THE LIMITED LIABILITY COMPANY CREATED BY THIS AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE STATE BLUE SKY STATUTES
IN THE VARIOUS STATES WHERE THE INTEREST(S) MAY BE
OFFERED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR THE APPLICABLE
STATE BLUE SKY STATUTES OR SATISFACTORY ASSURANCE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. IN
ADDITION THE SALE OR TRANSFER OF ANY INTEREST(S) IN THE
COMPANY MUST BE MADE IN ACCORDANCE WITH THE PROVISIONS
OF THIS AGREEMENT. IN VIEW OF THESE RESTRICTIONS, THE
PURCHASER OF ANY INTEREST(S) IN THE COMPANY MUST BE
PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
OPERATING AGREEMENT OF AURORA BAY INVESTMENTS, L.L.C.
January 6,1998
This Operating Agreement (the "Agreement") is made
and entered into as of the 6th day of January, 1998, by
and among ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇"), ▇▇▇▇▇
INVESTORS I, L.L.C., a Washington limited liability
company ("▇▇▇▇▇ L.L.C."), and THILO BEST ("Best") as
the initial members ("Members"). The parties agree to
operate as a. limited liability company under the laws
of the state of Washington, as follows:
The parties hereto agree as follows:
l. Definitions. The following terms used in the
Agreement shall have the meanings specified below:
1.1 "Act" means the Washington Limited
Liability Company Act, as amended from time to
time.
1.2 "Additional Member" means a Member who
has been admitted to all rights of membership
pursuant to Section 14.5 below.
1.3 "Adjusted Contribution Amount" with
respect to each Member means the Capital
Contributions pursuant to Sections 7.1 and 7.4
below.
1.4 "Affiliate" means, with respect to the
second person (as defined in this paragraph) (i)
any person (the "first person") who directly or
indirectly controls a second person, or owns or
controls 10% or more of the outstanding securities
of the second person; (ii) any officer, director,
partner, or member of the immediate family of the
second person; and (iii) if the second person is
an officer, director, or partner, any company for
which the second person acts in that capacity.
Control includes the terms "controlled by" and
"under common control with" and means the
possession, direct or indirect, of the power to
direct or cause the direction of the management
and policies of a person, whether through the
ownership of voting securities, by contract or
otherwise.
1.5 "Agreement" means this Operating
Agreement of the Aurora Bay Investments, L.L.C.,
as it may be amended from time to time.
1.6 "Assignee" means a person who has
acquired a Member's interest in whole
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or part and has not become a Substitute Member.
1.7 "Capital Account" means the account
maintained for each Member in accordance with
Section 7.5. In the case of a transfer of an
interest, the transferee shall succeed to the
Capital Account of the transferor or, in the case
of a partial transfer, a proportionate share
thereof
1.8 "Capital Contribution" means the total
amount of money and the fair market value of all
property contributed to the Company by each Member
pursuant to the terms of the Agreement. Capital
Contribution shall also include any amounts paid.
directly by a Member to any creditor of the
Company in respect of any guarantee or similar
obligation undertaken by such Member in connection
with the Company's operations. Any reference to
the Capital Contribution of a Member shall include
the Capital Contribution made by a predecessor
holder of the interest of such Member.
1.9 "Capital Transaction" includes any of the
following events, whether they occur in the
Company or in any of the Subsidiaries:
(a) Sale or other disposition of all or
any part of the entity's property;
(b) Financing or refinancing of all or
any part of the entity's property;
(c) Condemnation of all or any part of
the entity's property;
(d) Payments from insurance on account
of a casualty to any of the entity's property
other than payment for insurance on account
of business or rental interruption;
(e) Payments from title insurance on
account of a defect in title to the entity's
property or with respect to any other claim
under a title policy in favor of the entity;
or
(f) Similar items o! transactions, the
proceeds of which, under generally accepted
accounting principles, are deemed
attributable to capital.
1.10 "Cash Available for Distribution" means
all cash receipts of the Company in excess of
amounts reasonably required for payment of
operating expenses, repayment of current
liabilities, repayment of such amounts of Company
indebtedness as the Managers shall determine
necessary or advisable, and the establishment of
and additions to such cash reserves as the
Managers shall deem necessary or advisable,
including, but not limited to, reserves for
capital expenditures, replacements, contingent or
unforeseen liabilities, Project Loans to
Subsidiaries, or other obligations of the Company.
The following amounts shall be excluded from
Cash Available for Distribution:
(a) Cash at the time of the admission of
Emeritus as a Member. Such amount shall be
considered a reserve to be retained by the
Company for future investment or other needs.
(b) Proceeds from any Capital
Transaction received by the Company, whether
such proceeds are attributable to a Capital
Transaction occurring at the
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Company or are attributable to a Capital
Transaction occurring at a Subsidiary, the
proceeds of which are distributed to the
Company by virtue of its Interest in the
Subsidiary.
(c) Proceeds from the sale by the
Company of its assets or distributions
received from a Subsidiary from the sale of
the Subsidiary's assets.
1.11 "Code" means the United States Internal
Revenue Code of 1986, as amended. References to
specific Code Sections or Treasury Regulations
shall be deemed to refer to such Code Sections or
Treasury Regulations as they may be amended from
time to time or to any successor Code Sections or
Treasury Regulations if the Code Section or
Treasury Regulation referred to is repealed.
1.12 "Company" means the Aurora Bay
Investments, L.L.C. governed by the Agreement.
1.13 "Company Property" means all the real
and personal property owned by the Company.
1.14 "Credit Agreement" means that certain
Credit Agreement dated as of January 7,1998, by
and between the Company and Emeritus Corporation.
1.15 "Deemed Capital Account" means a
Member's Capital Account as calculated from time
to time, adjusted by (i) adding thereto the sum of
(A) the amount of such Member's Mandatory
Obligation, if any, and (B) each Member's share of
Minimum Gain (determined after a decreases
therein for such year) and
(ii) subtracting therefrom (A) allocations of
losses and deductions which are reasonably
expected to be made as of the end of the
taxable year to the Members pursuant to Code
Section 704(e)(2), Code Section 706(d) and
Treasury Regulation Section 1.751-1(b)(2)(ii),
and (B) distributions which at the end of the
taxable year are reasonably expected to be made
to the Member to the extent that said
distributions exceed offsetting increases to
the Member's Capital Account (including
allocations of the Qualified Income Offset
pursuant to Section 8.5 but excluding
allocations of Minimum Gain Charge back
pursuant to Section 8.4) that are reasonably
expected to occur during (or prior to) the
taxable years in which such distributions are
reasonably expected to be made.
1.16 "Emeritus" means Emeritus Corporation, a
Washington corporation.
1.17 "Emeritus Corporation Loan" means a loan
from Emeritus Corporation to the Company, to be
made to the Company pursuant to the Credit
Agreement, in an amount up to $5,000,000.00, with
an option in favor of Emeritus Corporation to
convert the loan to a Company Interest with a
Percentage Interest of forty-eight percent (48%).
1.18 "Interest" or "Company Interest" means
the ownership interest of a Member in the Company
at any particular time, including the right of
such Member to any and all benefits to which such
Member may be entitled as provided in the
Agreement and in the Act, together with the
obligations of such Member to comply with all the
terms and provisions of the Agreement and the Act.
3
1.19 "Manager(s)" means those Member(s) and
other persons who are appointed in accordance with
this Agreement to exercise the authority of
Manager under this Agreement and the Act. If at
any time a Member who is a Manager ceases to be a
Member for any reason, that Member shall
simultaneously cease to be a Manager. If at any
time ▇▇▇▇▇ Investors I, L.L.C. ceases to be a
Member for any reason, ▇▇▇▇▇ ▇▇▇▇▇ shall
simultaneously cease to be a Manager. The Managers
of the Company as of the date of this Agreement
are ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇.
1.20 "Manager Loan" means a loan made to the
Company by a Manager or an Affiliate of a Manager.
121 "Mandatory Obligation" means the sum of
(i) the amount of a Member's re contribution
obligation (including the amount of any Capital
Account deficit such Member is obligated to
restore upon liquidation) provided that such
contribution must be made in all events within
ninety (90) days of liquidation of the Member's
interest as determined under Treasury Regulation
Section 1.704- 1(b)(2)(ii)(g) and (ii) the
additional amount, if any, such Member would be
obligated to contribute as of year end to retire`
recourse indebtedness of the Company if the
Company were to liquidate as of such date and
dispose of all of its assets at book value.
1.22 "Member(s)" means those persons who
execute a counterpart of this Agreement and those
persons who are hereafter admitted as members
under Section 14.4 below.
1.23 "Minimum Gain" means the amount
determined by computing, with respect to each non-
recourse liability of the Company, the amount of
gain, if any, that would be realized by the Company
if it disposed of the Company Property subject to
such non-recourse liability in full satisfaction
thereof in a taxable transaction and then by
aggregating the amounts so determined. Such gain
shall be determined in accordance with Treasury
Regulation Section 1.704-2(d). Each Member's share
of Minimum Gain at the end of any taxable year of
the Company shall be determined in accordance with
Treasury Regulation Section 1.704-2(g)(1).
1.24 "Net Income" or "Net Loss" means taxable
income or loss (including items requiring separate
computation under Section 702 of the Code) of the
Company as determined using the method of
accounting chosen by the Managers and used by the
Company for federal income tax purposes, adjusted
in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(g), for any property with
differing tax and book values, to take into
account depreciation, depletion, amortization, and
gain or loss as computed for book purposes.
1.25 "Percentage Interest" means the percent
interest of each Member as set forth on Appendix A
1.26 "Project" means any senior housing
facility owned and developed by a Subsidiary of
the Company.
1.27 "Project Loan" means, with respect to
each of the Projects, the loan or loans made by
the Company to a Subsidiary owning such Project,
funded out of the proceeds of the Emeritus
Corporation Loan, and income and other funds
available to the Company.
4
1.28 "Senior Debt" means the construction and
short-term permanent financing arranged by the
Company to construct and develop the Project as
described in Section 7.7 hereof, including Take-
out Commitments.
1.29 "Subsidiary" means an entity (whether a
corporation, limited liability company,
partnership, or limited partnership) owned in
whole or in part by the Company and controlled by
the Company.
1.30 "Subsidiary Loan" means a loan made by
the Company to a Subsidiary from proceeds of loans
made to the Company by the Managers.
1.31 "Substitute Member" means an Assignee
who has been admitted to all of the rights of
membership pursuant to Section 14.4 below.
2. Formation. The Members hereby agree to
operate the Company under the terms and conditions
set forth herein, Except as otherwise provided
herein, the rights and liabilities of the Members
shall be governed by the Act.
