EXHIBIT 10.100
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
OF
SUNRISE SECOND ASSISTED LIVING HOLDINGS, LLC
BY AND BETWEEN
SUNRISE ASSISTED LIVING INVESTMENTS, INC.,
AS THE MANAGING MEMBER,
AND
US ASSISTED LIVING FACILITIES II, INC.
AS THE INVESTOR MEMBER
DATED AS OF DECEMBER 20, 2002
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS.....................................................................................1
SECTION 2. CONTINUATION OF COMPANY........................................................................15
SECTION 3. NAME AND PRINCIPAL OFFICE......................................................................16
SECTION 3.1. NAME..................................................................................16
SECTION 3.2. PRINCIPAL OFFICE AND PLACE OF BUSINESS; REGISTERED AGENT..............................16
SECTION 4. PURPOSE OF COMPANY.............................................................................16
SECTION 5. TERM...........................................................................................16
SECTION 6. PERCENTAGE INTERESTS...........................................................................16
SECTION 7. CAPITAL........................................................................................16
SECTION 7.1. FIRST CLOSING.........................................................................16
SECTION 7.2. SECOND CLOSING........................................................................17
SECTION 7.3. THIRD CLOSING.........................................................................17
SECTION 7.4. FINANCING CONDITIONS..................................................................17
SECTION 7.5. ADDITIONAL CAPITAL CONTRIBUTIONS AND OTHER CAPITAL MATTERS............................17
SECTION 7.6. CAPITAL ACCOUNTS......................................................................21
SECTION 7.7. INTEREST OR EARNINGS ON RETURNED CAPITAL..............................................22
SECTION 7.8. NO THIRD PARTY RIGHTS.................................................................22
SECTION 7.9. DEEMED CAPITAL CONTRIBUTIONS..........................................................22
SECTION 8. ALLOCATION OF PROFITS AND LOSSES...............................................................22
SECTION 8.1. NET PROFIT............................................................................22
SECTION 8.2. NET LOSS..............................................................................22
SECTION 8.3. DISPOSITION GAIN AND DISPOSITION LOSS.................................................23
SECTION 8.4. SPECIAL ALLOCATIONS...................................................................25
SECTION 8.5. CURATIVE ALLOCATIONS..................................................................26
SECTION 8.6. OTHER ALLOCATION RULES................................................................27
SECTION 8.7. TAX ALLOCATIONS: CODE SECTION 704(c)..................................................27
SECTION 9. DISTRIBUTIONS..................................................................................28
SECTION 9.1. IN GENERAL............................................................................28
SECTION 9.2. SHORTFALL PAYMENT.....................................................................30
SECTION 9.3. CONSENT TO DISTRIBUTIONS..............................................................31
SECTION 9.4. TAX WITHHOLDING.......................................................................31
SECTION 10. MANAGEMENT OF COMPANY..........................................................................31
SECTION 10.1. AUTHORITY OF MANAGING MEMBER..........................................................31
SECTION 10.2. GRANT OF SPECIAL AUTHORITY............................................................33
SECTION 10.3. OPERATING BUDGET AND CERTAIN RESERVES.................................................34
SECTION 10.4. LIMITATIONS ON AUTHORITY OF MANAGING MEMBER...........................................35
SECTION 10.5. COMPENSATION FOR SERVICES; FEES TO MANAGING MEMBER....................................38
SECTION 10.6. INVESTOR MEMBER MANAGEMENT RIGHTS.....................................................38
SECTION 10.7. LIABILITY OF MANAGING MEMBER..........................................................39
SECTION 10.8. GENERAL INDEMNITIES, SPECIAL INDEMNITIES AND RELATED PROVISIONS.......................39
SECTION 10.9. OTHER ACTIVITIES OF MEMBERS; NON-COMPETE..............................................43
SECTION 10.10. RELEASE AND SALE OF FACILITIES........................................................44
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SECTION 10.11. ADDITIONAL ACQUISITIONS OF NEW FACILITIES.............................................45
SECTION 11. REPRESENTATIONS AND WARRANTIES OF THE MEMBERS..................................................47
SECTION 11.1. INVESTMENT INTENT.....................................................................47
SECTION 11.2. UNREGISTERED COMPANY INTERESTS........................................................47
SECTION 11.3. NATURE OF INVESTMENT..................................................................47
SECTION 11.4. GENERAL REPRESENTATIONS AND WARRANTIES OF SUNRISE.....................................47
SECTION 11.5. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR MEMBER..................48
SECTION 12. POWER OF ATTORNEY..............................................................................49
SECTION 13. BANKING........................................................................................50
SECTION 14. ACCOUNTING.....................................................................................50
SECTION 14.1. BOOKS OF ACCOUNT......................................................................50
SECTION 14.2. METHOD OF ACCOUNTING..................................................................50
SECTION 14.3. FINANCIAL AND OPERATING STATEMENTS....................................................50
SECTION 14.4. TAX INFORMATION.......................................................................51
SECTION 14.5. TAX MATTERS PARTNER...................................................................51
SECTION 14.6. TAX TREATMENT OF LEASE FINANCING......................................................51
SECTION 15. ADMISSION OF ADDITIONAL MEMBERS................................................................51
SECTION 16. TRANSFER OF COMPANY INTERESTS..................................................................51
SECTION 16.1. COVENANTS REGARDING TRANSFERS.........................................................51
SECTION 16.2. PERMITTED TRANSFERS BY INVESTOR MEMBER................................................52
SECTION 16.3. PERMITTED TRANSFERS BY MANAGING MEMBER................................................53
SECTION 16.4. SUBSTITUTED MEMBERS...................................................................55
SECTION 16.5. RECORDATION TAX.......................................................................55
SECTION 16.6. TRANSFERS RESULTING IN CORPORATION STATUS; TRANSFERS THROUGH ESTABLISHED SECURITIES OR
SECONDARY MARKETS.......................................................................................55
SECTION 16.7. HOLDERS OF INVESTOR MEMBER INTERESTS..................................................56
SECTION 17. WITHDRAWALS....................................................................................57
SECTION 18. DEFAULTING EVENTS..............................................................................57
SECTION 18.1. CONVERSION OF DEFAULTING OR DISABLED MANAGING MEMBER'S INTEREST.......................57
SECTION 18.2. ADDITIONAL REMEDIES...................................................................58
SECTION 19. DISABILITY OR DEFAULT OF THE INVESTOR MEMBER...................................................58
SECTION 20. BUY-SELL AGREEMENT FOR ENTIRE PORTFOLIO........................................................58
SECTION 20.1. BUY-SELL OPTION.......................................................................58
SECTION 20.2. BUY-SELL VALUE........................................................................59
SECTION 20.3. OFFEREE DECISION......................................................................59
SECTION 20.4. BUY-SELL PRICE........................................................................60
SECTION 20.5. ▇▇▇▇▇▇▇ MONEY; DEFAULT................................................................60
SECTION 20.6. BUY-SELL CLOSING......................................................................60
SECTION 20.7. REMEDIES..............................................................................61
SECTION 20.8. DISABLED OR DEFAULTING MEMBER.........................................................62
SECTION 20.9. SUSPENSION OF MARKETING RIGHT.........................................................62
SECTION 21. BUY-SELL OPTION FOR INDIVIDUAL FACILITIES......................................................62
SECTION 21.1. BUY-SELL OPTION.......................................................................62
SECTION 21.2. OFFEREE DECISION......................................................................62
SECTION 21.3. LEASE TRANSACTION RELEASE.............................................................63
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SECTION 21.4. BUY-SELL PRICE........................................................................63
SECTION 21.5. ▇▇▇▇▇▇▇ MONEY; DEFAULT................................................................63
SECTION 21.6. BUY-SELL CLOSING......................................................................63
SECTION 21.7. REMEDIES..............................................................................66
SECTION 21.8. SUSPENSION OF MARKETING RIGHT.........................................................67
SECTION 22. MARKETING RIGHT................................................................................67
SECTION 22.1. INVESTOR MEMBER'S MARKETING RIGHT.....................................................67
SECTION 22.2. MANAGING MEMBER'S PURCHASE RIGHT......................................................68
SECTION 22.3. MANAGING MEMBER'S RIGHT TO MARKET/PURCHASE MANAGING MEMBER'S MARKETING RIGHT..........68
SECTION 22.4. FMV...................................................................................69
SECTION 22.5. FAILURE TO SELL FACILITY..............................................................69
SECTION 22.6. MANAGING MEMBER PURCHASE OF FACILITY OWNER............................................69
SECTION 22.7. SUSPENSION OF BUY-SELL OPTION.........................................................70
SECTION 23. TERMINATION OF COMPANY.........................................................................70
SECTION 23.1. DISSOLVING EVENTS.....................................................................70
SECTION 23.2. METHOD OF LIQUIDATION.................................................................70
SECTION 23.3. REASONABLE TIME FOR LIQUIDATING.......................................................71
SECTION 23.4. DATE OF DISSOLUTION...................................................................71
SECTION 24. GENERAL PROVISIONS.............................................................................71
SECTION 24.1. WAIVER OF RIGHT OF PARTITION..........................................................71
SECTION 24.2. NOTICES...............................................................................71
SECTION 24.3. MODIFICATIONS.........................................................................72
SECTION 24.4. AUTHORIZED PERSONS....................................................................72
SECTION 24.5. AMENDMENTS............................................................................72
SECTION 24.6. BINDING EFFECT........................................................................73
SECTION 24.7. VALIDITY..............................................................................73
SECTION 24.8. NO WAIVER.............................................................................73
SECTION 24.9. DUPLICATE ORIGINALS...................................................................73
SECTION 24.10. GOVERNING LAW; CONSTRUCTION...........................................................73
SECTION 24.11. CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY TRIAL...............................73
SECTION 24.12. INDEPENDENT INVESTMENT DECISION.......................................................74
SECTION 24.13. ENTIRE AGREEMENT......................................................................74
SECTION 24.14. FURTHER ASSURANCES....................................................................74
SECTION 24.15. USE OF SUNRISE TRADE NAME.............................................................74
SECTION 24.16. PRESS RELEASES........................................................................74
SECTION 24.17. LIABILITY OF MEMBERS..................................................................75
SCHEDULES
1 - Facility Descriptions and Gross Asset Values
2 - [omitted]
3 - Operating Budget
4 - Reporting Procedures
5 - Islamic Operating Guidelines
6 - Internal Rate of Return Calculation
iii
7 - Authorized Representatives
8 - Minimum Gross Facility Revenues
9 - Non Compete Areas
10 - Anti-Money Laundering Policy
iv
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
OF
SUNRISE SECOND ASSISTED LIVING HOLDINGS, LLC
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this
"AGREEMENT"), made and entered into as of this ____ day of December, 2002, by
and among SUNRISE ASSISTED LIVING INVESTMENTS, INC., a Virginia corporation
("SUNRISE") having an address at ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(hereinafter sometimes referred to as the "MANAGING MEMBER"); and US ASSISTED
LIVING FACILITIES II, INC., a Delaware corporation having an address ▇/▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Inc., ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(the "INVESTOR MEMBER") (the Managing Member and the Investor Member are
hereinafter sometimes referred to collectively as the "MEMBERS" and individually
as a "MEMBER").
W I T N E S S E T H:
WHEREAS, the Investor Member formed the Company as a limited liability
company on September 13, 2002;
WHEREAS, the parties hereto, desiring to continue the Company as a
limited liability company under the provisions of the Delaware Limited Liability
Company Act for the purposes hereinafter described, entered into an Amended and
Restated Operating Agreement on September 30, 2002; and
WHEREAS, the parties hereto desire to further amend and restate their
respective rights, duties and responsibilities with respect the Company by
entering into this Second Amended and Restated Operating Agreement;
NOW, THEREFORE, in consideration of the premises hereof, and of the
mutual promises, obligations and agreements contained herein, the parties
hereto, intending to be legally bound, do hereby agree as follows:
SECTION 1. DEFINITIONS.
For purposes of this Agreement, each of the following terms shall have
the meaning hereinafter provided:
"ACQUISITION FEE" means a fee payable by the Company to ▇▇▇▇▇,
or an Affiliate designated by ▇▇▇▇▇, for the acquisition of each
Facility purchased pursuant to Section 10.11 from any Entity other than
the Managing Member or an Affiliate of the Managing Member, which fee
shall equal 0.75% of the purchase price of such Facility, and which
shall be payable at the time the Company purchases such Facility.
"ACT" has the meaning set forth in Section 2 hereof.
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"ADJUSTED CAPITAL ACCOUNT DEFICIT" of any Member means, as of
any particular date, the deficit balance, if any, in such Member's
Capital Account as of such date, as determined in the manner provided
in Section 7.5 hereof, adjusted as follows:
(i) Such Capital Account shall be increased to
reflect any amounts which such Member is obligated to restore
to the Company under any provision of this Agreement or is
deemed to be obligated to restore pursuant to Sections
1.704-2(g) and 1.704-2(i)(5) of the Regulations; and
(ii) Such Capital Account shall be reduced to reflect
any items described in Sections 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) of the Regulations.
"AFFILIATE" means, with respect to a specified Entity, any
Entity that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with, the
specified Entity. For purposes of this definition, "control" shall
mean, with respect to any Entity, the possession of the power to direct
or cause the direction of the policies and management of such Entity,
whether through ownership of voting securities, by contract or
otherwise.
"AGREEMENT" means this Amended and Restated Operating
Agreement and the schedules hereto, as the same may be amended and in
effect from time to time.
"AL FUNDING" has the meaning specified in Section 7.1.
"ANCILLARY REVENUES" means revenues generated by the conduct
of activities at the Facilities by Affiliates of the Company or ▇▇▇▇▇
or by third parties, other than the provision of assisted living
services, room rentals, food service and care with activities of daily
life. Such activities may include, but not be limited to, the sale of
products and providing financial advice and services.
"APPROVE," "APPROVED" or "APPROVAL" means, as to the subject
matter thereof and as the context may require or permit, an express
approval contained in a written statement signed by an approving Entity
or any Authorized Representative thereof.
"AUTHORIZED REPRESENTATIVE" shall mean, with respect to the
Managing Member and with respect to the Investor Member, the persons
set forth on Schedule 7 hereto, any one of which shall have the
authority to bind the Member it represents. Any Member may change its
Authorized Representative or appoint additional Authorized
Representatives by giving written notice thereof to the other Members.
"BANKRUPTCY" of any Entity means: (i) a general assignment by
the Entity for the benefit of creditors; (ii) the appointment of a
receiver, trustee or custodian for all or any substantial part of the
Entity's property and assets; (iii) the entry of any "order for relief"
against the Entity in, or the commencement by the Entity of, any
voluntary proceeding under present or future federal bankruptcy laws or
under any other bankruptcy, insolvency or other laws respecting
debtor's rights; or (iv) the entry against the Entity of any "order for
relief" or any other judgment or decree by any court of competent
jurisdiction in any involuntary proceeding against the Entity under
present or future
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federal bankruptcy laws or under any other bankruptcy, insolvency or
other laws respecting debtor's rights, or the commencement of any such
involuntary proceeding against the Entity and the continuation of such
proceeding without dismissal or stay for a period of ninety (90) days
after such commencement.
"BONA FIDE DISPUTE" means a dispute among the Members relating
to a Major Decision regarding the operation of the Portfolio or any
Facility; provided, however, that such dispute shall not constitute a
Bona Fide Dispute for purposes of Section 20.1(i) hereof unless one
Member has provided the other Member with written notice stating that
it believes the dispute to be a Bona Fide Dispute, and the Members are
unable to resolve such dispute within ten (10) Business Days; provided,
further, that only a dispute pursuant to subsections 10.4 (a), (d),
(e), (h), (n), (o), (p), (r) and (s) shall constitute a Bona Fide
Dispute for purposes of Section 20.1(i).
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day that is a legal holiday under the laws of the State of New
York or is a day on which banking institutions located in such state
are authorized or required by law or other governmental action to
close.
"BUYING MEMBER" has the meaning set forth in Section 20.4
hereof.
"BUY-SELL CLOSING DATE" has the meaning set forth in Section
20.6 hereof.
"BUY-SELL OFFER" has the meaning set forth in Section 20.1
hereof.
"BUY-SELL PRICE" has the meaning set forth in Section 20.4
hereof.
"BUY-SELL VALUE" has the meaning set forth in Section 20.1
hereof.
"CAP AMOUNT" means $3,100,000 ($1,100,000 for Capital
Contributions under Section 7.5(a) and $2,000,000 for Capital
Contributions under Section 7.5(b)(i)).
"CAPITAL ACCOUNT" means, with respect to each Member, the
account established and maintained for such Member pursuant to Section
7.6 hereof.
"CAPITAL CONTRIBUTION" means a capital contribution made by a
Member in accordance with Section 7 hereof. Any Capital Contribution of
property other than cash shall be valued at the Gross Asset Value of
such property, as reduced by the amount of liabilities assumed by the
Company with respect to such property.
"CENTRAL ACCOUNT" has the meaning specified in Section
7.5(b)(i).
"CLOSING DATE" means the First Closing Date or the Second
Closing Date, as applicable.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time. All references herein to specific sections of the
Code shall be deemed to refer also to any corresponding provisions of
succeeding law.
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"COMPANY" means the limited liability company continued by the
Members pursuant to this Agreement.
"CONSUMABLES" means food, beverages, medical supplies, soaps,
shampoos or any other similar consumable product.
"CONTRIBUTION ACCOUNT" means an account to be maintained with
respect to each Member equal, as of any relevant date, to the amount of
each Member's First Capital Contribution, its Second Capital
Contribution, its Third Capital Contribution, any Mandatory Additional
Contributions and Voluntary Additional Contributions, as set forth in
Sections 7.1, 7.2, 7.3, 7.4 and 7.5 hereof, and any deemed Capital
Contribution, as set forth in Section 7.9, in excess of the aggregate
amount of distributions made to such Member prior to such relevant date
pursuant to subsection 9.1(b)(i) hereof.
"CONVERSION DATE" has the meaning set forth in Section 18.1
hereof.
"CPI" means the Seasonally Adjusted National Consumer Price
Index for All Items, All Urban Consumers, as published by the Bureau of
Labor Statistics of the U.S. Department of Labor.
"DEFAULT PURCHASE PRICE" has the meaning set forth in Section
20.5 hereof.
"DEFAULTING BUYER" has the meaning set forth in Section 20.5
hereof.
"DEFAULTING EVENT" means (i) the failure of a Member to make
its First Capital Contribution, its Second Capital Contribution or its
Third Capital Contribution as set forth in Section 7 hereof; (ii) a
Member's withdrawal or retirement from the Company in breach of the
covenant contained in Section 17 hereof, (iii) the disposition (whether
voluntary or by operation of law) by a Member of all or any part of
such Member's interest in the Company (or such Member's right to
receive distributions of Company property or assets) in breach of the
covenant contained in Section 16.1 hereof, (iv) with respect to any
Member which is a corporation, partnership or trust, the liquidation or
dissolution of such Entity, except in connection with a reorganization,
merger, consolidation or business combination in which there is a
surviving Entity, subject to the Investor Member's rights set forth in
Section 16.3 hereof, or (v) any Uncured Major Default of such Member.
In the case of the Managing Member, in addition to any of the events
described in the preceding clauses (i) through (v), the Managing Member
shall have suffered a Defaulting Event in the event of a breach by the
Managing Member of the covenant contained in Section 16.3 hereof. In
the case of the Investor Member, in addition to any of the events
described in the preceding clauses (i) through (v), the Investor Member
shall have suffered a Defaulting Event in the event of a breach by the
Investor Member of the covenant contained in Section 16.2 hereof.
"DEFAULTING MEMBER" means a Member who commits or suffers a
Defaulting Event.
"DELINQUENCY ADVANCE" has the meaning set forth in Section 7.5
hereof.
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"DEPRECIATION" means, for each Fiscal Year or other period, an
amount equal to the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such Fiscal Year or
other period for federal income tax purposes, except that if the Gross
Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such Fiscal Year or other
period, Depreciation shall be an amount which bears the same ratio to
such beginning Gross Asset Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such
year or other period bears to such beginning adjusted tax basis;
provided, however, that if the federal income tax depreciation,
amortization, or other cost recovery deduction for such year is zero,
Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managing
Member.
"DESIGNATED FACILITIES" has the meaning set forth in Section
22.3(a) hereof.
"DISABLED MEMBER" means a Member who suffers a Disabling
Event.
"DISABLING EVENT" with respect to a Member means the
Bankruptcy of such Member, the liquidation or dissolution of any such
Member which is a corporation, partnership, or trust (other than in
connection with a reorganization, merger, consolidation or business
combination in which there is a surviving Entity), or the death or any
other legal incapacitation of any such Member who is a natural person.
"DISCOUNTED OFFER" has the meaning set forth in Section
22.1(b) hereof.
"DISPOSITION FEE" means a fee payable to ▇▇▇▇▇, or an
Affiliate designated by ▇▇▇▇▇, in connection with a sale or disposition
of the Facilities in the Portfolio in an amount equal to one percent
(1%) of the gross sale price or prices of such Facilities reflected in
the applicable sale contract or contracts entered into by the
applicable Facility Owner (inclusive of any indebtedness if such
Facility Owner does not prepay such indebtedness prior to the sale or
disposition); provided that the Disposition Fee shall be reduced by any
disposition or marketing fee payable to any third party selected by the
Managing Member to market one or more of such Facilities if the
Managing Member is permitted hereunder to select such third party to
market the Facility.
"18% RETURN AMOUNT" means an amount computed like compounding
interest at a rate of 18% per annum on the balance standing from time
to time in the Investor Member's Contribution Account. The 18% Return
Amount shall be computed using the same compounding, accrual period and
other assumptions that are used in computing the Investor Member's
Internal Rate of Return, taking into account the proviso in Section
9.1(b)(iii), if applicable.
"ENTITY" means any person, corporation, partnership (general
or limited), limited liability company, joint venture, association,
joint stock company, trust or other business entity or organization.
"EPA" means the U.S. Environmental Protection Agency.
"EXCHANGE ACT" has the meaning assigned to it in Section 16.6.
6
"EXTRAORDINARY EVENT" means any sale, cancellation, release or
termination of any Lease Transaction, or any exchange, financing,
condemnation, conversion, damage or destruction of, or relating to, all
or any portion of the Portfolio (other than of any such events relating
to the Company's tangible property and fixtures that, individually,
involves property having a book value to the Company as shown on the
Company financial statements of less than $250,000).
"EXTRAORDINARY PROCEEDS" means all cash proceeds (including,
without limitation, the amount of any rent credits provided under any
Lease Transaction as a result of the receipt by the lessor thereunder
of title insurance or condemnation proceeds, insurance proceeds,
recoveries, damages and awards, but excluding insurance proceeds for
rental loss) realized by the Company from any Extraordinary Event,
decreased by the sum of (i) the amount of such proceeds applied by the
Company to pay debts and liabilities encumbering the relevant Facility,
including, without limitation, the amount of any release prices paid by
the Company to the Facility Owner under the Lease Transaction in
connection with a sale of any Facility or the release of any Facility
from the Lease Transaction; (ii) the amount of such proceeds used by
the Company for restoration and repair (including any developer's or
similar fees) in the event of damage or destruction to or partial
condemnation of any Facility; (iii) any incidental or ancillary
expenses, costs, or liabilities incurred by the Company in effecting or
obtaining any such Extraordinary Proceeds (including, without
limitation, attorneys' and accountants' fees, court costs, recording
fees, transfer taxes and fees, appraisal costs, brokerage fees, and the
like), all of which expenses, costs, and liabilities shall be paid from
the gross amount of such cash proceeds to the extent thereof; (iv) the
amount thereof applied to fund any deficit in Company reserves Approved
by the Members; and (v) the payment of such other Company debts and
liabilities as the Members shall unanimously Approve.
"FACILITY" means each assisted living facility (including the
fee or leasehold interest in the real property and related improvements
thereon) included in the Portfolio. The name by which each Facility is
known and referred to herein is specified in Schedule 1 hereto.
"FACILITY BUYING MEMBER" has the meaning set forth in Section
21.4 hereto.
"FACILITY BUY-SELL CLOSING DATE" has the meaning set forth in
Section 21.5 hereto.
"FACILITY BUY-SELL OFFER" has the meaning set forth in Section
21.1 hereto.
"FACILITY BUY-SELL PRICE" has the meaning set forth in Section
21.4 hereto.
"FACILITY BUY-SELL VALUE" has the meaning set forth in Section
21.1 hereto.
"FACILITY DEFAULT PURCHASE PRICE" has the meaning set forth in
Section 21.5 hereto.
"FACILITY DEFAULTING BUYER" has the meaning set forth in
Section 21.5 hereto.
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"FACILITY OFFER TO SELL" has the meaning set forth in Section
21.1 hereto.
"FACILITY OFFER TO PURCHASE" has the meaning set forth in
Section 21.1 hereto.
"FACILITY OWNER" means an Entity holding title to, or a ground
lessee interest in, a Facility.
"FACILITY SELLING MEMBER" has the meaning set forth in Section
21.5 hereto.
"FACILITY SUBSTITUTED BUYER" has the meaning set forth in
Section 21.5 hereto.
