MERIT PARTNERS, LLC
OPERATING AGREEMENT
OPERATING AGREEMENT of MERIT PARTNERS, LLC, dated as of October 24, 1997,
by and between MERIT OPERATING, LLC a New York limited liability company
("Managing Member") and MERIT EQUITIES, LLC, a New York limited liability
company ("Investor Member," collectively, the "Members").
R E C I T A L S:
WHEREAS, the Members wish to form a limited liability company pursuant to
the laws of the State of New York;
WHEREAS, the Members wish to provide for the operation and management of
the Company for the purposes stated herein;
A G R E E M E N T:
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein, the parties agree as follows:
ARTICLE 1 - THE LIMITED LIABILITY COMPANY
1.01 Formation. The Members hereby form a limited liability company (the
"Company") subject to the provisions of the New York Limited Liability Company
Law (the "LLCL").
1.02 Filing; Publication. In connection with the execution and delivery of
this agreement, the Members shall cause (i) Articles of Organization that comply
with the requirements of the LLCL to be properly filed with the Secretary of
State of the State of New York, (ii) to be published a notice in form and
substance prescribed by Section 206 of the LLCL, at the times and in the
newspapers required by Section 206 of the LLCL and (iii) to be filed with the
Secretary of State of the State of New York, within 120 days after the filing of
the Articles of Organization, proof of
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publication required by Section 206 of the LLCL. In addition, the Members shall
execute such further documents (including amendments to the Articles of
Organization) and take such further action as is appropriate to comply with the
requirements of law for the formation or operation of a limited liability
company in all states and countries where the Company may conduct its business.
1.03 Name. The name of the Company shall be Merit Partners, LLC.
1.04 Registered Office; Registered Agent. The location of the registered
office of the Company shall be c/o CT Corporation System, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ and thereafter at such other location as the Members may
designate. The Company's registered agent at such address shall be CT
Corporation System, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
1.05 Events of Dissolution. The Company shall continue until October 20,
2005 unless sooner dissolved by:
(a) the affirmative vote of (i) the Managing Member, (ii) the Members
whose Capital Interests (as defined in Section 2.02) equals more than 50%
of all Capital Interests and (iii) the Non-Affiliated Member (as herein
defined);
(b) any event which makes it unlawful for the business of the Company
to be carried on by the Members;
(c) the resignation, expulsion, bankruptcy or dissolution of a Member
or the occurrence of any other event that terminates the continued
membership of a Member in the Company;
(d) the occurrence of a liquidation procedure pursuant to Section
8.03; or
(e) any other event causing a dissolution of a limited liability
company under the LLCL.
1.06 Continuance of the Company. Notwithstanding the foregoing provisions
of Section 1.05, upon the occurrence of an event described in subsection
1.05(c), the remaining Member or Members shall have the right to continue the
business of the Company. Such right may be exercised only by the affirmative
unanimous vote of the remaining Member or Members,
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within 90 days after the occurrence of an event described in subsection 1.05(c),
to continue the business of the Company. If not so exercised, the right of the
Members to continue the business of the Company shall expire and the Company's
affairs shall be wound up as provided in Article 8 hereof.
1.07 Intentionally Omitted.
1.08 Title to Company assets. Title to Company assets, whether real,
personal or mixed and whether tangible or intangible, shall be deemed to be
owned by the Company as an entity, and no Member, individually or collectively,
shall have any ownership interest in such Company assets or any portion thereof.
Title to any or all of the Company assets may be held in the name of the Company
or one or more nominees, including the Managing Member, as the Managing Member
may determine. All Company assets shall be recorded as the property of the
Company in its books and records, irrespective of the name in which record title
to such Company assets is held.
1.09 Power of Attorney. (a) Each Member hereby constitutes and appoints the
Managing Member, with full power of substitution, as its true and lawful agent
and attorney-in-fact, with full power and authority in his name, place and
▇▇▇▇▇, to execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (i) all certificates, documents and other instruments
(including, without limitation, the Articles of Organization and all amendments
or restatements thereof) that the Managing Member deems necessary or appropriate
to form, qualify or continue the existence of qualification of the Company in
the State of New York and in all other jurisdictions in which the Company may
conduct business or own property; (ii) all certificates, documents and other
instruments that the Managing Member deems necessary or appropriate to reflect,
in accordance with its terms, any amendment, change, modification or restatement
of this Agreement; and (iii) all certificates, documents and other instruments
(including conveyances and a certificate of cancellation) that the Managing
Member deems necessary or appropriate to reflect the dissolution and liquidation
of the Company pursuant to the terms of this Agreement. Nothing contained in
this Section shall be construed as authorizing the Managing Member to amend this
Agreement except as expressly provided in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive and not be affected
by the
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subsequent dissolution, bankruptcy or termination of any Member or the transfer
of any Capital Interest (as herein defined) and shall extend to a Member's
heirs, successors, assigns and personal representatives, but such power shall
terminate upon the dissolution of the Company.
