MASTER AGREEMENT
AND SUBORDINATION AGREEMENT
THIS AGREEMENT is made and entered into as of
the 5th day of September,1997 (the "Effective
Date") by and between Emeritus Corporation, a
Washington corporation ("Emeritus"), Emeritus
Properties I, Inc., a Washington corporation ("EP
I") and Mississippi Baptist Health Systems, Inc.,
a Mississippi non profit corporation (the
"System").
RECITALS
A. EP I, a wholly owned subsidiary of
Emeritus, is the lessee and licensed operator of
that 80 unit assisted living facility known as
Ridgeland Court and located in Ridgeland,
Mississippi (the "Facility") under the terms of a
Facility Lease Agreement dated March 15,1996
executed by Meditrust Acquisition Corporation I,
Inc., a Delaware corporation ("Meditrust"), as
Lessor and EP I, as Lessee (the "Lease") which
Lease has been guaranteed by Emeritus.
B. The System is interested in
participating with EP I in the operations of the
Ridgeland Facility and participating with Emeritus
in the development and operation of additional
assisted living facilities in the State of
Mississippi (the "Additional Facilities").
C. Emeritus, EP I and the System are
interested in documenting the terms and conditions
under which the System will participate in the
operations of the Ridgeland Facility and in the
development and operation of the Additional
Facilities.
NOW, THEREFORE, in consideration of the
foregoing premises and the mutual covenants of the
parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS :
AGREEMENT
1. INITIAL PAYMENT. Concurrently with the
execution of this Agreement the System will
deposit with Emeritus One Hundred Thousand and
no/100 Dollars ($100,000) (the "Initial Payment").
2. ECONOMIC INTEREST.
(a) Concurrently with the execution of this
Agreement, EP I shall grant the System a 50%
Economic Interest (as hereinafter defined) in the
Ridgeland Facility (the "Economic Interest
Assignment").
(b) For purposes hereof, the term 50%
Economic Interest" shall mean a 50% interest in
the Net Profits, Net Losses and Net Cash Proceeds
(as hereinafter defined) of the Ridgeland
Facility. For purposes hereof, the term "Net
Profits" and "Net Losses" shall mean the net
operating profits or net operating losses of the
Ridgeland Facility, after the payment of all
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ordinary expenses incurred by EP I in the
operation of the Ridgeland Facility, including,
but not limited to, the Rent (as defined in the
Lease) due under the Lease and the term "Net Cash
Proceeds" shall mean the net proceeds (remaining
after the payment of all indebtedness then
outstanding with respect to the Ridgeland
Facility, including indebtedness owing to Emeritus
and after the return to Emeritus and/or the System
of any equity invested in the Ridgeland Facility)
resulting from the sale of all or substantially
all of the assets of the Ridgeland Facility, all
as determined in accordance with generally
accepted accounting principles.
(c) EP I shall determine no later than ninety
(90) days after the end of each fiscal year
whether or not there are any Net Profits, Net
Losses or Net Cash Proceeds available for
allocation or distribution to the parties and, if
and to the extent available for distribution or
allocation, shall allocate or distribute the same
within thirty (30) days thereafter.
(d) EP I, Emeritus and the System acknowledge
and agree that nothing herein shall be construed
as requiring the System to fund the net operating
losses of the Ridgeland Facility prior to the
earlier to occur of (i) the satisfaction of the
Release and Development Conditions (as hereinafter
defined) on or prior to the expiration of the
Release and Development Period (as hereinafter
defined) or (ii) the failure of the Release and
Development Conditions prior to the expiration of
the Release and Development Period and the
affirmative election by the System to exercise the
rights granted to it under Section 6(a)(ii) of
this Agreement, at which time Assignee's
obligations with respect to such operating losses
shall be as set forth in this Master Agreement.
