MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (this "Agreement"), dated as of June ___,
1998, is made and entered into by and between AH TEXAS OWNER LIMITED
PARTNERSHIP, an Ohio limited partnership ("Owner"), and BLC OF TEXAS-II, L.P., a
Delaware limited partnership ("Manager").
RECITALS
WHEREAS, Owner owns certain real property which is being developed for
use as a senior independent and assisted living facility in Austin, Texas, which
is currently referred to as The Heritage at Xxxxxx Ranch (the "Facility");
WHEREAS, Manager is qualified in the business of operating senior
independent and assisted living facilities such as the Facility, and Owner
desires to engage Manager to operate the Facility; and
WHEREAS, Manager is willing to operate the Facility on the terms and
subject to the conditions set forth in this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual
promises and covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Responsibilities of Manager.
(a) Owner hereby engages Manager to operate the Facility, and
Manager hereby accepts such engagement and, subject to the conditions set forth
in this Agreement, agrees to operate the Facility, at Owner's expense, in
accordance with the terms set forth in this Agreement. During the term of this
Agreement, Manager shall have full authority to operate and manage the Facility
as a senior independent and assisted living facility in accordance with the
terms and conditions hereof, and shall have full and complete control and reign
over, and use of, the entire Facility, including its common areas. Without
limiting the generality of the foregoing, Manager shall, at Owner's expense,
have full authority as follows:
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(i) Operational Policies and Forms. Subject to the
applicable Annual Budget (as defined in Section 1(a)(xii)), Manager shall
establish and implement such operational policies and procedures, and develop
such new policies and procedures, as Manager may deem necessary to cause or to
ensure the establishment and maintenance of operational standards appropriate
for the nature of the Facility.
(ii) Charges. Manager shall establish the schedules of charges for
residents of the Facility, including appropriate charges for any and all special
services rendered for residents at the Facility.
(iii) Information. Manager shall develop any informational material, mass
media releases, and other related publicity materials, that it deems necessary
for the operation of the Facility.
(iv) Regulatory Compliance. Manager shall use reasonable efforts to
maintain all licenses, permits, qualifications and approvals from any applicable
governmental or regulatory authority required for the operation of the Facility.
In addition, Manager shall supervise and coordinate the preparation and filing
of (and, where required to do so under applicable law or regulations, file) all
reports or other information required by all state or other governmental
agencies having jurisdiction over the Facility and shall deliver copies of all
such reports and information to Owner simultaneously with such filings. Manager
shall cooperate with governmental inspection and enforcement activities.
(v) Equipment and Improvements. Subject to the applicable Annual Budget and
the Nomura Loan Documents (as hereinafter defined), Manager shall, on behalf of
Owner, acquire or effect the acquisition of equipment and improvements which are
needed to maintain or upgrade the quality of the Facility or its services, to
replace obsolete or run-down equipment, or to correct any other deficiencies
which may be identified by Manager during the term of this Agreement, and shall
make, or engage third parties to make, all such repairs, replacements and
maintenance and shall cause to be acquired all necessary equipment, including
replacement equipment.
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(vi) Accounting. Manager shall supervise and coordinate accounting support
to, and prepare and maintain records for, the Facility. All accounting
procedures and systems utilized in providing said support shall be in accordance
with the operating capital and cash programs developed by Manager, which
programs shall conform to generally accepted accounting principles. Nothing
herein shall preclude Manager from engaging a third party (including related or
affiliated parties) to assist it in the performance of the accounting duties
provided for herein.
(vii) Reports. Manager shall supervise and coordinate the preparation of
any operational information if and to the extent needed to comply with any
reporting obligations imposed on the Owner by any Lenders (as hereinafter
defined) or lessors of the Facility except for those reporting obligations which
relate to matters which are within the exclusive control of the Owner or its
affiliates. Manager shall prepare, or cause to be prepared, at Owner's expense,
the tax returns of Owner (but not Owner's partners or affiliates) for Owner's
signature. All originals of the books, forms and records generated by Manager in
connection with the operation of the Facility shall be Manager's property.
