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EXHIBIT 10.23
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the Agreement) entered into this 23rd day
of May, 1997 by and between The Emmaus Calling, Inc. ("Owner"), a
not-for-profit corporation organized under the laws of the state of Texas, and
Capital Senior Management 1, Inc., (Manager), a for-profit corporation
organized under the laws of the state of Texas.
PREAMBLE
Owner by this Agreement is engaging Manager to provide management
services relating to the operation of a 104 unit assisted living facility
located in Mesquite, Texas (the Facility), and
Manager and Owner share a commitment to make the retirement years of
residents as meaningful and comfortable as possible. Both share the philosophy
that the retirement environment should allow for and encourage contained
personal growth and independent living for the elderly, and when independent
living is no longer possible, then the same retirement environment should have
the flexibility to provide quality health care in the midst of a high degree of
understanding, compassion and companionship enhanced by and based upon the
prior years of residence in the same community.
This Agreement is founded on the following assumptions:
Owner retains primary responsibility to:
a. Establish the policies of the Facility and to plan
for its short-range and long-range goals.
b. Review and evaluate the performance of Manager in
carrying out the established policies and in
attaining the goals established by Owner.
c. Annually review and approve the budget.
d. Annually review the policies and goals which have
been established.
Manager assumes primary responsibility to:
a. Implement the policies established by Owner.
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b. Supervise the day-to-day management of the Facility,
including all resident activities.
c. Provide to Owner full, timely and accurate
information as to past operations.
d. Provide to Owner budgets and recommendations relating
to the future operations of the Facility.
The parties therefore agree as follows:
I. RESPONSIBILITIES OF MANAGER
A. RECOMMENDED POLICIES. Manager shall recommend policies and
goals to be established by Owner and shall evaluate such
policies and goals on an ongoing basis.
B. MANAGEMENT DUTIES. Manager shall supervise the operation of
the Facility, provide management services, install operating
procedures and oversee day-to-day operations, all subject to
and in accordance with the budgets and policies established by
Owner.
C. MARKETING DUTIES. Manager shall manage and supervise the
marketing program. Manager shall periodically review the
residency agreement and recommend changes thereof as and if
required.
D. EMPLOYEES. All Facility-based Employees, including the
administrative employees, shall be employees of Manager.
Manager shall have sole authority over Facility-based
Employees and Non-Facility-based Employees who are directly
responsible for the Facility and all matters pertaining
thereto and shall be responsible for all actions and omissions
of such employees occurring pursuant to Manager's employee
policy manual. All costs of hiring, equipping and providing
the services of Facility-based Employees, including, but not
limited to, compensation, health insurance, employer liability
insurance, payroll taxes, bonding, workers' compensation
insurance, benefits and vacations shall be an expense of
Manager. To the extent the above-stated expenses are incurred
in accordance with the Facility budget or approved by Owner,
they shall be reimbursed from the Facility operations or Owner
as the case may be.
E. OPERATING PROCEDURES. Manager shall develop, install and
maintain operating procedures, systems and controls.
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F. FACILITY EXPANSION. Manager shall make recommendations
regarding construction, remodeling or expansion of the
Facility.
G. BUDGETS. Manager shall prepare for review and approval by
Owner based on reasonable standards annual operating budgets
for revenue, expense and cash flow of the Facility and a
capital expenditures budget. Budgets shall be prepared in
advance of each fiscal year. Cash flow projections shall
accompany each operating budget. It is to be understood that
budgets are only estimates and guidelines of future results
and that budget overruns may occur from time to time.
H. FINANCIAL CONTROLS. Manager shall establish and maintain a
system of financial controls for the Facility.
I. MONTHLY FINANCIAL STATEMENTS. Manager shall provide to Owner,
on a monthly basis, financial statements and related financial
reports. Such statements and reports shall be provided by the
20th day after the end of the month. These reports shall be
in the form attached as Exhibit "A."
