SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
-------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 21, 1998
RECKSON SERVICE INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OF INCORPORATION)
1-14183 11-3383642
(COMMISSION FILE NUMBER) (IRS EMPLOYER ID. NUMBER)
225 Broadhollow Road 11747
Melville, New York (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(516) 719-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 21, 1998, a wholly-owned subsidiary of Reckson Strategic
Venture Partners, LLC ("RSVP"), a real estate venture capital company for
which Reckson Service Industries, Inc. ("RSI"), through a subsidiary, acts as
a managing member, became a managing member of Assisted Living Investments LLC
("ALI"). ALI is a joint venture between the Hammes Company ("Hammes"), a
national developer involved in the development of health care facilities and
other real estate, and SunBridge Living Residences ("SunBridge"), the assisted
living subsidiary of Sun Healthcare Group, Inc. ("Sun Healthcare"), which was
formed in June 1996 to develop and own high-quality assisted living residences
throughout the United States. ALI will seek to acquire, construct, develop and
net lease assisted living facilities throughout the U.S., of which twenty
facilities and/or sites are presently under development or active review.
The RSVP subsidiary purchased a 45% membership interest in ALI from an
existing member for a purchase price of $3.25 million (the "Acquisition
Price"). In addition, RSVP has agreed to contribute 80% of the equity of ALI,
up to a maximum $16.0 million for a total maximum commitment of $19.25
million. RSVP has a priority on distributions from ALI. RSVP funded $7.5
million of its $19.25 commitment upon the closing of the transaction. RSVP
funded 50% of its capital contribution through draws under RSVP's preferred
equity facility. The remaining 50% balance of RSVP's capital contribution was
funded through draws under RSI's credit facility in respect of RSVP with
Reckson Operating Partnership, L.P.
RSVP and Hammes will be the managing members of ALI. ALI will operate
under the oversight of a management committee (the "Management Committee").
The Management Committee will consist of five members: two RSVP designees, two
Hammes designees and one SunBridge designee; and, subject to the RSVP rights
described below, will have sole authority with respect to all major decisions,
including entering into a lease with any party other than SunBridge and
adopting a development and/or investment plan for each facility or any
material modification to such plan. RSVP has affirmative rights and veto
rights with respect to many major decisions that are binding on the Management
Committee.
Hammes or an affiliate will be the exclusive developer of all ALI
facilities for which it will receive site acquisition and development fees.
ALI and SunBridge will enter into lease options which will entitle SunBridge
to enter into triple-net leases for the facilities developed by ALI, based on
groupings by ALI of up to five facilities per lease option package. Prior to
exercise of any option by SunBridge, ALI facilities will be managed by
SunBridge in return for which SunBridge will receive a management fee
calculated as a percentage of the gross revenues generated by the facility.
Facilities developed by ALI will be financed through mortgage
indebtedness provided by third parties, subordinated secured indebtedness
provided by Sun Healthcare and equity from ALI.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(A) AND (B) FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
Financial statements and pro forma financial information relating to
the acquisition described in Item 2 have not been included in this
report and will be filed prior to November 9, 1998.
(C) EXHIBITS
10.1 Amended and Restated Operating Agreement of Assisted Living
Investments LLC
SIGNATURES
Pursuant to the requirements 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.
RECKSON SERVICE INDUSTRIES, INC.
/s/ Michael Maturo
--------------------------------
Michael Maturo
Executive Vice President, Chief Financial
Officer and Treasurer
Date: September 8, 1998
AMENDED AND RESTATED OPERATING AGREEMENT
OF
ASSISTED LIVING INVESTMENTS LLC
(a Delaware Limited Liability Company)
Dated as of August 12, 1998
<PAGE>
TABLE OF CONTENTS Page
ARTICLE I
DEFINITIONS..............................................1
ARTICLE II
GENERAL..................................................5
2.1 Name of the Company............................6
2.2 Purpose of the Company.........................6
2.3 Powers.........................................6
2.4 Duration.......................................6
2.5 Ownership Interests............................6
2.6 Title to Assets................................6
ARTICLE III
OFFICES..................................................6
3.1 Principal Office...............................6
3.2 Registered Agent and Office....................6
ARTICLE IV
MEMBERS..................................................7
4.1 Members........................................7
4.2 Admission of Additional Members................7
4.3 Limited Liability of Members...................7
4.4 Voting Rights of Members.......................7
4.5 Meetings of Members............................7
4.6 Quorum at Meetings of Members..................8
4.7 Notice of Members' Meetings....................8
4.8 Waiver.........................................8
4.9 Action of Members without a Meeting............8
4.10 Representations and Warranties of Members......8
ARTICLE V
SALE AND ASSIGNMENT OF OWNERSHIP INTEREST...............10
5.1 Sale and Assignment...........................10
5.2 Acknowledgment of Receipt of Purchase Price...10
5.3 Representations and Warranties of Hammes......11
5.4 Representations of Hammes, SunBridge
and Sun Healthcare..........................11
ARTICLE VI
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND AGREEMENTS
WITH MEMBERS..........................................13
6.1 Initial Capital Contributions;
Other Transactions.........................13
6.2 Additional Capital Contributions..............14
6.3 Capital Contribution Defaults.................15
6.4 Interest on Capital Contributions.............17
6.5 Capital Accounts..............................17
6.6 Allocation of Profits and Losses..............18
6.7 Agreements with Members or Affiliates.........19
ARTICLE VII
DISTRIBUTIONS FROM OPERATIONS...........................20
7.1 Distributions.................................20
7.2 Tax Distributions.............................21
7.3 No Right to Distributions.....................21
7.4 Limits on Distributions.......................22
ARTICLE VIII
MANAGEMENT..............................................22
8.1 Management Committee..........................22
8.2 Management Committee Meetings.................23
8.3 Managing Members; Day-to-Day Management.......23
8.4 RSVP's Rights Regarding Certain Decisions.....24
8.5 Other Obligations of the Company..............25
8.6 Authority of Others to Act....................25
8.7 Deadlock Buy/Sell.............................26
8.8 Tax Matters Member............................27
8.9 Limitation of Liability.......................29
8.10 Indemnity of Committee Members, Employees,
and Other Agents............................30
8.11 Protection of REIT Status.....................30
ARTICLE IX
INDEMNIFICATION; TAX RETURNS; RECORDS...................30
9.1 Indemnification of Manager, Members,
Employees, and Agents........................30
9.2 Books and Records.............................32
9.3 Financial Statements; Accounting Services.....32
9.4 Bank Accounts.................................33
9.5 Fiscal Year...................................33
ARTICLE X
DISSOLUTION AND LIQUIDATION.............................33
10.1 Events of Dissolution and Liquidation.........33
10.2 Winding-Up....................................35
10.3 Provisions for Contingencies..................36
10.4 Distributions in Kind.........................36
10.5 Termination...................................36
ARTICLE XI
RESTRICTIONS ON TRANSFER OR SALE OF
COMPANY OWNERSHIP INTEREST..............................36
11.1 Restrictions on Transfer......................36
11.2 Permitted Transfers...........................36
11.3 Transfer of Ownership Interest upon the
Dissolution or Bankruptcy of a Member.......37
11.4 Terms of Purchase Right.......................38
11.5 Payment of Purchase Price by Company in Event
of Dissolution or
Bankruptcy of a Member........................39
11.6 Release of Personal Liability.................39
11.7 Party to this Agreement; Compliance with Law..39
11.8 Transferees...................................39
ARTICLE XII
DEFAULT.................................................40
12.1 Definition of Default.........................40
12.2 Remedies......................................40
12.3 Buy-Out of Member in Default..................40
12.4 Developer Default.............................41
ARTICLE XIII
COMPETITION; COMPANY OPPORTUNITIES......................41
13.1 Intention of Parties..........................41
13.2 Unrestricted Activities.......................41
13.3 Restrictions..................................42
13.4 Company Right of First Offer..................42
ARTICLE XIV
MISCELLANEOUS...........................................42
14.1 Survival of Representations and
Warranties; Indemnification.................42
14.2 Limits of Company.............................43
14.3 Confidentiality; No Press Releases............43
14.4 Gender and Number.............................43
14.5 Benefits and Obligations......................43
14.6 Counterparts..................................43
14.7 Captions......................................43
14.8 Further Performance...........................43
14.9 Governing Law.................................44
14.10 Notices.......................................44
14.11 Amendment and Waiver..........................44
14.12 Severability..................................44
14.13 Entire Agreement..............................44
14.14 Denver License................................44
<PAGE>
ASSISTED LIVING INVESTMENTS LLC
AMENDED AND RESTATED OPERATING AGREEMENT
This Amended and Restated Operating Agreement (this "Agreement") of
Assisted Living Investments LLC is entered into between the undersigned, as
members (the "Members"), as of August 12, 1998.
Preliminary Statement
1. HC-ALI LLC, a Wisconsin limited liability company ("Hammes") and
SunBridge, Inc., a New Mexico corporation ("SunBridge") formed Assisted Living
Investments LLC (the "Company") as a Delaware limited liability company,
pursuant to and in accordance with the Delaware Limited Liability Company Act (6
Del.L. ss.18-101, et seq.), as amended from time to time (the "Act") and
executed an Operating Agreement on September 19, 1996 (the "Original
Agreement"). Such Original Agreement provided that Hammes and SunBridge held 90%
and 10%, respectively, of the Ownership Interests (as hereinafter defined) in
the Company.
2. Hammes and SunBridge desire that (i) RSVP ALI Baba, LLC, a Delaware
limited liability company ("RSVP") and a controlled Affiliate of Reckson
Strategic Venture Partners, LLC, a Delaware limited liability company ("Reckson
Strategic") be permitted to acquire one-half of Hammes Ownership Interest in the
Company, (ii) RSVP be admitted as a Member, and (iii) the Original Agreement be
amended and restated as provided herein.
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 For the purposes of this Agreement the following terms
have the meanings set forth in the sections of this Agreement listed below
opposite such terms.
Term Section
- ---- --------
Act.............................................Preliminary Statement
Agreement....................................................Preamble
Assigned Interest...............................................5.1.1
Buy/Sell Notice.................................................8.7.1
Capital Loan..................................................6.3.2.2
Code..............................................................6.5
Committee Member................................................8.1.2
Company.........................................Preliminary Statement
Company Option Period..........................................11.4.2
Complying Member..................................................6.3
Curing Capital Contribution...................................6.3.2.1
Deadlock Buy/Sell...............................................8.7.1
Default..........................................................12.1
Defaulting Member.................................................6.3
Deferred Payments...............................................5.1.2
Developer.......................................................6.7.2
Development Agreement...........................................6.7.2
Facility..........................................................2.2
Funding Notice..................................................6.2.1
Funding Proportion..............................................6.2.1
Gross Asset Value.............................................6.6.5.7
Hammes..........................................Preliminary Statement
Initial Capital Contribution......................................6.1
Initial Facilities..............................................5.4.3
Initial Payment.................................................5.1.2
Interest Rate...................................................6.3.4
Investment Entity.................................................2.2
Lease Option Agreement........................................6.7.1.3
Major Capital Decision..........................................8.1.1
Major Decision..................................................8.1.1
Management Agreement(s).......................................6.7.1.2
Management Committee............................................8.1.1
Managing Member.................................................8.3.1
Member(s)....................................................Preamble
Member Option Period...........................................11.4.1
Offering Member.................................................8.7.1
Offering Member Deposit.........................................8.7.1
Original Agreement..............................Preliminary Statement
Ownership Interest................................................2.5
Payment Default...................................................6.3
Prime Rate......................................................6.3.4
Projections.....................................................5.4.7
Purchase Price..................................................5.1.2
Reckson Strategic...............................Preliminary Statement
Requested Amount................................................6.2.1
Responding Member(s)............................................8.7.1
Responding Member Deposit.......................................8.7.1
Responding Member Purchase Period...............................8.7.1
Restricted Person(s).............................................13.3
RSVP............................................Preliminary Statement
RSVP Option Period.............................................11.2.3
Schedule of Members...............................................4.1
Secretary.......................................................8.8.1
Subordinated Credit Agreement.................................6.7.1.1
SunBridge.......................................Preliminary Statement
Tax Distributions.................................................7.2
Tax Matters Member..............................................8.8.1
Transfer.........................................................11.1
<PAGE>
1.2 The following terms shall have meanings set forth below.
"Accountant" shall mean E&Y Kenneth Leventhal, or any other nationally
recognized "Big Six"accounting firm designated by RSVP.
"Actions" shall mean any action, arbitration, hearing, investigation,
litigation or suit (whether criminal, civil, administrative, investigative or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"Adjusted Capital Account Deficit" means, with respect to any Member, the
deficit balance, if any, in such Member's Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts
which such Member is obligated to restore
pursuant to any provision of this Agreement or
is deemed to be obligated to restore pursuant
to the penultimate sentences of Section
1.704-2(g)(1) and 1.704-2(i)(5) of the
Treasury Regulations; and
(b) debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-
1(b)(2)(ii)(d)(6) of the Treasury Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and shall be interpreted consistently therewith.
"Affiliate" shall mean, with respect to a specified person, any person that
(i) directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with the person specified, or (ii) a
spouse, ancestor or lineal descendant of any such specified person, or (iii) a
legal representative of any such specified person, or (iv) an officer, director,
trustee, senior employee, stockholder (10% or more), member (10% or more) or
partner (10% or more) of any entity or person referred to in the preceding
clauses (i), (ii) or (iii); provided, however, that if the entity or person
referred to in the preceding clauses (i), (ii) or (iii) has a class of equity
securities registered under the Securities Exchange Act of 1934, then the
percentages applicable to holders of such securities for purposes of the
preceding clause (iv) shall be 33% or more.
"Approval" shall have with respect to the Management Committee, the meaning
set forth in Section 8.1.3. With respect to a Member, "Approval" shall mean the
prior written consent or approval of such Member, which may be granted or
withheld in its sole discretion unless otherwise expressly provided to the
contrary in this Agreement. If the Approval of any Member to any action is
required under this Agreement, and such Member shall not have given notice of
disapproval or approval of such action to the other Members within ten (10)
Business Days after receipt of the notice requesting that such Approval be given
(or such earlier or later date as may be established pursuant to this
Agreement), such Member shall be deemed not to have given such Approval.
<PAGE>
"Assisted Living Facility" shall mean a residential facility that provides
housing and supportive services, supervision, personalized assistance,
health-related services, or a combination thereof that meets the needs of
individuals who need assistance in performing the activities of daily living,
but shall not include a long-term nursing facility.
"Business Day" shall mean any day on which commercial banks are authorized
to do business and are not required by law or executive order to close in New
York City.
"Capital Account" shall mean the Capital Account described in Section 6.5.
"Capital Contribution" or "Capital Contributions" shall mean cash
contributed by the Members to the capital of the Company in accordance with this
Agreement and, with respect to RSVP shall also include all due diligence and
legal costs incurred by RSVP or Reckson Strategic in connection with RSVP's
entering into this Agreement and its investment in the Company.
"Cash Flow" shall mean all amounts received by the Company from the
operations or proceeds of lease, refinancing, sale, exchange or other
disposition of Facilities or any Investment Entity, or from funds released from
reserves previously established, net of all operating expenses or expenditures
in connection therewith, including, without limitation, repayment of
indebtedness in connection with and costs of lease, refinancing, sale, exchange
or other disposition , and reasonable reserves for operating expenses or in
connection with any lease, refinancing, sale, exchange or other disposition.
"Company Accounting Year" shall mean and refer to the accounting year of
the Company ending on December 31 of each calendar year or such shorter fiscal
period during such year for which a relevant determination is being made under
this Agreement.
"Company Minimum Gain" has the meaning ascribed to "partnership minimum
gain" in Sections 1.704-2(b)(2) and 1.704-2(d) of the Treasury Regulations.
"Damages" shall mean any losses, liabilities, claims, damages, and/or
expenses (including, but not limited to, costs of investigation and defense and
reasonable attorneys' fees).
"Development Program" shall mean the Company's plan to seek to acquire,
construct, develop, and net lease Assisted Living Facilities throughout the
United States, including 20 Facilities under development or active review as
prospective developments as of the date of this Agreement.
"Encumbrances" shall mean any charge, claim, condition, equitable interest,
lien, option, pledge, security interest, right of first refusal, or restriction
of any kind, including any restriction on the use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership.
"Expert" means an independent, nationally recognized investment banking
firm or other appropriate, independent expert selected as provided in the
definition of Fair Value below.
<PAGE>
"Facility Leases" shall mean leases of Facilities as contemplated under the
Lease Option Agreement.
"Fair Value" of any Ownership Interest in the Company means the fair value
thereof (but without any discount for minority interest or premium for majority
interest) as determined by the parties by mutual agreement and, in the absence
of such agreement, by an Expert. The Expert shall be selected by the Management
Committee, and if the Management Committee is unable to agree on an Expert, each
of Hammes, SunBridge and RSVP shall select one Expert, and the three Experts so
selected shall each determine the Fair Value of the Ownership Interest. If the
three Experts cannot agree on Fair Value within 30 days, they shall select a
fourth Expert, and the fourth Expert selected then shall make such
determination. In the event the three Experts are unable to agree on the fourth
Expert within three Business Days, a court with appropriate jurisdiction shall
select the fourth Expert. The fourth Expert so selected shall agree to render a
decision within 30 days after being selected, without a hearing. The fourth
Expert's determination of Fair Value shall not be less than the lowest of the
three values as determined by the three Experts and shall not be greater than
the highest of the three values as determined by the three Experts.
"Governmental Body" shall mean any (i) nation, state, country, city, town,
or other jurisdiction of any nature, (ii) federal, state, local, municipal or
other government, (iii) governmental or quasi governmental authority of any
nature, (iv) multi-national organization or body, or (v) body exercising or
entitled to exercise any administrative, executive, judicial, legislative,
regulatory or taxing authority or power of any nature.
