MANAGEMENT
AGREEMENT
between
KC OPCO, LLC
(OPCO)
and
KINDERCARE LEARNING CENTERS, INC.
(MANAGER)
JULY 1, 2003
Table of Contents
Page
ARTICLE I CERTAIN DEFINITIONS..................................................1
Section 1.1. "Accounting Period".........................................1
Section 1.2. "Affiliates"................................................1
Section 1.3. "Annual Business Plan"......................................1
Section 1.4. "Emergency Repairs".........................................1
Section 1.5. "Facilities"................................................2
Section 1.6. "Fiscal Year"...............................................2
Section 1.7. "Fiscal Year Commencement Date".............................2
Section 1.8. "Fiscal Year Expiration Date"...............................2
Section 1.9. "Furniture, Fixtures, and Equipment or FF&E"................2
Section 1.10. "Gross Operating Revenues"..................................2
Section 1.11. "Ground Lease"..............................................2
Section 1.12. "Independent Auditor".......................................2
Section 1.13. "Kindercare Intellectual Property"..........................3
Section 1.14. "KC Operating Period".......................................3
Section 1.15. "Loan Agreement"............................................3
Section 1.16. "Loan Documents"............................................3
Section 1.17. "Management Commencement Date"..............................3
Section 1.18. "Management Fee"............................................3
Section 1.19. "Mortgagee".................................................3
Section 1.20. "Operating Funds"...........................................3
Section 1.21. "Propco"....................................................3
ARTICLE II ENGAGEMENT OF MANAGER AND COMMENCEMENT OF MANAGEMENT
OF THE FACILITIES.........................................................4
Section 2.1. Engagement of Manager to Manage Facilities..................4
Section 2.2. Management Commencement Date and Pre-Commencement
Activities..................................................4
ARTICLE III OPERATION OF THE fACILITIES AFTER THE MANAGEMENT
COMMENCEMENT DATE.........................................................4
Section 3.1. Duty and Authority of Manager...............................4
Section 3.2. Operational Standards.......................................6
Section 3.3. Agreements with Related Parties.............................7
Section 3.4. Emergency Repairs...........................................7
Section 3.5. INTENTIONALLY OMITTED.......................................7
Section 3.6. KinderCare Intellectual Property............................7
Section 3.7. Compliance with Terms of the Loan Documents.................7
Section 3.8. Tuition Fees................................................9
Section 3.9. Credit Policies.............................................9
Section 3.10. Collection Practices........................................9
ARTICLE IV OPERATING EXPENSES PAID BY OPCO.....................................9
Section 4.1. Expenses Incurred by Manager on Behalf of Opco..............9
Section 4.2. Debts and Liabilities to Third Parties......................9
Section 4.3. Manager Not Obligated to Advance Own Funds.................10
ARTICLE V SUPPORT SERVICES PAID BY MANAGER'S AFFILIATES.......................10
Section 5.1. Normal Consulting Services of Manager's Affiliates.........10
Section 5.2. Exceptions for Certain Support Services of
Manager's Affiliates.......................................10
ARTICLE VI COMPLIANCE WITH LAWS...............................................10
Section 6.1. Compliance by Manager and Opco After Management
Commencement Date..........................................10
Section 6.2. Opco's Right to Contest or Postpone Compliance.............11
ARTICLE VII AGENCY ACCOUNT, OPERATING FUNDS, AND RESERVE FUND ACCOUNT.........11
Section 7.1. Agency Account.............................................11
ARTICLE VIII BOOKS, RECORDS AND FINANCIAL STATEMENTS..........................12
Section 8.1. Accounting System..........................................12
Section 8.2. Financial Statements.......................................12
ARTICLE IX ANNUAL BUSINESS PLAN...............................................12
Section 9.1. Preparation of Annual Business Plan........................12
Section 9.2. Annual Business Plan Disputes..............................13
Section 9.3. Deviations from Annual Business Plan.......................13
Section 9.4. Loan Documents.............................................14
ARTICLE X MANAGER'S FEES AND REIMBURSEMENTS...................................14
Section 10.1. Management Fee.............................................14
Section 10.2. Technical or Procurement Services..........................14
ARTICLE XI INSURANCE..........................................................14
Section 11.1. Insurance Coverage.........................................14
Section 11.2. Waiver of Subrogation - Opco Assumes Risk of Adequacy......15
ARTICLE XII TERM OF AGREEMENT AND TERMINATION.................................15
Section 12.1. Term.......................................................15
Section 12.2. Early Termination..........................................15
Section 12.3. Liabilities upon Termination...............................16
Section 12.4. Termination Procedure......................................16
Section 12.5. Certain Opco Defaults......................................16
Section 12.6. Obligations Following Termination..........................16
ARTICLE XIII REPRESENTATIONS AND COVENANTS....................................17
Section 13.1. Opco's Representations.....................................17
Section 13.2. Manager's Representations..................................18
ARTICLE XIV ASSIGNMENT........................................................18
Section 14.1. Assignment.................................................18
ARTICLE XV INDEMNIFICATION AND LIMITATION OF LIABILITY........................18
Section 15.1. Opco's Indemnification.....................................18
Section 15.2. Manager's Indemnification..................................19
Section 15.3. Indemnification Procedure..................................19
Section 15.4. Good Faith Judgment........................................20
ARTICLE XVI MISCELLANEOUS.....................................................20
Section 16.1. Severability...............................................20
Section 16.2. Agency 20
Section 16.3. Meetings...................................................20
Section 16.4. Consents...................................................20
Section 16.5. Applicable Law.............................................20
Section 16.6. Successors Bound...........................................20
Section 16.7. Headings...................................................21
Section 16.8. Incorporation of Recitals..................................21
Section 16.9. Notices21
Section 16.10.Entire Agreement...........................................22
Section 16.11.Manager's Authority Limited................................22
Section 16.12.Exclusive Compensation.....................................22
Section ▇▇.▇▇.▇▇▇▇▇▇▇▇ Rights............................................23
Section 16.14.Attorneys' Fees............................................23
Section 16.15.Complimentary/Discount Policies............................23
Section 16.16.Amendments and Modifications...............................23
Exhibit A..................................................................
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of July ___, 2003
by and between KC Opco, LLC, a Delaware limited liability company (hereinafter
referred to as "Opco"), and KinderCare Learning Centers, Inc., a Delaware
corporation ("Manager").
BACKGROUND
A. Opco is the lessee of those certain early childhood care and
education facilities listed on Exhibit A attached hereto (collectively the
"Facilities");
B. Subject to the terms and provisions of this Agreement, Opco desires
to have Manager assist Opco in managing and operating the Facilities; and
C. Manager is willing to perform such services as agent of and for the
account of Opco in accordance with the terms hereof.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing recitals and the
premises and the mutual covenants herein contained, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Accounting Period" shall mean for any Fiscal Year, each
of four accounting periods, with the first such period consisting of the first
16 weeks of the Fiscal Year and the subsequent three accounting periods each
consisting of 12 weeks during the Fiscal Year.
Section 1.2. "Affiliates" shall mean, as to any Person, any other
Person that, directly or indirectly, owns more than forty percent (40%) of, is
in control of, is controlled by or is under common ownership or control with
such Person or is a director or officer of such Person or of an Affiliate of
such Person. As used in this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management, policies or activities of a Person, whether through
ownership of voting securities, by contract or otherwise.
Section 1.3. "Annual Business Plan" shall have the meaning set forth
in Section 9.1.
Section 1.4. "Controllable Expenses" shall mean all expenses for
labor, food, educational supplies, equipment replacement, office supplies,
training, janitorial services, repair and maintenance, utilities, local
marketing programs, telephone, vehicle expenses, bad debt, program materials,
gas, oil, maintenance, field trip costs, activity costs, promotional expenses,
recruiting, insurance and other miscellaneous expenses directly related to the
operation of the Facilities as early childhood care and educational
centers.