(viii) Bank Accounts. Pursuant to the Nomura Loan Documents, Manager shall
establish an account or accounts and shall deposit therein all money received by
Manager on Owner's behalf from the operation of the Facility. Withdrawals and
payments from this account shall be made only on checks signed by one or more
person or persons designated by Manager. Manager shall give Owner written notice
as to the identity of such authorized signatories on such account.
(ix) Personnel. Manager shall have full power and authority to recruit,
hire, train, promote, direct, discipline and fire all Facility personnel,
including the Executive Director of the Facility; establish salary levels,
personnel policies and employee benefits; and establish employee performance
standards, all as Manager determines to be necessary or desirable during the
term of this Agreement to ensure the efficient and satisfactory operation of all
departments within, and all services offered by, the Facility. All of the
foregoing obligations shall be undertaken in accordance with the Annual Budgets
and applicable law and regulations. All of the Facility personnel shall be the
employees of Manager, unless otherwise agreed by Owner and Manager, and all
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salary, bonuses, fringe benefits, payroll taxes and related expenses payable to
or in respect of the Facility's on-site personnel holding the position of
Executive Director of the Facility and all positions subordinate thereto shall
be expenses of the Facility.
(x) Supplies and Equipment. Manager shall purchase, on behalf of Owner,
supplies and non-capital equipment needed to operate the Facility within the
budgetary limits set forth in the Annual Budgets.
(xi) Legal Proceedings. Manager shall have the right and authority, on its
own behalf or through legal counsel designated by Manager, to direct all legal
matters and proceedings that are within the scope of Manager's authority
pursuant to this Agreement, including without limitation, instituting any
necessary legal actions or proceedings to collect obligations owing to the
Facility, canceling or terminating any contract or agreement relating to the
Facility for breach thereof or default thereunder, and otherwise enforce the
obligations of the residents, sponsors, licensees, customers and any other users
of the Facility. Without limiting the generality of the foregoing, Manager is
authorized (without the prior written consent of Owner) to (a) settle, in the
name and on behalf of Owner and on such terms and conditions as Manager may deem
to be in the best interests of the Facility, any and all claims or demands
arising out of, or in connection with, the operation of the Facility, whether or
not legal action has been instituted and (b) enter into such agreements with any
governmental agencies having jurisdiction over the Facility deemed necessary or
desirable by Manager in its sole and absolute judgment. All such amounts paid in
respect of any such settlements shall be expenses of the Facility and be paid by
Owner. Manager will give notice promptly to Owner of all demands and claims and
all settlements and legal actions, but the failure to give such notice shall not
affect the preceding provisions of this paragraph.
(xii) Annual Budgets.
(A) Preparation and Submission. At least forty- five (45) days prior to
each calendar year that commences during the Term (as hereinafter defined) of
this Agreement, Manager shall submit to Owner a proposed annual budget for the
Facility projecting the revenues available and funds required during such
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fiscal year in order to operate the Facility and to make capital improvements
necessary or desirable in order to keep the Facility's physical plant in good
condition and repair. The proposed annual budget shall be based upon data and
information then available to Manager and shall include, without limitation,
estimated salaries and fringe benefits for all personnel groups, projected
staffing patterns for the Facility, estimates of required capital expenditures
and purchases of equipment, supplies, inventory, food and similar items, and an
estimate of the level of rates and charges to residents of the Facility
sufficient to generate revenue necessary to operate the Facility and make the
capital improvements projected in such budget. The proposed annual budget shall
be an estimate of revenues and costs, and Owner and Manager acknowledge that (1)
projected revenue may not be actually received and (2) projected costs may be
exceeded by actual expenses and capital expenditures incurred in connection with
the operation and maintenance of the Facility. By submitting such a projected
budget, Manager will not be deemed to be providing a guarantee or warranty as to
the projected revenue, expenses or capital expenditures of the Facility.
