SENIOR INDEPENDENT
LIVING FACILITY
MANAGEMENT AGREEMENT
by and between
CAPITAL SENIOR LIVING, INC.,
a Texas corporation
("Manager"),
SHP II XXXXXXXXXX, LLC,
a Delaware limited liability company
("Owner"),
TABLE OF CONTENTS
Section Title Page
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Section 1. APPOINTMENT OF MANAGER..........................................................................1
Section 2. TERM............................................................................................1
Section 3. RESPONSIBILITIES OF MANAGER.....................................................................1
3.1 Operation and Affairs................................................................2
3.2 Management and Employees.............................................................2
3.3 Salaries and Benefits................................................................2
3.4 Billing, Accounting and Collections..................................................2
3.5 Services.............................................................................3
3.6 Payment Services.....................................................................3
3.7 Community Relations..................................................................3
3.8 Manuals..............................................................................3
3.9 Insurance............................................................................3
3.10 Agreements...........................................................................3
3.11 Employee Relations...................................................................4
3.12 Licensing............................................................................4
3.13 Evaluations..........................................................................4
3.14 Accounting and Control Systems.......................................................4
3.15 Quality Control......................................................................4
3.16 Marketing and Overall Business Plan..................................................4
3.17 Cooperation Upon Termination and in Connection with Sales and Financings.............4
3.18 Certifications.......................................................................5
3.19 Operation as a REOC..................................................................5
Section 4. RESPONSIBILITIES OF OWNER.......................................................................5
4.1 Cooperation..........................................................................5
4.2 Inspection of Documents..............................................................5
4.3 Proprietary Property................................................................5
4.4 Rights to Inspect and Review.........................................................5
Section 5. FEES............................................................................................6
5.1 Management Fee.......................................................................6
5.2 Other Fees and Reimbursements........................................................6
5.3 Overdue Invoices.....................................................................6
Section 6 ANNUAL PLAN, BUDGETS AND REPORTS................................................................6
6.1 Annual Plan..........................................................................6
6.2 Annual Budget........................................................................7
6.3 Capital Expenditures.................................................................7
6.4 Operating Budget.....................................................................7
(i)
6.5 Reports..............................................................................8
6.6 Budget Variances.....................................................................9
Section 7 BANK ACCOUNTS AND WORKING CAPITAL...............................................................9
7.1 Operating Account....................................................................9
7.2 Taxes...............................................................................10
Section 8. LICENSES, PERMITS, CERTIFICATIONS AND CONTESTS.................................................10
8.1 Licenses, Permits and Approvals.....................................................10
8.2 Government Actions..................................................................10
8.3 Legal Proceedings...................................................................10
8.4 Compliance..........................................................................11
Section 9. INSURANCE......................................................................................11
9.1 Facility Insurance..................................................................11
9.2 Liability Insurance.................................................................11
9.3 Additional Insurance................................................................12
9.4 Subcontractor's Insurance...........................................................13
9.5 Certificates of Insurance...........................................................13
9.6 Mutual Waivers......................................................................13
9.7 Cooperation With Insurance Carriers.................................................14
9.8 Compliance With Insurance Policies..................................................14
9.9 Insurance Claims....................................................................14
9.10 Financial Condition of Carriers.....................................................15
Section 10. MANAGER'S HOME OFFICE PERSONNEL................................................................15
Section 11. REPRESENTATIONS AND WARRANTIES.................................................................15
11.1 Status..............................................................................15
11.2 Authority and Due Execution.........................................................15
11.3 Litigation..........................................................................15
Section 12. TERMINATION....................................................................................16
12.1 Termination for Cause...............................................................16
(a) Bankruptcy, etc.........................................................16
(b) Default.................................................................16
(c) Willful Misconduct......................................................16
12.2 Termination Without Cause...........................................................16
(a) Damage/Condemnation.....................................................17
(b) Sale....................................................................17
(c) NOI Threshold...........................................................17
12.3 Effect of Termination...............................................................17
Section 13. NOTICES........................................................................................18
Section 14. COSTS AND EXPENSES, INDEMNITY AND INSURANCE....................................................19
14.1 Costs and Fees......................................................................19
14.2 Indemnification.....................................................................19
(ii)
Section 15 MISCELLANEOUS..................................................................................20
15.1 Government Regulations..............................................................20
15.2 Good Faith Effort by Manager........................................................20
15.3 Assignment..........................................................................20
15.4 Subordination.......................................................................20
15.5 Retention of Control by Owner.......................................................21
15.6 Books and Records...................................................................21
15.7 Binding Agreement...................................................................21
15.8 Relationship of Parties.............................................................21
15.9 Entire Agreement; Amendments........................................................21
15.10 Governing Law.......................................................................21
15.11 Arbitration of Accounting Matters...................................................21
15.12 Maintenance of Books, Records and Documents.........................................22
15.13 Further Assurances..................................................................22
15.14 Certain Definitions.................................................................22
(a) Affiliate...............................................................22
(b) Person..................................................................22
(c) Gross Revenue...........................................................22
(d) Facility Operating Expenses.............................................22
15.15 Attorneys' and Other Fees...........................................................23
15.16 Severability........................................................................23
15.17 Counterparts........................................................................23
Section 16 RIGHT OF FIRST OFFER FOR SALE OF PROPERTY......................................................23
Schedule 1........- Legal Description
Schedule 6.1......- Forms of Annual Plan, Annual Budget, Capital Budget and
Operating Budget
(iii)
SENIOR INDEPENDENT
LIVING FACILITY
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement"), dated as of September 30,
2003, is entered into by and between CAPITAL SENIOR LIVING, INC., a Texas
corporation ("Manager"), SHP II XXXXXXXXXX, LLC, a Delaware limited liability
company ("Owner").
BACKGROUND
A. Owner is the owner of the property more particularly described in
Schedule 1 attached hereto which is improved with a senior independent living
facility (such real property, existing facilities and equipment are referred to
individually as a "Facility").
B. Owner desires to engage Manager to operate, manage and lease the
Facility.
C. Manager desires to operate, manage, market and lease such Facility
and provide operational, accounting and financial services to such Facility and
Manager is willing to provide such services with respect to the Facility on the
basis, terms and conditions set forth below.
D. Owner and Manager hereby acknowledge that this Agreement shall
supercede any prior agreements between the parties.
TERMS
NOW, THEREFORE, in consideration of the mutual representations,
covenants and agreements set forth below, and intending to be legally bound,
Manager and Owner agree as follows:
Section 1. APPOINTMENT OF MANAGER. Owner hereby appoints and employs
Manager as operating manager of the Facility, and Manager agrees to act as
operating manager of the Facility, to supervise, direct and control the
day-to-day business activities, management and operation, and repair the
Facility and all phases of its operations in the name of, on behalf of, and
subject to the overall supervision of and control of Owner and for Owner's
account during the term of this Agreement.
Section 2. TERM. The term of this Agreement shall commence on the date
hereof (the "Effective Date"), and shall continue, unless otherwise terminated
as permitted herein, until the date five (5) years from the Effective Date (the
"Initial Term").
Section 3. RESPONSIBILITIES OF MANAGER. In connection with the
supervision, direction and management of the Facility, Manager shall (either
directly or through supervision of employees of the Facility), as agent, on
behalf of, and subject to the terms of this Agreement and the overall
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supervision and control of Owner, perform or cause to be performed, the
following services:
3.1. Operation and Affairs. Manage the operations and business affairs
of the Facility, including, but not limited to, the provision of services and
assistance to residents of the Facility, staffing, accounting services (but not
audit services), billing, collection, marketing, maintenance, construction
coordination, advertising, rate setting and general on-site administration.
3.2. Management and Employees. Select, employ, supervise, and train all
employees and personnel necessary for the effective operation of the Facility
and as required by law, subject to availability, including, without limitation,
as reasonably deemed necessary, corporate staff, accounting personnel, a
marketing director, a dietary director, leasing agents, maintenance personnel,
assistants and an executive director (the "Director"). Each of the employees may
be replaced by Manager from time to time and promoted, directed, assigned and
discharged, all within Manager's sole discretion. Such employees shall be
employees of Manager, but the "Employment Costs" (as defined below) for such
employees will be included in the operating costs of the Facility. Subject to
and in accordance with the approved Annual Budget and the Annual Plan or
variances as may be permitted under Section 6, Owner agrees to reimburse Manager
for all direct and indirect employment related costs associated with any such
employee, including, without limitation, compensation, salary, bonuses,
reasonable business expense reimbursements approved by Manager, employer's FICA
payments, severance, unemployment compensation and other employment taxes,
bonuses, automobile allowances, vacation, personal and sick leave benefits,
workers' compensation, group life, health and accident insurance premiums,
pension, disability and other benefits and third party payroll processing fees
(collectively, "Employment Costs"). Notwithstanding the foregoing, Owner shall
not be obligated to reimburse Manager for Employment Costs associated with
corporate or regional personnel of Manager or any personnel not located at the
Facility unless approved in writing by Owner nor shall Owner be obligated to
reimburse Manager for travel costs for such employees except up to an amount not
in excess of $10,000.00 in any calendar year.