"Invested Capital" with respect to each Member shall mean the aggregate of
all Capital Contributions made from time to time to the Company by such Member
reduced by the aggregate of all distributions previously made or deemed made to
such Member pursuant to Sections 7.1 and 7.2 to the extent that such
distributions are deemed to repay Invested Capital of such Member. If at any
time during the term of the Company, the "Invested Capital" of any Member shall
have been reduced to zero, "Invested Capital" thereafter shall be calculated
with respect to such Member only by considering such Member's subsequent Capital
Contributions and subsequent distributions pursuant to Sections 7.1 and 7.2 to
the extent the same are deemed to repay Invested Capital thereunder.
"IRR" shall mean the annual rate, calculated and compounded monthly, at
which the present value, as of the date of this Agreement, of all distributions
hereunder, from all sources, to RSVP (discounted at such rate from the dates
such distributions are actually received by RSVP), is equal to the net present
value, as of the date of this Agreement, of the RSVP Investment contributed or
funded from and after the date of this Agreement (discounted at such rate from
the date such amounts are actually contributed or funded by RSVP or, in the case
of certain Deferred Payments, paid upon a sale of a Facility or a Facility Site,
by the Company).
"IRR - First Level" shall mean an amount sufficient to provide a twelve
percent (12%) IRR on the RSVP Investment (which amount shall include return of
the RSVP Investment).
<PAGE>
"IRR - Second Level" shall mean an amount sufficient to provide a sixteen
percent (16%) IRR on the RSVP Investment (which amount shall include return of
the RSVP Investment).
"IRR - Third Level" shall mean an amount sufficient to provide a twenty
percent (20%) IRR on the RSVP Investment (which amount shall include return of
the RSVP Investment).
"Marketable Securities" shall mean securities which (i) are traded on a
national securities exchange in the United States or a foreign country
equivalent thereof, or for which price information is reported through the
National Association of Securities Dealers, Inc. Automated Quotation System or
OTC Bulletin Board or a foreign equivalent thereof and (ii) are eligible for
sale by the distributee pursuant to an effective registration statement under
the Securities Act or in a single transaction pursuant to Rule 144 (or any
successor provision) under the Securities Act.
"Member Nonrecourse Debt" has the meaning ascribed to "partner nonrecourse
debt" in Section 1.704-2(b)(4) of the Treasury Regulations.
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect to
each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the Treasury Regulations.
"Member Nonrecourse Deductions" has the meaning for the term "Partner
Nonrecourse Deductions" set forth in Treasury Regulations Section 1.704-2(i).
"Nonrecourse Deductions" has the meaning set forth in Treasury Regulations
Section 1.704-2(b).
"Nonrecourse Liability" has the meaning set forth in Treasury Regulations
Section 1.704-2(b)(3).
"Profit" or "Loss" shall mean, for each fiscal period, an amount equal to
the Company's net taxable income or loss for such fiscal period determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in computing such taxable income or loss),
including its allocated share thereof from any Investment Entity, with the
following adjustments: (i) any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profit or Loss
shall be added to such taxable income or loss; and (ii) in the event the agreed
fair market value of any Company asset is adjusted pursuant to Treasury
Regulations Section 1.704-l(b)(2)(iv)(f) or other pertinent sections of such
Treasury Regulations, the amount of such adjustment shall be taken into account
for purposes of computing Profit or Loss; and in lieu of the depreciation,
amortization and other cost recovery deductions taken into account in computing
such taxable income or loss, there shall be taken into account depreciation,
amortization or other cost recovery computed with reference to gross asset value
of Company property reasonably approved by the Management Committee (if
different from its adjusted tax basis) pursuant to Treasury Regulations Section
1.704-l(b)(2)(iv)(g) for such fiscal period.
"RSVP Investment" shall mean the sum of (i) the aggregate of all Capital
Contributions made by RSVP to the Company and (ii) the portion of the Purchase
Price paid from time to time by RSVP to Hammes, reduced by the aggregate of all
distributions previously made to RSVP pursuant to Article VII to the extent that
such distributions are deemed to repay the RSVP Investment. If at any time
during the term of the Company, the RSVP Investment shall have been reduced to
zero, the "RSVP Investment" thereafter shall be calculated only by considering
RSVP's subsequent Capital Contributions, subsequent payments by RSVP of the
Purchase Price and subsequent distributions pursuant to Article VII to the
extent the same are deemed to repay the RSVP Investment.
"Subsidiaries" shall mean any entity in which the Company owns a direct or
indirect ownership equity interest and of which the Company is a direct or
indirect general partner or managing member or as to which the Company has the
right to elect a majority of the board of directors or other governing body, or
otherwise direct the management of its business and affairs.
"Sun Healthcare" shall mean Sun Healthcare Group, Inc.
ARTICLE II
GENERAL
2.1 Name of the Company. The name of the Company shall be "Assisted Living
Investments LLC" or such other name as shall be Approved by the Management
Committee from time to time.
2.2 Purpose of the Company. The purpose of the Company is: (i) to either
directly or, through one or more Subsidiaries or Affiliates of the Company
(each, an "Investment Entity") (upon initial acquisition with respect to
Facilities other than the Existing Facilities, and with respect to Existing
Facilities, following their refinancing and/or net lease by SunBridge or another
entity), develop, lease, and operate until net lease or sale and provide
financing for the continued operation of, quality Assisted Living Facilities
(each, a "Facility" and, collectively, "Facilities"), and (ii) subject to the
limitations set forth in clause (v) of the final sentence of Section 4.4, to
engage in the transaction of all lawful business and to pursue any other lawful
purposes for which a limited liability company may be organized under Delaware
law.
2.3 Powers. The Company shall have all of the powers of a limited liability
company set forth in the Act.
2.4 Duration. The Company shall continue until it is dissolved pursuant to
Article X.
2.5 Ownership Interests. Interests in the Company shall be known as
"Ownership Interests," which shall include all rights and obligations of a
Member. The Ownership Interest (expressed as a percentage) of each of the
Members as of the date of this Agreement is set forth on Exhibit A. The
Ownership Interests of the Members may be adjusted from time to time as provided
in this Agreement.
2.6 Title to Assets. Real and personal property owned or purchased by the
Company shall be held and owned, and conveyance made, in the name of the
Company. Instruments and documents providing for the acquisition, mortgage,
encumbrance or disposition of property of the Company shall be valid and binding
upon the Company if executed by a Managing Member in accordance with this
Agreement.
ARTICLE III
OFFICES
3.1 Principal Office. The principal office of the Company shall initially
be at 1775 Sherman Street, Suite 2955, Denver, Colorado, 80203, but the
Management Committee, in its discretion, may keep and maintain offices wherever
the business of the Company may require.
3.2 Registered Agent and Office. The Company shall continuously maintain in
the State of Delaware a registered office and a registered agent whose business
office is identical with the registered office. The initial registered office
and the initial registered agent are specified in the original certificate of
formation. The Company may change its registered office, its registered agent,
or both, upon filing a statement as specified by law in the office of the
Secretary of State of Delaware.
ARTICLE IV
MEMBERS
4.1 Members. The Members of the Company are Hammes, SunBridge and RSVP. The
address, capital contribution, and Ownership Interest (expressed as a
percentage) of each of the Members as of the date of this Agreement are set
forth on the Schedule of Members attached hereto as Exhibit A (the "Schedule of
Members").
4.2 Admission of Additional Members. Additional Members may be admitted
only upon the written agreement of all of the existing Members. Additional
Members shall be required to consent in writing to the provisions of this
Agreement. The name, address and capital contribution of each such additional
Member shall be added to the Schedule of Members and the Ownership Interests of
the Members shall be adjusted to reflect the Ownership Interest of each new
Member.
4.3 Limited Liability of Members. As provided in the Act, the Members and
the Managing Members of the Company shall not be obligated personally under a
judgment, decree, or order of court, or in any other manner, for a debt,
obligation, or liability of the Company, whether arising in contract, tort, or
otherwise, solely by reason of being a Member or acting as a Managing Member of
the Company.
4.4 Voting Rights of Members. Except as otherwise required under the Act or
applicable Delaware law or as otherwise specifically provided in this Agreement,
Members shall only exercise voting rights through their respective appointed
designees to the Management Committee pursuant to Article VIII. Any voting
rights of Members referred to in this Agreement shall only apply to the limited
extent set forth in the preceding sentence. In all matters presented to or
requiring a vote of Members, each Member shall have the percentage of votes
equal to the Member's percentage Ownership Interest. A Member may vote in person
or by proxy. Cumulative voting shall not be permitted. The following actions
shall require the unanimous consent of the Members acting through their
designees to the Management Committee: (i) the amendment of this Agreement; (ii)
the merger or consolidation of the Company with or into any other entity; (iii)
the withdrawal by a Member of any amount from its Capital Account; (iv)
distributions in kind of property or assets not constituting Marketable
Securities; and (v) the undertaking by the Company of any substantial business
activities not reasonably related to the Development Program or the ownership or
operation of Facilities.
4.5 Meetings of Members. Meetings of Members may be held at such place,
either within or without the State of Delaware, as may be stated in the notice
of meeting. If no place is stated in the notice of meeting, the meeting shall be
held at the principal office of the Company. Meetings of the Members may be
called by a Managing Member, the Management Committee, or by Members holding not
less than one-tenth of all the Ownership Interests of the Company entitled to
vote at the meeting.
4.6 Quorum at Meetings of Members. Attendance of Members holding 662/3% of
the Ownership Interests, by authorized representative or by proxy, shall be a
quorum at any meeting of Members (as compared with meetings of the Management
Committee, which shall be governed by Article VIII). If a quorum is present, the
affirmative vote of 662/3% of the majority of the Ownership Interests of the
Members represented at the meeting and entitled to vote on the subject matter
shall be the act of the Members unless a different vote or the vote of a greater
proportion or number is required under the Act, the Company's certificate of
formation, or the provisions of this Agreement. If less than a quorum is
present, the Members present may adjourn the meeting from time to time without
further notice.
4.7 Notice of Members' Meetings. Written notice stating the place, purpose,
date and hour of the meeting shall be delivered not less than 48 hours nor more
than 60 days before the date of the meeting by or at the direction of a Managing
Member, the Management Committee, or the Members calling the meeting, which
notice shall be given in the manner provided for notices herein. If three
successive notices sent to the last known address of a Member are returned as
undeliverable, no further notices to such Member shall be necessary until
another address for such Member is made known by such Member to the Company.
4.8 Waiver. Attendance of a Member at a meeting shall constitute a waiver
of notice of such meeting, except where a Member attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not properly called. A Member
waives objection to consideration at the meeting of a particular matter not
within the purpose described in the meeting notice unless the Member objects to
considering the matter when it is presented. A written waiver of notice, signed
by the Member entitled to such notice, whether before, at, or after the time for
notice or the time of the meeting, shall be equivalent to the giving of such
notice.
4.9 Action of Members without a Meeting. Action required or permitted to be
taken at a Members' meeting may be taken without a meeting if the action is
evidenced by the unanimous written consent of the Members. Any such consent may
be in counterparts and shall bear the date of the signature of each Member.
Action so taken shall be effective as of the date of the last signature thereon
needed to make it effective unless the consent specifies a different effective
date in which case the action shall be effective as of the different effective
date.
4.10 Representations and Warranties of Members. Each Member represents and
warrants as to itself to the Company and to the other Members, as follows:
4.10.1 Such Member, if not a natural person, is duly formed and
validly existing under the laws of the jurisdiction of its organization with
full power and authority to enter into this Agreement and to conduct its
business to the extent contemplated in this Agreement;
4.10.2 This Agreement has been duly authorized, executed and delivered
by such Member and constitutes the valid and legally binding agreement of such
Member, enforceable in accordance with its terms against such Member, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium and
other similar laws relating to creditors' rights generally, by general equitable
principles and by any implied covenant of good faith and fair dealing;
4.10.3 The execution and delivery of this Agreement by such Member and
the performance of its duties and obligations hereunder do not result in a
breach of any of the terms, conditions or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, credit agreement, note or other
evidence of indebtedness, or any lease or other agreement, or any license,
permit, franchise or certificate to which such Member is a party or by which it
is bound or to which its properties are subject or require any authorization or
approval under or pursuant to any of the foregoing, or violate any statute,
regulation, law, order, writ, injunction, judgment or decree to which such
Member is subject;
4.10.4 Such Member is not in default (nor has any event occurred which
with notice, lapse of time, or both, would constitute a default) in the
performance of any obligation, agreement or condition contained in any
indenture, mortgage, deed of trust, credit agreement, note or other evidence of
indebtedness or any lease or other agreement, or any license, permit, franchise
or certificate, to which it is a party or by which it is bound or to which any
of its properties are subject, nor is it in violation of any statute,
regulation, law, order, writ, injunction, judgment or decree to which it is
subject, in each case if such default or violation would materially and
adversely affect such Member's ability to carry out its obligations under this
Agreement;
4.10.5 Except as disclosed in the most recent annual report on Form
10-K and quarterly report on Form 10-Q filed by Sun Healthcare with the
Securities and Exchange Commission: (a) there are no Actions pending or, to the
knowledge of such Member, threatened against such Member or any of its
Affiliates which, if adversely determined, would materially and adversely affect
such Member's ability to carry out its obligations under this Agreement; and (b)
to the knowledge of such Member and its Affiliates, (i) there are no Actions
pending against such Member or its Affiliates alleging fraud against them and
(ii) there is no criminal investigation or indictment pending against such
Member or its Affiliates;
4.10.6 To the knowledge of such Member, no consent, approval or
authorization of, or filing, registration or qualification with, any court or
Governmental Body on the part of such Member is required for the execution and
delivery of this Agreement by such Member and the performance of its obligations
and duties hereunder;
4.10.7 Such Member has acquired or is acquiring its interest in the
Company for investment purposes and without a view toward its resale or
distribution;
4.10.8 Such Member is aware that transfers of interests in the Company
are not permitted except in the limited circumstances expressly as provided in
Article XI and Section 12.3 hereof;
4.10.9 Such Member is aware that the other Members and/or the other
Members' Affiliates now and in the future (subject to the limitations set forth
in this Agreement) will be, and in the past have been, engaged in businesses
which are competitive with that of the Company and/or the Facilities, and that,
no Member or its Affiliates is required to bring any investment opportunities to
the attention of the Company or any Member (or their Affiliates) for investment,
except as expressly provided in this Agreement;
4.10.10 Such Member understands that the federal, state and local tax
liability of such Member with respect to the taxable income and gain allocated
to such Member hereunder for any year may exceed the cash distributions from the
Company to such Member and such Member may have to look to sources other than
distributions from the Company to pay such tax; and
4.10.11 Such Member understands that the Company and its Members are
relying on the accuracy of the representations set forth in this Section 4.10 in
entering into this Agreement.
ARTICLE V
SALE AND ASSIGNMENT OF OWNERSHIP INTEREST
5.1 Sale and Assignment.
5.1.1 By executing this Agreement, Hammes hereby transfers and assigns
to RSVP fifty percent (50%) of its ninety percent (90%) Ownership Interest under
the Original Agreement (the "Assigned Interest") and RSVP hereby accepts the
transfer and assignment of such Assigned Interest, free and clear of all
Encumbrances. The result of such transfer is that each of Hammes and RSVP hold a
forty-five percent (45%) Ownership Interest in the Company and SunBridge holds a
ten percent (10%) Ownership Interest in the Company, as reflected on the
Schedule of Members. The Invested Capital of each of the Members as of the date
hereof is as set forth on the Schedule of Members.
5.1.2 In consideration for Hammes' transfer of the Assigned Interest.
RSVP shall pay, or cause to be paid, to Hammes up to $3,250,000 (the "Purchase
Price"), of which $2,275,000 shall be paid to Hammes on the date hereof upon
execution and delivery by RSVP, Hammes and SunBridge of this Agreement (the
"Initial Payment"), and up to $975,000 in the aggregate shall be paid to Hammes
in up to 12 installments of $81,250 each (the "Deferred Payments"). RSVP shall
pay to Hammes a Deferred Payment upon the execution of an Option Confirmation
(as defined in the Lease Option Agreement) and the payment of the corresponding
Option Consideration (as defined in the Lease Option Agreement). RSVP shall
cause the Company to pay (and the Members shall direct their Management
Committee Members to cause the Company to pay) to Hammes a Deferred Payment upon
the sale of a Facility or Facility site as to which SunBridge has not executed
an Option Confirmation or not paid the corresponding Option Consideration, but
only to the extent the Company realizes any net cash proceeds from such sale in
excess of all costs and expenses (including repayment of all indebtedness)
related thereto.
5.2 Acknowledgment of Receipt of Purchase Price. In consideration of the
transfer and assignment to RSVP of the Assigned Interest pursuant to Section
5.1, RSVP has delivered the Initial Payment to Hammes and Hammes hereby
acknowledges receipt of the Initial Payment from RSVP.
5.3 Representations and Warranties of Hammes. Hammes represents and
warrants to RSVP as follows:
5.3.1 Ownership of Assigned Interest. Hammes has good and marketable
title in and to the Assigned Interest, free and clear of all Encumbrances.
Hammes has the full right, power and authority to transfer and assign to RSVP
the Assigned Interest pursuant to Section 5.1, free and clear of all
Encumbrances.
5.3.2 No Brokers or Finders. Except for Bear, Stearns & Co., whose fee
will be paid by Hammes, neither Hammes nor any person acting on Hammes' behalf
has employed any broker or finder or incurred any liability for any brokerage or
finder's fees or commissions or similar payments in connection with the sale and
assignment of the Assigned Interest.
5.4 Representations of Hammes, SunBridge and Sun Healthcare. Subject to
Section 14.1, each of Hammes, SunBridge and Sun Healthcare represents and
warrants, severally and not jointly, as of the date of this Agreement, as
follows:
5.4.1 Organization and Qualification. The Company is a duly formed as
a limited liability company, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite limited liability
company power and authority to own, operate, lease and encumber its properties
(including its Facilities) and conduct the business in which it is engaged or
proposes to engage in as contemplated by this Agreement. The Company has no
Subsidiaries. The Company is duly qualified to do business and in good standing
in each jurisdiction in which the ownership of its property or the conduct of
its business requires such qualification.
5.4.2 Litigation. There are no Actions pending or, to such entity's
knowledge, threatened against the Company which question the validity of this
Agreement or the Lease Option Agreement or any action taken or required to be
taken in connection with the execution, delivery or performance of this
Agreement, the Development Agreement or the Lease Option Agreement, and there
are no continuing orders, injunctions or decrees of any Government Body to which
the Company is a party or by which any of its properties or assets are bound.