1.10 Management of Business. The business of the Company shall be conducted
by its Managing Member, which may designate such individuals or other entities
(with which it may or may not be affiliated) to conduct the day-to-day
activities of the Company. The Managing Member may appoint such attorney-in-fact
or agent as it may determine from time to time. Such attorney-in-fact or agent
shall serve until their successors are designated by written action of the
Managing Member.
1.11 Character of Business. The business of the Company shall be to
transact any and all business as may be lawfully engaged in by limited liability
companies organized under the laws of the State of New York. The initial
business of the Company shall be to acquire, hold, own, manage, finance, or
dispose of by resale or otherwise $25,000,000 of convertible preferred stock
(the "Initial Securities") of Emeritus Corporation ("Emeritus"), or any other
interests (direct or indirect) in or to securities owned by Emeritus or its
affiliates or entities to be acquired by Emeritus (the "Additional Securities";
together with the Initial Securities, the "Securities"). The terms of any
Additional Securities must be approved by the members of the Investor Member not
affiliated with the Managing Member ("the Non-Affiliated Member"), which
approval shall not be unreasonably withheld or delayed.
1.12 Principal place of business. The location of the principal place of
business of the Company shall be at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, or at
such other place as the Managing Member from time to time may select.
1.13 Members. The name and place of residence of each Member are as
follows:
Name Address
MERIT OPERATING, LLC ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
("Managing Member") ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
MERIT EQUITIES, LLC ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
("Investor Member") ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
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ARTICLE 2 - CAPITAL CONTRIBUTIONS
2.01 Initial contributions. The Members initially shall contribute to the
Company's capital the following property:
Merit Operating, LLC $2,500,000
Merit Equities, LLC $22,500,000
2.02 Capital Interests. The interests of the Members in the capital
originally contributed to the Company (the "Capital Interests") are as follows:
Name Capital Interests
Merit Operating, LLC 10%
Merit Equities, LLC 90%
2.03 Additional Contributions. The business of the Company may require
capital up to an aggregate amount of $75,000,000. At such times as the Managing
Member shall determine that additional amounts of capital beyond the amount
necessary to purchase the Initial Securities are required for the business of
the Company, the Managing Member shall notify the Investor Member in writing,
furnishing in general outline the purposes for which such additional amount of
capital is requested. Upon approval of the request by the Non-Affiliated Member,
which approval shall not be unreasonably withheld or delayed, the requested
amount shall be furnished by the Members in proportion to their Capital
Interests. The notice of such request shall be furnished by the Managing Member
and shall specify the date when the funds are desired, which shall not be less
than two business days from the date of the notice. All contributions of capital
to the Company shall be made by the Members in proportion to the Capital
Interests specified in Section 2.02 which Capital Interest percentages shall not
be varied without the consent of the Non-Affiliated Member. Any contribution of
capital to the Company which is not made in such proportions shall be returned
by the Company to the Member or Members who made such contribution. No Member
shall be obligated or permitted to make any other additional
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contribution to the Company's capital not specifically provided in this Section.
2.04 Capital Accounts. The Company shall maintain capital accounts in
accordance with the provisions of Section 6.02 of this Agreement.
2.05 No personal liability. No Member shall have any individual liability
to the Company or to the other Members or to any third party with which the
Company may deal or transact business to make any additional capital
contribution. No additional claims or rights may be asserted by any third party
claimant or creditor of the Company or by any receiver, trustee, or other person
acting or purporting to act on behalf of the Company or the Member. No
participant in any Member and no officer, director, partner or owner of any
Member shall have any liability with respect to additional capital
contributions.