3. SUBORDINATION. The System acknowledges
and agrees that Emeritus and EP I have secured the
consent of Meditrust to the assignment of the
Economic Interest on the specific condition that
any payments to the System due with respect to the
Economic Interest are and will be subordinate to
the obligations of EP I and Emeritus to Meditrust,
and to the rights of Meditrust against Emeritus
and EP I, under the Lease and the Lease Documents
(as that term is defined in the Lease).
Accordingly, the System acknowledges and agrees
for the direct benefit of Meditrust (on which
Meditrust may rely) as follows:
(a) It has been provided with a true and
correct copy of the Lease and the Lease Documents
and it has reviewed the same and is familiar with
the terms and conditions thereof.
(b) The payment of any and all amounts due
to the System under this Agreement or under any
other agreement executed pursuant hereto,
including, but not limited to, the Economic
Interest Assignment, shall be and hereby is
subordinated and made junior to the complete and
prior payment and performance as and when due of
all fees, indebtedness, liabilities, obligations
and other amounts due or owing from or by Emeritus
or EP I under the Lease Documents; provided,
however, that for so long as (A) (i) there is no
Event of Default under the Lease or event
outstanding which, with the giving of notice or
the passage of time or both, would constitute an
Event of Default under the
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Lease or (ii) Meditrust (pursuant to any of the
Lease Documents) shall not have commenced to
exercise any right or remedy under the Lease
Documents and (B) after giving effect to any such
payment, Emeritus and EP I will be able to
continue to comply with all of their obligations
under the Lease Documents, then EP I shall be
permitted to make any payments which are then due
and owing to the System under this Agreement or
under any other agreement executed pursuant
hereto, including, but not limited to, the
Economic Interest Assignment.
(c) In the event the System receives any
payments in contravention of the terms of this
Agreement, whether or not it has been provided
with notice of the existence of such Event of
Default or any other event by Meditrust or
Emeritus, it shall receive and hold those payment
in trust for the benefit of Meditrust and it shall
immediately remit the same to Meditrust.
(d) In the event of any voluntary or
involuntary insolvency, bankruptcy, receivership,
custodianship, readjustment of debt, arrangement,
composition, assignment for the benefit of
creditors or other similar proceedings relative to
Emeritus or EP I or any of their property (the
"Triggering Events"), then and in any such event:
(i) any payment or distribution of any
character, which would otherwise (but for the
terms hereof be payable or deliverable in
respect of the amounts owed to the System
shall be paid or delivered directly to
Meditrust until any and all amounts due under
the Lease Documents shall have been paid in
full;
(ii) upon the written request of Meditrust,
the System shall provide, enforce and
endeavor to obtain payment of the aggregate
outstanding amount of all unpaid payments due
and payable to the System or thereafter
becoming due and payable from Emeritus or EP
I to the System and shall turn over to
Meditrust, in precisely the form received,
any such unpaid payment of any kind or
character on account of such amounts owed to
the System for application to the payment of
all amounts then due by Emeritus or EP I
under the Lease Documents. In the event that
the System fails to take any such action
requested by Meditrust, Meditrust, as
attorney in fact for the System for the
limited purpose of enforcing and obtaining
such payments, with full power of
substitution, may take such action on behalf
of the System, but for the use and benefit of
Meditrust. This limited power of attorney,
being coupled with an interest, shall be
irrevocable until all of the amounts due by
Emeritus or EP I under the Lease Documents
are fully paid and performed. The power of
attorney conferred on Meditrust is provided
solely to protect the interests of Meditrust
and shall not impose any duty on Meditrust to
exercise any such power and Meditrust, as
such attorney-in-fact, shall not be liable
for any act, omission, error in judgment or
mistake of law, except as the same may result
from its gross negligence, breach of
fiduciary duty to System or wilful
misconduct;
(iii) System shall execute and deliver to
Meditrust all such further instruments
confirming the authorization referred to in
the foregoing clauses (i) and (ii) and any
powers of attorney specifically confirming
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the rights of Meditrust arising hereunder and
all such proofs of claim, assignments of
claim and other instruments and shall take
all such other actions as may be requested by
Meditrust in order to enable Meditrust to
enforce any and all claims upon or in respect
of any and all amounts due by Emeritus or EP
I under the Lease Documents and to collect
any and all payment or distributions which
may be payable or deliverable to System after
the occurrence of the aforementioned
Triggering Events at any time upon, or with
respect to, such amounts.