2.1 Defects as to Formality. A failure to
observe any formalities or requirements of this
Agreement, the certificate of formation for the
Company, or the Act shall not be grounds for
imposing personal liability on the Members or
Managers for liabilities of the Company.
2.2 No Partnership Intended for Non-tax
Purpose. The Members have formed the Company
under the Act and expressly do not intend hereby
to form a partnership under either the
Washington Uniform Partnership Act or the
Washington Uniform I Limited Partnership Act or
a corporation under the Washington Business
Corporation Act. The Members do not intend to be
partners one to another or partners as to any
third party. The Members hereto agree and
acknowledge that the Company is to be treated as
a partnership for federal income tax purposes.
2.3 Rights of Creditors and Third Parties.
This Agreement is entered into among the Company
and the Members for the exclusive benefit of the
Company, its Members, their successors, and
assigns. The Agreement is expressly not intended
for the benefit of any creditor of the Company
or any other person. Except, and only to the
extent provided by applicable statute, no such
creditor or third party shall have any rights
under the Agreement or any agreement between the
Company and any Member with respect to any
Contribution or otherwise.
..
2.4 Title to Property. All Company Property
shall be owned by the Company as an entity, and
no Member shall have any ownership interest in
such Property in the Member's individual name or
right. Each Member's interest in the Company
shall be personal property for all purposes.
Except as otherwise provided in this Agreement,
the Company shall hold all Company Property in
the name of the Company and not in the name or
names of any Member or Members.
2.5 Payments of Individual Obligations The
Company's credit and assets shall be used solely
for the benefit of the Company, and no asset of
the Company shall be transferred or encumbered
for, or in payment of, any individual obligation
of any Member unless otherwise provided for
herein.
5
3. Name. The name of the Company shall be AURORA
BAY INVESTMENTS, L.L.C. The Managers may from time to
time change the name of the Company or adopt such trade
or fictitious names as they may determine to be
appropriate.
4. Office: Agent for Service of Process. The
principal office of the Company shall be at ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Company may
maintain such other offices at such other places as the
Managers may determine to be appropriate. The agent for
service of process for the Company shall be CT
Corporation System at the above address.
5. Purposes. The primary purpose and general
character of the business of the Company is to own
and/or control Subsidiaries that own, develop, operate,
and acquire senior housing facilities, and to engage in
any lawful act or activity for which a limited
liability company may be organized under the laws of
the State of Washington, incident, necessary,
advisable, or desirable to carry out the purpose of the
Company.
6. Term. The term of the Company commenced upon
the filing of the certificate of formation for the
Company in the office of the Washington Secretary of
State on December 17,1997, and shall continue until
January 1, 2027, unless sooner dissolved, wound up, and
terminated in accordance with the provisions of this
Agreement and the Act.
7. Percentage Interests and Capital Contributions.
7.1 . The Members made initial Capital
Contributions to the Company in the amounts set
forth on Appendix A for the Percentage Interests
in the Company as shown on Appendix A
7.2 No Interest on Capital. No Member shall
be entitled to receive interest on such Members
Capital Contributions or such Member's Capital
Account.
7.3 No Withdrawal of Capital. Except as
otherwise provided in this Agreement, no Member
shall have the right to withdraw or demand a
return of any or all of such Member's Capital
Contribution, It is the intent of the Members that
no distribution (or any part of any distribution)
made to any Member pursuant to Section 10 hereof
shall be deemed a return or withdrawal of Capital
Contributions, even if such distribution
represents (in full or in part) a distribution of
revenue offset by depreciation or any other noncash
item accounted for as an expense, loss, or
deduction from, or offset to, the Company's income
and that no Member shall be obligated to pay any
such amount to or for the account of the Company
or any creditor of the Company. However, if any
court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement,
any Member is obligated to make any such payment,
such obligation shall be the obligation of such
Member and not of any other Member, including
Managers.
7.4 Additional Capital
(a) Except as otherwise provided for
herein or mutually agreed upon by the
Members, no Member shall be obligated to make
aa additional capital contribution to the
Company.
(b) Under the terms of the Emeritus
Corporation Loan, the Company is entitled to
use the proceeds thereof to make Project
Loans to a Subsidiary to supplement a Senior
Debt for the acquisition and development of a
Project. In
6
the event additional capital is needed, with
respect to any Project acquired and developed
by the Subsidiary, in excess of the Senior
Debt, funds available from the Emeritus
Corporation Loan, and cash on hand, for
construction cost overruns in the
construction and development of a Project by
a Subsidiary and/or the operating costs of a
Subsidiary, including, without limitation,
interest due upon debt and all other expenses
not capitalized, the Company shall provide
such funds in the form of a Project Loan from
income and other funds available to it and
evidenced by a Project Promissory Note in the
form attached as Exhibit "D" to the Credit
Agreement. In the event the Company is unable
to provide such necessary funds, the
Managers, at the Managers' election, or
Affiliates thereof (the "Lending Manager"),
may loan funds to the Company ("Manager
Loans") for the purpose of making Subsidiary
Loans to a Subsidiary, in such amounts as the
.Managers or their Affiliates determine, up
to amounts sufficient to pay such costs of
the Subsidiary. The Manager Loans shall bear
interest at a rate equal to the lesser of
nine percent (9%) per annum or, if such funds
are borrowed by the Lending Manager, the
Lending Manager's cost of such funds. Prior
to maturity, the principal and accrued
interest on the Manager Loans shall be paid
in quarterly installments to the extent the
Company has available cash on hand to pay the
same. The term "available cash on hand" shall
mean, for purposes of this paragraph,
available cash from all sources less amounts
next becoming due under the Senior Debt and
the Emeritus Corporation Loan, together with
current costs and expenses of operation of
the Company. Each Loan and Subsidiary Loan
shall be evidenced by a promissory note.
Interest shall be payable on the Subsidiary
Loans quarterly to the extent the Subsidiary
has available cash on hand to pay the same.
All amounts owing under the Manager Loans and
the Subsidiary Loans shall in any event
become due and payable on January 15, 2003.
The Manager Loans shall be an obligation of
the Company and shall be repaid prior to any
distributions to the Members. All sums
outstanding on each Project Loan on the date
Emeritus exercises its right to convert the
Emeritus Corporation Loan to a Company
Interest shall be considered as additional
contributed capital by the Company to the
Subsidiary owing such Project Loan.
(c) Pursuant to the terms of the Credit
Agreement and the Convertible Promissory Note
to be executed by the Company in favor of
Emeritus; Emeritus shall have the option,
exercisable at any time in its sole
discretion, to convert the Emeritus
Corporation Loan into an equity interest in
the Company and to become a Member of the
Company. The procedures for exercising such
conversion rights are set forth in the
Convertible Promissory Note. If Emeritus so
exercises its conversion rights, it shall
become a Member of the Company, shall have
credited against its Capital Account the
outstanding principal balance, together with
accrued but unpaid interest, on the Emeritus
Corporation Loan, plus any other amounts due
thereunder and shall thereafter be entitled
to participate in cash distributions from the
Company as provided for in this Agreement, be
allocated profits, gains, losses, deductions
and credits, and items thereof as stipulated
in Section 8 and have such voting and other
rights as are set forth in this Agreement.
Moreover, upon conversion, Emeritus will be
assigned a 48% Percentage Interest in the
Company, and the then existing Percentage
Interests of the other Members will be
proportionately reduced and the Manager will
prepare and include in the Company's books
and records a revised Appendix A showing the
Percentage Interests of all Members,
including Emeritus. By the execution of this
Agreement, each of the Managers and each of
existing Members hereby consents to and
approves Emeritus's admission as a
7
new Member of the Company upon Emeritus's
exercise of its conversion rights under the
Convertible Promissory Note, and such
admission will be effective upon receipt of
written notice of Emeritus's exercise of the
option to convert such debt into an equity
interest in the Company.
(d) If Emeritus becomes a Member upon
the conversion of the Emeritus Corporation
Loan as permitted by Section 7.4(c) and if at
the time of such conversion, the Company has
not yet borrowed in full the amounts that
could have been borrowed from Emeritus under
the Credit Agreement, Emeritus shall make,
from time to time, additional capital
contributions to the Company [beyond the
capital contribution made upon the conversion
as stated in Section 7.4(c)), in an amount up
to the unutilized portion of the credit
facility under the Credit Agreement, if and
when the Company requests that such funds be
made available to it to finance project loans
to be made to its Subsidiaries; provided,
however, that the amount, timing, and
obligation to make such additional capital
contributions by Emeritus shall be subject to
the terms and conditions of the Credit
:Agreement as though such Credit Agreement
were still in full force and effect and its
terms incorporated in reference in their
entirety into this Agreement. Such capital
contributions, if and- when made to the
Company, shall be credited against the
Capital Account of Emeritus.
7.5 Capital Accounts. The Company shall
establish and maintain a Capital Account for each
Member in accordance with Treasury Regulations
issued under Section 704. The initial Capital
Account balance for each Member shall be the
amount of initial Capital Contributions made by
each Member under Section 7.1 above. The Capital
Account of each Member shall be increased to
reflect (i) such Member's cash contributions, (ii)
the fair market value of property contributed by
such Member (net of liabilities securing such
contributed property that the Company is
considered to assume or take subject to Code
Section 752), (iii) such Member's share of Net
Income (including all gain as calculated pursuant
to Section 1001 of the Code) of the Company and
(iv) such Member's share of income and gain exempt
from tax. The Capital Account of each Member shall
be reduced to reflect (a) the amount of money and
the fair market value of property distributed to
such Member (net of liabilities securing such
distributed property that the Member is considered
to assume or take subject to under Section 752),
(b) such Member's share of non-capitalized
expenditures not deductible by the Company in
computing its taxable income as determined under
Code Section 705(a)(2)(B), (c) such Member's share
of Net Loss of the Company and (d) such Member's
share of amounts paid or incurred to organize the
Company or to promote the sale of Company
Interests to the extent that an election under
Code Section 709(b) has not properly been made for
such amounts. The Managers shall determine the
fair market value of all properly which is
distributed in land, and the Capital Accounts of
the Members shall be adjusted as though the
property had been sold for its fair market value
and the gain or loss attributable to such sale
allocated among the Members in accordance with
Section 8, as applicable. In the event of a
contribution of property with a fair market value
which is not equal to its adjusted basis (as
determined for federal income tax purposes), a
revaluation of the Members' Capital Accounts upon
the admission of new members to the Company, or in
other appropriate situations as permitted by
Treasury Regulations issued under Code Section
704, the Company shall separately maintain "tax"
Capital Accounts solely for purposes of taking
into account the variation between the adjusted
tax basis and book value of Company Property in
tax allocations to the Members consistent with the
principles of Code Section 704(c) in accordance
with the rules prescribed in Treasury Regulations
promulgated under Code Section 704.
