EXHIBIT 3
OPERATING AGREEMENT
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Xxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxx X. Xxxxxx, d/b/a G.W.E.
Partnership (collectively, the "Operators"), with offices located at 000
Xxxxxxxxx Xxxx Xxxxxxxxx, Xxxxxxxx, Xxx Xxxx 00000, hereby contract with the
Owner set forth below to operate the Facility described below pursuant to the
Terms of Operating Agreement attached hereto and which form a part of this
Agreement as fully as if recited in their entirety over the signatures affixed
below. The parties agree that the services to be provided by Operators shall be
personally rendered by them, except as contemplated herein, or unless Owner
approves a successor Operator or Operators under the Terms of Operating
Agreement.
1. The "Effective Date" shall be September 30, 1997.
2. The "Effective Time" shall be the effective time of the merger of Prometheus
Acquisition Corp. (the "Company") with and into Kapson Senior Quarters Corp. as
defined in that certain Agreement and Plan of Merger dated as of the Effective
Date among Prometheus Senior Quarters LLC, Prometheus Acquisition Corp. and
Company.
3. The "Owner" is Kapson Rochester East, L.L.C., with offices located at 000
Xxxxxxxxx Xxxx Xxxxxxxxx, Xxxxxxxx, Xxx Xxxx 00000.
4. The "Property" is the land located at 0000 Xxxx Xxxx Xxxx Xxxx, Xxxxxxxx, Xxx
Xxxx 00000.
5. The "Facility" is an approximately 120 bed adult care facility known as Town
Gate East, located on the Property.
6. The "Escrow Agreement" is that certain escrow agreement, dated the Effective
Date, among Prometheus Senior Quarters LLC, Prometheus Acquisition Corp.,
Operators and Xxxxxx Trust and Savings Bank.
7. The "Stock" is the three hundred seventy-five thousand (375,000) shares of
stock in Kapson Senior Quarters Corp., a Delaware corporation, placed into
escrow by Operators pursuant to the Escrow Agreement.
8. The "Master Management Services Agreement" is that certain master management
services agreement, dated the Effective Date between Operators and Senior
Quarters Management Corp., a New York Corporation.
9. The "Notice Addresses" are as follows:
To Owner: KAPSON ROCHESTER EAST, L.L.C.
000 Xxxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Phone:(000) 000-0000
Telecopier: (000) 000-0000
Copy to: Kapson Senior Quarters Corp.
c/o Lazard Freres Real Estate
Investors L.L.C.
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx
and Xxxxx X. Xxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
To Operators: Xxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxx
X. Xxxxxx
GWE Partnership
000 Xxxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Phone:(000) 000-0000
Telecopier: (000) 000-0000
Copy to: Xxxxxx X. Xxxxxx, Esq.
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
10. The "Department's Regional Office" shall be:
New York State Department of Social Services
000 Xxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Executed in duplicate as of the Effective Date, at New York, New York.
OWNER: KAPSON ROCHESTER EAST, L.L.C.
By: Kapson Senior Quarters Corp.,
Sole member
By: /s/ Xxxxx X. Xxxxxx
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Name: Xxxxx Xxxxxx
Title: Senior Exec. Vice President
OPERATORS: G.W.E. PARTNERSHIP
/s/ Xxxxx Xxxxxx
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Xxxxx Xxxxxx
/s/ Xxxxx X. Xxxxxx
------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
TERMS OF OPERATING AGREEMENT
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This Operating Agreement is made as of the Effective Date, by and between
Owner and Operators, shall commence as of the Effective Time, and shall at the
Effective Time supersede the operating agreement between the parties that is in
place with respect to the Facility on the Effective Date.
WHEREAS, Owner is the owner or lessee of the Property where the Facility is
located;
WHEREAS, Operators hold an operating certificate to operate the Facility,
are experienced and qualified in the field of operating adult-care facilities
such as the Facility, and Owner desires to engage Operators to continue to
operate Facility from and after the Effective Time;
WHEREAS, Operators are willing to continue to operate the Facility on the
terms and subject to the conditions set forth in this Agreement from and after
the Effective Time.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
I. RESPONSIBILITIES OF OPERATORS.
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A. ENGAGEMENT. Owner hereby engages Operators to operate the Facility, and
Operators hereby accept such engagement and agree to operate the Facility, at
Owner's expense, so as to provide all services required by applicable law and
regulation and the terms and conditions set forth in this Agreement. During the
term of this Agreement, Operators shall have full authority to operate and
manage the Facility as an adult-care facility in accordance with applicable law
and regulation and 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, Operators shall
have full authority and responsibility as follows:
1. OPERATIONAL POLICIES AND FORMS. In accordance with the Annual Budgets
(as defined in Section I.B. hereof), Operators shall promulgate and implement
such operational policies and procedures as they may deem necessary to insure
the establishment and maintenance of operational standards appropriate for the
nature of the Facility.
