FOURTH AMENDMENT TO MANAGEMENT AGREEMENT
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WITH OPTION TO PURCHASE
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(AL I - Emeritrust 25 Facilities)
This Fourth Amendment to Management Agreement with Option to Purchase (this
"Amendment") is effective as of April 1, 2004 by and among Emeritus Management
LLC, a Washington limited liability company ("Emeritus Management"), Emeritus
Management I LP, a Washington limited partnership ("Texas Manager;" together
with Emeritus Management referred to herein as "Manager"), Emeritus Corporation,
a Washington corporation ("Emeritus), AL Investors LLC, a Delaware limited
liability company ("AL Investors"), for itself and as sole managing member or
sole managing member of the general partner of each of the Facility Entities set
forth on Exhibit A to the Management Agreement (as hereinafter defined)
(individually or collectively "Owner" or "Owners").
Recitals
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A. Emeritus Management, Texas Manager, Emeritus, AL Investors, ESC I,
L.P., a Washington limited partnership ("ESC"), and Emeritus Properties I, Inc.,
a Washington corporation ("EPI") entered into that certain Management Agreement
with Option to Purchase (Emeritrust 25) dated December 30, 1998, pursuant to
which, among other things, AL Investors and the Facility Entities engaged
Manager to manage certain Facilities described therein (as subsequently amended,
the "Management Agreement"). Pursuant to the terms of the Management Agreement,
ESC and EPI have ceased to be Managers under the Management Agreement. The
Management Agreement has been previously amended by (1) First Amendment to
Management Agreement with Option to Purchase, dated March 22, 2001 (the "First
Amendment"), (2) Second Amendment to Management Agreement with Option to
Purchase dated January 1, 2002 (the "Second Amendment"), (3) Waiver, Consent and
Amendment to Management Agreement dated May 1, 2002 ("Laurel Place Waiver"), (4)
Third Amendment to Management Agreement dated as of June 30, 2003 ("Third
Amendment"), (5) Termination of Memorandum of Management Agreement With Option
to Purchase for Laurel Place ("Park Place Waiver") and (6) Termination of
Memorandum of Management Agreement with Option to Purchase (Xxxxxxx Xxxx)
("Xxxxxxx Xxxx Waiver"). Pursuant to the Laurel Place Waiver, the Facility
known as Laurel Place was sold and has been deleted from the Management
Agreement. Pursuant to the Park Place Waiver, the Facility known as Park Place
has been sold and deleted from the Management Agreement. Pursuant to the
Xxxxxxx Xxxx Waiver, the Facility known as Xxxxxxx Xxxx has been sold and
deleted from the Management Agreement.
B. In connection with an extension and modification of the Senior Loan
pursuant to Amended and Restated Loan Agreement dated on or about April 20, 2004
("Amended Loan Agreement"), the parties now desire to amend the Management
Agreement to provide for the extension of the Management Agreement until April
1, 2005, and if extended for the Extension Period (as defined in the Amended
Loan Agreement) until April 1, 2006.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars, the agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Defined Terms. All terms capitalized herein but not defined shall have
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the meanings given them in the Management Agreement.
2. Term. The text of Section 2.3 is deleted in its entirety and replaced
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with the following:
The Term of the Management Agreement as defined in the Third Amendment has been
extended to April 1, 2004. The Term of the Management Agreement is hereby
extended to April 1, 2005, and for the Extension Period, if Owner so elects and
is entitled to so extend, subject to sooner termination as provided herein.
Notwithstanding anything to the contrary herein, either Manager or Owners may
terminate this Agreement without cause upon ninety (90) days prior written
notice to the other as more particularly provided in Section 9.1 and 9.2. If
the Management Agreement is terminated because Owner fails to qualify for the
Extension Period, then Manager at Owner's request agrees to manage the
Facilities for a period of up to ninety (90) days upon the terms set forth
herein.
3. Financial Covenant. The following is added as Section 4.5:
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So long as any part of the Senior Loan remains outstanding, Emeritus shall
maintain Liquidity (defined below) of at least $2,000,000 as of the last day of
each March, June, September and December; and shall provide evidence thereof
satisfactory to Senior Lender upon request of Senior Lender. As used in this
paragraph, Liquidity means unrestricted and unencumbered cash, cash equivalents
including commercial paper with maturities of less than 90 days and marketable
securities that are owned, directly or indirectly, by Emeritus.
