1
EXHIBIT 10.27
MANAGEMENT AGREEMENT
DATED AS OF JULY 29, 1996
BETWEEN
ILM I LEASE CORPORATION,
AS OWNER
AND
CAPITAL SENIOR MANAGEMENT 2, INC.,
AS MANAGER
AND
CAPITAL SENIOR LIVING, INC.
AS GUARANTOR
2
TABLE OF CONTENTS
PAGE
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ARTICLE I
GENERAL PROVISIONS
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Section 1.01. Employment as Exclusive Leasing Agent and
Manager . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Manager's Duties Generally . . . . . . . . . . . . . 2
Section 1.03. Term of Agreement . . . . . . . . . . . . . . . . . 3
Section 1.04. Compensation . . . . . . . . . . . . . . . . . . . . 3
Section 1.05. Termination . . . . . . . . . . . . . . . . . . . . 3
Section 1.06. Insurance . . . . . . . . . . . . . . . . . . . . . 7
Section 1.07. Plans and Specifications . . . . . . . . . . . . . . 12
Section 1.08. Ethical Standards . . . . . . . . . . . . . . . . . 12
Section 1.09. Cooperation and Consultation with Third Parties . . 12
Section 1.10. Indemnities . . . . . . . . . . . . . . . . . . . . 12
Section 1.11. Guaranty . . . . . . . . . . . . . . . . . . . . . . 12
Section 1.12. Real Estate Tax Assessments . . . . . . . . . . . . 13
Section 1.13. Policies and Procedures Manual . . . . . . . . . . . 13
ARTICLE II
LEASING
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Section 2.01. Manager's Duties Generally As Leasing Agent . . . . 13
Section 2.02. Negotiation and Execution of Leases . . . . . . . . 13
Section 2.03. Liaison with Tenants . . . . . . . . . . . . . . . . 14
Section 2.04. Marketing of Rental Space . . . . . . . . . . . . . 14
Section 2.05. Advertising . . . . . . . . . . . . . . . . . . . . 14
ARTICLE III
ADMINISTRATIVE SUPPORT
----------------------
Section 3.01. Personnel . . . . . . . . . . . . . . . . . . . . . 14
Section 3.02. Contracts . . . . . . . . . . . . . . . . . . . . . 16
Section 3.03. Status Reports . . . . . . . . . . . . . . . . . . . 16
Section 3.04. Records . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.05. Obligations Under Tenant Leases . . . . . . . . . . 17
Section 3.06. Tenant Compliance . . . . . . . . . . . . . . . . . 17
Section 3.07. Licensing . . . . . . . . . . . . . . . . . . . . . ▇▇
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▇
▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇▇ AND OPERATIONS
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Section 4.01. Engineering Management Services . . . . . . . . . . 18
Section 4.02. Preventative Maintenance . . . . . . . . . . . . . . 18
Section 4.03. Capital Improvements; Expansion . . . . . . . . . . 18
Section 4.04. Personnel Training . . . . . . . . . . . . . . . . . 20
Section 4.05. Maintenance . . . . . . . . . . . . . . . . . . . . 20
Section 4.06. Supervision of Contracts . . . . . . . . . . . . . . 20
Section 4.07. Service Requests . . . . . . . . . . . . . . . . . . 20
Section 4.08. Emergencies . . . . . . . . . . . . . . . . . . . . 21
Section 4.09. Regulatory Requirements . . . . . . . . . . . . . . 21
Section 4.10. Inventory . . . . . . . . . . . . . . . . . . . . . 21
Section 4.11. Security . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V
FINANCIAL MANAGEMENT
--------------------
Section 5.01. Bank Account . . . . . . . . . . . . . . . . . . . . 22
Section 5.02. Collections and Deposits . . . . . . . . . . . . . . 22
Section 5.03. Disbursements . . . . . . . . . . . . . . . . . . . 22
Section 5.04. Examinations and Audits of Accounts . . . . . . . . 23
Section 5.05. Books and Records . . . . . . . . . . . . . . . . . 23
Section 5.06. Budget . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.07. Obligations for Expenses . . . . . . . . . . . . . . 24
ARTICLE VI
MISCELLANEOUS
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Section 6.01. No Partnership or Joint Venture . . . . . . . . . . 25
Section 6.02. Notices . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.03. Applicable Law . . . . . . . . . . . . . . . . . . . 26
Section 6.04. Successors and Assigns . . . . . . . . . . . . . . . 26
Section 6.05. Confidentiality . . . . . . . . . . . . . . . . . . 27
Section 6.06. Manager's Insignia . . . . . . . . . . . . . . . . . 28
Section 6.07. Entire Agreement . . . . . . . . . . . . . . . . . . 28
Section 6.08. Captions, Gender, Number . . . . . . . . . . . . . . 28
Section 6.09. Severability . . . . . . . . . . . . . . . . . . . . 28
Section 6.10. Days . . . . . . . . . . . . . . . . . . . . . . . . 28
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EXHIBIT A
TO MANAGEMENT AGREEMENT
List of Properties
EXHIBIT B
TO MANAGEMENT AGREEMENT
Fees and Compensation of Manager
EXHIBIT C
TO MANAGEMENT AGREEMENT
Budget
EXHIBIT D
TO MANAGEMENT AGREEMENT
D-1 Form of Monthly Status Report
D-2 Form of Quarterly Status Report
D-3 Form of Annual Fiscal Year Status Report
D-4 Form of Annual Calendar Year Status Report
EXHIBIT E
TO MANAGEMENT AGREEMENT
Form of Rent Roll
EXHIBIT F
TO MANAGEMENT AGREEMENT
List of Non-Property Staff
EXHIBIT G
TO MANAGEMENT AGREEMENT
Properties on Which Feasibility Study
Will Be Conducted Within Three Months
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MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of July 29, 1996, by and between ILM I LEASE
CORPORATION, a Virginia corporation (the "Owner"), and CAPITAL SENIOR
MANAGEMENT 2, INC., a Texas corporation (the "Manager") and CAPITAL SENIOR
LIVING, INC., a Texas corporation (the "Guarantor"), recites and provides:
RECITALS
WHEREAS, the Owner leases the real estate and related personal property
described on Exhibit A hereto (collectively, the "Properties" and each
individually, a "Property").
WHEREAS, each of the Properties is operated as an assisted living or
congregate care facility;
WHEREAS, the Manager has experience and expertise in the management of
assisted living and congregate care facilities;
WHEREAS, the Owner wishes the Manager to manage the Properties, and the
Manager desires to do so, pursuant to the terms and conditions set forth in
this Agreement.
AGREEMENT
NOW, THEREFORE, for and in consideration of the mutual covenants set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Owner and Manager agree as
follows.
ARTICLE I
GENERAL PROVISIONS
Section 1.01. Employment as Exclusive Leasing Agent and Manager. The
Owner hereby employs Manager as its exclusive agent for leasing, operating and
managing the Properties. Manager accepts such employment and agency and,
subject to the terms and conditions hereof and such express restrictions or
limitations on its authority and, to the extent not inconsistent with the terms
and conditions hereof, such written instructions as may from time to time be
given by the Owner, agrees to perform the duties and obligations described
herein. In its performance of its duties under this Agreement, Manager shall
be an independent contractor rather than an employee of the Owner.
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Section 1.02. Manager's Duties Generally.
(a) Manager shall assist the Owner in the leasing, management,
operation, supervision, control and administration of the Properties and, by
its execution hereof, Manager accepts the relationship of trust and confidence
established between itself and the Owner. In accepting its employment
hereunder, Manager shall (i) perform its responsibilities hereunder with the
same or a greater degree of diligence, competence and care exercised by leading
real estate brokers, agents and managers of facilities of the same or similar
type as the Properties in the general areas in which the Properties are located
and (ii) act with due care in its management of the Owner's funds and property
and avoid conflicts of interest or self dealing that would be detrimental to
the interests of the Owner. In addition to the obligations expressly provided
for in this Agreement, Manager shall do such other things on behalf of the
Owner that are consistent with this Agreement, necessary or appropriate, in the
judgment of the Owner, and communicated to the Manager, for the proper and
profitable operation of the Properties.
(b) Without limiting the restrictions placed upon the Manager
pursuant to Subsection (a), the Manager hereby agrees that:
(i) during the Term of this Agreement neither the
Manager nor any person controlling, controlled by or under common control with
the Manager (an "Affiliate") shall develop, finance, operate, manage or acquire
any direct or indirect interest in any assisted living or congregate care
facility (as the case may be) located within ten miles of any of the Properties
(a "Competing Facility") without the prior written consent of the Owner,
provided, however, that in the event that the Manager enters into a Portfolio
Transaction, the Manager may own, operate or manage, as applicable, one
Competing Facility connected with a Portfolio Transaction and located within
such radius if (A) with respect to a Portfolio Transaction in which the Manager
acquires the ownership of a Competing Facility, the Manager provides the Owner,
or the Owner's designee, with an option to purchase and lease back such
Competing Facility at a fair market value, as determined by an appraisal from
an independent appraiser acceptable to the Owner and the Manager; (B) the
Manager does not relocate any Property Staff involved in the marketing of any
of the Properties to such Competing Facility or otherwise employ any marketing
materials or trade secrets specifically developed for use in the Properties;
and (C) the Manager does not reposition the Competing Facility to compete
directly with the Property located closest to such Competing Facility. For
purposes of this Subsection, "Portfolio Transaction" shall mean a single
transaction in which the Manager acquires the ownership of, leasehold interest
in, or is contracted to manage, at least five operating assisted living or
congregate care facilities.
(ii) during the Term of this Agreement and for a period
of two years thereafter, neither the Manager nor any Affiliate will, in
connection with any assisted living or congregate care facility (as the case
may be) in which it directly or indirectly owns an interest or which it
manages, solicit any of the tenants of the Properties or interfere, either
directly or
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indirectly, in any manner, with any relationship between the tenants of the
Properties and their landlord(s).
(iii) for a period of two years after the expiration of
this Agreement, neither the Manager nor any Affiliate will solicit any of the
Property Staff (as defined in Section 3.01) or interfere, either directly or
indirectly, in any manner, with their employment by the Owner, another lessee
or owner of the Properties, or the successor to the Manager, as applicable.
(iv) neither the Manager nor any of its Affiliates,
directors, officers or Non-Property Staff (as defined in Section 3.01) shall
trade in any securities issued by the Owner or PaineWebber Independent Living
Mortgage Fund, Inc., a Virginia corporation.