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Section 1.5. "Emergency Repairs" shall mean repairs which are
necessary, as a result of emergencies, to protect, maintain, or repair the
Facilities. Emergencies, for the purposes hereof, shall mean immediate threats
of damage or injury to persons or property or immediate threats of violations of
law.
Section 1.6. "Facilities" shall mean the Facilities referred to in the
first recital herein.
Section 1.7. "Fiscal Year" shall mean a period of time commencing on
the Fiscal Year Commencement Date occurring during such period and ending on the
Fiscal Year Expiration Date for such period or the portion thereof depending
upon the commencement date (Section 2.2) and the termination date (Section
12.01).
Section 1.8. "Fiscal Year Commencement Date" shall mean the date
occurring immediately after the Fiscal Year Expiration Date for the prior Fiscal
Year.
Section 1.9. "Fiscal Year Expiration Date" shall mean for each
calendar year, the Friday that is the closest to May 31 of that calendar year.
Section 1.10. "Furniture, Fixtures, and Equipment or FF&E" shall mean
furniture, furnishings, light fixtures, outfittings, equipment and all other
items of personal property customarily installed in or used in connection with
the operation of the Facilities.
Section 1.11. "Gross Operating Revenues" shall mean all receipts,
revenues, income and proceeds of sales of every kind received by Manager from
the operation of the Facilities, and shall include, without limitation: tuition
payments, including any federal, state or local subsidies relating thereto,
registration fees, reservation fees; rent or other payments received from
sub-tenants, licensees, and occupants of commercial and retail space located in
the Facilities, if any (provided that the income and/or revenue received by any
licensees, subtenants or other occupants which are Affiliates of Opco shall not
be included in Gross Operating Revenues); the proceeds of insurance received by
Opco or Manager with respect to use and occupancy or business interruption
insurance; deposits forfeited and not refunded; and any amount recovered in any
legal action or proceeding or settlement thereof pertaining to tuition payments,
reservation or registration fees or other income from the Facilities which arose
out of the operation of the Facilities. Gross Operating Revenues shall exclude
all sales and excise taxes and any similar taxes collected as direct taxes
payable to taxing authorities; gratuities or service charges collected for
payment to and paid to employees; credits or refunds to clients; proceeds of
insurance, save and except for proceeds of insurance with respect to use and
occupancy or business interruption insurance; proceeds of sales of depreciable
property; and proceeds of condemnation.
Section 1.12. "Ground Lease" means that certain Lease Agreement dated
as of the date hereof by and between Propco, as owner, and Opco, as tenant,
relating to the Facilities, as such Ground Lease may be amended, modified,
supplemented, consolidate, assigned, renewed or extended from time to time.
Section 1.13. "Independent Auditor" shall mean a reputable national
firm of independent certified public accountants, recommended by Manager from
time to time and approved by Opco.
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Section 1.14. "Kindercare Intellectual Property" means all
intellectual property that is necessary or could reasonably be expected to be
necessary to operate the Facilities as early childhood care and educational
facilities in the manner operated immediately prior to the date hereof,
including, without limitation, the trade name "KinderCare Learning Centers" and
the trademarks associated with the name "KinderCare Learning Centers" listed on
Exhibit B hereto and any computer software systems (including enrollment and
accounting systems) used in connection with the Facilities.
Section 1.15. "KC Leased Property" means those certain fax machines,
computers and photocopy machines currently leased by Manager and used at the
Facilities.
Section 1.16. "KC Operating Period" shall mean each of 13 periods of
time consisting of four weeks occurring during each Fiscal Year, adjusted for
the Fiscal Year ending in May of 2006 to account for the 53 week Fiscal Year.
Section 1.17. "Loan Agreement" shall mean that certain Loan Agreement
dated of even date herewith between Mortgagee and Propco relating to the
Facilities, as such agreement may be amended, modified, supplemented or replaced
from time to time.
Section 1.18. "Loan Documents" shall have the meaning given thereto in
the Loan Agreement.
Section 1.19. "Management Commencement Date" shall mean the date
Manager assumes management of the Facilities in accordance with the provisions
of this Agreement.
Section 1.20. "Management Fee" shall have the meaning set forth in
Section 10.1 hereof.
Section 1.21. "Mortgagee" means ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Mortgage Capital Inc,
its successors and assigns.
Section 1.22. "Operating Funds" shall have the meaning set forth in
Section 7.2 hereof.
Section 1.23. "Other On-Site Expenses" means all capital lease
interest, taxes and license fees, and rent under any leased assets used in
conjunction with the operation of the FacilitiesSection 1.24. "Propco" means KC
Propco, LLC, a Delaware limited liability company and the owner of the
Facilities.
Section 1.24. "Total Net Revenues" means Gross Operating Revenues less
any discounts returned.
Section 1.25 "Total Operating Expenses" means all Controllable
Expenses and Other On-Site Expenses, but specifically excluding depreciation and
amortization. Other terms are described in the Recitations and the further
provisions of this Agreement, and shall have the respective meanings there
ascribed to them.
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ARTICLE II
ENGAGEMENT OF MANAGER AND
COMMENCEMENT OF MANAGEMENT OF THE FACILITIES
Section 2.1. Engagement of Manager to Manage Facilities. Opco hereby
appoints Manager as Opco's exclusive agent, subject to the terms of this
Agreement, to supervise, direct and control the management and operation of the
Facilities, and Manager hereby undertakes and agrees to perform, as the agent of
and for the account of Opco, all of the services and to comply with all of the
provisions of this Agreement, upon all of the terms and conditions hereinafter
set forth.
Section 2.2. Management Commencement Date and Pre-Commencement
Activities. Manager shall assume management and operation of the Facilities at
12:01 A.M. on the date hereof (the "Management Commencement Date").
ARTICLE III
OPERATION OF THE fACILITIES AFTER THE
MANAGEMENT COMMENCEMENT DATE
Section 3.1. Duty and Authority of Manager. On and after the
Management Commencement Date, except as expressly limited hereby, the Manager
shall have the exclusive authority and duty to direct, supervise, manage and
operate the Facilities in an efficient and economical manner and to determine
the programs and policies to be followed in connection therewith, all in
accordance with the provisions of this Agreement and the Annual Business Plan.
Manager shall at all times be an independent contractor and not the employee of
Opco. Subject to the provisions of this Agreement and the Annual Business Plan,
Manager shall have the discretion and control in all matters relating to the
management and operation of the Facilities. Without limiting the generality of
the foregoing, Manager shall have the authority and duty to:
A. Hire, supervise, direct the work of, discharge and determine the
compensation and other benefits of all personnel working in the Facilities.
Manager shall be the judge of the fitness and qualifications of such
personnel and shall be vested with discretion in the hiring, training,
supervision, direction, discharging, and determination of the compensation
and other benefits of such personnel during the course of their employment.
It is expressly understood and agreed that all personnel are in the sole
employ of Manager or such company as Manager may contract with regarding
said personnel and are not in the employ of Opco. Opco will not interfere
with or give orders or instructions to personnel employed at the Facilities
for any act or omission on the part of such personnel.
B. Reasonably employ the resources of its corporate office and
regional facilities, field managers and personnel to supervise and assist
in the operation of the Facilities. Manager shall provide human resources
and personnel, administration, forecasting and operations analysis, staff
planning, accounting, and oversight over enrollment at each Facility.
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C. Establish all tuition rates and rate schedules, reservation fees,
registration fees and fees for ancillary services (such as enrollment in
Hooked on Phonics) and, in connection therewith, the supervision, direction
and control of the collection, receipt and giving of receipts for all
services or income of any nature from the operations of the Facilities.