ARTICLE 3 - PROFITS, LOSSES AND DISTRIBUTIONS
3.01 Profits and Losses. The Company's net profits or net losses shall be
determined on an annual basis, in accordance with Section 6.04, and shall be
allocated to the Members in proportion to their Sharing Ratios. The "Sharing
Ratio" of each Member shall be equal to the percentage of the total of Capital
Interest held by such Member from time to time.
3.02 Allocations for Tax Purposes. For income tax purposes, each item of
income, gain, loss, deduction and credit of the Company shall be allocated among
the Members in their respective Sharing Ratios, except that gain or loss with
respect to property contributed to the Company by a Member or revalued pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) shall be allocated among
the Members in a manner that takes into account the variation between the
adjusted tax basis of such property and its book value, as required by Section
704(c) of the Internal Revenue Code and Treasury Regulations Section
1.704-1(b)(4)(i), using any method permitted by applicable Treasury Regulations.
3.03 Distributions. Annually or at more frequent intervals, at the
discretion and determination of the Managing Member, or at such other time as
may be required under any provision of this Agreement, then available funds
shall be distributed to the Members in proportion to their Sharing
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Ratios. "Available funds" for this purpose means the Company's gross cash
receipts, less the Company's expenditures, and less the amount that, in the
Managing Member's reasonable judgment, the Company should retain in order to
fulfill its business purposes; provided that no amounts shall be retained for
purposes of acquiring Additional Securities without the consent of the
Non-Affiliated Member.
3.04 Capital Withdrawal. No member shall have the right to withdraw any
amount from its capital account or receive a distribution of property or cash
unless approved by the Managing Member.
ARTICLE 4 - MANAGEMENT
4.01 Members. The liability of the Members shall be limited as provided in
the LLCL. No Member shall be liable for the debts, obligations, or liabilities
of the Company.
4.02 Powers of Managing Member to Manage Business of Company. The Managing
Member shall, except as specifically provided in this Agreement, make all
decisions concerning (a) the development, sale, lease or other disposition of
the Company's assets; (b) the purchase or other acquisition of other assets of
all kinds; (c) the management of all or any part of the Company's assets; (d)
the borrowing of money and the granting of security interests in the Company's
assets (including loans from Members); (e) the prepayment, refinancing or
extension of any mortgage affecting the Company's assets; (f) the compromise or
release of any of the Company's claims or debts; and (g) the employment of
persons, firms or corporation for the operation and management of the Company's
business, including affiliates of the Managing Member (so long as such
engagement is on reasonable and fair market terms and compensation and has been
approved by the Non-Affiliated Member in accordance with Section 5.01).
4.03 Exercise of Management Powers. In the exercise of management powers in
accordance with the terms hereof, the Managing Member, or such attorney-in-fact
or agent as the Managing Member shall designate or appoint, are authorized to
execute and deliver (a) all contracts, conveyances, assignments, leases,
subleases, franchise agreements, licensing agreements, management contracts and
maintenance contracts covering or affecting the Company's assets; (b) all
checks, drafts and other orders for the payment of the Company's funds;
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(c) all promissory notes, mortgages, deeds of trust, security agreements and
other similar documents; and (d) all other instruments of any kind or character
relating to the Company's affairs, whether like or unlike the foregoing. No
Member acting without the authorization required under this Section shall have
management power over the business and affairs of the Company or actual or
apparent authority to enter into contracts or bind the Company, except as may be
specifically authorized by the remaining Members pursuant to this Article 4.
4.04 First Offer on Sale. At such time as the Managing Member shall
determine to sell any property of the Company, it shall first notify the
Investor Member and the Non-Affiliated Member of the proposed sale, including in
the notice with sufficient specificity a description of the assets proposed for
sale and the price and other terms and conditions on which such proposed sale
would be effected. The Non-Affiliated Member shall have a period of not less
than 15 business days to elect whether it shall purchase such property at such
time and if it does so elect, it shall consummate the purchase in not more than
15 business days after such election. If the Non-Affiliated Member does not make
such election, then the Managing Member may effect the sale at not less than 95%
of the price, and on other terms and conditions no less favorable than the other
terms and conditions if any, set forth in its notice. If such sale does not take
place within ninety (90) days after the notice from the Managing Member, then a
new notice shall be required before such sale is proposed or implemented for the
property.