(c) If any provision of this Section is deemed invalid by a
court of competent jurisdiction, the covenants contained herein shall be
applicable and enforceable for such lesser period of time and for such lesser
activity included within such limitations, as such court may then or thereafter
determine to be reasonable and proper under the circumstances.
(d) In the event that any provision hereof is deemed to be
unenforceable, the remainder of this Section shall not be affected thereby and
each provision hereof shall be valid and enforced to the fullest extent
permitted by law.
(e) The Manager hereby acknowledges that the damages the Owner
would sustain in the event of any violation of the provisions of this Section
are difficult or impossible to ascertain. Accordingly, the Manager hereby
agrees that the Owner shall be entitled, in addition to any other remedy or
damages available to it in the event of any such violation, to injunctive
relief to restrain such violation by the Manager and any person or entity
acting for or with the Manager.
Section 1.03. Term of Agreement. The initial term of this Agreement
(the "Initial Term") shall commence on July 29, 1996 and shall continue through
either (i) December 31, 1999 or (ii) in the event that certain Facilities Lease
Agreement dated as of September 1, 1995 between ILM Holding, Inc. and the Owner
(the "Facilities Lease") is extended for any period following December 31,
1999, the earlier of (A) five years from the date of this Agreement or (B) the
period during which the Facilities Lease is extended. Unless the Owner gives
the Manager notice of termination of this Agreement at least thirty days prior
to the expiration of the Initial Period, upon the expiration of the Initial
Term, this Agreement shall extend automatically for additional one month
periods (the "Renewal Terms") until terminated as provided herein (the Initial
Term as extended through any Renewal Terms, herein referred to as the "Term").
If the Owner gives the Manager notice of termination of this Agreement thirty
days prior to the expiration of the Initial Period, this Agreement shall
terminate and no additional fees shall be payable hereunder.
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Section 1.04. Compensation. As compensation for Manager's performance
of its obligations hereunder, the Owner agrees to pay to Manager the fees for
each Property as set forth on Exhibit B attached hereto.
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Section 1.05. Termination.
(a) Termination for Cause. The Owner may elect to terminate
this Agreement with respect to all the Properties immediately upon the
occurrence of a Default by notifying the Manager in writing that this Agreement
has been terminated (a "Notice of Default"). For purposes of this Agreement,
"Default" shall mean:
(i) Manager's gross negligence or wilful misconduct in
the performance of its duties under this Agreement;
(ii) The revocation of any license or permit necessary
for the performance by Manager of its duties hereunder or for the operation of
any of the Properties as congregate care or assisted living facilities, as the
case may be, or Manager's failure to keep any such license or permit in force
for any reason whatsoever which license or permit is not reinstated before a
material adverse impact or effect on the operation of the affected Property or
Properties or, if later, the expiration of sixty days after Manager is
initially notified of such revocation or failure by applicable authorities or
the Owner;
(iii) The violation by Manager of any material provision
of this Agreement, provided, however, that no default shall be deemed to have
occurred if the Manager cures such violation within thirty days after the
Owner's written notice to Manager of such violation;
(iv) The violation by Manager of any material provision
of that certain Management Agreement, of even date herewith, between Manager
and ILM II Lease Corporation (the "ILM II Agreement") relating to properties
leased by ILM II Lease Corporation ("ILM II"), which violation entitles ILM II
under the ILM II Agreement to terminate such ILM II Agreement;
(v) The entry by a court of competent jurisdiction of a
decree or order for relief in respect of Manager, the Guarantor or either of
▇▇▇▇▇▇▇ ▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇▇ (the "Shareholders") in an involuntary case or
proceeding under any bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, trustee or similar official of Manager, the Guarantor or
the Shareholders or of all or any substantial part of the property of any of
them, or ordering the reorganization of Manager or the Guarantor or the winding
up of either of their affairs or liquidation of either of their property, and
such decree or order shall continue unstayed and in effect for a period of 30
days; or
(vi) The consent or acquiescence by Manager, the
Guarantor or either of the Shareholders to the entry of any decree or order
described in Subsection 1.05(a)(v) hereof, the commencement by Manager or the
Guarantor of a voluntary case or proceeding under any bankruptcy, insolvency or
similar law, the making by Manager or the Guarantor of any
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general assignment for the benefit of creditors, or Manager's or the
Guarantor's failure or admission in writing of its inability to pay its debts
as they become due.
Manager shall notify the Owner in writing of the occurrence of any of the
events specified in Sections 1.05(a)(i)-(vi) above promptly after it first
learns of such event.
(b) Termination Without Cause. Subject to compliance with
Section 2 (Right of Offer) of that certain Agreement of even date herewith
between PaineWebber Independent Living Mortgage Fund, Inc., ILM Holding, Inc.,
Owner and Manager, the Owner may terminate this Agreement with respect to any
or all of the Properties by delivering a Notice of Termination to the Manager
thirty days prior to (i) the sale to an unaffiliated third party of such
Property by the owner thereof, or (ii) the transfer to an unaffiliated third
party of 50 percent or more of the ownership interest in ILM Holding, Inc., or
PaineWebber Independent Living Mortgage Fund, Inc.
(c) Action on Termination.
For purposes of this Section, "Effective Date" shall mean (i) with
respect to a Notice of Termination delivered pursuant to Section 1.05(a), the
date of such Notice of Termination and (ii) with respect to a Notice of
Termination delivered pursuant to Section 1.05(b), the date thirty days
following the date of delivery of such Notice of Termination.
(i) Within ten business days following the date of any
Notice of Termination, Manager shall provide the Owner with the following items
to facilitate the transfer of leasing and management responsibilities to the
Owner or its designee in a comprehensive and professional manner:
(A) A schedule of termination activities
including notices to vendors, contractors and banks and meetings with the
successor entity responsible for the leasing and management of the Properties;
(B) An itemized statement of the amounts due
hereunder from the Owner to the Manager;
(C) An itemized statement of the amounts due
suppliers of services and goods which have been ordered by Manager in the name
of the Owner;
(D) An itemized statement of all accounts
receivable due the Owner from any source; and
(E) A list of all records, reports, financial
statements, files and similar materials in Manager's possession related to the
Properties.
(ii) On the Effective Date of the Notice of Termination,
Manager shall:
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(A) Deliver to the Owner all funds collected and
held for the account of the Owner including, without limitation, passbook
accounts, negotiable and investment instruments, demand deposits and ▇▇▇▇▇
cash, whether any of the foregoing is received before or after the termination
hereof;
(B) Deliver to the Owner all property and
documents and all records, reports, files and similar materials relating to the
Properties;
(C) Assign to the Owner, or its designee, all
contracts not otherwise in the name of the Owner relating to the operation or
leasing of any of the Properties and assign, to the extent transferable, to the
Owner, or its designee, all applicable licenses and permits necessary to
operate the Properties as congregate care or assisted living (as the case may
be) facilities;
(D) Deliver to the Owner a complete list of all
contracts, agreements and obligations entered into or incurred by Manager on
behalf of the Owner during the Term hereof; and
(E) Furnish such other information and take such
other actions as the Owner shall reasonably require to transfer Manager's
leasing and management responsibilities to the Owner or its designee.
(iii) Within 25 days after the Effective Date of the
Notice of Termination, Manager shall deliver to the Owner a full accounting,
including a statement showing all payments collected by it and all moneys held
by it, for the period following the last date covered by the last accounting
furnished to the Owner.
(iv) Manager's obligation to deliver to the Owner or its
designee the items described in this Section 1.05(c) shall be a continuing
obligation with respect to any of those items that may be in or come into
Manager's possession or control on or after the effective date of termination
of this Agreement.
(v) Manager shall cooperate fully with the Owner or its
designee in the transfer of, or in obtaining, all applicable licenses and
permits necessary to operate the Properties as congregate care or assisted
living (as the case may be) facilities and of management, leasing and licensing
operational responsibilities to the Owner or such designee.
(d) Casualty or Condemnation. Notwithstanding the foregoing
or anything to the contrary contained in this Agreement, either the Manager or
the Owner may elect to terminate this Agreement immediately with respect to a
Property subject to a Casualty or Condemnation Event (as defined herein) by
giving written notice of termination to the other party; provided, however,
that as to any Property for which this Agreement is so terminated and at which
the Owner thereafter commences operations as an assisted living or congregate
care facility, as the case may be, prior to the termination of this Agreement
with respect to all
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of the Properties, Manager shall have the option to re-commence providing
services at such Property pursuant to the terms hereof. For purposes hereof, a
"Casualty or Condemnation Event" shall mean damage to a Property by fire,
smoke, lightning, wind storm, explosion, riot, vandalism, malicious mischief,
theft and such other casualty hazards and risks to the extent that the Property
cannot, in the Manager's or Owner's (as the case may be) reasonable judgment,
be economically operated as the type of facility it was prior to such casualty
and (i) such casualty occurred within 24 months of the end of the Term, or (ii)
such casualty is an event for which insurance coverage is not required under
Section 1.06, and a condemnation or taking by eminent domain which is either
(i) 50% or more of the Property (measured by any of gross area, rentable square
footage or number of rental units) or (ii) such portion or portions of the
Property so that the portion remaining cannot, in the Manager's or Owner's (as
the case may be) reasonable judgement, be economically operated as the type of
facility it was prior to the taking.
(e) Partial Termination. In the event that this Agreement is
terminated with respect to one or more, but less than all, of the Properties,
the term "Properties" shall thereafter refer only to such remaining Properties.
(f) Termination by Manager. Manager may terminate this
Agreement by written termination notice to Owner in the event that Manager
fails to receive reimbursement of reimbursable expenses or any compensation due
Manager pursuant to the terms of this Agreement, and such failure continues for
a period of sixty (60) days after Manager's written notice of such failure to
Owner.
(g) Effect of Termination. No termination of this Agreement
shall affect any obligation owing by either party hereto to the other which
accrued prior to the Effective Date of the Notice of Termination.
Section 1.06. Insurance.
(a) Owner's Insurance Coverage. The Manager will obtain at
Owner's sole cost and expense the following coverage for the Owner with respect
to the Properties. Owner retains the right to procure all such insurance for
itself should it see fit rather than having the Manager procure such insurance
on behalf of Owner.
(i) Building Insurance. The Manager shall obtain a
building and contents insurance policy with comprehensive all risk coverage
with respect to the buildings and personal property components of the
Properties (including, without limitation, any such personal property
components owned by Manager) and which shall not exclude the following: fire,
lighting, extended coverage, theft, flood, earthquake (where available),
vandalism, sprinkler leakage, water damage, collapse and debris removal.
