifty-one
percent (51%) membership interest and Emeritus holds a
forty-nine percent (49%) membership interest (the
"Emeritus Membership Interest");
WHEREAS, Lakes Region Villages purchased a
supportive sheltered care facility located in Franklin,
New Hampshire (the "Sunny Knoll Facility") and
simultaneously with such purchase, Emeritus made a loan
in the original principal amount of Six Hundred
Thousand Dollars ($600,000) to Standish Lakes, which
loan is evidenced by a promissory note, dated May 1,
1995, by Standish Lakes in favor of Emeritus (the
"Sunny Knoll Note"), a copy of which is attached hereto
as Exhibit H;
WHEREAS, in connection with the purchase, on an
installment sales basis, of the Sunny Knoll Facility,
Lakes Region Villages (i) executed a promissory note in
the amount of $1,100,000.00 payable to Sunny Knoll
Retirement Home, Inc. ("Retirement Home") and due and
payable on April 30, 1997 (the "Retirement Home Note"),
a copy of which is attached hereto as Exhibit I, (ii)
executed a promissory note in the amount of $749,331.49
payable to Benjamin Bartley, L.L.C. ("Bartley") and due
and payable April 30, 1997 (the "Bartley Note"), a copy
of which is attached hereto as Exhibit J, which Bartley
Note evidences Lakes Region Villages' assumption of an
outstanding loan with Horizon Bank (the "Horizon
Loan"), in the original principal amount of $800,000,
secured by a first mortgage on the Sunny Knoll
Facility, a copy of which is attached hereto as Exhibit
K, at its then current outstanding principal balance;
(iii) entered into a Business Lease and Agreement dated
May 1, 1995 with Retirement Home (the "Retirement Home
Agreement"), a copy of which is attached hereto as
Exhibit L, providing for the conveyance of the business
assets related to the Sunny Knoll Facility and an
interim lease thereof expiring April 30, 1997, and (iv)
entered into a Real Estate Lease and Agreement dated
May l,1995 with Bartley (the "Bartley Agreement"), a
copy of which is attached hereto as Exhibit M,
providing for the conveyance of the real estate related
to the Sunny Knoll Facility and an interim lease
thereof expiring April 30, 1997. Lakes Region Villages
holds a mortgage encumbering the real estate related to
the Sunny Knoll Facility to secure the obligations of
Retirement Home and Bartley under their respective
agreements, a copy of which is attached hereto as
Exhibit N. Lakes Region Villages and CareMatrix are
parties to a Management Agreement dated May l,1995 (the
"Sunny Knoll Management Agreement"), pursuant to which
CareMatrix manages the Sunny Knoll Facility, a copy of
which is attached hereto as Exhibit O. Emeritus has
executed a Guaranty dated May 1,1995 (the "Emeritus
Guaranty"), a copy of which is attached hereto as
Exhibit P, pursuant to which it has guaranteed the
performance and payment of the Retirement Home Note.
WHEREAS Emeritus is owner and holder (i) of an
aggregate principal amount of $2,000,000.00 of
Convertible Debentures of CareMatrix (the "Debentures")
the terms of which are governed by a Convertible
Debenture Agreement dated June 10, 1994 (the
"Convertible Debenture Agreement"), a copy of which are
attached hereto as Exhibit Q, and (ii) Warrants to
purchase 10,000 post-split shares of CareMatrix Common
Stock (the Warrants"), a copy of which are attached
hereto as Exhibit R, which Debentures and Warrants were
in part issued to Columbia-Pacific Group, Inc., an
affiliate of Emeritus, and later assigned to Emeritus.
Daniel R. Baty ("Baty"), the Chief Executive Officer of
Emeritus, also hold warrants to purchase 10,000 post
split shares of CareMatrix Common Stock (the "Baty
Warrants"), a copy of which are attached hereto as
Exhibit S. Emeritus, Baty and CareMatrix are parties to
a Registration Rights Agreements dated June 10,1994
relating to the registration of the securities
described above (the "Registration Rights Agreement"),
a copy of which are attached hereto ss Exhibit T.
WHEREAS, CareMatrix assigned to Emeritus and
Emeritus assumed an and all of CareMatrix's rights,
obligations and liabilities under a certain Asset
Purchase Agreement (the "Green Meadows Agreement"), a
copy of which is attached hereto as Exhibit U, dated
July 31, 1995 with P. Jules Patt and related entities
respecting certain senior living facilities in New
York,
2
<PAGE>
Pennsylvania and Delaware known collectively as the
"Green Meadows Facilities".
WHEREAS, certain claims have been made against
CareMatrix and Emeritus by Russell J. Biggica, a
partner of P. Jules Patt, in the matter of Russell J.
Biggica v. P. Jules Patt L Robbins Allentown Personal
Care General Partnership Painted Post Partnership Unit
Partnership Salisbury General Partnership The Standish
Care Company and Emeritus Corporation Court of Common
Pleas, Blair County, Pennsylvania, C.A. No. 96 CP
000661 (the "Biggica Lawsuit").
WHEREAS, CareMatrix and Emeritus acknowledge and
agree that the Tewksbury Development Agreement, the
Tewksbury Management & Marketing Agreement, the Equity
Participation Agreement, the Pikesville Development
Agreement, the Pikesville Management & Marketing
Agreement, the Carriage Hill Management Agreement, and
the Sunny Knoll Management Agreement, represent all of
the service agreements between the parties, which shall
be referred to herein, collectively, as the "Service
Agreements; and the Tewksbury Facility, the Sunny Knoll
Facility, the Pikesville Facility, the Carnage Hill
Facility, and the Green Meadows Facilities, shall be
referred to herein, collectively, as the "Facilities".
WHEREAS, CareMatrix and Emeritus desire to enter
into this Agreement to (i) acknowledge the termination
of the Service Agreements, (ii) to settle any and all
matters outstanding in connection with the Facilities,
and (iii) to ratify and confirm certain other
agreements and understandings between them, all as
specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual
promises
contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, Emeritus and CareMatrix agree as
follows:
l. CONVERTIBLE DEBENTURES. Emeritus and
CareMatrix acknowledge and agree (i) that the
Convertible Debentures shall remain in effect in
accordance with the terms and provisions of the
Convertible Debenture Agreement, (ii) that the Warrants
and Baty Warrants shall remain in effect in accordance
with their terms and (iii) that the Registration Rights
Agreements shall remain in effect in accordance with
its terms.
2. TRANSFER OF MEMBERSHIP INTERESTS. Emeritus
agrees that promptly after the date hereof, it shall
transfer the entire Emeritus Membership Interest to an
entity designated by CareMatrix. Emeritus shall execute
such instruments of transfer, and such other
certificates as CareMatrix shall reasonably request to
effectuate such transfer, including, without
limitation, the documents, certificates and instruments
contemplated by Section 9.2(c) of the Lakes Region
Villages Agreement. The date on which such transfer is
consummated is referred to herein as the "Effective
Date." It is the parties' intention that the transfer
of such Emeritus Membership Interest shall constitute
the complete transfer and relinquishment by Emeritus to
CareMatrix of any and all of Emeritus' right, title and
interest in and related to the Sunny Knoll Facility.
3. PAYMENT AND SATISFACTION OF SUNNY KNOLL NOTE
AND OTHER OUTSTANDING OBLIGATIONS. On the Effective
Date, CareMatrix shall make a cash settlement payment
(the "Settlement Payment") to Emeritus in an amount
equal to the sum of (i) Four Hundred Nine Thousand
Eight Hundred Twenty-Eight Dollars ($409,828), plus
(ii) accrued but unpaid interest from the date hereof
through the Effective Date. The Settlement Payment
shall be full and complete satisfaction of all
outstanding obligations between the parties except as
specifically set forth herein. CareMatrix hereby waives
the sum of Seventy-Five Thousand Four Hundred Ninety
Dollars ($75,490) due and owing to it under the
Tewksbury Development Agreement, the Tewksbury
Management & Marketing Agreement and the Carriage Hill
3
<PAGE>
Management Agreement.
4. INDEMNIFICATION RELATING TO OTHER SUNNY KNOLL
OBLIGATIONS. CareMatrix hereby indemnifies and holds
Emeritus harmless from any and all liabilities,
damages, losses, payments and expenses (including
reasonable attorneys fees) relating to or arising out
of the operation of the Sunny Knoll Facility, the
Retirement Home Note, the Bartley Note, the Retirement
Home Agreement, the Bartley Agreement, the Horizon
Loan, the Sunny Knoll Management Agreement, the
Emeritus Guaranty or any other documents, agreements or
obligations related to the Sunny Knoll Facility or its
operation or acquisition.
5. INDEMNIFICATION RELATING TO THE TEWKSBURY
PIKESVILLE CARRIAGE HILL AND GREEN MEADOWS FACILITIES
OBLIGATIONS. Emeritus hereby indemnifies and holds
CareMatrix harmless from any and all liabilities,
damages, losses, payments and expenses (including
reasonable attorneys fees) relating to or arising out
of the operation of the Tewksbury Facility, the
Pikesville Facility, the Carriage Hill Facility, the
Green Meadows Facilities or any other documents,
agreements or obligations related to the Tewksbury
Facility the Pikesville Facility, the Carriage Hill
Facility, the Green Meadows Facilities or its operation
or acquisition, provided however, Emeritus'
indemnification obligation hereunder shall not be
deemed to include any claims, liabilities, damages
losses, payments or expenses relating to or arising out
of the Biggica Lawsuit.
6. RELEASE.
(a) As of the Effective Date, Emeritus
releases CareMatrix and all of its shareholders,
directors, officers, agents, affiliates, employees,
attorneys, successors and assigns (collectively, the
"CareMatrix Released Parties") from all liabilities,
actions, causes of action, claims, counterclaims,
defenses, offsets, charges, obligations and demands
whatsoever (whether known or unknown, direct or
indirect, contingent or non-contingent) at law, in
equity or otherwise (collectively, the "Claims")
against the CareMatrix Released Parties, which
Emeritus, its successors or assigns ever had, now have
or hereafter can, shall or may have for, upon, or by
reason or on accident of or in any way related to any
acts, omissions or circumstances occurring prior to or
as of the Effective Date, including, without
limitation, anything in connection with the Carriage
Hill Facility, the Tewksbury Facility, the Pikesville
Facility, the Sunny Knoll Facility, or the Green
Meadows Facilities, including without limitation, all
Claims arising out of, in connection with, or in any
way relating to (i) the Tewksbury and Pikesville
Development Agreements, (ii) the Tewksbury and
Pikesville Management and Marketing Agreements, (iii)
the Equity Participation Agreement, (iv) the
Convertible Debenture Agreement, the Warrant, the Baty
Warrant and the Registration Rights Agreement, (v)
Lakes Region Villages Agreement and the Sunny Knoll
Note, and (vi) the Carriage Hill Management Agreement;
provided however, this release shall not be deemed to
include any claims, liabilities, damages losses,
payments or expenses relating to or arising out of the
Biggica Lawsuit.
(b) As of the Effective Date, CareMatrix
releases Emeritus and all of its shareholders,
directors, officers, agents, affiliates, employees,
attorneys, successors and assigns (collectively, the
"Emeritus Released Parties") from all liabilities,
actions, causes of action, claims, counterclaims,
defenses, offsets, charges, obligations and demands
whatsoever (whether known or unknown, direct or
indirect, contingent or non-contingent) at law, in
equity or otherwise (collectively, the "Claims")
against the Emeritus Released Patties, which
CareMatrix, its successors or assigns ever had, now
have or hereafter can, shall or may have for, upon, or
by reason or on accident of or in any way related to
any acts, omissions or circumstances occurring prior to
or as of the Effective Date, including, without
limitation, anything in connection with the Carriage
Hill Facility, the Tewksbury Facility, the Pikesville
Facility or the Sunny Knoll Facility,
4
<PAGE>
including without limitation, all Claims arising out
of, in connection with, or in any way relating to (i)
the Tewksbury and Pikesville Development Agreements,
(ii) the Tewksbury and Pikesville Management and
Marketing Agreements, (iii) the Equity Participation
Agreement, (iv) the Convertible Debenture Agreement,
the Warrant, the Baty Warrant and the Registration
Rights Agreement, (v) Lakes Region Village Agreement
and the Sunny Knoll Note and (vi) the Carriage Hill
Management Agreement.
7. ACKNOWLEDGMENT. The parties acknowledge that
the Service Agreements are terminated and of no further
force or effect.
8. REPRESENTATIONS AND WARRANTIES.
(a) Emeritus represents to CareMatrix as
follows:
(i) Emeritus is a corporation duly
organized, validly existing and in good standing under
the laws of the state of Washington.
(ii) The execution, delivery and
performance by Emeritus of this Agreement have been
duly authorized by Emeritus by any and all necessary
corporate action, and this Agreement has been duly
executed and delivered by an officer of Emeritus who is
duly authorized to effect such execution and delivery
on behalf of Emeritus.
(iii) This Agreement constitutes a
legal, valid and binding obligation of Emeritus
enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar
laws of general applicability relating to or affecting
creditors' rights or by general principles of equity.
(iv) To Emeritus' knowledge, no consent,
license, approval or authorization of, or filing,
registration or declaration with, or exemption by, any
governmental body, authority, bureau or agency is
required in connection with the execution, delivery or
performance by Emeritus of this Agreement.
(v) The execution, delivery and
performance of this Agreement by Emeritus does not and
will not violate Emeritus' articles of incorporation,
by-laws or, to Emeritus' knowledge, any law,
governmental regulation, judgment, order or decree
applicable to Emeritus.
(b) CareMatrix represents to Emeritus as
follows:
(i) CareMatrix is a corporation duly
organized, validly existing and in good standing under
the laws of the state of Delaware.
(ii) The execution, delivery and
performance by CareMatrix of this Agreement have been
duly authorized by CareMatrix by any and all necessary
corporate action, and this Agreement has been duly
executed and delivered by an officer of CareMatrix who
is duly authorized to effect such execution and
delivery on behalf of CareMatrix.
(iii) This Agreement constitutes a
legal, valid and binding obligation of CareMatrix
enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar
laws of general applicability relating to or affecting
creditors' rights or by general principles of equity.
5
<PAGE>
(iv) To CareMatrix's knowledge, no
consent, license, approval or authorization of, or
filing, registration or declaration with, or exemption
by, any governmental body, authority, bureau or agency
is required in a connection with the execution,
delivery or performance by CareMatrix of this
Agreement.
(v) The execution, delivery and
performance of this Agreement by CareMatrix does not
and will not violate CareMatrix's articles of
incorporation, by-laws or, to CareMatrix's knowledge,
any law, governmental regulation, judgment, order or
decree applicable to CareMatrix.
9. NOTICE. All notices to be given hereunder
shall be given in writing, postage prepaid via
certified mail, return receipt requested, by overnight
courier, or by hand delivery, and addressed to the
parties as follows:
If to CareMatrix: CareMatrix Corporation
197 First Avenue
Needham, MA 02194
Attention: President
with a copy to: CareMatrix Corporation
197 First Avenue
Needham, MA 02194
Attention: General Counsel
If to Emeritus: Emeritus Corporation
3131 Elliott Avenue, Suite
500
Seattle, WA 98121
Attention: Mr. Daniel Baty
with a copy to: Perkins Coie
1201 Third Avenue
Seattle, WA 98101
Attention: Michael E.
Stansbury, Esquire
Notices shall be considered received three days after
their placement in the U.S. mail or one day after their
mailing via overnight courier. Each party may, on
notice to the other party, designate further or
different addresses to which subsequent notices shall
be sent.
10. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. All of the terms,
covenants and conditions herein contained shall be for
and shall inure to the benefit of and shall bind the
respective parties hereto, and their officers, agents,
directors, shareholders, employees, heirs, executors,
administrators, personal or legal representatives,
successors and assigns, respectively.
(b) GOVERNING LAW. This Agreement shall be
governed by and construed and enforced in accordance
with the laws of The Commonwealth of Massachusetts.
(c) AMENDMENT. This Agreement may not be released,
discharged, changed or
6
<PAGE>
modified in any manner, except by an instrument in
writing signed by each of the parties hereto.
(d) SEVERABILITY. If any of the provisions of this
Agreement shall be held invalid, such invalidity shall
not affect any other provision of this Agreement.
(c) CAPTIONS. The captions and headings used in
this Agreement are for convenience of reference only
and are not part of this Agreement.
(d) WAIVER. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a
waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by
the party making the waiver.
(e) COSTS. Each party hereto shall be responsible
for all of the expenses incurred by it in connection
with the negotiation and execution of this Agreement
and any and all contemporaneous documents related
hereto.
(f) COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall be an
original, but all of which shall constitute one and the
same agreement.
(g) FURTHER ASSURANCES. The parties shall execute
and deliver such further instruments and do such
further acts and things as may be reasonably required
to carry out the intent and purpose of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first set forth above.
WITNESS: EMERITUS CORPORATION
/s/ Jennifer A. Valenta /s/ Kelly J.
Price
- ------------------------------- -----
- -----------------------------
By: Jennifer A. Valenta By: Kelly J.
Price
Title: Secretary
WITNESS: CAREMATRIX
CORPORATION
/s/ Laurie I. Greib /s/ Richard
- ----------------------------- ----------
- -------------------------
By: Laurie I. Greib By: Richard
Title: V.P.
7
<PAGE> EX 10.69
MARTIN SELIG
REAL ESTATE
September 6, 1996
Mr. Frank Ruffo, Executive Vice President
EMERITUS CORPORATION
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Dear Frank:
Please refer to your lease dated April 29, 1996, and
all subsequent amendments and addenda thereto for the
space you occupy within the 3131 Elliott Building.
Please consider this a further addendum to that lease.
PREMISES
Emeritus Corporation hereby agrees to lease the
additional adjacent space of approximately 4,258
rentable square feet on the 5th floor of the 3131
Elliott Building.
RENT
The annual base rent for this additional space
will be at the same rate that Lessee is paying
for its other space under lease.
COMMENCEMENT AND LEASE TERM
Rent and lease term for this additional space
shall commence July 1,1997, and shall run
coterminous with your existing lease expiring
June 30, 2006. Provided however, that the rent
commencement date shall be extended one day for
each day that Lessor delays delivery of the
additional space beyond June 1,1997, in order to
provide Lessee with 30 days within which to
complete its tenant improvement work.
FINISH WORK/TENANT IMPROVEMENT ALLOWANCE
Pursuant to the existing lease, Lessee is
allotted a prorata share of the initial tenant
improvement allowance, which was $7.50 per rsf.
Lessee's lease commenced exactly one year prior
to the commencement of the lease for the
expansion space so the remaining improvement
allowance to be credited to Lessee in the way of
rent offset is $6.75 per rsf. [($7.50I10 yrs.) x
9 yrs.]
LEASING FEE
Lessor agrees to pay Teutsch Partners a leasing
fee equal to 2.5% of the gross
<PAGE>
Mr. Frank Ruffo
EMERITUS CORPORATION
September 6,1996
Page 2
lease value of the expansion space for the balance of
the initial term. This amount shall be paid by Lessee
and offset against its rent.
PARKING
Lessee shall be provided additional parking stalls at a
rate of two (2) stalls per 1,000 rsf, with one (1 )
stall per 750 rsf inside the building garage, all at
market rate and paid for by Lessee.
Except as modified herein, all other terms and
conditions of your original lease and addenda thereto
shall remain unchanged.
Please consider this document when fully executed, as
an addendum to your lease. If you are in agreement with
the above, please sign and date where indicated and
return all three copies to me for Martin Selig's
signature. Upon full execution, I shall return one copy
to you for your files.
Thank you, Frank, for this lease of additional space
and please let me know if we can assist you further in
any way. We look forward to continuing to satisfy your
office space needs.
Very truly yours,
/s/ Mike Brixner
Mike Brixner
Attachment
AGREED AND ACCEPTED:
MARTIN SELIG REAL ESTATE EMERITUS
CORPORATION
/s/ /s/ Frank
Ruffo
- ------------------------------------
- -------------------------------------
Martin Selig By: Frank
Ruffo
Its: EVP
9/16/96
- ----------------------------------
- -------------------------------------
Dated Dated
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this __ day of ________, 19__, before me, a Notary
Public in and for the State of Washington, personally
appeared MARTIN SELIG, the individual who executed the
within and foregoing instrument and acknowledged said
instrument to be his free and voluntary act and deed
for the uses and purposes therein mentioned.
------------------------------
- ------------------------------------------
Notary Public in and for the
State of Washington,
residing at
_______________________________________.
My commission expires: ___________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 16th day of September, 1996, before me, a
Notary Public in and for the State of Washington,
personally appeared Frank A. Ruffo, to me known to be
the Executive Vice President, of Emeritus Corporation,
the corporation that executed the within foregoing
instrument, and acknowledged the same instrument to be
the free and voluntary act and deed of said
corporation, for the uses and purposes therein
mentioned, and on oath stated that they were authorized
to execute said instrument and that the seal affixed
thereto is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have here unto set my hand
and affixed by official seal, the day and year first
above written.
Catherine L. Pasquan
-------------------------
-----------------
Notary Public in and for
the State of
Washington, residing at
Seattle.
My commission expires: 3-
30-99
[SEAL]
<PAGE> EX 10.72.1
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is dated for reference purposes
only as of the 5th day of 1997 and is by and
between Greencastle Retirement Partners,
L.L.C., a Maryland
corporation, or its assignee ("Purchaser") and Gail G.
Brown ("Seller").
RECITALS
A. Seller is the owner of a certain parcel of real
property located in Augusta County, Virginia.
B. Purchaser is interested in purchasing the real
property owned by Seller on the terms and conditions
specified herein.
NOW, THEREFORE, in consideration of the foregoing
promises and the mutual covenants of the parties set
forth herein, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. PURCHASE AND SALE
On the terms and conditions set forth herein,
Seller shall sell to Purchaser and Purchaser shall
purchase from Seller, the following;
a. Real Property. The undeveloped real property
totaling 22.593 acres consisting of two (2) parcels,
Tax Map # 10024 ( 18. 993 acres) and Tax Map # 10792
(3. 60 acres) of real property as more particularly
described on Exhibit "A" attached hereto which actual
dimensions and total acreage of Real Property will be
determined by a full survey, including all rights,
title and interest, if any, of Seller in (collectively,
the "Real Property"); and
b. Property Rights. All contract rights, surveys,
blue prints, studies, and other work in progress
relating to any proposed development of the Real
Property, and all licenses, permits, approvals and all
other entitlements, rights or privileges appurtenant to
or held by Seller in connection with, the Real Property
and/or any proposed development thereof (collectively,
the
"Property Rights").
The Real Property and the Property Rights are
sometimes collectively referred to herein as the
"Property".
2. PURCHASE PRICE
The purchase price for the Property shall be Two
Hundred Thousand and 00/100 Dollars ($200,000.00).
The purchase price shall be payable as follows:
a. Initial Earnest Money Deposit. Five Thousand
and 00/100 Dollars ($5,000.00) within five (5) business
days of mutual execution of this Agreement, which shall
be delivered in the form of a check made payable to
Hallmark Title, Inc. Vienna, Virginia ("Escrow Agent").
All
<PAGE>
such funds shall be held by Escrow Agent in an interest
bearing escrow account;
b. Additional Earnest Money Deposit. Ten Thousand
and 00/100 Dollars ($10,000.00) on or before conclusion
of the Feasibility Period (as defined below), which
shall be delivered in the form of a check made payable
to the Escrow Agent.
c. Extension Earnest Money Deposit. Five Thousand
and 00/100 Dollars ($5,000.00) before each of the
extensions of the Approval Period (as defined below),
which shall be delivered in the form of a check made
payable to the Escrow Agent. The Initial Earnest Money
Deposit, Additional Earnest Money Deposit and Extension
Earnest Money Deposit and any accrued interest thereon
shall be applied against the purchase price at Closing
or remitted to Seller or Purchaser, as appropriate, in
accordance with the provisions of Paragraph 16 below;
and
e. Balance of Purchase Price. The balance of the
purchase price shall be paid at the time of Closing by
wire transfer, cashier's check or other certified
funds.
3. CLOSING
Provided that the conditions to Closing set forth
in Paragraphs 12 and 13 have been satisfied or waived
in writing by the party for whom the condition exists,
closing of the purchase of the Property shall occur on
the date fifteen ( 15) days following the expiration of
the Approval Period (as defined below) or any extension
thereof pursuant to Paragraph 12.f. (the "Closing
Date") at such time and place as may be mutually agreed
upon by Seller and Purchaser. In the event the
scheduled Closing Date falls on a Saturday, Sunday or a
legal holiday, the Closing Date shall be the next
business day thereafter.
4. CONVEYANCES
At Closing, Seller shall convey the Real Property
to Purchaser by warranty deed, in form and substance
acceptable to Purchaser. Title to the Real Property
shall be conveyed free and clear of all liens or
encumbrances other than those approved by Purchaser
pursuant to Paragraph 12.c.
5. CLOSING COSTS AND PRORATIONS
At Closing, Seller and Purchaser shall be
responsible for the following costs and prorations:
a. Recording and Transfer Taxes. Purchaser shall
pay any state or county recording fees due and payable
as a result of the sale of the Property. Assessments,
revenue stamps and transfer taxes shall be paid by
Seller.
b. Agricultural Taxes. Seller shall pay any
agricultural or roll-back taxes.
c. Attorney's Fees. Seller and Purchaser shall
each pay their own attorneys' fees and costs, if any.
d. Escrow Fees. Seller and Purchaser shall share
all escrow fees on a 50-50 basis.
e. Real Property Taxes. Real property taxes with
respect to the Real Property shall be prorated as of
the Closing Date, with Seller responsible for any such
taxes which relate to the period prior to the Closing
Date, regardless of when payment therefor is due and
with Purchaser responsible for any such taxes which
relate to the period from and after the Closing Date.
If the Real Property is required to be subdivided into
a separate legal lot for the Closing, said pro ration
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of real property taxes shall be calculated based on the
latest available tax bill for the entire tax parcel of
which the Real Property is a part by allocating to the
Real Property a percentage of the real property taxes
reflected in said tax bill. The percentage shall be
determined by dividing the total number of acres
contained in the Real Property by the total number
acres contained in the entire tax parcel. As a matter
which shall survive the Closing hereunder, the parties
covenant and agree that, upon receipt of a separate tax
bill for the Real Property, the actual amount owed by
each of the parties for such pro ration of taxes shall
be determined and any amount thus determined to be owed
by one party to the other shall be paid within five (5)
days following demand therefor.
f. Title Insurance and Survey. Purchaser shall pay
for the cost of the premium for the Title Policy and
survey (as those terms are defined below).
In the event any prorations between the parties at
the time of Closing are made on the basis of
incomplete, incorrect, estimated or preliminary
information then, as a matter which shall survive the
Closing, the parties agree to re-adjust and re-
apportion such costs following the Closing promptly
upon receipt of complete, correct or final information,
which is verified by both parties.
6. POSSESSION
At Closing, Purchaser shall be entitled to
possession of the Real Property free and clear of all
tenancies.
7. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller does hereby represent and warrant to
Purchaser as follows:
a. Status. Seller is an individual.
b. Authority. Seller has full power and authority
to enter into this Agreement and to carry out the terms
hereof and the consummation of the transaction provided
for herein does not violate any law, regulation, court
order, mortgage, deed of trust, note, bond, indenture,
agreement, license or other instrument or obligation to
which Seller is a patty or by which its assets may be
bound or affected. This Agreement is valid, binding and
enforceable as against Seller in accordance with its
terms, except as such enforceability may be affected by
bankruptcy, receivership or creditors' rights laws
generally.
c. Health and Safety. Seller has not received any
written notification from the
Department of Building and Safety, Health department,
or other such City, County or State authority having
jurisdiction over the Real Property, requiring any work
to be performed or affecting the Real Property or
indicating any intent to condemn the Real Property or
any portion of the Real Property.
d. Title. Seller has good fee simple and
marketable title to the Real Property, which title as
of the Closing Date, will be free and clear of all
liens and encumbrances other than those approved by
Purchaser pursuant to Paragraph 12.c.
e. Litigation. There is no litigation,
investigation, or other proceeding pending or, to the
best of Seller's knowledge, threatened against or
relating to Seller which is material to the Real
Property or this Agreement. In the event that a lien,
claim, or cause of action affecting the Real
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Property should arise prior to the Closing, and
Purchaser elects not to terminate this Agreement as a
result thereof, Seller, at its sole cost and expense,
shall indemnify, defend and hold the Purchaser harmless
therefrom, including without limitation, reasonable
attorneys' fees, costs and expenses.
f. Environmental Matters. Except in accordance
with, and in full compliance with, any and all
applicable governmental laws, regulations and
requirements (collectively, the
"Environmental Laws") relating to environmental and
occupational health and safety matters and hazardous
materials, substances or wastes (as defined from time
to time under any applicable federal, state or local
laws, regulations or ordinances) and except as
disclosed in any environmental reports delivered to or
obtained by Purchaser, Seller has not released into the
environment, or discharged, placed or disposed of any
such hazardous materials, substances or wastes or
caused the same to be so released into the environment
or discharged, placed or disposed of, at, on or under
the Real Property. Except as disclosed in any
environmental reports delivered to or obtained by
Purchaser and to the best of Seller's knowledge: (i) no
hazardous materials, substances or wastes are located
on the Real Property or have been released into the
environment or discharged, placed or disposed of in, on
or under the Real Property, (ii) no underground storage
tanks are or have been located on the Real Property,
(iii) the Real Property has never been used as a dump
for waste material, and (iv) the Real Property and its
prior uses comply with, and at all times have complied
with, all Environmental laws.
g. Utilities. All utilities necessary for
Purchaser's intended development and
operation at the property are (or shall be as of the
Closing) available to the Property and are (or shall be
as of the Closing) located within ten (10) feet of the
property line.
h. Special Assessments. Seller has received no
notice and has no knowledge of any pending special
assessments to be made against the Real Property by any
governmental authority.
i. Tenancies. As of the date of this Agreement,
none of the Real Property is under lease to any person,
firm, or entity; and, no oral or written agreements
have been entered into by Seller which commit to lease
all or any portion of the Real Property subsequent to
the date of this Agreement. To the best of Seller's
knowledge, there is no adverse possession of all or any
part of the Real Property.
j. Mechanic's Liens. There are no unpaid bills or
claims in connection with any construction or other
work performed on the Real Property nor shall there be
any on the date of Closing. Seller shall satisfy any
and all mechanic's or materialmen's liens filed against
the Real Property, or any part thereof, on or prior to
Closing and shall indemnify and hold harmless and
protect the Purchaser from any and a11 loss from any
such liens.
k. Taxes and Tax Returns. All tax returns and
related filings of any kind require to be filed by
Seller prior to the Closing Date with respect to its
ownership of the Real Property have been properly
completed and timely filed in material compliance with
all applicable requirements and all taxes of other
obligations which are due and payable by Seller have
been, or as of the Closing Date, will be timely paid.
l. Zoning. The current zoning for the Real
Property is R-4; such zoning designation permits
outright (e.g. without the need to obtain any special
use permits, conditional use permits, or other zoning -
or land use-related Governmental Approvals (as that
term is defined below)) the use of the Real Property
for an assisted living facility; and Seller has not
received any notice of, nor become aware of, any
proposed change or modification regarding such zoning
designation.
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8. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser does hereby represent and warrant to
Seller as follows:
a. Status. Purchaser is a limited liability
company duly organized and validly existing under the
laws of the State of Maryland and is in good standing
thereunder.
b. Authority. Purchaser has full power and
authority to execute and to deliver this Agreement and
all related documents, and to carry out the
transactions contemplated herein and the same do not
result in a breach of the terms and conditions of nor
constitute a default under or violation of Purchaser's
Operating Agreement or By-laws or any law, regulations,
court order, mortgage, note, bond, indenture,
agreement, license or other instrument or obligation to
which Purchaser is a party or by which Purchaser or any
of its assets may be bound or affected. This Agreement
is valid, binding and enforceable as against Purchaser
in accordance with its terms, except as such
enforceability may be affected by bankruptcy,
receivership or creditors' rights laws generally.
c. Litigation. There is no litigation,
investigation or other proceeding pending or threatened
against or relating to Purchaser, its properties or
business which is material to this Agreement, or which
would prevent Purchaser from performing its obligations
hereunder.
9. COVENANTS OF SELLER
Seller does hereby covenant and agree as follows:
a. Pre-Closing. Between the date hereof and the
Closing Date:
(i) as soon as practicable but in no event
later than fifteen ( 15) days following the mutual
execution of this Agreement, provide Purchaser with
copies of the following documents relating the Real
Property to the extent the same are in Seller's
possession or reasonable control (collectively, the
"Property Documents"): all title reports, commitments
and policies and copies of all documents creating
exceptions thereto, all permits, licenses, and other
governmental approvals and entitlements relating to the
use and/or development of the Real Property, all
reports, studies and investigations performed at the
Real Property, including all architectural drawings,
plans and specifications, environmental reports,
structural reports and geological reports, existing
surveys of the Real Property, wetland reports, soils
reports, engineering tests and reports, and appraisals
prepared for the Real Property and all other books and
records relating to any work performed in connection
with any proposed development of the Real Property
(simultaneously assigning to Purchaser the right to use
any such materials and upon Closing hereunder,
assigning to Purchaser all of Seller's right, title and
interest in and to any such materials);
(ii) satisfy and discharge all liens against
the Property, other than those approved by Purchaser
pursuant to Paragraph 12.c;
(iii) file all tax returns, reports and
filings required to be filed by Seller and timely pay
all taxes or other obligations which are due and
payable with respect to the Property;
(iv) not take any action inconsistent with
its obligations hereunder;
(v) Seller shall generally participate
in, and where necessary, execute, such
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planning and zoning applications, plats and documents
as are required by Purchaser to secure zoning and site
plan approval, and, to the extent required, assist
Purchaser in securing such other approvals as are
required for the development of the Property, all at no
additional cost to Purchaser or Seller.
(vi) Seller shall take those steps which are
necessary to clear title to the Property so that title,
good of record and in fact and insurable at standard
rates, may be conveyed at Closing.
b. Closing. On the Closing Date, Seller agrees to:
(i) Execute and deliver to Purchaser the
warranty deed described in Paragraph 4 and such other
instruments as shall be necessary to transfer the
Property to Purchaser, including but not limited to an
affidavit of Non-Foreign Status pursuant to Section
1445 of the Internal Revenue Code of 1986, as amended;
and
(ii) Pay any Closing costs for which it is
responsible under Paragraph 5.
c. Post-Closing. After the Closing Date, Seller
agrees that, at Purchaser's sole cost and expense, it
will take such actions and properly execute and deliver
to Purchaser such further instruments as may be
reasonably necessary to evidence the transfer of the
Property.
10. COVENANTS OF PURCHASER
Purchaser does hereby covenant and agree as
follows:
a. Pre-Closing. Between the date hereof and the
Closing Date, Purchaser will not take any action
inconsistent with its obligations hereunder and will:
(i) Purchaser will, at Purchaser's sole cost
and expense, cause a surveyor to prepare and deliver to
Purchaser (with a copy to Seller) a survey of the Real
Property meeting the requirement set forth below (the
"Survey"). The Survey shall show thereon: (a) the
location of all boundaries, existing fences, all
easements, pipelines, rights-of way, and roads which
are of record or visible on the ground, (b) whether any
of the Real Property lies within a 100 year flood plain
or any special flood hazard area as designated by any
governmental agency, (c) the number of acres and net
square footage contained within the boundaries of the
Real Property, (d) the location and dimensions of any
protrusions from and encroachments on the Real
Property; (e) the location of all public roads or
highways adjacent to the Real Property and (f) such
other matters as shall be required by the Title Company
for the issuance of the Title Policy with no exception
for matters as to survey. The Survey shall be certified
to the Purchaser and the Title Company. The surveyor
shall include in its certification its Registration
Number, address, telephone number, the job number and
that the Survey was made on the ground as per the field
notes shown thereon and that, except as shown thereon,
there are no visible easements, rights-of way, party
walls, conflicts, or visible encroachments by an
improvements onto an easement or neighboring property
or by any improvements on adjoining property onto the
Real Property and that the Real Property has direct
access to all adjacent public streets.
(ii) file with the appropriate governing
authority an application for the subdivision of the
Real Property into a separate legal lot, which
application shall be accompanied
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by all necessary back-up information which said
application shall require in order to commence the
process for the approval of said subdivision and
Purchaser shall thereafter diligently pursue said
subdivision in order that approval may be obtained by
the Closing Date. In connection with such subdivision,
Purchaser shall cause the Survey to be updated to
reflect the precise dimensions of the Real Property as
created by said subdivision and, If the Real Property
is to be conveyed by a metes and bounds description,
Purchaser shall cause the surveyor to prepare and
deliver to Seller and the Title Company a certified
metes and bounds description of the Real Property as
shall be shown on the final Survey;
b. Closing. On the Closing Date, Purchaser agrees
that it will deliver the balance of the purchase price
due at Closing together with its share of the Closing
costs as herein provided.
11. MUTUAL COVENANTS
Seller and Purchaser mutually covenant and agree
as follows:
a. Fulfillment of Conditions. If any event should
occur, either within or without the knowledge or
control of either party, which would prevent
fulfillment of the conditions to Closing provided for
herein, to use his, its or their reasonable efforts to
cure the same as expeditiously as possible;
b. Governmental Consents. To cooperate fully with
each other in taking any actions which are or may be
necessary to obtain the consent of any government
instrumentality or any third party or to accomplish the
transaction contemplated by this Agreement; and
c. Escrow Instructions. To execute and deliver
written instructions to Escrow Agent if necessary or
desirable to complete the purchase and sale of the
Property.
12. PURCHASER'S CONDITIONS TO CLOSING
The obligation of Purchaser to acquire the
Property shall be subject to the satisfaction by Seller
or to the waiver by Purchaser of the following
conditions:
a. Seller's Representations and Warranties.
Seller's representations and warranties set forth
herein shall be true in all material respects at and as
of the Closing Date as those made as of the date
thereof.
b. Seller's Performance. Seller shall have
performed all of its obligations hereunder which are
required to be performed as of the Closing Date.
c. Title Approval. Purchaser shall cause Hallmark
Title, Inc. Vienna, Virginia (the
"Title Company") to issue a commitment for title
insurance (including copies of all exception documents
referenced in said commitment) in an amount equal to
the purchase price, which commitment shall provide for
the issuance of a final title policy as of the Closing
Date, subject to no liens or encumbrances, other than
those which may be approved by Purchaser (the "Title
Commitment"). A copy of said Title Commitment shall be
delivered to Seller at the address set forth in Section
16 below. Within fifteen ( 15) days following
Purchaser' s receipt of (i) the Title Commitment, (ii)
legible copies of all exception documents referenced in
the Title Commitment,
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and (iii) the Survey, Purchaser shall notify Seller of
any items referenced in the Title Commitment and the
Survey to which it disapproves. Within ten ( 10) days
of Seller' s receipt of Purchaser' s objections, Seller
shall advise Purchaser in writing as to whether it
intends to correct the defects to which Purchaser has
objected. If Seller refuses to correct some or all of
such defects or fails to notify Purchaser within said
ten ( 10) day period regarding its intentions to
correct the disapproved matters, Purchaser shall have
fifteen ( 15) days following the earlier to occur of
(i) Purchaser' s receipt of Seller's written notice
regarding its refusal to correct the disapproved
matters or (ii) the expiration of said ten ( 10) day
period, to advise Seller of Purchaser' s decision to
close, notwithstanding the defects, or to terminate
this Agreement, in which case neither party shall have
any further rights or obligations hereunder. In the
event Purchaser fails to timely advise Seller of its
intention to terminate this Agreement, Purchaser shall
be conclusively deemed to have rejected such title
defect(s) and shall thereafter have the right to
terminate this Agreement. In the event of any such
termination, Purchaser shall be entitled to the return
of its Earnest Money and the parties shall have no
further rights or obligations hereunder.
d. Title Policy. The Title Company shall issue to
Purchaser as of the Closing Date, an ALTA Extended
Owner's Policy of Title Insurance for the Real Property
(the "Title Policy") which Title Policy shall have a
policy amount of not less than the amount of the
Purchase Price and be in a form acceptable to, and
include such endorsements, affirmative coverages, and
other modifications required by Purchaser and
Purchaser's lender (including any REIT, as defined in
Paragraph 20, below). Without limiting the generality
of the foregoing, such Title Policy shall be subject to
no exceptions other than those of the usual printed
exceptions which are acceptable to Purchaser (the
survey exception, parties in possession and mechanics'
lien exceptions being specifically unacceptable to
Purchaser) and those exceptions to which Purchaser has
not objected as provided for in Paragraph 12.c. above.
e. Feasibility Study. Purchaser shall conduct at
its sole cost and expense a feasibility study of the
Real Property (the "Feasibility Study"), which study
may include but shall not be limited to, (i) reviewing
and approving the Phase I Report and all Property
Documents required to be provided to Purchaser by
Seller, and (ii) conducting such engineering and soils
studies, environmental assessments, utilities
investigations, wetlands investigations, if applicable,
surveys and regulatory reviews, as Purchaser deems
appropriate to the development of an assisted living
facility consisting of at least one hundred (100) units
consistent with the development plans of Purchaser (the
"Facility"). Within One Hundred Eighty (180) days
following the mutual execution of this Agreement (the
"Feasibility Period"), Purchaser shall have approved or
disapproved the results of said Feasibility Study. In
the event Purchaser disapproves the Feasibility Study,
or if Purchaser fails to timely notify Seller of
Purchaser's approval or disapproval regarding the
Feasibility Study (in which event Purchaser shall be
conclusively deemed to have disapproved such
Feasibility Study), Purchaser shall have the right to
terminate this Agreement, which right shall be
exercised, if at all, within five (5) business days
after the last day of the Feasibility Period. Upon such
termination, Purchaser shall be entitled to the return
of its Initial Earnest Money Deposit and the parties
shall have no further rights or obligations hereunder.
Seller hereby grants to Purchaser and/or its agents,
consultants and contractors the right to enter the Real
Property for the purpose of performing such tests,
studies, assessments and investigations as Purchaser
determines necessary in connection with its Feasibility
Study of the Real Property; provided, however, that the
activities conducted by Purchaser and/or any of its
agents, consultants or contractors shall not materially
change or alter the character of the Real Property.
Seller further agrees to fully cooperate with Purchaser
concerning the components of the Feasibility Study.
f. Approvals. Upon or before completion of the
Feasibility Period, Purchaser shall commence and
proceed to obtain all necessary zoning, subdivision,
site plan and building
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approvals and permits (and any other requisite
governmental or quasi-governmental approval)
(collectively referred to herein as "Approvals") as are
necessary to proceed with Purchaser's intended
development of the Property. Within One Hundred Eighty
( 180) days following conclusion of the Feasibility
Period (the "Approval Period"), Purchaser shall have
obtained all such Approvals, except that such One
Hundred Eighty (180) day Approval Period may be
extended for three (3) additional periods of thirty
(30) days each upon written notice by Purchaser to
Seller and Escrow Agent prior to the expiration of the
prior period. Upon extension of the Approval Period by
Purchaser, only the Extension Earnest Money Deposit(s)
shall be nonrefundable, except in the event of failure
of Seller to perform its obligations under this
Agreement.
g. Zoning. On or before the Closing Date,
Purchaser, with the cooperation of Seller, shall have
caused the zoning for the Real Property to be
appropriately designated so as to permit the
development of the Facility or Purchaser shall have
otherwise satisfied itself in its sole and absolute
discretion that the development and operation of the
Facility on the Real Property is permitted under the
Real Property's current zoning designation.
h. Board Approval. Prior to the conclusion of the
Feasibility Period, Purchaser shall have obtained the
approval of its Board of Directors to the acquisition
of the Property pursuant to the terms of this
Agreement.
i. Readiness for Construction. Upon the Closing
Date, there shall exist no impediments to the
commencement of construction of the improvements
contemplated to be constructed by Purchaser such that
Purchaser shall be able to commence construction of
said improvements immediately following the Closing
(e.g., within 48 hours following the Closing Date).
j. Financing. Prior to the Closing Date,
Purchaser shall have secured financing, on terms
acceptable to it, for the payment of the Purchase Price
due at Closing and the construction of the proposed
Facility and all of the documents necessary to evidence
said financing shall have been executed and delivered
into escrow by Purchaser and its Lender; provided,
however, that Seller acknowledges and agrees that said
financing may be in the form of sale/leaseback
financing with a real estate investment trust (the
"REIT"), in which case Purchaser shall have the right,
in accordance with Paragraph 20 below, to assign its
rights and obligations hereunder to said REIT and the
financing documents shall include, but not be limited
to, an assignment of this Purchase and Sale Agreement
and a Lease between Purchaser and said REIT.
13. SELLER'S CONDITIONS TO CLOSING
The obligation of Seller to convey the Property to
Purchaser shall be subject to the satisfaction by
Purchaser or the waiver by Seller of the following
conditions:
a. Purchaser's Representations and Warranties.
Purchaser's representations and warranties set forth
herein shall be true at and as of the Closing Date.
b. Purchaser' s Performance. Purchaser shall have
performed all of its obligations hereunder which are
required to be performed as of the Closing Date.
14. INDEMNIFICATION BY SELLER
Subject to the limitations set forth in Paragraph
16, Seller shall indemnify, defend and hold Purchaser
harmless from and against:
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a. Obligations Existing as of Closing Date: Any
and all obligations relating to
ownership of the Property which exist as of the Closing
Date, except to the extent that such . obligations
relate to a breach by Seller of a representation,
warranty or covenant set forth in the Agreement,
including, but not limited to, the representations and
warranties with respect to the environmental condition
of Real Property set forth in Paragraph 7.f., in which
case Seller's obligation to indemnify, defend and hold
harmless Purchaser shall be set forth in Paragraph
14.b.;
b. Breach of Representations and Warranties. Any
and all damage, loss, or liability resulting from any
material breach of ant representation, warranty or
covenant made by Seller in this Agreement or
nonfulfillment of any agreement on the part of Seller
under this Agreement or from any misrepresentation in
or omission from any certificate furnished or to be
furnished to Purchaser hereunder;
c. Fees and Expenses. Any and all actions, suits,
proceedings, demands, assessments, judgments, costs and
legal and other expenses, including, but not limited
to, reasonable attorneys' fees, incident to any of the
foregoing.
For purposes of Paragraph 14.a., an obligation
shall be deemed to "exist" as of the Closing Date if it
relates to events which occur prior to the Closing Date
even if it is not asserted until after the Closing
Date.
15. INDEMNIFICATION BY PURCHASER
Subject to the limitations set forth in Paragraph
16, Purchaser shall indemnify, defend and hold harmless
from and against:
a. Obligations Occurring After the Closing Date.
Any and all obligations relating to the ownership of
the Property accruing on or after the Closing Date;
b. Breach of Representations and Warranties. Any
and all damage, loss or liability resulting from a
material breach of any representation, warranty or
covenant of Purchaser in this Agreement or
nonfulfillment of any agreement on the part of
Purchaser under this Agreement or from any
misrepresentation in or omission from any certificate
furnished of to be furnished to Seller hereunder; and
c. Fees and Expenses. Any and all actions, suits,
proceedings, demands, assessments, judgments, costs and
legal and other expenses, including, but not limited
to, reasonable attorney's fees, incident to any of the
foregoing.
16. TERMINATION
a. Termination by Parties. This Agreement may be
terminated and the transaction contemplated herein
abandoned at any time prior to Closing;
(i) By mutual agreement of the parties;
(ii) By Seller, if any of the conditions set
forth in Paragraph 13 shall have become incapable of
fulfillment prior to the Closing Date or such earlier
date as may be specifically provided for the
performance thereof(as the same may be extended)
through no fault
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of Seller and the same shall not have been waived by
Seller;
(iii) By Purchaser, if any of the conditions
set forth in Paragraph 12 shall have become incapable
of fulfillment prior to the Closing Date or such
earlier date as may be specifically provided for the
performance thereof (as the same may be extended)
through no fault of Purchaser and the same shall not
have been waived by Purchaser;
(iv) By either Seller or Purchaser in the
event of a material breach by the other party of its
obligations hereunder; or
b. Material Damage or Destruction. In the event
that prior to the Closing Date, a material portion of
the Real Property shall have been damaged or destroyed
or shall have been taken or condemned by any public or
quasi-public authority under the power of eminent
domain, Purchaser shall have the right to terminate
this Agreement on written notice to Seller which notice
must be delivered within ten (10) days after Purchaser
receives notice of such damage, destruction or
condemnation. In the event Purchaser fails to exercise
its termination rights hereunder, then it shall be
conclusively deemed to have waived said right and
Seller shall assign to Purchaser all of its rights to
any insurance proceeds or condemnation award and all
claims in the connection therewith. In the event
Purchaser exercises its termination rights hereunder,
the parties shall have no further rights or obligations
hereunder other than Purchaser's right to the return of
its Earnest Money.
c. Notice. Neither party to this Agreement may
claim termination or pursue any other remedy referred
to in Paragraph 16. a. above on account of a breach of
a condition, covenant or warranty by the other, without
first giving such other party written notice of such
breach and not less than ten (10) days within which to
cure such breach. The Closing Date shall be postponed,
if necessary, to afford such opportunity to cure.
d. Seller's Liquidated Damages. In the event of
the termination of this Agreement by Seller as a result
of a material breach by Purchaser of its obligations
hereunder, Seller' s sole remedy shall be to terminate
this Agreement and to retain Purchaser's Initial
Earnest Money Deposit and Additional Earnest Money
Deposit (if applicable), together with all interest
accrued thereon, as full and complete liquidated
damages, the parties acknowledging and agreeing that
the amount of damages which Seller may incur as a
result of such termination may be difficult to
ascertain and that the amount of the Initial Earnest
Money Deposit and Additional Earnest Money Deposit (if
applicable), together with all interest accrued
thereon, is a reasonable and fair estimate thereof,
after which the parties shall have no further rights or
obligations hereunder.
e. Purchaser's Remedies. In the event of the
termination of this Agreement by
Purchaser as a result of a material breach by Seller of
its obligations hereunder, Purchaser shall have the
right either to (i) terminate this Agreement and
receive a full refund of its Initial Earnest Money
Deposit and Additional Earnest Money Deposit (if
applicable), together with all interest accrued
thereon, after which neither party shall have any
further rights or obligations hereunder or (ii) seek
specific performance of Seller' s obligations hereunder
and/or damages for Seller' s breach of its obligations
hereunder. In the event of the termination of this
Agreement by Purchaser as a result of a failure of any
of the Purchaser' s conditions as set forth in
Paragraph 12 above Purchaser shall be entitled to a
full refund of its Initial Earnest Money Deposit and
Additional Earnest Money Deposit (if applicable),
together with all interest accrued thereon.
17. BROKER
11
<PAGE>
Purchaser and Seller recognize David Brown and
Century 21- Brown and Associates as procuring broker
and seller shall pay a11 real estate commissions due
per separate agreement. Seller and Purchaser agree to
indemnify the other party against any claim for any
commission made by any broker allegedly employed by it.
18. NOTICES
Any notice, request or other communication to be
given by any party hereunder shall be in writing and
shall be sent by registered or certified mail, postage
prepaid, by overnight courier guaranteeing overnight
delivery or by facsimile transmission (if confirmed
verbally or in writing by mail as aforesaid), to the
following address:
To Seller: Gail G. Brown
c/o Century 21- Brown and
Associates
909 Richmond Avenue
Staunton, Virginia 24401
Telephone No. : 540-885-7100
Facsimile No.: 540-885-I 130
To Purchaser: Greencastle Retirement Partners,
L.L.C.
c/o Greencastle Development
Company
2661 Riva Road, Suite 1001
Annapolis, Maryland 21401
Telephone No. : (410) 573 -2485
Facsimile No. : (410) 224-653 9
With copies to: Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: President
Telephone No. : (206) 301-4490
Facsimile No. : (206) 301=4070
Notice shall be deemed given upon receipt or refusal if
sent by mail, or by overnight courier and on receipt if
sent by facsimile (and confirmed verbally or by mail as
aforesaid).
19. AMENDMENT AND MODIFICATION
This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing
signed by the parties hereto. This Agreement
constitutes the entire agreement between the parties
hereto and supersedes all prior negotiations,
discussions, writings and agreements between them.
20. ASSIGNMENT
Purchaser shall have the right to assign its
rights and delegate its obligations hereunder without
the prior written consent of Seller, provided that the
assignee agrees in writing to assume all of the
obligations of Purchaser hereunder from and after the
effective date of said assignment.. In the event of
such an assignment, Seller agrees that Greencastle
Retirement Partners, L.L.C. shall be relieved and
released from any and all further obligations and/or
liability hereunder. In the
12
<PAGE>
event of any such assignment, all of the references to
Purchaser herein shall be deemed to be references to
Purchaser's assignee, the representations set forth in
paragraph 8 shall be revised accordingly and the terms
of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by and against said
assignee. Notwithstanding the foregoing, Purchaser
shall also have the right, on notice to Seller, to
assign its rights hereunder to a real estate investment
trust (the "REIT") in connection with its financing of
the transaction provided for herein, it being
understood and agreed that in the event of such an
assignment to a REIT., the only right which the REIT
will assume is Purchaser's obligation to pay the
purchase price in accordance with the terms hereof and
that, in any event, Purchaser shall not be relieved of
any of its obligations hereunder in the event of such
an assignment to a REIT.
21. WAIVER
The waiver by any party of any breach of any of
the provisions of this Agreement shall not constitute a
continuing waiver or a waiver of any subsequent breach
of any provision of this Agreement.
22. INCORPORATION BY REFERENCE
Each recital set forth and exhibit referenced in
this Agreement is incorporated and becomes an integral
part of this Agreement.
23. CAPTIONS
The captions of this Agreement are for convenience
of reference only and shall not define or limit any of
the terms or provisions hereof.
24. SURVIVAL
This Agreement shall survive the Closing Date and
thereafter remain binding on both Seller and Purchaser.
25. ATTORNEYS' FEES
If any litigation or other proceedings are
commenced between parties to this Agreement regarding
the rights and duties of any party pursuant to, related
to or arising from this Agreement, then the prevailing
party with respect to the litigation or other
proceedings, shall be entitled, in addition to the
relief granted, a reasonable sum for attorneys' fees
and costs of the litigation or other proceedings.
26. GOVERNING LAW
This Agreement shall be governed by and construed
in accordance with the laws of the State of Virginia.
27. SEVERABILITY
Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or
unenforceability in any respect, the validity, legality
and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
13
<PAGE>
28. COUNTERPARTS
This Agreement may be executed in any number of
counterparts, each of which shall be an original; but
such counterparts shall together constitute but one and
the same instrument.
29. TIME OF THE ESSENCE, DATES.
Time is of the essence. If this Agreement calls
for, or establishes, a day or date on which an event
occurs, or by which an action must be taken, and such
day or date falls on a Saturday, Sunday or legal
holiday (defined to be any day on which the United
States Postal Services does not deliver regular mail),
such day or date shall be, for the purposes of the
Agreement, the next business day thereafter.
30. DISCLOSURE
Keith T. Misner, an officer of Greencastle
Retirement Partners L.L.C. and Greencastle Development
Company, is a licensed Real Estate Broker in the
Commonwealth of Virginia and the State of Maryland.
David Brown, the procuring broker, is the husband of
the Seller. Gail G. Brown, the Seller, is also a
licensed Realtor in the State of Virginia
31. EXCHANGE COOPERATION CLAUSE
Purchaser and Seller agree to the settlement of
this contract under the provisions of section 1031 of
the Internal Revenue Code. The exchange must be
accomplished through a qualified intermediary.
Settlement of this contract under the provisions of
section 103 I of the Internal Revenue Code will be done
at no additional expense (including attorney fees) or
delay to the Purchaser. All related documents shall be
in a form acceptable to Purchaser.
[SIGNATURES ON FOLLOWING PAGE]
14
<PAGE>
IN WITNESS THEREOF, the parties have executed this
Agreement the date set forth opposite each party's
signature below and the last date of execute deemed the
date of mutual execution" as such term is used herein.
PURCHASER: GREENCASTLE
RETIREMENT
PARTNERS, L.L.C., a
Maryland . limited
liability company
Dated: 2/4/97 /s/ Chris P. Bell
--------------------
- ------------------
By: Chris P. Bell
Its: Managing
Member
SELLER: GAIL G. BROWN
By: /s/ Gail G.
Brown
--------------------
- ------------------
Its:
15
<PAGE> EX 10.72.2
ASSIGNMENT AND ASSUMPTION OF AGREEMENT OF SALE
THIS ASSIGNMENT AND ASSUMPTION OF PURCHASE
AND SALE AGREEMENT (hereinafter referred to as this
"Assignment"), made this 12th day of February, 1997, by
and between GREENCASTLE RETIREMENT PARTNERS, L.L.C., a
Maryland limited liability company (hereinafter
referred to as the "Assignor") and EMERITUS
CORPORATION, a Washington corporation (hereinafter
referred to as the "Assignee").
WITNESSETH, THAT WHEREAS, by Purchase and
Sale Agreement (hereinafter referred to as the
"Agreement") dated February 5,1997, by and between GAIL
G. BROWN (hereinafter referred to as the "Seller") and
the Assignor, a true copy of which the Assignor has
heretofore provided to the Assignee, the Seller agreed
to sell to the Assignor and the Assignor agreed to
purchase from the Seller all of that land, situate and
lying in Augusta County, Virginia, comprised of Twenty
Two and Five tenths (8 5/10) acres, more or less, which
is more particularly described in the Agreement,
together with all of the improvements thereon and all
of the rights, alleys, ways, waters, privileges,
appurtenances, and advantages, to the same belonging or
in any way appertaining (the "Property"); and
WHEREAS, the parties hereto desire by this
Assignment for the Assignor to assign to the Assignee
all of the rights and obligations of the Purchaser
under the provisions of the Agreement and for the
Assignee to accept such assignment and assume all
rights and responsibility of Assignee under the
Agreement, all upon the terms and subject to the
conditions which are hereinafter set forth. .
NOW THEREFORE, FOR AND IN CONSIDERATION of
the mutual entry into this Assignment by the parties
hereto, and for other good and valuable consideration,
the receipt and adequacy of which are hereby
acknowledged by each party hereto, the parties hereto
hereby agree as follows:
Section 1. ASSIGNMENT AND ASSUMPTION. The
Assignor hereby assigns to the Assignee, and the
Assignee hereby accepts and assumes from the Assignor,
all of the Assignor's rights and obligations under the
provisions of the Agreement (including, by way of
example rather than of limitation, all of the
Assignor's right, title, and interest in and to any and
all deposit moneys paid to the Seller, all of the
Assignor's rights of access to the Property, and all of
the Assignor's rights to certain remedies if the Seller
defaults).
Section 2. INDEMNIFICATION.
2.1. BY ASSIGNOR. The Assignor shall defend,
indemnify, and hold harmless the Assignee against and
from any and all liability to the Seller for any
default by the Assignor in performing its obligations
under the provisions of the Agreement occurring before
the entry into this Assignment by the parties hereto.
2.2. BY ASSIGNEE. The Assignee shall defend,
indemnify, and hold harmless the Assignor against and
from any and all liability to the Seller for any
default by the Assignee in performing its obligations
under the provisions of the Agreement occurring after
the entry into this Assignment by the parties hereto.
<PAGE>
Section 3. REPRESENTATIONS.
3.1. BY ASSIGNOR. The Assignor hereby
represents and warrants to the Assignee that, as of the
entry into this Assignment by the parties hereto,
3.1.1. the Assignor has not heretofore
assigned, transferred, or encumbered any or all of its
rights under the provisions of the Agreement;
3.1.2. the Agreement has not been
amended or otherwise modified in any manner and is in
full force and effect; and
3.1. 3. the settlement of the sale and
purchase of the Property pursuant to the Agreement, and
of the other matters contemplated thereby, has not
occurred.
3.2. BY EACH PARTY. Each party hereto hereby
represents and warrants to the other that it has been
duly authorized to execute and deliver this Assignment,
and to perform its obligations hereunder.
Section 4. GENERAL.
4.1 EFFECTIVENESS. This Assignment shall
become effective on and only on its execution and
delivery by each party hereto.
4.2. COMPLETE UNDERSTANDING. This Assignment
represents the complete understanding between the
parties hereto as to the subject matter hereof, and
supersedes all prior negotiations, representations,
guaranties, warranties, promises, statements, or
agreements, either written or oral, between the parties
hereto with respect to the same.
4.3. AMENDMENT. This Assignment may be
amended by and only by an instrument executed and
delivered by each party hereto.
4.4. WAIVER. No party hereto shall be deemed
to have waived the exercise of any right which it holds
hereunder unless such waiver is made expressly and in
writing (and, without limiting the generality of the
foregoing, no delay or omission by any party hereto in
exercising any such right shall be deemed a waiver of
its future exercise). No such waiver made in any
instance involving the exercise of any such right shall
be deemed a waiver as to any other such instance, or
any other such right.
4.5. APPLICABLE LAW. This Assignment shall
be given effect and construed by application of the law
of the state of Washington.
4.6. HEADINGS. The headings of the Sections,
subsections, paragraphs, and subparagraphs hereof are
provided herein for and only for convenience of
reference, and shall not be considered in construing
their contents.
4.7. ASSIGNMENT. This Assignment shall be
binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, personal
representatives, successors and assigns hereunder.
4.8. SEVERABILITY. No determination by any
court, governmental body or otherwise that any
provision of this Assignment or any amendment hereof is
invalid or unenforceable in any instance shall affect
the validity or enforceability of (a) any other
provision thereof, or (b) such provision in any
circumstance not controlled by such determination. Each
such
2
<PAGE>
provision shall be valid and enforceable to the fullest
extent allowed by, and shall be construed wherever
possible as being consistent with applicable law.
4.9. CONSTRUCTION. As used herein,
4.9.1. the term "person" means a natural
person, a trustee, a corporation, a partnership, and
any other form of legal entity; and
4.9.2. all references made (a) in the
neuter, masculine, or feminine gender shall be deemed
to have been made in all such genders, (b) in the
singular or plural number shall be deemed to have been
made, respectively, in the plural or singular number as
well, and (c) to any Section, subsection, paragraph, or
subparagraph shall, unless therein expressly indicated
to the contrary, be deemed to have been made to such
Section, subsection, paragraph, or subparagraph of this
Assignment.
4.10. DISCLAIMER OF PARTNERSHIP STATUS.
Nothing in the provisions of this Assignment shall be
deemed in any way to create between the parties hereto
any relationship of partnership, joint venture or
association, and the parties hereto hereby disclaim the
existence of any such relationship.
IN WITNESS WHEREOF, each party hereto has
caused this Assignment to be executed and ensealed on
its behalf by its duly authorized representations, the
day and year first above written.
WITNESS/ATTEST: GREENCASTLE
RETIREMENT
PARTNERS, L.L.C., a
Maryland
Limited liability company
By: /s/ Christopher P.
Bell,
- ----------------------------------------
- -------------------------------------
(SEAL) Christopher P. Bell,
Managing Member
EMERITUS CORPORATION, a
Washington corporation
/s/ Susan Griffan By: /s/
Raymond R. Brandstrom
- ---------------------------------------
- ------------------------------------------
(SEAL) Name: Raymond R.
Brandstrom
Title: President
3
<PAGE> EX 10.73.1
EXHIBIT A
PURCHASE AGREEMENT
THIS AGREEMENT (hereinafter referred to as
"Agreement") is made and entered into by and between
(hereinafter referred to as "Seller") and WEGMAN FAMILY
LLC, a New York limited liability company with an
office at 550 Latona Road, Rothester, New York 14626
(hereinafter referred to as "Buyer") on the day that
this Agreement once fully executed by both Seller and
Buyer has been delivered to each of them (hereinafter
referred to as the "Full Execution Date").
1. AGREEMENT OF PURCHASE AND SALE. Seller hereby
agrees to sell to Buyer, and Buyer agrees to purchase
from Seller, for the price and on the terms and
conditions sec forth in this Agreement, Seller's
interest in and to certain real estate situated in the
Village of Lakewood, County of Chautauqua, State of New
York containing approximately 16.5 acres located a in
the area depicted on Exhibit 1 which is attached hereto
and incorporated herein by reference (hereinafter
called "the Property"). The exact legal description and
dimensions of the Property are to be determined to the
mutual satisfaction of Buyer and Seller on the basis of
Buyer's site plan and the ALTA owner's title insurance
policy and land survey to be provided in accordance
with the terms hereof. The subdivision of the existing
house; barn and one-half of the orchard will be
completed at the Buyer's expense in the approximate
acreage shown in Exhibit 1.
2. PURCHASE PRICE & EARNEST MONEY. The total
purchase price for the Property shall be $525,000.00
payable by wire transfer or certified funds at closing.
Buyer shall issue the sum of $5,000.00 (the
Earnest Money) within 5 days of the Full Execution
Date. The Earnest Money shall be held by Ticor Title
Guarantee Company as escrow agent and distributed as
follows:
(a) Should Seller fail or refuse to perform
its obligations hereunder, Buyer shall
have the right of (i)accepting the
return of the Earnest Money and all
accrued interest thereon, and (u) Buyer
may pursue any applicable remedy, to the
extent provided in Section 12 hereof.
(b) Should this transaction be consummated,
the Earnest Money shall be applied
toward the Purchase Price.
Upon the expiration of 120 days from the
signing of this Agreement, if the Purchaser has not
terminated the Agreement, the initial deposit of
$5,000.00 shall become nonrefundable. Thereafter, the
buyer shall have an additional 90 days to complete any
contingencies as set forth hereinafter. in the event
that the Purchaser has not terminated the Agreement
after the additional 90 days, then an additional
$5,000.00 shall be deposited as additional non
refundable deposit, but the total of $10,000.00 shall
be applicable as a credit to the Purchase Price at
closing. The initial deposit of $5,000.00 shall be
released to Seller upon the expiration of the 120 days,
unless the Agreement has been terminated according co
its terms. The further deposit of the additional
$5,000.00 shall be released to Seller upon the
expiration of the additional ninety (90) days.
3. CLOSING CONTINGENCIES. Buyer's performance of
this Agreement is contingent upon satisfaction of the
following:
(a) At the Closing Date, there shall be available at
the Property line without additional cost to Buyer
utility service lines for electricity, gas, sewer and
<PAGE>
water from the appropriate public utility
or environmental body having jurisdiction
in sufficient quantities and with
sufficient pressure to permit the
operation of an assisted living facility
with all appurtenances and amenities in
accordance with Buyer's plans
(hereinafter referred to as the
"Facility") with the storm and sanitary
sewers being suitable for Buyer's
intended usage.
(b) Buyer obtaining within 90 days from the full
Execution Date (the "Feasibility Date" a feasibility
study for the construction and operation of the
Facility at the Property site, which is satisfactory to
Buyer in all respects.
(c) The Property being zoned for Buyer's intended use
as an assisted living facility with a11 related
appurtenances and amenities with sufficient parking
spaces to comply with local code requirements. Should
the Property require rezoning, or a conditional or
special use permit, Seller agrees to cooperate with
Buyer in obtaining such rezoning or special or
conditional us permit at Buyer's sole cost ad expense.