4. Insurance. The following is added as Section 5.3:
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Notwithstanding anything contained in this agreement, Owners will not exercise
their remedies with respect to any breach by Emeritus or the Managers of the
insurance requirements set forth in Section 5 that is the subject of a
forbearance letter issued by Senior Lender so long as Emeritus and/or the
Managers comply in all respects with the requirements of Senior Lender as set
forth in such forbearance letter. In the event that Senior Lender revokes its
forbearance letter and requires compliance with the insurance requirements of
the Senior Loan Documents, then Emeritus and the Managers shall comply with such
requirements of Senior Lender. The cost of such compliance shall be an
Operating Expense.
5. Indemnity. The third to last sentence of Section 6.1 is deleted and
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replaced with the following:
All costs and expenses of Manager pursuant to this indemnity shall be an
Operating Expense so long as (a) Manager was not in breach of this Agreement,
and (b) was not negligent.
6. Management Fees. Section 7.1 and 7.2 are deleted and replaced with the
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following:
7.1 Base Management Fee. Manager shall be entitled to pay itself from
the Agency Account on the 4th day of each month a management fee of 5% of the
Total Revenues from all Facilities in the aggregate then subject to this
Agreement ("Base Management Fee").
7.2 No Accruals of Prior Management Fees. All accruals of the Base
Management Fee, Additional Management Fee or any other Management Fee accrued
for all periods prior to April 1, 2004 are terminated and written off. The Base
Management Fee shall be Manager's sole management fee and all references to any
Additional Management Fee are deleted.
Section 7.3 is deleted. All references to reimbursement of Loan Extension
Closing Costs or Pooled Expenses are deleted and Owner acknowledges such amounts
have been paid for all prior Senior Loan extensions. With respect to the
Amended Loan Agreement, AL Investors has agreed to pay from funds held by
Emeritus on behalf of AL Investors (a) all fees as defined in Section 2.6 of the
Amended Loan Agreement; (b) all closing costs in connection with the Amended
Loan Agreement, including without limitation, all costs and fees which Owners as
borrowers are obligated to reimburse to Senior Lender, title insurance fees, UCC
search costs, attorneys' fees and costs of AL Investors and Senior Housing
Partners I, L.P. and any other reasonable out-of-pocket costs and expenses and
(c) all extension fees for the Extension Period. Provided, however, if Emeritus
does not have sufficient funds held for the account of AL Investors to pay the
foregoing amounts, Xxxxxx X. Xxxx shall pay such amounts.
7. Expenditures. To be consistent with the revisions to Section 7.1 and 7.2
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above, Section 8.2 is deleted and replaced with the following:
8.2 Expenditures. In accordance with the Annual Plan, except as
otherwise approved by Owners, Managers as agent for the Facility Entities are
hereby authorized and directed to pay from the Agency Account for each Facility
in the following order of priority such amounts and at such times as are
required to pay the following expenditures:
(a) The Operating Expenses;
(b) The Fixed Operating Expenses, including Capital Expenditures,
except for such items as Owner has elected to pay directly;
(c) The cost of Capital Improvements approved by Owner;
(d) The Base Management Fee;
(e) Any remaining Cash Available for Distribution shall be paid to
Owner.
Any amounts due Owner shall be paid over to Owners as directed by Owners
within twenty (20) days after the end of each calendar month during the term of
this Agreement. Funds in the Agency Account shall not be utilized for any other
purpose.
8. Deficit Contributions. Section 8.3 is deleted in its entirety and
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replaced with the following:
a. Deficit Contributions. All Operating Deficits during the Term remaining
after Owner has funded the full amount of the Owner's Deficit Contribution,
i.e., $4,500,000, (which Owners and Manager acknowledge has been previously
funded) shall be funded absolutely and unconditionally by Xxxxxx X. Xxxx
("Xxxx") into the Agency Account or otherwise as directed by Owners as and when
necessary to pay, but in any event no later than ten (10) days after written
notice from Owners, all Operating Deficits during any calendar month during the
Term and by his execution hereof Xxxx agrees to do so. Neither Owners, Manager
or Emeritus shall have any obligation to fund Operating Deficits or to
reimburse Xxxx for any Operating Deficit payments or contributions. All
references in the Agreement to any obligation of Emeritus to fund Operating
Deficits, e.g., Section 1.4, are hereby deleted. Notwithstanding the foregoing,
Emeritus shall continue to pay Owners any amount owing to Owners for Operating
Deficits that accrued prior to October 1, 2003.
