Exhibit 10.13.2
AMENDMENT #2 TO DEVELOPMENT AGREEMENT
This Amendment #2 to Development Agreement ("Amendment #2") is made and
entered into as of the 30 day of October, 1996, by and between The Chestnut
Partnership (the "Owner"), Life Care Services Corporation ("LCS"), LCS
Development Corp ("LCSD") (a subsidiary of LCS), Rosedale Care, Inc. and
Continental Care, Inc.
WHEREAS the Owner and LCS entered into a Development Agreement dated
June 3, 1988 (the "Agreement") for certain enumerated services to be provided by
LCS at the retirement facility located in Baltimore, Maryland known as
"Blakehurst" (the "Project"); and
WHEREAS the Agreement was amended on December 31, 1994 ("Amendment
#1"), wherein Rosedale Care, Inc. and Continental Care, Inc. became Parties to
the Agreement for certain purposes relating to Phase II of the Project; and
WHEREAS the Parties desire to amend the Agreement as it relates to
Phase III of the Project to provide that LCSD shall provide development services
for Phase III of the Project, more specifically described as the addition of 35
apartment units over a 19-car parking garage, an enclosed swimming pool with
support facilities, 12 surface garages with 31 surface parking spaces near the
new residential wing and 27 surface parking spaces near the health center
("Phase III").
WHEREAS LCS was incorporated under the laws of the state of Missouri at
the time the Agreement was executed, and subsequently was reincorporated under
the laws of the state of Iowa, and is acknowledged by the parties to be the
successor to all rights and obligations of LCS under the Agreement, Amendment #1
and this Amendment #2.
NOW THEREFORE, the parties do hereby agree that the Agreement is hereby
amended as follows:
LCSD shall provide all necessary services as contemplated in the Agreement to
develop Phase III of the Project with the following revisions:
1. The first sentence in paragraph 5.3 of Article V is deleted and the
following is substituted therefor: "▇▇▇▇▇▇ Contracting shall perform
the construction management services for the Project."
2. Paragraphs 8.1 and 8.2 of Article VIII are deleted and the following
are substituted therefor: "8.1 In consideration for the performance of
the planning and development, arranging for financing, occupancy
development, arranging for design and construction, and bookkeeping
services contemplated in Articles II, III, IV, V and VI hereof, in
connection with Phase III of the Project, the Owner agrees to pay LCSD
a development fee ("Development Fee") equal in amount to $585,000
broken into two segments, a progress fee ("Progress Fee") and a
performance fee ("Performance Fee"). As more particularly described
hereafter, the Progress Fee shall be payable based on the percent of
development activity complete and will not be at risk, and the
Performance Fee will be payable based on Project performance and will
be at risk depending on the successful delivery of the Project. The
schedule for payment for both fee segments shall be as set forth in
paragraph 8.2, following:
8.2. Subject to paragraph 8.1 above, the Progress Fee and Performance
Fee shall be earned and paid as follows:
8.2.1 PROGRESS FEE. Fifty percent (50%) of the total
Development Fee, or $292,500, shall be allocated to the
Progress Fee, which shall be earned and paid as follows:
- fifty percent (50%), or $146,250, shall be paid on the
date of the initial disbursement of the construction loan
for Phase III.
- thirty-five percent (35%), or $102,375, shall be paid
monthly during construction of Phase III, payable
commensurate with the percentage of completion of
construction of Phase III.
- fifteen percent (15%) or $43,875, shall be paid monthly
commensurate with the percentage of occupancy of Phase III
up to approximately ninety-two percent (92%) first time
closings (32 units), at which time the balance of the
Progress Fee shall be paid.
8.2.2 PERFORMANCE FEE. The Performance Fee shall be fifty
percent (50%) of the total fee, or $292,500. The Performance
Fee, however, shall be based on the total financial outcome of
the Project at completion of Phase III compared to the
financial outcome projected initially in the Base Capital Cost
Budget as defined below. To measure financial performance a
spread calculation will be utilized. The spread shall be the
difference between total Poject revenues (i.e., entrance fees,
cancellation penalties, garage fees, etc.) and total Project
costs (i.e., construction cost, interest expense, start-up
loss, etc., excluding increases or decreases to Reserves) as
identified in the Base Capital Cost Budget as adjusted by
agreement of the parties. If the spread remaining at the end
of the Project is equal to or greater than the spread
projected in the Base Capital Cost Budget at the beginning of
the Project, LCSD will earn and shall be paid the full
Performance Fee ($292,500). If the spread at the end of the
Project is less than the spread projected in the Base Capital
Cost Budget of at the beginning of the Project, LCSD will earn
a lower Performance Fee, reduced dollar for dollar, up to a
maximum of $292,500, which is the full amount of LCSD's
Performance Fee. For spread calculation purposes, if the Owner
elects to sell contracts other than 90% return of capital
("ROC") contracts, the "lost" revenue from those sales shall
not affect the calculation of the Performance Fee. The Base
Capital Cost Budget projects all sales to occur as 90% ROC
contracts.
The Performance Fee shall be earned and paid as follows:
Performance shall be measured by comparing the spread of the
capital cost budget initially approved at the start of
construction ("Base Capital Cost Budget") with the spread of
an updated budget prepared at the following Project
milestones: (i) close of financing/construction start, (ii)
construction completion/first occupancy, and (iii) achievement
of 32 first time closings. The Base Capital Cost Budget is
attached hereto as Exhibit A. From the Base Capital Cost
Budget, the initial spread calculation shall be performed as
follows:
Total Project Revenues $ 9,774,000
Less Total Project Costs Excluding Reserves $11,104,200
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Initial Spread Calculation ($ 1,330,200)
At each of the three milestone comparisons, an updated spread
calculation will be performed comparing total Project revenue
to total Project cost. The updated spread calculation will
then be compared against the initial spread calculation to
determine what, if any, Performance Fees are to be paid.