Buyer shall, within ninety (90) days of the Feasibility
Date, make application for such rezoning or special or
conditional use permit and shall provide all necessary
and required documentation in support of such
application.
(d) The soil and topographical conditions as presently
exist would allow the construction of the Facility as
contemplated by Buyer in accordance with Buyer's plans
and specifications without unusual expense or
preparation.
(e) Buyer obtaining within twenty (20) days of the
Feasibility Date, at Buyer's sole cost and expense, a
topographic survey of the Property and an ALTA boundary
survey prepared by a certified local surveyor showing
all Property lines, improvements, if any,
encroachments, setback lines, easements, adjoining
roadways and utility installments located therein and
all other matters which are revealed by the title
insurance commitment described in paragraph 4 below.
(f) Buyer obtaining satisfactory financing for Buyer's
intended use and all requisite building, use and site
permits and/or approvals from the local, county and
state municipalities, commissions, departments and
boards, as appropriate, to permit the construction and
operation of the Facility with sufficient on-site
parking spaces to comply with local code requirements.
(g) Buyer obtaining approval from the appropriate
Town, City or County Board or Commission for signage on
the building acceptable to Buyer.
(h) Buyer being assured that satisfactory
ingress/egress access to the Property exists via public
dedicated roadway(s) or non-exclusive easements(s) and
curb cuts.
(i) Seller providing to Buyer satisfactory evidence
that all subdivision, platting or replatting
requirements with respect to the Property have been
completed in compliance with all governing law so as to
permit the constriction and operation of the Facility
in accordance with Buyer's intentions. Buyer agrees to
cooperate with Seller, at Buyer's sole cost and
expense, to accomplish such subdivision, platting or
replatting.
2
<PAGE>
(j) Buyer obtaining within thirty (30) days of the
Full Execution Date, at Buyer's sole cost and expense,
satisfactory evidence that the Property either: (i)
does not lie within a 100-year flood plain, as
established by the U.S. Army Corps of Engineers, or
within any area subject to flooding; or (ii) that the
cost of obtaining necessary flood plain insurance will
not be, in Buyer's sole discretion, excessive.
(k) Buyer obtaining within sixty (60) days of the
Feasibility Date, at Buyer's sole cost and expense, a
satisfactory environmental report dated after the Full
Execution Date from a qualified environmental engineer
certifying that there is no evidence of any storage
tanks or solid, toxic or hazardous waste or any form of
environmental contamination as defined by local, state
or, federal regulator on the Property and that no
further environmental investigation or remediation is
recommended, necessary or required.
(l) Seller's recording a deed restriction, in such
form as is acceptable to Buyer, on property owned by
Seller within a one (1) mile radius of the Property
prohibiting construction and/or operation of other
assisted living facilities.
Buyer shall have one hundred eighty (180) days
from the Feasibility Date (the "Contingency Period") to
satisfy or waive each of the contingencies set forth in
subparagraphs c d, f, g, h, i, and l, above. If Buyer
is unable to satisfy or waive each of the contingencies
within the Contingency Period and Buyer has made a good
faith effort to satisfy them, Buyer shall have the
right to exercise two (2) consecutive thirty (30) day
extensions of the Contingency Period by notice to
Seller within the Contingency Period, as may have been
extended. If Buyer is unable to satisfy or waive any of
the contingencies within the Contingency Period due to
Seller's failure to perform any obligation or deliver
any documents within the time period called for herein,
the dates set forth herein for the Feasibility Date,
the Contingency Period and the Closing Date shall be
extended one day for each day Seller fails to deliver
or perform as provided for herein. Should Buyer notify
Seller in writing that Buyer is unable to proceed with
this transaction due to the failure of any of the above-
listed contingencies, Buyer may elect to declare this
Agreement null and void.
4. TITLE. Within twenty (20) days of the
Feasibility Date, Seller will deliver to Buyer and the
surveyor, a current abstract of title to the Property
together with legible copies of all instruments
referred to in the abstract, or a commitment for title
insurance in the amount of the purchase price issued by
Ticor Title Guarantee Company or by a nationally
recognized title insurer acceptable co Buyer
(hereinafter called "Ticor Title"), which shall reveal
that Seller has marketable or insurable title to the
Property, without exception or qualification other than
for. (a) the lien of taxes not yet due and payable, (b)
easements, restrictions, reservations, covenants and
conditions, if any, that are of public record and that
will not materially and adversely interface with
Buyer's contemplate use of the Properly and (c) Ticor
Title's standard exceptions for zoning and other public
land use regulations. The cost of the policy and any
mortgage policy shall be the expense of the Buyer. The
Seller shall purchase an updated Abstract of Title.
If such abstract set forth a state of facts,
or is such commitment contains exceptions, other than
those specified above that cannot be removed by Seller
at closing, then Buyer may elect at or prior to closing
to (1) cancel this Agreement, or (2) waive all tide
defects 1 and close this sale in the manner provided by
this Agreement, without an abatement in price, or (3)
request Seller to cure the title defects that Buyer
specifies by written notice to Seller. Seller shall
3
<PAGE>
have sixty (60) days in which to cure the defects
specified to the satisfaction of Ticor Tide. If Seller
cannot eliminate all the defects specified in the
foregoing time period, then Buyer may elect to close
this transaction in the manner otherwise provided,
without a reduction in price, or to cancel this
Agreement. If Seller does cure the defects specified
within the time period provided, this sale will be
closed within ten (10) days after notice of such cure
to Buyer in the amount otherwise provided in this
Agreement.
5. EXAMINATIONS. From and after the Full Execution
Date and until the Closing Date, Buyer or its agents
shall have the right to ingress and egress over, on and
through the Property for the following purposes: (a)
making soil test borings; (b) making drainage tests;
(e) making surveys of the Property; (d) making
engineering and/or architectural drawings of the
Property; and (e) performing such other investigations,
inspections and tests as Buyer deems necessary. Buyer
agrees to return the Property to a similar condition as
existed prior to the exercise of Buyer's rights
hereunder following such exercise of rights in the
event this transaction does not close.
6. CLOSING. Subject to the provisions of paragraph
4 above, this transaction shall be closed thirty (30)
days after all contingencies have been satisfied or
waived, or such earlier date as the parties may
mutually agree (the "Closing Date"). The closing will
be held ac such time and place as is mutually
agreeable. Buyer and Seller agree that the title
insurer referenced in paragraph 4 above shall be
retained as Escrow Agent to facilitate the closing of
this transaction. As soon as is reasonably possible
after the Full Execution Date, Buyer and Seller shall
open this escrow and deposit therein a fully executed
original of this Agreement as well as such other escrow
instructions and/or documents and showings required and
contemplated under this Agreement. Buyer and Seller
agree that the fees charged, if any, by the Escrow
Agent for its services relative to this closing shall
be paid by the Buyer.
7. SELLER REPRESENTATIONS AND WARRANTIES. Seller
represents and warrants to Buyer, as a material
condition to Buyer's obligations pursuant to this
Agreement, the following as of the Full Execution Date
and as of the Closing Date:
(a) At closing, Seller will convey to Buyer
good, marketable, insurable fee simple
title to the Property free and clear of
all liens and encumbrances except (i)
the lien of real estate taxes not then
due and payable, (ii) easements of
record which do not interfere with
Buyer's proposed development, and (iii)
all applicable zoning and building laws,
ordinances and regulations and any other
requirements of any state or local
governmental authority having
jurisdiction over the real estate.
(b) There are no adverse or other parties
in, possession of the Property or any
part thereof. No party has been granted
any license, lease or other right or
interest relating to the use or
possession of the Property, or any part
thereof, other than easement of record,
which easements shall not interfere with
Buyer's proposed development.
(c) Seller has received no notice of, and
has no other knowledge and information
of, any pending or contemplated
condemnation action with respect to the
Property or any part thereof.
(d) Seller has not received notice of, and
has no other knowledge or information
of' any pending or threatened judicial
or administrative action, or of any
action pending or threatened by adjacent
land owners
4
<PAGE>
or other persons, any of which would
result in a material change in the
condition of the Property or any part
thereof, or in any way prevent or limit
Buyer's intended use of the Properly, or
any part thereof.
(e) Seller bas the full right, power and authority to
sell and convey the Property co Buyer as provided in
this Agreement and to carry out Seller's obligations
hereunder. All requisite corporate or other actions
necessary to authorize Seller to enter into this
Agreement and to perform its obligations hereunder have
been taken; the joinder of no person or entity other
than Seller will be necessary to convey the Property
fully and completely to Buyer at closing; and the
execution and delivery of this Agreement and the
consummation of the transaction therein contemplated
will not conflict with, or with or without notice of
the passage of time, or both, result in a breach of any
of the terms or provisions of, or constitute a default
under any indenture. mortgage loan agreement or
instrument to which Seller is a party or by which
Seller or the Property is bound.
(f) The Property is in compliance with all federal,
state, local (including local sewer district) laws,
rules, regulations, ordinances, codes and orders
governing, establishing, limiting or otherwise
affecting the discharge or disposal of air pollutants,
water pollutants, process wastewater or solid and
hazardous wastes. There are no pending or threatened
actions or proceedings by the local municipality,
sewage districts, state agencies, the U. S.
Environmental Protection Agency or any other
governmental entity having jurisdiction over the
discharge ar disposal of air pollutants, water
pollutants, process waste water or solid or hazardous
wastes and there is no basis for any such action or
proceeding. Seller has never disposed of any noxious,
toxic, solid or hazardous waste on the Property, nor
does Seller have any notice or knowledge of any solid
or hazardous waste having ever been disposed of on the
Property.
(g) The Property is not located in a 100-
year flood plain as established by the
U. S. Army Corps of Engineers.
8. OCCUPANCY AND LEGAL POSSESSION. It is
understood that the Property is now vacant, and that
legal possession and the right to occupy the Property
shall be given to Buyer on the Closing Date. However,
in the event there are existing tenancies affecting the
Property, Seller acknowledges it is Seller's obligation
to terminate such tenancies prior to closing unless
otherwise specifically agreed in writing by Buyer.
Seller shall provide Buyer with sworn tenant estoppel
letters within thirty (30) days of the Full Execution
Date for any existing tenancies.
9. PRORATIONS. General taxes shall be prorated as
of the Closing Date based on the net general taxes for
the current year, if known, or otherwise substituting
all figures that are elements of the net tax equation
(hereinafter "figures') which are known for the current
year together with unknown figures for the preceding
year, or, if no figures are known for the current year
then on the net general taxes for the preceding year.
The proration of taxes will be final, and not subject
to reproration.
10. SPECIAL ASSESSMENTS. Special assessments, if
any, for work on site actually commenced or levied
prior to the Closing Date shall be paid by Seller. All
other special assessments, including any contemplated
special assessments, shall be paid by Buyer.
5
<PAGE>
11. CONVEYANCE. Upon payment of the full purchase
price, Seller shall convey its title to the Property to
Buyer by general warranty deed, free and clear of all
liens and encumbrances, excepting municipal and zoning
ordinances, recorded easements for public utilities,
and recorded building and use restrictions and
covenants (none of which adversely affect Buyer's
intended use of the Property), and general taxes levied
in the year of closing. Seller will pay for the
Abstract of Title, update costs and revenue stamps and
Buyer will pay all other fees or taxes required for
this conveyance. .
12. DEFAULT. In the event that Buyer defaults and
fails to carry out this Agreement then Seller shall
have any and all remedies available at law or in equity
In the event this closing does not occur due to a
default by Seller, Buyer shall have as its remedies
hereunder the right to seek specific performance of the
Agreement or its actual damage and expenses incurred in
its good faith efforts to comply with the requirements
hereunder, or any other remedies available at law or in
equity.
13. TIME IS OF THE ESSENCE. Time is of the essence
under this Agreement as to acceptance, possession,
occupancy and the Closing Date; provided, however, if
the time within which any action, consent, approval or
other activity herein contemplated, expires on a
Saturday, Sunday or national holiday, such time period
shall automatically be deemed extended to the first day
after the scheduled termination of such time period
which is not a Saturday, Sunday or national holiday.
14. BROKER COMMISSION. The parties agree that the
total brokerage commission shall be payable to Remax
Advantage/Pyramid Brokerage Inc., at an amount equal to
8% of selling price and shall be the sole
responsibility of the Seller. Broker shall no be
entitled to any commission hereunder unless and until
this transaction closes, nor shall Broker(s) be
entitled to any earnest money paid hereunder in a
liquidated damages situation.
15. ASSIGNMENT. Buyer may assign this Agreement,
and its right hereunder and upon written acceptance of
the assignment of the assignee and delivery thereof to
the Seller, the same shall operate as a novation of
such assignee as Buyer hereunder.
16. EXECUTION AUTHORITY. Buyer and Seller
represent and warrant to each other that the individual
or individuals signing this Agreement on behalf of
Buyer and Seller are duly authorized officers or
partners and have full written authority to do so and
to bind the respective patties to the provisions
hereof.
17. SURVIVAL. The representations and warranties
made herein shall survive the closing of the
transaction contemplated hereby and the execution and
delivery of the documents contemplated hereunder, and
shall not be construed to be merged therein.
18. ENTIRE AGREEMENT. This Agreement contains the
entire agreement and understanding between the parties
with respect to the transactions contemplated hereby,
supersedes all previous agreements, negotiations,
representation and understandings with respect thereto,
and may not be modified or amended except in writing
executed by the parties to be bound thereby.
19. NOTICES. All notices required or permitted to
be given hereunder shall be in writing, delivered in
person, by facsimile transmission, or mailed postage or
fees prepaid by certified mail, or by express mail
service, return receipt requested, addressed to the
mailing addresses and facsimile numbers given herein
and shall be effective upon the date listed on the
6
<PAGE>
return receipt, of the facsimile confirmation report or
of the hand delivery. Notices shall be directed as
follows:
to Buyer: with a copy to:
Wegman Family LLC Phillips, Lytle,
Hitchcock, Blaine & Huber
550 Latona Road 1400 First
Federal Plaza
Rothester, New York 14626 Rochester, New
York 14614
Attention: Mr. Philip R. Wegman Attention:
Mr. Thomas R. Burns, Esq.
(716) 225,7370 (Telephone) (716) 238-2000
(Telephone)
(716) 225-0887 (Facsimile) (716) 232-3141
(Facsimile)
to Seller: with a copy to:
The parties shall be responsible for
notifying each other of any change of address or
facsimile number.
20. CONSTRUCTION. The Agreement shall be governed
by, interpreted, construed and enforced in accordance
with the laws of the State of New York.
21. PERSONS BOUND. This Agreement shall bind and
inure to the benefit of the parties hereto and their
respective successors and assigns.
22. ACCEPTANCE. This Agreement shall be open for
acceptance by Seller until 4:00 PM. Prevailing Eastern
Standard Time as of December 12, 1996, at which time
this Agreement shall expire and become null and void.
23. TIMBER. Seller shall have the right to remove
fifteen (15) trees from the Property, The trees shall
be removed within 180 days after the closing date, Any
area that is damaged shall be repaired, graded and
reseeded.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused
this Agreement to be executed as of the date
written below their respective signatures.
WEGMAN FAMILY LLC
(Buyer)
Date: 12/5/96
By: /s/ Philip R. Wegman
- ------------------------------------
Philip R. Wegman, Manager
Date: 12/12/96
By: /s/ June Fagerstrom
- ------------------------------------
June Fagerstrom
8
<PAGE> EX 10.73.2
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT,
made and entered into this 30th day of December
1997, between WEGMAN FAMILY LLC, a New York
limited liability company with an office at 550
Latona Road, Bldg. A, Rochester, New York 14626
("Assignor") and PAINTED POST PARTNERS, a
Washington General Partnership with an office
at 3131 Elliott Avenue, Suite 500, Seattle
Washington 98121 ("Assignee").
WITNESSETH:
That Assignor for ten dollars ($10.00) and
other good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged, hereby conveys, grants, bargains,
seeks, transfers, sets over, assigns and
delivers to Assignee all of its rights, title
and interest in, to and under that contract
dated December 12, 1996, for the purchase of
certain real estate from June Fagerstrom, said
real estate being situate in Lakewood, New
York, containing sixteen and one half (16.5)
acres located at 200 Southwest Drive (the
"Contract"), a true and correct copy of the
same being attached hereto as Exhibit "A".
TO HAVE AND TO HOLD unto Assignee and its
successors and assigns to its and their own use
and benefit forever.
In connection with the assignment and
assumption provided fore herein and as a
material inducement to Assignee to enter into
this Agreement, Assignor does hereby represent
and warrant to Assignee as follows:
1. The Contract is in full force and effect
and has been amended only as set forth in
Exhibit "B".
2. Neither Assignor nor any other party to
the Contract is in default in its obligations
thereunder nor does any event or circumstance
exist as of the date hereof which with the
giving of notice or the passage of time or both
would constitute a default thereunder.
3. None of the conditions to closing set
forth in the contract has been waived by
Assignor except those described in Exhibit "B".
4. Execution, delivery and performance are
within Assignor's powers and have been duly
authorized and are not in contravention of
articles, bylaws or any other undertaking to
which Assignor is a party or by which it is
bound.
Assignee hereby expressly assumes the
obligations and duties of Assignor, from and
after the date hereof, pursuant to said
Contract and agrees to perform the same as
and when due in accordance with and subject
to the terms and conditions of such Contract.
This Assignment is made without recourse
and without any expressed or implied
representation or warranty whatsoever except
those representations and warranties set
fourth herein.
This agreement may be executed in
counterparts, each of which shall be deemed
to be an original, but all of which taken
together shall constitute but one and the
same instrument.
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee
have executed this Assignment and Assumption
Agreement as of the date first above written.
ASSIGNOR:
WEGMAN FAMILY LLC
By: /s/ Philip R. Wegman
--------------------
----------------
Philip R. Wegman,
Manager
ASSIGNEE:
PAINTED POST PARTNERS
By: /s/ Raymond R.
Brandstrom
-------------------
-------------------
Name: Raymond R.
Brandstrom
Title: Partner
By: /s/ Daniel R. Baty
--------------------
------------------
Name: Daniel R. Baty
Title: Partner
<PAGE> EX 10.74.1
PURCHASE AND SALE AGREEMENT
(Danville, Illinois)
THIS AGREEMENT is dated for reference purposes
only as of the 14th day of October, 1996 and is by and
between SOUTH BAY PARTNERS, INC., a Texas corporation,
or its assignee ("Purchaser"), and ELKS LODGE NO. 332,
BPOE, an Illinois corporation ("Seller").
RECITALS
A. Seller is the owner of a certain parcel of
real property located in Danville, Illinois.
B. Purchaser is interested in purchasing the real
property owned by Seller on the terms and conditions
specified herein.
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants of the parties set
forth herein, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. PURCHASE AND SALE.
On the terms and conditions set forth herein,
Seller shall sell to Purchaser and Purchaser shall
purchase from Seller, the following:
a. REAL PROPERTY. The undeveloped real property
located at 332 E. Liberty Lane, in the City of
Danville, State of Illinois, and consisting of (i)
approximately 6.3 acres as legally described on
Exhibit A attached hereto, and (ii) all right,
title and interest, if any, of Seller in and to
any land lying in the bed of any street, road or
avenue opened or proposed, in front of or
adjoining the same, to the center line
thereof(collectively the Real Property ); and
b. PROPERTY RIGHTS. All contract rights, surveys,
blue prints, studies, and other work in progress
relating to any proposed development of the Real
Property, and all licenses, permits, approvals and
all other entitlements, rights or privileges
appurtenant to or held by Seller in connection
with, the Real Property and/or any proposed
development thereof (collectively, the "Property
Rights").
The Real Property and the Property Rights are
sometimes collectively referred to herein as the
"Property".
2. PURCHASE PRICE.
The purchase price for the Property shall be
Eighty Thousand and No/100 Dollars ($80,000.00),
payable as follows:
a. EARNEST MONEY DEPOSIT. Five Thousand and no/100
Dollars ($5,000.00) upon mutual execution of this
Agreement (the "Earnest Money), which shall be
delivered in the form of a check made payable to
Partners Title Company, located at 712 Main
Street, Suite 2000, Houston, Texas 77002, Attn. :
Ms. Karen Highfield ("Escrow Agent"). All such
funds shall be held by Escrow Agent in an interest
bearing escrow account. The Earnest Money and any
accrued interest thereon shall be applied against
the purchase price at Closing or remitted to
Seller or Purchaser, as appropriate, in accordance
with the provisions of Paragraph 16 below; and
<PAGE>
b. BALANCE OF PURCHASE PRICE. The balance of the
purchase price shall be paid at the time of
Closing by wire transfer, cashier's check or other
certified funds.
3. CLOSING.
Provided that the conditions to Closing set forth
in Paragraphs 12 and 13 have been satisfied or waived
in writing by the party for whom the condition exists,
closing of the purchase of the Property shall occur on
the date forty-five (45) days following the expiration
of the Feasibility Period (as defined below) (the
"Closing Date") at such time and place as may be
mutually agreed upon by Seller and Purchaser. In the
event the scheduled Closing Date falls on a Saturday,
Sunday or a legal holiday, the Closing Date shall be
the next business day thereafter. Time is of the
essence.
4. CONVEYANCES.
At Closing, Seller shall convey the Real Property
to Purchaser by general warranty deed, in form and
substance acceptable to Purchaser. Title to the Real
Property shall be conveyed free and clear of all liens
or encumbrances other than those approved by Purchaser
pursuant to Paragraph 12.c.
5. CLOSING COSTS AND PRORATIONS.
At Closing, Seller and Purchaser shall be
responsible for the following costs and prorations:
a. TRANSFER TAXES. Seller shall pay any state or
county transfer taxes due and payable as a result
of the sale of the Property.
b. RECORDING FEES. Purchaser shall pay any
recording fees assessed with respect to the
recordation of the conveyance deed provided for
herein.
c. ATTORNEY'S FEES. Seller and Purchaser shall
each pay their own attorneys fees and costs, if
any.
d. ESCROW FEES. Seller and Purchaser shall each
pay one-half of all escrow fees.
e. REAL PROPERTY TAXES. Real property taxes and
assessments with respect to the Real Property
shall be prorated as of the Closing Date, with
Seller responsible for any such taxes and
assessments which relate to the period prior to
the Closing Date, regardless of when payment
therefor is due and with Purchaser responsible for
any such taxes and assessments which relate to the
period from and after the Closing Date.
f. TITLE INSURANCE AND SURVEY. Seller shall pay
for the cost of the premium for the Title Policy
(as that term is defined below), and Seller shall
pay the cost of the Survey required to be
delivered to Purchaser as provided herein,
subject, however, to the right to reimbursement
for Survey costs as provided for in Section 16. e.
below.
In the event any prorations between the parties at
the time of Closing is made on the basis of incomplete,
incorrect, estimated or preliminary information then,
as a matter which shall survive the Closing, the
parties agree to re-adjust and re-apportion such costs
following the Closing promptly upon receipt of
complete, correct or final information, which is
verified by both parties.
2
<PAGE>
6. POSSESSION.
At Closing, Purchaser shall be entitled to
possession of the Real Property free and clear of all
tenancies.
7. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller does hereby represent and warrant to
Purchaser as follows:
a. AUTHORITY. Seller has full power and authority
to enter into this Agreement and to carry out the
terms hereof and the consummation of the
transaction provided for herein does not violate
Seller's articles of incorporation or bylaws nor
any law, regulation, court order, mortgage, deed
of trust, note, bond, indenture, agreement,
license or other instrument or obligation to which
Seller is a party or by which its assets may be
bound or affected. This Agreement is valid,
binding and enforceable as against Seller in
accordance with its terms, except as such
enforceability may be affected by bankruptcy,
receivership or creditors' rights laws generally.
b. HEALTH AND SAFETY. Seller has not received any
written notification from the Department of
Building and Safety, Health Department, or such
other City, County or State authority having
jurisdiction over the Real Property, requiring any
work to be performed or affecting the Real
Property or indicating any intent to condemn the
Real Property or any portion of the Real Property.
c. TITLE. Seller has good fee simple marketable
title to the Real Property, which title as of the
Closing Date, will be free and clear of all liens
and encumbrances other than those approved by
Purchaser pursuant to Paragraph 12.c.
d. TAXES AND TAX RETURNS. All tax returns and
related filings of any kind required to be filed
by Seller prior to the Closing Date with respect
to its ownership of the Real Property have been
properly completed and timely filed in material
compliance with all applicable requirements and
all taxes or other obligations which are due and
payable by Seller have been, or as of the Closing
Date, will be timely paid.
e. LITIGATION. There is no litigation,
investigation, or other proceeding pending or, to
the best of Seller's knowledge, threatened against
or relating to Seller which is material to the
Real Property or this Agreement. In the event that
a lien, claim, or cause of action affecting the
Real Property should arise prior to the Closing,
and Purchaser elects not to terminate this
Agreement as a result thereof, Seller, at its sole
cost and expense, shall indemnify, defend and hold
the Purchaser harmless therefrom, including
without limitation, reasonable attorney's fees,
costs and expenses.
f. ENVIRONMENTAL MATTERS. Except in accordance
with, and in full compliance with, any and all
applicable governmental laws, regulations and
requirements (collectively, the "Environmental
Laws") relating to environmental and occupational
health and safety matters and hazardous materials,
substances or wastes (as defined from time to time
under any applicable federal, state or local laws,
regulations or ordinances) and except as disclosed
in any environmental reports delivered to or
obtained by Purchaser, Seller has not released
into the environment, or discharged, placed or
disposed of any such hazardous materials,
substances or wastes or caused the same to be so
released into the environment or discharged,
placed or disposed of at, on or under the
3
<PAGE>
Real Property. Seller further represents and
warrants that: (i) no hazardous materials,
substances or wastes are located on the Real
Property or have been released into the
environment or discharged, placed or disposed of
in, on or under the Real Property, (ii) no
underground storage tanks are or have been located
on the Real Property, (iii) the Real Property has
never been used as a dump for waste material, and
(iv) the Real Property and its prior uses comply
with, and at all times have complied with, all
Environmental Laws.
g. UTILITIES. All utilities necessary for
Purchaser's intended development and operation at
the Property are available to the Property and are
located within five (5) feet of the property line.
h. SPECIAL ASSESSMENTS. Seller has received no
notice and has no knowledge of any pending special
assessments to be made against the Real Property
by any governmental authority.
i. TENANCIES. As of the date of this Agreement,
none of the Real Property is under lease to any
person, firm, or entity; and, no oral or written
agreements have been entered into by Seller which
commit to lease all or any portion of the Real
Property subsequent to the date of this Agreement.
To the best of Seller's knowledge, there is no
adverse possession of all or any part of the Real
Property.
j. MECHANIC'S LIENS. There are no unpaid bills or
claims in connection with any construction or
other work performed on the Real Property nor
shall there be any on the date of Closing. Seller
shall satisfy any and all mechanic's or
materialmen's liens filed against the Real
Property, or any part thereof, on or prior to
Closing and shall indemnify and hold harmless and
protect the Purchaser from any and all loss from
any such liens.
8, REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser does hereby represent and warrant to
Seller as follows:
a. STATUS. Purchaser is a corporation duly
organized and validly existing under the laws of
the state of Texas and is in good standing
thereunder.
b. AUTHORITY. Purchaser has full power and
authority to execute and to deliver this Agreement
and all related documents, and to carry out the
transactions contemplated herein and the same do
not result in a breach of the terms and conditions
of nor constitute a default under or violation of
Purchaser's Articles of Incorporation or By-laws
or any law, regulations, court order, mortgage,
note, bond, indenture, agreement, license or other
instrument or obligation to which Purchaser is a
party or by which Purchaser or any of its assets
may be bound or affected. This Agreement is valid,
binding and enforceable as against Purchaser in
accordance with its terms, except as such
enforceability may be affected by bankruptcy,
receivership or creditors' rights laws generally.
c. LITIGATION. There is no litigation,
investigation or other proceeding pending or
threatened against or relating to Purchaser, its
properties or business which is material to this
Agreement, or which would prevent Purchaser from
performing its obligations hereunder.
4
<PAGE>
9. COVENANTS OF SELLER.
Seller does hereby covenant and agree as follows:
a. PRE-CLOSING. Between the date hereof and the
Closing Date, Seller will:
(i) at Seller's sole cost and expense and as
soon as practicable but in no event later than
fifteen (15) days following the mutual execution
of this Agreement, cause a surveyor acceptable to
Purchaser (the "Surveyor") to prepare and deliver
to Purchaser (with a copy to Purchaser's counsel)
an ALTA/ACSM survey of the Real Property
reflecting the size and dimensions of the Real
Property Plan and meeting the requirements set
forth below (the "Survey"). The Survey shall show
thereon: (a) the location of all boundaries,
existing fences, all easements, pipelines, rights-
of way, and roads which are of record or visible
on the ground, (b) whether any of the Real
Property lies within a 100 year flood plain or any
special flood hazard area as designated by any
governmental agency, (c) the number of acres and
net square footage contained within the boundaries
of the Real Property, (d) the location and
dimensions of any protrusions from and
encroachments on the Real Property; (e) the
location of all public roads or highways adjacent
to the Real Property and (f) such other matters as
shall be required by the Title Company for the
issuance of the Title Policy. The Survey shall be
certified to the Purchaser, Seller, and the Title
Company. The Surveyor shall include in its
certification its Registration Number, address,
telephone number, the job number and that the
Survey meets all ALTA/ACSM requirements and that
the Survey was made on the ground as per the field
notes shown thereon and that, except as shown
thereon, there are no visible easements, rights-of
way, party walls, conflicts, or visible
encroachments by any improvements onto an easement
or neighboring property or by any improvements on
adjoining property onto the Real Property and that
the Real Property has direct access to all
adjacent public sheets;
(ii) as soon as practicable but in no event
later than fifteen (15) days following the mutual
execution of this Agreement, provide Purchaser
with copies of the following documents relating to
the Real Property to the extent the same are in
Seller's possession or reasonable control (
collectively, the "Property Documents"): all
permits, licenses, and other governmental
approvals and entitlements relating to the use
and/or development of the Real Property, all
reports, studies and investigations performed at
the Real Property, including all architectural
drawings, plans and specifications, environmental
reports, structural reports and geological
reports, existing surveys of the Real Property,
wetland reports, soils reports, engineering tests
and reports, and appraisals prepared for the Real
Property and all other books and records relating
to any work performed in connection with any
proposed development of the Real Property;
(iii) satisfy and discharge all liens against
the Property, other than those approved by
Purchaser pursuant to Paragraph 12.c.;
(iv) file all tax returns, reports and
filings required to be filed by Seller and timely
pay all taxes or other obligations which are due
and payable with respect to the Property; and
(v) not take any action inconsistent with its
obligations hereunder.
b. CLOSING. On the Closing Date, Seller agrees to:
5
<PAGE>
(i) execute and deliver to Purchaser the
general warranty deed described in Paragraph 4 and
such other instruments as shall be necessary to
transfer the Property to Purchaser, including but
not limited to an affidavit of Non-Foreign Status
pursuant to Section 1445 of the Internal Revenue
Code of 1986, as amended; and
(ii) pay any Closing costs for which it is
responsible under Paragraph 5.
c. POST-CLOSING. After the Closing Date, Seller
agrees that, at Purchaser's sole cost and expense,
it will take such actions and properly execute and
deliver to Purchaser such further instruments as
may be reasonably necessary to evidence the
transfer of the Property.
10. COVENANTS OF PURCHASER.
Purchaser does hereby covenant and agree as
follows:
a. PRE-CLOSING. Between the date hereof and the
Closing Date, Purchaser will not take any action
inconsistent with its obligations hereunder.
b. CLOSING. On the Closing Date; Purchaser agrees
that it will deliver the balance of the purchase
price due at Closing together with its share of
the Closing costs as herein provided.
11. MUTUAL COVENANTS.
Seller and Purchaser mutually covenant and agree
as follows:
a. FULFILLMENT OF CONDITIONS. If any event should
occur, either within or without the knowledge or
control of either party, which would prevent
fulfillment of the conditions to Closing provided
for herein, to use his, its or their reasonable
efforts to cure the same as expeditiously as
possible;
b. GOVERNMENTAL CONSENTS. To cooperate fully with
each other in taking any actions which are or may
be necessary to obtain the consent of any
government instrumentality or any third party or
to accomplish the transaction contemplated by this
Agreement; and
c. ESCROW INSTRUCTIONS. To execute and deliver
written instructions to Escrow Agent if necessary
or desirable to complete the purchase and sale of
the Property.
12. PURCHASER'S CONDITIONS TO CLOSING.
The obligation of Purchaser to acquire the
Property shall be subject to the satisfaction by Seller
or to the waiver by Purchaser of the following
conditions:
a. SELLER' REPRESENTATIONS AND WARRANTIES.
Seller's representations and warranties set forth
herein shall be true in all material respects at
and as of the Closing Date as those made as of the
date thereof.
b. SELLER'S PERFORMANCE. Seller shall have
performed all of its obligations hereunder which
are required to be performed as of the Closing
Date.
6
<PAGE>
c. TITLE APPROVAL. Within fifteen (15) days
following the mutual execution of this Agreement,
Seller shall cause Chicago Title Insurance Company
(the Title Company ) to issue a commitment for
title insurance (including copies of all exception
documents referenced in said commitment) in an
amount equal to the purchase price, which
commitment shall provide for the issuance of a
final title policy as of the Closing Date, subject
to no liens or encumbrances, other than those
which may be approved by Purchaser (the "Title
Commitment"). The Title Commitment shall be issued
by Chicago Title Insurance Company ("Chicago
Title"), as the underwriter for the Title Policy
to be issued, and prepared through Chicago Title's
local agent, Vermillion County Abstract Company.
Copies of said Title Commitment together with all
exception documents shall be delivered to both
Purchaser and to Purchaser's counsel, at the
address set forth in Paragraph 18 below, within
said fifteen (15) day period. Within fifteen (15)
days following Purchaser's receipt of (i) the
Title Commitment, (ii) legible copies of all
exception documents referenced in the Title
Commitment, and (iii) the Survey, Purchaser shall
notify Seller of any items referenced in the Title
Commitment and/or the Survey to which it
disapproves. Within ten (10) days of Seller's
receipt of Purchaser's objections, Seller shall
advise Purchaser in writing as to whether it
intends to correct the defects to which Purchaser
has objected. If Seller refuses to correct some or
all of such defects or fails to notify Purchaser
within said ten (10) day period regarding its
intentions to correct the disapproved matters,
Purchaser shall have fifteen (15) days following
the earlier to occur of(i) Purchaser's receipt of
Seller's written notice regarding its refusal to
correct the disapproved matters or (ii) the
expiration of said ten (10) day period, to advise
Seller of Purchaser's decision to close,
notwithstanding the defects, or to terminate this
Agreement, in which case neither party shall have
any further rights or obligations hereunder. In
the event Purchaser fails to timely advise Seller
of its intention to terminate this Agreement,
Purchaser shall be conclusively deemed to have
rejected such title and survey defect(s) and shall
thereafter have the right to terminate this
Agreement. In the event of any such termination,
Purchaser shall be entitled to the return of its
Earnest Money and the parties shall have no
further rights or obligations hereunder.
d. TITLE POLICY. The Title Company shall issue to
Purchaser as of the Closing Date, an ALTA Extended
Owner's Policy of Title Insurance for the Real
Property (the "Title Policy") with a policy amount
of not less than the amount of the Purchase Price
insuring Purchaser's interest in the Real Property
and subject to no exceptions other than those of
the usual printed exceptions which are acceptable
to Purchaser (the survey exception, parties in
possession and mechanics lien exceptions being
specifically unacceptable to Purchaser) and those
exceptions to which Purchaser has not objected as
provided for in Paragraph 12.c. above.
f. FEASIBILITY STUDY. Purchaser shall conduct at
its sole cost and expense an intensive feasibility
study of the Real Property (the "Feasibility
Study"), which study shall include but not be
limited to, (i) reviewing and approving the
results of any environmental assessment report
which Purchaser may elect to obtain, and all
Property Documents required to be provided to
Purchaser by Seller, (ii) conducting such
engineering and soils studies, utilities
investigations, wetlands investigations, if
applicable, ALTA surveys and regulatory reviews,
as Purchaser deems appropriate to the development
of an assisted living facility consistent with the
developments plans of Purchaser (the "Facility")
and (iii) procuring approval for a Certificate of
Need ("CON") for the Real Property in order to
permit the construction and operation of the
Facility, subject to only such conditions as shall
be satisfactory to Purchaser. Within ninety (90)
days following the mutual execution of this
Agreement (the "Feasibility Period"), Purchaser
shall have approved or disapproved the results of
said Feasibility Study.
7
<PAGE>
Notwithstanding the foregoing, if, despite
Purchaser's good faith efforts, Purchaser is
unable to secure final and non-appealable approval
for the issuance of the CON within said ninety
(90) day period, the Feasibility Period may be
extended for up to three (3) consecutive periods
of thirty (30) days each in order to permit
Purchaser the necessary time to procure said CON
approval. If at the end of the third such thirty
(30) day extension, Purchaser determines that it
shall need additional time in order to obtain said
final approval for the CON, Purchaser shall be
permitted to further extend the Feasibility Period
as Purchaser determines reasonably necessary
provided that, for each additional thirty (30) day
extension, the purchase price payable hereunder
shall be increased by an amount equal to Five
Hundred Dollars ($500.00). Any extension of the
Feasibility Period, as permitted hereunder, shall
exercisable by written notice sent to Seller on or
before the then current date for the expiration of
the Feasibility Period. Seller agrees to grant to
Purchaser and/or its agents, consultants and
contractors the right to enter the Real Property
for the purpose of performing such tests, studies
and investigations as Purchaser determines
necessary in connection with its Feasibility Study
of the Real Property; provided, however, that the
activities conducted by Purchaser and/or any of
its agents, consultants or contractors shall not
materially change or alter the character of the
Real Property. Seller further agrees to fully
cooperate with Purchaser concerning the components
of the Feasibility Study.
g. ZONING. On or before the Closing Date,
Purchaser shall have satisfied itself in its sole
and absolute discretion that the development and
operation of the Facility on the Real Property is
permitted under the Real Property's current zoning
designation.
h. BOARD APPROVAL. Prior to the Closing Date,
Purchaser shall have obtained the approval of its
Board of Directors to the acquisition of the
Property pursuant to the terms of this Agreement.
i. FINANCING. Prior to the Closing Date,
Purchaser shall have obtained from an
institutional lender, or other lender source
acceptable to Purchaser, a commitment to provide
construction financing for the improvements
contemplated to be constructed by Purchaser on the
Real Property on such terms and conditions as are
acceptable to Purchaser.
j. READINGS FOR CONSTRUCTION. Upon the Closing
Date, there shall exist no impediments to the
commencement of construction of the improvements
contemplated to be constructed by Purchaser such
that Purchaser shall be able to commence
construction of said improvements immediately
following the Closing (e.g. within 48 hours
following the Closing Date); excluding, however,
impediments resulting from weather conditions,
Purchaser's inability to timely procure a building
permit and other necessary and customary
governmental approvals, lack of construction
financing or any other impediment which is imposed
or caused by, the actions of Purchaser.
13. SELLER'S CONDITIONS TO CLOSING.
The obligation of Seller to convey the Property to
Purchaser shall be subject to the satisfaction by
Purchaser or the waiver by Seller of the following
conditions:
a. PURCHASER'S RE REPRESENTATIONS AND WARRANTIES.
Purchaser's representations and warranties set
forth herein shall be true at and as of the
Closing Date.
8
<PAGE>
b. PURCHASER'S PERFORMANCE. Purchaser shall have
performed all of its obligations hereunder which
are required to be performed as of the Closing
Date.
14. INDEMNIFICATION BY SELLER.
Subject to the limitations set forth in Paragraph
16, Seller shall indemnify, defend and hold Purchaser
harmless from and against:
a. OBLIGATIONS EXISTING AS OF CLOSING DATE. Any
and all obligations relating to ownership of the
Property which exist as of the Closing Date,
except to the extent that such obligations relate
to a breach by Seller of a representation,
warranty or covenant set forth in this Agreement,
including, but not limited to, the representations
and warranties with respect to the environmental
condition of Real Property set forth in Paragraph
7.f., in which case Seller's obligation to
indemnity, defend and hold harmless Purchaser
shall be as set forth in Paragraph 14.b. ;
b. BREACH F REPRESENTATIONS AND WARRANTIES. Any
and all damage, loss, or liability resulting from
any material breach of any representation,
warranty or covenant made by Seller in this
Agreement or nonfulfillment of any agreement on
the part of Seller under this Agreement or from
any misrepresentation in or omission from any
certificate furnished or to be furnished to
Purchaser hereunder;
c. FEES AND EXPENSES. Any and all actions, suits,
proceedings, demands, assessments, judgments,
costs and legal and other expenses, including, but
not limited to, reasonable attorneys' fees,
incident to any of the foregoing.
For purposes of Paragraph 14.a., an obligation
shall be deemed to "exist" as of the Closing Date if it
relates to events which occurred prior to the Closing
Date even if it is not asserted until after the Closing
Date.
15. INDEMNIFICATION BY PURCHASER.
Subject to the limitations set forth in Paragraph
16, Purchaser shall indemnify, defend and hold Seller
harmless from and against:
a. OBLIGATIONS ACCRUING AFTER THE CLOSING DATE.
Any and all obligations relating to the ownership
of the Property accruing on or after the Closing
Date;
b. BREACH OF REPRESENTATION AND WARRANTIES. Any
and all damage, loss or liability resulting from a
material breach of any representation, warranty or
covenant of Purchaser in this Agreement or
nonfulfillment of any agreement on the part of
Purchaser under this Agreement or from any
misrepresentation in or omission from any
certificate furnished or to be furnished to Seller
hereunder; and
c. FEES AND EXPENSES. Any and all actions, suits,
proceedings, demands, assessments, judgments,
costs and legal and other expenses, including, but
not limited to, reasonable attorneys' fees,
incident to any of the foregoing.
16. TERMINATION.
9
<PAGE>
a. TERMINATION BY PARTIES. This Agreement may be
terminated and the transaction contemplated herein
abandoned at any time prior to Closing:
(i) By mutual agreement of the parties;
(ii) By Seller, if any of the conditions set
forth in Paragraph 13 shall have become incapable
of fulfillment prior to the Closing Date or such
earlier date as may be specifically provided for
the performance thereof (as the same may be
extended) through no fault of Seller and the same
shall not have been waived by Seller;
(iii) By Purchaser, if any of the conditions
set forth in Paragraph 12 shall have become
incapable of fulfillment prior to the Closing Date
or such earlier date as may be specifically
provided for the performance thereof (as the same
may be extended) through no fault of Purchaser and
the same shall not have been waived by Purchaser;
(iv) By either Seller or Purchaser in the
event of a material breach by the other party of
its obligations hereunder; or
(v) If the Closing has not occurred by May
31,1997; subject, however, to any extensions to
the Closing Date by reason of extensions to the
Feasibility Period as provided for in Section 12.
f. above.
b. MATERIAL DAMAGE OR DESTRUCTION. In the event
that prior to the Closing Date, a material portion
of the Real Property shall have been damaged or
destroyed or shall have been taken or condemned by
any public or quasi-public authority under the
power of eminent domain, Purchaser shall have the
right to terminate this Agreement on written
notice to Seller which notice must be delivered
within ten (10) days after Purchaser receives
notice of such damage, destruction or
condemnation. In the event Purchaser fails to
exercise its termination rights hereunder, then it
shall be conclusively deemed to have waived said
right and Seller shall assign to Purchaser all of
its rights to any insurance proceeds or
condemnation award and all claims in the
connection therewith. In the event Purchaser
exercises its termination rights hereunder, the
parties shall have no further rights or
obligations hereunder other than Purchaser's right
to the return of its Earnest Money.
c. WRITTEN NOTICE. Neither party to this Agreement
may claim termination or pursue any other remedy
referred to in Paragraph 16.a. on account of a
breach of a condition, covenant or warranty by the
other, without first giving such other party
written notice of such breach and not less than
ten (10) days within which to cure such breach.
The Closing Date shall be postponed, if necessary,
to afford such opportunity to cure.
d. SELLER'S LIQUIDATED DAMAGES. In the event of
the termination of this Agreement by Seller as a
result of a material breach by Purchaser occurring
at any time following the expiration of the
Feasibility Period with respect to any of
Purchaser's obligations hereunder Seller's sole
remedy shall be to terminate this Agreement and to
retain Purchaser's Earnest Money as full and
complete liquidated damages, the parties
acknowledging and agreeing that the amount of
damages which Seller may incur as a result of such
termination may be difficult to ascertain and that
the amount of the Earnest Money is a reasonable
and fair estimate thereof, after which the parties
shall have no further rights or obligations
hereunder.
10
<PAGE>
e. PURCHASER'S REMEDIES. In the event of the
termination of this Agreement by Purchaser as a
result of a material breach by Seller of its
obligations hereunder, Purchaser shall have the
right either to (i) terminate this Agreement and
receive a full refund of its Earnest Money,
together with all interest accrued thereon, after
which neither party shall have any further rights
or obligations hereunder or (ii) seek specific
performance of Seller's obligations hereunder or
damages for Seller's breach of its obligations
hereunder. In the event of the termination of this
Agreement by Purchaser as a result of a failure of
any of the Purchaser's conditions as set forth in
Paragraph 12 above, Purchaser shall be entitled to
a full refund of its Earnest Money, together with
all interest accrued thereon; provided, however,
in the event Purchaser terminates this Agreement
as a result of the failure of any of Purchaser's
conditions hereunder and Seller's in not in
default hereunder, Purchaser shall reimburse
Seller for the actual verifiable cost incurred by
Seller for the preparation of the Survey (not to
exceed $2,500.00).
17. BROKER.
Seller shall be responsible for any fees or
commissions claimed to Mr. Lester Fahey (the "Broker")
in connection with this Agreement and shall pay such
fees or commissions from the sale proceeds at the time
of Closing to Mr. Lester Fahey or to others at his
direction. Each party agrees to pay any commission or
finder's fee which may be due on account of this
Agreement to any other broker or finder employed by it
(other than the Broker, whose commission is the
responsibility of Seller) and each party agrees to
indemnify the other party against any claim for any
commission made by any broker allegedly employed by it.
18. NOTICES.
Any notice, request or other communication to be
given by any party hereunder shall be in writing and
shall be sent by registered or certified mail, postage
prepaid, by overnight courier guaranteeing overnight
delivery or by facsimile transmission (if confirmed
verbally or in writing by mail as aforesaid), to the
following address:
To Seller: Elks Lodge No. 332
c/o William L. Townsley, Esq.
Sebat Swanson Banks Garman &
Townsley
139 North Verznillion Street
Danville, Illinois 61832
Telephone No.: (217) 443-0255
Facsimile No.: (217) 443-0263
To Purchaser: South Bay Partners, Inc.
5720 LBJ Freeway, Suite 450
Dallas, Texas 75240-6339
Attention: Mr. Craig Spaulding
Telephone No.: (214) 702-8183
Facsimile No.: (214) 458-2233
With a copies to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
Attention: V. Anthony Unan, Esq.
11
<PAGE>
Telephone No.: (206) 623-6239
Facsimile No.: (206) 623-1738
Notice shall be deemed given three (3) business days
after deposit in the mail, on the next day if sent by
overnight courier and on receipt if sent by facsimile
(and confirmed verbally or by mail as aforesaid).
19. AMENDMENT AND MODIFICATION.
This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing
signed by the parties hereto. This Agreement
constitutes the entire agreement between the parties
hereto and supersedes all prior negotiations,
discussions, writings and agreements between them.
20. ASSIGNMENT.
Purchaser shall have the right to assign its
rights and delegate its obligations hereunder, without
the prior written consent of Seller, provided that the
assignee agrees in writing to assume all of the
obligations of Purchaser hereunder from and after the
effective date of said assignment. In the event of any
such assignment, Seller agrees that South Bay Partners,
Inc. shall be relieved and released from any and all
further obligations and/or liability hereunder. In the
event of any such assignment, all of the references to
Purchaser herein shall be deemed to be references to
Purchaser's assignee, the representations set forth in
Paragraph 8 shall be revised accordingly and the terms
of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by and against said
assignee. Without limiting the generality of the
foregoing, Seller acknowledges that Purchaser is
contemplating assigning its rights and delegating its
obligations hereunder to Emeritus Corporation, a
Washington corporation.
21. WAIVER.
The waiver by any party of any breach of any of
the provisions of this Agreement shall not constitute a
continuing waiver or a waiver of any subsequent breach
of any provision of this Agreement.
22. INCORPORATION BY REFERENCE.
Each recital set forth and exhibit referenced in
this Agreement is incorporated and becomes an integral
part of this Agreement.
23. CAPTIONS.
The captions of this Agreement are for convenience
of reference only and shall not define or limit any of
the terms or provisions hereof.
24. SURVIVAL.
This Agreement shall survive the Closing Date and
thereafter remain binding on both Seller and Purchaser.
25. ATTORNEYS' FEES.
12
<PAGE>
If any litigation or other proceedings are
commenced between parties to this Agreement regarding
the rights and duties of any party pursuant to, related
to or arising from this Agreement, then the prevailing
party with respect to the litigation or other
proceedings, shall be entitled, in addition to the
relief granted, a reasonable sum for attorneys' fees
and costs of the litigation or other proceedings.
26. GOVERNING LAW.
This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
27. SEVERABILITY.
Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or
unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
28. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts, each of which shall be an original; but
such counterparts shall together constitute but one and
the same instrument.
[Signatures of the parties on following page]
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date set forth opposite each
patty's signature below and the last date of execution
shall be deemed the date of "mutual execution" as such
term is used herein.
Purchaser: SOUTH BAY
PARTNERS, INC.,
a Texas corporation
Dated: 10/4/96 By: /s/ Craig
Spaulding,
- --------------------------------------
President
Seller: ELKS LODGE NO. 332, BPOE,
an Illinois corporation
Dated: 10/4/96
14
<PAGE> EX 10.74.2
ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE
AGREEMENT
(Danville, Illinois)
This Assignment and Assumption of Purchase and
Sale Agreement (the "Assignment") is entered into as of
the 21 day of October ,1996 (the "Effective Date"), by
and between SOUTH BAY PARTNERS, INC., a Texas
corporation ("South Bay"), and EMERITUS CORPORATION, a
Washington corporation ("Emeritus"), with reference to
the following facts:
A. South Bay and Elks Lodge No. 332, BPOE, an
Illinois corporation ("Seller"), entered into that
certain Purchase and Sale Agreement dated as of October
14, 1996 (the "Purchase Agreement"), pursuant to which
South Bay agreed to purchase and Seller agreed to sell,
that certain undeveloped land located in the City of
Danville, State of Illinois, together with certain
property rights associated therewith, all as more
particularly described in the Purchase Agreement
(collectively, the "Property"). Any term used herein
which commences with an initial capital letter and is
not otherwise defined herein shall have the same
meaning in this Assignment as such term has in the
Purchase Agreement. .
B. Pursuant to Section 20 of the Purchase
Agreement, South Bay has the right to assign all of its
rights and to delegate all of its obligations, under
the Purchase Agreement, to any assignee, provided that
such assignee agrees in writing to assume all of South
Bay's obligations under the Purchase Agreement from and
after the effective date of any such assignment.
Further, it was contemplated under Section 20 of the
Purchase Agreement that such an assignment would be
made to Emeritus.
C. South Bay now desires to assign to Emeritus all
of its rights and to delegate to Emeritus all of South
Bay's obligations, under the Purchase Agreement and
Emeritus desires to accept such an assignment and to
assume all such obligations.
NOW, THEREFORE, in consideration of the foregoing
and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged,
the parties hereby agree as follows:
1. ASSIGNMENT AND ACCEPTANCE
As of the Effective Date, South Bay hereby
assigns, sets over, conveys and transfers to Emeritus
all of its right, title and interest, and hereby
delegates to Emeritus all of its duties and
obligations, as Purchaser, in, to, and under the
Purchase Agreement including without limitation all
right, title and interest of South Bay in and to the
Earnest Money. Emeritus hereby accepts said assignment
and hereby agrees to perform all of the duties and
obligations of Purchaser under the Purchase Agreement
to the extent they arise from and after the Effective
Date.
2. EARNEST MONEY DEPOSIT
Emeritus acknowledges and understands that
South Bay has deposited with the Escrow Agent the sum
of Five Thousand and No/100 Dollars ($5,000.00)
representing the deposit of the Earnest Money and that
South Bay has incurred attorney fees with the law firm
of The Nathanson Group in connection with the
preparation and negotiation of the Purchase Agreement.
In consideration for this Assignment, Emeritus hereby
agrees to reimburse South Bay the full amount of said
Earnest Money so deposited with Escrow Agent and all
such attorney's fees and associated legal costs
incurred with The Nathanson Group. Said reimbursement
shall be paid (i) with respect to the Earnest Money,
within five (5) business days following the Effective
Date and (ii) with respect to said attorney's fees and
associated legal costs, within five (5) business days
following receipt by Emeritus of a bill from South Bay.
1
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF EMERITUS
Emeritus hereby represents and warrants to
South Bay as follows:
a. Emeritus has received and reviewed a
signed copy of the Purchase Agreement and, as of the
Effective Date, Emeritus will be in compliance with the
representations, warranties, covenants, and obligations
of the Purchaser thereunder.
b. The execution, delivery and performance of
this Assignment are within Emeritus' powers, have been
duly authorized and are not in contravention of any law
or the terms of Emeritus' articles of incorporation or
bylaws, or any undertaking to which Emeritus is a party
or by which it is bound.
4. REPRESENTATIONS AND WARRANTIES OF SOUTH BAY
South Bay hereby represents and warrants to
Emeritus as follows:
a. South Bay is in compliance with its
representations, warranties, covenants, and obligations
as the Purchaser under the Purchase Agreement and there
are no defaults on the part of South Bay or the Seller
under the Purchase Agreement that have not been waived
or cured under the provisions thereof. As of the
Effective Date, the Purchase Agreement is in full force
and effect.
b. The execution, delivery and performance of
this Assignment are within South Bay's powers, have
been duly authorized and are not in contravention of
any law or the terms of South Bay's articles of
incorporation or bylaws, or any undertaking to which
South Bay is a party or by which it is bound.
5. MISCELLANEOUS
a. NOTICES. Any notice, request or other
communication to be given by any party hereunder shall
be in writing and shall be sent by registered or
certified mail, postage prepaid, by overnight courier
guaranteeing overnight delivery or by facsimile
transmission (if confirmed orally or in writing by mail
as aforesaid), to the following address:
To South Bay: South Bay
Partners, Inc.
5720 LBJ Freeway, Suite 450
Dallas, Texas 75240-6339
Attention: Mr. Craig Spaulding
Telephone No. : (214) 702-8183
Facsimile No.: (214) 458-2233
To Emeritus: Emeritus
Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Ms. Jean Fukuda
Telephone No.: (206) 298-2909
Facsimile No.: (206) 301-4500
2
<PAGE>
Notice shall be deemed given three (3) business days
after deposit in the mail, on the next day if sent by
overnight courier and on receipt if sent by facsimile
(and confirmed orally or by mail as aforesaid).
b. ENTIRE AGREEMENT. This Assignment
constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes any
and all prior written or oral agreements or
understandings between the parties pertaining to the
transactions contemplated herein.
c. COUNTERPARTS. This Assignment may be
executed in two (2) or more counterparts, each of which
shall be an original for all purposes and all of which
when taken together shall constitute one agreement.
d. GOVERNING LAW. This Assignment and the
rights and the duties of the parties hereunder shall be
governed by, and construed in accordance with, the laws
of the State of Washington.
e. ATTORNEYS' FEES. Should either party
institute any action or proceeding to enforce or
interpret this Assignment or any provision hereof for
damages by reason of any alleged breach of this
Assignment or of any provision hereof, or for a
declaration of rights hereunder, the prevailing party
in any such action or proceeding shall be entitled to
receive from the other party all costs and expenses,
including reasonable attorneys' and other fees,
incurred by the prevailing party in connection with
such action or proceeding. The term "attorneys' and
other fees" shall mean and include attorneys' fees,
experts' fees, accountants' fees, and any and all other
similar fees incurred in connection with the action or
proceeding and the preparations therefor. The term
"action or proceeding" shall mean and include actions,
proceedings, suits, arbitrations, appeals and other
similar proceedings.
f. BINDING EFFECT. This Assignment shall be
binding upon and shall inure to the benefit of the
parties, their heirs, executors, administrators,
successors and assigns.
g. AMENDMENTS. This Assignment cannot be
amended or modified unless in writing and signed by all
parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Assignment effective as of the date first set forth
above.
"Emeritus": EMERITUS CORPORATION
a Washington corporation
By: /s/ Raymond R.
Brandstrom
- ---------------------------------------
Its: President
"South Bay":
SOUTH BAY PARTNERS, INC.,
A Texas corporation
By: /s/ Craig Spaulding
- --------------------------------------
Its: President
4
<PAGE> EX 10.75.1
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is
made and entered into as of December 18, 1997, between
ALCO VII, L.L.C. , a North Carolina limited liability
company with offices at 46 3rd Street, N.W., Hickory,
North Carolina ("Owner"), and EMERITUS CORPORATION, a
Washington corporation with offices at 3131 Elliott
Avenue, Suite 500. Seattle Washington 98121
("Manager").
WITNESSETH
WHEREAS, Owner is the owner of a 83-unit assisted
living facility being developed in Biloxi, Mississippi,
together with the equipment, furnishings, and other
tangible personal property that will be used in
connection therewith (the "Facility"); and
WHEREAS, Manager is engaged in the ownership and
operation of similar facilities and is experienced in
various phases of the management, operation and
ownership thereof; and
WHEREAS, Owner desires to engage Manager as an
independent contractor to manage the Facility for
Owner's account during the term herein provided, and
Manager desires to accept such engagement, upon the
terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual
promises and covenants herein contained, and intending
to be legally bound hereby, the parties agree that the
foregoing recitals are true and correct and constitute
an integral part of this Agreement, and the parties
further agree as follows:
ARTICLE 1
ENGAGEMENT OF MANAGER
1.1 ENGAGEMENT. During the term of this Agreement
and subject to a plan of operation for the Facility to
be developed by Manager and approved by Owner (the
"Plan of Operation"), Owner grants to Manager the sole
and exclusive right, and engages Manager to supervise,
manage, and operate the Facility in the name and for
the account of Owner upon the terms and conditions
hereinafter set forth. Owner is contracting herein for
an end result, and does not intend to provide any day-
to-day supervision of Manager. Manager shall provide
its own management systems, which shall be considered
proprietary material and will remain the property of
Manager. The Plan of Operation shall include the
program design (in accordance with the regulations of
the state where the Facility is located (the "State"))
and define the capital expenditure and operating
budgets for the Facility, as agreed to by the parties.
the Plan of Operation shall be reviewed on a monthly
basis and, if necessary, revised, upon the mutual
agreement of the parties.
1.2 ACCEPTANCE. Subject to the Plan of Operation,
Manager accepts such engagement and agrees that it will
(a) faithfully and diligently perform its duties and
responsibilities hereunder; (b) use its best skills,
efforts and attention to supervise and direct the
management and operation of the Facility in an
efficient manner, as an assisted living facility, in
substantial compliance with all applicable laws and in
Owner's best interest; and (c) consult with Owner and
keep owner advised of all major policy matters relating
to the Facility. Subject to the foregoing and to the
other provisions of this Agreement, Manager, without
the approval of the Owner (unless such approval is
herein specifically required), shall have the control
and discretion with regard to the operation and
management of the Facility for all customary purposes
(including the exercise of its rights and performance
of its duties provided for in Article 3 hereof, and the
right to determine policies affecting the appearance,
maintenance, standards of operation, quality
<PAGE>
of service, and other matters reasonably relating to
Manager's interest hereunder, which affect the Facility
or the operation thereof, and Owner shall not attempt
to assert management control over Facility or its
employees during the term of this Agreement.
ARTICLE 2
TERM
The term of this Agreement shall be for a period of two
years commencing on the date that the first resident
occupies one of the units in the Facility (the
"Commencement Date") and ending on the earlier to occur
of (i) a date two years after the Commencement Date
(ii) the occurrence of the Commencement Date (as
defined in the Lease Agreement of even date herewith
between Owner and Manager with respect to the
Facility), unless terminated earlier pursuant to
Article 8 or Section 11. 2 hereof. This Agreement shall
be automatically extended for additional terms of one
year each unless and until terminated pursuant to the
terms herein, or upon written notice by Manager of its
intent not to extend 90 days prior to the end of the
then term.
ARTICLE 3
RIGHTS AND DUTIES OF THE MANAGER
During the term of this Agreement and in the
course of its management and operation of the Facility,
subject to the Plan of Operation:
3.1 EMPLOYEES. Manager shall hire, train,
promote, discharge, and supervise the work of the
Facility's executive director, department heads, and
all operating and service employees performing services
in and about the Facility. All of such employees shall
be employees of Owner, except the executive director
who shall be an employee of Manager, and the aggregate
compensation, including fringe benefits with respect to
such employees (including the executive director)
shall, within the agreed Operating Budget, be charged
to Owner as an expense of the operation of the
Facility. Manager shall comply with all applicable laws
concerning employees, their compensation, and any
retirement or profit sharing plans, including payroll
deductions and tax reporting. The term "fringe
benefits" as used herein shall include but not be
limited to the employer's contribution of FICA,
unemployment compensation, and other employment taxes
retirement plan contributions, worker's compensation,
group life, accident, and health insurance premiums
profit sharing contributions, disability, and other
similar benefits. All such employees shall be covered
by appropriate professional liability, workers
compensation, unemployment and other liability
insurance, including errors and omission coverage, as
approved by Manager and Owner. The cost of same shall
be charged to Owner as an additional expense of the
operation of the Facility. Manager shall provide Owner
with evidence of any such insurance upon request.
3.2 LABOR CONTRACTS. Manager, if requested by
Owner, will negotiate, on Owner's behalf, with any
labor union lawfully entitled to represent the
employees at the Facility, but any collective
bargaining agreement or labor contract resulting
therefrom must first be approved by Owner, who shall be
the only person authorized to execute the same. All
such negotiations conducted by Manager shall be at
Owner's expense and shall be subject to approval by
Owner, which approval shall not be unreasonably
withheld.
3.3 CONCESSIONAIRES, ETC. Manager shall negotiate
and consummate in the name of the Owner contracts with
concessionaires, licensees, tenants, residents and
other intended users of the Facility. Any fees and
expenses incurred in connection therewith shall, within
the agreed Operating Budget, be charged to Owner as an
expense of the operation of the Facility.
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3.4 ANCILLARY SERVICES, UTILITIES, ETC. Manager
shall, within the agreed Operating Budget, enter into
such contracts in the name of and at the expense of
Owner as may be deemed necessary or advisable for the
furnishing of all ancillary services, utilities,
concessions, supplies and other services as may be
needed from time to time for the maintenance and
operation of the Facility. manager is authorized to
contract for or to provide ancillary services,
including, but not limited to, pharmacy (drug and IV),
rehabilitation and respiratory therapy services, and
mobile diagnostic services, through providers which may
be affiliates of Manager, provided that such services
are rendered at levels of quality and pricing that are
competitive with those provided in the community.
3.5 PURCHASES. Manager shall be solely
responsible to arrange for the purchases of food,
beverages, operating supplies, and other materials and
supplies in the name of and for the account, and at the
expense of Owner, within the agreed Operating Budget,
as may be needed from time to time for the maintenance
and operation of the Facility.
3.6 REPAIRS. At all times during the term of this
Agreement, Manager shall, within the agreed Operating
Budget, make or install or cause to be installed at
Owner's expense and in the name of the Owner any proper
repairs, replacements, and improvements in and to the
Facility and the furnishings and equipment in order to
keep and maintain the same in good repair, working
order and condition, and outfitted and equipped for the
proper operation thereof in accordance with industry
standards comparable to those prevailing in other
similar facilities, and all applicable state or local
rules, regulations, or ordinances. All maintenance and
repair work undertaken by Manager shall be done in a
workmanlike manner, leaving the Facility free of liens
for labor and material to the extent funds are provided
by owner'. Manager hereby grants to Owner the right to
inspect and access to the Facility at all reasonable
times; provided, however, that Owner shall have not
duty to conduct any inspection.
3.7 LICENSES AND PERMITS. Manager shall apply for,
and use its best efforts to obtain and maintain in the
name and at the expense of the Owner, all licenses and
permits required in connection with the management and
operation of the Facility. Owner agrees to cooperate
with Manager in applying for, obtaining and maintaining
such licenses and permits.
3.8 INSURANCE. Manager shall apply for, obtain and
maintain on behalf of Owner, and at Owner's expense, at
all times during the term of this Agreement, the
following insurance in such amounts and coverage as may
be appropriate and mutually agreed upon by Owner and
Manager or as may be required by any financing or lease
arrangements of Owner, whichever is greater:
(a) insurance on the Facility on a replacement
cost basis (including the equipment, furnishings and
other tangible personal property used in connection
therewith) against loss and damage by fire and
lightning with coverage extended by means of an
extended coverage endorsement to a fire insurance
policy so as to include loss or damage arising out of
windstorm, and hail, provided such insurance is
reasonably available, and sprinkler damage, if
reasonably available;
(b) insurance on the Facility against loss or
damage, including business interruption insurance, for
boilers and machinery, heating apparatus, pressure
vessels, and pressure pipes installed in the Facility;
(c) commercial primary and excess general
liability, including automobile liability (as needed),
products liability bonds, professional and other
liability, and property damage insurance,
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insuring Owner and Manager against loss or liability
for damages or personal injury, death, or property
damage arising or resulting from the management,
maintenance, operation and/or use of the Facility;
(d) such workers' compensation and other similar
insurance as may be required by law or as may be
required to insure Owner and Manager against loss or
the payment of damages for such liabilities as may be
imposed by law;
(e) unemployment Compensation insurance through
the appropriate state agencies; and fidelity and
honesty insurance.
(f) fidelity and honesty insurance.
Forthwith after the effective date of this
Agreement, Manager shall submit to Owner for its
approval, which approval shall not be unreasonably
withheld, a proposal setting forth the kinds and
amounts of insurance which Manager intends to obtain,
in connection with the operation of the Facility
(including, without limitation, insurance of the kinds
and in the respective amounts described in paragraphs
[a] through [f] of this section) and Owner shall be
deemed to have approved the proposal unless Owner has
disapproved in writing within ten days of submission of
the proposal by Manager.
All insurance provided for under the foregoing
provisions of this Section shall be effected by
policies issued by insurance companies of good
reputation, sound adequate financial responsibility,
and properly licensed and qualified to do business in
the State and which are acceptable to any Secured
parties (hereinafter defined).
All of the policies of insurance of the character
described in Paragraphs (a) - (b) of this Section shall
be carried in the names of Owner, Manager, the secured
parties, if any, under any mortgage, deed of trust or
security instrument from time to time outstanding
affecting the Facility (the "Secured Parties"). Any
losses payable under such policies of insurance shall
be payable to Owner, Manager, and such Secured Parties
as their respective interests may appear. Each of the
policies of insurance referred to in paragraphs (c) -
(f) of this Section shall insure Owner and Manager.