2. CHARGES. In accordance with the Annual Budgets, Operators shall
supervise and coordinate the establishment of schedules of charges including any
and all special charges for services rendered at the Facility.
3. INFORMATION. Within the expenses allowed and provided for in the Annual
Budget, and subject to the review of the Owner, Operators shall supervise and
coordinate the development of any informational material, mass media releases,
and other related publicity materials that are necessary or appropriate for the
operation of the Facility.
4. REGULATORY COMPLIANCE. Operators shall use their reasonable best efforts
to obtain and maintain all licenses, permits, qualifications and approvals from
any applicable governmental or regulatory authority required for the operation
of the Facility, to operate the Facility in compliance with all applicable laws
and regulations, and to comply with such laws and regulations in performing
Operators' obligations under this Agreement. Where permitted by law, all such
licenses, permits, approvals and certifications obtained or renewed after the
Effective Date shall be in the name of Owner; all other such licenses, permits,
approvals and certifications shall be in the name of Operators, or an individual
partner of Operators, unless the governing law requires otherwise. In addition,
Operators shall supervise and coordinate the preparation and filing of (and,
where Operators are required to do so under applicable law or regulation, shall
file) all reports or other information required by New York State Department of
Social Services, New York State Department of Health, New York State Housing
Finance Agency and other New York or other governmental agencies having
jurisdiction over the Facility; Operators shall use reasonable best efforts to
deliver copies of all such reports to Owner for its review prior to their
filing. Operators shall cooperate with governmental inspection and enforcement
activities. Operators shall notify Owner of the requirement for changes to the
physical structure of the Facility to comply with applicable laws and codes and
Owner shall be responsible for any mandated changes to bring the physical
structure into compliance with the applicable laws and codes.
5. EQUIPMENT AND IMPROVEMENTS. In accordance with the Annual Budgets and
subject to consultation with of Owner, Operators shall, on behalf of owner,
engage third parties to acquire or effect the equipment and improvements which
are needed to maintain or upgrade the quality, to replace obsolete or run down
equipment, or to correct any other survey deficiencies which may be cited during
the term of this Agreement, make all such
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repairs, replacements and maintenance and acquire all necessary equipment,
including replacement equipment.
6. FINANCIAL AND ACCOUNTING SERVICES.
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a. In consultation with Owner, Operators shall
supervise and coordinate the preparation and/or maintenance (as appropriate)
of the following items:
- a monthly balance sheet and statement
of operations for the Facility, to be
submitted to Owner within thirty (30)
days after the end of each calendar
month;
- Resident billing records;
- Accounts receivable and collection records;
- Accounts payable records;
- All payroll functions, including,
preparation of payroll checks,
establishment of depository accounts
for withholding taxes, payment of such
taxes (at the Company's sole expense),
filing of payroll reports and the
issuance of W-2 forms to all
employees; and
b. In consultation with Owner, Operators shall
supervise and coordinate the preparation and/or maintenance (as appropriate) of
(i) a complete general ledger for the purposes of recording and summarizing all
transactions for the Facility and (ii) the preparation and filing of all
necessary reports as required by applicable governmental authorities and the
simultaneous provision of copies thereof to the Owner. In consultation with
Owner, and subject to Owner's further direction, Operators shall use reasonable
best efforts to file all such reports as are required to be filed for the
Facility, Owner and/or Operators.
C. In consultation with Owner, Operators shall
supervise and coordinate the preparation and delivery of all reports required to
be delivered to any lenders at the time and in the manner required by such
lenders.
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d. All accounting procedures and systems utilized
in providing said support shall be in accordance with the operating capital and
cash programs developed by Owner, which programs shall conform to generally
accepted accounting principles and shall not materially distort income or loss.
Nothing herein shall preclude Operators from engaging a third party, at
Operator's expense and approved by owner, to assist it in the performance of the
accounting duties provided for herein.
7. REPORTS. Operators shall supervise and coordinate the
preparation of any reasonable operational information which may from time to
time be specifically requested by Owner, including any information needed to
assist Owner in completing its tax returns and in complying with any reporting
obligations imposed by any mortgagees or lessors of the Facility. In addition:
(a) within thirty (30) days after the end of each calendar month, Operators
shall supervise and coordinate the preparation and the delivery to Owner of an
unaudited balance sheet of the Facility, dated the last day of such month, and
an unaudited statement of income and expenses for such month relating to the
operation of the Facility and (b) within ninety (90) days after the end of the
fiscal year of the Owner, Operators shall supervise and coordinate the
preparation of unaudited financial statements, including a balance sheet of the
Facility dated the last day of said fiscal year and a statement of income and
expense for the year then ended relating to the operation of the Facility. In
addition, Operators shall supervise and coordinate the preparation and the
delivery to owner of monthly occupancy reports and related information with
respect to Facility. All books, forms and records of the Facility in connection
with the operation of the Facility are Operators' property, provided, however
that Operator shall provide true and complete copies of all such books, forms
and records (of Facility and not the residents) to Owner.