Monitor and implement any federal, state or local tuition subsidy plans and
tuition reimbursement plans.
D. Supervise and maintain complete books and records, including
without limitation, the books of accounts and accounting procedures of the
Facilities.
E. Administer sub-leases, license and concession agreements, if any,
relating to any space at the Facilities not utilized in the operation of
each Facility as an early childhood care and learning center.
F. Keep the Facilities and the Furniture, Fixtures, and Equipment in
good order, repair and condition, including, without limitation, making
necessary replacements, improvements, additions and substitutions to the
Facilities, subject to the approved Annual Business Plan. Manager shall
effect, institute, and/or supervise all decorations, routine construction,
maintenance, repairs and alterations, including, but not limited to, the
administration of a preventive maintenance program for all mechanical,
electrical and plumbing systems and equipment, for the Facilities to ensure
that the Facilities will be in compliance with governmental regulations,
provided that the costs therefor (unless the same relate to emergencies)
are included in the Annual Business Plan or are otherwise approved in
writing, in advance, by Opco. Subject to the limitations set forth in and
imposed by the Annual Business Plan and the Loan Documents, Manager will
have the right to make such alterations, additions or improvements to the
Facilities as are customarily made in the operation or comparable
Facilities; provided, however, that no structural alterations, additions or
improvements involving a fundamental change in the character of the
Facilities will be made without Opco's prior written approval. The cost of
such customary alterations, additions or improvements will be paid either
(1) out of the Total Net Revenues and charged directly to current operating
expenses of the Facilities, but only to the extent such alterations,
additions or improvements represent Total Operating Expenses or (2) will be
paid from the Capital Expenditure Account (as defined in the Loan
Documents) and capitalized and amortized on the books of the Facilities,
all in accordance in the terms and provisions of the Loan Documents.
Manager and Opco acknowledge that all of the owned and leased Furniture,
Fixtures and Equipment and all other personal property at the Facilities
(other than the KC Leased Property and the vans used at the Facilities) is
the property of Propco and has been leased to Opco pursuant to the Ground
Lease. All replacements for such Furniture, Fixtures and Equipment and all
other personal property at the Facilities (other than the KC Leased
Property and the vans used at the Facilities) shall be purchased by Manager
and Manager shall be reimbursed by Opco. Upon the current expiration date
or other earlier termination of the leases or other agreements relating to
the KC Leased Property, Manager shall, with the consent of Opco, either
arrange for new leases to replace the KC Leased Property or otherwise
purchase replacement property for the KC Leased property in accordance with
the other terms of this subsection (F). In the event Manager arranges for
new leases for any property to replace the KC Leased Property, such lease
shall be
6
entered into by Propco and Propco shall then lease the KC Leased Property
to Opco pursuant to the Ground Lease.
G. Negotiate and enter into, on behalf of Opco, service contracts and
licenses required in the ordinary course of business in operating the
Facilities, including, without limitation, contracts for life/safety
systems maintenance, electricity, gas, telephone, cleaning, elevator and
boiler maintenance, air conditioning maintenance, transportation and other
services which Manager deems advisable.
H. Negotiate and enter into, on behalf of Opco, agreements relating to
registration and enrollment and to provide educational services, including
supplemental materials.
I. Supervise and purchase or arrange for the purchase in the most
economical manner of all inventories, provisions, and materials, which, in
the normal course of business, are necessary and proper to maintain and
operate the Facilities.
J. Prepare and submit to Opco the Annual Business Plan, as hereinafter
described in Section 9.1 hereof.
K. Provide those benefits, services, and facilities, including joint
advertising programs to the extent appropriate (all herein collectively
called "Centralized Services"), similar to those furnished to other
facilities owned and/or operated by Manager.
L. Perform such other tasks as are customary and usual in the
operation of a well operated early childhood care and education center.
Section 3.2. Operational Standards. (a) Manager will operate the
Facilities at the expense of Opco in accordance with and subject to the
provisions of this Agreement and the Annual Business Plan. Manager shall manage
the Facilities in a manner normally associated with early childhood care and
education centers of similar size, type, or usage in similar locations as the
Facilities. Manager shall use due care with respect to the management,
maintenance, and protection of, and accounting for, Opco's and Propco's assets.
(b) Manager shall manage and operate the Facilities and its
businesses, services, and sales and shall exercise diligent efforts to do so at
all times in a manner consistent with the requirements of all governmental
regulations, and the requirements of this Agreement.
(c) Manager shall implement policies and practices to achieve the
following goals:
(i) To facilitate effective and efficient discharge of its obligations
under this Agreement; and
(ii) To create and enhance goodwill among existing and prospective
clients of Opco.
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Section 3.3. Agreements with Related Parties. Manager shall not enter
into any contract with an Affiliate of Manager for operating, cleaning,
maintaining, repairing or servicing the Facilities without the express prior
written consent of Opco, which consent may be evidenced by Opco's approval of
the Annual Business Plan.
Section 3.4. Emergency Repairs. In the event Emergency Repairs are
needed at any Facility, Manager is authorized to enter into contracts occasioned
by such emergency that provide for expenditures not contemplated by the Annual
Business Plan provided the same may be incurred without the consent of the
Lender under the Loan Documents. Manager will promptly give Opco written notice
of any Emergency Repairs made by Manager.
Section 3.5. INTENTIONALLY OMITTED.
Section 3.6. KinderCare Intellectual Property. (a) Manager shall, in
connection with the performance of its services under this Agreement, utilize
the Kindercare Intellectual Property or such portion thereof as Manager may deem
necessary or advisable with respect to the operation of each Facility.
(b) Notwithstanding the obligations of Manager pursuant to Section
3.6(a) above, Opco acknowledges Manager's ownership of the entire right, title
and interest in and to the KinderCare Intellectual Property and all trademark
and service ▇▇▇▇ registrations and applications which use any part of the
KinderCare Intellectual Property. Opco acknowledges that its use by Manager in
connection with the management and operation of the Facilities shall not create
in Opco any right, title or interest in the KinderCare Intellectual Property.
(c) Opco hereby covenants and agrees it shall not:
(i) take any action challenging the validity of Manager's right to use
the KinderCare Intellectual Property;
(ii) attack or perform any action, direct or indirect, which might
challenge, impair or otherwise adversely affect the validity of the
KinderCare Intellectual Property or the Manager's ownership thereof; or
(iii) adopt or seek to register or take any other action to use or
establish rights in any name, ▇▇▇▇ or word (in English or any other
language), symbol, letter or design which is confusingly similar to the
KinderCare Intellectual Property.
(d) The obligations of the parties in this Section 3.6 shall survive
any termination or expiration of this Agreement.
Section 3.7. Compliance with Terms of the Loan Documents. (a) Nothing
herein contained shall prevent Opco or Propco, as owner, from encumbering the
Facilities by mortgage, deed of trust, or trust deed in the nature of a
mortgage.
(b) Manager hereby acknowledges that it has reviewed the terms of the
Loan Documents that have been entered into on the date hereof and the Manager
shall use diligent efforts to cause the operation of the Facilities to comply
with all terms, conditions, and
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obligations contained in the Loan Documents or any substitute therefor of which
Manager is made aware (provided that Manager shall be under no obligation to
ensure that sufficient funds for payment thereof are generated from Facilities
operations) and with any leases, Opco's and Propco's organizational documents,
or other agreements of which Manager is made aware that are executed by Opco or
Propco and that relate to the Facilities. Manager acknowledges that the terms
and provisions of the Loan Documents may provide different standards or
requirements with respect to certain matters covered by this Agreement. To the
extent the provisions of this Agreement are inconsistent with restrictions
imposed by the Loan Documents, so long as Manager has been notified in writing
of such restrictions, the provisions of the Loan Documents shall govern with
respect to the matters covered hereby (and Manager hereby acknowledges receipt
of such notice as to any restrictions in the Loan Documents that have been
entered into on the date herof).