The amount of such insurance shall not be less than the full replacement
cost except where sublimits are appropriate (and a replacement cost endorsement
shall be provided for
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these purposes permitting payment of the loss without a requirement to rebuild)
as determined by an insurance appraisal or such other valuation with provisions
for the use of indexes at interim dates to increase the value for inflation.
The policy shall contain an endorsement called an "Agreed Amount
Endorsement" which shall waive any and all coinsurance provisions under the
policy as it applies to the coverage.
(ii) Business Interruption and Loss of Rent Insurance.
The Manager shall obtain a business interruption and loss of rent insurance
policy with coverage against all of the risks referred to in Subsection (a)(i)
above. The insurance shall be in an amount equal to not less than 100% of the
annual rent roll schedules of the Properties covering all tenants and shall be
endorsed to cover unoccupied and unleased space at pro forma rents and shall
include gross budgeted revenues for all other activities. The policy shall
contain an Agreed Amount Endorsement waiving all coinsurance provisions.
(iii) Comprehensive General Liability Insurance. This
policy shall include coverage for claims arising from bodily injury, personal
injury, and property damage occurring upon, in, or about each of the
Properties. The coverage shall be on an occurrence basis, and the minimum
limits shall be not less than $1,000,000. Coverage for liquor law liability
shall also be included if required by law.
The policy should cover the following hazards: premises and operation;
incidental malpractice; comprehensive owned and non-owned auto liability
insurance; and coverage for hired vehicles on an "if any" basis.
(iv) Umbrella Liability Coverage. A policy shall be
obtained, providing coverage in an amount equal to at least $10,000,000 in
excess of the coverage to be maintained pursuant to Subsection (iii) of this
Section 1.06(a).
(v) Additional Insurance. Owner shall have the right
to require Manager to obtain and maintain, if requested in writing and at
Owner's sole cost and expense, such other insurance as Owner may from time to
time deem reasonably necessary, and which insurance is normal and customary for
other operations of improved property similar to the Properties.
(vi) Priority of Coverage. Owner's insurance will be
primary as to any insurance carried by Manager, and any such coverage of
Manager will be excess insurance to the extent that Manager is acting within
the scope of its duties under this Agreement.
(b) Manager's Operational Insurance Coverage. Throughout the
Term of this Agreement, the Manager shall procure and maintain, at Owner's sole
cost and expense, the following insurance coverage. Owner retains the right to
procure all such insurance for itself or the Manager, as appropriate, should it
see fit rather than having the Manager procure
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such insurance; provided, however, that to the extent that the Manager
identifies such insurance coverage which otherwise conforms with the
requirements of this Section 1.06 but the Owner procures such insurance
pursuant hereto which is other than that so identified by Manager, "Net Cash
Flow," as calculated pursuant to Exhibit B, will be calculated assuming
insurance costs equal to the premiums and costs applicable to the coverage so
identified by the Manager to the extent such premiums and costs are less than
those applicable to the coverage so procured by the Owner.
(i) Worker's Compensation and Unemployment
Compensation. Workers' compensation and unemployment compensation with respect
to the Property Staff in full compliance with all applicable state and federal
laws and regulations;
(ii) Employer's Liability Insurance. Employer's
liability insurance in an amount not less than $100,000 for each accident,
$500,000 for each disease policy limit and $100,000 for diseases for each
employee covering all Property Staff;
(iii) Comprehensive Automobile Liability Insurance.
Comprehensive automobile liability insurance coverage with respect to those
motor vehicles owned by the Owner which are used by the Property Staff in
connection with the Properties which has limits for bodily injury of not less
than $250,000 per person and $500,000 per accident and property damage of
$100,000 per accident. The comprehensive automobile liability policy shall
include blanket non-owned coverage;
(iv) Employee Dishonesty Insurance. Employee dishonesty
insurance with respect to the Property Staff and any agents against employee
dishonesty in an amount not less than the greater of (A) One Million Five
Hundred Thousand Dollars ($1,500,000.00) or (B) an amount equal to the average
monthly receipts from all of the Properties;
(v) Professional Liability Insurance. Professional
liability insurance in an amount equal to at least $1,000,000 with respect to
bodily injury, property damage or personal injury arising out of professional
acts, errors or omissions;
(vi) Fiduciary Liability Insurance. In the event that
the Manager makes any employee benefit plan available to the Property Staff,
fiduciary liability insurance in an amount equal to at least $1,000,000 with
respect to claims alleging breach of fiduciary obligations under the Employment
Retirement Income Security Act of 1974 and any acts, errors or omissions
committed in connection with the administration of any employee benefit plans
for the Property Staff;
(vii) Employment Practices Insurance. Employment
practices insurance in an amount equal to at least $1,000,000 with respect to
lawsuits brought by employees alleging wrongful discharge, discrimination,
harassment or other employment related exposure with respect to the Property
Staff; and
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(viii) Umbrella Liability Coverage. A policy shall be
obtained, providing coverage in an amount equal to at least $10,000,000 in
excess of the coverage to be maintained pursuant to Subsections (i) through
(vii) of this Section 1.06(b).
(ix) Other Insurance. Such other insurance as may be
carried at similar properties as Owner may from time to time reasonably deem
necessary in connection with or for the performance of Manager's duties
hereunder.
(c) Manager's Insurance Coverage. Throughout the Term of this
Agreement, the Manager shall procure and maintain, at Manager's sole cost and
expense, the following insurance coverage:
(i) Comprehensive General Liability Insurance.
Comprehensive general liability insurance which includes coverage for all Non-
Property Staff (as defined in Section 3.01(b)) and if Manager is found to be
acting outside the scope of his duties under this Agreement, with minimum
limits of at least $1,000,000 per occurrence for bodily injury, personal injury
and property damage;
(ii) Worker's Compensation and Unemployment
Compensation. Workers' compensation and unemployment compensation with respect
to the Non-Property Staff in full compliance with all applicable state and
federal laws and regulations;
(iii) Employer's Liability Insurance. Employer's
liability insurance in an amount not less than $100,000 for each accident,
$500,000 for each disease policy and $100,000 for diseases for each employee
covering all Non-Property Staff performing any work relating to the Properties;
(iv) Comprehensive Automobile Liability Insurance.
Comprehensive automobile liability insurance coverage with respect to those
motor vehicles owned by the Manager which are used by Non-Property Staff in
connection with the Properties which has limits for bodily injury of not less
than $250,000 per person and $500,000 per accident and property damage of
$100,000 per accident. The comprehensive automobile liability policy shall
include blanket non-owned coverage;
(v) Umbrella Liability Insurance. An "umbrella"
liability coverage providing coverage in an amount equal to at least
$10,000,000 in excess of the coverage to be maintained pursuant to Subsections
(i), (iii) and (iv) above;
(vi) Employee Dishonesty Insurance. Employee dishonesty
insurance with respect to the Non-Property Staff and any agents, officers and
employees of the Manager against dishonesty by any of such persons in an amount
not less than the greater of (A) One Million Five Hundred Thousand Dollars
($1,500,000.00) or (B) an amount equal to the average monthly receipts from all
of the Properties;
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(vii) Fiduciary Liability Insurance. Fiduciary liability
insurance in an amount equal to at least $1,000,000 with respect to claims
alleging breach of fiduciary obligations under the Employment Retirement Income
Security Act of 1974 and any acts, errors or omissions committed in connection
with the administration of any employee benefit plans made available to the
Non-Property Staff;
(viii) Employment Practices Insurance. Employment
practices insurance in an amount equal to at least $1,000,000 with respect to
lawsuits brought by employees alleging wrongful discharge, discrimination,
harassment or other employment related exposure with respect to Non-Property
Staff; and
(ix) Other Insurance. Such other insurance as may be
carried at similar properties as Owner may from time to time reasonably deem
necessary in connection with or for the performance of Manager's duties
hereunder.
(d) Payment of Insurance. The insurance required by
Subsection (a) and (b) of this Section, whether obtained by Manager on behalf
of Owner or by Owner directly, shall be an operating expense of the applicable
Property and paid from such Property's revenues or reserves or by the Owner, as
directed by the Owner. The insurance coverage required pursuant to Subsection
(c) shall be paid for by the Manager from its own funds.
(e) Policy Requirements. The policies described in
Subsections (a) through (c) above shall be in form and substance satisfactory
to the Owner and with insurance companies that are acceptable to Owner,
reputable and properly licensed in each State in which they propose to effect
coverage. Manager shall furnish Owner with certificates of insurance or
certified copies of each of the insurance polices required to be obtained and
maintained by Manager pursuant to the terms of this Agreement. The insurance
policies required pursuant to Subsection (a) shall be in the name of the Owner
with the Manager named as an additional insured party. The insurance policies
required pursuant to Subsections (b) and (c) shall be in the name of the
Manager with the Owner named as an additional insured party. Each insurance
policy required by this Section shall provide that such policies shall not be
canceled or otherwise modified without 45 days' prior written notice to Owner.
At least fifteen days prior to the extension of any such policy Manager shall
furnish Owner with evidence that the insurance policies required hereunder have
been renewed. Manager shall in all cases obtain the Owner's prior written
approval before obtaining, renewing, cancelling or modifying the coverages
under any insurance policies required hereunder. Manager shall make periodic
reports and recommendations to the Owner regarding the adequacy of the then
current insurance policies and provide the Owner with adequate warning of any
potential lapses in coverage of which Manager becomes aware.
(f) Waiver of Subrogation. Owner and Manager hereby waive and
release any and all claims either may have or acquire against the other by way
of subrogation or otherwise, for any loss or damage occasioned by the
negligence of either of them or their respective agents, employees,
contractors, licensees or invitees, which results in any loss or
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damage to person or property and which is fully insured against by either Owner
or Manager in accordance with the terms of this Agreement. Each party agrees
to obtain from its respective insurance carriers waiver of subrogation
endorsements to all such insurance policies maintained hereunder (excluding
workmen's compensation or employer's liability insurance) providing that each
insurance carrier waives its right of subrogation against the other party in
the event of any loss or damage which is fully insured against pursuant to the
provisions of this Agreement. In the event that such endorsements cannot be
obtained and the mutual waiver contained herein would invalidate any such
insurance policy, then the provisions of this Subsection (f) shall be
inapplicable to such insurance policy.