3.3. Salaries and Benefits. With the prior written consent of the
Owner, which shall not be unreasonably withheld or delayed, institute and amend
from time to time, general salary scales, personnel policies and appropriate
employee benefits for all employees of the Facility.
3.4. Billing, Accounting and Collections. Issue bills for services and
materials furnished by the Facility and collect accounts receivable and monies
owed to the Facility; design and maintain accounting, billing and collection
records; and to the extent applicable, prepare and file, or supervise the
preparation and filing of all necessary or desirable xxxxxxxx, applications,
reports and claims related to revenue production. Owner expressly constitutes
Manager, to the extent permitted by applicable law, as its agent to administer,
process and collect, on Owner's behalf and in its name, any third party
receivables. Manager shall have the right to enforce Owner's rights as creditor
under any contract relating to the Facility or in connection with rendering any
services at the Facility for the purposes of collecting accounts receivable and
monies owed the Facility, and Manager shall make reasonable efforts to collect
all such receivables and monies at Owner's expense.
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3.5. Services. Administer, supervise, coordinate and schedule all
services of the Facility, including the provision of food, xxxxxx/beautician and
any other ancillary services as Manager deems appropriate. Such services may be
provided by contracts or leases for the account of Owner. Except as may be
approved in advance by Owner, all such service agreements which require payments
in excess of $50,000.00 shall be entered into by Manager with the party who
submits the lowest, conforming bid from among at least three (3) qualified bids
obtained by Manager. Any such agreements or leases not terminable upon thirty
(30) days' notice shall be subject to prior approval of Owner, which approval
may be withheld in Owner's sole discretion. Manager may contract with any
companies that are owned by Manager, are owned under common control with
Management, that own Manager, or the controlling interest of which is owned by
some or all of the parties that own controlling interest in Manager
("Affiliates"), only with the prior written approval of Owner, which approval
Owner will not unreasonably withhold, condition or delay, so long as (i) the
contract terms and price are in keeping with the market terms that would be
offered by an unrelated third party, and (ii) if Owner, in its sole discretion,
requires that the applicable service requirement be put out for bid (regardless
of the amount), the bid submitted by the Affiliate was with lowest conforming
bid from among at least three (3) bidders. Manager shall use all reasonable
efforts to obtain for the benefit of the Facility and the Owner all discounts
and rebates available by making bulk purchases and by making early payments of
invoices (consistent with the then approved Annual Budget). All such discounts,
rebates or the like shall accrue to the benefit of the Facility and Owner and
not to the Manager.
3.6. Payment Services. Provide for the payment of accounts payable,
employee payroll taxes, insurance premiums, mortgage payments and other
obligations of the Facility.
3.7. Community Relations. Establish and carry out appropriate public
and community relations programs in accordance with the approved marketing plan
approved pursuant to the provisions of Section 3.16, below.
3.8. Manuals. Upon request by Owner, furnish to Owner for review and
approval, which approval shall not be unreasonably withheld or delayed, policy
manuals discussing aspects of the operation of the Facility and propose
revisions to such policy manuals from time to time.
3.9. Insurance. Obtain and maintain insurance coverage for the Facility
as required by Section 9 of this Agreement, including insurance coverage naming
Owner, Manager and such other persons as may be required by Section 9 and
reasonably requested by Owner as additional insureds, with respect to services
that could be provided by the Facility.
3.10. Agreements. Negotiate and enter into, in the name of and on
behalf of Owner, such agreements, contracts and orders as Manager may deem
necessary or advisable for the furnishing of services, concessions and supplies
for the operation and maintenance of the Facility.
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3.11. Employee Relations. Handle and settle employee relation matters,
union and non-union, and negotiate with any labor union lawfully entitled to
represent employees who work at the Facility; provided however, any collective
bargaining agreement or labor contract must be submitted to Owner for its prior
approval and provided, further, that the institution of any labor litigation and
any labor settlement in excess of the sum of Twenty-five Thousand Dollars
($25,000) for the Facility must be approved by Owner, which approval shall not
be unreasonably withheld or delayed.
3.12. Licensing. At Owner's sole cost and expense, file all reports,
pay all fees, respond to all notices and take all other action reasonably
necessary to keep in full force and effect all licenses necessary for operation
of the Facility.
3.13. Evaluations. Make periodic evaluations of the performance of all
departments of the Facility and provide written notification to Owner in the
event of any material substandard performance.
3.14. Accounting and Control Systems. Implement and maintain accounting
and internal control systems using accounts and classifications consistent with
those used in senior facilities managed by Manager. Manager agrees to
consolidate and forward electronically summary data in an Excel spreadsheet
format as reasonably required by Owner or such other format as may be reasonably
required by Owner. To the extent that such format requires new or additional
computer hardware or software, the Owner shall be responsible for the costs
thereof.
3.15. Quality Control. Implement and maintain a program to provide
objective measurements of the quality of services provided at the Facility and
which may utilize resident questionnaires and interviews, periodic inspection,
and such other techniques as Manager may reasonably deem necessary to maintain
the quality of services at the Facility.
3.16. Marketing and Overall Business Plan. Manager shall implement and
maintain a program to operate the Facility and to lease units in the Facility to
residents. Manager shall act as Owner's signatory for execution of all leases or
occupancy agreements. Manager shall submit to Owner, along with the "Annual
Budget," as provided in Section 6, below, a written marketing plan and budget
for Owner's review and approval.
3.17. Cooperation Upon Termination and in Connection with Sales and
Financings. Manager shall extend its full cooperation to any broker, agent,
lenders, appraisers or other advisors involved in any prospective sales or
financings which Owner elects to pursue with respect to the Facility and also to
Owner and any third party who takes over management of the Facility upon the
termination of this Agreement. Such full cooperation shall include, without
limitation, (i) providing access to the Facility, (ii) arranging interviews with
residents, and Manager's key employees, and (iii) providing promptly upon
request all information related to the Facility in Manager's possession or
readily available to Manager including, without limitation, financial records,
property tax records, employee records, copies of leases, copies of service
contracts, copies of warranties and guarantees, health care licenses (and all
reports related thereto), complete resident files, loss history reports and
maintenance and repair records. Owner will reimburse Manager for any actual
out-of-pocket costs incurred by Manager to comply with this Section 3.17.
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3.18. Certifications. Manager shall use its reasonable efforts to
provide the certifications and support necessary for Owner to fulfill Owner's
obligations in the Purchase and Sale Agreement related to licensing for the
Facility.
3.19. Operation as a REOC. Manager acknowledges that Owner has
undertaken to conduct its affairs so as to qualify as a "real estate operating
company" ("REOC") within the meaning of 29C.F.R. Section 2510.3-101.
Section 4. RESPONSIBILITIES OF OWNER. Owner makes the following
covenants which are material covenants and upon which Manager relies as an
inducement to enter into this Agreement:
4.1. Cooperation. Owner will cooperate with Manager to allow Manager to
perform its services under this Agreement and will furnish Manager with all
information required by it for the performance of its services under this
Agreement. Owner will permit Manager full access to the Facility.
4.2. Inspection of Documents. Other than the review and approval of the
Annual Plan and Annual Budget, the procedures and timing for which will be
governed by Section 6, below, Owner will examine all requests for approvals and
documents submitted by Manager and render decisions pertaining thereto, when
required, promptly, to avoid unreasonable delay in the progress of Manager's
work, and, in any event, if Owner shall not respond negatively in writing to the
notice within fifteen (15) days after the notice is sent, Owner shall be deemed
to have approved the matter submitted to Owner. In any emergency situation (as
determined by Manager), Manager shall not be required to seek or obtain Owner's
approval for any actions which Manager, in its sole judgment, deems necessary or
appropriate to respond to such situations, provided Manager promptly thereafter
reports such action to Owner in writing. Subject to Owner's reasonable review
and approval thereof, Owner shall execute and deliver any and all applications
and other documents necessary or proper to be executed by Owner in connection
with the operation of the Facility.