Owner, Manager and their respective officers, partners,
directors, shareholders, managers and employees shall,
to the extent permissible, be named as additional
insureds under all such policies.
3.9 GOVERNMENTAL REGULATION.
(a) Manager shall perform its duties hereunder to
insure that the facility and the management thereof by
Manager complies in all material respects with all
Federal, state and local laws, rules, orders,
determination, regulations and ordinances affecting or
issued in connection with the Facility, or the
management thereof by Manager, including any laws and
regulations applicable to the Facility, and with the
prior written consent of Owner, Manager shall make
arrangements for any alterations or repairs ordered or
required thereby, if not included in the Operating
Budget.
(b) Manager shall immediately provide to Owner,
as and when received by Managers, all notices, reports
or correspondence from governmental agencies that
assert deficiencies or charges against Facility or that
otherwise relate to the suspension, revocation, or any
other action adverse to any approval, authorization,
certificate, determination, license or permit required
or necessary to own or operate the Facility. Manager
may appeal any action taken by any
4
<PAGE>
governmental agency against the Facility; provided,
however, that Owner shall adequately secure and protect
Manager from loss, cost, damage or expense by bond or
other means reasonably satisfactory to Manager in order
to contest by proper legal proceedings the validity of
any such statute, ordinance, law, regulation or order,
provided that any such contest shall not result in the
suspension of operations of the Facility and, provided,
further, that Owner shall have not obligation to secure
and protect Manager from any loss, cost, damage or
expense that arise directly out of Manager's
negligence, misconduct, or breath of any of its
obligations under this Agreement.
3.10 TAXES. Manager shall give notice to Owner of
all taxes, assessments, penalties, fines, and charges
of every land imposed upon the Facility by any
governmental authority within five days of receipt of
notification other than in the normal course of
business, including interest and penalties thereon, and
shall cause such items to be paid when due if funds are
available, except that Manager shall not cause such
payment to be made if (i) same is in good faith being
contested by the Owner at its sole expense and without
cost to Manager, (ii) enforcement thereof is stayed,
and (iii) Owner shall have given Manager written notice
of such contest and authorized the nonpayment thereof
not less than ten days prior to the date on which such
tax assessment, penalty or charge: is due and payable.
3.11 Deposit and Disbursement of Funds. Upon the
implementation of this Agreement, Owner shall initiate
an operating reserve fund in a financial institution
and available to Manager as Owner's agent hereunder in
an amount to be agreed upon by the parties. Such
reserve fund shall be used by manager to meet the
financial payments noted below until sufficient
revenues are generated by operation of the Facility to
reasonably meet those financial obligations on a
monthly basis. manager shall promptly deposit in a
banking institution acceptable to Owner, which is a
member of the FDIC, in accounts in Manager's name as
agent for Owner, all Gross Revenues, as defined below,
and moneys and Facility income arising from the
operation of the Facility, or otherwise received by
Manager for and on behalf of Owner ("Facility Funds"),
which funds shall be Owner's funds. No amounts
deposited with Facility Funds shall in any event be co-
mingled with any other funds of Manager. Manager shall
pay from the reserve amount and/or, once sufficient
Facility Funds are generated and received to meet the
monthly operating expenses of the Facility, manager
shall pay from Facility Funds on behalf of and in the
name of Owner, and in the following order of priority,
and in each case, in such amounts and at such times as
are required to be made in connection with:
(a) all costs and expenses arising out of the
ownership, maintenance, and operation of the Facility,
including the reimbursable expenses of Manager
hereunder pursuant to Exhibit A attached hereto ;
(b) payment of Facility Debt Service;
(c) Manager' s Base Management Fee provided for in
Article 5, below (including any accrued and unpaid Base
Management Fees for prior periods); and
(d) the balance of the Facility Funds shall be
disbursed to Owner within five days of receipt of such
funds.
It is expressly acknowledged that financial
responsibility for payment of the costs and expenses
noted above is that of the Owner. If the available
Facility Funds previously deposited by Manager, or the
reserve amounts previously placed in the Accounts by
Owner are insufficient in any month to pay all of the
amounts described in paragraphs (a) - (c), Owner shall
promptly, upon the request of Manager, advance to
Manager, or pay into those accounts described above,
for use
5
<PAGE>
by Manager on Owner' s behalf, any additional amounts
necessary and sufficient to allow Manager to pay all
amounts due hereunder. Manager shall not be required to
advance any sums on Owner's behalf to meet any
financial obligations of Owner pursuant to the
management of Facility. Owner's failure to promptly
advance funds, or to deposit any reserve amounts where
required hereunder and where written demand has been
made by Manager, shall be considered a breach by Owner
of this Agreement.
As used herein, "Facility Debt Service" means
scheduled payments of the principal and interest with
respect to:
(i) the indebtedness identified on Exhibit B
attached hereto, and
(ii) any additional indebtedness incurred by
Owner for the improvement, maintenance, or
operation of the facility.
"Facility Debt Service" does not include any
amounts payable by reason of involuntary prepayments or
the acceleration of such indebtedness for any reason.
3.12 STATEMENTS. Manager shall deliver or cause to
be delivered to Owner statements
as follows:
(a) On or about the 30th day after the end of each
calendar month (except for the final month of the
fiscal year as noted in 3.12(b) below, a profit and
loss statement and balance sheet statement (both
prepared on an accrual basis) showing the results of
the operation of the Facility for the preceding
calendar month and the year to date, and having annexed
thereto a computation of the management fee (as
determined under Article 5 hereof for such preceding
month and the year to date.
(b) On or before 45 days after the close of each
fiscal year during the term of this Agreement, Manager
will also deliver or cause to be delivered to Owner a
balance sheet and related statement of profit and loss
showing the assets employed in the operation of the
Facility and the liabilities incurred in connection
therewith as of the end of the fiscal year, and the
results of the operations of the Facility during the
preceding 12 months then ended, and having annexed
thereto (i) a copy of the Medicare and Medicaid cost
report, if any, prepared by Manager with respect to the
Facility for such twelve-month period, and (ii) a
computation of the management fee for any such 12-month
period and payments made according to Section 3.11. All
costs and expenses incurred in connection with the
preparation of any statements, schedules, computation,
and other reports required under this Section 3.12(b)
shall be borne by Owner.
(c) Within 30 days of filing, copies of the 10-Q
and 10-K of Manager filed with the United States
Securities and Exchange Commission.
(d) Within 45 days after the end of each quarter,
each of the following certified by the chief financial
officer of Manager to be true and correct:
(i) unaudited financial statements of the
Manger prepared in accordance with generally
accepted accounting principles consistently
applied, which statements shall include a balance
sheet and statement of income and expenses for the
quarter then ended;
(ii) if requested by Owner, within 15 days of
the end of each calendar month, an aged accounts
receivable report of the Facility in sufficient
detail to show amounts due
6
<PAGE>
from each class of patient-mix (i.e., private,
Medicare (if any), Medicaid (if any) and V.A.) by
the account age classifications of 30 days, 60
days, 90 days, 120 days, and over 120 days;
(iii) within 45 days after the end of each
calendar quarter, the quarterly financial
statement and census date for the Facility,
properly completed and certified by Manager to be
true and correct;
(iv) within ten days of filing or receipt all
cost reports required by any regulatory or
licensing agency and any amendments thereto filed
with respect to the Facility and all responses and
statements of deficiencies (with plans of
correction attached thereto, if required, within
the period prescribed by law);
(v) within ten days of receipt, copies of all
licensure and certification survey reports and
statements of deficiencies (with plans of
correction attached thereto, if required, within
the period prescribed by law;
(vi) within ten days of receipt, a copy of
the Medicaid rate calculation worksheet (or the
equivalent thereof, if any, issued by the
applicable Medicaid agency for the Facility;
(vii) upon Owner's request, evidence of
payment of any applicable provider bed taxes or
similar taxes.
3.13 COMPLAINTS; INVESTIGATIONS; LEGAL ACTIONS.
Manager shall receive, consider, and handle any
complaints of residents, guests or users of any of the
services of the Facility. Using reasonable judgment,
Manager shall notify Owner of all material written
complaints regarding the quality of resident care or
operation of the Facility received by Manager. Manager
shall comply with the procedures and policies for
reporting of adverse resident occurrences at the
Facility to the insurance company or to such other
persons as Owner may designate. Manager shall promptly
notify Owner of any pending, threatened or initiated
investigation, by any governmental or administrative
agency, regarding any aspect of operation of the
Facility. Manager shall promptly notify Owner if it is
served with process in any legal action regarding any
aspect of its operation of the Facility Manager shall
institute, in its own name or in the name of the Owner
at the expense of the Owner, appropriate legal actions
or proceedings to collect charges, rent, or other sums
due the Facility or to lawfully oust or dispossess
Residents or other persons in possession under (or
lawfully cancel, modify or terminate) any lease,
license, or concession agreement for the breach thereof
or default thereunder by the Resident, licensee or
concessionaire.
Unless otherwise directed by Owner, Manger shall
take, at Owner's expense, appropriate legal steps with
respect to any alleged violation, or a adverse order,
rule, or regulation affecting the Facility. Any counsel
to be engaged under this or the next preceding
paragraph of this Section shall be approved by owner,
which approval shall not be unreasonably withheld.
Manager shall promptly notify Owner of all such
actions.
3.14 MANAGEMENT SERVICE. Manager shall use its
best efforts to manage and operate the Facility with a
maximum of efficiency in a manner to achieve optimal
financial performance and productivity of personnel and
in a quality manner for the residents of the Facility
commensurate with standards for comparable facilities
in the State, provided that this is done in a manner
consistent with good business practices.
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3.15 DATA PROCESSING. Manager shall, directly or
through an affiliate or subcontractor (the cost of
which shall, within the agreed Operating Budget, be
borne by Owner), provide the data processing required
to maintain the financial, payroll, and accounting
records of the Facility.
3.16 INDEMNIFICATION. Manager shall at all times
indemnify and hold harmless Owner, its agents,
representatives, partners, joint venturers, officers,
directors, and shareholders, from and against any and
all claims, losses, liabilities, actions, proceedings,
and expenses (including reasonable attorneys' fees and
costs) arising out of Manager's management or operation
of the Facility; provided that the foregoing indemnity
will not include Owner's willful acts or negligence.
The provisions of this Section 3.16 shall survive the
termination or expiration of this Agreement.
3.17 BOOKS AND RECORDS. Manager, on behalf of
Owner, shall supervise and direct the keeping of full
and accurate books of account and such other records
reflecting the results of operation of the Facility in
accordance with sound business and accounting practices
and as required by law.
3.18 OTHER DUTIES. Manager shall not take any
action or inaction that would constitute a default
under any note, loan agreement, mortgage, trust deed,
lease or other agreement executed by Owner relating to
the Facility. Owner shall deliver to Manager a copy of
each such agreement prior to execution thereof.
3.19 SECURITY DEPOSITS. If required by state law,
Manager shall collect and disburse resident security
deposits in accordance with the applicable rental
agreements and all other applicable state and federal
laws and regulations. Such deposits, if any, shall be
deposited in a separate FDIC insured trust account
(maintained in compliance with applicable law) held in
the name of Owner. The balance of such account shall at
all times equal or exceed the liability therefor to all
residents.
3.20 OPERATING BUDGET. Subject to the Plan of
Operation, Manager shall, 60 days prior to the
Commencement Date prepare a pro forma budget, and about
January 1 of each year thereafter, prepare an operating
budget for that year, based on the immediately prior
year's operating experience (the "Operating Budget").
The Operating Budget shall include, but not be limited
to estimated revenues and operating expenses for the
ensuing year. If Owner objects to the Operating Budget
submitted by Manager, Owner shall provide Manager with
written notice of such objection, stating the reasons
for such objections, within 30 days after receipt. If
Manager disagrees with Owner's objections, Manager
shall notify Owner of such disagreement within ten days
after Manager's receipt of Owner's objections. If the
parties cannot resolve any dispute within ten days
thereafter, then the matter may be submitted to
arbitration pursuant to Article 10 hereof and the
parties shall use the Operating Budget for the previous
period pending the resolution of such arbitration
proceeding. At the same time as the Operating Budget is
submitted to Owner, Manager shall submit, for Owner's
approval, a narrative report of Manager's major
management goals and intended actions for the
succeeding fiscal year so as to enable Owner to
evaluate Manager's intended conduct of the affairs of
the Facility during that period. Once the budget is
mutually agreed to by the parties, Manager shall use
its best efforts to manage and operate the Facility
within the budget. However, Manager is not guaranteeing
that Facility shall make a profit at any time or that
anticipated financial projections can be met under this
Agreement. All expenses shall be charged to the proper
budget account and no expense may be classified (or
reclassified) for the purpose of avoiding an excess in
the annual budgeted amount of any accounting category.
The parties agree to confer from time to time with
regard to the budget and to adjust the budget as is
reasonably necessary for the operation of the Facility.
Owner understands and agrees that there
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may be emergencies that arise from time to time which
might require immediate expenditures by Manager to
assure the continuous operation of the Facility which
are not in the budget. Owner may specify the format of
the budget from time to time.
Manager shall, in addition, provide to Owner a
capital improvements budget (the "Capital Expenditures
Budget") covering all anticipated capital improvements
and expenditures. The Capital Expenditures Budget is
subject to Owner's approval and the same procedures set
forth above with respect to the Operating Budget.
Notwithstanding anything contained herein to the
contrary. Manager shall not incur any expense or
capital expenditure in excess of $5,000 for any single
item or $10,000 in any fiscal year above the approved
budget without Owner's specific written authorization;
provided however, Manager shall have the authority to
incur such expenses and capital expenditures without
Owner's prior approval if such expense or capital
expenditure is immediately necessary for: (i) the
health or safety of the residents of the Facility, or
(ii) to comply with any applicable law, rule or
regulation governing the operation of the Facility
("Emergency Expenditures"). Manager shall promptly
provide Owner with written notice describing the cost
and reason for any such Emergency Expenditure. Owner
shall promptly review Manager's request for
authorization of expenses and capital expenditures in
excess of the aforesaid limits which are not Emergency
Expenditures.
3.21 FEES AND CHARGES. Subject to approval of
Owner, Manager shall establish, maintain, revise and
administer the overall charge structure of the
Facility, including, without limitation, monthly fees,
rentals, and charges of any kind, charges for ancillary
services, any and all items sold at the Facility and
any other services provided at the Facility. Manager
shall be responsible for the timely billing and
collection from residents or third party payors of the
amounts due and payable from residents for the services
provided by the Facility. Manager shall be responsible
for making timely and complete rate filings as required
by law, and all posting or filing of notices, charges
and fees required by law.
3.22 RESIDENT-MANAGEMENT RELATIONS. Manager will
encourage and assist residents of the Facility in
forming and maintaining representative organizations to
promote their common interests and will maintain good-
faith communication with such organizations so that
problems affecting the Facility and its residents may
be avoided or solved on the basis of mutual self
interest.
3.23 CONSTRUCTION OF IMPROVEMENTS TO EXISTING
FACILITY. Except as otherwise provided herein, Manager
shall not make or cause to be made any alterations,
additions, replacements or improvements on, in, about
or to the Facility without the prior written consent of
Owner. The entire cost of construction of any such new
improvements to the existing facility and all expenses
connected therewith, shall be borne and paid by Owner
exclusively. Prior to the commencement of any such
alterations, additions, replacements or improvements,
Manager shall submit to and obtain Owner' s written
approval of the plans and specifications thereof.
Manager agrees that such plans and specifications shall
require the contractor to post an adequate performance
bonds.
Manager agrees to make and construct all such
repairs, improvements and installations in accordance
with all laws, rules and regulations of applicable
governing bodies and agencies, to diligently complete
such construction once the same has commenced. All
improvements constructed by Manager upon the Facility
shall, upon termination of this Agreement, belong to
Owner. Manager shall save and hold Owner harmless and
the Facility harmless from any and all liability of any
kind on account of such work or improvement while this
Agreement remains in effect. Owner shall have the right
at any time to post the Facility with such notices as
may be required to protect Owner's interest in the
Facility from mechanics' liens or other liens of a
similar
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nature. The failure to disapprove Manager's plans and
specifications within 60 days after receipt thereof by
Owner shall be automatically deemed disapproval
thereof.
3.24 USE OF THE FACILITY'S PROPERTY. Manager shall
not utilize any hazardous materials on the Facility's
property except in accordance with applicable legal
requirements and will not permit any contamination
which may require remediation under applicable
Hazardous Materials Law as defined herein). Manager
shall not dispose of any hazardous materials or
substance within the sewage system of the Facility's
property, and that it shall handle all "red bag" wastes
in accordance with applicable Hazardous Materials Laws.
"Hazardous Materials Law" shall mean any law
regulation, or ordinance relating to environmental
conditions, medical waste or industrial hygiene,
including the Resource Conservation Recovery Act of
1976 ("RCRA"), the Comprehensive Environmental Response
Compensation Liability Act of 1980 ("CERCLA"), as
amended by the Superfund Amendments and Reauthorization
Act of 1986 ("SARA"), the Hazardous Materials
Transportation Act, the Federal Water Pollution Control
Act, the Clean Air Act, the Clean Water Act, the Toxic
Substance Control Act, the Safe Drinking Water Act, the
Atomic Energy Act and all similar federal, state and
local environmental statutes and ordinances, whether
heretofore or hereafter enacted or effected and all
regulations, orders, or decrees heretofore or hereafter
promulgated thereunder.
3.25 ACCESS TO BOOKS, RECORDS AND DOCUMENTS. In
the event the Facility participates in the
Medicare/Medicaid programs, for purposes of Section
1861(v)(1)(I) of the Social Security Act as amended,
and any written regulation thereto, if the value or
cost of services rendered by Manager to Owner is
$10,000 or more over a 12-month period, including
without :imitation services rendered pursuant to this
Agreement, Manager agrees as follows:
(a) Until the expiration of four years after the
furnishing of such services, Manager shall, upon
written request, make available to the Secretary of the
Department of Health and Human Services (the
"Secretary"), the Secretary's duly authorized
representative, the Comptroller General, or the
Comptroller General's duly authorized representatives,
such books, documents, and records as may be necessary
to certify the nature and extent of costs of such
services; and
(b) If any such services are performed by way of
subcontract with another organization and the value or
cost of such subcontracted services is $ 10,000 or more
over a 12-month period, such subcontract shall contain
and Manager shall enforce a clause to the same effect
as subsection (a) immediately above.
The availability of Manager's books, documents and
records shall be subject at all times to all applicable
legal requirements, including without limitation such
criteria and procedures for seeking and obtaining
access as may be promulgated by the Secretary by
regulation.
ARTICLE 4
RIGHTS AND DUTIES OF OWNER
During the term of this Agreement:
4.1 RIGHT OF INSPECTION. Owner (or its
representative) shall have the right to enter upon any
part of the Facility during regular business hours upon
reasonable advance notice to Manager for the purpose of
examining or inspecting same or examining or making
copies or extracts of books and records of the
Facility, but this shall be done with as little
disruption to the business of the Facility as is
practicable. However, the books and records of the
Facility shall not
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be removed from the Facility without the expressed
written consent of Manager. Owner acknowledges that
some books and records will be maintained at Manager's
principal place of business, but that such books and
records shall be available for inspection by Owner or
its representative. The parties will agree in writing
as to which books and records must be kept at the
Facility.
Owner shall direct all inquiries regarding
operations, procedures, policies, employee relations,
patient care, and all other matters concerning the
Facility to the Manager's divisional director of
operations or other officer of Manager as it may from
time to time designate in a written notice to Owner.
Notwithstanding the foregoing, Owner shall retain the
right to contact the executive director regarding
matters pertinent to the Facility.
4.2 COOPERATION WITH MANAGER. Subject to the
provisions of Article 5 below, Owner shall cooperate
with Manager in operating and supervising the Facility
and shall reimburse Manager for all funds reasonably
expended or costs and expenses reasonably incurred to
which Manager is entitled to reimbursement pursuant to
Exhibit A of this Agreement and all out of pocket
expenses paid or incurred by Manager for the operation
of the Facility, including reasonable and necessary
traveling expenses of executives of Manager, and all
reasonable costs and expenses of any business promotion
or personnel training program of the Facility, as
reflected in the Operating Budget.
4.3 CAPITAL IMPROVEMENTS. Subject to the capital
Expenditures Budget, Owner shall provide Manager by
depositing into the reserve account or Facility Funds
such amount of funds as may be required from time to
time to make all necessary capital improvements to the
Facility, in order to maintain and continue standards
of operation of the Facility as a retirement community
and assisted living care center. If Manager in its
professional judgment determines that additional
capital improvement funds are required, Manager shall
notify Owner thereof in writing for Owner's consent
which shall not be unreasonably withheld. Upon such
consent, Owner shall provide Manager with such increase
in capital improvement funds, by depositing the funds
in the reserve account or Facility Funds within 30 days
thereafter.
4.4 INDEMNIFICATION. Owner shall at all times
indemnify and hold harmless Manager, its agents,
representatives, partners, joint venturers, officers,,
directors, and shareholders, from and against any and
all claims, losses, liabilities, actions, proceedings,
and expenses (including reasonable attorneys' fees and
costs) arising out of Owner' s operation of the
Facility prior to the Commencement Date and Owner's
ownership of the Facility, including the performance of
its obligations with respect to any loans secured by a
security interest in the Facility. Such claims, losses,
liabilities, actions, proceedings and expenses are
considered the responsibility of Owner absent
documentation of responsibility for such claims by
Manager. The provisions of this Section 4.4 shall
survive the termination or expiration of this
Agreement.
ARTICLE 5
COMPENSATION AND DISTRIBUTIONS
5.1 Management Fees. As full compensation for all
to the services to be rendered by Manager during the
term of this Agreement (but not including reimbursement
for costs or expenses incurred by manager on behalf of
Owner of the Facility hereunder), Owner shall pay to
Manager at its principal office, or at such other place
as Manager may from time to time designate in writing,
and at the times herein after specified, a management
fee equal to five percent of Gross Revenues (as defined
below) derived from the operation of the Facility on a
monthly basis
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determined on the accrual method of accounting. Such
management fee (the "Base Management Fee") shall be
payable from Facility Funds monthly upon delivery to
Owner of the monthly financial statement referred to in
Section 3.12 (each date being hereinafter referred to
as a "Payment Date") and shall be calculated based upon
the Facility's Gross Revenues during the preceding
month as set forth in such financial statements.
5.2 GROSS REVENUES. For purposes of determining
such management fees, "Gross Revenues" for any period
shall be determined on the basis of all revenues and
income of any kind derived, directly or indirectly,
from the operation of the Facility during such period (
including rental or other payment from concessionaires,
licensees, Residents, and other users of the Facility,
but excluding therefrom all bequests, gifts, or similar
donations) whether on a cash basis or on credit, as
determined in accordance with generally accepted
accounting principles consistently applied, excluding,
however:
(a) federal, state, and municipal excise, sales,
and use taxes collected directly from residents as a
part of the sales prices of any goods and services;
(b) proceeds of any life insurance policies;
(c) gains arising from the sale or other
disposition of capital assets;
(d) any reversal of any contingency or tax
reserve;
(e) interest earned on sinking funds, Social
Security Accounts, bonds funds, etc. originally and
specifically formed as a requirement of any bond issue
utilized to finance the Facility; and any refunds,
contractual adjustments, income set-offs or bad debt
expense.
The proceeds of business interruption insurance
or proceeds received as a result of Medicare and
Medicaid audits shall be included in Gross Revenues
from the Facility. However, funds required to be repaid
as a result of Medicare and Medicaid audits shall be
deducted from Gross Revenues of the Facility.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF POWER
Owner and members of Owner represent and warrant
to Manager as follows:
6.1 ORGANIZATION AND STANDING OF OWNER. Owner is a
limited liability company duly organized, validly
existing and in good standing under the laws of the
State of North Carolina and is qualified to do business
in each other jurisdiction where such qualification is
necessary, or shall be qualified within thirty (30)
days hereof. Copies of the Articles of Organization and
Operating Agreement of Owner, and all amendments
thereof to date, have been, if requested, delivered to
Manager and are complete and correct. The Owner has the
power and authority to own the property and assets now
owned by it and to conduct the business currently being
conducted by it.
6.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the
execution or delivery of this Agreement, including all
Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated
hereby and thereby ("Transaction Documents") by Owner,
nor the performance by Owner of the transactions
contemplated hereby and thereby, conflicts
12
<PAGE>
with, or constitutes a breach of or a default or
requires the consent of any third party under (i) the
Articles of Organization or Operating Agreement of
Owner, or (ii) to the best of its knowledge after due
inquiry, any applicable law, rule judgment, order,
writ, injunction, or decree of any court, currently in
effect; or (iii) to the best of its knowledge after due
inquiry, any applicable rule or regulation of any
administrative agency or other governmental authority
currently in effect; or (iv) any agreement, indenture,
contract or instrument to which Owner is now a party or
by which the assets of Owner are bound.
6.3 CONSENTS. Except as set forth in Schedule 6.3,
no authorization, consent, approval, license, exemption
by, filing or registration with any court or
governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, is or
will be necessary in connection with the execution,
delivery and performance of this Agreement by the
Owner.
6.4 LEGAL PROCEEDINGS. Other than as set forth on
Schedule 6.4, there are no claims, actions, suits or
proceedings or arbitrations, either administrative or
judicial, pending or, to the knowledge of Owner,
overtly threatened against or affecting Owner, its
affiliates or shareholders, or their ability to
consummate the transactions contemplated herein, at law
or in equity or otherwise, before or by any court or
governmental agency or body, domestic or foreign, or
before an arbitrator of any kind.
6.5 ABSENCE OF CERTAIN EVENTS. Except as set forth
on Schedule 6.5, Owner has not:
(a) sold, assigned or transferred any of its
assets or properties, except in the ordinary course of
business;
(b) mortgaged, pledged or subjected to any lien,
pledge, mortgage, security interest, conditional sales
contract or other encumbrance of any nature whatsoever,
the Facility's assets;
(c) made or suffered any amendment or termination
of any material contract, commitment, instrument or
agreement other than in the ordinary course of
business;
(d) failed to pay or discharge when due any
liabilities, the failure to pay or discharge which has
caused or will cause any actual material damage or give
rise to the risk of a material loss to Owner;
(e) changed any of the accounting principles
followed by them or the methods of applying such
principles ;
(f) entered into any material transaction other
than in the ordinary course of business;
or
(g) received any notice of any adverse
determination made by any licensing authority or
reimbursement source which may reasonably be expected
to have a material adverse effect on the revenues or
operations of the Facility. Owner shall report to
Manger, within five business days after receipt
thereof, any written notices that Owner or the Facility
is not in compliance in any material respect with any
of the foregoing.
6.6 COMPLIANCE WITH LAWS. Except for notices of
non-compliance as to which Owner has taken connective
action acceptable to the applicable governmental
agency, and as set forth in Schedule 6.6, Owner has not
within the period of twelve months preceding the date
of this
13
<PAGE>
Agreement, received any written notice that it fails to
comply in any material respect with any applicable
federal, state, local, or other governmental agency
having jurisdiction over Owner ("Governmental
Requirements"). Owner shall report to Manager, within
five business days after receipt thereof, any written
notices that Owner is not in compliance in any material
respect with any of the foregoing.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF MANAGER
Manager represents and warrants to Owner as
follows:
7.1 ORGANIZATION AND STANDING OF MANAGER. Manager
is a corporation duly organized, validly existing and
in good standing under the laws of the State of
Washington. Copies of the Articles of Incorporation and
By-Laws of Manager, and all amendments thereof to date,
have been, if requested, delivered to Owner and are
complete and correct. Manager has the power and
authority to own the property and assets now owned by
it and to conduct the business currently being
conducted by it.
7.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the
execution or delivery of this Agreement, including all
Schedules and Exhibits hereto, or any of the other
instruments and documents required or contemplated
hereby and thereby by Manager, nor the performance by
Manager of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or
a default or requires the consent of any third party
under (i) the Articles of Incorporation or By-Laws of
Manager, or (ii) to the best of its knowledge after due
inquiry, any applicable law, rule, judgment, order,
writ, injunction, or decree of any court, currently in
effect; or (iii) to the best of its knowledge after due
inquiry, any applicable rule or regulation of any
administrative agency or other governmental authority
currently in effect; or (iv) any agreement, indenture,
contract or instrument to which Manager is now a party
or by which the assets of Manager are bound.
7.3 CONSENTS. Except as set forth in Schedule 7.3,
no authorization, consent, approval, license, exemption
by, filing or registration with any court or
governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, is or
will be necessary in connection with the execution,
delivery and performance of this Agreement by the
Manager.
7.4 LEGAL PROCEEDINGS. Other than as set forth on
Schedule 7.4, there are no claims, actions, suits or
proceedings or arbitrations, either administrative or
judicial, pending or, to the knowledge of Manager,
overtly threatened against or affecting Manager, its
affiliates or shareholders, which affect their ability
to consummate the transactions contemplated herein, at
law or in equity or otherwise, before or by any court
or governmental agency or body, domestic or foreign, or
before an arbitrator of any kind.
7.5 COMPLIANCE WITH LAWS. Except for notices of
non-compliance as to which Manager has taken corrective
action acceptable to the applicable governmental
agency, and as set forth in Schedule 7.5, Manager has
not within the period of 12 months preceding the date
of this Agreement, received any written notice that it
fails to cc: :ply in any material respect with any
applicable federal, state, local or other governmental
laws or ordinances, or any applicable order, rule or
regulation of any Federal, state, local or other
governmental agency having jurisdiction over Manger.
Manager shall report to Owner, within five business
days after receipt thereof, any written notices that
Manager is not in compliance in any material respect
with any of the
14
<PAGE>
foregoing.
ARTICLE 8
TERMINATION RIGHTS
This Agreement may be terminated and, except as
to liabilities or claims or either party hereto which
have accrued prior to the effective date of
termination, the obligations of the parties with
respect to this Agreement may be terminated only upon
the occurrence of any of the following events;
8.1 TERMINATION BY OWNER. If at any time or from
time to time during the term of this Agreement any of
the following events shall occur and not be remedied
within the applicable period of time herein specified,
namely:
(a) Manager applies for or consents to the
appointment of a receiver, trustee, or liquidator of
Manager of all or a substantial part of its assets,
files a voluntary petition in bankruptcy or is the
subject of an involuntary bankruptcy proceeding, makes
a general assignment with creditors or takes advantage
of any insolvency law, or if an order, judgment or
decree is entered by any court of competent
jurisdiction, on the application of a creditor,
adjudicating Manager as bankrupt or insolvent or
approving a petition seeking reorganization of Manager
or appointing a receiver, trustee, or liquidator of
Manager or of all or a substantial part of its assets,
and such order, judgment or decree continues unstayed
and in effect for any period of 90 consecutive days;
(b) Manager shall fail to keep, observe, or
perform any material covenant, agreement, term or
provision of this Agreement to be kept, observed, or
performed by Manager; or Manager's failure to
substantially comply with the state and local
regulations concerning the development and operating of
similar facilities, and such material default or
failure to substantially comply with state and local
regulations shall continue unabated for a period of 60
days after written notice thereof by Owner to Manager;
(c) The license or licenses required for the
operation of the Facility are at any time suspended,
terminated, or revoked beyond the applicable appeal
period for any reason due to acts of commission or
omission of Manager; or
(d) The Facility or any portion thereof is damaged
or destroyed by fire or other casualty and (i) Owner
fails to undertake to repair, restore, rebuild, or
replace any such damage or destruction within 60 days
after such fire or other casualty, or fails to complete
such work. diligently, and (ii) Owner fails to permit
Manager to undertake to repair, restore, rebuild, or
replace any such damage or destruction within 60 days
after such fire or casualty;
then in case of any such event and upon the expiration
of the period of grace applicable thereto, except for
an event under Sections 8.1(c) or 8.1(d) there being no
grace period, this Agreement shall terminate at Owner's
option and upon ten days written notice to Manager;
provided, however, that if an event under Sections
8.1(c) or 8.1(d) occurs, this Agreement shall terminate
immediately upon notice to Manager.
8.2 TERMINATION BY MANAGER. If at any time or
from time to time during the term of this Agreement any
of the following events shall occur and not be timely
cured:
15
<PAGE>
(a) Owner fails to keep, observe, or perform any
material covenant, agreement, term or provision of this
Agreement to be kept, observed, or performed by Owner,
and such default continues for a period of 6o days
after written notice thereof by Manager to, Owner;
(b) The Facility or any portion thereof is damaged
or destroyed by tire or other casualty and (i) Owner
fails to undertake to repair, restore, rebuild, or
replace any such damage or destruction within 60 days
after such fire or other casualty, or fails to complete
such work diligently, and (ii) Owner fails to permit
Manager to undertake to repair, restore, rebuild, or
replace any such damage or destruction within 60 days
after such fire or casualty;
(c) Owner applies for or consent: to the
appointment of a receiver, trustee, or liquidator of
Owner or of all or a substantial part of its assets,
files a voluntary petition in bankruptcy or admits in
writing its ability to pay its debts as they become
due, makes a general assignment for the benefit of
creditors, files a petition or any answer seeking
reorganization or arrangements with creditors or to
take advantage of any insolvency law, or if an order,
judgment or decree is entered by a court of competent
jurisdiction, on the application of a creditor,
adjudicating Owner bankrupt or appointing a receiver,
trustee, or liquidator of Owner or with respect to all
or a substantial part of the assets of Owner, and such
order, judgment or decree continues unstayed and in
effect for any period of 90 consecutive days;
(d) Any license, lease or sub-lease necessary for
the operation of the Facility is suspended, terminated,
or revoked and such suspension, termination, or
revocation continues unstayed and in effect for a
period of 60 consecutive days; or
then in case of any such event and upon the expiration
of the period of grace applicable thereto, this
Agreement shall terminate at Manager's option and upon
ten days written notice to Owner.
8.3 SURVIVING RIGHTS UPON TERMINATION. If either
party exercises its option to terminate pursuant to
this Article 8, each party shall forthwith, but in no
event later than ten days after the termination date of
this Agreement, account for and pay to the other all
sums due and owing pursuant to the terms of this
Agreement. All other rights and obligations of the
parties under this Agreement shall terminate, except
the obligations of the parties for damages caused by a
breach of this Agreement, a duty of a party required
under applicable law or regulation, or the
indemnification provisions contained in this Agreement
or as expressly stated herein.
ARTICLE 9
CONDEMNATION
If the whole of the Facility is taken or
condemned in any eminent domain, condemnation,
compulsory acquisition, or like proceeding, by a
competent authority for any public or quasi-public use
or purpose, or if a portion thereof is taken or
condemned so as to make the balance of the Facility
unsuitable for its primary intended use, then this
Agreement shall terminate on the date on which the
Owner is required to surrender possession of the
Facility. Manager shall continue to supervise and
direct the management of the Facility until such time
as Owner is required to surrender possession of the
Facility by reason of such taking or condemnation.
If only a part of the Facility is taken or
condemned and the taking or condemnation of
16
<PAGE>
such part does not make the balance unsuitable for its
primary intended use, this Agreement shall not
terminate.
In the event that the parties are unable, within a
period of 30 days after controversy arising between
them, to agree upon the apportionment of any award or
are otherwise in dispute as to any matter arising under
this Article, any such dispute shall be resolved by
arbitration in accordance with the provisions of
Article 11 below, and the costs thereof or incurred
therein shall be borne or apportioned and paid as
determined by said arbitration.
ARTICLE 10
ARBITRATION
If any controversy should arise between the
parties relating to this Agreement, involving any
matter, either party may serve upon the other a written
notice stating that such party desires to have the
controversy determined by a single arbitrator. If the
parties cannot agree within 15 days from the service of
such notice as to the selection of such arbitrator, an
arbitrator shall be selected or designated by the
American Arbitration Association upon written request
of either party hereto. Arbitration of such
controversy, disagreement, or dispute shall be
conducted in accordance with the rules then in force of
the American Arbitration Association, and the decision
and award of the arbitrator so selected shall be
binding upon owner and Manger. The arbitration will be
held in the city and state where the Facility is
located Notwithstanding the foregoing, if a dispute
arises between the parties to this Agreement that also
involves or is related to a third party or parties not
bound to arbitration under this Agreement, then, unless
both parties to this Agreement agree to proceed in
arbitration, that dispute or any other related disputes
shall not be subject to this arbitration provision.
Both parties, however, shall make a good faith
effort to resolve any controversy, which effort shall
continue for a period of 30 days prior to any demand
for arbitration. Unless otherwise specified in the
decision of the arbitrators, the prevailing party shall
be reimbursed by the non-prevailing party for any
reasonable out-of-pocket expenses (including travel
expenses and reasonable attorney's fees and expenses)
incurred as a result of its participation in any such
arbitration and the non-prevailing party will pay all
other costs associated with such proceedings.
If the issue to be arbitrated is Manager' s
alleged breach of this Agreement, and as a result
thereof Owner has the right to terminate this
Agreement, Manager shall continue to manage the
Facility hereunder pending the outcome of such
arbitration, provided Manager posts bond of any money
damages in dispute.
ARTICLE 11
SUCCESSORS AND ASSIGNS
11.1 ASSIGNMENTS BY MANAGER. Manager, without the
consent of Owner, shall have the right to assign this
Agreement to a wholly or majority owned subsidiary,
provided that Manager shall not hereby be released from
its obligations hereunder and no event of default then
exists under Section 8.1 hereof.
Except as otherwise permitted herein, Manager
shall have no right to assign this Agreement.
17
<PAGE>
11.2 SALE, ASSIGNMENT, OR SUBLEASE BY OWNER. Any
sale, sub-lease, or assignment by Owner with respect to
the Facility, other than to Manager or one of its
affiliates, shall be expressly subject to the terms and
provisions of this Agreement and shall not relieve
Owner of its liability or obligations hereunder. Owner
shall cause any purchaser, assignee, or sublessee to
deliver to Manager written acknowledgment of its
agreement to perform hereunder including the payment of
the management fee described herein. Upon such sale,
lease, sublease or assignment by Owner to a third party
other than CapBay IV, Ltd., or its successors,
affiliates or permitted assigns, manager may terminate
this Agreement upon ten (10) days written notice to
Owner, its lessee, sublessee or assignee.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 NOTICES. Any notice or other communication by
either party to the other shall be in writing and shall
be deemed to have been duly given upon the date
delivered if delivered personally, or upon the date
received if mailed postage prepaid, registered, or
certified mail, addressed as follows:
Owner: ALCO VII, L.L.C.
46 3rd Street N. W.
Hickory, North Carolina 28601
Manager: EMERITUS CORPORATION
3131 Elliott Avenue
Suite 500
Seattle, Washington 98121
or to such other address, and to the attention of such
other person or officer as either party may designate
in writing by notice,
12.2 NO PARTNERSHIP OR JOINT VENTURE. Nothing
contained in the Agreement shall constitute or be
construed to be or create a partnership or joint
venture between Owner, its successors, or assigns on
the one part and Manager, its successors, or assigns on
the other part.
12.3 MODIFICATIONS AND CHANGES. This Agreement
cannot be changed or modified except by written
agreement of the parties.
12.4 UNDERSTANDING AND AGREEMENTS. This Agreement
constitutes the entire understanding and agreement
between the parties with respect to Manager's operation
and management of the Facility, and supersede any and
all understandings or agreements, whether written or
oral, concerning any matters described herein. No
subsequent agreements or understandings between the
parties concerning any matter herein can after the
terms of this Agreement except by written agreement of
the parties.
12.5 HEADINGS. The article and paragraph headings
contained herein are for convenience of reference only
and are not intended to define, limit, or describe the
scope of intent of any provision of this Agreement.
12.6 APPROVAL OR CONSENT. Whenever under any
provisions of this Agreement, the approval or
disapproval of either party is required, notice of such
approval or disapproval shall
18
<PAGE>
be promptly given and any requested approval shall not
be unreasonably withheld. Whenever, under any provision
of this Agreement, the approval or disapproval of Owner
is required, such approval or disapproval may be given
by the person or any one of the persons, as the case
may be, designated in a notification signed by or on
behalf of Owner. For all purposes under this Agreement,
Manager may rely upon the latest such notification
received by it, notwithstanding any knowledge to the
contrary.
12.7 GOVERNING. This Agreement shall be deemed to
have been made and shall be construed and interpreted
in accordance with the laws of the State.
12.8 SEVERABILITY. If any provision of this
Agreement is held to be unenforceable or invalid for
any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties
to the extent possible. In any event, all other
provisions of this Agreement shall be deemed valid and
enforceable to the fullest extent.
12.9 COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall be
deemed an original, but all of which shall constitute
one and the same instrument.
12.10 THIRD-PARTY RIGHTS. Nothing expressed or
referred to in this Agreement will be construed to give
any person other than the parties to this Agreement and
the Lender any legal or equitable rights or remedy or
claim under or with respect to this Agreement or any
provision of this Agreement. The Agreement and all of
its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and
the Lender and their successors and assigns. Lender is
an intended third-party beneficiary of this Agreement.
IN WITNESS WHEREOF, the parties hereto have
executed and delivered this Agreement effective as of
the day and year first above written.
OWNER
ALCO VII, L.L.C. a North
Carolina limited
liability company
By: /s/
-------------------
- --------------------
Its: Manager
MANAGER:
EMERITUS CORPORATION, a
Washington
corporation
By: /s/ Raymond R.
Brandstrom
------------------
- -----------------------
Its: President
19
<PAGE> EX 10.76.1
AGREEMENT
THIS AGREEMENT is made and entered into, on this
day of 1996, by and between EMERITUS CORPORATION, a
Washington corporation with its principal place of
business at 2003 Western Avenue, Suite 660, Seattle, WA
98121 ("Emeritus") and SANYO ELECTRIC CO., LTD., a
Japanese corporation with its principal place of
business at 5-5 Keihan-hondori 2-chome, Moriguchi-shi
Osaka-fu, 570, Japan ("Sanyo").
RECITALS
A. Emeritus is in the business of developing,
owning and operating assisted living facilities,
independent living facilities and nursing home (the
"Senior Housing Business") throughout the United
States.
B. Sanyo and Emeritus are interested in jointly
entering the development, construction and/or operation
of the Senior Housing Business in Japan.
C. In order to enable Sanyo and Emeritus to
undertake a study for the Senior Housing Business in
Japan, and in order to facilitate the development of
such Senior Housing Business if both parties once reach
at an agreement to start the Senior Housing Business in
Japan, Emeritus has agreed to train a designee of Sanyo
(the "Sanyo Employee") and to permit him/her to gain
know-how and expertise concerning the Senior Housing
Business.
D. Emeritus and Sanyo are interested in
documenting the terms and conditions of said training
relationship and the rights which the Sanyo Employee
and Sanyo will have to use the know-how and expertise
gained by the Sanyo Employee.
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants of the parties set
forth herein, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. TRAINING OF SANYO EMPLOYEE. Emeritus does
hereby agree to train the Sanyo Employee, in accordance
with the "Training Program" which is attached hereto as
Exhibit A, at no expense to Sanyo except as expressly
provided herein. Such training shall commence on June
3,1996. Sanyo and Emeritus agree that it will be
mutually beneficial to train the Sanyo Employee in all
facets of American Senior Housing Business in America
for preparation for the joint Senior Housing Venture.
Emeritus will use its best efforts within the
capabilities of Emeritus to train the Sanyo Employee to
gain sufficient know how to operate the Joint Senior
Housing Business in Japan. Sanyo Employee, during
his/her training, shall be subject to the rules and
regulations of Emeritus applicable to Sanyo Employee,
provided, however, that Sanyo Employee shall in no
event be considered to be an employee of Emeritus.
Except as expressly provided herein, Sanyo Employee
shall have no obligations to Emeritus. It is understood
and agreed on by both parties that Sanyo Employee shall
not be required to take any office or job position in
Emeritus' organization nor to assume any responsibility
or liability for his/her performance during the
training. All of the salary and benefits of the Sanyo
Employee shall be paid by Sanyo. In addition,
<PAGE>
Emeritus shall require the Sanyo Employee to be covered
by an appropriate liability insurance policy covering
Sanyo Employee with respect to any acts or omissions of
the Sanyo Employee taken in the course of the training,
provided, however, that Emeritus shall assist Sanyo in
determining and procuring adequate insurance coverage,
if so requested by Sanyo. All of the travel and living
expenses of the Sanyo Employee while residing in the
United States shall be paid by Sanyo. Emeritus further
retains the right to request that Sanyo replace the
Sanyo Employee if the parties hereto mutually agree
that Sanyo Employee is not capable or otherwise
suitable for the training. It is understood that upon
the expiration or earlier termination of this
Agreement, the Sanyo Employee shall terminate his/her
training with Emeritus and shall return to Japan and be
involved in the development and/or operation of the
Senior Housing Business.
2. ACCESS TO KNOW-HOW. During the course of
his/her training, Emeritus shall allow the Sanyo
Employee to have access to such know-how concerning the
Senior Housing Business as may be reasonably necessary
for the Sanyo Employee's training. In conjunction
therewith, the Sanyo Employee shall have the right to
share any such know how with Sanyo, subject to the
limitations set forth in Section 3 with respect to
Sanyo's right and the right of the Sanyo Employee to
use such know-how, provided, however, it is understood
and agreed that Sanyo shall have the right to use such
know-how for feasibility study for the Senior Housing
Business and/or in furtherance of the development,
construction and operation of the Senior Housing
Business between the parties. Sanyo acknowledges and
agrees that the Sanyo Employee shall not have the right
to disclose such know-how to any person or entity other
than Sanyo and other employees, officers, agents and
directors of Emeritus, without prior written consent of
Emeritus.
3. LIMITATION ON USE OF KNOW-HOW. Neither Sanyo
nor the Sanyo Employee
shall have the right to use any know-how of Emeritus
gained by the Sanyo Employee during the course of
his/her training with Emeritus for any purposes other
than conducting a feasibility study for the Senior
Housing Business and/or in furtherance of the .
development, construction and operation of the Senior
Housing Business for the parties business relationship.
Any breach of this Section 3, which will materially
harm Emeritus' right in such know-how, shall be grounds
for immediate termination of this Agreement and shall
entitle Emeritus to sue for injunctive relief, it being
understood and agreed that is may suffer irreparable
damages from the use of such know-how of Emeritus in
violation of the terms hereof.
For the purpose of Section 2 and this 3, Emeritus' know-
how does not include
1) Information which is or becomes known public
through no fault of Sanyo; or
2) Information already known to Sanyo before the
disclosure; or
3) Information which is independently developed by
Sanyo without making use of the
confidential Information of Emeritus;
or
4) Information learned by Sanyo from a third party
entitled to disclose it; or
5) Information which has been approved for release
or use by written authorization of
Emeritus, or
6) Information which is disclosed pursuant to the
requirement of any governmental agency, court order or
any law or regulations requiring disclosure thereof,
provided that Emeritus shall be provided with prior
written notice of any such disclosure.
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4. DISPUTE RESOLUTION. The parties shall use their
best efforts to avoid any disputes by communicating
freely and openly about issues and by adhering to the
general principle that in a11 matters, each shall seek
what is fair and equitable for both parties. In the
event that any dispute shall occur, the parties agree
to resolve the dispute according to the following
steps:
(a) A person designated by Sanyo and a person
designated by Emeritus shall meet in an attempt to
resolve the problem. In preparation for such meetings,
each party will present to the other party at least
five days prior to the meeting a position statement
setting forth such party's analysis and proposed
resolution of the problem. The parties will use their
best efforts to resolve their differences.
(b) If the parties are unable to resolve their
differences, they may mutually agree to use non-binding
mediation in Honolulu to resolve the issues.
(c) If the parties are unable to agree on
mediation, the issue(s) will be submitted to
arbitration in accordance with the Rules of
Conciliation and Arbitration of the International
Chamber of Commerce (the "Rules") by one or more
arbitrators appointed in accordance with the rules.
(d) The arbitration shall be held in and
proceedings shall be conducted and reported in the
English language.
(e) If more than one arbitrator participates in
the proceeding, the arbitrators shall decide any matter
before them by majority vote in accordance with this
Agreement.
(f) The arbitrators shall proceed promptly and
diligently and render their decision as soon as
practicable. The decision of the arbitrators shall be
in writing in English and presented in separate finding
of fact and law. The award of the arbitrators shall be
final and binding on the parties from which no appeal
may be taken, and an order confirming the award or
judgment upon the award may be entered in any court
having jurisdiction. The award of the arbitrators may
include pre-award interest and equitable relief to the
extent the arbitrators deem appropriate. The award
shall include interest from the date of the award until
paid in full, at a rate to be fixed by the arbitrators.
(g) Each party shall pay their own costs and
expenses incurred by and in
connection with the arbitration, except the costs and
expenses of the arbitrator(s) shall be borne equally by
each party.
(h) Notwithstanding the initiation of an
arbitration proceeding, each party shall
continue to perform all duties and obligations under
this Agreement, without prejudice.
5. SCOPE OF THE AGREEMENT. This Agreement in no
way affects Sanyo ' s ability to
utilize its own or lawfully acquired or licensed third
party's information and/or know-how independent of the
joint business cooperation for Senior Housing Business
in Japan which is under negotiation by and between the
parties hereto.
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6. INDEMNITY. Each of Emeritus and Sanyo agrees
to indemnify, defend and hold harmless the other from
and against any and all costs, liabilities, damages and
expenses, including, but not limited to, reasonable
attorneys fees and costs which it may incur in the
event of the breach of its obligations hereunder.
7. NOTICE. Any notice, request or other
communication hereunder shall be sent
in English by registered airmail, telex, telegram or
facsimile (if followed immediately by a confirmation
copy sent by air mail) and shall be addressed to the
parties at the addresses set forth above c/o Mr. Frank
Ruffo and Mr. Takeyama in the case of notices to
Emeritus and c/o Mr. Tanaka and Mr. Matsumura in the
case of notices to Sanyo. Each such notice, request or
other communication shall be deemed to be received and
effective when actually received or when delivery is
refused by the other party hereto.
8. ENTIRETY. This Agreement reflects the entire
understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior
negotiations, discussions or agreements; provided,
however, that this Agreement shall not be deemed to
supersede that Letter of Intent dated February 16,1996
which shall continue in full force and effect after the
date hereof. This Agreement may not be amended or
modified except by written instrument signed by the
parties hereto.
9. GOVERNING LAW. This Agreement shall be governed
by and construed in
accordance with the laws of the State of Washington.
10. SEVERABILITY. In the event any provision of
this Agreement is deemed to
be invalid or unenforceable, said determination shall
not affect the enforceability or validity
of the remaining terms hereof.
11. COUNTERPARTS. This Agreement may be executed
in counterparts, each of
which shall be deemed to be an original, but all of
which taken together shall constitute
but one and the same instrument.
12. TERM. This Agreement shall commence on June
3,1996 and shall continue
subject to the parties' diligently progressing towards
consummation of their joint venture agreement, until
terminated by (i) mutual agreement of the parties, (ii)
either party with or without cause on no less than
sixty (60) days written notice to the other party or
(iii) termination of Training Program. In the event of
the termination of this Agreement, the obligations of
Sanyo and the Sanyo Employee under Section 3 and the
obligations of Sanyo and Emeritus under Section 6 shall
survive such termination.
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IN WITNESS WHEREOF, the parties hereby execute
this Agreement as of the day and year first set forth
above.
EMERITUS CORPORATION
By: /s/ Frank A. Ruffo
- ------------------------------------
Its: Vice President
By: /s/ Y. Tanaka
-----------------------
- --------------
Its: Managing Director
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EX 10.76.2
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT is entered into on
this 9th day of July, 1997, by and between Emeritus
Corporation, a corporation organized under the laws of
the State of Washington, U.S.A. ("Emeritus"), and Sanyo
Electric Co., Ltd., a corporation organized under the
laws of Japan ("Sanyo").
(Emeritus and Sanyo may from time to time be
hereinafter referred to collectively as the "Parties"
and individually as the "Party").
RECITALS
A. Sanyo and Emeritus, either directly or through
subsidiaries, desire to establish a joint venture in
order to provide senior housing in the county of Japan,
with an aim of establishing a leadership position in
Japan in this market.
B. This Agreement is designed to create such joint
venture and to provide for its existence and operation.
NOW, THEREFORE, in consideration of the mutual
covenants herein
contained, the Parties agree as follows:
l. FORMATION, PURPOSES, AND DURATION
L.1 FORMATION AND NAME
1.1.1 FORMATION
The Parties hereby agree to form a joint venture
(the "Company") in such business form as will meet
their mutual tax and operational purposes. It is
contemplated that the Company will be organized in the
form of a Japanese Kabushiki Kaisha. To the extent
permitted by Japanese law and practice, the articles of
incorporation of the Company shall provide each Party
the protections set forth herein.
1.1.2 NAME
The name of the Company shall be "Sanyo Emeritus
Corporation," expressed in the Japanese language.
Following incorporation, the Parties shall cause the
Company to file a registration for the trade names,
trademarks, and/or service marks agreed upon between
the Parties. Neither Party shall use the name of the
other Party outside of the Company's business without
such other Party's permission. In the event that either
Party withdraws from the Company for any reason
whatsoever, the other Party shall take all necessary
steps to cause the Company to change its corporate name
so as to exclude therefrom the name of the withdrawing
Party or any name similar thereto.
1.2 EFFECTIVE DATE
The date on which this Agreement shall be
effective and binding ("Effective Date") shall be the
date first above written.
1.3 PURPOSES AND SCOPE OF THE COMPANY
<PAGE>
1.3.1 BUSINESS PURPOSE
The Company shall be formed for the purpose,
without limitation, of developing, owning, and
operating senior housing and long-term care facilities
in the country of Japan (which purpose shall
hereinafter be referred to as the "Business Purpose").
1.3.2 GENERAL AUTHORITY
In order to carry out the Business Purpose of the
Company set forth in
Section 1.3. l, the Company may, to the extent
permitted by the laws of Japan, acquire, own, lease and
operate property, enter into contracts, hire personnel,
and undertake and do all other lawful acts necessary
for or incidental to the purposes set forth in Section
1.3.1.
1.4 SCOPE OF PARTY'S AUTHORITY
Except as otherwise expressly and specifically
provided for in this Agreement, neither of the Parties
shall have any authority to bind or act for, or assume
any obligation or responsibility on behalf of the other
Party or the Company. This Agreement shall not be
deemed to create a partnership between the Parties with
respect to any activities other than the activities
within the scope of the Business Purpose of the
Company.
1.5 PRINCIPAL PLACE OF BUSINESS
The initial principal place of business of the
Company shall be located either at Sanyo's corporate
headquarters in Osaka, Japan, or an alternate address
suggested by Sanyo and mutually agreed to by the
Parties.
1.6 TERM
This Agreement shall commence as of Effective
Date, and shall continue until terminated in accordance
with Article 9 of this Agreement. The Parties
contemplate that the Company will require some time
before it can be determined whether the Company will
succeed or not. Accordingly, except pursuant to the
termination provisions of this Agreement, each Party
hereby agrees not to withdraw from the Company or to
dissolve, terminate, liquidate or petition a court for
the dissolution, termination or liquidation of the
Company, and neither of the Parties at any time shall
have the right to petition or to take any action to
subject the Company assets or any part thereof to the
authority of any court of bankruptcy, insolvency,
receivership or similar proceedings, until the Company
shall have operated for at least five years.
2. OWNERSHIP; DUTIES OF THE PARTIES
2.1 OWNERSHIP OF THE COMPANY; DUTIES OF THE
PARTIES
The Parties shall have the following percentage
interest in the Company (which respective percentage
interest of each Party shall hereinafter be referred to
as its
"Holding Ratio"):
Emeritus Sanyo
----------- -------
--
50% 50%
2.2 DUTIES OF EMERITUS
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Emeritus shall, at its own cost and expense, do
the following:
2.2.1 CAPITAL
Promptly after the Effective Date and upon a date
mutually agreed to beforehand between the Parties,
Emeritus shall contribute cash in the amount of 25
million yen.
2.2.2 EMERITUS KNOW-HOW
Subject to the confidentiality provisions of this
Agreement, and promptly after the Effective Date and
from time to time during the term of this Agreement,
Emeritus shall make available to the Company such
technical assistance, advice and know-how owned by
Emeritus necessary or desirable to develop, construct
and operate senior housing and long-term care
facilities (hereinafter referred to as the "Emeritus
Know how"). Except as otherwise specifically provided
herein, the Emeritus Know-how is to be used exclusively
for the Parties' joint business in Japan and for no
other purposes. Such know how will be provided in the
English language. Any Japanese translation will be
approved by Emeritus and be completed in the United
States.
2.2.3 MANAGEMENT SERVICES
Emeritus shall, from time to time during the term
of this Agreement, provide the Company with management
assistance and consulting services in the development
and operation of the senior housing facilities.
2.3 DUTIES OF SANYO
Sanyo shall, at its own cost and expense, do the
following:
2.3.1 CAPITAL
Promptly after the Effective Date and upon a date
mutually agreed to beforehand between the Parties,
Sanyo shall contribute cash in the. amount of 25
million yen.
2.3.2 SANYO KNOW-HOW
Subject to the confidentiality provisions of this
Agreement, and promptly after the Effective Date and
from time to time during the term of this Agreement,
Sanyo shall make available to the Company such
technical assistance, advice and know-how owned by
Sanyo necessary or desirable to establish, manage and
operate the Company (hereinafter referred to as the
"Sanyo Know-how"). Except as otherwise specifically
provided herein, the Sanyo Know-how is to be used
exclusively for the Parties' joint business in Japan
and for no other purposes.
2.3.3 MANAGEMENT SERVICES
Sanyo shall, from time to time during the term of
this Agreement, provide management assistance and
consulting services in the management and operation of
the Company.
2.3.4 PROPERTY LOCATION
Sanyo shall cooperate to find suitable locations
for the Company, or to make certain real property
locations available to the Company on a long-term
ground lease basis upon mutually
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agreed reasonable terms. It is contemplated that such
ground leases will have a term of at least 30 years,
with options to renew for additional periods.
2.4 PROJECT SELECTION
The Parties shall discuss and agree on each
project on a case by case basis pursuant to plans and
specifications agreed to by the Parties and pursuant to
the approved Budget and Business Plan (as defined in
Section 3.2 hereof.
3. MANAGEMENT; FINANCING
3.1 MANAGEMENT OF THE COMPANY
The Company shall be managed by a Board of
Directors as set forth below.
3.1.1 BOARD OF DIRECTORS
For purposes of exercising their management and
control of the Company, each Party shall designate two
persons to serve on the board of directors of the
Company (hereinafter referred to as the "Board of
Directors"). The initial directors appointed by
Emeritus shall be Dan Baty and Frank Ruffo. The initial
directors appointed by Sanyo shall be Yasusuke Tanaka
and Kentaro Haga.
When the phrase "Approved by the Board of
Directors" is used in this Agreement, such phrase shall
mean approval by the Board of Directors. Resolutions of
the Board of Directors shall require the affirmative
vote of a majority of the total number of directors in
office. The Parties may also adopt written resolutions
signed by all of the directors in lieu of meetings.
In the event of any need for approval or other
action by the Board of Directors, each Party shall use
its best efforts to respond within twenty (20) days of
the date such Party is notified of the need for such
approval or action as provided in Section 10.2 hereof
but in no event later than thirty (30) days after such
notice.
The Board of Directors shall meet either in person
or by such technological means as video conference (to
the extent permissible under the laws of Japan) at
least quarterly. 'The place of the meetings shall be
determined by the Parties. All reasonable expenses of
the Parties incurred in attending such meetings shall
be paid for by the Company.
3.1.2 PRESIDENT AND VICE PRESIDENT
The President and Representative Director of the
Company shall be designated from among the directors
appointed by Sanyo. The initial President and
Representative Director of the Company shall be Kentaro
Haga. The Vice President and Representative Director of
the Company shall be designated from among the
Directors appointed by Emeritus. The initial Vice
President and Representative Director of the Company
shall be Frank Ruffo. The President and Vice President
shall hereinafter be referred to as "Company
Representatives."
3.1.3 STATUTORY AUDITORS
The Company shall have two (2) statutory auditors,
one designated by Sanyo and the other by Emeritus.
Initial statutory auditors of the Company shall be
Fumio Ohara and Ray
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Brandstrom.
3.1.4 MAJOR DECISIONS
No acts shall be taken, sum expended, decision
made or obligation incurred by the Company with respect
to a matter within the scope of any of the major
decisions enumerated below (the "Major Decisions")
unless and until the same has been Approved by the
Board of Director's or expressly delegated by the
Parties in writing (provided, however, that in the
event that Japanese law requires t e approval of such
Major Decision by the shareholders of the Company in a
General Meeting. then such approval by the shareholders
in a General Meeting shall also be required). The Major
Decisions shall include the following:
(a) Bidding on or entering into any contract not
included in the Budget involving annual expenditures in
excess of ten million yen;
(b) Acquiring any equipment or other personal
properly or selling or
otherwise disposing of the same whose cost (in the case
of acquisition) or book value (in the case of sale or
disposition) is in excess of twenty million yen;
(c) Entering into any insurance contract or
varying or change any portion of the insurance program
authorized by the Parties;
(d) Entering into a lease or acquisition of real
properly or interest therein;
(e) Approving the Budget or the Business Plan;
The making of any expenditure or incurring
any obligation which when added to the other
expenditures for the fiscal year of the Company
substantially ("substantially" being defined as ten
million yen or more) exceeds the Budget or any line
item specified in the Budget;
(g) Pledging or otherwise mortgaging any of the
assets of the Company;
(h) The adoption of any logos, trade names,
service marks or trademarks for use by the Company;
(i) Selecting or varying depreciation and
accounting methods and making other decisions with
respect to treatment of various transactions for income
tax purposes or other financial purposes not otherwise
specifically provided for herein, provided that such
methods and decisions shall be consistent with other
provisions of this Agreement;
(j) Determining whether or not distributions
should be made to the Parties;
(k) Retention of counsel for the Company or
institution of any legal action;
(1) Making any other expenditure or incurring any
obligation by or on behalf of the Company involving a
sum in excess of ten million yen;
(m) The content and timing of public announcements
relative to the Company, except to the extent
disclosures are required by applicable law or
regulation either in the United States or Japan;
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<PAGE>
(n) Borrowing money in excess of ten million yen;
(o) The hiring of any manager of a facility of the
Company and his compensation; or
(p) Any other decision or action which materially
effects the Company or its assets or operations.
3.2 BUSINESS PLAN; BUDGETS
The Board of Directors will cooperate in preparing
or causing to be prepared a business plan for the
Company which sets forth the anticipated plan for the
business of the Company, together with financial
projections therefor (the "Business Plan"). In order to
accomplish the Business Plan, the Board shall discuss
and decide upon a budget ("Budget") setting forth the
estimated receipts and expenditures (capital, operating
and other) of the Company for the period covered by the
Budget. In the event up-front payments or deposits are
received from customers, the Parties agree to allocate
a certain amount of such up-front payments or deposits
toward anticipated operating capital needs of the
Company, including repayment of loans to the Company.
The Board of Directors shall review and adjust the
Budget on a semiannual basis. When Approved by the
Board of Directors, the Company Representatives shall
be authorized, without the need for further approval by
the Board of Directors, to make expenditures and incur
the obligations provided for in the Budget to such
extent and in such manner as permitted by Japanese law.
Travel and lodging expense not reflected in the Budget
incurred by either Party for its own purposes, rather
than on behalf of the Company, shall not be reimbursed
by the Company but shall be borne by the Party in
question. The Parties will confer relative to
unanticipated expenses incurred by either Party on
legitimate Company business with the intent that such
expenses shall be reimbursed.
3.3 COMPENSATION AND REIMBURSEMENT OF PARTIES
Full-time employees and Company Representatives
shall, upon the completion of all necessary procedures,
if any, in accordance with Japanese law, be compensated
by the Company as provided in the Budget. Initially, it
is contemplated that there will be only one full-time
Company Representative who shall be the President of
the Company. However, in the event that employees of
either Party are needed for other than brief periods of
time, the Parties contemplate that the Company will pay
for such employee's time in such amounts as the Parties
shall mutually agree, provided, however, that requisite
approvals, if any, required by Japanese law, shall
first be obtained. Except as may be expressly provided
for herein or Approved by the Board of Directors, no
payment will be made by the Company to any Party for
the services of such Party or any member, shareholder,
director or employee of such Party. Each of the Parties
agrees that it shall not be entitled to reimbursement
from the Company or from the other Party for any
expenditures incurred by that Party in connection with
this Agreement or the Company prior to the execution of
this Agreement, except insofar as such reimbursement is
agreed upon by the Parties separately hereto. Following
the execution of this Agreement, Parties shall be
reimbursed for such expenses as are included within the
Budget or otherwise permitted by the provisions of this
Agreement.
3.4 CONTRACTS WITH RELATED PARTIES
The Company shall not contract with any individual
or entity related to or affiliated with either Party
unless such agreement or arrangement and the nature of
the relationship or affiliation has been disclosed to
the other Party, and that Party's consent obtained.
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<PAGE>
3.5 NONCOMPETITION
3.5.1 DURING TERM OF AGREEMENT
In order to maximize the success of the Company,
the Parties wish to avoid any inherent conflicts of
interest by committing to channel through the Company
a11 of their business of senior housing and long-term
care facilities in Japan. Neither of the Parties shall
undertake any business or undertakings which are
directly or indirectly competitive in Japan with the
Business Purpose of the Company set forth in Section
1.3.1. In the event that Sanyo desires to conduct any
senior housing and long-term care operations outside of
Japan, Sanyo agrees to give Emeritus first right of
refusal to participate in such business on terms
similar to those set forth in this Agreement or
otherwise mutually agreed to by the Parties. The
Parties are free to engage in other businesses not
conflicting with the Business Purpose of this Company.
3.5.2 AFTER TERMINATION OF AGREEMENT
If either Party is responsible for an Event of
Default which results in either the termination or
dissolution of the Company or the sale of such
defaulting Party's Interest in the Company (as
described in Section 7.2 hereof), the defaulting Party,
either itself or through its affiliates, shall not
engage in any business competitive with the Business
Purpose of the Company in Japan for a period of seven
years following the termination, dissolution, or sale,
and the nondefaulting Party shall be released from this
noncompetition obligation and is free to engage in any
activity substantially similar to the Company's
business within Japan. In the event the Parties jointly
agree to terminate or dissolve the Company, the Parties
are free to engage in businesses competitive with the
Company.
3.5.3 PURCHASE OF A PARTY'S INTEREST
If a Party's entire interest in the Company is
purchased pursuant to Section 6.2 hereof and this
Agreement terminates as a result thereof the Party
whose interest was not purchased shall be released from
this noncompetition obligation and is free to engage in
any activity substantially similar to the Company's
business in Japan. 'The non-competition obligation set
forth in Section 3.5.2 shall bind the Party which sells
its interest pursuant to Section 6.2.
3.5.4 SURVIVAL
Except as otherwise specifically provided in this
Section 3.5, the noncompetition obligation set forth in
the second sentence of Section 3. 5.1 hereof shall
survive the termination of this Agreement for a period
of seven years.