8. BANK ACCOUNTS AND WORKING CAPITAL. Owner shall
establish and maintain in a local bank selected by Owner an account or accounts
for the operation of the Facility ("Operating Accounts"), in Owner's name and on
behalf of Owner, and Operators shall thereafter deposit therein all funds
received by Operators on Owner's behalf from the operation of the Facility. It
is anticipated that Operators shall have sufficient revenue and working capital
to operate the Facility out of the revenue generated by the Facility. Owner
shall provide funds for the Operating Accounts, in addition to the revenue
generated from the operation of the Facility, in the event that revenue is
insufficient, at any point, to pay current expenses. All expenses incurred in
connection with the operation of the Facility (including, without limitation,
the payment of
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Operator's Management Fee) shall be paid out of the Operating Accounts. In
consultation with Owner and subject to its direction, Operators shall supervise
and coordinate the writing of checks and withdrawals from the Operating Accounts
to pay for operating the Facility to the extent necessary for the discharge of
Operators' obligations hereunder. Replacement Reserve accounts have been
established for the Facility. Capital improvements shall be paid out from those
Replacement Reserve accounts according to their terms. Operators shall have no
obligation to (1) provide or contribute working capital required for the
operation of the Facility, or (2) fund capital expenditures required to maintain
the Facility in good condition and repair.
9. PERSONNEL. In consultation with Owner, Operators shall
supervise the recruiting, hiring, training and promotion; supervise the
establishment of salary levels, personnel policies and employee benefits; and
establish employee performance standards, all as Operators determine to be
necessary or desirable during the term of this Agreement to ensure the efficient
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 Owner, unless otherwise agreed by Owner, and all
salary, bonuses, fringe benefits, payroll taxes and related expenses payable to
or in respect of the Facility's personnel shall be subject to review by the
owner and shall be expenses of the Facility. Operators shall in all events
retain the authority to direct, discipline and discharge all Facility personnel,
including the Administrator of the Facility.
10. SUPPLIES AND EQUIPMENT. In consultation with Owner,
Operators shall supervise and coordinate the purchase, on behalf of Owner, of
supplies and non-capital equipment needed to operate the Facility within the
budgetary limits set forth in the Annual Budgets.
11. LEGAL PROCEEDINGS. Operators shall, through legal
counsel approved by Owner, direct all legal matters and proceedings that are
within the scope of Operators' authority pursuant to this Agreement, in
consultation with Owner, including without limitation, instituting any necessary
legal actions or proceedings to collect obligations owing to the Facility,
canceling or terminating any contract or agreement for breach thereof or default
thereunder and otherwise enforcing the rights and obligations of the residents,
sponsors, licensees, customers and other users of the Facility. Without
limiting the generality of the foregoing, Operations are authorized to settle,
in the name
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and on behalf of the Owner and on such terms and conditions as Operators 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, provided that such settlement does not
exceed twenty-five thousand ($25,000) dollars for each such individual claim or
demand or exceed two hundred fifty thousand ($250,000) dollars in any fiscal
year. All such amounts shall be expenses of the Facility. Operators will give
notice promptly to Owner of all demands and claims, and all proposed settlements
and legal actions.
B. ANNUAL BUDGETS.
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1. PREPARATION AND SUBMISSION. Owner and Operators
hereby adopt the annual budget for calendar year 1998 that is attached hereto as
Exhibit A and incorporated herein by this reference. At least ninety (90) days
prior to the end of each subsequent calendar year that commences during the term
of this Agreement, Operators shall submit to Owner a proposed annual budget for
the Facility projecting the revenues available and funds required during such
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 owner and Operators and shall include, without
limitation, estimated salaries and fringe benefits for all personnel groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges 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
operators acknowledge that (x) projected revenue may not be actually received
and (y) 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, Operators will not be deemed to
be providing a guarantee or warranty as to the projected revenue, expenses or
capital expenditures of the Facility.
2. ADOPTION. Owner shall, within thirty (30) days
following receipt of a proposed annual budget proposal, notify Operators of
either Owner's approval of such proposed annual budget or those items of which
Owner approves and those items of which Owner disapproves. Owner shall either
approve or disapprove of, in total or in part, such proposed annual budget in
writing within a thirty (30) day period. If such proposed
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annual budget is not approved in such period, it shall be deemed disapproved. If
Owner disapproves of the proposed annual budget either in total or in part
within such thirty (30) day period, then Owner and Operators shall have thirty
(30) days from the date of owner's disapproval notice to formulate a mutually
agreeable Annual Budget. If the parties are unable to reach an agreement within
said thirty (30) day period, then Operator will operate at the previous year's
Annual Budget with up to a five (5%) percent increase in necessary categories
until a new Annual Budget is agreed upon or this Agreement is terminated;
provided, however, that the budgeted items for the categories of Heat, Light,
Power, Insurance and Real Estate Taxes shall be deemed increased as required to
reflect actual expenses for the succeeding calendar year. Each annual budget as
finally established in accordance with this paragraph (I.B.) (including as it
may thereafter be revised from time to time during a calendar year pursuant to
the written agreement of Owner and Operators), shall constitute an "Annual
Budget" for all purposes under this Agreement.
3. EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Operators agree
to use their reasonable best 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, but not to exceed ten
(10%) percent of the Annual Budget, unless otherwise agreed. Notwithstanding
anything in this Agreement, if Operators determine 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 adult-care
facilities industry's then prevailing standards in the area in which the
Facility is located, then Operators shall give prior notice to Owner and shall
make such expenditures, and all such expenditures shall be deemed, for all
purposes of this Agreement, to be in accordance with the then current Annual
Budget.
C. COLLECTION OF ACCOUNTS. In consultation with Owner, Operators
shall supervise and coordinate the issuance of bills and collection of 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. Any actions
taken by Operators to collect said accounts receivable shall be in accordance
with the applicable
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laws, rules and regulations governing the collection of accounts receivable.
D. CONTRACTS. In consultation with Owner, Operators shall
supervise and coordinate the negotiation, preparation for execution,
cancellation or termination of agreements and contracts which Operators 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, and requisite contracts regarding home health
care and the transfer of residents. Where lawful, said agreements and contracts
will be entered into in the name of and on behalf of Owner. In no event,
however, shall Operators enter into any agreements with individuals or entities
that are related to any Operator by blood or marriage, or in which any Operator
or any member of his family, including brothers, sisters, nieces, nephews,
parents, grandparents, aunts or uncles, has an ownership interest, except with
the prior written approval of Owner.
All contracts over Five Thousand Dollars ($5,000) are subject to
Owner's final approval, which shall be evidenced by Owner's written consent
given prior to Operators entering into any contracts on behalf of Owner. All
contracts delegating any powers of Operators are subject to the prior written
approval of Owner.
E. EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Operators shall designate an entity to be the exclusive representative of Owner
for purposes of communicating and dealing directly with the regulatory
authorities, governmental agencies, employees, independent contractors,
suppliers, residents, sponsors, licensees, customers and guests of the Facility.
Any communications from Owner to such persons or entities or authorities shall
be directed through such designee. Owner may maintain contact and working
relationships with the above-mentioned persons and entities.
II. INSURANCE. Operators shall 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 malpractice
and public liability insurance for Operators' and Owner's protection and for the
protection of Operators' and Owner's officers, partners, agents and the
Facility's personnel. Operators shall also arrange for and maintain all employee
health and worker's compensation insurance for the Facility's personnel. Any
insurance provided pursuant to this paragraph shall comply with the requirements
of any applicable Facility mortgage or lease and shall be an expense
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of the Facility. Any insurance coverage acquired for the Facility is subject to
Owner's final approval in writing.
III. CONFIDENTIAL MATERIALS. The systems, methods, procedures and
controls employed by Operators on behalf of Owner and any written materials or
brochures developed to document the same are property of Owner, shall remain
confidential 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 Operators, except as authorized by Owner.
IV. TERM OF AGREEMENT: EFFECT OF TERMINATION.
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A. INITIAL SERVICES. Commencing at the Effective Time, and until
the completion date of the Facility if the Facility is not yet open to the
public, Operators agree to provide assistance to the Owner in the planning of
the Facility, if appropriate. Such assistance may include review of
architectural drawings and site plans; arranging for feasibility studies;
licensure and certification planning; support and assistance in filing for
Certificates of Need and other governmental requirements, if any; and financial
analysis ("Initial Services").
B. GENERAL MANAGEMENT. Beginning at the Effective Time and
continuing until the expiration or earlier termination of this Agreement,
Operators shall manage and supervise the day-to-day operation of the Facility,
in the name of, on behalf of, and for the account of, Owner, in accordance with
the terms of this Agreement.
C. TERM OF AGREEMENT. The term of this Agreement shall commence at
the Effective Time and shall terminate on the fifth (5th) anniversary of the
Effective Time or the earlier date designated by Owner, provided, however, that
Owner shall provide not less than one hundred and eighty (180) days notice of
early termination, unless Owner, Operators and applicable regulatory authorities
otherwise agree in writing. In the event of a termination by Operators for any
reason, or in the event that Owner determines that it wishes to engage another
Operator or Operators during or prior to the expiration of the term of this
Agreement, Operators shall cooperate with and assist Owner in engaging a
replacement operator and all necessary operating certificates, permits and
licenses for the Facility. Operators shall cooperate with Owner, and use their
reasonable best efforts, to minimize the impact of any change in Operators on
the residents of the Facility.