4.3. Proprietary Property. Owner agrees that Manager retains all
ownership and other rights in all proprietary systems, computer software, policy
and other manuals, materials and other information, in whatever form, developed
by Manager in the performance of its services under this Agreement. Owner agrees
to maintain such proprietary systems and information on a confidential basis.
Nothing contained in this Agreement shall be construed as a license or transfer
of such information either during the term of this Agreement or otherwise. Upon
termination of this Agreement, or earlier upon Manager's request, Owner shall
immediately return all such information to Manager.
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4.4. Rights to Inspect and Review. Owner, its accountants, attorneys,
agents and any of Owner's lenders shall have the right to enter upon any part of
the Facility at any time during normal business hours (at any time if an
emergency exists) for the purposes of examining or inspecting the same or
examining and making extracts and copies of the books and records of the
Facility or for any other purpose, including audits, which the Owner of the
Facility, in its discretion, shall deem necessary or advisable, but the same
shall be done with as little disruption to the business of the Facility as
practicable. Books and records of the Facility shall be kept at the Facility
and/or the Manager's corporate offices and a summary thereof in such location as
directed by Owner.
Section 5. FEES.
5.1. Management Fee. Compensation to the Manager, in addition to the
other fees provided in this Section 5 and the reimbursement for operating
expenses of the Facility (including, without limitation, Employment Costs)
consists of a monthly fee (the "Management Fee"), payable on the fifteenth
(15th) day of each month in an amount equal to five percent (5%) of the "Gross
Revenues" (as defined in Section 15.14(c)) of the Facility for the period from
the first (1st) day of the prior month until the last day of the prior month. At
the end of each calendar year, Gross Revenue for the entire calendar year shall
be determined, and if such determination results in any adjustments to the Gross
Revenue, as determined on a monthly basis, appropriate adjustments shall be made
to the Management Fee, and any overpayments of such fee for such period shall be
deducted from the next monthly installments of the Management Fee coming due.
5.2. Other Fees and Reimbursements. The Management Fee shall be in
addition to any and all other reimbursements due to Manager under this
Agreement.
5.3. Overdue Invoices. Owner shall pay Manager interest on amounts due
to Manager which are not paid within thirty (30) days of their due date (and
which late payment is not cured by Owner within ten (10) business days of
written notice from Manager), at a rate of one and five-tenths percent (1.5%)
per month on past due balance.
Section 6. ANNUAL PLAN, BUDGETS AND REPORTS.
6.1. Annual Plan. Prior to the Effective Date of this Agreement, and no
later than November 15 of calendar year 2003 and each calendar year thereafter,
Manager shall submit to Owner an annual forecast of operations for the Facility
for the upcoming calendar year ("Annual Plan"), which Annual Plan will include
the Annual Budget, Capital Budget, and Operating Budget, as more particularly
described below. The Annual Plan, as well as the Annual Budget, Capital Budget,
and Operating Budget, shall be in reasonable detail and in substantially the
form attached hereto as Schedule 6.1. The Annual Plan shall include the
assumptions upon which the forecasts and budgets were prepared and shall include
a proposed annual marketing plan, and such other information as may be
reasonable and appropriate to fully advise Owner of all material facts and
assumptions relevant to an evaluation of the Annual Plan. Upon request of Owner,
Manager will meet with Owner to review the Annual Plan. Owner has approved the
initial Annual Plan together with the Annual Budget, Capital Budget and
Operating Budget dated September 10, 2003 for the remainder of calendar year
2003. Owner shall approve or disapprove any subsequent Annual Plan no later than
fifteen (15) days prior to the end of each calendar year. When the Annual Plan
has been approved by Owner, Manager is authorized to pay operating costs and
make capital expenditures as set forth in the Annual Budget, Capital Budget, and
Operating Budget, and Manager shall implement the provisions of the Annual Plan.
Manager shall not expend more than the applicable amounts approved in the
Capital Budget or Operating Budget respectively except as expressly permitted in
Section 6.6 below. If Owner does not approve specific items in the Annual Plan,
Manager shall make appropriate revisions to the Annual Plan and resubmit the
Annual Plan to Owner for approval. If Owner disapproves the Annual Budget,
Capital Budget, or Operating Budget, expenditures for the upcoming calendar year
6
will be handled as described in Section 6.2 below until such time as a new
Annual Plan is approved. Manager agrees to use its commercially reasonable best
efforts to operate the Facility as provided in the approved Annual Plan.
6.2. Annual Budget. Prior to the Effective Date of this Agreement, and
no later than November 15 of calendar year 2003 and each calendar year
thereafter, Manager shall submit to Owner an annual budget (each an "Annual
Budget") covering the operations of and proposed capital expenditures to be made
with respect to the Facility for the next calendar year (or the remainder of the
current calendar year, in the case of the initial budget). Owner shall approve
or disapprove the Annual Budget submitted by Manager no later than December 15
of each calendar year. Unless and until the Annual Budget for any year is
approved by Owner, Manager shall operate the Facility on the basis of the prior
year's approved Annual Budget (excluding any extraordinary items) increased by
the percentage change in the Consumer Price Index, All Urban Consumers (U.S.
Cities Average) ("CPI") released by the United States Department of Labor,
Bureau of Labor Statistics in the previous twelve (12) months. If the CPI shall
no longer be published or cannot be readjusted, then another index, generally
recognized as authoritative, shall be substituted by agreement between the
parties.
6.3. Capital Expenditures. The Annual Budget shall include a capital
budget (the "Capital Budget") outlining a program of capital expenditures as may
be required by applicable law, any lender to Owner or in Manager's reasonable
business judgment during the next calendar year (or the remainder of the current
calendar year, in the case of the initial budget), in which each proposed
capital expenditure will be designated as either mandatory, highly recommended
or desirable. Owner may approve or reject, in its discretion, each proposed
capital expenditure, except those indicated as mandatory. Manager shall be
responsible for designating as a "mandatory capital expenditure" any expenditure
which, if not made would, in Manager's judgment, (a) cause a Facility to lose or
put at risk its license; (b) place at risk the safety of a Facility resident or
employee; (c) cause the issuance of a formal notice that the operating license
for the Facility, or any substantial portion of the Facility, will be revoked or
suspended or qualified in any material adverse respect; or (d) subject Owner or
Manager to civil or criminal prosecution.
6.4. Operating Budget. The Annual Budget shall include an operating
budget (the "Operating Budget") setting forth an estimate of operating revenues
and expenses related to the operation, management, marketing and leasing of the
Facility, including, without limitation, Employment Costs, third party expenses
and reimbursements to Manager for out-of-pocket expenses, including
extraordinary travel costs associated with financing, for the next calendar year
7
(or the remainder of the current calendar year, in the case of the initial
budget). The Annual Budget shall also include an explanation of anticipated
changes in the Facility, including budgets for maintenance, operations and the
acquisition of capital assets and capital improvements. In the preparation of
the Annual Budget, Manager may make reasonable allocations of expenses between
the Facility and other facilities operated by Manager based upon the relative
benefit of such expenses to the Facility.
6.5. Reports. As soon as available and in any event within twenty (20)
days after the end of each month, Manager shall provide to Owner a report
reconciling the actual operating expenses incurred during such month to the
operating expenses shown on the Operating Budget for such month. Manager shall
also furnish or arrange for the preparation of such other reports as may be
required from time to time which may include: (a) unaudited monthly financial
statements of the Owner for the month then ended related to the Facility
prepared on a basis consistent with the Annual Budget; (b) at Owner's expense,
audited annual financial statements of the Owner related to the Facility
prepared by a nationally recognized certified public accounting firm or other
independent certified public accounting firm, prepared in accordance with
generally accepted accounting principles, and including a balance sheet, a
statement of income and expenses for the year then ended; (c) monthly census
information of the Facility as of the end of such month; and (d) an aged
accounts receivable report from the Facility in sufficient detail to show
amounts due from each resident by the account age classifications of thirty (30)
days, sixty (60) days, ninety (90) days, one hundred twenty (120) days, and over
one hundred twenty (120) days. Manager shall submit year-end profit and loss
statements to Owner prior to March 1 of the year following the year for which
they are prepared. Except as otherwise provided herein, Manager shall also
prepare or cause to be prepared (at Manager's expense) and delivered to Owner on
a monthly basis within twenty (20) days following the end of each calendar
month, unless indicated to the contrary below, the following reports:
6.5.1 A current and year to date statement of operations, with
material variance explanations, to be delivered within twenty-five (25)
days following the end of each calendar month;
6.5.2 A current occupancy report, including rental rates for
each unit and any move-ins or move-outs;
6.5.3 A capital expenditure report, with material variance
explanations;
6.5.4 Upon request of Owner, an annual inventory;
6.5.5 Promptly upon completion of the work, copies of all
invoices for all capital expenditures in excess of Twenty-five Thousand
Dollars ($25,000), and, upon request, all other invoices;
6.5.6 The calculations and amounts used in determining the
Management Fee payment;
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6.5.7 Upon request by Owner, copies of all bank account
statements from all Facility accounts with reconciliation ledgers;
6.5.8 Upon request of Owner, an annual listing of all amounts
held as security deposits within sixty (60) days of the end of the
calendar year;
6.5.9 At reasonable intervals, general reports on all
construction in progress;
6.5.10 Such additional financial and operational information,
excluding annual audits and tax returns for Owner, as may be reasonable
and specifically requested from time to time by Owner; and
6.5.11 A monthly balance sheet.
Manager shall provide from time to time such additional reports as may
reasonably be requested by Owner concerning the Facility and its operations. All
reports, statements and proposed budgets to be delivered under this Agreement
shall be provided in form reasonably acceptable to Owner and shall be provided
to all partners/members of Owner, as may be designated in writing by Owner. All
monthly reports shall be submitted by Manager to Owner in an electronic format
reasonably approved by Owner.