(g) Compliance With Insurance Requirements. Manager shall use
its best efforts to assure that each Property is not used for any purpose which
may void or impair, or increase the premium payable under, any policy of
insurance held by Owner pursuant to the terms of this Section 1.06, or which
may render any loss under any such policy uncollectible.
(h) Insurance Claims. Manager shall promptly report to Owner,
and the insurance agent, broker or adjustor designated by Owner, all damages,
accidents or claims relating to the ownership, maintenance or operation of any
Property and shall cooperate with such agent, broker or adjustor in connection
with its investigation thereof and its reporting to the appropriate insurance
carrier. Manager shall not compromise or settle any claims against insurance
carriers without the prior written approval of Owner.
Section 1.07. Plans and Specifications. To the extent that they are
within the Owner's possession, the Owner shall furnish Manager with a set of
plans and specifications for each Property and, with the aid of these documents
and its own inspections, Manager shall become and remain knowledgeable with
respect to the organization, location, character, plan and operation of the
lighting, plumbing, heating, air conditioning and all other mechanical systems
and equipment of each Property.
Section 1.08. Ethical Standards. In any transaction with vendors,
contractors or others who provide services or goods for the Owner or the
Properties, Manager shall act at all times in the best interests of the Owner
and shall credit to the Owner all discounts, commissions, rebates, finders fees
and similar amounts obtainable as a result of such transactions. Manager shall
not enter into any agreement to provide goods or services for any Property with
any party, partnership, corporation or other entity related to or affiliated
with Manager without the prior written approval of the Owner.
Section 1.09. Cooperation and Consultation with Third Parties. The
Owner may appoint and employ auditors, attorneys, appraisers and other persons
for the purpose of rendering advice about or for conducting research and
inquiry with respect to the leasing, management, operation and valuation of any
Property and, in any such case, Manager shall cooperate fully with such persons
and, within the authority invested in such persons, communicate all information
requested and advise and consult with them in good faith.
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Section 1.10. Indemnities. Subject to the provisions of Section 1.06
hereof, the Owner shall indemnify and hold Manager harmless from and against
all loss, cost, expense, claims and liability arising out of or in connection
with the management, operation and leasing of the Property, except for acts of
Manager which constitute a breach of the provisions of this Agreement or are
otherwise outside the scope of its employment and Manager's own negligence or
misconduct (such acts together referred to as "Unauthorized Acts"). Subject to
the provisions of Section 1.06 hereof, Manager shall indemnify and hold the
Owner harmless from and against all loss, cost, expense, claims and liability
arising out of or in connection with Manager's Unauthorized Acts.
Section 1.11. Guaranty. The Manager's obligations pursuant to this
Agreement, including, without limitation, the indemnification obligations set
forth in Section 1.10, shall be guaranteed by Capital Senior Living, Inc. (the
"Guarantor"). The Guarantor guarantees the full and prompt payment of all
amounts payable by the Manager hereunder and all amounts which may become due
and arising as a result of the Default by the Manager. Upon the Default by the
Manager in the performance of any of its obligations hereunder, and without
further notice, or the resort to any property of the Manager which may be in
the possession of or otherwise available to the Owner and without exhausting
all remedies available to the Owner against the Manager, the Guarantor shall
perform the obligations described above. The Guarantor shall have all rights
of the Manager hereunder regarding any event which, with the giving of
requisite notice hereunder and the passage of time would result in a Default
hereunder, including but not limited to defenses, notices, cure periods and any
counterclaims.
Section 1.12. Real Estate Tax Assessments. Manager shall review for
accuracy and reasonableness all real estate tax assessments and shall advise
the Owner of the results of such review. If during the Term, the Owner shall
elect to protest any real or personal property tax assessment in connection
with Property, Manager shall cooperate with the Owner and its tax advisors in
connection therewith. The Manager will have no responsibility for the
institution of any legal proceedings in connection with tax assessments.
Section 1.13. Policies and Procedures Manual. In connection with the
performance of its obligations under this Agreement, and after review of the
Owner's existing policies and procedures manual, Manager shall develop a
policies and procedures manual and provide same to Owner for review and
approval within six months from the effective date of this Agreement.
Following the approval of the policies and procedures manual submitted by
Manager (the "Manual"), Manager shall utilize the Manual in connection with the
leasing, management or operation of the Properties and shall submit any
proposed modifications to the Manual to the Owner in writing. Following the
Owner's review and approval of such modifications, the Manager shall utilize
the modified Manual.
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ARTICLE II
LEASING
Section 2.01. Manager's Duties Generally As Leasing Agent. Manager
shall use its best efforts to lease and keep leased all leasable space in the
Properties to such tenants as it may deem compatible with the character and
locations of the Properties. Manager shall use its best efforts to develop and
maintain the character and reputation of each of the Properties while
maintaining the highest possible net income. Manager shall be familiar with
all tenant leases for the Properties, particularly with regard to the services,
charges and procedures applicable to the various tenants.
Section 2.02. Negotiation and Execution of Leases. Manager shall
respond to all inquiries concerning tenant leases and shall conduct all
negotiations in connection with their execution, renewal, extension,
modification, amendment or termination. All leases entered into after the date
hereof shall be in such form as may be approved by the Owner, and Manager shall
furnish the Owner executed originals of such leases upon request.
Section 2.03. Liaison with Tenants. Manager shall schedule and
coordinate tenant moves, maintain personal contact with tenants and serve as
liaison with the Owner in order to minimize misunderstandings and receive and
resolve tenant complaints in a timely and courteous manner.
Section 2.04. Marketing of Rental Space. Manager shall develop a
comprehensive, professional program for marketing each Property (a "Marketing
Plan") and, following the approval of each Marketing Plan by the Owner,
implement and monitor the effectiveness of such Marketing Plan.
Section 2.05. Advertising. Manager, at the Owner's expense and in
accordance with the Budget (as that term is defined in Section 5.06 below) and
the Marketing Plan, shall advertise, to such extent and in such media as
Manager deems advisable, the availability of units in each of the Properties;
provided, however that Manager shall pay all costs associated with
advertisements that do not relate specifically and exclusively to the
availability of rental space in, or the operational needs of, the Properties,
unless otherwise approved in writing by the Owner.
ARTICLE III
ADMINISTRATIVE SUPPORT
Section 3.01. Personnel.
(a) Property Staff. Based upon the Budget, job standards,
wage rates and the applicable Plan of Operation (as defined in Subsection (c),
below), Manager shall recruit, hire, train, supervise and discharge all on-site
management, administrative, maintenance, cleaning and other personnel,
including, without limitation, the Property director or administrator
(collectively, the "Property Staff") necessary to properly manage, administer,
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repair, maintain and otherwise operate each Property. The Property Staff may
be full-time, part-time, temporary or contract personnel. The Property Staff
shall be employees of Manager and not the Owner, provided, however, that the
costs of such Property Staff shall be paid from the Owner's funds. Manager
shall pay wages and required payroll taxes and all costs and expenses of such
Property Staff from the Owner's funds and shall make provision at the Owner's
expenses for employee group benefits as agreed upon by the Owner. Manager will
abide by all local, state and federal laws, regulations and guidelines in
administering the payroll. Manager will cause to be prepared and filed all
forms, reports and returns as required by law in connection with unemployment
insurance, workers' compensation insurance, withholding tax, social security
and other similar taxes now in effect. In addition Manager shall take such
actions as may be necessary to comply with the provisions of wage, hour,
health, safety, income tax, social security, unemployment compensation,
▇▇▇▇▇▇▇'▇ compensation and similar laws, regulations and requirements relating
to the Property Staff. Manager shall, at the request of Owner, provide Owner
with the then-current list of Property Staff.
(b) Manager's Personnel. The Manager shall maintain sufficient
personnel to fulfill its obligations hereunder. Prior to the commencement of
its duties hereunder, Manager shall provide the Owner with a listing of the
personnel which it intends to employ in connection with the obligations to be
performed by Manager hereunder (the "Non-Property Staff"), together with a job
description for each member of the Non-Property Staff. The Owner and the
Manager shall mutually agree upon the personnel required by the Manager to
fulfill its obligations hereunder. The Manager shall, upon the request of
Owner, provide Owner with a list of the then-current Non-Property Staff. The
Owner shall have no authority to provide directions to the Managers employees
or to terminate such employees employment by the Manager. Nothing in this
section is intended or shall be construed to make any person employed by the
Manager an employee of the Owner, to influence the hiring decisions of the
Manager or to alter the relationship between the Owner and Manager of
independent contractor. The Manager acknowledges that in entering into this
Agreement the Owner is relying upon the experience and capabilities of the
employees of the Manager and the Shareholders. Accordingly, the Manager agrees
to maintain each of positions listed on Exhibit F to this Agreement (the
"Positions") and shall not eliminate or change any of the Positions without the
prior written consent of the Owner. The initial occupants of each of the
Positions are listed on Exhibit F and the Manager agrees to keep each of the
Positions permanently occupied during the Term by personnel with experience and
capabilities similar or superior to the individuals listed on Exhibit F (the
"Personnel"), with any vacancies in any such Positions occurring during such
Term to be filled on a timely basis. The Manager shall notify the Owner of any
change in the Personnel and shall supply the Owner with information which is
reasonably sufficient to demonstrate the calibre and experience of any
replacement Personnel.
(c) Plan of Operation. The Owner shall provide to Manager
and the Manager shall review the current plan of operation (if any) for each
Property. The revised plan of operation for each Property or, in the event
that there is no existing plan of operation, a plan of operation developed by
the Manager (the "Plan of Operation") shall be (i) describe
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each of the services to be supplied to tenants at such Property, (ii) list all
Property Staff that will be required at such Property in order to provide such
services to the tenants, to provide management and administrative services for
such Property (other than such administrative services as are to be provided by
the Manager hereunder) or to maintain the Property. The Plan of Operation for
each Property shall be submitted to the Owner thirty days after the
commencement of the Manager's duties hereunder and must be approved by the
Owner in writing within thirty days following receipt thereof. The Owner and
the Manager shall review the Plan of Operation for each Property not less than
annually and shall amend the Plan of Operation from time to time as
appropriate.
(d) Job Descriptions. To the extent that they are within the
Owner's possession, Owner shall provide to Manager and Manager shall review or
develop job descriptions for all Property Staff positions based upon the Plan
of Operation. Manager shall furnish the job descriptions, along with job
performance standards, to the Owner to delineate clearly between Manager's
exclusive responsibilities which are to be performed by the Non-Property Staff,
and those responsibilities that are delegated by Manager to the Property Staff.