If the spread calculation performed at each milestone update
meets or exceeds the initial spread calculation, the following
Performance Fees shall be earned and paid at that time:
* Milestone #1 - close of financing/construction start
- fifty percent (50%) or $146,250
* Milestone #2 - construction completion/first occupancy
- thirty-five percent (35%) or $102,375
* Milestone #3 - achievement of 32 first time closings
fifteen percent (15%) or $43,875
If the spread calculation performed at any milestone update is
less than the initial spread calculation, the Performance Fee
calculated shall be reduced dollar for dollar by that amount
up to an aggregate maximum of $292,500.
The following example calculation simulates the three
milestone spread calculations.
Adjusted Base Adjusted Base
Capital Cost Capital Cost Adjusted Base
Budget Budget Capital Cost Budget
@ @ @
Base Capital Milestone #1 Milestone #2 Milestone #3
Cost Budget (50%) (35%) (15%)
------------ ------------ ------------ ------------
Total Project Revenues 9,774,000 9,800,000 9,800,000 9,500,000
Total Project Costs less Reserves 11,104,200 11,100,000 11,300,000 11,100,000
----------- ----------- ----------- ----------
Spread Calculation ($1,330,200) ($1,300,000) ($1,500,000) ($1,600,000)
1. Calculation @ Milestone #1 - Close of Financing/Construction Start
Spread = ($1,300,000)
Since ($1,300,000) is an improvement from the initial spread of ($1,330,200), full
progress Performance Fee earned and paid at this time.
Performance Progress Fee = $292,500 x 50% = $146,250
2. Calculation @ Milestone #2 - Construction Completion/First Occupancy
Spread = ($1,500,000)
Actual Spread vs. Initial Spread Variance=($1,500,000)-($1,330,200)= ($169,800)
Net Fee Remaining for Fee Calculation = $292,500 - $169,800 = $122,700
Performance Progress Fee = $122,700 x 85% = $104,295
Net Performance Progress Fees =
$104,295 - $146,250 (fees paid previously) = ($41,955)
Therefore, LCSD to pay back $41,955 at this time.
3. Calculation @ Milestone #3 - Achievement of 32 First Time Closings
Assumptions: 4 traditional contract sales this period with lost revenue of $300,000
Spread = ($1,600,000)
Revised Spread due to traditional contracts =
($1,600,000) + $300,000 (lost traditional contract revenue) = ($1,300,000)
Since ($1,300,000) is an improvement from the initial spread of ($1,330,200),
full final Performance Fee earned = $292,500
Final Performance Fee Payment =$292,500-$104,295 (fees paid previously) =$188,205
8.2.3 If the Project is aborted at any time prior to the close of
financing/construction start, LCSD will not receive any
Development Fee."
3. The last sentence of Section 8.4 as added by Amendment #1 shall not
apply to Phase III.
4. References in the Agreement to LCS shall be deemed to refer to LCSD for
all purposes with respect to Phase III except that paragraphs 2.8 and
3.4 of the Agreement shall be deemed to refer to LCS and not to LCSD,
and references to LCS in Sections 7.9, 9.2 and 9.4 (except the first
sentence) shall be deemed to refer to both LCS and LCSD.
5. Paragraph 9.11 of the Agreement is deleted and the following is
substituted therefor: "Any sums due but unpaid hereunder shall bear
interest at a rate equal to 3% per annum plus the Base Rate as amended
from time to time and charged by ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇.▇., ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇ to its most credit-worthy customers, from the due date until
paid."
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Amendment #2 on the date and year first above written.
THE CHESTNUT PARTNERSHIP LCS DEVELOPMENT CORP.
By: West Joppa Road Limited By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Partnership, a General Partner ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
its President
By: Rosedale Care, Inc., LIFE CARE SERVICES CORPORATION
a General Partner
By: /s/ ▇.▇. ▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------- --------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
its President its President
By: Continental Care, Inc. ROSEDALE CARE, INC.
a General Partner
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇. By: /s/ ▇.▇. ▇▇▇▇▇▇
-------------------------- ---------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇.,
its President
CONTINENTAL CARE, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇.
BLAKEHURST PHASE III
BASE DEVELOPMENT CAPITAL COST BUDGET
35 UNIT
PHASE III
BUDGET
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SOURCES OF CASH:
ENTRANCE FEES 9,314,300
SURFACE GARAGE FEES 120,000
UNDERBUILDING GARAGE FEES 256,500
WORKING CAPITAL FEE 83,200
------
9,774,000
PERMANENT LOANS 1,900,000
TOTAL SOURCES OF CASH 11,674,000
USES OF CASH:
LAND 10,000
CONSTRUCTION:
GMP 7,806,500
CHANGE ORDERS (@3.0%) 223,000
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TOTAL CONSTRUCTION 8,029,500
DESIGN (@5% of const. cost + CM fee) 386,700
FINANCING COSTS 275,000
NET INTERIM INTEREST COSTS 743,000
OCCUPANCY DEVELOPMENT 485,000
CAPITAL ITEMS 100,000
LEGAL 40,000
TRAVEL 50,000
OTHER COSTS 50,000
CONTINGENCY 300,000
DEVELOPMENT OVERHEAD 585,000
START-UP LOSSES 50,000
------
SUBTOTAL USES OF CASH 11,104,200
RESERVES:
OPERATING RESERVES, RESTRICTED 202,000
OPERATING RESERVES, UNRESTRICTED 367,800
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TOTAL RESERVES 569,800
TOTAL USES OF CASH: 11,674,000
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NET CASH SOURCE (USE) 0
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