(c) Upon the execution of any Loan Documents, Opco or Propco shall
furnish Manager with a duplicate copy thereof and shall designate the post
office address where notices may be served upon Mortgagee. Manager hereby
acknowledges receipt of all Loan Documents executed on the date hereof and
agrees that the address where notices to the current Mortgagee may be sent is
set forth in Section 11.6 of the Loan Agreement existing as of the date hereof.
Manager agrees that, so long as any mortgage constituting a Loan Document shall
constitute a lien on the Facilities, when Mortgagee shall request in writing
copies of any and all financial or other information, required to be prepared or
maintained by Manager, pursuant to the terms and provisions of this Agreement,
Manager shall deliver same to Mortgagee as often as Opco may reasonably request.
Moreover, Manager shall allow, subject to the restrictions contained in the Loan
Agreement, any person designated in writing by Mortgagee to examine, audit,
inspect, and transcribe all books of account and all other records relating to
or reflecting the operation of the Facilities.
(d) This Agreement and the rights of Manager hereunder are and shall
be expressly subordinate and inferior to the rights of Mortgagee under the Loan
Documents and the rights of Propco under the Ground Lease. Manager shall, upon
the request of Propco, as owner, or Mortgagee, on ten business days' prior
notice, execute and deliver to Propco a subordination and attornment agreement
in such form as may be approved by Propco and Mortgagee in their reasonable
discretion.
(e) Manager agrees that from and after the date Manager receives
written notice that a mortgage is to be executed and delivered against the
interests of Propco or Opco with respect to a Facility, no notice of an Event of
Default to Opco or notice of an event which with the passage of time may
constitute an Event of Default under this Agreement shall be of any force and
effect unless Manager shall simultaneously give notice thereof to Mortgagee and
Propco in accordance with the provisions of Section 16.9 hereof. If an Event of
Default by Opco shall occur under this Agreement, Manager shall give Mortgagee
and Propco notice thereof, Mortgagee and Propco shall have 60 days to cure such
Event of Default (unless the Event of Default can be cured with the payment of
money in which case, 30 days); provided, however, neither Mortgagee nor Propco
shall be obligated to cure or attempt to cure any such Event of Default and
further, provided, that if the Event of Default cannot reasonably cured within
60 days, then the time period within which such Event of Default must be cured
shall be extended until such time as the Event of Default can be cured with due
diligence. In the event that any
9
such Event of Default cannot be cured without either Propco or Mortgagee gaining
possession of the Facility, then the cure period shall be extended to the date
that is 60 days after Propco or Mortgagee, as applicable, gains possession of
the Facility in question, provided Propco or Mortgagee, as applicable, commences
an action or takes such steps as are customary in the applicable jurisdiction to
recover possession of the Facility within 60 days of receipt of notice of the
Event of Default and diligently proceeds thereafter to obtain said possession;
provided, however, if the Event of Default cannot reasonably cured within such
60 days, then the time period within which such Event of Default must be cured
shall be extended until such time as the Event of Default can be cured with due
diligence.
Section 3.8. Tuition Fees. As part of the Annual Business Plan,
Manager will submit to Opco for its approval the rates to be published and
charged to members of the general public for tuition, registration and
reservation fees relating to each of the programs offered by the Facilities on
both a full and half-day basis (hereinafter referred to as the "Rates") during
such fiscal year. The Rates, as approved by Opco, may be changed, without Opco's
further approval, in Manager's discretion, as Manager may from time to time
determine to be in Opco's best interest. In connection with the establishment of
Rates, as same may be changed from time to time, Manager shall establish or
change Rates on a basis consistent with the goal of maximizing the Total Net
Revenues of each Facility.
Section 3.9. Credit Policies. To the extent Manager decides to accept
credit cards as a method of payment of fees from clients, Manager shall
establish and implement policies and procedures for verifying, accepting,
limiting, and rejecting the credit of clients of the Facilities. In connection
with the foregoing, Manager shall make appropriate arrangements to honor such
credit card or cards as Manager or Opco may deem desirable. Manager shall
utilize its best efforts to make such arrangements on the most favorable terms
available.
Section 3.10. Collection Practices. Manager shall employ its best
efforts to collect any and all credit card charges, checks, drafts, and other
accounts receivable. Manager shall employ collection agencies and legal counsel,
where appropriate, to pursue such claims.ARTI CLE IV
TOTAL OPERATING EXPENSES PAID BY OPCO
Section 4.1. Total Operating Expenses Incurred by Manager on Behalf of
Opco. Opco shall reimburse Manager only for such expenses incurred by Manager
which are Total Operating Expenses or Capital Expenditures. All other services
referred to hereunder shall be rendered and performed by Manager or its
Affiliates at their expense and not separately charged to Opco.
Section 4.2. Debts and Liabilities to Third Parties. All debts and
liabilities arising in the course of business of the Facilities which are either
Total Operating Expenses or Capital Expenditures are and shall be the
obligations of Opco, and, provided such debts and liabilities have been incurred
in accordance with the terms and provisions of this Agreement, Manager shall not
be liable for any of such obligations by reason of its management, supervision
and operation of the Facilities for Opco.
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Section 4.3. Manager Not Obligated to Advance Own Funds. With respect
to expenses that are included in Total Operating Expenses or Capital
Expenditures, neither Manager nor any of its Affiliates shall be obligated to
advance any of its own funds to or for the account of Opco, nor to incur any
liability unless Opco shall have furnished Manager with funds necessary for the
discharge thereof prior to incurring such liability. If Manager shall have
advanced any funds in payment of a permitted expense which is included in Total
Operating Expenses or Capital Expenditures in connection with the maintenance
and operation of the Facilities, Opco shall reimburse Manager therefor on
demand. Notwithstanding the foregoing, Manager shall pay from its own funds all
other expenses.
ARTICLE V
SUPPORT SERVICES PAID BY MANAGER'S AFFILIATES
Section 5.1. Normal Consulting Services of Manager's Affiliates.
Except as hereinafter provided in Section 5.2, after the Management Commencement
Date, the normal consulting services of the corporate officers and employees of
Manager's Affiliates, including its corporate executives for operations, sales
and marketing, legal, Centralized Services, finance and administration, real
estate, and accounting, to be rendered from time to time to Manager in
connection with the operations of the Facilities, shall be provided by Manager's
Affiliates to Manager and such services shall, to the extent not otherwise
included in Total Operating Expenses or Capital Expenditures, be provided at
Manager's sole cost and expense and not charged to Opco.
Section 5.2. Exceptions for Certain Support Services of Manager's
Affiliates. Notwithstanding the foregoing, Opco shall reimburse Manager for the
following costs: (i) the salaries or wages of any property level employees of
Manager or Manager's Affiliates who shall be regularly or temporarily employed
or assigned on a full-time basis at the Facilities to the extent such salaries
or wages are included in Total Operating Expenses; and (ii) the out- of-pocket
expenses of employees of Manager or its Affiliates incurred in connection with
the management of the Facilities to the extent such expenses are included in
Total Operating Expenses. In no event shall Manager's Affiliates be deemed a
party to this Agreement or responsible in any way for Manager's obligations
pursuant to this Agreement by virtue of providing the foregoing services to
Manager and Opco reimbursing Manager for the Total Operating Expenses in
connection therewith.
ARTICLE VI
COMPLIANCE WITH LAWS
Section 6.1. Compliance by Manager and Opco After Management
Commencement Date. Manager shall, at the expense of Opco, comply in all material
respects with all laws, rules, regulations, requirements, orders, notices,
determinations and ordinances of any governing authority relating to the
management, leasing, use, operation, repair, supervision and maintenance of the
Facilities, including, without limitation, the requirements of any insurance
companies covering any of the risks against which the Facilities are insured.