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V. EVENTS OF DEFAULT AND REMEDIES.
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A. DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
1. NONPAYMENT. If Owner shall fail to pay or allow
payment of any installment of the fees due to Operators in accordance with
Section VIII hereof for a period of thirty (30) days after written notice of
such default from operators.
2. NONPERFORMANCE. If either Owner, on the one hand, or
the Operators, on the other, fail to perform in any material respect any term,
provision, or covenant of this Agreement (other than as set forth in the
immediately preceding paragraph) and (i) such failure continues after written
notice from the other party or parties specifying such failure to perform,
unless such failure cannot reasonably be cured within such 30-day period, or
(ii) the defaulting party fails to endeavor vigorously and continuously to cure
such default as promptly as is practicable. It is understood and agreed that
Operators' obligations under this Agreement may be performed by one or more of
Xxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxx X. Xxxxxx, and that performance of such
obligations by one or more of such individuals shall constitute performance by
the Operators.
3. INSOLVENCY. If Owner 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 bankrupt or insolvent or approving a petition seeking
reorganization of owner 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.
4. TERMINATION BY LAW. If operators (x) elect to
terminate this Agreement prior to the end of its term pursuant to applicable law
for reasons other than an Event of Default by Owner or (y) cause such
termination or allow such termination to occur by operation of law.
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5. SEPARATE DEFAULT. If an Event of Default (as defined
therein) shall be committed by Operators under the terms of any agreement listed
on Exhibit B attached hereto and incorporated herein by this reference, and
pursuant to which Operators provide services to Owner or its affiliates,
including but not limited to their employment agreements with Kapson Senior
Quarters Corp.
B. REMEDIES. Upon any Event of Default which is not timely cured,
the party who has committed or suffered the Event of Default may, at its option,
terminate this Agreement upon one hundred eighty (180) days prior written
notice, and/or exercise all other rights and remedies available to such party at
law or in equity.
1. PAYMENT. In the event of any termination of this
Agreement, Operators shall be paid all Management Fees and other fees due to the
date of termination, plus any other damages to which Operators are entitled,
subject to any rights of offset by Owner. No delay or failure on the part of
either party hereunder to declare the other party in default or exercise any
remedies in respect of such default shall operate as a waiver of such right to
declare a default and exercise such remedies.
2. ATTORNEYS FEES AND COSTS. If either party is forced
to engage counsel to enforce any of the default provisions of this Agreement,
the prevailing party shall also be entitled to reasonable attorneys fees and all
costs attendant to such action.
3. OWNER'S UNREASONABLE WITHHOLDING OR DELAYING CONSENT
OR APPROVAL. Operators' sole remedy for any claim or assertion by Operators that
Owner has unreasonably withheld or unreasonably delayed any consent or approval
to any matter where such consent or approval is required pursuant to this
Agreement shall be an action or proceeding to enforce any such provision, or for
specific performance, injunction or declaratory judgment.
4. OPERATORS' REMEDIES. Operators shall look only to
Owner's estate and property relating to the Facility for the satisfaction of
Operators' remedies or for the collection of a judgment (or other judicial
process) requiring the payment of money by Owner in the event of any default by
Owner hereunder; no other property or assets of Owner or its shareholders,
members, partners or principals, disclosed or undisclosed, shall be subject to
levy, execution or other enforcement procedure for the satisfaction of
Operators' remedies under or with respect to this Agreement, the relationship of
Owner and Operators hereunder or Operators' use or occupancy of the Premises.
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C. CONTINUATION OF SERVICES. In the event of a default and
termination of this Agreement, Operators (or such other firm or entity as is
duly and properly authorized to provide adult care facility services) shall, if
required by applicable law, rule or regulation, for the greater of one hundred
eighty (180) days or such period of time as may be required by the New York
State Department of Social Services or any other regulatory agency with
jurisdiction, continue to provide adult care facility services at the Facility
and be paid for same. During the one hundred eighty (180) days or statutorily
required period, the adult care facility services shall be the only services
provided by Operators, provided, however that in such case Owner shall have all
rights and authority to operate the Facility directly or through an agency,
independent contractor or other third party of Owner's choice, if there is any
other firm or entity that is duly and properly authorized to provide such adult
care facility services and has obtained the necessary operating certificates,
permits and licenses.
D. OTHER PROVISIONS CONTROL. In the event that the New York State
Department of Social Services or any other regulatory agency with jurisdiction
does not require that one hundred and eighty (180) day notice be given to
Operators or such other firm or entity as is duly and properly authorized to
provide adult care facility services prior to termination, then the provisions
of subsection "C." of this section shall not apply and the other provisions of
this Agreement shall control events of default, remedies and rights of
termination.