6.6. Budget Variances.
Manager may incur and expend amounts as an Owner's expense, consistent
with the then approved Annual Budget, Capital Budget or Operating Budget.
Manager may incur and expend amounts as an Owner's expense in excess of such
Budgets if such amounts are incurred as a result of an emergency, or as a result
of an increase in a third-party expense which was unexpected, not budgeted and
outside Manager's control such as an increase in real estate taxes and
assessment or utility charges, additions or modifications of Budget items as a
result of compliance with laws or insurance requirements, increases in insurance
premiums for insurance policies/coverages approved by Owner, costs and expenses
of litigation and similar proceedings and any final orders, judgments or
settlements. In addition to the foregoing, the Manager may incur and expend
amounts as an Owner's expense to the extent that the total applicable quarterly
Budget is not exceeded by more than ten percent (10%) of an amount equal to the
total quarterly Budget for all items other than taxes, insurance, utilities and
the Management Fee or if Manager believes such quarterly Budget is may be
exceeded, Manager may seek Owner's approval to exceed the quarterly Budget,
which approval shall not be unreasonably withheld, conditioned or delayed by
Owner.
Section 7. BANK ACCOUNTS AND WORKING CAPITAL.
7.1. Operating Account. Manager, in the name of the Owner and on behalf
of Owner, shall transfer all operating revenues of the Facility for deposit into
a bank account established exclusively for that purpose by Owner ("Operating
Account"). Manager shall supervise the disbursements from the Operating Account
on behalf of Owner of such amounts and at such times as the same are required in
9
Manager's reasonable business judgment. Manager shall discharge such supervisory
responsibilities in accordance with reasonable and customary business standards
and practices. All costs and expenses (including Manager's Management Fee and
other amounts due Manager and any Affiliates) incurred in the operation of the
Facility shall be paid out of the Operating Account. Manager shall specify, with
the approval of Owner, which approval shall not be unreasonably withheld, the
signatory or signatories of Manager required on all checks or other documents of
withdrawal submitted by Manager on the Operating Account, but a signatory
designated by Owner may also be an authorized signatory on the Operating
Account. If at any time the funds in the Operating Account are insufficient to
pay the current operating expenses of the Facility, as provided in the Annual
Budget or otherwise incurred by Manager as permitted by Section 6, above (a
"Deficit"), the Owner shall within five (5) business days after receipt of
notice from the Manager identifying such Deficit, deposit into such Operating
Account an amount equal to the Deficit; provided, however, that (i) Manager
shall with such notice provide adequate supporting documentation to substantiate
such Deficit, and, (ii) all such current operating expenses shall have been
incurred consistent with the terms of this Agreement. In no event will Manager
be required to provide working capital funds to Owner or the Facility or to
advance funds or fund any Deficit.
7.2. Taxes. Any federal, state or local taxes, assessments or other
governmental charges imposed on the Facility and arising from Owner's period of
ownership are the obligations of Owner, not of Manager, and shall be paid out of
the Operating Account. With the Owner's prior written consent, Manager may (and
at Owner's discretion, Manager shall) contest the validity or amount of any such
tax or imposition on the Facility.
Section 8. LICENSES, PERMITS, CERTIFICATIONS AND CONTESTS.
8.1. Licenses, Permits and Approvals. Manager, as agent of Owner, shall
assist Owner in its application for, in the name of Owner, and to obtain and
maintain, on behalf of Owner, all necessary licenses, permits and approvals to
operate the Facility, to substantially comply with all applicable laws, rules
and regulations.
8.2. Government Actions. Neither Owner nor Manager shall take any
action or fail to take any action which such party knows will cause any
governmental authority having jurisdiction over the operation of the Facility to
institute any proceeding for the suspension, rescission or revocation of any
necessary license, permit, certification or approval. Manager shall not take any
action or fail to take action which Manager knows will adversely affect the
Owner's right to accept and obtain payments under any private third-party
medical payment programs, if any.
8.3. Legal Proceedings. Manager shall, with the approval of and at the
cost of Owner, have the right, on behalf of Owner, to contest by appropriate
legal proceedings, diligently conducted in good faith in the name of Owner, the
validity or application of any agreement, law, ordinance, rule, ruling,
regulation, order or requirement of any governmental agency having jurisdiction
over the operation of the Facility. Owner shall fully cooperate with Manager
with regard to the contest and Owner shall pay from the Operating Account all
reasonable attorneys' fees incurred with regard to the contest. Counsel for any
10
such contest shall be selected by Manager and reasonably approved by Owner;
provided, that Owner may also elect to hire its own attorney, who shall also be
paid from the Operating Account. Manager shall, with the consent of Owner and at
Owner's expense, process all third party payment claims and appeals for the
services provided at the Facility, including without limitation, exhaustion of
all applicable administrative proceedings or procedures, adjustment and denials
by governmental agencies or their intermediaries and other third-party payors.
8.4.Compliance. Owner shall comply with all federal, state and local
laws, rules and regulations and requirements which are applicable to Owner and
outside the scope of Manager's obligations hereunder to comply with such
requirements on Owner's behalf, provided that Owner, at its sole expense and
without expense to Manager, shall have the right to contest by proper legal
proceedings the validity, so far as applicable to it, of any such law, rule,
regulation or requirement, provided that such contest shall not result in a
suspension of operations of the Facility, and provided, further, Owner shall not
be deemed to be in breach of this covenant if Owner's failure to comply with any
such law, rule, regulation or requirement is the result of the gross negligence
or willful misconduct of Manager.
Section 9. INSURANCE
9.1. Facility Insurance. Owner, at its expense, will obtain and keep in
force "All Risk" facility insurance for the Facility and all equipment and
contents therein (other than that owned by residents). Owner will also obtain
and keep in force Boiler and Machinery coverage for the Facility. Owner may
self-insure all or part of the risk described above. Each of the policies shall
contain appropriate clauses pursuant to which the respective insurance carriers
shall waive all rights of subrogation with respect to losses payable under such
policies.
9.2. Liability Insurance. Manager, at the expense of the Owner (except
as provided below with respect to professional liability coverage), will obtain
and keep in force commercial general liability insurance coverage. Manager shall
be the insured on such policy, with Owner named as an additional insured for
accidents occurring on or about the Facility. Neither Owner nor Owner's
insurance company shall be liable to Manager for the gross negligence, malice or
willful misconduct of Manager, its officers or employees, nor shall Owner or
Owner's insurance company be liable to Manager for accidents arising from
conditions solely created out of Manager's breach of the duties and obligations
required by this Agreement to be performed by it. Owner may self-insure all or
part of the risk described above. Owner's coverage will be primary with respect
to claims not herein excluded. The foregoing is not intended to affect the
general requirement of this Agreement that the Facility shall be managed,
operated and maintained in a safe condition and in a proper and careful manner.
Manager shall furnish whatever information is reasonably requested by Owner for
the purpose of establishing the placement of insurance coverages and shall aid
and cooperate in every reasonable way with respect to such insurance and any
loss covered thereunder. The professional liability insurance which is included
in the coverage being maintained by Manager on behalf of Owner for the Facility
as of the date of this Agreement, and which has been approved by Owner
("Approved Professional Liability Insurance"), is being provided without
11
additional premium beyond the amount Manager would pay for standard commercial
general liability coverage which did not include professional liability
coverage. If, at any time that this Agreement remains in effect Manager's
current insurance carrier charges an additional premium for the Approved
Professional Liability Insurance coverage or if Manager obtains the Approved
Professional Liability Insurance coverage from a different carrier and must pay
a premium for that Approved Professional Liability Insurance coverage, Manager
shall be solely responsible for the payment of such premiums and Owner shall
have no obligation whatsoever to reimburse Manager for the cost of such
premiums. If Manager fails to pay such premiums at any time, Owner may pay such
premiums and deduct the amount paid from the Management Fee. The professional
liability coverage which Manager must keep in place at all time shall have
coverage limits and deductibles and be of the same form (written on an
occurrence basis) as the Approved Professional Liability Insurance coverage.