3.6 SCOPE OF AUTHORITY; INDEMNIFICATION
Neither of the Parties shall, without the consent
of the other Party, take any action on behalf of or in
the name of the Company, or enter into any commitment
or obligation binding upon the Company, except
otherwise specifically provided herein. Each Party
shall indemnify and hold harmless the other Party and
its affiliates, directors, and officers against any and
all claims, demands, losses, damages, liabilities,
lawsuits and other proceedings, judgments and awards,
and costs and expenses (including but not limited to
reasonable attorneys' fees), arising directly or
indirectly, in whole or in part, of any breach of the
foregoing provisions by such Party or its affiliates,
officers, agents or employees.
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3.7 FINANCING
The Parties agree that any financing input or
support for the Company that cannot be effected from
the shareholders' capital contributions, reserved
profits or financing obtained by the Company from
financial and other institutions shall be arranged by
the Parties. The Parties agree that each project shall
be decided on a case by case basis, with the relative
financing obligations being laid out in the Budget and
Business Plan for each project. No project shall
proceed until the Parties have reached agreement on the
Budget for that particular project.
3.8 DIVIDEND POLICY
It is agreed that, in principle, the Company
shall, after making appropriate provision for the
Company's obligations and setting aside the reserve
contemplated for the Company's future capital
investment, pay such dividends as determined by the
Board of Directors in accordance with sound management
policies and approved by the shareholders of the
Company in a General Meeting.
4. ACCOUNTING AND OTHER RECORD KEEPING
4.1 FISCAL YEAR
The fiscal year of the Company shall conclude on
March 31 of each year.
4.2 ACCOUNTANTS TO THE COMPANY
As a general rule, accounting services and
preparation of financial statements for the Company
shall be done by the Company. If necessary for U.S.
accounting or public reporting purposes, Emeritus may
require that the Company provide audited financial
statements. The Japanese independent certified public
accounting firm of Chuo Kaikei shall act as the
independent certified public accountants to the Company
if such service is required.
4.3 ACCOUNTING AND INTERNAL CONTROLS
The Parties shall cause the management of the
Company to conduct the business of the Company at all
times in accordance with high standards of business
ethics. The Company shall maintain separate books and
accounts in accordance with generally accepted Japanese
accounting principles consistently applied, and
specifically, shall:
(a) maintain full and accurate books and accounts
which shall, in reasonable detail, accurately and
fairly reflect a11 transactions of the Company;
(b) devise and maintain a system of internal
accounting controls sufficient to provide reasonable
assurances that all (i) transactions are executed in
accordance with general or specific authorizations and
(ii) transactions are recorded as necessary to permit
preparation of all tax returns and financial statements
in conformity with generally accepted accounting
principles, to ensure compliance with all relevant
governmental regulations regarding such matters and to
maintain accountability for assets; and
(c) work cooperatively to structure transactions
to limit, as far as reasonable commercial and business
considerations permit, the generation of substantial
costs to Emeritus in connection with its duty to
consolidate the Company's financial statements with
those of Emeritus under U.S.
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reporting requirements.
4.4 FINANCIAL AND BUSINESS INFORMATION AND TAX
RETURNS
The Company Representatives of the Company shall:
(a) make available to a11 members of the Board of
Directors on a regular basis, and as reasonably
requested, a11 such information and/or documents as may
be required to permit the Board of Directors to make
informed judgments with respect to the financial status
of the Company and all other relevant matters of
interest to it;
(b) within 50 days after the end of each fiscal
year, provide the Board of Directors with regular
annual audited financial statements prepared by the
Company's certified independent public accountants that
shall include a statement of profit and losses and a
balance sheet for the year then ended, and include such
other appropriate financial information reasonably
requested by the Parties;
(c) cause to be prepared within a reasonable time
after each September 30, unaudited interim financial
statements reflecting profit and loss, changes in
financial position and a balance sheet for such interim
period; and
(d) cause to be prepared and filed before
delinquency all necessary tax returns and all other
informational and financial reports and records
required by any governmental entity.
4.5 BANK ACCOUNTS
All funds of the Company shall be deposited in the
Company's separate name in separate bank accounts and
shall be withdrawn only upon the use of the seal of
persons authorized by the Board of Directors or in
accordance with the procedures set forth in the
Business Plan. In all cases, the Company's accounts
shall be maintained separately from the bank account of
each Party.
4.6 LOCATION AND RIGHTS OF INSPECTION
The Company's books and records of account shall
be kept and maintained at all times at the principal
place of business of the Company as designated by the
Parties pursuant to Section 1.5 of this Agreement. Each
Party and its authorized representative shall have the
right to inspect, examine and copy the books, records,
files, and other documents of the Company at all
reasonable times.
5. CONFIDENTIALITY
5.1 SANYO CONFIDENTIALITY OBLIGATIONS
Sanyo hereby acknowledges and agrees that, through
the Parties' mutual
participation in the joint venture, Emeritus has shared
and will share with Sanyo certain Confidential
Information (as such term is defined with respect to
Emeritus in Section 5.5.1 hereof. Sanyo agrees not to
disclose Confidential Information received directly or
indirectly from Emeritus or to use such Confidential
Information except for the purposes and within the
restrictions set forth in this Agreement. Sanyo agrees
that the Confidential Information provided by Emeritus
hereby and through any related training agreements
shall be used only in connection with this joint
venture or other joint business between the Parties
involving senior housing or long-
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term care facilities, whether in Japan or anywhere else
in the world (unless Emeritus shall be offered the
first right of refusal as set forth in Section 3.5.1
above and shall have determined not to participate).
This provision is designed to prevent Sanyo or third
parties from using proprietary know-how or other
Confidential Information obtained from Emeritus to the
detriment of Emeritus or in competition with Emeritus'
core business in the senior housing and long-term care
industry, and shall not preclude Sanyo from using
information obtained pursuant to this Agreement in
other aspects of Sanyo's business. All information
provided by Emeritus to Sanyo shall be deemed to be
Confidential Information whether or not marked as such
by Emeritus. Furthermore, Sanyo agrees not to:
(a) disclose to any third party Confidential
Information of Emeritus or of the Company; and
(b) make any commercial use of such Confidential
Information of Emeritus or of the Company except as is
contemplated by the operations of the Company or except
as is otherwise allowed by this Agreement or the
agreements contemplated by this Agreement.
5.2 EMERITUS CONFIDENTIALITY OBLIGATIONS
Emeritus hereby acknowledges and agrees that,
through the Parties' mutual participation in the joint
venture, Sanyo has shared and will share with Emeritus
certain Confidential Information (as such term is
defined with respect to Sanyo in Section 5.5.2 hereof.
Emeritus agrees not to disclose Confidential
Information received directly or indirectly from Sanyo
or to use such Confidential Information except for the
purposes and within the restrictions set forth in this
Agreement. Emeritus agrees that the Confidential
Information provided by Sanyo hereby shall be used only
in connection with this joint venture or other joint
business between the Parties involving senior housing
or long-term care facilities, whether in Japan or
anywhere else in the world. All information provided by
Sanyo to Emeritus shall be deemed to be Confidential
Information whether or not marked as such by Sanyo.
Furthermore, Emeritus agrees not to:
(a) disclose to any third party Confidential
Information of Sanyo or of the Company; and
(b) make any commercial use of such Confidential
Information of Sanyo or of the Company except as is
contemplated by the operations of the Company or except
as is otherwise allowed by this Agreement or the
agreements contemplated by this Agreement.
5.3 CERTAIN LIMITED DISCLOSURES
Notwithstanding the provisions of Sections 5.1
and 5.2, however, nothing in this Agreement shall be
deemed to prevent any Party from making such limited
disclosures of Confidential Information of the other
Party or of the Company to its affiliates, agents,
governmental authorities, subcontractors, suppliers and
purchasers as is reasonably necessary to carry out the
purposes of the Company.
5.4 RESTRICTIONS
Each Party agrees that:
(a) it will make no more copies of Confidential
Information of the other Party or of the Company other
than as is reasonably necessary on a need to know basis
for such first mentioned Party's internal use or for
use by third parties to which disclosure is permitted
pursuant to Section 5.3 but only for such uses as
contemplated by Section 5.3;
10
<PAGE>
(b) it may, if it chooses, cause all such copies
to be marked confidential;
(c) it shall instruct its officers, employees, and
any third parties to whom such Confidential Information
may be disclosed pursuant to Section 5.3 to keep such
copies confidential; and
(d) upon any dissolution and winding up of the
Company, it shall return all such copies in its
possession (as well as originals) to the other Party or
to the Company, as the case may be, and shall cause a11
third parties (other than governmental authorities) to
return such copies and originals to such other Party or
the Company.
5.5 Definition of Confidential Information
5.5.1 Confidential Information of Emeritus
For the purposes of this Article 5, "Confidential
Information" of Emeritus shall include all Emeritus
Know-how and a11 technology, methods of business
operation, trade secrets and other proprietary
confidential information of Emeritus, including without
limitation technical, pricing, commercial, or other
information or data of Emeritus (including of
affiliates of Emeritus), except for the Excluded
Information as defined in Section 5.5.3 below.
5.5.2 CONFIDENTIAL INFORMATION OF SANYO
For the purposes of this Article 5, "Confidential
Information" of Sanyo shall include all Sanyo Know-how
and all technology, methods of business operation,
trade secrets and other proprietary confidential
information of Sanyo, including without limitation
technical, commercial, or other information or data of
Sanyo (including affiliates of Sanyo), except for the
Excluded Information as defined in Section 5.5.3 below.
5.5.3 EXCLUDED INFORMATION
Each Party agrees that such of the technical or
other information or data as falls within any one or
more of the following categories shall be excluded from
the definition of Confidential Information with respect
to it or to the Company, under Section 5.5.1 or 5.5.2,
as the case may be:
(a) Information which, at the time of disclosure
to the other Party, is in the public domain or which
subsequently becomes part of the public domain (except
by wrongful act of such other Party); or
(b) Information which was in the possession of the
other Party prior to its receipt thereof; or
(c) Information which was received by the other
Party from a third party having no obligation of
secrecy with respect thereto; or
(d) Information which was independently developed
by one Party without making use of the subject
information; or
(e) Information which has been approved for
release or use by written authorization of the other
Party; or
11
<PAGE>
Information which was disclosed pursuant to the
requirement of any governmental agency, court order or
any law or regulations requiring disclosure thereof,
provided that each party shall provide the other Party
with prior written notice of any such disclosure.
5.6 SURVIVAL OF OBLIGATIONS
The provisions of this Article 5 shall take effect
as of the Effective Date and shall survive any
dissolution or winding-up of the Company or sale or
other disposition of a Party's entire interest in the
Company and any termination of this Agreement and shall
remain applicable to each Party for a period of seven
years following such termination, dissolution, winding
up, sale or other disposition, notwithstanding such
Party's withdrawal from the Company.
6. SALE, TRANSFER, OR MORTGAGE OF INTEREST IN COMPANY
6.1 RESTRICTIONS ON SALE, TRANSFER OR MORTGAGE
OF COMPANY INTEREST
Except as provided in this Article 6 and except
as may be otherwise agreed to by the Parties, no Party
shall sell, assign, transfer, mortgage, charge or
otherwise encumber any part or all of its Company
interest. Any attempt to transfer in violation of this
Article 6 shall be void.
6.2 RIGHT OF FIRST REFUSAL
If either Party elects to sell, transfer or
otherwise dispose of any or all of its interest in the
Company after the elapse of five years of initial
operation of the Company referred to in Section 1.6
hereof, it shall first offer in writing to sell or
transfer the shares to the other Party upon the same
terms and conditions as the bona fide proposed sale or
transfer to a third party. In the event the other Party
has not accepted such written offer and agreed to
purchase the offered shares or interest within 30 days,
the offering Party may sell or transfer such shares on
the same terms and conditions as in the written offer
to the third party.
6.3 SURVIVAL AND WAIVER
Failure of a Party to exercise its rights under
Section 6.1 or 6.2 shall not
constitute a waiver thereof and a single exercise of
such right shall not preclude any other or further
exercise thereof. The express waiver by a Party of its
rights under this Article 6 in a particular instance or
circumstance shall not constitute a waiver thereof in
any other instance or circumstance. 'The rights set
forth in this Article 6 shall survive the termination
of this Agreement.
7. DEFAULT
7.1 EVENT OF DEFAULT
For purposes of this Agreement, the occurrence of
either of the following is to be considered an event of
default ("Event of Default"):
(a) The failure by either Party to pay all or any
portion of its capital requirements, which failure to
pay remains uncured for a period of thirty (30) days
after notice of nonpayment by the other Party, or
(b) Any breach by a Party of any other material
duty ("material" m a duty which is
12
<PAGE>
fundamental and if violated, would conflict with the
overall intent of this Agreement) imposed upon it under
this Agreement if the defaulting Party has not
commenced appropriate action to cure such breach within
30 days following the giving of notice of such breach
by the other Party; or
(c) The institution (a) against Emeritus of a
proceeding under any section of the Federal Bankruptcy
Code, or (b) against Sanyo under any provision of the
bankruptcy laws of Japan, as now existing or hereafter
amended which proceeding is not dismissed, stayed or
discharged within a period of sixty (60) days after
filing thereof or if stayed, which stay is thereafter
lifted without a contemporaneous discharge or dismissal
of such proceeding, or in the event that a receiver,
trustee or like officer is appointed to take possession
of any assets of the Party.
7.2 REMEDIES UPON DEFAULT
Upon an Event of Default, the non-defaulting Party
shall have the following rights and remedies:
(a) If the Event of Default is described in
Section 7.1 (a) or (c), either to (i) terminate and
dissolve the Company pursuant to Section 9, or (ii)
exercise any purchase right it may have pursuant to
Section 7.3 ; or
(b) If the Event of Default is described in
Section 7.1(b), either to (i) terminate and dissolve
the Company pursuant to Section 9, (ii) exercise any
purchase right it may have pursuant to Section 7.3, or
(iii) sue the defaulting Party for specific performance
or damages.
Notwithstanding anything to the contrary in this
Agreement, if the non-defaulting Party has suffered any
direct loss or damages, including attorneys' fees and
other out-of pocket expenses, as a result of the Event
of Default, in the event that the non-defaulting Party
elects either to terminate and dissolve the Company
pursuant to Article 9 or to exercise its purchase right
pursuant to Section 7.3, the amount of any such damages
shall be offset against and deducted from any
liquidation or sales proceeds to which the defaulting
Party otherwise would have been entitled.
7.3 PURCHASE OF DEFAULTING PARTY'S INTEREST IN
THE COMPANY
At the election of the non-defaulting Party, the
non-defaulting Party may
purchase the defaulting Party's entire interest in the
Company for 90% of the then fair market value of the
defaulting Party's interest. For purposes of this
Section 7.3, if the Parties have not agreed in writing
as to the fair market value of the defaulting Party's
interest in the Company within 30 days after the non-
defaulting Party has elected to purchase the defaulting
Party's interest under this Section 7.3, the Parties
agree they will request the Company's independent
certified public accountant to select within fifteen
business days a qualified appraiser who shall decide
the fair market value of the defaulting Party's
interest based on a going-concern value of the Company.
All documents and Information requested by the
appraiser shall be immediately provided, and the
appraiser shall be requested to notify each Party as to
the value of the defaulting Party's interest within 30
days of engagement. The market value as determined by
the appraiser shall be final and binding upon both
Parties.
8. DEADLOCKS
8.1 DEADLOCK PROCEDURES
13
<PAGE>
In the event that the Board of Directors is unable
to approve a new Business Plan for the Company or the
Board of Directors is deadlocked, either Party may
declare a deadlock by notice to the other. Such notice
shall not be delivered until after the Board of
Directors has had a discussion regarding the issue.
Upon declaration of a deadlock, the matter shall be
referred to a designated officer of Emeritus (initially
Frank Ruffo) and a designated officer of Sanyo
(initially Yasusuke Tanaka) (the "Responsible
Officers") who shall meet personally within 45 days of
receipt of notice of such deadlock. If the Responsible
Officers are unable to resolve the deadlock issues
within 30 days of their meeting, the provisions of
Section 8.2 below shall be implemented.
8.2 RESOLUTION OF DEADLOCK
If the Parties have not been able to resolve a
deadlock in accordance with the provisions of Section
8.1 above, the following shall occur:
(a) If both Parties desire to sell their interests
in the Company, the Company shall be sold to a third
party or liquidated and dissolved and each Party shall
be entitled to its pro rata portion of the Company's
assets in accordance with its Holding Ratio after
provision has been made for all liabilities.
(b) If either Party desires to purchase the other
Party's interest in the Company, the Parties shall
request the Company's independent certified public
accountants to select within 15 business days a
qualified appraiser who shall determine the fair market
value of the other Party's interest in the Company. The
market value as determined by the appraiser shall be
taken into serious consideration by the Parties, who
shall negotiate in good faith for a period of 30 days
following such market value determination, to reach an
agreement regarding the purchase and sale of the
interest in the Company. If the Parties at the end of
such 30 days still cannot agree, the Parties will meet
within the next 30 days with the Company's independent
certified public accountant, who will conduct an open
auction between the Parties. The independent certified
public accountant shall determine which Party offered
the higher price for the other Party's half interest in
the Company and such Party shall have the right to
purchase the other Party's interest at that price.
Unless otherwise agreed, the closing of such purchase
shall take place at the registered office of the
purchasing Party within 90 days after the auction. The
purchase price shall be payable in cash, unless
otherwise agreed by the selling Party.
9. DISSOLUTION
9.1 EVENTS OF DISSOLUTION
The Company shall be dissolved only in the event
that:
(a) an Event of Default has occurred and the non-
defaulting Party elects to dissolve and terminate the
Company;
(b) the Parties mutually agree to dissolve and
terminate the Company; or
(c) the Parties are deadlocked and the deadlock
has not been resolved as provided in Article 8.
9.2 MANAGEMENT RIGHTS DURING DISSOLUTION
During the period of dissolving the Company and
winding up its affairs, the rights and
14
<PAGE>
obligations of the Parties set forth herein with
respect to the management of the Company shall
continue. For purposes of winding up, the Parties,
acting through their representatives, shall continue to
act as such and shall make all decisions relating to
the conduct of any business or operations in accordance
with this Agreement, during the winding up period to
the sale or other disposition of the Company assets. A
Party who causes the dissolution of the Company because
of its default shall not be entitled to participate in
the management of the Company during the winding up
period.
9.2.1 NONCASH ASSETS
Every reasonable effort shall be made to dispose
of the assets of the Company so that distribution may
be made to the Parties in cash. In the case of any
assets the Company might have at the time of
dissolution in the form of intangible intellectual
property, works in process, notes, or other noncash
assets, the same shall be distributed in kind to the
Parties in lieu of cash proportionate to their right to
receive the assets of the Company on an equitable basis
reflecting the net fair market value of the assets so
distributed.
9.3 DISPOSITION OF DOCUMENTS AND RECORDS
All documents and records of the Company,
including, without limitation, all financial records,
vouchers, canceled checks and bank statements, shall be
delivered to a public storage facility in Japan agreed
upon by the Parties upon termination of the Company.
Unless otherwise approved by the Parties, such public
storage facility shall retain such documents and
records for a period of not less than ten (10) years
and shall make such documents and records available
during normal business hours to either Party at its
request for inspection and copying at such Party's cost
and expense.
10. GENERAL PROVISIONS
10.1 COMPLETE AGREEMENT; AMENDMENT
This Agreement constitutes the entire agreement
between the Parties and supersedes all agreements,
representations, warranties, statements, promises and
understandings, whether oral or written with respect to
the subject matter hereof, and neither Party shall be
bound by or charged with any oral or written
agreements, representations, warranties, statements,
promises or understandings not specifically set forth
in this Agreement or exhibits made hereto. This
Agreement may not be amended. altered or modified
except by instrument in writing titled "Modification
No. (number modifications consecutively) to Joint
Venture Agreement" to be signed by both Parties.
10.2 NOTICES
10.2.1 ADDRESSES
Notices under this Agreement shall be in writing
and in English and shall be delivered by personal
delivery or by certified or registered mail, postage
prepaid, return receipt requested, or by facsimile (but
in the event of facsimile notice, such notice shall not
be effective unless the notifying Party also places
such notice in the mail to the other Party) to the
Parties at the addresses herein set forth and to the
Company at its principal place of business. The
addresses for notices are as follows:
15
<PAGE>
If to Emeritus:
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121,
U.S.A.
Tel: 206-298-2909 Fax: 206-301-4500
Attention: Frank Ruffo
If to Sanyo:
Sanyo Electric Co., Ltd.
5-5, Keihan-hondori 2-chome
Moriguchi
Osaka 570
Japan
Tel: 06-994-4322
Fax: 06-991-6522
Attention: Yasusuke Tanaka, Managing
Director
By giving at least thirty (30) days' written
notice thereof any Party may notify to the other Party
of a change in address.
10.2.2 EFFECTIVE DATE FOR NOTICE
All notices, demands, and requests shall be deemed
effective upon delivery in the case of personal
service, at the time of dispatch in the case of
facsimile, or ten days after being deposited in the
mail, in the case of mailing.
10.3 DISPUTE RESOLUTION
10.3.1 MEDIATION PROCEDURES
The Parties shall use their best efforts to avoid
any disputes by communicating freely and openly about
issues and by adhering to the general principle that in
all matters, each shall seek what is fair and equitable
for both Parties. In the event that the Parties are
unable to reach agreement about the Budget, the
Business Plan, or any other material decision to be
Approved by the Board of Directors under this
Agreement, the Parties agree to follow the multi-tiered
procedure set out below:
(a) A representative selected by each Party who
has authority to resolve the dispute on behalf of that
Party shall meet in an attempt to resolve the problem.
In preparation for such meetings, each Party will
present to the other Party at least five days prior to
the meeting a position statement setting forth such
Party's analysis and proposed resolution of the
problem.
(b) If the representatives of the Parties are
unable to resolve the problem, the Parties shall
present the controversy for non-binding mediation at a
neutral location, the Parties' first choice being
Singapore. The mediator shall be legally trained,
offered through a recognized international
mediation/arbitration service in the city where the
mediation occurs and in accordance with international
mediation rules in effect at the place of mediation,
and shall be mutually agreeable to the Parties. The
expenses of the mediator shall be borne equally by the
Parties. The mediation
16
<PAGE>
session shall not exceed two days, unless an extension
is agreed to by both Parties. If the mediator is unable
to effect a written settlement agreement between the
Parties during the mediation session, the mediation
session shall be adjourned and reconvened at a later
time agreed to by the Parties and the mediator (not to
exceed twenty days), at which time the mediator shall
read his recommendations for settlement to the Parties
and thereafter provide in written form the mediator's
recommendations for settlement of the case, including
the mediator's analysis of the merits of the case.
(c) In the event of a matter involving irreparable
harm as would justify the granting of a preliminary
injunction, nothing shall prevent the Parties from
seeking relief in the courts of the other Party's
Jurisdiction for resolution (i.e., Sanyo may commence
an action for preliminary injunction in Seattle,
Washington, or Emeritus may commence an action for
preliminary injunction in Osaka, Japan); provided that
during the pendency of such preliminary injunction, if
granted, the Parties shall continue the mediation
procedures set forth in this Section 10.3.1.
(d) Except to the extent that the mediator's
written opinion is presented to the court hearing the
case, the results of any such mediation shall be kept
confidential
by the Parties.
10.3.2 LITIGATION
In the event that any dispute cannot be settled by
mediation as set forth in Section 10.3. l, or in
matters involving a preliminary injunction as referred
to in Section 10.3.1(c), all disputes, controversies,
or differences which may arise between Emeritus, Sanyo
or the Company out of or in relation to or in
connection with this Agreement, or for the breach
thereof either Party may seek relief in the courts of
the other Party's Jurisdiction for resolution (i.e.,
Sanyo may commence an action for preliminary injunction
in Seattle, Washington, or Emeritus may commence an
action for preliminary injunction in Osaka, Japan).
While the written opinion of the mediator shall not be
binding upon the court, either Party may present that
opinion for consideration by the court, and such
opinion shall be given only so much weight as the court
shall decide. Nothing shall prevent either Party from
freely arguing for or against the reasonableness or
viability of such written opinion.
10.3.3 GOVERNING LAW
For purposes of a written mediation opinion, the
mediator may use whatever general principles of law the
mediator believes helpful in analyzing the case. In the
event of litigation, the law of the jurisdiction where
the lawsuit is brought shall be applied.
10.4 VALIDITY
In the event that any provision of this Agreement
shall be held to be invalid or unenforceable, the same
shall not affect in any respect whatsoever the validity
or enforceability of the remainder of this Agreement.
10.5 SURVIVAL OF RIGHTS
Except as otherwise provided herein to the
contrary, this Agreement shall be binding upon and
inure to the benefit of the Parties signatory hereto
and their respective heirs, executors, legal
representative and permitted successors and assigns.
17
<PAGE>
10.6 WAIVER
No consent or waiver, express or implied, by a
Party to or of any breach or default by any other Party
and the performance by such other Party of its
obligations hereunder shall be deemed or construed to
be a consent or waiver to any other breach or default
in the performance by such other Party of the same or
any other obligations of such Parnr hereunder.
10.7 OPERABLE LANGUAGE
The English version of this Agreement shall
control.
IN WITNESS WHEREOF, the Parties have executed this
Agreement as of the day and year first written above.
Emeritus Corporation
By: /s/ /Frank A. Ruffo
-------------------
--------
Name: Frank A. Ruffo
Title: Vice President
Sanyo Electric Co., Ltd.
B y: /s/ Yasusuke Tanaka
------------------
------------
Name: Yasusuke Tanaka
Title: President of New
Business Development
Headquarters
18
<PAGE> EX
10.77.1
NORTH PHOENIX; ARIZONA
LEASEHOLD IMPROVEMENT AGREEMENT
AMONG
MEDITRUST ACQUISITION CORPORATION I
AND
EMERITUS PROPERTIES I, INC.
<PAGE>
LEASEHOLD IMPROVEMENT AGREEMENT
THIS LEASEHOLD IMPROVEMENT AGREEMENT is made as of
December 30, I 997, by and among EMERITUS PROPERTIES I,
INC., a Washington corporation (the
"Lessee"), and MEDITRUST ACQUISITION CORPORATION I, a
Massachusetts corporation (the "Lessor").
l. BACKGROUND
l.1 Lessee.
Lessee is a corporation which is a wholly-owned
Subsidiary of the Guarantor (as hereinafter defined).
The Guarantor is a corporation the stock of which is
publicly traded on the American Stock Exchange.
1.2 The Land and Existing Improvements.
Lessor is the owner of a certain parcel of land
located in the City of Phoenix, Maricopa County,
Arizona and more particularly described on EXHIBIT A
(the "Land").
1.3 The Facility Lease.
Lessor and Lessee have entered into that certain
Facility Lease Agreement of even date herewith,
relating to the Land (the "Facility Lease"), a
Memorandum of which is to be recorded with the Maricopa
County, Arizona real estate records.
1.4 Project.
Lessee proposes to construct a 101-unit assisted
living facility and other improvements, including,
without limitation, accessory parking and landscaping
on the Land (collectively, the
"Improvements"). The Land and the Improvements are
collectively referred to herein as the
"Project." .
1.5 Lessor's Agreement to Fund the Project and
Lessee's Agreement to Supervise the Project.
Lessee and Lessor have agreed that the Project
will be a benefit to the premises demised under the
Facility Lease and to Lessee's and Lessor's respective
interests therein. Lessor and Lessee have further
agreed that, pursuant to, and in accordance with, the
terms and conditions of this Agreement, Lessor shall
fund an amount not to exceed Seven Million Seven
Hundred Seventeen Thousand Five Hundred Thirty-Six and
No Dollars ($7,7I7,536.00) of the cost of the Project
(the "Project Funds"). Lessee has agreed to supervise
and manage the construction of the Project and Lessor
has agreed to advance the Project Funds to pay for the
cost of the construction of the Project; all pursuant
to the terms and conditions of this Agreement.
1.6 Plans; the Architect and Architect's Contract.
The Improvements are to be constructed and
equipped in accordance with the plans and
specifications to be delivered as provided herein
(collectively, the "Project Plans"), prepared by
Architects Todd & Associates, Inc. (the "Architect")
pursuant to the contract dated January 29, 1997,
amended February 14,1997, by and between Emeritus
Corporation and the Architect (the
<PAGE>
"Architect's Contract").
1.7 Construction Contracts.
All of the Improvements are to be constructed
pursuant to a guaranteed maximum
contract (the "Construction Contract") to be delivered
as provided herein by and between Lessee and ADA
Construction Company, Inc. dated October 15,1997 (the
"General Contractor").
1.8 Schedule of Work and Completion Date; Schedule
of Draws.
The work necessary to complete and fully equip the
Project is to be (a) undertaken and completed in
accordance with the schedule of work and schedule of
values ("Schedules") to be delivered as provided
herein; and (b) substantially completed by the first
anniversary of the date. hereof (the "Completion Date")
in accordance with the terms hereof.
1.9 Project Budget.
Lessee has submitted, or shall submit in
accordance with the terms hereof prior to the making of
the first advance which includes amounts to be expended
on the construction or equipping of the Improvements),
to Lessor a line item budget (the "Project Budget"),
for the design and construction of the Project,
including (a) a breakdown of construction costs
(itemized as to trade category, subdivision of the work
to be performed and the names of each contractor), (b)
a breakdown of all soft costs in connection with the
construction of the Project, including, without
limitation, costs for such items as real estate taxes,
legal and accounting fees, survey costs, permits and
inspection fees, insurance premiums, architect's and
engineer's fees, marketing, management, leasing and
advertising expenses, and all amounts due in connection
with the Advance of Project Funds pursuant to this
Agreement, (c) a projected draw schedule and (d) a
projected progress schedule for the construction of the
Project.
1.10 Use of Project Funds.
The Project Funds are to be used, to the extent
sufficient therefor, solely for the payment of Project
costs set forth in the Project Budget.
1.11 Project Funds.
Subject to all of the terms, conditions and
provisions of this Agreement, and of the agreements and
instruments referred to herein, Lessor agrees to
advance the Project Funds and Lessee agrees to
supervise and manage the construction of the Project
and to pay the Rent (as hereinafter defined) due under
the Facility Lease (as the same may from time to time
be adjusted pursuant to the terms and conditions set
forth therein); it being understood that Lessee shall
be liable for the payment of Rent regarding such sums
as shall have been advanced from time to time under
this Agreement to Lessee.
1.12 Guaranties and Indemnities.
As an inducement to Lessor to enter into this
Agreement, advance the Project Funds and enter into the
Facility Lease, the Guarantor has agreed to furnish
certain guaranties as hereinafter described.
2. DEFINITIONS
In this Agreement, except as otherwise expressly
provided in the text of this Agreement
2
<PAGE>
or unless the context otherwise requires, all
capitalized terms shall have the meaning ascribed to
them in EXHIBIT E.
3. INTENTIONALLY OMITTED
4. LEASE DOCUMENTS; COLLATERAL SECURITY
4.1 Lease Documents.
The Project Funds shall be advanced, evidenced,
administered and governed by all of the terms,
conditions and provisions of each of the following:
A. a Seventh Amended and Restated Agreement
Regarding Related Transactions (Development)
of even date by and among Lessee, Lessor, ESC
I, L.P., and ESC G.P. I, Inc., as the same
may be amended from time to time;
B. this Agreement;
C. the Facility Lease;
D. a Collateral Assignment of Permits,
Approvals, Licenses, and Contracts of even
date granted by Lessee to Lessor (the
"Permits Assignment");
E. a Security Agreement of even date by
and between Lessee and Lessor (the
"Security Agreement") and related
UCC Financing Statements;
F. a Completion Guaranty of even date
executed by the Guarantor for the benefit of
Lessor guarantying the completion of the
Project and the satisfaction of the other
Guarantied Obligations (the "Completion
Guaranty");G. a Guaranty of Lease Obligations
of even date executed by the Guarantor for
the
benefit of Lessor guarantying the payment and
performance of the Lease
Obligations (the "Guaranty of Lease
Obligations");
H. an Environmental Indemnity Agreement
of even date by and among Lessee, the
Guarantor and Lessor (the "Environmental
Indemnity Agreement");
I. a Deposit Pledge Agreement of even date by and
between Lessee and Lessor
(the "Deposit Pledge Agreement");
.
J. a Group Two Negative Pledge
Agreement (Development) dated April 15, 1996
by and among Lessee, Lessor and Guarantor
(the "Negative Pledge Agreement");
K. an Assignment of Construction
Contract granted by Lessee to Lessor and
containing the consent of the General
Contractor (the "Construction Assignment");
L. an Assignment of Architect's
Contract of even date granted by Lessee to
Lessor and containing the consent of the
Architect (the "Architect's Assignment");
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M. an Affiliated Party Subordination
Agreement of even date by and among Lessee,
the Guarantor, various Affiliates of Lessee
and Lessor (the "Affiliated Party
Subordination Agreement"); and
N. all other documents, instruments, or
agreements now or hereafter evidencing or
securing the obligations under this Agreement
and the Facility Lease.
Items (A) through (N) above, as the same from time to
time may be hereinafter amended, modified or
supplemented, are referred to herein as the "Lease
Documents."
4.2 Lease Obligations.
Lessee agrees to pay and perform all indebtedness,
covenants, liabilities, obligations, agreements and
undertakings (other than Lessor's obligations) under
this Agreement and all of the other Lease Documents
(collectively, the "Lease Obligations").
4.3 Collateral Security.
The Lease Obligations shall be secured by the
following:
A. a perfected first priority security interest
in all Permits and Contracts pursuant to the
Permits Assignment;
B. a security interest in Tangible Personal
Property, and certain other Collateral and a
security interest in Receivables, all
pursuant to the Security Agreement;
C. the Completion Guaranty;
D. the Guaranty of Lease Obligations;
E. the Environmental Indemnity;
F. a perfected first priority interest in the
Cash Collateral pursuant to the Deposit
Pledge Agreement;
G. all other security interests in such other
property for which provision is made in the
Lease Documents or at law or in equity; and
H. certain other Related Party Agreements.
All of the property in which security interests are
granted as described in items (A) through (H) above are
referred to herein as the "Collateral."
5. REPRESENTATIONS AND WARRANTIES
In order to induce Lessor to advance the Project
Funds pursuant to the terms and conditions of this
Agreement, Lessee represents and warrants to Lessor
that:
5.1 Architect's Contract and Construction
Contract.
The Architect's Contract and the Construction
Contract have been validly executed by,
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and are binding upon Lessee and are in full force and
effect in accordance with the terms thereof as of the
date hereof. All of the parties to the Architect's
Contract Construction Contract have faithfully
performed all of their respective obligations
thereunder to the extent accrued as of the date hereof,
and none of the parties to the foregoing instruments
has asserted any claim of default thereunder and Lessee
has no reason to believe that such agreements have not
been validly executed by and binding upon the other
parties thereto;
5.2 Project Plans.
The two (2) copies of the Project Plans delivered
to Lessor by Lessee (a) are true and correct and
satisfactory to Lessee and (b) have been filed with and
approved by all appropriate Governmental Authorities.
All necessary Permits relating to the Project Plans to
be issued or granted by any applicable Governmental
Authority having or claiming jurisdiction over the
Leased Property which can be obtained in the ordinary
course as of the date hereof have been obtained and all
such Permits are in full force and effect, are not
subject to any unexpired appeal periods or any appeals
or challenges which have not been fully resolved in
favor of Lessee, and do not contain any conditions or
terms relating to the Leased Property which have not
been fully satisfied or which will not be fully
satisfied by the completion of the construction of the
Project (in accordance with the Project Plans and the
terms and provisions of this Agreement). Furthermore,
the Project Plans are the plans and specifications
which have been approved in writing by Lessor, any
construction heretofore performed on the Project has
been performed in accordance with the Project Plans and
all future construction on the Project shall be
performed in accordance with the Project Plans, as the
same may be amended or modified from time in accordance
with Section 6.3.2 hereof, and the terms and conditions
of this Agreement. There are no structural defects in
the Project of which Lessee has been advised or of
which Lessee has notice or knowledge except as
otherwise described in writing to Lessor or actually
known by Lessor. Lessee has not received any notice
claiming that, and Lessee has no knowledge that, the
Project Plans violate any Legal Requirement;
5.3 Prior Construction Work.
No Person has performed any construction work or
furnished any services in connection with any
construction carried on or to be carried on at the
Leased Property who or which remains unpaid at the time
of execution of this Agreement, except as indicated in
the requisition submitted simultaneously herewith or
otherwise expressly approved by Lessor and, if
applicable, the Other Permitted Uses;
5.4 Suitability of Project Plans.
The Project Plans provide for the construction and
renovation of all buildings and related improvements
necessary, both legally and practically, for the
construction of the Project in accordance with the
terms of this Agreement and, after the completion of
the construction thereof, for the operation of the
Project for its Primary Intended Use;
5.5 Compliance with Legal Requirements and
Applicable Agreements.
Upon the completion of construction of the
Project, which shall be constructed in
accordance with the Project Plans and the terms and
provisions of this Agreement, the Project shall be in
compliance with (a) all Legal Requirements; (b) all
Permits and Contracts and (c) all applicable by-laws,
codes, rules, regulations and restrictions of the Board
of Fire Underwriters or other insurance underwriters or
similar bodies.
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5.6 Permits and Contracts.
All Permits and Contracts required by or entered
into with any Governmental Authority or quasi-
governmental authority or agency for, or in connection
with, the construction of the Project which can be
obtained in the ordinary course as of the date hereof
have been obtained or executed, as the case may be. All
such Permits and Contracts are in full force and
effect, are not subject to any unexpired appeal periods
or any appeals or challenges which have not been
conclusively resolved in favor of any member of the
Leasing Group, and do not contain any conditions or
terms which have not been fully satisfied or which will
not be fully satisfied by the completion of the
construction of the Project (if constructed in
accordance with the Project Plans and the terms and
provisions of this Agreement). There is no action
pending, or, to the best knowledge and belief of
Lessee, recommended by the applicable Governmental
Authority having jurisdiction thereof, either to
revoke, repeal, cancel, modify, withdraw or suspend any
such Permit or Contract relating to the construction of
the Project, or any other action of any other type
which would have a material adverse effect on the
Project. All other Permits and Contracts required for
the completion of the construction of the Project and
the operation of the Facility are described on SCHEDULE
5.6 annexed hereto and Lessee has no reason to believe
such Permits and Contracts shall not be obtainable as
and when needed.
5.7 First Advance.
As of the date of the first advance of Project
Funds to Lessee pursuant to this Agreement, the amount
of the money expended by Lessee on account of the
construction of the Project in accordance with the
Project Plans and the items listed on Project Budget
will not be less than the amount of such first advance.
5.8 Valid and Binding.
Lessee is duly authorized to make and enter into
all of the Lease Documents to which Lessee is a party
and to carry out the transactions contemplated therein.
All of the Lease Documents to which Lessee is a party
have been duly executed and delivered by Lessee, and
each is a legal, valid and binding obligation of
Lessee, enforceable in accordance with its terms.
5.9 No Violation.
The execution, delivery and performance of the
Lease Documents and the consummation of the
transactions thereby contemplated shall not result in
any breach of, or constitute a default under, or result
in the acceleration of, or constitute an event which,
with the giving of notice or the passage of time, or
both, would result in default or acceleration of any
obligation of any member of the Leasing Group under any
of the Permits or Contracts or any other contract,
mortgage, lien, lease, agreement, instrument,
franchise, arbitration award, judgment, decree, bank
loan or credit agreement, trust indenture or other
instrument to which any member of the Leasing Group is
a party or by which any member of the Leasing Group may
be bound or affected and do not violate or contravene
any Legal Requirement.
5.10 Consents and Approvals.
Except as already obtained or filed or as
reasonably expected to be obtained in the
ordinary course of business prior to or upon the
Completion of the Project, as the case may be, no
consent or approval or other authorization of, or
exemption by, or declaration or filing with, any Person
and no waiver of any right by any Person is required to
authorize or permit, or is otherwise
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required as a condition of the execution, delivery and
performance of its obligations under the Lease
Documents, the Construction Contract or the Architect's
Agreement by any member of the Leasing Group or as a
condition to the validity (assuming the due
authorization, execution and delivery by Lessor of the
Lease Documents to which it is a party) and the
priority of any Liens granted to Lessor under the Lease
Documents, except the fling of the Financing
Statements.
5.11 Pending Actions, Notices and Reports.
(a) There is no action or investigation pending
or, to the best knowledge and belief of Lessee,
threatened, anticipated or contemplated (nor, to the
knowledge of Lessee, is there any reasonable basis
therefor) against or affecting the Leased Property or
any member of the Leasing Group (or any Affiliate
thereof before any Governmental Authority, which could
prevent or hinder the consummation of the transactions
contemplated hereby or call into question the validity
of any of the Lease Documents or any action taken or to
be taken in connection with the transactions
contemplated thereunder or which in any single case or
in the aggregate might result in any material adverse
change in the business, prospects, condition, affairs
or operations of any member of the Leasing Group or the
Leased Property (including, without limitation, any
action to revoke, withdraw or suspend any Permit
necessary or desirable for the construction of the
Project for its Primary Intended Use.
(b) No member of the Leasing Group has received
any notice of any claim, requirement or demand of any
Governmental Authority, to take action so as to make
the Project or the Leased Property conform to or comply
with any applicable Legal Requirement.
6. COVENANTS
6.1 Collection and Enforcement Costs.
Upon demand, Lessee shall reimburse Lessor for all
costs and expenses, including, without limitation,
attorneys' fees and expenses and court costs, paid or
reasonably incurred by Lessor in connection with the
collection of any sum due hereunder, or in connection
with the enforcement of any of Lessor's rights or any
member of the Leasing Group's obligations under this
Agreement or any of the other Lease Documents. Any
amount due and payable to Lessor pursuant to the
provisions of this Section shall be a demand obligation
and, to the extent permitted by law, shall be added to
the Lease Obligations and shall be secured by the Liens
created by the Lease Documents as fully and effectively
and with the same priority as every other obligation of
Lessee secured thereby and, if not paid within ten (
10) days after demand, shall thereafter, to the extent
permitted by applicable law, bear interest at the
Overdue Rate until the date of payment. The obligation
of Lessee to pay all costs, charges and sums due
hereunder or under any of the other Lease Documents
shall continue in full force and effect and in no way
shall be impaired, until the actual payment thereof to
Lessor. In the event of(a) a sale, conveyance, transfer
or other disposition of the Leased Property, (b) any
further agreement given to secure the payment of the
obligations set forth herein or (c) any agreement or
stipulation extending the time or modifying the terms
of payment set forth herein, Lessee shall nevertheless
remain obligated to pay the indebtedness evidenced by
this Agreement, as extended or modified by any such
agreement or stipulation, unless Lessee is released and
discharged from such obligation by a written agreement
executed by Lessor.
6.2 Continuing Effect of Representations and
Warranties.
All representations and warranties contained in
this Leasehold Improvement Agreement shall constitute
continuing representations and warranties which shall
remain true, correct and
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complete throughout the Term.
6.3 Construction Covenants.
6.3.1 Commencement of Construction.
If construction of the Project has not
already begun, Lessee shall commence construction
of the Project within thirty (3 0) days from the
later of the date hereof or of issuance of a
building permit for the Project. Lessee shall
diligently and continuously cause the Project to
be constructed and completed and made ready for
occupancy and use in accordance with the Project
Plans all in a manner satisfactory to Lessor on or
before the Completion Date. Notwithstanding
anything to the contrary contained herein, Lessee
shall be and shall remain unconditionally liable
to Lessor for (a) the complete construction of the
Project in accordance with the Project Plans on or
before the Completion Date and whether or not
proceeds of the Project Funds remaining to be
disbursed hereunder, if any, are sufficient to
cover all costs of construction and (b) the
complete performance of all other obligations,
covenants, agreements and liabilities of Lessee
hereunder.
6.3.2 Quality of Materials and Workmanship.
The materials used in the Project shall be of the
quality called for by the Project Plans, and the
workmanship shall be in conformity with the
Construction Contract and this Agreement, and both the
quality of such materials and such workmanship shall be
satisfactory to Lessor. Lessee shall not make any
changes in, and shall not permit the General Contractor
or the Architect to make any changes in, the quality of
such materials, the Project Plans or the Project
Budget, whether by change order or otherwise, without
the prior written consent of Lessor, in each instance
(which consent may be withheld in Lessor's reasonable
discretion); provided, however, that such consent shall
not be required for any individual change which has
been approved by the Architect, which does not
materially affect the structure or exterior of the
Project, and the cost of which does not exceed TEN
THOUSAND DOLLARS ($10,000) or which changes, in the
aggregate, do not exceed ONE HUNDRED THOUSAND DOLLARS
($100,000) in. cost. Notwithstanding the foregoing,
prior to making any change in Project Plans, copies of
all change orders shall be submitted by Lessee to
Lessor and Lessee shall also deliver to Lessor evidence
satisfactory to Lessor, in its reasonable discretion,
that all necessary Permits and/or Contracts required by
any Governmental Authority in connection therewith have
been obtained or entered into, as the case may be.
6.3.3 Project Budget.
Upon the request of Lessor, Lessee shall furnish
Lessor with revisions for the Project Budget to reflect
(a) any changes approved by Lessor to the Project
Budget, (b) the total cost of the construction of the
Project completed through any specific date and (c) the
remaining cost to complete the construction of the
Project in accordance with the Project Plans and the
terms and provisions of this Agreement.
6.3.4 Architect Certificates.
Lessee agrees to cause the Architect to furnish
such statements as to progress and certificates of
completion as Lessor may reasonably require from time
to time during such period as this Agreement may be in
effect, all without expense to Lessor; provided,
however, that to the
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extent the delivery of such certificates will require a
visit to the Project, Lessee shall have no obligation
to deliver the same more frequently than with every
other advance request hereunder. Lessee agrees to cause
the Architect to make the Project Plans available to
Lessor without expense to Lessor, and to agree that, in
the event that Lessor shall take over the Project by
reason of an occurrence of a Lease Default, Lessor
shall be entitled to use said Project Plans without any
additional compensation to the Architect above what is
required (and was not previously paid) under the
Architect's Contract.
6.3.5 Intentionally Deleted.
6.3.6 Lessor's Consultant.
Lessee agrees to pay the costs and expenses
reasonably incurred by Lessor to retain the Consultants
to perform various services to Lessor in connection
with the construction of the Project and the advances
of Project Funds contemplated hereunder, including,
without limitation, the following:
A. to review and analyze the Project Plans and
advise Lessor whether the same are
satisfactory for the intended purposes
thereof;
B. to make periodic inspections of the Leased
Property for the purpose of assuring that
construction performed in connection with the
Project prior to the date of such inspection
has been completed in accordance with the
Project Plans and this Agreement;
C. to review Lessee's then current
requisition to determine whether it is
consistent with the obligations of Lessee
under this Agreement, and to advise Lessor of
the anticipated costs of, and the time for,
the completion of the Project in accordance
with the Project Plans, and the adequacy of
reserves and contingencies related thereto;
D. to review and analyze any proposed changes to
the Project Plans and advise Lessor regarding
the same;
E. to review and analyze the Project Budget and
advise Lessor as to the sufficiency thereof;
and
F. to review and analyze the Architect's
Contract and the Construction Contract
entered into by Lessee in connection with the
construction of the Project and advise Lessor
regarding the same.
Except as otherwise expressly provided herein,
Lessee agrees promptly to make such changes or
corrections in the construction of the Project as may
be required by Lessor, based on the recommendation of
any of the Consultants, unless Lessee demonstrates to
Lessor's satisfaction that such corrective work is
inconsistent with the
Project Plans.
6.3.7 Title To Materials and Security Interest
Granted to Lessor.
Except as otherwise expressly provided herein,
Lessee shall not suffer the use in connection with any
construction relating to the Project of any materials,
fixtures or equipment
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intended to become part of the Project which are
purchased upon lease or conditional bill of sale or to
which Lessee does not have absolute and unencumbered
title. Lessee covenants to cause to be paid punctually
all sums becoming due for labor, materials, fixtures or
equipment used or purchased in connection with any such
construction and, in recognition of the fact that it is
intended that the Project Funds be used to pay for the
costs of the construction of the Project on behalf of
the Lessor, Lessee agrees that title to all materials,
fixtures and equipment that are incorporated into the
Project shall automatically pass to Lessor upon such
incorporation without the need for the execution or
delivery of any further instrument of conveyance.
Notwithstanding the foregoing, in order to more
fully secure Lessor with reference to all advances of
Project Funds made hereunder, Lessee hereby conveys to
Lessor a security interest in all of Lessee's right,
title and interest in materials on the Leased Property
which are not at any relevant time incorporated into
the Project and materials, wherever located, intended
for incorporation into the Project. Lessee agrees:
A. that Lessor shall have all the rights, with
reference to such security, as a secured
party is entitled to hold with reference to
any security interest under the UCC;
B. that such security interest shall cover cash
and non-cash proceeds of such materials;
.
C. that such materials will not be held for sale
to others or disposed of by Lessee without
the prior written consent of Lessor and, if
at any time located on the Leased Property
shall be suitably stored, secured and insured
and furthermore, shall not be removed from
the Leased Property; and
D. that such security interest shall be prior to
the rights of any other Person other than the
Permitted Prior Security Interests.
The undertakings of Lessee in this Section shall
also be applicable to any personal property that is
owned by Lessee and that is used (or to be used) in
connection with the Project, whether or not the
purchase thereof was financed by advances of Project
Funds made by Lessor.
Lessee agrees to execute such instruments as
Lessor may from time to time
request to perfect the security interest of Lessor in
any and all rights under this Agreement and the other
Lease Documents, and any and all property of Lessee
which, under applicable provisions of this Agreement
and/or any of the other Lease Documents, may or shall
stand as security for advances of Project Funds under
this Agreement and for the complete performance of the
Lease Obligations.
6.3.8 Compliance With Legal Requirements And
Applicable Agreements.
Lessee, the Project Plans and the Leased Property
and all uses thereof (including, without limitation,
the construction of the Project) shall comply with (a)
all Legal Requirements, (b) all Permits and Contracts,
(c) all applicable by-laws, codes, rules, regulations
and restrictions of the Board of Fire Underwriters or
other insurance underwriters or similar body and (d)
the Lease Documents, except to the extent any of the
matters represented in clause (a) or (c) are being duly
contested in accordance with the terms of the Facility
Lease.
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6.3.9 Liens.
The Leased Property shall at all times be free
from any attachment, encumbrance, lis pendens,
mechanic's or materialmen's lien or notice arising from
the furnishing of materials or labor and, with the
exception of the Permitted Encumbrances, all other
Liens of any kind except to the extent the same is
being duly contested in accordance with the terms of
the Facility Lease or the terms hereof. Lessee shall
not permit the recording of any notice of contract or
mechanic's or materialmen's lien relating to
construction of the Project or otherwise affecting the
Leased Property except to the extent the same is being
duly contested in accordance with the terms of the
Facility Lease or the terms hereof. Notwithstanding the
foregoing provisions of this Section 6.3.09, the
existence of an attachment or lis pendens for a period
not in excess of thirty (30) days shall not be deemed
to be a default hereunder provided that (a) there shall
be no cessation of construction of the Project, (b) a
Lease Default has not occurred and (c) Lessee shall
proceed promptly to cause such attachment or lis
pendens to be removed, but Lessor shall not be obliged
to make any further advance under this Agreement while
such attachment or lis pendens remains outstanding,
unless a bond, satisfactory to Lessor, has been posted
as security for such attachment or lis pendens.
6.3.10 Books And Records.
Lessee shall cause to be kept and maintained, and
shall permit Lessor and its representatives to inspect
at all reasonable times, accurate books of accounts in
which complete entries will be made in accordance with
GAAP, if applicable, reflecting all financial
transactions of Lessee relating to the Project
(showing, without limitation, all materials ordered and
received and all disbursements, accounts payable and
accounts receivable in connection with the construction
of the Project and the operation of the Leased
Property). Such books and records must accurately
reflect that all funds advanced hereunder for
construction of the Project have been used solely for
the payment of obligations and expenses properly
incurred in accordance with the Project Budget.
6.3.11 Inspection Of Construction.
Lessor and its representatives including, without
limitation, the Consultants, shall, at all times as
long as this Agreement remains in effect, have the
right to enter the Leased Property, upon reasonable
notice to Lessee and at reasonable times (except in the
event of an emergency) for the purpose of inspecting
the Project and the progress of the work and materials
thereon, and if any such- inspection reveals that
Lessee is not in compliance herewith (in its sole and
absolute discretion), then Lessor shall not be
obligated to make any further advances under this
Agreement to Lessee.
6.3.12 Notice Of Delay.
Lessee shall give to Lessor prompt written notice
of any fire, explosion, accident, flood, storm,
earthquake or other casualty or strike, lock out, act
of God or interruption of the construction of the
Project which is reasonably anticipated to interfere
with the ability of Lessee to complete the Project by
the Completion Date.
6.3.13 Bonds.
Performance, payment and lien bonds, in form and
substance and guaranteed by sureties satisfactory to
Lessor (in its sole and absolute discretion), shall be
furnished to Lessor in
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connection with the Construction Contract in amounts at
least equivalent to the amount of such contract, naming
Lessor as a dual obligee and shall be furnished to
Lessor prior to the commencement of any work pursuant
to such contract.
6.3.14 Use of Project Funds.
Lessee shall utilize all advances by Lessor
pursuant to the terms of this Agreement only for those
items for which requisitions are permitted under this
Agreement or for reimbursement of expenditures already
made for items for which requisitions are so permitted.
Lessee agrees to hold all advances by Lessor hereunder
as a trust fund for the purpose of payment of the costs
and expenses permitted under this Agreement.
6.3.15 Occupancy of the Project.
Lessee shall not permit any occupancy of the
Project (other than such occupancy as is required in
connection with the construction thereto) prior to (a)
the substantial completion of that portion of the
Project being occupied and (b) the issuance by the
appropriate Governmental Authorities of a Certificate
of Occupancy (or its equivalent) permitting the
occupancy of the Project for its Primary Intended Use
and, if applicable, the Other Permitted Uses. The
Project shall not be deemed to have been completed
unless and until constructed in accordance with this
Agreement and a Certificate of Occupancy(or its
equivalent) permitting the occupancy of the Project for
its Primary Intended Use has been issued by the
applicable Governmental Authorities.
7. CONSTRUCTION ADVANCES
7.1 Conditions Precedent to First Advance of
Project Funds.
Prior to the first advance of Project Funds
contemplated by this Agreement, and as a condition of
Lessee's right to receive any of the proceeds of the
Project Funds, there shall have been furnished to
Lessor:
A. An owner's title insurance policy in form and
substance satisfactory to Lessor, in its sole
and absolute discretion, issued by a title
insurance company or companies satisfactory
to Lessor (the "Title Company") with such
endorsements, reinsurance and/or co-insurance
as Lessor may require, insuring Lessor's fee
title to the Leased Property free from all
Liens and without exception for (i) filed or
unfiled mechanics' liens, (ii) survey
matters, (iii) rights of parties in
possession, (iv) environmental liens and (v)
any other matters of any kind or nature
whatsoever other than the Permitted
Encumbrances (the "Title Policy");
B. Such evidence as Lessor may require that the
use contemplated for the Project, and all of
the improvements and construction
contemplated by the Project Plans, comply
with all applicable Legal Requirements, to
the extent in force and applicable;
C. Insurance policies and/or Certificates of
Insurance required pursuant to the terms and
provisions of the Facility Lease;
D. Such evidence as Lessor may require to determine
that the total cost of completion of the Project in all
respects, including all related direct and indirect
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costs as previously approved by
Lessor, will not exceed the amount set forth in
the Project Budget;
E. Such evidence as Lessor may require that
Lessee's representations and warranties
contained herein and in all of the other
Lease Documents are true and correct in every
material respect;
F. Such evidence as Lessor may require as to the
satisfaction of such of the terms and
conditions of this Agreement and of the other
Lease Documents as may by their nature be
satisfied prior to the making of such
advance;
G. Such evidence as Lessor may require
that all outstanding Impositions which are
due and payable as of the date of the First
Advance pertaining to the Leased Property
have been paid in full in accordance with the
terms of the Facility Lease;
H. A current instrument survey,
satisfactory in form and content to Lessor,
prepared in accordance with the requirements
set forth in EXHIBIT G (the "Survey") and a
certificate substantially in the form of
EXHIBIT H (the "Surveyor's Certificate"),
prepared and signed by a surveyor licensed to
do business in the state where the Leased
Property is located with his or her seal
affixed thereto;
I. True and correct copies of the Construction
Contract and the Architect's Contract in
effect with respect to the Project, as well
as all receipted bills paid by Lessee to the
General Contractor and the Architect for
goods and/or services rendered with respect
to the Project prior to the date hereof;
J. A certificate from an engineer and/or
architect, registered as such in the state
where the Leased Property is located,
substantially in the form attached hereto as
EXHIBIT H, certifying as to the (i)
compliance of the Leased Property with all
applicable Legal Requirements, (ii) the
availability and adequacy of access/egress to
and from the Leased Property and (iii) the
availability and adequacy of sewer, drainage,
water, electric and other utility services to
the lot line of the Leased Property; together
with such other assurances concerning the
design of the Project as Lessor may require;
K. Lessor's receipt of opinions, in forms
satisfactory to Lessor (in its sole and
absolute discretion), from Lessee's counsel
and the Guarantor's counsel, regarding (i)
the due execution, authority and
enforceability of the Lease Documents; (ii)
the compliance of the Leased Property and the
Project, in all material respects, with
applicable zoning and other land-use Legal
Requirements (except in such instances in
which a satisfactory title insurance zoning
endorsement has been issued); (iii) the valid
issuance of the Certificate of Need, if
applicable, and all other Permits required
for the construction of the Project, the
continuing effectiveness of said Certificate
of Need, if applicable, and other Permits and
Lessee's and Project's compliance therewith
and (iv) such other matters as Lessor may
reasonably request (collectively, the
"Opinions");
L. Payment of the Leasehold Improvement
Fee (subject, however, to the provisions of
Section 3 hereof;
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M. True and correct copies of all Permits
and Contracts relating to the construction
and operation of the Project (including,
without limitation, an unconditional building
permit or a building permit which is subject
only to such conditions as will be fully
satisfied by the completion of the
construction of the Project in accordance
with the Project Plans and this Agreement);
N. Such evidence as Lessor may require that
there has been no material adverse change in
the financial condition and strength of
Lessee and the Guarantor, and that the
Leased Property shall have sustained no
impairment, reduction, loss or damage which
has not been fully restored and repaired,
and that no Condemnation proceedings or
other governmental action is or shall be
pending against or with respect thereto;
O. Such evidence as Lessor may require that the
General Contractor and the Architect maintain
adequate insurance, as determined in Lessor's
reasonable discretion;
P. True and correct copies of all
payment, performance and completion bonds
required pursuant to 6.3.13 hereof;
Q. A fully executed Construction Assignment, in
form and substance satisfactory to Lessor;
and
R. A fully executed and authorized Architect's
Assignment, in form and substance
satisfactory to Lessor.
7.2 Lessor's Right to Advance the Project Funds.
Without at any time waiving any of Lessor's rights
hereunder, Lessor shall have the right to make the
first advance of a portion of the Project Funds
hereunder without the satisfaction of each and every
condition precedent to Lessor's obligation to make such
advance, and Lessee agrees to accept such advance as
Lessor may elect to make. The making of any advance
hereunder shall not constitute an approval or
acceptance by Lessor of any work on the Project
theretofore completed.
7.3 Submission of Requests for Advances of the
Project Funds.
Advances under this Agreement shall be made not
more than once each month and at least ten ( 10) days
before the date upon which an advance is requested,
Lessee shall give notice to Lessor, specifying the
total advance which will be desired, accompanied by:
A. Itemized requisitions for advances or, at
Lessee's option, for reimbursements to Lessee
for prepaid items, signed by Lessee, the
Architect and the General Contractor on
A.I.A. Forms G702, G702A or G703 or such
other form(s) as Lessor may reasonably
require (together with copies of invoices or
receipted bills relating to items covered by
such requisitions when so requested by
Lessor). All such requisitions shall include
an indemnification of Lessor by the
Architect, the General Contractor and Lessee,
jointly and severally, to the extent such
indemnification is available from the General
Contractor and the Architect upon Lessee's
best efforts to obtain such indemnification,
against any and all claims of any
subcontractors, laborers and suppliers;
14
<PAGE>
B. A certificate executed by Lessee
substantially in the form attached hereto as
EXHIBIT I;
C. A certificate executed by the
General Contractor substantially in the form
attached hereto as EXHIBIT J;
D. With respect to every other Advance
requested, a certificate executed by the
Architect substantially in the form attached
hereto as EXHIBIT K.
E. At Lessor's request, certificates
executed by the Consultants in such form as
Lessor may reasonably require;
F. To the event the Advance is not
clearly subject to effective coverage, an
endorsement of the Title Policy issued by the
Title Company, satisfactory in form and
substance to Lessor, redating the Title
Policy to the date that the then current
advance will be made, increasing the coverage
afforded by the Title Policy so that the same
shall constitute insurance in an amount at
least equal to the sum of the amount of the
insurance then existing under the Title
Policy plus the amount of the then current
advance of Project Funds to be disbursed to
Lessee under this Agreement and subject to no
additional exceptions other than the
Permitted Encumbrances;
G. If and when reasonably requested by
Lessor, satisfactory assurance that the
construction of the Project has been
performed in accordance with the requirements
of the Construction Contract, the Project
Plans, this Agreement and all of the other
Lease Documents and has been inspected and
found satisfactory by the parties hereto;
H. If and when reasonably requested by
Lessor, an updated Surveyor's Certificate
substantially in the form attached hereto as
EXHIBIT G and/or updated
Engineer's/Architect's Certificate
substantially in the form attached hereto as
EXHIBIT H;
I. If and when requested by Lessor,
updated Opinions from Lessee's counsel and
the Guarantor's counsel (in form and
substance satisfactory to Lessor in its sole
and absolute discretion);
J. If and when requested by Lessor, satisfactory
evidence that the funds remaining unadvanced
under this Agreement are sufficient for the
payment of all related direct and indirect
costs for the completion of the Project in
accordance with the terms and provisions
hereof. If the evidence furnished shall not
be satisfactory to Lessor, in its sole and
absolute discretion, it shall be a condition
to the making of any further advance
hereunder that Lessee will provide Lessor
with such financial guaranties (whether in
the form of a bond, cash deposit, letter of
credit or otherwise) as are acceptable to
Lessor, in its sole and absolute discretion,
to assure the completion of the construction
of the Project in accordance with the Project
Plans and the terms and conditions of this
Agreement. In the event that Lessor requires
a cash deposit from Lessee, Lessee shall
deposit with Lessor such funds, to be held in
an interest bearing account with the interest
accruing thereon to the benefit of Lessee,
which, together with such unadvanced funds of
the Loan, shall be sufficient to pay all of
the aforesaid costs. All funds so
15
<PAGE>
deposited with Lessor along with the
proceeds thereof, shall be disbursed prior to
any further advance hereunder and upon
completion of the Project any remaining funds
so deposited or any unadvanced portion of the
Project Funds, shall be remitted to Lessee;
K. A certification of work completed by the
General Contractor, together with a statement
of the payment due therefor;
L. Partial lien waivers from the General
Contractor for all work theretofore
performed, and from all other contractors and
all subcontractors and suppliers for all
work, the cost of which in each instance
exceeds ONE THOUSAND DOLLARS ($ 1,000.00),
which was the subject of a requisition in the
immediately preceding month;
M. If and when reasonably requested, Lessee
shall deliver to Lessor an updated Survey of
the Leased Property, acceptable to Lessor (in
its reasonable discretion);
N. Evidence satisfactory to Lessor (in its
reasonable discretion) that all materials and
other property furnished by any contractors,
subcontractors, materialmen or other Persons,
the cost of which will be paid with the
proceeds of the advance to be made by Lessor,
are free and clear of all Liens, except (a)
encumbrances, if any, (securing indebtedness
due to Persons whose names, addresses and
amounts due to them are identified to Lessor)
that shall be discharged upon the
disbursement of the funds then being
requested, (b) the Liens created by the Lease
Documents and (c) the Permitted Encumbrances;
O. Such evidence as Lessor may require
that there has been no material adverse
change in the financial condition and
strength of Lessee and the Guarantor, and
that the Leased Property shall have sustained
no impairment, reduction, loss or damage
which has not been fully restored and
repaired and that no condemnation is or shall
be pending against or with respect thereto;
and
P. Prior to the first advance which includes
amounts to be expended on the construction or
equipping of the Improvements, Lessee shall,
to the extent not previously delivered to
Lessor, submit to Lessor true and correct
copies of (i) the Project Budget, (ii) the
Project Plans, (iii) the Schedules and (iv)
the Construction Contract, each of which
shall be in form and content satisfactory to
Lessor (in its sole and absolute discretion);
Lessee hereby designates Tom Mullins as Lessee's
construction representative with authority to approve
requisitions and to execute certificates to be
delivered pursuant to Section 13.3B on behalf of
Lessee.
7.4 Advances by Wire Transfer.
All advances hereunder shall be made by wire
transfer of funds into a bank account
maintained by either Lessee or an authorized agent of
Lessee.
7.5 Conditions Precedent to All Advances.
16
<PAGE>
A. Advances hereunder shall be made solely for
the payment of the costs and expenses
incurred by Lessee directly in connection
with the construction of the Project,
consistent with the Project Budget, which are
required to be paid out-of pocket to all
other Persons or to reimburse Lessee for out-
of pocket costs incurred by it pursuant to
the Project Budget. No funds advanced by
Lessor shall be utilized for any purpose
other than as specified herein and none of
the Project Funds shall be paid over to any
officer, stockholder or employee of any
member of the Leasing Group or to any of the
Persons collectively constituting any member
of the Leasing Group or those holding a
beneficial interest in any member of the
Leasing Group, or any employee thereof,
except to the extent funds are used to pay
compensation to an employee for and with
respect to activity of such employee in
construction of the Project.
B. The amount of each requisition shall represent
(i) the cost of the work completed on the
Project as of the date of such requisition,
which has not been paid for under prior
requisitions, (ii) the cost of all equipment,
fixtures and furnishings included within the
Project Budget approved by Lessor, which has
not been paid for under prior requisitions,
but not incorporated into any contract and
which have been delivered to the Leased
Property for incorporation into the Project;
provided that, in Lessor's judgment, such
materials are suitably stored, secured and
insured and that Lessee can furnish Lessor
with evidence satisfactory to Lessor of
Lessee's unencumbered title thereto and (iii)
approved soft costs, which have not been paid
for under prior requisitions.