5.4.3 Title; Receipt of Option Confirmation and Option Consideration;
Permits; Compliance with Law. The Company has completed the acquisition of, and
has good legal and marketable title to the eight Facilities listed on Schedule
5.4.3 (the "Initial Facilities") and to its other assets as reflected on its
unaudited balance sheet dated as of June 30, 1998. An Option Confirmation and
the corresponding full Option Consideration has been received (or will be
received simultaneously with execution and delivery of this Agreement) by the
Company with respect to each of the Initial Facilities. To the knowledge of such
entity, for Initial Facilities where construction is complete or the Initial
Facility is operational, the Company has obtained all governmental,
administrative and other licenses, certifications or permits and other
authorizations required by law to be attained or made in order to permit the
operation of such Facilities, and/or as are necessary to the carrying on of its
business, except for any such authorizations or filings which are not currently
so required and which in the reasonable judgment of such entity, can be obtained
or made without difficulty prior to the time so required. To the knowledge of
such entity, for Initial Facilities under construction, the Company has obtained
all governmental, administrative and other licences, certifications or permits
and other authorizations required by law to be attained or made in order to
permit the construction of such Initial Facilities, except for any such
authorizations or filings which are not currently so required and which in the
reasonable judgment of such entity can be obtained or made without difficulty
prior to the time so required. To the knowledge of such entity, the Company has
not received any notice from, any Governmental Body alleging that either (i) any
Initial Facility is operating under any deficiencies except such as customarily
are likely to be cited from time to time by agencies regulating Assisted Living
Facilities similar to the Initial Facilities (none of which are believed by such
entity to be material or not susceptible to cure prior to the date when
penalties would attach), or (ii) the operation of the Company or any Initial
Facility is not in compliance with any applicable laws by any Governmental Body
relating to the business of the Company including, without limitation,
regulations affecting the Initial Facilities' respective operations and
licenses, except such as customarily are likely to be cited from time to time by
agencies regulating Assisted Living Facilities similar to the Initial Facilities
(none of which are believed by such entity to be material or not susceptible to
cure prior to the date when penalties would attach). To the knowledge of such
entity, the Company and the conduct of the business of the Company are in
compliance with all applicable laws of any Governmental Body relating to the
business of the Company, except where the failure to comply would not have a
material adverse effect on the Company, and such entity has no reason to
anticipate that any currently existing circumstances are likely to result in
violations of any such laws which would, in any one instance or in the
aggregate, reasonably be expected to have a material adverse effect on the
Company.
5.4.4 No Material Defaults. There exists no material violation of or
material default by the Company and, to the best knowledge of such entity, no
event has occurred which, upon the giving of notice or the passage of time, or
both, would constitute a material default by the Company with respect to (a) the
terms of any instrument evidencing or securing any indebtedness secured by any
Initial Facility, (b) any lease or other agreement affecting any Initial
Facility to which the Company is a party, and (c) any license, permit, statute,
ordinance, law, judgment, order, writ, injunction, decree, rule or regulation of
any Governmental Body, or any determination or award of any arbitrator to which
the Company or any Initial Facility may be bound.
5.4.5 Financial Statements. (a) The audited financial statements of
the Company for the fiscal year ended December 31, 1997 (the "Audited Financial
Statements"), and the unaudited balance sheet of the Company as of March 31,1998
(the "Balance Sheet") and the unaudited statements of operations, changes in
members equity and cash flows of the Company for the three-month period ended
March 31, 1998 (together with the Audited Financial Statements, the "Company
Financial Statements"), have been prepared in accordance with the books and
records of the Company (which books and records are complete, maintained on a
consistent basis and correctly reflect its income, expenses, assets and
liabilities), are complete and accurate and present fairly the financial
position of the Company as of the dates thereof and the results of operations of
the Company for the periods then ended in accordance with generally accepted
accounting principles consistently applied, except as otherwise disclosed
therein and except, in the case of the unaudited statements, for normally
recurring year-end adjustments, which adjustments will not be material either
individually or in the aggregate.
(b) There has been no material adverse change in the results of
operations, financial condition, business or assets of the Company since March
31, 1998.
5.4.6 Invested Capital Amounts. As of the date hereof, before giving
effect to any of the transactions contemplated by Section 6.1, Hammes' Invested
Capital was $1,430,676, and SunBridge's Invested Capital was $143,055.
5.4.7 Financial Projections. The pro forma cash flow projections
prepared by the Company and delivered to Reckson Strategic prior to the date of
this Agreement (the "Projections") are based upon the reasonable and good faith
assumptions and beliefs of the Company and Hammes, based on information known by
the Company as of the date the Projections were delivered to Reckson Strategic.
The Projections represent the Company's and Hammes' best estimate of future
operating results for the periods indicated on a reasonable case basis, based on
information known by the Company as of the date the Projections were delivered
to Reckson Strategic.
5.4.8 Disclosure. For purposes of this Agreement and the transactions
contemplated hereby, none of (i) the representations and warranties made by
Hammes or SunBridge in this Agreement, or (ii) any statement by Hammes or
SunBridge contained in any document, certificate or other writing furnished by
the Company, Hammes or SunBridge to RSVP or Reckson Strategic in connection with
this Agreement, or the transactions contemplated hereby, knowingly contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make the statements made herein or therein,
in light of the circumstances in which they were made, not misleading.
ARTICLE VI
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND AGREEMENTS WITH MEMBERS
6.1 Initial Capital Contributions; Other Transactions. The total amount of
the initial cash capital contributions (the "Initial Capital Contributions") by
all of the Members immediately following the execution and delivery of this
Agreement shall be $6,477,500. The Initial Capital Contributions by each Member,
after giving effect to the distribution to Hammes described below, shall be the
amount set forth opposite the Member's name on the Schedule of Members under the
caption "Initial Capital Contributions and Invested Capital." The Initial
Capital Contributions of Hammes, and $143,055 of the Initial Capital
Contributions of SunBridge, were contributed to the Company prior to the date of
this Agreement. The Members hereby agree that upon the Company's receipt of
RSVP's Initial Capital Contribution of $5,182,000 (which shall include RSVP's
assumption of its and Reckson Strategic's due diligence and legal expenses
incurred in the amount of $581,492) and the $504,695 balance of SunBridge's
Initial Capital Contribution, (i) the Company shall distribute $782,926 of such
funds to Hammes, which shall reduce Hammes' Capital Account (after first giving
effect to the transfer and assignment of the Assigned Interest pursuant to
Article V) to 10% of the total Initial Capital Contributions made by the
Members, (ii) the Company shall pay $4,322,277 of such funds to Sun Healthcare,
as repayment of a portion of the Company's indebtedness under the Revolving
Subordinated Credit Agreement, and (iii) SunBridge shall pay $1,700,000 to the
Company, as additional Option Consideration with respect to the Initial
Facilities pursuant to Section 26 of the Lease Option Agreement. The Members
agree that it is their intent that the Initial Payment and the payments,
contributions and distributions of funds contemplated by this Section 6.1 be
effected simultaneously, and that none shall be deemed to be effective unless
and until all are effective.
6.2 Additional Capital Contributions.
6.2.1 In addition to each Member's Initial Cash Capital Contribution,
each Member shall make additional cash Capital Contributions as provided in this
Section 6.2 up to the amount set forth opposite such Members' name on the
Schedule of Members under the caption "Maximum Additional Capital Contribution."
Each Member's additional Capital Contribution shall be made pari passu with the
Capital Contributions made by the other Members and shall be made in accordance
with this Section 6.2. Upon a Member's receipt of a written notice ("Funding
Notice") from Hammes, as Managing Member, requesting an additional Capital
Contribution, each Member shall be required to pay to the Company the amount of
Capital Contribution so requested from such Member. Hammes may not deliver a
Funding Notice unless such request for additional Capital Contributions has been
Approved by the Management Committee. Each Funding Notice shall set forth the
total amount of Capital Contributions requested from the Members (the "Requested
Amount"), the amount of Capital Contributions requested from each Member and the
business purpose for the Requested Amount. The amount of Capital Contribution
requested from each Member shall be an amount equal to (i) such Member's Funding
Proportion multiplied by (ii) the Requested Amount. The Funding Proportion for
each of RSVP, SunBridge and Hammes shall be 80%, 10% and 10%, respectively.
Notwithstanding the foregoing, unless otherwise agreed by each of the Members in
their respective sole discretion, in no event shall (a) the aggregate Capital
Contributions of RSVP exceed $16 million, (b) the aggregate Capital
Contributions of Hammes exceed $2 million, or (c) the aggregate Capital
Contributions of SunBridge exceed $2 million.
6.2.2 If a Funding Notice is properly given by Hammes, as Managing
Member, pursuant to Section 6.2.1, each Member shall have the obligation,
subject to the limitations contained in Section 6.2.1, to contribute additional
cash to the capital of the Company, in an amount equal to the product of (i) the
Requested Amount multiplied by (ii) such Member's Funding Proportion, which
amount shall be used to satisfy the items described in such Funding Notice. Each
Member shall contribute its share of any Requested Amount after the later to
occur of (a) ten (10) Business Days after the date on which the Funding Notice
with respect thereto has been received, or (b) the required funding date that is
set forth in the Funding Notice.
6.2.3 Except as otherwise specifically set forth in this Agreement, no
Member shall have the right (i) to withdraw such Member's Capital Contribution
or to demand or receive the return of a Capital Contribution or to make any
claim to any portion of Company capital, or (ii) to demand or receive property
other than cash in return for a Capital Contribution or to receive any cash in
return for a Capital Contribution.
6.2.4 Except as expressly provided in this Agreement, no Member shall
be required or permitted to make any Capital Contribution, nor shall any member,
shareholder, director, officer, manager or employee of any Member have personal
liability for any additional Capital Contribution.
6.2.5 A deficit Capital Account of a Member (or of a partner, member
or venturer of a Member) shall not be deemed to be a liability of such Member
(or of such partner, member or venturer) or an asset or property of the Company
(or any Member). Furthermore, no Member shall have any obligation to the Company
or any other Member for any deficit balance in such Member's Capital Account.
<PAGE>
6.3 Capital Contribution Defaults. If any Member (a "Defaulting Member")
shall fail or refuse to pay any Capital Contribution in the amount, at the time,
and in the manner agreed to hereunder and pursuant to Section 6.2.2, or fail to
return any amount withdrawn from such Member's Capital Account in violation of
this Agreement (each, a "Payment Default") (a) such Defaulting Member's
Ownership Interest and its rights to distributions set forth in Section 7.1 will
be adjusted as provided in Section 6.3.1 below, and (b) the other Members (the
"Complying Members") and the Company may take the actions described in Sections
6.3.2, 6.3.6 and 6.3.7, respectively, below.
6.3.1 Forfeiture. Upon the occurrence of (i) a Payment Default, (ii)
the Approval of the Management Committee (excluding the designees of the
Defaulting Member), and (iii) the payment of a Curing Capital Contribution (as
hereinafter defined) by one or more Complying Members, the Defaulting Member's
percentage of distributions provided for with respect to the Defaulting Member
in Sections 7.1.2.1, 7.1.2.2, 7.1.2.3 and 7.1.2.4 shall each be deemed to have
been reduced (but not below zero) to an amount equal to (a) such percentage
interest immediately before giving effect to this Section 6.3.1 as applied to
such Payment Default, multiplied by (b) one (1) minus a fraction, the numerator
of which shall be 200% of the Curing Capital Contribution, and the denominator
of which shall be the aggregate Capital Contributions of all Members (including
the Curing Capital Contribution). The Complying Members' aggregate percentage of
distributions shall be correspondingly increased by an amount equal to the
reduction so effected in the Defaulting Member's percentage of distributions,
and such increase shall be allocated among the Complying Members in proportion
to their relative contributions to the Curing Capital Contribution. A Defaulting
Member's Ownership Interest (and the Ownership Interests of the Complying
Members) shall be similarly adjusted.
6.3.2 Loans and Capital Contributions. Upon the occurrence of a
Payment Default, the Complying Members may, at their option:
6.3.2.1 Curing Capital Contributions. Make an additional capital
contribution to the Company in the amount required of the Defaulting Member (the
"Curing Capital Contribution"); or
6.3.2.2 Capital Loan. If a Curing Capital Contribution is not
made by one or more Members, make a loan to the Defaulting Member by advancing
to the Company on behalf of the Defaulting Member the additional Capital
Contribution required of the Defaulting Member (a "Capital Loan").
No Complying Member shall be required to make any Curing Capital Contribution or
Capital Loan, and each Complying Member electing to make either a Capital Loan
or Curing Capital Contribution as provided above may make any part or all
thereof; provided that if more than one Complying Member wishes to make any of
the same in excess of its pro rata share and, as a result thereof, the total
amount which all of the Complying Members wish to make exceeds the amount due
from the Defaulting Member, the amounts which each Complying Member may make
shall be allocated in proportion to such Complying Members' respective Ownership
Interests to the extent necessary so that the total amount allocated to all
Complying Members equals the total amount due from the Defaulting Member.
<PAGE>
6.3.3 Aggregate Capital Contributions. To the extent that a Complying
Member makes any Curing Capital Contributions, such Complying Members'
respective obligations with respect to any remaining Capital Contributions shall
not be reduced by such amount.
6.3.4 Capital Loans. If the Complying Members elect to make a Capital
Loan pursuant to Section 6.3.2.2, such loan shall bear interest at the per annum
rate (the "Interest Rate") of two percent (2%) in excess of the prime rate in
effect from time to time as published by the Money Rates Section of the Wall
Street Journal (the "Prime Rate"). Any Capital Loan shall be due and payable in
three equal annual installments of principal plus accrued interest on the first,
second, and third anniversaries of the date thereof. Until all Capital Loans
have been paid in full, any distributions which the Defaulting Member would
otherwise be entitled to receive under Article VII or Section 10.2 shall be paid
to the Complying Member making such Capital Loan and shall be made to each in
proportion to the amount of the Capital Loan made by each Complying Member, and
shall be applied first to reimbursement of costs of collection, next accrued
interest, and the balance to outstanding principal of the Capital Loans and
shall reduce the final installment due thereon then remaining unpaid. The
Capital Account of the Defaulting Member shall nevertheless be debited with the
Defaulting Member's share of distributions which are applied to repayment of any
Capital Loan. If a Defaulting Member defaults in the payment of a Capital Loan
or if a Defaulting Member ceases to be a Member of the Company, such loan shall
become immediately due and payable, and shall bear interest from the date of
default until payment in full at the rate of 18% per annum. With respect to any
Capital Loan, the Defaulting Member agrees to pay all costs of collection,
including attorneys' fees. All Capital Loans shall automatically become due and
payable upon any transfer of the Defaulting Member's Ownership Interest. All
Capital Loans shall be represented by a promissory note or other evidence of
indebtedness satisfactory to the Complying Members making such Capital Loans.
Each Capital Loan shall be secured by a security interest in the Defaulting
Member's Ownership Interest; provided that any security interest in an Ownership
Interest shall be subordinate to any debt of the Defaulting Member to a bank or
other institutional lender with a security interest that is permitted by the
terms of this Agreement and that is perfected prior to the making of the Capital
Loan. The Defaulting Member shall execute and deliver such promissory notes
relating to a Capital Loan, and the Defaulting Member shall deliver such
security agreements, financing statements, and other documents relating to a
Capital Loan, as the Complying Members making such Capital Loans shall
reasonably request.
6.3.5 Debt Obligation. Unless and until the Complying Members elect to
make a Curing Capital Contribution, or Capital Loan pursuant to Section 6.3.2,
the unpaid amount of any additional Capital Contributions required under Section
6.2 shall (i) constitute a debt of the Defaulting Member to the Company,
enforceable by the Company on its own behalf or by the Complying Members on
behalf of the Company, (ii) be payable without further demand, together with
interest at the Interest Rate, and all costs of collection, including attorneys'
fees, and (iii) be secured by a security interest in the Defaulting Member's
Ownership Interest which shall be subordinate to any debt of the Defaulting
Member to a bank or other institutional lender with a security interest that is
permitted by the terms of this Agreement and that is perfected prior to
occurrence of the Payment Default.
<PAGE>
6.3.6 Outside Loans. In the event that the Complying Members do not
elect to make a Curing Capital Contribution or a Capital Loan, the Company may
obtain on behalf of the Company outside financing in the amount of the Capital
Contribution required from the Defaulting Member on such terms and conditions as
may be Approved by the Management Committee (excluding the designees of the
Defaulting Member).
6.3.7 Remedies Cumulative. The rights granted to the Complying Members
under this Section 6.3 are in addition to any rights or remedies that the
Complying Members or the Company may have under this Agreement or at law or in
equity relating to the failure of the Defaulting Member to make any Capital
Contribution required of it. If the Complying Members do not elect to make a
Curing Capital Contribution or Capital Loan pursuant to Section 6.3.2, the
Defaulting Member shall also be liable for all incidental or consequential
damages which the Company may become liable for or may suffer because of such
Defaulting Member's failure to perform.
6.4 Interest on Capital Contributions. No interest shall be paid on any
contribution to the capital of the Company.
6.5 Capital Accounts. There shall be established and maintained on the
books of the Company a separate capital account (a "Capital Account") for each
Member. Each Member's Capital Account shall be credited with the amount of money
and the Gross Asset Value (as defined in Section 6.6.5.7) of any other property
contributed by the Member to the Company (net of liabilities secured by the
contributed property that the Company is considered to assume or take subject to
under Section 752 of the Internal Revenue Code of 1986, as amended (the "Code"))
and by the amount of any Company liabilities which are assumed by such Member.
Each Member's allocated share of Company items of income, gain, loss, and
deduction shall be credited or debited to its Capital Account, and all
distributions of cash or property by the Company to a Member (with distributions
of property being valued at their Gross Asset Value, net of liabilities secured
by such distributed property that the Member is considered to assume or take
subject to under Section 752 of the Code), and the amount of any liabilities of
such Member which are assumed by the Company shall be debited to such Member's
Capital Account.
