Exhibit 10.2
EXECUTION COPY
SETTLEMENT
AGREEMENT
THIS SETTLEMENT AGREEMENT
(the “ Agreement ”) is
dated as of October 26, 2009, by and among SUNRISE SENIOR LIVING
INVESTMENTS, INC. (“ Managing Member ”), SUNRISE SENIOR
LIVING MANAGEMENT, INC. (“ Manager ”), and
SUNRISE SENIOR LIVING, INC. (“ SSL ;” Managing
Member, Manager and SSL are referred to collectively as the “
Sunrise
Parties ”), on the one hand, and US SENIOR
LIVING INVESTMENTS, LLC (“ Investor Member
”) and SUNRISE IV SENIOR LIVING HOLDINGS, LLC (“
Sunrise IV
”), on the other hand. Managing Member, Manager, SSL,
Investor Member and Sunrise IV are referred to collectively as the
“ Parties .”
RECITALS
:
WHEREAS, Managing Member
and Investor Member are parties to that certain Amended and
Restated Operating Agreement of Sunrise IV, dated as of June 30,
2005 (as amended, modified or supplemented prior to the date
hereof, the “ Operating Agreement ”);
WHEREAS, Managing Member
owns 20% of the membership interests in Sunrise IV (the “
MM Interest ”) and Investor Member owns 80% of the
membership interests in Sunrise IV;
WHEREAS, pursuant to
certain provisions contained in the Operating Agreement, including
Sections 12.2 through 12.5 of the Operating
Agreement, Managing Member has made certain financial commitments
and is required to provide financing to Sunrise IV;
WHEREAS, Managing Member
has previously provided financing to Sunrise IV as required by the
Operating Agreement (all financing provided by Managing Member to
Sunrise IV prior to the date of this Agreement is referred to
collectively as the “ MM Financing ”), including
certain financing under Sections 12.4 and 12.5 of the
Operating Agreement (the “ Income Support Financing
”);
WHEREAS, Managing Member
is currently required to provide additional Income Support
Financing to Sunrise IV pursuant to the terms of the Operating
Agreement, but Managing Member has breached its obligation to
provide such additional financing to Sunrise IV;
WHEREAS, Managing Member
desires to transfer the MM Interest to Investor Member and to
terminate and be fully released from any and all of its obligations
under the Operating Agreement (including its continuing obligations
to provide financing to Sunrise IV under the Operating
Agreement);
WHEREAS, Sunrise IV
indirectly owns 16 retirement or senior living facilities (each, a
“ Facility ” and, collectively, the “
Facilities
”) that are managed by Manager pursuant to (i) an individual
management agreement entered into by Manager for management of each
Facility, including any interim management, administrative
services, consulting services, sub-management or similar agreements
in favor of Manager concerning operation of such Facility
(collectively, the “ Management Agreements
”), and (ii) a Master Owner/Manager Agreement, dated July 1,
2005, by and between Sunrise IV, Manager and Investor Member (as
amended, modified or supplemented prior to the date hereof, the
“ MOMA ”);
WHEREAS , Sunrise IV is a
party to (i) that certain Amended and Restated Acquisition and
Construction Loan Agreement, dated as of December 22, 2005 (as
amended, modified or supplemented prior to the date hereof, the
“ Loan Agreement ”), by and among Sunrise IV (as
borrower), HSH Nordbank AG, acting through its New York Branch
(“ Nordbank ”), as a
lender, lead arranger and administrative agent, and such other
financial institutions as from time to time become lenders
(collectively, the “ Lenders ”); (ii) the Common
Terms Agreement, dated as of June 30, 2005 (as amended, modified or
supplemented prior to the date hereof, the “ Common Terms
Agreement ”), by and among Nordbank, Sunrise IV, the
Intermediate Tier Owners (as defined therein), SSL, as liquidity
support provider, and the Property Companies (as defined therein),
and (iii) certain other documents executed in connection with the
financing evidenced by the Loan Agreement and Common Terms
Agreement (the Loan Agreement, the Common Terms Agreement, the ODA
Agreement (as hereinafter defined) and such other documents are
referred to collectively as the “ Loan Documents
”);
WHEREAS , pursuant to the
terms of that certain Member Interest Pledge and Security
Agreement, dated as of June 30, 2005 (as amended, modified or
supplemented through the date hereof, the “ Membership
Interest Pledge ”), between Managing Member and Nordbank,
Managing Member has pledged its membership interests in Sunrise IV
to Nordbank for the benefit of the Lenders and to secure the
payment of all amounts due under the Loan Documents;
WHEREAS , pursuant to the
terms of that certain Operating Deficits Agreement, dated as of
June 30, 2005 (as amended, modified or supplemented through the
date hereof, the “ ODA Agreement ”), between SSL and Nordbank,
SSL has guaranteed to Nordbank for the benefit of the Lenders the
payment of all Operating Deficits (as defined in the ODA Agreement)
of Sunrise IV, the Intermediate Tier Owners, the Property Companies
and, to the extent liable therefore, the Manager;
WHEREAS , SSL has breached
its obligation under the ODA Agreement to fund default interest
with respect to the loan outstanding under the Loan Documents, and