4.05 Limitations on Borrowing. The authority granted to the Managing Member
to finance the capital needs of the Company shall be limited to an aggregate
amount of $50,000,000, which amount may be borrowed on such fair market terms as
are approved by all of the members of the Investor Member, which approval shall
not be unreasonably withheld or delayed. Such borrowings may be secured by a
pledge of the property and assets of the Company.
4.06 Appointment of Officers or Representatives. The Members, acting
pursuant to this Article 4, may appoint such agents or representatives as they
deem appropriate, and may grant to them such titles or designations, including
that of President, Vice President, Managing Agent or Managing Director, as they
may deem necessary or appropriate.
4.07 Nominee. Title to the Company's assets shall be held in the Company's
name or in the name of any nominee
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that the Managing Member may designate. The Managing Member shall have power to
enter into a nominee agreement with any such person, and such agreement may
contain provisions indemnifying the nominee, except for his or its gross
negligence or willful misconduct.
4.08 Time Devoted to Business. The Members shall devote such time to the
business of the Company as they in their discretion deem necessary for the
efficient operation of the Company's business. The Members shall at all times be
free to engage for their own account in all aspects of any business or
investment in which the Company is involved; provided however that none of the
Managing Member, its members, the Investor Member, Northstar Capital Partners
and their respective affiliates shall directly or indirectly make any
investments in or enter into transactions with Emeritus or its affiliates except
directly or indirectly through the Company or with the consent of the
Non-Affiliated Member.
4.09 Information Relating to Company. Each Member or his or its authorized
representative shall have access to and may inspect and copy all books, records
and materials regarding the Company or its activities.
4.10 Exculpation. Any act or omission of a Member the effect of which may
cause or result in loss or damage to the Company or the Members if done in good
faith to promote the best interests of the Company shall not subject such Member
to any liability to any other Member or to the Company.
4.11 Indemnification. Any person acting on behalf of the Company, whether
as Member designated to do so under the provisions of this Article 4 or as
attorney-in-fact or agent under the provisions of Section 1.09, shall, to the
fullest extent permitted by law, be indemnified and held harmless by the Company
from and against any and all losses, claims, damages, liabilities, joint or
several, expenses (including reasonable legal fees and expenses), judgments,
fines, penalties, interests, settlements, and other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, relating to the activities of such person
acting on behalf of the Company in any of such capacities. The indemnification
provided in this Section shall extend to the fullest extent as would be
permitted by applicable law of the State of New York affording indemnification
to persons acting on behalf of corporations organized in such State. However, no
Member, attorney-in-fact or agent of the Company shall be
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indemnified for any act or omission constituting gross negligence or willful
misconduct.
4.12 Records at Principal Place of Business. The Managing Member shall
cause the Company to keep at its principal place of business the following:
(a) a current list in alphabetical order of the full name and last
known business street address of each Member;
(b) a copy of the Articles of Organization and all certificates of
amendment thereto, together with (i) receipts of filing thereof, and (ii)
executed copies of any powers of attorney pursuant to which any certificate
of amendment has been executed;
(c) copies of the Company's federal, state and local income tax
returns and reports, if any, for the three most recent years; and
(d) copies of any financial statements of the Company, if any, for the
three most recent years.
4.13 Tax Matters Member. The "tax matters partner" of the Company pursuant
to Section 6231(a)(7) of the Internal Revenue Code shall be the Managing Member.
Such tax matters partner shall be authorized to represent the Company in
connection with all matters relating to the tax status, tax reports or filing of
the Company.
ARTICLE 5 - COMPENSATION
5.01 No Entitlement to Compensation. No Member acting on behalf of the
Company shall be entitled to compensation or remuneration except as may be
specifically provided in this Agreement or otherwise by the Members. This
provision shall not limit any compensation or remuneration which any Member
shall receive from any other entity with which the Company may be an affiliate
or in which the Company is a participant or partner. It is specifically
understood that affiliates or subsidiaries of the Managing Member may render
administrative or management services to the Company and shall receive payment
for such services on a customary and reasonable commercial basis.
Notwithstanding the foregoing, all transactions, agreements or arrangements by
and among the
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Company, the Managing Member, the members of the Managing Member, the Investor
Member, MI Manager LLC, Northstar Capital Partners LLC and/or any of their
respective affiliates involving payment or other consideration to be borne by
the Company or the Investor Member and all compensation payable with respect
thereto shall require consent of the Non-Affiliated Member which approval may be
unconditionally withheld.