J. MARKETING REPORTS. Manager shall, on a monthly basis, provide
sales and occupancy reports to Owner, as well as the results
of the annual resident satisfaction survey.
K. LEGAL COUNSEL. Manager, at Facility expense, shall coordinate
with Owner the utilization of legal counsel relating to
Facility operations.
L. RENTAL COLLECTIONS AND DISBURSEMENTS. Manager shall collect
the revenues from the residents and, on behalf of Owner,
deposit all such funds in a residential depository account at
a FDIC insured bank approved by Owner. The style of the
account shall be in the name of the Facility with designated
representatives from Owner and Manager being the only parties
authorized to draw from said account.
On an as needed basis, Manager shall transfer the funds from
the above stated account into an Operating Expense Account in
the name of the Facility. The account shall be in a FDIC
insured bank approved by Owner. The style of the account
shall be in the name of the Facility with designated
representatives from Owner and Manager being the only parties
authorized to draw from said account. Manager shall pay out
of such Operating Expense Account all operating expenses for
which payment has been approved in accordance with the budget
or approved by Owner (including Manager's Management Fee and
any other sums due to Manager from Owner), and all other sums
properly payable pursuant to any of the provisions of this
Agreement. Manager shall hold, remit or expend the balance of
such funds, if any, as Owner may direct.
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These funds shall not be co-mingled with funds from any other
projects and/or facilities managed and/or operated by Manager.
M. ACCOUNTING SYSTEMS AND SOFTWARE. Manager shall provide to
Owner, during the term of this Agreement, appropriate on-site
accounting systems and software, which shall include complete
accounting, bookkeeping and record keeping services for the
Facility, specifically including, but not limited to, resident
xxxxxxxx, accounts payable, accounts receivable, general
ledger and inventory records and maintain demographic
information on the residents. Acquisition of software for
Facility based operations, software maintenance and update
charges will be budgeted expenses of the Facility. Payroll
processing may be delegated to a third party, the cost of
which will be the responsibility of the Facility.
II. OWNER'S RESPONSIBILITIES
A. POLICIES. Owner shall establish the policies for the
Facility.
B. GOALS. Owner shall establish the short range and long range
goals of the Facility.
C. BUDGETS. Owner shall review and approve budgets for the
operation of the Facility.
D. MANAGER'S PERFORMANCE. Owner shall review and evaluate the
performance of Manager in carrying out the policies for the
Facility.
E. LEGAL COUNSEL. Owner shall obtain legal counsel to perform
all necessary legal services relating to Owner's ownership of
the Facility.
F. AUDITS. Owner, at its discretion, may engage certified public
accountants to perform annual audits of the Facility as well
as prepare any other reports required for federal or state
regulatory agencies which require licensure and/or
certification. Every quarter, upon receipt of reasonable
notice to Manager, all financial records pertaining to the
Facility will be open for inspection and review by Owner's
representatives. All labor and expense associated with such
review shall be borne by Owner.
G. DIRECTIVES. In order to assure proper coordination, Owner
shall issue any directions concerning the operations of the
Facility only through the President or Vice President of
Manager.
H. OPERATING REPORTS. During the term of this Agreement, Owner
shall, within fourteen (14) days of issuance, furnish to
Manager copies of any and all Facility-related reports,
including the annual audit (if any) as well
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as copies of the minutes of all local advisory Board meetings,
other than items relating to the performance of Manager.
I. ADVISORY BOARD MEETINGS. If applicable, during the term of
this Agreement, a representative of Manager shall be a member
of the local advisory board and attend any regular or special
meeting of the local advisory Board other than any part
thereof involving evaluation of the performance of Manager
under this Agreement. Owner shall give Manager the same
notice of local advisory Board meetings as is required to be
given to Board members.
J. CHANGE OF RESIDENCY AGREEMENT. Owner shall not change the
Residency Agreement without consulting with and seeking
approval of Manager unless required to do so to comply with
any applicable law or regulation.
K. DECISIONS. Owner shall examine documents submitted by Manager
and render decisions pertaining thereto promptly to avoid
unreasonable delay.