8
7.6 Default. In the event any Member shall
fail to contribute any cash or property when due
hereunder, such Member shall remain liable
therefor to the Company, which may institute pr in
any court of competent jurisdiction in connection
with which such Member shall pay the costs of such
collection, including reasonable attorneys' fees.
Any compromise or settlement with a Member failing
to contribute cash or property due hereunder may
be approved by a majority by Percentage Interest
of the other Members.
7.7 Financing. The Company shall arrange a
Senior Debt financing for the development and
lease-up of each Project developed by the Company
in accordance with the development budget
submitted to and approved by the Managers. Each
Subsidiary is hereby granted the specific
authority to enter into the Senior Debt and to
execute and grant such mortgages, deeds of trust,
assignments, pledges, notes, instruments, and
other documents that the Managers determine are
necessary or convenient for purposes of obtaining
each Senior Debt. Subject to the funding of the
Emeritus Corporation Loan, the Company shall lend
up to the sum of $750,000.00 to each of its
Subsidiaries for the purpose of defraying all of
its costs for the acquisition, development, and
operation of a Project in excess of a Senior Debt.
Each Project Loan shall be evidenced by a
promissory note, in the form attached hereto as
Exhibit "1". and contain such other conditions,
covenants, and warranties by the Subsidiary as are
required by the Managers and the provisions of the
Senior Debt, subject to the approval of Emeritus.
8. Allocations.
8.1 Allocations of Net Income.
(a) Allocation of Net Income Other than
Gain Attributable to a Capital Transaction.
After giving effect to the special
allocations pursuant to Sections 83, 8.4, and
85, Net Income other than Net Income
attributable to a Capital Transaction shall
be allocated among the Members in the
following order of priority:
(i) First, among the Members in
proportion to, and to the extent of the
excess, if any, of (i) the cumulative
Net Losses allocated to such Members
pursuant to Section 8.2(a)(iii) for all
prior periods, over (ii) the cumulative
Net Income allocated to such Members
pursuant to this Section 8.1(a)(i) for
the current and all prior periods;
provided, however, that in the event
Emeritus is admitted as a Member of the
Company, thereafter this paragraph shall
apply solely to cumulative Net Losses
and cumulative Net Income allocated to
all Members (including Emeritus) after
Emeritus's admission to the Company as a
Member.
(ii) Second, among the Members in
proportion to, and to the extent of the
excess, if any, of (i) the cumulative
Net Losses allocated to such Members
pursuant to Section 82(a)(ii) for all
prior periods, over (ii) the cumulative
Net Income allocated to such Members
pursuant to this Section 8.1(a)(ii) for
the current and all prior periods; and
(iii) Thereafter, among the Members
in proportion to their respective
Percentage Interests.
9
(b) Allocations of Net Income
Attributable to a Capital Transaction. After
giving effect to the special allocations
pursuant to Sections 83, 8.4, and 8.5, Net
Income attributable to a Capital Transaction
shall be allocated among the Members in the
following order of priority:
(i) First, in the event that one or
more of the Members have a negative
Capital Account balance at the time of
the allocation, among the Members in
proportion to the negative balances
until such Capital Account balances are
brought to zero;
(ii) Second, to Emeritus until the
excess, if any, of the (i) cumulative
Net Losses allocated to Emeritus
pursuant to Section 8.1(a) and 82(b) for
the current and all prior periods over
(ii) the cumulative Net Income allocated
to Emeritus pursuant to Sections 8.1(a)
and 8.1(b) for the current and all prior
periods;
(iii) Third, to the Members other
than Emeritus (the "Other Members"), in
proportion and to the extent of an
amount equal to the excess, if any, of
(i) their negative Capital Accounts at
the time Emeritus became a Member
(stated as a positive number) over (ii)
the amount of Net Income allocated to
those Other Members under Section
8.1(b)(i) for the current and all prior
periods; and
(iv) Thereafter, among the Members
in proportion to their respective
Percentage Interests.
The Company shall close the books of the
Company as of the date of any Capital
Transaction and compute, as of that date, the
Net Income or the Net Loss attributable to such
Capital Transaction, as well as the Net Income
or the Net Loss of the Company from the end of
the last fiscal year or the date of the last
closing of the Company's book pursuant to this
paragraph, whichever date is later, through and
including the date of the Capital Transaction.
8.2 Allocation of Net Loss
(a) Allocation of Net Loss Other than
Net Loss Attributable to a Capital
Transaction. After giving effect to the
special allocations set forth in Sections 83,
8.4, and 8S, Net Loss other than Net Loss
attributable to a Capital Transaction shall
be allocated among the Members in the
following order of priority:
(i) First, among the Members in
proportion to, and to the extent of the
excess, if any, of (i) the cumulative
Net Income allocated to such Members
pursuant to Section 8.1(a)(iii) for all
prior periods, over (ii) the cumulative
Net Losses allocated to such Members
pursuant to this Section 82(a)(i) for
the current and all prior periods;
provided, however, that in the event
Emeritus is admitted as a Member of the
Company, thereafter this paragraph shall
apply solely to cumulative Net Losses
and cumulative Net Income allocated to
all Members (including Emeritus) after
Emeritus's admission to the Company as a
Member;
10
(ii) Second, to the Members in
proportion to their total capital
contributions, until their Capital
Account balances are equal to zero; and,
(iii) Thereafter, among the Members
in proportion to their respective
Percentage Interests.
(b) Allocation of Net Loss Attributable
to a Capital Transaction. After giving effect
to the special allocations set forth in
Sections 8.3, 8.4, and 8.5, Net Loss
attributable to a Capital Transaction shall
be allocated among the Members in the
following order of priority:
(i) First, among the Members in
proportion to, and to the extent of the
excess, if any, of (i) the cumulative
Net Income attributable to Capital
Transactions allocated to such Members
pursuant to Section 8.1(b)(iii) for all
prior periods, over (ii) the cumulative
Net Losses attributable to Capital
Transactions allocated to such Members
pursuant to this Section 82(b)(i) for
the current and all prior periods;
(ii) Second, to the Members in
proportion to their total Capital
Contributions, until their Capital
Account balances are equal to zero;
(iii) Third, in the event Emeritus
is admitted as a Member of the Company,
to Emeritus until Emeritus's Capital
Account balance is equal to zero; and
(iv) Thereafter, among the Members
in proportion to their respective
Percentage Interests.
8.3 Limitation on Net Loss Allocations.
Notwithstanding anything contained in this Section
8, no Member shall be allocated Net Loss to the
extent such allocation would cause a negative
balance in such Member's Deemed Capital Account as
of the end of the taxable year to which such
allocation relates.
8.4 Minimum Gain Chargeback If there is a net
decrease in Minimum Gain during a taxable year of
the Company, then notwithstanding any other
provision of this Section 8 or Section 16.3, each
Member must be allocated items of income and gain
for such year and succeeding taxable years to the
extent necessary (the
"Minimum Gain Chargeback"), in proportion to, and
to the extent of an amount required under Treasury
Regulation Section 1.704-2(f).
8.5 Qualified Income Offset. If at the end of
any taxable year and after operation of Section
8.4, any Member shall have a negative balance in
such Member's Deemed Capital Account, then
notwithstanding anything contained in this Section
8, there shall be reallocated to each Member with
a negative balance in such Member's Deemed Capital
Account (determined after the allocation of
income, gain, or loss under this Section 8 for
such year), each item of Company gross income
(unreduced by any deductions) and gain in
proportion to such negative balances until the
Deemed Capital Account for each such Member is
increased to zero.
8.6 Curative Allocations. The allocations set
forth in Sections 8.3, 8.4, and 8.5
11
(the "Regulatory Allocations") are intended to
comply with certain requirements of the Treasury
Regulations issued pursuant to Code Section
704(b). It is the intent of the Members that, to
the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory
Allocations or with special allocations of other
items of Company income, gain, loss, or deduction
pursuant to this Section 8.6. Therefore,
notwithstanding any other provision of this
Section 8 (other than the Regulatory Allocations),
the Managers shall make such offsetting special
allocations of Company income, gain, loss, or
deduction in whatever manner they determine
appropriate so that, after such offsetting
allocations are made, each Member's Capital
Account balance is, to the extent possible, equal
to the Capital Account balance such Member would
have had if the Regulatory Allocations were not
part of the Agreement and all Company items were
allocated pursuant to Sections 8.1 and 82.
8.7 Modification of Company Allocations. It
is the intent of the Members that each Member's
distributive share of income, gain, loss,
deduction, or credit (or items thereof) shall be
determined and allocated in accordance with this
Section 8 to the fullest extent permitted by
Section 704(b) of the Code. In order to preserve
and protect the determinations and allocations
provided for in this Section 8, the Managers shall
be, and hereby are, authorized and directed to
allocate income, gain, loss, deduction, or credit
(or items thereof) arising in any year differently
from the manner otherwise provided for in this
Section 8 if and to the extent that, allocation of
income, gain, loss, deduction, or credit (or items
thereof) arising in any year different from the
manner otherwise provided for in this Section 8 if
and to the extent that, allocation of income,
gain, loss, deduction, or credit (or items
thereof) in the manner provided for in this
Section 8 would cause the determination and
allocation of each Member's distributive share of
income, gain, loss, deduction, or credit (or items
thereof) not to be permitted by Section 704(b) of
the Code and Treasury Regulations promulgated
thereunder. Any allocation made pursuant to this
Section 8.7 shall be made only after the Managers
have secured an opinion of counsel that such
modification is the minimum modification required
to comply with Code Section 704(b) and shall be
deemed to be a complete substitute for any
allocation otherwise provided for in this Section
8, and no amendment of this Agreement or approval
of any Member shall be required. The Members shall
be given notice of the modification within thirty
(30) days of the effective date thereof such
notice to include the text of the modification and
a statement of the circumstances requiring the
modification to be made.
8.8 Deficit Capital Accounts at Liquidation.
It is understood and agreed that one purpose of
the provisions of this Section 8 is to insure that
none of the Members has a deficit Capital Account
balance after liquidation and to insure that all
allocations under this Section 8 will be respected
by the Internal Revenue Service.
The Members and the Company neither intend nor
expect that any Member will have a deficit Capital
Account balance after liquidation; and,
notwithstanding anything to the contrary in this
Agreement, the provisions of this Agreement shall
be construed and interpreted to give effect to
such intention. However, if following a
liquidation of a Member's interest as determined
under Treasury Regulation Section 1.704-
1(b)92)(ii)(g), a Member has a deficit balance in
such Member's Capital Account after the allocation
of Net Income pursuant to this Section 8 and
Section 16.3 and all other adjustments have been
made to such Member's Capital Account for Company
operations and liquidation, no Member shall have
any obligation to restore such deficit balance.