C. All requisitions for the first fifty percent
(50%) of the Project Funds shall be subject
to a ten percent (10%) retainage for the
completion of the Project, and no retainage
shall be required with respect to all
requisitions thereafter. It is understood
that such retainage is intended to provide a
contingency fund to assure that the
construction of the Project shall be fully
completed in accordance with the Project
Plans and the terms and provisions of this
Agreement. All amounts so withheld shall be
disbursed after (i) construction of the
Project has been fully completed in
accordance with the Project Plans and the
terms and provisions of this Agreement, (ii)
all of the items set forth in Section 7.6
hereof have been delivered to Lessor and
(iii) the expiration of the period during
which liens may be perfected with respect to
any work performed or labor or materials
supplied in connection with the construction
of the Project or the receipt of such
evidence as may be required to assure Lessor
that no claim may thereafter arise with
respect to any work performed or labor or
materials supplied in connection with the
construction of the Project.
D. At the time of each advance, no event
which constitutes, or which, with notice or
lapse of time, or both, would constitute, a
Lease Default shall have occurred and be
continuing.
E. Without at any time waiving any of
Lessor's rights under this Agreement, Lessor
shall always have the right to make an
advance hereunder without satisfaction of
each and every condition upon Lessor's
obligation to make an advance under this
Agreement, and Lessee agrees to accept any
advance which Lessor may elect to make under
this Agreement. Notwithstanding the
foregoing, Lessor shall have the right,
notwithstanding a waiver relative to the
first advance or any subsequent advance
hereunder, to refuse to make any and all
subsequent advances under this Agreement
until each and every condition set forth in
this
17
<PAGE>
Section has been satisfied. The
making of any advance hereunder shall not
constitute an approval or acceptance by
Lessor of any work on the Project theretofore
completed.
F. If, while this Agreement is in
effect, a claim is made that the Project does
not comply with any Legal Requirement or an
action is instituted before any Governmental
Authority with jurisdiction over the Leased
Property or Lessee in which a claim is made
as to whether the Project does so comply,
Lessor shall have the right to defer any
advance of Project Funds which Lessor would
otherwise be obligated to make until such
time as any such claim is finally disposed of
favorably to the position of Lessee, without
any obligation on the part of Lessor to make
a determination of, or judgment on, the
merits of any such claim. For the purposes of
the foregoing sentence, the term "claim"
shall mean an assertion by any Governmental
Authority or Person as to which, in each
case, Lessor has made a good faith
determination that the assertion may properly
be made by the party asserting the same, that
the assertion, on its face, is not without
foundation and that the interests of Lessor
require that the assertion be treated as
presenting a bona fide risk of liability or
adverse effect on the Project.
If any such proceeding is not favorably
resolved within thirty (30) days after the
commencement thereof, Lessor shall also have
the right, at its option, to treat the
commencement of such action as a Lease
Default, for which Lessor shall have all
rights herein specified for a Lease Default.
As aforesaid, Lessor shall have no obligation
to make a determination with reference to the
merits of any such claim. No waiver of the
foregoing right shall be implied from any
forbearance by Lessor in making such election
or any continuation by Lessor in making
advances under this Agreement.
In all events, Lessee agrees to notify Lessor
forthwith upon learning of the assertion of
any such claim or the commencement of any
such proceedings.
G. It is contemplated that all advances of the
Project Funds made by Lessor to Lessee will
be pursuant to this Agreement.
H. No inspections or any approvals of the
Project during or after construction shall
constitute a warranty or representation by
Lessor or any of the Consultants as to the
technical sufficiency, adequacy or safety of
any structure or any of its component parts,
including, without limitation, any fixtures,
equipment or furnishings, or as to the
subsoil conditions or any other physical
condition or feature pertaining to the Leased
Property. All acts, including any failure to
act, relating to the Leased Property by any
agent, representative or designee of Lessor
(including, without limitation, the
Consultants) are performed solely for the
benefit of Lessor to assure the payment and
performance of the Obligations and are not
for the benefit of Lessee or the benefit of
any other Person.
7.6 Completion of the Project.
Upon the completion of the construction of the
Project in accordance with the Project Plans and the
terms and provisions of this Agreement, Lessee shall
provide Lessor with (A) true, correct and complete
copies of (i) a final unconditional Certificate of
Occupancy (or its
18
<PAGE>
equivalent) issued by the appropriate governmental
authorities, permitting the occupancy and use of the
Project for its Primary Intended Use and (ii) all
Permits issued by the appropriate Governmental
Authorities which are necessary in order to operate the
Project as a fully-licensed assisted living facility,
(B) a certification from the Architect or the
Consultants stating that the Project was completed in
accordance with the Project Plans, (C) an updated
Survey of the Leased Property, acceptable to Lessor (in
its sole and absolute discretion), (D) updated Opinions
and (E) such other items relating to the operation
and/or construction of the Project as may be reasonably
requested by Lessor.
8. LESSOR'S RIGHT TO MAKE PAYMENTS AND TAKE OTHER
ACTION
Lessor may, after ten ( 10) Business Days' prior
notice to Lessee of its intention so to do (except in
an emergency when such shorter notice shall be given as
is reasonable under the circumstances), unless Lessee
demonstrates the same has already been paid, pay any
sums due or claimed to be due for labor or materials
furnished in connection with the ownership,
construction, development, maintenance, management,
repair, use or operation of the Leased Property, and
any other sums which in the reasonable opinion of
Lessor, or its attorneys, it is expedient to pay, and
may take such other and further action which in the
reasonable opinion of Lessor is reasonably necessary in
order to secure (A) the completion of the Project in
accordance with the Project Plans and the terms and
conditions of this Agreement, (B) the protection and
priority of the security interests granted to Lessor
pursuant to the Lease Documents and (C) the performance
of all obligations under the Lease Documents. Lessor,
in its sole and absolute discretion, may charge any
such payments against any advance that may otherwise be
due hereunder to Lessee or may otherwise collect such
amounts from Lessee, and Lessee agrees to repay to
Lessor all such amounts, which may exceed the line item
amount therefor in the Project Budget. Any amount which
is not so charged against advances due hereunder and
all costs and expenses reasonably incurred by Lessor in
connection therewith (including, without limitation,
attorneys' fees and expenses and court costs) shall be
a demand obligation of Lessee and, to the extent
permitted by applicable law, shall be added to the
Lease Obligations and secured by the Liens created by
the Lease Documents, as fully and effectively and with
the same priority as every other obligation of Lessee
thereunder and, if not paid within ten ( 10) days after
demand, shall thereafter, to the extent permitted under
applicable law, bear interest at the Overdue Rate until
the date of payment.
If Lessee fails to observe or cause to be observed
any of the provisions of this Agreement and such
failure continues beyond any applicable notice or cure
period provided for under this Agreement, Lessor or a
lawfully appointed receiver of the Leased Property, at
their respective options, from time to time may
perform, or cause to be performed, any and all repairs
and such other work as they deem necessary to bring the
Leased Property into compliance with the provisions of
this Agreement may enter upon the Leased Property for
any of the foregoing purposes, and Lessee hereby waives
any claim against Lessor or such receiver arising out
of such entry or out of any other act carried out
pursuant to this Section. All amounts so expended or
incurred by Lessor and by such receiver and all costs
and expenses reasonably incurred in connection
therewith (including, without limitation, attorneys'
fees and expenses and court costs), shall be a demand
obligation of Lessee to Lessor or such receiver, and,
to the extent permitted by law, shall be added to the
Obligations and shall be secured by the Liens created
by the Lease Documents as fully and effectively and
with the same priority as every other obligation of
Lessee secured thereunder and, if not paid within ten (
10) days after demand, shall thereafter, to the extent
permitted by applicable law, bear interest at the
Overdue Rate until the date of payment.
9. INSURANCE; CASUALTY; TAKING
9.1 General Insurance Requirements.
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<PAGE>
Lessee shall at its sole cost and expense keep the
Leased Property and the business operations conducted
thereon insured as required under the Facility Lease.
9.2 Fire or Other Casualty or Condemnation.
In the event of any damage or destruction to the
Leased Property by reason of fire or other hazard or
casualty (a "Casualty") or a taking by power of eminent
domain or conveyance in lieu thereof of all or any
portion of the Leased Property (a "Condemnation"),
Lessee shall give immediate written notice thereof to
Lessor and comply with the provisions of the Facility
Lease governing Casualties and Condemnations.
10. EVENTS OF DEFAULT
Each of the following shall constitute an "Event
of Default" hereunder and shall entitle Lessor to
exercise its remedies hereunder and under any of the
other Lease Documents:
A. any failure of Lessee to pay any amount due
hereunder or under any of the other Lease
Documents within ten (10) days following the
date when such payment was due;
B. any failure in the observance or performance
of any other covenant, term, condition or
warranty provided in this Agreement or any of
the other Lease Documents, other than the
payment of any monetary obligation and other
than as specified in subsections (C) through
(F) below (referred to herein as a "Failure
to Perform"), continuing for thirty (30) days
after the giving of notice by Lessor to
Lessee specifying the nature of the Failure
to Perform; except as to matters not
susceptible to cure within thirty (30) days,
provided that with respect to such matters,
(i) Lessee commences the cure thereof within
thirty (30) days after the giving of such
notice by Lessor to Lessee, (ii) Lessee
continuously prosecutes such cure to
completion, (iii) such cure is completed
within one hundred twenty ( 120) days after
the giving of such notice by Lessor to Lessee
and (iv) such Failure to Perform does not
impair Lessor's rights with respect to the
Leased Property or otherwise impair the
Collateral or Lessor's security interest
therein;
C. the occurrence of any default or breach of
condition continuing beyond the expiration of
the applicable notice and grace periods, if
any, under any of the other Lease Documents;
D. if any representation, warranty or statement
contained herein or in any of the other Lease
Documents proves to be untrue in any material
respect as of the date when made or at any
time during the Term if such representation
or warranty is a continuing representation or
warranty pursuant to Section 6.2;
E. except as a result of any Casualty or a
partial or complete Condemnation, if a
suspension of any work in connection with the
construction of the Project occurs for a
period in excess often (10) Business Days,
irrespective of the cause thereof, provided
that Lessee shall not be deemed to be in
default under this Subsection if such
suspension is for circumstances not
reasonably within its control, but only if
Lessor, in its sole and absolute discretion,
shall determine
20
<PAGE>
that such suspension shall not
create any risk that the construction of the
Project will not be completed (in accordance
with the Project Plans and the terms and
conditions of this Agreement) on or before
the Completion Date; and
F. if construction of the Project shall not be
completed in accordance with the
Project Plans and this Agreement (including,
without limitation, satisfaction of the
conditions set forth in Section 7.6) on or
before the Completion Date.
11. REMEDIES IN EVENT OF DEFAULT
Upon the occurrence of an Event of Default, at the
option of Lessor, which may be exercised at any time
after an Event of Default shall have occurred, Lessor
shall have all rights and remedies available to it, at
law or in equity, including, without limitation, all of
the rights and remedies under the Facility Lease and
the other Lease Documents. Subject to the requirements
of applicable law, all materials at that time on or
near the Leased Property which are the property of
Lessee and which are to be used in connection with the
completion of the Project shall be subject to the Liens
created by the Lease Documents.
In addition to, and without limitation of, the
foregoing, Lessor is authorized to charge all money
expended for completion of the Project against sums
hereunder which have not already been advanced (even if
the aggregate amount of such sums expended and all
amounts previously advanced hereunder exceed the amount
of the Project Funds which Lessor has agreed to advance
hereunder); and Lessee agrees to pay to Lessor Rent
under the Facility Lease (calculated, in part,
thereunder based upon all sums advanced hereunder,
including, without limitation, all sums expended in
good faith by Lessor in connection with the completion
of the Project), and, in addition thereto, Lessee
agrees to pay to Lessor (as Rent under the Facility
Lease), for services in connection with said completion
of the Project, such additional sums as shall
compensate Lessor for the time and effort Lessor and
its employees shall have expended in connection
therewith. Lessor is authorized, but not obligated in
any event, to do all such things in connection with the
construction of the Project as Lessor, in its sole and
absolute discretion, may deem advisable, including,
without limitation, the right to make any payments with
respect to any obligation of Lessee to Lessor or to any
other Person in connection with the completion of
construction of the Project and to make additions and
changes in the Project Plans, to employ contractors,
subcontractors and agents and to take any and all such
action, either in Lessor's own name or in the name of
Lessee, and Lessee hereby grants Lessor an irrevocable
power of attorney to act in its name in connection with
the foregoing. This power of attorney, being coupled
with an interest, shall be irrevocable until all of the
Obligations are fully paid and performed and shall not
be affected by any disability or incapacity which
Lessee may suffer and shall survive the same. The power
of attorney conferred on Lessor by the provisions of
this Section 11 is provided solely to protect the
interests of Lessor and shall not impose any duty on
Lessor to exercise any such power and neither Lessor
nor such attorney-in-fact shall be liable for any act,
omission, error in judgment or mistake of law, except
as the same may result from its gross negligence or
wilful misconduct. In the event that Lessor takes
possession of the Leased Property and assumes control
of the Project as aforesaid, it shall not be obligated
to continue the construction of the Project and/or the
operation of the Project for any period of time longer
than Lessor shall see fit (in its sole and absolute
discretion), and Lessor may thereafter, at any time,
abandon its efforts and refuse to make further payments
for the account of Lessee, whether or not the Project
has been completed.
In addition, at Lessor's option and without
demand, notice or protest, the occurrence of any Event
of Default shall also constitute a default under any
one or more of the Related Party Agreements.
21
<PAGE>
12. GENERAL
The provisions set forth in Articles 22, 23 and
Sections 2.2,16.8 through 16.10, 24.2. through 24.6,
and 24.8 through 24.12 of the Facility Lease are hereby
incorporated by reference, mutatis, mutandis, and shall
be applicable to this Agreement as if set forth in full
herein.
This Agreement and the other Lease Documents set
forth the entire agreement of the parties with respect
to the subject matter and shall supersede in all
respects (a) the Letter of Intent with respect to the
Project, and (b) the letter dated April 11,1997, as
amended, from Hutchins, Wheeler & Dittmar to Randi S.
Nathanson relating to the Land (including, without
limitation, the indemnities therein).
13. LEASE PROVISIONS PARAMOUNT
In the event of a conflict between the provisions
hereof and the provisions of the Facility Lease, the
provisions of the Facility Lease are paramount.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the day
and year first above written.
ATTEST: LESSEE:
EMERITUS PROPERTIES I,
INC., a Washington
corporation
/s/ Jennifer A. Valenta By: /s/ Kelly
J. Price
- ----------------------------------
- -------------------------------------
Name: Jennifer Valenta Name: Kelly J.
Price
Title: Vice President of
Finance
ATTEST: LESSOR:
MEDITRUST ACQUISITION
CORPORATION a
Massachusetts
Corporation
/s/ Amelia C. Gentry By: /s/
Michael S. Benjamin,
- --------------------------------- ----
- -----------------------------------------
Name: Amelia C. Gentry Name: Michael
S. Benjamin, ESQ.
Title: Senior Vice
President
23
<PAGE> EX 10.78.1
THE FOLLOWING DOCUMENTS ARE SUBSTANTIALLY THE SAMEFOR THE TEXAS COMMUNITIES.
MANAGEMENT AND CONSULTING AGREEMENT
Assisted Living Facility
THIS AGREEMENT is by and between XL MANAGEMENT
COMPANY L.L.C., an Oregon limited liability company,
("XL") and ESC I, L.P., a Washington limited
partnership ("Owner"). XL is engaged in the management
and operation of assisted living care facilities, and
through its officers and agents is experienced in such
management and operation. Owner operates a 87 bed
assisted living care facility located at 1808 W. Loop
250 N, Midland, Texas known as Saddleridge Lodge ("the
Facility") and desires to avail itself of the services
of XL in management and operation of the Facility. As
parties hereto, XL and Owner agree:
1. MANAGEMENT AND CONSULTING RESPONSIBILITIES OF
XL: XL shall provide the following management,
consulting and advisory services as an independent
contractor to Owner in connection with the Facility,
upon the terms and conditions as set forth in the
agreement:
(a) ADMINISTRATOR: XL shall recruit, evaluate
and select the Administrator, who shall be responsible
for the functional operation of the Facility and
execution on a day-to-day basis of policies established
by XL and Owner in accordance with this agreement.
(b) PERSONNEL: XL shall establish all
necessary and desirable personnel policies, wage
structures and staff schedules for employment of
personnel at the Facility. Staffing shall be maintained
in compliance with applicable state regulations. All
personnel shall be employees of the Owner. It is the
intention of both Owner and XL to control costs of
operation by staffing at the level necessary to
maintain quality service without waste. However, Owner
understands and agrees that, during the initial fill-up
period and during times of unusual conditions of
competition or other economic pressures, additional
costs may be incurred for staff and promotion in order
to achieve and maintain essential occupancy levels.
(c) OPERATIONAL POLICIES: XL shall develop
all operational policies and procedures necessary to
insure establishment and maintenance of the standards
of resident care/services and licensure appropriate for
the nature of the Facility.
(d) FORMS: XL shall develop and adopt all
invoices and other such forms necessary and desirable
for effective, efficient and professional operation of
the Facility. Such forms and invoices shall be sold to
the Facility at a cost not to exceed that charged to
other facilities managed by XL and in no event at a
cost which exceeds a comparable retail price for such
forms and invoices in the market.
(e) CHARGES: Subject to the approval of
Owner, XL shall establish the schedules of recommended
charges for services, including any and all special
charges to the residents of the Facility. XL shall
periodically review and adjust any and all such charges
as necessary. XL shall not make material adjustments to
rates without Owner consent.
(f) INFORMATION: XL shall develop all initial
and continuing informational material, mass media
releases and other such publicity. XL shall also be
responsible for matters related to customer relations.
(g) EQUIPMENT AND IMPROVEMENTS: XL shall
advise Owner as to equipment and improvements to the
Facility which are needed to maintain certification and
accreditation, to maintain or upgrade quality, or which
are necessary to replace obsolete or run-down
equipment. Owner consent shall be required for any
capital improvement or equipment purchase greater that
$52,500.00.
1
<PAGE>
(h) BOOKKEEPING AND ACCOUNTING: XL shall
provide bookkeeping and accounting procedures necessary
for the preparation of proper financial records.
Bookkeeping and accounting procedures and systems shall
be according to generally accepted accounting
principles which shall not distort income or loss.
Owner shall be responsible for preparing all federal
and state income tax returns due from operation of the
Facility.
(i) REPORTS: XL shall prepare and provide to
the Owner profit and loss statements with balance
sheets and any census data or other reasonable
information which may, from time to time, be
specifically requested by Owner. Cost for these reports
will be included in the management fee to be paid to XL
Management Company L.L.C., except for services required
of outside vendors which will be in addition to
management fees.
(j) BUDGETS: XL shall prepare and shall
submit to Owner, for Owner's review and approval, an
annual budget for the Facility for each calendar year
during the Term setting forth the estimated receipts
and expenditures (capital, operating and other) for the
Facility on a monthly and an annual basis (the
"Operating Budget") and attempt to submit the Operating
Budget to Owner for approval prior to the commencement
of the period covered thereby. XL shall implement the
Operating Budget when it is approved by Owner (the
"Approved Operating Budget"), and XL shall use its
reasonable efforts not to incur expenses in connection
with the maintenance and operation of the Facility in
excess of the amounts allocated to the various
classifications of expenses in the Approved Operating
Budget without Owner's prior consent.
2. OPERATING RESPONSIBILITIES AND BANK ACCOUNT:
(a) OPERATING COSTS: Owner shall be
responsible for and shall pay all operating costs,
wages, salaries, expenses and fees incident to the
operation of the Facility, including all authorized
costs incurred by XL on behalf of Owner, when due.
(b) BANK ACCOUNT: XL shall establish and
maintain a bank account with regard to the operations
of the Facility, under which XL shall be authorized to
withdraw funds, execute checks, and make disbursements.
All funds received in the operation of the Facility
shall be deposited in this bank account, and Owner
shall maintain in such account adequate funds to permit
the prompt payment when due of the salaries of the
Administrator and all other employees, taxes, insurance
premiums, accounts payable incurred in the operation of
the Facility, and all other expenses related to the
operation of the Facility. XL shall disburse to Owner,
upon request, any surplus funds in such bank account
which in XL's opinion are not necessary for operation
of the Facility. Such bank account shall be established
in the bank or branch of such banks as shall be
designated by XL. Notwithstanding the foregoing, no
single expenditure exceeding Five Thousand Dollars
($55,000.00) shall be made by XL without the consent of
Owner for other than normal operating costs. Owner
shall be a signatory on the Facility account.
(c) GENERAL XL AUTHORITY AND RESPONSIBILITY:
XL shall supervise the Administrator and all other
personnel in the execution of policies established in
Paragraph 1 of this agreement, and shall (i) prepare
the payroll and prepare and file all payroll tax
returns and reports, /ii) prepare and sign checks,
(iii) pay all accounts payable as they become due, so
long as sufficient funds are available in the bank
account, (iv) prepare and file such cost reports as
required to establish reimbursement rates for all
federal programs, and (v) arrange for the purchase and
installation of any new equipment in accordance with
Paragraph 1 of this agreement. It is specifically
agreed that XL has sole power and authority for the
preparation, filing and payment of all payrolls and
payroll taxes of every nature, which duty may not be
delegated to Owner. XL shall have authority as agent of
Owner to perform all the foregoing tasks, and Owner
shall not interfere with the management and operation
of the Facility except in accordance with this
agreement.
2
<PAGE>
3. LIABILITY AND INDEMNIFICATION: Except for XL's
own negligent acts or omissions, gross mismanagement,
breach of terms of this Agreement or deliberate acts
detrimental to Owner's interest, XL does not assume any
liabilities associated with or incident to the
operation of the Facility, but all such liabilities
shall be assumed by Owner as principal. XL acts as an
independent contractor with regard to some services and
as agent or Owner with regard to other services as
described in this agreement, and does not act in any
other capacities for Owner and does not act as
principal in the operation of the Facility. XL does not
guarantee that operation of the Facility will be
profitable.
Owner shall indemnify and hold XL harmless against
any loss, claim or damage which XL may suffer or
sustain by reason of failure by Owner to pay any and
all operating expenses as they become due, assume any
and all liabilities incident to operation of the
Facility, maintain sufficient funds in the bank
account, failure to maintain required insurance, or any
other cost, expense, loss or claim suffered by XL for
which it is not responsible according to the terms of
this agreement.
4. INSURANCE: Owner shall obtain on behalf of
Owner all necessary and proper hazard insurance
covering the premises occupied by the Facility, the
furniture, fixtures and equipment situated thereon, and
all necessary and proper liability insurance for the
protection of Owner, XL, and the Administrator,
employees and volunteers of the Facility and XL shall
be named an additional insured with respect to
liability. Such insurance shall be an expense of
operation. The Facility shall utilize the risk
management and insurance forms of Owner.
5. PAYMENT: As consideration for the services
rendered by XL in accordance with this agreement, Owner
shall pay to XL a fee equal to 6% of the gross
revenues, determined on an accrual basis.
(a) If the services of XL commence or
terminate other than on the first day of the month, the
fee shall be pro-rated proportionate to the number of
days for which services are actually rendered.
(b) Owner shall pay the fee to XL on a
monthly basis, and such fee may be disbursed by XL to
itself out of the account provided for above in
Paragraph 2 /b).
6. BONUS FEE. XL shall be paid a bonus fee one
year from the date of this Agreement based on the
following schedule. If the Facility occupancy is
between 75% and 89% at that date, XL shall be paid a
$25,000 bonus fee. If the Facility occupancy is greater
than or equal to 90% at that date, XL shall be paid a
$50,000 bonus fee.
7. TERMINATION.
(a) In the event that Owner fails to maintain
funds in the bank account sufficient to continue the
operation of the Facility, materially interferes in the
management and operation of the Facility to be
performed by XL under this agreement, or in any other
way materially violates or materially breaches this
agreement or any covenant thereof XL may at its option,
in addition and without prejudice to any other remedy
it may have, terminate this agreement upon 30 days
notice to Owner. If Owner operates the Facility under a
lease, XL shall give written notice of any default
hereunder to the Facility lessor and shall allow the
Facility lessor to cure such default. If Owner cures
the breach to XL's satisfaction during said period, the
Agreement shall be reinstated on the original terms and
conditions.
3
<PAGE>
(b) In the event of a final decree against
the Owner under any bankruptcy, insolvency, or
reorganization law, or the appointment of any receiver
for Owner, or any assignment for the benefit of
creditors of the Owner, XL may, at its option, in
addition and without prejudice to any other remedy it
may have, forthwith terminate this agreement without
further obligation.
Owner reserves the right to terminate the services
of XL in the event that XL fails to manage the Facility
with due diligence and pursuant to the standards of
similar facilities. Owner shall also retain the right
to terminate with XL in the event that Owner determines
it would be in Owner's interest to sell the Facility to
a third-party purchaser or Owner's license to operate
the Facility is suspended or revoked or the licensing
agency threatens to take such action. In the event of
termination of XL by Owner for these reasons, Owner
agrees to give XL not less than sixty (60) days' notice
prior to the effective date of termination.
In the event that Owner terminates with XL for
cause, as hereinabove stated with the exception of
selling the Facility, and in the event that a
controversy develops between the parties pertaining to
whether or not Owner is justified in so terminating XL,
then, and in such event, such controversy shall be
submitted to arbitration. Each of the parties shall be
required to choose one arbitrator, and the two
arbitrators shall then choose a third arbitrator to
determine whether or not Owner may justifiably
terminate its contract with XL for cause as stated
herein. The parties agree to be bound by the decision
of their arbitrators, and the arbitration proceeding
must be carried out within thirty (30) days of the
notice from Owner to XL of its wish to terminate XL's
management contract.
8. TERM: The term of this agreement shall commence
on the date hereof and, unless earlier terminated in
accordance with the provisions hereof, shall continue
for a period of 30 months to and including the 20th day
of July, 2000.
9. PROPRIETARY MATERIALS: Various forms, operating
procedures and controls employed by XL in the
performance of the agreement are proprietary in nature
and shall remain the property of XL and shall at no
time be utilized, distributed, copied or otherwise used
or employed by the Owner except with the consent of XL
or in accordance with the terms and objectives of this
agreement.
10. ASSIGNMENT: This agreement may not be assigned
by XL or the Owner to any party or parties without the
written consent of the other, except that XL may assign
the same to any corporation which controls it directly
or indirectly, or which is controlled by it directly or
indirectly.
11. ATTORNEY'S FEES: In the event either party
brings an action to enforce this agreement, the
prevailing party in such action shall be entitled to
receive costs and reasonable attorney's fees incurred
by it in such amount as a court may deem reasonable,
whether at trial or appellate court level.
12. NOTICES: All notices, demands and other
communications which may be or are required to be given
hereunder or with respect hereto shall be in writing
directed to the respective parties as follows, or to
such other address as either party may, from time to
time, designate by notice:
4
<PAGE>
XL Owner
Attn: Bruce D. Thorn
Attn: Michelle Bickford
XL Management Company LLC
ESC I, L.P.
2250 McGilchrist St. SE
c/o Emeritus Corporation
P.O. Box 14111
3131 Elliott Avenue, Suite 500
Salem, OR 97309-5026
Seattle, WA 98121
13. ENTIRE AGREEMENT: This agreement constitutes
the entire agreement between the parties and supersedes
and cancels any and all other agreements between the
parties relating to the subject hereof.
Executed effective the 1st day of February, 1998.
XL
Owner
XL Management Company L.L.C.,
ESC I, L.P.,
an Oregon limited liability company
a Washington limited partnership
By: /s/ Norman L. Brenden
By: ESC G.P.I., INC.,
------------------------------
A Washington corporation
Norman L. Brenden
Manager
By: /s/ Michelle A. Bickford
- -------------------------------------
Michelle A. Bickford
Vice President New Business
Development
5
<PAGE> EX 10.79.1
THIS NOTE AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993 (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPTION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE COMPANY, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT IS AVAILABLE FOR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION.
$5,000,000 Dated as of January
7,1998
CONVERTIBLE PROMISSORY NOTE
For value received, Aurora Bay Investments, L.L.C., a
Washington limited liability company, having an office at 5720 LBJ
Freeway, Suite 450, Dallas, Texas 75240-6339 ("Maker"), hereby
promises to pay to the order of Emeritus Corporation, a Washington
corporation ("Payee"), at 3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121, or such other place designated in writing by
Payee in lawful money of the United State of America, Five Million
Dollars ($5,000,000) or such lesser amount as may be advanced by
Payee to Maker from time to time under that certain Credit
Agreement dated as of January 7, 1998, by and between Maker and
Payee (the "Credit Agreement"), together with interest thereon from
the date of such advances until paid as hereinafter stated.
1. INTEREST ACCRUAL AND PAYMENT. Interest shall accrue on the
aggregate outstanding principal balance of this Convertible
Promissory Note (the "Note"), commencing on the date hereof, at
nine percent (9.0"%) per annum, and shall be payable quarterly in
arrears on the first day of each calendar quarter (January 1,
April l, July l, and October 1), commencing on April 1,1998.
Interest on this Note shall be calculated on the basis of the
actual number of days elapsed in any period in which interest is
payable. Whenever any payment under this Note is due on a
Saturday, Sunday or any other day on which banks in the State of
Washington are required to be closed, such payment shall be made
on the next succeeding day on which banks in the State of
Washington are not required or permitted by law to be closed.
2. PRINCIPAL PAYMENT: MATURITY. Unless sooner paid, all
interest and principal payable hereunder, and all other amounts
due under this Note, shall be due and payable by Maker on January
7, 2003 (the "Maturity Date").
3. VOLUNTARY PREPAYMENT. Maker shall not lie entitled to
prepay, in part or in whole, the outstanding principal balance of
this Note at any time prior to its Maturity Date without the
prior consent of Payee, which consent may be withheld by Payee in
its sole and absolute discretion.
4. PLACE OF PAYMENT. All amounts due hereunder shall be
payable to Payee at the address of Payee or at such other place
as Payee may designate in writing to Maker at Maker's address set
forth above.
5. CONVERSION RIGHTS. As long as there is not an uncured
material default by Payee under the Credit Agreement, Payee shall
have a one-time right, exercisable at any time prior to the
Maturity Date, to convert effective five (5) days after the
giving of such notice (the "Conversion Date"), all (but not less
than all) of the principal amount of this Note outstanding as at
the Conversion Date into a membership interest in Maker entitling
Payee to receive cash distributions made by Maker and to be
allocated profits, gains, losses, deductions, credits, or any
items thereof, allocated by Maker to its Members, as such rights
are stipulated in the Maker's Operating Agreement dated as of
January 6,1998, which is attached hereto as Exhibit A-1 (the
"Operating Agreement"). The conversion right described herein
shall lapse if not exercised on or prior to the Maturity Date.
Payee shall effect a conversion by surrendering this Note to
Maker, together with a written notice of Payee's intent to
exercise its conversion rights (the "Holder Conversion Notice").
Each Holder Conversion Notice, once given, shall be irrevocable.
6. PROCEDURES FOR IMPLEMENTING CONVERSIONS. The following
procedures shall apply to the voluntary conversion of this Note
pursuant to Section 5.
(a) If upon the Conversion Date, Payee has not advanced to Maker all
funds that might be drawn upon by Maker under the Credit Agreement to
fund its acquisition, development, construction and initial carrying
cost of projects, Payee will be obligated to contribute to Maker, as
additional capital contributions, funds at such times, and in such E
amounts, that such funds would have been made available to Maker
pursuant to the terms of the Credit Agreement. The funding of such
capital contributions will be subject to the conditions set forth in
the Credit Agreement, as though the Credit Agreement had. been
incorporated into Maker's Operating Agreement in its entirety and
Payee shall not be obligated to make such capital contributions
unless and until all conditions precedent to the funding of such
amounts under the Credit Agreement have been satisfied in full. Any
funds contributed by Payee to Maker, pursuant to the obligations set
forth in the paragraph, shall be credited to Payee's capital account
in Maker.
(b) If Payee exercises the conversion right described
in Section 5, then, effective as of the Conversion
Date, this Note shall be canceled and terminated, and
Maker shall thereafter have no further obligations,
and Payee shall thereafter have no further rights,
under this Note.
(c) The Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to Maker at
the facsimile telephone number and address of the
principal place of business of Maker.
(d) The membership interests issuable upon conversion
of this Note will be, when as and if issued,
"restricted securities" under the Securities Act and
will bear a legend to that effect. The membership
interests may not be sold or transferred and must be
held indefinitely unless an redemption from
registration is available. Maker is not obligated to
register the membership interests or to comply with
any exemption under the Securities Act or to supply
or file any information which would facilitate the
resale thereof.
7. LATE CHARGES. In the event that any payment due
hereunder or under the Credit Agreement shall not be made when
due a late charge of five cents ($.05) for each dollar ($ 1.00)
so overdue may be charged by Payee for the purpose of defraying
the expense incident to handling such delinquent payment (the
"Late Charge Fee"). Such Late Charge Fee represents the
reasonable estimate of Payee and Maker of a fair average
compensation for the loss that will be sustained by Payee due to
the failure of Maker to make timely payments. Such Late Charge
Fee shall be paid without . prejudice to the right of Payee to
collect any other amounts provided to be paid or to declare an
Event of Default under this Note or the Credit Agreement. If an
Event of Default (as hereunder defined) occurs, then the
interest rate applicable in calculating any defaulted payments
from the due date of the defaulted payments shall be the default
rate stipulated in Section 8 until paid in full and the Late
Charge Fee shall apply to any such payments.
8. DEFAULTS. At the option of Payee, all principal and
interest shall immediately become due and payable on any of
the following events:
(a) Maker fails to make any payment as provided for in
this Note, or in the Credit Agreement, and such
failure to make payment continues for five (5)
calendar days after Maker's receipt of written notice
from Payee that such payment is due;
(b) Maker makes a general assignment for the benefit of
creditors; a receiver is appointed for the assets of
Maker upon request by any person(s) other than Maker,
or Maker makes a formal request for appointment of a
receiver; or any proceeding is brought by Maker in
any court or under supervision of any court-appointed
officer under any federal or state bankruptcy
reorganization, rearrangement, insolvency or debt
readjustment law, or if any such proceedings are
instituted against Maker and he fails to obtain
dismissal of such proceeding within ninety (90) days
after the same has been instituted;
2
<PAGE>
(c) Maker fails to cure any material breach (other than nonpayment
of a
monetary obligation) of any agreement of Maker
contained in this Note
or in the Credit Agreement after Maker has been sent 30
calendar days'
written notice of such breach (other than nonpayment of
a monetary
obligation) from Payee;
(d) Any breach by Maker of any material representation or warranty
contained in the Credit Agreement or any other instrument or
agreement
delivered by Maker to Payee in connection therewith; or
(e) The cessation of Maker's business operations, or
the insolvency of
Maker an admission in writing of its inability to
pay debts as they
mature.
In the event of such Default, the rate of interest due under this
Note will. increase to a rate per annum equal to the lesser of (x) 16%
per annum and (y) the maximum rate allowed by law and will continue
until such Default has been cured or waived.
9. ATTORNEYS' FEES AND COSTS AND CONSULTANT/EXPERT WITNESS
EXPENSES. Maker shall pay Payee a11 its direct or indirect reasonable
attorneys' fees and costs and the reasonable expense of expert witness
and consultants engaged directly or indirectly by Payee to advise
Payee and to take whatever steps Payee deems reasonably necessary to
collect this Note, including, without limitation, commencement of any
action or proceeding to enforce this Note against Maker. Without
limiting the generality of the foregoing, Maker understands and agrees
to pay the reasonable attorneys' fees and costs and reasonable
expenses for expert witnesses and consultants (a) engaged by Payee in
connection with this Note, (b) incurred by Payee directly or
indirectly in any insolvency proceeding or in any contested matter or
adversity proceeding that is part of bankruptcy, and (c) incurred by
Payee in advance of any action or proceeding relating to this Note or
for the appeal of certiorari proceeding subsequent to an action or
proceeding on this Note.
10. NO WAIVER. Maker hereby waives diligence, presentment,
protest, any demand for payment, notice of protest, dishonor and
nonpayment of this Note. Maker hereby agrees to pay all sums which are
payable by it hereunder without set-off or offset. .
1l. CUMULATIVE RIGHTS. The rights and remedies of Payee provided
in this Note shall be cumulative and concurrent and may be pursued
singly, successively, or together against Maker for the payment hereof
in the sole discretion on Payee. The failure to exercise any such
right or remedy shall in no event be construed as a waiver of release
of said rights and remedies or the rights to exercise them at any
later time.
12. MODIFICATION. This Note may not be amended, modified, or
changed, nor shall any waiver of any provision be effective, except
only by an instrument in writing signed by the person against whom
enforcement of such waiver, amendment, change, modification or
discharge is sought.
13. JURISDICTION AND VENUE. Maker agrees that the state and
federal (as Payee may in its sole discretion elect) courts in the
State of Washington situated in King County, Washington, will have non-
exclusive jurisdiction and venue over any action or proceeding
relating to this Note. Maker submits to such courts and their
jurisdiction and agrees that venue in King County, Washington is
proper over any such action or proceeding.
14. USURY. It is the intent of Payee and Maker in the execution
of this Note and all other instruments now or hereafter securing this
Note to contract in strict compliance with applicable usury law. In
furtherance thereof Payee and Maker stipulate and agree that none of
the terms and provisions contained in this Note, or in any other
instrument executed in connection herewith, shall ever be construed to
create a contract to pay for the use, forbearance or detention of
money, interest at a rate in excess of the Maximum Interest Rate
permitted under applicable law (the "Maximum Rate") (the parties
hereby acknowledging and confirming that applicable law is to mean the
laws of the State of Washington or the laws of the United States,
whichever laws allow the greater rate of interest (as noted below)
but, if for whatever reason, notwithstanding the parties' joint
determination of the applicable law, which determination the parties
intend to be conclusive, a court were to
3
<PAGE>
determine that the applicable law was the laws of the State of Texas,
and if such law provides for a ceiling upon interest rates
under Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended, or any
successor laws or regulations, such ceiling shall be the indicated
maximum interest rate); neither Maker nor any guarantors, endorsers or
other parties now or hereafter becoming liable for payment of this
Note shall ever be obligated or required to pay interest on this Note
at a rate in excess of the Maximum Rate that may be lawfully charged
under applicable law, and the provisions of this paragraph shall
control over all other provisions of this Note and any other
instruments now or hereafter executed in connection herewith which may
be in apparent conflict herewith. Payee, including each holder of this
Note, expressly disavows any intention to enlarge or collect excessive
unearned interest or finance charges in the event the maturity of this
Note is accelerated. If the maturity of this Note shall be accelerated
for any reason or if the principal of this Note is paid prior to the
end of the term of this Note, and as a result thereof the interest
received for the actual period of existence of the Loan exceeds the
amount of interest that would have accrued at the Maximum Rate, Payee
or other holder of this Note shall, at its option, either refund to
Maker the amount of such excess or credit the amount of such excess
against the principal amount and thereby shall render inapplicable any
and all penalties of any kind provided by applicable law as a result
of such excess interest. In the event that Payee or any other holder
of this Note shall contract for, charge or receive any amounts and/or
any other thing of value which are determined to constitute interest
which would increase the effective interest rate on this Note to a
rate in excess of that permitted to be charged by applicable law, all
such sums determined to constitute interest in excess of the amount of
Interest at the lawful rate shall, upon such determination, at the
option of Payee or other holder of this Note, be either immediately
returned to Maker or credited against the principal amount in which
event any and all penalties of any kind under applicable law as a
result of such excess interest shall be inapplicable. By execution of
this Note, Maker acknowledges that it believes the loan evidenced by
this Note, and all arrangements in connection. therewith, to be non-
usurious and agrees that if, at any time, Maker should have reason to
believe that the loan is in fact usurious, it will give the Payee or
other holder of this Note notice of such condition and Maker agrees
that Payee or other holder shall have ninety (90) days in which to
make appropriate refund or other adjustment in order to correct such
condition if in fact such exists. 'The term applicable law as used in
this Note shall mean the laws of the State of Washington or the laws
of the United States, whichever laws allow the greater rate of
interest, as such laws now exist or may be changed or amended or come
into effect in the future.
15. MISCELLANEOUS. Every provision of this Note is intended to be
severable and in the event any term or provision hereof is declared by
a court of competent jurisdiction to be illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the
balance of the terms and provisions hereof, which terms and provisions
shall be interpreted so as to make the remaining terms and provisions
binding and enforceable to the fullest extent possible. This Note may
not be changed, modified or terminated orally, but only by an
agreement in writing signed by the party to be charged. In this Note,
the singular shall include the plural and the masculine shall include
the feminine and neuter gender, and vice versa, if the context so
requires. The headings at the beginning of each numbered paragraph of
this Note are intended solely for convenience of reference and are not
to be deemed or construed to be a part of this Note. Nothing contained
in this Note or elsewhere shall be deemed or construed as creating a
partnership or joint venture between Payee and Maker or between Payee
and any other person, or cause the holder hereof to be responsible in
any way for the debts or obligations of Maker. This Note shall be
governed by and construed in accordance with the laws of the State of
Washington (without giving effect to its choice of law principles).
"ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE
UNDER WASHINGTON LAW."
4
<PAGE>
IN WITTINESS WHEREOF, Maker has executed this Note on the 7th day
of January, 1998.
AURORA BAY INVESTMENTS, L.L.C., a
Washington limited liability company
By: /s/ Craig W. Spaulding
- ----------------------------------------
Craig W. Spaulding, Manager
By: /s/ Jerry Erwin
- --------------------------------------------
Jerry Erwin, Manager
5
<PAGE> EX 10.79.2
NOTICE AND AGREEMENT
EMERITUS CORPORATION LOAN TO AURORA BAY
INVESTMENTS, L.L.C.
Reference is made to the following documents (the
"Loan Documents"), all dated to be effective as of the
date hereof and executed in connection with a loan of
up to $5 million from Emeritus Corporation ("Lender")
to Aurora Bay Investments, L.L.C. ("Borrower"):
1. Convertible Promissory Note in the principal
amount of $5 million executed by Borrower in favor of
Lender.
2. Credit Agreement between Lender and Borrower.
3. Guaranty in favor of Lender executed by Thilo
Best, Erwin Investors I, L.L.C., and Craig W.
Spaulding.
4. Guarantor Pledge and Security Agreements in
favor of Lender executed by Thilo Best, Erwin Investors
I, L.L.C., and Craig W. Spaulding.
5. Financing Statements.
Borrower, Lender and Guarantors take notice of and
agree to the following:
1. PURSUANT TO SUBSECTION 26.02(b) OF THE TEXAS
BUSINESS AND COMMERCE CODE, A LOAN AGREEMENT IN WHICH
THE AMOUNT INVOLVED THEREIN EXCEEDS $50,000 IN VALUE IS
NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND
SIGNED BY THE PARTY TO BE BOUND OR BY THAT PARTY'S
AUTHORIZED REPRESENTATIVE.
2. PURSUANT TO SUBSECTION 26.02(c) OF THE TEXAS
BUSINESS AND COMMERCE CODE, THE RIGHTS AND OBLIGATIONS
OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE
DETERMINED SOLELY FROM THE LOAN DOCUMENTS, AND ANY
PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE
SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS.
3. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES THERETO.
THERE ARE NO WRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
4. NOTHING IN THIS NOTICE AND AGREEMENT IS,
HOWEVER, TO BE CONSTRUED TO MAKE ANY OF THE LOAN
DOCUMENTS GOVERNED BY AND SUBJECT TO TEXAS LAW, BUT
EACH OF SUCH LOAN DOCUMENTS IS TO BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
WASHINGTON, WITHOUT REGARD TO THE CHOICE OF LAW RULES
THEREOF.
IN WITNESS WHEREOF, this Notice and Agreement is
executed by the undersigned parties as of January __,
1998.
<PAGE>
BORROWER:
AURORA BAY INVESTMENTS,
L.L.C., a Washington
limited liability company
By: /s/ Craig W.
Spaulding
------------------
-------------------
Craig W. Spaulding
By: /s/ Jerry Erwin
-----------------
--------------------
Jerry Erwin,
Manager
LENDER:
EMERITUS CORPORATION, a
Washington corporation
By: /s/ Michelle A.
Bickford
-----------------
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Its: V.P. New Business
Development
2
<PAGE> EX 10.79.3
CREDIT AGREEMENT
Between
EMERITUS CORPORATION
and
AURORA BAY INVESTMENTS, L.L.C. Dated as of January
7,1998
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as
of the 7th day of January, 1998, by and between
Emeritus Corporation, a Washington corporation
("Emeritus"), and Aurora Bay Investments, L.L.C., a
Washington limited liability company ("Borrower").
RECITALS
A. Borrower is a recently formed company organized
to own, develop, operate and acquire Alzheimer's
special care facilities to provide room, board, and
personal care services primarily to elderly persons
afflicted with Alzheimer's disease.
B. Emeritus is in the business of owning,
developing, and operating senior housing facilities
throughout the United States and is willing to make
available to Borrower certain funds to permit
Borrower's acquisition, development, and construction
of such facilities, provided that such loans are
convertible, at Emeritus' option, into an equity
interest in Borrower.
C. Subject to the terms and conditions of this
Agreement, Emeritus is prepared to advance funds to
Borrower, and Borrower is prepared to borrow funds from
Emeritus.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual
covenants and conditions set herein, the parties agree
as follows:
l. DEFINITIONS
As used herein, the following terms have the
meanings set forth below:
"Affiliate" means a Person that now or hereafter,
directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under
common control with Borrower. A Person shall be deemed
to control a corporation, limited liability company,
limited partnership or partnership if such Person
possesses, directly or indirectly, the power to direct
or cause the direction of the management of such
corporation, limited liability company, limited
partnership or partnership, whether through the
ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Credit Agreement,
including all modifications and amendments thereto.
"Applicable Law" means all applicable provisions
and requirements of all (a)constitutions, statutes,
ordinances, rules, regulations, standards, orders, and
directives of any Governmental Bodies, (b) Governmental
Approvals, and (c) orders, decisions, decrees,
judgments, injunctions, and writs of all courts and
arbitrators, whether such Applicable Laws presently
exist, or are modified, promulgated, or implemented
after the date hereof.
"Best" means Thilo Best, one of the members of
Borrower.
"Borrower" means Aurora Bay Investments, L.L.C., a
Washington limited liability company.
"Borrower Project Subordinated Debt" means with
respect to each of the Projects, the amount of
subordinated debt advanced by Borrower to the Wholly
Owned Subsidiary which owns, or will own, such Project.
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<PAGE>
"Borrowing Notice" has the meaning set forth in
Section 2.10.
"Business Day" means any day except a Saturday,
Sunday, or other day on which national banks in the
state of Washington are authorized or required by law
to close.
"Collateral" means all the property, real or
personal, tangible or intangible, now owned or
hereafter acquired, in which Emeritus has been or is to
be granted a security interest by Borrower or any other
Person, to secure the Indebtedness of Borrower to
Emeritus.
"Commitment Period" has the meaning set forth in
Section 2.1.
"Construction/Permanent Loan" means, with respect
to each of the Projects, the construction and permanent
financing, to be obtained by Borrower, to fund the
acquisition, development and construction of such
Project, to cover anticipated operational expenses,
including debt service payments, until the Project's
operations can be conducted on a break even basis, the
terms of which financing must be approved by Emeritus
as required by Section 2.7.
"Convertible Promissory Note" is the Convertible
Promissory Note attached hereto as Exhibit A to be
executed by Borrower, representing Borrower's
obligation to repay the Loan to Emeritus.
"Default" means any condition or event that
constitutes an Event of Default or with the giving of
notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Emeritus Corporation" means Emeritus Corporation,
a Washington corporation, which has agreed to advance
certain funds to Borrower pursuant to the terms of this
Agreement.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"Erwin" means Jerry Erwin.
"Erwin LLC" means Erwin Investors I, L.L.C., a
Washington limited liability company, controlled by
Jerry Erwin, which company is one of the three members
of Borrower.
"Event of Default" has the meaning set forth Section
7.1.
"Funding" means any disbursement of the proceeds of the
Loan.
"Governmental Approval" means any authorization,
consent, approval , certificate of compliance, license,
permit, or exemption from, contract with, registration
or filing with, or report or notice to, any
Governmental Body required or permitted by Applicable
Law.
"Governmental Body" means the government of the
United States, any state or any foreign country, or any
governmental or regulatory official, body, department,
bureau, subdivision, agency, commission, court,
arbitrator, or authority, or any instrumentality
thereof whether federal, state, or local.
"Guarantor" means each of Best, Erwin LLC and
Spaulding, who will execute and deliver to Emeritus the
Guaranty pursuant to Section 3.1(b) of this Agreement.
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<PAGE>
"Guarantor Pledge and Security Agreement" means
the Pledge and Security Agreement, in the form attached
hereto as Exhibit C, to be executed by each of the
Guarantors granting in favor of Emeritus a first
priority and. exclusive security interest in such
Guarantor's membership interest in Borrower.
"Guaranty" means, with respect to each of the
Guarantors, the non-recourse guaranty to be executed by
such Guarantor in favor of Emeritus, in the form
attached hereto as Exhibit B, including all renewals,
replacements, and amendments thereto.
"Hazardous Materials" means oil or petrochemical
products, PCBs, asbestos, urea formaldehyde, flammable
explosives, radioactive materials, Hazardous wastes,
toxic substances, or related materials, including, but
not limited to, substances defined as or included in
the definition of "Hazardous substances, " "Hazardous
wastes", "Hazardous materials," or "toxic substances"
under any Hazardous Materials Laws.
"Hazardous Materials Claims" means (a)enforcement,
cleanup, removal, or other regulatory actions
instituted, completed, or threatened by any
Governmental Body pursuant to any applicable Hazardous
Materials Laws and (b) claims made or threatened by any
third party against Borrower or any Wholly Owned
Subsidiary or its property relating to damage,
contribution, cost recovery, compensation, loss, or
injury resulting from Hazardous Materials.
"Hazardous Materials Laws" means all Applicable
Laws pertaining to Hazardous Materials.
"Indebtedness" means all items that in accordance
with generally accepted accounting principles would be
included in determining total liabilities as shown on
the liabilities side of the balance sheet as of the
date that "Indebtedness" is to be determined, and in
any event, includes liabilities secured by any
mortgage, deed of trust, pledge, lien, or security
interest on property owned or acquired, whether or not
such a liability has been assumed, and the ties,
endorsements (other than for collection in the ordinary
course of business), and other contingent obligations
with regard to the obligations of other Persons.
"Loan Documents" means this Agreement, the
Convertible Promissory Note , the Guaranties, the
Guarantor Pledge and Security Agreements, the Project
Promissory Notes, the Project Pledge and Security
Agreements, and the Financing Statements related to
such Pledge and Security Agreements, together with all
other agreements, instruments, and documents arising
out of or relating to this Agreement or the Loan, and
includes all renewals, replacements, and amendments
thereof.
"Loan" means the loan to be made to Borrower
pursuant to this Agreement, as well as all renewals,
replacements, and modifications thereof.
"Minimum Tax Distribution" means, with respect to
Borrower's members, an amount sufficient to permit the
Members to pay their federal and state income taxes for
a given taxable year on the aggregate taxable income,
as adjusted by the proviso of this paragraph, allocated
to such members for such tax year pursuant to the
Operating Agreement, assuming for this purpose that
such members are subject to the highest U.S. federal
statutory marginal ordinary income tax rate then
applicable for individuals; provided, however, if such
members have been allocated in prior tax years losses,
such losses shall first be offset against income for
such tax year (to determine a net taxable income),
until all such losses have been offset against income
in such tax year or prior tax years, and the amount of
such taxable income, less the offsetting losses, if
any,
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<PAGE>
shall be regarded as the amount of taxable income of
such members for such tax year.
"Operating Agreement" means that certain Operating
Agreement of Aurora Bay Investments, L.L.C., dated as
of January 6, 1998, a copy of which is attached hereto
as Exhibit F.
"Permitted Encumbrances" means, with respect to
each of the Projects, (a) liens for taxes not yet due
or liens for taxes being contested in good faith by
appropriate proceedings for which adequate reserves
determined in accordance with general accepted
accounting principles have been established; (b)liens
securing payment of the Senior Debt on such Project,
(c)zoning and other governmental restrictions, (d)
matters common to any general area or subdivision in
which the Project is located, (e) liens in respect of
the Project imposed by law arising in the ordinary
course of business such as materialmen's mechanics',
warehousemen's, supplier's or vendor's and other like
liens provided that such liens secure only amounts not
yet due and payable or if overdue are being contested
in good faith by appropriate actions or proceedings and
adequate reserves have been established; (f) easements,
rights-or-way, restrictions, minor defects or
irregularities in title and other similar charges or
encumbrances not impairing, in any material respect,
the use of such Project for its intended purposes or
interfering, in any material respect, with the use of
such Project for its intended purposes.
"Person" means any individual, partnership, joint
venture, firm, corporation, association, limited
liability company, limited liability partnership,
trust, or other enterprise or any Governmental Body.
"Plan" means an employee pension benefit plan that
is covered by ERISA or subject to the minimum funding
standards under Section 412 of the Internal Revenue
Code of 1986, as amended, and is either (a) maintained
by Borrower or any Affiliate for employees of Borrower
or any Affiliate or (b) maintained pursuant to a
collective bargaining agreement or any other agreement
under which more than one employer makes contributions
and to which Borrower or any Affiliate is then making
or accruing an obligation to make contributions or has
within the preceding five plan years made
contributions.
"Project" means each senior housing facility to be
acquired, developed and constructed by Borrower through
a Wholly Owned Subsidiary, for which Borrower intends
to borrow funds under this Agreement.
"Project Development Budget" means, with respect
to each of the Projects, the initial
construction/development budget, including any updates
thereto, prepared by
Borrower and delivered to Emeritus for review and
approval, showing all anticipated costs and expenses
for acquiring, developing and constructing the Project,
and covering its carrying costs until anticipated break
even and showing the sources of all funds to be
obtained by Borrower to fund such expenditures
including the amount of the Construction/Permanent
Loan, the Borrower Project Subordinated Debt, the
amounts to be borrowed by Borrower under this Agreement
to fund such Project.
"Project Operating Budget" means, with respect to
each of the Projects, the annual operating budget for
such Project, including any updates thereto, prepared
by Borrower and delivered to Emeritus for review and
approval, showing all anticipated revenues and all
anticipated costs and expenses for the Project,
including amounts to be set aside for capital
expenditures and reserves, for such 12-month period.
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<PAGE>
"Project Loan" means, with respect to each of the
Projects, the loan or loans made by Borrower to the
Wholly Owned Subsidiary owning such Project, funded out
of the proceeds borrowed by Borrower under this
Agreement to fund such Project or funded from
Borrower's income or other available funds.
"Project Promissory Note" means, with respect to
each of the Project Loans , the Project Promissory
Note, in the form attached hereto as Exhibit D, to be
executed by each Wholly Owned Subsidiary evidencing
such subsidiary's obligation to repay to Borrower the
Project Loan, which Project Promissory Note is to be
pledged and assigned to Emeritus pursuant to the
Project Pledge and Security Agreement.
"Project Pledge and Security Agreement" means,
with respect to each of the Project Loans, the Project
Pledge and Security Agreement, in the form attached
hereto as Exhibit E, to be executed by Borrower
granting to Emeritus a first priority and exclusive
security interest in the Project Promissory Note and
the Borrower's equity interest in such Wholly Owned
Subsidiary.
"Senior Debt" means, with respect to each of the
Projects, all Indebtedness due and payable on the
Construction/Permanent Loan for such Project, or any
refinancing thereof obtained by Borrower or its
applicable Wholly Owned Subsidiary, provided that the
proceeds of such refinancing are used exclusively to
repay the existing secured indebtedness and, if
applicable, the costs associated with such refinancing.
"Spaulding" means Craig W. Spaulding, one of the
members of Borrower.
"Wholly Owned Subsidiary" means the special
purpose entity, which may be in the form of a limited
liability company or limited partnership, organized by
Borrower for the sole and exclusive purpose of
acquiring, developing, constructing, operating, holding
and investing in a Project, all of whose equity
securities are owned and held by Borrower, either
directly or indirectly through another wholly owned
entity; provided, however, that in the event Borrower
establishes another entity to serve as a member or
general partner of such Wholly Owned Subsidiary, which
entity will hold an interest of not more than l%,
another Person may be admitted to such a special
purpose entity and retain a l% interest therein
(thereby entitling such Person to a .0001 interest in
the Wholly Owned Subsidiary), but otherwise such entity
will be wholly owned by Borrower. In the event such
Wholly Owned Subsidiary is organized as a limited
partnership, Borrower shall establish a wholly owned
limited liability company (subject to the l% interest
in such entity that may be held by another Person) to
serve as such entity's general partner, holding a l%
interest therein, and will hold the balance of such
entity's equity (99% interest) as a limited partner. In
addition, if such Wholly Owned Subsidiary is organized
as a limited liability company in a jurisdiction
requiring two members to so conduct business, Borrower
will establish a wholly owned entity (subject to the l%
interest in such entity that may be held by another
Person) to serve as one of its members, holding a l%
interest therein, and will hold the balance of such
equity interest (99% interest) directly as a member.
2. LINE OF CREDIT
2.1 Loan Commitment
Subject to and upon the terms and conditions set
forth herein and in reliance upon the representations,
warranties, and covenants of Borrower contained herein
or made pursuant hereto, Emeritus will make Fundings to
Borrower from time to time during the period from the
date hereof through and including December 31, 2000
("Commitment Period"), but the aggregate
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<PAGE>
amount of such Fundings shall not exceed $5 million.
This is not a revolving credit facility, and any
payments by Borrower of the outstanding principal
balance of the Loan shall not increase the amount that
Borrower may borrow from Emeritus under this Agreement.
2.2 Loan Payment Terms
All amounts funded by Emeritus shall bear interest
at nine percent (9%) per annum, compounded annually.
Interest payments on the Loan shall be made quarterly,
on January 1, April I, July 1, and October 1 of each
year, commencing with the first interest payment on
April 1, 1998. The outstanding principal, balance of
the Loan is due and payable in full on the fifth
anniversary from the date of the first Funding to
Borrower under the Loan. The Loan may not be prepaid,
in whole or in part, prior to its maturity without
Emeritus' consent. The terms of the Loan are set forth
in full in the Convertible Promissory Note, attached
hereto as Exhibit A, and, in the event of any
inconsistency between the terms of this Agreement, and
those detailed in the Convertible Promissory Note, the
terms of the Convertible Promissory Note shall control.
2.3 Collateral Securing Payment of Convertible
Promissory Note
Payment of the Convertible Promissory Note shall
be secured or supported by each of the following, until
the Indebtedness represented thereby has been paid in
full or until Emeritus has exercised its option to
convert the Loan into an equity interest in Borrower as
permitted by Section 2.4 and the terms of the
Convertible Promissory Note:
(a) Each of the Guarantors shall execute and
deliver to Emeritus the Guaranty, a non-recourse
guaranty of the Convertible Promissory Note, and shall
execute and deliver the Guarantor Pledge and Security
Agreement granting to the Emeritus a first priority and
exclusive security interest in such Guarantor's
membership interest in Borrower.
(b) Whenever any advances under the Loan are first
used to fund any Project Loan, Borrower shall execute
and deliver to Emeritus the Project Pledge and Security
Agreement granting Emeritus a first priority and
exclusive security interest in the Project Promissory
Note and in Borrower's entire equity interest, direct
and indirect, in the Wholly Owned Subsidiary owning
such Project.
2.4 Emeritus' Conversion Rights
Emeritus shall have the right to convert the Loan
into an equity interest in Borrower subject to, and
upon the terms and conditions set forth in, the
Convertible Promissory Note.
2.5 Use of Proceeds
Emeritus shall advance funds under the Loan to
Borrower solely for the purpose of allowing Borrower to
(i) make Project Loans to its Wholly Owned
Subsidiaries, (ii) make interest payments on the
Convertible Promissory Note, to the extent that such
payments cannot be funded out of the cash flow from the
Wholly Owned Subsidiaries, (iii) cover the legal
expenses incurred by Borrower, both for its counsel and
Emeritus' counsel, filing fees, and other start up and
organizational costs incurred in assisting with the
formation of Borrower and its Wholly Owned Subsidiaries
and the documentation required in connection with this
Agreement and the Project Loans; and (iv) reimburse
South Bay Partners, Inc., an Affiliate of Spaulding,
for out-of pocket expenses payable to unaffiliated
third parties incurred by such entity in connection
with the acquisition, construction and development of
the Projects, and the formation of Borrower and each
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<PAGE>
of the Wholly Owned Subsidiaries. Borrower shall use
funds obtained under this Agreement solely for such
purposes. Borrower is required to carry out its
development program so as to permit development of a
minimum of seven Projects within three years of the
date of this Agreement using the $5 million credit
facility provided by Emeritus under this Agreement,
conventionally available Construction/Permanent Loans,
and such additional Borrower Project Subordinated Debt
as may be necessary, all as required by Section 2.6.
2.6 Project Development and Capital Requirements
(a) Borrower has represented to Emeritus that this
credit facility will permit Borrower to acquire and
develop seven Projects within three years of the date
of first Funding under this Agreement. Borrower
covenants and agrees to take any and all action
necessary to acquire, develop and construct such seven
Projects within that time frame.
Such actions shall include but not be limited to
the following with respect to each such Project:
(i) selecting an appropriate site for
development in a market area approved by
and acceptable to Emeritus;
(ii) negotiating the terms of purchase and
sale agreements with the owner of the
Project site;
(iii) preparing plans and
specifications for the Project;
(iv) securing all necessary Governmental
Approvals for Project development;
(v) engaging architects, contractors, surveyors, title
companies, land use consultants, legal counsel, and
others to assist with the acquisition, development and
constructions;
(vi) obtaining the Construction/Permanent Loan for the
Project; (vii) monitoring and overseeing the
performance of third party
vendors;
(viii) preparing and updating, as
necessary, the Project Development
Budget;
(ix) engaging South Bay Partners, Inc.,
to provide development services for each
of the Projects to be developed by a
Wholly Owned Subsidiary; and
(ix) engaging Jerry Erwin Associates,
Inc. or another qualified property
management company, to be responsible
for the lease up and daily operations of
the Project.
(c) Borrower covenants and agrees to make funds
available to complete each of the seven Projects
required by this Agreement to the extent that such
funds cannot be financed with the amounts available
under the Construction/Permanent Loan and the advances
made by Emeritus under this Agreement with respect to
such Project. Such funds are herein referred to as the
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<PAGE>
Borrower Project Subordinated Debt. Prior to borrowing
funds under this Agreement to fund a Project, Borrower
shall deliver to Emeritus for its review and approval,
a detailed Project Development Budget, showing the
estimated acquisition, development, construction and
lease-up expenses, and demonstrating that the funds
available for such purposes, including the amount of
the Construction/Permanent Loan and the amount
requested from Emeritus under this Agreement, are
sufficient to cover a11 such expenses and thereby
demonstrating the economic feasibility of the Project.
Emeritus shall have no obligation to fund any Project
Loan until it has satisfied itself based upon the
submitted Project Development Budget, that there are
adequate funds available for its acquisition,
construction and development, and initial lease up, and
that the Project is economically feasible. Should
Emeritus determine that additional funds are needed to
make the Project economically feasible, if Borrower
wishes to proceed with such Project, Borrower shall
advance such additional funds as are necessary,
concurrent with initial Funding of the Project Loan
through this Agreement, which advances shall be treated
as Borrower Project Subordinated Debt, in order to
ensure that the Project is economically feasible.
Moreover, to the extent that the Project has cost
overruns, slower than anticipated lease-up or other
events causing its actual expenses to exceed budgeted
amounts, and to the extent that additional advances are
not made available by Emeritus pursuant to the terms of
Section 2.7, Borrower shall make available to the
Wholly Owned Subsidiary such additional funds as may be
necessary to complete the acquisition, development and
construction of the Project, to allow the Project to
achieve break even, to cover any other operating
deficits, and to cover any capital improvements and
replacements necessary to allow the Project to operate
in the ordinary course of business. Such additional
funds shall be available when needed by the Project,
and advanced promptly so there is no delay or
disruption in the Project's development, lease-up and
operations, and such amounts, if advanced by one or
more of Borrower's managers or Affiliates thereof,
shall be regarded as loans from the person(s) making
the funds available to the Wholly Owned Subsidiary. Any
such loan, if made, shall bear interest at the lesser
of nine percent (9"%) per annum or the lender's cost of
funds, shall be an unsecured obligation of the Wholly
Owned Subsidiary, and shall be subordinated, in all
respects, to the prior payment of the Project
Promissory Note from the Wholly Owned Subsidiary to
Borrower and payment of the Convertible Promissory Note
from Borrower to Emeritus; provided, however, that
there is no Event of Default hereunder and that the
Project's cash flow permits the Wholly Owned Subsidiary
to pay out of cash flow the current portion of all
principal and interest payments due on Senior Debt, the
Project Promissory Note, and any other Indebtedness,
and to cover other expenses of the Wholly Owned
Subsidiary as they become due and payable, all such
payments to be made so there is no default under this
Agreement or any of such other obligations, the Wholly
Owned Subsidiary may apply the excess cash flow, if
any, toward payment of the outstanding principal
balance plus accrued but unpaid interest on any loan
from one or more of the Borrower's managers or
Affiliates thereof, on such basis as Borrower deems
appropriate. Moreover, the other terms of such loan
shall not be more favorable than those included in the
loan from Borrower to the Wholly Owned Subsidiary. Such
loan, if advanced, shall be evidenced by an unsecured
promissory note, the form and substance of which must
be acceptable to Emeritus.
(d) Borrower shall promptly give Emeritus written
notice of any event expected to cause such Project to
require funding above and beyond the amount initially
budgeted for such Project in the Project Development
Budget. Upon receipt of such written notice, Emeritus
shall, as required by Section 2.8, determine whether it
is willing to advance any additional funds under this
Agreement to fund such Project expenses.
2.7 Construction/Permanent Loans
Borrower shall obtain a Construction/Permanent
loan for each of the Projects. It is anticipated that
such financing will be obtained from a conventional
mortgage lender. Moreover, it is anticipated that the
Construction/Permanent Loan will bear interest at a
market rate, require
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<PAGE>
payments of interest only during the construction
phase, but provide for the outstanding principal to be
amortized over a period of twenty to twenty-five years
once. debt amortization commences, and be secured by a
first priority lien on the real and personal property
of the Wholly Owned Subsidiary. Borrower shall use its
best efforts to obtain financing for as long a period
as is reasonably practicable, taking into account the
market conditions, the cost of the financing, lenders'
willingness to make long-term financing available for
construction projects and other similar factors, with
the expectation that such financing will, if at a11
possible, have a term of not less than five years after
completion of the Project's construction and with the
understanding that Emeritus expects to have long-term
financing available for the Projects before permitting
draws against the Loan to fund Project Loans. It is
expected that the mortgage lender will also require a
construction budget and may condition the loan upon the
establishment of construction contingency reserves and
a lease-up reserve. The lender of the
Construction/Permanent Loan must be advised as to
Emeritus' right to convert the Loan into an equity
interest in Borrower, and as to Emeritus' security
rights under this Agreement, and consent to Emeritus'
possession of such rights and acknowledge that the
exercise thereof does not, and will not, constitute an
event of default under the Construction/Permanent Loan.