Notwithstanding any other provision hereof, the Member's Capital Accounts
shall be maintained in accordance with Treasury Regulations under Section 704(b)
of the Code. In applying such principles, any expenditures of the Company
described in Code Sec tion 705(a)(2)(B) or treated as Code Section 705(a)(2)(B)
expenditures pursuant to Treasury Regulations Section 1.704-l(b)(2)(iv)(i) shall
be allocated among the Members in the same manner as such expenditures would be
allocated among the Members pursuant to this Article VI if such expenditures
were treated as additional items of deduction of the Company recognized and
required to be allocated among the Members pursuant to this Article VI with
respect to the year in which such expenditures were made.
In the event all or a portion of an interest in the Company is transferred
in accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest. A Person shall have a single Capital Account that reflects
its entire interest in the Company, regardless of the time or manner in which
those interests were acquired.
<PAGE>
6.6 Allocation of Profits and Losses.
6.6.1 Determination of Profits and Losses. Profits and Losses, and all
items of Company income, gain, loss, deduction, and credit as determined in
accordance with the methods used for filing the Company's federal income tax
returns shall be allocated among the Members as follows:
6.6.2 Profit and Loss Allocations. For purposes of determining Capital
Account balances Profit and Loss with respect to any year shall be allocated
prior to reducing Capital Accounts by any distributions with respect to such
year and Capital Account balances shall be redetermined after each priority
allocation before making the next priority allocation.
6.6.2.1 Losses. Except to the extent otherwise provided in
Section 6.6.5, Losses shall be allocated in the following order of priority:
(i) First, among the Members in an amount equal to the excess of
the Profits allocated to them pursuant to Section 6.6.2.2 (ii), (iii), (iv) and
(v) (in reverse of the order and in the same proportions in which such Profits
were allocated) over the Losses previously allocated to them pursuant to this
Section 6.6.2.1 (i); and
(ii) Thereafter, subject to Section 6.6.5.1(i), 62.5% to RSVP,
27.5% to Hammes and 10% to SunBridge.
6.6.2.2 Profits. Except to the extent otherwise provided in
Section 6.6.5, Profits shall be allocated in the following order of priority:
(i) First, among the Members in an amount equal to the excess of
the amount of Losses allocated to them pursuant to Section 6.6.2.1 (in reverse
of the order and in the same proportions in which such Losses were allocated)
over the amount of Profits previously allocated to them pursuant to this Section
6.6.2.2 (i);
(ii) Second, among the Members in an amount equal to the excess
of the amount required to be distributed to them pursuant to Section 7.1.2.1
(reduced by their Capital Contributions) for the current fiscal period and all
prior fiscal periods (determined by assuming that the cash available for
distribution pursuant to Section 7.1.2.1 at least equaled the Profits required
to be allocated hereunder), over the amounts previously allocated to them
pursuant to this Section 6.6.2.2 (ii);
(iii) Third, among the Members in an amount equal to the excess
of the amount required to be distributed to them pursuant to Section 7.1.2.2 for
the current Company Accounting Year and all prior Company Accounting Years
(determined by assuming that the cash available for distribution pursuant to
Section 7.1.2.2 at least equaled the Profits required to be allocated
hereunder), over the amount previously allocated to them pursuant to this
Section 6.6.2.2 (iii);
(iv) Fourth, among the Members in an amount equal to the excess
of the amount required to be distributed to them pursuant to Section 7.1.2.3 for
the current Company Accounting Year and all prior Company Accounting Years
(determined by assuming that the cash available for distribution pursuant to
Section 7.1.2.3 at least equaled the Profits required to be allocated
hereunder), over the amount previously allocated to them pursuant to this
Section 6.6.2.2 (iv); and
(v) Thereafter, in the proportions set forth in Section 7.1.2.4.
6.6.3 In General. Except as is otherwise provided in this Article VI,
an allocation of Company taxable income or taxable loss to a Member
shall be treated as an allocation to such Member of the same share of each item
of income, gain, loss and deduction that has been taken into account in
computing such taxable income or taxable loss.
6.6.4 Notwithstanding the foregoing, any income, gain or deduction of
the Company resulting from a reduction and increase pursuant to Sections 6.3.1
and 6.3.3 shall be allocated, in the case of income resulting from a Capital
Account increase, to the Member or Members receiving such increase, and in the
case of a deduction or gain resulting from a Capital Account decrease, to the
Member or Members suffering such decrease.
6.6.5 Regulatory Allocations
6.6.5.1 Minimum Gain Chargeback and Qualified Income Offset.
(i) No Impermissible Deficits. Notwithstanding any other
provision of this Agreement, taxable loss (or items of deduction) shall not be
allocated to a Member to the extent that the Member has or would have, as a
result of such allocations, an Adjusted Capital Account Deficit. Any taxable
loss (or items of deduction) which otherwise would be allocated to a Member, but
which cannot be allocated to such Member because of the application of the
immediately preceding sentence, shall instead be allocated to the other Members,
in proportion to their then Capital Account balances; provided, however, that a
Member who was not allocated a taxable loss (or items of deduction) pursuant to
this Section 6.6.5.1 shall be allocated a like loss when such loss (or items of
deduction) can be allocated to such Member without causing an Adjusted Capital
Account Deficit.
(ii) Qualified Income Offset. In order to comply with the
"qualified income offset" requirement of the Treasury Regulations under Code
Section 704(b), and notwithstanding any other provision of this Agreement to the
contrary except Section 6.6.5.1(iii) below, in the event a Member for any reason
(whether or not expected) has an Adjusted Capital Account Deficit, items of
Profits (consisting of a pro rata portion of each item of income comprising the
Company's Profits, including both gross income and gain for the taxable year)
shall be allocated to such Member in an amount and manner sufficient to
eliminate as quickly as possible the Adjusted Capital Account Deficit.
(iii) Minimum Gain Chargeback. In order to comply with the
"minimum gain chargeback" requirements of Treasury Regulations Sections
1.704-2(f)(1) and 1.704-2(i)(4), and notwithstanding any other provision of this
Agreement to the contrary, in the event there is a net decrease in a Member's
share of Company Minimum Gain and/or Member Nonrecourse Debt Minimum Gain during
a Company taxable year, such Member shall be allocated items of income and gain
for that year (and if necessary, other years) as required by and in accordance
with Treasury Regulations Sections 1.704-2(f)(1) and 1.704-2(i)(4) before any
other allocation is made.
6.6.5.2 Other Tax Allocation Provisions.
(i) Income Characterization. For purposes of deter mining the
character (as ordinary income or capital gain) of any gain allocated to the
Members, any portion of the taxable income of the Company that is treated as
ordinary income attributable to the recapture of depreciation shall, to the
extent possible, be allocated among the Members in the proportion which (i) the
amount of depreciation previously allocated to each Member bears to (ii) the
total of such depreciation allocated to all Members. This section shall not
alter the amount of allocations among the Members but shall merely affect the
character of income so allocated.
(ii) Change in Residual Percentages. In the event any Member's
interest in the Company changes during a fiscal year for any reason, including
the transfer of any interest in the Company, the allocations of taxable income
or loss under this Section, and distributions, shall be adjusted as necessary to
reflect the varying interests of the Members during such year using an interim
closing of the books method as of the date of such change, or such other method
as is Approved by the Management Committee.
(iii) Mandatory Allocations -- Section 704(c) and Member
Nonrecourse Debt.
(1) Notwithstanding the foregoing, (i) in the event Code
Section 704(c) or Code Section 704(c) principles applicable under Treasury
Regulations Section 1.704-1(b)(2)(iv) require allocations of income or loss of
the Company in a manner different than that set forth above, the provisions of
Code Section 704(c) and the Treasury Regulations thereunder shall, solely for
tax purposes, control such allocations among the Members; and (ii) all tax
deductions and taxable losses of the Company that, pursuant to Treasury
Regulations Section 1.704-2(i), are attributable to a Member Nonrecourse Debt
for which a Member (or a Person related to such Member under Treasury
Regulations Section 1.752-4(b)) bears the economic risk of loss (within the
meaning of Treasury Regulations Section 1.752-2) shall be allocated to such
Member as required by Treasury Regulations Section 1.704-2(c).
(2) Any item of income, gain, loss and deduction with
respect to any property (other than cash) that has been contributed by a Member
to the capital of the Company or which has been revalued for Capital Account
purposes pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv) and which is
required or permitted to be allocated to such Member for income tax purposes
under Code Section 704(c) so as to take into account the variation between the
tax basis of such property and its Gross Asset Value at the time of its
contribution or at the time of its revaluation for Capital Account purposes
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv) (such contributed or
revalued property is referred to as "Revalued Property") shall be allocated
solely for income tax purposes in the manner so required or permitted under Code
Section 704(c) using the "traditional method" described in Treasury Regulations
Section 1.704-3(b) (or any successor Regulation), such allocations to be made as
shall be Approved by the Management Committee; provided, however, that curative
allocations consisting of the special allocation of gain or loss upon the sale
or other disposition of the Revalued Property shall be made in accordance with
Treasury Regulations Section 1.704-3(c) to the extent necessary to eliminate any
disparity, to the extent possible, between the Members' book and tax Capital
Accounts attributable to such property; and further provided, however, that any
other method allowable under applicable Treasury Regulations may be used in
connection with any Revalued Property as shall be Approved by the Management
Committee. Allocations under this Section 6.6.5.2(iii)(2) are solely for
purposes of federal, state and local taxes and shall not affect, or in any way
be taken into account in computing, any Member's Capital Account or share of
Profit, Loss, Gain or Loss on Disposition or other items or distributions under
any provision of this Agreement.
(iv) Guarantee of Company Indebtedness. Except for arrangements
expressly described in this Agreement, no Member shall enter into (or permit any
Person related to the Member to enter into) any arrangement with respect to any
liability of the Company that would result in such Member (or a Person related
to such Member under Treasury Regulations Section 1.752-4(b)) bearing the
economic risk of loss (within the meaning of Treasury Regulations Section
1.752-2) with respect to such liability unless such arrangement has been
Approved by the Members.
(v) References to Regulations. Any reference in this Agreement to
a provision of final, proposed and/or temporary Treasury Regulations shall, in
the event such provision is modified or renumbered, be deemed to refer to the
successor provision as so modified or renumbered, but only to the extent such
successor provision applies to the Company under the effective date rules
applicable to such successor provision or the Members otherwise so reasonably
Approve under applicable elections contained in such Treasury Regulations.
6.6.5.3 Intent of Allocations. The parties intend that the
foregoing tax allocation provisions of this Article VI shall produce final
Capital Account balances of the Members that would permit liquidating
distributions, if such distributions were made in accordance with final Capital
Account balances (instead of being made in the order of priorities set forth in
Section 7.1.2), to be made (after unpaid loans and interest thereon, including
those owed to Members have been paid) in a manner identical to the order of
priorities set forth in Section 7.1.2. To the extent that the tax allocation
provisions of this Article VI would fail to produce such final Capital Account
balances, (i) such provisions shall be amended by the Members if and to the
extent necessary to produce such result and (ii) taxable income and taxable loss
of the Company for prior open years (or items of gross income and deduction of
the Company for such years) shall be reallocated among the Members to the extent
it is not possible to achieve such result with allocations of items of income
(including gross income) and deduction for the current year and future years, as
Approved by the Management Committee. This Sec tion 6.6.5.3 shall control
notwithstanding any reallocation or adjustment of taxable income, taxable loss,
or items thereof by the Internal Revenue Service or any other taxing authority.
<PAGE>
6.6.5.4 Basis Elections. The Company shall make an election under
Section 754 of the Code with respect to RSVP's acquisition of the Assigned
Interest from Hammes. In the event of any future transfer of all or any part of
a Member's interest in the Company, the Company shall, unless otherwise required
under the Code, adjust the basis of the Company's assets under Code Section 754.
6.6.5.5 General Allocation Rules. All Profit and Loss of the
Company shall be allocated with respect to each Company Accounting Year (or part
thereof) as of the end of, and within ninety (90) days after the end of, such
year, or as soon thereafter as is practically possible. All Profit and Loss
shall be allocated to the Members shown on the records of the Company to have
been Members as of the last day of the Company Accounting Year for which such
allocation is to be made, except that, if a Member sells or exchanges its
interest in the Company or otherwise is admitted as a substituted Member, the
Profit or Loss shall be allocated between the transferor and the transferee by
taking into account their varying interests during the Company Accounting Year
in accordance with Code Section 706(d), using the interim closing of the books
method or such other method as shall be Approved by the Management Committee.
6.6.5.6 Sharing of Company Nonrecourse Debt. Throughout the term
of the Company, the Nonrecourse Liability of the Company (other than Member
Nonrecourse Debt) shall be allocated for tax purposes among the Members in
accordance with their then respective Ownership Interests. To the extent that
any Member's share of such nonrecourse debt as so specified exceeds the amounts
referred to in Treasury Regulations Sections 1.752-3(a)(1) and (2), it is
intended that the foregoing shares shall be viewed and treated as reasonably
consistent with allocations (which have substantial economic effect) of some
significant item of partnership income or gain within the meaning of Treasury
Regulations Section 1.752-3(a)(3).
6.6.5.7 Definition and Adjustment of Gross Asset Value. "Gross
Asset Value", with respect to any asset, shall be the adjusted basis for federal
income tax purposes of that asset, except as follows:
(i) The initial Gross Asset Value of any asset contributed (or
deemed contributed under Treasury Regulations Section 1.708-1(b)(1)(iv)) by a
Member to the Company shall be the fair market value of the asset on the date of
the contribution, as Approved by the Management Committee.
(ii) The Gross Asset Values of all Company assets shall be
adjusted to equal the respective fair market values of the assets, as Approved
by the Management Committee:
(1) If the Management Committee determines that an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Members in the Company, as a result of (i) the acquisition of
an additional interest in the Company by any new or existing Member in exchange
for more than a de minimis capital contribution; or (ii) the distribution by the
Company to a Member of more than a de minimis amount of Company property as
consideration for an interest in the Company; and
<PAGE>
(2) As of the date of the liquidation of the Company within
the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g).
(iii) The Gross Asset Value of any Company asset distributed to
any Member shall be the gross fair market value of the asset on the date of
distribution (as Approved by the Management Committee), less any liabilities
assumed by the distributee Member or to which such asset is subject as of the
time of distribution.
(iv) The Gross Asset Values of Company assets shall be increased
or decreased to reflect any adjustment to the adjusted basis of the assets under
Code Section 734(b) or 743(b), but only to the extent that the adjustment is
taken into account in determining Capital Accounts under Treasury Regulations
Section 1.704- 1(b)(2)(iv)(m), provided that Gross Asset Values shall not be
adjusted to the extent that the Management Committee determines that an
adjustment under Section 6.6.5.7(ii) is necessary or appropriate in connection
with a transaction that would otherwise result in an adjustment under this
Section 6.6.5.7(iv). After the Gross Asset Value of any asset has been
determined or adjusted under this Section, Gross Asset Value shall be adjusted
by the depreciation taken into account with respect to the asset for purposes of
computing Profits or Losses.
6.6.5.8 Rules of Construction. For purposes of applying this
Section as a result of a disposition occurring with respect to part (but less
than all) of any capital asset of the Company, a Member's Capital Account
balance shall be deemed to be increased by such Member's share of Company
Minimum Gain and Member Nonrecourse Debt Minimum Gain remaining after such
disposition as determined under the Treasury Regulations under Code Section
704(b).
6.7 Agreements with Members or Affiliates.
6.7.1 SunBridge. Simultaneously with the execution hereof (or on such
other schedule as is set forth below or as the Members shall agree in writing),
SunBridge shall enter into or cause its identified Affiliate to enter into the
following agreements with the Company:
6.7.1.1 SunBridge shall cause the Credit Agreement between Sun
Healthcare and the Company (the "Subordinated Credit Agreement"), to remain in
effect continually from the date hereof until the date specified therein unless
otherwise agreed by RSVP or Hammes in writing or unless the Company causes the
termination of the Subordinated Credit Agreement under the provisions thereof.
6.7.1.2 Unless otherwise Approved by the Management Committee,
SunBridge and the Company or an Investment Entity shall enter into an Agreement
to Provide Management Services with respect to each Facility generally in the
form attached hereto as Exhibit B (the "Management Agreements"), with such
changes as shall be Approved by the Management Committee.
<PAGE>
6.7.1.3 SunBridge shall enter into the Triple-Net Lease Option
Agreement with the Company in the form attached hereto as Exhibit C (the "Lease
Option Agreement").
6.7.2 Hammes. Simultaneously with the execution hereof (or on such
other schedule as is set forth below or as the Members shall agree in writing),
Hammes shall cause HC Development LLC, a Wisconsin limited liability company
(the "Developer") to enter into an Amended and Restated Development Agreement
with the Company in the form attached hereto as Exhibit D (the "Development
Agreement").
6.7.3 Hammes' Obligations. In addition to the agreement provided for
in Section 6.7.2, Hammes shall act as the Managing Member responsible for the
day-to-day management of the Company as provided for in Section 8.3 and shall
act as Tax Matters Member as provided for in 8.8.
6.7.4 No Capital Account Effect. The agreements provided for in this
Section 6.7 shall have no effect on the Capital Accounts of the Members.
ARTICLE VII
DISTRIBUTIONS FROM OPERATIONS
7.1 Distributions.
7.1.1 Timing of Distributions. The Company will distribute all Cash
Flow from operations no less frequently than quarterly and within 20 days
following the close of each fiscal quarter, unless otherwise determined by the
Management Committee with the Approval of RSVP's Committee Members. All Cash
Flow representing the proceeds of any sale, refinancing or disposition of a
Facility or Investment Entity or other capital event shall be distributed within
20 days following receipt by the Company of such proceeds, unless otherwise
determined by the Management Committee with the Approval of an RSVP Committee
Member. Distributions may be made in cash or, with the Approval of a Committee
Member which is a designee of RSVP, in the form of Marketable Securities or,
with the Approval of the Members, in kind.