L. UNIFORM ACCOUNTS. Facility shall use the uniform chart of
accounts recommended by Manager.
M. FURNISHING INFORMATION. Owner agrees at its expense to
install and maintain a computer terminal compatible with the
mainframe computer currently in use by Manager and to transmit
data to the Manager mainframe computer vial telephone lines.
N. RIGHT OF FIRST REFUSAL.
1. After the opening of the Facility, Owner hereby
grants to Manager a right of first refusal in the
event that Owner decides to sell the Facility during
the initial term of this Agreement. This right of
first refusal shall be effective only if this
Agreement is then in full operation and effect.
Owner shall furnish Manager with a written copy of
the terms and conditions of the proposed sale, which
terms and conditions shall be certified by Owner as
bona fide and Manager shall have thirty (30) days
from the date of receipt of such written copy within
which to notify Owner whether Manager desires to
exercise its rights of first refusal to purchase the
Facility on the same terms and conditions. If
Manager fails to notify Owner of its desire to
exercise its right of first refusal within such
thirty (30) day period, Manager shall be deemed to
have not exercised its right of first refusal
hereunder.
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2. If Manager exercises its right of first refusal,
Manager shall have an additional sixty (60) days
following expiration of the thirty (30) day notice
period within which to obtain financing to purchase
the Facility. Manager shall notify Owner whether it
has obtained financing to purchase the Facility
within such sixty (60) day period. If Manager fails
to notify Owner of its having obtained financing
within such sixty (60) day period, Manager shall be
deemed not to have obtained the requisite financing.
3. If Manager gives timely notice of the exercise of its
right of first refusal and having obtained the
requisite financing to purchase the Facility, the
closing on the sale to Manager shall take place
within thirty (30) days after the expiration of the
sixty (60) day period on materially the same terms
and conditions as set forth in the bona fide offer;
provided, however, that Manager shall furnish Owner
with a non-refundable deposit equal to five percent
(5%) of the purchase price, to be credited with
interest earned thereon against the purchase price at
the closing in order to extend the closing for such
thirty (30) day period.
4. If Manager fails to give timely notice of the
exercise of its rights of first refusal or having
obtained the requisite financing to purchase the
Facility, Owner shall be free to close on the sale to
the proposed purchaser, with the closing to take
place within one hundred eighty (180) days after the
failure of Manager to give timely notice, but only on
materially the same terms and conditions as set forth
in the bona fide offer. If such closing to the
proposed purchaser does not occur within such one
hundred eighty (180) day period or if the terms and
conditions of the proposed sale are not materially
the same as set forth in the bona fide offer, the
Facility may not be sold without Manager once again
being offered the right to exercise its right of
first refusal hereunder.
Owner may at any time, without the consent of
Manager, subject its interest in the Facility or any
part thereof to the lien of one or more deeds of
trust, mortgages or other security instruments, so
long as the mortgage and/or successor in interest
confirms its consent to be bound by the terms of this
Agreement within ten (10) days following Manager's
demand therefor; provided, however, that so long as
Owner has no right to terminate this Agreement
because of the default of Manager hereunder; in the
event of any foreclosure or other proceeding under
any such deed or trust, mortgage or other security
instruments to enforce the lien or security interest
thereby created, this Agreement shall continue in
full force and effect notwithstanding such
foreclosure or other proceedings.
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6. If Manager does not exercise its right of first
refusal, and if Owner sells, assigns or subleases the
Facility to a third party, Owner shall, upon the
effective date of termination, pay to Manager
severance compensation in an amount equal to the
present value of thirty percent (30%) of the then-
current monthly management fee times the number of
months remaining in the Fixed Term calculated at a
discount rate at eight percent (8%).
III. INSURANCE.
A. Manager shall maintain, in full force and effect, at the
Facility's expense, the following insurance protecting Owner
and Manager and their officers and employees:
1. Employee's fidelity insurance
2. Worker's compensation and employers liability
insurance
3. Professional liability insurance
4. Comprehensive general public liability insurance and
overlying umbrella liability coverage against loss or
liability for damages for personal injury or death
occurring on, in or about the Facility.