(B) Adoption. Each annual budget proposed by Manager pursuant to
subparagraph (A) above and, to the extent any Lender has approval rights with
respect thereto, as finally approved by such Lender or Lenders, shall constitute
an "Annual Budget" for all purposes under this Agreement.
(C) Efforts to Operate within Annual Budget. Manager agrees to use
reasonable efforts to operate the Facility in accordance with the Annual
Budgets. Subject to the foregoing limitation, Owner shall be responsible on a
periodic basis, as and when needed, for all expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility,
including, without limitation, Fees and cost overruns which exceed the
projections in the then current Annual Budget. Notwithstanding anything in this
Agreement, if Manager determines in good faith that the incurrence of any
expenditure is required in order to comply with applicable law or regulations or
to provide services in accordance with the senior independent and assisted
living industry's then-prevailing standards in the area in which the Facility is
located, then Manager shall be entitled to make such expenditures, and all such
expenditures shall be deemed, for all
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purposes of this Agreement, to be in accordance with the then current
Annual Budget.
(xiii) Collection of Accounts. Manager shall issue bills and collect
accounts and monies owed for goods and services furnished by the Facility,
including, but not limited to, enforcing the rights of Owner and the Facility as
creditor under any contract or in connection with the rendering of any services.
(xiv) Contracts. Consistent with or as otherwise contemplated by the Annual
Budget, Manager shall negotiate, enter into, secure, cancel and/or terminate
such agreements and contracts which Manager may deem necessary or advisable for
the operation of the Facility, including, without limitation, the furnishing of
concessions, supplies, utilities, extermination, refuse removal and other
services. Where lawful, said agreements and contracts may be entered into in the
name of and on behalf of Owner.
(xv) Residency Agreements. Manager shall have the right and authority to
negotiate, enter into, amend, cancel and/or terminate residency agreements with
residents of the Facility. Where lawful, said residency agreements may be
entered into in the name of and on behalf of Owner.
(xvi) Other Matters. Manager shall, on its own behalf and/or on Owner's
behalf, be permitted to enter into such other agreements, contracts, easements
and to perform such other acts as are necessary or desirable, in Manager's sole
and absolute discretion, for the operation of the Facility.
(xvii) Loan Documents. Manager shall, on its own behalf and/or on Owner's
behalf, be permitted to deal with the providers of financing for the Facility
including, without limitation, (A) the first mortgage loan made by Nomura Asset
Capital Corporation with respect to the Facility and other facilities (the
"Nomura Loan") and (B) the subordinated loan made by Banc One Capital Partners
IV, Ltd (the "Banc One Loan"). Each provider of financing for the Facility is
referred to herein as a "Lender" and the loan documents evidencing and/or
securing financing for the Facility are referred to herein as "Loan Documents".
The Loan Documents which evidence and/or secure the Nomura Loan are referred to
herein as "Nomura Loan Documents".
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Manager shall be responsible for complying with the terms of the Loan Documents,
at Owner's sole cost and expense, with the exception of those provisions (i)
which are within the exclusive control of Owner and its affiliates, e.g. filing
of income tax returns and certificates and notices relating to Owner's (and its
affiliates') organizational documents, etc., and (ii) which relate to the
repayment of the debt evidenced and secured by the Loan Documents. Owner (and
its affiliates) shall not amend or waive any provision of any of the Loan
Documents without the prior written consent of Manager.
2. Responsibilities of Owner. Owner shall not interfere with Manager in
connection with the management of the Facility in accordance with the terms of
this Agreement. Owner acknowledges that the management of the Facility is within
the exclusive control of Manager and Owner hereby grants Manager sole and
exclusive possession and control over the Facility.