7.1.2 Priority of Distributions. Subject to Section 7.2, Cash Flow
shall be distributed as follows:
7.1.2.1 First, 80% to RSVP, 10% to Hammes and 10% to SunBridge
until RSVP has received pursuant to Section 7.2 and this Section 7.1.2.1 an
amount (inclusive of amounts received pursuant to Section 7.2) equal to the IRR
- - First Level;
7.1.2.2 Second, (i) 70% to RSVP, (ii) 20% to Hammes and (iii) 10%
to SunBridge until RSVP has received pursuant to Section 7.2, Section 7.1.2.1
and this Section 7.1.2.2 an amount (inclusive of amounts received pursuant to
Section 7.2 and Section 7.1.2.1) equal to the IRR - Second Level;
<PAGE>
7.1.2.3 Third, 60% to RSVP, (ii) 30% to Hammes and (iii) 10% to
SunBridge until RSVP has received pursuant to Section 7.2, Section 7.1.2.1,
Section 7.1.2.2 and this Section 7.1.2.3 an amount (inclusive of amounts
received pursuant to Section 7.2, Section 7.1.2.1 and Section 7.1.2.2) equal to
the IRR Third Level; and
7.1.2.4 Thereafter, 45% to RSVP, 45% to Hammes and 10% to
SunBridge. All distributions under this Section 7.1 and under Section 7.2 to a
Member shall be deemed to have been applied first to repay Invested Capital of
such Member and, in the case of distributions to RSVP, then to repay the balance
of the RSVP Investment.
7.2 Tax Distributions. Subject to there being Cash Flow available for
distribution and the limitations set forth in Section 7.4, within ten days after
the end of March, May, August and December, in order to provide funds from the
Company in amounts reasonably estimated to be required for the Members to pay
estimated income tax liability on their respective shares of the income of the
Company, the Manager shall cause the Company to distribute to the Members as
"Tax Distributions," in accordance with the priorities established in Section
7.1, a total amount which the Manager estimates to be equal to the federal and
state income tax liability that would be accrued on the income of the Company
for that calendar year through the end of the applicable month (assuming that
such income was taxed at the rate of 40% for ordinary income and 30% for capital
gains), less the amount of all Tax Distributions previously made with respect to
such calendar year and any other distributions made to the Members with respect
to such calendar year (which shall not include Tax Distributions or other
distributions made with respect to any prior year's income); provided that
income of the Company for any year shall be net of (so as to be reduced by) all
losses of the Company for that year and all losses of the Company for any prior
years (including any years prior to the date of this Agreement) which have not
then been fully set off against income for purposes of determining Tax
Distributions under this Section 7.2. After the income of the Company for each
calendar year has been determined, if total distributions to date with respect
to such year do not equal or exceed the federal and state income tax liability
that would be accrued on the income of the Company for such year (determined as
provided above), subject to there being Cash Flow available for distribution and
the limitations set forth in Section 7.4, Hammes, as Managing Member, shall
cause the Company to distribute any additional amount necessary to cause the
total distributions for such year to equal such tax liability.
7.3 No Right to Distributions. Except as described in Sections 7.1 and 7.2,
no Member shall have the right to withdraw any amount from its Capital Account,
or to receive any distribution or return of capital, without the Approval of the
Management Committee
7.4 Limits on Distributions. As provided in the Act, the Company may not
make distributions (including Tax Distributions) to Members to the extent that,
after giving effect to the distribution, all of the liabilities of the Company,
other than liabilities to Members on account of their Ownership Interests and
liabilities for which the recourse of creditors is limited to specified property
of the Company, would exceed the fair value of the assets of the Company;
provided, however, that the fair value of property that is subject to a
liability for which the recourse of creditors is limited shall be included in
the assets of the Company only to the extent that the fair value of that
property exceeds that liability.
ARTICLE VIII
MANAGEMENT
8.1 Management Committee.
8.1.1 The Members shall appoint representatives to a Management
Committee of the Company (the "Management Committee") that shall have, on behalf
of the Members, the full and complete authority with respect to all decisions
identified on Exhibit E ("Major Decisions"), the decisions identified on Exhibit
F ("Major Capital Decisions") and with respect to all matters for which the
Members' Approval is required as provided for in this Agreement. Except as
otherwise specified in this Agreement, all Major Decisions, Major Capital
Decisions and other decisions shall require the Approval of the Management
Committee. The Committee Members appointed by Hammes shall not have the right to
vote with respect to the Major Decisions identified as item (7) on Exhibit E
that relate to the Development Agreement. The Committee Member appointed by
SunBridge shall not have the right to vote with respect to the Major Decisions
identified as items (2) or (7) on Exhibit E that relate to the Management
Agreement with SunBridge or any Facility Lease with SunBridge or another person,
or with respect to the Major Decisions identified as item (10) on Exhibit E.
Approval by the Management Committee of any Major Decision shall require the
affirmative vote or consent of one or more of the Committee Members appointed by
RSVP, in addition to any other required Committee Member vote or consent.
Approval by the Management Committee of any Major Capital Decision shall only
require the affirmative vote or consent of one or more of the Committee Members
appointed by RSVP, and shall not require the affirmative vote or consent of any
other Committee Member. Any decision which may be deemed to constitute both a
Major Decision and a Major Capital Decision shall be deemed to constitute a
Major Capital Decision and not a Major Decision.
8.1.2 The Management Committee shall initially consist of five (5)
individuals (each, a "Committee Member"). The number of Committee Members of the
Company shall be fixed from time to time by the Management Committee, provided,
however, that the number of Committee Members shall not be less than five (5).
RSVP shall have the right to appoint two (2) Committee Members who shall
initially be Seth Lipsay and Steven Shepsman; Hammes shall have the right to
appoint two (2) Committee Members who shall initially be Stuart Davis and Jon
Hammes; and SunBridge shall have the right to appoint one (1) Committee Member
who shall initially be Jerry C. Meyer. Each Committee Member shall be a member
of the Management Committee until the Member that appointed such Committee
Member provides written notice to the other Members stating that such Committee
Member has been removed, resigned, become incapacitated or died. Subject to the
limitations set forth herein, a Committee Member may be removed by the Member
that appointed such Committee Member for any reason. Any vacancy on the
Management Committee created by the resignation, removal, incapacity or death of
any Committee Member may be filled by another person appointed by such Member.
Notwithstanding the foregoing, Hammes shall not change its designees without the
prior written consent of RSVP (which consent shall not be unreasonably withheld)
and RSVP shall not change its designees without the prior written consent of
Hammes (which consent shall not be unreasonably withheld); provided, however,
that the appointment of one or more of the following individuals as RSVP's
designees shall not require the consent of Hammes: Seth Lipsay, Steven Shepsman,
any successor managing director of RSVP, Sharon Roth, Scott Rechler or Michael
Maturo.
8.1.3 "Approval" (and any variation thereof) of any matter submitted
to the Management Committee shall mean (subject to the following sentence) the
affirmative vote or consent of a majority of the Committee Members present at a
duly held meeting of the Management Committee ), provided, however, that with
respect to matters where a certain Member's designees are specifically excluded
from a vote or consent of the Management Committee under this Agreement, then
Approval shall mean the affirmative vote or consent of a majority of the
remaining Committee Members. Notwithstanding the foregoing, (a) Approval with
respect to Major Decisions shall always require the affirmative vote or consent
of at least one (1) RSVP Committee Member, and (b) Approval with respect to
Major Capital Decisions shall require only the affirmative vote or consent of
one or more RSVP Committee Members, and shall not require the affirmative vote
or consent of any other Committee Member. Approval of the Management Committee
may also occur without a meeting upon the unanimous written consent of the
Committee Members.
8.2 Management Committee Meetings.
8.2.1 Regular meetings of the Management Committee shall be held
monthly (or more frequently when requested by a Member upon three (3) Business
Days' advance notice to the other Members and the Committee Members), at a
location designated by the Management Committee; provided, that, any meeting of
the Management Committee may be conducted by telephone conference. Hammes, as a
Managing Member, shall (and if Hammes fails to do so, RSVP may) circulate an
agenda for each meeting to the Committee Members at least seventy-two (72) hours
prior to each meeting of the Management Committee. The presence (in person,
telephonically or by proxy) of at least three (3) Committee Members, at least
one (1) of whom is a designee of RSVP, at least one (1) of whom is a designee of
Hammes, and at least one (1) of whom is a designee of SunBridge, shall (except
as provided below) be required for the transaction of business at each meeting.
Approval of the Committee Members at a meeting shall only occur when a majority
of those Committee Members present vote to approve (or consent to the approval
of) the subject of such vote (including therein the affirmative vote or consent
of at least one RSVP Committee Member with respect to Major Decisions).
Committee Members may Approve a Major Decision notwithstanding the absence of a
quorum at a meeting of the Management Committee, provided: (a) such Approval
includes the affirmative vote or consent of at least one RSVP Committee Member;
(b) notice of such meeting (including therein notice of the proposed Major
Decision) has been given to all Members and Committee Members in the manner set
forth above; and (c) notice of such proposed Major Decision had previously been
included in a notice of a prior meeting of the Management Committee held or
originally scheduled to be held not less than 10 nor more than 60 Business Days
prior to the meeting at which Approval with respect to a Major Decision is taken
notwithstanding the absence of a quorum.. Approval with respect to Major Capital
Decisions shall require only the affirmative vote or consent of one or more RSVP
Committee Members, who may Approve a Major Capital Decision notwithstanding the
absence of a quorum at a meeting of the Management Committee, provided: (a)
notice of such meeting (including therein notice of the proposed Major Capital
Decision) has been given to all Members and Committee Members in the manner set
forth above; and (b) notice of such proposed Major Capital Decision had
previously been included in a notice of a prior meeting of the Management
Committee held or originally scheduled to be held not less than 10 nor more than
60 Business Days prior to the meeting at which Approval with respect to a Major
Capital Decision is taken notwithstanding the absence of a quorum. Minutes of
each Management Committee meeting shall be kept and circulated to each Member
and each Member's designees to the Management Committee within ten (10) Business
Days of the actual meeting. The minutes of each meeting of the Management
Committee shall be reviewed and modified, as necessary, and approved at the
subsequent meeting of the Management Committee.
8.2.2 The Members and their designees to the Management Committee
shall each use their reasonable best efforts to reach a consensus on all matters
within the framework of the regular Management Committee meetings, and each
shall cooperate in encouraging frequent and detailed dialogue and communication
among the Members. RSVP shall consult with the Committee Members prior to giving
Approval with respect to any Major Capital Decision not previously presented to
the Management Committee for consideration.
8.3 Managing Members; Day-to-Day Management.
8.3.1 Each of RSVP and Hammes shall be the managing members of the
Company (the "Managing Members"). Notwithstanding any other provisions of this
Agreement, the Managing Members shall have no authority (i) to perform any act
in violation of any applicable law; (ii) to perform any act in violation of this
Agreement; (iii) to possess Company property, or assign the Company's rights in
specific Company property, for other than a Company purpose; or (iv) to
knowingly perform any act, or knowingly cause the Company to perform any act,
which would result in the Company being classified as an Investment Company
under the Investment Company Act of 1940 or which would impair or adversely
affect the status of any Affiliate of RSVP as a real estate investment trust (a
"REIT") under Sections 856 through 860 of the Code. Subject to the regular and
frequent oversight of the Management Committee and except as otherwise provided
in this Agreement, (a) the Managing Members shall have power and discretion to
manage and control the business, affairs and properties of the Company, to make
all decisions regarding those matters and to perform any and all other acts or
activities customary or incident to the management of the Company's business and
(b) Hammes, as a Managing Member, shall conduct the day-to-day business and
affairs of the Company and shall execute investment plans and budgets in
furtherance of and in accordance with the purpose of this Agreement, provided,
however, if Hammes ceases to be a Member at such time as RSVP is a Member, RSVP
or its designee shall so conduct such activities. In addition, Hammes shall be
responsible for the monitoring and review of the performance by SunBridge of its
obligations under the Management Agreement, the Lease Option Agreement and (if a
Lease Option is exercised) the Facility Leases, and shall execute the
Development Plans and budgets as initially approved by the Management Committee,
or as modified by the Management Committee. Hammes shall take all appropriate
actions in furtherance of Major Decisions Approved by the Members and shall take
all actions over which it has exclusive management rights as described in this
Section 8.3.1, which actions shall not require the additional consent of RSVP as
the other Managing Member. The Managing Members shall, in no event, take any
action that constitutes a Major Decision if such action was not Approved by the
Management Committee.
8.3.2 Each Managing Member shall perform its duties as Managing Member
in good faith, in a manner that such Managing Member reasonably believes to be
in the best interests of the Company and with such care as an ordinarily prudent
person in a like position would use under similar circumstances. Subject to the
provisions of Section 9.1, if a Managing Member so performs its duties, such
Managing Member shall not have any liability by reason of being or having been a
Managing Member of the Company. The Managing Member and the Members shall be
entitled to rely in good faith upon the records of the Company and upon such
information, opinions, reports, or statements of those persons or groups as are
specified in the Act. The Managing Members shall be agents of the Company for
the purpose of its business and the act of either Managing Member, including the
execution in the name of the Company of any instrument for apparently carrying
on in the usual way the business of the Company, shall bind the Company unless
the act is in contravention of the Company's certificate of formation or this
Agreement or unless the Managing Member otherwise lacks the authority to act for
the Company and the person with whom the Managing Member is dealing has
knowledge of the fact that the Managing Member has no such authority. Subject to
the provisions of Section 9.1, no Managing Member shall be liable to the Company
or to any Member for any loss or damage sustained by the Company or any Member
(including by reason of any breach of any fiduciary duty), unless the loss or
damage shall have been the result of fraud, gross negligence, willful misconduct
or material breach of this Agreement by the Managing Member.
8.4 RSVP's Rights Regarding Certain Decisions. Notwithstanding the other
provisions of this Article VIII, RSVP shall have the right, upon written notice
(the "RSVP Decision Notice") to make certain decisions without the consent of
Hammes, SunBridge or the Management Committee, as provided below.
8.4.1 RSVP's Right to Elect Dispositions. RSVP shall have the right to
require the Company to dispose of any Facility (i) which (A) does not, within
two years of such Facility's "Substantial Completion" (as defined in the
Development Agreement), generate Cash Flow in amounts sufficient, when taken
together with Cash Flow from all other Facilities not yet leased by SunBridge
pursuant to the Lease Option, provide an annual 16% cash on cash return on the
RSVP Investment allocable to such Facilities, and (B) has first been offered for
lease to SunBridge under the Lease Option Agreement and SunBridge has rejected
such Facility for lease, or (ii) as to which the Facility Lease has terminated
or not been renewed. Before the Company disposes of any such Facility, which
disposition is not Approved by at least one Committee Member which is a designee
of a Member other than RSVP, the other Members (excluding RSVP) shall have a
right of first offer to purchase such Facility as follows. If the other Members
do not make a written binding offer to purchase such Facility on terms
acceptable to RSVP within five Business Days after written notice of intent to
dispose of the Facility has been delivered by RSVP on behalf of the Company (the
"RSVP Disposition Notice"), RSVP may cause the Company to sell such Facility to
any person (including RSVP or an Affiliate of RSVP) at a price no less than the
price at which the Facility was offered to be purchased by the Members. If the
Facility is not sold within one year from the delivery of the RSVP Disposition
Notice to the Members, such Facility shall once again be subject to the first
offer provisions of this Section.
8.4.2 Major Capital Decisions. RSVP, through its appointed Committee
Members, shall have the right to require the Company to take, or refrain from
taking, any act which is, or which implements, a Major Capital Decision.
8.5 Other Obligations of the Company.
8.5.1 Hammes, as Managing Member, shall cause the Company to take such
action as may be necessary or appropriate for the continuation of the Company's
valid existence under the laws of the State of Delaware and the existence of
each Investment Entity under the laws of its jurisdiction of organization and in
order to form or qualify the Company (or any Investment Entity) under the laws
of any jurisdiction in which the Company (or any Investment Entity) is doing
business or in which such formation or qualification is necessary to protect the
limited liability of the Members or in order to continue in effect such
formation or qualification. Hammes, as Managing Member, shall cause the Company
(and each Investment Entity) to file or cause to be filed for recordation in the
office of the appropriate authorities of its jurisdiction of organization and in
the proper office or offices in each other jurisdiction in which the Company (or
any Investment Entity) is formed or qualified, such certificates, including
limited liability company and fictitious name certificates, and other documents
as are required by the applicable statutes, rules or regulations of any such
jurisdiction.
8.5.2 Hammes, as Managing Member, shall cause the Company (and each
Investment Entity) to maintain insurance with financially sound and reputable
insurance companies or associations in such amounts and covering such risks as
are usually carried by companies engaged in similar businesses and owning and/or
operating similar properties in areas similar to those in which the Company and
each Investment Entity owns and/or operates Facilities or other properties.
8.6 Authority of Others to Act. Unless authorized specifically to do so by
the Management Committee or the Managing Members with regard to a particular
matter, no attorney-in-fact, employee, or other agent of the Company shall have
any power or authority to bind the Company in any way, to pledge its credit or
to render it liable pecuniarily for any purpose. Except as provided in this
Article 8, no Member shall have any power or authority to bind the Company
unless such Member has been authorized by the Management Committee or the
Managing Members to act as an agent of the Company in accordance with the
previous sentence.
<PAGE>
8.7 Deadlock Buy/Sell.
8.7.1 In the event that at any time after the second anniversary of
this Agreement, the Management Committee fails to approve three (3) or more
Major Decisions presented for Approval (excluding Major Decisions if and only to
the extent such decisions also constitute Major Capital Decisions) within a
period of twelve (12) consecutive months, any Member (the "Offering Member") may
invoke the procedures set forth in this Section 8.7 (the "Deadlock Buy/Sell") to
break the deadlock with the other Members (the "Responding Members").