(e) The subordination provisions provided for
herein shall not be affected, modified or impaired
in any manner or to any extent by: (i) any
renewal, replacement, amendment, extension,
substitution, revision, consolidation,
modification or termination of any of the Lease
Documents, (ii) the validity or enforceability of
any of the Lease Documents, (iii) the release,
sale, exchange or surrender, in whole or in part,
by Meditrust of any collateral which it is holding
as security for the performance by EP I or
Emeritus of its or their obligations under the
Lease Documents, (iv) any exercise or non-exercise
of any right, power or remedy in respect of any
amounts due under the Lease or (v) any waiver,
consent, release, indulgence, extension, renewal,
modification, delay or other action or inaction or
omission in respect of the amounts now or
hereafter due from Emeritus or EP I under the
Lease, in each instance whether or not the System
had notice or knowledge thereof or consents
thereto.
Any and all rights granted by Emeritus
and EP I to the System under this Agreement or
under any other documents executed pursuant
hereto, may at the option of Meditrust be
terminated in the event that upon the occurrence
of an Event of Default under the Lease, Meditrust
elects either to terminate the Lease or to re-take
possession of the Ridgeland Facility; provided,
however, that concurrently with such termination,
the rights granted to Emeritus and its
subsidiaries, including EP I, under the License
Agreement shall also terminate, it being
understood and agreed that Meditrust shall have no
right to succeed to the rights granted to Emeritus
thereunder even in the event it retakes possession
of the Ridgeland Facility, and the Initial Payment
and the Subsequent Payment, if applicable, shall
be returned to the System upon written demand
therefor.
(g) Meditrust shall have no liability to the
System for any payments due to the System under
this Agreement or under any document executed
pursuant to this Agreement, it being understood
and agreed that the System's sole recourse for
such payments shall be solely to Emeritus or EP I,
as appropriate.
(h) In consideration for the agreements of
the System set forth in this Section 3, Emeritus
and EP I do hereby agree to provide the System
with copies of any and all notices of default
which may be provided by Meditrust to either
Emeritus or EP I under any of the Lease Documents;
provided, however, that the System acknowledges
and agrees for the benefit of Emeritus, EP I and
Meditrust, that the giving of such notice shall
not be construed in any manner as granting the
System any right to cure any such default under
the Lease Documents or to otherwise interfere with
or affect the rights granted to Meditrust under
the Lease Documents upon the occurrence of a
default thereunder.
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4. LICENSING AGREEMENT. Concurrently with the
granting of the Economic Interest, Emeritus and
the System will enter into a Licensing Agreement
under which Emeritus and its subsidiaries,
including but not limited to, EP I, will be
granted the right to use the System's name in
connection with the marketing of the Ridgeland
Facility. The License Agreement shall be in form
and substance substantially the same as the
License Agreement attached hereto as Exhibit A.
5. DEVELOPMENT, OWNERSHIP AND OPERATION OF
ADDITIONAL FACILITIES.
(a) From and after the Effective Date,
Emeritus and/or the System will use its or their
commercially reasonable efforts to have satisfied
the following conditions (the "Release and
Development Conditions") by no later than the
second anniversary of the Effective Date (the
"Release and Development Period"): (i) Emeritus
shall have secured a release (as hereinafter
defined) of the Ridgeland Facility from the Lease
and (ii) Emeritus and the System shall have
commenced (as hereinafter defined) no less than
two Additional Facilities in the Jackson,
Mississippi metropolitan area.