SSL desires to be released from any and all obligations under the
Loan Documents (including the ODA Agreement);
WHEREAS , pursuant to the
terms and conditions of the Management Agreements, Manager is
entitled to receive certain management fees;
WHEREAS , Section 3.17 of the
Common Terms Agreement provides that any management fees earned
under each Management Agreement in excess of 3% of revenues for the
relevant Facility (the “ Subordinated Management Fees
”) shall be paid only if (i) Sunrise IV has made all payments
required to be made under the Loan Documents, and (ii) no event of
default has then occurred and is continuing under the Loan
Documents and, after giving effect to such payment, no event of
default would then have occurred;
WHEREAS , Nordbank has
provided written notice to Sunrise IV of the existence of certain
events of default under the Loan Documents, and such events of
default are continuing;
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WHEREAS , due to the
existence and continuation of events of default under the Loan
Documents, Manager has not received payment of certain Subordinated
Management Fees and the payment of such Subordinated Management
Fees has been deferred;
WHEREAS, Manager desires to
cease management of the Facilities;
WHEREAS , the Sunrise
Parties desire to receive from Nordbank (on behalf of Nordbank and
the Lenders) a full and unconditional release of any and all
liabilities and obligations of any and all of the Sunrise Parties
relating to or arising under the Loan Documents (including the ODA
Agreement and any and all guaranties or indemnities given by any of
the Sunrise Parties relating to the financing evidenced by the Loan
Documents);
WHEREAS, in order to
induce Nordbank to grant a release to the Sunrise Parties, the
Investor Member and its affiliates will incur significant
liabilities and make significant financial commitments in favor of
Nordbank (for the benefit of Nordbank and the other Lenders);
WHEREAS , the Parties
desire to enter into this Agreement to evidence and implement a
“global” settlement of all issues and claims arising
out of or relating to Sunrise IV, the Facilities (including the
acquisition, ownership, financing, leasing and management thereof),
and the Loan Documents and, accordingly, the Parties have engaged
in good faith, arms length negotiations that culminated in the
Parties’ agreement as set forth herein;
NOW, THEREFORE , in
consideration of the mutual promises set forth herein and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereto, intending to be
legally bound, do hereby agree as follows:
1.
Recitals . The recitals of this
Agreement are hereby incorporated herein in their entirety.
2.
Release of Managing Member . Effective as of the date
of this Agreement, each Investor Member Releasor (as defined below)
hereby expressly releases, acquits, and forever discharges Managing
Member, each of its affiliates and subsidiaries (other than
Manager, which is separately released pursuant to Section 5
hereof), and each and every past and present employee, attorney,
officer, director or shareholder of Managing Member (collectively,
the “ Managing
Member Released Parties ”), from any and all
claims, causes of action, suits, debts, obligations, liabilities,
demands, losses, covenants, dues, sums of money, reckonings, bonds,
bills, contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, executions, costs, and expenses
(including attorneys’ fees) of any kind, character, or nature
whatsoever, known or unknown, fixed or contingent, in law or equity
(collectively, “ Claims ”) which the Investor
Member Releasors and each or any of the Investor Member
Releasors’ heirs, executors, administrators, successors and
assigns ever had, now have or hereafter can, shall or may have for,
upon, or by reason of any matter, cause or thing whatsoever which
relate to, or arise out of, the management, operation, or funding
of Sunrise IV or of Sunrise IV’s direct or indirect
subsidiaries (including any and all Claims of any kind or nature
whatsoever relating to, arising out of, or existing under, the
Operating Agreement) or the acquisition or ownership of the
Facilities and other assets by Sunrise IV and its direct and
indirect subsidiaries and which the Investor Member Releasors may
have or claim to have against a Managing Member Released
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Party, or which may hereafter arise out of, relate to, or be
connected with any act of commission or omission of a Managing
Member Released Party existing or occurring prior to the date of
this Agreement; provided , however , notwithstanding
any other provision of this Agreement, the release of Claims
pursuant to this Section 2 shall not apply
to any Claims arising under this Agreement or under any Other
Sunrise Document (as defined below) and shall not release Managing
Member or SSL from their obligations under this Agreement or under
any Other Sunrise Document. “ Investor Member
Releasors ”
shall mean (i) Sunrise IV and each direct or indirect subsidiary of
Sunrise IV, and (ii) Investor Member and Investor Member’s
affiliates, principals, owners, and members.