The Offering Member may initiate the Deadlock Buy/Sell by providing
the Responding Members with a written notice (the "Buy/Sell Notice") which shall
set forth all material terms on which it is willing to purchase all of the
Responding Members' Ownership Interests, including the aggregate price offered
for the Responding Members' Ownership Interests. Together with the Buy/Sell
Notice, the Offering Member shall deliver to each Responding Member a cash
deposit or irrevocable letter of credit equal to twenty percent (20%) of the
purchase price offered for such Responding Member's Ownership Interest (each, an
"Offering Member Deposit") which Offering Member Deposits shall be applied
toward the payment of the purchase price at the closing of the Offering Member's
purchase of the Responding Members' Ownership Interests, if applicable. Within
ten (10) days after delivery of the Buy/Sell Notice, each Responding Member
shall irrevocably agree in writing to either (i) close within sixty (60) days of
the date of the Buy/Sell Notice (the "Responding Member Purchase Period") on the
purchase for cash at the price set forth in the Buy/Sell Notice (appropriately
adjusted to reflect the Members' relative Ownership Interests) of either (x) its
pro rata portion of the Offering Member's Ownership Interest based on the
Ownership Interests of each Responding Member that elects to purchase the
Offering Member's Ownership Interest or (y) all of the Offering Member's
Ownership Interest in the event that the other Responding Members do not elect
to purchase the Offering Member's Ownership Interest, or (ii) sell to the
Offering Member at a closing within sixty (60) days of the Buy/Sell Notice, all
of such Responding Member's Ownership Interest at the price set forth in the
Buy/Sell Notice (appropriately adjusted to reflect the Members' relative
Ownership Interests) payable in cash at closing to the effect that all of such
Responding Members' Ownership Interests are offered for sale. If a Responding
Member fails to so agree in writing, it shall be deemed to have elected to sell
its Ownership Interest to the Offering Member. If one or more of the Responding
Members elects to purchase the Offering Member's Interest pursuant to clause (i)
above, then the Offering Member may not purchase the Ownership Interest of any
Responding Member who offered to sell its Ownership Interest pursuant to clause
(ii) above. If one or more of the Responding Members elects to purchase the
Offering Member's Ownership Interest pursuant to clause (i) above, then such
Responding Member(s) shall deliver to the Offering Member, within fifteen (15)
days after delivery of the Buy/Sell Notice, (a) an amount in cash equal to
twenty percent (20%) of their pro rata share of the price for the Offering
Member's Ownership Interest (each, a "Responding Members Deposit"), which
Responding Members Deposits shall be applied toward the payment of the price for
the Offering Member's Ownership Interest at the closing of the Responding
Members' purchase of the Offering Member's Ownership Interest and (b) the
Offering Member Deposits. In the event that one or more of the Responding
Members who elected to purchase the Offered Member's Ownership Interest fail to
close the purchase within the time period provided therefor above, the remaining
Responding Members may elect to purchase all of the Offered Member's Ownership
Interest. If, following the Responding Members' written response, the Member
which is to be the purchaser shall, without the consent of the other Member(s)
from whom it is purchasing the subject Ownership Interest, fail to timely close
its acquisition under this Section 8.7.1., all of its rights to initiate or
purchase the other Members' interests in the Company in the future pursuant to
this Section 8.7.1 shall automatically terminate and be of no further force or
effect, and the other Members may elect to purchase, at any time within one
hundred eighty (180) days of the failure to close, the Ownership Interest of the
Member who failed to close such purchase at a price equal to 50% of the price
which such Member had agreed to pay for the subject Ownership Interest (such
price to be adjusted to reflect such Member's Ownership Interest).
8.7.2 In the event of the exercise by a Member of its rights under
Section 8.7.1 which results in the acquisition of Hammes' Ownership Interest,
the Developer shall, in any event, complete its development activities with
respect to any existing Facilities under the Development Agreement. In the event
of the exercise by a Member of its rights under Section 8.7.1 which results in
the acquisition of SunBridge's or RSVP's Ownership Interest, the transfer of
such Ownership Interests shall have no effect on any rights or obligations of
ALI or SunBridge under any Management Agreement, Lease or Lease Option in effect
with respect to the Facilities or the rights or obligations of ALI or the
Developer under the Development Agreement.
8.8 Tax Matters Member.
8.8.1 Hammes shall serve as the "tax matters partner" for the Company
(the "Tax Matters Member"). Each Member by the execution of this Agreement
consents to Hammes serving as the Tax Matters Member and agrees to execute,
certify, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to evidence
such consent. To the extent and in the manner provided by applicable law and
regulations, the Tax Matters Member shall furnish the name, address, profits
interest and taxpayer identification number of each Member to the Secretary of
the Treasury or his delegate (the "Secretary"). The Tax Matters Member shall
keep the Members informed of the administrative and judicial proceedings for the
adjustment at the Company level of any item required to be taken into account by
a Member for income tax purposes (such administrative proceedings referred to
hereinafter as a "tax audit" and such judicial proceeding referred to
hereinafter as "judicial review"). The Tax Matters Member shall not take any
action (other than purely ministerial action) or make any tax elections on
behalf of the Company without the prior Approval of RSVP and of the Management
Committee. All costs incurred by the Tax Matters Member in performing such
duties shall be charged to and treated as expenses of the Company. The Tax
Matters Member shall not be liable to the Company for any act or omission taken
or suffered by it in its capacity as Tax Matters Member, unless such act or
omission constituted fraud, gross negligence, willful misconduct or a material
breach by the Tax Matters Member of its duties under this Section 8.8. Subject
to the foregoing, the Tax Matters Member is hereby authorized, but not required:
<PAGE>
8.8.1.1 to enter into any settlement with the Internal Revenue
Service or the Secretary with respect to any tax audit or judicial review, in
which settlement agreement the Tax Matters Member may expressly state that such
agreement shall bind the other Members, provided that no Member is disadvantaged
pursuant to such settlement in a manner which is disproportionate to such
Member, and except that such settlement agreement shall not bind any Member who
(within the time prescribed pursuant to the Code and regulations thereunder)
files a statement with the Secretary providing that the Tax Matters Member shall
not have the authority to enter into a settlement agreement on the behalf of
such Member;
8.8.1.2 in the event that a notice of a final partnership
administrative adjustment at the Company level of any item required to be taken
into account by a Member for tax purposes (a "final adjustment") is mailed to
the Tax Matters Member, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court, the
District Court of the United States for the district in which the Company's
principal place of business is located, or the U.S. Court of Federal Claims;
8.8.1.3 to intervene in any action brought by any other Member
for judicial review of a final adjustment;
8.8.1.4 to file a request for an administrative adjustment with
the Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for judicial review with respect to such request;
8.8.1.5 subject to Section 8.8.3, to enter into an agreement with
the Internal Revenue Service to extend the period for assessing any tax which is
attributable to any item required to be taken into account by a Member for tax
purposes, or an item affected by such item; and
8.8.1.6 to take any other action on behalf of the Members or the
Company in connection with any administrative or judicial tax proceeding to the
extent permitted by applicable law or regulations.
8.8.2 The Tax Matters Member shall cause any tax return of the Company
to be submitted to each Member for review and approval at least thirty (30) days
prior to its due date (including extensions) unless otherwise agreed to by the
Members. All third-party costs incurred in connection with the preparation of
such tax returns shall be borne by the Company.
8.8.3 The Tax Matters Member shall cause to be provided to each Member
information concerning the Company's taxable income or loss and each item of
income, gain, loss, deduction, or credit which is relevant to reporting a
Member's share of Company income, gain, loss, deduction, or credit for purposes
of federal or state income tax. Information required for the preparation of a
Member's income tax returns shall be furnished to the Members by the Tax Matter
Member as soon as possible after the close of the Company's fiscal year and, in
any event, no later than the date on which the income tax return for such fiscal
year is submitted to the Members for review. The Tax Matters Member shall cause
to be forwarded to each Member copies of any correspondence received from a
taxing authority in its capacity as a Tax Matters Member within ten (10)
business of receipt. The Tax Matters Member shall cause the Members to be kept
informed of the progress of any tax proceeding in connection with the Company.
The Tax Matters Member shall not extend a statute of limitations with respect to
the Company or a Member without the Approval of all Members who may be adversely
affected thereby.
8.8.4 The Tax Matters Member shall cause to be filed timely all
federal, state, and local reports as may be required, including without
limitation, all reports required by licenses and permits, sales and use tax
reports, income tax withholding reports, FICA tax reports, unemployment
compensation reports, information reports, and shall cause all payments required
thereunder to be made by the Company from the Company's then available funds
(including any additional Capital Contributions Approved by the Management
Committee).
8.8.5 The Company shall indemnify and reimburse the Tax Matters Member
for all expenses, including legal and accounting fees, claims, liabilities,
losses and damages incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the Members, unless the loss or
damage shall have been the result of fraud, gross negligence, willful
misconduct, or a material breach by the Tax Matters Member of its duties under
this Section 8.8. The taking of an action and the incurring of any expense by
the Tax Matters Member in connection with any such proceeding, except to the
extent required by law, is a matter in the sole discretion of the Tax Matters
Member and the provisions on limitations of liability and indemnifications set
forth in Sections 8.9 and 8.10 shall be fully applicable to the Tax Matters
Member in its capacity as such.
8.9 Limitation of Liability.
8.9.1 Each Member's liability shall be limited as set forth in this
Agreement, the Act, and other applicable law. Except as required pursuant to the
Act, a Member will not be personally liable for any debts or losses of the
Company beyond the Member's unreturned Capital Contribution to the Company.
8.9.2 Each Committee Member shall perform his/her managerial duties in
good faith, in a manner that he/she reasonably believes to be in the best
interests of the Company, and with such care as an ordinarily prudent person in
a like position would use under similar circumstances. Subject to the provisions
of Section 9.1, a Committee Member who so performs his/her duties shall not have
any liability by reason of being or having been a Committee Member. Subject to
the provisions of Section 9.1, no Member or Committee Member shall be liable to
the Company or to any Member for any loss or damage sustained by the Company or
any Member (including by reason of any breach of any fiduciary duty), unless the
loss or damage shall have been the result of fraud, gross negligence, willful
misconduct or a material breach of this Agreement by the Member or Committee
Member.
<PAGE>
8.10 Indemnity of the Committee Members, Employees, and Other Agents.
Subject to the provisions of Section 9.1, the Company shall indemnify the
Committee Members to the maximum extent permitted under the Act, for all costs,
losses, liabilities and damages paid or incurred by such Committee Members in
their capacity as such in connection with the business of the Company. Subject
to the provisions of Section 9.1, the Company shall indemnify its employees and
agents who are not Committee Members to the fullest extent permitted by law,
provided that the indemnification in any given situation is Approved by the
Management Committee.
8.11 Protection of REIT Status. RSVP shall have the right in its sole
discretion, without the Approval of the other Members, to structure or subdivide
the ownership of any Facility or Investment Entity or other investment of the
Company so as to protect the REIT status of any RSVP Affiliate and any costs
associated with such structuring or subdivision shall be a Company expense,
provided, however, that, except for the costs or the expenses paid or assumed by
the Company, such actions will not change the economic consequences to Hammes or
SunBridge provided for in Articles VI and VII or adversely affect the rights or
obligations of Developer under the Development Agreement, SunBridge under the
Management Agreement or any Facility Lease or Sun Healthcare under any Lease
Guaranty. Such actions may include the transfer of one or more of the Facilities
and/or Investment Entities to another limited liability company or limited
partnership in which each of Hammes and SunBridge shall have rights to
distributions, allocations, voting and other rights no less favorable to that
Member than those provided in this Agreement.
ARTICLE IX
INDEMNIFICATION; TAX RETURNS; RECORDS
9.1 Indemnification of Manager, Members, Employees, and Agents.
9.1.1 Indemnity Against Claims of Third Parties. The Company shall
indemnify any person (including any entity) who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company or a Member) by reason
of the fact that such person is or was a Managing Member, Member, Committee
Member, officer, employee, or agent of the Company, or is or was serving at the
request of the Company as a manager, member, director, officer, employee, or
agent of another limited liability company, corporation, partnership, joint
venture, trust or other enterprise, against Damages in connection with such
action, suit or proceeding if such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best interests of
the Company and such person's actions did not constitute fraud, gross
negligence, willful misconduct or a material breach of this Agreement. The
termination of any action, suit or proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Company, or that such person's actions constituted fraud, gross
negligence, willful misconduct or a material breach of this Agreement.
9.1.2 Indemnity Against Claims of Company or a Member. The Company
shall indemnify any person (including any entity) who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the name of the Company or a Member to procure a judgment in its
favor by reason of the fact that such person is or was a Managing Member,
Member, Committee Member, officer, employee, or agent of the Company, or is or
was serving at the request of the Company as a manager, member, director,
officer, employee, or agent of another limited liability company, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Company and such person's actions did not constitute
fraud, gross negligence, willful misconduct or a material breach of this
Agreement.
9.1.3 Indemnification of Expenses. To the extent that any person
(including any entity) referred to in the preceding two subsections of this
Section 9.1 has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in such subsections, or in defense of
any claim, issue, or matter therein, the Company shall indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
9.1.4 Determination. Any indemnification under Sections 9.1.1, 9.1.2
and 9.1.3 shall be made by the Company only as authorized in the specific case
upon a determination that indemnification of the person is proper in the
circumstances because the person has met the applicable standard of conduct set
forth therein. Such determination shall be made (i) by the Management Committee
by a majority vote of a quorum consisting of Committee Members who are not
parties to such action, suit or proceeding or are not designees of parties to
such action, suit or proceeding, and whose Affiliates (other than the Company)
are not parties to such action, suit, or proceeding or (ii) if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested Committee
Members so directs, by independent legal counsel in a written opinion, or (iii)
by the unanimous vote of the Members.
9.1.5 Advance of Expenses. Expenses (including attorneys' fees)
incurred by a person (including any entity) in defending any civil, criminal,
administrative or investigative action, suit, or proceeding which may be subject
to indemnification under this Section 9.1 may be paid by the Company in advance
of the final disposition of such action, suit, or proceeding upon receipt of a
written undertaking by or on behalf of the person to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Company as authorized in this Section 9.1.
9.1.6 Other Rights. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other sections of this Section 9.1
shall not be deemed exclusive of any other rights to which any person (including
any entity) seeking indemnification or advancement of expenses may be entitled,
under any other agreement, insurance policy, determination by unanimous vote or
written consent of the Members, statute, or otherwise.
9.1.7 Insurance. By action of the Management Committee,
notwithstanding any interest of any Members or Committee Members in the action,
the Company shall have power to purchase and maintain insurance, in such amounts
as the Management Committee deems appropriate, on behalf of any person
(including any entity) who is or was a Managing Member, Member, Committee
Member, officer, employee, or agent of the Company, or is or was serving at the
request of the Company as a manager, member, director, officer, employee, or
agent of another limited liability company, corporation, partnership, joint
venture, trust, association, or other enterprise, against any liability asserted
against such person and incurred by such person in any such capacity, or arising
out of such person's status as such, but only to the extent such person is
indemnified against such liability or expense under the provisions of this
Section 9.1 and only if the Company would have the power or would be required to
indemnify such person against such liability under the provisions of this
Section 9.1, the Act, or any other applicable law.
9.1.8 Inurement. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 9.1 shall continue as to a
person who has ceased to be a Managing Member, Member, Committee Member,
officer, employee, or agent of the Company and shall inure to the benefit of the
heirs, executors, administrators, and successors of such person with respect to
acts or omissions while such person was a Managing Member, Member, Committee
Member, officer, employee or agent of the Company.
9.2 Books and Records. Hammes, as Managing Member, shall keep or cause to
be kept (i) true and full information regarding the status of the business and
financial condition of the Company; (ii) a current list of the full name and
last known business, residence, or mailing address of each Member and each
Committee Member; (iii) a copy of this Agreement and Certificate of Formation
and all amendments thereto, together with executed copies of any written powers
of attorney pursuant to which this Agreement and any certificate and all
amendments thereto have been executed; (iv) copies of the Company's federal,
state, and local income tax returns and reports, if any, since its inception or
for the prior five years, whichever period is shorter; (v) true and full
information regarding the amount of cash and a description and statement of the
agreed value of any property contributed by each Member and which each Member
has agreed to contribute in the future, and the date on which each became a
Member; and (vi) any other information regarding the affairs of the Company as
is just and reasonable. The Company's books shall be audited annually by the
Accountants. The books and records shall be maintained at the principal business
office of the Company or such other places as the Management Committee may
determine, and all such books and records shall be available for inspection and
copying by any Member or its duly authorized representatives, at the Member's
expense, during normal business hours after giving reasonable notice.
9.3 Financial Statements; Accounting Services.
<PAGE>
9.3.1 Hammes, as Managing Member, shall cause to be delivered to each
Member and the Management Committee the following financial statements prepared,
in each case, in accordance with generally accepted accounting principles
consistently applied, and such other reports as any Member may reasonably
request:
9.3.1.1 Monthly Financial Statements. Promptly,
upon availability, and in any event within thirty (30) days after the end of
each month, an unaudited balance sheet as of the end of such month and an
unaudited statement of income or loss for such month and for the fiscal year to
date, which shall include, in reasonable detail, a comparison of actual to
budgeted income or loss.
9.3.1.2 Quarterly Supplements. Promptly upon availability, and in
any event within thirty (30) days after the end of each of the first three
quarterly periods of each fiscal year, an unaudited statement of cash flow for
the year to date then ended.
9.3.1.3 Annual Audited Financial Statements. Promptly upon
availability and in any event within sixty (60) days after the end of each
fiscal year, an audited balance sheet and statements of income or loss and cash
flow of the Company as of the end of and for such fiscal year, and a report
thereon of Accountants.
9.3.2 In addition to the preparation of financial statements pursuant
to Section 9.3.1, Hammes, as Managing Member shall supervise all tax return
preparation activities and shall provide (i) all accounting and reporting
services required by the Company, and (ii) all treasury, cash management,
bookkeeping and financial reporting functions of the Company. In consideration
for the services Hammes shall provide the Company pursuant to Sections 8.8 and
9.3, the Company shall pay Hammes an annual fee of $110,000. All third-party
costs incurred in connection with the preparation of the financial statements
prepared pursuant to Section 9.3.1 shall be paid or reimbursed by the Company.
9.4 Bank Accounts. Hammes, as Managing Member, shall arrange for the
Company to maintain bank accounts in such banks or institutions as the
Management Committee from time to time shall select, and such accounts shall be
drawn upon by checks signed by such person or persons, and in such manner, as
may be designated by Hammes subject to any restrictions or conditions
established by the Management Committee. All monies of the Company shall be
deposited in the bank account or accounts of the Company and shall not be
commingled with monies of the Members or Hammes.