Manager shall obtain all licenses, permits and approvals from applicable
governmental authorities material
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to the operation of the Facilities as early childhood care and education
centers. Unless otherwise directed by Opco, Manager shall, at Opco's expense,
promptly remedy any violation of any such governmental regulation which comes to
its attention, which remedy shall be carried out solely at Opco's expense
(subject to the limitations set forth elsewhere herein) unless caused by an
action or omission of Manager not authorized pursuant to this Agreement or
unless Manager has failed to fulfill its duty as required in the immediately
preceding sentence, in which event all costs shall be paid solely by Manager.
Section 6.2. Opco's Right to Contest or Postpone Compliance. With
respect to a violation of any such laws or rules, Opco shall have the right to
contest any of the foregoing and postpone compliance pending the determination
of such contest, if so permitted by law and not detrimental to the operation of
the Facilities, but in such event, Opco shall indemnify and hold harmless
Manager from any loss, cost, damage or expense, as a result thereof.
ARTICLE VII
AGENCY ACCOUNT, OPERATING FUNDS, AND RESERVE FUND ACCOUNT
Section 7.1. Agency Account. (a) All monies received by Manager in the
operation of the Facilities, including the Operating Funds (defined below)
furnished by Opco, shall be deposited in a special account or accounts,
including credit card and payroll accounts (collectively called the "Agency
Account"), in the Manager's name, as agent of Opco, in the bank or trust company
recommended by Manager and approved by Opco. Such monies shall not be commingled
with Manager's other funds. Out of the Agency Account, Manager shall pay all
operating expenses of the Facilities to the extent included in Total Operating
Expenses in accordance with the provisions of this Agreement. Withdrawals from
accounts established pursuant to this Article VII shall be signed by
representatives of the Manager only, provided such representatives are bonded or
otherwise insured, and Manager shall supply Opco with bonds or other insurance
upon Opco's request unless said bond or other insurance shall have been placed
by Opco and delivered directly by the bonding or insurance company to Opco.
(b) Manager will maintain the Agency Account on Opco's behalf and all
funds received from the operation of the Facilities will be and remain the
property of Opco and will be disbursed by Manager only as set forth in this
Agreement. Any and all expenses of the Facilities which are included in Total
Operating Expenses paid by Manager must pass through the Agency Account. Opco
shall have the right from time to time to direct Manager to change either the
depository bank or the depository arrangements and Manager shall implement such
changes promptly. Opco shall have the right to approve and to maintain control
of signature cards for the Agency Account; provided, however, Opco shall not
withdraw funds from such accounts except as provided below.
(c) Manager hereby acknowledges that Propco is entering into the Loan
Documents on the date hereof and pursuant to the provisions of the Loan
Documents and the Ground Lease has required Opco to agree to certain cash
collection and disbursement procedures in connection with the Facilities and
Manager, Propco, Mortgagee and Opco have entered into the Cash Management
Agreement as of the date hereof in order to reflect those cash collection and
disbursement procedures. Manager hereby agrees that notwithstanding the
foregoing
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provisions of this Section 7.1, Manager shall abide by the terms of the Cash
Management Agreement and deposit all funds received by Manager in connection
with the operation of the Facilities in accordance with the terms and provisions
of the Cash Management Agreement. Manager shall not deposit any funds received
on Opco's behalf into the Agency Account. Manager shall look solely to Opco for
payment of the Operating Funds.
ARTICLE VIII
BOOKS, RECORDS AND FINANCIAL STATEMENTS
Section 8.1. Accounting System. Manager shall keep full and adequate
books of account and other records reflecting the results of operation of the
Facilities in accordance with generally accepted accounting principles, or as
otherwise approved by Mortgagee from time to time, on the basis of its Fiscal
Year. The books of account and all other records relating to, or reflecting the
operation of, the Facilities shall be available to Opco and its representatives
at all reasonable times for examination, audit, inspection and transcription
upon forty-eight hours prior notice. Upon termination of this Agreement, all the
books and records shall be turned over to Opco to ensure the orderly
continuation of the operation of the Facilities, but the books and records shall
thereafter be available to the Manager at all reasonable times for inspection,
audit, examination and transcription.
Section 8.2. Financial Statements. (a) Manager shall deliver to Opco
all operating, financial and other statements required in accordance with the
provisions of Section 4.1.6 (b) and (c) of the Loan Agreement.
(b) Any disputes as to the contents of any such statements or any
accounting matter hereunder, shall be determined by the Independent Auditor
whose decision shall be final and conclusive on Manager and Opco. Information
relating to other matters pertaining to the management, operation, maintenance,
and supervision of the Facilities not covered in such quarterly operating
reports as Opco shall reasonably request will be provided to Opco (provided such
information is generally within the scope of Manager's other obligations and
duties hereunder), on or before forty-five days from and after the end of each
calendar quarter during each Fiscal Year.
(c) Manager hereby acknowledges that it has reviewed the provisions of
Section 4.1.6 (b) and (c) of the Loan Agreement. Delivery of financial and
property related reports in accordance with Sections 4.1.6 (b) and (c) of the
Loan Agreement shall be deemed compliance with this Article VIII.
ARTICLE IX
ANNUAL BUSINESS PLAN
Section 9.1. Preparation of Annual Business Plan(a) For each Fiscal
Year, Manager shall submit an annual business plan for the succeeding Fiscal
Year (the "Annual Business Plan") to Opco within five Business Days following
the date that such Annual Business Plan is complete, provided that Manager shall
submit such Annual Business Plan to Opco not
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later than the commencement of the Fiscal Year to which such Annual Business
Plan relates. The Annual Business Plan shall be prepared in accordance with
Manager's standard form of annual business plan, as modified from time to time.
(b) Within ten (10) business days after the proposed Annual Business
Plan is submitted to Opco, Opco shall approve such proposed Annual Business Plan
or notify Manager of any revisions therein which Opco deems reasonably
necessary. If Opco approves the proposed Annual Business Plan or if the Opco
makes revisions to the proposed Annual Business Plan, and Manager does not make
reasonable objections to such proposed revisions within ten (10) business days
after receipt thereof, then such proposed Annual Business Plan, together with
the proposed revisions made by the Opco, shall be deemed thereafter to
constitute the Annual Business Plan for the Fiscal Year in question for all
purposes hereof. In the event Manager timely makes any reasonable objection to
any proposed revision by Opco to the proposed Annual Business Plan, Opco and
Manager shall cooperate with each other to resolve any questions with respect to
such revisions to the proposed Annual Business Plan and shall use their best
efforts to agree upon an approved Annual Business Plan for the Facilities for
the Fiscal Year in question prior to the beginning of the Fiscal Year to which
such Annual Business Plan relates.
Section 9.2. Annual Business Plan Disputes. In the event Opco and
Manager fail to agree upon an Annual Business Plan for any Fiscal Year, Manager
shall continue to manage, maintain, supervise, direct, and operate the
Facilities in accordance with the Annual Business Plan for the previous Fiscal
Year until a new Annual Business Plan is approved; provided, however, that (i)
any item of such proposed Annual Business Plan which has been agreed to by Opco
shall be implemented by Manager and (ii) Manager shall be authorized during any
interim period to reasonably exceed the budgeted amounts for the various
categories of the Annual Business Plan to the extent required to maintain the
same level of service provided during the previous Fiscal Year if the cost of
such items has increased above the amounts budgeted therefor for the prior
Fiscal Year. Notwithstanding the foregoing, in the event Opco and Manager are
unable to agree after a reasonable period of time (no later than July 1 of each
Fiscal Year or such earlier date as may be specified by the Loan Documents) as
to revisions requested by Opco to the proposed Annual Business Plan, Opco shall
prevail and the proposed Annual Business Plan shall be deemed approved as so
revised by Opco and shall thereafter constitute the Annual Business Plan for the
Fiscal Year in question for all purposes hereof. Except as provided above, no
action shall be taken under any proposed Annual Business Plan unless and until
the proposed Annual Business Plan is approved by Opco. No expenditures shall be
made in respect to a proposed Annual Business Plan unless and until the proposed
Annual Business Plan is approved by Opco.