(b) For purposes hereof, (i) Emeritus will be
deemed to have secured a release of the Ridgeland
Facility from the Lease in the event it is able to
either (A) convert the Lease to a mortgage in
favor of Meditrust but only if such mortgage
clearly provides that it is not cross defaulted or
cross collateralized to any other agreements
between Emeritus and its affiliates, on the one
hand, and Meditrust and its affiliates, on the
other hand, or any other lender or an affiliate
thereof or (B) acquire title to the Ridgeland
Facility by conveying to Meditrust title to
another property in substitution for the Ridgeland
Facility in accordance with the Substitution of
Properties provisions of the Lease and (ii)
Emeritus and the System will be deemed to have
commenced no less than two Additional Facilities
in the event they have acquired title to property
upon which the same will be constructed, secured
any necessary zoning permits and approvals
necessary for the construction thereof, secured a
building permit with respect to the construction
thereof and commenced construction thereof within
any time period required for the validity of such
building permits or on such earlier date as may be
specified by agreement of Emeritus and the System,
it being understood and agreed that construction
of such Additional Facilities shall not be
required to be completed as of the end of the
Release and Development Period in order for the
Release and Development Conditions to be
satisfied.
(c) Emeritus shall provide the System with
written notice (the "Condition Satisfaction
Notice") of the date upon which it believes that
Release and Development Conditions have been
satisfied (the "Condition Satisfaction Date"). The
Condition Satisfaction Notice from Emeritus shall
be final and binding upon the System unless
objected to by the System within ten (10) days
after the receipt thereof. In the event the System
objects to the date specified in the Condition
Satisfaction Notice, it shall be required to
provide Emeritus with written notice of its
objection and details concerning the bases
therefor and the date which is believes
constitutes the Condition Satisfaction Date (the
"Objection Notice"). Emeritus and the System shall
have a period of twenty (20)
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days after Emeritus' receipt of the Objection
Notice to negotiate in good faith with respect to
the Condition Satisfaction Date and failing that
shall submit the same to binding mediation before
a mediator selected by mutual agreement of the
parties.
(d) Within ten (10) days after the later of
the receipt of the Condition Satisfaction Notice
or the date on which the Condition Satisfaction
Date is determined by agreement of the parties or
mediation, (A) the System will (i) reimburse
Emeritus for 50% of any equity provided by
Emeritus in order to secure the release of the
Ridgeland Facility from the Lease (the "Equity
Reimbursement Payment"), it being understood and
agreed that for purposes hereof, the System shall
have no obligation to reimburse Emeritus for any
fees paid or expenses reimbursed to Meditrust in
consideration for the release of the Ridgeland
Facility from the Lease and (ii) reimburse
Emeritus for 50% of any working capital advanced
by Emeritus from the date of this Agreement to the
Condition Satisfaction Date in connection with the
operation of the Ridgeland Facility in excess of
the amount financed as part of the Original
Meditrust Investment (as that term is defined in
the Lease) (the "Working Capital Reimbursement
Payment"); provided, however, that the System
shall receive a credit against the aggregate
amount of the Equity Reimbursement Payment and the
Working Capital Reimbursement Payment in an amount
equal to the Initial Payment and (B) Emeritus will
take such action as may be necessary to convey
title to the Ridgeland Facility to a limited
liability company (the "Ridgeland LLC"), in which
Emeritus or a subsidiary of Emeritus and the
System or a subsidiary of the System are the sole
members, with each of Emeritus and the System
holding a SO% interest therein, which limited
liability company shall be formed pursuant to
Articles of Organization and operated pursuant to
an Operating Agreement in such forms as may be
mutually acceptable to the parties ( the
"Ridgeland LLC Documents") and (C) Emeritus and
the System shall enter into a Management Agreement
which shall vest in Emeritus responsibility for
the day to day operations of the Ridgeland
Facility and the Additional Facilities, which
Management Agreement shall be in form and
substance mutually acceptable to each of the
System and Emeritus.