Borrower will be responsible for negotiating the terms
and conditions of the loan commitment letter for the
Construction/Permanent Loan, and such financing shall
be presented to Emeritus for its review and approval,
which approval shall not be unreasonably withheld.
Erwin and Spaulding each agrees to personally
guarantee, if required by the lender, the payment of
the Construction/Permanent Loan.
2.8 Project Loans in Excess of $750,000
Emeritus is not obligated to permit draws against
the Loan to fund a Project, if and to the extent that
the aggregate amount of the draws for such Project
would exceed $750,000. Any draws against the Loan used
to cover interest due on Project Promissory Notes or to
cover acquisition, development, construction,
operational expenses, or start-up or organizational
expenses of the related Wholly Owned Subsidiaries,
shall be allocated to such Projects in determining the
maximum amount advanced for the benefit of such
Projects. If for whatever reason, Borrower needs
additional funds under the Loan for such Project,
Borrower may make a request in writing for such funds,
and Emeritus may permit additional Funding for such
Project if it has been demonstrated, to Emeritus'
satisfaction, that making such additional funds
available will not jeopardize the development of any
other Project or reduce the likelihood of Borrower's
ability to complete the seven Projects required by
Section 2.6. Should Emeritus decline to make such
additional funds available for such Project, Borrower
shall make loans available to the Wholly Owned
Subsidiary to permit its completion and to cover lease-
up expenses and other operational expenses as required
by Section 2.6.
2.9 Engagement of Affiliates
Emeritus hereby acknowledges that each of the
Wholly Owned Subsidiaries intends to (i) engage South
Bay Partners, Inc., a Texas corporation wholly owned by
Spaulding to assist with the development of its Project
pursuant to a Development Services Agreement in the
form attached hereto as Exhibit I; and (ii) engage
Jerry Erwin Associates, Inc., a Washington corporation
controlled by Erwin, to manage the Project, pursuant to
the Property Management Agreement, in the form attached
hereto as Exhibit J. No payments beyond those
authorized by these Agreements shall be payable to such
parties for rendering the services required thereby.
A condition to Emeritus' obligation to make any
Fundings under this Agreement is that each such
developer and manager pledges to Emeritus its rights
under the applicable Project Management Agreement and
Development Services Agreement concurrent with the
initial Funding of the Project Loan for that Project.
The Development Services Agreement and Property
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Management Agreement each reserves to Borrower and its
Wholly Owned Subsidiary the right to suspend the
payment of any further amounts due, and to terminate
such agreement without penalty, upon the occurrence of
a Default or an Event of Default under this Agreement.
Emeritus may cause such right of suspension or
termination to be exercised, if it so wished, upon the
occurrence of Default or an Event of Default and shall
exercise such right, by giving written notice thereof
to Borrower, the Wholly Owned Subsidiary, and the
developer and property manager, as the case may be.
Such suspension or termination shall be effective
immediately upon receipt of such written notice from
Emeritus and no further action shall be required of any
other party in order to cause such action to be
effective.
2.10 Funding Requisitions
Each request for the Funding of a Project loan
must be initiated by the Borrower by submitting to
Emeritus a written notice (the "Borrower "Notice").
Such Borrower Notice must be signed by the manager of
Borrower and must (i) certify that all conditions to
Funding of the Project Loan, whether such Funding is an
initial Funding or subsequent Funding, have been
satisfied; (ii) be accompanied by the items required by
Section 3.2 as to the initial Funding of the Project
Loan or by the items required by Section 3.3. as to the
subsequent funding of the Project Loan, to the extent
that such items have not previously been delivered to
Emeritus; (iii) state the amount requested and specify
in reasonable detail the uses of the funds requested;
(iv) confirm the maximum loan amount available for such
Project, as required by Section 3.2(i); (v) certify
that the amount requested, together with any prior
advances for such Project Loan, will not exceed the
maximum loan amount authorized for the Project; and
(vi) confirm that the funds requested will be used
exclusively for the purposes permitted under Section
2.5. A Borrower Notice with respect to each Project
shall not be submitted to Emeritus for Funding more
frequently than once per calendar month; provided,
however, that, under unusual circumstances, Borrower
may, upon reasonable notice to Emeritus, submit
requests for Funding of a Project Loan twice in each
calendar month. Subject to confirming compliance with
the applicable funding requirements under Section 3,
Emeritus shall advance the funds requested in Borrower
Notice no later than three days after receipt of such
Borrower Notice. It is the intent of Borrower and
Emeritus that funds will not be drawn upon by Borrower
to fund Project Loans until such funds are needed.
Accordingly, Borrower shall not submit Borrower Notices
with respect to any of the Projects unless it
reasonable expects that the funds requested will be
expended by Borrower or the Wholly Owned Subsidiary for
permissible expenses within 45 days of the Funding of
such amounts by Emeritus or that the receipt of such
funds is expressly required by the lender of the
Construction/Permanent Loan. Fundings of the Loan shall
be by wire transfer of immediately good funds to such
account as may be designated by Borrower.
3. CONDITIONS PRECEDENT FOR FUNDINGS UNDER THE LOAN
3.1 Conditions Precedent for Initial Funding
Emeritus shall not be required to make the initial
Funding under the Loan unless or until the following
conditions have been fulfilled to the satisfaction of
Emeritus:
(a) Borrower shall have executed and delivered to
Emeritus this Agreement and the Convertible Promissory
Note.
(b) Each of the Guarantors shall have executed and
delivered to Emeritus the Guaranty and the Guarantor
Pledge and Security Agreement.
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(c) Each of the Guarantors shall have executed and
delivered to Emeritus such financing statements and
other documents deemed necessary by Emeritus to protect
the security interest granted to Emeritus by such
Guarantor.
(d) No Default or Event of Default hereunder
shall exist, and after having given effect to the
requested Funding; no Default or Event of Default shall
exist.
(e) All representations and warranties of Borrower
contained herein or otherwise made in writing in
connection herewith shall be true and correct in all
material respects with the same effect as though such
representations and warranties had been made on and as
of the date of the initial Funding.
(f) All company proceedings of Borrower shall be
satisfactory in form and substance to Emeritus, and
Emeritus shall have received all information and copies
of all documents, including records of all company
proceedings, that Emeritus has requested in connection
therewith, such documents where appropriate to be
certified by proper company authorities or Governmental
Bodies. Borrower shall provide Emeritus with. the
following documents prior to or upon the execution of
this Agreement:
(i) Copies of Borrower's Certificate of
Formation and Operating Agreement, together with
all amendments thereto, certified by Borrower to
be true and complete;
(ii) A certificate of authority or good
standing for Borrower in its state of organization
and in the state of its principal place of
business, dated within 30 days of the date of the
execution of this Agreement; and
(iii) A certified resolution of Borrower's
members and incumbency certificate of Borrower.
(g) Emeritus shall have received such evidence
deemed necessary by Emeritus that Emeritus' security
interests in the Collateral constitute first priority
and exclusive security interests.
(h) With respect to each of the Projects to be
financed with such initial Funding under the Loan, the
conditions set forth in Section 3.2 for the initial
funding of such Project have been fulfilled to the
satisfaction of Emeritus.
3.2 Conditions Precedent to Initial Funding for Each
Project
The obligation of Emeritus to make any Funding
(including the initial Funding) under the Loan, the
proceeds of which are to be used for the initial
financing of a Project, is subject to the fulfillment
to the satisfaction of Emeritus of the following
conditions as to such Project:
(a) Borrower has organized, or caused to be
organized, a Wholly Owned Subsidiary, which may either
be a limited partnership or a limited liability
company, to acquire, develop, construct, operate and
hold the Project.
(b) Borrower shall provide Emeritus with the
following. documents, which must be in form and
substance satisfactory to Emeritus, prior to the
initial Funding of the Project:
(i) Copies of the Wholly Owned Subsidiary's
certificate of limited partnership
12
<PAGE>
and limited partnership agreement, or certificate
of formation and operating agreement (as the case
may be), together with all amendments thereto,
certified by Borrower to be true and complete;
(f) Emeritus shall have received insurance
certificates in form satisfactory to Emeritus to the
effect set forth in Section 4.6.
(g) Borrower shall deliver, or cause to be
delivered, the plans and specifications for the
Project, evidencing that the Project to be delivered is
substantially equivalent, in all material respects, to
the "prototype" facility historically developed by
Spaulding and Erwin and to the extent that Borrower
intends to depart, in any material respects, from the
"prototype" facility, Borrower shall expressly identify
for Emeritus' attentions such departures, giving
reasons therefor, and such variations in the plans and
specifications are subject to the approval of Emeritus,
which approval may be granted or withheld in its sole
discretion. .
(h) The Project is located in the market area
approved by Borrower and Emeritus. Attached hereto as
Exhibit G is a list of pre-approved market areas
mutually acceptable to Borrower and Emeritus. If the
Project is not within one of these market areas, no
Funding for such Project will be permitted unless and
until such market area has been approved by Emeritus.
(i) The maximum amount to be borrowed by Borrower
for any one Project under this Agreement must be
established, to Borrower's and Emeritus' satisfaction,
prior to the first draw request under this Loan for
such Project, and such amount may not be subsequently
increased without Emeritus' consent. All amounts
advanced to a Wholly Owned Subsidiary to cover its
acquisition, development and construction expenses, to
fund interest on amounts borrowed by such Wholly Owned
Subsidiary, and to cover its organizational and start-
up expenses, shall be treated as loans from the
Borrower to such Wholly Owned Subsidiary and reflected
in a Project Promissory Note. The maximum amount
advanced by the Borrower to a Wholly Owned Subsidiary
may not exceed $750,000 per Project.
(j) The Wholly Owned Subsidiary shall execute and
deliver to Borrower the Project Promissory Note, and
Borrower shall endorse the Project Promissory Note in
favor of Emeritus, and deliver to Emeritus the
endorsed. Project Promissory Note and shall execute and
deliver to Emeritus the Project Pledge and Security
Agreement.
(k) Borrower shall have executed and delivered to
Emeritus such financing statements and other documents
deemed necessary by Emeritus to protect the security
interests granted to Emeritus by Borrower.
(l) Borrower shall prepare and deliver to Emeritus
the Borrower Notice containing the information required
by Section 2.10 and advising Emeritus of the amount of
such Funding to be applied toward the Project.
(m) All amounts advanced by Emeritus for the
Project Loan shall immediately be deposited into an
account, in the name and for the benefit of the Wholly
Owned Subsidiary, and such funds. shall thereafter not
be returned to Borrower or any of its Affiliates, or
used for any other purpose other than paying the
expenses of the Wholly Owned Subsidiary as itemized in
the Project Development Budget.
(n) Borrower shall prepare and deliver to Emeritus
for its review and approval a Project Development
Budget demonstrating that the amount of the Project
Loan, the
13
<PAGE>
Construction/Permanent Loan and the Borrower Project
Subordinated Debt, if any, are sufficient to cover the
projected acquisition, development, construction cost,
and operational costs, until such time as the Project
is expected to reach break even and that the Project is
economically feasible.
(o) If and to the extent that the Project
Development Budget requires Borrower to make available
Borrower Project Subordinated Debt to fund the Project,
Borrower shall advance such funds to the Wholly Owned
Subsidiary prior to the initial funding of the Project
Loan.
(p) No Default or Event of Default hereunder shall
exist, and after giving effect to the requested
Funding, no Default or Event of Default shall exist.
(q) All representations and warranties of Borrower
contained herein or otherwise made in writing in
connection herewith shall be true and correct in all
material respects with the same effect as though such
representations and warranties had been on and as of
the date of such Funding.
(r) Emeritus shall have received from counsel for
Borrower an opinion addressed to Emeritus, dated as of
the date of the Funding, substantially in the form and
substance attached hereto as Exhibit H, with such
modifications thereto as are reasonably necessary for
the Project.
3.3 Conditions Precedent for Subsequent Fundings of
the Project Loans
Emeritus shall not be required to make any
subsequent Funding under the Loan to permit any
subsequent Funding of a Project loan unless and until
the following conditions have been fulfilled to the
satisfaction of Emeritus:
(a) All Fundings to be used by Borrower to fund
the Project Loan shall not exceed a maximum of
$750,000, without the prior written consent of
Emeritus, which consent may be granted or withheld in
its sole and absolute discretion.
(b) All Fundings to be used by Borrower to finance
the Project Loan shall not exceed the maximum amount
for such Project Loan established by Borrower, and
disclosed to Emeritus, at or prior to the time of the
initial Funding of the Project Loan.
(c) If additional funds are needed to finance a
Project, beyond the Maximum Project Loan Amount,
Borrower may request that additional advances be made
to fund the Project Loan, and Emeritus may make such
additional advances after Borrower's demonstration, to
Emeritus' satisfaction, that the additional advances
toward the Project Loan would not jeopardy any other
Project's acquisition and development or Borrower's
objective of acquiring, constructing and developing,
and bringing to break even the seven Projects required
by the terms of this Agreement. If Emeritus does not
approve such further advances, additional funds for
such Project Loan shall be furnished by Borrower as
required by Section 2.8.
(d) On or prior to the Funding, Borrower shall
deliver to Emeritus a title update confirming that, as
of such date, the Project is not subject to any liens,
encumbrances or adverse claims other than the Permitted
Encumbrances.
(e) No Default or Event of Default hereunder shall
exist, and after giving effect to the requested
Funding, no Default or Event of Default shall exist.
14
<PAGE>
(f) All representations and warranties of Borrower
contained herein or otherwise made in writing in
connection herewith shall be true and correct in all
material respects with the same effect as though such
representations and warranties had been on and as of
the date of such Funding.
3.4 Review of Funding Request Materials
Borrower shall use all reasonable efforts to
assemble the materials to be submitted to Emeritus
under either Section 3.2 or 3.3 so that only one or two
packages are submitted for Emeritus' review. The
initial package submitted to Emeritus for Funding under
Section 3.2 will include a summary of the proposed
Project, together with the Project Development Budget.
In addition, to the extent feasible, Borrower will
assemble an overall due diligence package, comparable
to the information to be provided to the prospective
lender of the Construction/Permanent Loan including as
many of the items set forth in this Section 3.2 as are
reasonably possible, in order to facilitate Emeritus'
efficient review of the Project and the related
Project documentation. Emeritus shall have a period of
ten business days following the receipt of information
from Borrower to advise Borrower whether the items so
submitted are approved or disapproved. If, for whatever
reason, Borrower requires an expedited review of such
materials, Borrower shall so advise Emeritus, providing
an explanation of the reasons therefor. Requests for
expedited review are to be made only under
extraordinary circumstances, the parties acknowledging
that expedited review requests are not intended to
become the standard course of dealing between the
parties. Emeritus shall use reasonable efforts to
respond to such expedited requests, but the parties
acknowledge and agree that Emeritus is not obligated to
waive its right to have a full ten business days after
the receipt of such items for their review and
approval, even when these items are accompanied by
expedited review requests.
4. AFFIRMATIVE COVENANTS
Borrower hereby covenants and agrees that so long
as this Agreement is in effect, and until the Loan,
together with interest thereon, and all other
obligations incurred hereunder is paid or satisfied in
full, Borrower shall:
4.1 Financial Data
Keep its books of account, and cause the books of
account of each of its Wholly Owned Subsidiaries to be
kept, in accordance with generally accepted accounting
principles, consistently applied, and furnish to
Emeritus:
(a) As soon as practicable and in any event within
45 days after the close of each month, a written
report, certified by Borrower's manager describing the
status of each of the Projects, the remaining funds
allocated for the acquisition and development of such
Project, and the anticipated uses of such funds to
ensure the completion of construction and lease-up, in
accordance with the applicable Project Development
Budget.
(b) As soon as practicable and in any event within
25 days after the close of each month, the following
unaudited financial statements of Borrower and each of
the Wholly Owned Subsidiaries for each such month, all
in reasonable detail, in comparative form to historical
and budgeted financial statements, and certified by
Borrower to be true and correct: balance sheet,
statement of income, and statement of cash flows.
(c) As soon as practicable and in any event within
90 days after the close of each fiscal
15
<PAGE>
year of Borrower, the following financial statements of
Borrower, and each of the Wholly Owned Subsidiaries,
setting forth the corresponding figures for the
previous fiscal year in comparative form where
appropriate, all in reasonable detail and reviewed
(without any qualification or exception deemed material
by Emeritus) by Borrower's current independent
certified public accountant or such other independent
certified public accountants selected by Borrower and
satisfactory to Emeritus: balance sheet, statement of
income, and statement of cash flows. Borrower shall
provide Emeritus with a copy of its independent
certified public accountants' review letter or other
similar report or correspondence to Borrower.
(d) As soon as practicable and in any event within
45 days after the close of each fiscal quarter of
Borrower, certificates signed by Borrower, stating that
during such period no Default or Event of Default
existed or, if any such Default or Event of Default
existed, specifying the nature thereof, the period of
existence thereof, and what action Borrower proposes to
take or has taken with respect thereto.
(e) Promptly upon the occurrence of any Default or
Event of Default, a certificate signed by Borrower,
specifying the nature thereof, the period of existence
thereof, and what action Borrower proposes to take or
has taken with respect thereto.
(f) Upon request by Emeritus, copies of all
reports relative to the operations of Borrower and its
Affiliates filed with any Governmental Body.
(g) As soon as practicable and in any event no
later than December 1 prior to each fiscal year, a
Project Operating Budget for each of the Projects then
owned by a Wholly Owned Subsidiary, in a format
satisfactory to Emeritus, projecting a11 anticipated
capital expenditures, revenues, and expenses for the
following fiscal year.
(h) With reasonable promptness, such other
information regarding the business, operations, and
financial condition of Borrower and Wholly Owned
Subsidiaries as Emeritus may from time to time
reasonably request.
4.2 Licenses and Permits
Maintain, and cause each of the its Wholly Owned
Subsidiaries to maintain, all Governmental Approvals
and all related or other material agreements necessary
for Borrower and the Wholly Owned Subsidiaries to
operate their businesses, as they now exists or as they
may be modified or expanded. Borrower and the Wholly
Owned Subsidiaries will at all times comply with a11
Applicable Laws relating to the operations, facilities,
or activities of Borrower and the Wholly Owned
Subsidiaries.
4.3 Maintenance of Properties
Keep Borrower's and Wholly Owned Subsidiaries'
properties in good repair and in good working order and
condition, in a manner consistent with past practices
and comparable to industry standards; from time to time
make all appropriate and proper repairs, renewals,
replacements, additions, and improvements thereto; and
keep all equipment that may now or in the future be
subject to compliance with any Applicable Laws in full
compliance with such Applicable Laws.
4.4 Payment of Charges
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<PAGE>
Duly pay and discharge all (a) taxes, assessments,
levies, and any other charges of Governmental Bodies
imposed on or against Borrower, the Wholly Owned
Subsidiaries, or their property or assets, or upon any
property leased by Borrower or the Wholly Owned
Subsidiaries, prior to the date on which penalties
attached thereto, unless and to the extent only that
such taxes, assessments, levies, and any other charges
of Governmental Bodies, after written notice thereof
having been given to Emeritus, are being contested in
good faith and by appropriate proceedings, (b) claims
allowed by Applicable laws, whether for labor,
materials, rentals, or anything else, that could, if
unpaid, become a lien or charge upon Borrower's or
Wholly Owned Subsidiaries' property or assets or the
outstanding capital stock of Borrower or adversely
affect the facilities or operations of Borrower or the
Wholly Owned Subsidiaries (unless and to the extent
only that the validity thereof is being contested in
good faith and by appropriate proceedings after written
notice thereof has been given to Emeritus); (c) trade
bills in accordance with the terms thereof or generally
prevailing industry standards; and (d) the Secured Debt
and all other Indebtedness heretofore or hereafter
incurred or assumed by Borrower or Wholly Owned
Subsidiaries. In the event any charge is being
contested by Borrower as allowed above, Borrower shall
establish adequate reserves against possible liability
therefor.
4.5 Comply with the Requirements of the Construction/
Permanent Loans
Comply in all respects with the requirements of
the loan agreements, deeds of trust, mortgages, pledge
agreements, financing statements, and any and all other
documents, instruments or agreements as may be executed
by Borrower or its Wholly Owned Subsidiaries in
connection with the Construction/Permanent Loans
obtained for the Projects, together with any
refinancing thereof.
4.6 Insurance
(a) Obtain and maintain insurance upon Borrower's
and Wholly Owned Subsidiaries' properties and business
insuring against such risks as Emeritus shall
reasonably determine from time to time. Borrower shall
cause each insurance policy issued in connection
therewith to provide and shall cause the insurer
issuing such policy to certify to Emeritus that (i) if
such insurance is proposed to be canceled or materially
changed for any reason whatsoever, such insurer will
promptly notify Emeritus, and such cancellation or
change shall not be effective as to Emeritus for 30
days after receipt by Emeritus of such notice, unless
the effect of the change is to extend or increase
coverage under the policy; and (ii) Emeritus will have
the right at its election to remedy any default in the
payment of premiums within 30 days of notice from the
insurer of the default.
(b) From time to time upon request by Emeritus,
promptly furnish or cause to be furnished to Emeritus
evidence, in form and substance satisfactory to
Emeritus, of the maintenance of all insurance,
indemnities, or bonds required by this Section 4.6 or
by any license, lease, or other agreement to be
maintained, including, but not limited to, such
originals or copies as Emeritus may request of
policies, certificates of insurance, riders,
assignments, and endorsements relating to the insurance
and proof of premium payments.
4.7 Maintenance of Records
Keep at all times books of account and other
records in which full, true, and correct entries will
be made of all dealings or transactions in relation to
the business and affairs of Borrower and the Wholly
Owned Subsidiaries.
4.8 Inspection
17
<PAGE>
Allow any representative of Emeritus to visit and
inspect any of the properties of Borrower and the
Wholly Owned Subsidiaries, to examine the books of
account and other records and files of Borrower and the
Wholly Owned Subsidiaries, to make copies thereof and
to discuss the affairs, business; finances, and
accounts of Borrower and the Wholly Owned Subsidiaries
with their officers, employees, and accountants, all at
such reasonable times and as often as Emeritus may
desire. This right of inspection shall specifically
include Emeritus' collateral and financial
examinations.
4.9 Hazardous Substances
(a) Borrower hereby covenants and agrees that so
long as any Indebtedness of Borrower to Emeritus is
outstanding:
(i) Neither Borrower nor the Wholly Owned
Subsidiaries will permit its property or
any portion thereof to be a site for the
storage, use, generation, manufacture,
disposal or transportation of Hazardous
Materials in violation of Hazardous
Materials Laws;
(ii) Neither Borrower nor the Wholly Owned
Subsidiaries will permit any Hazardous
Materials to be disposed of off its
property other than in properly
licensed disposal sites;
(iii) Borrower and the Wholly Owned
Subsidiaries, at their cost and expense,
will keep and maintain their property
and each portion thereof in compliance
with and shall not cause or permit its
properly or any portion thereof to be in
violation of any Hazardous Materials
Laws; and
(iv) Borrower will immediately advise
Emeritus in writing of any Hazardous
Material Claim..
(b) Borrower agrees to indemnify Emeritus and hold
Emeritus harmless from and against any and all claims,
demands, damages, losses, liens, liabilities,
penalties, fines, lawsuits, and other proceedings and
costs and expenses (including attorneys' fees), arising
directly or indirectly from or out of or in any way
connected with (i) the accuracy of the representations
contained in Section 6.15 hereof; (ii) any activities
on its property during Borrower's or any Wholly Owned
Subsidiary's ownership, possession, or control of its
property that directly or indirectly results in its
property or any other property becoming contaminated
with Hazardous Materials; (iii) the discovery of
Hazardous Materials the property of Borrower or any of
its Wholly Owned Subsidiaries; (iv)the cleanup of
Hazardous Materials from the property of Borrower or
any of its Wholly Owned Subsidiaries; and (v) the
discovery of Hazardous Materials or the cleanup of
Hazardous Materials from adjacent or other property
that has become contaminated as a result of any
activity on the property of Borrower or any of its
Wholly Owned Subsidiaries. As between Borrower and
Emeritus, Borrower acknowledges that it will be solely
responsible for all costs and expenses relating to the
cleanup of Hazardous Materials from the properly of
Borrower or any of its Wholly Owned Subsidiaries or
from any other properties that become contaminated with
Hazardous Materials as a result of activities on or the
contamination of such properly.
(c) The representations, warranties, and covenants
of Borrower set forth in this Section 4.9 and Section
6. IS (including, but not limited to, the indemnity
provided for in Section 4.9(b))
18
<PAGE>
shall survive the closing and repayment of the Loan to
Emeritus; and, to the extent permitted by Applicable
Laws and Hazardous Materials Laws, shall survive the
transfer of the property of Borrower or any of its
Wholly Owned Subsidiaries by foreclosure proceedings
(whether judicial or nonjudicial), deed in lieu of
foreclosure, or otherwise. Borrower acknowledges and
agrees that its covenants and obligations hereunder are
separate and distinct from its obligations under the
Loan and the Loan Documents.
4.10 Existence
Maintain and preserve the existence under the laws
of the state of its organization, and qualification to
do business in each foreign jurisdiction in which such
qualification is necessary, of Borrower and each of the
Wholly Owned Subsidiaries.
4.11 Notice of Disputes and Other Matters
Promptly give written notice to Emeritus of:
(a) Any citation, order to show cause, or other
legal process or order that could have a material
adverse effect on Borrower or any Wholly Owned
Subsidiary, directing Borrower to become a party to or
to appear at any proceeding or hearing by or before any
Governmental Body that has granted to Borrower or any
Wholly Owned Subsidiary any Governmental Approval, and
include with such notice a copy of any such citation,
order to show cause, or other legal process or order;
(b) Any (i)refusal, denial, threatened denial, or
failure by any Governmental Body to grant, issue,
renew, or extend any material Governmental Approval;
(ii) proposed or actual revocation, termination, or
modification (whether favorable or adverse) of any
Governmental Approval by any Governmental Body; (iii)
dispute or other action with regard to any Governmental
Approval by any Governmental Body; (iv) notice from any
Governmental Body of the imposition of any material
fines or penalties or forfeitures; or (v) threats or
notice with respect to any of the foregoing or with
respect to any proceeding or hearing that might result
in any of the foregoing;
(c) Any dispute concerning or any threatened non
renewal or modification of any material lease for real
or personal property to which Borrower or any Wholly
Owned Subsidiary is a party; or
(d) Any actions, proceedings, or claims of which
Borrower may have notice that may. be commenced or
asserted against Borrower or any Wholly Owned
Subsidiary in which the amount involved is $25,000 or
more and is not fully covered by insurance or which, if
not solely a claim for monetary damages, could, if
adversely determined, have a material adverse effect on
Borrower or any Wholly Owned Subsidiary.
4.12 Maintenance of Liens
At all times maintain the liens and security
interests provided under or pursuant to this Agreement
as valid and perfected first liens and security
interests on the property and assets intended to be
covered thereby. Except as contemplated under Section
5.5, Borrower shall take all action requested by
Emeritus necessary to assure that Emeritus has valid
and exclusive liens and security interests in all
Collateral.
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<PAGE>
5. NEGATIVE COVENANTS
Borrower covenants and agrees that until the Loan,
together with interest thereon, and all other
obligations incurred hereunder are paid or satisfied in
full, neither Borrower nor any of its Wholly Owned
Subsidiaries shall, without the prior written consent
of Emeritus:
5.1 Dividends and Distributions
Prior to Emeritus' conversion of the Loan into an equity in
t
e
r
e
s
t
i
n
B
o
r
r
o
w
e
r
,
declare or pay any cash distributions or dividends or
return any capital to any of Borrower's members;
authority or make any distribution, payment, or
delivery of property or cash to any of Borrowers
members; redeem, retire, purchase, or otherwise
acquire, directly or indirectly, for consideration, any
shares or other interests of Borrower now or hereafter
outstanding; or set aside any funds for any of the
foregoing purposes; provided, however, that
notwithstanding anything in this Section 5.1 to the
contrary, Borrower may make distributions to its
Members on an annual basis in an amount equal to the
Minimum Tax Distributions. Any pre-conversion cash
accumulations held by Borrower shall be used by
Borrower to acquire, develop and construct new
Projects.
5.2 Transactions With Affiliates
Except for the Project Loans and as provided in
Section 2.9, and except as to any Borrower loans that
may be made to a Wholly Owned Subsidiary pursuant to
Section 2.6, enter into any transaction, other than an
arm's-length transaction, in which an Affiliate of
Borrower shall have any interest; or make any payment
or agree to make any payment to any such Affiliate; or
transfer or agree to transfer ownership or possession
of any of its business or assets, tangible or
intangible, real, personal, or mixed, to any Affiliate.
5.3 Other Indebtedness
Create, incur, assume, or suffer to exist,
contingently or otherwise, any Indebtedness except (a)
Senior Debts; (b) Indebtedness represented by the Loan;
(c) accounts and other current payables arising from
the ordinary course of business; and (d) Indebtedness
created as a result of Borrower loans pursuant to
Section 2.6.
5.4 Leases and Leasebacks
Enter into any agreement to rent or lease any
material real or personal property or enter into any
arrangement with any bank, insurance company, or other
lender or investor providing for the leasing of any
real or personal property or equipment (a) that at the
time has been or is sold or transferred by Borrower to
such lender or investor or (b) that has been or is
being acquired from another Person by such lender or
investor or on which one or more buildings have been or
are to be constructed by such lender or investor, for
the purpose of leasing such property to Borrower.
Borrower may, however, enter into such leases in the
ordinary course of business.
5.5 Liens
Contract, create, incur, assume, or suffer to
exist any mortgage, pledge, lien, or other charge or
encumbrance of any kind (including, but not limited to,
the charge upon property purchased under conditional
sales or other title retention agreements) upon or
grant any interest in any of the property of Borrower
or the Wholly Owned Subsidiary or assets whether now
owned or
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hereafter acquired, except (a)liens granted pursuant to
this Agreement; (b) liens granted to secure payment of
the Senior Debt on the Project; and (c) any other
Permitted Encumbrances.
5.6 Advances and Loans
Subsequent to the date of this Agreement, lend
money, make credit available (other than in the
ordinary course of business to customers), or lend
property or the use thereof to any Person; purchase or
repurchase the stock or Indebtedness or all or a
substantial part of the assets or properties of any
Person; guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly or by any
instrument having the effect of assuring any Person's
payment, performance, or capability) the Indebtedness,
performance, obligations, stock, or dividends of any
Person; but Borrower or the Wholly Owned Subsidiary may
endorse negotiable instruments for deposit or
collection in the ordinary course of business.
Notwithstanding the foregoing, Borrower may make the
Project Loans as contemplated and permitted by Section
20.6.
5.7 Investments
Except as otherwise contemplated by this
Agreement, invest in (by capital contribution or
otherwise), acquire, purchase, or make any commitment
to purchase the obligations, stock, or equity of any
Person, except (a) direct obligations of the government
of the United States of America or any agency or
instrumentality thereof, (b) interest-bearing
certificates of deposit or repurchase agreements issued
by any commercial banking institution satisfactory to
Emeritus, and (c) stock or obligations issued in
settlement of claims of Borrower or the Wholly Owned
Subsidiary against others by reason of bankruptcy or a
composition or readjustment of debt or reorganization
of any debtor of Borrower or the Wholly Owned
Subsidiary.
5.8 Acquisitions
Either directly or through an Affiliate, acquire,
purchase, or make any commitment to acquire or purchase
a controlling interest in the stock or other equity
interest of any Person or all or a substantial portion
of the assets of any Person unless (a) such Person will
be a Wholly Owned Subsidiary, or (b) Borrower receives
Emeritus' prior written consent.
5.9 Consolidation, Merger, and Sale of Assets
Wind up, liquidate, or dissolve Borrower's or the
Wholly Owned Subsidiary's affairs or enter into any
transaction of merger or consolidation with any Person;
convey, sell, lease, or otherwise dispose of (or agree
to do any of the foregoing at any time) any of its
material licenses, contracts, or permits, sell all or a
substantial part of its property or assets or sell any
part of its property or assets necessary or desirable
for the conduct of its business as now generally
conducted or as proposed to be conducted; sell any of
its notes receivable, installment or conditional sales
agreements, or accounts receivable: purchase, lease, or
otherwise acquire all or a substantial part of the
property or assets of any other Person (except as
contemplated by this Agreement).
5.10 Type of Business
Enter into any business which is substantially
different from or not connected with the business in
which Borrower or the Wholly Owned Subsidiary is
presently engaged or make any substantial change in the
nature of its business or operations, or the Wholly
Owned Subsidiary.
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5.11 Change of Chief Executive Office or Name
Change (a) the chief executive office of Borrower,
or any Wholly Owned Subsidiary, (b) Borrower's, or any
Wholly Owned Subsidiary's name, or (c) the location of
any of the Collateral, except in the ordinary course of
business; or adopt or use any trade name without (x)
prior written notice to Emeritus, and (y) the
execution, delivery, and filing (and payment of filing
fees and taxes) of all such documents as may be
necessary or advisable in the opinion of Emeritus to
continue to perfect and protect the liens and security
interests in the Collateral.
5.12 Change in Documents
Amend, supplement, terminate, or otherwise modify
in any way Borrower's or any Wholly Owned Subsidiary's
certificates of formation, articles of incorporation,
operating agreements, bylaws, or organizational
documents, contracts, or other documents delivered to
Emeritus hereunder or executed in connection herewith.
5.13 Control
Enter into any agreement (other than employment
agreements) with any Person that confers upon such
Person the right or authority to control or direct a
major portion of the business or assets of Borrower or
the Wholly Owned Subsidiary.
5.14 Pension Plan
Establish, create, fund or otherwise assume
responsibility as. to any Plan for Borrower or the
Wholly Owned Subsidiary; or permit any other event or
circumstance to occur that results or could result in
liability to the Pension Benefit Guaranties Corporation
or a violation of ERISA.
5.15 Transfers of Interest
Permit, consent to, or otherwise authorize any of
its equity holders to transfer an interest in such
Person, except to the extent permitted by the terms of
the Operating Agreement, or issue or authorize such
Person to issue any additional equity securities.
6. REPRESENTATIONS AND WARRANTIES
In order to induce Emeritus to enter into this
Agreement and to make the Loan as herein provided,
Borrower hereby makes the following representations,
covenants, and warranties, a11 of which shall survive
the execution and delivery of this Agreement and shall
not be affected or waived by any inspection or
examination made by or on behalf of Emeritus:
6.1 Corporate Status
Borrower and each Wholly Owned Subsidiary is an
entity organized and validly existing under the laws of
the state of its organization. Borrower and each Wholly
Owned Subsidiary has the power and authority to own its
property and assets and to transact the business in
which it is engaged or presently proposes to engage.
Borrower and each Wholly Owned Subsidiary is qualified
to do business in all states except where the failure
to be qualified could not have a material adverse
effect on Borrower.
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6.2 Power and Authority
Borrower and each Wholly Owned Subsidiary has the
power to execute, deliver, and carry out the terms and
provisions of this Agreement and each of the Loan
Documents and has taken all necessary action to
authorize the execution, delivery, and performance of
this Agreement and the other Loan Documents, the
borrowings hereunder, and the making and delivery of
the Convertible Promissory Note and all Loan Documents
delivered hereunder. This Agreement constitutes and the
Convertible Promissory Note and other Loan Documents
and instruments issued or to be issued hereunder, when
executed and delivered pursuant hereto, constitute or
will constitute the authorized, valid, and legally
binding obligations of Borrower and each Wholly Owned
Subsidiary (as the case may be) enforceable in
accordance with their respective terms.
6.3 No Violation of Agreements
Neither Borrower nor any Wholly Owned Subsidiary
is in default under any material provision of any
agreement to which it is a party or in violation of any
Applicable Laws. The execution and delivery of this
Agreement, the Convertible Promissory Note, the other
Loan Documents, and the instruments incidental hereto;
the consummation of the transactions herein or therein
contemplated; and compliance with the terms and
provisions hereof or thereof (a) will not violate any
material Applicable Law and (b) will. not conflict or
be inconsistent with; result in any breach of any of
the material terms, covenants, conditions, or
provisions of; constitute a default under; or result in
the creation or imposition of (or the obligation to
impose) any lien, charge, or encumbrance upon any of
the property or assets of Borrower or any Wholly Owned
Subsidiary pursuant to the terms of any material
Governmental Approval, mortgage, deed of trust, lease,
agreement, or other instrument to which Borrower is a
party, by which Borrower or any Wholly Owned Subsidiary
may be bound, or to which Borrower or any Wholly Owned
Subsidiary may be subject, and (c) will not violate any
of the provisions of the certificate of formation,
operating agreement or other organizational documents
of Borrower or any Wholly Owned Subsidiary. No
Governmental Approval is necessary (i) for the
execution of this Agreement, or the making of the
Convertible Promissory Note, or (ii)for the
consummation by Borrower and Wholly Owned Subsidiaries
of the transactions contemplated by this Agreement,
including, but not limited to, the grant of the
security interests to Emeritus.
6.4 Recording and Enforceability
Neither the certificates of formation, operating
agreements, certificates of limited partnership,
limited partnership agreement, or other applicable
organizational documents of Borrower or any Wholly
Owned Subsidiary, nor other agreements require
recording, filing, registration, notice, or other
similar action in order to insure the legality,
validity, binding effect, or enforceability against all
Persons of this Agreement, the Convertible Promissory
Note, or other Loan Documents executed or to be
executed hereunder, other than filings or recordings
that may be required under the Uniform Commercial Code
or in connection with the perfection of the security
interests of Emeritus in patents, trademarks, and
similar types of Collateral.
6.5 Litigation
There are no actions, suits, or proceedings
pending or, to the Borrower's knowledge, threatened
against or affecting Borrower or any Wholly Owned
Subsidiary before any Governmental Body that could have
a material adverse effect on Borrower or any Wholly
Owned Subsidiary or the Collateral. Neither Borrower
nor any Wholly Owned Subsidiary is in default
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<PAGE>
under any material provision of any Applicable Law or
Governmental Approval of any Governmental Body which
could have a material adverse effect on Borrower or any
Wholly Owned Subsidiary or on the Collateral.
6.6 Good Title to Properties
Borrower and each Wholly Owned Subsidiary has good
and indefeasible title to, or a valid leasehold
interest in, its property and assets, subject to no
liens, mortgages, pledges, encumbrances, or charges of
any kind, except any of the Permitted Encumbrances.
6.7 Licenses and Permits
All Governmental Approvals with respect to the
business of Borrower and Wholly Owned Subsidiaries were
to Borrower's knowledge duly and validly issued by the
respective Governmental Bodies, are in full force and
effect, and are to Borrower's knowledge valid and
enforceable in accordance with their terms. With regard
to such Governmental Approvals, no fact or circumstance
exists that constitutes or, with the passage of time or
the giving of notice or both, would constitute a
material default under any thereof or permit the
grantor thereof to cancel or terminate the rights
thereunder, except upon the expiration of the full term
thereof. Borrower and Wholly Owned Subsidiaries
presently holds all material Governmental Approvals as
are necessary or advisable in connection with the
conduct of its business as now conducted and as
presently proposed to be conducted.
6.8 No Burdensome Agreements
Neither Borrower nor any Wholly Owned Subsidiary
is a party to any agreement or instrument or subject to
any restrictions that now have or, as far as can be
foreseen, could have a material adverse effect on
Borrower or any Wholly Owned Subsidiary.
6.9 Properties in Good Condition
All the material properties of Borrower and Wholly
Owned Subsidiaries are, and all material properties to
be added in connection with any contemplated expansion
will be in good repair and good working order and
condition in a manner consistent with past practices of
Borrower and Wholly Owned Subsidiaries, and comparable
to industry standards and are and will be in compliance
with all Applicable Laws.
6.10 Taxes
Borrower and Wholly Owned Subsidiaries have duly
filed all tax returns and reports required by
Applicable law to be filed; and all taxes, assessments,
levies, fees, and other charges of Governmental Bodies
upon Borrower and Wholly Owned Subsidiaries or upon
their assets that are due and payable have been paid
(except as otherwise permitted in this Agreement).
6. 1I License Fees
Borrower and Wholly Owned Subsidiaries have paid
all fees and charges that have become due for any
Governmental Approval for their business or has made
adequate provisions for any such fees and charges that
have accrued.
6.12 Trademarks, Patents, Etc.
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Borrower and Wholly Owned Subsidiaries possess all
necessary trademarks, trade names, service marks,
copyrights, patents, patent rights, and licenses to
conduct their businesses as now and as proposed to be
conducted, without conflict with the rights or claimed
rights of others.
6.13 Disclosure
To the best of Borrower's knowledge, the exhibits
hereto, the financial information and statements
referred to in Section 4.l, hereof, any certificate,
statement, report or other document furnished to
Emeritus by Borrower or any other Person in connection
herewith or in connection with any transaction
contemplated hereby, and this Agreement, do not contain
any untrue statements of material fact or omit to state
any material fact necessary in order to make the
statements contained therein or herein not misleading.
6.14 Regulations U and X
Borrower does not own and no part of the proceeds
hereof will be used to purchase or carry any margin
stock (within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing
or carrying any margin stock. Borrower is not engaged
principally or as one of its important activities in
the business of extending credit for the purpose of
purchasing or carrying any margin stock. If requested
by Emeritus, Borrower will furnish to Emeritus a
statement in conformity with the requirements of
Federal Reserve Form U-1 referred to in said
Regulation. No part of the proceeds of the Loan will be
used for any purpose that violates or is inconsistent
with the provisions of Regulation X of said Board of
Governors.
6.15 Condition of Property
Except as otherwise disclosed to Emeritus,
Borrower hereby represents and warrants to Emeritus
that as of the date hereof and continuing hereafter,
Borrower's and Wholly Owned Subsidiaries' property
(both owned and leased) and each portion thereof (a)
are not and to the best knowledge of Borrower after due
investigation have not been a site for the use,
generation, manufacture, storage, disposal, or
transportation of any Hazardous Material; (b) are
presently in compliance with all Hazardous Materials
Laws; and (c) are not being used and to the best
knowledge of Borrower after due investigation have not
been used in any manner that has resulted in or will
result in Hazardous Materials being spilled or disposed
of on any adjacent or other property.
7. EVENTS OF DEFAULT; REMEDIES
7.1 Events of Default
"Event of Default," wherever used herein, means
any one of the following events (whatever the reason
for the Event of Default, whether it shall relate to
one or more of the parties hereto, and whether it shall
be voluntary or involuntary or be pursuant to or
affected by operation of Applicable Law):
(a) If Borrower fails to pay the principal of or
any installment of interest on the Convertible
Promissory Note, when and as the same becomes due and
payable, whether at scheduled maturity, by
acceleration, or otherwise; or
(b) If any Indebtedness of Borrower or any Wholly
Owned Subsidiary for money
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borrowed or credit extended becomes or is declared due
and payable (after any applicable grace period) prior
to the stated maturity thereof or is not paid as and
when it becomes due and payable, or if any event occurs
which constitutes an event of default under any
instrument, agreement, or evidence of Indebtedness
relating to any such obligation of Borrower or any
Wholly Owned Subsidiary; or
(c) If Borrower or any Wholly Owned Subsidiary
fails to pay or perform (after any applicable grace
period) any obligation or Indebtedness to others in
excess of $25,000 (other than as set forth in Section
7.1(b) hereof), whether now or hereafter incurred; or
(d) If any representation or warranty (i)made by
Borrower in this Agreement or (ii) made by Borrower,
Wholly Owned Subsidiary, or any other Person in any
document, certificate, or statement furnished pursuant
to this Agreement or in connection herewith, is false
or misleading in any material respect; or
(e) If Borrower fails to (i) observe or perform
any term, covenant, or agreement to be performed or
observed pursuant to Sections 4 and 5 hereof; or
(ii) observe or perform (not otherwise
specified in this Section 7) any term, covenant,
or agreement to be performed or observed pursuant
to the provisions of this Agreement, the other
Loan Documents, or any other agreement incidental
hereto; or . (iii) perform any of its obligations
under any of the Loan Documents not otherwise
specified in this Section 7, or if the validity of
any of such documents has been disaffirmed by or
on behalf of any of the parties thereto other than
Emeritus; and, in
each such case, such breach or failure has not
been cured within thirty (30) days of Emeritus'
giving Borrower written notice thereof or if such
breach or failure is not susceptible to cure
within thirty (30) days but could be cured, to
commence to cure within such thirty (30) day
period and thereafter diligently proceed to
complete such cure, which cure must under all
circumstances be completed with ninety (90) days
of Emeritus' giving the Borrower written notice
thereof; or
If custody or control of any substantial part of
the property of Borrower or any Wholly Owned Subsidiary
is assumed by any Governmental Body or if any
Governmental Body takes any final action, the effect of
which would be to have a material adverse effect on
Borrower; or
(g) If Borrower or any Wholly Owned Subsidiary
suspends or discontinues its business, or if Borrower
or Wholly Owned Subsidiary makes an assignment for the
benefit of creditors or a composition with creditors,
is unable or admits in writing its inability to pay its
debts as they mature, files a petition in bankruptcy,
becomes insolvent (howsoever such insolvency may be
evidenced), is adjudicated insolvent or bankrupt,
petitions or applies to any tribunal for the
appointment of any receiver; liquidator, or trustee of
or for it or any substantial part of its property or
assets, commences any proceeding relating to it under
any Applicable Law of any jurisdiction whether now or
hereafter in effect relating to bankruptcy,
reorganization, arrangement, readjustment of debt,
receivership, dissolution, or liquidation; or if there
is commenced against Borrower or any Wholly Owned
Subsidiary any such proceeding that remains undismissed
for a period of 60 days or more, or an order, judgment,
or decree approving the petition in any such proceeding
is entered; or if Borrower or any Wholly Owned
Subsidiary by any act or failure to act indicates its
consent to, approval of, or acquiescence in, any such
proceeding or any appointment of any receiver,
liquidator, or trustee of or for it or for any
substantial part of its property or assets, suffers any
such appointment to continue undischarged or unstayed
for a period of 60 days or more, or takes any corporate
action for the purpose of effecting any of the
foregoing; or if any court of competent jurisdiction
assumes jurisdiction with respect to any such
proceeding, or if a
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receiver or a trustee or other officer or
representative of a court or of creditors, or if any
Governmental Body, under color of legal authority,
takes and holds possession of any substantial part of
the property or assets of Borrower or any Wholly Owned
Subsidiary; or
(j) If there is any refusal or failure by any
Governmental Body to issue, renew, or extend any lease
or Governmental Approval with respect to the operation
of the business of Borrower or any Wholly Owned
Subsidiary, or any denial, forfeiture or revocation by
any Governmental Body of any Governmental Approval that
could have a material adverse effect on Borrower; or
(k) If any of the events described in Section 4.10
occur or are threatened and, in Emeritus' reasonable
judgment, such event jeopardizes or could reasonably be
expected to jeopardize repayment of the Convertible
Promissory Note; or
(1) If Borrower or Borrower's managers or
Affiliates thereof fail to make available to Borrower
the funds necessary to satisfy on a timely basis
Borrower's obligations under Section 2.6.
7.2 Acceleration; Remedies
Upon the occurrence of any Event of Default or at
any time thereafter, if any Event of Default is then
continuing, Emeritus may, by written notice to
Borrower, declare the entire unpaid principal balance
or any portion of the principal balance of the
Convertible Promissory Note and interest accrued
thereon to be immediately due and payable by the maker
thereof; and such principal and interest shall
thereupon become and be immediately due and payable,
without presentation, demand, protest, notice of
protest, or other notice of dishonor of any kind, all
of which are hereby expressly waived by Borrower.
Emeritus may proceed to protect and enforce its rights
hereunder or realize on any or all security granted
pursuant hereto in any manner or order it deems
expedient without regard to any equitable principles of
marshaling or otherwise. All rights and remedies given
by this Agreement, the Convertible Promissory Note, and
the other Loan Documents are cumulative and not
exclusive of any thereof or of any other rights or
remedies available to Emeritus; no course of dealing
between Borrower and Emeritus or any delay or omission
in exercising any right or remedy shall operate as a
waiver of any right or remedy; and every right and
remedy may be exercised from time to time and as often
as deemed appropriate by Emeritus.
8. MISCELLANEOUS
8.1 Notices
All notices, requests, consents, demands,
approvals, and other communications hereunder shall be
deemed to have been duly given, made, or served if made
in writing and delivered personally, sent via
facsimile, or mailed by first-class certified or
registered mail, postage prepaid, to the respective
parties to this Agreement as follows:
(a) If to Borrower:
Aurora Bay Investments, L.L.C.
5720 LBJ Freeway, Suite 450, Lock
Box 16
Dallas, Texas 75240-6339
Attention: Craig W. Spaulding
Facsimile No.: (972) 458-2233
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(b) If to Emeritus:
Emeritus Corporation
313 I Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Ray Brandstrom
Facsimile No. : (206) 301-4500
Any notice sent via facsimile shall be confirmed by a
copy, sent on the same day, via first-class certified
or registered mail, postage prepaid. Any notice or
other communication, if addressed and sent, mailed or
delivered as provided above, shall be deemed given or
received three days after the date of mailing as
indicated on the certified or registered mail receipt,
or on the date of delivery or transmission if hand
delivered or sent by facsimile transmission. The
designation of the persons to be so notified or the
address of such persons for the purposes of such notice
may be changed from time to time by similar notice in
writing, except that any communication with respect to
a change of address shall be deemed to be given or made
when received by the party to whom such communication
was sent.
8.2 Payment of Expenses
Whether or not the transactions hereby
contemplated are consummated, Borrower shall pay on
demand all costs and expenses of Emeritus incurred in
connection with the preparation, negotiation,
execution, and delivery of the Loan Documents, as well
as any amendments, modifications, consents, or waivers
relating thereto, including, without limitation,
reasonable attorneys' fees, appraisal fees, title
insurance fees, and recording fees. In addition, if
there shall occur any Default or Event of Default,
Emeritus shall be entitled to recover any costs and
expenses incurred in connection with the preservation
of rights under, and enforcement of, the Loan
Documents, whether or not any lawsuit or arbitration
proceeding is commenced, in all such cases, including,
without limitation, reasonable attorneys' fees and
costs (including the allocated fees of internal
counsel). Costs and expenses as referred to above,
shall include, without limitation, a reasonable hourly
rate for collection personnel, whether employed in-
house or otherwise, overhead costs as reasonably
allocated to the collection effort, and all other
expenses actually incurred. Reasonable attorneys' fees
shall include, without limitation, attorneys' fees and
costs incurred in connection with any bankruptcy case
or other insolvency proceeding commenced by or against
Borrower or any Person granting a security interest in
any item of Collateral, including all fees incurred in
connection with (a) moving from relief from the
automatic. stay, to convert or dismiss the case or
proceeding, or to appoint a trustee or examiner, or (b)
proposing or opposing confirmation of a plan of
reorganization or liquidation, in any case without
regard to the identity of the prevailing party.
8.3 Fees and Commissions
Borrower agrees to indemnify Emeritus and hold it
harmless with regard to any commissions, fees,
judgments, or expenses of any nature and kind that
Emeritus may become liable to pay by reason of any
claims by or on behalf of brokers, finders, or agents
in connection with any act or failure to act by
Borrower or any litigation or similar proceeding
arising from such claims. Borrower states that it is
aware of no valid basis for any such claims.
8.4 No Waiver
No failure or delay on the part of Emeritus or the
holder of any of the Convertible
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<PAGE>
Promissory Note in exercising any right, power, or
privilege hereunder and no course of dealing between
Borrower and Emeritus or the holder of any of the
Convertible Promissory Note shall operate as a waiver
thereof; nor shall any single or partial exercise of
any right, power, or privilege hereunder preclude any
other or further exercise thereof or the exercise of
any right, power, or privilege. The rights and remedies
herein expressly provided are cumulative and not
exclusive of any rights or remedies that Emeritus or
any subsequent holder of any of the Convertible
Promissory Note would otherwise have. No notice to or
demand on Borrower in any case shall entitle Borrower
to any other or further notice or demand in similar or
other circumstances or shall constitute a waiver of the
right of Emeritus to any other or further action in any
circumstances without notice or demand.
8.5 Entire Agreement and Amendments
This Agreement and the exhibits to this Agreement
represent the entire agreement between the parties
hereto with respect to the Loans and the transactions
contemplated hereunder and, except as expressly
provided herein, shall not be affected by reference to
any other documents. This Agreement, or any provision
hereof, may not be changed, waived, discharged, or
terminated orally, but only by an instrument in
writing, signed by the party against whom enforcement
of the change, waiver, discharge, or termination is
sought.
8.6 Benefit of Agreement
This Agreement is binding upon and inures to the
benefit of Borrower and Emeritus and their successors
and assigns and all subsequent holders of any of the
Convertible Promissory Note or any portion thereof.
Borrower expressly acknowledges that Emeritus is not
prohibited or restricted from assigning rights or
participations hereunder or any portion thereof to
another Person. In addition, Borrower may delegate its
responsibilities and assign it rights hereunder to
Daniel R. Baty or to an Affiliate thereof. Borrower,
however, is precluded from assigning any of its
respective rights or delegating any of its obligations
hereunder or under any of the other agreements between
Borrower and Emeritus without the prior written consent
of Emeritus.
8.7 Severability
If any provision of this Agreement or any of the
Loan Documents is held invalid under any Applicable
Laws, such invalidity shall not affect any other
provision of this Agreement that can be given an effect
without the invalid provision, and, to this end, the
provisions hereof are severable.
8.8 Descriptive Headings
The descriptive headings of the several sections
of this Agreement are inserted for convenience only and
do not affect the meaning or construction of any of the
provisions hereof.
8.9 Governing Law
This Agreement and the rights and obligations of
the parties hereunder and under the other Loan
Documents shall be construed in accordance with and
shall be governed by the laws of the state of
Washington without regard to the choice of law rules
thereof.
8.10 Consent to Jurisdiction, Service, and Venue
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For the purpose of enforcing payment of the
Convertible Promissory Note, and the performance of
Borrower's obligations under this Agreement, the other
Loan Documents, or otherwise in connection herewith,
Borrower hereby consents to the jurisdiction and venue
of the courts of the state of Washington or of any
federal court located in such state, including, but not
limited to, the Superior Court of Washington for King
County and the United States District Court for the
Western District of Washington. Borrower hereby waives
the right to contest the jurisdiction and venue of
courts located in King County, Washington, on the
ground of inconvenience or otherwise and waives any
right to bring any action or proceeding against
Emeritus in any court outside King County, Washington.
The provisions of this section do not limit or
otherwise affect the right of Emeritus to institute and
conduct action in any other appropriate manner,
jurisdiction, or court.
8.11 Counterparts
This Agreement and each of the Loan Documents may
be executed in one or more counterparts, each of which
shall constitute an original agreement, but all of
which together shall constitute one and the same
instrument.
8.12 Statutory Notice
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR FORBEAR FROM ENFORCING REPAYMENT OF A
DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
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<PAGE>
IN WITNESS WHEREOF, Borrower and Emeritus, have
caused this Agreement to be duly executed by the
respective, duly authorized signatories as of the date
first above written.
BORROWER:
AURORA BAY INVESTMENTS,
L.L.C.,
a Washington limited liability
company
By: /s/ Craig W. Spaulding
-----------------------
- -------------------
Craig W. Spaulding, Manager
By: /s/ Jerry Erwin
-----------------------
- ------------------
Jerry Erwin, Manager
EMERITUS:
EMERITUS CORPORATION,
a Washington corporation
By: /s/ Michelle A. Bickford
----------------------
- --------------------
Its: V.P. New Business
Development
31
<PAGE> EX 10.79.4
PROJECT PROMISSORY NOTE
(Lubbock Group, Ltd.)
$535,000
Dated as of January 7, 1998
For value received, Lubbock Group, Ltd., a Texas
limited partnership, having an office at 5720 LBJ
Freeway, Suite 450, Dallas, Texas 75240-6339 ("Maker"),
hereby promises to pay to the order of Aurora Bay
Investments, L.L.C., a Washington limited liability
company ("Payee"), at 5720 LBJ Freeway, Suite 450,
Dallas, Texas 75240-6339, or such other place
designated in writing by Payee in lawful money of the
United State of America, such amounts as may be
advanced by Payee to Maker from time to time to fund
Maker's business pursuant to that certain lending
arrangement by and between Maker and Payee (the "Credit
Agreement"), together with interest thereon from the
date of such advances until paid as hereinafter stated.
1. INTEREST ACCRUAL AND PAYMENT. Interest shall
accrue on the aggregate outstanding principal balance
of this Project Promissory Note (the "Note") commencing
on the date hereof, at nine percent (9.0%) per annum,
and shall be . payable quarterly in arrears on the
first day of each calendar quarter (January 1, April 1,
July 1, and October 1), commencing on April 1, 1998.
Interest on this Note shall be calculated on the basis
of the actual number of days elapsed in any period in
which interest is payable. Whenever any payment under
this Note is due on a Saturday, Sunday or any other day
on which banks in the State of Washington are required
to be closed, such payment shall be made on the next
succeeding day on which banks in the State of
Washington are not required or permitted by law to be
closed.
2, PRINCIPAL PAYMENT MATURITY. Unless sooner paid,
all interest and principal payable hereunder, and all
other amounts due under this Note, shall be due and
payable by Maker on January 7, 2003 (the "Maturity
Date").
3. VOLUNTARY PREPAYMENT. Maker shall not be
entitled to prepay, in part or in whole, the
outstanding principal balance of this Note at any time
prior to its Maturity Date without the prior consent of
Payee, which consent may be withheld by Payee in its
sole and absolute discretion.
4. PLACE OF PAYMENT. All amounts due hereunder
shall be payable to Payee at the address of Payee or at
such other place as Payee may designate in writing to
Maker at Maker's address set forth above.
5. LATE CHARGES. In the event that any payment due
hereunder or under the Credit Agreement shall not be
made when due a late charge of five cents ($.05) for
each dollar ($1.00) so overdue may be charged by Payee
for the purpose of defraying the expense incident to
handling such delinquent payment (the "Late Charge
Fee"). Such Late Charge Fee represents the reasonable
estimate of Payee and Maker of a fair average
compensation for the loss that will be sustained by
Payee due to the failure of Maker to make timely
payments. Such Late Charge Fee shall be paid without
prejudice to the right of Payee to collect any other
amounts provided to be paid or to declare an Event of
Default under this Note or the Credit Agreement. If an
Event of Default (as hereunder defined) occurs, then
the interest rate applicable in calculating any
defaulted. payments from the due date of the defaulted
payments shall be the default rate stipulated in
Section 6 until paid in full and the Late Charge Fee
shall apply to any such payments.
6. DEFAULTS. At the option of Payee, all principal
and interest shall immediately become due and payable
on any of the following events:
<PAGE>
(a) Maker fails to make any payment as
provided for in this Note or the
Credit Agreement, and such failure to
make payment continues for five (5)
calendar days after Maker's receipt
of written notice from Payee that
such payment is due;
(b). Maker makes a general assignment for
the benefit of creditors; a receiver
is appointed for the assets of Maker
upon request by any person(s) other
than Maker, or -Maker makes a formal
request for appointment of a
receiver; or any proceeding is
brought by Maker in any court or
under supervision of any court-
appointed officer under any federal
or state bankruptcy reorganization,
rearrangement, insolvency or debt
readjustment law, or if any such
proceedings are instituted against
Maker and he fails to obtain
dismissal of such proceeding within
ninety (90) days after the same has
been instituted;
(c) Maker fails to cure any material
breach (other than nonpayment of a
monetary obligation) of any
agreement of Maker contained in this
Note or in the Credit Agreement
after Maker has been sent 30
calendar days' written notice of
such breach (other than nonpayment
of a monetary obligation) from
Payee;
(d) Any breach by Maker of any material
representation or warranty contained
in the Credit Agreement or any other
instrument or agreement delivered by
Maker to Payee in connection
therewith; or
(e) The cessation of Maker's business
operations, or the insolvency of
Maker, an admission in writing of
its inability to pay debts as they
mature.
In the event of such Default, the rate of
interest due under this Note will increase to a
rate per annum equal to the lesser of (x) 16%
per annum and (y) the maximum rate allowed by
law and will continue until such Default has
been cured or waived.
7. ATTORNEYS' FEES AND COSTS AND CONSULTANT/EXPERT
WITNESS EXPENSES. Maker shall pay Payee all its direct
or indirect reasonable attorneys' fees and costs and
the reasonable expense of expert witness and
consultants engaged directly or indirectly by Payee to
advise Payee and to take whatever steps Payee. deems
reasonably necessary to collect this Note, including,
without limitation, commencement of any action or
proceeding to enforce this Note against Maker. Without
limiting the generality of the foregoing, Maker
understands and agrees to pay the reasonable attorneys'
fees and costs and reasonable expenses for expert
witnesses and consultants (a) engaged by Payee in
connection with this Note, (b) incurred by Payee
directly or indirectly in any insolvency proceeding or
in any contested matter or adversary proceeding that is
part of bankruptcy, and (c) incurred by Payee in
advance of any action or proceeding relating to this
Note or for the appeal of certiorari proceeding
subsequent to an action or proceeding on this Note.
8. NO WAIVER. Maker hereby waives diligence,
presentment, protest, any demand for payment, notice of
protest, dishonor and nonpayment of this Note. Maker
hereby agrees to pay all sums which are payable by it
hereunder without set-off or offset.
2
<PAGE>
9. CUMULATIVE RIGHTS. The rights and-remedies of
Payee provided in this Note shall be cumulative and
concurrent and may be pursued singly, successively, or
together against Maker for the payment hereof in the
sole discretion on Payee. The failure to exercise any
such right or remedy shall in no event be construed as
a waiver . of release of said rights and remedies or
the rights to exercise them at any later time.
10. MODIFICATION. This Note may not be amended,
modified, or changed, nor shall any waiver of any
provision be effective, except only by an instrument in
writing signed by the person against whom enforcement
of such waiver, amendment, change, modification or
discharge is sought.
1l. JURISDICTION AND VENUE. Maker agrees that the
state and federal (as Payee may in its sole discretion
elect) courts in the State of Washington situated in
King County, Washington, will have non-exclusive
jurisdiction and venue over any action or proceeding
relating to this Note. Maker submits to such courts and
their jurisdiction and agrees that venue in King
County, Washington is proper over any such action or
proceeding.
12. USURY. It is the intent of Payee and Maker in
the execution of this Note and all other instruments
now or hereafter securing this Note to contract in
strict compliance with applicable usury law. In
furtherance thereof, Payee and Maker stipulate and
agree that none of the terms and provisions contained
in this Note, or in any other instrument executed in
connection herewith, shall ever be construed to create
a contract to pay for the use, forbearance or detention
of money, interest at a rate in excess of the Maximum
Interest Rate permitted under applicable law (the
"Maximum Rate") (the parties hereby acknowledging and
confirming that applicable law is to mean the laws of
the State of Washington or the laws of the United
States, whichever laws allow the greater rate of
interest (as noted below) but, if for whatever reason,
notwithstanding the parties' joint determination of the
applicable law, which determination the parties intend
to be conclusive, a court were to determine that the
applicable law was the laws of the State of Texas, and
if such law provides for a ceiling upon interest rates
under Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as
amended, or any successor laws or regulations, such
ceiling shall be the indicated maximum interest rate);
neither Maker nor any guarantors, endorsers or other
parties now or hereafter becoming liable for payment of
this Note shall ever be obligated or required to pay
interest on this Note at a rate in excess of the
Maximum Rate that may be lawfully charged under
applicable law, and the provisions of this paragraph
shall control over all other provisions of this Note
and any other instruments now or hereafter executed in
connection herewith which may be in apparent conflict
herewith. Payee, including each holder of this Note,
expressly disavows any intention to enlarge or collect
excessive unearned interest or finance charges in the
event the maturity of this Note is accelerated. If the
maturity of this Note shall be accelerated for any
reason or if the principal of this Note is paid prior
to the end of the term of this Note, and as a result
thereof the interest received for the actual period of
existence of the Loan exceeds the amount of interest
that would have accrued at the Maximum Rate, Payee or
other holder of this Note shall, at its option, either
refund to Maker the amount of such excess or credit the
amount of such excess against the principal amount and
thereby shall render inapplicable any and all penalties
of any kind provided by applicable law as a result of
such excess interest. In the event that Payee or any
other holder of this Note shall contract for, charge or
receive any amounts and/or any 'other thing of value
which are determined to constitute interest which would
increase the effective interest rate on this Note to a
rate in excess of that permitted to be charged by
applicable law, all such sums determined to constitute
interest in excess of the amount of Interest at the
lawful rate shall, upon such determination, at the
option of Payee or other holder of this Note, be either
immediately returned to Maker or credited against the
principal amount in which event any and all penalties
of any kind under applicable law as a result of such
excess interest shall be inapplicable. By execution of
this Note, Maker acknowledges that it believes the loan
evidenced by this Note, and all arrangements in
connection therewith, to be non-usurious and agrees
that if, at any time, Maker should have reason to
believe that the loan is in fact usurious, it will give
the Payee or other holder of this Note
3
<PAGE>
notice of such condition and Maker agrees that Payee or
other holder shall have ninety (90) days in which to
make appropriate refund or other adjustment in order to
correct such condition if in fact such exists. The term
"applicable law" as used in this Note shall mean the
laws of the State of Washington or the laws of the
United States, whichever laws allow the greater rate of
interest, as such laws now exist or may be changed or
amended or come into effect in the future.
13. MISCELLANEOUS. Every provision of this Note is
intended to be severable and in the event any term or
provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not
affect the balance of the terms and provisions hereof,
which terms and provisions shall be interpreted so as
to make the remaining terms and provisions binding and
enforceable to the fullest extent possible. This Note
may not be changed, modified or terminated orally, but
only by an agreement in writing signed by the party to
be charged. In this Note, the singular shall include
the plural and the masculine shall include the feminine
and neuter gender, and vice versa, if the context so
requires. The headings at the beginning of each
numbered paragraph of this Note are intended solely for
convenience of reference and are not to be deemed or
construed to be a part of this Note. Nothing contained
in this Note or elsewhere shall be deemed or construed
as creating a partnership or joint venture between
Payee and Maker or between Payee and any other person,
or cause the holder hereof to be responsible in any way
for the debts or obligations of Maker. This Note shall
be governed by and construed in accordance with the
laws of the State of Washington (without giving effect
to its choice of law principles).
"ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.".
4
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note
on the 7th day of January, 1998.
Lubbock Group, Ltd.,
a Texas limited
partnership
By Aurora Bay I, L.L.C.,
a Washington
limited liability
company,
Its General Partner
By: /s/ Craig W.
Spaulding
------------------
- -----------------
Its: Craig W. Spaulding,
Manager
5
<PAGE>
ENDORSEMENT OF PROJECT PROMISSORY NOTE
Pay to the order of Emeritus Corporation
AURORA BAY INVESTMENTS,
L.L.C., a
Washington limited
liability company,
By: /s/ Craig W.
Spaulding
------------------
- -----------------
Craig W. Spaulding,
Manager
By: /s/ Jerry Erwin
- -------------------------------------
Jerry Erwin,
Manager
6
<PAGE> EX 10.79.5
PROJECT PLEDGE AND SECURITY AGREEMENT
(Pledge of General and Limited Partnership Interests--
Lubbock
Group, Ltd.)
