UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 1997
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transaction period from_________to___________
Commission file number: 1-14022
STERLING HOUSE CORPORATION
(Exact name of Registrant as specified in its charter)
KANSAS 48-1097141
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
453 S. WEBB ROAD, SUITE 500
WICHITA, KANSAS 67207
(Address of principal executive offices)
(316) 684-8300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO___
As of August 5, 1997, there were 5,041,928 shares of the Registrant's Common
Stock outstanding.
<PAGE>
STERLING HOUSE CORPORATION
INDEX
PART 1. FINANCIAL INFORMATION
PAGE NO.
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996 3-4
Consolidated Statements of Operations for the
three months and six months ended June 30, 1997
and 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
Sterling House Corporation
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $12,541,587 $13,658,827
Accounts receivable:
Construction due from REIT 60,241 3,847,647
Trade 1,131,093 417,820
Other 41,245 143,138
Advances to unconsolidated
affiliates 14,240,038 ---
Prerental costs (net of amortization) 1,015,666 1,339,309
Other 970,765 560,151
---------- ----------
Total current assets 30,000,635 19,966,892
Property and equipment:
Land and improvements 1,533,921 1,384,013
Buildings 9,590,929 10,230,687
Vehicles and equipment 1,135,342 626,715
Furniture, fixtures
and office equipment 1,677,131 1,311,823
Construction in progress 33,545,898 40,382,765
---------- ----------
47,483,221 53,936,003
Less accumulated depreciation (1,136,224) (829,966)
---------- ----------
Net property and equipment 46,346,997 53,106,037
Other assets:
Deferred financing costs 1,444,925 1,495,200
Restricted investments 2,772,428 1,663,784
Other 2,259,650 1,586,505
--------- ---------
Total other assets 6,477,003 4,745,489
----------- -----------
Total assets $82,824,635 $77,818,418
=========== ===========
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
Sterling House Corporation
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $11,017,186 $ 9,786,224
Accrued expenses:
Salaries and benefits 1,325,831 924,279
Interest 197,489 107,912
Real estate and property taxes 1,163,840 210,196
Construction costs 1,275,029 778,989
Other 347,659 181,976
Deferred income taxes 229,785 236,894
Unearned rent and refundable deposits 312,019 408,307
Current maturities of long-term debt
and bonds payable 211,406 215,623
---------- ----------
Total current liabilities 16,080,244 12,850,400
Long-term debt 41,399,492 39,589,497
Deferred income taxes 333,479 423,177
Deferred compensation 366,173 387,419
Other 186,618 57,977
Minority interest in subsidiaries 174,777 ---
Stockholders' equity:
Preferred stock; no par value
20,000,000 shares authorized,
none issued and outstanding --- ---
Common stock; no par value; 75,000,000
shares authorized, 5,041,928
shares issued and outstanding
(5,038,836 in 1996) 28,250,827 28,216,042
Accumulated deficit (3,966,975) (3,706,094)
---------- ----------
Total stockholders' equity 24,283,852 24,509,948
---------- ----------
Total liabilities and stockholders'
equity $82,824,635 $77,818,418
=========== ===========
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
Sterling House Corporation
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
_______________________________________________________
<S> <C> <C> <C> <C>
Revenues:
Residence rental $9,867,855 $3,261,048 $17,460,364 $5,754,476
Initial franchise and
royalty fees:
Affiliates 15,027 16,224 26,563 28,826
Other 106,894 21,514 140,350 51,697
Management and service fees:
Affiliates 89,440 --- 89,440 ---
Other 26,937 16,612 41,795 52,966
Construction services 766 54,801 39,763 63,123
---------- --------- ---------- ---------
Total revenue 10,106,919 3,370,199 17,798,275 5,951,088
Operating expenses:
Residence operating expenses 6,169,865 2,134,733 11,029,645 3,796,559
General and administrative 1,320,286 597,091 2,258,726 1,191,283
Building rental 2,566,062 730,466 4,410,064 1,115,523
Depreciation and amortization 741,736 243,155 1,320,666 470,879
Construction costs 11,363 17,586 21,081 28,245
---------- ---------- ---------- ---------
Total operating expenses 10,809,312 3,723,031 19,040,182 6,602,489
Loss from operations (702,393) (352,832) (1,241,907) (651,401)
Other income (expenses):
Interest income 348,375 323,258 527,852 534,262
Interest expense (72,063) (106,013) (153,392) (332,800)
Minority interest in
loss of subsidiaries 490,670 --- 525,223 ---
Other (6,097) (8,039) (16,319) (20,257)
------- ------- ------- -------
Total other income 760,885 209,206 883,364 181,205
Income (loss) before income
taxes 58,492 (143,626) (358,543) (470,196)
(Provision) benefit for
income taxes (15,793) 56,979 96,807 139,285
------- -------- -------- --------
Net income (loss) $ 42,699 $ (86,647) $ (261,736) $(330,911)
============ =========== =========== =========
Net income (loss) per
common share $ .01 $ (.02) $ (.05) $ (.07)
============ =========== =========== =========
Weighted average number
of shares outstanding during
the period 5,040,325 5,035,993 5,039,585 5,035,421
========= ========= ========= =========
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
Sterling House Corporation
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six months ended
June 30
1997 1996
--------- --------
<S> <C> <C>
Operating activities
Net loss $ (261,736) $ (330,911)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,320,666 470,879
Amortized rent and interest expense 29,009 32,405
Deferred income taxes (96,807) (139,285)
Minority interest in loss of subsidiaries (525,223) ---
Net change in operating assets and liabilities:
Accounts receivable (611,380) 11,615
Prerental costs (590,377) (504,919)
Accrued expenses 1,610,456 512,232
Unearned rent and refundable deposits (96,288) 3,317
Accounts payable 180,135 (790,125)
Deferred compensation (21,246) (21,335)
Other (850,878) (20,241)
--------- --------
Net cash provided by (used in) operating activities 86,331 (776,368)
Investing activities
Purchase of property and equipment (46,264,365) (16,804,275)
Proceeds from sale/leaseback transactions 54,224,854 12,292,497
Construction receivable due from REIT 3,787,406 ---
Advances to unconsolidated affiliates (20,536,489) ---
Proceeds received from unconsolidated
affiliates on advances 6,296,451 ---
Other (1,108,644) (524,453)
---------- ----------
Net cash used in investing activities (3,600,787) (5,036,231)
Financing Activities
Proceeds from short-term borrowings --- 1,473,650
Principal payments on short-term borrowings --- (8,200,078)
Principal payments on long-term debt (67,315) (1,996,856)
Convertible debt issued --- 35,000,000
Proceeds from issuance of long-term debt 1,868,500 61,173
Expenditures for financing costs (34,514) (1,602,000)
Capital contributions by minority members 700,000 ---
Net change in bond reserve funds in trust (104,240) (275,066)
Other 34,785 7,737
--------- -----------
Net cash provided by financing activities 2,397,216 24,468,560
Net increase (decrease) in cash (1,117,240) 18,655,961
Cash at beginning of period 13,658,827 17,396,355
---------- ----------
Cash at end of period $12,541,587 $36,052,316
=========== ===========
See accompanying notes.
</TABLE>
6
<PAGE>
STERLING HOUSE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The accompanying unaudited interim financial statements of
Sterling House Corporation (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC").
Certain information and note disclosures normally included in annual financial
statements have been condensed or omitted pursuant to those rules and
regulations. In the opinion of management, all adjustments, consisting of
normal, recurring adjustments considered necessary for a fair presentation,
have been included. Although management believes that the disclosures made
are adequate to ensure that the information presented is not misleading, it
is suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. The results
of the three and six-month periods ended June 30, 1997 and 1996 are not
necessarily indicative of the results of operations for the entire year.
(2) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, BCI Construction, Inc.,
BCINC, Inc., Assisted Living Properties, Inc. and Coventry Corporation
("Coventry"). The Company's consolidated financial statements also include
Austin Development, Limited, Waterford Development Company, L.L.C., Newport
Development, L.L.C., Claremont Development, Limited Partnership, and
Bridgeport Development, Limited (collectively known as the Company's
Development Partnerships), all which are majority-owned subsidiaries of
Coventry. The "Minority interest in subsidiaries" represents the minority
members' proportionate interest in the Company's Development Partnerships.
In addition, the Company has investment interests in certain limited
partnerships and limited liability companies that develop and operate Sterling
House assisted living facilities. Ownership of such investments at June 30,
1997, is 9.8% and the Company accounts for all such investments using the
equity method of accounting.
All significant intercompany balances and transactions have been
eliminated.
(3) NET LOSS PER COMMON SHARE AND RECENTLY ISSUED ACCOUNTING STANDARDS
Net loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during each period. The
weighted average number of common shares does not include any common stock
equivalents because, (1) stock options outstanding are not materially dilutive
and (2) common stock equivalents associated with the convertible debentures
would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("FAS 128"), which specifies the computation, presentation, and disclosure
requirements for earnings per share with the objective to simplify the
computation of earnings per share. FAS 128 is effective for financial
statements for periods ending after December 15, 1997, and earlier
application is not permitted. After the effective
7
<PAGE>
date, all prior period earnings per share data will be restated to conform
with the provisions of FAS 128. The adoption of FAS 128 is not expected to
have a material impact on the Company's earnings per share data.
(4) ADVANCES TO UNCONSOLIDATED AFFILIATES
Advances to unconsolidated affiliates represent construction receivables
from certain affiliated limited partnerships and limited liability companies
in which the Company ownes a 9.8% ownership interest. Such affiliates develop
and operate Sterling House assisted living facilities. Advances to such
affiliates are reimbursed to the Company as the affiliates obtain permanent
financing. The affiliates will typically obtain financing through sale/
leaseback financing in accordance to the sale/leaseback commitments
previously obtained by the Company.
(5) SHAREHOLDERS RIGHTS PLAN
On June 25, 1997, the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of the Company's Common
Stock, to the holders of record on July 3, 1997. Each Right entitles the
registered holder to purchase from the Company one one-hundredth (1/100th)
of a share of Series A Junior Participating Stock no par value per share
(the "Series A Preferred Stock"), or, in some circumstances, Common Stock,
other securities, cash or other assets at a price of $80.00 per one one-
hundredth of a share with both shares and price being subject to adjustment
in certain events. The complete terms and conditions of the Rights are set
forth in a Rights Agreement between the Company and ChaseMellon Shareholder
Services, Inc., as Rights Agent, dated as of June 25, 1997, as it may be
amended from time to time.
Initially, the Rights will attach to all certificates representing out-
standing shares of Common Stock and no separate certificates for the Rights
("Rights Certificates") will be distributed. The Rights will separate from
the Common Stock upon the "Distribution Date," which will occur upon the
earlier of (i) 10 days following a public announcement that a person or group
(an "Acquiring Person") has acquired beneficial ownership of 20% or more of
the outstanding shares of Common Stock or (ii) 10 business days following the
commencement of a tender offer or exchange offer, the consummation of which
would result in a person becoming an Acquiring Person or (iii) 10 business days
following a determination by the Company's Board of Directors that a person
has become the beneficial owner of more than 10% of the outstanding shares of
Common Stock and (a) has acquired such beneficial ownership to cause the
Company to repurchase the shares owned by such person or to pressure the
Company to take some action that would provide such person with short-term
financial gain under circumstances where the Board determines that the best
long-term interests of the Company would not be served by taking such action or
(b) such beneficial ownership is causing or is reasonably likely to cause a
material adverse impact on the business or prospects of the Company (any such
person, an "Adverse Person"). Until the Distribution Date, (a) the Rights
will be evidenced by Common Stock certificates and may be transferred only
with such certificates, (b) Common Stock certificates will contain a legend
incorporating the Rights Plan by reference and (c) the surrender for transfer
of any certificate for Common Stock will also constitute the transfer of the
Rights associates with the stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on June 25, 2007 unless earlier redeemed by the
Company. (Reference is hereby made to the Company's Form 8-K filed with the
SEC on July 3, 1997.)
(6) SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company entered into a definitive
purchase agreement to purchase two assisted living residences from a
franchisee of the Company. The Company has also entered into a definitive
lease agreement to lease two assisted living residences in Oklahoma and one
in Texas from LTC Properties, Inc. Both transactions are anticipated to
close on or before September 1, 1997.
On July 31, 1997, the Company announced that it had entered into a
definitive merger agreement under which a wholly owned subsidiary of
Alternative Living Services, Inc. (AMEX:ALI) would merge with and into the
Company and Alternative Living Services, Inc. would issue 1.1 shares of its
common stock in exchange for each outstanding share of the Company's common
stock. (Reference is hereby made to the Company's Form 8-K filed with the
SEC on August 13, 1997.)
(7) RECLASSIFICATIONS
Certain reclassifications have been made in the 1996 financial statements
to conform with the 1997 financial statement presentation.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL. During the first six months of 1997, the Company continued
to open residences according to its development strategy. The Company has
completed 29 new residences during the first six months of 1997, bringing the
total residences open and operating at June 30, 1997 to 95, of which 85 are
owned/leased by the Company (four of which were owned/leased by unconsolidated
affiliates) and ten were franchised or managed. At June 30, 1997, nine of
the Company's owned/leased residences had received their Certificate of
Occupancy but were not fully licensed until July 1997.
In February 1997, the Company formed a wholly owned subsidiary,
Coventry Corporation ("Coventry"), to enter into joint venture agreements
with the Company's development partners. Pursuant to the joint venture
agreements, Coventry holds interests in various limited liability companies
and limited partnerships (the "Development Partnerships") formed to develop
Sterling House residences. The Company's development strategy includes
forming strategic alliances with regional real estate development partners
which are anticipated to enable the Company to develop and construct
additional residences while reducing the investment of, and associated risk
to, the Company. The Company's development partners generally provide
construction management expertise, access to existing relationships with
local contractors, suppliers and municipal authorities, knowledge of local
and state building codes and zoning laws and assistance with site location
for new residences while investing capital and sharing in the development
risk of new properties. The Company, through Coventry, assists in financing
residences, contributes operational and industry expertise and has management
responsibility for the residences. The Company has both the option, at its
election, and an obligation, at the election of its development partners, to
acquire the equity interests of the other partners at predetermined prices
and times. At June 30, 1997, unconsolidated affiliates operated four
residences and had another eight under construction. The Company holds a
majority interest in all other Development Partnerships and their
respective residences are included in the Company's consolidated financial
statements. The allocation of profits and losses among the investors of the
Development Partnerships provides for changes in the allocations at specified
times or on the occurrence of specified events which reflect the economic
substance of the joint venture arrangement; thus the allocation of profits
and losses to the Company may be significantly different than it's stated
ownership interests in the Development Partnerships. The Company plans to
continue to utilize this development strategy in the future.
Subsequent to June 30, 1997, the Company entered into a definitive
purchase agreement to purchase two assisted living residences from a
franchisee of the Company. The Company has also entered into a definitive
lease agreement to lease two assisted living residences in Oklahoma and one
in Texas from LTC Properties, Inc. Both transactions are anticipated to
close on or before September 1, 1997.
On July 31, 1997, the Company announced that it had entered into a
definitive merger agreement under which a wholly owned subsidiary of
Alternative Living Services, Inc. (AMEX:ALI) would merge with and into the
Company and Alternative Living Services, Inc. would issue 1.1 shares of its
common stock in exchange for each outstanding share of the Company's common
stock. (Reference is hereby made to the Company's Form 8-K filed with the
SEC on August 13, 1997.)
9
<PAGE>
GENERAL (continued)
The following table presents the number of owned/leased and
managed/franchised residences, and the number of residences under construction
and under development, by state, as of June 30, 1997 and 1996.
Owned/ Managed/ Under Under
Leased Franchised Construction Development
Residences by State: 1997(1) 1996 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
Kansas 16 13 8 7 1 0 0 1
Oklahoma 23 14 0 0 1 6 0 3
Texas 25 5 0 0 0 11 0 9
Florida 13 0 0 0 8 6 9 5
Colorado 2 0 2 0 3 0 3 5
Ohio 6 0 0 0 8 0 4 13
Iowa 0 0 0 0 2 0 3 0
N. Carolina 0 0 0 0 2 0 4 0
S. Carolina 0 0 0 0 1 0 5 0
Other States 0 0 0 0 0 0 12 0
---- ---- ---- ---- ---- ---- ---- ----
Total residences 85 32 10 7 26 23 40 36
Total units 3,329 1,021 382 272 1,074 896 1,727 1,479
===== ===== === === ===== === ===== =====
(1) Nine residences have a Certificate of Occupancy but were not yet
fully licensed until July 1997. Includes four residences
owned/leased by the Company through Development Partnerships in which
the Company holds a 9.8% ownership interest.
The following table sets forth the number of residences and units
owned/leased or managed/franchised and the stabilized occupancy and private
pay percentages as of June 30, 1997 and 1996, and December 31, 1996, 1995 and
1994.
June 30, December 31,
1997 1996 1996 1995 1994
------------- --------------------
Residences (end of period)
Owned/Leased 76(1) 32 58 17 9
Managed/Franchised 10 7 8 10 6
-- -- -- -- --
Total 86 39 66 27 15
Units (end of period)
Owned/Leased 2,979 1,021 2,035 516 250
Managed/Franchised 557 272 309 358 207
----- ----- ----- --- ---
Total 3,536 1,293 2,344 874 457
Stabilized Occupancy Percentage (2) 95% 96% 97% 96% 95%
Units Private Pay 98% 100% 99% 100% 100%
Average Monthly Rent/Unit $1,757 $1,642 $1,688 $1,618 $1,505
Average Monthly Rent/Unit Including
Community Fees $1,804 $1,695 $1,753 $1,705 ---
(1) Includes four residences owned/leased by the Company through
Development Partnerships in which the Company holds a 9.8% ownership
interest. Excludes nine residences not yet fully
licensed.
(2) Stabilized occupancy percentage represents the occupancy at the
periods presented and only includes those residences that have been
operating in excess of nine months or that have reached an
occupancy rate of 95%. (The stabilized occupancy percentage does
not include Managed/Franchised units).
10
<PAGE>
GENERAL (continued)
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations are forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially, including,
without limitation, risks associated with the Company's ability to develop,
construct, acquire or franchise additional assisted living residences in
accordance with the Company's development schedule including joint venture
related development activities, management of quarter to quarter results, and
other risks detailed from time to time in the Company's SEC reports. The risk
factors and information set forth in "Risk Factors" in the Company's 1996 Form
10-K should be carefully considered in the evaluation of the Company, its
business and its investment value. Updated information will be periodically
provided by the Company as required by the Securities Exchange Act of 1934.
RESULTS OF OPERATIONS
Three months ended June 30, 1997 and 1996
REVENUES. Total revenue for the three months ended June 30, 1997,
increased to $10,107,000 compared to $3,370,000 for the three months ended
June 30, 1996, an increase of $6,737,000 or 200%. This increase was primarily
attributable to an increase of $6,607,000 in residence rentals as a result of
the 1,958 new rental units at 40 residences that have been developed or
acquired by the Company since June 30, 1996. The average monthly rental per
resident for the three months ended June 30, 1997, increased to $1,757
compared to $1,642 for the same period in 1996. Payments from Medicaid
programs comprised approximately 2% of the Company's revenue for the three
months ended June 30, 1997. The Company anticipates that the percentage of
revenue derived from Medicaid programs will increase, although revenues from
private pay residents will continue to be the Company's predominant source of
revenue.
RESIDENCE OPERATING EXPENSES. Residence operating expenses increased to
$6,170,000 for the three months ended June 30, 1997, compared to $2,135,000
for the three months ended June 30, 1996, an increase of $4,035,000 or 189%.
The increase is attributable to the increase in residences as described
above. In addition, beginning in September 1996, the Company opened
residences with an increased number of units, resulting in higher operating
expenses, primarily property expenses, during the stabilization period of
these residences.
At June 30, 1997, the Company had certificates of occupancy on 85
residences, including four residences owned/leased through Development
Partnerships in which the Company holds a 9.8% ownership interest, 76 of
which were fully operational, compared to the 32 residences opened at
June 30, 1996, all of which were fully operational.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $1,320,000 for the three months ended June 30, 1997, from
$597,000 for the three months ended June 30, 1996, an increase of $723,000 or
121%. The increase is primarily attributable to the increase in payroll and
associated costs relating to additions in management and other personnel to
support the additional residences operated by the Company and its growing
development program, as well as travel costs associated with new residences
located in additional states.
BUILDING RENTAL. Building rental increased to $2,566,000 for the three
months ended June 30, 1997, up from $730,000 for the three months ended June
30, 1996, an increase of $1,836,000 or 252%. The increase is attributable to
the Company having 57 residences under operating leases at June 30, 1997,
compared to 17 residences under operating leases at June 30, 1996, an
increase of 40 residences.
11
<PAGE>
RESULTS OF OPERATIONS (continued)
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
to $742,000 for the three months ended June 30, 1997, compared to $243,000 for
the three months ended June 30, 1996, an increase of $499,000 or 205%. This
increase is primarily attributable to the increase in prerental cost
amortization during the current period. Prerental cost amortization was
$499,000 for the three months ended June 30, 1997, compared to $136,000 for
the three months ended June 30, 1996, an increase of $363,000. Prerental
costs represent preopening marketing, employee recruitment and training, and
other start-up expenditures necessary to prepare the residences for
occupancy. These prerental costs are amortized over a 12-month period
commencing the month the residence opens. Prerental costs (net of
amortization) were approximately $1,016,000 at June 30, 1997, compared to
approximately $555,000 at June 30, 1996, an increase of approximately
$461,000 or 83%. The increase in prerental costs is primarily attributable
to 44 residences opened for twelve months or less at June 30, 1997,
compared to 11 such residences at June 30, 1996.
Excluding prerental cost amortization, depreciation and other
amortization expense was $243,000 for the three months ended June 30, 1997,
compared to $107,000 for the three months ended June 30, 1996, an increase of
$136,000 or 127%. The increase is attributable to the additional property
and equipment acquired since June 30, 1996.
INTEREST INCOME. Interest income increased to $348,000 for the three
months ended June 30, 1997, up from $323,000 for the three months ended June
30, 1996, an increase of $25,000 or 8%.
INTEREST EXPENSE. Interest expense for the three months ended June 30,
1997, was $72,000 (net of interest capitalization of $472,000) compared to
$106,000 (net of interest capitalization of $174,000) for the three months
ended June 30, 1996, a decrease of $34,000 or 32%. The decrease in interest
expense is primarily attributable to the increase in interest capitalization
resulting from an increase in the Company's level of construction in progress
between the same periods. Construction in progress totaled $33,546,000 and
$12,205,000 at June 30, 1997 and 1996 respectively.
MINORITY INTEREST IN LOSS OF SUBSIDIARIES. Minority interest in loss of
subsidiaries was $491,000 for the three months ended June 30, 1997, compared
to $0 for the three months ended June 30, 1996. The losses represent the share
of losses allocated to the minority joint venture partners in the Development
Partnerships formed in the first six months of 1997.
INCOME TAXES. The Company recorded income tax expense of $16,000 for
the three months ended June 30, 1997, compared to an income tax benefit of
$57,000 for the three months ended June 30, 1996. The expense is due to the
Company achieving profitability in the second quarter of 1997.
12
<PAGE>
RESULTS OF OPERATIONS (continued)
Six months ended June 30, 1997 and 1996
REVENUES. Total revenue for the six months ended June 30, 1997,
increased to $17,798,000 compared to $5,951,000 for the six months ended
June 30, 1996, an increase of $11,847,000 or 199%. This increase was
primarily attributable to an increase of $11,706,000 in residence rentals as
a result of the 1,958 new rental units at 40 residences that have been
developed or acquired by the Company since June 30, 1996. The average
monthly rental per resident for the six months ended June 30, 1997,
increased to $1,754 compared to $1,642 for the same period in 1996.
Payments from Medicaid programs comprised approximately 1% of the Company's
revenue for the six months ended June 30, 1997. The Company
anticipates that the percentage of revenue derived from Medicaid programs will
increase, although revenues from private pay residents will continue to be the
Company's predominant source of revenue.
RESIDENCE OPERATING EXPENSES. Residence operating expenses increased to
$11,030,000 for the six months ended June 30, 1997, compared to $3,797,000
for the six months ended June 30, 1996, an increase of $7,233,000 or 190%. The
increase is attributable to the increase in residences as described above. In
addition, beginning September 1996, the Company opened residences with an
increased number of units, resulting in higher operating expenses, primarily
property expenses, during the stabilization period of these residences.
At June 30, 1997, the Company had certificates of occupancy on 85
residences, including four residences owned/leased by through
Development Partnerships in which the Company holds a 9.8% ownership, 76 of
which were fully operational, compared to the 32 residences opened at June
30, 1996, all of which were fully operational.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $2,259,000 for the six months ended June 30, 1997, from
$1,191,000 for the six months ended June 30, 1996, an increase of $1,068,000
or 90%. The increase is primarily attributable to the increase in payroll
and associated costs relating to additions in management and other personnel
to support the additional residences operated by the Company and its growing
development program, as well as travel costs associated with new residences
located in additional states.
BUILDING RENTAL. Building rental increased to $4,410,000 for the six
months ended June 30, 1997, up from $1,116,000 for the six months ended June
30, 1996, an increase of $3,294,000 or 295%. The increase is attributable to
the Company having 57 residences under operating leases at June 30, 1997,
compared to 17 residences under operating leases at June 30, 1996, an
increase of 40 residences.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
to $1,321,000 for the six months ended June 30, 1997, compared to $471,000
for the six months ended June 30, 1996, an increase of $850,000 or 180%. This
increase is primarily attributable to the increase in prerental cost
amortization during the current period. Prerental cost amortization was
$902,000 for the six months ended June 30, 1997, compared to $216,000 for the
six months ended June 30, 1996, an increase of $686,000. Prerental costs
represent preopening marketing, employee recruitment and training, and other
start-up expenditures necessary to prepare the residences for occupancy.
These prerental costs are amortized over a 12-month period commencing the
month the residence opens. Prerental costs (net of amortization) were
$1,016,000 at June 30, 1997, compared to
13
<PAGE>
RESULTS OF OPERATIONS (continued)
$555,000 at June 30, 1996, an increase of approximately $461,000 or 83%. The
increase in prerental costs is primarily attributable to 44 residences opened
for twelve months or less at June 30, 1997, compared to eleven such
residences at June 30, 1996.
Excluding prerental cost amortization, depreciation and other amortization
expense was $419,000 for the six months ended June 30, 1997, compared to
$255,000 for the six months ended June 30, 1996, an increase of $164,000 or
64%. The increase is attributable to the additional property and equipment
acquired since June 30, 1996.
INTEREST INCOME. Interest income decreased to $528,000 for the six months
ended June 30, 1997, down from $534,000 for the six months ended June 30,
1996, a decrease of $6,000.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1997,
was $153,000 (net of interest capitalization of $1,119,000) compared to
$333,000 (net of interest capitalization of $509,000) for the six months
ended June 30, 1996, a decrease of $180,000 or 54%. The decrease in interest
expense is primarily attributable to the increase in interest capitalization
resulting from an increase in the Company's level of construction in progress
between the same periods. Construction in progress totaled $33,546,000 and
$12,205,000 at June 30, 1997 and June 30, 1996, respectively.
MINORITY INTEREST IN LOSS OF SUBSIDIARIES. Minority interest in loss of
subsidiaries was $525,000 for the six months ended June 30, 1997, compared to
$0 for the six months ended June 30, 1996. The losses represent the share of
losses allocated to the minority joint venture partners in the Development
Partnerships formed in the first six months of 1997.
INCOME TAXES. The Company recorded an income tax benefit of $97,000 for
the six months ended June 30, 1997, compared to $139,000 for the six months
ended June 30, 1996, a decrease of $42,000 or 30%. The decrease is related
to the decrease in the Company's net loss before income taxes for the six month
period ended June 30, 1997, compared to the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1997, was $13,920,000 up from $7,116,000 at
December 31, 1996. Net cash provided from operating activities totaled
$86,000, for the six months ended June 30, 1997, compared to net cash used in
operating activities of $776,000 in the 1996 period. This improvement in
operating cash flow was primarily due to the increase in the number of
stabilized residences at June 30, 1997. Net cash used in investing
activities was $3,601,000 for the six months ended June 30, 1997, compared to
$5,036,000 for the 1996 period. This improvement in investment cash flows
resulted primarily from the addition of $46,264,000 in property and equipment
, $20,536,000 advanced to unconsolidated affiliates and offsetting proceeds
of $54,225,000 from sale/leaseback transactions and $6,296,000 received from
unconsolidated affiliates during the first six months of 1997. Net cash
provided by financing activities totaled $2,397,000 for the six months ended
June 30, 1997, compared to $24,500,000 for the 1996 period. Financing
activities in the 1997 period consists of cash received from mortgage
financing of one residence of $1,868,000 and capital contributions by
minority interest members of $700,000. The 1996 period included the issuance
of $35,000,000 of convertible subordinated debentures.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company has entered into sale/leaseback agreements with certain
REIT's providing for over $323,000,000 as a source of financing the
development, construction and, to a lesser extent, acquisitions of
assisted living residences. Under such agreements, the Company enters into a
series of sale/leaseback transactions, whereby the Company sells residences
at negotiated values and concurrently enters into a lease agreement for each
residence. The initial terms of the leases vary from 10 to 15 years and
include aggregate renewal options ranging from 15 to 40 years. The Company
is responsible for all operating costs, including repairs, property taxes,
and insurance. Typically the lease arrangements provide the Company with a
right of first refusal if the REIT were to seek to sell the property. The
annual minimum lease payments are based upon a percentage of the negotiated
sales value of each residence. These percentages are typically equal to the
yield of the most actively traded U.S. Treasury Note with a maturity
comparable to the initial term of the lease in effect at the time of the
transaction plus rates ranging from 3.20% to 3.75%. The minimum lease
payments are adjusted annually by a percentage multiplier that is
contingent upon changes in the Consumer Price Index. Through July 31, 1997,
the Company had used approximately $141,500,000 of the committed REIT
financing. The Company accounts for these leases as operating leases.
Capital expenditures for 1997 are estimated to total approximately
$110,000,000 to $130,000,000, related primarily to the development of
additional residences, which will be financed principally with sale/leaseback
transactions. During the first six months of 1997, the Company's capital
expenditures totaled $66,801,000. The Company intends to satisfy future
capital requirements for its development activities by various means,
including financing obtained from sale/leaseback transactions, construction
and other debt financing and, to the extent available, cash generated from
operations. The Company does not anticipate any significant capital
expenditures within the foreseeable future with respect to its existing
residences. It is expected that cash generated from operations will be
sufficient to fund any capital expenditures the Company may be required to
make with respect to its existing residences.
15
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 23, 1997,
the following individuals were elected to the Board of Directors until the
2000 Annual Meeting of Stockholders:
Votes for Votes Withheld
Michael F. Bushee 4,623,157 2,605
D. Ray Cook, M.D. 4,623,107 2,655
The terms of Ms. Diana M. Laing and Mr. Ronald L. Mercer as Directors of
the Company continued after the meeting and will expire at the 1999 Annual
Meeting of Stockholders. The terms of Messrs. Timothy J. Buchanan and Steven
L. Vick as Directors of the Company continued after the meeting and will
expire at the 1998 Annual Meeting of Stockholders.
The following proposals were approved at the Company's Annual Meeting:
Affirmative Negative Votes Votes
Votes Votes Abstained Withheld
----------- -------- --------- --------
1. Ratify the appointment
of Ernst & Young LLP as
independent auditors for
the fiscal year ending
December 31, 1997. 4,623,062 2,000 700 0
2. Ratify the amendment
of the Sterling House
Corporation 1995 Incentive
Plan by allocating 400,000
additional Common Shares
to be potentially issued
pursuant to the terms of
the Incentive Plan. 3,941,663 219,252 2,580 462,267
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
See Index to Exhibits
B. Reports on Form 8-K
During the second quarter of 1997, the Company filed the following
report on Form 8-K.
(i) Current Report on Form 8-K dated June 25, 1997 (filed July 3, 1997),
reporting under Item 5, the adoption of a Shareholders Rights Plan.
16
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated August 14, 1997
STERLING HOUSE CORPORATION
(Registrant)
/s/ Timothy J. Buchanan
Timothy J. Buchanan
Chief Executive Officer
/s/ Mark Ohlendorf
Mark Ohlendorf
Chief Financial Officer
17
<PAGE>
STERLING HOUSE CORPORATION
INDEX TO EXHIBITS
Exhibit
Number Description
- ------------------------------------------------------------------------------
4 Right Agreement, dated as of June 25, 1997, between Sterling House
Corporation and ChaseMellon Shareholder Services, as Rights Agent.
Filed as Exhibit 4 to the Registrant's Current Report Form 8-K
dated June 25, 1997 (filed July 3, 1997) (the "June 25, 1997 Form
8-K").
10.1 Amendment to Commitment Letter dated April 3, 1996 by and between
Sterling House Corporation and Health Care REIT.
10.2 Commitment Letter to purchase and lease Assisted Living Residences,
dated July 11, 1997, by and between Sterling House Corporation and
LTC Properties, Inc.
10.3 Commitment Letter to purchase and lease Assisted Living Residences,
dated August 4, 1997, by and between Sterling House Corporation and
Nationwide Health Properties, Inc.
10.4 Management Agreement dated August 1, 1997, by and between Sterling
House Corporation and Savannah Square of Weatherford, Inc.
10.5 Management Agreement dated July 19, 1997, by and between Sterling
House Corporation and Colorado Springs Assisted Living, LLC.
10.6 Purchase Agreement dated July 14, 1997, by and between Sterling
House Corporation and Colorado Springs Assisted Living, LLC.
10.7 Lease Agreement dated August 1, 1997, by and between Sterling House
Corporation and LTC Properties, Inc.
10.8 Employment Agreement by and between Sterling House Corporation and
Mark W. Ohlendorf.
10.9 Commitment Letter to purchase and lease Assisted Living Residences
dated July 8, 1997, by and between Sterling House Corporation and
Meditrust, Inc.
10.10 Second Amendment to Lease Agreement dated May 31, 1997, by and
between Sterling House Corporation and Phil G. Ruffin.
10.11 Form of Joint Venture Agreement by and between Coventry corporation
and Elderly Living, Limited Partnership, filed as Exhibit 10.9 to
the Registrant's Quarterly Report dated March 31, 1997.
10.12 Schedule of executed Joint Venture agreements by and between
Coventry Corporation and Elderly Living, Limited Partnership.
10.13 Form of Joint Venture Agreement by and between Coventry Corporation
and Elderly Living, Limited Partnership.
10.14 Schedule of executed Joint Venture Agreements by and between
Coventry Corporation and Elderly Living, Limited Partnership.
18
<PAGE>
Exhibit
Number Description
- ------------------------------------------------------------------------------
10.15 Form of Operating Agreement by and between Coventry Corporation and
Elderly Living, Limited Partnership.
10.16 Schedule of Executed Operating Agreements by and between Coventry
Corporation
10.17 Form of License Agreement by and between Sterling House
Corporation.
10.18 Schedule of Executed License Agreements by and between Sterling
House Corporation.
10.19 Form of Limited Partnership Agreement by and between Coventry
Corporation.
10.20 Schedule of executed Limited Partnership Agreements by and between
Coventry Corporation.
10.21 Form of Management Agreement by and between Sterling House
Corporation.
10.22 Schedule of executed Management agreements by and between Sterling
House Corporation.
20 Letter to the holders of Sterling House Corporation Common Stock,
dated July 3, 1997 (including Summary of Rights). Filed as Exhibit
20 to the June 25, 1997 Form 8-K.
27 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only.
99 Press Release, dated June 25, 1997. Filed as Exhibit 99 to the
June 25, 1997 Form 8-K.
19
May 14, 1997
Mr. Steven Vick, President
Sterling House Corporation
453 S. Webb Road, Suite 500
Wichita, KS 67207
Dear Steven:
This letter will serve as an amendment to the commitment Letter dated April 3,
1996 for Phases IV and V of the Line of Credit.
1. Effective Date. These amendments will be effective for all Phase IV and
Phase V financings except for the first two Phase IV financings,including
Troy, Ohio.
2. Permanent Financings.
(A) Permanent Rate Spread. The permanent rates spread will be 345
bps.
(B) Commitment Fee. The commitment fee for the permanent financings
will be waived.
(C) Legal Fees of Health Care REIT, Inc. The legal fees of Health
Care REIT, Inc. will be capped at $10,000 per financing.
3. Construction Financings.
(A) Construction Commitment Fee. The construction commitment fee will
be .50%.
(B) Construction Rate Spread. The construction rate spread will be
200 bps over the prime rate as reported in the Wall Street
Journal.
Except as modified above, all other terms and conditions of the Commitment
Letter will remain in effect. Please acknowledge your acceptance of the
foregoing terms by signing a copy of this letter and sending it to me by 5:00
eastern time on May 31, 1997.
Sincerely, STERLING HOUSE CORPORATION
HEALTH CARE REIT, INC.
/s/ Steven Vick
Steven Vick, President
/s/ Raymond W. Braun
Raymond W. Braun
Chief Operating Officer
July 11, 1997
Sterling House Corporation
453 S. Webb Road, Suite 500
Wichita, Kansas 67207
Attention: Mr. Steven Vick, President
Re: Agreement to Purchase and Lease Assisted Living Residences
Dear Steven:
LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees,
either itself or through its designee, and subject to the parameters outlined
in this letter and approval of LTC's Board of Directors, to enter into a group
of sale/leaseback transactions with Sterling House Corporation ("Sterling")
with respect to certain properties the precise identity of which shall be
determined as set forth herein (each a "Property" and collectively, the
"Properties"), and each of which Properties shall be improved with an assisted
living facility. The total cumulative purchase price to be paid by LTC to
Sterling for the Properties shall be Fifty Million Dollars ($50,000,000.00)
(the "Total Purchase Price").
As we have previously discussed, Sterling will sell and assign all of
its right, title and interest in and to all real and personal property and
fixtures comprising the Properties to LTC, and LTC or its designee will
purchase the Properties from Sterling and will lease the Properties back to
Sterling, all upon the following terms and conditions:
1. Purchase Price. LTC shall pay Sterling the Total Purchase Price
in connection with the purchase of all of the Properties. With respect to the
purchase of each individual Property, LTC shall pay Sterling a purchase price
equal to Sterling's total hard and soft construction costs (all soft costs to
be specifically pre-approved in writing by LTC), but in no event exceeding
$70,000.00 per assisted living unit constructed on the Property (the "Specific
Property Purchase Price"). The Specific Property Purchase Price shall be paid
in all cash at closing with respect to LTC's purchase of each Property.
2. Determination of Properties; Property Application Materials. The
determination of which assisted living properties shall become Properties
subject to this commitment letter shall be made by LTC in its sole discretion
based upon materials supplied by Sterling. LTC shall commence its evaluation
of each property submitted by Sterling for approval at such time as LTC has
received all of the following (collectively, the "Property Application
Materials") from Sterling: (i) a copy of the market and feasibility study for
the applicable Property prepared by a consultant entirely acceptable to LTC;
(ii) Sterling's proposed Specific Property Purchase Price for the applicable
Property, including a detailed breakdown of the hard and soft construction
costs comprising the Specific Property Purchase Price; (iii) a copy of the
geotechnical report with respect to the Property; (iv) a copy of a Phase I
environmental site inspection report with respect to the Property dated not
earlier than three (3) months prior to the date of submission to LTC and
prepared by an environmental consultant entirely acceptable to LTC; (v) a
budget for operation of the assisted living facility on the Property for the
first twenty-four (24) full months of operation; (vi) a copy of Sterling's
final, unconditional certificate of occupancy (or other similar license or
permit) with respect to the assisted living facility located on the Property;
and (vii) a copy of Sterling's unconditional license to operate the assisted
living facility located on the Property. Once all Property Application
Materials have been received by LTC, LTC shall determine within five (5)
business days whether LTC will accept the applicable property as one of the
Properties subject to this commitment letter.
3. Transaction Structure. Once LTC has approved a property as one of
the Properties subject to this commitment letter and all conditions precedent
set forth herein to the closing with respect to the applicable Property have
been satisfied, Sterling and LTC will at Sterling's election either (a) enter
into a sale and leaseback transaction, or (b) enter into a transaction or
series of transactions which shall be structured in a manner to allow Sterling
to avoid having to expense, on its profit and loss statements, the operating
losses incurred in connection with the assisted living facility on the
Property during the first nine (9) months of operation. The precise details
of the structure described in (b) above will be outlined for Sterling once LTC
has received from Sterling: (i) this commitment letter signed on behalf of
Sterling by a duly authorized officer thereof; (ii) Sterling's check for the
first $100,000.00 of the Commitment Fee (defined below); and (iii) the
Commitment Fee Note (defined below) representing the balance of the Commitment
Fee. Nevertheless, the final step in the transaction structure shall be a
lease of each Property (each a "Lease" and collectively the "Leases") between
LTC, as lessor, and Sterling, as lessee, contingent only upon LTC becoming the
fee simple owner of the Property and otherwise on the terms and conditions set
forth below in this commitment letter.
4. Contingencies.
(a) LTC's obligation to purchase the Properties and to
consummate the transactions contemplated in this commitment letter shall be
expressly contingent upon each of the following:
(i) the state of title to each of the Properties must be
acceptable to LTC in LTC's reasonable discretion, and LTC (at such time as LTC
acquires title to the Property) shall have received an ALTA Owner's Policy of
Title Insurance - Extended Coverage - for each Property issued by Chicago
Title Insurance Company showing the fee interest in each Property vested in
LTC subject only to those exceptions specifically agreed to in writing by LTC,
and containing those endorsements reasonably required by LTC. In each case,
the title commitment shall be ordered through Ms. Laine Cheng at Chicago Title
Insurance Company's National Office in Los Angeles, California. Ms. Cheng can
be reached at (213) 488-4303;
(ii) LTC shall have received an ALTA/ACSM Land Title Survey
of each Property and the improvements located thereon prepared by a
professional land surveyor entirely satisfactory to LTC and dated after
substantial completion of the construction for the facility on each Property,
which survey shall be certified to LTC, Chicago Title Insurance Company and to
any other party which LTC may reasonably require with the following language:
"This is to certify that this map or plat and the survey on
which it is based were made (i) in accordance with "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys," jointly established and
adopted by ALTA and ACSM in 1992, and includes all items in Table A thereof;
and (ii) pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and
in effect on the date of this certification) of an Urban Survey."
2
In addition, the record legal description of each Property
must appear on the survey of that Property, and any record easements or
servitudes and covenants affecting each Property must be plotted thereon;
(iii) LTC shall have received a Phase I environmental
assessment of each of the Properties addressed to LTC in form and content, and
performed by an environmental consultant, entirely acceptable to LTC;
(iv) LTC shall have received a UCC lien search dated after
the date of substantial completion of the facility on each Property evidencing
that no liens exist as to the personal property located on each Property other
than those liens previously approved in writing by LTC;
(v) LTC shall be satisfied with the physical condition of
the assisted living facilities located on the Properties based on a physical
inspection of each Property by LTC;
(vi) LTC shall have received evidence acceptable to LTC
that each of the Properties is properly zoned for use as an assisted living
facility;
(vii) LTC shall have received a corporate resolution of
Sterling's board of directors authorizing Sterling to enter into, deliver and
perform all of the documents and instruments necessary to effect each of the
sale and lease transactions contemplated in this commitment letter, which
corporate resolution may cover multiple Properties;
(viii) LTC shall have received a copy of the certificate of
occupancy with respect to each Property and a copy of Sterling's license to
operate the assisted living facility located on each Property as a fully-
licensed assisted living facility in the State in which the applicable
Property is located, and having not less than the number of units specified
for each Property in the Property Application Materials (defined above)
submitted to LTC in connection with the Property; and
(ix) LTC, at its option, shall have conducted with respect
to each Property, and be satisfied with the results of, such other standard
due diligence as is customarily performed by LTC in connection with the
acquisition of a fee interest in a property improved with an assisted living
facility.
5. Lease Term. Sterling and LTC contemplate that LTC will acquire
each of the Properties, and lease them back to Sterling, at such time as the
construction of the assisted living facility on each Property is completed,
the certificate of occupancy and operator's license with respect thereto
issued and all other pre-conditions to closing have been met with respect to
said Property. As a result, the parties anticipate that the Properties will
not all be acquired by LTC at one time, and Sterling's obligation to pay
Minimum Rent and other charges under each Lease will commence concurrently
with LTC's acquisition of the Property to which the Lease relates.
Notwithstanding the fact that Sterling's rental obligations under the Leases
of the Properties may commence on different dates, it is LTC's specific
intention that the initial term of each Lease will terminate on December 31,
2008. Sterling shall have two consecutive five-year options to extend the
3
term of all of the Leases; that is, Sterling shall only have the option to
extend the term of any one of the Leases so long as Sterling exercises its
option to extend the term of all of the Leases.
6. Minimum Rent. The initial annual Minimum Rent for the first year
of each Lease shall be an amount equal to the Specific Property Purchase Price
paid by LTC (or its designee) for each Property multiplied by the sum of three
hundred thirty (330) basis points plus the average interest rate on the ten-
year Treasury Security for the five (5) business days prior to the third (3rd)
business day prior to closing. Sterling shall pay an amount equal to one-
twelfth (1/12) of the annual Minimum Rent applicable to each Property on the
first day of each and every month during the term of the Leases without
demand, abatement, set-off or notice. Commencing on the first anniversary of
the rent commencement date for the first Lease to commence (the "Anniversary
Date"), and continuing thereafter on each subsequent Anniversary Date during
the initial term and each option term of the Leases, the Minimum Rent
applicable to each of the Leases shall be increased in accordance with the
provisions set forth in Exhibit "A" attached hereto and made a part hereof.
7. Rent During Option Periods. The initial Minimum Rent for each of
the option terms shall be the higher of: (i) the previous year's Minimum Rent
amount increased by two percent (2%); or (ii) the fair market value rent as
determined by independent appraisal process.
8. Triple Net Lease. Sterling shall be responsible for all costs
associated with the operation of the assisted living facilities located on the
Properties, including, but not limited to, all property and other taxes,
utilities, insurance premiums and costs to maintain the assisted living
residences in good condition and repair, reasonable wear and tear excepted
(collectively "Additional Charges"). Taxes shall include any and all taxes of
any kind associated with the real or personal property constituting the
assisted living facilities, including, but not limited to, taxes attributable
to any period prior to acquisition of the Properties by Development.
9. Repair and Maintenance. Sterling shall be responsible for
completing any and all work necessary to maintain each assisted living
facility located on the Properties as an assisted living residence in good
condition and repair, reasonable wear and tear excepted. In addition, at
Sterling's sole cost and expense, Sterling shall complete all applications,
give all notices and obtain and maintain all licenses, permits and approvals
necessary or desirable to allow Sterling to operate the assisted living
facilities located on the Properties in accordance with all legal and
regulatory requirements.
10. Cross-Default. Each Lease with respect to each Property shall be
cross-defaulted with each of the other Leases of the Properties such that any
default under any one Lease shall constitute a default under each other Lease.
11. Indemnity. Sterling shall fully indemnify and hold LTC harmless
from and against any and all costs, losses, expenses, judgments, claims, fees
(including reasonable attorneys' fees and costs) or damages of any kind or
nature whatsoever arising from or relating to the assisted living facilities
located on the Properties and the operation thereof, including, without
limitation, all matters relating to (i) the presence of hazardous substances
located on the Properties, (ii) compliance with or failure to comply with the
provisions of the federal Americans with Disabilities Act, (iii) compliance
with or failure to comply with the provisions of the Fair Housing Amendments
Act of 1988, (iv) compliance with or failure to comply with the provisions of
Section 8 of the United States Housing Act of 1937, as amended, and any and
all other matters whatsoever relating to the Properties, the assisted living
4
facilities located thereon and the operation thereof. Sterling's
indemnification obligations set forth in this Paragraph shall survive the
expiration or termination for any reason of this commitment letter.
12. Assignment and Subletting. Sterling shall not be entitled to
sublet or assign any one or more of the Leases without the prior written
consent of LTC.
13. Closing Costs. Concurrently with the closings of Development's
and LTC's acquisitions of each of the Properties, Sterling shall be
responsible to pay any and all closing costs in connection with the closing,
including but not limited to all of LTC's attorneys' fees (which shall be a
total of Fifteen Thousand Dollars ($15,000.00) for each complete transaction
with respect to each Property contemplated in this commitment letter) and
attorneys' expenses, recording fees, escrow fees, title fees, state and local
transfer, mortgage or excise taxes in connection with the transfer of title,
LTC's out-of-pocket costs in connection with the transaction and any and all
other fees and costs in any way associated with the overall transaction with
respect to each Property.
14. Physical Inspection. As a precondition to the obligations of LTC
under this commitment letter, LTC shall have the right to conduct a physical
inspection of each assisted living facility on each Property, and LTC must be
satisfied with the physical condition of each of the Properties after
completion of the construction of the assisted living facilities thereon, in
LTC's reasonable discretion.
15. Governing Law. This commitment letter shall be governed by and
interpreted under the internal laws of the State of California without resort
to choice of law principles.
16. Commitment Fee. Upon acceptance of this commitment, Sterling
shall pay a commitment fee to LTC in the sum of one and one-third percent
(1.333%), that is, Six Hundred Sixty-Five Thousand Dollars ($665,000.00) (the
"Commitment Fee") relating to the transactions contemplated herein, said
Commitment Fee amount to be paid as set forth below. This commitment letter
and all of LTC's obligations hereunder shall expire on December 31, 1998;
provided, however, that so long as Sterling has closed transactions under this
commitment letter with LTC and/or its designated affiliate utilizing not less
than Twenty-Five Million Dollars ($25,000,000.00) of the amount committed
hereunder by no later than June 30, 1998, Sterling shall have the right to
extend the expiration date of this commitment letter to March 31, 1999 by
paying a non-refundable extension fee to LTC in an amount equal to fifty (50)
basis points multiplied by the then unused amount of this commitment. The
Commitment Fee shall be retained by LTC and shall not be refunded to Sterling
under any circumstance whatsoever.
The Commitment Fee shall be paid to LTC as follows: concurrently with
the full execution of this commitment letter, Sterling shall deliver to LTC
(i) the cash sum of One Hundred Thousand Dollars ($100,000.00), and (ii) a
promissory note in the original principal amount of Five Hundred Sixty-Five
Thousand Dollars ($565,000.00) made by, and with full recourse to, Sterling
and payable to LTC (the "Commitment Fee Note"). The Commitment Fee Note shall
bear no interest and shall be payable in four (4) equal installments to be
paid on the first day of each calendar quarter commencing on October 1, 1997.
Sterling's failure to make any installment payment under the Commitment Fee
Note when due shall constitute an event of default by Sterling under the
Commitment Fee Note and under this commitment letter.
In addition to the Commitment Fee referenced above, concurrently with
5
the closing of each sale/leaseback transaction closed hereunder, Borrower
shall pay to LTC a non-refundable additional commitment fee (the "Additional
Commitment Fee") in an amount equal to one percent (1%) of the Specific
Property Purchase Price for the property then being acquired by LTC. LTC
shall have the option, in LTC's sole discretion, to cause the Additional
Commitment Fee to be paid to LTC by withholding from the amount wired by LTC
for the closing, the amount of the Additional Commitment Fee.
SINCE IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO FIX THE ACTUAL
DAMAGES WHICH WOULD BE SUFFERED BY LTC IN THE EVENT STERLING FAILS FOR ANY
REASON TO CLOSE THE OVERALL TRANSACTIONS CONTEMPLATED IN THIS COMMITMENT
LETTER BY DECEMBER 31, 1998, THEN IN SUCH EVENT, UNLESS THIS COMMITMENT LETTER
HAS BEEN EXTENDED IN ACCORDANCE WITH THE TERMS SET FORTH ABOVE, BORROWER'S
COMMITMENT FEE AND, TO THE EXTENT PAID, BORROWER'S ADDITIONAL COMMITMENT FEE
SHALL BE RETAINED BY LTC AS LIQUIDATED DAMAGES FOR THE TIME, EFFORT AND
EXPENSES INCURRED BY LTC IN CONNECTION WITH THE TRANSACTION, LTC SHALL BE
ENTITLED TO ENFORCE THE COMMITMENT FEE NOTE, AND STERLING SHALL ALSO BE
OBLIGATED TO PAY LTC'S LEGAL FEES AND EXPENSES IN CONNECTION WITH THE
TRANSACTIONS OF UP TO FIFTEEN THOUSAND DOLLARS ($15,000.00) FOR EACH OVERALL
TRANSACTION WITH RESPECT TO EACH PROPERTY.
IN THE EVENT THAT LTC FAILS TO CLOSE THE TRANSACTIONS CONTEMPLATED IN
THIS COMMITMENT LETTER UPON TERMS CONSISTENT WITH THOSE PROVIDED HEREIN, AS A
SOLE RESULT OF LTC'S BREACH OF ITS OBLIGATIONS HEREUNDER, THE SOLE OBLIGATION
OF LTC SHALL BE TO REFUND ALL THERETOFORE PAID PORTIONS OF THE COMMITMENT FEE
AND TO RETURN THE ORIGINAL COMMITMENT FEE NOTE TO STERLING, AND LTC SHALL
THEREAFTER HAVE NO FURTHER OBLIGATIONS OR LIABILITIES TO STERLING OF ANY KIND
OR NATURE WHATSOEVER HEREUNDER.
Initials: LTC Properties, Inc./s/ WB Sterling House Corporation /s/ SV
17. Borrower's Acceptance. Sterling must indicate its acceptance of
the terms and conditions of this commitment by affixing its signature below.
Unless LTC receives this accepted commitment in its Oxnard, California office
on or prior to the fifth (5th) business day following the date of this letter,
the terms hereof shall be null and void, and LTC shall not have any
obligations or liabilities to Sterling of any kind or nature whatsoever. This
commitment shall become effective only upon acceptance by LTC evidenced by the
affixation of LTC's signature hereto.
18. No Financial Ratio Covenants. The leases of the Properties shall
not contain any covenants by Sterling regarding the existence or maintenance
of any financial ratio (e.g. cash flow coverage ratios, etc.) With respect to
the Properties or the assisted living facilities located thereon.
19. Facsimile Execution Binding. The parties hereto specifically
agree that this commitment letter may be executed by facsimile, and that
facsimile signatures hereon shall be binding on the parties hereto as though
they were original signatures.
20. Survival. This commitment letter shall survive, and the
covenants, conditions and terms set forth herein shall continue, until the
earlier of (i) December 31, 1998, at which time this commitment letter shall
expire unless extended as set forth in Paragraph 16, above, or (ii) the date
on which the sale of all of the Properties to LTC and the leases of all of the
Properties from LTC to Sterling has been consummated.
21. Cancellation of Prior Commitment. This commitment letter
supersedes and replaces that certain commitment letter between Sterling and
6
LTC dated as of August 13, 1996, and said prior commitment letter is hereby
terminated and of no further force and effect. Sterling and LTC hereby
acknowledge and agree that all fees including without limitation, commitment
fees and/or deposits, paid by Sterling to LTC in connection with said prior
commitment shall be retained by LTC, and no such fees shall be refunded to
Sterling or otherwise applied for the benefit of Sterling in any manner
whatsoever.
Please understand that, subject to the contingencies set forth above,
this letter constitutes the commitment of Sterling and LTC to enter into the
transactions described herein with respect to which LTC shall invest a total
of Fifty Million Dollars and otherwise on the terms set forth above.
Upon receipt of your original signature on this letter, LTC will
immediately instruct counsel to prepare draft documents to evidence the
transaction contemplated in this letter agreement.
Very truly yours,
LTC PROPERTIES, INC.,
A Maryland corporation
/s/ William McBride, III
WILLIAM McBRIDE III,
President and Chief Operating Officer
READ AND AGREED:
Sterling House Corporation
By: /s/ Steven Vick
Its: President
7
August 4, 1997
Mr. Steven L. Vick
President
Sterling House Corporation
453 S. Webb Road, Suite 500
Wichita, KS 67207
Dear Steven:
The purpose of this letter is to propose that Nationwide Health Properties,
Inc. ("Nationwide") provide financing (the "Transaction" or "Transactions")
for 9 completed assisted living facilities (collectively "Properties" or
individually "Property") a listing of which is found in exhibit A. This
financing would be in the form of the acquisition/leases. Based on the
information available to us and subject to the conditions precedent contained
in this letter, Nationwide is prepared to enter into the Transaction under the
following salient terms.
Prior Approval
Each Property will be subject to prior approval by Nationwide in its sole
discretion as to site, land acquisition costs, plans, budget contracts, and
other customary matters as well as completion of due diligence procedures
satisfactory to Nationwide.
Buyer
Nationwide.
Tenant
Sterling House Corporation or its affiliates.
Purchase Price
Actual direct and indirect land and construction costs (excluding developers
profit) not to exceed approximately $25,000,000 in the aggregate.
Guarantors and Cross-Defaults
Sterling House Corporation, all Properties.
Lease Term
Initial lease term to expire 12 years from closing the Transaction; 4 renewals
of 10 years each at the option of Tenant.
Transaction Costs
Nationwide and Tenant will pay their respective ancillary transaction costs.
Nationwide will pay for environmental, survey, and site inspection, and its
own legal costs up to a reasonable level.
Cost Advance
Upon acceptance of the terms of this proposal, Tenant will provide Nationwide
a Cost Advance of $25,000. Cost Advance will be credited to first month's
rent upon closing the Transaction. If Nationwide's board of directors does
not approve the transaction, Cost Advance will be refunded in full. If the
Transaction fails to close for any other reason, Cost Advance will be refunded
net of Nationwide's actual out-of-pocket costs incurred in connection with the
Transaction.
Acquisition Fee
A 1 1/4% Acquisition Fee will be paid to NHP at closing on all Transactions.
<PAGE>
Minimum Rent
From site acquisition through completion, Prime; thereafter 325 basis points
over the 10-year Treasury rate determined as a 20-day average 3 days prior to
closing.
Additional Rent
Additional Rent equal to CPI increases.
Rent Deferral
Rent for the first four months following completion will be deferred and
amortized over the initial lease term.
Security Deposit
Equal to 4 months Minimum Rent in cash or letter of credit from mutually
acceptable bank.
Renewal Rent
Fair market value as of renewal date times 10-year Treasury rate plus 300
basis points; total rent may not decrease from the prior year; renewals will
be "all-or-none".
Total Rent
Total Rent defined as Minimum Rent plus Additional Rent. In no event will
Total Rent in any lease year be less than the Total Rent in the immediately
preceding lease year. In no event will the Total Rent increase over Total
Rent in the immediately preceding lease year by more than 1.5% in year 2, 2%
thereafter.
Financial Covenants
No affirmative financial covenants.
Conditions Precedent
Satisfaction and fulfillment of conditions precedent customary and appropriate
for transactions of this type, including but not limited to:
Examination and acceptance of each Property by Nationwide;
Approval of each Property and each transaction by Nationwide's board of
directors;
Satisfaction of Nationwide with the material terms and conditions of all
necessary documents including, but not limited to, supporting documentation
such as trust agreements, partnership agreements, corporate charters, bylaws,
resolutions, certificates, security documents in addition to purchase
agreement(s) and lease(s), deed(s) of trust, note(s), mortgage(s), loan
agreement(s), and the execution, delivery and, where applicable, public
recordation, of all necessary documents;
No material adverse change;
Accuracy of representations and warranties;
Absence of default or other material breach;
Satisfaction of Nationwide with the final organization of and structure
of each Transaction, the Tenant, Guarantors, and title to respective assets;
2
<PAGE>
Receipt and approval by Nationwide of then current financial statements
of the Property, Tenants, and Guarantors. Receipt and approval by Nationwide
of evidence satisfactory to Nationwide as to the due formation, power and
authority of Tenant, Borrowers, Guarantors, and other parties to each
transaction to participate on the transaction; the enforceability of all
documents and agreements contemplated hereunder; and the absence of material
actions, suits judgments, or proceedings;
Repayment of outstanding liens, encumbrances and debt on each Property
and satisfaction of Nationwide with unencumbered title thereon. Such title to
be insured by ALTA 1970 Form B extended coverage in amount equal to the
Purchase Price. Nationwide to receive surveys on each Property;
Receipt and approval by Nationwide of satisfactory evidence that each
Property has passed all inspections and has received all licenses, permits,
access approvals, certificates of need, provider agreements, Medicare,
Medicaid and third party payor agreements and other authorizations and
approvals as are needed for the operation of each Property as an
assisted/independent living facility, personal care facility, adult congregate
living facility as the case may be;
Receipt and approval by Nationwide of satisfactory Phase 1 Environmental
Assessment Reports (or appropriate updates) prepared by qualified experts
approved by Nationwide showing no presence or potential presence of hazardous
materials in, on, under or around each Property;
Receipt by Nationwide of satisfactory certificates of compliance with
respect to all material obligations of Tenants, Borrowers and Guarantors as
are customary with transactions of this nature;
Receipt and approval by Nationwide of certificates of insurance
satisfactory to Nationwide naming Nationwide as additionally insured;
Receipt by Nationwide of representations and warranties customary and
appropriate for transactions of this nature.
This letter is not a commitment. Such a commitment can only be made by
Nationwide's board of directors, which has not reviewed the transaction. This
proposal is subject to Nationwide purchasing the Properties by December 31,
1997. This proposal is valid through August 10, 1997. We look forward to
working with you in the future.
Sincerely,
John J. Sheehan, Jr.
Vice President of Development
JJS/mp
3<PAGE>
<PAGE>
/s/ Steven Vick 8-6-97
Signature Date
Name (printed): Steven L. Vick
Title: President
Company: Sterling House Corporation
4
<PAGE>
Exhibit A
Listing of Assisted Living Facilities and Proposed Closing Dates
Location Units Tenant Closing Date
Winter Haven, FL 42 Dorset Development Ltd. Partnership 9/10/97
Jacksonville, FL 42 Gladstone Development Ltd. Partnership 9/10/97
Venice, FL 42 Sheffield Development Ltd. Partnership 10/24/97
Englewood, FL 42 Butley Development Ltd. Partnership 10/31/97
Lehigh Acres, FL 42 Silverstone Development Ltd. Partnership 11/5/97
Hickory, NC 42 Newcastle Development, L.L.C. 11/21/97
Richland County,SC 42 Galwick Development, L.L.C. 11/21/97
Gainsville, FL 42 Sterling House Corp. 12/1/97
Palm Coast, FL 42 Sheffield Development 12/5/97
5
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement made effective this 1st day of August, 1997,
between Savannah Square of Weatherford, Inc., a Corporation (hereinafter
called "Owner") and Sterling House Corporation, a Corporation (hereinafter
called "Operator").
WITNESSETH:
WHEREAS, Owner has entered into an Option Agreement with LTC for the
sale of the real property, improvements and equipment used in the operation of
Savannah Square Assisted Living Suites located in Weatherford, Oklahoma (the
"Facility"); and
WHEREAS, it is anticipated that LTC will enter into a lease arrangement
for the lease of the Facility to the Operator; and
WHEREAS, it is the purpose of this Agreement to allow the Operator to
operate the Facility prior to the actual closing of the sale of the facility
by the Owner to LTC.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, the parties agree as follows:
1. Appointment as Manager.
1.1 Appointment of Operator. The Owner hereby remains the services of
Operator and Operator hereby accepts such engagement on the terms and
conditions hereinafter provided for the operation and management of Savannah
Square Assisted Living Suites in Weatherford, Oklahoma. Operator shall deal
in good faith with Owner. Operator shall, at all times, operate and manage
the Facility in accordance with the standards then being achieved for
comparable facilities in the area, subject to the authority, limits and
Owner's approval set forth in this Agreement.
<PAGE>
1.2 Operating of Facility. Operator shall manage the Facility
consistent with the standards with applicable local, state and federal laws
and regulations.
1.3 Marketing Activities. Without limiting the obligations of the
Operator under Section 1.2 hereof, Operator shall conduct such marketing
activities as Operator may desire at Operator's sole cost and expense.
2. Services to be Performed by Operator.
2.1 Expense of Owner. All obligations or expenses except those
marketing expenses identified in paragraph 1.3 of this Agreement, incurred by
Operator on behalf of Owner under this Agreement shall be at the expense of
Owner and paid by Owner according to this Agreement. Operator shall obtain
approval of Owner for all expenditures not recurring or in the ordinary course
of business in the operation of the Facility, except as otherwise specifically
provided in this Agreement. Provided, however, owner shall not be obligated
to pay or reimburse for the following expenses:
(a) Cost of wages, payroll taxes, insurance, workers' compensation
insurance and other benefits of Operator's personnel, except those employees
who work directly on site at the Facility;
(b) Cost of forms, papers, ledgers and other supplies, equipment and
computer services used by Operator except those used directly for the
Facility's benefit;
(c) Cost attributable for non-insurable losses arising from gross
negligence and fraud on the part of Operator, Operator's agents or Operator's
employees; and
(d) Any overhead and general expenses of Operator.
<PAGE>
2.2 Employment of Personnel.
(a) The Operator shall hire in the Owner's name, on site personnel
necessary for the full and efficient performance of the Operator's duties
under this Agreement at wages and benefits competitive in the market.
Employees shall work directly on the site at the Facility.
(b) In the performance of its obligation under the Agreement, the
Operator will comply with provisions of federal, state or local law
prohibiting discrimination in housing on the grounds of race, color, sex,
religion, natural origin or handicap.
2.3 Service Contracts. Operator shall not make any contracts for
services to be provided to the Facility in Owner's name without Owner's
approval except continuing or renewable contracts presently in force. Owner
shall not be liable after the closing date with LTC for any such contract
continuing past said closing date.
2.4 Maintenance and Repair of Property. Operator shall use its best
efforts to maintain the building premises and grounds of the Facility as
currently maintained by Owner including within such maintenance without
limitation thereof, interior and exterior cleaning, decorating, plumbing,
carpentry, prevented HVAC maintenance and such other normal repair work as may
be necessary and desirable. Operator shall not make any improvements which
would be considered capital improvements to the Facility including changes in
design, structure or appearance of the Facility without the consent of Owner.
2.5 Insurance. Owner shall cause to be placed and kept in force all
forms of insurance required by law or needed adequately to protect Owner or
Operator including (but not limited to) workers' compensation insurance,
<PAGE>
public liability insurance, professional liability insurance, employee theft,
fire and extended coverage insurance for all property comprising the Facility
including personal property of the Owner and Operator, burglary and theft
insurance. All of the foregoing at Owner's sole cost and expense. All
insurance coverage shall be placed with such companies in such amounts and
such beneficial interest thereon as shall be acceptable to Owner. Owner shall
provide Operator with evidence that all insurance coverage is in force.
Operator shall promptly investigate and make a written report to Owner and the
insurance company as to all accidents, claims for damage relating to the
ownership, operation and maintenance of the Facility or any damage or
destruction thereto. Further, Operator shall investigate the estimated cost
to repair thereof and shall prepare any and all reports required by any
insurance company in connection therewith. All such reports shall be timely
filed with the insurance company as required under the terms of the insurance
policy after approval by Owner. Owner shall direct the placement of all
insurance to be maintained pursuant to this Section 2.5.
2.6 Collection of Monies. Operator shall use its best effort to collect
all rent and other charges due from residents of the Facility and any
subtenants or concessionaires herein in the Facility. Owner authorizes
Operator to request, demand, collect, receive and recede for all such rent and
other charges and to institute legal proceedings in the name of the owner and
as an expense reimbursable by Owner for the collection thereof and for the
deposition of residents and other persons from the Facility and such expenses
may include the engaging of counsel approved by Owner for such matters. All
monies collected by Operator shall forthwith be deposited in the bank accounts
<PAGE>
designated by Owner pursuant to Section 3.3 hereof.
2.7 Records and Reporting.
(a) Records. Operator shall maintain at the Facility such records,
leases, correspondence, receipts and papers routinely maintained at the
Facility pertaining directly to the Facility or the operation thereof. Such
records and other information shall constitute the property of the Owner and
shall be opened during reasonable business hours and for periodic inspection
and examination by the Owner and/or its authorized representatives.
(b) In Compliance with Legal Requirements. Operator shall take such
action as may be necessary to comply with any and all orders affecting the
operation of the Facility by any federal, state, county or municipal authority
having jurisdiction thereof. Provided however, Operator shall not be
responsible for matters relating to the design or construction of the building
or improvements.
(c) Legal Notices. Operator shall furnish to Owner within forty-eight
(48) hours after receipt by Operator, any and all legal notice received by
Operator effecting the Facility including, without limitation, notices from
taxing or other governmental authorities by any governmental authority or any
board or fire underwriters or similar body.
3. Relationship of Operator and Owner.
3.1 Compensation of Operator. During the operating term (and
proportionally for any fraction of a month), Owner shall pay monthly to
Operator for services rendered under this Agreement a management fee of One
Hundred and 00/100 ($100.00) Dollars.
3.1 Use and Maintenance of Premises. Operator agrees that it will not
<PAGE>
knowingly permit the use of the Facility for any other purpose which might
void any policy of insurance held by Owner or which might render any loss
thereunder uncollectible, or which would be in violation of any government
restriction. Operator shall use its best efforts to secure full compliance by
the residents within the terms and conditions of their respective agreements.
Operator shall be expected to perform such other acts as are reasonably
necessary and proper in the discharge of its duties under this Agreement. All
cost of collecting or complying with and all fines payable in connection with
any orders or violations effecting the Facility placed thereon by any
governmental authority or board of fire underwriters or other similar body
shall be at the cost and expense of Owner unless caused by Operator's
malfeasance, gross negligence or willful failure or refusal to perform its
obligations hereunder in which case and to the extent such cost shall be borne
by Operator.
3.3 Bank Accounts. All rent, revenue and other monies received by
Operator for the operation of the Facility from any resident shall be
forwarded immediately to Owner for deposit in an account established by Owner.
All expenses for the operating of the Facility shall be paid by Owner from
such account.
3.4 Operating Term. This Agreement shall commence on the date hereof
("Commencement Date") and shall thereafter continue until terminated at
midnight on the 31st day of August, 1997, unless renewed or extended
thereafter by written agreement of the parties to this Agreement ("Operating
Term"). In the event of termination provided for herein, Operator will
immediately remit all collections to Owner and records, contracts, leases,
<PAGE>
receipts for deposits and unpaid bills within thirty (30) days after
termination. Operator shall remit all proceeds, if any, to the Owner and all
records, contracts, leases and receipts for deposits, unpaid bills and other
papers and documents which pertain to the Facility.
3.5 No Assignment By Operator. Operator may not assign, transfer or
convey any of its right, title or interest hereunder, nor shall it have the
right to delegate any of the obligations or duties required to be kept by it
hereunder without the prior written consent of Owner.
3.6 Indemnity by Owner and Operator. From and after the date hereof,
each party hereby agrees to indemnify the other against acts committed by the
other from and against any and all claims, demands, expense or legal
proceeding (including cost, expenses and attorney's fees) relative to any
claims for any personal injury, disease, loss of use, advertising injury or
property damage on the part of any third party (including employees and agents
or either of them) or relative to any loss or damage or both in the Facility
from any cause whatever which may be made or brought against them and arising
out of the intentional torts, crimes, gross negligence or willful and wanton
acts of each of them, its officers, employees and agents and operating the
Facility, which are not covered by insurance to be obtained and all times
maintained pursuant to paragraph 2.5 of this Agreement. In addition, Owner
also agrees to indemnify and hold Operator harmless against any claims arising
before the Commencement Date. Owner and Operator further agree to exert all
reasonable efforts in good faith to cause their individual insurance contracts
to be so endorsed to acknowledge that in fact, prior to the time any insurance
loss or damage has incurred, each has waived the right of recovery against the
<PAGE>
other.
3.7 Notices. All notices, demands, consents, approvals and requests
given by either party hereunder shall be in writing and shall be sent first
class mail, postage prepaid, to the parties at the following addresses:
If to Owner:
Savannah Square of Weatherford, Inc.
c/o ERC Properties, Inc.
Attn: Bob Fikes
P.O. Box 3945
Barling, AR 72913
If to Operator:
Sterling House Corporation
Attn: Gail Knott
453 S. Webb Road, Suite 500
Wichita, KS 67207
3.8 Miscellaneous.
(a) In the event that any one or more of the phrases, sentences, clauses
or paragraphs contained in this Agreement shall be declared invalid or
unenforceable by order, decree or judgment of any court having jurisdiction,
or shall be or become invalid or unenforceable by virtue of any duly
promulgated law, rule or regulation, the remainder of this Agreement shall be
construed as if such phrases, sentences, clauses or paragraph has not been
inserted except when such construction (a) would operate as an undue hardship
on either party or (b) would constitute a substantial deviation from the
general intent and purposes of the parties as reflected herein. In the event
of either (a) or (b) above, the parties will use their best efforts to
negotiate a mutually satisfactory amendment to this Agreement to circumvent
the inequity.
<PAGE>
(b) No failure to exercise, and no delay in exercising on the part of
Owner or
Operator, any right, power or privilege hereunder or under applicable law
shall preclude other or further exercise thereof of such or any other right,
power or privilege or Owner or Operator. The rights and remedies herein
provided are cumulative and not exclusive of any other rights or remedies
provided by law.
(c) Operator shall devote such of its time, attention and business
capacity to the management and operation of the Facility as may be necessary
in order for Operator to comply with the terms of this Agreement.
(d) Neither this Agreement nor any part hereof nor any service,
relationship, or other matter alluded to herein shall inure to the benefit of
any third party, to any trustee in bankruptcy, to any assignee for the benefit
or creditors, to any receiver by reason of insolvency, to any insolvent estate
of either party, or to the creditors or claimants of such estate.
(e) Owner and Operator shall execute and deliver all appropriate
agreements or other instruments supplemental to this Agreement and shall take
whatever action may be desirable to evidence that this Agreement is fully and
legally effective, binding and enforceable as between then and as against
third parties.
(f) The heading or the title to the general articles and paragraphs of
this Agreement are inserted for convenience of reference only and are not
intended to affect the meaning of any of the provisions.
(g) This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of Owner or Operator.
<PAGE>
(h) This Agreement shall be construed, interpreted and applied in
accordance with and shall be governed by the laws of the State of Kansas.
(I) This Agreement constitutes the entire agreement between Owner and
Operator which respect to their relationship in respect to their relationship
in respect to the management of the Facility. This Agreement may be amended
only by an instrument in writing executed by Owner and Operator.
(j) This Agreement may be executed simultaneously in two or more
duplicates, each of which duplicate shall be deemed an original. In approving
this Agreement it shall not be necessary to produce or account for more than
one of the duplicates. This Agreement may be executed in counterparts, all of
which taken together shall constitute one Agreement binding on all parties
notwithstanding that all the parties are no signatories to the same
counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
date first above written.
SAVANNAH SQUARE OF WEATHERFORD, INC.
By: /s/ Ernest R. Coleman
By: /s/ Robert L. Fikes, EVP
8/4/97
STERLING HOUSE CORPORATION
By: /s/ Steven L. Vick
<PAGE>
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)ss
COUNTY OF CRAWFORD )
On this 1st day of August, 1997, before me, a Notary Public, duly
qualified, commissioned and acting within and for the County of Crawford,
appeared in person Ernest R. Coleman of Savannah Square of Weatherford, Inc.,
to me personally well known as the person whose name appears upon the above
and foregoing and states that he has executed the same for the consideration
and purpose therein mentioned and set forth, and do hereby so certify.
In Testimony Whereof, I have hereunto set my hand and seal as such
Notary Public this 1st day of August, 1997.
/s/ Carla Kelley
Notary Public
My Commission Expires:
10/01/05
SEAL
ACKNOWLEDGMENT
STATE OF KANSAS )
)ss
COUNTY OF SEDGWICK )
On this 4th day of August, 1997, before me, a Notary Public, duly
qualified, commissioned and acting within and for the County of Sedgwick,
appeared in person Steven L. Vick of Sterling House Corporation, to me
personally well known as the person whose name appears upon the above and
foregoing and states that he has executed the same for the consideration and
purpose therein mentioned and set forth, and do hereby so certify.
In Testimony Whereof, I have hereunto set my hand and seal as such
Notary Public this 4th day of August, 1997.
/s/ T. Sue Anderson
Notary Public
My Commission Expires:
7/10/99
SEAL
<PAGE>
ACKNOWLEDGMENT
STATE OF Arkansas )
)ss
COUNTY OF Crawford )
On this 4th day of August, 1997, before me, a Notary Public, duly
qualified, commissioned and acting within and for the County of Crawford,
appeared in person Robert L. Fikes, Sr. Executive Vice President of Savannah
Square of Weatherford, Inc. to me personally well known as the person whose
name appears upon the above and foregoing and states that he has executed the
same for the consideration and purpose therein mentioned and set forth, and do
hereby so certify.
In Testimony Whereof, I have hereunto set my hand and seal as such
Notary Public this 4th day of August, 1997.
/s/ Carla Kelley
Notary Public
My Commission Expires:
10/01/05
SEAL
<PAGE>
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement made effective this 1st day of August, 1997,
between Savannah Square of Edmond, Inc., a Corporation (hereinafter called
"Owner") and Sterling House Corporation, a Corporation (hereinafter called
"Operator").
WITNESSETH:
WHEREAS, Owner has entered into an Option Agreement with LTC for the
sale of the real property, improvements and equipment used in the operation of
Savannah Square Assisted
Living Suites located in Edmond, Oklahoma (the "Facility"); and
WHEREAS, it is anticipated that LTC will enter into a lease arrangement
for the lease of the Facility to the Operator; and
WHEREAS, it is the purpose of this Agreement to allow the Operator to
operate the Facility prior to the actual closing of the sale of the facility
by the Owner to LTC.
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein, the parties agree as follows:
1. Appointment as Manager.
1.1 Appointment of Operator. The Owner hereby remains the services of
Operator and Operator hereby accepts such engagement on the terms and
conditions hereinafter provided for the operation and management of Savannah
Square Assisted Living Suites in Edmond, Oklahoma. Operator shall deal in
good faith with Owner. Operator shall, at all times, operate and manage the
Facility in accordance with the standards then being achieved for comparable
facilities in the area, subject to the authority, limits and Owner's approval
set forth in this Agreement.
<PAGE>
1.2 Operating of Facility. Operator shall manage the Facility
consistent with the standards with applicable local, state and federal laws
and regulations.
1.3 Marketing Activities. Without limiting the obligations of the
Operator under Section 1.2 hereof, Operator shall conduct such marketing
activities as Operator may desire at Operator's sole cost and expense.
2. Services to be Performed by Operator.
2.1 Expense of Owner. All obligations or expenses except those
marketing expenses identified in paragraph 1.3 of this Agreement, incurred by
Operator on behalf of Owner under this Agreement shall be at the expense of
Owner and paid by Owner according to this Agreement. Operator shall obtain
approval of Owner for all expenditures not recurring or in the ordinary course
of business in the operation of the Facility, except as otherwise specifically
provided in this Agreement. Provided, however, owner shall not be obligated
to pay or reimburse for the following expenses:
(a) Cost of wages, payroll taxes, insurance, workers' compensation
insurance and other benefits of Operator's personnel, except those employees
who work directly on site at the Facility;
(b) Cost of forms, papers, ledgers and other supplies, equipment and
computer services used by Operator except those used directly for the
Facility's benefit;
(c) Cost attributable for non-insurable losses arising from gross
negligence and fraud on the part of Operator, Operator's agents or Operator's
employees; and
(d) Any overhead and general expenses of Operator.
<PAGE>
2.2 Employment of Personnel.
(a) The Operator shall hire in the Owner's name, on site personnel
necessary for the full and efficient performance of the Operator's duties
under this Agreement at wages and benefits competitive in the market.
Employees shall work directly on the site at the Facility.
(b) In the performance of its obligation under the Agreement, the
Operator will comply with provisions of federal, state or local law
prohibiting discrimination in housing on the grounds of race, color, sex,
religion, natural origin or handicap.
2.3 Service Contracts. Operator shall not make any contracts for
services to be provided to the Facility in Owner's name without Owner's
approval except continuing or renewable contracts presently in force. Owner
shall not be liable after the closing date with LTC for any such contract
continuing past said closing date.
2.4 Maintenance and Repair of Property. Operator shall use its best
efforts to maintain the building premises and grounds of the Facility as
currently maintained by Owner including within such maintenance without
limitation thereof, interior and exterior cleaning, decorating, plumbing,
carpentry, prevented HVAC maintenance and such other normal repair work as may
be necessary and desirable. Operator shall not make any improvements which
would be considered capital improvements to the Facility including changes in
design, structure or appearance of the Facility without the consent of Owner.
2.5 Insurance. Owner shall cause to be placed and kept in force all
forms of insurance required by law or needed adequately to protect Owner or
Operator including (but not limited to) workers' compensation insurance,
<PAGE>
public liability insurance, professional liability insurance, employee theft,
fire and extended coverage insurance for all property comprising the Facility
including personal property of the Owner and Operator, burglary and theft
insurance. All of the foregoing at Owner's sole cost and expense. All
insurance coverage shall be placed with such companies in such amounts and
such beneficial interest thereon as shall be acceptable to Owner. Owner shall
provide Operator with evidence that all insurance coverage is in force.
Operator shall promptly investigate and make a written report to Owner and the
insurance company as to all accidents, claims for damage relating to the
ownership, operation and maintenance of the Facility or any damage or
destruction thereto. Further, Operator shall investigate the estimated cost
to repair thereof and shall prepare any and all reports required by any
insurance company in connection therewith. All such reports shall be timely
filed with the insurance company as required under the terms of the insurance
policy after approval by Owner. Owner shall direct the placement of all
insurance to be maintained pursuant to this Section 2.5.
2.6 Collection of Monies. Operator shall use its best effort to collect
all rent and other charges due from residents of the Facility and any
subtenants or concessionaires herein in the Facility. Owner authorizes
Operator to request, demand, collect, receive and recede for all such rent and
other charges and to institute legal proceedings in the name of the owner and
as an expense reimbursable by Owner for the collection thereof and for the
deposition of residents and other persons from the Facility and such expenses
may include the engaging of counsel approved by Owner for such matters. All
monies collected by Operator shall forthwith be deposited in the bank accounts
<PAGE>
designated by Owner pursuant to Section 3.3 hereof.
2.7 Records and Reporting.
(a) Records. Operator shall maintain at the Facility such records,
leases, correspondence, receipts and papers routinely maintained at the
Facility pertaining directly to the Facility or the operation thereof. Such
records and other information shall constitute the property of the Owner and
shall be opened during reasonable business hours and for periodic inspection
and examination by the Owner and/or its authorized representatives.
(b) In Compliance with Legal Requirements. Operator shall take such
action as may be necessary to comply with any and all orders affecting the
operation of the Facility by any federal, state, county or municipal authority
having jurisdiction thereof. Provided however, Operator shall not be
responsible for matters relating to the design or construction of the building
or improvements.
(c) Legal Notices. Operator shall furnish to Owner within forty-eight
(48) hours after receipt by Operator, any and all legal notice received by
Operator effecting the Facility including, without limitation, notices from
taxing or other governmental authorities by any governmental authority or any
board or fire underwriters or similar body.
3. Relationship of Operator and Owner.
3.1 Compensation of Operator. During the operating term (and
proportionally for any fraction of a month), Owner shall pay monthly to
Operator for services rendered under this Agreement a management fee of One
Hundred and 00/100 ($100.00) Dollars.
3.1 Use and Maintenance of Premises. Operator agrees that it will not
<PAGE>
knowingly permit the use of the Facility for any other purpose which might
void any policy of insurance held by Owner or which might render any loss
thereunder uncollectible, or which would be in violation of any government
restriction. Operator shall use its best efforts to secure full compliance by
the residents within the terms and conditions of their respective agreements.
Operator shall be expected to perform such other acts as are reasonably
necessary and proper in the discharge of its duties under this Agreement. All
cost of collecting or complying with and all fines payable in connection with
any orders or violations effecting the Facility placed thereon by any
governmental authority or board of fire underwriters or other similar body
shall be at the cost and expense of Owner unless caused by Operator's
malfeasance, gross negligence or willful failure or refusal to perform its
obligations hereunder in which case and to the extent such cost shall be borne
by Operator.
3.3 Bank Accounts. All rent, revenue and other monies received by
Operator for the operation of the Facility from any resident shall be
forwarded immediately to Owner for deposit in an account established by Owner.
All expenses for the operating of the Facility shall be paid by Owner from
such account.
3.4 Operating Term. This Agreement shall commence on the date hereof
("Commencement Date") and shall thereafter continue until terminated at
midnight on the 31st day of August, 1997, unless renewed or extended
thereafter by written agreement of the parties to this Agreement ("Operating
Term"). In the event of termination provided for herein, Operator will
immediately remit all collections to Owner and records, contracts, leases,
<PAGE>
receipts for deposits and unpaid bills within thirty (30) days after
termination. Operator shall remit all proceeds, if any, to the Owner and all
records, contracts, leases and receipts for deposits, unpaid bills and other
papers and documents which pertain to the Facility.
3.5 No Assignment By Operator. Operator may not assign, transfer or
convey any of its right, title or interest hereunder, nor shall it have the
right to delegate any of the obligations or duties required to be kept by it
hereunder without the prior written consent of Owner.
3.6 Indemnity by Owner and Operator. From and after the date hereof,
each party hereby agrees to indemnify the other against acts committed by the
other from and against any and all claims, demands, expense or legal
proceeding (including cost, expenses and attorney's fees) relative to any
claims for any personal injury, disease, loss of use, advertising injury or
property damage on the part of any third party (including employees and agents
or either of them) or relative to any loss or damage or both in the Facility
from any cause whatever which may be made or brought against them and arising
out of the intentional torts, crimes, gross negligence or willful and wanton
acts of each of them, its officers, employees and agents and operating the
Facility, which are not covered by insurance to be obtained and all times
maintained pursuant to paragraph 2.5 of this Agreement. In addition, Owner
also agrees to indemnify and hold Operator harmless against any claims arising
before the Commencement Date. Owner and Operator further agree to exert all
reasonable efforts in good faith to cause their individual insurance contracts
to be so endorsed to acknowledge that in fact, prior to the time any insurance
loss or damage has incurred, each has waived the right of recovery against the
<PAGE>
other.
3.7 Notices. All notices, demands, consents, approvals and requests
given by either party hereunder shall be in writing and shall be sent first
class mail, postage prepaid, to the parties at the following addresses:
If to Owner:
Savannah Square of Edmond, Inc.
c/o ERC Properties, Inc.
Attn: Bob Fikes
P.O. Box 3945
Barling, AR 72913
If to Operator:
Sterling House Corporation
Attn: Gail Knott
453 S. Webb Road, Suite 500
Wichita, KS 67207
3.8 Miscellaneous.
(a) In the event that any one or more of the phrases, sentences, clauses
or paragraphs contained in this Agreement shall be declared invalid or
unenforceable by order, decree or judgment of any court having jurisdiction,
or shall be or become invalid or unenforceable by virtue of any duly
promulgated law, rule or regulation, the remainder of this Agreement shall be
construed as if such phrases, sentences, clauses or paragraph has not been
inserted except when such construction (a) would operate as an undue hardship
on either party or (b) would constitute a substantial deviation from the
general intent and purposes of the parties as reflected herein. In the event
of either (a) or (b) above, the parties will use their best efforts to
negotiate a mutually satisfactory amendment to this Agreement to circumvent
the inequity.
<PAGE>
(b) No failure to exercise, and no delay in exercising on the part of
Owner or
Operator, any right, power or privilege hereunder or under applicable law
shall preclude other or further exercise thereof of such or any other right,
power or privilege or Owner or Operator. The rights and remedies herein
provided are cumulative and not exclusive of any other rights or remedies
provided by law.
(c) Operator shall devote such of its time, attention and business
capacity to the management and operation of the Facility as may be necessary
in order for Operator to comply with the terms of this Agreement.
(d) Neither this Agreement nor any part hereof nor any service,
relationship, or other matter alluded to herein shall inure to the benefit of
any third party, to any trustee in bankruptcy, to any assignee for the benefit
or creditors, to any receiver by reason of insolvency, to any insolvent estate
of either party, or to the creditors or claimants of such estate.
(e) Owner and Operator shall execute and deliver all appropriate
agreements or other instruments supplemental to this Agreement and shall take
whatever action may be desirable to evidence that this Agreement is fully and
legally effective, binding and enforceable as between then and as against
third parties.
(f) The heading or the title to the general articles and paragraphs of
this Agreement are inserted for convenience of reference only and are not
intended to affect the meaning of any of the provisions.
(g) This Agreement shall be binding upon and inure to the benefit of the
respective successors and permitted assigns of Owner or Operator.
<PAGE>
(h) This Agreement shall be construed, interpreted and applied in
accordance with and shall be governed by the laws of the State of Kansas.
(I) This Agreement constitutes the entire agreement between Owner and
Operator which respect to their relationship in respect to their relationship
in respect to the management of the Facility. This Agreement may be amended
only by an instrument in writing executed by Owner and Operator.
(j) This Agreement may be executed simultaneously in two or more
duplicates, each of which duplicate shall be deemed an original. In approving
this Agreement it shall not be necessary to produce or account for more than
one of the duplicates. This Agreement may be executed in counterparts, all of
which taken together shall constitute one Agreement binding on all parties
notwithstanding that all the parties are no signatories to the same
counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
date first above written.
SAVANNAH SQUARE OF EDMOND, INC.
By: /s/ Ernest R. Coleman
By: /s/ Robert L. Fikes, EVP
8/4/97
STERLING HOUSE CORPORATION
By: /s/ Steven L. Vick
<PAGE>
ACKNOWLEDGMENT
STATE OF ARKANSAS )
)ss
COUNTY OF CRAWFORD )
On this 1st day of August, 1997, before me, a Notary Public, duly
qualified, commissioned and acting within and for the County of Crawford,
appeared in person Ernest R. Coleman of Savannah Square of Edmond, Inc., to me
personally well known as the person whose name appears upon the above and
foregoing and states that he has executed the same for the consideration and
purpose therein mentioned and set forth, and do hereby so certify.
In Testimony Whereof, I have hereunto set my hand and seal as such
Notary Public this 1st day of August, 1997.
/s/ Carla Kelley
Notary Public
My Commission Expires:
10/01/05
SEAL
ACKNOWLEDGMENT
STATE OF KANSAS )
)ss
COUNTY OF SEDGWICK )
On this 4th day of August, 1997, before me, a Notary Public, duly
qualified, commissioned and acting within and for the County of Sedgwick,
appeared in person Steven L. Vick of Sterling House Corporation, to me
personally well known as the person whose name appears upon the above and
foregoing and states that he has executed the same for the consideration and
purpose therein mentioned and set forth, and do hereby so certify.
In Testimony Whereof, I have hereunto set my hand and seal as such
Notary Public this 4th day of August, 1997.
/s/ T. Sue Anderson
Notary Public
My Commission Expires:
7/10/99
SEAL
<PAGE>
ACKNOWLEDGMENT
STATE OF Arkansas )
)ss
COUNTY OF Crawford )
On this 4th day of August, 1997, before me, a Notary Public, duly
qualified, commissioned and acting within and for the County of Crawford,
appeared in person Robert L. Fikes, Sr. Executive Vice President of Savannah
Square of Edmond, Inc. to me personally well known as the person whose name
appears upon the above and foregoing and states that he has executed the same
for the consideration and purpose therein mentioned and set forth, and do
hereby so certify.
In Testimony Whereof, I have hereunto set my hand and seal as such
Notary Public this 4th day of August, 1997.
/s/ Carla Kelley
Notary Public
My Commission Expires:
10/01/05
SEAL
ADDENDUM TO LETTER AGREEMENT DATED AUGUST 4, 1997
BETWEEN STERLING HOUSE CORPORATION AND
SAVANNAH SQUARE OF WAUTAUGA, INC.
ADDENDUM
SHC agrees to provide to Savannah Square evidence of public liability
and workers' compensation insurance with Savannah Square named as additional
insured on the public liability insurance. SHC agrees to indemnify and hold
harmless Savannah Square from any and all claims arising out of the activities
and conduct of business by SHC at the Wautauga, Texas property.
Dated this 4th day of August, 1997.
STERLING HOUSE CORPORATION
By:____________________________________
SAVANNAH SQUARE OF WAUTAUGA, INC.
By: /s/ Robert L. Fikes
Executive Vice President
8/4/97
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT entered into in Wichita, Sedgwick County, Kansas this
_____ day of July, 1997, by and between:
Colorado Springs Assisted Living, LLC
260 North Rock Road, #260
Wichita, Kansas 67207
hereinafter referred to as:
"Owner"
and
Sterling House Corporation
453 South Webb Road, Suite 500
Wichita, Kansas 67207
hereinafter referred to as:
"Manager"
RECITALS:
1. Owner owns two assisted living facilities in Colorado Springs,
Colorado described as:
Sterling House of Broadmoor
615 Southpoint Court
Colorado Springs, Colorado
and
Sterling House of Briargate
7560 Lexington Drive
Colorado Springs, Colorado
both of which are collectively referred to herein as "the Project".
2. Owner and Manager have entered into an agreement pursuant to which
the Project will be sold by Owner to Manager.
3. Owner requests that Manager undertake the management of the Project
effective Monday, July 21, 1997, and Manager is willing to do so, all upon the
following terms and conditions.
NOW, THEREFORE, in consideration for the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the parties do hereby agree as follows:
1. Management. Effective Monday, July 21, 1997, Manager shall manage
the Project until the closing of the sale of the Project between the parties.
In the event the closing does not occur on or before August 31, 1997, then
either party may terminate this Management Agreement upon thirty (30) days
prior written notice to the other party, and, upon the expiration of such
thirty (30) day period, this management agreement shall terminate
automatically.
2. Performance. Manager agrees to perform its duties in compliance with
all applicable laws and regulations and, to the extent practical, to manage the
Project in a manner consistent with Manager's management of similar
facilities.
3. Reports and Communications. All reports from Manager to Owner, and
all communications between Manager and Owner, shall be transmitted and
communicated directly to Robert A. Brooks on behalf of Owner.
4. Transition The purpose of this Management Agreement is to facilitate
a smooth transition in ownership from Owner to Manager. In order to effect that
purpose, the parties hereby agree to cooperate fully with one another and to
take all appropriate steps to establish goodwill on behalf of Manager with
residents and staff at the Project and with all others having any dealings
with the Project.
The Confidentiality Agreement between the parties is incorporated herein.
5. Consideration. In consideration for Owner's undertakings herein,
Manager shall perform hereunder without charge to Owner.
6. Governing Law. This Management Agreement shall be construed under
and pursuant to the laws of the State of Kansas, and exclusive jurisdiction of
all disputes hereunder shall be in the Eighteenth Judicial District, Sedgwick
County, Kansas.
7. Expense Approval. Manager shall submit any expenditure in excess of
$200.00 to Owner for prior approval.
8. Employees. Manager will give consideration to hiring Owner's
employees at closing, but Manager shall be under no obligation to do so. Any
employee of Owner not hired by Manager , or hired by Manager and later
terminated, shall not be restricted from seeking other employment in the
assisted living industry.
COLORADO SPRINGS ASSISTED LIVING, LLC.
BY:
_______________________________
Robert A. Brooks, Managing Member
STERLING HOUSE CORPORATION
BY:
________________________________
Steven L. Vick, President
REAL ESTATE PURCHASE AGREEMENT
THIS AGREEMENT made this 14th day of July, 1997, between Colorado
Springs Assisted Living, L.L.C., a Kansas Limited Liability Company
("Seller"), and Sterling House Corporation ("Purchaser").
1. Sale and Purchase. For and in consideration of the mutual
covenants contained herein, Seller agrees to sell and convey to Purchaser or
its assigns the following described Land, Improvements, Personal Property, and
Intangibles (collectively, the "Project") consisting of the following:
1.1 Land. Three parcels described as follows:
A. Broadmoor Assisted Living Facility ("Broadmoor I")
615 Southpointe Court
(Street)
Colorado Springs, CO 80918
(City, State, Zip)
legally described on Exhibit A attached hereto;
B. Vacant land ("Broadmoor II")
625 Southpointe Court
(Street)
Colorado Springs, CO 80918
(City, State, Zip)
legally described on Exhibit B attached hereto;
and
C. Briargate Assisted Living Facility ("Briargate")
7560 Lexington Drive
(Street)
Colorado Springs, CO 80920
(City, State, Zip)
legally described on Exhibit C attached hereto.
1.2 Improvements. All buildings, improvements, and fixtures
located on the land.
1.3 Tangible Personal Property. All tangible personal property
used in the ownership, operation or maintenance of the aforesaid land or
improvements, including without implied limitation, all furniture,
furnishings, maintenance equipment, signs, draperies, and carpeting.
1.4 Intangible Property. All intangible property used in the
ownership, operation or maintenance of the Project, including all contract
rights, instruments, documents of title, transferable
<PAGE>
licenses, and goodwill pertaining to the ownership, operation or management of
the Project, EXCLUDING cash in bank accounts determined as of Closing Date.
2. Purchase Price. The total consideration to be paid to Seller by
Purchaser for the Project (the "Purchase Price") is Six Million Six Hundred
Thousand Dollars ($6,600,000.00).
3. Payment of Purchase Price.
3.1 Effective Date. The Effective Date shall be the date on
which the Purchaser has received an original counterpart of the Agreement,
fully executed by Purchaser and Seller.
3.2 Earnest Money Deposit. Promptly after the Effective Date,
Purchaser shall deposit with Security Abstract and Title Company, Inc., as
Agent (the "Title Company"), the sum of One Hundred Thousand Dollars
($100,000.00). Said deposit, and any interest earned thereon, shall together
be referred to as the "Earnest Money Deposit." Upon the consummation of this
transaction (the "Closing"), the Earnest Money Deposit shall be applied to the
Purchase Price.
3.3 Balance of Purchase Price. The balance of the Purchase
Price, adjusted by any prorations or expenses required herein, shall be paid
to Seller at Closing by certified or other immediately available funds.
4. Title Commitment. Seller shall furnish to Purchaser the Title
Company's commitment (the "Commitment") to insure title to the Land. The
Commitment shall commit to issue an ALTA Owners Policy covering the Land in an
amount equal to the Purchase Price (the "Title Policy"). Legible copies of
all instruments referred to in the Commitment shall be furnished to Purchaser.
5. Permitted Exceptions. At the Closing, the Title Policy shall
contain only such exceptions as approved by Purchaser.
6. Review of Commitment and Survey. Purchaser may obtain a survey of
the Project, at Purchaser's expense. The survey shall be acceptable to
Purchaser. Purchaser shall have thirty (30) days after receipt of the Survey
and the final Commitment (and copies of documents referred to in the
Commitment), to review the same and to deliver Purchaser's written objections
to the Survey or to any exception or exclusion shown in the Commitment and not
permitted under Paragraph 5 hereof.
7. Seller's Obligation of Cure. Seller shall have thirty (30) days
from receipt of Purchaser's objections to remove all said defects in the
Commitment and the Survey, or to provide assurances acceptable to Purchaser
that the same will be removed on, at or before Closing. Should Seller be
<PAGE>
unable to cure (or provide assurances acceptable to Purchaser with respect to
cure) any and all such defects or objections within the thirty (30) day
period, the Purchaser may, at Purchaser's option, (i) extend the period for
cure for an additional thirty (30) days, thereby providing Seller additional
time within which to cure all such defects or objections, at Seller's expense,
(ii) elect to terminate this Agreement and obtain the return of the Earnest
Money Deposit, (iii) waive its objections and proceed to Closing; or (iv) seek
specific performance of Seller's obligation to cure.
8. Closing. Consummation of this sale shall occur not later than
August 31, 1997. The Closing will take place at the offices of the Title
Company, at such date and time as shall be mutually agreed between the
parties.
9. Seller's Deliveries at the Closing. On date of Closing, Seller
shall deliver or cause to be delivered to Purchaser or its assigns, the
following:
9.1 General Warranty Deeds. General Warranty Deeds, executed by
Seller conveying marketable title to the Land described in Section 1.1 and the
Improvements described in Section 1.2 to Purchaser or assigns.
9.2 Bill of Sale. A Bill of Sale conveying marketable title to
the personal property described in Section 1.3 to Purchaser or assigns.
9.3 Title Insurance. The Title Policy or a binding commitment
to insure, updated to date of closing.
9.4 Documents for Title Purposes. Documents evidencing the
legal status, standing, and authority of Seller, together with such other
documents, including standard Seller's affidavits, that may be required by
Title Company for completion of the Closing or issuance of the Title Policy.
9.5 Contracts and Keys. The originals of all contracts and
Leases affecting the Project, all combinations and keys to locks and other
security devices located on the Project and all other items reasonably
requested by the Purchaser relating to the Project to the extent that the
foregoing items are in the possession of Seller.
9.6 Additional Documents. Such additional documents reasonably
requested by Purchaser to consummate the sale of the Project.
9.7 Accounting of Deposits. A complete and accurate accounting
of all deposits transferred to Purchaser including the amount of each deposit
and the name and address of each depositor.
10. Purchaser's Deliveries. At the Closing, Purchaser shall deliver or
cause to be delivered to Seller, the following:
10.1 Purchase Price. The Purchase Price in certified or
immediately available funds.
<PAGE>
10.2 Documents for Title Purposes. Such documents evidencing the
legal status, standing, and authority of Purchaser and standard Purchaser's
affidavits as may be required by the Title Company for issuance of the Title
Policy.
10.3 Additional Documents. Such additional documents reasonably
requested by Seller to consummate the sale of the Project to the Purchaser.
11. Possession. Possession of the Project will be delivered by Seller
on or before the close of business on the Closing Date, subject to all parties
claiming rights to possession pursuant to written or oral lease agreements in
place on date of Closing, provided, however, that no such written or oral
lease shall be for a term in excess of one (1) year. Effective on the
delivery of the deeds conveying title to the Project by Seller to Purchaser,
beneficial ownership and the risk of loss of the Project will pass from Seller
to Purchaser.
12. Project Management: Employees. On the Closing Date the Seller
will deliver evidence reasonably satisfactory to the Purchaser that the
Manager and all Leasing Agents employed by the Seller with respect to the
Project have been paid all compensation due for services rendered and that all
agreements with respect to management and leasing of the Project have been
terminated and Seller will indemnify Purchaser and hold Purchaser harmless
from same.
13. Costs. The Seller will pay the following Closing costs: the
Seller's attorney fees; one-half of the premium for the Owner's title
insurance policy; and one-half of any closing fee. The Purchaser will pay the
following Closing costs: Purchaser's attorney fees, one-half of the costs
relating to the issuance of the Owner's title insurance policy; the costs of
recording all documents; one-half of any closing fee; and all sales and
transfer taxes imposed by the jurisdiction in which the Project is located, if
any.
14. Review Period. Purchaser and its assigns shall have thirty (30)
days (the "Review Period") from the Effective Date in which to conduct a due
diligence review of the Project. The scope of the review may include:
business, accounting, financial, legal, and tax aspects of the business of the
Project; the physical condition of the Improvements and Tangible Personal
Property; the nature and extent of the Intangible Property; environmental
aspects of the Land and groundwater; and any other matter reasonably related
to the assets to be conveyed pursuant to this Agreement or to the business
purpose for those assets. The review may include but is not limited to:
financial and accounting review; review of leases, contracts, and other legal
documents; review of survey to be provided to Purchaser by Seller;
environmental assessments; and structural and other physical inspections of
the Improvements.
Seller will cooperate fully with Purchaser. Seller will grant Purchaser
and its assigns and those chosen by Purchaser and its assigns prompt access to
<PAGE>
all parts of the Project and to all records pertaining to the Project and the
business of the Project. Purchaser and those chosen by Purchaser may
photocopy any such records and retain the photocopies.
Subject to the provisions of paragraph twenty-one (21) of this
Agreement, Purchaser shall pay the cost of the review to be conducted pursuant
to this paragraph. Purchaser shall indemnify and hold Seller harmless from
any claim allegedly arising from Purchaser or those chosen by Purchaser being
at the Project to conduct inspections. Purchaser shall repair any physical
damage caused by such inspections.
In the event that any material results of Purchaser's review are
unsatisfactory to Purchaser, Purchaser may terminate this Agreement by written
notice to Seller, indicating which aspects Purchaser considers unsatisfactory.
Upon delivery of such written notice to Seller, this Agreement shall terminate
automatically, the Earnest Money Deposit shall be returned to Purchaser, and
thereafter the parties will have no further rights or duties to each other
under this Agreement.
15. Adjustments: Prorations. All receipts and disbursements of the
Project will be prorated on the Closing Date as of 12:00 midnight on the day
preceding the Closing Date and the purchase price will be adjusted on the
following basis:
15.1 Disbursements. All sums due for accounts payable and other
obligations which were owing or incurred by the Seller in connection with the
Project prior to the Closing Date will be paid by the Seller and the Seller
agrees to defend, indemnify, and hold the Purchaser harmless with respect
thereto. The Purchaser will furnish to the Seller for payment any bills for
such period received after the Closing Date and the Purchaser will have no
further obligation with respect thereto.
15.2 Property Taxes. All real and personal property ad valorem
taxes and installments of special assessments, if any, for the calendar years
preceding the year in which the Closing Date occurs will be paid by the
Seller. All real and personal ad valorem taxes and special assessments, if
any, whether payable in installments or not, for the calendar year in which
the Closing Date occurs will be prorated to the Closing Date, based on the
latest available tax rate and assessed valuation.
15.3 Rents and Other Income. All rents and other revenue and
income shall be prorated to the Closing Date. All deposits shall be
transferred to Purchaser at Closing.
15.4 Utility Charges. All utility charges will be prorated to
the Closing Date and the Seller will obtain a final billing therefor. All
utility security deposits, if any, will be retained by Seller.
15.5 Project Employees. To the extent the Purchaser elects to
employ any personnel of the Seller engaged in the operation of the Project
subsequent to the Closing Date, all compensation payable, if any, to such
employees (including the cost of fringe benefits and accrued vacation pay)
which accrued prior to the Closing Date will be paid by the Seller. All
<PAGE>
compensation payable to such employees which accrues subsequent to the Closing
Date will be paid by the Purchaser.
16. Covenant to Operate. Prior to the Closing Date the Seller agrees
to maintain, repair, manage, and operate the Project in a businesslike manner
in accordance with the Seller's prior practices and agrees that the Seller
will not remove any property therefrom or act or omit to act in such a way as
to cause an adverse financial effect on the Project.
17. Other Actions. The Purchaser and Seller agree to perform or cause
to be performed the following:
17.1 Cooperation. After the Closing Date, the Seller will assist
the Purchaser in an orderly transfer of the Project so that the change of
ownership can be accomplished with minimum interference to the efficient
operation of the Project. The Seller will, on the request of the Purchaser,
provide such information with respect to the Project as reasonably requested
by Purchaser.
17.2 Purchaser's Indemnification. After the Closing Date, the Purchaser
agrees to defend, indemnify, and hold the Seller
harmless from all damages, liabilities, costs, and expenses (including
attorneys' fees and other litigation expenses) arising from: (i) accounts
payable and other claims relating to the Project which are incurred and which
accrued after the Closing Date or which are specifically assumed by the
Purchaser, (ii) claims by former employees of the Seller whose employment is
continued by the Purchaser to the extent that such claims arise from
occurrences taking place after the Closing Date.
18. Damage or Destruction. In the event any portion of the Project is
damaged or destroyed at any time prior to Closing, Seller shall give Purchaser
prompt notice thereof and, unless Seller shall fully repair and restore same
prior to Closing or unless the parties shall otherwise agree, Purchaser shall
have the option to terminate this Agreement and receive a full refund of the
Earnest Money Deposit.
19. Condemnation. In the event any part of the Project is condemned
or threatened with condemnation at any time prior to Closing, Seller shall
give Purchaser prompt notice thereof and Purchaser shall have the option to
terminate this Agreement and receive a full refund of the Earnest Money
Deposit.
20. Representations, Warranties, and Covenants of Seller. Seller
hereby represents, warrants, and covenants to Purchaser as follows, which
representations and warranties shall survive the Closing:
(a) There is no litigation pending or, after due and diligent
inquiry, to the best of Seller's knowledge, threatened, against Seller, or any
<PAGE>
basis therefor, that arises out of the ownership of the Project or that might
detrimentally affect the use or operation of the Project for its intended
purpose or the value of the Project or adversely affect the ability of Seller
to perform its obligations under this Agreement.
(b) To provide Purchaser with true and accurate copies of all
Leases currently in effect, together with all correspondence, etc., relating
thereto, within ten (10) days following the execution hereof by both parties.
Such Leases are not in default except as noted in writing to Purchaser at the
time of the delivery of the Leases to Purchaser.
(C) To the best of Seller's knowledge, there is no hazardous
substance or material in, on or under the Project.
(d) As of the date hereof and at the time of Closing, there shall
be no outstanding contracts made by Seller for any improvements made to the
Project for which full payment has not been made, and Seller shall cause to be
discharged all mechanics' or materialmans' liens arising from any labor or
materials furnished to the Project prior to the time of Closing.
(e) All records and information furnished to Purchaser by Seller
or Seller's agents are true, correct, and complete.
21. Conditions Precedent. The Parties' respective obligations to
purchase and sell the Project and to perform the other covenants and
obligations to be performed by them hereunder shall be subject to the
following conditions (which may be waived, in whole or in part, by the Party
in whose favor):
(a) The representations and warranties made by the Seller shall be
true and correct in all material respects on and as of the Closing, with the
same force and effect as if made on and as of such date, and Seller shall have
performed all covenants and obligations and complied with all conditions
required by this Agreement to be performed and complied with by Seller on or
before the Closing.
(b) Seller shall have furnished to Purchaser, on or before
Closing, an undertaking pursuant to which Seller indemnifies and holds
Purchaser harmless from any claims of any nature by any tenant, to the extent
such claims relate or pertain to any period prior to closing.
(c) Should any analysis or test borings or studies obtained by
Purchaser concerning the environmental conditions of the Project disclose the
existence or possibility of the existence of hazardous wastes, toxic
substances, contamination, pollution, or noncompliance with any federal, state
or local law, rule, regulation, order or decree pertaining to the environment,
Purchaser shall have the right to terminate this Agreement upon written notice
given to the Seller. Purchaser shall provide Seller a copy of any such
analyses, borings, studies, and test results if Seller so requests.
In the event Purchaser terminates this Agreement due to any
of the above reasons, then Seller shall pay the full cost of such analyses,
<PAGE>
borings, and studies. In the event Purchaser closes the purchase of the
Project hereunder, Purchaser shall pay the full cost of such analyses,
borings, and studies.
(d) The results of the review pursuant to paragraph fourteen (14)
must be satisfactory to Purchaser.
(e) This Agreement must be approved by Purchaser's Board of
Directors and all Members of Seller.
(f) In the event any of the foregoing conditions shall not be
fulfilled or waived, this Agreement shall terminate and the Earnest Money
Deposit shall be returned to Purchaser.
22. Default: Remedy. In the event that either party fails to perform
such party's obligations hereunder (except as excused by the other party's
default), the party claiming default will make a written demand for
performance.
If Seller fails to comply with such written demand within ten (10) days
after receipt thereof, the Purchaser will have the option to: (i) waive such
default; (ii) terminate this Agreement and receive a full refund of the
Earnest Money Deposit; (iii) seek specific performance; and/or (iv) seek
damages.
If the Purchaser fails to comply with such written demand within ten
(10) days after receipt thereof, the Seller will have the option to waive such
default or to terminate this Agreement; and on such termination, the Seller
will be entitled to retain the Earnest Money Deposit as liquidated damages
arising from such default. The parties agree that the amount of actual
damages which the Seller would suffer as a result of the Purchaser's default
would be difficult to determine and have agreed, after specific negotiation
relating hereto, that the amount of the Earnest Money Deposit is a reasonable
estimate of the Seller's damages and is a fixed amount of liquidated damages
in lieu of other remedies available to the Seller and does not constitute a
penalty.
23. Attorney's Fees. In the event any dispute hereunder results in
litigation filed by either party against the other, the party in whose favor
the final judgment is rendered shall be entitled to recover its reasonable
litigation expenses and attorneys' fees. The rights and obligations contained
in this Section shall survive the Closing and/or termination of this
Agreement.
24. Entire Agreement. This document contains the entire agreement of
the Purchaser and Seller relating to the sale of the Project, superseding all
prior agreements whether oral or written. There are no agreements,
understandings, warranties or representations between Purchaser and Seller
except as set forth herein.
<PAGE>
25. Amendment. No provision of this Agreement can be changed, waived,
discharged or terminated, except by an instrument in writing signed by the
party against whom enforcement of the change, waiver, discharge or termination
is sought.
26. Notices. Any notices or communication required or permitted under
this Agreement shall be deemed to have been received when delivered
personally, or on the third (3rd) business day after the same is sent by
certified mail, postage prepaid, addressed to the parties as follows:
Seller: Robert A. Brooks
260 North Rock Road, #260
Wichita, Kansas 67207
Purchaser:Sterling House Corporation
Attn: Steven L. Vick
453 South Webb Road, Suite 500
Wichita, Kansas 67207
27. Survival of Representations and Warranties. All representations
and warranties of Seller and Purchaser in this Agreement will survive date of
Closing and continue in full force and effect thereafter for a period of two
years.
28. Parties Bound. This Agreement shall be binding upon and inure to
the benefit of Seller and Purchaser, and their respective successors and
assigns.
29. Assignment. Purchaser may assign its rights hereunder upon notice
to Seller.
30. Governing Law. The substantive laws of the State of Kansas and
the United States of America will govern the validity, construction, and
enforcement of this Agreement.
31. Severability. If any clause or provision of this Agreement is
invalid or unenforceable under any present or future law, the remainder of
this Agreement will not be affected thereby. It is the intention of the
parties that if any such provision is held to be invalid, or unenforceable,
there will be added in lieu thereof a provision as similar in terms to such
provision as is possible to be valid and enforceable.
32. Time is of the Essence. Purchaser and Seller hereby expressly
agree that time is of the essence with respect to the performance of each and
every obligation required hereunder.
<PAGE>
33. Seller Shall Furnish Documents. Seller agrees to furnish
Purchaser with any documents pertaining to environmental conditions on the
subject property, including but not limited to soil or water contamination or
the presence of asbestos.
"SELLER
COLORADO SPRINGS ASSISTED LIVING, L.L.C.,
a Kansas Limited Liability Company
BY ALL ITS MEMBERS:
/s/ Robert A. Brooks 7/14/97
(Name) Date
(Name) Date
(Name) Date
(Name) Date
(Name) Date
"PURCHASER"
STERLING HOUSE CORPORATION
BY:
/s/ Steven Vick 7/14/97
(Name) Steven Vick Date
(Title) President
August 1, 1997
Sterling House Corporation
453 S. Webb Road, Suite 500
Wichita, Kansas 67207
Attention: Mr. Steven Vick, President
Re: Agreement to Lease Assisted Living Residences
Dear Steven:
LTC Properties, Inc. ("LTC") is pleased to advise you that LTC agrees,
either itself or through its designee, and subject to the parameters outlined
in this letter and approval of LTC's Board of Directors, to enter into leases
with Sterling House Corporation ("Sterling") with respect to those certain
three (3) properties (each a "Property" and collectively, the "Properties"),
and each of which Properties is improved with an assisted living facility, as
follows:
Savannah Square, Edmond, Oklahoma - 29 units (the "Edmond Facility")
Savannah Square, Weatherford, Oklahoma - 35 units (the "Weatherford
Facility")
Savannah Square, Watauga, Texas - 35 units (the "Watauga Facility")
For purposes of this commitment letter, the Edmond Facility, the Weatherford
Facility and the Watauga Facility are sometimes hereinafter collectively
referred to as the "Facilities".
As we have previously discussed, immediately upon LTC's acquisition of
fee title to each of the Properties and the Facilities located thereon,
Sterling will lease all real and personal property and fixtures comprising the
Properties from LTC pursuant to leases (each a "Lease" and together, the
"Leases") containing the following terms and conditions:
1. Lease Term. The term of each of the Leases shall commence on the
date that LTC acquires fee title to the Properties and shall continue for an
intial lease term of ten (10) years. Sterling shall have two consecutive
five-year options to extend the term of all of the Leases; that is, Sterling
shall only have the option to extend the term of any one of the Leases so long
as Sterling exercises its option to extend the term of all of the Leases.
2. Minimum Rent. The initial annual Minimum Rent for the first year
of each Lease shall be an amount equal to the Purchase Price paid by LTC (or
its designee) for each Property plus the Improvement Funds (defined below)
(which shall be a total cumulative amount for all three Properties of not more
than Five Million Three Hundred Thousand Dollars ($5,300,000.00)) multiplied
by the sum of three hundred thirty (330) basis points plus the average
interest rate on the ten-year Treasury Security for the five (5) business days
prior to the third (3rd) business day prior to closing. Sterling shall pay an
amount equal to one-twelfth (1/12) of the annual Minimum Rent applicable to
each Property on the first day of each and every month during the term of the
Leases without demand, abatement, set-off or notice. Commencing on the first
anniversary of the rent commencement date for the Leases (the "Anniversary
Date"), and continuing thereafter on each subsequent Anniversary Date during
the initial term and each option term of the Leases, the Minimum Rent
applicable to each of the Leases shall be increased in accordance with the
provisions set forth in Exhibit "A" attached hereto and made a part hereof.
<PAGE>
3. Rent During Option Periods. The initial Minimum Rent for each of
the option terms shall be the higher of: (i) the previous year's Minimum Rent
amount increased by two percent (2%); or (ii) the fair market value rent as
determined by independent appraisal process.
4. Triple Net Lease. Sterling shall be responsible for all costs
associated with the operation of the assisted living facilities located on the
Properties, including, but not limited to, all property and other taxes,
utilities and insurance premiums (collectively "Additional Charges"). Taxes
shall include any and all taxes of any kind associated with the real or
personal property constituting the assisted living facilities.
5. Repair and Maintenance. Sterling shall be responsible for
completing any and all work necessary to maintain each assisted living
facility located on the Properties as an assisted living residence in good
condition and repair, reasonable wear and tear excepted. In addition, at
Sterling's sole cost and expense, Sterling shall complete all applications,
give all notices and obtain and maintain all licenses, permits and approvals
necessary or desirable to allow Sterling to operate the assisted living
facilities located on the Properties in accordance with all legal and
regulatory requirements.
During the first twelve (12) months of the term of the Leases, LTC shall
disburse to Sterling a total amount up to Three Hundred Thousand Dollars
($300,000.00) (the "Improvement Funds"), which Improvements Funds shall be
used by Sterling solely and exclusively for the purpose of making improvements
and repairs to the Facilities and/or the Properties. Prior to the
commencement date of the Leases, Sterling shall submit to LTC a proposed
improvements budget (the "Budget"), which Budget shall set forth with
reasonable specificity the improvements which Sterling proposes to make with
the Improvements Funds and the budgeted cost for each. LTC shall have ten
(10) business days from the date of LTC's receipt of the Budget to approve or
disapprove the items and/or proposed budgeted costs set forth therein. The
Budget must include, among other things, all of the following: (A) a two-way
intercom system to each unit at the Edmond Facility; (B) outside door security
system at all three Facilities; (C) a whirlpool bath in all three Facilities;
and (D) a courtyard sprinkler system at all three Facilities.
The Improvement Funds shall be disbursed to Sterling as and when
Sterling has provided to LTC all of the following: (i) a copy of a canceled
check or an invoice marked "paid-in-full" evidencing that the work done or
materials supplied has been paid for by Sterling; and (ii) lien waivers in
form acceptable to LTC from the contractors, subcontractors and material
suppliers who performed work or supplied materials costing more than Five
Thousand Dollars ($5,000.00).
Irrespective of whether Sterling is able to complete all of the items
described in the Budget approved by LTC for an amount equal to the total
Improvements Funds, Sterling shall be required to complete all items described
in the approved Budget and shall be required to pay any amounts in excess of
the Improvements Funds from Sterling's own funds and without reimbursement of
any kind from LTC, and LTC shall have no obligation of any kind whatsoever to
fund any amounts in excess of the Improvements Funds. If Sterling has not met
the requirements for disbursement of all of the Improvements Funds by the end
of the twelve-month period following the commencement date of the Leases,
Sterling shall continue to have the obligation to complete all of the items
set forth in the approved Budget.
6. Cross-Default. Each of the Leases shall be cross-defaulted with
2
<PAGE>
each of the other Leases of the Properties and with all other leases between
LTC (or any one of its affiliates) and Sterling such that any default under
any one lease (whether or not a Lease) shall constitute a default under each
other lease (whether or not a Lease); provided, however, that the provisions
of this Paragraph 6 shall not apply to the leases between LTC's affiliate,
Kansas-LTC Corporation, and Sterling with respect to the assisted living
facilities located in Great Bend, Kansas, Dodge City, Kansas, Salina, Kansas
or McPherson, Kansas.
7. Indemnity. Sterling shall fully indemnify and hold LTC harmless
from and against any and all costs, losses, expenses, judgments, claims, fees
(including reasonable attorneys' fees and costs) or damages of any kind or
nature whatsoever arising from or relating to the assisted living facilities
located on the Properties and the operation thereof, including, without
limitation, all matters relating to (i) the presence of hazardous substances
located on the Properties, (ii) compliance with or failure to comply with the
provisions of the federal Americans with Disabilities Act, (iii) compliance
with or failure to comply with the provisions of the Fair Housing Amendments
Act of 1988; (iv) compliance with or failure to comply with any applicable
provisions of Section 8 of the United States Housing Act of 1937, as amended,
(v) any claims made by third parties with respect to losses, costs or damages
of any kind, accruing on or after the commencement date of the Lease, related
to the operation of the Facilities by Sterling during the term of the Leases,
and any and all other matters whatsoever relating to the Properties, the
Facilities located thereon and the operation thereof. Sterling's
indemnification obligations set forth in this Paragraph shall survive the
expiration or termination for any reason of this commitment letter.
8. Assignment and Subletting. Sterling shall not be entitled to
sublet or assign any one or more of the Leases without the prior written
consent of LTC.
9. Closing Costs. Concurrently with the commencement of the term of
the Leases, Sterling shall be responsible to pay any and all closing costs in
connection with the commencement of the Leases, including but not limited to
all of LTC's attorneys' fees (which shall be a total of Two Thousand Five
Hundred Dollars ($2,500.00) for each Lease) and attorneys' expenses, recording
fees for each Memorandum of Lease, LTC's out-of-pocket costs in connection
with the lease transactions and any and all other fees and costs in any way
associated with the lease transaction with respect to each Property.
10. Governing Law. This commitment letter shall be governed by and
interpreted under the internal laws of the State of California without resort
to choice of law principles. Each of the Leases shall be governed and
construed under the internal laws of the state in which the Property to which
the Lease relates is located.
11. Sterling's Acceptance. Sterling must indicate its acceptance of
the terms and conditions of this commitment by affixing its signature below.
Unless LTC receives this accepted commitment in its Oxnard, California office
on or prior to the fifth (5th) business day following the date of this letter,
the terms hereof shall be null and void, and LTC shall not have any
obligations or liabilities to Sterling of any kind or nature whatsoever. This
commitment shall become effective only upon acceptance by LTC evidenced by the
affixation of LTC's signature hereto.
12. No Financial Ratio Covenants. The Leases of the Properties shall
not contain any covenants by Sterling regarding the existence or maintenance
3
<PAGE>
of any financial ratios (e.g. cash flow coverage ratios, etc.) with respect to
the Properties or the Facilities located thereon.
13. Facsimile Execution Binding. The parties hereto specifically
agree that this commitment letter may be executed by facsimile, and that
facsimile signatures hereon shall be binding on the parties hereto as though
they were original signatures.
14. Survival. This commitment letter shall survive, and the
covenants, conditions and terms set forth herein shall continue, until the
earlier of (i) December 31, 1997, at which time this commitment letter shall
expire, or (ii) the date on which the Leases of all of the Properties from LTC
to Sterling has been consummated.
15. Binding Effect. This commitment letter shall be binding upon and
shall inure to the benefit of Sterling and LTC, and their respective
successors and assigns, although nothing in this Paragraph 15 shall be
construed as consent to assignment of this commitment by either party.
Savannah Square of Edmond, Inc., Savannah Square of Weatherford, Inc. And
Savannah Square of Watauga, Inc., the current owners, respectively, of the
Properties, are intended third-party beneficiaries of this commitment letter.
16. Reliance. Please understand that, subject only to any
contingencies specifically set forth herein, this letter constitutes the
binding commitment of Sterling and LTC to enter into the transactions
described herein. Once this commitment letter has been executed, and in
reliance upon Sterling's agreements set forth herein, LTC intends to enter
into a binding agreement to purchase the Properties from Savannah Square of
Edmond, Inc., Savannah Square of Weatherford, Inc. and Savannah Square of
Watauga, Inc., respectively, the current owners, respectively, of the
Properties ("Sellers"), and shall immediately commence the expenditure of
funds in conducting due diligence investigations with respect to said
Properties. Upon receipt of your original signature on this letter, LTC will
immediately instruct counsel to commence all of said activities. Should
Sterling fail to honor its agreements to lease the Properties and Facilities
set forth in this commitment letter, LTC will not be in a position to purchase
the Properties from Sellers, and both LTC and Sellers will be materially
harmed and will suffer general and consequential damages for which LTC and
Sellers may seek to hold Sterling accountable.
Very truly yours,
LTC PROPERTIES, INC.,
A Maryland corporation
/s/ Andre C. Dimitriadis
Chairman and CEO
READ AND AGREED:
Sterling House Corporation
By: /s/ Steven Vick
Its: President
4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on the 18th
day of April, 1997 by and between STERLING HOUSE CORPORATION, a Kansas
corporation ("SHC" or "the Company"), and MARK W. OHLENDORF, a resident of
the State of Florida ("Ohlendorf"). The term of this Agreement shall be
deemed to have commenced as of the 18th day of April, 1997 ("Employment
Commencement Date").
1. Appointment, Title and Duties. SHC hereby employs Ohlendorf to serve as its
Chief Financial Officer. In such capacity, Ohlendorf shall report to the
Board of Directors, President and Chief Executive Officer of SHC and shall
have such powers, duties and responsibilities as are customarily assigned to
the Chief Financial Officer of a publicly-held corporation. In addition,
Ohlendorf shall have such other duties and responsibilities as may reasonably
be assigned to him by the Board of Directors, President or Chief Executive
Officer, including serving with the consent or at the request of SHC on the
board of directors of affiliated corporations.
2. Term of Agreement. This Agreement shall commence on the Employment
Commencement Date and shall terminate upon the earlier of: (i) the date of the
voluntary resignation of Ohlendorf, (ii) the date of Ohlendorf's death or
determination of Ohlendorf's disability (as defined in Paragraph 6 below), or
(iii) the date of notice by SHC to Ohlendorf that this Agreement is being
terminated by SHC.
3. Acceptance of Position. Ohlendorf hereby accepts the position of Chief
Financial Officer of SHC and agrees that during the term of this Agreement
he will faithfully perform his duties and will devote substantially all of
his business time to the business and affairs of SHC and will not engage, for
his own account or for the account of any other person or entity, in any
other business or enterprise, including, without limitation, serving on the
board of directors of any other business or enterprise, except with the
express written approval of the Board of Directors of SHC, which consent
shall not be unreasonably withheld; provided, however, that SHC's Board
of Directors shall not be deemed to have unreasonably withheld its consent if
the business or enterprise in which Ohlendorf proposes to engage would
materially detract from the time available to Ohlendorf for the performance
of Ohlendorf's duties for the Company; provided, further, Ohlendorf may, at
his sole discretion, make personal, passive investments. Ohlendorf agrees to
perform his duties faithfully, diligently and to the best of his ability, to
use his best efforts to advance the best interests of the Company at all
times, and to abide by all moral, ethical and lawful policies,
guidelines, procedures, instructions and orders given to him by the Company
from time to time. Notwithstanding the foregoing, Ohlendorf may provide
consulting services to his previous employer, Vitas Healthcare Corporation
("Vitas"), (i) in person for a period of one (1) week during May 1997, (ii)
in person for a period of up to four (4) days upon Vitas having recruited a
replacement for Ohlendorf, and (iii) by telephone for up to ten (10) hours
per month for a period of one hundred fifty (150) days following the
Employment Commencement Date; provided, however, Vitas and/or Ohlendorf shall
bear all expenses in connection with such consulting services.
4. Salary and Benefits. During the term of this Agreement:
A) SHC shall pay to Ohlendorf a base salary at an annual rate of not less than
One Hundred Seventy-Five Thousand Dollars ($175,000) per annum, paid in
approximately equal installments in accordance with the regular payroll
practices of SHC in effect from time to time with respect to its executive
officers. SHC agrees from time to time to consider periodic changes to such
base salary in the sole discretion of the Board of Directors. The Company
shall deduct from Ohlendorf's compensation and bonus, if any, all applicable
local, state, Federal or foreign taxes, including, but not limited to,
income tax, withholding tax, social security tax and pension contributions,
if any.
B) Ohlendorf shall participate in all health, retirement, Company-paid
insurance, sick leave, disability, expense reimbursement and other benefit
programs, if any, which SHC makes available, in its sole discretion, to its
senior executives;
<PAGE>
provided, however, nothing herein shall be construed to obligate the Company to
establish or maintain any employee benefit program. Until Ohlendorf and his
family relocate to the Wichita, Kansas area, SHC shall pay or reimburse Vitas
for the cost of COBRA continuation coverage under Ohlendorf's existing health
insurance; provided, however, SHC shall not be required to pay or reimburse
Vitas for amounts in excess of Five Hundred Dollars ($500) per month.
Reimbursement of Ohlendorf's reasonable and necessary business expenses
incurred in the pursuit of the business of the Company or any of its
affiliates shall be made to Ohlendorf upon his presentation to the Company
of itemized bills, vouchers or accountings prepared in conformance with
applicable regulations of the Internal Revenue Service and the policies and
guidelines of the Company.
C) While there is no guaranty that any bonus will be paid in any year,
Ohlendorf shall be eligible for bonuses in the sole discretion of the Board
of Directors in an amount not to exceed thirty percent (30%) of his base
salary, with such bonus, if any, being based upon the performance standards
applicable to the other senior executive officers of SHC.
D) Ohlendorf shall be entitled to reasonable vacation time in an amount of not
less than five (5) weeks per year, provided that not more than two (2) weeks
of such vacation time may be taken consecutively without prior notice to, and
the consent of, the Chief Executive Officer of SHC.
5. Stock Options Pursuant to the terms of SHC's 1995 Stock Option Plan,
Ohlendorf shall be entitled to receive options to purchase fifty-nine
thousand two hundred fifty (59,250) shares of the common stock of the
Company, of which options to purchase thirty thousand (30,000) shares shall
vest on the first anniversary of the Employment Commencement Date and twenty-
nine thousand two hundred fifty (29,250) shares on the second anniversary of
the Employment Commencement Date, except in the event of a Change of Control
of SHC, as defined in the 1995 Stock Option Plan ("Change of Control"), in
which event the options shall immediately vest. The date of grant of such
options shall be the Employment Commencement Date and the exercise price of
such options shall be the last sale price reported for SHC common stock on
the American Stock Exchange on the Employment Commencement Date. Ohlendorf
shall also be entitled to receive options to purchase an additional thirty
thousand seven hundred fifty (30,750) shares of the common stock of the
Company, subject to the approval by the stockholders of SHC of an increase
in the number of available options under the 1995 Stock Option
Plan, which options shall vest on the third anniversary of the Employment
Commencement Date. All such options shall be subject to all of the terms and
conditions of the 1995 Stock Option Plan, and the specific terms thereof
shall be set forth more specifically in separate stock option agreements.
6. Certain Terms Defined. For purposes of this Agreement:
A) Ohlendorf shall be deemed to be disabled if a physical or mental condition
shall occur and persist which, in the written opinion of two (2) licensed
physicians, has rendered Ohlendorf unable to perform the duties of Chief
Financial Officer of SHC for a period of ninety (90) calendar days or more,
and which condition, in the opinion of such physicians, is likely to continue
for an indefinite period of time, rendering Ohlendorf unable to return to his
duties for SHC. One (1) of the two (2) physicians shall be selected in good
faith by the Board of Directors of SHC, and the other of the two (2)
physicians shall be selected in good faith by Ohlendorf. In the event that
the two (2) physicians selected do not agree as to whether Ohlendorf is
disabled, as described above, then said two (2) physicians shall mutually
agree upon a third (3rd) physician whose written opinion as to Ohlendorf's
condition shall be conclusive upon SHC and Ohlendorf for purposes of this
Agreement.
B) A termination of Ohlendorf's employment by SHC shall be deemed to be "for
<PAGE>
cause" if it is based upon (i) Ohlendorf having been convicted of a felony, (ii)
material disloyalty by Ohlendorf to the Company, including but not limited to
embezzlement, or (iii) Ohlendorf's material failure or refusal to perform his
duties in accordance with this Agreement.
C) A resignation by Ohlendorf shall not be deemed to be voluntary, and shall be
deemed to be a resignation for "good reason" if it is based upon (i) a
material breach by SHC of the Company's obligations to Ohlendorf under this
Agreement or under the Company's Stock Option Plan, (ii) a diminution in
Ohlendorf's title, duties, base salary or benefits which is not part of an
overall diminution for all executive offices of the Company, or (iii)
Ohlendorf being forced to relocate from the Wichita, Kansas area
following a Change of Control of the Company.
7. Certain Benefits and Obligations Upon Termination. In the event that
Ohlendorf's employment terminates because (i) SHC has terminated Ohlendorf
other than "for cause," as described above, (ii) Ohlendorf has voluntarily
resigned for "good reason," as described above, or (iii) SHC has terminated
Ohlendorf for any reason within a period of one (1) year following a Change
of Control, but not in the event that Ohlendorf's employment terminates
because Ohlendorf dies or becomes disabled, then,
A) SHC shall pay Ohlendorf
his then base salary for a one (1) year period commencing on the date of the
notice giving rise to the termination of employment, which amount shall be
paid in equal monthly installments over a twelve (12) month period;
B) Ohlendorf shall retain all grants and awards, whether or not vested, issued
under the Company's 1995 Stock Option Plan; and
C) All accrued but unpaid or unused vacation, sick pay and expense
reimbursement shall be calculated and paid within thirty (30) days following the
termination of Ohlendorf's employment.
8. Confidentiality. Ohlendorf hereby acknowledges his understanding that as a
result of his employment by SHC, he will have access to, and possession of,
valuable and important confidential or proprietary data, documents and
information concerning SHC, its operations and its future plans. Ohlendorf
hereby agrees that he will not, either during the term of his employment with
SHC, or at any time before or after the term of his employment with SHC,
divulge or communicate to any person or entity, or direct any employee or
agent of SHC or of his to divulge or communicate to any person or entity,
or use to the detriment of SHC or for the benefit of any other person or
entity, or make or remove any copies of, such confidential information or
proprietary data or information, whether or not marked or otherwise
identified as confidential or secret. Upon any termination of this Agreement
for any reason whatsoever, Ohlendorf shall surrender to SHC any and all
materials, including but not limited to drawings, manuals,
reports, documents, lists, photographs, maps, surveys, plans, specifications,
accountings and any and all other materials relating to the Company or any of
its business, including all copies thereof, that Ohlendorf has in his
possession, whether or not such material was created or compiled by
Ohlendorf, but excluding, however, personal memorabilia belonging to
Ohlendorf, notes taken by him as an officer, and any other materials, etc.,
which Ohlendorf deems to be of value to him in the event the same
may be needed by Ohlendorf in connection with the defense of any lawsuit,
action or proceeding brought against him for any reason whatsoever. With the
exception of such excluded items, materials, etc., Ohlendorf acknowledges
that all such material is solely the property of SHC and that Ohlendorf has
no right, title or interest in or to such materials. Notwithstanding
anything to the contrary set forth above in this Paragraph 8, the provisions
of this Paragraph 8 shall not apply to information which: (i) is or
becomes generally available to the public other than as a result of
disclosure by Ohlendorf, (ii) is already known to Ohlendorf as of the date of
this Agreement from sources other than SHC, or (iii) is required to be
disclosed by law or by regulatory or judicial process.
<PAGE>
9. Non-Competition. Ohlendorf hereby agrees that, during the term of this
Agreement and for a period of three (3) years after any termination for any
reason whatsoever of this Agreement, he will not, directly or indirectly,
commence doing business, in any manner whatsoever, for or with any business
which (i) is engaged in the same business as SHC, (ii) has revenues from
assisted living operations in excess of fifty percent (50%) of SHC's total
revenues, with such calculations being annualized based upon the latest
available quarterly financial data for each of such entities, and (iii) has
assisted living facilities in any state in which SHC then operates or is in
the process of developing more than three (3) assisted living residences.
Ohlendorf further agrees that he will not, directly or indirectly, during the
term of this Agreement and for a period of one (1) year after termination for
any reason whatsoever of this Agreement, become employed by or commence doing
business with or for any assisted living provider that has or proposes to
have assisted living facilities in more than one (1) state. Ohlendorf will
not directly employ, solicit for employment or advise or recommend to any
other person that they employ or solicit for employment any employee of the
Company during the period of Ohlendorf's employment by the Company and
for a period of three (3) years following the termination of Ohlendorf's
employment. The provisions of this Paragraph 9 shall be null and void in the
event that Ohlendorf resigns for "good reason." SHC hereby acknowledges and
agrees that Ohlendorf's ownership of a class of securities listed on a stock
exchange or traded on the over-the-counter market that represents five
percent (5%) or less of the number of shares of such class of securities then
issued and outstanding shall not constitute a violation of this Paragraph 9.
10. Moving and Relocation Expenses. In addition to the salary and benefits set
forth in Paragraph 4 herein, SHC shall provide to Ohlendorf the following
benefits in connection with his moving and relocation to Wichita, KS:
A) SHC shall pay or reimburse Ohlendorf for (i) all sales commissions due and
owing to real estate agents, which amount shall be the lesser of a six
percent (6%) sales commission or Thirty-Nine Thousand Dollars ($39,000) and
(ii) up to Six Thousand Dollars ($6,000) for other miscellaneous direct costs
related to the closing of the sale.
B) SHC shall provide Ohlendorf a one (1) bedroom furnished apartment during the
actual period when Ohlendorf is in the process of relocating his residence to
Wichita, KS; provided, however, SHC shall not be required to pay for such
temporary housing for a period exceeding six (6) months.
C) SHC shall pay or reimburse Ohlendorf for the actual costs paid to third
parties of transporting his furniture to Wichita, KS; provided, however, SHC
shall not be required to pay or reimburse Ohlendorf for an amount in excess
of Nineteen Thousand Dollars ($19,000) for such moving expenses.
11. Attorneys' Fees. In the event that any action or proceeding is brought to
enforce the terms and provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees and costs.
12. Notices. All notices and other communications provided to either party
hereto under this Agreement shall be in writing and delivered by hand delivery,
overnight courier service or certified mail, return receipt requested to the
party being notified at said party's address set forth adjacent to said
party's signature on this Agreement, or at such other address as may be
designated by a party in a notice to the other party given in accordance with
this Agreement. Notices given by hand delivery or overnight courier service
shall be deemed received on the date of delivery shown on the
courier's delivery receipt or log. Notices given by certified mail shall be
deemed received three (3) days after deposit in the U.S. Mail.
13. Construction. In construing this Agreement, if any portion of this
Agreement
<PAGE>
shall be found to be invalid or unenforceable, the remaining terms and
provisions of this Agreement shall be given effect to the maximum extent
permitted without considering the void, invalid or unenforceable provision.
Without limiting the generality of the foregoing, to the extent that any
provision contained in Section 9 hereof is deemed unenforceable by virtue of
its scope in terms of area, business activity prohibited and/or length of
time, but could be enforceable by reducing any or all thereof, Ohlendorf and
SHC agree that the same shall be enforced to the fullest extent permissible
under the laws and public policies applied in the jurisdictions in which
enforcement is sought. In construing this Agreement, the singular shall
include the plural, the masculine shall include the feminine and neuter
genders, as appropriate, and no meaning or effect shall be given to the
captions of the paragraphs in this Agreement, which are inserted for
convenience of reference only.
14. Choice of Law. This Agreement shall be governed and construed in
accordance with the internal laws of the State of Kansas without resort to
choice of law principles.
15. Integration; Amendments. This is an integrated Agreement. Except as
contemplated herein with respect to stock options, this Agreement constitutes
and is intended as a final expression and a complete and exclusive statement
of the understanding and agreement of the parties hereto with respect to the
subject matter of this Agreement. All negotiations, discussions and writings
between the parties hereto relating to the subject matter of this Agreement
are merged into this Agreement, and there are no rights conferred, nor
promises, agreements, conditions, undertakings, warranties or representations
, oral or written, expressed or implied, between the undersigned parties as
to such matters other than as specifically set forth herein or directly
related thereto. No amendment or modification of, or addendum to, this
Agreement shall be valid unless the same shall be in writing and signed by
the parties hereto. No waiver of any of the provisions of this Agreement
shall be valid unless in writing and signed by the party against whom it is
sought to be enforced.
16. Binding Effect. This Agreement is binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns; provided, however, that Ohlendorf
shall not be entitled to assign his interest in this Agreement (except for an
assignment by operation of law to his estate), or any portion hereof, or any
rights hereunder, to any party. Any attempted assignment by Ohlendorf in
violation of this Paragraph 16 shall be null, void ab initio and of no effect
of any kind or nature whatsoever.
17. Survival. The provisions contained in Paragraphs 7, 8 and 9 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date set
forth above to be effective as of the date specified in the preamble of this
Agreement.
STERLING HOUSE CORPORATION
Address: a Kansas corporation
453 South Webb Road
Suite 500
Wichita, KS 67207 By
Steven L. Vick, President
"SHC" or the "Company"
Address:
13700 Stirling Road
Ft. Lauderdale, FL 33330
MARK W. OHLENDORF
"Ohlendorf"
21291
Exhibit 10.9
SUMMARY TERM SHEET
July 8, 1997
Mr. Steven L. Vick
President
Sterling House Corporation
453 S. Webb Road, Suite 500
Wichita, KS 67207
RE: Proposed Acquisitions and Leases
Dear Mr. Vick:
Meditrust wishes to express its interest in continuing to review and in
discussing sale/leaseback financing with you. The following is a summary of
the terms and conditions which would apply to this transaction:
1. Lessee: A wholly-owned subsidiary of Sterling House Corporation
("Sterling") which shall be engaged in no other activity except
for the operation of the Facilities.
2. Facilities: To be determined.
3. Purchase Price/Total Project Costs: Approximately $50,000,000
4. Initial Lease Term: 12 years after the Conversion Date/Lease
Commencement Date for the first $25,000,000 of Facilities ("Group 1") and 12
years after the Conversion Date/Lease Commencement Date for the second
$25,000,000 or Facilities ("Group 2").
5. Pre-Conversion Base Rent (if applicable): Until the earlier to
occur of: (a) completion of each Facility in accordance with all
of the terms and conditions specified in the respective loan agreement,
including delivery of all final surveys, certifications and legal opinions,
(b) the expiration of the Construction Period or (c) the admission of a
patient (the "Conversion Date"); monthly rent payments of interest only shall
be made at a rate of prime plus one and one-half percent, multiplied by
Meditrust's total investment in each Facility.
6. Post-Conversion Base Rent/Base Rent: On the Lease Commencement
Date/Conversion Date, the Base Rent shall be recalculated to be the rate per
annum which is 320 basis points over the rate of interest of actively traded
marketable United States Treasury facilities bearing a fixed rate of interest
adjusted for a constant maturity of ten (10) years (the "Index"), multiplied
by the Purchase Price/Total Project Costs, payable monthly in advance.
7. Extension Terms: Three 5-year options to extend.
8. Extension Term Rent: The Base Rent during any Extension Term
shall be recalculated on the first day of such Extension Term to
be the greater of (i) the rate per annum which is 320 basis points over the
Index at such time, multiplied by the Purchase Price or (ii) the post
conversion Base Rent payable during the previous Lease year, multiplied by
1.02.
<PAGE>
9. Commitment Fee: 1%
10. Additional Rent: The Base Rent as aforesaid shall be further
adjusted in each lease year commencing on the first anniversary of
each Lease Commencement Date/Conversion Date thereafter, to an amount equal to
the Base Rent for the prior year, multiplied by the lesser of (i) 1.02 (the
"Fixed Adjustment"), or (ii) the percentage increase to the Consumer Price
Index from the previous year (the "CPI Adjustment"). If in any year the
foregoing calculation results in a Rent Deficit, such Rent Deficit shall be
paid to the Lessor from the amount of any Rent Surplus in subsequent years.
As used in this paragraph, the term Rent deficit shall be that amount by which
the base Rent adjusted in accordance with the CPI adjustment is less than the
Base Rent adjusted in accordance with the Fixed Adjustment, and the term Rent
Surplus shall be that amount by which the Base Rent adjusted in accordance
with the Fixed Adjustment is less than the Base Rent adjusted in accordance
with the CPI Adjustment.
11. Security: First lien security interest in all furniture, fixtures
and equipment and other personal property and all accounts receivable of the
Facility.
12. Lease Guaranty: All lease obligations shall be unconditionally
guaranteed by Sterling.
13. Operator: Sterling
14. Financial Covenants: The Facility rent coverage ratio covenant
will be calculated before management fees and will be based on
1.20:1 ratio for each aggregate Master Lease pool. The Guarantor shall
maintain, at all times, (i) an adjusted current ratio equal to or greater than
1.0:1 and (ii) a tangible net worth equal to or greater than $7,000,000.
Previously closed transactions will also be amended to reflect consolidated
rent coverage ratios. The lease documents will contain additional financial
covenants as to the Lessee and the Guarantor subject to further discussions.
15. Subordination: Management fees and all related party fees will
be subordinate to rent payments.
16. Cross-Default/Cross-Collateralization: Will be required for all
related transactions.
17. Closing Date: All transactions shall close on or before March 31,
1998.
18. Lease Assignments/Subletting: Not permitted.
19. Appraisals: Appraisals must be conducted by Valuation Counselors,
Inc.
20. Environmental Reports: Phase I Environmental Surveys must be
conducted by ATC Associates, Inc.
21. Lease Costs: All Lease costs, excluding Meditrust's legal,
environmental, and appraisal shall be the obligation of the Lessee, including,
but not limited to, Lessee's legal fees, inspection fees, travel costs, finder
fees, transfer fees, survey costs, title insurance premiums and other title
fees, and recording costs will be the obligation of the Borrower and the
guarantor.
2
<PAGE>
22. Purchase Option: Lessee shall have the option to purchase the
first and/or second group of Facilities at the end of the Initial Lease term
and at the end of any Extension Term for a net price to Meditrust equal to the
greater of (i) the fair market value or (ii) Meditrust's original investment.
If (i) is greater than (ii), then any appreciation in the fair market value in
excess of 115% of Meditrust's original investment, shall be split equally
between the Lessee and Meditrust.
23. Lessee's Obligation to Perform Upgrade Expenditures: Lessee shall
spend an annual amount equal to $150.00 per living unit for
upgrades to each Facility commencing on the third anniversary of
the Lease Commencement Date/Conversion Date.
24. Master Lease: It is contemplated that Meditrust will enter into
separate leases covering each of the Facilities on the terms and conditions
described in this letter, provided, however, that the lease terms, renewal
options, purchase options and the like will be exercisable and/or considered
based on all of the leases as a group within Group 1 (approximately
$25,000,000) or within Group 2 (approximately $25,000,000).
If these general terms and conditions are acceptable to you and if you agree
to proceed with our due diligence process and further negotiations, please
sign this summary sheet and return it to Meditrust by July 16, 1997. This
letter, which is for informational purposes only, is not binding on either
party and is not to be considered a commitment to provide financing. Approval
of Meditrust's Board of Trustees and Executive Committee will also be a
prerequisite to this transaction.
Very truly yours,
MEDITRUST
By: /s/ Stephen C. Mecke
Stephen C. Mecke
Vice President of Development
ACKNOWLEDGED AND ACCEPTED:
STERLING HOUSE CORPORATION
By: /s/ Steven L. Vick
Title: President
Date: 7/14/97
pc: Abraham D. Gosman Lisa Avery-Peck, Esquire
David F. Benson Lynn M. Dower
Michael F. Bushee Erica M. Menard, Esquire
Michael S. Benjamin, Esquire Richard W. Pomroy
3
Exhibit 10.10
SECOND AMENDMENT TO LEASE AGREEMENT
BETWEEN
PHIL G. RUFFIN
AND
STERLING HOUSE CORPORATION
THIS LEASE AMENDMENT ("Amendment") is made this 31st day of May 1997, by
and between Phil G. Ruffin ("Landlord") and Sterling House Corporation
("Tenant").
W I T N E S S E T H:
WHEREAS, on the 30th day of May, 1994, Landlord and Tenant entered into a
certain Lease Agreement (the "Lease") pertaining to certain premises
containing 5,082 square feet designated as Suite 500, 453 S. Webb; Wichita,
Kansas 67207 the ("Building"); and
WHEREAS, Landlord and Tenant entered into a certain Amendment to Lease Agreement
expanding the Premises 3,527 square feet; and
WHEREAS, Landlord and Tenant desire to amend the Lease as herein set forth,
NOW THEREFORE, in consideration of mutual covenants and agreements herein
contained, Landlord and Tenant do hereby amend the Lease as follows:
1. The net rentable area of the "Premises" shall be increased by adding
"Additional Premises" in the amount of 2,903 square feet on the third floor and
by adding 4,528 square feet on the fourth floor.
2. The term for the "Additional Premises" located on the 4th floor
shall be for a period of four (4) years commencing August 1, 1997 and
terminating July 31, 2001. The term for the "Additional Premises" located on
the 3rd floor shall be for a period of three (3) years and eight (8) months
commencing December 1, 1997 and terminating July 31, 2001. The term for the
"Premises" located on the 5th floor shall be extended until July 31, 2001.
3. The rent for the "Premises" and the "Additional Premises" shall be
increased according to the following:
Dates Floor Area Rate Monthly Annually
08-01-97 to 07-31-01 4th 4,528 $10.00 $3,773.33 $45,280.00
12-01-97 to 07-31-01 3rd 2,903 $10.00 $2,419.17 $29,030.00
08-01-00 to 07-31-01 5th 8,609 $10.00 $7,174.17 $86,090.00
4. Tenant Improvements for the "Additional Premises" shall be completed
in accordance with the preliminary floor plan attached.
5. This amendment shall be effective as of the 1st day of June 1, 1997.
6. Except as herein modified and amended, all terms and conditions of
the Lease shall remain in full force and effect, and the execution of this
Amendment shall in no event be deemed to constitute a waiver of any right or
claim of either Tenant or Landlord under or by virtue of the Lease.
IN WITNESS WHEREOF, Landlord and Tenant have each duly caused this
Amendment to be executed by their respective representatives, thereunto duly
authorized, as of the day and year first above written.
<PAGE>
<PAGE>
"LANDLORD"
__________________________________
"TENANT"
/s/ Steven L. Vick
STERLING HOUSE CORPORATION
By: Steven L. Vick
Its: President
Exhibit 10.12
Schedule of Executed Joint Venture Agreements
By and Between Coverntry Corporation
Coventry Corporation a wholly-owned subsidary of Sterling House Corporation
has entered into the following agreements with Elderly Living, Limited
Partnership which vary only in the following material respects from Exhibit
10.13.
Project Entities Date Executed Facility Location
Hartford Development June 25, 1997 Gainesville, FL
Limited Partnership Punta Gorda, FL
Dorset Development, July 31, 1997 Winter Haven, FL
Limited Partnership Deland, FL
Newcastle Development, L.L.C. July 31, 1997 Hickory, NC
York Development, Limited July 31, 1997 Bowling Green, OH
Englewood, OH
Exhibit 10.13
Limited Partnership Agreement
OF
GLADSTONE DEVELOPMENT, LIMITED PARTNERSHIP
<PAGE>
<PAGE>
TABLE OF CONTENTS
Article Page
I. DEFINITIONS 1
II. ORGANIZATIONAL MATTERS 5
2.01 Formation 5
2.02 Name 6
2.03 Principal Office 6
2.04 Term 6
2.05 Filings 6
2.06 Company Property 6
III. PURPOSE 6
3.01 Purpose of the Company 6
IV. CAPITAL CONTRIBUTIONS 6
4.01 Capital Contributions 6
4.02 Capital Accounts 6
4.03 Deficit Capital Balance 7
4.04 Allocation 8
4.05 Interest 8
4.06 No Withdrawal 8
4.07 Loans 8
4.08 Additional Capital Contributions 8
4.09 Company Unit Represented by Certificate 8
4.10 Form of Certificate 8
4.11 Neither Responsible for Other's Commitments 8
V. ALLOCATIONS AND DISTRIBUTIONS 9
5.01 Allocation Among Class A Unit Holders 9
5.02 Allocation Among Class B Unit Holders 9
5.03 Allocation of Start Up Costs 9
5.04 Allocation of Losses 9
5.05 Allocation of Profits 10
5.06 Distributions 10
5.07 Allocation in the Event of Transfer 11
5.08 Qualified Income Offset 11
VI. MANAGEMENT AND OPERATION OF BUSINESS 12
6.01 General Partner 12
6.02 Removal of General Partner 12
6.03 Management of Company 12
6.04 Restrictions on the Authority of the General Partner 12
6.05 Outside Activities 13
6.06 Management Fee 14
6.07 Administrative Compensation 14
6.08 Devotion of Time 14
6.09 Indemnification 15
6.10 Cost Reimbursement 15
VII. BOOKS, RECORDS, ACCOUNTING AND REPORTS 16
7.01 Books and Records 16
7.02 Accounting 16
7.03 Fiscal Year 16
VIII. TAX MATTERS 16
8.01 Tax Matters Partner 16
8.02 Taxation as a Partnership 17
<PAGE>
IX. TRANSFER OF UNITS 17
9.01 Transfer 17
9.02 Transfer of Units by a Partner 17
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer
18
9.04 Option to Partners to Purchase Unit(s) on Lifetime Transfer
19
9.05 Termination of Restrictions on Lifetime Transfer 19
9.06 Option to Company to Purchase Unit(s) on Death 19
9.07 Option to Partners to Purchase Unit(s) on Death 20
9.08 Termination of Restrictions on Transfer at Death 20
9.09 Restrictions on Transfers 21
9.10 Issuance of Certificates 21
9.11 Compliance With Applicable Law 21
9.12 Lost, Stolen or Destroyed Certificates 21
X. ADMISSION OF SUBSTITUTE AND ADDITIONAL PARTNERS 21
10.01 Admission of Substitute Partners 21
10.02 Admission of Additional Partners 22
XI. DISSOLUTION 22
11.01 Events Causing Dissolution 22
11.02 Procedure on Dissolution 23
11.03 Filing Certificate of Cancellation 24
11.04 Return of Capital 24
11.05 Withdrawal of Limited Partner . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 24
<PAGE>
<PAGE>
XII. AMENDMENT OF AGREEMENT, MEETINGS, RECORD DATE 24
12.01 Amendments 24
12.02 Limitations on Amendments 24
12.03 Meetings 24
12.04 Adjournment 24
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes
25
12.06 Quorum 25
12.07 Action Without a Meeting 25
XIII. POWER OF ATTORNEY 25
13.01 Power of Attorney 25
XIV. GENERAL PROVISIONS 27
14.01 Notices 27
14.02 Captions 27
14.03 Pronouns and Plurals 27
14.04 Binding Effect 27
14.05 Integration 27
14.06 Waiver 27
14.07 Counterparts 28
14.08 Applicable Law 28
14.09 Invalidity of Provisions 28
14.10 Limitation of Liability 28
SIGNATURE PAGE 28
<PAGE>
Limited Partnership Agreement
OF
GLADSTONE DEVELOPMENT, LIMITED PARTNERSHIP
THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") is made and entered
into this day of , 1997, by and among
GLADSTONE DEVELOPMENT, LIMITED PARTNERSHIP, a Florida Limited Partnership (the
"Company"), and the persons, partnerships, corporations or other entities who
execute this Agreement, and thereby agree to contribute to the capital of the
Company and to be bound by the provisions of the Agreement (each of whom,
whether the holder of Class B Units or Class A Units, are sometimes referred to
as "Partner").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement (except as may be otherwise expressly provided
herein or unless the context otherwise requires), the following terms shall have
the following meanings.
1.01 Act. The term "Act" shall mean the Florida Revised Uniform Limited
Partnership Act (1986), Fla.Stat. Sec. 620.101, et seq., as it may be amended
from time to time, and any successor to such act.
1.02 Affiliate. The term "Affiliate" shall mean any Person (as defined
in Section 1.24) who directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition of
"Affiliate," the term "control" means either (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise, or (ii) a direct or indirect equity interest of ten
percent (10%) or more in the entity.
1.03 Agreement. The term "Agreement" shall mean this Limited Partnership
Agreement, as it may be amended or supplemented from time to time.
1.04 Certificate of Limited Partnership. The term "Certificate of Limited
Partnership" shall mean the Certificate of Limited Partnership of this Company,
filed with the Florida Department of State in accordance with the Act.
1.05 Assignee. The term "Assignee" shall mean a Person to whom one (1)
or more Units have been transferred, by transfer or assignment or otherwise, in
a manner permitted under this Agreement, and who has agreed to be bound by the
<PAGE>
terms of this Agreement but who has not become a Substitute Partner.
1.06 Business Day. The term "Business Day" shall mean the days Monday
through Friday of each calendar week, except legal holidays recognized as such
by either the government of the United States or of the State of Florida .
1.07 Capital Account. The term "Capital Account" shall mean a separate
capital account established for each Partner by the Company pursuant to Section
4.02 hereof and maintained in the manner and for the purposes provided in
ARTICLE IV.
1.08 Capital Contribution. The term "Capital Contribution" shall mean the
sum of the total amount of cash and the total value of property contributed or
services rendered, or a promissory note or other binding obligation to
contribute cash or property or to perform services contributed to the Company
by all Partners, or any one (1) Partner, as the case may be (or the
predecessor holders of any Units of any such Partners).
1.09 Class B Unit. The term "Class B Unit" shall mean a Unit representing
an interest in the Company, other than a Class A Unit, issued from time to time
to those Partners who have executed a certain Joint Venture Agreement and have
timely remitted the appropriate funds thereunder.
1.10 Class A Unit. The term "Class A Unit" shall mean a Unit representing
an interest in the Company, other than a Class B Unit, issued to COVENTRY
CORPORATION, a Kansas corporation, d/b/a Coventry Corporation of the Republic,
Inc., upon the formation of the Company.
1.11 Code. The term "Code" shall mean the Internal Revenue Code of 1986,
as amended (or any corresponding provisions of succeeding law).
1.12 Company. The term "Company" shall mean this limited partnership
formed by the filing of the Company's Certificate of Limited Partnership with
the Florida Department of State.
1.13 Company Property. The term "Company Property" shall mean all
property, whether real or personal, tangible or intangible, and whether owned,
leased or acquired by the Company from time to time.
1.14 Distributable Cash Funds. The term "Distributable Cash Funds" shall
mean all the cash funds of the Company other than (i) Net Cash Proceeds and (ii)
proceeds from a Sale in connection with a dissolution of the Company under
Section 11.02, which the General Partner, in the General Partner's sole
discretion, determines are not (i) needed for the payment of existing or
anticipated Company obligations and expenditures, including capital
expenditures, (ii) required by law to be reserved, or (iii) needed for repair
or replacement of Company Property (whether for capital or non-capital
items). The General Partner shall use good faith efforts, in light of the
existing and anticipated
<PAGE>
financial conditions, in determining the availability of Distributable Cash
Funds for payment to the Partners to enable them to pay their federal and
state income tax liability that may be imposed upon the Partner's share of
the Company's Profits and Losses.
1.15 Initial Capital Contribution. The term "Initial Capital
Contribution" means for purposes of this Agreement, with respect to any Partner,
the amount of money contributed to and received by the Company with respect to
the Units held by such Partner as set forth on Schedule "1."
1.16 Joint Venture Agreement. The term "Joint Venture Agreement" shall
mean for purposes of this Agreement, that certain joint venture agreement
between the General Partner and Affiliates of the Class B Unit Holders, to
which this Agreement has been attached and entitled Exhibit 3.1.
1.17 General Partner. The term "General Partner" shall mean that Person
or those Persons named or appointed as General Partner(s) of the Company
pursuant to Section 6.01.
1.18 Majority-in-Interest. The term "Majority-in-Interest" shall mean,
with respect to any agreement or vote of the Partners, one (1) or more of the
Partners whose combined Sharing Ratios in the Class B and Class A Units, at the
time of any such agreement or vote, exceed ninety-two percent (92%) of the then
outstanding Class B and Class A Units held by all Partners.
1.19 Partner. The term "Partner" shall mean those individuals executing
this Agreement as Partners of the Company on the signature pages attached
hereto.
Provided, the term "Limited Partner" shall mean only those Persons who have
subscribed for and acquired one or more Class B Units.
1.20 Net Cash Proceeds. The term "Net Cash Proceeds" shall mean the net
cash (including both principal and interest) realized by the Company from a
Sale, after retirement of applicable mortgage debt, payment of all expenses
related to the transaction, payment of or provision for, Company debts and
obligations, and establishment and maintenance of such reserves as the
General Partner, in its sole discretion, may deem necessary or appropriate
for anticipated capital gain taxes, obligations, contingencies, capital
improvements, replacements and working capital of the Company.
1.21 Return. The term "Return" shall mean that point in time when cash
distributions remitted from the Company to the Class B Unit holders equal the
aggregate Initial Capital Contributions of the Class B Unit holders.
1.22 A Unit Period Return Amount. The term "A Unit Period Return
<PAGE>
Amount"
shall mean an amount payable to each holder of Class A Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class A Unit Holder's Initial Capital Contribution.
1.23 B Unit Period Return Amount. The term "B Unit Period Return Amount"
shall mean an amount payable to each holder of Class B Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class B Unit Holder's Initial Capital Contribution.
1.24 Person. The term "Person" shall mean any natural person, limited
liability company, partnership, corporation, trust, association or other legally
recognized entity.
1.25 Prime Rate. The term "Prime Rate" means the prime rate in effect
from time to time as published in the Money Rates Section of the Wall Street
Journal, or its successor.
1.26 Project Facility. The term "Project Facility" shall mean any
facility operated or licensed by Sterling House Corporation, the ownership and
operation of which is intended to be the primary business purpose of the
Company.
1.27 "Profits" and "Losses". The terms "Profits" and "Losses" shall mean
respectively, at all times during the existence of the Company, the income or
loss of the Company for federal income tax purposes and income of the Company
exempt from tax for such purpose, determined as of the close of the Company's
calendar year, including, without limitation, each item of Company income, gain,
loss, deduction and credit.
1.28 Record Holder. The term "Record Holder" shall mean the Person in
whose name each Unit is registered on the books and records of the Company as of
the close of business on a particular Business Day.
1.29 Sale. The term "Sale" shall mean and include the sale, exchange,
condemnation or similar eminent domain taking, casualty or other disposition of
all or any portion of the Company Property which is not in the ordinary course
of business, and the sale of easements, rights of way or similar interests in
the Company Property or any other similar items which in accordance with the
accounting methods used by the Company are attributable to capital; provided,
however, that the term "Sale" shall not refer to any transaction to the extent
gain or loss is not recognized, or is elected not to be recognized, under any
applicable section of the Code.
1.30 Sharing Ratio. The term "Sharing Ratio" shall mean for any Partner
the proportion obtained by dividing (i) the number of Units (either Class B
Units, Class A Units, or both, as the case may be) held by such Partner in the
Company by (ii) the sum of all Units (either Class B Units, Class A Units, or
both, as the case may be) issued and outstanding in the Company; provided, that
in the event of any assignment by a Partner of a Unit in the Company, the
Sharing
<PAGE>
Ratio of such Partner shall be proportionately reduced, based upon the number of
Units assigned compared to the total number of Units owned by such Partner, and
the assignee of such Unit or Units shall succeed to a proportionate share of the
Sharing Ratio of his assignor that is attributable to the Unit or Units
transferred to such Assignee.
1.31 Start Up Costs. The term "Start Up Costs" shall mean all costs and
expenses delineated under Section 195 (c)(1) of the Code.
1.32 Substitute Partner. The term "Substitute Partner" shall mean an
Assignee of the Unit(s) who has been admitted as a Partner pursuant to the
provisions of this Agreement, in place of his/her assignor. A Substitute
Partner, upon his/her admission as such, shall replace and succeed to the
rights, privileges and liabilities of the Partner from whom he acquired his/
her Unit(s) to the extent of the Unit(s) so transferred.
1.33 Supermajority-in-Interest. The term "Supermajority-in-Interest"
shall mean, with respect to any agreement or vote of the Partners, one (1) or
more of the Partners whose combined Sharing Ratios as to each Class B and Class
A Units, then outstanding at the time of any such agreement or vote, equal or
exceeds ninety-nine percent (99%) of each of the Class B and Class A Units held
by all Partners.
1.34 Tax Matter Partner. The term "Tax Matter Partner" shall mean the
Person designated pursuant to Section 8.01.
1.35 Treasury Regulations. The term "Treasury Regulations" shall mean the
Income Tax regulations promulgated under the Code, as such Regulations may be
amended (including corresponding provisions of succeeding regulations).
1.36 Unit. The term "Unit" shall collectively mean the Class B Units and
the Class A Units and any fraction of such Units.
ARTICLE II.
ORGANIZATIONAL MATTERS
2.01 Formation. The Company shall be formed as a limited
partnership pursuant to the provisions of the Act. The rights and obligations
of the Partners, and the affairs of the Company, shall be governed first by the
mandatory provisions of the Act, second by the Company's Certificate of Limited
Partnership , third by this Agreement and fourth by the optional provisions of
the Act. In the event of any conflict among the foregoing, the conflict shall
be resolved in the order of priority set forth in the preceding sentence.
2.02 Name. The name of the Company shall be "GLADSTONE DEVELOPMENT,
LIMITED PARTNERSHIP."
<PAGE>
2.03 Principal Office. The principal office of the Company in the
State of Florida shall be located at 4801 N.W. 53rd Avenue, Gainesville, Florida
32606. The Company may also maintain offices at such other place or places as
the General Partner deems advisable.
2.04 Term. The Company shall commence upon the filing for record
of the Company's Certificate of Limited Partnership with the Florida Secretary
of State and shall continue thereafter for 100 years unless earlier terminated
by law or until the earlier dissolution in accordance with ARTICLE XI.
2.05 Filings. Upon the request of the General Partner, the Partners
shall immediately execute and deliver all such certificates and other
instruments conforming hereto as shall be necessary for the General Partner
to accomplish all filing, recording, publishing and other acts appropriate to
comply with all requirements for the formation and operation of a limited
partnership under the laws of the State of Florida and for the formation,
qualification and operation of a limited partnership in all jurisdictions
where the Company shall propose to conduct business.
2.06 Company Property. All property owned by the Company, whether
real or personal, tangible or intangible, shall be deemed to be owned by the
Company as an entity, and no Partner, individually, shall have any ownership of
such property. The Company shall hold its assets in its own name. No Limited
Partner shall have the right to require the partition or sale of any property
owned by the Company. The interest of any Partner in the Company (as
represented by their A Units or B Units) will be personal property for all
purposes.
ARTICLE III.
PURPOSE
3.01 Purpose of the Company. The purpose for which the Company is
formed is the transaction of any and all lawful business for which limited
partnerships may be organized under the Act.
ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.01 Capital Contributions. Each Partner shall contribute to the
capital of the Company an amount equal to such Partner's Capital Contribution in
exchange for a corresponding number of Units as set forth on Schedule "1"
attached hereto. Each Partner shall be credited with an initial capital account
equal to the amount of their respective Initial Capital Contribution.
4.02 Capital Accounts. A separate Capital Account shall be
maintained by the Company for each of the Partners in accordance with the
capital
<PAGE>
accounting rules of Section 704(b) of the Code, and the Treasury Regulations
thereunder. Adjustments shall be made in each Partner's Capital Account as
required by the capital accounting rules of Section 704(b) of the Code and the
Treasury Regulations.
Upon any contribution of money or other property to the Company (other than
a de minimis amount) as consideration for an interest in the Company, or upon
the dissolution of the Company or a distribution of money or other property
(other than a de minimis amount) by the Company as consideration for an
interest in the Company, the book values of Company Property and the Capital
Accounts of the Partners may be adjusted in accordance with Treasury
Regulation Section 1.704-1(b)(2)(iv)(f), if in the discretion of the General
Partner such adjustment would be helpful in maintaining compliance with the
requirements of Treasury Regulations Section 1.704-1(b). If any Company
Property is to be distributed in kind, such property shall be distributed on
the basis of its fair market value, as determined by the General Partner,
after the Partners' Capital Accounts have
been adjusted to reflect the manner in which any unrealized gain and loss with
respect to such Company Property (that had not been reflected in the Capital
Accounts previously) would be allocated among the Partners if there were a
taxable disposition of the Company Property for its fair market value. These
provisions and other provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Treasury Regulations Section 1.704-
1(b), and shall be interpreted and applied in a manner consistent with such
Section of the Treasury Regulations.
4.03 Deficit Capital Account Balance. In the event that, following
the liquidation (as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)
(g)) of a Partner's interest in the Company (whether or not in connection
with the
dissolution and termination of the Company), and after crediting any gain or
charging any loss pursuant to Article V hereof, such Partner shall have a
deficit
balance in its Capital Account, such Partner shall contribute in cash to the
capital of the Company (by the later of the last day of the taxable year in
which
such liquidation takes place or the date 90 days after the date on which such
liquidation takes place) an amount equal to the amount of such deficit balance;
provided, however, that:
1) the Limited Partner shall have no obligation to make a contribution
to the Company pursuant to this Section 4.03, unless it has previously delivered
to the General Partner an irrevocable written election to subject itself to such
an obligation;
2) if the Limited Partner delivers such a written election to the
General Partner, the amount that the Limited Partner shall be required to
<PAGE>
contribute to the Company pursuant to this Section 4.03 shall not exceed a sum
equal to such Partner's Initial Capital Contribution; and
3) although the Partners are not aware of any possible impact of the
provision contained in clauses "(i)" and "(ii)" above on the Capital Account of
the General Partner, if any election made by the Limited Partner in accordance
with clause "(i)" above results in an increase in the deficit balance, if any,
of the Capital Account of the General Partner, then such election shall not be
effective and the Limited Partner shall have no obligation to make any
contribution to the Partnership pursuant to this Section 4.03
4.04 Allocation. Any item of income, loss and deduction with
respect to any Company Property that has been contributed by a Partner to the
Capital of the Company and which is required to be allocated for income tax
purposes under Section 704(c) of the Code, so as to take into account the
variation between the tax basis of such Company Property and its agreed upon
fair market value at the time of its contribution, shall be allocated to the
Partners
solely for income tax purposes in the manner so required. Elections under
Section 704(c) shall be made at the discretion of the General Partner.
4.05 Interest. No interest shall be paid by the Company on Capital
Contributions, on balances in a Partner's Capital Account, or on any other funds
distributed or distributable under this Agreement. To the extent that the
General Partner may loan additional funds to the Company, the General Partner
agrees to charge annual interest on any outstanding balance at a rate that is no
more than 275 basis points above the Prime Rate. Provided, the General Partner
shall be entitled to collateralize the repayment of such indebtedness by taking
a secured first mortgage, or such lesser position as the General Partner may
choose, in any property of the Company, including any Project Facility.
4.06 No Withdrawal. Except as otherwise required under mandatory
provisions of the Act, no Partner shall have the right to a withdrawal, or to
receive any return of such Partner's Capital Contribution, except as
specifically provided for herein. Except as otherwise expressly
provided in ARTICLE V and Section 11.02 hereof, no Partner shall have
priority over any other Partner,
either as to the return of such Partner's Capital Contribution or as to income,
gains, losses, deductions or credits.
4.07 Loans. Nothing in this Agreement shall prevent any Partner
from making secured or unsecured loans to the Company by agreement with the
Company. The Company may upon an affirmative vote of a Supermajority-in-
Interest make loans to any Partner or any Affiliate of any Partner.
No Partner shall at
any time be required to loan additional amounts to the Company.
4.08 Additional Capital Contributions. There shall be no additional
contributions of capital required of any Limited Partner.
<PAGE>
4.09 Company Unit Represented by Certificate. Within thirty (30)
days of the date of this Agreement, the General Partner shall issue and deliver
to each Partner a certificate evidencing their respective ownership of the Units
transferred by the Company to the Partners (hereinafter referred to as
"Certificate").
4.10 Form of Certificate. The form of Certificate to be issued by
the Company may be written, typewritten, mimeographed or printed and otherwise
in such form and design as may be determined by the General Partner in its
discretion.
4.11 Neither Responsible for Other's Commitments. Neither the
Partners nor the Company shall be responsible or liable for any indebtedness or
obligations of the other Partners incurred either before or after the execution
of this Agreement, except as to those responsibilities or obligations incurred
or assumed by a Partner pursuant to the terms of this Agreement.
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.01 Allocation Among Class A Unit Holders. Each Class A Unit
holder shall share Company items of costs, credits, income, revenues, gain, loss
and distributions allocated, charged or credited to the Class A Units as a class
hereunder in accordance with the proportion of the Sharing Ratio which
each Class
A Unit holder bears relative to the aggregate Sharing Ratios of all Class A Unit
holders.
5.02 Allocation Among Class B Unit Holders. Each Class B Unit
holder shall share Company items of costs, credits, income, revenues, gain, loss
and distributions allocated, charged or credited to the Class B Units as a class
hereunder in accordance with the proportion which the Sharing Ratio of
each Class
B Unit holder bears relative to the aggregate Sharing Ratios of all Class B Unit
holders.
5.03 Allocation of Start Up Costs. Except as otherwise expressly
provided, all Start Up Costs of the Company, whether immediately
expensed during
any fiscal year or amortized over a greater period of time, shall be computed in
accordance with tax accounting principles consistently applied, using such
methods of amortization or expense as the General Partner determines to use for
federal income tax purposes, and shall be allocated in the order and proportions
among the Partners as follows:
<PAGE>
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.04 Allocation of Losses. Except as otherwise expressly provided,
all Losses of the Company for each fiscal year shall be computed in accordance
with tax accounting principles consistently applied, using such methods of
accounting for depreciation and other items as the General Partner determines to
use for federal income tax purposes, and shall be allocated in the order and
proportions among the Partners as follows:
<PAGE>
<PAGE>
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.05 Allocation of Profits. Except as otherwise expressly provided,
all Profits of the Company for each fiscal year computed in accordance with tax
accounting principles consistently applied, using such methods of accounting for
depreciation and other items as the General Partner determines to use for
federal income tax purposes, shall be allocated among the Partners as follows:
A) Prior to Return:
Class A Units 40%
Class B Units 60%
B) After Return:
Class A Units 51%
Class B Units 49%
5.06 Distributions, Period Return Amounts, and Special Allocations.
A) Interim distributions, if made, shall be distributed to the Partners
out of Distributable Cash Funds as follows:
Prior to Return:
Class A Units 40%
Class B Units 60%
After Return:
Class A Units 51%
Class B Units 49%
B) In the event of a Sale or distributions in connection with a
dissolution of the Company in accordance with ARTICLE XI, the Company shall also
distribute to the Partners out of Net Cash Proceeds in accordance with Section
5.06(A).
<PAGE>
C) Notwithstanding the provisions of Section 5.06 (A), to the extent
that there are Distributable Cash Funds available at any time prior to Return,
then before any funds shall be distributed to the holders of Class A Units,
there
shall first be remitted to the holders of Class B Units an amount equal to their
B Unit Period Return Amount. To the extent that such B Unit Period Return
Amount
is not paid in any fiscal year, it shall accumulate and the obligation to pay
the same shall carry over into the next and other succeeding years until paid.
Notwithstanding the provisions of Section 5.05 (A) or of the preceding sentence
of this Section 5.06 (C), to the extent that there are Distributable Cash Funds
available at any time prior to Return but after full payment of all B Unit
Period
Return Amounts then owing, then before any additional funds shall be distributed
to the holders of Class B Units, there shall first be remitted to the holders of
Class A Units an amount equal to their A Unit Period Return Amount. To the
extent that such A Unit Period Return Amount is not paid in any fiscal year, it
shall accumulate and the obligation to pay the same shall carry over into the
next and other succeeding years until paid. It is understood and agreed that
sums
received as the payment of the B Unit Period Return Amount shall constitute a
return of capital and not of income or profits to the extent that such payments
would not decrease the Class B Unit Holder's capital account below zero.
Further, any distribution that is in excess of any B Unit Holder's capital
account shall be deemed to be a "gross income" (as that term is defined under
Section 61 of the Code) allocation to the extent of such distribution.
D) It is understood and agreed that distributions, including the B Unit
Period Return Amount, may be, but shall not be required to be, made at least
quarterly. No distribution to the Partners shall be made in kind, in lieu of
cash.
5.07 Allocation in the Event of Transfer. In the event of an
assignment of a Partner's interest in the Company pursuant to ARTICLE IX, all
Profits and Losses of the Company for federal, state and local income tax
purposes shall, unless otherwise required by applicable Treasury Regulations, be
determined monthly and shall be allocated to the Partners in accordance with
their Sharing Ratios in Class B Units and Class A Units, as the case may be, on
the first (1st) day of such month; provided, however, a Partner transferring all
or a portion of his Units at any time during a month is deemed to have
transferred the Units as of the first (1st) day of the month following the
transfer; provided, further, that gain or loss on a sale or other disposition of
all or a substantial portion of the assets of the Company shall be allocated to
the Partners of record on the day of such sale or other disposition.
Notwithstanding any of the foregoing, the General Partner may allocate such
<PAGE>
items
on some other reasonable basis if it determines, in its sole discretion, that
the Company's methods of allocating such items does not satisfy the
requirements of
Section 706 of the Code and the Treasury Regulations promulgated thereunder.
5.08 Qualified Income Offset. Notwithstanding anything in this
ARTICLE V to the contrary, in the event a Partner unexpectedly receives any
adjustment, allocation or distribution described in Section
1.704(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, which causes or
increases the deficit balance in such Partner's capital account, then items of
income and gain shall be allocated to such Partner or Partners in an amount and
manner sufficient to eliminate the deficit balances in their Capital Accounts as
quickly as possible.
ARTICLE VI.
MANAGEMENT AND OPERATION OF BUSINESS
6.01 General Partner. The Company shall have one (1) General
Partner who is a Partner of the Company. The initial General Partner of the
Company shall be the corporation named in the Certificate of Limited
Partnership
and who shall serve as General Partner of the Company until such time as it
resigns and withdraws from the Company or is removed in accordance with Section
6.02. In the event the General Partner resigns, the replacement General Partner
shall be selected by a vote of a Supermajority-in-Interest of the Partners.
6.02 Removal of General Partner. A Supermajority-in-Interest of the
Unit holders shall have the right to remove a General Partner, but only for
cause, and to choose a new General Partner. The replacement General Partner
shall be selected by a vote of a Majority-in-Interest of the Unit holders. The
replacement General Partner's appointment shall be further conditioned upon the
Partners obtaining the full release of all then outstanding guaranties to which
the then replaced General Partner and its Affiliates are parties.
6.03 Management of Company. The management of the Company shall be
vested solely with the General Partner, chosen in accordance with this
Agreement,
who shall have full authority and discretion to conduct the ordinary and usual
business and affairs of the Company, to take any action of any kind and to do
anything and everything such General Partner deems necessary, subject to the
restrictions set forth in this Agreement. The General Partner shall be imposed
with a fiduciary duty to conduct the business and affairs of the Company in the
best interests of the Company and of the Partners, including the safekeeping and
use of all Company funds and assets for the exclusive benefit of the Company
whether or not the same shall be in the immediate possession or control of the
General Partner. Provided, the preceding sentence shall not be construed as
<PAGE>
prohibiting the General Partner from contracting with an Affiliate (for example,
BCI Construction, Inc.) provided that the General Partner believes in good faith
that the terms of such agreement are commercially reasonable. No Limited
Partner shall take part in or interfere in any manner with the conduct or
control
of the business of the Company or have any right or authority to act for or bind
the Company unless such Limited Partner has been expressly authorized by the
General Partner in writing to act as an agent of the Company for a particular
matter, transaction or series of same.
6.04 Restrictions on the Authority of the General Partner. Subject
to the provisions of this Agreement, except as herein provided, the General
Partner shall not be authorized to do any of the following acts without the
prior consent of all of the Partners:
A) Any act in contravention of this Agreement or the Certificate of
Limited Partnership of the Company;
B) Any act which would make it impossible or impractical for the
Company to conduct the ordinary business of the Company;
C) Confess judgment against the Company; or
D) Possess, sell or otherwise dispose of any property of the Company,
except in the ordinary course of business.
6.05 Outside Activities.
A) Each Partner, including the General Partner, and such Partner's
Affiliates may have business interests and engage in business activities in
addition to those relating to the Company. However, during the term of the Joint
Venture Agreement, no Partner shall directly or indirectly own, operate,
develop,
construct, manage or participate in the ownership, development, construction,
operation or management of any assisted living, dementia or other specialty care
facility for the elderly located in the "Territory", as such term is defined by
the Joint Venture Agreement. In addition, as long as SGH and Partner or any
Affiliate of any Partner own directly or indirectly any beneficial interest in
the Company, and for a period of one (1) year thereafter, such Partner or their
Affiliate shall not directly or indirectly own, operate, develop, construct,
manage or participate in the ownership, development, construction, operation or
management of any assisted living, dementia or other specialty care facility for
the elderly located within twenty five (25) miles from any Project Facility
owned by the Company. The restrictions set forth in this Section 6.05 are
subject to the following exceptions:
1) such restrictions shall not be considered violated by reason
of Partner or their Affiliates developing, owning and/or constructing nursing
home facilities which require a certificate of need or the equivalent; and
<PAGE>
2) such restrictions shall not be considered violated by reason
of any Partner or any Affiliate of any Partner owning less than a five percent
(5%) interest in a legal entity that owns, develops, constructs, operates or
manages any assisted care or dementia or other special care facilities and whose
shares of stock are traded on a nationally recognized stock exchange or traded
in the over-the-counter market.
B) Each Partner hereby agrees that the restrictions set forth in this
Section 6.05 are founded on valuable consideration and are reasonable in
duration
and geographic area in view of the circumstances under which this Agreement is
executed and that such restrictions are necessary to protect the legitimate
interests of the Company and its Partners. In the event that any provision of
this Section 6.05 is determined to be invalid by any arbitrator or court of
competent jurisdiction, the provisions of this Section 6.05 shall be deemed to
have been amended and the parties agree to execute any documents and take
whatever action is necessary to evidence such amendment, so as to eliminate or
modify any such invalid provision and to carry out the intent of this Section
6.05 to render the terms of this Section 6.05 enforceable in all respects as so
modified.
C) Each Partner acknowledges and agrees that irreparable injury may
result to the other Partners and/or the Company if a Partner breaches any
covenant contained in this Section 6.05 and that the remedy at law for the
breach
of any such covenant will be inadequate. Therefore, if any Partner shall engage
in any act in violation of any of the provisions of this Section 6.05, the other
Partners and the Company (or any or all of them) shall be entitled, in addition
to such other remedies and damages as may be available to any or all of them at
law or under this Agreement, to injunctive relief to enforce the provisions of
this Section 6.05.
D) Neither the Company nor the other Partners shall have any rights by
virtue of this Agreement or the relationship contemplated herein to share or
participate in any other business ventures or activities of such Partner or such
Partner's Affiliates.
6.06 Management Fee. In consideration of the performance of the on-
going day to day management of each Project Facility, the Company shall, no less
frequently than monthly pay to the General Partner (or its subcontractor) an
amount equal to seven percent (7%) of the gross revenue realized by the Company
for each accounting period (hereinafter "Management Fee"). To the extent not
paid, the Management Fee shall be cumulative from month to month and from fiscal
year to fiscal year.
6.07 Administrative Compensation. In consideration for the rendering of
<PAGE>
certain administrative activities during the initial operation phase of the
Project Facility, the Company shall pay to the General Partner (or its
subcontractor), by no later than the initial funding of the construction
financing for the Project Facility a one time fee in the amount of Twenty
Thousand Dollars ($20,000) (hereinafter "Administrative Compensation"). It is
understood and agreed that the Administrative Compensation is intended to
compensate the General Partner for its efforts and is in addition to any
reimbursement for any and all direct costs incurred by the General Partner on
behalf of the Company during the initial operation phase of the Project
Facility.
The General Partner may contract with or assign to another party, including an
Affiliate of Sterling House Corporation, all or a portion of the responsibility
for performing such activities.
6.08 Devotion of Time. The General Partner shall not be expected
to devote its entire time or attention to the Company's business, but only such
time and effort as is required for the sound and proper management of the
Company.
6.09 Indemnification.
A) Company Indemnity. To the maximum extent permitted by law, the
Company shall indemnify and hold harmless the General Partner, all Partners,
their respective Affiliates, and the employees and agents of the Company (each,
an "Indemnitee") from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorney's fees and disbursements), judgments, fines, settlements, penalties and
other expenses actually and reasonably incurred by the Indemnitee in connection
with any and all claims, demands, actions, suits, or proceedings, civil,
criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise, by reason of
the fact that the Indemnitee is or was a Limited Partner or the General
Partner of the Company or is or was an employee or agent of the Company,
including
Affiliates of the foregoing, arising out of or incidental to the business of the
Company, provided (i) the Indemnitee's conduct did not constitute willful
misconduct or recklessness, (ii) the action is not based on breach of this
Agreement, (iii) the Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Company and within the scope of such Indemnitee's authority, and (iv) with
respect to a criminal action or proceeding, the Indemnitee had no reasonable
cause to believe Indemnitee's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere, or its equivalent, shall not, in and of itself,
create
a presumption or otherwise constitute evidence that the Indemnitee acted in a
manner contrary to that specified above.
B) Advancement of Expenses. Expenses incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding subject to this Section
6.09 may, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the
<PAGE>
Company of an undertaking by or on behalf of the Indemnitee to repay such
amount(s) if it shall ultimately be determined that such Person is not entitled
to be indemnified as authorized in this Section 6.09.
C) Non-Exclusivity. The indemnification provided by this Section 6.09
shall be in addition to any other rights to which the Indemnitee may be entitled
under any agreement, vote of the Partners, as a matter of law or equity, or
otherwise, and shall inure to the benefit of the successors, assignees, heirs,
personal representatives and administrators of the Indemnitee.
D) Insurance. The Company may purchase and maintain insurance, at the
Company's expense, on behalf of any Indemnitee against any liability that may be
asserted against or expense that may be incurred by an Indemnitee in connection
with the activities of the Company regardless of whether the Company would have
the power to indemnify such Indemnitee against such liability under the
provisions of this Agreement.
6.10 Cost Reimbursement In consideration for the execution of any guaranty
by the General Partner, for any Project Facility, if and as required for any
third party construction of initial permanent financing of such facility, the
Company shall reimburse the General Partner an amount equal to its direct costs
paid to third parties for providing such guaranty (hereinafter the "Cost
Reimbursement"). It is understood and agreed that the Cost Reimbursement is
non- refundable and fully earned upon execution of each such guaranty. In
the event
any Project Facility is thereafter refinanced, the General Partner shall not be
obligated to execute a guaranty for the same, absent the reimbursement of any
additional direct costs paid to third parties.
ARTICLE VII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
7.01 Books and Records. Appropriate books and records with respect
to the Company's business, including, without limitation, all books and records
necessary to provide to the Partners any information, lists and copies of
documents required to be provided pursuant to the Act shall at all times be kept
at the principal office of the Company or at such other places as agreed to by
the Partners. Without limiting the foregoing, the following shall be maintained
at the Company's principal office: (i) a current list of the full name and last
known business address of each Limited Partner and General Partner; (ii) copies
of records that would enable a Limited Partner to determine the relative voting
rights of the Partners; (iii) a copy of the Certificate of Limited Partnership
<PAGE>
, and any amendments thereto; (iv) copies of the Company's federal, state and
local income tax returns and reports, if any, for the then three (3) most recent
years; (v) a copy of this Agreement; and (vi) copies of any financial statements
of the Company for the then three (3) most recent fiscal years. Any records
maintained by the Company in the regular course of its business may be kept on,
or be in the form of, magnetic tape, photographs or any other information
storage
device, provided that the records so kept are convertible into clearly legible
written form within a reasonable period of time. Upon reasonable request, each
Limited Partner shall have the right, during ordinary business hours, to inspect
and copy any of such records at the requesting Limited Partner's expense.
7.02 Accounting. The books of the Company for regulatory and
financial reporting purposes shall be maintained on either a cash or accrual
basis of accounting, which shall be determined by the General Partner. The
Company books for purposes of maintaining and determining Capital Accounts shall
be maintained in accordance with the provisions of this Agreement, Section 704
of the Code and, to the extent not inconsistent therewith, the principles
described above for financial reporting and regulatory purposes.
7.03 Fiscal Year. The fiscal year of the Company shall be the
calendar year, unless otherwise determined by a Majority-in-Interest vote of the
Partners.
ARTICLE VIII.
TAX MATTERS
8.01 Tax Matters Partner. The Partners hereby appoint the General
Partner, as the "Tax Matters Partner" (hereinafter referred to as the "TMP") as
defined in Section 6231(a)(7) of the Code. The TMP is authorized to take such
actions and to execute all statements and forms on behalf of the Company which
may be permitted or required by the applicable provision of the Code or the
Treasury Regulations, and the Partners shall take all other actions that may be
necessary or appropriate to effect the designation of the General Partner as the
TMP. In the event of an audit of the Company's income tax returns by the
Internal Revenue Service, the TMP may, at the expense of the Company,
retain accountants and other professionals to participate or
assist in the audit process. All expenses incurred by the TMP in such capacity
as TMP shall be expenses of the Company and paid from Company funds. The TMP
may be changed by a vote of a Majority-in-Interest of the Partners.
8.02 Taxation as a Partnership. No election shall be made by the
Company or any Partner for the Company to be excluded from the application of
any provision of Subchapter K, Chapter 1, of Subtitle A of the Code or from any
similar provisions of any state tax laws.
<PAGE>
ARTICLE IX.
TRANSFER OF UNITS
9.01 Transfer.
A) The term "transfer," when used in this ARTICLE IX with respect to a
Unit, shall be deemed to refer to a transaction by which the Partner assigns all
or a portion of such Partner's Unit(s), or any interest therein, to another
Person, or by which the holder of a Unit assigns the Unit to another Person or
Assignee, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, transfer by will or intestate succession, exchange, or
any other disposition.
B) No Units shall be transferred, in whole or in part, except in
accordance with the terms and conditions set forth in this ARTICLE IX. Any
transfer or purported transfer of any Units not made in accordance with this
ARTICLE IX shall be null and void. If there is an involuntary transfer by
operation of law or otherwise and such involuntary transfer is not made in
accordance with this ARTICLE IX, then the Assignee shall not be a Substitute
Partner, and shall have no right to participate in the Company's affairs as a
Partner thereof, but instead, shall only be entitled to receive the share of
profits, losses or other distributions by way of income and/or the return of
capital to which the transferring Partner would otherwise be entitled at the
time said transferring Partner would be entitled to receive the same and such
Assignee shall not have any right to participate in the business or affairs
of the Company, including the right to vote on, consent to, or otherwise
participate in any decision of the Partners.
9.02 Transfer of Units by a Partner.
A) Except as provided in Section 9.03 hereto, no Units may be
transferred by a Partner unless the following conditions are first satisfied:
1) The consent of each Partner has been obtained, which may be
granted or withheld in each Partner's sole discretion, such consent to be
evidenced by a written instrument, dated and signed by the Partner;
2) The transferee and each Partner execute and file all documents
necessary for the transferee to be a Substitute Partner and be bound by the
terms hereof and such transferee is admitted as a Substitute Partner; and
3) The Company receives a written opinion from the Company's
legal counsel that such transfer would not materially adversely affect the
classification of the Company as a partnership for federal and state income tax
purposes or cause the Company to be treated as a publicly-traded partnership.
B) The transfer restrictions on all Units shall be conspicuously noted
by an appropriate legend on each Certificate issued to a Partner.
C) In no event shall any Unit be transferred to a minor or any
<PAGE>
incompetent except by will or intestate succession and in full compliance with
the provisions of this ARTICLE IX.
D) The Company need not recognize, for any purpose, any transfer of all
or any fraction of a Unit unless there shall have been filed with the Company
and recorded on the Company's books a duly executed and acknowledged
counterpart of
the instrument of assignment and such instrument evidences the written
acceptance
by the Assignee of all of the terms and provisions of this Agreement and such
Assignee expressly represents that such assignment was made in accordance with
all applicable laws and regulations.
E) Any holder of a Unit (including a transferee thereof) shall be
deemed conclusively to have agreed to comply with and be bound by all terms and
conditions of this Agreement, with the same effect as if such holder had
executed an express acknowledgment thereof, whether or not such holder in
fact has
executed such an express acknowledgment.
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer.
Subject to Section 11.01(F), in the event a Partner (hereinafter referred to as
the "Selling Partner") receives a bona fide offer from a prospective buyer to
acquire any or all of his or her Unit(s), which offer the Selling Partner
intends
to accept, the Selling Partner shall first transmit to the Company and the other
Partners, not less thirty (30) days prior to the time the proposed sale of the
Unit(s) is to be consummated, written notice (hereinafter referred to as the
"Notice") by certified mail of his or her intention to make such disposition of
his or her Unit(s). The Notice shall set out the terms and conditions of the
intended disposition, including the purchase price payable for such Unit(s) by
the prospective buyer. Within fifteen (15) days following the giving of the
Notice, the Partners shall be polled by the General Partner. An affirmative
vote
of the Partners holding a Majority-in-Interest, excluding the Selling Partner's
Units, for purposes of both voting and determining the number of Unit(s)
outstanding, shall authorize the General Partner and entitle the Company to
purchase such Unit(s) at a per Unit price equal to and upon the same terms and
conditions as are set forth in the Notice.
9.04 Option to Partners to Purchase Unit(s) on Lifetime Transfer.
If any Unit owned by the Selling Partner is not purchased by the Company in
accordance with the provisions of Section 9.03, then the Unit(s) not so
purchased
shall then be offered for sale and shall be subject to an option on the part of
each of the other Class B and Class A Unit holders to purchase a "proportionate
share" of any or all of such Unit(s) which option shall be exercised, if at all,
in writing within fifteen (15) days of the polling of the Partner pursuant to
the provisions of Section 9.03. Such Partners shall be entitled to purchase
such
<PAGE>
Unit(s) at a per Unit price equal to and upon the same terms and conditions as
are set forth in the Notice. For purposes of this Section, the term
"proportionate share" shall mean the Unit(s) offered for sale which the
proportion of the Sharing Ratio of each Class B and Class A Unit holder bears to
the aggregate Sharing Ratios (other than the Unit(s) offered for sale) of all
Class B and Class A Unit holders. In addition, if any Unit offered for sale is
not purchased by the Partner(s) first entitled thereto, the term "proportionate
share" shall include the Unit or Units not purchased by the Partner(s) first
entitled thereto which the Sharing Ratio of each Partner bears to the aggregate
Sharing Ratios (other than the Sharing Ratio of the Unit(s) offered for sale) of
all Class B and Class A Unit holders other than the Partner(s) otherwise first
entitled to so purchase the Unit(s) but who has/have declined to purchase the
Unit(s).
9.05 Termination of Restrictions on Lifetime Transfer. If any Unit
owned by the Selling Partner is not purchased by the Company in accordance with
the provisions of Section 9.03, or if any or all are not purchased by the other
Partners in accordance with the provisions of Section 9.04, then the Units that
are not so purchased may then still only be duly transferred to the Person set
forth in the Notice upon obtaining the prior written consent of all the Partners
pursuant to the terms and conditions of Section 10.01. If consent of all the
Partners is not obtained, then the Assignee of the Selling Partner's Units shall
not be entitled to any of the rights granted to a Partner hereunder other than
the right to receive all or part of the share of profits, losses, cash
distribution or returns of capital to which the Selling Partner would otherwise
be entitled. In no event shall such transfer be on terms or conditions other
than those set forth in the Notice. If any terms or conditions change or differ
from those set forth in the Notice, said Unit(s) must then be resubmitted for
sale to the Company and the Partners on the basis of the changed terms and
conditions pursuant to Sections 9.03 and 9.04 herein. Notwithstanding any such
transfer or disposition of a Selling Partner's Unit(s) to a third party, the
restrictions imposed by this Agreement shall continue to apply to the Unit(s)
owned by such transferee or Assignee and to any remaining Unit(s) owned by the
Selling Partner, and the Assignee or transferee shall, prior to the transfer of
such Unit(s), agree to be bound by this Agreement.
9.06 Option to Company to Purchase Unit(s) on Death. Subject to
Section 11.01(F), in the event of the death of any Partner (except in the case
of the death of a Person holding a Unit or Units as a joint tenant with the
right
of survivorship vested with another Partner), all of the Unit(s) of such Partner
shall be subject to an option to purchase as provided in this Section. Within
ninety (90) days after the appointment of the legal representative of the
deceased Partner or one hundred twenty (120) days after the death of such
<PAGE>
Partner, whichever occurs first, the General Partner shall calculate a proposed
option price for the deceased Partner's Unit(s) by determining the product of
his
or her Sharing Ratio multiplied by the estimated market value of the Company on
the last day of the calendar month immediately preceding the date of death,
including goodwill and going concern value, plus the share of cash on hand,
prepaid expenses, accounts receivable (less a reserve for doubtful accounts),
less the deceased Partner's estate's share of debts, obligations and other
liabilities of the Company. The proposed option price shall then be
communicated
to the deceased Partner's legal representative or, if none, to his or her next
of kin. The purchase price to be paid by the Company shall be payable in cash,
or its equivalent, unless different terms are desired by the deceased Partner's
estate and are agreed to by the Company. If the parties are unable to agree as
to the option price within fifteen (15) days following the communication of the
proposed option price, the Company and the legal representative of the deceased
Partner's estate shall then select a mutually agreeable appraiser to determine
the option price. If the Company and the deceased Partner's estate cannot agree
on the appraiser to be selected, then each shall select an appraiser. The two
appraisers shall in turn select a third appraiser who shall determine the option
price. If they cannot agree on a third appraiser, then the option price shall
be the average of their two respective appraisals. The fees of all appraisers
shall be borne by the deceased Partner's estate. Each appraiser selected
hereunder shall be a reputable appraisal firm which has substantial experience
in appraising commercial real estate, which shall mean that a minimum the
appraiser must be state certified, a member in good standing with the American
Institute of Real Estate Appraisers and a member in good standing with the
Appraisal Institute. Within fifteen (15) days after the option price has been
determined, the Partners shall be polled by the General Partner at which time
all of the Units of such deceased Partner shall be offered for sale to the
Company
at the option price and under the terms agreed to by the deceased Partner's
estate if other than cash terms. A Majority-In-Interest of the Partners,
excluding the deceased Partner's Units for both purposes of voting and
determination of Units outstanding, shall decide within fifteen (15) days from
the date polled whether the Company shall exercise its option.
9.07 Option to Partners to Purchase Unit(s) on Death. If any Unit
owned by a deceased Partner is not purchased by the Company in accordance with
the provisions of Section 9.06, then the Units not so purchased shall be offered
for sale and shall be subject to an option on the part of each of the Class B
and
Class A Unit holders to purchase a proportionate share (as defined in Section
9.04) of any or all of such Units, which option shall be exercised, if at all,
at the time of the polling of the Class B and Class A Unit holders pursuant to
the provisions of Section 9.06. The purchase price to be paid and the terms of
payment shall be equal to, determined and calculated in accordance with the
provisions set forth in Section 9.06.
<PAGE>
9.08 Termination of Restrictions on Transfer at Death. If any Unit
owned by the deceased Partner is not purchased by the Company in accordance with
Section 9.06 or is not purchased by the Partners in accordance with the
provisions of Section 9.07, then the Unit(s) not so purchased shall be
transferred pursuant to the testamentary disposition of the deceased Partner or
by the laws of intestacy, as the case may be. Notwithstanding, the restrictions
imposed by this Agreement shall also thereafter apply to the Units owned by any
such transferee or Assignee of the Units and the Assignee or transferee shall,
prior to the transfer of such Unit(s), agree in writing to be bound by this
Agreement.
9.09 Restrictions on Transfers. Notwithstanding the other
provisions of this ARTICLE IX, no transfer of any Unit of any Partner in the
Company shall be made (including any transfer from one Partner to another
Partner) if the transfer (i) would violate applicable federal and state
securities laws or rules and regulations of the Securities and Exchange
Commission, any state securities commission or any other governmental authority
with jurisdiction over the transfer, (ii) would materially adversely affect the
classification of the Company as a partnership for federal or state income tax
purposes, or (iii) would affect the Company's qualification as a Limited
Partnership under the Act.
9.10 Issuance of Certificates. Upon the transfer of a Unit in
accordance with ARTICLE IX, the Company shall, if certificates have been issued,
issue replacement certificates. All certificates shall contain legends required
by this Agreement or otherwise required by law.
9.11 Compliance With Applicable Law. The restrictions on transfer
contained in this ARTICLE IX are intended to comply (and shall be interpreted
consistently) with the restrictions on transfer set forth in the Act.
9.12 Lost, Stolen or Destroyed Certificates. The Company may issue
a new certificate in place of any certificate previously issued if the record
holder of any purportedly lost, stolen or destroyed certificate: (i) makes
proof
by affidavit that a previously issued certificate has been lost, stolen, or
destroyed; (ii) requests the issuance of a new Certificate before the Company
has
notice that the Units evidenced by such certificate have been acquired by a
purchaser for value in good faith and without notice of an adverse claim; and
(iii) if required by the Company, delivers to the Company a bond with surety or
sureties acceptable to the Company, to indemnify the Company against any claim
that may be made on account of the alleged loss, destruction or theft of the
certificate. The Company shall be entitled to treat such Record Holder as the
Partner or Assignee in fact of any Units and, accordingly, shall not be required
to recognize any equitable or other claim or interest in or with respect to the
<PAGE>
Units on the part of any other Person, regardless of whether it has actual or
other notice thereof.
ARTICLE X.
ADMISSION OF SUBSTITUTE AND ADDITIONAL PARTNERS
10.01 Admission of Substitute Partners. Upon a transfer of a
Unit by a Partner in accordance with ARTICLE IX (but not otherwise), the
transferor shall have the power to give, and by transfer of any Certificate
issued shall be deemed to have given, the transferee the right to apply to
become
a Substitute Partner with respect to the Unit(s) acquired, subject to the
conditions of and in the manner permitted under this Agreement. A transferee of
a Certificate representing a Unit shall be an Assignee with respect to the
transferred Unit (whether or not such transferee is a Partner or Substitute
Partner with respect to other previously acquired Units) unless and until all of
the following conditions are satisfied:
A) The instrument of assignment sets forth the intentions of the
assignor that the Assignee succeed to the assignor's interest as a Substitute
Partner in such assignor's place;
B) The assignor and Assignee shall have fulfilled all other
requirements of this Agreement;
C) The Assignee shall have paid all reasonable legal fees and filing
costs incurred by the Company in connection with such Assignee's substitution as
a Partner; and
D) The Partners shall have unanimously approved such substitution in
writing, which approval may be granted or withheld by each Partner in such
Partner's sole and absolute discretion and may be arbitrarily withheld, and the
books and records of the Company have been modified to reflect the admission.
The admission of an Assignee as a Substitute Partner with respect to a
transferred Unit shall become effective on the date the Partners give their
unanimous written consent to the admission and the books and records of the
Company have been modified to reflect such admission. Any Partner who transfers
all of such Partner's Units with respect to which such Partner had been admitted
as a Partner shall cease to be a Partner of the Company upon a transfer of such
Units in accordance with ARTICLE IX and the execution of a counterpart of this
Agreement by the transferee and shall have no further rights as a Partner in or
with respect to the Company (whether or not the Assignee of such former Partner
is admitted to the Company as a Substitute Partner).
10.02 Admission of Additional Partners. The admission of new
Partners to the Company shall be accomplished only by the prior written approval
of the Partners holding at least a Supermajority-in-Interest. A supplemental
agreement in terms satisfactory to the General Partner, shall be executed by the
<PAGE>
Company and each new Partner setting forth (i) the amount of contribution to the
capital of the Company to be remitted by the new Partner, and (ii) the number of
Unit(s) to be owned by such new Partner. Each such supplemental agreement shall
be attached to this Agreement as an exhibit.
ARTICLE XI.
DISSOLUTION
11.01 Events Causing Dissolution. The Company shall be
dissolved and its affairs shall be wound up only upon the occurrence of any of
the following events:
A) The expiration of the period fixed for the duration of the Company
by the Certificate of Limited Partnership ;
B) The unanimous written agreement of all the Partners;
C) The bankruptcy of the Company;
D) The sale or other disposition of all or substantially all of the
Company's assets;
E) A court decree shall be issued finding that other circumstances
exist which render a dissolution of the Company equitable or required by law;
F) Upon the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Limited Partner, or the occurrence of any other event which
terminates the continued partnership of a Partner in the Company (any such
events being referred to herein as an "Event of Dissolution"), unless there
are at least
two (2) remaining Partners and the Partners then holding at least a Majority-In-
Interest of the Units unanimously agree to continue the Company and the
unanimous written consent of the General Partner. If the requisite number of
Partners so elect to continue the Company, the Company shall continue until the
expiration of the term for which it was formed or until the occurrence of
another
Event of Dissolution, in which event any remaining Partners and the General
Partner shall again elect whether to continue the Company pursuant to this
Section 11.01(F); or
G) The withdrawal of the General Partner, unless within 90 days after
the withdrawal, all of the Limited Partners agree in writing to continue the
business of the Company and to the appointment of a successor General Partner.
If all of the Limited Partners so elect to continue the Company, the Company
shall continue until the expiration of the term for which it was formed, until
the occurrence of an Event of Dissolution, in which event any remaining Partners
and the General Partner may again elect whether to continue the Company pursuant
to this Section 11.01(F), or the withdrawal of such successor General Partner,
in which event the Limited Partners may again elect whether to continue the
Company pursuant to this Section 11.01(G).
11.02 Procedure on Dissolution. Upon dissolution of the
<PAGE>
Company, the General Partner, and if there is no General Partner, then the
Partners, shall proceed with reasonable promptness to wind up the business
affairs of the Company and to liquidate the Company's business and assets by
selling all of the Company's assets. The proceeds from the sale of the assets
of the Company shall be distributed in the following order of priority:
A) FIRST, to the payment to its creditors of all debts and liabilities
of the Company in the order of priority prescribed by law, except those
liabilities owed to Partners of the Company on account of their contributions;
B) SECOND, to the establishment of reserves for any contingent
liabilities or obligations of the Company, as deemed necessary by the General
Partner or the Partners, as the case may be;
C) THIRD, to the repayment of any loans (including principal and
accrued but unpaid interest thereon) that have been made by any Partner to the
Company and to any other liabilities due and owing to Partners;
D) FOURTH, to all Partners with positive balances in their Capital
Accounts to the extent required to reduce said Capital Accounts down to zero;
and
E) The balance, if any, shall be distributed among the Partners in
accordance with the allocation provisions then in effect as set forth in Section
5.06.
11.03 Filing Certificate of Cancellation. Upon the completion
of the distribution of Company Property as provided in Section 11.02, a
Certificate of Cancellation shall be filed as required by the Act, and each
Partner agrees to take whatever action may be advisable or proper to carry out
the provisions of this ARTICLE XI.
11.04 Return of Capital. The return of Capital Contributions
shall be made solely from Company Property.
11.05 Withdrawal of Limited Partner. A Limited Partner may not
withdraw from the Company at any time absent the approval of all Partners.
ARTICLE XII.
AMENDMENT OF AGREEMENT; MEETINGS; RECORD DATE
12.01 Amendments. All amendments to this Agreement shall
require a Supermajority-in-Interest vote.
12.02 Limitations on Amendments. Notwithstanding any other
provision of this Agreement, no amendment to this Agreement may (i) enlarge the
obligations of any Partner under this Agreement, or (ii) amend this Section
12.02, Section 12.01, or Section 10.01(D), without the unanimous approval of all
Partners.
12.03 Meetings. Meetings of the Company may be called by the
General Partner or by Partners holding not less than twenty percent (20%) of the
Units by giving at least ten (10) days prior written notice and not more than
sixty (60) days written notice of the time, place and purpose of the meeting to
<PAGE>
all Partners.
12.04 Adjournment. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting, if the time and
place thereof are announced at the meeting at which the adjournment is taken,
unless such adjournment shall be for more than forty-five (45) days. At the
adjourned meeting, the Company may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than forty-
five (45) days, a notice of the adjourned meeting shall be given in accordance
with this Section 12.04.
12.05 Waiver of Notice; Consent to Meeting; Approval of
Minutes. The transactions of any meeting of the Company, however called and
noticed, and whenever held, are as valid as though conducted at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each of the Partners
entitled to vote, but not present in person or by proxy, approves by signing a
written waiver of notice or an approval to the holding of the meeting or an
approval of the minutes thereto. All waivers, consents, and approval shall be
filed with the Company records or made a part of the minutes of the meeting.
Attendance of a Partner at a meeting shall constitute a waiver of notice of the
meeting, except when such Partner objects, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened; and except that attendance at a meeting is not a waiver of any right
to object to the consideration of matters required to be included in the notice
of the meeting, but not so included, if the objection is expressly made at the
meeting.
12.06 Quorum. The holders of more than fifty percent (50%) of
the Units entitled to vote represented in person or by proxy, shall constitute
a quorum at a meeting of Partners. The Partners present at a duly called or
held
meeting at which a quorum is present may continue to participate at such meeting
until adjournment, notwithstanding the withdrawal of enough Partners to leave
less than a quorum, if any action taken (other than adjournment) is approved by
the requisite percentage of Units of Partners specified in this Agreement. In
the absence of a quorum, any meeting of Partners may be adjourned from time to
time by a majority vote of the Partners represented either in person or by proxy
entitled to vote, but no other matters may be proposed, approved or disapproved,
except as provided in Section 12.04.
12.07 Action Without a Meeting. Any action that may be taken
by any vote of the Partners may be taken without a meeting if a consent to such
action is signed by Partners holding Units representing not less than the
minimum
number of votes that would be necessary to otherwise authorize or take such
action at a meeting at which all Units entitled to vote thereon were present and
voted. Prompt notice of the taking of any action without a meeting shall be
given to those Partners who have not consented in writing.
ARTICLE XIII.
<PAGE>
POWER OF ATTORNEY
13.01 Power of Attorney.
A) Each Partner by his execution or adoption of this Agreement, to the
extent permitted by law, hereby irrevocably and indefinitely makes, constitutes
and appoints the General Partner, individually and jointly, of the Company, his
or her true and lawful attorney-in-fact, to make, execute, sign, acknowledge,
elect, deliver, file for recording at the appropriate public offices or to
publish:
1) The Certificate of Limited Partnership ;
2) This Agreement;
3) Any statement of intent to dissolve or amendment thereof,
instruments and documents which may be required under law, or by any state or
governmental agency, or as may be appropriate for the conduct of Company
business, its continuation or its dissolution in termination of the Company
pursuant to the terms of this Agreement;
4) Any amendments to this Agreement and/or Certificate of Limited
Partnership which have been approved pursuant to the provisions of this
Agreement and applicable law;
5) The election to continue the Company upon the death,
retirement, resignation, expulsion, bankruptcy or dissolution of a Partner;
6) The correction of any erroneous statement in this Agreement
and/or the Certificate of Limited Partnership ; and
7) Any agreements or certificates required to admit additional
Partners into the Company.
Without limitation, this power of attorney shall include amendment of the
Certificate of Limited Partnership and this Agreement to reflect:
1) A change in the name or address of the Company or its resident
agent;
2) The correction or clarification of an incorrect or erroneous
statement in this Agreement or the Certificate of Limited Partnership (or any
amendment of either of both of them); and
3) The amendment of this Agreement or the Certificate of Limited
Partnership where the effect of such amendment does not actually or potentially
materially adversely affect the right of the Partners.
Provided, however, that the General Partner in its capacity as said
attorney-in-fact shall only take actions and execute documents in accordance
with the provisions of this Agreement and shall not take any action for a
Partner
<PAGE>
which would in any way increase the liability of a Partner beyond the liability
set forth in this Agreement or in his or her Subscription Agreement.
B) It is expressly acknowledged and agreed by each Partner that this
power of attorney is coupled with an interest and that it shall survive his or
her death or incapacity (to the extent permitted by law) and the sale,
assignment or transfer by a Partner of all or any part of his Unit(s).
ARTICLE XIV.
GENERAL PROVISIONS
14.01 Notices. Any notice, demand, request or report required
or permitted to be given or made to a Partner under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class mail to the Partner at the address set forth on Schedule "1" or
such address as a Partner may hereafter provide to Company in writing. Any
notice, payment, or report to be given or sent to a Partner hereunder shall be
deemed conclusively to have been given or sent, upon mailing of such notice,
payment, or report to the address shown on the records of the Company,
regardless of any claim of any Person who may have an interest in the Unit by
reason of an assignment or otherwise.
14.02 Captions. All "ARTICLE" and "Section" captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"ARTICLES" and "Sections" are to ARTICLES and Sections of this Agreement.
14.03 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
14.04 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assignees.
14.05 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
14.06 Waiver. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or any other covenant, duty,
agreement or condition.
14.07 Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute an agreement binding on all
the parties hereto, notwithstanding that all such parties are not signatories to
the original or the same counterpart. Each party shall become bound by this
<PAGE>
Agreement immediately upon affixing such party's signature hereto, independently
of the signature of any other party.
14.08 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Florida, without
regard to its principles of conflict of laws.
14.09 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein shall not be affected thereby.
14.10 Limitation of Liability. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed to in writing, a Limited
Partner shall not be personally liable for any debts, liabilities, or
obligations
of the Company, whether to the Company, to any of the other Partners, or the
creditors of the Company, beyond the Capital Account of the Limited Partner,
together with the Limited Partner's share of the assets and undistributed
profits of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the _____ day of , 1997.
PARTNERS:
COVENTRY CORPORATION
a Kansas corporation, d/b/a
Coventry Corporation of the Republic,
Inc.,
as General Partner
By
Steven L. Vick, President
ELDERLY LIVING/PCJ, LIMITED
PARTNERSHIP
a Florida limited partnership
By: C.R. Development, Inc., General
Partner
By
Stephen D. Russell, President
<PAGE>
Schedule "1"
to
Limited Partnership Agreement
OF
GLADSTONE DEVELOPMENT, LIMITED PARTNERSHIP
Number of Units Consideration Subscriber
98 Class A Coventry Corporation
c/o
Sterling House Corporation
Suite 500
453 South Webb Road
Wichita, Kansas 67207
902 Class B
The Remittance of up to $200,000 Elderly Living/PCJ, Limited
as provided by the Joint Venture Partnership
Agreement Suite 200 E
4 Sawgrass Village Drive Ponte Verde Beach, Florida
32082
Exhibit 10.14
Schedule of Executed Joint Venture Agreements
By and Between Coverntry Corporation
Coventry Corporation a wholly-owned subsidary of Sterling House Corporation
has entered into the following agreements with Elderly Living, Limited
Partnership which vary only in the following material respects from Exhibit
10.13.
Project Entities Date Executed Facility Location
Sherwood Development, L.L.C. June 25, 1997 San Antonio-Whitby, TX
New Braunfels, TX
Glenwood Development, L.L.C. June 25, 1997 Brighton, CO
Winchester Development, Limited June 25, 1997 Piqua, OH
Sprindale, OH
Gladstone Development, June 25, 1997 Port Charlotte, FL
Limited Partnership Jacksonville, FL
Bristol Development, July 31, 1997 Ormond Beach, FL
Limited Partnership
Devon Development, Limited July 31, 1997 Urbana, OH
Washington Township, OH
Sheffield Development, July 31, 1997 LeHigh Acres, FL
Limited Partnership Venice, FL
Exhibit 10.15
OPERATING AGREEMENT
OF
DEVON DEVELOPMENT, LIMITED
<PAGE>
TABLE OF CONTENTS
Article
Page
I. DEFINITIONS 1
II. ORGANIZATIONAL MATTERS 5
2.01 Formation 5
2.02 Name 5
2.03 Principal Office 5
2.04 Term 6
2.05 Filings 6
2.06 Company Property 6
III. PURPOSE 6
3.01 Purpose of the Company 6
IV. CAPITAL CONTRIBUTIONS 6
4.01 Capital Contributions 6
4.02 Capital Accounts 6
4.03 Deficit Capital Account Balance 7
4.04 Allocation 7
4.05 Interest 8
4.06 No Withdrawal 8
4.07 Loans 8
4.08 Additional Capital Contributions 8
4.09 Company Unit Represented by Certificate 8
4.10 Form of Certificate 8
4.11 Neither Responsible for Other's Commitments 8
V. ALLOCATIONS AND DISTRIBUTIONS 9
5.01 Allocation Among Class A Unit Holders 9
5.02 Allocation Among Class B Unit Holders 9
5.03 Allocation of Start-Up Costs 9
5.04 Allocation of Losses 9
5.05 Allocation of Profits 10
5.06 Distributions, Period Return Amounts and Special Allocations
10
5.07 Allocation in the Event of Transfer 11
5.08 Qualified Income Offset 11
VI. MANAGEMENT AND OPERATION OF BUSINESS 12
6.01 Manager 12
6.02 Removal of Manager 12
6.03 Management of Company 12
6.04 Restrictions on the Authority of the Manager 12
6.05 Outside Activities 13
6.06 Management Fee 14
6.07 Administrative Compensation 14
6.08 Devotion of Time 14
6.09 Indemnification 14
6.10 Cost Reimbursement 15
VII. BOOKS, RECORDS, ACCOUNTING AND REPORTS 16
7.01 Books and Records 16
7.02 Accounting 16
7.03 Fiscal Year 16
<PAGE>
VIII. TAX MATTERS 16
8.01 Tax Matters Partner 16
8.02 Taxation as a Partnership 17
IX. TRANSFER OF UNITS 17
9.01 Transfer 17
9.02 Transfer of Units by a Member 17
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer
18
9.04 Option to Members to Purchase Unit(s) on Lifetime Transfer
19
9.05 Termination of Restrictions on Lifetime Transfer 19
9.06 Option to Company to Purchase Unit(s) on Death 19
9.07 Option to Members to Purchase Unit(s) on Death 20
9.08 Termination of Restrictions on Transfer at Death 20
9.09 Restrictions on Transfers 21
9.10 Issuance of Certificates 21
9.11 Compliance With Applicable Law 21
9.12 Lost, Stolen or Destroyed Certificates 21
X. ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS 21
10.01 Admission of Substitute Members 21
10.02 Admission of Additional Members 22
XI. DISSOLUTION 22
11.01 Events Causing Dissolution 22
11.02 Procedure on Dissolution 23
11.03 Filing Articles of Dissolution 24
11.04 Return of Capital 24
<PAGE>
<PAGE>
XII. AMENDMENT OF AGREEMENT, MEETINGS, RECORD DATE 24
12.01 Amendments 24
12.02 Limitations on Amendments 24
12.03 Meetings 24
12.04 Adjournment 24
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes
24
12.06 Quorum 25
12.07 Action Without a Meeting 25
XIII. POWER OF ATTORNEY 25
13.01 Power of Attorney 25
XIV. GENERAL PROVISIONS 27
14.01 Notices 27
14.02 Captions 27
14.03 Pronouns and Plurals 27
14.04 Binding Effect 27
14.05 Integration 27
14.06 Waiver 27
14.07 Counterparts 27
14.08 Applicable Law 27
14.09 Invalidity of Provisions 28
14.10 Limitation of Liability 28
SIGNATURE PAGE 28
<PAGE>
<PAGE>
OPERATING AGREEMENT
OF
DEVON DEVELOPMENT, LIMITED
THIS OPERATING AGREEMENT (the "Agreement") is made and entered into this
day of , 1997, by and among DEVON
DEVELOPMENT, LIMITED an Ohio limited liability company (the "Company"), and
the
persons, partnerships, corporations or other entities who either (i) as to the
Class B Units, execute this Agreement, and (ii) as to the Class A Units,
execute
this Agreement, and thereby agree to contribute to the capital of the Company
and
to be bound by the provisions of the Agreement (each of whom, whether the
holder
of Class B Units or Class A Units, are sometimes referred to as "Member").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement (except as may be otherwise expressly provided
herein or unless the context otherwise requires), the following terms shall
have
the following meanings.
1.1 Act. The term "Act" shall mean The Ohio Limited Liability Company
Company Law, Ohio Rev. Code Ann. Sections 1705.01, et seq., as it may be
amended
from time to time, and any successor to such act.
1.2 Affiliate. The term "Affiliate" shall mean any Person (as defined
in Section 1.24) who directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition of
"Affiliate," the term "control" means either (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and
policies of a Person, whether through ownership of voting securities, by
contract
or otherwise, or (ii) a direct or indirect equity interest of ten percent
(10%)
or more in the entity.
1.3 Agreement. The term "Agreement" shall mean this Operating
Agreement,
as it may be amended or supplemented from time to time.
1.4 Articles of Organization. The term "Articles of Organization"
shall
mean the articles of organization of this Company, filed with the Ohio
Secretary
of State in accordance with the Act.
1.5 Assignee. The term "Assignee" shall mean a Person to whom one (1)
or more Units have been transferred, by transfer or assignment or otherwise,
in a manner permitted under this Agreement, and who has agreed to be bound by
the terms of this Agreement but who has not become a Substitute Member.
1.6 Business Day. The term "Business Day" shall mean the days Monday
through Friday of each calendar week, except legal holidays recognized as such
by either the government of the United States or of the State of Ohio.
1.7 Capital Account. The term "Capital Account" shall mean a separate
capital account established for each Member by the Company pursuant to Section
<PAGE>
1.8 4.02 hereof and maintained in the manner and for the purposes
provided in ARTICLE IV.
1.9 Capital Contribution. The term "Capital Contribution" shall mean
the
sum of the total amount of cash and the total value of property contributed or
services rendered, or a promissory note or other binding obligation to
contribute
cash or property or to perform services contributed to the Company by all
Members, or any one (1) Member, as the case may be (or the predecessor holders
of any Units of any such Members).
1.10 Class B Unit. The term "Class B Unit" shall mean a Unit
representing
an interest in the Company, other than a Class A Unit, issued from time to
time
to those Members who have executed a certain Joint Venture Agreement and have
timely remitted the appropriate funds thereunder.
1.11 Class A Unit. The term "Class A Unit" shall mean a Unit
representing
an interest in the Company, other than a Class B Unit, issued to COVENTRY
CORPORATION, a Kansas corporation, upon the formation of the Company.
1.12 Code. The term "Code" shall mean the Internal Revenue Code of
1986,
as amended (or any corresponding provisions of succeeding law).
1.13 Company. The term "Company" shall mean the limited liability
company
formed by the filing of the Company's Articles of Organization with the Ohio
Secretary of State.
1.14 Company Property. The term "Company Property" shall mean all
property, whether real or personal, tangible or intangible, and whether owned,
leased or acquired by the Company from time to time.
1.15 Distributable Cash Funds. The term "Distributable Cash Funds"
shall
mean all the cash funds of the Company other than (i) Net Cash Proceeds and
(ii)
proceeds from a Sale in connection with a dissolution of the Company under
Section 11.02, which the Manager, in the Manager's sole discretion, determines
are not (i) needed for the payment of existing or anticipated Company
obligations
and expenditures, including capital expenditures, (ii) required by law to be
reserved, or (iii) needed for repair or replacement of Company Property
(whether
for capital or non-capital items). The Manager shall use good faith efforts,
in
light of the existing and anticipated financial conditions, in determining the
availability of Distributable Cash Funds for payment to the Members to enable
them to pay their federal and state income tax liability that may be imposed
upon
the Member's share of the Company's Profits and Losses.
1.16 Initial Capital Contribution. The term "Initial Capital
Contribution" means for purposes of this Agreement, with respect to any
Member,
the amount of money contributed to and received by the Company with respect to
the Units held by such Member as set forth on Schedule "1."
1.17 Joint Venture Agreement. The term "Joint Venture Agreement" shall
mean for purposes of this Agreement, that certain joint venture agreement
between
the Manager and Affiliates of the Class B Unit Holders, to which this
Agreement
has been attached and entitled Exhibit 3.1.
1.18 Manager. The term "Manager" shall mean that Person or those
Persons
named or appointed as manager(s) of the Company pursuant to Section 6.01.
<PAGE>
1.19 Majority-in-Interest. The term "Majority-in-Interest" shall mean,
with respect to any agreement or vote of the Members, one (1) or more of the
Members whose combined Sharing Ratios in the Class B and Class A Units, at the
time of any such agreement or vote, exceed ninety-two percent (92%) of the
then
outstanding Class B and Class A Units held by all Members.
1.20 Member. The term "Member" shall mean those individuals executing
this Agreement as Members of the Company on the signature pages attached
hereto.
1.21 Net Cash Proceeds. The term "Net Cash Proceeds" shall mean the
net
cash (including both principal and interest) realized by the Company from a
Sale,
after retirement of applicable mortgage debt, payment of all expenses related
to
the transaction, payment of or provision for Company debts and obligations and
establishment and maintenance of such reserves as the Manager, in its sole
discretion, may deem necessary or appropriate for anticipated capital gain
taxes,
obligations, contingencies, capital improvements, replacements and working
capital of the Company.
1.22 Return. The term "Return" shall mean that point in time when cash
distributions remitted from the Company to the Class B Unit holders equal the
aggregate Initial Capital Contributions of the Class B Unit holders.
1.23 A Unit Period Return Amount. The term "A Unit Period Return
Amount"
shall mean an amount payable to each holder of Class A Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class A Unit Holder's Initial Capital Contribution.
1.24 B Unit Period Return Amount. The term "B Unit Period Return
Amount"
shall mean an amount payable to each holder of Class B Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class B Unit Holder's Initial Capital Contribution.
1.25 Person. The term "Person" shall mean any natural person, limited
liability company, partnership, corporation, trust, association or other
legally
recognized entity.
1.26 Prime Rate. The term "Prime Rate" means the prime rate in
effect from time to time as published in the Money Rates Section of the Wall
Street Journal, or its successor.
1.27 Project Facility. The term "Project Facility" shall mean any
facility operated or licensed by Sterling House Corporation, the ownership and
operation of which is intended to be the primary business purpose of the
Company.
1.28 Profits and Losses. The term "Profits and Losses" shall mean, at
all
times during the existence of the Company, the income or loss of the Company
for
federal income tax purposes and income of the Company exempt from tax for such
purpose, determined as of the close of the Company's calendar year, including,
without limitation, each item of Company income, gain, loss, deduction and
credit.
1.29 Record Holder. The term "Record Holder" shall mean the Person in
whose name each Unit is registered on the books and records of the Company as
of
the close of business on a particular Business Day.
1.30 Sale. The term "Sale" shall mean and include the sale, exchange,
condemnation or similar eminent domain taking, casualty or other disposition
of
all or any portion of the Company Property which is not in the ordinary course
<PAGE>
1.31 of business, and the sale of easements, rights of way or similar
interests in the Company Property or any other similar items which in
accordance
with the accounting methods used by the Company are attributable to capital;
provided, however, that the term "Sale" shall not refer to any transaction to
the
extent gain or loss is not recognized, or is elected not to be recognized,
under
any applicable section of the Code.
1.32 Sharing Ratio. The term "Sharing Ratio" shall mean for any Member
the proportion obtained by dividing (i) the number of Units (either Class B
Units, Class A Units, or both, as the case may be) held by such Member in the
Company by (ii) the sum of all Units (either Class B Units, Class A Units, or
both, as the case may be) issued and outstanding in the Company; provided,
that
in the event of any assignment by a Member of a Unit in the Company, the
Sharing
Ratio of such Member shall be proportionately reduced, based upon the number
of
Units assigned compared to the total number of Units owned by such Member, and
the assignee of such Unit or Units shall succeed to a proportionate share of
the
Sharing Ratio of his assignor that is attributable to the Unit or Units
transferred to such Assignee.
1.33 Start Up Costs. The term "Start Up Costs" shall mean all costs
and
expenses delineated under Section 195 (c)(1) of the Code.
1.34 Substitute Member. The term "Substitute Member" shall mean an
Assignee of the Unit(s) who has been admitted pursuant to the provisions of
this
Agreement, in place of his/her assignor. A Substitute Member, upon his/her
admission as such, shall replace and succeed to the rights, privileges and
liabilities of the Member from whom he acquired his/her Unit(s) to the extent
of
the Unit(s) so transferred.
1.35 Supermajority-in-Interest. The term "Supermajority-in-Interest"
shall mean, with respect to any agreement or vote of the Members, one (1) or
more
of the Members whose combined Sharing Ratios as to each Class B and Class A
Units, then outstanding at the time of any such agreement or vote, equal or
exceeds ninety-nine percent (99%) of each of the Class B and Class A Units
held
by all Members.
1.36 Tax Matter Partner. The term "Tax Matter Partner" shall mean the
Person designated pursuant to Section 8.01.
1.37 Treasury Regulations. The term "Treasury Regulations" shall mean
the
Income Tax regulations promulgated under the Code, as such Regulations may be
amended (including corresponding provisions of succeeding regulations).
1.38 Unit. The term "Unit" shall collectively mean the Class B Units
and
the Class A Units and any fraction of such Units.
ARTICLE II
ORGANIZATIONAL MATTERS
2.01 Formation. The Company shall be formed as a limited liability
company pursuant to the provisions of the Act. The rights and obligations of
the
Members, and the affairs of the Company, shall be governed first by the
mandatory
provisions of the Act, second by the Company's Articles of Organization, third
by this Agreement and fourth by the optional provisions of the Act. In the
event
of any conflict among the foregoing, the conflict shall be resolved in the
order
of priority set forth in the preceding sentence.
<PAGE>
2.02 Name. The name of the Company shall be "DEVON DEVELOPMENT, LIMITED."
2.03 Principal Office. The principal office of the Company for service
of porcess in the State of Ohio shall be located at the address set forth in
the
Articles of Organization. The Company may also maintain offices at such other
place or places as the Manager deems advisable.
2.04 Term. The Company shall commence upon the filing for record of the
Company's Articles of Organization with the Ohio Secretary of State and shall
continue thereafter for 100 years until dissolved in accordance with ARTICLE
XI.
2.05 Filings. Upon the request of the Manager, the Members shall
immediately execute and deliver all such certificates and other instruments
conforming hereto as shall be necessary for the Manager to accomplish all
filing,
recording, publishing and other acts appropriate to comply with all
requirements
for the formation and operation of a limited liability company under the laws
of
the State of Ohio and for the formation, qualification and operation of a
limited
liability company in all jurisdictions where the Company shall propose to
conduct
business.
2.06 Company Property. All property owned by the Company, whether real
or personal, tangible or intangible, shall be deemed to be owned by the
Company
as an entity, and no Member, individually, shall have any ownership of such
property. The Company shall hold its assets in its own name. No Member shall
have the right to require the partition or sale of any property owned by the
Company. The interests of any Member in the Company (as represented by their
A
Units or B Units) will be personal property for all purposes.
ARTICLE III
PURPOSE
3.01 Purpose of the Company. The purpose for which the Company is
formed
is the transaction of any and all lawful business for which limited liability
companies may be organized under the Act.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.01 Capital Contributions. Each Member shall contribute to the
capital
of the Company an amount equal to such Member's Capital Contribution in
exchange
for a corresponding number of Units as set forth on their respective
Subscription
Agreement in the case of the holders of Class B Units, and as set forth on
Schedule "1" attached hereto. Each Member shall be credited with an initial
capital account equal to the amount of their respective Initial Capital
Contribution.
4.02 Capital Accounts. A separate Capital Account shall be maintained
by
the Company for each of the Members in accordance with the capital accounting
rules of Section 704(b) of the Code, and the Treasury Regulations thereunder.
Adjustments shall be made in each Member's Capital Account as required by the
capital accounting rules of Section 704(b) of the Code and the Treasury
Regulations.
Upon any contribution of money or other property to the Company (other
than
a de minimis amount) as consideration for an interest in the Company, or upon
the
dissolution of the Company or a distribution of money or other property (other
than a de minimis amount) by the Company as consideration for an interest in
the
<PAGE>
Company, the book values of Company Property and the Capital Accounts of the
Members may be adjusted in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), if in the discretion of the Manager such adjustment
would be
helpful in maintaining compliance with the requirements of Treasury
Regulations
Section 1.704-1(b). If any Company Property is to be distributed in kind,
such
property shall be distributed on the basis of its fair market value, as
determined by the Manager, after the Members' Capital Accounts have been
adjusted
to reflect the manner in which any unrealized gain and loss with respect to
such
Company Property (that had not been reflected in the Capital Accounts
previously)
would be allocated among the Members if there were a taxable disposition of
the
Company Property for its fair market value. These provisions and other
provisions
of this Agreement relating to the maintenance of Capital Accounts are intended
to comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted
and applied in a manner consistent with such Section of the Treasury
Regulations.
4.03 Deficit Capital Account Balance. In the event that, following the
liquidation (as defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(g))
of
a Member's interest in the Company (whether or not in connection with the
dissolution and termination of the Company), and after crediting any gain or
charging any loss pursuant to Article V hereof, such Member shall have a
deficit
balance in its Capital Account, such Member shall contribute in cash to the
capital of the Company (by the later of the last day of the taxable year in
which
such liquidation takes place or the date 90 days after the date on which such
liquidation takes place) an amount equal to the amount of such deficit
balance; provided, however, that:
i) the Member shall have no obligation to make a contribution to the
Company pursuant to this Section 4.03, unless it has previously delivered to
the Manager an irrevocable written election to subject itself to such an
obligation;
ii) if the Member delivers such a written election to the Manager, the
amount that the Member shall be required to contribute to the Company pursuant
to this Section 4.03 shall not exceed a sum equal to such Member's Initial
Capital Contribution; and
iii) although the Members are not aware of any possible impact of the
provision contained in clauses "(i)" and "(ii)" above on the Capital Account
of the Manager, if any election made by the Member in accordance with clause
"(i)" above results in an increase in the deficit balance, if any, of the
Capital Account of the Manager, then such election shall not be effective and
the Member shall have no obligation to make any contribution to the Membership
pursuant to this Section 4.03
4.04 Allocation. Any item of income, loss and deduction with respect
to
any Company Property that has been contributed by a Member to the Capital of
the
Company and which is required to be allocated for income tax purposes under
Section 704(c) of the Code, so as to take into account the variation between
the
tax basis of such Company Property and its agreed upon fair market value at
the
time of its contribution, shall be allocated to the Members solely for income
tax
purposes in the manner so required. Elections under Section 704(c) shall be
made
at the discretion of the Manager.
4.05 Interest. No interest shall be paid by the Company on Capital
Contributions, on balances in a Member's Capital Account, or on any other
funds
distributed or distributable under this Agreement. To the extent that the
<PAGE>
Manager may loan additional funds to the Company, the Manager agrees to charge
annual interest on any outstanding balance at a rate that is no more than 275
basis points above the Prime Rate. Provided, the Manager shall be entitled to
collateralize the repayment of such indebtedness by taking a secured first
mortgage, or such lesser position as the Manager may choose, in any property
of
the Company, including any Project Facility.
4.06 No Withdrawal. Except as otherwise required under mandatory
provisions of the Act, no Member shall have the right to withdraw, or receive
any
return of such Member's Capital Contribution, except as specifically provided
for
herein. Except as otherwise expressly provided in ARTICLE V and Section 11.02
hereof, no Member shall have priority over any other Member, either as to the
return of such Member's Capital Contribution or as to income, gains, losses,
deductions or credits.
4.07 Loans. Nothing in this Agreement shall prevent any Member from
making secured or unsecured loans to the Company by agreement with the
Company.
The Company may upon an affirmative vote of a Supermajority-in-Interest make
loans to any Member or any Affiliate of any Member. No Member shall at any
time
be required to loan additional amounts to the Company.
4.08 Additional Capital Contributions. There shall be no additional
contributions of capital required of the Members.
4.09 Company Unit Represented by Certificate. Within thirty (30) days
of
the date of this Agreement, the Manager shall issue and deliver to each Member
a certificate evidencing their respective ownership of the Units transferred
by
the Company to the Members (hereinafter referred to as "Certificate").
4.10 Form of Certificate. The Company's Certificate to be issued by
the
Company may be written, typewritten, mimeographed or printed and otherwise in
such form and design as may be determined by the Manager in its discretion.
4.11 Neither Responsible for Other's Commitments. Neither the Members
nor
the Company shall be responsible or liable for any indebtedness or obligations
of the other Members incurred either before or after the execution of this
Agreement, except as to those responsibilities or obligations incurred or
assumed
by a Member pursuant to the terms of this Agreement.
<PAGE>
<PAGE>
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.01 Allocation Among Class A Unit Holders. Each Class A Unit holder
shall share Company items of costs, credits, income, revenues, gain, loss and
distributions allocated, charged or credited to the Class A Units as a class
hereunder in accordance with the proportion of the Sharing Ratio which each
Class A Unit holder bears relative to the aggregate Sharing Ratios of all
Class A Unit
holders.
5.02 Allocation Among Class B Unit Holders. Each Class B Unit holder
shall share Company items of costs, credits, income, revenues, gain, loss and
distributions allocated, charged or credited to the Class B Units as a class
hereunder in accordance with the proportion which the Sharing Ratio of each
Class B Unit holder bears relative to the aggregate Sharing Ratios of all
Class B Unit holders.
5.03 Allocation of Start Up Costs. Except as otherwise expressly
provided, all Start Up Costs of the Company, whether immediately expended
during
any fiscal year or amortized over a greater period of time, shall be computed
in
accordance with tax accounting principles consistently applied, using such
methods of amortization or expense as the Manager determines to use for
federal
income tax purposes, and shall be allocated in the order and proportions among
the Members as follows:
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.04 Allocation of Losses. Except as otherwise expressly provided,
all
Losses of the Company for each fiscal year shall be computed in accordance
with
tax accounting principles consistently applied, using such methods of
accounting
for depreciation and other items as the Manager determines to use for federal
income tax purposes, and shall be allocated in the order and proportions among
the Members as follows:
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.05 Allocation of Profits. Except as otherwise expressly provided, all
Profits of the Company for each fiscal year computed in accordance with tax
accounting principles consistently applied, using such methods of accounting
for
depreciation and other items as the Manager determines to use for federal
income
tax purposes, shall be allocated among the Members as follows:
<PAGE>
A) Prior to Return:
Class A Units 40%
Class B Units 60%
B) After Return:
Class A Units 51%
Class B Units 49%
5.06 Distributions, Period Return Amounts and Special Allocations.
A) Interim distributions, if made, shall be distributed to the
Members
out of Distributable Cash Funds as follows:
Prior to Return:
Class A Units 40%
Class B Units 60%
After Return:
Class A Units 51%
Class B Units 49%
B) In the event of a Sale or distributions in connection with a
dissolution of the Company in accordance with ARTICLE XI, the Company shall
also distribute to the Members out of Net Cash Proceeds in accordance with
Section 5.06(A).
C) Notwithstanding the provisions of Section 5.06 (A), to the extent
that there are Distributable Cash Funds available at any time prior to Return,
then before any funds shall be distributed to the holders of Class A Units,
there shall first be remitted to the holders of Class B Units an amount equal
to their B Unit Period Return Amount. To the extent that such B Unit Period
Return Amount is not paid in any fiscal year, it shall accumulate and the
obligation to pay the same shall carry over into the next and other succeeding
years until paid. Notwithstanding the provisions of Section 5.05 (A) or of the
preceding sentence of this Section 5.06 (C), to the extent that there are
Distributable Cash Funds available at any time prior to Return but after full
payment of all B Unit Period Return Amounts then owing, then before any
additional funds shall be distributed to the holders of Class B Units, there
shall first be remitted to the holders of Class A Units an amount equal to
their A Unit Period Return Amount. To the extent that such A Unit Period
Return Amount is not paid in any fiscal year, it shall accumulate and the
obligation to pay the same shall carry over into the next and other
succeeding years until paid. It is understood and agreed that sums
received as the payment of the B Unit Period Return Amount shall constitute a
return of capital and not of income or profits to the extent that such payment
would decrease the Class B Unit Holder's capital account below zero. Further,
any distribution that is in excess of any B Unit Holder's capital account
shall be deemed to be a "gross income" (as that term is defined under Section
61 of the Code) allocation to the extent of such distribution.
<PAGE>
D) It is understood and agreed that distributions, including the B
Unit
Period Return Amount, may be, but shall not be required to be, made at least
quarterly. No distribution to the Members shall be made in kind, in lieu of
cash.
5.07 Allocation in the Event of Transfer. In the event of an
assignment
of a Member's interest in the Company pursuant to ARTICLE IX, all Profits and
Losses of the Company for federal, state and local income tax purposes shall,
unless otherwise required by applicable Treasury Regulations, be determined
monthly and shall be allocated to the Members in accordance with their Sharing
Ratios in Class B Units and Class A Units, as the case may be, on the first
(1st)
day of such month; provided, however, a Member transferring all or a portion
of
his Units at any time during a month is deemed to have transferred the Units
as
of the first (1st) day of the month following the transfer; provided, further,
that gain or loss on a sale or other disposition of all or a substantial
portion
of the assets of the Company shall be allocated to the Members of record on
the
day of such sale or other disposition. Notwithstanding any of the foregoing,
the
Manager may allocate such items on some other reasonable basis if it
determines,
in its sole discretion, that the Company's methods of allocating such items
does
not satisfy the requirements of Section 706 of the Code and the Treasury
Regulations.
5.08 Qualified Income Offset. Notwithstanding anything in this ARTICLE
V to the contrary, in the event a Member unexpectedly receives any adjustment,
allocation or distribution described in Section 1.704(b)(2)(ii)(d)(4), (5) or
(6)
of the Treasury Regulations, which causes or increases the deficit balance in
such Member's capital account, then items of income and gain shall be
allocated
to such Member or Members in an amount and manner sufficient to eliminate the
deficit balances in their Capital Accounts as quickly as possible.
ARTICLE VI.
MANAGEMENT AND OPERATION OF BUSINESS
6.01 Manager. The Company shall have one (1) Manager who is a Member
of
the Company. The initial Manager of the Company shall be Coventry Corporation
and it shall serve as Manager of the Company until such time as it resigns or
is
removed in accordance with Section 6.02. In the event the Manager resigns,
the
replacement Manager shall be selected by a vote of a Supermajority-in-Interest
of the Members.
6.02 Removal of Manager. A Supermajority-in-Interest of the Unit
holders
shall have the right to remove a Manager, but only for cause. The replacement
Manager shall be selected by a vote of a Majority-in-Interest of the Unit
holders. The replacement Manager's appointment shall be further conditioned
upon
the Members obtaining the full release of all then outstanding guaranties to
which the then replaced Manager and its Affiliates are parties.
6.03 Management of Company. The management of the Company shall be
vested
solely with the Manager, chosen in accordance with this Agreement, who shall
have
full authority and discretion to conduct the ordinary and usual business and
affairs of the Company, to take any action of any kind and to do anything and
everything such Manager deems necessary, subject to the restrictions set forth
in this Agreement. The Manager shall be imposed with a fiduciary duty to
conduct
the business and affairs of the Company in the best interests of the Company
and
of the Members, including the safekeeping and use of all Company funds and
assets
for the exclusive benefit of the Company whether or not the same shall be in
the
immediate possession or control of the Manager. Provided, the preceding
sentence
<PAGE>
shall not be construed as prohibiting the Manager from contracting with an
Affiliate (for example, BCI Construction, Inc.) provided that the Manager
believes in good faith that the terms of such agreement are commercially
reasonable. No Member shall have any power or authority to act for or bind
the
Company unless such Member has been expressly authorized by the Manager in
writing to act as an agent of the Company for a particular matter, transaction
or series of same.
6.04 Restrictions on the Authority of the Manager. Subject to the
provisions of this Agreement, except as herein provided, the Manager shall not
be authorized to do any of the following acts without the prior consent of all
of the Members:
A) Any act in contravention of this Agreement or the Articles of
Organization of the Company;
B) Any act which would make it impossible or impractical for the
Company to conduct the ordinary business of the Company;
C) Confess judgment against the Company; or
D) Possess, sell or otherwise dispose of any property of the Company,
except in the ordinary course of business.
6.05 Outside Activities.
A) Each Member and such Member's Affiliates may have business interests
and engage in business activities in addition to those relating to the
Company. However, during the term of the Joint Venture Agreement, no Member
shall directly or indirectly own, operate, develop, construct, manage or
participate in the ownership, development, construction, operation or
management of any assisted
living, dementia or other specialty care facility for the elderly located in
the "Territory", as such term is defined by the Joint Venture Agreement. In
addition, as long as Sterling House Corporation and Member or any Affiliate
of any Member own directly or indirectly any beneficial interest in the
Company, and for a period of one (1) year thereafter, such Member or its
Affiliates shall not directly or indirectly own, operate, develop, construct,
manage or participate in the ownership, development, construction, operation
or management of any assisted living, dementia or other specialty care
facility for the elderly located within twenty five (25) miles from any
Project Facility owned by the Company. The restrictions set forth in this
Section 6.05 are subject to the
following exceptions:
i) such restrictions shall not be considered violated by reason
of Member or their Affiliates developing, owning and/or constructing nursing
home facilities which require a certificate of need or the equivalent; and
ii) such restrictions shall not be considered violated by reason
of any Member or any Affiliate of any Member owning less than a five percent
(5%) interest in a legal entity that owns, develops, constructs, operates or
manages any assisted care or dementia or other special care facilities and
whose shares of
<PAGE>
stock are traded on a nationally recognized stock exchange or traded in the
over-the-counter market.
B) Each Member hereby agrees that the restrictions set forth in this
Section 6.05 are founded on valuable consideration and are reasonable in
duration and geographic area in view of the circumstances under which this
Agreement is executed and that such restrictions are necessary to protect the
legitimate interests of the Company and its Members. In the event that any
provision of
this Section 6.05 is determined to be invalid by any arbitrator or court of
competent jurisdiction, the provisions of this Section 6.05 shall be deemed to
have been amended and the parties agree to execute any documents and take
whatever action is necessary to evidence such amendment, so as to eliminate or
modify any such invalid provision and to carry out the intent of this Section
6.05 to render the terms of this Section 6.05 enforceable in all respects as
so modified.
C) Each Member acknowledges and agrees that irreparable injury may
result to the other Members and/or the Company if a Member breaches any
covenant contained in this Section 6.05 and that the remedy at law for the
breach of any such covenant will be inadequate. Therefore, if any Member
shall engage in any act in violation of any of the provisions of this Section
6.05, the other Members and the Company (or any or all of them) shall be
entitled, in addition to such other remedies and damages as may be available
to any or all of them at law or under this Agreement, to injunctive relief to
enforce the provisions of this Section 6.05.
D) Neither the Company nor the other Members shall have any rights by
virtue of this Agreement or the relationship contemplated herein to share or
participate in any other business ventures or activities of such Member or
such Member's Affiliates.
6.06 Management Fee. In consideration of the performance of the
on-going
day to day management of each Project Facility, the Company shall, no less
frequently than monthly pay to the Manager (or its subcontractor) an amount
equal
to seven percent (7%) of the gross revenue realized by the Company for each
accounting period (hereinafter "Management Fee"). To the extent not paid, the
Management Fee shall be cumulative from month to month and from fiscal year to
fiscal year.
6.07 Administrative Compensation. In consideration for the rendering
of
certain administrative activities during the initial operation phase of the
Project Facility, the Company shall pay to the Manager (or its subcontractor),
by no later than the initial funding of the construction financing for the
Project Facility a one time fee in the amount of Twenty Thousand Dollars
($20,000) (hereinafter "Administrative Compensation"). It is understood and
agreed that the Administrative Compensation is intended to compensate the
Manager
for its efforts and is in addition to any reimbursement for any and all direct
costs incurred by the Manager on behalf of the Company during the initial
operation phase of the Project Facility. The Manager may contract with or
assign
to another party, including an Affiliate of Sterling House Corporation, all or
a portion of the responsibility for performing such activities.
<PAGE>
6.08 Devotion of Time. The Manager shall not be expected to devote its
entire
time or attention to the Company's business, but only such time and effort as
is
required for the sound and proper management of the Company.
6.09 Indemnification.
A) Company Indemnity. To the maximum extent permitted by law, the
Company shall indemnify and hold harmless the Manager, all Members, their
respective Affiliates, and the employees and agents of the Company (each, an
"Indemnitee") from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorney's fees and disbursements), judgments, fines, settlements, penalties
and other expenses actually and reasonably
incurred by the Indemnitee in connection with any and all claims,
demands, actions, suits, or proceedings, civil, criminal, administrative or
investigative, in which the Indemnitee may be involved, or threatened to be
involved, as a party or otherwise, by reason of the fact that the Indemnitee
is or was a Member or Manager of the Company or is or was an employee or agent
of the Company, including Affiliates of the foregoing, arising out of or
incidental
to the business of the Company, provided (i) the Indemnitee's conduct did not
constitute willful misconduct or recklessness, (ii) the action is not based on
breach of this Agreement, (iii) the Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Company and within the scope of such Indemnitee's authority,
and
(iv) with respect to a criminal action or proceeding, the Indemnitee had no
reasonable cause to believe Indemnitee's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere, or its equivalent, shall not,
in and of itself, create a presumption or otherwise constitute evidence that
the Indemnitee acted in a manner contrary to that specified above.
B) Advancement of Expenses. Expenses incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding subject to this
Section 6.09 may, from time to time, be advanced by the Company prior to the
final disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the Indemnitee to
repay such amount(s) if it shall ultimately be determined that such Person is
not entitled to be indemnified as authorized in this Section 6.09.
C) Non-Exclusivity. The indemnification provided by this Section
6.09
shall be in addition to any other rights to which the Indemnitee may be
entitled under any agreement, vote of the Members, as a matter of law or
equity, or otherwise, and shall inure to the benefit of the successors,
assignees, heirs, personal representatives and administrators of the
Indemnitee.
D) Insurance. The Company may purchase and maintain insurance, at
the
Company's expense, on behalf of any Indemnitee against any liability that may
be asserted against or expense that may be incurred by an Indemnitee in
connection with the activities of the Company regardless of whether the
Company would have the power to indemnify such Indemnitee against such
liability under the provisions of this Agreement.
<PAGE>
6.10 Cost Reimbursement In consideration for the execution of any
guaranty
by the Manager, for any Project Facility, if and as required for any third
party
construction of initial permanent financing of such facility, the Company
shall
reimburse the Manager an amount equal to its direct costs paid to third
parties
for providing such guaranty (hereinafter the "Cost Reimbursement"). It is
understood and agreed that the Cost Reimbursement is non-refundable and fully
earned upon execution of each such guaranty. In the event any Project
Facility
is thereafter refinanced, the Manager shall not be obligated to execute a
guaranty for the same, absent the reimbursement of any additional direct costs
paid to third parties.
ARTICLE VII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
7.01 Books and Records. Appropriate books and records with respect to
the
Company's business, including, without limitation, all books and records
necessary to provide to the Members any information, lists and copies of
documents required to be provided pursuant to the Act shall at all times be
kept
at the principal office of the Company or at such other places as agreed to by
the Members. Without limiting the foregoing, the following shall be
maintained
at the Company's principal office: (i) a current list of the full name and
last
known business address of each Member and Manager; (ii) copies of records that
would enable a Member to determine the relative voting rights of the Members;
(iii) a copy of the Articles of Organization, and any amendments thereto; (iv)
copies of the Company's federal, state and local income tax returns and
reports,
if any, for the then three (3) most recent years; (v) a copy of this
Agreement;
and (vi) copies of any financial statements of the Company for the then three
(3)
most recent fiscal years. Any records maintained by the Company in the
regular
course of its business may be kept on, or be in the form of, magnetic tape,
photographs or any other information storage device, provided that the records
so kept are convertible into clearly legible written form within a reasonable
period of time. Upon reasonable request, each Member shall have the right,
during ordinary business hours, to inspect and copy any of such records at the
requesting Member's expense.
7.02 Accounting. The books of the Company for regulatory and financial
reporting purposes shall be maintained on either a cash or accrual basis of
accounting, which shall be determined by the Manager. The Company books for
purposes of maintaining and determining Capital Accounts shall be maintained
in
accordance with the provisions of this Agreement, Section 704 of the Code and,
to the extent not inconsistent therewith, the principles described above for
financial reporting and regulatory purposes.
7.03 Fiscal Year. The fiscal year of the Company shall be the calendar
year, unless otherwise determined by a Majority-in-Interest vote of the
Members.
ARTICLE VIII.
TAX MATTERS
8.01 Tax Matters Partner. The Members hereby appoint the Manager, as
the
"Tax Matters Partner" (hereinafter referred to as the "TMP") as defined in
Section 6231(a)(7) of the Code. The TMP is authorized to take such actions
and
to execute all statements and forms on behalf of the Company which may be
permitted or required by the applicable provision of the Code or the Treasury
Regulations, and the Members shall take all other actions that may be
necessary
or appropriate to effect the designation of the Manager as the TMP. In the
event
of an audit of the Company's income tax returns by the Internal Revenue
Service,
the TMP may, at the expense of the Company, retain accountants and other
<PAGE>
professionals to participate or assist in the audit process. All expenses
incurred by the TMP in such capacity as TMP shall be expenses of the Company
and
paid from Company funds. The TMP may be changed by a vote of a
Majority-in-Interest of the Members.
8.02 Taxation as a Partnership. No election shall be made by the
Company
or any Member for the Company to be excluded from the application of any
provision of Subchapter K, Chapter 1, of Subtitle A of the Code or from any
similar provisions of any state tax laws.
ARTICLE IX.
TRANSFER OF UNITS
9.01 Transfer.
A) The term "transfer," when used in this ARTICLE IX with respect to
a
Unit, shall be deemed to refer to a transaction by which the Member assigns
all or a portion of such Member's Units, or any interest therein, to another
Person, or by which the holder of a Unit assigns the Unit to another Person or
Assignee, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, transfer by will or intestate succession, exchange,
or any other disposition.
B) No Units shall be transferred, in whole or in part, except in
accordance with the terms and conditions set forth in this ARTICLE IX. Any
transfer or purported transfer of any Units not made in accordance with this
ARTICLE IX shall be null and void. If there is an involuntary transfer by
operation of law or otherwise and such involuntary transfer is not made in
accordance with this ARTICLE IX, then the Assignee shall not be a Substitute
Member, and shall have no right to participate in the Company's affairs as a
Member thereof, but instead, shall only be entitled to receive the share of
profits, losses or other distributions by way of income and/or the return of
capital to which the transferring Member would otherwise be entitled at the
time said transferring Member would be entitled to receive the same and such
Assignee shall not have any right to participate in the business or affairs of
the Company, including the right to vote on, consent to, or otherwise
participate in any decision of the Members.
9.02 Transfer of Units by a Member.
A) Except as provided in Section 9.03 hereto, no Units may be
transferred by a Member unless the following conditions are first satisfied:
i) The consent of each Member has been obtained, which may be
granted or withheld in each Member's sole discretion, such consent to be
evidenced by a written instrument, dated and signed by the Member;
ii) The transferee and each Member execute and file all
documents
necessary for the transferee to be a Substitute Member and be bound by the
terms hereof and such transferee is admitted as a Substitute Member; and
<PAGE>
iii) The Company receives a written opinion from the Company's legal
counsel that such transfer would not materially adversely affect the
classification of the Company as a partnership for federal and state income
tax purposes or cause the Company to be treated as a publicly-traded
partnership.
B) The transfer restrictions on all Units shall be conspicuously
noted
by an appropriate legend on each Certificate issued to a Member.
C) In no event shall any Unit be transferred to a minor or any
incompetent except by will or intestate succession and in full compliance with
the provisions of this ARTICLE IX.
D) The Company need not recognize, for any purpose, any transfer of all
or any fraction of a Unit unless there shall have been filed with the Company
and recorded on the Company's books a duly executed and acknowledged
counterpart of the instrument of assignment and such instrument evidences the
written acceptance by the Assignee of all of the terms and provisions of this
Agreement and such Assignee expressly represents that such assignment was made
in accordance with all applicable laws and regulations.
E) Any holder of a Unit (including a transferee thereof) shall be
deemed conclusively to have agreed to comply with and be bound by all terms
and conditions of this Agreement, with the same effect as if such holder had
executed an express acknowledgment thereof, whether or not such holder in fact
has executed such an express acknowledgment.
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer.
Subject
to Section 11.01(F), in the event a Member (hereinafter referred to as the
"Selling Member") receives a bona fide offer from a prospective buyer to
acquire
any or all of his or her Unit(s), which offer the Selling Member intends to
accept, the Selling Member shall first transmit to the Company and the other
Members, not less thirty (30) days prior to the time the proposed sale of the
Unit(s) is to be consummated, written notice (hereinafter referred to as the
"Notice") by certified mail of his or her intention to make such disposition
of
his or her Unit(s). The Notice shall set out the terms and conditions of the
intended disposition, including the purchase price payable for such Unit(s) by
the prospective buyer. Within fifteen (15) days following the giving of the
Notice, the Members shall be polled by the Manager. An affirmative vote of
the
Members holding a Majority-in-Interest, excluding the Selling Member's Units,
for
purposes of both voting and determining the number of Unit(s) outstanding,
shall
authorize the Manager and entitle the Company to purchase such Unit(s) at a
per
Unit price equal to and upon the same terms and conditions as are set forth
in
the Notice.
9.04 Option to Members to Purchase Unit(s) on Lifetime Transfer. If
any
Unit owned by the Selling Member is not purchased by the Company in accordance
with the provisions of Section 9.03, then the Unit(s) not so purchased shall
then
be offered for sale and shall be subject to an option on the part of each of
the
other Class B and Class A Unit holders to purchase a "proportionate share" of
any
or all of such Unit(s) which option shall be exercised, if at all, in writing
within fifteen (15) days of the polling of the Member pursuant to the
provisions
of Section 9.03. Such Members shall be entitled to purchase such Unit(s) at a
per Unit price equal to and upon the same terms and conditions as are set
forth
in the Notice. For purposes of this Section, the term "proportionate share"
shall mean the Unit(s) offered for sale which the proportion of the Sharing
Ratio
of each Class B and Class A Unit holder bears to the aggregate Sharing Ratios
<PAGE>
(other than the Unit(s) offered for sale) of all Class B and Class A Unit
holders. In addition, if any Unit offered for sale is not purchased by the
Member(s) first entitled thereto, the term "proportionate share" shall include
the Unit or Units not purchased by the Member(s) first entitled thereto which
the
Sharing Ratio of each Member bears to the aggregate Sharing Ratios (other than
the Sharing Ratio of the Unit(s) offered for sale) of all Class B and Class A
Unit holders other than the Member(s) otherwise first entitled to so purchase
the
Unit(s) but who has/have declined to purchase the Unit(s).
9.05 Termination of Restrictions on Lifetime Transfer. If any Unit
owned
by the Selling Member is not purchased by the Company in accordance with the
provisions of Section 9.03, or if any or all are not purchased by the other
Members in accordance with the provisions of Section 9.04, then the Units that
are not so purchased may then still only be duly transferred to the Person set
forth in the Notice upon obtaining the prior written consent of all the
Members
pursuant to the terms and conditions of Section 10.01. If consent of all the
Members is not obtained, then the Assignee of the Selling Member's Units shall
not be entitled to any of the rights granted to a Member hereunder other than
the
right to receive all or part of the share of profits, losses, cash
distribution
or returns of capital to which the Selling Member would otherwise be entitled.
In no event shall such transfer be on terms or conditions other than those set
forth in the Notice. If any terms or conditions change or differ from those
set
forth in the Notice, said Unit(s) must then be resubmitted for sale to the
Company and the Members on the basis of the changed terms and conditions
pursuant
to Sections 9.03 and 9.04 herein. Notwithstanding any such transfer or
disposition of a Selling Member's Unit(s) to a third party, the restrictions
imposed by this Agreement shall continue to apply to the Unit(s) owned by such
transferee or Assignee and to any remaining Unit(s) owned by the Selling
Member,
and the Assignee or transferee shall, prior to the transfer of such Unit(s),
agree to be bound by this Agreement.
9.06 Option to Company to Purchase Unit(s) on Death. Subject to
Section
11.01(F), in the event of the death of any Member (except in the case of the
death of a Person holding a Unit or Units as a joint tenant with the right of
survivorship vested with another Member), all of the Unit(s) of such Member
shall
be subject to an option to purchase as provided in this Section. Within
ninety
(90) days after the appointment of the legal representative of the deceased
Member or one hundred twenty (120) days after the death of such Member,
whichever
occurs first, the Manager shall calculate a proposed option price for the
deceased Member's Unit(s) by determining the product of his or her Sharing
Ratio
multiplied by the estimated market value of the Company on the last day of the
calendar month immediately preceding the date of death, including goodwill and
going concern value, plus the share of cash on hand, prepaid expenses,
accounts
receivable (less a reserve for doubtful accounts), less the deceased Member's
estate's share of debts, obligations and other liabilities of the Company.
The
proposed option price shall then be communicated to the deceased Member's
legal
representative or, if none, to his or her next of kin. The purchase price to
be
paid by the Company shall be payable in cash, or its equivalent, unless
different
terms are desired by the deceased Member's estate and are agreed to by the
Company. If the parties are unable to agree as to the option price within
fifteen (15) days following the communication of the proposed option price,
the
Company and the legal representative of the deceased Member's estate shall
then
select a mutually agreeable appraiser to determine the option price. If the
Company and the deceased Member's estate cannot agree on the appraiser to be
selected, then each shall select an appraiser. The two appraisers shall in
turn
select a third appraiser who shall determine the option price. If they cannot
agree on a third appraiser, then the option price shall be the average of
their two respective appraisals. The fees of all appraisers shall be borne by
the deceased Member's estate. Each appraiser selected hereunder shall be a
reputable
<PAGE>
appraisal firm which has substantial experience in appraising commercial real
estate which shall mean that at a minimum the appraiser must be state
certified,
a member in good standing with the American Institute of Real Estate
Appraisers
and a member in good standing with the Appraisal Institute. Within fifteen
(15)
days after the option price has been determined, the Members shall be polled
by
the Manager at which time all of the Units of such deceased Member shall be
offered for sale to the Company at the option price and under the terms agreed
to by the deceased Member's estate if other than cash terms. A
Majority-In-Interest of the Members, excluding the deceased Member's Units for
both purposes
of voting and determination of Units outstanding, shall decide within fifteen
(15) days from the date polled whether the Company shall exercise its option.
9.07 Option to Members to Purchase Unit(s) on Death. If any Unit owned
by a deceased Member is not purchased by the Company in accordance with the
provisions of Section 9.06, then the Units not so purchased shall be offered
for
sale and shall be subject to an option on the part of each of the Class B and
Class A Unit holders to purchase a proportionate share (as defined in Section
9.04) of any or all of such Units, which option shall be exercised, if at all,
at the time of the polling of the Class B and Class A Unit holders pursuant to
the provisions of Section 9.06. The purchase price to be paid and the terms
of
payment shall be equal to, determined and calculated in accordance with the
provisions set forth in Section 9.06.
9.08 Termination of Restrictions on Transfer at Death. If any Unit
owned
by the deceased Member is not purchased by the Company in accordance with
Section
9.06 or is not purchased by the Members in accordance with the provisions of
Section 9.07, then the Unit(s) not so purchased shall be transferred pursuant
to
the testamentary disposition of the deceased Member or by the laws of intestacy,
as the case may be. Notwithstanding, the restrictions imposed by this
Agreement
shall also thereafter apply to the Units owned by any such transferee or
Assignee
of the Units and the Assignee or transferee shall, prior to the transfer of
such
Unit(s), agree in writing to be bound by this Agreement.
9.09 Restrictions on Transfers. Notwithstanding the other provisions
of
this ARTICLE IX, no transfer of any Unit of any Member in the Company shall be
made (including any transfer from one Member to another Member) if the
transfer
(i) would violate applicable federal and state securities laws or rules and
regulations of the Securities and Exchange Commission, any state securities
commission or any other governmental authority with jurisdiction over the
transfer, (ii) would materially adversely affect the classification of the
Company as a partnership for federal or state income tax purposes, or (iii)
would
affect the Company's qualification as a limited liability company under the
Act.
9.10 Issuance of Certificates. Upon the transfer of a Unit in
accordance
with ARTICLE IX, the Company shall, if certificates have been issued, issue
replacement certificates. All certificates shall contain legends required by
this Agreement or otherwise required by law.
9.11 Compliance With Applicable Law. The restrictions on transfer
contained in this ARTICLE IX are intended to comply (and shall be interpreted
consistently) with the restrictions on transfer set forth in the Act.
9.12 Lost, Stolen or Destroyed Certificates. The Company may issue a
new
certificate in place of any certificate previously issued if the record holder
of the certificate: (i) makes proof by affidavit that a previously issued
certificate has been lost, stolen, or destroyed; (ii) requests the issuance of
<PAGE>
a new Certificate before the Company has notice that the Units evidenced by
such
certificate have been acquired by a purchaser for value in good faith and
without
notice of an adverse claim; and (iii) if required by the Company, delivers to
the
Company a bond with surety or sureties acceptable to the Company, to indemnify
the Company against any claim that may be made on account of the alleged loss,
destruction or theft of the certificate. The Company shall be entitled to
treat
such Record Holder as the Member or Assignee in fact of any Units and,
accordingly, shall not be required to recognize any equitable or other claim
or
interest in or with respect to the Units on the part of any other Person,
regardless of whether it has actual or other notice thereof.
ARTICLE X.
ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS
10.01 Admission of Substitute Members. Upon a transfer of a Unit by
a Member in accordance with ARTICLE IX (but not otherwise), the transferor shall
have the power to give, and by transfer of any Certificate issued shall be
deemed
to have given, the transferee the right to apply to become a Substitute Member
with respect to the Unit(s) acquired, subject to the conditions of and in the
manner permitted under this Agreement. A transferee of a Certificate
representing a Unit shall be an Assignee with respect to the transferred Unit
(whether or not such transferee is a Member or Substitute Member with respect
to
other previously acquired Units) unless and until all of the following
conditions
are satisfied:
A) The instrument of assignment sets forth the intentions of the
assignor that the Assignee succeed to the assignor's interest as a Substitute
Member in such assignor's place;
B) The assignor and Assignee shall have fulfilled all other
requirements of this Agreement;
C) The Assignee shall have paid all reasonable legal fees and filing
costs incurred by the Company in connection with such Assignee's substitution
as a Member; and
D) The Members shall have unanimously approved such substitution in
writing, which approval may be granted or withheld by each Member in such
Member's sole and absolute discretion and may be arbitrarily withheld, and the
books and records of the Company have been modified to reflect the admission.
The admission of an Assignee as a Substitute Member with respect to a
transferred Unit shall become effective on the date the Members give their
unanimous written consent to the admission and the books and records of the
Company have been modified to reflect such admission. Any Member who
transfers
all of such Member's Units with respect to which such Member had been admitted
as a Member shall cease to be a Member of the Company upon a transfer of such
Units in accordance with ARTICLE IX and the execution of a counterpart of this
Agreement by the transferee and shall have no further rights as a Member in or
with respect to the Company (whether or not the Assignee of such former Member
is admitted to the Company as a Substitute Member).
10.02 Admission of Additional Members. The admission of new Members
to the Company shall be accomplished only by the prior written approval of the
Members holding at least a Supermajority-in-Interest. A supplemental
agreement
in terms satisfactory to the Manager, shall be executed by the Company and
each
new Member setting forth (i) the amount of contribution to the capital of the
<PAGE>
Company to be remitted by the new Member, and (ii) the number of Unit(s) to be
owned by such new Member. Each such supplemental agreement shall be attached
to
this Agreement as an exhibit.
ARTICLE XI.
DISSOLUTION
11.01 Events Causing Dissolution. The Company shall be dissolved and
its affairs shall be wound up only upon the occurrence of any of the following
events:
A) The expiration of the period fixed for the duration of the Company
by the Articles of Organization;
B) The unanimous written agreement of all the Members;
C) The bankruptcy of the Company;
D) The sale or other disposition of all or substantially all of the
Company's assets;
E) A court decree, including a decree of judicial dissolution under
Section 1705.47 of the Act, shall be issued finding that other circumstances
exist which render a dissolution of the Company equitable or required by law;
or
F) Upon the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Member, or the occurrence of any other event which terminates
the continued membership of a Member in the Company (any such events being
referred to herein as an "Event of Dissolution"), unless there are at least
two (2) remaining Members and the Members then holding at least a
Majority-In-Interest of the Units unanimously agree to continue the Company
and the unanimous written consent of the Manager. If the requisite number of
Members so elect to continue the Company, the Company shall continue until the
expiration of the term for which it was formed or until the occurrence of
another Event of Dissolution, in which event any remaining Members and the
Manager shall again elect whether to continue the Company pursuant to this
Section 11.01(F).
11.02 Procedure on Dissolution. Upon dissolution of the Company, the
Manager, and if there is no Manager, then the Members, shall proceed with
reasonable promptness to wind up the business affairs of the Company and to
liquidate the Company's business and assets by selling all of the Company's
assets. The proceeds from the sale of the assets of the Company shall be
distributed in the following order of priority:
A) FIRST, to the payment to its creditors of all debts and
liabilities
of the Company in the order of priority prescribed by law, except those
liabilities owed to Members of the Company on account of their contributions;
B) SECOND, to the establishment of reserves for any contingent
liabilities or obligations of the Company, as deemed necessary by the Manager
or the Members, as the case may be;
C) THIRD, to the repayment of any loans (including principal and
accrued but unpaid interest thereon) that have been made by any
<PAGE>
Member to the Company and to any other liabilities due and owing to Members;
D) FOURTH, to all Members with positive balances in their Capital
Accounts to the extent required to reduce said Capital Accounts down to zero;
and
E) The balance, if any, shall be distributed among the Members in
accordance with the allocation provisions then in effect as set forth in
Section 5.06.
11.03 Filing Decree of Dissolution. Upon the completion of the
distribution of Company Property as provided in Section 11.02, a Decree of
Dissolution shall be filed as required by the Act, and each Member agrees to
take whatever action may be advisable or proper to carry out the provisions
of this ARTICLE XI.
11.04 Return of Capital. The return of Capital Contributions shall
be made solely from Company Property.
ARTICLE XII.
AMENDMENT OF AGREEMENT; MEETINGS; RECORD DATE
12.01 Amendments. All amendments to this Agreement shall require a
Supermajority-in-Interest vote.
12.02 Limitations on Amendments. Notwithstanding any other provision
of this Agreement, no amendment to this Agreement may (i) enlarge the
obligations
of any Member under this Agreement, or (ii) amend this Section 12.02, Section
12.01, or Section 10.01(D), without the unanimous approval of all Members.
12.03 Meetings. Meetings of the Company may be called by the Manager
or by Members holding not less than twenty percent (20%) of the Units by
giving
at least ten (10) days prior written notice and not more than sixty (60) days
written notice of the time, place and purpose of the meeting to all Members.
12.04 Adjournment. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting, if the time and
place
thereof are announced at the meeting at which the adjournment is taken, unless
such adjournment shall be for more than forty-five (45) days. At the
adjourned
meeting, the Company may transact any business which might have been
transacted
at the original meeting. If the adjournment is for more than forty-five (45)
days, a notice of the adjourned meeting shall be given in accordance with this
Section 12.04.
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes. The
transactions of any meeting of the Company, however called and noticed, and
whenever held, are as valid as though conducted at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and
if, either before or after the meeting, each of the Members entitled to vote,
but
not present in person or by proxy, approves by signing a written waiver of
notice
or an approval to the holding of the meeting or an approval of the minutes
thereto. All waivers, consents, and approval shall be filed with the Company
records or made a part of the minutes of the meeting. Attendance of a Member
at
a meeting shall constitute a waiver of notice of the meeting, except when such
Member objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened; and except
that
attendance at a meeting is not a waiver of any right to object to the
<PAGE>
consideration of matters required to be included in the notice of the meeting,
but not so included, if the objection is expressly made at the meeting.
12.06 Quorum. The holders of more than fifty percent (50%) of the
Units entitled to vote represented in person or by proxy, shall constitute a
quorum at a meeting of Members. The Members present at a duly called or held
meeting at which a quorum is present may continue to participate at such
meeting
until adjournment, notwithstanding the withdrawal of enough Members to leave
less
than a quorum, if any action taken (other than adjournment) is approved by the
requisite percentage of Units of Members specified in this Agreement. In the
absence of a quorum, any meeting of Members may be adjourned from time to time
by a majority vote of the Members represented either in person or by proxy
entitled to vote, but no other matters may be proposed, approved or
disapproved,
except as provided in Section 12.04.
12.07 Action Without a Meeting. Any action that may be taken by any
vote of the Members may be taken without a meeting if a consent to such action
is signed by Members holding Units representing not less than the minimum
number
of votes that would be necessary to otherwise authorize or take such action at
a meeting at which all Units entitled to vote thereon were present and voted.
Prompt notice of the taking of any action without a meeting shall be given to
those Members who have not consented in writing.
ARTICLE XIII.
POWER OF ATTORNEY
13.01 Power of Attorney.
A) Each Member by his execution or adoption of this Agreement, to the
extent permitted by law, hereby irrevocably and indefinitely makes,
constitutes and appoints the Manager, individually and jointly, of the
Company, his or her true and lawful attorney-in-fact, to make, execute, sign,
acknowledge, elect, deliver, file for recording at the appropriate public
offices or to publish:
i) The Articles of Organization;
ii) This Agreement;
iii) Any statement of intent to dissolve or amendment thereof,
instruments and documents which may be required under law, or by any state or
governmental agency, or as may be appropriate for the conduct of Company
business, its continuation or its dissolution in termination of the Company
pursuant to the terms of this Agreement;
iv) Any amendments to this Agreement and/or Articles of
Organization which have been approved pursuant to the provisions of this
Agreement and applicable law;
v) The election to continue the Company upon the death,
retirement, resignation, expulsion, bankruptcy or dissolution of a Member;
vi) The correction of any erroneous statement in this Agreement
and/or the Articles of Organization; and
<PAGE>
vii) Any agreements or certificates required to admit additional
Members
into the Company.
Without limitation, this power of attorney shall include amendment of
the
Articles of Organization and this Agreement to reflect:
i) A change in the name or address of the Company or its
resident
agent;
ii) The correction or clarification of an incorrect or erroneous
statement in this Agreement or the Articles of Organization (or any amendment
of either of both of them); and
iii) The amendment of this Agreement or the Articles of
Organization where the effect of such amendment does not actually or
potentially materially adversely affect the right of the Members.
Provided, however, that the Manager in its capacity as said
attorney-in-fact shall only take actions and execute documents in accordance
with the
provisions of this Agreement and shall not take any action for a Member which
would in any way increase the liability of a Member beyond the liability set
forth in this Agreement or in his or her Subscription Agreement.
B) It is expressly acknowledged and agreed by each Member that this
power of attorney is coupled with an interest and that it shall survive his or
her death or incapacity (to the extent permitted by law) and the sale,
assignment or transfer by a Member of all or any part of his Unit(s).
<PAGE>
<PAGE>
ARTICLE XIV.
GENERAL PROVISIONS
14.01 Notices. Any notice, demand, request or report required or
permitted to be given or made to a Member under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when
sent
by first class mail to the Member at the address set forth on Schedule "1" or
such address as a Member may hereafter provide to Company in writing. Any
notice, payment, or report to be given or sent to a Member hereunder shall be
deemed conclusively to have been given or sent, upon mailing of such notice,
payment, or report to the address shown on the records of the Company,
regardless
of any claim of any Person who may have an interest in the Unit by reason of
an
assignment or otherwise.
14.02 Captions. All "ARTICLE" and "Section" captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent
of
any provisions hereof. Except as specifically provided otherwise, references
to
"ARTICLES" and "Sections" are to ARTICLES and Sections of this Agreement.
14.03 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
14.04 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors,
administrators,
successors, legal representatives and permitted assignees.
14.05 Integration. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and
supersedes
all prior agreements and understandings pertaining thereto.
14.06 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute
a waiver of any such breach or any other covenant, duty, agreement or
condition.
14.07 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute an agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original
or the same counterpart. Each party shall become bound by this Agreement
immediately upon affixing such party's signature hereto, independently of the
signature of any other party.
14.08 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Ohio, without regard
to
its principles of conflict of laws.
14.09 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal, or unenforceable in any respect, the validity,
legality, and enforceability of the remaining provisions contained herein
shall
not be affected thereby.
14.10 Limitation of Liability. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed to in writing, a Member
shall not be personally liable for any debts, liabilities, or obligations of
the
Company, whether to the Company, to any of the other Members, or the creditors
<PAGE>
of the Company, beyond the Capital Account of the Member, together with the
Member's share of the assets and undistributed profits of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day of , 1997.
COVENTRY CORPORATION,
a Kansas corporation, as Manager
By
Steven L. Vick, President
MEMBERS:
EDERLY LIVING III,
LIMITED PARTNERSHIP
a Nevada limited partnership
By: C.R. Development, Inc., General
Partner
By
Stephen D. Russell, President
COVENTRY CORPORATION
a Kansas corporation
By
Steven L. Vick, President
<PAGE>
<PAGE>
Schedule "1"
to
OPERATING AGREEMENT
OF
DEVON DEVELOPMENT COMPANY, L.L.C.
Number of Units Consideration Subscriber
98 Class A $1,000 Coventry
Corporation
c/o Sterling House
Corporation
Suite 500
453 South Webb Road
Wichita, Kansas 67207
902 Class B The Remittance of
up to $200,000 Ederly Living III,
as provided by the Joint LimitedPartnership
Venture Agreement 1233 Second Street
Sarasota, Florida 34236
Exhibit 10.16
Schedule of Executed Operating Agreements
By and Between Coverntry Corporation
Coventry Corporation a wholly-owned subsidary of Sterling House Corporation
has entered into the following agreements with Elderly Living, Limited
Partnership which vary only in the following material respects from Exhibit
10.15.
Joint Venture Facility
Member/Partner Project Entities Dated Location
SDR Development, Inc. Austin Development, 3/31/97 Findlay, OH
Limited
Elderly Living, Bridgeport 3/31/97 Newark, OH
Limited Partnership Development, Limited Troy, OH
Elderly Living, Newport 3/31/97 Georgetown, TX
Limited Partnership Development, L.L.C
Elderly Living, Waterford 3/31/97 Durant, OK
Limited Partnership Development, L.L.C
Elderly Living, Cornwall Development, 6/25/97 Fairfield, OH
Limited Partnership Limited Greenville, OH
Elderly Living, Sherwood 6/5/97 New Braunfels, TX
Limited Partnership Development, L.L.C San Antonio-Whitby, TX
Elderly Living, Winchester 6/18/97 Piqua, OH
Limited Partnership Development, L.L.C Springdale, OH
Elderly Living, Glenwood 6/18/97 Brighton, CO
Limited Partnership Development, L.L.C
Elderly Living, Devon Development, 6/25/97 Urbana, OH
Limited Partnership Limited Washington Twnsp, OH
SDR Development, Inc. Portsmouth 6/6/97 Waco, TX
Development, L.L.C San Antonio-
Maltsberger Rd., TX
Tulsa-71st St., OK
Exhibit 10.17
STERLING HOUSE
LICENSE AGREEMENT
DEVON DEVELOPMENT, LIMITED
Licensee
Date of Agreement
<PAGE>
STERLING HOUSE
LICENSE AGREEMENT
TABLE OF CONTENTS
Item Page
I. Grant of License
1.01 Grant of License 2
1.02 Retention of Certain Rights 2
1.03 Improvements to System 3
1.04 Agreement to Operate 3
II. Development and Opening of the Residence
2.01 Architectural Plans 3
2.02 Furnishings, Fixtures, Signs and Equipment 4
2.03 Operations Manual 4
III. Marks
3.01 Ownership of Goodwill and Marks 4
3.02 Limitations on Licensee's Use of Marks 5
3.03 Infringement 5
3.04 Discontinuance of Use of Marks 6
IV. Relationship of the Parties/Indemnification
4.01 Independent Status 6
4.02 Additional Limitations on Licensee's Use of Marks 6
4.03 Limitations on Liability 6
4.04 Indemnification 7
V. Confidential Information
5.01 Limitation on Interest in Confidential Information 7
5.02 Confidential Use of Confidential Information 8
5.03 Exception to Restrictions on Confidential Information 9
5.04 Insurance 9
VI. Annual Reviews, Inspections, and Audits
6.01 Company's Right to Inspect the Residence 10
VII. Transfer
7.01 By Company 11
7.02 Licensee May Not Transfer Without Approval of Company 11
7.03 Definition of "Transfer" 11
7.04 Conditions for Approval of Transfer 12
7.05 Excepted Transfers 12
7.06 Death or Disability of Licensee 12
7.07 Effect of Consent to Transfer 13
VIII. Termination of Agreement by Licensee
8.01 Termination for Good Cause 13
IX. Termination of the License
9.01 Grounds for Termination 14
9.02 Efforts to Resolve Termination Disputes Other
Than by Termination 15
X. Rights and Obligations of Company and Licensee
Upon Termination or Expiration of the License
10.01 Payment of Amounts Owed to Company 15
10.02 Marks 15
10.03 Modification of Residence Design and Decor 16
10.04 Cessation of Use of Confidential Information 16
10.05 Continuing Obligations 16
<PAGE>
XI. Casualty Loss or Condemnation
11.01 Casualty Loss 16
11.02 Condemnation Proceedings 17
XII. Enforcement
12.01 Severability and Substitution of Valid Provisions 17
12.02 Waiver of Obligations 18
12.03 Limitations on Liability 19
12.04 Specific Performance/Injunctive Relief 19
12.05 Rights of Parties are Cumulative 20
12.06 Governing Law/Consent to Jurisdiction 20
12.07 Binding Effect/Modification 20
12.08 Construction 20
12.09 Definitions 21
12.10 Counterparts 21
XIII. Notices and Payments 21
<PAGE>
<PAGE>
LICENSE AGREEMENT
NOW, on this day of , 1997, this Agreement
is made,
BY AND BETWEEN STERLING HOUSE CORPORATION,
a Kansas corporation,
hereinafter referred to as
"Company,"
AND DEVON DEVELOPMENT, LIMITED
an Ohio limited liability company,
hereinafter referred to as
"Licensee."
W I T N E S S E T H:
WHEREAS, Company owns certain confidential information relating to, and has
designed, instituted, developed and promoted a unique assisted living
residential
concept for which substantial goodwill has been created. Such facilities are
intended to provide the frail elderly with privacy and companionship in a
comfortable, moderately-priced, non-institutional living environment, are
operated under the trade name STERLING HOUSE , and are operated with uniform
formats, systems, methods, specifications, standards, procedures and trade dress
(hereinafter referred to as the "System"), all of which may be improved, further
developed, or otherwise modified by Company from time to time. Company uses,
promotes, and licenses the proprietary service mark STERLING HOUSE (and
associated designs) and other trademarks, service marks, logos, and commercial
symbols in connection therewith (hereinafter referred to as the "Marks"); and
WHEREAS, Company grants to persons who meet Company's qualifications and
are willing to undertake the requisite investment and effort to establish and
develop STERLING HOUSE assisted living facilities (hereinafter referred to as
"Residence" or "Residences"), licenses to operate Residences utilizing the
System and the Marks; and
WHEREAS, Company is willing to grant this License in consideration for the
issuance of a membership interest to an affiliate of the Company and other good
and valuable consideration, the receipt of which is hereby acknowledged.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
I.
GRANT OF LICENSE
1.01 Grant of License. Licensee has applied for a License to own and
operate one (1) Residence to be located at/in 609 East Water Street, Urbana,
Ohio 43078 (the actual physical location of said Residence wherever situated
hereinafter referred to as the "Premises") and such application has been
approved by Company in reliance upon all of the representations made herein.
Company hereby grants to Licensee, subject to all of the terms, provisions, and
conditions contained herein, a non-exclusive License (the "License") to operate
a Residence solely at the Premises, and to use the System and Marks in the
operation thereof, for a term of fifteen (15) years commencing on the opening of
the Residence unless sooner terminated, as provided in ARTICLES VIII and IX
herein. Termination or expiration of this Agreement shall constitute a
termination or expiration of the License.
1.02 Retention of Certain Rights. Notwithstanding anything to the
contrary, Company retains, for itself and its affiliates, the right in its sole
discretion to:
A) operate Residences at such locations as Company, in its sole
discretion, deems appropriate;
B) utilize the System, or any portions thereof, in the operation of
other assisted living facilities, nursing homes, residential care facilities,
and other forms of congregate housing wherever located and operated by
whomever, as determined by Company in its sole discretion; and
C) grant other licenses for licensed Residences at such locations as
Company, in its sole discretion, deems appropriate.
1.03 Improvements to System. Notwithstanding anything herein to the
contrary, any and all improvements to the System developed by Licensee
(including
any and all Plans), shall be and become the sole and absolute property of
Company, and Company may incorporate the same into the System and shall have the
sole and exclusive right to copyright, register and protect such improvements in
Company's own name to the exclusion of Licensee. Licensee's rights and
<PAGE>
obligations toward the use of such improvements shall be limited to its rights
and obligations regarding Confidential Information as provided for herein.
1.04 Agreement to Operate. Licensee agrees that it will at all times
faithfully, honestly and diligently perform its obligations hereunder, that it
will continuously exert its best efforts to promote and enhance the business of
the Residence.
II.
DEVELOPMENT AND OPENING OF
THE RESIDENCE
2.01 Architectural Plans. Company shall furnish its copyrighted plans,
specifications and drawings, including, without limitation, architectural,
mechanical, electrical, structural, civil engineering, and landscape, for a
prototype Residence reflecting Company's requirements for its design, materials,
layout, equipment, fixtures, furniture, furnishings, signage and decoration (the
"Plans"). The Plans and all modifications thereof, additions and/or deletions
thereto are and shall remain the proprietary property of Company regardless of
the use of the Plans by the Licensee or Licensee's agents. Licensee shall cause
all construction and equipping of the Residence licensed hereunder to be done in
strict compliance with the Plans, and no deviations therefrom shall be made by
Licensee or its contractor(s) without the express written approval of the
Company. Company shall have the right to inspect all construction. Licensee
acknowledges that Company's exercise of its rights to inspect the construction
of the Residence shall be solely for the purpose of assuring compliance with the
terms and conditions of this Agreement, and Company shall have no liability or
obligation with respect to the construction of the Residence.
2.02 Furnishings, Fixtures, Signs and Equipment. Licensee agrees to use
in the development and operation of the Residence only those brands, types, or
models of equipment, fixtures, furniture, furnishings and signs, which Company
has approved as meeting its specifications and standards for quality, design,
appearance, warranties, and function. All such items, if any, designated by
Company from time to time, shall be purchased only from vendors, contractors,
and suppliers approved by Company.
2.03 Operations Manual. Company shall loan to Licensee for use during the
term of the License one (1) set of Company's confidential operations manuals
(the "Operations Manual"). The Operations Manual may be modified from time
to time.
Licensee shall keep its copy of the Operations Manual current, making only the
<PAGE>
amendments and deletions to the Operations Manual as Company may direct.
Licensee shall not at any time without the written consent of Company, copy,
duplicate, record or otherwise reproduce any part of the Operations Manual, nor
otherwise make the same available to any unauthorized person. Licensee shall
maintain the Operations Manual in a safe and secure location and shall
immediately report the theft or loss of the Operations Manual, or any portion
thereof, to Company.
III.
MARKS
3.01 Ownership of Goodwill and Marks. Licensee acknowledges that
Licensee's right to use the Marks is derived solely from this Agreement and is
limited to the conduct of business by Licensee pursuant to and in compliance
with this Agreement. Any unauthorized use of the Marks by Licensee shall
constitute a breach of this Agreement and an infringement of the rights of
Company in and
to the Marks. Licensee acknowledges and agrees that all usage of the Marks by
Licensee and any goodwill established thereby shall inure to the exclusive
benefit of Company and that this Agreement does not confer any goodwill or other
interests in the Marks upon Licensee other than the right to operate a Residence
at the Premises in compliance with this Agreement. All provisions of this
Agreement applicable to the Marks shall apply to any additional proprietary
trade
and service marks, and commercial symbols hereafter authorized for use by and
licensed to Licensee by Company.
3.02 Limitations on Licensee's Use of Marks. Licensee shall use the Marks
as the sole identification of the Residence, provided that Licensee shall
identify itself as the independent owner thereof in the manner prescribed by
Company. Licensee shall not use any Mark as part of any corporate or trade name
or with any prefix, suffix, or other modifying words, terms, designs, or symbols
(other than logos licensed to Licensee hereunder), or in any modified form, nor
may Licensee use any Mark in connection with the performance or sale of any
unauthorized services or products or in any other manner not expressly
authorized
in writing by Company. Licensee agrees to prominently display the Marks at the
Residence on all signage, displays, and/or materials as may be designated by
Company from time to time, and in connection with any and all advertising and
marketing materials, as may be designated by Company. All Marks shall only be
displayed and/or utilized in the manner prescribed by Company. Licensee agrees
to give all notices of trade and service mark registrations as Company
specifies
<PAGE>
and to obtain all fictitious or assumed name registrations as may be required
under applicable law.
3.03 Infringement. Licensee shall immediately notify Company in writing
of any apparent infringement of, or challenge to Licensee's use of any Mark, or
claim by any person of any rights in any Mark or similar trade name, trademark,
or service mark of which Licensee becomes aware. Licensee shall not communicate
with any person other than Company, its counsel, or Licensee's counsel in
connection with any infringement, challenge, or claim. Company shall have sole
discretion to take such action as it deems appropriate and the right to
exclusively control any litigation, U.S. Patent and Trademark Office proceeding,
or other administrative proceeding arising out of any infringement, challenge,
or claim or otherwise relating to any Mark or the System. Licensee shall make
no claim against Company and shall hold Company harmless from any and all direct
or indirect costs, damages, demands, expenses, losses or liabilities suffered by
Licensee as a result of any modification of the System necessitated by any claim
or challenge relating to the Marks or the System, including the costs of
altering
the appearance, design, or format of the Residence, or any reduction in sales
revenues or profits, or increased capital expenditures or operating costs
resulting from such modification and occasioned by any litigation arising out of
any claim or challenge relating to Licensee's use of any Mark or right to
use the
System, or any part thereof. Licensee agrees to and shall execute any and all
instruments and documents, render such assistance and do such acts and things as
may, in the opinion of Company's counsel, be reasonably necessary or advisable
to protect and maintain the interests of Company in any litigation, U.S. Patent
and Trademark Office proceeding, other administrative proceeding, or to
otherwise
protect and maintain the interests of Company in the Marks and the System.
3.04 Discontinuance of Use of Marks. If it becomes advisable at any time
in Company's sole discretion for Company and/or Licensee to modify or
discontinue
use of any Mark, and/or to use one (1) or more additional or substitute trade or
service marks, Licensee agrees to and shall comply with Company's direction to
modify or otherwise discontinue the use of such Mark within a reasonable time
after notice by Company.
IV.
RELATIONSHIP OF THE PARTIES/INDEMNIFICATION
4.01 Independent Status. It is understood and agreed by the parties
hereto that this Agreement does not create a fiduciary relationship between
them,
<PAGE>
that Company and Licensee shall be independent contractors, and that nothing in
this Agreement is intended to make either party a general or special agent,
joint
venturer, partner, or employee of the other for any purpose. Licensee shall
conspicuously identify itself in all dealings with tenants/residents, suppliers,
public officials, and others as the owner of the Residence under a License with
Company.
4.02 Additional Limitations on Licensee's Use of Marks. Company has not
authorized or empowered Licensee to use the Marks except as provided by this
Agreement and Licensee shall not employ any of the Marks in signing any
contract,
check, purchase agreement, negotiable instrument, legal obligation, application
for any license or permit, or in a manner that may result in liability of
Company
for any indebtedness or obligation of Licensee. Except as expressly authorized
by this Agreement, neither Company nor Licensee shall make any express or
implied
agreements, warranties, guarantees or representations, or incur any debt, in the
name of or on behalf of the other or represent that their relationship is other
than licensor and licensee, respectively.
4.03 Limitations on Liability. Neither Company nor Licensee shall be
obligated by or have any liability under any agreements or for any
representations made by the other that are not expressly authorized hereunder,
nor shall Company be obligated for any damages to any person or property
directly
or indirectly arising out of the operation of the Residence, or Licensee's
business authorized by or conducted pursuant to the License, whether caused by
Licensee's negligent or willful action or failure to act to the relative extent
such damages do not arise out of Company's negligence, wrongful act or improper
failure to act. Company shall have no liability for any sales, use, occupation,
excise, gross receipts, income, property or other taxes, whether levied upon
Licensee, the Residence, or Licensee's property, or upon Company, in connection
with the business conducted by Licensee or payments to Company remitted pursuant
to this Agreement.
4.04 Indemnification. Licensee shall indemnify and hold harmless Company,
Company's affiliates, and their shareholders, directors, officers, employees,
agents, and assignees against any liability for any claims arising out of the
operation of the Residence. For purposes of this indemnification, "claims"
shall
mean and include all obligations, actual and consequential damages, taxes, and
costs reasonably incurred by Company in the defense of any claim against Company
or in any action in which Company is named as a party, including, without
<PAGE>
limitation, reasonable accountants', attorneys' and expert witness fees, costs
of investigation and proof of facts, court costs, and other litigation expenses,
including travel and living expenses. Company shall have the right to defend
any
claim asserted against it or the persons delineated herein. This indemnity
shall
continue in full force and effect subsequent to and notwithstanding the
expiration or earlier termination of this Agreement.
V.
CONFIDENTIAL INFORMATION
Company possesses certain types of confidential information, including, but
not limited to, architectural plans, designs, and layouts, as well as the
methods, techniques, formats, specifications, procedures, information, systems,
and knowledge of and experience in the operation of Residences (hereinafter
referred to as "Confidential Information"). Company will disclose the
Confidential Information to Licensee under the terms of this Agreement,
including
by way of example, furnishing the Operations Manual and the Plans.
5.01 Limitation on Interest in Confidential Information. Licensee
acknowledges and agrees that, although Licensee has the right to use same,
Licensee shall not acquire any interest in the Confidential Information, other
than the right to utilize it in the operation of the Residence at the Premises
during the term of this Agreement, and that the use or duplication of the
Confidential Information in the operation of any other business or commercial
enterprises would constitute an unfair method of competition.
5.02 Confidential Use of Confidential Information. Licensee acknowledges
and agrees that the Confidential Information is proprietary, may involve trade
secrets of Company, and is disclosed to Licensee solely on the express condition
that Licensee agrees, and Licensee does hereby agree, that Licensee:
A) Shall not use the Confidential Information in the operation of any
other business, commercial enterprise, or capacity (including any other business
or commercial enterprises engaged in providing housing and/or care to the frail
elderly);
B) Shall maintain the absolute confidentiality of the Confidential
Information during and after the term of this Agreement;
C) Shall not make any unauthorized copy, duplicate, record, or
otherwise reproduce all or any portion of the Confidential Information disclosed
by Company in written, electronic, other tangible or verbal form;
<PAGE>
D) Shall never contest the validity of Company's exclusive ownership of and
rights to the System or the Confidential Information; and
E) Shall adopt and implement all reasonable procedures prescribed from
time to time by Company to prevent unauthorized use or disclosure of the
Confidential Information, including without limitation, restrictions on
disclosure thereof to employees, officers, members and managers of the Licensee
and the use of non-disclosure and non-competition clauses as prescribed by
Company in any agreements with any persons who may hereafter have access to the
Confidential Information.<PAGE>
<PAGE>
5.03 Exception to Restrictions on Confidential Information.
Notwithstanding anything herein to the contrary, the restrictions on Licensee's
disclosure and use of the Confidential Information shall not apply to the
following:
A) Information, processes, or techniques which, in the opinion of
Company, are or become generally known and used in the frail elderly
housing and/or care industry, other than through disclosure (whether deliberate
or inadvertent) by Licensee;
B) Disclosure of the Confidential Information in judicial or
administrative proceedings to the extent that Licensee is legally compelled to
disclose such information, provided Licensee shall have used its best efforts
and
shall have afforded Company the opportunity to obtain an appropriate protective
order, or other assurance satisfactory to Company, of confidential treatment for
the information required to be so disclosed; and
C) Disclosure to Licensee's employees to the extent necessary for the
proper operation of the Residence.
5.04 Insurance. During the term of this Agreement, Licensee shall
maintain in full force under policies of insurance issued by carriers approved
by Company:
A) Comprehensive public and product liability insurance against claims
for bodily and personal injury, death, and property damage caused by or
occurring
in conjunction with the operation of the Residence or otherwise in conjunction
with the conduct of business by Licensee pursuant to the License;
B) Broad form fire and extended coverage, vandalism, and malicious
mischief insurance on the Residence licensed under this Agreement and its
contents;
C) Workers' compensation and employer's liability insurance as well as
such other insurance as may be required by statute or rule of the state or
locality in which the Premises are located; and
D) Automobile liability insurance, where applicable.
Such insurance coverage shall be maintained in such amounts as Company
determines periodically to be necessary. Not less than ten (10) days prior to
each anniversary date for each policy, Licensee shall provide Company with
certificates of insurance evidencing that the insurance has been secured and
paid
for the then ensuing year. Company may periodically increase the amounts of
<PAGE>
coverage required under any insurance policies and require different or
additional kinds of insurance at any time, including excess liability insurance,
to reflect inflation, identification of new risks, changes in law or standards
of liability, higher damage awards, or other relevant changes in circumstances.
All insurance policies shall insure Licensee and Company and shall provide for
thirty (30) days prior written notice to Company of any material modification,
cancellation, or expiration of a policy.
In connection with any construction, renovation, refurbishing, or
remodeling of the Residence licensed under this Agreement, Licensee shall cause
the general contractor to maintain with a reputable insurer (i) comprehensive
general liability insurance (with comprehensive automobile liability coverage
for
vehicles used by the Licensed business for both owned and non-owned vehicles,
builder's risk, product liability, completed operations and independent
contractors coverage) in such amounts as Company determines periodically to be
necessary and with Company named as an additional insured, (ii) workers'
compensation insurance, (iii) employer's liability insurance, as well as (iv)
such other insurance as may be required by law.
VI.
ANNUAL REVIEWS, INSPECTIONS,
AND AUDITS
6.01 Company's Right to Inspect the Residence. To determine whether
Licensee and the Residence licensed under this Agreement are complying with this
Agreement, Company or its designated agents shall have the right at any
reasonable time and without prior notice to Licensee to:
A) Inspect the Premises;
B) Observe Licensee, and the employees of the Residence;
C) Interview or survey the employees of the Residence; and
D) Interview tenants/residents of the Residence.
<PAGE>
<PAGE>
VII.
TRANSFER
7.01 By Company. This Agreement and the License are fully transferable
by Company and shall inure to the benefit of any transferee or other legal
successor to the interest of Company herein.
7.02 Licensee May Not Transfer Without Approval of Company. Licensee
understands and acknowledges that the rights and duties created by this
Agreement
are personal to Licensee or its owner(s) and that Company has granted the rights
set forth herein to Licensee in reliance upon the individual or collective
character, skill, aptitude, attitude, business ability, and financial capacity
of Licensee or its owner(s). Any Residence developed pursuant to this Agreement
(or any interest therein), or any License (or any interest therein) granted
pursuant to this Agreement, may not be transferred without the prior written
approval of Company, and any such transfer without such approval shall
constitute a breach hereof and convey no rights to or interests in this
Agreement, Licensee,
the Residence licensed under this Agreement or the License.
7.03 Definition of "Transfer." As used in this Agreement, the term
"transfer" shall mean and include the voluntary, involuntary, direct or indirect
assignment, sale or other transfer by Licensee or its owner of any interest in
this Agreement, any part or all of the ownership of Licensee, the Residence
licensed under this Agreement or any interest in the Residence, or the License
or any interest therein granted pursuant to this Agreement, including, without
limitation: (i) the transfer of ownership of capital stock or partnership
interest; (ii) merger or consolidation, or issuance of additional securities
representing an ownership interest in Licensee; (iii) sale of common stock,
limited liability company interests, or partnership interests, of Licensee sold
pursuant to a private placement or registered public offering; (iv) transfer of
interest in Licensee, the License granted pursuant hereto, or the Residence
licensed under this Agreement, in a divorce proceeding or otherwise by operation
of law; or (v) transfer of any interest in Licensee, the License granted
pursuant hereto, or the Residence licensed under this Agreement, in the event
of the death
of Licensee or an owner of Licensee by will, declaration of or transfer in
trust, or under the laws of intestate succession.
7.04 Conditions for Approval of Transfer. If Licensee and its owners are
in full compliance with this Agreement, Company shall not unreasonably withhold
its approval of a transfer that meets all the applicable requirements of this
<PAGE>
Section 7.04. The proposed transferee or its owner must be an individual of
good moral character and otherwise meet Company's then applicable standards for
licensees. A transfer of ownership in the Residence licensed under this
Agreement may only be made in conjunction with a transfer of this Agreement. If
the transfer is of a controlling interest in Licensee, or is one (1) of a series
of transfers which in the aggregate constitute the transfer of a controlling
interest in Licensee, as a bare minimum, and without in any way limiting its
discretion, Company may require prior to its consent that all of the following
conditions must be satisfied prior to, or concurrently with, the effective date
of the transfer: (i) the transferee must have sufficient business experience,
aptitude, and financial resources to develop the Premises and operate the
Residence; (ii) all obligations of Licensee and its owner incurred in connection
with this Agreement and the License granted hereby must be assumed by the
transferee; (iii) Licensee must pay any and all other amounts of whatever nature
owed to Company or its affiliates which are then due and unpaid; (iv) the
lessors of the Premises must have consented to the assignment or sublease of
the Premises to the transferee; (v) the transferee must agree to be bound by
all terms and
conditions of this Agreement; (vi) Licensee or the transferee must reimburse
Company for all expenses (including legal fees) reasonably incurred by Company
in connection with the transfer; (vii) Licensee and its transferring owner must
execute a general release, in form satisfactory to Company, of any and all
claims
against Company, its affiliates and their officers, directors, employees and
agents; and (viii) Company must approve the material terms and conditions of the
transfer, including, without limitation, a determination that the price and
terms
of payment are not so burdensome as to adversely affect the future development
and operation of the Residence licensed under this Agreement by the transferee.
7.05 Excepted Transfers. If the proposed transfer will not result in a
change of control and is to or among owners of Licensee or to or among the
immediate family members of Licensee, Sub-Sections (i), (ii) and (iv) of Section
7.04 shall not apply.
7.06 Death or Disability of Licensee. Upon the death or permanent
disability of Licensee or, if Licensee is a corporation, limited liability
company, or partnership, the owner of a controlling interest in Licensee, the
executor, administrator, conservator, or other personal representative of such
person shall transfer its interest in this Agreement or such interest in
Licensee
to either a fellow shareholder, member or partner, as the case may be, or a
third
<PAGE>
party upon approval of such transferee by Company. The disposition of this
Agreement or such interest in Licensee (including, without limitation, transfer
by bequest or inheritance) shall be completed within a reasonable time, not to
exceed twelve (12) months from the date of death or permanent disability and
shall be subject to all the terms and conditions applicable to transfers
contained herein. Failure to dispose of this Agreement or the interest in
Licensee within said period of time shall constitute a breach of this Agreement.
7.07 Effect of Consent to Transfer. Company's consent to a transfer of
this Agreement or any interest in Licensee subject to the restrictions of this
ARTICLE VII shall not constitute a waiver of any claims it may have against
Licensee, nor shall it be deemed a waiver of Company's rights to demand exact
compliance with any of the terms or conditions of this Agreement by any
transferee. Further, Licensee for itself and on behalf of its transferee does
acknowledge and agree that Company's approval shall not be deemed to constitute
a guaranty or warranty as to transferee's success in conducting the business
contemplated herein.
VIII.
TERMINATION OF AGREEMENT BY LICENSEE
8.01 Termination for Good Cause. Nothing herein shall be construed to
prevent Licensee from terminating this Agreement for good cause. For purposes
of this Agreement, the term "good cause" shall be deemed to mean a material
breach of this Agreement by Company which is not cured within thirty (30) days
after Company actually receives written notice required hereunder from Licensee,
or in the event such default cannot be cured within such thirty (30) day period,
Company shall not have commenced to cure such default within thirty (30) days
and diligently continued thereafter to attempt to cure such default.
<PAGE>
IX.
TERMINATION OF THE LICENSE
9.01 Grounds for Termination. This Agreement shall terminate
automatically upon delivery of notice of termination to Licensee, if Licensee or
its owner (or any shareholder, member or partner, if Licensee is a corporation,
limited liability company or partnership):
A) Abandons or fails to actively operate the Residence licensed under
this Agreement;
B) Surrenders or transfers control of the operation of the Residence
licensed under this Agreement;
C) Files a Certificate/Articles of Dissolution, makes a general
assignment for the benefit of its creditors, applies for or consents to the
appointment of a receiver, trustee, or liquidator of all or a substantial part
of its assets, files a voluntary petition in bankruptcy, has an involuntary
petition in bankruptcy filed against it (which is not released within ninety
[90]
days), or fails to pay its debts and obligations as they mature in accordance
with normal business practices;
D) Makes an unauthorized assignment or transfer of this Agreement, the
License, the Residence licensed under this Agreement, or an
ownership interest in Licensee; or
E) Makes any unauthorized use of the Marks or unauthorized use or
disclosure of the Confidential Information or any portion thereof.
This Agreement shall terminate without further action by Company or notice
to Licensee, if Licensee or its owner:
A) Fails to timely comply with any provision of this Agreement and does
not:
1) correct such failure within fifteen (15) days after written
notice of such failure to comply is delivered to Licensee; or
2) if such failure cannot reasonably be corrected within fifteen
(15) days after written notice of such failure to comply is delivered to
Licensee, Licensee fails to undertake efforts to correct such failure and
furnish
proof acceptable to Company of such efforts and the date of their expected
completion, within ten (10) days after written notice is delivered to Licensee.
B) If Company or an affiliate of Company is no longer a shareholder,
member, or partner of Licensee.
<PAGE>
9.02 Efforts to Resolve Termination Disputes Other Than by Termination.
Any acts of Company undertaken in the course of efforts to resolve a termination
dispute, or a dispute for which termination is a possible remedy, shall be
deemed
to have been undertaken without prejudice to the rights asserted by Company and
shall not constitute a waiver or relinquishment of those rights. In the event
Licensee continues to engage in Licensed operations while a dispute is pending,
that fact shall not constitute a waiver or relinquishment of Company's rights.
Company may, at its option and without waiving its right to terminate, seek any
form of relief or remedy available to it under common law or statute for any
breach of this Agreement including, but not limited to, the right to damages,
injunctive relief, declaratory orders or specific performance.
X.
RIGHTS AND OBLIGATIONS OF COMPANY AND LICENSEE UPON
TERMINATION OR EXPIRATION OF THE LICENSE
10.01 Payment of Amounts Owed to Company. Licensee shall pay to
Company within fifteen (15) days after the effective date of termination or
expiration of this Agreement, or such later date when the amounts due to Company
are determined, all amounts owed to Company or its affiliates which are then
unpaid.
10.02 Marks. After the termination or expiration of this Agreement,
Licensee shall:
A) Not directly or indirectly at any time or in any manner identify
itself or any business as a current or former Residence operator, or as a
licensee of or as otherwise associated with Company (other than under other
license agreements with Company), or use any of the Marks, any colorable
imitation thereof, or other indicia of a Residence in any manner or for any
purpose, or utilize for any purpose any trade dress, trade name, trade or
service
mark or other commercial symbol that suggests or indicates a connection or
association with Company;
B) Remove all signs, sign faces, and deliver to Company all marketing
materials, and other materials containing any Mark or otherwise identifying or
relating to a Residence;
C) Remove all Marks, if any, affixed to uniforms;
<PAGE>
D) Take all action as may be required to cancel all fictitious or assumed
name or equivalent registrations relating to Licensee's use of any Mark; and
E) Furnish to Company, within thirty (30) days after the effective date
of termination or expiration, evidence satisfactory to Company of Licensee's
compliance with the foregoing obligations.
10.03 Modification of Residence Design and Decor. Upon expiration
or termination of this Agreement without renewal, Licensee shall modify the
interior and exterior design (which may include removal of the building's
cupola), decor, and color scheme of the Residence licensed under this Agreement
in a manner acceptable to Company so that it no longer suggests or indicates a
connection with the System or any rights and privileges granted by this
Agreement.
10.04 Cessation of Use of Confidential Information. Upon termination
or expiration of this Agreement, Licensee will immediately cease to use any
Confidential Information disclosed to Licensee pursuant to this Agreement in the
operation of the Residence licensed under this Agreement, or any business or
commercial enterprise engaged in any competitive business, or other similar
business, or capacity and shall return to Company all copies of the Operations
Manual and any other confidential materials which may have been loaned to
Licensee by Company.
10.05 Continuing Obligations. All obligations of Company and
Licensee which expressly or by their nature survive the expiration or
termination
of this Agreement shall continue in full force and effect subsequent to and
notwithstanding this Agreement's expiration or termination and until they are
satisfied in full or by their nature expire.
XI.
CASUALTY LOSS OR CONDEMNATION
11.01 Casualty Loss. If the Residence licensed hereunder is damaged
by fire or other casualty, Licensee shall, at its cost, expeditiously repair the
damage as soon as possible after the occurrence thereof. In the event the
casualty loss requires the closing of the Residence for more than three (3)
consecutive months, then, unless repair and reconstruction work has commenced in
earnest within the three (3) month period and unless the Residence is re-opened
in full operation no later than one (1) year after the date of the casualty
loss,
<PAGE>
this Agreement shall terminate automatically without necessity of notice to
Licensee.
11.02 Condemnation Proceedings. Licensee shall give Company written
notice as soon as it receives any knowledge of any condemnation or exercise of
the power of eminent domain, or threat thereof, by any governmental agency or
authority. If, in the reasonable opinion of Company, a substantial part of the
Residence licensed under this Agreement is to be condemned or taken under
eminent
domain and the portion not so taken or condemned could not be operated
practicably and profitably as a Residence, Company shall give good faith
consideration to transferring the License granted hereunder to another location
reasonably near the condemned Residence which decision shall be made by Company
not more than four (4) months after Company's determination of the impact of the
condemnation. If a transfer of the License is authorized by Company and
Licensee
opens for business at another location within one (1) year of the closing of the
condemned or taken Residence, the substituted Residence shall be deemed to be
open under this Agreement in the same manner and for the same term as was the
previous Residence. In the event Licensee has used its best efforts to
vigorously replace a condemned location but has been unable to do so on account
of its failure to obtain the requisite licenses and permits for another
location,
Company may, but shall not be required to, grant additional time for Licensee to
open another location. If any condemnation or eminent domain proceeding takes
place and no new location, for any reason whatsoever, becomes licensed in strict
accordance with this Section 11.02, then this Agreement shall terminate
automatically without notice to Licensee.
XII.
ENFORCEMENT
12.01 Severability and Substitution of Valid Provisions. Except as
expressly provided to the contrary herein, each part, section, term and
provision of this Agreement, and any portion thereof, shall be considered
severable and if,
for any reason, any provision of this Agreement is held to be invalid, contrary
to, or in conflict with any applicable present or future law or regulation in a
final ruling issued by any court, agency, or tribunal with competent
jurisdiction
in a proceeding to which Company is a party, that ruling shall not impair the
operation of, or have any other effect upon, such other portions of this
Agreement as may remain otherwise intelligible, which shall then continue to be
given full force and effect and bind the parties hereto. Provided, any portion
<PAGE>
held to be invalid shall be deemed not to be a part of this Agreement from the
date the time for appeal expires, if Licensee is a party thereto, or otherwise
upon Licensee's receipt of a notice of non-enforcement thereof from Company. To
the extent that ARTICLE V, or any section, or portion, or clause thereof, is
deemed unenforceable, but same may be made enforceable by amending any or all
thereof, Licensee and Company agree that same shall be enforced to the fullest
extent permissible under the laws and public policies applied in the
jurisdiction
in which enforcement is sought.
Licensee agrees to and shall be bound by any promise or covenant imposing
the maximum duty permitted by law which is subsumed within the terms of any
provision hereof, as though it were separately articulated in and made a part of
this Agreement, that may result from striking from any of the provisions hereof,
or any specification, standard or operating procedure prescribed by Company, any
portion or portions which a court may hold to be unenforceable in a final
decision to which Company is a party, or from reducing the scope of any promise
or covenant to the extent required to comply with any court order. All
modifications to this Agreement shall be effective only in such jurisdiction,
unless Company elects to give them greater applicability, and this Agreement
shall be enforced as originally made and entered into in all other
jurisdictions.
12.02 Waiver of Obligations. Company and Licensee may by written
instrument unilaterally waive or reduce any obligation of or restriction imposed
upon the other under this Agreement, effective upon delivery of written notice
thereof to the other or such other effective date stated in the notice of
waiver.
Whenever this Agreement requires Company's prior approval or consent, Licensee
shall make a timely written request therefor, and such approval shall be
obtained
in writing. Company makes no warranties or guaranties upon which Licensee may
rely, and assumes no liability or obligation to Licensee, by granting any
waiver,
approval, or consent to Licensee or by reason of any neglect, delay, or denial
of any request therefor. Any waiver granted by Company shall be without
prejudice to any other rights Company may have, will be subject to continuing
review by Company, and may be revoked, in Company's sole discretion, at any time
and for any reason, effective upon delivery to Licensee of written notice of the
revocation.
Company and Licensee shall not be deemed to have waived or impaired any
right, power, or option reserved by this Agreement (including, without
limitation, the right to demand exact compliance with every term, condition, and
covenant herein, or to declare any breach thereof to be a default and to
<PAGE>
terminate this Agreement prior to the expiration of its term), by virtue of any
custom or practice of the parties at variance with the terms hereof; any
failure,
refusal, or neglect of Company or Licensee to exercise any right under this
Agreement or to insist upon exact compliance by the other with its obligations
hereunder, any waiver, forbearance, delay, failure, or omission by Company to
exercise any right, power or option, whether of the same, similar or a different
nature, with respect to the Residence licensed under this Agreement.
12.03 Limitations on Liability. Unless stated to the contrary
elsewhere herein, neither Company nor Licensee shall be liable for any loss or
damage nor deemed to be in breach of this Agreement if its failure to perform
its
obligations results from:
A) Transportation shortages, inadequate supply of equipment,
merchandise, supplies, labor, material, or energy, or the voluntary foregoing of
the right to acquire or use any of the foregoing in order to accommodate or
comply with the orders, requests, regulations, recommendations, or instructions
of any federal, state, or municipal government or any department or agency
thereof;
B) Acts of God;
C) Acts or omissions of the other party;
D) Fires, strikes, embargoes, war, or riot; or
E) Any other similar event or cause.
Any delay resulting from any of the above causes shall extend performance
accordingly or excuse performance, in whole or in part, as may be reasonable.
12.04 Specific Performance/Injunctive Relief. Nothing herein
contained shall bar Company's or Licensee's right to obtain specific performance
of the provisions of this Agreement and to obtain injunctive relief against
threatened conduct that will cause it loss or damages, under customary equity
rules, including applicable rules for obtaining restraining orders and
preliminary injunctions. Licensee agrees that Company may obtain injunctive
relief, without bond, but upon due notice, in addition to all further and other
relief as may be available at equity or law. Licensee further agrees that its
sole remedy in the event of the entry of an injunction, shall be the dissolution
of the injunction, if warranted, upon hearing duly had and all claims for
damages
by reason of the wrongful issuance of any injunction are expressly waived hereby
unless the waiver of damages is against the public policy of the forum in which
the proceeding was brought.
<PAGE>
12.05 Rights of Parties are Cumulative. The rights of Company and
Licensee hereunder are cumulative and no exercise nor enforcement by Company or
Licensee of any right or remedy hereunder shall preclude the exercise or
enforcement by Company or Licensee of any other right or remedy hereunder or
which Company or Licensee is entitled by law or equity to enforce.
12.06 Governing Law/Consent to Jurisdiction. Except to the extent
governed by the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C.
Sections 1051, et seq.), this Agreement and the License shall be governed by the
laws of the State of Kansas. Licensee acknowledges that it has and will
continue
to develop a substantial and continuing relationship with Company at its
principal offices in Kansas, where Company's decision-making authority is vested
and License operations are conducted and supervised. Licensee further agrees
that Company may institute any action against Licensee and that Licensee shall
be required to institute any and all legal proceedings arising out of or
relating
to this Agreement in the state or federal courts having jurisdiction therefor in
the State of Kansas, located in Wichita, Kansas, and Licensee irrevocably
submits
to the jurisdiction of such courts and waives any objection it may have to
either
the jurisdiction or venue of that court.
12.07 Binding Effect/Modification. This Agreement is binding upon
the parties hereto and their respective executors, administrators, heirs,
assigns
and successors in interest, and shall not be modified except by written
agreement
signed by both Licensee and Company.
12.08 Construction. The preambles are a part of this Agreement which
constitutes the entire agreement of the parties, and there are no other oral or
written understandings or agreements between Company and Licensee relating to
the subject matter of this Agreement. Nothing in this Agreement is intended,
nor
shall be deemed, to confer any rights or remedies upon any person or legal
entity
not a party hereto.
The headings of the several articles and sections hereof are for
convenience only and do not define, limit, or construe the contents of any
articles or sections.
12.09 Definitions. In addition to the words and terms defined in the
recitals and elsewhere in this Agreement, the words and terms defined as follows
in this Section 12.09 shall, for all purposes of this Agreement, have the
meanings herein specified, except as otherwise expressly provided or unless the
context otherwise requires:
<PAGE>
A) The term "affiliate" as used herein is applicable to any company directly
or indirectly owned or controlled by Company that sells or rents products,
renders services, or otherwise transacts business with Licensee.
B) The term "Licensee" as used herein is applicable to one (1) or more
persons, a corporation, a limited liability company, a limited partnership, or
a general partnership, as the case may be, and the singular usage includes the
plural and the masculine and neuter usages include the other and the feminine.
If two (2) or more persons are at any time the Licensee hereunder, whether or
not
as partners or joint venturers, their obligations and liabilities to Company
shall be joint and several. References to "Licensee," "owner" and "transferee"
which are applicable to an individual or individuals shall mean, unless
expressly made applicable to all shareholders, members and partners, the
owners of Licensee or the transferee (i.e., any person owning of record or
beneficially five percent
[5%] or more of the equity or control of Licensee) if Licensee or the transferee
is a corporation, limited liability company or partnership.
12.10 Counterparts. This Agreement may be executed in multiple
copies, each of which shall be deemed an original.
XIII.
NOTICES AND PAYMENTS
All written notices and reports permitted or required to be delivered by
the provisions of this Agreement shall be deemed to be delivered at the time
delivered by hand, one (1) business day after transmission by telegraph or
comparable electronic system, or three (3) business days after being placed in
the United States Mail by Registered or Certified Mail, Return Receipt
Requested,
postage prepaid and in any event until notified in writing to the contrary
addressed to the respective parties as follows:
If to Company: President
STERLING HOUSE CORPORATION
Suite 500
453 South Webb Road
Wichita, KS 67207
If to Licensee: DEVON DEVELOPMENT, LIMITED
609 East Water Street
Urbana, Ohio 43078
ATTN: Timothy J. Buchanan
IN WITNESS WHEREOF, the parties hereto have executed, sealed, and delivered
this Agreement in one (1) or more counterparts on the day and year first above
written.
<PAGE>
STERLING HOUSE CORPORATION
By
Steven L. Vick, President
"Company"
WITNESS: DEVON DEVELOPMENT, LIMITED
By Coventry Corporation, Manager
By By
R. Gail Knott, Secretary Steven L. Vick, President
"Licensee"
22255
Exhibit 10.18
Schedule of Executed License Agreements
By and Between Sterling House Corporation
Sterling House Corporation has entered into the following License Agreements
which vary only in the following material respects from Exhibit 10.17.
Licensee Dated Residence
Austin Development, Limited 3/31/97 Findlay, OH
Bridgeport Limited Partnership 3/31/97 Newark, OH
Troy, OH
Newport Development, L.L.C. 3/31/97 Georgetown, TX
Waterford Development, L.L.C. 3/31/97 Durant, OK
Cornwall Development, Limited 6/25/97 Fairfield, OH
Greenville, OH
Sherwood Development, L.L.C. 6/5/97 New Braunfels, TX
San Antonio-Whitby, TX
Winchester Development, L.L.C. 6/18/97 Piqua, OH
Springdale, OH
Glenwood Development, L.L.C. 6/18/97 Brighton, CO
Devon Development, Limited 6/25/97 Urbana, OH
Washington Twnsp, OH
Portsmouth Development, L.L.C. 6/6/97 Waco, TX
San Antonio-
Maltsberger Rd., TX
Tulsa-71st St., OK
Exhibit 10.19
Limited Partnership Agreement
OF
HARTFORD DEVELOPMENT, LIMITED PARTNERSHIP
<PAGE>
<PAGE>
TABLE OF CONTENTS
Article
Page
I. DEFINITIONS 1
II. ORGANIZATIONAL MATTERS 5
2.01 Formation 5
2.02 Name 6
2.03 Principal Office 6
2.04 Term 6
2.05 Filings 6
2.06 Company Property 6
III. PURPOSE 6
3.01 Purpose of the Company 6
IV. CAPITAL CONTRIBUTIONS 6
4.01 Capital Contributions 6
4.02 Capital Accounts 6
4.03 Deficit Capital Balance 7
4.04 Allocation 8
4.05 Interest 8
4.06 No Withdrawal 8
4.07 Loans 8
4.08 Additional Capital Contributions 8
4.09 Company Unit Represented by Certificate 8
4.10 Form of Certificate 8
4.11 Neither Responsible for Other's Commitments 8
V. ALLOCATIONS AND DISTRIBUTIONS 9
5.01 Allocation Among Class A Unit Holders 9
5.02 Allocation Among Class B Unit Holders 9
5.03 Allocation of Start Up Costs 9
5.04 Allocation of Losses 9
5.05 Allocation of Profits 10
5.06 Distributions 10
5.07 Allocation in the Event of Transfer 11
5.08 Qualified Income Offset 11
VI. MANAGEMENT AND OPERATION OF BUSINESS 12
6.01 General Partner 12
6.02 Removal of General Partner 12
6.03 Management of Company 12
6.04 Restrictions on the Authority of the General Partner 12
6.05 Outside Activities 13
6.06 Management Fee 14
6.07 Administrative Compensation 14
6.08 Devotion of Time 14
6.09 Indemnification 15
6.10 Cost Reimbursement 15
VII. BOOKS, RECORDS, ACCOUNTING AND REPORTS 16
7.01 Books and Records 16
7.02 Accounting 16
7.03 Fiscal Year 16
VIII. TAX MATTERS 16
<PAGE>
8.01 Tax Matters Partner 16
8.02 Taxation as a Partnership 17
IX. TRANSFER OF UNITS 17
9.01 Transfer 17
9.02 Transfer of Units by a Partner 17
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer
18
9.04 Option to Partners to Purchase Unit(s) on Lifetime Transfer
19
9.05 Termination of Restrictions on Lifetime Transfer 19
9.06 Option to Company to Purchase Unit(s) on Death 19
9.07 Option to Partners to Purchase Unit(s) on Death 20
9.08 Termination of Restrictions on Transfer at Death 20
9.09 Restrictions on Transfers 21
9.10 Issuance of Certificates 21
9.11 Compliance With Applicable Law 21
9.12 Lost, Stolen or Destroyed Certificates 21
X. ADMISSION OF SUBSTITUTE AND ADDITIONAL PARTNERS 21
10.01 Admission of Substitute Partners 21
10.02 Admission of Additional Partners 22
XI. DISSOLUTION 22
11.01 Events Causing Dissolution 22
11.02 Procedure on Dissolution 23
11.03 Filing Certificate of Cancellation 24
11.04 Return of Capital 24
11.05 Withdrawal of Limited Partner . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . 24
<PAGE>
<PAGE>
XII. AMENDMENT OF AGREEMENT, MEETINGS, RECORD DATE 24
12.01 Amendments 24
12.02 Limitations on Amendments 24
12.03 Meetings 24
12.04 Adjournment 24
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes
25
12.06 Quorum 25
12.07 Action Without a Meeting 25
XIII. POWER OF ATTORNEY 25
13.01 Power of Attorney 25
XIV. GENERAL PROVISIONS 27
14.01 Notices 27
14.02 Captions 27
14.03 Pronouns and Plurals 27
14.04 Binding Effect 27
14.05 Integration 27
14.06 Waiver 27
14.07 Counterparts 28
14.08 Applicable Law 28
14.09 Invalidity of Provisions 28
14.10 Limitation of Liability 28
SIGNATURE PAGE 28
<PAGE>
<PAGE>
Limited Partnership Agreement
OF
HARTFORD DEVELOPMENT, LIMITED PARTNERSHIP
THIS LIMITED PARTNERSHIP AGREEMENT (the "Agreement") is made and entered
into this day of , 1997, by and among HARTFORD
DEVELOPMENT, LIMITED PARTNERSHIP, a Florida Limited Partnership (the
"Company"), and the persons, partnerships, corporations or other entities who
execute this Agreement, and thereby agree to contribute to the capital of the
Company and to be bound by the provisions of the Agreement (each of whom,
whether the holder of Class B Units or Class A Units, are sometimes referred
to
as "Partner").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement (except as may be otherwise expressly provided
herein or unless the context otherwise requires), the following terms shall
have
the following meanings.
1.01 Act. The term "Act" shall mean the Florida Revised Uniform
Limited
Partnership Act (1986), Fla.Stat. Sec. 620.101, et seq., as it may be amended
from
time to time, and any successor to such act.
1.02 Affiliate. The term "Affiliate" shall mean any Person (as defined
in Section 1.24) who directly or indirectly controls, is controlled by, or is
under common control with, such Person. As used in this definition of
"Affiliate," the term "control" means either (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and
policies of a Person, whether through ownership of voting securities, by
contract
or otherwise, or (ii) a direct or indirect equity interest of ten percent
(10%)
or more in the entity.
1.03 Agreement. The term "Agreement" shall mean this Limited
Partnership
Agreement, as it may be amended or supplemented from time to time.
1.04 Certificate of Limited Partnership. The term "Certificate of
Limited
Partnership" shall mean the Certificate of Limited Partnership of this
Company,
filed with the Florida Department of State in accordance with the Act.
1.05 Assignee. The term "Assignee" shall mean a Person to whom one (1)
or more Units have been transferred, by transfer or assignment or otherwise,
in a manner permitted under this Agreement, and who has agreed to be bound by
the
terms of this Agreement but who has not become a Substitute Partner.
1.06 Business Day. The term "Business Day" shall mean the days Monday
through Friday of each calendar week, except legal holidays recognized as such
by either the government of the United States or of the State of Florida .
1.07 Capital Account. The term "Capital Account" shall mean a separate
capital account established for each Partner by the Company pursuant to
Section
4.02 hereof and maintained in the manner and for the purposes provided in
ARTICLE
IV.
<PAGE>
1.08 Capital Contribution. The term "Capital Contribution" shall mean the
sum of the total amount of cash and the total value of property contributed or
services rendered, or a promissory note or other binding obligation to
contribute
cash or property or to perform services contributed to the Company by all
Partners, or any one (1) Partner, as the case may be (or the predecessor
holders
of any Units of any such Partners).
1.09 Class B Unit. The term "Class B Unit" shall mean a Unit
representing
an interest in the Company, other than a Class A Unit, issued from time to
time
to those Partners who have executed a certain Joint Venture Agreement and have
timely remitted the appropriate funds thereunder.
1.10 Class A Unit. The term "Class A Unit" shall mean a Unit
representing
an interest in the Company, other than a Class B Unit, issued to COVENTRY
CORPORATION, a Kansas corporation, d/b/a Coventry Corporation of the Republic,
Inc., upon the formation of the Company.
1.11 Code. The term "Code" shall mean the Internal Revenue Code of
1986,
as amended (or any corresponding provisions of succeeding law).
1.12 Company. The term "Company" shall mean this limited partnership
formed by the filing of the Company's Certificate of Limited Partnership with
the Florida Department of State.
1.13 Company Property. The term "Company Property" shall mean all
property, whether real or personal, tangible or intangible, and whether owned,
leased or acquired by the Company from time to time.
1.14 Distributable Cash Funds. The term "Distributable Cash Funds"
shall
mean all the cash funds of the Company other than (i) Net Cash Proceeds and
(ii)
proceeds from a Sale in connection with a dissolution of the Company under
Section 11.02, which the General Partner, in the General Partner's sole
discretion, determines are not (i) needed for the payment of existing or
anticipated Company obligations and expenditures, including capital
expenditures,
(ii) required by law to be reserved, or (iii) needed for repair or replacement
of Company Property (whether for capital or non-capital items). The General
Partner shall use good faith efforts, in light of the existing and anticipated
financial conditions, in determining the availability of Distributable Cash
Funds for payment to the Partners to enable them to pay their federal and state
income tax liability that may be imposed upon the Partner's share of the
Company's Profits and Losses.
1.15 Initial Capital Contribution. The term "Initial Capital
Contribution" means for purposes of this Agreement, with respect to any
Partner,
the amount of money contributed to and received by the Company with respect to
the Units held by such Partner as set forth on Schedule "1."
1.16 Joint Venture Agreement. The term "Joint Venture Agreement" shall
mean for purposes of this Agreement, that certain joint venture agreement
between
the General Partner and Affiliates of the Class B Unit Holders, to which this
Agreement has been attached and entitled Exhibit 3.1.
1.17 General Partner. The term "General Partner" shall mean that
Person
or those Persons named or appointed as General Partner(s) of the Company
pursuant
to Section 6.01.
<PAGE>
1.18 Majority-in-Interest. The term "Majority-in-Interest" shall mean,
with respect to any agreement or vote of the Partners, one (1) or more of the
Partners whose combined Sharing Ratios in the Class B and Class A Units, at
the
time of any such agreement or vote, exceed fifty percent (50%) of the then
outstanding Class B and Class A Units held by all Partners.
1.19 Partner. The term "Partner" shall mean those individuals
executing
this Agreement as Partners of the Company on the signature pages attached
hereto.
Provided, the term "Limited Partner" shall mean only those Persons who have
subscribed for and acquired one or more Class B Units.
1.20 Net Cash Proceeds. The term "Net Cash Proceeds" shall mean the
net
cash (including both principal and interest) realized by the Company from a
Sale,
after retirement of applicable mortgage debt, payment of all expenses related
to the transaction, payment of or provision for, Company debts and
obligations,
and establishment and maintenance of such reserves as the General Partner, in
its
sole discretion, may deem necessary or appropriate for anticipated capital
gain
taxes, obligations, contingencies, capital improvements, replacements and
working
capital of the Company.
1.21 Return. The term "Return" shall mean that point in time when cash
distributions remitted from the Company to the Class B Unit holders equal the
aggregate Initial Capital Contributions of the Class B Unit holders.
1.22 A Unit Period Return Amount. The term "A Unit Period Return
Amount"
shall mean an amount payable to each holder of Class A Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class A Unit Holder's Initial Capital Contribution.
1.23 B Unit Period Return Amount. The term "B Unit Period Return
Amount"
shall mean an amount payable to each holder of Class B Units and which shall
accrue until Return for any fiscal year at an annual rate equal to ten percent
(10%) of such Class B Unit Holder's Initial Capital Contribution.
1.24 Person. The term "Person" shall mean any natural person, limited
liability company, partnership, corporation, trust, association or other
legally
recognized entity.
1.25 Prime Rate. The term "Prime Rate" means the prime rate in effect
from time to time as published in the Money Rates Section of the Wall Street
Journal, or its successor.
1.26 Project Facility. The term "Project Facility" shall mean any
facility operated or licensed by Sterling House Corporation, the ownership and
operation of which is intended to be the primary business purpose of the
Company.
1.27 "Profits" and "Losses". The terms "Profits" and "Losses" shall
mean
respectively, at all times during the existence of the Company, the income or
loss of the Company for federal income tax purposes and income of the Company
exempt from tax for such purpose, determined as of the close of the Company's
calendar year, including, without limitation, each item of Company income,
gain,
loss, deduction and credit.
1.28 Record Holder. The term "Record Holder" shall mean the Person in
whose name each Unit is registered on the books and records of the Company as
of
the close of business on a particular Business Day.
<PAGE>
1.29 Sale. The term "Sale" shall mean and include the sale, exchange,
condemnation or similar eminent domain taking, casualty or other disposition
of
all or any portion of the Company Property which is not in the ordinary course
of business, and the sale of easements, rights of way or similar interests in
the
Company Property or any other similar items which in accordance with the
accounting methods used by the Company are attributable to capital; provided,
however, that the term "Sale" shall not refer to any transaction to the extent
gain or loss is not recognized, or is elected not to be recognized, under any
applicable section of the Code.
1.30 Sharing Ratio. The term "Sharing Ratio" shall mean for any
Partner
the proportion obtained by dividing (i) the number of Units (either Class B
Units, Class A Units, or both, as the case may be) held by such Partner in the
Company by (ii) the sum of all Units (either Class B Units, Class A Units, or
both, as the case may be) issued and outstanding in the Company; provided,
that
in the event of any assignment by a Partner of a Unit in the Company, the
Sharing
Ratio of such Partner shall be proportionately reduced, based upon the number
of
Units assigned compared to the total number of Units owned by such Partner,
and
the assignee of such Unit or Units shall succeed to a proportionate share of
the
Sharing Ratio of his assignor that is attributable to the Unit or Units
transferred to such Assignee.
1.31 Start Up Costs. The term "Start Up Costs" shall mean all costs
and
expenses delineated under Section 195 (c)(1) of the Code.
1.32 Substitute Partner. The term "Substitute Partner" shall mean an
Assignee of the Unit(s) who has been admitted as a Partner pursuant to the
provisions of this Agreement, in place of his/her assignor. A Substitute
Partner, upon his/her admission as such, shall replace and succeed to the
rights,
privileges and liabilities of the Partner from whom he acquired his/her
Unit(s)
to the extent of the Unit(s) so transferred.
1.33 Supermajority-in-Interest. The term "Supermajority-in-Interest"
shall mean, with respect to any agreement or vote of the Partners, one (1) or
more of the Partners whose combined Sharing Ratios as to each Class B and
Class A Units, then outstanding at the time of any such agreement or vote,
equal or
exceeds seventy-five percent (75%) of each of the Class B and Class A Units
held
by all Partners.
1.34 Tax Matter Partner. The term "Tax Matter Partner" shall mean the
Person designated pursuant to Section 8.01.
1.35 Treasury Regulations. The term "Treasury Regulations" shall mean
the
Income Tax regulations promulgated under the Code, as such Regulations may be
amended (including corresponding provisions of succeeding regulations).
1.36 Unit. The term "Unit" shall collectively mean the Class B Units
and
the Class A Units and any fraction of such Units.
ARTICLE II.
ORGANIZATIONAL MATTERS
2.01 Formation. The Company shall be formed as a limited
partnership pursuant to the provisions of the Act. The rights and
obligations
of the Partners, and the affairs of the Company, shall be governed first by
the
mandatory provisions of the Act, second by the Company's Certificate of
Limited
Partnership , third by this Agreement and fourth by the optional provisions of
<PAGE>
the Act. In the event of any conflict among the foregoing, the conflict shall
be resolved in the order of priority set forth in the preceding sentence.
2.02 Name. The name of the Company shall be "HARTFORD
DEVELOPMENT,
LIMITED PARTNERSHIP."
2.03 Principal Office. The principal office of the Company in
the
State of Florida shall be located at 4801 N.W. 53rd Avenue, Gainesville,
Florida
32606. The Company may also maintain offices at such other place or places as
the General Partner deems advisable.
2.04 Term. The Company shall commence upon the filing for record
of the Company's Certificate of Limited Partnership with the Florida
Secretary
of State and shall continue thereafter for 100 years unless earlier terminated
by law or until the earlier dissolution in accordance with ARTICLE XI.
2.05 Filings. Upon the request of the General Partner, the
Partners
shall immediately execute and deliver all such certificates and other
instruments
conforming hereto as shall be necessary for the General Partner to accomplish
all
filing, recording, publishing and other acts appropriate to comply with all
requirements for the formation and operation of a limited partnership under
the
laws of the State of Florida and for the formation, qualification and
operation
of a limited partnership in all jurisdictions where the Company shall propose
to conduct business.
2.06 Company Property. All property owned by the Company,
whether
real or personal, tangible or intangible, shall be deemed to be owned by the
Company as an entity, and no Partner, individually, shall have any ownership
of
such property. The Company shall hold its assets in its own name. No Limited
Partner shall have the right to require the partition or sale of any property
owned by the Company. The interest of any Partner in the Company (as
represented
by their A Units or B Units) will be personal property for all purposes.
ARTICLE III.
PURPOSE
3.01 Purpose of the Company. The purpose for which the Company
is
formed is the transaction of any and all lawful business for which limited
partnerships may be organized under the Act.
ARTICLE IV.
CAPITAL CONTRIBUTIONS
4.01 Capital Contributions. Each Partner shall contribute to the
capital of the Company an amount equal to such Partner's Capital Contribution
in
exchange for a corresponding number of Units as set forth on Schedule "1"
attached hereto. Each Partner shall be credited with an initial capital
account
equal to the amount of their respective Initial Capital Contribution.
4.02 Capital Accounts. A separate Capital Account shall be
maintained by the Company for each of the Partners in accordance with the
capital
accounting rules of Section 704(b) of the Code, and the Treasury Regulations
thereunder. Adjustments shall be made in each Partner's Capital Account as
required by the capital accounting rules of Section 704(b) of the Code and the
Treasury Regulations.
Upon any contribution of money or other property to the Company (other
than
<PAGE>
a de minimis amount) as consideration for an interest in the Company, or upon
the
dissolution of the Company or a distribution of money or other property (other
than a de minimis amount) by the Company as consideration for an interest in
the
Company, the book values of Company Property and the Capital Accounts of the
Partners may be adjusted in accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), if in the discretion of the General Partner such
adjustment would
be helpful in maintaining compliance with the requirements of Treasury
Regulations Section 1.704-1(b). If any Company Property is to be distributed
in
kind, such property shall be distributed on the basis of its fair market
value,
as determined by the General Partner, after the Partners' Capital Accounts
have
been adjusted to reflect the manner in which any unrealized gain and loss with
respect to such Company Property (that had not been reflected in the Capital
Accounts previously) would be allocated among the Partners if there were a
taxable disposition of the Company Property for its fair market value. These
provisions and other provisions of this Agreement relating to the maintenance
of
Capital Accounts are intended to comply with Treasury Regulations Section
1.704-1(b), and shall be interpreted and applied in a manner consistent with
such
Section of the Treasury Regulations.
4.03 Deficit Capital Account Balance. In the event that,
following
the liquidation (as defined in Treasury Regulations Section
1.704-1(b)(2)(ii)(g))
of a Partner's interest in the Company (whether or not in connection with the
dissolution and termination of the Company), and after crediting any gain or
charging any loss pursuant to Article V hereof, such Partner shall have a
deficit
balance in its Capital Account, such Partner shall contribute in cash to the
capital of the Company (by the later of the last day of the taxable year in
which
such liquidation takes place or the date 90 days after the date on which such
liquidation takes place) an amount equal to the amount of such deficit
balance; provided, however, that:
1) the Limited Partner shall have no obligation to make a
contribution
to the Company pursuant to this Section 4.03, unless it has previously
delivered
to the General Partner an irrevocable written election to subject itself to
such
an obligation;
2) if the Limited Partner delivers such a written election to the
General Partner, the amount that the Limited Partner shall be required to
contribute to the Company pursuant to this Section 4.03 shall not exceed a sum
equal to such Partner's Initial Capital Contribution; and
3) although the Partners are not aware of any possible impact of the
provision contained in clauses "(i)" and "(ii)" above on the Capital Account
of
the General Partner, if any election made by the Limited Partner in accordance
with clause "(i)" above results in an increase in the deficit balance, if any,
of the Capital Account of the General Partner, then such election shall not be
effective and the Limited Partner shall have no obligation to make any
contribution to the Partnership pursuant to this Section 4.03
4.04 Allocation. Any item of income, loss and deduction with
respect to any Company Property that has been contributed by a Partner to the
Capital of the Company and which is required to be allocated for income tax
purposes under Section 704(c) of the Code, so as to take into account the
variation between the tax basis of such Company Property and its agreed upon
fair
market value at the time of its contribution, shall be allocated to the
Partners
solely for income tax purposes in the manner so required. Elections under
Section 704(c) shall be made at the discretion of the General Partner.
<PAGE>
4.05 Interest. No interest shall be paid by the Company on Capital
Contributions, on balances in a Partner's Capital Account, or on any other
funds
distributed or distributable under this Agreement. To the extent that the
General Partner may loan additional funds to the Company, the General Partner
agrees to charge annual interest on any outstanding balance at a rate that is
no
more than 275 basis points above the Prime Rate. Provided, the General
Partner
shall be entitled to collateralize the repayment of such indebtedness by
taking a secured first mortgage, or such lesser position as the General
Partner may
choose, in any property of the Company, including any Project Facility.
4.06 No Withdrawal. Except as otherwise required under mandatory
provisions of the Act, no Partner shall have the right to a withdrawal, or to
receive any return of such Partner's Capital Contribution, except as
specifically
provided for herein. Except as otherwise expressly provided in ARTICLE V and
Section 11.02 hereof, no Partner shall have priority over any other Partner,
either as to the return of such Partner's Capital Contribution or as to
income,
gains, losses, deductions or credits.
4.07 Loans. Nothing in this Agreement shall prevent any Partner
from making secured or unsecured loans to the Company by agreement with the
Company. The Company may upon an affirmative vote of a
Supermajority-in-Interest
make loans to any Partner or any Affiliate of any Partner. No Partner shall
at
any time be required to loan additional amounts to the Company.
4.08 Additional Capital Contributions. There shall be no
additional
contributions of capital required of any Limited Partner.
4.09 Company Unit Represented by Certificate. Within thirty (30)
days of the date of this Agreement, the General Partner shall issue and deliver
to each Partner a certificate evidencing their respective ownership of the
Units
transferred by the Company to the Partners (hereinafter referred to as
"Certificate").
4.10 Form of Certificate. The form of Certificate to be issued
by
the Company may be written, typewritten, mimeographed or printed and otherwise
in such form and design as may be determined by the General Partner in its
discretion.
4.11 Neither Responsible for Other's Commitments. Neither the
Partners nor the Company shall be responsible or liable for any indebtedness
or
obligations of the other Partners incurred either before or after the
execution
of this Agreement, except as to those responsibilities or obligations incurred
or assumed by a Partner pursuant to the terms of this Agreement.
ARTICLE V.
ALLOCATIONS AND DISTRIBUTIONS
5.01 Allocation Among Class A Unit Holders. Each Class A Unit
holder shall share Company items of costs, credits, income, revenues, gain,
loss
and distributions allocated, charged or credited to the Class A Units as a
class
hereunder in accordance with the proportion of the Sharing Ratio which each
Class
A Unit holder bears relative to the aggregate Sharing Ratios of all Class A
Unit
holders.
5.02 Allocation Among Class B Unit Holders. Each Class B Unit
holder shall share Company items of costs, credits, income, revenues, gain,
loss
and distributions allocated, charged or credited to the Class B Units as a
class
<PAGE>
hereunder in accordance with the proportion which the Sharing Ratio of each
Class
B Unit holder bears relative to the aggregate Sharing Ratios of all Class B
Unit
holders.
5.03 Allocation of Start Up Costs. Except as otherwise expressly
provided, all Start Up Costs of the Company, whether immediately expensed
during
any fiscal year or amortized over a greater period of time, shall be computed
in
accordance with tax accounting principles consistently applied, using such
methods of amortization or expense as the General Partner determines to use
for
federal income tax purposes, and shall be allocated in the order and
proportions
among the Partners as follows:
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.04 Allocation of Losses. Except as otherwise expressly
provided,
all Losses of the Company for each fiscal year shall be computed in
accordance
with tax accounting principles consistently applied, using such methods of
accounting for depreciation and other items as the General Partner determines
to
use for federal income tax purposes, and shall be allocated in the order and
proportions among the Partners as follows:
<PAGE>
<PAGE>
A) First, Until B Unit Capital Accounts Equal Zero:
Class A Units 0%
Class B Units 100%
B) Thereafter:
Class A Units 100%
Class B Units 0%
5.05 Allocation of Profits. Except as otherwise expressly
provided,
all Profits of the Company for each fiscal year computed in accordance with
tax
accounting principles consistently applied, using such methods of accounting
for
depreciation and other items as the General Partner determines to use for
federal
income tax purposes, shall be allocated among the Partners as follows:
A) Prior to Return:
Class A Units 40%
Class B Units 60%
B) After Return:
Class A Units 51%
Class B Units 49%
5.06 Distributions, Period Return Amounts, and Special
Allocations.
A) Interim distributions, if made, shall be distributed to the
Partners
out of Distributable Cash Funds as follows:
Prior to Return:
Class A Units 40%
Class B Units 60%
After Return:
Class A Units 51%
Class B Units 49%
B) In the event of a Sale or distributions in connection with a
dissolution of the Company in accordance with ARTICLE XI, the Company shall
also
distribute to the Partners out of Net Cash Proceeds in accordance with
Section
5.06(A).
C) Notwithstanding the provisions of Section 5.06 (A), to the extent
that there are Distributable Cash Funds available at any time prior to Return,
then before any funds shall be distributed to the holders of Class A Units,
there
shall first be remitted to the holders of Class B Units an amount equal to
their
B Unit Period Return Amount. To the extent that such B Unit Period Return
Amount
is not paid in any fiscal year, it shall accumulate and the obligation to pay
the same shall carry over into the next and other succeeding years until paid.
Notwithstanding the provisions of Section 5.05 (A) or of the preceding
sentence
of this Section 5.06 (C), to the extent that there are Distributable Cash
Funds
available at any time prior to Return but after full payment of all B Unit
Period
Return Amounts then owing, then before any additional funds shall be
distributed
<PAGE>
to the holders of Class B Units, there shall first be remitted to the holders
of
Class A Units an amount equal to their A Unit Period Return Amount. To the
extent that such A Unit Period Return Amount is not paid in any fiscal year,
it
shall accumulate and the obligation to pay the same shall carry over into the
next and other succeeding years until paid. It is understood and agreed that
sums
received as the payment of the B Unit Period Return Amount shall constitute
a
return of capital and not of income or profits to the extent that such
payments
would not decrease the Class B Unit Holder's capital account below zero.
Further, any distribution that is in excess of any B Unit Holder's capital
account shall be deemed to be a "gross income" (as that term is defined under
Section 61 of the Code) allocation to the extent of such distribution.
D) It is understood and agreed that distributions, including the B
Unit
Period Return Amount, may be, but shall not be required to be, made at least
quarterly. No distribution to the Partners shall be made in kind, in lieu of
cash.
5.07 Allocation in the Event of Transfer. In the event of an
assignment of a Partner's interest in the Company pursuant to ARTICLE IX, all
Profits and Losses of the Company for federal, state and local income tax
purposes shall, unless otherwise required by applicable Treasury Regulations,
be
determined monthly and shall be allocated to the Partners in accordance with
their Sharing Ratios in Class B Units and Class A Units, as the case may be,
on
the first (1st) day of such month; provided, however, a Partner transferring
all
or a portion of his Units at any time during a month is deemed to have
transferred the Units as of the first (1st) day of the month following the
transfer; provided, further, that gain or loss on a sale or other disposition
of
all or a substantial portion of the assets of the Company shall be allocated
to
the Partners of record on the day of such sale or other disposition.
Notwithstanding any of the foregoing, the General Partner may allocate such
items
on some other reasonable basis if it determines, in its sole discretion, that
the
Company's methods of allocating such items does not satisfy the requirements
of
Section 706 of the Code and the Treasury Regulations promulgated thereunder.
5.08 Qualified Income Offset. Notwithstanding anything in this
ARTICLE V to the contrary, in the event a Partner unexpectedly receives any
adjustment, allocation or distribution described in Section
1.704(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations, which causes or
increases the deficit balance in such Partner's capital account, then items of
income and gain shall be allocated to such Partner or Partners in an amount
and
manner sufficient to eliminate the deficit balances in their Capital Accounts
as
quickly as possible.
ARTICLE VI.
MANAGEMENT AND OPERATION OF BUSINESS
6.01 General Partner. The Company shall have one (1) General
Partner who is a Partner of the Company. The initial General Partner of the
Company shall be the corporation named in the Certificate of Limited
Partnership
and who shall serve as General Partner of the Company until such time as it
resigns and withdraws from the Company or is removed in accordance with
Section
6.02. In the event the General Partner resigns, the replacement General
Partner
shall be selected by a vote of a Supermajority-in-Interest of the Partners.
6.02 Removal of General Partner. A Supermajority-in-Interest of
the
Unit holders shall have the right to remove a General Partner, but only for
cause, and to choose a new General Partner. The replacement General Partner
<PAGE>
shall be selected by a vote of a Majority-in-Interest of the Unit holders.
The
replacement General Partner's appointment shall be further conditioned upon
the
Partners obtaining the full release of all then outstanding guaranties to
which
the then replaced General Partner and its Affiliates are parties.
6.03 Management of Company. The management of the Company shall
be
vested solely with the General Partner, chosen in accordance with this
Agreement,
who shall have full authority and discretion to conduct the ordinary and usual
business and affairs of the Company, to take any action of any kind and to do
anything and everything such General Partner deems necessary, subject to the
restrictions set forth in this Agreement. The General Partner shall be
imposed
with a fiduciary duty to conduct the business and affairs of the Company in
the
best interests of the Company and of the Partners, including the safekeeping
and
use of all Company funds and assets for the exclusive benefit of the Company
whether or not the same shall be in the immediate possession or control of the
General Partner. Provided, the preceding sentence shall not be construed as
prohibiting the General Partner from contracting with an Affiliate (for
example, BCI Construction, Inc.) provided that the General Partner believes in
good faith
that the terms of such agreement are commercially reasonable. No Limited
Partner shall take part in or interfere in any manner with the conduct or
control
of the business of the Company or have any right or authority to act for or
bind
the Company unless such Limited Partner has been expressly authorized by the
General Partner in writing to act as an agent of the Company for a particular
matter, transaction or series of same.
6.04 Restrictions on the Authority of the General Partner.
Subject
to the provisions of this Agreement, except as herein provided, the General
Partner shall not be authorized to do any of the following acts without the
prior
consent of all of the Partners:
A) Any act in contravention of this Agreement or the Certificate of
Limited Partnership of the Company;
B) Any act which would make it impossible or impractical for the
Company to conduct the ordinary business of the Company;
C) Confess judgment against the Company; or
D) Possess, sell or otherwise dispose of any property of the Company,
except in the ordinary course of business.
6.05 Outside Activities.
A) Each Partner, including the General Partner, and such Partner's
Affiliates may have business interests and engage in business activities in
addition to those relating to the Company. However, during the term of the
Joint
Venture Agreement, no Partner shall directly or indirectly own, operate,
develop,
construct, manage or participate in the ownership, development, construction,
operation or management of any assisted living, dementia or other specialty
care
facility for the elderly located in the "Territory", as such term is defined
by
the Joint Venture Agreement. In addition, as long as SGH and Partner or any
Affiliate of any Partner own directly or indirectly any beneficial interest in
the Company, and for a period of one (1) year thereafter, such Partner or
their
Affiliate shall not directly or indirectly own, operate, develop, construct,
manage or participate in the ownership, development, construction, operation
or
management of any assisted living, dementia or other specialty care facility
for
the elderly located within twenty five (25) miles from any Project Facility
<PAGE>
owned by the Company. The restrictions set forth in this Section 6.05 are
subject to the following exceptions:
1) such restrictions shall not be considered violated by reason
of Partner or their Affiliates developing, owning and/or constructing nursing
home facilities which require a certificate of need or the equivalent; and
2) such restrictions shall not be considered violated by reason
of any Partner or any Affiliate of any Partner owning less than a five percent
(5%) interest in a legal entity that owns, develops, constructs, operates or
manages any assisted care or dementia or other special care facilities and
whose
shares of stock are traded on a nationally recognized stock exchange or traded
in the over-the-counter market.
B) Each Partner hereby agrees that the restrictions set forth in this
Section 6.05 are founded on valuable consideration and are reasonable in
duration
and geographic area in view of the circumstances under which this Agreement is
executed and that such restrictions are necessary to protect the legitimate
interests of the Company and its Partners. In the event that any provision of
this Section 6.05 is determined to be invalid by any arbitrator or court of
competent jurisdiction, the provisions of this Section 6.05 shall be deemed to
have been amended and the parties agree to execute any documents and take
whatever action is necessary to evidence such amendment, so as to eliminate or
modify any such invalid provision and to carry out the intent of this Section
6.05 to render the terms of this Section 6.05 enforceable in all respects as
so
modified.
C) Each Partner acknowledges and agrees that irreparable injury may
result to the other Partners and/or the Company if a Partner breaches any
covenant contained in this Section 6.05 and that the remedy at law for the
breach
of any such covenant will be inadequate. Therefore, if any Partner shall
engage
in any act in violation of any of the provisions of this Section 6.05, the
other
Partners and the Company (or any or all of them) shall be entitled, in
addition
to such other remedies and damages as may be available to any or all of them
at
law or under this Agreement, to injunctive relief to enforce the provisions of
this Section 6.05.
D) Neither the Company nor the other Partners shall have any rights
by
virtue of this Agreement or the relationship contemplated herein to share or
participate in any other business ventures or activities of such Partner or
such
Partner's Affiliates.
6.06 Management Fee. In consideration of the performance of the
on-going day to day management of each Project Facility, the Company shall, no
less
frequently than monthly pay to the General Partner (or its subcontractor) an
amount equal to seven percent (7%) of the gross revenue realized by the
Company
for each accounting period (hereinafter "Management Fee"). To the extent not
paid, the Management Fee shall be cumulative from month to month and from
fiscal
year to fiscal year.
6.07 Administrative Compensation. In consideration for the rendering
of
certain administrative activities during the initial operation phase of the
Project Facility, the Company shall pay to the General Partner (or its
subcontractor), by no later than the initial funding of the construction
financing for the Project Facility a one time fee in the amount of Twenty
Thousand Dollars ($20,000) (hereinafter "Administrative Compensation"). It is
understood and agreed that the Administrative Compensation is intended to
<PAGE>
compensate the General Partner for its efforts and is in addition to any
reimbursement for any and all direct costs incurred by the General Partner on
behalf of the Company during the initial operation phase of the Project
Facility.
The General Partner may contract with or assign to another party, including an
Affiliate of Sterling House Corporation, all or a portion of the
responsibility
for performing such activities.
6.08 Devotion of Time. The General Partner shall not be expected
to devote its entire time or attention to the Company's business, but only
such
time and effort as is required for the sound and proper management of the
Company.
6.09 Indemnification.
A) Company Indemnity. To the maximum extent permitted by law, the
Company shall indemnify and hold harmless the General Partner, all Partners,
their respective Affiliates, and the employees and agents of the Company
(each,
an "Indemnitee") from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorney's fees and disbursements), judgments, fines, settlements, penalties
and
other expenses actually and reasonably incurred by the Indemnitee in
connection
with any and all claims, demands, actions, suits, or proceedings, civil,
criminal, administrative or investigative, in which the Indemnitee may be
involved, or threatened to be involved, as a party or otherwise, by reason of
the
fact that the Indemnitee is or was a Limited Partner or the General Partner of
the Company or is or was an employee or agent of the Company, including
Affiliates of the foregoing, arising out of or incidental to the business of
the
Company, provided (i) the Indemnitee's conduct did not constitute willful
misconduct or recklessness, (ii) the action is not based on breach of this
Agreement, (iii) the Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Company and within the scope of such Indemnitee's authority, and (iv) with
respect to a criminal action or proceeding, the Indemnitee had no reasonable
cause to believe Indemnitee's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere, or its equivalent, shall not, in and of itself,
create
a presumption or otherwise constitute evidence that the Indemnitee acted in a
manner contrary to that specified above.
B) Advancement of Expenses. Expenses incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding subject to this
Section
6.09 may, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the
Company of an undertaking by or on behalf of the Indemnitee to repay such
amount(s) if it shall ultimately be determined that such Person is not
entitled
to be indemnified as authorized in this Section 6.09.
C) Non-Exclusivity. The indemnification provided by this Section
6.09
shall be in addition to any other rights to which the Indemnitee may be
entitled
under any agreement, vote of the Partners, as a matter of law or equity, or
otherwise, and shall inure to the benefit of the successors, assignees, heirs,
personal representatives and administrators of the Indemnitee.
D) Insurance. The Company may purchase and maintain insurance, at
the
Company's expense, on behalf of any Indemnitee against any liability that may
be
asserted against or expense that may be incurred by an Indemnitee in
connection
with the activities of the Company regardless of whether the Company would
have
the power to indemnify such Indemnitee against such liability under the
provisions of this Agreement.
<PAGE>
6.10 Cost Reimbursement In consideration for the execution of any guaranty
by the General Partner, for any Project Facility, if and as required for any
third party construction of initial permanent financing of such facility, the
Company shall reimburse the General Partner an amount equal to its direct
costs
paid to third parties for providing such guaranty (hereinafter the "Cost
Reimbursement"). It is understood and agreed that the Cost Reimbursement is
non-refundable and fully earned upon execution of each such guaranty. In the
event
any Project Facility is thereafter refinanced, the General Partner shall not
be
obligated to execute a guaranty for the same, absent the reimbursement of any
additional direct costs paid to third parties.
ARTICLE VII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
7.01 Books and Records. Appropriate books and records with
respect
to the Company's business, including, without limitation, all books and
records
necessary to provide to the Partners any information, lists and copies of
documents required to be provided pursuant to the Act shall at all times be
kept
at the principal office of the Company or at such other places as agreed to by
the Partners. Without limiting the foregoing, the following shall be
maintained
at the Company's principal office: (i) a current list of the full name and
last
known business address of each Limited Partner and General Partner; (ii)
copies
of records that would enable a Limited Partner to determine the relative
voting
rights of the Partners; (iii) a copy of the Certificate of Limited Partnership
, and any amendments thereto; (iv) copies of the Company's federal, state and
local income tax returns and reports, if any, for the then three (3) most
recent
years; (v) a copy of this Agreement; and (vi) copies of any financial
statements
of the Company for the then three (3) most recent fiscal years. Any records
maintained by the Company in the regular course of its business may be kept
on,
or be in the form of, magnetic tape, photographs or any other information
storage
device, provided that the records so kept are convertible into clearly legible
written form within a reasonable period of time. Upon reasonable request,
each
Limited Partner shall have the right, during ordinary business hours, to
inspect
and copy any of such records at the requesting Limited Partner's expense.
7.02 Accounting. The books of the Company for regulatory and
financial reporting purposes shall be maintained on either a cash or accrual
basis of accounting, which shall be determined by the General Partner. The
Company books for purposes of maintaining and determining Capital Accounts
shall
be maintained in accordance with the provisions of this Agreement, Section 704
of the Code and, to the extent not inconsistent therewith, the principles
described above for financial reporting and regulatory purposes.
7.03 Fiscal Year. The fiscal year of the Company shall be the
calendar year, unless otherwise determined by a Majority-in-Interest vote of
the
Partners.
ARTICLE VIII.
TAX MATTERS
8.01 Tax Matters Partner. The Partners hereby appoint the
General
Partner, as the "Tax Matters Partner" (hereinafter referred to as the "TMP")
as
defined in Section 6231(a)(7) of the Code. The TMP is authorized to take such
actions and to execute all statements and forms on behalf of the Company which
may be permitted or required by the applicable provision of the Code or the
Treasury Regulations, and the Partners shall take all other actions that may
be
necessary or appropriate to effect the designation of the General Partner as
the TMP. In the event of an audit of the Company's income tax returns by the
Internal Revenue Service, the TMP may, at the expense<PAGE>
of the Company, retain accountants and other professionals to participate or
assist in the audit process. All expenses incurred by the TMP in such
capacity
as TMP shall be expenses of the Company and paid from Company funds. The TMP
may
be changed by a vote of a Majority-in-Interest of the Partners.
8.02 Taxation as a Partnership. No election shall be made by the
Company or any Partner for the Company to be excluded from the application of
any
provision of Subchapter K, Chapter 1, of Subtitle A of the Code or from any
similar provisions of any state tax laws.
ARTICLE IX.
TRANSFER OF UNITS
9.01 Transfer.
A) The term "transfer," when used in this ARTICLE IX with respect to
a
Unit, shall be deemed to refer to a transaction by which the Partner assigns
all
or a portion of such Partner's Unit(s), or any interest therein, to another
Person, or by which the holder of a Unit assigns the Unit to another Person or
Assignee, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, transfer by will or intestate succession, exchange,
or
any other disposition.
B) No Units shall be transferred, in whole or in part, except in
accordance with the terms and conditions set forth in this ARTICLE IX. Any
transfer or purported transfer of any Units not made in accordance with this
ARTICLE IX shall be null and void. If there is an involuntary transfer by
operation of law or otherwise and such involuntary transfer is not made in
accordance with this ARTICLE IX, then the Assignee shall not be a Substitute
Partner, and shall have no right to participate in the Company's affairs as a
Partner thereof, but instead, shall only be entitled to receive the share of
profits, losses or other distributions by way of income and/or the return of
capital to which the transferring Partner would otherwise be entitled at the
time
said transferring Partner would be entitled to receive the same and such
Assignee
shall not have any right to participate in the business or affairs of the
Company, including the right to vote on, consent to, or otherwise participate
in
any decision of the Partners.
9.02 Transfer of Units by a Partner.
A) Except as provided in Section 9.03 hereto, no Units may be
transferred by a Partner unless the following conditions are first satisfied:
1) The consent of each Partner has been obtained, which may be
granted or withheld in each Partner's sole discretion, such consent to be
evidenced by a written instrument, dated and signed by the Partner;
2) The transferee and each Partner execute and file all
documents
necessary for the transferee to be a Substitute Partner and be bound by the
terms
hereof and such transferee is admitted as a Substitute Partner; and
3) The Company receives a written opinion from the Company's
legal counsel that such transfer would not materially adversely affect the
classification of the Company as a partnership for federal and state income
tax
purposes or cause the Company to be treated as a publicly-traded partnership.
B) The transfer restrictions on all Units shall be conspicuously
noted
<PAGE>
by an appropriate legend on each Certificate issued to a Partner.
C) In no event shall any Unit be transferred to a minor or any
incompetent except by will or intestate succession and in full compliance with
the provisions of this ARTICLE IX.
D) The Company need not recognize, for any purpose, any transfer of all
or any fraction of a Unit unless there shall have been filed with the Company
and
recorded on the Company's books a duly executed and acknowledged counterpart
of
the instrument of assignment and such instrument evidences the written
acceptance
by the Assignee of all of the terms and provisions of this Agreement and such
Assignee expressly represents that such assignment was made in accordance with
all applicable laws and regulations.
E) Any holder of a Unit (including a transferee thereof) shall be
deemed conclusively to have agreed to comply with and be bound by all terms
and
conditions of this Agreement, with the same effect as if such holder had
executed
an express acknowledgment thereof, whether or not such holder in fact has
executed such an express acknowledgment.
9.03 Option to Company to Purchase Unit(s) on Lifetime Transfer.
Subject to Section 11.01(F), in the event a Partner (hereinafter referred to
as
the "Selling Partner") receives a bona fide offer from a prospective buyer to
acquire any or all of his or her Unit(s), which offer the Selling Partner
intends
to accept, the Selling Partner shall first transmit to the Company and the
other
Partners, not less thirty (30) days prior to the time the proposed sale of the
Unit(s) is to be consummated, written notice (hereinafter referred to as the
"Notice") by certified mail of his or her intention to make such disposition
of
his or her Unit(s). The Notice shall set out the terms and conditions of the
intended disposition, including the purchase price payable for such Unit(s) by
the prospective buyer. Within fifteen (15) days following the giving of the
Notice, the Partners shall be polled by the General Partner. An affirmative
vote
of the Partners holding a Majority-in-Interest, excluding the Selling
Partner's
Units, for purposes of both voting and determining the number of Unit(s)
outstanding, shall authorize the General Partner and entitle the Company to
purchase such Unit(s) at a per Unit price equal to and upon the same terms and
conditions as are set forth in the Notice.
9.04 Option to Partners to Purchase Unit(s) on Lifetime Transfer.
If any Unit owned by the Selling Partner is not purchased by the Company in
accordance with the provisions of Section 9.03, then the Unit(s) not so
purchased
shall then be offered for sale and shall be subject to an option on the part
of
each of the other Class B and Class A Unit holders to purchase a
"proportionate
share" of any or all of such Unit(s) which option shall be exercised, if at
all,
in writing within fifteen (15) days of the polling of the Partner pursuant to
the
provisions of Section 9.03. Such Partners shall be entitled to purchase such
Unit(s) at a per Unit price equal to and upon the same terms and conditions as
are set forth in the Notice. For purposes of this Section, the term
"proportionate share" shall mean the Unit(s) offered for sale which the
proportion of the Sharing Ratio of each Class B and Class A Unit holder bears
to
the aggregate Sharing Ratios (other than the Unit(s) offered for sale) of all
Class B and Class A Unit holders. In addition, if any Unit offered for sale
is
not purchased by the Partner(s) first entitled thereto, the term
"proportionate
share" shall include the Unit or Units not purchased by the Partner(s) first
entitled thereto which the Sharing Ratio of each Partner bears to the
aggregate
Sharing Ratios (other than the Sharing Ratio of the Unit(s) offered for sale)
of
all Class B and Class A Unit holders other than the Partner(s) otherwise first
<PAGE>
entitled to so purchase the Unit(s) but who has/have declined to purchase the
Unit(s).
9.05 Termination of Restrictions on Lifetime Transfer. If any
Unit
owned by the Selling Partner is not purchased by the Company in accordance
with
the provisions of Section 9.03, or if any or all are not purchased by the
other
Partners in accordance with the provisions of Section 9.04, then the Units
that
are not so purchased may then still only be duly transferred to the Person set
forth in the Notice upon obtaining the prior written consent of all the
Partners
pursuant to the terms and conditions of Section 10.01. If consent of all the
Partners is not obtained, then the Assignee of the Selling Partner's Units
shall
not be entitled to any of the rights granted to a Partner hereunder other than
the right to receive all or part of the share of profits, losses, cash
distribution or returns of capital to which the Selling Partner would
otherwise
be entitled. In no event shall such transfer be on terms or conditions other
than those set forth in the Notice. If any terms or conditions change or
differ
from those set forth in the Notice, said Unit(s) must then be resubmitted for
sale to the Company and the Partners on the basis of the changed terms and
conditions pursuant to Sections 9.03 and 9.04 herein. Notwithstanding any
such
transfer or disposition of a Selling Partner's Unit(s) to a third party, the
restrictions imposed by this Agreement shall continue to apply to the Unit(s)
owned by such transferee or Assignee and to any remaining Unit(s) owned by the
Selling Partner, and the Assignee or transferee shall, prior to the transfer
of
such Unit(s), agree to be bound by this Agreement.
9.06 Option to Company to Purchase Unit(s) on Death. Subject to
Section 11.01(F), in the event of the death of any Partner (except in the case
of the death of a Person holding a Unit or Units as a joint tenant with the
right
of survivorship vested with another Partner), all of the Unit(s) of such
Partner
shall be subject to an option to purchase as provided in this Section. Within
ninety (90) days after the appointment of the legal representative of the
deceased Partner or one hundred twenty (120) days after the death of such
Partner, whichever occurs first, the General Partner shall calculate a
proposed
option price for the deceased Partner's Unit(s) by determining the product of
his
or her Sharing Ratio multiplied by the estimated market value of the Company
on
the last day of the calendar month immediately preceding the date of death,
including goodwill and going concern value, plus the share of cash on hand,
prepaid expenses, accounts receivable (less a reserve for doubtful accounts),
less the deceased Partner's estate's share of debts, obligations and other
liabilities of the Company. The proposed option price shall then be
communicated
to the deceased Partner's legal representative or, if none, to his or her next
of kin. The purchase price to be paid by the Company shall be payable in
cash,
or its equivalent, unless different terms are desired by the deceased
Partner's
estate and are agreed to by the Company. If the parties are unable to agree
as
to the option price within fifteen (15) days following the communication of
the
proposed option price, the Company and the legal representative of the
deceased
Partner's estate shall then select a mutually agreeable appraiser to determine
the option price. If the Company and the deceased Partner's estate cannot
agree
on the appraiser to be selected, then each shall select an appraiser. The two
appraisers shall in turn select a third appraiser who shall determine the
option
price. If they cannot agree on a third appraiser, then the option price shall
be the average of their two respective appraisals. The fees of all appraisers
shall be borne by the deceased Partner's estate. Each appraiser selected
hereunder shall be a reputable appraisal firm which has substantial experience
in appraising commercial real estate, which shall mean that a minimum the
appraiser must be state certified, a member in good standing with the American
Institute of Real Estate Appraisers and a member in good standing with the
<PAGE>
Appraisal Institute. Within fifteen (15) days after the option price has been
determined, the Partners shall be polled by the General Partner at which time
all
of the Units of such deceased Partner shall be offered for sale to the Company
at the option price and under the terms agreed to by the deceased Partner's
estate if other than cash terms. A Majority-In-Interest of the Partners,
excluding the deceased Partner's Units for both purposes of voting and
determination of Units outstanding, shall decide within fifteen (15) days from
the date polled whether the Company shall exercise its option.
9.07 Option to Partners to Purchase Unit(s) on Death. If any
Unit
owned by a deceased Partner is not purchased by the Company in accordance with
the provisions of Section 9.06, then the Units not so purchased shall be
offered
for sale and shall be subject to an option on the part of each of the Class B
and
Class A Unit holders to purchase a proportionate share (as defined in Section
9.04) of any or all of such Units, which option shall be exercised, if at all,
at the time of the polling of the Class B and Class A Unit holders pursuant to
the provisions of Section 9.06. The purchase price to be paid and the terms
of
payment shall be equal to, determined and calculated in accordance with the
provisions set forth in Section 9.06.
9.08 Termination of Restrictions on Transfer at Death. If any
Unit
owned by the deceased Partner is not purchased by the Company in accordance
with
Section 9.06 or is not purchased by the Partners in accordance with the
provisions of Section 9.07, then the Unit(s) not so purchased shall be
transferred pursuant to the testamentary disposition of the deceased Partner
or
by the laws of intestacy, as the case may be. Notwithstanding, the
restrictions
imposed by this Agreement shall also thereafter apply to the Units owned by
any
such transferee or Assignee of the Units and the Assignee or transferee shall,
prior to the transfer of such Unit(s), agree in writing to be bound by this
Agreement.
9.09 Restrictions on Transfers. Notwithstanding the other
provisions of this ARTICLE IX, no transfer of any Unit of any Partner in the
Company shall be made (including any transfer from one Partner to another
Partner) if the transfer (i) would violate applicable federal and state
securities laws or rules and regulations of the Securities and Exchange
Commission, any state securities commission or any other governmental
authority
with jurisdiction over the transfer, (ii) would materially adversely affect
the
classification of the Company as a partnership for federal or state income tax
purposes, or (iii) would affect the Company's qualification as a Limited
Partnership under the Act.
9.10 Issuance of Certificates. Upon the transfer of a Unit in
accordance with ARTICLE IX, the Company shall, if certificates have been
issued,
issue replacement certificates. All certificates shall contain legends
required
by this Agreement or otherwise required by law.
9.11 Compliance With Applicable Law. The restrictions on
transfer
contained in this ARTICLE IX are intended to comply (and shall be interpreted
consistently) with the restrictions on transfer set forth in the Act.
9.12 Lost, Stolen or Destroyed Certificates. The Company may
issue
a new certificate in place of any certificate previously issued if the record
holder of any purportedly lost, stolen or destroyed certificate: (i) makes
proof
by affidavit that a previously issued certificate has been lost, stolen, or
destroyed; (ii) requests the issuance of a new Certificate before the Company
has
notice that the Units evidenced by such certificate have been acquired by a
<PAGE>
purchaser for value in good faith and without notice of an adverse claim; and
(iii) if required by the Company, delivers to the Company a bond with surety
or
sureties acceptable to the Company, to indemnify the Company against any claim
that may be made on account of the alleged loss, destruction or theft of the
certificate. The Company shall be entitled to treat such Record Holder as the
Partner or Assignee in fact of any Units and, accordingly, shall not be
required
to recognize any equitable or other claim or interest in or with respect to
the
Units on the part of any other Person, regardless of whether it has actual or
other notice thereof.
ARTICLE X.
ADMISSION OF SUBSTITUTE AND ADDITIONAL PARTNERS
10.01 Admission of Substitute Partners. Upon a transfer of a
Unit by a Partner in accordance with ARTICLE IX (but not otherwise), the
transferor shall have the power to give, and by transfer of any Certificate
issued shall be deemed to have given, the transferee the right to apply to
become
a Substitute Partner with respect to the Unit(s) acquired, subject to the
conditions of and in the manner permitted under this Agreement. A transferee
of
a Certificate representing a Unit shall be an Assignee with respect to the
transferred Unit (whether or not such transferee is a Partner or Substitute
Partner with respect to other previously acquired Units) unless and until all
of
the following conditions are satisfied:
A) The instrument of assignment sets forth the intentions of the
assignor that the Assignee succeed to the assignor's interest as a Substitute
Partner in such assignor's place;
B) The assignor and Assignee shall have fulfilled all other
requirements of this Agreement;
C) The Assignee shall have paid all reasonable legal fees and filing
costs incurred by the Company in connection with such Assignee's substitution
as
a Partner; and
D) The Partners shall have unanimously approved such substitution in
writing, which approval may be granted or withheld by each Partner in such
Partner's sole and absolute discretion and may be arbitrarily withheld, and
the
books and records of the Company have been modified to reflect the admission.
The admission of an Assignee as a Substitute Partner with respect to a
transferred Unit shall become effective on the date the Partners give their
unanimous written consent to the admission and the books and records of the
Company have been modified to reflect such admission. Any Partner who
transfers
all of such Partner's Units with respect to which such Partner had been
admitted
as a Partner shall cease to be a Partner of the Company upon a transfer of
such
Units in accordance with ARTICLE IX and the execution of a counterpart of this
Agreement by the transferee and shall have no further rights as a Partner in
or
with respect to the Company (whether or not the Assignee of such former
Partner
is admitted to the Company as a Substitute Partner).
10.02 Admission of Additional Partners. The admission of new
Partners to the Company shall be accomplished only by the prior written
approval
of the Partners holding at least a Supermajority-in-Interest. A supplemental
agreement in terms satisfactory to the General Partner, shall be executed by
the
Company and each new Partner setting forth (i) the amount of contribution to
the
capital of the Company to be remitted by the new Partner, and (ii) the number
of
<PAGE>
Unit(s) to be owned by such new Partner. Each such supplemental agreement
shall
be attached to this Agreement as an exhibit.
ARTICLE XI.
DISSOLUTION
11.01 Events Causing Dissolution. The Company shall be
dissolved and its affairs shall be wound up only upon the occurrence of any of
the following events:
A) The expiration of the period fixed for the duration of the Company
by the Certificate of Limited Partnership ;
B) The unanimous written agreement of all the Partners;
C) The bankruptcy of the Company;
D) The sale or other disposition of all or substantially all of the
Company's assets;
E) A court decree shall be issued finding that other circumstances
exist which render a dissolution of the Company equitable or required by law;
F) Upon the death, retirement, resignation, expulsion, bankruptcy or
dissolution of a Limited Partner, or the occurrence of any other event which
terminates the continued partnership of a Partner in the Company (any such
events
being referred to herein as an "Event of Dissolution"), unless there are at
least
two (2) remaining Partners and the Partners then holding at least a
Majority-In-Interest of the Units unanimously agree to continue the Company
and the
unanimous written consent of the General Partner. If the requisite number of
Partners so elect to continue the Company, the Company shall continue until
the
expiration of the term for which it was formed or until the occurrence of
another
Event of Dissolution, in which event any remaining Partners and the General
Partner shall again elect whether to continue the Company pursuant to this
Section 11.01(F); or
G) The withdrawal of the General Partner, unless within 90 days after
the withdrawal, all of the Limited Partners agree in writing to continue the
business of the Company and to the appointment of a successor General Partner.
If all of the Limited Partners so elect to continue the Company, the Company
shall continue until the expiration of the term for which it was formed, until
the occurrence of an Event of Dissolution, in which event any remaining
Partners
and the General Partner may again elect whether to continue the Company
pursuant
to this Section 11.01(F), or the withdrawal of such successor General Partner,
in which event the Limited Partners may again elect whether to continue the
Company pursuant to this Section 11.01(G).
11.02 Procedure on Dissolution. Upon dissolution of the
Company, the General Partner, and if there is no General Partner, then the
Partners, shall proceed with reasonable promptness to wind up the business
affairs of the Company and to liquidate the Company's business and assets by
selling all of the Company's assets. The proceeds from the sale of the assets
of the Company shall be distributed in the following order of priority:
A) FIRST, to the payment to its creditors of all debts and
liabilities
of the Company in the order of priority prescribed by law, except those
liabilities owed to Partners of the Company on account of their contributions;
<PAGE>
B) SECOND, to the establishment of reserves for any contingent
liabilities or obligations of the Company, as deemed necessary by the General
Partner or the Partners, as the case may be;
C) THIRD, to the repayment of any loans (including principal and
accrued but unpaid interest thereon) that have been made by any Partner to the
Company and to any other liabilities due and owing to Partners;
D) FOURTH, to all Partners with positive balances in their Capital
Accounts to the extent required to reduce said Capital Accounts down to zero;
and
E) The balance, if any, shall be distributed among the Partners in
accordance with the allocation provisions then in effect as set forth in
Section
5.06.
11.03 Filing Certificate of Cancellation. Upon the completion
of the distribution of Company Property as provided in Section 11.02, a
Certificate of Cancellation shall be filed as required by the Act, and each
Partner agrees to take whatever action may be advisable or proper to carry out
the provisions of this ARTICLE XI.
11.04 Return of Capital. The return of Capital Contributions
shall be made solely from Company Property.
11.05 Withdrawal of Limited Partner. A Limited Partner may not
withdraw from the Company at any time absent the approval of all Partners.
ARTICLE XII.
AMENDMENT OF AGREEMENT; MEETINGS; RECORD DATE
12.01 Amendments. All amendments to this Agreement shall
require a Supermajority-in-Interest vote.
12.02 Limitations on Amendments. Notwithstanding any other
provision of this Agreement, no amendment to this Agreement may (i) enlarge
the
obligations of any Partner under this Agreement, or (ii) amend this Section
12.02, Section 12.01, or Section 10.01(D), without the unanimous approval of
all
Partners.
12.03 Meetings. Meetings of the Company may be called by the
General Partner or by Partners holding not less than twenty percent (20%) of
the
Units by giving at least ten (10) days prior written notice and not more than
sixty (60) days written notice of the time, place and purpose of the meeting
to
all Partners.
12.04 Adjournment. When a meeting is adjourned to another time
or place, notice need not be given of the adjourned meeting, if the time and
place thereof are announced at the meeting at which the adjournment is taken,
unless such adjournment shall be for more than forty-five (45) days. At the
adjourned meeting, the Company may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than
forty-five (45) days, a notice of the adjourned meeting shall be given in
accordance
with this Section 12.04.
12.05 Waiver of Notice; Consent to Meeting; Approval of Minutes.
The transactions of any meeting of the Company, however called and
<PAGE>
noticed, and whenever held, are as valid as though conducted at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each of the Partners
entitled to vote, but not present in person or by proxy, approves by signing a
written waiver of notice or an approval to the holding of the meeting or an
approval of the minutes thereto. All waivers, consents, and approval shall be
filed with the Company records or made a part of the minutes of the meeting.
Attendance of a Partner at a meeting shall constitute a waiver of notice of
the
meeting, except when such Partner objects, at the beginning of the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened; and except that attendance at a meeting is not a waiver of any right
to object to the consideration of matters required to be included in the
notice
of the meeting, but not so included, if the objection is expressly made at the
meeting.
12.06 Quorum. The holders of more than fifty percent (50%) of
the Units entitled to vote represented in person or by proxy, shall constitute
a quorum at a meeting of Partners. The Partners present at a duly called or
held
meeting at which a quorum is present may continue to participate at such
meeting
until adjournment, notwithstanding the withdrawal of enough Partners to leave
less than a quorum, if any action taken (other than adjournment) is approved
by
the requisite percentage of Units of Partners specified in this Agreement. In
the absence of a quorum, any meeting of Partners may be adjourned from time to
time by a majority vote of the Partners represented either in person or by
proxy
entitled to vote, but no other matters may be proposed, approved or
disapproved,
except as provided in Section 12.04.
12.07 Action Without a Meeting. Any action that may be taken
by any vote of the Partners may be taken without a meeting if a consent to
such
action is signed by Partners holding Units representing not less than the
minimum
number of votes that would be necessary to otherwise authorize or take such
action at a meeting at which all Units entitled to vote thereon were present
and
voted. Prompt notice of the taking of any action without a meeting shall be
given to those Partners who have not consented in writing.
ARTICLE XIII.
POWER OF ATTORNEY
13.01 Power of Attorney.
A) Each Partner by his execution or adoption of this Agreement, to
the
extent permitted by law, hereby irrevocably and indefinitely makes,
constitutes
and appoints the General Partner, individually and jointly, of the Company,
his
or her true and lawful attorney-in-fact, to make, execute, sign, acknowledge,
elect, deliver, file for recording at the appropriate public offices or to
publish:
1) The Certificate of Limited Partnership ;
2) This Agreement;
3) Any statement of intent to dissolve or amendment thereof,
instruments and documents which may be required under law, or by any state or
governmental agency, or as may be appropriate for the conduct of Company
business, its continuation or its dissolution in termination of the Company
pursuant to the terms of this Agreement;
<PAGE>
4) Any amendments to this Agreement and/or Certificate of
Limited
Partnership which have been approved pursuant to the provisions of this
Agreement and applicable law;
5) The election to continue the Company upon the death,
retirement, resignation, expulsion, bankruptcy or dissolution of a Partner;
6) The correction of any erroneous statement in this Agreement
and/or the Certificate of Limited Partnership ; and
7) Any agreements or certificates required to admit additional
Partners into the Company.
Without limitation, this power of attorney shall include amendment of
the
Certificate of Limited Partnership and this Agreement to reflect:
1) A change in the name or address of the Company or its
resident
agent;
2) The correction or clarification of an incorrect or erroneous
statement in this Agreement or the Certificate of Limited Partnership (or any
amendment of either of both of them); and
3) The amendment of this Agreement or the Certificate of
Limited
Partnership where the effect of such amendment does not actually or
potentially
materially adversely affect the right of the Partners.
Provided, however, that the General Partner in its capacity as said
attorney-in-fact shall only take actions and execute documents in accordance
with
the provisions of this Agreement and shall not take any action for a Partner
which would in any way increase the liability of a Partner beyond the liability
set forth in this Agreement or in his or her Subscription Agreement.
B) It is expressly acknowledged and agreed by each Partner that this
power of attorney is coupled with an interest and that it shall survive his or
her death or incapacity (to the extent permitted by law) and the sale,
assignment
or transfer by a Partner of all or any part of his Unit(s).
ARTICLE XIV.
GENERAL PROVISIONS
14.01 Notices. Any notice, demand, request or report required
or permitted to be given or made to a Partner under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when
sent
by first class mail to the Partner at the address set forth on Schedule "1" or
such address as a Partner may hereafter provide to Company in writing. Any
notice, payment, or report to be given or sent to a Partner hereunder shall be
deemed conclusively to have been given or sent, upon mailing of such notice,
payment, or report to the address shown on the records of the Company,
regardless
of any claim of any Person who may have an interest in the Unit by reason of
an
assignment or otherwise.
14.02 Captions. All "ARTICLE" and "Section" captions in this
Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent
of
any provisions hereof. Except as specifically provided otherwise, references
to
"ARTICLES" and "Sections" are to ARTICLES and Sections of this Agreement.
<PAGE>
14.03 Pronouns and Plurals. Whenever the context may require,
any pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
14.04 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assignees.
14.05 Integration. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
14.06 Waiver. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or any other covenant, duty,
agreement or condition.
14.07 Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute an agreement binding on
all
the parties hereto, notwithstanding that all such parties are not signatories
to
the original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing such party's signature hereto, independently
of the signature of any other party.
14.08 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Florida, without
regard
to its principles of conflict of laws.
14.09 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein shall not be affected thereby.
14.10 Limitation of Liability. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed to in writing, a Limited
Partner shall not be personally liable for any debts, liabilities, or
obligations
of the Company, whether to the Company, to any of the other Partners, or the
creditors of the Company, beyond the Capital Account of the Limited Partner,
together with the Limited Partner's share of the assets and undistributed
profits
of the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the _____ day of , 1997.
PARTNERS:
COVENTRY CORPORATION
a Kansas corporation, d/b/a
Coventry Corporation of the
Republic,
Inc.,
as General Partner
By
Steven L. Vick, President
<PAGE>
ELDERLY LIVING/FLORIDA, LIMITED
PARTNERSHIP
a Florida limited partnership
By: C.R. Development, Inc., General
Partner
By
Stephen D. Russell, President<PAGE>
<PAGE>
Schedule "1"
to
Limited Partnership Agreement
OF
HARTFORD DEVELOPMENT, LIMITED PARTNERSHIP
Number of Units Consideration Subscriber
51 Class A Coventry
Corporation
c/o
Sterling House
Corporation
Suite 500
453 South Webb Road
Wichita, Kansas 67207
49 Class B The Remittance of up to $200,000 Elderly
Living/Florida, Limited
as provided by the Joint Venture Partnership
Agreement Suite 200 E
4 Sawgrass Village Drive
Ponte Verde Beach,
Florida
32082
Exhibit 10.20
Schedule of Executed Limited Partnership Agreements
By and Between Coventry Corporation
Coventry Corporation, a wholly-owned subsidiary of Sterling House Corporation,
has entered into the following License Agreements which vary only in the
following material respects from Exhibit 10.19.
Limited Partnership Partner Dated
Claremont Development, Elderly Living, 3/31/97
Limited Partnership Limited Partnership
Hartford Development, Elderly Living, 6/25/97
Limited Partnership Limited Partnership
Gladstone Development, Elderly Living, 6/25/97
Limited Partnership Limited Partnership
Exhibit 10.21
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (the "Agreement") is entered into
this ______ day of ___________, _____, between Devon Development,
Limited (hereafter referred to as "the Owner") and Sterling House
Corporation (hereafter referred to as "the Agent"). This Agreement
relates to activities to be performed, responsibilities to be
accepted and authority to be exercised with regard to the property to
be known as Sterling House of Urbana located in Urbana, Ohio
(hereafter referred to as the "Project").
In consideration of the terms, conditions and covenants hereinafter
set forth, the Owner and the Agent mutually agree as follows:
SECTION 101 DEFINITIONS:
As used in this Agreement the terms below shall have the following
definitions unless the context otherwise requires:
101.1 "Project" shall mean the land, improvements, buildings,
appurtenances and equipment thereon described above.
101.2 "Gross Collections" shall mean all amounts actually
collected by the Agent, as tenant rents, vending and laundry machine income,
income from commercial space, but excluding (i) income derived from interest
on investments, (ii) discounts and dividends on insurance, and (iii) security
deposits.
101.3 "Rental agreement" shall mean the form of the lender
approved agreement between the Owner and a Resident under the terms of which
said Resident is entitled to enjoy possession of a dwelling unit.
101.4 "Rent" shall mean that monthly amount which a Resident is
obligated to pay the Owner pursuant to the terms of a Rental agreement.
101.5 "Resident" shall mean a person occupying a dwelling unit
in the project pursuant to a Rental agreement.
101.6 "Lender" shall mean the financial institution holding the
mortgage for the Project property.
SECTION 201 APPOINTMENT OF AGENT:
The Owner hereby appoints the Agent, and the Agent hereby accepts
appointment, on the terms and conditions hereinafter provided, as
exclusive management agent of the Project.
SECTION 301. REGULATION BY LENDER
The Agent fully understands that the Owner must comply with all
related rules, regulations and requirements. In performance of its
duties hereunder, the Agent agrees to comply with the provisions of
<PAGE>
this Agreement in as far as they relate to the management activities
agreed to in this document.
SECTION 401. CONFER WITH OWNER AND LENDER
The Agent agrees to keep itself informed on the applicable Lender
policies and requirements, and, notwithstanding the authority given
to the Agent in this Agreement, to confer fully and freely with the
Owner in the performance of its duties hereunder.
SECTION 501. MEETING WITH OWNER AND THE AGENT
The Agent agrees to cause an officer or a supervisory employee of the
Agent to attend meetings with the Owner when requested by the Owner.
Owner agrees to provide an agenda for said meetings, if requested by
the Agent.
SECTION 601. PERSONNEL OF THE AGENT:
601.1 Employees of Agent. The Agent shall hire in its own name,
the on-site Program Director and all on-site personnel, who will be
responsible and report directly to the Agent. Said Program Director will
perform duties on-site and compensation will be considered an expense of the
Project.
The Agent shall hire all on-site personnel necessary for
the full and efficient performance of the Agent's duties under this Agreement.
Such employees shall be physically present on the Project site. No less than
one responsible person(s) shall be physically present at the Project at such
times as may reasonably be requested by the Owner, and in any event, for not
less than 24 hours per day,
seven days per week. Compensation for the services of all on-site employees,
including the Program Director, shall be included as operating expenses of the
project.
The Agent shall develop a staffing plan which is sensitive
to resident occupancy and the level of service to be provided. The Agent will
be responsible for developing and implementing orientation and training for
all on-site employees including training in affirmative fair housing policies.
601.2 Employment of Residents and Contractors. The Agent shall
operate as an equal opportunity employer in conformity with all related laws
and regulations. Employment practices will not discriminate based upon sex,
race, color, sexual orientation, age, creed, religion or national origin.
SECTION 701. SERVICES OF AGENT:
701.1 Services Prior to Resident Occupancy. Prior to occupancy
of the Project, the Agent shall:
(i) furnish the Owner revised estimates of maintenance
and operating expenses accompanied by documentation including a staffing plan
and where appropriate, bids,
<PAGE>
contracts or comparable information for any and all items so
requested by the Owner or Lender;
(ii) develop and establish such policies and
procedures as are necessary to carry out the Agent's responsibilities under
this Agreement for the effective and efficient operation of the Project.
Such policies and procedures shall provide the guidelines for on-site staff in
the day-to-day operation of the Project and shall include, but not be limited
to, aspects of marketing (e.g., sales practices, mail list management,
referral contact, affirmative fair housing practices), administration (e.g.,
resident application and move-in, landlord-tenant relations, rental
agreements, bookkeeping, resident charges, etc.), personnel (e.g., job
descriptions, hiring, evaluation, discharge, benefits, etc.), resident
services (e.g., housekeeping, laundry, maintenance, food service, ancillary
services, etc.), discharge plans and property management (e.g., maintenance,
preventive maintenance, general repairs, etc.);
(iii) implement marketing plan.
(iv) retain such marketing, maintenance and managerial
personnel as are necessary for the preliminary marketing and sale of units;
(v) provide training opportunities to marketing staff
including instruction in affirmative fair housing marketing practices;
(vi) establish a bookkeeping and accounting system in
accordance with requirements specified by the owner and sufficient to document
operational income and expenses of the Project covered by this Agreement;
(vii) identify start-up inventory, equipment and
supplies and secure such as approved by the Owner and additionally will
develop a system for ordering and protecting inventory against loss and waste;
and
(viii) provide a system for bookkeeping, including
payroll, accounts payable, accounts receivable, general ledger, and petty
cash, such system being designed to generate timely information regarding cash
flow, as well as information necessary for Owner's
financial reports, an adequate record for audit and such data as might be
required by the Lender.
701.2 Structure and Warranties. The Agent shall obtain from the
Owner a complete set of plans and specifications as approved by the Lender and
insurer and copies of all guarantees and warranties pertinent to construction,
fixtures and equipment. With the aid of this information and inspection by
competent personnel, the Agent shall thoroughly familiarize itself with the
character, location, construction, layout, plan and operation of the Project
and especially of the electrical, heating,
<PAGE>
plumbing, air conditioning and ventilating systems, and all other
mechanical equipment.
701.3 Inspection of Development. The Agent shall participate in
the final inspection(s) of the Project to certify the readiness of the units
for occupancy and shall (i) inform the Owner, the Architect and the Contractor
of all defects in material and workmanship discovered within the construction
warranty period; and (ii) monitor the action taken by the Contractor to
correct the defects; and (iii)
participate in any formal inspection held for the purpose of identifying
construction defects.
701.4 Maintenance and Repairs. The Agent shall cause the
general building interior and grounds of the Project to be maintained and
repaired according to standards acceptable to the Owner, Lender and insurer.
The Agent shall coordinate with the Owner responsibility for maintaining in
good working order, repairing and replacing the structural aspects of the
buildings, appurtenances,
capital equipment, and the electrical, heating, plumbing, air conditioning
and ventilating systems, and all other mechanical equipment. The Agent shall
report mechanical, structural, electrical, plumbing, heating, ventilating or
air conditioning problems to the Owner in a timely manner.
701.5 Preventive Maintenance. The Agent shall coordinate with
the Owner to assure the timely accomplishment of preventive maintenance. The
Agent shall cause the buildings, appurtenances, and equipment of the Project
to be maintained and repaired according to written procedures and schedules.
The Agent shall develop a preventive maintenance schedule including, but not
limited to
periodic inspections of the units; residency commencement and termination
check lists; inventory control; common area maintenance; equipment monitoring;
and monitoring of exterior maintenance and landscaping on a seasonal basis.
The Agent will develop a schedule for routine painting and replacement as well
as a budget item to fund redecorating as necessary.
701.6 Property Insurance. The Agent will cause to be placed in
force, all forms of insurance needed to adequately protect the Owner and the
Project, including, comprehensive general liability insurance, fire and
extended coverage insurance, burglary and theft insurance and business income
insurance. The Agent shall promptly investigate and make a full written
report to the Owner within five
(5) days of receiving knowledge of any accident or claim for damage relating
to the ownership, operation and maintenance of the Project, including any
damage or destruction of the Project and the estimated cost of repair, and
shall cooperate and make any and all reports
required by any insurance company in connection therewith.
701.7 Employees. On the basis of wage rates previously approved
by the Owner, the Agent shall investigate, hire, pay,
<PAGE>
supervise and discharge all administrative and general maintenance
personnel.
701.8 Notice of Authority. In addition to its authority to
manage the premises as specified herein, the Agent is authorized by the Owner
to accept service of process and to receive and give receipt for notices and
demands.
701.9 Service Requests of Residents. The Agent shall maintain
businesslike relations with Residents whose service requests shall be
received, considered, and recorded on a systematic, written basis to show the
action taken with respect to each such request. Complaints of a serious
nature and all written complaints shall, after thorough
investigation, be reported to the Owner with appropriate
recommendations.
The Agent shall make provisions for delivery of services
calls from Residents on a 24-hour basis.
701.10 Inspection of Units. As part of the continuing program to
secure full performance by the Residents of all obligations and maintenance
for which they are responsible, the Agent shall make an annual inspection of
all dwelling units and record its findings in writing; such findings will be
given to the Owner at the Owner's
request.
701.11 Review of Operations. The Agent shall permit the Lender
and insurer to conduct on-site evaluations of the performance of any or all
management services which the Agent has agreed to provide as required by this
Agreement. An authorized representative of the Agent shall be available
during on-site evaluations. The Lender shall render to the Owner and the
Agent written reports based on such evaluations. The Agent shall correct any
deficiencies noted in these evaluations within 30 days of the receipt of the
report from the Lender. In the event that such correction cannot be made
within 30 days, the Agent shall provide the Lender with a written plan of such
correction, including a timetable of proposed actions.
701.12 Collections and Delinquencies. The Agent shall collect
and deposit in the account established pursuant to Section 1001 hereof all
rents and other charges due from Residents and all rents or other payments due
the Owner from lessees of other non-dwelling areas of the Project. The Agent
agrees, and the Owner hereby authorizes the Agent, to request, demand,
collect, receive, and give receipts for any and all charges or rents which may
at any time be or
become payable to the Owner. Rents and other charges shall not be accepted in
cash by the Agent. The Agent agrees to take such action, including legal
action, with respect to delinquencies in payments due the Owner with an
itemized list of all Residents with delinquent accounts as of the tenth (10th)
day of each month on or before the
fifteenth (15th) day of the same month.
<PAGE>
701.13 Payments and Expenses. From the funds collected and
deposited in the account established pursuant to Section 1001 hereof, the
Agent shall coordinate with the Owner and cause to be disbursed regularly and
punctually the following:
(i) all of the real estate tax and insurance premium
escrow payments required of the Owner, which payments shall be deemed to be
part of the operating expenses of the Project;
(ii) all of the principal and interest required to be
paid to the Lender;
(iii) all remaining operating expenses of the Project
including administrative, operational, maintenance and utility expenses and
vendor payables;
(iv) all amounts required to be deposited with the Lender
or its designated depository in any reserve or similar account; and
(v) the fees arising from the Management Agreement
including the fees of the Agent as provided in Section 1201.
With the exception of payments provided in this section
and payments for utilities services, the Agent shall make no disbursements in
excess of $5,000 unless specifically authorized by the Owner. Provided that
emergency repairs, involving manifest danger to life and property, or
immediately necessary for the preservation and safety of the Project, or for
the safety of the Residents, or
required to avoid the suspension of any necessary services to the Project, may
be made by the Agent without regard to the cost limitation imposed by this
Section with the understanding that the Agent will, if at all possible, confer
immediately with the Owner regarding every such expenditure, and will submit
the request for the required approval promptly following the emergency. The
Agent shall not incur liabilities to the Owner (direct or contingent) which,
in the aggregate, will exceed at any time $5,000 or which require payment
more than one year from the creation thereof, unless specifically authorized
by the Owner.
701.14 Governmental Orders. The Agent shall take such action as
may be necessary to comply promptly with any and all orders or requirements
affecting the Project placed thereon by any federal, state, county or
municipal authority having jurisdiction thereover, and orders of the Board of
Fire underwriters or other similar bodies. The Agent shall not take any
action under this Section unless the Owner so directs and shall not take
action so long as the Owner is contesting or had affirmed its intention to
contest any such order or requirement and promptly institutes proceedings
contesting any such order or requirement. The Agent shall promptly, and in no
event
later than 48 hours from the time of their receipt, notify
the Owner in writing of all such orders and notices of requirements.
<PAGE>
701.15 Utility Service and Purchases. Subject to the approval of
the Owner and in accordance with the rules of the Lender and insurer, The
Agent shall make contracts for garbage and trash removal, fuel oil,
extermination, snow removal, elevator maintenance and other necessary
contracted maintenance services. The Agent shall secure such equipment,
tools, appliances, materials and supplies as are necessary to maintain and
repair the Project properly. Payment for costs associated with these said
activities and purchases will be included in the Project operating budget.
The Agent shall act at all times in the best interest of the Owner and shall
be under duty to secure for and credit to the Owner any discounts, commissions
or
rebates obtainable as a result of the purchase.
701.16 Records and Reports.
(i) The Agent shall establish and maintain a
comprehensive system of records, books and accounts in a manner satisfactory
to the Owner. All records, books and accounts will be subject to examination
at reasonable hours by any authorized representative of the Owner, Lender or
insurer.
(ii) With respect to each fiscal year ending during the
term of this Agreement, the Agent shall cooperate with the Owner to have an
annual financial report prepared by an Accountant acceptable to the Lender,
based upon the preparer's examination of the books and records of the Owner
and the Agent. The report will be prepared in
accordance with the Lender's requirements. Compensation for the preparer's
services will be considered an operating expense of the Project.
(iii) The Agent will prepare a semi-annual income
statement which compares actual and budgeted income and expenses for the six
(6) month period and for the "year to date", and will submit each statement to
the Owner and the Lender within fifteen (15) days after the end of each six
(6) month period ending June and December.
(vi) The Agent will furnish such information (including
occupancy reports) as may be requested by the Owner or the Lender from time to
time with respect to the financial, physical or operational condition of the
Project.
(v) By the fifteenth (15th) day of each month, the Agent
will furnish the Owner with an itemized list of all rent
delinquencies as of the tenth (10th) day of the same month.
(vi) By the fifteenth (15th) day of each month, the Agent
will furnish the Owner with a statement of receipts and disbursements during
the previous month, and with a schedule of accounts receivable and payable,
and reconciled bank statements for the Account as of the end of the previous
month.
(vii) The Agent shall cooperate with the Owner to,
execute and file all forms, reports and returns required
<PAGE>
by law in connection with the employment of personnel, including
unemployment insurance, worker's compensation insurance, disability
benefits, social security and other similar insurance, benefits and
taxes now in effect or hereafter imposed.
701.17 Operating Budget. At least sixty (60) days before the
beginning of each new fiscal year for the Project, the Agent shall prepare and
submit to the Owner and the Lender an operating budget, in such form as may be
prescribed by the Lender and/or is satisfactory to the Owner, setting forth an
itemized statement of the anticipated receipts and disbursements for the
Project.
701.18 Marketing Duties. The Agent shall immediately assume
responsibility for all functions and services as described in the marketing
plan. Such responsibilities shall include but not be limited to:
(i) development of and due diligence of rent-up
occupancy goals;
(ii) development of a month-by-month marketing plan;
(iii) development of a budget for all labor and
materials;
(iv) development of marketing policies and procedures;
(v) concept development and production coordination for
collateral materials as well as print and broadcast advertisement;
(vi) hiring, training and supervision of employed staff
and contract labor;
(vii) informing the Owner of problems requiring
adjustment to the marketing plan or goals;
(viii) maintenance of marketing effort to stabilize
occupancy once the Project is full.
Marketing activities shall be coordinated with on-going
operations once the Project is operational. Activities shall reflect a broad
based effort including community networking, media use, and print pieces.
701.19 Compliance of Residents.
(i) The Agent shall at all times during the term of this
Agreement operate and maintain the Project according to the highest standards
achievable. The Agent shall secure full compliance by the Residents with the
terms and conditions of their respective rental agreements, rules and
regulations.
(ii) Voluntary compliance shall be emphasized, and the
Agent shall counsel residents and make referrals to social service agencies in
cases of financial hardship or under other circumstances deemed appropriate by
the Agent, so that involuntary terminations of tenancy may be avoided to
<PAGE>
the maximum extent consistent with sound management of the Project.
The Agent will not, however, tolerate willful evasion of payment of
rent.
(iii) The Agent may lawfully terminate any tenancy when,
in the Agent's judgement, sufficient cause occurs under the terms of the
Resident's rental agreement. Statements explaining evictions shall be filed
promptly with the Owner and the Lender.
(iv) The Agent is authorized to consult with legal
counsel designated by the Owner to bring actions for eviction and to execute
notices to vacate and to commence appropriate judicial proceedings; provided,
however, that the Agent shall keep the Owner informed of such actions and
shall follow such instructions as the Owner has prescribed. Subject to the
Owner's approval, costs
incurred in connection with such actions shall be considered as operating
expenses.
701.20 Qualification of Residents. The Agent shall require
prospective private pay residents to complete a confidential financial
statement. As a condition of tenancy, the Agent shall make use of this and
other available information to determine that the prospective resident has
sufficient income and assets to pay the
monthly fees associated with tenancy.
701.21 Services to Residents. The Agent shall be responsible for
the effective and efficient provision of resident services, including the
maintenance of safe and clean common areas and grounds; weekly housekeeping
and laundry service; periodic window washing, carpet and drapery cleaning;
provision of three meals per day, seven days per
week; maintenance of twenty-four hour per day emergency call system;
recreational facilities and activities; centrally located mail distribution;
and other contracted services as specified in the Resident's negotiated
service plan.
The Agent shall ensure that systems to deliver all
resident services are in place, staff hired and trained prior to Project
opening.
Recognizing the contribution that quality makes to the
successful long term marketing of the Project, the Agent shall provide
services of consistently high quality, acceptable to the Residents and the
Owner.
SECTION 801. OTHER ACTS:
The Agent shall perform such other acts and deeds requested by the
Owner as are reasonable, necessary and proper in the discharge of the
Agent's duties under this Agreement.
SECTION 901. LIABILITY OF AGENT:
<PAGE>
Everything done by the Agent under the provision of this Agreement
shall be done as Agent of the Owner, and all obligations or expenses
incurred thereunder shall be for the account of and on behalf of the
Owner. Any payments to be made by the Agent hereunder shall be made
out of such sums as are available to the Operating Receipts and
Expenses Account established pursuant to Section 1001.1. The Agent
shall not be obliged to make any advance to, or for the account of,
the Owner or to pay any sum, except out of the funds held or provided
as aforesaid, nor shall the Agent be obliged to incur any liability
or obligation for the account of the Owner without assurance that the
necessary funds for the discharge thereof will be provided.
SECTION 1001 BANK ACCOUNTS:
The Agent shall establish and maintain, in a bank whose deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC"), and
which is approved by the Owner, a separate account as Agent of the
Owner for the deposit of the monies of the Owner, with authority to
draw thereon for any payments to be made by the Agent to discharge
any liabilities or obligations of the owner incurred in accordance
with this Agreement. This account shall be carried in the name of
and designated of record as "Sterling House of Urbana Receipts and
Expense Account". The Agent shall also establish such other special
bank accounts as may be required by the Owner or the Lender. Any and
all interest which may accrue on deposits contained in any accounts
established in accordance with this paragraph shall be used by the
Agent to discharge any liabilities or obligations of the Owner in the
same manner as the Agent uses other monies of the Owner.
SECTION 1101. STAFF FACILITIES AT PROJECT SITE:
The Owner shall furnish the Program Director and support staff with
suitable office space and office furniture on the site of the Project
and with electricity, heat, water and janitorial service therein.
For all operational staff the Owner shall provide office
accommodations as necessary to perform their assigned functions, as
well as safe storage for appropriate personal belongings and staff
dining space furnished with tables and chairs which allow staff to
eat or take breaks in reasonable comfort.
SECTION 1201. COMPENSATION OF AGENT:
The compensation which the Agent shall be entitled to receive for all
Project management services performed under this Agreement shall be
$1,500 per month or 7% of the gross collections of the Project which
ever is greater. This fee shall be computed and paid monthly based
upon Gross Collections for the preceding month. Expenses not agreed
to be charged to the Project and will be borne by the Agent out of
its own funds and will not be treated as an operating expense of the
Project.
Bookkeeping and payroll services will be provided by the Agent at
$500 per month. It is understood that the bookkeeping and payroll
preparation fee may increase each year during the life of this
Agreement, but in no year will that increase be more than 10% of the
previous year's fee.
SECTION 1301. NONDISCRIMINATION:
<PAGE>
In the performance of its obligations under this Agreement, the Agent
will comply with the provisions of any federal, state, or local law
prohibiting discrimination in housing on the grounds of race, color,
sex, religion, national origin or handicap.
This Agreement may be terminated or suspended, in whole or in part,
by the Owner upon the basis of a finding by the Owner or Lender that
the Agent has not complied with nondiscrimination provisions.
SECTION 1401. EXPIRATION AND TERMINATION:
1401.1 Expiration. Unless sooner terminated pursuant to Section
1401.2, 1401.3, 1401.4 or 1401.5 of this Agreement, the Agreement shall be in
effect from the date of execution hereof until _______________. Execution
shall not be deemed complete unless and until this Agreement has been approved
in writing by the Lender. This Agreement shall be renewable with the mutual
consent of the Owner and the Agent.
1401.2 Termination by Mutual Consent: This Agreement may be
terminated by the mutual written consent of the Owner and the Agent only with
the prior written consent of the Lender. Owner and Agent shall submit their
written request to terminate this Agreement to the Lender at least sixty (60)
days prior to the date specified for
termination.
1401.3 Termination by Owner for Cause: In the event that the
Agent shall fail to perform any of its duties hereunder or comply with any of
the provisions hereof, the Owner shall notify the Agent, the Lender and the
insurer of the Owners intent to terminate this Agreement by delivering to the
Agent written notice to remedy such default. If such default is not remedied
within thirty (30) days, from the date of notice to the Agent, the Owner may,
with prior
written consent from the Lender and the insurer, terminate this Agreement
immediately.
1401.4 Termination Because of Bankruptcy: In the event that the
Owner or the Agent shall become insolvent, however defined; shall be
dissolved; shall commit an act of bankruptcy under the United States
Bankruptcy Act (as now or hereafter amended); shall file or have filed against
it, voluntarily or involuntarily, a petition in bankruptcy or for
reorganization or for the adoption of an
arrangement under the United States Bankruptcy Act (as now or hereafter
amended); shall make an assignment for the benefit of creditors; shall
procure, permit or suffer, voluntarily or involuntarily, the appointment of a
receiver or trustee to take charge of any of the mortgaged property or any
other property owned by the Owner or the Agent, voluntarily or involuntarily,
any act, process or proceeding under any insolvency law or the statute or law
providing for the modification or adjustment of the rights of creditors,
either party hereto may immediately terminate this Agreement without notice to
the other party provided that the Lender and the insurer have given written
consent to such termination and further provided
<PAGE>
for that prompt notice of such action be given to the other party.
1401.5 Termination by the Lender or the Insurer: It is expressly
understood and agreed by and between the Owner and the Agent that the Lender
or the insurer shall have the right to terminate this Agreement, with cause,
on ten (10) days' written notice to the Owner and the Agent; except that in
the event of a default by the Owner under its loan agreement with the Lender,
the Lender shall have the right to terminate this Agreement immediately
without notice, but prompt advice of such action shall be given to the Owner
and the Agent. It is further understood and agreed that no liability shall
attach to Lender in the event of termination of this Agreement because of a
default under the loan agreement.
1401.6 Accounting Upon Termination. Within ten (10) days after
the termination of this Agreement, the Owner and Agent shall account to each
other with respect to all matters outstanding as of the date of termination.
The Owner shall furnish the Agent security against any outstanding obligations
or liabilities which the Agent may have
incurred hereunder, and the Agent shall turn over to the Owner all records,
documents or other instruments, waiting lists and any and all other files and
papers in its possession pertaining to the Agent's performance under this
Agreement.
SECTION 1501. ASSIGNMENTS:
This Agreement shall inure to the benefit of and constitute a binding
obligation upon the Owner and the Agent, and their respective
successors and assigns, provided that the Agent cannot assign this
Agreement or any of its duties hereunder without the prior written
consent of the Owner and the Lender.
SECTION 1601. AMENDMENT:
This Agreement constitutes the entire agreement between the Owner and
the Agent, and no amendment or modification thereto shall be valid
and enforceable except by supplemental agreement executed in writing
and approved by the Owner, the Agent, the Lender and insurer.
SECTION 1701. EXECUTION OF COUNTERPARTS:
For the convenience of the parties, this Agreement has been executed
in counterpart copies, which are in all respects similar and each of
which shall be deemed to be complete in itself so that any one may be
introduced in evidence or used for any other purpose without the
production of the other counterparts.
SECTION 1801. MISCELLANEOUS:
Wherever used in this Agreement, the singular number shall include
the plural, and the plural shall include the singular; and the use of
any gender shall apply to all genders. The captions and the headings
of the sections of this Agreement are for convenience only and are
not to be used to interpret or define the provisions hereof.
<PAGE>
SECTION 1901. WAIVER:
No waiver of a breach of any of the agreements or provisions
contained in this Agreement shall be construed to be a waiver of any
subsequent breach of the same or of any other provisions of this
Agreement.
SECTION 2001. SEVERABILITY:
If any clauses, sentence, section, paragraph, provision or part of
this Agreement is judged to be invalid or unenforceable, such
adjudication shall not affect or invalidate the remainder of this
Agreement, it being understood and agreed that such invalid or
unenforceable clause, sentence, paragraph, provision or part is and
shall be severable from the remainder of this Agreement.
2101. NOTICE:
Whenever any notice is required to be given herein, Notice shall be
deemed to have been given when sent by certified mail to the parties
to this Agreement at the following addresses:
OWNER: Devon Development, Limited AGENT: Sterling House
Corporation
609 East Water Street 453 S. Webb Road #500
Urbana, Ohio 43078 Wichita, KS. 67207
SECTION 2102. EXECUTION OF AGREEMENT:
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
OWNER: AGENT:
DEVON DEVELOPMENT, LIMITED STERLING HOUSE CORPORATION
By Coventry Corporation, Manager
By__________________________
By__________________________
Steven L. Vick, President
Steven L. Vick, President
Exhibit 10.22
Schedule of Executed Management Agreements
By and Between Sterling House Corporation
Sterling House Corporation has entered into the following Management
Agreements which vary only in the following material respects from Exhibit
10.21.
Owner Dated Project
Austin Development, Limited 3/31/97 Findlay, OH
Bridgeport Limited Partnership 3/31/97 Newark, OH
Troy, OH
Cornwall Development, Limited 6/25/97 Fairfield, OH
Greenville, OH
Sherwood Development, L.L.C. 6/5/97 New Braunfels, TX
San Antonio-Whitby, TX
Winchester Development, L.L.C. 6/18/97 Piqua, OH
Springdale, OH
Glenwood Development, L.L.C. 6/18/97 Brighton, CO
Devon Development, Limited 6/25/97 Urbana, OH
Washington Twnsp, OH
Portsmouth Development, L.L.C. 6/6/97 Waco, TX
San Antonio-
Maltsberger Rd., TX
Tulsa-71st St., OK
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains information extracted from the consolidated balance sheet
and consolidated statement of operations filed as part of the quarterly report
on Form 10-Q and is qualified in its entirety by reference to such quarterly
report on Form 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,541,587
<SECURITIES> 0
<RECEIVABLES> 1,232,579
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,000,635
<PP&E> 47,483,221
<DEPRECIATION> (1,136,224)
<TOTAL-ASSETS> 82,824,635
<CURRENT-LIABILITIES> 16,080,244
<BONDS> 41,399,492
0
0
<COMMON> 28,250,827
<OTHER-SE> (3,966,975)
<TOTAL-LIABILITY-AND-EQUITY> 82,824,635
<SALES> 0
<TOTAL-REVENUES> 17,798,275
<CGS> 0
<TOTAL-COSTS> 19,040,182
<OTHER-EXPENSES> (883,364)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (358,543)
<INCOME-TAX> 96,807
<INCOME-CONTINUING> (261,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261,736)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