9. Company Expenses. In addition to the costs to
be reimbursed to the Managers pursuant
12
to the provisions of Section 11.8 hereof but subject to
the limitations set forth therein, the Company shall
pay, and the Managers shall be reimbursed for, all
costs and expenses of the Company, which may include,
but are not limited to:
(a) All organizational expenses incurred
in the formation of the Company and the
selling of interests in the Company;
(b) All costs of personnel employed by
the Company;
(c) All costs reasonably related to the
conduct of the Company's day-to-day business
affairs, including, but without limitation,
the cost of supplies, utilities, taxes,
licenses, fees, and services contracted from
third Parties;
(d) All costs of borrowed money, taxes,
and assessments on Company Property and other
taxes applicable to the Company;
(e) Legal, audit, accounting, brokerage,
and other fees;
(f) Printing and other expenses and
taxes incurred in connection with the
issuance, distribution, transfer,
registration, and recording of documents
evidencing ownership of an interest in the
Company or in connection with the business of
the Company;
(g) Fees and expenses paid to
contractors, mortgage bankers, brokers and
services, leasing agents, consultants, onsite
managers, real estate brokers, insurance
brokers, and other agents, including
affiliates of the Managers;
(h) Expenses in connection with the
acquisition, preparation, design, planning,
construction, development, disposition,
replacement, alteration, repair, remodeling,
refurbishment, leasing, financing, and
refinancing and operation of Company Properly
(including the costs and expenses of legal
and accounting fees, insurance premiums, real
estate brokerage, leasing commissions, and
maintenance of such properly);
(i) The cost of insurance obtained in
connection with the business of the Company;
(j) Expenses of revising, amending,
converting, modifying, or terminating the
Company;
(k) Expenses in connection with
distributions made by the Company to, and
communications and bookkeeping and clerical
work necessary in maintaining relations with,
Members;
(1) Expenses in connection with
preparing and reports required to be
furnished to Members for investment, tax
reporting, or other purposes that the
Managers deem appropriate;
(m) Costs incurred in connection with
any litigation, including any examinations or
audits by regulatory agencies; and
13
(n) Costs of preparation and
dissemination of informational material and
documentation relating to potential sale,
refinancing, or other disposition of Company
properties.
10. Distributions.
10.1 Distributions of Cash Available for
Distribution. At such times and in such amounts
as the Managers in their discretion determine
appropriate subject to all restrictions concerning
distributions contained herein and in the Emeritus
Corporation Loan, Cash Available for Distribution
shall be distributed to the Members in proportion
to their respective Percentage Interests.
10.2 Distributions of Net proceeds
Attributable to Capital Transactions. Except in
connection with a Capital Transaction resulting in
a dissolution of the Company (thereby triggering
the application of Section 162(b)], in the event
the Company receives any net proceeds from any
Capital Transaction, whether such net proceeds are
attributable to a Capital Transaction occurring at
the Company or attributable to a Capital
Transaction occurring at a Subsidiary, the
proceeds of which are distributed to or otherwise
paid to the Company, such net proceeds shall be
distributed in the following order of priority:
(a) If Emeritus has not become a Member
but the Emeritus Corporation Loan has not
been fully repaid, then such net proceeds
shall be applied toward the repayment of any
and all amounts due under the Emeritus
Corporation Loan, unless Emeritus consents in
writing to permit part or all of such net
proceeds to be used for some other purpose;
and, to the extent, if any, that part or all
of such net proceeds may be distributed to
the Members with Emeritus's consent, such
distributions shall be made to the Members in
proportion to their respective Percentage
Interests.
(b) If Emeritus has become a Member,
then the net proceeds from the Capital
Transaction shall be distributed as follows:
(i) First, to the Members other
than Emeritus (the "Other Members") in
an amount sufficient to permit such
Other Members to cover their Estimated
Tax Liability (as defined below) with
respect to the Capital Transaction
giving rise to the net proceeds
available for distribution. For purposes
of this Section, the Member's Estimated
Tax Liability is equal to (a) the excess
of (i) the taxable income recognized by
the Company attributable to such Capital
Transaction allocated to the Member over
(ii) the cumulative amount of taxable
losses from whatever source recognized
by the Company and allocated to such
Member and not previously offset by
other allocations of taxable income to
such Member, multiplied by (b) the
highest U.S. federal statutory marginal
ordinary or capital (as the case may be)
income tax rate then applicable for
individuals;
(ii) Second, to Emeritus until the
cumulative amount distributed to
Emeritus under this Section 102(b)(ii),
with respect to this and all prior
Capital Transactions, is equal to
Emeritus's total Capital Contributions
to the Company;
14
(iii) Third, to Emeritus until the
cumulative amount distributed to
Emeritus under this Section 102(b)(iii),
with respect to this and all prior
Capital Transactions, is equal to the
excess of (A) the cumulative amount
distributed to the Other Members under
Section 102(b)(i) divided by such Other
Members' aggregate Percentage Interests
over (B) the cumulative amount
distributed to such Other Members under
Section 102(b)(i);
(iv) Fourth, to the Other Members
until the cumulative amount distributed
to such Other Members under this Section
10.2(b)(iv), with respect to this and
all prior Capital Transactions, is equal
to their respective Capital
Contributions to the Company; and
(v) Thereafter, among the Members
in proportion to their respective
Percentage Interests.
10.3 If Emeritus becomes a Member of the
Company, the Managers shall cause the Company to
make quarterly distributions of Cash Available for
Distribution, no later than 45 days after the end
of each calendar quarter. In computing Cash
Available for Distribution, the Managers may set
aside reasonable amounts as reserves for capital
expenditures, replacements, contingent or
unforeseen liability, or other obligations of the
Company; but the amounts of such reserves shall be
reassessed at the end of each quarter to determine
whether such balances are adequate in amount,
should be increased or decreased, and if
decreased, the excess reserves will be available
for distribution to the Members. Moreover, Cash
Available for Distribution may not be used by the
Company to make investments in new Projects
without the prior consent of Emeritus. It is the
intent of the Parties to make periodic
distributions of Cash Available for Distribution
if and when such excess cash is available and not
to hold such funds to build up reserves beyond
reasonable amounts or to make investments in new
Projects.
11. Powers, Rights, and Obligations of
Managers
11.1 General Authority and Powers of
Managers. Except as provided in Section 11.7
and elsewhere in the Agreement, the Managers
shall have the exclusive right and power to
manage, operate, and control the Company and to
do all things and make all decisions necessary
or appropriate to carry on the business and
affairs of the Company. All decisions required
to be made by the Managers shall require the
approval of all Managers, except as the
Managers shall otherwise agree. In the event
the Managers shall be unable to agree upon any
matter described in this Section 11.1, then the
Managers shall provide written notice of the
proposed action to all Members, and the
decision of Members holding a majority of the
Percentage Interests in the Company shall be
binding upon the Managers. The authority of the
Managers shall include, but shall not be
limited to, the following:
(a) To spend the capital and revenues
of the Company;
(b) To manage, sell, develop,
improve, operate, and dispose of any
Company properties and assets, including
to act on behalf of the Company with
respect to any partnership or joint
venture in which the Company participates;
15
(c) To employ persons, firms, and/or
corporations for the operation and
management of the Company's business and
for the operation and development of the
properties and assets of the Company,
including, but not limited to, sales
agents, management agents, architects,
engineers, contractors, attorneys, and
accountants;
(d) To acquire, lease, and sell
personal and/or real property, hire and
fire employees, and to do all other acts
necessary, appropriate, or helpful for the
operation of the Company business;
(e) To execute, acknowledge, and deliver
any and all instruments to effectuate any of
the foregoing powers and any other powers
granted the Managers under the laws of the
state of Washington or other provisions of
this Agreement;
(f) To enter into and to execute
agreements for employment or services, as
well as any other agreements and all other
instruments the Managers deem necessary or
appropriate to operate the Company's business
and to operate and dispose of Company
properties and assets or to effectively and
properly perform its duties or exercise its
powers hereunder;
(g) To borrow money on a secured or
unsecured basis from individuals, banks, and
other lending institutions to finance its
Subsidiaries in the construction of a Project
or refinance Company assets, to meet other
Company obligations, provide Company working
capital and for any other Company purpose,
and to execute promissory notes, mortgages,
deeds of trust, and assignments of Company
Property and assets, and such other security
instruments as a lender of funds may require,
to secure repayment of such borrowings;
provided, that no individual, entity, bank,
or other lending institution to which the
Managers apply for a loan shall be required
to inquire as to the purpose for which such
loan is sought, and as between the Company
and such individual, entity, bank, or other
lending institution, it shall be conclusively
presumed that the proceeds of such loan are
to be, and will be, used for purposes
authorized under the terms of this Agreement;
(h) To enter into such agreements and
contracts and to give such receipts,
releases, and discharges, with respect to the
business of the Company, as the Managers deem
advisable or appropriate;
(i) To purchase, at the expense of the
Company, such liability and other insurance
as the Managers, in their sole discretion,
deem advisable to protect the Company's
assets and business; however, the Managers
shall not be liable to the Company or the
other Members for failure to purchase any
insurance; and
(j) To ▇▇▇ and be sued, complain,
defend, settle, and/or compromise with
respect to any claim in favor of or against
the Company, in the name and on behalf of the
Company.
(k) To lend money to the Company to pay
Company operating costs, including, without
limitation, all start-up costs, upon such
terms and conditions as the Manager shall
reasonably determine.
16
11.2 Time Devoted to Company, Other Ventures.
The Managers shall devote so much of their time to
the business of the Company as in their judgment
the conduct of the Company's business reasonably
requires. The Managers and the other Members may
engage in business ventures and activities of any
nature and description independently or with
others, whether or not in competition with the
business of the Company, and shall have no
obligation to disclose business opportunities
available to them, and neither the Company nor any
of the other Members shall have any rights in and
to such independent ventures and activities or the
income or profits derived therefrom by reason of
their acquisition of interests in the Company.
This Section 11.2 is intended to modify any
provisions or obligations of the Act to the
contrary, and each of the Members and the Company
hereby waives and releases any claims they may
have under the Act with respect to any such
activities or ventures of the Managers or other
Members.
11.3 Liability of Managers to Members and
Company. In carrying out its duties and exercising
the powers hereunder, the Managers shall exercise
reasonable skill, care, and business judgment. A
Manager shall not be liable to the Company or the
Members for any act or omission performed or
omitted by it in good faith pursuant to the
authority granted to it by this Agreement as a
Manager or Tax Matters Partner (as defined in the
Code) unless such act or omission constitutes
negligence or willful misconduct by such Manager.