This Pledge and Security Agreement (this
"Agreement") is made as of January 7, 1998 by Aurora
Bay. Investments, L.L.C., a Washington limited
liability company ("Aurora Bay"), Aurora Bay I, L.L.C.,
a Washington limited liability company ("General
Partner") (each individually a "Pledgor" and
collectively "Pledgors"), each having an office at 5720
LBJ Freeway, Suite 450, Dallas, Texas 75240-6339, for
the benefit of Emeritus Corporation, a Washington
corporation ("Pledgee"), having an office at 3131
Elliott Avenue, Suite 500, Seattle, WA 98121.
RECITALS
A. Contemporaneously with the execution hereof,
Aurora Bay has entered into a Credit Agreement dated as
of January 7, 1998 between Aurora Bay and Emeritus (the
"Credit Agreement"), establishing a $5 million credit
facility in favor of Aurora Bay, and in connection
therewith executed and delivered to Emeritus a
Convertible Promissory Note (the "Note").
B. . Aurora Bay has used, or expects to use, a
portion of the proceeds borrowed under the Credit
Agreement to make loans to Lubbock Group, Ltd., a Texas
limited partnership ("Subco") and such loan will be
evidenced by a Project Promissory Note from Subco to
Aurora Bay.
C. Each of the Pledgors is a partner, directly or
indirectly, in Subco and will financially benefit from
the loans represented by the Project Promissory Note
and Pledgee's extension of credit under the Credit
Agreement to permit Aurora Bay's advancing funds to
Subco.
D. Subco is governed by and will operate pursuant
to the terms of that certain Amended and Restated
Limited Partnership Agreement dated as of January 6,
1998, by and among the Pledgors.(the "Partnership
Agreement").
E. In order to induce Pledgee to extend credit to
Aurora Bay, each of the Pledgors desire to assign,
pledge, and grant a security to Pledgee in the
Collateral described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals,
covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. COLLATERAL
"Collateral" shall mean:
(a) All of Pledgor's right, title and
interest in Subco, including without limitation its
general and/or limited partnership interest in Subco,
and all of Pledgor's units representing any right,
title, and interest in Subco ("Units"), together with
any additional Units or interest arising out of the
interest pledged hereunder by way of dividend, split-
up, reorganization, recapitalization or other similar
proceedings, whether now owned or hereafter acquired;
(b) Pledgor's right to receive distributions,
allocations and payments under the Partnership
Agreement, as such Partnership Agreement may be
modified from time to time;
(c) All indebtedness of Subco to Pledgor of
any kind or description;
(d) With respect to Aurora Bay, the Project
Promissory Note from Subco to Aurora Bay; and
(e) All substitutions, replacements, products
and proceeds, whether cash proceeds or noncash
proceeds, and products of any and all of the foregoing.
If any redemption, reclassification,
readjustment or other exchange is proposed or made
with respect to the Collateral, Pledgee may, but
need not, accept the property so exchanged in lieu
of the Collateral described herein, and Pledgor
agrees to deliver and hypothecate for the benefit
of Pledgee any securities, cash, personalty or
other property received in exchange for the
Collateral, on such reasonable terms and conditions
which will not impair Pledgee's security. Such
substituted collateral shall be held by Pledgee
under the terms of this Agreement in the same
manner as the original Collateral pledged
hereunder.
2. PLEDGE
Pledgor hereby assigns, pledges and grants a
security interest to Pledgee, to and in the Collateral
to secure the payment and performance of all
obligations of Aurora Bay to Pledgee, whether -
presently existing or hereafter arising, direct and
indirect, and with interest thereon, under the Note and
the Credit Agreement made by Aurora Bay in favor of
Pledgee and all further costs and expenses provided for
in this Agreement (collectively the "Obligations").
When more than one person is liable on any of the
Obligations, Pledgor shall be jointly and severally
liable with such person or persons. Pledgor agrees and
acknowledges that Pledgor may cause a notation to be
made in the record books of Aurora Bay to the effect
that the Collateral is subject to this Agreement, and
Pledgee may cause a copy of this Agreement to be
attached to the record books of Subco at all times
while this Agreement remains in effect.
3. MANNER OF PERFECTING SECURITY
Concurrently with the execution of this Agreement,
Pledgor shall deliver signed UCC-1 Financing Statements
for filing in the States of Washington and Texas to
reflect the Pledgee's interest in the Collateral. In
addition, Aurora Bay as the Pledgor shall endorse in
blank the Project Promissory Note and shall deliver
such note to the possession of Pledgee.
Pledgor agrees that it owns the Collateral in
constructive trust for the Pledgee so long as the
Pledgor's obligations hereunder remain outstanding, and
agrees to provide the Pledgee advance notice of any
change of address.
4. RIGHTS OF PARTIES WHEN NO DEFAULT
Unless an Event of Default (as hereinafter
defined) shall have occurred and be continuing, the
Pledgor shall be entitled to vote the Collateral and to
give consents, waivers and ratifications with respect
thereto and the Pledgor shall be entitled to receive
any payments with respect to any indebtedness of Subco
to Pledgor to the extent that such payments are
permitted under such circumstances under the Credit
Agreement. In order to permit the Pledgor to exercise
such voting and/or consensual powers, the Pledgee
shall, if necessary, upon the written request of the
Pledgor from time to time, execute and deliver to the
Pledgor appropriate proxies.
In addition, prior to the occurrence of an Event
of Default, Pledgor may (i) receive, use, and dispose
of any distributions, allocations, and payments it
receives in the operation of its business but subject
to any limitations with respect to distributions to
Pledgor's members contained in the Credit Agreement and
(ii) use the proceeds of all payments made upon any
indebtedness of Subco to Pledgor to satisfy and make
payments upon the Note and to make
2
<PAGE>
additional Project Loans as defined in the Credit
Agreement.
Upon the occurrence of an Event of Default,
Pledgee shall receive (i) all cash or other dividends
or distributions paid or made with respect to the
Collateral, (ii) any and all sums paid with respect to
any of the Collateral, and (iii) all amounts payable
and/or distributable on the liquidation, whether
voluntary or involuntary, of Subco (collectively,
"Distributions"), and shall hold the same, together
with any other amount to which the Pledgee is entitled
in an interest bearing cash collateral account ' as
additional collateral subject to the terms of this
Agreement.
5. PLEDGEE'S ADDITIONAL RIGHTS DURING DEFAULT
If an Event of Default shall have occurred and
shall be continuing, i.e. not have been remedied or
waived), in addition to any other rights granted
hereunder, the Pledgee shall be entitled to
exercise any, all or any combination of the
following rights:
(a) Vote the Collateral and to give consents,
waivers and ratifications with respect thereto and
otherwise act with respect thereto as though the
Pledgee were the outright owner thereof (the Pledgor
hereby irrevocably constituting and appointing the
Pledgee its proxy and attorney-in-fact with full power
and substitution so to do, such appointing being a
power coupled with an interest), although the Pledgee
shall not have any duty to exercise any such rights,
privileges, options or powers or to sell or to
otherwise realize upon any of the Collateral, as
hereinafter authorized, or to preserve the same, and
the Pledgee shall not be responsible for any failure to
do so or delay in so doing;
(b) Receive all Distributions;
(c) Exercise any and all rights of
collection, conversion or exchange, and any and
all other rights, privileges, options or power of
the Pledgor pertaining or relating to the
Collateral (the Pledgor hereby irrevocably
constituting and appointing the Pledgee his proxy
and attorney-in-fact with full power of
substitution so to do), although the Pledgee shall
not have any duty to exercise any such rights,
privileges, options or powers or to sell or to
otherwise realize upon any of the Collateral, as
hereinafter authorized, or to preserve the same,
and the Pledgee shall not be responsible for any
failure to do so or delay in so doing;
(d) Apply any or all amounts held in any
cash collateral account to payment of the
Obligations;
(e) Sell, assign and deliver the whole or,
from time to time, any part of the Collateral at any
broker's board or at any private sale or at public
auction, with demand or notice or advertisement of the
time or place of sale or adjournment thereof or
otherwise, for cash, for credit or for other property,
for immediate or future delivery, and for such price or
prices and on such terms as determined in an arms
length sale with an unrelated third party or pursuant
to a price determined under the most current agreement
between the partners of Subco, and the Pledgee may bid
for and purchase the whole or any part of the
Collateral so sold. Any such notice shall state the
time, place and method fixed for such sale and, in case
of sale at a broker's board, shall state the board at
which such sale is to be made and the day on which
Collateral, or that portion thereof so being sold, will
first be offered for sale at such board. The Pledgee
may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from
time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any
time or place to which the same may be so adjourned.
For the purposes hereof, (i) a private sale shall, in
3
<PAGE>
the case of the Collateral, include, a sale after
solicitation of a number of persons reasonably
approximating the maximum number which, in the sole
opinion of the Pledgee, shall not require registration
of the Collateral so being offered for sale pursuant to
the Securities Act of 1933, as amended, or compliance
with any applicable state securities law commonly known
as a "Blue Sky Law," and (ii) an agreement to sell all
or any part of the Collateral shall be treated as a
sale thereof, and the Pledgee shall be free to call out
such sale pursuant to such agreement and the Pledgor
shall not be entitled to the return of any Collateral
subject thereto, notwithstanding the fact that after
the Pledgee shall have entered into such an agreement
all Events of Default may have been remedied or the
Obligations may have been paid in full;
(f) Either personally or by means of a court
appointed receiver, take possession of all or any part
of the Collateral and exclude therefrom the Pledgor and
all others claiming under the Pledgor, and thereafter
exercise all rights and powers of the Pledgor with
respect to the Collateral or any part thereof. If the
Pledgee demands or attempts to take possession of any
of the Collateral in the exercise of any rights under
this Agreement, the Pledgor promises and agrees to
promptly turn over and deliver complete possession
thereof to the Pledgee; and
(g) Exercise any remedies of a secured party
under the Uniform Commercial Code of the States of
Washington and/or Texas, or any other applicable law,
and exercise any remedies available to the Pledgee
under any other agreement among the parties.
6. CERTAIN SECURITIES LAW RESTRICTIONS
In view of the possible position of the Pledgor as
an "affiliate" or "control person" of Subco, or because
of other present or future circumstances, a question
may arise under the Securities Act of 1933, as amended,
as now or hereafter in effect, or any similar statute
hereafter enacted analogous in purpose or effect (such
Act and any such similar statute as from time to time
in effect being hereinafter called the "Federal
Securities Laws") with respect to any disposition of
the Collateral permitted hereunder. The Pledgor
understands that compliance with the Federal Securities
Laws may very strictly limit the course of conduct of
the Pledgee if the Pledgee were to attempt to dispose
of all or any part of the Collateral and may also limit
the extent to which or the manner in which any
subsequent transferee of the Collateral may dispose of
the same. Similarly, because of the position of the
Pledgor with respect to the Subco or because of other
circumstances, there may be other legal restrictions or
limitations affecting the Pledgee in any attempts to
dispose of all or any part of the Collateral under
applicable Blue Sky or other state securities laws or
similar laws analogous in purpose or effect. The
Pledgor agrees that any such private sale conducted in
a manner which complies with such Federal Securities
Laws and Blue Sky or state securities laws shall be
commercially reasonable (within the meaning of Section
9-504(3) of the Uniform Commercial Code), and the
Pledgor hereby waives any claims against the Pledgee
arising by reason of the fact that the price at which
the Collateral may have been sold at such a private.
sale was less than the price which might have been
obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the
Pledgee accepts the first offer received and does not
offer the Collateral to more than one possible
purchaser. Without limiting the generality of the
foregoing, these provisions would apply if, for
example, the Pledgee placed all or any part of the
Collateral privately with a purchaser or purchasers.
7. REDELIVERY OF COLLATERAL UPON FULL SATISFACTION
Upon full and complete payment and performance of
the Obligations, the Pledgor shall, except as otherwise
provided herein, be entitled to the return, at its
expense, of such of the Collateral as has not
theretofore been sold pursuant to the provisions of
this Agreement, together with any moneys at the time
held by the Pledgee in any collateral account pursuant
to this
4
<PAGE>
Agreement, and all rights of Pledgee hereunder shall
terminate; and Pledgee shall execute and file
terminations of any financing statements covering any
part of the Collateral.
8. REALIZATION OF COLLATERAL
(a) The Pledgee shall apply the proceeds of
any sale of the whole or any part of the Collateral,
together with any other moneys at the time held by the
Pledgee under the provisions of this Agreement after
deducting all reasonable costs and expenses of
collection, sale and delivery (including, without
limitation, counsel fees and expenses) incurred by the
Pledgee in connection with such sale, to the payment of
the Obligations, the application as between the
Obligations to be such as the Pledgee may in its sole
discretion determine.
(b) To the full extent that the Pledgor may
lawfully so agrees, the Pledgor will not at any time
plead, claim or take the benefit of any appraisement or
valuation, law now or hereafter in force in order to
prevent or delay the enforcement of this Agreement or
the absolute sale of any portion or all. of the
Collateral, or the possession thereof by any purchaser
at any sale, and the Pledgor, for itself and all who
may claim under the Pledgor, as far as the Pledgor now
or hereafter lawfully may, hereby waives the benefit of
all such laws. The Pledgor, for itself and all who may
claim under the Pledgor, as far as the Pledgor now or
hereafter lawfully may, also waives all right to have
all or any portion of the Collateral marshalled upon
any foreclosure hereof and agrees that any court having
jurisdiction over this Agreement may order the sale of
all or any portion of the Collateral as an entirety.
Any sale of, or the grant of options to purchase, or
any other realization upon, all or any portion of the
Collateral shall operate to divest all right, title,
interest, claim and demand, either at law or in equity,
of the Pledgor in and to the Collateral so sold,
optioned or realized upon, and shall be a perpetual bar
both in law and in equity against the Pledgor and
against any and all persons claiming or attempting to
claim the Collateral so sold, optioned or realized
upon, or any part thereof, from, through and under the
Pledgor. No delay on the pair of the Pledgee in
exercising any power of sale, lien, option or other
right hereunder, and no notice or demand which may be
given to or made upon the Pledgor with respect to any
power of sale, lien, option or other right hereunder
shall constitute a waiver thereof, or limit or impair
the right of the Pledgee to take any action or to
exercise any power of sale, lien, option or any other
right under this Agreement, or otherwise, nor shall any
single or partial exercise thereof or the exercise of
any power, lien, option or other right under this
Agreement or otherwise all without notice or demand nor
shall any of the same prejudice its rights against the
Pledgor in any respect. Each and every remedy given the
Pledgee shall, to the extent permitted by law, be
cumulative and shall be in addition to any other remedy
given hereunder or now or hereafter existing at law or
in equity or by statute.
(c) The Pledgee may bid for or purchase, free
from any right of redemption on the part of the Pledgor
(all said rights being also hereby waived and
released), any part of or all the Collateral offered
for sale and may make payment on account thereof by
using any claim then due and payable to the to the
Pledgee from the Pledgor as a credit against the
purchase price, and the Pledgee may, upon compliance
with the terms of sale, hold, retain and dispose of
such property without further accountability therefor.
9. EVENTS OF DEFAULT
Time is of the essence in this Agreement. Subject
to the right of cure set forth below in this Section 9,
any of the following events shall constitute a default
of this. Security Agreement ("Event of Default").
5
<PAGE>
(a) Any misrepresentation, breach, default or
failure to perform under any of the covenants,
representations or warranties of this Agreement by
Pledgor, or any failure to pay any of the Obligations
or any guaranty of any such Obligations, by Pledgor,
Subco, or any guarantor, or the breach any other
agreement relating to any of the Obligations or
pursuant to which any of the Obligations arose;
(b) Any failure to pay when due the full
amount of any payment of principal, interest, taxes,
insurance premiums or other charges which are or may be
secured hereby;
(c) The Collateral or any portion thereof
being seized or levied upon under any legal or
governmental process;
(d) Pledgor becoming insolvent or the subject
of a petition in bankruptcy, either voluntary or
involuntary, or any other proceeding under the Federal
Bankruptcy Code; or Pledgor making an assignment for
the benefit of creditors; or . Pledgor being named in
or the Collateral being subjected to a suit for the
appointment of a receiver;
(e) Entry of any judgment against Pledgor;
(f) The Collateral or proceeds thereof for
any reason whatsoever, becoming uncollectible in part
or in their entirety;
(g) Subco admits an additional Partner
without the prior written consent of Pledgee;
(h) The Pledgor terminates or amends the
Partnership Agreement without the prior written consent
of Pledgee;
(i) Any Unit, or any right, title or
interest, in Subco, whether or not evidenced by
certificates, is issued, granted, sold, assigned,
transferred, or otherwise conveyed to any party other
than the Pledgee;
(j) Subco is dissolved; or
(k) An event shall have occurred that upon
notice or lapse of time or both would constitute an
Event of Default.
Notwithstanding the foregoing, in the event of any
nonmonetary default described above, such default shall
not become an Event of Default until Pledgee has given
Pledgor written notice of such default and Pledgor
shall have failed to cure the default within thirty
(30) days after notice.
Upon the happening of any of the foregoing Events
of Default the Obligations shall, at the option of the
Pledgee, become immediately due and payable in their
entirety without presentment, demand, protest or other
notice of any kind, all of which are waived by the
Pledgor, and the Pledgee may at any time thereafter
proceed with the collection thereof and the realization
upon all security which it may hold, including all
rights hereunder or otherwise existing at law.
10. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF
PLEDGOR
(a) Pledgor represents and warrants that:
6
<PAGE>
(i) There are no restrictions upon the
Pledgor's right to transfer or
encumber the Collateral in favor of
Pledgee, and the Pledgor has
the right to transfer such Collateral
free and clear of any lien,
claim or encumbrances and of any right
of first refusal to
purchase or option to purchase or any
similar such right, and
without obtaining the consent of any
other person, including any
other partner of Subco, Subco, or any
other individual or entity.
(ii) The Collateral of Pledgors collectively
represents not less than
ONE-HUNDRED PERCENT (100%) of the
presently issued and
outstanding interests in Subco.
(iii) There are no other interests in
Subco other than the Collateral,
and Subco has no other Partners other
than Pledgors.
(b) Pledgor covenants that it shall deliver copies
of any proposed amendments to the Partnership Agreement
to Pledgee.
(c) Pledgor covenants that. it shall not, without
the prior written consent of Pledgee, which consent may
not be unreasonably withheld
(i) sell, encumber or in any manner dispose
of its interest in the Collateral or any of
the Collateral;
(ii) permit Subco to issue any additional
interests;
(iii) permit Subco to dissolve, reorganize,
recapitalize, liquidate or merge or
consolidate with any other person, firm,
limited liability company or corporation.
11. GENERAL PROVISIONS
(a) All notices hereunder shall be in writing
and shall be effectively given when delivered
personally on the date of delivery, or if mailed, two
days after deposit in the United States mail, first
class, postage prepaid, certified or registered,
addressed as follows:
If to Pledgee: Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121
With a copy to: George Beal, Esq.
Perkins Coie
1201 Third Avenue, 40th
Floor
Seattle, WA 98101-
3099
If to Aurora Bay: Aurora
Bay Investments, L.L.C.
5720 LBJ Freeway Suite 450
Dallas, Texas 75240-6339
If to General Partner:
Aurora Bay I, L.L.C.
5720 LBJ Freeway Suite 450
Dallas, Texas 75240-6339
with a copy to:
Sam S. Stollenwerck,
Esq.
Stollenwerck, Moore &
Silverberg, P.C. 5949
Sherry Lane, Suite 1025
Dallas, Texas 75225
or such other addresses as either party may from time
to time specify in writing to the other.
(b) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting
the validity or enforceability of such provisions in
any other jurisdiction.
(c) Pledgor hereby appoints Pledgee as its
attorney in fact to execute and file, on its behalf,
any financing statements, continuation statements or
other documentation required to perfect or continue the
security interest created hereby.
(d) This Agreement and the rights and
obligations of the parties hereto shall be construed
and interpreted in accordance with the laws of the
State of Washington.
(e) All agreements, covenants, conditions and
provisions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and
assigns of the parties hereto.
(f) This Agreement may be modified or
rescinded only by a writing expressly relating to this
Agreement and signed by all of the Pledgors and the
Pledgee.
(The balance of the page left intentionally blank.)
8
<PAGE>
DATED this 7th day of January , 1998.
AURORA BAY:
Aurora Bay Investments,
L.L.C. a
Washington limited
liability company
By: /s/ Craig W.
Spaulding
- ---------------------------------------
Its: Manager
GENERAL PARTNERS:
Aurora Bay I, L.L.C., a
Washington limited
liability company
By: /s/ Craig W.
Spaulding
------------------
- ---------------------
Its: Manager
EMERITUS CORPORATION, a
Washington corporation
By: /s/ Michelle A.
Bickford
------------------
- -------------------
Its: V.P. New Business
Development
9
<PAGE> EX 10.79.6
GUARANTOR PLEDGE AND SECURITY AGREEMENT
(Pledge of Limited Liability Company
Interests)
This Pledge and Security Agreement (this
"Agreement") is made as of January 7, 1998 by Thilo
Best ("Best"), Erwin Investors I, L.L.C., a Washington
limited liability company ("Erwin"), and Craig
Spaulding ("Spaulding") (each individually a "Pledgor"
and collectively "Pledgors"), for the benefit of
Emeritus Corporation, a Washington corporation
("Pledgee"), having an office at 3131 Elliott Avenue,
Suite 500, Seattle, Washington 98121.
RECITALS
A. Contemporaneously with the execution hereof,
Aurora Bay Investments, L.L.C., a Washington limited
liability company ("Aurora Bay"), has entered into a
Credit Agreement dated as of January 7, 1998 between
Aurora Bay and Pledgee (the "Credit Agreement"),
establishing a $5 million credit facility in favor of
Aurora Bay, and in connection therewith executed and
delivered to Pledgee a Convertible Promissory Note (the
"Note").
B. Each of the Pledgors is a member of Aurora Bay
and will financially benefit from Pledgee' extension of
credit to Aurora Bay.
C. Aurora Bay is organized under, and will be
governed by, its Operating Agreement dated as of
January 6,1998 (the "LLC Agreement").
C. Each of the Pledgors has executed and delivered
to Pledgee an nonrecourse guarantee in favor of Pledgee
and is willing to pledge such Pledgor's equity interest
in Aurora Bay to secure repayment of all amounts due
and payable to Pledgee under the Note and the Credit
Agreement.
D. In order to induce Pledgee to extend credit to
Aurora Bay, Erwin, Spaulding and Best desire to assign,
pledge, and grant a security to Pledgee in the
Collateral described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals,
covenants and agreements set forth herein, and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. COLLATERAL
"Collateral" shall mean:
(a) All of each Pledgor's right, title and interest i
n
A
u
r
o
r
a
B
a
y
,
including without limitation his membership interests
in Aurora Bay, and all of Pledgor's units representing
any right, title, and interest in Aurora Bay ("Units"),
together with any additional Units or interest arising
out of the interest pledged hereunder by way of
dividend, split-up, reorganization, recapitalization or
other similar proceedings, whether now owned or
hereafter acquired;
(b) Pledgor's right to receive distributions,
allocations and payments under the LLC Agreement, as
such LLC Agreement may be modified from time to time;
(c) All indebtedness of Aurora Bay to Pledgor
of any kind or description; and
<PAGE>
(d) All substitutions, replacements, products
and proceeds, whether cash proceeds or noncash
proceeds, and products of any and all of the foregoing.
If any redemption, reclassification,
readjustment or other exchange is proposed or made with
respect to the Collateral, Pledgee may, but need not,
accept the property so exchanged in lieu of the
Collateral, described herein, and Pledgor agrees to
deliver and hypothecate for the benefit of Pledgee any
securities, cash, personalty or other property received
in exchange for the Collateral, on such reasonable
terms and conditions which will not impair Pledgee's
security. Such substituted collateral shall be held by
Pledgee under the terms of this Agreement in the same
manner as the original Collateral pledged hereunder.
2. PLEDGE
Pledgor hereby assigns, pledges and grants a
security interest to Pledgee, to and in the Collateral
to secure the payment and performance of all
obligations of Aurora Bay to Pledgee, whether presently
existing or hereafter arising, direct and indirect, and
with interest thereon, under the Note and the Credit
Agreement made by Aurora Bay in favor of Pledgee and
all further costs and expenses provided for in this
Agreement (collectively the "Obligations"). When more
than one person is liable on any of the Obligations,
Pledgor shall be jointly and severally liable with such
person or persons. Pledgor agrees and acknowledges that
Pledgor may cause a notation to be made in the record
books of Aurora Bay to the effect that the Collateral
is subject to this Agreement, and Pledgee may cause a
copy of this Agreement to be attached to the record
books of Aurora Bay at all times while this Agreement
remains in effect.
3. MANNER OF PERFECTING SECURITY
Concurrently with the execution of this Agreement,
Pledgor shall deliver signed UCC-1 Financing Statements
for filing in the States of Washington and Texas to
reflect the Pledge's interest in the Collateral.
Pledgor agrees that it owns the Collateral in
constructive trust for the Pledgee so long as the
Pledgor's obligations hereunder remain outstanding, and
agrees to provide the Pledgee advance notice of any
change of address.
4. RIGHTS OF PARTIES WHEN NO DEFAULT
Unless an Event of Default (as hereinafter
defined) shall have occurred and be continuing, the
Pledgor shall be entitled to vote the Collateral and to
give consents, waivers and ratifications with respect
thereto. In order to permit the Pledgor to exercise
such voting and/or consensual powers, the Pledgee
shall, if necessary, upon the written request of the
Pledgor from time to time, execute and deliver to the
Pledgor appropriate proxies.
Prior to the occurrence of an Event of Default
(as hereinafter defined), Pledgor may use the proceeds
of all payments made, as permitted by the terms of the
Credit Agreement, upon the indebtedness of Aurora Bay
to Pledgor in such manner as Pledgor shall determine in
Pledgor's absolute discretion.
Upon the occurrence of an Event of Default,
Pledgee shall receive (i) all cash or other dividends
or distributions paid or made with respect to the
Collateral, (ii) any and all sums paid with respect to
any of the Collateral, and (iii) all amounts payable
and/or distributable on the liquidation, whether
voluntary or involuntary, of Aurora Bay (collectively,
"Distributions"), and shall hold the same, together
with any other amount to which the Pledgee is entitled
in an interest bearing cash collateral account as
additional collateral subject to the terms of this
Agreement.
2
<PAGE>
5. PLEDGEE'S ADDITIONAL RIGHTS DURING DEFAULT
If an Event of Default shall have occurred and
shall be continuing, i.e. not have been remedied or
waived), in addition to any other rights granted
hereunder, the Pledgee shall be entitled to exercise
any, all or any combination of the following rights:
(a) Vote the Collateral and to give consents,
waivers and ratifications with respect thereto and
otherwise act with respect thereto as though the
Pledgee were the outright owner thereof (the Pledgor
hereby irrevocably constituting and appointing the
Pledgee its proxy and attorney-in-fact with full power
and substitution so to do, such appointing being a
power coupled with an interest), although the Pledgee
shall not have any duty to exercise any such rights,
privileges, options or powers or to sell or to
otherwise realize upon any of the Collateral, as
hereinafter authorized, or to preserve the same, and
the Pledgee shall not be responsible for any failure to
do so or delay in so doing;
(b) Receive all Distributions;
(c) Exercise any and all rights of
collection, conversion or exchange, and any and all
other rights, privileges, options or power of the
Pledgor pertaining or relating to the Collateral (the
Pledgor hereby irrevocably constituting and appointing
the Pledgee his proxy and attorney-in-fact with full
power of substitution so to do), although the Pledgee
shall not have any duty to exercise any such rights,
privileges, options or powers or to sell or to
otherwise realize upon any of the Collateral, as
hereinafter authorized, or to preserve the same, and
the Pledgee shall not be responsible for any failure to
do so or delay in so doing;
(d) Apply any or all amounts held in any cash
collateral account to payment of the Obligations;
(e) Sell, assign and deliver the whole or,
from time to time, any part ..
of the Collateral at any broker's board or at any
private sale or at public auction, with demand or
notice or advertisement of the time or place of sale or
adjournment thereof or otherwise, for cash, for credit
or for other property, for immediate or future
delivery, and for such price or prices and on such
terms as determined in an arms length sale with an
unrelated third party or pursuant to a price determined
under the most current agreement between the Members of
Aurora Bay, and the Pledgee may bid for and purchase
the whole or any part of the Collateral so sold. Any
such notice shall state the time, place and method
fixed for such sale and, in case of sale at a broker's
board, shall state the board at which such sale is to
be made and the day on which Collateral, or that
portion thereof so being sold, will first be offered
for sale at such board. The Pledgee may, without notice
or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale,
and such sale may be made at any time or place to which
the same may be so adjourned. For the purposes hereof,
(i) a private sale shall, in the case of the
Collateral, include, a sale after solicitation of a
number of persons reasonably approximating the maximum
number which, in the sole opinion of the Pledgee, shall
not require registration of the Collateral so being
offered for sale pursuant to the Securities Act of
1933, as amended, or compliance with any applicable
state securities law commonly known as a "Blue Sky
Law," and (ii) an agreement to sell all or any part of
the Collateral shall be treated as a sale thereof, and
the Pledgee shall be free to carry out such sale
pursuant to such agreement and the Pledgor shall not be
entitled to the return of any Collateral subject
thereto, notwithstanding the fact that after the
Pledgee shall have entered into such an agreement all
Events of Default may have been remedied or the
Obligations may have been paid in full;
3
<PAGE>
(f) Either personally or by means of a court
appointed receiver, take possession of all or any part
of the Collateral and exclude therefrom the Pledgor and
all others claiming under the Pledgor, and thereafter
exercise all rights and powers of the Pledgor with
respect to the Collateral or any part thereof. If the
Pledgee demands or attempts to take possession of any
of the Collateral in the exercise of any rights under
this Agreement, the Pledgor promises and agrees to
promptly turn over and deliver complete possession
thereof to the Pledgee; and
(g) Exercise any remedies of a secured party
under the Uniform Commercial Code of the States of
Washington and/or Texas, or any other applicable law,
and exercise any remedies available to the Pledgee
under any other agreement among the parties.
6. CERTAIN SECURITIES LAW RESTRICTIONS
In view of the possible position of the Pledgor
as an "affiliate" or "control person" of Aurora Bay, or
because of other present or future circumstances, a
question may arise under the Securities Act of 1933, as
amended, as now or hereafter in effect, or any similar
statute hereafter enacted analogous in purpose or
effect (such Act and any such similar statute as from
time to time in effect being hereinafter called the
"Federal Securities Laws") with respect to any
disposition of the Collateral permitted hereunder. The
Pledgor understands that compliance with the Federal
Securities Laws may very strictly limit the course of
conduct of the Pledgee if the Pledgee were to attempt
to dispose of all or any part of the Collateral and may
also limit the extent to . which or the manner in which
any subsequent transferee of the Collateral may dispose
of the same. Similarly, because of the position of the
Pledgor with respect to the Aurora Bay or because of
other circumstances, there may be other legal
restrictions or limitations affecting the Pledgee in
any attempts to dispose of all or any part of the
Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or
effect. The Pledgor agrees that any such private sale
conducted in a manner which complies with such Federal
Securities Laws and Blue Sky or state securities laws
shall be commercially reasonable (within the meaning of
Section 9-504(3) of the Uniform Commercial Code), and
the Pledgor hereby waives any claims against the
Pledgee arising by reason of the fact that the price at
which the Collateral may have been sold at such a
private sale was less than the price which might have
been obtained at a public sale or was less than the
aggregate amount of the Obligations, even if the
Pledgee accepts the first offer received and does not
offer the Collateral to more than one possible
purchaser. Without limiting the generality of the
foregoing, these provisions would apply if, for
example, the Pledgee placed all or any part of the
Collateral privately with a purchaser or purchasers.
7. REDELIVERY OF COLLATERAL UPON FULL SATISFACTION
.Upon full and complete payment and performance of
the Obligations, the Pledgor shall, except as otherwise
provided herein, be entitled to the return, at its
expense, of such of the Collateral as has not
theretofore been sold pursuant to the provisions of
this Agreement, together with any moneys at the time
held by the Pledgee in any collateral account pursuant
to this Agreement, and all rights of Pledgee hereunder
shall terminate; and Pledgee shall execute and file
terminations of any financing statements covering any
part-of the Collateral.
8. REALIZATION OF COLLATERAL
(a) The Pledgee shall apply the proceeds
of any sale of the whole or any part of the
Collateral, together with any other moneys at the
time held. by the Pledgee under the provisions of
this Agreement after deducting all reasonable costs
and expenses of collection, sale and delivery
(including, without limitation, counsel fees and
expenses) incurred by the Pledgee in connection with
such sale, to the payment of the Obligations, the
application as between the Obligations to be such as
.. the Pledgee may in its sole discretion determine.
4
<PAGE>
(b) To the full extent that the Pledgor
may lawfully so agrees, the Pledgor will not at any
time plead, claim or take- the benefit of any
appraisement or valuation, law now or hereafter in
force in order to prevent or delay the enforcement
of this Agreement or the absolute sale of any
portion or all of the Collateral, or the possession
thereof by any purchaser at any sale, and the
Pledgor, for itself and all who may claim under the
Pledgor, as far as the Pledgor now or hereafter
lawfully may, hereby waives the benefit of all such
laws. The Pledgor, for itself and all who may claim
under the Pledgor, as far as the Pledgor now or
hereafter lawfully may, also waives all right to
have all or any portion of the Collateral marshalled
upon any foreclosure hereof and agrees that any
court having jurisdiction over this Agreement may
order the sale of all or any portion of the
Collateral as an entirety. Any sale of, or the grant
of options to purchase, or any other realization
upon, all or any portion of the Collateral shall
operate to divest all right, title, interest, claim
and demand, either at law or in equity, of the
Pledgor in and to the Collateral so sold, optioned
or realized upon, and shall be a perpetual bar both
in law and in equity against the Pledgor and against
any and all persons claiming or attempting to claim
the Collateral so sold, optioned or realized upon,
or any part thereof, from, through and under the
Pledgor. No delay on the part of the Pledgee in
exercising any power of sale, lien, option or other
right hereunder, and no notice or demand which may
be given to or made upon the Pledgor with respect to
any power of sale, lien, option or other right
hereunder shall constitute a waiver thereof, or
limit or impair the right of the Pledgee to take any
action or to exercise any power of sale, lien,
option or any other right under this Agreement, or
otherwise, nor shall any single or partial exercise
thereof, or the exercise of any power, lien, option
or other right under this Agreement or otherwise all
without notice or demand nor shall any of the same
prejudice its rights against the Pledgor in any
respect. Each and every remedy given the Pledgee
shall, to the extent permitted by law, be cumulative
and shall be in addition to any other remedy given
hereunder or now or hereafter existing at law or in
equity or by statute.
(c) The Pledgee may bid for or purchase, free
from any right of redemption on the part of the Pledgor
(all said rights being also hereby waived and
released), any part of or all the Collateral offered
for sale and may make payment on account thereof by
using any claim then due and payable to the to the
Pledgee from the Pledgor as a credit against the
purchase price, and the Pledgee may, upon compliance
with the terms of sale, hold, retain and dispose of
such property without further accountability therefor.
9. EVENTS OF DEFAULT
Time is of the essence in this Agreement. Subject
to the right of cure set forth below in this Section 9,
any of the following events shall constitute a default
of this Security Agreement ("Event of Default").
(a) Any misrepresentation, breath, default
or failure to perform under any of the covenants,
representations or warranties of this Agreement by
Pledgor, or any failure to pay any of the Obligations
or any guaranty of any such Obligations by Pledgor,
Aurora Bay, or any guarantor, or the breach of any
other agreement relating to any of the Obligations or
pursuant to which any of the Obligations arose;
(b) Any failure to pay when due the full
amount of any payment of principal, interest, taxes,
insurance premiums or other charges which are or may be
secured hereby;
(c) The Collateral or any portion thereof
being seized or levied upon under any legal or
governmental process;
5
<PAGE>
(d) Pledgor becoming insolvent or the subject
of a petition in bankruptcy, either voluntary or
involuntary, or any other proceeding under the Federal
Bankruptcy Code; or Pledgor making an assignment for
the benefit of creditors; or Pledgor being named in or
the Collateral being subjected to a suit for the
appointment of a receiver;
(e) Entry of any judgment against Pledgor;
(f) The Collateral or proceeds thereof, for
any reason whatsoever, becoming uncollectible in part
or in their entirety;
(g) Aurora Bay admits an additional Member
without. the prior written consent of Pledgee;
(h) The Pledgor terminates or amends the LLC
Agreement without the prior written consent of Pledgee;
(i) Any Unit, or any right, title or
interest, in Aurora Bay, whether or not evidenced by
certificates, is issued, granted, sold, assigned,
transferred, or otherwise conveyed to any party other
than the Pledgee;
(j) Aurora Bay is dissolved; or
(k) An event shall have occurred that upon
notice or lapse of time or both would constitute an
Event of Default.
Notwithstanding the foregoing, in the event of any
nonmonetary default described above, such default shall
not become an Event of Default until Pledgee has given
Pledgor written notice of such default and Pledgor
shall have failed to cure the default within thirty
(30) days after notice.
Upon the happening of any of the foregoing Events
of Default the Obligations shall, at the option of the
Pledgee, become immediately due and payable in their ,
entirety without presentment, demand, protest or other
notice of any kind, all of which are waived by the
Pledgor, and the Pledgee may at -any time thereafter
proceed with the collection thereof and the realization
upon all security which it may hold, including all
rights hereunder or otherwise existing at law.
10. COVENANTS, REPRESENTATIONS, AND WARRANTIES OF
PLEDGOR
(a) Pledgor represents and warrants that:
(i)There are no restrictions upon Pledgor's right to
transfer or
encumber the Collateral in favor of Pledgee,
and Pledgor has the
right to transfer such Collateral to Pledgee
free and clear of any
lien, claim or encumbrances and of any right
of first refusal to
purchase or option to purchase or any similar
such right, and
without obtaining the consent of any other
person, including any
other Member of Aurora Bay, Aurora Bay, or
any other
individual or entity.
(ii) The Collateral of Pledgors collectively
represents not less than
ONE-HUNDRED PERCENT (100"%) of the presently
issued and
outstanding interests in Aurora Bay.
(iii) There are no other interests in Aurora Bay
other than the
Collateral, and Aurora Bay has no other
Members other than the
6
<PAGE>
Pledgors.
(b) Pledgor covenants that it shall deliver copies
of any proposed
amendments to the LLC Agreement to Pledgee.
(c) Pledgor covenants that it shall not, without
the prior written consent of
Pledgee, which consent may not be unreasonably withheld
(i) sell, encumber or in any manner dispose of
its interest in the
Collateral or any of the Collateral;
(ii) permit Aurora Bay to issue any additional
interests;
(iii) permit Aurora Bay to dissolve, reorganize,
recapitalize, liquidate
or merge or consolidate with any other
person, firm, limited
liability company or corporation;
(iv) permit Aurora Bay to amend its certificate of
formation or its LLC Agreement;
(v) permit Aurora Bay to declare or pay any
dividends on, or purchase, redeem or retire, or make
any other distribution on account of or with respect
to, any interest in Aurora Bay; except Aurora Bay may
make annual distributions to each Member to defray its
tax liabilities on allocable taxable income for the
prior year as permitted by the Credit Agreement.
11. GENERAL PROVISIONS
(a) All notices hereunder shall be in writing
and shall be effectively given when delivered
personally on the date of delivery, or if mailed, two
days after deposit in the United States mail, first
class, postage prepaid, certified or registered,
addressed as follows:
If to Pledgee: Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121
With a copy to: George Beal, Esq.
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
If to Pledgors: Thilo Best
18254 Westminster Drive
Lake Oswego, OR 97034
Erwin Investors I, L.L.C.
9817 N.E. 54th
Vancouver, Washington 98662
7
<PAGE>
Craig W. Spaulding
5720 LBJ Freeway
Suite 450
Dallas, Texas 75240
with a copy to: Sam S.
Stollenwerck, Esq.
Stollenwerck, Moore &
Silverberg, P.C.
5949 Sherry Lane, Suite
1025
Dallas, Texas 75225
or such other addresses as either party may from time
to time specify in writing to the other.
(b) Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall
as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting
the validity or enforceability of such provisions in
any other jurisdiction.
(c) The Pledgor hereby appoints the Pledgee.
as its attorney in fact to execute and file, on its
behalf, any financing statements, continuation
statements or other documentation required to perfect
or continue the security interest created hereby.
(d) This Agreement and the rights and
obligations of the parties hereto shall be construed
and interpreted in accordance with the laws of the
State of Washington.
(e) All agreements, covenants, conditions and
provisions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and
assigns of the parties hereto.
(f) This Agreement may be modified or
rescinded only by a writing expressly relating to this
Agreement and signed by all of the Pledgors and the
Pledgee.
DATED this 7th day of January, 1998.
Erwin Investors I, L.L.C., a
Washington
Limited liability company
By: /s/ Jerry Erwin
----------------------
- -----------------
Jerry Erwin, Manager
/s/ Craig W. Spaulding
- ----------------------------------------
Craig W. Spaulding
/s/ Thilo Best
----------
- ------------------------------
8
<PAGE> EX 10.79.7
GUARANTY
This Guaranty is made as of the 7th day of
January, 1998, by Thilo Best, Erwin Investors
I, L.L.C., a Washington limited liability
company, and Craig Spaulding (each individually
a "Guarantor," and collectively "Guarantors"),
to and for the benefit of Emeritus Corporation,
a Washington corporation, and its successors,
participants, and assigns ("Emeritus").
RECITALS:
A. Contemporaneously with the execution
hereof, Aurora Bay Investments, L.L.C., a
Washington limited liability company ("Aurora
Bay"), has entered into a Credit Agreement
dated as of January 7,1998 between Aurora Bay
and Emeritus (the "Credit Agreement"),
establishing a $5 million credit facility in
favor of Aurora Bay, and in connection
therewith executed and delivered to Emeritus a
Convertible Promissory Note (the "Note").
B. Each of the Guarantors is a member of
Aurora Bay and will financially benefit from
Emeritus' extension of credit to Aurora Bay.
C. Each of the Guarantors is willing to
execute this nonrecourse guaranty in favor of
Emeritus and to pledge such Guarantor's equity
interest in Aurora Bay to secure repayment of
all amounts due and payable to Emeritus under
the Note and the Credit Agreement.
NOW, THEREFORE, in order to induce
Emeritus to extend credit to Aurora Bay,
Guarantor agrees as follows:
ARTICLE I. GUARANTY
Guarantor jointly, severally,
unconditionally, absolutely, and irrevocably
guarantees all past, present, and future
indebtedness of Aurora Bay to Emeritus,
including but not limited to (a) the due and
punctual payment of the principal and interest
of the Note and all money due or that may
become due thereunder, whether according to
the present terms of the Note or at any
earlier or accelerated date or dates as
provided therein, pursuant to any extension of
time, or pursuant to any amendment,
modification, or replacement of the Note
hereafter made or granted and (b) the due and
punctual payment of all money due or that may
become due under the Credit Agreement, whether
according to the present terms of the Credit
Agreement or at any earlier or accelerated
date or dates as provided therein, pursuant to
any extension of time, or pursuant to an
amendment, modification, or replacement of the
Credit Agreement hereafter made or granted
(collectively, "Obligations"). Guarantor
acknowledges and agrees that Guarantor's
liability hereunder is cumulative with the
liability of Guarantor under all other
unterminated guaranties of Guarantor.
ARTICLE II. WAIVERS BY GUARANTOR AND RIGHTS OF EMERITUS
Guarantor intends that it shall remain
unconditionally liable for payment of. all the
Obligations regardless of any act or omission
which might otherwise operate as a legal or
equitable defense to discharge Aurora Bay,
Guarantor, or any other guarantor in whole or
part. Therefore, Guarantor hereby waives any
defense Guarantor may have to
<PAGE>
the enforceability of its obligations hereunder by
virtue of any of the following and Emeritus may do
any of the following things as many times as
Emeritus wishes, without Guarantor's permission
and without notifying Guarantor, and this will not
affect Guarantor's promise to pay Emeritus the
amount of the Obligations:
(a) Emeritus does not have to notify
Guarantor of Emeritus' acceptance of this
Guaranty;
(b) Emeritus does not have to notify
Guarantor when Emeritus, extends credit to Aurora
Bay, or pays the obligations of Aurora Bay;
(c) Emeritus does not have to notify
Guarantor of (i) Aurora Bay's failure to pay
Aurora Bay's obligations when due or (ii) Aurora
Bay's failure to perform any other obligation
under the Note or the Credit Agreement;
(d) Emeritus may extend, renew,
accelerate, or otherwise change the time for
payment of any of Aurora Bay's obligations to
Emeritus,
(e) Emeritus may make any other changes
in the terms of the Note or the Credit Agreement;
(f) Emeritus may release Aurora Bay, any
other guarantor, or anyone else against whom
Emeritus may have the right to collect amounts
that may become due under the Note or the Credit
Agreement;
(g) Emeritus may apply collateral and
direct the order or manner of sale thereof as
Emeritus in its discretion may determine;
(h) Emeritus may apply any money or
collateral received from or on behalf of the
Aurora Bay to the repayment of any indebtedness
due to Emeritus in any order Emeritus determines;
(i) Emeritus may release, surrender;
substitute, take additional, or exchange, any
collateral Emeritus now holds or may later acquire
as security for Aurora Bay's indebtedness to
Emeritus or Guarantor's obligations hereunder;
(j) Emeritus may forbear from pursuing
Aurora Bay or from foreclosing or otherwise
realizing upon any security interest, letter of
credit, or other
(k) Emeritus may impair any and all
collateral given, now or thereafter, to secure
Aurora Bay's performance of its Obligations
(collectively, the "Collateral") or Guarantor's
obligations hereunder by its acts or omissions,
including but not limited to failing to perfect a
security interest in any Collateral;
(l) Guarantor hereby waives any defense
arising out of the absence, impairment, or loss of
(i) any or all rights of recourse, reimbursement,
contribution, or subrogation or (ii) any other
right or remedy of Guarantor against Aurora Bay or
any other party or Collateral to collect amounts
that Guarantor is obligated to pay under this
Guaranty;.
(m) Guarantor hereby waives any defense
arising (i) by reason of any invalidity,
ineffectiveness, or unenforceability of all or any
portion of the Note or the
2
<PAGE>
Credit Agreement or (ii) on the basis of any other
defense available to Aurora Bay (other than full
payment in cash);
(n) Guarantor waives diligence, demand
for performance, notice of nonperformance,
presentment, protest, notice of dishonor, and
indulgences and notices of every other kind;.
(o) Guarantor agrees that Emeritus may
in its sole discretion proceed against all or any
portion of the Collateral by way of either
judicial or nonjudicial foreclosure.
ARTICLE III. EMERITUS' RIGHT NOT TO PROCEED
AGAINST AURORA BAY, OTHER GUARANTORS OR COLLATERAL
If an Event of Default occurs under the Note
or the Credit Agreement, Emeritus may enforce this
guaranty against Guarantor (a)without attempting
to collect or without exhausting Emeritus' efforts
to collect from Aurora Bay, any other guarantor,
or anyone else who is liable for the Obligations
or (b) without attempting to enforce Emeritus'
rights in any Collateral. Without limiting the
foregoing, Emeritus may sue on the Note or the
Credit Agreement or may take any other action
authorized by law. In each case, Emeritus shall
have the right to exercise its remedies in
whatever order it elects and may join Guarantor in
any suit on the Note or the Credit Agreement or
can proceed against Guarantor in a separate
proceeding. In case of suit, sale, or foreclosure,
only the net proceeds therefrom, after deducting
all charges and expenses of any kind and nature
whatsoever, shall be applied to the reduction of
the amount due on the Note or the Credit
Agreement, and Emeritus shall not be required to
institute or prosecute proceedings to recover any
deficiency as a condition of payment under or
enforcement of this Guaranty. At any sale of the
Collateral, Emeritus may at its discretion
purchase all or any part of the Collateral and may
apply against the amount bid therefor all or any
portion of the balance due it pursuant to the
terms of the Note or the Credit Agreement.
Guarantor hereby waives the right to object to the
amount that may be bid by Emeritus at such
foreclosure sale.
ARTICLE IV. BANKRUPTCY AND ASSIGNMENT OF RIGHTS
Guarantor agrees that its obligation to make
payment under the terms of this Guaranty shall not
be impaired, modified, changed, released, or
limited in any manner by any impairment,
modification, change, release, defense, or
limitation of the liability of Aurora Bay or of a
receiver, trustee, debtor-in-possession, or estate
under any bankruptcy or receivership proceeding.
If any payment made by Aurora Bay is reclaimed in
a bankruptcy or receivership proceeding, Guarantor
shall pay to Emeritus the dollar amount of the
amount reclaimed. Guarantor further assigns to
Emeritus all rights Guarantor may have in any
proceeding under the U. S. Bankruptcy Code or any
receivership or insolvency proceeding until all
Indebtedness of Aurora Bay to Emeritus has been
paid in full. This assignment includes all rights
of Guarantor to be paid by Aurora Bay even if
those rights have nothing to do with this
Guaranty. This assignment does not prevent
Emeritus from enforcing Guarantor's obligations
under this Guaranty in any way.
ARTICLE V. GUARANTOR'S DUTY TO KEEP INFORMED OF AURORA
BAY'S
AND THE OTHER GUARANTOR'S FINANCIAL CONDITION
3
<PAGE>
Guarantor is now adequately informed of
Aurora Bay's financial condition, and Guarantor
agrees to keep so informed. Emeritus need not
provide Guarantor with any present or future
information concerning the financial condition of
Aurora Bay or any other guarantor, and changes in
Aurora Bay's or Guarantor's financial condition
shall not affect Guarantor's obligations under
this Guaranty. Guarantor has not relied on
financial information furnished by Emeritus, nor
will Guarantor do so in the future.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF GUARANTOR
Guarantor represents and warrants to Emeritus as
follows:
(a) The execution, delivery, and
performance by Guarantor of this Guaranty do not
and will not (i) conflict with or contravene any
law, rule, regulation, judgment, order, or decree
of any government, governmental instrumentality,
or court having jurisdiction over Guarantor or
Guarantor's activities or properties, (ii)
conflict with, or result in any default under, any
agreement or instrument of any kind to which
Guarantor is a party or by which Guarantor or any
of Guarantor's properties may be bound or
affected, or (iii) require the consent, approval,
order, or authorization of, or registration with,
or the giving of notice to any United States or
other governmental authority or any person or
entity;
(b) This Guaranty constitutes a legal,
valid, and binding obligation of Guarantor,
enforceable against Guarantor in accordance with
its terms;
(c) There is no action, litigation, or
other proceeding pending or to Guarantor's
knowledge threatened against Guarantor before any
court; arbitrator, or administrative agency that
may have a material adverse effect on the assets
or the business or financial condition of
Guarantor or that would prevent, hinder, or
jeopardize the performance by Guarantor of
Guarantor's obligations under this Guaranty;
(d) Guarantor is fully familiar with all
the covenants, terms, and conditions of the Note
or the Credit Agreement; and
(e) Guarantor is not party to any
contract, agreement, indenture, or instrument or
subject to any restriction individually or in the
aggregate would have a material adverse effect on
guarantor's financial condition or business or
that would in any way jeopardize the ability of
Guarantor to perform under this Guaranty.
ARTICLE VII. SUBORDINATION OF INDEBTEDNESS OF AURORA
BAY TO
GUARANTOR
Any Indebtedness of Aurora Bay now or
hereafter held by Guarantor is hereby subordinated
to the indebtedness of Aurora Bay to Emeritus, and
such indebtedness of Aurora Bay to Guarantor, if
Emeritus so requests and if there exists an event
of default under this Guaranty and/or under the
Credit Agreement, shall be collected, enforced,
and received by Guarantor as trustee for Emeritus
and be paid over to Emeritus on account of the
indebtedness of Aurora Bay to Emeritus, but
without reducing or affecting in any manner the
liability of Guarantor under the other provisions
of this Guaranty.
4
<PAGE>
ARTICLE VIII. WAIVER OF RIGHT OF SUBROGATION
Guarantor agrees that Guarantor shall not
have, and hereby expressly waives, any claim,
right, or remedy that Guarantor may now have or
hereafter acquire against. Aurora Bay including,
without limitation, any claim, remedy; or right of
subrogation, reimbursement, exoneration,
indemnification, or participation in any claim,
right, or remedy that Emeritus has or may
hereafter have against Aurora Bay or any
Collateral that Emeritus now has or hereafter
acquires, whether or not such claim, right,. or
remedy arises in equity, under contract, by
statute, under common law, or otherwise. Guarantor
hereby acknowledges and agrees that this waiver is
intended to benefit Aurora Bay and Emeritus and
shall not limit or otherwise affect Guarantor's
liability under this Guaranty. Notwithstanding the
foregoing, Guarantor shall not be obliged to waive
such rights of subrogation, as long as they are in
all respects subordinate to any and a11 rights
Emeritus may have or acquire against Aurora Bay,
and no payments may be made by Aurora Bay to
Guarantor with respect to such subrogation rights,
until any and a11 amounts owed by Aurora Bay to
Emeritus have been paid in full.
ARTICLE IX. PAYMENT OF OBLIGATIONS; EFFECT OF
BANKRUPTCY
This Guaranty shall terminate upon payment in
full of the Obligations and termination of
Emeritus' commitment to make advances of credit
and to lend funds to Aurora Bay; but this Guaranty
shall be automatically reinstated if. any payment
is reclaimed in a bankruptcy or receivership
proceeding, until Guarantor pays Emeritus the
amount reclaimed or the amount is otherwise paid
to Emeritus and is not subject to further
reclamation.
ARTICLE X. EVENTS OF DEFAULT; REMEDIES
10.1 EVENTS OF DEFAULT
"Event of Default," whenever used herein,
means any one of the following events (whatever
the reason for the Event of Default, whether it
shall relate to one or more of the parties hereto,
and whether it shall be voluntary or involuntary
or be pursuant to or effected by operation of
Applicable Law):
(a) If there shall occur an Event of
Default under the Note or the Credit Agreement; or
(b) If Guarantor fails to observe or
perform any term, covenant, or agreement to be
performed or observed pursuant to this Guaranty.
10.2 REMEDIES
(a) Upon the occurrence of any Event of
Default hereunder, the Obligations shall then or
at any time thereafter, at the option of Emeritus
become immediately due and payable without notice
or demand, and Emeritus shall have an immediate
right to pursue the remedies provided herein.
(b) If an Event of Default occurs
hereunder, Emeritus shall have all remedies
provided by law. Guarantor hereby waives any
notice of the occurrence of any Event of Default
hereunder.
ARTICLE XI. GENERAL PROVISIONS
5
<PAGE>
11.1 BENEFITS OF AGREEMENT
Guarantor agrees that (a) this Guaranty shall
inure to the benefit of and may be enforced by
Emeritus and any subsequent holder of any of the
Note or the Credit Agreement and (b) this Guaranty
shall be binding upon and enforceable against
Guarantor and its successors and assigns.
11.2 NO ASSIGNMENT
Guarantor agrees that no assignment of
Guarantor's obligations under this Guaranty may be
made to any person or entity without the prior
written consent of Emeritus.
11.3 RULES OF CONSTRUCTION
Unless some other meaning and intent is
apparent from the context, the plural shall
include the singular and vice versa, and
masculine, feminine, and neuter words shall be
used interchangeably.
11.4 GOVERNING LAW
This Guaranty shall be construed according to
the laws of the state of Washington, without
giving effect to its principles of conflicts of
law.
11.5 ENTIRE AGREEMENT; MERGER
This Agreement constitutes the entire
understanding between Emeritus and Guarantor with
respect to the subject matter hereof; no course of
prior dealing between the parties, no usage of
trade, and no parole or extrinsic evidence of any
nature shall be used to supplement or modify any
terms; and there are no conditions to the full
effectiveness of this Guaranty. All prior, and
contemporaneous negotiations, understandings, and
agreements between Guarantor and Emeritus with
respect to the subject matter hereof are merged in
this Guaranty.
11.6 INVALID PROVISIONS
If any provision of this Guaranty is invalid,
illegal, or unenforceable, such provision shall be
considered severed from the rest of this Guaranty
and the remaining provisions shall continue in
full force and effect as if the invalid provision
had not been included. This Guaranty may be
changed, modified, or supplemented only through a
writing signed by Guarantor and Emeritus.
11.7 ATTORNEYS' FEES AND COLLECTION EXPENSES
If there shall occur any Default or Event of
Default, Emeritus shall be entitled to recover
from Guarantor, upon demand, any costs and
expenses incurred in connection with the
preservation of rights under, and enforcement of,
this Guaranty and the Note or the Credit Agreement
whether or not any lawsuit or arbitration
proceeding is commenced, in all such cases
including, without limitation, reasonable
attorneys' fees and costs (including the allocated
fees of internal counsel). Costs and expenses as
referred to above shall include, without
limitation, a reasonable hourly rate for
collection personnel,
6
<PAGE>
whether employed in-house or otherwise, overhead
costs as reasonably allocated to the collection
effort, and all other expenses actually. incurred.
Reasonable attorneys' fees and costs shall
include, without limitation, attorneys' fees and
costs incurred in connection with any bankruptcy
case or other insolvency proceeding commenced by
or against Aurora Bay or any person granting a
security interest in any item of Collateral,
including all fees incurred in connection with (a)
moving for relief from the automatic stay, to
convert or dismiss the case or proceeding, or to
appoint a trustee or examiner or (b)proposing or
opposing confirmation of a plan of reorganization
or liquidation, in any case without regard to the
identity of the prevailing party.
11.8 CONSENT TO JURISDICTION AND VENUE
Guarantor hereby (a) irrevocably submits to
the jurisdiction of any state or federal court
sitting in Seattle, King County, Washington, in
any action or proceeding brought to enforce, or
otherwise arising out of or relating to, this
Guaranty; (6) irrevocably waives to the fullest
extent permitted by law any objection that
Guarantor may now or hereafter have to the laying
of venue in any such action or proceeding in any
such forum; and (c) further irrevocably waives any
claim that any such forum is an inconvenient
forum. Guarantor agrees that a final judgment in
any such action or proceeding shall be conclusive
and may be enforced in any other jurisdiction by
suit on the judgment or in any other manner
provided by law. Nothing herein shall impair the
right of Emeritus to bring any action or
proceeding against Guarantor in any court of any
other jurisdiction.
11.9 COUNTERPARTS
This Guaranty can be executed in counterpart
originals. This Guaranty shall be binding on each
person who signs a counterpart of this Guaranty
even if everyone listed in the Guaranty does not
agree to the Guaranty.
11.10 LIMITATIONS ON SCOPE OF GUARANTY
Anything contained herein to the contrary
notwithstanding, any claim based on or in respect
of any liability of Guarantor under this Guaranty
shall be "nonrecourse' and enforced only against
the collateral pledged by such Guarantor to secure
the payment and performance of the Obligations and
Emeritus shall not seek to procure payment out of
any other assets, properties or funds of Guarantor
(or any legal representative, heir, estate,
successor or assign thereof, nor to seek judgment
for any sums which are or may be due hereunder, as
well as any claim or judgment for any deficiency
remaining after exercising its rights against the
Collateral pledged by Guarantor.
THE UNDERSIGNED CLEARLY UNDERSTANDS THAT
EMERITUS DOES NOT HAVE TO PURSUE AURORA BAY OR
PURSUE ANY OTHER REMEDIES BEFORE DEMANDING PAYMENT
FROM GUARANTOR. GUARANTOR FURTHER UNDERSTANDS THAT
IT WILL HAVE TO PAY AMOUNTS THEN DUE EVEN IF
AURORA BAY OR ANY OF THE OTHER
[The balance of the page intentionally left blank.]
7
<PAGE>
GUARANTORS DO NOT MAKE THE PAYMENTS OR ARE
RELIEVED OF THE OBLIGATION TO MAKE PAYMENTS.
Erwin Investors I, L.L.C., a
Washington
limited liability company
By: /s/ Jerry Erwin
----------------------
------------------
Jerry Erwin, Manager
/s/ Craig W. Spaulding
-------------------------
---------------
Craig W. Spaulding
/s/ Thilo Best
-------------------------
--------------
Thilo Best
8
<PAGE> EX 10.79.8
THE LIMITED LIABILITY COMPANY INTERESTS CREATED BY THIS
AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933; AS AMENDED, OR UNDER THE STATE BLUE SKY
STATUTES IN THE VARIOUS STATES WHERE THE INTEREST(S)
MAY BE OFFERED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAME ACT OR THE APPLICABLE
STATE BLUE SKY STATUTES OR SATISFACTORY ASSURANCE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN
ADDITION THE SALE OR TRANSFER OF ANY INTEREST(S) IN THE
COMPANY MUST BE MADE IN ACCORDANCE WITH THE PROVISIONS
OF THIS AGREEMENT. IN VIEW OF THESE RESTRICTIONS, THE
PURCHASER OF ANY INTEREST(S) IN THE COMPANY MUST BE
PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
OPERATING AGREEMENT OF AURORA BAY I,
L.L.C.
January 6,1998
This Operating Agreement (the "Agreement") is
made and entered into as of the 6th day of January,
1998, by AURORA BAY INVESTMENTS, L.L.C., a Washington
limited liability company, and ERWIN INVESTORS. I,
LLC., a Washington limited liability company, as We
initial members ("Members"). The Members agree to
operate the Company (hereinafter defined) as a limited
liability company under the laws of the state of
Washington, as follows:
The parties hereto agree as follows:
1. Definitions. The following terms used in the
Agreement shall have the meanings specified below:
1.1 "Act" means the Washington limited
Liability Company Act, as amended from time to
time.
1.2 "Additional Member" means a Member who
has been admitted to all rights of membership
pursuant to Section 14.5 below.
1.3 "Adjusted Contribution Amount" with
respect to each Member means the Capital
Contributions pursuant to Sections 7.1 and 7.4
below.
1.4 "Affiliate" means, with respect to the
second person (as defined in this paragraph) (i)
any person (the "first person") who directly or
indirectly controls a second person, or owns or
controls 10% or more of the outstanding
securities of the second person; (ii) any
officer, director, partner, or member of the
immediate family of the second person; and (iii)
if the second person is an officer, director, or
partner, any company for which the second person
acts in that capacity. Control includes the terms
"controlled by"-and "under common control with"
and means the possession, direct or indirect, of
the power to direct or cause the direction of the
management and policies of a person, whether
through the ownership of voting securities, by
contract or otherwise.
1.5 "Agreement" means this Operating Agreement of the Au
r
o
r
a
B
a
y
1
,
L.L.C., as it may be amended from time to time.
1.6 "Assignee" means a person who has
acquired a Member's interest in whole
<PAGE>
or part and has not become a Substitute Member.
1.7 "Capital Account" means the account
maintained for each Member in accordance with
Section 7S. In the case of a transfer of an
interest, the transferee shall succeed to the
Capital Account of the transferor or, in the case
of a partial transfer, a proportionate share
thereof.
1.8 "Capital Contribution" means the total
amount of money and the fair market value of a11
property contributed to the Company by each Member
pursuant to the terms of the Agreement. Capital
Contribution shall also include any amounts paid
directly by a Member to any creditor of the
Company in respect of any guarantee or similar
obligation undertaken by such Member in connection
with the Company's operations. Any reference to
the Capital Contribution of a Member shall include
the Capital Contribution made by a predecessor
holder of the interest of such Member.
1.9 "Cash Available for Distribution" means
all cash receipts of the Company, excluding cash
available upon liquidation of the Company, in
excess of amounts reasonably required for payment
of operating expenses, repayment of current
liabilities, repayment of such amounts of Company
indebtedness as the Managers shall determine
necessary or advisable, and the establishment of
and additions to such cash reserves as the
Managers shall deem necessary or advisable,
including, but not limited to, reserves for
capital expenditures, replacements, contingent or
unforeseen liabilities, or other obligations of
the Company.
1.10 "Code" means the United States Internal
Revenue Code of 1986, as amended. References to
specific Code Sections or Treasury Regulations
shall be deemed to refer to such Code Sections or
Treasury Regulations as they may be amended from
time to time or to any successor Code Sections or
Treasury Regulations if the Code Section or
Treasury Regulation referred to is repealed.
1.11 "Company" means the Aurora Bay 1, L.L.C.
governed by the Agreement.
1.12 "Company Property" means all the real
and personal property owned by the Company.
1.13 "Credit Agreement" means that certain
Credit Agreement dated as of January 7,1998, by
and between the Company and Emeritus Corporation.
1.14 "Deemed Capital Account" means a
Member's Capital Account as calculated from time
to time, adjusted by (i) adding thereto the sum of
(A) the amount of such Member's Mandatory
Obligation, if any, and (B) each Member's share of
Minimum Gain (determined after any decreases
therein for such year) and (ii) subtracting
therefrom (A) allocations of losses and deductions
which are reasonably expected to be made as of the
end of the taxable year to the Members pursuant to
Code Section 704(e)(2), Code Section 706(d) and
Treasury Regulation Section 1.751-1(b)(2)(ii), and
(B) distributions which at the end of the taxable
year are reasonably expected to be made to the
Member to the extent that said distributions
exceed offsetting increases to the Member's
Capital Account (including allocations of the
Qualified Income Offset pursuant to Section 8.5
but excluding allocations of Minimum Gain
Chargeback pursuant to Section 8.4) that are
reasonably expected to occur during (or prior to)
the taxable years in which such distributions are
reasonably expected to be made.
1.15 "Emeritus" means Emeritus Corporation, a
Washington corporation.
2
<PAGE>
1.16 "Emeritus Corporation Loan" means a loan
from Emeritus Corporation to the Company, to be
made to the Company pursuant to the Credit
Agreement, in an amount up to $5,000,000.00, with
an option in favor of Emeritus Corporation to
convert the loan to a Company Interest with a
Percentage Interest of forty-eight percent (48%).
1.17 "Interest" or "Company Interest" means
the ownership interest of a Member in the Company
at any particular time, including the right of
such Member to any and all benefits to which such
Member may be entitled as provided in the
Agreement and in the Act, together with the
obligations of such Member to comply with all the
terms and provisions of the Agreement and the Act.
1.18 "Mandatory Obligation" means the sum of
(i) the amount of a Member's re contribution
obligation (including the amount of any Capital
Account deficit such Member is obligated to
restore upon liquidation) provided that such
contribution must be made in all events within
ninety (90) days of liquidation of the Member's
interest as determined under Treasury Regulation
Section 1.704-1(b)(2)(ii)(g) and (ii) the
additional amount, if any, such Member would be
obligated to contribute as of year end to retire
recourse indebtedness of the Company if the
Company were to liquidate as of such date and
dispose of all of its assets at book value.