Section 9.3. Deviations from Annual Business Plan. Manager shall
diligently pursue all feasible measures to enable the Facilities to adhere to
the Annual Business Plan, provided, however, Opco acknowledges and agrees that,
notwithstanding any covenant in this Agreement to the contrary, Manager will not
be responsible for any variances from the Annual Business Plan. Variations in
the Annual Business Plan will not be subject to the prior approval of Opco.
Notwithstanding anything herein to the contrary, Manager is not warranting or
guaranteeing in any respect that the actual operating results of the Facilities
during the period covered by the Annual Business Plan will not materially vary
from the projections described in the Annual Business Plan.
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Section 9.4. Loan Documents. Notwithstanding anything to the contrary
contained in this Article IX, Manager shall prepare all financial and property
related reports for delivery to Mortgagee as required pursuant to the terms of
Section 4.1.6 of the Loan Agreement. Delivery of financial and property related
reports in accordance with Section 4.1.6 of the Loan Agreement shall be deemed
compliance with this Article IX.
ARTICLE X
MANAGER'S FEES AND REIMBURSEMENTS
Section 10.1. Management Fee. During each Fiscal Year after the
Management Commencement Date (and for a fraction of any partial Fiscal Year), in
consideration of the services Manager is to render under this Agreement, Manager
will be paid a fee ("Management Fee") at the rate of 6.75% of Total Net Revenues
per each Fiscal Year. The Management Fee will be paid in installments by
deducting such fee from Total Net Revenues immediately following each KC
Operating Period at the rate of 6.75% of Total Net Revenues for that Accounting
Period. At the end of each Fiscal Year following the annual audit, an adjustment
will be made, if necessary, and all sums due either the Manager or Opco shall be
paid promptly.
Section 10.2. Technical or Procurement Services. Service fees for
technical or procurement services for the Facilities shall be paid to Manager or
its Affiliates if Opco requests such services of Manager, or any other services
beyond the scope of services to be provided pursuant to this Agreement. The
amount of fees shall be agreed to by Opco and Manager prior to commencing such
services. Technical services include renovation coordination, design review,
construction management and related services. Procurement services relate to
purchase and installation of furniture, fixtures, equipment, and operating
equipment of the Facilities.
Section 10.3 Loan Documents Controlling. Manager hereby acknowledges
that Propco is entering into the Loan Documents on the date hereof and pursuant
to the provisions of the Loan Documents and the Ground Lease has required Opco
to agree to certain cash collection and disbursement procedures in connection
with the Facilities and Manager, Propco, Mortgagee and Opco have entered into
the Cash Management Agreement as of the date hereof in order to reflect those
cash collection and disbursement procedures. Manager hereby agrees that
notwithstanding the foregoing provisions of this Article X, the Management Fee
will be disbursed from the accounts governed by the Cash Management Agreement at
such time and otherwise in accordance with the terms and provisions thereof.
ARTICLE XI
INSURANCE
Section 11.1. Insurance Coverage. Opco, or Manager at the direction of
Opco, shall provide and maintain, at Opco's cost and expense, insurance
sufficient to furnish to Opco, Manager, Propco and Lender reasonable and
adequate protection in the management and operation of the Facilities and in all
cases in a manner that complies with the Loan Documents.
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All insurance shall be in the name of Opco, Propco, Lender and Manager as the
insured and shall either contain riders and endorsements adequately protecting
the interests of Propco, Lender, Manager and Opco as they may appear including,
without limitation, provisions for at least thirty (30) days' notice to Propco,
Lender, Manager and Opco of cancellation or of any material change therein.
Additionally, Opco or Manager, at the direction of Opco, shall insure that any
insurance coverage obtained with respect to the Facilities complies with the
provisions of the Ground Lease and the Loan Documents. Opco and Manager hereby
agree to procure insurance of the type and in the amounts required pursuant to
the provisions of the Loan Documents. The procurement of such coverage is hereby
deemed to satisfy the requirements of the first sentence of this Section 11.1.
Prior to the Management Commencement Date and the commencement of each Fiscal
Year thereafter, Manager shall furnish Propo, Lender and Opco with certificates
evidencing the insurance coverages required pursuant to this Agreement and with
evidence of the payment of premiums therefor.
Section 11.2. Waiver of Subrogation - Opco Assumes Risk of Adequacy.
Opco shall have all policies of insurance provide that the insurance company
will have no right of subrogation against either party hereto, their agents or
employees. Opco assumes all risks in connection with the adequacy of any
insurance or self-insurance program.
ARTICLE XII
TERM OF AGREEMENT AND TERMINATION
Section 12.1. Term. This Agreement shall be for a period commencing on
the date hereof and unless sooner terminated as hereinafter provided, shall
continue until December 31, 2033 (the "Expiration Date").
Section 12.2. Early Termination. This Agreement may be terminated in
accordance with the following:
A. If a Facility (i) is sold, conveyed or otherwise transferred to
another party, (ii) damaged or destroyed by casualty and Opco has elected
not to restore or (iii) taken in a condemnation proceeding and Opco has not
elected to restore, then this Agreement shall automatically terminate with
respect to such Facility from the date of such sale, casualty or
condemnation but shall continue with respect to the other Facilities in
accordance with the terms of this Agreement.
B. If Manager (i) fails to perform any term, covenant or provision of
this Agreement and such failure continues for a period of thirty days after
written notice from Opco, Propco or Mortgagee specifying such failure to
perform or (i) commits gross negligence, fraud or willful misconduct and
such gross negligence, fraud or willful misconduct continues for a period
of thirty days after written notice from Propco, Opco or Mortgagee
specifying such gross negligence, fraud or misconduct (the occurrence of
(i) or (ii) above referred to herein as an "Manager Event of Default"),
then Opco, Propco or Mortgagee may terminate this Agreement provided such
party has obtained the consent of Mortgagee and Rating Agency Confirmation
(as defined in the Loan Agreement).
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C. To the extent Manager is obligated to continue to operate the
Facilities pursuant to the Loan Documents after the completion of a
foreclosure action by Mortgagee or other acquisition of possession of the
Property by Mortgagee, then if (i) Manager has not been paid any
installment of the Management Fee or any other amount due to Manager under
this Agreement ten days after receipt by Opco, Mortgagee or any successor
in interest (to the extent noticed to Manager) of written notice of such
default from Manager or (ii) Opco or Mortgagee or any successor in interest
fails to perform any term, covenant or provision of this Agreement and such
failure continues for a period of thirty days after written notice from
Manager specifying such failure to perform or (iii) if Opco, Mortgagee or
any such successor commits gross negligence, fraud or willful misconduct
and such gross negligence, fraud or willful misconduct continues for a
period of thirty days after written notice from Manager specifying such
gross negligence, fraud or misconduct (the occurrence of (i), (ii) or (iii)
above referred to herein as an "Event of Default") then Manager may
terminate this Agreement.
D. Manager hereby acknowledges and agrees that Manager shall not have
the right to terminate the Management Agreement except as specifically
permitted under Section 12.2 (C) hereof. Section 12.3. Liabilities upon
Termination. If either party exercises its right to terminate this
Agreement prior to the Expiration Date, the rights and obligations of the
parties will cease except as to fees and reimbursements due the Manager or
its Affiliates or Opco pursuant to this Agreement, including without
limitation, Article X hereof, and claims for non-performance by the Opco
against the Manager and other claims of liabilities of either party which
accrued or arose before termination.