3. Exclusive Representative/Attorney-in-Fact. It is understood and
agreed that, during the term of this Agreement, Manager shall be the exclusive
representative of Owner for purposes described in this Agreement. Any
communications with any Lender, regulatory authorities, governmental agencies,
contractors, suppliers, residents, sponsors, licensees, customers and guests of
the Facility shall be directed through Manager. Any and all notices received by
Owner relating to the Facility, the Loan Documents, the Owner or the direct or
indirect owners of interests in Owner shall immediately be forwarded by Owner to
Manager. Owner hereby appoints Manager the attorney-in-fact, during the term of
this Agreement, of Owner to take any action and execute any instruments that
Owner is obligated under, or that Owner has covenanted and agreed hereunder or
under the Loan Documents to take or execute, which appointment as
attorney-in-fact is irrevocable and coupled with an interest.
4. Insurance. Subject to and in accordance with the Nomura Loan
Documents, Manager shall, at Owner's expense, arrange for and maintain all
necessary and proper hazard insurance covering the Facility, including the
furniture, fixtures and equipment situated thereon, all necessary and proper
public liability insurance for the protection of Manager, Owner and, to the
extent required under the Loan Documents, any Lender. Manager shall, at Owner's
expense, also arrange for and maintain all employee health and worker's
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compensation insurance for the Facility's personnel. Manager shall, at Owner's
expense, also maintain such other insurance as required pursuant to the Nomura
Loan Documents. Any insurance provided pursuant to this paragraph shall be an
expense of the Facility payable by Owner.
5. Proprietary Interest. The systems, methods, procedures and controls
employed by Manager and any written materials or brochures developed by Manager
to document the same are to remain the property of Manager and are not, at any
time during or after the term of this Agreement, to be utilized, distributed,
copied or otherwise employed or acquired by Owner, except as authorized by
Manager.
6. Term of Agreement. Unless this Agreement is sooner terminated as
hereinafter expressly provided in Section 7 or as otherwise agreed in writing by
both parties, the initial term (the "Term") of this Agreement shall commence on
the date the Facility is substantially completed and shall end on the
"Conversion Date", as such term is defined in the Nomura Loan Documents. Upon
any termination of this Agreement pursuant to the immediately preceding
sentence, the parties hereto shall have no further obligations or liabilities
other than the right of Manager to receive Fees through the Termination Date,
and during any such period for which Manager provides services or assists in the
operation of the Facility in connection therewith it shall be entitled to
receive an appropriate fee therefor. In addition, upon any termination of this
Agreement, all right, title and interest of the Manager in and to any licenses,
permits, qualifications, approvals, leases, residency agreements, trade
contracts and/or other agreements that are necessary for the operation of the
Facility shall, at the option of Owner, be assigned to Owner, except in
connection with a synthetic lease transaction, in which case such items shall be
assigned to the lessee thereunder.