11.4 Indemnification. The Company shall
indemnify and hold harmless the Managers from any
loss or damage, including attorneys' fees actually
and reasonably incurred by it, by reason of any
act or omission performed or omitted by it on
behalf of the Company or in furtherance of the
Company's interests or as Tax Matters Partner;
however, such indemnification or agreement to hold
harmless shall be recoverable only out of the
assets of the Company and not from the Members.
The foregoing indemnity shall not extend to acts
or omissions adjudged to constitute gross
negligence or willful misconduct by such Manager.
11.5 Fiduciary Responsibility. The Managers
shall have a fiduciary responsibility for the
safekeeping and use of all funds and assets of the
Company, and all such funds and assets shall be
used in accordance with the terms of this
Agreement.
11.6 Contract with the Managers.
(a) Without limitation upon the other
powers set forth herein, the Managers are
expressly authorized for, in the name and on
behalf of the Company to:
(i) Cause the Company to reimburse
the Managers and Members for expenses
incurred on behalf of the Company in
accordance with Section 11.8;
(ii) Loan monies to Subsidiaries of
the Company in connection with the
development, construction, and
operations of the Projects as
contemplated and permitted by paragraph
7.4(b) above;
(iii) Engage South Bay Partners,
Inc., an Affiliate of ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, to provide certain
development services to each of the
Subsidiaries developing a Project
pursuant to the terms and conditions
17
of a Development Services Agreement, the
form and substance of which is set forth
in Exhibit "2" attached hereto;
(iv) Engage ▇▇▇▇▇ ▇▇▇▇▇ Associates,
Inc., an Affiliate of ▇▇▇▇▇ ▇▇▇▇▇, to
manage each of the Projects pursuant to
the terms and conditions or a Property
Management Agreement, the form and
substance of which is set forth in
Exhibit "3" attached hereto.
(b) The Company may not enter into any
other agreement, contract, or arrangement
with a Manager, Member, or an Affiliate
thereof or provide for an amendment to any of
the preauthorized transactions, pursuant to
which such person may profit or benefit,
unless and until each of the following
conditions is satisfied:
(i) Such agreement, contract, or
arrangement or amendment is embodied in
a written contract that describes the
goods to be provided, the services to be
rendered or the property to be sold,
transferred, assigned, or conveyed, and
all compensation, payments,
remuneration, or other consideration to
be paid;
(ii) Such agreement, contract, or
arrangement is promptly disclosed and
its terms summarized in the reports to
the Members and to Emeritus;
(iii) Such agreement, contract, or
arrangement is approved or ratified by a
majority vote of the Member (excluding
for this purpose the Interests held by
the interested Member) and by Emeritus;
and
(iv) Once approved, such agreement,
contract, or arrangement may not be
amended, modified, or supplemented
without the prior approval of a majority
of the Members (excluding for this
purpose the Interests held by the
interested Member) and by Emeritus.
(c) The duty of the Managers to the
Company and to the Members with respect to
the administration, enforcement, and
termination of agreements described in
Sections 11.6(a) through 11.6(d) shall be to
act in good faith and in a commercially
reasonable manner as established by
applicable usages of trade.
(d) The foregoing provisions are
specifically included herein for the benefit
of the Company and all the Members to enable
the Company to operate efficiently and
expeditiously, consistent with the standard
set forth, and the Members hereby waive and
release any claims they may have under the
Act for any contracts of agreements entered
into by the Managers which are consistent
with the provisions of this Section 11.6.
11.7 Restrictions on Authority of Managers.
The Company will not take any of the
acts enumerated below or cause or permit any
of its Subsidiaries to take similar acts,
unless proposed by the Managers and approved
by Emeritus or unless requested by Emeritus
and approved by Emeritus and Members holding
a majority of the outstanding
18
Interests, with or without the concurrence of
the Managers:
(i) The sale, exchange, or other
disposition of entity assets having a
fair market value of $50,000.00 or more;
(ii) The sale, exchange, or other
disposition of any real estate
assets;
(iii) The incurrence of any
indebtedness by the entity, whether
secured or unsecured, recourse or non-
recourse, in an amount of $100,000.00 or
more (standing authorization may be
given for certain accounts receivable
financing or a permanent line of credit
for the benefit of the entity);
(iv) Any decision to expand or
broaden the scope of the entity's
business beyond that specifically
authorized in the entity's
organizational documents;
(v) Any expenditures for capital
improvements or assets in excess of
$50,000.00;
(vi) The approval of an annual
budget for the entity, with the Managers
being authorized to expend funds
consistent with the annual budget as
long as such expenditures do not exceed
5% of the budgeted amounts;
(vii) Decisions regarding any
claims made by or against the entity,
including, but not limited to, decisions
regarding the prosecution, settlement,
or other disposition of such claims;
(viii) The response to any
governmental investigation, inquiry,
action, or the like affecting the
business and affairs of the entity;
(ix) Entering into a joint venture,
partnership, limited partnership, or
other business arrangement with any
third party to conduct the entity's
business;
(x) The admission of any new Member
to the entity (except to the extent that
such admission is expressly authorized
under this Agreement);
(xi) Any encumbrance, mortgage,
pledge, or granting of a security
interest or lien in any real or personal
property owned or to be owned by the
entity, except to the extent such
security interest or lien is granted to
secure entity financing permitted by the
terms of the Credit Agreement;
(xii) 'The execution of any
guaranty by the entity of another's
obligations;
(xiii) The dissolution and winding
up of the Company;
19
(xiv) Approval of the withdrawal of
a Manager;
(xv) Appointment of a new Manager;
(xvi) Continuation of the Company
in accordance with Section 16.1(d);
(xvii) The acquisition of any real
property;
(xviii) Developing a Project other
than an Alzheimer's facility;
(xix) The engagement of the Manager
or any Affiliate thereof to enter into a
transaction with, or to provide goods,
materials, or services to the entity
(except to the extent that such
transaction is expressly permitted by
the terms of this Agreement or the
written contracts contemplated hereby);
and
(xx) The issuance of any equity
securities by the Company or its
Subsidiaries.
11.8 Reimbursement and Compensation. Except
as otherwise provided herein, the Managers will be
entitled to be reimbursed for direct payment of
all reasonable and necessary business expenses
incurred in the administration of the Company.
Notwithstanding anything in this Agreement to the
contrary, the Company shall not pay nor reimburse
either of the Managers for:
(a) any compensation, salary or salary-
related expenses, or other remuneration,
however designated, paid to, or incurred by
▇▇▇▇▇ W, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, or Thilo
Best, in rendering any services to and on
behalf of the Company under this Agreement.
(b) the Manager's overhead, such as
rent or depreciation, utilities, and capital
expenditures, or any other indirect costs
incurred by the Manager in maintaining its
corporate offices;
(c) any services rendered by the
Manager or its Affiliates pursuant to a
separate agreement between such persons and
the Company, providing separately for
payment for such services; or
(d) any compensation, salary or salary-
related expenses, or other remuneration,
however designated, paid to, or incurred by,
the employees of the Manager or any
Affiliate thereof in rendering services to
or on behalf of the Company (exclusive of
services covered by subparagraph (c) above,
which are to be handled as provided for
therein) or any goods, services, or products
not purchased for the exclusive use of the
Company, except to the extent that such
arrangements are disclosed to Emeritus in
advance and approved by it.
12. Status of Members
12.1 No Participation in Management. Except
as specifically provided in Section 11.7 above, no
Member shall take part in the conduct or control
of the
20
Company's business or the management of the
Company or have any right or authority to act for
or on the behalf of, or otherwise bind, the
Company (except a Member who may also be a Manager
and then only in such Member's capacity as a
Manager within the scope of such Member's
authority hereunder).
12.2 Limitation of Liability. No Member
shall have, solely by virtue of such Member's
status as a Member in the Company, any personal
liability whatever, whether to the Company, to any
Members or to the creditors of the Company, for
the debts or obligations of the Company or any of
its losses beyond the amount committed by such
Member to the capital of the Company, except as
otherwise required by the Act.
12.3 Death or Incapacity of Non-Manager
Member. The death, incompetence, withdrawal,
expulsion, bankruptcy, or dissolution of a Member,
or the occurrence of any other event which
terminates the continued membership of a Member in
the Company, shall not cause a dissolution of the
Company. Upon the occurrence of such event, the
rights of such Member to share in the Net Income
and Net Loss of the Company to receive
distributions from the Company, an to assign an
interest in the Company pursuant to Section 14.3
below shall, on the happening of such an event,
devolve upon such Member's executor,
administrator, guardian, conservator, or other
legal representative or successor as the case may
be, subject to the terms and conditions of this
Agreement, and the Company shall continue as a
limited liability company. However, in any such
event, such legal representative or successor, or
any assignee of such legal representative or
successor, shall be admitted to the Company as a
Member only in accordance with and pursuant to all
of the terms and conditions of Section 14.4
hereof.
12.4 Emeritus's Right Upon Death of a Manger
or Other Similar Events.
(a) Upon the death, incompetence,
withdrawal, expulsion, bankruptcy, or
dissolution of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇
▇▇▇▇▇, each of whom serves as a Manager of
the Company (the "Withdrawal Event"),
Emeritus and the remaining Manager shall
designate a new person to serve as a
replacement Manager, entitled to exercise all
rights vested in a Manager under the terms of
this Agreement. The person so designated
shall have comparable skills, experience, and
expertise as the Manager ceasing to function
due to the Withdrawal Event (the "Withdrawing
Manager"). The admission of such replacement
Manager shall be done in a way that has no
dilutive effect upon Emeritus's Interest in
the Company, and no compensation shall be
paid to such person for agreeing to serve as
a replacement Manager out of the Company's
assets; and any Interest such person acquires
in the Company shall be out of the Interest
of the Withdrawing Manager or the other
Manager, upon such basis as the replacement
Manager, the other Manager, and the
Withdrawing Manager shall then determine. If
no replacement Manager is designated within
ninety (90) days after the Withdrawal Event,
Emeritus shall have the option granted to it
under Section 12.4(b).
(b) If Emeritus and the remaining
Manager are not able to select a mutually-
acceptable replacement Manager with the
skills, expertise, and background required by
Section 12.4(a), within ninety (90) days of
the Withdrawal Event, Emeritus shall have the
right, but not the obligation, to acquire the
Interest of the Withdrawing Manager (for this
purpose, if the Withdrawal Event is triggered
by ▇▇▇▇▇ ▇▇▇▇▇, it refers to the Interest
held by ▇▇▇▇▇ L.L.C.) (the "Withdrawing
Member's Interest"), free and clear of all
liens,
21
encumbrances, or adverse claims, at the
purchase price set forth in this paragraph.