Section 12.4. Termination Procedure.
A. If a termination occurs pursuant to Section 12.2(B), the party
electing to terminate shall give the other party written notice of such
election. On the date which is ten days after the date of such notice (in
the case of a termination under Section 12.2(B)) or thirty days after the
date of such notice (in the case of a termination under 12.2(C)), Manager
shall cease all activities at the Facilities and shall have no further
obligations under this Agreement.
B. Prior to the date Manager ceases activities at the Facilities,
Manager shall be paid any and all fees or expenses due it pursuant to this
Agreement, and Manager shall cooperate with Opco in the orderly transfer of
management to Opco or Opco's designated agent and take such other actions
as required under Section 12.6 below.
Section 12.5. Certain Opco Defaults. Notwithstanding anything to the
contrary contained herein, if any default by Opco hereunder shall have been
caused by, or due to the act of, any equity holder in Opco which is an Affiliate
of Manager, Manager shall have no claims or rights whatsoever against Opco for
such default.
Section 12.6. Obligations Following Termination. Subject to applicable
licensing restrictions with respect to each of the Facilities, upon termination
of this Agreement for any reason, Manager shall do, and execute and/or deliver
to Opco, the following with respect
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to the Facilities, all of which shall be done, and executed and/or delivered to
Opco, promptly upon termination hereof or as soon thereafter as is reasonably
practicable.
(a) A final accounting, reflecting receipts and disbursements in
connection with the operations of the Facilities during the current Fiscal Year
through the date of termination.
(b) Any balance of monies of Opco, including, without limitation, any
undisbursed funds in the Agency Account.
(c) All books and records, service contracts, equipment leases,
receipts for deposits, unpaid bills and other papers or documents which pertain
to the Facilities, including, but not limited to, all original documents.
(d) All documents and instruments necessary to transfer to Opco or its
nominee, to the extent transferable, all permits held by Manager necessary to
operate the Facilities.
(e) Manager will take such further actions as Opco may reasonably
require to assure an orderly transition of Facilities operations, including
inventories of furniture and equipment and a final accounting.
(f) Any and all FF&E (along with then existing warranties, operating
instructions, and service contracts), operating supplies, keys, locks and safe
combinations, reservation lists, ledgers, bank statements for the Agency
Account, budgets, accounting books and records, insurance policies, bonds and
other documents, memoranda, schedules, lists, contracts, agreements, leases,
licenses, correspondence, and other items required for the operation of the
Facilities.
(g) Manager shall remove all its property from the premises of the
Facilities.
ARTICLE XIII
REPRESENTATIONS AND COVENANTS
Section 13.1. Opco's Representations. Opco covenants, represents and
warrants as follows: (A) as of the date hreof, Opco will be the operator of the
Facilities and has full power and authority to enter into this Agreement; (B)
throughout the term of this Agreement, Opco will pay, keep, observe and perform
all payments, terms, covenants, conditions and obligations under any lease or
other concession, any deed of trust, mortgage or other security agreement, and
any real estate taxes or assessments covering or affecting the Facilities; (C)
the execution of this Agreement is permitted by the limited liability company
agreement or other organizational documents of Opco and this Agreement has been
duly authorized, executed and delivered and constitutes the legal, valid and
binding obligation of Opco; (D) there is no claim, litigation, proceeding or
governmental investigation pending, or as far as is known to Opco, threatened,
against or relating to Opco, the properties or business of Opco or the
transactions contemplated by this Agreement that does, or may reasonably be
expected to, materially and adversely affect the ability of Opco to enter into
this Agreement or to carry out its obligations
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under this Agreement; and (E) neither the consummation of the actions
contemplated by this Agreement on the part of Opco to be performed, or the
fulfillment of the terms, conditions and provisions of this Agreement, conflicts
with or will result in the breach of any of the terms, conditions or provisions
of, or constitute a default under, any agreement, indenture, instrument or
undertaking to which Opco is a party or by which it is bound.
Section 13.2. Manager's Representations. Manager covenants, represents
and warrants as follows: (A) the execution of this Agreement is permitted by the
Articles of Incorporation, By-Laws or other organizational documents of Manager
and this Agreement has been duly authorized, executed and delivered and
constitutes the legal, valid and binding obligation of Manager enforceable in
accordance with its terms; (B) there is no claim, litigation, proceedings or
governmental investigation pending, or as far as is known to Manager,
threatened, against or relating to Manager, the properties or business of
Manager or the transactions contemplated by this Agreement that does, or may
reasonably be expected to, materially and adversely affect the ability of
Manager to enter into this Agreement; and (C) neither the consummation of the
actions contemplated by this Agreement on the part of Manager to be performed,
nor the fulfillment of the terms, conditions and provisions of this Agreement,
conflicts with or will result in the breach of any of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture,
instrument or undertaking to which Manager is a party or by which it is bound.
ARTICLE XIV
ASSIGNMENT
Section 14.1. Assignment. Other than that certain Assignment and
Subordination of Management Agreement and Management Fees by and among Lender,
Opco, Propco and Manager dated as of the date hereof, neither party shall assign
or transfer or permit the assignment of transfer of this Agreement without the
prior written consent of the other as well as the consent of the Mortgagee;
provided, however, that (i) Manager shall have the right, without the consent of
Opco, but with the consent of the Mortgagee and upon receipt of Rating Agency
Confirmation, to irrevocably and totally assign its interest in this Agreement
to any of its Affiliates. In the event of consent by either party to an
assignment of this Agreement by the other, no further assignment shall be made
without the express written consent of such party, unless such assignment may
otherwise be made without such consent pursuant to the terms of this Agreement.
An assignment by either Opco or Manager of its interest in this Agreement shall
not relieve Opco or Manager, as the case may be, from their respective
obligations hereunder unless the assignee accepts full responsibility for
performance of the same.
ARTICLE XV
INDEMNIFICATION AND LIMITATION OF LIABILITY
Section 15.1. Opco's Indemnification. Opco shall hold harmless,
indemnify and defend Manager and its Affiliates and their respective agents,
employees, officers, directors and shareholders from and against all claims
(administrative or judicial), damages, losses and expenses (including, but not
limited to, attorneys' fees for pre-trial, trial and appellate
19
proceedings, accounting fees, appraisal fees and consulting and expert witness
fees) arising out of or resulting from Manager's activities performed pursuant
to this Agreement, any past or future building code or life/safety code
violations, and injury to person(s) and damage to property or business by reason
of any cause whatsoever in and about the Facilities or elsewhere, and any
requirement or award relating to course of employment, working conditions, wages
and/or compensation of employees or former employees at the Facilities, unless
such injury or damage is caused by the gross negligence or willful misconduct or
fraud on the part of Manager, its agents, employees, representatives or
independent contractors or by any breach of Manager's obligations under this
Agreement. Opco's foregoing indemnification obligation to indemnify Manager and
its Affiliates shall extend to any claims between Opco and Manager or its
Affiliates arising out of this Agreement or otherwise. Any indemnification shall
apply regardless of whether or not said claim, damage, loss or expense is
covered by insurance as herein provided.
Section 15.2. Manager's Indemnification. Manager shall hold harmless,
indemnify and defend Opco and its Affiliates, and their respective agents,
employees, officers, directors and shareholders, from and against all claims
(administrative or judicial), damages, losses and expenses (including, but not
limited to, attorneys' fees for pre-trial, trial and appellate proceedings
accounting fees, appraisal fees and consulting and expert witness fees) arising
out of or resulting from Manager's gross negligence, willful misconduct or fraud
or from Manager's breach of its obligations under this Agreement. Manager's
foregoing indemnification obligation to indemnify Opco and its Affiliates shall
extend to any claims between Manager and Opco or its Affiliates arising out of
this Agreement or otherwise. Any indemnification shall apply regardless of
whether or not said claim, damage, loss or expense is covered by insurance as
herein provided.