Liability insurance should have the following minimum amounts:
(a) Each Claim - $1,000,000 per occurrence and must include a
professional liability endorsement if a separate policy does
not exist.
(b) Deductible - $25,000 or more. Owner to decide amount at the
inception of a new policy year. Any deductible payments will
not be included in Facility Operating Expenses.
(c) General Aggregate - $3,000.000 per policy term.
(d) Umbrella/Excess - $3,000,000 per occurrence or as mutually
agreed to by Owner; and
(e) Business Auto Liability including hired and non-owned auto
coverage - $1,000,000 combined single limit.
9.3. Additional Insurance. Manager shall continuously maintain, at
Owner's cost, and furnish Owner certificates evidencing the existence of the
following insurance policies:
(a) Worker's Compensation - the statutory minimum
required in the state where the Facility is located;
(b) Employers' Liability - $1,000,000 or such other
higher limits imposed in accordance with the
requirement, if any, of the laws of the state where
the Facility is located;
(c) Fidelity and Crime Insurance known as "Dishonesty,
Disappearance & Destruction" (3-D Policy) or
individual policies covering: dishonesty of
employees; loss of money and securities inside the
Facility, being transported by messenger, or loss
outside of the Facility due to dishonesty,
disappearance, or destruction; depositor/check
forgery. Minimum amounts should be the greater of
$1,000,000 or 2 months of rent receipts.
The certificate shall contain an endorsement that Owner will be given at least
thirty (30) days prior written notice of cancellation of or any material change
in the policy. This insurance will be primary for any occurrences described in
Section 9.2 above. Manager's respective insurance carriers shall waive all
rights of subrogation with respect to losses payable under such policies. Owner
shall be named as an additional insured on the Manager's Commercial General
Liability insurance.
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9.4. Subcontractor's Insurance. Manager shall require that all
subcontractors performing repairs or providing any services for an amount in
excess of Twenty-Five Thousand and No/100 Dollars ($25,000.00) and who are
brought onto the Facility have insurance coverage at the subcontractor's
expense, in the following minimum amounts:
(a) Workers Compensation - the statutory minimum required in
the state where the Facility is located;
(b) Employer's Liability - $500,000 or such other higher
limits imposed in accordance with the requirement, if any, of
the laws of the state where the Facility is located;
(c) Commercial General Liability - $1,000,000 per occurrence,
$2,000,000 general aggregate with Products/Completed
Operations coverage (with evidence of Products/Completed
Operations Coverage shown for a minimum of two years following
completion of the work described in the contract);
(d) Business Auto Liability including hired and non-owned auto
coverage - $1,000,000 combined single limit; and
(e) Umbrella/Excess - $2,000,000 or more as deemed
appropriate.
This insurance will be primary and noncontributory with respect to the insurance
described in Sections 9.1 and 9.2 above. Manager shall insure that Manager and
Owner are named as additional insureds on the subcontractor's Commercial General
Liability insurance. The subcontractor's respective insurance carriers shall
waive all rights of subrogation with respect to losses payable under such
policies. Manager shall obtain and keep on file a Certificate of Insurance,
which shows that the subcontractor is so insured. Manager must obtain Owner's
permission to waive any of the above requirements. Higher amounts may be
required if the work to be performed is hazardous.
9.5. Certificates of Insurance. Any contract requires that such party
maintain any insurance coverage, Manager shall obtain insurance certificates
annually, or more frequently as required pursuant to the applicable lease or
contract, from each such party and review the certificates for compliance with
such lease or contract terms.
9.6. Mutual Waivers. Owner, on behalf of itself and its insurers,
waives its rights of recovery against Manager or Manager's officers, directors
and employees, for damages sustained by Owner as a result of any damage to the
Facility arising from any risk or peril generally covered or coverable by any
insurance policy actually carried by or required to be carried by Owner pursuant
13
to the terms of this Agreement, and Owner agrees that no party shall have any
such right of recovery by way of subrogation or assignment. Manager, on behalf
of itself and its insurers, waives its rights of recovery against Owner or
Owner's officers, directors and employees, for damages sustained by Manager as a
result of any damage to any Facility arising from any risk or peril generally
covered or coverable by any insurance policy actually carried by or required to
be carried by Manager pursuant to the terms of this Agreement, and Manager
agrees that no party shall have any such right of recovery by way of subrogation
or assignment. Owner and Manager shall each notify their respective insurance
carriers of the mutual waivers herein contained and shall cause their respective
insurance policies required hereunder to be endorsed, if necessary, to prevent
any invalidation of coverage as a result of the mutual waivers herein contained.
9.7. Cooperation With Insurance Carriers. Manager shall cooperate with
and provide reasonable access to Facility to agents of any and all insurance
companies and/or insurance brokerages or agencies who may, from time to time, be
involved with the issuance of insurance policies or with inspections of the
Facility in connection with insurance policies then in force. Manager agrees to
use all reasonable efforts to comply with any and all requirements of such
insurance companies or their agents, and agrees to exercise due care not to use
the Facility or permit the same to be used for any purpose which would make void
or voidable any of such insurance policies, and shall not keep or knowingly
allow to be kept on the Facility any material, machinery, equipment, substance
or other things which may make void or voidable any such insurance policies.
9.8. Compliance With Insurance Policies. Manager shall be responsible
for full compliance with all duties in the event of loss, or the assistance and
cooperation in the event of loss, with any insurance policy held by Owner with
respect to the Facility so as to avoid any loss insured thereunder from being
uncollectible. Owner will notify Manager of specific actions or prohibited
actions of which Owner is aware that are necessary for such compliance.
9.9. Insurance Claims. Manager shall promptly investigate all
accidents, claims or damage relating to the ownership, operation and maintenance
of the Facility and any damage or destruction to the Facility. Manager shall
prepare a written notice to the applicable insurance company describing the
matter at issue and Manager shall send a copy of such notice to Owner
contemporaneously with sending such notice to the insurance company within 7
days of becoming aware of the matter. Manager acknowledges receipt of a separate
Claims Procedure Manual which outlines in more detail the steps and
documentation to follow should a potential claim arise and Manager agrees to
comply with the terms of such Claims Procedure Manual. Manager shall take no
action which may operate, or omit to take any action which, if not taken, may
operate, (a) to bar Owner from obtaining any protection or payment under any
policies of insurance held by either Owner or Manager or (b) to prejudice
Owner's defense in any legal proceeding arising out of, or otherwise prevent
Owner from protecting its interests against, any such claim; provided, however,
nothing herein shall be construed to prohibit or restrict Manager from
cooperating with any investigation in good faith and honestly. If any such
accident, claim, damage or destruction shall result in the commencement of a
lawsuit or other similar proceeding, Manager shall provide such services in
connection therewith as shall reasonably be necessary. Owner or its insurance
carrier shall have the exclusive right, at Owner's option, to conduct the
defense of any claim, demand, liability or suit. Manager shall have no right to
settle, compromise or otherwise dispose of any claims, demands, liabilities or
suits for amounts in excess of $25,000.00, whether or not covered by insurance,
without the prior written consent of Owner.
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9.10 Financial Condition of Carriers. Carriers for Manager and
Subcontractor coverages above should be A.M Best Insurer Financial Strength
rating of A- or better (if unavailable, S&P A or better will be acceptable), and
Financial Size Category of VIII or larger. Lloyd's of London syndicates Minimum
Stamp Capacity of $100 MM (US).
Section 10. MANAGER'S HOME OFFICE PERSONNEL. In addition to the other
managerial services provided for in this Agreement, Manager shall be obligated
to make available to the Facility, as needed, accounting, budgeting, management,
personnel, purchasing, quality assurance, polices and procedures, and
third-party reimbursement. Manager shall provide these supervisory services to
the on-site employees to the extent necessary for the on-site employees to
provide the level of service required by this Agreement. Manager shall not
charge Owner (apart from the Management Fee) for the services of the home office
supervisory personnel in the referenced areas but who are not on-site employees,
except for travel expenses to the extent expressly permitted by Section 3.2.