3. Release of Sunrise IV and
Investor Member by SSL and Managing Member . Effective as
of the date of this Agreement, each Sunrise Releasor (as defined
below) hereby expressly releases, acquits, and forever discharges
Sunrise IV, Investor Member, each direct or indirect subsidiary of
Sunrise IV (including the Intermediate Tier Owners and the Property
Companies), each subsidiary or affiliate of Investor Member, each
entity that directly or indirectly provided or provides funding to
Investor Member, and each and every past or present employee,
attorney, officer, director, manager, member or shareholder of
Investor Member, any subsidiary or affiliate of Investor Member, or
any entity that provided or provides funding to Investor Member
(collectively, the “ Investor Member Released Parties
”), from any and all Claims which the Sunrise Releasors and
each or any of the Sunrise Releasors’ heirs, executors,
administrators, successors and assigns ever had, now have or
hereafter can, shall or may have for, upon, or by reason of any
matter, cause or thing whatsoever which relate to, or arise out of,
the management, operation, or funding of Sunrise IV or of Sunrise
IV’s direct or indirect subsidiaries (including the MM
Financing and any and all other Claims of any kind or nature
whatsoever relating to, arising out of, or existing under, the
Operating Agreement) or the acquisition or ownership of the
Facilities and other assets by Sunrise IV and its direct and
indirect subsidiaries (including Claims arising out of, or relating
to, the Managing Member’s right under the Operating Agreement
to transfer or cause to be transferred certain parcels of land to
Managing Member or its affiliates, which shall be a deemed
contribution of such parcels to Sunrise IV (the “
Contributed
Parcels ”)), and which the Sunrise Releasors may
have or claim to have against an Investor Member Released Party, or
which may hereafter arise out of, relate to, or be connected with
any act of commission or omission of an Investor Member Released
Party existing or occurring prior to the date of this Agreement;
provided ,
however , notwithstanding any other provision of this
Agreement, the release of Claims pursuant to this Section 3
shall not apply to any Claims arising under this Agreement or under
any Other Investor Member Document (as defined below) and shall not
release Sunrise IV or Investor Member from their respective
obligations under this Agreement or under any Other Investor Member
Document. “ Sunrise Releasors ” shall mean SSL,
Managing Member, and each of their respective affiliates (other
than Manager), principals, owners and shareholders.
4.
Release of Sunrise IV and Investor Member by Manager
. Effective as of the date of this Agreement, Manager hereby
releases, acquits, and forever discharges the Investor Member
Released Parties from any and all Claims which relate to the
management or operation of the Facilities (including all
Subordinated Management Fees, all other amounts due under the
Management Agreements as of the date of this Agreement and any
Claims arising due to breaches of the Management Agreements prior
to the date of this Agreement) and which Manager and each or any of
Manager’s heirs, executors, administrators, successors and
assigns
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ever had, now have or hereafter can, shall or may have against
an Investor Member Released Party, or which may hereafter arise out
of, relate to, or be connected with any act of commission or
omission of an Investor Member Released Party existing or occurring
prior to the date of this Agreement; provided , however ,
notwithstanding any other provision of this Agreement, the release
of Claims pursuant to this Section 4 (i) shall not apply to
(1) any Claims arising under this Agreement or under any Other
Investor Member Document, or (2) any Claims for intercompany
balances required to be paid by Sunrise IV or the Property
Companies and arising from and after September 30, 2009, and (ii)
shall not release Sunrise IV or Investor Member from their
respective obligations under this Agreement or under any Other
Investor Member Document.