5.02 Structuring Fee Payment. In addition to any other amounts to be paid
as compensation under the provisions of this Article 5, Northstar Capital
Partners LLC, a Delaware limited liability company, the owner of one of the
members of the Investor Member, shall be entitled to receive a fee (the
"Structuring Fee") equal to 0.67% of the purchase price of the Initial
Securities and any Additional Securities. The Structuring Fee shall be paid from
the first amounts of cash proceeds upon sale or dividends or other cash
distributions received by the Company with respect to the Securities or any
Additional Securities. Such amount shall be paid from the amounts held by the
Company promptly upon receipt.
5.03 Reimbursement. The Company shall reimburse the Members for all direct
out-of-pocket expenses incurred by them in managing or acting on behalf of the
Company, where such management or action was authorized or directed by the
Company.
ARTICLE 6 - ACCOUNTS
6.01 Books. The Members shall maintain complete and accurate books of
account of the Company's affairs at the Company's principal place of business.
Such books shall be kept on such method of accounting as the Members shall
select. The Company's accounting period shall be the calendar year.
6.02 Member Capital Accounts. Separate capital accounts shall be maintained
for each Member. Each Member's capital account shall consist of the initial
capital contribution made by the Member increased by any additional capital
contributions made and the Member's share of the profits of the Company, and
decreased by (a) distributions to the Member, and (b) the Member's share of
Company losses. Such capital accounts shall be maintained in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv), and shall be adjusted
appropriately to reflect any other adjustments required in accordance with that
Regulation, except to the
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extent such adjustments would materially affect the amount or timing of any
amount otherwise distributable hereunder.
6.03 Transfers During Year. To avoid an interim closing of the Company's
books, the share of profits and losses under Article 3 of a Member who
transferred part or all of its interest in the profit or loss and capital of the
Company during the calendar year shall be determined by taking the proportionate
share of the amount of the profits and losses for the year. The proration shall
be based on the portion of the calendar year that has elapsed prior to the
transfer. The balance of the profits and losses attributable to the transferred
interest shall be allocated to the transferee of such interest.
6.04 Reports. The Managing Member shall cause there to be prepared and sent
to each Member and the members of the Investor Member monthly statements of
income and expenses and annual reports of the business and operations of the
Company in accordance with generally accepted accounting principles consistently
applied, including a balance sheet, statement of income and expenses and the
capital of the members. The books of account shall be closed promptly after the
close of each calendar year, and there shall be prepared and sent to each Member
a statement on Treasury Form K-1 of such Member's distributive share of income
and expense for federal income tax reporting purposes within 75 days of the end
of the calendar year.
6.05 Access to Books and Records. The Non-Affiliated Member shall have full
and complete access to all of the financial and other books and records of the
Company.
ARTICLE 7 - TRANSFERS
7.01 Assignment of Membership Interest. Any direct or indirect transfer by
either Member of all or any portion of its Membership Interest (as defined in
the LLCL) in the Company or of any interest in the profit or loss or capital of
the Company prior to the dissolution and winding up of the Company, shall
require the express written consent of the non-transferring member and the
Non-Affiliated Member prior to such transfer. Any purported assignment in
violation of this Section 7.01 shall be null and void.
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7.02 Substitution of Transferee as Member. No permitted transferee,
designee or legal representative of a Member shall become a substitute Member
without the consent of the Non-Affiliated Member, which consent may not be
unreasonably withheld or delayed. In the event that such a consent is not
granted, the transferee has no right to participate in the management of the
business and affairs of the Company and is entitled only to receive the share of
profits or other compensation by way of income and the return of contributions
to which that member would otherwise be entitled. As conditions to its admission
as a substitute member (a) any transferee, designee or legal representative of
the Member shall execute and deliver such instruments and furnish such opinions
of counsel, in form and substance satisfactory to the remaining Members to cause
it to become a substitute Member, and (b) such transferee, designee or legal
representative shall pay all reasonable expenses in connection with its
admission as a substitute Member, including, without limitation, the cost of
preparation and filing of any amendment of this Agreement or the Articles of
Organization necessary or desirable in connection therewith.
7.03 Admissions of New Members. Any admission of a new member into the
Company shall require the express written consent of the Non-Affiliated Member
prior to such admission. Any purported admission of a new member into the
Company in violation of this Section 7.03 shall be null and void.