7. Events of Default and Remedies.
(a) Event of Default. At the option of the non-defaulting
party, each of the following shall constitute an "Event of Default" hereunder:
(i) if Owner shall fail to pay or allow payment of any
installment of the Fees due to Manager in accordance with Section
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10 hereof for a period of five (5) days after written notice of such failure
from Manager to Owner;
(ii) if Owner fails to perform in any material respect any
term, provision, or covenant of this Agreement (other than as set forth in
Section 7(a)(i)) and (A) such failure continues for ten (10) days after written
notice from Manager to Owner specifying such failure (unless such failure cannot
be cured by the payment of money and cannot reasonably be cured within such
10-day period, in which event, Owner shall have an additional period, not to
exceed an additional thirty (30) days, in which to cure the default) or (B)
Owner fails to endeavor diligently and continuously to cure such default as
promptly as is practicable;
(iii) if Manager fails to perform in any material respect any
term, provision, or covenant of this Agreement and (A) subject to Section 8
below, such failure continues for thirty (30) days after written notice from
Owner specifying such failure to perform (unless such failure cannot reasonably
be cured within such 30-day period, in which event, Manager shall have an
additional period as is necessary to cure the default) or (B) Manager fails to
endeavor diligently and continuously to cure such default as promptly as is
practicable; or
(iv) if either Owner, on the one hand, or Manager, on the
other, is dissolved or liquidated, applies for or consents to the appointment of
a receiver, trustee or liquidator of all or a substantial part of its assets,
files a voluntary petition in bankruptcy or is the subject of an involuntary
bankruptcy filing, makes a general assignment for the benefit of creditors, or
files a petition or an answer seeking reorganization or arrangement with
creditors or to take advantage of any insolvency law, or if an order, judgment
or decree shall be entered by any court of competent jurisdiction, on the
application of a creditor, adjudicating Owner or Manager bankrupt or insolvent
or approving a petition seeking reorganization of Owner or Manager or appointing
a receiver, trustee or liquidator for such party of all or a substantial part of
its assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) consecutive days; or
(v) if Owner or any affiliate of Owner is in breach or default
of any of its obligations under that certain Equity Option
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Agreement of even date herewith with Brookdale Living Communities, Inc.
("Brookdale") or under that certain Project Option Agreement of even date
herewith with Brookdale.
(b) Remedies. At any time after the occurrence and during the
continuance of any Event of Default caused by Owner, Manager may, at its option,
do one or more of the following: (I) terminate this Agreement by giving written
notice to Owner and/or (ii) exercise all rights and remedies available under law
or equity. At any time after the occurrence and during the continuance of an
Event of Default caused by Manager, Owner may, as its sole option, terminate
this Agreement in accordance with the terms hereof and Manager shall have no
other liability to Owner hereunder.
8. Facility Operations.
(a) No Guarantee of Profitability. Manager does not
guarantee that operation of the Facility will be profitable.
(b) Force Majeure. The parties will not be deemed to be in
violation or breach of this Agreement if they are prevented from performing any
of their respective obligations hereunder for any reason beyond their control,
including, without limitation, strikes, shortages, war, acts of God, or any
applicable statute, regulation or rule of federal, state or local government or
agency thereof having jurisdiction over the Facility or the operations thereof.
9. Withdrawal of Funds by Manager. Owner and Manager acknowledge and
agree that the efficient operation of the Facility requires that Manager have
ready access to the funds required therefor. Accordingly, Owner agrees not to
withdraw any funds from the Facility's bank account(s) without the prior written
consent of Manager.
10. Fees. During the term of this Agreement, Manager shall be entitled
to receive management fees (the "Fees") equal to the greater of (i) five percent
(5%) of the gross revenues of the Facility during each month or portion thereof
occurring during such term or (ii) $10,000 per month. Fees shall be paid on a
monthly basis simultaneously with the delivery by Manager to Owner of the
monthly statements provided for in Section 1(a)(vii).
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In addition to the Fees, Owner agrees to reimburse Developer and
Brookdale Living Communities, Inc.("Brookdale") for any and all costs and/or
expenses paid, or incurred, by Manager or Brookdale in connection with any of
the Loan Documents, including, without limitation, Interest, the Draw Fees,
Servicing Fees, Facility Structuring Fee, non-use fee, Additional Loan
Structuring Fees and Extension Fees (as such terms are defined in the Nomura
Loan Documents) or any other fees or expenses under any of the Loan Documents.
11. Assignment. This Agreement shall not be assigned (including by
operation of law, whether by merger or consolidation (excluding a merger
effected solely for the purpose of changing Owner's jurisdiction of
incorporation that does not affect the ownership interests of Owner in any
material respect) or otherwise) by Owner, on the one hand, or by Manager, on the
other, without the prior written consent of the other party; provided, however,
that to the extent permitted by applicable law and regulations, and subject to
the receipt of all required licenses, permits, approvals and authorizations of
applicable governmental agencies, this Agreement may be assigned by Manager to
one or more corporations or other legal entities all the shares (and, in the
case of legal entities other than corporations, all the equity ownership and
voting control) of which are owned, directly or indirectly, by Manager or by
Brookdale Living Communities, Inc.