Section 3.02. Contracts.
(a) Renewal and Execution. Manager shall be familiar with the
provisions of, and provide to the Owner copies of, all material contracts
affecting the leasing, management or operation of each Property. At least
sixty (60) days prior to the scheduled termination of any of these contracts,
Manager shall recommend to the Owner whether such contracts should be renewed,
modified or canceled, and renew, modify or cancel such contracts as the Owner
may direct. Where new contracts are necessary, Manager shall recommend to the
Owner for its approval contracts from responsive and responsible contractors
for work to be performed according to written specifications developed by
Manager in consultation with the Owner. Manager shall assure that all
contractors are properly insured (and bonded, if appropriate) for the duration
of their contracts. Except for emergencies and those cases where the Owner
authorizes otherwise due to the size or nature of the contract, all contracts
and procurements shall be let by competitive bidding procedures. Manager, its
employees and the Property Staff shall disclose to the Owner the extent of any
financial interest that it or they may have in any firm or person providing
goods or services to the Owner pursuant to any such contracts. Manager shall
exploit fully all commonality of contracting and purchasing so as to accrue to
the Owner all possible benefits deriving from a unified procurement policy.
(b) Supervision and Enforcement. Manager shall supervise and
oversee the activities of all contractors, review the quality of their
workmanship, enforce contractors' warranties and approve all work and materials
prior to payment therefor.
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Section 3.03. Status Reports.
(a) Monthly Status Reports. Manager shall prepare and deliver
to the Owner within the prescribed time period set forth on Exhibit D-1 a
written Monthly Status Report in the form attached hereto as Exhibit D-1.
(b) Quarterly Status Reports. The Manager shall submit to the
Owner within 15 days following the end of each fiscal quarter, a report in the
form of Exhibit D-2 attached hereto.
(c) Annual Fiscal Year Status Reports. The Manager shall
submit to the Owner within 30 days following the end of each fiscal year, a
report in the form of Exhibit D-3 attached hereto.
(d) Annual Calendar Year Status Reports. The Manager shall
submit to the Owner within 15 days following the end of each calendar year, a
report in the form of Exhibit D-4 attached hereto.
(e) Other. Manager shall prepare and deliver to the Owner
such other reports and/or statements in such form as may reasonably be
requested by the Owner from time to time, which reports shall be delivered
within 30 days after request thereof (or as soon thereafter as is practicable).
Section 3.04. Records. Manager shall maintain and keep complete,
accurate and up-to-date all books and records of the Owner relating to each
Property including, without limitation, all accounting and financial records,
rent rolls, memoranda, correspondence, notices and all other such records as
may be appropriate or customary in connection with the leasing and operation of
the Property and the transaction of business with third parties including,
without limitation, suppliers, employees, labor unions and governmental or
municipal authorities. All of these records shall be kept and maintained
available for inspection at any and all reasonable times during normal business
hours by any person authorized in writing by the Owner, but not by others.
Section 3.05. Obligations Under Tenant Leases. Manager shall comply
with all requirements respecting the operation or maintenance of each Property
imposed upon the Owner as "landlord" under any lease for the Properties.
Manager's duties hereunder shall include, without limitation, the selection and
supervision of all contractors or others providing required tenant services or
performing tenant repair or capital improvement work at the Properties.
Section 3.06. Tenant Compliance. Manager shall monitor the performance
of all tenants and use its best efforts to secure the full compliance by
tenants with the terms and provisions of their leases. Manager shall inform
all tenants of such rules, regulations and notices as may be promulgated by the
Owner or Manager. Manager, at the expense of and using attorneys approved by
the Owner, may institute legal proceeding in its own name or in the name of the
Owner to collect rent, security deposits and other tenant charges, to oust or
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dispossess tenants or others occupying the Property and otherwise to enforce
the rights of the Owner with respect thereto. Manager shall secure the prior
written approval of the Owner before instituting legal proceedings or
compromising or settling any such claim or proceeding. Manager shall give the
Owner prompt written notice of all matters involving actual or threatened
litigation.
Section 3.07. Licensing. The Manager shall be responsible for
obtaining all licenses, permits or other authorizations (the "Permits")
necessary to operate each of the Properties as an assisted living or congregate
care facility (as the case may be) in the name of the Owner or such other name
as the Owner may designate. All amounts payable to state or local governmental
authorities with respect to the Permits for a Property, and all legal fees
incurred in connection with obtaining such Permits with the prior written
permission of the Owner, shall be paid by the Owner. Upon request, the Manager
shall provide such assistance as may be necessary in order to obtain Permits
for such other affiliate of the Owner with respect to any of the Properties,
whether such Permits are required by applicable law or are being requested at
the option of the Owner or the applicable affiliate.
ARTICLE IV
MAINTENANCE AND OPERATIONS
Section 4.01. Engineering Management Services.
(a) Benchmark Study. Upon the commencement of the Initial
Term, Manager shall perform a walk-through of each Property and shall note
corrective and deferred maintenance work or capital improvements required to be
performed. Promptly after the completion of such walk-through, Manager shall
prepare and deliver to the Owner a report containing the results of that study.
(b) Quarterly Inspections. Manager shall conduct physical
inspections of each Property at least quarterly unless the Owner reasonably
determines that a more frequent inspection is necessary. Specific problems
shall be investigated on an "as-needed" basis. Manager shall submit to the
Owner a written report containing findings, conclusions and recommendations of
actions to be taken to correct deficiencies noted during the inspections. This
quarterly inspection and report shall address deficiencies found in, among
other areas, the building foundations, exterior, roof, flashings, concrete
work, sidewalks, retaining walls, parking areas, gutter and downspout systems,
mechanical equipment and utility distribution systems.
(c) Engineering On-Site Inspections. At the request of the
Owner, and at the Owner's expense, Manager shall employ or retain a licensed,
experienced mechanical engineer or engineering firm to conduct engineering on-
site inspections of any Property. During each of these inspections, the
engineering firm shall: (i) inspect all mechanical
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equipment for corrective maintenance and other action that should be completed
by the Property Staff or outside contractors; (ii) review preventive
maintenance records, logs and other related records to evaluate work completed;
(iii) review energy practices; (iv) consult with the Property Staff on the
findings with regard to the foregoing items; and (v) submit to the Owner a
written, itemized report with respect to the foregoing immediately following
each inspection.
Section 4.02. Preventative Maintenance. To the extent that they are
within the Owner's possession, Owner shall provide to the Manager the current
preventative maintenance program for each Property. Manager shall review or
develop, as applicable, a program designed to keep each Property and all
installed mechanical and electrical systems in proper condition. Following the
Owner's review and approval of such program for each Property, Manager shall
maintain such program on a regular basis and such program shall reflect the
useful lives of the various components and items of equipment comprising the
Property. Manager shall establish and monitor a seasonal maintenance program
for the heating and cooling systems in the Property to assure that they are in
good working order and conserve utility consumption.
Section 4.03. Capital Improvements; Expansion.
(a) Predevelopment. Manager agrees within 3 months of the date of this
Agreement to undertake a feasibility study with respect to the expansion of the
Properties listed on Exhibit G and within 6 months of the date of this
Agreement to undertake a feasibility study with respect to each of the other
Properties. If, based upon the results of the study with respect to any
Property, Manager believes that such Property should be expanded or improved,
Manager shall recommend such action to the Owner. If the Owner decides to
proceed with the expansion of such Property, the Owner shall so notify the
Manager. Within 30 days from the date of receipt by the Manager of such
notice, the Manager shall prepare and deliver to the Owner a proposed budget
and schedule with respect to the Predevelopment Costs (as defined below) which
would be incurred in connection with the expansion of such Property. The
budget shall list each fee or other cost which will be incurred prior to the
commencement of the construction or renovation of the Property including,
without limitation, land use study, preconstruction plan, legal, licensure and
zoning, working drawings, environmental report, a market analysis and financing
plan (the "Predevelopment Costs"). Following approval of the budget and
schedule, by the Owner, the Manager shall, as Owner's agent, contract for each
of the services listed in the budget and the schedule and approved in writing
by the Owner (the "Predevelopment Services"). The Owner shall be responsible
for the payment of each of the Predevelopment Costs in accordance with the
budget. Following performance of the Predevelopment Services and based upon
the results thereof, the Manager shall develop a development plan (the
"Development Plan") which shall be submitted to the Owner.
(b) Development. Following the receipt by Owner of the Development Plan
for a Property, the Owner shall determine whether to proceed with the
construction at such Property. If the Owner approves the commencement of such
construction, the Owner shall
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notify the Manager and the Manager shall, within thirty days of the date of
receipt of such notice contract as Owner's agent for each of the services
required pursuant to the Development Plan and Manager shall otherwise commence
the execution of the Development Plan. The Owner agrees to be responsible for
obtaining the financing, and shall be solely responsible for all liability
associated with such financing. Manager agrees to fund for the first year only
up to $170,000.00 with respect to all operating losses with respect to any
Property subject to development or expansion where operating costs (not
including financing costs) exceed revenue for such Property or portion of a
Property (the "Start Up Losses"). The Manager shall provide Owner with a
detailed accounting relating to the developed Property or expanded portion of a
Property. All Start Up Losses shall be funded from Manager's own funds and
shall not be paid from the Checking Account described in Section 5.03.
(c) Fee Compensation. Manager shall be paid a seven percent (7%)
development fee on the total project cost, which shall include the
Predevelopment Costs, all third party hard and soft costs set forth in the
Development Plan but excluding any third party financing costs (the "Total
Project Cost"). Following the completion of the construction of any expanded
or additional portions of a Property, such Property shall for all purposes
hereunder be deemed to be one of the Properties and the Manager shall receive
the same compensation with respect to such expanded Property or developed
Property as set forth on Exhibit B. Manager shall be entitled to receive
repayment of any Start Up Losses incurred with respect to any Property upon the
earlier of the sale or refinancing of such Property or the termination of this
Agreement.
(d) No Subcontracting. The management and coordination of the expansion
of any Property shall not be subcontracted by the Manager to any other person;
provided, however, that such management and coordination may be subcontracted
to Manager's affiliate, Capital Senior Development, Inc. provided that Manager
shall bear all costs of such subcontract arrangement.
Section 4.04. Personnel Training. Manager shall outline in writing the
training needs of the Property Staff and establish a training program that will
teach, maintain and improve the technical proficiency of each member in his or
her assigned job.