7.04 No Transfers in Certain Cases. Notwithstanding any provision of this
Article 7 to the contrary, no transfer of any membership or other interest in
the Company shall be permitted, if after giving effect thereto the Company would
be required to register as an investment company under the Investment Company
Act of 1940, as amended (the "Investment Company Act"). Any purported transfer
which would cause a violation of this Section shall be null and void, and shall
not give rise to any obligation on the part of the Company. In connection with
any proposed transfer, the Managing Member may request the proposed transferor
to furnish an opinion of counsel to the effect that the proposed transfer would
not cause the Company to be required to register under the Investment Company
Act. Such counsel shall be entitled to request, receive and rely upon a
certificate from the Company as to such factual matters concerning the Company
and the Members as may be reasonably necessary in order to render such an
opinion.
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ARTICLE 8 - DISSOLUTION AND TERMINATION
8.01 Final Accounting. In case of the Company's dissolution, a proper
accounting shall be made from the date of the last previous accounting to the
date of dissolution.
8.02 Liquidation. Upon the Company's dissolution and the failure of the
remaining Members to continue the Company as provided in Section 1.06, the
remaining Members or, if none, a person selected by a majority in Capital
Interest of the Members and approved by the Non-Affiliated Member, which
approval may be unconditionally withheld, shall act as liquidator to wind up the
Company. The liquidator shall have full power and authority to sell, assign and
encumber any or all of the Company's assets and to wind up and liquidate the
Company's affairs in an orderly and prudent manner. The liquidator shall apply
and distribute any liquidation proceeds or assets of the Company in kind 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 establishment of any reserves deemed reasonably necessary
by the liquidator for the payment of any contingent or unforeseen
liabilities or obligations of the Company and, at the expiration of such
period as reasonably deemed advisable by the liquidator, the balance of
such reserves shall be applied and distributed in the manner hereinafter
provided in this Section 8.02; then
(c) to the Members in proportion to, and in payment of, the remaining
respective capital accounts of the Members as of the date of distribution,
as adjusted and computed pursuant to Article 3, Section 6.02, and any other
applicable provisions hereof through the anticipated liquidation of the
Company.
8.03 Supplemental Liquidation Procedure. (a) The Non-Affiliated Member may
initiate a liquidation procedure in the event that (i) either ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or
W. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall cease to be active in the management of the Managing
Member, (ii) the Managing Member or any of its principals or affiliates shall
have committed any fraud, (iii) such member determines, at any time after the
third anniversary of the date
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hereof, to liquidate its investment in the Company or (iv) if, at any time after
the first anniversary of the issuance of the Initial Securities, the average
closing price of Emeritus Common Stock for any period of 45 consecutive trading
days shall be less than 75% of the average closing price thereof for the 45
consecutive trading days preceding the date hereof.
(b) To initiate the liquidation procedure, the Non-Affiliated Member shall
send a written notice to such effect to all the Members. Within thirty (30) days
after receipt of such notice, the Managing Member, or in such case that this
Section 8.03 is triggered by Section 8.03(a)(ii), the Non-Affiliated Member,
shall elect to either (i) sell the Securities for cash on the best terms then
available or (ii) distribute the Securities in kind to the Members in accordance
with Section 8.02.
(c) In the event that the Managing Member elects to sell the Securities, it
shall make all reasonable efforts to do so within a reasonable time.
Alternatively, the Managing Member may elect to cause the Securities to be sold
in a registered public offering, which the Managing Member will endeavor to
cause to be completed within a reasonable time. If the Securities are sold
privately, each member of the Investor Member will have a right to purchase all
the Securities for a price and on terms no less favorable to the Company than
the best price and terms offered from any financially able bidder for the
Securities; provided that if all members of the Investor Member elect such
right, then they shall be entitled to purchase their respective proportionate
shares thereof determined in accordance with their capital interests in the
Investor Member.
(d) In the event only one member of the Investor Member elects to purchase
the Securities, such member may, alternatively elect to purchase the interests
of the other party in the Investor Member for a price equal to the net
liquidation distributions to which the other party would have been entitled had
the electing party so purchased the Securities for cash.
(e) In the event that the Managing Member elects to distribute the
Securities in kind to the Members, then all of the members of the Investor
Member shall agree upon an independent, nationally recognized investment bank to
value the Securities. Each tranche or class of the Securities, based on such
valuation, and all other assets of the Company shall be distributed in
accordance with Section 8.02.