9.5 Fiscal Year. The fiscal year of the Company shall be the
calendar year. Each Member hereby represents that its tax year is the calendar
year.
<PAGE>
ARTICLE X
DISSOLUTION AND LIQUIDATION
10.1 Events of Dissolution and Liquidation. The Company shall
be dissolved and its affairs wound up pursuant to this Agreement upon the first
to occur of any of the following events ("Events of Dissolution"):
10.1.1 Consent. The unanimous written consent of the Members to
dissolution.
10.1.2 Sale of Assets. Three months after the sale or other
disposition of substantially all of the assets of the Company (excluding a
mortgage, pledge, or encumbrance of such assets).
10.1.3 Dissolution; Bankruptcy. With respect to any Member:
(i) the dissolution of such Member;
(ii) the entry of a decree or order for relief by a court having
jurisdiction in respect of such Member in an involuntary case under the Federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal or state bankruptcy, insolvency or other similar law, appointing a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or similar
official) of such Member or for any substantial part of its property, or
ordering the winding-up or liquidation of its affairs and the continuance of any
such decree or order unstayed and in effect for a period of 90 consecutive days;
or
(iii) the commencement by such Member of any proceeding seeking a
decree, order, appointment or other relief referred to in clause (ii) above, the
consent to or failure to oppose the granting of such relief, or the failure of
such Member generally to pay its debts as such debts become due, or the taking
of any action by such Member in furtherance of any of the foregoing.
Notwithstanding the occurrence of such events, the Company shall
not be dissolved if the non-bankrupt or non-dissolved Members having a majority
of the unreturned Capital Contributions elect, within ninety (90) days after the
occurrence of such events, to continue the Company and the Company's business
and there is at least one remaining Member.
10.1.4 Terminations. The occurrence of a termination "for cause" (as
defined in the Development Agreement) of the Developer as developer with respect
to any one Facility or the termination, whether "for cause" or other than "for
cause", of Developer as developer for three or more Facilities, unless otherwise
agreed by the Members having a majority of the unreturned Capital Contributions.
In no event shall the termination of the Development Agreement have any effect
on rights or obligations which Hammes, SunBridge or the Company may have under
any then effective Facility Leases, Management Agreements or the Lease Option
Agreement.
10.1.5 Bankruptcy. The entry of an order or decree for relief by a
court having jurisdiction in respect of the Company in an involuntary petition
against the Company under the Federal bankruptcy laws of the United States as
now or hereafter constituted; the filing by the Company of a voluntary petition
for liquidation under the Federal bankruptcy laws of the United States as now or
hereafter constituted; the general assignment by the Company for the benefit of
creditors under the laws of any state; or the appointment of a receiver for all
or substantially all of the assets of the Company, unless such receivership is
dissolved within 30 days after the appointment of such receiver. Notwithstanding
the occurrence of such events, the Company shall not be dissolved if the Members
having a majority of the unreturned Capital Contributions elect, within ninety
(90) days after the occurrence of such events, to continue the Company and the
Company's business and there is at least one remaining Member. The filing of a
voluntary petition for reorganization under the Federal bankruptcy laws of the
United States by the Company, or the entry of an order for relief pursuant to a
voluntary or involuntary petition by or against the Company for reorganization
under the Federal bankruptcy laws of the United States, shall not, in itself,
cause dissolution of the Company.
10.1.6 Judicial Decree. The entry of a decree of judicial dissolution
under the Act; or
10.1.7 Expiration of the Last Facility Lease. Three months after the
expiration or earlier termination of the last Facility Lease (as such term may
be extended or reduced pursuant to the Facility Lease).
10.2 Winding-Up. Upon the occurrence of an Event of Dissolution, the
Company's affairs shall be wound up by the Managing Members or, if there is no
Managing Member, by such other person or persons required by law to wind up its
affairs in accordance with the procedures set forth in this Section.
10.2.1 Statement. A statement of the assets and liabilities of the
Company as of the date of dissolution shall be prepared.
10.2.2 Liquidation of Assets. The assets and properties of the Company
shall be liquidated or valued at their fair market value by the Managing Members
or an appraiser selected by the Managing Members as promptly as possible, and
receivables collected, all in an orderly and businesslike manner so as not to
involve undue sacrifice.
10.2.3 Application of Assets. The assets of the Company, including the
proceeds of liquidation, shall be applied and distributed in the following order
of priority:
10.2.3.1 To Creditors. To creditors, including Members who are
creditors to the extent otherwise permitted by law (other than Defaulting
Members on whose behalf a Capital Loan is outstanding, to the extent of the
outstanding amount of such Capital Loan), in satisfaction of liabilities of the
Company (whether by payment or the making of reasonable provision for payment
thereof) other than liabilities for which reasonable provision for payment has
been made and liabilities for distributions to Members pursuant to this
Agreement.
10.2.3.2 Distributions. To Members (and former Members whose
membership interest terminated in the year in which dissolution occurs) in
accordance with the priorities established in Section 7.1; provided, however,
that if this Agreement is terminated as a result of an Event of Dissolution
under Section 10.1.4, the distributions payable to Hammes shall be subordinated
to the prior payment of distributions to the other Members until SunBridge has
received the full amount of its Capital Contributions and RSVP has received the
IRR - Third Level.
10.2.3.3 Capital Accounts. Thereafter, distributions shall be
made to the Members in proportion to the positive balances in their Capital
Accounts.
If there are any outstanding Capital Loans by a Complying Member, any amounts
otherwise payable to the Defaulting Member under Sections 10.2.3.1, 10.2.3.2 and
10.2.3.3 shall be paid to the Complying Members who made such Capital Loans
until the Capital Loans are paid in full.
10.3 Provisions for Contingencies. The Company shall make reasonable
provision to pay all claims and obligations, including all contingent,
conditional, or unmatured claims and obligations, known to the Company and all
claims and obligations which are known to the Company but for which the identity
of the claimant is unknown. If there are sufficient assets, such claims and
obligations shall be paid in full and any such provision for payment made shall
be made in full. If there are insufficient assets, such claims and obligations
shall be paid or provided for according to their priority and, among claims and
obligations of equal priority, ratably to the extent of assets available. Any
liquidating trustee (including the Managing Members or Member acting as a
liquidating trustee) winding up the Company's affairs who has complied with this
Agreement shall not be personally liable to the claimants of the dissolved
Company by reason of such person's actions in winding up the Company.
10.4 Distributions in Kind. A Member has no right to demand and receive any
distribution from the Company in any form other than cash. A Member may not be
compelled to accept a distribution of any asset in kind from the Company to the
extent that the percentage of the asset distributed to such Member exceeds a
percentage of that asset which is equal to the percentage in which such Member
shares in distributions from the Company. Any distribution in kind shall be
treated as though the assets distributed had been sold at fair market value and
any deemed gain or loss will be reflected in the Capital Accounts as though the
property had actually been sold. Such fair market value shall be determined by
the Approval of the Management Committee or, absent such agreement, by an
appraiser selected by the Management Committee.
10.5 Termination. Hammes, as Managing Member, or the other person(s)
responsible for winding up the Company shall file a certificate of cancellation
with the Delaware Secretary of State in accordance with the Act to accomplish
the cancellation of the Certificate of Formation upon dissolution and the
completion of winding up of the Company.
ARTICLE XI
RESTRICTIONS ON TRANSFER OR SALE OF
COMPANY OWNERSHIP INTEREST
11.1 Restrictions on Transfer. No Member shall sell, transfer, or otherwise
dispose of ("Transfer") all or any part of or rights in its Ownership Interest
(other than to another Member) or withdraw from the Company as a Member except
(i) with the consent of the other Members, which consent shall be granted or
withheld in such Members' sole discretion, or (ii) otherwise in accordance with
this Article XI.
11.2 Permitted Transfers.
11.2.1 RSVP may (i) Transfer a direct or indirect interest in all or
any part of its Ownership Interest to any Affiliate of RSVP or of Reckson
Strategic, or (ii) consummate a public offering or other distribution of any of
its Affiliates' securities.
11.2.2 RSVP may pledge or collaterally assign part of RSVP's Ownership
Interest, provided such pledge, individually or when taken together with prior
pledges, collateral assignments or assignments, does not permit the pledgee or
assignee to acquire economic rights with respect to more than 75% of RSVP's
Ownership Interest or to acquire voting rights with respect to RSVP's Ownership
Interest; and, provided, further, that such pledgee or assignee is not a
competitor of SunBridge or Sun Healthcare.
11.2.3 RSVP may elect, in its sole discretion, to Transfer all or any
part of its Ownership Interest: (i) at any time as part of an underwritten
public offering, or (ii) after the third anniversary of the date hereof as part
of a private or public sale, provided, that no such sale shall be made to an
operator of Assisted Living Facilities that is (without respect to its
acquisition of RSVP's Ownership Interest), a direct competitor of SunBridge or
to a developer that is active in the development of Assisted Living Facilities,
provided, however, before such Transfer is made, RSVP shall first offer such
Ownership Interests to the other Members at a price equal to the price at which
such Ownership Interests are proposed to be sold to the proposed purchaser(s).
Such offer shall be held open by RSVP for a period of twenty (20) days from the
date of such offer, which period shall be known as the "RSVP Option Period." The
other Members may, within the RSVP Option Period, accept such offer as to all
(but not less than all) of the Ownership Interest so offered; provided that, if
the other Members accept such offer in proportions greater than their respective
pro rata shares, each accepting Member shall be entitled to purchase its pro
rata share and any remaining Ownership Interest shall be allocated among the
accepting Members accepting the offer to purchase the same in proportion to
their respective Ownership Interests prior to the acceptance of such offer. If
the RSVP Ownership Interest is not acquired by the other Members, for a period
of 180 days after the end of the RSVP Option Period, RSVP may transfer its
Ownership Interest to the proposed purchaser identified to the other Members for
a purchase price no less than the purchase price so identified to the other
Members. If the RSVP Ownership Interest is not transferred within such 180-day
period, the RSVP Ownership Interest shall again be subject to this Section
11.2.3. If during the RSVP Option Period RSVP proposes to transfer such
Ownership Interest at a price less than that disclosed to the other Members,
such Ownership Interests must first be offered to the other Members at such
price pursuant to this Section 11.2.3 before such Ownership Interest may be
transferred to the proposed purchaser.
11.2.4 Any Member and its Affiliates may (but shall not be required
to) pledge or assign a beneficial interest in their respective Ownership
Interests as security for any obligation to the Company.
11.3 Transfer of Ownership Interest upon the Dissolution or Bankruptcy of a
Member.
11.3.1 Rights of Purchase. In the event that any Member shall dissolve
or become bankrupt, and the remaining Members vote to continue the business
pursuant to Section 10.1.5, the other Members and the Company shall have the
right to purchase such Member's Ownership Interest pursuant to the procedures
set forth in Section 11.4. If, at the end of the Member Option Period (as
defined below), any Ownership Interest remains which has not been purchased by
the other Members, the Company may, but shall not be required to, purchase all
of such remaining Ownership Interest from the dissolved or bankrupt Member as it
so chooses, and such Member or its successors, as applicable, shall sell all of
such remaining Ownership Interest to the Company, at the purchase price provided
in Section 11.4.1. If the Company does not elect to so purchase the remaining
Ownership Interest during the Company Option Period (as defined below) for a
period of 120 days thereafter, such Member's Ownership Interest may be sold to a
third party; if such Member's Ownership Interest is not sold during such period,
the Member's Ownership Interest shall again be subject to the restrictions on
Transfer provided for in this Article XI.
11.3.2 Member's Remaining Rights. A Member who dissolves or becomes
bankrupt, and whose full Ownership Interest is not purchased in accordance with
this Article XI shall remain as a Member however as of the date of such Member's
dissolution or bankruptcy such Member shall not have any right to vote on any
matters presented to the Members for their Approval, to appoint any Committee
Members to the Management Committee, to act as Managing Member or to take any
type of role in the management of the Company, including but not limited to
granting any consents to matters specifically provided for in this Agreement.
However, such dissolved or bankrupt Members shall retain the right to
distributions attributable to the unpurchased Ownership Interest and shall
retain the obligation to make Capital Contributions under this Agreement with
respect to the unpurchased Ownership Interest.
<PAGE>
11.4 Terms of Purchase Right.
11.4.1 Offer to Members; Offer Price. Unless otherwise unanimously
agreed by all of the Members, upon a dissolution or bankruptcy of a Member, for
a period of twenty (20) days from the vote of the remaining Members to continue
the business of the Company pursuant to Section 10.1.3 (the "Member Option
Period"), the other Members shall have the right to purchase the Ownership
Interest of such Member at a price equal to the lesser of (a) the Member's
Invested Capital, or (b) the Fair Value of such Ownership Interest. The other
Members may, within the Member Option Period, elect to purchase all or any
portion of the dissolved or bankrupt Member's Ownership Interest; provided that,
if such Members elect to purchase in proportions greater than their respective
pro rata shares, each electing Member shall be entitled to purchase its pro rata
share of the subject Ownership Interest and any remaining Ownership Interest
shall be allocated among the Members electing to purchase the same in proportion
to their respective Ownership Interests prior to their election to purchase the
subject Ownership Interests.
11.4.2 Offer to Company. In the event that the other Members do not
elect to purchase all the subject Ownership Interests at the end of the Member
Option Period, then for a period of ten (10) days after the end of the Member
Option Period (the "Company Option Period") the Company shall have the right to
purchase the remaining Ownership Interest. The purchase price shall be the price
stated in Section 11.4.1.
11.5 Payment of Purchase Price. Within sixty (60) days after the end of the
Company Option Period, the Members or the Company, as applicable, who agreed to
purchase the Ownership Interest, shall pay an amount in cash equal to 1/60th of
the purchase price, as determined pursuant to Section 11.4, as a down payment on
the purchase price of such Ownership Interest. The balance of such purchase
price shall be evidenced by a promissory note or notes secured by the
transferred Ownership Interest and payable to the transferring Member, which
note or notes shall bear interest annually at the Prime Rate as determined on
the date of issuance, shall be payable in fifty-nine (59) equal monthly
installments, the first of which shall be due and payable one month after the
date of payment of the down payment, and shall grant to the Company and/or the
electing Members, as applicable, the right to prepay the note(s) in whole or in
part at any time or times without penalty.
11.6 Release of Personal Liability. In the event that a dissolved or
bankrupt Member is liable on any obligations of the Company because such Member
guaranteed or co-signed such obligations, then the Company and the Members
shall, as one of the terms of the purchase of such Member's Ownership Interests,
take such action as may be necessary to obtain, if reasonably possible, the
complete release of such Member from such obligations and to obtain the release
of any and all assets of such Member which may have been pledged as collateral
in conjunction therewith. If such release cannot be obtained, the Company and
the other electing Members shall indemnify such dissolved or bankrupt Member
with respect to such obligations.
<PAGE>
11.7 Party to this Agreement; Compliance with Law. Prior to any Transfer,
each proposed transferee must agree to be bound by this Agreement by delivering
a duly executed counterpart of this Agreement to the Company and by executing
and delivering such other documents as may be reasonably recommended by counsel
to the Company. Any attempted Transfer of Ownership Interests in violation of
this Agreement shall be null and void and of no force and effect. The Transfer
or attempted Transfer of any Ownership Interest of the Company in contravention
of the provisions of this Agreement shall not be registered on the books of the
Company, and no person or entity to whom or for whose benefit any such Transfer
is made shall be recognized as the holder of such Ownership Interest or acquire
any voting, distribution, or other rights in respect thereof. Notwithstanding
any other provision of this Agreement, no Transfer of an Ownership Interest to a
third party shall be made or be effective for any purpose, unless it is made in
compliance with all applicable laws, regulations, or agreements, including
federal and state securities laws.
11.8 Transferees. Each transferee to whom Ownership Interests are
Transferred pursuant to this Article XI shall take and hold such Ownership
Interests subject to this Agreement and all of the obligations and restrictions
imposed hereby upon the transferor Member and shall comply with this Agreement
and all requirements imposed by this Agreement.
ARTICLE XII
DEFAULT
12.1 Definition of Default. For the purpose of this Article XII, a
"Default" shall occur upon: (i) the failure of a Member to pay, within thirty
(30) days of the time required, the full amount of any additional Capital
Contribution required and no Curing Capital Contributions shall have been made
by one or more of the other Members in lieu thereof, or the principal and
interest due on any Capital Loan made to such Member, or to timely perform any
other obligation under any documents relating to any Capital Loan; or (ii) a
breach by any Member of a material term of this Agreement, unless such breach,
if curable, is cured within thirty (30) days of receipt of written notice from
another Member that a breach has occurred.
12.2 Remedies. Upon a Default, in addition to the remedies provided
elsewhere in this Agreement, the nondefaulting Members shall have:
12.2.1 Legal Remedies. All rights and remedies provided by law or in
equity, including (to the extent a security interest is provided for herein or
is otherwise applicable) the rights and remedies of a secured creditor under the
Delaware Uniform Commercial Code.
12.2.2 Right of Purchase. If applicable, the right to purchase the
Ownership Interest of a Member in Default as provided in Section 12.3.