9. Termination. Section 9.1 is deleted and replaced with the following:
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9.1 Managers. The Managers may terminate this Agreement, with respect to
all (but not less than all) of the Facilities by reason of any of the following
("Event of Default"): (i) the Owner breaches or fails to perform a material
term of this Agreement, which breach or failure is not cured within thirty (30)
days after written notice of said breach is provided to Owner, or (ii) Xxxx
fails to fund Operating Deficits in accordance with Section 8.3. In addition to
the foregoing right to terminate for Owners' or Xxxx'x default, Manager, upon
ninety (90) days prior written notice, may terminate this Agreement at any time
at its sole election. With respect to an Event of Default under (ii) the sole
remedy of Managers, notwithstanding anything to the contrary herein, shall be to
terminate this Agreement.
Section 9.2 is deleted and replaced with the following:
9.2 Owner. The Owner may terminate this Agreement with respect to any
one or all of the Facilities by reason of any of the following (each an "Event
of Default"): (i) Xxxx fails to fund any Operating Deficit under Section 8.3
within fifteen (15) days after written notice from Owner that payment has not
been paid when due; (ii) Managers or any of them or Emeritus breaches or fails
to perform a material term of this Agreement as to any or all Facilities, which
breach or failure is not cured within thirty (30) days after written notice of
said breach is provided to the Managers; (iii) Xxxxxx Xxxx fails to comply with
the liquidity and reporting requirements of the Senior Loan (which is not cured
within any applicable cure period set forth therein); (iv) either Manager or
Emeritus suffers a Bankruptcy Event; or (v) Emeritus fails to comply with the
liquidity and reporting requirements set forth in Section 4.5 and such failure
is not cured within thirty (30) days after written notice of such breach is
provided to Emeritus. In addition to the foregoing rights to terminate for
Manager's or Xxxx'x default, Owners may, upon ninety (90) days prior written
notice, terminate this Agreement at any time at its sole election.
Section 9.3 is deleted and replaced with the following:
9.3 Curing Defaults. Any default by Managers or Owner under the
provisions of Section 9.1 and 9.2, except for defaults involving the payment of
money which must be cured within the applicable cure period, shall not
constitute an Event of Default if the nature of such default will not permit it
to be cured within the cure period allotted, provided that either Managers or
Owner promptly shall commence to cure such default and shall proceed to complete
the same with diligence but in no event later than sixty (60) days after the
written notice of default has been given.
The last sentence of Section 9.4 is deleted, and Sections 9.8, 9.9 and 9.10 are
deleted.
10. Emeritus Option to Purchase. Section 13 and all references to any
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option that Managers or Emeritus may have to purchase the Facilities are
deleted.
11. Emeritus Right of First Refusal. Section 14 and all references to any
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rights of first refusal that Managers or Emeritus may have to purchase the
Facilities are deleted.
12. Exhibits. Exhibit A is hereby revised as follows:
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a. Senior Loan - the definition of Senior Loan is deleted and replaced with
the following:
Senior Loan: any indebtedness incurred by Owners which is secured by any
mortgage, deed of trust and related security instruments against a Facility.
Initially the Senior Loan is evidenced by that certain Loan Agreement between AL
Investors (and the Facility Entities) and GMAC Commercial Mortgage Corporation
dated on or about December 30, 1998, as amended by the First, Second and Third
Amendments to Loan Agreement, including, without limitation, all interest
increases and modifications contained therein (the "Initial Senior Loan"). The
Senior Loan includes any refinance, modification, or extension of the Initial
Senior Loan, including, without limitation, the extension and modification set
forth in the Amended Loan Agreement.
b. Deemed Senior Loan - the definition of Deemed Senior Loan is deleted.