Emeritus may exercise this right by giving
the Withdrawing Member or his heirs or legal
representatives written notice of its intent
to purchase such Interest no later than three
(3) months after notice of the Withdrawal
Event and by tendering to Withdrawing Member
or his heirs or legal representative in cash
the entire purchase price for such Interest
no later than thirty (30) days after the
determination of the amount payable with
respect to such Interest. The purchase price
for the Withdrawing Member's Interest shall
equal the amount that the Withdrawing Member
would have received, at the time of the
Withdrawal Event, assuming that the Company
had then been dissolved, all of its assets
sold at their fair market value, all of its
liabilities paid in full (including the
withholding of reasonable amounts as cash
reserves to cover known or foreseeable
contingencies), and the liquidation
distributions made among the Members
(including the Withdrawing Member) as
required by the terms of this Agreement. For
purposes of this computation, the fair market
value of the Company's equity investment in
each of the Subsidiaries will be the amounts
that would have been distributed to the
Company, assuming that the Subsidiary had
then been dissolved as of the date of the
Withdrawal Event, all of its assets sold at
their fair market value, all of its
liabilities paid in full (including the
withholding of reasonable amounts as cash
reserves to cover known or foreseeable
contingencies), and the liquidation
distributions made among the Subsidiary's
equity holders as required by the terms of
the Subsidiary's organizational documents.
Moreover, in determining the fair market
value of each Project owned by the Company's
Subsidiaries, such assets will be deemed to
have the following values: (i) if such
Subsidiary owns a Project as to which
certificates of occupancy have not yet been
issued, the value of such assets shall be
their cost, determined in accordance with
generally accepted accounting principles; and
(ii) as to any other Project owned by a
Subsidiary for which certificates of
occupancy have been issued, such Project's
fair market value shall be determined through
agreement between Emeritus and the other
Members, but in the event that such parties
cannot reach agreement within thirty (30)
days after a request from any party to
determine such value, such value shall be
determined, as quickly as is reasonably
practicable, by an appraiser mutually
agreeable to the parties (or in the absence
of an agreement among them, an appraiser
designated by the Company's independent
public accountants). The appraised value of
any asset determined by an appraiser
appointed pursuant to the terms of this
paragraph shall be conclusive and binding on
the parties and the expenses of such
appraisal shall be shared equally by the
Members.
12.5 Recourse of Members. Each Member shall
look solely to the assets of the Company for all
distributions with respect to the Company and such
Member's Capital Contribution thereto and share of
Net Income and Net Loss thereof and shall have no
recourse therefor, upon dissolution or otherwise,
against any Manager or any other Member.
12.6 No Right to Proper r. No Member,
regardless of the nature of such Member's
contributions to the capital of the Company, shall
have any right to demand or receive any
distribution from the Company in any form other
than cash, upon dissolution or otherwise.
13. Books and Records, Accounting, Reports and
Statements, and Tax Matters
22
13.1 Books and Records. The Managers shall,
at the expense of the Company, keep and maintain,
or cause to be kept and maintained, the books and
records of the Company on the same method of
accounting as utilized for federal income tax
purposes.
13.2 Annual Accounting Period. All books and
records of the Company shall be kept on the basis
of an annual accounting period ending December 31
of each year, except for the final accounting
period which shall end on the date of termination
of the Company. All references herein to the
"fiscal year of the Company" are to the annual
accounting period described in the preceding
sentence, whether the same shall consist of twelve
months or less.
13.3 Manager's Reports to Members. The
Managers shall send, at Company expense, to each
Member the following:
(a) Within seventy-five (75) days after
the end of each fiscal year of the Company,
such information as shall be necessary for
the preparation by such Member of such
Member's federal income tax return which
shall include a computation of the
distributions to such Member and the
allocation to such Member of profits or
losses as the case may be; and
(b) Within forty-five (45) days after
the end of each fiscal quarter of the
Company, a quarterly report, which shall
include:
(i) A balance sheet;
(ii) A statement of income and
expenses;
(iii) A statement of changes in
Member's capital; and
(iv) A statement of the
balances in the Capital Accounts of the
Members.
13.4 Right to Examine Records. Members shall
be entitled, upon written request directed to the
Company, to review and copy at such Members'
expense the records of the Company at all
reasonable times and at the location where such
records are kept by the Company.
13.5 Tax Matters Partner. Should there be any
controversy with the Internal Revenue Service or
any other taxing authority involving the Company,
the Managers may expend such funds as they deem
necessary and advisable in the interest of the
Company to resolve such controversy
satisfactorily, including, without being limited
thereto, attorneys' and accounting fees. ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ is hereby designated as the "Tax Matters
Partner" as referred to in Section 6231(a)(7)(A)
of the Code and is specially authorized to
exercise all of the rights and powers now or
hereafter granted to the Tax Matters Partner under
the Code.
Any cost incurred in the audit by any
governmental authority of the income tax returns
of a Member (as opposed to the company) shall not
be a Company expense. The Managers agree to
consult with and keep the Members advised with
respect to (i) any income tax audit of a Company
income tax return, and (ii) any elections made by
the Company for federal, state, or local income
tax purposes.
23
13.6 Tax Returns. The Managers shall, at
Company expense, cause the Company to prepare and
file a United States Partnership Return of Income
and all other tax returns required to be filed by
the Company for each fiscal year of the Company.
13.7 Tax Elections. The Managers shall be
permitted in their discretion to determine whether
the Company should make an election pursuant to
Section 754 of the Code to adjust the basis of the
assets of the Company. Each of the Members shall,
upon request, supply any information necessary to
properly give effect to any such election. In
addition, the Managers, in their sole discretion,
shall be authorized to cause the Company to make
and revoke any other elections for federal income
tax purposes as they deem appropriate, necessary,
or advisable.
14. Transfers of Company Interests; Withdrawal
and Admission of Members
14.1 General Provision. No Member may
voluntarily or involuntarily, directly or
indirectly, sell, transfer, assign, pledge, or
otherwise dispose of or mortgage, pledge,
hypothecate, or otherwise encumber, or permit or
suffer, any encumbrance of all or any part of such
Member's interest in the Company, except as
provided in this Section 14. Any other purported
sale, transfer, assignment, pledge, or encumbrance
shall be null and void and of no force or effect
whatsoever. Notwithstanding anything in this
Agreement to the contrary, each of the Members is
authorized to grant to Emeritus a first priority
and exclusive security interest in such Member's
Interest in the Company to secure the Company's
performance under the Credit Agreement and related
documents: In addition, if Emeritus becomes a
Member of the Company, it may assign part or all
of any Interest it acquires to ▇▇▇▇▇▇ ▇. ▇▇▇▇ or
any of his Affiliates, and any such transfer shall
be effective at such time as the Company receives
written notice thereof.
14.2 Withdrawal of Member. A Member shall
have no power to withdraw voluntarily from the
Company, except that a Member may withdraw upon
written approval of a majority of the non-
withdrawing Members voting by Percentage
Interests, which approval shall include the terms
for redemption by the Company of the Interest of
such Member.
14.3 Transfer by Members.
(a) A Member's Company Interest may be
transferred in each of the following
instances:
(i) In the event of the death of
Best, his Company Interest may be
transferred by bequest or by operation
of law of intestate succession.
(ii) In the event of the death of
▇▇▇▇▇▇▇▇▇ and a replacement Manager is
agreed upon pursuant to Section 12.4(a)
above, his Company Interest may be
transferred by bequest or by operation
of law of intestate succession.
(iii) In the event Emeritus becomes
a Member of the Company, it may assign
part or all of its Company Interest to
▇▇▇▇▇▇ ▇. ▇▇▇▇ or any of his Affiliates
as provided in Section 14.1 above.
Any transfer made under this Section
14.3(a) must comply with the
24
provisions of Section 14.3(b)(ii), (iii),
and (d) and Section 14.4(a)(ii), (iii),
(iv), and (b) hereof.
(b) Subject to any restrictions on
transferability required by law or contained
elsewhere in this Agreement, a Member may
transfer such Member's entire interest in
the Company upon satisfaction of the
following conditions:
(i) The transfer shall be approved
in writing by the Managers and
Emeritus, which approvals may be
granted or denied in their sole
discretion.
(ii) The transferor and transferee
shall have executed and acknowledged
such reasonable and customary
instruments as the Managers may deem
necessary or desirable to effect such
transfer; and
(iii) The transfer does not
violate any applicable law or
governmental rule or regulation,
including, without limitation, any
federal or state securities laws.
(c) At the time of a transfer of any
Member's interest, whether or not such
transfer is made in accordance with this
Section 14.3, all the rights possessed as a
Member in connection with the transferred
interest, which rights otherwise would be
held either by the transferor or the
transferee, shall terminate against the
Company unless the transferee is admitted to
the Company as a Substitute Member pursuant
to the provisions of Section 14.4 hereof;
provided, however, that if the transfer is
made in accordance with this Section 14.3,
such transferee shall be entitled to receive
distributions to which his transferor would
otherwise be entitled from and after the
effective date of such transfer, which date
shall be specified by the Managers and shall
be no later than the last day of the calendar
month following the first calendar month
during which the Managers have received
notice of the transfer and all conditions
precedent to such transfer provided for in
this Agreement have been satisfied. The
Company and the Managers shall be entitled to
treat the transferor as the recognized owner
of such interests until such effective date
and shall incur no liability for
distributions made in good faith to the
transferor prior to the effective date.
(d) Notwithstanding any other provision
of this Agreement, a Member may not transfer
such Member's interest in any case if such a
transfer, when aggregated with all other
transfers within a twelve (12) month period,
would cause the termination of the Company as
a partnership for federal income tax purposes
pursuant to Section 708 of the Code, unless
such transfer has been previously approved by
the Managers.
14.4 Admission of Transferees as Members
(a) No transferee of a Member
shall be admitted as a Member unless all of
the following conditions have been
satisfied:
(i) The transfer complies with
Section 14.3;
25
(ii) The prospective transferee
has executed an instrument, in form
and substance satisfactory to the
Managers, accepting and agreeing to be
bound by all the terms and conditions
of this Agreement, including the power
of attorney set forth in Section 17
hereof and has paid all expenses of
the Company in effecting the transfer;
(iii) All requirements of the Act
regarding the admission of a
transferee Member have been complied
with by the transferee, the
transferring Member, and the Company;
and
(iv) Such transfer is effective
in compliance with all applicable
state and federal securities laws.