Section 4.05. Maintenance. Manager shall be responsible, at Owner's
expense, for maintaining the Properties according to standards at least
comparable to similar properties in the general areas in which they are
located. Manager's maintenance responsibilities shall include, without
limitation, interior cleaning, exterior window cleaning, painting, decorating,
grounds care and landscaping, plumbing, electrical repair, carpentry,
plastering and such other normal maintenance and repair work as may be
necessary. The areas and items to be maintained shall include, without
limitation, roofing, mechanical and other equipment, building exterior surfaces
(including windows), parking areas, sidewalks, gutters, walkways, hallways,
stairwells, storage rooms, the management office and all other related areas
including fencing, signs and lighting. The Property Staff shall, at least
weekly, conduct walk through inspections of these areas to assure that they are
receiving adequate and appropriate
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care. Manager shall supervise the work of the Property Staff to assure that it
is performed in accordance with the Owner's standards.
Section 4.06. Supervision of Contracts. Manager shall arrange for,
coordinate, supervise and enforce the conditions of all contracts necessary or
advisable for the proper operation of the Properties including, without
limitation, contracts for the maintenance and repair work described in Section
4.05 above and for water, sewer, electricity, telephone, vermin extermination,
trash removal, landscaping, heating fuels, air conditioner contractual
maintenance, and snow and ice removal. All such contracts shall be at the
Owner's expense. Such contracts entered into during the Term shall provide for
cancellation by the Owner without penalty upon 30 days written notice and shall
not terminate upon the termination of this Agreement, unless the Owner has
agreed otherwise in writing. Any such contracts in manager's possession at the
commencement of the Term which do not allow for such 30-day cancellation will
be identified by Manager and reported to the Owner within 30 days of the
commencement of operations. Further, Manager shall place orders for such
equipment, tools, appliances, materials, and supplies as are required to
adequately maintain and operate the Properties. Such equipment, tools,
appliances, supplies and materials shall be used only for operating,
maintaining and repairing the Properties, unless the cost thereof is prorated
on a basis satisfactory to the Owner.
Section 4.07. Service Requests. Manager shall maintain business-like
relations with tenants of the Properties and receive, record and take
appropriate action with respect to any service requests that may be made.
Complaints of a serious nature shall, after investigation, be reported to the
Owner in a timely manner, together with appropriate recommendations. Manager
shall make reasonable efforts to obtain full compliance by tenants for all
items of maintenance for which they are individually responsible. Scheduled
outages of water, electricity or other services shall be reported to the Owner
and to all tenants, individually, as promptly, fully and courteously as
possible and in a manner and at a time which are customary under the
circumstances or as may otherwise be required by applicable law. Unscheduled
material outages shall be reported to the Owner and the tenants as soon after
occurring as is reasonably possible.
Section 4.08. Emergencies.
(a) Services. To the extent that they are within Owner's
possession, Owner shall provide to the Manager details of the current 24-hour,
seven day-a-week maintenance emergency system and any system designed to be
responsive to emergencies (the "Emergency System"). Manager shall review or
develop, as applicable, the Emergency System for each Property and shall submit
such Emergency System to the Owner for the Owner's review and approval. An
emergency is defined as any condition of, in or acting on a Property which if
not responded to could injure or damage or impose a threat of injury or damage
to property or persons. The definition of an emergency includes, without
limitation, fire, flood, insufficient heat during winter weather, lack of hot
water and utility shut offs. Following the review of the Emergency System for
each Property submitted by the Manager, the Manager shall insure that
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all appropriate Property Staff and Non-Property Staff are familiar with the
applicable Emergency System and shall undertake periodic reviews to insure that
such Emergency System is being complied with.
(b) Readiness. In addition to such programs as may be
required by applicable state or local law, rules or regulations, Manager shall
establish, with the approval of the Owner, a comprehensive program ensuring
that emergencies are dealt with by the Property Staff and outside agencies in a
manner in the best interests of the Owner and the Properties and in compliance
with applicable law. This responsibility shall include notification and
testing procedures as may be necessary.
Section 4.09. Regulatory Requirements. Manager shall take such action
as may be necessary to (a) obtain and maintain all licenses, permits and
approvals necessary for the operation and maintenance of the Properties and (b)
comply with all laws, ordinances, orders and requirements affecting each
Property (or the Owner or Manager in connection therewith) imposed by any
governmental or quasi-governmental authority having jurisdiction, including but
not limited to building codes, anti-discrimination laws, zoning and licensing
requirements affecting the Property. Manager shall give the Owner prompt
written notice of any violation or claimed violation of any such requirement.
Section 4.10. Inventory. Manager shall comply with and shall deliver
such reports and other information as may be required pursuant to the inventory
control system for all supplies and equipment used at each Property. The
Manager and the Owner shall from time to time, at Owner's request, monitor the
compliance by the Manager with the inventory control system and make such
amendments or modification to such system as the Owner may deem reasonably
necessary.
Section 4.11. Security. Manager shall consult with the Owner to plan,
arrange and supervise a comprehensive security program for each Property. This
program shall include, without limitation, that adequate communications
equipment is operable and available to the Property Staff and all Property
Staff are fully aware of their security responsibilities. Detailed security,
fire and safety procedures shall be developed and distributed to the Owner, all
tenants and the Property Staff. Manager shall maintain effective liaison with
local fire and police organizations and keep detailed logs covering all
security incidents. Manager shall promptly inform the Owner of all security
incidents and other material matters prejudicial to the security and safety of
any Property.
ARTICLE V
FINANCIAL MANAGEMENT
Section 5.01. Bank Account. Manager shall open and maintain, for each
Property, in a local bank selected by the Owner, a checking account (the
"Checking Account") for moneys
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to be paid or received by Manager in connection with its duties hereunder. The
Checking Account shall be in the name determined by the Owner and the Owner
shall pay all costs (if any) charged by the bank for maintaining the account
including monthly service fees and the cost of blank checks; provided, however,
that Manager shall pay all costs charged by the bank on account of Manager's
errors or negligence in maintaining the Checking Account including, without
limitation, the maintenance of any necessary cash reserve therein. Manager
shall not deposit any of its funds to the Checking Account or otherwise
commingle its funds with the Owner's funds. Manager shall have authority to
endorse checks payable to the Owner and deposit funds paid or payable to the
Owner into the Checking Account.
Section 5.02. Collections and Deposits. Manager shall collect and
deposit in each Checking Account all rents, security deposits, late charges,
insurance and condemnation proceeds, fees, refunds and other monies due from
any source which are payable to the Owner in connection with the leasing and
operation of the related Property; provided, however, that Manager shall
deposit security deposits in bank accounts selected by and owned by Owner and
shall otherwise handle security deposits in accordance with applicable law.
All amounts deposited to the Checking Account shall be swept by the Manager
from the Checking Account on a regular basis into an Operating Expense Account
(herein so called) for such Property. Each Operating Expense Account shall be
in an FDIC insured bank approved by Owner and shall be owned by Owner. The
style of the Operating Expense Account shall be in the name of the Property
with designated representatives from Owner and Manager being the only parties
authorized to draw from said accounts.
Section 5.03. Disbursements. On the 15th day of each calendar month
or, if such day is not a business day, the immediately succeeding business day,
the Manager shall deliver to the Owner a check representing all amounts in the
Operating Expense Account (after allowing for outstanding checks written and
deposits made pursuant to this Agreement which had not yet cleared such
Operating Expense Account) in excess of the sum of (i) the amounts to be
expended or disbursed by the Manager with respect to the Properties during such
calendar month as set forth in the Budget; (ii) amounts expended in any prior
month in excess of the amount specified in the Budget with respect to which the
Manager has not yet been reimbursed and which have been approved in writing by
the Owner; and (iii) a cushion equal to 5% of the aggregate amount to be
expended in accordance with the Budget in the immediately succeeding month or
such other amount as may be designated by the Owner. Manager shall pay out of
the Operating Expense Account for each Property all operating expenses of such
Property in accordance with the Budget for such Property, as permitted by this
Agreement or as otherwise approved in writing by the Owner. Manager shall
hold, remit or expend the funds in the Checking Accounts and Operating Expense
Accounts according to the Budget or the directions of the Owner. The funds in
the Checking Accounts and Operating Expense Accounts shall not be co-mingled
with funds from any other projects or facilities managed or operated by Manager
and Manager shall compile detailed records concerning all transactions relating
to the Checking Accounts and Operating Expense Accounts and shall promptly
deliver to Owner copies of all statements or other correspondence received by
Manager with respect to such Checking Accounts and Operating Expense Accounts.
Except in emergencies, Manager shall
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not incur any obligation in excess of $2,000 which is not specifically included
in the Budget, and neither shall Manager incur any substantial overrun of any
budgeted item without the Owner's prior written approval. Where an emergency
relating to a Property precludes Manager's obtaining the prior written consent
of the Owner, Manager shall make reasonable expenditures as necessary to ▇▇▇▇▇
the emergency and shall use its best efforts to contact the Owner by telephone
or otherwise as soon as possible. Manager shall also notify the Owner in
writing of any such emergency expenditures within 24 hours thereafter. Except
as specifically authorized by the Owner, Manager will not incur any obligation
(whether or not in the Budget) which will exceed $10,000 or mature more than
one year after its creation. At least two but no more than three persons
(including Property Staff) shall be responsible for handling cash in order to
maintain adequate financial control procedures.
Section 5.04. Examinations and Audits of Accounts. The Checking
Accounts, the Operating Expense Accounts and any other accounts maintained by
Manager in the name of or for the benefit of the Owner may be examined by the
Owner or its designated representatives during normal business hours. The
Owner shall have the right to cause an audit of such accounts at any time at
its expense and Manager shall make its facilities available for, and cooperate
in, any such audit. In addition, Manager shall promptly supply to the Owner's
accountants, without charge therefor, all records or documents respecting any
Property that such accountant may request in connection with audits of the
Owner's accounts and preparation of necessary tax returns.
Section 5.05. Books and Records. Manager shall maintain, in a manner
consistent with generally accepted accounting principles, a system of books and
records that fully and accurately detail all financial transactions with
respect to the leasing and operation of each Property. Such books and records
shall be (a) the property of the Owner, (b) maintained at Manager's office at
the Property or at the Manager's corporate office, (c) available to the Owner
upon reasonable request and (d) delivered to the Owner upon the termination of
this Agreement.
Section 5.06. Budget.