Section 11. REPRESENTATIONS AND WARRANTIES. Owner and Manager make the
following representations and warranties to the other party:
11.1. Status. The representing party is duly organized and validly
existing in good standing under the laws of its state of its organization, is
qualified to conduct business in the State of California, and has all necessary
power to carry on its business as now being conducted, to operate its properties
as now being operated, to carry on its contemplated business, to enter into this
Agreement and to observe and perform its terms.
11.2. Authority and Due Execution. The representing party has full
power and authority to execute and to deliver this Agreement and all related
documents and to carry out the transactions contemplated by this Agreement. The
execution of this Agreement by such party will not, with the passing of time,
the giving of notice, or both, result in a default under or a breach or
violation of such party's (i) organizational documents; or (ii) any law,
regulation, court order, injunction or decree of any court, administrative
agency or governmental body; (iii) or any mortgage, note, bond, indenture,
agreement, lease, license, permit or other instrument or obligation to which
such party is now a party or by which such party or any of its assets may be
bound or affected. This Agreement constitutes a valid and binding obligation of
the representing party, enforceable against such party in accordance with its
terms, to the extent that its enforceability is limited by applicable
bankruptcy, reorganization, insolvency, receivership or other laws of general
application or equitable principles relating to or affecting the enforcement of
creditors' rights.
11.3. Litigation. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of the representing
party, threatened against such party, its properties or business which seeks to
enjoin or prohibit it from entering into this Agreement.
15
Section 12. TERMINATION.
12.1. Termination for Cause.
(a) Bankruptcy, etc. If either party is dissolved or liquidated, or
shall apply for or consent to the appointment of a receiver, trustee or
liquidator of it or all or a substantial part of its assets, file a voluntary
petition in bankruptcy, make a general assignment for the benefit of creditors,
file a petition or an answer seeking reorganization or arrangement with
creditors or take advantage of any insolvency law, or if an order, judgment or
decree shall be entered by a court of competent jurisdiction, on the application
of a creditor, adjudicating the party a bankrupt or insolvent or approving a
petition seeking reorganization of the party or appointing a receiver, trustee
or liquidator for the party or all or a substantial part of its assets, and such
order, judgment or decree shall continue unstayed and in effect for any period
of ninety (90) consecutive days, then in case of any such event, this Agreement
shall immediately expire, at the other party's option.
(b) Default. If Owner or Manager shall fail to keep, observe or perform
any material covenant, agreement, term or provision of this Agreement to be
kept, observed or performed by it and such default shall continue for a period
of thirty (30) days after written notice by the non-defaulting party to the
other specifying the default in question and requesting that the default be
cured, then the non-defaulting party may terminate this Agreement, on ten (10)
days further written notice to the other party or may pursue other remedies
including, without limitation, legal action for breach of contract, provided
that, except with respect to monetary defaults of Owner or Manager, if the
defaulting party has commenced cure within thirty (30) days, and continually and
diligently pursues such cure to completion as soon as reasonably possible, then
the right to give such notice of termination shall be suspended for the time
necessary to effect such cure. Such termination by either party shall be without
prejudice to either party to receive all of the fees and reimbursements provided
in this Agreement, including, without limitation, reimbursements for the
Employment Costs due for the period through the date of termination.
(c) Willful Misconduct. In addition to its rights set forth above,
Owner shall have the right, after thirty (30) days' prior written notice to
Manager to terminate this Agreement if, because of Manager's willful misconduct
(which shall not include any willful act of Manager which is due to Owner's
breach of this Agreement including Owner's failure to pay an amount due
hereunder), there has been a formal notice by the appropriate governmental or
regulatory agency (the "Notice"), that the operating license for a Facility will
be revoked, suspended, or qualified in any material adverse respect, which
Notice is not rescinded, vacated or stayed by action of Manager (or otherwise)
on or before the earlier of (i) thirty (30) days prior to the effective date of
the adverse action, as set forth in the Notice, or (ii) ninety (90) days of its
issuance.
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12.2. Termination Without Cause.
(a) Damage/Condemnation. The Owner and the Manager shall each have the
option to terminate this Agreement, upon thirty (30) days' prior written notice
to the other, upon the occurrence of any of the following events with respect to
the Facility:
(i) the Facility or any material portion of the Facility is
damaged or destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (A) it is not
practicable or desirable to rebuild, repair or restore the Facility to its
condition immediately preceding such damage within a period of twelve (12)
months; or (B) the conduct of normal operations of the Facility would be
prevented for a period of twelve (12) months or more; or
(ii) title to or the temporary use of, all or substantially
all of, a Facility is taken under the exercise of the power of eminent domain by
a governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties, prevents or is likely to prevent
the conduct of normal operations at the Facility for a period of at least twelve
(12) months.
(b) Sale. Provided that Owner has complied with Section 16 hereof,
Owner and the Manager shall each have the option to terminate this Agreement,
upon thirty (30) days' prior written notice to the other, in the event Owner
sells the Facility to an unaffiliated third party. This termination right shall
also apply in the event that the Facility is sold in connection with a
foreclosure, power of sale or deed-in-lieu of foreclosure such that the buyer of
the Facility under any of such scenarios may terminate this Agreement, effective
as of the date it takes title, so long as thirty (30) days' prior notice was
given to Manager. If Owner sells the Facility and, as a result of the sale,
elects to terminate this Agreement pursuant to this Section 12.2(b) prior to
January 1, 2006, Owner will pay to Manager, within thirty (30) days following
the effective date of the termination, the entire amount of the Management Fee
that would have been due and payable to Manager for the period from the
effective date of the termination through December 31, 2005.
(c) NOI Threshold. If the Facility does not, during calendar year 2005
or any calendar year thereafter, have an NOI of at least One Million Three
Hundred Thousand Dollars ($1,300,000.00), the Owner shall have the right, within
thirty (30) days after determination of such shortfall and notice to Manager, to
terminate this Agreement. In the event of the exercise of this termination right
by Owner, this Agreement shall terminate effective one hundred twenty (120) days
after notice of termination under this Section is given to Manager. "Net
Operating Income" or "NOI" for the purpose of this Section shall mean Gross
Revenues less all Facility Operating Expenses, as defined in Section 15.14
below.
12.3. Effect of Termination. Upon any termination by Owner or Manager
for cause pursuant to Section 12.1 of this Agreement, without cause pursuant to
Section 12.2 of this Agreement, or upon expiration of the term of this
Agreement, or for any other reason as permitted under the terms of this
Agreement, all amounts payable to Manager from Owner under this Agreement up to
the date of such termination shall be immediately due and payable. Upon any
17
termination of this Agreement, regardless of the cause, Manager shall be
obligated to comply fully with the provisions of Section 3.17 above.
Section 13. NOTICES. Any notice, communication or demand requiring or
permitted to be given under this Agreement shall be in writing (including
facsimile communications) and shall be sent by first-class mail, or by
nationally-recognized overnight courier, or by facsimile transmission or by
personal delivery. All notices shall be sent to the applicable party at the
following addresses:
To Owner, by addressing the same to:
SHP II Xxxxxxxxxx, LLC
and
Senior Housing Partners II, L.P.
c/o Prudential Real Estate Investors
Xxx Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
Attention: Xx. Xxxx X. Dark
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Bird LLP
0000 X. Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
To Manager, by addressing the same to:
Capital Senior Living, Inc.
00000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
18
with a copy to:
Jenkens & Xxxxxxxxx
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxxx Xxxx, XX, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Any such property given notice shall be effective on the earliest to occur of
receipt, telephone confirmation of receipt of facsimile communication, one (1)
business day after delivery to a nationally recognized overnight courier, or
five (5) business days after deposit in the mail, return receipt requested.
Section 14. COSTS AND EXPENSES; INDEMNITY AND INSURANCE.
14.1. Costs and Fees. Except as otherwise expressly provided in this
Agreement, and except for expenses included in the approved Annual Budget or as
otherwise permitted in this Agreement, all fees, costs, expenses and purchases
arising out of, relating to or incurred in the operation of the Facility,
including, without limitation, the fees, costs and expenses of consultants and
professionals, shall be the sole responsibility of Owner. Manager, by reason of
the execution of this Agreement or the performance of its services under this
Agreement, 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 at any of its
administrative offices in the performance of its obligations hereunder, provided
that such liabilities and debts are incurred by Manager within the scope of the
liabilities or expenses contemplated to be incurred by Manager under the terms
of this Agreement. Manager shall have no obligations to advance any sums
required to maintain necessary licenses and permits and to otherwise keep the
Facility operating as a long-term care facility, without assurances that the
necessary funds for the discharge of any such liability of any such obligation
will be punctually paid by Owner.