(e) In the event at the time Emeritus and the
System have agreed to acquire title to any land or
otherwise enter into any contractual relationship
with respect to either or both of the Additional
Facilities the Ridgeland Facility is still subject
to the Lease or the Ridgeland Facility has been
released from the Lease but is subject to a
mortgage in favor of Meditrust, Emeritus and the
System shall form one or more additional limited
liability companies (the "New LLCs") through which
they shall pursue the development, ownership and
operation of such Additional Facilities, it being
understood and agreed that for so long as the
Ridgeland Facility is owned or financed by
Meditrust, the Ridgeland LLC cannot engage in any
business other than the ownership or operation of
Meditrust financed or owned facilities. The
Articles of Organization and Operating Agreements
with respect to the New LLCs shall be in form and
substance substantially the same as the Ridgeland
LLC Documents or in such other form as may be
mutually acceptable to each of Emeritus and the
System.
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In the event at the time Emeritus and the
System have agreed to acquire title to any land or
otherwise enter into any contractual relationship
with respect to either or both of the Additional
Facilities, the Ridgeland Facility has been
released from the Lease and is not subject to a
mortgage in favor of Meditrust, Emeritus and the
System shall have the option of either forming a
New LLC through which they shall purse the
development, ownership and operation of such
Additional Facilities or doing so through the
Ridgeland LLC.
(g) In the event Emeritus and the System
elect for any reason to pursue the development,
ownership and operation of one or more of the
Additional Facilities through the Ridgeland LLC,
including, but not limited to, in the event
Meditrust elects to finance either of both of such
Additional Facilities and accordingly consents to
the development, ownership and operation of such
Additional Facilities by the Ridgeland LLC,
Emeritus and the System shall enter into such
amendment to the Operating Agreement with respect
to the Ridgeland LLC as they mutually deem to be
necessary and appropriate.
(h) Emeritus and the System agree that any
and all costs incurred from and after the
Condition Satisfaction Date in connection with the
development, ownership and operation of the
Additional Facilities, including, but not limited
to, any equity required to secure financing for
the construction thereof and any working capital,
shall be shared by them on a 50-50 basis;
provided, however, that in no event shall the
System be required to provide its guarantee in
connection with any financing secured for such
development or operation.
6. FAILURE OF THE RELEASE AND DEVELOPMENT
CONDITIONS.
(a) In the event either or both of the
Release and Development Conditions have not been
satisfied as of the end of the Release and
Development Period, the System will have the right
exercisable on written notice to Emeritus
delivered no later than thirty (30) days after the
end of the Release and Development Period (the
"Election Notice") either:
(i) to demand the return of the Initial
Payment, in which case the Economic Interest
Assignment and the Licensing Agreement shall
be null and void and of no further force and
effect as of the date of the Election Notice;
or
(ii) to continue in effect the relationship
described in Paragraphs 2, 4 and 5, above, in
exchange for the following actions by the
System: (A) increase its deposit by another
One Hundred Thousand and no/100 Dollars
($100,000) (the "Subsequent Payment"), for an
aggregate deposit with respect to the
Ridgeland Facility of Two Hundred Thousand
and no/100 Dollars ($200,000), (B) pay to
Emeritus an amount equal to the Working
Capital Reimbursement Payment, (C) upon
request, confirm in writing the rights
granted to Emeritus under the License
Agreement and (D) from and after the date
thereof, be responsible on a 50-50 basis with
Emeritus for any working capital required in
connection with the operation of the
Ridgeland Facility in excess of the amount
financed as part of the Original Meditrust
Investment, it being
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understood and agreed that in such event, the
System shall have no right, title or interest
in and to any of the Facilities.
(b) In the event the System fails to provide
Emeritus with written notice of its election
pursuant to Section 6(a) within the thirty (30)
day period specified therein, it shall be deemed
to have elected the option provided for in Section
6(a)(i).