(b) In the event of a transfer
complying with all the requirements of
Section 14.3 hereof and the transferee
being admitted as a Member pursuant to this
Section 14.4, the Managers, for themselves
and for each Member pursuant to the Power
of Attorney granted by each Member, shall
execute an amendment to this Agreement and
file any necessary amendments to the
certificate of formation for the Company.
Unless named in this Agreement, as amended
from time to time, no person shall be
considered a Member.
14.5 Admission of Additional Members.
Additional Members of the Company may be admitted
as follows:
(a) If a proposed additional Member
desires to purchase an Interest from the
Company, such purchase may be made and the
admission of the additional Member shall
become effective only if approved by
unanimous vote of the existing Members and
Emeritus and compliance with the provisions
of this Section 14.5;
(b) Emeritus will be admitted, without
requiring additional consents or approvals of
the Members or the Managers or the taking of
any other action, as an additional Member at
such time as Emeritus exercises its option to
convert the Emeritus Corporation Loan into an
equity interest in the Company as permitted
by Section 7.4(c). There are no additional
conditions to Emeritus's admission to the
Company. The Company will, however, cause an
amendment to this Agreement to be promptly
prepared to evidence Emeritus's decision to
convert its debt into an equity interest in
the Company. Emeritus's rights as a new
Member are, however, not contingent upon the
Company's preparing such an amendment. In
addition, Emeritus shall have the right to be
admitted as a new Member, without any further
consent or approval and without the taking of
any additional action by any of the Members
or the Managers, if it succeeds to the rights
of one or more of the Members' Interests in
the Company by virtue of action taken by
Emeritus under the Pledge and Security
Agreements, pursuant to which such Interests
are pledge to Emeritus by the Member.
(c) All additional Members [other than
Emeritus under Section 14.5(b)] must comply
with the requirements relating to the
admission of transferees of Members set forth
in Section 14.4(a)(ii), (iii), and (iv)
hereof.
26
14.6 Put/Call Option.
(a) Put/Call Offering Notice. Emeritus
on the one hand or the other Members on the
other hand (the "Initiating Members") may, at
any time after Emeritus's admission to the
Company as a Member, elect by giving notice
(the Put/Call Offering Notice") to the other
Members (the
"Responding Members") to exercise the
Put/Call mechanism provided under this
Section 14.6, whereupon the provisions of
this Section 14.6 shall apply. The Put/Call
Offering Notice shall constitute the
Initiating Members' offer to sell it or their
own Interest in the Company to the Responding
Members or to purchase the Responding
Members' Interest in the Company. For
purposes of this Section 14.6, decisions by
the other Members (exclusive of Emeritus)
(the "Other Members") must be unanimous to be
effective. If the Other Members are obligated
to purchase the Interest of Emeritus under
this Section, such Interest when purchased
shall be allocated among them in proportion
to their then existing Interests in the
Company, unless they otherwise agree to a
different sharing arrangement.
(b) Purchase Price. The Initiating
Members shall specify in their offering
notice the cash purchase price at which the
Initiating Members would be willing to
purchase, in an all-cash transaction, all
of the assets of the Company, assuming such
assets were free of debt.
(c) Exercise of Put,/Call. Upon
receipt of the Put/Call Offering Notice,
the Responding Members shall then be
obligated either:
(i) To sell to the Initiating
Members for cash its or their Interest
in the Company at a price equal to the
amount the Responding Members would
have been entitled to receive upon
dissolution of the Company pursuant to
the terms of this Agreement if the
Company had sold all of its assets for
cash to a third party at the price set
forth in the Put/Call Offering Notice,
subject to adjustment as provided in
Section 14.6(e)(ii), had discharged in
full all of the Company's liabilities,
had withheld a reasonable amount as a
cash reserve to cover known or
foreseeable contingencies, and had
distributed the balance among all
Members in accordance with the
liquidation provisions of this
Agreement; or
(ii) To purchase the Interest of
the Initiating Members for cash at a
price equal to the amount the Initiating
Members would have been entitled to
receive upon dissolution of the Company
pursuant to the terms of this Agreement
if the Company had sold all of its
assets for cash to a third party at the
price set forth in the Put/Call Offering
Notice, subject to adjustment as
provided in Section 14.6(e)(ii), had
discharged in full all of the Company's
liabilities, had withheld a reasonable
amount as a cash reserve to cover known
or foreseeable contingencies, and had
distributed the balance among all
Members in accordance with the
liquidation provisions of this
Agreement.
The Responding Members shall notify
the Initiating Members of its or their
election within ninety (90) days after the
date of receipt of the Put/Call Offering
Notice. Failure to give notice within such
ninety (90) day
27
period shall be deemed the Responding
Members' election to sell its or their
Interest in the Company. The decision of
the Responding Members must be unanimous;
but in the absence of a unanimous decision
by the Responding Members, they will be
deemed to have unanimously decided to sell
their Interest to the Initiating Members.
(iii) If, following an election by
the Responding, Members to purchase
under Section 14.6(c)(ii), the
Responding Members shall fail to
consummate the purchase of the
Initiating Members' entire Interest in
accordance with Section 14.6(e), then
the Responding Members shall sell to the
Initiating Members pursuant to Section
14.6(c)(i), provided that the purchase
price paid to the Responding Members
shall be reduced by an amount equal to
ten percent (10%) of the price the
Responding Members were to pay the
Initiating Members pursuant to Section
14.6(c)(ii). THE PARTIES HAVE AGREED
THAT THE INITIATING MEMBERS' ACTUAL
DAMAGES, IN THE EVENT OF THE FAILURE OF
THE RESPONDING MEMBERS TO CONSUMMATE THE
PURCHASE OF THE INITIATING MEMBERS'
INTEREST PURSUANT TO SECTION
14.6(C)(ii), WOULD BE EXTREMELY
DIFFICULT OR IMPRACTICABLE TO DETERMINE;
THEREFORE, BY THE EXECUTION OF THIS
AGREEMENT, THE PARTIES PLEDGE THAT THE
AMOUNT OF THE PRICE REDUCTION CALCULATED
IN ACCORDANCE WITH THIS SUBPARAGRAPH
(iii) REPRESENTS THE PARTIES' REASONABLE
ESTIMATE OF THE AMOUNT OF A DEPOSIT THAT
A THIRD PARTY WOULD REASONABLY POST IN
CONNECTION WITH THE SALE OF THE
INITIATING MEMBERS' INTEREST IN THE
COMPANY TO A THIRD PARTY; AND SUCH
AMOUNT HAS BEEN AGREED UPON, AFTER
NEGOTIATION, AS THE PARTIES' REASONABLE
ESTIMATE OF THE INITIATING MEMBERS'
DAMAGES AND AS THE INITIATING MEMBERS'
EXCLUSIVE REMEDY, TOGETHER WITH THE SALE
OF THE RESPONDING MEMBERS' INTEREST IN
THE COMPANY TO THE INITIATING MEMBERS
PURSUANT TO THIS SUBPARAGRAPH (iii)
AGAINST THE RESPONDING MEMBERS, AT LAW
OR IN EQUITY, IN THE EVENT OF THE
FAILURE OF THE RESPONDING MEMBERS TO
CONSUMMATE THE PURCHASE OF THE
INITIATING MEMBERS' INTEREST PURSUANT TO
SECTION 14.6(C)(ii).
(d) Limitation on Exercise.
Notwithstanding anything to the contrary
above, the Put/Call option described above
shall not be exercised by either Emeritus or
the Other Members unless and until Emeritus
becomes a Member of the Company.
(e) Closings.
(i) Location and Time Periods. The
closing of any sale of an Interest in
the Company pursuant to this Section
14.6 (the "Closing" shall be held at the
principal offices of the Company, unless
otherwise mutually agreed, on a mutually
acceptable date not more than ninety
(90) days (provided, however, that this
90-day period may be extended
28
to a period of not more than one hundred
eighty (180) days as long as the
Member(s) buying the Interest obtain a
letter of intent from a financial
institution to provide any needed
financing within the initial ninety (90)
day period and thereafter proceed to
close the purchase within the
aforementioned 180-day period] after (a)
receipt of the written notice of
election provided by Section 14.6(b),
(b) if the Responding Members fail to
make the election required by Section
14.6(b), the expiration of the time
within which the Responding Members must
so elect as provided in Section 14.6(b),
or (c) in the case of a sale to the
Initiating Members pursuant to Section
14.6(c)(iii), the last day upon which
the Responding Members had a right to
purchase the Interest of the Initiating
Members pursuant to paragraph (a) of
this Section 14.6(e).
(ii) Closing Adjustments. At the
Closing, any Closing adjustments which
are then usual and customary in King
County, Washington, shall be made
between the purchasing party and the
selling party as of the date of Closing.
'The price to be paid for the selling
Member's Interest also shall be adjusted
as follows: there shall be determined,
as of the date of the Closing, (a) the
aggregate amount of all additional
Capital Contributions made by the
selling Member(s) pursuant to Section 7,
between the date as of which the price
for such Interest was established and
the date of the Closing, and (b) the
aggregate amount of all distributions
made to the selling Member(s) during
such period pursuant to Section 10. If
the amount determined under (a) exceeds
the amount determined under (b), the
price shall be increased by an amount
equal to such excess; if the amount
determined under (b) exceeds the amount
determined under (a), the price shall be
decreased by an amount equal to such
excess. Any Member transferring its
Interest shall transfer such Interest
free and clear of any liens,
encumbrances, or any interests of any
third party and shall execute or cause
to be executed any and all documents
required to fully transfer such Interest
to the acquiring Member, including, but
not limited to, any documents necessary
to evidence such transfer and all
documents required to release any
Interest of a Member's spouse or any
other party who may claim an interest in
such Member's Company Interest. Any
monetary default by the selling Member
must be cured out of the proceeds from
such sale at the Closing. Following the
date of Closing, the selling Member
shall have no further rights to any
distributions by the Company or other
Company income, and all such rights
shall vest in the selling Member's
transferee.
(iii) As of the effective date of
any transfer permitted hereunder by a
Member of its entire Interest in the
Company, such Member's rights and
obligations hereunder shall terminate
except as to items accrued as of such
date and except as to any indemnity
obligations of such Member attributable
to acts or events occurring prior to
such date. Thereupon, except as limited
by the preceding sentence, this
Agreement shall terminate as to the
transferring Member but shall remain in
effect as to the other Member(s) and the
Company. In the event of a transfer of a
Member's entire Company Interest to the
other Member (or its designee), the
Member to whom (or to whose
29
designee) such Interest is transferred
shall indemnify, defend, and hold
harmless the Member so transferring its
Company Interest from and against any
and all claims, demands, losses,
liabilities, expenses, actions,
lawsuits, and other proceedings,
judgments, awards, and costs and
expenses (including, but not limited to,
reasonable attorneys' fees) incurred in,
or arising directly or indirectly, in
whole or in part, out of
operation of the business of the
Company, excluding only those
liabilities, if any, accruing prior to
the date of such transfer.
(f) ▇▇▇▇▇'▇ L.L.C.'s Interest in Aurora
Bay I. If, as a result of the application of
this Section 14.6, Emeritus exercises the
right to purchase the Interest of ▇▇▇▇▇
L.L.C. in the Company, concurrent with the
exercise of such right, Emeritus shall
acquire, and ▇▇▇▇▇ L.L.C. shall transfer for
no additional consideration, any and all
right, title, and interest that ▇▇▇▇▇ L.L.C.
has in any Subsidiary of the Company, free
and clear of all liens, encumbrances, and
adverse claims. ▇▇▇▇▇ L.L.C. acknowledges
that the amount payable to it under this
Section constitutes adequate consideration
for both its interest in the Company as well
as its Interest in each of the Subsidiaries.
15. Resignation and Admission of Manager.
15.1 Resignation of Manager. A Manager shall
not be entitled to resign as Manager. Moreover, if
a Manager resigns in contradiction to this
prohibition, such resigning Manager shall be
liable to the Company for any and all damages,
liabilities, costs, and expenses incurred by the
Company or the other Members as a result of such
resignation.
152 Death or Incompetency of Manager. A
Manager shall cease to be a Manager upon the
death, incompetency, bankruptcy, or dissolution of
such Manager.
15.3 Removal of a Manager. A Manager that is
a Member may be removed as a Manager upon the
unanimous written approval of the remaining
Members. A Manager that is not a Member may be
removed as a Manager upon the unanimous written
approval of Members, provided any Member which is
owned in whole or in part by the Manager sought to
be removed shall not be entitled to vote on such
Manager's removal, and the unanimous written
approval of the remaining Members shall be
necessary and sufficient to remove such Manager.
Removal of a Manager who is a Member of the
Company, pursuant to this Section 15.3, shall not
affect such Manager's interest as a Member of the
Company, if any.
15.4 Appointment of a New or Replacement
Manager. A new or replacement Manager may be
appointed with the written approval of Members
holding a majority of the Percentage Interests of
the Company and by Emeritus, provided, however,
that at all times there must be at least one
Manager in the Company.
16. Dissolution, Winding Up, and Termination
16.1 Events Causing Dissolution. The Company
shall be dissolved and its affairs shall be wound
up upon the happening of the first to occur of any
of the following events:
(a) Expiration of the term of the
Company stated in Section 6 hereof;
30
(b) Entry of a decree of administrative
or judicial dissolution pursuant to the Act;
(c) The sale or other disposition of all
or substantially all of the assets of the
Company;
(d) The death, incompetence, withdrawal,
expulsion, resignation, removal, bankruptcy,
or dissolution of the last remaining Manager
of the Company, unless (i) within 12t1 days
of such occurrence, Members owning at least a
majority of Percentage Interests in the
Company, consent to the appointment of a new
Manager(s) in accordance with Section 15.4,
in which case the business of the Company
shall be carried on by the newly appointed
Manager(s);
(e) The unanimous written approval of
the Members to dissolve.
162 Winding Up.
(a) Upon dissolution of the Company for
any reason, the Managers shall commence to
wind up the affairs of the Company and to
liquidate its assets. In the event the
Company has terminated because the Company
lacks a Manager, then the remaining Members
shall appoint a new Manager solely for the
purpose of winding up the affairs of the
Company. The Managers shall have the full
right and unlimited discretion to determine
the time, manner, and terms of any sale or
sales of Company Property pursuant to such
liquidation. Pending such sales, the Managers
shall have the right to continue to operate
or otherwise deal with the assets of the
Company. A reasonable time shall be allowed
for the orderly winding up of the business of
the Company and the liquidation of its assets
and the discharge of its liabilities to
creditors so as to enable the Managers to
minimize the normal losses attendant upon a
liquidation, having due regard to the
activity and condition of the relevant
markets for the Company properties and
general financial and economic conditions.
(b) The Managers shall cause the
proceeds from the sale and liquidation of the
Company's property to be applied and
distributed in the following order:
(i) First to the payment and
discharge of all of the Company's debt
and liabilities to creditors, including
payments of any Manager Loans and other
loans to Members and their affiliates,
and all expenses of liquidation;
(ii) Second, after giving effect to
all the allocations associated with the
Company's liquidation, to Members in
proportion to their Capital Account
balances; and
(iii) Thereafter, the balance, if
any, to the Members in proportion to
their Percentage Interests.
(c) It is intended and anticipated that
the amount of cash distributed upon a
termination or dissolution of the Company
should equal the sum of the Members' Capital
Accounts after adjustments of such balance in
accordance
31
with Sections 7 and 8 hereof
16.3 Certificate of Cancellation: Report;
Termination. Upon the dissolution and completion
of winding up of the Company, the Managers shall
execute and file a certificate of cancellation for
the Company. Within a reasonable time following
the completion of the liquidation of the Company's
assets, the Managers shall prepare and furnish to
each Member, at the expense of the Company, a
statement which shall set forth the assets and
liabilities of the Company as of the date of
complete liquidation and the amount of each
Member's distribution pursuant to Section 162
hereof. Upon completion of the liquidation and
distribution of all Company funds, the Company
shall terminate, and the Managers shall have the
authority to execute and file all documents
required to effectuate the termination of the
Company.
17. Special and Limited Powers of Attorney.
(a) The Managers or either of them, with
full power of substitution, shall at all
times during the existence of the Company
have a special and limited power of attorney
as the authority to act in the name and on
the behalf of each Member to make, execute,
swear to, verify, acknowledge, and file the
following documents and any other documents
deemed by the Managers to be necessary for
the business of the Company;
(b) This Agreement, any separate
certificate of formation, fictitious business
name statements, as well as any amendments to
the foregoing which under the laws of any
state are required to be filed or which the
Managers deem it advisable to file; .
(c) Any other instrument or document
which may be required to be filed by the
Company under the laws of any state or by any
governmental agency or which the Managers
deem advisable to file; and
(d) The special and limited power of
attorney granted to the Managers hereby:
(i) Is a special and limited power
of attorney coupled with an interest, is
irrevocable, shall survive the
dissolution or incompetency of the
granting Members and is limited to those
matters herein set forth;
(ii) May be exercised by either of
the Managers (or by any authorized
officer of the Manager, if not a natural
person) for each Member by referencing
the list of Members on Appendix A and
executing any instrument with a single
signature acting as attorney-in-fact for
all of them;
(iii) Shall survive a transfer by a
Member of such Member's interest in the
Company pursuant to Section 14.3 hereof
for the sole purpose of enabling the
Manager to execute, acknowledge, and
file any instrument or document
necessary or appropriate to admit a
transferee as a Member; and
32
(iv) Notwithstanding the foregoing,
in the event that a Manager ceases to be
a Manager in the Company, the power of
attorney granted by this Section 17 to
such Manager shall terminate
immediately; but any such termination
shall not affect the validity of
any documents executed prior to such
termination or any other actions
previously taken pursuant to this power
of attorney or in reliance upon its
validity, all of which shall continue to
be valid and binding upon the Members in
accordance with their terms.
18. Amendments. Except as otherwise provided by
law, this Agreement may be amended in any respect by
the unanimous written approval of the Members and
Emeritus.
19. Miscellaneous.
19.1 Notices. Any notices of communications
required or permitted to be delivered hereunder
must be in writing and shall be deemed to be
delivered (i) upon receipt if delivered personally
or (ii) upon deposit in the United States Mail,
certified, return receipt requested, postage
prepaid, addressed to the Members, as the case may
be, or (iii) upon receipt of a facsimile
transmission, at the following addresses and/or
facsimile numbers: .
▇▇▇▇▇ Investors I, L.L.C.,
Member c/o ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: ▇▇▇-▇▇▇-▇▇▇▇ Fax #: 360-
254-1770
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Manager
and Member ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇ ▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ Phone: 972-
▇▇▇-▇▇▇▇ Fax #: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, Manager ▇▇▇▇ ▇.
▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Phone: ▇▇▇-▇▇▇-▇▇▇▇ Fax #: 360-
254-1770
Thilo Best, Member
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇ Phone:
▇▇▇-▇▇▇-▇▇▇▇ Fax #: 503-638-
6672
19.2 Entire Agreement. This Agreement
constitutes the entire agreement among the parties
and supersedes any prior agreement or
understandings among them, oral or written, all of
which are hereby cancelled. This Agreement may not
be modified or amended other than pursuant to
Section 18 hereof.
19.3 Captions; Pronouns. The paragraph and
section titles or captions contained in this
Agreement are inserted only as a matter of
convenience of reference. Such titles and captions
in no way define, limit, extend, or describe the
scope of this Agreement nor the intent of any
provision hereof. All pronouns and any variation
thereof shall be deemed to refer to the masculine,
feminine, or neuter, singular or plural, as the
identify of the person or persons may require.
33
19.4 Counterparts. This Agreement may be
executed in any number of counterparts and by
different parties hereto in separate counterparts,
each of which when so executed shall be deemed to
be an original and all of which when taken
together shall constitute one and the same
agreement. Delivery of any executed counterpart of
a signature page to this Agreement by facsimile
shall be effective as delivery of an executed
original counterpart of this Agreement.
19.5 Governing Law. This Agreement shall
be governed by and construed in accordance with
the internal laws of the State of Washington.
19.6 Expiration of Emeritus's Rights. The
rights granted to Emeritus will expire and be
of no further force and effect if each of the
following conditions is satisfied: (i) Emeritus
does not exercise its right to convert the
Emeritus Corporation Loan into an equity
interest in the Company prior to the expiration
of such right under the Convertible Promissory
Note, and (ii) the Company discharges, and each
of the Members discharges, in full any and au
obligations it owes to Emeritus under the
Credit Agreement, the Convertible Promissory
Note, and any other documents executed in
connection therewith.
19.7 Members' Percentage Interest
Following Conversion by Emeritus. Provided the
Interest of each Member as provided in Appendix
A hereto has not at such time changed, upon
conversion by Emeritus of the Emeritus
Corporation Loan, the Percentage Interest of
the Members shall be as follows:
Emeritus Corporation 48%
▇▇▇▇▇ Investors I, L.L.C. 25%
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ 25%
Thilo Best 2%
( The remainder of this page is
intentionally left blank )
34
WITNESS WHEREOF the parties have executed this
Agreement as of the date first hereinabove written.
MEMBERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ INVESTORS I, L.L.C.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
/s/ Thilo Best
------------------------------
---------
Thilo Best
MANAGERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
35