<PAGE>
12.3 Buy-Out of Member in Default. Upon the occurrence of a Default
described in Sections 12.1., the nondefaulting Members, or the assignee or
designee of the nondefaulting Members, shall have the right, upon notice to the
Member in Default, to purchase the Ownership Interest of the Member in Default
for a purchase price equal to the lesser of (a) the Member's Invested Capital,
or (b) the Fair Value of such Member's Ownership Interest. If the nondefaulting
Members elect to purchase the Ownership Interest of the Member in Default in
proportions greater than their respective pro rata shares, each electing
nondefaulting Member shall be entitled to purchase the portion of its pro rata
share and any remaining Ownership Interest shall be allocated among the electing
nondefaulting Members electing to purchase the same in proportion to their
respective Ownership Interests prior to their election to purchase such
Ownership Interests. The closing of the sale of the Ownership Interest of the
Member in Default shall take place at the office of the Company, or at such
other place as the Members shall mutually agree, on a date selected by the
nondefaulting Member which shall be within thirty (30) days of the notice
electing to purchase the defaulting Member's Ownership Interest. The purchase
price shall be payable in the manner provided in Section 11.5. Transfer or
similar taxes arising out of, or in connection with, the sale and Transfer of
the Ownership Interest of the Member in Default shall be paid by the Member in
Default. The Member in Default shall execute and deliver an assignment of its
Ownership Interest to the electing nondefaulting Members or their assignees or
designees. The electing nondefaulting Members and their assignees or designees,
if any, shall, in connection with such purchase, take action to obtain, if
reasonably possible, a release of the Member in Default from obligations of the
Company in accordance with Section 11.6, provided, however, that if such release
cannot be obtained, the electing nondefaulting Members and their assignees and
designees, if any, shall indemnify such Member in Default with respect to such
obligations. If the nondefaulting Members do not elect to purchase the Ownership
Interest of the Member in Default, then the Member in Default shall remain a
Member but shall not have any right to vote on any matters presented to the
Members for their Approval, to appoint Committee Members to the Management
Committee, to act as Managing Member or to take any type of role in the
management of the Company, including, but not limited to, granting any consents
to matters specifically provided for in this Agreement.
12.4 Developer Default. Upon the occurrence of a breach by the Developer of
a material term of Development Agreement, unless such breach, if curable, is
cured within thirty (30) days of receipt of written notice from the Company that
a breach has occurred, RSVP, or the assignee or designee of RSVP, shall have the
right, upon notice to Hammes, to purchase the Ownership Interest of Hammes for
the lesser of Fair Value or Hammes' Invested Capital.
ARTICLE XIII
COMPETITION; COMPANY OPPORTUNITIES
13.1 Intention of Parties. The Members recognize that all of the Members
are involved in businesses which may or may appear to compete with or to be in
conflict with the business of the Company. The Members intend that, subject to
the other provisions hereof, each of the Members shall be free to engage in all
businesses, ventures, transactions, and projects free from any restrictions
under this Agreement and free from any obligations to the Company or to the
other Members hereunder, provided, however, that each Member agrees to take all
actions necessary to protect the interests of the Company and the business
purposes for which each of the Members has become a Member of the Company or
entered into a written agreement with the Company. Except as otherwise provided
in this Agreement, each Member shall be free, subject to any specific provisions
of this Agreement or any other agreement between the Company and that Member or
that Member and the other Member, to engage in all businesses, ventures,
transactions and projects, regardless of whether the same do or appear to
compete with or conflict with the business of the Company.
13.2 Unrestricted Activities. Nothing contained herein shall limit or
restrict:
13.2.1 Properties Not Assisted Living Facilities. Any Member in
buying, selling, owning, developing, operating, or otherwise dealing with any
property which is not an Assisted Living Facility or which is being developed or
acquired for any purpose other than as an Assisted Living Facility.
13.2.2 Assisted Living Facilities. (i) Sun Healthcare from acquiring
one or more healthcare companies which are, among things, engaged in the
business of operating Assisted Living Facilities or (ii) SunBridge or Sun
Healthcare from acquiring whether by purchase, lease or management agreement,
existing operating Assisted Living Facilities not owned or developed by the
Company.
13.3 Restrictions. Except as permitted by Section 13.2, as otherwise
expressly permitted by Section 13 of the Lease Option Agreement, or as Approved
by the Management Committee, neither Hammes, SunBridge nor Sun Healthcare, nor
any of their respective Affiliates (collectively, the "Restricted Persons")
will, directly or indirectly, construct, develop, fund or exercise voting,
investment or management control (other than through the Company, an Investment
Entity or a Facility) over any Assisted Living Facility (other than Assisted
Living Facilities owned or managed by a Restricted Person on June 30, 1998).
13.4 Company Right of First Offer. Except as otherwise expressly permitted
by Section 13 of the Lease Option Agreement or by the Development Agreement, (i)
SunBridge and its Affiliates shall offer to the Company any Assisted Living
Facility development opportunity they encounter, and (ii) Hammes and its
Affiliates shall offer to the Company any Assisted Living Facility development,
acquisition, financing, lease or investment opportunities they encounter.
Notwithstanding the foregoing, Hammes shall have the right, through an entity
other than the Company, to provide development services to other developers,
owners and/or operators of Assisted Living Facilities, provided such services do
not interfere with the performance of the Developer's duties under the
Development Agreement.
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 Survival of Representations and Warranties; Indemnification.
14.1.1 Survival. All representations and warranties contained in this
Agreement shall survive until the later of (i) one year after the breach,
inaccuracy, nondisclosure, or misrepresentation becomes known to RSVP, unless
the other Member can establish that such breach, inaccuracy, nondisclosure or
misrepresentation became known to RSVP during the three years following the date
hereof, or (ii) three years from the date hereof.
14.1.2 Indemnification by Hammes, SunBridge and Sun Healthcare. Hammes
shall indemnify and hold harmless RSVP, and shall reimburse RSVP for, any
Damages arising from or in connection with any inaccuracy in any of the
representations and warranties of Hammes set forth in Sections 4.10, 5.3, and
5.4 of this Agreement. SunBridge shall indemnify and hold harmless RSVP, and
shall reimburse RSVP for, any Damages arising from or in connection with any
inaccuracy in any of the representations and warranties of SunBridge set forth
in Sections 4.10 and 5.4 of this Agreement. Sun Healthcare shall indemnify and
hold harmless RSVP, and shall reimburse RSVP for, any Damages arising from or in
connection with any inaccuracy in any of the representations and warranties of
Sun Healthcare set forth in Section 5.4 of this Agreement. Each of Hammes and
SunBridge shall, jointly and severally, indemnify and hold harmless RSVP, and
shall reimburse RSVP for, any Damages arising from or in connection with (i) any
failure by the Company or any Member of the Company to pay when due any federal,
state or local income, employment, excise, franchise or other taxes due by or
with respect to the Company or its operations for any period prior to the date
of this Agreement, or (ii) any inaccuracy in, or omission to file, any return,
filing or report relating to taxes with respect to the Company or its operations
for any period prior to the date of this Agreement. Notwithstanding the
foregoing, none of Hammes, its members, SunBridge or Sun Healthcare shall be
liable for any Damages under this Section 14.1.2 in excess of (i) Hammes and
SunBridge's respective Ownership Interests, and their respective rights to
receive distributions as provided for herein, (ii) the amount of any
distribution received by them in respect of their respective Ownership
Interests, (iii) with respect to Hammes and its members, the amount of any
payments or fees received or receivable by Hammes pursuant to Section 5.1.2 of
this Agreement or by the Developer (an Affiliate of Hammes) under the
Development Agreement, and (iv) with respect to SunBridge and Sun Healthcare,
the amount of any payments or fees received or receivable by SunBridge as
manager under the Management Agreement.
14.2 Limits of Company. The relationship between the Members shall be
limited to the performance of matters stated in this Agreement. No Member shall
have any authority to act for or to assume any obligation and responsibility on
behalf of another Member. Should any Member commit acts beyond the scope of this
Agreement which cause liability to be imposed on another Member, the Member
committing such acts shall indemnify the other Members against any lost profits
and Damages incurred by reason of such acts.
<PAGE>
14.3 Confidentiality; No Press Releases. No Member shall make any
announcement, press release, or public statement relating in any manner to the
Company or operations under this Agreement without first furnishing the proposed
text thereof to, and obtaining the Approval of, the Management Committee, which
approval shall not be unreasonably withheld. Each Member shall keep confidential
and shall not disclose publicly or to any third party (other than professionals
retained by the Company or the Members, lenders and regulators in connection
with any application for a license or other permit or approval necessary for the
development and/or operation of a Facility) the terms and conditions of this
Agreement, the Development Agreement, the Management Agreements, the Lease
Option Agreement and any Facility Lease, or any proprietary or nonpublic
information regarding the Company, any Facility and any Member, except as
mutually agreed by, and with prior approval of, each Member. Notwithstanding the
foregoing, the requirement for Approval by the Management Committee or the
Members shall not be applicable to the extent public disclosure by any Member is
required by law or regulations promulgated thereunder, judicial order or similar
pronouncement, or the rules of an established stock exchange. Whenever
practicable, such announcements, press releases, and public statements shall be
issued by the Company or jointly by the Members.
14.4 Gender and Number. Each pronoun shall include any gender or number
thereof as the situation requires.
14.5 Benefits and Obligations. Subject to Section 4.2, all
provisions of this Agreement shall be binding upon, inure to the benefit of and
be enforceable by and against the parties hereto, their permitted successors and
transferees.
14.6 Counterparts. This Agreement may be executed in several counterparts,
each of which when so executed shall be considered as an original and all of
which together shall constitute one agreement.
14.7 Captions. The captions at the beginning of the sections of this
Agreement are not a part of this Agreement but merely labels to assist in the
locating and reading of those sections and shall be ignored in construing this
Agreement.
14.8 Further Performance. The Members covenant and agree to execute any
further instruments and documents and perform acts which are or may become
necessary to carry out the purposes of this Agreement.
14.9 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware.
14.10 Notices. Any notice which may be given in connection with the
business of the Company or which is provided for in this Agreement shall be
given in writing and may be delivered personally, or by facsimile transmission,
mail, or a commercial courier or delivery or overnight service. No notice will
be deemed given until actually received by the notified Member. Notices shall be
directed to the Members at their addresses as set forth in this Agreement or to
such other address as a Member may have designated by notice given as herein
provided.
<PAGE>
14.11 Amendment and Waiver. No change, modification, waiver, or amendment
to this Agreement shall be valid unless the same is in writing and signed by all
of the Members. A waiver of a breach of any provision of this Agreement by a
party shall not operate or be construed as a waiver by that party of any
subsequent breach.
14.12 Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision of this Agreement is determined to
be invalid, such invalidity shall not impair the operation or affect other
provisions of the Agreement and the parties further agree that if a court of
competent jurisdiction shall declare any provision of this Agreement to be
invalid or unenforceable, the parties shall in good faith renegotiate such
provision to carry out the intent of the parties at the time of the signing of
this Agreement.
14.13 Entire Agreement. This Agreement is the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes all prior drafts, letters of intent, negotiations, and other
understandings of the parties relating to the subject matter hereof, all of
which are hereby rendered void.
14.14 Denver License. Hammes and SunBridge hereby agree that they shall
take all commercially reasonable actions necessary to cause the license of the
Facility located in Denver, Colorado to be reissued in the name of the Company
doing business as SunBridge Assisted Living Residences.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Operating
Agreement as of the date first set forth above.
HC-ALI LLC
By: _______________________________
Name:
Title:
SUNBRIDGE, INC.
By: _______________________________
Name:
Title:
RSVP ALI Baba, LLC
By Reckson Strategic Venture
Partners, LLC, its Managing Member
By: _______________________________
Name:
Title:
Solely with respect to Sections 5.4
and 14.1.2 and Article XIII
SUN HEALTHCARE GROUP, INC.
By: _______________________________
Name: _______________________
Title: _______________________
<PAGE>
EXHIBIT A
Schedule of Members
<TABLE>
<CAPTION>
Initial Maximum
Capital Additional
Contribution and Capital Ownership
Member Invested Capital Contributions Interest
--------------------------------------------------------------------------------
<S> <C> <C> <C>
HC-ALI LLC $647,750(1) $1,352,250 45%
1775 Sherman Street
Suite 2955
Denver, Colorado 80203
Phone: (303) 831-9500
Fax: (303) 831-6351
SunBridge, Inc. $647,750(2) $1,352,250 10%
101 Sun Avenue, N.E.
Albuquerque, New Mexico 87109
Phone: (505) 823-4103
Fax: (505) 823-4133
RSVP ALI Baba, LLC $5,182,00(3) $10,818,000 45%
c/o Reckson Strategic Venture
Partners, LLC
50 Charles Lindbergh Blvd.
Uniondale, New York 11553
Phone: (516) 390-6200
Fax: (516) 719-6201
_____________ _______________
$6,477,500 $13,522,500
</TABLE>
(1) After giving effect to a distribution by the Company to Hammes as of the
date hereof of $782,926.
(2) After giving effect to a cash contribution by SunBridge to the Company as
of the date hereof of $504,695.
(3) Including assumption of due diligence and legal expenses incurred by RSVP
and/or Reckson Strategic in the amount of $581,492.
<PAGE>
EXHIBIT B
[FORM OF MANAGEMENT AGREEMENT]
<PAGE>
EXHIBIT C
[COPY OF EXECUTED LEASE OPTION AGREEMENT]
<PAGE>
EXHIBIT D
[COPY OF EXECUTED DEVELOPMENT AGREEMENT]
<PAGE>
EXHIBIT E
MAJOR DECISIONS
A "Major Decision" shall mean:
(1) Other than pursuant to an approved Investment Plan, making any investment,
or acquiring any Facility-related real estate fee interest, leasehold interest,
fixtures, fixed assets or capital improvements requiring a capital call or the
incurrence of debt or claims on cash flow, disposition proceeds or other similar
claims;
(2) Entering into a Lease with any party other than SunBridge or Sun Healthcare;
(3) Adopting a development and/or investment plan for each Facility or any
material modification to such investment plan (each, an "Investment Plan")
including, without limitation, approval of change orders under the Development
Agreement with respect to any Facility in excess of $50,000 individually or in
the aggregate or which may delay substantial completion of the Facility by more
than 60 days (excluding change orders requested by SunBridge which are within
the parameters established by Section 4.3.4 of the Lease Option Agreement and
which the Company is required to make pursuant to that Section). Each Investment
Plan will specify the financing, development, operational and disposition
strategies (which may include the execution of the Lease Option Agreement with
SunBridge) for the Facility and will include a construction budget and pro forma
operating budget for the first 12 months after the opening of the Facility;
(4) Any action which is materially inconsistent with an approved Investment
Plan;
(5) Adopting an annual operating expense budget and annual capital budget for
ALI and, prior to the exercise by SunBridge of its rights under the Lease Option
Agreement with respect to a Facility and the commencement of the Facility Lease
related thereto, for each Facility and any material modification thereto,
provided, however, that unless and until agreement on a subsequent year's budget
is reached, the prior year's operating budget (but not the capital budget) shall
continue in effect for subsequent years provided, however, that each of the
amounts reflected therein shall be increased by the percentage change in the
Consumer Price Index ("CPI") from the CPI in effect at the commencement of the
fiscal year during which such budget was adopted by ALI to the CPI in effect at
the commencement of the current fiscal year;
(6) Adopting or modifying policies regarding distributions, reserves and
reinvestment of operating cash flow, refinancing proceeds and disposition
proceeds which differs from those set forth in this Agreement;
(7) The agreement by ALI to any amendment, modification, extension or
termination (other than for cause) of the Development Agreement or the
Management Agreement, including, without limitation, the approval of, or any
material changes to, the forms of budgets, site evaluation notices and other
reports required to be delivered by the Developer, or any termination (other
than for cause) of HC Development as Developer or of SunBridge as Facility
Manager or Lessee;
<PAGE>
(8) Adopting or modifying policies regarding tax reporting, filings and
elections which vary materially from those set forth in this Agreement;
(9) Unless within the parameters previously approved under an Investment Plan
(as the same may have been modified by written amendment or by Management
Committee action as reflected in approved minutes):
(A) the settlement of any litigation or arbitration or other claim;
(1) for more than $50,000 in excess of available insurance proceeds,
(2) for more than $1 million, without regard to insurance proceeds, or
(3) which settlement would reasonably be expected to result in injury to
or adverse effect on the reputation or public image of ALI or any
Member; or
(B) the voluntary disposition of any Facility or any material part thereof
other than in accordance with the terms of this Agreement or to SunBridge
pursuant to the Lease Option Agreement;
(10) Any direct or indirect pledge, sale or other transfer by ALI of any and/or
all of its interest in any Facility or its rights under any Facility-related
agreement, including without limitation, the Development Agreement, Management
Agreement, Lease Option Agreement or any Facility Lease, other than in
connection with any financing or refinancing approved by the Management
Committee or other than to SunBridge pursuant
to the Lease Option Agreement;
(11) Any liquidation, dissolution or merger of ALI or any Investment Entity;
(12) The commencement by ALI or any Investment Entity of (or acquiescence of ALI
or any Investment Entity to) any bankruptcy, insolvency or similar proceeding by
or against ALI or any Investment Entity as debtor;
(13) Any agreement or transaction with, or payment of any fees to, any member or
affiliates of a member, except for the Development Fee, the Management Fee or as
contemplated by this Agreement, the Development Agreement, the Management
Agreement, the Lease Option Agreement, the Facility Leases or an approved
Investment Plan;
(14) The registration of any securities of ALI (or any entity in which ALI has a
controlling interest) under the Securities Act of 1933;
(15) Any change of the name of ALI or the name under which the business of ALI
is conducted;
(16) The increase or reduction of the capital commitments of any member of ALI
(other than as specifically contemplated by this Agreement); or
(17) Any press releases or other public relations communications regarding
events or activities relating to ALI, other than ordinary course
Facility-specific announcements.
<PAGE>
EXHIBIT F
MAJOR CAPITAL DECISIONS
A "Major Capital Decision" shall mean:
(1) determining whether to declare a default under a Facility Lease and/or
whether to exercise the remedies available on default thereunder and, if so,
which remedies to exercise;
(2) the agreement by ALI to any termination for cause of, or the exercise by ALI
of any right to terminate for cause of, the Development Agreement, the
Management Agreement or any Facility Lease;
(3) the selection or changing of ALI's or any Facility's accounting policies or
independent accountant;
(4) the exercise by ALI of any rights to repay indebtedness to Sun Healthcare in
kind;
(5) all decisions (including, without limitation, restructuring or workouts)
regarding Company indebtedness following any event of default thereunder or
following any event which, with notice or passage of time, would constitute an
event of default;
(6) any refinancing or replacement of ALI's mortgage, mezzanine and/or
subordinated indebtedness, provided that any new lender is not an Affiliate of
RSVP and the terms are no less favorable to ALI than could be then obtained from
the then-existing lender with respect to the debt being refinanced or replaced;
(7) any draw under any letter of credit in favor of ALI issued pursuant to the
Development Agreement; or
(8) the selection of Facilities to be included in an Option Package.
<PAGE>