c. Fixed Operating Expenses - the definition of Fixed Operating Expenses is
deleted in its entirety and replaced with the following:
Fixed Operating Expenses: for any period, all fixed costs and expenses of
owning, and operating the Facilities in the aggregate, except where the
Agreement expressly provides that Fixed Operating Expenses shall be determined
for each Facility, to the extent such costs and expenses are not included in
Operating Expenses, including but not limited to (a) all amounts to be paid into
any reserve account and the cost of Capital Improvements approved by Owners
including those funded from any reserve account; (b) the debt service on account
of the then Senior Loan; (c) the real and personal property ad valorem taxes and
assessments; (d) the Base Management Fee; and (e) all costs and expenses of all
property and casualty insurance on or in respect of the Facilities provided for
herein and the amount of all self-insured losses or deductibles. Fixed
Operating Expenses shall not include the Excluded Expenses.
d. Facility or Facilities - Laurel Place, Park Place, and Xxxxxxx Xxxx are
deleted.
e. Management Fee - Revised to mean the Base Management Fee.
13. Guaranty of Management Agreement and Shortfall Funding Agreement. That
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certain Guaranty of Management Agreement and Shortfall Funding Agreement dated
December 30, 1998 and executed by Emeritus Corporation ("Guaranty") is amended
as follows:
Section 1.2 of the Guaranty and all references to Operating Deficits or any
obligation of Emeritus to fund Operating Deficits are hereby deleted. The
Guaranteed Obligations as referenced in Section 1.1 are limited to Manager's
obligations under the Management Agreement, as amended, and do not include any
obligation to fund Operating Deficits.
14. Ratification. The Management Agreement, as amended by this Agreement,
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is hereby ratified and confirmed. In the event of any inconsistency between
this Amendment and the Management Agreement, this Amendment shall control.
15. Understandings and Agreements. This Amendment, together with the
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Management Agreement, constitutes all of the understandings and agreements
between the parties with respect to the management of the Facilities.
16. Headings. The headings contained herein are for convenience of
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reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
17. Applicable Law. This Agreement shall be construed and interpreted and
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be governed by the laws of the State of Washington.
18. Counterparts. This Agreement may be executed and delivered in multiple
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counterparts with the same effect as if all parties had executed the same
original, and all such counterparts, when taken together, shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date and year first above written.
[Remainder of page intentionally left blank; signatures follow]
50400533.06
Signature Page for Fourth Amendment to Management Agreement
EMERITUS MANAGEMENT
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EMERITUS MANAGEMENT LLC, a Washington limited liability company
By: Emeritus Corporation, a Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
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Title: Director of Real Estate Finance
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EMERITUS MANAGEMENT I LP
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EMERITUS MANAGEMENT I LP, a Washington limited partnership
By: EM I, LLC, a Washington limited liability company
By: Emeritus Corporation, a Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
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Title: Director of Real Estate Finance
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EMERITUS
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EMERITUS CORPORATION, a Washington corporation
By: /s/ Xxxxxxx X. Xxxxxxx
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Name: Xxxxxxx X. Xxxxxxx
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Title: Director of Real Estate Finance
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Signature Page for Fourth Amendment to Management Agreement
AL INVESTORS
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AL INVESTORS LLC, a Delaware limited liability company, for itself and as sole
managing member on behalf of each of the Owners, or in the case where the Owner
is a limited partnership, as sole managing member on behalf of the general
partner thereof
By: /s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx, Manager
/s/ Xxxxxx X. Xxxx
Xxxxxx X. Xxxx for purposes of unconditionally agreeing to fund Operating
Deficits as provided in Section 8.3 and the costs and expenses set forth in
Section 7
The undersigned lenders in connection with the Senior Loan and the Junior Loan
have executed this Agreement for the sole purpose of consenting to the foregoing
Amendment.
GMAC Commercial Mortgage Corporation, a California corporation
By: /s/ Xxxx X. Lautner
Name: Xxxx X. Lautner
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Title: Senior Vice President
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Senior Housing Partners I, L.P., a Delaware limited partnership
By: Senior Housing Partners I, L.L.C., its general partner
By: Prudential Life Insurance Company of America, its managing member
By: /s/ Xxxx X. Xxxx
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Xxxx X. Xxxx, Vice President
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