12. Notices. Any notices required or permitted to be sent hereunder
shall be delivered personally or by facsimile (with answer back acknowledged) or
mailed, certified mail, return receipt requested, or delivered by overnight
courier service to the following addresses, or such other addresses as shall be
given by notice delivered hereunder, and shall be deemed to have been given upon
delivery, if delivered personally, upon receipt with answer back acknowledged,
if delivered by facsimile three (3) business days after mailing, if mailed, or
one business day after delivery to the courier, if delivery by overnight courier
service:
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If to Owner, to:
AH Texas Owner Limited Partnership
000 Xxxx xx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxxxxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
If to Manager, to:
c/o Brookdale Living Communities, Inc.
00 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxxx, Xx.
Facsimile: (000) 000-0000
With a copy to:
c/o Brookdale Living Communities, Inc.
00 Xxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and
Winston & Xxxxxx
00 Xxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
Facsimile: (000) 000-0000
13. Relationship of the Parties. The relationship of Manager to Owner
in connection with this Agreement shall be that of an independent contractor,
and all acts performed by Manager during the term hereof shall be deemed to be
performed in Manager's capacity as an independent contractor. Nothing contained
in this Agreement is intended to or shall be construed to give rise to or create
a partnership or joint venture or lease between Owner, its
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successors and assigns, on the one hand, and Manager, its
successors and assigns, on the other hand.
14. Entire Agreement. This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties with respect
to the subject matter hereof and, subject to the restrictions contained in
Section 11 above, shall be binding upon their respective successors and assigns,
and shall be construed in accordance with the laws of the state where the
Facility is located. Subject to any restrictions in the Nomura Loan Documents,
this Agreement may not be modified or amended except by written instrument
signed by the parties hereto.
15. Contract Modifications for Certain Legal Events. In the event any
state or federal laws or regulations, whether now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel of both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, Owner and Manager agree to cooperate in
restructuring their relationship and this Agreement to eliminate such violation
or to reduce the risk thereof to the extent such restructuring can be
accomplished upon commercially reasonable terms; provided, that any such
restructuring shall, to the maximum extent possible, preserve the underlying
economic and financial arrangements between Owner and Manager. The parties agree
that such amendment may require either or both parties to obtain appropriate
regulatory licenses and approvals.
16. Captions. The captions used herein are for convenience
of reference only and shall not be construed in any manner to limit
or modify any of the terms hereof.
17. Severability. In the event one or more of the provisions contained
in this Agreement is deemed to be invalid, illegal or unenforceable in any
respect under applicable law, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be impaired thereby.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
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19. Limitation of Personal Liability of Owner. Notwithstanding any
other provision of this Agreement to the contrary, in no event shall any
officer, director, member, partner, manager, shareholder, incorporator or agent
of Owner or of Owner's affiliates be personally liable to Manager for any of
Owner's obligations under this Agreement.
20. Limitation of Personal Liability of Manager. Notwithstanding any
other provision of this Agreement to the contrary, in no event shall any
officer, director, member, partner, manager, shareholder, incorporator or agent
of Manager or of Manager's affiliates be personally liable to Owner for any of
Manager's obligations under this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Management
Agreement to be executed and delivered in their names and on their behalf as of
the date first set forth above.
OWNER:
AH TEXAS OWNER LIMITED PARTNERSHIP,
an Ohio limited partnership
By: AH Texas CGP, Inc., its general
partner
By:___________________________
Name: Xxxxx X. Xxxxxxx
Title: President
MANAGER:
BLC OF TEXAS-II, L.P.,
a Delaware limited partnership
By: Brookdale Living Communities
of Texas-II, Inc., its general
partner
By:___________________________
Name:_________________________
Title:________________________
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