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8.04 Cancellation of Certificate. Upon the completion of the distribution
of Company assets, the Company shall be terminated and the Members shall cause
the Company to execute articles of dissolution and take such other actions as
may be necessary or appropriate to terminate the Company.
8.05 Deficit Accounts. No Member shall have any obligation to restore any
negative balance in its Capital Account upon liquidation of the Company.
ARTICLE 9 - AMENDMENT TO AGREEMENT
Any amendment to this Agreement and to the Articles of Organization may
become effective at such time as it has been approved in writing by two-thirds
in Capital Interest of the Members and the Non-Affiliated Member.
ARTICLE 10 - GENERAL PROVISIONS
10.01 Arbitration. Any claim or controversy arising out of or relating to
this Agreement or a breach hereof shall, upon the request of any party involved,
be submitted to and settled by arbitration in accordance with the then existing
rules in New York City of the American Arbitration Association, but providing
for the arbitrators to fix as part of the arbitration determination the manner
in which the parties to such arbitration shall share the costs thereof, or such
other form of arbitration as the parties may accept. The decision made pursuant
to such arbitration shall be binding and conclusive on all parties involved and
judgment upon such decision may be entered in any appropriate court having
jurisdiction.
10.02 No partition rights. No Member shall be entitled to receive property
other than cash on account of any distribution to be made and no Member shall
have any right to partition of any interest in real property or personal
property owned or acquired at any time by the Company, whether under any statute
or rule of law.
10.03 Notices. Any and all notices, designations, consents, offers,
elections, acceptances or other communications provided for in this Agreement
shall be in writing and delivered in any of the following ways: (1)
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personally, (2) by registered or certified mail (return receipt requested), sent
by airmail where outside of the continental United States, (3) by reputable
overnight private courier service, or (4) where a Member or other party has
furnished a fax communication number, by such fax communication, to the Members
at the addresses shown in the Section 1.13 to this Agreement. In addition, a
copy of any and all notices sent to the Members shall be sent to the
Non-Affiliated Member, c/▇ ▇▇▇▇▇ Fund Management LLC, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. Any of the addresses provided for the Members or for the
copies described in this Section may be changed by notice given in accordance
with the provisions of this Section. Any notice sent by registered or certified
mail shall be deemed made or given upon receipt.
10.04 Effect of agreement. This Operating Agreement (a) contains the entire
agreement among the parties, (b) may not be amended nor may any rights hereunder
be waived except by an instrument in writing signed by the party sought to be
charged with such amendment or waiver, (c) shall be construed in accordance
with, and governed by, the laws of New York, applicable to agreements executed
and wholly performed therein, and (d) shall be binding upon and shall inure to
the benefit of the parties and their respective personal representatives,
successors and permitted assigns, except as above set forth.
10.05 Construction. Words in any gender shall be deemed to include the
other genders. The singular shall be deemed to include the plural and vice
versa. The headings and underlined paragraph titles are for guidance only and
shall have no significance in the interpretation of this Operating Agreement.
All pronouns or variations shall be deemed to include masculine, feminine, or
neuter, singular, or plural as the context or identity may require.
10.06 Partial invalidity. If any provision of this Agreement or the
application thereof to any person or circumstance is determined to be invalid or
unenforceable, the remaining provisions or the application to other persons or
circumstances shall not be affected and shall be valid and enforceable to the
fullest extent permitted by law.
10.07 No oral change. No change or termination of this Agreement may be
made except in a writing signed in the manner provided and required herein.
10.08 Counterpart copies. This Agreement may be executed in counterpart
copies which, taken together, shall
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constitute the Agreement. A copy of the fully constituted Agreement shall be
furnished by the Managers to each Member.
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IN WITNESS WHEREOF, the undersigned acknowledges that the matters and facts
set forth in this operating agreement are true and it has signed this operating
agreement as set forth below to be effective as of the date first above written.
MERIT OPERATING, LLC,
Managing Member
By: NORTHSTAR OPERATING, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Authorized Signatory
MERIT EQUITIES LLC,
Investor Member
By: MI MANAGER, LLC
By: NORTHSTAR CAPITAL PARTNERS, LLC
By: NORTHSTAR CAPITAL HOLDINGS I, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Manager