Such policy or policies shall be written by a responsible
insurance company or companies satisfactory to Owner and in
kind and amounts satisfactory to Owner. Certificates of
insurance showing compliance with the foregoing requirements
shall be furnished by Manager to Owner. Certificates shall
state that the policy or policies will not be canceled or
altered without at least 30 days prior written notice to
Owner.
B. Owner shall procure and maintain, in full force and effect, at
Owner's expense the following insurance protecting Owner
and Manager and their officers and employees:
1. Property Insurance for loss or damage by fire and
other perils insurable under the broad form of
extended coverage insurance available in the area
where the Facility is located, and improvements, and
contents thereof, constituting all or any portion of
the Facility.
2. Insurance for automobiles owned or hired by Owner
and used in connection with the Facility.
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Such policy or policies shall be written by a
responsible insurance company or companies
satisfactory to Manager in kind and amounts
satisfactory to Manager. Certificates of insurance
showing compliance with the foregoing requirements
shall be furnished by Owner to Manager. Certificates
shall state that the policy or policies will not be
canceled or altered without at lease thirty (30) days
prior written notice to Manager.
IV. TERM AND TERMINATION OF THIS AGREEMENT.
A. TERM AND TERMINATION WITHOUT CAUSE. This Agreement shall
commence on the date set forth on the first page hereof and
continue for a period of the lesser of eighty percent (80%) of
the reasonably expected useful life of the Facility or fifteen
(15) years (the "Fixed Term"). If the U.S. Treasury
Department liberalizes its current published advance ruling
guidelines (Rev. Proc. 97-13) to extend the period in which a
management contract may be non-terminable without adversely
affecting the tax-exempt status of bonds issued to finance the
Facility to which the management contract relates, and if, in
the opinion of bond counsel, such Treasury action applies to
the bonds issued to finance the Facility, then the Fixed Term
shall be the maximum period allowed for advance ruling
purposes. Except as stated under Article II, Section N,
Number 6, if Owner terminates the Agreement prior to the
expiration of the Fixed Term without cause or if Manager
terminates this Agreement during the Fixed Term for cause as
provided in Paragraph IV. B. below, severance compensation in
an amount equal to the then-current monthly management fee
times the number of months remaining in the Fixed Term shall
be paid to Manager upon the effective date of termination.
Any such termination shall be effective upon the expiration of
the ninety (90) day period following the giving of the notice
or on such later date as may be specified in the notice.
B. TERMINATION FOR CAUSE.
1. This Agreement may be terminated by Owner for cause
for the following reasons:
a) In the event of material breach by Manager of
a material term hereof, which breach is not
cured within thirty (30) days after notice by
Owner and such failure is the result of
Manager's willful misconduct, gross
negligence or unlawful act.
b) In the event that a petition in bankruptcy is
filed by Manager or its permitted assignee,
or in the event Manager or its permitted
assignee makes an assignment for the benefit
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creditors or takes advantage of an insolvency
act, by notice to Manager or assignee or if
Manager becomes insolvent.
c) In the event that (i) Manager's or any
permitted assignee's corporate existence is
dissolved and the duties under this Agreement
are not assumed by Manager or an affiliate of
Manager (ii), Manager or any permitted
assignee ceases to do business for any
reason, by notice to Manager or such assignee
and the duties under this Agreement are not
assumed by Manager or Manager's Affiliate.
d) At any time after 15 years of its execution,
with or without cause.
2. This Agreement may be terminated by Manager in the
event that Manager fails to receive reimbursement of
reimbursable expenses or any compensation due Manager
pursuant to the terms of this Agreement or any other
compensation due Manager, and such failure continues
for a period of sixty (60) days after Manager's
written notice thereof to Owner, however, that this
Agreement shall not be so terminated if Owner pays
Manager all such expenses and compensation then due
and payable on or before the expiration of said sixty
(60) day period.