"FAILING MEMBER" has the meaning set forth in Section 7.5
hereof.
"FEDERAL ACT" has the meaning set forth in Section 11.2
hereof.
"FF&E" means furniture, fixtures, furnishings, soft goods,
computer equipment, hardware, and wiring, case goods, vehicles and
equipment located in or at the Facilities or used exclusively in
connection with the operation of the Facilities, but shall not include
Consumables, Household Replacements or Software.
"FIRST CLOSING DATE" means September 30, 2002.
"FISCAL YEAR" means the fiscal year of the Company, which
shall be the calendar year. The first Fiscal Year shall commence on the
date hereof, and each subsequent Fiscal Year shall commence on the date
immediately following the last day of the immediately preceding Fiscal
Year. Each Fiscal Year shall end on the earliest to occur after the
commencement of such Fiscal Year of (i) December 31, (ii) the day
immediately preceding the date on which a distribution is made to the
Members under Section 23.2 hereof, (iii) the day immediately preceding
the date of the "liquidation" of a Member's interest in the Company
(within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), or (iv) the date on which the Company is
terminated under Section 23.4 hereof.
"FMV" has the meaning set forth in Section 22.1 hereof.
"GAAP" means the generally accepted accounting principles in
the United States of America, as promulgated or adopted by the
Financial Accounting Standards Board and its predecessors and
successors from time to time.
"GROSS ASSET VALUE" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as
follows:
(b) The initial Gross Asset Value of any asset contributed by
a Member to the Company shall be the gross fair market value of such
asset, as determined and Approved by all of the Members (the Gross
Asset Value of each Facility that is expected to become a part of the
Portfolio is set forth on Schedule 1 and is subject to adjustment as
provided herein and in the Transaction Agreement);
8
(c) The Gross Asset Values of all Company assets shall be
adjusted to equal their respective gross fair market values, as
determined by the Members, as of the following times: (i) the
acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimus capital
contribution; (ii) the distribution by the Company to a Member of more
than a de minimus amount of property as consideration for an interest
in the Company; and (iii) the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided, however,
that adjustments pursuant to clauses (i) and (ii) above shall be made
only if the Managing Member reasonably determines that such adjustments
are necessary or appropriate to reflect the relative economic interests
of the Members in the Company;
(d) The Gross Asset Value of any Company asset distributed to
any Member shall be the gross fair market value of such asset on the
date of distribution; and
(e) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section
743(b), but only to the extent that such adjustments are taken into
account in determining capital accounts pursuant to Regulations Section
1.704-1(b)(2)(iv)(m) and Section 8.4(g) hereof; provided, however, that
Gross Asset Values shall not be adjusted pursuant to this clause (d) to
the extent the Managing Member determines that an adjustment pursuant
to clause (b) of this definition is necessary or appropriate in
connection with a transaction that would otherwise result in an
adjustment pursuant to this clause (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clauses (a), (b) or (d) of this definition, such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Net Profit and Net Loss.
"GROSS FACILITY REVENUE" means all revenue (other than
Ancillary Revenues) derived from a Facility, determined in accordance
with GAAP, including, but not limited to, income (from both cash and
credit transactions, net of any fee therefore) from community fees,
monthly occupancy fees, health care fees and any and all other fees and
payments whatsoever received from Residents; income from food and
beverage and catering sales other than from sales of Restricted Foods;
and income from laundry, maid service, parking, phone systems,
internet, cable, utility reimbursements and vending machines; all
determined in accordance with GAAP; provided, however, that Gross
Facility Revenue shall not include (i) gratuities to employees at the
Facilities; (ii) federal, state or municipal excise, sales or use taxes
or similar taxes imposed at the point of sale and collected directly
from the Residents or guests of the Facilities or included as part of
the sales price of any goods or services; (iii) returns received from
investment in ▇▇▇▇▇'ah compliant accounts; (iv) proceeds of any
financing or refinancing of any Facility or any portion thereof; (v)
proceeds of any insurance policy or condemnation or other taking; (vi)
any cash refunds, rebates or discounts to Residents or cash discounts
and credits of a similar nature given, paid or returned in the course
of obtaining Gross Facility Revenue or components thereof; (vii)
proceeds from any sale of any Facility, from any other capital
transaction or from any Extraordinary Event; (viii) Resident funds on
deposit or
9
security deposits until such time as the same are applied to current
fees due for services rendered from the Facility; (ix) awards of
damages, settlement proceeds and other payments received by the Company
in respect of any litigation other than litigation to collect fees due
for services rendered from the Facility; (x) payments under any policy
of title insurance; (xi) Capital Contributions of the Members; and
(xii) Working Capital. Any community fees or deposits that are refunded
to a Resident shall be credited against Gross Facility Revenue during
the month in which such refunds are made, if previously included in
Gross Facility Revenue.
"HOUSEHOLD REPLACEMENTS" means supply items including linen,
china, glassware, silver, uniforms, and similar items, but excluding
Consumables.
"HUNTCLIFF CONTAMINATION" has the meaning specified in Section
10.8(d).
"HUNTCLIFF FACILITIES" has the meaning set forth in Section
9.2(a).
"INTERNAL RATE OF RETURN" or "IRR" means for each Member the
annual discount rate, compounded monthly, that results in a net present
value equal to zero (0) when the discount rate is applied to all
amounts contributed or deemed contributed by each of the Members to the
capital of the Company pursuant to Sections 7.1, 7.2, 7.3, 7.4, 7.5 or
7.9 hereof and all distributions made by the Company to such Member
pursuant to Section 9.1 hereof. "Internal Rate of Return" or "IRR"
means with respect to the Company's investment in the Portfolio the
annual discount rate, compounded monthly, that results in a net present
value equal to zero (0) when the discount rate is applied to all
amounts invested by the Company in the Portfolio and all cash receipts
of the Company with respect to the Portfolio. The Internal Rate of
Return shall be calculated as shown on Schedule 6 hereto.
"INVESTMENT YIELD" has the meaning set forth in Section 10.11.
"INVESTOR MEMBER" means US Assisted Living Facilities II,
Inc., a Delaware corporation, and its permitted successors and assigns.
"INVESTOR MEMBER CONTRIBUTION AMOUNT" means, for each
Facility, an amount equal to the Investor Member's Percentage Interest
of the amount by which the Gross Asset Value for such Facility exceeds
the amount of Lease Financing provided for such Facility, as such
amount may be adjusted for such Facility under Section 2.5 of the
Transaction Agreement.
"INVESTOR MEMBER'S FIRST CAPITAL CONTRIBUTION" means the
Investor Member's initial Capital Contribution to the Company, which
has been contributed to the Company pursuant to Section 7.1 hereof, in
an amount equal to the aggregate amount of Investor Member Contribution
Amounts for each of the Facilities that became part of the Portfolio on
the First Closing Date.
"INVESTOR MEMBER'S MARKETING RIGHT" has the meaning set forth
in Section 22.1(a) hereof.
10
"INVESTOR MEMBER'S SECOND CAPITAL CONTRIBUTION" means the
Investor Member's second Capital Contribution to the Company which
shall be contributed to the Company pursuant to Section 7.2 hereof, in
an amount equal to the aggregate amount of Investor Member Contribution
Amounts for each of the Facilities that becomes part of the Portfolio
on the Second Closing Date.
"ISLAMIC OPERATING GUIDELINES" means the principles and
operational guidelines set forth in Schedule 5 hereto.
"LEASE AGREEMENT" means each of the Master Lease Financing
Facility Agreements entered into by a Facility Owner and either the
Company or a wholly-owned subsidiary of the Company.
"LEASE FINANCING" means the lease financing provided in
relation to a Facility pursuant to the Lease Transaction for such
Facility.
"LEASE TRANSACTION" means the lease financing transactions
between a Facility Owner and either the Company or a wholly-owned
subsidiary of the Company, each of which transactions shall be governed
and evidenced by, collectively, a Lease Agreement, a Call Option
Letter, a Put Option Letter, a Supplemental Agreement and a Tax Matters
Agreement, including any amendments or supplements thereto.
"LEGAL REQUIREMENTS" means any license, certificate, law,
code, rule, ordinance, regulation or order of any federal, state or
local governmental authority, court, department, commission, board or
office, Board of Fire Underwriters or any body similar to any of the
foregoing having jurisdiction over the Company, ▇▇▇▇▇ or the business
or operation of the Facilities or the matters that are the subject of
this Agreement, including, without limitation, any laws, ordinances,
regulations, orders or rules concerning resident care, health care,
building, zoning, use, environmental protection, Resident funds on
deposit or security deposits, environmental protection and fire safety.
"LETTER OF INTENT" has the meaning set forth in Section 10.10
hereof.
"MAJOR DECISION" has the meaning set forth in Section 10.4
hereof.
"MANAGEMENT AGREEMENT" means the Management Agreement
pertaining to each Facility between ▇▇▇▇▇ and either the Company or a
wholly-owned subsidiary of the Company.
"MANAGEMENT FEE" means a monthly payment made by the Company
to ▇▇▇▇▇ under each Management Agreement as consideration for ▇▇▇▇▇'▇
management of the relevant Facility.
"MANAGING MEMBER" means Sunrise Assisted Living Investments,
Inc., and its permitted successors and assigns.
"MANAGING MEMBER CONTRIBUTION AMOUNT" means, for each
Facility, an amount equal to the Managing Member's Percentage Interest
of the amount by which the Gross
11
Asset Value for such Facility exceeds the amount of Lease Financing
provided for such Facility, as such amount may be adjusted for such
Facility under Section 2.5 of the Transaction Agreement, which amount
equals the net amount deemed to have been contributed by the Managing
Member to the Company for such Facility.
"MANAGING MEMBER'S FIRST CAPITAL CONTRIBUTION" means the
Managing Member's initial Capital Contribution to the Company, which is
deemed to have been contributed to the Company pursuant to Section 7.1
hereof, in an amount equal to the aggregate amount of Managing Member
Contribution Amounts for each of the Facilities that became part of the
Portfolio on the First Closing Date.
"MANAGING MEMBER'S MARKETING RIGHT" has the meaning set forth
in Section 22.3(a) hereof.
"MANAGING MEMBER'S SECOND CAPITAL CONTRIBUTION" means the
Managing Member's second Capital Contribution to the Company, which
shall be deemed to have been contributed to the Company pursuant to
Section 7.2 hereof, in an amount equal to the aggregate amount of
Managing Member Contribution Amounts for each of the Facilities that
becomes part of the Portfolio on the Second Closing Date.
"MANDATORY ADDITIONAL CONTRIBUTIONS" has the meaning set forth
in Section 7.5 hereof.
"MASTER OWNER/MANAGER AGREEMENT" means that certain Amended
and Restated Master Owner/Manager Agreement, dated as of the date
hereof, between the Company and ▇▇▇▇▇.
"MEMBERS" means the Managing Member and the Investor Member,
collectively, and any successor member admitted pursuant to Section 16
hereof.
"NET CASH FLOW" means, for any given period, any amounts
released from Company reserves in accordance with the applicable
Operating Budget or as otherwise Approved by all of the Members,
together with all receipts from the conduct of the business of the
Company for such period (specifically excluding any Extraordinary
Proceeds) which are available for distribution by the Company following
(i) the payment of all operating and capital expenses of the Company
(including without limitation the Management Fee) for such period or
any prior period if due and unpaid with respect to which no reserves
have been established and which have not been paid out of Extraordinary
Proceeds or cash proceeds realized by the Company from Capital
Contributions of the Members, (ii) the payment of rent and all other
payments required to be paid pursuant to the Lease Transaction during
any such period, and (iii) the establishment or replenishment of
reserves, if any, for taxes, debt service, maintenance, repairs and
other expenses and other working capital requirements of the Company or
for contingent and unforeseen liabilities of the Company.
"NET OPERATING INCOME" has the meaning set forth in Section
10.11 hereof.
12
"NET PROFIT" or "NET LOSS" means, for each Fiscal Year, the
Company's taxable income or taxable loss for such Fiscal Year, as
determined under Section 703(a) of the Code, and Section 1.703-1 of the
Regulations (for this purpose, all items of income, gain, loss or
deduction required to be stated separately pursuant to Section
703(a)(1) of the Code shall be included in taxable income or taxable
loss), but with the following adjustments:
(a) Any tax-exempt income, as described in Section
705(a)(1)(B) of the Code, realized by the Company during such Fiscal
Year shall be taken into account in computing such taxable income or
taxable loss as if it were taxable income;
(b) Any expenditures of the Company described in Section
705(a)(2)(B) of the Code for such Fiscal Year, including any items
treated under Section 1.704-1(b)(2)(iv)(i) of the Regulations as items
described in Section 705(a)(2)(B) of the Code, shall be taken into
account in computing such taxable income or taxable loss as if they
were deductible items;
(c) In the event the Gross Asset Value of any Company asset is
adjusted pursuant to clauses (b) or (c) of the definition of "Gross
Asset Value," the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of
computing Net Profit or Net Loss;
(d) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income
or loss, there shall be taken into account Depreciation for such Fiscal
Year or other period; and
(f) Any items which are specially allocated pursuant to
Section 8.4 or Section 8.5 hereof shall not be taken into account in
computing Net Profit or Net Loss.
If the Company's taxable income or taxable loss for such
Fiscal Year, as adjusted in the manner provided above in clauses (a)
through (f) above, is a positive amount, such amount shall be the
Company's Net Profit for such Fiscal Year; and if negative, such amount
shall be the Company's Net Loss for such Fiscal Year.
"NON-CONTROLLABLE EXPENSES" means all costs and expenses of
the Company incurred (whether incurred by the Company or by the
Managing Member on behalf of the Company for which the Managing Member
is entitled to reimbursement pursuant to this Agreement) in connection
with the payment of (i) fees for utility services or insurance coverage
for the Company or the Portfolio and other similar recurring expenses,
(ii) real estate taxes with respect to the Portfolio, (iii) the
Management Fee, (iv) personal property taxes, business and professional
license taxes and similar taxes and fees for the Company or the
Portfolio, and (v) rent under the Lease Agreements.
13
"NON-FAILING MEMBER" has the meaning set forth in Section 7.5
hereof.
"NON-U.S. LAWS" means any law, regulation or rule (including
without limitation all securities laws and regulations) applicable in
any jurisdiction outside of the United States that regulates or affects
the sale of any direct or indirect interest in the Company and/or the
Investor Member.
"OFFER TO PURCHASE" has the meaning set forth in Section 20.2
hereof.
"OFFER TO SELL" has the meaning set forth in Section 20.2
hereof.
"OFFERED FACILITIES" has the meaning set forth in Section
22.1(a) hereof.
"OFFEREE" has the meaning set forth in Section 20.1 hereof.
"OFFEROR" has the meaning set forth in Section 20.1 hereof.
"OPERATING BUDGET" has the meaning set forth in subsection
10.3 hereof.
"PERCENTAGE INTERESTS" has the meaning set forth in Section 6
hereof.
"PERMITTED EXPENSES" means all costs and expenses of the
Company incurred (whether incurred by the Company or by the Managing
Member on behalf of the Company) in connection with the Company's
affairs, and which are (i) Non-Controllable Expenses, (ii) line item
expenditures in an Operating Budget, provided that the amount of a line
item expenditure in the Operating Budget for a Fiscal Year may be
exceeded by the greater of 10% of such amount or $10,000 and, provided,
further, that the aggregate amount by which line item amounts in an
Operating Budget are exceeded pursuant to this clause (ii) shall not
exceed 5% of the total of all line item expenditures in such Operating
Budget, or (iii) expenditures immediately required by law, or necessary
without delay in order to protect the Portfolio, or made under other
circumstances which the Managing Member reasonably believes to be an
emergency, provided that notice of the making of such required,
protective or emergency expenditures is given to all Members within
five (5) Business Days of the making of such expenditures.
"PORTFOLIO" means those Facilities that are or become subject
to a Lease Agreement. The Facilities that are expected to become part
of the Portfolio are listed in Schedule 1 hereto.
"REGULATIONS" means the income tax regulations promulgated
under the Code, as such regulations may be amended from time to time.
All references herein to specific Sections of the Regulations shall be
deemed to refer also to corresponding provisions of any succeeding
regulations.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section
8.5 hereof.
"RENT SHORTFALL AMOUNT" has the meaning set forth in Section
9.1(d) hereof.
14
"RESIDENT" means an individual occupying a unit in a Facility.
"RESIDENT AGREEMENT" means an agreement between ▇▇▇▇▇ and a
Resident for the occupancy of a unit in a Facility.
"RESTRICTED FOODS" means certain food products (including, but
not limited to, pork and alcoholic beverages) that cannot be provided
by the Company at the Facilities.
"▇▇▇▇▇" means Sunrise Assisted Living Management, Inc.
"SECOND CLOSING DATE" means the date of this Agreement.
"SELLING MEMBER" has the meaning set forth in Section 20.4
hereof.
"SENIOR FINANCING" means the financing provided to a Facility
Owner and secured by a first priority mortgage or deed of trust on the
Facility of such Facility Owner.
"SHORTFALL AMOUNT" has the meaning set forth in Section 9.2
hereof.
"SHORTFALL PAYMENT" has the meaning set forth in Section 9.2
hereof.
"SOFTWARE" means all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof) which are owned or leased by
▇▇▇▇▇ and used in connection with its management and operation of the
Facilities.
"STATE ACT" has the meaning set forth in Section 11.2 hereof.
"SUBSTITUTED BUYER" has the meaning set forth in Section 20.5
hereof.
"SUNRISE" means Sunrise Assisted Living Investments, Inc.
"SUNRISE STANDARDS" means both the operational standards
(including, but not limited to, staffing levels, compensation plans,
Resident care and health care policies and procedures, and accounting
and financial reporting policies and procedures) and the physical
standards (including, but not limited to, amounts and quality of FF&E
and frequency of FF&E replacements) that are from time to time then
generally and consistently (but not necessarily absolutely or without
exception) applied at or to assisted living communities (but not
nursing homes or other acute care facilities) in the Sunrise System,
which are of comparable type, size, age and market orientation as the
relevant Facility or Facilities, all in accordance with Legal
Requirements, provided, that the Sunrise Standards shall at all times
be at a level consistent with those of a premier owner or manager of
premier or first class assisted living/dementia care facilities.
"SUNRISE SYSTEM" means, at any time, the entire system or
group of Sunrise assisted living communities then owned and/or operated
or managed by ▇▇▇▇▇ (or one or more of its Affiliates) under the
"Sunrise" name.
15
"TAXES" has the meaning set forth in Section 21.6 hereof.
"13% RETURN AMOUNT" means an amount computed like compounding
interest at a rate of 13% per annum on the balance standing from time
to time in the Investor Member's Contribution Account. The 13% Return
shall be computed using the same compounding, accrual period and other
assumptions that are used in computing the Investor Member's Internal
Rate of Return, taking into account the proviso in Section 9.1(b)(ii),
if applicable.
"THIRTY DAY PERIOD" has, for purposes of Section 20, the
meaning set forth in Section 20.3 hereof, and for purposes of Section
21, the meaning set forth in Section 21.2.
"TITLE COMPANY" has the meaning set forth in Section 21.6.
"TRANSACTION AGREEMENT" means the Transaction Agreement, dated
as of September 30, 2002, as amended from time to time, by and among
the Company, Sunrise Assisted Living, Inc., a Delaware corporation, the
Managing Member, the Investor Member and certain Affiliates of the
Managing Member named therein.
"TRIGGERING TRANSFER" has the meaning set forth in Section
16.3 hereof.
"UNCURED MAJOR DEFAULT" means the commission of an act of
negligence, gross negligence, fraud or willful misconduct by a Member
in the course of such Member carrying out its activities hereunder,
following which written notice is provided by the other Member to the
defaulting Member of such other Member's intention to exercise its
remedies hereunder as a result of such default; and such default and
the damages, if any, resulting from such default have not been cured
within thirty (30) days after the provision of such written notice (or
within such reasonably longer time period as the other Member may
provide the defaulting Member if such default is not susceptible to
cure within thirty (30) days).
"VOLUNTARY ADDITIONAL CONTRIBUTIONS" has the meaning set forth
in Section 7.5 hereof.
"WORKING CAPITAL" means the working capital deposited by the
Company with ▇▇▇▇▇ under the Management Agreements for use as set forth
therein.
SECTION 2. CONTINUATION OF COMPANY.
The parties do hereby agree to and do hereby continue the Company under
the Delaware Limited Liability Company Act (as amended from time to time and any
successor statute thereto, the "ACT"). The managing member of the Company shall
be the Managing Member and the non-managing member shall be the Investor Member.
16
SECTION 3. NAME AND PRINCIPAL OFFICE.
SECTION 3.1. NAME.
The name of the Company is "SUNRISE SECOND ASSISTED LIVING HOLDINGS,
LLC".
SECTION 3.2. PRINCIPAL OFFICE AND PLACE OF BUSINESS; REGISTERED AGENT.
The principal office of the Company shall be located at ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The initial registered agent of the Company for
service of process shall be Corporation Trust Company, and the address of the
registered agent shall be ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇. The address
of the registered office of the Company shall be the same as the address of the
registered agent of the Company.
SECTION 4. PURPOSE OF COMPANY.
The purpose of the Company shall be to own, operate, hold, lease,
manage, finance, acquire, sell, substitute and dispose of, or otherwise deal
with or provide services with respect to, the Facilities. The Members
acknowledge and agree that the goal of the Company is to maximize the Members'
return on their investment. Except as otherwise provided herein, the Company
shall not engage in any other activities and businesses unless Approved by all
Members.
SECTION 5. TERM.
The term of the Company commenced on September 13, 2002 and shall
continue until the Company is terminated, liquidated and dissolved pursuant to
Section 23 hereof.
SECTION 6. PERCENTAGE INTERESTS.
The percentage interests (the "PERCENTAGE INTERESTS") of each of the
Members at all times (unless modified as provided in Section 7 hereof) shall be
as follows:
MEMBER PERCENTAGE INTEREST
Managing Member 20 %
Investor Member 80 %
SECTION 7. CAPITAL.
SECTION 7.1. FIRST CLOSING.
On the First Closing Date, the Investor Member made the Investor
Member's First Capital Contribution to the capital of the Company for the
Orchard Facility and the Fair Oaks Facility and the Managing Member transferred
to AL Funding II, Inc. and/or a subsidiary thereof
17
(together, "AL FUNDING") the membership interests of the entities that hold
title to such Facilities and is thereby deemed to have made the Managing
Member's First Capital Contribution to the capital of the Company for both of
such Facilities. The Managing Member also on the First Closing Date (i) arranged
for each Facility Owner to enter into a Lease Transaction with the Company or a
subsidiary of the Company for the Facility owned by such Facility Owner and (ii)
arranged for the amount of Lease Financing provided by such Lease Transaction to
be not less than the amount specified in Section 6.13 of the Transaction
Agreement. The Investor Member confirms that the terms of the Lease Transaction
and the terms of the Lease Financing for each such Facility is satisfactory to
the Investor Member.
SECTION 7.2. SECOND CLOSING.
On or about December 20, 2002, or such other date as may be Approved by
all of the Members (the "SECOND CLOSING DATE"), the Investor Member shall make
the Investor Member's Second Capital Contribution to the Company for all
Facilities listed on Schedule 1 hereto other than the Fair Oaks Facility and the
Orchard Facility. Upon completion of the transfers, conveyances and other
transactions contemplated by this Section, the Managing Member shall be deemed
to have made the Managing Member's Second Capital Contribution to the Company.
On the Second Closing Date, the Managing Member shall transfer to AL Funding the
membership or partnership interests of the entities that hold title to the
Facilities that are to become part of the Portfolio on such date. The Managing
Member shall also on the Second Closing Date (i) arrange for each Facility Owner
to enter into a Lease Transaction with the Company or a subsidiary of the
Company for the Facility owned by such Facility Owner, and (ii) arrange for the
amount of Lease Financing provided by such Lease Transaction to be not less than
the amount specified in Section 6.13 of the Transaction Agreement. The terms of
the Lease Transaction and the Lease Financing for each Facility shall be
satisfactory to the Investor Member. The Members acknowledge and agree that, on
or about the Second Closing Date, each of the Managing Member (or an Affiliate
of the Managing Member) and the financial institution that is funding the Lease
Financing may retain or be granted, as applicable, a de minimus ownership
interest in each Facility Owner of a Facility that became part of the Portfolio
on the First Closing Date or the Second Closing Date. The sole purpose of
holding such de minimus ownership interest is to permit each of such Entities to
participate in a decision of such Facility Owners to commence a bankruptcy
proceeding.
SECTION 7.3. [THIS SECTION INTENTIONALLY OMITTED.].
SECTION 7.4. [THIS SECTION INTENTIONALLY OMITTED].
SECTION 7.5. ADDITIONAL CAPITAL CONTRIBUTIONS AND OTHER CAPITAL
MATTERS.
(a) Contributions Relating to the Huntcliff Facility.
(i) On the Second Closing Date, the Company will enter into (A)
a Deed of Lease with ▇▇▇▇▇ pursuant to which ▇▇▇▇▇ will sublease
approximately 1,100 square feet at the Huntcliff IL Facility from the
Company and (B) a Deed of Lease with Sunrise pursuant to which Sunrise
will sublease units 103,105,225 and 552 at the Huntcliff IL
18
Facility from the Company. The forms of both Deeds of Lease have been
agreed upon by the Members pursuant to a First Amendment to the
Transaction Agreement.
(ii) The parties hereto acknowledge that, pursuant to Section
2.1(g) of the Transaction Agreement, Sunrise Huntcliff (as defined in
the Transaction Agreement) has purchased two (2) of the nine (9)
remaining condominium units (Units 428 and 554) at the Huntcliff IL
Facility since the execution of the Transaction Agreement. Sunrise
Huntcliff anticipates that it will purchase an additional two (2) units
(Units 258 and 318) prior to the Second Closing Date.
(iii) As reflected on Schedule 1, the Gross Asset Value for the
Huntcliff IL Facility shall be increased to $38,616,947. This reflects
an increase of $172,000 for the lease of the Sunrise regional office
specified in paragraph (i) above and an increase of $1,148,583 for the
four (4) additional condominium units specified in paragraph (ii) above.
If Unit 258 is not purchased prior to the Second Closing Date, the new
Gross Asset Value will be reduced by $290,774, and if Unit 318 is not
purchased prior to the Second Closing Date, the new Gross Asset Value
will be reduced by $251,568.
(iv) The Company agrees to purchase all of the remaining
condominium units in the Huntcliff IL Facility that have not been
purchased by Sunrise Huntcliff on or prior to the Second Closing Date
if, as and when such remaining units become available for purchase, at
prices and on terms reasonably acceptable to both Members. The Members
agree to make further Capital Contributions to the Company in proportion
to their respective Percentage Interests in an amount reasonably
determined by the Managing Member to be necessary to complete each such
purchase. The Managing Member shall provide the Investor Member with
thirty (30) days advance notice of the date on which such further
Capital Contributions are required to be made. Following receipt of such
notice, the Members shall make their respective Capital Contributions as
and when requested in such notice.
(b) Mandatory and Voluntary Additional Contributions.
(i) Pursuant to the Management Agreement for each Facility, the
Company has agreed to establish and maintain a reserve account for each
Facility in which the Company shall collect and hold funds to cover the
FF&E and capital improvement costs specified in Sections 10.02 and 10.03
of each such Management Agreement. The amounts held in the reserve
accounts for the Facilities may be aggregated by the Company into a
single account (the "CENTRAL ACCOUNT"), notwithstanding the provisions
of the Management Agreements. The Transaction Agreement specifies for
each Facility the method of determining whether an amount is to be paid
by Sunrise to the Company for the initial funding of the reserve account
for such Facility. In addition, the Members agree to fund the reserve
account for each Facility with the amount of $550/unit times the number
of units in such Facility. Commencing the calendar month after a
Facility becomes part of the Portfolio and each calendar month
thereafter, the Members agree that the Company will add to the reserve
account for each Facility the amount of $45.83 per unit of such Facility
up to an aggregate amount for all Facilities equal to $50,000 times the
number of Facilities in the Portfolio, such amount to be derived from
the Gross
19
Facility Revenue of such Facility. The amount to be funded per unit of a
Facility is subject to adjustment as set forth in the Management
Agreement for such Facility. The Members agree that the aggregate of the
amounts held in the Central Account are to be used by the Company and
the Manager to pay the expenses incurred in maintaining the FF&E of the
Facilities in good condition and repair in a manner consistent with the
Sunrise Standards and to pay the cost of capital improvements of the
Facilities, subject to the Management Agreement and the Approved
Operating Budget for each Facility. If at any time after the First
Closing Date, the aggregate FF&E and capital improvement costs in a
Fiscal Year for all of the Facilities, as set forth in the Approved
Operating Budgets for the Facilities, plus the aggregate FF&E and
capital improvement costs incurred for all of the Facilities as a result
of emergencies at the Facilities (as described in Section 10.4(a)),
exceed or are reasonably expected to exceed the aggregate of the funds
held in the Central Account, then the Managing Member may, in its sole
discretion, call for the Members to make Capital Contributions to the
Company in proportion to their respective Percentage Interests, in an
aggregate cumulative amount not to exceed the Cap Amount ("MANDATORY
ADDITIONAL CONTRIBUTIONS"). The Managing Member agrees that in calling
for such Mandatory Additional Contributions, it shall take into
consideration the amounts then held in the Central Account, the monthly
deposits being made into the reserve accounts and the timing of the FF&E
and capital improvement costs to be incurred at the Facilities during
such Fiscal Year. The Managing Member shall provide the Investor Member
with thirty (30) days advance notice of the date on which such Mandatory
Additional Contributions are required to be made. Following receipt of
such notice, the Managing Member and the Investor Member shall make
their respective Mandatory Additional Contributions as and when
requested in such notice. To assure the Company that the Investor Member
will contribute its proportionate share of such Mandatory Additional
Contributions, not later than thirty (30) days after the Approval of the
Operating Budgets for the Facilities, the Investor Member will fund its
proportionate share (based on its Percentage Interest) of the amount of
the projected Mandatory Additional Contributions for such Fiscal Year,
as reasonably determined by the Managing Member. Such funded amount will
be held by the Company in a separate reserve account. If and when the
Managing Member calls on the members to make Mandatory Additional
Contributions pursuant hereto, the Managing Member shall draw on the
funds in such reserve account in satisfaction of the Investor Member's
proportionate share of such Mandatory Additional Contributions.
(ii) If the Mandatory Additional Contributions made by the
Members are determined by the Managing Member to be insufficient, then
the Managing Member may propose, as a Major Decision, that the Members
make further Capital Contributions ("VOLUNTARY ADDITIONAL
CONTRIBUTIONS") to the Company in proportion to their respective
Percentage Interests in an amount determined to be necessary by the
Managing Member. If the Members agree, as a Major Decision, to make such
Voluntary Additional Contributions, the Managing Member shall provide
the Investor Member with thirty (30) days advance notice of the date on
which such contributions are required to be made. Following receipt of
such notice, the Managing Member and the Investor Member shall make
their respective Voluntary Additional Contributions as and when
requested in such notice.
20
(iii) If all of the Members do not agree to make Voluntary
Additional Contributions requested by the Managing Member, then any
Member may promptly thereafter make all (but not less than all) of the
requested Voluntary Additional Contributions. The amount of the
Voluntary Additional Contributions made by such Member shall be
credited to the Capital Account of such Member for all purposes of this
Agreement and treated as a Capital Contribution for all purposes of
this Agreement, and the Members' Percentage Interests shall be
recalculated by reference to their relative cumulative Capital
Contributions.
(iv) If a Member fails to fund its proportionate share of any
Capital Contribution that it is required to make under this Agreement
as and when required, and the other Member shall have funded its
proportionate share of such Capital Contribution, then such other
Member shall have the rights specified in Section 7.5(d), in addition
to any remedy provided in Section 18.
(c) Adjustment and Return of Capital Contributions.
If the Gross Facility Revenue of a Facility during any of the four
consecutive calendar quarters commencing with the calendar quarter in which the
Closing Date for such Facility occurs is less than the Gross Facility Revenue
amount specified in Schedule 8 hereto for such Facility for such calendar
quarter, then the aggregate Capital Contributions made by the Members in
relation to such Facility shall be reduced by the adjustment amount specified in
Schedule 8, and the Managing Member shall distribute to the Members their
proportionate share of such reduction. Such distribution shall be made by the
Managing Member within sixty (60) days after the fiscal quarter in which such
Facility failed to generate the required Gross Facility Revenue, as specified in
Schedule 8. The amount of any such reduction shall be allocated against the
value of such Facility as shown on Schedule 8 hereto. Such allocation shall be
made promptly after the end of the fiscal quarter in which such shortfall
occurred. Except as and to the extent provided in this Section 7.5, in Section 9
and in Section 23, no portion of a Member's Capital Contribution will be
returned to such Member, no Member shall have the right to demand or receive the
return of any portion of its Capital Contribution, and no Member shall have the
right to receive the distribution of any property other than cash.
(d) Failure to Make Capital Contributions.
If a Member (the "FAILING MEMBER") fails to contribute on a timely
basis its full proportionate share of a Capital Contribution it is required to
make under this Agreement, and if the other Member (the "NON-FAILING MEMBER")
contributes on a timely basis its full proportionate share of such Capital
Contribution, then the Non-Failing Member may provide written notice to the
Failing Member of the Failing Member's default. If the Failing Member fails to
contribute its full proportionate share of such Capital Contribution within ten
(10) days of such written notice, then the Non-Failing Member shall have the
following rights and options, none of which shall be exclusive of the other or
of any other right or remedy available to the Non-Failing Member hereunder or at
law or equity:
(i) the Non-Failing Member may, but need not, require the
Company to repay immediately to the Non-Failing Member all or any
portion of the amount contributed by
21
21 the Non-Failing Member that is disproportionately (based on the
required percentage contribution) in excess of the amount (if any) the
Failing Member contributed to the Company pursuant to the relevant
notice, together with actual earnings thereon accruing to the benefit
of the Company, if any, until such amount is repaid;
(ii) the Non-Failing Member may, but need not, make an
additional Capital Contribution to the Company (a "DELINQUENCY
ADVANCE") not in excess of the amount the Failing Member failed to
contribute. If the Non-Failing Member makes such Delinquency Advance,
the amount thereof shall be credited to the Capital Account of the
Non-Failing Member for all purposes of this Agreement and treated as a
Capital Contribution for all purposes of this Agreement, and the
Members' Percentage Interests shall be recalculated by reference to
their relative cumulative Capital Contributions; and
(iii) the Non-Failing Member may, but need not, make a
Buy-Sell Offer under Section 20.
SECTION 7.6. CAPITAL ACCOUNTS.
A separate Capital Account shall be maintained for each Member in
accordance with the following provisions:
(a) To each Member's Capital Account there shall be added (i)
the amount of money and the initial Gross Asset Value of any property
other than money contributed to the capital of the Company by such
Member, (ii) such Member's distributive share of Net Profit and any
items in the nature of income or gain that are specially allocated to
such Member pursuant to Section 8.4 and Section 8.5, and (iii) the
amount of any Company liabilities assumed by such Member or that are
secured by any property distributed to such Member.
(b) From each Member's Capital Account there shall be
subtracted (i) the amount of money and the Gross Asset Value of any
property distributed by the Company to such Member, (ii) such Member's
distributive share of Net Loss and any items in the nature of expense
or loss that are specially allocated to such Member pursuant to Section
8.4 and Section 8.5, and (iii) the amount of any liabilities of such
Member assumed by the Company or that are secured by any property
contributed by such Member to the Company.
(c) In the event all or a portion of an interest in the
Company is transferred in accordance with the terms of this Agreement,
the transferee shall succeed to the Capital Account of the transferor
to the extent it relates to the transferred interest.
(d) In determining the amount of any liability for purposes of
(a) and (b) hereof, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations.
22
SECTION 7.7. INTEREST OR EARNINGS ON RETURNED CAPITAL.
Except as provided in Section 7.5(d)(i), no Member shall be entitled to
any interest or earnings on such Member's Capital Account or on such Member's
contributions to the capital of the Company.
SECTION 7.8. NO THIRD PARTY RIGHTS.
Neither this Section 7 nor any other provision of this Agreement shall
be construed to create any rights or benefits in any Entity other than the
Company and the Members, and their respective legal representatives,
transferees, successors and assigns, subject to the limitations on transfer
contained herein.
SECTION 7.9. DEEMED CAPITAL CONTRIBUTIONS.
Any reduction in the "ACQUISITION COST" to be paid under any Lease
Agreement and any related agreement resulting from the utilization of funds of a
Member shall be treated, as of the time of such reduction, as a Capital
Contribution of cash to the Company by such Member that increases such Member's
Capital Account and Contribution Account, and the Members' Percentage Interests
shall be recalculated by reference to their relative Capital Contributions.
SECTION 8. ALLOCATION OF PROFITS AND LOSSES.
SECTION 8.1. NET PROFIT.
After giving effect to the special allocations set forth in Sections
8.4 and 8.5 (but before making any special allocations of Disposition Gain or
Disposition Loss under Section 8.3), Net Profit for each Fiscal Year shall be
allocated to the Members in accordance with their respective Percentage
Interests.
SECTION 8.2. NET LOSS.
(a) After giving effect to the special allocations set forth
in Sections 8.4 and 8.5 (but before making any special allocations of
Disposition Gain or Disposition Loss under Section 8.3), Net Loss for
each Fiscal Year shall be allocated to the Members in accordance with
their respective Percentage Interests.
(b) If the amount of Net Loss for any Fiscal Year that
otherwise would be allocated to a Member under Section 8.2(a) would
cause or increase an Adjusted Capital Account Deficit of such Member as
of the last day of such Fiscal Year (after all other allocations have
been made pursuant to this Section 8), then such Member shall be
allocated that amount of Net Loss which does not cause or increase such
Adjusted Capital Account Deficit, and the remainder of such Net Loss
that would have been allocated to such Member shall be allocated to the
other Members.
23
SECTION 8.3. DISPOSITION GAIN AND DISPOSITION LOSS.
(a) DISPOSITION GAIN. In the event that, in any Fiscal Year,
the Company realizes, or is deemed to realize gain (determined by
reference to Gross Asset Value immediately prior to the event
triggering such gain) from an Extraordinary Event or from an adjustment
to the Gross Asset Value of any assets of the Company, such gain
("DISPOSITION GAIN") shall be allocated (as of the end of such Fiscal
Year, but after making all special allocations pursuant to Sections 8.4
and 8.5 and all allocations of Net Profit or Net Loss under Section 8.1
or 8.2 for such Fiscal Year) in the following order and priority:
(i) First, to the Members, in proportion to and to the extent
of, the excess, if any, of (A) the sum of cumulative allocations of Net
Loss to each Member pursuant to Section 8.2(a) for the current and all
prior Fiscal Years and the cumulative allocations of Disposition Loss
to each Member pursuant to Sections 8.3(b)(iv) and 8.3(b)(v) for the
current and all prior Fiscal Years, over (B) the sum of the cumulative
allocations of Net Profit to such Member pursuant to Section 8.1 for
the current and all prior Fiscal Years and the cumulative allocations
of Disposition Gain to such Member under this Section 8.3(a)(i) for the
current and all prior Fiscal Years;
(ii) Second, to the Members in accordance with their
Percentage Interests, until the sum of (A) the cumulative Disposition
Gain allocated to the Investor Member under Section 8.3(a)(i) and this
Section 8.3(a)(ii) for the current and all prior Fiscal Years, and (B)
the cumulative Profits allocated to the Investor Member under Section
8.1 for the current and all prior Fiscal Years (net of the cumulative
Disposition Loss allocated to the Investor Member under Sections
8.3(b)(iii), 8.3(b)(iv) and 8.3(b)(v) and the cumulative Net Loss
allocated to the Investor Member under Section 8.2(a) for the current
and all prior Fiscal Years) is equal to the 13% Return Amount that has
accrued on the Investor Member's Contribution Account from the date of
its first Capital Contribution through the end of the current Fiscal
Year;
(iii) Third, 30% to the Managing Member and 70% to the
Investor Member, until the sum of (A) the cumulative Disposition Gain
allocated to the Investor Member under Sections 8.3(a)(i) and
8.3(a)(ii) and this Section 8.3(a)(iii) for the current and all prior
Fiscal Years, and (B) the cumulative Profits allocated to the Investor
Member under Section 8.1 for the current and all prior Fiscal Years
(net of the cumulative Disposition Loss allocated to the Investor
Member under Sections 8.3(b)(ii), 8.3(b)(iii), 8.3(b)(iv) and 8.3(b)(v)
and the cumulative Net Loss allocated to the Investor Member under
Section 8.2(a) for the current and all prior Fiscal Years) is equal to
the 18% Return Amount that has accrued on the Investor Member's
Contribution Account from the date of its first Capital Contribution
through the end of the current Fiscal Year; and
(iv) Thereafter, 35% to the Managing Member and 65% to the
Investor Member.
(b) DISPOSITION LOSS. In the event that, in any Fiscal Year,
the Company realizes, or is deemed to realize, loss (determined by
reference to Gross Asset Value
24
immediately prior to the event triggering such loss) from an
Extraordinary Event or from an adjustment to the Gross Asset Value of
any assets of the Company, such loss ("DISPOSITION LOSS") shall be
allocated (as of the end of such Fiscal Year, but after making all
special allocations pursuant to Sections 8.4 and 8.5 and all
allocations of Net Profit or Net Loss under Section 8.1 or 8.2 for such
Fiscal Year) in the following order and priority:
(i) First, to the Members, in proportion to and to the extent
of the excess, if any, of (A) the cumulative amount of Disposition Gain
allocated to each Member pursuant to Section 8.3(a)(iv) for the current
and all prior Fiscal Years, over (B) the sum of (i) the cumulative
distributions to such Member pursuant to Section 9.1(b)(iv) for the
current and all prior Fiscal Years, and (ii) the cumulative allocations
of Disposition Loss under this Section 8.3(b)(i) for the current and
all prior Fiscal Years;
(ii) Second, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative amount of
Disposition Gain allocated to each Member pursuant to Section
8.3(a)(iii) for the current and all prior Fiscal Years, over (B) the
sum of (i) the cumulative distributions to such Member pursuant to
Section 9.1(b)(iii) for the current and all prior Fiscal Years, and
(ii) the cumulative allocations of Disposition Loss under this Section
8.3(b)(ii) for the current and all prior Fiscal Years;
(iii) Third, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative amount of
Disposition Gain allocated to each Member pursuant to Section
8.3(a)(ii) for the current and all prior Fiscal Years, over (B) the sum
of (i) the cumulative distributions to such Member pursuant to Section
9.1(b)(ii) for the current and all prior Fiscal Years, and (ii) the
cumulative allocations of Disposition Loss under this Section
8.3(b)(iii) for the current and all prior Fiscal Years;
(iv) Fourth, to the Members, in proportion to and to the
extent of the excess, if any, of (A) the cumulative allocations of Net
Profit to each Member pursuant to Section 8.1 for the current and all
prior Fiscal Years, over (B) the sum of (i) the cumulative
distributions to such Member pursuant to Section 9.1(a) for the current
and all prior Fiscal Years, (ii) the cumulative allocations of Net Loss
to such Member pursuant to Section 8.2(a) for the current and all prior
Fiscal Years, and (iii) the cumulative allocations of Disposition Loss
under this Section 8.3(b)(iv) for the current and all prior Fiscal
Years;
(v) Thereafter, to the Members in accordance with their
respective Percentage Interests.
(vi) Notwithstanding the foregoing provisions, if any
allocation of Disposition Gain or Disposition Loss pursuant to this
Section 8.3 would result in the Members having Capital Account balances
which are not equal to the amounts which would be distributed to the
Members pursuant to Section 9.1 if the Company were to liquidate
immediately following such allocation, then such Disposition Gain or
Disposition Loss (as the case may be) shall be allocated in a manner
that causes the Capital Account balances of the Members (taking into
account any other allocations required to be made upon liquidation
25
of the Company) to equal the amounts that would be so distributed to
the Members pursuant to Section 9.1.
SECTION 8.4. SPECIAL ALLOCATIONS.
The following special allocations shall be made in the following order:
(a) MINIMUM GAIN CHARGEBACK. If there is a net decrease in
"company minimum gain" (as that term is defined in Sections
1.704-2(b)(2) and 1.704-2(d) of the Regulations) during any Company
Fiscal Year, each Member shall be specially allocated items of Company
income and gain for such Fiscal Year in an amount equal to that
Member's share of the net decrease in partnership minimum gain.
Allocations pursuant to the previous sentence shall be made in
accordance with Section 1.704-2(f)(6) of the Regulations. This
subsection 8.4(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and
shall be interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. If there is a net decrease
in "partner nonrecourse debt minimum gain" (as that term is defined in
Sections 1.704-2(i)(2) and (3) of the Regulations) during any Company
Fiscal Year, each Member who has a share of that partner nonrecourse
debt minimum gain as of the beginning of the Fiscal Year shall, to the
extent required by Section 1.704-2(i)(4) of the Regulations, be
specially allocated items of Company income and gain for such year
(and, if necessary, subsequent years) equal to that Member's share of
the net decrease in partner nonrecourse debt minimum gain. Allocations
pursuant to the previous sentence shall be made in accordance with
Section 1.704-2(i)(4) of the Regulations. This subsection 8.4(b) is
intended to comply with the requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistently therewith.
(c) QUALIFIED INCOME OFFSET. If any Member unexpectedly
receives any adjustments, allocations, or distributions described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Company income and
gain shall be specially allocated to each such Member in an amount and
manner sufficient to eliminate, to the extent required by the
Regulations, the Adjusted Capital Account Deficit of such Member as
quickly as possible, provided that an allocation pursuant to this
subsection 8.4(c) shall be made only if and to the extent that such
Member would have an Adjusted Capital Account Deficit after all other
allocations provided for in this Section 8 have been tentatively made
as if this subsection 8.4(c) were not in the Agreement.
(d) GROSS INCOME ALLOCATION. In the event any Member has a
deficit Capital Account at the end of any Fiscal Year which is in
excess of the sum of (i) the amount such Member is obligated to restore
pursuant to any provision of this Agreement, and (ii) the amount such
Member is obligated to restore pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such
Member shall be specially allocated items of Company income and gain in
the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 8.4(d) shall be
26
made only if and to the extent that such Member would have a deficit
Capital Account in excess of such sum after all allocations provided
for in this Section 8 have been made as if Section 8.4(c) and this
Section 8.4(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. "Nonrecourse deductions" (as that
term is defined in Sections 1.704-2(b)(1) and (c) of the Regulations)
for any Fiscal Year or other period shall be specially allocated to the
Members in proportion to their respective Percentage Interests in the
Company.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member "nonrecourse
deductions" (as that term is defined in Section 1.704-2(i) of the
Regulations) for any Fiscal Year or other period shall be specially
allocated to the Member who bears the economic risk of loss with
respect to the "partner nonrecourse debt" (as that term is defined in
Section 1.704-2(b)(4) of the Regulations) to which such Member
nonrecourse deductions are attributable, in accordance with Regulations
Section 1.704-2(i)(1).
(g) SECTION 754 ADJUSTMENTS. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
capital accounts, the amount of such adjustment to capital accounts
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis)
and such gain or loss shall be specially allocated to the Member in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Section of the Regulations.
(h) DEDUCTION FOR CERTAIN PAYMENTS. The deductions
attributable to the NOI Payment, as defined in Section 9.1(c), shall be
allocated solely to the Managing Member. The Members intend that, for
federal income tax purposes, the NOI Payment shall be treated as a
"guaranteed payment" under Section 707(c) of the Code and not as a
distribution.
(i) EARNINGS ON SECTION 7.5(d)(i) AMOUNTS. If and to the
extent that any Member receives a payment under Section 7.5(d)(i)
hereof of earnings accrued on such Member's contributions described in
Section 7.5(d)(i), items of gross income in an amount equal to such
earnings shall be specially allocated to the Member receiving such
distribution.
SECTION 8.5. CURATIVE ALLOCATIONS.
The allocations set forth in subsections 8.2(b), 8.4(a), 8.4(b),
8.4(c), 8.4(d), 8.4(e), 8.4(f) and 8.4(g) hereof (the "REGULATORY ALLOCATIONS")
are intended to comply with certain requirements of the Regulations. It is the
intent of the Members that, to the extent possible, all Regulatory Allocations
that are made be offset either with other Regulatory Allocations or with special
allocations pursuant to this Section 8.5. Therefore, notwithstanding any other
provision of this Section 8 (other than the Regulatory Allocations), the
Managing Member, shall make such offsetting special allocations in whatever
manner it determines appropriate so that, after such offsetting allocations are
made, each Member's Capital Account balance is, to the extent
27
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 8.1 and 8.2(a). Provided it acts in good faith in
making a special allocation pursuant to this Section 8.5, the Managing Member
shall not be liable to the Company or any Member in the event the Internal
Revenue Service overturns any such allocation on audit. In exercising its
discretion under this Section 8.5, the Managing Member shall take into account
future Regulatory Allocations under subsections 8.4(a) and 8.4(b) that, although
not yet made, are likely to offset other Regulatory Allocations previously made
under subsections 8.4(e) and 8.4(f).
SECTION 8.6. OTHER ALLOCATION RULES.
(a) For purposes of determining the Net Profit, Net Loss, or
any other items allocable to any period, Net Profit, Net Loss, and any
such other items shall be determined on a daily, monthly, or other
basis, as determined by the Managing Member with the consent of the
Investor Member using any permissible method under Code Section 706 and
the Regulations thereunder.
(b) Except as otherwise provided in this Agreement, all items
of Company income, gain, loss, deduction, and any other allocations not
otherwise provided for shall be divided among the Members in the same
proportions as they share Net Profit or Net Loss, as the case may be,
for the Fiscal Year.
SECTION 8.7. TAX ALLOCATIONS: CODE SECTION 704(c).
In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Company shall, solely for tax purposes, be allocated among
the Members so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its initial
Gross Asset Value. Such allocations shall be made using the "remedial allocation
method," as such term is defined in Regulations Section 1.704-3(d).
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to clause (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Allocations pursuant to this Section 8.7 are solely for purposes of
federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Member's Capital Account or share of Net Profit,
Net Loss, other items, or distributions pursuant to any provision of this
Agreement.
28
SECTION 9. DISTRIBUTIONS.
SECTION 9.1. IN GENERAL.
(a) NET CASH FLOW. Except as provided in Sections 9.1(c) and
9.1(d), all Net Cash Flow for any Fiscal Year shall be distributed to
the Members in accordance with their Percentage Interests.
(b) EXTRAORDINARY PROCEEDS. All Extraordinary Proceeds shall
be distributed to the Members in the following manner and in the
following order of priority:
(i) First, to the Members in proportion to, and to the extent
of, the balances standing in their respective Contribution Accounts;
(ii) Second, to the Investor Member and to the Managing Member
according to their Percentage Interests, until the Investor Member has
received cumulative distributions pursuant to Section 9.1 sufficient to
yield a thirteen percent (13%) IRR (determined in accordance with the
definition of IRR as illustrated on Schedule 6 hereto); provided that
if the Investor Member has suffered a reduction in its Percentage
Interest as a result of being a Failing Member, the determination of
whether the Investor Member has received a thirteen percent (13%) IRR
shall be made on a pro forma basis assuming the Investor Member
received the distribution of Extraordinary Proceeds it would have
received had its Percentage Interest not been so reduced;
(iii) Third, 30% to the Managing Member and 70% to the
Investor Member until the Investor Member has received cumulative
distributions pursuant to Section 9.1 sufficient to yield an eighteen
percent (18%) IRR to the Investor (determined in accordance with the
definition of IRR as illustrated on Schedule 6 hereto); provided that
if the Investor Member has suffered a reduction in its Percentage
Interest as a result of being a Failing Member, the determination of
whether the Investor Member has received an eighteen percent (18%) IRR
shall be made on a pro forma basis assuming the Investor Member
received the distribution of Extraordinary Proceeds it would have
received had its Percentage Interest not been so reduced; and
(iv) Fourth, 35% to the Managing Member and 65% to the
Investor Member.
(c) DISTRIBUTIONS WITH RESPECT TO PALOS PARK FACILITY,
ARLINGTON FACILITY, EDINA FACILITY AND FAIR OAKS FACILITY. For each
calendar month from and including the calendar month in which the
Closing Date for each of the Palos Park Facility, the Arlington
Facility, the Edina Facility and the Fair Oaks Facility, respectively,
occurs through December 31, 2003, the Company shall determine the
amount, if any, by which (i) the Net Operating Income for the Palos
Park Facility for such month is less than $163,906 (the "PALOS PARK NOI
SHORTFALL AMOUNT"), (ii) the Net Operating Income for the Arlington
Facility for such month is less than $169,262 (the "ARLINGTON NOI
SHORTFALL AMOUNT"), (iii) the Net Operating Income for the Edina
Facility for such month is less than $154,711 (the "EDINA NOI SHORTFALL
AMOUNT"), and (iv) the Net Operating Income for the Fair Oaks Facility
for such month is less than $110,166 (the "FAIR OAKS NOI SHORTFALL
AMOUNT", and collectively with the Palos Park NOI Shortfall Amount, the
29
Edina NOI Shortfall Amount and the Arlington NOI Shortfall Amount, the
"AGGREGATE NOI SHORTFALL AMOUNT."). For each such calendar month, the
Company shall make a payment to the Investor Member, out of the Net
Cash Flow for such calendar month that would otherwise be distributable
to the Managing Member under Section 9.1(a) from any of the Facilities,
an amount (the "NOI PAYMENT") equal to 80% of the Aggregate NOI
Shortfall Amount; provided, however, (A) that in determining the Net
Operating Income from the Palos Park Facility, the Arlington Facility,
the Edina Facility and the Fair Oaks Facility for a calendar month for
purposes of this Section 9.1(c), the Company shall gross up the Net
Operating Income for each such Facility for such calendar month by the
amount of any Resident payments due and payable, but not paid, at such
Facility during such month, and (B) in no event shall a payment to the
Investor Member out of the Net Cash Flow otherwise distributable to the
Managing Member result in the Managing Member receiving less than one
percent (1%) of such Net Cash Flow.
(d) DISTRIBUTIONS WITH RESPECT TO BATON ROUGE FACILITY. For
each calendar month from and including the calendar month in which the
Closing Date for the Baton Rouge Facility occurs through the last day
of the calendar month in which the Mold and Moisture Conditions at such
Facility are confirmed pursuant to Section 10.8(f) hereof as having
been remediated, the Company shall make a payment to the Investor
Member, out of the Net Cash Flow for such calendar month that would
otherwise be distributable to the Managing Member under Section 9.1(a)
from any of the Facilities, of an amount equal to the Investor Member's
Percentage Interest of the Rent Shortfall Amount computed for such
calendar month. The "RENT SHORTFALL AMOUNT" for a calendar month shall
equal (i) the total number of days during such calendar month that any
occupied unit at the Baton Rouge Facility is vacated to facilitate the
remediation of the Mold and Moisture Conditions multiplied by (ii) the
average daily rate of the Baton Route Facility during such month,
multiplied by (iii) eighty percent (80%). The Executive Director of the
Baton Rouge Facility shall track on a daily basis the occupied units
that have been vacated to facilitate such remediation in order to
determine the figure to be used in clause (i) above.
The Managing Member shall make distributions of the Net Cash Flow of
the Company within twenty (20) days of the end of each calendar month in the
order set forth above and as available for such monthly distributions after
retainage of such reserves as are provided for in the `then effective Operating
Budget. At such time as the Company's Net Cash Flow is finally determined with
respect to a Fiscal Year, the Company shall distribute to the Members their
respective undistributed shares, if any, of the Company's Net Cash Flow for such
Fiscal Year, and if monthly distributions to a Member exceed such Member's
distributive share of such Net Cash Flow for such Fiscal Year, as finally
determined, such Member shall immediately repay to the Company the amount of
such excess; provided however, that nothing herein shall be construed as
creating an obligation for the Investor Member to repay any of the NOI Payment
it received during such Fiscal Year. The Managing Member shall distribute
Extraordinary Proceeds to the Members within thirty (30) days after receipt
thereof in the order and priority prescribed above.
30
SECTION 9.2. SHORTFALL PAYMENT.
(a) For purposes of this Section 9.2, the Managing Member and
the Investor Member agree that the Huntcliff IL Facility and the
Huntcliff AL Facility shall be marketed and sold as one property and
shall be deemed to constitute one property. The term "HUNTCLIFF
FACILITIES" shall mean the Huntcliff IL Facility and the Huntcliff AL
Facility, taken together.
(b) As a result of certain environmental conditions relating
to the Huntcliff Facilities, as described in Section 10.8(d) hereof,
the Members agree that, notwithstanding the provisions of Section 9.1
to the contrary, the Company shall not distribute any Extraordinary
Proceeds arising from a sale or other disposition of the Huntcliff
Facilities until after the Managing Member has received from the
Investor Member the notice described below. At the time the Company
disposes of its interest in the Huntcliff Facilities, the Investor
Member shall compute the IRR of the Company for the Huntcliff
Facilities. In making such computation, the Investor Member shall not
take into consideration the Senior Financing affecting the Facilities,
but shall make such calculation based upon the net cash flow generated
by the Huntcliff Facilities and the Extraordinary Proceeds received by
the Company from the sale of the Huntcliff Facilities, notwithstanding
the amount of the distributions to the Members. If the IRR of the
Company is less than an IRR of 12.24%, then the Investor Member shall
compute the amount (the "SHORTFALL AMOUNT") which, if added to the
proceeds received from the disposition of the Company's interest in the
Huntcliff Facilities, would have resulted in an IRR of the Company
equaling 12.24%, provided, that the Shortfall Amount shall be subject
to a limit of $2,000,000. The Investor Member shall provide the
Managing Member with written notice of the Shortfall Amount and the
manner in which the Shortfall Amount was computed. Upon receipt of such
notice, the Company shall, notwithstanding the provisions of Section
9.1(b), pay to the Investor Member, out of the amounts that would
otherwise be distributed to the Managing Member under Section 9.1(b) at
such time, an amount (the "SHORTFALL PAYMENT") equal to the Investor
Member's proportionate share of the Shortfall Amount, such
proportionate share to be based on the distribution percentages under
Section 9.1(b) applicable at such time, and the amount otherwise
distributable to the Managing Member under Section 9.1(b) shall be
reduced by an amount equal to the Shortfall Payment. For ▇▇▇▇▇'ah
purposes only, the Shortfall Payment will be deemed to be an adjustment
to the Gross Asset Value of the Facility for which such payment is
made. Notwithstanding the foregoing, the reallocation of Extraordinary
Proceeds specified in this Section 9.2 shall not apply if at the time
of sale or other disposition of the Huntcliff Facilities (i) (A) each
of Huntcliff Facilities is not on the Hazardous Site Index maintained
by the State of Georgia Environmental Protection Department or (B)
either or both of the Huntcliff Facilities is on the Hazardous Site
Index only because of environmental conditions other than the Huntcliff
Contamination, (ii) the State of Georgia Environmental Protection
Department has issued a final no-action letter or no further action
letter for each of the Huntcliff Facilities in relation to the
Huntcliff Contamination, (iii) neither the State of Georgia
Environmental Protection Department nor any other governmental
authority has commenced or threatened in writing to commence against
Sunrise Huntcliff or the Huntcliff Facilities any investigation or
proceeding relating to the Huntcliff Contamination, the placement of
either Huntcliff
31
Facility on, or the prior removal of either Huntcliff Facility from,
the Hazardous Site Index in relation to the Huntcliff Contamination, or
the revocation, modification or recission of any no action or no
further action letter issued in relation to either Huntcliff Facility
in relation to the Huntcliff Contamination, and (iv) there has not
occurred any change in fact or law that could reasonably result in
either Huntcliff Facility being placed on the Hazardous Site Index or
in the revocation, modification or recission of any no action or no
further action letter issued in relation to either Huntcliff Facility
and in relation to the Huntcliff Contamination.
SECTION 9.3. CONSENT TO DISTRIBUTIONS.
Each of the Members does hereby consent to the distributions provided
for herein.
SECTION 9.4. TAX WITHHOLDING.
If the Managing Member determines that the Code or Regulations require
the Company to withhold with respect to any Member's distributive share of
income or share of distributions, it shall do so. Such withheld amounts shall be
from cash otherwise distributable to such Member, which shall be deemed to have
been distributed hereunder to such Member. The Managing Member shall be
authorized to take such other actions as shall be necessary or appropriate for
the Managing Member to comply with its obligations under the Code and
Regulations. In the event any such payment made by the Managing Member to the
Internal Revenue Service exceeds the amount of cash otherwise then distributable
to such Member, the amount of such payment equal to such excess shall constitute
an advance by the Company to such Member for which such Member shall have
personal liability, and such Member shall immediately repay such advance to the
Company, together with interest thereon from the date when such payment is made
to the date of repayment, at an annual rate equal to the interest rate which
Citicorp or its successor designates as its "prime rate" from the date such
payment was made.
SECTION 10. MANAGEMENT OF COMPANY.
SECTION 10.1. AUTHORITY OF MANAGING MEMBER.
Subject to the limitations set forth herein, the Managing Member shall
be responsible for the management of the Company's business and affairs and
shall devote such time and effort to the Company as is appropriate in light of
all facts and circumstances, provided, however, that all decisions and actions
described in Section 10.3 and 10.4 shall require the Approval of the Investor
Member. Except as provided in this Agreement, the Managing Member shall have all
the rights and powers to manage the Company as are permitted under the Act, and
it shall be the duty and responsibility of the Managing Member to manage and
control the day-to-day affairs of the Company, including, without limitation,
the following:
(a) Establish and maintain, or cause to be established and
maintained, programs to promote the most effective and profitable
utilization of the services provided by the Facilities;
32
(b) Provide, or cause to be provided, quality services to
Residents at the Facilities in the manner required by the Resident
Agreements for such Residents and consistent with the Sunrise Standards
and the Operating Budget;
(c) Establish, or cause to be established, appropriate
marketing programs for the Facilities and maintain a public image of
excellence and first-class operation for the Facilities, all in
accordance with the Sunrise Standards and the Operating Budget;
(d) Maintain, or cause to be maintained, well trained,
adequately supervised, quality staff, in sufficient number, at the
Facilities in a manner consistent with the Sunrise Standards and the
Operating Budget;
(e) Operate the Facilities, or cause the Facilities to be
operated, prudently, and in a manner consistent with the Sunrise
Standards and the Operating Budget;
(f) Establish and maintain, or cause to be maintained, a sound
financial accounting system for the Company and each Facility;
(g) Institute and maintain, or cause to be instituted and
maintained, adequate internal fiscal controls for the Company and each
Facility through proper budgeting, accounting procedures, and timely
financial reporting in a manner consistent with the Operating Budget;
(h) Institute and maintain, or cause to be instituted and
maintained, sound billing and collection procedures and methods for the
Company and the Facilities;
(i) Maintain and increase gross revenues and cash flow at the
Facilities;
(j) Conform the operations at the Facilities to, or cause the
operations of the Facilities to be conformed to, and comply or cause
compliance with, all applicable Legal Requirements, including without
limitation, those pertaining to licensing, and take all steps necessary
to ensure that all licenses and certificates necessary to operate the
Facilities are maintained at all times, without interruption;
(k) Take such other steps as are necessary to provide high
quality care to the Residents, consistent with the Sunrise Standards
and the Operating Budget;
(l) Prepare or cause to be prepared for execution by the
Company all forms, reports and returns, if any, required to be filed by
the Company under applicable federal, state or local laws, including
tax laws, provided that the Managing Member shall not be obligated to
prepare any of the Company's federal, state or local income tax
returns;
(m) Use all reasonable efforts to maintain the Facilities as a
safe and secure environment, notify the Company of any security risks
or issues related to any Facility that become known to the Managing
Member, and attempt to rectify or remedy such risks or issues if funds
are available for such purpose.
33
(n) Subject to Section 10.3 with respect to the Operating
Budget, Section 10.4 with respect to Major Decisions and any other
provision hereof that requires the Approval of all Members, any action
taken by the Managing Member on behalf of the Company shall constitute
the act of, and serve to bind, the Company. In no event shall any
Entity dealing with the Managing Member with respect to the conduct of
the affairs of the Company be obligated to ascertain that the terms of
this Agreement have been complied with, or be obligated to inquire into
the necessity or expediency of any action of the Managing Member. The
Managing Member may delegate certain of its responsibilities for
management and control of the Facilities and affairs of the Company to
any Entity as may be Approved by all of the Members and to no other
Entity, provided, that such delegation shall not relieve the Managing
Member of any of its obligations hereunder. The Members hereby Approve
the Management Agreement for each Facility.
SECTION 10.2. GRANT OF SPECIAL AUTHORITY.
Notwithstanding any limitation on the authority of the Managing Member
imposed by this Agreement, the Investor Member does hereby authorize and direct
and hereby Approves in advance the following actions to be taken by the Managing
Member, for and on behalf of the Company, subject in all cases to the Islamic
Operating Guidelines:
(a) Subject to subsection 10.4(c), to authorize ▇▇▇▇▇ to enter
into Resident Agreements with Residents at the Facilities.
(b) Subject to the Investor Member's right under Section 10.4
to Approve the form and substance of the documents governing and
evidencing the Lease Transactions (and any amendments or modifications
thereto), to perform and discharge all of the Company's duties and
obligations with respect to the closing, consummation of, and
performance under the Lease Transactions, including, without
limitation, the execution and delivery of the Call Option Letters, the
Put Option Letters, the Supplemental Agreements and the Tax Matters
Agreements that comprise the Lease Transactions, and such other
documents required by the Facility Owner to consummate the Lease
Transactions.
(c) Subject to the Investor Member's rights of Approval under
Section 10.4 hereof, to disburse the Capital Contributions of the
Members to pay all of the reasonable costs and expenses incurred by the
Company in closing and consummating the Lease Transactions, including,
without limitation, legal fees, transfer taxes, intangibles taxes,
appraisal fees, recording fees, survey costs, title insurance
commitment fees and premiums, and title examination charges and
abstract costs.
(d) Subject to any restrictions contained in the Lease
Agreements, to acquire and enter into any contract of insurance that
the Managing Member deems necessary or appropriate for the protection
of the Company, for the conservation of its assets or for any purpose
convenient or beneficial to the Company;
(e) To pay any and all Permitted Expenses;
34
(f) Subject to the terms and conditions of this Agreement,
including without limitation Section 10.1, to employ, when and if
required, such accountants, agents and attorneys as the Managing Member
may from time to time determine to be necessary;
(g) Subject to the terms and conditions of this Agreement,
including without limitation Section 10.1, to execute any and all
agreements, contracts, documents, certifications and instruments
necessary or convenient in connection with the management, maintenance
and ownership of the Facilities;
(h) Subject to any restrictions contained in the Lease
Agreements and the applicable Operating Budget, to construct, alter,
improve, repair, rehabilitate, raze, rebuild or replace any building or
other improvement on all or any portion of any Facility; and
(i) Subject to the terms and conditions of this Agreement,
including without limitation Section 10.1, to engage in any kind of
activity and perform and carry out contracts of any kind necessary or
incidental to or in connection with the accomplishment of the purposes
of the Company as may be lawfully carried out or performed by a limited
liability company under the laws of the State of Delaware and, to the
extent applicable, the laws of each state in which the Company is
registered or qualified to do business.
SECTION 10.3. OPERATING BUDGET AND CERTAIN RESERVES.
On or before each November 15, the Managing Member shall prepare or
cause to be prepared and submit to the Investor Member a proposed annual
operating budget for each Facility for the next following Fiscal Year. Each
proposed operating budget shall include projections, in reasonable detail, of
the Company's anticipated cash receipts from such Facility and required cash
expenditures for such Facility together with an explanation of anticipated
changes to Resident charges, payroll rates and positions, nonwage cost
increases, and all other factors differing from the current fiscal year. Each
proposed operating budget may also provide for Company financing in relation to
such Facility on an Islamically-compliant basis and for the creation of,
addition to, or reduction in, any reserves maintained by the Company. Each such
proposed operating budget shall be considered by the Investor Member and, in
consultation with the Managing Member and ▇▇▇▇▇, the Manager will prepare or
cause to be prepared the operating budget for each Facility for the ensuing
Fiscal Year, with the final contents of such budget to be determined mutually by
the Investor Member and the Managing Member. Any Approved operating budget,
including any Approved modification of any such budget, is herein called an
"OPERATING BUDGET." The Operating Budget shall be accompanied by a narrative
description of management objectives and assumptions, together with the other
components, of such Operating Budget. The Operating Budget for each Facility
through December 31, 2002 is set forth on Schedule 3 attached hereto. All
Operating Budgets shall reflect any reserves created thereunder or pursuant to
this Agreement. The Managing Member may amend an Operating Budget only with the
Approval of the Investor Member. Until final Approval of the proposed operating
budget for a Facility has been given, the Managing Member shall be authorized to
operate such Facility on the basis of the previous Approved Operating Budget for
the last month of the preceding Fiscal Year, adjusted to reflect the
then-current charges, to the extent known, and if not known, increased by the
greater (i) of 103.5% or (ii) the increase in the CPI from the
35
first day of the current Fiscal Year compared to the CPI on the first day of the
previous Fiscal Year; provided, however, that the aggregate of the line items
for FF&E and for capital improvements set forth in the previous Approved
Operating Budget for such Facility shall be replaced with an amount equal to the
aggregate of the amounts for such line items set forth in the previous Approved
Operating Budgets for all Facilities divided by the number of Facilities in the
Portfolio, which amount shall then be adjusted as provided in foregoing clauses
(i) or (ii). The Managing Member shall use its best efforts to operate each
Facility or cause each Facility to be operated so that the Gross Facility
Revenues and the expenses of such Facility during any applicable period of the
Company's Fiscal Year shall be consistent with the Operating Budget, provided
that the foregoing agreement of the Managing Member shall not limit the
authority of the Managing Member under Sections 10.2(e) and 10.4(h). All
expenses must be charged to the proper account on a basis consistent with the
Operating Budget classifications. No expense may be reclassified except as
needed to correct an inadvertent error. During the Fiscal Year, the Managing
Member shall inform the Investor Member promptly of any major increases or
decreases in costs, expenses or income that were not reflected in the Operating
Budget.
SECTION 10.4. LIMITATIONS ON AUTHORITY OF MANAGING MEMBER.
Notwithstanding the other provisions of Section 10 hereof, the Managing
Member shall not have the authority on behalf of the Company to take any action,
make any decision, expend any sum or undertake or suffer any obligation if to do
so would constitute a Major Decision without first obtaining the Approval of the
Investor Member. As used herein, "MAJOR DECISION" means any decision proposed by
the Managing Member that the Company (or in the case of (s) below, the Members)
do or take any of the following actions:
(a) OPERATING BUDGET AMENDMENTS OR VARIATIONS. Amend or modify
any Operating Budget or vary from the limitations set forth therein,
except in the case of emergency repairs or other emergency actions with
respect to any Facility (i.e., repairs which are necessary to reduce
the threat of material injury to any Facility, to the Company, to any
Residents or to any other persons or property, or are necessary to
avoid the suspension of necessary services to any Facility);
(b) SALES. Except for entering into Resident Agreements with
Residents at the Facilities pursuant to subsection 10.2(a), and except
for the release of Facility in accordance with Section 10.10, sell,
exchange or otherwise transfer all or any portion of a Facility or any
interest therein or any other property of the Company; provided,
however, that without any such Approval, the Managing Member may make
incidental sales, exchanges, conveyances or transfers of Company
tangible personality or fixtures in the ordinary course of business if
such transactions, together with all other such transactions in such
Fiscal Year, involve property having a value or sales price of less
than $75,000 in the aggregate, and the Managing Member may grant, or
request the Facility Owner to grant, utility and other similar
easements to serve any Facility or any adjoining property as the
Managing Member shall determine to be necessary or advisable;
(c) RESIDENT AGREEMENTS. Authorize ▇▇▇▇▇ to enter into any
Resident Agreement with any Resident at any Facility except in
accordance with the Approved
36
Operating Budget for such Facility and any guidelines as to Resident
Agreements set forth therein.
(d) ENCUMBRANCES. Except (i) for liens arising by operation of
law and securing Company debts which are not then currently due or
payable; (ii) for Approved financing, which shall be in compliance with
the Islamic Operating Guidelines; (iii) in connection with the Lease
Transactions; or (iv) for the grant of utility and other similar
easements or licenses to serve a Facility or any adjoining property for
the purpose of providing utilities, cable television, internet access
or other necessary or desirable services to a Facility or adjoining
property, subject all or any portion of a Facility to any mortgage,
lien or other encumbrance or pledge any Company assets;
(e) FINANCINGS. Except in connection with the Lease
Transactions, effect any financing (excluding trade debt, accounts
payable or equipment leases incurred in the ordinary course of the
Company's business and complying with the Islamic Operating Guidelines)
or execute any promissory note, evidence of indebtedness, guaranty or
the like not authorized and duly Approved in an Operating Budget, or
the prepayment, modification or refinancing of any Company debt
(including the Lease Transactions);
(f) LEGAL ACTIONS. Prosecute, waive, settle or compromise any
claims or causes of action of the Company against any third party (or
parties) (other than actions in the ordinary course to enforce Resident
Agreements and other claims of less than $100,000 each), or agree on
behalf of the Company to pay any claim or cause of action against the
Company if the portion of such claim or cause of action not covered by
insurance and to be paid by the Company exceeds $100,000;
(g) BUSINESS OF COMPANY. Except as otherwise provided herein,
do any act which would make it impossible to carry on the ordinary
business of the Company;
(h) CAPITAL EXPENDITURES. Except as permitted in an Operating
Budget or in the case of an emergency as described in Section 10.4(a),
(i) make any capital expenditures in excess of $15,000 for any Facility
in any Fiscal Year, provided that the aggregate amount of such capital
expenditures for all Facilities shall not exceed $50,000 in the
aggregate in any Fiscal Year of the Company, or (ii) undertake an
expansion or substantial renovation of any Facility;
(i) EMPLOYEES. Employ any people for the Company;
(j) REZONING OR SUBDIVISION. Initiate a re-zoning or
subdivision of any Facility or convert any Facility to a condominium,
cooperative or similar form of ownership;
(k) CONFESS JUDGMENTS. Confess a judgment against the Company;
(l) ASSIGNMENTS. Assign the rights of any Member in any
Facility, other than for a Company purpose;
37
(m) ACTS IN CONTRAVENTION. Perform any act in contravention of
this Agreement;
(n) NEW MEMBERS. Admit additional Members to the Company;
(o) MERGER. Merge the Company with any Entity;
(p) LEASE TRANSACTION DOCUMENTATION. Enter into or,
thereafter, modify or amend, the definitive documentation with respect
to the Lease Transactions;
(q) PROFESSIONAL SERVICES CONTRACTS. Except for the Management
Agreement for each Facility or as permitted in an Operating Budget,
enter into, or thereafter modify or amend, any contract or arrangement
for routine and non-routine professional services to be rendered to the
Company (including, without limitation, legal, accounting and
consulting services) that is reasonably anticipated to obligate the
Company to expend more than $30,000 in any Fiscal Year;
(r) TAX ELECTIONS. Make any election under the Code or
Regulations, including without limitation any election under Section
301.7701-3 of the Regulations to classify the Company for federal
income tax purposes as anything other than a partnership;
(s) VOLUNTARY ADDITIONAL CONTRIBUTIONS. Obligate the Members
to make any Voluntary Additional Contributions pursuant to Section
7.4(a)(ii);
(t) AUDITORS. Replace the Company's auditors pursuant to
Section 14.3; or
(u) AFFILIATE TRANSACTIONS. Cause the Company to enter into
any contract or agreement with any Affiliate of the Managing Member or
amend, modify, exercise any right or grant any consent or approval
under any such contract or agreement. The Investor Member agrees that
the Managing Member may cause the Company to enter into the Management
Agreements and the Deeds of Lease referenced in Section 7.5(a)(i)
hereof.
With respect to all matters submitted to the Investor Member for
Approval (including, without limitation, the decisions and actions described in
this Section 10.4, but excluding Approval of proposed Operating Budgets pursuant
to Section 10.3), the Investor Member agrees that it will respond within ten
(10) Business Days after a written request for such Approval (and fewer than ten
(10) Business Days if such written notice is with reference to an emergency as
reasonably determined by the Managing Member, but in no event less than two (2)
Business Days) and, to the extent the Investor Member disapproves of any such
matter, the Investor Member's notice of disapproval shall set forth in
reasonable detail the basis for such disapproval. The failure of the Investor
Member to provide a timely response to a request for Approval or to provide in
reasonable detail the basis for its disapproval shall not be deemed or construed
to be an Approval by the Investor Member.
38
SECTION 10.5. COMPENSATION FOR SERVICES; FEES TO MANAGING MEMBER.
Except as expressly provided in this Agreement, no Member or any
Affiliate thereof shall receive any compensation from the Company for services
to the Company without having first obtained the Approval of all other Members,
which may be given or withheld in each Member's sole discretion. The Company is
authorized to pay to ▇▇▇▇▇ or an Affiliate designated by ▇▇▇▇▇ (other than the
Managing Member) the Acquisition Fee and the Disposition Fee, and to pay to
▇▇▇▇▇ the Management Fee pursuant to the Management Agreement. Costs relating to
the formation of the Company, including senior financing arrangement fees,
transfer taxes, legal fees of counsel to the Members associated with preparing
Company-related documentation and other expenses associated therewith (which do
not include the costs of formation and maintenance of the Investor Member and
its owners but which do include the costs associated with the Company's
structuring of and entering into the Lease Transactions), shall be borne by the
Managing Member and the Investor Member in accordance with their Percentage
Interests. The Members shall otherwise pay their own expenses associated with
the Company's formation.
SECTION 10.6. INVESTOR MEMBER MANAGEMENT RIGHTS.
(a) The Investor Member, subject to its right of Approval
expressly set forth in this Agreement and to its rights under Section
10.6(b) hereof, shall not participate in the management and control of
the Company's business and shall not have any right or authority to act
for or to bind the Company. The Investor Member hereby appoints the
Managing Member as the manager of the Company, with sole and exclusive
right to manage the Company's business and to act for and bind the
Company, subject to its right of Approval expressly set forth in this
Agreement and to its rights set forth in Section 10.6(b).
(b) The Members agree that the Investor Member shall, at no
cost to the Company, provide oversight of the management of the Company
to ensure compliance with the Islamic Operating Guidelines. The Members
agree that the Investor Member is hereby irrevocably designated as the
sole and exclusive agent of the Company for the limited purpose of
acting on behalf of the Joint Venture under the Transaction Agreement,
including having full power and authority to make all decisions to be
made, and to take all actions to be taken, by the Company under the
Transaction Agreement, and to enforce the Transaction Agreement on
behalf of the Company in the Investor Member's own name or in the name
of the Company.
(c) The Members agree that the Investor Member shall have the
right to exercise the rights of the Company under any contract or
agreement between the Company and any Affiliate of the Managing Member
(including the Management Agreements, any such agreement relating to
the Management Agreements, and the Deeds of Lease referenced in Section
7.5(a)(i) hereof), including all rights of termination.
39
SECTION 10.7. LIABILITY OF MANAGING MEMBER.
So long as the Managing Member in good faith reasonably believes that
it is acting in the Company's best interest with respect to the conduct of the
business and affairs of the Company, the Managing Member shall not be liable or
accountable to the Company or to the Investor Member, in damages or otherwise,
for any error of judgment, for any mistake of fact or of law, or for any other
act or thing which it may do or refrain from doing in connection with the
business and affairs of the Company, provided that the Managing Member shall be
responsible for all costs, expenses, claims or damages arising from the Managing
Member's willful misconduct, gross negligence or negligence. Nothing contained
in this Section 10.7 shall be construed as excusing the Managing Member from
making any contribution to the capital of the Company which is required to be
made by the Managing Member, in its capacity as a Member, under any provision of
this Agreement.
SECTION 10.8. GENERAL INDEMNITIES, SPECIAL INDEMNITIES AND RELATED
PROVISIONS.
(a) The Company does hereby agree to indemnify and to hold
harmless the Managing Member and its Affiliates and the directors,
trustees, officers, employees, members and owners of each of them
(collectively, "COMPANY INDEMNIFIED PERSONS") from and against any
loss, claim, cost, expense or damage suffered by the Company
Indemnified Persons (excluding any liability of the Managing Member to
make additional Capital Contributions to the Company as required under
this Agreement) by reason of anything the Managing Member or its
Affiliates may do or refrain from doing hereafter for and on behalf of
the Company and in furtherance of its best interests to the extent
within the Managing Member's authority hereunder and by reason of any
amounts paid by the Managing Member or its Affiliates pursuant to any
"non-recourse carve out" guaranty delivered in connection with any
Facility; provided, however, that the Company shall not be required to
indemnify any Company Indemnified Person to the extent any loss,
expense or damage which any of them might suffer (including any such
guaranty payment) results from any Company Indemnified Person's willful
misconduct, gross negligence, negligence or bad faith. The Investor
Member shall not be deemed to have incurred any liability with respect
to the Company's indemnity obligations contained in this Section 10.8
beyond its interest in the Company.
(b) The Managing Member does hereby agree to indemnify and to
hold harmless the Company, the Investor Member and the shareholders,
directors, officers and employees of the Investor Member and its
Affiliates (collectively, "MANAGING MEMBER INDEMNIFIED PERSONS") from
and against any loss, claim, cost, expense or damage suffered by the
Managing Member Indemnified Persons resulting from any and all claims
and causes of action brought by any third party, including without
limitation by past or present Residents or by persons employed at the
Facilities, relating to any Facility and arising from any occurrence
prior to the date on which such Facility became a part of the
Portfolio.
(c) The Managing Member represents and warrants that all
certificates, licenses, permits or approvals required by any
governmental authority in connection with the ownership, use,
occupancy, operation, management or maintenance of the Facility
40
were valid and in full force and effect at all times prior to and on
the date on which such Facility became part of the Portfolio. The
Managing Member does hereby agree to indemnify and to hold harmless the
Managing Member Indemnified Persons from and against any loss, claim,
cost, expense or damage suffered by the Managing Member Indemnified
Persons resulting from the foregoing representation and warranty being
untrue, incomplete or incorrect.
(d) The Managing Member does hereby agree to pay directly, and
to indemnify and hold harmless the Company and the Managing Member
Indemnified Persons from and against, any loss, claim, cost, expense or
damage suffered by the Company or any Managing Member Indemnified
Person resulting from, relating to or in any manner arising from the
groundwater contamination and related environmental conditions at
either Huntcliff Facility, as described in (i) a certain Phase I
Environmental Site Assessment, Sunrise of Huntcliff Summit I and II,
dated November 8, 2001, prepared by LFR-▇▇▇▇▇▇ ▇▇▇▇▇▇, and (ii) a
certain Phase II Environmental Site Assessment, Sunrise of Huntcliff
Summit I and II, dated January 3, 2002, prepared by LFR-▇▇▇▇▇▇ ▇▇▇▇▇▇
(such contamination and related environmental conditions being herein
collectively referred to as the "HUNTCLIFF CONTAMINATION"). Such
losses, claims, costs, expenses or damages include, without limitation,
(A) the cost of investigating and assessing the Huntcliff
Contamination, (B) any remediation or attempted remediation of the
Huntcliff Contamination, regardless of the nature of such remediation
or whether such remediation is legally required or voluntarily
undertaken, (C) any direct or indirect remediation of any environmental
condition affecting any property in the vicinity of either Huntcliff
Facility that is undertaken in connection with a remediation of the
Huntcliff Contamination, (D) the costs of capping and closing any
drinking water ▇▇▇▇▇ in the vicinity of either Huntcliff Facility
(including any and all (1) costs to connect the properties with the
▇▇▇▇▇ to municipal or county water supplies and (2) payments made to
users or owners of such water ▇▇▇▇▇), (E) the costs and expenses of
environmental engineers and consultants (including environmental
engineers and consultants retained by the Investor Member on behalf of
the Managing Member Indemnified Persons after not less than five
Business Days notice to Sunrise) relating to the Huntcliff
Contamination, (F) the costs of any proceedings or other dealings with
or involving the EPA or any environmental or health authorities of the
State of Georgia or its political subdivisions relating to the
Huntcliff Contamination, (G) any health, personal injury, real or
personal property damage, natural resource damage or other similar
claims relating to the Huntcliff Contamination that are made against
the Company or any Managing Member Indemnified Person and (H) all
reasonable legal fees and expenses reasonably incurred by any Managing
Member Indemnified Person relating to the Huntcliff Contamination,
including reasonable legal fees and expenses incurred in connection
with the enforcement of this indemnity. The foregoing payment,
indemnification and hold harmless obligations of the Managing Member
are subject to an aggregate limit of $750,000 on out-of-pocket payments
made by the Managing Member. Such payment, indemnification and hold
harmless obligations of the Managing Member do not apply to any
reduction in the market value of the Huntcliff Facilities as a result
of such environmental conditions or otherwise; the Managing Member's
obligations relating to any reduction in the market value of the
Huntcliff Facilities are set forth in Section 9.2 hereof. The Managing
Member agrees to fulfill its payment, indemnification and hold harmless
obligations
41
hereunder promptly upon demand by the Company or any Managing Member
Indemnified Person. The obligations of the Managing Member under this
Section 10.8(d) shall survive the expiration or termination of this
Agreement and the withdrawal of the Investor Member from the Company.
(e) The Arlington Facility is currently affected by certain
environmental conditions that are the result of historical activities
on the property. These conditions and activities are identified in
summary form in a Phase I Environmental Site Assessment, dated December
12, 2002, performed by ▇▇▇▇▇▇▇▇ Geotech, Inc. These environmental
conditions, and all other environmental conditions, either currently
known or unknown, relating to prior activities on the property, are
herein referred to as the "ARLINGTON CONTAMINATION". Sunrise represents
that it is currently engaged in the diligent remediation of the
Arlington Contamination. Sunrise agrees that, upon the addition of the
Arlington Facility to the Portfolio, Sunrise will continue, at its sole
cost and expense, with the diligent remediation of the Arlington
Contamination. Such remediation will continue until the filing by the
licensed site professional of a Response Action Outcome Statement
documenting the achievement of a Permanent Solution to Oil and
Hazardous Materials Releases at the Arlington Facility in relation to
the Arlington Contamination, but will resume and will continue to be
performed as herein provided if the Massachusetts Department of
Environmental Protection declines or fails to issue, or later rescinds,
a Permanent Remedial Action Order relating to the Arlington
Contamination in response to the licensed site professional's filing of
the above-referenced Response Action Outcome Statement documenting the
achievement of a Permanent Solution to Oil and Hazardous Materials
Releases at the Arlington Facility. Without limiting the foregoing,
Sunrise does hereby agree to indemnify and hold harmless the Company
and the Managing Member Indemnified Persons from and against, any loss,
claim, cost, expense or damage suffered by the Company or any Managing
Member Indemnified Person resulting from, relating to or in any manner
arising from the Arlington Contamination. Such losses, claims, costs,
expenses or damages include, without limitation, (A) the cost of
investigating and assessing the Arlington Contamination (B) any
remediation or attempted remediation of the Arlington Contamination,
regardless of whether such remediation is legally required or
voluntarily undertaken, (C) any direct or indirect remediation of any
environmental condition affecting any property in the vicinity of the
Arlington Facility that is undertaken in connection with a remediation
of the Arlington Contamination, (D) the costs and expenses of
environmental engineers and consultants (including environmental
engineers and consultants retained by the Investor Member on behalf of
the Managing Member Indemnified Persons after not less than five
Business Days notice to Sunrise) relating to the Arlington
Contamination, (E) the costs of any proceedings or other dealings with
or involving the EPA or any environmental or health authorities of the
State of Massachusetts or its political subdivisions relating to the
Arlington Contamination, (F) any health, personal injury, real or
personal property damage, natural resource damage or other similar
claims made against the Company or any Managing Member Indemnified
Person relating to the Arlington Contamination and (G) all reasonable
legal fees and expenses reasonably incurred by any Managing Member
Indemnified Person relating to the Arlington Contamination, including
reasonable legal fees and expenses incurred in the enforcement of this
indemnity. The foregoing payment, indemnification and hold harmless
obligations of the Managing Member do not apply to
42
any reduction in the market value of the Arlington Facility as a result
of such environmental conditions or otherwise. The Managing Member
agrees to fulfill its payment, indemnification and hold harmless
obligations hereunder promptly upon demand by the Company or any
Managing Member Indemnified Person. The obligations of the Managing
Member under this Section 10.8(e) shall survive the expiration or
termination of this Agreement and the withdrawal of the Investor Member
from the Company.
(f) The Baton Rouge Facility has been and is currently
affected by certain mold and moisture conditions and the underlying
causes thereof, all of which are generally described in reports
prepared for Sunrise, including without limitation, reports submitted
by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. dated August 21, 2002, August 26, 2002 and
October 29, 2002 (collectively, the "MOLD AND MOISTURE CONDITIONS") and
by certain structural conditions described in the Property Condition
Report of Sunrise of Baton Rouge, dated October 31, 2002, prepared by
EMG (including the Immediate Repairs Cost Estimate spreadsheet prepared
by EMG in connection with such Report) (the "STRUCTURAL CONDITIONS").
Sunrise represents that it is currently engaged in the diligent
remediation of the Mold and Moisture Conditions and the Structural
Conditions. Sunrise agrees that, upon the addition of the Baton Rouge
Facility to the Portfolio, Sunrise will continue, at its sole cost and
expense, with the diligent remediation of the Mold and Moisture
Conditions until (i) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. or another reputable
microbiologist retained by Sunrise confirms that the portions of the
Baton Rouge Facility affected by the Mold and Moisture Conditions have
been properly remediated and are now safe for occupancy by residents
and (ii) EMG or a reputable environmental engineer selected by the
Investor Member reviews the report of ▇▇. ▇▇▇▇▇▇▇ or such other
microbiologist and confirms, based on its review of such report and on
such limited inspection of the Baton Rouge Facility as EMG or such
environmental engineer may reasonably determine to be necessary, that
the conclusions set forth in such report appear reasonable and
accurate. Sunrise further agrees that, upon the addition of the Baton
Rouge Facility to the Portfolio, Sunrise will continue, at its sole
cost and expense, with the diligent remediation of the Structural
Conditions until such Structural Conditions have been fully remediated
to the reasonable satisfaction of the Investor Member. In the event the
Investor Member determines the remediation of the Mold and Moisture
Conditions or Structural Conditions is incomplete, the Investor Member
shall notify Sunrise in writing detailing with reasonable specificity
the actions Sunrise must take to complete such remediation. Upon
Sunrise's taking of such actions, such remediation shall be deemed to
be complete. Sunrise agrees to observe such operating guidelines and
practices as may be recommended by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇. to minimize
future mold and moisture conditions at the Baton Rouge Facility.
Without limiting the foregoing, Sunrise does hereby agree to indemnify
and hold harmless the Company and the Managing Member Indemnified
Persons from and against, any loss, claim, cost, expense or damage
suffered by the Company or any Managing Member Indemnified Person
resulting from Mold and Moisture Conditions or the Structural
Conditions. Such losses, claims, costs, expenses or damages include,
without limitation, (A) the cost of investigating and assessing the
Mold and Moisture Conditions, (B) any remediation or attempted
remediation of the Mold and Moisture Conditions, regardless of whether
such remediation is legally required or voluntarily undertaken, (C) the
costs and expenses of environmental engineers and
43
consultants (including environmental engineers and consultants
reasonably retained by the Investor Member on behalf of the Managing
Member Indemnified Persons after not less than five Business Days
notice to the Managing Member) for investigation of or work on the Mold
and Moisture Conditions, (D) the costs of any proceedings or other
dealings with or involving the EPA or any environmental or health
authorities of the State of Louisiana or its political subdivisions
relating to the Mold or Moisture Conditions, (E) any health, personal
injury, real or personal property damage or other similar claims made
against the Company or any Managing Member Indemnified Person relating
to the Mold and Moisture Conditions and (F) all reasonable legal fees
and expenses reasonably incurred by any Managing Member Indemnified
Person in connection with the Mold and Moisture Conditions, including
reasonable legal fees and expenses incurred in the enforcement of this
indemnity, provided, however, that after completion of the remediation
of the Mold and Moisture Conditions and the Structured Conditions, as
provided in this Section 10.8(f), the Sunrise indemnification
obligations set forth in this Section 10.8(f) shall be limited to the
losses, claims, costs, expenses and damages referenced in foregoing
clauses (D), (E) and (F). Such payment, indemnification and hold
harmless obligations of the Managing Member do not apply to any
reduction in the market value of the Baton Rouge Facility as a result
of such mold and moisture conditions or otherwise. The Managing Member
agrees to fulfill its payment, indemnification and hold harmless
obligations hereunder promptly upon demand by the Company or any
Managing Member Indemnified Person. The obligations of the Managing
Member under this Section 10.8(d) shall survive the expiration or
termination of this Agreement and the withdrawal of the Investor Member
from the Company.
SECTION 10.9. OTHER ACTIVITIES OF MEMBERS; NON-COMPETE.
Subject to Section 10.10 hereto, each Member, in such Member's
individual capacity or otherwise, shall be free to engage in, to conduct or to
participate in any business or activity whatsoever, without any accountability,
liability or obligation to the Company or to any other Member, even if such
business or activity competes with or is enhanced by the business of the
Company. Notwithstanding the previous sentence, neither the Managing Member nor
any of its Affiliates may invest in, operate, manage, develop, participate in or
have an interest in any senior housing or assisted living facility located
within the geographic areas (the "NON-COMPETE AREA") specified for each Facility
on Schedule 9; provided that (i) the Managing Member or its Affiliates may
invest in a facility located in the Non-Compete Area if such facility is part of
a larger portfolio of facilities in which the Managing Member or its Affiliate
is investing, and at least 75% of the fair market value of such portfolio of
facilities is located outside of the Non-Compete Area; and (ii) the Managing
Member or its Affiliates may manage a facility located in the Non-Compete Area
if the Managing Member and its Affiliates collectively own, directly and
indirectly, less than 20% of the ownership interests in such facility. If the
Managing Member or its Affiliates are permitted under this Section 10.9 to
invest in or manage a facility located in the Non-Compete Area, then the
Managing Member or such Affiliate shall not use the name "Sunrise" in promoting,
operating or managing such facility, provided, however, that the Managing Member
or such Affiliate may state in promoting, operating or managing such facility
that such facility is "managed by" a Sunrise affiliate. The Members have agreed
to an exception to this non-compete provision relating to the New Orleans
Facility, as set forth in the Master Owner/Manager Agreement.
44
SECTION 10.10. RELEASE AND SALE OF FACILITIES.
(a) NOTICE OF INTENT. At any time after the date of this
Agreement, the Managing Member may provide the Investor Member with
written notice of its desire to exercise a Call Option (as defined in
the Lease Agreements) and to concurrently sell one or more of the
Facilities. Such notice shall include the Managing Member's best good
faith estimate of the sale price to be obtained for such Facility and a
calculation of the projected distribution of the Extraordinary Proceeds
that would result from such release and sale.
(b) INVESTOR MEMBER APPROVAL/MARKETING. Within ten (10) days
after receipt of such notice, the Investor Member shall notify the
Managing Member whether or not it Approves the sale on the terms
proposed by the Managing Member. The failure of the Investor Member to
respond within this time period shall be deemed to be a disapproval by
the Investor Member of the proposed sale and the Managing Member shall
discontinue efforts to sell the Facility. If the Investor Member
Approves the request, the Managing Member shall begin to market the
Facility and may, subject to the Investor Member's Approval (including,
without limitation, Approval by the Investor Member of the fees and
commission to be paid and the form of brokerage or supplemental agency
agreement), retain agents or brokers to market the Facility.
(c) Letter of Intent/Purchase and Sale Contract.
(i) LETTER OF INTENT. If a prospective buyer is located, the
Managing Member shall negotiate a non-binding letter of intent (the
"LETTER OF INTENT") to sell the Facility which contains the basic
business terms for the sale. The Letter of Intent shall be submitted to
the Investor Member, which shall have ten (10) days to grant or
withhold its Approval. The failure of the Investor Member to respond
within this time period shall be deemed to be a disapproval by the
Investor Member of the Letter of Intent, and the Investor Member shall
discontinue efforts to sell the Facility.
(ii) PURCHASE AND SALE. If the Investor Member Approves the
Letter of Intent, the Managing Member shall negotiate a binding sales
contract with the prospective buyer and shall have full authority to
complete the sale on terms substantially similar to those contained in
the Letter of Intent; provided, however, that any material change from
the terms set forth in the Letter of Intent shall require the Approval
of the Investor Member. Any such binding sales contract shall be
subject to the final Approval of the Investor Member solely to ensure
compliance with the Islamic Operating Guidelines, which shall be given
or withheld within ten (10) days after submission by the Managing
Member. If final Approval by the Investor Member is withheld pursuant
to this 10.10(c)(ii), the Investor Member shall provide an explanation
of why such contract does not comply with the Islamic Operating
Guidelines and, if alternative means for such contract to comply with
the Islamic Operating Guidelines are possible, shall provide the
Managing Member, within the such ten (10) day period, with a
description of the changes required to be made to the contract to have
it comply with the Islamic Operating Guidelines.
45
(d) PAYMENT OF EXTRAORDINARY PROCEEDS. Unless such proceeds
are reinvested under Section 10.11, the Managing Member shall
distribute the Extraordinary Proceeds of any sale made under this
Section 10.10 under Section 9.1(b) hereof.
SECTION 10.11. ADDITIONAL ACQUISITIONS OF NEW FACILITIES.
(a) IDENTIFICATION AND PRESENTMENT OF NEW FACILITIES. The
Managing Member may, but shall not be obligated to, seek to identify
new assisted living facilities (which may, but need not, come from the
Managing Member's portfolio) that satisfy the investment criteria set
forth by the Company (and Approved by the Investor Member). If the
Managing Member identifies a facility that it proposes to have the
Company acquire, the Managing Member shall prepare and deliver to
Investor Member an investment summary for such facility. Such summary
will include an historical cash flow statement, a five-year projected
cash flow statement, a five-year projected capital expenditure budget,
and an Investment Yield calculation. For purposes of this Section,
"INVESTMENT YIELD" means the 12-month budgeted Net Operating Income for
a facility divided by the aggregate acquisition cost of such facility,
including transaction costs, and "NET OPERATING INCOME" means the Gross
Facility Revenue attributable to such facility, less all operating
expenses of such facility, including the Management Fee. The Investor
Member shall have thirty (30) days after receipt of the investment
summary to grant or withhold its initial Approval of the proposed
transaction pending a due diligence investigation. The failure of the
Investor Member to respond within this time period shall be deemed to
be a disapproval by the Investor Member of the proposed transaction,
and the Managing Member shall discontinue efforts to acquire the
facility for the Company.
(b) Transaction Procedure.
(i) NOTICES AND PURCHASE AND SALE. If and when the Managing
Member receives the Approval of the Investor Member, it shall provide
all notices required pursuant to the Lease Agreements and take all
steps required under Section 10.11(d) to add the identified facility to
the Portfolio. The Managing Member shall then negotiate a binding
purchase and sale agreement. Any such binding sales agreement shall be
subject to the Approval of the Investor Member in order to ensure
compliance with the Islamic Operating Guidelines, which Approval shall
be given or withheld within ten (10) days after submission by the
Managing Member. If the purchase and sale agreement contains a due
diligence "out" provision, the Managing Member shall not waive such
provision without the Approval of the Investor Member.
(ii) DUE DILIGENCE. The Managing Member shall be responsible
for coordinating all property due diligence (including retention of
attorneys, accountants and other third party consultants), and shall
provide the Investor Member with copies of all material reports
obtained for the purpose of such acquisition including, but not limited
to, financial, title, survey, physical/mechanical, environmental and
demographic reports. The cost of performing such due diligence review
shall be borne by the Company. Any due diligence investigation
conducted by the Investor Member shall take place contemporaneously
with that of the Managing Member, provided, however, that any
46
issues arising out of the Investor Member's due diligence investigation
shall promptly be reported to the Managing Member.
(iii) FINAL ACQUISITION. After execution of the binding
purchase and sale agreement and the final Approval of the Investor
Member described above, the Managing Member shall have full authority
to complete the applicable acquisition on behalf of the Company.
(c) Additional Capital.
(i) DOWN PAYMENTS. The Managing Member may either (A) make a
request for a Voluntary Additional Contribution under Section
7.4(a)(ii) hereof (which Voluntary Additional Contribution shall be
deemed to have been Approved by all of the Members) or (B) with the
prior Approval of the Investor Member, use undistributed Net Cash Flow
to post required down payments. In the event the Managing Member shall
request a Voluntary Additional Contribution, the Members shall
contribute their Percentage Interests of such additional capital within
ten (10) days of receipt of such request from the Managing Member;
provided, however, that the Managing Member may make the full down
payment required, which payment shall be subsequently reimbursed to the
Managing Member upon the contribution by the Investor Member of its
Percentage Interest of such Voluntary Additional Contribution.
(ii) CLOSING FUNDS. At least five (5) Business Days prior to
the scheduled closing, the Members shall contribute their Percentage
Interests of the required additional capital and/or authorize the
Managing Member to use undistributed Extraordinary Proceeds to effect
the acquisition.
(d) LEASE TRANSACTION. The Managing Member shall arrange for
any facility acquired under this Section 10.11 to be made subject to a
Lease Agreement and related documentation with AL Funding or an
Affiliate thereof. The Managing Member shall satisfy and perform all
conditions pursuant to such Lease Agreement and shall direct AL Funding
or its Affiliate to satisfy all conditions of its debt financing.
(e) CLOSING. The Managing Member shall coordinate the closing
of the new facility. The Managing Member will provide a set of all
closing documents to the Investor Member within a reasonable time after
the closing, and shall provide copies of any closing documents
requested by the Investor Member as they become available to the
Managing Member.
(f) ACQUISITION FEE. In the event a facility is acquired under
this Section 10.11 from an Entity other than the Managing Member or an
Affiliate of the Managing Member, then an Affiliate designated by ▇▇▇▇▇
(other than the Managing Member) shall be entitled to an Acquisition
Fee equal to 0.75% of the purchase price of such facility, which fee
shall be payable at the time of closing.
47
SECTION 11. REPRESENTATIONS AND WARRANTIES OF THE MEMBERS.
SECTION 11.1. INVESTMENT INTENT.
Except as set forth in Section 16.2 herein, the Members do hereby
represent and warrant to the Company and to each other that they have acquired
their interest in the Company for investment solely for their own account with
the intention of holding such interest for investment, without any intention of
participating directly or indirectly in any distribution of any portion of such
interest, and without the financial participation of any other person in
acquiring such interest.
SECTION 11.2. UNREGISTERED COMPANY INTERESTS.
The Members do hereby acknowledge that they are aware that their
interests in the Company have not been registered under the Securities Act of
1933, as amended (the "FEDERAL ACT"), or under any state securities laws (a
"STATE ACT"). The Members further understand and acknowledge that their
representations and warranties contained in this Section 11 are being relied
upon by the Company as the basis for the exemption of the Members' interests in
the Company from the registration requirements of the Federal Act and from the
registration requirements under any applicable State Act. The Members further
acknowledge that the Company will not, and has no obligation to, recognize any
sale, transfer or assignment of all or any part of their respective interests in
the Company to any person unless and until the provisions of Section 16 hereof
have been fully satisfied.
SECTION 11.3. NATURE OF INVESTMENT.
The Members do hereby acknowledge that they are thoroughly familiar
with the terms of this Agreement, and that they are familiar with the Company's
plans to own, operate, hold, lease, manage, finance, acquire, sell, substitute
and dispose of, or otherwise deal with or provide services with respect to the
Facilities, and that they do not desire any further information or data relating
to the Facilities, the Company or the Managing Member. Furthermore, the Members
do hereby acknowledge that they understand that their interests in the Company
are a speculative investment involving a high degree of risk of financial
exposure and do hereby represent that they have a net worth sufficient to bear
the economic risk of their investment in the Company and to justify their
investing in a highly speculative venture of this type.
SECTION 11.4. GENERAL REPRESENTATIONS AND WARRANTIES OF SUNRISE.
Sunrise hereby represents and warrants to the Investor Member as
follows, which representations and warranties shall be deemed to have been made
and shall be true and correct as of the date of this Agreement:
(a) Sunrise is a corporation duly formed and validly existing
under the laws of the Commonwealth of Virginia with all requisite power
and authority to own, lease and operate its properties and to carry on
its business as now being conducted. Sunrise has all requisite power
and authority to enter into this Agreement and the other agreements
contemplated to be entered into by it in connection herewith and to
carry out the transactions contemplated hereby and thereby.
48
(b) The execution and delivery of this Agreement and the other
agreements to be entered into by it in connection herewith and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of Sunrise.
This Agreement and such other agreements have been executed and
delivered by a duly authorized officer of Sunrise and constitute the
valid and binding obligations of Sunrise, enforceable against Sunrise
in accordance with the terms hereof and thereof, subject as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or effecting creditor's rights and
to general principles of equity.
(c) The execution, delivery and performance of this Agreement
and all other agreements contemplated hereby by Sunrise do not (i)
violate any decree or judgment of any court or governmental authority
which may be applicable to Sunrise; (ii) violate any law (or regulation
promulgated under any law); (iii) violate or conflict with, or result
in a breach of, or constitute a default under (or an event with or
without notice or lapse of time or both would constitute a default)
under any contract or agreement to which Sunrise is a party; or (iv)
violate or conflict with any provision of the organizational documents
of Sunrise.
(d) No broker, finder, agent or other intermediary has been
employed by or on behalf of Sunrise in connection with the negotiation
or consummation of this Agreement or any of the transactions
contemplated hereby, and no such party has any claim for any
commission, finder's fee or similar amount payable as a result of any
engagement of such party by Sunrise; provided, that Sunrise may pay a
consulting fee to Macquarie Capital Partners LLC.
SECTION 11.5. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF
INVESTOR MEMBER.
The Investor Member hereby represents and warrants to Sunrise as
follows, which representations and warranties shall be deemed to have been made
and shall be true and correct as of the date of this Agreement:
(a) The Investor Member is a corporation duly incorporated and
validly existing under the laws of Delaware with all requisite power
and authority to carry on its business as now being conducted. The
Investor Member has all requisite power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Investor Member.
This Agreement has been executed and delivered by a duly authorized
officer of the Investor Member and constitutes the valid and binding
obligation of the Investor Member, enforceable against the Investor
Member in accordance with the terms hereof, subject as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or effecting creditors' rights and to general
principles of equity.
49
(c) The execution, delivery and performance of this Agreement
by the Investor Member do not (i) violate any decree or judgment of any
court or governmental authority which may be applicable to the Investor
Member; (ii) violate any law (or regulation promulgated under any law);
(iii) violate or conflict with, or result in a breach of, or constitute
a default (or an event which, with or without notice or lapse of time
or both, would constitute a default) under any contract or agreement to
which the Investor Member is a party; or (iv) violate or conflict with
any provision of the organizational documents of the Investor Member.
(d) No broker, finder, agent or other intermediary has been
employed by or on behalf of the Investor Member in connection with the
negotiation or consummation of this Agreement or any of the
transactions contemplated hereby, and no such party has any claim for
any commission, finder's fee or similar amount payable as a result of
any engagement of such party by the Investor Member.
The Investor Member has conducted its own due diligence with respect to
the Portfolio and, except as set forth in the Transaction Agreement, the
Investor Member has not received any representations and warranties from the
Managing Member or any of its Affiliates in connection therewith.
SECTION 12. POWER OF ATTORNEY.
Investor Member (including any permitted assignee thereof) does hereby
irrevocably constitute and appoint Managing Member as Investor Member's true and
lawful attorney, in Investor Member's name, place and stead, to make, execute,
consent to, swear to, acknowledge, record and file any certificate or other
instrument which may be required to be filed by the Company or by the Members
under the laws of the State of Delaware and/or under the applicable laws of any
other jurisdiction to the extent Managing Member deems such filing to be
necessary or desirable, including, but not limited (i) this Agreement and any
amendment to this Agreement adopted by the Members in accordance with this
Agreement; (ii) the Certificate of Formation of the Company and all amendments
thereto required or permitted by law or the provisions of this Agreement; (iii)
all certificates and other instruments deemed advisable by Managing Member to
carry out the provisions of this Agreement and applicable law or to permit the
Company to become or to continue as a limited liability company in any
jurisdiction where the Company may be doing business; and (iv) all fictitious or
assumed name certificates required or permitted to be filed on behalf of the
Company; provided, however, that any such document is consistent with the terms
of this Agreement and, provided, further, that Investor Member shall be provided
with a copy of such certificate or instrument promptly following the filing
thereof. It is expressly understood, intended and agreed by Investor Member, and
for and on behalf of its successors and assigns, that the grant of the power of
attorney to Managing Member pursuant to this Section 12 is coupled with an
interest, is irrevocable and shall survive the death or legal incompetency of
each of the Members and the transfer of their interest in the Company.
50
SECTION 13. BANKING.
All cash and other monies received by the Company or ▇▇▇▇▇ in relation
to a Facility shall be deposited in a separate non-interest bearing bank account
established in the name of the Company for such Facility, such account to be in
form and with an institution Approved by the Investor Member. Each month, the
funds in each such account will be transferred into a central non-interest
bearing account established in the name of the Company in a form and with an
institution Approved by the Investor Member. Withdrawals from such central
account shall be made on such signature or signatures as may from time to time
be Approved by all of the Members. The Members agree that if non-interest
bearing bank accounts in relation to a Facility or for the Company are
unavailable or otherwise impracticable, such accounts may be interest bearing,
provided that in such event the Investor Member will contribute to charity its
share of any interest received by the Company on funds in such accounts.
SECTION 14. ACCOUNTING.
SECTION 14.1. BOOKS OF ACCOUNT.
The Managing Member shall maintain true and accurate books of account
for the Company at the principal office of the Company specified in Section 3.2
or such other location or locations as may be Approved by the Investor Member,
and the Investor Member shall at all reasonable times have access thereto and
shall have the right, at the Investor Member's expense, to have the books and
records of the Company audited by a firm of independent accountants selected by
the Investor Member.
SECTION 14.2. METHOD OF ACCOUNTING.
The Company's books of account shall be maintained, and its income,
gains, losses expenses, contributions and distributions and deductions shall be
determined and accounted for, in accordance with GAAP.
SECTION 14.3. FINANCIAL AND OPERATING STATEMENTS.
The Managing Member shall, at the expense of the Company, have
financial statements of the Company for each Fiscal Year audited by an
accounting firm which shall initially be Ernst & Young, but which may be
replaced with a different nationally recognized accounting firm Approved by all
of the Members. The Managing Member shall have prepared and delivered to the
Investor Member the annual audited financial statements and tax returns in
accordance with Schedule 4 attached hereto. Also, the Managing Member shall have
prepared and delivered to the Investor Member in accordance with Schedule 4 an
unaudited operating statement, which shall be prepared in accordance with the
accrual method of accounting, and which shall include, without limitation, full
trial balances and a comparison to the applicable Operating Budget of the cash
flow, income and expenses of the Company through the end of each fiscal quarter,
together with a written narrative explaining all material variances.
51
SECTION 14.4. TAX INFORMATION.
Promptly after the close of each taxable year of the Company, the
Managing Member shall cause to be prepared and delivered to the Members, at the
Company's expense, information with respect to the business transactions of the
Company for such Fiscal Year in sufficient detail to enable an accounting firm
approved by the Members to prepare the Company's federal, state and local income
tax returns in accordance with all then applicable laws, rules and regulations.
The Managing Member shall also cause to be prepared by the accounting firm
performing the audit, at the expense of the Company, all federal, state and
local income tax returns required of the Company. The Managing Member shall also
cause such accounting firm to file the tax returns and to furnish to the Members
all necessary information concerning the Members' distributive share of the
Company items shown on the Company's tax returns to enable the Members to
prepare their federal, state and local income tax returns, with such information
for each Fiscal Year to be furnished to the Members pursuant to Schedule 4
attached hereto.
SECTION 14.5. TAX MATTERS PARTNER.
Pursuant to Section 6231(a)(7)(A) of the Code, the Members hereby
designate the Managing Member as the Company's "tax matters partner." The
Managing Member is authorized, empowered, and required to make such filings with
the Internal Revenue Service, at the Company's expense, as may be required to
designate the Managing Member as the tax matters partner.
SECTION 14.6. TAX TREATMENT OF LEASE FINANCING.
Each Member hereby agrees for all tax and accounting purposes to report
the Lease Transactions in the manner specified in the Tax Matters Agreement.
SECTION 15. ADMISSION OF ADDITIONAL MEMBERS.
Except as otherwise provided in Section 16 hereof, no Entity shall be
admitted to the Company without the Approval of each Member, which may be given
or withheld in such Member's sole discretion.
SECTION 16. TRANSFER OF COMPANY INTERESTS.
SECTION 16.1. COVENANTS REGARDING TRANSFERS.
Each of the Members hereby covenants and agrees that such Member will
not at any time sell, assign, transfer, convey, mortgage, pledge, encumber,
hypothecate or otherwise dispose of all or any part of such Member's interest
(including such Member's right to distributions hereunder) in the Company to any
Entity, other than pursuant to the following provisions of this Section 16,
without (except as otherwise expressly provided herein) first having obtained
the Approval to any such proposed disposition from all other Members and without
having complied with the Federal Act or any applicable State Acts or Non U.S.
Laws. Furthermore, no voluntary or involuntary transfer of a Member's interest
in the Company may be made unless each other Member has received reasonable
assurances from the transferring Member that such transfer will
52
not require registration of such Member's interest to be transferred or of the
Company under the Federal Act and all applicable State Acts. Any transfer by any
Member of all or any portion of such Member's interest in the Company in
violation of this covenant shall be null and void and of no effect whatsoever,
and shall be a Defaulting Event for purposes of Section 18.
SECTION 16.2. PERMITTED TRANSFERS BY INVESTOR MEMBER.
Notwithstanding the terms of Section 16.1 to the contrary, but subject
to the second sentence of Section 16.1 and to Section 16.6, the interests of the
Investor Member in the Company may be sold, assigned, or transferred in their
entirety, or direct or indirect ownership or beneficial interests in the
Investor Member may be sold, assigned or transferred, or the Investor Member may
issue shares in the Investor Member in each case, without the consent (except in
the case of (d) below) of the Managing Member, to any of the following:
(a) to any Affiliate of the Investor Member, provided that no
such transfer shall result in the initial record owners of the voting
stock of the Investor Member owning less than 51% of such voting stock;
(b) to any Entity which may result from a reorganization,
merger, consolidation or business combination by or with the Investor
Member or to any Entity to which the Investor Member is selling all or
substantially all of its assets, provided that no such reorganization,
merger, consolidation, business combination or sale shall result in the
initial record owners of the voting stock of the Investor Member owning
less than 51% of such voting stock;
(c) to any Entity that is not a United States citizen or, in
the case of Entities that are not natural persons, that is formed in a
jurisdiction outside the United States, in either case pursuant to the
private placement of shares of, or indirect beneficial interests in,
the Investor Member undertaken by an Affiliate of the Investor Member,
provided that no such transfer shall result in the initial record
owners of the voting stock of the Investor Member owning less than 51%
of such voting stock; and
with the prior consent of the Managing Member, which consent may be granted or
withheld in the Managing Member's sole discretion, fifty percent (50%) or less
of the Investor Member's interest in the Company may be transferred to any
Entity, provided the Investor Member has the power and authority to, and as a
condition to such transfer covenants and agrees to, act for and on behalf of
such transferee in relation to such transferee's interest in the Company, and
the Managing Member shall be entitled to treat the Investor Member as such
transferee's Authorized Representative.
Without limiting Section 16.2(a), (b) or (c) above, any transfer of all
or any part of the Investor Member's interest in the Company or any shares of
the Investor Member shall not be permitted (and any attempted transfer shall be
null and void and of no force and effect) unless and until the Investor Member
delivers to the Company and the Managing Member at least five (5) days advance
written notice of any such transfer and the identity of the transferee together
with such assurances as the Managing Member may reasonably request to ensure
that such transfer is in compliance with the Federal Act and all applicable
State Acts, this Section 16.2 and
53
the provisions of Section 16.7 regarding permitted transferees. In addition,
promptly following the consummation of any such transfer, the Investor Member
shall provide the Managing Member with copies of the documents executed to
effect such transfer, modified as necessary to preserve the confidentiality of
any confidential information contained therein.
SECTION 16.3. PERMITTED TRANSFERS BY MANAGING MEMBER.
Notwithstanding the terms of Section 16.1 to the contrary, but subject
to Section 16.6, the interests of the Managing Member in the Company may be
sold, assigned, or transferred in their entirety, without the consent of the
Investor Member, to any of the following:
(a) to any Entity which may result from a reorganization,
merger, consolidation or business combination by or with the Managing
Member, regardless of whether the Managing Member is the surviving
entity;
(b) to any Affiliate of the Managing Member; and
(c) to any Entity to which the Managing Member is selling all
or substantially all of its assets;
provided, however, that if, pursuant to a transfer under this Section 16.3, a
Change of Control other than a Permitted Change of Control shall occur (such
transfer being a "TRIGGERING TRANSFER"), then the Investor Member shall have the
right to initiate the buy-sell option pursuant to Section 20 of this Agreement.
Such option shall remain in place for a period of ninety (90) days after such
transfer, at which point, if not exercised, it shall be deemed waived by the
Investor Member. A "CHANGE OF CONTROL" shall be deemed to occur if, at any time
after the date of this Agreement, (i) any Entity (or one or more Entities acting
in concert as a group) directly or indirectly acquires (A) more than fifty
percent (50%) of the outstanding capital stock of the Managing Member or (B)
such percentage of the outstanding common stock of the Managing Member or such
other rights as would entitle such Entity (or such group) to (x) exercise
control over the day-to-day management of the Managing Member or (y) appoint or
determine the vote for a majority of the board of directors of the Managing
Member, and in the case of clause (y) such Entity or group actually exercises
such right and elects a majority of the board members who were not members prior
to such time; (ii) a merger, exchange, consolidation, recapitalization or other
business combination (a "BUSINESS COMBINATION") occurs in which the beneficial
holders of the outstanding capital stock of the Managing Member immediately
prior to the Business Combination beneficially own immediately following such
Business Combination less than fifty-one percent (51%) of the aggregate equity
interests of the surviving entity or less than fifty-one percent (51%) of the
securities of the Managing Member having the power to elect a majority of the
board of directors of the Managing Member; or (iii) all or substantially all of
the assets of the Managing Member are sold or otherwise disposed of, directly,
indirectly, voluntarily, involuntarily, by operation of law or otherwise to any
Entity (or one or more Entities acting in concert as a group). A "PERMITTED
CHANGE OF CONTROL" is a Change of Control pursuant to which any applicable
Entity or group acquiring beneficial ownership of the stock of the Managing
Member (in the case of clause (i) of the preceding sentence), the surviving
entity of any applicable Business Combination (in the case of clause (ii) of the
preceding sentence), or the Entity that purchases all of substantially all of
the assets of the Managing Member (in the case of
54
clause (iii) of the preceding sentence) (each such Entity being referred to
herein as the "NEW ENTITY") satisfies all of the following requirements:
(i) The tangible net worth of the New Entity, computed in
accordance with GAAP, as of the date of the Change in Control is not
less than the greater of (A) the tangible net worth of the Managing
Member as of the date of this Agreement or (B) the tangible net worth
of the Managing Member on the day prior to the date of the Change of
Control;
(ii) Neither the New Entity nor any Entity directly or
indirectly controlling the New Entity, or any of the New Entity's
operational subsidiaries shall, at any time (A) have filed a petition
in bankruptcy or sought the protection of any bankruptcy or similar
insolvency laws, or had a petition under any bankruptcy or creditors
rights laws filed against it; or (B) had any assisted living/dementia
care or skilled nursing license or certification denied or revoked by
any governmental authority due to any actual or alleged fault or
failure by, or the negative reputation of, the New Entity or any of its
Affiliates;
(iii) The New Entity, or its operational subsidiary or
subsidiaries, shall (A) be licensed or certified for the operation of
assisted living/dementia care facilities in the states in which the
Facilities are located, and (B) have a good reputation in the industry
and have at least five (5) years experience in, the operation of a
substantial number of premier first-class assisted living/dementia care
facilities containing no less than an average of 50 units each and
located in metropolitan markets substantially similar to the markets in
which the Facilities are located; and (C) operate such facilities in a
manner comparable to the Sunrise Standards, in each case as determined
by the Investor Member in its reasonable judgment; and
(iv) The New Entity or its operational subsidiary or
subsidiaries must have in place or adopt as of the date of the Change
of Control, hiring, training and quality assurance programs and
operating and management standards that are equivalent to or higher in
quality than the Sunrise Standards.
Without limiting Section 16.3(a), (b) or (c) above, any transfer of all
or any part of the Managing Member's interest in the Company or any shares of
the Managing Member shall not be permitted (and any attempted transfer shall be
null and void and of no force and effect) unless and until the Managing Member
delivers to the Company and the Investor Member at least five (5) days advance
written notice of any such transfer and the identity of the transferee together
with such assurances as the Investor Member may reasonably request to ensure
that such transfer is in compliance with the Federal Act and all applicable
State Acts and this Section 16.3. In addition, promptly following the
consummation of any such transfer, the Managing Member shall provide the
Investor Member with copies of the documents executed to effect such transfer,
modified as necessary to preserve the confidentiality of any confidential
information contained therein.
55
SECTION 16.4. SUBSTITUTED MEMBERS.
In the event a Member transfers all or any part of its membership
interest in the Company in compliance with the provisions of Sections 16.2 or
16.3 above, the transferee of such Member shall not have the right to become a
substituted Member of the Company unless the transferring Member has given such
transferee such right and unless:
(a) such Member and such transferee execute and deliver such
instruments as the other Member reasonably deems necessary or desirable
to effect such substitution;
(b) such transferee accepts and agrees in writing to be bound
by all of the terms and provisions of this Agreement;
(c) such transferee pays all reasonable expenses connected
with such substitution; and
(d) the other Member, in its sole discretion, consents to the
substitution of such transferee (only if such transferee is not already
a Member of the Company) as a substituted Member.
SECTION 16.5. RECORDATION TAX.
In the event any permitted transfer or sale of an interest pursuant to
this Section 16 results in the imposition of a state or local transfer,
recordation or similar tax on transfers of economic interests (or any similar
tax), the Member whose transfer or sale triggers such imposition shall be
responsible for the payment of such transfer and recordation tax or similar tax.
SECTION 16.6. TRANSFERS RESULTING IN CORPORATION STATUS; TRANSFERS
THROUGH ESTABLISHED SECURITIES OR SECONDARY MARKETS.
Notwithstanding anything to the contrary in this Agreement, no transfer
by a Member of its interest in the Company (or any economic or other interest,
right or attribute therein) may be made to any Entity if (i) in the opinion of
legal counsel for the Company, it would result in the Company being treated as
an association taxable as a corporation, or (ii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.
Notwithstanding anything to the contrary in this Agreement, (A) no interests in
the Company shall be issued in a transaction that is (or transactions that are)
registered or required to be registered under the Federal Act, and to the extent
such interests were not required to be registered under the Federal Act by
reason of Regulation S (17 CFR 230.901 through 230.904) or any successor
thereto, such issuances would not have been required to be registered under the
Federal Act if the interests so offered or sold had been offered and sold within
the United States, (B) any admission (or purported admission) of a Member and
any transfer or assignment (or purported transfer or assignment) of all or part
of a Member's interest (or any interest or right or attribute therein) in the
Company, whether to another Member or to a third party, shall not be effective,
and any such transfer or assignment (or purported transfer or assignment) shall
be void ab initio, and no person shall otherwise become a Member if (1) at the
time of such transfer or assignment (or purported transfer or assignment) any
interest in the Company (or economic interest therein) is traded on an
56
established securities market or readily tradable on a secondary market or the
substantial equivalent thereof or (2) after such transfer or assignment (or
purported transfer or assignment) the Company would have more than 100 Members.
For purposes of clause (1) of the preceding sentence and clause (ii) above, an
established securities market is a national securities exchange that is either
registered under Section 6 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") or exempt from registration because of the limited volume
of transactions, a foreign securities exchange that, under the law of the
jurisdiction where it is organized, satisfies regulatory requirements that are
analogous to the regulatory requirements of the Exchange Act, a regional or
local exchange, or an interdealer quotation system that regularly disseminates
firm buy or sell quotations by identified brokers or dealers by electronic means
or otherwise. For purposes of such clause (1) and clause (ii) above, interests
in the Company (or interests therein) are readily tradable on a secondary market
or the substantial equivalent thereof if (i) interests in the Company (or
interests therein) are regularly quoted by any person, such as a broker or
dealer, making a market in the interests; (ii) any person regularly makes
available to the public (including customers or subscribers) bid or offer quotes
with respect to interests in the Company (or interests therein) and stands ready
to effect buy or sell transactions at the quoted prices for itself or on behalf
of others; (iii) the holder of an interest in the Company has a readily
available, regular, and ongoing opportunity to sell or exchange such interest
(or interests therein) through a public means of obtaining or providing
information of offers to buy, sell, or exchange such interests; or (iv)
prospective buyers and sellers otherwise have the opportunity to buy, sell, or
exchange interests in the Company (or interests therein) in a time frame and
with the regularity and continuity that is comparable to that described in
clauses (i), (ii) and (iii) of this sentence. For purposes of determining
whether the Company will have more than 100 Members, each person indirectly
owning an interest in the Company through a partnership (including any entity
treated as a partnership for federal income tax purposes), a grantor trust or an
S corporation (each such entity a "FLOW-THROUGH ENTITY") shall be treated as a
Member unless the Managing Member determines in its sole and absolute discretion
that less than substantially all of the value of the beneficial owner's interest
in the flow-through entity is attributable to the flow-through entity's interest
(direct or indirect) in the Company.
SECTION 16.7. HOLDERS OF INVESTOR MEMBER INTERESTS.
The Managing Member acknowledges that indirect ownership interests in
the Investor Member will be syndicated to various offshore parties pursuant to a
private placement memorandum to be prepared by representatives of the Investor
Member. Such parties may trade their indirect ownership interests. Personnel who
have been identified to the Managing Member ("IDENTIFIED PERSONNEL") will
initially control and manage the Investor Member and the offshore parties which
hold shares in the Investor Member. The Managing Member will have the right to
receive a copy of the foregoing private placement memorandum. The trading of the
indirect ownership interests in the Investor Member shall not impact the
operations of the Company or the relationship between the Members under this
Agreement. The Investor Member hereby confirms to the Managing Member that none
of the indirect ownership interests in the Investor Member will be syndicated to
any Entity, or subsequently transferred to any Entity, who, at the time of such
syndication or transfer is on the United States Treasury Department's Office of
Foreign Asset Control Restricted List, or subject to economic sanctions imposed
by acts, laws or regulations and/or executive orders issued thereunder
(collectively, the "OFAC REGULATIONS"). Should any Entity holding an indirect
ownership interest become subject to the OFAC
57
Regulations, the Investor Member agrees to take such actions as may be legally
required in such circumstances. The Investor Member agrees to confirm from time
to time, upon the request of the Managing Member, that none of the Entities
holding indirect ownership interests in the Investor Member are Entities subject
to the OFAC Regulations. The Investor Member shall adhere to the anti-money
laundering policy attached hereto as Schedule 10. The Investor Member agrees to
provide such certifications relating to the holders of indirect ownership
interests in the Investor Member as shall be sufficient to enable the Company
(and its Members, to the extent required) to execute any certifications or to
provide any information relating to the OFAC Regulations as may be required to
be submitted by the Company or the Members to any Facility Owner, or by any
Facility Owner or the Members to any provider of Senior Financing. The Investor
Member does hereby agree to indemnify and to hold harmless the Managing Member
and its Affiliates and the directors, trustees, offices, employees, members and
owners of each of them from and against any and all loss, claim, cost, expense
or damage suffered by one or more of such parties by reason of any failure of
the Investor Member to comply with the requirements of the OFAC Regulations.
SECTION 17. WITHDRAWALS.
Each of the Members does hereby covenant and agree that such Member
will not withdraw or retire from the Company except as the result of a permitted
transfer of such Member's entire interest in the Company pursuant to Section 16
hereof, and that such Member will carry out such Member's duties and
responsibilities hereunder until the Company is terminated, liquidated and
dissolved under Section 23 hereof. A withdrawing Member shall not be entitled to
receive any amount from the Company in connection with such withdrawal except to
the extent specifically provided in this Agreement.
SECTION 18. DEFAULTING EVENTS.
SECTION 18.1. CONVERSION OF DEFAULTING OR DISABLED MANAGING MEMBER'S
INTEREST.
If the Managing Member suffers a Defaulting Event or a Disabling Event,
and if the Investor Member elects under Section 23.1 hereof to continue the
Company notwithstanding the happening of such Defaulting Event or Disabling
Event, then the Investor Member may elect, by delivery of written notice thereof
to the Managing Member, to become the Managing Member or to admit an Affiliate
of the Investor Member as the Managing Member (but in no event shall such
admission dilute the Percentage Interest of the Managing Member who suffered the
Defaulting Event or Disabling Event), and the Managing Member's entire interest
in the Company as a Managing Member shall be converted into the interest of a
non-managing Member (entitled to all of the rights of the non-managing Member
hereunder, including all rights of Approval) effective as of the date of the
occurrence of such Defaulting Event or Disabling Event (the "CONVERSION DATE").
As a result of such conversion, the Managing Member shall cease to be a managing
member of the Company as of the Conversion Date and shall become solely a
non-managing member as of such Conversion Date. In the event the Managing Member
becomes a Defaulting Member or Disabled Member, and such Managing Member's
interest in the Company is required to be converted hereunder into the interest
of a non-managing member, such Defaulting Member or Disabled Member or its
successor-in-interest, as the case may be,
58
shall promptly upon demand of the Investor Member execute and deliver to the
Company all documents that may be necessary or appropriate, in the opinion of
counsel for the Company, to effect such conversion. Notwithstanding such
conversion and removal, such Disabled Member or Defaulting Member shall remain
liable for all liabilities, duties and obligations of such Managing Member
arising prior to the conversion of such Managing Member to a non-managing
Member.
SECTION 18.2. ADDITIONAL REMEDIES.
Except as otherwise expressly provided in this Agreement, the rights
and remedies of the Members under this Agreement shall not be mutually exclusive
and shall be cumulative of all rights or remedies available at law, in equity,
or under this Agreement. Each Member confirms that damages at law may be an
inadequate remedy for a breach or a threatened breach of this Agreement and
agrees that, without prejudice to the right of a Member in an appropriate case
to pursue a remedy at law or otherwise, in the event of a breach or threatened
breach of any provision hereof, the respective rights and obligations hereunder
shall be enforceable by specific performance, injunction, or other equitable
remedy.
SECTION 19. DISABILITY OR DEFAULT OF THE INVESTOR MEMBER.
In the event the Investor Member suffers a Disabling Event, such
Disabling Event shall not terminate the Company, and in the event such Disabled
Member's interest in the Company passes to a successor-in-interest, such
successor-in-interest shall succeed to such Disabled Member's entire interest in
the Company and shall have the same Percentage Interest in the Company, the same
obligations with respect to contributions to the capital of the Company and with
respect to the obligations of the Company, the same rights in and to all
distributions made by the Company, in liquidation or otherwise, and the same
share of the Company's Net Profit, Net Loss, and specially allocated items for
both financial accounting and income tax purposes as such Disabled Member had
with respect to its interest in the Company. Upon admission to the Company of
such Disabled Member's successor-in-interest, such successor shall promptly,
upon demand of the Company, execute and deliver to the Company, and does hereby
irrevocably constitute and appoint the Managing Member as such successor's true
and lawful attorney-in-fact to execute and to deliver to the Company for and on
such successor's behalf, all documents that may be necessary or appropriate, in
the opinion of counsel for the Company, to reflect such successor's admission to
the Company as a non-managing member and such successor's agreement to be bound
by all of the terms and conditions of this Agreement. The Disabled Member shall
be deemed to have given its successor or successors-in-interest the right to
become a substituted non-managing member. Upon and during the continuance of a
Defaulting Event by the Investor Member, the Investor Member (including its
successor-in-interest) shall have no further rights of Approval.
SECTION 20. BUY-SELL AGREEMENT FOR ENTIRE PORTFOLIO.
SECTION 20.1. BUY-SELL OPTION.
If at any time after the date of this Agreement one of the following
events occurs:
59
(i) the occurrence and continuance of a Bona Fide Dispute;
(ii) the Investor Member exercises its rights of conversion
under Section 18 hereto; or
(iii) the Investor Member suffers a Disabling Event pursuant
to Section 19;
then the Managing Member and the Investor Member shall each have the right to
make an offer (the "BUY-SELL OFFER") in writing to the other Member (the
"OFFEREE"), which shall state an amount in cash (the "BUY-SELL VALUE"),
determined in the sole and absolute discretion of the Member making the Buy-Sell
Offer (the "OFFEROR"), to be used in determining the Buy-Sell Price pursuant to
Section 20.4. In addition, if a Member fails to make a Capital Contribution
required to be made by it under this Agreement (including a Voluntary Additional
Contribution Approved by such Member) the Non-Failing Member shall thereafter be
permitted to make a Buy-Sell Offer as provided in the preceding sentence,
provided, however, that, if a Buy-Sell Offer is triggered by such failure, then
the Thirty Day Period specified in Section 20.3 hereto shall be reduced to ten
(10) days, and provided, further, that the ninety (90) days specified in Section
20.6 (within which a Buy-Sell Closing Date shall be designated) shall be reduced
to thirty (30) days. Further, if a Triggering Transfer described under Section
16.3 hereto with respect to the Managing Member occurs, the Investor Member
shall, within ninety (90) days after such Triggering Transfer, be permitted to
make a Buy-Sell Offer as provided in the preceding sentence.
SECTION 20.2. BUY-SELL VALUE.
The Buy-Sell Value shall be the amount that the Offeror chooses to be
the net value of the Company's assets as of the Buy-Sell Closing Date
(hereinafter defined) after distribution of all Net Cash Flow to the Members and
net of any amounts required to be paid to fully satisfy and obtain a release of
the Lease Transaction. The Buy-Sell Value shall not be adjusted as a result of
distributions of Net Cash Flow occurring after the date on which the Buy-Sell
Offer is given, but shall be reduced by the amount of Extraordinary Proceeds
distributed after the date on which the Buy-Sell Offer is given. The Buy-Sell
Offer shall constitute an irrevocable offer by the Offeror to the Offeree either
(i) to sell to the Offeree all, but not less than all, of the Offeror's interest
in the Company in consideration for the payment of a Buy-Sell Price determined
pursuant to Section 20.4 (the "OFFER TO SELL") or (ii) to purchase all, but not
less than all, of the Offeree's interest in the Company in consideration for the
payment of a Buy-Sell Price determined pursuant to Section 20.4 (the "OFFER TO
PURCHASE").
SECTION 20.3. OFFEREE DECISION.
Unless a shorter time period is specified in Section 20.1, the Offeree
shall have thirty (30) days (the "THIRTY DAY PERIOD") after receipt of the
Buy-Sell Offer to respond to either, but not both, the Offer to Sell or the
Offer to Purchase, by giving the Offeror notice of such response within the
Thirty Day Period. If the Offeree fails to accept either the Offer to Sell or
the Offer to Purchase within the Thirty Day Period, then the Offeree shall be
deemed to have accepted the Offeror's Offer to Purchase.
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SECTION 20.4. BUY-SELL PRICE.
The price (the "BUY-SELL PRICE") payable to the Member whose interest
in the Company is being sold pursuant to this Section 20 (the "SELLING MEMBER")
by the Member who is purchasing such interest of the Selling Member pursuant to
this Section 20 (the "BUYING MEMBER") shall be an amount equal to the amount of
cash which the Selling Member would have received pursuant to Section 9 hereof
on the Buy-Sell Closing Date if the Company had distributed to the Members in
accordance with Section 9 a cash amount equal to the Buy-Sell Value as stated in
the Buy-Sell Offer.
SECTION 20.5. ▇▇▇▇▇▇▇ MONEY; DEFAULT.
Within five (5) Business Days after the date of the exercise of the
election by the Offeree or five (5) Business Days after the expiration of the
Thirty Day Period, whichever is earlier, the Buying Member shall deposit in cash
an amount equal to 10% of Buy-Sell Price (the "▇▇▇▇▇▇▇ MONEY") with an
independent and neutral party reasonably satisfactory to the Selling Member. The
▇▇▇▇▇▇▇ money shall be applied against the purchase price at the closing
referenced below, or shall be paid to the Selling Member as liquidated damages
in the event of default by the Buying Member. In the event Buying Member fails
to deposit timely such ▇▇▇▇▇▇▇ money as provided above (such Buying Member being
then referred to as a "DEFAULTING BUYER"), the Selling Member shall have the
option (i) within thirty (30) days thereafter, unless the Defaulting Buyer has
earlier cured such default by depositing the required ▇▇▇▇▇▇▇ money as provided
above, of substituting itself as the Buying Member (such Selling Member being
then referred to as a "SUBSTITUTED BUYER") under this Section 20.5 at a purchase
price (the "DEFAULT PURCHASE PRICE") equal to the price that would be obtained
pursuant to Section 20.4 if an amount equal to 90% of the Buy-Sell Value were
used to determine the Buy-Sell Price, by giving notice to the Defaulting Buyer
of its intention to do so and by depositing, within five (5) Business Days after
such notice, ▇▇▇▇▇▇▇ money equal to 10% of the Default Purchase Price with an
independent and neutral party reasonably selected by the Substituted Buyer,
whereupon, for purposes this Section 20, the Substituted Buyer shall become the
Buying Member and the Defaulting Buyer shall become the Selling Member; or (ii)
at any time after default by the Defaulting Buyer in depositing the ▇▇▇▇▇▇▇
money, of seeking from the Defaulting Buyer by judicial proceedings or as
otherwise permitted by law, as liquidated damages for its default in its
obligations under this Section 20, an amount of money equal to the amount of
▇▇▇▇▇▇▇ money the Defaulting Buyer was required to deposit pursuant to this
Section 20.5.
SECTION 20.6. BUY-SELL CLOSING.
The sale of the Selling Member's interest in the Company and the
withdrawal of the Selling Member from the Company shall be closed and
consummated on that date (the "BUY-SELL CLOSING DATE") designated by the Buying
Member in a notice to the Selling Member, which date shall be within ninety (90)
days after the expiration of the Thirty Day Period (unless otherwise specified
under Section 20.1 hereto); provided, however, that such date shall be within
one hundred eighty (180) days after the expiration of the Thirty Day Period if
this Section 20 is being initiated pursuant to a Triggering Transfer under
Section 16.3 hereto. All Net Cash Flow, if any (after establishment of a
reasonable liability reserve), shall be distributed to the Members in accordance
with the applicable provisions of Section 9 on the Buy-Sell Closing Date and
prior to
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consummation of the purchase and sale pursuant to this Section 20 as if
such distribution date were the last day of a Fiscal Year. Effective as of the
Buy-Sell Closing Date, the Selling Member shall cease to be a Member of the
Company and the provisions of this Section 20.6 shall apply. The Buy-Sell Price
shall be paid to the Selling Member by the Buying Member or its designee in cash
on the Buy-Sell Closing Date. Simultaneously with the receipt of such payment,
the Selling Member shall execute, seal, swear to, and deliver for and on its
behalf, all documents that may be necessary or appropriate, in the reasonable
opinion of counsel to the Buying Member, to effect such sale free and clear of
all liens and encumbrances, other than the Selling Member's share of Company
liabilities (excluding any liability arising out of any negligent or grossly
negligent act or omission, willful misconduct or fraud by the Selling Member for
which the Selling Member shall remain liable), which shall thereby be assumed by
the Buying Member, and the Buying Member shall thereafter indemnify, hold
harmless and defend the Selling Member from and against any and all such
liabilities, other than any liability arising out of any negligent or grossly
negligent act or omission, willful misconduct, or fraud by the Selling Member.
The Buying Member shall arrange for the release of the Selling Member and its
Affiliates from any guaranties or other liabilities by or of the Selling Member
or its Affiliates in relation to any Senior Financing that are not being
satisfied in connection with the contemplated sale of the Selling Member's
interest in the Company. The Selling Member shall have no further obligations
with respect to Capital Contributions. In the event either the Buying Member or
the Selling Member defaults in the performance of its obligations under the
buy-sell procedure described in this Section 20, the non-defaulting Member shall
have the right to exercise all rights and remedies against the defaulting Member
available at law or in equity, including, without limitation, the remedy of
specific performance. The Selling Member shall pay all closing costs incurred in
connection with the implementation of the buy-sell procedure normally and
customarily paid by a seller of a real property interest and the Buying Member
shall pay all closing costs incurred in connection with the implementation of
the buy-sell procedure normally and customarily paid by a buyer of a real
property interest; provided, however, that the Buying Member and the Selling
Member shall each pay the fees and expenses of its own legal counsel.
SECTION 20.7. REMEDIES.
Without limiting the remedies available to either Member as a result of
the breach of the other Member's obligations described above, the Selling Member
shall have the option, within sixty (60) days of default by the Buying Member in
its obligation to purchase under this Section 20 (such Buying Member being then
referred to as the Defaulting Buyer), of retaining the escrow deposit and
substituting itself as Buying Member under this Section 20 (such Selling Member
being then referred to as a Substituted Buyer) at a purchase price equal to the
price that would have been obtained pursuant to Section 20.4 by using the
Buy-Sell Value to determine the Buy-Sell Price (such purchase price being then
referred to as the Default Purchase Price). Such option shall be exercised by
giving notice to the Defaulting Buyer of such exercise and by depositing, within
five days after such notice, ▇▇▇▇▇▇▇ money equal to 10% of the Default Purchase
Price with an independent and neutral party reasonably selected by the
Substituted Buyer, whereupon, for purposes of this Section 20, the Substituted
Buyer shall become the Buying Member and the Defaulting Buyer shall become the
Selling Member.
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SECTION 20.8. DISABLED OR DEFAULTING MEMBER.
Notwithstanding anything in this Agreement to the contrary, a Member
shall not have the right to make a Buy-Sell Offer under this Section 20 if such
Member is at such time a Disabled Member or Defaulting Member.
SECTION 20.9. SUSPENSION OF MARKETING RIGHT.
If either Member exercises its rights under this Section 20, then each
Member's marketing rights under Section 22 hereto shall be deemed suspended
until the Buy-Sell Closing Date or, if such closing does not occur, for ninety
(90) days after the expiration of the Thirty Day Period.
SECTION 21. BUY-SELL OPTION FOR INDIVIDUAL FACILITIES.
SECTION 21.1. BUY-SELL OPTION.
At any time after the date of this Agreement, during the continuance of
a Bona Fide Dispute over a proposed Major Decision concerning a proposed
Voluntary Additional Contribution pursuant to Section 7.5(b)(ii) hereof, either
the Managing Member or the Investor Member (as the Offeror) shall have the right
to make an offer (the "FACILITY BUY-SELL OFFER") in writing to the other Member
(as the Offeree) solely with respect to the Facility or Facilities that are the
subject of the dispute over Voluntary Additional Contributions, which shall
state an amount in cash (the "FACILITY BUY-SELL VALUE"), determined in the sole
and absolute discretion of the Offeror. The Facility Buy-Sell Offer shall
constitute an irrevocable offer by the Offeror to the Company and the Offeree
either (i) to cause the Company to sell the Facility or Facilities identified in
such Facility Buy-Sell Offer to the Offeree in consideration for the payment of
a Facility Buy-Sell Price determined pursuant to Section 21.4 (the "FACILITY
OFFER TO SELL") or (ii) to purchase the Facility or Facilities from the Company
in consideration for the payment of a Facility Buy-Sell Price determined
pursuant to Section 21.4 (the "FACILITY OFFER TO PURCHASE"). Such Facility
Buy-Sell Offer shall be made subject to the conditions of the Lease Agreement
applicable to the Facility or Facilities subject to such Facility Buy-Sell
Offer; if such conditions are unable to be met, then the Offeror shall have the
option, but not the obligation, to trigger the buy-sell provisions of Section 20
hereto.
SECTION 21.2. OFFEREE DECISION.
The Offeree shall have thirty (30) days (a "THIRTY DAY PERIOD") after
receipt of the Facility Buy-Sell Offer to respond to either, but not both, the
Facility Offer to Sell or the Facility Offer to Purchase, by giving the Offeror
notice of such response within the Thirty Day Period. If the Offeree fails to
accept either the Facility Offer to Sell or the Facility Offer to Purchase
within the Thirty Day Period, then the Offeree shall be deemed to have caused
the Company to accept the Offeror's Facility Offer to Purchase.
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SECTION 21.3. LEASE TRANSACTION RELEASE.
The Facility Buying Member (as defined in Section 21.4) under this
Section 21 shall be responsible for representing the Company with respect to the
exercise of the Call Option (as defined in the Lease Agreements) on the Facility
Buy-Sell Closing Date, and with respect to overseeing the release procedure
under the Lease Transactions, including without limitation compliance with any
notice provisions, and shall be responsible for the payment of any release
premiums or yield maintenance costs under the Lease Agreements. The Facility
Buying Member is expressly authorized to act on behalf of the Company under this
Section 21.3
SECTION 21.4. BUY-SELL PRICE.
The price (the "FACILITY BUY-SELL PRICE") payable to the Company by the
Member who is purchasing the Facility pursuant to Section 21.2 (the "FACILITY
BUYING MEMBER") shall be an amount equal to the Facility Buy-Sell Value as
stated in the Facility Buy-Sell Offer.
SECTION 21.5. ▇▇▇▇▇▇▇ MONEY; DEFAULT.
Within five (5) Business Days after the date of the exercise of the
election by the Offeree or five (5) Business Days after the expiration of the
Thirty Day Period, whichever is earlier, the Facility Buying Member shall
deposit in cash an amount equal to 10% of the Facility Buy-Sell Price (the
"▇▇▇▇▇▇▇ MONEY") with an independent and neutral party reasonably satisfactory
to the Facility Selling Member (as defined below). The ▇▇▇▇▇▇▇ money shall be
applied against the purchase price at the closing referenced below, or shall be
paid to the other Member (the "FACILITY SELLING MEMBER") as liquidated damages
in the event of default by the Facility Buying Member. In the event Facility
Buying Member fails to deposit timely such ▇▇▇▇▇▇▇ money as provided above (such
Facility Buying Member being then referred to as a "FACILITY DEFAULTING BUYER"),
the Facility Selling Member shall have the option (i) within fifteen (15) days
thereafter, unless the Facility Defaulting Buyer has earlier cured such default
by depositing the required ▇▇▇▇▇▇▇ money as provided above, of substituting
itself as the Facility Buying Member (such Facility Selling Member being then
referred to as a "FACILITY SUBSTITUTED BUYER") under this Section 21.5 at a
purchase price (the "FACILITY DEFAULT PURCHASE PRICE") equal to 90% of the
Facility Buy-Sell Value, by giving notice to the Facility Defaulting Buyer of
its intention to do so and by depositing, within five (5) Business Days after
such notice, ▇▇▇▇▇▇▇ money equal to 10% of the Facility Default Purchase Price
with an independent and neutral party reasonably selected by the Facility
Substituted Buyer, whereupon, for purposes this Section 21, the Facility
Substituted Buyer shall become the Facility Buying Member and the Facility
Defaulting Buyer shall become the Facility Selling Member; or (ii) at any time
after default by the Facility Defaulting Buyer in depositing the ▇▇▇▇▇▇▇ money,
of seeking from the Facility Defaulting Buyer by judicial proceedings or as
otherwise permitted by law, as liquidated damages for its default in its
obligations under this Section 21, an amount of money equal to the amount of
▇▇▇▇▇▇▇ money the Facility Defaulting Buyer was required to deposit pursuant to
this Section 21.
SECTION 21.6. BUY-SELL CLOSING.
(a) The sale of the Facility by the Company shall be closed
and consummated on that date (the "FACILITY BUY-SELL CLOSING DATE")
designated by the Facility Buying
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Member in a notice to the Facility Selling Member, which date shall be
within ninety (90) days after the expiration of the Thirty Day Period.
The Facility Buying Member may elect, at any time within the ninety-day
period, to assign its right to purchase the Facility or Facilities to a
third party, which party shall then become the Facility Buying Member,
provided, however, that such sale shall be for the same price and on
the same terms as if it were being made to the Facility Buying Member,
and the Facility Buying Member shall remain responsible for any default
in the purchase by such third party as if no such assignment had taken
place. The Facility Buy-Sell Price shall be paid to the Company by the
Facility Buying Member or its assignee in cash on the Facility Buy-Sell
Closing Date. On such Facility Buy-Sell Closing Date, the Company and
the Facility Selling Member shall deliver to a title company selected
by the Facility Buying Member (the "TITLE COMPANY") the following
items:
(i) DEED. A Special Warranty Deed in form and
substance reasonably acceptable to the Facility Buying Member
executed and acknowledged by the Company, conveying to the
Facility Buying Member good, marketable and indefeasible fee
simple title to the applicable Facility or Facilities, free
and clear of all liens and encumbrances, security interests
and adverse claims relating to the Lease Agreement financing
applicable to such Facility or Facilities, subject to matters
of record reasonably acceptable to the Facility Buying Member,
provided, however, that if the Facility Buying Member is the
Managing Member, then it shall have the right, but not the
obligation, to assume any or all liens relating to such Lease
Agreement financing.
(ii) ▇▇▇▇ OF SALE. A ▇▇▇▇ of Sale, in form reasonable
acceptable to the Facility Buying Member with full warranty of
title for all tangible personal property relating to the
applicable Facility or Facilities owned by the Company or the
Facility Owner, which ▇▇▇▇ of Sale shall convey good title to
such personal property to the Facility Buying Member free and
clear of all liens, encumbrances, security interests and
adverse claims.
(iii) ASSIGNMENT OF RESIDENT AGREEMENTS, CONTRACTS
AND PERMITS. Original executed copies of all Resident
Agreements and leases then in effect, together with an
assignment of such Resident Agreements and leases, all service
contracts, and all intangible property rights of the Company
relating to the applicable Facility or Facilities in form and
substance acceptable to the Facility Buying Member
(iv) FIRPTA. A Foreign Investment in Real Property
Tax Act affidavit executed by the Company. If the Company
fails to provide the necessary affidavit and/or documentation
of exemption on the Buy-Sell Closing Date, the Facility Buying
Member may proceed with withholding provisions as provided by
law.
(v) AUTHORITY. Evidence of existence and organization
of the Company and the authority of the person executing
documents on behalf of the
65
Company reasonably satisfactory to the Facility Buying Member
and the Title Company.
(vi) OTHER DOCUMENTS. A release of the Facility
Selling Member and its Affiliates from any guaranties or other
liabilities by or of the Facility Selling Member or its
Affiliates in relation to any Senior Financing for the
relevant Facility that is not being satisfied in connection
with the contemplated sale of such Facility, and any
additional documents that the Facility Buying Member or the
Title Company may reasonably require for the proper
consummation of the transaction contemplated by this Section.
(b) Also at such closing, the Facility Buying Member shall
deliver to the Title Company the following items:
(i) PURCHASE PRICE. The amount of the Facility
Buy-Sell Price or Facility Default Purchase Price payable at
closing, plus or minus applicable prorations.
(ii) AUTHORITY. Evidence of existence and
organization of the Facility Buying Member and the authority
of the person executing documents on behalf of the Facility
Buying Member reasonably satisfactory to the Company, the
Facility Selling Member and the Title Company.
(iii) OTHER DOCUMENTS. Any additional documents that
the Company, the Facility Selling Member or the Title Company
may reasonably require for the proper consummation of the
transaction contemplated by this Section 21.
(c) The following items shall be apportioned between the
Company and the Facility Buying Member as of the date of such closing,
with the date of such closing belonging to the Facility Buying Member:
(i) TAXES AND ASSESSMENTS. General real estate taxes
and assessments imposed by governmental authority and any
assessments imposed by private covenant constituting a lien or
charge on the applicable Facility or Facilities for the then
current calendar year or other current tax period
(collectively, "TAXES") not yet due and payable shall be
prorated. If such closing occurs prior to the receipt by the
Company of the tax ▇▇▇▇ for the calendar year or other
applicable tax period in which such closing occurs, the
Company and Facility Buying Member shall prorate Taxes for
such calendar year or other applicable tax period based upon
the most recent ascertainable assessed values and tax rates.
(ii) RENT. All rent and other income (and any
applicable state or local tax on rent) under leases in effect
on the closing date, whether collected or uncollected, but net
of expected delinquencies on an historical basis, shall be
prorated. Any prepaid rents for the period following the
closing date shall be paid over by the Company to the Facility
Buying Member.
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(iii) UTILITIES. Utilities, including water, sewer,
electric, and gas, based upon the last reading of meters prior
to such closing shall be prorated. The Company shall endeavor
to obtain meter readings on the day before such closing date,
and if such readings are obtained, there shall be no proration
of such items. The Company shall pay at such closing the bills
therefore for the period to the day preceding such closing,
and the Facility Buying Member shall pay the bills therefore
for the period subsequent thereto. If the utility company will
not issue separate bills, the Facility Buying Member will
receive a credit for the Company's portion and will pay the
entire ▇▇▇▇ prior to delinquency after such closing. If the
Company has paid any utilities no more than thirty (30) days
in advance in the ordinary course of business, then the
Facility Buying Member shall be charged its portion of such
payment at such closing.
(iv) OTHER. All other charges, escrows, inventories,
deposits and fees customarily prorated and adjusted in similar
transactions shall be so prorated and adjusted. In the event
that accurate prorations and other adjustments cannot be made
at such closing because current bills are not obtainable, the
Company and Facility Buying Member shall prorate on the best
available information, subject to adjustment upon receipt of
the final bills.
In the event either the Facility Buying Member or the Facility Selling Member
defaults in the performance of its obligations under the buy-sell procedure
described in this Section 21, the non-defaulting Member shall have the right to
and, if applicable, to cause the Company to, exercise all rights and remedies
against the defaulting Member available at law or in equity, including, without
limitation, the remedy of specific performance. The Company shall pay all
closing costs incurred in connection with the implementation of the buy-sell
procedure normally and customarily paid by a seller of a real property interest
and the Facility Buying Member shall pay all closing costs incurred in
connection with the implementation of the buy-sell procedure normally and
customarily paid by a buyer of a real property interest; provided, however, that
the Facility Buying Member and the Facility Selling Member shall each pay the
fees and expenses of its own legal counsel.
SECTION 21.7. REMEDIES.
Without limiting the remedies available to either Member as a result of
the breach of the other Member's obligations described above, the Facility
Selling Member shall have the option, within sixty (60) days of default by the
Facility Buying Member in its obligation to purchase under this Section 21 (such
Facility Buying Member being then referred to as the Facility Defaulting Buyer)
of retaining the escrow deposit for its own account and substituting itself as
Facility Buying Member under this Section 21 (such Facility Selling Member being
then referred to as a Facility Substituted Buyer) at a purchase price equal to
the Facility Buy-Sell Price. Such option shall be exercised by giving notice to
the Facility Defaulting Buyer of such exercise and by depositing, within five
days after such notice, ▇▇▇▇▇▇▇ money equal to 10% of the Facility Buy-Sell
Price with an independent and neutral party reasonably selected by the Facility
Substituted Buyer, whereupon, for purposes of this Section 21, the Facility
Substituted Buyer shall become the Facility Selling Member and the Facility
Defaulting Buyer shall become the Facility Selling Member.
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SECTION 21.8. SUSPENSION OF MARKETING RIGHT.
If either Member exercises its rights under this Section 21, then each
Member's marketing rights under Section 22 hereto shall be deemed suspended
until the Facility Buy-Sell Closing Date, or, if such closing does not occur,
for ninety (90) days after the expiration of the Thirty Day Period.
SECTION 22. MARKETING RIGHT.
SECTION 22.1. INVESTOR MEMBER'S MARKETING RIGHT.
(a) INVESTOR MEMBER'S MARKETING RIGHT. On and after (i) the
fifth (5th) anniversary of the date of the Second Closing Date or (ii)
the termination of the Transaction Agreement pursuant to Section 3.2(a)
thereof, the Investor Member shall have the right to market the
Portfolio, in whole or in part (the "INVESTOR MEMBER'S MARKETING
RIGHT") which election shall be made by written notice given to the
Managing Member. Within seventy-five (75) days after the date of such
notice (or such longer time as is permitted under Section 22.4), fair
market value (the "FMV") shall be established for each Facility (the
"OFFERED FACILITIES"). FMV shall be determined as set forth in Section
22.4 herein, provided that if the marketing right is exercised pursuant
to foregoing clause (ii) the FMV of each marketed Facility shall be the
Agreed Value of such Facility.
(b) MARKETING PROCEDURE. If the Managing Member does not elect
to purchase all of the Offered Facilities pursuant to its Purchase
Right, as set forth in Section 22.2 below, the Investor Member may
require the Managing Member to market the remaining Offered Facilities
to third parties; provided, that if the Investor Member accepts an
offer to purchase the Offered Facilities that is less than ninety-seven
percent (97%) of the FMV for the Offered Facilities, the Investor
Member shall again offer such Facilities to the Managing Member in
accordance with Section 22.2, but at the lower purchase price (the
"DISCOUNTED OFFER") and, provided, further, that if the marketing right
is being exercised pursuant to clause (ii) of Section 22.1(a), then the
percentage specified in the first proviso to this sentence shall be
95%. Upon receipt by the Managing Member of the Discounted Offer, it
shall have ten (10) Business Days to elect to purchase the Offered
Facilities at the Discounted Offer. If the Managing Member elects to
purchase the Offered Facilities, or the Managing Member fails to so
elect, the Investor Member shall then follow the procedure set forth in
Section 10.10 hereof (as if the Investor Member were acting as the
Managing Member and provided that if the Managing Member fails to elect
to purchase such Facilities, the Managing Member shall have no further
right to grant or withhold its Approval to such sale and release) to
obtain the necessary releases and approvals to sell such Facilities.
The Managing Member shall retain the exclusive right to negotiate and
execute on behalf of the Company the sale agreement related to the
marketing and sale of the Offered Facilities under this Section 22.1,
unless the sale is to the Managing Member or an Affiliate of the
Managing Member, in which case the sale agreement shall be subject to
the Approval of the Investor Member.
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SECTION 22.2. MANAGING MEMBER'S PURCHASE RIGHT.
If the Investor Member exercises its right under Section 22.1, the
Managing Member shall have the right to purchase the Portfolio, in whole or in
part, at the FMV established in accordance with Section 22.4 herein. Once FMV
has been established for the Offered Facilities, Managing Member shall have
twenty (20) Business Days to elect to purchase some or all of the Offered
Facilities. If the Managing Member elects to purchase the Offered Facilities at
FMV, it shall have one hundred and twenty (120) days from the date of such
election to close said purchase, pursuant to the procedures and mechanisms set
forth in Section 21.6 hereof (as if, under Section 21.6, the Managing Member
were acting as the Facility Buying Member and the Investor Member were acting as
the Facility Selling Member).
SECTION 22.3. MANAGING MEMBER'S RIGHT TO MARKET/PURCHASE MANAGING
MEMBER'S MARKETING RIGHT.
(a) On and after the sixth (6th) anniversary of the Second
Closing Date, the Managing Member shall have the right to market the
Portfolio in whole or in part (the "MANAGING MEMBER'S MARKETING
RIGHT"), which election shall be made by written notice given to the
Investor Member. Within seventy-five (75) days after the date of such
notice (or such longer time as is permitted under Section 22.4), the
FMV shall be established for the Designated Facilities (as defined
hereafter). If the Managing Member elects to exercise its Marketing
Right, then the Portfolio, in whole or in part (the "DESIGNATED
FACILITIES"), shall be marketed pursuant to Section 22.3(b) below.
(b) MARKETING PROCEDURE. Once the Managing Member has elected
to market the Designated Facilities, the Managing Member shall select
either (i) an Affiliate of the Managing Member or (ii) a third party to
act as the broker to market the Designated Facilities; provided, that
if the Managing Member elects to use a third party, the Managing Member
shall consult with the Investor Member in the selection of such third
party. The Managing Member shall have the right to negotiate and
Approve any sales agent or broker agreement, except that the
compensation of such sales agent or broker and any fee to be paid to
the party selected to market the Designated Facilities shall be
deducted from the Company's payment of the Disposition Fee.
Notwithstanding the foregoing, the Managing Member shall retain the
exclusive right to negotiate and execute on behalf of the Company the
sale agreement related to the marketing and sale of the Designated
Facilities under this Section 22.3 unless the sale is to the Managing
Member or an Affiliate of the Managing Member, in which case the manner
of closing shall comply with the provisions set forth in Section 21.6
hereto (as if, under Section 21.6, the Investor Member were acting as
the Facility Selling Member and the Managing Member were acting as the
Facility Buying Member).
(c) MANAGING MEMBER'S RIGHT TO PURCHASE. If the Managing
Member exercises its Marketing Right, the Managing Member or an
Affiliate may bid on the Designated Facilities on the terms and
conditions as such other third party purchasers. Nothing shall limit
the Investor Member or an Affiliate of the Investor Member from
likewise bidding on such Designated Facilities.
69
(d) SALE PROCEDURE. The Managing Member shall follow the
procedure in Section 10.10 hereof to effectuate the sale and release of
the Designated Facilities; provided, however, that if the Managing
Member is selected to purchase the Designated Facilities, then the
manner of closing shall comply with the provisions set forth in Section
21.6 hereto (as if, under Section 21.6, the Investor Member were acting
as the Facility Selling Member and the Managing Member were acting as
the Facility Buying Member).
SECTION 22.4. FMV.
For purposes of Section 22.1, Section 22.2 and Section 22.3 above, FMV
shall be determined by mutual agreement of the Investor Member and the Managing
Member. If the parties are unable to agree to FMV within seventy-five (75) days
after the initial notice given under Section 22.1 or 22.3, then each party shall
obtain a broker's opinion of value of the Offered Facilities or Designated
Facilities and the two opinions of value shall be averaged together to obtain
FMV; provided, that if the opinions of value vary in value by more than five
percent (5%), a third broker shall be selected by mutual agreement of the
parties, and the three opinions of value shall be average together to obtain
FMV; provided, further, that if one of the three opinions of value is more than
110% or less than 90% of the average of the other two opinions of value, FMV
shall be the average of the other two opinions of value. The Company shall pay
the cost of all opinions of value required under this Section 22.4.
SECTION 22.5. FAILURE TO SELL FACILITY.
If a definitive contract (which contract may be subject to due
diligence contingencies and other conditions as agreed to by the Managing
Member) for the sale of the Offered Facilities or Designated Facilities is not
entered into pursuant to this Section 22 within one hundred twenty (120) days
after the Investor Member or the Managing Member, as the case may be, makes its
marketing election under this Section 22, the Offered Facilities or Designated
Facilities shall be removed from the market. Once an Offered Facility or a
Designated Facility is removed from the market, either the Investor Member or
the Managing Member may elect to remarket the Offered Facility or Designated
Facility pursuant to the terms of Section 22.1 and 22.3 respectively.
SECTION 22.6. MANAGING MEMBER PURCHASE OF FACILITY OWNER.
If the Managing Member exercises its right pursuant to this Section 22
to purchase a Facility, then it may, in lieu of taking title to such Facility
from the Facility Owner, request that the Company, in connection with the
exercise of the Call Option (as defined in the relevant Lease Agreement),
arrange for the ownership interests of the Facility Owner that owns such
Facility to be transferred to the Managing Member. The Managing Member will pay
the purchase price for the Facility to the Company, which will use such amount
to satisfy its obligations under the Call Option. Any balance shall be retained
by the Company, and in such an instance, the Investor Member shall receive the
amount of cash which it would have received pursuant to Section 9 hereof on the
closing date for the sale of such Facility if the Company had distributed to the
Members in accordance with Section 9.1(b) a cash amount equal to the
Extraordinary Proceeds that would have resulted from a sale of such Facility at
its FMV or at the Discounted Offer, as applicable.
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SECTION 22.7. SUSPENSION OF BUY-SELL OPTION.
If either Member exercises its rights under this Section 22, then each
Member's rights to exercise its buy-sell option under Sections 20 and 21 hereto
shall be deemed suspended until the closing of the Offered Facilities or
Designated Facilities, or, if such closing does not occur, for ninety (90) days
after such Member's exercise of its rights under this Section 22.
SECTION 23. TERMINATION OF COMPANY.
SECTION 23.1. DISSOLVING EVENTS.
The Company shall be terminated, liquidated and dissolved in the manner
hereinafter provided upon the happening of any of the following events or dates:
(a) the Approval of all of the Members to terminate the
Company;
(b) the permitted sale of all of the Company's interest in the
Portfolio and the receipt of all sales proceeds in full and in cash;
(c) the happening of a Defaulting Event or a Disabling Event
if, at the time of the happening of such event, the Member suffering or
causing such event is the Managing Member of the Company, unless all of
the remaining Members unanimously agree in writing to continue the
Company within the ninety (90) day period immediately succeeding the
happening of such Defaulting Event or Disabling Event and within said
ninety (90) day period elect and admit a new managing member of the
Company effective as of the date of such Defaulting Event or Disabling
Event; or
(d) if not previously terminated, no later than the fifth
(5th) anniversary of the Second Closing Date; provided, however, that
such date may be extended twice upon Approval of all of the Members,
each such extension to be for a one-year period.
SECTION 23.2. METHOD OF LIQUIDATION.
Upon the happening of any of the events specified in Section 23.1 above
which require the Company to be terminated, liquidated and dissolved, the
Company, notwithstanding any provisions to the contrary in the Act, shall
liquidate its assets in a manner that is consistent with avoiding undue loss and
apply and distribute its assets in the following manner and in the following
order of priority:
(a) To the payment of the debts and liabilities of the Company
(other than the Capital Accounts of the Members) and to the expenses of
liquidation in the order of priority as provided by law; then
(b) To the repayment of any debts or liabilities of the
Company to the Members, and
(c) Then in the order of priority set forth in Section 9.1(b)
hereof;
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SECTION 23.3. REASONABLE TIME FOR LIQUIDATING.
A reasonable time shall be allowed for the orderly liquidation of the
Company's assets pursuant to Section 23.2 above in order to reduce the risk of
losses which might be attendant upon such a liquidation.
SECTION 23.4. DATE OF DISSOLUTION.
The Company shall be terminated and dissolved when all of its assets
shall have been applied and distributed in accordance with the provisions of
Section 23.2 above.
SECTION 24. GENERAL PROVISIONS.
SECTION 24.1. WAIVER OF RIGHT OF PARTITION.
Each of the Members does hereby agree to and does hereby waive any
right such Member may otherwise have to cause any of the Company's assets to be
partitioned among the Members or to file any complaint or to institute any
proceeding at law or in equity seeking to have any such assets partitioned.
SECTION 24.2. NOTICES.
Any notice, request for Approval, election or other communication
provided for or required by this Agreement shall be in writing and shall be
delivered by hand, by air courier service, by certified or registered mail,
return receipt requested, postage prepaid, or by facsimile transmission followed
by delivery of the hard copy of such communication by air courier service or
mail as aforesaid, addressed to the person to whom such notice is intended to be
given at such address as such person may have previously furnished in writing to
the Company or to such person's last known address. In the case of any request
for Approval or other communication which requires a response within a specified
period of time pursuant to the terms of this Agreement, the time period in which
such response must be given shall commence upon the date of actual receipt of a
hard copy of any such communication. Delivery to any officer, partner, agent or
employee of a party at the designated address of such party shall constitute
actual receipt for purposes hereof. Until receipt of written notice to the
contrary, the Members' addresses for notices shall be:
Managing Member: Sunrise Assisted Living, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Executive Vice President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: Sunrise Assisted Living, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and: Watt, Tieder, Hoffar & ▇▇▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Investor Member: US Assisted Living Facilities, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ - ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: King & Spalding
1185 Avenue of the Americas
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 24.3. MODIFICATIONS.
No change or modification of this Agreement shall be valid or binding
upon the Members, nor shall any term or condition of this Agreement be
considered waived by a Member, unless such change or modification or waiver
shall be in writing and signed by the Member to be charged.
SECTION 24.4. AUTHORIZED PERSONS.
For purposes of this Agreement, all Approvals and other necessary
representations shall be deemed valid and binding if given by any of the
Authorized Representatives of each of the Managing Member and the Investor
Member set forth in Schedule 7 hereto; provided that the Members may designate
replacements for the individuals set forth on Schedule 7 upon prior written
notice to the other Member.
SECTION 24.5. AMENDMENTS.
This Agreement may be amended from time to time by Approval of all
Members.
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SECTION 24.6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon
the Members, their legal representatives, transferees, heirs, permitted
successors and assigns.
SECTION 24.7. VALIDITY.
If any provision of this Agreement or the application of such provision
to any Entity or circumstance shall be held invalid, the remainder of this
Agreement or the application of such provision to Entities or circumstances
other than those with respect to which it is held invalid, shall not be affected
thereby and shall continue to be binding and in force.
SECTION 24.8. NO WAIVER.
The waiver by any party hereto of the breach of any term, covenant,
agreement or condition herein contained shall not be deemed a waiver of any
subsequent breach of the same or any other term, covenant, agreement or
condition herein, nor shall any custom, practice or course of dealings arising
among the parties hereto in the administration hereof be construed as a waiver
or diminution of the right of any party hereto to insist upon the strict
performance by any other party hereto of the terms, covenants, agreements and
conditions herein contained.
SECTION 24.9. DUPLICATE ORIGINALS.
For the convenience of the Members, any number of counterparts hereof
may be executed, and each such counterpart shall be deemed to be an original
instrument.
SECTION 24.10. GOVERNING LAW; CONSTRUCTION.
This Agreement shall be interpreted and construed in accordance with
the laws of the State of Delaware. The titles of the sections and subsections
herein have been inserted as a matter of convenience of reference only and shall
not control or affect the meaning or construction of any of the terms or
provisions herein. Wherever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the singular and the
plural, and pronouns stated in either the masculine or the neuter gender shall
include the masculine, feminine and neuter.
SECTION 24.11. CONSENT TO JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
The parties hereto agree that any and all disputes, claims, actions or
proceedings arising directly, indirectly or otherwise in connection with, out
of, related to or from this Agreement and any related agreements may be
litigated in the state courts of, and the Federal courts for, the State of
Delaware, and the parties hereto consent to the non-exclusive jurisdiction of
such state and federal courts. Each Member hereby waive its right to trial by
jury in connection with any dispute involving the Members or arising out of this
Agreement or the rights or obligations of the Members hereunder.
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SECTION 24.12. INDEPENDENT INVESTMENT DECISION.
Each Member hereby covenants, represents and warrants to the other that
its decision to invest in this Company and in the Facility is its decision alone
and the other Member shall have no responsibility or liability whatsoever on
account of such investment decision or any of the consequences thereof.
SECTION 24.13. ENTIRE AGREEMENT.
Except as otherwise provided in this Section, this Agreement represents
the entire Agreement of the parties hereto with respect to the subject matter
hereof and all prior agreements and understandings of the parties hereto,
whether written or oral, shall be superseded hereby. The parties agree that if
the Transaction Agreement and this Agreement address the same issue (i) in a
conflicting manner, the relevant provision or provisions of this Agreement shall
control to the exclusion of the conflicting provision or provisions of the
Transaction Agreement, or (ii) in a manner that is consistent and completely or
partially overlapping, the relevant provision or provisions of this Agreement
shall control to the exclusion of the conflicting provision or provisions of the
Transaction Agreement. The Transaction Agreement shall continue in full force
and effect as to those provisions that are not excluded pursuant to the
immediately preceding sentence.
SECTION 24.14. FURTHER ASSURANCES.
The Members agree to execute such further documents, instruments and
other agreements as may be reasonably requested by the other Members as may be
reasonably necessary to carry out and implement the intent hereof.
SECTION 24.15. USE OF SUNRISE TRADE NAME.
For as long as a Facility is managed by Sunrise or an Affiliate of
Sunrise, the Company shall have the benefit of all trade names, trademarks,
service marks or copyrights (or any registrations with any governmental entity
of, or applications for registration pending with respect to, any of the
foregoing) owned or licensed by Sunrise or any Facility Owner material to the
operation of such Facility. If any other Entity acquires the interest of Sunrise
as a result of the implementation of the buy/sell rights under Section 20 hereof
or otherwise, or, if Sunrise is removed as the Managing Member for any reason,
then the substitute Managing Member shall cause the Company to cease to use the
name "Sunrise" within thirty (30) days of any such events, unless Sunrise agrees
in writing to allow the Company to continue to use such name beyond such
thirty-day period. At all times while any Facility is operated under the
"Sunrise" name, such Facility will be managed in accordance with the quality
standards and management policies (including with respect to education,
training, trips, seminars, awards, newsletters, resident satisfaction surveys
and technology) as are used by Sunrise and its Affiliates in operating
residential apartment communities which are wholly-owned by Sunrise.
SECTION 24.16. PRESS RELEASES.
Each Member agrees that, prior to issuing any press releases or other
marketing items, such items shall be presented to and subject to the Approval of
the other Member, such Approval
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not to be unreasonably withheld, provided, however, that such restriction shall
not apply to any regular reports that the Investor Member provides to its
investors.
SECTION 24.17. LIABILITY OF MEMBERS.
Anything contained above or elsewhere herein to the contrary
notwithstanding, no personal liability or personal deficiency judgment shall be
asserted or enforced against the trustees, officers, advisors, employees,
agents, partners, shareholders or principals of the Managing Member or the
Investor Member, or against the assets of any such parties, for payment of any
amount hereunder or for observance or performance of any of the obligations of
the Managing Member, the Investor Member or the Company; provided, however, that
nothing contained hereunder shall eliminate the obligations of any Entity under
any other agreement.
[signature page follows]
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IN WITNESS WHEREOF, this Amended and Restated Operating Agreement is
executed under seal effective as of the date first set forth above.
MANAGING MEMBER:
SUNRISE ASSISTED LIVING
INVESTMENTS, INC.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President
INVESTOR MEMBER:
US ASSISTED LIVING FACILITIES II, INC.
By /s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President