1.19 "Manager(s)" means those Member(s) and
other persons who are appointed in accordance with
this Agreement to exercise the authority of
Manager under this Agreement and the Act. If at
any time a Member who is a Manager ceases to be a
Member for any reason, that Member shall
simultaneously cease to be a Manager. At all times
there shall be at least one Manager who is a
Member. The Managers of the Company as of the date
of this Agreement are Craig W. Spaulding and Jerry
Erwin. .
120 "Member(s)" means those persons and/or
entities that execute a counterpart of this
Agreement and those persons and/or entities that
are hereafter admitted as members under Section
14.4 below.
121 "Minimum Gain" means the amount
determined by computing, with respect to each
nonrecourse liability of the Company, the amount
of gain, if any, that would be realized by the
Company if it disposed of the Company Property
subject to such nonrecourse liability in full
satisfaction thereof in a taxable transaction and
then by aggregating the amounts so determined.
Such gain shall be determined in accordance with
Treasury Regulation Section 1.704-2(d). Each
Member's share of Minimum Gain at the end of a
taxable year of the Company shall be determined in
accordance with Treasury Regulation Section 1.704-
2(g)(1).
1.22 "Net Income" or "Net Loss" means taxable
income or loss (including items requiring separate
computation under Section 702 of the Code) of the
Company as determined using the method of
accounting chosen by the Managers and used by the
Company for federal income tax purposes, adjusted
in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(g), for any property with
differing tax and book values, to take into
account depreciation, depletion, amortization, and
gain or loss as computed for book purposes.
1.23 "Partnership" means Lubbock Group, Ltd.,
a Texas limited partnership, for which the Company
will serve as its sole general partner.
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1.24 "Percentage Interest" means the percent
interest of each Member as set forth on Appendix
A.
1.25 "Project" means the senior housing
facility owned and developed by the Company.
1.26 "Project Loan" means the loan to be made by Aurora
B
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I
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s
t
m
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t
s
,
L.L.C. to the Partnership from proceeds of the
Emeritus Corporation Loan, as contemplated by the
Credit Agreement, and from its available cash,
which loan is to be evidenced by the terms of the
"Project Promissory Note", a copy of which is
attached hereto as Exhibit "A".
1.27 "Senior Debt" means the construction and
short-term permanent financing arranged by the
Company to construct and develop a Project as
described in Section 7.7 hereof including Take-out
Commitments.
1.28 "Subsidiary Loan" means a loan made by
Aurora Bay Investments, I, L.L.C. to the
Partnership from proceeds of loans made to Aurora
Bay Investments, LLC. by its Managers.
129 "Substitute Member" means an Assignee
who has been admitted to all of the rights of
membership pursuant to Section 14.4 below.
2. Formation. The Members hereby agree to operate
the Company under the terms and conditions set forth
herein. Except as otherwise provided herein, the rights
and liabilities of the Members shall be governed by the
Act.
2.1 Defects as to Formalities. A failure to
observe any formalities or requirements of this
Agreement, the certificate of formation for the
Company, or the Act shall not be grounds for
imposing personal liability on the Members for
liabilities of the Company.
2.2 No Partnership Intended for Nontax
Purposes. The Members have formed the Company
under the Act and expressly do not intend hereby
to form a partnership under either the Washington
Uniform Partnership Act or the Washington Uniform
I Limited Partnership Act or a corporation under
the Washington Business Corporation Act. The
Members do not intend to be partners one to
another or partners as to any third party. The
Members hereto agree and acknowledge that the
Company is to be treated as a partnership for
federal income tax purposes.
2.3 Rights of Creditors and Third Parties.
This Agreement is entered into among the Company
and the Members for the exclusive benefit of the
Company, its Members, their successors, and
assigns. The Agreement is expressly not intended
for the benefit of a creditor of the Company or
any other person. Except, and only to the extent
provided by applicable statute, no such creditor
or third party shall have all rights under the
Agreement or any agreement between the Company and
any Member with respect to any Contribution or
otherwise.
2.4 Title to Property. All Company Properly
shall be owned by the Company as an entity, and no
Member shall have any ownership interest in such
Company Properly in the Member's individual name
or right. Each Member's interest in the Company
shall be
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personal property for all purposes. Except as
otherwise provided in this Agreement, the Company
shall hold all Company Property in the name of the
Company and not in the name or names of any Member
or Members.
2.5 Payments of Individual Obligations. The
Company's credit and assets shall be used solely
for the benefit of the Company, and no asset of
the Company shall be transferred or encumbered
for, or in payment of any individual obligation of
any Member unless otherwise provided for herein.
3. Name. The name of the Company shall be AURORA
BAY I, L.L.C. The Managers may from time to time change
the name of the Company or adopt such trade or
fictitious names as they may determine to be
appropriate.
4. Office; Agent for Service of Process. The
principal office of the Company shall be at 520 Pike
Street, Seattle, Washington 98101. The Company may
maintain such other offices at such other places as the
Managers may determine to be appropriate. The agent for
service of process for the Company shall be CT
Corporation System at the above address.
5. Purposes. The primary purpose and general
character of the business of the Company is to serve as
the general partner of Lubbock Group, Ltd., a Texas
limited partnership, specially formed to acquire,
develop, construct, operate, hold, and invest in
certain real property located in Lubbock, Texas, and to
engage in any lawful act or activity for which a
limited liability company may be organized under the
laws of the State of Washington, incident, necessary,
advisable, or desirable to carry out the purpose of the
Company.
6. Term. The term of the Company commenced upon
the filing of the Articles of Organization for the
Company in the office of the Washington Secretary of
State and shall continue until January l, 2027, unless
sooner dissolved, wound up, and terminated in
accordance with the provisions of this Agreement and
the Act.
7. Percentage Interest and Capital Contributions.
7.1 Initial Capital Contributions; Percentage
Interests . The Members made initial Capital
Contributions to the Company in the amounts set
forth on Appendix A for the Percentage Interests
in the Company as shown on Appendix A.
7.2 No Interest on Capital. No Member shall
be entitled to receive interest on such Member's
Capital Contributions or such Member's Capital
Account.
7.3 No Withdrawal of Capital. Except as
otherwise provided in this Agreement, no Member
shall have the right to withdraw or demand a
return of any or all of such Member's Capital
Contribution. It is the intent of the Members that
no distribution (or any part of any distribution)
made to any Member pursuant to Section 10 hereof
shall be deemed a return or withdrawal of Capital
Contributions, even if such distribution
represents (in full or in part) a distribution of
revenue offset by depreciation or any other
noncash item accounted for as an expense, loss, or
deduction from, or offset to, the Company's income
and that no Member shall be obligated to pay any
such amount to or for the account of the Company
or any creditor of the Company. However, if any
court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement,
any Member is obligated to make any such payment,
such obligation shall be the obligation of such
Member and not of any other Member, including
Managers.
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7.4 Additional Capital. Except as otherwise
provided for herein or mutually agreed upon by the
Members, no Member shall be obligated to make an
additional capital contribution to the Company.
7.5 Capital Accounts. The Company shall
establish and maintain a Capital Account for each
Member in accordance with Treasury Regulations
issued under Section 704. The initial Capital
Account balance for each Member shall be the
amount of initial Capital Contributions made by
each Member under Section 7.1 above. The Capital
Account of each Member shall be increased to
reflect (i) such Member's cash contributions, (ii)
the fair market value of property contributed by
such Member (net of liabilities securing such
contributed property that the Company is
considered to assume or take subject to Code
Section 752), (iii) such Member's share of Net
Income (including all gain as calculated pursuant
to Section 1001 of the Code) of the Company and
(iv) such Member's share of income and gain exempt
from tax. The Capital Account of each Member shall
be reduced to reflect (a) the amount of money and
the fair market value of property distributed to
such Member (net of liabilities securing such
distributed property that the Member is considered
to assume or take subject to under Section 752),
(b) such Member's share of noncapitalized
expenditures not deductible by the Company in
computing its taxable income as determined under
Code Section 705(a)(2)(B), (c) such Member's share
of Net Loss of the Company and (d) such Member's
share of amounts paid or incurred to organize the
Company or to promote the sale of Company
Interests to the extent that an election under
Code Section 709(b) has not properly been made for
such amounts. The Managers shall determine the
fair market value of all property which is
distributed in kind, and the Capital Accounts of
the Members shall be adjusted as though the
property had been sold for its fair market value
and the gain or loss attributable to such sale
allocated among the Members in accordance with
Section 8, as applicable. In the event of a
contribution of property with a fair market value
which is not equal to its adjusted basis (as
determined for federal income tax purposes), a
revaluation of the Members' Capital Amounts upon
the admission of new members to the Company, or in
other appropriate situations as permitted by
Treasury Regulations issued under Code Section
704, the Company shall separately maintain "tax"
Capital Accounts solely for purposes of taking
into account the variation between the adjusted
tax basis and book value of Company Property in
tax allocations to the Members consistent with the
principles of Code Section 704(c) in accordance
with the rules prescribed in Treasury Regulations
promulgated under Code Section 704.
7.6 Default. In the event any Member shall
fail to contribute any cash or property when due
hereunder, such Member shall remain liable
therefor to the Company, which may institute
proceedings in any court of competent jurisdiction
in connection with which such Member shall pay the
costs of such collection, including reasonable
attorneys' fees. Any compromise or settlement with
a Member failing to contribute cash or properly
due hereunder may be approved by a majority by
Percentage Interest of the other Members.
7.7 Financing. The Company shall manage
Senior Debt financing for the development and
lease-up of its Project in accordance with its
development budget.
8. Allocations.
8.1 Allocation of Net Income and Net Loss.
Except as otherwise provided in this Section 8,
Net Income and Net Loss for each fiscal year shall
be allocated to the Members in proportion to each
Member's Percentage Interest.
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8.2 Special Allocation. Notwithstanding
Section 8.1, depreciation, depletion,
amortization, and gain or loss for tax purposes
with respect to contributed property or with
respect to property which has been revalued under
Code Section 7.5(b) shall be allocated consistent
with the principal of Section 704(c) and the
regulations thereunder and Treasury Regulation
Section 1.704-1(b)(4)(i).
8.3 Limitation on Net Loss Allocations.
Notwithstanding anything contained in this Section
8, no Member shall be allocated Net Loss to the
extent such allocation would cause a negative
balance in such Member's Deemed Capital Account as
of the end of the taxable year to which such
allocation relates.
8.4 Minimum Gain Chargeback If there is a net
decrease in Minimum Gain during a taxable year of
the Company, then notwithstanding any other
provision of this Section 8 or Section 16.3, each
Member must be allocated items of income and gain
for such year and succeeding taxable years to the
extent necessary (the
"Minimum Gain Chargeback"), in proportion to, and
to the extent of an amount
required under Treasury Regulation Section 1.704-
2(f).
85 Qualified Income Offset. If at the end of
any taxable year and after operation of Section
8.4, any Member shall have a negative balance in
such Members Deemed Capital Account, then
notwithstanding anything contained in this Section
8, there shall be reallocated to each Member with
a negative balance in such Member's Deemed Capital
Account (determined after the allocation of
income, gain, or loss under this Section 8 for
such year), each item of Company gross income
(unreduced by any deductions) and gain in
proportion to such negative balances until the
Deemed Capital Account for each such Member is
increased to zero.
8.6 Curative Allocations. The allocations set
forth in Sections 83, 8.4, and 8S (the "Regulatory
Allocations") are intended to comply with certain
requirements of the Treasury Regulations issued
pursuant to Code Section 704(b). It is the intent
of the Members that, to the extent possible, all
Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special
allocations of other items of Company income,
gain, loss, or deduction pursuant to this Section
8.6. Therefore, notwithstanding any other
provision of this Section 8 (other than the
Regulatory Allocations), the Managers shall make
such offsetting special allocations of Company
income, gain, loss, or deduction in whatever
manner they determine appropriate so that, after
such offsetting allocations are made, each
Member's Capital Account balance is, to the extent
possible, equal to the Capital Account balance
such Member would have had if the Regulatory
Allocations were not part of the Agreement and all
Company items were allocated pursuant to Sections
8.1 and 8.2. .
8.7 Modification of Company Allocations. It
is the intent of the Members that each Member's
distributive share of income, gain, loss,
deduction, or credit (or items thereof) shall be
determined and allocated in accordance with this
Section 8 to the fullest extent permitted by
Section 704(b) of the Code. In order to preserve
and protect the determinations and allocations
provided for in this Section 8, the Managers
shall be, and hereby are, authorized and directed
to allocate income gain, loss, deduction, or
credit (or items thereof) arising in any year
differently from the manner otherwise provided
for in this Section 8 if, and to the extent that,
allocation of income, gain, loss, deduction, or
credit (or items thereof) arising in any year
different from the manner otherwise provided for
in this Section 8 if, and to the extent that,
allocation of income, gain, loss, deduction, or
credit (or items thereof) in the manner provided
for in this
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<PAGE>
Section 8 would cause the determination and
allocation of each Member's distributive share of
income, gain, loss, deduction, or credit (or
items thereof) not to be permitted by Section
704(b) of the Code and Treasury Regulations
promulgated thereunder. Any allocation made
pursuant to this Section 8.7 shall be made only
after the Managers have secured an opinion of
counsel that such modification is the minimum
modification required to comply with Code Section
704(b) and shall be deemed to be a complete
substitute for any allocation otherwise provided
for in this Section 8, and no amendment of this
Agreement or approval of any Member shall be
required. The Members shall be given notice of
the modification within thirty (30) days of the
effective date thereof such notice to include the
text of the modification and a statement of the
circumstances requiring the modification to be
made.
8.8 Deficit Capital Accounts at Liquidation.
It is understood and agreed that one purpose of
the provisions of this Section 8 is to insure
that none of the Members has a deficit Capital
Account balance after liquidation and to insure
that all allocations under this Section 8 will be
respected by the Internal Revenue Service. The
Members and the Company neither intend nor expect
that any Member will have a deficit Capital
Account balance after liquidation; and,
notwithstanding any thing to the contrary in this
Agreement, the provisions of this Agreement shall
be construed and interpreted to give effect to
such intention. However, if following a
liquidation of a Member's interest as determined
under Treasury Regulation Section 1.704-
1(b)92)(ii)(g), a Member has a deficit balance in
such Member's Capital Account after the
allocation of Net Income pursuant to this Section
8 and Section 16.3 and all other adjustments have
been made to such Member's Capital Account for
Company operations and liquidation, no Member
shall have any obligation to restore such deficit
balance.
9. Company Expenses. In addition to the costs to
be reimbursed to the Managers pursuant to the
provisions of Section 11.8 hereof but subject to the
limitations set forth therein, the Company shall pay,
and the Managers shall be reimbursed for, all costs and
expenses of the Company, which may include, but are not
limited to:
(a) All organizational expenses incurred
in the formation of the Company and the
selling of interests in the Company;
(b) All costs of personnel employed by
the Company;
(c) All costs reasonably related to the
conduct of the Company's day-to-day business
affairs, including, but without limitation,
the cost of supplies, utilities, taxes,
licenses, fees, and services contracted from
third parties;
(d) All costs of borrowed money, taxes,
and assessments on Company Property and other
taxes applicable to the Company;
(e) Legal, audit, accounting, brokerage,
and other fees;
(f) Printing and other expenses and
taxes incurred in connection with the
issuance, distribution, transfer,
registration, and recording of documents
evidencing ownership of an interest in the
Company or in connection with the business of
the Company;
(g) Fees and expenses paid to
contractors, mortgage bankers, brokers
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and services, leasing agents, consultants,
onsite managers, real estate brokers,
insurance brokers, and other agents,
including affiliates of the Managers;
(h) Expenses in connection with the
acquisition, preparation, design, planning,
construction, development, disposition,
replacement, alteration, repair, remodeling,
refurbishment, leasing, financing, and
refinancing and operation of Company Property
(including the costs and expenses of legal
and accounting fees, insurance premiums, real
estate brokerage, leasing commissions, and
maintenance of such property);
(i) The cost of insurance obtained in
connection with the business of the Company;
(j) Expenses of revising, amending,
converting, modifying, or terminating the
Company;
(k) Expenses in connection with
distributions made by the Company to, and
communications and bookkeeping and clerical
work necessary in maintaining relations with,
Members;
(1) Expenses in connection with
preparing and making reports required to be
furnished to Members for investment, tax
reporting, or other purposes that the
Managers deem appropriate;
(m) Costs incurred in connection with
any litigation, including any examinations or
audits by regulatory agencies; and
(n) Costs of preparation and
dissemination of informational material and
documentation relating to potential sale,
refinancing, or other disposition of Company
properties.
10. Distributions of Cash Available for
Distribution. At such times and in such amounts as
the Managers in their discretion determine
appropriate, and subject to a11 restrictions
concerning distribution contained in any agreement
with a third party, Cash Available for Distribution
shall be distributed in the following order of
priority:
(a) First, among the Members in
proportion to their Adjusted Contribution
Amounts until such balances are reduced to
zero; and
(b) Thereafter, among the Members in
proportion to their Percentage Interests.
As long as there are any amounts due and
owing to Emeritus under the Emeritus Corporation Loan,
or Emeritus is a member of Aurora Bay Investments,
L.L.C., the Managers shall cause the Company to make
quarterly distributions of Cash Available for
Distribution, no later than 45 days after the end of
each calendar quarter. In computing Cash Available for
Distribution, the Managers may set aside reasonable
amounts as reserves for capital expenditures,
replacements, contingent or unforeseen liability, or
other obligations of the Company, but the amounts of
such reserves shall be reassessed at the end of each
quarter to determine whether such balances are adequate
in amount, should be increased or decreased, and if
decreased the excess reserves will be available for
distribution to the Members. Moreover, Cash
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Available for Distribution may not be used by the
Company to make investments in new Projects without the
prior consent of Emeritus. It is the intent of the
Parties to make periodic distributions of Cash
Available for Distribution if and when such excess cash
is available and not to hold such funds to build up
reserves beyond reasonable amounts or to make
investments in new Projects.
11. Powers, Rights, and Obligations of
Managers.
11.1 General Authority and Powers of
Managers. Except as provided in Section 11.7
and elsewhere in the Agreement, the Managers
shall have the exclusive right and power to
manage, operate, and control the Company and to
do all things and make all decisions necessary
or appropriate to carry on the business and
affairs of the Company. All decisions required
to be made by the Managers shall require the
approval of all Managers, except as the
Managers shall otherwise agree. In the event
the Managers shall be unable to agree upon any
matter described in this Section 11.1, then the
Managers shall provide written notice of the
proposed action to all Members, and the
decision of Members holding a majority of the
Percentage Interests in the Company shall be
binding upon the Managers. The authority of the
Managers shall include, but shall not be
limited to, the following:
(a) To spend the capital and revenues of
the Company;
(b) To manage, sell, develop, improve,
operate, and dispose of any Company
properties and assets, including to act on
behalf of the Company with respect to any
partnership or joint venture in which the
Company participates;
(c) To employ persons, firms, and/or
corporations for the operation and management
of the Company's business and for the
operation and development of the properties
and assets of the Company, including, but not
limited to, sales agents, management agents,
architects, engineers, contractors,
attorneys, and accountants;
(d) To acquire, lease, and sell personal
and/or real property, hire and fire
employees, and to do all other acts
necessary, appropriate, or helpful for the
operation of the Company business;
(e) To execute, acknowledge, and deliver
any and all instruments to effectuate any of
the foregoing powers and any other powers
granted the Managers under the laws of the
state of Washington or other provisions of
this Agreement;
(f) To enter into and to execute
agreements for employment or services, as
well as any other agreements and all other
instruments the Managers deem necessary or
appropriate to operate the Company's business
and to operate and dispose of Company
properties and assets or to effectively and
properly perform its duties or exercise its
powers hereunder;
(g) To borrow money on a secured or
unsecured basis from individuals, banks, and
other lending institutions to finance its
Subsidiaries in the construction of a Project
or refinance Company assets, to meet other
Company obligations, provide Company working
capital and for any other Company purpose,
and to execute promissory notes, mortgages,
deeds of trust, and
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assignments of Company's property and assets,
and such other security instruments as a
lender of funds may require, to secure
repayment of such borrowings; provided, that
no individual, entity, bank, or other lending
institution to which the Managers apply for a
loan shall be required to inquire as to the
purpose for which such loan is sought, and as
between the Company and such individual,
entity, bank, or other lending institution,
it shall be conclusively presumed that the
proceeds of such loan are to be, and will be,
used for purposes authorized under the terms
of this Agreement;
(h) To enter into such agreements and
contracts and to give such receipts,
releases, and discharges, with respect to the
business of the Company, as the Managers deem
advisable or appropriate;
(i) To purchase, at the expense of the
Company, such liability and other insurance
as the Managers, in their sole discretion,
deem advisable to protect the Company's
assets and business; however, the Managers -
shall not be liable to the Company or the
other Members for failure to purchase any
insurance; and
(j) To sue and be sued, complain,
defend, settle, and/or compromise with
respect to any claim in favor of or against
the Company, in the name and on behalf of the
Company.
(k) To lend money to the Company to pay
Company operating costs, including, without
limitation, all start-up costs, upon such
terms and conditions as the Managers shall
reasonably determine.
11.2 Time Devoted to company; Other Ventures.
The Managers shall
devote so much of their time to the business of
the Company as in their judgment the conduct of
the Company's business reasonably requires. The
Managers may engage in business ventures and
activities of any nature and description
independently or with others, whether or not in
competition with the business of the Company, and
shall have no obligation to disclose business
opportunities available to it, and neither the
Company nor any of the other Members shall have
any rights in and to such independent ventures and
activities or the income or profits derived
therefrom by reason of its acquisition of
interests in the Company. This Section 11.2 is
intended to modify any provisions or obligations
of the Act to the contrary, and each Manager and
the Company hereby waives and releases any claims
they may have under the Act with respect to any
such activities or ventures of the Managers or
other Members.
11.3 Liability of Managers to Members and to
the Company. In carrying out its duties and
exercising the powers hereunder, the Managers
shall exercise reasonable skill, care, and
business judgment. The Managers shall not be
liable to the Company or other Members for any act
or omission performed or omitted by it in good
faith pursuant to the authority granted to it by
this Agreement as a Manager or Tax Matters Partner
(as defined in the Code) unless such act or
omission constitutes negligence or willful
misconduct by such Manager.
11.4 Indemnification. The Company shall
indemnify and hold harmless the Managers from any
loss or damage, including attorneys' fees actually
and reasonably incurred by it, by reason of any
act or omission performed or omitted by it on
behalf of the Company or in furtherance of the
Company's interests or as Tax Matters Partner;
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however, such indemnification or agreement to hold
harmless shall be recoverable only out of the
assets of the Company and not from the Members.
11.5 Fiduciary Responsibility. The Managers
shall have a fiduciary responsibility for the
safekeeping and use of all funds and assets of the
Company, and all such funds and assets shall be
used in accordance with the terms of this
Agreement.
11.6 Contract with the Manager.
(a) Without limitation upon the other
powers set forth herein, the Managers are
expressly authorized for, in the name and on
behalf of the Company to:
(i) Cause the Company Members for
expenses incurred accordance with
Section 11.8; to reimburse the Managers
and on behalf of the Company in
(ii) Permit the Partnership to
borrow monies from the Managers in
connection with the development,
construction, and operations of the
Projects as contemplated and permitted
by the Credit Agreement;
(iii) Permit the Partnership to
engage South Bay Partners, Inc., an
Affiliate of Craig W. Spaulding, to
provide certain development services to
the Partnership to develop the Project
pursuant to the terms and conditions of
a Development Services Agreement, the
form and substance of which is set forth
in Exhibit "B" attached hereto;
(iv) Permit the Partnership to
engage Jerry Erwin Associates, Inc., an
Affiliate of Jerry Erwin, to manage the
Project pursuant to the terms and
conditions or a Property Management
Agreement, the form and substance of
which is set forth in Exhibit "C"
attached hereto.
(b) The Company may not enter into, nor
may the Managers permit the Partnership to
enter into, any other agreement, contract, or
arrangement with a Manager, Member, or aa
Affiliate thereof or provide for an amendment
for any of the pre-authorized transactions,
pursuant to which such person may profit or
benefit, unless and until each of the
following conditions is satisfied:
(i) Such agreement, contract, or
arrangement or amendment is embodied
in a written contract that described
the goods to be provided, the services
to be rendered or the property to be
sold, transferred, assigned, or
conveyed, and all compensation,
payments, remuneration, or other
consideration to be paid;
(ii) Such agreement, contract, or
arrangement is promptly disclosed and
its terms summarized in the reports to
the Members and to Emeritus;
(iii) Such agreement, contract,
or arrangement is approved
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or ratified by a majority vote of the
Member (excluding for this purpose the
Interests held by the interested
Member) and by Emeritus; and
(iv) Once approved, such
agreement, contract, or arrangement
may not be amended, modified, or
supplemented without the prior
approval of a majority of the Members
(excluding for this purpose the
Interests held by the interested
Member) and by Emeritus.
(c) The foregoing provisions are
specifically included herein for the benefit
of the Company and all the Members to enable
the Company to operate efficiently and
expeditiously, consistent with the standard
set forth, and the Members hereby waive and
release any claims they may have under the
Act for any contracts of agreements entered
into by the Managers which are consistent
with the provisions of this Section 11.6.
11.7 Restrictions on Authority of Managers
The Company will not take any of the
acts enumerated below or cause or permit
the Partnership to take similar acts,
unless proposed by the Managers and
approved by Emeritus or unless requested
by Emeritus and approved by Emeritus and
Members holding a majority of the
outstanding Interests, with or without the
concurrence of the Managers:
(i) The sale, exchange, or other
disposition of entity assets having a
fair market value of $50,000.00 or
more;
(ii) The sale, exchange, or
other disposition of any real estate
assets;
(iii) The incurrence of any
indebtedness by the entity, whether
secured or unsecured, recourse or
nonrecourse, in an amount of
$100,000.00 or more (standing
authorization may be given for
certain accounts receivable financing
or a permanent line of credit for the
benefit of the entity);(iv) Any
decision to expand or broaden the
scope of the entity's business beyond
that specifically authorized in the
entity's organizational documents;
(v) Any expenditures for capital
improvements or assets in excess of
$50,000.00;
(vi) The approval of an annual
budget for the entity, with the Managers
being authorized to expend funds
consistent with the annual budget as
long as such expenditures do not exceed
5% of the budgeted amounts;
(vii) Decisions regarding any
claims made by or against the entity,
including, but not limited to, decisions
regarding the prosecution, settlement,
or other disposition of such claims;
13
<PAGE>
(viii) The response to any
governmental investigation, inquiry,
action, or the like affecting the
business and affairs of the entity;
(ix) Entering into a joint venture,
partnership, limited partnership, or
other business arrangement with any
third party to conduct the entity's
business;
(x) The admission of any new Member
to the entity (except to the extent that
such admission is expressly authorized
under this Agreement);
(xi) Any encumbrance, mortgage,
pledge, or granting of a security
interest or lien in any real or personal
property owned or to be owned by the
entity, except to the extent such
security interest or lien is granted to
secure entity financing permitted by the
terms of the Credit Agreement;
(xii) The execution of any
guaranty by the entity of another's
obligations;
(xiii) The dissolution and winding
up of the Company;
(xiv) Approval of the withdrawal of
a Manager;
(xv) Appointment of a new Manager;
(xvi) Continuation of the Company
in accordance with Section 16.1(d); .
(xvii) The acquisition of any real
property;
(xviii) Developing a Project other
than an Alzheimer's facility;
(xix) The engagement of the Manager
or any Affiliate thereof to enter into a
transaction with, or to provide goods,
materials, or services to the entity
(except to the extent that such
transaction is expressly permitted by
the terms of this Agreement or the
written contracts contemplated hereby);
and
(xx) The issuance of any equity
securities by the Company or the
Partnership.
11.8 Reimbursement and Compensation. Except
as otherwise provided herein, the Managers will be
entitled to be reimbursed for direct payment of
all reasonable and necessary business expenses
incurred in the administration of the Company.
Notwithstanding anything in this Agreement to the
contrary, the Company shall not pay nor reimburse
either of the Managers for:
(a) any compensation, salary or salary-
related expenses, or other remuneration,
however designated, paid to, or incurred by
Craig W. Spaulding, Jerry Erwin, or Thilo
Best, in rendering any services to and on
behalf of the
14
<PAGE>
Company under this Agreement.
(b) the Manager's overhead, such as rent
or depreciation, utilities, and capital
expenditures, or any other indirect costs
incurred by the Manager in maintaining its
corporate offices;
(c) any services rendered by the Manager
or its Affiliates pursuant to a separate
agreement between such persons and the
Company, providing separately for payment for
such services; or
(d) any compensation, salary or salary-
related expenses, or other remuneration,
however designated, paid to, or incurred by,
the employees of the Manager or any Affiliate
thereof in rendering services to or on behalf
of the Company (exclusive of services covered
by subparagraph (c) above, which are to be
handled as provided for therein) or any
goods, services, or products not purchased
for the exclusive use of the Company, except
to the extent that such arrangements are
disclosed to Emeritus in advance and approved
by it.
12. Status of Members.
12.1 No Participation in Management. Except
as specifically provided in Section 11.7 above, no
Member shall take part in the conduct or control
of the Company's business or the management of the
Company or have any right or authority to act for
or on the behalf of or otherwise bind, the Company
(except a Member who may also be a Manager and
then only in such Member's capacity as a Manager
within the scope of such Member's authority
hereunder).
12.2 Limitation of Liability. No Member shall
have, solely by virtue of such Member's status as
a Member in the Company, any personal liability
whatever, whether to the Company, to any Members,
or to the creditors of the Company, for the debts
or obligations of the Company or any of its losses
beyond the amount committed by such Member to the
capital of the Company, except as otherwise
required by the Act.
12.3 Death or Incapacity of Non-Manager
Member. The death, incompetence, withdrawal,
expulsion, bankruptcy, or dissolution of a Member,
or the occurrence of any other event which
terminates the continued membership of a Member in
the Company, shall not cause a dissolution of the
Company. Upon the occurrence of such event, the
rights of such Member to share in the Net Income
and Net Loss of the Company, to receive
distributions from the Company, and to assign an
interest in the Company pursuant to Section 14.3
below shall, on the happening of such an event,
devolve upon such Member's executor,
administrator, guardian, conservator, or other
legal representative or successor as the case may
be, subject to the terms and conditions of this
Agreement, and the Company shall continue as a
limited liability company. However, in any such
event, such legal representative or successor, or
any assignee of such legal representative or
successor, shall be admitted to the Company as a
Member only in accordance with and pursuant to all
of the terms and conditions of Section 14.4 hereof
12.4 Recourse of Members. Each Member shall
look solely to the assets of the Company for all
distributions with respect to the Company and such
Member's Capital
15
<PAGE>
Contribution thereto and share of Net Income and
Net Loss thereof and shall have no recourse
therefor, upon dissolution or otherwise, against
any Manager or any other Member.
12.5 No Right to Proper r. No Member,
regardless of the nature of such Member's
contributions to the capital of the Company, shall
have any right to demand or receive any
distribution from the Company in any form other
than cash, upon dissolution or otherwise.
13. Books and Records, Accounting,
Reports and Statements, and Tax Matters.
13.1 Books and Records. The Managers shall,
at the expense of the Company, keep and
maintain, or cause to be kept and maintained,
the books and records of the Company on the same
method of accounting as utilized for federal
income tax purposes.
132 Annual Accounting Period. All books and
records of the Company shall be kept on the
basis of an annual accounting period ending
December 31 of each year, except for the final
accounting period which shall end on the date of
termination of the Company. All references
herein to the "fiscal year of the
Company" are to the annual accounting period
described in the preceding sentence, whether the
same shall consist of twelve months or less.
133 Managers' Reports to Members. The
Managers shall send, at Company expense, to each
Member the following:
(a) Within seventy-five (75) days
after the end of each fiscal year of the
Company, such information as shall be
necessary for the preparation by such
Member of such Member's federal income tax
return which shall include a computation of
the distributions to such Member and the
allocation to such Member of profits or
losses as the case may be; and
(b) Within forty-five (45) days after
the end of each fiscal quarter of the
Company, a quarterly report, which shall
include:
(i) A balance sheet;
(ii) A statement of income and
expenses;
(iii) A statement of changes in
Member's capital; and
(iv) A statement of the
balances in the Capital Accounts of
the Members.
13.4 Right to Examine Records. Members
shall be entitled, upon written request directed
to the Company, to review and copy at such
Members' expense the records of the Company at
all reasonable times and at the location where
such records are kept by the Company.
13.5 Tax Matters Partner. Should there be
any controversy with the Internal Revenue
Service or any other taxing authority involving
the Company, the Managers
16
<PAGE>
may expend such funds as they deem necessary and
advisable in the interest of the Company to
resolve such controversy satisfactorily,
including, without being limited thereto,
attorneys' and accounting fees. Aurora Bay
Investments, L.L.C. is hereby designated as the
'Tax Matters Partner" as referred to in Section
6231(a)(7)(A) of the Code and is specially
authorized to exercise all of the rights and
powers now or hereafter granted to the Tax
Matters Partner under the Code.
Any cost incurred in the audit by any
governmental authority of the income tax returns of
a Member (as opposed to the company) shall not be a
Company expense. The Managers agree to consult with
and keep the Members advised with respect to (i)
any income tax audit of a Company income tax
return, and (ii) any elections made by the Company
for federal, state, or local income tax purposes.
13.6 Tax Returns. The Managers shall, at
Company expense, cause the Company to prepare and
file a United States Partnership Return of Income
and all other tax returns required to be filed by
the Company for each fiscal year of the Company.
13.7 Tax Elections. The Managers shall be
permitted in its discretion to determine whether
the Company should make an election pursuant to
Section 754 of the Code to adjust the basis of the
assets of the Company. Each of the Members shall,
upon request, supply any information necessary to
properly give effect to any such election. In
addition, the Manager, in its sole discretion,
shall be authorized to cause the Company to make
and revoke any other elections for federal income
tax purposes as they deem appropriate, necessary,
or advisable.
14. Transfers of Company Interests; Withdrawal and
Admission of Members
14.1 General Provision. No Member may
voluntarily or involuntarily, directly or
indirectly, sell, transfer, assign, pledge, or
otherwise dispose of or mortgage, pledge,
hypothecate, or otherwise encumber, or permit or
suffer any encumbrance of all or any part of such
Member's interest in the Company, except as
provided in this Section 14. Any other purported
sale, transfer, assignment, pledge, or encumbrance
shall be null and void and of no force or effect
whatsoever. Notwithstanding anything in this
agreement to the contrary, each of the Members is
authorized to grant to Emeritus a first priority
and exclusive security interest in such Members
Interest in the Company to secure the Company's
performance under the Credit Agreement and related
documents.
14.2 Withdrawal of Member. A Member shall
have no power to withdraw voluntarily from the
Company, except that a Member may withdraw upon
written approval of a majority of the non-
withdrawing Members voting by Percentage
Interests, which approval shall include the terms
for redemption by the Company of the Interest of
such Member.
14.3 Transfer by Members.
(a) Subject to any restrictions on
transferability required by law or
contained elsewhere in this Agreement, a
Member may transfer such Member's entire
interest in the Company upon satisfaction
of the following conditions:
(i) The transfer shall be
approved in writing by the
17
<PAGE>
Members and Emeritus, which approvals
may be granted or denied in their sole
discretion.
(ii) The transferor and
transferee shall have executed and
acknowledged such reasonable and
customary instruments as the Members
may deem necessary or desirable to
effect such transfer; and
(iii) The transfer does not
violate any applicable law or
governmental rule or regulation,
including, without limitation, any
federal or state securities laws.
(b) At the time of a transfer of any
Member's interest, whether or not such
transfer is made in accordance with this
Section 14.3, all the rights possessed as a
Member in connection with the transferred
interest, which rights otherwise would be
held either by the transferor or the
transferee, shall terminate against the
Company unless the transferee is admitted
to the Company as a Substitute Member
pursuant to the provisions of Section 14.4
hereof; provided, however, that if the
transfer is made in accordance with this
Section 143, such transferee shall be
entitled to receive distributions to which
his transferor would otherwise be entitled
from and after the effective date of such
transfer, which date shall be specified by
the Managers and shall be no later than the
last day of the calendar month following
the first calendar month during which the
Managers have received notice of the
transfer and all conditions precedent to
such transfer provided for in this
Agreement have been satisfied. 'The Company
and the Managers shall be entitled to treat
the transferor as the recognized owner of
such interests until such effective date
and shall incur no liability for
distributions made in good faith to the
transferor prior to the effective date.
(c) Notwithstanding any other
provision of this Agreement, a Member may
not transfer such Member's interest in any
case if such a transfer, when aggregated
with all other transfers within a twelve
(12)-month period, would cause the
termination of the Company as a
partnership for federal income tax
purposes pursuant to Section 708 of the
Code, unless such transfer has been
previously approved by the Manager.
14.4 Admission of Transferees as Members
(a) No transferee of a Member shall be
admitted as a Member unless a11 of the
following conditions have been satisfied: .
(i) The transfer complies with
Section 14.3;
(ii) The prospective transferee has
executed an instrument, in form and
substance satisfactory to the Manager,
accepting and agreeing to be bound by
all the terms and conditions of this
Agreement, including the power of
attorney set forth in Section 17 hereof
and has paid all expenses of the Company
in effecting the transfer;
(iii) All requirements of the Act
regarding the admission of a
18
<PAGE>
transferee Member have been complied
with by the transferee, the transferring
Member, and the Company; and
(iv) Such transfer is effective in
compliance with all applicable state and
federal securities laws.
(b) In the event of a transfer complying
with all the requirements of Section 14.3
hereof. and the transferee being admitted as a
Member pursuant to this Section 14.4, the
Manager, for itself and for each Member
pursuant to the Power of Attorney granted by
each Member, shall execute an amendment to
this Agreement and file any necessary
amendments to the articles of organization for
the Company. Unless named in this Agreement,
as amended from time to time, no person shall
be considered a Member.
14.5 Admission of Additional Members.
Additional Members of the Company may be admitted
if a proposed additional Member desires to
purchase an Interest from the Company, such
purchase may be made and the admission of the
additional Member shall become effective only if
approved by unanimous vote of the existing Members
and Emeritus and compliance with the provisions of
this Section 14.5 and 14.4(a)(ii), (iii), and (iv)
hereof. Notwithstanding anything in this Agreement
to the contrary, Emeritus will be admitted,
without requiring additional consents or approvals
of the Members or the Managers or the taking of
any other action, as substitute or additional
Member, should it exercise its rights to acquire
the Interest of a Member pursuant to the pledge
given to Emeritus to secure performance under the
Credit Agreement. There are no additional
conditions to Emeritus' admission to the Company
under those circumstances. The Company will,
however, cause an amendment to this Agreement to
be promptly prepared to evidence Emeritus'
decision to acquire such equity interest in the
Company. Emeritus' rights as a new Member are,
however, not contingent upon the Company's
preparing such an amendment;
15. Resignation and Admission of Manager.
15.1 Resignation of Manager. A Manager shall
not be entitled to resign as Manager. Moreover, if
a Manager resigns in contradiction to this
prohibition, such resigning Manager shall be
liable to the Company for any and all damages,
liabilities, costs, and expenses incurred by the
Company or the other Members as a result of such
resignation.
15.2 Death or Incompetency of Manager. A
Manager shall cease to be a Manager upon the
death, incompetency, bankruptcy, or dissolution of
such Manager.
15.3 Removal of a Manager. A Manager that is
a Member may be removed as a Manager upon the
unanimous written approval of the remaining
Members. A Manager that is not a Member may be
removed as a Manager upon the unanimous written
approval of Members, provided any Member which is
owned in whole or in part by the Manager sought to
be removed shall not be entitled to vote on such
Manager's removal, and the unanimous written
approval of the remaining Members shall be
necessary and sufficient to remove such Manager.
Removal of a Manager who is a Member of the
Company, pursuant to this Section 15.3, shall not
affect such Manager's interest as a Member of the
Company, if any.
19
<PAGE>
15.4 Appointment of a New or Replacement
Manager. A new or replacement Manager may be
appointed with the written approval of Members
holding a majority of the Percentage Interests of
the Company and by Emeritus, provided, however,
that at all times there must be at least one
Manager in the Company.
15.5 Automatic Removal of a Manager. In the
event Craig W. Spaulding ceases to be a Member of
Aurora Bay Investments, L.L.C. for any reason, he
shall simultaneously cease to be a Manager. In the
event Erwin Investors I, L.L.C. ceases to be a
Member of Aurora Bay Investments, L.L.C. for any
reason, Jerry Erwin shall simultaneously cease to
be a Manager.
16. Dissolution, Winding Up, and Termination
16.1 Events Causing Dissolution. The Company
shall be dissolved and its affairs shall be wound
up upon the happening of the first to occur of any
of the following events:
(aj Expiration of the term of the
Company stated in Section 6 hereof;
(b) Entry of a decree of administrative
or judicial dissolution pursuant to the Act;
(c) The sale or other disposition of all
or substantially all of the assets of the
Company;
(d) The death, incompetence, withdrawal,
expulsion, resignation, removal, bankruptcy,
or dissolution of the last remaining Manager
of the Company, unless (i) within 120 days of
such occurrence, Members owning at least a
majority of Percentage Interests in the
Company, consent to the appointment of a new
Manager(s) in accordance with Section 15.4,
in which case the business of the Company
shall be carried on by the newly appointed
Manager(s);
(e) The unanimous written approval of
the Members to dissolve.
16.2 Winding Up.
(a) Upon dissolution of the Company for
any reason, the Managers shall commence to
wind up the affairs of the Company and to
liquidate its assets. In the event the
Company has terminated because the Company
lacks a Manager, then the remaining Members
shall appoint a new Manager solely for the
purpose of winding up the affairs of the
Company. The Managers shall have the full
right and unlimited discretion to determine
the time, manner, and terms of any sale or
sales of Company Property pursuant to such
liquidation. Pending such sales., the
Managers shall have the right to continue to
operate or otherwise deal with the assets of
the Company. A reasonable time shall be
allowed for the orderly winding up of the
business of the Company and the liquidation
of its assets and the discharge of its
liabilities to creditors so as to enable the
Managers to minimal the normal losses
attendant upon a liquidation, having due
regard to the activity and condition of the
relevant markets for the Company properties
and general financial and economic
conditions. .
20
<PAGE>
(b) The Managers shall cause the
proceeds from the sale and liquidation of the
Company's property to be applied and
distributed in the following order:
(i) First to the payment and
discharge of all of the Company's debt
and liabilities to creditors, including
payments of any Project Loans and
Subsidiary Loans and other loans from
Members and their affiliates, and all
expenses of liquidation;
(ii) Second, after giving effect to
all the allocations required to be made
under this Agreement, to Members in
proportion to their Capital Account
balances; and
(iii) Thereafter, the balance, if
any, to the Members in proportion to
their Percentage Interests.
(c) It is intended and anticipated that
the amount of case distributed upon a
termination or dissolution of the Company
should equal the sum of the Members' Capital
Accounts after adjustments of such balance
in accordance with Sections 7 and 8 hereof.
16.3 Certificate of Cancellation; Report;
Termination. Upon the dissolution and completion
of winding up of the Company, the Managers shall
execute and file a certificate of cancellation
for the Company. Within a reasonable time
following the completion of the liquidation of
the Company's assets, the Managers shall prepare
and furnish to each Member, at the expense of the
Company, a statement which shall set for the
assets and liabilities of the Company as of the
date of complete liquidation and the amount of
each Member's distribution pursuant to Section
162 hereof Upon completion of the liquidation and
distribution of all Company funds, the Company
shall terminate, and the Managers shall have the
authority to execute and file all documents
required to effectuate the termination of the
Company.
17. Special and Limited Powers of Attorney
(a) The Managers shall at all times
during the existence of the Company have a
special and limited power of attorney as the
authority to act
in the name and on the behalf of each Member
to make, execute, swear to, verify,
acknowledge, and file the following documents
and any other .documents deemed by the
Managers to be necessary for the business of
the Company;
(b) This Agreement, any separate
certificate of formation, fictitious business
name statements, as well as any amendments to
the foregoing which under the laws of any
state are required to be fled or which the
Managers deem it advisable to file;
(c) Any other instrument or document
which may be required to be filed by the
Company under the laws of any state or by
any governmental agency or which the
Managers deem advisable to file; and
(d) The special and limited power of
attorney granted to the Manager hereby:
21
<PAGE>
(i) Is a special and limited power
of attorney coupled with an interest,
is irrevocable, shall survive the
dissolution or incompetency of the
granting Members and is limited to
those matters herein set forth;
(ii) May be exercised by the
Managers(or by any authorized officer of
the Manager, if not a natural person)
for each Member by referencing the list
of Members on Appendix A and executing
any instrument with a single signature
acting as attorney-in-fact for all of
them;
(iii) Shall survive a transfer by a
Member of such Member's interest in the
Company pursuant to Section 14.3 hereof
for the sole purpose of enabling the
Managers to execute, acknowledge, and
file any instrument or document
necessary or appropriate to admit a
transferee as a Member; and
(iv) Notwithstanding the foregoing,
in the event that a Manager ceases to be
a Manager in the Company, the power of
attorney granted by this Section 17 to
such Manager shall terminate
immediately; but any such termination
shall not affect the validity of
any documents executed prior to such
termination or any other actions
previously taken pursuant to this power
of attorney or in reliance upon its
validity, all of which shall continue to
be valid and binding upon the Members in
accordance with their terms.
18. Amendments. Except as otherwise provided by
law, this Agreement may be amended in any respect by
the unanimous written approval of the Members and
Emeritus.
19. Miscellaneous.
19.1 Notices. Any notices or communications
required or permitted to be delivered hereunder
must be in writing and shall be deemed to be
delivered (i) upon receipt if delivered personally
or (ii) upon deposit in the United States Mail,
certified, return receipt requested, postage
prepaid, addressed to the Members, as the case may
be, or (iii) upon receipt of a facsimile
transmission, at the following addresses and/or
facsimile numbers:
Aurora Bay I, L.L.C.
Attention: Craig W. Spaulding
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240
Phone: 972-458-0025
Fax #: 972-458-2233
Aurora Bay Investments, L.L.C.
Attention: Craig w. Spaulding
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240
22
<PAGE>
Phone: 972-458-0025
Fax #: 972-458-2233
Erwin Investors I, L.L.C.
Attention: Jerry Erwin
9817 N.E. 54th Street
Vancouver, Washington 98662
Phone: 360-254-9442
Fax #: 360-254-1770
Mr. Craig W. Spaulding
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240
Phone: 972-458-0025
Fax #: 972-458-2233
Mr. Jerry Erwin
9817 N.E. 54th Street
Vancouver, Washington 98662
Phone: 360-254-9442
Fax #: 360-254-1770
19.2 Entire Agreement. This Agreement
constitutes the entire agreement
among the parties and supersedes any prior
agreement or understandings among them, oral or
written, all of which are hereby cancelled. This
Agreement may not be modified or amended other
than pursuant to Section 18 hereof.
19.3 Captions: Pronouns. The paragraph and
section titles or captions contained in this
Agreement are inserted only as a matter of
convenience of reference. Such titles and
captions in no way define, limit, extend, or
describe the scope of this Agreement nor the
intent of any provision hereof All pronouns and
any variation thereof shall be deemed to refer to
the masculine, feminine, or neuter, singular or
plural, as the identify of the person or persons
may require.
19.4 Counterparts. This Agreement may be
executed in any number of counterparts and by
different parties hereto in separate
counterparts, each of which when so executed
shall be deemed to be an original and all of
which when taken together shall constitute one
and that same agreement. Delivery of any executed
counterpart of a signature page to this Agreement
by facsimile shall be effective as delivery of an
executed original counterpart of this Agreement.
19.5 Governing Law. This Agreement shall be
governed by and construed in accordance with the
internal laws of the State of Washington.
19.6 Expiration of Emeritus' Rights. The
rights granted to Emeritus will expire and be of
no further force and effect if the following
conditions is satisfied: (i) Emeritus does not
exercise its right to convert the Emeritus
Corporation Loan into an equity interest in the
Company prior to the expiration of such right
under the Convertible Promissory Note, and (ii)
the Managers discharge, and each of the Members
discharges, in full any and all obligations it
owes to Emeritus under the Credit Agreement, the
Convertible Promissory Note, and any and all other
documents executed in connection
23
<PAGE>
therewith.
IN WITTINESS WHEREOF the parties have executed
this Agreement as of the date first hereinabove
written.
MEMBERS:
Aurora Bay Investments,
L.L.C., a
Washington limited
liability company
By: /s/ Craig W.
Spaulding
------------------
-------------------
Craig W.
Spaulding, Manager
By: /s/ Jerry Erwin
-----------------
------------------
Jerry Erwin,
Manager
ERWIN INVESTORS I,
L.L.C., a Washington
limited liability company
By: /s/ Jerry Erwin
-----------------
---------------
Jerry Erwin,
Manager
24
<PAGE> EX 10.79.9
DEVELOPMENT SERVICES AGREEMENT
(Lubbock, Texas)
This Development Services Agreement (Lubbock,
Texas) ("Agreement") is made and entered into as of the
9th day of January, 1998, by and between LUBBOCK GROUP,
LTD., a Texas limited partnership (hereinafter referred
to as "Owner") and SOUTH BAY PARTNERS, INC., a Texas
corporation ("South Bay").
A. Owner has an interest in acquiring real
property in or around the City of Lubbock, Texas
(hereinafter referred to as the "Property"), to
construct thereon an Alzheimer's special care facility
("ALZ") to provide room, board, and personal care
services primary to the elderly afflicted with
Alzheimer's disease;
B. Owner wishes to employ the services of South
Bay for the furnishing of services to and for the
benefit of Owner in connection with the development of
the Property; and
C. The parties hereto desire to enter into this
Agreement to evidence the respective rights and
obligations of the parties with respect to the
acquisition and development of the Property by the
Owner.
NOW, THEREFORE, for and in consideration of the
premises, the mutual covenants and agreements contained
herein and Ten and No/100 Dollars ($10.00) and other
good and valuable consideration received by each of the
parties hereto, Owner and South Bay hereby agree as
follows:
1. COMMENCEMENT DATE AND TERM. This Agreement
shall become effective on the date hereof and shall
continue until the ALZ has been constructed upon the
Property, and the Owner accepts the completion of the
final "punch list" required to be performed by the
general contractor employed to construct the ALZ
subject to the right of Owner to terminate this
Agreement as provided herein.
2. APPOINTMENT AND ACCEPTANCE. Owner hereby
appoints South Bay to act as an agent for Owner with
respect to the services to be rendered hereunder, and
South Bay hereby accepts such appointment subject to
the terms and conditions herein set forth.
3. ADMINISTRATIVE AND MANAGEMENT SERVICES. South
Bay shall provide for Owner all services with respect
to the Property as set forth herein and such additional
duties and responsibilities as are reasonable within
the general scope of such services and
responsibilities. South Bays services shall be
performed on behalf of Owner and shall consist of the
duties -set forth below. Subject to the provisions of
paragraph 4 hereof South Bay is authorized to and shall
perform the following:
(a) Negotiate in the name of and on behalf
of Owner, and submit to Owner for its approval
and execution, (i) an agreement for the
acquisition of the Property and (ii) a
construction contract with a general contractor
to construct and place an ALZ into operation upon
the Property.
(b) Negotiate in the name of and on behalf
of, Owner an agreement with an Architect
acceptable to Owner, to provide all architectural
services in connection with the design, planning,
and construction of the ALZ upon the Property,
which agreement shall also include services to be
performed by other professional consultants
engaged and supervised by the Architect, to-wit:
(1) civil engineering, (2) structural
engineering, (3) food service design, (4)
mechanical, electrical, and plumbing engineering,
(5)
<PAGE>
geotechnical services, (6) environmental testing,
and such other consultants as South Bay and/or
the Architect shall deem necessary or required,
and Owner shall approve, in connection with the
design, planning, and construction of the ALZ on
the Property. Owner agrees to pay to Architect,
monthly as invoiced by South Bay, for a11 fees
and costs charged and approved by Owner for the
services to be performed by the Architect and the
other consultants engaged by the Architect, which
amounts shall not be credited to and applied
toward the Fee, as that term is hereinafter
defined. Site plans, design drawings, and
construction drawings and specifications prepared
by or under the supervision of the Architect
shall be subject to Owner's written approval.
Owner shall look solely to the Architect for the
content of the services performed by the
Architect and the consultants engaged and/or
supervised by the Architect.
(c) Assist Owner in the preparation of a
budget for the acquisition and development of the
Property for the period from the date of this
Agreement to the date of issuance of a
certificate of occupancy by the applicable
authority of the municipality in which the
Property is situated and periodically (not less
often than monthly) update the budget.
(d) Provide review of construction in
progress to assure conformance with site plan and
construction drawings and specifications and
adherence to budget and construction schedules.
(e) Preparation and compilation of the
general draw, including review of each draw
request from the general contractor and other
parties that contracted directly with Owner to
perform services and/or supply materials to the
project and give Owner its comments with respect
to each such draw request.
(f) Advise Owner concerning all insurance
respecting the project, including the type and
amount of insurance coverage.
(g) Advise Owner concerning, and assist Owner
in obtaining, all licenses and permits required to
construct an ALZ upon the Property and place the
same into operation.
(h) Provide Owner with a monthly written
report of the status of the project in such detail
as Owner may reasonably request.
(i) Provide Owner with other reasonable
services in connection with the acquisition of the
Property and construction of an ALZ thereon as may
be mutually agreed to by Owner and South Bay.
(j) Negotiate and execute in the name of
Owner, for and on behalf of Owner, agreements for
geotechnical services and environmental testing
with firms (hereinafter referred to as
"Engineering Firms") acceptable to South Bay and
approved by Owner, to provide those services in
connection with the development of an ALZ upon the
Properly. Owner agrees to pay to said Engineering
Firms, monthly as invoiced by South Bay, all fees
and costs charged and approved by Owner for the
services to be performed by the Engineering Firms,
which amounts shall not be credited to and applied
toward the Fee, as that term is hereinafter
defined. Owner shall look solely to the
Engineering Firms for the content of services
performed by them.
4. LIMITATIONS AND RESTRICTIONS. Notwithstanding
any other provision of this Agreement to the contrary,
South Bay shall not bind or attempt to bind Owner or
incur any obligation on behalf of Owner. South Bay
makes no representation or warranty to Owner respecting
the total cost to acquire the Property or the cost to
construct and place into operation an ALZ upon the
Property.
2
<PAGE>
5. SOUTH BAYS FEE. In consideration for the
services to be rendered by South Bay hereunder, Owner
hereby agrees to pay South Bay a fee (the "Fee") in the
amount of One Hundred Fifty Thousand and No/100 Dollars
($150,000.00), payable as follows: on the date the
agreement to acquire the Property between Owner and the
owner of the Property is closed, Owner shall pay South
Bay the sum of $37,500.00; on the date of completion of
the improvements, Owner shall pay South Bay the sum of
$37,495.00; and, the sum of $10,715.00 each month
commencing on the fifteenth day of the first month
after commencement of construction and a like amount
due on the fifteenth day of each succeeding month until
the total Fee has been paid. Any unpaid balance of the
Fee remaining unpaid on the date a certificate of
occupancy ("CO") is issued by the municipality in which
the Property is situated shall be paid within thirty
(30) days following the date of the CO. Owner shall
reimburse South Bay for all travel expenses and costs
incurred by South Bay in the performance of its duties
hereunder, monthly upon receipt of an invoice from
South Bay for such costs and expenses. South Bay shall
not be responsible for payment of any of Owner's
acquisition, development, or operating costs,
including, without limitation, those costs incurred or
paid by South Bay by reason of the agreements entered
into and negotiated by South Bay for the benefit of
Owner.
6. DEFAULT BY OWNER.
(a) In the event of default by Owner
hereunder, South Bay shall give Owner written
notice of default and an opportunity to cure such
default as follows:
(i) With respect to a monetary default,
Owner shall have fifteen (15) days to cure;
and
(ii) With respect to a nonmonetary
default, Owner shall have thirty (30) days to
cure; provided, however, in the event any
nonmonetary default cannot reasonably be
cured within the thirty (30) day period,
Owner shall not be deemed in default
hereunder if Owner commences to cure said
nonmonetary default within said thirty (30)
day period and, thereafter, diligently causes
such default to be cured.
(b) The cure period shall commence upon
delivery of written notice of default but not
later than three (3) days after such written
notice is deposited in the United States mail,
certified mail, return receipt requested, or upon
actual receipt by the intended recipient if hand
delivered.
(c) In the event the default is not timely
cured, South Bay may:
(i) Terminate this Agreement and/or
bring suit for damages as South Bays sole and
exclusive remedies hereunder.
7. DEFAULT BY SOUTH BAY.
(a) In the event of default by South Bay
hereunder, Owner shall give South Bay written
notice of default and an opportunity to cure such
default as follows:
(i) With respect to a monetary default,
South Bay shall have fifteen (15) days to
cure; and
(ii) With respect to a nonmonetary
default, South Bay shall have thirty
3
<PAGE>
(30) days to cure; provided, however, in the
event any nonmonetary default cannot
reasonably be cured within the thirty (30)
day period, South Bay shall not be deemed in
default hereunder if South Bay commences to
cure said nonmonetary default within said
thirty (30) day period and, thereafter,
diligently causes such default to be cured.
(b) The cure period shall commence upon
delivery of written notice of default but not
later than three (3) days after such written
notice is deposited in the United States mail,
certified mail, return receipt requested, or upon
actual receipt by the intended recipient if hand
delivered.
(c) In the event the default is not
timely cured, Owner may: (i) Terminate this
Agreement and/or enforce specific performance of
this Agreement as Owner's sole and exclusive
remedies hereunder.
8. TERMINATION RIGHTS. Notwithstanding anything in
agreement to the contrary, if there is an event of
default under that certain Credit Agreement dated as of
January 7th, 1998, between Aurora Bay Investments,
L.L.C. ("Aurora Bay") and Emeritus Corporation
("Emeritus"), Emeritus may, but has no obligation to,
terminate this Agreement by giving written notice of
such termination directly to Owner and South Bay. Such
notice shall be effective upon its delivery to Owner
and South Bay. Should Emeritus exercise its termination
rights hereunder, Emeritus may thereafter designate a
new party to provide similar development services to
Owner, upon such terms and conditions as Emeritus may
stipulate. This paragraph may not be amended by Owner
and South Bay without Emeritus' prior written consent,
as long as any amounts are due and owing from Aurora
Bay to Emeritus under the Credit Agreement or any of
the Loan Documents as that term is defined in the
Credit Agreement. Upon termination hereof Owner or
Emeritus shall pay to South Bay all amounts then due
hereunder, prorated for any partial monthly fee due
under paragraph 5 hereof.
9. INDEMNITY.
(a) Owner hereby indemnifies, defends, and
holds South Bay, its partners, shareholders,
directors, officers, agents, and employees
harmless of and from all loss, liability, costs,
attorney fees, and expenses incurred, paid or
suffered by South Bay and claims asserted against
South Bay, its partners, shareholders, directors,
officers, agents, and employees in connection with
the acquisition of the Property and the
construction of improvements thereon and/or claims
arising out of the performance of South Bay's
obligations and duties hereunder (except where
arising out of the negligence or willful
misconduct of South Bay or any of its employees,
its partners, shareholders, directors, officers,
agents, or employees).
(b) South Bay hereby indemnifies, defends,
and holds Owner, its shareholders, directors,
officers, agents, and employees harmless of and
from all loss, liability, costs, attorney fees,
and expenses incurred, paid, or suffered by Owner
and claims asserted against Owner, its
shareholders, directors, agents, and employees
arising out of the negligence or willful
misconduct of South Bay or any of its employees
or agents in the performance of South Bays
obligations and duties hereunder (except where
arising out of the negligence or willful
misconduct of Owner or any of its employees, its
shareholders, directors, agents, or employees).
10. ARBITRATION.
4
<PAGE>
(a) Owner and South Bay agree to settle any
and all disputes by binding arbitration as provided
in this Section 9. In the event of any such
unresolved dispute, arbitration may be instituted
by either party hereto by giving written notice to
the other party of its intention to arbitrate the
matter(s) specified in the notice. If Owner and
South Bay cannot agree (within fifteen (15) days
from the service of such notice upon the other) as
to the selection of such arbitrator, the arbitrator
shall be designated in accordance with the Rules of
the American Arbitration Association. Arbitration
shall be conducted in accordance with the rules and
procedures of the American Arbitration Association.
The decision rendered in any arbitration proceeding
hereunder shall be binding on Owner and South Bay
and may be entered in any court having jurisdiction
thereof. In determining any matter before them,
arbitrators shall apply the provisions of this
Agreement without varying therefrom in any respect.
The arbitrators shall not have the power to add to,
modify, or change any portion of this Agreement.
(b) Owner and South Bay shall pay the fees and
expenses of its own counsel and witnesses. All
other fees and expenses of arbitration shall be
shared equally by Owner and South Bay unless the
arbitrators conclude that one party has not acted
in good faith, in which event they may assign fees
and expenses.
11. MISCELLANEOUS.
(a) All notices required or permitted
hereunder shall be given in writing by actual
delivery or by facsimile transmission, with a
concurrent copy sent by certified U. S. mail,
postage prepaid to Owner, by addressing the same
to:
Lubbock Group, Ltd.
Attention: Jerry Erwin
9817 N. E. 54th Street
Vancouver, WA 98662
Fax # 360-254-1770
to South Bay, by addressing the
same to:
South Bay Partners, Inc.
Attention: Mr. Craig W. Spaulding
5720 LBJ Freeway
Suite 450, Lock Box 16
Dallas, Texas 75240-6339
Fax # 214-458-2233
or to such other address or to such other person as may
be designated by notice given from time to time during
the Term hereof by one party to the other. Any notice
hereunder shall be deemed given upon delivery or not
later than three (3) business days after depositing
with the U. S. Postal Service in the manner described
above.
(b) If any term or provision of this
Agreement or the application thereof to any person
or circumstance shall, to any extent, be invalid
or unenforceable, the remainder of this Agreement,
or the application of such term or provision to
the persons or circumstances other than those as
to which it is held invalid or unenforceable,
shall not be affected thereby; and, each term and
provision of this Agreement shall be valid and be
5
<PAGE>
enforced to the fullest extent permitted by law.
(c) This Agreement contains the entire
agreement between the parties hereto with respect
to the matters herein contained, and any agreement
hereafter made shall be ineffective to effect any
change or modification, in whole or in part,
unless such agreement is in writing and signed by
the party against whom enforcement of the change
or modification is sought.
(d) Neither Owner nor South Bay may assign
all or part of this Agreement without the prior
written approval of the party. This Agreement
shall be binding upon and inure to the benefit of
Owner and South Bay, as well as to their
respective successors and assigns, where permitted
hereby.
(e) In the event of a default hereunder, if
the nondefaulting party employs an attorney to
enforce its rights hereunder, the defaulting party
shall be liable for all reasonable attorneys'
fees, court costs, and other collection expense
incurred by the nondefaulting party regardless of
whether a lawsuit is filed.
(f) Time is of the essence of this
Agreement.
(g) THIS AGREEMENT HAS BEEN MADE AND EXECUTED
IN, AND SHALL BE GOVERNED BY THE LAWS OF, THE
STATE OF TEXAS.
(h) Nothing contained herein shall be deemed
to create a joint venture, partnership, or
similar relationship between the parties.
(i) South Bay is acting hereunder as the
agent for Owner.
(j) This Agreement may be executed in any
number of counterparts, each of which shall
constitute one and the same agreement.
6
<PAGE>
EXECUTED as of the date first above written.
OWNER:
LUBBOCK GROUP, LTD., a Texas
limited
partnership
By: Aurora Bay I,
L.L.C., a Washington limited
liability company, General
Partner
By: Aurora Bay
Investments, L.L.C., Member
By: /s/ Jerry Erwin
- ----------------------------------
Jerry Erwin, a
Manager
SOUTH BAY PARTNERS, INC., a
Texas
corporation
By: /s/ Craig W. Spaulding
- ------------------------------------------------
Craig W. Spaulding, President
7
<PAGE> EX 21.1
SUBSIDIARIES OF EMERITUS CORPORATION
Acorn Service Corporation, Washington corporation
ALAI, L.L.C., Arizona corporation
EMAC Corp., Delaware corporation
EmeriCare, Inc., Washington corporation
EmeriCare of Arizona, Inc., Washington corporation
EmeriCare of Washington, Inc., Washington corporation
Emeritus Canada Ltd., Toronto, Ontario
Emeritus Employee Leasing, Inc., Washington corporation
Emeritus Home Health, Inc., Washington corporation
Emeritus Properties I, Inc., Washington corporation,
Emeritus Properties II, Inc., Washington corporation
Emeritus Properties III, Inc., Washington corporation
Emeritus Properties IV, Inc., Washington corporation
Emeritus Properties V, Inc., Washington corporation
Emeritus Properties VI, Inc., Washington corporation
Emeritus Properties of Illinois, Inc., Washington corporation
Emeritus Real Estate L.L.C., Delaware limited liability company
Emeritus Real Estate II, L.L.C., Delaware limited liability company
Emeritus Real Estate IV, L.L.C., Delaware limited liability company
ESC G.P. I, Inc., Washington corporation
ESC G.P. II, Inc., Washington corporation
ESC I, L.P., Washington limited partnership
ESC II, L.P., Washington limited partnership
ESC III, L.P., Washington limited partnership
Cooper George Partners LTD. Partnership, Washington limited partnership
Fairfield Retirement Center L.L.C., Delaware limited liability company
Grand Terrace L.L.C., Delaware limited liability company
Heritage Hills Retirement, Inc., North Carolina corporation
Painted Post Partnership, Pennsylvania general partnership
TDC/Emeritus Paso Robles Associates, Washington partnership
<PAGE> EX 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Emeritus Corporation
We consent to incorporation by reference in the registration
statements (No. 333-05965) on Form S-8 and (No. 333-20805)
on Form S-3 of Emeritus Corporation of our report dated
February 27, 1998, except for note 10 as to which the date
is March 13, 1998, relating to the consolidated balance
sheets of Emeritus Corporation and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders equity (deficit), and
cash flows and the related schedule for each of the years in
the three year period ended December 31, 1997, which reports
appears in the December 31, 1997, annual report on Form 10-K
of Emeritus Corporation.
/s/ KPMG Peat Marwick, LLP
Seattle, Washington
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOUND ON PAGES F-4 AND F-5 OF THE COMPANY'S FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,537
<SECURITIES> 17,235
<RECEIVABLES> 2,539
<ALLOWANCES> (348)
<INVENTORY> 369
<CURRENT-ASSETS> 50,793
<PP&E> 153,532
<DEPRECIATION> (7,701)
<TOTAL-ASSETS> 228,573
<CURRENT-LIABILITIES> 38,719
<BONDS> 162,097
25,000
0
<COMMON> 1
<OTHER-SE> 1,206
<TOTAL-LIABILITY-AND-EQUITY> 228,573
<SALES> 0
<TOTAL-REVENUES> 117,772
<CGS> 0
<TOTAL-COSTS> 139,323
<OTHER-EXPENSES> (610)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,427
<INCOME-PRETAX> (28,636)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28,636)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,636)
<EPS-PRIMARY> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