3. No termination of this Agreement shall affect any
obligation owing by either party hereto to the other
which accrued prior to the effective date of such
termination.
C. COVENANTS SURVIVING TERMINATION. The termination of this
Agreement shall not terminate the right of Manager to
indemnification relating to events occurring during the term
of this Agreement under Article VI. L. and to protection of
its property rights under Article VI. B.
V. COMPENSATION
A. OPERATIONS MANAGEMENT FEES. Owner shall pay to Manager a fee
in the amount set forth below, payable on the fifteenth day of
each month commencing with the date of the first resident
move-in and ending on the last day of the month after which
this Agreement is terminated:
1. The amount to be paid monthly shall be Eight Thousand
And No/100 Dollars ($8,000.00) per month (the Monthly
Management Fee). The Monthly Management Fee shall be
increased yearly by the difference between the
Consumer Price Index for that year less
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the Consumer Price Index for the year of completion.
The Monthly Management Fee for the Facility shall be
payable monthly in arrears following calculations
thereof upon submission of a monthly statement for
such Facility from Manager. It is agreed between
Owner and Manager that if the Gross Revenues of the
Facility are insufficient to pay all disbursements,
including the Monthly Management Fee or any portion
thereof, then Owner shall remain responsible for such
disbursements. It is further agreed between Owner
and Manager that in no event will any disbursement be
made to Owner from any Facility Account until all
accrued and unpaid fees to Manager and repayments, if
any, to Manager for Manager's advancement of funds to
cover any insufficiencies in such Facility's Rental
or Payroll Account have been paid in full.
2. A Productivity Award equal to $_______________ when
the gross monthly revenues from the Facility exceed
$_______________ for three (3) consecutive months.
In the event the Productivity Award is greater than
five percent (5%) of the total Monthly Management Fee
for that annual period, (I) it shall be reduced to
five percent (5%) of the total Monthly Management Fee
for that annual period and (ii) Manager shall be
eligible to receive a Productivity Award in the next
year (subject to the same five percent (5%)
limitation) if the gross monthly revenues from the
Facility exceed $________________ for three (3)
consecutive months in that next year.
B. CERTAIN EXPENSES. In accordance with the Annual Budgets, the
Facility will reimburse Manager for the cost of reasonable
transportation, lodging and meal expenses for
non-Facility-based employees of Manager or its outside
consultants when traveling in connection with the performance
of the services being performed pursuant to this Agreement,
together with any reasonable long distance telephone expenses,
copying, mailing or express shipments and other miscellaneous
out of pocket expenses that relate to the marketing and
management of the Facility. Relocation, education,
professional memberships and licensing expenses of the
Facility-based administrative employees shall also be an
expense of the Facility subject to Owner's approval.
VI. MISCELLANEOUS
A. INSURANCE-SUBROGATION. No indemnity shall be paid to the
other party under this Agreement where the claim, damage,
liability, loss or expense incurred was required to be insured
against by such other party. Any insurance policies obtained
by the parties pursuant to this Agreement shall contain
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provisions or have the effect of waiving any right of
subrogation by the insurer of one party against the other
party or its insurer.
B. PROPERTY OF MANAGER. Trade names, including the name
______________________, ideas and documents, forms, occupancy
development material, specifically for and related to the
Facility shall be the property of Owner. Trade names, ideas
and documents, forms and occupancy development material, not
directly related to the Facility and supplied by Manager are
to be considered proprietary and will remain the property of
Manager. Owner may use such materials which are the property
of Manager and information in the operation and management of
the Facility, as may be recommended by Manager, but may not
use such materials or information after termination of this
Agreement for the development or expansion of the Facility or
for new projects for itself or others without the written
consent of Manager.
C. STATUS OF PARTIES. It is expressly understood and agreed that
Manager shall act as an independent contractor in the
performance of this Agreement. No provision hereof shall be
deemed or construed to create a partnership or a joint venture
between Owner with respect to the Facility or otherwise.