(a) Annual Operating and Capital Budget. The Budget shall
serve as the major control under which Manager shall operate each Property and
there shall be no substantial deviations therefrom, excluding deviations for
such expenses as utilities, fuel, insurance and other expenses not within the
control of Manager, except as may be approved in writing by the Owner. No
expenses may be incurred and no commitments may be made by Manager in the name
of the Owner in connection with the maintenance and operation of any Property
in excess of the amounts allocated to the various classifications of expense in
the Budget for that Property, except as otherwise provided herein.
(b) Budget Preparation. Manager shall prepare for the Owner's
written approval operating and capital budgets for each Property addressing
each of the items listed on Exhibit C attached hereto (with the Owner-approved
budget in effect from time to time being
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herein called the "Budget"). Other than with respect to the budget for fiscal
year 1997, Manager shall submit to the Owner, at least 45 days prior to the end
of the Owner's fiscal year, a proposed budget for the next ensuing fiscal year.
Manager shall within ninety days of the date of this Agreement submit a budget
to the Owner for the period beginning on the date of this Agreement and ending
immediately prior to the end of the Owner's fiscal year 1997. The proposed
budget submitted by Manager shall include an analysis of repair and maintenance
needs, operating expenses and any capital improvements anticipated for that
period. Reserve fund requirements, adjusted for inflationary factors, shall
also be included on an updated cost basis in the proposed budget. Reasonable
supporting schedules shall be submitted with the proposed budget. The proposed
budget will reflect a "three (3) year cycle" and will be based on actual income
and expenses for the past completed year and projected income and expenses for
the current year and for the future year for which the Budget is being
prepared. Increases or decreases in actual or estimated amounts for income and
expense items shall also be shown as percentage increases or decreases. The
proposed budget also shall contain a forecast of cash flow for each month of
the budget period, an assessment of personnel needs for operating the Property,
a forecast of rental rates, an analysis of leases then in effect, and such
other supplemental information as may be reasonably required by the Owner.
Following the review and approval of a budget by the Owner, the Manager shall
implement such budget and perform in accordance therewith.
Section 5.07. Obligations for Expenses. All obligations and expenses
incurred by Manager in accordance with this Agreement shall be deemed to be
obligations and expenses of the Owner, the parties acknowledging that Manager
may engage, at the Owner's expense, independent contractors and service
providers as permitted under this Agreement, as may be usual and customary in
the circumstances in connection with the performance of Manager's duties
hereunder. The salaries and benefits of the Non-Property Staff of Manager
shall be paid by the Manager from its own funds. Manager shall be reimbursed
for any costs and expenses (other than those described in the immediately
preceding sentence) related to a Property, including, without limitation, those
for office supplies, postage, copying charges, telephone tolls, computer time,
travel and entertainment. Such reimbursement shall be paid monthly from the
Operating Expense Account and shall be limited to an amount equal to $90,000
during any consecutive twelve month period (or a pro rata amount for any period
less than twelve months) (the "Maximum Reimbursement Amount"). The Maximum
Reimbursement Amount shall be increased on August 31, 1997 and on each August
31 thereafter during the Term of this Agreement (a "Review Date") by the lesser
of (i) the percentage change in the CPI during the twelve months immediately
preceding such Review Date or (ii) 3%. For purposes of this Section, CPI
means the Consumer Price Index for Urban Wage Earners and Clerical Workers,
U.S. City Average (1967 = 100) Unadjusted, all items indexed published by the
Bureau of Labor Statistics, United States Department of Labor (the "Department
of Labor"). If the CPI shall cease to be compiled and published at any time
before an adjustment is to be calculated on a Review Date, but a comparable
successor index is compiled and published by the Department of Labor, the
adjustments under this Section shall be computed according to such successor
index, with such mutually agreed upon adjustments in the index to reflect any
difference in the method of computation used in the CPI. If on any Review Date,
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neither the CPI nor a comparable successor index is available from the
Department of Labor, the parties hereto shall mutually agree upon an index for
"all items" compiled and published by another branch of the federal government
or by an institution or organization generally recognized as an authority by
financial and insurance institutions to be used as a basis for such
calculations.
ARTICLE VI
MISCELLANEOUS
Section 6.01. No Partnership or Joint Venture. This Agreement is a
management agreement only and does not grant to Manager any ownership right or
interest in any of the Properties or any other property of the Owner pertaining
thereto. This Agreement is not intended to and does not constitute a
partnership or joint venture of any kind between the Owner and Manager with
respect to the operation of the Properties or any other matter.
Section 6.02. Notices. Any notice that is provided for in this
Agreement shall be in writing, shall be given either manually or by mail,
telegram, radiogram or cable, and shall be deemed sufficiently given if and
when received by the party to be notified at its address set forth below or if
and when mailed by registered or certified mail, postage prepaid, addressed to
such party at such address (any single notice given pursuant to this Section
6.02 to the address designated below for Manager shall be deemed as notice so
given to both the Manager and Guarantor). Any party and any representative
designated below may, by notice to the others, change its address for receiving
such notices. Refusal to accept such notice or inability to deliver such
notice on account of a change in address not given the other addressees shall
be deemed receipt of notice.
If to the Owner or any affiliate:
ILM I Lease Corporation,
c/o PaineWebber Properties Incorporated
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, III
with a copy to:
Hunton & ▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
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If to Manager or Guarantor:
Capital Senior Living, Inc., and
Capital Senior Management 2, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Section 6.03. Applicable Law. This Agreement shall be executed,
construed and performed in accordance with the laws of the Commonwealth of
Virginia.
Section 6.04. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Manager shall not assign its rights or
delegate its duties hereunder to any party by operation of law, or otherwise,
and no shares of stock in the Manager shall be transferred without the prior
written consent of the Owner, which consent may be withheld in the Owner's sole
discretion. Notwithstanding the foregoing, Manager may, without Owner's
consent, enter into a merger transaction with Capital Senior Living, Inc. or an
affiliate or Capital Senior Living, Inc. or assign its rights and delegate its
duties hereunder to Capital Senior Living, Inc. or an affiliate of Capital
Senior Living, Inc., provided, however, that no such merger or assignment shall
relieve the Manager or the Guarantor from any of its obligations under this
Agreement. Any attempted assignment or delegation by Manager other than as
permitted hereby shall be void and of no force or effect. The Owner shall be
entitled, at any time during the Term and in its sole discretion, to assign its
rights and benefits under this Agreement to any entity which is an affiliate of
the Owner or of any shareholder thereof so long as such assignee assumes the
Owner's obligations hereunder and agrees to be bound by the terms and
conditions hereof.
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Section 6.05. Confidentiality
(a) Confidential Information; Representatives. For purposes of this
Section:
(i) The term "Confidential Information" shall be deemed to
include all information concerning the Properties (including those Properties
with respect to which this Agreement has been terminated) and the Owner
(whether prepared by the Owner, its Representatives or otherwise and
irrespective of the form of communication) which is furnished to the Manager or
Representative of the Manager (collectively, the "Management Group") now or in
the future by the Owner or by its Representatives or is developed by the
Manager during the course of the performance of its duties hereunder, together
with all notes, analyses, compilations, studies, interpretations or other
documents prepared by any member of the Management Group which contain, reflect
or are based upon, in whole or in part, the information furnished to any member
of the Management Group pursuant hereto. The term "Confidential Information"
does not include information which (1) is or becomes generally available to the
public other than as a result of a disclosure in violation of this Agreement by
any member of the Management Group, or (2) as shown by written records, was
lawfully within the Management Group member's possession prior to its being
furnished to the Management Group member by or on behalf of the Owner or
developed by the Manager during the course of the performance of Manager's
duties hereunder, provided that the source of such information was not known by
such Management Group member to be bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligation of confidentiality to the
Owner or any other party with respect to such information.
(ii) The term "Representatives" shall mean, collectively, and as
applicable, a person's directors, officers, employees, affiliates (as such term
is defined under the Securities Exchange Act of 1934, as amended), agents or
advisors (including, without limitation, attorneys, accountants, consultants,
bankers and financial advisors).
(b) Use of Confidential Information. The Manager hereby agrees that
each member of the Management Group shall use the Confidential Information
solely for the purpose of managing the Properties or otherwise performing or
assisting the Manager in the performance of its obligations under this
Agreement, that the Confidential Information will be kept confidential and that
no member of the Management Group will use the Confidential Information for any
other purpose or disclose any of the Confidential Information in any manner
whatsoever; provided, however, that the Manager may make any disclosure of the
Confidential Information to the extent that the Owner gives its prior written
consent. It is understood and agreed that the Manager shall inform each member
of the Management Group of the confidential nature of the Confidential
Information prior to delivery thereof to such person, and of the obligation to
not contact or communicate with the persons described above, and that by
receiving such materials, such member of the Management Group will be deemed to
have agreed to be bound by this Agreement. In any event, the Manager shall be
responsible for any breach of this Agreement by the Manager or by any member of
the Management Group, unless such Management Group member has signed a separate
Confidentiality
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Agreement with the Owner, and the Manager agrees, at the Manager's sole
expense, to take all reasonable measures (including but not limited to court
proceedings) to restrain any member of the Management Group from prohibited or
unauthorized contacts or disclosure or use of the Confidential Information.
Notwithstanding any other provision of this Agreement, the foregoing
restriction shall continue in full force and effect throughout the Term and
following the termination of this Agreement.
(c) Remedies of Owner. The Manager agrees that the Owner shall be
entitled to equitable relief, including injunction and specific performance, in
the event of any breach of the provisions of this Section and that the Manager
shall not oppose the granting of such relief. The Manager also agrees that the
Manager will not seek and agrees to waive (and will use the Manager's
reasonable efforts to cause each Management Group member not to seek and to
waive) any requirement for the securing or posting of a bond in connection with
the Owner's seeking or obtaining such relief.
Section 6.06. Manager's Insignia. Except to the extent required by
applicable state or local laws, rules and regulations or as may be approved in
writing by the Owner, (i) the Manager shall not display signs, nameplates or
other insignia at any Property disclosing the Manager's name, its corporate
logo or any tradename or trademark (collectively, "Insignia") or identifying
the Manager as the operator of a Property or otherwise and (ii) all advertising
information, circulars, stationary or other printed materials used in the
operations of or distributed by each of the Properties shall be in the name of
and bear the corporate logo or other trademark of the Owner.
Section 6.07. Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior and contemporaneous negotiations, understandings and
agreements, written or oral, between the parties. This Agreement shall not be
amended or modified, and no waiver of any provision hereof shall be effective,
unless set forth in a written instrument authorized and executed with the same
formality as this Agreement.
Section 6.08. Captions, Gender, Number. The captions hereof are for
convenience of reference only and shall neither limit nor enlarge the
provisions hereof. All personal pronouns used herein, whether used in the
masculine, feminine or neuter gender, shall include all other genders. The
singular shall include the plural and vice versa unless the context requires
otherwise.
Section 6.09. Severability. If any provision hereof, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of the provisions hereof, or the
application of such provision to other persons or circumstances, shall not be
affected thereby, and each provision hereof shall be valid and enforceable to
the fullest extent permitted by law.
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Section 6.10. Days. If any action is required to be performed, or if
any notice, consent or other communication is to be given, on a day that is a
Saturday or Sunday or a legal holiday in the jurisdiction in which the action
is required to be performed or in which is located the intended recipient of
such notice, consent or other communication, such performance shall be deemed
to be required, and such notice, consent or other communication shall be deemed
to be given, on the first business day following such Saturday, Sunday or legal
holiday. Unless otherwise specified herein, all references herein to a "day"
or "days" shall refer to calendar days and not business days.
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WITNESS the following signatures.
OWNER:
ILM I LEASE CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Title: President
-------------------------------
MANAGER:
CAPITAL SENIOR MANAGEMENT 2, INC.
a Texas corporation.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
Title: Vice President
-------------------------------
GUARANTOR:
CAPITAL SENIOR LIVING, INC.
a Texas corporation.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
Title: Vice President
-------------------------------
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EXHIBIT A
TO MANAGEMENT AGREEMENT
List of Properties
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
Independence Village
Winston Salem, North Carolina
Independence Village
Peoria, Illinois
Independence Village
Raleigh, North Carolina
Sedgwick Plaza
Wichita, Kansas
Crown Pointe
Omaha, Nebraska
West Shores
Hot Springs, Arkansas
Villa Santa ▇▇▇▇▇▇▇
Santa Barbara California
38
EXHIBIT B
FEES AND COMPENSATION OF MANAGER
1. Base Management Fee. Owner shall pay Manager a fee in the amount of 4%
of the monthly Gross Operating Revenue recognized during each month of the Term
with respect to the Properties ("Base Management Fee"). The Base Management
Fee shall be payable monthly in arrears on the fifteenth day of each month or,
if such day is not a business day, the immediately succeeding business day (a
"Payment Date"). For purposes hereof, "Gross Operating Revenue" shall mean,
with respect to a Property, all revenue from whatever source derived except (i)
proceeds from the sale, refinancing, assignment or other disposition of all or
any portion of the Property, (ii) security deposits, advance rents or amounts
paid by reason of the breach of any lease, license, concession or similar
agreement (unless and until such deposits or payments shall have been applied
by the Owner to the payment of current or past due fixed rent), (iii) proceeds
from any casualty insurance policies or condemnation awards except payments
under policies for business or rental interruption, all as calculated pursuant
to generally accepted accounting principles.
2. Incentive Management Fee. As additional compensation for Manager's
performance of its obligations hereunder, Owner agrees to pay to Manager an
Incentive Management Fee (as hereinafter defined). The Incentive Management
Fee shall be payable monthly in arrears on each Payment Date. The aggregate
amount of the Incentive Management Fee payable during each fiscal year during
the Term of this Agreement shall be calculated following the preparation of the
audited financial statements of the Owner for such fiscal year. Any amount due
to or owing by the Manager as a result of such calculation may be deducted from
or added to any amounts payable to the Manager on any succeeding Payment Date
or, if there is no succeeding Payment Date, by certified check. The Incentive
Management Fee shall be an amount equal to twenty-five percent (25%) of the
amount, if any, by which the average monthly Net Cash Flow for each property
for the twelve (12) month period ending on the last day of each calendar month
(a "Calculation Date") exceeds the Base Amount. The Base Amount for each
property for the period commencing on the date of this Agreement and ending
August 31, 1997 shall be the amount set forth below:
Annual Monthly
Base Base Percent
ILM I Amount Amount of Fund
------ ------ -------
Crown Pointe 1,079,190 89,933 14.6%
East Lansing 1,283,230 106,936 17.4%
Peoria 1,026,683 85,557 13.9%
Raleigh 1,246,988 103,916 16.9%
Sedgwick Plaza 951,523 79,294 12.9%
Villa Santa ▇▇▇▇▇▇▇ (25%) 239,178 19,931 3.2%
West Shores 734,261 61,188 9.9%
Winston Salem 826,555 68,880 11.2%
-----
39
Each August 31 (the "Anniversary Date") the Base Amount shall be increased by
(i) the percentage increase in the CPI at the end of such twelve (12) month
period ending on such Anniversary Date, provided, however, that the percentage
increase in any twelve (12) month period shall not exceed three percent (3%)
and (ii) 15% of the sum of (A) the Total Project Cost and (B) the development
fees paid to Manager, incurred in connection with the development of any of the
Properties during such twelve month period and actually paid or expended during
such period.
For purposes hereof, "Net Cash Flow" shall mean, with respect to any
period, the profit or loss generated by the Property for such period,
determined in accordance with generally accepted accounting principles
consistently applied, but subject to Section 1.06(b) and the following
adjustments. The Net Cash Flow shall be:
(i) increased by the sum of:
(A) to the extent included in the computation of such profit or
loss;
(1) depreciation, amortization and other non-cash charges
included in the computation of such profit or loss; and
(2) expenses incurred during such period but not paid
during such period; and
(B) to the extent not otherwise included in the computation of
such profit or loss:
(1) payments with respect to the Property from the
proceeds of business and rental interruption insurance;
and
(2) revenues received during such period;
(ii) reduced by the sum of:
(A) to the extent not otherwise included in the computation of
such profit or loss:
(1) expenses paid during such period except for any such
payments made out of the proceeds from any sale,
refinancing, condemnation, casualty, assignment or other
disposition of all or any part of the Properties;
(2) a management fee of 4.5%; and
(3) actual cash expenditures for ordinary and routine
capital improvements at the Property; and
40
(B) to the extent included in the computation of such profit or
loss, revenues recognized during such period but for which
payment was not received during such period.
(iii) all gains and losses from, and proceeds from, the sale,
refinancing, condemnation, casualty, assignment or other disposition of all or
any part of the Property (other than the proceeds of any business or rental
interruption insurance or eminent domain awards or payments to compensate for
lost rentals in respect of any period) shall be excluded from the computation
of Net Cash Flow.
41
EXHIBIT C
TO MANAGEMENT AGREEMENT
Budget Items
42
EXHIBIT D
TO MANAGEMENT AGREEMENT
D-1 FORM OF MONTHLY STATUS REPORT
The monthly status report will be provided within 15 days after the end of each
month and will include the following reports:
Reports for each Property:
(a) Accrual basis operating statement (Income and Expense Statement) showing
figures for the current month, year-to-date and comparison with budget
(b) Balance sheet
(c) General ledger
Summary reports for all Properties in the Fund:
1. Occupancy percentage history report including occupancy for each
Property and the weighted average occupancy percentage for all
Properties in the Fund. Report will compare current period to previous
period, to the same period one year ago and to the occupancy levels at
transfer of management.
2. Accrual basis operating statement totaling operation of all Properties
in the Fund (Income and Expense Statement) showing figures for the
current month, year-to-date and comparison with budget
3. Balance sheet totaling all Properties in the Fund
4. Capital expenditure status report by Property with Fund totals,
including a breakdown of capital improvements in process and those
completed during the month by Property, type of asset and amount
5. Narrative report recommending corrective actions and other capital items
to be approved for the following month as well as any upcoming
significant expenditures
An additional monthly status report will be provided within 20 days after the
end of the month and will include the following reports for each Property:
1. Narrative explanations of significant variations from budget
2. Rent roll
3. Detailed occupancy/leasing report with summary information about move-
ins and move-outs
4. Report of accidents and other mishaps
5. Summary of staff turnover
6. General information regarding Property operations (legislation,
governmental decisions, tax rulings, insurance, financial and other
practices) which come to Manager's attention in the normal course of
business
7. Accounts payable
43
8. Cash receipts and cash disbursements journals
9. Copy of journal entries (as may be requested by the Owner from time to
time)
10. Copy of bank statement(s)
11. Bank reconciliation(s)
12. Detailed Management Fee invoices and corporate expense distribution
report
13. Rent proof report (includes outstanding balance at beginning of month,
current charges, cash received and month-end balance per tenant)
D-2 FORM OF QUARTERLY STATUS REPORT
Manager will submit the following reports within 15 days after the end of each
fiscal quarter (fiscal quarters ending November 30, February 28, May 31, August
31):
1. Economic occupancy summary for the quarter for each Property and the
weighted average for all Properties in the Fund with comparisons to the
previous quarter and to the same quarter one year ago
2. One-paragraph narrative description of each Property's operations for
the quarter including:
o Changes in occupancy levels
o Planned changes in property operations
o Changes in local market conditions (new competition, etc.)
o Changes in, or results of, ongoing marketing strategies
o Other events of interest
D-3 FORM OF ANNUAL FISCAL YEAR STATUS REPORT
Manager will submit reports as required to assist independent auditing firm
with annual audit including preparation of audited work paper packages
D-4 FORM OF ANNUAL CALENDAR YEAR STATUS REPORT
Within 15 days after the end of the calendar year, Manager will submit
operating statements for each Property and a summary totaling the operations of
all of the Properties in the Fund for the calendar year for preparation of
Forms 1099 and calendar-year tax returns
44
EXHIBIT E
TO MANAGEMENT AGREEMENT
Form of Rent Roll
(included in Form E-1)
45
EXHIBIT F
TO MANAGEMENT AGREEMENT
List of Non-Property Staff
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ - President
▇▇▇▇ ▇▇▇▇▇▇ - Executive Vice President
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ - Vice President, Capital Senior
Development, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ - National Marketing Director
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ - Vice President
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ - Controller
▇▇▇▇▇▇▇ ▇▇▇▇ - Regional Manager
▇▇▇▇▇▇ ▇▇▇▇▇▇ - Regional Executive Director
▇▇▇▇ ▇▇▇▇▇▇▇ - Regional Executive Director
▇▇▇▇▇▇ ▇▇▇▇▇ - Regional Executive Director
46
EXHIBIT G
TO MANAGEMENT AGREEMENT
Properties on Which Feasibility Study Will Be Conducted Within Three Months
--------------------------------------------------------------------------------
Hot Springs, Arkansas
Omaha, Nebraska