14.2. Indemnification.
(a) Subject to the application of any insurance coverages,
Owner shall indemnify, defend and hold Manager and Manager's agents, officers,
employees, directors, shareholders, partners and members (Manager and all such
parties being collectively referred to as "Manager's Indemnified Parties"),
harmless from and against any and all claims, losses, costs, damages,
liabilities, suits, actions, proceedings, judgments, fines, penalties, charges
and expenses, including reasonable attorneys' fees (collectively, "Claims"),
that may be asserted against, imposed upon or incurred by Manager's Indemnified
Parties with respect to the operation of the Facility provided Manager acted in
a manner Manager reasonably believed to be in or not opposed to the best
interests of Owner and provided such Claims do not result from the gross
19
negligence or willful misconduct of any of the Manager Indemnified Parties. This
indemnification shall survive the termination or expiration of this Agreement.
(b) Subject to the application of any insurance coverages,
Manager shall indemnify and hold Owner harmless from and against any and all
Claims, demands, obligations, that may be asserted against, imposed upon or
incurred, caused or occasioned by Manager's acting in bad faith and in a manner
reasonably believed not to be in the best interests of Owner or arising out of
the gross negligence or willful misconduct of any of the Manager Indemnified
Parties, except to the extent such Claims result from the gross negligence or
willful misconduct of Owner. This indemnification shall survive the termination
or expiration of this Agreement.
Section 15. MISCELLANEOUS.
15.1. Government Regulations. In accordance with its obligations under
this Agreement, Owner and Manager shall operate and maintain the Facility in
compliance with the requirements of any statute, ordinance, law, rule,
regulation or order of any governmental or regulatory body having jurisdiction
over the Facility. If for any reason any term or condition of this Agreement is
found to be invalid or contrary to government laws, rules, regulations or
orders, Owner and Manager agree to immediately and in good faith modify such
term or condition to comply with such government law, rule, regulation or order.
15.2. Good Faith Effort by Manager. Manager shall act in good faith and
use its reasonable efforts to perform its obligations under this Agreement, but
shall have no liability to Owner for any decisions made with respect to or any
actions taken or in the omission of any actions in connection with the
Facility's operations, so long as such decisions, actions or omissions were made
or taken in good faith and met the standard of care set forth herein. Any action
taken or omitted by Manager in reliance on written advice from accountants with
respect to financial reporting matters or legal counsel with respect to legal
questions shall be conclusively deemed to have been taken in good faith. The
liability of Manager to Owner is limited to actual damages suffered by Owner as
a direct and proximate result of Manager's breach under any provision of this
Agreement. Manager makes no warranties, express or implied, and shall not assume
any financial or other responsibilities in connection with its obligations under
this Agreement, except as specifically provided in this Agreement. Manager shall
be responsible for managing the Facility and all of their assets and services
with the same diligence and skill as is employed by prudent owners and managers
in the management of similar senior independent living residential facilities,
and consistent with the provisions of this Agreement and in substantial
compliance with all obligations imposed on Owner which are known to Manager.
15.3. Assignment. Manager shall not assign its rights or obligations
under this Agreement without prior written consent of Owner.
15.4. Subordination. Manager agrees that this Agreement shall be
subordinate to any third-party financing from time to time obtained by the Owner
for purposes of financing the Facility. Manager shall execute such documents as
may be reasonably requested by the Owner and/or its lender in order to evidence
20
such subordination. Manager acknowledges that any such lender shall have the
right to terminate this Agreement for any reason or no reason upon the
occurrence of a default by Owner under the loan documents or upon such lender
acquiring Owner's title to the Facility or upon such taking possession of the
Facility.
15.5. Retention of Control by Owner. Except as limited by the terms of
this Agreement, Owner shall at all times continue to exercise control over the
assets and operations of the Facility, and Manager shall perform its
responsibilities as described in this Agreement in accordance with written
policies and directives adopted by Owner. By entering into this Agreement, Owner
does not delegate to Manager any of the powers, duties and responsibilities
vested in the Owner by law, or by its governance documents. Owner may, according
to the terms of this Agreement adopt the Facility's policy, recommendations or
proposals made by Manager, provided that any such policies shall be consistent
with the terms of this Agreement.
15.6. Books and Records. Manager shall make available to Owner for
inspection and copying by Owner upon reasonable request, all books and records
and financial data relating to the Facility. Manager shall provide Owner with
copies of all licensure and/or certification surveys conducted at the Facility.
15.7. Binding Agreement. The terms, covenants, conditions, provisions
and agreements contained in this Agreement shall be binding upon and inure to
the benefit of Owner and Manager, their successors and assigns.
15.8. Relationship of Parties. Nothing contained in this Agreement
shall constitute or be construed to be or to create a partnership, joint venture
or lease between Owner and Manager with respect to the Facility.
15.9. Entire Agreement; Amendments. This Agreement, including the
Schedules attached hereto, contain the entire agreement between the parties
hereto with respect to the subject matter, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Owner and Manager.
15.10. Governing Law. This Agreement is made under, and shall be
construed and enforced in accordance with, the laws of the State of California
applicable to agreements made and to be performed solely therein, without giving
effect to principles of conflicts of law.
15.11. Arbitration of Accounting Matters. If any controversy should
arise between the parties in the performance, interpretation and application of
this Agreement which involves accounting matters, either party may serve upon
the other a written notice stating that such party desires to have the
controversy reviewed by an arbitrator, who shall be a representative of a firm
specializing in accounting in the senior independent living industry. If the
parties cannot agree within fifteen (15) days from the service of such notice,
upon the selection of such an arbitrator, the arbitrator shall be selected or
designated by the American Arbitration Association upon the written request of
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either party hereto. Arbitration of such controversy, disagreement or dispute
shall be conducted in accordance with the rules then in force of the American
Arbitration Association and the decision and award of the arbitrator so selected
shall be binding upon Owner and Manager.
15.12. Maintenance of Books, Records and Documents. Manager shall make
available to Owner for a three (3) year period after the termination of this
Agreement such books, documents and records relating to the nature and extent of
the costs of the services provided by Manager under this Agreement. Manager
further agrees that in the event it carries out any of its duties under this
Agreement through a subcontract with a value or cost of Ten Thousand Dollars
($10,000) or more over a twelve (12) month period, such subcontract shall
contain a clause identical to that contained in the first sentence of this
Section.
15.13. Further Assurances. At any time and from time to time during the
term of this Agreement, at either party's request, each party shall promptly
execute and deliver all such further agreements, certificates, instruments and
documents, including a certificate of Owner in a form reasonably satisfactory to
Manager stating that this Agreement is in effect with respect to, and is binding
against, Owner, and each party shall perform such further actions, as the other
party may reasonably request in order to fully consummate the transactions
contemplated by this Agreement and carry out the purposes and intent of this
Agreement.
15.14. Certain Definitions.
(a) Affiliate. The term "Affiliate," as used in this
Agreement, means a person that, directly or indirectly, controls or is
controlled by, or is under common control with, the person specified.
(b) Person. The term "person," as used in this Agreement means
any individual, sole proprietorship, joint venture, corporation, partnership,
governmental body, regulatory agency or other entity of any nature.
(c) Gross Revenue. The term "Gross Revenue," as used in this
Agreement, means all revenues accrued during the term of this Agreement from the
operation of the Facility, whatever source, including, without limitation,
rental income from residents, space rentals, service fee income, food income,
assisted living income (if any), guest fees, and other income generated from the
operation of the Facility excluding all proceeds from or otherwise attributable
to a sale, financing, re-financing, equity contribution or similar capital
event. Gross Revenue shall exclude insurance proceeds (except for rent loss
proceeds), condemnation awards, and security deposits (unless forfeited).
(d) Facility Operating Expenses. The term "Facility Operating
Expenses" shall mean all costs and expenses of whatsoever kind (excluding debt
service on mortgage loans encumbering the Facility and excluding taxes,
insurance, capital expenses, capital reserves and amounts paid for items covered
by insurance but which are under the deductible limits) that are paid or accrued
22
by Owner with respect to the Facility, regardless of whether paid directly or by
reimbursing Manager. In calculating Facility Operating Expenses for any annual
period, expenses for the Facility that are attributable to longer periods of
time shall be appropriately pro-rated and allocated to that year (e.g. 1/2 of a
two year payment, 1/3 of a three year payment).