D. ADDITIONAL ACTION. In order to carry out the intent and
spirit of this Agreement, Owner and Manager will do all acts
and things necessary including the execution of other
agreements.
E. ENTIRE AGREEMENT. This Agreement sets forth the entire
Agreement between Manager and Owner. Any change or
modification of this Agreement must be in writing and signed
by all parties hereto.
F. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their
successors and assigns.
G. ASSIGNMENT, ETC. Manager shall not, without Owner's prior
written approval (which approval shall not be unreasonably
withheld), assign any of its rights or obligations under this
Agreement.
H. GOVERNING LAW. This Agreement, its interpretation, validity
and performance shall be governed by the laws of the State of
Texas.
I. NO PERSONAL LIABILITY. This Agreement has been executed on
behalf of Owner and Manager by their respective officers
solely in their representative capacities and no officer,
director, agent, employee or attorney of Owner or Manager
shall have any personal liability hereunder to any person.
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J. NON-COMPETE. Without the prior written consent of Manager,
for a period of three years following termination of this
Agreement, Owner will not employ or engage any person who was
a Manager employee assigned to the administrative staff of the
Facility at any time during the last twelve (12) months of the
term of this Agreement. Additionally, neither Manager nor
Owner will operate, manage or develop any facilities within a
3 mile radius of the "Facility". This section shall not apply
to Owner upon sale of the Facility to a third party,
termination of the Agreement for cause by Owner.
K. CONDITIONS BEYOND CONTROL OF PARTIES. Neither party shall be
held liable for failure to comply with any of the terms of
this Agreement when such failure has been caused solely by
fire, labor dispute, strike, war, insurrection, government
restrictions, force majeure, or act of God beyond the control
and without fault on the part of the party involved, provided
such party uses due diligence to remedy such default.
Circumstances are likely to arise from time to time which may
require that budgets be exceeded, and Manager shall not be
liable for budget overruns.
L. INDEMNIFICATION. Owner will indemnify and hold harmless
Manager from any and all liability arising incident to Owner's
performance of its duties under this Agreement. Manager will
indemnify and hold harmless Owner from any and all liabilities
arising incident to Manager's performance of its duties under
this Agreement.
Owner shall also indemnify and hold Manager harmless against
any and all losses, costs or expenses incurred by Manager by
reason of, arising out of or in any way related to
noncompliance by the Facility with all applicable state,
federal and local laws, ordinances, rules and regulations
relating to the physical condition of the property of the
Facility, provided Manager shall promptly notify Owner of
Manager's knowledge of any such noncompliance.
M. ARBITRATION. In the event of any dispute, claim or
controversy of any kind between the parties, concerning this
Agreement or the termination of this Agreement, the matter
shall be submitted to arbitration in accordance with rules of
the American Arbitration Association, except that the
selection of the Arbitrator shall be done Selected Arbitrator.
The parties jointly shall agree on an arbitrator. If the
parties are unable to agree, in good faith within a reasonable
time, on the selection of an arbitrator, either party may
request appointment of an arbitrator chosen by the American
Arbitration Association who shall be the Selected Arbitrator.
Such arbitrator shall be limited in his decision to a choice
between the final position as requested by each party. Said
arbitration shall be held in Dallas/Ft. Worth, Texas or such
other place as is mutually agreeable. The arbitration
decision shall be final and binding on both parties unless
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the arbitration is fraudulent or so grossly erroneous as to
necessarily imply bad faith. Costs of arbitration are to be
shared by both parties equally, provided that the arbitrator
may choose to award the costs of arbitration against the
losing party if the arbitrator determined that the final
position urged by the losing party was not reasonable.
THE EMMAUS CALLING, INC. CAPITAL SENIOR MANAGEMENT 1, INC.
Owner Manager
By: /s/ XXXXXX X. XXXXXXX By: /s/ XXXXX X. XXXXXXXX
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Title: President Title: VP
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