5.
Release of Manager . Effective as of the date
of this Agreement, each Investor Member Releasor hereby releases,
acquits, and forever discharges the Manager and each and every past
and present employee, attorney, officer and director of Manager
(collectively, the “ Manager Released Parties
”) from any and all
Claims which relate to the management or operation of the
Facilities (including any Claims arising due to breaches of the
Management Agreements and the MOMA prior to the date of this
Agreement) and which Investor Member Releasors and each or any of
Investor Member Releasors’ heirs, executors, administrators,
successors and assigns ever had, now have or hereafter can, shall
or may have against a Manager Released Party, or which may
hereafter arise out of, relate to, or be connected with any act of
commission or omission of a Manager Released Party existing or
occurring prior to the date of this Agreement;
provided , however , notwithstanding any other
provision of this Agreement, the release of Claims pursuant to this
Section 5 (i) shall not apply to (1) any Claims arising
under this Agreement or under any Other Sunrise Document, or (2)
any Claims for intercompany balances required to be paid by Manager
and arising from and after September 30, 2009, and (ii) shall not
release Manager from its obligations under this Agreement or under
any Other Sunrise Document.
6.
Assignment of Membership Interests . Effective as of
the date of this Agreement, Managing Member shall assign, transfer
and convey to Investor Member (or Investor Member’s designee)
the MM Interest and all of Managing Member’s rights under the
Operating Agreement by executing and delivering the Bill of Sale
and Assignment Agreement (the “ Bill of Sale ”)
attached as Exhibit A hereto and made a part hereof.
Managing Member represents and warrants to Investor Member that (i)
Managing Member is the sole legal and beneficial owner of the
Transferred Interest (as such term is defined in the Bill of Sale)
and, other than the Membership Interest Pledge, Managing Member has
not previously assigned, transferred or conveyed all or any portion
of the Transferred Interest or pledged the Transferred Interest as
security for any indebtedness, (ii) following the execution and
delivery of the Bill of Sale, Investor Member shall have good and
valid title to the Transferred Interest, free and clear of any and
all liens, claims and encumbrances of any kind or nature whatsoever
(other than the Membership Interest Pledge, the Operating Agreement
and any other agreements which become effective or are entered
into, permitted or suffered to exist by Investor Member or any of
its affiliates on or after the date hereof with respect to the
Transferred Interest), and (iii) from and after the date of this
Agreement, Managing Member and its affiliates shall not have or
hold any membership interest or other direct or indirect ownership
interest in Sunrise IV (it being understood that all such
membership and ownership interests shall have been transferred to
Investor Member pursuant to the Bill of Sale) and, subject to and
in accordance with Section 2 of
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this Agreement, Managing Member shall have no Claims of any kind
or nature whatsoever against any Investor Member Released Party
that have not been waived or released.
7.
Amendment to MOMA . Effective as of the date
of this Agreement, Sunrise IV, Investor Member, and Manager shall
enter into that certain Amendment to Master Owner/Manager Agreement
(the “ MOMA Amendment ”), attached as
Exhibit B
hereto and made a part hereof, providing for, among other things,
the termination of each of the Management Agreements on the dates
set forth in the MOMA Amendment (the date of termination of a
Management Agreement is referred to as the “ Termination
Date ” for such
Management Agreement).
8.
Operations Transfer Agreement . Effective as of the
date of this Agreement, Sunrise IV, Manager, and Watermark
Retirement Communities, Inc. (“ New Manager ”)
shall enter into the Master Operations Transfer Agreement attached
as Exhibit C hereto and made a part hereof (the “
Operations Transfer
Agreement ”), providing for the transition of
management services for the Facilities from Manager to New
Manager.
9.