15.15. Attorneys' and Other Fees. Should either party institute any
action or proceeding to enforce or interpret this Agreement or any provision
hereof, for damages by reason of any alleged breach of this Agreement or of any
provision hereof, or for a declaration of rights hereunder, the prevailing party
in any such action or proceeding shall be entitled to receive from the other
party all costs and expenses, including reasonable attorneys' and other fees,
incurred by the prevailing party in connection with such action or proceeding.
The term "attorneys' and other fees" shall mean and include attorneys' fees,
accountants' fees, and any and all other similar fees incurred in connection
with the action or proceeding and preparations therefor. The term "action or
proceeding" shall mean and include actions, proceedings, suits, arbitrations,
appeals and other similar proceedings.
15.16. Severability. If any provision of this Agreement is construed to
be invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.
15.17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one (1) original counterpart hereof.
Section 16. Right of First Offer for Sale of Property. Provided each
and every one of the Conditions Precedent (as defined below) are met, Owner
hereby agrees to give Manager a right of first offer ("Offer Right") to purchase
the Facility on all of the terms and conditions hereinafter set forth in this
Section 16. The term "Conditions Precedent" shall mean that (i) none of the
circumstances set forth in Section 12.1 of this Agreement which would give rise
to Owner's right to terminate this Agreement for cause shall exist, and (ii) the
Facility shall have generated an average annual NOI of One Million Four Hundred
Ninety Thousand Dollars ($1,490,000.00) or greater during each of the calendar
years that Owner has owned the Facility (with appropriate proration for any
partial years).
(a) If the Conditions Prececent to Manager's Offer Right are
satisfied and Owner desires to sell the Facility, Owner shall provide Manager a
notice ("Sale Proposal") setting forth the amount, and other material terms upon
which Owner intends to attempt to sell the Facility to a third-party purchaser.
(b) Within thirty (30) days after receiving the copy of the
Sale Proposal, Manager shall notify Owner that either: (i) Manager elects to
exercise its Offer Right to acquire the Facility for the amount and in
accordance with the terms set forth in the Sale Proposal (a "Purchase Election
Notice"), or (ii) Manager does not want to exercise its Offer Right for the
amount in Owner's Sale Proposal, but that Manager will exercise the Offer Right
for an amount set forth in Manager's attached counteroffer ("Manager's
Counteroffer"), or (iii) that Manager elects not to exercise its Offer Right and
23
does not elect to make a Counteroffer. Failure of Manager to deliver a Purchase
Election Notice or a Manager's Counteroffer within such thirty (30) day period
shall be deemed an election by Manager not to exercise its Offer Right and not
to make a Manager's Counteroffer and to allow Owner to proceed with a sale of
the Facility under Section 16(b)(ii) below without regard to the price obtained
by Owner.
(i) If Manager gives a Purchase Election Notice, the purchase
price to be paid by Manager for the Facility shall consist wholly of cash,
unless the Sale Proposal provides otherwise. Within thirty (30) days of
Manager's delivery of Manager's Purchase Election Notice, Manager shall deliver
an xxxxxxx money deposit, payable to Owner, in an amount equal to 5% of the
purchase price of the Facility (said amount, together with any interest earned
thereon, being hereinafter called the "Deposit"). If within such applicable
thirty (30) day periods Manager shall deliver a Purchase Election Notice and the
Deposit to Owner, then Owner and Manager shall promptly proceed with the
purchase and sale pursuant to this Section 16, the closing to take place within
one hundred twenty (120) days following the date of the Purchase Election
Notice, in which event the Deposit shall be credited to Manager against the
total purchase price of the Facility; provided, however, that if such closing
shall fail to occur because of a default by Manager, then Owner shall have the
right, as its exclusive remedy, to retain the Deposit as liquidated damages, it
being agreed that in such instance its actual damages would be difficult, if not
impossible, to ascertain. After any such default under this Section 16 by
Manager, Owner shall have the right to sell the Facility without regard to this
Section 16 and Manager's Offer Right shall be null and void and of no further
force or effect. If no default occurs, the closing shall take place during
normal business hours at the office of Owner's counsel or as otherwise agreed by
the parties. All prorations of real estate taxes, rents, etc., shall be made as
of the date of sale. All real property transfer taxes shall be paid for by Owner
and all recording fees and other closing costs shall be paid for by Manager.
(ii) If Manager elects not to provide a Purchase Election
Notice but does provide a Manager's Counteroffer, Owner shall notify Manager,
within ten (10) business days of Owner's receipt of Manager's Counteroffer
whether or not Owner elects to sell the Facility to Manager in accordance with
all of the terms and conditions of Owner's Sale Proposal except that the
purchase price will be at the amount set forth in Manager's Counteroffer. If
Owner so elects, then, within thirty (30) days of Owner's notice to Manager of
its acceptance of the Manager's Counteroffer, Manager shall deliver a Deposit as
described in Subsection 16(b)(i) above and the purchase and sale of the Facility
will occur as otherwise described in Subsection 16(b)(i) above within one
hundred twenty (120) days of Owner's election. If Owner does not deliver a
notice to Manager, within such ten (10) business day period, accepting Manager's
Counteroffer, Owner will be deemed to have rejected Manager's Counteroffer and
Owner shall then be entitled to sell the Facility at any time within one (1)
year of the date Owner elects (or is deemed to have elected) not to accept
Manager's Counteroffer, on any terms and conditions Owner finds acceptable to
any third party so long as the third party pays a purchase price for the
Facility which is greater than the amount set forth in Manager's Counteroffer.
If the purchase price is less than or equal to the purchase price set forth in
Manager's Counteroffer, Owner must give Manager notice of the terms of such
third party's offer (the "Alternative Offer"). Manager shall then have the
24
right, for a period of ten (10) days after its receipt of such notice from
Owner, to elect to purchase the Facility on the terms set forth in the
Alternative Offer, except that Manager's purchase price shall be payable wholly
in cash, unless the Alternative Offer provides otherwise. If Manager shall
deliver notice of such election during such ten (10) day period to purchase the
Facility as aforesaid, the purchase and sale pursuant to this Section 16 shall
occur within one hundred twenty (120) days after receipt by Owner of the notice
of such election. If Manager shall not elect, within such ten (10) day period,
to purchase the Facility pursuant to the foregoing provisions of this Section
16, Owner shall have the right to effect a sale of the Facility pursuant to the
terms of the Alternative Offer provided that the closing of such sale shall
occur not later than ninety (90) days after the closing date specified in the
Alternative Offer. If, within thirty (30) days following Owner's delivery of a
Sales Proposal to Manager, Manager does not deliver to Owner either a Purchase
Election Notice or a Manager's Counteroffer, then Owner shall be entitled to
sell the Facility at any time within one (1) year of the date Manager elects (or
is deemed to have elected) not to provide either a Purchaser's Election Notice
or a Manager's Counteroffer, on any terms and conditions and for any price Owner
finds acceptable to any third party and without any obligation whatsoever to
provide an Alternative Offer to Manager. If Owner has not sold the Facility
within the applicable one (1) year period set forth in this Section 16(b)(ii)
(or within ninety (90) days as to an Alternative Offer), then the provisions of
this Section 16 shall again apply to any proposed sale by Owner.
(c) This Offer Right shall not apply with respect to any
foreclosure or any conveyance pursuant to the exercise of a power of sale, any
deed-in-lieu of foreclosure or any other similar conveyance arising out of the
exercise by any lender of its rights with respect to the Facility. In addition,
in the event this Offer Right is provided to Manager and a third party acquires
the Facility pursuant to the terms of a Sale Proposal or an Alternative Offer
and the third party purchaser elects to assume Owner's rights under this
Agreement, this Section 16 and all of Manager's rights hereunder (including,
without limitation, the Offer Right) shall be null and void and of no further
force or effect whatsoever with respect to any sale by the third party who
acquired the Facility from Owner or any successor purchaser thereafter.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf by their duly authorized representatives, as of the day
and year first above written.
OWNER:
SHP II XXXXXXXXXX, LLC,
a Delaware limited liability company
By: Senior Housing Partners II, L.P.,
a Delaware limited partnership,.
its Manager
By: Senior Housing Partners II, L.L.C.,
a Delaware limited liability company,
its General Partner
By: The Prudential Insurance Company of America,
a New Jersey corporation,
its Managing Member
By: /s/ Xxxx X. Dark
--------------------------------------------------
Name: Xxxx X. Dark
-------------------------------------
Its: V.P.
-----------------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
26
MANAGER:
CAPITAL SENIOR LIVING, INC.,
a Texas corporation
By: /s/ Xxxxxxxx X. Xxxxx
-----------------------------------------------------
Xxxxxxxx X. Xxxxx, CEO
-------------------------------------------
27