VI. FACILITY OPERATIONS.
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A. NO GUARANTEE OF PROFITABILITY. Operators do not guarantee that
operation of the Facility will be profitable, but Operators shall use their
reasonable best efforts to operate the Facility in as cost effective and
profitable manner as possible consistent with maintaining operations in
accordance with the adult care facilities industry's then prevailing standards
in the area in which the Facility is located and in accordance with applicable
law.
B. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. In performing
its obligations under this Agreement, Operators shall use their reasonable best
efforts and act in good faith and with professionalism in accordance with the
Annual Budgets and the prevailing standards of the adult-care facilities
industry in the area in which the Facility is located.
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C. FORCE MAJEURE. The parties will not be deemed to be in
violation 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 statute,
regulation or action of federal, state or local government or an agency thereof.
VII. WITHDRAWAL OF FUNDS BY OPERATORS.
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Owner and Operators acknowledge and agree that the efficient
operation of the Facility requires that the Operators have reasonable access to
the capital required therefor. Accordingly, unless otherwise agreed by Owner and
Operators, Owner agrees not to withdraw any funds from the Facility's bank
accounts Operators determine to be required for the proper operation of the
Facility or maintenance of appropriate reserves respect thereto.
VIII. FEES.
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A. MANAGEMENT FEE. There will be no fee for the Initial Services,
except as otherwise provided herein. Commencing on the later of the day the
Facility begins admitting residents for occupancy or the Effective Time, Owner
shall pay Operators a management fee ("Management Fee"), equal to Five Thousand
Dollars ($5,000) per month, payable monthly on the fifteenth (15th)) day of each
month.
B. ADDITIONAL SERVICES. Operators are entitled to reasonable
compensation in addition to the Management Fee to be agreed upon between
Operators and Owner for services that do not fall within the scope of management
or do not involve supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by the Owner or
recommended by Operators and approved by Owner.
IX. ASSIGNMENT; DELEGATION.
-----------------------
A. OPERATING AGREEMENT. This Agreement shall not be assigned
(including by operation of law, whether by merger or consolidation) by Operators
without the prior written consent of the Owner as indicated.
B. DELEGATION. Owner authorizes Operators to enter into the
Management Services Agreement and consents to the delegation of the performance
of certain services as contemplated thereby. In the event that the Management
Services Agreement shall terminate prior to the termination of this Agreement
other
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than as a result of the commission of any Event of Default thereunder by
Operators, Operators shall obtain the consent of Owner before entering into one
or more agreements with any other third party or parties providing for the
delegation of the performance of Operators' duties hereunder. In any case,
Operators shall retain, subject to review by Owner, (1) the authority to
promulgate and implement such operational policies and procedures as they may
deem necessary regarding the operation of the Facility and (2) the right to
direct third parties in the performance of their responsibilities.
X. NOTICES. All notices required or permitted hereunder shall in writing
by hand delivery, by registered or certified mail, postage prepaid, by overnight
delivery or by facsimile transmission (with receipt confirmed with the
recipient). Notices given by Operators may be signed by any of the Operators.
Notices shall be delivered or mailed to the parties at the Notice Addresses or
at such other places as either party shall designate in writing.
NOTICE TO THE DEPARTMENT OF SOCIAL SERVICES. Notwithstanding
anything in this Agreement to the contrary, Owner acknowledges that its right to
terminate this Agreement does not confer upon it the authority to operate an
adult care facility, as defined in the Social Services Law, at the Facility.
Each party agrees that it will give the New York State Department of Social
Services (the Department), 00 Xxxxx Xxxxx Xxxxxx, Xxxxxx, Xxx Xxxx 00000,
notification by certified mail of its intent to terminate the Agreement or that
the Agreement is due to expire, at least six (6) months prior to the date on
which the party intends to exercise its right to terminate the Agreement or at
least six (6) months before termination of the Agreement.
Upon receipt of a notice from Owner of its intent to terminate
this Agreement prior to the expiration of this Agreement, Operators agree to
immediately notify by certified mail, the Department of the receipt of such
notice or service of such notice or that the Agreement is about to expire, and
shall further notify the Department of its anticipated response to said notice.
Each party further agrees to comply with all additional
regulations of the New York State Department of Social Services and any other
agency having regulatory control over either party.
A copy of all such notices shall also be sent to the Department's
Regional Office with jurisdiction over the Facility.
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XI. RELATIONSHIP OF THE PARTIES. The relationship of Operators to Owner
in connection with this Agreement shall be that of independent contractors and
all acts performed by Operators during the term hereof shall be deemed to be
performed in their capacity as independent contractors, provided however, that
nothing in this Agreement shall affect the status of Operators pursuant to any
separate employment contract with Owner or its affiliates. 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 successors and assigns
on the one hand and Operators and their assigns on the other hand.
XII. ENTIRE AGREEMENT. This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties, shall be
binding upon their respective successors and assigns, and shall be construed in
accordance with the laws of the State of New York (without regard to the State
of New York choice of law provisions). This Agreement may not be modified or
amended except by written instrument signed by the parties hereto.
XIII. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS.
----------------------------------------------------
A. The parties hereto agree that they will present this Agreement and
their intended relationship to applicable regulatory agencies prior to the
Effective Time; in the event that such regulatory agencies request modifications
to the text hereof, the parties shall work in good faith to make modifications
to this Agreement or to cooperate in restructuring their relationship as
appropriate, provided that any such restructuring shall, to the maximum extent
possible, preserve the underlying economic, financial and general business
arrangements between Owner and Operators. The parties acknowledge that such
agencies may require either or both parties to obtain appropriate regulatory
licenses and approvals.
B. In the event any state or federal laws or regulations, now existing or
enacted or promulgated after the Effective Date, are interpreted by judicial
decision, a regulatory agency or legal counsel of either party in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, Owner and Operators agree to cooperate in restructuring
their relationship and this Agreement, provided that any such restructuring
shall, to the maximum extent possible, preserve the underlying economic and
financial arrangements between Owner and Operators. The parties acknowledge that
such amendment may require reorganization of
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Owner or Operators, or both, and may require either or both parties to obtain
appropriate regulatory licenses and approvals.
XIV. 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.
XV. SEVERABILITY. In the event any 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.
XVI. CUMULATIVE: NO WAIVER. No right or remedy herein conferred upon or
reserved to any of the parties hereto is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative with
any other right or remedy given hereunder, or now or hereafter legally existing,
including upon the occurrence of an Event of Default hereunder. The failure of
any party hereto to insist at any time upon the strict observance or performance
of any of the provisions of this Agreement or to exercise any right or remedy as
provided in this Agreement shall not impair any such right or remedy or be
construed as a waiver or relinquishment thereof with respect to subsequent
defaults. Every right and remedy given by this Agreement to the respective
parties hereto may be exercised from time to time and as often as may be deemed
expedient by such parties.
XVII. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original; each such counterpart shall
together constitute but one and the same Agreement.
XVIII. TIME IS OF THE ESSENCE. Time is of the essence throughout the
entire Agreement.
XIX. WAIVERS. No waiver of any term, provision or condition of this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be or construed as a further and continuing waiver of any such
term, provision or condition of this Agreement.
XX. ATTORNMENT. If any mortgagee or lender secured by the Facility
succeeds to the Owner's rights with respect to the Facility through any means
including repossession, foreclosure or delivery of a new deed or deed in lieu of
foreclosure, Operators shall at the successor's request, automatically attorn to
and recognize the successor as a party to this Agreement. In such
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case, the Agreement will remain unmodified and in full force and effect, except
that operators shall have the right to cancel this Agreement on one hundred and
eighty (180) days prior written notice. At the successor's request, Operators
shall deliver to successor appropriate instruments and documents confirming the
attornment.
XXI. COSTS AND EXPENSES OF FACILITY: INDEMNITY. All fees, costs, expenses
and purchases arising out of, relating to, or incurred in the operation of the
Facility, shall be the sole responsibility of Owner. Operators, by reason of the
execution of this Agreement and the performance of their services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs, and expenses, or any other liability or debt of Owner whatsoever, arising
out of or relating to the Facility or incurred in its operation. Owner agrees to
indemnify, defend, pay on behalf of, and hold Operators and their principals,
agents and employees harmless from and against all losses, claims, damages and
other liabilities arising out of or relating to the ownership or operation of
the Facility (except those resulting from the willful misconduct,
misappropriation of funds or fraud of Operators), including, without limitation,
any liabilities asserted against Operators or any of their principals, employees
or agents by reason of any action or inaction taken by any of the foregoing
while performing the duties of Operators hereunder on behalf of Owner. Operators
agree to indemnify, defend, pay on behalf of, and hold Owner and its officers,
directors, agents and employees harmless from and against all losses, claims,
damages and other liabilities arising out of the willful misconduct,
misappropriation of funds or fraud of Operators. The terms of this Section XXI
shall survive the expiration or earlier termination of this Agreement.
XXII. FURTHER ASSURANCES. Notwithstanding any other provisions of this
Agreement, Operators shall not (A) take or permit any action or (B) refrain from
taking or permitting any action, if such act or refusal would cause Operators to
violate, either immediately or with the passage of time, any law, rule,
regulation, code of ethics or fiduciary obligation in their capacity as licensed
Operators. Any refusal by Operators to take action demanded by Owners or any
action taken by Operators over the objection of Owners shall not be deemed a
breach of this Agreement, and shall not be an Event of Default, if such action
or refusal is necessary for Operators to maintain compliance with any such law,
rule, regulation, code of ethics or fiduciary obligation.