Continuation of Insurance . Manager acknowledges and
agrees that, from and after the Termination Date of the Management
Agreement for each Facility, it will continue providing insurance
coverage (including third-party insurance) for such Facility and
the related Property Company for claims arising from events that
occur on or prior to such Termination Date for the lines of
coverage required to be maintained pursuant to, and that meet or
exceed the minimum insurance requirements set forth in, the
relevant Management Agreement; provided , however ,
that Sunrise IV and/or the Property Company shall, pursuant to an
Escrow Agreement substantially in the form of Exhibit D (the
“ Escrow Agreement ”), fund an escrow account on
such Termination Date to cover the amount of any Facility
deductibles (as contemplated by Section 3.03 of Exhibit G to
the relevant Management Agreement) in the aggregate amount set
forth on Schedule 9(a) for each Facility; provided , further
, that Sunrise IV shall provide a guarantee with respect to the
difference between the amount escrowed as set forth on Schedule
9(a) and the maximum
post-Termination Date deductible liability for each Facility as set
forth on Schedule 9(a) . When obtaining insurance for the
period from the date of this Agreement through the Termination Date
for each Facility, Manager shall initially obtain insurance
coverage for each Facility and Property Company for the time period
set forth on Schedule 9(b) hereto (with respect to
each Facility, the “ Initial Coverage Period ”);
provided , however , that Sunrise IV or the Property
Companies shall be responsible for paying any and all insurance
premiums attributable to the Initial Coverage Period regardless of
whether the Termination Date for any Management Agreement occurs
prior to the end of the applicable Initial Coverage Period. Any
insurance coverage that is required for time periods subsequent to
the Initial Coverage Period shall be obtained on a month-to-month
basis through the applicable Termination Date. The amounts each
Facility and Property Company will be charged for each line of
coverage during the Initial Coverage Period and for each month
thereafter are set forth on Schedule 9(c) hereto to the extent such amounts are
currently known and, to the extent such amounts are not currently
known, the amounts charged will be consistent with past history and
will reflect current, fair-market pricing. From and after the date
of this Agreement and continuing until the Adjacent Parcel
Transition Date for each Adjacent Parcel, Manager will (i) manage
such Adjacent Parcel in the ordinary course consistent with past
practice, and (ii) continue to provide liability insurance coverage
for such Adjacent Parcel consistent with past practice.
“ Adjacent Parcel Transition Date ” means,
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with respect to each Adjacent Parcel, the Termination Date of
the Management Agreement for the Facility associated with such
Adjacent Parcel (or, with respect to the Adjacent Parcel associated
with the Millbrook, NY Facility, the assignment of the agreements
listed on Schedule 7.13 of the Operations Transfer
Agreement). Sunrise IV or the Property Companies shall be
responsible for paying the insurance premiums incurred in
connection with obtaining and keeping in place insurance coverage
for each Facility (and each Adjacent Parcel) through the
Termination Date of the Management Agreement for such Facility (and
the associated Adjacent Parcel, if applicable) and shall be
entitled to receive any and all net amounts recovered due to any
early termination of insurance coverage for any one or more
Facilities/Property Companies.
10.
Nordbank/Sunrise Mutual Releases . Effective as of
the date of this Agreement, and as a condition to the effectiveness
of this Agreement and the Other Sunrise Documents, the Sunrise
Parties shall execute and deliver, and Investor Member shall obtain
from Nordbank (on behalf of the Lenders) and deliver to the Sunrise
Parties a copy duly executed by Nordbank of, the mutual Release
Agreements attached hereto as Exhibit E-1 and
Exhibit
E-2 and that certain Settlement Agreement attached
hereto as Exhibit E-3 .
11.
Transfer of Trademarks . Effective as of the date of
this Agreement, SSL and Sunrise IV shall enter into the Nunc Pro
Tunc Trademark Assignment, attached as Exhibit F and made a
part hereof (the “ Trademark Assignment
”), providing for the transfer, conveyance and assignment by
SSL to Sunrise IV, effective as of June 30, 2005, of all of
SSL’s right, title and interest in and to the trademarks
(together with the goodwill of the business symbolized thereby)
listed in Exhibit G , which is attached hereto and made a
part hereof, and SSL shall file with the California Secretary of
State the Assignment of Trademark or Service Mark, attached as
Exhibit H and made a part hereof, providing for the
transfer, conveyance and assignment by SSL to Sunrise IV of all of
SSL’s right, title and interest in and to the California
State Registration for the mark THE FOUNTAINS and Design.
12.
Transfer of Domain Names . Effective as of the date
of this Agreement, SSL and Sunrise IV shall enter into the Nunc Pro
Tunc Domain Name Assignment, attached as Exhibit I and made
a part hereof, providing for the transfer, conveyance and
assignment by SSL to Sunrise IV, effective as of June 30, 2005, of
all of SSL’s right, title and interest in and