Section 15.3. Indemnification Procedure. Upon the occurrence of an
event giving rise to indemnification, the party seeking indemnification shall
notify the other party hereto and provide the other party hereto with copies of
any documents reflecting the claim, damage, loss or expense. The party seeking
indemnification is entitled to engage such attorneys and other persons to defend
against the claim, damage, loss or expense, as it may choose. The party
providing indemnification shall pay the reasonable charges and expenses of such
attorneys and other persons on a current basis within twenty (20) days of
submission of invoices or bills. If any claim, lawsuit or action (administrative
or judicial) is maintained against Manager, Opco or the Facilities due to
allegations or actions arising prior to the Term and the Manager had no
involvement with the Facilities prior to the commencement of the Term, Opco
shall bear full and complete responsibility for the defense of the Facilities,
the Opco, the Manager, specifically including all legal fees and necessary and
attendant expenses for the vigorous defense and representation of the interests
of the Manager (for pre-trial, trial and appellate proceedings), the Facilities
and the Opco. Opco shall support and pay for all legal fees and representations
necessary to remove Manager from any claim, action (administrative or judicial),
or lawsuit covered by this provision. If any claim, lawsuit or action
(administrative or judicial) is maintained against Manager, Opco or the
Facilities due to allegations or actions arising prior to the Term and the
Manager was the manager of the Facilities prior to the commencement of the Term,
Manager shall bear full and complete responsibility for the defense of the
Facilities, the Opco, the Manager, specifically including all legal fees and
necessary and attendant expenses for the vigorous defense and representation of
the interests of the Opco (for pretrial, trial and appellate proceedings), the
Facilities and the Manager. Manager shall support and pay for all
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legal fees and representation necessary to remove Opco from any claim, action
(administrative or judicial), or lawsuit covered by this provision.
Section 15.4. Good Faith Judgment. To the extent that any provision of
this Agreement leaves something to the discretion of the Manager, Manager will
not be liable for any action taken by Manager in the exercise of its discretion
as long as in exercising such discretion, Manager was using its good faith
judgment.
ARTICLE XVI
MISCELLANEOUS
Section 16.1. Severability. In the event that any portion of this
Agreement shall be declared invalid by order, decree or judgment of a court,
this Agreement shall be construed as if such portion had not been inserted
herein except when such construction would operate as an undue hardship to
Manager or Opco or constitute a substantial deviation from the general intent
and purpose of said parties as reflected in this Agreement. The failure of
either party to insist upon a strict performance of any of the terms or
provisions of this Agreement or to exercise any option, right or remedy herein
contained, shall not be construed as a waiver or as a relinquishment for the
future of such term, provision, option, right or remedy, but the same shall
continue and remain in full force and effect. No waiver by either party of any
term or provision hereof shall be deemed to have been made unless expressed in
writing and signed by such party.
Section 16.2. Agency. The relationship of Opco and Manager shall be
that of principal and agent. Nothing contained in this Agreement shall be
construed to create a partnership or joint venture between them or their
successors in interest. Neither party shall borrow money in the name of, or
pledge the credit of, the other. Manager's agency established by this Agreement
is coupled with an interest and may not be terminated by Opco except in
accordance with the terms hereof.
Section 16.3. Meetings. Opco and Manager shall meet with each other
from time to time so that the Manager and Opco may discuss the status of
operations and future plans, recommendations and projections. The meetings will
be held at mutually convenient dates and locations.
Section 16.4. Consents. Except as herein otherwise provided, whenever
in this Agreement the consent or approval of Opco or Manager is required, such
consent or approval shall not be unreasonably withheld, conditioned or delayed,
provided that the Mortgagee may refuse consent for any reason or no reason at
all. Such consent or approval shall be in writing only and shall be duly
executed by an authorized officer or agent of the party granting such consent or
approval.
Section 16.5. Applicable Law. This Agreement shall be construed under,
and governed in accordance with, the laws of the State of New York.
Section 16.6. Successors Bound. This Agreement shall be binding upon
and inure to the benefit of Opco, its successors and assigns, and shall be
binding and inure to the benefit of Manager and its permitted successors and
assigns.
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Section 16.7. Headings. Headings of Articles and Sections are inserted
only for convenience and are in no way to be construed as a limitation on the
scope of the particular Articles or Sections to which they refer.
Section 16.8. Incorporation of Recitals. The recitals set forth in the
preamble of this Agreement are hereby incorporated into this Agreement as if
fully set forth herein.
Section 16.9. Notices. Notices, statements and other communications to
be given under the terms of this Agreement shall be in writing and delivered by
hand against receipt or sent by facsimile or sent by certified or registered
mail or by Federal Express or other similar overnight mail service, return
receipt requested:
To Opco: c/o Kindercare Learning Centers, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
22
To Manager: ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
To Propco: c/o Kindercare Learning Centers, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
To Mortgagee: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Mortgage Capital, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
and: Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address as from time to time designated by the party receiving
the notice. All notices shall be deemed given when actually received.
Section 16.10. Entire Agreement. This Agreement, together with other
writings signed by the parties expressly stated to be supplemental hereto and
together with any instruments to be executed and delivered pursuant to this
Agreement, constitutes the entire agreement between the parties and supersedes
all prior understandings and writings with respect to the management of the
Facilities, and may be changed only by a writing signed by the parties hereto.
Section 16.11. Manager's Authority Limited. Manager's authority shall
be derived wholly from this Agreement, and Manager has no authority to act for
or represent Opco except as herein specified.
Section 16.12. Exclusive Compensation. The payments to be made to
Manager hereunder shall be in lieu of all other or further compensation or
commissions of any nature
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whatsoever for the services described herein and this Agreement shall be
considered as a special agreement between the parties hereto covering the
appointment and compensation of Manager to the exclusion of any other method of
compensation unless otherwise agreed to in writing.
Section 16.13. Property Rights; Third Party Beneficiaries. (a) This
Agreement and the rights created hereunder are personal to Opco and Manager and
shall not create in favor of Manager any property rights in the Facilities.
(b) Nothing in this Agreement shall be deemed to create any right in
any Person (other than the Mortgagee to the extent provided herein) not a party
hereto, and this shall not be construed in any respect to be a contract in whole
or in part for the benefit of any third Person (other than the Lender to the
extent provided herein). It is expressly understood that Lender is and shall be
a third party beneficiary of this Agreement.
Section 16.14. Attorneys' Fees. In the event of any litigation arising
out of this Agreement, the prevailing party shall be entitled to reasonable
costs and expenses, including without limitation, attorneys' fees.
Section 16.15. Complimentary/Discount Policies. Manager will be
permitted to provide such gratuitous enrollment, services and discount programs
to such persons, including, without limitation, employees of Manager, as the
Manager shall determine and institute from time to time in its sole discretion.
Section 16.16. Amendments and Modifications. This Agreement may not be
amended, modified, supplemented or surrendered without the prior written consent
of all Mortgagees of which the parties have received written notice. Any such
amendment, modification, supplement or surrender entered into without the prior
written consent of Mortgagee shall not be binding upon Mortgagee or any
transferee of the Facilities pursuant to a transfer of title by foreclosure,
power of sale, deed in lieu thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers.
OPCO:
KC OPCO, LLC, a Delaware limited
liability company
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Senior Vice President
and General Counsel
KINDERCARE LEARNING CENTERS, INC., a
Delaware corporation
By: /s/
------------------------------------
Name:
Title: