EXHIBIT 10.105
PRE-OPENING SERVICES AND
MANAGEMENT AGREEMENT
FOR
SUNRISE ASSISTED LIVING OF STUDIO CITY
DECEMBER 23, 2002
OWNER: AL U.S./STUDIO CITY SENIOR HOUSING, L.P.
MANAGER: SUNRISE ASSISTED LIVING MANAGEMENT, INC.
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LIST OF EXHIBITS
Exhibit A Description of Real Property
Exhibit B Form of Approved Budget (including Pre-Opening Budget)
Exhibit C Omitted
Exhibit D Financial Reporting Requirements
Exhibit E Insurance Coverage
Exhibit F Other Facilities
Exhibit G Other Pre-Opening Services and Management Agreements
Exhibit H Major Actions
Exhibit I Cash Management Procedures
Exhibit J Responsible Contractor Program Policy
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PRE-OPENING SERVICES AND
MANAGEMENT AGREEMENT
THIS PRE-OPENING SERVICES AND MANAGEMENT AGREEMENT ("Agreement") is made
as of the 23rd day of December, 2002 between SUNRISE ASSISTED LIVING MANAGEMENT,
INC., a Virginia corporation ("Manager"), and AL U.S./STUDIO CITY ASSISTED
LIVING, L.P. a California limited partnership ("Owner").
RECITALS:
A. Owner is the owner of certain real and personal property described in
Exhibit A, attached hereto and made a part hereof, on which is situated an
assisted living facility, located in Studio City, California and known as
Sunrise Assisted Living of Studio City (hereinafter referred to as the
"Facility").
B. Owner wishes to appoint Manager as manager of the Facility and
Manager desires to accept such appointment and manage the Facility.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings when used in this
Agreement:
Section 1.01 Accountants. The term "Accountants" shall mean Ernst & Young LLP,
or such other firm of independent certified public accountants as may be
approved by the AEW Member and Operator.
Section 1.02 Accounting Period. The term "Accounting Period" shall mean the
calendar month.
Section 1.03 Adjusted Buy-Out Fee. The term "Adjusted Buy-Out Fee" is defined in
Section 12.02(b)(ii).
Section 1.04 AEW Member. AEW Senior Housing Company, LLC, a Delaware limited
liability company that is a member of ALUS.
Section 1.05 Affiliate. The term "Affiliate" shall mean with respect to any
person or entity (a "Person"), (i) any Person who directly or indirectly through
one or more intermediaries controls, is controlled by or is under common control
with a Person or (ii) any Person of which a Person is the beneficial owner of a
twenty-five percent (25%) or greater interest or (iii) any Person who acquires
all or substantially all of the assets of a Person. A Person shall be deemed to
control another Person if such Person, directly or indirectly, has the power to
direct the management, operations or business of such Person. The term
"beneficial owner" is to be determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934.
Section 1.06 Agreement. The terms "Agreement" and this "Agreement" shall mean
this Pre-Opening Services and Management Agreement between Owner and Manager,
and any amendments hereto as may be from time to time agreed to in writing by
the parties.
Section 1.07 ALUS. The term "ALUS" shall mean AL U.S. Development Venture, LLC,
a Delaware limited liability company, which is the sole member of AL U.S. Pool
One, LLC, a Delaware limited liability company ("AL Pool") which is the Sole
Member of AL California GP, LLC, the general partner of the Owner.
Section 1.08 Approved Budget. The term "Approved Budget" shall mean the
following budgets approved by Owner for the operation of the Facility (which
budgets may be submitted to Owner as one budget for the Facility, with separate
line items for each of the following): (a) the Pre-Opening Budget described in
Section 4.02(a); (b) the Marketing Budget described in Section 4.03(a) hereof;
(c) the Annual Operating Budget described in Article VII; (d) the "FF&E Budget"
described in Section 10.02(a); (e) the Repairs and Equipment Estimate described
in Section 10.02(c) hereof; and (f) the Capital Budget described in Section
10.03 hereof. The Approved Budget shall be the budgets set forth above in this
section as approved in writing by Owner. The approved Pre-Opening Budget is
attached hereto as Exhibit K, and made a part hereof.
Section 1.09 Bankruptcy. The term "Bankruptcy" shall mean with reference to the
Manager:
(a) the entry of an order for relief (or similar court order) against
such Member which authorizes a case brought under Chapter 7, 11 or 13 of Title
11 of the United States Code (or successors to such Chapters and Title) to
proceed;
(b) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding by Manager;
(c) the commencement of a federal, state or foreign bankruptcy,
insolvency, reorganization, arrangement or liquidation proceeding against
Manager if such proceeding is not dismissed within 120 days after the
commencement thereof;
(d) the entry of a court decree or court order which remains unstayed
and in effect for a period of 120 consecutive days:
(i) adjudging Manager insolvent under any federal, state or
foreign law relating to bankruptcy, insolvency,
reorganization, arrangement, liquidation, receivership
or the like;
(ii) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition
of, or in respect of, Manager or its properties under
any federal, state or foreign law relating to
insolvency, reorganization, arrangement, liquidation,
receivership or the like;
(iii) appointing a receiver, liquidator, assignee, trustee,
conservator or sequester (or other similar official) of
Manager, or of all, or of a substantial part, of
Manager's properties; or
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(iv) ordering the winding up, dissolution or liquidation of
the affairs of Manager;
(e) the Consent by Manager to the institution against it of any
proceeding of the type described in subsection (a), (b), (c) and (d);
(f) the Consent by Manager to the appointment of a receiver, liquidator,
assignee, trustee, conservator or sequester (or other similar official) of
Manager, of all, or of a substantial part, of its properties;
(g) the making by Manager of an assignment for the benefit of creditors;
or the admission in writing by Manager of its inability to pay its debts
generally as they come due.
Section 1.10 Buy-Out Fee. The term "Buy-Out Fee" shall mean an amount equal to
the present value of (i) the payments that would have been made to Manager
between the Termination Date and the originally scheduled expiration date of the
Term as a Management Fee if the Management Agreements had not been terminated
pursuant to this Agreement, calculated assuming that the Management Fee is (A)
equal to three percent (3%) of Projected Gross Revenues, and (B) payable in
arrears on the last day of each calendar month, discounted at (ii) an annual
discount rate equal to thirteen and three-quarters percent (13.75%). The Buy-Out
Fee shall be estimated by Owner on or before the Termination Date based upon the
most recent financial reports delivered to Owner by Manager under this Agreement
and shall thereafter be subject to adjustment in accordance with the provisions
of Section 12.02(b)(ii) hereof.
Section 1.11 Buy-Out Fee Adjustment Notice. The term "Buy-Out Fee Adjustment
Notice" is defined in Section 12.02(b)(ii).
Section 1.12 Cash Management Procedures. The term "Cash Management Procedures"
shall mean those procedures for the receipt of Gross Revenues and payment of
Facility Expenses summarized on Exhibit I attached hereto.
Section 1.13 Commencement of Management Services. The term "Commencement of
Management Services" shall mean that date upon which the Facility receives a
certificate of occupancy sufficient to permit the occupancy, use and operation
of the Facility.
Section 1.14 Developer. The term "Developer" shall mean Sunrise Development,
Inc., a Virginia corporation.
Section 1.15 Development Agreement. The term "Development Agreement" shall mean
that certain Development Agreement dated on or about the date hereof between
Owner and Developer governing the development of the Facility.
Section 1.16 Escrow Agent. A national title company or other party mutually
acceptable to Owner and Manager willing to enter into the Escrow Agreement.
Section 1.17 Escrow Agreement. The term "Escrow Agreement" is defined in Section
12.02(b)(i).
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Section 1.18 Escrow Amount. The term "Escrow Amount" is defined in Section
12.02(b)(i).
Section 1.19 Event of Default. The term "Event of Default" is defined in Section
13.01, as to Manager, and in Section 13.02, as to Owner.
Section 1.20 Facility. The term "Facility" shall mean the assisted living
facility owned by Owner and described in the recitals to this Agreement.
Section 1.21 Facility Expenses. The term "Facility Expenses" shall mean the
following costs and expenses related to the maintenance, operation, repair,
renovation, replacement and staffing of the Facility and in accordance with the
Approved Budget, which costs and expenses shall be paid by the Manager from
funds made available by Owner (it being understood and agreed that, for purposes
hereof, "third parties" or "third party" shall in no event include Manager or
any Affiliate of Manager):
- Costs of inventory and supplies used in the operation of the
Facility, including the initial inventory and supplies purchased
prior to the Commencement of Management Services, which shall be
included in the Development Budget for the Facility prepared
pursuant to the Development Agreement and approved by Owner;
- Costs payable to third parties to prevent, cure or correct any
violation of federal, state or municipal laws, ordinances,
regulations, restrictive covenants or orders or the rules of the
applicable Board of Fire Underwriters with respect to the
leasing, use, repair or maintenance of the Facility and any
expense incurred in order to obtain or maintain any operating
permits or licenses, including any registration fees and
expenses and legal fees associated therewith;
- Costs payable to third parties to make repairs and perform all
maintenance and preventative maintenance and other routine
property maintenance and upkeep services;
- Costs payable to third parties for the collection of delinquent
rentals collected through an attorney or collection agency and
other costs required in connection with the enforcement of any
lease or resident agreement (including, without limitation,
legal fees, reasonable disbursements and moving and storage
expenses for FF&E and personal property of Residents and/or
lessees);
- Costs payable to third parties under service contracts;
- Costs payable to third parties for advertising and leasing
expenses (including, but not limited to, promotions, printing
and signs);
- Costs payable to third parties for auditing, tax preparation and
accounting services and reasonable attorneys' fees;
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- Costs incurred by Manager for all personnel employed at the
Facility or whose services are entirely allocable to the
Facility (or the regional business manager (or such additional
personnel as may be agreed to in writing by Owner) employed in
part at the Facility and in part at other facilities not owned
by Owner, a pro rata share, determined by facility and not unit
count, of costs of such personnel), such costs to include salary
and wages, training programs, hiring expenses, payroll taxes,
workers' compensation, bonus compensation, incentive
compensation, retirement plan payments, travel expenses and
other benefits payable (including, for example, health
insurance, dental insurance, life insurance and disability
insurance) to such personnel;
- Costs payable to third parties for printed forms and supplies
required for use at the Facility;
- Costs of all utilities serving the Facility;
- Costs payable to third parties for printed checks and bank
account fees for each bank account reasonably required by Owner;
- To the extent required to be carried by Manager, costs of
insurance premiums for insurance at the Facility;
- Costs payable to third parties incurred in order to prevent a
breach under a lease or a mortgage loan affecting the Facility;
- All fees payable to Manager under the terms of this Agreement;
- Costs incurred by Manager for electronic data processing
equipment, systems, software or services used at the Facility;
- All Impositions described in Section 5.05;
- Costs incurred by Manager for comprehensive crime insurance or
fidelity bonds; and
- Any other costs (including, without limitation, expenditures for
FF&E, Repairs and Equipment and capital improvements), fees or
expenses included in, and which Manager is authorized to incur
in accordance with, the Approved Budget and the terms,
conditions and limitations set forth in this Agreement,
including the permitted variances under Article VII hereof.
If any of the above Facility Expenses are shared with other senior housing
facilities managed by Manager or its Affiliates, whether owned by Affiliates of
Owner or other parties, at the request of the AEW Member, Manager shall provide
Owner with an analysis, in such detail as the AEW Member may reasonably request,
of the formula and methodology employed by Manager in allocating such Facility
Expenses, including a breakdown of corporate overhead costs associated
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with any such Facility Expense, and a statement as to the fairness of the
formula and methodology for allocating such Facility Expenses among the
applicable senior housing facilities. It is anticipated that on an annual basis,
Manager shall submit to Owner and Owner shall approve or reject in its
reasonable discretion certain shared expenses and corporate-level expenses as
contemplated by this paragraph, which shall include but not be limited to: (i)
advertising prepared on a corporate-level basis by Manager; (ii) corporate-level
information technology, reporting systems, and software; (iii) corporate level
support of corporate level training, services and systems engaged in or utilized
by Manager for the purpose of furthering the operation of the Facility in
accordance with the Sunrise Standards; and (iv) other corporate-level expenses
which Manager believes should be allocated to the Facilities and constitute
Facility Expenses. Such allocation shall be included in the draft of the Annual
Operating Budget submitted to Owner pursuant to Article VII and shall be subject
to the annual audit conducted pursuant to Section 6.01 and, at Owner's request,
any audit conducted pursuant to Section 6.03, and, as part of any such audit,
the Accountants shall review and verify the formula and methodology employed by
Manager in allocating such costs, as well as the breakdown of corporate overhead
expenses associated with any such shared Facility Expense.
Facility Expenses shall not include the following:
- Except as expressly agreed to by Owner, costs incurred by
Manager for salary and wages, payroll taxes, workers'
compensation, bonus compensation, incentive compensation,
retirement plan payments, travel expenses and other benefits
payable to Manager's corporate office employees or divisional or
regional supervisor employees (including, without limitation,
non-incentive stock option grants and any bonus compensation to
such employees);
- Except as specifically approved by Owner as part of an annual
request by Manager, costs incurred by Manager for in-house
accounting and reporting systems, software or services, or any
pro rata charge thereof, furnished by Manager under this
Agreement, as distinguished from third party accounting and
reporting costs (as for example, the annual auditing costs of
accountants);
- Costs incurred by Manager for forms, papers, ledgers and other
supplies, equipment, copying and telephone of any kind used in
Manager's office at any location other than the Facility;
- Costs incurred by Manager for political contributions;
- Costs attributable to losses which are covered by the indemnity
obligations of Manager pursuant to Section 14.05 of this
Agreement;
- Except as expressly agreed to by Owner, costs incurred by
Manager for training and hiring expenses related to corporate
office employees or divisional or regional supervisory
employees, including but not limited to employment and
employment agency fees;
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- Costs incurred by Manager for advertising expenses of Manager
other than costs of marketing the Facility for lease or
occupancy, or costs of employment ads for positions at the
Facility;
- Costs incurred by Manager for any in-house risk manager,
architect, engineer, accountant or other professional advisor or
consultant employed by Manager (as distinct from third parties
engaged for the performance of such services);
- Costs incurred by Manager for dues of Manager or any of its
employees in professional organizations or for any of Manager's
employees participating in industry conventions or meetings
(except to the extent included in an Approved Budget or as
otherwise specifically approved by Owner);
- Any costs and expenses incurred in management of properties or
facilities not operated by Owner; and
- All other costs and expenses not described in Facility Expenses
above, including, without limitation, home office and corporate
level expenses not included in an Approved Budget, except as
expressly set forth in Section 4.06.
Section 1.22 FF&E. The term "FF&E" shall mean furniture, fixtures, furnishings,
soft goods, case goods, vehicles, systems and equipment, but shall not include
Household Replacements or Software.
Section 1.23 Force Majeure. The term "Force Majeure" shall have the meaning
given such term in Section 17.15.
Section 1.24 GAAP. The term "GAAP" means generally accepted accounting
principles as adopted by the American Institute of Certified Public Accountants.
Section 1.25 Gross Revenues. The term "Gross Revenues" shall mean all revenues
derived from operating the Facility and all departments and parts thereof,
determined in accordance with GAAP for each Accounting Period (with the
exception of any pass-through fees) including, but not limited to: income (from
both cash and credit transactions, net of any fee therefor) from community fees,
monthly occupancy fees, health care fees and any and all other fees and payments
whatsoever received from Residents of the Facility; income from food and
beverage and catering sales; income from vending machines; and proceeds, if any,
from business interruption (but only to the extent it reimburses Owner for lost
income and not for additional or other expenses) or other loss of income
insurance, all determined in accordance with GAAP; provided, however, that Gross
Revenues shall not include (i) gratuities to employees at the Facility; (ii)
federal, state or municipal excise, sales or use taxes or similar taxes imposed
at the point of sale and collected directly from Residents or guests of the
Facility or included as part of the sales price of any goods or services; (iii)
proceeds from the sale of FF&E and any other capital asset; (iv) interest
received or accrued with respect to the monies in any operating or reserve
accounts of the Facility; (v) proceeds of any financing or refinancing of the
Facility or any portion thereof; (vi) proceeds of any insurance policy (except
loss of income insurance as provided above) or condemnation or other taking;
(vii) any cash refunds, rebates or discounts to
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Residents of the Facility, cash discounts and credits of a similar nature,
given, paid or returned in the course of obtaining Gross Revenues or components
thereof; (viii) proceeds from any sale of the Facility or any other capital
transaction; (ix) Resident funds on deposit or security deposits until such time
as the same are applied to current fees due for services rendered for the
Facility; (x) awards of damages, settlement proceeds and other payments received
by Owner in respect of any litigation other than litigation to collect fees due
for services rendered from the Facility; and (xi) payments under any policy of
title insurance. Any community fees or deposits that are refunded to a Resident
shall be credited against Gross Revenues during the month in which such refunds
are made, if previously included in Gross Revenues.
Section 1.26 Household Replacements. The term "Household Replacements" shall
mean supply items including linen, china, glassware, silver, uniforms, and
similar items.
Section 1.27 Intellectual Property. The term "Intellectual Property" shall mean
(i) all Software developed and owned by Manager or an Affiliate of Manager; and
(ii) all written manuals, instructions, policies, procedures and directives
issued by Manager to its employees at the Facility regarding the procedures and
techniques to be used in operation of the Facility.
Section 1.28 Legal Requirements. The term "Legal Requirements" shall mean any
license, certificate, law, code, rule, ordinance, regulation or order of any
federal, state or local governmental authority, court, department, commission,
board or office, Board of Fire Underwriters or any body similar to any of the
foregoing having jurisdiction over the business or operation of the Facility or
the matters which are the subject of this Agreement, including any resident care
or health care, building, zoning or use laws, ordinances, regulations or orders,
environmental protection laws and fire department rule.
Section 1.29 Major Actions. The term "Major Actions" means any of those actions
or decisions listed on Exhibit H attached hereto.
Section 1.30 Management Fee. The term "Management Fee" is defined in
Section 3.01.
Section 1.31 Management Services. The term "Management Services" shall mean the
services described in this Agreement, which shall commence upon the date which
the Facility receives a certificate of occupancy sufficient to permit the
occupancy, use and operation of the Facility.
Section 1.32 Master Agreement. The term "Master Agreement" shall mean that
certain Master Agreement of even date herewith by and among ALUS, the AEW
Member, Developer and Manager.
Section 1.33 Mortgage. The term "Mortgage" shall mean any mortgage or deed of
trust recorded against the Facility as security for a secured loan.
Section 1.34 Net Operating Income. The term "Net Operating Income" shall mean
the excess (if any) of Gross Revenues over Facility Expenses, calculated on an
accrual basis.
Section 1.35 Other Facilities. The term "Other Facilities" shall mean those
certain independent living and assisted living/dementia care facilities listed
on Exhibit F, and any other
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such facilities as may hereafter be owned by a wholly-owned subsidiary of ALUS
and operated by Manager pursuant to an Other Pre-Opening Services and Management
Agreement.
Section 1.36 Other Pre-Opening Services and Management Agreements. The term
"Other Pre-Opening Services and Management Agreements" shall mean those certain
Pre-Opening Services and Management Agreements listed on Exhibit G, and any
other Pre-Opening Services and Management Agreements as may hereafter be entered
into by and between a wholly owned subsidiary of ALUS and Manager.
Section 1.37 Pre-Opening Services. The term "Pre-Opening Services" shall mean
the management services performed by Manager during the period commencing on the
date hereof and continuing throughout construction up to date on which the
Facility receives a certificate of occupancy sufficient to permit the occupancy,
use and operation of the Facility, as described in Section 4.02 of this
Agreement.
Section 1.38 Projected Gross Revenues. The term "Projected Gross Revenues" shall
mean, with respect to the first twelve (12) month period after the Termination
Date, one hundred three percent (103%) of the aggregate actual Gross Revenues
for the Facility for the twelve (12) month period ending on the last day of the
month immediately preceding the month in which the Termination Date occurs; and
for each succeeding twelve (12) month period, Projected Gross Revenues shall
mean one hundred three percent (103%) of the Projected Gross Revenues for the
immediately preceding twelve (12) month period.
Section 1.39 Proprietary Marks. The term "Proprietary Marks" shall mean all
trademarks, trade names, symbols, logos, slogans, designs, insignia, emblems,
devices, service marks and distinctive designs of buildings and signs, or
combinations thereof, which are used to identify the Facility in the Sunrise
System. The term "Proprietary Marks" shall also include all trade names,
trademarks, symbols, logos, designs, etc., which are used in connection with the
operation of the Facility during the Term. The term "Proprietary Marks" shall
include all present and future Proprietary Marks, whether they are now or
hereafter owned by Manager or any of its Affiliates, and whether or not they are
registered under the laws of the United States or any other country.
Section 1.40 Residents. The term "Residents" is defined in Section 2.02(b).
Section 1.41 Software. The term "Software" means all computer software and
accompanying documentation (including all future upgrades, enhancements,
additions, substitutions and modifications thereof), other than computer
software which is commercially available, which are owned or leased by Manager
and used in connection with its operations at the Facility.
Section 1.42 State. The term "State" shall mean the state in which the Facility
is located and any regulatory agencies within the State with overview authority
or other authority over the Facility, unless otherwise specifically indicated.
Section 1.43 Sunrise Standards. The term "Sunrise Standards" means from time to
time both the operational standards (for example, staffing levels, Resident care
and health care policies and procedures, and accounting and financial reporting
policies and procedures) and the physical standards (for example, quality of
FF&E and frequency of FF&E replacements) that are then generally and
consistently (but not necessarily, absolutely or without exception) applied at
or to
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assisted living communities in the Sunrise System, which are of comparable
type, size, age and market orientation as the Facility, all in accordance with
Legal Requirements, provided that the Sunrise Standards shall at all times be at
a level consistent with those of a premier Manager of assisted living/dementia
care facilities.
Section 1.44 Sunrise System. The term "Sunrise System" means at any particular
time the entire system or group of Sunrise Assisted Living communities then
owned and/or operated or managed by Manager (or one or more of its Affiliates),
under the "Sunrise" name.
Section 1.45 Term. The "Term" of this Agreement shall be the period beginning
when this Agreement is executed and ending, unless sooner terminated, on
December 22, 2027.
Section 1.46 Termination Date. The term "Termination Date" is defined in Section
12.02(b)(i).
Section 1.47 Venture Agreement. The term "Venture Agreement" shall mean the
Limited Liability Company Agreement of ALUS dated as of December 23, 2002.
ARTICLE II
APPOINTMENT OF MANAGER AND PRIMARY GOAL OF AGREEMENT
Section 2.01 Appointment of Manager. Owner hereby appoints Manager and
Manager hereby accepts appointment, subject to the terms and conditions of this
Agreement, as the sole and exclusive Manager for the daily operation and
management of the Facility. Except as otherwise provided herein, Manager shall
have responsibility and complete and full control and discretion for the
operation, direction, management and supervision of the Facility, subject only
to the then applicable Approved Budget and other limitations expressed in this
Agreement, in accordance with this Agreement, including, without limitation, the
Sunrise Standards and all Legal Requirements. Manager accepts said appointment
and agrees to operate the Facility during the Term of this Agreement in
accordance with the terms and conditions hereinafter set forth. Manager shall
use the Facility solely for the operation of assisted living communities
pursuant to the Sunrise Standards and the other terms and provisions of this
Agreement.
Section 2.02 Goals. In furtherance of the joint goals of Owner and
Manager, Manager shall:
a. Provide appropriate pre-opening services for the Facility,
including the preparation of operating and capital budgets,
obtaining all necessary operating licenses, interviewing and
hiring staff, pre-leasing and marketing, and preparing procedure
manuals and policies relative to the operation and management of
the Facility.
b. Establish and maintain programs to promote the most effective
utilization of the Facility's services;
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c. Provide quality services to individuals residing at the Facility
(the "Residents") in a manner complying with the form of
resident agreement in use at the Facility and the Approved
Budget;
d. Establish appropriate marketing programs and maintain a public
image of excellence and first-class operation for the Facility,
all in accordance with this Agreement, the Sunrise Standards and
the Approved Budget;
e. Maintain well trained, quality staff, in sufficient number, at
the Facility in a manner consistent with this Agreement, the
Sunrise Standards and the Approved Budget;
f. Operate the Facility on a sound financial basis in a manner
consistent with this Agreement, the Sunrise Standards and the
Approved Budget;
g. Establish and maintain a sound financial accounting system for
the Facility;
h. Institute and maintain adequate internal fiscal controls through
proper budgeting, accounting procedures, and timely financial
reporting in a manner consistent with this Agreement;
i. Prevent loss of Gross Revenues from the Facility and establish
sound cash flow through sound billing and collection procedures
and methods;
j. Conform operations at the Facility to, and comply with, all
applicable Legal Requirements, this Agreement and the Sunrise
Standards, including without limitation, those pertaining to
licensing, and take the steps necessary to ensure that all
licenses and certificates necessary to operate the Facility are
maintained at all times, without interruption; and
k. Take such other steps as are necessary to provide high quality
care to the Residents, consistent with this Agreement, the
Sunrise Standards and the Approved Budget.
Section 2.03 Representations and Warranties of Owner. Owner represents
and warrants to Manager as follows:
(a) Owner is a limited partnership duly organized, validly existing and
in good standing under the laws of the State of California.
(b) Owner has full power and authority to enter into this Agreement and
to carry out its obligations set forth herein. Owner has taken all action
required by laws, its organizational documents or otherwise to be taken to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby. This Agreement is a valid and binding
agreement of Owner enforceable in accordance with its terms, except that such
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enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
and the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 2.04 Representations and Warranties of Manager . Manager represents and
warrants to Owner as follows:
(a) Manager is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia, has full corporate
power and authority to own its properties and is duly qualified or licensed to
do business as a foreign corporation in the states in which the Facility is
located.
(b) Manager has full power and authority to enter into this Agreement
and to carry out its obligations set forth herein. Manager has taken all action
required by law, its articles of incorporation, its bylaws or otherwise to be
taken to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a valid
and binding agreement of Manager enforceable in accordance with its terms,
except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefore may be brought.
(c) All licenses and/or certificates necessary for the operation of the
Facility in accordance with this Agreement have been (to the extent obtainable
at this time) or will in due course (with Owner's cooperation) be, obtained and
are or will be valid and in full force and effect. Manager knows of no reason
that the Facility would not be capable of being operated in the usual manner and
without interruption commencing as of the Commencement of Management Services.
To Manager's knowledge, the Facility is in compliance with the requirements of
all licenses and/or certificates currently in place (if any), and Manager has
received no notice of any violation of, or circumstance which would prevent or
hinder the issuance of, as applicable, any license or certificate necessary for
the operation of the Facility in accordance with the Sunrise Standards, or the
lack of any such license or certificate required for such operation of the
Facility. Manager knows of no reason that any licenses or certificates required
in order to operate the Facility pursuant to the terms of this Agreement would
not be obtainable in due course.
(d) Manager and/or its Affiliates own the Proprietary Marks and the
Intellectual Property and Manager has full right, power and authority to permit
the use thereof in connection with the Facility. Manager shall defend the
Proprietary Marks and Intellectual Property against any claim of right by any
other person to use the same, and will promptly commence and diligently
prosecute any action necessary to prevent the dilution or misappropriation of
the Proprietary Marks and/or Intellectual Property, where such defense or action
is commercially reasonable in the circumstances.
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ARTICLE III
PAYMENTS TO MANAGER
Section 3.01 Management Fee. As compensation for the services to be rendered by
Manager in accordance with Article IV, from and after the Commencement of
Management Services, Manager shall receive, on a monthly basis, in arrears, a
management fee (the "Management Fee") during the Term equal to:
(a) For the first six (6) months after the Commencement of Management
Services, Seventeen Thousand Five Hundred Dollars ($17,500) per month, unless a
Management Fee calculated in the manner set forth in subparagraphs (b), (c) or
(d) immediately following would result in a higher amount for any given month,
in which case, such higher amount shall be the Management Fee payable to Manager
for such month;
(b) Thereafter, five percent (5%) of the Gross Revenues of the Facility
shall be paid until the Net Operating Income (before the deduction of the
Management Fee) from the Facility with respect to any calendar month is greater
than One Hundred Forty-Seven Thousand Dollars ($147,000) and the average of such
Net Operating Income for the four months commencing with such month is at least
that amount;
(c) Thereafter, six percent (6%) of the Gross Revenues of the Facility
shall be paid until the Net Operating Income (before the deduction of the
Management Fee) from the Facility with respect to any calendar month is greater
than One Hundred Eighty-One thousand Dollars ($181,000) and the average of such
Net Operating Income for the four months commencing with such month is at least
that amount;
(d) Thereafter, seven percent (7%) of the Gross Revenues of the Facility
shall be paid.
(e) Before any Management Fee is paid to Manager under any of clauses
(b), (c) or (d) above, Manager shall provide notice to Owner, together with a
statement demonstrating that the applicable level of four-month average Net
Operating Income has been achieved as set forth in clauses (b) or (c),
respectively, which statement shall be subject to Owner's reasonable approval,
and which shall be subject to the annual audit conducted pursuant to Section
6.01, and, at Owner's request, any audit conducted pursuant to Section 6.03.
Upon agreement by Owner that the applicable level of four-month average Net
Operating Income was achieved, Manager shall receive a retroactive payment equal
to an additional 1% of Gross Revenues for each month of the applicable
four-month threshold period. For accounting and all other purposes, the
Management Fee shall be considered a Facility Expense. The Management Fee will
cover the cost of Manager's providing the Management Services, including,
without limitation, supervision and general overall management of the Facility.
(f) In the event that the four month period described in subsection (b)
above begins no later than the 14th month after occupancy (as described below),
the additional one percent (1%) of Gross Revenues described in subsection (e)
above shall be applicable beginning on the seventh month from the Commencement
of Management Services.
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(g) In the event that the four month period described in subsection (c)
above begins no later than the 17th month after occupancy (as described below),
and provided that Manager shall have qualified for the additional 1% payment
pursuant to subsection (f) above, Manager shall also be entitled to a further
retroactive payment of an additional one percent (1%) of Gross Revenues
beginning on the seventh month from the Commencement of Management Services.
For purposes of determining months after "occupancy" referred to in
subparagraphs (f) and (g), the first month shall be the month in which the first
resident occupies a unit in the Facility, provided that if such first resident
occupies on or after the fifteenth (15th) day of the month, the next succeeding
month shall be the first month.
Section 3.02 Pre-Opening Services Fee. As compensation for the Pre-Opening
Services to be rendered during the period described in the definition of
Pre-Opening Services in accordance with Section 4.02, Manager shall be entitled
to a pre-opening services fee (the "Pre-Opening Services Fee") equal to Three
Hundred Eleven Thousand Seven Hundred Seventy Six Dollars ($311,776). The
Pre-Opening Services Fee shall be paid as follows:
(a) Fifty percent (50%) of the Pre-Opening Service Fee shall be paid
upon the earlier to occur of (i) the Net Operating Income (before the deduction
of the Management Fee) from the Facility with respect to any calendar month is
greater than zero, as long as an amount sufficient to cover debt service for
such month remains in the working capital, operating deficit or interest
reserves to be drawn under any construction loan with respect to the Facility or
(ii) cash flow break even for the Facility (which is defined as Gross Revenues
less the sum of Facility Expenses and monthly debt service on any loan);
(b) Twenty-Five percent (25%) of the Pre-Opening Service Fee shall be
paid at such time as the Net Operating Income for the Facility with respect to
any calendar month is greater than One Hundred Sixteen Thousand Dollars
($116,000).
(c) The balance of the Pre-Opening Service Fee shall be paid at such
time as the Net Operating Income for the Facility with respect to any calendar
month is greater than One Hundred Forty-Seven Thousand Dollars ($147,000).
Manager acknowledges and agrees that, until such time as the Net
Operating Income levels set forth in subparagraphs 3.02(a), (b) or (c) are
attained, payment of the Pre-Operating Services Fee will not be made and Manager
shall have no right to demand or compel such payment. In addition, before any
Pre-Operating Services Fee is payable to Manager under any of clauses (a), (b)
or (c) above, Manager shall provide notice to Owner, together with a statement
of operations for the Facility justifying the payment of the applicable
Pre-Operating Services Fee, which shall be subject to Owner's reasonable
approval and which shall be subject to the annual audit conducted pursuant to
Section 6.01, and, at Owner's request, any audit conducted pursuant to Section
6.03. Owner agrees to make the payments required within fifteen (15) days after
Manager demonstrates to Owner's reasonable satisfaction that the relevant new
Operating Income levels have been achieved and sustained, as applicable.
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ARTICLE IV
DUTIES AND RIGHTS OF MANAGER
Section 4.01 Authority of Manager; Right of Possession. Subject to the terms of
this Agreement and any Approved Budget, Facility operations shall be under the
exclusive supervision and control of Manager, which shall be responsible for the
proper and efficient operation of the Facility in accordance with the terms and
provisions of this Agreement. Subject to the terms of this Agreement and any
Approved Budget, Manager shall have discretion and control, free from
interference, interruption or disturbance from Owner or those claiming by,
through or under Owner (except as expressly set forth herein with regard to
required Owner approvals), in all matters relating to the management and
operation of the Facility, including, without limitation, the following: fees
and charges for providing accommodations, food services, care services, and
related services to Residents and their guests; supervision of Resident care;
health care policies; credit policies; food and beverage services; employment
policies; executing, modifying and terminating licenses and concessions for
commercial space within the Facility and the provision of services to Residents
at the Facility in accordance with Section 4.05 hereinbelow (provided that the
term of any such license or concession shall not extend beyond the Term of this
Agreement); receipt and disbursement of funds (subject to the terms of the Cash
Management Procedures); procurement of inventories, supplies and services;
promotion and publicity; and, generally, all activities necessary for the
operation of the Facility consistent with this Agreement and the Cash Management
Procedures. Notwithstanding anything contained in this Agreement to the
contrary, and without limiting any other provision of this Agreement, in no
event shall Manager take any Major Actions without the express, prior written
consent of Owner (which may be expressly set forth in an Approved Budget).
Section 4.02 Pre-Opening Services. Manager shall provide the following services
to Owner commencing as of the date construction of the Facility started and
continuing throughout construction up to opening of the Facility (the
"Pre-Opening Services"):
a. Prepare and submit to Owner for Owner's approval (i) a budget for the
period from the execution hereof until the opening of the Facility to the public
(the "Pre-Opening Budget"), including all costs to be incurred in connection
with the development, design and construction management services under the
Development Agreement, the Pre-Opening Services and the Marketing Services and
the sources of funds and (ii) operating and capital budgets and financial
projections for the operation of the Facility upon opening.
b. Review state licensing issues and obtain on Owner's behalf (and in
Owner's name, to the extent permissible under applicable law) all necessary
licenses for the Facility.
c. Determine appropriate staffing, prepare job descriptions and locate,
hire as employees of Manager (but at Owner's expense), and train administrative,
resident services and food service staffs. Owner acknowledges that certain
employees will be hired prior to the Commencement of Management Services.
d. Prepare the Facility for occupancy, including causing the Facility to
be equipped with all FF&E, case goods and systems necessary for its operation as
a state-of-the-art, prototypical Sunrise Facility.
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e. Prepare and submit to Owner for Owner's approval appropriate
procedures manuals and policies relative to all aspects of management and
operation of the Facility as an assisted living community.
f. Obtain all necessary approvals to operate the Facility. Manager shall
provide, at no additional cost to Owner, all required preparation of documents,
records and filings necessary to maintain a State license for the Facility. Any
fees due for the filing of applicable licenses shall be Facility Expenses.
g. Prepare and submit to Owner for Owner's approval a system of accounts
and records.
h. Prepare and submit to Owner on a weekly basis a leasing status and
progress report, setting forth such information as Owner may reasonably request,
including, without limitation, a leasing traffic report, a summary of deposits
received and of nonrefundable deposits and a summary of resident agreements
signed during such week.
Section 4.03 Marketing Services. Manager shall provide the following services
(the "Marketing Services"):
a. Prepare a marketing plan and marketing strategy for the Facility
and a budget (the "Marketing Budget") for such plan and
strategy. Prior to the Facility opening, such Marketing Budget
shall be contained as a line item within the Annual Operating
Budget (as defined in Article VII below). Upon opening of the
Facility, the Marketing Budget shall be a separate document. The
Marketing Budget shall be revised annually at the time of the
submission of the Annual Operating Budget and shall be subject
to Owner's approval.
b. Direct the marketing efforts for the Facility in accordance with
the Marketing Budget and this Agreement.
c. Plan and implement community outreach, public relations and
special events programs in a manner consistent with the Approved
Budget.
d. Do all other things Manager reasonably deems necessary for the
successful marketing of the Facility consistent with this
Agreement.
Section 4.04 Hiring and Training of Staff. Manager shall be solely responsible
for the hiring of all Facility staff and shall maintain at all times staffing
necessary to operate the Facility in accordance with this Agreement and the
Approved Budget. All personnel employed at the Facility shall be employed and
paid by Manager, and the salaries, costs and benefits of such employees shall be
Facility Expenses. The salaries, costs and benefits of the employees shall be
competitive with the community in which the Facility is located and generally
commensurate with the salaries, costs and benefits paid by Manager in other
facilities its owns or manages and
16
in any event consistent with the Approved Budget. Manager shall not enter into
any written employment agreements with any person which purport to bind Owner.
The Annual Operating Budget shall include the number, titles and salary ranges
of all employees. Manager shall perform background checks as required by the
State and the Sunrise Standards on all persons proposed to be employed at the
Facility, and shall comply with all State requirements and the Sunrise Standards
with regard to such background checks. Manager shall provide a Bonus Program or
other bonus compensation for its employees at the Facility providing benefits at
least equal to the benefits provided by Manager throughout the Sunrise System.
With respect to all employees of Manager, Manager shall provide necessary
worker's compensation payments, income tax withholding and other similar
payments, and such personnel at all times shall be the employees of Manager and
shall not be deemed to be the employees of Owner for any purpose whatsoever.
Section 4.05 Management Services. As Manager of the Facility, Manager shall use
its diligent, good faith efforts to implement all aspects of the operation of
the Facility in accordance with the terms of this Agreement (including, without
limitation, the Sunrise Standards, Cash Management Procedures and all Legal
Requirements), and the Approved Budget, and shall have responsibility and
commensurate authority for all such activities. Without limiting the generality
of the foregoing, in addition to any other duties set forth in this Agreement,
Manager shall use its diligent, good faith efforts to do the following, all in
accordance with this Agreement and the then applicable Approved Budget:
a. Enter into all contracts, leases and agreements required in the
ordinary course of business for the supply, operation,
maintenance and service of the Facility (including but not
limited to food procurement, trash removal, pest control and
elevator maintenance) and, subject to adequate funds being
available, pay the costs of all such services when due. Manager
shall obtain the written consent of Owner before entering into
any contract, lease or agreement in excess of Fifty Thousand
Dollars ($50,000.00) or one (1) year in duration, except those
specifically set forth in the Approved Budget.
b. Purchase such inventories, provisions, food, supplies and other
expendable items as are necessary to operate and maintain the
Facility in the manner required pursuant to this Agreement.
c. Recruit, hire, supervise train and discharge all employees to be
employed at the Facility.
d. Provide care to Residents of the Facility as provided for in the
resident agreement agreed to by the parties.
e. Set all resident fees and use its best professional efforts to
collect such fees.
f. Oversee, manage and direct all day-to-day operations.
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Section 4.06 Manager's Home Office Employees. As part of the provision of the
services provided by Manager, Manager shall from time to time make its employees
who are not working directly at the Facility (the "Home Office Employees")
available for consultation and advice related to the Facility. Home Office
Employees include Manager 's home office staff and staff at other facilities
managed by Manager and its Affiliates with experience in areas such as
accounting, budgeting, finance, human resources, construction, development,
marketing, food service and purchasing. The services of Home Office Employees
recited in the immediately preceding sentence and all other "normal" services in
accordance with the Sunrise Standards shall be provided by Manager to the
Facility on a routine basis, shall not constitute a "Facility Expense," and
shall be provided by Manager without any charge or fee to Owner (other than as
expressly set forth in Article III). Should Owner request a type, form or level
of service of a different nature that Home Office Employees do not provide in
the ordinary course of operations to carry out the scope of services described
in this Agreement, Manager shall (i) provide such services by Home Office
Employees for an additional cost to be agreed to in advance by Manager and
Owner, which cost shall be a Facility Expense, or (ii) if such services cannot
be provided by Manager's Home Office Employees or if Manager and Owner cannot
agree on the cost thereof, use its commercially reasonable efforts to locate and
contract for such services from outside consultants, the cost of which shall be
a Facility Expense.
Section 4.07 Personnel Administration. The personnel at the Facility shall be
employed by Manager, and the salaries, costs and benefits of such employees
shall be Facility Expenses. Manager shall be responsible for recruiting, hiring,
training, promoting, assigning, supervising and discharging the personnel of the
Facility and shall be responsible for the formulation, implementation,
modification and administration of wage scales, rates of compensation, employee
insurance, employee taxes, in-service training, attendance at seminars or
conferences, staffing schedules, job descriptions and personnel policies with
respect to the personnel of the Facility in accordance with the Approved Budget.
Section 4.08 Purchasing. Manager shall use, on behalf of the Facility, such
purchasing systems and procedures developed by or otherwise available to Manager
for all items that are consistent with the Approved Budget. In furtherance
thereof, Manager shall utilize, to the extent that they offer competitive
prices, any national purchasing contracts that Manager may from time to time
have in effect with suppliers of equipment and supplies. Any purchase by Manager
made pursuant to or otherwise ancillary to this Agreement shall be made with
Manager acting as agent for and at the expense of the Facility or Owner.
Section 4.09 Resident Agreements. Manager shall submit any forms of resident
agreements or other occupancy agreements used in conjunction with the Facility
for Owner's approval before they are used by Manager. Manager shall act as an
authorized representative of Owner in executing resident agreements and
occupancy agreements, but Manager shall not enter into such agreement for a
duration of more than one year without the prior written consent of Owner.
Section 4.10 Contracts with Affiliates. Manager shall not engage or pay any
compensation to any Affiliate of Manager for the provision of services in
connection with this Agreement unless (a) such party is fully qualified and
experienced to provide the required services, (b) both the scope of services and
the compensation payable to such Affiliate for the services are consistent
18
with then current market standards or arm's-length transactions, (c) Manager
discloses such engagement to Owner as a transaction with an Affiliate of Manager
and (d) Owner approves such engagement or payment.
Section 4.11 Contract Documents; Indemnity Provisions. Manager shall use
reasonable efforts to include in all service and supply contracts with third
party contractors, a provision requiring such contractors to indemnify and hold
harmless Owner and Manager from and against any loss, cost or expense arising
out of the negligence, willful misconduct or fraud of such third party or its
employees, agents or contractors in connection with the performance of its
obligations under such contracts.
Section 4.12 Compliance with Certain Policies. Manager acknowledges and agrees
that, so long as the California Public Employee's Retirement System (the
"System") directly or indirectly owns an interest in Owner, Manager will use
best efforts to comply with the System's objectives and then current policies
regarding the selection of responsible contractors. The System's current
objectives and policies regarding responsible contractors is attached hereto as
Exhibit J and incorporated herein by reference. Such compliance shall include,
but not be limited to, complying with the System's reporting requirements
regarding such efforts.
ARTICLE V
COLLECTIONS, PAYMENTS AND
PROCEDURE FOR HANDLING RECEIPTS
Section 5.01 Collection and Payments. Manager shall collect all Gross Revenues
in accordance with the Cash Management Procedures and pay Facility Expenses as
set forth in the Approved Budget. All fees due to Manager under this Agreement
will be paid by Manager as a Facility Expense in the priority set forth in
Section 5.02.
Section 5.02 Payment Priority. The following items shall be paid in the
following order: (a) Facility Expenses, excluding the Management Fee and (b) the
Management Fee.
Section 5.03 Credits and Collections. Manager shall install credit and
collection policies and procedures. Manager shall institute monthly billing by
the Facility and steps necessary to collect accounts and monies owed to the
Facility. This also includes the institution of legal proceedings in the name of
Owner, Manager and/or the Facility, if necessary, and authorized by Owner in
writing after Manager has made its best efforts to collect such accounts, and
the enforcement of the rights of Owner as creditor under any contract in
connection with the rendering of any service or the purchase of any goods. Any
and all reasonable costs and/or fees charged by a third party in connection with
the collections and/or enforcement set forth in this Section shall be included
in Facility Expenses as a legal expense.
Section 5.04 Depositories for Funds. Manager shall maintain accounts in the
manner set forth in the Cash Management Procedures. Manager shall be authorized
to access the accounts without the approval of Owner, subject to a limitation on
the maximum amount of any check, which limitation shall be established between
Manager and Owner as part of the Annual Budget. It is Owner's responsibility to
provide the funds needed to operate the Facility in a manner designed to meet
the mutual goals of Owner and Manager set forth in Section 2.02 above.
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Owner shall be a signatory on all accounts maintained with respect to the
Facility, and Owner shall have the right to require that Owner's signature be
required on all checks/withdrawals after a default by Manager under this
Agreement.
Section 5.05 Impositions.
(a) Except as specifically set forth in Section 5.05(b) hereof, all
Impositions (defined below) which accrue during the Term of this Agreement (or
are properly allocable to such Term under GAAP) shall be paid by Manager, as a
Facility Expense, before any fine, penalty or interest is added thereto or lien
placed upon the Facility or this Agreement, unless payment thereof is stayed;
provided, however, that nothing herein shall impose upon Manager responsibility
for funding payment of Impositions from Manager's own funds. Owner shall within
five (5) business days after the receipt of any invoice, ▇▇▇▇, assessment,
notice or other correspondence relating to any Imposition, furnish Manager with
a copy thereof. Either Owner or Manager may initiate proceedings to contest any
Imposition (in which case each party agrees to sign the required applications
and otherwise cooperate with the other party in expediting the matter), and all
reasonable costs of any negotiations or proceedings with respect to any such
contest shall be paid from Gross Revenues and shall be a Facility Expense;
provided, however, that neither party shall have the right to expend in excess
of Five Thousand Dollars ($5,000) with respect to any such negotiations or
proceedings without the consent of the other party.
(b) The term "Impositions" means all levies, assessments and similar
charges, including, without limitation, the following: all water, sewer or
similar fees, rents, rates, charges, excises or levies, vault license fees or
rentals; license fees; inspection fees and other authorization fees and other
governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or assessed of every character (including all interest and penalties
thereon), which at any time during or in respect of the Term of this Agreement
may be assessed, levied, confirmed or imposed on Owner or Manager with respect
to the Facility or the operation thereof, or otherwise in respect of or be a
lien upon the Facility (including, without limitation, on any of the inventories
or Household Replacements now or hereafter located therein). Impositions shall
not include (i) any income or franchise taxes payable by Owner or Manager or
(ii) any franchise, corporate, estate, inheritance, succession, capital levy or
transfer tax imposed on Owner or Manager, all of which shall be paid solely by
Owner or Manager, not from Gross Revenues or any other funds generated by or
held with respect to the Facility.
ARTICLE VI
FINANCIAL RECORDS
Section 6.01 Accounting and Financial Records. Manager shall establish and
administer accounting procedures and controls and systems for the development,
preparation and safekeeping of records and books of accounting relating to the
business and financial affairs of the Facility, including payroll, accounts
receivable and accounts payable, and shall prepare such monthly, quarterly and
annual financial reports as the Owner shall reasonably request, all in
accordance with the requirements described in Exhibit D attached hereto or such
other requirements as the Owner may reasonably require. Such records shall be
kept on the accrual
20
basis and shall be in accordance with GAAP and shall compare monthly and year to
date results with the Approved Budget. The Manager shall cooperate with the
Owner's independent auditors in the preparation of the annual audit and
preparation of income tax returns. The costs of the annual audit and of
providing information necessary for the preparation of the income tax returns of
Owner and Owner Investments shall be Facility Expenses.
Section 6.02 Reports. In addition to the reports required pursuant to Section
6.01 and such other reports as may be reasonably requested by Owner, Manager
shall keep Owner informed as to the financial status, condition, and operation
of the Facility and as to any State or local reporting requirements in
connection with the licenses and permits necessary for the Facilities, with
written reports and such other or special reports as Manager may from time to
time determine are necessary or as Owner may reasonably request from time to
time.
Section 6.03 Access; Audit Rights. Owner and its representatives shall have the
right at all reasonable times during the usual business hours of the Facility to
audit, examine, and make copies of books of account (including copying any
records contained in Software) maintained by Manager with respect to the
Facility, which audit or examination may cover any time period (monthly,
quarterly or annually) at Owner's discretion. Such right may be exercised
through any agent or employee designated by Owner or by an independent public
accountant designated by Owner. Manager shall locate any and all books of
account and other records maintained by Manager with respect to the Facility at
Manager's corporate office, located in McLean, Virginia. Manager shall make
adequate space available to Owner at Manager's corporate office to audit,
examine and make copies of such books of account and other records, and Manager
shall be under no obligation to relocate such records to the Facility for
Owner's review. If any of the reports required by this Article VI are not
furnished on a timely basis, and Manager does not provide the same within ten
(10) business days after notice from Owner thereof, Owner shall have the right,
at Manager's expense, to cause the books and records of Manager relating to the
Facility to be audited; provided that the foregoing right shall be in addition
to, and not in lieu of, any other right or remedy available to Owner under this
Agreement. Manager shall promptly correct all accounting method deficiencies and
errors disclosed by Owner's audits and shall timely inform Owner of all
corrective actions taken. Except as set forth above, Owner's audit shall be at
Owner's expense unless an error on the part of Manager or its accountant is
discovered which affects Owner adversely and is equal to or greater than five
percent (5%) of the greater of gross Facility Expenses or Gross Revenues for the
most recent twelve (12) month period, in which case Manager shall bear the
reasonable cost of the audit.
ARTICLE VII
ANNUAL OPERATING BUDGET
Manager shall within the time limits set forth on Exhibit D, deliver to
Owner for Owner's approval, a draft operations budget for the next year for the
Facility, and a final operations budget, and set forth an estimate, on an
Accounting Period basis, of Gross Revenues and Facility Expenses, together with
an explanation of anticipated changes to resident charges, payroll rates and
positions, non-wage cost increases, the proposed methodology and formula
employed by Manager in allocating shared Facility Expenses (as described in
Section 1.21), and all other factors differing from the current fiscal year. The
budget, as proposed, shall be
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considered by Owner and, in consultation between Owner and Manager, the budget
for the Facility for the ensuing fiscal year will be prepared by the Manager
with the final contents of the budget to be determined mutually by Manager and
Owner (the "Annual Operating Budget"). The Annual Operating Budget shall be
accompanied by a narrative description of operating objectives and assumptions
and an updated competitive set analysis. If there is a delay in the finalization
of a new Annual Operating Budget, or if Owner shall fail to approve the newly
proposed budget, Manager shall operate under the expired Annual Operating Budget
until a new budget is approved. If consensus cannot be reached between the
parties as to the Annual Operating Budget within sixty (60) days of Owner's
receipt of the proposed budget, Owner shall designate in good faith the final
operating budget. In the event Manager disagrees in good faith with such budget,
the matter shall be submitted to arbitration in accordance with Article XVIII,
and the results of such arbitration shall be binding upon the parties. Manager
shall use its best efforts to operate the Facility as provided herein so that
the actual Gross Revenues, costs, and Facility Expenses of the operation and
maintenance of the Facility during any applicable period of Owner's fiscal year
shall be consistent with the Approved Budget. All expenses must be charged to
the proper account on a basis consistent with the Approved Budget
classifications. No expense may be reclassified except as needed to correct an
inadvertent error. Manager will secure Owner's prior written approval for any
expenditure that will result in a variance of the greater of $10,000 or 5% of
the annual budgeted amount in any one accounting category of the Approved
Budget. During the calendar year, Manager shall inform Owner promptly of any
major increases or decreases in costs, expenses or income that were not
reflected in the Approved Budget. The form of the Approved Budget shall be
consistent with Exhibit B.
ARTICLE VIII
OTHER FINANCIAL MATTERS
Section 8.01 Tax Status. Subject to the provisions of this Agreement, Manager
shall operate the Facility in a manner to best assure that Owner and the
Facility receive all benefits of applicable tax exemptions and/or credits
available thereto from any governmental authority. Manager will prepare or cause
to be prepared all tax returns required in the course of operations excluding
income or franchise tax returns, which are the responsibilities of Owner. These
returns include, but are not limited to, sales and use tax return, personal
property tax return and business, professional and occupational license tax
returns. Manager shall timely file or cause to be filed such returns as required
by each jurisdiction. All third party costs and expenses incurred by Manager in
performing its duties shall be Facility Expenses. Nothing herein shall be
construed to restrict Manager from engaging a thirty party accounting or law
firm to assist Manager to file or cause to be filed such returns on a timely
basis. Notwithstanding the foregoing, Manager shall not be responsible for the
preparation of Owner's Federal or State income tax returns; provided, however,
that Manager shall cooperate fully with Owner as may be necessary to enable
Owner to file such Federal or State income tax returns, including without
limitation by preparing the necessary data and submitting it to Owner in a
timely manner.
Section 8.02 Employee Withholding. Manager shall comply with all applicable
Legal Requirements concerning the withholding of taxes from employee wages.
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ARTICLE IX
GENERAL COVENANTS AND OWNER AND MANAGER OBLIGATIONS
Section 9.01 Covenants Not To Hire. It is expressly understood and agreed by
Owner and Manager that, during the Term and for a period of one year thereafter,
each party shall not, and shall not permit any Affiliate, directly or
indirectly, to hire, employ, offer to employ, contract with, induce to terminate
the employment of, attempt to hire, or in any way contact regarding employment
any person employed by the other party without the consent of the party acting
as the employer, it being understood and agreed that in the event of termination
of this Agreement, both parties shall fully cooperate with one another to ensure
a smooth transition of management. The provisions of this Section 9.01 shall not
apply to employees of Manager below the level of Executive Director and Director
of Community Relations. Without limiting the generality of the foregoing, it is
expressly understood and agreed that there shall be no impediment to Owner's
solicitation or hiring any of Manager's so-called "care-givers" after the
termination of this Agreement, but not while it is still in effect. Furthermore,
this Section shall not apply to Owner if this Agreement is terminated as a
result of (i) a Prohibited Change of Control as defined in Section 17.11(c) of
this Agreement; or (ii) an Event of Default by Manager under this Agreement or
the Other Pre-Opening Services and Management Agreements. In the event of such
termination, Owner shall immediately be free to select and hire any of Manager's
employees at the Facility, including, without limitation, the Executive Director
and the Director of Community Relations.
Section 9.02 Owner's Obligations. Owner hereby agrees to comply with all of the
provisions of this Agreement applicable to Owner and to perform all obligations
of Owner as set forth herein. Owner further agrees to take all steps reasonably
necessary to ensure, consistent with the provisions herein, that Owner and
Owner's agents provide all necessary assistance and cooperation to Manager in
connection with Manager's provision of management services hereunder.
Section 9.03 Financing of the Facility. In connection with any mortgage or deed
of trust secured by the Facility after the Commencement of Management Services,
Owner shall use commercially reasonable efforts to obtain and deliver to Manager
a Subordination, Nondisturbance and Attornment Agreement ("SNDA") in form and
substance reasonably satisfactory to Owner, Manager, and lender. It shall not be
a default under this Agreement if Owner, having used commercially reasonable
efforts, fails to obtain an SNDA from Owner's lender.
Section 9.04 Manager's Obligations. Manager hereby agrees to comply with all of
the provisions of this Agreement applicable to Manager and to perform all
obligations of Manager as set forth herein.
Section 9.05 Owner's Right To Inspect. Owner or its employees, representatives,
lenders or agents shall have access to the Facility and the files, books,
accounts, and records of Manager related to the Facility at any and all
reasonable times for the purpose of inspection or showing the Facility to
prospective purchasers, investors, Residents or mortgagees.
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ARTICLE X
REPAIRS AND MAINTENANCE
Section 10.01 Routine Repairs and Maintenance. Manager shall maintain the
Facility in good repair and condition and in conformity with Legal Requirements,
and shall make or cause to be made such routine and preventive maintenance,
repairs and minor alterations, the cost of which can be expensed under GAAP, as
it, from time to time, deems necessary for such purposes consistent with the
Approved Budget. The cost of such maintenance, repairs and alterations shall be
paid from Gross Revenues and treated as Facility Expenses consistent with the
Approved Budget.
Section 10.02 Repairs and Equipment.
(a) The Approved Budget shall contain appropriate line items
(the "FF&E Budget") to cover the costs of:
(i) Replacements, renewals and additions to the
Facility's FF&E; and
(ii) Certain routine repairs and maintenance to the
Facility building which are normally capitalized
under GAAP, such as exterior and interior
repainting, resurfacing buildings walls, floors,
roofs and parking areas, but which are not major
repairs, alterations, improvements, renewals or
replacements to the Facility building's
structure or exterior facade or to its
mechanical, electrical, heating, ventilating,
air conditioning, plumbing or vertical
transportation systems.
(b) Manager shall from time to time make such: (i)
replacements and renewals to the Facility's FF&E; and
(ii) repairs to the Facility building of the nature
described in Section 10.02(a)(ii), as Manager deems
necessary and in accordance with the "Repairs and
Equipment Estimate" described in Section 10.02(c) below.
Proceeds from the sale of FF&E no longer necessary to
the operation of the Facility shall not be included in
Gross Revenues.
(c) Manager shall prepare an estimate (the "Repairs and
Equipment Estimate") of the expenditures necessary for
(i) replacements and renewals to the Facility's FF&E and
(ii) repairs to the Facility building of the nature
described in Section 10.02(a)(ii), during the ensuing
fiscal year and shall submit such Repairs and Equipment
Estimate to Owner for Owner's approval as a part of the
Approved Budget. All expenditures proposed in the
"Repairs and Equipment Estimate" will be (as to both the
amount of each such expenditure and the timing thereof)
both reasonable and necessary, given that the Facility
will be maintained and operated in a first class
condition in accordance with the terms of this
Agreement. Manager will follow the applicable Repairs
and Equipment Estimate, but shall be entitled to depart
therefrom, in its reasonable discretion, provided that:
(i)
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such departures from the applicable Repairs and
Equipment Estimate result from circumstances which could
not reasonably have been foreseen at the time of the
submission of such Repairs and Equipment Estimate; and
(ii) such departures from the applicable Repairs and
Equipment Estimate result from circumstances which
require prompt repair and/or replacement or are
necessary to comply with Legal Requirements; and (iii)
Manager has submitted to Owner a revised Repairs and
Equipment Estimate setting forth and explaining such
departures and Owner has approved such departure. The
only items of FF&E which Manager is authorized to lease
(rather than purchase) shall be facsimile machines, copy
machines, and other office equipment. If Manager enters
into a lease described in the immediately preceding
sentence, Manager shall give Owner written notice of
such lease either prior to or promptly after entering
into such lease. Reasonable lease payments with respect
to such items shall be paid as Facility Expenses.
Notwithstanding the foregoing, all FF&E, case goods and
systems required for the operation of the Facility as a
state-of-the-art, prototypical Sunrise Facility shall
have been included within the Development Budget
prepared pursuant to the Development Agreement and
approved by Owner. The Repairs and Equipment Estimate
shall appropriately reflect that the Facility is
newly-opened and fully equipped with all FF&E, case
goods and systems required for the operation of the
Facility as a state-of-the-art, prototypical Sunrise
Facility.
Section 10.03 Building Alterations, Improvements, Renewals and Replacements.
(a) Manager shall prepare an annual estimate (the "Capital
Budget") of the expenses necessary for major repairs,
alterations, improvements, renewals and replacements to
the structure or exterior facade of the Facility, or to
the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation
elements of the Facility building, which expenditures,
together with all other repair, maintenance and
replacement expenditures which are classified as capital
expenditures under GAAP and are not among those referred
to in Section 10.02(a)(ii) are collectively referred to
as "Non-Routine Capital Expenditures." Manager shall
submit such Capital Budget to Owner for Owner's approval
at the same time the Annual Operating Budget is
submitted. Manager shall not make any Non-Routine
Capital Expenditure without the prior written consent of
Owner. Owner shall not unreasonably withhold its consent
with respect to such Non-Routine Capital Expenditures as
are reasonably required to achieve material compliance
with any Legal Requirements or otherwise reasonably
required for the continued safe operation of the
Facility.
(b) The cost of all Non-Routine Capital Expenditures
referred to in Section 10.03(a) shall be paid, to the
extent reasonably possible (given the requirement that
the FF&E at the Facility be replaced in accordance with
good, first class standards) by Owner from its own
funds. Any
25
unreasonable failure of Owner to approve and fund
such Non-Routine Capital Expenditures described in
Section 10.04(i), within sixty (60) days after Manager's
written request therefor shall be submitted to
arbitration in accordance with Article XVIII, and the
results of such arbitration shall be binding upon the
parties.
Section 10.04 Remedial Action. If Manager receives a governmental order or
notice pertaining to a violation or potential violation of any applicable Legal
Requirement, or information indicating a circumstance involving the continued
safe operation of a Facility, Manager shall give Owner written notice thereof
within five (5) business days thereafter or sooner if circumstances reasonably
warrant. Manager shall be authorized to take reasonable and appropriate remedial
action consisting of repairs or maintenance to the Facility without receiving
Owner's prior consent as follows:
(i) in an emergency threatening the safety of such Facility
or its Residents, invitees or employees or imminent
material physical damage to the Facility; such action
and/or expenditure as may be necessary to eliminate the
circumstances giving rise to such emergency, or
(ii) if the continuation of the given condition will subject
Manager and/or Owner to regulatory, civil, or criminal
liability or result in the suspension or revocation of a
material license or permit, and Owner has either failed
to remedy the situation or has failed to take
appropriate legal action to stay the effectiveness of
any such Legal Requirement, such action and/or
expenditure as may be necessary to stay the
implementation of any such Legal Requirement.
Manager shall, as soon as reasonably practical under the
circumstances, notify Owner of any action that it may have taken and any costs
it may have paid or incurred and shall cooperate with Owner in the pursuit of
any such action and shall have the right to participate therein. Except as
hereinafter provided, Owner shall reimburse Manager for any such costs incurred
by Manager in connection with any such remedial action within ninety (90) days
after Owner's receipt of written notice from Manager of the amount of such
costs. The cost of all expenditures described in clause (ii) this Section 10.04
(including the expenses incurred by either Owner or Manager in connection with
any civil or criminal proceeding described above) shall be borne solely by Owner
and shall be paid from Gross Revenues. Any disagreement regarding the funding of
any proposed expenditure pursuant to this Section 10.04 shall be submitted to
arbitration pursuant to Article XVIII, and the results of such arbitration shall
be binding upon the parties.
Section 10.05 Liens. Manager and Owner shall use their best efforts to prevent
any liens from being filed against the Facility which arise from any
maintenance, repairs, alterations, improvements, renewals or replacements in or
to the Facility. Manager shall not file any lien against the Facility. They
shall cooperate fully in obtaining the release of any such liens, and the cost
thereof, if the lien was not occasioned by the fault of either party, shall be
treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the release.
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Section 10.06 Ownership of Replacements. All repairs and minor alterations made
pursuant to this Article X shall be the property of Owner.
Section 10.07 Casualty or Condemnation. If, during the Term hereof, (i) the
Facility is damaged or destroyed by fire, casualty or other cause; or (ii) all
or substantially all of the Facility shall be taken in any eminent domain,
condemnation, compulsory acquisition or similar proceeding by any competent
authority for any public or quasi-public use or purpose; or (iii) a portion of
the Facility shall be so taken, but the result is that it is unreasonable to
continue to operate the Facility, then Owner shall have the right to terminate
its obligations under this Agreement. In no event shall Manager be entitled to
any proceeds awarded with respect to any such taking or condemnation.
ARTICLE XI
INSURANCE
Section 11.01 General Requirements. Manager shall maintain a program of
insurance coverage for the Facility, which shall be with the insurance companies
and coverages and amounts and otherwise in form and substance as directed, in
writing, by Owner (the "Insurance Program"). The cost of such insurance will be
included in the Approved Budget and the Annual Operating Budget as a Facility
Expense. Unless otherwise directed by Owner, the Insurance Program shall include
property insurance coverage for the Property through the CalPERS Master
Insurance Program from the Commencement of Management Services until such time
as Owner shall elect in writing to discontinue the coverage within said CalPERS
Master Insurance Program. As of the date of this Agreement, the coverages
required to be obtained and maintained under the Insurance Program shall include
the requirements set forth on Exhibit E attached hereto. Commencing with the
review and approval process for the first Annual Operating Budget to take effect
on the Commencement of Management Services, and continuing annually during the
term of this Agreement, the Insurance Program shall be reviewed by Manager and
Owner in consultation with each other. During the annual insurance review
process, Owner may propose an alternative Insurance Program for approval, and if
adopting such proposed Insurance Program would result in a five percent (5%) or
more savings on the premiums that would be due for the following year under the
Insurance Program then in place or proposed by Manager, then, assuming Owner's
Insurance Program is for the same coverages in types, amounts and with companies
of equal or better ratings, then Owner's Insurance Program shall constitute the
Insurance Program; provided further, however, that Owner shall have the right to
discontinue property insurance coverage through the CalPERS Master Insurance
Program at any time upon written notice to Manager notwithstanding whether a
savings on premiums would be achieved as a result of discontinuing such coverage
and adopting alternative coverage. Owner and Manager shall each be provided with
certificates of insurance prior to the date hereof and whenever the insurance is
renewed, modified or replaced.
Section 11.02 Blanket Policies. All insurance described in Section 11.01 may be
obtained by Manager by endorsement or equivalent means under its blanket
insurance policies, provided that such blanket policies fulfill the requirements
specified herein.
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Section 11.03 Risk Management. One of the responsibilities of Manager shall be
to provide risk management oversight at the Facility.
ARTICLE XII
TERMINATION OF AGREEMENT
Section 12.01 Termination. Unless sooner terminated pursuant to this Article,
this Agreement shall expire at the end of the Term. Manager may sooner terminate
this Agreement upon the occurrence of an Event of Default by Owner pursuant to
Section 13.02. Owner may sooner terminate this Agreement upon the occurrence of
an Event of Default by Manager pursuant to Section 13.01, provided, however,
that if the party charged with an Event of Default pursuant to Section 13.01 or
13.02 (but not this Section 12.01) shall in good faith dispute the occurrence of
an Event of Default, such matter shall be submitted to binding arbitration in
accordance with Article XVIII hereof. In addition, this Agreement may also be
sooner terminated by Owner by written notice from Owner to Manager, if:
(a) (i) Any of the licenses and/or certificates necessary for operation
of the Facility at any time is terminated, suspended or revoked and the event
giving rise to any such termination, suspension or revocation is not due to the
action or inaction of Owner and (x) poses a threat to the health or safety of
the Residents of the Facility or (y) such termination, suspension or revocation
materially interferes with the operation of the Facility or (ii) any enforcement
action is initiated which materially interferes with the operation of the
Facility. Manager shall have fifteen (15) days after receipt of written notice
from Owner to cure any such default, and once any such termination, suspension,
revocation or enforcement action is cured, if Owner shall not have terminated
this Agreement, Owner may no longer terminate for that occurrence.
(b) Upon any Prohibited Change of Control (as defined in Section 17.11).
(c) Upon the occurrence of any of the events specified in Article 2 of
the Master Agreement.
(d) Manager or any Affiliate of Manager defaults under the Venture
Agreement or any other agreement to which any of them is a party with Owner,
ALUS or any Affiliate of either of them, and such default continues beyond any
applicable notice and cure periods.
(e) Upon the occurrence of an Event of Default under the Development
Agreement.
If a termination occurs pursuant to this Section 12.01, Manager shall be
compensated for its services only through the date of termination after
deducting therefrom damages incurred by Owner as a result of Manager's default.
Further, in the event of such termination, both parties shall fully cooperate
with one another to ensure a smooth transition of ownership or management, as
the case may be. Upon termination of this Agreement, Manager will deliver to
Owner the following with respect to the Facility:
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(i) A final accounting, reflecting the balance of income and
expenses of the Facility as of the date of termination, to be delivered as soon
as reasonably possible but not later than thirty (30) days after such
termination;
(ii) Any balance of monies of Owner or Resident deposits, or
both, held by Manager with respect to the Facility, to be delivered as soon as
reasonably possible, but not later than 30 days after such termination;
(iii) All records, contracts, leases, resident agreements,
tenant correspondence, files, receipts for deposits, unpaid bills and other
papers, documents or computer disks or information which pertain in any way to
the Facility to be delivered as soon as reasonably possible, but not later than
30 days after such termination; and
(iv) Manager shall cooperate reasonably in all respects to
achieve a transfer of any license and/or certificate (or to obtain a new license
and/or certificate, if necessary) required in connection with the operation of
the Facility, but shall not be required to incur any monetary expenditures in
connection therewith (unless Owner agrees to reimburse Manager for the same).
Manager shall use good faith, diligent efforts to deliver all of
foregoing as soon as reasonably possible.
Section 12.02 Termination Without Cause by Owner.
(a) Without limiting Owner's rights under Section 12.01 or 13.01, Owner
may terminate this Agreement without cause at any time after December 31, 2007
upon thirty (30) days notice to Manager. In such event, Owner shall pay Manager
the Buy-Out Fee in accordance with the provisions of Section 12.02(b) below. No
Buy-Out Fee shall be due or payable in connection with any termination of this
Agreement under any provision of Section 12.01 or Section 13.01 hereof or under
the Master Agreement (except as expressly set forth therein). In addition,
notwithstanding the provisions of the first sentence of this Section 12.02 or
any other provision of this Agreement to the contrary, no Buy-Out Fee shall be
due or payable in connection with any termination of this Agreement under this
Section 12.02 hereof if any Change of Control (including, without limitation,
any Permitted Change of Control) has occurred at any time after December 31,
2007; provided, however, that if the applicable Change of Control is a Permitted
Change of Control, notice of termination is given within sixteen (16) months
after the occurrence thereof. As long as the AEW Member retains a direct or
indirect interest in Owner, Owner's right to terminate this Agreement pursuant
to this Section 12.02 may be exercised by the AEW Member on behalf of Owner. The
right to terminate this Agreement pursuant to this Section 12.02 shall be
assignable to any subsequent Owner(s) of the Facility.
(b) The Buy-Out Fee, if any, payable under Section 12.02(a) hereof shall
be paid as follows:
(i) On or before the effective date of termination (the
"Termination Date"), Owner shall pay Manager ninety-five (95%) percent of the
Buy-Out Fee as estimated by Owner as of the date thereof based upon the most
recent financial reports delivered to Owner by Manager under this Agreement; and
Owner shall pay the balance of the Buy-Out Fee, as so
29
reasonably estimated, to Escrow Agent to be held in escrow pursuant to an escrow
agreement in form and substance reasonably satisfactory to Owner and Manager
(the "Escrow Agreement"). The amount so deposited shall be referred to herein as
the "Escrow Amount." The Escrow Amount shall be held in an interest-bearing
account in accordance with the terms of the Escrow Agreement.
(ii) Within one hundred eighty (180) days after the Termination
Date, the Accountants shall audit the books and records of Manager with respect
to Gross Revenues for the twelve (12) month period used to determine Projected
Gross Revenues. Promptly upon completion of the audit, the Accountants shall
deliver a notice (the "Buy-Out Fee Adjustment Notice") to each party and Escrow
Agent setting forth the actual (calculated as set forth in the definition of
"Gross Revenues") Gross Revenues for such twelve (12) month period and the
amount of the Buy-Out Fee as recalculated by the Accountants using such actual
(calculated as set forth in the definition of "Gross Revenues") Gross Revenues
(the "Adjusted Buy-Out Fee"). The determination by the Accountants as to such
Gross Revenues and the Adjusted Buy-Out Fee shall be final and binding upon
Owner and Manager. If the amount of the actual Gross Revenues for the applicable
twelve (12) month period as determined by any audit under this Section is less
than ninety-seven percent (97%) of the amount of the Gross Revenues reported by
Manager to Owner in its most recent reports prior to the Termination Date, then
the cost of the audit shall be paid by Manager; otherwise, Owner shall pay the
cost of the audit.
(iii) If the Adjusted Buy-Out Fee is:
(A) equal to or greater than the Buy-Out Fee estimated as
of the Termination Date, then: (x) within seven (7) days after the Buy-Out Fee
Adjustment Notice, Escrow Agent shall disburse to Manager the balance of the
Escrow Amount; and (y) within thirty (30) days after the Buy-Out Fee Adjustment
Notice, Owner shall pay Manager the balance, if any, of the Buy-Out Fee due to
Manager;
(B) less than the Buy-Out Fee estimated as of the
Termination Date but exceeds the amount paid to Manager under Section
12.02(b)(i), then: (x) within seven (7) days after the Buy-Out Fee Adjustment
Notice, Escrow Agent shall disburse to Manager the amount, if any, by which the
final Buy-Out Fee exceeds the amount paid to Manager under Section 12.02(b)(i);
and (y) within thirty (30) days after the Buy-Out Fee Adjustment Notice, Escrow
Agent shall disburse the balance of the Escrow Amount, if any, to Owner; or
(C) less than the amount paid to Manager under Section
12.02(b)(i), then: (x) within seven (7) days after the Buy-Out Fee Adjustment
Notice, Escrow Agent shall disburse the Escrow Amount to Owner; and (y) within
thirty (30) days after the Buy-Out Fee Adjustment Notice, Manager shall pay the
balance, if any, of such overpayment of the Buy-Out Fee to Owner.
(iv) All interest earned on the Escrow Amount shall be disbursed
to Manager and Owner in proportion to the principal portions of the Escrow
Amount disbursed to Manager and Owner as aforesaid.
30
(v) If Owner or Manager fails to make any payment on or before
the date when due to the other party under the foregoing Section
12.02(b)(iii)(A)(y) or Section 12.02(b)(iii)(C)(y), respectively, then such
party shall be liable to the party to which payment was due for a late charge of
five percent (5%) of the delinquent amount.
ARTICLE XIII
DEFAULTS
Section 13.01 Default by Manager. Manager shall be deemed to be in default under
this Agreement (an "Event of Default") in the event of any of the following:
(a) the Bankruptcy of the Manager; or
(b) the misappropriation of Owner's funds by the Manager or one of its
Affiliates and their respective employees, unless such funds are returned within
thirty (30) days after (i) any one of the General Counsel, Controller,
Treasurer, Chief Financial Officer, or President of Manager have actual
knowledge of such misappropriation and have quantified the amount thereof; or
(ii) Owner has given written notice to Manager of such appropriation and the
amount to be restored, if known by Owner.
(c) any fraudulent act by Manager or one of its Affiliates and their
respective employees affecting the Owner or its assets or the Facility that is
not promptly dealt with by Manager after receipt of written notice specifying
the alleged act in a manner satisfactory to Owner.
(d) the gross negligence or willful misconduct or Manager, with respect
to its duties and obligations under this Agreement which remains uncured for ten
(10) business days after written notice thereof.
(e) Manager's failure to keep, observe or perform any material covenant,
agreement, term or provision of this Agreement to be kept, observed or performed
by Manager, and such failure shall continue (i) for a period of twenty (20)
business days after Manager receives written notice from Owner specifying the
default in case of monetary defaults or (ii) for a period of thirty (30) days
after Manager receives written notice from Owner in the case of non-monetary
defaults; provided, however, that if such non-monetary default cannot be cured
within such thirty (30) day period, then Manager shall be entitled to such
additional time as shall be reasonable, provided Manager is capable of curing
same, has promptly proceeded to commence cure of such default within said
period, and thereafter diligently prosecutes the cure to completion; provided,
however, that in no event shall such additional time exceed ninety (90) days for
any non-monetary default other than defaults involving licensing or regulatory
matters, so long as Manager has made all filings in connection therewith on a
timely basis and no legal action brought by a governmental agency in a court of
law or any administrative or other adjudicatory proceeding has been filed or is
pending. The delivery of letters or notices threatening legal action or
revocation of a license shall not constitute a "legal action" for purposes
hereof. Any fines levied against the Facility shall not be Facility Expenses and
shall be paid promptly by Manager from Manager's own funds.
31
(f) The occurrence of an event of default under a Mortgage caused by the
acts or omissions of Manager or Developer.
(g) The occurrence of any of the events specified in Section 12.01.
Section 13.02 Default by Owner. Owner shall be deemed to be in default hereunder
under this Agreement (an "Event of Default") in the event Owner shall fail to
keep, observe or perform any material covenant, agreement, term or provision of
this Agreement to be kept, observed or performed by Owner and such failure shall
continue (i) for a period of twenty (20) business days after written notice
thereof by Manager to Owner in case of monetary defaults or (ii) for a period of
thirty (30) days after written notice thereof by Manager to Owner in the case of
non-monetary defaults; provided, however, if such default cannot be cured within
such thirty (30) day period, then Owner shall be entitled to such additional
time as shall be reasonable, provided that Owner is capable of curing same, has
promptly proceeded to commence cure of such default within said period, and
thereafter diligently prosecutes the cure to completion; provided, however, that
in no event shall such additional time to cure non-monetary defaults exceed
ninety (90) days.
Section 13.03 Remedies of Owner. Upon the occurrence of a default by Manager as
specified in Section 13.01 of this Agreement and expiration of any applicable
cure period provided by this Agreement, Owner shall be entitled to terminate
this Agreement effective immediately, to remove Manager from the day-to-day
management of the Facility, and replace Manager with a substitute Manager and
otherwise to exercise all its rights at law or in equity.
Section 13.04 Remedies of Manager. Upon the occurrence of a default by Owner as
specified in Section 13.02 of this Agreement and the expiration of any
applicable cure period provided by this Agreement, Manager shall be entitled to
terminate this Agreement effective immediately, and to exercise all of its
rights at law or in equity.
Section 13.05 No Waiver of Default. The failure of Owner or Manager to seek
remedy for any violation of, or to insist upon the strict performance of, any
term or condition of this Agreement shall not prevent a subsequent act by Owner
or Manager which would have originally constituted a violation of this Agreement
by Owner or Manager, from having all the force and effect of an original
violation. Owner or Manager may waive any breach or threatened breach by Owner
or Manager of any term or condition herein contained. The failure by Owner or
Manager to insist upon the strict performance of any one of the terms or
conditions of this Agreement or to exercise any right, remedy or election herein
contained or permitted by law shall not constitute or be construed as a waiver
or relinquishment for the future of such term, condition, right, remedy or
election, but the same shall continue and remain in full force and effect. All
rights and remedies that Owner or Manager may have at law, in equity or
otherwise for any breach of any term or condition of this Agreement shall be
distinct, separate and cumulative rights and remedies and no one of them,
whether or not exercised by Owner or Manager, shall be deemed to be in exclusion
of any right or remedy of Owner or Manager.
Section 13.06 Interest. Upon the failure of either party to make any payment
required to be made in accordance with the terms of this Agreement as of the due
date which is specified in this Agreement, the amount owed to the non-defaulting
party shall accrue interest at the greater of (i)
32
14% or (ii) the Prime Rate (defined below) plus 5% (but not greater than the
highest rate permitted by applicable law), from and after the date on which such
payment was originally due to the non-defaulting party until such payment is
made. As used herein, "Prime Rate" means the "prime rate" as published in the
"Money Rates" section of The Wall Street Journal; however, if such rate is, at
any time during the Term, no longer so published, the "Prime Rate" means the
average of the prime interest rates which are announced, from time to time, by
the three (3) largest banks (by assets) headquartered in the United States which
publish a "prime rate."
ARTICLE XIV
LEGAL ACTIONS, GOVERNING LAW,
LIABILITY OF MANAGER AND INDEMNITY
Section 14.01 Legal Actions. Legal counsel for Manager and Owner shall cooperate
in the defense or prosecution of any action affecting the Facility. Manager
shall not institute or defend any legal action affecting the Facility without
prior written notification to Owner. Manager shall timely forward all legal
notices to Owner which relate to the Facility or Owner. Subject to Manager's
obligations set forth in Section 14.05 hereof, Manager shall institute or
defend, as the case may be, in the name of the Facility, Owner and/or Manager,
but in any event as a Facility Expense, all actions arising out of the operation
of the Facilities, including but not limited to actions or proceedings to
collect charges, third party payments, rents, or other income, or to cancel,
modify, or terminate any lease, resident agreement, license, or concession
agreement in the event of breach or default thereof, or to defend any action
brought against Owner. Subject to Manager's obligations set forth in Section
14.05 hereof, Manager shall take the actions necessary to protest or litigate to
a final decision in any appropriate court or forum, as a Facility Expense, any
violation, order, rule, or regulation affecting the Facility.
Notwithstanding anything to the contrary contained in this Agreement,
Manager and Owner shall mutually select counsel and direct the conduct of any
litigation, arbitration or other proceeding involving a claim (not being
defended by insurance carrier or in excess of coverage) in excess of $500,000.00
and to approve the settlement of any claim in excess of $250,000, provided any
applicable insurance policy allows such approval. In addition, Manager shall
prepare and furnish to Owner on a monthly basis reports summarizing all
litigation with respect to the Facility.
Section 14.02 Legal Fees and Costs. In the event either party elects to incur
legal expenses to enforce any provision of this Agreement against the other
party to this Agreement, the prevailing party shall be entitled to recover such
legal expenses, including without limitation, reasonable attorney's fees, costs
and necessary disbursements, in addition to any other relief to which such party
shall be entitled.
Section 14.03 Choice of Law and Venue. Whereas Manager's principal place of
business is in the Commonwealth of Virginia, and Owner's principal place of
business is in the State where the Facility is located, the parties agree that
this Agreement shall be governed by and construed in accordance with the laws of
Virginia.
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Section 14.04 Liability of Manager.
(a) Standard of Care. Manager shall discharge its duties in good faith,
and agrees to exercise, with respect to all services provided by Manager under
or pursuant to this Agreement, a standard of care, skill, prudence and diligence
under the circumstances then prevailing as would be expected of a prudent
Manager who has a high level of experience and expertise with respect to such
matters and at or above the Sunrise Standards and in no event with less care,
skill, prudence or diligence as Manager would customarily utilize in the conduct
of its business, and as is necessary for the maintenance of any license or
permit required for the Facility and compliance with all Legal Requirements and
the Sunrise Standards. Manager agrees to exercise good faith, diligent efforts
to keep the Facility fully occupied.
(b) Other Persons. Manager shall not be responsible for the acts or
omissions of any of Owner's other contractors or any subcontractors or any
employees of Owner, or any persons representing Owner performing any services
for or in connection with the Facility, or any consultants or other persons
engaged by Owner with respect thereto, unless and only to the extent Manager is
supervising, or should be supervising the same.
(c) No Member Liability. If Manager makes any claim under this
Agreement, Manager shall have no recourse to directors, officers, employees, or
members of Owner or of any Affiliate of Owner, and Manager acknowledges and
agrees that in no event shall it have any personal recourse against any
director, officer, employee or member of Owner or of any Affiliate of Owner. In
the event that Owner makes any claim against Manager, Owner shall have no
recourse to directors, officers, employees, or shareholders of Manager or of any
Affiliate of Manager.
Section 14.05 Indemnity. Manager will defend, indemnify and hold Owner (and any
Affiliate of Owner and its respective members, employees and agents) harmless
from and against any claims, losses, expenses, costs, suits, actions,
proceedings, damages, demands or liabilities (including, without limitation,
engineers' and attorneys' fees and expenses, and costs of litigation) that are
asserted against or sustained or incurred by them and arising under or in
connection with (a) Manager's breach of this Agreement, (b) legal actions or
regulatory violations arising from Manager's breach of this Agreement or
Manager's negligence, gross negligence, fraud, or willful misconduct, (c) the
placing, discharge, leakage, use and/or storage of hazardous or regulated
materials at, in or beneath the Facility by Manager or its Affiliates or their
respective agents, employees, contractors or representatives in violation of any
Legal Requirements, or (d) Manager's negligence, gross negligence, willful
misconduct or fraud in managing and/or operating the Facility. The scope of the
foregoing indemnities includes any and all costs and expenses incurred in
connection with any proceedings to defend any indemnified claim, or to enforce
the indemnity, or both. Owner will defend, indemnify, and hold Manager harmless,
from and against any and all claims, expenses, losses, costs, suits, actions,
proceedings, demands, or liabilities that are asserted against, or sustained or
incurred by Manager in the proper performance of Manager's duties under this
Agreement or otherwise while acting properly within the scope of the agency
established by the parties to this Agreement, other than for matters for which
Manager is required to indemnify Owner pursuant to this Section. Recovery upon
an indemnity contained in this Agreement shall be reduced dollar-for-dollar by
34
any applicable insurance collected by Owner or Manager. For purposes of this
Section 14.05, ALUS and AL Pool and any member, manager, partner, employee and
agent of each named entity shall be deemed an Affiliate of Owner. This Section
14.05 shall survive the termination of this Agreement.
ARTICLE XV
REGULATORY AND CONTRACTUAL REQUIREMENTS
Section 15.01 Regulatory and Contractual Requirements. Manager shall use its
diligent, good faith efforts to cause all things to be done in and about the
Facility as may be reasonably necessary to comply with Legal Requirements or the
requirements of any Board of Fire Underwriters respecting the use of the
Facility or the construction, maintenance, or operation thereof. Manager shall
use its diligent, good faith efforts to obtain and maintain all permits,
licenses and certificates required by any governmental authority for the
ownership, use or operation of the Facility as a licensed assisted living
facility providing personal care services in the State. Owner agrees upon
request by Manager to sign promptly and without charge applications for
licenses, permits or other instruments necessary for the ownership, use,
operation and management of the Facility in accordance with Legal Requirements
and this Agreement and to provide such information and perform such acts
relative to the ownership of the Facility as are required by Legal Requirements
in order for Manager to obtain and/or maintain any license, permit, instrument,
certificate, certification or approval with respect to the ownership, use,
operation and management of the Facility. Manager shall keep its corporate
organization in good standing in the State and shall maintain all corporate
permits and licenses required by the State.
The parties understand and agree that certain deficiencies or
situations of non-compliance with various Legal Requirements (such as building
codes, the Occupational Safety and Health Act, the Americans with Disabilities
Act, health care regulations and the like) are likely to occur from time to time
in the normal course of business operations. Such occurrences will not
constitute an independent breach or default of Manager hereunder, provided that,
(i) they are not materially beyond the general experience of similar first-class
assisted living operations located in the State in terms of scope, seriousness,
or frequency, (ii) Manager takes all reasonable actions in a timely manner to
cure such deficiencies or situations of non-compliance and (iii) they do not
materially affect the operation of the Facility. The costs (including any fines
for non-compliance) of curing such deficiencies or circumstances of
non-compliance shall constitute Facility Expenses unless incurred by reason of
Manager's willful failure, negligence or default hereunder, in which event the
cost therefor shall be payable out of Manager's own funds.
Section 15.02 Equal Employment Opportunity. Without limitation of any provision
set forth herein, Manager expressly agrees to abide by any and all applicable
equal employment opportunity statutes, rules and regulations imposed by any
governmental authority, including, without limitation, Title II of the Civil
Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act of
1963, the National Labor Relations Act, the Fair Labor Standard Act, the
Rehabilitation Act of 1983, and the Occupational Safety and Health Act of 1970,
all as may be from time to time modified or amended.
35
Section 15.03 Equal Housing Opportunity. Without limitation of any provision set
forth herein, Owner and Manager expressly agree to abide by any and all
applicable equal housing opportunity statutes, rules and regulations imposed by
any governmental authority, all as may be from time to time modified or amended.
ARTICLE XVI
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
Section 16.02 Proprietary Marks. During the Term of this Agreement, each
Facility shall be known as a "Sunrise" facility, with such additional
identification as may be necessary and agreed to by Owner and Manager to provide
local identification. If the name of the Sunrise System is changed, Manager
shall have the right (with the Owner's written consent, which shall not be
unreasonably withheld) to change the name of the Facility to conform thereto.
Any incremental costs associated with implementing such name change shall be
borne by Manager and will not be a Facility Expense.
Section 16.03 Ownership of Proprietary Marks. The Proprietary Marks shall in all
events remain the exclusive property of Manager, and except as expressly set
forth in this Agreement, nothing contained herein shall confer on Owner the
right to use the Proprietary Marks. Except as provided below in this section,
upon termination, any use of or right to use the Proprietary Marks by Owner
shall cease forthwith and Owner shall promptly remove, at Manager's expense,
from the Facility any signs or similar items that contain the Proprietary Marks.
The right to use such Proprietary Marks belongs exclusively to Manager, and the
use thereof inures to the benefit of Manager whether or not the same are
registered and regardless of the source of the same. Upon termination, Owner
shall have the right to use any inventory or Household Replacement items marked
with the Proprietary Marks exclusively in connection with the Facility until
they are consumed.
Section 16.04 Intellectual Property. All Intellectual Property shall at all
times be proprietary to Manager or its Affiliates, and shall be the exclusive
property of Manager or its Affiliates. During the Term of this Agreement,
Manager shall be entitled to take all reasonable steps to ensure that the
Intellectual Property remains confidential. Upon termination, all Intellectual
Property shall be removed from the Facility by Manager, without compensation to
Owner.
Section 16.05 Use of Proprietary Marks and Intellectual Property.
Notwithstanding the foregoing provisions of this Article, Manager warrants and
covenants that the Proprietary Marks and the Intellectual Property shall be
available for use at and in connection with the Facility during the Term of this
Agreement.
Section 16.06 Breach of Covenant. Manager and/or its Affiliates shall be
entitled, in case of any breach of the covenants of Article XVI by Owner or
others claiming through it, to injunctive relief and to any other right or
remedy available at law. Article XVI shall survive termination.
36
ARTICLE XVII
MISCELLANEOUS PROVISIONS
Section 17.01 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of either party, the party requested shall execute such additional
instruments and take such additional acts as the requesting party may deem
necessary to effectuate this Agreement.
Section 17.02 Consents, Approval and Discretion. Except as expressly provided
herein to the contrary, whenever this Agreement requires any consent or approval
to be given by either party or either party must or may exercise discretion, the
parties agree that such consent or approval shall not be unreasonably withheld
or delayed and such discretion shall be reasonably exercised, in good faith.
Section 17.03 No Brokerage. Each party represents to the other that it has not
engaged a broker in connection with this transaction, and agrees to defend,
indemnify, and hold the other party harmless from any claim made by a broker
through the indemnifying party.
Section 17.04 Notices. All notices, demands, consents, approvals, and requests
given by either party to the other hereunder shall be in writing and shall be
sent by hand delivery, by a nationally recognized overnight courier, or by
registered or certified mail, postage prepaid, return receipt requested, to the
parties at the following addresses:
Owner: AL U.S./Studio City Senior Housing, L.P.
▇/▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇.
World Trade Center
Two ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Asset Manager - AEW Senior Housing Company, LLC
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: AEW Capital Management, L.P.
World Trade Center, Two ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ and (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Copy To: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esquire
▇▇▇▇ and ▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
37
Manager : Sunrise Assisted Living Management, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: Sunrise Assisted Living, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Legal Department
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Copy to: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Watt, Tieder, Hoffar & ▇▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address and to the attention of such other person as either
party may from time to time designate in writing. Notices properly given as
described above shall be effective upon receipt. Refusal to accept delivery
shall constitute receipt.
Section 17.05 Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance is held to be invalid or
unenforceable for any reason, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
Section 17.06 Gender and Number. Whenever the context of this Agreement
requires, the gender of all words herein shall include the masculine, feminine,
and neuter, and the number of all words herein shall include the singular and
plural.
Section 17.07 Division and Headings. The divisions of this Agreement into
sections and subsections and the use of captions and headings in connection
therewith are solely for convenience and shall have no legal effect whatsoever
in construing the provisions of this Agreement.
Section 17.08 Confidentiality of Information. Manager and Owner agree to keep
confidential and not to use or to disclose to others, except (a) in the case of
Owner, to Owner's lender or any prospective lender, investor, purchaser or
prospective purchaser of the Facility, (b) in the case of
38
either party, to any rating agencies, lenders, stock analysts, banks,
accountants, lawyers and other like professionals, (c) as expressly consented to
in writing by the other party or (d) required by law, any and all of their
respective secrets or confidential technology, proprietary information, customer
lists, or trade secrets, or any matter or items ascertained through their
association with each other. Manager and Owner further agree that should Manager
leave the active service of Owner, Manager will return to Owner any Facility
information of any kind pertaining to Residents of the Facility, business,
sales, financial condition or products and Owner will return to Manager any and
all of Manager 's confidential information obtained by Owner.
Section 17.09 Publicity. The parties agree that no public release or
announcement concerning the transactions contemplated hereby shall be issued by
any party without the prior written consent of the other party, except as
required by law or applicable regulations.
Section 17.10 Right To Perform. In the event that Owner or Manager shall be in
default hereunder, Owner or Manager, in addition to any rights or remedies
available to it under law, shall have the right, but not the obligation to
perform the defaulting party's duty or fulfill the defaulting party's
obligation, but in no way obligating the party beyond any termination period
allowable hereunder.
Section 17.11 Assignment by Manager. Owner may assign this Agreement to any
person or entity in connection with a sale or other disposition of the Facility,
without the need for Manager's consent. Manager shall not assign or transfer its
interest in this Agreement without the prior written consent of Owner which may
be withheld in Owner's sole and absolute discretion; provided, however, that
Manager shall have the right to assign this Agreement to an entity controlled
by, controlling or under common control with Manager, without release from
Manager's obligations hereunder after thirty (30) days written notice to Owner,
provided no "Prohibited Change of Control" (defined in Section 17.11(c) below)
shall have occurred and such entity is the principal entity through which
Sunrise Assisted Living, Inc. is conducting its assisted living management
business and such assignee shall be deemed to be Manager for the purposes of
this Agreement. In the event Owner consents to an assignment of this Agreement
by Manager, no further assignment shall be made without the express consent in
writing of Owner, unless such assignment may otherwise be made without such
consent as provided above in this Section 17.11.
(a) A "Change in Control" of Manager shall be deemed to occur if, at any
time after the date hereof, (i) any individual or entity, or its heirs,
successors or assigns (a "Person") (or one or more Persons acting in concert as
a group) acquires (A) more than fifty percent (50%) of the outstanding capital
stock of Sunrise Assisted Living, Inc. ("SALI"), Sunrise Assisted Living
Investments, Inc. ("SALII") or Manager (herein, "▇▇▇▇▇") or (B) such percentage
of the outstanding capital stock of SALI, SALII or ▇▇▇▇▇ or such other rights as
would entitle such Person (or such group) to appoint a majority of the board of
SALI, SALII or ▇▇▇▇▇ and such Person or group actually exercises such right and
elects a majority of the board members who were not members prior to such time;
(ii) a merger, exchange, consolidation, recapitalization or other business
combination (a "Business Combination") occurs in which the holders of the
outstanding capital stock of SALI, SALII or ▇▇▇▇▇ immediately prior to such
Business Combination, disregarding for such purposes any holders who are
affiliates of another party to
39
the Business Combination or acting in concert as a group with such other party,
own less than fifty-one percent (51%) of the aggregate equity interests of the
surviving entity or own less than fifty-one percent (51%) of the voting
securities (determined on the basis of number of votes per security) immediately
following such Business Combination; or (iii) all or substantially all of the
assets of SALI, SALII or ▇▇▇▇▇ are sold or otherwise disposed of, directly,
indirectly, voluntarily, involuntarily, by operation of law or otherwise;
provided, however, that a sale by SALI, SALII or ▇▇▇▇▇ of their real estate
assets shall not be considered a Change of Control if SALI, SALII, ▇▇▇▇▇ or an
entity of which SALI, SALII or ▇▇▇▇▇ owns not less than fifty-one percent (51%)
of the aggregate equity interests or not less than fifty-one percent (51%) of
the voting securities (determined on the basis of number of votes per security)
retains management of such real estate assets for a term not less than ten (10)
years.
(b) A "Permitted Change of Control" is a Change of Control (i) which
occurs after December 31, 2003, and (ii) pursuant to which any applicable Person
(or Persons) acquiring the stock of SALI, SALII or ▇▇▇▇▇ under Section
17.11(a)(i), the surviving entity of any applicable Business Combination under
Section 17.11(a)(ii), or the Person which purchases all or substantially all of
the assets of SALI, SALII or ▇▇▇▇▇ under Section 17.11(a)(iii) (each such Person
being referred to herein as the "New Entity") satisfies all of the following
requirements:
(i) The tangible net worth of the New Entity, computed in
accordance with GAAP, as of the date of the Change of Control is not less than
the greatest of (A) the tangible net worth of SALI, SALII and/or ▇▇▇▇▇, as the
case may be, as of the date hereof, (B) the tangible net worth of SALI, SALII
and/or ▇▇▇▇▇ as the case may be, on the day prior to the date of the Change of
Control, and (C) $250,000,000;
(ii) Neither the New Entity nor any Person directly or
indirectly controlling the New Entity, or any of the New Entity's operational
subsidiaries shall, at any time (A) have filed a petition in bankruptcy or
sought the protection of any bankruptcy or similar insolvency laws, or had a
petition under any bankruptcy or creditors rights laws filed against it; (B) had
any assisted living/dementia care or skilled nursing license or certification
denied or revoked by any governmental authority due to any actual or alleged
fault or failure by, or the negative reputation of, the New Entity or any of its
Related Parties; (C) have paid on three (3) or more occasions during any period
of five (5) consecutive years prior to the occurrence of the Change of Control
any fine, penalty or sanction in excess of $10,000 each to one or more
governmental authorities having jurisdiction with respect to licenses or
certifications to operate assisted living/dementia care or nursing home
facilities or under any Medicare, Medicaid or third party payor program (D) been
found to have been grossly negligent or reckless or to have committed willful or
intentional misconduct in any lawsuit alleging any wrongdoing by the New Entity
or any of its Affiliates or any of their respective employees relating to
assisted living/dementia care or skilled nursing care, or (E) been found to have
been liable in three (3) or more lawsuits alleging any wrongdoing by the New
Entity or any of its Affiliates or any of their respective employees relating to
assisted living/dementia care of skilled nursing facilities for any reason other
than gross negligence, willful misconduct or recklessness;
(iii) The New Entity, or its operational subsidiary or
subsidiaries, shall (A) be licensed or certified for the operation of assisted
living/dementia care facilities in each state in
40
which the Properties are located as of the date of the Change of Control, and
(B) have at least five (5) years experience in, the operation of a substantial
number of assisted living/dementia care facilities located in metropolitan
markets substantially similar to the Facility and the Other Facilities; and
(iv) The New Entity or its operational subsidiary or
subsidiaries must have in place or adopt as of the date of the Change of
Control, hiring, training and quality assurance programs and operating and
management standards that are equivalent to or higher in quality than the
Sunrise Standards in effect as of the date hereof.
(c) A "Prohibited Change of Control" shall mean any Change of Control
other than a Permitted Change of Control.
Section 17.12 Entire Agreement/Amendment. With respect to the subject matter
hereof, this Agreement supersedes all previous contracts and constitutes the
entire Agreement between the parties with respect to the specific subject matter
hereof, and no party shall be entitled to benefits other than those specified
herein. As between the parties, no oral statements or prior written material not
specifically incorporated herein shall be of any force and effect. The parties
specifically acknowledge that in entering into and executing this Agreement, the
parties rely solely upon the representations and agreements contained in this
Agreement and no others. All prior representations or agreements not expressly
incorporated herein, whether written or verbal, are superseded, and no changes
in or additions to this Agreement shall be recognized unless and until made in
writing and signed by both parties hereto. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
Section 17.13 Inurement. The terms and conditions of this Agreement shall inure
to the benefit of, and be binding upon, the respective successors, heirs, legal
representatives or permitted assigns of each of the parties hereto.
Section 17.14 Relationship Between the Parties. The relationship between Owner
and Manager pursuant to this Agreement shall not be one of general agency, but
shall be that of Owner with an independent contractor; provided, however, that
with respect to those specific and limited circumstances in which (a) Manager is
holding funds for the account of Owner or (b) Manager is required to act as
authorized representative for Owner with respect to agreements with residents
pursuant to licenses or Legal Requirements, the relationship between Owner and
Manager shall be that of trustee and authorized representative (with limited
agency), respectively. Neither this Agreement nor any agreements, instruments,
documents or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Owner a partner or joint venturer
with Manager or as creating any similar relationship or entity, and each party
agrees that it will not make any contrary assertion, contention, claim or
counterclaim in any action, suit or other legal proceeding involving the other.
Section 17.15 Force Majeure. As used in this Agreement, the term "Force Majeure"
shall mean any failure to perform an obligation under this Agreement when the
party so obligated is prevented from so performing by Acts of God, strike,
lockout or labor unrest (unless caused by
41
the obligated party's willful act), explosion, sabotage, accident, order or
regulation of or by any governmental authority, because of war, riot, civil
commotion or other emergency, or because of other circumstances beyond such
party's reasonable control.
Section 17.16 Release of Owner Upon Sale. If the Facility is sold, exchanged or
transferred by Owner at any time during the Term and this Agreement does not
terminate as a result thereof, Owner shall provide Manager with notice thereof
and upon such sale and the assumption of the Owner's obligations hereunder by
any successor of Owner, the named Owner hereunder shall have no further
liability to Manager under this Agreement, except with respect to amounts owed
for periods up to the date of such sale, exchange or transfer. In no event shall
any member, manager, partner, officer, director, trustee, stockholder, employee
or beneficiary of Owner or of any such party be held to have personal liability
for satisfaction of any claims or judgments against Owner arising under this
Agreement or relating to any Facility.
Section 17.17 Subordination to GMAC Mortgage. This Agreement shall be subject
and subordinate to that certain Mortgage executed and delivered by Owner to GMAC
Commercial Mortgage.
Section 17.18 Cancellation on Default. Notwithstanding anything in this
Agreement to the contrary, this Agreement may be canceled without cause upon
thirty (30) days notice by the holder of the Mortgage described in Section 17.17
above without prior notice or penalty at the option of the holder of the
Mortgage if an event of default (after applicable notice and opportunity to
cure) shall occur under the Mortgage.
ARTICLE XVIII
ARBITRATION
Section 18.01 Arbitration.
(a) Any dispute hereunder which this Agreement expressly states is to be
subject to arbitration shall be determined by Arbitration Proceeding conducted
in the city and state determined by the arbitrator selected for the Arbitration
Proceeding or as otherwise mutually agreed by the parties to the Arbitration
Proceeding and in accordance with the commercial arbitration rules of the AAA
with expedited procedures in effect on the date thereof, as modified by this
Agreement. Unless expressly stated to the contrary in this Agreement, the
initiation of the Arbitration proceeding shall toll the running of any cure
periods provided for in this Agreement.
(b) The party desiring arbitration shall provide written notice to the
other party (the "Arbitration Notice") indicating (i) the matter in controversy
and (ii) the name, contact information and professional resume of the proposed
arbitrator meeting the requirements for a qualified and independent arbitrator
set forth in Section 18.01(c) ("Initial Arbitrator") to arbitrate such matter in
controversy. If the party receiving the Arbitration Notice rejects the Initial
Arbitrator set forth in the Arbitration Notice it shall object in writing
("Objection Notice") delivered to the other party within four (4) Business Days
of the receipt of the Arbitration Notice. The Objection Notice shall contain the
name, contact information and professional
42
resume of a different arbitrator meeting the requirements for a qualified and
independent arbitrator set forth in Section 18.01(c) ("Secondary Arbitrator") to
arbitrate the matter in controversy set forth in the Arbitration Notice. If the
party receiving the Objection Notice rejects the Secondary Arbitrator, it shall
object in writing ("Secondary Objection Notice") to the other party within four
(4) Business Days after the receipt of the Objection Notice. If neither the
Initial Arbitrator nor the Secondary Arbitrator is accepted by the parties, the
party which delivered the Arbitration Notice shall instruct the Initial
Arbitrator and the Secondary Arbitrator to agree, within two (2) Business Days
after receipt of the Secondary Objection Notice, upon an arbitrator ("Appointed
Arbitrator") meeting the requirements for a qualified and independent arbitrator
set forth in Section 18.01(c). If they agree upon an Appointed Arbitrator who is
prepared to act as the Appointed Arbitrator, the Initial Arbitrator and
Secondary Arbitrator shall deliver written notice of the name, contact
information and professional resume of the Appointed Arbitrator to each party
simultaneously. The appointment of the Appointed Arbitrator shall be a final
decision, which shall not be subject to objection by either party, unless either
party within two (2) Business Days after such selection of an Appointed
Arbitrator, notifies the other party, in writing, that such Appointed Arbitrator
fails to meet the requirements for a qualified and independent arbitrator set
forth in Section 18.01(c) and provides specific information in such written
notice as to the reasons why such failure exists.
(c) In the event the Initial Arbitrator and the Secondary Arbitrator
cannot agree on an Appointed Arbitrator or if such appointed Arbitrator is
unwilling to act as the Appointed Arbitrator or if either party objects to the
Appointed Arbitrator within two (2) Business Days after the selection of such
Appointed Arbitrator, as permitted in this Section 18.01, then either party may
petition the AAA (or any successor body of similar function) to appoint an
arbitrator within two (2) Business Days of such petition using the following
criteria: such arbitrator shall (i) with respect to physical property matters, a
licensed professional engineer or registered architect having at least ten (10)
years experience in the design or construction of similar senior housing
facilities, (ii) with respect to financial matters be a partner in a "Big Five
Accounting Firm" with at least ten (10) years experience with the type of matter
in dispute, (iii) with respect to property management issues, a person who shall
have had at least ten (10) years experience managing similar senior housing
facilities in the market place for the matter in dispute and (iv) be neutral and
shall have had no prior notice, information or discussions concerning such
controversy) and shall not be employed by or associated with either party or any
Affiliate of either of them, or any of their respective agents or affiliates at
such time or for the previous ten (10) years.
(d) The Arbitration Proceedings shall commence two (2) Business Days
after the engagement or appointment of the appropriate arbitrator pursuant to
this Section 18.01. Such Arbitration Proceedings shall be conducted in one (1)
day until completion, each party shall have no more than a total of four (4)
hours to present its case and to cross-examine or interrogate persons supplying
information or documentation on behalf of the other party and the arbitrator
shall make a determination within three (3) Business Days after conclusion of
the Arbitration Proceeding.
(e) Each party shall sign all documents and do all other things
necessary to submit any such matter to arbitration and agree to, and hereby do,
waive any and all rights they or either
43
of them may at any time have to revoke their agreement hereunder to submit to
arbitration and to abide by the decision rendered thereunder.
(f) The costs and expenses of an Arbitration Proceeding and the
arbitrators shall be shared equally by Owner and Manager, provided, however,
each party shall pay its own counsel and other professional fees and expenses
with respect to such Arbitration proceeding. Notwithstanding any contrary
provisions hereof, if any party has initiated two (2) unsuccessful consecutive
Arbitration proceedings, it shall indemnify and holder harmless the other party
for all costs and expenses incurred by such other party with respect to such
subsequent Arbitration Proceedings initiated by it, but not for the result of
such Arbitration Proceeding; provided, however, if at any time subsequent to
such two (2) unsuccessful consecutive Arbitration proceedings, such party has
prevailed at two (2) consecutive Arbitration Proceedings, such indemnification
shall no longer be effective until after such party has initiated two (2)
unsuccessful consecutive Arbitration Proceedings again.
(g) Any arbitrator's final decision and award shall be in writing, shall
be binding on the parties and shall be nonappealable, and counterpart copies
thereof shall be delivered to both parties. A Judgment or order based upon such
award may be entered in any court of competent jurisdiction. All actions
necessary to implement the decision of the arbitrator shall be undertaken as
soon as possible, but in no event later than three (3) Business Days after the
rendering of such decision.
(h) Each party hereby agrees to consolidate any Arbitration Proceeding
hereunder with any Arbitration Proceeding commenced with respect to any related
issue under the Venture Agreement or any other agreement between the parties
hereto (or any of their respective Related Parties) with respect to ALUS, the
Facility or any of the Other Facilities and to be joined in any such related
Arbitration Proceeding.
[Signatures on the following page]
44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal by their duly authorized officers, all as of the day and
year first above written.
WITNESS: OWNER:
AL U.S./STUDIO CITY SENIOR HOUSING, L.P., a California limited
partnership
By: AL California GP, LLC, a Delaware limited liability
company, its General Partner
By: AL U.S. POOL ONE, LLC, a Delaware limited liability
company, its Sole Member
By: AL U.S. DEVELOPMENT VENTURE, LLC, a Delaware
limited liability company, its Sole Member
By: SUNRISE ASSISTED LIVING INVESTMENTS, INC.,
a Virginia corporation, its Managing Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
By: AEW Senior Housing Company, LLC, a
Delaware limited liability company
By: SEAPORT SENIOR HOUSING MANAGEMENT,
LLC, a Delaware limited liability
company
By: /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Vice President
45
MANAGER:
Sunrise Assisted Living Management, Inc.,
a Virginia corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Senior Vice President
46
EXHIBIT D
SCHEDULE OF REPORTING TO AEW
General Description Detailed Description Due Date Monthly Quarterly Annually
-----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL REPORTING
-------------------
-----------------------------------------------------------------------------------------------------------------------------------
Accrual Basis Income Statement actual vs budget, total & per resident day, variance
explanations 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet detail of specific accounts and owners equity 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Cash Flow support net income and contribution and distributions 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Bank Reconciliation monthly 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Upload File operating activity mapping chart of accounts 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures actual vs budget with explanations 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Reporting balance sheet & income statement 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Distributions actual monthly with a forecast of future distributions 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Variance Report (ad hoc/quarterly 15th
for major issues) financial, operations, leasing, market X
-----------------------------------------------------------------------------------------------------------------------------------
Accounts Receivable Aging 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Rent Roll 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Marketing Report MIs/MOs/Leads 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Incentive Fee Calculation 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Incentive Fee Reconciliation Final calculation due 15 days after Audit is complete 150 days X
-----------------------------------------------------------------------------------------------------------------------------------
Capital Expenditure Report Under Section 3.2(d) of LLC Operating Agreement 15th X
-----------------------------------------------------------------------------------------------------------------------------------
Audit Draft 60 days X
-----------------------------------------------------------------------------------------------------------------------------------
Audit Final 90 days X
-----------------------------------------------------------------------------------------------------------------------------------
Tax Return Draft 75 days X
-----------------------------------------------------------------------------------------------------------------------------------
Tax Return Final 105 days X
-----------------------------------------------------------------------------------------------------------------------------------
BUDGETS
-------
-----------------------------------------------------------------------------------------------------------------------------------
Property Annual Operating Budget Draft 15-Oct X
-----------------------------------------------------------------------------------------------------------------------------------
Property Annual Operating Budget Final 15-Nov X
-----------------------------------------------------------------------------------------------------------------------------------
Budget to Include:
-----------------------------------------------------------------------------------------------------------------------------------
Operating Performance 3 year forecast
-----------------------------------------------------------------------------------------------------------------------------------
Narrative with operating
objectives and assumptions
-----------------------------------------------------------------------------------------------------------------------------------
Competitive Set Analysis Annual Update
-----------------------------------------------------------------------------------------------------------------------------------
Real Estate Tax Summary
-----------------------------------------------------------------------------------------------------------------------------------
Capital Expenditures 3 year forecast
-----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT E
MINIMUM INSURANCE REQUIREMENTS
The parties hereto mutually agree that the below listed insurance requirements
shall be subject to reasonable availability of such insurance in the marketplace
at time of procurement.
All insurers must have an A.M. Best rating of A-/VII or better and all primary
insurers must have a Standard & Poor's rating of A or better. Certificates of
insurance for all coverages must be issued prior to the investment closing and
five days prior to each renewal;
ARTICLE I.
1. Property Insurance
Coverage will be placed for the full replacement cost value of the
facility, including all property insurance coverages of the type
currently maintained for each facility, and include a deductible of
$25,000 per occurrence. The values associated with each property will be
reviewed annually for adequacy.
2. Commercial General and Professional Liability Insurance
- $11,000,000 each occurrence
- $11,000,000 annual aggregate
- Aggregate does not apply on a per location basis
3. Crime Insurance
- $5,000,000 Employee Dishonesty
- $5,000,000 Depositor and Forgery
- $5,000,000 Money and Securities (Inside and Out)
4. Automobile Liability
- $1,000,000 Combined Single Limit
5. Umbrella Liability
- $40,000,000 per occurrence
- $40,000,000 Annual Aggregate
6. Non-Medical Professional Liability covering Real Estate and Development Liability
- $5,000,000 Occurrence Limit
- $5,000,000 Annual Aggregate
7. Workers' Compensation (statutory limits) and Employers Liability Insurance
($1,000,000/$1,000,000/$1,000,000);
ARTICLE II. INSURANCE COST ALLOCATION
Section 2.01 The cost associated with the insurance program will be allocated
to all facilities operated by Sunrise Assisted Living Management, Inc.
("Manager") at the time of the Manager's Insurance Program renewal date. The
allocations will be determined based on the following:
Section 2.01 Property Rate per $100 of Value
GL/PL Rate per Resident Capacity
Excess Rate per Resident Capacity
Automobile Rate per vehicle
Crime Rate per Resident Capacity
Fiduciary Not Allocated
Earthquake (CA Only) Allocated to CA facilities only on a Rate per $100 of Value
Flood Allocated to facilities requiring coverage (Zone A and X)
Other All "Other" premium would be allocated based on a rate per
Resident Capacity
For those lines of coverage to which a deductible in excess of $25,000 or
retention in excess of $25,000 applies, each facility will be responsible for
the cost of a portion of the deductible, based on the projected ultimate loss
estimate and the Manager will be responsible for all claims under the deductible
amount which cause liability payments in excess of the projected ultimate loss
estimate. The projected ultimate loss estimate will be derived using a third
party actuarial analysis of Manager's loss experience and other external
factors, including but not limited to, inflation and increased litigation.
ARTICLE III. FINANCIAL RESPONSIBILITY
Section 3.01 The Manager is responsible for the payment of all losses contained
within any deductible or retention associated with the insurance program, even
if such losses exceed the projected ultimate loss estimate. The ultimate
financial responsibility under each required coverage shall rest with the
designated insurance carrier. Any collateral required to secure the Manager's
obligation for repayment of losses under these coverages will remain in full
force until such time as each insurance carrier determines that such collateral
may be released. In the even of default on deductible payments by the Manager,
the insurance carrier will be responsible for the payment of all losses even if
they are below the deductible limits.
2
Section 3.02 Extended Reporting Provision (Claims Made Coverage)
In the event that any of the required insurance placements are provided on a
claims made basis, the Manager will provide an extended reporting period
coverage or "tail", reasonably available in the commercial insurance market for
each such coverage or coverages, but in no even less than two years after the
expiration of such coverage. Should this Pre-Opening Services and Management
Agreement be terminated for individual properties, the tail coverage is provided
automatically for as long as the Manager continues to purchase coverage.
3
EXHIBIT F
LIST OF OTHER FACILITIES
Property Location
-------- --------
▇▇▇▇▇▇ San Diego, CA
Boulder Boulder, CO
Huntington Beach Huntington Beach, CA
La Jolla ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇
▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇, ▇▇
Newtown Newtown Square, PA
Sacramento Sacramento, CA
Seal Beach Seal Beach, CA
Wilmington Wilmington, DE
4
EXHIBIT G
LIST OF OTHER PRE-OPENING SERVICES
AND MANAGEMENT AGREEMENTS
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of
▇▇▇▇▇▇
Pre-Opening Services and Management Agreement for Sunrise Assisted Living
of Boulder
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of
Huntington Beach
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of La
Jolla
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of La
Palma
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of
Newtown Square
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of
Sacramento
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of
Seal Beach
Pre-Opening Services and Management Agreement for Sunrise Assisted Living of
Wilmington
5
EXHIBIT H
MAJOR DECISIONS
1. Except as may be set forth in an Annual Operating Budget, invest in,
purchase or otherwise acquire any property or any direct or indirect beneficial
ownership interest therein.
2. Except as may be set forth in an Annual Operating Budget, cause any
sale, transfer, assignment, conveyance, exchange or other disposition of any
property of Owner used at the Facility.
3. Take any action in contravention of this Agreement or an Approved
Budget.
4. Establish any reserves without the consent of Owner unless the
establishment or replenishing of such reserves shall have been included as part
of an Approved Budget.
5. Unless set forth in an Annual Operating Budget, terminate any
contractual arrangement with or otherwise replace the Facility's primary
independent certified public accountant or retain the services of a new, primary
independent certified public accountant.
6
EXHIBIT I
CASH MANAGEMENT PROCEDURES
7
EXHIBIT J
RESPONSIBLE CONTRACTOR PROGRAM POLICY
8