(c) In consideration for the Subsequent
Payment and the Working Capital Reimbursement, the
System will have those additional rights with
respect to the Ridgeland Facility as are set forth
in the Economic Interest Assignment Agreement.
7. ANCILLARY SERVICES. Emeritus and EP I
agree that any and all ancillary services which
may from time to time be offered by the Ridgeland
Facility to its residents, including but not
limited to, rehabilitation therapy services and
pharmacy services, shall be provided under
contract with the System or its affiliates on
terms mutually agreed upon by both Emeritus and
the System; provided, however, that nothing herein
shall be construed as requiring the Ridgeland
Facility to contract with the System at rates
which are not competitive with other ancillary and
pharmaceutical service providers in the Jackson,
Mississippi market or to continue to contract with
the System in the event the System fails to
provide the services for which it has been
retained in accordance with the terms of such
service agreements or otherwise breaches its
obligations thereunder.
8. FINANCIAL REPORTS/INSPECTION OF BOOKS AND
RECORDS. On or before the twenty fifth (25th) day
of each month, EP I shall provide the System with
monthly operating financial statements for the
Ridgeland Facility for the immediately preceding
month, which financial statements shall be
prepared in accordance with generally accepted
accounting principles and shall include a
statement of cash flows and a comparison of each
item reflected therein for the current period and
year to date to the budgeted amounts with respect
thereto. In addition, the System shall have the
right on reasonable notice and during normal
business hours to inspect the books, records and
accounts of the Ridgeland Facility.
9. AMENDMENT AND MODIFICATION OF THE LEASE
DOCUMENTS. For so long as the System holds the
Economic Interest, neither Emeritus nor EP I will
amend, modify, extend, replace, consolidate, renew
or terminate any of the terms of the Lease
Documents in a manner which would adversely affect
the rights of the System hereunder without the
prior written consent of the System, which consent
shall not be unreasonably withheld; provided,
however, that nothing herein shall be construed as
prohibiting Emeritus and EP I from terminating the
Lease Documents in accordance with the terms
thereof which have been disclosed to the System,
it being understood and agreed that such
termination may adversely affect the rights of the
System hereunder.
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10. MISCELLANEOUS.
(a) This Agreement represents the entire and
final agreement of the parties hereto with respect
to the subject matter hereof and may not be
amended or modified except by written instrument
signed by the parties hereto.
(b) In the event of a dispute among the
parties hereto with respect to the interpretation
or enforcement of the terms hereof, the prevailing
party shall be entitled to collect from the other
its reasonable costs and attorneys fees, including
its costs and fees on appeal.
(c) Each of the parties has had an
opportunity to participate in the drafting of this
Agreement and to be represented by counsel in
connection therewith. Accordingly, in the event of
a dispute between the parties hereto with respect
to the interpretation of any term or provision
hereof, no provision shall be read so as to favor
or disfavor either party hereto.
(d) This Agreement may be executed in
counterparts, each of which shall be deemed to be
an original but all of which taken together shall
constitute but one and the same instrument.
(e) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and
their successors and assigns; provided, however,
that neither party shall have the right to assign
its rights or obligations hereunder, without the
prior written consent of the other party hereto,
which consent may be withheld in its sole and
absolute discretion, it being understood and
agreed that the rights and obligations provided
for in this Agreement are personal to the parties
hereto.
Nothing herein is intended to confer a
benefit on any person or entity not a party hereto
other than Meditrust, which is and shall be an
intended beneficiary of the provisions of
Paragraph 3 hereof.
IN WITNESS WHEREOF, the parties hereby
execute this Agreement as of the day and year
first set forth above.
MISSISSIPPI BAPTIST HEALTH
SYSTEMS, INC.
By:
Its:
EMERITUS CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxxx
-----------------------
Its: President
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EMERITUS PROPERTIES I, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxx
-----------------------
Its: President
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