* * *
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KAPSON SENIOR QUARTERS CORP.
February 23, 1998
PROMETHEUS SENIOR QUARTERS LLC
PROMETHEUS ACQUISITION CORP.
Ladies and Gentlemen:
Reference is made to (1) that certain Master Management Services Agreement,
that certain Interim Management Services Agreement between Xxxxx Xxxxxx, Xxxxx
X. Xxxxxx and Xxxx X. Xxxxxx d/b/a G.W.E. Partnership and Senior Quarters
Management Corp. dated as of September 30, 1997, and those Five Operating
Agreements dated as of September 30, 1997 and the exhibits thereto
(collectively the "Management and Operating Agreements") between G.W.E.
Partnership and Kapson Rochester Manor L.L.C., Kapson Rochester East, L.L.C.,
Kapson Northport Development Corp., Commco Management Associates Inc., and
Xxxxxx X.X. Associates Holding Corp., respectively, and (2) that certain
Amended and Restated Agreement and Plan of Merger (the "Amended and Restated
Merger Agreement") of even date herewith, among Prometheus Senior Quarters LLC
(the "Parent"), Prometheus Acquisition Corp. (the "Merging Corporation"), and
Kapson Senior Quarters Corp. (the "Company"), pursuant to which Investor shall
acquire Company pursuant to a tender offer of all of the outstanding shares of
the Company and the Merging Corporation shall merge with and into the Company
and all other documents executed in connection with the Amended and Restated
Merger Agreement, including the Amended and Restated Escrow Agreement and all
attachments and side letters thereto (collectively the "February 1998
Agreements"). Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Amended and Restated Merger
Agreement.
The parties agree to amend, and will cause any entities controlled solely by
them to amend, any and all of the Management and Operating Agreements, as
follows:
1. The Letter Agreement designated as Item 11 of Exhibit B to Operating
Agreement, wherever attached, whether to an executed or form of
Operating Agreement, shall be replaced with the Escrow Side Letter
dated as of February 23, 1998;
2. Item B on Exhibit A of the Interim Management Services Agreement
shall be amended to read: "An approximately 200 bed adult care
facility known as Senior Quarters and located at 0000 Xxxxxxxxxxxxx
Xxxx, Xxxxxxxxxxx Xxxxx, Xxx Xxxx 00000."
3. Item C on Exhibit A of the Interim Management Services Agreement
shall be amended to read: "An approximately 122 unit, 200 bed adult
care facility known as Senior Quarters and located at 000 Xxxxxxxx
Xxxxxxxxx, Xxxxxx, Xxx Xxxx ."
4. Item G on Exhibit A of the Interim Management Services Agreement
referring to Senior Quarters Special Needs on the same campus as
Greenpoint Senior Living shall be deleted.
5. Item H on Exhibit A of the Interim Management Services Agreement
referring to a "pending license" shall be revised to conclude:
"(effective at the time the Senior Quarter Operating Corporation
("SQOC") submits an application to operate as an enriched housing
program as further described in Section 5.9 of the Company Disclosure
Letter attached to the Amended and Restated Merger Agreement."
6. Exhibit A to the Master Management Services Agreement shall be
amended to provide that the Master Management Services Agreement
shall apply to an approximately 200 bed, 126 unit adult care facility
known as Senior Quarters, located at 000 Xxxxxxxxx Xxxxxxxxx,
Xxxxxxxx, Xxx Xxxx 00000 if SQOC submits an adult home application as
further described in Section 5.9 of the Company Disclosure Letter
attached to the Amended and Restated Merger Agreement prior to the
Effective Time and such application is approved.
7. References in the Management and Operating Agreements to the
Effective Time shall be amended to have the following meaning: the
Effective Time of the merger of Prometheus Acquisition Corp. with and
into Kapson Senior Quarters Corp. as defined in the Amended and
Restated Merger Agreement.
8. References to the Effective Date in the initial sentence of Article
IV of the Master Management Services Agreement and the Interim
Management Services Agreement shall be deleted in their entirety and
replaced by references to the Effective Time.
Please confirm that this letter correctly sets forth our agreement by signing
a counterpart copy where designated below.
Very truly yours,
KAPSON SENIOR QUARTERS CORP.
By: /s/ Xxxxx Xxxxxx
----------------------------
Title: Chairman and Chief Executive Officer
XXXXX XXXXXX
/s/ XXXXX XXXXXX
--------------------------------
XXXXX X. XXXXXX
/s/ XXXXX X. XXXXXX
---------------------------------
XXXX X. XXXXXX
/s/ XXXX X. XXXXXX
---------------------------------
AGREED:
PROMETHEUS SENIOR QUARTERS LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE PROMETHEUS ACQUISITION CORP.
INVESTORS L.L.C.,
its General Partner
By: /s/ Xxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxx
----------------------- ----------------------
Xxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxx
Principal President
